A definition, breaking records, stars lining up and approaching Queenstown

There was a fantastic quote circulating the net last week regarding inflation. You can’t switch on the tv last months or you have a central banker or a politician proudly saying that inflation is low. Of course we all know the calculation is rigged (last change in Belgium was to include the Summer and Winter sales in the inflation basket). The bread price on the other hand was taken out years ago already. So inflation is not representative at all about the real cost of living, as anyone who does his weekly grocery shopping himself knows very well. So I give you this wonderful definition of inflation and central banking from Dylan Grice:

“Trying to control a variable you can’t measure (inflation) with a tool you don’t fully understand (money) in a complex system with hidden, unobservable and non-linear interrelationships (the economy) is a guaranteed way to ensure that most things which happen weren’t supposed to happen.”

I came across a graph (courtesy of Bloomberg and Zerohedge) that really spooked me.


It’s the New York Stock Index divided by the US FED balance sheet. Ok so 2008 is Lehman we know that. The thing is since Lehman, the US FED has pumped 4 trillion $ in the economy as reported last week. This has not done anything to the stock exchange if you divide it by the FED balance sheet. So the optimists will look at this graph and say: “Wow! The NYSE can go up another 500% just to reach the 2008 levels. Let’s rock-and-roll!” The realist in me however is scared sh#tless (excusez-le-mot) because 4 trillion $ has done nothing, null, zero, rien. Never mind that stock exchanges are breaking new records. Taking the FED balance sheet as basis, shares haven’t moved an inch. Basically we fell off a cliff in 2008 and since then flat line... The economy and financial system is dead and they don’t know it. Bucket loads of money are acting as defibrillator but no matter how often they push the defibrillator button (printing press) the patient is brain dead and the heart beat is not coming back.


Contrary to the new NYSE records which are in the news almost daily, this piece of very interesting news, hardly got any media attention: Germany argued against the use of European funds to help banks.
From Euroactiv:
“Ahead of the meeting, French Finance Minister Pierre Moscovici told reporters: "France continues to believe that we ... must not exclude direct recapitalisation by the European Stability Mechanism as a last resort."
Speaking just yards away, however, Wolfgang Schäuble, Germany's finance minister, poured cold water on the idea.
"The German legal position rules it out now," said Schäuble. "That's well known. I don't know if everyone has registered that."
Inside the meeting room, people close to the talks said the two clashed again, when Germany asked for the removal of any reference to ESM bank aid from the ministers' statement”.

Just politics you say? Well yes of course but there is more behind it. I see some stars lining up here and it doesn't bode well for us working class who try to save some money.

The ECB is going to do a big bank stress test next year. Contrary to earlier bank tests (which were a joke) this time it seems the ECB intends to do a proper job that risks exposing many banks short of capital (because they still have too much bad loans). Latest estimates talk about 95 billion € of losses.

The question then is: who will pay for the losses? A new European wide system was meant to do this, but this is what Germany now opposes to. And what if some banks are not worth salvaging?

The answer is disturbing: “Any state help will come at a heavy cost by imposing losses on shareholders and junior bondholders. In time, possibly as soon as 2015, senior bondholders and even depositors with more than 100,000 euros will be forced to take losses.”

So yet another confirmation that the ‘never-to-be-repeated-once-in-history’ saving of the Cyprus banks slowly but surely becomes institutionalised.


During a meeting in Auckland we were shown below movie of the approach in Queenstown. Very challenging but oh so beautiful. Watch this tribute to airmanship and enjoy the scenery!