Friday, 29 June 2012

The Fate of the Global Financial System Hangs in the Balance


Critical meetings are taking place today and tomorrow which may decide the fate of the EU. With that as the backdrop, today King World News interviewed acclaimed money manager Stephen Leeb, Chairman & Chief Investment Officer of Leeb Capital Management, to get his take on what is happening. Leeb told KWN the situation in Europe has “gone from bad, to worse, to outright frightening.” Here is what Leeb had to say about what is taking place: “My attention right now is focused on Europe. What is going to happen over in Europe is going to be incredibly important. Any rational person looking at the calculations would expect Germany to play ball, which means come up with a major funding package.”

Stephen Leeb continues:

“You would also expect the ECB to be allowed to increase its purchases of bonds because they need some type of major package. But investors have to back up a second, and when you back up, you have to be a little more worried. The reason to worry is because this is the 19th time the European leaders have gotten together.

During that period we have gone from bad, to worse, to outright frightening….

“Last night I was reading an editorial in The Economist that was talking about France. They are saying that Hollande is arguably the most powerful Prime Minister of France in 40 or 50 years. He controls virtually every level of government in France. Meaning, he has all of the layers of government in his pocket.

This is a man with tremendous power in France, and he's not backing down from anything he said in his campaign. He plans to raise marginal tax rates to a staggering 75%. The state or government in France is already 58% of the economy. What's it going to be when he finishes? Will it be 75% or 80%?

What's going on in France is starting to look a little bit totalitarian, and this is in France of all places. This is a country that has resisted the chaos that we've seen in a lot of other countries.

You know a piece from JP Morgan crossed my desk yesterday, and what they pointed out was that in the 1930s, a key level for unemployment was 25%. When unemployment breached that level, that's when you started seeing authoritarianism really come into vogue. That's when the Germans started voting for the Nazis. Remember, Hitler was elected to office initially.

My point is that we are seeing those kinds of unemployment rates in Greece and Spain, and this is where you see a danger of those types of totalitarian governments. The world and the global financial system are in an extremely dangerous situation. So investors need to be careful and make sure they protect themselves."

Leeb also had this to say regarding gold: "The World Gold Council just came out with a statement noting that there are deflationary or disinflationary pressures, and there has been some selling of gold just to raise money. Having said that, they expect the rest of the year for gold to be good because of the kinds of problems we're facing.

Implicit in their comments, on gold, is this bull market is not going to stop until you see positive real interest rates. We are so far away from seeing that. So for people that are invested in gold, I can't say we won't see a bit more turbulence, but I actually now believe there will be less turbulence, even in a worse case scenario.

The upside still remains many, many times what the price of gold is today. And I would just reiterate that the biggest bull market in everyone's lifetime will probably be in these junior gold miners. That's really the only marginal gold production that we have in the world today, these juniors.

They will start taking off at some point, Eric. I just think investors should buy those quality juniors, put them away and forget about them. They're going to make people rich someday.”

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