Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Minyanville Round Table: Social, Political, Economic Polarization Threatening Recovery


Kevin Depew, Peter Atwater, Conor Sen, and Professor Pinch discuss the European crisis and what it means for the coming years.

On Thursday, July 7, Peter Atwater, Conor Sen, Professor Pinch and I began an extended email back-and-forth exchange about the overall macro picture, the global economy, financial markets and what we expect going forward. Rather than sending the four of us off to write separate pieces based on these ideas -- the traditional way of generating content -- I thought, why not just publish the exchange as it originally happened? This is the Internet, after all, and we can do whatever we want.

Peter Atwater kicked it off Thursday morning:
I am gravely concerned about Europe.

From a safety and soundness perspective what the ECB is doing is horrendous. They are providing solvency at this point, not just liquidity. And the degree to which margin requirements have been stretched is very troubling. At the same time, the actions which Germany is now taking suggest that it is every man for himself. And I am afraid that from here on out the lifeguards will only provide assistance post-, not pre-default.

Conor Sen:

Over the past few weeks I have grown more and more pessimistic. I still think the economy is in much better shape than people think, and equity valuations until the past week have been compelling. But I no longer have any confidence that the people through their elected officials are going to let things continue as they are.

In the US I'm afraid that budget cuts will be far more severe than is warranted given the output gap and borrowing costs of the Treasury. In Southern Europe I don't know how much longer this level of austerity can continue. It's not clear how much longer Northern Europe will bail out the South. QE2 is over (though I don't think this matters much), the ECB is hiking (insane), and China continues to tap the brakes.

So we find ourselves in a spot where, left to their own devices, the economy and stock market should work higher over the next few years. But social mood continues to deteriorate despite the economic improvement -- the Minnesota state government has been shut down for a week now and it seems like nobody has any answers or is willing to compromise. I'm still looking to buy dislocations in the stock market, but I think we're nearing a point (could be a few weeks or a few months) where whether it's Greece, Portugal, Ireland, or the US Congress, some governing body is going to say no mas, and we'll get some level of a sovereign debt liquidity panic.

Politically the top 1% is going to get whacked. Hard. I don't see any way around that. The chart below illustrates, I believe, the economic and social polarization that must be reconciled.

Click to enlarge

Professor Pinch:

I completely understand. You have a real economy that is showing potential, but a macro construct that is just plain unhealthy. In Europe's case the situation is worse because the gang that can't shoot is playing with dynamite.

Peter, I agree. The ECB's course of action is reckless and idiotic. "Trash for cash" is not a strategy that will solve this mess. But, everyone there is afraid of letting go of the dream: both the euro & the EU. And they won't let go of it until there's no other choice. I have no feel for how long they'll try to hold on to it, but they will.

Kevin Depew:
This is interesting, and a great way to put it: "I completely understand. You have a real economy that is showing potential, but a macro construct that is just plain unhealthy." The uncertainty is terrible, but we will eventually repair the macro construct... or not. That, in my opinion, is the ultimate bull versus bear divide. Bulls believe we will inevitably repair the macro construct and emerge with something new, while bears believe we will not.

I don't know if I need to add it, based on what I've written on Minyanville, but will: I'm in the bull camp and believe that we reconstruct this and rework it into something positive and unforeseen. The white swan. There will be much noise in the meantime, and the noise will be intense, but to me, if you can find quality companies that you can imagine might be around in 2025, at compelling valuations, and I think you can (See Minyanville commentary on large cap tech stocks such as Microsoft (MSFT), Cisco (CSCO), Intel (INTC), Google (GOOG) and Apple (AAPL)), then this is one of the greatest long-term buying opportunities of individual equities in a lifetime.

< Previous
Kevin Depew has positions in CSCO; Conor Sen has positions in CSCO, MSFT;

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

Featured Videos