Arrivederci Silvio Ciao Mario
Posted by jdavis on November 11, 2011
One Greek Prime minister Out. A new one in.
The same in Italy.
Without the electorate having a say in it…
Anyway, to more Earthly matters, the stock markets.
It seems to me that the vultures are circling. However, the vultures are necessary requirements of capitalism – losses. You cannot have an economy where malinvestments make money every time and for years. Someone has to pay. The losses will be on the reckless bank loans to profligate, corrupt and crony governments, namely Greece and Italy.
When they announced what would – eventually – happen to Greek loans i.e. 50% losses for the lenders (the international banks) I wrote there was scepticism. The losses will likely end up closer to 100%. I Tweeted a few days ago that the Greeks will have to accept austerity for 9 years to take Greece to where Italy is now. The Greek position is wholly untenable. Then we have Italy.
This is an interesting read: Telegraph: Italy's debt crisis doomed by corruption, bloated bureaucracy and poor productivity (Take a look at what he says of the Govt cars and chauffeurs.)
Do people seriously believe that bailing out these countries (well, in fact, the lenders to these countries) that suddenly a whole society of corruption and crony capitalism and pork barrel politics is going to be radically altered?
Of course they won’t. It would take decades.
Italy’s debts are so large IT IS IMPOSSIBLE TO SOLVE. Thus we can expect major printing (trillions of €uros) by the European Central Bank.
However, that will cause the collapse of the €uro [when you produce more of something it becomes less valuable] which will likely trigger the collapse of the stock markets. This is increasingly likely to happpen 2012 or perhaps into 2013 though 2012 is the more probable.
Thus, our view remains that there will be a collapse next year AT LEAST AS BIG AS 2008. Then banks were going bust. Now, it’s governments.
Short term the stock market can go higher or lower. The S&P topped out, in May this year, at 1370. It started falling hard at 1350. As I have written, that is just about the top as far as I can see for a long time, and it can be revisited in the next weeks or a few months. Indeed, it may happen on the push of the button to print.
However, the euphoria would likely be very short lived. I refer you to the mere 48 hour euphoria of the recent Greek bail out. The realisation that it would decimate the €uro and involve massive losses on banks would quickly take over.
So, we continue to preserve capital until – as we believe – prices collapse then we will be like kids in a candy shop. Many assets for sale will be priced sweetly…
In that scenario expect costs of living to rise again, as well as unemployment. Expect house prices to continue falling albeit more sharply than now.
Not to worry, the bankers will be OK.