Tuesday, April 19, 2011

Saudi Production, S & P's Cut...

What a coincidence that S & P would downgrade the outlook on American debt during budget negotiations. Japan can run a deficit up to 200% of GDP, with far worse demographics, before getting such downgrade... but not the country that prints the world's reserve currency.

Something - someone, some group.... however you want to define them... Bilderberg, Pimco, the Chinese, the Pentagon... maybe all of the above - very powerful "motivated" S & P to make this decision and announcement now.  There are NO COINCIDENCES. And not that it isn't the right thing to do... it is. But it ain't a coincidence.

So what are the ramifications? I believe (at least for the moment, and reserve the right to change my mind) that this incident was designed to prod the parties along. And if I am correct, this is what comes to my mind:


  1. Any hint of success at cutting spending will send commodities down, perhaps hard. Commercial real estate and housing, too... though perhaps not as hard from here as commodities. Bonds might surprise you with interest rates heading lower and bond prices higher. Stocks not so much.
  2. A real cut in government spending would mean that  deflation and recession would be in the offing - and that's a good thing. In this case its the cure that is far more preferable to the disease. (Americans would start to save and invest rather than consume and go into debt.) Can the economically and  mathematically challenged members of the Left get it and cooperate without causing a political or constitutional crisis? I have my doubts. Can the people making bizzilions on pentagon and weapons programs accept the new reality without causing their form of mischief? I have my doubts there, as well.
  3. Any cut in entitlements and military spending would be an incredible move in the right direction, but a meaningful cut will be necessary to bring confidence back to the system. Should this happen, the U.S. would be giving itself its best opportunity to deal with Peak Oil, but it would be very painful for an electorate that has come to view something for nothing as a natural law of the universe.
  4. This would also likely be the beginning of an incredible contraction in the financial services industry - and that's a good thing, too. That industry has been far more destructive of the average American than gambling, Las Vegas hookers, illicit drugs, and McDonald's combined (and 3 of those 4 are illegal). The industry encouraged self-destructive consumption and debt, in the extreme, with its easy money loans and services. What does America have to show for all of that "Financial Service"? Cookie cutter McMansions and shiny Cadillac Escalades complete with spinning hubs (machine gun turrets are extra) that consume dwindling Oil supplies like mad but do pollute like crazy... so they got that going for them...
I look forward, with great anticipation, the next move in this unfolding chess match.

3 comments:

Charles said...

For once we don't agree Greg. I'd say S&P's interests are understandable; they missed calling the Big One and they want to make sure they flag up the US budget problems before they lose more cred. Yes, it should prod the parties, they surely what they really need a solid kick up the ass! But its unlikely to make much difference, and most of what you say about arms and financial services won't happen either because, between party funding and taxes, the military and banks run your country. And BTW, out of illegal drugs money, gambling and prostitution, two are probably your only major growth industries! Treasure them!

As for commodities falling, I don't think the US (or even the West) is in the driving seat, either as a direct, or even as an indirect consumer. China has a product-hungry internal market, and it and the other BRICs are increasingly trading with each other. I think we're increasingly irrelevant.

The only thing that is saving us is companies who still consider themselves 'U.S.' or 'British' or 'European', whose income increasingly comes from the BRICS and who repatriate the profits to Western shareholders and head offices. I wonder how long that'll last. Remember, HSBC started out HongKong and Shanghai Bank, for example! What goes around....

Greg T. Jeffers said...

Charles:

Your analysis of S&P is certainly less tin foil hat that mine... But I will stick with my assertion as a high probability, though no certainty. 60/40... 60 my interpretation of events, 40 yours.

As for commodities...

Take the other side of the trade. I am short to flat at the moment. Short, if you take out of the money put selling as short...

"The only thing saving us"? from what? I assure you, if Oil supplies were unlimited, our expansion, economic and military, would go on unchecked for quite some time.

It is all about Oil

Anonymous said...

My first thought was they were trying to inoculate themselves from prosecution since it would look really bad to go after them for their part in defrauding millions, right after their downgrade; or even to attack their cartel status. Unfortunately then I snapped out of it and came back to the banana republic.

Best,
Dan