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Guest Post: Enter The Swan
Submitted by John Aziz of Azizonomics
Enter The Swan
Charles Hugh Smith (along with many, many, many others) thinks there may be a great decoupling as the world sinks deeper into the mire, and that the dollar could be set to benefit:
This “safe haven” status can be discerned in the strengthening U.S. dollar. Despite a central bank (The Federal Reserve) with an avowed goal of weakening the nation’s currency (the U.S. dollar), the USD has been in an long-term uptrend for a year–a trend I have noted many times here, starting in April 2011.
That means a bet in the U.S. bond or stock market is a double bet, as these markets are denominated in U.S. dollars. Even if they go nowhere, the capital invested in them will gain purchasing power as the dollar strengthens.
All this suggests a “decoupling” of the U.S. bond and stock markets from the rest of the globe’s markets. Put yourself in the shoes of someone responsible for safekeeping $100 billion and keeping much of it liquid in treacherous times, and ask yourself: where can you park this money where it won’t blow up the market just from its size? What are the safest, most liquid markets out there?
The answer will very likely point the future direction of global markets.
Smith is going along with one of the most conventional pieces of conventional wisdom: that in risky and troubled times investors will seek out the dollar as a haven. That’s what happened in 2008. That’s what is happening now as rates on treasuries sink to all-time-lows. And that’s what has happened throughout the era of petrodollar hegemony.
But the problem with conventions is that they are there to be broken, the problem with conventional wisdom is that it is there to be killed, roasted and served on a silver platter.
The era of petrodollar hegemony is slowly dying, and the assumptions and conventions of that era are dying with it. For now, the shadow of that old world is still flailing on like Wile E. Coyote, hovering in midair.
How did the dollar die? First it died slowly — then all at once.
The shift away from the dollar has quickly manifested itself in bilateral and multilateral agreements between nations to ditch the dollar for bilateral and multilateral trade, beginning with the chief antagonists China and Russia, and continuing through Iran, India, Japan, Brazil, and Saudi Arabia.
So the ground seems to have fallen out from beneath the petrodollar world order.
Enter the Swan:
We know the U.S. is a big and liquid (though not really very transparent) market. We know that the rest of the world — led by Europe’s myriad issues, and China’s bursting housing bubble — is teetering on the edge of a precipice, and without a miracle will fall (perhaps sooner, rather than later).
But we also know that America is inextricably interconnected to this mess. If Europe (or China or both) disintegrates, triggering (another) global default cascade, America will be stung by its European banking exposures, its exposures to global energy markets and global trade flows. Simply, there cannot be financial decoupling, not in this hyper-connected, hyper-leveraged world.
And would funds surge into US Treasuries even in such an instance? Maybe initially — fund managers have been conditioned by years of convention to do so. But how long can fund managers accept negative real rates of return? Or — much more importantly — how long will the Fed accept such a surge? The answer is not very long at all. Bernanke’s economic strategy has been focussed on turning treasuries into a losing investment, on the face of it to “encourage risk-taking” (or — much more significantly — keep the Treasury’s borrowing costs cheap).
All of this suggests a global crash or proto-crash will be followed by a huge global money printing operation, probably spearheaded by the Fed. Don’t let the Europeans fool anyone, either — Germany will not let the Euro crumble for fear of money printing. When push comes to shove they will print and fiscally consolidate to save their pet project (though perhaps demanding gold as collateral, and perhaps kicking out some delinquents). China will spew trillions of stimulus money into more and deeper malinvestment (why have ten ghost cities when you can have fifty? Good news for aggregate demand!).
So Paul Krugman will likely get something much closer to what he claims to want. Problem solved?
Nope. You can’t solve deep-rooted structural problems — malinvestment, social change, deindustrialisation, global trade imbalances, systemic fragility, financialisation, imperial decline, cultural stupefaction (etc, etc, etc) — by throwing money at problems. All throwing more money can do is buy a little more time (and undermine the currency). The problem with that is that a superficial recovery fools policy-makers, investors and citizens into believing that problems are fixed when they are not. Eventually — perhaps slowly, or perhaps quickly — unless the non-monetary problems are truly dealt with (very unlikely), they will boil over again.
As the devaluation heats up things will likely become a huge global game of beggar thy neighbour. A global devaluation will likely increase the growing tensions between the creditor and debtor nations to breaking point. Our current system of huge trade imbalances guarantees that someone (the West) is getting a free lunch , and that someone else (the Rest) is getting screwed. Such a system is fundamentally fragile, and fundamentally unstable. Currency wars will likely give way to economic wars, which may well give way to subterfuge and proxy wars as creditors seek their pound of flesh, and debtors seek to cast off their chains. Good news, then, for weapons contractors and the security state.
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My $ is on fairly valued dividend paying US based NON-FINANCIAL equities (telcos,energy companies, or even aapl thatnks to its low p/e and global global footprint). This will perform better than cash in the medium term and provides some protection in case of a sudden inflationary event.
U take your worthless shares while I acquire gold, silver, platinum, guns, & real estate.
Sucker!
Timing is everything and gold is worthless compared to food/land/information/even bikes. I figure there's still time to multiply cash on hand before going all in for land which is still overvalued.
Gold hasn't been worthless since cavemen. Everyone more advanced than cavemen understands the need for money. Gold functions as money better than anything else. We are headed towards a crisis where everything we use as money implodes. In that case, something that functions well as money will be in demand.
That said, I think you should buy more aapl. Buy all you can. Leverage up 1000 times. I hope you get what you deserve.
John, I collaborate with Charles Hugh Smith, I know Charles Hugh Smith, Charles Hugh Smith is a friend of mine. John, you're no Charles Hugh Smith.
And I am Napoleon, but that doesn't make me crazy does it?
First the $$ strengthens on the "best horse in the glue factory" outlook whilst every other country falls to pieces around us, then there's a crisis of confidence in the $$ and the US experiences hyperinflation...which is nothing more than a los of confidence in the currency.
Gold will be a casualty on the way to hyperinflation; the weak hands will be shaken out. Best that you pay off all debt, then get into $$.
This is the worst guest post of 2012.
First the guy says, "Smith is going along with one of the most conventional pieces of conventional wisdom: that in risky and troubled times investors will seek out the dollar as a haven."
Then he follows that with, "the era of petrodollar hegemony is slowly dying".
And at the end he states, "Currency wars will likely give way to economic wars, which may well give way to subterfuge and proxy wars as creditors seek their pound of flesh, and debtors seek to cast off their chains. Good news, then, for weapons contractors and the security state."
John, the National Security State and the Petrodollar are the left and right wings of the American Empire. You cannot simultaneously claim that the US Dollar is going to die and the US Military is going to prevail. YOUR ENTIRE ARGUMENT MAKES NO FUCKING SENSE.
Epic fail guest post.
I don't want to speak for anyone, but I don't think that militarization necessarily involves the US Government or any national authority. It will be about organizations protecting what is theirs. It is a much scarier world than one based on inter-state wars where individuals can at least count on their own governments. In the world we could be heading to, the only people you may be able to trust are family and close friends.
The dollar as safe haven? Who's stupid enough to run to the currency of the biggest deadbeat government in the history of the world. What a bunch of maroons.
It's spelled M-O-R-O-N-S ....
That's a bugs bunny reference, so YOU are the moron.
There was safe haven (2008) and then there is least-worst-alternative-for-the-time-being (2012).
Since 2008 we have seen a somewhat transparent market turn somewhat opaque and highly manipulated, we have seen bond indentures essentially torn up with preferred creditors told to go pound sand, and we have seen the national credit card usage put into overdrive to placate a non-work-force of 100 million so they can buy flat screens to watch American Idle.
I don't know about you, but a basket of EM debt is looking like a viable store of value when stacked up against this or that other "flight to safety" paragon of virtue, the UK.
Right about all that but wrong about one thing: the end of all this, once the crash has happened and everything has been wiped out down to its real value, is that the United States will still wind up on top. In latent power the United States, alone of the major, industrialized powers, remains the same as it has been for more than a century: overwhelming compared to anyone else's. So, the Pax Americana - what some of the more crazed people call the American Empire - will continue and, indeed, increase its role in the world.
All problems are ultimately moral problems - theological problems, when you get right down to it. The strength of America is in its people and our people have still retained, in spite of aggressive efforts to change them, those moral certainties (based on the Judeo-Christian world view) which lead to prosperity, freedom, stability and power. To be sure, major reforms are needed in America - political to break up Big Government, economic to break up Big Corporation, plus a slew of other reforms - but once we get our act together, no one can even think of competing with us. And here's the real kicker - even though many have tried to stamp it out, the continued existence of our sublime Constitution ensures that we can get our act together faster and more effectively than anyone else.
Europe is dying, China is dying, Africa is two centuries away from being able to compete...even South and Central America are on the path to terminal, socialist decline. Of course, any of these places could be fixed...but only by people who act like Americans. Meaning, only by people who set up rigid, constitutional structures and who are willing to absorb newcomers and make them part of the whole. As none of these places will do that (at least not any time soon) they are doomed to always being second-best to us even if, for short times, they are able to overshadow us.
But here's the really bad news: China actually does think they own the future. So do the Islamists. So, we might well get World War III before we're able to have an era of peace and prosperity.
For the United States to prevail, then, we should pressure China and Russia to declare war on multiple middle East countries that have oil and radical Muslims, and then align ourselves as providers of war machinery and supplies to China & Russia. China & Russia then take the direct hits from the war, take the spoils (oil), & our economy is revived just like the USA & UK in 1940! I could have been a Rothchild or Rockefeller with this kind of thinking, eh?
I don't know where in amrka you reside, but this
looks like idealistic non-sense to me. if you seriously believe that amrka has "morals" be they in the "market" or the workplace, or anywhere else, then you've not been paying even the slightest of attention for decades now.
corporate military wars? with an all volunteer military? and a side dish of mercenary contractors? morals??
Wall Street?! "elected government"?!! "presidency"? medical pharma industry? you believe any of this is "moral"?
back to your 50's "better living through science" time machine, you're living in a fantasy.
Our Ruling Class doesn't have morals but I do believe that a large majority of the American people do. And I believe that majority is in the process of reclaiming it's birthright.
The problem we've had in the entire West (not just in the United States) has been the same since the break up of the old, unified Christian order we had from about 500 to 1500 A.D.: How to apply proper, moral principals to a society which is no longer primarily concerned with subsistence agriculture. The answers to the problem can be found here. My view is that these views - even if the people holding them don't 100% know where they came from - will prevail.
I'm sorry, but at this stage in world history I'm not looking to the Catholic Church, faithful or otherwise, for morals.
I realise that your link is referring to something that has been "missing" therefore you are looking to return to "it" - your post is polite, so I'll reply in kind, and just say the overwhelming majority of amrkns support most of what they consider "culture" and there will most likely only be tribes of people who will want to return to the past described.
I guess the good news is that as this mess continues, tribes of like-minded will be a welcome change from huge herds of no-minded.
"All problems are ultimately moral problems - theological problems, when you get right down to it. The strength of America is in its people and our people have still retained, in spite of aggressive efforts to change them, those moral certainties (based on the Judeo-Christian world view) which lead to prosperity, freedom, stability and power. "
What fucking country are you living in? We are a rotten immoral people. We are the biggest piece of shit hypocrites in the world. We hold ourselves above others because we hide our sins better than our neighbors. We murder our babies under the guise of privacy and women's rights. We throw people in jail to get ass raped for smoking a weed that grows on the side of the road. We cheer on our military as it randomly drops bombs all over the world dismembering children and women out of fear when we have the strongest military in the world by far. We are not Christian. Read the Bible again. King Herod murdered young babies out of fear. A king murdering babies out of fear. We, the mightiest, murder children out of fear. Open up your eyes. We are the people who murdered Jesus. Can you imagine what God has in store for us? Unless some kind of miracle happens and people take notice of a quiet Jonah shuffling through the streets mumbling about our fate, the US will fall and it will fall spectacularly.
"...the continued existence of our sublime Constitution ensures that we can get our act together faster and more effectively than anyone else."
My God man! Open up your eyes. The Constitution has been used as toilet paper for 100 years. Time to wake up.
"China actually does think they own the future. So do the Islamists. So, we might well get World War III before we're able to have an era of peace and prosperity."
Oh yeah. If there is a world war, it'll be their fault. Just go fuck off already.
Story out today that odumbo and the washtonians put a 17year old girl on the hit list.
All that you list there are, essentially, the attempts to make America something it is not - and that attempt is in the process of failing. Ultimately, the bankruptcy of the fiat-money, usury-based economy (and the political class which feeds off it) will allow the real America to re-emerge from the swamp.
You needn't lecture me about the things we've done wrong - I've considered them carefully and know that we started to screw up, as a nation, when Teddy Roosevelt got in to the White House. He, himself, didn't quite realize what he was doing but that was the genesis of it...and it was carried forward by Wilson, Hoover, FDR, Truman, etc...but even in all that time we still managed to get Taft, Coolidge and Reagan to try and arrest the decline in to garbage.
But even with all that, there is still the real America out there - and it is furious, organizing and starting to make inroads in places the Ruling Class never thought possible. Have a little faith - and, of course, get to work on this great project of restoration.
Reagan really was a great guy what with the whole War on Drugs, huge expansion of the MIC, and, oh, he must have been so busy ordering bombs to be made and dropped on children and having innocent people thrown in jail based on his stupid morality, he never got around to defending innocent children. What a guy. Both Reagan and you can f*** off.
"While most are clamoring for more money printing by the ECB to monetize bad sovereign debt which has no demand, the Global Macro Monitor has been clear and consistent in its view: There is a huge difference between money printing in the U.S., Japan, and U.K. to goose the economy versus money printing ala Bulgaria 1996 to buy sovereign debt for which there is no demand. Boone and Johnson are one of the few we have seen that understand this point. They write, Is there any hope for the euro dream?One potential way forward would be to create a European- level fiscal union that assumes all national debt, much like what Alexander Hamilton did as first U.S. secretary of the Treasury. That isn’t going to happen in modern Europe. Why would German taxpayers and savers agree to pay for the good times previously enjoyed in Greece, Italy or Spain? Who could even ask them to do so? As a result, all eyes are turning to the European Central Bank, because some in the euro policy elite still hope loose monetary policy and higher inflation rates will provide an escape hatch. But addressing fiscal issues through monetary means generally doesn’t work, and it does nothing to improve the competitiveness of the struggling euro-area periphery. There’s more; The ECB will also lobby for austerity, which would reduce the amount of credit it needs to create. But democratically chosen governments will simply refuse to comply. The central bank will jettison its inflation-fighting credentials, and instead pray that the monetary issuance needed to keep troubled nations afloat isn’t too large and that inflation expectations don’t start to increase. And here’s where they really nail it; But here’s the problem: Pursuing such a monetary policy is a recipe for a dangerous loss of confidence in the euro system. Money demand will be destabilized, in our opinion, when/if the ECB engages in an explicit and full blown monetization of sovereign debt for which the markets have loss confidence. In fact, in some ways it already has if bank deposits can be defined as money. How much demand is there currently for Greek, Spanish, or Italian euro bank deposits? During the height of crisis in Q4 2011, it appeared demand for even German and French euro deposits was about to collapse. Risky times, indeed."
http://macromon.wordpress.com/2012/05/13/the-euro-end-game-simon-johnson...
and also interesting:
"In every economic crisis there comes a moment of clarity. In Europe soon, millions of people will wake up to realize that the euro-as-we-know-it is gone. Economic chaos awaits them."
http://baselinescenario.com/2012/05/28/the-end-of-the-euro-a-survivors-g...
I'm calling black-swan-metaphor abuse. What exactly is the "unpredictable event" that
is being predicted here?
I'm on a big black swan kick. Let's go, REAL black swans.
T'is the season to really f^&*k things up.
Two black swans mating. black swan porn.
Just buy the fucking dip
Some sort of natural disaster in the US gives them nice cover for a massive stimulus.
CA is just about the only area not shaken yet on "The Ring"
Another 5 state outbreak of devastating tornadoes.
Hurricane season upon us.
Costs in the dozens of billions.
They'll print dozens of trillions... And deny every bit of it.
Paging Mr7:
"Enter Swan Man"
Exit Night...
Enter Light...
We're off to never never land..
Yes, I question the USA as a safe haven and a place to flee for safety. We here in the USA are setting ourseleves up for disaster. Really, how much longer do we run 1.5 trillion dollar deficits while the Fed must buy the majority of treasury bills??
Now, there are also more than one type of Black Swan. I see WAR as a strong likelyhood in the not too distant future. Plenty of possible conflicts are smoldering out there. For one, we have a growing instability in Iraq and Kurdistan, this brings in Iran and Turkey. Syria is on the US/NATO hit list, only the overthrow will be very bloody, the government has weapons and are prepared to use them against the NATO proxies.
Iran and it's nuclear program is going to draw Israel into an attack sometime in the nexty 2 years, the timeline for Iran's first bomb.
China and it's Pacific neighbors are really getting serious about resource wars in the South China Sea.
Russia is not about to retreat any further, no matter NATO has further plans to expand and move it's forces within easy strking distance of the European portion of Russia. Georgia's desire to retake it's break away areas is going to be met by Russian arms. The Ossetian war is settled in Russia's mind, they will not retreat from there.
Plenty of flash points and numerous states like Egypt with unsettled revolutions.
Never forget another big terror event could happen at any moment.
The world is primed for not only fiscal and economic crisis, it is becoming like 1914, a world with wars just waiting to kick off.
the Fed must buy the majority of treasury bills??
Yes.
there are also more than one type of Black Swan.
No. A black swan originates commonly regards surprise, size and shape. Disparate however circumstances appear, black swans are the same.
a world with wars just waiting to kick off.
whats new? though I feel this too.
This statement isn't quite accurate:
There is an assumption that TPTB are trying to "solve" problems. I don't think so. They are looting national treasuries. Nothing more. Nothing less.
interesting. there will be no decoupling and in the end it will be a print fest but in the meantime i wonder if the bernank will use the opportunity of a strong dollar(only because of a weak euro) to print into the hole with abandon. i think some quant is arguing in his ear that the massive print of the last few years is what has propped up asset prices and stabilized real estate prices(they would have dropped like a rock otherwise) so taking advantage of the weak euro would allow an even bigger print because it will be partially "sterilized" by the strengthening dollar.
in any case, the price of gold will tell the story(lots of deleveraging to raise cash now and strong dollar) so be ready to buy a lot when the trend turns(mother merde is convinced to join the print fest).
We are making TPTB very angry.
http://www.youtube.com/watch?v=NKkRDMil0bw
Can't wait to see how Angela Merkel responds when she finally has to come face to face with the 'black schwan'...
When you think about it, China's ghost towns might be handy after an atomic war. The old ones will be destroyed. Voila, new ones are available immediately.
hedgeless horseman.............i'm really beginning to appreciate these beautiful meal shots. love'em. eat that swan---tastes better than bitterly complaining about it. :) !
I dont get the term "proto-crash." Not that I ever learned Latin, but why proto? How about "Next-o"
Jus' git to rat killin' allrightythen!