The Duality of Markets

Written By Christian DeHaemer

Posted November 12, 2011

In the Vietnam war movie Full Metal Jacket, there is a scene where Private Joker has a peace symbol on his body armor and “Born to Kill” written on his helmet. A colonel sees this and chews him out.

The colonel asks Joker why he would have a peace button and write “Born to Kill” on his helmet…

Private Joker replies, “I think I was trying to suggest something about the duality of man, sir.”

“The what?” says the colonel.

“The duality of man. The Jungian thing, sir.”

“Whose side are you on?” responds the colonel.

“Our side, sir.”

“Don’t you love your country?”

“Yes, sir.”

“Then how about getting with the program? Why don’t you jump on the team and come on in for the big win?”

“Yes, sir.”

Born to Kill

I don’t know why, but on this Veterans Day, the dual markets of Europe and the United States remind me of this vignette.

The EU and the U.S. have very similar economies. The odd thing is that the EU is looking a little better by the numbers…

The EU GDP was $16.2 trillion in 2010. The U.S. was $14.7 trillion in 2010. Both are growing at a modest rate. Both have 9% plus unemployment. The EU has $13.4 trillion in public debt, or 80% of its GDP. The U.S. has 14.9 trillion, or 99% of its GDP.

We both have bloated, corrupt public sectors, too many bills, bad housing markets, and politicians who have to cater to the money class and bribe the unions to get elected.

Ciao

The Europeans are rioting in the streets, taking down presidents, and being forced into austerity mode, while the U.S. seems less affected. This is despite America’s higher debt load and the new municipal bankruptcies of places like Jefferson County.

The most common explanation voiced for this discrepancy is that the U.S. can print money and the EU can’t.

That’s not true. The EU can and has been printing gobs of money, tossing billions into the great maw of Greek incompetence.wr

The difference is that the Germans don’t want to print more money. This is because the single biggest economic disaster in living memory was the hyper-inflation of the Weimar Republic.

Duality of Markets

Here in the United States, the worst economic disaster was the Great Depression.

The current Fed chairman is a student of the Great Depression, and he believes you need to spend money and “prime the pump” to get the economy going.

The great Bernanke is attempting to inflate and default his way out of the crisis.

In Germany, the average Junker knows if you print and spend, you will end up with hyperinflation, and hyperinflation is worse than default.

So you have the Europeans being forced to deal with their debt now — while in America, we blissfully ignore the fact that some people won’t get paid.

At some point (I’m guessing in the spring), it will be time to switch out of U.S. stocks and pick up some EU plays.

Quote of the Week

I don’t know if you caught this, but earlier in the week, the chairman of the supervisory board of China Investment Corporation — the country’s sovereign wealth fund — said China wasn’t coming to the rescue because Europe’s bloated welfare state meant that people did not work hard enough:

I think if you look at the troubles which happened in European countries, this is purely because of the accumulated troubles of their worn out welfare societies,” Jin Liqun said in an interview with Al Jazeera television.

“I think the labour laws are outdated the labour laws induce sloth, indolence rather than hard working. The incentive system is totally out of whack.

I guess this means China isn’t going to cough up a trillion bucks to bail out Italy.

According to the Peoples Bank of China, that country holds $3.2 trillion of foreign currency. 

Great Q3

Another bonus for the U.S. over Europe is that the S&P 500 firms are reporting great earnings.

Of the 437 companies that have reported third quarter earnings so far, the year-over-year growth rate for the S&P 500 is 16.01%. This is higher than the 11.47% growth that those same 437 firms posted in the second quarter.

It’s no wonder that the market is up 14.2 percent from its September lows, despite the hue and cry from our brothers on the Mediterranean.

Market Oddity

Yesterday, something strange happened. And it happened again today…

Both the dollar and the price of oil went up.

Usually, oil goes up when the dollar falls and vice versa. It’s the great cosmic teeter-totter of economics.

The dollar went up due to a falling euro. Oil went up about 30 percent from $75 on Oct. 4.

The mainstream press says this jump is based on hope that Europe will find a way to pay its bills and that the U.S. is growing again.

But the real reasons have more to do with falling inventories. The latest DOE report showed a 1.37 million-barrel supply decline last week. Expectations were that stockpiles would be up 500,000 barrels.

Bomb Iran = $200 Oil

Oil could jump a lot higher from here.

Israel is talking about launching a preemptive strike against Iran’s nuclear bomb program.

Iran is OPEC’s second-largest crude producer. Any attack on Iran would also close the Strait of Hormuz, through which flows 17 percent of the world’s oil.

Iran has three submarines as well as mines. If it got hit, oil would double overnight.

I don’t think an attack will happen — but it might, and it’s a low-risk bet.

Benjamin Netanyahu is the current Prime Minister of Israel. In 1967, he was a team leader in the Sayeret Matkal special forces unit. He fought on the front lines in the Yom Kippur War of 1973.

Mahmoud Ahmadinejad is president of the Islamic Republic of Iran. In 1979, it is rumored he was among the students who stormed the United States embassy in Tehran. He actively seeks the destruction of Israel, funds terrorists, disregards human rights, and is in pursuit of a nuclear bomb.

The French and Chinese are looking for a way around this mess and are seeking and finding alternative oil sources in Southern Africa…

I’ve found one $1.62 company that will benefit from any increased tension in the Middle East.

More investment ideas from our editors below.

Here’s to the veterans,

chris sig 

Christian DeHaemer
Editor, Wealth Daily


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