A massive case of Euro-sis is hitting the markets. There are a lot of rumors about what will happen, but there is still no definitive word from the credit rating agencies. Germany is the big boy. They still have a AAA credit rating. However, there are talks that S&P will cut France down from AAA to AA, as will as Spain and Portugal.
Where do we go from here? Marc Faber joins us to help clear things up. The market has already downgraded these currencies. So when their credit ratings are officially downgraded, the markets will most likely consider this to be old news.
When the United States was downgraded, it didn’t affect the demand for Treasuries. If anything, the demand for Treasuries went up. The question is whether these downgrades will be sufficient. Most of them should be rated CCC. The United States should certainly not be AAA-. It Should be BBB or a junk bond.
Soverign bonds are not a good investment, other than as a trade. In the long term, you will lose money if you buy government debt. However, different people have different views. Last year, United States bonds gave a capital appreciation of 30%.
These downgrades will matter to the value of the Euro. The Euro is in a downward long term trend. The European corporate sector holds a lot of United States debt, and that makes it more difficult for them to service their own debt.
If European countries begin to exit the Euro, it could spell disaster for the Euro. But then if only the strongest countries remain, it could actually be beneficial in the long term.
As far as investments in Europe go, stocks grossly under performed the US and the whole world last year. Sometime in 2012, the out performance of the United States will cease, and you will need to move into quality companies in Europe and in other emerging markets.
Because of the 0% interest rates, it is very difficult to value anything. The central banks will continue to keep the interest rate below the rate of inflation. In such an environment, you want to be in real estate, in equities, and in precious metals like gold and silver.
The worse that the global economy looks, there will be a reaction in terms of money printing. Money printing can raise equities while the overall economy continues to deteriorate.
