Thursday, May 31, 2012

Eric Sprott: The Real Banking Crisis is Back

Sprott Asset Management published their monthly newsletter Market at Glance (May 2012) entitled "The Real Banking Crisis, Part II" and I'll give a summary below.

Back in July 2011,  Eric Sprott and David Baker wrote an article entitled "The Real Banking Crisis" where they discussed the increasing instability of the Eurozone banks suffering from depositor bank runs. Even after numerous bailouts, the Euro Stoxx Banks Index have fallen more than 50% from their July 2011 levels and are now in the midst of yet another breakdown led by the events unfolding in Greece and Spain.

They explain that bank runs have started in several countries

In Greece,  1.2 billion Euros withdrawn have been withdrawn on May 14-15, 2012 and now up to 3 billions euros have left the banking systems since the May 6 elections. Greece is now €21 billion away from a complete banking collapse, unless the European Central Bank (ECB) provide an even bigger bailout.

Bank depositors have been pulling money out of banks in Spain, especially the recently nationalized Bankia bank, which is the fourth largest bank in the country. Depositors reportedly withdrew €1 billion during the week of May 7th alone, prompting shares of Bankia to fall 29% in one day.

Deny, deny some more… panic, inject capital - this is the typical government approach to bank runs, but the bailouts are happening faster now, and the numbers are getting larger.

The recent bank runs in Greece and Spain make foreign investors nervous and according to JPMorgan analysts, approximately €200 billion of Italian government bonds and €80 billion of Spanish bonds have been sold by foreign investors over the past 9 months, representing more than 10% of each market.

Eric Sprott explains further that no matter what happens in the Eurozone, the absolute worst case scenario for the authorities is a bank run, because they can spiral out of control faster than governments can react to stop them. Bank runs also prompt banks to liquidate whatever assets they can, revealing the truth about what their "assets" are actually worth. But banks don't want to show the true value of their assets so for example, many Spanish banks are avoiding property sales so they don't have to "mark to market" valuations.

We're now at the point where a bank run in one Eurozone country could quickly seize up the entire system - not just in Greece or Spain, but throughout the entire Eurozone and beyond, because banks are leveraged. For this reason, we'll likely see another ECB-induced printing program announced (with a new fancy name) before a broader bank run can take root.

However, nothing is really being solved here, everyone knows it, and we're essentially in the same place we were when the crisis erupted back in 2010, except there is now more total debt outstanding.

With increasing level of debt and interest payment, there is no way the bond market keeps pretending everything is ok in Europe, like it currently does with the UK, US and Japan… for now. Greece and Spain Minsky moment (when you realize the debt load can't be repaid) has arrived and is coming to the whole of Europe.

Eric Sprott then says that without a doubt, the most counter-intuitive aspect of the Greece/Eurozone debacle has been its impact on the price of Gold. The selling pressure in Gold once again appears to be expressed primarily through the futures markets (and not physical sales), which are highly levered and rarely involve any physical transactions involving actual bullion. The futures market sell-off also appears to be waning now, since the European banking crisis has provided central banks with a politically-palatable excuse to take action if it deteriorates any further. He further notes that China posted another record Hong Kong gold import number in March of 62.9 tonnes, for a total of 135.5 metric tonnes between in Q1 2012, representing a 600% increase over the same period last year.

The full version of the newsletters is available at,-part-ii/

Monday, May 28, 2012

Marc Faber: Global Recession in Q4/2012 Q1/2013

Marc Faber is interviewed on CNBC on the 25th of May 2012.

He explains that the best solution would be for a Greek exit, but what's likely to happen is a softening of the German position and the start of Euro-bonds which would be negative for the Euro. However, currently the Euro and the stock markets are oversold and we should anticipate a counter trend rally.

He also mentioned that as everybody focuses on Europe, the real threat to the economy could be the slowdown in India and China.

Some analysts estimate that a Greek exit could lead to a 50% correction in European stocks, but Marc Faber disagrees and views this as a good outcome likely to be positive for stocks.

He then goes into technical analysis and explains that many stocks are breaking and we should except a significant recession, so significant that he's 100% sure there will be a global recession by Q4 2012/Q1 2014 and recommends to hide in US dollars.

Tuesday, May 15, 2012

GMO 7-Year Asset Class Forecasts - April 2012

GMO has just released its monthly 7-year Asset Class Forecasts and the expected annualized returns  have not changed much since last month:
  • US Large caps: -0.2% per year
  • US Small caps: -1.7% per year
  • US High Quality: 3.9% per year
  • International Large caps: 4.6% per year
  • International Small caps: 3.4% per year
  • Emerging Markets: 5.2% per year
US stocks should still be avoided as investments, and bonds anywhere in the world will be a disaster. If the stock markets continue their slump this month, the expected 7-year return should go up in GMO May forecast.

The ways to invested based on these expected returns with ETF are the same as last month.

You can receive GMO's monthly forecasts and the quarterly newsletter by registering at (that's free).

GEAB 65: Global Systemic Crisis / H2 2012 – Convergence of 4 Explosive Factors: Banks-Stock Markets-Pensions-Debts

Here are the highlights of GEAB 65 (May 2012) entitled "Global Systemic Crisis / H2 2012 – Convergence of 4 Explosive Factors: Banks-Stock Markets-Pensions-Debts":

  • Global Systemic Crisis:Convergence of 4 Explosive Factors: Banks-Stock Markets-Pensions-Debts - Basically the SHTF for Western economies in the second semester of 2012 with bank failure, stock market crashes, pension funds and debt crisis.
  • Which languages should your child learn so that they are useful to him in 20 years? Forecast of the main languages used within Europe and in the World by 2030.
  • Strategic and operational recommendations. Gold will prevail in the long run, preservation of capital for retirees, time to exit the stock markets before complete chaos, don't blindly trust the banks and don't be trapped in sovereign bonds.
  • The GlobalEurometre - Results & Analyses. The majority of respondents think that large banks in their country may go bankrupt by the end of 2012 increases to 66% this month against 61% last month.
The full GEAB 65 report (PDF format) is available to LEAP 2020 subscribers for 200 Euros per year for 10 new issues + the 6 issues published before registration.

Thursday, May 10, 2012

Marc Faber: If the Market Makes New Highs, It Will Crash Like It's 1987

Marc Faber is interviewed on Bloomberg on the 10th of May 2012.

When asked if Greece will leave the Eurozone, he answered that it would be much better for Greece and the entire Europe, going even further Spain, Italy or even France should leave the Euro. European countries should all go back to their local currencies and trade internationally with the Euro. If you keeping bailout them out, it just compounds the problem. The public has just been brainwashed into thinking that there would be an economic catastrophe would the Eurozone break up, although it could just be th solution to the European crisis. He then comes hard on European bureaucrat saying they make the government in the U.S. look like an organization consisting of geniuses. The problem in European is too much debt and lack of fiscal discipline.

He has a bearish view on the economy, but investments in Europe might still go up if this print enough money. Speculators should look at high quality stock in Spain, Portugal and Italy, as the market is oversold.

There has been a minor correction in the US, but it could become more serious. A new high has been made in April (S&P at 1422), but technicals look bad and he does not see the S&P 500 making new high unless there is a HUGE QE 3. But if QE 3 occurs, and the markets make new highs, you can expect a massive crash like in 1987.

Jim Rogers: Not a Good Time to Buy Stock, Might Sell Euros

American investor Jim Rogers in Madrid (Spain)...
Jim Rogers is interviewed by Henry Blodget on Business Insider on the 9th of May 2012.

Some people think it's the best time to buy stock in 50 years, but Jim Rogers disagrees. He does not own stock in the US, and heven have some shorts, and does not see how the US stock market could double within a few years as Dr. Jeremy Siegel claims, because the economy is in bad shape and will remain so for some time.

Henry Blodget then asks him if housing has bottomed, and here Jim Rogers agrees that real estate may have bottomed in some markets, and there may be good opportunities especially in the country side, but other places like Massachusetts have probably to go further down.

Switching to currencies... Although he's very pessimistic over the long term, he owns the US dollar, and might sell his Euro holdings because albeit Europeans have implemented austerities measures, they haven't managed to reduce their debt.

As previously stated, he expects Gold to correct further as it has gone up for 11 years in a row, but he will certainly buy if it goes down, and claims the Gold bull run is far from over and will probably end in a bubble, a Gold mania.

Finally, his views on crude oil haven't changed, the surprise is going to be how high it goes as reserves are going down, although a temporary correct could occur in case of serious crisis (e.g. Spain defaults on its debt).

Wednesday, May 2, 2012

Jim Rogers: The Next Recession (2013,2014) Will Be Much Worse

Jim rogers is interviewed on Business Insider by Henry Blodget on May 2, 2012.

He explains that because of the increase in debt, the next economic downturn will be much worse. We had a recession in 2002, then 2008 and the next one cannot be far away and should probably  occur in 2013 or 2014.

There is a lot of good news currently because we are in an election year and the government and the federal reserve are spending a lot of money, and the government statistics are massaged to make the economy look better than it really is. But in reality, the situation is getting worse, because the debt is getting much much worse.

Most people agree that the US is in relative decline against the rest of the world, but Jim Rogers also thinks the US in absolute decline as it is the larger debtor nation in history, and the country is over extended militarily over the world.

He concludes on a positive note by saying he's very bullish on agriculture in the US, and farm land is nowhere near a bubble yet.