Rising Tensions, What Does It Mean for Investors?
Unfortunately, our forecast over the past couple of years for increased geopolitical tensions is coming true. We have stated a number of times that when ruling Governments are in dire financial shape, the politicians realize that they have no solution to solve the financial problems, so they often look for diversions to take the focus away from them.
Certainly Russian President Putin has been a master of these diversions, first invading Ukraine & now with his move in Syria. We are also very suspicious of why Turkey shot down a lone Russian jet. Seriously, there is no way they would have thought that if Russia wanted to attack them, Russia would only send one jet.
Turkey is in horrible shape financially, so we have to wonder if they want to use this incident to unite the people against Russia & divert their attention away from their domestic problems. As more & more countries fall deeper in debt, watch for more of these provocations against other foreign countries.
These politicians feel trapped & they are very dangerous as their main goal is to maintain power at any cost.
This shooting down a Russian fighter jet follows the ISIS-led attacks in France & the downing of a Russian airliner, & the hotel strike in Mali.What we are seeing is a rapidly spreading of attacks, no longer isolated to just the Middle East.
Who is ISIS?
We hate to use the term 'terrorist' to describe the Islamic State of Iraq & Syria (ISIS) because ISIS is far more than some terrorist group, we must think of ISIS as a country. It has a functional government, complete with Ministries of Education, Culture, Justice, Transportation, Energy & military.
ISIS controls a territory almost as large as Britain, lying between eastern Syria and western Iraq. Its headquarters are in the city of Mosul, a modern, bustling metropolis larger than Philadelphia.
The Islamic State is a well-run organization that combats bureaucratic efficiency & military expertise with a sophisticated use of information technology. ISIS claims to be the new caliphate & that its leader, Abu Bakr al-Baghdadi, is the caliph.
A Caliphate is a form of Islamic government led by a caliph – a person considered to be the political & religious successor to the prophet Mohammed, & therefore the leader of all Muslims worldwide.
So ISIS is not some terrorist cell that hides in the mountains, it is a very organized organization & it is spreading its reach worldwide.
The rise of ISIS is tearing Europe apart
With its attack on Paris, downing the Russian jet, & many more attacks to come, ISIS is putting Western countries on alert. Nowhere are the effects being felt more than in Europe.
In addition to the heaviest fatalities, of which there is no doubt will be more, the financial impact to Europe is going to be massive. With an already declining economy, & high unemployment, Europe is now being swarmed by over 1 million migrants & refugees fleeing the war-torn Syria. The total numbers could possibly be several million.
The future of Europe's Schengen free travel zone was cast into doubt on Friday after France declared that it would impose border controls indefinitely. Germany, Austria, Denmark & other states resurrected long-abandoned border controls in a bid to control the influx of hundreds of thousands of migrants this summer.
As Jean-Claude Jonker, President of the European Union stated, the single currency can not survive if the freedom of people granted by the passport-free travel zone ends.
"If the spirit leaves our hearts, we will lose more than Schengen. A single currency does not exist if Schengen fails. It is not a neutral concept.
What should investors do?
Typically during during volatile times investors seek out safe havens, such as cash and government bonds. But what happens when it is government that is the problem?
After decades of running massive deficit budgets in every major country, the world is drowning in more than $ 200 trillion of debt that can never be repaid. So while ISIS & global tensions are contributing to the demise of Europe, it is the level of debt that will be the root cause of the coming Economic Crisis.
Very soon we will see the first of many Sovereign Debt Defaults globally. The first domino will likely be Greece, or Hungary, or Poland or? It does not really matter who the first one will be. But as soon as the first one declarees that it is bankrupt, investors will look around & ask 'who's next'?
When people no longer trust the state, the monetary system collapses. It is the result of the collapse in confidence in government. That is when contagion will ramp up, & that is when investors will stampede out of public investments (government bonds) & into private investments (equities, collectibles, fine art, commodities, & precious metals).
To survive & even prosper during volatile economic times we need to follow the global flow of capital. We keep hearing & reading analyzes stating that the US Dollar is going to collapse. Sure the US Dollar will EVENTUALLY collapse, but it is not the problem today. It is all about timing.
Think about it. If you were well off European where would you want your cash? Would you leave it in a European bank, in Euros, or would you want it in a safer place? In times of trouble, capital flies the area where the trouble exists & flows to areas perceived to be safe. Right now, Europe is collapsing before our eyes, as is the Euro.
Yes, we will see corrections as nothing goes straight to the bottom, but Europe & the Euro are in serious trouble. This is why the US Dollar has been on such a strong run, foreign capital is buying US bonds, US stocks, & US real estate. To do that they need US Dollars. It is nothing more complicated than that.
As an investor, you want to have cash & the cash you want is US Dollars. We have advised non US subscribers for over 18 months now to move a good portion of their cash out of their local currency, & into US Dollars. In Canada, all we had to do was open a $ US account in our Canadian bank.
The $ US will probably decline, but not until after the Yen & Euro see significant declines. Two years ago, we predicted that the Euro may not survive this coming Economic Crisis. As time passes, that prediction is becoming more & more valid.
While we are about to see the largest Economic Crisis in history, for those who understand what is happening & who follow the global flow of capital, this will be an investment opportunity of a lifetime.