*** FUTURE POSTS WILL ALSO APPEAR AT 'NOW AND NEXT' : https://rolfnorfolk.substack.com
Monday, October 29, 2007
Faber: why the dollar may bounce back
Faber said if bubbles in emerging markets deflated, the dollar may rebound from all-time lows against the euro as fund managers who have invested in emerging markets shift investments to the United States.
China: a positive view - and a challenge to India
Like James Kynge, Gu makes the point that the big profits are made by the multinationals - the cheap labour input from China is only a small factor. (Surely this shows that there is a very strong incentive for China to develop its own marketing and management class.)
Gu explains that although India's labour costs are even lower than China's, India hasn't yet developed its supply chain and infrastructure to the same degree:
... China, over the last 26 years has gotten all of them in one place. For example, in consumer electronics you can set up your shop in Guangdong, then you get more than 10,000 component makers.
So, the gauntlet is thrown at India's feet.
Rapid fire
Duff McDonald in New York Magazine (Saturday) goes through various doomsters' scenarios. How many bullets can we dodge, especially when the system is becoming automated?
By the way, he says CNBC calls Peter Schiff "Dr Doom" - surely that would be Marc Faber?
... and the brakes have been greased
Trouble ahead
Market Ticker reports that a bank has borrowed $75 million at exceptionally high interest rates, suggesting that the collateral they were offering wasn't sound enough to be acceptable. And there are futures contracts being taken out that indicate some traders expect a major financial dislocation.
In other words, this bet is one that the credit markets will go supercritical.
And it wasn't made by just one firm, one speculator, or one guy.
A few months ago I pointed out that every big equity market dump - every last one of them - has started in the credit markets. It always starts there, simply because of the volume of business transacted and the sensitivity to problems. In the equity markets one company can go "boom" and it doesn't mean much. But in the credit markets "systemic risk" - that is, a refusal to trust people as a foundational principle - once it takes hold is very, very difficult to tamp back down.
Read the whole post here. And here's the evidence (source):
Saturday, October 27, 2007
"Dow 9,000", UK loans to US, poll, doom
Hogarth on corrupt electioneering practices
I also suspect that a major theme this century will be the contest between Marxism and Islam. I hope for a bloodless final end to the former, which has caused such suffering to so many millions in the last century; and the ascendancy of the civilised, cultured, intellectual and tolerant traditions within the latter.
Friday, October 26, 2007
Kicking through the slush
Sovereign wealth funds and national prosperity
Without pretending to technical expertise in this area, I can envisage implications for a growing ownership of equities by governments. One effect may be to reduce volatility in large-capitalisation stocks, since national treasuries can take a longer view than the individual investor.
But there must also be concern about the possible use of ownership for political purposes. For example, I wonder at the UK's having allowed foreign enterprises to take over some of our energy and water supply companies.
I began this blog for investors, but increasingly I think the real story is not about how some may make (or protect) their fortunes, but about the implications for ordinary citizens.
Today I drove past the site of the former Rover car plant in Longbridge, Birmingham. The firm was on its way out years ago and a venture capital company called Alchemy offered to take it over, cut its size and specialise in a line of sports cars. The rest of the land could be redeveloped - housing and retail. The surplus workers would have their pension rights and redundancy payouts honoured, and some could still look around for employment in other plants.
But there was an election coming (2000), so the government chose to encourage a management buyout instead. Thousands of jobs were saved, supposedly. Besides, it was said (I seem to recall) that the site was too polluted for residential development, anyhow.
Well, Rover did go bust anyway (after a £6.5 million "bridging loan" to prevent its collapse immediately before the 2005 General Election). The workers didn't get the redundancy payments they'd have had from Alchemy in 2000, and their pensions were hit too. Anyone still interested in car work elsewhere would then be five years older, in an industry that some believe discriminated on the basis of age prior to new legislation in 2006.
A Chinese firm, SAIC, has picked over the carcase, with special attention to any designs and other paperwork that might help with setting up an alternative in the Far East. And now the site is being cleared - for residential and retail development.
There is a big, shiny new building on the Bristol Road in Longbridge - a JobCentre Plus.
Where, in all this, were the working people's long-term interests really considered, even by their political representatives?
Friday, October 19, 2007
Normal service will be resumed as soon as possible
Off for a short break - back soon. But what a time to pick - the Federal Reserve having just granted maybe $100 billion of special exemptions to major banks (see yesterday's post).
Dollars, gold and words
Gary Dorsch (October 18) explains that a falling dollar helps the S&P 500, "which earn roughly 44% of their revenue from overseas, mostly in Euros", and supports house prices in the US; but it also raises the price of oil, gold and agricultural commodities. While the US seems set to cut rates further, the Eurozone may raise theirs to control inflation. In five years, the Brazilian real has doubled against the dollar! Oh, to have been a currency trader.
Meanwhile, Doug Galland at Casey Research explains that gold was dipping together with shares, because institutional investors were scrambling for cash in the unfolding credit crisis. His view is that in the longer term, these sectors will diverge and gold will soar. He supplies an eloquently simple graph:
Speaking of eloquence, financial writers know their business but many need to hone their writing, so I propose a new prize: Sackerson's Prose Trophy. The first winner is Doug Galland, with the following simile:
Though admittedly impatient to see the gold show get on the road, we were largely unconcerned by gold’s behavior. That’s because our eyes remained firmly fixed on the perfect trap set over the years for Bernanke’s Fed.
Like hunters of antiquity watching large prey grazing toward a large covered pit, the bottom of which is decorated with sharpened sticks, we watched the handsomely attired and well-groomed Bernanke and friends shuffle ever closer to the edge, their attention no doubt occupied by pondering the flavor of champagne to be served with the evening’s second course.
One minute pondering bubbly, the very next standing, wide-eyed and hyperventilating, on thin cover with decades of fiscal abuse cracking precariously under their collective Italian leather loafers. We can’t entirely blame Bernanke for the dilemma he now finds himself in; it was more about showing up to work at the wrong place at the wrong time.
The second paragraph is splendid in its anticipation, and the phrasing conveys both the anguished expectation of the hunters and the relaxed, expansive mood of the prey. The denouement is a little disappointing: "pondering" is a repetition and the syntax is too florid; a short sentence would be better, contrasting the suddenness of the fall with the slowness of the approach.
Further nominations for Sackerson's Prose Trophy are welcomed.
Thursday, October 18, 2007
The (scientific) pursuit of happiness
It seems that happiness, like health, is not what you have, but something you do.
In November 2005 I watched a BBC2 TV series by the psychologist Dr Richard Stevens, called "Making Slough Happy". He showed that you can increase your happiness in practical ways, and he demonstrated them on volunteers in Slough. It worked, even for the grumpies.
For more background, please click on the title below - but you may prefer to start the program straight away.
Happiness tools
1. Take half an hour of exercise three times a week
2. Count your blessings. At the end of each day, reflect on at least five things you are grateful for
3. Have an hour-long, uninterrupted, conversation with your partner or closest friends each week
4. Plant something: even if it’s in a window box or pot. Keep it alive!
5. Cut your TV viewing by half
6. Smile at and say hello to a stranger at least once a day
7. Make contact with at least one friend or relation you have not been in contact with for a while and arrange to meet
8. Have a good laugh at least once a day
9. Give yourself a treat every day. Take time to really enjoy this
10. Do an extra good turn for someone each day
Barclays emergency $20 billion financing move
Similar permissions have recently been granted to Citigroup, JPMorgan Chase, Bank of America and Deutsche Bank (see page 3).
Any comments?
UPDATE
Now RBS also, for up to $10 billion! (Thanks again to AntiCitizenOne for the alert.)
Wednesday, October 17, 2007
Will US protectionism pull the trigger?
An article by D R Schoon in GoldSeek (26 September) alerts us to a bill heading for a vote in the US Congress this autumn. It seeks to impose a 20% tariff on Chinese imports.
... China will retaliate; and, dumping $1.33 trillion of US Treasuries on the open market will be an all too easy and accessible option. It would destroy the US dollar and deal the US economy a body blow from which it would take years to recover...
Now unless US politicians are really abysmally stupid, they must have a backup plan to stop a torrent of dollars pouring back into the States - exchange controls? Repudiating the debt? If Russia's default forced the bailout of LTCM to prevent systemic crisis, what would a giant American default do?
We must hope for cool heads all round. US multinationals are already urging calm.
Tuesday, October 16, 2007
Hubble-bubble
The American astronomer Edwin Hubble found the evidence for an expanding universe, in the phenomenon of "red shift". Objects moving at high speed change colour, because their velocity stretches the light waves. Looking at galaxies, he saw that the further away the object, the more its spectrum shifted, so the faster it was going.
Why? Imagine you put a line of ink dots at intervals of an inch on a toy balloon, and then inflate it so that the space between each dot doubles. Dot A is now 2 inches from Dot B, and the latter is two inches from Dot C. So from A's perspective, B has receded by one inch, but C by two inches.
The implication is that as the universe continues to expand steadily, the objects furthest from us will eventually accelerate beyond the speed of light, and in Einsteinian terms will not be part of our universe any longer - we will never see anything from them again.
The financial universe is, as everyone who takes an interest knows, expanding. And everything is fine as long as the expansion continues, and while people are still prepared to use the inflating money.
One way the money supply expands is through loans. Banks only have to keep a fraction of their deposits ready for return to savers - the rest they can lend out. Some of that loaned money gets deposited into a different account - where again, part is kept and the rest loaned out. So the amount of money in the economy is multiplied by this "fractional reserve banking".
But unlike the cosmos, money can also contract. If more people than expected want their money back, loans get called in prematurely. It becomes a game of musical chairs. If there's growing concern that the system can't return all the cash demanded, two or three chairs are removed at a time and a panic starts. Rick Ackerman in GoldSeek (26 September) underscores this point.
"Captain Hook" in yesterday's Financial Sense suggests that we may be approaching such a time in the near future. The bubble may burst.
The problem for the rest of us is that if we believe the money supply will continue to expand, we want to get out of money and into anything that is more likely to hold its value; but if we anticipate deflation, then cash is king.
So, is it endless expansion, or inflation followed by a bust? Hubble, or bubble?
Backfire
Michael Panzner (Financial Armageddon, 11 October) comments on (and graphs) the increasingly synchronized movements of some speculative markets, including gold and tech shares. The range between these assets is tightening and may indicate that a turning point is due.
This would gel with other information: Marc Faber has said that he sees bubbles everywhere, including gold. True, it's also been reported recently that he's been buying into gold, but remember that he is something of an investment gunslinger and will have his own view about when to get out, too.
And Frank Veneroso thinks that the gold price rise is at least partly owing to heavy speculative backing from funds that may have to get out in a hurry, if a general market drop forces them to realize assets to settle accounts.
My feeling? We dudes shouldn't try to outdraw seasoned hands.
Sunday, October 14, 2007
Back to Eden
Can we make a paradise here, instead of looking for it in a different country?
Saturday, October 13, 2007
Round and round
"from the Chrysopoeia ('Gold Making') of Cleopatra during the Alexandrian Period in Egypt. The enclosed words mean 'The All is One.'"
That sinking feeling
Friday, October 12, 2007
Peter Schiff grows
As well a well-wrought urn becomes
The greatest ashes, as half-acre tombs.
How would money buy this?
http://janestreetclayworks.com/2011/02/15/preview-the-history-of-bricks/1925-drawing-to-raleigh/ |
Many a truth is spoken in jest: at his request, Herriman's ashes were scattered in Monument Valley, Utah. Here is his love, expressed in a backhanded way that reveals more than it conceals.
This week, again, I spent time with clients talking not about money and how to invest it, but about what they wanted from life. It's so easy to let your mind become trapped in attempts to beat the top score on the pinball machine.
The hard stuff
Wednesday, October 10, 2007
Inflation, here we come
Jordan Roy-Byrne's article featured in Financial Sense last week examines various types of inflation and gives graphs, facts and his thoughts on future trends. He concludes:
UK Inheritance Tax threshold unchanged
The threshold per person remains at £300,000, as this article by Labour Home itself explains. What has changed is that the allowance is transferable on death, if you are married or in a civil partnership.
A similar effect would previously have been achieved by any competent solicitor, will writer or estate planner, by including a Nil Rate Band Will Trust in your Will. Similar, but not quite the same: the Nil Rate Band trust means giving assets away to a third party (not to one's partner) after the first death. Making the allowance transferable lets the surviving partner enjoy the use of assets worth up to £600,000, without the threat of estate tax afterwards.
This will reduce the amount of tax raised from IHT, since it helps those who a) haven't written the right kind of will/trust arrangement or b) couldn't do so because of the continuing needs of the surviving partner (who might, for example, be disabled or in a privately-paid nursing home).
But it's certainly not what it sounded like, which was an IHT allowance of £600,000 per person, or £1.2 million altogether.
Thanks to Dizzy Thinks and The Spectator Coffee House blog for the alerts.
Friday, October 05, 2007
Which will fall faster: the pound or the dollar?
Wednesday, October 03, 2007
"How much money do we need?" revisited
Our old pen-pal Jack Lessinger has a new book out: “Change.”
...His book outlines the development of the US property market over the past two centuries in terms of what he calls “paradigmatic economic changes.” He notes that the shrewd investor always had to stay ahead of the trend. That meant, looking beyond what the then-current paradigm to what people were likely to want in the future. Instead of investing in the old colonial regions along the East Coast, for example, an investor in the early 19 th century should have looked to the frontier. There, he would have found cheap land…and could have watched it soar for the next 50 years. He should have seen the huge development that would take place in Chicago and St. Louis, for example.
Later, after WWI, the landscape changed dramatically. New technology had created a new idea about how people should live – in the suburbs. For the next 50 years, fortunes could have been made simply by anticipating the growth of the suburbs – further and further out from the urban centres.
Our consumer economy did not exist before 1900, says Lessinger. Since then, it has grown and grown – “Sexy young women, smiling from the billboards , urging strait-laced and penny-pinching citizens to save less and spend more. Buy, buy , buy screamed the advertisers. Buy Coca Cola and be happy. Buy Dentine gum and be kissable. Buy Camels and be manly. The consumer economy blossomed. Houses grew bigger and more lavish, cars roomier, faster and more comfortable. What a great time to be alive!”
But buy, buy, buy is going bye-bye, says Jack. The consumer economy is unsustainable. People don’t have the money for it. It is based on cheap energy and cheap credit, both of which are running out. He thinks it will disappear by 2020.
“Get ready for an existential leap…” he warns.
The next Big Thing in American society will be a huge interest in downscaling, downshifting, and simplifying. When the baby boomers realise that their houses won’t allow them to Live Large, says another friend, they’ll begin to appreciate Living Small.
Jack comes at the subject from a different direction than we would, but his book made us think. You can find out more at jacklessinger.com.
I've been thinking how to "get out from under" for a long time. Maybe I'd better act before it becomes the fashion. Jim Puplava thinks the Fed has just bought us another two years, at a cost - to those who stay on too long.
Besides, I like beer and darts.
Tuesday, October 02, 2007
Secret taxation
Oh no, it isn't.
The tax that dare not speak its name is employer's National Insurance, which would be around £93.37. It's an extra cost that the employee never sees, but it's money that could be paid in wages if it were not deducted at source. Therefore, the gross (pre all stoppages) pay is higher than shown, and so are the deductions.
So why don't we see payslips that tell the whole story, say something like this? ...
The reason is obvious, isn't it? Especially when you show the appropriate marginal rate.
And if this was a payslip for someone not in an occupational pension, the marginal rate of N.I. would be 11% for the employee, and 12.8% for the employer. In other words, £100 extra payslip-declared salary would actually cost the employer a total of £112.80, with marginal-rate deductions of £22 in income tax and £23.80 in N.I. ! In that case, the real effective marginal rate of revenue-raising would be 45.80/112.80, or 40.6%.
The average wage earner is, in fact, a 40% taxpayer, without knowing it.
Is it illegal to show the truth on your employees' wage slips? Don't you think it would make the ordinary person start to take the taxation issue seriously?
Gold price manipulation: Mylchreet backs Veneroso
"Central banks have 10-15,000 tonnes of gold less than their officially reported reserves of 31,000" the Chevreux report announced. "This gold has been lent to bullion banks and their counterparties and has already been sold for jewelry, etc. Non-gold producers account for most [of the borrowing] and may be unable to cover shorts without causing a spike in the gold price."
In other words, "covert selling (via central bank lending) has artificially depressed the gold price for a decade [and a] strongly rising Gold Price could have severe consequences for US monetary policy and the US Dollar."
The conclusion? "Start hoarding," said Paul Mylchreet...
The United States Federal Reserve: why the secrecy?
Monday, October 01, 2007
Lasting Power of Attorney: the next step in the Long March
Though I'm not sure how many people who take out an LPA are aware that the withdrawal of "treatment" includes denying water, so patients in hospital can be made to die slowly of thirst ("Since a landmark House of Lords judgment in 1993, providing food and water to those who cannot eat or drink for themselves counts as treatment as well."). And no-one can be certain what is felt by someone who is apparently in a coma.
Doesn't this conflict with the Hippocratic Oath?
What oath? Wikipedia says:
In the 1970s, cultural and social forces induced many American medical schools to abandon the Hippocratic Oath as part of graduation ceremonies, usually substituting a version modified to something considered more politically up to date, or an alternate pledge like the Oath or Prayer of Maimonides.
A Catholic scholar details the Oath and its history here.
The Act is here; the government's own take on it is here.
We seem to be approaching a time when anybody except a criminal may be lawfully killed.
Sunday, September 30, 2007
Is that charitable trust trustworthy?
But there's something about the name of this one - similar to other charities somehow. So I google it. Page after page on Google, each leading you directly to their site.
But now for blogpower! I look to see what my fellow bloggers say. Here's one, and it's most interesting. I say no more, since I have no money to fight in court.
I shall now add Elmer to my links, and the US charity evaluation site, Charity Navigator.
Another case where bloggers have proved to be useful, I would say.
Saturday, September 29, 2007
How much money do we need?
The mortgage conundrum
Thrift and Prudence: essay competition
Contrary to Mr Gordon Brown's claim to be prudent, many believe that the British Government (as well as that of the USA) wastes public money. One such critic is "Wat Tyler" in the British blog, Burning Our Money.
What if the people we criticise said, put up or shut up?
So, if you want better value for money in public finance, how would you get it? How would you achieve the same results for less money, or how would you improve quality without increasing expenditure?
If you wish to submit a longer piece, please submit your email in the comments - I shall then add you as an author to this blog pro tem (but will keep your email address off the blog unless you wish it to be published).
Dow 9,000 update
Annualised equivalent: gold increasing by c. 82% p.a., "gold-priced Dow" falling 40% over a year. Will these trends continue?
Thursday, September 27, 2007
Faber: bubble in commodities, but buy gold
Very simply, it will end in a catastrophe. We never had, in the history of capitalism, a global, synchronised, boom. If you travel around the world, everywhere you go, there are booming conditions.
Now if you look at the last 200 years of financial history, you had investment booms and mania in relatively small sectors in the economy: in the US in canals and railroad in the 19th century, some regional real estate markets. And then in the 1920s you had the stockmarket boom, and in the late 80s you have a silver, gold and energy share boom, and in the year 2000 we had a boom in tech stocks and in Japan in the 80s in Japanese shares. And each time these bubbles burst, they had an impact but the impact was largely sectorial or regional and not affecting the whole world.
Now, we have a bubble everywhere. We have a bubble in real estate prices, we have a bubble in stock, we have a bubble in art prices, we have a bubble in commodities.bigger the bubble, the bigger the bang will be. If someone argues we're in a global synchronised boom, I agree entirely. The consequence will be that the next boss will be a global synchronised boss.
By the way, I like that mistranscription, it conveys his Europeanness.
The southern Germans are comfortable with the themes of pain and loss, as you'll know if you've looked at the Meglinger painting on Dr Faber's GloomBoomDoom site. D.H. Lawrence wrote of the sensual agony in the little roadside shrines in interwar Bavaria. This is not simple morbidity - unlike modern crime/action films - but a sign that you can rise above suffering, instead of avoiding it.
A Viennese taxi driver explained to us the difference between Austrians and northern Germans: "They say, it's bad, but it's not hopeless; we say, it's hopeless, but it's not so bad."
Back to our muttons. Here he is again, quoted from various sources via Resourcexinvestor:
"Investors have to look for assets which cannot multiply as fast as the pace at which the Fed prints money."
... He advised buying gold to defend against monetary inflation... he recommends holding physical gold bullion investments in gold-friendly countries such as Hong Kong, India and Switzerland. He counsels against holding gold in the US for fear that it might be nationalized by the government.
Wednesday, September 26, 2007
Crescendo crisis
Bully for the fund managers. But I say again, consider the implications for the West, which is losing control of its debt and now looks set to start losing control of its assets.
Tuesday, September 25, 2007
Frank Veneroso elaborates on the gold bubble
1. Are you still of that opinion?
2. What do you think is the present situation regarding gold holdings by central banks?
3. What evidence do we now have?
I believe that we are near the end of a commodity bubble that is the largest in all history. The greatest extreme is in metals. Hedge funds have accumulated futures, forwards and physical on a scale that simply has no precedent. The greatest excesses are in base metals but these same funds all hold large gold positions. I believe that individual funds may hold positions in copper or gold that are as large in value as the ETF. I know that sounds unbelievable. But I have a great deal of evidence.
If this is so, the price of gold should be much higher. My only explanation for why it is not is that central bank holdings must be very large for this to happen.
I should add, I believe there will be a coming crash in the metals sector that will surface. There will be an unprecedented investor revulsion toward this sector.
Gold’s fundamentals are totally different from those of base metals and silver. However, because the same funds also hold gold, I cannot see how gold can escape forced liquidations from these portfolios.
Frank Veneroso — Perhaps the most highly regarded market economist of our time, Frank Veneroso has advised countless governments, as well as the World Bank, on economic policy, served as a senior partner in one of the world's largest hedge funds, and is a confidant and private advisor to many of today's most influential investors and economic leaders.
He was among only a handful of analysts who clearly predicted the Tech Wreck, and followed it up with a deadly-accurate forecast of today's gold bull market.
Now, Mr. Veneroso is stunning the world with predictions of a major train wreck in no less than two high-flying sectors of the global economy. Virtually no one is expecting these dramatic events...
Red Dragon, White Collar
http://www.apmforum.com/columns/china20.htm
http://www.danwei.org/
http://www.china-britain.org/
Stay here and go East
"US companies aren't going to make much money by selling more product to Americans. Americans don't have any money... A company with a good product - especially a good brand - can make a lot of money now by doing two things. One is lowering its costs by outsourcing labour to Asia...not just manufacturing, but even high-level things like design, research, marketing, legal work. The other thing it has to do is to sell its products to this huge rising market of the Asian middle class.
Monday, September 24, 2007
Golden bubble
When it comes to metals, we see hedge fund speculation, hoarding and squeezing everywhere. Not only have some metals markets been driven far, far higher in this cycle compared to all past cycles; we see the same phenomenon across all metals. It is the combination of both the amplitude and breadth of the metals bubble that probably makes it the biggest speculation to the point of manipulation in the history of commodities. (Page 50)
... it is likely that the net nominal return to portfolios from investing in physical “stuff” has not been more than 1% per annum. By contrast, in a 3% inflation environment, bonds have yielded somewhere between 5% and 9% and equities have yielded somewhere between 8% and 11%. In effect, you gave up an immense amount of yield if you diversified out of bonds and stocks into commodities. You did gain by reducing overall portfolio volatility, but that gain was not large enough to offset the loss in yield. Diversifying with “stuff” did not enhance risk-adjusted returns. (Page 57)
Slow down - credit crunch at work?
Sunday, September 23, 2007
The big picture (as I see it)
I went to a very interesting investment seminar yesterday, at which it was said that the American stockmarket could be as much as 50% too high, and a correction is overdue. It has already slid 20% off its highest point, by degrees, but a bigger drop could happen. If and when it does, this would have consequences for other markets around the world, since the US is the biggest stockmarket of all.
As you know, the XXX Fund is designed specifically as a safe haven for your investment in uncertain times, and I enclose a form for you to sign and forward to XXX Life, if you agree with my suggestion.
Saturday, September 22, 2007
Sovereign wealth funds: debt-for-equity swapping
As the dollar goes down, Americans become poorer…and their assets become cheaper...The foreigners have huge piles of dollars which are losing value... Doesn’t it make sense for them to use the dollars to buy American assets?
The Arabs must think so... They [are] making offers on the Nasdaq…the London Stock Exchange…and the Carlyle Group, a US buyout firm.
China , meanwhile, recently took a big stake in Blackstone, another big corporate chop shop. Buying up the buyout firms is a particularly important omen, we think. It allows the foreigners to take up more and more US (and UK) assets without getting their name in the paper. And it allows Anglo-Saxons the soothing flattery of thinking that their assets are becoming more and more sought after…it takes their minds off the sour news, that foreigners are using their mountains of trashy dollars to get control over genuinely valuable assets…and that Americans will increasingly be working for foreigners…
A potentially dangerous form of debt restructuring is in progress. As small businesses yield to huge corporations, increasingly foreign-owned, could Big CEO become the new Big Brother? Will the excesses of consumerism end in our descendants serving in a modern version of bonded labour?
No easy bounce back this time, says Marc Faber
Unlike all the Wall Street strategists who compare the current credit crisis to the credit crisis of 1998 (Long Term Capital Management), I believe that the ongoing credit problems will be far worse and of a longer-term nature. This will make it difficult for the market to reach new highs in the near future. Moreover, even if the 1998 comparison were to hold, we would still be looking at a much deeper stock market correction than the 22% sell-off we saw in 1998....
...even if the Fed were to cut rates massively now, it is unlikely that it would stimulate credit growth, which, as I have explained repeatedly in the past, must continuously expand at an accelerating rate in a credit- and asset-driven economy in order to keep the economic plane from losing altitude. Accelerating credit growth is most unlikely now, because I cannot see how financial intermediaries will ease lending standards any time soon after the losses they have recently endured and following their dismal stock performance...
The crises that build up in international financial structures always ricochet from country to country….
...For the last several years, investors have enjoyed a massive global boom. But they should not rule out a massive global panic.
Friday, September 21, 2007
Outburst
All aboard
Dow currently 13,839.54, gold (10.03 am NY time) $736.30. Adjusted for the change in the gold price, the Dow would be worth 12,175.15, or down 10.55% since July 6.
Putting it another way, gold has risen 13.67% against the dollar in 77 days; that's getting on for 90% annualised. Is this lift-off for Doug Casey's trip to the moon?
Tuesday, September 18, 2007
And so say all of us...
According to Bloomberg today, "Rogers said he is buying agricultural commodities and recommended investors purchase Asian currencies including the Chinese renminbi and the Japanese yen.
Faber, publisher of the Gloom, Boom & Doom Report, said he is buying gold."
DOW 9,000 update
At the time of writing, the Dow stands at 13,493 and gold at $713.70/oz. Adjusted for the change in the price of gold, the Dow has fallen by just over 10% since July 6.
Sunday, September 16, 2007
Puplava: this isn't the big one
But, says Jim, the next recovery will be shorter, and the next fall back much worse. He sees this as happening around 2009/2010, which coincides with the time of Peak Oil, in which he is a big believer. That's when he feels the energy and credit crunches may come together. He sees gold and silver soaring to levels that currently seem fantastic.
For us ordinary people, that may be less interesting than the effects of energy shortage on our daily transportation and domestic heating.
Thursday, September 13, 2007
Clausewitz reversed
But such is the complexity of modern industrial society, and the horrific potential of modern military technology, that we may invert the relationship: economic ownership and infrastructure may be the new weapons with which to wage war.
It is not hard to see the power potential in China's increasing stake in the US economy - not only US government bonds, but increasingly, other assets such as equities. Already, the bond market feels the jerk of the chain, and within the last couple of years Britain has stepped in to provide some much-needed slack to America. But the growth of "sovereign wealth funds" could see future governments using their investments to interfere in the equity markets, too. What price free trade then?
And there are other gaps in the armour. For example, America's recent allegations against China of cyber-warfare have highlighted our daily dependence on electronic technology.
Two Chinese colonels, Qiao Liang and Wang Xiangsui, have produced a book examining such possibilities: "Unrestricted Warfare" (1999). Some translated extracts are available here, and the Wikipedia article is here.
This is not to say that China is actually hostile; only that, like the rest of us, she has her own agenda, and her own contingency plans. Much of warfare is not outright battle, but the use of threats and potential threats to gain strategic advantage. Pushing your opponent into desperation can backfire disastrously. As Sun Tzu said, "To a surrounded enemy, you must leave a way of escape."
But we must recover our economic balance, or risk having the imbalance used against us.
Monday, September 10, 2007
Slither
UPDATE
A day later, gold is up another 1%, (or would that be, the dollar is down 1% against it?), the pound is marginally nearer $2.03, and the Dow is rising.
Saturday, September 08, 2007
Michael Panzner agrees with Marc Faber
We're in a rare moment in history where cash is king... My prediction is that the Standard & Poor's 500 could fall at least another 10% from here. I think the economy is weakening and the crisis in the credit markets will worsen from here... this is not the time for a buy-and-hold strategy. But if you must stay in stocks, look at more defensive sectors like food, beverage and healthcare... Gold...
Read the whole item - and see the video - here.
Dow 9,000 prediction revisited
Thursday, September 06, 2007
Wednesday, September 05, 2007
US bond pressure mounts
"Beijing sees a “veto proof” protectionist bill sailing thru the US Congress later this year, and has been a net seller of US T-bonds for three straight months by a record amount of $14.7 billion, the longest period of sales by China since November 2000."
UPDATE
More on this from the Daily Telegraph here.
Selling the family gold?
This would be interesting information for gold bugs. Unfortunately, the World Gold Council has not updated its list of gold holdings since June. Any information, anybody?
UPDATE
Physical gold has enjoyed record purchases in some regions, according to The Market Oracle yesterday.
Monday, September 03, 2007
Scare stories - "the S&P to fall to 700"
Sunday, September 02, 2007
The outlook from Financial Sense
inflation, deflation, gold, cash...
Jim Puplava: ...I've had Bob Prechter on this program and Bob is a deflationist and Bob believes that we get deflation first and then hyperinflation where I guess my views are we get hyperinflation and then what follows will be deflation. And that's the way it has unfolded with great debtor nations. And I think history will repeat itself here with the US. There is too much debt here and it has to be inflated away...
...I really believe that the full force of these storms aren't going to hit until somewhere between 2009 and 2010 when this really comes home to roost. And all of these debt problems, the problems that we have with energy today, availability, peak oil, the geopolitical problems in the Middle East – I do not expect the next decade to be a pleasant one, John. I wish I could say otherwise because as a father with three children, one to get married shortly and looking forward to grandchildren, you know, this is something that you don't like to think about...
credit bubble, credit crunch, commodities, East delinking from West...
Doug Noland: ...the economy is much more vulnerable than many believe because of the credit that was going to the upper end; and I think the upper end mortgage area is where we had the greatest excesses.
So I think when all is said and done, subprime losses are going to be small compared to the losses we see in jumbo and Alt-A, and especially, unfortunately out in California...
...there’s desperation out there to find buyers for mortgages... Washington generally doesn’t understand the risk of Fannie and Freddie [US government-sponsored entities - "GSEs" - that offer mortgages], so of course they would think it’s their role to step in and provide the liquidity.
But... their total exposure is over 4 trillion dollars now. And this is a huge problem, and I fully expect down the road these institutions to be nationalized. And I think the US taxpayer is going to pay a huge bill for this... To be honest, I don’t mind the GSEs if they want to play a role in affordable housing; if they wanted to try to rectify some of the problems at the lower end because of the lack of the availability of credit in subprime. But to think that the GSEs should start doing jumbo mortgages, to try to be the buyer of last resort for California mortgages, my God, it’s hard to believe that makes sense to anyone because that’s just a potential disaster. It’s also reminiscent of the S&L – the Savings and Loan problem that, you know, was a several billion dollar problem during the 80s that they allowed to grow to several hundred billion by the early 90s. And definitely, the tab of the GSEs is growing rapidly right now...
...even if the central banks add a trillion dollars of liquidity to help out this deleveraging we still have this issue of how are we going to generate the trillions of additional credit going forward to keep incomes levitated, to keep corporation earnings levitated, to keep asset prices levitated, to keep the global economy chugging along...
...The global economy may be something of a different story because we have credit bubbles all over the world. Like the Chinese bubble right now is pretty much oblivious to what’s going on in the US and in Europe. You can see a scenario where, you know, you have serious credit breakdown but let’s say Chinese demand keeps energy and resource prices higher than one would expect. So I’m going to be watching this very carefully because we’re going to see some very unusual dynamics as far as liquidity and inflation effects between different asset classes and different types of price levels throughout the economy.