The Perfect Storm Watch - Part One
The one true thing about a hurricane is that you know its coming. Any spin about the likely hood of such event is never going to work. A financial hurricane, sadly, is not preceded by similar speak. Financial market members, bankers, governments and politicians do all they can to spin or fudge the likely hood of such an event. In this series of posts we will follow market members who we will tag as watch dogs on several of the worlds financial hurricanes in the making.
The following is only forecasting 2012 to be bearish if the risk event occurs. If there is no occurrence of any of the risk events in 2012, then the year will be bullish. Occurrence of more than one of the risk events could produce the perfect financial storm.
In alphabetical order:
GDP of China is largely based on construction. China has been posting 9-12% GDP, a fall to 6% is considered a recession. It is understood that all economic numbers out of China are subject to political judgment, and can't be trusted. To monitor China you monitor copper, steal, coal, Aussie dollar, Shanghai and Hong Kong stock exchange. Bear watch dog Jim Chanos is short China based on the construction industry collapsing. Many believe the Chinese government can execute extensive fiscal and monetary tricks to avoid any hard landing.
Risk: Hard landing from the property crash sending China into recession.
The debt held in Japan is the highest in the world. Currently interest rates are 0%. Bear watch dog Kyle Bass believes if bond vigilantes push Japanese cost of debt to 2%. Japan will be in a massive crisis. Many believe as most of this debt is domestic the government can control such and event.
Risk: Increase in the cost of debt will send Japan into a deep recession.
The constant negative news flow from the Eurozone sovereign debt crisis doesn't seam to end. Currently the market believes the Eurozone will hold together with constant bailouts from Germany and France. Bear watch dog Felix Zulauf recently stated that in 2012 he expects the Eurozone to crack and that at least one country (ie Greece) will leave the euro, forcing French and German banks to realize massive sovereign loan losses. Some think the free cash (currency swaps) from the US Federal Reserve (in Obama election year) will patch up any cash short fall by the ECB and hence avoid a major crisis.
Risk: Greece, Ireland or Portugal leave the Eurozone and Germany and French banks will have to realize loan loses.
The USA consumer is 70% of USA GDP and 20% of world GDP. The US consumer is bust, broke, done. Housing debt, credit card debt, student loan debt is a massive hindrance to the spending power of the US consumer. Hence the US consumer is deleveraging, and there is little the US Government or Federal Reserve can do about it. The bear watch dog ERCI has successful forecast past recessions, and is currently picking a new recession starting 2011 Qtr4 and/or 2012 Qtr1. Gary Shilling and Harry Dent both forecast a deflationary year in 2012 on the back of the continued US housing bust. Some say things are picking up and finally QE1/2 moneys are beginning to filter into the real economy, and another QE will boost GDP further. Of course quantitative easing will boost oil and commodity prices as well, and this would not be welcome in the Obama election year.
Risk: USA falls into recession, unemployment expands, banks forced to realize more mortgage losses.
The Perfect Storm
Any single event from the above is bad enough. Any event firing will most likely trigger any number of the others. The only weapon the world bankers have is the US Federal Reserve printing presses. Obama can't afford any of the above to occur in his election year, thus giving Ben Bernanke a 'free print all you can card'. Unless of course he (Ben) sees the republicans winning and he can feel the heat of many congressional meetings in 2013.
The modern day financial world is governed by its electronic money supply, the money supply is controlled by the bankers, and it may surprise you that a few banking elite control and influence the world banking community. The powerful bankers are: Bank of England, Bank of New York, Deutsche Bundesbank, Goldman Sachs, JPM, Rothschild's and Rockerfellas. It is this elite banking community that does not want to lose, and if a loss is to eventuate then they wish the worlds taxpayer's to cover it on the basis that they are to big to fail. Of course that has been done very successfully.
In the end, we feel nothing can stop 'the perfect storm', the can kicking is running of road fast, and many are beginning to believe this to be so. You can see this in the chart of the US dollar. The USD is getting ready to fly.
Watch out for Part Two, Three as 'perfect storm' events unfold in 2012.
Why will the USD dollar rally
1) Flight to safety from the risk on currencies
2) Reversal of USD dollar carry trade.
3) Inverse pairs are sold off: AUDUSD, NZDUSD, EURUSD, GBPUSD, JPYUSD, CADUSD, etc