“May you live in interesting times.” That’s an old Chinese curse I think someone must have wished on us today.

We live in interesting but turbulent times. Europe is falling apart … global capital is bouncing around like a basketball … and the world’s last superpower is spending itself into oblivion.

Where can you find refuge in this storm? Today I’ll tell you about one possibility, and give you some ideas to consider.

Bonds Are Not Risk-Free

Bonds come in many flavors.

Investors whose goal is capital preservation have long tilted their portfolios toward bonds. Usually, this makes sense. Fixed-income securities tend to be more stable, while the interest payments put cash in your pocket.

On the other hand, bonds come in many flavors. Some are safer than others, and certain kinds of bonds can be highly speculative.

The bottom line is credit risk. When you buy bonds or bond funds, you are a lender. You hope the borrower pays you back on schedule. You might be wrong.

Emerging Market Bonds—
Safer in the Long Run?

If the borrower is located in a far-away emerging market, you face additional questions. What are the local laws? How do currency exchange rates affect your investment? Is the economy growing or shrinking?

My response: Those same risks apply right here in the U.S. We’ve learned since 2008 that “rule of law” doesn’t always apply. Our dollar is no longer as good as gold, and our economy is weak and getting weaker.

So I don’t automatically assume bonds from emerging markets are riskier than domestic bonds. In some cases they may even be safer! Earlier this month I showed you how some of the world’s fastest-growing countries have far outpaced the “developed” West.

Which capital is in better shape?

Let’s turn the table around. Is it reasonable to believe that, ten years from now, a U.S.-based borrower will be in better shape than a similar borrower in China, Indonesia, or Chile? Keep in mind the borrower can be either a sovereign government or a private company.

Thinking about it this way gives you a different perspective. I’m not at all saying that the U.S. is doomed, or that China will own the world. My point is that the West no longer deserves “benefit of the doubt” when it comes to credit risk. Likewise, bonds from emerging markets nations aren’t automatically more dangerous.

Diversity Is Key

Wherever you may invest in bonds, diversification is always a good idea. That’s where bond ETFs really come in handy. With one trade, you can own a portfolio of many different bonds in whatever niche you find interesting.

[Editor's note: Ron's International ETF Trader helps members navigate ever-changing global market conditions by identifying which exchange-traded funds have the most profit potential at any given time. Click here to see his latest video.]

Emerging Markets Government/Aggregate Bond ETFs

In theory, government-issued bonds are “safer” because they can raise taxes to pay their debts. Reality isn’t always so simple. Governments also have the power to change their minds.

“Aggregate” bond ETFs contain a mixture of government and highly rated corporate bonds. Here are some to consider.

• PowerShares Emerging Markets Sovereign Debt Portfolio (PCY)
• iShares JPMorgan USD Emerging Markets Bond Fund (EMB)
• WisdomTree Emerging Markets Local Debt Fund (ELD)

Note that PCY and EMB hold bonds denominated in U.S. dollars, which eliminates currency translation risk for U.S. investors. ELD and some others hold bonds issued in local currencies. This means you are exposed to those currencies along with the bond returns. Sometimes this works in your favor. But when the U.S. dollar is rising it can go against you, too.

Emerging Markets Corporate Bond ETFs

Like its cities’ skyline, China’s bond market is growing fast.

Businesses from top emerging markets have been slow to issue bonds. Why? Mainly because they haven’t needed to borrow, and also because they don’t always have the tax incentives that make U.S. companies lean toward debt financing.

This is changing over time. Now corporate bond markets are thriving in places like China. To get involved, check out …

• WisdomTree Emerging Markets Corporate Bond (EMCB)
• PowerShares Chinese Yuan Dim Sum Bond Portfolio (DSUM)
• iShares Emerging Markets Corporate Bond (CEMB)

Emerging Market High Yield Bond ETFs

Bond yields are directly related to risk. Issuers perceived as potentially unstable have to entice borrowers with higher interest rates. In bond terminology “high yield” means “below investment-grade” or what used to be called “junk” bonds.

If you are comfortable with the risk, ETFs in this group can offer very high current income. Examples include …

• iShares Emerging Markets High Yield Bond (EMHY)
• Market Vectors Emerging Markets High Yield Bond (HYEM)

New ETFs come out all the time, so this isn’t a complete menu. I hope you can see the potential benefits of emerging market bond ETFs.

Likewise, I want you to understand that U.S. and European bond ETFs aren’t always safer. Wherever you may invest, be sure to shop carefully!

Best wishes,

Ron

Professional traders look at more than just movement of the averages to gather insight into the direction of markets. In particular, they look at the internals of a market, including the performance of individual sectors, to try and figure out the next likely direction for stocks.

As a general rule, the market is healthy (and rallies tend to be more-sustainable and -powerful) when growth-oriented sectors are the ones leading the way higher.

But when the market’s on the move upward and the “usual suspects” aren’t the ones leading the charge, that’s often an indicator of more declines ahead.

Simple Correction,
or Bona Fide Shift?

Typical growth-oriented sectors include basic materials, tech, small caps, commodities and industrials. When these types of sectors are leading the charge higher, it tells traders and investors that economic growth is accelerating, which makes a market rally more-powerful and -sustainable.

But when, say, a market is rallying but it’s being led by a sector such as utilities, consumer discretionary or telecom — which are all less-macroeconomic-sensitive sectors — that kind of divergence sends a warning signal to traders.

More ominous than this divergence, however, is when sectors that have led a rally for months begin to break down and follow the market lower. That can be a clear sign to traders that the market action might not be just a normal correction, but instead a market shift.

Unfortunately, that’s just what happened in the market last week.

Bankers, Builders Break
Out … and Then Down

The best-performing sectors in the market year-to-date have been the financials and the homebuilders. Up until this recent correction, that leadership has really emboldened the bulls, because housing and the banks have been two sectors that have been a big drag on the market and the economy since the 2008 financial crisis.

So, seeing those two sectors outperform made investors and traders much more bullish on the economy and market. The reason is because the market has been held back by those industries, so seeing them outperform is like relieving a clog in the drain.

They’ve been impeding the market’s recovery for years, so with those sectors healing, it was taken as a positive for the economy and the entire market.

Last week, though, the financials and homebuilders broke down badly, and that is yet another piece of evidence that this market is losing momentum. Just take a look at the KBW Bank Index (BKX), which, here in the $44 area, is up only about 9 percent since the beginning of the year.

The crisis in Europe, as it enters a new stage, is once again weighing on the financials, as fears of banking runs and a breakup of the euro have investors worried about the ramifications. So, there is some justification to the decline in the financials.

Homebuilders, though, have been seeing fundamental improvements in their businesses, and recent data shows the recovery in housing is progressing, although it is very fragile and painfully slow.

But, the decline of the homebuilders shows investors are becoming more concerned about Europe negatively affecting the broader economy and the consumer, which is a big negative for the market.

Take a look at the SPDR S&P 500 Homebuilders ETF (XHB), which opened the year at $17.44 and closed May 18 at $19.73, just a $2.29 difference.

Is There Even More Downside Ahead?

There are many ways to play the decline in the broader markets. But as you look at ways to profit from a potential market decline, try to focus on companies and sectors that are very sensitive to the macroeconomic environment, versus large-cap industrial companies like those found in the Dow Industrials.

Instead, focus on economically sensitive small- and mid-cap companies. There are a number of inverse Exchange-Traded Funds that let you establish a short-side position in indexes that represent these smaller stocks as they’re falling out of favor.

That’s how we’re playing it in my Million-Dollar Contrarian Portfolio right now. (To get the details on that position, as well as all my recommendations that are designed to keep you hedged while getting positioned for growth, click here to start your risk-free trial membership today!)

Should the breakdown of the leading sectors like the homebuilders and financials be a harbinger of lower stock prices, the small caps will fall faster than the large caps. The good news there is that those “little” stocks can offer more hedging and profit potential.

Have a great Memorial Day,

Tom

Last week’s column on retirement savings rates elicited a lot of comments and thoughts from readers so I want to take some time today to both recognize some of the feedback I got and also provide some additional context to some of the ideas I discussed last week.

A number of you wrote in to tell me that the fact that about half of Americans aren’t saving anything for retirement isn’t all that surprising — and that it’s largely a result of the current state of our economy.

For example, Keith had the following to say:

“I come from what I think would be described as an average family. I was the third person across all my relatives to go to college and get a degree. My sister followed me, bringing the total to four college degrees across a family of about sixty people. My cousins are all non-degreed blue collar workers.

“It’s easy for me to look at one of them and criticize their buying decisions. I can afford to buy my kids a fast food burger or pay for them to participate in a club sport. The rest of my clan is not so fortunate. They, on average, gross in the $40k to $50k range. A few still live in the homes they bought, although three have lost their homes to foreclosure. The net off of $50k doesn’t leave much left for food, transportation to work (most of them don’t own cars — they bus), and rent/mortgage. I could give a lot more details, but I’m sure you get the point. At these income levels, debt is almost inevitable, unless you had the foresight from your teen years to live as a minimalist; and no one is educated that way.”

Other readers wrote in with similar stories of friends, family members, or co-workers who are struggling these days.

Look, there’s no doubt economic weakness IS a factor for some people. And I acknowledged that in last week’s column.

However, I also want to show you some numbers that suggest it is not THE factor in all cases … and perhaps not even in the majority of cases.

For example, according to the Employee Benefit Research Institute (EBRI), the percentage of Americans who said they were saving for retirement stood at 66 percent in 2007. I think most of us can agree that year represented a high point in terms of economic conditions, stock prices, and other “feel good” metrics.

So what happened when the economy, the stock market, and other measures of American financial well-being started going down?

Amazingly, Americans started saving MORE for retirement!

Again, according to the EBRI:

  72 percent of Americans said they were saving for retirement in 2008, a sharp six-percentage-point increase from 2007 …

  The rate increased further to 75 percent in 2009 …

  Then, only once some economic measures started to improve a bit in 2010, did the percentage of Americans saving for retirement start to fall back down to 69 percent!

Now, there’s no doubt that unemployment in this country remains much higher than normal, as does “underemployment.” So certainly this drawn-out downturn could simply be resulting in a lot of Americans finally having to dip into their current savings or running out of additional income to sock away for the future.

But if anything, these numbers seem to suggest that people save less when times are good and more when they’re truly bad. In other words, the highest incidence of delayed gratification comes when events scare people into waiting a bit longer.

That brings us back to the people in Keith’s story … as well as many of the other folks you wrote in to tell me about.

I’m still struggling to believe that a family earning $40,000 or $50,000 a year can’t save ANYTHING toward retirement if they really want to.

Especially not when there are so many incentives for them to do so!

Consider the simple fact that anything contributed to a 401(k) plan or IRA account will immediately lower their tax bill — making at least some of those contributions essentially free.

And then there’s an additional tax credit that is currently available to families making $56,000 or less. It’s called “The Savers Credit” (formerly known as the Retirement Savings Contributions Credit) and allows eligible taxpayers to get an additional tax credit of as much as HALF of the money they put away for retirement!

The end result of just these two credits alone means that lower-income American families have every reason — and a lot of actual governmental monetary help — to put at least a little money away every year in their own private investment accounts.

Plus, there are also private incentives like 401(k) matches.

So again, I ask — is it really that half of Americans CAN’T save anything for retirement?

I still think the answer is “no.”

Instead, I think it often boils down to simple choices — many of which come back to the inability to delay gratification that I discussed last week.

For example, how much are some non-savers spending on cigarettes … soft drinks … or lavish Christmas gifts? Would they be willing to forgo cable television to put $50 or $80 a month into their retirement accounts? (And yes, for the record, we forego all of these things in my own house.)

Or how many people simply think there’s no point in saving for retirement for some other reason?

Specifically, I’ve heard the argument that the ravages of inflation will make the exercise of saving for retirement futile anyway.

To that, I say it’s simply a matter of picking the right investments.

And that brings me to a larger point — the point that I was really trying to make last week. Namely, that …

The Fact That Many Americans Aren’t Planning for Retirement
Often Boils Down to a Lack of Education on the Topic!

Some folks simply can’t save for retirement because they literally don’t have the means.

But I’m arguing that is the minority of the population … and in most other cases, Americans are choosing not to save, whether consciously or not.

Here’s where education comes in — because the sad truth is that a lot of Americans have never even been taught basic principles of budgeting let alone how our convoluted tax code may actually provide them with “free” money to save for their retirements.

This is why I spend so much time talking about these things in my columns here. It’s why I point out all the problems with our current retirement fall-backs like Social Security. It’s why I discuss certain tax issues, various retirement accounts, and specific investments that can help grow your wealth. It’s also why I challenge us all to think critically about these issues … and to do better, save more, and pass along our knowledge to other people in our lives.

Lastly, I want to emphasize the fact that I’m not looking to single out lower-income Americans when I talk about these issues.

There are countless stories and studies about more affluent Americans showing a similar inability to plan for retirement or live within their (higher-than-normal) means.

Heck, an old survey from the NY Fed showed that even back in 1993 20 percent of families making more than $75,000 were still not participating in the company-sponsored retirement plans that were available to them. And anecdotally, I can tell you that there are plenty of higher-income folks that could be saving lots of money right now but aren’t.

So again, if you know anyone who’s not saving for their retirement right now, please at least have a frank talk with them about the issue … because even if they are truly unable to save anything right now, a working knowledge of the subject will only better prepare them for the future.

Best wishes,

Nilus

P.S. I can only discuss so much in these weekly columns — and that’s why I encourage you to start reading my regular Income Superstars newsletter issues. Not only do they provide a lot more information on various retirement issues and strategies, but I also give you lots of specific income-boosting investments that you can buy right now to better your golden years. Best of all, a full year only costs $39 and I offer an unconditional money-back guarantee. Just click here for all the details now.

We now face the growing danger of a new financial megashock that could strike at almost any time.

It has the potential to be larger than the Lehman Brothers shock of 2008.

It could precipitate a market paralysis much as it did back then, freezing trading in critical debt instruments such as bank CDs, commercial paper and even the government securities of major nations.

It raises the risk of failures that could be more dangerous than those of Fannie Mae, Washington Mutual, AIG, Merrill Lynch, Bank of America or Citigroup.

And it could prompt governments on both sides of the Atlantic to launch countermeasures that are even more radical — and riskier — than anything we’ve seen so far.

Typically, a financial megashock of this magnitude would come as a great surprise to nearly everyone. What’s most unusual about this round of the crisis, however, is that it’s not conforming to any typical pattern:

The next big megashock is both quite
predictable and virtually unstoppable!

Like a giant asteroid speeding on a direct path toward Earth, most financial experts and political leaders can see it coming.

But seeing it is one thing. Preventing it is another.

You know what I’m talking about. So does almost anyone watching the news.

It’s the crisis now erupting in Europe.

But I repeat: That knowledge alone does nothing to reduce the potential impact of this impending megashock.

Why? Because even though major bankers and policy makers see it coming, it has not prompted them to change their ways. Nor has it motivated the majority of investors to run for cover — yet.

Instead, they’ve done precisely the opposite, doubling down on their risky investments or maneuvers.

The end result is an explosive combination of extreme danger AND extreme complacency at the same time.

Moreover, the dangers we face today are actually GREATER than those of 2008 in SIX key ways:

ONE. Before the Lehman collapse in 2008, it was strictly individual financial institutions that were on the edge of collapse.

Today, entire nations are on the brink — starting in the cradle of Democracy (Greece) … spreading to a great former superpower (Spain) … engulfing the world’s largest economy (the EU) … and striking the world’s largest financial capital (New York).

TWO. In 2007, the last full fiscal year before the Lehman collapse of 2008, the U.S. federal deficit was $161 billion. That was already excessive by most historic comparisons. But it was small enough to allow room for more deficit spending to stimulate the economy — without causing wild inflation or panic in government bond markets.

Today, the deficit is $1.327 trillion, or 8.2 times larger, and any major expansion of this red ink could set off a chain reaction of untold adverse consequences.

THREE. In 2008, most of the megabanks at the epicenter of the crisis were in the United States, where even the largest among them are smaller than their European counterparts.

Today, although some U.S. megabanks (such as JPMorgan Chase and Bank of America) are still taking excessive risk, it’s primarily the largest European banks that are in the most trouble: Banco Santander, Barclays, Crédit Agricole, Lloyds Bank, Royal Bank of Scotland, Société Générale, and UniCredit SpA.

In fact the weak European banks are so large, their total assets are greater than the total assets of ALL U.S. commercial banks combined.

FOUR. In 2008, governments had not yet deployed their “big gun” cures for the debt crisis. So they still had the firing power to squelch the crisis with a series of unprecedented rescues.

Today, we have seen rapidly diminishing returns — or outright failure — with nearly every possible stimulus plan, bailout deal or austerity measures known to man.

FIVE. In 2008, governments encountered little public resistance to major new policy initiatives.

Today, millions of citizens are rebelling at the polls — or on the streets — in France, Greece, Portugal, Spain, Italy, and even Germany.

SIX. Most important, before 2008, central banks were largely restricting their role to traditional manipulation of interest rates.

Since then, four of the most powerful central banks in the world (the Fed, ECB, BOE and BOJ) have departed radically from tradition and embarked on the greatest wave of money printing in the history of mankind.

Still not convinced?

Still thinking you have plenty of time to prepare?

Then, just take a closer look at the drama that has unfolded just in the last few days …

Start with Greece.

Any government that has to pay more than 7% to borrow long-term money nowadays is widely believed to be in the “red” danger zone.

The central government in Athens now has to pay FOUR times that much.

Any government that’s rated double-B or lower by the major rating agencies is considered very risky.

Greece has just been downgraded to triple-C, meaning that default isn’t just a possibility — it’s very likely.

Any banking system that has even $1 more in withdrawals than it gets in new deposits is in grave danger.

Greece’s banks are now suffering MASS withdrawals that are similar to the U.S. banking panic of the early 1930s!

Any federal government suffering political gridlock during a financial crisis is unable to take the needed steps to end it.

Greece doesn’t even have a government. It’s under the auspices of a caretaker president who is, by definition, not empowered to make any policy changes.

Next, look at Spain’s economy, which
is five times larger than Greece’s …

Any country with unemployment over 10% is obviously in the midst of a great recession or even a depression.

Spain’s latest tally of official unemployment (for the fourth quarter of last year) was 22.9%. And, based on a record new surge in registered job seekers reported on Friday, it’s now probably much higher.

Any bank that suffers big withdrawals and has to be taken over by the federal government is obviously in serious trouble.

But it’s far MORE serious when, despite a government takeover, depositors pull even MORE money out of the bank. It sends the message that they trust the government’s management even LESS than the bank’s. Yet, that’s precisely what happened last week in Spain, as you can see from this AP report:

“Confidence in Spain’s banks and its teetering economy was shaken Thursday after a newspaper reported that depositors were rushing to withdraw their money from Bankia, a troubled bank that was effectively nationalized just one week ago.

“Adding to the anxiety, rating agency Moody’s downgraded its credit ratings on Spanish banks. The banking sector has been hit hard by a collapse in the Spain’s property market and is facing tough funding rules that many analysts fear it can’t afford.”

“Bankia SA, the country’s fourth-largest lender, saw its shares fall as much as 27% during trading in Madrid after the El Mundo newspaper reported the bank was hit with more than €1 billion ($1.27 billion) of withdrawals since the government announced the takeover.

“The amount taken out by bank customers is equivalent to all withdrawals made from Bankia in the first three months of the year.”

Or consider the drama now
threatening the entire EU …

Until now, it’s been hard enough to prevent a dismemberment of the euro zone, and its leaders have only been able to do so thanks to a strong alliance between the leaders of its two largest countries — Sarkozy of France and Merkel of Germany.

But now, with the fall of Sarkozy, that alliance is history, and Europeans who favor a Greek exit from the euro zone — no matter how dangerous — are clearly gaining the upper hand.

Until recently, global investors apparently believed euro-zone leaders when they agreed to a great “fiscal pact” — when they vowed austerity and promised tough cuts to their giant deficits.

That’s why these global investors declared a “cease fire” in their attacks on the sovereign bond markets of Greece, Spain, Italy and France: They stopped dumping their bonds. They stopped forcing governments like Greece’s and Italy’s to fold their tent. And they waited.

But now, in the wake of new elections in Greece, France and Germany, political support for any form of austerity in Europe has collapsed; and even its staunchest supporter, Angela Merkel is buckling.

Therefore, global investors are beginning to attack again, threatening to crash most European bond markets and cut off the vital flow of cash that governments need for their day-to-day survival!

What will they do? As we’ve seen so blatantly in recent months, these governments have one last recourse: A tidal wave of money printing.

Still wondering how this will unfold? Still uncertain as to how to protect yourself and profit?

Then stand by for our next issues with instructions on your next steps.

Good luck and God bless!

Martin

It’s well known that the euro zone is in deep trouble. But what isn’t so well known is that the Eastern European countries could be in even deeper trouble because of their overriding dependence on the European banking system.

As JR and I have discussed in Money and Markets before, the European banking system is in deleveraging mode. That means they are reducing their loan books on a global basis in order to bring money back home to bolster their balance sheets.

And now with the real probability that Greece may exit the single currency experiment, European banks are facing another gigantic problem …

It’s been estimated they could be on the hook for $6.3 TRILLION on a Greek exit!

This places the entire euro-zone banking system in a very precarious condition because the firewalls (stabilization funds established by the European Union governments) are dwarfed by this massive exposure. It means bank deleveraging is becoming more dramatic. And when euro-zone banking gets in trouble …

The Eastern and Central European
countries feel the crunch the hardest

Why?

The Eastern and Central European countries have very little in terms of domestic sources of funding (they do not have viable capital markets yet). They rely most heavily on direct, cross-border bank financing from the core European countries in order to grease the wheels of commerce and as a source of consumer lending.

So when the credit dries up, these countries, aka the European emerging markets (EEM), begin to suffocate.

Now, the double-whammy …

What makes matters potentially worse for EEM countries is that much of their direct lending has come from Swiss and Swedish banks i.e. currencies not tied to the euro. This is a huge problem because EEM currencies, like the Polish zloty, Hungarian forint, and Czech koruna tend to move in direct correlation with the euro. Thus, if the euro falls, their currencies fall too — often much faster because of the emerging market aspect.

Therefore, loans that are denominated in other currencies outside the euro — such as Swedish krona, Danish krone, U.S. dollar, or Swiss franc — tend to grow dramatically at precisely the time when available credit is drying up — European bank deleveraging.

[Note: Presently the Swiss franc is being pegged to the euro, by the Swiss Central Bank, at a rate of 1.20 EUR/CHF. But, if we see a cascading down of the euro currency, it is unlikely the Swiss will be able to maintain this peg, thus widening EEM exposure on any Swiss franc loans.]

This can easily bring a double-whammy of pain that spreads like wildfire across the EEM countries during a European banking crisis.

Take a look at the chart below of three Eastern European currencies, compared to the U.S. dollar that can be actively traded in the spot foreign exchange market. They are already feeling the pain.

There is little doubt the dominos are set for another whole level of damage that could take place across Eastern and Central Europe as the crisis in Europe spreads. And the smaller economies dependent almost exclusively on cross-border capital flow are almost guaranteed to take a header as this crisis grows.

To sum it up: As hard as the euro will likely get hit (short of disappearing altogether, which is a growing probability), the currencies of the EEM could get smashed to smithereens.

Best wishes,

Jack

P.S. The euro is falling fast. And we’re making the most of it. In fact, as of Thursday’s close, one of the recos we’ve given our World Currency Trader members is up a whopping 64.75 percent in a tad over 6 weeks! And it’s not too late for you to join the party! Click here to learn how.

If there’s anything we’ve all learned over the past few years, it’s that knowledge is power when it comes to investing in, borrowing money from, or socking money away in banks and other financial institutions.

Some deserve your money.

Many others don’t.

And if you don’t know the difference, you could lose fortunes!

Case in point: In the first phase of the massive credit crisis, the U.S. housing and mortgage markets imploded. Institutions like Lehman Brothers, Bear Stearns, Washington Mutual, Fannie Mae, Freddie Mac, IndyMac Wachovia, and more either collapsed, were forced into shotgun marriages, or were bailed out to the tune of billions of taxpayer dollars.

Meanwhile, the stock market collapsed. Junk bonds collapsed. Large depositors had to worry about their money going up in smoke. It was truly an epic disaster.

But a few select individuals were fully prepared for the carnage …

They knew which banks and other institutions were at risk of failure — well in ADVANCE! That’s because they had simple, easy to understand information on U.S. bank safety — information based not on spin, hype, or subjective feelings, but rather hard, quantifiable data and facts.

Their Ace in the Hole?
The Weiss Ratings!

If you’re not familiar with Weiss Ratings, allow me to give you a quick introduction …

They’ve been rating banks since 1989 and credit unions since 2010. Here in the U.S., they now cover over 14,000 institutions in all 50 states and are set to launch global bank ratings on 200 of the largest publicly-traded banks in the world. Their work and their analysts have been recognized by investors, government officials, and the general public for their uncanny accuracy and valuable foresight.

Indeed, of the 440 institutions that failed between 2007 and present day, 90 percent were flagged in advance, rated D (“Weak”) or E (“Very Weak”), well before they imploded.

Now, the stakes are even higher. Now, we’re clearly embroiled in phase TWO of the great credit collapse. Only this time, it’s not just U.S. banks at risk. It’s GLOBAL banks all around the world. It’s not just BANKS that are failing to meet their obligations, or needing massive bailouts. It’s entire SOVEREIGN NATIONS!

That introduces all kinds of new risks … and new opportunities!

Look at what’s happening in Greece, for instance. Depositors have been rushing to withdraw money from weak banks there. Lines at ATMs are getting longer, with almost a billion dollars flowing out of Greek banks in just a few days in mid-May! Similar moves could be coming down the pike in Portugal, Ireland, Spain or Italy as the banking crisis escalates.

Greeks are rushing the banks; the chaos could easily flow to other euro countries.

For our European readers, wouldn’t it be great to know which banks CAN be trusted with your deposits — and which CAN’T? Wouldn’t you like to know who you can do business with? Wouldn’t you like the peace of mind that comes with knowing your bank has the asset quality, liquidity, and earnings to power through this crisis … and which you should limit your exposure to right away?

And for U.S. investors, wouldn’t it be nice to know if bank risk is rising sharply? If bank ratings are dropping like a rock? Which institutions — and countries — are most at risk of seeing their stocks, bonds, and currencies tank?

Just think: If you knew — in advance — where to move your money, you could minimize your losses during this escalating crisis. Or if you’re more aggressive, you could use that information to go for PROFITS — using select investments designed to rise in value when those vulnerable institutions, stocks, bonds, and currencies decline.

My latest report gives you that information —
Here’s how to harness it!

Look, a few years ago when I saw the U.S. banking and housing markets coming apart at the seams, I knew I had to do something to help investors protect themselves. So I pulled no punches. I named the names of banks at risk of failure. I told investors which stocks to avoid like the plague, and many of them crashed and burned.

Now that the banking crisis has gone global — sweeping up not just banks, but entire sovereign nations — I’ve teamed up with Weiss Ratings to do it again. I’ve just put the finishing touches on a special report called Winners and Losers in the Great Global Banking Crisis of 2012-2013.

This blockbuster report starts off by explaining, in great detail, why we believe a new global banking crisis is practically guaranteed. But that’s just the beginning. It also gives you:

* A complete forecast on just how bad the coming global banking crisis is going to be (Hint: Far WORSE than anything we saw during the collapse of Lehman Brothers in 2008!) …

* Dirty secrets that Wall Street and the big three credit ratings agencies do NOT want you to know about — including countless examples of past incompetence … if not outright fraud …

* Which parts of the world look strongest based on our research — invaluable information that can help you decide what stock and bond markets have the best chances for growth in 2012 and beyond …

* Exclusive access to our complete list of global bank ratings on 205 overseas banks located in 43 countries around the world …

* Detailed analysis of the nine strongest global banks and 10 weakest global banks …

* My specific instructions on how to target three of the weakest banks on our list that we think will crater in value — including a step-by-step explanation of what to do for maximum profit potential …

* Plus, the three rock-solid (yet virtually unknown) foreign banks that look like a great bargain right now — with all the necessary details like how to buy them!

In short, I’ve partnered with my colleagues at Weiss Ratings to give you everything you need to get ahead of this rapidly-evolving situation … the very same one that the rest of the world seems hell-bent on brushing under the carpet.

If you want to know more … if you want a leg up on other depositors and investors … if you want to know exactly HOW to protect yourself from this unfolding crisis, all you have to do is click here.

Many of the institutions we’ve identified are already falling. Many investors are already losing money, especially now that U.S. markets are following foreign markets off a cliff. Can you really afford to sit idly by while your hard-earned savings goes up in smoke? I trust the answer is no, which is why I urge you to go here right away!

Until next time,

Mike

I don’t know about you, but here in Texas I can barely drive a mile without passing a JPMorgan Chase (JPM) branch. They’re even inside the grocery stores.

Simply being everywhere doesn’t make a bank safe, of course. As we learned last week, traders in London just cost JPMorgan $2 BILLION and possibly more! Fitch Ratings downgraded its credit rating one notch to A-plus, and it looks like Moody’s may cut the bank, too.

Weiss Ratings, ahead of the curve as usual, cut JPMorgan Chase to “D” on September 30, 2010. And on October 22, 2010, they issued a special news release advising subscribers that among U.S. banks, JPMorgan was carrying the largest volume of mortgages in foreclosure or foreclosed. In addition, it had $43.4 billion in mortgages past due.

If you’ve invested in one of the three exchange-traded notes issued by JPMorgan, the losses and downgrades may concern you. Congratulate yourself. You’ve already shown more awareness of risk than this bank’s top executives … but that’s another subject.

Today I’ll explain the impact of credit downgrades on an ETN issuer and how investors should react.

We lost $2 billion. Oh well.

ETNs: A Quick Review

As a Money and Markets reader you are probably familiar with ETFs: Exchange-traded FUNDS. Exchange-traded NOTES look similar on the outside, but are really a different species.

Here’s how I explained it last year in “Does Another Lehman Have Your Money?” You may want to go back and read that column again.

• When you buy an ETF, you receive partial ownership of an independently organized entity — a “fund.” By pooling your money, you and the other owners do something together that would be hard to accomplish individually.
• When you buy an ETN, you’ve loaned your cash to the issuing bank. All you “own” is an unsecured liability. That’s banker talk for an “IOU.”

Now if someone owes you money, and you observe them losing money with stupid decisions, you might not lend them anymore. Or if you do, you might demand a higher interest rate. Credit ratings help investors make these judgments.

A credit downgrade normally leads to lower market prices for an issuer’s existing debt, too. But ETNs, even though they are debt, don’t behave like other bonds.

How ETNs Are Different

ETNs can create and redeem new shares at any time, just like ETFs, at the present net asset value (NAV). The NAV, in turn, is based on whatever underlying index an ETN is supposed to track. Issuer credit risk isn’t part of the NAV calculation.

NAV follows the index, not the issuer.

What does this mean? Here’s the bottom line: Unless JPMorgan goes into default (possible but still very unlikely), credit downgrades have little or no impact on ETNs issued by the bank.

Please note, I am NOT saying ETNs are risk-free. Far from it. They go up and down with their index, and they have default credit risk, too. My point is that the credit risk manifests itself in a different way.

Individual bonds issued by JPMorgan or any other bank can trade higher or lower based on the credit rating. ETNs issued by JPMorgan or any other bank treat default as an “all-or-nothing” risk.

Unlike traditional bonds that can’t be returned to the issuer until they mature, the redemption feature of ETNs means they can be returned to the issuer and any associated risk is eliminated in the process. So while the ETNs may have a stated maturity of 10 or 20 years, the redemption feature effectively shortens this period to days.

Make no mistake: ETNs will almost certainly lose value in a default scenario. That’s what happened to several issued by Lehman Brothers when that firm went bankrupt in 2008. Short of this extreme, however, other factors are far more important to ETN prices.

ETNs from JPMorgan

JPMorgan Chase sponsors three ETNs:  

• JPMorgan Alerian MLP Index ETN (AMJ)
• JPMorgan Double Short U.S. 10-Year Treasury Futures ETN (DSXJ)
• JPMorgan Double Short U.S. Long Bond Treasury Futures ETN (DSTJ)

The first one may sound familiar to you. I’ve mentioned AMJ before as a way to gain income from master limited partnerships. It’s still worth a look if you want to participate in that niche.

DSXJ and DSTJ are, ironically, designed to “hedge” the risk of rising long-term interest rates. As much as their issuing bank loves to hedge, both ETNs are struggling to attract assets as well as trading volume.

An ETN can be a great investment in the right scenario. The issuing bank’s stability is one factor to consider. But it’s only one factor, and not necessarily the most important one. As always, you should look at the big picture.

Best wishes,

Ron

P.S. Global wealth has been moving in one direction for centuries … but now it is heading back the other way … and FAST! No wonder one billionaire investor is working on moving his ENTIRE net worth into this epicenter of a profit explosion! Here’s how you too can get in on this massive wealth transfer with just one click of your mouse …

By now, you’re likely aware of the $2 BILLION loss by the “chief investment office” at J.P. Morgan (JPM). The firm’s stock has obviously suffered, and there has been plenty of negative commentary regarding the incident. But you should consider looking at this from a contrarian viewpoint and see if there are any opportunities in this incident.

The initial reaction whenever there is bad news like this is to sell first and ask questions later. And that’s usually the right move to make — at least in the very short-term. But the first question a contrarian investor must ask is: Is there opportunity in this news?

In order to find out …

You Need to Look a Little Deeper

First, you have to see if the incident is potentially catastrophic to the company. Second, you have to see if the incident is company specific, or indicative of a larger problem for the sector.

In the case of J.P. Morgan, it is indeed embarrassing. And it means lower earnings and by default a lower stock price. But it isn’t catastrophic. J.P. Morgan is simply too well capitalized to have such a loss put the solvency of the company into question.

And in looking at the sector, all the research so far shows that this problem is exclusive to J.P. Morgan, and not reflective of the sector as a whole.

A trading blunder has cost the banking giant more than $2 billion in losses. But it’ll survive.

So that should tell you there is a contrarian opportunity being presented by this crisis. In the case of J.P. Morgan directly, it is a question of at what price does shares in the company become an opportunity?

My reaction at this point is that the price is lower than the current value. But I seriously doubt the loss will stay at just $2 billion from this trade. Generally speaking, these types of trading losses could lead to further weakness in the shares over the coming weeks. Plus the difficult macro-economic environment could put more downward pressure on share price.

Contrarians should consider buying that weakness, as over the long term J.P. Morgan will recover.

I also believe from a sector standpoint, there is a …

Contrarian Opportunity in Regionals

When an industry leader stumbles, the entire sector can be sold off in sympathy, as nervous investors dump other stocks, afraid that it is not just an isolated incident.

As I mentioned earlier, the trading loss appears to be an isolated incident and limited to J.P. Morgan. But if you were to be very pessimistic, you could make the case that this is a peripheral negative for the large investment banks.

However, it doesn’t make any sense at all that this is negative for the regional banks, as they do not have large trading operations like J.P. Morgan. In fact, their business models differ substantially from the operations of the large, multi-national investment banks. So weakness in the regional banks is unwarranted, and that could be a sector where a contrarian opportunity lies.

One way you can play it is through the KBW Regional Banking Index ETF (KRX). This exchange traded fund is designed to duplicate the performance of the U.S. regional banking industry.

Remember that with every crisis comes an opportunity, and good contrarians always view a crisis in companies as a potential opportunity.

Best wishes,

Tom

P.S. Do you like the idea of potentially profiting from events that the market sees as a crisis? Then click here to learn how to get your hands on the contrarian investment for 2012.

If you want to hear scary stories related to retirement, you don’t have to look very hard.

For example, a trade association for the financial services industry called LIMRA recently surveyed a couple thousand Americans on retirement matters. What they found is that about 49 percent of the respondents aren’t saving for retirement at all.

Yes, you read that right — HALF of the people are literally putting nothing away for their golden years!

Why not? Well, the majority suggested that they just couldn’t afford to contribute to an IRA account.

Now I realize that the current economic climate IS certainly making it much harder on a lot of Americans … but the idea that half of us have it so bad we can’t put anything into our retirement accounts just doesn’t ring true based on my own interactions and observations.

Instead, what I think a lot of our country’s retirement have-nots are really saying is that, when it comes down to limited amounts of income, they’d much rather have new outfits, expensive cars, or the hottest gadgets instead of having money put away for the future.

This isn’t all that surprising. After all, countless studies have demonstrated that many people struggle when it comes to delayed gratification. And they have also proven that those people who CAN plan for the future typically end up better off throughout life.

Take the infamous “Stanford marshmallow experiment.”

Back in the late 1960s and early 1970s researchers took a group of kids (ages 4-6) and offered them each a single marshmallow to eat. However, they also gave them another option — wait 15 minutes without eating the marshmallow and they could have a second one.

All told, 653 children participated. Some kids ate the marshmallows as soon as the researchers left the room. And even out of the group who tried to wait a little longer, only one third made it long enough to get the second marshmallow.

Even more interestingly, follow-up studies with the same group of children have showed high correlations between the ability to wait for the second marshmallow and overall success in life — based on everything from parental evaluations of general competence and well being to other measures into adulthood. Heck, the kids who were able to wait the full fifteen minutes scored an average of 215 points higher on their SATs than the children who couldn’t wait 30 seconds!

Of course, even if some people have a higher innate propensity for retirement saving — which is perhaps THE biggest real-world example of delayed gratification — I still believe reasonable adults can at least change their ways a bit, assuming they’re given reasons to do so.

So if you know someone who just wants to eat all the darn marshmallows right now, here are a couple things you can tell them …

Fact #1: Social Security is not going to bail you out.

A few weeks ago, I went into great detail on the current state of our nation’s Social Security program. Yet astoundingly enough, plenty of people I talk to still seem to think that they’ll be doing just fine by retiring on Uncle Sam’s dime.

What they fail to realize is that — even if Washington finally gets around to shoring up the Social Security program’s finances — those monthly checks won’t come close to covering even a modest lifestyle in retirement.

In fact, the average monthly benefit that’s going out to a retired worker right now is $1,231.73. That’s just $14,780 a year!

Fact #2: You’ll probably need an extra quarter of a million just to cover your medical expenses!

In the same article mentioned above, I also explained why Medicare is in even worse shape than Social Security right now.

But again, even if you assume that Medicare is okay for the long haul, the typical 65-year-old couple that retires this year will spend at least $240,000 in out-of-pocket medical expenses. That number comes from a Fidelity Investments study and doesn’t include long-term care costs, non-prescription drugs, or even most dental work. And it also assumes an average life expectancy of 82 for the husband and 85 for the wife.

Which brings me to …  

Fact #3: If you like eating marshmallows that much now, you are REALLY going to hate the last 20, 30 or 40 years of your life!

Two last ironic twists of retirement fate to consider:

FIRST, the people who love living large right now will actually be the same people who want to spend the most money in retirement!

By learning to save a bit more in the present, they can simultaneously reduce their needs, desires and expectations in the future. And these changes can be pretty simple to implement. For example, just go take a nature walk instead of spending an hour trolling the mall!

SECOND, the longer they live the worse their lack of planning becomes!

This is both because of the basic math involved (i.e. more years = more money needed) and also because of the compounding nature of inflation, which will further erode what little buying power they have as time elapses.

Look, I can’t tell you how many people tell me they’re simply enjoying their lives now because there are no guarantees that they’ll live all that long, because they never had a chance when they were younger, or some other similar rationale.

And just to be clear — I am all for enjoying every day of your life, having some regular indulgences, even splurging from time to time.

However, “dying” is not an adequate retirement plan unless you are truly ready to pull the trigger when the money runs out.

That’s why I say a little balance goes a long way.

So go ahead and have a marshmallow or two from time to time. But also make sure you’re saving at least as many for later in life … because 20 or 30 years is a heck of a lot longer than 15 minutes.

Best wishes,

Nilus

P.S. Saving for retirement is just the first step, obviously. Investing wisely is the second step. And for more of my thoughts on that, just click here.

Nearly two years ago, we downgraded JPMorgan Chase to a Weiss Ratings of D, implying grossly excessive risk taking by the bank.

And virtually every chance since, we repeatedly published this warning about JPMorgan in Money and Markets, Safe Money Report, and multiple press releases.

Then, last week, we jumped online with a video that took our warnings to the next level — with this forecast:

“Some of the world’s largest banks will suffer massive losses and huge new bailouts will be needed.”

Sure enough, just 48 hours later, JPMorgan Chase shocked the investment world with the announcement of massive losses.

But it’s only the first of many — from JPMorgan and other banks around the world, raising urgent questions for investors.

What are the consequences? Will the world’s most powerful central banks crank up the printing presses? How much? And when?

For the answers, simply read the transcript of our recent online briefing below — the focus of today’s issue.

8 Shocking New Forecasts for 2012 and Beyond
With Martin D. Weiss, Larry Edelson and Mike Larson

Martin Weiss: Thank you for joining me today in this emergency briefing, 8 Shocking New Forecasts for 2012 and Beyond. And thank you for your overwhelming response to my emails asking you to share your own forecasts, fears, and financial desires with me on my blog.

The number one question you’ve asked is a compelling one:

“Is the great financial crisis that has plagued America and the world for four long years finally over? Or is this just the calm before the next phase of the storm?

“In other words, should we go back to Wall Street investing as usual, or is this the time to buy gold, silver and other alternative investments?”

Today, it’s our turn to give you our forecasts, and my guests today are two men whose past predictions — on bull markets and bear markets, booms and busts — have proven to be astonishingly accurate over many years.

Larry Edelson, editor of the Real Wealth Report, is our expert on precious metals and other tangible assets. He is one of the very few in the world who nailed the bottom of the gold market at $255 per ounce in 1999 and helped his Real Wealth subscribers profit from the entire bull market, to as high as $1,921 per ounce, so far!

Mike Larson, editor of Safe Money Report, is our expert on conservative investments, interest rates and real estate. He is one of the very few who predicted the housing bust, the debt crisis and the Great Recession well ahead of time, and who also saw the turn as the housing market hit a bottom.

Together, they make a great team, especially now that their forecasts have come to fruition, especially now that we move into what we believe is a brand new phase with enormous consequences for investors.
Larry, you’re famous as a gold bull, but in recent months, you have been probably one of the only gold bulls in the world who warned of a major correction in gold. What’s up?

Larry Edelson: Well, yes that is correct, and initially many of my subscribers were disappointed that I didn’t give them the green-light “GO” signal to buy gold right away. I told them to wait, and now, they’re very glad they did.

Martin: So exactly when and where do you see gold moving? And what about silver?

Larry: I don’t want to jump ahead. Mike and I have eight new forecasts that we are going to issue today, and I think you have to understand the first seven before I can give you the eighth, which is on silver and gold. But, I can assure you, my gold forecast will not disappoint you.

Forecast #1
Country after country will abandon
their so-called “austerity” programs.

Politicians all over the world are going to jump back to their old habits. They’re going to borrow and spend, borrow and spend.

Look at what’s already happening in the U.S. You saw all the hullabaloo last year in Washington about the budget. You saw all the big fighting in congress and all of the politicking, and what did they do to cut the deficit?

Martin: Diddlysquat!

Larry: And guess what! The red ink is already gushing again. We have a fiscal deficit this year of $1.3 trillion and counting.

Also look at what’s happening right now in Europe. Last year, after months of agonizing debate, the Europeans finally cobbled together an agreement to cut deficits.

They called it their new “fiscal pact.” But in just the last couple of weeks, the entire agreement has started to collapse.

Sarkozi in France, a major linchpin of the fiscal pact, has fallen from grace, and the social democrats are taking over France.

The government of the Netherlands, another major supporter of the budget pact, has collapsed.

The elections in Greece could be another game changer.

We have seen new protests and riots on the streets in cities all across Europe, and they are just beginning to kick up the firestorm, just beginning to spread.

So suddenly and without warning, the pressure is building for more spending, bigger deficits, and a bigger pile-up of …  guess what! Debt!

Martin: Larry, stop there for a moment, because in some countries, they are already committed to cutting deficits. So how does that pan out?

Mike Larson: Martin, let me take that question, if you don’t mind. We already know the answer, and it’s our forecast #2.

Forecast #2
If governments cut spending,
the debts will pile up even faster!

Never forget, government spending is a major booster for these European economies. So in any country that pursues deficit reduction despite all the political backlash, here’s what happens:

• The more they cut, the more their economies shrink!

• And the more their economies shrink, the less they collect in tax revenues, which, in turn creates …

• Even bigger deficits and forces them to cut even more. It is a fatal vicious cycle.

We first saw this cycle play out in Greece over a year ago, and now we’re seeing it hit other countries as well.

We have Italy, Belgium, the Netherlands and the Czech Republic already in recession.

Plus, Spain and the U.K. officially sank back into recession just in the last couple weeks.

You have taxes and other government revenues plunging and their deficits growing by leaps and bounds, which means …

Debt levels soar!

Martin: And this is why we see such a violent political backlash.

Mike: That’s an understatement!

For over three years we have said that Greece was the canary in the coal mine, and that’s exactly what has happened.

The Athens government radically slashed salaries and pensions. It cut entitlements. It raised taxes. And it did all of that to supposedly cut its deficit.

But guess what! Instead of shrinking, its deficit ballooned from 139% of GDP to 159% of GDP.

And its total sovereign debt load is now 17 billion euros higher than it was in 2009.

Martin: But it’s not just Greece.

Mike: No. Ireland’s debt is up by 76 billion euros.

Italy’s debt has surged by 175 billion euros.

Spain’s debt is now larger to the tune of 275 billion euros, and …

France’s debt has jumped by 353 billion euros.

Martin: What about the U.K.?

Mike: They cut teachers’ salaries. They wiped out subsidies for student tuition costs. And yet despite all that, the national debt has still increased by the equivalent of 519 billion euros.

Martin: So what’s the bottom line?

Mike: We are seeing some countries already abandoning austerity …

We see some countries on the verge of abandoning austerity …

And we see some that may try to stick it out through thick and thin.

But no matter what they do, government debts are going to continue to soar globally!

Martin: And those are just the economic pressures for money printing.

Mike: Right. But there are MORE pressures, as you can see with my next forecast …

Forecast #3
Some of the world’s largest banks
will suffer massive losses and huge
new bailouts will be needed.

Martin: More losses from what? From real estate?

Mike: Sure, there are more real estate losses in the pipeline, but that’s almost old news to me.

What I’m mostly talking about is an entirely different disaster. And it’s potentially much bigger than the banking disasters we saw in the U.S. three years ago.

Think about it this way: All U.S. banks combined have roughly $14 trillion in assets, which is obviously a big number.

But the banks of the European Union have almost $45 trillion, or three times more. And they’re loaded down with bad government bonds that are sinking because of those budget and debt disasters that I just told you about.

Martin: In the last debt crisis they got killed in real estate. So they ran to the safety of government bonds.

Mike: Safety? Right. But now they’re getting killed in those supposedly “safe” government bonds, and there’s just no other place to run to.

Martin: Our Weiss Ratings division is tracking this bank by bank. And we’re soon going to launch our new global bank ratings, which you work with also.

Can you give us a sneak preview of those ratings right now?

Mike: Sure.

Deutsche Bank, the largest bank in the world, has assets of more than $3 trillion, and it gets a Weiss rating of D; which means weak.

Plus look at some other huge banks with D- and E+ ratings:

But the most shocking news of all is this: These weak and very weak banks have assets totaling $15.7 trillion.

That’s more than the total assets of ALL U.S. banks combined.

Martin: More than all the U.S. banks combined — just in those few weak banks in Europe!

What are the consequences for investors?

Mike: You could have a massive plunge in bank stocks — for starters.

But more to the point, it means massive new demands for bank bailouts and still more money printing.

Martin: Many of our readers are asking this question …

“With this global disaster rushing towards us like a runaway freight train, why aren’t global stock markets crashing?”

Larry, you predicted this stock market rally scenario just as it’s unfolding. So give us your answer to that question.

Larry: It is a side effect of the money printing. It’s because of wave after wave of money printing by the world’s most powerful central banks.

Martin: Explain how we actually track that.

Larry: For every dollar the central banks print and pump into the economy, they add a dollar to their balance sheets. So you can directly measure the money printing simply by looking at the bloated size of their balance sheet assets.

Martin: What would you say is approximately the normal level for that?

Larry: I would say that each central bank’s assets should be relatively small in proportion to each country’s economy — at about 5% or 6% of GDP.

But the U.S. Federal Reserve has nearly tripled the size of its balance sheet from about 6% of GDP to almost 17% of GDP.

And it has engineered that dramatic, unprecedented change of money printing in just three years.

The Bank of England has followed in lock step with the U.S.

The European Central Bank was the most conservative. But recently, it just exploded its balance sheet to close to 30% of GDP.

And the Bank of Japan, just announced a new round of money printing, it’s also run up the size of its balance sheet assets to about 30% of its economy. Would you care to guess the total size of the balance sheets of these four central banks?

It’s more than $10 trillion! That’s $10 trillion of paper money, fiat paper money, that’s been pumped into the global economy, with nearly half of that hitting in just the last three years.

Martin: What I find most shocking about this is not just how utterly massive and unprecedented it is, but also how passive and disinterested most people are.

Look. My family and I have been tracking speculative bubbles and busts for 80 years.

We have personally witnessed about a dozen recessions, two depressions, four or five stock market crashes, a couple of real estate busts, three bank failure epidemics, and two of the most vicious inflationary spirals of all time.

But we have never seen anything like this.

Larry: Martin, if you think this is extreme, then brace yourself. Because these are just the first waves ushering in a massive tsunami of money printing, which leads me to …

Forecast #4
The European Central Bank (ECB)
will kick its money printing presses
into overdrive and very, very soon.

That’s the only way they know how to react to the riots on the streets, how to finance their budgets, how to rescue their banks and save their own necks politically.

And if you think Europe is too far away from your hometown to matter very much — too far away from Main Street USA — think again.

What they do in Europe will have a direct impact on everything you buy, at the gas pump, in the supermarket, and most immediately, in the financial markets.

In just the last four months, the European Central Bank has embarked on two major, unprecedented waves of money printing.

They’ve just printed 802 billion euros, more than one trillion U.S. dollars, to try to convince investors that the sovereign debt crisis is over! But it is abundantly obvious that the debt crisis is not over.

So they have no choice but to launch yet another round … a third round … a fourth round … and a fifth round.

They’re going to keep kicking the can down the road.

Martin: And they know that.

Larry: Yes they know that they’re confiscating wealth, causing inflation. But they’re buying time in the hope that, somehow, everything will work out fine.

Martin: What makes you so sure they’re going to do this right now?

Larry: Because of everything they’re already doing!

You don’t need to be a Ph.D. or a mind reader to understand these guys.

It’s what they’re doing and it’s what they’re going to continue doing.

They’re not blind. They see all the disastrous numbers we just told you about. They know all about the trouble the economy’s in, and that their banking systems are in. They see no other way out: They must print money.

Mike: But they’re not alone.

Larry: Exactly, which leads me to

Forecast #5
The U.K. and the U.S. will
also join the money printing rampage.

Martin: Okay why don’t you start with the U.K.?  

Larry: The British economy never really healed from the debt crisis. It’s got deep, gaping financial wounds. And now, here we go again: Britain has just slipped back into a double-dip recession, the first since Margaret Thatcher. What will their response be? More money printing.

Or go back to the U.S. Despite everything the Fed may say, in the real world, the U.S. Federal Reserve will also unleash a veritable tidal wave of newly-created greenbacks.

Just look at how much the Fed has already printed since August of 2008: $1.963 trillion.

It’s amazing. That’s in just 3-1/2 years.

Martin: Most people don’t have a clear vision of what it means for them personally.

Larry: Let me put it into a very clear context for you: Remember the 1970s, when inflation hit double digits?

Well, that happened after the Fed printed only $83 billion, which is about $332 billion in today’s money.

As a result of that money-printing binge, the buying power of the U.S. dollar plunged. Everyone’s cost of living went through the roof. Overall inflation surged to nearly 15%.

The price of eggs jumped 145%. Corn soared 248%. Wheat skyrocketed 340%. And gasoline more than quintupled in price, exploding 434% higher.

Martin: But this time, we don’t see as much consumer price inflation in the economy.

Larry: I do!

Look, it takes about 18 months for this kind of money printing to work through the economy. And the consumer inflation doesn’t explode immediately. It starts in specific markets that become the targets of speculation. Then it spreads and builds up over time, working its way through the entire economy.

The key is that this time, Fed Chairman Ben Bernanke has printed nearly six times more money than his predecessors printed in the 1970s, and that’s even after adjusting for inflation.

And now it’s happening again.

We all know our cost of living is going up. Just since Bernanke began his money printing binge, gasoline prices have jumped 200%. Eggs are up 203%. Wheat is up 236%. Corn is up 288%.

But this is just the beginning because it’s all going to work its way through the economy!

Plus, never forget: Bernanke’s boss in the White House is up for re-election. He’s going to try everything in his power to paper over what’s still the worst long-term unemployment in recorded history in the U.S.

Martin: So let’s add up the all these numbers.

Mike: I’ve been doing just that as you were speaking.

The U.K. has printed the equivalent of $520 billion.

In Europe, they’ve printed an equivalent of $1 trillion so far. And here in the U.S., the Fed has printed nearly $2 trillion.

In addition, Japan has already printed the equivalent of nearly $322 billion.

Plus, other central banks have done the same. It adds up to a grand total of at least four trillion dollars-worth of newly created money.

Larry: And it’s all sloshing around in the global economy, with more money printing to come.

It’s colossal. It’s massive. It’s unprecedented. And it’s going to be a tsunami of unbacked, paper money flooding the entire world.

And now, you’ve got a new recession hitting, starting first in Europe and spreading out from there …

Martin: Which means …

Larry: Which means the money printing we’ve seen so far could pale in comparison to what’s coming.

In fact, top global economists are already starting to demand that governments not only continue, but actually accelerate their money printing.

You’ve got Adam S. Posen, an American economist on the Bank of England’s monetary policy committee, who says,

“I am here to warn policy makers in the United States, Europe, everywhere that we cannot take our foot off the pedal. The outlook is grim — the right thing to do now is engage in more monetary stimulus!”

He says it clearly, we can’t take our foot off the pedal.

You’ve got another, David Miles at the Bank of England, who says:

“The weakness of demand, given the amount of spare capacity in the economy, still made a strategy of having monetary policy even more expansionary the right one.”

There you go again — pedal to the metal! These are two top economists with the Bank of England. You have riots on the streets and global investors in flight — all demanding the same thing.

At all four of the world’s most powerful central banks, the Fed, the European Central Bank, the Bank of England and the Bank of Japan, the momentum is clearly building for more money printing.

All four are now terrified of recession, bank failures, sovereign debt defaults … and their jobs of course. All four will do everything in their power to avoid these disasters.

Here’s my next forecast …

Forecast #6
Before this great financial crisis comes to
its final tipping point a few years from now,
you’ll probably see up to $20 TRILLION
in global money printing.

The worse things get, the more money they’re going to print.

And when you have a massive tsunami of paper money, there’s only one thing that can happen: The value of that money, it’s buying power, plunges. Through the basement!

Forecast #7
This unprecedented global orgy of money printing
is about to light the fuse on an unprecedented
period of global hyperinflation.

Even if they don’t print one more dollar of paper money, you’re going to see some pretty wild inflation coming up!

Just the money they’ve already printed is going to create that massive inflation.

You have to understand the mechanisms at work here and how they view things. So, I want to read to you one of my favorite quotes from economist John Maynard Keynes, who actually was the granddaddy of money printing and advocated it very strongly.

He wrote this particular note about Lenin in Russia:

“Lenin declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments confiscate, secretly and unobserved, an important part of the wealth of their citizens.

“Lenin was right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”

What Keynes and Lenin were saying is that the way to destroy sovereign debt is to devalue the currency and inflate those debts away — rather than outright default.

The problem is that the average citizen doesn’t realize their wealth is being confiscated through inflation — like a ghost that comes into their home at night and steals their money.

Mike: Two Harvard economists have written essentially the same thing — that inflation is a way for governments in debt to suppress and seize the financial wealth of the average person.

Martin: This whole situation feels eerily familiar to me personally. I was raised in Brazil. And when the Brazilian government did what these countries are doing today, inflation surged to 100% in the mid-1980s.

We thought that was bad, but then it hit more than 1,000% per year in the late ‘80s. And it didn’t peak until it hit a record of 5,000% in 1993.

Can you imagine that? At 5,000%, prices were jumping 50 times over the course of 12 months.

Larry: The classic case of hyperinflation was the German Weimar Republic after World War I, when the German government printed trillions of marks, and it took three trillion German marks to buy one U.S. dollar.

A German-born oil consultant now living in New York tells the story about his father who was a lawyer in Germany during that period.

In 1903, his father took out an insurance policy, and every month for 20 years, he paid the premiums faithfully. Then, when the policy came due in 1923, he cashed it in. Guess what he was able to buy with that policy! A single loaf of bread!

At Freiburg University in Germany, a student ordered a cup of coffee at a cafe. The price on the menu was 5,000 German marks. Then he ordered a second cup. The bill came. But by that time, the price had gone up to 14,000 marks.  

Mike: He should have ordered both cups at the same time.

Larry: That’s why, with inflation, you get a hoarding effect. The more prices go up, the more people buy.

Mike: But I don’t think the Brazilian and German inflations are directly comparable to what we’re seeing here today. There are deflationary forces that could interrupt the inflationary spiral.

Larry: Of course. That’s why I warned about a major correction in natural resources over the past nine months or so.

But consider this: The inflation that Brazil and Germany experienced were the result of money printing by just ONE central bank at a time!

Now, we’re seeing coordinated money printing by at least four major central banks at the same time. So in those episodes, the inflation was mostly local. This time, it’s certain to be global.

Martin: How does all this impact our viewers in their pockets?

Larry: It means that every dollar, every euro, every pound you earn, save and invest is going to be worth a lot less. That’s already happening. That’s why food and energy prices are already rising so quickly.

But this is only the beginning. There’s at least four trillion dollars’ of new paper money sloshing around the global economy, just beginning to impact select markets and investments.

And there’s trillions more that are on the way. This money is clearly going to drive the price of gold, silver, oil, and almost all natural resources higher like never before in our lifetime. It’s also going to create profit opportunities for savvy investors and like never before in our lifetime.

Martin: Specifically, how much higher will gold and silver go?

Larry: That’s my last forecast.

Forecast #8
The gold correction I’ve been
forecasting will soon end, and gold will
ultimately soar to at least $5,000 per ounce!

Martin: What about silver?

Larry: On January 21, 1980, the peak price of silver was about $49, or approximately $150 in today’s dollars. So just to match its previous peak, silver would have to rise to that level, $150 per ounce.

The $5,000 gold and $150 silver assume no further money printing, no further decline in the dollar, and no major global catastrophe, financial or otherwise. Add those factors into the mix, and all bets are off.

And don’t forget one of the most important commodities in the world — oil.

Just the decline in the dollar alone could drive it to $200 per barrel! And if we see global supply disruptions, which I’m sure we will, it could spike even higher.

So those are my baseline predictions for gold, silver and oil — my minimal expectations. And they imply the potential for gains of at least double or triple your money.

Martin: Is that with or without leverage?

Larry: Without any leverage whatsoever. Let me stress:

The days of this natural resource correction are numbered, and we’re now closing in on a huge buying opportunity in tangible assets and natural resources.

Martin: Thank you, Larry, Mike. Thank you for your time and insights today. This has been an exceptionally illuminating session.