jackovesk
21st November 2011, 02:03
Wall Street Analysts Everywhere Are In Agreement: THE WORLD IS ENDING
Joe Weisenthal | Nov. 18, 2011
If you like your Wall Street analysis with a heavy dollop of rapture and Armageddon, today was the day for you.
Blame the weighty issues of the day (Europe, mostly), and yesterday's big selloff for the spasm of bearishness.
http://static7.businessinsider.com/image/4ec6e1e9eab8eac25500000d-380-284/rapture-hell.jpg
It started off with Nomura's Bob Janjuah. He said that any talk of the ECB saving Europe was a mere pipedream, and that if the ECB did go whole-hog buying up peripheral debt to suppress yields, then that would prompt a German departure from the the Eurozone.
Germany appears to be adamant that full political and fiscal integration over the next decade (nothing substantive will happen over the short term, in my view) is the only option, and ECB monetisation is no longer possible. I really think it is that clear and simple. And if I am wrong, and the ECB does a U-turn and agrees to unlimited monetisation, I will simply wait for the inevitable knee-jerk rally to fade before reloading my short risk positions. Even if Germany and the ECB somehow agree to unlimited monetisation I believe it will do nothing to fix the insolvency and lack of growth in the eurozone. It will just result in a major destruction of the ECB‟s balance sheet which will force an ECB recap. At that point, I think Germany and its northern partners would walk away. Markets always want short, sharp, simple solutions.
Okay, but that's Janjuah. He's always bearish so maybe that's not even news.
But then there was Deutsche Bank's Jim Reid, who is always sober, but not usually wildly negative. He offered up one of the most bearish lines in history in regards to German opposition to ECB debt monetization:
If you don't think Merkel's tone will change then our investment advice is to dig a hole in the ground and hide.
Oy.
But it got even wilder with the latest from SocGen's Dylan Grice. Again, he's always pretty negative, but he cranked it up a notch, comparing Germany's policy today against the policies that enabled the rise of Hitler. Specifically, he said that post-Weimar, Germany became too aggressive about fighting inflation, thus prompting deflation, thus prompting more unemployment, thus enabling the rise of the Nazis.
He included this chart:
http://static5.businessinsider.com/image/4ec67dc069beddaf77000000/nazi-party-germany-hyperinflation.jpg
And finally, in our inbox, we just received the latest note from Nomura rates guru George Goncalves, which is titled: US and Europe: At the Point of No Return?
He writes:
...we were wrong in assuming one could be optimistic around the EU policy process and have learned our lesson not to accept apathy as a sign that all is factored in as its clear downside risks remain. In fact, we could be approaching the point of no return for the fate of the euro, the European financial system and more broadly the concept of a singular economic zone for Europe; this obviously would change the path for the US and the global economy in a heartbeat too. We still believe there is time to prevent worst-case scenarios, but these sort of watershed moments reveal one thing, that market practitioners are ill-equipped to navigate the political process, especially one that is driven by 17 different governments.
That's it. Hope everyone has a fantastic weekend!
And definitely, read Dylan Grice's brilliant note >
DYLAN GRICE: Germany Is Making The Same Mistake That Allowed The Nazis To Come To Power
In his latest note, famously bearish SocGen analyst Dylan Grice goes there. Big time.
The subject of the note is Weimar, hyperinflation, and all that money printing that anyone talks about.
But it's not what you'd expect. He's not saying Germany printed money, and that caused Weimar hyperinflation and that caused Nazis. He's saying memories of Weimar caused Germany too adhere too much to hard money, and that caused unemployment and that lead to the Nazis.
The lesson Grice tells?
He writes:
And here enters a wistful historical counterfactual: how different might history have been if the Germans had inflated their economy when the crisis broke?
Here's his lesson:
It's impossible to say, of course. By 1931 the world was in depression. Germany would have been too, with or without its pathological fear of inflation. The Nazis would presumably have made the same electoral gains. But suppose Germany had inflated in 1931, like the U.K. did. The following chart compares the trajectory of the U.K. unemployment rate after it had left the gold standard with that of Germany, who stayed on.
After leaving the gold standard, the U.K. saw its unemployment rate decline by about a third from 1931 to 1933, while Germany's rose significantly over the same period. If Germany had been willing to follow the U.K. in inflating, and its unemployment rate had followed a similar trajectory, it would have stood at 17% rather than 33%. Would this have averted what followed? Would Hitler have won that March 1933 election with 45% of the vote? Would the world have experienced the evils of the Nazis in power? World history might have been very different. There might not even be a euro today, let alone a euro crisis.
And this is the killer conclusion
So even a hard money libertarian like me can see that there have been times in history when creating inflation would have been the right thing to do. Germany today has to decide if now is one of those times.
Europe's crisis today is orders of magnitude smaller than that in the early 1930s. The stakes are much lower today than they were then. But they are not low. And, just as it might have done in the 1930s, flexibility on hard money principles might help turn the tide. ECB involvement cannot solve the underlying problems of the eurozone economies, which are anti- entrepreneurial and too heavily regulated. But it will buy time with which to address these problems and so allow eurozone policy makers to get ahead of the panic for now.
http://www.businessinsider.com/unemployment-vs-nazi-party-vote-2011-11
http://www.businessinsider.com/apocalyptic-analyst-notes-2011-11
PS - Not much else to say, we don't know already..!
Joe Weisenthal | Nov. 18, 2011
If you like your Wall Street analysis with a heavy dollop of rapture and Armageddon, today was the day for you.
Blame the weighty issues of the day (Europe, mostly), and yesterday's big selloff for the spasm of bearishness.
http://static7.businessinsider.com/image/4ec6e1e9eab8eac25500000d-380-284/rapture-hell.jpg
It started off with Nomura's Bob Janjuah. He said that any talk of the ECB saving Europe was a mere pipedream, and that if the ECB did go whole-hog buying up peripheral debt to suppress yields, then that would prompt a German departure from the the Eurozone.
Germany appears to be adamant that full political and fiscal integration over the next decade (nothing substantive will happen over the short term, in my view) is the only option, and ECB monetisation is no longer possible. I really think it is that clear and simple. And if I am wrong, and the ECB does a U-turn and agrees to unlimited monetisation, I will simply wait for the inevitable knee-jerk rally to fade before reloading my short risk positions. Even if Germany and the ECB somehow agree to unlimited monetisation I believe it will do nothing to fix the insolvency and lack of growth in the eurozone. It will just result in a major destruction of the ECB‟s balance sheet which will force an ECB recap. At that point, I think Germany and its northern partners would walk away. Markets always want short, sharp, simple solutions.
Okay, but that's Janjuah. He's always bearish so maybe that's not even news.
But then there was Deutsche Bank's Jim Reid, who is always sober, but not usually wildly negative. He offered up one of the most bearish lines in history in regards to German opposition to ECB debt monetization:
If you don't think Merkel's tone will change then our investment advice is to dig a hole in the ground and hide.
Oy.
But it got even wilder with the latest from SocGen's Dylan Grice. Again, he's always pretty negative, but he cranked it up a notch, comparing Germany's policy today against the policies that enabled the rise of Hitler. Specifically, he said that post-Weimar, Germany became too aggressive about fighting inflation, thus prompting deflation, thus prompting more unemployment, thus enabling the rise of the Nazis.
He included this chart:
http://static5.businessinsider.com/image/4ec67dc069beddaf77000000/nazi-party-germany-hyperinflation.jpg
And finally, in our inbox, we just received the latest note from Nomura rates guru George Goncalves, which is titled: US and Europe: At the Point of No Return?
He writes:
...we were wrong in assuming one could be optimistic around the EU policy process and have learned our lesson not to accept apathy as a sign that all is factored in as its clear downside risks remain. In fact, we could be approaching the point of no return for the fate of the euro, the European financial system and more broadly the concept of a singular economic zone for Europe; this obviously would change the path for the US and the global economy in a heartbeat too. We still believe there is time to prevent worst-case scenarios, but these sort of watershed moments reveal one thing, that market practitioners are ill-equipped to navigate the political process, especially one that is driven by 17 different governments.
That's it. Hope everyone has a fantastic weekend!
And definitely, read Dylan Grice's brilliant note >
DYLAN GRICE: Germany Is Making The Same Mistake That Allowed The Nazis To Come To Power
In his latest note, famously bearish SocGen analyst Dylan Grice goes there. Big time.
The subject of the note is Weimar, hyperinflation, and all that money printing that anyone talks about.
But it's not what you'd expect. He's not saying Germany printed money, and that caused Weimar hyperinflation and that caused Nazis. He's saying memories of Weimar caused Germany too adhere too much to hard money, and that caused unemployment and that lead to the Nazis.
The lesson Grice tells?
He writes:
And here enters a wistful historical counterfactual: how different might history have been if the Germans had inflated their economy when the crisis broke?
Here's his lesson:
It's impossible to say, of course. By 1931 the world was in depression. Germany would have been too, with or without its pathological fear of inflation. The Nazis would presumably have made the same electoral gains. But suppose Germany had inflated in 1931, like the U.K. did. The following chart compares the trajectory of the U.K. unemployment rate after it had left the gold standard with that of Germany, who stayed on.
After leaving the gold standard, the U.K. saw its unemployment rate decline by about a third from 1931 to 1933, while Germany's rose significantly over the same period. If Germany had been willing to follow the U.K. in inflating, and its unemployment rate had followed a similar trajectory, it would have stood at 17% rather than 33%. Would this have averted what followed? Would Hitler have won that March 1933 election with 45% of the vote? Would the world have experienced the evils of the Nazis in power? World history might have been very different. There might not even be a euro today, let alone a euro crisis.
And this is the killer conclusion
So even a hard money libertarian like me can see that there have been times in history when creating inflation would have been the right thing to do. Germany today has to decide if now is one of those times.
Europe's crisis today is orders of magnitude smaller than that in the early 1930s. The stakes are much lower today than they were then. But they are not low. And, just as it might have done in the 1930s, flexibility on hard money principles might help turn the tide. ECB involvement cannot solve the underlying problems of the eurozone economies, which are anti- entrepreneurial and too heavily regulated. But it will buy time with which to address these problems and so allow eurozone policy makers to get ahead of the panic for now.
http://www.businessinsider.com/unemployment-vs-nazi-party-vote-2011-11
http://www.businessinsider.com/apocalyptic-analyst-notes-2011-11
PS - Not much else to say, we don't know already..!