Have we gotten used to the word billions as we will get soon get used to the word trillions ?
“The Federal Reserve‘s has reached $2.94 trillion. That’s triple its size in August 2008, just before the crisis hit. The ECB’s is $3.58 trillion, nearly twice its level before the crisis. The Bank of England‘s balance sheet has jumped three-fold. The Bank of Japan‘s is up 28 percent. ”
China has also participated in the unprecedented expansion of the world’s money supply, with its balance sheet rising from about $3.0 trillion in 2009 to just over $4.5 trillion today, in U.S. dollar terms (source: People’s Bank of China). Let’s not forget England as well, which announced just last month another $79.0-billion dollar injection, seeing its three-year balance sheet increase run to $513.5 billion, in U.S. dollar terms (source: Bank of England). The Bank of England has also signaled that more could be on its way.
Reading the above in the context of the table below gives you a shudder.
The top 6 countries in the global economy are multiplying their balance sheets in an unprecedented synchrony.
Does that make the rest of the world safe ? Hardly the case if you consider the mutual exposures in the chart below.
Global Debt Market Statistics & Equity Market Statistics
Global Market Cap : $51.1 trillion (5 Mar : Source Bloomberg)
Stock of Domestic Credit : $109.6 trillion (2011 est : Source CIA World Fact Book)
Central Banks have taken a bigger share of the global debt pie !! Now is there anything too big to fail ?
Yes. Humanity is too big to fail.
So what do we have to expect ?
- There is a lot more money in the world
- The money is not flowing into people’s pockets
- The money is chasing debt that is printed to to create the money
- We are sitting in massive devaluation of cash right now !!
This is the first time the world is concertedly leveraging to deleverage and inflate their way out of losses. It is a twisted idea but we have to admit there is an element of truth in it.
Fighting Debt With Debt : http://seekingalpha.com/article/412761-fighting-debt-with-debt
3 Central Banks and their crises programmes. And peripherals too like BOE.
What Can We Do If We Cant Go Back To Fishing Like Iceland ?
CRY FOUL ??
“We are too small a country to sustain such a big banking system,” he said in an interview. “We have fantastic resources and an abundance of green energy and we will now utilize that and the other resources we have, the ocean and human capital.”
Oct 9, 2008 … Iceland Prime Minister Geir Haarde : Source Bloomberg
Mar 2012 : Icelandic ex-PM on trial : http://www.bbc.co.uk/news/world-europe-17256626
In March 2010, Icelandic voters overwhelmingly rejected in a referendum a proposal to pay theUKand theNetherlands4bn euros (£3.4bn) they lost when the Icesave bank collapsed.
In February 2011,Iceland’s parliament voted yes to a new plan to repay the UK and the Netherlands for reimbursing 400,000 citizens who lost their savings in the collapse of Icesave’s parent bank, Landsbanki.
For a second time,Iceland’s president, Olafur Grimsson, put the deal to a public vote.
“This isn’t Iceland” is what Lenihan actually says. “We’re not a hedge fund that’s populated by 300,000 farmers and fishermen.Ireland is not going back to the 80s or the 90s. This is all in a much narrower band.”
The Radical Suggestion
Let’s leverage up and play the game. Cry foul if we have to pay back and enjoy the ride for as long as it lasts.
~ AGREED. Borrowing doesn’t hurt because the money will only get more worthless in the future in that, money can increasingly buy less if the central banks continue to flood the system with loose liquidity.
What do we do with the cash ? Buy up scarce resources and assets that cannot be created by the magic wave of a wand.
5 Asset Classes
~ Money X
~ Equities √
~ Commodities √
~ Bonds ?
~ Real Estate √
~ Human capital ?
~ Intellectual capital ?
1. Chances of a Bubble ?
The stakes have grown too high for countries to fail. Bubbles are only for babies.
All the money has to go somewhere which is why I am loathe to believe that US Treasuries will collapse for simply, the lack of an alternate investment (US Sovereign Debt has hit a new peak of USD 15.5 trillion, that represents almost 1/3 of global equities).
The money will not go away in the near to medium term now that Europe, England and China just got into the act.
QE3 is still a lingering phantom in our dreams.
2. Rate Hikes ?
Are the only chance of pricking the bubble. Would be a kamikaze mission if FED and gang would want to run a mark to market loss on their inventory.
The man on the street is hostage now that financial firms have successfully passed the buck onto the population. And really, jobs are not being created fast enough and the population is not adapting to the new jobs created as quickly.
3. Hyperflation ? Stagflation ? Stagnation ?
Don’t Dare to Imagine The Consequences of These. But hardly given the US is back on the right track so economic numbers tell.
I would stick with GOLD, small SILVER long term.
Long Equities opportunistically coupled with VIX hedges.
Real Estate or Farmland in US is probably worth a look going forward.
Long USD in the near term till the rest of the central banks stop their price war.
Fade the EM trade on account of their risk exposure to Europe.
Fade AUD on account of their exposure to China.
It will be a long drawn battle this year. Decorrelating the indiscriminatory risk bundlings that we have created in the past 2 years in the US vs the Rest Of The World basket.
What I wrote last week. https://tradehaven.net/2012/03/02/the-uphill-task-of-trading-decorrelations/