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Germany and
especially France have fought long and hard against the anglo-saxon model of
unfettered and weakly regulated free market capitalism for the past 30 years,
and as a consequence of which have seen their economic power diminish in
relative terms as the anglo-saxon capitalism model was adopted world-wide
following the collapse of the Soviet Union.
However following
the ever growing fraud estimated at more than $10 trillion perpetrated by
those running the worlds major financial institutions that had brought the
financial system to brink of collapse during September / October 2008,
which was only prevented when the tax payers were forced to underwrite the
fraud and cover the losses of figment asset valuations that allowed bank
officers collectively to bank billions if not trillions in bonuses by
utilising "mark to fantasy".
 With rioting on the
streets across Europe, both Obama and Brown fail to recognise that Mainland
Europe is much more susceptible to revolution than the political systems of
Britain and the United States, therefore whilst the anglo-saxon's do
understand the outrage against the banking sector, however what they cannot
understand is that the governments of France and Germany are reacting to the
the real threat of political instability by implementing far more socialist
policies not only for themselves, but to cripple what has come to be known as
casino capitalism so as to shift the balance of power in favour of a less
free market based global economy i.e. more government control, regulation and
central planning, which will result in lower long-term economic growth and
innovation which is inline with their own populations demands, and therefore
to prevent capitalism from running amok in the future that forced their own
conservative financial institutions to follow the same path towards
bankruptcy whilst the governments of France and Germany were labeled as Old
Europe, and lectured on how their economic models were obsolete as the New
Europe (Eastern Europe) jumped headlong into the unregulated deep end of
casino capitalism that always appeared to roll winning double sixes is now
firmly rolling losing snake eyes.
Has Elvis or Sarkozy
left the Building?
President Sarkozy of
France publicly threw his rattle out of the pram by warning that he will walk
out of the G20 summit if he does not get his own way. This is a sign of
frustration in that despite the Anglo-Saxon model of capitalism having
failed, the U.S. and Britain are unlikely to move towards the Franco-German
position of a super global regulator that threatens to end casino capitalism
once and for all. The consequences of which will be much lower market
volatility and long term economic growth as the western economies at least
take a giant step towards a global socialist economic and regulatory model.
However the United
States and Britain have illustrated by their actions rather than their words
that they intend on preserving casino capitalism in more or less the form
that led to the financial crisis in the first place, and since the United
States still carries much of the clout as the worlds financial and economic
super power, coupled with its trustworthy air-craft carrier Britannia off the
shores of Europe, then the U.S. and Britain are expected to get their way
during the G20 meeting, despite the rhetoric from old Europe as the fact of
the matter is that much of what will be discussed at the summit
has already been agreed upon before hand for there was NO ROOM for
FAILURE or significant DISAGREEMENTs, as the consequences of
FAILURE would be to wake up to another day of potential FINANCIAL ARMAGEDDON when
markets would again panic in reaction to summit failure. Therefore much noise
from the French and German leaders, but they will still sign on the dotted
line.
Fiscal Stimulus, China Leads the Way
The prime objective
of the G20 summit is towards co-ordinated fiscal stimulus across the global
economies to stimulate economic demand along the lines of United States which has committed to spending 5% of GDP, Germany at 2%, Japan at 2.5%, and despite
the Brown rhetoric Britain's fiscal boost lags at just 1.4%. Unfortunately
the problem with Britain and much of mainland Europe is the size of the
welfare states that do not give much room for fiscal stimulus, because as
unemployment rises so does government spending and hence the budget deficits
widen, and there in lies the problem of huge budget deficits, which means
prolonged economic pain for many years.
However all stimulus
to date pale into insignificance against China's fiscal boost of 13% of GDP,
which suggests investors should continue to eye China as the prime investment
destination with the country most likely to continue to generate economic
growth. My call as of September 2008 to buy China at SSE 2,000 has so far
yielded 20%, which itself followed analysis and a call to sell China at SSE
6,000 in November 2007. China has continued to show relative strength against
other markets and therefore confirming analysis of continued accumulation.
The western country with
the most potential is Germany, however it is clear from Germany's actions that it is willing to endure economic contraction so as to preserve the export
based economic model rather than attempting to inflate the german economy by
means of local consumption. The key annoyance to the American's and others on
negative trade terms to Germany is that in effect Germany is seeking to ride
on the back of the stimulus packages of other countries that induce their
respective populations to in part consume german goods and services, which
therefore boosts the german economy without the German government undertaking
domestic spending, however the problem with the German strategy is that it
risks igniting protectionism.
Will it work?
The problem at the
root of the crisis is I warned of a year ago is the off the balance sheet
derivatives exposure that is many orders of magnitude greater than the
stimulus packages of approx $3 trillion, were talking about sums north of
$600 trillions. Therefore as warned off in April 2008 when the Bank of
England made the first loan of £50 billion to the bankrupt banks, that
it was a drop in the ocean and I just cannot see how even $3 trillion, or $5
trillion or even fiat currencies busting amount of $10 trillion can counter a
$600 trillion imploding derivatives market. This to me, means very
high inflation, as the only option the governments have to spend money the
governments do not have, and therefore increased debt, print money to spend
and monetize government debt and finance bailouts, will it result in
hyperinflation ?, we'll we don't need to be at Zimbabwe style hyper inflation
to see our savings wiped out by inflation. An annualised inflation
rate north of 10% AFTER the current deflation will be bad enough to
discourage savings and holding of fiat currencies, which supports my
mega-trends outlook to take the current deflation as an opportunity to invest in
commodities at bargain basement levels as well as prepare for much higher
interest rates and hence lower bond prices.
Stealth Bull Market
Quick Update
The stock market
corrected inline with last weeks analysis (24th March 2009) that called for a
33% retracement from the stealth bull market peak which was necessary in
advance of the next spike higher.
"Which implies
that the correction IS IMMINENT. The decline should be just enough to
convince of the mass of prevailing bearish commentaries that the retest of
the low is actually going to happen, which therefore suggests a correction of
as much as 33% of the RALLY (i.e. move from 6470), just enough, just enough
to get the shorts in before the Stealth Bull market lets rip with the next
powerful shock and awe rally."
However, it remains
to be seen for how much longer I can remain in sync with the market to this
degree, as the following the spike higher the markets by definition of the
rule of alternating trends must target a much less probable and less easily
recognisable price pattern than the relatively easy to deduce and trade
pattern observed to date, which I will publish during the next week or so
following an update to the gold road map / forecast trend of 21st Jan 09
(graph below).
 
Nadeem Walayat
Market Oracle.com.uk
Nadeem Walayat is the editor of MarketOracle.co.uk.and
has over 20 years experience in trading and investing.
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