Why don't the Tories now declare themselves on Europe, etc?

Supposedly the Conservatives are as far ahead as they've ever been since Mori started doing polls. Meanwhile, the economy is set for a hard, hard landing and Labour have been in power for far too long to be able to blame anyone else.

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:

1. 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?
2. Or they will lose, and Labour can try to clean up after itself, fail disastrously, and shuffle into the shadows of history.

Or of course, the Tories can continue to do what they are now doing, and let us draw our conclusions. Then both major parties can fragment and, with any luck, die.

So, three choices: win straight, lose straight, or be unmasked. Because I'm darned if I'll vote for a Buggins'-turn pack of careerists, merely for the sake of a change from the conspiratorial, traitorous dictators we've got now.

"... return OF capital, not ON capital"

I noted yesterday that foreigners were rushing to stuff cash into the US Treasury pillow. Brad Setser chimes in, explaining that although there's no yield (see his graph below), at least the capital is safe. We hope.

Banks: justice will not be done

Financial website ThisIsMoney speculates that the FTSE could drop another 20%. I couldn't resist commenting there:

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

Oh, look (14:49), gold's sprung upwards (see sidebar widget) - nudging $800.

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?

There's been much talk of keeping the balance in your bank account/s below the insured limit - but if you are cautious and want to preserve the value of what's in your pension pot, how can you do it?

"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

Denninger explains why rescuing banks and insurers mean the shareholder should exit now. Perhaps this explains the ruckus with HBOS?

UPDATE: looks as though Lloyds is angling to buy HBOS!

More money piles into US Treasuries

Published today: US Treasury information shows that in July, another $10 billion poured into their securities from the UK's direction. I had no idea that (a) we were so keen and (b) could afford it.

The same or more each was committed by Japan, China and the Caribbean. All hands to the pumps?

What will happen to interest rates?

Jim in San Marcos envisages eventual interest rate rises worldwide, to 10-15%. Commenting on the preceding post, Nikolay disagrees and James asks the question. I'm trying to understand the situation, like everyone else, so I'll have a go at thinking aloud:

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?

The Fed may lower its funds rate in the short term, but Jim in San Marcos is predicting steep rises in worldwide interest rates and (therefore) a sell0ff in suddenly-very-uncompetitive bonds.

Finance in Wonderland

We're in a surreal phase. As Denninger points out, there is no legal authority for the Federal Reserve to accept stocks and shares as collateral, which it is now doing ("was that a wooden horse that came in through the gates?"). There is an air of unreality - huge firms suddenly going down, one by one, while we're trying to make ourselves believe that it's all still normal, somehow.

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.

A letter to the Spectator

I am constitutionally a sceptic ( a term which, like "humanist", has been degraded to mean simply atheist, a sense I don't intend), but not being cocksure either way, I think civilised life depends on a benevolent forbearance that is being eroded by Puritans of all stripes.

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.

At last, BBC News says something useful

And so tour operator XL goes down, as City Unslicker warned.

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:

1. Go for custom with higher profit margins, like BA's focus on business class flights.
2. Hold lots of cash, like Ryanair.
3. 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.

LHC update

Two days after the Mighty Marmite Machine was switched on, and no news. Did they run out of shillings?

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

Jesse passes on a report from China Daily about China's decision to diversify out of dollar-denominated assets, and he notes that Japan and India are doing the same.

Prepare for a storm; they are.

‘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?

This is a post you will wish to read if Lehman and/or other US Banks go down.

"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.

Mugabe and Tsvangirai

Has the spider made a deal with the fly?

Gold: window of opportunity?

Gold per ounce is now $752 in US Dollars. I've been trying to track down an article I read in the past couple of days, that said Investec expected gold to veer between $750 - $1,000 (similar article here). Is this the time to get back in? An increase of 33% within months is nothing to sniff at - unless you're one of those greedy City boys.

Large Hadron Collusion

It came to me in a flash. How would you or I know the difference between decay products in a particle accelerator, and a sparkler in a steam bath? We've been had, Ron.

17 miles of construction deep below ground... It's a bunker! When the EU project finally and inevitably collapses, taking the economy of Western Europe with it, the corrupt, incompetent and eye-poppingly expensive politicians and bureaucrats are going to need a hidey-hole.

But what about the pipes and cables?

We saw them as Professor Brian Cox tootled along through the circular cavern, didn't we? D:Ream on. What we saw was a CGI loop, entirely familiar to computer games players. Beneath this illusory overlay is footage of working, sleeping and recreational facilities, water filters, air recycling machinery, food stores and all the rest. Like Slartibartfast on his planet-constructing world of Magarathea, the Euro elite will be able to sleep through the coming recession and return in time to impose fresh taxes and regulations.

Meanwhile, the border-straddling tunnel is a convenient way for them to pop across to Switzerland and check their bank accounts.

Judge Mental rules on religion

Yet another group of young men has been found guilty of conspiring to commit mass murder for political-religious reasons.

Britain has extended tolerance to religious dissenters for over three centuries - e.g. the Toleration Act of 1689 - but always on terms designed to maintain peace and national sovereignty.

Perhaps the regulation of religion needs to be brought up-to-date, and maybe the model should be changed. Everything is commoditised these days, so why not treat emotional investments in chosen philosophies like financial ones?

For example, after a rant against the infidel and a call to slaughter him, for which the promised return is an eternity of brilliant food and sex in Heaven, firebrand preachers should add, "Regulatory warning: souls can go down as well as up."

Foreign powers calling the tune on the US economy

... foreign central banks now are in a position where they can influence, through their asset allocation, the allocation of credit inside the US economy.

... says Brad Setser.