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IceCap Asset Management Limited Global Markets 2012.9

IceCap Asset Management Limited Global Markets 2012.9

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Published by: zerohedge on Sep 22, 2012
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Our view on global investment markets:
September 2012 – “3 days that shook the World” 
Keith Dicker, CFAChief Investment Officerkeithdicker@IceCapAssetManagement.com www.IceCapAssetManagement.com 
 
Shaking the World is fun
www.IceCapAssetManagement.comElvis Presley was the King. Whenever he jumped on stage and got “allshook up” the World took notice. His kind of shaking was fun foreveryone.On the other hand, American President Kennedy and Soviet PremierKhrushchev didn’t quite get to shake the World, but they certainlyforced the World to hold its breath over a tense 13 days. Unlike theKing’s version, this kind of shaking wasn’t fun for anyone.Meanwhile, in September 2012 the World’s central bank superpowers are at it once again. This time however, the orchestratedshaking is intended to provide the best of both Worlds – fun foreveryone who chooses to play along with the money printingschemes, and not so much fun for those who recognise the stress it iscreating throughout the World’s financial system.To fully appreciate this current shaking, one must first understand thesimple law of diminishing returns.
The Law of Diminishing Returns
While there are plenty of complex laws to keep lawyers happily billingforever, there is one law that is very simple and is never mentionedby those responsible for the good health of our global economy -
thelaw of diminishing returns
.This un-billable law becomes a nightmare for anyone trying toproduce more of anything. It occurs when despite putting
September 2012 3 days that shook the World
 
increasingly more effort into an activity, the desired outcomebecomes less and less rewarding.Case in point, one just has to consider America’s growth of borrowedmoney and the resulting growth in GDP over the last 50 years.
Chart 1
on the next page shows that in the 1950s, America had toborrow just $1.36 to grow their economy by 1 extra dollar. That’s notso bad until you consider that over the next 50 years America had toborrow more and more to produce less and less GDP. In fact, duringthe 2000s America had to borrow $5.76 to grow its economy by anextra buck – that’s progress.Now, we’re sure that over the years all of this borrowed money wasput to great use. After all, the future never comes so why worryabout it. Unfortunately, the future is today and the “credit cliff” isquite steep (
see chart 2 page 3
). The debt reaper is knocking on thedoor and he wants his money back. There’s just one minor problem –no one has the money to repay him.No problem, the central banks & governments have plenty of moneytools available to beat back any financial challenges presented by thedebt reaper.To make you feel more uncomfortable, let’s review the tricks in theirmoney bag:1
 
Chart 1: US diminishing returns from borrowing
September 2012 3 days that shook the World
 
www.IceCapAssetManagement.com2
Source: Ned Davis Research

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