The Importance of the Macro-Political Landscape and How David Einhorn Used It to Predict 2010

naufalsanaullah's picture

(Original post here)

Submitted by Qasim Khan

Perhaps one of the most overlooked phenomena in this world is the
relationship between cause and effect. Financial markets and economics in
general are
noteworthy exhibitions of a lack of recognition of this principle.
In just a few minutes watching
CNBC, you are bombarded with statistics that PROVE our miraculous
economic recover
y. The macro data has become better; anyone
who denies that is disconnected from reality. However, as the markets
have vehemently demonstrated recently, the fact is that these numbers
have become


irrelevant. Why you ask? Because we don’t live in a society where these
numbers represent organic, secular condit
ions anymore; instead, they reflect the
increasingly contradictory and escalating political tension of the

Importance of

While CNBC talks about
things like CPI, PMI, and Cramer’s PMS instead of bigger picture
geo-political developments, their importance cannot be understated. And
while many traders and investors do not heavily account for such macro
elements (evidenced by the fact that the global economy could be
brought to its knees by a
largely unforeseen housing bubble), David Einhorn, whom I have had the fortune of
meeting, perfectly explains the importance of this in
a speech to the Value Investing
Conference in October 2009
. Einhorn, known for his bottom up
investment style, found a greater appreciation for the importance of
macro develo
pments after the recent financial crisis. In the speech he offers several extremely poignant
upon this macro-political perspective
, almost completely vindicated by the
events in 2010
. He said:

At the May 2005 Ira Sohn Investment Research Conference in
New York, I recommended MDC Holdings, a homebuilder, at $67 per share.
Two months later MDC reached $89 a share, a nice quick return if you
timed your sale perfectly. Then the stock collapsed with the rest of
the sector. Some of my MDC analysis was correct: it was less risky
than its peers and would hold-up better in a down cycle because it had
less leverage and held less land. But this just meant that almost half
a decade later, anyone who listened to me would have lost about forty
percent of his investment, instead of the seventy percent that the
homebuilding sector lost.

want to revisit this because the loss was not bad luck; it was bad
analysis. I down played the importance of what was then an ongoing
housing bubble. On the very same day, at the very same conference, a
more experienced and wiser investor, Stanley Druckenmiller, explained
in gory detail the big picture problem the country faced from a growing
housing bubble fueled by a growing debt bubble. At the time, I
wondered whether even if he were correct, would it be possible to
convert such big picture macro thinking into successful portfolio
management? I thought this was particularly tricky since getting both
the timing of big macro changes as well as the market’s recognition of
them correct has proven at best a difficult proposition. Smart
investors had been complaining about the housing bubble since at least
2001. I ignored Stan, rationalizing that even if he
were right,
there was no way to know
when he would be right. This was
an expensive error.

The lesson that I have learned is that it isn’t reasonable to be
agnostic about the big picture. For years I had believed that I didn’t
need to take a view on the market or the economy because I considered
myself to be a “bottom up” investor. Having my eyes open to the big
picture doesn’t mean abandoning stock picking, but it does mean managing
the long- short exposure ratio more actively, worrying about what may
be brewing in certain industries, and when appropriate, buying some
just-in-case insurance for foreseeable macro risks even if they are hard
to time.


This ideological
change has become apparent in the market more generally as well.
CNBC can toot all the numbers
and expectation
they want, the truth is economic data has
taken a back seat to political
circumstances in the new market.

To understand the
causal dynamics of the current recovery it is n
ecessary to ask “how” and “why” instead of asking the much
trumpeted CNBC question of “what”
From this perspective it becomes clear
that the “recovery” that we have experienced draws heavily on
exceptionally generous
intervention. The government response was in all likelihood necessary and
has resulted in improved economic data; however,
it seems that the stimulus improved the (certain)
numbers simply for the sake of improving (certain) numbers. As this has
become increasingly apparent, there has been a paradigm shift where
political conditions and events increasingly overwhelm economic data
and appear to continue to do
so for the foreseeable future.

Perhaps the most
pressing question is
“How much longer can sovereign
governments afford to provide extremely loose
conditions and subsidize private
sector debt?”
how early is too early to remove stimulus?
Einhorn wisely prophesied that government
response to the financial crisis would make previously economic issues
become subject to politics:

Imagine, in our modern market, where we now get economic data
on practically a daily basis, living through three years of favorable
economic reports and deciding that it would be “premature” to withdraw
the stimulus.

alternative lesson from the double dip the economy took in 1938 is that
the GDP created by massive fiscal stimulus is artificial. So whenever
it is eventually removed, there will be significant economic fall out.
Our choice may be either to maintain large annual deficits until our
creditors refuse to finance them or tolerate another leg down in our
economy by accepting some measure of fiscal discipline.

brings me to our present fiscal situation and the current investment

the next decade the welfare states will come to face severe
demographic problems. Baby Boomers have driven the U.S. economy since
they were born. It is no coincidence that we experienced an economic
boom between 1980 and 2000, as the Boomers reached their peak
productive years. The Boomers are now reaching retirement. The Social

and Medicare commitments to them are astronomical.

the government calculates its debt and deficit it does so on a cash
basis. This means that deficit accounting does not take into account
the cost of future promises until the money goes out the door.
According to, if the federal government counted the
cost of its future promises, the 2008 deficit was over $5 trillion and
total obligations are over $60 trillion. And that was before the

the last couple of years we have adopted a policy of private profits
and socialized risks. We are transferring many private obligations
onto the national ledger.
Although our leaders ought to make
some serious choices, they appear too trapped in short-termism and
special interests to make them. Taking no action is an action.

the nearer-term the deficit on a cash basis is about $1.6 trillion or
11% of GDP.

Obama forecasts $1.4 trillion next year, and with an optimistic
economic outlook, $9 trillion over the next decade. The American
Enterprise Institute for Public Policy Research recently published a
study that
indicated that “by all
relevant debt indicators, the U.S. fiscal scenario will soon
approximate the economic scenario for countries on the verge of a
sovereign debt default.”

we sit here today, the Federal Reserve is propping up the bond market,
buying long-dated assets with printed money. It cannot turn around and
sell what it has just bought.

There is a basic rule of liquidity. It isn’t the same for
If you own 10,000 shares of Greenlight
Re, you have a liquid investment. However, if I own 5 million shares
it is not liquid to me, because of both the size of the position and
the signal my selling would send to the market. For this reason, the
Fed cannot sell its Treasuries or Agencies without destroying the
market. This means that it will be challenged to shrink the monetary
base if inflation actually turns up.

the Federal Open Market Committee members may not recognize inflation
when they see it, as looking at inflation solely through the prices of
goods and services, while ignoring asset inflation, can lead to a
repeat of the last policy error of holding rates too low for too long.

the same time, the Treasury has dramatically shortened the duration of
the government debt.
As a result, higher rates become a
fiscal issue, not just a monetary one.
The Fed
could reach the point where it perceives doing whatever it takes
requires it to become the buyer of Treasuries of first and last resort.


The unsustainable nature of the interventionist
mandate is becoming increasingly apparent,
evidenced by the explosion of sovereign
debt concerns this year. This crisis has resulted in a reexamination of
the importance of fiscal discipline and introduction of
austerity plans in Europe. While the US states do not
face the same difficulties as their European counterparts, their
problems may be just as difficult to overcome

This past week, the
great city of Central Falls,
Rhode Island was placed in receivership, which comes as a tremendous surprise
because the city website’s slogan led me to believe that
Central Falls was “A City with a Bright

It’s funny that their website failed to mention that its public school
system was universally accepted to be well below satisfactory
standards; so poor in fact that in February
the Board of Trustees voted to
fire the ENTIRE teaching and administrative staff of the school system
. As misplaced or harsh as
this measure may have been (clearly such systemic problems have more
than one causal source), being labeled as “persistently
lowest-performing” and having a 48% graduati
on rate is simply unacceptable. It is not surprising to find this result was an product of monetary union conflict. The articles points out:

Duncan is requiring states, for the first time, to identify
their lowest 5 percent of schools — those that have chronically poor
performance and low graduation rates — and fix them using one of four
methods: school closure; takeover by a charter or school-management
organization; transformation which requires a longer school day, among
other changes; and “turnaround” which requires the entire teaching
staff be fired and no more than 50 percent rehired in the fall.

and the teachers initially agreed they wanted the transformation
model, which would protect the teachers’ jobs.

talks broke down when the two sides could not agree on what
transformation entailed.

wanted teachers to agree to a set of six conditions she said were
crucial to improving the school. Teachers would have to spend more time
with students in and out of the classroom and commit to training
sessions after school with other teachers.

Gallo said she could pay teachers for only some of the extra duties.
Union leaders said they wanted teachers to be paid for more of the
additional work and at a higher pay rate — $90 per hour rather than the
$30 per hour offered by Gallo.

negotiations broke down, Gallo said she no longer had confidence the
high school could be transformed and instead recommended the turnaround
model. Gist approved Gallo’s proposal Tuesday morning and gave the
district 120 days to develop a detailed plan.

So let’s get this
straight: the students were performing so poorly that
in order demand more commitment from teachers,
they should be paid an even greater amount? It’s no wonder why the
school system would be so fundamentally unproductive. While I don’t
believe a teacher would purposely sabotage their students, the
breakdown of talks demonstrates that the teachers were not committed to
the job they should already be doing. Talk about moral hazard. But i
t turns out that the problem of paying its
current teachers was minor in comparison to the true problem of paying
retired teachers,
as this article points out:

“The pension plan is nearly broke,’’ said Joseph Larisa, a
lawyer who argued in court yesterday for the receivership. “It’s really
reached a breaking point where the budget cannot be balanced, whoever
is in charge.’’

And if you believe
that Central Falls is the only municipality struggling with its pension
commitments, you might find this
NYT piece quite enlightening. While Central Falls may be insignificant
in the larger scheme of things, make no mistake, austerity measures
will take place within the US and they will result serious


And while the fiscal
difficulties of
public sector
the flavor of the day, potentially much more dangerous geo-political
tensions are developing throughout the world.

While posting a trade
deficit in March has calmed the domestic calls for the appreciation of
Yuan, I doubt anyone would
characterize the US-Chinese dynamic as
warm. The Google censorship conflict presents
an altogether different political challenge and I’m sure
Hilary Clinton’s remarks today calling for China to
freedom and
failed to improve relations. Slowly but surely, we are seeing China
capitalize on its economic power to gain political power, something
that the US has largely had a monopoly upon the previous century or so.

While Thailand has seen its
share of troubles
, the conflict between the Koreas dominates the Asian


landscape. North Korea just happened to torpedo and
sink a South Korean naval ship,
killing 46 sailors.
SoKo, understandably, wanted to make a strong statement of
but then remembered North Korea
is nuclear and it isn’t
. So they’re taking their case to the
almighty UN Security Council, where they are left at the whims of
regional giant and their biggest trading partner, China, which
has yet to state a formal
policy on the sinking of the ship.
Can’t piss off China, can’t piss of
North Korea…
will have to give eventually.

Speaking of nuclear issues, Iran continues to pose the biggest
threat to the global economy and it does not appear likely to improve
any time soon. Not only did the US fail to secure the release of three
jailed American journalists in Iran
despite having released two Iranian
citizens held by US forces in Iraq and their mothers visiting them in
, it appears that it is losing
credibility in the nuclear development conflict as well,
evidenced by a recent interview with
President Ahmedinejad on Al Jazeera

In an exclusive interview conducted by the Al Jazeera network
on Friday, Ahmadinejad stated that no country has the power to
confront Iran, and added that Tehran advocates diplomacy as the ideal
way to deal with international issues, the Fars news agency reported.

said Iran does not even take Israel into account and noted that Tel
Aviv is not able to wage a war against the Islamic Republic.

the deteriorating relations between Tehran and the West, Ahmadinejad
said Western countries don't have problems only with Iran but actually
have problems with every country.

While the last quote is
surprisingly insightful, once again Ahmedinejad leaves observers
miffed. Don’t have the power? Apparently he missed
the massive naval buildup in the Persian
Gulf that the US has begun

Our military sources have learned that the USS Truman is just
the first element of the new buildup of US resources around Iran. It
will take place over the next three months, reaching peak level in late
July and early August. By then, the Pentagon plans to have at least 4
or 5 US aircraft carriers visible from Iranian shores.

This situation is
quite literally a perfect storm combining a lunatic head of state,
nuclear weapons,
oil and of course Israel.
Particularly with respect to crude, who knows how long Obama can stick
to his pro-drilling position as the oil spill has gone on for so long
now that everyone seems to have either forgotten about the issue or
submitted their best idea to BP. Just today, Iran threatened to
abandon shipping some of its
nuclear stockpile abroad as was planned if the US pursued increased
sanctions against it
; it will be interesting to see just how far the Obama
administration is willing to press Iran on its nuclear aims.

The Moral Bankruptcy of Hamid

Oh and did we forget to
mention the US is still conducting military operations in Iraq and
Afghanistan? The economic costs of which,
pointed out here perhaps
somewhat satirically by Congressman Alan Greyson
, are completely ignored. The
situation in Afghanistan is particularly perplexing, epitomized by the
enigma that is Hamid Karzai.

Here is a situation
where we have a president who is quite literally telling us he supports
the American effort while speaking English and the Taliban when
speaking Pushto.
that’s not an exaggeration.
He literally threatened to join
the Taliban

This is the same
president who needed to commit severe election fraud to prevent a
runoff election with a man named
Abdullah Abdullah (if you’re not supposed to
trust a man with two first names, how in the hell do you even consider
trusting a man with two first names that just happen to be the same?).
The same president who had
one-third of his votes thrown
out by
a UN-backed fraud commission
. The same president who then tried to take over the investigation

that was supposed to look into
fraud in last August’s election and
then accused the UN of rigging the election, despite the fact that it was
the UN who backed the investigation that revealed the massive fraud.
The same president whose brother just shut down the
regional council in Kandahar while he is being investigated for
illegally appropriating government land
. Oh and by the way, our success in the operation absolutely depends entirely
upon securing Kandahar, the Washington Post points out
. While Will Smith doesn’t believe in
backup plans
I don’t think this is exactly what he envisioned.

Of course, not all of these tensions will
escalate to have significant economic ramifications, but they just
serve to show there is no lack of exogenous catalysts posing a threat
to an increasingly global economy.

Politics and Gold

Perhaps the most
politically contentious investment currently is gold.
Gold, the asset that has no yield and no
pragmatic purpose has breached all time
highs; and with such success inevitably comes much abuse, confusion
and controversy. As seen by the recent
Goldline-Glenn Beck- Anthony

situation, the value of gold is primarily driven by political
the rise of the Tea Party movement producing legitimate candidate
threats (although Rand Paul may have shot himself in the foot)
gold will only continue to
become more contentious.
Once again, Einhorn shrewdly foretold:

I have seen many people debate whether gold is a bet on
inflation or deflation. As I see it, it is neither. Gold does well
when monetary and fiscal policies are poor and does poorly when they
appear sensible. Gold did very well during the Great Depression when

debased the currency. It did well again in the money printing 1970s,
but collapsed in response to Paul Volcker’s austerity. It ultimately
made a bottom around 2001 when the excitement about our future budget
surpluses peaked.

gold should do fine unless our leaders implement much greater fiscal
and monetary restraint than appears likely. Of course, gold should do
very well if there is a sovereign debt default or currency crisis.

few weeks ago, the Office of Inspector General called out the Treasury
Department for misrepresenting the position of the banks last fall. The
Treasury’s response was an unapologetic expression that amounted to
saying that at that point “doing whatever it takes” meant pulling a
Colonel Jessup: “YOU CAN’T HANDLE THE TRUTH!” At least we know what we
are dealing with.

I watch Chairman Bernanke, Secretary Geithner and Mr. Summers on TV,
read speeches written by the Fed Governors, observe the “stimulus”
black hole, and think about our short-termism and lack of fiscal
discipline and political will, my instinct is to want to short the
dollar. But then I look at the other major currencies. The Euro, the
Yen, and the British Pound might be worse. So, I conclude that picking
one these currencies is like choosing my favorite dental procedure.
And especially now, where both earn no yield.

I believe there is a real possibility that the collapse of
any of the major currencies could have a similar domino effect on
re-assessing the credit risk of the other fiat currencies run by
countries with structural deficits and large, unfunded commitments to
aging populations.

believe that the conventional view that government bonds should be
"risk free" and tied to nominal GDP is at risk of changing.
high quality corporate bonds have traded at lower yields than
sovereign debt. That could happen again.
note: a possibility mentioned on ShadowCap on multiple occasions]


The final piece of the
political-financial landscape is regulation, a topic that has seen
dramatic developments recently in the US.
Here, perhaps more so than anywhere
else, the global economy is purely subject to the flighty whims of
politics. As such, regulation, while theoretically desirable, may pose
the greatest threat of all because it never seems to deliver on its
intended aims.


Rather than deal with these simple problems with simple,
obvious solutions, the official reform plans are complicated,
convoluted and designed to only have the veneer of reform while mostly
serving the special interests. The complications serve to reduce
transparency, preventing the public at large from really seeing the
overwhelming influence of the banks in shaping the new regulation.

dealing with the continued weak economy, our leaders are so determined
not to repeat the perceived mistakes of the 1930s that they are risking
policies with possibly far worse consequences designed by the same
people at the Fed who ran policy with the short- term view that asset
bubbles don’t matter because the fallout can be managed after they pop.

view created a disaster that required unprecedented intervention for
which our leaders congratulated themselves for doing whatever it took
to solve. With a sense of mission accomplished, the G-20
proclaimed “it

And that is the
message that the Administration is trying to send with the new financial
reform bill that passed the Senate: Mission Accomplished. And that is
how you end up with a new “consumer protection” agency, when we already
a obfuscated system of overlapping and redundant

Anyone who objectively
observes the incentives of the current political establishment
objectively is forced to admit that what regulation produces more so
than anything else is more regulation.
So while the SEC is busy surfing the web desperate
waiting for the new Kendra sex tape,
we have a new institution to place the
blame upon when the next crisis inevitably occurs.

Financial reform was clearly passed now so the administration can claim a win for upcoming mid-term
elections, however

is beyond all
hilarity that the “reform”
completely leaves the issues with GSEs and rating agencies
Bill Gross has recently been on
a campaign against rating agencies
. Once again, Einhorn points out:

And, of course, these structural risks are exacerbated by the
continued presence of credit rating agencies that inspire false
confidence with potentially catastrophic results by over-rating the
sovereign debt of the largest countries. There is no reason to believe
that the rating agencies will do a better job on sovereign risk than
they have done on corporate or structured finance risks.

firm recently met with a Moody’s sovereign risk team covering twenty
countries in Asia and the Middle East. They have only four
professionals covering the entire region. Moody’s does not have a
long-term quantitative model that incorporates changes in the
population, incomes, expected tax rates, and so forth. They use a
short-term outlook – only 12-18 months – to analyze data to assess
countries’ abilities to finance themselves. Moody’s makes five-year
medium-term qualitative assessments for each country, but does not
appear to do any long-term quantitative or critical work.

Their main role, again, appears to be to tell everyone that
things are fine, until a real crisis emerges at which point they will
pile-on credit downgrades at the least opportune moment, making a
difficult situation even more difficult for the authorities to manage.

Hm… we haven’t seen
this exact problem in the Eurzone now have we?
Globally we are seeing the effects of
increased regulation, as Chinese tightening has set off a wave of fear
in the region and a recently proposed mining tax on the heavily
commodity based economy in Australia helped send the AUD plunging this
past week. In the US, financial reform has spilled
into the electoral arena, complicating an already far too convoluted

Take for example the
new derivative amendment proposed by Arkansas Senator Blanche Lincoln,
which almost no one takes seriously. H
ell, even Paul Volcker opposes the amendment. Yet
surprise, surprise
it was
created for political gain and
has remained because of political risk. A recent Bloomberg piece points

Regulators “have come out in a really unusual way and said,
and I’m paraphrasing here, that this is a really, really stupid idea,”
Judd Gregg, a New
Hampshire Republican, said in a recent floor speech. “Where this idea
came from is hard to fathom because on the face it makes absolutely no
sense. Yet for some reason it has found its way into this bill.”

of the outcome, Lincoln has reaped political gain. In a fundraising
letter sent April 16, she said she was “proposing sweeping legislation
that would drastically change the way Wall Street does business.”

May 4, her campaign began airing
a radio
featuring President Barack
. “Blanche is leading the fight to hold
Wall Street accountable and make sure that Arkansas taxpayers are never
again asked to bail out Wall Street bankers,” Obama said.

And this is why all I
can do is laugh when I see politicians crucifying Goldman for having
conflicts of interest.
Because if anyone has a conflict of interests, it is politicians. The recent actions of Blanche Lincoln
and Arlen Spector demonstrate just how repulsive politics is ethically.
Arlen Spector quite literally admitted his only reason for changing
parties was to save his job, so it’s not really a wonder that he
couldn’t secure the primary bid.

But such actions are
the rule, rather than the exception. Every time I turn on the news to
see a headline that reads something like BREAKING NEWS: State
Attorney General Cuomo Declares Gubernatorial
Candidacy, I
reminded at how seriously flawed the political environment currently is
and its dominating influence over financial markets.
For example, any reasonably intelligent
human being could surmise that
Cuomo already did this when he started conducting criminal investigations into Wall St
practices that will undoubtedly result in absolutely nothing of

So while I agree the
Fed opacity presents a concern, I would be far more concerned if it had
to report to the GAO or any other Congressional body because while
Bernanke is certainly guilty of hubris, many
Congressman are guilty of the far worse crime of
absolute idiocy
. Checks
and balances are extremely important in
theory, however, they can be equally
unproductive if involved parties are incompetent.

However, that’s exactly where we are today; financial markets are a game
of politics right now.
It’s nice to see the unemployment rate tick up one-tenth of
one percent or manufacturers gaining confidence, however when you
understand the causal sources of these changes, they truly become much
less important. When the Fed has a balance sheet of over $2T, Fannie
and Freddie are still backing every mortgage in sight, and ZIRP is
fueling banking profits (while will continue for a significant amount
of time), it is no wonder. This
trend looks like it will continue as well

Everyone knows that
such a path is unsustainable (although the United States enjoys a clear
advantage in maintaining such conditions because of disastrous game
theory political implications). Make no mistake, the intervention has
had tremendous effects; however, the effects are not done and
there will be a day of

Some Obvious and
Less-Obvious Financially Significant Political Events to Follow
(in no particular order)

  • Blanche Lincoln
  • Subsequent Support for Her Derivative
  • Chinese policy
    response to Korean Crisis
  • Tea Party Longevity
  • Global Austerity Measures
  • Military Success in
  • US Chinese Relations
  • Euro Political
  • Result of Goldman Case
  • Campaign of Cuomo
  • CB Intervention in the FX market (esp. EUR and AUD)


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Monkey Craig's picture

This article is fabulous and got me thinking in a new way....thanks! The best way to short this system (welfare/ warfare/ deficit spending) is to own gold, silver and oil. But, what if the people demand more government intervention when the current government intervention goes awry? Do we just go to a police state? Do we head towards the high inflation of Israel in the early 80s or Argentina in the late 90s?


The war for natural resources is on. Got H2O?

Kataphraktos's picture

“Blanche is leading the fight to hold Wall Street accountable and make sure that Arkansas taxpayers are never again asked to bail out Wall Street bankers"

Blanche forgets that NYC tax dollars, a.k.a. Wall Street bank tax dollars, have kept her little flock of inbred "Arkansas taxpayers" from starving to death via Federal government welfare budget transfers for decades. Dearest Blanche, always forgetting that she has always depended on the kindness of strangers.

Monkey Craig's picture

nice....what America needs is more unemployed politicians

Scarecrow's picture

Great read. Thanks for the article. Politicians are destroying the country.



knukles's picture

Earth....destroying the whole f*ing thing.   Nowhere left to run and hide.  Tried under my pillow last night, belladonna induced, but they still found me in the morning.

Earth...destroying the whole earth.

Chicago bear's picture

Would be interested to hear if he was in touch with a few other macro trends that are worth watching:

  • ~1.6 million U.S. college grads entering the workforce annually 25% unemployment, with '09 grads still looking while '10 grads displace them, and with questionable skills;
  • 30 million single male Chinese with very little to do, and few women to choose from; Chinese women have money and pick their man carefully; the rest will arm themselves for to fight anything that moves (oh, and Pyongyang is the closest national capital to Beijing than any other nation);
  • The cost to put on the Olympic Games, especially the estimated $4 billion cost pending for London's Games, on top of austerity, and having ugly logos to boot;
  • Generational conflict- 80 year olds working still, knowing how to work in austerity; 60 year olds loving the powers and not willing to give it up; 40 year olds, many who are much wealthier in stocks than their parents, many who are poorer in quality of life than their parents; 20 year olds feeling entitlement facing low paying jobs (the old "blue collar" is the new "tech collar" jobs)
  • Shortage of skilled labor in India, on the surface the world's great tech enabler; several sources say while there are a gazillion engineers, "only a small portion are 'employable.'" 
  • Who decides what to do with Iraq oil.  The internationalists would like to create a bidding among the various national military industrial firms rather than stake national claims to the oil.  Sure would be better for the U.S. to just cut everyone out and get Halliburton-baby and ExxonMobil to serve us the juice, moral stance be damned.
  • Whether wealthy American women go on a spending diet, really stop getting manipulated by Madison AVe, and get serious. They would crush the FED in one weekend of fasting from spending.

The Tea Party (while I like its mission) will end up being a cohort like the '94 class of new congressmen.  It will have several new entrants and will take decades if ever to turn into a new party. The establishment as we speak is undermining the Tea Party members ability to afford to organize and give. Dollars are getting diluted. 

I say one tactic is for U.S. consumers to create volatility. Pick a day and everyone (I mean everyone) buy 1-2 items at Target. Will wipe out their inventory while doing a "positive" thing for the economy.  Next day, Target freaks out since their JIT systems will fritz.  Another random day later, everyone buy 1-2 things at Wal-Mart- done. Costco- done. Ace Hardware- done.  One by one, the consumer will show who's boss.  won't cost much and it will wreak havoc on JIT and supply systems.


sumo's picture

Another trend to watch: foreign-born entrepreneurs returning to their home countries because of better opportunities there:

Why entrepreneurial innovation matters (

In a famous estimate, MIT Professor Robert Solow concluded that technological progress has accounted for 80 percent of the long-term rise in U.S. per capita income, with increased investment in capital explaining only the remaining 20 percent.


dumpster's picture

sinclair on whats going on

Dear Friends,

The power of the derivative manufacturers is clearly stronger than the combined power of world central banks.

The mockery made of the $1 trillion Shock and Awe of the euro rescue package is telling. The public relations that Monday had to be approved by the architects of what is now a joke.

The real story is that the credit default swaps derivative dealers are stronger than all central banks put together. Soon markets will see this and rush to the side of the stronger which are the currency shorts of the Western world.

Gold will be purchased for a very long time to come as currencies will offer no storehouse of value. The central banks have publicly lost the battle and no cover will serve to keep this realization away from international money.

The euro pulled back almost, but not quite, to the base line of the flat bottom triangle and is now looking at $1.10 support. The size of the fortunes which are being made by the attacking forces boggles the imagination.

Those that will make the largest profit in gold are just the same forces now attacking Western world currencies.

dumpster's picture

and no obvious pragmatic purpose has breached all time highs; and with such success inevitably comes .. yadda

 what is no pragmatic purpose lol gold has the greatest value as money and will be the underlying basis for a sound monetary system in the future . whats not pragmatic about that, its not obvious because we are dealing with Keynesian wonder zits ... and born again knot heads ... in my very humble opinion

JackTheOffer's picture

"... Iran continues to pose the biggest threat to the global economy ..."


The biggest threat to the global economy is the United States of America.

We're #1!  And any 3rd rate, 3rd world poseur had better not forget it!


dumpster's picture

thats a 10-4 and the turd  head killers that raid the cookie jar for the wealth of the nations ,


how do these brain dead not see that iran is not the problem ,, but a empire of guns and obnoxious political shit heads

dumpster's picture

every one in the article are perplexed by afganistan ..

get the heck out ,, iraq   ditto   they  are their on a lie


and still the no brainers white wash and try to explain ..


doolittlegeorge's picture

don't forget to turn that slice of white over while commenting.  it's getting a little burnt on "side a."

ratava's picture

the fx intervention can provide a bunch of nasty intraday spikes through less dense areas but they are not turning the trend. trying to do that would drive the countries bankrupt even faster. orderly decline with a stophunt here and there is name of the game.

RichardENixon's picture

"While CNBC talks about things like CPI, PMI, and Cramer’s PMS instead of bigger picture geo-political developments, their importance cannot be understated." I assume that you meant to write "their importance cannot be overstated."

Kayman's picture

Ahmadinajerkoff cannot fight a 2 front war.  And I think he will get what he is hoping for.

The great god in the sky will martyr our boyo and grant him 75 virgins as his reward. 

Too bad for Ahmadinajerkoff that the virgins are goats.

dumpster's picture

and the western lizard who push the fight ,, are prepared to sacrifice the army of the youth .

for their paradise power empire . 

the great white hope comes and destroys the gentiles //in the clouds of heaven 

every one has their pet killers  ... and a Viagra pill


TexasAggie's picture

Remember, we have the best Congress (HR, Senate) and President that money could buy. Until Congress can be fixed, it will be hard to control spending. The Repubs ran in 94 on limited government and then started spending like there was no tomorrow.

The only solution is to get rid of the lifetime Congress, and staffers: For HR, every 2 yrs pick two names from REgistered voters in the District 30 days in front of November 1st and the two will compete.  The winner will have his/her finances placed in Trust and if in 2 yrs, the trust is greater that when he/she entered office after accounting for inflation, the member is executed, and his family loses everything (This keeps a members family from trading on the members position). The same applies for Senators.  Staff members can only work on Capitol hill for 5 yrs and cannot work for a lobbying firm until 5 yrs after. 

After we execute several for breaking these rules, the rest should improve.

AccreditedEYE's picture

Thank you for the great read. A common theme I see running throughout is our mindless focus on the short term for EVERYTHING. In finance and politics, nothing is done with a long term purpose anymore. We try to "game" this or "spin" that while at the same time shooting ourselves in the foot every time. While I am sure the flow of information has had a lot to do with this, we need new leaders in finance and politics to stand up, get beat up by naysayers and the MSM and make the really tough decisions. I'm not trying to be Pollyanna here.. the system will require this as we experience total breakdown. I'm just hoping that there are enough individuals of this caliber to step up and make real change when the time comes.

Mercury's picture

If our fate really does hang in the balance upon the outcome of the "Campaign of Cuomo" we're already beyond hope.

More importantly, if Obama stops getting a free pass on his handling of the BP oil disaster that is going to be a big deal and that will be reflected in the markets. If beaches start closing across half the country's coastline in the middle of the summer people are going to think Obama held back government aid in order to distance himself politically or give a boost to "green" energy sentiment or both.

sethstorm's picture

While posting a trade deficit in March has calmed the domestic calls for the appreciation of the Yuan, I doubt anyone would characterize the US-Chinese dynamic as warm. The Google censorship conflict presents an altogether different political challenge and I’m sure Hilary Clinton’s remarks today calling for China to increase corporate freedom and transparency failed to improve relations. Slowly but surely, we are seeing China capitalize on its economic power to gain political power, something that the US has largely had a monopoly upon the previous century or so.

Time to fix that problem with China such that they gain no ground at worst, lose ground at best.

The Alarmist's picture

Note that the common theme in the post is the active intervention of the state, with the problems resulting from A deciding that B needed something or should be given something, and C (you and I) should pay for it.

Apostate's picture

Speaking of the male/female imbalance in China...

Why hasn't anyone started shipping mail-order brides there?

Anyone wanna start a profitable-as-hell flesh trade?

Great article, by the way.

laosuwan's picture

Our military sources have learned that the USS Truman is just the first element of the new buildup of US resources around Iran. It will take place over the next three months, reaching peak level in late July and early August. By then, the Pentagon plans to have at least 4 or 5 US aircraft carriers visible from Iranian shores.


Most Asian astrologes are predicting ...

JULY - AUGUST: Misfortune prevails during these two months. Refrain from travelling if not necessary. Be prepared for a disaster and outbreak of a disease. There will be two accidents related to the sea.

Anton LaVey's picture

Anyone who believes in astrology -- Chinese or otherwise -- should have their ZH permits revoked.

And parotting whatever DEBKA says is fairly close to believing in astrology.

Of course, I don't know anything, so make of that what you will.


laosuwan's picture

I don't know anything, so make of that what you will.

laosuwan's picture

By the way, Gabby, did you know that classic Fibonacci ratios used by technical traders are approximations of Planetary Motion Ratios, the time it takes for two planets sequentially distant from the Sun to make a complete revolution around the Sun, such as Mercury and Venus, or Venus and Earth?




When you do the math of each possible ratio you get a number that is closely approximated by a Fibonacci ratios.





Coldcall's picture

Interesting article but i think the writer is slightly confused about some laws of nature which blur the cause/effect mechanism one sees in "linear" type systems.

Economies and markets are effected by causal factors such as those the writer mentions. However, because there are probably an infinite amount of such factors all pushing and pulling - so to speak - prediction is almost impossible.

This is my major argument against the agw bandwagon. The climate system, like the markets, are open ended non linear chaotic systems. Because we cannot measure initial conditions to infinitie accuracy our predictions are at best "good guesses".

Nature's one major law is that whether at macroscopic or microscopic levels, she is inherently unpredictable.

Thats not to say one cannot make statistical predictions, but pretending there is any certainty is just good old hubris.


kwvrad's picture

OFF TOPIC BUT  just found this out,,

BP just ordered another million tonnes of Corexit! This poison is forbidden in the UK and many other countries. Even though many experts warn since weeks to use these huge amount of this poison in the gulf, BP insists to use it further.

so lets see it clear: Corexit is made by ‘Nalco’. According to the company webside the owners are.... the envelope please....

 In 2003: The Blackstone Group, Apollo Management L. P. and Goldman Sachs Capital Partners bought Ondeo Nalco corp.

Anton LaVey's picture

While the US states do not face the same difficulties as their European counterparts, their problems may be just as difficult to overcome.

Oh boy - California, New York and Illinois are on the brink of bankruptcy, and US states do not face the same difficulties as Europe?

Mark my words: the collapse of the USA will make Europe's current problems feel like a walk in the park.

And, to get back to the current article: only bloody morons think that the economy is not political. Ask any Austrian parrot on ZH.