Doc has persuasively argued that:
- Greece will create a domino effect (PIIS) leading to a withdrawal of Germany from the Euro, the collapse of that currency, with attendant disruption of global financial markets: debt, derivatives, equity.
- Budget deficits and the sovereign debt explosion in the US and the rest of the developed world would lead to monetary devaluation with attendant economic stasis and deflation.
- The Chinese property bubble and opaque lending practices will impair growth in Asia.
- The Middle East (where they make nothing but oil), and Africa (where they can afford nothing but Chinese investment), have nothing to add.
Its a pretty bleak -- but also realistic -- picture.
So what if the worst never comes to pass? What if the can gets kicked down the road to the satisfaction of everybody -- except the folks at Zero Hedge?
What if Europe muddles through; the US becomes a destination for the best scientific and technical minds, financial and hard asset investment; China continues to grow at 8% and keeps building cities, bullet trains and everything else; the ME democratizes with a youthful, social-democratic orientation; and Africa supplies raw materials and consumes high technology?
A rosy picture, to be sure...
So, what if we just muddle through on the middle path of slow global growth, continued technological innovation, periodic crises, regional conflict, corrupt politicians, greedy businessmen, richer rich, more educated, healthier, voracious, longer-living humans, more pollution, fewer species, substitution of one resource by another...?
In other words, what if the next century (decade, millenium) looks somewhat like the last? Is that so bad? Cant we still make a buck on the long side?
It will be like that scene in the Matrix movies where suddenly all the pedestrians on the street start turning into copies of Agent Smith. Only in this Portugal and Spain version, all the bankers start turning into Helicopter Ben.
..."It's OUR time now."
A couple of cleanup points: Greece is not going to bring down the Euro. What will bring the Euro down is Spain defaulting or Germany abandoning the Euro. I'd put the odds on year of this happening in 2013 but it may take a year or two longer.
<What if the can gets kicked down the road to the satisfaction of everybody>
First off, the can is growing and when it reaches the size of an oil barrel and you kick it, you are going to break your foot.
Kickng the can is the equivalent of using cash advances from a credit card to make minimum payments on your other credit card bills? Do you live that way or advise other people to? But because the world's government and central banks are using this method, it is okay?
I just follow the numbers. When Kyle Bass and Hugh Hendry opined that a 1% increase in interest rates causing Japan to default, I checked it out and saw that they were right.
As for why Spain is so set to default, I had to look a little deeper because their official debt to GDP ratios aren't that bad (they are actually better than those in the U.S.)
No, the problem in Spain is like Ireland. It is not government debt but banking debt.
For the full report of why that is, people can read this excellent report, http://tommyhumphreys.com/wp-content/uploads/2012/03/Hmmm-Mar-12-2012.pdf
That analysis is excellent.
That is good and I saw some of this 'Countries That Make You Go Hmmm' analysis in a recent John Mauldin letter.
Some excerpts that I found interesting:
Spain's public debt-to-GDP ratio is a relatively appealing 68%, Grant notes (that's just a little over half of Italy's, at 120%), but here's the rub:
"As manageable as Spain's public debt would appear to be at face value, her private debt is an altogether different story – standing at a staggering 227% of GDP and, according to McKinsey, Spanish corporations hold twice as much debt relative to their output as US companies and, in comparison to Germany, that number goes up to six times....
(UK Daily Telegraph): Spain is already planning to breach its budgetary targets, defying European leaders on the day they signed their historic fiscal pact.
Mariano Rajoy, prime minister of Spain, said the budget deficit would be 5.8pc of GDP in 2012 more than 30pc higher than the 4.4pc target agreed by Brussels.
In a move that was heralded in Spain as defiance against the German-led austerity drive, Mr Rajoy said he had decided to set a new target rather than extract €44bn (£36.6bn) from the budget at a time of economic crisis. Mr Rajoy said it was now a "sensible and reasonable" target. "This is a sovereign decision made by Spaniards," he said...
Mr Rajoy insisted the slippage was just on an interim target and Spain would still honour its commitment to bringing its deficit down to 3pc of GDP by 2013. But the announcement was seen as rebuffing other European leaders since the figures do not have to be confirmed until April.
(UK Daily Telegraph): The Dutch Freedom Party has called for a return to the Guilder, becoming the first political movement in the eurozone with a large popular base to opt for withdrawal from the single currency.
"The euro is not in the interests of the Dutch people," said Geert Wilders, the leader of the right-wing populist party with a sixth of the seats in the Dutch parliament. "We want to be the master of our own house and our own country, so we say yes to the guilder. Bring it on."
Greek is having an "orderly" default. The taxpayers of Europe are in theory going to lend €130 billion to Greece to pay back €100 billion in Greek debt that is owed to private lenders. Greece has to pass several difficult tests in order to get the money. €100 billion of debt to private lenders will be written off. Thus the net effect will be that they owe €30 billion more. How does this help Greece, except that they get €30 billion more they cannot pay?
The "new" debt is already trading in the market, even though it has not actually been issued. (Don't bother traders with messy details, just do the deal.) This page from Bloomberg [below, left] is just too delicious not to print, sent to me courtesy of Dan Greenhaus of BTIG. It shows the new Greek bonds trading at over a 71-79% discount, depending on the length of maturity. Note this is AFTER the 53% haircut already imposed. That reads to me like the market value of original Greek debt is now between 12 and 14% of the original face value.
Thanks, Doc. Love the Tommy Humpreys blog, analysis, presentation, provocation, everything...
I see that you, like me, do not believe in trickle-down economics. Corporations full of cash is good for them, but not for the working Joe. At least we can agree on that.
You say: *What will bring the Euro down is Spain defaulting or Germany abandoning the Euro. I'd put the odds on year of this happening in 2013 but it may take a year or two longer.*
I say: Cool. I hope to make 20%+ on my money between now and then. Please let us know when it happens, because it has been about to happen for a couple years now. Germany has been the architect of the preservation of the Euro. Maybe they will leave, but I doubt it.
You mention that: *...the problem in Spain is like Ireland. It is not government debt but banking debt.*
I say: So a few Spanish banks, a few Spanish builders, and a few misc. Spanish Corporations go BK. BFD. Spaniards will continue to buy iPhones and lots of other stuff. Most of the stupid debt holders will survive the trauma. The world will go on. If it happens, we will all be able to afford an apartment in Sitges, on the Costa Brava, near Barcelona... a really great place. Spain, Inc. may get F-ed, Sitges will survive. Someone, and not just Russians, will be buying there.
Tommmy H. seems to idolize James Grant, who thinks we should move to a *Currency that is based on a standard and not at the whim and the discretion of a bunch of mandarins...*
This is just ridiculous. I like and respect Grant, but he is a guru without a clue. Money is a collective illusion and the illusion is no less powerful for gold (or any other *standard*) than, say, the economic power that is the *standard* that underpins the USD. The USD is fine, inflation is contained, a weak Dollar is good for US corporations, anyway. If the US economy declines, then the USD should decline. We all hope that does not continue to happen.
The problem is, Americans do not have enough money to support the lifestyle that debt enabled. We need more good paying jobs and, yes, less government spending, fewer blood-sucking politicians, fewer skate-by 1%-ers. (The creation of liquidity, money, has been good medicine for the US economy. Inefficient government, tax-holidays for the rich, Government by Lobbyist, medical inflation, soldiers in Afghanistan -- these are leading us to ruin).
Meanwhile, US rates are rising slightly, as they should in an improving economy. US assets are exceptionally attractive and investors are responding.
Someone always thinks the sky is about to fall. And maybe it will again, since it really did fall in 2008. But, since then, the sky has been rising, not falling. When it falls again, we will all need to change course.
Meanwhile we should all be making money, long.
<<< I just follow the numbers. When Kyle Bass and Hugh Hendry opined that a 1% increase in interest rates causing Japan to default, I checked it out and saw that they were right >>>
Sure wish I has stayed with the YCS trade. I got impatient and sold it, been looking for a pullback that has not come along.
Something tell me to just jump in, because YCS could still run much further.
The piece didn't do this gold mine justice. The stores are strategically placed along major highways in state and have become 'the' place to take a break on road trips - at least for the kids.
The store in the video is half-way between Houston & Dallas. We had a trip to Dallas a couple of weeks ago and it was planned before we left the driveway to stop at Buccees for a break & snack. With the kids preoccupied w/ Ipads I kept quiet as we passed by on the way to Dallas. Darn near riot in the car 20 miles down the road when they realized I didn't stop. Of course we stopped on the way back. Returning Sunday evening, it was like Xmas shopping at the mall. Lines at the gas pumps, shoulder to shoulder in the store. But, bathrooms perfectly clean and store appropiately staffed. This guy created a monster.
Weighed down by higher-than-average unemployment, student- loan debt and concerns that the economy will continue to struggle, Americans 18 to 34 years old are increasingly reluctant to shop, according to researcher WSL Strategic Retail.
In 2009, households led by those younger than 35 had 68 percent less wealth than such households in 1984, according to a November Pew Research Center report. The share of employed 18-to 24-year-olds was 54 percent, the lowest since the government began collecting data in 1948...
The increasing frugality of young people also is disconcerting to the luxury market, because a 25-year-old who shops at Gap would traditionally shop at Tiffany & Co. (TIF), Nordstrom or Saks Inc. (SKS) decades later, ...
“We now have young people who aspire to own more middle- class houses instead of mansions,” “We have a group of people who are seeking only to live within their means.”
Well, living within means is good, especially if your prospects are not so good, right?
I saw the interview live wins.... loved it.
Sharp guy who knows the capitalist system. How anybody can think that Obama has does anything positive for the US economy since his inauguration is simply beyond me.
Not too sure about Zuckermans idea about a create another federal bureaucracy, but other than that idea... I like the guy.
Hi Musk, I had to check in after reading your post. Good to see you guys again! I arrived home to good market news for a change lol. Usually when I travel, I come back and the market has crashed lol...not today thank god!
I just got back from Houston. As we all know, Texas has fared quite well. Houston has just grown like a weed. Maybe I'm just getting a biased view of reality since I live in Texas, but I'm telling you, business is EN FUEGO around here.
Yes, even if the indexes just go sideways over the next century, I think there are still plenty of opportunities to make money by stock picking. I can't argue with that.
<<< What if the can gets kicked down the road to the satisfaction of everybody -- except the folks at Zero Hedge? >>>
To the satisfaction of everybody ? Maybe for you. I would guess more folks on this MB are in favor of reigning in debt and NOT increasing debt. Reigning in spending and NOT increasing spending.
Musk, you should be smart enough to figure out that you can't solve a debt problem by increasing debt.... C'mon.
<<< In other words, what if the next century (decade, millenium) looks somewhat like the last? Is that so bad >>>
Musk, I will remind you that the broad markets have gone nowhere for more than eleven years. I'm not concerned with what the market did in a millinium, I am concerned about the last 11 years.
Gold and silver performance compared to S&P
For me? Naw. The *everybody* I was thinking about is wall street, main street and the markets. In contrast to some folks, I really do not put that much weight on my own opinion. Mine is but a drop in the ocean of small probabilities and infinite possibilities.
You are correct: I AM smart enough to be NOT in favor of endless debt and deficits. As I have always argued: government spending has a role to play, but it should not be over-played.
Preventing a global melt-down and adding liquidity to a badly damaged financial system is an excellent application of governmental power. Giving the rich a free ride, over-promising on social security, health-care without limits, a standing army in the age of hi-tech weaponry -- those things are not so smart.
As for the last/lost decade: I am painfully aware of the results, but agree with Jaq... Under the surface there have been plenty of opportunities to make money in the markets for those with a bit of brain and common sense.
Cant we still make a buck on anything other than AAPL? I mean, we can all get rich on AAPL, LOL, but what about everything/anything else?
Today I went long OIH - Oil Services - and UYG, Ultra Financials.
This economic cycle is turning. Corporate profits are at an all time high, energy services are undervalued relative to Oil and the financial system is recovering from the worst crisis since the Great Depression. Even US residential real estate is firming. It is up from here.