GF SOBERING OBSERVATIONS – September 2010/11

Sobering observations – September 2010/11

31 October 2011

Research for Green File Contagion Summary 2011 draft 1.

NEW buzz words for debt resolution are has leadership facing challenges with pale shades of 1929 are Orderly/ Temporary or Selective Default Strategies. (ECB rescue discussion 12 July 2011).

Referenced interviews- Bloomberg & CNBC September 2010

• Dean Curnott –Macro Risk Advisors (Vix Volatility Index)-  VIX reaches record levels
• Gary Shilling – Japan/ US –Europe the trigger for Default & double dip recession to follow
• Professor Nouriel Roubini (NYU)- US economy slowed  (almost stalled) to 1.6%  during the 2^nd half, worse the first half .

1. 850 Banks on the critical list & insolvent (Source FDIC)
2. FRB cannot fix problems with credit, solvency & balance sheets
3. Most of shadow banking destroyed with 400 banks still to go

Mohammed Elrian (PIMCO CIO) ($1, 27 Trillion  asset management, and Worlds largest bond trader)

1. Not enough coordination
2. Why have we not had had the outcome we planned
3. Fear is not what we want for crisis
4. Active inertia (current status)
5. Focus on the ‘way ‘is not working
6. Unlikely BOJ intervention will work- is it coordinated
7. Interventions in terms of Sovereign Debt default & banks unprecedented.
8. Inflation inevitable
9. The price to protect against a lost decade of deflation?
10. PIMCO & $8.1 Billion Bet (News release of Bond purchases)

Greenspan (Council of Foreign Relations speech)

1. Fiscal stimulus ‘far less’ than what is required & not effective as anticipated
2. Favours raising taxes
3. Government to stay out of the economy
4. Gold being the ultimate form of payment

US Senator Judd Gregg (Banking Committee Ranking member)

1. US Government spending 20-27% of GDP on Trillion Dollar Deficit
2. Taxing to be lowered, however Obama wants to raise taxes
3. Tax battle in full swing
4. $70 B has to be found that is already spent
5. Stop the spending which has driven the fiscal crisis

• Mervyn King (Governor of BOE) addresses the trade unions and outline the cause and effect of the Global Economic Meltdown.( Download speech NB). The UK Banks are extremely weak with a high potential for fiscal default which will not only effect whole generations but may take as long as 3 generations to rectify. The sacrifice of this generation is critical to preserve the generations to follow.UK needs credible deficit cutting plan to avoid higher rates & European inflation NB.

The Faber Report on CNBC- Japan

1. China diverse its currency away from $ & buying Yen
2. BOJ spent  $320B to weaken yen 03/04
3. The ability to pay the interest on the interest?

The ‘FED Fight’ (Discussion commentary)

1. By more securities?
2. If they do it, how do they go about it?
3. Purchase of $1.7Trillion of mortgaged backed securities & T Bonds (news Release)
4. Bond Bubble??
5. If you push rates lower, will it spark demand?
6. Some analysts say NO!
7. Home sellers are writing own prices/ 26% reduced resulting in $29 Billion of equity of previous Reduction averages nationally
8. US July-12 million houses in trouble

News & interview Highlights (Sovereign debt default)

1. Hungary Credit Rating Downgrade
2. PESO tumble
3. YEN devaluation and retreats after 15 year high. BOJ intervenes to boost $-stifles economy
4. European stocks decline
5. Portugal borrowing costs rise-Bond sales decline
6. 40% chance of a double dip recession
7. US to stall below 1% growth, which is already in recession
8. S&P 500 gone nowhere in the last year or 10 years- more downside risk than upside
9. Stock prices moved more sideways & downwards. US economy barely growing
10. AngloGold raising capital (equity sales) of $1.37B. Selling shares to de-leverage – Gold to fly!
11. S Africa facing a $4.28B liability in abandoned mines
12. Bond slump belies demand as yield premiums shrink-Credit markets
13. Ukraine- selling EU 2 Billion of Euro bonds
14. Japan- The question remains if US will buy Japan Bonds/ US won’t join BOJ intervention/ US would have to sell YEN to buy $.
15. US-12 million houses in crisis/ State Pension funds in crisis referred to as a “Death spiral”- 50% of 50 States unable to pay promise benefits in the future e.g. Pensions-medical State Bonds
16. US ( Gov Spending 20-27% of GDP
17. Germany in Sovereign Debt Crisis
18. France- Euro a bad thing as resistance grows.
19. Greece- labour unions angry
20. Poland- record 10 year Bond sales- lowest yield in 3 years
21. China- Yuan undervalued by 40%/ 100 US lawmakers pushing a Bill to force China to lower Yuan/ threat to US markets increasing capital ratio of Banks to 15%
22. Cuba- is privatizing!!! NB
23. UK- jobless claims increase-1^st since January