The European train is hitting Italy and is spreading to other European countries such as Belgium, Hungary, Spain and France. Things have not gotten better since our last update and, if anything, have gotten worse. We have attached a flowchart we created internally to assist us in determining the potential ramifications of the events currently taking place in Europe. Whether the Euro stays or goes, we foresee the following as the most likely scenarios:

Recession in Europe:

• Interest rates in Spain, Italy and France are up anywhere from 1% to 2% in just the past few weeks. These economies are on pace to grow slower than the United States. Imagine the impact on the US economy if mortgage rates rose 1% to 2%. We think this will slow economic activity further and drive these countries into a recession.
• In August and September, Italian depositors withdrew E80 billion from Italian banks. This was done before Italian interest rates started to spike up significantly. We can only imagine what the withdrawal rate has been since the end of September. If banks lose depositors, they can’t lend money – remember “It’s A Wonderful Life.”
• Industrial production in the European Zone dropped 2% in October.
• South Korea announced today that exports to the European Zone had its sharpest drop since 2009 – sliding 20.3% from a year earlier.

Fall of the Euro:

• A weak economy, political unrest and fear among people in Europe will cause the Euro to fall further versus other world currencies.

Gold and Commodities:

• A recession in Europe will slow growth in the US and around the world. Recessions are deflationary and cause commodity prices to fall as demand for goods falls. Commodities are priced in US dollars. If the Dollar increases in value versus the Euro, commodity prices will fall in US dollar terms.
• It is very difficult to find a safe deposit box in Europe at this time. We believe that is one sign that many people in Europe have begun to hoard cash, gold and silver to protect them from financial catastrophe. Der Spiegel, the German newspaper, reported that Greeks have already moved over E280 billion to Swiss bank accounts. If the Euro dissolves, we believe gold may rise leading up to its dissolution, but will fall as people sell gold to convert to the “new” currency to live on. In other words, a busting of the Euro bubble will cause gold to fall as Europeans sell gold. On the other hand, if Europe is able to stave off dissolution for a few years, gold may increase in value as more Europeans buy gold for protection.

Happy Thanksgiving to all!

Sincerely,

Your THOR Team