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Intelligent Speculator

On The Verge Of A European Collapse?

June 15, 2012 | About:

More than ever, we live in a connected world, one where the Global Economy is more connected and more diversified than ever before. A few decades ago, Russians and Americans argued about what the best economic system truly was and it’s very clear who won. To be clear, it’s also crystal clear that this capitalist system has been superior, has lifted more people out of poverty than any other system in the world, etc. It is a true miracle that the number of poor continues to diminish and while there are still too much poverty, we are lucky to have institutions such as Charity Water, the Bill and Melinda Gates Foundation and others that are working hard to rid the world of this poverty.

One Major Weakness

The one big problem though in our global economy is that it relies on one commodity more than anything else: “Faith”. It relies on the belief that we work hard, earn money that we can invest in the market, make decent returns that will help us fund our retirement, especially when you add your company and government pensions. Faith in the system basically.

It’s Disappearing…

Over the past few decades, we have seen a few big companies go under, such as Enron, Worldcom and even a few countries default on their debt (Argentina and Russia are the first two to come to mind). Lately though, things have started to slip. There was the 2008 credit crisis that took out several global players such as Lehman and Bear Sterns while requiring massive government bailouts for so many others.


Then Greece Happened…

The European Union is in many ways the most important economic zone in the world and while the single economic zone and currency seemed like a brilliant idea to many, others wondered how it would be able to face major challenges. Greece has clearly provided that first test. It turns out that it forged its finances (thanks to Goldman Sachs help) to enter the EU in the first place, has a dysfunctional system, a weak economy, banks that are quickly going under, a government that has been unable to turn things around, etc.

The Contagion Has Started

Then, after a few years of trying to patch up things, we seem to be on the brink of a much much bigger problem. If the possible exit of Greece from the EU was the only problem, everyone could live with that scenario. But we now have Ireland, Spain, Italy and others all looking at needing bailouts with many others starting to look vulnerable. If you look at the banking system, the backbone of our wonderful system, you will see that banks in those countries are quickly running out of money as investors and clients lose faith and move their funds elsewhere. The problem is that no one is able to tell who is now vulnerable, who isn’t which is quickly freezing up credit in ways which could end up making 2008 looking like a piece of cake. EU countries have already discussed the idea of limiting ATM withdrawls… can you imagine the panic?

No Clear Solution

Governments, Central Banks, international institutions such as the EU the World Bank and the IMF have all been looking for solution to get out of this mess as have major banks but there are no clear solutions. It’s not even that solutions would require this person or country to accept. It’s much more critical. No one knows how this could end up well….


A Difficult Market

One clear consequence has been a complete lost of faith by investors in the market as they try to protect their assets as best as they can. Generating yield through dividend investing or by holding safe government bonds (the American ones.. not the Greek/Spanish ones.. just to be clear). It gets worse though. Markets have lost much of their value but there are also legitimate worries that some currencies could end up suffering greatly. Other assets such as real estate which have been losing value all around the world see few signs of slowing down. SPX.png

What It Has Come To

The Ideal

It relies on the belief that we work hard, earn money that we can invest in the market, make decent returns that will help us fund our retirement, especially when you add your company and government pensions

The Reality:

-Unemployment rates are sky high everywhere, especially for young people in Europe. 50% People under 30 years old are jobless in Spain, almost 23% of the entire Greek workforce is looking, the US unemployment rate has climbed back over 8%, well over its target as it. -Markets outlook is gloomy, interest rates are near 0% with no sign of rising anytime soon -Retirement ages are being raised as governments try to cut down on their costs -With many companies running high deficits, they are eliminating benefits such as pension funds or going under without the money -With dozens of huge industrialized countries under threat of default, the odds that they will be able to deliver on their promises towards current and future retirees is very unlikely at best….

Saving Greece Is NOT Enough

Greece will have elections this weekend which might turn out well (or not). Europe might find a solution for Greece… but even if it does, that likely will not be enough. All of these countries are running massive deficits and are unlikely to turn those around anytime soon…


What are your thoughts on all of this? Am I the only one this worried?…

Rating: 3.9/5 (11 votes)


Batbeer2 premium member - 5 years ago
It sounds reasonable enough, so here are my predictions for 2017:

Coca-cola will ship more cola,

Tesco will sell more groceries,

De la Rue will print more bills and

Shimano will make more gears and reels.

Cornelius Chan
Cornelius Chan - 5 years ago    Report SPAM
The solution is painful that's why it is not done:

Enact Glass-Steagull legislation to end the abuse of customer deposits by commercial/investment banks since 1998. This will wipe out the derivatives market and cause a lot of banker pain.

Jim Rogers (and a growing body of other important people) has it right: you can't solve a problem of too much debt by piling on more debt.

There is more going on behind the scenes that us little people have no idea about. Our job is simply to wait until stocks get cheap and buy.
Dr. Paul Price
Dr. Paul Price - 5 years ago    Report SPAM

Delaying default is akin to delaying recovery.

It would be better for over-indebted countries to simply declare bankruptcy,stiff foreigners and start over (as Iceland did).
Cornelius Chan
Cornelius Chan - 5 years ago    Report SPAM
Stockdocx99, you have the right attitude for this crisis we are all facing, ie cut out the cancer and let the patient heal. Short term pain to gain long term health. Right on!

Two items stand out as problematic for a simple reset of national debts.

1. It is not so much national debts that are the problem, it is the banks. The problem is the banks have taken on quantities of derivatives that exceed global GDP. Now sovereign nations are forced into bailing out the banks which further indebts the sovereigns. The solution to this is to re-implement Glass-Steagull legislation, this time globally (the Chinese already have a form of this in place), wipe out the derivatives outstanding and forbid commercial banks to ever again put customer deposits at risk with their high risk casino gambles on mortgage market or whatever market asset backed derivatives.

2. The U.S. cannot declare bankruptcy because to do so would be to lose most-favored-nation status. Since the global reserve currency is tied to the good faith and credit (and powerful economy) of the U.S., it would then lose its dollar as the reserve currency.

America will never let this happen, that is why it is setting up the conditions to control other nations militarily, e.g. their recent emergence into SE Asia. If America can stave off a changing of the guard vis a vi the global reserve currency long enough to get its economy humming again (ie producing goods for export to increase balance sheet cash and assets) then perhaps we will see another 50 - 100+ years of U.S. dominance in economics, technology, culture, arts and every other metric of a strong, healthy and vibrant nation. (see Chuck Carnevale's "Golden Age" article for an example of this.

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