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.

 

Correct.

 

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

 

Wrong.

 

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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Heyoka Bianco's picture

Silencers don't really "silence". This ain't Hollywood.

And in case you laboring under another Hollywood delusion, a small caliber, high velocity round to the shoulder will fuck you up for the duration.

Peter K's picture

The High Velocity is key:)

Mr. Lucky's picture

Is a 12 gauge small calibre?

TheFourthStooge-ing's picture

If you were using #4 buckshot then, technically, I suppose it would be.

 

HoofHearted's picture

Go down to the gun shop, pick out your favorite weapons, hand them a driver license so they can see that you're not a criminal, hand them a credit card or some fiat and walk away like that. Of course that is if you're in the US. In Europe...well, it involves going to Turkey mostly...

YBNguy's picture

Sorry UBS, don't need your advice as Im ahead of this curve by a mile.

 

Id add long arms to that too, gotta love my Bushie ;)

 

MY advice. Forget everything but the guns and ammo. Because as Mao said: All ... power comes from the barrel of a gun.

 

And with that power one can acquire everything else lololol

sof_hannibal's picture

all those AKs are readily avalaible on the black market. I would suggest a bow, as what are you gonna do when you run out of bullets? Tin goods? ok, but don't forget water purification tablets.

UP Forester's picture

I'm betting once the UN gets out of "peacekeeping" in Bosnia, you'll be able to get whatever you want for dirt cheap.

pine_marten's picture

One would most likely run out of luck before running out of ammo. Keep out of harms way and let the foolish devour themselves.

zorba THE GREEK's picture

We sure got a lot of guns here in the good old U.S. of A. TPTB better hide in a drainage pipe somewhere

like Sadam when TSHTF because a lot of rednecks will be hunting them down like the vermin they are.

economics1996's picture

Red necks will be hitting the ghettos.

Clay Hill's picture

No. They'll actually be coming to us.

Not to worry, they make good fertilizer if ya slice'm thin.

LFMayor's picture

 I fully agree with your migration theory, but fertilizer nothing.  Wendigo brand smoked meats, brother.   We'll barter for ammo, liquour or Au/Ag.

Clay Hill's picture

I am a loving family man.

I would not expect my children to eat meat from animals that weren't clean.

Either compost'em or feed'em up on corn for a month first.

LFMayor's picture

LOL, 'purge em, like a raccoon or a mangrove crab? (I've done both, they're delicious).   Solid advice,  I expect you're going to do real good in the future, man!

Chuck Walla's picture

Bud's Gunshop, Baby. Online shopping and great prices. Find you a local FFL to do the transfer and you is armed and dangerous, Homes.

BandGap's picture

Where do you live? Getting a gun is much easier in some parts of the country than others.

Get a .357 revolver, it also fires cheaper .38 loads but the .357 has great stopping power. Get a decent 12 or 20 gage Remington or Mossberg shotgun.  00 shot works great but #2 or BB shot is almost as good and cheaper.  I have low recoil rounds (each holding nine, .38 caliber ball shot) which are nice up close. Get a long rifle, I'd go with a .223 as the smallest and a .303 as the biggest. The smaller long guns have cheaper ammo, higher velocity but lack some stopping power. 

Do it legally and get to know your gun(s). Practice makes perfect. Find some like minded people, too.  Always good to have friends.

rocketroj's picture

Head south near the border with Mexico and sign up the the Gov't Fast and Furious Gun Program.  May have to lie about your profession on the application.  For example if you are a Contract Programmer just shorten it to Contractor.  Implying you plan to take them into Mexico will get you on the expedited list.   

Deo vindice's picture

If you live in Canada, getting hold of a gun is a lot harder.  Probably easiest is to get a friend in the USA to buy one for you as a 'gift'.

Of course you have to get it back across the border. . .

Real Money Wins's picture

Check with your local sporting goods store, or Cabelas or Gander Mountain. When all else fails go to Guns America Online or Cheaper Than Dirt. But do it now Black Friday weapons sales were up 37% over last year and those semi autos are going fast. And you will also need a couple thousand rounds of ammo to go with them. And if your really feeling adventurous get reloading equipment for you calibers.

 

Bang Bang Kiss Kiss

jonan's picture

firearms are not violence, violence is the use of force to take from others that which is an extension of themselves...ie property...

firearms are freedom and liberty, please refer to them as such =P

lock and load bitchez...

HoofHearted's picture

I'd hold Europe together just so I don't have to eat Spam. Luckily I've got the chickens that will keep me from having to do that. The other two items get checkmarks at our household...

RobD's picture

What is wrong with Spam? Has all the major food groups in it, fat, dead pig and salt. Dah!

Ecoman11's picture

Looking at UK Imports, we can see where the rich are putting their money http://i40.tinypic.com/29fuzo5.png

ACP's picture

Small caliber? What planet is this guy on?

Edit: Spam is too expensive now. There are cheaper and more nutritious options.

UP Forester's picture

I'm thinking .45-70 is small caliber, 50 BMG begins large caliber.

TheFourthStooge-ing's picture

For small caliber, .45-70 is still an impressive chunk of lead. Who needs to penetrate ballistic armor when you can just push it through the other side of your target's torso?

 

Spigot's picture

"No body move, or the dog gets it!"

holdbuysell's picture

These chumps have cried 'wolf' so many times, I'm not sure what to believe regarding Friday being the 'this is it' day.

Regardless, I'll be prepared...by breaking out the popcorn ahead of time.

wisefool's picture

Agreed. Timmy brought his shinebox this time and they are letting him sit at the grown ups table.

1835jackson's picture

guns, spam, gold and do not forget location! Come to Tasmania! http://www.youtube.com/watch?v=BYiHP5_bgrI

DaveyJones's picture

build close community networks that protect, produce, and substitute

j0nx's picture

GL with that in population centers. Hope you speak Spanish, Swahili, Arabic, Mandarin, Farsi or any of 100 other languages because if you don't and aren't knowledgeable in every one of those cultures then you will be an outsider and a target. Go ahead and file this under racist rant #101 if you want but don't say you weren't warned. Without cultural and societal commonality you have exactly DICK when SHTF and liberals have seen fit over the past 20 years to take the one thing away from us that could save this country from imploding when things go south.

zorba THE GREEK's picture

For us at ZH, that's old advice.

JPM Hater001's picture

For the record I read the whole thing and I only have one question...

Does this mean my omelet will not come with a baguette?

Midwest Prepper's picture

As Chris Martenson said, the next 10 years will be unlike any in history for the US.

Food Riots in America in 2012

tekhneek's picture

Squidoo? Really dude? Pretty sure you encoded those "non-affiliate" URLs to go to your affiliate site so you could rake in commission from commission junction/clickbank.

Get the hell out of here Wikipedia Jr.

tekhneek's picture

http://www.rickperry.com (currently redirecting to http://www.ronpaul2012.com... LOL. Damn cyber terrorists.)

Captain Benny's picture

Hell must have frozen over.  Rick Perry is endorsing Ron Paul... Maybe Perry decided he really does agree with Ron Paul to End the Fed...  Another flip flopping fool.

 

Ron Paul - The only guy that hasn't flip flopped in 30 years.

Deo vindice's picture

Really? If Ron Paul's popularity goes up much at all, he better have some serious personal protection. He represents everything that TPTB are against: stuff like, oh, freedom for instance.

DollarMenu's picture

Speaking of Dr. Paul,

here is his new TV spot:

http://www.youtube.com/watch?feature=player_embedded&v=MXCZVmQ74OA

 

Gave  me a good grin.

CrockettAlmanac.com's picture

Looks like RickPerry.com got transferred to new owners in 2010 or 2011 rather than hacked. Perry's official site is RickPerry.org

 

http://wayback.archive.org/web/20110815000000*/http://rickperry.com
oc's picture

check, check, and check.

knukles's picture

Fucking crazy shit.
If it"disintigrates" it'll be the same bloody thing as when HankiePankie and the Boyz scared the poop out of CONgress and dolled out a bazillion Benjibuckeroos to the banksters.  The markets went to hell, but the world did not break out in a case of terminal flivitus of instsnt crimally insane violence and revolution.
That's for the Greeces of the world where the NWO fucksticks appointed by the IMF, BIS and Godonlyfuckingknowswho to loot the people starts/cotinues to meet the imoveable object of Not My Fucking Money Anymore, Asshole.
Let's really not get too fucking carried away here, folks.
Supermarket shelves in Dubuque, Iowa will not become emptied overnight set against a background of burning buildings because a couple of countries wind up flipping the bird to Brussles, reissue their own currency and decide that it's just too fucking bad for the bond and shareholders...
Jesus.  

e_goldstein's picture

Right, but as so many have said before me, it's Kabuki theatre.