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Putting It All Into Perspective
While it is amusing, almost laughable, to watch the market's every schizoid reaction to any given utterance out of the central planners (recall that back in mid-2009 we said that fundamental and technical analysis, is now dead, and the only thing that matters it he Fed's H.4.1 statement - we hope you are enjoying said central planning ladies and gents), we have decided to save our readers some pain and cut straight to the end credits by presenting "the big picture." Last summer, we shared an extended report from the Boston Consulting Group, which in a rather verbose format, explained everything that is wrong with the status quo. Unfortunately, that was also the report's biggest weakness, in this day and age in which everyone expects everything on a silver platter, prechewed if possible. So here it is again, clean, simple, precise, and so easy it can be printed out and pinned to one's wall - the chart below from Citi's Matt King puts everything in its proper perspective (if in a slightly optimistic light). The first two columns show the "impact" of Lehman and the Greek PSI - i.e., the amount of debt that was eliminated. These two tiny bars are what nearly caused the end of Western civilization (per Hank Paulson), and led Europe on a two year voyage to preemptively offload Greek exposure to European (and American) taxpayers. That's the good news. The bad news is is the column on the far right. This is the amount of debt that in Citi's estimate, has to be "reduced" across the four major developed markets for the world to return to a sustainable debt level. That's right: $30,000,000,000,000. By 2016. And after that it just gets even more parabolic.
This is not a discretionary cut. This is what has to be "reduce" for the world to have some chance of avoiding daisy-chained global sovereign defaults, up to and including the $707 trillion in global OTC (read unregulated) derivatives. Which means there are two actual definitions of 'reduced' - inflated or paid off (since a global default would "complicated" for existing equity stakeholders, read the 1%, to preserve their wealth). Furthermore, we are convinced that Citi is being generous: BCG estimated that the global debt overhang as of 2009 to get to a "sustainable" global debt/GDP of 180% is about $21 trillion. That number is easily $5-6 trillion more as of right now. Finally, with assets already at record lower cash flow generation as has been repeated here over and over, the only option is nominally inflating them away. Which means, you guess it, nominal devaluation of monetary intermediates. Translated: printing, printing, and more printing.
Still think the Fed, ECB, BOJ and BOE won't print, print, print?
Think again.
And for those who missed it the first time around, here is the full BCG analysis, which looks at not only the cuases of the global policy dead end, but provides some suggestions on how to deal with the issues. Needless to say, these are neither palatable nor favorable for risk assets.
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You sound like the Mogambo Guru! (meant as a complement).
Bernank and his ilk are riding a tiger, and they know it.
The longer they hang on, the hungrier the tiger gets.
When they fall off, we all know what will happen.
I think the feline is getting real hungry now.
Tyger, tyger burning bright,
in the fortress of the night
William Blake had it right 300 years ago.
Bombs away... http://www.youtube.com/watch?v=0FyLcHxbSRk&feature=related
Missed out the tax break on offshore money coming back to US. And tarriffs that will must accompany a re-industrialization.
China has tons of tarrifs from wine to cars, north america has next to none.
Just wait until the chinese cars get to a minimum DOT level, and watch as it decimates Japanese, Korean and American cars on price and value.
The only thing we will be making here is chop suey with imported veg.
Countries and finance are bullshit.
If we all compete, some of us benefit.
If we all cooperate, everyone benefits.
Seems like a no-brainer to me.
This "report" is pretty bad.
Energy and education investment to save the USA? Consultant please....
What I learned from the Boston Consulting Group Report.
1. The BCG is run by clueless communist academics that think central planning can solve problems.
2. The math says we are fucked and there are only 2 options.
A. Inflate everything away with the printing press and sodomize the responsible members in our society.
or
B. "Restructure Debt: which is code for nationalize the banks, socialize losses, let the bankers off scott free, tax the shit out of any productive member of society with one time wealth tax (can you say confiscate 401k's) and start the game over making the super honest politicians promise not to do it again while they promise to give free shit to their constiuents. (i.e. sodomize the responsible members of our society.)
3. David Rhodes and Daniel Stelter are retarded dick gobbling, BIS loving, communists. and this piece of shit report would make the politburo blush.
They won't print because it doesn't fix the problem. Printing to inflate away debt just raises oil prices so the economy can't grow.
In order to get out of this, the market must first pump itself, then dump itself. All hail the banksters as they give way to sentient fraud algorithms, our future computerized leaders.