The relativity relationship that Grant Williams discusses in his latest 'Things That Make You Go Hmmm' newsletter is far simpler to understand than that proposed by Einstein (and far, far less likely to win him any prizes of a scientific nature, but we can live with that). Ladies and gentlemen, we are proud to unveil to you, for the first time:
'Williams's Theory of Disconnectivity'
After long and painstaking research, I have distilled my theory down to the following equation:
OS+ps2?R
where OS is 'official statistics', ps2 is 'political spin' (squared) and R is 'reality'.
We must be missing something because, try as we might, we are having a hard time understanding the bull case right now. It seems to be predicated largely on the thesis that we should buy things 'because they are going up'. (Japan is the poster child for this curious strategy, as those terrible results from Sony demonstrated a few weeks ago. Despite them, Sony stock is back to where it was before the company laid out, in no uncertain terms, just how poorly it was doing. In every single division.)
Yes, we understand that, in nominal terms, money printing is good for stocks 'just because'; but sooner or later, reality is going to reassert itself (painfully, we might add). The projected growth in profits that is being forecast for 2013 doesn't tally with the projected growth (or lack of it) in GDP over the same period, and so something has got to give — a fact pointed out beautifully by Rick Santelli and his guest this past week in this video [5].
Although the examples we could use to illustrate this discrepancy are approximately infinite right now, we will confine my selections to a few areas where the evidence is just too overwhelming to really leave anybody in any doubt...
Let's finish by applying some real-world values to our variables, with Cyprus as the example:
OS: €5.8bn will be stolen (yes, stolen) from savers in Cypriot banks.
+
ps2: (WSJ, March 1, 2013): Cyprus' newly appointed Finance Minister Michalis Sarris Friday rejected talk of depositors taking losses as part of the country's bailout as he took control of the country's purse strings following Sunday's presidential elections.
"There is nothing more foolish than talking about a deposits haircut," Mr. Sarris told journalists
(Bloomberg): When asked if a deposit assessment could be ruled out for future rescues, [Olli] Rehn said in an interview: “It can and there is no concrete case where it should be considered.”
?
R: This will not be the last time depositors are screwed, and it will lead to additional capital flight elsewhere in the EU. The Europeans have not only not solved their problems, they are well along in the process of painting themselves into a corner where 'whatever it takes' and 'everything we are capable of' are at last proven to be two completely different things.
But that's an equation for another day...
Full Things That Make You Go Hmmm note below...
TTMYGH 3.18 [6]