by Laurence Miall on July 4, 20122 comments
I would normally leave the economics and world politics to my more capable fellow Sapiens, Matthew Payne and Andrew Loewen, but this little bad-news nugget, harvested from a corner of the Internet where I seldom tread – an investment firm’s website! – was too good to pass up:
“We have no doubt that everyone is tired of bad news, but we are compelled to review the facts: Europe is currently experiencing severe bank runs, budgets in virtually every western country on the planet are out of control, the banking system is running excessive leverage and risk, the costs of servicing the ever-increasing amounts of government debt are rising rapidly, and the economies of Europe, Asia and the United States are slowing down or are in full contraction. There’s no sugar coating it and we have to stop listening to politicians and central planners who continue to downplay, obfuscate and flat out lie about the current economic reality. Stop listening to them.”
Yes, stop listening to politicians, that’s the advice from the investment experts from Sprott Asset Management.
Politicians, the Sprott experts argue, aren’t even allowed to tell the truth. Check this.
“There is certainly a sense that the authorities can no longer be candid about this ongoing crisis, even if they want to be. On June 11th Austria’s finance minister, Maria Fekter, opined in a television interview that, “Italy has to work its way out of its economic dilemma of very high deficits and debt, but of course it may be that, given the high rates Italy pays to refinance on markets, they too will need support.” Her honesty sent Italian bond yields soaring and earned her some harsh criticism from eurozone officials, including Italian Prime Minister Mario Monti. As one eurozone official stated, “The problem is that this is market sensitive… It’s one thing if journalists write this but quite another if a eurozone minister says it. Verbal discipline is very important but she doesn’t seem to get that.”
The authors go on to argue that if you really want to know what’s going on in the economy, observe instead the behavior of companies. Doing that leads to only one conclusion: economically, “it’s ugly out there.”
“On May 24, Tiffany & Co cut its fiscal-year sales and profit forecasts blaming “slowing growth in key markets like China and weakness in the United States as shoppers think twice about spending on high-end jewelry.” On June 8th, McDonald’s surprised the market with lower than expected same-store sales growth in May, following a lacklustre April sales report that the company stated was “largely due to underperformance in the United States, where consumers continue to seek out very low-priced food.” On June 13th, Nucor Corp., the largest U.S. steelmaker by market value warned that its second-quarter profit will miss its previous guidance after a “surge” in imports undermined prices and “political and economic uncertainty affect buyers’ confidence”.21 On June 20th, Proctor and Gamble lowered its fourth quarter guidance and profit forecast for 2012. Factors that drove the company’s challenges included “slow-to-no GDP growth in developed markets”, high unemployment levels, significant commodity cost increases and “highly volatile foreign exchange rates”. Other companies that have recently lowered guidance include Danone, Nestle, Unilever, Cisco Systems, Dell, Lowe’s, and Fedex. It’s ugly out there, and many companies are politely warning the market about the type of environment they foresee ahead in both the US and abroad.”
I’ll only editorialize insofar as to say it’s become blindingly apparent that the financial crisis has proved that we no longer elect leaders to lead. Leaders would tell us the truth as best they can about the dire circumstances we’re in and then try and improve our collective prospects. But Cameron, Markel, Obama, etc. can do no such thing. The world is not so much lurching toward another crisis as it is already living in seemingly permanent crisis: shedding jobs and accumulating staggering amounts of debt. If there were a pilot on board, he’d be ordering an evacuation, but alas, there’s no “outside” to an imploding economy.
I feel in these dark times, this photo of Barack Obama is particularly poignant. It’s like he’s saying, “People are broke and unemployed and stuff. I can only think of one way to help. Bust out the sad face.”