Wednesday, October 31, 2007
There's never just one cockroach in the kitchen
Crazy like a fox?
Uncle Sam and John Bull
Tuesday, October 30, 2007
Merrill in a panic
Charles Merrill, a relation of the Merrill Lynch founder, has become a gold squirrel.
More surprises from Warren Buffett
And he doesn't have an accountant! (How many enemies can you make in one day?)
Money vs The People
In Financial Sense yesterday, Robert McHugh comments:
When the Master Planners devalued the dollar over the past five years, they raised the cost of living for everyone. The Middle Class is getting annihilated from this silent event. Incomes are not keeping up. This was done because this administration “equates stock market success with economic success and has directed their efforts to drive up equities at literally any cost,” to quote one of our subscribers.
...but Tony Allison looks forward to a more energy-efficient future:
Change is seldom welcomed by most humans, but it can often bring about positive results. It is impossible to know what year the effects of peak oil production will barge into our living rooms, but change is on the way. The adjustment period to a permanent supply crunch will likely be very difficult, but some effects may be beneficial. For example, we could see a re-birth in local farming and manufacturing, as food and industrial products become exceedingly expensive to transport. We would see more public transit, more freight train transportation, more bicycles, more energy efficiencies of all kinds working their way into society.
Buffett goes South and East
Abroad elsewhere, he's looking for high-dividend companies - a combination of the standard value investing formula and hedging against the dollar.
Every Picture Tells A Story
Monday, October 29, 2007
Vote early, vote often
Volume - shares and gold
David Yu (Safe Haven, yesterday) comments on the unusually high volume of trade on the NASDAQ recently, and so expects a fallback sometime.
Peter Degraaf (GoldSeek, Friday) thinks gold can't be shorted or held down forever. He reminds us of the extraordinary volumes of bullion traded in 1967-68, and the explosive rise in the price when the containment attempt finally failed. Degraaf believes Frank Veneroso's theory that central banks are surreptitiously dumping gold again today, playing the same game - and expects the same result.
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.
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
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.
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).
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
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?
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?
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
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.