Like two children bickering over spilled ink... Listen fellas, there's only one way out of this, and that way is not through the ACME Print-O-Matic 2000 (Euro edition). It didn't work for Japan, it didn't work for the US, and it ain't gonna work for the EU!
Physics has the elusive Theory of Everything which consists of several Grand Unified Theories and which represents the holy grail of the science and which "fully explains and links together all known physical phenomena, and predicts the outcome of any experiment that could be carried out in principle." In other words, once proven it would make life boring. We doubt it ever will be. Finance does not have anything like it, for the simple reason that while physics is a deterministic science, finance, predicated to a big extent on assumptions borrowed from the shaman cult known as 'economics' is always and everywhere open ended, and depends just as much on chaotic 'strange attractors' as it does on simple linear relationships. Yet when it comes to presentations, especially of the variety that attempt to explain not only where we are in the world, and how we got there, but also where we are headed, we have yet to see anything as comprehensive as the Investment Strategy guidebook from Pictet's Christophe Donay. If there is indeed a holy grail of presentations, this is it, at least for a few more instants, until something dramatically changes and the whole thing becomes an anachronism. In the meantime learn everything there is to know about global decoupling and the lack thereof, the reality of an over-indebted global regime and its 3 incompatible targets, the outlook for the US and the 30% probability of a hard recession, a recessionary Europe and the five possible outcomes of its crisis, China and its hard landing, and how this all ties into an outlook on where the world is headed together with appropriate investment strategies and proper asset allocation, the fair value of the EURUSD, systemic risk evaluation, cross asset correlation, the impact of central bank intervention, debt redemption profiles, the role of gold and commodities in the new reality, and virtually everything else of importance right here and right now.
Kyle Bass Un-Edited: "Buying Gold Is Just Buying A Put Against The Idiocy Of The Political Cycle. It's That Simple!"Submitted by Tyler Durden on 11/16/2011 21:55 -0400
If the abridged summary from BBC's Hardtalk interview with Kyle Bass that we published yesterday was not enough for those seeking sense, truth, and direction, then (as promised) the full 24'30" interview will quench that desire. Reflecting on the similarities of his subprime perspective, he provides a crucial context for the debt-laden world of sovereign debt that he is now hedging. Shrugging off the somewhat snarky 'nefarious short-sellers' angle of questioning (and insuring the uninsured prod), he simply and elegantly points out how massively asymmetric the European sovereign debt bet was, how the asymmetry in Europe has largely disappeared now, and all the asymmetry now lies in Japan. From the 14-minute mark, Bass describes the demographic disaster, destroys the savings myth of the land of the rising sun, and brings into focus how Italy's rapid demise should be a forewarning for the debt-servicing needs of Japan. Ending up on the Fed's printing and the need for guns and gold, there's a little here for everyone!
"Buying gold is just buying a put against the idiocy of the political cycle. It's That Simple"
Watch Rosenberg And Krugman Debate Larry Summers and Ian Bremmer On Whether The US Is Turning Into JapanSubmitted by Tyler Durden on 11/14/2011 22:54 -0400
Minutes ago, the always delightful Munk Debate on the American economy concluded, which pitted two skeptics: David Rosenberg and (yes, he is a skeptic when it comes to his belief in the "proper" implementation of Keynesianism) Paul Krugman on the one hand defending the null motion of the debate, against Larry "Warren (watch the clip)" Summers, best known for destroying capitalism, and Ian Bremmer. The core debate topic was as follows: "North America faces a Japan style era of high unemployment and slow growth an accurate forecast of the future." Naturally, as Krugman immediately explained, by North America the organizers mean the US, simply because Canada is too small and hasn't screwed up enough (we would add that the screw up has not been perceived yet: everyone has screwed up, but luckily we have enough distractions for the time being). Either way, the progression of the debate should not come as a surprise to most, neither how each particular economist will perform: that Rosie sees Japan in every aspect of the US should not surprise anyone; that Krugman does too unless the politicians agree to being invaded by aliens, is also to be expected. On the other side, "Warren" Summers' argument can be simplified to his fallback motto of Keynesianism and Central Planning 101 in which he believes that the printing of money and job creation are sufficient to fix all US problems. No surprise there either: after all this is the man who three weeks ago said: "The central irony of financial crisis is that while it is caused by too much confidence, too much borrowing and lending and too much spending, it can only be resolved with more confidence, more borrowing and lending, and more spending."
It is clear as day that the EU in its current form is finished. I’ve been saying this for months, but now even the mainstream media is picking up on rumblings that Germany wants to exit the Euro or at least restructure the entire EU.
The United States is a country built upon the four C’s: Crude, Cars, Credit, and Consumption. They are intertwined and can’t exist without crude as the crucial ingredient. As the amount of crude available declines and the price rises, the other three C’s will breakdown. Our warped consumer driven economy collapses without the input of cheap plentiful oil. Those at the top levels of government realize this fact. It is not a coincidence that the War on Terror is the current cover story to keep our troops in the Middle East. It is not a coincidence the uncooperative rulers (Hussein, Gaddafi) of the countries with the 5th and 9th largest oil reserves on the planet have been dispatched. It is not a coincidence the saber rattling grows louder regarding the Iranian regime, as they sit atop 155 billion barrels of oil, the 4th largest reserves in the world. It should also be noted the troops leaving Iraq immediately began occupying Kuwait, owner of the 6th largest oil reserves on the planet. Oil under the South China Sea and in the arctic is being hotly pursued by the major world players. China and Russia are supporting Iran in their showdown with Israel and the U.S. As the world depletes the remaining oil, conflict and war are inevitable. The term Energy Independence will carry a different meaning than the one spouted by mindless politicians as the oil runs low.
The world has reached the point of debt saturation. Creating more debt no longer generates "free lunch" growth, even in China, though the central bank in China is still playing as if shifting debt off-balance sheet into a "shadow" system will fool the money gods. It won't. Everybody in Europe is playing the same sort of games, hoping to fool the money gods and keep the "free lunch" economy "growing." While everybody focuses on the circular firing squad in Italy, untold billions of euros of impaired private mortgage debt in housing-bubble-popped Spain still sits on the books of Spanish banks at full value, lest a sneeze of reality send Spain's entire banking sector to Davy Jones Locker. Though no official publicly admits it, nobody really knows how much debt there is in Greece, or who even holds it. Here's the fig leaf confession: "Scarce data makes estimates difficult." Yes, I'm sure it does. So the true size of Europe's debt is unknown because everyone with a stake in the charade is trying desperately to keep the true scope hidden. (Ditto in China.) The debt will get renounced, and debt as the "engine of growth" will also be renounced. Europe is an inept 3-card monte player attempting to swindle the money gods. The gods aren't fooled by such shallow shuffling games, in fact they are greatly annoyed that humans even dare to attempt such flimsy tricks. Their wrath is building, and human hubris will only make the reckoning worse.
And to think, some people think I'm pessimistic!
Since the derivatives and housing market implosion of 2008, America and the rest of the world has been spiraling down a chasm some in this country still refuse to take note of. The question has never been whether there “will be” a full scale financial disaster. The end to that chapter of this story was already written years ago. Rather, the real question has been “when” will this inevitable event culminate? Sadly, speculation on the matter has met an irreconcilable road block. The fact is, all the necessary elements are in place to bring down our fiscal shelter not in five years, not in one year, not in six months, but today. That’s right…..the economy as we know it has the potential to derail completely before you wake up for your morning poptart. Some skeptics might shrug off this statement as mere sensationalism for effect. I wish that were the case. Frankly, I would enjoy writing a little fiction for once. The truth is far too bizarre and disturbing lately. In the case of economics, traditional views and standards have gone completely out the window in a way that I and probably every other analyst in the field have never heard of or encountered. All expectations are now null and void. Manipulation of the marketplace is no longer a subversive and secretive process, but open government and central banking policy! Who could have guessed five years ago, for instance, that U.S. taxpayers would be saddled with bailouts of the EU? Who could have predicted that global stock market psychology would be dominated for over a year by the debt drama of a country as economically insignificant as Greece? And, who could have foreseen that destructive fiat stimulus policies would soon be common knowledge events amongst the citizens of various faltering nations?
- Mario Monti was handed the task on Sunday night of forming an emergency government led by technocrats
- The Italian/German 10-year government bond yield spread widened despite a well-bid BTP auction from Italy, as concerns surrounding the Italian debt remained in focus
- According to IFR, European banks are planning to dump more of the EUR 300bln they own in Italian government debt. Also, president of the European Banking Federation said that Europe’s banks need to keep dumping Italian banks
- The EFSF denied a Sunday Telegraph report that it spent more than EUR 100mln buying its own bonds after failing to achieve its funding target as a sale last week
- The Swiss economy minister warned against exerting pressure on the SNB to weaken the currency
- Obama to China: Behave like "grown up" economy (Reuters)
- President Hu: US woes not yuan-related (China Daily)
- U.S. readies defenses against Europe spillover (Reuters)
- Another one discovers that Gross is in fact net: Euro Risks Hit Banks (WSJ)
- Global security trumps economics at APEC conference (Washington Post)
- New Italian, Greek governments race to limit damage (Reuters)
- Asia a priority for Canada after U.S. delays Keystone (Reuters)
- All major economies headed for slowdowns: OECD (Reuters)
- Japan Ends Recession as Quake Scars Heal; Outlook Dim (Guardian)
- Bundesbank warns against intervention (FT)
If there is one thing one can say about the insolvent European continent is that despite everything, it is a bastion of truth, and a knight of see-thru disclosure. After all, who can forget such brutally honest statements as "Greece will not default", or the follow ups: "Ireland is not Greece", "Portugal is not Ireland", "Spain is not Portugal", "Italy is fine", "Italy has turned down money from the IMF", "The IMF has never offered any money to Italy", and then the old standbys, "the ECB will not be a lender of last resort", "the EFSF will use 4-5x leverage", wait, make that "the EFSF will use 3-4x leverage", and last but not least, "Europe is not America" and "it is all the fault of evil CDS speculators." Well we have one more to add to the list: "the EFSF is not an illegal ponzi scheme" - because after the mindboggling report in the Telegraph yesterday that the EFSF has bought hundreds of millions of its own bonds, exposing the scam in the heart of the Eurozone for anyone to see, the European rescuer of last resort (at least until the ECB comes out monetizing and Eurobonds are issued)has no choice but to join in the parade of truths and as Reuters reports "said on Sunday that it did not buy its own bonds last week, denying a British newspaper report that it spent more than 100 million euros ($137 million) to cover a shortfall of demand. "The EFSF did not buy its own bonds and the book was 3 billion euros," an EFSF spokesman said, referring to the 3 billion euros raised in last Monday's 10-year bond issue." We are certain that in order to dispel rumors about its fraud-i-ness, the EFSF will promptly submit a full breakdown of the entities that received bond allocations (we know that Japan is good for €300 million, that China is good for €0.0, and that as Merkel said one week ago, "hardly any countries in G20 have said they will participate in the EFSF." So, because we believe everything that comes out of Europe, we are patiently waiting to see just who it was that bought EFSF bonds when nobody else did. And yet what is most troubling to us, is that it took the world 5 minutes to completely agree that the EFSF is a ponzi scheme, with nobody doubting this supposedly "refuted" disclosure for even a second. Perhaps that tells you more about the current state of Europe than anything else...