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Donald Coxe: "The Euro is Bound to Fail" & What you Should Do About it

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Posted by Donald Coxe: BMO Financial

on Tuesday, 26 June 2012 07:34

3689757-abstract-vector-illustration-of-a-gold-euro-symbol-crashed-into-the-floor

Hey I am glad you are with us, I am excited about this, every once in a while I get lucky and get Don Coxe to agree to come on this show. He is a Canadian investment advisor for BMO Financial out of Chicago but he has a tremendous track record and he is really widely read by institutions around the English Speaking World. Don is the guy who was absolutely accurate in predicting, and it sounds so funny so early in advance after a 20 year bear market in commodities, he said you know what, we are just about to have this magnificent Bull Market in Commodities in 2000-2001. Another thing he also said that anything that China wants to buy he is going to buy first, and that of course is part of that commodity boom. 

Don what I want to know from you is the bull market in commodities ended or are we just seeing a correction in the commodity boom?
Don Coxe: Well we have gone through the easy part of it, which is adjusting to the knew world order in which China, and then others,  Indonesia, then India and then others like Brazil that came into the scene, who weren't included in the scene I would call the white mans club plus Japan. It seems so long ago that those were the only countries that you needed to talk about economic progress. And where companies, the major corporations were focusing most of there foreign investment and their operations. But the world has been transformed in that time so that the pause that we are having now people are saying this must be the end of the China story which began in 1985 when Deng Xiaoping processes began to work in China and they have not had anything like a recession in all that time. Now you are entitled if you have been going for 27 years with gains of more than 9% a year in that time, you are entitled to have some readjustment and realignment of the economy because you started off as a virtual subsistence economy and are now the 8th wonder of the world in terms of cities, transportation systems, all these things. So we are entitled to have some adjustments here and this comes at a reasonable time because they have a 10 year plan and they are transferring their leadership as of this fall. 
So yes, there was bound to be a slowing there and we collectively in the west have managed to blow away a large portion of the money we have made in the tech bubble, then the real estate bubble, then we discovered our banking system (thank heavens not in Canada) turned out to have vastly bloated balance sheets and had to be bailed out. Despite the things we have done wrong the world has continued to progress. So I can say that the commodity story can hardly be over when the country that has generated the growth is still growing at a rate that is maybe 6 times the rate of the US economy. So it is absurd to say it is over but the consumption patterns are going to change and it is still the most amazing story on earth. 
Don, the big question is will the European Currency survive, will the European Union Survive?
Done Coxe: Well I don't think the Euro will be around 3 years from now, but I would like the story to end sooner. If you've got an extremely medically sick person around who has a severe illness you want to keep them alive as long as possible but if you find out that it was going to cost $100,000 a day for 3 years to keep someone alive from a disease that they are never going to recover from, you might say gee, can the health care system afford this. And we are all part of the health care system for keeping the Euro afloat. I was certainly glad that Prime Minister Harper didn't want to become to involved in this for which he was denounced by the European Union, but you know he is on the right track if he is being denounced by them for saving their own currency. I don't think the Euro can make it. Now that is not the majority opinion, and I wish frankly the would get it over with. Go through the adjustment process which will be a wrenching one. I do not see how a currency which puts together a group of competitive northern economies with traditions of hard work and honest public service can work putting together in the same currency a group of economies which are best at having relics of past civilizations, having good tourist attractions and having a dolce vita lifestyle. You just can't expect to subsidize it forever. These countries should never have been put into the same currency, and it is bound to fail, and the sad thing is it will take a long time to come to a conclusion because they keep being able to get money from other parts of the world. Now I hope the IMF doesn't give them too much. I am glad Canada isn't, the US can't afford to because its struggling, so its going to fail. But its also one of the reasons Gold is at $1,550 instead of $750 which is where it was when the first signs came about that the Euro wasn't going to make it. 
Don, the question I want to ask you is what should be be doing to protect ourselves in this environment?
Don Coxe: The first thing you do is avoid taking pure financial risk by investing in banks that are hugely tied into Euros. That's one of the reasons I recommend people stick with Canadian Bank Stocks. What we don't know is how exposed US banks are but we can remember that one relatively small bank Lehman Brothers in 2008 nearly brought the whole system down. A lot of people think that they are going to be able to protect themselves by having money in bank accounts abroad, but that is just not a safe trade right now thanks the the Euro Currency Crisis. 
The other thing is that China is still doing relatively well and you want to be investing in things that the Chinese and those countries that are following China's model want to buy. 


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Currency

Dollar Bounces Back, Forget the PIIGS, Europe As a Whole Is Insolvent

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Posted by Mark to Market

on Monday, 25 June 2012 10:49

Europe is heading into a full-scale disaster. Even the Dollar Bounces Back, Pessimism Persists in Europe.

The US dollar is broadly firmer, with the recovery of the yen the only main exception. The key fundamental drivers are the recognition that this week’s EU Summit is unlike to resolve the protracted debt crisis and that the Federal Reserve seems restrained compared with the actions of the ECB and BOE. 

 

You see, the debt problems in Europe are not simply related to Greece. They are SYSTEMIC. The below chart shows the official Debt to GDP ratios for the major players in Europe

eu

As you can see, even the more “solvent” countries like Germany and France are sporting Debt to GDP ratios of 75% and 84% respectively.

These numbers, while bad, don’t account for unfunded liabilities. And Europe is nothing if not steeped in unfunded liabilities.

Let’s consider Germany. According to Axel Weber, former head of Germany’s Central Bank, Germany is in fact sitting on a REAL Debt to GDP ratio of over 200%. This is Germany… with unfunded liabilities equal to over TWO times its current GDP.

To put the insanity of this into perspective, Weber’s claim is akin to Ben Bernanke going  on national TV and saying that the US actually owes more than $30 trillion and that the debt ceiling is in fact a joke.

What’s truly frightening about this is that Weber is most likely being conservativehere. Jagadeesh Gokhale of the Cato Institute published a paper for EuroStat in 2009 claiming Germany’s unfunded liabilities are in fact closer to 418%.

And of course, Germany has yet to recapitalize its banks.

Indeed, by the German Institute for Economic Research’s OWN admission,German banks need 147 billion Euros’ worth of new capital.

To put this number into perspective TOTAL EQUITY at the top three banks in Germany is less than 100 billion Euros.

And this is GERMANY we’re talking about: the supposed rock-solid balance sheet of Europe. How bad do you think the other, less fiscally conservative EU members are?

Think BAD. As in systemic collapse bad.

Indeed, let’s consider TOTAL debt sitting on Financial Institutions’ balance sheets in Europe. The below chart shows this number for financial institutions in several major EU members relative to their country’s 2010 GDP.

Country Financial Institutions’ Gross Debt as a % of GDP
Portugal

65%

Italy

99%

Ireland

664%

Greece

21%

Spain

113%

UK

735%

France

148%

Germany

95%

EU as a whole

148%

Source: IMF

As you can see, financial institutions in Germany, France, Italy, Spain, the UK, and Ireland are all ticking time bombs.

Indeed, taken as a whole, European financial institutions have more debt than Europe’s ENTIRE GDP.  Let’s compare the situation there to that in the US banking system.

Taken as a whole, the US banking system is leveraged at 13 to 1. Leverage levels at the TBTFs are much much higher… but when you add them in with the 8,100+ other banks in the US, total US bank leverage is 13 to 1.

The European banking system as a whole is leveraged at nearly twice this at over 26 to 1. That’s the ENTIRE European Banking system leveraged at near Lehman levels (Lehman was 30 to 1 when it collapsed).

leverage

To put this into perspective, with a leverage level of 26 to 1, you only need a 4% drop in asset prices to wipe out ALL capital. What are the odds that European bank assets fall 4% in value in the near future as the PIIGS continue to collapse?

These leverage levels alone position Europe for a full-scale banking collapse on par with Lehman Brothers. Again, I’m talking about Europe’s ENTIRE banking system collapsing.

This is not a question of “if,” it is a question of “when.” And it will very likely happen before the end of 2012.

The reason that this is guaranteed to happen before the end of 2012 is that a HUGE percentage of European bank debt needs to be rolled over by the end of 2012.

2011-2012-rollovers

I trust at this point you are beginning to see why any expansion of the EFSF or additional European bailouts is ultimately pointless: Europe’s ENTIRE BANKING SYSTEM as a whole is insolvent. Even a 4-10% drop in asset prices would wipe out ALL equity at many European banks.

On that note I believe we have at most a month or two and possibly even as little as a few weeks to prepare for the next round of the EU Crisis.

With that in mind, I’ve begun positioning subscribers of my Private Wealth Advisory for this very possibility. We’ve already locked in over 30 winning trades this year by finding “out of the way” investments few investors know about and timing our positions to benefit from the various developments in Europe.  When you combine this with our 2011 track record, we’ve had 66 straight winners and not one closed loser since July 2011.

Indeed, we just locked in two gains of 8% and 10% in less than two weeks’ time.

So if you’re looking for the means of profiting from what’s coming, I highly suggest you consider a subscription to Private Wealth AdvisoryI’ve been helping investors navigate risk and profit from the markets for years. I can do the same for you. Indeed, my research has been featured in RollingStone Magazine, The New York Post, CNN Money, the Glenn Beck Show, and more. And my clients include analysts and strategists at many of the largest financial firms in the world.

Indeed, interest is growing to the point that we’re not considering closing the doors on this newsletter and starting a waiting list. So if you’ve been putting off subscribing, you need to get a move on to reserve on of the remaining open slots.

To learn more about Private Wealth Advisory and how it can help you make money in any market…

Click Here Now!!!

Best Regards,

Graham Summers
Chief Market Strategist
Phoenix Capital Research





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Currency

Higher gold, silver and interest rates to result from the euro crisis

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Posted by Arabian Money

on Tuesday, 19 June 2012 06:47

When there is a crisis of confidence in a currency then it is the precious metals that gain. Visit any city in Germany or Austria this summer and there is a gold shop in a prominent location.

They have not quite replaced the banks yet. But the message is there for anybody with eyes to see. It is noticeable too that this is not just a phenomenon in the peripheral eurozone but in its teutonic heart.

Spanish interest rates

Then again you certainly are getting good rates on your money in Spain and Italy these days, let alone Greece. Spanish bond yields have passed the danger point of seven per cent.

This is what happens when debtors become scarred about not getting repaid. Interest rates go up. No matter than the ECB has set official rates at a record low.

You can only wonder how much further this trend will go before it ends. The trend is always the investor’s best friend but so often missed for the surrounding noise.

Can anybody really see a solution in sight to the eurozone sovereign debt crisis? Does one exist? The requirement is for a federal Europe that is still a planner’s dream and even then this is no magic solution.

Besides US observers who think Europe has it all wrong and that they have the debt problem cracked are among the most deluded of our time. The US also has a temporary solution based on continuing to borrow money and that is also coming to the end of the road.

For what is happening in Spain will also hit the US in the future. The central banks can only hold interest rates low as an emergency measure, eventually market forces will take over, crush the bond market and raise interest rates.

Historical precedent

You would almost think this is stating something controversial. It is simple stating the blindingly obvious.

History also tells us that when confidence in paper money fails, that is to say bank notes and bonds, it is to precious metals that the population turns. This process happens very gradually and then there is a crunch, a crash and a reset of valuations.

EU-crisis-First-image

...more articles at Arabianmoney



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Currency

A golden idea to save (or doom) the euro

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Posted by Eric Regully via Peter Grandich

on Tuesday, 12 June 2012 00:00

Gold is back in the news, big time, and not just because the price may be on the verge of another upswing or that Peter Munk is turning Barrick, the world’s biggest gold company, into a CEO meat grinder. It’s because Germany, it appears, wants to make gold the effective currency of the euro zone before the region plunges to the bottom of the seas like a concrete U-boat.

MORE RELATED TO THIS STORY

  • IMF says Spanish banks need at least $50-billion in aid
  • Stumbling economies have central banks girding for more intervention
  • Greek economy continues to crumble

 

The weakest euro zone countries are tapped out financially and economically. But a few of them are brimming with gold reserves. Take Italy...

.....read more HERE

goldcoinsbars



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Currency

Signs of the Time - Currency Stocks Bonds Gold & Commodities

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Posted by Bob Hoye - Institutional Advisors

on Friday, 08 June 2012 12:35

"The European Central Bank has reached the limit of its mandate, especially in the use of non-conventional measures... In the end, these [efforts] are risks for the taxpayers.

"It's like morphine, the LTROs provide relief from the pain, but are not a cure for the illness."

--ECB Governing Council member Jens Weidman, May 25.

We have often thought that interventionism is the opiate of the intellectuals.

"Investors pulled $3.05 billion from junk-bond funds globally in the week ended May 23, the most since August."

--Bloomberg, May 25.

"Home prices drop 2% to post-crisis lows."

--Case Shiller, May 29.

“Consumer Confidence Plunges in May"

--Yahoo! News, May 29.

The Conference Board number for May is 64.9, down from 68.7 in April, which is the biggest hit since October.  The consensus was for 70.  February's 71.6 was the highest in a year.

Note that junk-bond withdrawals and consumer confidence have quickly moved to numbers seen at the culmination of the last crisis--away back last fall.

Does this suggest that current distress is culminating?

Not likely, but it is poised for some relief.

Last year's problems began to be revealed last May and culminated in late September.

CURRENCIES

The dollar has progressed to new highs for the move, as the sovereign debt crisis resumes.  The short squeeze on the DX, which is one of the features of a post-bubble contraction, continues. We had thought that the action would briefly pause at the 81 level reached in January. It only spent a few days there and with some drama has popped to almost 83.

And this is the story--drama as the world discovers that last year's "stimulus" is not working. Well, the global economy has been rolling over.

And yet, the establishment continues in its fanaticism that intervention will make a normal post-bubble contraction go away. Unfortunately, the rise in the dollar as well as yields in Euroland insist that it is not going away. Chart on Spanish bond yields follows.

However, last week we noted that the daily RSI had reached 77.7, which was a level that could limit the move. This is now at RSI 80 and that ended the last big rally, which was to 88.7 (for the index) in 2010.

This fits with the Euro now registering a daily Downside Capitulation.

Stability in the Euro would make most everyone think that the pressures are over and Ross's model has been reliable in signaling a rally.

This would fit with our outlook for choppy financial markets through the summer.

As instructive as it is, let's call it a mini-crisis that is close to ending with the dollar at a daily RSI of 80. A major crisis, as in 2008, could culminate with a weekly RSI out at the 80 level. Possibly later in the year.

COMMODITIES

Last week we noted that the CRB was getting as oversold, with an RSI at 22, as at the double bottom last fall. That was at the 281 level and it has dropped to 275 with an RSI at 21. Mainly, this seems to be due to this week's extension of weakness in crude oil and the fresh hit to natural gas. Cotton and sugar have seriously extended their 52-week lows. Cotton has plunged from 115 a year ago to 71 now. Sugar has dropped from 27 to 19.5.

This really confirms that a cyclical bear started from our "Forecaster" signal in 1Q2011.

However, base metal prices (GYX) at 363 have yet to take out last fall's low of 356. At an RSI of just under 30 it is getting oversold enough to limit the move.

The grain’s index (GKX) has dropped to 397 and is testing last December's low of 397. Who cares if it takes out the low, but where are the inflation bulls when you really need them?

It seems that most commodities are beat down enough to expect choppy action through the summer.

Stock Markets

Last week, the S&P got down to an RSI of 23 which could be the momentum low for the move. With this week's pressures the index has slumped to 1311, which we take as testing last week's low of 1292.

This will likely hold and general stock markets could be choppy through the summer. Perhaps another new paradigm is developing - - the "All-One-Chop" model?

Other than that, we are looking for a "Typical" summer. Pundits will describe each rise as a "Typical Summer Rally" and each set back will be a "Typical Summer Doldrum".

GOLD STOCKS RELATIVE TO BULLION

Picture 1

 

  • Gold’s have generally underperformed since the economy and orthodox investments arose out of the crash in mid 2009.
  • Base metal mining stocks outperformed the rise in base metal prices. That ended in 1Q2011.
  • The gold sector is preparing to outperform most every sector—on the planet.

Gold’s relative to S&P

Picture 3

SPANISH BONDS

Picture 4

BOB HOYE, INSTITUTIONAL ADVISORS

E-MAIL bobhoye@institutionaladvisors.com

WEBSITE: www.institutionaladvisors.com



 



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