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EYE-BALL’s Herman on: The 2012 Overture Act III

May 17, 2012
Herman O'Hermitage
Title:
The 2012 Overture Act III
By: Herman O’Hermitage

Herman O'Hermitage

s Greece is now to return to the polls on June 17th 2012 the world is again awaiting news of the next step in Greece’s currency troubles, indeed the implosion of the Euro currency.

This series of articles started about 2012 the end of the Mayan Calender and what does that mean? June 24 1812 was the beginning of the end of Napoleon Bonaparte and the crash and depression we commonly refer to as the South Seas Bubble. On that day the alliance between France, Prussia and Austria started to disintegrate. Napolean’s Grande Armee crossed the Neman River from Prussia to modern day Poland (Austro Hapsburg) on it’s way to attempting to subdue Russia. Is this history repeating? Napoleon met his Waterloo on June 18, 1815.

Is there grand super cycles underlying the economy evidenced in history?

It is very interesting to note that Francois Hollande held his massive victory celebration on May 6th, 2012 at the Bastille in Paris. As the world attempts to clear the maze created by the Greek and French elections there are many confusing facts to attempt to see through.

Glossy and non-substantive reporting is not helping. It is not enlightened. It was reported that Sarkozy conceded within 30 minutes of the polls being closed yet he garnered 48.7% of the two candidate vote. Hollande’s victory is a new cycle in France. Somewhat effervescent. Hope and belief bordering on over belief. The first socialist president in 17 years since Francois Mitterand.

Similarly yesterday’s 2% fall in ASX is largely blamed on the Greek debt crisis and uncertainty. The spot price in iron ore is totally overlooked. The iron ore markets have changed dramatically over the last decade. The old cartels are weak and inefficient. Jac Nasser wants to blame the Australian Federal government taxation policies as juxtaposing BHP’s planned 80 billion $ pipeline of Australian investment. The Shanghai steel price is at a 5 and a half month low, and some Chinese steel mills are simply not buying iron ore. A decade ago there was no Shanghai steel price.

If reinforcing bar steel fell 3% on Tuesday in Shanghai is it difficult to understand BHP falling 4.25% on Wednesday. That dragged down the ASX by 2% plus. The Chinese demand for iron ore by April this year I predicted last September/October.

Memo to Mr Jac Nasser – Chairman, BHP Billiton:

Australia’s MRRT has seen several emerging and 3rd world governments confidently impose a tariff/royalty on the pillaging of their mineral resources. Why is it OK for supra nationals to exploit these one off natural endowments and not share those spoils with their natural owners. Was absolutely nothing learned through Bougainville copper?

Today as the ASX indices attempt to stabilise, the banks will be bought due to attractive dividend yield, yet the age of entitlement of the world’s banking sector underlies so much of our current problems. Study of entitlement comes from the psychology of narcissism. Yes the banks are our greatest narcissists. The finance sector has been encouraged through free markets to over believe in their franchise, over believe in their profit margin, their right to continue irrespective, and reward themselves excessively no matter what. Speculation is a right, and when they get it wrong the taxpayers will bail them out. The banks are now disconnected from the economic cycle. They are the pillars of our economy, in Australia the 4 pillars.

Germany like Australia is riding the crest of a housing bubble. China too has similar issues, housing affordability, but their free market yet centralist government makes things harder to predict. In the case of China I must focus on production surpluses. In Australia or Germany you can measure long term housing affordability. China claims to stamp out greed, through it’s Marxist antecedent political structures, yet we of the west celebrate free market economies and the excesses. Our politicians continually want to tell us we have never had it so good.

For Germany like Australia, their economic successes are at the crux of their issues. They also want Southern Europe to copy their model that has worked for them over the past decade (50 years). The term austerity itself is confusing. Does it mean frugal fiscal economic management or strangling an economy with fiscal drag? Policies intent on dragging down wage structures, household incomes, consumer spending and per capita GDP.

In Europe the best rated banks come from Northern Europe. They attract funds from the entire Euro zone. We have the beginnings of a run on Greece’s banking system. This is contagious. Why would you have any capacity to lend to or invest in Southern European banks, when Northern European banks carry less risk? The flow on from this simple fact is quite immense. Northern Banks are chasing quality banking assets and Southern Europe has no capital pools, high business failure factors, high unemployment and so on.

Germany needs a mechanism like its own currency to appreciate as much as Greece needs its own currency to depreciate to correct these current problems. From the Great depression until the 1980’s and the era of regulated currencies this was addressed through regulated liquidity ratios of banks. Could you mandate Northern European Banks to invest in Southern Governments or business lending? China is mandating higher liquidity ratios for banks to fight asset inflation. China’s currency is under valued.

There are only two possible scenarios in Euro. Each constituent country of Euro zone reverts to their own individual currency, or Merkel cowtails to Hollande, to partly embrace his theory of growth rather than debilitating austerity? What an absolute train wreck! Complete and utter loss in Southern Europe and possible melt down of Europe’s banks and banking crisis or continued workout. It would take a generation of austerity to save Greece or Spain or Portugal. Further anarchy and splintering between ultra left wing or ultra right wing solutions.

In Australia we see a concentration of banks lending to brick and mortar assets. Small business lending is being squeezed out. Export industries are expected to adjust. To what extent has this affected the banking sector asset allocations in total? Figures often don’t tell the whole story. A wealthy individual will get the loan when required by offering bricks and mortar assets, for residential purposes? Potential entrepreneurs are starved of capital.

This is why Francois Hollande says his enemy is not a person or identifiable, it is the financial and banking sector. What does this mean?

Maybe 2012 is the beginning of bringing narcissists to heel. The end of this age of entitlement. J P Morgan Chase has recently reported losses of USD 2 billion from trading in CDS over market making in a basket of Euro loans. This is despite the fact that the USA legislature is trying to stop a repeat of GFC where taxpayer funds bailed out deposit institutions. American politics is still defining this year’s presidential and other November elections. This will help Obama attack the financial markets and bring them to heel. That we can only watch. There is little tangible evidence to base much more on.

Finishing where I started I believe the 23rd of December 2012 will dawn like every other day that has proceeded it. It is very important to believe this.

It will take a generation to work through these current issues. This is akin to the 1st point of the 7 mind point training of Buddhism. Only believing that Karma is earned and accrued and can karma be dissipated and there is a way forward. Believing in fatalism or a higher authority will not correct this bad karma. There is no quick fix or absolution. There is no totality or absolute within the realm of homo-sapien logic. There is only striving towards enlightenment.

Will Mitt Romney select Condola Rice as his running mate? The first female black vice president? How much karma does she carry from the George W Bush administration?

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