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You won’t see the bank panic on the front page


by GS Early

There’s one thing about the markets that never changes. They hate uncertainty.

And Brexit was the cherry on top when it comes to uncertainty with the European banking sector.

It may be easy to dismiss the tailspin the major European banks are in… except that these institutions are significantly linked to U.S. banking.

You won’t see the turmoil on the front page of any paper. And no one will really talk about the panic in the banking sector right now. Part of this is because the bankers know that worse comes to worse, taxpayers will be on the hook for any significant problems. The other part is because everyone is acting like a prize fighter who surprisingly gets floored by an underrated contender. Brush it off and pretend your legs aren’t rubbery and your head isn’t spinning; don’t let him know you’re hurt.

What does Brexit mean for us?

Many nations have been trying to unify Europe into a federal system for the better part of 40 years. It’s like the U.S. without the federal government. That may seem very appealing, but when the southern states tried a version of Brexit, it didn’t go so smoothly. And Europe has had its nation-states engaged in massive wars for centuries. The goal of the European Union (EU) was to get them all under one flag on issues like trade, currency, immigration, etc.

The three major players in the EU were Germany, England and France. The other states were smaller and did not have the financial wherewithal to make much of an economic impact on the union. A good example is Greece. Essentially Greece has collapsed and the EU stepped in and has helped it back up more than once.

England never trusted the EU currency idea, and while joining the EU, kept its own currency. That made Brexit a lot easier. The U.K. still has currency to buy and sell goods. All the other EU countries gave up their currencies. A Grexit or a Frexit would require reissuing of currency and a re-funding of their economies with it. That would be a nightmare all around.

So, the U.K. took its shot and decided to go it alone… kind of. It now has to negotiate how it interacts with the EU. And the EU is likely to play hardball.

None of this helps the financial situation in Europe.

When Brexit hit, the Bank of England had to immediately pump $4.6 billion into the British banks so that they could handle the massive run that was about happen.

The EU dumped around $400 billion from its central bank into the economy overnight.

To put this into perspective, the initial Troubled Asset Relief Program (TARP) in 2008 that “bailed out” the U.S. system after the banks latest scheme to make something from nothing collapsed amounted to about $432 billion.

TARP is still shaking the world’s economies. Now major European banks have to digest a liquidity dump as massive as that in much less time…

Meaning, the consequences will not remain in Europe. There is trouble a-brewing, whether you hear about it on CNBC or FOX or not.

There are no investing opportunities in Europe and none in the financial or insurance sector right now.

GE has the most promising story out of the major industrials right now. It’s no longer a “too big to fail” institution, which frees up a lot of money and allows it to get back to making things better. It did this by selling off much of its credit division that became a weight around its neck when the market fell in 2008.

Your best bets are physical gold and silver. I still believe in the stocks and ETFs that represent precious metals as well. There is significantly more uncertainty in the markets and the smart money will start to look for safety. Go with them.


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