In a speech today, President Obama proclaimed that European inaction on its debt crisis was scaring the world, implying that the EUROCRATS were causing global growth to slow by raising fears of the a major credit debacle. It seems that the G-20 was entirely dedicated to bashing the European financial policymakers about the foot-dragging and infighting that is delaying action on the dual problems of sovereign debt and the newly discovered bank solvency issues. Rumors arose Sunday night that a package had been crafted to leverage the EFSF to almost 2 trillion euro from 440 billion euro. However, failure to verify the rumors left the markets moving up and down as confirmation was not forthcoming from European authorities.
The large selloff of all asset classes since the FOMC statement (and before) makes one think that the world’s central banks had lost the war against DEFLATION. The U.S. bond and equity markets were certainly reflecting the fear that was gripping the world’s financial markets. (Bernanke has made the prevention of a deflationary spiral his life’s mission and now he is being undermined by the actions of Europeans and their inability or lack of desire to tackle the systemic risks of the European credit crunch.) The push by Geithner and others to get the Europeans to implement a U.S.-type TALF and TARP programs, plus a major liquidity addition by the EFSF purchasing massive amounts of sovereign debt, aided the S&Ps and world equity markets and the DOLLAR was sold as the European “ACTION” was of course deemed to be a positive for the risk on mindset.
The GOLD did not perform well as long metal positions have continued to be unwound but if the EUROPEAN move to increase the liquidity via the EFSF has any credibility, the GOLD and other metals should find support (unless, of course, the IMF and others announce a sell-off of GOLD STOCKS to shore of their cash positions). Again, I offer this concept to the IMF: It is time to create a GOLD-BACKED IMF BOND TO RAISE THE IMMEDIATE LIQUIDITY THAT WILL BE NEEDED TO DEAL WITH THE GLOBAL FINANCIAL CRISIS. IT IS TIME TO TAKE THE ULTIMATE CURRENCY AND PUT IT TO WORK and if the authorities act irresponsibly the IMF’s GOLD HOARD would be defaulted away. NOTHING MAKES FOR SOUND POLICY THEN THE FEAR OF ACTUALLY LOSING A VALUABLE ASSET.
QUICK HITTER#1: It is time to cancel the DAVOS FORUM. The sycophants in the media love to mingle with the rich, powerful and beautiful at the World Economic Forum where corporate chieftains congregate with world leaders and financial geniuses in hopes of crafting good business plans and policy makers gleaning knowledge from the private sector to be more enlightened leaders. The last 10 years have shown that the miscreants that visit the DAVOS FORUM have basically destroyed the global financial system. For the benefit of civilization this meeting should be canceled and labeled a toxic environmental hazard. If this is what the best and brightest can accomplish after all their meetings. Please, no more!
Quick Hitter #2: The Chinese have done an about-face as the head of the Chinese Investment Corp (CIC) said that they would not be purchasing European sovereign debt until the ECB and ECOFIN had done a great deal more to establish some sort of long-term program to ensure the existence of the EURO and the EU as an entity. The last two years have brought repeated rumors of Chinese investment in European debt. Now the crisis is at a critical juncture as the Chinese authorities back away.
It seems that the Chinese are more interested in generating volatility than actually making an investment. It is time for the financial media to stop reporting Chinese intentions and wait for some genuine action. The fact that so much algorithmic trading is headline driven gives deep financial pockets a great deal of influence on prices as the media reports every rumor in the rush for the scoop.
Quick Hitter #3: Hey, Warren Buffett, who is now the nation’s Jiminy Cricket: You are worried about tax fairness. Berkshire is the largest shareholder in Wells Fargo Bank, and, according to a Financial Times article in Monday’s analysis page, WFC and other large U.S. banks have been reaping BILLIONS of dollars through the use of foreign trusts in the U.K. The issue is so complicated that the presiding judge has had to rely on experts to explain it to him. The end result is that for no economic purpose the banks in question have collected vast sums at the behest of the U.S. taxpayer. Hey Warren, Jiminy Cricket would certainly not be a shareholder in an enterprise engaging in such deviant behavior.