Saturday, November 26, 2011
We recently predicted the first major European bank failure was days away...
Earlier this week, 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 on the news (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 this week.
UniCredit also raised money from Libya in 2008 after suffering losses from mortgages (shares were around 5 euro... They're trading for less than 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 earlier this week... "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. Credit Suisse issued a report on the state of the EU...
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.
S&A Short Report editor Jeff Clark made his boldest call to buy gold stocks yet... And that's impressive, considering his track record. As Jeff wrote...
This track record is incredible, but Jeff thinks he's about to do much better...
Jeff lists three strong reasons to buy gold stocks here. And his favorite stock is one of the cheapest in the entire sector... Buying this stock at its current price is like buying gold for $0.16 on the dollar. It's fallen 30% in just the past two months. It's trading at its 52-week lows (horribly oversold in Jeff's opinion). And it's about to have a big bounce.
Jeff believes readers can make 455% on this trade. It's a bold call, but considering his past performance, it's a reality. To learn more about the S&A Short Report and his gold-trading techniques, click here...
Date Range:11/17/2011 to 11/24/2011
Date Range:11/17/2011 to 11/24/2011