Break-up of Eurozone a
Foregone Conclusion?

eurozone, gold mining stocks, Europe, euro, Federal Reserve, Dow Jones Industrial Average, China, interest rates, bear market rally, inflation, gold bullion, goldThere is no doubt. Concern over the eurozone is stagnating growth in the Europe. It was reported this morning that the unemployment rate in the United Kingdom is at a 17-year high (Source: London-based Office for National Statistics).

Thomas Cook, the world’s oldest travel firm and the eurozone’s second biggest travel company by sales, said today that it would be closing 200 outlets and making layoffs, as consumers cut back on travel. Finland-based Nokia Siemens Networks said last week that it would slash 17,000 jobs by the end of 2013

The euro is at a three-year low against the U.S. dollar this morning. The euro is trading as if the break-up of the eurozone were a foregone conclusion.

Back here at home…


Wall Street’s doing a masterful job of sending the Federal Reserve the message: Do something. Yesterday, the Dow Jones Industrial Average was up more than 100 points right off the bat. But, by the end of the day, the Fed basically failed to announce any new measures that would increase the money supply further and Wall Street sent stocks lower.

I’m looking at a popular financial web site this morning and its title says, “No help from China or Fed.” As far as I’m concerned, the Fed has been helping the markets for the past three years. It’s greatly expanded the money supply. The Fed says it will keep short-term interest rates near zero until mid-2013 and, yesterday, after the Fed’s scheduled policy-setting meeting, the Fed hinted again that it stood ready to do more if the eurozone crisis gets out of hand.

Dear reader; America cannot escape the economic problems in the eurozone. And the Fed can’t come to the rescue of the eurozone. I believe that the economic conditions in the eurozone are far worse than the majority of investors realize.

We are getting close to the end of the bear market rally in stocks that started in March of 2009, a rally fueled by government debt and central bank money printing. All we will be left with is rapid inflation (see Lower Rates and More Money Printing: Just What We Don’t Need).

Michael’s Personal Notes:

Over the past three trading days, gold bullion has lost roughly $100.00 an ounce. This correction is good medicine! The speculators who got into gold late are being taught a lesson. The weak money is leaving gold. This is exactly the type of healthy correction in the 10-year bull market in gold that I’ve been waiting for!

Here are some important words from my esteemed colleague, and resident gold expert and historian, Robert Appel, BA, BBL, LLB:

“After the gold mining stocks had been overvalued in 2008 and 2009, they went the other direction for 2010 and 2011. In fact, on a relative basis to their assets, going into fall 2011, gold mining stocks were selling at 30-year lows. To put that in perspective, if you are, for example a 50-year-old investor, you have only seen these sorts of bargains on gold mining stocks once previously in your entire life.

“Much of the ‘fast cash’ went into the ETFs, because they are quick, they are liquid and they allow investors to avoid the drama queens who often run the mines. In the past, many gold mining companies had treated their shareholders like garbage. The year 2011 was payback for the gold mining stocks. And this in spite of the fact that serious issues have been raised as to whether many of the gold ETFs actually have the gold they claim, and as to whether these same ETFs are used by the Big Boys to ‘manage’ their shorts.

“The hedge funds found a ‘play’ that worked—buy gold and sell the gold mining stocks. Now, we need to take a moment and try to understand how these guys think. If you told a hedge fund manager that a comet was approaching earth and we had only hours to live, they might produce this hedge—buy companies that sell survival gear, sell the credit card firms and the banks. The fact that this hedge might only work for a few hours (until the world ended and the comet struck) is simply not on their radar (pardon the pun). You don’t get to be a hedge fund manager by looking at the big picture; all you care about is the short term. So, short-term, the gold mining stocks were (and still are) whacked. In fact, many gold mining stocks are selling below asset value!

“Finally, the gold mining stock ‘whackers,’ as we like to call them, those privileged brokers who clandestinely represent the western central banks, smelled the blood in the water. especially since the mess in Europe created a liquidity crunch late in the year, just at a point where it seemed, briefly, that the gold mining stocks were just about to take off as promised. With the help of their pals on the regulatory side, margin requirements for gold traders were raised under conditions where, usually, just the opposite happens

“Result? They whacked the gold mining stocks like they were playing whack-a-mole. This in spite of shortages; in spite of the lack of new finds; and in spite of the fact that their own clients, the central banks, were net buyers for the year, after years of dumping gold.

“Bottom line? We do not believe these conditions will prevail for 2012. In fact, we expect a reversal. We say buy or accumulate gold mining stocks at bargain rates. That is the best play for 2012. We maintain our call for gold to ultimately level out at around $2,400 an ounce after spiking much higher first. And we note that the recent announcement from Japan offering gold/silver backing for their bonds is the start of a trend, and in time will not be seen as a unique event.” (Also see: Eleventh Consecutive Year of Higher Gold Prices a Shoe-in.)

Where the Market Stands; Where it’s Headed:

We are in a bear market rally in stocks that began in March of 2009. Bear market rallies in secular bear markets tend to last three to four years.

What He Said:

“Partying Like a Drunken Sailor: The party continues. Stocks are making new highs and people are spending like there is no tomorrow. Why? I really don’t know. Big (cap) stocks, they just continue going up. Wall Street bonuses are at record levels. Popular consumer goods are flying off the shelves. Designer clothes, fast and expensive cars, restaurants with one-hour waits…people are spending in America today at an unbelievable clip. 1932, 1933…who remembers those years? The depression of the 1930s was the biggest bust of modern history. 2005, 2006, 2007…welcome to the biggest boom of the same period. When will it all end? Soon, my dear reader. Soon.” Michael Lombardi in PROFIT CONFIDENTIAL, February 7, 2007. Michael started talking about and predicting the financial catastrophe we began experiencing in 2008 long before anyone else.