America is a "Mickey Mouse economy" that is technically bankrupt, according to Jochen Wermuth, the Chief Investment Officer (CIO) and managing partner at Wermuth Asset Management.
"America today looks like Russia in 1998. Consumers, companies and the government are all highly indebted. America as a result is a bankrupt Mickey Mouse economy," Wermuth told CNBC.
The Fed has spent the past three years on a route of aggressive rate cuts and purchases of trillions in various securities but it is running out of measures it can take, Pimco's co-CEO Mohamed El-Erian told CNBC.
Wermuth is a fund manager heavily invested in Russia and says if the same International Monetary Fund (IMF) team that managed the financial crisis in the former super power in 1998 now turned up at the US Treasury, they would withdraw support for current US policy immediately.
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"The big evil for the IMF in Russia in 1998 was the prospect of the central bank funding government debt. The Fed is now even buying mortgage-backed securities," he noted.
"Even before the (Troubled Asset Relief Program) and the expansion of the Fed's balance sheet, total US public and private debt as a percentage of GDP in the US stood at 290 percent, that figure is now far higher," Wermuth added.
"US credit risk is huge and America has two options, either default or let the currency depreciate substantially against currencies such as the yuan and the rouble," he explained.
"Last night's news from the Fed simply creates the right conditions for dollar weakness and a reduction in US liabilities to foreign investors and governments," Wermuth said.
Thursday 15 July 2010
Seeing there’s been quite a bit of interest in my recent comments on CNBC about the historical parallels between the Great Depression and the recent financial crisis, I thought it may be appropriate to elaborate further on the chart technicals behind the observation.
The causes may have been different, but the collapse of the U.S. markets in early 2008 followed the same behavioral patterns as the collapse in 1929. The recovery pattern seen in 2010, is also very similar to that developed in 1930.
CLICK ON GRAPH TO ENLARGE
Dow Monthly 1929-1930
The crash of the Dow Jones Industrials in 1929 was signaled by the development of a well defined head and shoulder pattern, seen most clearly in its monthly chart. It is a reliable pattern that captures the behavior of investors who are becoming increasingly disillusioned about the future prospects for economic growth.
The downside pattern targets in the 1929 Dow were exceeded with a fall of around 49% before the market recovered in 1930. The 2008 dow pattern targets were also exceeded with a market fall of around 52%.
In 1930, the market developed an inverted head and shoulder rebound pattern recovery that led to a 46% rise in the market. The Dow rebound in 2009 also developed from an inverted head and shoulder pattern. This was a powerful rise of around 69%.
The lines have been drawn. Whose side are you on? Photograph: Alex Amengual Weary and bramble-scratched, elated by the press coverage, and sick of riot vans and lukewarm Spanish omelette baguettes, we return from Bilderberg 2010 with the following thoughts uppermost in our tired mind:
• 'Global cooling' is on the cards
Check out the agenda for Bilderberg 2010: "Financial reform, security, cyber technology, energy, Pakistan, Afghanistan, world food problem, global cooling, social networking, medical science, EU-US relations." That list is a window into your future. Don't think for one minute that it isn't. And don't ignore it, because it isn't ignoring you.
I love how "social networking" must fry the Bilderbergian mind. On the one hand, as Zuckerberg of Facebook says, privacy is no longer a social norm so it's okay to milk the networking sites for information, social trends and dissident thinking; however, you can't stop the people from arranging a meet-up to discuss internet censorship or the rights and wrongs of "global cooling". Speaking of which, Bill Gates (Bilderberg 2010) is funding "cloud whitening" technology; trials start soon. Global dimming isn't just something that happens every time Big Brother starts. On the basis of this agenda, I think we can expect a lot of statements about cutting-edge cloud-technology trials in the next 12 months. If it works in Dubai, it can work in Britain too...
• You can't keep a good story down
If I had to pick the point when Bilderberg finally broke through into mainstream news, it would be when the BBC News Blog published a round-up of Bilderberg reports. Twelve months ago, this would have been barely conceivable. This year, Kissinger must be spitting chips.
• People love their 'leaders'
I know this sounds peculiar, or at least it does to me, but this year's Bilderbloggings have quite commonly been met with outrage at the idea that we should submit Bilderberg to greater scrutiny. You hear people talk about the delegates at Bilderberg as their "leaders", and you see the delegates mythologised as the greatest and the best – whose benign Olympian machinations should progress untroubled by the interference of public and press. "Leaders" like the CEO of Royal Dutch Shell, and the chairman of Kissinger Associates Inc.
I'm baffled to the point of punching tree trunks to witness the determination of some folk to throw themselves in front of these heads of corporations and presidents of banks and to wave their arms protectively, yelping: "Leave them alone! Let them strategise for the good of the world in peace! How could they possibly have a frank discussion with our politicians if we were privy to it? Stop this unseemly prying!" I mean, seriously. The day that Marcus Agius, chairman of Barclays, strategises for my good is the day he repays me the hundreds of pounds of bank charges he's been levying on me since my schooldays. The day that Peter Voser, CEO of Royal Dutch Shell, sits around a table with the express concern of making the world a better, more beautiful place for all of us, is the day that my arse grows teeth and eats my hat.
Do this: Look at the list of participants and ask yourself one simple question: what's their bottom line?
• I'm on a list
One afternoon, towards the end of the conference, my wife and I chanced upon some of the Bilderberg organisers out on a two-limo trip to the seafront. We recognised them from our stay at the hotel before the conference began. We went up and asked them if they could confirm the names of British delegates attending this year's meeting. In horror, they jackknifed from the promenade, back into their limos, one of them cackling weirdly and holding her handbag to her face. Another snatched a camera from the footwell, and started snapping my face as I snapped hers. You can see me give the thumbs-up in the photo. So, if I wasn't before, I'm now on Bilderberg's least wanted list. What a bore. Bilderberg snaps back: my face is on its way to Leiden HQ. Photograph: Charlie Skelton Maybe they'll write me nice letter, asking me to cease and desist. Or maybe ... maybe it's best I state now, for the record: I'm not a communist, a fascist, a racist or a petty thief. I didn't steal that laptop, I didn't photograph those children, I don't mutilate horses. I didn't sleep with that prostitute. I don't believe in UFOs. I don't have sketchbooks filled with drawings of the Houses of Parliament on fire. I don't hate progress. I am not possessed of vile feelings towards the Dutch, the Spanish, the Jews, the Mormons, the Welsh, or anyone on earth except Peruvian folk musicians. I'm not into S&M. I've never paid anyone to hose me with custard, or tread on my testicles in six-inch heels. I don't spend Friday nights in a gimp suit. I'm not an adult baby. I *did* make a porn film once, but it wasn't a very good one. Too much plot.
I'm not manically depressed, delusional, bitter towards the world, a brooding failure, a collector of SS regalia, obsessed with one particular local weather reporter, or suicidal. I didn't raise my voice. The steps of the police station weren't slippy. I don't want to kill bankers or string up politicians. I don't want to overthrow the government. I wouldn't mind if there were fewer talent shows on TV, but it's nothing that's likely to spill over into bloodshed. I'm not wearing a bra. I haven't had sex with a turkey.
• People aren't angry enough
There were 130 people up the hill, chugging sangria and strategising. And down at the foot of the hill, on the other side of the riot vans, about 130 people with flags and cameras. My God, that's depressing. In a world that, by any estimation, is a hard, gruelling, unfair place to billions of humans, in which assets are being grabbed, wealth is being relentlessly centralised (the Bilderbank, Goldman Sachs, has just notched up its best ever quarter, in which George Osborne so kindly lets us choose our own "austerity measures" – in such a distressingly cocked-up world, 130 of us made it all the way to the Spanish seaside to say: "Maybe what you're strategising up there isn't working out for the best."
Perhaps there would have been more, but people have got other things on their mind: they're behind on their mortgage payments, saving up for a wedding, saving up for a divorce, saving up for a holiday that doesn't involve being detained by policemen, disenchanted by CamCleggian sameness, hotly engaged in local politics, knackered, sick, drunk, or Spelbound (in the Britain's Got Talent sense of the word). They're furious enough that Robert Green let that goal in, never mind anything else. Where's the headspace to be concerned about Bilderberg?
Bertrand Russell saw it coming. He saw a world in which "any serious criticism of the powers that be will become psychologically impossible". I'm surprised you've even got time in your day to have scrolled this far down.
• One person can make a difference Last year, I wrote about my visit to Vouliagmeni to see what Bilderberg was all about. It wasn't a happy trip. But in my final piece I asked people to come along in 2010 and help sprinkle the "slug" of Bilderberg with the "salt" of publicity. About 10 or so people took me up on this. Of these 10, one was "Quierosaber", the brave fellow who crawled into the hills before sunrise, with leaves wrapped around his head, and took photos of the delegates (see our Spot the Delegate quiz, and our Bilderberg 2010 Power Gallery). In one of his photos appeared Gordon Campbell, the premier of British Columbia. The Canadian press started asking questions, and discovered that he'd paid for his plane ticket to Bilderberg using public money.
Sure, Campbell was on the quietly published list of attendees, but the difference between a list of names and a photo is incalculable. So there we have it: accountability, transparency, and none of it possible without people like Quierosaber packing a knapsack at 4am, wrapping laurel leaves round a borrowed camera and hiding under brambles.
• There's an awful lot of unelected 'advising' in the world
One of the participants snapped by Quierosaber is the glacial senior fellow of the Hudson Institute, Marie-Josée Kravis, (wife of Henry Kravis, head of private equity megafirm KKR). The tax-exempt Hudson Institute is a US "thinktank" which has a clearly stated aim: "We seek to guide global leaders in government and business." It's funded by good and wise people like Monsanto, DuPont, Pfizer, McDonald's, General Atomics, IBM, Proctor & Gamble, and Conrad Black (Bilderberg attendee and currently guest of Florida correctional institution).
The Hudson Institute was set up by the Rand Corporation (which had previously been set up by the Douglas Aircraft Company to advise the US military). In a nutshell, that's who Marie-Josée Kravis works for, and that's who George Osborne spent Bilderberg 2006, 2007, 2008 and 2009 listening to. In the words of Aretha Franklin: who's zoomin' who? And who the hell asked these foundations for their guidance in the first place? Stop issuing reports! Stop thinktanking! Stop presenting "well-timed recommendations to leaders in government". Mind your own unelected business for a change. And pay some tax while you're about it.
• There's still no answer to the big question
I'd like to quote the prime minister, David Cameron (Bilderberg, 2008): "Greater transparency is at the heart of our shared commitment to enable the public to hold politicians and public bodies to account … It's your money, your government, you should know what's going on. So we're going to rip off that cloak of secrecy and extend transparency as far and as wide as possible."
In the spirit of secret cloaks being ripped away, it seems reasonable to ask: does the secretive "private meeting" of Bilderberg, which takes "one-third" of its participants "from government and politics", have any effect at all on our domestic and international policies? Does this fantastically media-shy group that has our brand new lord chancellor, Kenneth Clarke QC MP, on its inner steering committee, does this four-day conference, with its agenda and its lanyards and its side-meeting seminar rooms, does it serve to influence the way our country is run? Or is that a bit like asking: Does Amy Winehouse like a drink?
Explicitly top of Bilderberg's agenda this year is "financial reform". Present at this year's conference: Paul Volcker, chairman of Obama's economic recovery advisory board. Just after Bilderberg, Obama warns of massive layoffs of teachers, police and firefighters. Also present was Portugal's finance minster, Fernando Teixeira dos Santos. Portugal has just voted through an emergency package of tax hikes and public spending cuts. Was any of this discussed in the financial reform sessions? If not, what was discussed?
If Bilderberg doesn't influence public policy, then why is it four days long, and why does it spend €10m protecting the sanctity of its discussions? Why hold it at all? What a waste of busy people's time! And if it does influence public policy, then by what twisted logic is public money being spent keeping it secret? And why, in this publicly protected secrecy, should Klaus Kleinfeld (disgraced former CEO of Siemens AG) and Dieter Zetsche (the chairman of Mercedes-Benz), and James A Johnson (board member of Goldman Sachs, member of the trilateral commission, member of the Council on Foreign Relations), have the ear of our politicians?
Cameron wants us to have the answers to these questions. As he says: "It's your money, your government, you should know what's going on." So we ask: How much British public money has been used to police Bilderberg? Who's putting the request in to MI5? Who's paying for the watermelons? Does the Bilderberg Group have an accounts book? Could we see it? Could someone ask Ken Clarke for a copy? Isn't it about time the Daily Telegraph got involved? Are taxpayers paying for the riot vans? Or are corporations hiring police forces as private armies to stand guard over a private meeting?
These questions are exactly as stupid and exactly as important as asking whether Sir Peter Viggers bought his own duck house. These are questions about political process that deserve simple and straightforward answers, not the scorn of idiots for asking them.
• It takes longer to get from Sitges to Santander than you might think
I missed the ferry home. And not even by a whisker. I was a good 100km out in my estimate. There was shouting and recrimination on a rain-sodden Basque motorway. I can't believe I didn't do what the VP of Fiat did and come by private jet.
• There are only 358 shopping days till Bilderberg 2011
Maybe you think there's nothing to worry about here. Maybe you think Bilderberg isn't a public-private travesty of secrecy and lies. Maybe you see nothing odd in Tony Blair (Bilderberg 1993) lying to parliament about going. Maybe you think this is how "important stuff" gets done, how geopolitics should be conducted. Maybe you think it's okay that a representative of the Hudson Institute, which campaigns against organic food and is funded by Monsanto, should be locked in a conference centre for four days discussing the "world food problem" with Joaquín Almunia, the EU commissioner for competition. Marching off into the sunset: but they'll be back again for Bilderberg 2011. Photograph: Alex Amengual Maybe you look at the world and think it'll all be okay tomorrow because, for you at least, it's sort of okay today. Maybe you see "social networking" and "cyber technology" on Bilderberg's agenda and you aren't concerned. Maybe you don't think Peter Mandelson's rushed-through digital economy bill had anything to do with his attendance at Bilderberg 2009.
Maybe you don't see an irony in the individual getting screwed and screwed again by the same corporations and bailed-out banks who are so forthcoming with their advice for our politicians. Maybe you don't feel like you're getting shafted. Or maybe you've just got numb. There are plenty of other things to worry about in the world. Serious things, like health and poverty and terrorism. And anyway, the people up the hill in Bilderberg will sort it out for us. They're clever people. They're experts. They just spent four days talking about "medical science" and the "world food problem". They're on it. We can relax.
Or maybe you think it would a good thing to keep the Bilderball rolling. The massively increased coverage of this year's Bilderberg didn't just "happen". People made it happen. People emailed photos to press agencies, rang up friends who worked for newspapers, gave interviews to camera crews, and a local lawyer whose wife was giving birth to twins gave pro bono advice over the phone. So here's an idea: maybe you were given a telephoto lens three Christmases ago and you've never had cause to use it. Maybe you're not sure we should start bombing Iran just yet. Maybe you're a fan of "greater transparency", and fancy taking Cameron up on his pledge "to enable the public to hold politicians and public bodies to account". Maybe you'd like to meet some of the sharp, savvy, committed, interested people I've met this last week. Maybe you'd like to be one of them.
Borrow a tent, set up a YouTube channel, start saving now for the flight. Email us on bilderberg2011@yahoo.co.uk. Let's add a zero to the end of 130. And let's put an end to the lunatic, inappropriate, expensive and undemocratic secrecy of Bilderberg.
George Soros, a billionaire and philanthropist, was accused of masterminding the financial plot, the goal of which is to send the European currency, the euro, down.
The scandal connected with the plot against the euro started gathering pace last week after Soros published an article in The Financial Times. The billionaire wrote that the euro may not survive the current economic crisis. He said that he was not going to take part in the affairs on the currency market and would concentrate on investments in gold instead.
The crisis, Soros believes, unveiled serious flaws in the economic structure of the European Union. The countries of the euro zone were forced to rescue their banking systems individually. Some of the EU members, like, for example, Greece, could not handle the problem well. There are also Spain, Italy, Portugal and Ireland, the financial problems of which may trigger another crisis in the region. Soros concluded that the euro would most likely collapse if no decisive measures were taken.
It goes without saying that European officials did not like such statements at all. Soros passed from words to deeds: Soros Fund Management and several other large investment funds started selling the European currency very aggressively. The situation raised serious concerns with the prime ministers of Greece and Spain – the countries that were in need of the EU’s support most.
Their concerns were not groundless. In 1992, Soros succeeded in organizing a major currency speculation which triggered the collapse of the British pound sterling. The Wall Street Journal wrote that the reduction of the cost of the euro to the cost level of the US dollar was like the deal of life for stock exchange operators. Such affairs make billionaires.
Alexander Osin, a chief economist with Finam Management, said that the euro does not enjoy the best time of its history at the moment.
“In the long term, it will be difficult for the European states to pay their debts. They will of course take measures to support the currency, which may eventually result in its growing rate. But the growth will not cancel the debts. Unlike the USA – many countries work for American debts – Europe is left to itself. The future of the dollar looks much more stable than that of the euro at this point,” the expert said.
Sunday 24 January 2010
In late 2009, former Merrill Lynch economist, now with the Canadian firm, Gluskin Sheff, said the following:
"The credit collapse and the accompanying deflation and overcapacity are going to drive the economy and financial markets in 2010. We have said this repeatedly that this recession is really a depression because the (post-WW II) recessions were merely small backward steps in an inventory cycle but in the context of expanding credit. Whereas now, we are in a prolonged period of credit contraction, especially as it relates to households and small businesses."
Summarizing his 2010 outlook, Rosenberg highlighted asset deflation and credit contraction imploding "the largest balance sheet in the world - the US household sector" in the amount of "an epic $12 trillion of lost net worth, a degree of trauma we have never seen before," even after the equity bear market rally and "tenuous" housing recovery likely to be short-lived and illusory with a true bottom many months away.
As a result, consumer spending will be severely impacted. "Frugality is the new fashion and likely to stay that way for years," highlighting a secular shift toward prudence and conservatism because households are traumatized, tapped out, and mindful of a bleak outlook. It shows in new consumer credit data, contracting $17.5 billion in November, the largest monthly amount since 1943 record keeping began.
Surprisingly, only people over age 55 have experienced job growth. All others have lost jobs, can't get them, and for youths the "unemployment crisis (is) of epic proportions." In addition, there's a record number of Americans out of work for longer than six months, in part because the "aging but not aged" aren't retiring, and those who did are coming back, of necessity, to make up for wealth lost.
Rosenberg stresses that for a sustainable recovery to begin, the ratio of household credit to personal disposable income must revert to the mean and reach an excess in the opposite direction. In the 1950s, it was 30%. Today its 125%, down from the late 2007 139% peak, with a long way to go taking years, and when it's over, another $7 trillion in household credit will have to be extinguished.
Until he retired in 1992, Robert Farrell was a highly respected Merrill Lynch market strategist and theorist, best remembered for his "10 Market Rules to Remember." Number one was that "markets tend to return to the mean over time." Number two was that "excesses in one direction will lead to an opposite excess in the other direction," and number nine was that "when all the experts and forecasts agree -- something else is going to happen."
According to a November National Association of Business Economics (NABE) survey, 48 top economists expect the US economy to grow 3.2% in 2010 even though the job outlook is bleak. Overall, they're so optimistic that only 15% want more stimulus, 40% said leave the present package in place, and the other 45% want the amount approved but not spent cut because it's not needed. At the same time, according to Investors Intelligence, market sentiment is at the highest level since December 2007, shortly after equities peaked, headed down, and world economies began to crator.
In his January 5 commentary, David Rosenberg notes that "Sentiment is wildly bullish....almost every survey is overwhelmingly constructive," yet reviewing 2009's market performance in the face of economic fundamentals "almost wants to make you believe in the tooth fairy." He explained that "small business (still faces) a credit quagmire," there's no housing recovery, and household spending is retrenching and hunkering down for the long haul.
The latest US nonfarm payroll report provides more confirmation. Although the headline number was a modestly anemic -85,000, Rosenberg called it "horrible" because its details showed consistent weakness. As a result, he estimates a more accurate "465,000" December decline, based on what's occurring at the small company level "where the trend in orders, output, sales and employment" has been dismal.
Importantly, economic sectors sensitive to the business cycle actually "cratered" in December, "which flies in the face of the overwhelming view that this recession has fully run its course." Also disturbing was that while "temp help" gained 47,000 jobs, its fifth straight increase, full-time employment "plunged" 647,000 last month, a clear sign that no one is hiring, especially small businesses that do most of it.
The reason headline U-3 unemployment held steady at 10% was because the labor force plunged by 661,000, the sharpest (discouraged worker) decline in nearly 15 years. The broader U-6 unemployment is 17.3%, and economist John Williams (shadowstats.com) calculates it more accurately at 21.9% by excluding manipulated changes for more valid figures. He estimates about 500,000 December job losses, not the sanitized U-3 number. He also says that a "major double-dip downturn should be obvious by mid-year."
According to Tax Commissioner Cory Fong:
North Dakota has been able to weather the economic crisis. "While other state governors and legislatures are looking for ways to raise revenue through raising taxes and cutting services, we just came through a historic session of funding both our important priorities and substantial tax relief....The winners are families, businesses and the State of North Dakota," because it's unique in one important respect.
It's the only one with a state-owned bank (The Bank of North Dakota - BND) that sustains its distinctiveness and strength. As a result, it had the nation's lowest unemployment rate of 4.1 at year end 2009 and created jobs throughout the crisis.
Established in 1919, it's been a "credit machine" ever since, according to financial writer Ellen Brown, delivering "sound financial services that promote agriculture, commerce and industry," something no other state can match because they don't have state-owned banks.
With one, BND "create(s) 'credit' with accounting entries on (its) books" through fractional reserve banking that multiplies each deposited amount magically about tenfold in the form of loans or computer-generated funds. As a result, the bank can re-lend many times over, and the more deposits, the greater amount of it for sustained, productive growth. If all states owned public banks, they'd be as prosperous as North Dakota and be able to rebate taxes and expand public services, not extract more or cut them.
Brown explains that the BND:
"chiefly acts as a central bank, with functions similar to those of a branch of the Federal Reserve," that's neither federal or has reserves as is owned by major private banks in each of the 12 Fed districts, New York by far the most dominant with Wall Street's majority control and a Fed chairman doing its bidding.
