Podcast

Ben Davies: Greece is Just a Preview of What's Coming For the Rest of Us

Friday, February 24, 2012, 11:37 PM

All eyes are on Greece these days, with hopes that the situation there can soon be resolved and global recovery kicked into high gear.

Sadly, those hopes are misguided claims Ben Davies, CEO of Hinde Capital. In fact, he says, Greece's pain foreshadows the future awaiting the rest of the world. 

It all comes down to simple math. Greece has increased its debts at a rate far faster than its income has grown. At some point, the debt became so large that the country could no longer service it.

What makes the rest of the PIIGS immune from a similar fate? Or Japan? Or the US? Or the OECD, in general?

Nothing.

Yes, Greece had a smaller, shakier economy and doesn't have a central bank to print its own currency at will like Japan or the U.S. But even those countries with a printing press learn that after a certain point, expanding the money supply only complicates the problem of too much debt by inflating key economic input costs and dangerously weakening the currency. 

The cold hard fact Greece is facing is that it's now at the point where extraordinary losses need to be taken. The problem is, no one wants to take them. And all the sturm und drang being exhibited by Brussels, the ECB, sovereign debt holders, and other world leaders is nothing more than a frantic game of hot potato.

The one thing we can be confident of is that at some point, these losses will be taken. The market will eventually force it.

And the second thing we can predict is that we don't know what will happen when they are taken. There is so much complexity in the counterparty exposure to Greece debt as well as the much larger derivative exposure tied to this debt that anything between "not much" and "worldwide financial conflagration" could be possible.

And that's just Greece. As other larger countries begin to sink under the weight of their sovereign debts, the risk to the global financial system increasingly escalates. Which is why Ben Davies has a hard time finding a good home for investment capital other than gold.

Click the play button below to listen to Chris' interview with Ben Davies (runtime 56m:40s):

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Ben Davies ran trading for RBS Greenwich Capital in London, where he managed a macro portfolio. He started his career in 1995 trading in the credit fixed-income market at Credit Lyonnais, moving to IBJI as a fixed-income specialist, and finally Greenwich Capital in 1999. He graduated with a BSc from Loughborough University, where he majored in accounting and economics. Ben Davies and Mark Mahaffey, former colleagues from RBS Greenwich Capital, established Hinde Capital in early 2007, where they primarily focus on the precious metals and commodity sector.


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28 Comments

KugsCheese's picture
KugsCheese
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No Free Lunch

The LTOR #1 and the upcoming #2 has no effect?   This will decrease GDP so less tax revenue.   But less GDP and more paper means inflation kindling.  So again, if something in the world blows up a massive deflation could occur as economies implode but then massive inflation as the politicians do not allow the central banks to vacuum up excess liquidity.

Would it be OK to allow x2 capacity of persons to get on a ship?  Will the ship not tip over?

KugsCheese's picture
KugsCheese
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Hall of Mirrors

It is hard to know if resources are constrained because the central bankers have distorted the commodity markets so much with printed money.   If the marginal profit is good, the oil producer will not want increase supply as long as profits are increasing.  So the FED creates the constraint.  But what happens when economies implode again?  Or are fossil fuel economies not affected by the price of oil?   Hall of Mirrors!

KugsCheese's picture
KugsCheese
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Fractals

Wow!  Someone else is on fractals and self-similarity.  Galaxies crash.

The take away from fractal, chaos is that the results are not predictable because of 'sensitivity to initial conditions'; why blowups happen, it is built-in.  That is why slack needs to be built into money systems because blowups cannot be prevented.

Jim H's picture
Jim H
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systems blowing up...

Ben is very giving with his outlook.. I have been listening to him on Kingworldnews for some time.  I am kind of surprised though that Ben both espouses the belief that there will be a, "cataclysmic end to this" and yet he also thinks that banking and other systems will continue to function such that his allocated Gold accounts will remain his.  Since we have already been through a situation (MF Global) where people who "owned" serialized bars were told that they no longer did.... what is he thinking?  I suppose when you have these fiduciary responsibilities, you have to maintain faith in the system to some degree... otherwise, if you have enough personal integrity, you have to literally pull an Ann Barnhardt, give back your clients money, and call it quits.   

SagerXX's picture
SagerXX
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Hot little hands...
Jim H wrote:

Since we have already been through a situation (MF Global) where people who "owned" serialized bars were told that they no longer did.... 

He must have it (figuratively) in his hot little hands -- stored at a private facility in his own account?  And not hypothecated out to any other party?

Viva -- Sager

SagerXX's picture
SagerXX
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This quote makes me wonder...
Davies wrote:

But actually, you have unintended consequences often arise within complex systems.  An example in this case would be you have provisions within derivative contracts from one counterparty to another -- not bank to bank -- I am talking about a bank to a pension fund.  Where the pension fund now can come back and say hang on, you have been downgraded.  I need more collateral or I am going to reassign or just tear up this swap agreement.  So it is an immediate loss for that bank.

Now, that is the kind of behavior that I have started to hear about recently, only in recent weeks.  And before you know it, that snowball effect...

So this sort of thing is already happening?  Seems like the kind of event[s] that cause[s] Bad Things to Happen.

Or am I missing something?

Viva -- Sager 

Jim H's picture
Jim H
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Sager...

No, I don't think Davies has the Gold outside of the system... another quote from the transcript;

"And some people say to me, well, don’t you need to own it in your house or in safety deposit boxes? And I do not feel that, because at my core, I believe the system will ultimately continue to exist, although in a bastardized form, and hopefully, it will have a new beginning whenever that will be. But I think you will be amazed at how society continues – even under the extreme duress. You just have to look at Latin America. You know, I just talked to a lot of the businessmen there and how they coped with hyperinflation. They continue to run their businesses. They just manage their billing system and their receipts and they made it work for them. So it is amazing how ingenuous we can become."

Earlier, he had said, "And part of safety for me – and this is where I see gold – physical allocated gold is, by definition, outside the constructs of the financial system."

The question is, if you have allocated Gold in an account run by the JP Morgue.. in a vault owned by the JP Morgue.. or other banker... are you really outside of the (financial) system, or not?

Also, you may have heard Ben talk about making yield with his Gold... and I can tell you how he does this... for at least a portion of his account value, he is timing the market, selling high, and buying low.  He discusses his outlook on short term Gold price trends more on his regular Kingworldnews.com podcasts.  My point is not that there is anything wrong with this... the guy is REALLY smart and is often correct on his calls.. my point is rather that you need to have the Gold in the system to do this... not out of it, in a safety deposit box or private vault. 

So I go back to my original point.. that to me, there is a cognitive dissonance in saying that the system will have a cataclysmic end, and yet the allocated Gold accounts will be safe, sound, and unhypothecated by any other parties.       

Estatesavr's picture
Estatesavr
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could we?

reading the transcript of this interview begged a question in my mind:  Chris & Adam -- Can we develop a 'Man on the street' network of people in places like Greece, Portugal, Argentina, Ireland, Italy, et al?  heck, different parts of the USA vary radically from the other in energy prices, unemployment, etc

the above referenced fractals can be gathered by such a network and sifted here

Ben obviously has street cred and, by virtue of where he sits, what he does, offers us a perspective we may not get sitting in Anytown, USA (apologies to International readers)

much like FerFAL it helps me to hear what they would have to say about what is REALLY happening on the street, are ATMs empty, what are quantity & quality of goods on Grocery stores, what are pump prices, level of civil unrest, etc

(see my posts on topic in member forum on SHTF barometers/indicators)

I think such a network of informed observers would/could act like a network of seismometers of 'real' data vs the filtered MSM BS we wade through

as a Scientific PhD Chris has a highly developed ability to filter such data and see these fractals and offer us an early warning net

maybe it is just me, but I would much prefer this form of 'humint' 

 

 

SagerXX's picture
SagerXX
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Re: could we?

 Capital suggestion, estatesavr!

SagerXX's picture
SagerXX
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Jim: Yep.
Jim H wrote:

Earlier, he had said, "And part of safety for me – and this is where I see gold – physical allocated gold is, by definition, outside the constructs of the financial system."

Yep.  When I got a few pages on in the transcript I answered my own question.  Although he does say it's in private vaults in der Schweiss, which is probably as safe as it gets outside of a vault in your basement (or buried on the back 40).  But your point that he trades the gold market and therefore must have X amount in the system is a point well-taken.

Viva -- Sager

KugsCheese's picture
KugsCheese
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Nothing is simple.  Life is

Nothing is simple.  Life is hard.  Buy gold and done; that easy?

PastTense's picture
PastTense
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Chris' Wealth

" And I am like – I am hunkered down, and my gold holdings are about seventy five percent of my core holdings right now"

I thought Chris was heavily into silver and energy (as well as  gold). Has he mostly dumped these holdings, or was I wrong?

ewilkerson's picture
ewilkerson
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Popping the debt bubble. Iran, Straits of Hormuz,

Does anyone else believe that the geo-political problems we are having now could be the pin that burst the bubble?  Europe is hardly getting by now paying their  debts.  I have seen several generals and such arguing  that Israel will attack Iran around April/May. 

  Many analysts believe the minimum oil will go to would be $150 and, possibly as high as $250.  Since it would take around a month to clear the Straits there would be a severe shortage of oil.  During the OPEC embargo during the 70's the world had not amassed this amount of debt.  Oil ultimately pays almost all bills,  so I guess the central banks would be pumping money out  as fast as the computers could send it.  The system may not come  down, but we sure would have massive inflation

Cheers,

Ernest.

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SagerXX wrote: Jim H
SagerXX wrote:
Jim H wrote:

Earlier, he had said, "And part of safety for me – and this is where I see gold – physical allocated gold is, by definition, outside the constructs of the financial system."

Yep.  When I got a few pages on in the transcript I answered my own question.  Although he does say it's in private vaults in der Schweiss, which is probably as safe as it gets outside of a vault in your basement (or buried on the back 40).  But your point that he trades the gold market and therefore must have X amount in the system is a point well-taken.

Viva -- Sager

Could be a bit of both ... I think my BullionVault account is both in and out of the system.  It's in a Swiss vault and specifically allocated to me (out of the system).  But, it's in an account that is reported to TPTB (in the sytem and tradeable).  Maybe that's why his description fits both.  ... dons

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dps
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PastTense wrote: " And I am
PastTense wrote:

" And I am like – I am hunkered down, and my gold holdings are about seventy five percent of my core holdings right now"

I thought Chris was heavily into silver and energy (as well as  gold). Has he mostly dumped these holdings, or was I wrong?

I remember specifically mentions of gold and silver.  I do not remember any mention of energy.  I do remember specific advice to be out of the "market" assuming there is such a thing anymore.  It's more of a casino and for the sake of the owners.  ... dons

KugsCheese's picture
KugsCheese
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Ra$ing

1.5% management fee and 20% perfomance fee...no thanks.  Add your taxes in the US...

RJE's picture
RJE
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We are way ahead of the game folks...
 
 

"Very few beings really seek knowledge in this world. Mortal or immortal, few really ask. On the contrary, they try to wring from the unknown the answers they have already shaped in their own minds -- justifications, confirmations, forms of consolation without which they can't go on. To really ask is to open the door to the whirlwind. The answer may annihilate the question and the questioner."

-Anne Rice

However any of this works out we are at least schooled on most every outcome so will be able to react (relatively) to whatever happens pretty quick, and that's a good thing. Personal note: Neck surgery tomorrow, C4, 5, 6. and 7. Plates and screws. Then exercise and Golf in 12 weeks. I am thrilled.  Good Luck Folks 

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Doug
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robert essian
robert essian wrote:
 
Personal note: Neck surgery tomorrow, C4, 5, 6. and 7. Plates and screws. Then exercise and Golf in 12 weeks. I am thrilled.  Good Luck Folks 

Good luck with the surgery.  Do what the physical terrorists tell you to do.

Doug

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RJE
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Doug...

...thank you. My Lady (wife of 39 years) is the manager or Ortho-Neuro, and has my deepest respect, and will be my care giver. I will only do as I am able, and allowed. The surgeon is an acquaintance, and a fine Doctor. Some anxiety is embedded here, and is probably why I mentioned it, so again, thank you.

BOB

SagerXX's picture
SagerXX
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Good luck, Bob

 Will have a good thought for you.

Viva!

Estatesavr's picture
Estatesavr
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best wishes & prayers

My best wishes for a speedy recovery Robert.

I have had the same type of surgery & can completely understand your concerns.  Do yourself a favor - ask for an 'extra' neck collars so they can be exchanged as you WILL get sick of wearing the same one (smell) 

best

Jake

robert essian wrote:
 
Neck surgery tomorrow, C4, 5, 6. and 7. Plates and screws. Then exercise and Golf in 12 weeks. I am thrilled.  Good Luck Folks 
Denny Johnson's picture
Denny Johnson
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The US will never, never,

The US will never, never, never have a situation like Greece. We will NEVER default. Why? We have a printing press. We will print our way out of any debt problems. We are doing it already. Dollar weakness will be the result, not default. It is happening already....

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SingleSpeak
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Starting to sound more like a politician......

 

In Ben Davies interview with Chris, after Chris brings up diminishing oil production, Ben says, "I think we're on the same page here." Then in the interview with King World News he says (I'm paraphrasing), "The U.S. has enough shale oil to last a millenium." So, either he likes telling people what he thinks they want to hear, or he had a sudden change in his beliefs on peak oil, or at minimum doesn't know what "page" Chris is on in regards to the shale story.

Could it be that, even when given the empherical data regarding our planet's resources, most people will believe what makes their current vision of the future remain intact because it is easier than preparing for a new way of life? 

SS

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robie robinson
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there will

be oil into perpetuity, one kind or another. However, the last barrel will not be worth the cost,beyond just monetatry, of extraction. Is this what Davies meant?

 

robie

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ewilkerson
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I believe he was talking

I believe he was talking about shale gas, and that we were going to become a major exporter, as well as, have plenty of energy for our own economy.  He may have been including shale oil in that, too.  I guess he is good at numbers when it comes to finance, but he  fails to realize how long all this infrastructure is going to take to put in place. Tthere are not even pipelines to bring the Bakken oil to market.  It has to be sent by train, so it is priced around 20% or so lower than WTIC.  As Chis has indicated, it takes aaround 40 yearss to convert energy types.  We don't have the time! 

The way we are spending, and our lack of leadership, the present monetary regime will be over by then.  It may be a second leg of The Industrial Revolution under better money and a more advanced understanding of economics.

To conclude I think Ben was very interesting and understood a great deal, but has not put the three E's together.

Ernest

SingleSpeak's picture
SingleSpeak
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Logical Conclusion -

 

To conclude I think Ben was very interesting and understood a great deal, but has not put the three E's together.

Ernest

 

           I concur.

           SS

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ewilkerson
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Thanks SingleSpeak

Thanks SingleSpeak.

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