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LEAKED: Mario Draghi And His Triumvirate Shut Up German Finance Minister To Keep Cyprus From Blowing Up The Eurozone
Wolf Richter www.testosteronepit.com www.amazon.com/author/wolfrichter
The state-sponsored chorus about the end of the debt crisis in the Eurozone has been deafening. It even has feel-good metrics: the Euro Breakup Index for January fell to 17.2%—the percentage of investors who thought that at least one country would leave the Eurozone within twelve months. In July, it stood at 73%. For Cyprus, the fifth Eurozone country to ask for a bailout, the index fell to 7.5%. “A euro breakup is almost no issue anymore among investors,” the statement said.
Just then, in a fight over whether or not to bail out Cyprus, top Eurocrats exposed what a taxpayer-funded con game they thought these bailouts really were—and how fragile the Eurozone was.
A debate has been raging in Germany about Cyprus. Not that the German parliament, which has a say in this, wouldn’t rubberstamp an eventual bailout, as it rubberstamped others before, but right now they’re not in the mood. Cyprus is too much of a mess. Bailing out uninsured depositors of Cypriot banks would set a costly precedent for other countries. And bailing out Russian “black money,” which makes up a large portion of the deposits, would be, well, distasteful in Germany, a few months before the federal elections.
For the tiny country whose economy is barely a rounding error in the Eurozone, it would be an enormous bailout. At €17.5 billion, it would amount to about 100% of GDP: €10 billion for the banks, €6 billion for holders of existing debt, and €1.5 billion to cover budget deficits through 2016. The new debt, a €2.5 billion loan that Russia extended in 2011, and other debt would amount to 150% of GDP, according to Moody’s. Unsustainable. So haircuts would be necessary. But whose hair would be cut?
As always, there is never an alternative to a bailout. “It’s essential that everybody realizes that a disorderly default of Cyprus could lead to an exit of Cyprus from the Eurozone,” said Olli Rehn, European Commissioner for Economic and Monetary Affairs. “It would be extremely stupid to take any risk of that nature.”
A risk German Finance Minister Wolfgang Schäuble would be willing to take. He’d been saying publicly that it wasn’t certain yet that a default would put the Eurozone at risk—”one of the requirements that any bailout money can flow at all,” he said. Cyprus simply wasn’t “systemically important.” In fact, there were alternatives.
Heretic words. He needed to be shut up, apparently. And that happened at the meeting of Eurozone finance ministers a week ago, details of which sources just leaked to the Spiegel.
The meeting was marked by the transfer of the Eurogroup presidency from Jean-Claude Juncker to the new guy, Dutch Finance Minister Jeroen Dijsselbloem. Cyprus was also on the agenda, but not much was accomplished, other than an agreement to delay the bailout decision until after the Cypriot general elections in February. The government has resisted certain bailout conditions, such as the privatization of state-owned enterprises and the elimination of cost-of-living adjustments for salaries. Now, everyone wanted to deal with the new government.
But what didn’t make it into the press release was that ECB President Mario Draghi, bailout-fund tsar Klaus Regling, and Olli Rehn, all three unelected officials, had formed a triumvirate to gang up on Schäuble.
That Cyprus wasn’t “systemically important” was something he kept hearing everywhere from lawyers, Draghi told Schäuble at the meeting. But it wasn’t a question that can be answered by lawyers, he said. It was a topic for economists.
A resounding put-down: Schäuble, a lawyer by training—not an economist—wasn’t competent to speak on the issue and should therefore shut up!
The two largest Cypriot banks had an extensive network of branches in Greece, the triumvirate argued. If deposits at these branches weren’t considered safe, Greek depositors would be plunged again into uncertainty, which could then infect Greek banks and cause a serious relapse in Greece.
If Cyprus went bust, they contended, it would annihilate the flow of positive news that has been responsible recently for calming down the Eurozone.
For weeks, all signs have pointed towards an improvement, they argued. Risk premiums for Spanish and Italian government debt have dropped significantly, and balances between central banks, which had risen to dangerous levels, have been edging down. If the money spigot were turned off, this recovery could reverse, they argued. Contagion would spread and could jeopardize Ireland’s and Portugal’s return to the financial markets.
Further, Cyprus was carrying its portion of the bailout funds and therefore had a right to its own bailout—a legal argument even a mere lawyer should be able to grasp.
And so, letting tiny Cyprus default could tear up the rest of the Eurozone, they argued—saying essentially that bailouts were a delicate con game, and that Schäuble, by digging in his heels, was blowing it up.
It made for another bitter Eurozone irony: the democratically elected finance minister of a country whose taxpayers have to pay more than any other for the bailouts got shut down by unelected Eurocrats who, in a continued power grab, postulated that Cypriot banks, their bondholders, their depositors, even their uninsured depositors, even Russian “black money” depositors had a “right” to the German money (and anyone else’s). And if Schäuble refused, it would blow up the entire Eurozone. Schäuble’s response hasn’t bubbled to the surface yet. And bailout queen Chancellor Merkel, who is trying to avoid tumult ahead of her elections, has a new headache. Read... Russian “Black Money” Threatens To Boot Cyprus Out Of The Eurozone.
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Strange, I keep hearing of these mythical factories in china and other LCR's, chocked full of cheap labor being subjected to inhumane work standards. I also hear about prison work programs, where inmates are paid cents a day to assemble products.
If we don't need people in factories anymore... why then are US companies using overseas and prison workers in situations that seem eerily similar to a "factory" workers?
I'm not saying that someday, we won't have robots building everything, but I'm pretty sure we are still not there...
You're right and he's wrong. The steel workers now work in China, the auto workers now work in Japan. How anyone can fail to see this, I don't know; but as you can see he's in love with his "theory"; so there's no use disturbing him with facts; true believers don't even acknowledge facts.
Yep, I am totally wrong, automation is not affecting industrial jobs at all. Cars wont be eventually made entirely by robots even in China, never right?
How many years until your predictions are confirmed? Rough estimate.
Im not really sure what specific predictions you're referring to...
1. In the case of Africa, I believe we will see it reach close to full potential in 20-30 years. Certainly by 2040 I expect the average African to wealthier than the average Chinese.
2. In this case, we are really hanging on until (hopefully) a tech breakout can be a new catalyst, but I think having a major percentage of the world on welfare is here to stay for now. Perhaps there will be some relief when the baby boomers die off (it certainly would help Japan)...
Wow; you're hilarious. Africa reached it's full potential under British, Dutch, and German management a hundred years ago; Aside from the fact that it's full of Africans, there isn't that much wrong with the Continent; but that problem is a real stopper. "A tech breakout". Ah, yes, a non-physical scientist who thinks magic is going to happen. I wonder what anti-realistic cult you'll join next.
Lol, i love this guy, thank god we have a real Africa expert in the house! Yep, peaked 100 years ago, its "full of Africans" (worthless people, right?) so it will never be worth anything... Hahaha
Keep smoking the hopium. One thing is for sure, that which cannot be sustained, won't be. Numerous biological cycles that are required for maintaining life (at least as we know it) on this planet are already close to the breaking point. MIT and Cal Tech have done some relly good studies on the precise energetic cost per day for one human being to maintain a decent quality of life. The innovation and development that you speak of will require a huge energetic input (as in real calories or Joules - where is it coming from?). One that I'd like to see happen, but all I see right now throughout the world is tremendous capital and resource mis-allocation and mal-investment. To think there won't be any real consequences for this is just plain stupid. Moreover, there might be a few boomers who disagree with you proposal to "die off".
Which human being - overstuffed avg american? And what decent quality of life - waste-fest american life style?
Here's to yet another fearmongering: the "overpopulation" myth... :P
Dude. Weak. You couldnt have taken what I said totally out of context.
C'mon man, "smoking hopium"- Im not here to push the "recovery" meme. Things will never go back to the way they were. Im just saying digital control of the money supply means the "hyperinflation" outcome is not necessarily the only outcome. People should recognize the new paradigm where the Fed will control all prices until the wheels come off the bus, which I expect to happen at some point in my life, but not very soon.
You're right also, all I see is tremendous waste and misallocation as well. but at te end of the day energy "efficiency" doesnt go backwards. They arent going to build a tractor tomorrow that drinks more fuel than your current one and delivers less output.
Of course there are consequences for waste and misallocation but humanity has ALWAYS been wasteful. This period is no different than any time in the past... What all those wars in the 20th century were great resource allocation? We still come out ahead at the end of the day.
The idea that we will "use up" all the worlds resources and go back to the stone age is just silly man.
Lastly, please dont get all Alex Jones on me- Im not out to "kill off" you boomers. Im simply talkinh the demographic challenge of your generation.
But we all know the statistics, 10,000 baby boomers retiring every day etc. Etc.
You cant wish that away- the vast majority of the worlds pension systems are designed as ponzi schemes (especially social security), there is no way to absorb all the retiring baby boomers other than with massive welfare systems.
Whether we like it or not- a huge welfare population will be a PERMANENT fixture as part of the future.
Whether you boomers like it or not, die off eventually you will (so will we, its not personal) and perhaps at that point, 20 years from now, the world might be ready to deal with the mess of the coming welfare system that needs to be created just to support all you retirees.
The real problem is what happens when trust in the huge ponzi that is the financial system is finally broken? Then the panic ensues, the bank runs (electronic this time) start with incredible rapidity. In the physical sciences, this in known as a critical point. You cool that glass of water very slowly and all its properties change smoothly and controllably. Then suddenly, it doesn't even flow anymore.
"The idea that we will "use up" all the worlds resources and go back to the stone age is just silly man."
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Nowhere do I say this dipshit. No one will bother to have a conversation with you or take you seriously if you are going to try and put words in their mouth. You are now simply arguing with yourself, good luck.
"Nowhere do I say this dipshit."
Bullshit! You've been on the Peak Oil Bandwagon meme for as long as I've been reading your posts.
Wow, man, I seriously do not get where your hostility is coming from...
I even recommended what I really think is a great film to you.
Im not putting any words in your mouth, I am just taking what you said to its logical Conclusion:
"MIT and Cal Tech have done some relly good studies on the precise energetic cost per day for one human being to maintain a decent quality of life. The innovation and development that you speak of will require a huge energetic input (as in real calories or Joules - where is it coming from?). One that I'd like to see happen, but all I see right now throughout the world is tremendous capital and resource mis-allocation and mal-investment"
So you are essentially saying that according to MIT and Cal Tech we need a certain amount of energy to sustain our modern lifestyle and you dont see where that will come from.
So...if there is nowhere for it come from (according to you), how could we even theoretcally avoid going back to the stone age? i.e. The energy goes away (or is severely rationed/limited) If we cant get more, which is a realistic outcome to you.
Anyway, w/e if you want to storm out tthats up to you
White, I just want to say that I have read your comments today and I thank you deeply for your contribution.
I hope you continue writing here, you put a very interesting angle on things, and there was some new information for me that I'll have to look into.
Thanks, man.
Thanks stuntgirl that was awfully nice of you to say.
If youd like a tip (i have been wisely cautioned not to make calls on zh) but since its already out there, in my research Ive only come up with one real way for foreign investors to play Africa (assuming you reject ETFs as I do), other than the JSE in South Africa which I would assume most of you should have no trouble accessing. But to get access to most African stock exchanges, I had to go through a lot of hoops to set up brokerage accounts with Standard Bank, which covers most markets (even Zimbabwes exchange) or local banks in a few occassions. So anyway, check out Bollore, an African logistics company listed in Paris- great growth and 90% of their revenue comes from Africa. So caveats aside, Ill assume your capable of your own research as Im just showing you the ticker.
http://www.bloomberg.com/quote/BOL:FP
Best and see you around!
An African Logistics Co. listed in Paris; and you actually want to put money in this? Based on the fact that the stock price went up recently; (driving with your rear-view mirror). HIlarious. Well, you're young; you'll learn a lot of interesting things .
Yeah, yeah thats exactly what I said "it went up recently" so buy it on TA. Rear view mirror perpective and all, exactly right, how did you know I just heard about it in a penny-stock email newsletter?
This guy really has my trading figured out... I didnt simply say it was one of the few pure plays on Africa that most foreign investors can access.
Whiteshadow see my post below this, the student loan post by ZH just now as well. This is where I wonder how printing/digital etc. can be sustained for a long period, much less indefinitely, with bubbles beginning to pop today.
Hey fonz, sorry i missed it. Yeah, Ive seen all the articles today and there were a smattering of them with is theme today (bubbles about to pop).
Before I answer more directly, I want to add a small preface-
You ever watch King of the Hill fonz? And if so, do you happen to recall Luanne's white trash boyfriend Elroy "Lucky" Kleinschmidt? lol, i bring him up for two reasons.
The first is, as you may recall, it was a running gag that he was a posterchild for the welfare state- he was always just about to run of the money he got from his "settlemt monies", "'cause I slipped on pee-pee at the Costco" (voiced in Tom Petty's best white trash drawl), which was something like his tagline. A likeable, decent, upstanding guy that we all liked, but he just couldnt be expected to work, as he had no skills, no initiative, nothing really to contribute to society. But we all liked having him around. There was even an episode where his "pee-pee money" finally ran out, and as we all knew *because the show was scripted* that by the end of the episode theyd find a way to get him another settlelment check, and sure enough a series of hilarious events lead to just that.
The second is that Lucky once opined the following pearls of wisdom: "I find that most of life's questions can be answered with another question: what would a monkey do?"
This latter one is the answer to your doubts I think. Just try to imagine for a minute you were Bernanke and it was your job to keep the status quo.
The collapse of all these bubbles- student loan, personal debt of all kinds, state debt, toxic debt, the entire shadow banking system etc is *in the Fed's mind* (cant stress this enough) nothing more than an opportunity to absorb this debt the exact way a black hole sucks in all the light and matter you can throw at it. There really is no number big enough that they will not underwrite, the Fed black hole can absorb any debt as long as it has the publics confidence. It will have the publics confidence as long as it controls markets to produce the following effect:
(this is a very rough estimate by me)
-A slow, steady rise in stocks to ensure new S&P highs at first 1700 and eventually to 2200 over the nest five years, to give a "steady" appearance to the market (so it averages out at 10% "growth" lol over the nrxt 5 years). It doesnt matter what the Fed has to do to get it there, whether it gets the P/E up to 30x+ doesnt matter. As we established, it will NIRP them if it has to. It wants people to perceive that the stock market is the best bet out there. Seriously, dont underestimate their resolve, they will buy every last share if the have to get it there. Luckily, they wont have to because as zh has documented time and again the TBTF banks have only gotten even bigger with more risk than ever. The effect of this is that at the end of the day the Fed has a total cartel in the form of the TBTF banks to make sure M2 doesnt get out of hand over the same period.
-Simultaneously, commodities will be flat over the next 5 years, making single digit gains at best. Again, thats not how I think it should be, thats how the Fed will determine it. The idea is that they will introduce LOTS of volatility into the commodity markets so they can "correct" (always to the downside of course) with any news development and wipe out any signs of inflation with a panic-sell off. As you know, any number of catalysts can be used to set the algos off and since everyone in the cartel is in on it, why even theoretically fight the system.
Of course there will be the same kind of muted volatility we are allowed to see in equities so we can keep the game going with lots of precommu icated rotation and churn. It reminds me of the primitive Ptolemaic version of astronomy with constant "epicycles" to compensate for earlier imperfections.
As Im writing this, im watching AMZN scroll by up 6% AH so there it goes...
Bonds will stay low (I believe the Fed is comfortable with yields at 4% and below) as the market continues doing the governments dirty work for it. The "debt ceiling" is not real, there is no amount of debt that the government can generate which cannot fit in the Feds black hole.
The bottom line for the Fed is this: as long as the TBTF cartel controls M2, and the Fed directly controls commodity prices (allowing flat to modest appreciation), then the only real inflation will be from the "wealth effect" of stocks and the inflation seen in the classic car market etc.
Now here comes the real question: if we really apply the technological revolution, how many people could a modern society possibly sustain on welfare? These are the most interesting zh articles of all to me, when the Tylers shine a light on comparative historical/global welfare states. I think we havent even scratched the surface of the welfare experiment. I think by the end of the baby boomer generation we could easily see a welfare population upwards of 60% in developed states.
In America the welfare state is all about supporting those who have already failed in the system (like our good friend Lucky), essentially paying the low and low-middle segments of society to sit around all day so they can keep up consumption. Imagine what would happen to consumption without 47 million (soon to be 100 mil) on foodstamps- because thats the real question: not how could these people make ends meet, but how could they make ends meet and STILL buy the newest iphone or air jordans? The welfare state in America is all designed to support the consumption based economy, because it persuades the poorest and least ambitious parts of the population that they would be far better off not working at all so they can concentrate on making babies.
In Europe the welfare state is designed to absorb these 'workers' into a bloated and unnecessary civil service sector that dominates GDP. In Europe these redundant workers are given cushy middle income jobs with generous perks by the state such as long vacations, generous and early pensions/retirement, and state supported healthcare to accommodate as many people as possible to do the same job. This is combined with massive regulations on the service industry to force that industry to keep its workers longer than they need. In Germany for instance, supermarkets are still legally required to be closed sundays and only in the last few years were retailers given permission to operate afterhours etc. These types of laws are the reason walmart entered and then promptly withdrew from the german market a few years back. So in Europe the notion of welfare is to absorb these unnecessary workers into the public sector as well as to keep service sector employment artificially high at the expense of corporate profitability through onerous regulations
I think the canary in the coalmine for all of this going off the rails is Japan, of their bond bubble collapses, to me that seems like the kind of black swan that could be serious trouble. I think the Fed will underwrite every last Yen (out of public view of course) before it comes to that though.
At the end of the day, I think its our job as investors to find the alpha that will result from this new paradigm. In other words, sure we could all buy the SPY and just call it a day, but there are always going to be niches out there that exploit this peculiar status quo to their advantage. Our jobs is finding it, and staying nimble!
So here is how I see it man. First off, for someone who is playing devils advocate, you certainly have thought this through with a seriously fine tooth comb. I can see the mindset that you are advocating (with the fed) being very, very real. You will get people on here who fight you because they need to believe this is going to end soon. You will have others who will go the ad himinem route because they got caught off guard and got in over their head. What you are preaching is some scary shit. Because it's possible that you are spot on.
If I was to challenge anything you are putting forward, it is not the mechanics of TPTB, it is the psychology of the people on the ground. You say "As Im writing this, im watching AMZN scroll by up 6% AH so there it goes..." I will tell you that I spoke to a few people post earnings and what I hear (and I am a tiny tiny fish in a giant ocean) is "what the hell is going on lately, something stinks, let's get out". I have no doubt that Ben can ramp this thing up as far as he wants. There are few people in it now and there will be less and less as it goes up. Now if those people throw their money in their TBTF ZH has made it clear the bank will take it and buy all the shit they just sold and push things higher. While he is pushing things higher and doing back door bailout after backdoor bailout the day to day reality that things actually suck and the social fabric is getting ripped to shreds, will only make the fed look more and more gimmicky.
That is the best case scenario. That is just people on the titanic staring at the iceberg and saying "we just hit that fuckin thing"....It is the unforseen things that even the almighty fed can't control will all their planning that may cause people to say "I think this ship is sinking!".
I'm doing this 12 years. Not a lifetime, but not a greenie. I am seeing people today do things with their money that I never have seen before. It is like watching a slow motion evolution. I can see their wheels turning. There are still plenty of people who think things are fine. There are a whole bunch who know something is very very wrong but are too frozen to do anything about it. But everyday I see more people starting to see that ace of spades up Ben's sleeve and realize this was not magic but just a crazed lunatic who is about to blow up his chemistry lab.
I will tell you one more thing. I have some family who are big bitime in the tech field. They see the advancements. I don't delude myself into thinking that at some point what we do won't be necessary anymore. Zirp has already weeded out a lot of people. I also consider that ther politicians are going for every power grab they can find. I would not put it past them to generate a crisis so they can come in and add the market to their list of IOU's.
Keep the thoughts coming. This shit is fun.
So heres what I think man, I think the central premise of my 'devild advocate' argument, lol, it does sound scary, huh? is this very point you just raised- the psychology of investors. What I have seen over the past 4 years (Ive been doing this for 6 years professionally) is every single dip in the markets is like shock therapy to investors, so TPTB can beat them over the head with BTFD mentality. And god has it worked. As was discussed many times on zh, its a de facto short ban.
As we know fonz, there are only 2 emotions in the market- fear and greed. What the Bernank is really doing with what I call the great behavioral finance experiment is changing that to greed and fear of being left behind. And as depressing as it is (I hated behavioral finance and tried as hard as I could to reject it in favor of the EMH being an Austrian by nature) I have really come to accept that it really is that simple- the perception of the Bernanke Put really is bigger than the market.
Now before I go on to discuss current emotions on the ground, let me quickly swap stories about clients. Personally, I deal only with high-net worth private clients. Nearly all Europeans, and nearly all from the baby boom generation. I can easily group them into 2 sets:
-those who dont really have ANY idea whats going on, they just know they nearly lost everything a few years ago for some reason or other and that there might be inflation in the future. They dont care what I do or what positions I take, they simply have in their mind the idea that they should be getting an 8-10% return to sustain their wealth. Most of them do not even follow the benchmarks. They trust me to deliver for them, as I have these past years and tend to be more happy go lucky by nature.
-the second group used to do this on their own until they were HOPELESSLY left in the dust these past few years and decided to seek out a professional as they have grown far too old and out of touch with the markets and just cant bear to lose more money. This group closely scrutinizes everything I do and requires constant reassurance that all is well. What they really want from me is someone who can perfectly time this market, really theyd like me to operate like an algo and constantly pick tops and bottoms. Instead of course, I actually make the most money buying and holding over 6-month periods and they are VERY nervous during that time, and think they do me a favor by emailing in "what-ifs" about particular positions lol. They get all their news from TV and the financial times.
This latter group is very interesting because its their psychology that the Bernank plays into. You see, being Europeans they were all terribly afraid of bad news there and when they were selecting which benchmark, almost all of them chose the S&P for me to outperform. But then in 2012, even though I had a very good year and handily beat the S&P (even in Euro terms), it was a disappointment for them because of course the DAX went up nearly 30% and this was gigantic news on the front of the FT for months. This not only excited their greed, but now felt I might be too cautious because I only had about 15% of holdings in Europe. Ive even had one guy tell me he wants me to, and I quote, "actively manage" 50% of his portfolio in DAX etf's from now on to make sure doesnt miss another rally like this.
Wow. Right?
So now to come back to what you were saying- "what the hell is going on lately, something stinks, let's get out"
This was basically the entire first half of 2012. I am not ashamed to say even I lost a lot of my fishing money erroneously calling tops and buying puts. Dont feel too bad for me because I nearly quadrupled my money on (dont't laugh) going long the likes of TVIX (lol, i know) in 2011, so like a lot of others, I thought there would finally come a time in 2012 when the market would ffinally punish the Fed for rigging things too high too fast. Luckily I saw the error of this fairly early on and corrected well before I lost any real money. It became pretty clear pretty fast that the Fed was using front month vol as its primary tool in juicing the market and the tail wagged the dog so incredibly easily. I got long XIV at $8 and doubled down again when it dipped to $9 in May, and Ive been holding ever since, making sure tos teadily take profits. ive gotten more out now than I originally put in.
At first the Fed was rather clumsy at this, and a lot of the time things just didnt look "smooth", or perhaps even too smooth. Remember the CMG chart from early last year, it looked like a Byryini ruler., lol...
However, from what I have observed, they have gotten better and better at this nearly by the day. They are getting so good that they have moved way beyond primitive overnight ES ramps and the 9:45 right on schedule dip. They have developed a finesse now where they really are getting the hang of juicing things *just right* (look at the euro lately, lol) so that it almost looks natural.
Case it point yesterdays AMZN pop. Its actually showing me 9% in the premarket right now. See what I mean, those unfortunate souls you were talking to yesterday with their doubts are going to have real problems making money if thhey keep thinking "i dont trust this market as far as I can throw it" rather than what they should be thinking which is, as our friend Lucky put it so well: "what would a monkey do?"
I feel it in my bones fonz, as much as I hate it, I know the psychology of BTFD is going to win out over "I think this ship is sinking". It feels that way more and more this way every time there is a dip to be bought. Especially if the Bernanks plans are as I laid out above- 10%-ish annual returns in stocks, flat commodities and no yield anywhere in the bond market. It brings to mind that quote by William Blake:
"The road of excess leads to the palace of wisdom"
Here just in case youd like a laugh:
http://www.tubeplus.me/player/1055057/King_of_the_Hill/season_13/episode...
Starts just after 6 mins in
I think we could honestly call the Bernanks strategy as "Lucky buys the fucking dip"
Fonz, it really has been fun, its been a blast, im glad decided to finally sign up here. Really, I wish zh would have a dedicated place where people who do this for a living could talk, much as I know the tin-fail hat doom of buy phyz is quite inseperable from the markets here. Its been a relief also, Im sure you know what I mean when I say I work with a lot of nice guys in real life, but the magnitude of ignorance, especially when it comes to which data really matters is something. So Ive always enjoyed your posts in the past (your post on that silver thread is precisely what Im talking about). The amount of time wasted in the field is amazing sometimes right?
Listen man, unfortunately its gotten very late here and Im only up as Ive been watching some orders go through in Singapore, and spent my time trying to inject some reason into the Zimbabwe thread...
So Ill split for now and well pick this up in a few hours bro, this thread has plenty of room to grow. All the best dude
Me and Doc Engali (I'm sure you know is also in the biz) and many others are real happy you jumped in. Great to see there are people in this business with brains and principles. Talk to you soon man.
"You cant wish that away- the vast majority of the worlds pension systems are designed as ponzi schemes (especially social security)"
I see it everyday from the insurance side. They are already breaking down. Zirp is killing pensions, annuities etc. etc. They are breaking down now.
QE has fueled this market which I am convinced is being done to keep those systems solvent. But I don't see that continuing forever. The only way to fill the gap is to print, digitally...whatever. Then hope to all holy hell the sheep don't start noticing the inflationary pickup, which is happening (cue dramatic music) More and more people are starting to see things for what they are. That day of reckoning may be here sooner than we all think.
Or maybe not. Maybe I am getting way ahead of myself.
Who needs new extra-terestrial worlds to subdue? We have Africa.
Wow; balls.
Time will tell, huh?
I do love it here in Africa, when I first came here about 6 years ago I was blown away- it must have been the same feeling that immigrants to America felt 100 years ago- everywhere I looked I could only see energy and potential. I decided I wanted to live here, work here and invest here on the spot- I have been all over the world and nowhere did I see possibility and the promise of a bright future like in Africa. Africa has finally reached Mr. Gladwell's tipping point. Let me tell you why Africa is now the place to be:
You must see it for yourself, but there are so many things that have permanently changed here. For instance, even in Zimbabwe, one of the poorest countries obviously, it is pretty common that the average person has 2 or 3 cell phones. I cannot explain to you the shear magnitude of the cell phone boom on this continent. The average African now has 1 or more cell phones and as smartphones become widespread, suddenly you have a 680mil people connected to the web just like that. That is hugely significant, because of course, this is the very first computer and the very first internet access that 95% of the population will ever see. 20 years ago, Africans were in some places living in stone age conditions, but in the last 20 years basically all of them have at least minor internet access, that is so huge.
Also, the fall of communism and end of the Cold War means more for Africa than for any other continent on the planet. The spread of Marxism in Africa in the mid-20th Century set many countries like Angola and Mozambique back 100 years, without exaggeration. Even Angola's current president Dos Santos, was educated in Moscow at Patrice Lumumba University! The level of training and military assistance received from the USSR was astronomical up to the 1980's. I mean if the ANC had not been armed and trained by Marxist rebels who in turn were trained by the KGB and in some cases the North Korean special forces (seriously), there would have been a much smaller chance of the collapse of Apartheid. Africa was THE battleground for influence between the CIA and KGB, we cannot even begin to count how many AK-47's were sent here in fraternal aid?
So one cannot overemphasize the overall effect it has had that communism just vanished from the face of the earth. Once even Russia went capitalist, Africa just completely lost all the Marxism that had taken root over many decades. Patrice Lumumba University stopped teaching Marxist economics from one day to the next in 1991. In Johannesburg slums where streets were formerly named after Che Guevarra are now called "las vegas boulevard".
Lastly, the commodity boom has made Africa extremely rich to the point where it can never be ignored again, certain places in Africa, like the Congo, are in some cases the only places in the world for certain minerals and in other cases, by far the largest source of them. Essentially what we have seen is the value of the actual continent (the 12 million square miles of Africa) has probably seen the land it is comprised of quadruple or more in the past 10 years.
Also as Africa was until just very recently been stuck in the Malthusian trap and has just now in the past 10 years make steps toward the industrial revolution we are seeing something amazing like we saw in Europe and America 100 years ago- everywhere you look you see innovation and new ideas and much of the time breakthroughs come from amateurs or people inventing out of necessity. African slums are the laboratory for the green energy revolution. Trust me, nobody in the world cares about saving energy and energy efficiency like a slum dweller who can live off of a single solar panel or otherwise use paraffin for light! We see it everywhere- in the way shacks are designed, new innovations and materials (hemp is now used to make chipboard for its excellent shanty insulation capabilities), and general ideas about harnessing and saving energy. Also about new electrical grid ideas where the many slums can be used as micro-grids due to their density, which actually generate electricity.
Whiteshadow what is the deal with with the platinum mines etc. over there? As we read it here, those who are digging those resources out of the ground seem to want a little upgrade in their quality of life. Much the way you anticipate for overall society there. Many of them took a bullet when they asked a bit too loudly. Their suppression and suffereing does not reek of friendly gov't to the people. Also, if they win that battle the price of those commodities has to go up pretty substantially, no?
So ro answer your question: Cyril Ramaphosa, who was the head of the miner's union during Apartheid times and was sort of a Che figure to blacks in those times, now sits on the board of Anglo Platinum.
The same guy who was leading the strikes 20 years ago is now ordering the strikers to be shot.
The bottom line is this: capitalism will eventually take firm root in Africa, Africans are more ready for it than anyone else I have ever seen. Living standards will go up and btw, there is no minimum wage here but the miners already make 10x as much as a domestic servant...
Just saying- SA *LOVES* to exaggerate the impact of any bad news or strikes etc. as a way of pushing the currency down.
Ok, this will take me a bit to answer because I must first explain how SA "works" as a whole:
In both the US and SA, blacks could not have been millionaires in the 50's/60's. Around that time, in both places, shit started hitting the fan. White flight, race riots, urban blight etc. in America and similarly riots until black townships in South Africa and the formation of the ANC, a militant guerilla terrorist campaign to take down the white state. The whites here simply resettled all blacks away from white areas and made them nominal citizens of their homelands- identical to indian reservations in the US. So they divided up the country, 87% of the land was South Africa and only whites were South African Citizens. Blacks were nominally citizens of homelands in the other 13% of the land, although they actually tended to live near major cities. This is not entirely as unfair as it sounds- the problem was that blacks did not naturally migrate this far soutgh until the whites had already settled here. That they could not stop the blacks migrating in and their Malthusian reproduction. In 1904, there were less than 2 million people in the entire country, today there are 40 million blacks alone.
Anyway, you get the point, 1960's South Africa- slightly different background, very similar problem. So in both the US and SA, in the 1960's, whites tried to keep segregation alive as much as they could, until it reached a boiling point in the US, and culminated in the civil rights movement in the late 1960's. South Africa by contrast, was able to enforce a white enclave until the mid-90's. The crux of this is however, that America still did not integrate blacks into society, but more importantly, also failed to integrate them into the economy even well after the civil rights movement. This is why I think there was a second rash of civil rights agitation in the early 90's- think LA riots, the OJ trial, Rodney King. At that time, black American parents still had very few chances that their kids had the possibility to grow up and make it big and become a millionaire. That illustrates the point about economic integration. In America, even the poorest white trash kid has the opportunity or at least believes they do, that anything is possible in America and they can become a millionaires- look at the Elvis or the beverly hillbillies, that is part of 20-century american folklore.
However, blacks were clearly excluded from this as their kids had slim chances to become millionaires. So to relieve this pressure from society, white America opened the gates on 3 avenues for Blacks where their kids chances would be the same, if not better, than a white kids in becoming millionaires. Those 3 avenues are of course: sports, entertainment and music. Rappers and Denzel Washington and Jay-Z and LeBron and all the other ballers on cribs are all part of that same phenomenon. White America said to Black America: ok you guys are still gonna be doing the shit jobs and menial labor around here, but cut out that riots shit, because your kids now have equal chances of becoming millionaires because we are gonna pick the few that are the most entertaining to us and send them straight to the top.
The entertainment industry more than kept this promise. Black kids can become millionaires in America by shucking and jiving for the white man or playing ball for his amusement. The genius is that all of that goes right back into the pockets of white executives. I mean forget about how rich Kobe is, I wanna be the guy signing his check. Whatever the NBA adds to American GDP, you can bet your bottom dollar most of that ends up in corporate america. same with rap.
Let me tell you about South Africa by contrast. When segregation did finally end here in the mid-90's, things were in bad shape and it nearly resulted in a collapse. A million whites fled out of 9 million, although many have since returned. So how did SA deal with integration with the Rodney King pressure times 100? They also opened up an avenue where blacks could become millionaires. In South Africa it has nothing to do with entertainment and everything to do with politics. The solution they hit on is truly ingenious. They simply gave a 5-10% stake of every major corporation with revenue above a certain amount and thousands of employees (read: the mines) to black ownership- called BEE here. Very similar to affirmative action in the US. What happens is every company of that size needs to have that minimum amount of black shareholders. Logically the best kind of black shareholders to have are the ones with government connections because they can get things done for you. So that 5% stake is transferred to them (usually some senior ANC ministers or w/e) without cost or objection.
This all may sound like communist state nationalization but its actually capitalism at its best. You see the BEE stake is privately owned, not state owned. So the guys that are hooked up with that shit become black millionaires overnight- like my neighbor the memeber of parliament with the RR convertible. The beauty of that is that they are now stake holders and have a huge interest in seeing that these companies run smoothly and without government interference, and moreover, that any radical elements who demand nationalization are squashed. Its such an elegant solution, whites here retain control of the entire economy, minus that 5% concession of course (by the way, Johannesburg represents 10% of the entire GDP of the entire African continent). And blacks have complete control over the political system and do all the voting. Inevitably, the politicians they vote for become wealthy and defend the economy and the business sector and understand it is their job to pacify the base of voters and get them to understand big business is in their interest.
So you see, in America black kids can become millionaires by becoming Jay-Z and in South Africa, black kids can become millionaires by becoming JZ= Jacob Zuma, our president.
Hence the apartheid-like killings...
Not exactly, while you can be sure the Apartheid government would not have tolerated the strikes, in this particular incident, it was an all black police force who felt (according to them) that were legitimately threatened after being fired on from the crowd. Several journalists confirmed this, and it was an ugly situation all around, but 99% of the time, if and when a strike does occur here, it usually transpires peacefully and is not a major disruption to most people living their lives.
That is some interesting shit. You moved there 6 years ago, from where?
Im originally from Europe but I was living in Miami for about 10 years before I moved to Cape Town.
To be totally fair, I should note that I split my time between Soith Afriva and Europe, and the fund were I work is domiciled in Switzerland
Ah, a "birthright privledged" european. Now your posts make sense.
Bro, I really dont get your problem. I think were just on different sides of the peak energy debate. Agree to disagree, alright?
That is excellent.
What do you trade?
By profession I am an insurance operations manager, so this is not my "job".
I have very modestly done European stocks, and Eur crosses, and some minor very paranoid commodities trades.
Currently I am 90% out except for a very few trades that I know very very well in IBEX and spanish small-cap. I can make money on that because it's so local it's almost rural. You know what the companies are doing even on a micro level, as well as personally having met their CEOs or almost.
To be honest, almost all I'm making right now goes into physical gold at the dips.
Refusing to go into USD crosses, no ETFs or complex products, and the gold thing are getting me called a retard for months now. Some of my trading acquaintances have a violent aggressive emotional reaction at any bearish comment, and that makes me extra-wary and happy to be out.
Actually, what struck me about that recent Ichan/Ackman thing recently was PRECISELY this. These guys are a big money. Since when does big money dial into MSNBC and yell at each other like ... adolecent siblings? Seriously?
It struck me that the little fish are gone, so the big fish are turning on each other for sustinance. If that is reasonably accurate, then Ackman hung Ichan out to dry, Ichan (who is long) got a short sqeeze going, so now both of these guys are balls deep in the trade and one of them will be the bag holder vs always winning when there was a little guy to screw.
I cashed out my 401k and will never put money in a retirement vehicle hence. My cash, my account, my name, my assets. Keep the matching funds, tax status, whatever (like they won't triple tax my ass in 25 years anyway LOL).
And, for those whose job is to trade these markets, taking the ball and going home isn't an option. I am just glad I got what little money I had out of this circus.
Regards,
Cooter
I can appreciate that and I know that your sentiment is shareed by a lot of people, These are extraordinary times, though. Learn as much as you can. Take small bets or none at all. Use a demo account.
I don't think that most of these guys are evil but even if they were, they must be coming to the conclusion that being greedy is bad because it hurts too many people and that eventually cuts into their bottom line. Either way, the market is not going to continue like this. I lived through the seventies with Howard K. Smith coming on every night and giving us the Prime Rate, the M! and the Price of Gold in the beginning of the news broadcast.
It ended okay. So will this.
I'm sure Volcker wasn't popular at the time, but he did the right thing when he raised interest rates.
DavidC
True David,
Like Bass said recently "Today Volker would not be allowed in the room".
I think it comes back to the point about the money supply going digital. Nothing in human history has made central planning so alluring or effective. Its really tough for us to conceptualize, but put yourself in the shoes of the Fed/Politburo- why do the right thing and deflate this bubble (if theres even a 1% chance of tanks in the streets, then its not an acceptable risk), when you can just as easily try to manage and contain prices with no uproar from the public.
Im with you guys in principle, it would certainly be for the good of the world if we took the medicine and got our reset.
But they have the status quo just the way they want it and after all, most everything we do in life, we do to avoid pain. Thats the key to behavioral finance in the first place, as depressing as it is!
All they have to do is create debits for the system (even "printing" is a ridiculous anachronism) and use that money to try to "correct" any prices that arent going their way (ramp stocks, dump commodities). It works so well as long as you have algos following rudimentary TA and a media that is working overtime to maintain the illusion that fundamentals still exist.
I am still chewing on that one Whiteshadow. Does it not ultimately come down to the underlying commodities themselves and scarcity? I agree with your concept, but that implies that they have total and complete control. For example (putting on my tin foil hat) I know more and more people who are buying metals. There has to be a breaking point where the physical cannot meet the demand. Maybe you get another MF global as people say "give me my shit". It may take a while to play out, but the digital system hits the wall once/if people start wanting to own real stuff.
Also, everything may be digital, but the debts are real, there is someone on the other end of that ledger expecting to be paid back. As that debt grows, the currency must be debased. So yes it is digital, but the magic trick slowly falls apart. No?
Heres the thing fonz, I think it comes down to the idea of Cortez burning his ships. Once you go digital in fudging the money supply there is no way of really unwinding it.
The idea at they have total control of the marlets is a tough one to swallow, I know. It implies that one player is bigger than the whole market, which is impossible to stomach. But at the end of the day, its as much due to the perception as to the reality. As long as people believe in the Bernanke Put, it doesnt even have to be real.
As far as buying metals- thats the easy part. If the Fed feels that is getting out of hand, they already have a solution ready to go: slam the price.
Watch what happens when they slam gold to $1200. I know of course everyone on zh will shout for joy and thank Bernanke for the buying opportunity, but I bet you the majority of retail (and many, many of them now have gold in their portfolios) will begin to panic and selling will lead to more selling.
You know here in Africa, gold is still being mined for $600 per oz. And less
It can fall a long way from current spot...
I already know the majority of zh'ers will instantly junk this, but honestly the idea of every dip is a buying opportunity in gold is no different than BTFD in stocks.
And I know what some of you will say: well, even if they do drop the price to $1200, no dealer will sell phyz for such a low spot.
Fine. Even if that were true, you still need to consider one thing- if spot gold is $1200, would anyone pay you above spot IF you decided to sell your gold? Of course not.
Lastly, think of the following: the digitization of the money supply changes the very definition of money itself! Money used to be defined as the thing that represents collateral (thats why humans have used metals for millenia- they are the perfect form of collateral as ey dont decay or lose mass), it is now the thing that represents debt, which is thepretically infinite This is the "premise" of the whole MMT philosophy, as much as we all HATE it...
Watch what happens when they slam the price of Gold to $1200. What are they going to do call up China on the Telephone tell them, now don't let anyone bid more than $1200 for gold, okay? You're so out of it; it's amazing. The failure of the education system is written all over your forehead.
I hear you. I fall somewhere in between your thinking and yet I agree with the hardass simplicity of lawsofphysics. I have been back and forth with that since the day I logged in here. When you are feeling your oats a bit take a shot at Lawsofphysics. I did when I first came on here. You two would make great conversation. Wear a helmet.
At the end of the day I think that you are spot on with where this is going. As a matter of fact I am convinced of it. I just believe that these guys are gonna fk it up. Or some rogue wave is going to hit. Who the hell knows, maybe the singularity is real and some robot can do all my shit while I watch Oprah and eat bon bons and not sweat this stuff.
Were basically on the same page, the galling thing about all this is accepting behavioral finance being as effective as it (depressingly) really is.
I left a reply above, and although I hate to be playing devils advocate, lol, and arguing in favor of the Fed's experiment turning out just fine in spite of it being like you said a giant magic trick., all Im really arguing for is increasing your purchasing power according to the new normal.
Its as Bastiat once put it: "government is the great fiction, through which everyone endeavours to live at the expense of every one else"
Its never been truer!
PS- just out of curiosity did you see my last comment to you yesterday?
http://www.zerohedge.com/news/2013-01-28/quick-caption-contest#comment-3...