James Sinclair
In May 2007, I heard Professor Robert Schiller of Yale University speak on housing. He said the boom could not be explained in fundamental terms – rents, construction costs, interest rates and disposable income. A “psychological theory of a social epidemic fits the evidence much better”, he proclaimed, as he presented some rather alarming graphs. The frustration in Professor Schiller’s voice was palpable. His audience was hearing, but not listening. I talked with Professor Schiller afterwards about hedging my risk via the Case- Schiller index on the CME, but the tax consequences made it expensive. On the other hand, selling property on the basis of a PowerPoint presentation seemed drastic. So I did neither.
That same tone of voice, and similar grim graphs, greeted us in the opening session of the Profit and Loss Toronto Conference last week. Foreign exchange conferences usually fit a pattern with the same questions:will all the new venues survive? How can prime brokers distinguish themselves? And the answers from the panel include the inevitable lightly veiled product advertisements.
This one was different.Alex Jurshevski of Recovery Partners warned us of the “inflationary tinderbox” that the U.S. Treasury has created. He interlaced before and after pictures of a woman addicted to drugs with condemnation of the poor growth return that quantitative easing (Q.E.) has achieved in the United States. He said there must be other reasons for Q.E., such as stealth subsidization of zombie banks (those with more than 20% of their gross assets impaired). However, Alex felt even more strongly about the ECB’s “Ponzi Finance” whereby banks participate in long-term refinancing operations obtaining sovereign guarantees for debt that they then lend to the ECB, thereby linking the sovereign and the banks to the westest link.
Alex stimulated audience controversy as he laid into “entitlements gone wild”, maintaining there are 8.5 million people on disability and 110million people who have some form of government benefit in the United states (though he did not define what he means by ‘benefit’). He then went through country after country describing their perilous debt situations, including Japan where I lived for 10 years and whose trajectory I still follow.
Alex’s conclusions included that the Euro-zone is probably dead. The previous day I heard John Taylor, CEO of FX Concepts, declare at a Bloomberg event that if the audience thought the Euro could hold together, he “had some Greek bonds to sell”, so I was ready for the reemergence of the Grexit. Alex’s prognosis was drastic: Europe may need to take a 10% haircut on near-term growth or risk a social revolution and output loss of 80%, ref: Middle East.
Alex’s investment recommendations ranged from short term assets to bullion. However, he recommended also a Plan B: buy farmland with outbuildings, arable land and a secure artesian well supply. Raise chickens and a few cows. Accumulate appropriate ordnance and ammo: Varmint gun for small game, a 12 Guage Police Enforcer with collapsible stock and extended clip for home protection.
As a fellow conference delegate said to me later, it’s necessary to be controversial to get attention. At the same time, I did wonder about a few of Alex’ statistics: the issue is not what U.S. growth actually was in return for Q.E., it what it would have been without Q.E.; Japan runs a surplus, has been addressing its deficit with scheduled consumption tax increases and entitlements reform. Japan has different challenges including deflation. The pity is that we did not have a chance to debate Alex.
However-I admit I will be sorrier still if I write another blog entry in five years’time wishing I had listened and not merely heard Alex Jurshevski.
The opinions expressed are those of James Sinclair and not MarketFactory, Inc.
