London based Simon Hunt travels to China many times a year, is an authority on copper and the Long Wave theory of cycles. I generally don’t follow Long Wave analysis, but Simon does make me think and check my own views carefully. The point of Outside the Box is not to send you material that I agree with, but ideas from smart people which make us think. So, enjoy my friend Simon’s latest forecast and ideas. – John Mauldin, Editor Outside the Box
Before we get to this week’s Outside the Box, a quick note about my writing on Greece in last Saturday’s letter. I made the point that if Greece defaults it does not necessarily mean they have to leave the EU, any more than if Illinois defaulted they would have to leave the United States. Greece could still use the euro and life could go on. EXCEPT. The markets would no longer lend the Greek government money at anything close to a livable rate. Greece would be forced to balance its budget. Since they are part of the euro, devaluing the currency is not an option. The results of controlling their fiscal deficit would not initially be pretty and would almost insure a serious prolonged recession or depression in the Greek area, with fall out in the region. It would be a sad decade for Greece. But in the long run, it is a better option than default.
Further, and more important to the rest of Europe and the world, the results of a Greek default would be financial turmoil. 250 billion euros (and maybe 300!) of Greek debt is in international bond funds, pension and insurance companies, and above all at banks. Think German banks. Already undercapitalized banks. Also, think of all the investment banks who have been selling relatively cheap (given the apparent risk) credit default swaps on Greece, in an unregulated market, exposing their balance sheets. What should be a simple, if sad, matter for the Greeks, becomes a problem for the world, just as subprime debt in the US caused a world credit crisis. And the risk of contagion from Portugal, Spain, et al is serious. 2 trillion euros of debt could get downgraded by the bond market in very short order. It could be a replay of the last credit crisis, just with new actors as the prime problem.
Bailing out Greece without serious and credible deficit reductions by their government over the next few years would simply delay the problem, and it is not altogether clear the bond markets would go along for very long. At the end of the day, it may be the bond market which forces the Greek government and its people to take some very bitter medicine. Stay tuned. This is just the beginning of what will be a series of sovereign debt crises over the coming decade. It is important for the world that we get this one solved right, or the consequences will be quite severe.
Now, this week’s Outside the Box is from my friend Simon Hunt, based in London. Simon travels to China many times a year, is an authority on copper and the Long Wave theory of cycles. When we are together, and often over emails, we have some fairly interesting debates. I generally don’t follow Long Wave analysis, but Simon does make me think and check my own views carefully. And as I often write, the point of Outside the Box is not to send you material that I agree with, but ideas from smart people which make us think. So, enjoy my friend Simon’s latest forecast and ideas.
John Mauldin, Editor
Outside the Box
February Economic Report
by Simon Hunt
This year is likely to be a year of surprises.
……read it all right HERE
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John Mauldin is a Fort Worth, Texas businessman, now living in Uptown Dallas, and the father of seven children, ranging from ages 13 through 30, five of whom are adopted.
He was Chief Executive Officer of the American Bureau of Economic Research, Inc., a publisher of newsletters and books on various investment topics, from 1982 to 1987. He was one of the founders of Adopting Children Together Inc., the largest adoption support group in Texas. He currently serves on the board of directors of The International Reconciliation Coalition and the International Children’s Relief Fund. He is also a member of the Knights of Malta, and has served on the Executive Committee of the Republican Party of Texas.
He is a frequent contributor to numerous publications, and guest on TV and radio shows as well as quoted widely in the press.
John is the President of Millennium Wave Advisors, LLC (MWA) which is an investment advisory firm registered in multiple states. John Mauldin is President of Millennium Wave Securities, LLC a FINRA registered broker-dealer. MWS is also a Commodity Pool Operator (CPO) and a Commodity Trading Advisor (CTA) registered with the CFTC, as well as an Introducing Broker (IB).