Tuesday, September 6, 2011

Beware the Ides of …….. September?

There is a dirty little secret in the financial world. A secret that might be whispered about behind closed doors but is seldom if ever discussed in the open. That being that each year as the calendar rolls around to September fear (some might argue insanity) begins to grip the hearts and minds of the power elites and knowledgeable historians alike.

You see it’s this period when financial calamities and wars have a nasty tendency to set in. The signals that this may well prove to be one of “those” Septembers have already begun. When the otherwise aloof, stable or independent (choose your own adjective) Swiss begin to succumb to the financial insanity sweeping the rest of Europe and the U.S. you might want to do a little more than scratch your head about it.

You see over the last few months, as the chaos and uncertainty in the Euro zone has metastasized there has been a flight of not just Euros but also U.S. Dollars into the Swiss Franc. Being such a small economy relative to the rest of Europe and the US there simply not enough Swiss Francs to go around, and as a result as when anything in demand becomes scarce, it price goes up. This has caused the Franc to appreciate against the Euro and the Dollar by nearly 40% since June of last year. This in turn has played havoc with Switzerland’s ability to export goods by essentially pricing it out of the market.

In reaction the Swiss have now decided to join the global race to the bottom in currency devaluation. At first they announce that they were going to simply print more Francs to meet the demand, but even that had a minimal effect on its soaring exchange rates. So today it would appear that the Swiss have decided get fit for a straight jacket and announced that the Franc will be fixed at 1.20 Francs to the Euro. Immediately the Franc went over the cliff, falling nearly 8% in a matter of 20 minutes.

But this may be only the beginning. On Wednesday the German Supreme Court is expected to announce its ruling on the Constitutionality of Germany’s further participation in bailing out the PIIGS. The results of local elections coming in across Germany in the last few weeks have pretty well indicated that the population has had enough of Angela Merkle’s policy of using Germany’s economy as the bailout bank for the rest of Europe. The political pressures falling on the court must be tremendous. If they rule that further participation is unconstitutional the EFSF (European Financial Stability Fund) and any further discussions of disbursements to the PIIGS may fall apart within days if not hours. If they rule that it is constitutional and Merkle continues to sacrifice German GDP to the preservation of the Euro political chaos in Germany may be in the cards in the very short term. Just ask yourself; just when has political chaos in Germany ever turned out well for the rest of Europe or indeed the world?

Let’s be honest here, all this chaos in the financial markets, all of it, is the result of politicians and bankers trying to bend the natural forces of markets to their will. Be it fiat currencies, price fixing and/or manipulation, it never works out in the long term. It’s almost a constant recurring theme of history matched with human arrogance and hubris that “this time it will be different”. Well maybe I should take that back a bit. This time will be different, this time the results will be much worse!

All the proponents of a “New Age” have said that man must develop a “collective conscience” to survive in an ever changing and modern world. Well I think they have achieved it, except it’s not a new enlightened consciousness, it’s a collective insanity of thinking that a certain set of people know better than the common sense of the “great unwashed”. The hubris of the powers that be trying to impose their delusions on the rest of the world that they are actually in control of events and that by mere force of will markets and nations and people can be forced into compliance to their will.

Only problem is in spite of the propaganda to the contrary it isn’t working. Aren’t these very same “powers that be” the titans of Wall Street and their wholly owned politicians in Washington? Why then have their vaunted institutions fallen into not just disrepute but near term financial collapse? Aren’t they “Too Big To Fail?” Wasn’t all that TARP money and stimulus spending supposed to save them and us as well? Explain to us please how B of A falling from over $50 a share to under $7.00 a share is a reflection of stability and control. Yes B of A may be an extreme example in the percentage of decline (smells like Lehman Brothers to me) but almost all of the big banks have fallen off over 50% from their highs. How do they then justify paying their executives huge bonuses (with taxpayer dollars no less) when their performance has been so abysmal? How long do they think the people will continue to buy the load of garbage coming out of Washington that they can fix the unfixable just as long as all the rest of us just tighten our belts and do with a “little” less so the banks can survive and continue paying those bonuses?

Now that Swiss Francs, financial stocks or Treasury Bills can no longer be able seen as a “safe haven” against the chaos we just might want to look at what can be expected to happen to gold and silver. It’s almost vertical trajectory over August, in spite of high volatility can hardly be dismissed as “unexpected” or irrational flight into a “barbarous relic.”

Does any sane person think that the banks and politicians here will not react to their defacto “loss of control” exactly as their counterparts in Europe have done? Do they actually think that people here will buy into the meme of less for the people and more for the banks any more than the Europeans have? Well maybe they do, but that is just further demonstration of the depth of their delusions and the heights of their hubris. For them no warnings need be heeded, no events need be seen as precedent, at least not until they have their corporate jets warmed up on the runway and they flee to their extradition free haven of choice and they leave the rest of us to reap the cost of the chaos they have sown.

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