Gold and Energy Advisor: Real Wealth #302, 09/07/2011

SOROS: Eurozone Banking Crisis Could Be Worse Than Lehman

Dear Subscribers,

Yesterday, I released what I consider on of the most important issues of the Gold and Energy Advisor I have ever written. Titled "Coming in 2012: A European Banking Meltdown! "

European leaders are scrambling to avert a continent-wide banking collapse.

The 2007/2008 financial implosion in the US is threatening to replay itself in Europe—the similarities are so striking, they’re almost eerie. Cracks are spreading throughout the European financial system. And US banks are wide-open, with massive exposure to European banks. If Europe goes down, we go down. This will directly impact your finance.

Today there's an article in the New York Times pointing out that George Soros agrees this my concerns and quotes him as saying...

“This crisis has the potential to be a lot worse than Lehman Brothers”.

Citing the lack of an authoritative pan-European body to handle a banking crisis of this severity Soros says...

“That is why the problem is so serious. You need a crisis to create the political will for Europe to create such an authority, but there is still no understanding as to what the authority will do.”

While the problems in smaller countries like Greece and Ireland are not new, in recent weeks the concerns have spread to banking giants in countries like Germany and France that are crucial to the functioning of the global financial system and are closely linked with their American counterparts. What is more, worries have surfaced about the outlook for Italy, whose debt dwarfs that of other smaller troubled borrowers like Greece.

From the NYT article:

“It seems like the banking sector globally is being hurt on multiple fronts,” said Philip Finch, a bank strategist with UBS in London. “It’s definitely getting worse.”Multimedia Graphic Growing Concerns About European Banks

In Europe, the worry is that government bonds owned by European banks could fall sharply in value if economically distressed countries cannot pay back their loans. That would saddle the most exposed banks with huge losses.

As a result, banks are reluctant to lend money to one another and are hoarding cash. “If sentiment continues to deteriorate, ultimately we’ll see a deposit run,” Mr. Finch said. “I’m extremely worried about that.”

Mr. Finch said European banks needed to raise at least 150 billion euros in new capital, even if they do not experience large losses on sovereign debt. With stock prices so low, though, that is difficult to do, and any new offerings of company stock would dilute the value of existing shares.

American money market funds, long a reliable financing source for capital starved European banks, have sharply cut back on their exposure — starting in Spain and Italy but now also France — making it harder for European banks to loan dollars.

The 10 biggest money market funds in the United States cut their exposure to European banks by a further 9 percent in July, or $30 billion, after a reduction of 20 percent in June, the Institute of International Finance said in a report issued Monday.

“U.S. investors remain very sensitive to the headlines out of Europe,” said Alex Roever, who tracks short-term credit markets for JPMorgan Chase. “The sell-off that we’ve seen in European bank stocks is going to reinforce that and investors are likely to stay hyper-cautious. European banks are not borrowing as much, and they’re not borrowing for as long as they could three months ago.”

Nevertheless, American institutions remain vulnerable to problems their French counterparts might encounter. At the end of the second quarter, JPMorgan Chase reported total cross-border exposure of $49 billion to France, while Citigroup had $44 billion and Bank of America had $20 billion."

While U.S. Equities are in rally mode today, and gold is off over $60 the danger from an overseas Banking Meltdown is also growing.

I've said in the past over and over again look for $100 swings in the price of gold and 300 + point swings in the Dow Jones as becoming increasingly common. The larger swings are red flags, telling you there's still a great deal of danger in the World's Financial Markets.

My new issue of Gold and Energy Advisor is a must read. Please don't get caught by the next wild move in the financial markets.

A European Banking Meltdown will mean a huge rally for gold, silver and deep slide for U.S. and world equity markets.

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