When things seem like they can’t get worse, they usually do for this global recession. This past week was a scary sign of things to come for all European debt.
Germany, the anchor of the eurozone as the strongest economy, tried to sell some bonds and failed to find buyers for 39% of the supply! Then the Italian bond auction yielded rates more than double from just October! Plus Portugal and Hungary’s debt has been cut to junk status!
These were among the worst auctions for the European debt markets since the eurozone was formed. It was a complete disaster, a sign of a global recession. People are scared to invest in European debt. Now this fear has spread to Germany, the strongest nation in the eurozone.
To put your money in stocks or European debt you are literally “buying into” and supporting the leaders in charge. This failure to get investors to buy bonds is a sign that no one trusts the leadership of the eurozone and, once lost, trust is very hard to get back. When you’ve trusted someone and they let you down, how quickly did you trust that person again?
This also pushed the currency down and all European debt in the eurozone. If the political leaders are not trustworthy, like those in the eurozone, then you will dump their currency. We’re not talking about a small country, but an entire continent! Lack of investor confidence means that investors are worried that a global recession is looking more likely.
When it comes to their own investments, where are central banks around the world putting their freshly printed cash if not European debt? In gold, of course; certainly not in paper money.
In the last quarter, we’ve just seen one of the biggest buying binges by central bankers over the last 40 years! Not just by eurozone countries. If the global recession continues, people will question the eurozone’s ability to repay their European debt, which makes the global recession even worse. The whole situation continues to spiral out of control.
Gold has sold off with the recent pullback in the markets because investors are trying to raise cash to cover their losses on other investments. However, the price of gold in terms of the euro actually went up! This is a straight trade; no one wants euros and no one will take anything that isn’t paper money…and certainly not European debt!
The U.S. political and economic system is a mess along with the eurozone. Long-term investors are avoiding sticking their money in a country with a political system grinding to a halt, just as they are avoiding European debt. The only investment where you can preserve what you’ve worked hard for is gold.
Can the U.S. economy and the eurozone rebound to stop a global recession? With investors dumping their European debt across the board, this is a sign that investors are bracing for possible defaults by eurozone countries. The problem is that some of these eurozone nations are too big to be rescued.
Can you trust the policymakers in the U.S. to be any better than eurozone leaders? There is no magic solution to save the economy. People are dumping European debt now and interest rates are shooting up. Eventually investors will realize that the U.S. debt and interest rate situation is very similar to what’s happening in the eurozone. This would be disastrous for investors who don’t own gold.
Investors are getting out of European debt now, avoiding the eurozone and preparing to survive the global recession. I wonder what your landlord would say if you told him that you’re going to postpone paying your rent indefinitely.
Until some concrete decisions are made (I’m not going to hold my breath), I would continue putting my money in gold and avoiding European debt. Unless you can hold your breath for several years.
The old saying is that there are only two sure things in life: death and taxes. I say three; add in the fact that politicians lack the conviction to make the right decisions!
They’re looking after their own interests, not yours.