By Justin Spittler and Joe Withrow
Ray Dalio just bet $1.1 billion against Italy.
Specifically, he shorted (bet against) five Italian banks and one insurance company last quarter. And he did so to the tune of $770 million.
Dalio also bet $311 million against Italy’s largest utility company.
This is a big deal.
You see, Dalio is one of the world’s most respected investors. He manages $160 billion at Bridgewater Associates, the world’s biggest hedge fund.
• But Dalio didn’t reach the top of Wall Street by accident…
He got there because he can spot massive threats and opportunities long before other people do.
For example, Dalio predicted the U.S. housing bubble would burst in 2007. Not only that, he said the crash would spread to the banking sector.
At the time, many people thought this was a crazy idea. But Dalio was right.
That year, the U.S. banking sector imploded. This triggered the worst financial crisis since the Great Depression. The average U.S. stock plummeted 57% over the next two years.
• In short, it pays to watch what Dalio’s doing…
So in a minute, I’ll tell you why Dalio made this giant bet. I’ll also show how you, too, can profit from Italy’s problems.
But you first need to understand what those problems are…
Italy’s banking system is a ticking time bomb.
Its banks are sitting on $356 billion worth of non-performing loans (NPLs).
These are loans borrowers have stopped paying. They’re considered “sour loans” because banks often don’t end up collecting them. They take huge losses instead.
To give you a sense of how serious this is, consider this: NPLs make up 18% of all loans issued by Italian banks. For perspective, NPLs accounted for 5.3% of all loans issued by U.S. banks at the height of the Great Recession.
As if that weren’t enough, these sour loans are valued at around 20% of Italy’s annual economic output.
It’s an incredibly fragile situation, to say the least.
• European regulators are now scrambling to prevent a banking crisis…
The Italian government, for one, has pledged to bail out the banking system if necessary.
This is when the government gives banks money to keep them from crashing. Taxpayers end up footing the bill.
The European Central Bank (ECB) is also trying to help. On October 3, it announced plans to impose strict capital requirements for European banks.
In short, it wants Italian banks to set aside billions of euros to cover losses from NPLs.
• These regulations are intended to shore up Italy’s fragile banking system…
They were supposed to make people feel safer. But that’s not what happened.
Instead, the ECB rattled investors’ nerves. In fact, Italian bank stocks plummeted on the news.
➢ Since the start of October, the FTSE Italia All-Share Banks Index is down 5%.
➢ UniCredit, Italy’s largest bank, has fallen 6%.
➢ UBI Banca, another major Italian bank, has plunged 11%.
➢ And BPER Banca is down 15%.
These are staggering declines for such a short period. Still, you might not be worried about this.
And that’s because most U.S. investors don’t own any Italian banking stocks. But you must realize something…
• Italy’s not the only European country drowning in bad debt…
German and French banks together have around $272 billion worth of bad loans on their books.
And Europe as a whole has about $1 trillion worth of NPLs.
In other words, a banking crisis in Italy could spread across Europe like the black plague.
If that happens, European bank stocks won’t just tumble. They’ll go down in flames.
So, lighten up on European bank stocks if you own any. You should also buy gold if you haven’t already.
• That’s because gold is the ultimate safe-haven asset…
It’s preserved wealth for centuries, through history’s most violent financial crises.
And that’s why Dalio thinks every investor should keep between 5% and 10% of their money in gold.
And those who don’t own gold? Well, Dalio thinks they’re clueless. He said in 2015:
If you don’t own gold, you know neither history nor economics.
But Dalio doesn’t just encourage investors to own gold. He buys it with his own fund’s money.
In fact, Bridgewater bought more than $100 million worth of SPDR Gold Shares (GLD) and the iShares Gold Trust (IAU) during the second quarter.
These are the world’s largest gold funds. They’re easy ways to gain exposure to gold. But that doesn’t make them the best.
• If you really want to protect your wealth, I recommend that you own physical gold…
This is gold that you can hold in your hand. It’s one of our core recommendations here at Casey Research.
It’s a much more secure way to own gold than GLD, IAU, or any other “paper gold” fund.
Justin Spittler and Joe Withrow
October 18, 2017
P.S. In anticipation of the 2017 New Orleans Conference, Doug Casey recently sat down with Rick Rule to discuss the current state of the gold market and the opportunities in mining stocks. You can listen to the discussion here.
If you’re interested in attending the conference (October 25–28), it’s still not too late to sign up. You’ll hear more from Doug as well as some of the top minds in the resource business. This year, there will also be a special event for Casey Research subscribers that you won’t want to miss.
For more details and how you can join, click here. Be sure to use the code FREEGOLDCLUB to get free Gold Club access ($189 value).