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That Hyddeous Strength
Here's the newest Stock World Weekly: "That Hyddeous Strength."
The pattern that has emerged in the eurozone is that austerity measures are demanded of a particular country, the government of that country is either unable or unwilling to implement the austerity measures, then bond yields skyrocket and the government collapses. During the transition, one form or another of the austerity measures demanded are enacted, and then the incoming administration is tasked with implementing these measures.
Excerpt from Stock World Weekly's That Hyddeous Strength
“The shadow of that hyddeous strength, sax myle and more it is of length...” [From the “Dialog” by David Lyndsay (1490 - 1555?), referencing the Tower of Babel.]
Image: Pieter Bruegel the Elder (1526/1530–1569)
Daniel Hannan, journalist with the UK Telegraph, has been reporting on the “hideous strength” of the European Union (EU) for many years. He contends that the “European Union is making its constituent nations poorer, less democratic and less free.” According to Hannan, every time a nation in the eurozone becomes a problem for Brussels (capital of the EU), the EU’s strength becomes manifest. Both heads of state and political parties end up succumbing to its power. Perhaps, as a well-known euro-skeptic who campaigned against the Lisbon Treaty, Hannan’s comments should be taken with the proverbial grain of salt. However, with last week’s ouster of Greek Prime Minister Papandreou and this week’s resignation of Italian Prime Minister (PM) Berlusconi, Hannan’s views are finding vindication.
Discussing Silvio Berlusconi’s resignation, Hannan wrote, “Silvio Berlusconi had seemed irremovable. ‘Il Cavaliere’ had survived a series of blows that would have felled anyone else. He had weathered accusations of bribery, soliciting underage sex, tax fraud and mafia links. He had shrugged off the attentions of – by his own count – 789 prosecutors and magistrates. He had recovered from being whacked in the face with a statue by an angry Milanese. He had laughed off gaffes on electric-rail topics from Muslims to Nazis.
“No wonder he thought himself invulnerable. He had become the longest-serving Italian leader since – well, since Mussolini. Yet he underestimated the EU's hideous strength. Observing the crisis in Greece, and the EU's reaction to it, he had concluded that Brussels would do anything to keep the euro together. If his austerity measures were insufficient, the EU would come up with the extra cash. It was the same calculation that George Papandreou had made, and his fate was the same; the same, indeed, as that of every leader since Margaret Thatcher to have found himself on the wrong side of the Brussels combine harvester.” (Now Silvio Berlusconi is crushed by the EU’s hideous strength)
Hannan was not alone in his use of stark imagery and strident prose. An abundance of hyperbole, apocalyptic headlines, frothing editorials, and rant-like commentary, characterized last week’s headlines. Warnings of the grim consequences and global repercussions of a eurozone failure dominated the news. Yet for all the drama, including a bizarre mistaken downgrading of France’s credit rating by Standard and Poor’s, and a stunning 400-point drop in the Dow on Wednesday, the markets finished the week little changed.
Because investments are measured against other investments, the eurozone turmoil makes US equities look more attractive. Doug Kass opined, “I believe that the events over the past year (especially in the eurozone) highlight the likelihood that the U.S. stock market will be favored among most other investment markets in the world. The U.S. stock market has become the best house in a bad neighborhood...” Kass listed his reasons, including the relative strength of the U.S. economy and financial systems compared to the rest of the world’s, political stability, and relatively strong regulatory and reporting standards. Kass concluded, “In the period ahead, I expect a reallocation trade out of non-U.S. equities into U.S. equities.” (Kass: 6 Reasons to Buy American)
Assuming the world isn’t ending, and the EU will survive (euro-skeptics might disagree), we are likely to see many disruptions in the eurozone over the coming months. Nation after nation may experience some form of a debt crisis and get dragged, kicking and screaming, through the central bankers’ sausage factory in Brussels, to be broken down and re-formed into fiscally compliant states run by economic technocrats. The political and social disruption resulting from eurozone nations being processed like sausages will wear on investors’ nerves, in the same way that living near a slaughterhouse and listening to the screams of livestock being rendered, weighs on the mood. We believe investors will likely shy away from the turmoil in Europe and seek out the relative stability and sanity of the U.S. markets.
Phil discussed the negative psychological effect that the European debt crisis is having on investors. “It’s like the tar-baby. The more you talk about it, the more you get stuck in the mess and the more hopeless it seems. That’s the pattern, any ‘good news’ releases pent-up buying demand because, on the ground, the US economy is not bad, and Asia is slowing but still growing, and Europe is flat. So many stocks LOOK cheap. That means any thinking that this negativity will go away leads people to bargain hunt but then, usually a few hours later, the bears pounce back to poke holes in any long-range "fix" that has been proposed that day.
The bears are not wrong. The World’s nations have $60Tn of debt they are simply unable to repay in full. Fine, so what? As I’ve asked before, will that stop AAPL from selling 50M IPhones next year and making $30Bn? It might, due to lack of liquidity, cause Apple to only sell 40M IPhones and make $22Bn. Even at $22Bn, do we assume things get worse and worse for the next 3 years or that they bounce back to $30Bn (and don’t forget inflation)? I STILL want to buy AAPL with a $300Bn market cap, don’t I? This is why Buffett says 'Be greedy when others are fearful.'
That’s my bullish case - the world will probably not end. Maybe there’s a $30Tn default, maybe many banks get nationalized...and maybe there will be some revolutions, and some redistribution of wealth. But then someone will get hungry and drive to McDonald’s and order a happy meal, and Disney will get a licensing fee for the Toy, a package-maker will get paid for the box, an ink company will get paid for printing the box, and a farmer will get money for his cows and tomatoes etc… Life goes on – but many stocks are priced like it won’t.”
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That Hyddeous Strength
Pretty apt title : Jekyll (Island) and Hyde
that's it...I'm speechless. That people are able to write that kind of shit post MFG and not be lynched has stretched my incredulity beyond the breaking point. I knew things were bad in Amerika, but I had no idea how bad. Not enough exposure to MSM obviously. My bad.
Somebody else is going to have to run with that one...I'm sticking with my latest reread of Dante's Inferno so as to ground myself in something close to reality again.
I think the focus is on the word "relatively" but can certainly see the other point of view here.
"But then someone will get hungry and drive to McDonald’s and order a happy meal, and Disney will get a licensing fee for the Toy, a package-maker will get paid for the box, an ink company will get paid for printing the box, and a farmer will get money for his cows and tomatoes etc… Life goes on – but many stocks are priced like it won’t.”
I strongly disagree.
- Someone will get hungry and will use its foodstamps to buy some rice, canned beans.
- No happy meal, no fee for Disney
- No happy meal, no box, no package-maker needed
- No box to decorate, altought ink companies will find demand in Fed offices
- Farmer will get goods and services in exchange of his cows and tomatoes
- Etc.
- But life goes on, stocks will continue being absurdly priced like 5% per annum growth is possible for the next 30 years (432% in 30 years, yeah, that seems highly reasonable and achievable while guaranteeing TBTF, corrupted politics and hi-freq obsolecence-programmed consumption goods. And without any cost for the environment, health and welfare.)
I'm sick and tired of this bullshit! I'm not planning to buy a christmas tree, to withen my teeth and to buy the latest 3D flat screen. I buy PMs and useful goods and when the time is come I'll be out of this fucked up system.
Left out of this is the demographics of the U.S.
Baber boomers retiring enmass and their progeny incapable of producing anything worth a damn.
"their progeny" are not allowed to produce anything worth a damn thanks to the boomers in office that PREVENT THEM, the boomers that run the large corporations that prevent them, etc etc etc, all so the greedy 1%ers (boomers) can suck EVERYONE dry
Left out of all this discussion is the disastrous demographics of most of the EU and the continued growth of debt due to the welfare states' refusal to acknowledge the facts of declining fertility, far below replacement levels. Favorable "pie in the sky" projections of GDP growth and debt simply ignore the absence of sufficient young workers for the foreseeable future.
"and seek out the relative stability and sanity of the U.S. markets."
LOL
So now two democratically elected leaders are removed and are replaced by banker puppets. Democracy and sovereignity are being thrown out the window. Could this actually happen to France next? France?!?!?
"...that intimate laughter between fellow professionals, which of all earthly powers is strongest to make men do very bad things before they are yet, individually, very bad men."
--C.S. Lewis, That Hideous Strength
Wow, I was beginning to think I was the only one who had read that book.
Nope, I've also read it, although it was a LONG time ago.
"The current situation sounds oddly reminiscent of the slogan with which Stalin ushered in the notorious era of purge and terror in the mid-1930s: “Life is better, comrades, life is gayer.”"
I thought that was the Penn State motto? Now I'm confused.
No, I believe Penn State's official motto is: "Where the boys are".
Doug Kass is a drunken idiot that nobody would quote if it weren't for the propaganda tube.
So many stocks LOOK cheap.
***************
Yes they LOOK cheap-because they're showing huge cash reserves sitting on their balance sheets-which is pure BS-
What looks like cash is actually debt (borrowed money) and it sits idle-it has been borrowed in case there is another credit freeze-but do not think it is cash that will be deployed into a shrinking economy-
***************
What's fascinating about the "corporate cash" argument is that few observers recognize that a great deal of this cash is not retained earnings but new debt issuance. Brett Arends of MarketWatch puts present levels of corporate cash in perspective: "According to the Federal Reserve, nonfinancial firms borrowed another $289 billion in the first quarter, taking their total domestic debts to $7.2 trillion, the highest level ever. That's up by $1.1 trillion since the first quarter of 2007; it's twice the level seen in the late 1990s. Central bank and Commerce Department data reveal that gross domestic debts of nonfinancial corporations now amount to 50% of GDP."
http://www.hussmanfunds.com/wmc/wmc100809.htm
What little capitalism still exists won't necessarily survive "some revolutions, and some redistribution of wealth," nor the blithe nationalisations of Western banks. On the current trajectory, someone will get hungry and drive to McDonald’s only to find it boarded and chained.
Life goes on...without prosperity.
This is it. "Game on!" as they say.
http://www.youtube.com/watch?v=LcWl20c1Wmk&feature=player_detailpage
That’s my bullish case - the world will probably not end. Maybe there’s a $30Tn default, maybe many banks get nationalized...and maybe there will be some revolutions, and some redistribution of wealth. But then someone will get hungry and drive to McDonald’s and order a happy meal… -- Stock World Weekly
Nonsense. Any bullish assessment must take into account that this time it’s different – that the unemployment, the underemployment, the empty small business storefronts, the food stamp lines, the one in five males from ages 25 to 34 now living at home with their parents in the U.S., bankrupted states, out of control federal deficits, open border welfare costs, the loss of 46,000 manufacturers to off-shoring accompanying a 50,000-job-loss-a-month to China -- dash the hopes that Americans can take for granted a self-sustaining private market economy that has succumbed to central planning.
There are no guarantees in capitalism, but there are in central planning – it always fails.
The current situation sounds oddly reminiscent of the slogan with which Stalin ushered in the notorious era of purge and terror in the mid-1930s: “Life is better, comrades, life is gayer.”
As regards the corruption of central planning, I charge that the Federal Reserve System is operating under total secrecy to financially benefit a privileged, incestuous few. Else why is it that no matter how many small businesses fail, the large chains, many faced with troubled balance sheets, revive over and over again to sell another day?
As RickyBobby wrote 10/27/2011 on ZH:
“I'm with you. One of my competitors announced he was calling it quits today. Corp America with unlimited cheap capital despite negative returns was too much for him. How can you compete with a $10B company that loses money for 26 consecutive quarters which no material change in strategy on the ground?
The FEDs policies don’t just hurt the savers, they give big business an unfair advantage. It's too bad; it used to be possible for a sub $50MM company with almost no debt to make some money. Now it’s the most overleveraged that win cause they have the lenders” in their clutches.
Professor Werner Sombart, in his work Die Juden und das Wirtschaftsleben, sums up today’s situation as he did Europe’s in 1911:
“If we want to make clear in one sentence the direction in which the modern political economy is moving we can say: the stock-exchange agents of the banks are becoming an ever-increasing measure the dictators of economic life. All economic happenings are more and more subordinate to the decisions of finance. The question whether a new industrial undertaking is to spring up or an existing one to be developed; whether the owner of a shop or a store is to get the means to extend his business, all these questions are decided in the offices of Banks and Bankers.
“In just the same way the sale of products is becoming, in an ever greater degree, a problem of finance. Our greatest industries are indeed already just as much financial associations as industrial undertakings.”
Sombart recognized that this perversion of order in which leadership amongst financial, industrial and commercial interests were merged into powerful groups that had secured “a monopoly in the creation of national credit and these groups, being internationally organized, have only to be left free in order to dominate the earth.”
Again, by a perversion of order in this once great nation, an exchange-medium that’s created out of nothing and controlled by a select few who surrender nothing has becomes the master of production and distribution. America is in decay. Worse yet, justice is becoming a scarce commodity, politically and economically. Just ask a saver.
Those are good points, thank you.
Banks are priced like it won't. Maybe some of them won't, as least in current form.
New market highs because of the possibility that there may be new market highs, because we have not gone down the drain therefore we are not going down the drain? Life would go on at SPX 800 but it would cost a whole lot less to participate in the market entering there.
The problem with this article is that the author ignores everything in the world except various markets. Attempts to impose "austerity" from Brussels have met and will continue to meet with local resistance at the street level. The assumption that the masses will be ground up as in a sausage factory denies history. Inevitably, the masses will have their say, and often this say is bloody, violent, and harsh. A world divided into rich bankers and poor, unemployed peasants will not stand long.
Furthermore, the EU's position relative to sovereign debt is no different than that of the U.S.A., except that Europe has begun the process of imposing "austerity" on those dependent upon social welfare. This is the whole reason Europe and not the U.S. is in the headlines. At some point, just as earlier this year, the attention will swing back to the United States and their debt problems, probably when the next debt-ceiling debate brings out the fool in every American congressman and senator. Also, further revelations about how closely American financials are tied to sovereign Euro bonds are likely to result in an unwind of leveraged positions in all assets classes: including the mighty NYSE.
At the moment, the world sits on the verge of serious deflation: even Bernanke is beginning to sound less confident in his abililty to print his way out of this whole mess. The question is how close to falling into a massive deflationary depression are central banks willing to be before initiating another round of asset inflation and money printing. Best to sit in cash, or be net short (especially short financials with heavily leveraged positions, hitting and running, taking profits at every piece of bad news and going back in after the bots BTFD), until the presses start to roll en mass one last time en route to hyperinflation.
The problem with this article is that the author ignores everything in the world except various markets. Attempts to impose "austerity" from Brussels have met and will continue to meet with local resistance at the street level. The assumption that the masses will be ground up as in a sausage factory denies history. Inevitably, the masses will have their say, and often this say is bloody, violent, and harsh. A world divided into rich bankers and poor, unemployed peasants will not stand long.
Furthermore, the EU's position relative to sovereign debt is no different than that of the U.S.A., except that Europe has begun the process of imposing "austerity" on those dependent upon social welfare. This is the whole reason Europe and not the U.S. is in the headlines. At some point, just as earlier this year, the attention will swing back to the United States and their debt problems, probably when the next debt-ceiling debate brings out the fool in every American congressman and senator. Also, further revelations about how closely American financials are tied to sovereign Euro bonds are likely to result in an unwind of leveraged positions in all assets classes: including the mighty NYSE.
At the moment, the world sits on the verge of serious deflation: even Bernanke is beginning to sound less confident in his abililty to print his way out of this whole mess. The question is how close to falling into a massive deflationary depression are central banks willing to be before initiating another round of asset inflation and money printing. Best to sit in cash, or be net short (especially short financials with heavily leveraged positions, hitting and running, taking profits at every piece of bad news and going back in after the bots BTFD), until the presses start to roll en mass one last time en route to hyperinflation.
US $60 trillion in perhaps unpayable debt in the world, says the above article. Even taking that figure ...
Maybe double that in debt generally including the 'payable' debt, in a world with perhaps about US $300 trillion in assets (assets of any nation generally estimated at 4x GDP). Global stock share markets and bond markets in excess of US $120 trillion, a lot of theoretically 'liquid' assets.
With the EU or the US being each roughly one-quarter of the world economy, each of them has roughly one-quarter of those assets and likely in excess of US $20 trillion relatively liquid.
And unlike the US, the EU does not have a trade deficit, it sells as much as it buys, roughly, and it mostly owes its debt to itself too, more in that way like Japan than like the US.
As the Chinese government said recently in responding to the EU, the EU is really and truly rich enough ... it's just a question of how well we organise it here. We have a mess of it at the moment, but we really do have the money to sort things out. It's just the age-old question of who is going to take the hit for the festering bad debt.
Europeans citizens in our streets will likely have something to say about that, versus 'austerity' imposed from above ...
Yeah, clearly more clever central planning will straighten things right out. That always works.