In the It couldn’t have happened to a better couple department, the new story of the hour is that Chelsea Clinton’s husband, you can tell he is a kind of nothing in the eyes of the press and the parents, Marc Mevzinsky and his hedge fund have lost a few million betting on the Greek economy. This graduate of divinity studies and philosophy from Stanford and Oxford grad in politics, philosophy, and economics has with two former Goldman-Sachs colleagues have managed to turn in losing performances for their hedge fund, Eaglevale Partners. One of their large investors is Lloyd Blankfein, CEO of the vampire squid, Goldman-Sachs. In a letter to investors: “Our recent predictions regarding Greek Politics have proved incorrect.” Well, I think they couldn’t understand why the populace would vote for a radical political party when their economy, their lives, and their futures were in the dust bin. That $400 million investment has been diminished significantly by 27 out of 34 quarters resulting in losses. A smaller Eaglevale fund specializing in Greek investments has a reported 48% loss. Well, there goes Marc’s chance to manage the Clinton Family Trust. It will be tough decision for Hillary to decide whether to run for president or go on speaking tours to make up the money Marc lost. Maybe the Clintons need better friends. Just before the Swiss pulled the floor from under their currency, the Swiss Franc, George Soros sold his short positions in the currency a couple of days before the announcement and avoided any loss. The rest of us should be so lucky. We should see Chelsea back as a working mother now that she needs the money.
Continuing with our Parade of Stupidity the Bank of Japan is having problems with the Japanese government bonds. Seems that the yields are rising, which as we all know means that their price on the bond market is declining. Most of your Japanese government bonds are owned by the Bank of Japan and the Japanese government pension fund as well as several other pension funds. The idea way back when the bonds actually paid a decent coupon rate (4%) the bonds could be held to maturity and the interest collected to pay the pension payments earned. But starting back about 1990 those bonds were offered at lower coupon rates and now, since 2005, I do believe, have been near zero. The major problem is that while the bonds have bee seen as golden in terms of secure, backed by the Japanese government, and what could go wrong there even if the government debt to GDP is a mere 230%, they now pay little, if any interest. The old longer maturity bonds with the higher coupons were called and replaced with lower coupons until most everyone has the almost no coupon rate bonds of varying maturities. But government bonds, as we see in the case of Greece, are only good when the government that backs them actually pays the coupon. Right now it is estimated that even with the current interest rates (coupons paid) as much as a one quarter rise in interest rates will bankrupt the government. Approximately 25% of the government outflow is in interest or coupon payments on government bonds. And since pensions must be paid or the old folk starve, the sale of such Japanese government bonds held must be made in order to fund those pension payments. The whole idea of using the capital paid in for pensions was that the earnings from the capital invested would make all the necessary payments in the future as well as providing excess funds for reinvestment to fund the pensions of future retirees. True, the Bank Of Japan could buy up all such bonds as they come onto the market but the problems is where do the pension management funds get the funds for investment if they are constantly having to sell their capital? At some point in the future the old folks will stare and be left out in the cold, literally. Meanwhile, back at the ranch, China will not let the Japanese Yen devalue and attract the import and export business it has built up. We are embarking on decades of trade and currency wars the world has not seen since the days of Dutch and English mercantilism and empire building. China has just reduced its holding requirements for banks to 5 percent. So much for insuring that bad loans don’t wreck the banking system.
Meanwhile the word from down under is that the Conservative party is about to be turned out of power a little earlier than usual. It inherited the spendthrift policies of the Labor government and failed to deal with the labor unions, so now, after trying austerity without much reform, the people are tiring of the ruling party and want change. Unfortunately, all that commodity boom, which saw China buying commodities like there was no end to the GDP boom in China, and now there is, has gone bust. orders for commodities are very low, the supplies heaped up, unsold, and layoffs of all those good jobs in the outback are flushed. That means the housing boom is over and the bubble is bursting. Australia has little industry, all the manufacturing has left, first for Japan, and then for China, and now for other parts of southeast Asia. They are regressing to being a third world country solely dependent of commodity exports. What’s worse is that both the public and the government have been living well beyond their means with no commercial business to speak of to pick up the slack. There are not too many buyers of racing yachts world round. And with the labor union mentality, a foreign national corporation would be very foolish to invest in any type of manufacturing facilities there, the labor costs would drive them out of business. Meanwhile, South America is turning into a nightmare with Brazil and its commodities markets headed for recession. The Brazilian currency has already taken a nose dive and is not likely to recover in time for the 2016 Olympics. Makes me wonder if the year’s Summer Olympics will be canceled. Not that I care, the athletes have become fare too professional to be amateurs any more for my taste.
And while so many think the oil crisis has gone away, it hasn’t. There is so much oil being produced that we will not see a drop in production until July or August, and even then there will not be a rapid rise back to $100 a barrel. Rig count may be down but those rigs that are producing are here to stay for a few years until the wells drop below cost production levels. An operator can’t pump at a loss, but until then he has got to pump what he can. Only the big boys can slack off on production and ride out the high supply. So we should see another Come to Jesus meeting regarding stock prices for oil and then it might be time to buy for the future. Oil energy is scalable, solar and wind, not so much.