And On With The Great Game
From Mark Grant, author of Out of the Box
The Great Game
It is the Great Game. They try to lure you into their various traps; I try to keep you out. They offer headlines from countless sources and I try to tell you what things really mean. They make use of a giant propaganda machine and I chant alone in the wilderness. They make up stories and present them as accurate data and I try to give you the facts. They want your money and I want you to “Preserve your Capital.” They are as diabolical in their pursuits as Professor Moriarty was in his. They are the political masterminds and I am a sort of Sherlock Holmes trying to analyze and conclude one case after the other. You may listen or you may not but I pay for my own supper while others ask for their compensation first. It is their Game, my Game; it is the Great Game.
“Has all my instruction been for naught? You still read the official statement and believe it. It's a game, dear man, a shadowy game. We're playing cat and mouse; cloak and dagger.”
-Sherlock Holmes, A Game of Shadows
The Great Game is not played by just being right; that is only the first part of the equation. Being right is fine for academicians and the like but not for our participants. The second part of the equation is to win. We play to win. I never play to come in second best or just to play for the sake of the sport. That is not what I do; not what we do. Some of you have time horizons that are the length of the day; that is not mine however. I look out, past the shadows, past the trees and out into the mist. I define the future by where I have been and almost four decades has given me plenty of time to have seen the twists of fate; much less the road. An astonishing amount of the win is the observation and the learning from the losses that have taken place.
Greece is buried and cannot survive in the chains that bind it. To be fair it is only partially the fault of Greece that the situation has gotten to this point. Greece took advantage of the European Union no doubt but the rest of the countries in Europe allowed Greece to keep borrowing and both sides are responsible for the fact that Greece is now behind the eight ball. Both sides should be ashamed. The chains can be removed but if not; one political party, another political party and she will sink into the Hellenic Hades of old. Anything short of this including the lengthening of terms will result in failure. Too many stones hold her down and she is sinking under the weight of what has been demanded either in terms of retribution or a well-intentioned blade meant to help that has severed her major artery. It is to be debt forgiveness or default and the resulting chaos I fear as there is no other prescription left for this patient. The ball is in Germany’s court now; relinquish or face defeat in Greece. Relinquish and face defeat at home. This is the eye of the hurricane. This is the Catch-22.
When it comes to Greece there is one word and only one word that makes any difference and that word is “Default.” Europe cannot afford it. The country has $1.3 trillion in total debt and a vast amount of it now resides at the ECB either in direct sovereign obligations or in securitizations where loans, asset-backeds, mortgages et al have been guaranteed by the banks, all of which are bankrupt and being supported by the EU or by the sovereign which has the same credit quality as a beggar on the streets in Calcutta. All that the Greek elections did really was to provide a slightly more friendly negotiator than the opposition but the numbers speak for themselves and they are unsustainable. The EU made the private bond holders pick-up part of the tab while lending Greece $35 billion more than was written off. Debt paid off with new debt; an old story and almost always the same conclusion. So, Berlin, fourth down and punt.
“You are familiar with Schubert's work? The Trout is my favorite piece. A fisherman grows weary of trying to catch an elusive fish. So he muddies the water, confuses the fish. It does not realize until too late that it has swum into a trap.”
Bad loans at the Spanish banks are now 8.72% which is the worst number since 1994 and probably vastly understated as many loans are carried at face value as they are securitized and dumped into the ECB. Just the revealed amount equates to $6.1 billion which is -$73.2 billion on an annualized basis and will probably be worse than that as the Spanish economy deteriorates. The Spanish ten year exceeded and has held a yield of more than 7.00% this morning. The country cannot afford to pay off their Regional debt, their bank debt and various schemes to avoid the Men in Black from taking over will not work nor will the pleas for “more Europe” as the words mouthed by Germany are meant for placation only and will not find implementation in any kind of timeline that will make any difference. You can bank on one thing if nothing else; the Germans will not allow their cost of funding to rise or their standard of living to decline to help the nations that have gotten themselves in trouble. You can count on this!
This whole subject is a ruse in my opinion. Think of horses in a coral. The rancher keeps trying to build a higher and higher fence around his horses but for what purpose? For the rancher it is to keep the wolves out. In our particular case Europe claims it is the speculators, the bond vigilantes and so forth that are trying to raid their nations but this is obviously not what is going on at this point; we are far beyond that now. What the real problem is that the horses are sick, infected and that the disease of fiscal mismanagement has spread to virtually every horse in the coral except one and do not expect that one, Germany, to remain disease free much longer. Europe is seeking a solution to a misdiagnosed problem and their powers of observation are more than dismal so that the proposed solution will have all of the effectiveness of using a band aid to stop a heart attack. You can call cancer a cold if you like but it changes nothing; not one thing.
Dr. John Watson: You're drinking embalming fluid.
Sherlock Holmes: Yes. Care for a drop?