Editor's note: Just a quick reminder that Porter will be chatting with Jim Rogers tonight for the inaugural episode of Stansberry Radio. The interview will be available around 2 p.m. Eastern time tomorrow. We'll provide you with the direct link in tomorrow's Digest. In the meantime, please visit Stansberry Radio (www.stansberryradio.com) and sign up for the podcast. That way, you'll have access to all of our radio shows as soon as they're available.
In last Friday's Digest, we predicted the first major European bank failure was days away...
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Most of Europe's major banks are insolvent. But only in the last week have they lost most of their access to additional funding. Their key source of funding has been U.S. money-market funds. But these funds are bailing out of Europe as quickly as they can. The result is a run on Europe's banks. This crisis is now past the point where the authorities can hope to control the situation. We are now days (not weeks or months) away from the first major bank failures. – Porter Stansberry, November 18, 2011, S&A Digest |
Today, the market also realized the possibility that Europe, as we know it, could collapse. The Dow dropped more than 200 points. The yield on 10-year Treasurys dropped nearly 3% to 1.96%. And gold, an asset you would expect to rise today (all of Europe's problems are signaling a massive capital injection), fell nearly 3% to $1,674 an ounce.
The reason for gold's fall? Europe is in the midst of a financial crisis. It needs money. The continent is struggling to raise funds in credit markets. But it has lots of gold. And it's selling.
We often ridicule sovereign wealth funds, the huge investment funds controlled by governments. They're among the worst investors in the world. We've documented their follies for years. For example, a Chinese sovereign wealth fund paid $3 billion for 9.7% of Blackstone Group in the initial public offering. That stake is worth around $600 million today. In 2008, state-owned Dubai World paid $5.1 billion for nearly 10% of MGM Mirage. The stock was trading at $84 a share. Today, MGM trades below $10.
At least those two investments are still worth something... The Libyan sovereign wealth fund is about to make an investment that is surely worth nothing. According to UniCredit Chairman Dieter Rampl, Libya is interested in the bank's 7.5 billion-euro capital raise... "UniCredit is working to take the necessary steps to allow the Libyan shareholders to take part in the capital hike," Rampl said at a conference today.
UniCredit also raised money from Libya in 2008 after suffering losses from mortgages (shares were around 5 euro... They're 73 cents today.) Between the Libyan Investment Authority and the Libyan Central Bank, the country owns 7.2% of the bank. We don't know what's dumber... That Libya wants to invest more money in UniCredit, or that the bank's chairman is bragging that Libya wants to invest.
Warren Buffett also made bearish comments on Europe today... "The system as presently designed has revealed a major flaw. And that flaw won't be corrected just by words," Buffett said on CNBC. "Europe will either have to come closer together or there will have to be some other rearrangement because this system is not working." He said the survival of the European Union (EU) is "in doubt now."
Buffett understands how disastrous a European collapse would be for his business (and the entire world). He has direct exposure to the European credit markets through his $3 billion stake in reinsurance company Munich Re. He's also sold puts against European equity indexes. It's in his best interest for the world governments to fire up the printing presses.
But Buffett wasn't the most bearish commentator today. Credit Suisse issued a report on the state of the EU...
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We seem to have entered the last days of the euro as we currently know it. That doesn't make a break-up very likely, but it does mean some extraordinary things will almost certainly need to happen – probably by mid-January – to prevent the progressive closure of all the euro zone sovereign bond markets, potentially accompanied by escalating runs on even the strongest banks. |
The increasingly bearish European comments from major banks and investors are simply a call to the European Central Bank to monetize. We'll see that happen soon.
When the governments do decide to bail out Europe, we will see one of the largest government interventions in history (trillions and trillions of dollars). Gold and silver (especially silver) will explode. We've been beating the drum on precious metals for years. And while prices are higher now than when we originally started recommending gold and silver, it's not too late.
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New 52-week highs (as of 11/18/11): Enterprise Products Partners (EPD), Philip Morris International (PM).
Do you already own gold and silver? Have you started buying because of us? Let us know here... feedback@stansberryresearch.com.
"I know exactly how you feel as I have also been warning many friends during the last years about 'what is going on.' Please be aware that your work and writing is very appreciated by many as me. Every time I read your writing, I am learning more on the situation.
"Thank you a lot in name of my family, my kids, for sharing and warning us, so we could arrange to protect us in time as good as possible." – Paid-up subscriber Eddy
"I don't understand you diatribe against SS and Medicare. I worked as a Registered Nurse until I was nearly 50. All this time I paid into SS and Medicare.. at the age of 50 I developed a mysterous ailment that consisted of pain in my muscles and joints. I would wake up with my hands so painful I couldn't close them. After much reading in medical texts I went to my Dr. of 10 years and said, "I think I have fibromyalgia and osteoarthritis. After some checking and poking and looking she agreed.
"I did not feel I could do a good job at work (mostly) in ER and ICU and IV Therapy so I quit working for awhile. The pain was excruciating especially in certain joints like my thumbs. My husband had spent 20 years in the Navy and they promised to take care of him and any dependents he had so we married in 1999 and I ended up on Medicare (a must with SSDI) and Tricare.
"The surgeries started. First it was the thumbs because a bone in my thumb had disintegrated. Several years later (I had applied for SSDI in 1999 and received it the first time I applied) it was my back. A silicone pad between 2 vertebrae put together with 2 screws and a piece of wire for stabilization.
"The latest thing has been my right shoulder which each time it is fixed somehow manages to tear again. And finally my feet. Hammer toes. They got infected and had to have the stabilizing pins removed. Through all of this I also had diabetes, a gastric bypass (lost 177lbs) and had it not been for Medicare and Tricare I would not have been able to have the work done as I would not have been able to pay for it.
"So, maybe it is your definition of a ponzi scheme, but had it not been for my 'ponzi scheme' I would have been up shit creek without a paddle. It isn't necessary to print this letter. It is much too long but I felt I had to 'have my say'. Thanks for listening." – Paid-up subscriber Fiona Kirkpatrick
Porter comment: Thanks for sending this note. I am sorry to hear about your extensive ailments...
Unfortunately, the bottom line is this... the medical needs of the entire country cannot be financed by levying enormous taxes on a small percentage of the population, which is the outcome of the current structure. The choice we must make is to either refuse to pay for medical care for the people who can't afford it or greatly broaden the tax base (and the tax burden) to pay for these entitlements... which according to the latest figures, will cost $200 trillion.
What we're currently doing – borrowing endless sums and printing the money necessary to pay for it – will destroy our society. (It also greatly inflates the cost of medicine, which would be more affordable if the government wasn't involved.)
"Just thought I'd let you know that Markus doesn't speak for all of us, well certainly not for me. I've never started a financial newsletter business, and certainly not whilst still in my 20s, but I do believe I can relate to the hard work and dedication required to do such a thing. See the thing is, I started a window cleaning business. I was in my 30s at the time (and still am). From scratch, and now I have a clientele of over 300. So busy that I am booked out until Christmas (this is the busy season here in Australia).
"But that's not really the point of this e-mail. The point is this – I did this after getting cancer, having a lung removed due to cancer, then five years later having a heart attack due to the radiation therapy from that same cancer (and a double bypass operation). I am the one doing the window cleaning. I am the one running the administration. I am the one refusing welfare because I would rather support myself and my family from my own efforts. No one is protesting to support me. Markus needs to wake up and learn to appreciate all the help he can get, even from 'so-called' bottom feeder financial newsletter writers!
"PS – my health is fine, it gets checked out yearly. But my mind is fine too, because I choose to take responsibility for my own actions and choices. Perhaps there is a connection here, I don't know." – Paid-up subscriber Scott Bradley
"Just read your monthly letter, love your work, l learn a lot from it, but one question; You are negative on Gannett, why is someone as Warren Buffet, we all agree the guy is not stupid, still in Gannett.
"I believes he owns 2.202.000 , last time before that was 3.477.000. Doesn't he see the things you see, or doesn't he want to see, or can't he get out, do you have any idea?" – Paid-up subscriber G. Hofmeijier
Goldsmith comment: Buffett's Gannett position amounts to around $25 million. That's an inconsequential amount of money for Berkshire Hathaway.
Regards,
Sean Goldsmith
New York, New York
November 21, 2011
The market wakes up to Europe... Why gold is falling... Buffett's dire prediction... Libya wants to buy UniCredit, again... Supercommittee failure... How to get free silver coins...