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"The (Other) Shoe" - IceCap Monthly Commentary

Tyler Durden's picture




 

Select excerpts from this month's client letter by IceCap Asset Management

The World is Booming

If one were only to look at the stock market and the buzz within New York, London, San Francisco, Sydney or Toronto; they would conclude that the world is indeed booming.

After all, people say the stock market is a leading indicator and that is telling us that the world is bursting at the seams with accelerating growth. In addition, business in restaurants, shops and real estate in these major cities are also off the charts. And of course, the leading financial news stations are tripping over themselves with gushes of great news.

Now, we don’t mean to be the party pooper; however one must understand what is really happening to truly appreciate the still, slow moving and delicate economic pickle the world has been stuck with. For starters, these major cities are always booming. When is the traffic not flowing, when are the restaurants not chalk full, and when are the brownstones not expensive? Instead, for a better picture of economic life, feel free to visit St. Louis, Winnipeg, or Marseilles and we’re sure you’ll have no problems at all securing that dinner reservation.

Peeling away the top layer of fabulous news resulting from the stock market, we cannot help but see that the deep structural issues associated with the 2008-09 crisis remain. The mountains of bad debt have simply shifted away from specific investors, to governments and their tax payers.

From a global perspective, this transfer of bad debt from specific investors to tax payers is THE most important issue to understand. In simpler terms, and unknown to many, the bad debt has been spread around the world for everyone to share. Yes, socialism has arrived and few in our capitalistic world have noticed.

Now, if we said “Okay the bad debt has been spread around, let’s everyone take losses and then we’ll be on our way,” then that would have been a good thing. On with the show.

However, major governments and central banks have decided that no one will take losses, and everything will be okay over time. To prevent (actually “delay” is a better term) these losses, the following occurred:

1 – 0% interest paid on savings
2 – bailouts to big banks
3 – money printing
4 – currency manipulations
5 – long-term interest rate manipulations

Of course, these extreme policy responses have resulted in:

1 - extreme sluggish growth
2 - extreme unemployment
3 - and perhaps the most terrifying of all extremely unhappy masses

And when we say masses, we mean the average person not working on Wall, Bay or Threadneedle Streets. This is where change will occur.

And, it is the unhappy masses that will shape the world in 2014 and beyond. Although this is very clear to some people, the world is on the verge of experiencing even more draconian responses from our world leaders.

First up is the 10% wealth tax which will occur in the Eurozone countries. In our last global market outlook, we provided the details behind this IMF issued and endorsed recommendation. The thinking is that if everyone contributed 10% of their wealth to the governments then that would be enough to restore debt levels to pre-2008 levels. The key words are “tax on your wealth” not a tax on your income - two completely different animals. Europe actually believes their citizens will be quite fine with having 10% lopped off of their bank and investment accounts – we disagree.

Next, the Eurozone is likely to see negative interest rates. Apparently paying little old ladies 0% on their savings wasn’t evil enough. Now, to further improve morale amongst the savers, the ECB is increasingly becoming comfortable with banks charging people for having their savings on deposit. Europe actually believes that if there is a penalty for keeping money on deposit, people and companies will instead spend their lifelong savings which will help with the recovery.

Instead, we see the opposite happening: People and companies will simply withdraw or hoard their money instead.

Why is there such a positive outlook by European governments for Europe? Simply put, the Eurozone governments believe they will not experience any reputational damage from taxing the rich and stealing from the poor.

Now, at various times many emerging market countries experienced catastrophic money problems as well. In the end, just as every rational human being would do - foreign money fled along with local private money. The result was a complete collapse of the local currency, moon high interest rates as well as zero access to international capital markets.

Yet in Europe, the espresso-sipping and champagne-gurgling powers-that-be, actually believe the continent will have no reputation damage whatsoever. Foreign money will stay put, locals will stay put. All the wealth will stay put.

We completely disagree, and unless all 18 Eurozone countries agree to form one government, create one tax code and consolidate all debt the world will be facing the largest debt default in the history of mankind.

* * *

Read the full letter below (pdf)

 

 

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Wed, 01/29/2014 - 21:50 | 4382753 sixsigma cygnus...
sixsigma cygnusatratus's picture

"...if everyone contributed 10% of their wealth to the governments..." then said governments will spend 400% of that income, rinse, and repeat.  But eventually, they WILL run out of "contributors."

Wed, 01/29/2014 - 21:56 | 4382780 Cognitive Dissonance
Cognitive Dissonance's picture

"But eventually, they WILL run out of "contributors.""

So that's what they call wage slaves these days. I kind of like my new title.

<Surveys consistently show most people would prefer a better title to a raise in wages. I'm bucking to be upgraded to house slave.>

Wed, 01/29/2014 - 22:07 | 4382817 nope-1004
nope-1004's picture

"Yes, socialism has arrived and few in our capitalistic world have noticed."

 

I take it you've never read the ZH comments.....

We've been griping about fascism and crony capitalism since 2008.

 

Wed, 01/29/2014 - 22:49 | 4382912 DoChenRollingBearing
DoChenRollingBearing's picture

Socialism has just failed here in Costa Rica.

Voters, beware of .gov, Fed (ECB) and banksters.

DO NOT buy into hopey-changey BS.

Keep your wealth away from the hungry maw of the thieves....

Wed, 01/29/2014 - 23:04 | 4382939 Rock On Roger
Rock On Roger's picture

Said governments already take more than 50% of my wealth. They aren't going to get the little bit left over from living.

My wealth fell into an ice fishing hole.

 

Stack On

Wed, 01/29/2014 - 23:44 | 4383040 knukles
knukles's picture

Don't confuse an "Efficient Discounting Mechanism" (The dispensation of Prescience to the "Market") with the simple "Liquidity Transmission Mechanism"

They are very far from one another, other than being "related"

Thu, 01/30/2014 - 06:25 | 4383427 negative rates
negative rates's picture

It's called privatizing the profits, and socializing the losses, that's the gvt to a tune.

Thu, 01/30/2014 - 02:37 | 4383316 kurt
kurt's picture

when the bear comes to take a pea you kick him in the ice hole

Thu, 01/30/2014 - 09:41 | 4383697 Offthebeach
Offthebeach's picture

That you have to spend the never to be replaced days of your life, defending yourself and loved ones from the government is the real theft. The theft of time. Days. Years and now generation after generation.
Time value. Opportunity. Work slave stranger to your wife, children.

Thieves is too generous a term.

Thu, 01/30/2014 - 17:09 | 4385448 Oracle 911
Oracle 911's picture

The socialism itself is not the problem. The problem is with whom are we social. And we are social with big banks, big business, fraudsters and other criminals.

Wed, 01/29/2014 - 21:57 | 4382794 The Vineyard
The Vineyard's picture

I see the DOW going to 40,000.  What's to stop it from getting that high?  The money has to go somewhere.

Thu, 01/30/2014 - 05:33 | 4383405 JimS
JimS's picture

Maybe, but $300.00 US would buy you a cup of coffee, so....... be careful what you wish for.

Thu, 01/30/2014 - 06:18 | 4383426 Squid-puppets a...
Squid-puppets a-go-go's picture

zimbabwe and venezuela have/had very high stock markets. Is it so desirable and demonstrative of success/wealth in and of itself ?

Thu, 01/30/2014 - 21:34 | 4386254 Vendetta
Vendetta's picture

yep.  But in real terms it will be at the same level it was in 1971

Wed, 01/29/2014 - 22:37 | 4382754 Millivanilli
Millivanilli's picture

Yeah, bailing out failing banks and non banks with bank holding status was the height of socialism. We are talking trillions and trillions! Then we have the Military Industrial Complex that gets a solid 700 billion a year.   By the crooks of the crooks for the crooks.

 

REMEMBER THIS

U.S. to Take Over AIG in $85 Billion Bailout; Central Banks Inject Cash as Credit Dries Up

Emergency Loan Effectively Gives Government Control of Insurer; Historic Move Would Cap 10 Days That Reshaped U.S. Finance

 

FUCKERS GOT 182 BILLION, ALL TOLD.

Murka, fuck yeah.

Thu, 01/30/2014 - 10:43 | 4383939 swmnguy
swmnguy's picture

Correct on all but the terminology.  It's not socialism, it's fascism.  By the book definition.  I'm not criticizing you.  It's a common misnomer because Americans have a more negative view of Socialism than Fascism.  We also tend to discount claims of Fascism, because the word got over-used by hippies to criticize high-school principals who wanted them to cut their hair.  But what we are seeing, which you accurately describe, is Fascism not Socialism.

Thu, 01/30/2014 - 21:39 | 4386264 Vendetta
Vendetta's picture

Yep.  Even in the article it says something about spreading the debt around being socialism... its not .. its fascism.  Its spreading toxic corporate debt around funneled thru govt to the citizenry via the debt transferrance mechanisms.  The corporations (that includes bankers) control the government ... not the other way around. 

Wed, 01/29/2014 - 21:51 | 4382762 cynicalskeptic
cynicalskeptic's picture

The super wealthy 0.01% would never stand for a 10% wealth tax.   But they're not exactly the types to riot in the streets - they pull strings form behind the scenes.  So - why was this trial balloon floated?   

Thu, 01/30/2014 - 15:33 | 4384969 TheReplacement
TheReplacement's picture

The super wealthy and powerful will know ahead of time and just move their electronic wealth to greener pastures.  Think Greece.  On the other hand, if you are just wealthy and not powerful you may not be informed and lose it.

Wed, 01/29/2014 - 21:54 | 4382774 Oldwood
Oldwood's picture

So what's the down side?

Wed, 01/29/2014 - 21:53 | 4382777 Gamma735
Gamma735's picture

Their plan sounds great, where do I sign up to have 10% taken and my money under government control?

Wed, 01/29/2014 - 22:04 | 4382812 sixsigma cygnus...
sixsigma cygnusatratus's picture

Whether they take it out of your bank account or just print it, the effect is the same.  Individual EU countries can't print, so they just take it.  Here in the US, they can just print it.

Wed, 01/29/2014 - 21:59 | 4382798 Stuck on Zero
Stuck on Zero's picture

You can send your money to Washington and New York.  But all you'll ever get back is electronic digits and hope.

 

Wed, 01/29/2014 - 22:07 | 4382818 sixsigma cygnus...
sixsigma cygnusatratus's picture

...they don't even give you back any change?  : D

Wed, 01/29/2014 - 22:03 | 4382806 nantucket
nantucket's picture

the 0.01% will find ways to avoid the tax, the rest of the schlubs can't afford to dodge it and so they get effed in the A

Wed, 01/29/2014 - 22:36 | 4382879 weyes1
weyes1's picture

Winnipeg? 

Wed, 01/29/2014 - 23:16 | 4382971 Rock On Roger
Rock On Roger's picture

Portage and Main is one of the coldest street corners in North America. Winnipeg airport @ minus fifty one degrees Celsius December 31, 2013.

 

Burn gaz bitchez

 

Stack On

Thu, 01/30/2014 - 05:32 | 4383400 JimS
JimS's picture

In Manitoba, Canada. The country north of United States.

Wed, 01/29/2014 - 22:41 | 4382892 q99x2
q99x2's picture

Replace the wealthy with open source software.

Wed, 01/29/2014 - 23:59 | 4383093 GeorgeHayduke
GeorgeHayduke's picture

Socialism for the wealthy has been the standard operating procedure for decades in America. It's dog-eat-dog Capitalism for everyone else.

Seems to me Oligarchy is the more appropriate term, but most folks in 'Merca see all evils as socialism, communism, Marxism, anarchy, etc... as they were taught during the cold war days by the same oligarchs who are bleeding their asses dry right now.

Thu, 01/30/2014 - 02:15 | 4383299 Lord Koos
Lord Koos's picture

The debt is socialized but the profits are private.

Thu, 01/30/2014 - 07:19 | 4383461 kenezen
kenezen's picture

Great Article! Thank You for putting it in such simple form! It helps a lot of people. President Obama is attempting to structure an Executive Branch King Position. He's currently picking and choosing who he insures with his Massive centralized ACA perhaps unconstitutionally. Now he wants our future IRA's.

When we combine the "Real State" of our economy and the situation occurring throughout the world on shrinking global consumption and the effects on global markets, Think! Put that along with the possibility of replacement of, or sharing of our currency as the premier Reserve Currency. 

President Obama will have with financial and economic disruption, a stage for finally getting rid of Congress. "State of Emergency!"  Look to the Real Dollar market as compared to a basket of others not just the Euro and Yen, both extremely weak, one by value, the other by manipulation for export advantage. Weakness will be a sign as well as lack of purchasing of our debt. We do know the Federal Reserve has been the biggest buyer of our debt for years. (From one pocket to another). Even with a Fiat currency one can't sustain that forever.

Either we transform to a States driven leadership where they compete without Federal Interference, and , get rid of Federal Government intervention as Japan after the war, and China After Mao and  drive to get Industrial production back into America quickly or we won't sustain a private market. We'll have a Ruler! Remember that 10% at the economic top is already diversified away. It's just the rest. Any doubts look to bermuda  and Qatar.

Thu, 01/30/2014 - 13:03 | 4384364 dizzyfingers
dizzyfingers's picture

kenezen 

Way too late,  I think, to get back industries driven offshore using every means the greens had at their disposal -- the federal government and tax dollars -- for lawsuits etc. Now we have a dumbed-down brain-dead work pool, a big bunch of retirees, and a shrinking birth rate.

Thu, 01/30/2014 - 07:59 | 4383495 Dr.Engineer
Dr.Engineer's picture

brilliant commentary. It's hard to describe the world in 3 pages.  I agree with their conclusions unless there is a Tbond run.

Thu, 01/30/2014 - 10:50 | 4383921 rwe2late
rwe2late's picture

 Please, do not subscribe to a perverted definition of 'socialism'.

Socialism is not characterized by a public takeover of the big capitalists' debts,

but rather instead, a public takeback or takedown of the big capitalists' assets.

 

Whatever one may think of the idea, the justification made is that the big autocratic corporations

have goals apart from the public good.

When the pursuit of those separate goals conflict with the public good (e.g. political rights, environment, health, peace),

the public's grant of incorporation privilege needs be rescinded.

 

Thu, 01/30/2014 - 12:50 | 4384342 dizzyfingers
dizzyfingers's picture

What's up with name-calling the putting of one's own money into one's own pocket as... you say...  "hoarding"?

How about banks, what are they doing with other peoples' money -- hmmmmmm?!

Shame on you.

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