Saturday 23 June 2012

Warning from NYT

Welcome to Doomsday, warns Wall Street seer
by Andrew Ross Sorkin

19 June, 2012

If you want to be scared, truly terrified, listen to Mark J. Grant. He might be right.
For the past two years, Grant, a managing director at a regional investment bank in Florida, has been predicting the bankruptcy of Greece and a cascade of chaos across the global economy, attracting quite a following on Wall Street in the process.

"Greece will be forced to return to the drachma and devalue, and the default will cause bank runs and money flowing into Germany and the United States as the only viable safe haven bets," he declared in the days before Sunday's Greek elections, irrespective of which party would win. "Greece will default because there is no other choice regardless of anyone's politics."

He then walked through the falling dominoes: "It will hit the [European Central Bank], the banks on the other side of the derivatives contracts, all of the Greek banks who are really in default at present and being carried by Europe as well as the nation, and the Greek default will spread the infection in many places that we cannot imagine because so much is hidden and tucked away in the European financial system."

Welcome to Doomsday, brought to you by Grant. He says he doesn't think of it as such; he calls it "reality". He told me, almost hopelessly, "There's only so much money to go around."

In a January 13, 2010, report Grant forecast that Greece would default on its government debts, one of the first to publish such a prognostication.

Grant could be the Nouriel Roubini (Dr. Doom) of the European crisis. Roubini, the New York University economist, said the subprime-debt sky was falling for a long time before it fell. Few people listened, in part, because nobody had ever heard of him. Then, of course, the sky fell. Now everybody has heard of him. Time will tell, but soon everybody could know Grant.

The January 2010 report, written two years before Greece did indeed default, has made him the go-to forecaster of Europe's collapse for some of the world's largest investors. Nicknamed the Wizard, Grant, who works for Southwest Securities, sends out a daily report, often frightening in its detail and matter-of-factness, by email to a who's who of the world's biggest institutions, hedge funds and sovereign wealth funds. Subscribers like Bill Gross, a founder of Pimco, the world's largest bond fund, pay thousands of dollars a year to receive Grant's views in their in-boxes.

Never one to sugarcoat his views, his success is partly a function of his plain-spoken way of making complex ideas simple.

"There is only one way out of this mess and that is if Europe keeps handing Greece money like one does to some aged aunt that cannot support herself, but that is a family decision," he wrote. But, he argues: "Greece requires 16 other family members to support her jointly and the politics in many of these nations, including Germany, is making it difficult for the charade to continue."

His view of European officials' effort to "ring fence" the problem countries is equally simple: "This whole subject is a ruse in my opinion. Think of horses in a corral. The rancher keeps trying to build a higher and higher fence around his horses but for what purpose? For the rancher it is to keep the wolves out."

Grant, who loves to mix metaphors, takes his rancher metaphor further: "The real problem is that the horses are sick, infected and that the disease of fiscal mismanagement has spread to virtually every horse in the corral except one and do not expect that one, Germany, to remain disease-free much longer."

Layering on another metaphor, he adds: "You can call cancer a cold if you like but it changes nothing; not one thing."

Sadly, Grant is not predicting the default of just Greece, he's already on to Spain (he reached that conclusion before many others, too).

"The country cannot afford to pay off their regional debt, their bank debt," he wrote on Monday, "and various schemes to avoid the Men in Black from taking over will not work nor will the pleas for 'more Europe' as the words mouthed by Germany are meant for placation only and will not find implementation in any kind of timeline that will make any difference."

He has convinced himself that Germany, the only country in a position to help, will not come to the rescue. "You can bank on one thing if nothing else; the Germans will not allow their cost of funding to rise or their standard of living to decline to help the nations that have gotten themselves in trouble. You can count on this!" he wrote.

As we were talking Monday, he said he wanted to make clear that he did not believe Armageddon was upon us. And it's not as if Grant is wishing this to happen, despite his boat in Fort Lauderdale carrying the moniker "Wishes Granted." "I don't think the world is going to hell," he said. "It's very negative. What's going on is serious. It will have a whole slew of negative consequences." But he insisted, "I don't think it's going to get to the 1930s."

More likely, he said, we are headed for a bad recession with lots "of shocks to the system." He says this will likely happen in the next four months unless "there is debt forgiveness or Europe keeps handing them money like they are a ward of the state.

"Or," he warned, "it could come sooner."

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