Phoenix Capital Research's blog
The great global rig of 2012 is ending. Central Banks used up their last remaining ammo trying to convince the world all was well. What ahppens when the markets call their bluff?
Germany is now openly telling the Fed that it is done playing around. This will have severe consequences in the financial system.
A little known fact about the Spanish crisis is that when the Spanish Government merges troubled banks, it typically swaps out depositors’ savings for shares in the new bank.
The investment world is slowly emerging from its Central Bank policy induced stupor to realize two of our long-standing themes.
The investment world is convinced that China is about to engage in another massive round of stimulus. After all, this is what China did in 2008 when its economy slowed, so surely this is what they’ll do now that the economy is slowing again.
The fiscal cliff situation has made it clear that when it comes to issues such as cutting the deficit and debt, US politicians are totally clueless. Remember, Congress hasn't passed a budget in four years, which incidentally goes a long ways towards explaining why we're about to breach the debt ceiling again.
We’ve now have just a little over 30 days until US breaches its debt ceiling. We would have already done so, except Treasury Secretary Tim Geithner borrowed some $200 billion from emergency funds to buy a few weeks’ time (announcing that he’d be leaving his post before the actual ceiling was breached).
In Europe the political leaders are now not only proclaiming that the “worst” is over but that in fact the crisis as a whole is over. To say this is political grandstanding would be understatement of the year so far: EU unemployment just hit a new record of 11.8%. Also, both Greece and Spain have issued reports revealing that their banks are massively undercapitalized and in fact have negative values.
Having moved to the sidelines due to the uncertainty of the US Presidential election and the Fiscal Cliff negotiations (as well as the holidays), investors are beginning to creep back in the marketplace. And they’re in for a surprise.
While the cost of living has become a problem for some in the US (courtesy of the Fed’s inflationary policies) it’s become a real nightmare for many in the emerging markets where as much as 50% of income is spent by consumers on food.
After all, it’s clear at this point that the entire EU financial system is essentially held together via duct tape by the ECB. And with Spain and Greece’s banking systems once again in dire need of capital I’m very concerned that the next round of the EU Crisis is fast approaching and EU leaders are trying to start the damage control in advance.
In broad strokes, this is the official playbook for political leaders in the Western world. Facilitating this is the ongoing monetary easing by the global Central Banks who have collectively pumped $10 trillion into the system since the Great Crisis began. In simple terms, Central Banks provide the glue to hold the system together while politicians meet and negotiate without ever really solving anything.
The Fed's inflationary policies will damage Emerging Markets... not push them higher.
The US Fed is playing a very dangerous game by purchasing as many Treasuries as it is. But that game can last much longer than anticipated.
Why'd the Fed announce QE 4? Three reasons: the US economy is nose-diving again and the Fed is acting preemptively. The Fed is trying to provide increased liquidity going into the fiscal cliff. The Fed is funding the US’s Government massive deficits.