It is abundantly clear that this concert party of central banks (not the collective noun I would normally use…) will do everything it can to keep the global financial system afloat when the inevitable happens in Greece. The ECB are about to go with LTRO 2 which should provide another €½ trillion to Europe’s beleaguered banks. Even the “mighty” HSBC is rumoured to be in the queue; not because they need it, but because it’s a ridiculously cheap form of finance that they can make a turn on and/or support their activities in the gold market…

LTRO is the acronym for Long Term Refinancing Operation. The cash they are providing is for a three year term. Since when did three years become “long term”? This must be the finest example of can kicking yet. Put the banking industry on life support whilst we try and contain the Greek fall out and leave off worrying about the consequences for a year or three!

Although we are being fed a stream of positive economic news, mainly from the US (where it is election year don’t forget…) there is a notable air of caution around and the main factor in the rise of equities so far this year has been the blizzard of cheap cash. What is intriguing is that in large corporate world, earnings are on the up (the new lean and mean machine) which is adding to their own cash piles, but they can’t find anything to spend it on. With the S&P having doubled since 2009 and being not that far short of its all time high that should hardly come as a surprise.

Apple, everyone’s favourite (is there a hedge fund out there that isn’t long?), succumbed to a bout of Newtonian gravity on Wednesday; again not unexpected given the euphoria post the iPhone 4S launch. We may yet see higher prices in equities as the printing presses continue to roll, but as the final act of the Greek farce plays out, it would be wise not to ignore the words of the Bard of Avon to “Beware the Ides of March”. www.viewfromthebridge.co.uk

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 Central banks never utter the words quantitative easing, so the Bank calls it an addition to its “asset purchase programme”, which was only hiked to £275 billion back in October. The accompanying rhetoric states that inflation is on the way back down and may fall below their target of 2%, mainly as a result of the VAT increase last January falling out of the equation and lower energy prices, (despite Brent crude being over 10% higher Y-o-Y in sterling terms..); a convenient excuse perhaps.

 The ECB has been shovelling money out to the European banks with indecent haste and their cunning plan is that those banks will then use that cash to buy junk bonds (Club Med sovereign debt) at much higher yields than the cost of borrowing. So far it hasn’t worked that way as the banks have just parked the money back with the ECB, but it has put a floor under the short end of the bond market.

 This makes the likelihood of successful bond issuances by the PIGS marginally more likely, but left the BoE wondering when the markets will wake up to the fact that our “emperor” is wearing little else than a very ragged pair of shorts. If they can keep up the illusion that the flight to safety “wings” he has tattooed on his chest will keep us airborne, they may postpone the inevitable for a time whilst attention is focussed on the rest of Europe. Technically the UK is part of Europe but then politics has rarely had any truck with mere geography…

 And so to Greece. Like many European nations the Greek government is a coalition party, but with a minority, making national unity on the issue next to impossible. Already a two day strike has been called and frankly the projections for GDP “growth” and debt repayment are utter nonsense; a point not missed by the IMF and the German Finance ministry who, let’s face it, are running the show.

 The markets meanwhile are in a sanguine mood, but why wouldn’t they be with all this central bank money sloshing around the system? If Greece was the only problem in Europe a solution would have been found ages ago, but it isn’t and we are back again to moral hazard, which I banged away about yesterday. If the Greeks get a deal then Portugal et al will be in the queue faster than the central banks can electronically print the money to pay them.

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In the good old days of accrual accounting balance sheets were signed off as showing “true and fair value” and there was an actual number for contingent liabilities. Today “mark to market” has become “mark to unicorn”… Back in a somewhat more realistic world, if a company (even, heaven forbid, a bank!) was insolvent it went bust thereby giving a salutary reminder to investors, depositors and creditors of the maxim of caveat emptor. By creeping paralysis that principal too has been abandoned by governments and regulators who believe they are better equipped to save us from our own mistakes. The consequence (unintended or otherwise) of which is to compound the error.

Once the basic tenet of capitalism, the efficient allocation of capital, is circumvented, the virus spreads. The current wisdom is that when the patient becomes too big to fail more medicine is administered and, “Guess what?”, the patient gets bigger. It then becomes an act of faith to assume that in time the medicine will work. Viruses, like our financial systems, are highly adaptable and become immune to the antidote and ultimately kill their host, as Greece is about to find out.

It seems that economics has become like a religious experience based on superstition and myth and naysayers are tied to the stake and burnt…or worse. Keynesianism may have worked in the past (more by accident than design…) but printing money to infinity no longer does the job because the banks need this medicine – liquidity – to stay alive whilst the host, to whom the money should be flowing – the economy – is dying slowly on its feet.

Maybe Bernanke should set loose his helicopters full of cash. At least this would ensure a fairer distribution of the largesse, although being an avowed student of the Great Depression; he will know that hyperinflation comes next if he does. He will claim to be able to control inflation by employing Volckeresque rates of interest, which reached 20% in the early 80s (to control CPI at a mere 15% – hardly “hyper”) but ask yourself how much that would cost the taxpayer in terms of servicing the unfeasibly larger pile of US and other sovereign debt. Once you have worked that out you will need to break out the malt and have a sizeable dram!

But, and it’s a big but, the central banks and their acolytes have kept this ponzi scheme going for a very long while, and may well succeed to do so for some time, with the rather bizarre consequence that I may still reach a care free dotage reminiscing about the occasions on which I avoided moral hazard in my youth!

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Investing is little different although it is rarely fatal except to your wealth rather than your health; although a shortfall in the former often results in a similar effect on the latter. A high percentage of accidents happen within close proximity to home; familiar territory creates a false sense of security. And so it is in the investment world. We all remember the old adage that property prices never go down, which they didn’t for a long time, until of course they did…

The global financial system is in crisis but it won’t affect me seems to be the current mantra. Debates about the bonus for Stephen Hester, CEO of RBS, and the impending loss of peerage for the former incumbent are merely smoke screens hiding far more important issues that politicians, and those who have elected them, are unwilling or in many cases unable, to contemplate. Better to join the “blame game” rather than have a serious discussion.

We have been living for far too long on a diet of bail outs, money printing and flawed economic policies, which the politicians fervently want us to believe are the solutions that will “see us through”. Issuing more debt to solve the debt problem is just not going to work is it? Ask the Japanese. By 2013 their total government debt is estimated to reach one quadrillion yen – Y1,000,000,000,000,000 – that’s a lot of zeros and just as you were getting used to trillions. Debt to GDP will be close to 250% and yet we hear that Greece will still be struggling at 120% and that is after the heroic assumption that there will be more EU assistance and a further round of debt defaults!

Japan has got away with it for over 20 years by having a very strong export sector and a population of inveterate savers prepared to buy Japanese government bonds (JGBs). However they have just posted their first trade deficit since 1980 and the world is waking up to the fact that the emperor has no clothes. The US obviously thinks it can pull the same trick. Bernanke did not go so far as to announce QE3 last week, but has pushed back the date before he sees any rise in interest rates, by a year, to 2014. Gold rose nearly 5% by the close on Friday on contemplation of more clandestine money printing by the Fed.

But surely the US economy is booming is it not? The Financial Times headlined US GDP for the last quarter of 2011 as “surging” to 2.8%. Buried lower down the column it was mentioned that 1.9% of it came from a rise in inventories (thus far unsold and likely cannon fodder for the spring “sales”) and that analysts were expecting the number to be 3%; although the fact that they got it wrong should surprise no one… For those of you who only ever read the headlines Thomas Jefferson’s quote is as appropriate today as it ever was 200 years ago.

The man who reads nothing at all is better educated than the man who reads nothing but newspapers.

Do your homework, position you portfolio for all likely hazards and please don’t forget to wear your crash helmet.

PS For those of you mystified by the title of this piece I should explain that apart from being an eminence grise in the investment world Jim Rogers is an inspiration to adventure motor bikers. In the 80s and 90s, way before Charlie Boorman and Ewan McGregor set off in 2004 on the “Long Way Round” – London to New York via Siberia – followed by yours truly (sans television crew but with equal trepidation) in 2009, Jim did a little trip of 100,000 miles across six continents on an aging BMW. Whether he wore his bow tie all the way around I don’t know but what I can tell you is that his book – Investment Biker – is worth a read whether you are into two wheels or not.

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In an attempt to prove that they are not complete morons, the EU have decided to delay any decision on the Iranian oil embargo, when it was pointed out to them that crude oil north of $120 would push the European economy further into recession. Iran will quite likely implode under its own steam. Inflation is rampant, the rial is reeling (I was going to say that I don’t write this stuff, but then of course I do…) and interest rates are now over 20%. If the Ayatollahs decide that Ahmadinejad is making a pig’s breakfast of it all – unlikely in a Muslim country you might think – they might want to replace him with one of their own giving the US the perfect “excuse” to open yet another theatre of horrors.

Talking of theatre of horrors the land of the “free” is currently subjecting itself to the torture of eliciting a candidate to run against Obama in November. Last time around we had the spectacle of Sarah Palin, who would have been slaughtered by Dan Quayle in a spelling bee. Today we have a Mitt, a Newt, two Ricks and a Ron. (Yes yes I know we have a lot of quaint names over here. Whenever I visit the States I introduce myself as “Clyde”; it saves an awful lot of hassle…) Their televised debates are like watching Big Brother on LSD – is there any other state to be in to watch it? My vote, if I had one, would be for Ron Paul. He is the only candidate with a genuine proposal to reduce the budget deficit and he understands how dangerous the world is with an unchecked and unaudited Federal Reserve hell bent on printing its way to oblivion…

Sadly he seems unelectable as the powers that be – Wall Street and the military complex to name but two – deem him to be “dangerous”. Although he, himself, is a spritely 76 he does have youth on his side; the youth of America. It is all very reminiscent of the 60s, my own formative years, when the post war hierarchy started to be challenged. There is a similar if not more pressing feeling that all is not right with the world and the “Kids in America” get that. To quote from Kim Wilde’s hit single – “Outside a new day is dawning. There’s a new wave coming I warn you.” Does the world really have to wait another four years?

Dear Noah, We could have sworn you said the Ark wasn’t leaving till 5.
Sincerely, Unicorns

In my many years I have come to a conclusion that one useless man is a shame, two is a law firm, and three or more is a parliament. John Adams

A liberal is someone who feels a great debt to his fellow man, which debt he proposes to pay off with your money. G. Gordon Liddy

Democracy must be something more than two wolves and a sheep voting on what to have for dinner. James Bovard

Men occasionally stumble over the truth, but most of them pick themselves up and hurry off as if nothing ever happened. Sir Winston Churchill

Either you repeat the same conventional doctrines everybody is saying, or else you say something true and it will sound like it’s from Neptune. Noam Chomsky

If you don’t trust gold, do you trust the logic of taking a pine tree, worth $4,000-$5,000, cutting it up, turning it into pulp, putting some ink on it and then calling it one billion dollars? Kenneth J Gerbino

I predict future happiness for Americans if they can prevent the government from wasting the labours of the people under the pretence of taking care of them. Thomas Jefferson

I don’t make jokes. I just watch the government and report the facts. Will Rogers

Some little known Zen teachings
• No one is listening until you pass wind.
• Experience is something you don’t get until just after you need it.
• Light travels faster than sound. This is why some people appear bright until you hear them speak.
• There are two excellent theories for arguing with women. Neither one works.

And finally – “The trouble with quotes on the internet is that it’s difficult to determine whether or not they are genuine” Abraham Lincoln

A very Merry Christmas to all of you who have put up with my diatribes during 2011 and may you continue to do so and prosper, but not necessarily as a result, in 2012.

“Para Noyer” might like to reflect on the “stable outlook” for the UK’s AAA rating and the fact that Fitch’s parent company Fimalac is, would you believe it, French, before he next thinks about calling the kettle black.

“But what a fool believes … (s)he sees” – a lastingly stable euro?

When Jean-Claude Juncker said that, “When things get serious we have to lie”, maybe he should have said that we have to be economical with the economic truth. Anyone who gets a regular ear bashing from Nigel Farage deserves a miniscule degree of sympathy but certainly no more than that.

Although it is highly unlikely to be the last chapter of this story, the odds are on Germany finding a way to allow the ECB to print. The markets will be euphoric and we can all enjoy Christmas, but remember the hangover starts as usual on January 2nd. At least the evenings will be getting lighter…