Soon after I posted my new video, The Next Black Swans, over ten thousand readers rushed to watch it.
Thousands more viewed it on our Money and Markets Facebook page.
And answers poured in, responding to my big-picture question:
"What will be the next major Black Swan to strike the United States?"
Brian, for example, writing in the comments section of my last column predicts that "the next Black Swan event will be the political crisis in Italy along with the collapse of their banks, which will result in Italy leaving the EU. The EU will then collapse."
David A. agrees: "The next Black Swan," he says, "will be bank failures in Europe. Italian and Spanish banks are in deep trouble, and a bankruptcy will set off a chain of events that will shake the entire financial system."
This is very timely commentary, gentlemen. Indeed, just recently, we released our Weiss Safety Ratings on the weakest banks in the world, covering institutions in 51 countries. We found that among the 22 weakest large banks in the eurozone …
Germany, Belgium and Cyprus each have one. Portugal has two; Spain and Greece, four each.
But of all the countries in the world, Italy has the biggest concentration of weak large banks — nine institutions in all.
Moreover, five of Italy’s nine weakest banks are megabanks with over $100 billion in assets:
- Unione di Banche Italiane, rated D, with $132.8 billion in assets;
- Banco Popolare SC, D-, with $139 billion;
- Banca Monte del Paschi di Siena, D-, with $197.6 billion;
- Intesa Sanpaolo, D+, with a whopping $796.9 billion; and
- the largest of all, UniCredit SpA, rated D, with over $1 trillion.
One of their main problems: Since 2009, bad debts have quadrupled from less than 3% of total loans to more than 12% today. As a result, many Italian banks have far more bad debts than they have capital to back them up.
To make matters worse, Italy has more public debt per GDP than any other EU member except Greece, despite an economy nine times larger than Greece’s.
Result: In a banking crisis, not only would Rome be hard pressed to come to the rescue, but Brussels would have a tough time saving Rome.
(For our complete list of the 22 most vulnerable large banks in the eurozone, click here.)
R.M. writes that the next Black Swan will be "market demand for higher interest rates despite the best efforts of central banks, causing one or two advanced nations to absolutely default on sovereign debt obligations. That would precipitate a worldwide and long-lasting deflation."
R.M., it sounds like you’re referring to a global bond market collapse. You’re saying that, regardless of what central bankers may want, global bond investors could dump their holdings, drive interest rates higher, and put great financial stress on highly indebted sovereign governments.
If so, based on numbers alone, Japan seems to be most vulnerable, with government debts that represent more than 245% of GDP.
But the numbers are also alarming in five other major nations with more government debts than GDP. That includes Greece, Italy, Portugal, Belgium, plus one more country that has joined the same pitiful club: the USA.
In each of these countries, government debts exceed 100% of GPD. In each case, the debt burden is far worse than it was a decade ago. And everywhere, economists of years past warned loudly that exceeding 100% would be disastrous.
Among those same economists, many are silent today. But some — even at the International Monetary Fund (IMF) and in the Congressional Budget Office (CBO) — are not.
|Click here for the full IMF report.|
In the IMF’s most recent Global Financial Stability Report, for example, it warns that risks have risen and the outlook has deteriorated in advanced countries …
Italy: IMF analysts warn that unless Italy can repair its bank balance sheets and lower its very high public debt, the result could be global contagion. They refer to "Italy’s monumental challenge," the likelihood of "regional and global spillovers," and "Italy’s systemic weight." In other words, Black Swan events that could sink more than just Italy’s economy.
Japan: The IMF warns that "public debt is unsustainable under current policies."
United States: The Congressional Budget Office states emphatically that "the long-term outlook for the federal budget has worsened dramatically over the past several years." It foresees a death spiral that will sap revenue from government programs even as demands grow.
Clearly, R.M., the data support your thesis. But I feel what is missing in your comments is this critical fact: Bond investors don’t wait for actual defaults. They start dumping their bond holdings far sooner, and a major trigger can be ratings downgrades of sovereign debts.
Flash update: Fitch Ratings has just reported that the creditworthiness of sovereign nations has deteriorated at a record pace in the first six months of this year. So expect a raft of new downgrades.
John H. says "I believe another false flag event will occur which will support the continuation of the police state we are now living in. George Orwell’s 1984 is here and now."
I understand, John. You’re talking about events, which, despite the appearance of enemy attacks, are actually covert government operations designed to shock the public into accepting more aggressive foreign military actions or more intrusive domestic controls.
Some people believe that even Pearl Harbor and 9/11 were false flag events, or at least that the government had advance knowledge of the attacks and deliberately chose to ignore it.
In my humble opinion, there are three sad aspects to these theories: They often villainize government officials dedicated to our protection. They can be a huge distraction from the urgent task of self-defense. And, sometimes (but rarely), they are true.
But the historical examples of Black Swan events in my video are not false flags. Nor do I think the next major Black Swans will be either.
William B writes: "There is a major uptrend in street crime and violence. Several groups are organizing to disrupt both conventions this summer. I believe these … will get out of control, leading to marshal law and further loss of liberty."
William, if you have children or grandchildren … if you fear for their lives in ordinary daily circumstances (going to school, dancing in a disco, waiting in line at an airport check-in counter) … and if you’re given a choice between more liberty or less security, which do you choose?
I have asked many heads of households this same question in the U.S., Western Europe, Russia, Brazil, Japan, China and North Africa. I have asked people living in democracies, dictatorships and monarchies. But as you might imagine, regardless of social status or personal ideology, the answer is almost universally the same. For them, security is an immediate, tangible benefit; liberty is not.
The irony is that it’s the question — not the answer — that’s wrong. More security is not only possible without loss of liberty; it’s more likely to be achieved.
|Martin Weiss in Brazil during its harsh dictatorship of 1964-84.|
I know from personal experience. I lived in one of the most repressive dictatorships in modern history — Brazil between 1964 and 1984. I also lived in one of the world’s most advanced and secure democracies — Japan.
In Brazil, the loss of freedom did nothing to improve lax security; often, it merely compounded the problem. And in Japan, the high level of security had little to do with politics; it was rooted mostly in a millennial tradition of collective self-defense by local community organizations.
That may be difficult in America. But as Money and Markets editor Jeff Cantor tells us, advanced self-defense for individuals and families is not difficult.
Hard to believe? Then watch his recent blockbuster video "Freedom from Fear."
Or if you want a complete list of Jeff’s recent columns, simply follow these steps:
- Go to www.moneyandmarkets.com
- In the red menu bar at the top of the page, go to "Issues."
- Select "2016 issues."
- Below the red bar menu, you will see a series of choices — for author, topic, year, etc. Click on the "All Authors," and select "Jeff Cantor."
- Press the "Submit" button (at the extreme right of the choices.) You will then have at your fingertips over 20 blockbuster columns Jeff has written for us since March 17 of this year.
- Plus, you can follow the same steps to display the columns of any Money and Markets editor of your choice.
Bill C. says "I am 70 and have lived through all of these Black Swans since the ’50s. The murder of Dr. Martin Luther King Jr. and Robert Kennedy, the party conventions of ’68 which saw violent protests. I’m afraid this summer could see a repeat of ’68, only much worse. I pray it doesn’t happen."
We share your prayers. But Cleveland is bracing for tens of thousands of protesters from "Bikers for Trump" to the "Coalition to Stop Trump." And in response, the city is putting half of its downtown area under new restrictions.
And Philadelphia, the site of the Democratic convention, could turn out to be more hectic, with as many as one million protesters potentially descending on the city, while roughly 1,000 of the city’s airport workers walk off the job.
In both cities, at least some chaos is inevitable. The question is: How much?
In the past, the primary variable was police riot training — their skill in managing crowds with just the right level of restraint. Today, unfortunately, as we’ve just seen in Dallas and Nice, what will most determine the outcome is the presence or absence of active shooters and terrorists.
Robert believes that it’s long-term megatrends — not some individual catastrophic event — that will drive history. He foresees more "printing of currency, which is nothing but theft," "a recession, for which the signs are already present," and a federal deficit which will hit $1.3 trillion.
I agree with this aspect: No matter how shocking each Black Swan event may be, what’s driving the world today toward greater danger and turmoil are the three enduring megatrends I laid out in my video: (1) The greatest Fed money printing of all time, (2) the most extreme concentration of wealth in at least 100 years and (3) the most radical political polarization since the Civil War.
A.T. writes "the greatest surprise to U.S. investors may be how well the U.S. markets do as money leaves Europe and comes to the U.S. in search of safety. There is no safe place in the world markets anymore. Just some that are less dangerous for a time."
If so, this will not come as a surprise to us. As you may know, Money and Markets Editor Larry Edelson was among the first anywhere to predict this phenomenon, coining the term "The Global Money Tsunami."
And as you saw in my Next Black Swans video, the flow of flight capital to the U.S. is a major factor behind rising stock and real estate prices.
This powerful megatrend is continuing even as we speak. And, for now at least, it seems to have enough critical mass to offset traditional bearish forces like recession and disappointing earnings.
Gordon’s view is this: "Japan has voted for a tired Abenomics plan that has not worked so far. Abe received a bigger majority than even he expected, and the Nikkei exploded 900 points. Likewise [in the U.S.], we have abandoned looking at data, and it’s party time. But I give this party a week to 10 days, and then the euphoria will die off. People will realize that they are still in one of the Titanic’s lifeboats looking to be saved by more free/cheap government money."
Well said, Gordon. But we feel that how soon the party will end could depend on the prior question. If the Global Money Tsunami continues to drive up U.S. stock prices, it may last longer. If not, it could abort sooner.
As an investor, your best plan is to follow, or better yet, invest in advance of the Global Money Tsunami: Buy what they’re going to buy, before they buy it.
We can’t know exactly which investments that will be. But we do know this with a high level of certainty: Global investors that are fleeing danger rarely seek new risks. Instead, they favor top-notch quality and security:
- The steadiest stocks with the best dividends track records.
- Extremely high-rated mutual funds and ETFs.
- Plenty of cash and the safest institutions to stash it.
We recommend you do the same. And to find the best of the best, I suggest you rely on our brand new website and tools at www.weissratings.com.
Thank you for your very stimulating comments and please accept my apologies for the many I have not yet addressed.
Good luck and God bless!