"Just like Botox is a temporary solution to aging skin, Band-Aid solutions from the central banks have caused toxic side effects across the world, and with that, Financial Botox was born." -- Interview with Satyajit Das on Australia's The Morning Show
Satyajit Das, author and finance expert who predicted much of the Global Financial Crisis back in 2006, has coined a new financial term: "Financial Botox." The term draws a surprisingly eloquent parallel between the temporary skin improvement drug called botox, and the government pumping out money in an attempt to cure the financial crisis.
Das allows that the spending was wise at the onset. "What they did initially made a lot of sense, they flooded money in because they didn't want what was happening in 2007-2008 turning into a great depression."
Yet the underlying problems of debt, public and private, was not fully addressed. In fact, governments continued to borrow in order to inject more money (botox) into the systems and prop up demand. Eventually, as the Band-Aids fell off, economies were left with the market volatility such as what we've been seeing in the markets over the past four weeks.
Das also emphasizes the interconnectivity of nations in the global debt crisis. He writes in the Financial Times, "The ability of sovereigns to finance themselves is in question and there is no one to backstop the governments themselves. Contagion from a sovereign debt crisis is especially pernicious, and different to that of 2008."
The European nation is already facing this problem on a large scale.
He goes on to say, "Government bonds are traditionally havens as well as the preferred form of collateral used to secure borrowing and other obligations. If the quality of stronger government issuers were contaminated, this would have far-reaching consequences for financial activity."
Central banks, pension funds, and insurers all have significant investments in government bonds-as their integrity wavers so does the functionality of these systems. It seems the Botox is wearing off.
Das's tips to stay out of trouble:
- Avoid debt. For starters, reduce your mortgages.
- Save more. Health care and retirement will cost more, and governments may not be able to do it.
- Invest in things that produce income. Such as dividend stocks, or educate yourself to earn more money.
- Return of your money is more important than return on your money. The return you are looking for is income, such as steady dividends.
- Trust only yourself.
To help you analyze the market's reaction to the "Financial Botox" we took a look at short-seller activity. Below is a list of the top 10 S&P 500 financial stocks with the highest short floats.
Short-sellers think the bottom economy can't save these banks -- do you agree? (Click here to access free, interactive tools to analyze these ideas.)
1. First Solar
7. J. C. Penney
8. Vulcan Materials
9. Federated Investors
10. Novellus Systems
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Kapitall's Becca Lipman owns shares of FSLR. Data sourced from Finviz.