Via Mark J. Grant, author of Out of the Box,
“When half the things you are told are a lie; nothing will surprise you more than the truth.”
The financial world, at the moment, is a scary place. The signs of this are all about us and yet the consensus view is to worry about nothing. This has been caused by one singular action which is the orchestrated input of cash into the financial system by every major central bank on Earth. Money will go somewhere as it is created and so it has which is exactly why the markets are at or close to all-time highs while economic conditions have crumbled precipitously. It is not this market or that market which is in a bubble but all of them and it is systemic by its very creation.
There is also an ancillary cause of much of this which is the constant use of lies and made-up numbers to cover up and denigrate the truth. This happens to some extent in the United States but is rampant and prevalent in Europe and also a daily occurrence in Asia. The Europeans do not count liabilities as part of the balance sheets for either the sovereigns or their banks but, as I have pointed out so many times before, the not counting of them does not erase their actuality or their consequences. Liabilities are not counted, debt to GDP ratios for the sovereigns which are based upon the fictitious numbers are then not accurate, economic assumptions become a fairy tale and it all plays along for a time until, and the “until” always arrives, that the liabilities must be paid and accounted for because the money is just not there. It has been four years, four years of paper creation, four years of larger and larger lies, four years of fantasy balance sheets and today I call the ball; it is all about to end.
Look around you; there are signs all around. Spain, if you believe their numbers, with an official 15.5% in bad loans, Italy at 10.2% and Italian elections looming whose results will surely not please those in Brussels and Berlin. Banking crises in both of these countries which are shaking the foundations of their credibility. A Mario Draghi who’s turned up decibels in his call for a European wide bank guarantee is rebuffed and denied by Germany who will not subject their citizens to the liabilities that could and will ensue. The majority of the market participants have not figured it out yet but Mr. Draghi’s promise, which was conditional on the support of the European Union, has been denied. Verboten! The Germans will not allow Mr. Draghi to “Save the World” and so the underpinning of the European sovereign debt market has become a farce whether it is recognized quite yet or not. Recognition will come; reality eventually surfaces.
Let me share with you an experience I had recently. Please bear in mind that it is only one car dealer in one city in the United States. This particular car dealer carries Rolls Royce, Bentley and Aston Martin. I stopped by the dealer and was told about what was going on - it is called “tagging.” According to this gentleman both BMW who owns Rolls Royce and Volkswagen who own Bentley are engaged in this process. There are several different tactics apparently. In one the car maker pays the dealer to take the car on as a “demonstrator” and then the car is marked on their books as a sale. In another, money is paid by the car maker to the dealer who uses the money to buy the car but there is a second agreement penned, a repo if you will, that if the car is not sold in X amount of time that the car maker will take it back. In the meantime it is marked as a sale on the car maker’s books. There are apparently many variations to this scheme but the end result is cars that have not been actually sold are entered on the car maker’s ledger as sold and so the cars are “tagged” and the books are falsified.
There is no inflation anywhere in any country we are told past some minor amount and yet, in the United States, gasoline prices surged to their highest level ever in the last few days. Year to date prices are up 12% and rising quickly. Here is another example of counting numbers as you like but eventually confronting reality. Here is the corollary to the famous remark by Stalin that, “It's Not the People Who Vote that Count; It's the People Who Count the Votes.” So what we find are number counters in America and Europe that purposefully distort the data, the passage of time, and then reality tearing at your juggler.
Today there is a hue and cry that the debt to GDP ratio in Spain is 84% and the highest that it has been in one hundred years. It is laughable. The debt to GDP ratio is far past 160% if you count correctly. There are those that say both methodologies are acceptable and they are wrong; dead wrong. The liabilities, the contingent liabilities, the sovereign guaranteed bank debt of Bankia and others is there and must be paid back to the ECB. Securitizations posted at the ECB including Real Estate loans, construction loans and general business loans are now worth pennies on the Dollar and someone will be forced to pay. Those that count may well change the course of an election but those that count cannot do much about an empty bank vault when all of the cash is gone.
We live in dangerous times. Money created out of nothing and in such quantities that Valuation is called into question. Statistics made up and manipulated as a matter of due course and defended as Preservation of the State. Lies told with such straight faces and almost religious fervor designed to subdue the masses and place investors in a sterile coma where “fine” is the watchword of the marketplace. It is all controlled, it is all manipulated but as the bills become due, as there is not enough cash in the drawers; events will happen, yields will rise, equity markets will fall and then a new and quite unpleasant set of circumstances and consequences will arrive.
Politics, economics and the debauchery of the truth. There are consequences; there are always consequences. The world has subsisted on fantasies for four years but I think this spring will bring on the vengeance of the Fates for the demagoguery that has transpired.