Global Market Outlook September 2011
Global Market Outlook September 2011
Global Market Outlook September 2011
September 2011
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Keynes in the 1930s. His central premise was that business cycles
could be controlled through the use of fiscal and monetary policies.
Just think, if economic growth is a little slower than needed simply
cut interest rates a little, reduce taxes a little, and have your
government spend a little more money than usual. The result?
Stronger economic growth, more jobs, more investments and more
tax revenues. Just like that presto! Everything is fixed.
This new approach to modern day economics made sense at the time
and was obviously very appealing to everyone involved, after all how
could you not like a win-win-win situation?
The view taken by the Austrian school however is rather quite dull,
unexciting, uninteresting especially to anyone with master of the
universe ambitions. The rock solid foundation of the Austrian
approach is based upon the belief that human behavior is so
complex that entrusting important decisions to anyone with a brain
(and agenda) is completely unwise.
Instead, the Austrian school believes that the amount of money
available in the system is the primary cause of most business cycles.
In other words, do not try to control interest rates or spending levels,
instead simply focus on ensuring there is a steady amount of money
available for the real economy to function.
The main distinction between the 2 very different approaches, is that
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Chart 1: Excessive use of Keynesian economics created excessive Mortgage Equity Withdrawal
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Chart 2: Excessive use of Keynesian economics created the illusion of strong GDP growth
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leaked that their next version of Quantitative Easing will not consist
of trillions of more money printing, but rather a twisting of their
current balance sheet.
Its ok to be confused, after all the Fed is confused as well. Heres
what you need to know about QE3 - Operation Twist:
- QE1 printed $1.25 trillion and purchased bonds & mortgages
- QE2 printed $600 billion and purchased more bonds & mortgages
- All of these bonds and mortgages have maturity dates ranging from
1 year to 10 years
- QE3 Operation Twist will see the Fed selling bonds/mortgages with
maturity dates between 1-3 years and then use that money to buy
bonds/mortgages with maturity dates between 6-30 years.
Why do the twist?
The hope is that the act of buying bonds/mortgages with 7-30 year
maturities will in effect cause long-term interest rates to decline.
Lower long-term interest rates will make it cheaper for people and
businesses to borrow money. And when they borrow money they will
spend this money. And when they spend this money it will cause the
economy to grow. And when the economy grows, businesses will hire
more people. And when more people have jobs, they too will borrow
more money and spend this borrowed money.
Theres just one problem with this plan it didnt work when the Fed
tried it in 1961 and it wont work today in 2011. We are seeing
Einsteins insanity theory all over again.
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Chart 3: Excessive use of Keynesian economics is creating another illusion of stable income
Over 20% of disposal personal income now comes directly
from government handouts not from real wages/salary.
It is this generous form of Govt contribution that has
artificially increased consumer spending over the last 3 years
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Arghhhh be a pirate
are few other currencies in the World that deserve the safe-haven
status.
stops abruptly. The end result is very clear the safe haven
currencies in the World now consist if the reclusive group of the US
Dollar and the Japanese Yen. Yikes.
The real end result of course, is a real nice boost to gold as becoming
increasingly recognized as the only safe haven currency in the World.
Worse still, it has attached itself to the riskiest monetary union this
side of Tripoli. Linking with the Euro is equivalent to mooring up to
the Titanic after it hit the iceberg. Why would Mr. Hildebrand and the
Swiss National Bank defecate on the very fabric of Switzerlands
vaunted economic supremacy?
Merde Creek
France is not doing very well these days. French bank stocks have
plummeted over 60%, the cost of buying insurance against them
collapsing is soaring, meanwhile other banks and large multi-national
companies are pulling their money out. This combination makes it a
near certainty that France will lose its AAA credit rating.
Ironically, they have decided to destroy their currency with the hope
to make more money. As the Worlds debt crisis continues to spin our
of control, investors seek safe places to put their money. As a result,
billions of Dollars, Euros, Pounds and others are flowing into
Switzerland and buying the Swiss France. This action has caused the
Swiss Franc to soar in value. While this is good news for Swiss
tourists who want to personally witness riots in Athens, it is
downright bad for Switzerlands multi-national companies such as
Nestle, Xstrata, Novartis and others. Every time the Swiss Franc rises,
these exporting machines lose millions of dollars.
France losing its AAA credit rating, further complicates the European
bailout fund, EFSF. Absent the credit strength of France, more
pressure falls upon Germany. The health of Europe has always been
about the conviction of Germany to bail out everyone. In addition to
the fact that Germany doesnt have the funds available to bailout
everyone in Europe, one also has to consider the fact that in a recent
state election, the Pirate Party (yes, we said that correctly) received
9% of all votes. The last time we checked, pirates are not known for
any socialist tendencies.
Now, we could also talk about the absurdity of Greece, the nongovernments of Belgium, the blatant lying within the European Bank
Stress Tests, but when we introduce Pirates to the political theatre
we think we said weve said enough.
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governments pull up their socks, the tunnel remains very long indeed.
If youd like to chat further about our view and our unique investment
solutions, please feel to contact:
John Corney at [email protected] or
Keith Dicker at [email protected].
Thank you for sharing your time with us.
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