December 10, 2011

Felix Zulauf, events that will rock RISK ON

“I think the periphery goes into depression. When you look at a country like Greece, it’s now been in recession for three years. GDP is probably down 15% from the top. The stock market is down 90%, which is the equivalent of 1929 to 1932 in the US. This is depression-like.”
“More and more economies will fall into that situation. That creates the problem of people revolting. Right now we have new governments not elected by the voters, the citizens of those countries, but implanted as technocrats by the EU center, by Brussels. So they will be very disliked and I think you will see some revolutions starting or intensifying next year.

Then I expect next year one country, probably three, will exit the euro. That will make 2012 very interesting because there are no rules on how to exit the euro. A country exiting the euro means the next day, when they exit, their banking system is bust. That means the banking system has to be immediately nationalized in a new currency.

They introduce a new currency, they nationalize the banking system, and then, of course, the government is also bust. Then the government will default. That’s what you have to expect next year. I think Greece will do so and Portugal and Ireland are candidates also.

Then it will depend on how that crisis is managed as to whether the crisis can be turned around and terminated or whether it will intensify and drag on into 2013 and force Italy and Spain out of the Eurozone as well. (This will have the effect of) creating turmoil in the financial markets and weakening the European and most likely the world economy (even) further....

“...Let’s go back to what I said, one country exiting (the euro) and then you have chaos. Obviously that country will default. Not only the government, but also the private sector will default to a large extent. That means the banks in the remaining European countries will have to take huge losses, much more losses than the recent stress tests used.

That would mean you have to expect more nationalization of banks in several of the European countries to stabilize the system.This means the governments that have to nationalize banks, they don’t have the money. They have to go into debt and that means the debt levels go even higher.

So you can expect the bond markets will not be very quiet in their trading next year. It will be a very wild situation that I see coming for next year.”

1)  If a (any) country leaves the Euro then remaining countries (France/Germany) are force to realize losses (because at the moment the have a get out of debt write off free card), the then EURUSD will sink like a stone.
2) Subject to how (1) happens, all country(s) at once or staggered over time will extend the crisis no end.
3) If the EURUSD sinks so does risk on assets as fears of contagion and world recession will be the motivation.
4) Of course (2) and (3) will be very strong for the USD. This will kill stocks, commodities and metals.
5) A rally in USD of any strength will see the USA Federal reserve pull out the all stops to pump up SP500 (with Obama blessing as its an election year) and sink the USD.
6) Gold has yet to have a decent correction, the above could produce it easily (Gold $1000 could print).
- interview in Kingworldnews