Archive - Jul 13, 2015 - Story

It’s not just about Greece, it’s about the whole EU. The Troika thinks that by scaring the living daylights out of the periphery, its power will increase. Germany just killed its golden goose. And boy, is that ever stupid. The main thing here is that Don Corleone was not a psychopath or sociopath, and that’s more than you can say for Schäuble and Dijsselbloem and Juncker and their ilk. While brute force may look attractive and decisive and all, in the end it will be their undoing. The Italians and Spanish and French have noted every word of this, and more. Europe as it is, is already over. Everything from here on in is a mere death rattle.

A week ago we exposed the massive number of cars piling up in GM's parking lots in China. A few days later, we note that Chinese auto sales have collapsed at the fastest rate in 3 years and an increasing number of new orders are being cancelled as the stock market crashes. But the triple whammy for US auto manufacturers - who have incessantly pitched China as their growth engine - is news from Huaxia Times that China's import car dealers saw inventory days reach a mind-blowing 143 days in May. For context, the normal average has been 24-36 days. Once again it appears the serial extrapolators at the automakers, excited by the serial extrapolators at the big banks have excitedly mal-invested right at the turn.

The tedious drama that we’ve been observing in Greece in recent years is far from over. What we’re witnessing is the greatest credit bubble/debt bubble that mankind has ever seen. What we’re seeing in Greece is not merely a country of socialistically inclined people behaving very foolishly. We’re seeing a small pin pricking a very large balloon. Greek debt is tied to EU debt. EU debt is tied to world debt. The coming debacle may unfold in this manner...

Greece is saved!!! I mean BANKERS are saved!!! The market will celebrate the total capitulation of Greece to the EU bankers. Nothing has been resolved. The debt won’t be repaid. The can has been kicked again. Portugal, Spain, Italy, Ireland and even France are essentially insolvent. It’s all a ponzi scheme. The bankers win and the people lose. Hope is not a strategy. Hussman’s weekly tome shows how a crisis plays out. Bad shit happens and the powers that be react with bad solutions that keep their wealth and power protected. Their bad solutions lead to a worse crisis. More bad solutions. And so on, until complete collapse.

If there's something funny about all of this, someone forgot to tell Wolfgang Schaeuble...

Similar to the US banks who funded home owners that shouldn’t have received mortgages and made a fortune doing so – at least initially, the Germans funded the periphery nations in an effort to drive output growth domestically. However, financing a large portion of ones’ customer purchases is a high risk endeavour. And the Germans are in the midst of this hard lesson.

"The idea was that with Greece out, Germany would be more likely to provide the financial support the eurozone needed because the German people would no longer perceive aid to Europe as a bailout for the Greeks. At the same time, a Grexit would be traumatic enough that it would help scare the rest of Europe into giving up more sovereignty to a stronger banking and fiscal union."

"Exchanges around the world are avidly wooing high-frequency traders, those controversial speed demons of Wall Street. Despite the often explosive debate over this kind of trading in the U.S., bourses in Mexico, Turkey, South Africa and beyond are trying to lure HFT types to boost business," Bloomberg reports.

"I think that if Greece were to leave the Euro things would get very complicated for them... and this would create the same very unhealthy situation as we have in Argentina. Why? If people start storing value in a foreign currency, in this case Greeks using Euros, this will create a huge lack of transparency and affect normal trade flows and transactions. And we know that the parallel economy in Greece is already quite large the way it is. So imagine an exponential version of that. It would be a very difficult period for Greece."

What is on display more brightly and clearly than ever, though, is the utter fakery of international banking. The players have lost faith in their own shenanigans. They simply go through the motions now awaiting the political fallout, which is to say the revolt of the people who can still do arithmetic. The old refrain, “your check is in the mail” may not be so reassuring to folks who haven’t eaten for three days. Personally, I would expect the gasoline bombs to be flying around Syntagma Square before the middle of the week.

June was a bad month for most hedge funds. With China crashing, oil prices resuming their slide, volatility returning, and even momo favorite biotechs no longer rising at their conservative 10% monthly clip, few looked forward to writing their monthly investor letters, and nowhere was the carnage more indicative than in our favorite named hedge fund, the Tulip Trend Fund, which after soaring earlier in the year tumbled 15% in June and is now down almost 20% for the year.

"The Bank has started work to ensure there are no technical obstacles to our ability to accept equities as collateral should the need arise."

US Treasury bond yields are now lower on the day; EURUSD is plunging; and US equities are bid still near the highs of the day...