Via Mark J. Grant, author of Out of the Box,
“Get It While You Can”
As we head towards December 31 and chaos I am reminded of the late Janis Joplin and her rather famous song. Investors are being hit from all sides now. We face the fiscal cliff and the quite real possibility that we will go over it, the debt ceiling and then we are assuaged by various tax and spending schemes, such as the possibility that Municipal Bonds will be Federally taxed and then we are likely to find that the Fed increases their buying program which will take their balance sheet up to about $4 trillion, right in-line with the ECB, as they buy $90 billion a month in Treasury and MBS securities. The stock market chugs along with their “What me worry” attitude first brought to us by Mad Magazine and we find ourselves in a world gone astray that is curtailed by ever increasing amounts of capital and the inability to invest off-world so that the available choices limit what can be obtained. As we head into 2013 the demand from the Fed, the expanded capital base and maturities and the payment of coupons and dividends will vastly exceed the available supply of bonds by somewhere around $1 trillion if the Fed acts as expected today. Treasury yields may go up on this day or that day but you can expect lower yields as the trend. Where all of this is having a dramatic impact is in risk securities or bonds with a credit consideration as part of the equation. There is massive compression taking place now and it has been going on since the Spring and I see no let-up in sight. The equation is buy long, buy at a discount if possible, sit, wait and Win. You will get the coupon and you will get appreciation and thank you very much Mr. Bernanke. Now there will come a time, an important moment, when you will have to turn on a dime with this play but it is not now, it is not yet and so we take the small advantages that we are given.
The Greek buyback went about as expected as Greece fell short, demanded the rest of the bonds from the Greek banks and came close to their goal. The deal will go through and then Greece will guarantee more of their bank bonds which will be pledged at the ECB and so the hoax continues but what else is new these days. It is not that Peter robs Paul; it is that Paul is a willing participant as long as the bread and honey keep flowing. For the time being the Germans, the French, the Dutch have no political issues with handing their citizen’s money over to Greece so the game will go on. It is not a forever game in my opinion but it is the game for now as Europe could not economically withstand a Greek default. It is a dangerous game, a tricky game but until there is a change in the political winds; it will continue.
Just because we are now in a world drowning in apathy do not think that this will go on forever. The problems have become magnified by the slush of capital thrown about by the world’s central banks so that when the bough breaks; it will be a systemic break. It will flash right across the world and we will have another “Oh My God” moment which, as I peer into the future, may come in the next year. Europe is now being dominated by the “have-nots” and the lone voice of the Bundesbank will be challenged as never before during the next twelve months. “More money” is the only thing keep the world’s economies afloat and the demand for “more money, more money” will be the hue and cry both in America and Europe. In the United States the re-distribution of wealth will be pressed by Mr. Obama and his minions as the socialization of America continues but we may find a backlash in the next elections with not an evangelized Tea Party but some new group demanding core fiscal and traditional American values where hard work and success are not derided and where “Rich” is no longer a dirty word. If the present course continues then not only will the rich be poorer but the poor will be poorer as those with money will no longer be able to afford the gimmickry of the country. The coordinated actions of the world’s central banks has caused our current dilemma and the same fiscal irresponsibility may one day end it. Yet it will not be today and it will not be tomorrow so the game goes on, the shirts get dirtier, the slop of newly minted capital keeps increasing and there is still nowhere to invest off-world and so we are constrained by the lack of choice. In the end probable revolt but for now; the rollercoaster plunge continues. Enjoy the ride.
“Well boys, we've got three engines out, we've got more holes in us than a horse trader's mule, the radio is gone and we're leaking fuel and if we was flying any lower why we'd need sleigh bells on this thing.”