DAVOS DECODED: The five bits of thunderclap-trap we should all ignore

‘More than $114 billion exited the biggest U.S. banks this month, and nobody’s quite sure why’. So said several prominent websites today.

While the sentiment is accurate, it’s not as if there are no reasons why at all. The US’s unlimited bailout for current accounts held there came to an end on December 31st 2012. So some nervous (aka far-sighted) folks in Dollar accounts will want out. And in a more general sense, Europe is repatriating money at the minute with other projects in mind: for example, buying top-end properties…which are still going through the roof around the globe, as reported first here last September.

This isn’t to knock those who spot such things: I don’t have time to do it, so I’m grateful for the hawkeyes of others. I’m also grateful for the knowledge of others still who tell me the know-all stuff that was in the previous paragraph. But the problem remains as I’ve been diagnosing it since the turn of the year: the big guns are putting more and more fixes into every sector where they have a vested interest in value manipulation. The only difference now is that they’re being more overt about it. As a reliable US source wrote to me today, ‘Draghi and Bernanke have killed all the signals of stress in the financial system and the rapidly evolving bubble-itis in the equities markets of the US, UK, and EU; the next symptom to appear is rapid hemorrhaging of account balances, and then margin calls at hedge funds leading to selling of all kinds of uncorrelated and seemingly safe assets.’

Nothing is safe in 2013, and no call must make sense. The stock markets are way overvalued, but that doesn’t mean they must fall. Gold is way undervalued, but there is no longer a law that says it must rise. US and UK bond yields are farcically low considering the medium to long term risk, but they too can be smoke-mirrored into another Universe where big is small and old is young.

However, these things can’t be continued forever. That is absolutely impossible in a three-dimensional existence.

There was a very interesting (often for the wrong reasons) piece in the Telegraph today by Kamal Ahmed, The five things you need to know about Davos 2013. Ahmed noted that ‘….the general mood of Davos has been optimism….American fundamentals are better, the eurozone crisis has abated….Dr Xiang Bing gave an electrifying presentation on Thursday, claiming that it was a total “misconception” that China operated a closed, state-governed economy…..Much of the conversation has been dominated by how countries are approaching their currency as a tool of growth….The big message from [Russia] is that it is a place to do business. The  economy is expected to grow from $2 trillion (£1.3 trillion) in 2011 to more than $3.2 trillion in 2017……Mark Carney, the next Governor of the Bank of England, has been in Davos…..[his] big fear, I’m told, is that controlling shadow banking will not be high on politicians’ agenda. Why? Because they don’t understand it.’

It was an interesting column chiefly for the almost entire lack of common sense in much of the sentiment reported. For those who find this harsh, I pose the following:

1. Optimism based on US fundamentals and an abating euro crisis is not the kind of optimism I’d ever want to sign up to. On the whole, I’d rather be in Harare.

2. Xaing Bing can boff on until the 12th of never about Chinese genius: without markets to export to (and with weak consumption at home beyond the wealthy 7%) recession and unrest there are inevitable.

3. Countries that use their currencies as ‘a tool of growth’ need to learn the law of retaliation. Growth comes from making and delivering stuff of high quality at the right price, not farting about with fiat paper.

4. I am at a loss to understand why Russia is ‘expected’ to grow given that world demand for energy (on which it heavily depends for export income) is about to fall off a cliff.

5. If politicians still don’t understand how mad it is to create a tenfold inflated poisonous funny-money stratosphere above the oxygen of real commerce (in which leveraging levels are at times over 10,000 to 1) then it may well be time to start digging wells and rotivating the fairways of the world in favour of potatoes and walnut trees. Because let’s face it, carbs and proteins taste a whole lot better than bullshit.

The simple point I am trying to make here is this. Even if the MoUs are tampering with the speedometer, it doesn’t mean the cliff has disappeared. It just means we no longer know precisely when the Ford Edsel will career over it and onto the shards below, exploding on impact. It emphatically does not mean that the automobile will sprout wings and soar high into the infinite peaks of eternal economic growth. It really doesn’t.

Let us now don long trousers and recap the five things you should know about the bollocks coming out of Davos: the US and the EU are trading insolvently, 9 out of 10 Chinese can barely consume a Hershey Bar let alone ten billion solar garden lights, selling your currency and buying those of competitors is a zero sum game, Russians are good at gas, fraud and espionage but not much else, and derivative bazookas have a tendency to blow up in one’s face.

To those who insist on seeing the Davos attendees as a tight-knit regiment of psychotic humanity-cull fanatics, I can only offer this observation: if that really is their plan, then we are all as safe as houses. For people who can cling to optimistic delusion in full sight of an Andes of evidence to the contrary couldn’t hit the side of a barn with a peanut from three inches away.

Related: The hide and seek of Crash 2

22 thoughts on “DAVOS DECODED: The five bits of thunderclap-trap we should all ignore

  1. Have to agree with you John re not fearing such a bunch of incompetent freaks. It’s even sadder that the MSM are so easily convinced by said “leaders” (hard to keep a straight face with that one) that it’s sunny outside and not actually raining fire, acid and turds.

    I argued the point the other day that this is what it looks like when a hegemony comes to its end. Desperation coupled with madness and more desperation. I wonder if any historically-minded sloggers would be able to draw actual examples of the end of the roman empire to what is happening in the west today? I’d wager that the parallels would be striking.

    • @Chris; beautifully-put. A hegemony coming to an end. The country even has its’ own form of Panem et Circenses in X-Factor and pizza. I think we could fill the comments with apt comparisons with Caligula’s Rome.

  2. “To those who insist on seeing the Davos attendees as a tight-knit regiment of psychotic humanity-cull fanatics, I can only offer this observation: if that really is their plan, then we are all as safe as houses. For people who can cling to optimistic delusion in full sight of an Andes of evidence to the contrary couldn’t hit the side of a barn with a peanut from three inches away.

    But those same people have in place for themselves the means of survival when the results of their hubris become inescapable. It is not only their conspiratorial plans that we must fear, but also the failure of them.

  3. For me the news coming out of Davos is the relative silence. It all reminds me of that great line from the 2012 movie…

    “How would the governments of our planet prepare 6 billion people for the end of the world…? They wouldn’t.”

    • @ Don ‘n Ioannis
      +1 (or is that 2?!)

      I’m afraid I think the “madness” (on all fronts) is simply softening up the masses for a wipe out of democracy, and to prove it who’s gonna listen when anyone tries discussing (or even shouting and screaming), in “Parliament” or outside, that the impossible is just that.

      You said it JW “mad it is to create a tenfold inflated poisonous funny-money stratosphere above the oxygen of real commerce (in which leveraging levels are at times over 10,000 to 1) then it may well be time to start digging wells and rotivating the fairways of the world in favour of potatoes and walnut trees.”

      That is exactly where we are.

      But then you were joking … I don’t think I am.

      • In all the years I have been following politcs, at this stage of the day can say hand on heart that I have no idea of whats going on (and no its not alcohol or age, though possibly the aluminium being dropped on us via the “not real conspiracy theorist” trails in the sky), the continual changing and bouncing about by them all (the three party common purpose) has made myself and everyone I know confused and completely disbeleiving of anything that comes out of a politicos mouth, the sidetracking and backtracking have been with us since the days of Bliar, carried through to Dave. Why? well I think ths has been done as part of a behavioural change strategy to instill a feeling of mistrust and apathy in the public. Along with all the expenses scandals and latterly the abuse connections, which in a country that has an almost totalitarian approach to D notices and the like, not to mention “suicides” of anyone posing a real threat of exposure to the staus quo, should realistically never have come out, but they did and I think its deliberate to undermine the system we know so that we are softened up for the emerging one world government, which will be presented as all things to all people, classic problem/reaction/solution. We are being played.

  4. John is right. The issue is that no one with any sense trusts a word these people say, and rightly so, hence markets cannot recover since without trust, your risk exposure is infinite – hence you cannot invest because the risk/return matrix is stuffed.

    We got here by promoting Narcissists to leadership positions. While narcissists are good at lying and spinning, they cannot empathise with anyone at all, so it is a mystery to them why no one responds to their convincing (to them) spiels about growth and the light at the end of the tunnel.

    Today there is no trust. Krugman is wrong Economics MUST be a morality play. The bad MUST be strung up. The thrifty and prudent MUST be rewarded. If no attempt is made to do this then the system fails as there is no rational basis for transactions of any sort, let alone the really complex engagements necessary to finance a new venture. It simply can’t be done without trust

  5. Pingback: John Ward – Davos Decoded : The Five Bits Of Thunderclap-Trap We Should All Ignore – 28 January 2013 | Lucas 2012 Infos

  6. Excellent blog. John, you have said it all before, but this time more laconically than ever.
    I particularly like “Growth comes from making and delivering stuff of high quality at the right price, not farting about with fiat paper.” Apparently that is no longer taught in Economics 101. The manipulation of paper, and even more abstract ‘promises to pay, if he pays her, and she pays him’ etc such as derivatives is literally papering over the cracks. A vain attempt to put lipstick on big, ugly, hogs of debt.

    • Or as we used to say at the Beltway bandit I worked for 40 odd years ago: paper is our only product. And believe me, it was as useless as the crap Ben Bernanke produces. We had a competition to rename the company and my favourite was: Centre for the absorption of Federal funds.- we could waste it as well as anybody!

  7. I for one, don’t see much changing, well, not until Germany has repatriated all it’s gold. And that’s going to take a few years, isn’t it?
    Even if the US does have all Germany’s gold, keeps them in the loop, under control, for as the US can stall the repatriation process. Bet that doesn’t sit too well in Berlin.

  8. “the general mood of Davos has been optimism….American FUNDAMENTALS are better, the eurozone crisis has ABATED”.

    There must have been something funny in the water at Davros. (or might that remarkable false euphoria have something more to do with ‘the snow’ there, one wonders ?!) ;)

    Surely the article should read……
    “American FUNDAMENTALS are so mindblowingly enormous as to render them beyond the comprehension of the vast majority of politicians, bankers and citizens of that country to even understand the issues, let alone that it is probably much too late to fix them by any conventional means”

    “the eurozone crisis has ABATED”,…. only insofar that it has miraculously been possible to keep the impending explosion pretty much off of MSM’s radar for the whole of January 2013. The gaffa tape around the lid of the pressure cooker is starting to melt, but with luck along with considerable further fiscal and physical supression of the masses of Europe South, no one will discover that the safety valve melted a few months ago…… at least until after next September…..ve vill see !

  9. Time is running out… They have their plans… What’s yours & mine… And don’t give me that gold/silver nonsense, you can’t eat it…

  10. Pingback: Lassoing the ether called David Cameron is impossible. But he will hang himself in the end. | The Slog. 3-D bollocks deconstruction

  11. Davos IMO has just accelerated the process of ‘facts on the ground’ being the new normal so that when the grand reset occurs and all gov. safety nets become threadbare at best they the self annointed elite should keep their assets however crimeogenically obtained.

    The rules of the financial/ corporate game have changed dramatically since the late 70′s and the only way out again in IMO is a co-ordinted global reset as now each major player and the UK is the smallest and very much the weakest are allcopying each others tactics to nullify any player getting a competive advantage.

    We live in interesting (even though zirp prevails) times can the US and Japan gov debt continue to rise and rise to over $40 Trillion combined, it seems likely if things do not radically change within 4/5 years.

    My only uninformed and non-expert guess is that the gov will roll up their sovereign debts and transform them into very long dated zreocoupon bondsand that banks will be required to hold these, to all appearences non-performing loans as tier one capital.

    It is obvious that the TBTF institions are probably insolvent but due to a virtual total lack of adequate documentation (through rehypothecation, assignment and thus exact counter party risk) a global solution is required.

    Finally it has been estimated that the US currently require well over $3 expenditure by gov. to achieve 1 of growth, this is much worse for the UK so they say where there is a 5 to 1 ratio.

    Obvoiusly these bad returns highlight how unsustainable both economies are currently

    • “The rules of the financial/ corporate game have changed dramatically since the late 70′s and the only way out again in IMO is a co-ordinted global reset as now each major player and the UK is the smallest and very much the weakest are allcopying each others tactics to nullify any player getting a competive advantage.”

      I suspect (dons tin foil), that THIS GAME PLAN has been running for years, well before “W” Bush et al. Just appears that it matured and reached critical mass on his watch.

      Hello GCHQ!

  12. I understand that ‘Her Majesty’ was not amused that her portfolio took such a shellacking during the last unforeseen disaster. Her questioning of the ‘Wise Men ‘at the LSE as to why they did not forsee the last crash, was reportedly unusually direct.
    I trust she is getting the ‘Good Oil’ this time!

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