Marc says we got more bubbles and bubbles and bubbles, created by a fiat banking system inflating assets with more leverage, into a dangerous unsustainable territory. He's right. The burst will be caused by a spike in interest rates with a resultant: "rate spike contagion" that could begin with the Cyprus bailout and then spreads through the rest of Europe and emerging markets, in short order.
Think about what investors, savers, and money managers have been learning in the last few weeks. First and foremost, Cyprus exposes the EU, ECB and IMF as regulators who have acted with little foresight or control over the EU banking system. These guys are running a no holds barred carnival worse than the wild, wild west. How could they not have known that Cyprus wasn't headed for financial disaster a year or more ago? Can't they read financial statements? Do they ever audit any of these national EU Banks?
Listen, I am not sure if they can even add numbers any more. So how would you feel about investing in their bonds, buying securities, or depositing funds in countries under their jurisdiction? If you would not be scared out of your mind, then you are under a better medication than most. Realistically rates should pop by 200 to 300 basis points at the long end, if not more, over the next few weeks as stakeholders get their minds around how bad the structural issues are. The fact that these regulatory bodies have learnt little or nothing since the 2008 meltdown, creates even more fears for anyone involved with these markets or banks.
By the way, if you believe that the EU banking system is a crap shoot - then emerging markets offer even less confidence given pervasive black markets, corruption, and cronyism in such nations. Their systems of jurisprudence, finance, accounting and auditing are not as developed, while these nations are open to regime change in a moment, thus demanding much higher risk premiums than the EU.
With all these pending interest rate increases being sparked by the EU's Cyprus crisis, then inversely correlating asset values would be pushed downwards, purely due to the triggered financial mathematics . That's not good for the bubbles in stock markets, bonds, real estate, construction and corresponding employment. The winners, by default, when the dust settles, looks to be the US dollar and Gold - for the time being.
So sing along with Mr Faber, "bubbles, bubbles and more highly- levered bubbles" - where even a small incident like Cyprus brings the House of Bubbles tumbling towards the ground.
Dr Peter G Kinesa
March 30, 2013