GREAT DANGER LOOMS AS INVESTORS SAY GOODBYE TO SUMMER / KING WORLD NEWS

Great Danger Looms As Investors Say Goodbye To Summer

Today a 42-year market veteran warned King World News that great danger now looms as investors say goodbye to summer and global trading enters the final few months of this year. 

Below is what Egon von Greyerz, who is founder of Matterhorn Asset Management out of Switzerland, had to say in this fascinating interview.

Greyerz:  “Looking around the world it is astounding how investors are ignoring risk in their investment strategy. Global stock markets are in bubble territory, but the massive liquidity and the lemming mentality of investors have led to a total disregard of the risks that stocks represent today....
“Most global stock markets are now in a position where the Nasdaq was back in late 1999. This means that the markets could go a bit higher, but the downside in real terms is 80 percent or more. So the devastating bear market in front of us could set the world back 50 years or more.
 
I’ve never understood why government bonds today are considered a safe investment.  Bond prices are at historic bubble highs and yields are at record lows. If you look at the 10-year bonds in Germany, Switzerland, and Japan, they are all paying under 1 percent. That’s just ridiculous, especially when it comes to Japan. You are guaranteed not to get that money back in real terms in today’s money, and probably investors will get virtually nothing back.
 
But even bankrupt countries like France and Italy can borrow at between 1.3 and 2.4 percent for 10 years. Those bonds will be worth more as wallpaper than as financial assets at the time of redemption. If we include unfunded liabilities, eurozone countries have, on average, a staggering 400 percent debt-to-GDP ratio.

Even U.S. debt/GDP, including unfunded liabilities, is at nearly 700 percent.  Government bonds are a massive market around the world at roughly $75 trillion. So the coming implosion of the bond market will have disastrous repercussions for the entire world. It will also lead to higher interest rates than we saw in the 1970s. That means interest rates could easily exceed 20 percent.

I’ve talked about deflation in our recent interviews. Well, today the European Central Bank did what we knew they had to do -- and this is just the beginning. They announced a program of injecting liquidity into the failing European banks. So the ECB will buy asset-backed securities and bonds. No amount was indicated, but it’s assumed that it will be at least $500 billion.

This will be just the beginning and there will be a lot more to follow. The ECB also cut the refinancing rate to 0.05 percent, and the deposit rate to minus 0.2 percent. So now you have to pay an institution that you know will not be able to pay you back. You have to pay them to look after your money.

Many of the European banks have worthless loan books. Take Banco Espirito Santo in Portugal. Buyers of that bank's debt are paying just 2 percent of face value. The hidden losses in the European banking system are of a magnitude nobody understands today.

This brings us back to the very real risks in the financial system. Stocks and bonds represent a huge risk, and the banking system is unlikely to survive in its present form.  This is why physical gold and silver stored outside of the banking system are an excellent way to minimize risk and to preserve wealth.

The only reason the metals have not yet started their massive surge is because almost all investors don’t see the risks present in the system. It’s also because there is still manipulation in the paper pricing of the metals markets. But this manipulation will soon fail.

A couple of weeks ago we also talked about the Swiss Gold Initiative. I think this could be very important for the gold market, especially if the initiative is successful. The referendum will take place November 30. This would require Swiss gold to be repatriated from other countries. 

That’s funny is that the Swiss don’t even know where the gold that is supposed to be stored in Canada is located.

So the Swiss don’t even know where their foreign-held gold is. But the more important part of the initiative is that 20 percent of the Swiss central bank’s reserves would have to be held in physical gold. This would mean that the Swiss would have to buy 1,700 tons of gold, roughly $70 billion.

This would rock the physical gold market and influence other countries to look at doing the same thing. So this referendum will interest the whole world. If the Swiss Gold Initiative is successful, this vote could destroy the artificial paper manipulation of the gold market once and for all.”