"I am concerned. I have been constantly concerned since 2008/2009. We are now running out of runway. The euro will change from its current form."
Prime Minister of Canada
As I write this article, Stephen Harper is concluding an interview on the CBC National News with host Peter Mansbridge. Mansbridge and Harper are both in London for the Queens Diamond Jubilee celebration. After a cursory chit chat about the Jubilee celebration, Mr. Mansbridge brings up the subject of the present euro crisis, and seeks the Canadian Prime Minister's take on the matter. Harper's brow seems to furrow as he begins to speak.
Harper, who is the only G7 leader who is a trained economist, is frank and discusses his very deep concerns about a possible meltdown in Europe, and its consequences for his own country and the rest of the world's economies. He is uncommonly frank for such a savvy politician, and there is urgency in his tone. It is an openness possibly brought on by piercing and unexpected questions from a seasoned interviewer. It reminded me somewhat of a deer caught in the headlights of a car. Nonetheless, it was refreshing to hear this very thoughtful, conservative economist and leader of a G7 country tell it like it is, and it is not pretty.
Harper says frankly that "we are now running out of runway" when pressed on this statement he goes on to say he is concerned about a possible major event in Europe "such as the Lehman event" in 2008. He points out the obvious that the euro is constrained by too many separate interests pulling in opposite directions, unlike a single country's currency that can be strengthened or weakened by a central banking authority. He didn't point fingers but he did point out that Europe has to come together in a tighter fiscal, monetary and political way or the "euro will change from its current form." He goes on to say that Canadian banks are strong and have very little exposure to Europe directly, but have exposure to other banking systems that are exposed to the European crisis. This is, of course, a vague but obvious reference to the USA.
In a deja-vu moment I hearkened back twenty years or so when the iron lady, Margaret Thatcher, then the PM of Great Britain, was pounding on her lectern at every chance, warning her countrymen to stay clear of the euro because, as she said, Germany would never waiver from a very stringent policy of fiscal restraint as debt mounts in the southern euro countries of Spain, Portugal, Greece and Italy. Thatcher predicted this twenty years before it happened. Our current crop of leaders cannot predict what will happen next month, however Mr. Harper comments are a definite warning.
Makes you wonder if old Maggie had a crystal ball and saw Angela Merkel staring back at her waving a finger of austerity at the rest of the world as Europe smoldered in the background. Even though the Brits have major problems of their own, they were smart to listen to their iron lady. Of course neither Thatcher or anyone else could have predicted that at the time it all begins to fall apart, that the good ole USA would be almost 15 trillion dollars in debt of its own making, and that China would hold a large portion of those IOUs.
There is a hell bent race to the bottom for major currencies around the world. It is just a matter of time and "we are running out of runway."
Here is the crisis in Europe in a nutshell summed up at Money Morning:
Euro - Insolvent sovereigns backing illiquid banks buying sovereign debts with borrowed money from a central bank backed by insolvent sovereigns.
I believe that gold and silver are set to spike tremendously over the coming months as this crisis unfolds further, and in particular as silver begins to trade for the first time on the Hong Kong Exchange and China encourages its citizens to buy gold and silver for their personal investments as their government continues to reduce its usd holdings in favor of gold.
I am holding physical gold and silver and have bought a number of gold and silver miners with increasing output. Although I don't own ETFs, in the short to medium term, GLD and SLV should do quite well, although I prefer the PHYS and PSLV, as the Government of Canada in the form of the Bank of Canada, actually holds and backs the physical gold and silver purchased by those two ETFs. (I like to know where the actual resource is as opposed to paper promises).
Large gold miners such as Barrick (ABX), Goldcorp (GG), Randgold (GOLD) and Kinross (KGC) should also do quite well, although I don't own them. I prefer smaller players, with good, producing mines with proven, increasing resources. These include Aurico Gold (AUQ), Brigus Gold (BRD) and San Gold (OTCQX:SGRCF) Over the past thirty days they are all up some as much as 30%. I sense there could be doubles and triples by year end as this crisis deepens.
I also own silver miners such as Pan American Silver Corp (PAAS) and Great Panther Silver (GPL). These are also on the rise as of late. Some of the silver plays may actually perform better than gold as the year unfolds. Unlike many investors at present, I do not like the U.S. dollar, the euro, the yen or any of the fiat currencies. Short term the USD might pop again, but it is a train wreck waiting to happen, and I don't want to be standing in front of it.