UBS' Advice On What To Buy In Case Of Eurozone Breakup: "Precious Metals, Tinned Goods And Small Calibre Weapons"

Tyler Durden's picture

Three months ago, Zero Hedge presented the first of many narratives that started the thread of explaining the "unmitigated disaster" that would ensue should the Euro break up, which in the words of authors Stephane Deo and Larry Hatheway, would leads to such mutually assured destruction outcomes as complete bank failure and/or civil war or far worse. Because if there is one thing the banks have learned in the aftermath of Hank Paulson, is that scaremongering when bonuses are at stake is the only to get taxpayer money to fund exorbitant lifestyles. Unfortunately since the first UBS report, despite the best intentions of the status quo, the Eurozone's plight has only gotten far, far worse, reaching a Lehman-like crescendo when the house of cards threatened to collapse if not for a last minute Fed rescue. However, as Deutsche Bank and every other bank knows well, that measure was merely a short-term fix.

Today, Larry Hataway has released yet another sequel to the original piece, focusing on this so very critical week for Europe, which as Olli Rehn said, must find a solution by Friday or see the EU "disintegrate", in which the vivid imagery, loud warnings and level of destruction are even greater than before. In other words, Europe has 4 more days, something which S&P tried it best to remind Europe of, as the alternative is "or else." And here comes UBS to remind everyone that anything but a "fix" to a system that was broken from the very beginning, would be a catastrophe, captured probably the best in Hatheway's recommendations of assets to be bought as a hedge to a Euro collapse: "I suppose there might be some assets worthy of consideration—precious metals, for example. But other metals would make wise investments, too. Among them tinned goods and small calibre weapons." But even that is nothing compared to the kicker: "Break-up runs the risk of becoming one wretched scenario. Sadly, however, it can’t be ruled out, just as it would have been improper to rule out the horrors of the first half of the 20th century before they happened." And there you have it: a reversion by Europe to the perfectly stable system from a decade ago, is now somehow supposed to result in World War. And with that the global banking cartel has official jumped the shark, just like the FT's latest rumor earlier today did the same by indicating that the well of European "bailout" ideas has officially run dry.

Here is how Hatheway frames the end of the world:

The unfolding Eurozone crisis is not something to be taken lightly. The consequences of policy action are material, not just for the 330-odd million residents of the Euro area, but assuredly for the world economy and financial system as well.


This week, Europe’s heads of state gather again to see if they can finally get on top of the problem. The challenges confronting the Eurozone are complex and defy easy solution. Sadly, that hasn’t prevented some observers from proposing some silly ideas. Indeed, it is distressing to see how many misconceived ‘remedies’ are put forward by seemingly reasonable people. In what follows we review some of the odder ones and explain why they don’t make sense.

Why a euro break up is the end of the world: Take 1 - base case

The Eurozone was flawed from the start. The wrong countries joined and the Euro area lacks the appropriate policy framework to deal with its imbalances, lack of growth, and internal inflexibility.




So, the remedy must be to break it up, right?




The preferred outcome is to fix what is broken.


But before we go further, let’s make one point absolutely clear. Even if fixing the Eurozone is better (on any measure) than breaking it up, that does not imply that break-up can’t happen. Countries, like individuals, often make decisions they subsequently regret. When passion (populism or nationalism) dominates reason, stuff happens.


Back in September, my colleagues Paul Donovan and Stephane Deo and I outlined the costs of breaking up the Eurozone. The interested reader can refer to the relevant research for details (available on request). Suffice it to say that the combination of cascading cross-border defaults, collapsing banking systems, soaring risk premiums, and currency dislocations would result, according to our estimates, in losses approaching 20% of GDP for creditor countries and 40% of GDP for departing debtors.


On reflection this author, at least, feels the estimates are probably conservative—the true costs could well be higher. That’s because once Europe (and the world economy) finds itself in depression, policy probably couldn’t arrest the decline. Broken financial systems and ruined economies are the stuff of prolonged deflation or worse. And it is by now abundantly clear that even unconventional macro-policy cannot deliver results if the financial system is in tatters.


Our report received a lot of attention from clients and in the press. And to our knowledge, its findings have never really been disputed. So here’s the point. If most observers agree that a Eurozone breakup significantly increases the risk of widespread economic and financial mayhem, how can't be best? Reasonable people don’t play Russian roulette. So why are some economists suggesting that Europe should?

Why a euro break up is the end of the world: Take 2 - crank it up a notch

It’s only Greece, why worry?


Ok, the break-up crowd grudgingly admits. You’ve got a point—Italy can’t leave. But what about Greece? Surely it is so small its departure won’t matter?


And its economy is so broken, wouldn’t Greece benefit from leaving the Euro? Wrong again. First, Greece is unlikely to be better off outside the Eurozone than in it. Forced conversion of bank deposits and strict capital controls would be required to prevent massive capital flight in the event a ‘new drachma’ is introduced. While Greek government debt might be redenominated into ‘new drachma’, private sector debt owed to non-Greek financial institutions would remain liable in euros, dollars, Swiss francs or whatever the currency of the original obligation. With the ‘new drachma’ depreciating in the currency markets (why else issue it?), the Greek private sector would experience large and rolling defaults. That’s because after more than a decade of current account deficits, Greek residents owe the rest of the world a lot. Specifically, since the euro was introduced, Greece has racked up external liabilities (cumulative current account deficits) of nearly $300bn, just over 100% of its GDP.


So the Greek financial sector would collapse, alongside much of the nonfinancial sector. Credit would evaporate and recession (more like  depression) would result. But that’s not all. Given a very open economy to trade, drachma weakness would result in rising import price inflation, eroding domestic purchasing power (hence deepening the downturn) and undermining the hopedfor competitiveness stemming from nominal depreciation.


So the tally is depression, widespread private sector bankruptcy, a ruined financial sector, and surging inflation, offset by modest gains in competitiveness.


That’s not a terribly persuasive case for exit.


But the biggest reason why the ‘it’s only Greece’ narrative is naive and dangerous is that it almost certainly would not be ‘only Greece’. Once one country leaves the Eurozone, residents in other at-risk member countries would plausibly conclude their country might be next to go. Logic dictates they would send their wealth abroad, resulting in a run on their domestic banks, precipitating a collapse of their financial sectors and economies.


The ‘it’s only Greece’ crowd conveniently fails to consider the risks to the rest of the Eurozone.


Stuff—in this case, contagion—happens.

Why a euro break up is the end of the world: Take 3 - bring up the cheating spouse analogy: that will get their attention

I promise, really, I’ll only cheat once


Recently, another bad idea has made the rounds. How about a weekend exit, where a country (say, Greece) leaves the Euro area, devalues and rejoins, all by breakfast on Sunday, primed to compete against the mighty Germans.


It is hard to know where to begin with the instantaneous exit and re-entry ‘remedy’. Leave aside the legal and practical challenges involved (Can a country exit and rejoin without treaty change? Is it legal to re-denominate private sector assets?). The notion is fundamentally flawed on its own.


To be sure, the new lower real exchange rate would boost competitiveness. But what about borrowing costs? Undoubtedly, they will soar and remain high for a long time. That’s because creditors (who just suffered a currency haircut over the exit/re-entry weekend) have memories.


Unsustainable sovereign credit risk premiums would be replaced by unsustainable currency risk premiums. This ‘remedy’ is, after all, no more than a return to a fixed-but-adjustable exchange rate system with all the credibility problems it embeds.


And currency risk premiums would appear not only in the ‘weekend divorce’ country. Others in a similar predicament would lose credibility and suffer rising bond yields—once again contagion effects.


In essence, the ‘weekend divorce’ only works if the jilted partner (the creditor) is gullible enough to believe that the other partner will only ‘cheat’ once.


I don’t know about you, but…

Why a euro break up is the end of the world: Take 4 - time for some carpet bombing imagery "inception"

What if Napoleon had a B-52 at Waterloo?


The last of our weird reasoning cases is the idea that banks, companies and even countries can somehow prepare for Eurozone break-up. In recent weeks various stories have appeared in the press about foreign exchange brokers, multinational companies, banks, and even countries mobilizing teams to figure out how to deal with new currencies, recalibrate cross-border accounting and invoicing systems,or estimate the costs and benefits(?) of break-up.


Talk about fantasy. That’s like asking Wellington to stress test his army against a scenario where Napoleon has a B-52 at Waterloo. You don’t re-position the troops—you retreat as quickly as possible across the channel, if not across the Atlantic.


Of course, we get it, contingency planning is prudent. But just what contingency are we planning for? In break-up new currencies will be introduced. But will they trade freely? Probably not. As we noted in our original piece on the costs of break-up, it is highly probable that capital controls would accompany exit. Spot, forward, futures, swaps, options and other currency derivative contracts might not even materialize, or perhaps only for limited current account transactions.


Companies preparing plans on how they might manage multi-currency cash flows in a post-Eurozone world might be advised instead to pay attention to the risk of not getting paid at all, never mind in which currency. Counterparty risk— bank-to-bank and company-to-company—would soar as defaults mount.


Bank risk management teams would be similarly advised not to ask how far new currencies might depreciate or how high risk premiums might rise, but whether the bank would survive a collapse of the payments system, a run on deposits, and widespread default on assets.

Why a euro break up is the end of the world: Take 5, epilogue, or how "you damn dirty apes blew it all to hell"... and by it we mean our bonuses

Simply put, linear thinking doesn’t work in a non-linear world. And break-up is likely to produce a very non-linear set of outcomes.

Which brings me, lastly, to the question I sometimes get about what is the ‘right’ asset allocation in the event of break-up.


I suppose there might be some assets worthy of consideration—precious metals, for example. But other metals would make wise investments, too. Among them tinned goods and small calibre weapons.


Break-up runs the risk of becoming one wretched scenario. Sadly, however, it can’t be ruled out, just as it would have been improper to rule out the horrors of the first half of the 20th century before they happened.


But it is very hard to see break-up as a solution. Let’s hope Europe’s politicians and policymakers agree and take action this week to fix what is broken before itall really breaks up.

At this point we have to say that we find it supremely ironic that a man warning against the futility of linear forecasts does just that for 4 pages, and all based on the flawed premise that returning the system that actually worked, would be tantamount to the apocalypse. Yet as Hatheway says, let's hope that "Europe's politicians agree"... although agree with what is not quite clear - to fund the existence of an obvious fiscal and monetary experimental failure at the expense of trillions more in diluted or outright confiscated funds, just so the continent's (and world's) bankers, who outside of writing trite essays have no utility in the real world, get another massive outlier of a bonus? That actually sounds about right.

As for us, we will bet on the fact that as in every historical event in the past 20 centuries, the powder keg that is Europe, with its tens of religions, hundreds of mutually exclusive cultures, and millennia of hatred, almost without fail took the decision that led to massive game theory fail, and an outcome that resulted in bloodshed. Which is why the only take home message for us here is to do precisely what Hatheway warns to do as a euro breakup Plan Z: buy gold, spam and guns.

Everything else we leave to the only market makers left in town - the world's central banks.

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Obadiah's picture

spot on silverbullion

The false christ will come first and decieve many in "fixing" this bs, he will be the savior ( yeah right).  The True Christ comes at the 7th trump not the 6th. 

How the heck could the fake christ fool people if they are already gone??  Unfortunately this is the twisted form of the Word that is taught in 95% of all churches.

The Truth is out there and that all we need.  Truth!

WhiteNight123129's picture

And so what, what if we are trapped in deflation? Devaluation would be in order, I would not mind having a devaluation 1932 style with your Gold getting boosted from 20 USD to 35 actually, then buy frantically stocks trading at 5 times earnings. When there is disorderly debt destruction, you can´t lose on Gold (at least at the current price). The only way you lose if the indebted nations of the world 62% of world GDP can find export markets on Mars or if massive new super cheap energy is found in the next 3-5 years.


VyseLegendaire's picture

Ladies and gents, the wheels have come off the bus.

Oh regional Indian's picture

Cue Neo/Bullock to the rescue.


j0nx's picture

Oh if I only had a dollar for every time I have read that on a forum...

The wheels will come off at a time when you least expect it.

Cheyenne's picture

I'm inclined to agree.

Think about MF Global. Respected casino players who had shitloads of chips vaporize in the casino's safe, which isn't free, are being told they might get 2/3 of their stake back.

A couple days later, casino management meets and passes a custodial rule that the pit poss who's missing was so dead-set against.

Yeah, it's fair to say the gloves are off and that you'd better figure out a life on your own.

akak's picture

Robot Traders Mom said:

You have to be a complete imbecile to have not seen this coming.

Or your son.

Teamtc321's picture

I thought Robo was a chick>......geeze. Ruined the whole titty pic for me aaaaaaaaaaaaaa. lol. 

akak's picture



Every ZHoo down in ZHooville liked the free market a lot,
but Robot, who lived just north of ZHooville - did not.
Robot hated integrity, and transparency --- no teasin'.
Now, please don't ask why; no one quite knows the reason.
It could be, perhaps, that his stops were too tight.
Or it could be that his commodity funds were too light.
But I think that the most likely reason of all...
may have been that his gold stash was two sizes too small.

akak's picture

Dr. ZHivago

(Who was, as you know, a poet as well as a doctor.)

1000pips's picture

There, there everybody--everybody calm down. No one is going to have a revolution or anarchy. Everything is fine; the Euro will be here for hundreds of years. Gold wil never be a currency, it is nice for watches and jewelry, that is all-oh, and coin collecting.
Don't let this propaganda ruin your Christmas with your family.
2012 will be a huge Bull market rally. Trade accordingly.

UP Forester's picture

Since the Anti-Tilson fund did so nicely, you want to be the new anti-fund?

Ghordius's picture

now I'm not sure if your's is irony - while I do believe that the EUR will stay for a while, I also believe we'll see some zeros added on the bills, as on the USD bills, so don't mind me if I prefer to have some gold...

WhiteNight123129's picture

Someone has been socializing too much with MDB.

SnobGobbler's picture

awwww, see they warned us... they seem to have prepped slightly deeper underground.

MFL8240's picture

Most people are not as sophisticated as you and I and they go to work, take care of the kids and trust that their government will be truthful with them.  We were all taught to believe that people were by and large good and while not perfect, most would like to believe that companies especially banks would be safe and sound, honest and run with integrity.  In the past 10 years, this has all changed with greed the overriding theme and illegal actions gone unpunished.  Politicians once honorable are now liars and thieves and yet many good and honest people have not adapted.  So, while I tend to agree with you on the state of affairs in the US economy, it’s better to continue to reinforce the need for people to shelter themselves and finances than suggest they are clueless and have no sympathy for them.  Better to help them change by sending articles that help them make some sound choices before this mountain blows.

Chuck Walla's picture

 I will have zero sympathy for the unprepared. You have to be a complete imbecile to have not seen this coming.


Hell-OOOOO, Occupy!!!!   Romney and Obama Voters, Too!

WhiteNight123129's picture

Pff, No big deal, collapses happen all the time, look at the French revolution and Weimar, it will pass, their might some really bad outcome but so what? I guess we have to be prepared to profit from it and be fatalists... Humanity runs in circle and repeat the same mistakes again and again and again and again and again and again.... until we are replaced by computers.... Alea jacta est!

MonsterBox's picture

"As a dog returns to his vomit, so a fool returns to his folly"  -Proverbs 26.11

apparently, we've been "repeating" for quite a while.

as a species, we deserve what we get.

The Big Ching-aso's picture



This Europacalypse Not Yet Now suspense is killing me.   Oops.   Maybe that was the wrong word to use.


ACP's picture

Metalocalypse is more like it.

Have some now, same some for later.

stacking12321's picture

that's not very brutal at all.

i'd rather cut off my ding dong than admit that booze isn't food!

TheFourthStooge-ing's picture

Add Larry's name to the waiting list for the gallows.

"Do you see what happens, Larry? This is what happens when you fuck all of humanity in the ass!"


BoNeSxxx's picture

"And with that the global banking cartel has officially (sic) jumped the shark" TD, 12/06/11

When the SHTF, I am going to re-post that as a the most elegant and seminal summation of the pre-EZ breakup.

Just brilliant.

PulauHantu29's picture

If you have the weapon why do you need tinned food or PMs? They will be easy enough to get.'s picture

Because self defense is morally acceptable but theft and murder are not?

Peter K's picture

In the modern world, this old Christian=Judeo sense of right and wrong is so.... passse;)

Chuck Walla's picture

Because self defense is morally acceptable but theft and murder are not?


Then you aren't really, really hungry yet!

TheFourthStooge-ing's picture

You haven't thought this through very carefully, have you?

If you have the weapon why do you need tinned food or PMs? They will be easy enough to get.

...said the man with a post-collapse life expectancy of less than a month.


Ghordius's picture


"the powder keg that is Europe, with its tens of religions, hundreds of mutually exclusive cultures, and millennia of hatred, almost without fail took the decision that led to massive game theory fail, and an outcome that resulted in bloodshed"

Sometimes words say more about (the mindframe of) the writer then the object(s) of the words.

In this case, the writer is clearly American (Texan, to be exact) and presents a specific cultural bias - based on individualism (good old American value somewhat lacking in Europe) and Action! (things that go wham! are also very popular).

At the end, this meme that the EZ "is destined to fail" is based on this assumption that the French, the Germans and the Italians are never going to build shared policies for longer than thirty years. You just forget that they are not Yankees or Brits and that they have more sense of mutual solidarity, built in their core values and beliefs.

This is my biggest beef with the Libertarians - this complete denial of any (cultural) shared sense of mutual solidarity. Explain Nations without, if you can.

j0nx's picture

You're kidding right? GL living in your fantasy land of shared unity in muli-cultural environments. Let me know how that works out for you sparky. My guess is that we never hear from you again when it comes time to test out your belief.

Ghordius's picture

multicultural in the sense that there are Saxons and Dutch and Bavarians and Lombards and Hanoverans and Tyroleans and Rhinelanders and Austrians and Sicilians and Ligurians, each more or less in their ancestral lands?

or the new meaning of multicultural?

you seem to forget that a big part of the EZ is composed out of relatively young countries/nations/states, including Germany and Italy, younger than the USA

ffart's picture

If there's one thing we can count on it's that the commies in euroland will not learn from their mistakes and promptly roll out EZ 2.0 as soon as this one fails. Hopefully the nukes only fall on Brussels.

rsi1's picture

When is UBS writing advice on the following?

How to blow up a bank and require a bailout

How to have a rogue trader burn $2bn without noticing

How to sell out to US tax authorities

Everyone is so pessimistic I am starting to become very optimistic about the future of the Euro.

Pythaes's picture

They are scared about what happens to CHF....gonna be messy anyway you cut it.

jonan's picture

sooo, when we gonna start a zerohedge militia?

que blackhelicopters above my house...

Mauibrad's picture

Guns, grub, and gold, bitchez.

King_of_simpletons's picture

So how does one go about procuring small caliber weapons ? I am a newbie when it comes to violent material.

Slartebartfast's picture

Start with a pistol.  Get training along with the weapon.  Practice, practice, practice.

YBNguy's picture

Invest in a Bow and Arrows too.


You can reuse the arrows and its silent when you hunt/protect yourself.

TheFourthStooge-ing's picture

Don't forget a good length of strong rope. You never know when you might run into a banker.


SheepleLOVEcheddarbaybiscuits's picture

this is terrible advice...........this is the 21st century, do you think your adversaries arent going to have superior weapons? buy silencer if you want silent firepower

UP Forester's picture

Worked for the VC, mujahadin, American revolutionaries, etc.  Look up "asymmetric warfare" and figure out who wins in molotov cocktail vs main battle tank.

YBNguy's picture

And what happens when you run out of bullets fucknut...

SnobGobbler's picture

bullets are for bipeds, not M1-A

UP Forester's picture

And, cue the Finnish invention, the Molotov Cocktail....

Chuck Walla's picture

And what happens when you run out of bullets fucknut...


Its called "hand-loading", the re-loading of spent ammunition casings.  Get you some brass, buy or cast your bullets, some primers and powder(I'm partial to Tite-Group & Bullseye).  Presses are widely available, roll your own. Hornaday can provide you some superb hollow points.

jonan's picture

you change magazines, or pull out your secondary??? a lot of shit would have to splatter for me to go through my personal stash of 5.56, 9mm, 40cal and 22...