By Mark Grant, author of Out of the Box
"Defer no time, delays have dangerous ends."
-William Shakespeare, Henry VI
“Postponed” is the official stamp across the world. This is the operative word of governmental policy. Whether Europe or America, whether capitalist or socialist government; this is the credo, the banner, the flag waving in the wind for dealing with economic problems. Throw more money at it and barrels of it, have the central banks print and defer any pain much less any tough decisions. We live in a state of postponement, defer and delay which cancels the consequences of the moment but places more severe consequences, greater pain and tougher choices but moments out into our future. Make no mistake; the world has become a more dangerous place either haunted by the specter of rampant inflation or haunted by valuations of debt and currencies that could turn the financial markets into a swirl of dislocation where a plunge into a freezing sea of disarray awaits as capital goes to gold, senior debt regardless of yields and nations deemed to be safe havens.
Grant’s first ten Rules, “Preservation of Capital” may exceed their present definition as they become all that is important and not just one of the considerations for making investments. Look about you, consider with care, what has been fixed and the honest answer, the truthful answer is Nothing. Greece is no better, Spain is no better, Portugal is no better and America is worse. Nothing has been fixed! Nothing!
The financial markets have not gone, yet, into demise because the central banks have printed massive amounts of money and the money printed is greater than the supply of products that can absorb the tremendous amount of liquidity and so we have compression in fixed income, we have stock markets that have been propped up and we have sovereign debt that has been multiplied all because no government has undertaken the pain and difficult decisions that will accompany fixing the problems that confront the nations of the world. I have stated all of this before but I wanted to take a moment and codify this in a succinct manner.
Postponement coupled with creating money out of nothing and the deferral of decisions exacerbates the problems when the time comes that there is nothing left to do, no other choice left other than to deal with them. To suppose that the present conditions will continue on ad infinitum is a foolish mistake that will be met with dire consequences when the wall is reached. When cash regains its mantle of King and commodities start their upward spike and gold begins to shoot up to levels once thought unimaginable then the game is on as Fear will overtake the lull that we have been living in for quite some time. Since people and institutions cannot invest off-world and we are stuck in the global container of where we can invest then it is Bill Gross’s “least dirty shirt” in the short run but then it will be the exchange of any shirt for the steel armor of protection and self-preservation as the stench of the unwashed exceeds our ability to remain in that garment.
Greece may well kick-off the show. We are not done with that travails of that country yet. Every game has been played now, every hit to the private sector that could be taken has been taken, every demand for austerity has been set into law and yet the country is worse off and their financial condition continues to deteriorate. The Greeks will suffer the consequences as long as new money is handed out but the next round is debt-write offs by the nations of Europe and the screaming and old divisions will rear their ugly heads and the history of the nation-states of Europe will result in national leaders calling for an end to the madness of money without end given to a nation that cannot afford even its present commitments much less its accumulated debts.
The Greek people, the recipients of the largesse that is really little more now than the countries of Europe paying themselves back with the sovereign nation of Greece as the conduit, will put up with it as long as some portion of the money is left in their coffers but I predict that the moment that new money stops being handed out that revolt will occur and Europe can go hang. I think that 2013 will mark the year when then endgame commences first from refusal to fund by some European countries and then a backlash in Greece. The breakpoint now approaches.
Then it will be Spain who takes the next plunge, the $112 billion write-off of the debt of Dexia that will impact Belgium, the failure of the austerity measures in Portugal, the elections in Italy, the travesty of Cyprus and the continuing recession in Europe that will cause devastation on the Continent. In America it will be the walk of shame over our cliff and then several weeks of political assurances and then the markets’ realization that nothing was really accomplished and the beginning of a great tailspin. Decisions have been postponed and the world is a mess and the first round of liquidity has just about run its course to support the marketplaces and reality, like our precarious fiscal condition, has been postponed but it has only deferred the inevitable and nothing more. One and one still makes two and the delay at the equals sign will only increase the severity of having to confront the answer. The beast is there and while recognition has been postponed do not make the absurd mistake of thinking that he has gone away. He has only grown larger in forbearance and he waits, breathlessly, to pounce.
“Our civilization is still in a middle stage, scarcely beast in that it is no longer wholly guided by instinct; scarcely human, in that it is not yet wholly guided by reason.”