Editor’s Note: In this series of articles, we include important or interesting videoclips with our comments. This
is an article that expresses our personal opinions about comments made
on Television and in Print. It is NOT intended to provide any investment
advice of any type whatsoever. No one should base any investing
decisions or conclusions based on anything written in or inferred from
this article. Investing is a serious matter and all investment decisions
should only be taken after a detailed discussion with your investment
advisor and should be subject to your objectives, suitability
requirements and risk tolerances.
1. Europe a Head Fake?
Remember the Debt Ceiling fight in the US? The stock market was supposed to rally as soon as the Debt deal got done. Instead, it fell apart as soon as the deal was signed. Because it then focused on the European mess. Remember the passage of TARP by the Congress in 2008? The stock market was supposed to rally as soon as TARP was passed. Instead, it sold off.
Last weekend, we wrote about the brave and correct call by Terrence Keeley of BlackRock about Risk being turned ON come Monday morning. It was turned on and the stock market had a great rally on Monday. The next morning it rallied big again until about 2 pm. Then it reversed. The next two days, the market rallied strongly in the morning on good news from Europe only to sell off in the afternoon. This week, Germany passed EFSF by a much bigger than expected margin. That euphoria was quickly sold off. Then on Friday, the market closed on its lows and the action was ugly.
Is the market telling us that it has accepted EFSF and now moved on to China? The data from China is looking uglier by the day. And the talk of a hard landing in China is getting attention. And this is no small matter for equities. Chinese growth is the foundation on which S&P rests. If the foundation wobbles, then the resiliency of the US Stock Market might crack.
2. The Message of EM & Commodities?
China is not only important to the S&P 500. It is probably more important to other EM economies. China is a very large trading partner of Australia, Brazil, Korea, ASEAN and Africa. All these markets are breaking badly and so are commodities. Michael Hartnett of BAC-Merrill published a report this week titled Investors flee EM bonds & equities. Are all these markets transmitting the China message? We think so.
Last week, Jim Chanos told Bloomberg that the bust of the Chinese property bubble “is not something that is going to happen. It is happening as we sit here“. This ominous warning seems to be coming true. This week, a Retail analyst told CNBC Power Lunch about Chinese shopping malls she visited that were empty.
The most interesting comment about China came from Gillem Tulloch of Forensic Asia. In a video interview with the Financial Times, Mr. Tulloch said:
- The biggest story in China right now is Get Out of China story. As much manufacturing as possible is leaving China and going to South East Asia, it is even going to Eastern Europe. Romania, for example is a beneficiary as well.
3. Is the US in a Recession?
So far, David Rosenberg and Lakshman Achuthan were in some disagreement on this topic. David Rosenberg has been early and emphatic. On September 2, he told Betty Liu of Bloomberg:
- “I don’t think at this stage there is a lot the Fed can do to prevent a recession from happening”.
But on August 31, Lakshman Achuthan told CNBC’s Steve Liesman:
- “That’s an open question. It (slowdown) has been persistent but it has not been pronounced enough for us to make a recession call.”
A month later, Mr. Achuthan answered the open question on CNBC Squawk Box on Friday (see clip 3 below):
- Now it is a done deal. We are going into a recession. …It is a new recession.
Mr. Achuthan does not make any definitive comment about the severity of the recession (see clip 3 below). Mr. Rosenberg gave his opinion to Bloomberg’s Matt Miller on Thursday, September 8 (see clip 3 of our Videoclips of September 3 – September 9 article):
- It is going to be very problematic what gets us out once we get into it.
We tend to concur. If China, Europe and US are all in a recession, interest rates are already at zero or near zero everywhere and if the overhang of sovereign debt makes fiscal solutions impractical, what could get the world out of this coming recession?
We do know what can make the recession worse. A Trade War or a Military War. We saw Jim Rogers express this sentiment about the former last week on CNBC Strategy Session (see clip 4 of Videoclips for September 17 – September 23) . Below we provide a scenario for the latter kind.
Many people accuse David Rosenberg of being a perma-bear. This week, Mr. Rosenberg actually suggested buying certain kinds of stock (yes, common stocks) to CNBC’s Melissa Lee and Simon Hobbs (see clip 2 below).
A word of disclosure, if we may. We have no business relationship of any kind with Mr. Achuthan, Mr. Rosenberg or Mr. Shilling. We have never ever spoken with Mr. Rosenberg. We have had one conversation each with Mr. Achuthan (several years ago) and Mr. Shilling (in August 2008 when he helped us with material for our first article about Tr
easuries). So we mention them or feature their clips only because their comments have been extraordinarily prescient and helpful.
4. US Recession & the US Stock Market
September was a bad month and the 3rd quarter for an awful quarter for any one long the US Equity market. On Friday, we kept hearing from CNBC equity-fee-collector guests how the 4th quarter is traditionally bullish for the US stock market. But one expert guest added an important caveat. Tim Hayes, Chief Investment Strategist of Ned Davis Research, told CNBC’s Melissa Francis & Bill Griffeth:
- …..this third quarter was one of the seven worst, the worst since 2002, but following a bad third quarter, and there have been 15 third quarters where the market has been down 8%, and actually after that the median gain has been 4.9%….the 5 exceptions have been all during recessions, 2008 was a major exception, 1957 and three times in the 1930s.
But what if we are in a recession? David Rosenberg told CNBC’s Simon Hobbs on Monday, September 26 (see clip 2 below):
- I think we would see another 20% decline from where we are today.
That would take us down about 930 on the S&P. That dovetails with the “bear flag” target of his ex-colleague, Mary Ann Bartels who sees risk to 1020 and then to 910. Gary Shilling sees a lower target of 800 (see clip 1 below).
What about the technical levels of the professionals we quote regularly. Mary Ann Bartels confirmed her 1020-910 levels this week. Jon Najarian did not voice an opinion. Lawrence McMillan of Option Strategist was more negative than a week ago. As he wrote in his weekly commentary on Friday,
- Equity-only put-call ratios are beginning to look more negative. The weighted equity-only has rolled over to a sell signal. The QQQ ratio has already rolled over a sell signal, too….. In summary, expect the market to remain volatile within the stated trading range (1120-1200, roughly). With October approaching, and the put-call ratios turning negative, it seems that a downside breakout is more likely than one on the upside.
View the charts on his site, Option Strategist. The site also has an interesting article titled VIX Remains At High Levels.
5. US Dollar, US Treasuries – Crossing a Rubicon?
The US Dollar has historically been the beneficiary of risk reduction. This time is no exception. The Dollar keeps running up, especially against the commodity currencies and EM currencies.
Last week (see Section 3 of Videoclips of September 17- September 23), we recalled the action of the 5-Year Treasury yield after QE2 was announced in November 2010. We wondered whether the 30-Year Treasury yield will behave in a similar manner following the Bernanke Torque announced last week. It did for the first three days, Then the 30-year Treasury began rallying. Was it Bernanke’s speech in Cleveland where he said that current unemployment levels were unacceptable or was it the grim news coming out of China?
Until QE2, the 30-10 Treasury yield spread was almost always below 100 basis points. After QE2 in November 2010, this spread crossed 100 bps and never looked back. Until after-market on this Friday, when the yield went to 99 basis points. Until QE2, the 100 basis point level of this spread was rare and important. We shall see how it behaves next week.
6. South China Sea – A flash point?
On September 17, we wrote about a developing situation in the South China Sea. India & Vietnam announced exploration by an Indian company in two Vietnamese blocks in the South China Sea. China claims “indisputable sovereignty” over this area and its state-owned news agency publicly warned India. This week, India and Indonesia announced joint patrols of the Straights of Malacca, a choke point for all commercial and military naval traffic between the Indian Ocean and the South China Sea.
On September 26, Stratfor wrote a detailed article on this titled India, Vietnam: testing China’s Patience. The title and the substance of the article points to the seriousness of this issue to the Chinese. Four days later, Stratfor published another article titled Japan Taking a New role in the South China Sea?
Japan has signed a military cooperation with Philippines and the article discusses the desire of Japan for greater involvement in territorial disputes in the South China Sea. As the article states, “Southeast Asian countries with territorial claims in the South China Sea believe working with Japan could increase their leverage in negotiations with China, drawing international attention to the territorial disputes“.
If this were not enough, there is a proposal for US-Japan-India talks on regional security issues. The Japanese Navy is already one of the most sophisticated and capable naval forces in the world. The Indian Navy has launched a $50 billion program that includes two aircraft carriers, six nuclear submarines, seven guided missile destroyers to augment its current capacity of 132 ships. Even this is considered inadequate given the scope of the Indian Navy, from the Straights of Hormuz in the Persian Gulf, to the Straights of Malacca and through to the South China Sea.
7. India catching up with its history in South East Asia and with China
Not many people know this, but the entire South East Asia region from nearby Cambodia & Thailand up to Vietnam was a Sans
krut cultural zone from about 3rd century CE to the early 19th century. Today’s South Vietnam was called Champa, Campa-Desa, and its principal cities had Sanskrut names from an earlier era. For example, in 1832 today’s Da Nang was called Indra-Pur or City of Indra (Lord Protector of Heaven). As an aside, the first name of Pepsi’s CEO is Indraa (spelled phonetically). Cambodia-Laos were called Angkor.
(192 – 1832 – Champa in Green – src Wikipedia)
Indonesia, home to the largest Muslim population in the world, still maintains the Sanskrut motto for its Navy , Jalsveva Jaimahe or Victorious at Sea. The names of Indonesian leaders are still old Sanskrut names with an O suffix. Sukarno is from Sukarna in Sanskrut, Suharto is Suhart in Sanskrut.
China has had its own historical influence on this entire region called Indo-China. Interestingly, during the past thousands of years, the two countries never clashed because the periods of military dominance of these two countries were different.
Now both countries are committed to expanding their influence and naval reach in Indo-China. Myanmar is a the first country in which their interests are in direct conflict. On this Friday, Myanmar suspended a hydroelectric project financed and led by a state-owned Chinese company. This was a blow to China, the New York Times reports, because it would have delivered electricity to southern China.
This is an example of why Robert Kaplan wrote in his superb book Monsoon “the Chinese problems in Burma might just be beginning.” For more details about the Chinese-Indian competition in Myanmar, read Burma – Where China & India collide.
(Myitsone dam to span the Irawaddy river – src NYT)
After years of uncontested influence in South East Asia, China is seeing a simultaneous entry of India & Japan into its sphere and a reduction of its influence in the South Eastern countries.
The question is how will China react to this? Actually, the more important question is how will the People’s Liberation Army react to this? After all, as many observers believe, the PLA lives with China’s civilian leadership because of and as long as the leadership provides financing for PLA’s expansion.
If China really faces a hard landing as Chanos, Shilling and many others believe, will China react strongly like Japan did in the 1930s or like Kaiser Wilhelm’s Germany did in 1910s (the comparison to Kaiser’s Germany has been made by Niall Ferguson of Harvard).
This is why we would not be surprised if China hits out at India from Tibet, where it currently enjoys a substantial advantage in infantry and infrastructure. China has also deployed nuclear missiles in Tibet that can target every city in India. In contrast, India does not have the long range nuclear capability to target Shanghai or Beijing, a capability India will have by 2015-2016. This is why some military strategists expect a conflict before India deploys such capability.
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Featured Videoclips:
- Gary Shilling on Bloomberg’s InsideTrack on Wednesday, September 28
- David Rosenberg on CNBC’s Squawk on the Street on Monday, September 26
- Lakshman Achuthan on CNBC’s Squawk Box on Friday, September 30
- Lawrence Lindsey on CNBC Squawk Box on Monday, September 26
1. Deflation, S&P at 800, 30-Year yield at 2.5% – Gary Shilling On Bloomberg’s Inside Track – Wednesday, September 28
Gary Shilling has been spectacularly accurate in his predictions about the US Economy and US Treasuries. He has also been fairly accurate on the US Stock market. Investing is a doer’s profession. In other words, Journalists talk, Investors invest. So we judge them on what they say and how much money they would saved us and made us had we listened to them. And on these parameters, Shilling stands upright (using the word Tall would have indicated bias against the height challenged).
Dr. Shilling was interviewed by Bloomberg’s Eric Schatzker and Deidre Bolton. We thank Bloomberg PR for sending us the excellent summary below (emphasis ours).
Shilling on how much further the 30-year Treasury bond yield could fall:
“I think [the 30-year Treasury bond yield] might go back to 2.5%. That’s where it was at the end of 2008 in the aftermath of the Lehman Brothers meltdown. That’s my target for now. I think we are looking at deflation. As I said back then, I think that will be the media chatter by the end of the year. Plus, the weakening economy here and abroad. The long bond, the 30-year Treasury, is the ultimate safe haven in the world.”
On why Shilling sees deflation on the horizon:
“In my new book, I identify seven different types of deflation. Now five of those are already in place — we’re having financial asset deflation, tangible asset deflation, commodities are coming down, wages are coming down. The one that hasn’t kicked in yet is goods and services deflation. The point is that the whole world is really marking down assets. It’s marking down the whole spectrum. I don’t think goods and services are going to hold up in terms of inflation. I think that will move to deflation fairly soon.”
On whether the Fed will decide to try to accelerate inflation:
“In effect, [the Fed] tried to do that with QE2. Because you remember at the time they were worried about deflation… That was one of the objectives. Of course, they spurred commodities, they spurred stocks and they got a temporary offset. But I think the forces of deleveraging in the world are greater than the Fed can handle. We’re marking things down to equilibrium. Look at government sovereign debts around the world. They’re much greater than taxpayers can handle. You either have to mark them down or get somebody else to handle them, lik
e the Germans, or try to inflate them away. Inflating away in an excess supply world is almost impossible, even for the Fed.”
On volatility in the bond market:
“In the portfolios I manage, we’ve maintained our 30-year bond positions. We haven’t really changed them. We’ve changed them a little bit over time. When they got to 2.5% at the end of 2008, I said, we’ve gotten every pullback….It is awfully tricky to do this on a daily basis. At this point, I don’t see anything that has fundamentally changed either in stocks or bonds. You have this volatility, this event-driven market. It’s great for the latest news. Is Greece like to pass a law to tax itself or not? Markets jump up and down 100 points on the Dow. That is ridiculous. That is whipsaw. It shows a lot of day trading. It shows a lot of program trading. It doesn’t show a lot of investing.”
On other places to see a safe haven outside the Treasury market:
“There are some [safe havens] in the real estate area. We like medical office buildings. That’s because of aging populations, the new medical health care bill, and improving technology. Also, 55% of physicians work for hospitals. Private practices with a storefront are disappearing. They’re moving into campuses… Another one is rental apartments. People are deciding a house is no longer a sure shot investment. Prices can and do fall. They have, for the first time since the 30’s…Rental apartments will continue to be very attractive.”
On metals like gold, silver and copper:
“I’m agnostic on the precious metals. We have in our portfolios been short copper. Copper peaked out in February and it’s down about 25% from its peak. I think it will go a lot lower. As you pointed out, copper goes into almost anything manufactured. It’s a great indicator of global industrial production. What I think will really knock the pinnings out from under all commodities is a hard landing in China, which is what we’re forecasting.”
“[The Chinese] are trying to cool off a red-hot economy. They’re worried about the property bubble and the high inflation rate. They are affecting a soft landing and with their crude economic tools it’s tough. Bear in mind, the Fed, with more sophisticated tools, tried, by my reckoning, 12 times in the post World War II era to cool off the economy without precipitating a recession. They only succeeded once. What are the chances for China?”
On whether the stock market will go down:
“I think it probably is [headed back down] because the economy here is slowing, and it’s global and of course a lot of the S&P 500 companies have their earnings predominantly overseas. In that kind of environment, we’re going to see disappointing earnings. The Wall Street analysts always optimistic, of course, crank down their numbers….If you put a ten multiple on it, we’d be at S&P 800.”
“We had a big sell-off but I really suspect that this is a pause before things drop further.”
2. Recession Worries Grow – David Rosenberg – David Rosenberg on CNBC’s SOTS – Monday, September 26
David Rosenberg, Chief Economist & Strategist at Gluskin Sheff, is no stranger to readers of these articles. Here he is interviewed by Simon Hobbs and Melissa Lee of CNBC’s Squawk on the Street, or SOTS for short.
- Hobbs – David Rosenberg, good morning. Is there any chance, David, based on what we actually know, the market may be too pessimistic and we’re oversold?
- Rosenberg – If we are oversold, I think it’s purely on a technical basis, but I don’t think that the market as a whole — I’m talking about the equity market because the corporate bond market has done quite a bit of heavy lifting in pricing in a recession, but based on my work, if we do get a recession, the stock market is only priced to go about halfway for that very likely outcome in my view.
- Hobbs – How much further could we fall if that happened?
- Rosenberg – I think we would see another 20% decline from where we are today.
- Hobbs – And it’s consumer-led in your view?
- Rosenberg – I think this time around it will be. We go back the past 20 years.We’ve had housing-led downturns and capital spending-led downturns. We haven’t had a consumer letdown, I know it is hard to believe. But the consumer really followed what happened in the housing market in the last go-around. consumer spending is still over 70% of GDP and my sense is when you look at what’s happening on the employment side, you look at a still low level of savings rate, and this deleveraging that is ongoing in the household sector, unless we get something that’s very impressive in terms of more, say, stimulus out of the federal government, which doesn’t look like it’s going to be coming because this Jobs Bill looks like it is dead on arrival, i think there will be some tough slogging ahead for the American consumers over the course of the next few quarters.
- Lee – At the same time, David, you do say that mining stocks are attractively priced here. what sorts of mining stocks? what sort of focused mining stocks do you like?
- Rosenberg – I certainly like the gold mining stocks right now notwithstanding the fact that gold prices have fallen rather dramatically you know. Then again, we are just back to where we were in August. about you’ve had this correction in the gold prices. But you see the gold mining stocks were never priced for $1,800-$1,900 on the Spot Gold price. They were priced something closer to 1,200. I think that actually is opening
a very good opportunity in the gold mining stocks. I still like the energy sector. I think if you have a long-term view, you’re able to pick up these resource stocks at significant discounts right now. But it doesn’t mean that — I mean, it would be nice to see the resource prices actually stabilize. But if you’re gonna look at the one part of the equity market that has gone the most in terms of pricing in the downturn, it’s been the commodity space. - Lee – when you say gold or mining stocks were priced for 1,200, a lot of them actually took off their hedge books and were moving with the spot price of gold. Are you talking specifically about the ones that don’t have hedges anymore? can you clarify that?
- Rosenberg – Well, the clarification is this. You had just a monumental run-up in the underlying spot price, and that’s what people were buying, buying the bullion. But they weren’t actually buying the companies that produced the gold for a whole host of reasons. But this happened in the 1970s too, when you had the bull market back then. In the first half of that bull market, you wanted to own the gold, the gold stocks lagged behind. And then what happened in the second half of that bull market back in the ’70s is that the gold mining stocks got re-rated towards a new higher forecast price for gold. What’s interesting, is that even after gold prices peaked say in 1980, the gold mining stocks were still playing catchup and were a good place to be. And I think we’re going to revive that scenario this time around too.
3. It is a New Recession – Lakshman Achuthan on CNBC Squawk Box – Friday, September 30
Mr. Lakshman Achuthan is no stranger to our readers. ECRI, his firm, is noted for the accuracy of its predictions and Mr. Lakshman Achuthan is usually blunt. Last time, he was not ready to make a call about a recession. This time, he did.
Before we get into his comments, we need some fortification and a light touch. For the latter, we recommend a single malt. For the former, allow us to use a short form of his long name. His last name, a really high brow version of the most common Indian name, gets tiresome to write. So with his implied permission, we shall use the acronym LA for him. If with his forecasts, Rosenberg can be called “Rosie”, why shouldn’t Lakshman Achuthan be nicknamed “LA”? And one of his interviewers is Michelle Caruso Cabrera. Our fingers need relief. So we use the nickname MCC for her. She has been a good sport and we hope LA will be too.
With this lame attempt at lightness, we quote him below:
- Sorkin: Every time he comes, he comes with negative news.
- LA – That is absolutely not true. I will tell you when I came with positive news. In the spring of 09, when the world was talking about depression, the indicators that I am gonna about right now were pointing to an unequivocal recovery.
- MCC – you’re one of the few people — we have people coming on saying 1 in 50 chance. You say we’re going into recession for sure!
- LA – Now it’s a done deal. We are going into a recession. We’ve been very objective about getting to this point. but last week, we announced to our clients that we’re tipping into a recession. This is the first time I’m saying it publicly. This is not based the on any one indicator, This is based on dozens of leading indicators for the United States. There is a contagion among those forward looking indicators that we only see at the onset of a business cycle recession.
- LA – A recession is a process. I think a lot of people don’t understand that. They’re looking for two negative quarters of GDP. But it is a process where sales disappoint, so production falls, employment falls, income falls and then sales fall. That vicious circle has started. You’re looking at the forward drivers of that which are different indicators. There is no one. Everything’s imperfect. The the weekly leading index people look at and the even that is saying unequivocally this is recession. Long leading index which has a longer lead is saying recession. Service sector indicators, nonfinancial services where five out of eight Americans work, plunging. Manufacturing going into contraction. Exports collapsing. This is a deadly combination. We are not going to escape this. And it is a new recession.
- MCC – How bad will this recession be?
- LA – Unknowable today. Back in the last recession, in August of 08, prior to the Lehman debacle, these indicators were pointing to the worst global recession in 30 years. Then you had Lehman. So if I look at today’s setup right, we are wondering if there is a shock out there. Is their a Lehman out there? Today, what these indicators are saying is that even if some shock is averted, which is the hope out there, you are still having a recession. If there is a shock, it could be a lot worse. That’s how I read
this.
LA also spoke with Tom Keene and Ken Prewitt of Bloomberg Radio on Friday morning. Below are excerpts from the summary provided by Bloomberg PR:
On whether the recession will begin in the fourth quarter or first quarter:
“I don’t know, okay? So I am saying we are tipping into recession. We will know the answer to that question a year from now when the data is finished being revised. The recession could be starting right here under our feet. Jeffrey Moore reminded me you are doing very well as a forecaster if you recognize a recession when it is starting.”
On whether he can tell the potential duration of recession:
“Not yet. We have to wait and see. Our forward looking indicators have not turned up, so we at least have a couple of quarters of worsening economy in front of us. So to be clear, if you think this is about the economy, I am not going to argue with you. But you haven’t seen anything yet.”
On the gloomiest thing he sees:
“The contagion. And this is really I think something that models basically miss. But it is the contagion, that you have wild fire among the leading indicators across the board. So non-financial services plunging, manufacturing plunging, exports plunging. That is such a deadly combination there is virtually nothing that can be done to avert what is going to happen.”
On unemployment:
“The unemployment rate is going to rise. Month-to-month it is a little bit of a guessing game. But the trend is up from here and noticeably. So this is going to get much worse before it gets better. It is going to run a little bit…If it is a short recession, you may get this thing starting to recover. But we see no evidence here of the end of this downturn that we’ve got. The shortest technically it could be is about six months.”
Now we need a second drink.
* CNBC’s title is Leading Economic Indicators
4. European & U.S. Debt Problems – Lawrence Lindsey on CNBC Squawk Box – Monday, September 26
Lawrence Lindsey is a former director of the National Economic Council. CNBC’s Joe Kernen and Andrew Ross Sorkin spoke with Mr. Lindsey.
- Sorkin – During the break, we were talking about the EU and ECB, you had a statistic that is somewhat startling.
- Lindsey – Yeah. even before you take the write downs, the ECB only has $11 billion Euros, that’s it. And all of the central banks combined in Europe have only around 70 (billion Euros). So, yeah, they’re very highly leveraged hedge fund at this point, which is why they want the EFSF want to step in. And where does the EFSF get its money ultimately? From the bankrupt countries. So they kinda have a circularic problem.
- Lindsey – the other problem which, you I know, I’ve been if and out of government for a while, it’s not the that people in government are bad, it’s not the that they’re dumb. But sometimes people in government can get so overwhelmed; that’s what’s happening. There are a limited number of brain cells that can be applied to a problem, when stuff comes in fast and furious, you just can’t get on top of it.
- Sorkin – What’s fast and furious? We’ve seen this train coming down the tracks for a very long time here. This doesn’t seem — it is sort of obvious what needs to happen…..the faster and earlier you get in front of the problem, the easier it is to deal with. If we’re dealing with this problem 6, 12 months from now, the harder and more expensive it.
- Lindsey – you know what, the part of the problem is the belief system is starting to crumble. This whole generation is raised on the idea of greater European experiment. We have to prevent Europe from going to war again. I mean it goes beyond reason. It’s really a strong belief system and that belief system is coming under question. And when that happens, it’s really hard to act. And so first they have denial for a long period of time. And now when they’re starting to come to grips with it, they are becoming overwhelmed.
- Sorkin – Then, if it is about politics, is it in part that we have to wait, that we have to wait for it to get so bad for the markets to crater so much for the economy, for people there to feel it, not just in Greece but in Germany and France to the point where they say okay Angela Merkel, I get the joke. Can you actually do this thing now?
- Lindsey – I‘m not sure if the Germans would ever say that because after all, why if I’m a German who wants to, you know, live well, why I do really want to bail out the other guys, right?
- Sorkin – but if you believe the argument that ultimate Germany will take the pain, too.
- Lindsey – they’ll take some pain. I think it’s a debatable point whether —
Sorkin – We’re talking about contagion. You said we don’t know what the labyrinth is. Germany may be part of that labyrinth. - Lindsey – We probably all are, including on this side of the Atlantic and that’s what it is troubling. If you don’t have confidence in the guys who have led you to this place, why you would want to double down and give them more money to do more of the same? That’s the ultimate political question here. And we can pick on the German voter, we can pick on the typical American voter all we want. That’s actually very logical, rational conclusion, right?
- Sorkin – You spend a lot of time in Washington. What is the role of Tim Geithner, Obama, etc., in this conversation? And what should the role actually be?
- Lindsey – well, I think they got called over by Lagarde (IMF President). Geithner did put some pressure on. The Germans didn’t want him there. Frankly, I found that a very embarrassing press conference for Mr. Geithner. I think that’s a lesson that maybe, you know, this public pressure from this side of the Atlantic, probably is at least in public. is not the right thing to do.
- Sorkin – My question is, if you look at what we offer up as our example, right? The Geithner story is look what happened in 2008, right? Look what we did and look how we came out on the other side. That’s the argument he’s making. A lot of the rest of the world is saying look how you came out on the other side. I‘m not so sure that’s the other side.
- Lindsey – we still have 11% of GDP budget deficit. That’s not exactly something you want to wave your banner on and say look at me. I think that’s what he got told. We in America have yet to come out of the problem. We’re finding our way through the problem. Both U.S. and Europe have a severe debt problem. History does not suggest that it ends well. But for us to say we found the solution, I think is a bit premature.
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