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Off the Cuff: Sounding Like a Broken Record

But don't tune out the recurring warnings
Thursday, August 9, 2012, 12:23 PM
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In this week's Off the Cuff with Mish & Chris podcast, Mish and Chris discuss:

  • Europe's Deepening Recession
    • The official GDP data worsens
  • Reckless Lending 2.0
    • The Poway, CA Ponzi 
  • Anticipating a Big Move for Gold
    • After nearly a year of range-bound trading

So far the summer has been relatively dull, especially while the world has been glued to the Olympic action in London. The same risks we've been watching all year are all still in play, but there have been few newsworthy catalysts (up or down) of late. With things becalmed, it's hard not to sound like a broken record in ringing the same warning bells that we've rung all year. But despite the lack of developments (perhaps in spite of them, given that no fundamental risks are improving), Chris and Mish are very unnerved by the current doldrums. Digging under the calm waters, they find Europe's downward slide is deepening, as well as shockingly irresponsible lending practices that show we haven't departed from the nefarious behavior that caused the 2008 credit bust.

 

 

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In this week's Off the Cuff with Mish & Chris podcast, Mish and Chris discuss:

  • Europe's Deepening Recession
    • The official GDP data worsens
  • Reckless Lending 2.0
    • The Poway, CA Ponzi 
  • Anticipating a Big Move for Gold
    • After nearly a year of range-bound trading

So far the summer has been relatively dull, especially while the world has been glued to the Olympic action in London. The same risks we've been watching all year are all still in play, but there have been few newsworthy catalysts (up or down) of late. With things becalmed, it's hard not to sound like a broken record in ringing the same warning bells that we've rung all year. But despite the lack of developments (perhaps in spite of them, given that no fundamental risks are improving), Chris and Mish are very unnerved by the current doldrums. Digging under the calm waters, they find Europe's downward slide is deepening, as well as shockingly irresponsible lending practices that show we haven't departed from the nefarious behavior that caused the 2008 credit bust.

European Data Darkens

Despite the good vibes of the London Games, the larger countries in the EU are posting poor showings, economically speaking. Let's look at the largest four EU economies:

  • France's central bank announced yesterday that France had re-entered recession - one that will be harder to grow out of given, Hollande's socialist plans to increase the tax rate (up to 75%!).
  • Italy just announced an 8.2% drop in industrial production. Its year-over-year GDP growth to-date stands at negative 2.5%.
  • Spain remains mired in perma-recession, with unemployment remaining above 25% (above 50% for young workers!) and even more taxes on the way
  • Germany recently declared to be back in recession

Are these countries showing the strength and resiliency to address and overcome the growing instabilities plaguing the Eurozone? Hardly.

The Ponzi in Poway

Here's a question: Would you consider loaning a small city (pop <50,000 and shrinking) over $100 million to make repairs to its schools? If so, would you allow the city to pay NO interest or principal repayments on the loan until 20 years hence -- at which point the loan will have ballooned to $877 million?

Is it realistic to expect such a small city to have the means to write that kind of check in twenty years? Or have the popular support to do so (as the benefits will have already been enjoyed by the previous residents two decades ago)?

If this sounds ridiculous to you, Chris and Mish agree. But such a loan was just secured by the city of Poway, CA, showing that we have not learned the lessons of the 2008 credit collapse. And with more lending like this, history will repeat itself with extreme prejudice.

Whither Gold?

Both Chris and Mish are noting the "monster wedge" gold has been trading in for the past year and sense it will be breaking out soon. While both expect it to break upwards, we'll be keeping a close eye on it and reporting our observations here on the site.

Click the play button below to listen to this week's Off the Cuff with Mish & Chris (run time 23m:09s):

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