Who Cares About The Crisis in Europe?

Remember when Italy’s botched election was big news? Or when Greece’s impending default threatened the entire Eurozone? What about Germany’s constitutional court ruling on the bailouts?

In fact, there is a long list of crises stretching back years that threatened to trigger financial chaos. But it just never seems to happen. Instead, the American stock markets reach new highs and the ASX is doing well too. So who cares about Cyprus?

That sort of thinking will get you and your finances into trouble eventually. Let’s call it the ‘Russian Roulette Fallacy’. How many Russian Roulette losers are around to warn you about the risks of playing? Not many. Does that mean the risk is small? Nope.

Thinking ‘who cares about Yuri’ isn’t a good strategy to avoid a bullet, just like thinking ‘who cares about Europe’ isn’t a good strategy to avoid a financial crisis. You have to dig deeper and look at what happened to the missing Yuris. What can you learn from their experience?

Consider some of the losers of the financial crisis game so far, whose misery isn’t published alongside the S&P500’s new highs:

  • The Spanish stock market is 50% off its 2007 highs
  • The Italian stock market is down 60%+ since its 2007 highs
  • The Portuguese stock market is down over 60% since its 2007 highs
  • The Greek stock market is down over 80% since its 2007 highs
  • The Cypriot stock market is down 98% from its 2007 highs

As Europe’s crisis makes its rounds, one country after another is sucked into turmoil. Now that the Cyprus story is set to fade from front pages, where will the next crisis be? Slovenia is topping the list of candidates.

Now not many people in Australia care about Slovenia’s financial situation. Not many Italians do either, but their stock market is still down 60% because of the wildfires burning around the Mediterranean. So when should you start to care? When Iceland, Ireland, Greece, Cyprus and Slovenia fail? Or do we need to add in a couple more countries before the Australian stock market sits up and takes notice?

The world is slowly but surely reaching a tipping point. If the idea of a tipping point isn’t clear to you, try this experiment:

Go to the movies with about 20 friends. Sit near each other, but don’t make it obvious you know each other. Halfway through the movie, begin rushing out in small groups. At some point, other people in the theatre will believe something must be going on and they’ll make a break for the doors too.

The more people leave, the more other people become convinced there must be a reason to leave and make a run for it too. All of a sudden, the entire theatre will be making for the exits in a panic.

The key question is, how many of your friends must exit before a chain reaction starts that sends everyone into crisis mode? How many Eurozone countries must fail to send the likes of Spain, Italy and France into crisis? Because if those countries struggle, the entire world will be in a new financial crisis. One that will reach Australia’s shores.

You can’t wait for Spain, Italy and France to be in crisis. You need to anticipate the tipping point, or be prepared to weather the storm.

Batten Down the Hatches

Murray Dawes is a weathered expert at anticipating a crisis. He shows his subscribers at Slipstream Trader how and when to profit from market moves, including a market crash. You can find his latest predictions for ASX listed shares here.

Of course, it’s not just stock markets that are suffering. People in Europe are having their savings raided, their wealth taxed, their pensions and entitlements cut, their infrastructure and government services left to fall apart and much more. Imagine a world where your bank and your government are in trouble. Those are probably two of the most important institutions in most people’s lives.

Finding yourself heavily invested in the stock market once the tipping point in Europe is reached is not a great position to be in. Finding yourself in a country with its banking system and government in turmoil is even worse.

If you don’t think Australia will be in the second category, think again.

So what kind of investments would you want to own in that kind of environment?

Not deposits, as Cyprus has nicely demonstrated. And most investments you can own are caught up in the financial system in some way too. Try and sell your shares for cash in hand.

The best solution is a tangible asset. We’re sick of hearing about how ‘you can’t eat gold’, so in our newsletter The Money for Life Letter, we investigated a whole new kind of tangible investment. One that the government and banks will have trouble fouling up. Best of all, you don’t have to sell it to benefit from its extraordinary performance over time.

Of course, you shouldn’t go and pile your entire financial wealth into tangible assets. The tipping point may be years away and not many people can sit out a rally for that long. Your strategy should be a mix of being prepared to weather the storm, and profiting from it when it happens.

Nickolai Hubble.
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From the Archives…

Gold: The Worst Investment of 2013?
22-03-13 – Bill Bonner

As the Bank Run Hits Cyprus, Dr Cowie Hits Hong Kong
21-03-13 – Nick Hubble

The Mining Shuffle
20-03-13 – Nick Hubble

BHP The Old Warrior
19-03-13 – Dan Denning

Drama in Europe’s Economy: Savers ‘Suffer for Cyprus’
18-03-13 – Dan Denning

Having gained degrees in Finance, Economics and Law from the prestigious Bond University, Nick completed an internship at probably the most famous investment bank in the world, where he discovered what the financial world was really like.

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