First off, I'm sorry it has been so long since I last made an entry. Somehow, I figure you were able to manage. I have been completely occupied with navigating this insane market and trying to keep clients solvent. About four weeks ago, I began studying the European debt crisis at the microscopic level. After a week or so of being literally buried in balance sheets and mind numbing piles of economic data, I emerged more concerned than ever. I began contacting clients and setting up meetings in order to get them out of stocks and into safer investments. Since then, global markets have dropped nearly 10%. I am absolutely convinced this is only the beginning. Let me explain my reasoning.
The situation in Europe is only the beginning. Europe is basically suffering from the same problem we are. Their governments are spending far more than they are taking in. Governments were able to do this in the past due to the ever expanding economy and the tax revenues this expansion generated. As we all know, that expansion has come to a grinding halt. Government revenues have pulled back and governments' spending, due primarily to aging populations and ever-increasing social spending that accompanies it (pensions, medical expenses, prescriptions, etc.), has continued to rise. Now, nearly every Euro Zone country has significantly more debt than the total output of their respective economies. To cover the shortfall, Euro Zone governments must borrow money from investors, mostly in the form of government issued bonds. However, due to these budget issues, investors are growing increasingly concerned that these governments may not be able to pay them back. In return, bond purchasers are demanding higher interest payments to justify the increased risk, much like a bank charges us higher interest on a car loan if we have a lower credit score. As interest rates rise, the amount of money required to make the annual interest payments to bond holders rises as well. In order to pay the higher interest rates, the government must issue more bonds, at even higher interest rates, and the problem quickly begins to snowball. What makes this more worrisome is that all 17 Euro countries cannot print their own money as they all use the same currency: the Euro. Most in the financial industry didn't see this as a big deal and figured that the European Union would simply print more Euros in order to stabilize the situation. Somehow, and don't ask me how because I still don't understand, those same "financial professionals" overlooked the fact that the contract binding the Euro Zone countries together unequivocally denied the right of the European Central Bank (ECB) to print money in order to cover a budget shortfall for an individual member government. Additionally, why would Germany and France, the biggest economies in the Euro Zone, agree to have their currency diluted in order to cover the profligate spending in neighboring countries? Well, simply put, they aren't. Even if Greece, Spain, Italy, and Belgium were somehow bailed out, that wouldn't begin to cover the massive European banking system that is completely exposed to the floundering bonds issued by each country. Additionally, the real estate collapse that has plagued our economy has spread overseas and is now wreaking havoc in Europe. When you consider the fact that the economy of the European alliance is bigger than our own economy, you begin to realize the scope of the problems we are facing.
Now, the issue that no one is talking about is the fact that China is the largest owner of Euro Zone debt and their real estate market is beginning to wobble. It is also estimated that Chinese banks are now leveraged to a greater extent than our own banks were prior to the financial crisis. Additionally, after more research, I found that Japan's government is in worse shape than any Euro Zone country. I could literally spend a day going through each economy and each country, illustrating in real numbers how bad this situation is getting. If you would like that information, email me directly and I will be more than happy to lay it out for you.
The point of this entry is not to scare you. I am trying to warn as many people as possible. Get out of the markets. Or, make sure you are in safe assets that will appreciate in times of crisis. Don't listen to anyone who tells you that the prudent course of action is to take a disciplined approach and see this through. I work in this industry, and I am telling you point blank that brokers say that because they don't understand the reality of what's going on. We are looking at a situation that could dwarf the financial crisis of 2008 in terms of severity and length. As always, I am happy to help and consult anyone. Just email me at zkabraham1@gmail.com, and we can take it from there. Make no mistake, we are facing issues that will most likely destroy countries and economies for decades. If you don't bury your head in the sand, easy steps can be taken to insulate yourself from this chaos.
Good luck to all of you. I will be updating this situation as frequently as possible. Please be smart and make sure you are protected.
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