LATVIA / SWEDISH BANKS
The link between the fate of Latvia and the stock price of Sweden’s major banks became even more apparent this week. On Monday, Latvia’s government announced that it had rejected a bailout deal with the IMF, spurring new concerns of devaluation.
In response, investors sold off shares of Sweden’s Swedbank to the tune of a 5% decline. The market sees these two parties as inextricably linked: as Latvia goes, so goes Swedbank.
We also learned that over 50% of Swedbank’s Latvian mortgages are under water, i.e. the value of the home is worth significantly less than the principal balance that the bank has loaned against it.
When this happened in the United States, default rates skyrocketed. I don’t see how this won’t happen in Latvia, especially given risk (certainty) that the country will devalue its currency.
Let me know if you disagree, I would love to debate the analysis.
LITHUANIA
In a related story that shows interesting promise, the government of neighboring Lithuania announced that its economy contracted by a whopping 24% rate from last year. Twenty-four. Not a type-o.
This has several implications.
First, Latvia is in much worse shape than Lithuania, and it’s apparent in the streets. If Lithuania has posted a 24% drop in GDP, Latvia’s numbers will be even more crimson. This only bolsters the case for a currency devaluation.
Second, the Lithuanian government response is indicative of mainstream political convention: rather than make the economy more competitive and ease the burden of its businesses and citizens, the government plans on raising taxes even further to support its own largess.
I find this line of thinking to be suicidally incompetent, akin to a starving animal thinking that it can eat its own innards to survive.
The interesting thing about Lithuania, though, is that the country is small enough for protests and grassroots political action to actually make a difference… so I am very interested to see if/how the people respond in Vilnius.
Naturally, my hope is that they will rise up and say “I’M MAD AS HELL, AND I’M NOT GOING TO TAKE IT ANYMORE…” If this happens, it will set an admonishing anti-government precedent for the rest of region.
This, to me, is the greatest potential benefit of the economic downturn: I am hopeful that societies and main stream media will finally begin to question the legitimacy of government action and realize that all the billions and trillions being spent have either been conjured out of thin air, borrowed from other countries, or stolen from productive citizens/businesses.
Politicians are not spending their own money, and they are not spending “the country’s” money, they are coercively collecting and spending people’s money, despite being the most woefully incompetent financial managers in history.
Small countries like Lithuania and Latvia are the key to starting a movement back to limited government; such a movement is sorely needed right now given the direction that the entire world is headed.
BANKING AND GOLD STORAGE IN AUSTRIA
For the record, NO place on earth is 100% safe and secure from corruption, thievery, confiscation, or the prying eyes of government… unless, of course, you figure out a way to shove your bullion up your fourth point of contact.
Well… I have a bad relationship with my proctologist, which is why I store some gold in Austria (among other places). Austria is a good compromise, but as some of you have indicated, it is not without risk.
Could armed government thugs go rushing into Das Safe tomorrow under the authority of some obscure anti-terrorism or anti-drug law? Possible… but unlikely.
If this is your chief concern, there are other jurisdictions that may be more favorable, predominantly in Asia. I will be discussing these in future letters.
Remember, though, gold storage should be in a place that you not only regard as safe, but in a country where you frequent and can get to easily.
I find myself in Europe all the time, and as Vienna is so conveniently located, it’s easy for me to pop in, drop off some gold, and pop out. There are some places in Asia that I frequent as well, and I use storage facilities in those countries.
TRAVEL
I am cutting my Europe adventures short… I was originally intending on staying in Europe until the weather turns cold (September for my blood), but Matt and I have entered into a very exciting new deal for a company in Panama that I hope to be sharing with you very soon.
As such, I am on the way to New York this weekend for a meeting, will visit my family in the US briefly, and then head to Panama to close the deal. More to follow.
Unfortunately that means I will not be headed to Atlanta next week for the racecar driving school… but I think my aerobatics ride last week certainly makes up for it.
