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Mark Grant Explains The Latest European Con
From Mark Grant, author of Out of the Box and Onto Wall Street
The Firewall- An Irrelevancy
“Tough luck, Lonnehan. But that's what you get for playing with your head up your ass!”
-The Sting
There is noise and fluff and soap bubbles floating in the wind but don’t be distracted. Like so many things connected to the European Union it is just hype. In the first place do you think that any nation in Europe is actually going to put up money for the firewall no matter what size that they claim it will be? Let me give you the answer; it is “NO.” The firewall is just one more contingent liability that is not counted for any country’s financials, one more public statement of guarantee that everyone on the Continent hopes and prays will never be taken too seriously and certainly never used. Any rational person knows that some promise to pay in the future will not solve anything and it certainly won’t create some kind of magic ring fence around any nation. Think it through; what will it do to stop Spain or Italy from knocking at the door of the Continental Bank if they get in trouble and the answer is clearly nothing, not one thing. The firewall is just a distraction to lull all of you back to sleep and all of the headlines and discussion about it makes zero difference to any outcome and so is nothing more than a ruse. “Look this way please, do not look that way, pay no attention to the man behind the curtain, put up your money to buy our sovereign debt like a good boy and everything will be just fine.”
“Did you ever hear of a hustle called Two Brothers and a Stranger?”
-The Color of Money
The more that the 170 politicians in the 17 countries discuss the size of the firewall, whether Germany will guarantee more money or not, whether the old fund will be used in conjunction with the new fund; the more the scam is in play. It is a hustle organized by a very elegant set of grifters and since Eurostat clearly states that “promises to pay” are not counted on any nation’s financials then why would you think that “promises to pay” have any value in fencing out economic contagion? Spain or Italy will hit the skids based upon solvency issues and whether the interest rate on their debt is 7.00% or 5.50% makes very little difference in determining the outcome. The core issue for these countries is whether they can pay their debts and as their recession worsens and as the payments come due the squeeze is on. The LTRO money is beginning to run dry and unless they do another one and take the debt at the ECB up to $6 Trillion or the EU starts handing out money like candy upon the street corner the debts cannot be paid. The Ponzi bonds may well roll on and the Ponzi scheme may well get bigger but just because the Bernie Madoffs on the Continent tell you that your money is safe; Mark Grant will tell you that it is not.
One Degree of Separation between “Being Right” and “Winning”
We play the Great Game to win. We do not play the Great Game to be right. Get this clearly in your minds because it makes ALL the difference. Here is the embarkation point and the disembarkation point between money managers. Here is the line, the Great Divide, between coming out on top and falling by the wayside. Winning is the thing, it is the only thing and “getting it right” may lead you to be a winner but it is not what is really important; winning is what is important. Consequently when “The Con” is on there are only two realistic choices; do not play or trade around it. For longer term investors you must recognize that the sting is underway and invest your money in other places. For the hedge fund types you can bet against or trade with the momentum but while doing so never, ever forget that “The Con” is in motion.
“Someday, following the example of the United States of America, there will be a United States of Europe.”
-President George Washington
Now here is a great example of what I am trying to explain. This comment from the first President of the United States has turned out to be basically correct. However, if you had betted on it then it would have been some two hundred and change years before you won your bet. Generations would have come and gone and so, being right, is not always the way to play the Great Game. Further, “being right” is always defined by the timeline on which the proposition depends and so Father Time, your best friend and worst enemy, forever intervenes in the outcome of any investment. An LTRO, a Quantitative Easing, the printing of money, always drives up the prices of assets in the short term; this would be as in ALWAYS. Then when the well runs dry again the opium induced swindle is played again and sometimes again and again but then, inevitably, there comes a time, a moment, when for political or economic reasons the presses are shut down and there is no longer any new money. Here, at this specific point, the road switches back, the reversal begins, and the Pied Piper demands payment for the use of the printing presses.
You do not need to go back two hundred years to the wisdom of the Founding Fathers to see what is currently happening. Try just four years ago, 2008, and the presses were rolling, the mortgages were bundled, the ratings agencies gave them a AAA based upon diversification, no documentation was needed for loans and the hustle was in full play. In Europe, in 2012, the presses are rolling, the quality of collateral is now the second lien on Mr. Popandopolous’s gyro Greek diner and the hustle is in play. In America the presses are rolling, Chairman Bernanke is engaging in “twists” and turns and now we find that our own Federal Reserve Bank, according to Bloomberg, has even bought a “small quantity” of European sovereign bonds. Our Fed is even nicer than the ECB; no demands for collateral at all so that not only does the rabbit pop out of the hat but the hat pops out of pure air. Alchemy is alive and well. The Philosopher’s Stone has been found and it is resident at the world’s central banks.
The Game Book
Now yields in the longer end of the curve are beginning to back up. This is your first indication of trouble to come. Then it will be even higher yields, the equity markets will begin to back up, assets will decline in price and your portfolios will be chock full of flung mud. Given the particularities of this crisis, with TIPS at negative yields and the yields on short term bonds just off of Kelvin’s Absolute Zero; the risks are magnified. It is out of bullets and into corporate bonds tied to Inflation, and fixed-to float bonds and anything and everything to adhere to Grant’s Rules 1-10; “Preservation of Capital.” I don’t care if you do not like structured bonds or if you keep intoning the mantra of liquidity because normal old fixed coupon bonds in the space of five years and out are going to have marks to market that will cause a gagging sensation and so the Great Game must be played from a different angle. When the time comes that the LTRO play is over and when the Fed shuts off the spigot then the Hell that will be paid will be lining up at everyone’s doors demanding cash and not accepting anymore IOU’s. Bow to Hamelin and thank the gods of the marketplace that your eye was good enough to see the Pied Piper making the turn and heading down the road.
''The music stopped, and I stood still,
And found myself outside the Hill,
Left alone against my will,
To go now limping as before”-Robert Browning, The Pied Piper of Hamelin
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Grifters I liked that movie.
The good thing about LTRO x N is that each time they do one it strengthens the EURO/USD.
"House of Games"
lovin this gold rally.
Returning to real money is the best way to punish the Banksters. The real reason you pay an income tax, is for the privilege of using a private currency. Also known As A: Federal Reserve Note Demand from your bank or brokerage, lawful money and the tax goes away, with a tax exemption on lawful money, all of your money is yours. http://www.21silver.com/?show=merrill&read=federal_reserve_act_remedy http://stormthunder.com/federal-reserve-act/ Tax Exemption: http://stormthunder.com/federal-reserve-act/#ixzz1pOYzDgEm Web search these three different phrases: Redeemed in Lawful money or Redeemed in Lawful money Pursuant to Title 12 USC §411 or deposited for credit on account or exchanged for non-negotiable federal reserve notes of face value
That was a great movie. I don't think it did well at the box offices.
Somebody has to say it.... I'm shocked, shocked
my classmate's sister makes $67/hour on the laptop. She has been without a job for 6 months but last month her pay was $20212 just working on the laptop for a few hours. Read more on this web site ..... http://lazycash9.com
Perpetual bonds, bitchez!!!
Hey, can you spot me 5 Billion Euros... I'll pay you back in 100 years.
I saw a werewolf drinkin a pina colada at Trader Vics... His hair was perfect!
Timing is everything ...
'Any rational person knows that some promise to pay in the future will not solve anything and it certainly won’t create some kind of magic ring fence around any nation.'
Mark, how is this especially applicable to the EU? You could be describing the entire Western complex with such generalization. You'rea bigger wave than Tchir.
Been saying this for a while. All the money is behind the counter in a glass vault. You can see it but you can't have it. They want to build confidence with the money but the day they let it out, all inflationary hell will break loose. They use the money to get you to put up your money so they can skim it. All this money and everyone is going broke. How can that be? Because all the money goes out on the cart and then back in the vault of glass for safe keeping. "If you want some of this, get busy slaves and MAYBE the money gods will smile on you and give you some. If not, just keep working, bitch!"
"Money Gods"... lol ~ Hence: "Doin GOD'S work"...
State Control of the Central Banks as they are the enemy of the species.
Enemy of the specie, the species, or both ?!
I wonder if junk bonds will do well when things start to unravel? /s
BUBA still trying...
*WEIDMANN SAYS BOOSTING FIREWALL EXCESSIVELY CAN CREATE PROBLEMS
*ECB'S WEIDMANN SAYS MONEY CAN'T BUY LASTING SOLUTION TO CRISIS
Money can't buy that but it's necessary if you want to click on the "established" man website that advertises here non-stop
Oh well, as long as 99% of hte population are too stupid or careless to the issues they will jsut keep on keeping on. $6 gas and 4$ gallon of milk is what will wake people up since it speaks to what they can grasp.
Agreed. When the situation becomes intolerable, the American people may start to open their eyes. Unfortunate that most people will wait until their position is desparate. In the meantime, the band continues to play and the situation deteriorates.
I agree, but I think that most people actually are capable of grasping much more, but simply will not. They are willfully ignorant because they think it absolves them of all responsibility. And why not, in 20th Century America this attitude served man's drive to find "the path of least resistance" very well until now...
Only problem with the article is that the Fed never can turn off the money at this point as we are years if not decades away from a "self-sustaining" recovery ...all the Central banks can do is keep throwing money at it so that it somewhat goes sideways for years until finally population growth and hope for new technologies create enough growth to soak up housing and to allow the Fed to ease up....this could take 15 years so expect more trillions on every continent to be thrown at this every year as there is no alternative and they know it..
I need a fix. Just one more fix. I promise it's the last.
*SPANISH ECONOMY MINISTER LUIS DE GUINDOS SPEAKS IN MADRID
*GUINDOS HOPES FIREWALL TO BE EXTENDED TO ABOUT EU750 BLN
20 years from now my son goes to get a job. He is told:
Sorry kid, we can't pay you because we have no money. It was all borrowed 20 years ago so your grandfather could buy a new Chevy and get his pension. See they sold off all these bonds that needed to be paid back. They all came due over the past few years. We're all broke. You can work for free though. Did your grandpa leave you anything?
My son will reply:
No he's dead and he spent every penny on a condo in florida and classic cars. Since nobody has any money they aren't worth anything. Just all rotting in Florida and being used by the roving gangs with AK-47s. Didn't leave my dad with anything either. Just a home financed out for 30 more years with $250k owed on a home equity loan.
"Any rational person knows that some promise to pay in the future will not solve anything and it certainly won’t create some kind of magic ring fence around any nation."
When are you all going to figure out, it's not about solving anything now or in the future. It's about making money and getting what you can NOW, before it blows. It's all about making money. Most know it's FUBAR. But, when you make your living trading this crap, why fight it. Make what you can, when and how you can before the gravy train stops.
I like this guy.
At some point in time, all these bonds have to be liquidated with "confederate" money. Then there will be a grand mulligan. Think supply and demand. There are so many bonds floating around you could use them for toilet paper. You have to own something that is real and that people need - or will need. Besides gold and farmland, I suppose that means stocks - but the volatility is a bitch.
bunch of words, short on facts and analysis
alx
It's not about facts and analysis, it's about being handing yourself over to the narrative thereby creating a meme.
The following is a Great Moments in Safety History:
"We will have a 15 meter tsunami retaining wall to protect the plant to ensure its safety of the surrounding population, (What? Too expensive for shareholders?), We will have a 12 meter wall to en...(Accounting thinks they can make it thinner and increase bonuses). We will have a .. (We used 100 year projections on a building that will only have a useful life of 20years, on a 40 year we can go to 8 meters according to industry experts). We..(hang on a sec....OK.. We are going to have Christo erect a fabric wall and photoshop a sea wall on existing pictures, so we are going to go back to 10 meters to show we care. Marketing says 10 meters polls better with the surrounding country side). W....(Damn, he said he doesnt want to do cement color, it doesn't speak to him..)........"
I am guessing the same group also does firewalls..
+100. Great analogy ;O)
Always good post. Makes my coffee cold.
Agreed. The mayhem is coming - the question is, how to make money out of it? Also, agreed with your comment on better be winning than being right.
That's right, and that's precisely why it won't get fixed.
Becaise "Fuck you all, as long as I get mine!" rules the day.
It's exactly the attitude of Dimon and Blankfein, and what has got us here.
But that's OK, because it's the American way of life.
Fucking morons, always left wondering "What went wrong?" because it must have been somebody else's fault.