[Governments’ efforts to prop up the global economy have produced a recovery that’s done little to help the working man. In the commentary below, our friend Tom McCafferty, a veteran commodity trader as well as the author of some critically acclaimed books on the subject, thinks we’d all be better off if the recession were allowed to take its course. Regardless, he notes, there will always be opportunities for astute traders. RA]
Do you want to die from a massive heart attack, or a long drawn-out bout with cancer?
And … why do politicians always choose cancer? The obvious answer is that cancer, despite how ugly it is, keeps them in power. As long as they are promising to pump money into everyone’s pockets, like drunken sailors on shore leave after several months at sea, they believe they’ll be kept in power. And that is the their only reason for being.
But luckily we are traders and every ill wind brings us an opportunity. The one that is coming now is either a default or bailout for Greece for sure, and maybe for Ireland as well. If Greece is totally bailed out, all those bears shorting the credit derivatives will be wiped out. The bulls, if there are any, would be dancing in the isles, obviously the Greek Isles.
Ireland is in a similar financial state of affairs in that it is questionable whether they can meet the payment schedule required of them. The big difference between the Greeks and the Irish is that the Celts seem to be trying to solve their problems by making massive cuts to public services and increasing taxes. The Greeks seem to be fighting every attempt to cut back on their welfare state. As for taxes, most Greeks never bother to pay them.
The U. S. has nothing to brag about either. Instead of swallowing our medicine in our recent recession, we pumped as much money into the economy as we could to keep it afloat. We went as far as taking over General Motors and screwing their bond holders. The interest rate has been keep at unreasonably low levels for far too long. The result of all these distortions to our economy is stagnation for years to come. Which is better … heart attack or cancer?
Like Greek Tragedy
But the point of my message is simple. The EU will opt for the cancer, in my opinion. It will be slow, painful Greek tragedy, like something Euripides would have written. In the end, all the leading characters will be dead or have their eyes torn out.
My money is going to be on this crisis spilling over into the equity markets, which means it soon will be time to pick some choice puts. We are also heading into summer, which traditionally fields weak markets. Now is the time to dig out the old toga from our college days of wine and roses and get prepared to enjoy the latest rendition of Oresteia, Oedipus Rex, and the Trojan Women.
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John Jay writes:
“We have just spent thirty years handing over our factories, technology, and money to China, and now the military tells us China is a “Threat”.
If you are top-dog, then anything that might call that position into question is a threat from your perspective.
We are really behaving no differently here than the last top-dog, Britain, behaved, when it saw its position being “threatened”.
This happened about 120 years ago, when Britain realized, that a new, more succesful local entity, Germany, had, or was about to surpass it in those things that matter, ie: economic.
Lo and behold, the former, bumbling, non-threatening country cousin morphed into a threatening rival, then enemy, while the centuries old enemy, France, now second rate already, became a friend.
A threat subjectively to the top-dog? Yes.
But a true, objective, active threat?
Not then with Germany vs. Britain, and certainly not now with China vs. the US.
The Chinese have never had any interest in major world conquest, even when they had the economic, technical, human-resource superiority over just about anyone else.
In fact, when faced with a by just about all measures by far inferior, but more willing, ferocious, foe, they chose to cower behind walls, rather than muster all superiority to defeat that enemy.
That has not changed. China merely wants to be able to develop, and grow, and wants access to what it needs for that, but actively conquer the US?
Hardly, and not credible.
If a healthy competition is a threat, this is true, but that is not the way most people really think of a threat.
Brian writes:
“Tom see a decline in the stock market and Rick see a decline in the dollar. Is that possible??”
Your question seems to go off the assumption that when people are going to start selling their stocks (driving down prices) they will be increasing their demand for dollars (thus driving its price rel. to others up).
By that measure, the two situations would be squaring the circle.
However, it is the wrong way to look at it.
Because, the stocks vs dollars, one down, one up approach is merely a local phenomena, whereas the dollar itself going down is not.
To explain:
Think of the dollar as one boat in the sea (boat A), and the stock market as the other boat in the sea (boat B).
B is carrying the heavier load, so it lies lower in the water.
As cargo is being shifted from B to A, boat A sinks lower (because it is getting heavier), and boat B rises.
However, the sea itself is ebbing, so overall both are sinking.
That ebbing of the overall situation is the dollar declining in value, just not locally, and in the shorter term relative to the stock market.
So, the two supposedly exclusive conditions in your question aren’t so in fact.
Robert:
“hen the “cash is king” mentality takes over, I can’t understand why people would believe that encumbered debt is a great investment.”
Why indeed? You are right on the relative greater merit of staying with the lesser yield and risk of cash.
BUT:
The type of “cash”, bookkeeping entries really, that is to be held in lieu of bonds is irredemable itself, so encumbered just like bonds, less perhaps, but not unencumbered.