Large Sarge
22nd August 2011, 04:46 PM
Mexico Mike
Break point coming up fast
Hi Bill!
I just wanted to make a macro observation on the market set up, based on how I see things coming down. I think the big move in the markets is coming soon. I know a lot of people are expecting that things will muddle along until the usual crisis window is wide open in late September or early October - two of the most bearish and volatile historical months. I have never doubted some form of intervention would be announced, call it QE3 or whatever stimulus or spending plan they choose. I also understand the political undertones in the US with an election pending will influence the timing of that announcement. However the rate at which the situation is in decline worldwide will require the intervention to happen soon.
This boils down to the big banks. There are many large banks worldwide that are self-contained ponzi schemes. They publish earnings statements and carry certain assets on the balance sheet that have appraised values which seem to demonstrate stability. The problem is that most of these assets are impaired to some degree and may not have anywhere near the real value they are carried at, and therefore the backing for these banks is dangerously thin. By bullshitting the market into thinking there is plenty of asset value on the books, the banks can pretend they are making money and repairing the damage from the crisis in 2008. However, the losses are real whether the impaired assets are written down or not. You have a painting of 3 dogs playing poker, and you can say it is the Mona Lisa and pretend its worth something, but at the end of the day it is not. The ponzi comes down to stripping down loan loss provisions and declaring this new money as 'earnings' when it is most important to be increasing the provisions for the day when these impaired assets go sour. Sooner or later those properties carried near book value are going to have to be foreclosed on and the recovered value will be much, much lower. The losses are coming.
The slow motion train wreck of impaired assets may become critical within days however due to liabilities from European banks to sovereign bond issues. Like the US banks hiding their losses on sour mortgage paper, the Euro banks are in serious trouble with their leverage to Greek, Portugese, Italian, and Spanish bond paper. And probably in over their heads with exotic derivative products that are also going to drain capital very quickly as the losses mount. Any of the big Euro banks going bust will probably have systemic shocks worldwide, as we saw with Lehman Bros. Someone is going to have to step up and make the announcement to backstop this latest crisis with a big bailout package.
To my mind it comes down to two possible outcomes:
A) No intervention is announced and we get a meltdown
This of course would be the last straw to the global economy and I can hear the motorcycles warming up now for the Mad Max world that will come shortly after.
B) A major intervention is announced to ensure the big banks can function
We get a massive short covering rally and the commodities go on to new highs.
The kicker to all of this is that when faced with the choice of crisis today or crisis postponed to the future, the administration has always chosen to put things off and make problems a little worse but delay the final day of reckoning. There are few arrows left in the quiver
for the Central Banks but printing money is the least toxic of all the bad options. Sure the inflationary consequences are severe, but compared to a potential collapse the decision is easy.
The difficult part has been to create the political cover necessary to allow for yet another massive bailout plan. This is why the markets have been churned to such volatility and the PPT has been standing back to allow for a managed crisis in the markets. By letting things
go to hell and taking the markets to the brink of breakdown, it is likely that the FED will be able to emerge as the backstop of last resort yet again, and not face the criticism from other nations that simmered after QE2. Obama has no chance of re-election if the markets meltdown here. I think its a slam dunk that hand-picked administration hacks will do whatever it takes to protect their meal ticket and try to engineer yet another false recovery by any means necessary. The next intervention is coming and it will have to happen soon to prevent a real collapse that would be even worse than 2008.
I have been invited to review a mining project in Africa on Sept 10th. I think I will decline the trip on the simple fact that I cannot afford to be away from my computer during that time frame. I, sincerely believe there will be a fortune to be made within 2 weeks and maybe within days, to play the upside recovery bounce when the pinheads in charge do the easy thing and print a lot more money. Or, the world may be in flames by then and the last place I want to be is in Africa. We live in interesting times, don't you think?
Cheers!
MexicoMike
Break point coming up fast
Hi Bill!
I just wanted to make a macro observation on the market set up, based on how I see things coming down. I think the big move in the markets is coming soon. I know a lot of people are expecting that things will muddle along until the usual crisis window is wide open in late September or early October - two of the most bearish and volatile historical months. I have never doubted some form of intervention would be announced, call it QE3 or whatever stimulus or spending plan they choose. I also understand the political undertones in the US with an election pending will influence the timing of that announcement. However the rate at which the situation is in decline worldwide will require the intervention to happen soon.
This boils down to the big banks. There are many large banks worldwide that are self-contained ponzi schemes. They publish earnings statements and carry certain assets on the balance sheet that have appraised values which seem to demonstrate stability. The problem is that most of these assets are impaired to some degree and may not have anywhere near the real value they are carried at, and therefore the backing for these banks is dangerously thin. By bullshitting the market into thinking there is plenty of asset value on the books, the banks can pretend they are making money and repairing the damage from the crisis in 2008. However, the losses are real whether the impaired assets are written down or not. You have a painting of 3 dogs playing poker, and you can say it is the Mona Lisa and pretend its worth something, but at the end of the day it is not. The ponzi comes down to stripping down loan loss provisions and declaring this new money as 'earnings' when it is most important to be increasing the provisions for the day when these impaired assets go sour. Sooner or later those properties carried near book value are going to have to be foreclosed on and the recovered value will be much, much lower. The losses are coming.
The slow motion train wreck of impaired assets may become critical within days however due to liabilities from European banks to sovereign bond issues. Like the US banks hiding their losses on sour mortgage paper, the Euro banks are in serious trouble with their leverage to Greek, Portugese, Italian, and Spanish bond paper. And probably in over their heads with exotic derivative products that are also going to drain capital very quickly as the losses mount. Any of the big Euro banks going bust will probably have systemic shocks worldwide, as we saw with Lehman Bros. Someone is going to have to step up and make the announcement to backstop this latest crisis with a big bailout package.
To my mind it comes down to two possible outcomes:
A) No intervention is announced and we get a meltdown
This of course would be the last straw to the global economy and I can hear the motorcycles warming up now for the Mad Max world that will come shortly after.
B) A major intervention is announced to ensure the big banks can function
We get a massive short covering rally and the commodities go on to new highs.
The kicker to all of this is that when faced with the choice of crisis today or crisis postponed to the future, the administration has always chosen to put things off and make problems a little worse but delay the final day of reckoning. There are few arrows left in the quiver
for the Central Banks but printing money is the least toxic of all the bad options. Sure the inflationary consequences are severe, but compared to a potential collapse the decision is easy.
The difficult part has been to create the political cover necessary to allow for yet another massive bailout plan. This is why the markets have been churned to such volatility and the PPT has been standing back to allow for a managed crisis in the markets. By letting things
go to hell and taking the markets to the brink of breakdown, it is likely that the FED will be able to emerge as the backstop of last resort yet again, and not face the criticism from other nations that simmered after QE2. Obama has no chance of re-election if the markets meltdown here. I think its a slam dunk that hand-picked administration hacks will do whatever it takes to protect their meal ticket and try to engineer yet another false recovery by any means necessary. The next intervention is coming and it will have to happen soon to prevent a real collapse that would be even worse than 2008.
I have been invited to review a mining project in Africa on Sept 10th. I think I will decline the trip on the simple fact that I cannot afford to be away from my computer during that time frame. I, sincerely believe there will be a fortune to be made within 2 weeks and maybe within days, to play the upside recovery bounce when the pinheads in charge do the easy thing and print a lot more money. Or, the world may be in flames by then and the last place I want to be is in Africa. We live in interesting times, don't you think?
Cheers!
MexicoMike