Europe is getting more easy money…
Yesterday, the European Central Bank (ECB) cut its key interest rate by 0.1%. It’s now at an all-time low of -0.3%.
The ECB hopes the new cut will boost Europe’s sluggish economy, which is only growing half as fast as the U.S. economy.
• The ECB also extended its quantitative easing (QE) program by six months…
QE is when a central bank creates money from nothing and pumps it into the financial system. It’s basically another term for money printing.
Since March, the ECB has pumped €60 billion ($64 billion) into Europe’s financial system every month. Originally, it had planned to run its QE program until September 2016. Yesterday, the ECB said it would continue the program through March 2017. At that point, the ECB will have pumped €1.5 trillion ($1.59 trillion) into Europe’s financial system.
ECB president Mario Draghi hopes more easy money will lift the Eurozone’s stagnant economy. A week ago, he called the current recovery “the weakest euro area rebound since 1998.”
• European stocks plunged on the news…
The Euro STOXX 600, which tracks 600 of Europe’s largest stocks, fell 3.14% on Thursday. It was the worst day for European stocks since global stocks crashed in late August.
Yesterday, The Wall Street Journal reported that investors expected the ECB to drop its key rate by 0.15%, or 50% more than it did. Investors also expected the ECB to start pumping at least an additional €10 billion ($10.6 billion) into Europe’s financial system every month. That didn’t happen.
• European stocks plunged because Europe’s financial system is hooked on easy money…
From 2009 through 2014, the ECB cut interest rates 11 times. This didn’t help Europe’s sluggish economy. So, the ECB turned to money printing…
The ECB announced its first QE program in January. European stocks rallied. By mid-April, the STOXX 600 was up 21% on the year. That’s when the high wore off. The STOXX has lost 10% since.
Now Europe’s financial system needs another fix. This is why the ECB has cut its key rate again and announced it will print €360 billion ($384 billion) more than it originally planned.
Yet European stocks plunged because investors don’t think the ECB went far enough.
• Meanwhile, Raoul Pal thinks the odds of a global recession just jumped…
Pal is one of the world’s best “big picture” investors. He’s known for nailing big calls about the economy and the stock market.
Last December, Pal said the U.S. dollar would rally…The U.S. dollar hit a new 12-year high on Monday. He also said the price of oil would fall to $40…The price of oil closed at $39.97 today.
• Pal just nailed another big call…
In July, he said the Institute for Supply Management's (ISM) manufacturing index would fall below 50 in late 2015. A reading below 50 means the U.S. manufacturing sector is shrinking.
Earlier this week, the ISM reported that its manufacturing index fell to 48.6 last month, down from 50.1 in October. This is the lowest it’s been since the Great Recession. It’s also the first time the index has dipped below 50 since 2012.
As we explained on Tuesday, the big drop in this index suggests the U.S. is in an “industrial recession.”
• Pal says the slowdown in U.S. manufacturing means there’s a 65% chance of a global recession…
This week, Pal explained to Business Insider why the ISM hitting a six-year low is such a bad sign.
I use the ISM as a guide to the global business cycle, not just the U.S. cycle…
Basically, ISM tracks GDP [gross domestic product] really well. It means GDP is falling, so growth in America is falling and growth is falling around the rest of the world.
Pal says the odds of global recession would reach 85% if the ISM falls to 47.
• Meanwhile, the most important energy deal in decades is moving forward…
In July, the U.S. and five other countries – the UK, France, Germany, Russia, and China – reached a landmark nuclear deal with Iran.
The deal requires Iran to stop developing nuclear weapons. In exchange, the six global powers agreed to lift economic sanctions against Iran, including bans on importing Iranian oil and natural gas.
Iran appears to be holding up its end of the deal. This week, the International Atomic Energy Agency reported that it has not found credible evidence of Iran developing nuclear weapons.
The U.S. government now says it could begin lifting sanctions on Iran as early as January.
• Economic sanctions have effectively blocked Iran from the global financial system for decades…
Now Iran could be the largest economy to enter the global financial system since the end of the Cold War, according to investment bank Morgan Stanley (MS).
Iran already has a $370 billion economy, which will only get bigger once sanctions are lifted. The World Bank reports that Iran’s economy could grow as fast as 6.7% in 2017. That’s twice as fast as the U.S. economy is growing right now.
• Nick Giambruno, editor of Crisis Speculator, thinks Iran will have one of the greatest economic booms “since the opening of China”…
Nick is so excited about Iran because the country has a tremendous amount of untapped wealth. Iran has the world’s third-largest proven oil reserves. It also has the world’s second-largest proven natural gas reserves.
Nick says Iran even has huge opportunities outside of its energy sector.
Iran’s economy is not all about natural resources. The country is home to advanced nanotechnologies and the Middle East’s largest car manufacturer. Its young population of 78 million yearns for iPhones and other Western products, and there’s enormous built-up demand. That demand is getting ready to explode like Mt. St. Helens.
• Yet few U.S. investors will profit from Iran’s coming economic boom…
Most Americans completely distrust Iran. They associate the country with the Iranian hostage crisis, militant fundamentalists, and a searing hatred of all things American.
Nick likes that most U.S. investors either hate Iran or overlook it altogether. He says this makes Iran the “ultimate contrarian opportunity.”
• Investing in Iran is extremely difficult…
It’s illegal for Americans and most Europeans to own Iranian stocks. Even if you live in a country where it is legal to own Iranian stocks, it’s still extremely difficult to open up an Iranian brokerage account.
Most investors would give up right there. But Nick found a “back door” way to invest in Iran. It’s completely legal and easy for U.S. investors to access. In fact, it trades on the NASDAQ stock exchange.
This is a once-in-a-generation opportunity. But you have to act quickly. The U.S. government could lift sanctions as soon as next month. This would certainly attract a lot of investor attention. To maximize your profit potential, you need to act now while most investors still want nothing to do with Iran.
You can learn all about Nick’s “back door” investment in Iran by signing up for a risk-free trial of Crisis Speculator. Just click here to get started.
Chart of the Day
The drop in U.S. manufacturing activity spells trouble for the stock market…
We explained earlier why Raoul Pal thinks the ISM index is a reliable indicator for the global economy. He also thinks it’s a reliable indicator for the U.S. stock market.
Today’s chart compares the ISM manufacturing index to the S&P 500. As you can see, the ISM closely tracks the performance of U.S. stocks…
Casey readers know U.S. stocks are still technically in a bull market. But Pal thinks they could enter a bear market soon.
Since the ISM dropped below 50 last month, Pal says there’s now a 65% chance the S&P 500 will fall 20%. A bull market officially dies when it drops 20% from a previous high.
Delray Beach, Florida
December 04, 2015
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