16 June 2010

Emergency Markets

Award winning author, James Howard Kunstler recently penned a guest piece for The Daily Reckoning , the centre piece to which was the following question “How does Europe intend to come up with roughly a trillion in bailout money?” The answer that he concludes is “The European bailout is, in fact, an absurdity. I predict that the effect of the announcement will last all of one trading day on the stock markets.

The truth is that the imbalances of global finance are so grotesque now that the whole money system is hanging together with nothing but spit and prayer. I get rafts of e-letters every week warning of a supposedly-coming global currency - a companion idea to the notion of a one-world government. Both are fantasies. Events are taking the nations of the world in the other direction: towards break-up, downsizing, down-scaling. Likewise, if major currencies such as the euro and the dollar blow up, they're much more likely to be replaced by more local bank-notes backed by gold than by some hypothetical Amero or Globo- buck.”

Above all he fears “a spontaneous capital combustion in which the putative contents of stock markets get sucked into a black hole so vast that the trading desks will have to find a way to arbitrage infinity to ever again catch a glimpse of America's receding wealth. And it could all happen in a finger-snap... But probably not tomorrow. Until then, rest assured that whatever else is going on out there, credit default swaps never sleep.”

For anyone who hasn’t yet had the pleasure we recommend reading Mr. Kunstler’s 2005 book “The long emergency”