*** FUTURE POSTS WILL ALSO APPEAR AT 'NOW AND NEXT' : https://rolfnorfolk.substack.com
Wednesday, October 08, 2008
Stop blaming the Americans
The Americans may have sold packaged mortgages, but our institutions here didn't have to buy stuff they didn't have the competence to analyze.
And we didn't have to have 6x earnings, LTV100%+, self-certification or a rush into buy-to-let.
This disaster is home-grown.
Crisis
Monday, October 06, 2008
Gold set to leap?
FTSE and Dow predictions revisited
I suggested on Wednesday that the market may already have lost much of its bubble, considered in real terms, and here below is my simple attempt at chartism.
Using these parameters, the late 90s and early 00s were well above trend, whereas last year's highs only just peeped above the upper line and the current value is hovering a little above the centre of the hi-lo wedge.
The implications are that the next low, if it comes soon, shouldn't be worse than around 4,500, and by 2010 (when I'm guessing the tide will turn) the bracket would be in the 4,700 - 7,000 bracket, with a midpoint of c. 5,850.
Taking the market at close yesterday and extrapolating to that 5,850 midpoint, would imply a future return (ignoring dividends) over the next 16 months, of c. 2.5% p.a. - not nearly as good as cash, especially in an ISA. On the same assumptions, to achieve an ex-dividend return of 6% p.a. would require entry into the market at c. 5,400.
On this tentative line of reasoning, we should be looking for a re-entry opportunity somewhere in the 4,500 - 5,400 level, say 5,000. Shall we wait for the next shoe to drop?
How bearish are you? Too much so? See the poll in the sidebar.
By the way, I did a similar exercise for the Dow the next day and it suggested to me that the range should be 7,000 - 10,000.
UPDATE
I'm in good company:
Mr Lenhoff [chief strategist at Brewin Dolphin] predicted that the FTSE 100 could settle between 4,500 and 4,600: "In this bearish phase the market has given up more than 50pc of the bull market gain, we are back where we were in early 2004. One of the key retraceable levels is thought to be two-thirds of a bull-market gain, which would be between 4,500 and 4,600. The market looks like it wants to give up the gain."
Sunday, October 05, 2008
Utter stupidity
When will the experts understand that Chindia will have the tools and skilled workers to rebuild their fortune, AFTER the Crash? Why on Earth has the East been subsidising the improvident West for so long, if not as part of a plan to extract all the means of production it could?
Do the experts not realize we have been in a state of economic warfare for years?
How to force the UK Government to give 100% guarantee on your deposits
Their guarantee:
"Backed by HM Treasury
100% secure
National Savings and Investments is backed by HM Treasury, so any money you invest with us is 100% secure."
The Easy Access Savings Account can take up to £2 million per person. In all, depending on your age, NS&I could take more than £6 million per head.
If enough people know about this, and act on it, only Northern Rock will be run-proof. HMG will have to provide an "Irish guarantee". Unless, of course, the Chancellor suddenly welches on government credit, and that really would be the end; or closes the door to new NS&I deposits.
Get in while you can?
But not into Ireland:
However, experts are already raising questions over the Irish scheme, and asking how much protection it really affords. Adrian Coles, the director general of the Building Societies Association, said savers should write to the Irish Embassy to ask them how they intended to guarantee UK savings, and how they would obtain enough sterling in the event of a bank failing.
"Has the Irish government quantified the potentially huge liabilities it is taking on by guaranteeing sterling deposits in Britain, where household cash savings amount to £1.1 trillion?" he said.
"Savers should beware that, if they switch accounts to take up this guarantee, they are effectively betting on the Irish government's ability to buy sufficient sterling in the foreign exchange markets.
Saturday, October 04, 2008
The Chinese and US mortgage-backed securities
New York Times, 4 September 2008:
China’s central bank is in a bind.
It has been on a buying binge in the United States over the last seven years, snapping up roughly $1 trillion worth of Treasury bonds and mortgage-backed debt issued by Fannie Mae and Freddie Mac.
The $1.7 Billion Payday: How Bill Gross Made a Killing on the Bailout - Seeking Alpha (14 September 2008)
... The upshot is, Treasury Secretary Paulson was happy to make an example out of equity investors like Miller, who knew they were taking a big risk in pursuit of a big return.
But no way, no how was Paulson about to blow out the holdings of one of America’s top creditors (China).
By some estimates, China has now amassed as much as $1.6 trillion in foreign reserves, with more than two-thirds of that parked in U.S. debt instruments (agency debt, treasury bonds and so on). Burn those guys in a bailout plan? You’ve got to be kidding. Fiscally speaking, that would be like shooting ourselves in the foot with a machine gun.
So Gross had a pretty good lock on the situation. He knew it was sharp to align his interests with China’s. And to further ensure a positive outcome, the Bond King took every opportunity by ranting and raving from his soapbox -- a mighty big soap box -- about how government should be on the lookout for mortgage holders, and how letting mortgage owners suffer would be a travesty.
When news came out that the Fannie and Freddie debt holders would indeed be kept whole (as China demanded and Gross knew would happen), the value of those debt holdings soared, giving Gross a $1.7 billion pop in the value of his fund.
Business Week, 27 Sept 2008 (via Fox44 website)
"Perfect" Bond Asset Class?
Bill Larkin, portfolio manager for fixed income at Cabot Money Management in Salem, Mass., advises people to stay away from Fannie and Freddie debt except for shorter-dated maturities, since the agencies' fate remains to be seen. If they become part of the government, investors will win, whereas if they are broken into pieces, investors will lose because the debt will be much less liquid. He recommends other government agency debt such as that issued by the Federal Home Loan Bank or Ginnie Mae. He also suggests people buy these bonds to hold until maturity instead of buying them to trade them.
Aha!
... U.S. Department of Housing and Urban Development Secretary Alphonso Jackson is in Beijing to persuade the Chinese central bank to buy more securities from Ginnie Mae, a corporation under HUD that guarantees $417 billion in federally insured, fixed-rate mortgages.
... Ginnie Mae is ``in a better position than most'' to offer mortgage products because, unlike Fannie Mae and Freddie Mac, it provides the full backing of the U.S. government, Jackson said. Mortgage securities offer China's central bank better returns than U.S. Treasury bonds at the same level of credit risk, he said.
Now the chickens are flying back to roost.
Snap! And crackle...
Bailout Bill $700 billion
Additional Pork $150 billion
Dow (-484) in 3 hours $600 billion
Total carnage to you, The Taxpayer $1.45 trillion
I would almost say, buy into the packages the Chinese bought; but I expect there are ways to make the Chinese the preferred creditors and stiff everybody else.
Remember that Denninger has been saying recently, buy a good home safe and get your cash out of the bank? Let's see how unreasonable his doomster position turns out to be.
Friday, October 03, 2008
Well, you got what they wanted
Financial white-water dead ahead
Maybe I was right, then, when I thought I saw panic in Hank Paulson's demeanour the other night, as he responded to Congress' rejection of the bailout proposals.
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?
Wednesday, October 01, 2008
If this is the pitch, the answer is "No".
He refers to a major insurance company allegedly under threat, and a hypothetical example of a local Nevada bank safeguarded by increased deposit insurance. And as I've been typing this, I've been hearing Senator Hillary Clinton enunciating, in her hectoring, braying, bored voice, all the good reasons why "I" want this, that and the other and so should you.
Maybe they're just the world's worst salespeople, but I don't buy. Sorry.
Your prediction?
So you think the USA has problems?
Paul Kedrosky (htp: Jesse)
UPDATE: the Daily Telegraph concurs.
The $700 billion is to appease foreign investors?
More from iTulip
This iTulip post describes the process whereby the current deflation may suddenly turn into inflation.
This one warns against Bill-bashing for its own sake, which may be cutting off your nose to spite your face - something must be done, he says, because the market does NOT self-correct. I would suggest that it might, if the government and banks hadn't "intervened" long ago to create a fiat currency. Once that's happened, we're playing the game for the benefit of bankers and politicians, and by their rules.
And the solution?
TITUS Ha, ha, ha!
MARCUS Why dost thou laugh? It fits not with this hour.
TITUS Why, I have not another tear to shed.
Humour can also unblock the mind to work creatively in a disaster. But there is also the "We're doomed, I tell ye!" John Laurie type who only cheers up when it's as bad as he always said it would be. Watch out for them, because unconsciously, they may steer events to match their temper.
iTulip explains succinctly, below, the problem caused by the house price crash. For me, though, it's a reminder of how wonderful the old cartoons are.
Tuesday, September 30, 2008
Boing!
Super post by Denninger today, too. He points out, among other things, that the Dow started falling yesterday when everyone (himself included) expected the Bill to pass. And as he says, Bernanke upped the money in the system by vast amounts anyway, and it still hasn't fixed the problem. Just how much petrol do you need to throw onto a fire to put it out?
The BBC perspective
To me, it's the very opposite: it's a prewar Lagonda that has spent years with its axles on bricks, and it's just had a new set of tyres put on; after long disuse, the engine has finally turned over. Maybe it will seize up again, but for now there is a hint of democratic accountability.
For example, is it not interesting that more Democrats voted against the Bill, than Republicans for (both as a percentage and in absolute numbers)?
I watched Peston on TV last night and said to my wife, "I should be in front of that microphone." I heard him on the radio this morning and still want his job.
The MSM: one despairs.
Monday, September 29, 2008
Now what?
But maybe the worst players in the banking market should be allowed to burn out anyway, as Marc Faber has said for a long time.
How many of the crucial 10 swing votes in the House were down to the polemical fax-fomenting of Mish, Denninger at al?
And will the Establishment force them to vote again and again until they get it right? Nancy Pelosi and her "bipartisan" mantra (3 or 4 times in one statement) seemed to hint at this.
Under New Management
Sunday, September 28, 2008
My plan: a $15 trillion dollar bailout.
This graph shows that the 50-year mean ratio of such debt to GDP is 120.1%. So to get back to a long-term average, DEBT MUST HALVE. As I said in a reply to a comment today, it's like a game of musical chairs, but taking away half the chairs in one go.
In fact, an almost perfect fit would be to cancel all the mortgage debt in the USA - just to get back to the level of debt averaged over the last 50 years.
And Marc Faber is saying the bailout will need 5 trillion, not $700 billion.
Hmmm....
Why don't we get really bold: $32.4 tn debt x 46% in the form of mortgages = $14.9 trillion. Give everybody their houses free of debt, make future loans on domestic property illegal. Yes, there'll be inflation, but the liberated houseowners will be able to afford it.
Will the banks be ruined? They're ruined now. Will the government have to nationalise them? They're doing it now.
These are revolutionary times. We may not be able to scourge the moneylenders from the temple, but at least we can chase them out of our houses.
Yes, the result's a house price crash, if you can't pump up the price with phoney-baloney money. But no debt, so so what?
The banker has inflated everything so you have to borrow to have anything. He's made himself indispensable, like a pusher of addictive drugs standing outside the school gates, giving away samples to get you hooked. He's your "friend", your "main man", who'll make you "well".
Bankers and their pet traders have become insanely rich by making you poor. Your assets are big on the outside and hollowed-out by debt on the inside; it's why they call it a bubble.
Do you know your enemy?
Saturday, September 27, 2008
Bank lending - can somebody please help?
But over the same period, Bank of England stats show an annualised average increase in M4 bank lending of c. 13.5%, which suggests that lending grows at 4.5% p.a. above GDP. If that's right, UK bank lending as a proportion of GDP doubles every 16 years.
Can that be right? And what about the ratio of credit to the total of all national assets? Is that increasing, too? Because it looks as though eventually, the banks must own everything.
I reproduce below a graph from a mid-August post on Marc Fleury's blog. This shows the long-term ratio of total credit to GDP in the United States, and the current level of indebtedness seems to be way, way above the Great Crash situation in 1929.
Somebody please put me right and/or direct me to authorities and information sources.
My mind keeps saying, "This cannot be right, surely everything is sort of normal, really, we'll muddle through." I find myself discounting even McCain's Churchill quotation ("This isn't the beginning of the end of this crisis. This is the end of the beginning") and the politicians' use of the word "meltdown" to bounce Congress into accepting the bailout package proposals. I have spent years warning about a possible crash, but I've never, I think, allowed myself to get apocalyptic. I prefer my disaster movies to stay safely in the cinema.
So, how bad is it really, and does the banking system really have a tendency to acquire everything?
Faber says $5 trillion, not $700 bn
... and here are his thoughts on where to be invested - and the current advantages and future perils of holding cash:
The revolution is personal
Towards the end of the 90s, I was expecting a major crash. Then, I was in a laughable and condescended-to minority, it seems. And I'm certainly not important enough for anyone in the City of London to give me a minute of their heavily-overremunerated time. Even last year, warning on Cafe Hayek that America could become dirt-poor financially, I was mocked for my ignorance of "purchasing power parity".
I was unfamiliar with the phrase at that time, but I still think my instincts were right. I don't know what ordinary people are going to live on, in the US and the UK, when everything we used to make can be made cheaper elsewhere and the world's average income (in Purchasing Power Parity terms) is $5,000 a year.
When the government runs nearly everything, as it seems determined to do, maybe "if you can't beat them, join them". Here in the UK, the next administration will have very limited freedom of action, as the present one expects (perhaps wrongly) to lose the coming General Election and so has adopted a "Götterdämmerung" strategy - selling our nuclear power firm to the French, undermining the Monarchy, and generally assaulting anything that will hold us together politically, culturally and financially. In a way, I hope Labour wins again; but then again, it would be no punishment - they'd continue to eat and drink well while perfecting our destruction.
In case you imagine I am politically biased, please note that I hold no brief for the pack of smoothies that is the current Tory Party, any more than for the Fifth Columnists who have spent 11 years destroying the country from the top. Both seem to see their future as part of the Euro-elite and think the common people depend on their bull****, as koalas depend on eucalyptus leaves.
Abandon all belief in these charlatans and concentrate on your personal life plan.
$700 billion: cui bono?
I've thought recently that the bankers and traders are, in effect, being offered absolution without confession (1), restitution (2), doing penance (3) or a "firm purpose of amendment" (4).
1. Full disclosure of all liabilities and "assets"; admission of each person's part in the debacle. This should be Watergate Plus: there's a lot more than four burglars and the damage to third parties is incalculable.
2. Preferably, repayment of past bonuses awarded at a time when the recipient knew, or ought to have known, that the game was destabilising his own firm and the national economy.
3. Ideally, jail time, for some; at least, loss of office for those responsible.
4. Adoption of regulations designed to maintain the value of the currency and prevent future speculative bubbles.
From time to time we hear the defence that the consumer was at fault, too. Perhaps, if you're thinking about home equity withdrawals; but even the boll weevil is "just looking for a home" as Leadbelly sang, and when banks opened the money sluices house prices doubled. The buyer had no option to purchase a home at 2002 prices in 2007 (and I'm not sure what happened to the cost of rent in that time). The lenders should have known what they were doing; the poorest borrowers were not their equals in expertise. There was a duty of care.
What would houses cost, if it had always been illegal to use them as collateral for debt? What would the US and UK economies look like, if the vast sums sunk into housing had gone into small business enterprises? How much wealthier would we be?
Friday, September 26, 2008
Have Britons become slaves?
As in the early nineteenth century, the people are effectively disenfranchised and have little other way to express their dissatisfaction than by demonstrations - in this case, holding up a placard. Do American police arrest placard-holders outside the White House, or is America still a democracy?
It's not as though we're putting the windows through in Whitehall, as in 1831 (Reform Bill), 1855 (against closing pubs on Sundays) and on other occasions.
When did the police turn from being a people's Watch to fight crime as normally understood, to a standing army whose purpose is to suppress the people?
Spectator letter is published
"Storing up more trouble
Sir:
Your leading article (20 September) calls for a ‘kick up the backside’ to the banking industry. That kick should be aimed elsewhere. The British and American governments have not merely permitted this crisis to happen, but positively created it by a deliberate relaxation of monetary controls. Worse still, they have now decided that instead of destroying excess credit by asset deflation, bankruptcies and share collapses, the monetary inflation is to be consolidated by absorption of bad debt into the public finances.
I don’t see how this can end well. Some commentators are already saying that, if passed unaltered, the proposed American financial legislation could, once properly understood, trigger a major crash in US financial shares, possibly before this letter is published.
I think The Spectator and its economically savvy readers should put on fresh pairs of winkle-pickers, and gather in Whitehall and Washington for some kicking practice."
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.
A Marmite Backwater
Thursday, September 25, 2008
Sell your house now?
So even though house sales are seizing up and prices dropping, shouldn't we go ahead and sell anyway?
Wednesday, September 24, 2008
Diary of a mayfly day trader
Oh no, only 14 points now (09:44 EST). Hold. Or maybe sell - over 50% of gains lost in only TWO MINUTES, goodness knows what could happen in a whole hour. Yes, sell! Sell!
Gosh, this is hard. Think I'll watch the TV news, they know what's going on.
UPDATE
OMG, down 32.42 (10:13 EST)!! In only 43 minutes! Over a 7-hour day that means 633.32 off the Dow!!
No, make that "!!!"
And there's another two days to go!!! !!! !!!
However could Mouton de Rothschild stand the tension?!!??
Komedy Korner
Tuesday, September 23, 2008
Bear market rally blues
Dow 19 Sept: 11,388.44
Dow 22 Sept: 11,015.69
Dow 23 Sept: 10,854.17
Inspired by Nick Drew's bardic effusions, I offer a pastiche of Lonnie Donegan:
On the market overnight?
If your broker says don’t do it
Do you buy loads more in spite?
Can you hedge it with short selling?
Can you get the timing right?
Does your equity lose its value
On the market overnight?
Monday, September 22, 2008
Wall Street is waking up
Derivatives: the "pub with no beer"
And now a quotation on default rates - the percentage of bonds (promises to repay) that fail:
NEW YORK, Aug 1 (Reuters) - The U.S. junk bond default rate rose to 2.25 percent in July from 1.92 percent in June, as a credit crisis and sluggish economy pushed more companies into bankruptcy protection, according to data from Standard & Poor's released on Friday.
The default rate is likely to rise to 4.9 percent over the next year and could reach 8.5 percent if economic conditions are worse than expected, S&P said in its report.
Note that in the case of derivatives contracts, a default rate of less than 5.5% would equate to a wipeout of a whole year of the entire world's earnings.
No wonder that governments are absolutely determined that confidence in the system must be maintained, at whatever cost. It may take a long time to blow up a balloon, but it doesn't burst slowly.
And how do we get out of this threatening situation? How on earth, to use a different analogy, will the cat ever climb back down from so high a tree?
Lehman and that $8 billion
Reuters says "Administrators for Lehman's European operations have questioned why $8 billion was transferred to New York from London just before the bank collapsed."
Was this really standard practice? Couldn't the money have been earning (possibly higher) interest overnight here? Do other firms do the same?
Or was it part of a Lehman plan to draw assets back onto US soil in preparation for its bankruptcy, in order to favour American creditors over foreign ones, as London Banker mooted on 12 September?
Sunday, September 21, 2008
Another prophet foresees market panic
This week, look for a serious drop in the DJIA of 4,000 to 6,000 points and the close of the stock market for a week or two. [...] Most people have sensed something is seriously wrong with the markets and are heading for the exits (even the President said so). With the automated computer trading system in place, this could be very fast and furious,--sleep late and wake up broke.
Monday morning at the brokerage houses you’ll hear; “Sell everything; I didn’t sleep a wink the whole weekend.” It will be a group effort.
Carte Blanche; take cover!
Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.
How is this to be subjected to democratic accountability?
I essayed a paranoid spoof on Friday, only to find it exceeded by reality. See Karl Denninger for more details of the amazing, autocratic powers proposed in the new US financial legislation.
This is not a sweary blog, but if that becomes law, head for the bl**dy hills.
Denninger also explains how the $700 billion limit can be manipulated to absorb infinite amounts of bad debt, by discounting on resale and then taking on more fresh garbage. He says:
I predict that if this passes it will precipitate the mother and father of all financial panics, although exactly when the "short bus" riders who inhabit the equity market will figure it out remains to be seen.
_____________________________
(*) see Wikipedia:
"Dec. 3, 1627
It is by my order and for the good of the state that the bearer of this has done what he has done.
Richelieu"
Another letter to the Spectator
Sir;
Your leader (“Long live capitalism”, 20 September) calls for a “kick up the backside” to the banking industry. That kick should be aimed elsewhere.
Light regulation and free markets, which the Spectator advocates, depend on the self-regulating properties of a sound money system. But like many others, the British government has long used the fiat nature of its currency-cum-credit to solve temporary problems and create permanent ones. The long-term real growth of GDP is said to average 2.5% annually, yet since 1963 the Bank of England’s own statistics show that the M4 money supply has grown by about 13.5% p.a. Over the same period, RPI has averaged about 6.5% p.a. At this rate, the banks will ultimately own everything.
For the first 5 years of the New Labour administration, M4 growth was, not exactly prudently, but less recklessly, restricted to around 8.25% p.a. However, by 2003 the FTSE had halved from its 2000 peak, and there was gloomy talk of recession; and over the next five years M4 suddenly averaged nearly 14%. Then house prices doubled; hinc illae lachrymae.
How did this happen? The system of fractional reserve lending means that banks can loan out a multiple of what they retain in their vaults. State regulators set the rules for the required marginal reserves, and when reserve requirements are halved, lending can double, and usually will; like Labradors, bankers will have whatever is put on their plate.
Knowing this tendency, the British and American governments have not merely permitted this crisis to happen, but positively created it by a deliberate relaxation of monetary controls. Worse still, they have now decided that instead of destroying excess credit by asset deflation, bankruptcies and share collapses, the monetary inflation is to be consolidated by absorption of bad debt into the public finances.
I don’t see how this can end well. Some commentators are already saying that, if passed unaltered, the proposed American financial legislation could, once properly understood, trigger a major crash in US financial shares, possibly before this letter is published.
I think the Spectator and its economically savvy readers should put on fresh pairs of winkle-pickers, and gather in Whitehall and Washington for some kicking practice.
Yours faithfully
Saturday, September 20, 2008
I'll stay on the outside, thanks
Because otherwise, I might have to believe in Big Brother, and love Him.
I don't BELIEVE it
Suddenly, I'm less deterred by fuel surcharges on foreign holidays.
Friday, September 19, 2008
Here is the news
Gloom and despondency are prejudicial to the health of our economy, and no responsible Government would stand by while bad news was published without restriction. By order of the Privy Council today, all editors of print and electronic news media (*) are, by virtue of their position, to be deemed civil servants and will be bound by the Official Secrets Act, to which certain annexes have just been appended.
We have pleasure in being able to disclose the final results of the 2010 General Election (for full details, see page 32, or Ceefax page 801). The landslide victory will be welcomed by all true patriots, as will our decision to cancel the Election, for reasons of economic efficiency and also because, given the inevitability of the outcome, the process is otiose and a wearisome distraction for voters and a reinvigorated Government that is determined to get on with the job of steering us through these challenging times.
UPDATE - MY SPOOF WAS FAR TOO TAME:
(*) I should now add, all financial institutions:
"(3) designating financial institutions as financial agents of the Government, and they shall perform all such reasonable duties related to this Act as financial agents of the Government as may be required of them;"
See Karl Denninger on this latest, utterly undemocratic outrage by the US Government.
Is the USA still ruled by law?
This sort of talk from someone who generally appears to be a sobersides, echoing the volatile but technically savvy Karl Denninger, really does alter the tone of the debate. Read it yourself, and judge.
UPDATE
Jesse, too:
... Men sneer that outmoded laws and useless principles must fall to vital expediency so that we might be saved. The will to power begins to erode and overthrow justice and the rule of law.
And at certain times in history, in their fears and insensible numbness, people concede first the discretionary choices, then their moral outrage, then the weak, then their wealth, their freedom, and finally comes madness, and then the deluge.
And Tyler:
I'm afraid to say, we're facing much more regulation.
And much more government.
And much less willingness to trust markets.
We're in the Slough.
This is a sad, keening chorus of responsible bloggers.
It won't work
But if it was that easy, who'd staff the checkouts, sweep the streets, change the bedpans etc?
Nope, it'll have to be paid for somehow, and I don't think the rich have reserved that pleasure for themselves.
Murky support for the dollar
This seems to me like another straw in the wind: "power to the people", not.
Thursday, September 18, 2008
Not the end, as long as you and I breathe
I've been wondering recently: if, in the idealistic pursuit of universal peace and justice, we ever did manage to establish a World Government, and it became (as all human institutions do), inefficient, bureaucratic, undemocratic, corrupt and more or less evil, how would anybody escape? Where could we go to?
And Denninger is now singing a requiem for American government and democracy; perhaps prematurely - hasn't the often-mocked blogosphere uncovered a depth of feeling among the people in favour of liberty?
Why don't the Tories now declare themselves on Europe, etc?
This is a golden opportunity. The Tories should make clear their policies, including all the contentious and painful ones. In or out of Europe? In or out of our various war zones? Higher taxes or cut spending? What to do about the NHS, education and welfare? About our corrupt and overpaid financial community? About importing low-paid people; trapping our underclass in unemployment and benefit dependency, and rotting their health and sanity; and exporting people that it cost us a fortune to support, educate and medicate? And what about the dreadful farce of the voting system itself?
Because one of two things will happen:
- The Tories will win, have a mandate to sort things out, and have plenty of time between now and 2010 to make the people understand who made all these adjustments necessary. Once in power, they can keep repeating these messages so we will remember who's responsible for making us drink the nasty medicine. Fair blame to be apportioned to those Conservatives who failed us in the past, too - in reality, it's hard to find anyone among the British public so ignorant and cretinous as to think that either party can present a perfect record. Whom do the spinmeisters think they are kidding?
- Or they will lose, and Labour can try to clean up after itself, fail disastrously, and shuffle into the shadows of history.
Wednesday, September 17, 2008
"... return OF capital, not ON capital"
Banks: justice will not be done
20% down would be about right. The banks have blown up a balloon for the past 5 years and then popped it - it's what they do. They cannot be punished severely enough, nor can the regulators who shrank reserve requirements. If the FTSE hits 4,000 I will finally be able to invest again.
This temple-cleaning call is also pretty much the view of Karl Denninger, but he's doing more emphatic bold, capitals and underlining - unconsciously betraying that he knows, deep down, that "it ain't gonna happen, Cap'n."
Gold pogoes up
UPDATE: ... or rather, $838 (17:50).
An 11% gain since I flagged it up 6 days ago. But when should the short-term speculator sell? $850?
And in the comments to the same piece I said I was wondering what was holding stocks up. Now I know - nothing much. But there'll be a bear market rally shortly, doubtless.
Is the "cash" in your pension fund safe?
"Mish" reports a massive write-off by a money market fund manager, following losses with Lehman.
UPDATE:
If you have funds in a money market and it is not backed by only Treasury debt, you need to consider moving that money right here, right now. - Karl Denninger
Financial stocks at risk
UPDATE: looks as though Lloyds is angling to buy HBOS!
Tuesday, September 16, 2008
More money piles into US Treasuries
The same or more each was committed by Japan, China and the Caribbean. All hands to the pumps?
What will happen to interest rates?
Nikolay makes the point that people are becoming more concerned about the return OF their money, than the interest ON their money. So money-holders will limit demand for their cash by being picky about who they'll lend it to; control by quality screening, not by price.
Also, if people who habitually live on credit become frightened - and I think they are - then they will start trying to live within their means.
And discretionary expenditure could be reduced and/or redirected, not necessarily towards the cheapest end. I was listening to someone in the UK fashion industry on R4 yesterday, and they said far from everyone turning to Primark, the trend was to buy better quality, less of it, and make it last longer. Note that it's budget airlines like XL (competing on price) that are in danger of going down - they don't have much "fat to survive the winter".
From another angle, as the supply of cash and credit is dwindling, so are prices of houses and many other big-ticket items - look at the deals on cars and computers.
So it's possible to imagine that the contraction in credit may be approximately matched by a contraction in demand for credit, at least for a time. Bankruptcies and house repossessions will burn off a lot of debt, so we'll see a lot of ordinary people cleaned out and possibly more bank failures, especially as (in response to reduced expenditure) unemployment grows.
Thus we could see a recession in which the government tries to stimulate consumer demand by cutting interest rates - and this may not work, because many won't want (or be able to afford) to take on debt at any price; and those who do have cash and are watching prices fall, will hang off, waiting for further falls - as happened in Japan.
But Jim himself has acknowledged that rates may be cut in the short term. What about the longer term?
More unemployment, lower profits etc will shrink the tax base and increase the benefit burden. The budget won't balance without cuts in the public pay sector (= even less tax, even more benefits) or more government borrowing - I don't see how we in the UK could be taxed much more. So there's a danger that while consumer debt leads the way into recession, increased government demand for debt (and increased concern about government creditworthiness) may then lead the way to higher interest rates on State bonds.
When the State has more dependents, it will also find that not everything is going down in price. Food and fuel are must-haves, so benefits will have to be increased to cover the cost of such items. There will be more poor, and they will each need more. And the government will have to borrow more.
Or start devaluing the currency. Then all bets are off.
So here's a scenario: interest rates kept low, or cut; then government borrowing rises, while the economy burrows into a slump; then the real "credit crunch": the moment when the government, like an ad-man under pressure, needs a feelgood episode and, despite having sworn off it for life, reaches for the booze or the white powder, in this case inflation.
More and more, Michael Panzer's dire financial drama seems plausible.
Bonds to crash?
Monday, September 15, 2008
Finance in Wonderland
And now that Lehman has bitten the dust, we shall see whether London Banker was right - whether Lehman was calling in foreign investments in order to give US domestic creditors an unfair share in the asset recovery scramble.
Sunday, September 14, 2008
A letter to the Spectator
I've submitted the following letter to the Speccie in response to this by Rod Liddle, but like as not it will not be published, so you may as well have a preview.
Sir:
In typically flippant manner, Rod Liddle (13 September) mocks the alleged stupidity and cowardice of would-be Islamic martyrs. It’s true that there is an adolescent power-seeking element: I was confronted by a serious-faced posse of 15-year-olds in a school corridor on 13 September 2001, and the spokesman said, “Sir, what happened on Tuesday: good, innit?” With that, leaving their kaffir teacher satisfyingly speechless, the delegation walked off.
But the self-appointed leader was far from stupid, as I knew: he could probably have got his inflatable A* in GCSE English a year early. And teenagers mind-manacled by a few simple ideas can be very brave, which is why armies everywhere have been glad to use them.
Moreover, this is not a Children’s Crusade, but a war of ideas. We had our own a generation ago: “Smash the System”, Ho Chi Minh’s lantern fizzog stencilled on Oxford college walls, etc. If Liddle wishes for an answer, it is to be found in the article immediately after his own, where Harry Mount quotes Philip Larkin: “A hunger ... to be more serious.” Wiffy-woffy liberal democracy is under attack from both domestic Left and alien religious Right. The politico-religious settlement that was the Church of England is crumbling.
In a Gramscian campaign, the means of cultural transmission (the educational curriculum, the broadcast media, even some of the clergy) have been captured and turned against what used to unite us. Recently, we have gone from the martyrs’ certainty of Latimer, Ridley and Cranmer to the confusing fast-talk of Bishop David Jenkins, the slapstick clerical comedy of Dawn French and the nihilistic assertiveness of that scruffy peacock Richard Dawkins. When, a year or two ago, the BBC transmitted “Any Questions?” from a church at Christmas, the panel inevitably included a smug young atheist exhorting the faithful to “embrace the dark.”
The real Delusion is that we can cut down the ancient forests of our history and expect a lovely garden to spring up among the stumps. As Robert Bolt’s More says, “Do you really think you could stand upright in the winds that would blow then?” The seriousness for which people hunger is not found in the drunken debauchery alternately promoted and lamented in Parliament and the newspapers, and that which is being destroyed will find its replacement.
Saturday, September 13, 2008
At last, BBC News says something useful
But from the pile of horse-puckey that is BBC News gleams a speck of gold: advice on how businesses must survive recession. Participating in a price war isn't the way to do it, since you make yourself vulnerable to misfortune, such as the 44% increase in fuel costs (and tightening bank credit) that did for XL. No, here's their three valuable tips:
- Go for custom with higher profit margins, like BA's focus on business class flights.
- Hold lots of cash, like Ryanair.
- Cut costs, like Flybe with their modern, larger, more fuel-efficient craft.
Things are a little different from the consumer's point of view, of course. We came back from Dublin a few years ago on a certain airline, and the electrics failed before takeoff. They fiddled with them for a bit, then we flew to Birmingham, where they promptly failed again just as we were taxiing to the terminal.
Good job they hadn't failed halfway across the Irish Sea, or we'd have been up there all day.
Friday, September 12, 2008
LHC update
Or is this proton recycling thing one of those EU subsidy scams? * At 11,000 circuits a second, the turnover would much quicker.
But I still think it's really a bunker and escape tunnel to Switzerland (geographically the sane eye in the mad mask of Europe). The elite have something to flee from, as Tony Sharp points out - this is the 14th consecutive year of accounts rejected by their own Court of Auditors.
So how WAS the £4.4 billion spent, exactly?
I don't care; I'm off to look for the Great Wine Lake. If they'll tell me where it is, I'll sign the bl**dy accounts myself. **
* "In 2003 German authorities combined isotopic evidence with paper-trail analysis to put a stop to a sophisticated scam, known as "carousel fraud". A group of German companies had been illegally claiming subsidies by trading EU-made butter to and from Estonia (then not a member of the EU). Each time a butter lorry crossed the border from Germany to Poland the companies were given EU export subsidies. Once in Estonia the butter was repackaged and labelled to make it look like it had originated in Estonia, heaved back on a lorry and hauled back to Germany. This time, the importers took advantage of a tax break on foreign imports aimed at increasing trade with prospective EU member countries, as Estonia then was. The investigation revealed that 22 out of 25 butter samples taken from Estonian-labelled butter imported into the EU were not Estonian. In at least one case, the isotopic ratios of hydrogen and oxygen in a butter sample indicated it could only have come from Ireland."
** Wasn't a Chinese emperor deposed for excessive taxation, which he used to create an artificial lake and fill it with wine so that ships could sail on it and have mock battles for his entertainment?
Foreign powers are also battening the hatches
‘Late late yestreen I saw the new moone,
Wi the auld moone in hir arme,
And I feir, I feir, my deir master,
That we will cum to harme.’
O our Scots nables wer richt laith
To weet their cork-heild schoone;
Bot lang owre a’ the play wer playd,
Their hats they swam aboone.
("Sir Patrick Spens")
US banks preparing for the moonlight flit?
"London Banker" notes that US creditors get first pick of US assets in the event of insolvency, and speculates that Lehman may recently have pursued a strategy of selling foreign assets to increase their US-based holdings. In the event of the bank's failure, this would minimise the loss to American creditors, stiffing their foreign counterparts. Such a pre-crash preparatory repatriation of wealth, he says, might account for some of the recent turnaround in the dollar and US stocks.
He even hints at the temptation for banks to misappropriate assets in nominee accounts for which they are technically only the custodians. Kind of like the old "Muddling up the firm's money with my own," or Father Ted's "It was only resting in my account."
There is a sick plausibility to these speculations.
UPDATE: ... and Sitemeter tells me we are attracting the attention of Beijing (IP: 61.48.41.# (CNCGROUP Beijing Province Network)). A little paranoid frisson to enliven my Friday evening.
Thursday, September 11, 2008
Gold: window of opportunity?
Wednesday, September 10, 2008
Large Hadron Collusion
Tuesday, September 09, 2008
Judge Mental rules on religion
Foreign powers calling the tune on the US economy
... says Brad Setser.
Monday, September 08, 2008
Right, left and centre
You understand that she scares me because of the fundamentalism and reported vindictiveness. As for her daughter being up the spout, my complaint is that the social conservatives and left-wing social engineers claim to have all the answers to raising my children, yet can't get their own houses in order. At least liberals pretend to be more understanding of the weaknesses of others.
On the right wing here, we have, off the top of my head:
Jimmy Bakker (evangelist) - caught stealing, cheating on taxes, and convincing religious young girls that he should have sex with them
Ted Haggard (anti-gay evangelist) - caught doing heavy drugs and having sex with a male prostitute
Larry Craig (outspoken anti-gay senator) - caught trolling for gay men in an airport
Mark Foley (right wing congressman) - caught trolling for underage congressional page boys
Sarah Palin - see the above
Karl Rove (I believe the grandson of one of Goebbel's propaganda minions) - engineered Bush's victories and the anti-gay marriage movements in 2004, plus the outing of Valerie Plame, covert CIA agent. Married, but well-known in Washington circles as liking the underground gay sex clubs.
Rush Limbaugh (very right-wing TV radio voice) - drug addict. He got probation for obtaining the drugs. His housekeeper went to jail.
Dick Cheney (VP) - strongly supported the anti-gay movement, which got voters out, while his own daughter is gay.
Tammy Faye Bakker (evangelist and ex-wife of Jimmy, now deceased) - both evangelist husbands went to jail for tax evasion and theft, yet she managed to publicly cry her way through both trials, and got off scot-free.
Jimmy Swaggart (evangelist) - caught hiring prostitutes
Jeb Bush (former governor of Florida, brother of Pres. Bush) - kept the hard-line anti-drug line, except for his addicted daughter. His wife was caught trying to smuggle jewelry through customs.
I could go on, but you get the point.
My observation, and supported by some conversations with southern Baptists, is that the draconian rules that they want to impose on society are for everyone else, to keep them in line. I don't like, nor need, that kind of government.
All I'm looking for is a FISCAL conservative.
And by the way, whatever happened to "moral suasion"? Why does everything have to be banned or compulsory?
For example, I've always thought that aborting inconvenient children is very wrong, and the "they haven't developed nerves yet" argument is irrelevant hooey - we all went through that stage and it doesn't make killing any better if the victim is unconscious (even Peter Pan woke up the pirate first). And maybe US demographics, like here in Britain, would be very different if the slaughter of the innocents hadn't happened - but we are all bending under the weight of a thousand daily coercions.
As I said to my brother: And I trust that you and all Americans who understand theConstitution will remember to keep telling the State to s*d off.
Sunday, September 07, 2008
A modest disposal
The only issue is, who would feature as the Guy?