Archive - Jul 23, 2011

While it is always good to hear grizzled veterans explain what we all know, namely that the US debt situation is untenable and America will eventually collapse under the weight of its obligations, we wonder: where were these same people while the debt was being accumulated and everyone was shiny and happy (there is a reason why the correlation between US GDP and debt is about as close to 1 as they come) and without a care in the world about America's long term solvency?  Yes: we do enjoy the writings of Oaktree's Howard Marks who has chosen to dissect the US debt ceiling and more specifically America's untenable deficit spending as the topic of his latest letter, although we can't help but wonder: why now? Why not a year ago? Or, better yet, a decade ago? Furthermore, as last night's explosive announcements by the president and Boehner demonstrated the debt hike story has so many moving parts that staying on top of it is virtually meaningless. Indeed, it would have been much more useful for America if financial luminaries as Marks had actually spoken up while the US Treasury was accumulating trillions in debt, instead of all the Monday Morning quarterbacking we seem to be getting each and every day from all the "fiscally prudent" ones who rode the train of America's "great moderation" runaway debt to stratospheric wealth and were all very silent then...

A European Bank Run: Step-by-Step. I outline the problems of a single bank that, unfortunately, is shared by many. This time next year, never let anybody tell you that this couldn't be seen coming as I illustrate how it will happen, and in detail!

It was only a matter of time before China's pursuit of infrastructure perfection for the sake of merely recycling trade surplus dollars ended up in casualties. And while its now innumerable ghost cities are unlikely to hurt anyone since they are, well, vacant, the same can not be said about its infrastructure. Earlier today, China's D-Train, a first generation of its bullet train, travelling the Hangzhou to Wenzhou route derailed, with two of its carriages falling off a bridge. The precise number of casualties is as of this moment unknown, although the latest report from Reuters is of 11 killed and 89 injured. We expect the number to be far higher in the end. Just like in the US where none of the massive infrastructure spending as part of ARRA actually went to infrastructure, so China is about to realize that mixing unprecedented corruption and ultra high speeds usually results in very catastrophic consequences.

Here is my take on the Greek "bailout" and what it means for the rest of us...