{"id":24550,"date":"2011-10-17T22:50:31","date_gmt":"2011-10-18T02:50:31","guid":{"rendered":"http:\/\/countingpips.com\/fx\/2011\/10\/17\/how-to-spend-100-billion-in-two-days\/"},"modified":"2011-10-17T22:50:31","modified_gmt":"2011-10-18T02:50:31","slug":"how-to-spend-100-billion-in-two-days","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/fx\/2011\/10\/17\/how-to-spend-100-billion-in-two-days\/","title":{"rendered":"How to Spend $100 Billion in Two Days"},"content":{"rendered":"

By MoneyMorning.com.au<\/strong><\/p>\n

In a moment we’ll show you why $100 billion isn’t as much money as it seems. In fact, by our estimate, it’s only enough to last about two days.<\/p>\n

More on that in a moment. First…<\/p>\n

On 26 August, Slipstream Trader<\/a><\/em> Murray Dawes wrote the following note to his traders:<\/span><\/p>\n

“By flattening the yield curve the Fed will be inadvertently hurting the banks that are trying to reap the difference between the long end and the short end [of the yield curve]. Their balance sheets are already teetering so I wonder what the ultimate unintended consequences of such a policy move could be.<\/p>\n

“Perhaps US banks will be hit on the news, which could help our short positions in Aussie banks.”<\/em><\/p>\n

Seven weeks later, Bloomberg Businessweek<\/em> writes:<\/p>\n

“Investors focused on a 6 percent decline in revenue from a year earlier to $19.6 billion. That missed the $20.2 billion estimate of analysts as low interest rates cut into profit on loans, according to a statement by [Wells Fargo].”<\/em><\/p>\n

So as Murray predicted, low interest rates are hurting the balance sheets of the institutions the low interest rates were supposed to help!<\/p>\n

Murray has been ahead of the action for months. Understanding the impact lower interest rates will have on banking stocks helped his traders clean up on short-selling the banks.<\/p>\n

Now Murray is doing the hard work to find the next signal. That’s the key to good analysis… not taking everything at face value. Rarely does a good idea stare you in the face. You need to look for it.<\/p>\n

Murray did that with the banks… and we’re doing the same with China…<\/p>\n

<\/p>\n

China to the rescue?<\/div>\n

<\/strong><\/p>\n

Take this latest news from the mainstream:<\/p>\n

“China’s sovereign wealth fund will be willing to invest in Europe once the continent presents a clear solution to its debt crisis, reforms its welfare system and invests money in itself, an official says.” – The Age<\/em><\/p>\n

For reasons we don’t understand, China is seen as an investing genius. In reality it’s a corrupt and brutal regime that no-one in their right mind would chose to live under.<\/p>\n

But still, the world is looking to China to bail out Europe from its indebted mess.<\/p>\n

If no-one else wants to buy European debt, get China to buy it. Apparently, that will cure everything.<\/p>\n

But we wonder if anyone has actually taken a time to look at the numbers. Whether they’ve really thought this through…<\/p>\n

Slipstream Trader<\/a><\/em> Murray Dawes sent your editor a link to the Economist<\/em> yesterday. It was for an “interactive overview of government debt across the planet.”<\/em><\/p>\n

At 9.39am today – according to the Economist<\/em> – total global government debt stood at USD$40,455,754,305,252. That’s 40 trillion dollars… and counting.<\/p>\n

By the time you read this newsletter the amount will be hundreds of million of dollars higher.<\/p>\n

Now for the reality check…<\/p>\n

<\/p>\n

$100 billion doesn’t go far these days<\/div>\n

<\/strong><\/p>\n

According to the Age<\/em>:<\/p>\n

“The [China Investment Corporation (CIC)] has about $US100 billion at its disposal to spend abroad.”<\/em><\/p>\n

That’s a lot of cash. But big numbers can be deceptive. A hundred billion, 40 trillion… what’s the big difference? Well, we’ll show you the difference…<\/p>\n

If the CIC invests its USD$100 billion in government debt, it will buy just 0.247% of the world’s outstanding debt… and shrinking. Because as every second passes and the debt rises, China’s hundred billion dollars has less of an impact.<\/p>\n

[Ed note: at 11.17am, global debt has risen by nearly USD$2 billion… in less than two hours!]<\/em><\/p>\n

But that’s not all. Even if the CIC spends every cent of its billions on Spanish, Italian and French government debt, do you know how much debt it could buy? Get this… it will still only account for 1.9% of all outstanding Spanish, Italian and French debt.<\/p>\n

And with Spanish, Italian and French debt yielding 5.27%, 5.78% and 3.04%, China’s investment won’t even cover the annual interest bill.<\/p>\n

Besides, we’re not convinced China has any desire to dump one crappy asset (U.S. dollars) to buy another crappy asset (Euros). But we’ll see. What we do know is, China’s expected debt buying spree is not<\/u> the answer to the world’s debt problems.<\/p>\n

Think about it… it’s the equivalent of a consumer saying their debt problem is solved because ANZ has given them a loan so they can pay off their Westpac loan.<\/p>\n

It hasn’t solved anything. It has only delayed the day of reckoning.<\/p>\n

Not only that, but at the rate global debt is increasing, China’s $100 billion investment will be exceeded by the growth in total debt in… just two days.<\/p>\n

Some bailout!<\/p>\n

<\/p>\n

There’s more to come<\/div>\n

<\/strong><\/p>\n

We know we’ve banged on plenty about the global debt problem in recent months, but it’s important you understand that when bankers and politicians talk about billions or hundreds of billions of dollars in bailout money, it means nothing. It’s just putting the proverbial lipstick on a pig.<\/p>\n

Like big numbers, the global debt issue is bigger than most people can comprehend. It won’t be solved by China investing USD$100 billion in European debt… and it won’t be solved by U.S. or European government making small budget cuts.<\/p>\n

So, with a problem this big, the solution – or most likely the fallout – will have to be big too. In other words, if you thought the market was volatile now… you ain’t seen nothing yet!<\/p>\n

Cheers.
\nKris.<\/strong><\/p>\n

\n<\/img><\/a> <\/img><\/a> <\/img><\/a>\n<\/div>\n


\nHow to Spend $100 Billion in Two Days <\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

By MoneyMorning.com.au In a moment we’ll show you why $100 billion isn’t as much money as it seems. In fact, by our estimate, it’s only enough to last about two days. More on that in a moment. First… On 26 August, Slipstream Trader Murray Dawes wrote the following note to his traders: “By flattening the … <\/p>\n

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