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Painful Revelations With Mark Grant As We Edge Down The Holmesian Path

Tyler Durden's picture




 

From Mark Grant, author of Out of the box and Onto Wall Street

Edging Down The Holmesian Path; Painful Revelations

 

"I consider that a man's brain originally is like a little empty attic, and you have to stock it with such furniture as you choose. A fool takes in all the lumber of every sort that he comes across, so that the knowledge which might be useful to him gets crowded out, or at best is jumbled up with a lot of other things, so that he has a difficulty in laying his hands upon it. Now the skillful workman is very careful indeed as to what he takes into his brain-attic. He will have nothing but the tools which may help him in doing his work, but of these he has a large assortment, and all in the most perfect order. It is a mistake to think that that little room has elastic walls and can distend to any extent. Depend upon it - there comes a time when for every addition of knowledge you forget something that you knew before. It is of the highest importance, therefore, not to have useless facts elbowing out the useful ones."

                                                                  -Sherlock Homes, A Study in Scarlet

The way the news is often presented and then digested can be mis-leading. Some event is announced and then there is the commentary on that event and it is burned into your mind as a singular and separate occurrence. This is not the correct way to envision the world. What is critically important is to consider each event as appended and tied to all other notable events so that put together; they may be considered as a whole. This is the correct methodology for astute comprehension and then for making informed decisions. I point out this rather banal fact this morning because many do not do it well so I bring it to your attention.

This all can be exemplified by what occurred last Friday. We got the jobs report which came in somewhere between bad and really bad and a surprise to virtually everyone because the deterioration in employment was forecast by no one. You can blame the weather and goblins in the Labor Department but the slowdown in the creation of jobs was noticeable. Then there was a second announcement having to do with credit creation that was far less than prognosticated by anyone. Here we have two clear signals of a slowing economy which then gets appended to the Fed shutting off new monetization which will surely bite in the months ahead as the 7 trillion supplied by the Fed, the ECB and other of the world’s central banks is drying up. As a totality then; one can envision the upcoming landscape.

Treasuries will move based upon the degree of the slowdown and the severity of the recession and its consequences in Europe. Equities have and will continue to go down and perhaps severally down as the obvious implications are calculated and acted upon. Risk assets, credit assets will widen to Treasuries as forward earnings decline in valuation and as Risk overtakes Greed as the markets’ driving force. With the Fed shutting off monetary easing and the ECB still keeping their pipeline open the Euro will decline against the Dollar in a marked fashion. A currency has no Real Value except the cost of the paper and, whether green or blue, the value is never Real but just Relative and Intrinsic so that the currency with their central bank still printing always declines against the ones that have stopped. Of all of these announcements the Fed’s is the most important one because we have been living off of Quantitative Easing for the last four years and the stoppage will have magnified effects on all manner of economic announcements in the months ahead and they will all have negative consequences so that profits should be taken and moves should be made into assets that step up or float with Inflation or even have a fixed coupon now and float later because those that remain with nothing but bullets will lose their profits and those in equities will follow the same path. You do not have to even consider Europe to reach this conclusion and when Europe is thrown into the mix then the odds for deterioration increase dramatically.

Europe

“So now, as an infallible way of making little ease great ease, I began to contract a quantity of debt.”

                                                                   -Charles Dickens, Great Expectations

You can visualize a chart and note the increase in the borrowing of the Italian and Spanish banks at the ECB but then you must apply the methodology of Holmesian thinking to arrive at the appropriate conclusions. For Italy it is up 776% from a year ago at $354 billion which is an all-time high. For Spain it is up to $200 billion and also a record. For these two countries it is now 14% of all ECB lending and a clear indication of the deterioration in their economies as exemplified by these kinds of increases. Do not stop here however but keep going!

 Since the Italian and Spanish banks are pledging collateral for their loans to the ECB and that collateral is no longer on their balance sheets while the loans are included on the liability side of their ledgers we are going to see some very impaired financials for the banks of these two countries in the upcoming months and then downgrades from the ratings agencies as investors flee the landscape in both equities and debt. Then as Spain cannot finance Spain nor can Italy finance Italy any longer you will see the sovereign credits back-up sharply in yield as the LTRO funds run dry which is already occurring. Paying off debt with new debt and printing money to do this has consequences and further increases will not just create zombie banks but banks that are identified as bankrupt and unable to pay their debts so that counterparty risk and flights of capital will force their capitulation in the end. It is quite possible now that there will be a run on the Italian and Spanish banks at some point as Fear caused by these balance sheets infects the market.

Now let us take another step down the Holmesian path. As the economies in Italy and Spain deteriorate who will be seriously affected: Germany. Two of their largest buyers of their goods and services will radically cut back on their purchases and the German economy, for the first time in this cycle, will suffer as buyers are no longer able to afford various services. The circle always completes and the consequences will not be pleasant; this circle, in fact, will resemble a noose that is pulled tighter and tighter with each passing quarter and the pay master for the European Union will shrink as their economy, currently at the $3.2 trillion mark, sinks back towards $2.5 trillion during the next year. There will be screams of anguish aplenty and you might begin now to make the necessary adjustments to this coming reality. Then as Italy and Spain soon line up at the till you will see the Real Hurt being on which is why Europe is begging the IMF, the G-20, China and Japan for funds because they now have the burning smell in their nostrils of damaged flesh that has been singed and is about to be cooked and served up fresh in the begging bowls of those urchins turned out into the street.

“Then a dog began to howl somewhere in a farmhouse far down the road, a long, agonized wailing, as if from fear. The sound was taken up by another dog, and then another and another, till, borne on the wind which now sighed softly through the Pass, a wild howling began, which seemed to come from all over the country, as far as the imagination could grasp it through the gloom of the night.”

                                                                               -Bram Stoker, Dracula

 

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Sat, 04/07/2012 - 12:40 | 2324553 Gully Foyle
Gully Foyle's picture

http://hotair.com/archives/2012/04/07/german-solution-tax-the-young/

German solution: Tax the young!

"

Angela Merkel’s Christian Democrats have drafted proposals that, if law, would require all those over 25 to pay a proportion of their income to cushion Germany against a looming population crisis.

The German Chancellor’s ruling party is seeking extra sources of revenue to pay for soaring pensions and bills for social care costs as Germany’s ”baby boomer” generation ages amid a decline in the birth rate.

The proposals, to be adopted by Dr Merkel’s party cabinet after the Easter break, have not yet set a figure on the age tax but officials are considering a special levy of about 1 per cent of income."

Sat, 04/07/2012 - 15:53 | 2324929 LawsofPhysics
LawsofPhysics's picture

Does the youth have a job? No job, no tax.

Sat, 04/07/2012 - 12:44 | 2324561 cossack55
cossack55's picture

I gave you a 5 based on the vivid burning flesh reference. 

Sat, 04/07/2012 - 12:46 | 2324563 Straying from t...
Straying from the flock's picture

The normalcy bias is a dangerous thing.  We are not prepared for what we have no experience with.  Most here are awake, but there are millions that are not.  Do what you can to open their eyes before the paper storm makes shore.  All debts come due, and someone is going to want to collect.

Sat, 04/07/2012 - 15:56 | 2324933 spinone
spinone's picture

I've had it trying to educate prople who don't want to know.

Sat, 04/07/2012 - 19:46 | 2325244 brettd
brettd's picture

Make sure you have some good friends.

They may be the most valuable asset you have

in the seasons to come.

The rest?  Forgetaboutit.  They don't want to know.

Sat, 04/07/2012 - 20:09 | 2325279 UP Forester
UP Forester's picture

I've come to the appreciation of linking the thought process of people to that of board games.

 

Unfortunately, the majority of people are playing checkers.  You have Red vs. Black, played on a (mostly) 2-dimensional field, each trying to reach the other side, so their "players" win.

A lot of people who have recently awoken are playing checkers.  There are more moves, more possibilities, and the overall strategem is much more important to the individual move.  There is more depth to the level of play, but eventually the player, with enough practice, can get fairly skilled, but is still mostly a 2-dimensional game.

There are much less people who are playing something like 3-dimensional space-chess, able to see things in a very complex system and, if not see the total picture, are able to predict which way the tide is flowing.  The interconnectivity of each piece on each level, the direction each piece can move, and the effects of each move upon the whole, without dismissing the impact of each individual move, is calculated to the smallest degree.

 

I believe TPTB are under the impression that they are in the third category.  The thing is, their ancestors may have been able to play at this level, the current oligarchy, through hubris, inbreeding or a combination thereof, only think they are.  These folks have enormous blinders on, and have convinced themselves that no matter how outrageous the moves they are taking and have planned, everything will turn out exactly the way they have planned.

The major fly in the ointment are the plebes, who up until this point have been content playing checkers.  They've only heard whispers of chess, and have been told that anything else is a conspiracy theory.  They're now wondering why, no matter if they choose Red or Black, they lose every time.  If they begin to look for someone to teach them chess, the whole game is over.

And that is why nobody "in charge" is ever going to speak of chess, IMHO.

Sun, 04/08/2012 - 10:16 | 2326041 DanDaley
DanDaley's picture

You just know that when it all goes down they are going to say, Why didn't you tell me in no uncertain terms? 

So I tell them once in no uncertain terms, look them in they eye and say, Listen, I'm telling you now -things are going to hell and soon, so get ready. That's it. 

Sat, 04/07/2012 - 12:49 | 2324567 101 years and c...
101 years and counting's picture

"LTRO funds run dry which is already occurring."  thats all you need to know.

Sat, 04/07/2012 - 13:15 | 2324628 infinity8
infinity8's picture

This guy is so matter-of-fact about the impending doom. I like him.

Sat, 04/07/2012 - 13:28 | 2324646 I am Jobe
I am Jobe's picture

Said it, end of story. Send it to the fucking MSM and all TV stations. Screw the Kardashians and crap. Shit goona hit the ceiling in the USSA. Who the f are these guys kidding, and sheelples too busy with sale at KOHLs.

 

Sat, 04/07/2012 - 13:33 | 2324658 Piranhanoia
Piranhanoia's picture

Germany shows no sensitivity to their past, and those lessons will never be forgotten. They chose to rub it in the face of their neighbours as they dictate terms to them.  They offer money to the governments of these nations, but the people starve. The interest on their debt is paid and their share grows, as their benefits dissolve. Germany has raised public workers salaries and demanded all the little countries reduce their own.  There is no doubt the conquered nations have realized this monster has awakened again.  Any benefits of membership in the reich have been destroyed, as national disaster waits for any participant in the euroscheme.  They know it will get worse every month now, as they see inflation and remember.  Those nations haven't forgotten.

This time the people of Europe have to make a choice about the monster.  They now realize they foolishly sought peace after WW1 and 2.  Will they allow this third attempt to enslave them?

 

Sat, 04/07/2012 - 13:48 | 2324695 bank guy in Brussels
bank guy in Brussels's picture

This article ends with discussion of how the downturn in the Mediterranean will soon hit Germany.

But an excellent recent ZeroHedge article went further than that ... the ultimate conclusion was that, when the Germans are finally cornered, they will not admit to their people that their pensions and insurance annuities cannot be paid in actual value (because invested in Spanish and Italian bonds etc.) ...

What the Germans will finally consent to do, says David Zervos at Jefferies, is monetise, print and inflate ... the only strategy to prevent the Northern Europeans from rioting like their southern EU neighbours have begun doing.

As Jim Sinclair said long ago, 'QE to infinity ... the only tool in the toolbox' to deal with all of this, across the Western world.

Superb ZeroHedge piece on what is likely the EU eventuality:

http://www.zerohedge.com/news/ugly-truth-northern-europeans

Sat, 04/07/2012 - 14:03 | 2324735 GeneMarchbanks
GeneMarchbanks's picture

Zervos, being at JEF is not exactly a beacon of reliability. JEF is a shitpile, ask Egan why Germany will still be around when Jeffries crumbles. As for Sinclair --- broken record.

Sat, 04/07/2012 - 13:48 | 2324696 prains
prains's picture

damn!  Math can be such a bitch

Sat, 04/07/2012 - 15:23 | 2324875 SwingForce
SwingForce's picture

Mark you're scaring me dude, I like it better when you talk with numbers not wordz...

Sat, 04/07/2012 - 16:14 | 2324956 Goldilocks
Goldilocks's picture

? (infinity) + 1

Sat, 04/07/2012 - 17:56 | 2325079 SwingForce
SwingForce's picture

At some point, yes, he's been providing the REAL Debt/GDP #'s for the EUdopes. He's quite the cruncher, you know. He's got a real job, too.

Sun, 04/08/2012 - 08:43 | 2325948 tovar2
tovar2's picture

 

1st Things 1st Sherlock...the house quote is cool but not that original.  Since it is Easter, let's go with some actual history. (Especially since ZH head's actually appreciate facts)

 

The exact documented quote was 2012 years ago ,

"Therefore everyone who hears these words of mine and puts them into practice is like a wise man who built his house on the rock. 25 The rain came down, the streams rose, and the winds blew and beat against that house; yet it did not fall, because it had its foundation on the rock."  

-Jesus-  Matthew 7:24-25  

And again...since it is Easter, one last quote 

And you will hear of wars and threats of wars, but don't panic. Yes, these things must take place, but the end won't follow immediately.  

-Jesus- Matthew 24:6

So let's see this story of more bad news as another great gold buying opportunity until the chaos comes... and maybe think outside the box for some creative ways to share our pallets of bottled water with our neighbors when the storms come?

Why should all the Loony Libs get all the credit for being compassionate.


 

 

Sun, 04/08/2012 - 09:26 | 2325990 AmericanInvestor
AmericanInvestor's picture

I would be ecstatic if the markets responded as simply as Mark Grant has proposed.  Unfortunately, we could all go broke waiting for the Eurozone financial markets to collapse and for the German economy to tank.  My own experience is illustriative of what can happen thinking that simplistically:  I was sitting on a 26% profit made in just 5 months at the end of last year by day trading in inverse ETFs (VXX, CVOL, SPXU and FAZ).  And then the ECB poured more than a trillion Euros into the banks, and my profit shrunk to 20%.  Then the Italian, Spanish and other bond auctions came in better than expected and the Greek debacle played out a little better than expected and my profit shrank to 18%.  So I finally took that profit out of ETFs and have it sitting in cash.  I don't doubt that, in the long run Mr. Grant is right.  But, in the long run we will all be dead and buried.  So, pray tell Mr. Grant ... exactly when is this collapse coming so that I can recommense betting on it? 

Mon, 04/09/2012 - 14:44 | 2328665 El Viejo
El Viejo's picture

...

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