Eurozone in a Dead End. Protect Yourself with Hard Assets.

1. Eurozone’s End Game

The cracks are growing in size within the Eurozone financial system and it’s going to get a whole lot worst. Political and military insiders in Brussels (and around Europe) are terrified. Not because of Brexit… but because Eurozone is on the brink of a sudden, irreversible change that will turn 2019 into a living nightmare for savers and investors in both the EU and the UK.

Figure 1: Italian Bad Debt by Sector

Source: BIS Database

With a massive €2.1 trillion national debt, Italian banks are expected to default on its debt repayments in 2019[1] (refer Figure 1 above). Even the Bank of England are monitoring the Italian banking fiasco closely and admitted that the “Italian time bomb” represents a “material risk to UK financial stability”.

This is the second major incident to strike the Eurozone’s financial system. The first being in 201o when Greece with public debt of €299.5 billion was close to triggering a financial meltdown[1], While Greece was small enough for Germany and other richer members of the eurozone to rescue, and Italy’s case is far more complicated.

In comparison with Greece, Italy plays an extremely significant role as a member of the Eurozone. In terms of size, Italy is the third-largest economy and accounts for almost 11 % of total EU’s GDP (10 times more of Greece). Hence, Italy with an economy deep in recession and choked with “toxic assets”, a string of default debt payments can wipe-out the entire banking system.

To make matters worse, across the Eurozone, countless banks have high exposure to Italian debt. For example, French banks own tens of billions of Italian sovereign debt, German Commerzbank holds €9 billion while Belgium lender Dexia account top around €22 billion at the end of 2018[2].

The worst case scenario would be that the ECB and the EU will fail to raise the money to recapitalise banks as they did in Greece in 2010. Industry insiders have already predicted that a number of large Euro banks will go bust in 2019. 

The growing fear among investors and savers in the UK and the EU is the possibility another systemic risk in the banking system but far more damaging than 2008. The ramifications are expected to be so severe that a number of Euro banks will fail and even to the extent that the Euro-the most artificial currency ever is expected collapse[3]

[1] Bloomberg
[1] The Guardian, February 2019
[2] Eurostat Monitor, Dec 2018
[3] The Telegraph. 02/12/18

2. Confiscation of UK and EU’s Saving Deposits

What we’re witnessing in Italy now is a repeat of the Greek debt crisis and banks will steal our money if the European situation gets really extreme and they get desperate. It’s happened before:

  • US citizens were forced to sell their gold to the Federal Government at a knock-down price during the Great Depression of the 30s.
  • The Cypriot government literally stole savings from every citizen who had more than £85,000 saved up in their bank account during the 2013 crisis.

        Figure 2. Massive Capital Outflow

        Source: Eurostat Monitor

Europeans are already pulling their money out of the banking system and the fear is definitely creeping in. People are concerned of another “Cyprus scenario” where the banks were closed and citizens authorised only to take €50 a day from the cash machines[1]. This has resulted in huge capital outflow from the Eurozone (refer Figure 2).

In other words, they know something is wrong and don’t want to take a major risk with their savings. So, in the worst case scenario – a systemic collapse, there is no way for you to get your money back.

In fact, and as illustrated in the Cyprus banking fiasco, the authorities went to the extent of confiscating ordinary taxpayers deposits to pay the banks’ creditors. When that happened, ordinary citizens and financial analysts cried out that such confiscation was daylight robbery.

However, it will come as a shock to all of you to know that such daylight robbery is perfectly legal and this has been so for hundreds of years. Hence, if another crisis come knocking– do you think that the money you have earned, paid tax on and put in a bank for a rainy day or for an unexpected bill is safe? Because if you do, you’re wrong!

A grand “robbery” on an unprecedented scale have been planned and agreed by {powerful actors” years back. These “actors” include EU officials, the Bank of England (BOE) and the ECB are all in a tacit collusion since 2012 to rob you of your money[2]. UK and the EU authorities have now come clean and admitted that all deposits are subject to potential ‘haircuts’ involving major bank failure.

Figure 3. Deposit Confiscation in Europe

Source: CEIC Database

[1] European sovereign bonds change hands less often.” The Financial Times. 25/09/18  
[2] The Telegraph. 02/12/1

To make matters worse, the chilling admission by the British government that even the £85,000 deposit guarantee scheme is potentially been flawed is a major concern among UK and the EU residents[1] (refer Figure 3 above). Aptly put depositor bail-in schemes are now a reality.

3. Bank Heist

How can they do this, you ask? When you deposit money in a checking or savings account, that money no longer belongs to you. Technically and legally, it becomes the property of the bank, and the bank just issues you what amounts to an IOU[2]

Figure 4.  Eurozone Banks Exposed to Public Debt

Source: Eurostat Monitor

[1] Bloomberg, August 2019
[2] Investopedia

As far as the bank is concerned, it’s an unsecured debt. To add insult to injury – since the banks pay you zero percent on your savings account in the first place – the banks have the right to confiscate your funds if they over-exposed to public debt (refer Figure 4 above)

Thus, if you have your savings in a UK or European bank – or you have money in the markets you’re relying on – you need to get-up to speed about what’s happening right now. The reality is that the Cyprus approach of hitting depositors and creditors when banks fail, would likely become a model for dealing with collapses elsewhere in Europe[1].

The approach of “hitting depositors” could become the “new normal” of this diabolical project, serving the interests of the global financial conglomerates[2]. Even ordinary Europeans have had it. More than half of the population wants to get out of the fangs from Brussels by protesting everywhere – in one way or another in Germany, France, the UK, Belgium, the Netherlands, Italy, Hungary, Poland – the list is almost endless.

When provisions are there in both the UK and the EU pertaining to the confiscation of bank deposits, the obvious scapegoat would be the ordinary citizen. They have been suffering from years of austerity and now forced to bail-in failed banks and other financial institutions across the EU. What this means is that the money confiscated from bank accounts would be used to meet the failed bank’s financial obligations[3]. Yeah, that’s right, the money to stabilize the banking sector during the next crisis will come out of your savings and checking accounts!

[1] Bloomberg
[2] Global Risk Monitor.” Oxford Analytical.
[3] Bloomberg

4. Hard Asset- Solid Investment during Economic Uncertainty

Though Eurozone begins to crumble, Investors have begun to adopt a different investment strategy in the EU. The tide has shifted with more European investors making their move into the hard assets market[1].  Investors remain positive on the outlook for hard assets in 2019 as recent price rises of tangible assets such as gold and silver[2].

Focusing on asset valuation alone, is inadequate to understand the virtues of hard assets[3]. These days’ investors acknowledge that hard assets are one of the best-performing asset classes due to its various advantages as discussed in detail below.

  1. Diversification through Tangible Assets

Preparing a portfolio from the expected economic turmoil in the EU can be challenging, but a basic understanding of diversification can help you limit your market exposure and maximize returns in difficult economic times.   A well-diversified portfolio will include tangible assets as “alternative investments[4].” Standard types of tangible investments include real estate, gold bullion, art, antiques, and other collectibles.

Figure 5.  Balanced Portfolio

Source: Investopedia

Hard assets tend to have little correlation with the stock and bond markets. Some are even counter-cyclical; an investment in tangible assets could reduce your exposure to overall market risk in a way that most intangible assets cannot. Thus, a well-diversified portfolio will spread risk across a wide array of assets to minimize the potential for financial loss while creating more opportunities for profit (refer Figure 5 above).

ii. Protection from Inflation

Inflation – it’s a scary word for investors.  It’s really a scary word for retired people.  But it should be something that everyone keeps in mind when looking at their investments.

Figure 6.  Hard Assets Hedge against Inflation

Source: Investopedia

Advocates of many tangible assets, particularly bullion coins and bars, tout inflation protection. History seems to validate the use of tangible goods as an inflation hedge. In the 100 years following the creation of the Federal Reserve, the purchasing power of the dollar declined nearly 97%. However, the inflation-adjusted value of hard assets such as gold

[1] The Express. 08/12/18
[2] 13/10/18
[3] The Express. 08/10/18
[4] Investopedia

increased by more than 300% during that same time period [1](refer Figure 6 above).

As most hard assets such as land and precious material remain scarce, it stores value. Thus, when global economies recover and grow in time, it’s going to push demand for hard assets higher, maximizing its value while hedging against inflationary pressure[2].

Investors who deliberately buy tangible assets for investment purposes value their tangible goods as a form of value diversification and a: protective shield” against EU’s economic uncertainty.

iii. Higher Returns than Banks

Investors, especially first-time investors, often ask if they are doing the right thing by investing in hard assets. Anecdotal evidence have proven that income-generating hard assets constantly outperform returns our saving deposit.  Hence, tangible assets represent higher and sustainable returns when compared to the interest paid by banks on its deposits[3].

Thus, a prudent investor should consider investing in hard assets part of their portfolio. Hence, hard asset investing is a great vehicle to park your capital if you choose to pull your money from the risky EU bank[4]. In the business of hard asset management, there are a number of little tricks that one can pick-up along the way; tricks that often make the difference between profit and loss.

5. Conclusion

By now UK and EU residents should know from past experience the risk and ramifications of bailing-in Cyprus and Greece’s failing banks. The “bail-in” program to save failing Greek and Cypriot banks have given the world a glimpse at the cruel nature of European bankers and regulators.

In the case of depositors from Cyprus and Greece, they were not even given any prior notice that their bank is about to be bailed-in. For example, the bail-in of Cypriot insolvent banks was done secretly during a weekend and outcome as we know was a total wipe-out of savings and cash flow of foreign depositors and local businesses alike.

To conclude, when situations of heightened uncertainty arise such as the banking crisis in the EU, the best defence is hard assets and it’s traditionally considered as a safe haven. Hard asset have proven as a tested asset under volatile economic situations, the best hedge against inflation and enables capital preservation. 

When the Eurozone begins to collapse, the value of the Euro will certainly depreciate against other currencies, the value of hard assets will continue in its upward position. Thus, start focusing on how to get your money out from risky UK and EU banks and begin investing in hard assets before its price shoots up as more and more investors rush in to invest after predicting the proximity of a probable Eurozone collapse.

[1] Notes to the consolidated financial statements – Part E – Information on risks and relative hedging policies. 21/01/19
[2] Investopedia
[3] Ceil Monitor, 2018
[4] EU tells Italy: 'No special treatment for France' over budget rules.” 12/12/18

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