Monday, May 10, 2010

Too Many Holes, Not Enough Fingers 2

Almost a year ago, this title seemed appropriate as the market started its ascent from March lows. With Europe's bailout package near $1 trillion, the parallels to our own desperation are clear. Buying the debt of bankrupt countries with moneys from healthy economies seems eerily familiar to buying troubled assets with taxpayer dollars. No granted authority for such actions (the proposed package is in direct violation of the Maastricht Treaty on which the EU was based) exists, as Ron Paul has repeatedly pointed out that no such authority for the Fed to create their programs exist. There has been a refusal to let dying corpses (Greece only 2% of EU GDP, GM, Fannie, Freddie) fail at the risk of hyperinflation.

As HK emailed to me today, how in the hell is Europe going to pay for this? Will German pollsters allow hundreds of billions of their euros flow to the PIIGS without burning Berlin to the ground? Will the Greeks ever be able to reduce their debt burden to 3% of GDP? C'mon!!!

And perhaps while you were counting your temporary winnings today, you forgot to notice that we have reopened CDS agreements with Europe, or that our largest banks have $3 trillion in European exposure? How about Fannie and Freddie asking for another $20 billion? Perhaps Dr. Michael Hudson is right. When this thing implodes the Greeks will declare their debts in drachmas, the Italians in lira, and it will be every country for themselves. Black Swan author Nassim Taleb has pushed for the printing presses to stop. "My fear is that if we don't stop them now they're going to create hyperinflation...nobody has confidence in a guy like Bernanke."

Gold down today, but is another trillion going to discourage a flight to gold? I don't think so. It is imperative that some shorts be opened or maintained, just in case. That's what Taleb is doing, as Universa, the fund he advises, put in for 50K contracts on June SPY 80s Thursday, just before the market dropped 1,000 points.


Anonymous said...

Hudson is good. He recently said that you can't inflate your way out of debt. It's noever been done successfully -- your creditors will simply make it too painful on you.

Tiger Coach said...

Brother Ax...

Excellent points on the blog today... To your point on the Euro Zone, I believe when continental currency was floated 15 years ago it seemed like there was nothing but pie in the sky... Evidently, there are consequences when capitalistic economices coupled to weaker ones... What does Greece export besides Olive Oil? A true nanny state that is crumbling!!! The U.S. should should heed this warning as the Euro Zone may in the end wind up "booting" some of the weaklings who do not shape up!!!

I am getting quotes of 13X face on coins... 15X silver dollars...
And this is pure melt value!!!

Q: Why is it so easy to fall back into our short mode?

A: We enver really believed in this rally!