Living in the matrix: People seeing growth when in reality there isn’t…

Spoon boy: Do not try and bend the spoon...that's impossible.

Instead only try to realize the truth...

Neo : What truth?

Spoon Boy : There is no spoon.

Neo : There is no spoon?

Spoon Boy : Then you will see, it is not the spoon that bends, it is

only yourself.

There is no spoon – The Matrix

Last Friday 4. February the unemployment figures from the Bureau of Labor Services were presented. Totally in line with my prediction of last Thursday – There is absolutely no reason for optimism – the figures were quite bad.  The official unemployment has decreased by 0.4%, but the number of extra jobs that has been created was only 30,000+, where the analysts expected it to be about 130,000+ . My prediction was not very hard, as there doesn’t seem to be a true driver for jobs.  And still everybody expects that the prices of stock will go up…

The interest is still kept historically low in Japan, the USA and Europe. There is an alphabet soup of financial support and quantitative easing programmes maintained in these countries. The mere thought of terminating one of those financial support programmes or raising the interest rates makes Ben Bernanke and Jean-Claude Trichet feel nauseous. And still everybody expects that the prices of stock will go up…

In the meantime everybody looks at the BRIC countries (Brasil, Russia, India and China) as sources for eternal financial growth:

-    China has built cities without inhabitants in the middle-of-nowhere (look at Ordos and a number of other vacant cities) and is fighting its own real estate bubble. At the same moment they keep funding the export of goods to the USA and Europe themselves in order to maintain peace and quiet on their hometurf.

-    India is raising interest rates to fight an inflation of more than 8%

-    Russia is weighed down by rising food prices. Retired people that still receive only about 200 EUR per month ($250) must pay half of it in service charges for their appartments as these charges have increased fivefold over the last ten years. Poverty for these people is looming.

-    Brazil seems to be the lovebaby of the investors and is doing quite well the last two years. However, it is reaching this result partially by destroying its natural resources (rain forest)  and replacing it by a monoculture of soy (for cattle feed), sugar and coffee. The result: steaks with a price that is well below the true intrinsical value of the meat.

Even the darlings of international investors show signs of overheating and exhaustion. And still everybody expects that the prices of stock will go up…

The social unrest in the world stretches from Sudan and Somalia to the Arab states in the Middle-East and Africa and from Cambodia vs. Thailand until North vs. South Korea. And as:

-    food prices will rise even more;

-    water becomes more and more scarce;

-    oil will return as a topic on everybodies’ retina with the unrest in the oil producing countries…

the chance of everything settling down is negligible. And still everybody expects that the prices of stock will go up…

Look at all the signals from the outside world…  See how the investors are reacting to it… Then it seems like all investors are locked up in The Matrix, looking at a spoon being bent (the economy) without realizing it is their mind being bent instead of the spoon. And Bernanke, Trichet and the governments of the western countries are the Architects and Oracles of this Matrix.

But realize:

-   there is no true driver for job creation;

-   there is no true driver for real productivity, as governments and government money can’t be those drivers;

-   there is neither a new invention, a new moment nor a new product line that can fuel the world economy into top gear;

-   Mobile computing and smartphones as drivers for productivity will get into a replacement market, instead of a growth market, as everybody that wants one and can afford one, has one

-   Export from China is mainly paid for by China itself to keep its economy and its government out of trouble.

-   there is no renewed optimism and vigour under the people of the western world; only habitual consumption out of boredom of clothes, food and useless gadgets like the I-phone and I-pad.

I am not a perma-Bear, but I warn you to beware of the bulls with their unfounded optimism: you are the one that is going to pay for them.

Ernst