Home > Predictions > Crazy, extremist, tin-foil hat-wearing…BANKERS???

Crazy, extremist, tin-foil hat-wearing…BANKERS???

OK, so many of my detractors call me nasty names, like ‘extremist anarchist’ and ‘doomsayer’ and ‘gold bugger’.

But how do my detractors react when a major, mainstream banker says such things?  Suddenly financial Armageddon has gone mainstream.  This from TBTF French bank Société Générale:

Société Générale has advised clients to be ready for a possible “global economic collapse” over the next two years, mapping a strategy of defensive investments to avoid wealth destruction…

The underlying debt burden is greater than it was after the Second World War, when nominal levels looked similar. Ageing populations will make it harder to erode debt through growth. “High public debt looks entirely unsustainable in the long run. We have almost reached a point of no return for government debt,” it said.

Inflating debt away might be seen by some governments as a lesser of evils.

If so, gold would go “up, and up, and up” as the only safe haven from fiat paper money. Private debt is also crippling. Even if the US savings rate stabilises at 7pc, and all of it is used to pay down debt, it will still take nine years for households to reduce debt/income ratios to the safe levels of the 1980s…

SocGen advises bears to sell the dollar and to “short” cyclical equities such as technology, auto, and travel to avoid being caught in the “inherent deflationary spiral”. Emerging markets would not be spared. Paradoxically, they are more leveraged to the US growth than Wall Street itself. Farm commodities would hold up well, led by sugar.

Mr Fermon said junk bonds would lose 31pc of their value in 2010 alone. However, sovereign bonds would “generate turbo-charged returns” mimicking the secular slide in yields seen in Japan as the slump ground on. At one point Japan’s 10-year yield dropped to 0.40pc. The Fed would hold down yields by purchasing more bonds. The European Central Bank would do less, for political reasons.

SocGen’s case for buying sovereign bonds is controversial. A number of funds doubt whether the Japan scenario will be repeated, not least because Tokyo itself may be on the cusp of a debt compound crisis.

Hmmm…

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