THE FAT LADY IS CLEARING HER THROAT
By Mark Grant
Once at a social gathering, Gladstone said to Disraeli:
"I predict, Sir; that you will die either by hanging or of some vile disease…"
"That all depends, sir, upon whether I embrace your principles or your mistress."
We have reached a point where the shepherd has shouted “wolf” one too many times, where the theatre goer has shouted “fire” one too many times and the crowd no longer believes the jargon and is standing pat. From one politician to the next in Europe the words are strikingly the same; “bold actions, courageous decisions, decisive plans” which are meant to stoke the propaganda machine and assure the world that all is well.
We face a world where contingent liabilities, promises to pay and guarantees of debts are NOT counted and where asset guarantees, illusionary firewalls and unfunded rescue programs ARE counted and in some cases counted more than once. Europe has, in fact, provided a complex system of hoaxes, inaccurate data and false financial reports that have been for the most part believed but that belief system is now crumbling as every quarter presents new data that proves the inaccuracy of what we have been told.
In America we are also suffering from a hoax; just one of a different variation. The notion that the United States, myopic in its vision, will escape the quite real recession in Europe and that there will be a decoupling of some sort is the same fantasy to be found in Cinderella and here comes the Prince to whisk you off to the castle. There is no fairy godmother coming to save us and I am afraid we are bound to labor for our wages just like everyone else. Recession in Europe will bring recession to China, will bring recession to America and just get it through your heads and plan accordingly.
Every country in Europe is in a recession except Germany and I can virtually guarantee you that Germany will be in one soon as they cannot avoid the contagion any more than America can. Germany and the United States, best of class in their own way, will be the last to suffer the slings and woes of misfortune but we will suffer from them in the end. The past monetary easing by the Fed and the ECB helped to delay it all but we are at a point now where any new easing won’t do much. This is because of our interest rates being at almost zero and where do you think we are going; citizens and institutions paying the government to hold our money? No, I don’t think so and this, coupled with plenty of liquidity now in the world so that any new injection of liquidity will provide only a very momentary buoyancy so that easing, any type of easing, will do very little to stop a decline in equities, a widening of credit spreads, a rise in Treasury prices and all of the other things that one finds in a recession which will be more severe than predicted by most and so the world, along with Europe, is meeting reality and will find it a quite unpleasant experience.
If the American experience taught us anything it should be first that looking backward, when facing a financial decline has about the same benefit as dipping your body in the Ganges River and hoping for salvation. In a recession what was will not be and all of your attention has to be shoved forward to look at what will come and not what has come.
Treasuries are the needle on the speedometer and if there is one clear indication of very serious trouble ahead you can read it there.
The fat lady is about to sing. If you don’t wish to listen then don’t show up later and say I didn’t warn you.