Author : John E. Charalambakis
Date : April 14, 2014
What a week! It had everything. The Greek bond offering was oversubscribed four times while the Chinese bond auction failed! This is great, isn’t it? Greece is the new China. The problem is that China is a bubble, and we all know that sooner or later bubbles burst. The equity markets (especially the technology and biotechnology sectors) suffered significant losses with the Nasdaq having lost 8% in the last three weeks. In the meantime my Russian taxi driver Mr. Nitup keeps telling me that they stand ready for another show in Eastern Ukraine, thus I suggested that they should hire Mr. Spielberg for the special effects.
Let’s take those things in the order presented above, and hence start with the “successful” Greek bond offering. Where is the success?
Needless to say that I could go on and on, but there is no need, because it’s about a show and realists do not care about shows but about real things. It seems that we have forgotten that real things such as productivity, capital investments and the like, affect real things such as income and employment levels. Manipulated things such as interest rates, money illusion (especially fiat money illusion), accumulation of debt and the like, can only affect manipulated things such as public opinion polls, bond prices, and statistical scores.
How in the world a country that experiences negative growth borrows at a rate that far exceeds its growth prospects for the next two years? We teach this principle to second-year college students. If things are truly turning around why the rush to borrow more now, rather than wait until rates drop more? Wasn’t it debt that drove the country bankrupt? Is the solution more debt?
How in the world Greece borrows more now, and then in October plans to demand debt restructuring of its existing debt? And how in the world investors fall for that, unless it’s about a show orchestrated by manipulation? Cui bono?
Really, who benefited from the Greek bailout and the “successful” recapitalization of Greek banks? Was it maybe EU banks, EU politicians, Brussels (the epitome of inefficiency and bureaucracy), and especially some Northern EU banks whose stake in the Target2 program is in the hundreds of billions of dollars?
Isn’t it a fact that if true market forces had prevailed in Greece, major EU banks would have gone bankrupt and the dysfunctional currency a.k.a. Euro would have ceased to exist?
Could it be the case that the “successful” Greek bond offering was done for the sake of politics? Could it have been driven by fear that a major upset in Euro-elections in Greece and elsewhere would shake up the political landscape of those who designed and executed a manipulative economic and monetary system that suffers from the complete absence of economic and monetary anchors?
Why so much concern for ephemeral shows of monetary manipulations (a.k.a. building on sinking sand)and no concern for real things? For how long could the people take placebo treatments? Are the major beneficiaries then of the Greek bond offering the political status quo in the EU? If it is, it might be time the shake up and rock the Casbah (the old citadel that protected the privileged ones).
Now, let’s see what is happening in China. If I could review the Chinese developments over the course of the last year, I would say that five things have emerged:
In the midst of these all, China failed last Thursday to raise $28 billion in new debt issuance facing a market demanding higher yield. That Casbah has started been shaking.
Now, as far as the trajectory of the markets is concerned I would note the following:
Having said the above, we do not deviate from our long-standing position that unless fundamental changes take place in the next two-three years, the forces of global debt, global unfunded liabilities, global derivatives schemes and structures, and the absence of anchors in the system will align themselves in a crisis that could become the mother of all crises.
Let’s close with our friend Mr. Nitup (See “A Discussion about Crimea and Russia in St. Petersburg“). Mr. Nitup seems that did not appreciate the Eagles lyrics (hint: get over it, the Eurasia dream is dead) and in his utopian fantasy-world asked for another song. Bob Dylan’s Senor lyrics came to mind, dedicated to bonehead mentality:
Senor, senor, can you tell me where we’re heading? Lincoln County Road or Armageddon ? Seems like I been down this way before Is there any truth in that, senor ?
Is it proper to close by making a request?
Mr. Nitup, could you please turn off that pipeline that goes to Ukraine? It could be the dream that comes true! It could truly mark the beginning of a New Day!