Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
How to Capitalise on the Robots - 20th June 24
Bitcoin, Gold, and Copper Paint a Coherent Picture - 20th June 24
Why a Dow Stock Market Peak Will Boost Silver - 20th June 24
QI Group: Leading With Integrity and Impactful Initiatives - 20th June 24
Tesla Robo Taxis are Coming THIS YEAR! - 16th June 24
Will NVDA Crash the Market? - 16th June 24
Inflation Is Dead! Or Is It? - 16th June 24
Investors Are Forever Blowing Bubbles - 16th June 24
Stock Market Investor Sentiment - 8th June 24
S&P 494 Stocks Then & Now - 8th June 24
As Stocks Bears Begin To Hibernate, It's Now Time To Worry About A Bear Market - 8th June 24
Gold, Silver and Crypto | How Charts Look Before US Dollar Meltdown - 8th June 24
Gold & Silver Get Slammed on Positive Economic Reports - 8th June 24
Gold Summer Doldrums - 8th June 24
S&P USD Correction - 7th June 24
Israel's Smoke and Mirrors Fake War on Gaza - 7th June 24
US Banking Crisis 2024 That No One Is Paying Attention To - 7th June 24
The Fed Leads and the Market Follows? It's a Big Fat MYTH - 7th June 24
How Much Gold Is There In the World? - 7th June 24
Is There a Financial Crisis Bubbling Under the Surface? - 7th June 24
Bitcoin Trend Forecast, Crypto's Exit Strategy - 31st May 24
Zimbabwe Officials Already Looking to Inflate New Gold-Backed Currency - 31st May 24
India Silver Imports Have Already Topped 2023 Total - 31st May 24
Gold Has Done Its Job – Isn’t That Enough? - 31st May 24
Gold Stocks Catching Up - 31st May 24
Time to take the RED Pill - 28th May 24
US Economy Slowing Slipping into Recession, But Not There Yet - 28th May 24
Gold vs. Silver – Very Important Medium-term Signal - 28th May 24
Is Gold Price Heading to $2,275 - 2,280? - 28th May 24
Stocks Bull Market Smoking Gun - 25th May 24
Congress Moves against Totalitarian Central Bank Digital Currency Schemes - 25th May 24
Government Tinkering With Prices Is Like Hiding All of the Street Signs - 25th May 24
Gold Mid Tier Mining Stocks Fundamentals - 25th May 24
Why US Interest Rates are a Nothing Burger - 24th May 24
Big Banks Are Pressuring The Fed To Losen Protection For Depositors - 24th May 24
Another Bank Failure: How to Tell if Your Bank is At Risk - 24th May 24
AI Stocks Portfolio and Tesla - 23rd May 24
All That Glitters Isn't Gold: Silver Has Outperformed Gold During This Gold Bull Run - 23rd May 24
Gold and Silver Expose Stock Market’s Phony Gains - 23rd May 24
S&P 500 Cyclical Relative Performance: Stocks Nearing Fully Valued - 23rd May 24
Nvidia NVDA Stock Earnings Rumble After Hours - 22nd May 24
Stock Market Trend Forecasts for 2024 and 2025 - 21st May 24
Silver Price Forecast: Trumpeting the Jubilee | Sovereign Debt Defaults - 21st May 24
Bitcoin Bull Market Bubble MANIA Rug Pulls 2024! - 19th May 24
Important Economic And Geopolitical Questions And Their Answers! - 19th May 24
Pakistan UN Ambassador Grows Some Balls Accuses Israel of Being Like Nazi Germany - 19th May 24
Could We See $27,000 Gold? - 19th May 24
Gold Mining Stocks Fundamentals - 19th May 24
The Gold and Silver Ship Will Set Sail! - 19th May 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Why is the Financial World So Messed Up?

Stock-Markets / Financial Markets 2012 Mar 02, 2012 - 02:51 AM GMT

By: Graham_Summers

Stock-Markets

Best Financial Markets Analysis ArticleWhy is the financial world so messed up? Because it’s run by Central Bankers. And those folks view money very differently from the businesspeople who actually create businesses, jobs, and wealth.

For your average Central Banker, the professional relationship between money and risk is a distant one. This has much to do with the fact that your average Central Banker is an academic, someone whose income has been fixed based on his or her status at a particular academic institution (tenure vs. non-tenured).


Consequently, there is virtually no direct correlation between a salary increase and risk-taking or innovation. In academia, politics and the number of one’s publications (which is also a highly political process) are what determine one’s income, status, and power.

Compare this to an entrepreneur or small business owner (who comprise 70% of jobs in the economy and whose efforts ultimately lead to the creation of medium and even large businesses). For this group of people, money and risk are very closely related: every decision they make concerning spending capital comes with the risk of the loss of said capital and subsequent damage to their business.

In this environment, one thinks about money very, very differently from those in academia. Income and salary are far from guaranteed. For many entrepreneurs and small business owners (particularly in this economy) the security of a bi-weekly paycheck is non-existent. Moreover, business capital, once lost, is very difficult to rebuild.

Mind you, I am primarily focusing on entrepreneurs and those who create and grow businesses here. Most managers at pre-established, medium to large enterprises tend to avoid taking risks as their focus is on climbing the corporate ladder step by step. Thus they tend to avoid taking large risks or engaging in much innovation as the career risk of failure far outweighs the benefits of success. Yet even for this group, the chance of losing money for their employer makes the relationship between money and risk palpable (unlike academics).

To return to our Central Bankers, once one leaves academia to join a Central Bank, the salaries remain fixed (though they can be quite high: the Swiss National Bank’s head earns almost $1 million per year vs. Bernanke’s $175K per year). Thus, one’s personal relationship towards money does not change dramatically in the sense that one’s salary is still fixed. The only difference is that one’s power and influence are now so great that many life expenses (travel, luncheons and dinners, etc.) are covered by various institutions and no longer come out of one’s own pocket.

However, on a professional level, your average Central Banker’s relationship to money has changed completely. Money is no longer simply a data input for a formula to be tested on economic models. It is now literally something that can be created out of thin air by the pushing of a button. And that money can be sent into the economy or banking system permitting a real-time real-world execution of one’s academic theories/ economic models.

One can only imagine the sense of entitlement and power this situation would create, particularly for those who have never worked in the private sector or started a business and thus haven’t participated in actual wealth generation.

I raise all of these issues because they go a long way towards explaining the unbridled arrogance of the ECB’s recent Greek bond swap. The details of the swap are as follows: the ECB simply exchanged 50€ billion worth of old Greek sovereign bonds (which were soon to be worth much less if not be outright worthless) for 50€ billion worth of new Greek sovereign bonds which would not be exposed to default risk or any kind of debt restructuring (unlike those bonds held by private Greek bond holders).

I want to mention here that the ECB only owned about 50€ billion worth of Greek sovereign bonds to begin with. So they exchanged roughly ALL of their exposure to Greece to new bonds that will not lose money during a restructuring or default.

The message here is clear: all private investor sovereign bond holdings are now subordinate to those of the Central Banks/ the IMF.

So what kind of impact do you think this will have on the bond markets? What about bond managers who now know for a fact that their holdings subordinate to the Central Banks’s and that the latter group can change the rules of the game any moment they want?

More importantly for today’s market… there’s no way the ECB pull this same act again for its other PIIGS bonds? Over a quarter of the ECB’s balance sheet is PIIGS’ debt. You think the bond market would put up with another swap like this? No way.

In plain terms, we’re fast heading into a situation in which even the Central Banks are at danger of blowing up (how could the ECB stomach the losses of its PIIGS exposure without going belly-up? Heck it’s leveraged at 36 to 1!).

This leaves Germany as the final potential backstop for the EU. But Germany doesn’t want anything to do with it. It’s making demands that it knows Greece won’t meet. And it’s said point blank it won’t pony up more cash for the ESM mega-bailout fund.

The reason is simple. Germany wants Greece to leave or it will walk out of the Euro. In fact, I’ve found the “smoking gun” that proves Germany is ready to walk out of the Euro at any point. I guarantee you 99% of investors don’t have a clue about this as the mainstream media has completely ignored this development.

To find out what it is, and take actionable advice on how to play the markets I suggest checking out my Private Wealth Advisory newsletter.

 Private Wealth Advisory is my bi-weekly investment advisory published to my private clients. In it I outline what’s going on “behind the scenes” in the markets as well as which investments are aimed to perform best in the future.

My research has been featured in RollingStone, The New York Post, CNN Money, the Glenn Beck Show, and more. And my clients include analysts and strategists at many of the largest financial firms in the world.

To learn more about Private Wealth Advisory and how it can help you navigate the markets successfully…

Click Here Now!!!

Graham Summers

Chief Market Strategist

Good Investing!

Graham Summers

http://gainspainscapital.com

PS. If you’re getting worried about the future of the stock market and have yet to take steps to prepare for the Second Round of the Financial Crisis… I highly suggest you download my FREE Special Report specifying exactly how to prepare for what’s to come.

I call it The Financial Crisis “Round Two” Survival Kit. And its 17 pages contain a wealth of information about portfolio protection, which investments to own and how to take out Catastrophe Insurance on the stock market (this “insurance” paid out triple digit gains in the Autumn of 2008).

Again, this is all 100% FREE. To pick up your copy today, got to http://www.gainspainscapital.com and click on FREE REPORTS.

Graham also writes Private Wealth Advisory, a monthly investment advisory focusing on the most lucrative investment opportunities the financial markets have to offer. Graham understands the big picture from both a macro-economic and capital in/outflow perspective. He translates his understanding into finding trends and undervalued investment opportunities months before the markets catch on: the Private Wealth Advisory portfolio has outperformed the S&P 500 three of the last five years, including a 7% return in 2008 vs. a 37% loss for the S&P 500.

Previously, Graham worked as a Senior Financial Analyst covering global markets for several investment firms in the Mid-Atlantic region. He’s lived and performed research in Europe, Asia, the Middle East, and the United States.

© 2012 Copyright Graham Summers - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Graham Summers Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in