Last week, I wrapped up my first series of on-site video reports from three of the world’s likely hot spots — Italy, Turkey and the Arabian Peninsula.
Readers are raving about the thrill of virtually traveling along with me and witnessing the global impact of deepening local conflicts.
But there are also some readers who are unhappy for one simple reason: They don’t like to watch videos — they just want to read the information.
I get the message.
In response, here are the transcripts of my first two videos on this worldwide trek. If you missed the videos, this is your opportunity to catch up. And if you saw them, this is your chance to get my updates on the most recent events …
First Stop: Italy
This is the financial capital of Italy, the third largest economy of the European Union, and the one country in the entire world with the most megabanks on the brink.
Consider this bank, for example, UniCredit SpA. We give it a Weiss Safety Rating of D. That’s a reliable indication of a much higher-than-average probability of financial difficulties. And yet this bank has over $1 trillion in assets, making it one of the biggest in the world.
But it’s not the only one.
- Banco Popolare SC has $139 billion in assets and we give it a Weiss Rating of D- …
- Banca Monte dei Paschi di Siena SpA, with $197.6 billion in assets, gets a Weiss Rating of D- …
- Intesa Sanpaolo SpA, with a whopping $796.9 billion in assets, is rated D+ …
- And as I said, UniCredit SpA, with over $1 trillion in assets, gets a Weiss Rating of D.
Now, if the Italian government could easily come to the rescue, it might not be such a big problem. But the Italian government itself has more debt in proportion to GDP than any other country in the European Union except Greece.
|Despite Italy’s deepening bank troubles, a growing number of Italians reject virtually any government-mandated solution.|
Or, if the European Union could easily come to the rescue of the Italian economy, like it did for Greece, then maybe that would at least postpone the day of reckoning.
But that’s virtually impossible: Italy’s public debts are eight times larger than Greece’s. Its economy is ten times larger. And its banks have far more assets in jeopardy.
In other words, it’s wrong to say Italy is too big to fail. In reality, it’s too big to save.
But can Italy truly save itself? For an answer, I spoke to our friends here in Italy, along with average citizens from all walks of life. When I asked them if Italy can save itself from the next banking crisis, the near unanimity of their answer was shocking:
It will be extremely difficult, if not impossible.
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Luciano, for example, is an astute businessman and investor from Viareggio in Northern Tuscany, with some very strong views on the obvious dangers ahead for Italy and all of Europe.
|Former comedian Beppe Grillo is turning Italy upside down with a rising tide of popular support to dump the EU.|
"In the U.S.," he says, "you have Donald Trump. Here, we have Beppe Grillo. Trump is a professional businessman and he’s not funny. Grillo is a professional comedian and he’s even less funny. His political movement, called the ‘Five Star Movement,’ is now the most popular party in Italy. He wants to abandon the European Union precisely when we’re going to need the EU the most."
Elisabeth’s old friend Giuseppina, is a very warm, kind-hearted and retired office manager from Piacenza, but also not hesitant to speak her mind.
"Even before any new financial crisis," she says, "poverty in Italy is the worst for at least a decade."
Indeed, there are almost 5 million Italians living in what is officially defined as "absolute poverty." Plus, there are more than 8 million living in "relative poverty."
In this context, most average Italians don’t understand the big fuss about Brexit. It’s the crisis in Italy, they say, that could destroy Europe.
Judgment day for Italy will come this year, probably in October. That’s when the prime minister is holding a constitutional referendum.
If the referendum passes, it will end the Italian government as we know it today. If it doesn’t pass, the prime minister will have to resign. Either way, Italy will face political turmoil precisely at a time when its banks could be facing financial ruin.
We knew from news reports that the situation in Italy was deteriorating rapidly. But now that I’m here and I’ve had the opportunity to talk to Italian citizens from all walks of life, I can tell you that it’s actually a lot worse than we realized.
This could be the epicenter of the next debt crisis — not only in Europe, but globally. Right now, it’s driving capital to U.S. markets, and will likely continue to do so.
But at some point — that capital flow may reach a dead end. In the meantime, my recommendation is unchanged: Invest in extreme high-quality and with great caution. Above all, continue to build cash.
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Second Stop: Turkey
This is Istanbul, Turkey, the cross-roads of the greatest East-West conflicts in the history of the world.
Everyone who I’ve spoken to here — on the streets, in the cafés and in investment circles — is shocked by the recent turmoil. But anyone who has studied Turkey’s past, or truly understands its political culture today, should not be shocked at all.
Consider the Hagia Sophia, which Elisabeth and I just visited.
For 1,113 years, this was a Christian church. But then in 1453, four decades before Columbus discovered America, it fell to Sultan Mehmed, who conquered this city and converted the Hagia Sophia into a mosque.
Then, 63 years later, right across the park, Sultan Ahmed built the great Blue Mosque. His explicit goal was to literally overshadow the Hagia Sophia and to send a message to the world about the rising power of Islam.
These events were not just local or symbolic. When the Hagia Sophia was a church, Turkey was an integral part of the Christian Byzantine Empire, stretching from Spain to Judaea to North Africa.
And when the Hagia Sophia was a mosque, Turkey was the center of the Muslim Ottoman Empire, encompassing nearly half of Eastern Europe, the Balkans, the Middle East and again North Africa.
That’s the history. Now fast forward to the present.
Today, this country is the primary gateway for Jihadists on their way from Europe to join ISIS in Syria … and for Jihadists again on their way back from Syria to launch terrorist attacks in Europe. Plus, it’s also the primary gateway for over a million war refugees and migrants who have fled the Middle East.
Just last month, the government suffered the most massive coup attempt of any NATO nation in history.
And right now, everyone here is engulfed in — or surrounded by — an equally massive purge of the military, the courts, the universities and the media.
Just in the last few weeks, thousands have been thrown in jail. Tens of thousands have been dismissed from their jobs. Almost every institution of this society has been turned inside out and upside down.
Even the army, which has traditionally been the number one stabilizer of the modern Turkish state, is now in disarray.
Step by step, President Erdoğan has been pivoting Turkey to Islam and to the East.
And at nearly every step of the way, forces loyal to Western interests and culture have been attempting to stop him.
The recent coup was the most desperate and dramatic such attempt.
But it backfired.
And now, that same coup has given Erdoğan the excuse he wanted to clean house and get rid of any West-leaning elements of society. He says he’s trying to form something that’s "more perfect."
Not "a more perfect union." But rather, "a more perfect Islamic nation."
Again, all this seems to have taken the U.S. State department by surprise. But anyone who knows modern Turkey well enough should not be surprised at all.
Here’s what I mean …
For 42 long years, Turkey has occupied Northern Cyprus, an island nation which is now a member of the European Union.
This has always been a major thorn in the side of Western Europe. But nothing that Europe has said or done has made one whit of a difference. Turkey continued to occupy Northern Cyprus.
The fact is Turkey has always wanted to influence — or even dominate — the politics of the Middle East.
In April of this year, for example, Turkey made major efforts to court Iran, including a $30 billion bilateral trade deal.
And perhaps most interestingly …
Turkey controls the waters that flow into Syria and Iraq via the all-important Tigris and Euphrates rivers. That gives it massive leverage over the destinies of those two countries.
All of this is very frightening. And with Erdoğan’s massive purges now underway, it’s getting worse by the second.
It’s bound to upset the delicate balance of power in this region, driving still more flight capital to safe havens like the United States. So for now, this East-West crisis is still a positive for U.S. financial markets.
The critical question is:
At what point does this global crisis cease boosting our markets and dragging down the global economy even further? For U.S. investors, when does this crisis morph from a bullish force into a bearish force?
That’s the big turning point my team back home in Florida and I are watching for every week and every day. So count on us to do our best to warn you.
But alas, the conflicts are not limited to Turkey, as you will see when I go to my next major stop-over, the Persian Gulf and the Arabian Peninsula.
Good luck and God bless!