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Wednesday, May 02, 2012 2:15 PM


Steen Jakobsen on CNBC Squawk Box on the lack of European reforms, the French economy, elections, intervention in the bond markets, and gold


Saxo Bank chief economist Steen Jakobsen was on CNBC Squawk Box on the lack of European reforms, the French economy, elections, and intervention in the bond markets, commodities in general, and gold and copper specifically.



Select Quotes From Above Video

  • Both French candidates [Hollande and Sarkozy] are pretty poor for Europe and more importantly for France.
  • The fact remains we have only seen 15% of the reforms promised in the UK, Spain has just started on the road to reform, and Greece is still struggling to get reforms. We are not getting any reforms in Europe in my opinion.
  • What the bond market has become today is an interventionist market controlled by the ECB and their ability to go into program and buy.
  • The problem remains at all times that access to credit is not there. Governments continue to take a bigger and bigger slice of the credit cake.
  • I am very optimistic that when we come out of this very, very harsh recession in the next two to four quarters we will have seen the low politically and economically, hence we will have 10 years of excellent returns in equities.
  • Right now I am starting to go increasingly short. May 2 was the peak last year and I think we have exactly a repeat of 2011 and 2010.
  • I like gold a hedge against the naive printing of money [by central bankers] that continues to be the case. I am surprised that agriculture has done so poorly in the first quarter.
  • Commodities are a short-term trade as long as we have extend-and-pretend as a policy. Think about it. What would you rather own long-term? Some liability on the government of Greece, Spain, even Germany, or buy a mining industry that is producing every single day?

Unwarranted Optimism?

I am in general agreement with most of Steen's views. However, unlike Steen, I am not bullish on copper or base metals in general.

My reasons are as described in 12 Predictions by Michael Pettis on China; Non-Food Commodity Prices Will Collapse Over Next Three to Four Years; Nails in the Hard Landing Coffin?

Whether or not Europe comes out of this recession with a bang or a whimper is entirely dependent on whether or not there are any structural reforms in the next two years or not, and whether or not the eurozone even survives.

The good scenario in my opinion is a breakup of the Eurozone. The quicker that happens the quicker Europe bottoms and the sharper the rebound (but only if accompanied by sufficient reforms). If the   public sector remains above 50% of the French GDP (currently about 56%), don't look for a recovery in France.

Color me skeptical about a huge recovery in Europe with socialists in control, no real reforms implemented, and most importantly, aging demographics that will place still more burdens on European taxpayers unless there is dramatic pension reform.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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