Sovereign Debt Crisis: Investor Emergency Strategy Update

Stock-Markets / Financial Markets 2010
May 17, 2010 - 08:14 AM

By: Martin_D_Weiss

Martin Weiss: Just days ago, the cradle of Western democracy — Greece — was in flames! Rioters attacked banks, businesses and government buildings. The entire country plunged into chaos. Spain, Portugal, Italy and even the United Kingdom were reeling. The euro was crushed.

Then, as we have warned you consistently and persistently, the raging storm in Europe struck our shores … ripped through our corporate bond market … created chaos in our stock market … and threatened to derail our already-fragile economic recovery.

In response, Europe announced a trillion-dollar bailout while our own Federal Reserve issued a blank check to give Europe virtually any money it says it wants. And still the euro has plunged, while gold has soared to new highs! Still the crisis is not over!

All this is raising several urgent questions for investors.

First, does this new debt crisis mark the end of the big market rally since March of last year?

Second, how is the European debt crisis likely to impact your investments now and in the weeks ahead?

Third, when will this crisis hit Washington and what will they do next?

Fourth, how can you protect yourself no matter what Washington decides to do?

And fifth, gold! Gold has surged dramatically, even with the dollar rising.

How high might gold go if the dollar falls? Should investors add to their gold holdings now or wait for a correction? What about gold shares and other natural resources?

Sovereign Debt Crisis is Really a Currency Crisis!

Larry Edelson: Hi Martin, I’m calling in from Asia, and every night, while you’ve been sleeping, I’ve been watching this crisis unfold in real time. So let me tell you what I see. The sovereign debt crisis is a currency crisis! And I’m worried it’s going to be a lot bigger than even I expected. The fact is Europe is sinking and the euro is crashing.

Martin: What about the trillion-dollar bailout of Europe?

Larry: It changes nothing. It means massive money printing and even more spending by bankrupt economies. The plunge in the value of their currency — any currency for that matter is the pivotal financial consequence of a sovereign debt crisis — the major consequence that we have been warning you about. I repeat: This is a CURRENCY CRISIS. Currencies are cornerstones — the stock — of a country.

This is an explosive crisis that can wipe out people’s wealth without them even knowing it. But it can also provide them with the broadest opportunities for profit. My primary goal today is to guide you in this crisis, to protect your wealth and to finding nice opportunities to profit from it.

Martin: Yes! But let’s start with the impact on global stocks, especially U.S. stocks. Mike?

Mike Larson: First of all, if you’ve been reading our alerts or you subscribe to our newsletters, you should not be loaded up with stocks. We’ve been warning about the dangers all along. Our cash positions are high. Despite low yields on cash, our primary concern has always been about the return OF your money — over and beyond the return ON your money.

Second, we have not been playing the stock market overall. We have been very cautiously and selectively recommending the unique stock sectors and foreign countries that have the fundamental power to endure before, during and after this crisis.

Martin: But that doesn’t protect you from market crashes.

Mike: No, of course not. For that, we use hedges and inverse ETFs. We also take advantage of rallies to pare down our positions

Martin: Some folks writing in have apparently not followed that conservative approach. They are loaded up. And they want to know what to do.

Larry: I want to jump in here about gold. I want to make it clear; I don’t believe investors should unload gold shares.

Martin: OK. My question to Mike is: If you’re overloaded — except with gold shares as Larry interjected — what specific steps do you recommend to unload excess positions?

Mike: A good rule of thumb is to sell half of your excess holdings now and then revisit the balance when you get a good rally.

But I do have a word of warning: Even when you get the rally, it is very easy to forget the crisis. Things may appear to have quieted down, but it’s really going to be just the next calm before an even bigger storm that is coming.

Larry: For gold it is a very different strategy. Gold is going up right now despite a rising dollar. It will go up even more when the sovereign debt crisis hits the dollar, and the dollar starts plunging like the euro is. I expect it to hit $1,300, then $1,500 and then ultimately to at least $2,300 an ounce.

So core gold holdings should be held no matter what, in my opinion.

Martin: What about in the short term?

Larry: There are going to be wild zigs and zags like we are seeing in all markets. Just never forget the sheer enormity of the sovereign debt crisis, which, again, is ultimately a currency crisis.

Mike: For many years, a handful of observers have been warning with a simple message: We can’t borrow and spend forever and get away with it. We warned. Others warned. But no one in the political or financial capitals around the world paid any attention. They laughed at us. They ridiculed us. Now that day of reckoning is here.

Martin: What’s so utterly deceptive about these events is that they can indeed get away with it for such a long period of time.

Mike: Yes, and Greece is the perfect example. For years, we knew Greece’s government was going wild with its spending, and some analysts warned about it until they were blue in the face.

But even amidst all the warnings, Greek government officials would go on TV and say: “What’s the problem? If we really were doing something wrong, we’d have trouble borrowing money. But look! We have hoards of investors buying our bonds. We can borrow as much as we want for less than 3%. So where’s the crisis?â€