Monday, March 30, 2009

The "correction" will come soon

Michael Panzner reminds us that he predicted hyperinflation to follow after deflation, and quoting Edward Chancellor's recent article, thinks the phase change may be on its way. Chancellor answers the argument about global oversupply by reference to run-down inventories, widespread bankruptcies etc - there is now less productive capacity than there was, and what's left is not running smoothly.

A sleep-deprived Jim Kunstler experiences some of this disruption in a Colorado over-dependent on the vagaries of aviation, and rehearses his central theme that US living standards must (in his view) drop 20 to 50 per cent, whether through deflationary depression or savings-destroying inflation. He thinks the page will turn soon, too - maybe in June.

I said to my brother this weekend, that I think America can cope with being poorer, though the adjustment will be nasty; I didn't think it could survive being so rich. Look at what all that easy, phoney, fraudulent wealth did: that gallery of fat rogues in Wall Street and elsewhere, while the poor were exploited with credit cards and doomed home loans.

Kunstler's healing vision is bucolic, like Alexander Pope's:

Another age shall see the golden ear
Imbrown the slope, and nod on the parterre,
Deep harvests bury all his pride has planned,
And laughing Ceres reassume the land.

Sunday, March 29, 2009

Horrifying budget

Fraser Nelson in the Spectator:

To comprehend the scale of the sickening task awaiting George Osborne if he becomes chancellor, consider the following. If he were to raise VAT to 25 per cent, double corporation tax, close the Foreign Office, cancel all international aid, disband the army and the police, release all prisoners, close every school and abolish unemployment benefit he would still be unable to close the gulf between what the UK government spends and what it raises in taxes.

Where does all the money go? How can we get out of this in one piece?

Saturday, March 28, 2009

Scene of the crime: US debt acceleration

Back to the Constitution - and its underlying principles

A fine rhetorical performance by Bob Basso (htp: Karl Denninger), reminding Americans that the issue isn't money, but liberty and national integrity (as in holding the pieces together).

I agree with everything before the tea-bag (never as good as leaves, old chap) and the call to buy guns; some might go further.


The British Prime Minister has become a desperate man. Whether it be the countless borrowed billions dashed at an economy he has personally supervised in its progress towards ruin; the chainsaw systemic attacks on personal liberty; the arrest of an MP in the House of Commons for the offence of performing his constitutional duty; the tour of foreign countries to "gild o'er" his failures at home; and now the attempt to meddle with the royal succession in order to divert some of his deserved unpopularity onto an institution that gives us continuity with a past he has assiduously sought to obliterate; all combines to show a man floundering, willing to sacrifice all others to maintain his wretched office for a few more miserable years. The Birnam Wood of financial collapse is, however improbably, marching towards Dunsinane; how apt that he should have chosen to domicile his family in Fife.

Thursday, March 26, 2009

Divided consciousness

It's a strange feeling. I go about my daily work as though everything is normal - meetings, calls, teaching, memos, make a cuppa for others - and then I remember the financial volcano beneath our feet. One or the other must be a fantasy, yet I neither run away nor stop following the crisis on the Net. I hate the fuzzy-headedness you get from doublethink.

The Federal Reserve is out of control

Here is a very worrisome point:

None other than disgraced senator Ted Stevens was the poor sap who made the unpleasant discovery that if Congress didn't like the Fed handing trillions of dollars to banks without any oversight, Congress could apparently go f*ck itself — or so said the law. When Stevens asked the GAO about what authority Congress has to monitor the Fed, he got back a letter citing an obscure statute that nobody had ever heard of before: the Accounting and Auditing Act of 1950. The relevant section, 31 USC 714(b), dictated that congressional audits of the Federal Reserve may not include "deliberations, decisions and actions on monetary policy matters." The exemption, as Foss notes, "basically includes everything." According to the law, in other words, the Fed simply cannot be audited by Congress. Or by anyone else, for that matter.

For the full horror of the runaway financial train, see the Rolling Stone article here.

Brown's Britain: we can shut down your life

htp: Paddington

Wednesday, March 25, 2009

"Good time to invest," say fund managers

"The markets are not about to race away but one of these days they will, so don't wait for ever. Eventually, there will be the mother of all rallies." - Mark Dampier, Head of Research, Hargreaves Lansdown

"Safe to go out at night again" - Dr Acula, Transfusion Times.

... but wear a very thick scarf, says Marc Faber.

Tuesday, March 24, 2009

An immodest proposal

In a forthcoming issue of 'Human Nature' is an article 'Mathematical talent is linked to autism'. It includes discussion of the Viennese pediatrician Hans Asperger, for whom the condition is named. The syndrome, to various degrees, appears to be common in those successful in art and science, including mathematics.

Given that there is a great social need for such talent, and that it appears to be strongly genetic in origin - should we start a breeding program?

Monday, March 23, 2009

When the music stops, a dollar collapse?

Brad Setser's analysis is that Americans have been repatriating their dollars even faster than foreigners have been getting rid of theirs:

"Words cannot really capture the sheer violence of the swings in private capital flows that somehow produced a a rise (net) private demand for US financial assets."

At some point, the balance of these cross-currents will change, and then? Maybe the turning point will come when Americans are forced to sell financial assets to meet living expenses and medical costs.

Meanwhile, Tim Iacono comments on a proposal to substitute the dollar as the world's reserve currency, with drawing rights from the IMF, i.e. a mixed bag of currencies. China's central bank seems terribly keen.

I have a sense of something being held up, but not for ever.

Let's move to Russia

I've said it before: you get the clearest explanations from someone who is in a hurry to move on to something else. Here is Dmitry Orlov on why Russia will survive:

It seems that the Russians are better-equipped to survive financial collapse than just about anyone else. They have formidable reserves of gold and foreign currency to soften the downward slide. They have a dwindling but still sizable endowment of things the world still wants, even if at temporarily reduced prices. They have plenty of timber and farmland and other natural resources, and can become self-sufficient and decouple themselves economically should they choose to do so. They have high-tech weaponry and a nuclear deterrent in case other nations get any crazy ideas. After all the upheavals, they have ended up with a centrally-managed, natural resource-based, geographically contiguous realm that is not overly dependent on global finance. Yes, the Russian consumer sector is crashing hard, and many Russians are in the process of losing their savings yet again, but they have managed to survive without a consumer sector before, and no doubt will again.

I'm almost tempted to live there. My grandparents' farm, overrun by the Red Army in 1945, is somewhere in that weird, tiny sliver of the Russian Federation stuck between Poland and Lithuania like a stone in your shoe. I'd need a heavily-armed gang to take the farmhouse back from whoever took it over after the hick troops stole everything in it. But maybe it's not there any more - probably it's covered with concrete now, the tyrant's material of choice. Still, life goes on; it's outlasted communism and looks set to outlast Western capitalism.

Though I should say that in the UK, the nutso socialist element must be seeing this as an opportunity to start the Millennium. I have been wondering whether it's possible to take American citzenship while continuing to live here, so that I might have some residual civil rights when my neighbours have lost theirs.

America, see the issue for what it is: not money, but democracy and freedom.

Sunday, March 22, 2009

What am I missing?

I am just a mathematician, so my evaluation of economic models is restricted to the analysis of the equations. However, it seems to me that, in a perfect transaction, the selling price must be at least the value to each party.

Clearly, the value to the buyer must be greater than that to the seller. This is usually achieved by adding value. For example, a manufacturer purchases raw materials, or a wholesale merchant moves goods to where the buyers are.

That being said, I do not see where the added value is in the investment market, for a typical investor. The present value of future earnings and stock price are the same for both sellers. The only reason for the purchase is then an imagined increase in price beyond inflation, i.e. finding a bigger sucker.

Is the whole system just a house of cards?

Saturday, March 21, 2009

Fractional reserve speculation

Fractional reserve lending, as "Sonus" explains so clearly here, became possible when people accepted receipts for gold as payment, instead of insisting on having the gold itself. This opened up an exciting opportunity for the guardians of gold and silver; they could issue receipts for which there was no gold or silver at all, and get other people to accept them as payment. Then we ended up with a world in which you could borrow money that didn't exist, but when the scam burst, you'd have to pay it back with the roof over your head. Now there are voices calling for the return to money actually backed by something that might limit its growth; this will pass.

In much the same way, speculation in shares has changed. Once, investor A bought a share in a company from B, held it and received dividends. But the financial market exploded when it became possible to trade in shares without actually having the certificates.

Speculator C can "short" a share - agree to sell it to A (without yet having ownership) for $1, later buy it from B at 5oc (he fervently hopes), then when settlement time comes, A ends up with the share and C pockets the profit less trading expenses. (C can also "go long": agree to buy a share from B at 50c, sell it to A for $1 later, then comes settlement time when the share ownership is officially transferred).

C can multiply his bet if he trades "on margin", in effect making only a small down payment on his share speculation. If the margin is 10%, then he can (promise to) buy or sell 10 times as many shares, and (if his judgment is right), make 10 times the profit when settlement is made.

C experiences success in conditions of a bull market and expanding money supply. C is now trading in big, big quantities, with shares he doesn't own for most of the time, and cash he mostly doesn't have. C has gone beyond mere shares, and is simply betting on movements in the market. C has become a trader in derivatives; in effect, a high-rolling gambler. What a wonderful world! So much nicer than the school he went to! C has an abundance of worldly goods, worldly girlfriends and envious colleagues who laugh at his jokes. C has taken to introducing himself on the phone as "Nick with the big swinging d*ck". C is young, and has never known things to be different. C is complacent; C has become reckless.

But oh dear, if some of his enormous bets go wrong. C has losses, multiplied by the inverse of his margin, plus his trading expenses. Maybe C doesn't have enough money in his account to cover his losses. Maybe C has been trading with another gambler, D, and now can't pay him. Suddenly D is in trouble, too. And both have also been playing around the green baize with traders E, F and G; maybe with the whole alphabet of gamblers, maybe with the Greek and Cyrillic alphabets too.

But before he busts himself (and possibly his employer into the bargain), C has influence (since it is known that he never gets it wrong - until the day he does): news of his bets affect the market, especially when the market is nervous. When C shorts a share big-time, he can start a run - even if the company was basically OK before then.

Which is why Denninger is now calling for a return to the custom of getting the stock certificate when you buy the stock.

Good luck with that; and with ending fractional reserve banking. Denninger argues against the latter here, and prefers a system of minimum cash margins; perhaps it would be more logically consistent if he advocated the same for short-selling.

Personally, I'd go for whipping the money-changers out of the temple; but they always return.

Friday, March 20, 2009

Gold: the tide is turning

Julian D. W. Phillips maintains that central banks are beginning to restock their reserves of gold.

Private hoards of the yellow metal are beginning to rival national ones: the world's largest gold ETF, SPDR, is well into the top 10 - Bloomberg reports it's now overtaken Switzerland. But there is some question of how much of SPDR's holdings are actual physical gold.

Gold doesn't earn interest, which is one reason why China hasn't yet (apparently) leapt in, though Commodity Online says that country has been considering it.

Some say that the Chinese government likes to declare policy changes via apparently unofficial sources. It's worth noting that the China Gold Association called last November for an expansion of national holdings of gold beyond its present level of 600 tonnes.

China's recent switch from Agencies (local and State bonds) to Treasuries, and from long-dated Treasuries to short-dated ones, seem to indicate contingency planning for a worst-case scenario in which the US loses control of its budget and money supply.

The motivation to plan for the worst, is high. China's official holding of US debt, large as it is, is understated, according to Brad Setser, who believes that much of the investment in US Treasuries by the UK and Hong Kong are actually on behalf of China.

In the same way, I can imagine that China might wish to hedge its bets on America by quietly boosting its gold purchases, using intermediaries to take positions in large gold investment funds. This would be a typically quiet and indirect way to improve its own security without making open moves that could panic the market. And the funding for these purchases might come from selling US/UK government bonds back to us, thanks to "quantitative easing".

What's sauce for the goose, is sauce for the gander.

Thursday, March 19, 2009

Hold dollars?

Karl Denninger argues that the failed stimulus will lead to accelerating deflation in the US. His prediction is that demand for the dollar will soar and other currencies will collapse instead. He thinks this will hit US exports and the economy will be crippled, so Americans need to hold in-the-hand folding money - lots of it, maybe a year or two's basic expenses! - away from the bank.

He may be on the wrong medication - the current state of the world's finances is a great impetus towards paranoia and depression; but if he's even half right, we need to start making those quiet, regular cashpoint withdrawals and (for non-Americans) visiting the bureau de change. And not living in the city.

Where is all the money going?

I read recently that both in the US and the UK, a significant part of the "quantitative easing" is repurchasing sovereign debt from foreign holders. In other words, money is being created to buy back government bonds from overseas investors.

This says two things to me: (a) the new money thus created is not going to help kick-start our economies, and (b) foreigners are losing confidence in us and want out, before inflation and defaults shrivel the value of their investment in us. As to the latter point, I said last August that I thought the Chinese wouldn't let themselves be swindled.

So I suspect we are still headed for slump, currency devaluation and, eventually, high interest rates.

Maybe a new currency, to whitewash the mess and make further progress towards some New World Order political grouping - Oceania, Eurasia etc. Any news on the Amero?

Tuesday, March 17, 2009

Alle aussteigen!

As the Dow heads cheerily in the direction of 9,000, some may consider this an opportunity to get off if they missed the stop last time round.

Or have the wise actions of our leaders solved all?

Simple Science

The Laws of Thermodynamics for the layman:

First Law: You can't win.

Second Law: You can't even break even.

Translated to money terms, they are still true, but all too many didn't believe it. That's what put us in our present mess.

Once we clear up the meltdown, perhaps the sensible approach would be to base the economy officially on energy. After all, it effectively is already. For example, the price of gold merely reflects the energy expense of extracting it.

Monday, March 16, 2009

Bonner: 1966 - 1982 , and Dow 5,000

Bill Bonner, in the Daily Reckoning, confirms what I've said here many times: we need to measure investment performance in inflationary terms, and done that way, the last cycle ran from 1966 to 1982. The implication for us now?

We only bring this up to warn readers: these major cycles take time. So far, the Dow has only gotten down to the ’66 TOP. Now, it has to get to the ’82 BOTTOM…adjusted for inflation. Where would that be?

Well….as we recall, the Dow was barely at 1,000 when the bull market began. And if [we] adjust that to consumer price inflation, we come to a 2,000 – 3,000.

However, the 1982 bottom was higher than the 1932 bottom, so I'm hoping it will be no worse than 4,000. Having said that, the levels of governmental and personal debt now are quite unprecedented.

Here's the graph I did last October, again:

Sunday, March 15, 2009

Good and bad borrowing

Karl Denninger covers a lot of ground - perhaps too much in one posting - in his attempt to clarify fractional reserve banking and its consequences.

What seems to me a major point in his conspectus, is the difference between borrowing for production, and borrowing for consumption. If you borrow at 5% to get a machine that makes you 10% profit, that's fine; but borrowing for a private house to live in, a car for personal use, music and TV, alcohol and weekly groceries - madness.

Quietly edging towards the exits, before the general panic

Htp: Michael Panzer, for this:

They are taking cash out of the bank in preparation for a long-haul bad time. A friend in Florida told me the local bank was out of hundred-dollar bills on Wednesday because a man had come in the day before and withdrawn $90,000. Five weeks ago, when I asked a Wall Street titan what one should do to be safe in the future, he took me aback with the concreteness of his advice, and its bottom-line nature. Everyone should try to own a house, he said, no matter how big or small, but it has to have some land, on which you should learn how to grow things. He also recommended gold coins, such as American Eagles. I went to the U.S. Mint Web site the next day, but there was a six-week wait due to high demand. (I just went on the Web site again: Production of gold Eagle coins "has been temporarily suspended because of unprecedented demand" for bullion.)

Like I said over a month ago: "this is a time for individuals to make their own quiet plans and preparations."

Did we make things worse?

I am by no means an expert on anything, except a small branch of mathematics. However, I have spent my life watching people and animals, and have come to my own conclusions.

We in the US prize the individual over society (until they do something really bad), and so are not very accepting of the fact that humans, like wolves, elephants, and most other primates, are mostly pack animals.

In a pack of wolves or wild dogs with a calm, assertive leader, there are very few fights, and co-operation is the norm. The common role for the alpha females is the nurture and protection of the young. For the alpha male, it is protection of the pack from outside threats, and control of the aggressive adolescent males.

The liberalization of divorce laws in the 1960's shifted the balance of power in middle-class homes clearly to the woman of the house. One wrong move, and the man could lose his family, home, and most of his earnings. The pop psychology of the time told us that 'fathers were not needed to raise children', partly to assuage guilt.

Is it not possible that the removal of assertive leadership over teenage males has made some of our social problems worse?

Saturday, March 14, 2009

Unintended Consequences?

The launch of Sputnik in 1957 led to a major reform in US mathematics and science education. Motivated by that fear, and aided by massive immigration of well-educated people from Britain and elsewhere, we led the world in science and technology until the mid-1970's.

There has been a gradual and unremitting decline ever since. Many fixes have been proposed, and each has worked, in its own way.

Administrators and pundits said that the answer was more parental involvement. We had band and athletic boosters, the PTA, bake sales and the like. Middle-class parents did the homework for their children. In return for this work, they expected rewards, which fueled grade inflation.

Sociologists told us that teachers needed to be less authoritarian, and more nurturing. Students are now friendly with them, so much so that several hundred have been arrested in the past few years for sleeping and partying with them.

Psychologists assured us that the answer was to enhance self-esteem. In a recent study of mathematics achievement, the top 10% of Americans ranked at the 50% mark for South Koreans. However, the Americans rated their own performance as A/B, while the South Koreans rated themselves as C.

Teachers told us that increased pay was the answer. In many local districts, the pay and benefits for teachers exceeds that of college professors.

Education professors told us that the answer was to change teaching methods and curricula. Future teachers now take far more education credits than in the subjects that they will teach, and the teaching has changed so much and so often that we can't even compare student performance with a few years ago.

Politicians tell us that the answer is to reward 'good' teachers, and punish 'bad' ones. This had led to even more grade inflation, and encourages many to either cheat, or leave the profession entirely.

Friday, March 13, 2009

Dysfunctional Nation?

Of the industrialized nations, the USA has some of the worst records when it comes to divorce, teen pregnancy, std infections, drug abuse, alcoholism, literacy, incarceration, violent crime, suicide, educational achievement, child mortality and life expectancy.

Our belief in free market capitalism led us to pour money into these problems, including prisons and the 'War on Drugs (TM)'. Per capita spending on education and healthcare is close to twice that of many other countries.

This investment has given us some of the highest paid teachers and doctors in the world, a bloated and inefficient managerial class, and legions of psychologists and lawyers to take care of the unhappiness and problems that result.

These problems are not new. Mark Twain wrote about the effects of over-nurturing parents in the 1870's, and Robert Heinlein discussed teen delinquency and bad mathematics education in the 1960's.

I used to visit my grandmother in Wiesbaden in the 1960's. She lived next to a lovely park. From four stories up and 1/2-mile away, we could tell which familes were US service personnel from the airbase. The German and African-American children stayed with their parents and behaved themselves. The other American children 'expressed themselves' by running into forbidden areas and making lots of noise.

That we have these problems in the poor urban areas is no surprise. That they occur as well in the suburbs is due, in my uneducated opinion, to an excess of wealth and free time, leading to a lack of competitive drive.

Wednesday, March 11, 2009


Some rules for the parasitic management class:

Rule #1: Avoid decisions whose consequences can be traced back to you.

Rule #2: If you have to violate Rule #1, try to make decisions whose outcome cannot be classified as success or failure.

Rule #3: If you have to violate Rule #2, always make the choice which has failed somewhere else. If it succeeds for you, then you are a genius; if it fails, there is no blame.

This is why:

We encourage parents to be 'friends' to their children, then wonder why so many are self-centred lazy brats.

We put more and more responsibility for our children on teachers, but remove the authority to discipline them.

We put more emphasis on how people 'feel' about things than whether they contribute to society.

Companies lay off production workers to 'save money'.

We are measured by almost anything, except real productivity.

We are more concerned about 'effort' and 'hard work' than achievement.

Tuesday, March 10, 2009

Group-think and disaster

I've just been watching a Horizon programme, "How to Survive a Disaster". One part is about a 1960s experiment, where people were invited into a room and given paperwork to fill in, and then the experimenters started to force smoke under the door.

If alone, 75% of the guinea pigs left soon to report a possible fire; but if surrounded by actors who pretended nothing was wrong, only 10% raised the alarm, even though the smoke eventually got so bad that they could hardly see anything.

Rings bells for me.

By the way, I won't be surprised if the Dow rises above 9,000 points at some point, before the smoke gets too thick.

I see gold's under $900...

Monday, March 09, 2009

Could the City of London be facing long-term decline?

The UK has an unfortunate reputation for clasping vipers to its bosom, from Karl Marx to modern religious terrorists. But some might say the same goes for its financial sector - the lack of transparency here, of which I've complained more than once, allows problems to develop unchecked, as Brad Setser comments:

Had there been an international “early warning” system that was on the ball – and had the UK been willing to collect the data on flows through the UK in the face of inevitable complaints that such efforts would drive business abroad – it might well have picked up on some of these flows as a sign of brewing trouble in global financial markets.

At one of my old College's Gaudies (class reunion) a few years ago, a City financier complacently and cynically remarked that the UK was always going to have a strong financial community, since it has hundreds of years of experience in "shaving" its customers in subtle ways.

I don't think the Brits have a monopoly of greed, dishonesty and duplicity, and we see now the rotten fruits of their technical expertise. The UK National Defence Association may imagine we can concentrate on financial services and turn the rest of the country into a living museum; I say that just as we need to wean ourselves off coal and oil, so we must reduce our dependence on the old swindlers; no more fossil fuels, no more fossil fools.

Sunday, March 08, 2009

Marc Faber: inflation, war, gold

It's not just about money. There will, thinks Faber, be graver consequences. Here.

Also, here, from which the following extract:

The best bet for investors may be to buy a farm and escape from the cities, as a prolonged recession could lead to war, as the Great Depression did, said the Swiss national, who now lives in Thailand.

“Buy a farm and let your girlfriend work on the farm,” he said, to the applause of investors. “If the global economy doesn’t recover, usually people go to war.”

For pictures of his elegant Chiang Mai home, possibly a clue to his personality, see here - and for local Thai comment on him, see here.

Friday, March 06, 2009

Is now a good time to invest?

I've just been asked by a client whether he should switch from cash to equities. Here's my view, and it may explain why I haven't earned much from investments over the last few years:

It is not possible to predict the market with any accuracy, but I think I have done well in foretelling the current state of affairs as early as the late 1990s. The market has dropped to half its 1999 peak (again, as it did in 2003), but that is not to say we are now at the bottom. Some (and I am moderately persuaded to this view) think that there may be a "bear market rally" soon-ish - maybe a rise that recovers perhaps 50% of the losses so far - but it is perfectly possible that the underlying trend is still downwards, so there may then be a horrid lurch towards - what? Maybe, ultimately, 4,000 on the Dow and 2,000 on the FTSE.

We are in the middle of an exciting ride and I fear that entering the market at this stage may still be for the adventurous and nimble. Yes, had one invested in mid-2003 and got out, say, late 2007, it would have turned a nice profit; but much depends on the entry and exit points. So as ever, attitude to risk and corresponding watchfulness are key factors.

There is also the question of what asset class to choose. I think domestic and commercial property are still overvalued, relative to income; because of fears regarding other assets, and also because of central bank investment ("quantitative easing" etc) government bonds are very highly priced, which is why the yields are so low (and if interest rates rise, bond values could then drop sharply); equities are depressed, but as dividends decline in very testing economic conditions, they may ultimately be depressed still further. Commodities (e.g. gold, silver, oil) are the subject of some speculation, but owing to shortage of borrowed money to invest with, not quite so much institutional speculation as formerly; even so, gold (for instance) is a bit above its long-term inflation-adjusted average, as far as I can tell - though if inflation takes off, the price could indeed escalate.

And then there is the question of currencies. The pound has lost heavily against the dollar; but some say the dollar may catch us up again. The Euro may also not stay as strong as it is now - several countries within the Eurozone are suffering economic problems and are hampered by the common currency; I have even read speculation that the Euro system may fall apart within a decade, or some states may secede from it.

In short, I still urge caution, and if you do decide to get in, be prepared to move quickly if the market should turn. Meantime, there are relatively safe options such as National Savings Certificates, including the index-linked ones that will at least keep the value of your savings roughly in line with RPI...

How central market intervention increases inequality

This extract (highlight mine) from Robert P. Murphy's essay on the Mises Institute website explains some of the process whereby hard times help the rich get richer and the poor, poorer:

If the Fed doubles the money supply, in the long run, that will roughly double the prices of all goods and services. But if the Fed restricts the injection of new money into only the hands of a few privileged recipients, those people will be at a fantastic (albeit temporary) advantage relative to everyone else in the economy. They will get their hands on the billions in new dollars, while prices still reflect the old reality. The new money will then flow from sector to sector, pushing up prices as it ripples throughout the economy. But the last people in line receiving the new influx of twenty- and hundred-dollar bills will be much poorer than others, once prices settle down. Their paycheck was the last to rise, while they watched helplessly as more and more prices began doubling.

Thursday, March 05, 2009

Apocalypse now - Denninger

... those indicators are painting a picture of the Apocalypse that I simply can't believe, and they're showing it as an imminent event - like perhaps today imminent...

... says Denninger, but I still don't believe it. But maybe that's just me.

Wake Up!

Jim Mellon and Al Chalabi, authors of "Wake up!" , have emailed their latest interesting and useful newsletter. It concludes:

Our strongest recommendations are as follows:

• Prepare for rising inflation – continue to buy gold;
• Sell government bonds;
• Look for cheaply valued strong stocks – BAE and BP in the UK are two examples, and in the US we like Pfizer.
• Deploy cash wisely – our current favourites are, believe it or not, the British pound; the yen is weakening, but at 100 yen to the dollar it is a buy again.
• Avoid the US dollar and the Euro.

Like that bit about the pound - I was scratching around looking for something to save what's left of the savings.

Dow 4,500 within 12 months - Cederholm

Fred Cederholm gives a Dow target close to the one I'm thinking, though I think we may have a reality-denying rally before then, so I don't necessarily agree with his timescale.

Wednesday, March 04, 2009

FDIC could fail - update

I've passed on the bad news about underfunding of the FDIC before - latterly here - and now it come to the fore again in a post from Karl Denninger.

UPDATE (7 March 2009): Jesse has a piece on it now, too. But "deposits would remain fully backed by the government,", says his source - not much comfort for the taxpayer, then.

Webcam: gold vault at the Federal Reserve

Live picture (updated every 30 sec)

According to GATA, they ain't got it no more, nor they don't want it back, neither. (htp: Jesse)

What happens when everyone knows?

Tuesday, March 03, 2009

Do buy, Dubai

P.S. Did you think I was joking about Dubai as a world leading financial centre? Where the footballers lead...

It was said years ago that 90% of £20 notes in London bore traces of cocaine - because footballers have 90% of the notes. Sadly for some footballers and Old Etonians, possession of cocaine in the UAE is punishable by death. Nevertheless, lovely weather and no crowded, litter-strewn South East England commuter trains.

Could you stand Paradise? Or are you hooked on that museum of past industrial glories, the UK?

If GE falls...

Karl Denninger notes that there is heavy betting that GE, the world's tenth largest company, will fail by summer.

Engineering Analysis

Positive feedback is a term used by scientists and engineers to describe a feedback loop process where the output of a system drives increased input to the system.

In human terms, one such example is drug addiction, where increased use leads to increased desire for the drug.

A more interesting example can be seen in the 'sudden acceleration' lawsuits against Audi some years ago. Once the cars were examined, it was determined that the drivers had been pushing on the accelerator pedal, rather than the brake. Because they were convinced that they were right, they pushed harder as they gained speed. In some cases, the drivers injured their own legs from the pressure, and bent the pedal.

The past 30 years have seen such a loop in the housing and financial sector. As house prices went up, they released fiat cash into the system, driving prices even higher. This, of course, led to the 'brilliant' idea of packaging mortgages. At some point, the profit margin became so huge that no 'real' industry could compete, which pulled even more investment capital into housing derivatives, and further crippled manufacturing.

Without a governor in place, by way of careful regulation, these crashes are inevitable. The capacity of the internet in moving money only sped things up a little.

Signs of cash hoarding?

The Mogambo Guru relays a statistic: the stock of US notes and coins has increased by $77 billion in 12 months.

Some of this may reflect a switch away from use of credit cards and accounts; but I wonder how much is disappearing into newly-bought floor safes and Heinz bean tin hideaways?

UK Government adviser loses its mind

“Only high-quality professional services, financial services and the City of London have any real value and they should be supported at all costs. The rest of the country can be turned over to tourism.”

Coming up next: new financial centre in Dubai forces closure of City of London.
This... or this?

Monday, March 02, 2009

Dow 6,000 this year, FTSE 3,000 - Nadeem Walayat

Sez he, here. I'm still guessing Dow (inflation-adjusted) 4,000 sometime in the next few years, and it seems Jim Kunstler agrees ("I myself called for Dow 4000 two years ago") In which case, maybe FTSE 2,000 at some point, too.

Sunday, March 01, 2009

Harriet Harman declares the end of the rule of law in the UK

Discussing the pension rights of ex-RBS boss Sir Fred Goodwin, Harriet Harman, Leader of the House of Commons, said today:

"The Prime Minister has said it is not acceptable and therefore it will not be accepted. It might be enforceable in a court of law this contract but it's not enforceable in the court of public opinion and that's where the Government steps in."

I propose a plebiscite to dispossess Harriet Harman of all her worldly goods, and exile her permanently from this country. A "yes" vote will have no legal force, but clearly that does not matter, provided it is supported by public opinion.

Anthony Charles Lynton Blair summed up

We spend a long time gathering and shaping our impressions, constructing the two halves of the arch, then the keystone is lowered into place:

September 13, 2001

To London on the 18.47. David Miliband was on the train. He is in a similar situation to the one I was in when I was first selected - enemies occupy every office in his constituency party, although in his case it is nothing personal.

He says The Man - who was once in a similar situation in Sedgefield - advised him 'to go around smiling at everyone and get other people to shoot them'. Advice that The Man seems to have applied throughout his career.

I have often thought that if you want to judge alpha types, especially in public life, it's no use meeting them, since they have spent a lifetime perfecting their persona. You need to look at the people they choose to surround them, and then the agenda will become clear.
"Man smile; man nice man."

On the Endarkenment

Since Sackerson is contributing these very erudite pieces, I have a couple of quotes of my own. I believe that ideas herein complement those that he included from Philip Pullman.

From Carl Sagan's "Demon-Haunted World":

We've arranged a global civilization in which most crucial elements - transportation, communications, and all other industries; agriculture, medicine, education, entertainment, and protecting the environment...profoundly depend on science and technology. We have also arranged things so that no one understands science and technology. This is a prescription for disaster. We might get away with it for a while, but sooner or later this combustible mixture of ignorance and power is going to blow up in our faces.
And another:

I worry that, especially as the Millenium nears, pseudoscience and superstition will seem year by year more tempting, the siren song of unreason more sonorous and attractive. Where have we heard it before?

Whenever our ethnic or national prejudices are aroused, in times of scarcity, during challenges to national self-esteem or nerve, when we agonize about our diminished cosmic place and purpose, or when fanaticism is bubbling up around us - then, habits of thought familiar from ages past reach for the controls.

The candle flame gutters. Its little pool of light trembles. Darkness gathers. The demons begin to stir.