Euphoria hit the financial markets as the news was announced of a one trillion euro bailout package. The large European banks jumped by as much as 20% in a single day increasing their market caps by billions. This burst of excitement followed through to the United States where the DOW leaped forward as the banking sector lead the way to higher ground.
This deal supposedly ring fences the bankrupt sovereign nations inside the eurozone and protects them any further defaults.
Here is a quote from the European Council President, Herman Van Rompuy:
The eurozone has built a "sufficient firewall against contagion, thanks to an agreement to multiply up to fivefold the firepower of the European Financial Stability Facility rescue fund. The leverage could be around EUR1 trillion under certain assumptions," Van Rompuy said.
Herman van Rompuy
Before you get all excited, this is a quote from a man who went to school, then university and then into civil service, he has no private sector experience whatsoever. And he's the president! No need to worry then.
We have said this before: LIQUIDITY IS NOT A CURE FOR INSOLVENCY
The act of adding more debt to those who can't support their current debt load is lunacy.
Question 1: Where is the collateral for all these the euros?
Question 2: Who is picking up the tab?
Answer: The same people who are struggling now, the southern end of this European club is sinking and the economies of the northern end are slowing, so how are they going to come up with the cash?
Bernie Madoff would be proud of this move, it's a Ponzi scheme that will engulf the whole world, inflicted on us by a bunch public sector twits who should never have been trusted with such as important task in the first place.
Mark my words, give this a few weeks and we will see the gloom return when the investment community realizes that the cookie jar is well and truly empty and this party is approaching its eventual catastrophic close.
So what does this all mean to us? In a nutshell, it's money printing, leading to inflation and then onto hyperinflation. The euro is having a day in the sun at the expense of the U.S. dollar which fell dramatically on this news to around 75.7 on the U.S. Dollar Index. It is now an accepted fact that individual countries are following a policy of actively driving their currencies down in order to gain an advantage for their own exporters. Weaker currencies are being welcomed and they will continue to get weaker as we inflate the money supply.
To protect ourselves we need to loosen our grip on paper money and look to hard assets, something that you perceive is a store of value. We made our choice some years back when we decided to acquire both gold and silver, the associated stocks and of late we have looked to the options market, in an attempt to derive some leverage from the rise of both gold and silver.
So far it has worked out well for us, so it is a formula that we intend to stick with until the investment environment changes, which we don’t see happening any time soon.
Gold and silver have both reacted well to this latest move emanating from Pantomime Europe. During the last five or six trading sessions gold has risen from the $1600/0z level to close today at $1744.50/oz and silver has risen from the $30.00/oz level to close today at $35.37/oz.
Our projections for gold to trade at $2000/oz this year have taken a battering, but the year isn’t over yet, so don’t be surprised to see gold prices hit this target and whatever you do, hang on to it regardless of the buffeting that we are going through.
Volatility on steroids is the order of the day and we will have to endure wild swings in both directions as the bulls and bears strengthen their resolve and pursue their targets with even more gusto.
All of our financial futures are at stake here, so it is our responsibility to take time out and make provisions for what we see coming down the line. It's not pretty and we can only do our best in terms of protecting ourselves, so we wish you well with your survival plans.
Keep your chin up and have a good one.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.