Davos – Profiting from the Asinine

Davos  (?dæv?s) — n. Romansch name: Tarau.  A mountain resort town in Switzerland.

Let’s consult the CapitalistExploits.com Dictionary for a better definition:

Davos – n. A mountain resort town in Switzerland. It is best known as a place invaded annually by an assortment of the world’s most arrogant power brokers, who descend on the town annually  and engage in an orgy of verbal flatulence and self-adulation, hell-bent on the formation and implementation of preposterous, dangerous and wealth-destroying ideas.

Orgy participants feel entitled, and in fact mandated to thrust onto the world’s minions said ideas, while feasting on largely unheard of edibles, “Sautéed infant en papillote with basil pesto Sir?”

It’s sickening and disheartening, yet valuable for investors. Valuable… How so?

If we parse the Davos tea leafs we’re left with distinctly clear advice as how to grow our own personal balance sheets!

From the IMF’s own Christine Lagarde:

“Some countries have to go full-speed ahead to do this fiscal consolidation… but other countries have space and room.”

Gotcha. The “One Currency” (aka Euro) is proving so incredibly stable and valuable that it makes sense to rush forward on fiscal consolidation? Pray tell, who in Europe has “space and room?” The entire lot of them are likely bankrupt. They’re certainly insolvent.

In a recent article I discussed the virtue of failing. Sharp traders and investors minimize damage to their wealth by understanding failures early on and refusing to continue down destructive paths. Not so for the IMF, an organization that dearly deserves abolition, and has collectively done more damage across the world than the entire guest list at one of Robert Mugabe’s dinner parties.

The takeaway here is that bureaucrats will continue down the path of destruction, and as such we can plan accordingly.

It isn’t all a concoction of rotten ideas though…

For instance, there clearly exist some who understand the basic problem. Take the group of young ladies represented by the photo below, who believe that the attendees are just a bunch of gangsters. – No comment!

Ukrainian feminist nudity group FEMEN clash with Swiss police during a protest at the 42nd Annual Meeting of the World Economic Forum, WEF, in Davos, Switzerland. (Getty 2012)

Aside from FEMEN, there were two gentlemen in particular who’s commentary is worthy of… well, commenting on.

Prime Minister Yoshihiko Noda – “Within the Eurozone there should be major steps to alleviate the concerns of the international community and the markets.”

“The forces of global financial markets assail nations relentlessly,” he said. “Once the credibility of a nation is lost there is no way to get it back easily. The European debt crisis is a clear case in point.”

Translated for your edification:  “We’re crapping ourselves over here. If this debt debacle gets anymore outta control there is simply no mathematical way that we in Japan will withstand the ‘contagion’ heading our way, OK? Now pleeeez sort this mess out.”

Despite our recent reporting of Japan’s budget announcement, history indicates that when you walk on thin ice with heavy boots bad things tend to happen.

Mexican President Felipe Calderon, “We have a time bomb, the bomb is in Europe and we are working together to deactivate it before it explodes over all of us.”

Very true Sr. Calderon. I almost began developing a soft spot for the man and then… wham! How about this gem:

“They need to bring out the bazooka immediately,”…. “The bigger the ‘firewall,’ the faster the solution”.

Let’s get this straight. The way to fight a debt problem is by building a “firewall.” How do you build that firewall? With paper of course! Silly me, I was thinking that might create a veritable bonfire. 

What is notable is that the media regurgitate this rubbish without batting an eye. I have yet to view anything bordering on common sense from traditional media covering the Davos event. It’s why blogs are increasingly the desired source for information.

The takeaway from this complete waste of time and money that is the world economic forum – we’ve reached the world’s debt limits and we’re sitting on the brink.

The global situation is so bad that an accidental or deliberate crash is inevitable at any given moment. The power brokers are clearly not going to restructure or default, which is the ONLY way out at this point. No question, we’re going to have an inflationary collapse.

As our more dedicated readers know, Mark and I have been looking at a potentially HUGELY profitable way to short the debt situation in Japan, which we’ll share with you in the coming weeks.

In the meantime we’re content to invest in markets largely uncorrelated to some of these deep, structural problems – places where we’re able to make multiples on our money regardless of most of the rest of the world’s ills.

To give you an indication of what we’re talking about consider this.

  • Mongolian YOY real GDP growth clocked in at just over 17%, and in nominal terms is probably closer to 27%.  The MSE (Mongolian Stock Exchange) is up 32.6% for the year;
  • The Athens Stock Exchange general index fell 53.4% during the same time.
That’s an 86% variance!Amazingly, we still speak to people who think investing in large, listed banks in Europe, the US and Great Britain is less risky than investing in private equity and specific frontier markets. We’ll take the latter, thank you!

– Chris

P.S. The below quote is a perfect analogy for Europe…

“It’s not pining. It’s passed on. This parrot is no more. It has ceased to be. It’s expired and gone to meet its maker. This is a late parrot. It’s a stiff. Bereft of life, it rests in peace. If you hadn’t nailed it to the perch, it would be pushing up the daisies. It’s rung down the curtain and joined the choir invisible. THIS IS AN EX-PARROT.” – Monty Python’s Flying Circus

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