*** FUTURE POSTS WILL ALSO APPEAR AT 'NOW AND NEXT' : https://rolfnorfolk.substack.com
Saturday, January 24, 2009
A turning point in the market?
Friday, January 23, 2009
Could US interest rates rise?
However, enormous spending by the US means that it will have to issue a further $900 billion in bonds, and Setser opines, "China isn’t going to double its Treasury holdings in 2009."
If America needs to borrow more than China is willing to lend, the money must come from somewhere else, at a time when it's getting short generally. I have also recently read reports of concerns about the credit rating for US government bonds, which also supports the idea that rates will have to rise to pay for the increased risk of default.
How far will the dollar will be supported by this tendency? At least, in relation to sterling?
The UK is supposed to be an even worse basket case in terms of overall indebtedness, and that may make it politically very difficult to match rates with the US, because it could accelerate the rate of British house repossessions and business bankruptcies, even faster than in the US. So the pound could possibly fall even further against the dollar.
Perhaps Mr Cameron is right to warn that for the UK, the money may run out soon. Then we will have to pay high interest rates after all. And at last, we may be forced to borrow from the IMF and retrench savagely. Back to 1976. And will 1979 return? Cometh the hour, cometh the strong woman?
So, what's the implication of all this for the investor? Sell bonds and buy gold (despite its already high price) now, then reverse the process when high interest rates hit us?
Saturday, January 17, 2009
A hand hovers over the chain
Do I understand the net of this posting to be that the US is much more vulnerable to a quick run on the debt, i.e. being mainly financed by short term debt which constantly has to be rolled over ?
Brad Setser:
Yes, that risk is rising...
Read the whole thing here.
Wednesday, January 14, 2009
Common Sense?
____________________________
To: Troy Clarke President
General Motors North America
Response from: Gregory Knox, Pres.
Knox Machinery Company
Franklin , Ohio
Gentlemen:
In response to your request to contact legislators and ask for a bailout for the Big Three automakers please consider the following, and please pass my thoughts on to Troy Clark, President of General Motors North America.
Politicians and Management of the Big 3 are both infected with the same entitlement mentality that has spread like cancerous germs in UAW halls for the last countless decades, and whose plague is now sweeping this nation, awaiting our new "Messiah", Pres-elect Obama, to wave his magic wand and make all our problems go away, while at the same time allowing our once great nation to keep "living the dream"...
Believe me folks, The dream is over! This dream where we can ignore the consumer for years while management myopically focuses on its personal rewards packages at the same time that our factories have been filled with the worlds most overpaid, arrogant, ignorant and laziest entitlement minded "laborers" without paying the price for these atrocities...this dream where you still think the masses will line up to buy our products for ever and ever.
Don't even think about telling me I'm wrong. Don't accuse me of not knowing of what I speak. I have called on Ford, GM, Chrysler, TRW, Delphi, Kelsey Hayes, American Axle and countless other automotive OEM's throughout the Midwest during the past 30 years and what I've seen over those years in these union shops can only be described as disgusting.
Troy Clarke, President of General Motors North America, states: "There is widespread sentiment throughout this country, and our government, and especially via the news media, that the current crisis is completely the result of bad management which it certainly is not."
You're right Mr. Clarke, it's not JUST management...how about the electricians who walk around the plants like lords in feudal times, making people wait on them for countless hours while they drag ass...so they can come in on the weekend and make double and triple time...for a job they easily could have done within their normal 40 hour work week. How about the line workers who threaten newbies with all kinds of scare tactics...for putting out too many parts on a shift...and for being too productive (We certainly must not expose those lazy bums who have been getting overpaid for decades for their horrific underproduction, must we?!?)
Do you folks really not know about this stuff?!? How about this great sentiment abridged from Mr. Clarke's sad plea: "over the last few years ...we have closed the quality and efficiency gaps with our competitors." What the hell has Detroit been doing for the last 40 years?!? Did we really JUST wake up to the gaps in quality and efficiency between us and them? The K car vs. the Accord? The Pinto vs. the Civic?!? Do I need to go on? What a joke!
We are living through the inevitable outcome of the actions of the United States auto industry for decades. It's time to pay for your sins, Detroit ...
I attended an economic summit last week where brilliant economist, Alan Beaulieu, from the Institute of Trend Research , surprised the crowd when he said he would not have given the banks a penny of "bailout money". "Yes, he said, this would cause short term problems," but despite what people like politicians and corporate magnates would have us believe, the sun would in fact rise the next day... and the following very important thing would happen...where there had been greedy and sloppy banks, new efficient ones would pop up...that is how a free market system works...it does work...if we would only let it work..."
But for some nondescript reason we are now deciding that the rest of the world is right and that capitalism doesn't work - that we need the government to step in and "save us"...Save us my ass, Hell - we're nationalizing...and unfortunately too many of our once fine nation's citizens don't even have a clue that this is what is really happening...But, they sure can tell you the stats on their favorite sports teams...yeah - THAT'S really important, isn't it... Does it ever occur to ANYONE that the "competition" has been producing vehicles, EXTREMELY PROFITABLY, for decades in this country?... How can that be??? Let's see... Fuel efficient... Listening to customers... Investing in the proper tooling and automation for the long haul...
Not being too complacent or arrogant to listen to Dr. W. Edwards Deming four decades ago when he taught that by adopting appropriate principles of management, organizations could increase quality and simultaneously reduce costs. Ever increased productivity through quality and intelligent planning... Treating vendors like strategic partners, rather than like "the enemy"... Efficient front and back offices... Non union environment...
Again, I could go on and on, but I really wouldn't be telling anyone anything they really don't already know down deep in their hearts.
I have six children, so I am not unfamiliar with the concept of wanting someone to bail you out of a mess that you have gotten yourself into - my children do this on a weekly, if not daily basis, as I did when I was their age. I do for them what my parents did for me (one of their greatest gifts, by the way) - I make them stand on their own two feet and accept the consequences of their actions and work through it. Radical concept, huh... Am I there for them in the wings? Of course - but only until such time as they need to be fully on their own as adults.
I don't want to oversimplify a complex situation, but there certainly are unmistakable parallels here between the proper role of parenting and government. Detroit and the United States need to pay for their sins.
Bad news people - it's coming whether we like it or not. The newly elected Messiah really doesn't have a magic wand big enough to "make it all go away." I laughed as I heard Obama "reeling it back in" almost immediately after the final vote count was tallied..."we really might not do it in a year...or in four..." Where the Hell was that kind of talk when he was RUNNING for office.
Stop trying to put off the inevitable folks ... That house in Florida really isn't worth $750,000... People who jump across a border really don't deserve free health care benefits... That job driving that forklift for the Big 3 really isn't worth $85,000 a year... We really shouldn't allow Wal-Mart to stock their shelves with products acquired from a country that unfairly manipulates their currency and has the most atrocious human rights infractions on the face of the globe... That couple whose combined income is less than $50,000 really shouldn't be living in that $485,000 home... Let the market correct itself folks - it will.
Yes it will be painful, but it's gonna' be painful either way, and the bright side of my proposal is that on the other side of it all, is a nation that appreciates what it has...and doesn't live beyond its means...and gets back to basics...and redevelops the patriotic work ethic that made it the greatest nation in the history of the world...and probably turns back to God.
Sorry - don't cut my head off, I'm just the messenger sharing with you the "bad news". I hope you take it to heart.
Gregory J. Knox, President
Knox Machinery, Inc.
Franklin , Ohio 45005
Thursday, January 08, 2009
Where to turn?
Marc Faber is predicting that precious metals will outperform equities and bonds; this commentator reckons silver will outperform gold.
Dear me.
Saturday, January 03, 2009
Murky business
Setser estimates that China owns $1.425 trillion in Treasuries and Agencies, which is equivalent to about 10% of US GDP. ("Treasuries" are debts directly owed by the US Government, "agencies" are debts of the US Government's organisations, as explained in this Federal Reserve handbook from 2004.)
He ends by calling for more transparency in British accounts of these holding - that would be most welcome all round, generally. Half our problems (and, I assume, opportunities for fatcat swindlers) stem from our not knowing the real position of the world's finances.
Friday, December 19, 2008
Europe is keeping China (and America) going
Wednesday, December 17, 2008
The seventh seal
With the $7 trillion dollars we have committed we could have literally given every homeowner with a mortgage a fifty percent reduction in the principal outstanding.
This would have instantaneously stopped all of the foreclosures by putting all (essentially) homes into positive equity - overnight!
So why wasn't this done?
His answer: the government is trying to cover the staggering bets of the derivatives market. With borrowed money. The Treasury has swallowed the grenade and put its fingers in its ears.
This is the fourth horseman of the financial apocalypse that Michael Panzner predicted, as summarized here on Bearwatch on May 10, 2007.
UPDATE: Jesse comments on another fresh sum - tens of billions - needed to cover AIG's losses. As he says, there is an air of expectancy; but also of unreality, like the announcement of a major war.
Friday, December 05, 2008
China to devalue its currency?
Friday, November 14, 2008
Sunday, November 09, 2008
FDIC underfunded
The FDIC estimates that through 2013 there will be about $40 billion in losses to the deposit insurance fund, including an $8.9 billion loss from the failure of IndyMac Bank. The FDIC is raising insurance premiums paid by banks and thrifts to replenish its fund, which now stands at around $45.2 billion, below the minimum target level set by Congress and the lowest level since 2003.
The current target (the "Designated Reserve Ratio") is 1.25% of deposits and is discussed here. According to Mish on July 23, insured deposits in the US banking system totalled $4.24 trillion, which if unchanged now would mean the FDIC current funds represent 1.066% of the sum insured, s0 the FDIC needs to raise another c. $8 billion in premiums from banks.
The question remains, whether merely 1.25% is sufficient for present and foreseeable circumstances. Dr Marc Faber is now talking about eventual US inflation and State bankruptcy - after a near-term rally.
Saturday, November 08, 2008
Coming your way
I am clearly in favour of the first because the consequences of these state interventions are massive budget deficits. To finance these, governments have to acquire money. For that they have to borrow money, which makes state debt and interest payments soar. US economists have come to the conclusion from the trends that there will be a US state bankruptcy.
Swissinfo: Do you share that view?
M.F.: One hundred per cent.
(Source)
Thursday, October 23, 2008
A credible, horrible warning
We may be days away from an international credit incident originating outside of the United States. Foreign nations, banks, and businesses have "levered up", or taken more risk, than we have. They too have chosen to lie.
This will hammer the stockmarket:
You have already seen nearly half of your money disappear.
You could see another half disappear - within days.
This is an implication of the graph I did on Sunday (see below), looking at the Dow adjusted for CPI inflation since 1928. A return to 4,500 points would seem to be reversion to the long-term norm - but to have it happen all at once, from its peak last October, is a scary prospect.
UPDATE
Tyler concurs, with respect to the UK economy, because of our dependence on income from financial services and associated services:
"Brown's boom was built on a group of industries that are now facing an Almighty bust..."
Saturday, October 11, 2008
Refuge, flight, battle rejoined, victory, retribution
Thursday, October 09, 2008
Hope
I increasingly suspect that one consequence of United States and Europe’s recent financial crisis will be a smaller deficit in both regions, and a smaller surplus in the emerging world.
Friday, October 03, 2008
US debt-to-GDP, 1940 - onwards
I'm not sure how much comfort we can take from the fact that the blue line was slightly higher in the mid-1990s, and far higher in the '40s. I suppose it depends on what you think may happen to the GDP part.
Thursday, October 02, 2008
US debts vs. other expenditure - 2006
(Figures are in billions of US dollars.)
By way of comparison, I also give below two figures - the increase in debt plus interest paid for 2006, and then for 2008. In the latter case, the increase in debt is that from 30 Sep 2007 to 12 months later, and the interest is the latest available as per here.
In other words, if America had no such debts, she would have $1.45 trillion more per year to spend on other things.
Interest, plus rolling-up more debt, now equates to some 30% of all non-debt-servicing costs of the States and Federal Government.
$431,270,863,309.37
20 years ago, it was $214,145,028,847.73.
Zgirl's "Better than nothing" blog explains why deflation would cripple the American government, so money has to keep pouring in and we have to hope that foreign creditors (including the equally busted Brits, it seems) continue to buy-in US Treasury securities.
How to come down from this perilous height?
Friday, September 26, 2008
A crisis of democracy, not of capitalism
Shall "Government of the people, by the people and for the people" perish from the earth? The lazy, defeatist cynics of the UK fail to understand how Lincoln's words still burn brightly in many Americans' hearts. It's why they are so quick to attack their politicians as liars and shysters, wheras we merely expect them to be that anyway. Their idealism shames us.