The next phase of the collapse

We are now entering into the next phase of the collapse. What I see coming is terrifying. Europe is next to be hit real hard. The trouble is far from over. I dread the market reactions and I especially dread the government actions that will come to counter the markets.
Most people have no idea how bad this is going to get, and very soon.

Please read Ambrose Evans-Pritchard assessment of the state of the Russian and Eastern European economies. I believe they are about to collapse, and will bring down with them the still standing facade of some sort of stability in Europe.
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/4623525/Failure-to-save-East-Europe-will-lead-to-worldwide-meltdown.html

The Russian economy will collapse.
The Eastern European economies will collapse.
Many European banks will collapse from bad debt.
There will be a full blown crisis within the EU.
The EU will feel forced to bail out these banks.
The Euro will fall significantly.
The Swedish krona will collapse, it is happening as we speak.
The EU will find ways to print money on a so far unimaginable level.
The Euro will fall apart, dramatically and fast once it happens.
Before the Euro falls apart they will spend all their political capital to try to save it, at enormous cost.
The EU will fall apart.
As the EU falls apart they will spend their very last political capital to save it.
Investors will flee to dollars, yen, franc, and gold.
Investors will be desperate to get their money into non depreciating assets, this will be dramatic.
This will spark a tremendous bull market for gold, it will shoot above USD 1000 and beyond.

My advice:
I am reversing my recommendation to benefit from the strength in the Euro and the ECB’s determination to protect it. The European Central Bank does not have the muscle to withstand the deluge that is coming. There will be tremendous friction within Europe coming up. It will be possible to trade on this, but it is to early to say how right now – so get out until you see a clear way to trade it.
The only clear trade right now is to short the whole thing.

Get out of the Euro.
Get out of Swedish krona.
Short the European markets.
Short the Swedish markets.
Short the Norwegian market.
Hold some Norwegian krona.
Hold some dollars and yen.
Go more heavily into gold, despite the risk.
Consider an all in heavily leveraged position in gold – consider going all in.

Things are now unraveling at such speed it will be extremely dangerous going forward.
Diversification is more important than ever.

This is a dire warning; I see a new phase in the collapse, extremely dire.

Oslo, Norway. Feb 17. 2009 – Hans Lysglimt

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5 Comments

  1. Håvard
    Posted 17 February, 2009 at 1:58 pm | Permalink

    Yes, it looks like everybody’s eyes have been so busy watching USA during this crisis that they have overlooked how bad things are in Europe. And of course both the European banks and governments have put a lid on this out of a mix of fear and selfinterest.
    But i still think FED, ECB, IMF, The World Bank and other big banks and central banks have known about this and put this unavoidable collapse into the equation.
    So when Geithner made substantial changes to the so called “stimulus package” only days before it was unveiled this was to adjust for the coming storm in Europe. Because now it isn’t only the dollar that is in trouble, the Euro and the Pound is as well.
    I might be paranoid here. But I am starting to believe they understand that the current monetary system is beyond any hope of repair and that they are working on a replacement for Europe and North Amerika. A strong sign of this is that Ben Bernanke spend more time in Basel/Switzerland than in US.

  2. Posted 17 February, 2009 at 2:32 pm | Permalink

    I like safe deposit boxes right now ;) The banking system, especially in Europe, is like a game of musical chairs with 10 persons and only a single chair. The music is about to stop any minute now. You can still save your wealth, but you have to understand that any wealth that you have in a bank account DEPENDS on whomever borrows YOUR money from that bank to actually pay it back. In todays economic environment, there’s not much chance of that happening.

    I can see something like this happening: A storm of bank failures in a very short time span, because the trust people have in banks is destroyed. You only need to air the pictures of people standing in line to get their money out of one bank on TV once, before you have enough people wanting to take out their money to cause a bank run. I can’t think of a single bank with enough cash on hand to survive a bank run of more than 10% of their depositors. The funds that are supposed to insure depositors’ money are way too small for that kind of failure rates. Remember, in the USA $50 billion is insuring $4.2 trillion in deposits, and disappearing at an alarming rate.

    The governments will print your money back to you, but only after all the failures have been worked out and new legislation is passed to allow printing of money (instead of borrowing it), probably months after the bank failed. If you get your money out before the failures, you will have liquid cash during the intermission, which will make it much more pleasant for you. You will also be able to go all in in gold, KNOWING what will happen as soon as the government guarantees are paid out.

    I have a large position in USD still, but my income and main bank accounts in CAD. Canadian economy is, like Norway, to a large degree based on natural resources. But unlike Norway, Canada has a larger resource base, and more diversification: oil, natural gas, gold, diamonds, uranium, lumber, industrial metals etc. I also have a large amounts of PUTs on S&P 500 ;-)

    PS. I spent last weekend in Detroit. An interesting glimpse into the future. It’s hard to imagine what that city looked and felt like in its glory days now. The Henry Ford museum is still well worth a visit. At some point, half the world’s automobiles were T-fords. Ford never regained that kind of market share.

  3. Baltzersen
    Posted 17 February, 2009 at 9:54 pm | Permalink

    Sir,

    What’s the rationale behind recommending holding U.S. dollars?

  4. Posted 18 February, 2009 at 4:37 am | Permalink

    Have a look at the reserve requirements for banks around the world: http://en.wikipedia.org/wiki/Reserve_requirements. You may think that the US system is in trouble (and it is!) but European banks are in far more trouble. It may well be that the US dollar will be one of the more successful currencies in the short and medium term.

    I think the NOK is absolute suicide compared to the USD. Norwegian economy is very dependent on oil, and oil production is declining fast. Coupled with lower oil prices, this means a devastating effect on the economy. Norwegians have a much higher debt-to-income ratio than Americans on average… Many Norwegians also think that they are _entitled_ to a high standard of living without much effort. That will serve to make the crash much more spectacular here. The Oslo stock exchange main index was at 100 as late as 2003. That tells me it has a long way to fall still.

    I would split roughly 50-50 between cash and precious metals right now.

  5. Farmann
    Posted 18 February, 2009 at 7:04 am | Permalink

    In the next phase of the collapse we could see the dollar rally even more as a last somewhat strong currency.
    It will turn spectacularly eventually, but that could still be some time off.