Friday, September 30, 2011

Preparing for the mega crash

The morose weakness of basically each and every investment item across the board along with the confusion and mistrust and anger and fear that swirls around the globe make the brew for the mega crash to happen. It's time to go short just about on anything you can short.

Wednesday, September 28, 2011

Just as expected

U.S. stock futures rose, indicating the benchmark Standard & Poor’s 500 Index may extend the biggest three-day advance in a month, amid mounting speculation policy makers will contain Europe’s debt crisis.
Comment: While most commentators continue with their lamentoes and false prediciton of a Greek default and the demise of the euro and the end of the world, markets are already sensening that the worst has passed - at least for a while.

Feldstein's simplistic world view

Europe’s high-risk gamble

Sep 27, 2011 10:33 EDT
By Martin Feldstein
The opinions expressed are his own.
The Greek government needs to escape from an otherwise impossible situation. It has an unmanageable level of government debt (150% of GDP, rising this year by ten percentage points), a collapsing economy (with GDP down by more than 7% this year, pushing the unemployment rate up to 16%), a chronic balance-of-payments deficit (now at 8% of GDP), and insolvent banks that are rapidly losing deposits.
The only way out is for Greece to default on its sovereign debt. When it does, it must write down the principal value of that debt by at least 50%. The current plan to reduce the present value of privately held bonds by 20% is just a first small step toward this outcome.
If Greece leaves the euro after it defaults, it can devalue its new currency, thereby stimulating demand and shifting eventually to a trade surplus. Such a strategy of “default and devalue” has been standard fare for countries in other parts of the world when they were faced with unmanageably large government debt and a chronic current-account deficit. It hasn’t happened in Greece only because Greece is trapped in the single currency.
Comment: At least when it comes to the euro, Feldstein obviously can't go beyond simplistic textbook analysis. He lacks completely any insight what the euro is about. He neither has the historic understandig nor does he possess the imagination to foresee the true consequences of his suggestions. In this respect, of course, he is not alone. I guess this is what makes him so popular in his profession, unfortunately so.

Tuesday, September 27, 2011


Markets continue in more relaxed mood. Precious metal are out for a while. Fear has receded. Optimism concerning Greece is on the rise. Expectations grow that Europe will bring its act together. Nevertheless, the feeling is not yet gone that somewhere a black swan is hiding.

Monday, September 26, 2011

Déja vù all over again

Washington Post: With time running out, Congress returns Monday to try to pass a short-term funding measure to avert a government shutdown and avoid yet another market-rattling showdown over the federal budget. 
Comment: A government shutdown will come anyway, sooner or later.

Gold price takes a break

Gold eyes biggest 3-day fall in 28 years, investors flee

LONDON (Reuters) - Gold was set for its biggest three-day loss in 28 years on Monday, as investors fled commodity markets in a scramble to secure cash in the face of mounting fear over the impact of a potential Greek debt default on the rest of the euro zone.
Comment: The fall of the gold price is no surprise. On the contrary: the retrenchment of the gold price falls fully into my expectations. The main strategy has been to opt out of the market for some time. Parking money in yen and euros has been my preferebde. I guess that the time is not yet ripe for new positions. Maybe later this week one may consider going short the stock market and back in long for gold.

Sunday, September 25, 2011

Saving Greece

Euro zone leaders seem very much close to an agreement how to help Greece out of its doldrums, avoid further contagion and prevent default of any of the PIIGS.
The euro is on its way to recovery. It's risky to bank on a default of Greece.

Euro rescue advances

Euro Gains as Officials Consider Rescue Fund

The euro held gains against the dollar as European governments explore accelerating the start of a permanent rescue fund for their economies, easing concern a sovereign default will trigger a wider financial crisis.

Thursday, September 22, 2011

Crash or mega crash?

Panic has engulfed the market. For quiet some time it has been our strong recommendation to sell and go on sailing or fishign or play golf or otherwise have a good time with the money that was left. There isn't any safe haven around anymore. Even gold is a precarious metal. It makes no sense to see your portfolio dwindle into the void. Even holding cash is risky. After all, all that really matters is to live well. So let's do it. There is always a chance to come back.

Wednesday, September 21, 2011

No default

I believe that it is unlikely that Greece will default. The stakes are too high for Greece and for the rest of the euro gang. Too much money and prestige have been invested banking on a rescue. The major obstacle was not the Greek government but the lack of readiness of the Greek people to bear the burden. Now, so it seems, the Gordian knot is cut, and the Greek government is about to succeed in applying a spartanian program of cuts into the welfare state. A necessary lesson was taught for the rest of euro zone and well beyond as well. The welfare state is dead. It has died in Greece, ex oriente lux.
Nevertheless, one must also consider the possibility that the plebs will have its say after all. In Greece the fate of the Western world will be decided once again.

Debts and deficits

Source: The Economist

Taking advantage of extreme valuations

Greek Bonds Fall as EU Plans Further Talks; German Notes Rise

Greek government bonds fell for a third day as the European Union said officials will return toAthens next week after three days of telephone consultations failed to produce a solution to the country’s debt crisis.
Yields on German two-year notes, perceived to be amongEurope’s safest securities, dropped toward a record low as Greece’s newspaper Imerisia said labor unions were considering a strike against government austerity measures. Ten-year bunds were little changed after Germany sold the securities at an average yield below 2 percent for the first time. Portuguese notes fell as borrowing costs increased at a bill sale.
“There’s no incentive at the moment to jump back into riskier assets” and sell German securities, said Eric Wand, a fixed-income strategist at Lloyds Bank Corporate Markets inLondon. “The threat over the next couple of months is going to be for continued risk off, and core paper will have its buyers into any weakness.”
The Greek two-year yield climbed 123 basis points to 65.41 percent at 1:12 p.m. in London, according to data compiled by Bloomberg. The 4 percent security due in August 2013 fell 0.445, or 4.45 euros per 1,000-euro ($1,365) face amount, to 42.135. The 10-year yield rose five basis points to 23.29 percent.
Comment: The current valuations seem out of whack. It may be worthwhile to consider the sale of German bunds in favor of buying German stocks and buy some Greek euro debt in exchange of US debt.

Putting Italy's debt in perspective

From the WSJ: "... Marco Fortis, an economist who has long been seen as a precious ally of the government and an effective advocate of Italy in the court of market opinion, on Tuesday decried what he called Rome’s “lost credibility,” even describing it as Italy’s “real deficit.”
Citing Aesop’s Fables in a front-page article in Il Sole 24 Ore, the country’s leading business newspaper, he compared Italy to the grasshopper, saying “it’s not going overboard to say that Italy in one brief summer wasted all the credibility it had built up” since the collapse of Lehman Brothers in late 2008.
Mr. Fortis, who heads the Edison Foundation think tank in Milan, leveled his harsh judgment just days after Deutsche Bank, for example, came around to accept some of his ideas.
Mr. Fortis for years has emphasized that Italy’s total debt, including household and business debt, is on far sounder footing than readings of its sovereign debt data alone imply, and that the total increase in that debt has been far more modest than other countries, including the U.K. and France.
Italy’s overall debt is 283% of gross domestic product, compared to 225% for Germany, 256% for the U.S., 298% for France, 299% for the euro-zone average, 309% for the U.K., 347% for Spain and 429% for Japan, according to a Deutsche Bank report published Friday..."
Comment: Taking the judgement of rating agencies seriously is more hazardous than believing in astrology.

Monday, September 19, 2011


The world is in turmoil. Confusion rules. The world is too complex to be managed. Governments can't rule any more. We're closer than one might think to the great divide. The old world is about to go, the new world hasn't yet appeared. Don't look back. The past gives no clue about the future. Watch the future unfold out of the present.
When finally the bonds come crashing down, more wealth than anyone could imagine will evaporate. The great wealth circus is coming to an end. After the showdown more tranquil times will come again. That's what most people really want. Abolish the Fed, eliminate debt, privatize money, and we'll get one step closer to peace on earth. 

Saturday, September 17, 2011

Is it really all over, baby blue?

The Coming Collapse: “We Can Buy Time, But We Can’t Change the Outcome”
Comment: The crisis is in the head, and there's no cure for the mentally ill. Madmen in authority rule the world.

Thursday, September 15, 2011

All PIIGS are not equal

Slaughtering the PIIGS

Sep 14, 2011
By Ian BremmerThe opinions expressed are his own.
Nobody likes to be called PIIGS. For years, Europe’s so-called peripheral countries — Portugal, Italy, Ireland, Greece and Spain — have complained about this acronym, but the euro zone’s sovereign debt problems have only entrenched it further. Yet, it’s time to acknowledge that the PIIGS have a point. They don’t deserve to be lumped together. Their actions and their circumstances have sharply diverged over the past three years.
Full text
Comment: The world can't do it if the Greeks don't want to do it. Spain and Portugal and Italy do it and they'll make it. The biggest problem down the road, won't be Greece nor Spain nor Portugal nor Italy but rather Ireland with the Irish wanting to do it but being unable to do it.

Wednesday, September 14, 2011

The long good by

(Reuters) - Are Generation X and Generation Y investors ready for a baby boom beating? As the first wave of that pig-in-a-python generation - the 79 million Americans born between 1946 and 1964 - move into retirement, experts warn a boomer stock sell-off could cause equity valuations to plummet, likely sending the portfolios of young investors into a tailspin.
"The peak of the valuation in U.S. equities was 10 years ago," says T. Doug Dale Jr., an adviser with Security Ballew Wealth Management in Jackson, Mississippi. "Valuation levels are coming down. You have a lot of baby boomers selling off assets as they need to liquidate for retirement and that will further exacerbate the decline in valuations."
Comment: It may probably take another twenty years or so for the next big buying opportunity for stocks to come.

Credit crunch ahead?

(Reuters) - European finance ministers have been warned confidentially of the danger of a renewed credit crunch as a "systemic" crisis in euro zone sovereign debt spills over to banks, according to documents obtained by Reuters on Wednesday.
Comment: The Greek fiasco was a comedy at first, a drama later on and is becoming a tragedy now.

Tuesday, September 13, 2011

Buiter gets it right

From The Economist:

In this context, all the talk of Greece's euro exit doesn't help. One might assume that a Greek exit would "lance the boil" and allow the other countries to deal with their own problems. But as Willem Buiter of Citigroup points out in a private research note (hence no link)
Greece's exit would create a powerful and highly visible precedent. As soon as Greece has exited, we expect the markets will focus on the country or countries most likely to exit next from the euro area. Any non-captive/financially sophisticated owner of a deposit account.... will withdraw his deposits from countries deemed at risk - even a small risk - of exit. Any non-captive depositor who fears a non-zero risk of the future introduction of a New Escudo, a New Punt, a New Peseta or a New Lira would withdraw his deposits at the drop of a hat and deposit them in the handful of countries likely to remain in the euro area no matter what - Germany, Luxembourg, the Netherlands, Austria and Finland.
The funding strike and deposit run out of the periphery euro area member states (defined very broadly) would create financial havoc and most likely cause a financial crisis followed by a deep recession in the euro area broad periphery. 

Monday, September 12, 2011

Rally ahead?

I would not be too surprised if we had a rally in stocks from now on to mid-October.
Euro is poised for recovery.

Markets about to turn

Market ends up in late rally

Outook is bleak

Things are getting worse by the hour. We're running into the mess in a straight line. The authorities behave like a bunch of chickens that were let loose. The public opinion is silent, while the most prominent pop economists spread their wrong theories. Anytime soon confusion will turn into desperation. The time of denial is ending. The world is in for a brutal reality check. And it all will get really worse once hyperinflation lifts its monstreous head. It will be only after destruction has done its work that mindfulness will return and a sound monetary system will be implemented and the state will be reduced to its minimum and finally done away with. The lesson will be learnt that the state has no substance other than its propaganda machine, and democracy is a competition that is won by that candidate who is most able to hide his incompetence.

Saturday, September 10, 2011

Liar or blinded by illusions?

Obama: U.S. stronger 10 years after September 11 attacks

8:35pm EDT
WASHINGTON (Reuters) - President Barack Obama said on Saturday the United States was stronger 10 years after the September 11, 2001, attacks and Americans would "carry on" despite continued threats against their safety. | Video
Comment: Where does this guy live? From which planet did he come? Does he belong the human race, after all? Does he believe what he says? Who is this man who's called the "president of the US" - surely he is strange to say the least. Is it true that his wife is even worse?

Empty promises

Papandreou Pledges to Avoid Default

Prime Minister George Papandreou said he’ll fight to avoid a default and keep Greece in the euro, as resistance builds to extending more aid to the European Union’s most-indebted nation.
The government’s top priority is “to save the country from bankruptcy,” Papandreou said in a speech in the northern Greek city of Thessaloniki last night. “We have taken the decision to fight to avoid a catastrophe for our country and its citizens: bankruptcy. We will remain in the euro. And this meant and means difficult decisions.”
Comment: You can't change a country's political culture overnight.

Downgrade ahead for French banks

French Banks Poised for Moody’s Downgrade

BNP Paribas (BNP) SA, Societe Generale SA and Credit Agricole SA (ACA), France’s largest banks by market value, may have their credit ratings cut by Moody’s Investors Service as soon as next week because of their Greek holdings, two people with knowledge of the matter said.
Comment: All government debt is junk.

Friday, September 9, 2011

Turmoil in euroland

THE ECONOMIST about a chaotic day

Sep 9th 2011, 17:41 by R.A. | WASHINGTON
FOR the past year, Europe has been in more or less constant financial and economic trouble, but there are moments when the problems seem worse than normal, and this is one of those moments. On Thursday, new data revealed that Greece's economic collapse over the past year was deeper than originally thought. The Greek economy shrank 7.3% in the year to the second quarter. And Greece is still under pressure to come up with additional budget cuts in order to hit its fiscal targets. Rumours have been flying about progress with Greek's debt rollover, and some sources suggested that a Greek default might occur over the weekend. That looks false. Denials are coming from all corners, and it's not clear what the immediate trigger for a default would be. It's yet another sign of shaky nerves, however.
Those nerves were tested today upon the announcement of the resignation of European Central Bank Chief Economist Jürgen Stark. Mr Stark's departure was not expected, and it was apparently prompted by his opposition to the ECB's bond purchase programme. The ECB has been purchasing tens of billions of euros of Spanish and Italian sovereign debt in order to calm markets. Mr Stark's resignation is a testament to the deep divisions over the policy within the ECB, and a sign that Europe may not be able to count on ECB commitment to bond purchases.
With the ECB's ability to continue purchases in question, markets sank, debt spreads widened, and the euro plunged. Were Spanish and Italian debt yields to rise sharply again, the future of the euro zone itself would be in doubt. Europe's response should be to provide the European Financial Stability Facility with the funds necessary to carry out emergency bond purchases; more than €1 trillion may be needed, all told.
Full text 

Financial markets in panic mood

Stocks sank, while the euro slid to a ten-year low versus the yen and a six-month low against the dollar, as concern grew about Greece’s debt crisis. European bank and sovereign credit risk reached all-time highs as 10-year Treasury yields fell to a record.
Comment: Irrationality is moving towards its peak.

Wednesday, September 7, 2011

Swiss join currency war

Swiss Open Fresh Round in Currency War Ignited by Global Economic Slowdown

By Simon Kennedy and Emma Charlton
Switzerland opened a new round in a global currency war as fading economic growth forces policy makers to step up efforts to spur expansion.
The Swiss National Bank’s decision yesterday to cap the franc’s rate for the first time since 1978 marked a bid to protect trade hurt by the currency that last month strengthened to records against the euro and the dollar. The franc plunged 8.1 percent yesterday against the euro, the most since the creation of Europe’s single currency. It was little changed at 1.2058 per euro at 10:53 a.m. in London.
The initiative may leave Norway and Sweden vulnerable to unwanted gains in their currencies as countries such as Brazil and Japan fight to limit appreciation amid a flight from the euro debt crisis and near-zero U.S. interest rates. With Group of Seven finance chiefs set to hold talks this week, it also exposes the clash among policy makers counting on exports to offset slumping demand at home.
Backgrounder: Antony Mueller: "What's Behind the Currency War?"

Tuesday, September 6, 2011

Swiss franc

Swiss draw line in the sand to weaken franc

ZURICH - The Swiss National Bank shocked markets on Tuesday by setting an exchange rate cap on the soaring franc to stave off a recession, discouraging investors anxious about flagging global growth from using the currency as a safe haven. Full Article
Comment: In fact, it was only a quesiton of time until the Swiss franc was to be "euroized". Imagine what would have happened to the former DM in the face of the financial turmoil of the past couple of years. The euros has been a great stabilizer -- and the present troubles are small compared to most other alternatives. As long as the world is not yet ready to go for free banking based on gold, we must favor non-national currencies on the way to a future with a truly sound money.   

Japanese currency interventions