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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The Old Man's picture

It may be that the UBS boys have a lot of investiture in metal commodities, SPAM and weapons manufacturers. If so, we are again making somebody other than ourselves more wealthy by spending what we do have left.

However, having "a" weapon/ammo, a month or so of food/water, some silver/gold stowed for "any" event, (albeit our current topic of economic collapse fermenting from Europe to the "World"); it's still probably not that bad of an idea to CYA when most everyone else thinks/acts like the world is such a warm, fuzzy and fun place to be. Look around you. Denial is everywhere. 

Being that we are not in control of the situation there, and most of us kinda know who are, we shouldn't just throw our precautions to the wind of any destiny, but make a strong attempt to make our own. 

If that's not your particular parameter, maybe someday that can of SPAM will cost you an ounce of gold. Will it be worth it? You and you only will be the judge, if the time comes.

Hoody Who's picture

It all boils down to this.

You can shear a sheep many times, but you can only skin him once!

fonestar's picture

Some good points but obviously coming from the camp that says things can still be "fixed".

Piranhanoia's picture

Europe will get it's choice. Perhaps sooner than other insolvereigns.  What if the vote is 'no confidence'?

Reminds me of an episode of Star Trek where they waged war by computer. The dead walked to their nearest disintegrator.'s picture

If only one of those European leaders had a hot daughter who'd fall in love with that dashing Capt. Kirk they could somehow manage to work things out.

stant's picture

kirk bugged out to ky a long time ago. with enough acres to keep the meth heads at bay, rigg dees is a near nieghbour with 2500 acres. jerry brukhiemer has more.

newstreet's picture

Euro introduced at 120.  Trading 134.17 as I type.

What's the problem here again?

Peter K's picture

Let me fill in some of the blanks.

Euro introduced at 1.1600 in 1999. Immediately down to .8400. In 2001 back up to 1.5990 in 2008 , and now back to 1.3450 as I write.

What happened:  The W/Bamster tag team effort.

Freddie's picture

The Demorcat's muslim & Democrat Jon Corzine with Bill Clinton helping went jihad on Europe.  

The Europeans will look for some mega payback on the islamist welfare residents of Europe.  I think islamic invaders will be offered one way tickets back to the middle east or a one way ticket to allah in Europe.  Every 30 to 70 years - the Europeans have a great purging.'s picture

the Europeans have a great purging.


A few quarts of prune juice wouldn't do you any harm, either.

bombimbom's picture

you all desperately need a refresher course on european mentality. :D

Ghordius's picture

hey, that's my line

this UBS guy is Texan, by the way, funny how a "Swiss" Bank can publish this kind of views - just shows how AngloPhone their Investment Bank arm has become

if you want the Swiss/European View from the UBS you have to read their Wealth Management papers

TheFourthStooge-ing's picture astutely observed:

A few quarts of prune juice wouldn't do you any harm, either.

I think little freddie could use a brain enema. A bottlecap full is probably sufficient to flood his cranium.


Lmo Mutton's picture

A red flag virus attack will make those small calibre precious metals a moot point.

UP Forester's picture

N95s should already be on the list....

jonan's picture

that's probably the only thing i don't own, a gas mask, at that point i don't think i'd want to be around any longer...either that or i'll change my mind and end up buying one...

Tater Salad's picture

Funny.  Everyone's buying guns.  For one, they don't know how to use them.  Secondly, "small calibre", well that doesn't do much good if you can hit the target in the first place and if you do, it's a f'n pellet.  And lastly, if we all know Eurozone is fucked, it won't happen.

may consider getting long, as I'm sure the pain trade will be the right one.  As for guns, I don't play, just big caliber and lots of "plinking".

knukles's picture

A Frenchman walks into a bar with a frog on his head.  The barkeep asks "Where'd you get that?".  And the Frog says; "It started as a lump on my ass."

Fyodor Does DF Ski's picture

"When did the future go from being a promise to a threat?"

UP Forester's picture

1907, during the banking crisis....

jonan's picture

where we collectively die under a worthless pile of debt?

Caviar Emptor's picture

Relax. Senate Banking Committee members are meeting with IMF Lagarde tomorrow. And there will be another round of bailouts. Spain's new PM has expressed a dire need. Austria is again a lynchpin. And many East Europe countries are tipping into depression, threatening to start a wave of defaults that would nullify the previous bailouts of Greece, Portugal, Ireland etc...and the developing world is cutting rates en masse, all output readings fading fast. 

But of course it just serves to kick the can a few yards now, as we know. They have nothing else in their arsenal.

Pancho Villa's picture

Let’s hope Europe’s politicians and policymakers agree and take action this week to fix what is broken before it all really breaks up.

Yeah, right! Like they can just sign their names on a piece of paper and magically fix a decade of mistakes and mismanagement. I hope they will also come up with a way to eliminate global poverty and cure all diseases while they are at it.

Mr Sir's picture

He has a point, printing works. Just like it did in Zimbabwe, Weimar Germany, 1944 Greece, Hungary, Ancient Rome, Yugoslavia....Print or Die bitchez!!

Flakmeister's picture

Since these guys are never right....

...Balls to the wall time for NFLX and BAC....

and...umm, some extra boxes of .410 for "The Judge"

PulauHantu29's picture

My uncle has The Judge and loves it!

Calmyourself's picture

JUNK handgun..  Beware never buy this gun for self defense especially as a first purchase, many better options..

Flakmeister's picture

Debatable... its fine for self-defense around the home, however, as a standard side-arm for the field, agreed..

First two chambers are .410.... then 3 45's to finish it up....

....and I agree that it is not going to make it into the Hand Gun Hall of Fame...

Calmyourself's picture

On second thought I was harsh to label it "junk' fit and finish is not bad.  The energy of the 410 gauge is inadequate to reliably do the job.  Before I hear about all the deer it has taken check muzzle energy vs common handgun calibers.  Second what makes a handgun valuable is essentially conceament and rapid deployment, the Judge for most normal sized men fails this test.   A 1911 pattern pistol or a glock in 9, 40 or 45 shooting quality defensive ammo is your best bet.

swmnguy's picture

So if Europe doesn't surrender its sovereignty to the likes of UBS, then it will be like the Holocaust all over again.  At least, that's what UBS says.

Hmm.  Maybe buying weapons is a good idea.

Peter K's picture

Buying weapons is a good idea in general. Don't matter the specific circumstances:)

Ropingdown's picture

The 'people' are so tired and apathetic, so in need of novelty, that they can be blamed for anything and it sticks.  I am so tired of hearing bad governmental decisions blamed on populism.  All the terrible decisions, the really bad ones of the last decade, have been worked out in the capitals among pros.  The people have had nothing much to do with it.  Worse is the constant cry of "we must bail out the banks, save the Euro, repave Wall Street" or whatver else there will be another Hitler.  We had Hitler in large part because of an intransigent insistant France, who could force its way only with the help of other remote powers.  We had Hitler because the Reich's truly powerful capitalists thought it was a nice idea compared to socialism, hence backing him.  If many banks fail and many pension funds go bust it will be because the banks took excessive careless risk, and because the pension funds were poorly diversified.  The panic-monger is disgraceful.  Yes the countries that lived life on the cuff either at the state or consumer level for ten years are broke.  So be broke.  Work your way out of it.  The bankers aren't going to help.

Lester's picture

Small calibre weapons means any weapon chambered for a round of less power than the  .50 BMG Browning Machine Gun cartridge.

Lots of survival discussion here:


Basic Needs are to stay Warm, Dry, Hydrated, Fed, and Capable of Defending Self and Property.  Any firearm beats a sharp stick or baseball bat, but a .308win rifle and a 1911 pattern .45acp pistol are your most reliable choices for versatility and power.  Easy to learn as well.  Might want a .22lr Conversion Kit for your 1911...   lots more at the blog above.



High Plains Drifter's picture

well we are talking about europe here, not amerika. 


for optics...


us optics , hands get what you pay for......

Calmyourself's picture

Holy expensive..   A good nikon with bdc or Milret will work just fine..

UGrev's picture

i picked this up for my AR:

...for under 300.00 (with tx and ship) about a year ago. Took 3 rounds to zero. Very good scope for price.. ALMOST like a poor mans ACOG..almost. 

High Plains Drifter's picture

if anyone thinks we have potential problems here, if the government checks stop coming , had better go look at europe.  you have entire alien communites there living off the dole and have been for years......the european cities will burn because the europeans bought into the diversity lie and looked the other way while their white nations were overrun with north africans and turks etc...........oh well, yes i would tell the white people there. the days are coming soon when you and your indigenous peoples must do what you must. show us the way, my friends. show us the must.....

San Diego Gold Bug's picture

WTF, UBS actually said something intelligent here....those of you in SoCal, big gun show at the Del Mar fairgrounds on the 17th and 18th of this month.  Load up on ammo!!

High Plains Drifter's picture

they still have gun shows in california?  i can't believe it.......

Calmyourself's picture

He forgot to mention you buy one cartridg at a time with a federal background check and moonbeam jerry's permission, oh and you have to promise never to harm a living creature..

San Diego Gold Bug's picture


   I am a NW farm boy so I am on your side.  You can still cash and carry all of the ammo in CA you want but buying a gun is about the same as trying to buy an F-15 in the USSRCA.  With Gov pussy in office, the ammo thing will probably come to an end just as the SHTF!  I am good on all fronts!

Living in Ca but born elsewhere!

Calmyourself's picture

Had some good times in SD, dog beach, Mission beach, friends had a house in la jolla, still glad to have gotten out..

Peter K's picture

.....and you forgot the best part, close to Camp Pendleton:)

Dont' get any better than that, in California that is:)

I Eat Your Dingos's picture

If you happen to stumble upon a dingo...they are mighty tasty during an Euro shitstorm.

PulauHantu29's picture

"Small caliber weapons"...?

Maybe the "small calibers" work in the EU but I doubt anyone around here is less the 280 pounds...and that's just the females! A .22 won't even penetrate the first layer of Flab or a tit.

However, good to have a .22 around for plinking off you food---a neighbor's dog, cat. squirrel, and maybe an attic rat or two during the rough winters.

Glad to see UBS is paying attention.

Amused2Death's picture

Seriously folks, we lived through the great depression, WWII, civil rights, Vietnam and I don't recall citizens carrying 9mm in the streets and defending their properties against roaming hooligans, this IS the 21st century for god's sake and this is not Libya or Yemen...

High Plains Drifter's picture

well , this time its different....................