*** FUTURE POSTS WILL ALSO APPEAR AT 'NOW AND NEXT' : https://rolfnorfolk.substack.com
Monday, August 03, 2009
The dam may break after all
Friday, July 24, 2009
Turning point; hiatus
Since Marc Faber and others have been saying for some considerable time that they can't see anything worth getting into, and now the dollar is getting closer to having the carpet yanked out from under its feet, and the British pound may follow suit thanks to the miserable state of the British economy, and China is busy blowing an inflationary bubble to maintain its vampire trading relationship with the West, and the gold-bugs are chirruping ever louder (though the US Government might not only seize gold as it did in 1933, but for those smarties who invest in overseas gold stores the bad news may be that Uncle Sam will also seize US citizens' title to those stores), the question is... where to hide your stash?
For the private investor, maybe part of the answer is to look at the currency market, for a country that isn't over-dependent on international trade, has enough natural resources to survive if the world system goes down, and is reasonably stable by second or third world standards. Sadly, I have even less expertise here than elsewhere, but any thoughts on e.g. the Thai baht?
HIATUS
We're going on holiday now, to a place where cellphones don't work (and it's in the UK) and our place has no broadband. Best wishes to you all, hope to be back in touch soon.
Thursday, July 23, 2009
Out of their depth
... the theatrical element of Oxford's secret clubs and societies, the fact that so much of their activity seemed designed to dazzle and mystify bemused onlookers, is precisely what makes them such ideal training grounds for British public life.
... you don't have to be to the manor born to become a member of Britain's ruling class - or even particularly clever. You don't need charisma or sexual confidence or a sense of entitlement. All you need is the wherewithal to pretend to be someone who has these qualities. Provided you can do a reasonable impression of a person with the right stuff - and provided you wear the right uniform - that's enough to propel you to the top.
... The discovery that all these young pretenders make when they take their seats at the Cabinet table, or become QCs, or pocket £100million on a complicated land deal, is that the people at the very pinnacle of British society - the people pulling the levers of power - are exactly like them.
There is no such thing as the real McCoy, just a bunch of schoolboys parading around in the contents of the dressing-up box. They don't feel like frauds, because everyone else in this elite little club is as fraudulent as they are.
And when all is well, they get away with it. But when it comes to an emergency, a crisis needing skill, grit and sacrifice?
My father served his 25 in the British Army, and my mother used to say, "Thank God for civilians," i.e. the experienced people that would come in on callup when war broke out. Doubtless it's different now, with our much reduced and far more battle-experienced Armed Services, but in my father's career he met more than a few "educated idiots." Does the current crop of politicians and bankers have what it takes, including the moral fibre, to get us out of this mess? Or when it gets too tough, will they jump, like "Lord Jim" Blair, leaving us to our fate?
Monday, July 20, 2009
Doomsday scenario
Faber lives in Chiang Mai, northern Thailand, a country whose King is a proponent of national economic self-sufficiency. It's also worth noting that Chiang Mai is a fairly short air-hop from Burma, Laos and China; and that Dr Faber collects Mao memorabilia and has business interests in Vietnam. I see him as a long-term planner who covers all possible options.
As Dr Doom notes, "...a major crisis like we had should clean the system but nothing has been cleaned," so why should all be well again? But you could choose to side with Faber's co-interviewee Giles Keating of Credit Suisse; very nice accent, nice bearing - just the sort of thing the clients like.
However, witness also Karl Denninger today, commenting on a report that US Federal Government support for the economy could reach almost $24 trillion:
A couple of market technicians have noted certain "patterns" in the market that have potential downside targets of zero. That sort of thing normally results in a loud guffaw from me - even though I'm bearish I'm not that bearish - I couldn't imagine anything short of global thermonuclear war, ala "Joshua", that could lead to such an outcome.
Well I think I just found something purely economic that could lead to that outcome, and it's right here.
Be prepared. As the Greek saying goes, "There is no borrowing a sword in time of war." I'm going to go back to doing what I started to do a few months ago: draw extra cash and stash it in a locker. And some other things (though not weapons - the tiger is the endangered species, not the rabbit).
House prices to sink further
But the market is segmented. Maybe it'd be more useful to discuss the projected impact on different regions and price brackets.
Sunday, July 19, 2009
Belling the cat
Friday, July 17, 2009
Prepare
Wednesday, July 15, 2009
Masters of the Universe vs. the Lord's Elect
On an unrelated note, I've suddenly recalled the episode in Evelyn Waugh's "Decline and Fall" where Paul Pennyfeather meets a madman in prison:
"Well, one day I was just sweeping out the shop before shutting up when the angel of the Lord came in. I didn't know who it was at first. "Just in time," I said. "What can I do for you?" Then I noticed that all about him there was a red flame and a circle of flame over his head, same as I've been telling you. Then he told me how the Lord had numbered His elect and the day of tribulation was at hand. "Kill and spare not," he says."
Fortunately, the nutter's victim is a Modern Churchman, not a vitally important, wealth-creating banker.
Many market "shorts" are due to expire on Friday, I understand. Perhaps the market - a free and unmanipulated market, you may be sure - will change its mood next week.
PS
The S&P 500 closed above 900 points yesterday. "Mish" has said that it could easily fall below 500 points, or stall for years. He is against "buy and hold." So who profits if the poor layman is persuaded to stay in the market?
Regardless of what strategy one uses, it is a horrible idea to hold stocks throughout recessions.
Why Is Bad Advice So Common?
Clearly, stay the course is bad advice. So why is it so common? A personal anecdote might help explain things: In January of this year, an investment advisor from Wachovia Securities called me up and stated "Mish, I am sitting on millions because I see nothing I like". I told the person I did not like much either and that Sitka Pacific was heavily in cash and or hedged. His response was "Well, I do not get paid anything if my clients are sitting in cash".
I called up a rep at Merrill Lynch and he said the same thing, that reps for Merrill Lynch do not get paid if their clients are sitting in cash.
Massive Conflict of Interest
Notice the massive conflict of interest possibilities. Reps for various broker dealers have a vested interest in keeping clients 100% invested 100% of the time, even if they know it is wrong. And so it is every recession, bad advice permeates the airwaves and internet "Stay The Course".
We own you
This one points out that to balance the US budget with borrowing, new bonds must be sold totalling 3 times the amount issued last year. Bearing in mind that there's less money around, and that people are getting nervous about America's credit rating, inflation and the value of the dollar on the international market, it seems very unlikely that this new debt auction would succeed; and if it did, it would have to be on the basis of higher interest rates, to factor-in the various increased risks.
Alternatively, it's time for the repo man - with a twist. Nassim Taleb and Mark Spitznagel suggest that banks could take part of homeowners' equity in exchange for lower interest rates. But if houses continue to decline in price? I bet the banks have thought of that, so if such a scheme were introduced, they'd want a bigger share than most homeowners would be willing to give them. My guess is that when houseowners realize that the market isn't going to turn soon, there'll be more voluntary bankruptcies and doorkeys in the post. That, plus rising and lengthening unemployment could set off the domino chain.
But returning to the Sprott analysis, note that late last year, 28% of US debt was foreign-owned. Look out for some form of debt-for-equity here - if not the sale of equities, then in the form of favours and concessions. He who pays the piper calls the tune.
Sunday, July 12, 2009
It's just the way things are?
I've asked several times before, whether any country could have played it differently and avoided getting involved in The Crash. Then I read this article (htp: Jesse) about ex-BIS economist William White, and near the end there's an indication that maybe it's not simply about baddies and goodies:
This is the sort of thing that worries him. "That's when you have to ask yourself: Who exactly is controlling the whole thing anymore?"
Wednesday, July 08, 2009
Saturday, June 20, 2009
US Public debt vs. gold
For the first 70 years, the gold-priced public debt was always less than twice its 1791 level, and often below the starting point.
Now to see the progress of the public debt since 1860:
... and second, since 1945:
These pictures seem to indicate the influence of:
(a) two world wars
(b) the closure of the "gold window" in 1971
(c) monetary expansion since the 1980s
(d) the Grand Bust of 2000, NOT 2007, and the consequent flight to commodities
- and on this way of measuring the catastrophe, we're 50% worse off than at the end of WWII - plus we're not rebuilding the economy, we're doing the reverse.
Friday, June 19, 2009
Commercial real estate to crash?
There's various ways you could interpret this - e.g. it could be a way to deflect criticism of Tesco's powerful position in the retail commercial property market, which some say has been used to prevent competitors setting up near their own outlets. But there are cheaper ways to deal with critics.
I think this billion-pound bet may be a straw in the wind - or perhaps an uprooted tree in the mighty gale - portending a significant fall in commercial property values.
Saturday, June 13, 2009
Why I think house prices must continue to fall
- Interest rates go up, to make it worthwhile for lenders to continue financing us. This will cut into take-home pay and make it more difficult to service large mortgages. House prices will drop, and so, eventually, will rents.
- The government will continue pumping cash into the system, one way or another. Our currency will depreciate further. Imports will become more expensive - and we import essentials like food and fuel. Since we have let our industries wither, we cannot quickly turn to providing for our own needs. So prices will soar and remain high for a long time. This will cut into take-home pay and make it more difficult to service large mortgages. House prices will drop, and so, eventually, will rents.
"Eventually" is happening now, as it happens. We were looking for a place to rent, found one on the Internet at £595/month, looked round it last week and the agent handed us a details sheet with the asking rent: £450.
Friday, June 12, 2009
Return of the spiv
Wednesday, April 29, 2009
It's us or Them - and inflation's coming
A self-deprecating blogger styled "The Anecdotal Economist" suggests a fight back in the form of switching your savings and borrowings away from these enemies of the people.
htp: Jesse, who has joined the Angry Brigade and whose regularly changed sidebar links for reading ("Matière à Réflexion") are a treasure trove.
Meanwhile, John Williams of Shadowstats says:
We will see inflation levels not seen in our lifetime by as early as the end of this year. Eventually we will see liabilities of $65 trillion – more than four times U.S. GDP, more than global GDP. There will be a hyper inflation where the dollar becomes worthless, where the paper is worth more as wall paper than as currency.
htp: Michael Panzner, who also is a great pre-reader for us. Michael says he's switched swides to the inflation believers, but he's too modest - he himself predicted deflation followed by inflation in "Financial Armageddon".
Saturday, April 25, 2009
Deflation? You're joking!
I still think we're in a sort of re-run of the 70s. Cash will be forced out of accounts and into the market, where it will still lose value, but nothing like as badly as if left rotting in banks and building societies. The Great Theft is on its way.
If you follow Marc Faber, you'll know that he's currently suggesting holding half your wad as cash, since the bubble hasn't really burst yet; but other than that, he's thinking 10% gold and 40% in a combination of resource and emerging market stocks.
The world's average per capita income is $8k - $9k; as globalisation continues the levelling-out process, the East will never be as rich as we once were, but they'll be less poor. For us, on the other hand, this may be the last chance to put something away for our future.
Tuesday, April 21, 2009
Still not the truth
"... when FASB suspended mark-to-market accounting rules recently, major international banks were allowed to re-value some of their derivative products closer to their notional value on their books to pad their balance sheets. Due to this change in accounting law, I can almost guarantee you that before market open Friday, Citigroup will announce better than expected financial results as they carried huge amounts of illiquid mortgages and financial derivatives on their balance sheets."
I fear that many major banks may be thoroughly ruined, and until the lying stops, effective action cannot be taken.