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While the overal movement for the month was relatively flat, the action throughout November was extraordinarily volatile as the European banking and sovereign debt crisis became far more tumultuous.  No longer is the focus upon the small nation of Greece.  Early in the month, yields on Italian debt began to climb to unsustainable levels.  Italy is the third largest economy in Europe, as well as the third largest debtor nation in the world.  The major event then triggered contagion, including rising yields on French debt and then finally a failed bond auction by Germany, the supposed safe haven of Europe.  Furthermore, Japanese bond yields began to rise as well.  The reversal came at the tail end of the month as central banks globally announced intentions to make US dollars more freely available to distressed European banks, while at the same time, China lowered its reserve requirements on its own banks.
 
Despite the stock market's very recent positive action, it would be difficult to overstate just how alarming is the present state of the global financial system.  The measures and schemes now being put forth smack of desperation.  China was the engine of global economic growth, but now is clearly slowing down.  Germany was the most financially sound nation in Europe, but is now unable to borrow as much as it desires.  One by one the reality of over-encumbered balance sheets, both at the sovereign level and at banking institutions, is becoming apparent.  It is only a matter of time before this phenomenon engulfs the United States.  The recent central bank action is little more than another Fed bailout, this time devaluing the dollar for the sake of inept European banks instead of the mismanaged US banks.  While the US economy still is showing some strength, it is difficult to imagine that there is not an oncoming recession in the face of such severe economic and financial turmoil.
 
In this era of zero interest rates, negative real rates after inflation, artificial government interention, overextended government debt and vulnerable banks, I believe that the only true safe haven is the monetary metals gold and silver.  While perhaps the problems will be extended (and exacerbated) even longer as the authorities continue to pretend that this solvency issue is actually just a liquidity problem, there really are only two ways out of this mess - inflate or default.
 
Michael can be contacted at mberlin@mhbpartners.com and at (631) 629-4928 .

The information included in this article is not intended to be used as a basis for making investment decisions nor should it be constructed as a recommendation to buy or sell any specific security. Consult your investment professional for additional information and guidance.