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Petrocapita September 20 2012 - Bull Market in Unintended Consequences Continues

Petrocapita September 20 2012 - Bull Market in Unintended Consequences Continues

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Published by Capita1
The central bankers of the two key western economies have pulled out all the monetary stops in recent weeks. Our mandarins of money assure us that this time their efforts will be sufficient - that this “unlimited” expansion in central bank balance sheets/ money-supply will provide the raw material for a rebirth of real growth in the west.
The central bankers of the two key western economies have pulled out all the monetary stops in recent weeks. Our mandarins of money assure us that this time their efforts will be sufficient - that this “unlimited” expansion in central bank balance sheets/ money-supply will provide the raw material for a rebirth of real growth in the west.

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Published by: Capita1 on Sep 21, 2012
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09/21/2012

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Petrocapita UpdateSeptember 20, 2012
 
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THE BULL MARKET IN UNINTENDEDCONSEQUENCES CONTINUES - STAGFLATION
 The central bankers o the two key westerneconomies have pulled out all the monetary stops inrecent weeks. Our mandarins o money assure usthat this time their eorts will be sufcient - that this
“unlimited”
expansion in central bank balance sheets/ money-supply will provide the raw material or arebirth o real growth in the west.I would disagree - the western economies currentlyhave in place the raw materials or stagation:Aging populations;Large ununded public liabilities;High total debt-to-GDP levels;Low savings rates;Overhang o unliquidated mal-investments;Growing state sectors; andLarge fscal defcits. The monetary authorities are simply adding more o the critical ingredient - devaluing currencies. All o theissues above have been well documented over thelast ew years and yet strangely stagation does notseem to be on the market’s radar - a Google trendssearch or “stagation” reveals what seems to be acertain complacency on the issue.I think we will begin to see a change in marketperceptions - and more importantly investmentpositioning - as the consequences o the unwaveringcommitment o the central bankers o the worlds twolargest economies, the US and the EU, to unlimitedmoney printing become apparent. Risk assets o allkinds, o course, have been showing considerable lieas o late, but over time I would expect the hard asset
Petrocapita Update
 
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Petrocapita Update (continued)
sub-category to be the winner and fnancial assets,particularly sovereign debt, to be the loser. Now matter how much Chairman Bernanke wouldlike to believe to the contrary, currency debasementsdo not generate economic recoveries. To indulgein what has become a trite observation, i it were soZimbabwe would be a prosperous country. Likewise,to keep the money supply growing aggressively inthe stagnant economies o the west will not producethe desired outcome o real growth and increasingemployment.By insisting on printing over the systemic solvencyissues in the fnancial sector, by actively preventingthe liquidation o decades o mal-investment, bysubsidizing speculation and consumption to thedetriment o production (and so on) central bankerswill not create a recovery. Unless these problems areaddressed they are creating a volatile, inationaryenvironment with poor real growth dynamics - i.e.the ideal raw materials or stagation in the west.Stagation combined with volatility presents theaverage person with a very difcult investmentenvironment, one where even simple capitalpreservation becomes a challenge. O course - the banking system bonus machine mightbe saved and in the end perhaps that’s all that reallymatters.0
GOOGLE TRENDS SEARCH FOR “STAGFLATION”
2004 2005 2006 2007 2008 2009 2010 2011 2012Search Volume indexNews reerence volume0
 A CDFE
 
B

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