Independent from Congress … or from the American People?
The three "de's:" deregulation, desupervision, and de facto decriminalization.
Russia and the southeast Asian countries are analogs for Greece, Spain, and Cyprus, with no particular association between their references within the timeline. The timeline runs through the Russian pain; things begin to turn around after the timeline ends. This is meant to serve as a reference point: In retrospect it was clear throughout the late-90s that Russia would default on its debt and spark financial pandemonium, yet there were cheers at many of the fake-out "solution" pivot points. The Russian issues were structural and therefore immune to halfhearted solutions--the Euro Crisis is no different. This timeline analog serves as a guide to illustrate to what extent world leaders can delay the inevitable and just how significant "black swan event" probabilities are in times of structural crisis. It seems that the next step in the unfolding Euro Crisis is for sovereigns to begin to default on their loan payments. To that effect, Greece must pay its next round of bond redemptions on August 20, and over the weekend the IMF stated that they are suspending Greece's future aid tranches due to lack of reform. August 20 might be the most important day of the entire summer and very well could turn into the credit event that breaks the camel's back.
Bulgaria speaks up in the euro fiasco. A balanced budget, growth, and an income tax rate of 10%?
- U.S drought wilts crops as officials pray for rain (Reuters)
- Obama backs aid for drought farmers (FT)
- Greek leaders identify two-thirds of spending cuts (FT)
- Central bankers eyeing whether Libor needs scrapping (Reuters)
- Markets Face a Life Sentence of Hard Libor (WSJ)
- World Bank chief warns no region immune to Europe crisis (Reuters)
- China big four banks' new loans double in early July (Reuters)
- Nokia Loss Widens as Smartphone Sales Slump (WSJ)
- Bundesbank Expected To Buy Australian Dollars In 3Q (WSJ)
In the US and Europe we have slowly come to the realization that traditional accommodative economic policies leave, and have left, the real economy limp. Wildly divided governments don't help, but beyond the fact that western decision making bodies are polarized, it is abundantly clear that the panacea for the global economy is not even on the table right now. The western world has been thrown into a bout of sovereign game theory, and by the constructs of game theory itself, one country will "win," while everyone else will lose to varying degrees. But that we are such a highly integrated global economy--the reason the whole world is heading towards recession right now--means that a solution must incorporate every economy around the world. The current game Europe is playing is bound to fail because if one country gets their way, others lose by definition.
If you are reading this, you are probably a member of what the sociologists would term middle class (albeit at the upper end). This is precisely the segment of society which is poised to come off worst from what is coming. Here is a very disturbing idea. As this crisis develops, if you are an equity portfolio manager and you want to outperform the market, you are going to have to position your portfolio so that it benefits most from your own wealth destruction and that of your family, friends and colleagues. Almost everybody is going to lose and there aren’t many places to hide. This is deeply unpleasant but you can blame the central planners. I’ve written about my own investing, e.g. gold and silver, equities in terms of Maslow’s Hierarchy of Needs, etc. In this Thunder Road Report (below) and going forward, I will discuss this middle class theme and highlight positions I have in individual stocks, etc. The only good thing that can come out of this is a rise in awareness. It’s just awful.
Given the rather weak near-term and long-term outlook for US coal demand, it’s not surprising that within such a capital-intensive business, a number of smaller coal producers were hit recently with bankruptcy rumors. Indeed, even large cap names like Arch Coal have seen an escalation of concern over debt levels. Accordingly, many have concluded that coal -- in an era of solar, wind, and natural gas -- has finally displaced itself due to its problematic extraction, distant transportation, and overall costs. Is coal finally going away as an energy source?
Not a chance.
Indeed, everything currently unfolding for coal in the United States is precisely what is not unfolding for coal globally. Prices to import natural gas to most countries via LNG remain sky-high, easily protecting coal’s cost advantage. And the demand for coal in the developing world remains gargantuan. Accordingly, just as with oil, lower US demand simply frees up supply to elsewhere in the world. The global coal juggernaut rolls onward.
Cliff Asness, head of the quant hedge fund AQR, has been known to be a vocal opponent of various failed governmental policies in the past few years. Today, he has shared his "dictionary" (of "humorous" persuasion as he himself notes, with definitions "written sarcastically as a faux left-winger, some just conservative/libertarian interpretations of what the left really means.") of the key terms dominant in Progressive America right now. In a world in which other people's money has pretty much run out, and ahead of a rather historic Supreme Court ruling tomorrow, we believe some of these are quite relevant.
The word “privatization” is a loaded term these days. Unions and big government worshippers scoff at the idea of any public services being in the hands of ruthless, greedy capitalists. The left has the distorted view that people in the private sector are driven primarily by their desire to cut costs and throw workers out on the street. To them, government workers are angels sent from heaven to do God’s work. In our world of unceasing centralization of power, lawmakers are finding more deceptive ways to mask their lust for dominance. Public-private partnerships are the embodiment of what Mussolini dubbed “corporatism;” that is the “merger of state and corporate power.” Under corporatism, the ruling class is able to expand unbeknownst to the Boobus Americanus and its equivalent in other countries. The Average Joe still has his wallet forcefully stripped of its contents but now the state’s cronies get to partake in the plunder. Meanwhile the same big businessmen who benefit from government privilege still maintain their praise for free markets while working with politicians to forcefully subdue their competition. There is actually another, more accurate term for public-private partnerships. It’s called fascism; plain and simple.
Leading all others “by the nose through the ring.”
- How original: Syria prints new money as deficit grows (Reuters)- America is not Syria
- Former SNB head Hildebrand to become BlackRock vice chairman (FT)
- Osborne says Greece may have to quit euro (Reuters)
- Osborne Risks the Wrath of Merkel (FT)
- China second-quarter GDP growth may dip below 7 percent - government adviser (Reuters)
- Italian Borrowing Costs Surge at Auction of 1-Year Bills (Bloomberg)
- Greeks withdraw cash ahead of cliffhanger vote (Reuters)
- Merkel’s Choice Pits European Fate Against German Voter Interest (Bloomberg)
- Italy Tax Increases Backfire as Monti Tightens Belts (Bloomberg)
- Dimon says JPMorgan failed to rein in traders (Reuters)