The much touted green shoots phrase currently being spewed through every orifice on our televisions by Prozac overdosed presenters makes me reach for my antihistamines. Let us examine the chronology of events; the mind boggling improvement in markets since early March were induced by a slew of much better than expected results from US banks which miraculously bounced into profit in the first quarter. This led to more optimistic sentiment which was fueled everyday by a series of optimistic data coming from most governments worldwide. Now let us examine the facts; the banks bounced into profitability only because of a change in accounting and reporting standards that was introduced (surprise, surprise), two weeks before they due to report. In essence they were allowed to put all their losses into December'08 and all their profits into '09, then by the wave of a wand, pretend December never existed and wala we get profits. The resultant rally in stocks and sentiment hasn't gone unnoticed by the Wall Street bankers whom I affectionately refer to as "da boyz" whom have been selling their personal stock into the rally at a ratio of 8:1 to every share bought and raising hundreds of billions of dollars by issuing more shares in order to pay Uncle Sam back for earlier loans via TARP. Ironically this has actually diluted shares and makes them more expensive now then their March lows, but who cares while the music is blaring and happy pills being tossed around. This zombie like behaviour of the market was no more evident than on Monday when America's bellweather corporation GM filed for bankruptcy and thereby induced a triple digit rally in the Dow. Yep, I know this was priced in long ago, but you got to appreciate the irony. As an ex CEO of GM once exclaimed years ago "So goes GM..so goes America". As for the slew of positive economic data, one just has to look at source...the government, yep the same one that is printing trillions out of thin air, with record deficits increasing by the second and whose currency is on the brink of annihilation...yeh, sure we can trust their unbiased figures. The system is broken, da boyz know it, the fed and American government knows it, the Europeans, Chinese, Japanese and Russians know it, however ordinary Joe Soap as well as our South African government doesn't..well' at least not yet. History will judge the near future akin to the dark ages which is gonna make the 30's depression look like a visit to Disneyland. Now most of you will laugh at the last statement only because you were born in the 1900's. Unless you are over a hundred and Parkinson free, you will not remember the horror that the adult generation of early 20th century had to endure through 2 world wars and soup lines during the decade of depression. We are a generation born into a cocoon of artificial life shielded by the ravages of natural life cycles through an intrinsic web of a well oiled and planned system. This system was based in virtual reality wherein the basis of value (monetary system) was basically a belief system, no different from any of the other religions we currently have. So, as long as everyone believed, you could leverage your wealth (nothingness) to immense wealth (immense nothingness) and so forth. Now this system works well when you have a population of believers that works in a tangible and productive manner and the products they build provides the tangible basis and justification which our monetary system lacks. However when you have a populace such as that currently, whereby very few toil for the benefit of the vast majority, the system falters such as now. Looked at another way, one can examine the shape of a pyramid; at the top you have the wealthy bankers who print money outta thin air and lease it with interest to the stronger bottom layers that support it at great expense of tangible energy. However invert this pyramid and you will get structural failure. Now every man and his dog has(d) his own money printing press via a home which doubled in value every year based purely on perception. He stopped working productively and leveraged this new found wealth in investments, stocks and even more property thinking it's never going to end. Hence we find ourselves in the midst of structural failure as whilst everyone was at the party, no one was minding the wheel. That said this is not going to be permanent doom and gloom scenario for everyone, especially not the Russians, Chinese and Indians. These countries still have a semblance of natural reality wherein not everyone became fat and lazy. They still have a large hard working and more importantly a net saving population. They have a large store of the world's natural resources and the basis of their economies is still primarily based in creating value (manufacturing) rather than servicing it (speculation). If their respective governments play their cards right, I have no doubt whatsoever, that the next decade will see a transfer of wealth and power from west to east. Point is the east can survive without the west but not vice versa. The transition however will be turbulent as the east has had to play the West's game these last few decades and as a result amassed a fortune of debt paper (IOU's) from the west. We are now in the midst of the slow unbundling of these IOU's in favour tangibles like gold and oil. This process is tantamount to deactivating a nuclear bomb and has to be done slowly and carefully, otherwise everyone blows up. I am convinced that the powers that be in the west have accepted this fact and that there is no alternative and are now colluding with east so that the transition will not completely obliterate their society. Treasury secretary Geithner's sudden visit to China this week bears testament to this theory. Once the power handing ceremony is complete (probably in the next 3 - 5 years), I expect us to revert to a gold standard in order to ensure that the unchecked exuberance of the past never goes unchecked again. The west can still however partially save itself by completely purging its excesses and directing all its efforts into innovation especially with regard to green technologies. This however requires political suicide as masses will want someone's blood for taking away their mcmansions and hummers in return for education and hard work. Understandably there are no martyrs in the current political spectrum willing to explore this option, hence my prediction of inevitable doom. The future for South Africa however is less predictable. On one hand we have gluttony of natural resource wealth and a relatively stable financial and manufacturing infrastructure. On the other hand we have an "Americanized" population spoilt by easy credit and phenomenal property growth, a beauracratic government whom thus far proved completely impotent wrt service delivery and our BEE charter which has turned common sense on its head. Worst case scenario for South Africa can be summarized chronologically as the following series of events: Economy continues to deteriorate with no respite, leading to the slow erosion of the middle class. Crime starts to really get out of control as millions of otherwise law abiding citizens enter the criminal fraternity in order to survive. Poor government policies regarding Zimbabwe fail to stem millions pouring in through the borders thereby intensifying points 1 & 2 above. Although most crimes will be committed by increasingly desperate locals, there will be a meteoric rise in xenophobia as local community leaders whip the masses into frenzy, but with a secret agenda of merely plundering. At this time the last remnant of highly skilled people from all racial groups will begin to abandon ship. Government injects massive amounts of capital into infrastructure projects despite tax revenues falling off the cliff in order to compensate for a collapse in private sector spending and create jobs for an increasingly uncontrollable population. This will lead to huge current account deficits, devaluation of the rand and rampant inflation. In order to appease the masses and basically avoid full out anarchy, government embarks on the nationalization of major industries and invoking the controversial land bill. Zimbabwe. It is my sincere hope that new Zuma government can live up to it's pre-election promises and breathe new life into arguably one of the most inefficient governments on planet earth and thereby prevent the above scenario from precipitating. We can still avert this, but we need to do something that has eluded us thus far, which is, work side by side as South Africans with discipline, fortitude and mutual respect. Unfortunately I do not think that neither we nor our government are fully aware of how close we really are and how easy it would be for the above to quickly become reality. In so far as the US is concerned, nothing can stop the above scenario or a similar version of it from playing out..the clock is ticking.
