If Europe Should Fail…(Read This One!)
by Clive Maund
Action yesterday across markets was bearish and set alarm bells ringing – in particular the action in the PM sector, where the Head-and-Shoulders bottom pattern that we have observed in PM sector stock indices appears to be aborting. If it does abort it will probably mean that the broad market will go into the tank, and that is precisely what we we can expect to happen if Europe should fail.
It has to be said that up until now we – and most of the rest of the world – have blithely assumed that, confronted with catastrophe, European leaders will overcome their differences and solve Europe’s problems by printing up a few trillion euros to paper over the cracks, US style, and keep the show on the road for a year or two longer, but it is now becoming increasingly apparent that the scale of the problems is so gargantuan that there may be no credible or workable solution. The sad fact of the matter is that the bungling, discordant self-serving buffoons who run Europe may well have left it too late. If Europe should fail – and the markets look set to pass judgement on it next week, after a weekend of crucial meetings, then the consequences will be unthinkable, yet think about them we must.
If Europe should fail this is what we can expect to happen – European banks will crash and burn and take down major US banks, which are already walking wounded basket cases anyway. We are likely to see a lengthy unscheduled “bank holiday” – banks will slam their doors and if your money is still inside their vaults then you are out of luck. Major disruptions in supply and distribution of food and fuel in particular will trigger general panic, and riots and mob violence will spread rapidly – what we have seen on TV happening in Greece will suddenly happen on the streets of the US and many other countries. Stockmarkets will crash in a manner that will make 2008 seem like a “walk in the park”. Virtually every asset class and investment will crater – especially commodities, stocks and Real Estate. The euro will be vaporized. The tidal wave of funds liberated by this mass panic are going to have to go somewhere and normally we would expect them to go into the US dollar and Treasuries, but with US banks failing even this cannot be relied upon. The one surefire investment category that will shine – provided that is that the markets or brokerage houses etc involved with these transactions don’t themselves fail – is “misfortune securities”, meaning bear ETFs and Puts.
The gravity of this crisis is such that we are not simply talking about protecting investments and making opportunistic gains out of the mayhem that will ensue, if Europe should fail, we are talking survival issues as well, as due to the interconnected nature of the global economy things could become very ugly, very fast across a broad front. If you want to learn what life is like when banks suddenly slam their doors, then you should read up on the Argentinian crisis of the early noughties. The middle class suddenly found themselves disconnected from their savings, and as many of them lost their jobs at about the same time, they became instantly destitute, and forced to swap their possessions for food. Crime soared and people who had been used to living relatively cushy lives suddenly found themselves living on the edge in a law-of-the jungle nightmare. If Europe should fail this is what may quickly become reality not just in Europe but in the acutely fragile and vulnerable US and many other other countries as well. Other undesirable consequences will be unemployment rising to incredible unprecedented levels, so that students leaving college will have almost ZERO chance of finding work. The travel industry, much of which is non-essential, will be devastated with airlines slashing flights and going bust and hotels suffering extremely low occupancy rates.