18 Bucks for a Gallon of Milk…This is What a Currency Collapse Looks Like

Justin Spittler


It’s starting to look a lot like 2008.

Yesterday, HSBC Holdings (HSBC), one of the biggest banks in the world, reported its first quarterly loss since the financial crisis. It lost $1.3 billion…after making a $511 million profit in the fourth quarter of 2014.

Management blamed the bad results on the slowing economy. It also blamed struggling oil companies for not paying back loans. However, Dispatch readers know there’s something bigger going on with bank stocks…

• European bank stocks have crashed this year…

HSBC, which is Europe’s largest bank, has fallen 21% this year. Deutsche Bank (DB), Germany’s largest bank, has dropped 29% this year. Swiss banking giant Credit Suisse (CS) plummeted 39%.

Like HSBC, both banks had horrible fourth quarters. Deutsche Bank lost €2.12 billion last quarter. Credit Suisse lost €5.83 billion.

As you can see in the chart below, the STOXX Europe 600 Banks Index, which tracks large banks across Europe, is already down 22% this year.



• Negative interest rates make it hard for European banks to make money…

Regular Dispatch readers know the Federal Reserve has held interest rates near zero since 2008. The European Central Bank (ECB), Europe’s version of the Fed, has gone even further by making its key interest rate negative. Its key rate is -0.3% today.

Negative rates force banks to charge rock-bottom interest rates on loans. This eats into bank revenues, as The Wall Street Journal recently explained.

Very low interest rates hurt the profits banks make on loans, especially when investors believe loose monetary policy is here to stay. Long-term rates at which banks lend then fall to be little more than short-term ones at which banks borrow.

The ECB thought negative rates would stimulate the economy. The idea was that negative rates would get people to borrow and spend more. It hasn’t worked. Europe’s economy is barely growing. And its 9% unemployment rate is twice as high as the U.S. unemployment rate.

• Europe’s banks aren’t the only ones hurting…

U.S. bank stocks are the worst performing sector in the S&P 500 this year. They’ve fallen 11%…more than double the S&P 500’s 5% decline this year.

Japan’s banks are also trading like a financial crisis is around the corner. Mitsubishi UFJ Financial Group (MTU), Japan’s biggest bank, has plunged 32% since the start of the year.

Mizuho Financial Group (MFG), Japan’s second-biggest, is down 27%.

Keep in mind, we’re just two months into the year. These are huge losses in a short period.

After all, we’re not talking about speculative biotech stocks or junior mining stocks. European, Japanese, and U.S. banks are the cornerstone of the global financial system. These major losses suggest the economy is not as healthy as most folks believe.

Our advice: Instead of holding a large part of your wealth in stocks, set aside a significant amount of cash. Stock prices will likely decline in the next few months. Having a stockpile of cash will give you “ammo” to buy stocks when they become bargains.

We also encourage you to read our flagship advisory, The Casey Report. Led by multimillionaire speculator Doug Casey, The Casey Report shows you how to build wealth that will last a lifetime…and survive any crisis. If you sign up today, you’ll learn how we’re making money in the markets right now…by shorting (betting against) one of America’s most vulnerable industries. Click here to begin your risk-free trial.

• Switching gears, Canada is already in crisis…

Dispatch readers know falling oil prices have hammered Canada’s economy. Canada is the world’s sixth-biggest oil-producing country. Oil makes up 25% of its exports.

Last year, Canada’s oil export revenues fell by 42%. Suncor Energy (SU) and Imperial Oil (IMO), Canada’s two largest oil companies, have both plunged more than 40% since June 2014.
The Canadian dollar has lost 22% of its value against the U.S. dollar since oil prices peaked in June 2014.

• The crashing Canadian dollar has sent food prices soaring in Canada…

Last month, we explained how one Canadian grocery store was selling a gallon of milk for $C18 and a carton of eggs for C$8. Another Canadian store was selling a bottle of Tide laundry detergent for C$32.

These outrageous prices are now spreading across Canada, The Financial Post reported on Friday.

Food prices rose four per cent in January, while prices for fresh vegetables were up 18.2 per cent following another spike of 13.3 per cent in November. Canadians eating out also saw their bills go up, as restaurant prices rose 2.5 per cent.

Last week, the Organization for Economic Co-operation and Development said Canada has the highest core inflation rate of the 34 high-income countries it monitors.

• E.B. Tucker, editor of The Casey Report, predicted Canada’s economy was in for a “major wake-up call”…

Last September, E.B. visited Canadian oil country for “boots on the ground” research. E.B. concluded after his research trip:

While energy only makes up 25% of the province’s GDP, Albertans will be shocked when they see what happens to other sectors now that the oil business has been cut in half. Construction, finance, real estate, and services all benefited from a 15-year oil boom. These other sectors will start shrinking soon. And it’s not going to be pretty.

E.B.’s call has been spot-on. And Canada’s crisis keeps getting worse…

• Yesterday, credit agency Fitch said that the oil crisis could soon hit Canada’s big banks…

Here’s Fitch.

So far Canadian Banks have been resilient and the oil slump has appeared manageable but as falling commodity prices permeate the broader economy, banks will begin to feel pressures beyond direct energy loan exposure...

Due to the stable Canadian economy over the last few decades, Canadian banks have taken little to no loan provisions over the years. As we move into an uncertain and ‘lower for longer’ oil price period, Fitch expects to see weakness in loan growth and a rise in provisions for credit losses.

If you own Canadian bank stocks, sell them. They’re a dangerous investment to own right now.
You should also avoid owning the Canadian dollar. If you’re a Canadian who has to own Canadian dollars, be sure to own a significant amount of gold. Unlike paper currencies, gold holds its value long-term. Owning gold will help offset losses from owning Canadian dollars. Since June 2014, gold is up 17% when “priced in” Canadian dollars.


Chart of the Day

Gold is soaring in Canada…

As we mentioned earlier, the Canadian dollar has fallen 22% against the U.S. dollar since June 2014. As you can see in today’s chart, the price of gold measured in Canadian dollars is up 17% over this same period. Gold priced in Canadian dollars is at its highest level since March 2013.

Gold is doing even better in other parts of the world. According to our friends at Palm Beach Research, gold is at—or near—fresh all-time highs in 27 world currencies.

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