-- Posted Wednesday, 9 June 2010 | | Source: GoldSeek.com
The following are some snippets from the most recent issue of the International Forecaster. For the full 31 page issue, please see subscription information below.
US MARKETS
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A monumental event is taking place in Europe, of a scope that makes the credit crisis in the US of the past almost three years, look small by comparison. Those in the financial community do not understand the ongoing detrimental effect it will have on the entire world economy. It certainly will make European goods and services from the euro zone at least 12% cheaper for export than they have in the past. The flipside of that is imported goods, particularly energy, will be more expensive and that means higher European inflation. We see Iran and China making announcements that they will use dollars rather than euros in trade in the future. We guess they forgot the euro members may have lots of problems, but the euro still has about 7% gold backing, something the US dollar and all other currencies do not possess. This is not an excuse to own euros, but it has fallen from $1.50 to $1.19 and that is a sizeable correction. Those who are short the euro and have been since last October, and long the dollar, will want to take some profits. It is also in the best interest of all that the euro doesn’t fall any further at least at this time. The same holds true for Greek bonds, as well as those of Ireland, Spain, Portugal and Italy.
For the past ten years we have written about the German subsidy program that has supported the southern tier members, known as Club Med members. This subsidy of hundreds of billions a year is no longer supported by Germany, besides from the very beginning the Germans polled showed 70% never wanted to be in the euro zone, and have the euro. They wanted their Deutsche mark. In fact, for years Germans refused to accept euros printed by other euro zone members. Germany is tired of being the whipping boy of Europe. It has been 65 years since the end of World War II, and It is time for reparations to end, and it is time for illuminist controlled politicians and bureaucrats to step aside. Some talk of a northern tier currency. We certainly do not see that happening. We lived in Germany for a long time, and we speak German and we believe we have outside insights that few have of the psyche of the German people. As a result within two years we see a return to national currencies in the 16-euro zone nations. The Illuminist experiment is in its final years and its failure could destroy the EU as well. Another element few consider is the end of duty free trade in the zone and future trade implications within the EU. We still believe the crisis is far, far, from over. We think England could break away from the EU and the WTO and erect tariff barriers, which would be followed by the US in order to effect economic recovery. Both countries have lost millions of jobs to free trade, globalization, offshoring and outsourcing. This means big changes. We also believe that the holding of foreign profits in offshore locations by transnational conglomerates will end. That means more taxes for England and the US and the end of tree trade as it has been practiced since the 1980s. The attempt to destroy the world economy in order to bring about world government has failed and its creators know that. They are trying to find ways to extricate themselves without getting sued, prosecuted and in some instances hung.
For the time being German politicians have prolonged the elitist program, but they won’t be in office and power long. Germans do not want to bail out Europe and they won’t do so. Don’t forget the German courts still have to rule on whether this bailout is legal. We do not believe it is and this time the court will rule in favor of the law and its citizens. This is why Germany acceded to the aid package. Germans are bright, well educated, hardworking and efficient. They know a unified Europe is not in their best interests.
We believe within six months Greece will leave the euro zone, return to the drachma, default on its debt, and start to clean up its problems. If it doesn’t it will become a third world country. This is what we advocated on Greek TV, radio and in special interviews with the largest newspaper in the nation. Perhaps the debt will be handled as Argentina did ten years ago, at 30 cents on the dollar. Greeks have to pay their taxes. There has to be major governmental changes. The Bureaucrats, politicians and bankers who caused these problems have to be brought to justice, and that includes Goldman Sachs, and punished for their acts, so Greeks and others can see the Greek people are serious about cleaning up their problems. The country has to become competitive and that means a low valued drachma. In addition there is no reason for Greece to bail out European bankers who were in part responsible for this mess in the first place. The aid plan, like TARP, is designed to only bail out domestic and foreign bankers, not the Greek people. Default would put the blame where it belongs, on the bankers. This would cause panic and dislocation across Europe and in London, but let the chips fall where they may. It is not the function of European taxpayers to bail out European banks.
The change and timing is coming and it will be crucial and the switch to the domestic currency has to be simultaneous and secret until it happens. The rest of the euro zone debtors will follow. The nightmare of the euro zone will be over and the banks will have to absorb the losses or go under. We said from the very beginning of the crisis this was inevitable and so it will be. Assets should not be sold off. That will prove to be a nightmare for Greece. If they want to compromise they should default on only 70% of the debt. European banks would be very happy with such an outcome.
A cheap drachma would draw tourism and make their goods cheap in foreign markets, but spending would have to be balanced with revenues. There will be high inflation, but that is a cheap price to pay for freedom. This course would exempt Greece from years of servitude to EU bankers and the IMF. More than anything else Greece has to clean up its economy. If they do not they will have the same problem a year from now. There is some consolation and that will be that the rest of the PIIGS and Austria may join Greece in default. The means other solvent euro zone partners would be in trouble as well, as well as their banks. Again, as a result we do not see an alternative block currency, but individual currencies.
As a result of European problems and other negativeness, the Dow lost some 7.9% in May and S&P 8.3%, the worst performance since 1940. Even sovereign debt in the US, Germany and Japan is close to zero, as countries in trouble are reflecting high yields. The Dow is trading at levels last seen in 1999. This means if you were in the market during that period you lost money, or at best came out even. Even with the recent dollar rally the dollar has lost 30% of its value proving to be a terrible investment. That wipes out all US treasury gains.
If the US did not have the stimulus package and the infusion of aggregates by the Fed real unemployment would not be 22-3/8%, but 23.75%. The effects of stimulus are over and we will soon be sliding back into depression, albeit now an inflationary depression. We are looking for GDP to be even to minus 2% in the third quarter. If you subtract the stimulus, GDP rose 1.3% in the first quarter. The reason for lower GDP growth in the third and fourth quarters is the end of inventory growth.
Keep in mind that average employments per firm have been negative for 28 months. You cannot increase employment without lending to small and medium sized firms and the continual drain from free trade, globalization, offshoring and outsourcing. As you know, the recent jobs report was a disaster and it is going to get much worse. Those small to medium sized firms create 80% of new jobs. That means a Dow test of 6550 in the not too far distant future. If no stimulus occurs and the Fed continues its drawback of funds consumers will spend $1 trillion less. This is chilling and it is on the way.
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THE INTERNATIONAL FORECASTER
WEDNESDAY, JUNE 9, 2010
060910(3) IF
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