Everyone was talking up “Quitaly” last week as we headed into the December 4 referendum — and this was one where the “populist” choice was clearly ahead in the polls, and the polls were actually accurate (unlike the surprise wins by the “Brexit” camp and by Donald Trump earlier this year).
That “everyone” includes the Crisis Investing folks over at Casey Research (now owned by Stansberry, though Doug Casey is still participating), and we saw several iterations of an ad from Nick Giambruno about how to profit from the “total destruction of the European Union” that will come as the Italian vote bumps that body further down the road toward dissolution.
So far, the widely expected win for the populists (the “No” vote) is not showing any signs of causing a real panic among investors in either Europe or the US, though it’s very early days — and, to be fair, the ad didn’t promise that today would bring a crash (though there was a strong hint that a 10% drop in the markets was a strong possibility). That should probably come as no surprise — when everyone expects something, markets are also expecting it… it’s only when we’re surprised that the market reacts and, usually, overreacts. The market, after all, is really just another way to measure human sentiment.
But certainly the world is changing, particularly when it comes to global and regional trade agreements and currencies and alliances, and the human mind wants to create patterns that build into stories that create a logical arc in which all of these events fit… so what’s the story that Nick Giambruno is telling, and how does he think we can become rich from it?
Well, here’s a little bit from the ad to give you a taste:
“Whatever you call it, the shockwaves from Italy’s exit from the EU will almost certainly affect your savings account, your stock portfolio, and your cash stash.
“Social Security, 401(k)s, pension funds, and even your gold – it’s ALL in play.
“Please don’t think that you can ignore this just because you live far away from Europe. For unprepared investors and retirees across America, this economic crisis could turn into a disaster of epic proportions.
“It’s why – in the Casey Daily Dispatch and The Casey Report – we’ve shown you how to own gold, to hold cash, where to hide it, and which banks to avoid.
“Today, these defensive measures will serve you well. They will place you in a position of ‘neutrality’ – perfectly equipped to take advantage of the situation I’m about to describe.
“And if you take action right now – strategically positioned in one specific way – this historic crisis could be the profit opportunity of a lifetime.”
The letter leans heavily on Doug Casey’s experience as a “crisis investor” and profiteer — talking about the big gains he made during crises in past decades. And they believe that yesterday’s vote “will set off the big economic crisis of this decade” and maybe “the biggest economic disaster of this century.”
Which would be saying something, since just in US-dominated terms we’ve had the dot-com crash and the real estate crash and 2008 financial meltdown already this century, only 16 years in, and that doesn’t even include the several eurozone crises we’ve seen. Here’s how he describes the possibilities:
“This nearly inevitable event that starts on December 4 could:
* Gut the U.S. stock market in the short term, producing a swing of up to 10% in a single day… and perhaps even an extended slump of up to 50%, similar to the crash of 2008.
* Hundreds of banks with significant international exposure could go belly-up, leading to thousands of businesses going bust across the globe… (I’ll show you which ones to avoid in just a few minutes.)
* The Fed could overreact in its response to this crisis, manipulating interest rates and the value of the dollar, potentially deepening the negative effects on your savings and retirement portfolio…
* Exposed global stock markets could fall right off a cliff – so you have to make sure your risk is minimal to non-existent…
* The vast migrant crisis sweeping across Europe could worsen. And in a nightmare scenario, the wave of brutal terrorist attacks could continue, adding yet more devastation and uncertainty to an already precarious climate in Europe…”
So… what’s their prescription for “everyday Americans” who want to avoid this “apocalypse?”
Doug Casey’s intro to Giambruno’s ad repeats some of the major points he’s made over the years, with five major predictions and some general trends he thinks you can profit from… here’s my shorthand version of those:
The EU will disintegrate because it’s completely artificial and dysfunctional.
That will “accelerate the disintegration of nation-states everywhere” as countries like Germany and Italy and hundreds of others face secessionist movements… which is another reason why “you should stay away from long-term government bonds.”
A “truly major banking crisis” will come because of zero-interest rates, much worse than the last financial crisis. Short the European bank stocks, even now after they’ve fallen so far.
There will be a “panic into gold” because there are “no stable paper currencies” — hedge funds and central banks will buy up gold, he expects it to go over $5,000 an ounce.
“The euro will cease to exist” — doomed from the beginning, get out of it “as soon as possible”
Those are fairly general, though, so what specific investments are they talking about to entice subscribers to buy into Crisis Investing for $2,500 a year?
That’s where we get to the sell and the specific investments that they hint at to entice potential subscribers…
“Senior Crisis Investing analyst Nick Giambruno has just zeroed in on three plays that promise to rocket up as the European Union crumbles, beginning December 4th.
“He put all of the critical details in an urgent briefing he just finished up. It’s called:
Three Ways to Profit from the Collapse of the European Union“
So what are they, and can the Thinkolator give us any more details? Let’s check them one by one:
“EU Crisis move #1:Are you getting our free Daily Update
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“Double your money as the euro drops…
“Nick has found a one-step way for you to make money as the euro declines in value. In fact, with this play, you’ll make double profits as the euro goes down…
“So if the euro drops 5%, you’ll make 10% gains.
“If it drops 25%, you’ll make 50%….
“The best part is, this isn’t some complex currency play on the risky forex markets. It doesn’t involve options or shorting anything, either.
“Rather, it’s a straightforward, one-step play that trades on the New York exchange, so you can get into it right from your home computer…
“Nick’s planning to watch this play for about a year after the Italy referendum unleashes the series of falling dominoes that will lead to the dissolution of the European Union.
“In this scenario, the value of the euro will take a severe beating, and you can position yourself to profit, double-time, as it does…”
Does that mean he’s buying it now, or was buying it right before the Italian referendum? That’s not so clear — but the easy NYSE-traded way to bet against the euro with some leverage is the Market Vectors Double Short Euro ETN, ticker DRR. DRR is actually just about flat today, but has risen about 10% since the US election.
And it mostly does work as expected, here’s the chart of the Euro/US$ exchange rate since 2008 mapped against the movement in DRR — so the periods of euro weakness in the past several years have each brought big spikes in DRR prices. The euro is not yet panicking about “Quitaly” following the Italian referendum, but if it does then DRR should rise.
There’s also a non-levered ETF that tracks “short euro” — ProShares Short Euro (EUFX) provides a much more direct mirror-image trade, though the lack of leverage means that a 5% drop in the euro versus the dollar would give you only a 5% gain in EUFX, not the 10% gain that would be expected from DRR (and, of course, the euro might rise and EUFX would fall and DRR would fall twice as much, roughly speaking — that would surprise most people, but surprise is what makes moves dramatic).
Will the euro fall dramatically versus the dollar in the year to come? I have no idea. Would the euro fall if it were replaced with a return to national currencies and you had to trade it in for Lira or whatever else? Your guess may well be better than mine, it’s perhaps a reasonable possibility to look at for speculating or hedging purposes but, like with most speculations about complex global situations that newsletters like to paint as inevitable, I’d be terrified to build a portfolio that was heavily weighted to a particular outcome for the euro’s exchange rate with the dollar over the next few years.
“EU Crisis move #2:
“The best “blood-in-the-streets” buy Italy has to offer
“I’m sure you’ve heard the investing adage coined by Mayer Rothschild (and followed by Doug Casey): ‘buy when there’s blood in the streets.’
“This is a good approximation of what Nick’s proprietary stock system does: zeroes in on a solid, profitable company that has gotten beaten down after a severe crisis scenario.
“Once the referendum in Italy happens and the economic crisis hits, it promises to unleash a stock market crash. And that will deliver a huge buying opportunity in this trophy Italian company.
“According to Brand Finance, this iconic company is ‘the world’s most powerful brand.’ So that puts them above Coca Cola, Disney, McDonald’s, Rolex… and every other instantly recognizable mega brand.
The company also has a much higher margin than others in the sector. It benefits from a margin of 49% while its competitors struggle to eke out less than half of that.
“So you can see why Nick’s excited to add this stock to the portfolio at a post-crisis discount. The best part is, this company trades in New York, so getting in couldn’t be any simpler…”
This is Ferrari (RACE). Surely a very powerful global brand, and a symbol of the increasing wealth of the very rich… so if we assume the the rising tide of populism doesn’t take down the ranks of the user-wealthy, it may do pretty well. But it’s not “beaten down” yet, so that would be, perhaps, one to keep an eye on IF the stocks of strong Italian companies start to collapse.
The stock was a bit beaten up earlier this year, when a lot of stocks were in trouble, but it just went public as an independent company about a year ago and is now back pretty close to the IPO price. It’s a gem of a brand, but you pay for that with a valuation that puts RACE at about 23 times 2018 earnings. Maybe there will be catalysts to increase the earnings growth rate and make that valuation reasonable, or maybe the stock will get crushed if investors give up on Italy and sell all Italian companies, but neither of those eventualities has come to pass yet… so you’ve essentially got an expensive luxury car stock domiciled in a worrisome country. The fact that Ferrari is really the premier brand when it comes to cars and could perhaps be levered into new markets might make it worth the price — but that doesn’t have much to do with Italy’s future.
So… sure, keep an eye on RACE. But it’s sure not a “blood in the streets” buy right now.
“EU Crisis move #3:
“A leveraged bet on ‘crisis money’
“As you know, paper money has no intrinsic value. It’s all based on politician promises and trust in central banks.
“In this respect, the euro is no different than the dollar – they’re both fiat currencies built on a foundation of sand.
“And that’s why Nick anticipates a big rush into gold as the euro gets rocked and the European Union dissolves. Gold’s the safest form of money in this type of crisis situation.
“To harness the likely boost in gold prices, Nick has found a gold stock that’s a safely leveraged bet. It’s poised to deliver patient speculators up to tenfold returns.
“This small, overlooked junior miner owns an exceptionally high-grade deposit in southern Quebec.
“What’s more, the company passes the eight-pronged Casey Research grading system for metals stocks with flying colors.”
So what is a “safely leveraged” bet? Is “safely leveraged” an oxymoron like “jumbo shrimp?”
I don’t know. And there are a lot of junior miners in southern Quebec, which has been a major gold producing region for more than 50 years, so the Thinkolator isn’t much help if the only clue we’re going to get is “high grade” — so shall we throw out a guess for you?
I’ll throw out the wild guess of Osisko Mining (OSK in Toronto, OBNNF OTC in the US), and you can throw out any other guesses you might have at hand… and, of course, there’s no magic to any one junior miner in the case of a euro collapse, so if you’ve got a favorite that you think will be “safely leveraged” to gold, well, feel free to toss it on the pile for our consideration. I’ve never owned shares of Osisko Mining, which is a decent-sized $300 million company that used to be called Oban Mining but took over the Osisko name after the original Osisko morphed into a royalty company (some of the “old Osisko” folks started Oban, so they take the name with some justification — Osisko Gold Royalties is a major shareholder… as, coincidentally, Tocqueville Gold, which we wrote about last week when looking into the “Bonner Family Gold Portfolio”).
If gold goes to $5,000, lots of junior miners will shoot dramatically higher… so we can take some solace in that, even as we admit an inability to be certain about which specific one Giambruno is recommending at the moment. If you’ve a guess, just use our friendly little comment box below, maybe if we get enough little junior miners to think about we’ll all get just a little bit wiser (or, of course, you can jump in on jendrixnuzzles’ active gold/silver discussion thread and see what folks are talking about over there).
So we’ll leave you there — yes, Italy voted “No” on the constitutional reforms proposed by Prime Minister Renzi, and he’s resigning as a result… and, well, we don’t know much else about what will happen in Italy with a new government other than “probably something different.” The “no” vote was easy because it let all the eurosceptics from both right and left vote together, but the actual formation of a new government will certainly be more difficult… all we really know is that the people didn’t want Renzi’s reforms, and, as they have been for five years now, they’re mad about Europe and the eurodollar and Germany’s power, and mad that the economic situation of most Italians has not improved for decades.
Maybe that’s the third domino falling on the way to the dissolution of all national governments, as Casey posits, or maybe it’s what shocks the European Union into coming up with a better system before France and the Netherlands and the others see their populist parties rise, mostly on the far right. Or maybe someone declares war on someone else because they’ve run out of other ideas for economic stagnation and depression, as has certainly happened plenty of times in Europe before.
But so far, today has brought no major shock to the system — probably, at least in part, because the vote’s outcome was not at all a surprise, and because the vote was nowhere near as directive as the Brexit vote. No one is sure what will happen next when it comes to the euro, Italian businesses, or the European Union’s future. I certainly include myself in that “no one is sure” group, but if you’ve got an opinion on what we should look for or trade on or worry about in the months to come, let us know with a comment below.