In the history of the world, virtually every country has defaulted on its bonds. Countries don’t disappear, like Lehmann Brothers, PanAm or Enron. They devalue, cut back, boost their exports and live for another day — usually a better one.
Greece can’t pay its bills. Either someone else does (i.e. bailout) or it will have to default. Without a bailout, it will leave the Euro, go back to the drachma. The banks and others holding Greek bonds will have huge losses. The banks will have to raise money, get bailed out or go broke. None of this is good for the world economy, and will lead to much slower growth in corporate earnings. That will hurt stock prices.
Whichever scenario you paint, it doesn’t look good. What’s adding to the misery is that a bunch of analysts have come out with seriously depressing reports.
UBS’s recent report concluded “Under the current structure and with the current membership, the Euro does not work. Either the current structure will have to change, or the current membership will have to change.”
Now UBS has issued a sequel: “We believe the Eurozone sovereign crisis has entered a more dangerous phase. Financial and banking stresses are plainly evident as concerns about sovereign default grow. Notwithstanding signs from Washington this past weekend that European and world leaders are willing to consider more decisive policies, concrete steps remain elusive. Yet rising uncertainty threatens an already weakened world economy.“
The Swiss Bank’s conclusions? “First, Europe’s politicians and policy makers must do more to shore up the Eurozone and investor confidence more generally. Among others, that probably includes stronger capital buffers in the banking sector, an expanded EFSF/ESM to finance bank recapitalization and support Eurozone bond markets, and further fiscal austerity in ‘at-risk’ Eurozone countries. But these are big asks of Europe’s ‘political economy’. Hence, the second conclusion: The likelihood is that the crisis will intensify before policy can deliver what is required.”
Gloom and Doom is not good for the market, as we’ve seen since early August. We are definitely now in a bear market — though one punctuated by occasional bounces like yesterday (and probably today).
I am effectively out of “normal” stocks, except for Apple and Costco. I still have my high-yield mortgage REITs and I’ve still got my positions in SGOL and GLD. I am down a little on the mortgage REITs (though the dividends more than make up for the capital losses). Gold is another matter. I am down a little. I believe it will bounce back. I wrote about it yesterday. But I’m watching it very carefully.
My friend Patrick Birmingham emailed me his thoughts:
The American writer Henry James wrote in 1884 that,”… there is a traditional difference between that which people know and that which they agree to admit that they know, that which they see and that which they speak of, that which they feel to be part of life and that which they allow to enter into literature (or these days TV and the internet) . There is a great difference, in short, between what they talk of in conversation and what they talk of in print.” Henry James was a literary genius, and it seems to me that his views on what we “agree to know” are equally applicable to our current financial plight. But the “we” in this case being our governments and financial systems, not “us”. The governments and banks know better than we what is really going on, but we the public are going to be the last ones to find out. We won’t find out, whatever it is we need to know, until it is too late to do anything about it.
It seems to me that our media and governments will not admit to knowing how bad Greece will be, so as not yet to panic the populace. Instead, our governments and banks are busy clearing the decks to protect their own selfish interests for the financial crisis to come. Greece will go broke just like Argentina did not so many years ago. I don’t think Argentina paid any of its debts when it went belly-up, and nor will Greece. My understanding is that for many years it has been a point of honour in Greece not to pay tax, so they certainly won’t be too worried about any foreign debt.
Further historical parallels to these debt problems and their lack of solution can be found even with the Nazis. Germany under Hitler reneged on its WW I debts to the US. Hitler simply refused to pay. This action endeared Hitler to the German people, as most Germans felt that they shouldn’t have to pay anyway. Similar sentiments are now very strong in Greece. This non-payment by Germany didn’t seem to stop anyone from appearing at the 1936 Berlin Olympics, and indeed these unpaid debts were not even rescheduled again until the early 1950’s. Even then the catch was that repayments were only legally triggered by German “reunification”. The final debt payment was made by a wealthy Germany last year (2010).
Hard as this may be to believe, President Roosevelt, on appointing the new US Ambassador William Dodd to Berlin in the 1930’s, made clear that the number one priority in dealing with Hitler was to get him to start repaying the US banks (I’ve just finished reading, “In The Garden of Beasts”). Hitler never did.
My old commodities fund is now down 9.06% in 2011. Commodity prices are dropping as the world’s economies slow down.
I don’t want to suggest an recession. But it looks increasingly likely. Want something really ugly? Read this from BusinessInsider:
MORGAN STANLEY: The TERRIFYING 2012 Bear Case Scenario
Investors are worried that corporate profits could fall if the U.S. goes into another recession.
Currently, analysts are expecting around $112 per share in S&P 500 earnings, which reflects more than 10% year-over-year growth.
However, Morgan Stanley’s Adam Parker warns that if earnings decline, they could dive.
Parker points to recent history:
“We have heard investors suggest $80 in EPS was a fair bear case for 2012. We decided to look at history as a guide in assessing the bear case EPS. The 2001 recession saw a 13% revenue decline and a 57% EPS drawdown. The 2008 recession saw a 14% revenue decline and a 51% EPS hit, peak-to-trough. For 2012, bottom-up estimates (excluding financials) embed a 5% revenue INCREASE and just over 10% year-over-year EPS growth. If prior recessions prove relevant to next year’s economy, $54 to $68 in EPS in 2012 would be a more likely range than the $112 that the bottom-up consensus estimates currently embed.”
If you attached a 15 PE multiple to the low end of that range, which some would argue is a generous valuation, you’d get 810 in the S&P 500. That’s a 28% plunge from the index’s recent price.
Assumptions. Assumptions. Four tennis players bought The Old Chatham Tennis club out of bankruptcy about 20 years ago. It came with a beautiful white fence.
Over the years, our players hurrying to their games, would crash into our pricey fence. It cost us a small fortune to fix the fence from crashes and winter weather. Also, we had to paint it every year or two.
Then this year, our talented manager, Jill Gerrain, had a better idea. “Let’s remove the fence.” Not one of my super-smart partners (including me) thought of that simple solution.
Bingo, the place is cheaper to maintain, more attractive and less of a hazard to our customers.
When I played “consultant,” my job was less to suggest solutions and more to suggest alternatives. That’s the key.
Free, fast text messaging. I was the last holdout. But, heck, sending short messages to cell phones is very useful. For one, the recipient’s phone bings and grabs their attention. They can read and reply to the message while they’re in a meeting, or in the bathroom.
Most carriers charge for messaging — but there are private web sites that do SMS messaging for free. And it’s often a lot easier to text from a computer than from a phone. My favorite free text messager is txtDrop.com.
The pleasure of great headlines. I”ve written millions. But this one is the best. And shucks, I didn’t write it. On the cover of the latest issue of Wired:
And a close-up of the headline:
The new marketing: The lady holding the balloon is from Turkey. She’s been here 8 years. She’s just graduated with a degree in HR (human resources). She’s now looking for a real job. Meantime, she’s holding the balloon to announce the opening in our neighborhood of Century 21, a disocunt clothing chain.
She’s earning $18 an hour — which is, as they say in Australia, better than a slap in the belly with a cold fish.
Latest great New Yorker cartoons.
Harry Newton who asks “Why does it bother me to see our President using Air Force One to carry him to money-raising events for his 2012 election bid. This irresponsible behavior reminds me of what third-world dictators do — simply write checks on the state treasury for their own personal benefit.
I remain a little confused about all the fear of letting bankrupt Greece
fall on its face and take whatever dumb/greedy bankers go with it. And
rich bond holders. Why do we continue to protect the guilty from the
consequences of their actions, thereby rewarding those actions and,
worse, encouraging more? And even putting them in charge, as we've done
with the guilty big-name accounting and rating firms. Which is exactly
how we got here in the first place. Moreover, it seems to me that most
of those super intelligent analysts screaming for Germany to take action
also have a hand in the money trough. A clever Ponzi scheme, but a
Ponzi scheme never-the-less. Why should we wage earners pay for more?
As Richard Rosenthal said years ago, “There is no free lunch”. I'd add, unless the government steps in!
As Harry often says, don't try to catch a falling knife. This is a falling knife.
So why does this thing keep duplicating itself?
I remain a little confused about all the fear of letting bankrupt Greece
fall on its face and take whatever dumb/greedy bankers go with it. And
rich bond holders. Why do we continue to protect the guilty from the
consequences of their actions, thereby rewarding those actions and,
worse, encouraging more? And even putting them in charge, as we've done
with the guilty big-name accounting and rating firms. Which is exactly
how we got here in the first place. Moreover, it seems to me that most
of those super intelligent analysts screaming for Germany to take action
also have a hand in the money trough. A clever Ponzi scheme, but a
Ponzi scheme never-the-less. Why should we wage earners and our children and grand children and their children pay for more?
As Richard Rosenthal said years ago, “There is no free lunch”. I'd add, unless the government steps in!
As Harry often says, don't try to catch a falling knife. This is a falling knife.
I remain a little confused about all the fear of letting bankrupt Greece fall on its face and take whatever dumb/greedy bankers go with it. And rich bond holders. Why do we continue to protect the guilty from the consequences of their actions, thereby rewarding those actions and, worse, encouraging more? And even putting them in charge, as we've done with the guilty big-name accounting and rating firms. Which is exactly how we got here in the first place. Moreover, it seems to me that most of those super intelligent analysts screaming for Germany to take action also have a hand in the money trough. A clever Ponzi scheme, but a Ponzi scheme never-the-less. Why should we wage earners pay for more?
As Richard Rosenthal said years ago, “There is no free lunch”. I'd add, unless the government steps in!
As Harry often says, don't try to catch a falling knife. This is a falling knife.
Well, Harry, what's the matter with you. It is like the white fence, you can see see it. He is a third world dictator !! Nick Kennedy
Hey Harry I'm willing to bet a large sum that not one of your board members at The Old Chatham Tennis Club is or ever has been an engineer. Unless maybe Jill Gerrain has an engineering background, more probable is her engineer husband suggested she take down the fence. Gee, I wonder if anyone at the upper management levels at Ford might think engineers make for good CEO's? Take down the fence, truly amazing superior knowledge. Give me a break.
“…more probable is her engineer husband suggested she take down the fence”. LOL! Even though my wonderful husband is extremely capable at engineering – there have been times that I have looked over his shoulder when he was trying to solve a (simple) problem and made an obvious suggestion that made sense to him. Sometimes those closest to the problem can't see the forest for the trees. Lighten up, Ron.
Joe Biden was just down the street from me last week in Chicago for a private fundraiser. It probably cost more money to fly and protect the vice president then he made in money-raising at the events held in Chicago. We need term limits!!!
As much of an Enraged Conservative as I am, I can see the argument that the Commander in Chief needs Air Force One for it's C3 (Command, Control, Communications) capabilities.
What I do not see is why Michelle needs the Air Force version of a G5 to cruise the world. The excesses of the “First Lady” are more egregious than those of the “First Golfer”.
Regarding texting: The real looking forward sociological question is, “What impact will texting have on interpersonal relationships and the art of conversation?”
http://bits.blogs.nytimes.com/…
“One in Three Texters Would Rather Text Than Talk” What does it mean that they only want to use what computer scientists would call “vectored interrupts” to dump data?
My wife bemoans the fact that our daughter pretty much only texts us. BUT, texting IS one way to get the grand kids to communicate with us!
Well, texting is better than nothing. You could always bribe them, “$3 for the first kid that calls Grand Pa.”
Harry — you caused me to giggle. You have much to learn about domestic inflation. The Tooth Fairy deals in $10 bills today. What is the tyke going to do with a measly $3? Have you setup three or four separate highly conservative loooong-term investment funds yet? Better hurry: Barak, Harry, and Nancy have already spent the life's earnings of your unborn grandchildren. Of course,college will be different by then… but still expensive. You are their only hope!
Harry
This is completely off topic of today's column but I was wondering what you know about near field communication and about the company NXPI? I am trying to gain understanding of NPC as an e-commerce tool for a customer.
Philip
This is the definition from the latest edition of my dictionary.
near field communication
NFC. Near field communication is designed to swap information between devices when they come into
contact or close proximity. You can exchange things like text, images, URLs or other data simply by
placing an NFC-enabled device, such as a smartphone, near a “smart tag.” Some NFC systems, called “tap
and go” systems, require the NFC devices to contact each other. NFC uses an oscillating magnetic field
to transfer energy and data over a short distance (usually less than four centimeters) through a process
called inductive-coupling. NFC systems are also known as inductively coupled RFID systems. (Note: RFID
systems that operate over a distance greater than an antenna's radian sphere — i.e. at a distance
greater than the antenna's wavelength divided by two pi — are, by definition, far-field communications
systems, not near-field systems, and use radio waves — usually microwaves — to send data.) NFC
technology is used in things like smart tags and contactless smartcards. NFC allows you to get
information from NFC tags, which are affixed to things. These tags cost pennies and can be attached to
nearly anything: merchandise, posters, glass, and so on. NFC is big in Japan, where you can use your
NFC-enabled cell phone to buy train tickets in Tokyo or as a contactless payment system at various
retailers. Google hopes that by including NFC in smartphones running its Android operating system, it'll
eventually change the way people use and interact with their phones here in the US, too. Google has some
ideas about what you can expect. Imagine going to a movie theater and seeing a poster for the latest
movie release. The movie studio could stick a NFC tag on the poster, and you could simply tap your phone
on the poster or hold your phone next to it to grab the movie trailer. See also near field magnetic
communication.
I think ultimately near field communications has a great future… But a recession is not a good time to introduce and ramp something like this….Need to mull
Thanks
Philip
MANY years ago, Phil, I did a hi-value consulting gig with a large bank looking at online banking. This was BEFORE we had SSL in the browser, so I talked a lot about the potential for one bad experience to set the whole thing back for a year. The same is true now for NFC. We are smarter, have better understanding of the potential trouble spots, we have better security tools, but the same is true of the evil-doer competition.
I don't know a thing about NXPI, but I do know about both the technology and the marketing. The NFC Pioneers WILL catch arrows. Final success is about a LOT more than the technology. The tech is 20% of success. Success will only come along with the standards committees, the regulatory reactions, legal actions, the marketing, and the herd psychology. There is a lot of fancy footwork and politics to be done.
Harry,
You seem disillusioned with the current presidential administration. Just wondering…..will you be supporting President Obama in his re-election bid and fundraising for him?
NO to the re-election bid and NO to fund raising for him. Do I make myself clear?
That's it Harry!!! No shrimp for you!!!……..You will follow Obama the Messiah, you will donate not only money but also time to his reelection campaign, you will want to pay higher taxes, you will want government to run your health care……..AND YOU WILL “LIKE IT”!!!!!!!!!……now repeat after me….”SIEG HEIL, SIEG HEIL, SIEG HEIL”!!!!!!
Lots of Floridians and others like Herman Cain. At least all the smog and pollution lovers.
MW: Greetings from the Florida Keys… the home of “Drill Here Drill Now”. Because, if we don't, then others will come and take it. I attended a briefing this morning by the commander of the local Coast Guard District for Southernmost Florida. The USCG is set to “monitor” drilling by the Chinese-backed Repsol YPY SA group that is taking place very close to Key West.
http://www.csmonitor.com/World…
Is the White House ready for a Cuban deep water drilling disaster?
In three months deep water drilling is set to begin in Cuban waters in the Gulf of Mexico, but the US embargo on Cuba could spell catastrophe should a repeat of the Deepwater Horizon spill occur.The Cuban-Chinese-Spanish etc group will be drilling into the same oil deposits we could be using, but they won't be sharing with us in jobs, tax revenues, or better availability of crude. We are not allowed to go there by executive fiat. You have to love a “Green” administration that is so blindly following a policy of Expensive Oil that they do nothing to use or to protect the resources of this country.