September 24, 2010

Looking Our For Who?

“You can observe a lot just by watching.”
—Yogi Berra

Not Listening to What Central Bankers and Most Politicians Say…

I don’t give much weight to what central bankers and most politicians say.  Except as possible indication the truth is exactly opposite.

…But Watching What the Big Money Does

I do however follow closely what big, non-government money does.

On September 21 Lloyd’s of London’s Finance Director, Luke Savage, revealed the mega-insurer has been removing deposits from undisclosed banks in certain fiscally shaky (massively indebted) euro zone countries over the past year.[1]  Stated Savage:

“There are a lot of banks who, because of the uncertainty around Europe, the market has stopped using to place deposits with… If you’re worried the government itself might be at risk, then you’re certainly worried the banks could be taken down with them.”[2]  “The cash by and large is placed with high credit quality banks, we’re not using peripheral country banks…”[3]

As interesting, Siemens AG acknowledged it had, this summer, removed shorter-term deposits with Societe Generale SA, the second largest bank in France.[4]

And lastly, China has recently announced at the World Economic Forum it intends to “liquidate” more holdings in U.S. Treasury debt.[5]

When one of the world’s foremost and oldest insurance companies (Lloyd’s, founded in 1688), and Europe’s largest engineering company (Siemens) start pulling deposits from banks – it catches my eye.  As does China when it announces plans to liquidate debt holdings of a massively indebted country (the U.S.).

In Who’s Best Interest

It’s interesting to watch large, successful European corporations (concerned about their shareholders) pull money from banks they lack confidence in.  All while certain European politicians and central bankers want to give more of their citizens’ money to bail out banks in similarly bad shape (as the Federal Reserve Bank in the US has done already).

In who’s best interest are these central bankers and politicians acting?  The banks, or their citizens?

To me it’s obvious in whose best interest China is acting.  Itself.

From an investment perspective, I believe you should be too.

While there is a lot of tough reality going on out there – we maintain our positive outlook. That outlook is based on our belief that a bear market in one thing is often a bull market in another.

As we enter this critical time – now, more than ever – we believe investors need to focus on their investment strategies. Those readers who are clients are fully aware of the strategies we’re implementing in light of unfolding economic circumstances. Others may feel free to contact us to learn more.

Sincerely,

Stephan R. Ernharth, JD
Vice President
Ernharth Group
www.ernharth.com

Go to www.ernharth.com/economic-commentaries to read past articles from our Economic Commentary series.

[1] Reuters, “Lloyd’s of London Sinks to $1 Billion Loss” September 21, 2011
[2] Bloomberg, “Lloyd’s of London Pulls Euro Bank Deposits” September 21, 2011

[3] Reuters, “Lloyd’s of London Sinks to $1 Billion Loss” September 21, 2011
[4] Bloomberg, “Lloyd’s of London Pulls Euro Bank Deposits” September 21, 2011
[5] Telegraph.co.uk, “China to ‘liquidate’ US Treasuries, Not Dollars” September 15, 2011