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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Global Economic and Political Evaluation

Stock-Markets / Financial Markets 2012 Oct 06, 2012 - 03:34 AM GMT

By: Eelco_Lodewijks

Stock-Markets

Best Financial Markets Analysis ArticleWHAT WE KNOW – AND WHAT IT TELLS US

This is not an exhaustive list, but enough to make you sit up and think.

This is a Global Evaluation and South Africa may be less badly affected, but, when the rest of the world catches a cold, South Africa catches Double Pneumonia.


Summary

The good news:

  • Nothing in the short term, but mankind will prevail in the long term;
  • Every problem is an opportunity in disguise – some will make money;
  • There will be a paradigm shift that will bring countless opportunities;
  • This era of information technology coupled with automation heralds an era of accelerated change and a Tsunami of opportunities;

The bad news:

  • Plenty and below are the things I think we can safely say we know:
  • The bad news – this is an era of Global Economic Crisis that will, almost certainly negatively affect your wealth;
  • The bad news – unimagined hardship coming relatively soon, not exactly sure when.

Governments:

  • Governments/Central Banks have been printing money since 1971, it gathered momentum in the 80’s & 90’s and it is galloping since 2008 as all Western Governments “at least” trebled their balance sheets.  With QE to Infinity, the option of reversing this behaviour will soon be off the table as they enter an exponential spiral of debt creation that feeds on itself until it ends in collapse – see Zimbabwe – unless they stop and adopt a Gold Standard about now;
  • Governments have been manipulating “official” inflation to the downside and, therefore, Growth to the upside.  In fact inflation is considerably higher and growth is considerably lower than they would have us believe;
  • Government officials used to earn less than people in the private sector, now they earn more – US average 50% more i.e. $76 000 vs $51 000;
  • Governments now spend much more on salaries (above point) and social welfare than they used to and much less on infrastructure.  i.e. The original vision of using our taxes to improve our infrastructure and healthcare, education, security (police) etc support networks has now been overturned as this money is now being used to help a bunch of freeloading strangers;
  • Governments lack of expenditure on maintenance of infrastructure has pushed much of this ageing infrastructure to the point of collapse;
  • Governments are now being “lobbied” to serve the interests of Banks and Corporations (crony capitalism) instead of the interests of the public;
  • Government elections are now auctions that pander to the highest bidder – the one who spends the most on advertising – so there is no democracy.  If you can sway the opinions of the masses, you do not have a democracy.  Furthermore, with the advent of electronic elections (USA), manipulation becomes simple in the absence of any system of audit.

Politics:

  • The USA is losing its “Superpower” status and such transitions are never smooth as the Superpower becomes desperate to hang onto its power;
  • US Politicians are displaying no political will to address the Deficit, Debt and Unfunded Liabilities problem, as it would prove politically unpopular with both the electorate and their “crony capitalism” buddies.  Whether they do or not, it will precipitate a crisis;
  • Geopolitics are in a mess as most transcontinental political forums like United Nations, G20, G8, G5 etc cannot agree on anything;
  • War in the Middle East is “almost certain” and it will not be a small localised conflict;
  • Global political lobbying, corporate lobbying and selfish vested interests are preventing Governments from making the correct decisions, which perpetuates the current flawed and dying system.

Economics:

  • For the first time ever, all the global economies are tanking at the same time and this situation is not likely to improve as;
    • Consumers are becoming progressively poorer as they have been undercompensated for cost of living adjustments for the past 30 years;
    • Pensioners incomes have been declining progressively as their interest revenue declined with interest rates and their pension funds’ reserves have been negatively impacted by a decade of Negative Real Returns;
    • Unemployment is on the rise in the Western world (>20%) and this raises the risk of protests;
    • Unemployed people and Pensioners are moving in with family who still have an income, which is adding to their burden;
    • Consumers are maxed out on debt and their debt service costs will rise as and when interest rates rise.
  • The Central Banks have taken bought much of the toxic debt from the Mega Banks and are now holding an asset that is worthless – hidden from view.  However, in the process, taxpayers now shoulder the burden – which is unethical as profits were privatised but the losses where socialised, which means the shareholders cannot lose – thanks to the Government;
  • Most Governments, States and Municipalities have Deficits, Debts and Unfunded Liabilities that are totally out of control and, every time they talk about raising taxes or adopting “austerity”, there are protests;
  • There are only two options available to resolve this mess and “b” will win:
    • Higher Taxes and Austerity, requiring the resumption of Balanced Budgets coupled with the re-instatement of a Global Monetary Management System – Gold Standard.  This option will not be adopted as Deflation and Government Default are its inevitable consequences and that’s political suicide that also brings an end to the gravy train for all the “Cronies”.  If this option is adopted, higher taxes, reductions in expenditure, reductions in welfare grants, retrenchments, etc will further slow the global economy and precipitate a stock market crash;
    • Continued escalation of “Fiat” printing, spending, deficits etc, leading to Hyperinflation and eventual collapse.  This option will almost certainly be adopted as it defers the day of reckoning, which suits those in power and their “Cronies”.  If this option is adopted, equity markets could float higher in nominal but not “REAL” terms.  However, eventually printing and inflation will spiral out of control until Hyperinflation culminates in its inevitable currency collapse.  This will be followed by a brief resumption of Barter trade pending the institution of a new Global Monetary Management System with new currencies;
    • The hyperinflationary collapse described in the above option may be avoided if the emerging BRIC’s, Middle and Far East can compel the Developed West to adopt a Global Monetary Management System earlier.  However, this must be done before Fiat excesses pass the point of no return, which they may have and will still be painful.

Finance:

  • Derivatives.  The market for Derivatives is 20x global GDP.  It is a casino of bets with no underlying assets, that is frequently held off balance sheet, which means the contingent liabilities of the company are not transparent;
  • After the 2008 crash, banks were for the first time no longer required to show their investment assets and the lesser of Cost and/or Net Realisable Value, when the Mark to market rule was dropped.  This means we can no longer tell by looking at the financial statements if a company is solvent or insolvent.
  • Mega corporates are increasingly indulging in “Off Balance Sheet Accounting”, which again means we cannot get a clear picture of the assets and liabilities of the company;
  • Many Mega Banks are engaged in Naked shorting, the contingent liabilities of which are also not shown on the balance sheet and could result in insolvency;
  • Increasing fraudulent activity on the part of both Banks and Investment Banks as they misuse our investments to engage in leasing, shorting etc.  We have seen the tip of the iceberg – an avalanche of crimes will be exposed in the next decade, with a commensurate Tsunami of litigation.

Systemic Collapse:

  • The risk of Systemic collapse is increasing.  This topic is too broad to cover here, but you “really” need to read this report – Google FEASTA “Trade-Off” pdf.  Bottom line, society has become dependent on an increasingly complex web of interconnected services and relationships.  Generally, this network can self-correct when small disruptions occur, but it will not be able to do so if the disruptions are longer than say 10 days and/or if catastrophic disruptions manifest.  eg. Imagine if the Electricity grid were to collapse due to neglect – electronic banking would no longer function and credit card payments would no longer be possible as vendors will no longer accept them.  In the absence of payments, deliveries would stop and shops & fuel stations would no longer have stock.  This would, in turn precipitate massive disruptions to private individuals, let alone the entire economy, as you will have no access to money and no mechanism to make payments. 

Conclusion

The global situation is all very depressing but do not slit your wrists

It is a bit like living in Jhb –

We do not live in fear, but “We are aware” and “We do take precautions”

i.e. If there is a 10% risk of being a victim, you would definitely beef up your security, likewise there is considerable global economic and systemic risk, so you should beef up your investment security with gold.  Please! Also look at how this may affect your business and/or your job security.

Ayn Rand who wrote “Atlas Shrugged” – wrote this insightful quote:

"When you see that trading is done, not by consent, but by compulsion - when you see that in order to produce, you need to obtain permission from men who produce nothing - when you see that money is flowing to those who deal, not in goods, but in favours - when you see that men get richer by graft and by pull than by work, and your laws don't protect you against them, but protect them against you - when you see corruption being rewarded and honesty becoming a self-sacrifice - you may know that your society is doomed."

The quote perfectly sums up the root cause of all the world’s problems today.

We spend a lifetime accruing wealth and very little time learning how to look after it and, especially now, that is critical.  In view of the current Global Economic Instability, get a better understanding of current systemic & market risks and use a forward looking investment broker.  Now is a time to hedge your bets and to look to Tangibles like Gold and Silver as these ensure a

RETURN OF YOUR CAPITAL vs RETURN ON YOUR CAPITAL

GOLD is the ultimate currency hedge and the ultimate hedge in times of crises.  Currently Gold is one of the most important eggs in your basket.

Read more about “Modern Fraud Money Explained at:

http://www.jhbcoinexchange.com/critical.php.  Download PDF on bottom right.

Read more about “Why Gold is going up and How High at:

http://www.jhbcoinexchange.com/whygold.php.  Download PDF on bottom right.

Contains targets and 15 flags that will warn you when Gold is nearing its final peak.

Good luck investing in these troubled times.

Eelco Lodewijks – The Flying Dutchman

Eelco Lodewijks is semi-retired and has spent 25 years studying and understanding the Global Economic Dynamics.  During the past 15 years he focussed on investing in Gold.  Eelco owned a Gold Coin Dealership in South Africa for a number of years.

Disclaimer:-  Anything posted in these articles should not be considered as specific investment advice.  The article is written for information purposes and any suggestions should be considered as illustrative and not as specific investment advice.  Read a lot to educate your-self and be sceptical about all information until it has been confirmed by numerous sources.  Remember, the market may go the opposite direction from what everyone expects, at any time, so never put all your eggs in one basket. If you cannot set your own portfolio, please read my educational report “Investment Guidance”, where I discuss how to go about setting your investment strategies.

Copyright © 2012 Eelco Lodewijks - 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.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


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