IS THE ECONOMY RECOVERING?
WHO IS BUYING RECOVERY?
NOT THE BIG BOYS
by
Sanford Pinna, M.D.
Copyright 2009
The talk is everywhere: “The recession is over!
The bottom has been reached! The good days are
right ahead!”
Most people believe this, except the big investors
of the world—those that buy government bonds. They
are paying more to get a smaller return—of something
that cannot fail.
http://www.bloomberg.com/apps/news?pid=20601109&sid=andFYiJJuBvw
“Aug. 31 (Bloomberg) — The bond market isn’t buying all the optimism over the end of the global recession. ”
The “bond market” is over 16 trillion dollars worth
of government debt around the world.
The buyers of this debt want absolute certainty
that their assets are safe. They are not interested
in speculation and only secondarily interested in
return—their primary concern is safety of capital.
Governments cannot fail. Their currency may depreciate
but their bonds and their interest will always be
paid.
The buyers of these securities has been
increasing and the yields have been falling.
WAGES ARE FALLING
As we know from the theory of the Economic
Rip Tide, the West is moving back to the depths
of the economic ocean where living standards
are lower and where wages are lower.
“Wages and salaries fell 4.7 percent in the 12 months through June, the biggest drop since records began in 1960, Commerce Department figures show.”
This is a fact, not a guess. Wages fell at a rate
unknown in the history of the U.S.!
Not all fund managers are as optimistic as
what we constantly read in the media
“It’s not at all clear that the economy is out of the woods yet,†said Mihir Worah, who invests the $14 billion Real Return Fund for Newport Beach, California Pacific Investment Management Co. “We still have to see convincing signs that the consumer can survive once the government stimulus is taken away, and we are not convinced of that.â€Â
WORLDWIDE STIMULATION
Every government in the world is pouring money
into its economies. This includes the massive economies
of China, India and Japan.
But, can the stimulation of paper money rectify
a structural defect?
The world has witnessed countless times that
monetary stimulation of countries in Africa and
South America has never produced anything but
inflation.
An injection of adrenalin into a human body
may stimulate nervous activity for a short period
of time but it will not produce a healthy body!
A healthy body has healthy organs.
A healthy economy has healthy economic
components.
Those components are: Agriculture, Manufacturing,
Service and Trade.
If any of these components are weak or missing
the economy will be weak and the living standards
will fall.
Government bond buyers around the world
are pessimistic about the health of the world’s
economies.
Proof of their pessimism is the enormous
volume of their purchases at ever higher prices.
Government bond buyers may be wrong
in the long term—but, they are rarely wrong
in the short term.
Short term government rates are still
going down.
