Economist Charles Gave: The Euro Will Not Exist In One Year

Joe Weisenthal

Charles Gave is the French economist whose research firm GaveKal is fairly well known,and read in some hedge fund circles. In his latest note, John Mauldin reports on a dinner he attended with several investors and experts, of which Gave was one. At the
dinner, he predicted the Euro’s imminent demise.

Will the Euro Survive?

We had dinner on Monday night at the
home of Hervig von Hove of Notz-Stucki Bank, where I was speaking the next
morning. There were 16 of us at the table, and these people represented a great
deal of money as managers and investors. All very well-informed. We sat outside
in perfect weather in the Swiss countryside. Charles Gave sat across from me at
the middle of the table, and we talked and debated as the rest asked questions
and offered opinions for 3-4 hours. The wine was flowing, and it was a most
interesting evening. Now, with that set-up…I was asked if I still thought the
euro was going to parity with the dollar, and I said I did, although I was not
sure what the euro would look like in three years, or who would be in it. There
was some pushback from people who thought the dollar would be the weaker
currency. So I asked for a show of hands as to how many people thought the euro
would be higher in one year’s time. There were 6 hands raised, but one
gentleman said he was actually abstaining. So I asked how many thought the euro
would fall, and we got 12 hands. Yes, that is 19 votes for 16 people. Clearly
there were at least three economists in the group who voted both ways!

Then someone asked Charles about the issue. Now, for those who have never had the extreme pleasure of time with Charles, he is a powerful, white-haired French patrician, and one of the better economists I know. Quite a brilliant thinker and not afraid to express his mind forcefully with a voice that sounds like God talking, with about the same assurance (note to self: never again follow Charles on a speaking stage).

“The question is entirely irrelevant” – punctuating the air for added emphasis. “The euro will not exist in a year. The whole thing was dysfunctional from the beginning.”I suggested that was a tad bearish.“Not
at all. I think it is extremely bullish. The demise of the euro and the return
of national currencies will allow for proper allocation of investments and
resources. It is the best thing that could happen for the markets.”I could not get him to commit to exactly how that process of dissolution would look. “I didn’t create the euro so it is not my responsibility to solve the problem for them.”But I cannot help but think that any exit by anyone from the euro will be disorderly, giving rise to Bernanke’s
“significant effects.” Many European banks are simply not solvent if there are
major sovereign defaults. The US banks have sold some $90 billion in credit
default swaps on Greek, Irish, and Portuguese debt to European banks. That is
supposedly balanced with other purchases of CDS, but my sources say that much
of that insurance is from German Landesbanks. Yes, the same ones I mentioned
above that are basically insolvent. We are joined at the hip to Europe. A
European recession would certainly be felt here. And a credit event could cause
the same problem as in 2008, as banks start to refuse to lend to each other
again. Ugh. The potential for a real crisis is far too high for comfort. It would mean another recession for sure, with the US already close to stall speed and global growth slowing. I hate to sound alarmist, but I am worried. Absent a problem in Europe, the US should be fine, if slow. And maybe European leaders can stall the crisis off longer, buying
time for banks to move their debt to the ECB and raise capital. We have to
really keep our eyes on this.At some point, Europe needs to realize that the problem with Greece, Portugal, et al. is not illiquidity, but that they are insolvent and have few prospects for economic growth anywhere close to what is needed to solve their problems.

Europe would be better off just taking the money they are giving to Greece and using it to recapitalize their banks. Let Greece go. Give it up. Let them enter a 12-step program or whatever it is that insolvent nations do. That is harsh, but it is also the truth.

But there are very sad things going on. It is not just banks that are losers here. Pharmaceutical companies are starting to refuse to deliver to Greek hospitals, as they are up to two years behind on their payments. It turns out that Greece owes some €6 billion to
private businesses like hospitals and simply cannot pay. Those costs are rising,
and much of it is to hospitals for medical care supported by the government.
They are issuing bonds (shades of California) for the debt in some cases, which
sell for a discount of 50%, if they can be sold. And we thought finding €12
billion was a hard thing. This is not just a Greek problem, it is a concern in many countries that are having financial difficulties.

source:http://www.businessinsider.com/author/joe-weisenthal

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Crash JP Morgan , Buy silver Campaign

Crash Silver, Buy JP Morgan and Prevent Financial Armageddon

Stock-Markets / Banking Stocks Dec 10, 2010 – 04:48 AM

By: Nadeem_Walayat

 

The “Crash JP Morgan, Buy Silver ” internet campaign has been gathering momentum for several months now as individual investors increasingly jump upon the rolling bandwagon by buying a few silver coins. The high profile proponents of the campaign include Max Keiser, Mike Maloney and Alex Jones amongst many others. Whilst they are correct in identifying JP Morgan as being the worlds largest a market manipulator that continious to leech the life blood out of the US Economy via the corrupt institution that is the U.S. Federal Reserve Bank that literally makes unlimited funds available at JPMorgans disposal.

However, the crash JP Morgan proponents have not considered the consequences of crashing JP Morgan which would act as a contagion that could bring about the collapse of the worlds global financial system.

JP Morgan IS too big to Bailout

The Crash JP Morgan proponents identify the following reasons with the aim of driving Silver to as high as $500 an ounce.

1 – JP Morgan has a huge short position in Silver – estimated to be 3.3 billion ounces – tied to an enormous, extremely precarious $65 trillion derivatives position.

2 – Various exchanges around the world have been caught manipulating the price of Silver using ‘naked’ short sales i.e., counterfeiting.

3 – Of all the actively traded commodities traded around the world, Silver is one of the least plentiful and its supply is shrinking, but its industrial uses are multiplying. The ‘networked’ age of global communications is built with Silver.

4 – Hedge funds are taking physical delivery of Silver – adding substantial demand as well as exposing these exchange’s naked short positions – who are already scrambling to deliver – jacking prices up to multi-decade highs – and inspiring these predatory funds to buy more Silver.

5 – There are billions of people around the world who are aware that banks have been committing fraud and embezzlement who are upset that their politicians seem only interested in helping the banks commit more fraud – who are looking for a cheap way to non-aggressively fight back and decapitalize these banks.

6 – Many of these people have the access and wherewithal to purchase 1 ounce of Silver – thus removing hundreds of millions of ounces of Silver from the ‘paper’ market – forcing additional scrambling by dealers to fill orders by buying back short positions – inspiring the funds to buy and take physical delivery of even more Silver – creating a colossal short squeeze – in which JP Morgan stands to be the biggest loser.

7 – Buying Silver is how the world is monetizing its anger at the banks who stole their wealth.

The crash JP Morgan proponents identify JP Morgan as having some $1.5 trillion in derivatives tied to their silver short position alone, as part of an estimated $70 trillion of derivatives exposure, which is larger than the size of the global economy and 5 times the size of the U.S. Economy. If the financial markets ever thought JP Morgan was at any risk of defaulting on any of its derivatives positions then there would be a run on JP Morgan Lehman’s style. Unfortunately to bailout JP Morgan, the cost to prevent a run on the U.S. Financial system that could within hours collapse the whole global financial system would make Novembers QE2 look like chicken feed. The print run would run into the trillions if not the tens of trillions as counter parties to JP Morgan’s derivatives panicked.

What would be the consequences of a flood of Perhaps $10 trillion Bailout Dollars ?

Loss of confidence in the U.S. Dollar resulting in a collapse of value triggering an Hyperinflation panic event as dollars were dumped for any commodity or resource so as to prevent purchasing power wipeout, sending interest rates soaring and bringing world trade to an abrupt halt that would risk the collapse of civilisation as we know it today, with financial armageddon eventually resulting in actual real world armageddon much as Europe Experienced Armageddon from September 1939 to 1945, but this time with tens of thousands of hot nukes thrown into the chaos equation.

So yes, Crashing JP Morgan may result in Silver hitting $500, BUT without food, energy and chaos in the streets with a high risk of eventual global nuclear conflict, holders of silver coins may wish they could turn back the clock and instead campaigned for Crash Silver, Buy JP Morgan and Prevent Financial Armageddon!

Current Status of the Crash JP Morgan, Buy Silver Financial Armageddon Campaign

Silver Price

 

The Silver prices has soared by nearly 60% in 3 months, which means that the of quoted JP Morgan Silver short position of $1.5 trillion would have grown to $2.5 trillion as a consequence of adverse price movement.

JP Morgan Stock Price Implies Silver Short Covering Responsible for Silver Rally

Bank runs, panics, bankruptcies and collapses first manifest themselves in the stock prices, long before they become headline news in the mainstream press.

 

The JP Morgan stock price is NOT behaving as though it is heading for an imminent collapse. In fact whilst the silver price has roared ahead JPM has been range bound with an upward bias, and the most recent price activity towards the upper end of the range is not exactly evidence of a stock price that is under distress due to a crippling short position being squeezed by speculators. The trend during the past few months is clearly corrective which therefore favours an upside breakout which may be imminent, and then what for the JPM Crash proponents and the silver price ?

Silver Price Trend Implications

This to me suggests that the oft quoted JP Morgan silver short position is far smaller than $1.5 trillion, as probably JP Morgan has been covering its silver shorts for many months. In fact the rise over the past 3 months is probably more due to JP Morgan short covering than the impact of the Crash JP Morgan campaign buying. This also suggests that whilst on going short covering should result in an upward trend for silver, however the JPM master market manipulators will also ensure that they periodically hit speculators and hedge funds hard if they try to take advantage of JPM short covering by SELLING silver hard to run the stops.

Silver has always been very volatile, so investors / traders need to be very nimble footed to ensure that they do not give up their gains, as at the end of the day the only thing that counts is banked profits.

Now don’t get me wrong, I am not anti the campaign as probably in reality it has only had a marginal impact on the silver price, I am just highlighting the consequences of what actually crashing JP Morgan would probably be, in that JPM would take the global financial system down with it.

 

Weekly fix of Max Keiser speaking on a French radio station

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Understanding Credit default swaps

In the first video clip toward the end you heard we the taxpayers were taking over approximately 14,000,000,000:00 Billion worth of Derivatives or (CDS) from Anglo Irish Bank  alone!

(I personally believe that that figure to be near the 100,000,000:00 mark)

But most people do not know or understand what exactly these Derivatives are let alone understand them .So in the 2^nd video clip you can get a crash course on the basics of CDS.

But the bottom line is Brian Cowen and Brian Lenihan could not possible know what they needed to know before taking on such obligations and there lies’ the crocks of the Irish financial meltdown.

Politicans, experts at waffling are making decision on complex financial instruments, that I have being studying for the last 12 years and still do not fully understand, but I know that they are like financial nuclear bombs and are best Instruments that should be avoided at all costs. They are unregulated and you are buying a pig and a poke.

Here is what Warren Buffet had to say about these unregulated financial tools .

In fielding a question about derivatives, which he once referred to as “financial weapons of mass destruction,” Mr. Buffett told shareholders that he expects derivatives and borrowing, or leverage, would inevitably end in huge losses for many financial participants.

“The introduction of derivatives has totally made any regulation of margin requirements a joke,” said Mr. Buffett, referring to the U.S. government’s rules limiting the amount of borrowed money an investor can apply to each trade. “I believe we may not know where exactly the danger begins and at what point it becomes a super danger. We don’t know when it will end precisely, but…at some point some very unpleasant things will happen in markets.”

Mr. Buffett has expressed similar bearish sentiments about derivatives in previous meetings and in his widely read annual letters to shareholders. He had first-hand experience with the difficulties of derivatives after Berkshire acquired General Re, the reinsurance company, in the late 1990s, and spent several years unwinding its derivatives portfolio at a loss to reduce the subsidiary’s exposure to risk. He noted, however, that Berkshire currently has several dozen derivatives positions — such as futures and options contracts on stock indexes and foreign currencies — and added that “derivatives aren’t evil.”

Charlie Munger, Berkshire’s 83-year-old vice-chairman and Mr. Buffett’s droll sidekick during the six-hour annual meeting, said that the accounting of derivatives contributed to the risks they pose to the financial markets.

“The accounting being deficient enormously contributes to the risk,” said Munger, lamenting that executives and shareholders were getting paid on “profits that don’t exist.”

Mr. Buffett noted that existing accounting conventions allow parties involved in derivative transactions to value the same contract differently, leading to an inadequate or incomplete picture of the contract’s risk. “I will guarantee you, if you add up the marks on both side, they don’t add up to zero,” Mr. Buffett said, referring to the accounting of a single derivative contract.

Exacerbating the problem of derivatives and leverage is the short-term trading mentality and high turnover in the stock and bond markets, Mr. Buffett and Mr. Munger added. “There is an electronic herd of people around the world managing an amazing amount of money” who make decisions based on minute-by-minute stimuli, said Mr. Buffett, adding, “I think it’s a fool’s game.”

Source http://seekingalpha.com/article/34606-buffett-on-derivatives-a-fool-s-game

So what has Cowen and Lenihan gotten us into ?