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Thursday, November 18, 2010

Law of Entomology: There Is Always One More Termite

It just seems so apropos to use a bug related title for this post because it seems that everywhere I look today there are termites gnawing at the framework of society, government and business. Since this crisis began in 2000 we have had some respites along the way but we seem to keep ending up in one more unbelievable crisis than the last. Moreover, what seems to be a small termite on one side of the globe has an effect on the other as these days we are all globally interconnected. I have already discussed at length in these pages the FED’s QE and its termite effect on emerging economies; the QE termite is souring US relationships with emerging economies via exported inflation resulting in publicized backlashes.

Dear reader the above information is old news, instead today’s termite action hails from the EU and Ireland in particular. Not that long ago Ireland was listed amongst the wealthiest of nations, yet today they are plastered all over the media as one of the poster children of debt and bankruptcy. Ireland has earned the dubious distinction of being either the first or second I in the “Piigs” acronym, not exactly where they want to be I am sure.

The termite in this case is the EU itself and it has managed to eat through the European framework in record time. The Euro zone had its political roots much earlier, but for all intents and purposes; the termite was building its nest until 1999 when the Euro was introduced with great fanfare to the world. Slowly the bureaucrats at the EU came up with new regulation upon new regulation and tax after tax; sound familiar? The new EU overlords feasted until they have consumed the golden goose as governments always do. If one tax is good then more taxes are better until stifles productivity and the same is true about regulation.

It has gotten to the point that the Irish people feel as if they are losing both their sovereignty and identity. At the same time Ireland’s debt and unemployment situation are growing increasingly untenable. Ireland is in a depression with GDP having fallen some 20% and this basically a result of the Irish being part of the EU. In a prior post I discussed how Europeans view themselves by national identity and that is why they do not have cohesive economic policy that will work for them; Ireland’s problem is a manifestation of this.

It is apparent that nothing will change for Ireland unless they can throw off the shackles of the EU and move on. This scenario raises the specter of who will bail the Irish out? Will it be the EU, the IMF or even the “Benbernank”(aka “B52 Ben”)?  If “B52 Ben” did get in to the act what do you think the reaction would be, dear reader, I am sure it would not be good. Additionally, a US intervention would set a dangerous precedent and potentially put the US on an even quicker path to self destruction. At this point Ireland’s Finance Minister Brian Lenihan is claiming that Ireland does not yet require a bailout per news reports, however, as we have seen in the past these things have tended to mature in to a problem sooner rather than later. Mr. Lenihan also stated that Ireland is in discussions to see what kind of action could be taken that would not pile more debt on to the Irish sovereign or endanger the savings of the Irish people. That does not sound like the truly solvent country that Lenihan would have you believe does it?

Exacerbating the problem has been the raids by the large banks …ahem Goldman, Morgan and alike who seized upon this opportunity to capitalize on Ireland’s weakness and attack the Euro based upon assumed Irish problem. Don’t believe that the Goldman boys would do something like that to artificially create havoc to profit, just think back to the Greek Debt crisis when they were shorting the very swaps they arranged .  The actions by players like Goldman shorting the Euro and trying to drive it in to a ditch are wreaking havoc with investors and countries worldwide and for what?; their Christmas bonuses? These people who partake in these currency and sovereign bond attacks and manipulations are a termite of a different breed and no they are not doing “God’s Work”. It is one thing to short something because you believe that it is overvalued or there is a problem but to use basically unlimited capital to break a whole currency is just plain immoral.

I also believe that it was no coincidence that in the midst of this whole Euro mess which is helping to boost the dollar temporarily that the CME would go after margin limits not once but twice! It just seems too convenient almost as if the CME got a call from the Boyz that this would be a good time to raise limits to smash the commodities market allowing them to covertly unwind positions; afterall they are the largest players in the CME space. The Boyz have had their undies in a bunch since the CTFC has been showing a bit of swagger and they probably know that they have to get out or long by some privately known date and they have a s#!tload of shorts to deal with. Of course Mr. Market was going against them in a big way and they needed a diversion to aid them in their deleveraging process lest they keep taking it on the chin with no end in sight. I would not put it past them to set the wheels in motion for a Euro zone problem and pour gas on the fire to kill two birds with one stone, smash the commodities(metals in particular) to clean up as many shorts as possible and make some scratch blowing the Euro apart. The Boyz definitely have the motive and they have the means so I believe this is interconnected. I am not convinced at that the Boyz are through with the CME as in the midst of a nascent bounce in the commodity complex the CME dumps another news item bound to rattle some across the newswires “CME CEO Defends High-Frequency Traders”. CEO Craig Donohue said that high frequency traders are not “deleterious” to markets, I don’t buy it and it just means that we are moving from a manipulated by banks market to an algorithm controlled market and will result in incredible volatility in the future just like the stock market. It sure looks to me like the casino just keeps getting bigger and badder.


Since I wrote this last night I see in the news this morning that a EU bailout is forthcomming and gold is returning to  its upward trajectory and the dollar downward for now...All I can say is welcome to the baillout  party EU and soon you guys will be doing the QE dance too.

1 comment:

The Birth Of QEuro (Quntatative Euro) and The Death Of the Euro Proper. | Moneta Advisors, LLC. said...

[...] my “Law of Entomology” I posited a speculation regarding who would bailout the Irish; would it be the EU or “the [...]

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