And Back To The Inferno

From Mark Grant, author of Out of the Box

And Back To The Inferno

 

“There is nothing wrong with being scared; it is what you do when you are scared that is essentially important.”

                                   The Wizard

It was in the fall of last year when one of the largest money managers on the planet wrote to me and said that business would be scarce as I had scared him sufficiently. I have thought about this repeatedly since then. As I look down the long road from our present position I ask myself, “Did I scare him enough,” because I fear I did not. It was around the same time that I predicted the ten year Treasury was going to 1.25%; a number that draws ever closer as Europe comes unglued which will just be the first step to falling apart.

I have predicted many things since I took my first step on this path in January 2010 when I said that Greece was going down. I later marked the exit for Ireland, Portugal and predicted Spain which is just about to fulfill my observation. Solvency is never solved by liquidity and austerity in a recession only makes the recession worse. There is talk, this morning, that the Spanish Central Bank Governor is the fall guy for the government as he is resigning and leaving his post early but this may not be the reason at all for his departure. There are whispers that he does not wish to preside over the Central Bank when Spain is dragged by economics to the bastion of remorse and extends its begging cup in hopes of nourishment. There is also talk that outside auditors are coming to examine the banks’ books and that the valuations for the Spanish Real Estate  and construction loans may not be, how shall I put this, Kosher.


“Truth hurts. Maybe not as much as jumping on a bicycle with a seat missing, but it hurts.”

                                  -Naked Gun

The backdrop for all of this should also be squarely in your sights. The world came out of the American Financial Crisis based upon the expansion in the monetary supply. A huge amount of the stabilization since then and one giant reason for the corporate profits that we have had in America has been based upon this stimulus and this is largely ignored in the press which credits everything in the world but the stimulus for our better economic conditions. Consequently we all should square off with the reality that is now clearly in our sights and that is NO MORE STIMULUS. The Fed has stopped, the ECB has quit and China is paddling in the same boat so that everyone’s expectations should be curtailed by the facts; the stimulus in the world has ended and it is to be sink or swim now based upon fundamentals and not the largesse of the world’s central banks. Neither do I think they will be back anytime soon and if any one of them returns it will mark an exaggerated decline in economic conditions that will signal a severe impairment and it will not be a cause for joy rather a cause for the reintroduction of Fear that we are all about to enter the gates of Dante’s Inferno once again.

Hell is where the chefs are British, the mechanics French, the lover's Swiss, the police German and it's all organized by the Italians.

The newly elected President of France ran and was elected based upon any number of positions that fly squarely in the face of the yet to be approved European Fiscal Pact. Brussels will then, following the German dictates, condemn France and try to fine them for their indescretions which will set the stage for any number of confrontations that I predict are about to come between France and Germany. There will be no Merkollande or Hollandkel in the world’s future but a quite contentious battle between two opposing views that will weaken the glue further. The talk of growth coupled with austerity may ring as a believable strategy  in the most general of terms but the actualization of it is just about impossible given the positions of Germany and France which are in diametrical opposition. It is the rock and the hard place and no one is going to move much because the difference between the two positions will not allow for it either on the world’s stage or at home where the national political landscape will determine just who is left standing at the end of the day. It can be said with certainty that the contrivances of the European Union has not been kind to local governments as I predict soon a leader to emerge in Germany who waves the national banner of the Rhineland in opposition to Mrs. Merkel and her grand plans of integration; channeled in the German tradition of course. It will be the repeat performance of Kennedy’s famous comment, “I am a Berliner,” except that the words will be exploited by some person born and flourishing in the Republic.

You know the something is really, really wrong when the best rapper is a white guy, the best golfer is a black guy, the tallest guy in the NBA is Chinese, the Swiss hold the America's Cup, the Pope is German, Europe's central banker is Italian, France is accusing the U.S. of arrogance and Germany doesn't want to go to war.