good afternoon and welcome to capital account i'm more in lister here in washington d.c. and here are your headlines for tuesday march sixth two thousand and twelve we will keep all options she including military action on the table to prevent him from of a nuclear weapon that's what secretary of defense leon panetta said about iran to america's pro israel lobby apac at the meeting today swiss money manager and gloom boom doom report publisher mark farber meanwhile is not waiting he says he thinks it's inevitable sooner or later the u.s. or israel will strike iran and he's offering his formula for somebody anshul safety

we'll tell you what it is and talk about it and super tuesday has voters head to the polls in republican primaries as the presidential election campaign season gains more and more stand now the auto bailouts have driven some of the debate recently with romney's race and motor city home state michigan and with attack ads like this one targeting obama and g.m. . the problem that in america you can make it in any business as long as you have on limited financial resources and the backing of the united states government now you've heard the horse race partisan analysis forget that we want to look at what may really be behind criticism of the auto bailouts from people who with the same time supported bailouts for the banks and more trouble brews as eurostar reports that yes the eurozone did shrink point three percent as estimated in the fourth quarter from the third and as greece tries to get investors on board with their debts bought deal by the thursday night deadline and that's an advisor and blogger

michelle explain to us why italy greece portugal and spain are better need a lot more money and germany in the netherlands will end up footing the bill as this goes on let's get to today's capital account. trouble continues in euro a land now the euro zone to climb point three percent in the fourth quarter from the third quarter euro stat says and the greek government is trying to get a bond swap deal with private creditors done by the thursday deadline now my personal favorite quote about why bondholders had except the write off comes from greece's finance minister who said in an interview this is the best offer because this is the only one the only existing offer yeah i guess if it's the only one that

does make it the best by default now meanwhile a detailed seventy three page report is circulating that our guest and that we also to have been dissected it's called the netherlands and the euro and it shows that the netherlands would benefit by doing this to the euro zone. i just feel like. i think she can break you're breaking up with me so you of course it's me i don't like you with. a good bye to the euro is what this essentially is saying now you don't hear too much about the netherlands in the euro zone saga but the report explains how and why the netherlands and germany will end up footing the bill for italy greece portugal and spain which it says are going to need a lot more dough going forward out here to talk about all of this is mike said locke investment adviser for sic a pacific capital management and author of the very popular blog global economic analysis he is been writing about this and now we get all of his insights straight

from him so first of all miss thanks for being on the show. to be back on the show again here because for so long the beautiful d.c. and the jurors are going there you are right they're not looming here yet but they will be and i will how do you want to celebrate when they are in full bloom let's talk about something slightly more bleak then cherry blossoms let's talk about the euro zone because this report that i know you've been looking at it's actually a dutch freedom party they commissioned at this is the smallest of the three parties in the government coalition it's part of the government very hostile to the monetary union wants netherlands to leave the euro zone so the first question is everyone focuses on maybe someone exit in the euro zone from the periphery we all of these that prize and hey there is a nation from the course saying psion are i want to take my ball and go home should we surprised this at all in fact i talked about it i think last october michael pettis said that china financial markets actually said that the best possible scenario when i happen to agree with them would be for the know the ones from

germany to exit leave the rest of the euro zone to the new states and one. certainly if you look at that perspective from germany and the netherlands they would be able to go back to a credible currency if they left right now if. we see. greece leaving for school leaves spain leaves what are their currencies going to look like. they're going to fall they're going to fall but all the debt banks are holding that well of course the german banks are holding that the french banks are holding their u.k. banks are holding that so i think you get more bang for the book actually having germany in the netherlands italy then you do by doing this in piecemeal fashion of course unfortunately the way they're going about this was lauren is you know that they're heading on this piecemeal fashion and they're trying to stop it bit. doesn't make any sense they've thrown two to three hundred billion euros trying to

prevent greece from leaving when it was a forty billion problem two years ago another blaming great all these doomsday reports are out there saying you know all these centers scenarios are going to have been you know. and they're blaming it or that it's all going to cast you don't groups yeah and we've seen that continue and continue and i want to get more into what the bailout scenarios could continue to look like going forward but i also want to get into some of the juicy details of this report that show how the eurozone got into this situation how surplus temperature all nations got in this situation in the first place it doesn't look like it was also in a sense to us and i want to bring up one of these charts from the report the current account balance from one thousand nine hundred eight which was before the euro exchange rate was locked in to two thousand and seven and what you can essentially see there is that this was a net positive change for germany and the netherlands they've done better since joining the euro and it was negative for a whole bunch of other countries belgium france italy ireland spain greece even

some of those countries and there had surpluses and then they went to deficit so you got countries that have benefited from the euro and those that certainly have not this how did that happen and did the euro have something to do with it well you're had everything to do with. it for multiple reasons you have an interest rate policy that aren't. gold one size fits germany but the reality is in retrospect i think it's one size fits not on. certainly they twisted these to be twisted interest rate policy at every possible you know way for the benefit of germany and france not for the benefit of greece so you know that's that's one aspect of it but the second aspect of it just doesn't make any sense at all the fact about this work is nothing new here and the. currency unions without fiscal unions simply don't work there's never been one in history that's work this one is not going to be any different and the best solution right now is actually just to accept that that yeah

you know i thought you we're going to push for this fiscal union that doesn't seem to be happening i want to get to that then you said though about one size fits jeremy with the interest rate because we have a great start from this report to showing the sort term interest rate that they differ in the different nations i want to bring that up because essentially what they said was that the real rates were higher for germans than for greek so explain how this is the direct result of the monetary union creating artificially higher propensity toward savings for germans and the dutch but instead of i think the borrowing and the spending and the preparations this is to do a lot with fiscal policies of these nations as well you know you look at the retirement age in germany versus say the retirement age in greece or the retirement age in spain you you look at the public sector of greece of spain or portugal compare that to the public sector and all of the public unions seem to get fiscal policies that did not mesh and along comes the eurozone lowering the interest rate

across the board you know at a time when really spain needed a higher interest rate greece needed our interest rate so what you heard it is. unsound borrowing in greece and you had unsound investment in spain and in ireland . well we had all these property bubbles portugal and italy meanwhile are just you know clotting along this is not done them any good as it done them in the arm but in aggregate it's done harm to everyone i mean and it's going to bust apart the throwing more money at these problems simply cannot fix these fundamental flaws of interest rates fundamental flaws in fiscal policies they're trying to do it now but they're doing it in a way that's going to force more austerity on greece and cannot possibly work more austerity on portugal cannot possibly work and we're seeing resistance right now

from spain saying essentially to the m you screw you really are simply not going to do what you say we're not going to reduce our budgets to four point four percent as we agree to and learn what is the year you know what are they going to do they were going to buy in spain if these policies if these agreements work they wouldn't work already germany was one of the biggest finally it was actually when the euro zone was put together all these fiscal policies that it's now imposing on every other country it can no more interest yeah i mean i completely hear what you're saying and they are trying to paper over it with a lot of pain in that countries at this point some are taking that for a good reason why they shouldn't but i want to get back to what you said about the interest rates and the effect of that because i just want to follow up and ask in what ways was the. the periphery subsidizing this third class nations well in what

way were they being the exports being subsidized of the circle i think and i don't know if i would look at it there when you know you can make a case you can blame germany or you can blame greece and what we have here is both sides blaming each other since they're both right they're both guilty they both knowingly entered this. this arrangement knowing what would happen you know greece is saying oh you know we don't want to. or germany saying we don't want to be greece and then you know ok why are you going on that morning that you know that i want to oh yeah exactly i want reapply more tart i want to go one more try to kind of get to that and see what you think about it because it's dutch and german and that foreign asked that that's another interesting line and it basically attempts to show the loss that dutch and german citizens have books that entry into the euro as a result of their speculative investment in peripheral. prime paper or is this another example of the effects of what you don't want to call subsidies but i guess what

i'm calling. oh so sid is a good word. but you just have to look at this from from two points of view you know it's not that greece is in charlie wrong here and certainly germany is right me look at the fiscal policies in greece look at the public union sector and the productivity in greece the only way this can be fixed in germany is indeed right on this is you have to attack those public unions you have to go after them you have to restructure these pension plans you have to do something about the system promises that haven't been it cannot possibly met by the way the united states is going to soon be in the same situation here it is already we can talk about that at another time but you know so you know all of these imbalances but these for known in advance by both countries you know it's not like you know germany can look back and say oh my god you know we didn't see it coming well if

you didn't see a problem then you were stupid. then you were in love that's very hard yeah yeah so let's talk about some of those bailout that you say are just not going to solve the problem because i want to look at total debt because a lot of people talk about the sovereign debt but you have to look at private debt ceiling to see the whole picture this chart final one i want to have any type out there that's i promise. shows corporate debt versus cash flow in all of these countries and it shows just basically how high corporate debt is for france spain and portugal so mich went on line to bail out the big corporations and banks in those countries and could those that end up being on the public balance sheet doesn't realize often if you look at the policies the. presidential candidate homeland is proposing you get one my suspected they're going to balance this on the backs of the wealthy. in spain they've got different ideas you know other countries they want to do it by euro bonds and get everyone all out of debt

he's got all of these various proposals floating around sort of code got his own ideas and then there's no agreement anywhere learn on any of these bring most of them and possibly be approach because that's what's going to take germany is not going to improve your obama. certainly france might go it alone and do this financial transaction tax but they're trying to do there's various proponents in germany that actually want to do that but it doesn't doesn't then when certainly the u.k. doesn't cause quite a stir back in in december so after these elections let's just heading for a disaster i think and it's probably going to win the french election i think the merkel coalition is going to bust apart there's this new p.v.d. party not new but although there are a minor minority policy already in the netherlands there are actually two idol part

of the coalition it is the old ok thank pulled in together is doing something a lot of political protection there from you tube it and i like that you know there's a huge gap between contests in reality i want to keep talking about this because while we're on ballots i want to get to the last as we see the bailout become part of the conversation in super tuesday and the presidential kind of bait we're going to there right quickly but we will be back with more with mike said lot next to stick around. and still ahead a lot saying remember watson he was the computer robot type thing that would be the champions in jeopardy guess who is hiring him for it wall street will tell you what we think the first your closing market numbers.

were just put a picture of me when i was like nine years old i want to tell the truth. i confess and i am a total get over and i love rob because he is excellent and. he was kind of the jester but. i'm very proud of the role without you as you play. oh. you know sometimes you see a story and it seems so. easy to understand it and then you did something else here's some of the part of it and realize that everything is ok if you don't know i'm charging voltage is a big issue. what

drives the world the fear mongering used by politicians who makes decisions through . who can you trust no one will is you with the global machinery see where we had a state controlled capitalism school sessions when nobody dares to ask. yes we do our t.v. question more. welcome back to capital accounts let's switch gears and talk about the u.s. let's talk about the u.s. and iran because we've seen plenty of saber rattling from the mainstream media of course here's just one example of

a comment line where sand looks like they are asserting that iran has nukes which is completely misleading and defense secretary leon panetta said that a pattern said to apac earlier today i played a sound bite at the top of the show that military action is the last alternative when all else fails but as he said make no mistake the u.s. will act if it has to when it comes to iran let's talk about the financial headwinds though today we've been discussing some of them in europe with my ex i'd like mission investment advisor for sic a pacific capital management and author of the popular blog global economic analysis but i want to ask him what one of his friends is saying about how to deal with iran because mish mark farber swiss money manager and our producer to me says he's a friend of yours he reportedly says that he believes iran and israel will end up sooner or later in war or at war with iran whether the u.s. strikes or israel strikes he says it's just a matter of time so. i think really he's talking about some safety in his formula

is twenty five percent equities twenty five percent gold twenty five percent real estate or real estate equities twenty five percent cash i want to play his reasoning and then get your your thoughts on this there was not a private capital but with a. little bit of very little for a managed bankruptcy absent government help i mean. it's very clear to me in hindsight i wasn't aware of the at the time but it's very clear to me in hindsight that the auto bailout was one of the best things that have happened those are kind of. and that was obviously not mark potter talking about what he did barring a lot of people are admitting right now i got to talking about the auto bailout but what mark potter did they end up interview with that throughout history equity that performed better than thought right on and again i thought i told you that formula for gold and equities cash and real estate what do you think about that you agree or disagree mark certainly is a friend of mine and if you read his book charles gold i strongly encourage

everyone to do so there's a link on on my blog to the book i don't get anything out of it maybe ten cents from amazon. or something and someone buys the book you really need to read that book it's not about gold it's actually about investing and how you look at how you approach markets and what value is best for us for me but i happen to agree with them as well i think we're does appear that we're heading here for war and shortage as far as formula you know i don't necessarily know or know that war is going to be good for equities i mean it has in the past i think other times that it might not it certainly might stoke the financial markets i would propose something a little bit more conservative i don't see that certainly wouldn't propose real estate i don't think it's bottom of the united states and certainly you know if you're living in canada or australia or china or even the u.k. there's a huge huge property bubbles there real estate. but i would not say tell yourself down to real estate maybe you need to move at some point you don't want to be tied

down to real estate and that's what happened twenty five percent gold i think that's right in the market my own personal belief is somewhere between ten and thirty ok let's call it twenty in the middle of the. for those who want a little bit extra twenty five percent is certainly not a bad way to go and that's for the rest i would just you know wait for better times i did a blog post earlier today saying you know there's there's a lot of merit just recognising that there's very little value anywhere her. little value in real estate has very little value in equities there's very little that aluminum junk bonds so you know what's wrong with just having a high percentage of cash i mean i would be my answer back from mark and i doubt he would disagree too strong with that point of view actually i don't know putting words in his mouth it very interesting point so and before we go as if we did play that sound bite of warren buffett talking about the auto bailout c s i actually ended up you know believing that they were a good thing and we've seen this really resurface in the debate during this

presidential race and it's super tuesday today so fitting thing to talk about my question for you though because we hear people in the horse race dissect whether they're bad or good and usually it's either and hammering the republicans are hammering obama in this presidential race what i'm curious about is i wonder why someone like mitt romney supported tarp supported the bailout for the banks but was opposed to the bailout of the auto industry and what i'm wondering is if this is representative maybe thoughts on wall street with people that benefit the big banks and believe that they should be subsidized or their wrists should be socialized but then you know that way they can go by the losses of everybody else and everybody else to go bankrupt so they can go capitalize on it you're reading too much into it . they support what's politically expedient you know look at his various health care you know crowing to president obama this is the way it used to be done then all of a sudden the republicans attacked obama's flow plan so mitt romney had to backtrack

essentially on his own plan saying oh i differed in this respect or that respect really deferral oh you know the plans were in any meaningful way actually it was a little bit of exaggeration on my part so you know they do the same santorum is doing the same thing you look at you know in person really with you know consistent background you're consistent both in terms of what he's saying is ron paul and you know why it is wrong. paul not get any media attention it's because the media isn't really you know in favor of more wars or favor or bailouts favor of inflation you know. so the media has no vested interest and we calling someone we do that and we give them attention here michel and i'm glad you brought it up because we're going to talk about it later in the show that's all we have time for for right now though it's always going to talk to you thanks for being on to have you back when the cherry blossoms are blooming so we can talk about that too thanks so much that was my accent. or.

all right before we go let's bring in the trick again us and here to talk about some of the stories that we do not want to miss talking about and shannon will be back tomorrow so still having her insight too but you remember i.b.m.'s watson computer he made his name winning jeopardy major champions let's look back. politico duties for two hundred. almost upset this man's perfect two thousand and eight olympics losing to him by one hundredth of a second button who is michael phelps yes so he won and that certain well because soon watson will be advising wall street on breasts portfolios

and clients citi group the third largest u.s. lender is watson's first financial services clients now some of the reasons watson is a valuable computer can understand two hundred million pages in three seconds i don't know how that's even possible but what do you think of that brought i think there's a lot here to learn because i think we've been what is going on we've learned what i think look in all honesty and i think remember the terminator movies they came during the military buildup of the reagan administration there was a lot of concern about computers and what they would do as far as war and technology are concerned and so a lot of the focus has been on that but i think what the real concern should be the whole sky their concern concern should be these machines becoming too big to fail and then basically waging war on the united states through the financial markets seeing these guys locked riveted by do hostile takeovers of companies so i mean this is this is a real danger of because

a real threat you know so much bigger threat then the military. banking of this whole complex and these machines you're merging i mean. you know nothing could be more than that you know you know i think i might disagree with you because first that was my not exactly with this but i was thinking you know this is concerning this is kind of like the high frequency trading now going into assessing risk and regulations and all about but then i got to thinking this computer has all of these things that are valuable that maybe you know an analyst would have documents and reading them and analyzing them and modeling and all those sorts of things grannis guess what it does it how it is a very human instinct that we have seen great have it in lottery and that is. i. i didn't know you're going to that i like that's a very cool better over the machine is the machine is the whole darkly it isn't that it doesn't have the lust for power and there's no life at all and i wouldn't like it little going on ok the harvard business review found it people who are prone to guilt tend to work harder and perform better than people who are not guilt

prone i guess a little like this. so obviously guilty people go to confessional but also according to his research they do quite well in the workplace based on this standard psychological test that with administered measure the tendency to feel guilt and found that people that were guilty did a lot better were viewed as better leaders harder workers i buy it well you want to think i think that it's one of those extremes of bipolar distribution so the people who are really guilty do well but the people that do the best are the social problems because those guys don't give a crap at all they don't care so they don't care if they do anything really bad and that's a lot of the climb the corporate ladder which is why i think in banking you've got a you've got a group of soldiers the bottom are guilty and then you've got the social best because you know i actually kind of agree with you on that by model distribution because i'm a really healthy person a really hard worker i'm not

a sociopath but i've seen them do well that's it that's all we have time for leave you with that thanks so much for tuning in don't forget to follow me on twitter at lauren lyster give us feedback at youtube dot com slash capital accounting for everything from everyone here on the show thanks so much for watching have a good. wealthy british style sun. times. market trying to. find out what's really happening to the global economy with much stronger no holds barred look at the global financial headlines tune in

to cause report. you know sometimes you see a story and it seems so you think you understand it and then you glimpse something else you hear or see some other part of it and realize that everything you thought you knew you don't. charge. becomes a big issue. download the official publication q i phone or my pub touch from the i choose our still. love life on the go. video on demand teens mine comes an r.s.s. feeds now in the palm of your. question on the com.