Bill Fleckenstein
As I noted Nov. 8 in my daily column at FleckensteinCapital.com, anyone who bought stocks in the big rally sparked by the news that Silvio Berlusconi would resign as Italy's prime minister was asking to lose money. Sure enough, it didn't take long for them to get what they deserved for being so silly, as the next day brought a bloodbath here and abroad.
The proximate cause for Europe's weakness was a near-total collapse in the Italian bond market, as the yield on the 10-year blew through 7% and traded all the way up to 7.30% -- a gain of about 60 basis points. It has been mind-boggling how rapidly the Italian bond market has seen its yields rise from a little over 6% to north of 7%.
They shoot turkeys, don't they?
The situation in Europe has almost totally spun out of control, as it took almost no time for the markets to shift their focus from Greece to Italy. I don't know how the Europeans are going to get ahead of this problem, save for massive money printing on the part of the European Central Bank. And it had better come soon, or the euro and the European banking system are not going to make it to Thanksgiving.
The powers that be could not have made the situation worse if they had tried. In the two years since Greece started to implode, there has been no debt restructuring, the banks have not been required to raise capital, and, of course, the ECB has resisted money printing -- as if the countries that were let into the eurozone (including even Germany and France) were prudent enough to operate without it.
In addition, they have banned short selling and are making sure their actions don't allow people to get paid off on their credit default swaps, so the only avenue for folks to lower their risk is to sell first and ask questions later. And that is exactly what is exacerbating the decline in Italian -- and all other -- debt.
ECB seeks double-binding arbitration
In sum, we are rapidly approaching the time when either the ECB prints like mad or the euro fractures and the eurozone countries get their currencies back, and then they print like mad. Whichever way this is resolved, at some point the markets will take a look at the United States -- and you can just imagine the world of hurt we are going to be in when our bond market starts to tank like Italy's has. Though the U.S. won't be punished for not using the printing press (but rather because we are using it), the outcome will be the same.
While it is not today's problem, make no mistake, going through such a crisis is going to be ugly and painful. But the silver lining will be that it will force us to address our problems, and hopefully it will occur in a timely enough fashion that the 2012 elections will see some intelligent and less-political types head to Washington. (A guy can dream, can't he?)
Caught up in MF Global
On an even more bothersome note (at least to me), even after being as careful as possible my entire life by having my cash in only Treasury bills or government debt, and keeping my assets in a custodial bank whenever I could, I have been caught in the nightmare of MF Global. (This affected only my personal assets, not those of my fund.)
Inflation is the fairest tax of all. It taxes everybody equally; old, young, dumb, smart, rich and poor. You can skip all the capitalist and socialist rhetoric about disposable vs. non disposable income. We've been doing it to the rest of the world for the last 50-60 years, printing our monopoly money to play our game, and now it's their turn to do it to us. First the Chinese need to tell the US to go fly a kite and then the EU needs to turn on their printing presses to inflate their assets like we are inflating our assets. You better take your paper money out of US banks and government securities and buy international equities and currencies (gold) and then when the interest rates on US debt starts to go up sell and move into fixed rate high yield notes at 6-12%.like the 80s.
