Have you ever witnessed a fire that destroys a home?

The most common cause of a destructive fire is cooking. Better stated, it’s cooking on a stove where the food is left unattended.

According to the National Fire Protection Association, cooking-related fires are the leading cause of fire deaths in the United States. They are also the leading cause of fire injuries and the second leading cause of fire damage.

I’ve been thinking a lot about fire lately because it is an apt metaphor to describe what is happening in Europe at the present time. By my way of thinking Europe is on fire. It’s facing an existential energy crisis because of its refusal to purchase Natural Gas from Russia. Winter is 60 days away and with colder weather and upcoming freezing temperatures we can anticipate a potential economic catastrophe that will forever change Europe.

Fire is a destructive force, and when it destroys a home, the impact is felt by the entire neighborhood. Not only do the affected residents lose their homes, but their neighbors also must deal with the aftermath of debris and ash.

Everyone knows that Europe is in for the toughest winter of its existence. This isn’t hype.  It’s the economic reality created by a policy which ignores how important access to energy is to a well-functioning economy.

Imagine that for the next 100 days your world freezes. During this time, you cannot drive your cars or heat your homes with the luxury of central heating. How do you survive?  How are things produced and manufactured? How does the delivery of vital goods and services to citizens occur?  And equally, as important what affect will the European Energy Crisis have on the world financial markets?

As of 2021, the eurozone consists of 19 countries: Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain. All these countries have adopted the Euro as their currency.

The eurozone was formed in 1999 and has since grown to become one of the world’s largest economic regions. eurozone countries have a combined GDP of more than $16 trillion, making it the largest economic bloc in the world. While the eurozone has been generally successful, it has faced some challenges in recent years. One of the biggest challenges is that not all eurozone countries have the same level of economic development, which can lead to imbalances in trade and financial stability. Another challenge is that eurozone countries must all follow the same monetary policy, which can be difficult when individual countries have different economic needs.

In 2014, the European Central Bank (ECB) shocked the financial world by adopting a negative interest rate policy (NIRP). Under NIRP, the ECB charges commercial banks 0.4% to hold their deposits overnight. In theory, this should encourage banks to lend more money and help spur economic activity. The ECB’s decision was driven by several factors. First, the Eurozone was still struggling to recover from the debt crisis that began in 2008. Second, many Eurozone countries were running large deficits and needed to find ways to increase competitiveness. Lastly, the ECB feared that inflation was at risk of collapsing. While NIRP has had some positive effects, it has also come with negative consequences. One key benefit of NIRP is that it has helped to boost lending and economic activity in the Eurozone. However, it has also led to higher costs for savers and pensioners. Additionally, NIRP has had little impact on inflation, leading some to question its efficacy.

Since the ECB was founded in 1998, it has had a dual mandate of maintaining price stability and supporting the EU’s overall financial stability. In response to the Great Financial Crisis of 2008, the ECB lowered interest rates to historically low levels and introduced several unconventional policy measures. One of the most significant steps taken by the ECB was to embark on a program of large-scale asset purchases, also known as quantitative easing (QE).

Under QE, the ECB created new money and used it to buy government bonds and other financial assets from banks. This increased the money supply and helped to lower borrowing costs.  In theory, it supported economic activity and asset prices. To date, the ECB has purchased over EUR 2 trillion (roughly USD 2.4 trillion) of assets under QE, equivalent to around 20% of Eurozone GDP. In addition, the ECB has cut interest rates into negative territory for the last 8 years and provided cheap funding to banks through its targeted longer-term refinancing operations (TLTROs). As a result of these actions, ECB debt now amounts to over EUR 4 trillion (roughly USD 4.6 trillion).

Stop and think of the banking industry during a winter-long energy crisis?

One of the most significant challenges facing the eurozone is the lack of energy diversity. This has led to crude oil and natural gas prices fluctuating widely, and as a result, heating bills have increased by 700% year over year in many European countries. At present time gasoline prices in Europe are roughly $7.20 per gallon. (Europe measures gasoline in liters) In addition, several eurozone countries (such as Greece and Italy) have been teetering on the brink of economic collapse. As a result of these challenges, eurozone leaders have been working hard to find ways to improve the economic stability of the region.

But a major glitch has entered the planning.

That glitch is that everything requires energy to be produced. Simply walk down any grocery aisle and everything that is on the shelves requires energy for its manufacturing, distribution, and consumption.

The statement “energy is needed to produce everything” is a broad statement. When I say that energy is needed to produce something, what I mean is that manufacturing processes require inputs of energy, in the form of heat, light, or electricity, to create outputs. The cost of energy is thus a major determinant of the quantity of production. In other words, the more expensive energy is, the less of anything can be produced. In this sense, energy costs function as a sort of penalty or tax on manufacturing activity. However, it’s important to keep in mind that manufacturing also requires other inputs, like labor and raw materials, which also have costs associated with them. So, when we talk about the cost of energy, we’re really talking about the marginal cost of energy relative to all other manufacturing costs.

Next, to really try and get a handle on the problem Europe faces we must measure the purchasing power of a currency relative to the goods and services available for purchase.  This indirectly is an economic theory attributed to Thomas Gresham. Gresham (1519-1579) was an English financier and advisor to Queen Elizabeth I. He is best known for his observations on monetary policy, which led to the development of what is now known as “Gresham’s Law.” Briefly, Gresham’s Law states that “bad money drives out good.” In other words, when weak forms of money are introduced into circulation, they will eventually displace strong forms of money. This happens because people will hoard strong money and use weak money in circulation, leading to a deterioration in the purchasing power of weak money. While Gresham’s Law is typically used to describe situations in which there is a mix of strong and weak forms of currency in circulation, it can also be applied more broadly to any situation where there is a substitution of inferior goods for superior goods. For example, if someone starts using cheaper but lower quality ingredients in their baking, eventually all their recipes will be made with inferior ingredients. In this way, Gresham’s Law can be seen as a general principle governing the substitution of inferior goods for superior goods in any market.  This law underscores the importance of understanding the purchasing power of money. otherwise known as its “soundness.” By maintaining strong currencies, we can help to ensure that prices remain stable, and economies remain strong.  It also allows us to clearly see and understand history.

One of the spoils of war is the capture of the enemy’s currency. This is especially true when one country conquers another, as the victor often seizes all the spoils of the defeated country – including its currency. The loser in war often sees its currency debased, as the value of their money plummets in relation to the victor’s currency. This can have a devastating effect on the losing country’s economy, as businesses and individuals suffer from skyrocketing prices and plummeting purchasing power. In some cases, the losing country may be forced to adopt the victor’s currency to stabilize its economy. However, this often leads to resentment and further economic decline. As a result, countries that lose wars often see their currencies debased and their economies destabilized.

What I find fascinating in thinking about Gresham’s law is that we are looking and comparing three currencies available for trade.  The Euro, the U.S. Dollar, and the Russian Ruble.

The charts that I have posted here are since the RUSSIAN invasion of Ukraine.

First, we can see that the Euro has fallen sharply.

Next, we see one beneficiary of this decline has been the U.S. Dollar which in the same time frame has risen 12.6%.

Lastly, we have the Russian Ruble which has risen 39% since the beginning of the war.  First it fell 40% when the EU and USA imposed sanctions on the country. But you can see from the chart, its currency is behaving as if it is immune to the demands of the West. Why has the Russian Ruble risen so much? Concisely, Vladimir Putin has challenged the entire FIAT monetary system of the west by telling Western Nations that he will sell them goods priced in either precious metals or rubles.

I have written about this in previous blog posts which you can read here:

What Effect Will De-Dollarization Have?

Are We Witnessing An End To The Petrodollar?

Ask yourself if you were managing a business in Europe and electricity costs were up 700% year over year, natural gas was unavailable for purchase, what actions would you take to protect yourself and your business?  It is quite a problem.

It is not asking too much for citizens to be warm, well fed, and have a currency which maintains its purchasing power. When these conditions are not met, political allegiances and sovereign borders can change very quickly.

Hundreds of thousands of Brits are set to stop paying their energy bills next month when prices take another leap. More than 1.7 million UK households are planning to strike on payments from 1 October, according to a recent Opinium Research survey, representing 6 per cent of the population.  The European newspapers are full of stories of shops and restaurants being forced to close because the soaring energy bills have already made them unprofitable.

How does this type of massive civil disobedience affect the EU moving forward?

Each year, around 10,000 people die in Europe because of living in freezing homes according to the National Energy Action (NEA) charity – from heart attacks, strokes, bronchitis, and other serious illnesses that the cold causes or exacerbates.  We can expect that number to move up exponentially this winter.

The biggest question of all is how does all this potential madness affect your portfolio?

Europe trades roughly $1.4 trillion annually with the United States. The United States is Europe’s main trading partner.

Regardless how we look at Europe we see massive geopolitical risk.

It’s very clear a storm is headed right at the European continent and like a raging fire no one can foretell the effect that it will have on their standard of living.

My solution to this existential problem is suggesting utilizing artificial intelligence to trade short term market swings. At present, I cannot fathom having a long-term investor viewpoint on any asset.

My obsession is protecting the purchasing power of assets.  The best way that I know how to do that is utilizing the power of the Vantagepoint A.I. Software which utilizes artificial intelligence, machine learning and neural networks.

Let me explain.

The chart below shows the extraordinarily strong correlation between the S&P 500 Index and the Euro.  They are currently 79.4% correlated.  This essentially means that over the past year, 79.4% of the time the EURO and the S&P move in the same direction.

Fascinating, isn’t it?

As a trader the biggest challenge you face is related to how effective your decision-making process is. It is very easy to make decisions which are logical but still completely incorrect and unprofitable!

Hope is not a strategy.

These are unprecedented times for financial markets. To even hope to prosper you should consider the power of artificial intelligence in your corner.

This is why artificial intelligence as a tool is indispensable for traders.

The one thing that A.I. does better than any human is its entire purpose is to keep you on the right side, of the right market at the right time. A.I. combined with neural networks is all about using a vast amount of data and history to determine the best move forward.

What it all boils down to is what are you doing with the knowledge you acquire?

What has your performance been like in the markets? 

How consistent have you been in finding a systematic method of managing risk?

Do you have the tools and ability to find the strongest trends at right time in this economic environment?

How do you go about making sense of the massive disruption that the printing press is creating in the pricing of financial assets?

What is your plan for maintaining your purchasing power as this trend accelerates?

The answers that artificial intelligence brings to the table might surprise you.

Discover why artificial intelligence is the solution professional traders go-to for less risk, more rewards, and guaranteed peace of mind.

Think about these things as you protect your hard-earned money. We live in very interesting times.

Remember, artificial intelligence has decimated humans at Poker, Jeopardy, Go! and Chess. Why should trading be any different?

Knowledge. Useful knowledge. And its application is what A.I. delivers.

You should find out. Join us for a FREE Live Training.

We’ll show you at least three strong trends that have been identified by the A.I. that are poised for big movement… and remember, movement of any kind is an opportunity for profits!

Visit with us and check out the A.I. at our Next Live Training.

It’s not magic.  It’s machine learning.

Make it count.

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DISCLAIMER: STOCKS, FUTURES, OPTIONS, ETFs AND CURRENCY TRADING ALL HAVE LARGE POTENTIAL REWARDS, BUT THEY ALSO HAVE LARGE POTENTIAL RISK. YOU MUST BE AWARE OF THE RISKS AND BE WILLING TO ACCEPT THEM IN ORDER TO INVEST IN THESE MARKETS. DON’T TRADE WITH MONEY YOU CAN’T AFFORD TO LOSE. THIS ARTICLE AND WEBSITE IS NEITHER A SOLICITATION NOR AN OFFER TO BUY/SELL FUTURES, OPTIONS, STOCKS, OR CURRENCIES. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE DISCUSSED ON THIS ARTICLE OR WEBSITE. THE PAST PERFORMANCE OF ANY TRADING SYSTEM OR METHODOLOGY IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. CFTC RULE 4.41 – HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.