Europe Crumbles

As the wheels come off in Europe, be prepared to take advantage of any pull-backs in physical gold, silver, platinum, and in mining stocks.

Volatility is high as rumors circulate about the latest bailout plan, change in leadership, and massive public demonstration. Do not let this fool you: governments will create the currency to kick the can down the road. It's a game of musical chairs, and nobody wants the music to stop on their watch.

But it's not an all-or-nothing game, either. Especially in Europe, there are many possible outcomes: dramatic restructuring into a United States of Europe with countries essentially devolving into provinces; Germany pulling out and leaving the rest of Europe to fend for itself; some or all of the PIIGs getting kicked out of the euro and reverting to their former currencies; and so on. What all of these scenarios have in common is massive currency debasement.

Bad debts have to be liquidated, one way or another. And while that sounds deflationary, it will trigger currency creation in unheard-of proportions as the "too big to fail" banks, corporations and governments are kept afloat.

Keep an eye on the half-life of the dollar:

There is plenty of room at the bottom of this chart for a gradual default on all the debts, public and private, that can never be paid back in honest money. But don't be surprised when at some point, maybe next week, maybe next year, or maybe next decade, the markets suddenly wake up and smell the coffee – and realize that they have been conned. By that time, you want to be as far away from fiat currencies as possible.

Also expect a gradually tightening noose of capital controls, increasing taxes, and encroachments on civil liberties as standards of living fall. All these things will be done "in your best interest", to "create jobs", to keep you "safe", and make sure "the rich" pay their "fair share". This gradualism may also give way suddenly to a declaration of war, a state of emergency, martial law or an outright dictatorship – possibilities you have to prepare for.

Watch for buying opportunities and continue to accumulate physical gold, silver, platinum and high quality resource stocks. Diversify your geopolitical risk by having some of your savings (precious metals and investments) outside of your home country. Have a place which you and your family enjoy that you can slip away to if necessary. Hope for the best, but prepare for the worst!

This Week's Market Action

All the major currencies are down for the week, YTD and for the last year. The weakest was the EUR (falling 2.6%) reflecting increasing concerns about Italy, Greece, and the whole future of Europe. JPY was the least weak, down only 0.9%.

Bonds were lower again this week, with SHY down 1.4%, and the 20 year TLT dropping 2.1%. Over the longer term, TLT is close to breaking even for the year, while SHY is down around 20%.

Stocks were little changed for the week, with the Dow up 0.05%, the S&P 500 down 0.5%, and HUI up 0.8%. Japanese stocks were the exception – sharply lower, with the Nikkei down 4.2%. All four indices are much lower YTD and from one year ago, with the Nikkei leading the way, down about 30%.

The Dow and the S&P 500 remain below their lows of 2009 (3.2% below and 2.4% below respectively) in spite of their nominal "gains" when measured in ever depreciating dollars. Japanese stocks are more than 20% lower. Gold stocks, which bottomed in late 2008 at 6.45g, are now trading 64% higher at 10.6g.

Commodities were mixed, with crude oil and coffee rising, while copper, silver and cotton declined for the week.

All the commodities on our list are lower YTD and compared to a year ago, with cotton showing the most weakness (down over 45%) and silver the least (down only 4% for the year so far).