Live picture (updated every 30 sec)According to GATA, they ain't got it no more, nor they don't want it back, neither. (htp: Jesse)
What happens when everyone knows?
Wednesday, March 04, 2009
Webcam: gold vault at the Federal Reserve
Live picture (updated every 30 sec)According to GATA, they ain't got it no more, nor they don't want it back, neither. (htp: Jesse)
Tuesday, March 03, 2009
Do buy, Dubai
P.S. Did you think I was joking about Dubai as a world leading financial centre? Where the footballers lead...
It was said years ago that 90% of £20 notes in London bore traces of cocaine - because footballers have 90% of the notes. Sadly for some footballers and Old Etonians, possession of cocaine in the UAE is punishable by death. Nevertheless, lovely weather and no crowded, litter-strewn South East England commuter trains.
Could you stand Paradise? Or are you hooked on that museum of past industrial glories, the UK?
It was said years ago that 90% of £20 notes in London bore traces of cocaine - because footballers have 90% of the notes. Sadly for some footballers and Old Etonians, possession of cocaine in the UAE is punishable by death. Nevertheless, lovely weather and no crowded, litter-strewn South East England commuter trains.
Could you stand Paradise? Or are you hooked on that museum of past industrial glories, the UK?
If GE falls...
Karl Denninger notes that there is heavy betting that GE, the world's tenth largest company, will fail by summer.
Engineering Analysis
Positive feedback is a term used by scientists and engineers to describe a feedback loop process where the output of a system drives increased input to the system.
In human terms, one such example is drug addiction, where increased use leads to increased desire for the drug.
A more interesting example can be seen in the 'sudden acceleration' lawsuits against Audi some years ago. Once the cars were examined, it was determined that the drivers had been pushing on the accelerator pedal, rather than the brake. Because they were convinced that they were right, they pushed harder as they gained speed. In some cases, the drivers injured their own legs from the pressure, and bent the pedal.
The past 30 years have seen such a loop in the housing and financial sector. As house prices went up, they released fiat cash into the system, driving prices even higher. This, of course, led to the 'brilliant' idea of packaging mortgages. At some point, the profit margin became so huge that no 'real' industry could compete, which pulled even more investment capital into housing derivatives, and further crippled manufacturing.
Without a governor in place, by way of careful regulation, these crashes are inevitable. The capacity of the internet in moving money only sped things up a little.
In human terms, one such example is drug addiction, where increased use leads to increased desire for the drug.
A more interesting example can be seen in the 'sudden acceleration' lawsuits against Audi some years ago. Once the cars were examined, it was determined that the drivers had been pushing on the accelerator pedal, rather than the brake. Because they were convinced that they were right, they pushed harder as they gained speed. In some cases, the drivers injured their own legs from the pressure, and bent the pedal.
The past 30 years have seen such a loop in the housing and financial sector. As house prices went up, they released fiat cash into the system, driving prices even higher. This, of course, led to the 'brilliant' idea of packaging mortgages. At some point, the profit margin became so huge that no 'real' industry could compete, which pulled even more investment capital into housing derivatives, and further crippled manufacturing.
Without a governor in place, by way of careful regulation, these crashes are inevitable. The capacity of the internet in moving money only sped things up a little.
Signs of cash hoarding?
The Mogambo Guru relays a statistic: the stock of US notes and coins has increased by $77 billion in 12 months.Some of this may reflect a switch away from use of credit cards and accounts; but I wonder how much is disappearing into newly-bought floor safes and Heinz bean tin hideaways?
UK Government adviser loses its mind
“Only high-quality professional services, financial services and the City of London have any real value and they should be supported at all costs. The rest of the country can be turned over to tourism.”
Coming up next: new financial centre in Dubai forces closure of City of London.
This... or this?
Monday, March 02, 2009
Dow 6,000 this year, FTSE 3,000 - Nadeem Walayat
Sez he, here. I'm still guessing Dow (inflation-adjusted) 4,000 sometime in the next few years, and it seems Jim Kunstler agrees ("I myself called for Dow 4000 two years ago") In which case, maybe FTSE 2,000 at some point, too.
Sunday, March 01, 2009
Harriet Harman declares the end of the rule of law in the UK
Discussing the pension rights of ex-RBS boss Sir Fred Goodwin, Harriet Harman, Leader of the House of Commons, said today:
"The Prime Minister has said it is not acceptable and therefore it will not be accepted. It might be enforceable in a court of law this contract but it's not enforceable in the court of public opinion and that's where the Government steps in."
I propose a plebiscite to dispossess Harriet Harman of all her worldly goods, and exile her permanently from this country. A "yes" vote will have no legal force, but clearly that does not matter, provided it is supported by public opinion.
"The Prime Minister has said it is not acceptable and therefore it will not be accepted. It might be enforceable in a court of law this contract but it's not enforceable in the court of public opinion and that's where the Government steps in."
I propose a plebiscite to dispossess Harriet Harman of all her worldly goods, and exile her permanently from this country. A "yes" vote will have no legal force, but clearly that does not matter, provided it is supported by public opinion.
Anthony Charles Lynton Blair summed up
We spend a long time gathering and shaping our impressions, constructing the two halves of the arch, then the keystone is lowered into place:
September 13, 2001
To London on the 18.47. David Miliband was on the train. He is in a similar situation to the one I was in when I was first selected - enemies occupy every office in his constituency party, although in his case it is nothing personal.
He says The Man - who was once in a similar situation in Sedgefield - advised him 'to go around smiling at everyone and get other people to shoot them'. Advice that The Man seems to have applied throughout his career.
I have often thought that if you want to judge alpha types, especially in public life, it's no use meeting them, since they have spent a lifetime perfecting their persona. You need to look at the people they choose to surround them, and then the agenda will become clear.
"Man smile; man nice man."
On the Endarkenment
Since Sackerson is contributing these very erudite pieces, I have a couple of quotes of my own. I believe that ideas herein complement those that he included from Philip Pullman.
From Carl Sagan's "Demon-Haunted World":
We've arranged a global civilization in which most crucial elements - transportation, communications, and all other industries; agriculture, medicine, education, entertainment, and protecting the environment...profoundly depend on science and technology. We have also arranged things so that no one understands science and technology. This is a prescription for disaster. We might get away with it for a while, but sooner or later this combustible mixture of ignorance and power is going to blow up in our faces.
And another:
I worry that, especially as the Millenium nears, pseudoscience and superstition will seem year by year more tempting, the siren song of unreason more sonorous and attractive. Where have we heard it before?
Whenever our ethnic or national prejudices are aroused, in times of scarcity, during challenges to national self-esteem or nerve, when we agonize about our diminished cosmic place and purpose, or when fanaticism is bubbling up around us - then, habits of thought familiar from ages past reach for the controls.
The candle flame gutters. Its little pool of light trembles. Darkness gathers. The demons begin to stir.
From Carl Sagan's "Demon-Haunted World":
We've arranged a global civilization in which most crucial elements - transportation, communications, and all other industries; agriculture, medicine, education, entertainment, and protecting the environment...profoundly depend on science and technology. We have also arranged things so that no one understands science and technology. This is a prescription for disaster. We might get away with it for a while, but sooner or later this combustible mixture of ignorance and power is going to blow up in our faces.
And another:
I worry that, especially as the Millenium nears, pseudoscience and superstition will seem year by year more tempting, the siren song of unreason more sonorous and attractive. Where have we heard it before?
Whenever our ethnic or national prejudices are aroused, in times of scarcity, during challenges to national self-esteem or nerve, when we agonize about our diminished cosmic place and purpose, or when fanaticism is bubbling up around us - then, habits of thought familiar from ages past reach for the controls.
The candle flame gutters. Its little pool of light trembles. Darkness gathers. The demons begin to stir.
Saturday, February 28, 2009
The One Percenters
The "real Dow", i.e. nominal value divided by the CPI inflation index, was about 14.6 in October 1928 and is now at c. 33.5.This means that, over the past 80 years and in real terms, the Dow has grown by a tiny shade over 1% per annum, compound.
True, there have also been dividends; but the "get rich quick on the market" idea seems to be a form of riverboat gambling, winners taking from losers.
The biggest winners being the fund managers - so very few of whom even manage to beat the index, long-term, in their own sectors.
Perspective
(Values at 01 Oct 1928 = 1) "There must be some way out of here,"
Said the joker to the thief.
"There's too much confusion here,
I can't get no relief.
Businessmen they drink my wine
Plowmen dig my earth
None of them know along the line
What any of this is worth."
"No reason to get excited,"
The thief he kindly spoke.
"There are many here among us
Who think that life is but a joke...
- Bob Dylan
Does the tree of liberty need watering?
How Britain became a police state
Here is an extract (presentation altered to make visually clearer the catalogue of the State's crimes against liberty) from Philip Pullman's recent article on freedom in the UK - strangely, suspiciously, perhaps tragically and symptomatically, censored from the Internet by The Times:
It is inconceivable to me that a waking nation in the full consciousness of its freedom would have allowed its government to pass such laws as:
the Protection from Harassment Act (1997)
the Crime and Disorder Act (1998)
the Regulation of Investigatory Powers Act (2000)
the Terrorism Act (2000)
the Criminal Justice and Police Act (2001)
the Anti-Terrorism, Crime and Security Act (2001)
the Regulation of Investigatory Powers Extension Act (2002)
the Criminal Justice Act (2003)
the Extradition Act (2003)
the Anti-Social Behaviour Act (2003)
the Domestic Violence, Crime and Victims Act (2004)
the Civil Contingencies Act (2004)
the Prevention of Terrorism Act (2005)
the Inquiries Act (2005)
the Serious Organised Crime and Police Act (2005)
... not to mention a host of pending legislation such as the Identity Cards Bill, the Coroners and Justice Bill, and the Legislative and Regulatory Reform Bill.
For the full article, saved from the memory hole by alert patriots and lovers of liberty, please see here.
By what damning irony is it, that The Times itself should have published this noble extract on June 10, 1788:
THE PROGRESS OF LIBERTY IN ENGLAND
From Mr Pratt’s Poem on Humanity
MARK by what gradual steps Britannia rose;
As the small acorn to a forest grows;
By what variety of adverse fate,
Terrors of war, and anarchies of state,
What direful griefs by foreign fury bred,
Rivers of blood, and mountains of the dead;
She passed advent’rous, e’er her wrongs were o’er,
Complete her triumphs, and confirm’d her pow’r.
When but to look, was treason to the State
And the King’s nod, like thund’ring Jove’s, was fate.
[...]
Thus, in the earliest hour of Britain’s morn,
A Briton’s hate of tyranny was born!
Abhorrence sacred, to repel the hand,
That dares to wrong the charter of the land:
Our sturdy ancestors, tho’ oft subdu’d,
But breach’d from war, and strait the charge renew’d;
Now dres’d as victims, now as pris’ners bound,
The blood of heroes deluging the ground.
In each extreme our brave fore-fathers prove,
Their native courage and their country’s love;
Fierce for hereditary claims they fight,
And ev’n till death maintain a Briton’s right.
Hence rose our liberties, a common cause
To these succeed, their best support, the laws;
Bonds, conflicts, murders, massacres ensu’d,
And many a Saxon, Danish sword embrued
In English blood, and many a Monarch’s life,
And many a Monk’s, submitted to the strife,
E’er Laws were form’d, as now sublime they stand,
The shield, the spear, and buckler of the land.
No wonder they have all but abolished the teaching of English history and literature, as we once knew it.
Here is an extract (presentation altered to make visually clearer the catalogue of the State's crimes against liberty) from Philip Pullman's recent article on freedom in the UK - strangely, suspiciously, perhaps tragically and symptomatically, censored from the Internet by The Times:
It is inconceivable to me that a waking nation in the full consciousness of its freedom would have allowed its government to pass such laws as:
the Protection from Harassment Act (1997)
the Crime and Disorder Act (1998)
the Regulation of Investigatory Powers Act (2000)
the Terrorism Act (2000)
the Criminal Justice and Police Act (2001)
the Anti-Terrorism, Crime and Security Act (2001)
the Regulation of Investigatory Powers Extension Act (2002)
the Criminal Justice Act (2003)
the Extradition Act (2003)
the Anti-Social Behaviour Act (2003)
the Domestic Violence, Crime and Victims Act (2004)
the Civil Contingencies Act (2004)
the Prevention of Terrorism Act (2005)
the Inquiries Act (2005)
the Serious Organised Crime and Police Act (2005)
... not to mention a host of pending legislation such as the Identity Cards Bill, the Coroners and Justice Bill, and the Legislative and Regulatory Reform Bill.
For the full article, saved from the memory hole by alert patriots and lovers of liberty, please see here.
By what damning irony is it, that The Times itself should have published this noble extract on June 10, 1788:
THE PROGRESS OF LIBERTY IN ENGLAND
From Mr Pratt’s Poem on Humanity
MARK by what gradual steps Britannia rose;
As the small acorn to a forest grows;
By what variety of adverse fate,
Terrors of war, and anarchies of state,
What direful griefs by foreign fury bred,
Rivers of blood, and mountains of the dead;
She passed advent’rous, e’er her wrongs were o’er,
Complete her triumphs, and confirm’d her pow’r.
When but to look, was treason to the State
And the King’s nod, like thund’ring Jove’s, was fate.
[...]
Thus, in the earliest hour of Britain’s morn,
A Briton’s hate of tyranny was born!
Abhorrence sacred, to repel the hand,
That dares to wrong the charter of the land:
Our sturdy ancestors, tho’ oft subdu’d,
But breach’d from war, and strait the charge renew’d;
Now dres’d as victims, now as pris’ners bound,
The blood of heroes deluging the ground.
In each extreme our brave fore-fathers prove,
Their native courage and their country’s love;
Fierce for hereditary claims they fight,
And ev’n till death maintain a Briton’s right.
Hence rose our liberties, a common cause
To these succeed, their best support, the laws;
Bonds, conflicts, murders, massacres ensu’d,
And many a Saxon, Danish sword embrued
In English blood, and many a Monarch’s life,
And many a Monk’s, submitted to the strife,
E’er Laws were form’d, as now sublime they stand,
The shield, the spear, and buckler of the land.
No wonder they have all but abolished the teaching of English history and literature, as we once knew it.
"Bang on target!"Friday, February 27, 2009
The Next To Go?
Consumerism, if it doesn't define the US, certainly describes it. The marketing that it spawns drives our political campaigns and pays for most sports, newspapers, magazines, radio, television and internet sites.
Advertisements try to convince us to buy products and services that we don't need, or undo brand loyalty to increase market share.
I am fairly sure that, as disposable income dries up, the dirty secret at the heart of the marketing sector will kill or cripple it.
The secret: It probably doesn't work!
I have been reading some mathematical papers on marketing. It is well-known that new marketing campaigns lead to increased sales, but only for a while. When this data is discussed, two factors are not considered:
1. The cost of the campaign itself is not factored into the increased sales.
2. There is no attempt made to check how much of the increased business is simply consumers buying earlier than they would have otherwise.
Since the manufacturers relies on marketing firms for their research, and the latter have a vested interest in the results, it is no surprise that these slip under the radar.
In other words, the sector is a huge bubble which, unlike investment or housing, has absolutely nothing backing it up!
Advertisements try to convince us to buy products and services that we don't need, or undo brand loyalty to increase market share.
I am fairly sure that, as disposable income dries up, the dirty secret at the heart of the marketing sector will kill or cripple it.
The secret: It probably doesn't work!
I have been reading some mathematical papers on marketing. It is well-known that new marketing campaigns lead to increased sales, but only for a while. When this data is discussed, two factors are not considered:
1. The cost of the campaign itself is not factored into the increased sales.
2. There is no attempt made to check how much of the increased business is simply consumers buying earlier than they would have otherwise.
Since the manufacturers relies on marketing firms for their research, and the latter have a vested interest in the results, it is no surprise that these slip under the radar.
In other words, the sector is a huge bubble which, unlike investment or housing, has absolutely nothing backing it up!
Niall Ferguson's rivers-of-blood prophecy
Read Niall Ferguson as edited by Jesse - he talks straight.
About the only bit I don't quite agree with, is the ending - the note of hope is blasted too early in this battle. We are not going to stay in 1995, I'm quite confident about that; and one of the causes/consequences will be capital flight from/strike in America.
E.g.: "China, concerned about their U.S. reserves being devalued by U.S. monetary policy, is exchanging their holdings for long-term oil contracts from countries all over the world, locking in oil prices at exceptional levels, like the $11.40/barrel estimate for the Russian deal."
The elite, and foreign investors, will take care of what's left of their billions. Wealth will flee from inflation and taxation. Somewhere around the world will appear a new Liechtenstein.
Maybe in the calmer end of the Arab Street. Let's see American tax authorities try to lay down the law there.
About the only bit I don't quite agree with, is the ending - the note of hope is blasted too early in this battle. We are not going to stay in 1995, I'm quite confident about that; and one of the causes/consequences will be capital flight from/strike in America.
E.g.: "China, concerned about their U.S. reserves being devalued by U.S. monetary policy, is exchanging their holdings for long-term oil contracts from countries all over the world, locking in oil prices at exceptional levels, like the $11.40/barrel estimate for the Russian deal."
The elite, and foreign investors, will take care of what's left of their billions. Wealth will flee from inflation and taxation. Somewhere around the world will appear a new Liechtenstein.
Maybe in the calmer end of the Arab Street. Let's see American tax authorities try to lay down the law there.
Thursday, February 26, 2009
Still a bear, for now
A letter to the Spectator (unpublished), posted here on 2nd November 2008. We seem to be edging towards the "unsurprising", though the market may give a leap of denial before then:
Sir:
Your leader (“Riders On The Storm”, 1 November) suggests that current investor sentiment is “excessively negative”. That depends upon one’s historical perspective, in both directions.
A reversion to the mean (over the last generation) for UK house prices would be some 3.5 times household income, which on 2007 figures would imply average valuations around £120,000. Turning to shares, the progress of the Dow over the past 80 years (adjusted for consumer prices) indicates that a return to 6,000 points should be unsurprising, and a low of 4,000 not impossible.
But in addition to the business cycle and recurrent bubbles, there are deep linear changes at work. While maintaining the Western consumer in his fantasy of idle wealth, the East has been building up its human and physical industrial resources. We are focussing on the present recession, but not what the world will look like afterwards. When Asia has sufficiently developed its domestic demand, it will lose its enthusiasm for US Treasury debt, and the credit markets will tear at our economies with higher interest rates. Already, the search is well under way for an alternative to the US dollar as a world trading currency; and foreign investors, sovereign wealth funds and oil-rich governments are building up holdings in our bellwether businesses (e.g. Barclays Bank), thus converting imbalance into equity and exporting our future dividends.
Besides, the Dow and FTSE companies derive an increasing proportion of their income from abroad, so stock indices no longer reflect national prosperity. Real wages have stalled, and seem set to decline against a background of rising inflation and global competition; this, plus an interest rate correction, might strengthen the downward trend for house prices.
In short, successive governments have failed to repair our economic structure, and bear market rallies notwithstanding, I think we must eventually recalibrate our measures of normality.
Sir:
Your leader (“Riders On The Storm”, 1 November) suggests that current investor sentiment is “excessively negative”. That depends upon one’s historical perspective, in both directions.
A reversion to the mean (over the last generation) for UK house prices would be some 3.5 times household income, which on 2007 figures would imply average valuations around £120,000. Turning to shares, the progress of the Dow over the past 80 years (adjusted for consumer prices) indicates that a return to 6,000 points should be unsurprising, and a low of 4,000 not impossible.
But in addition to the business cycle and recurrent bubbles, there are deep linear changes at work. While maintaining the Western consumer in his fantasy of idle wealth, the East has been building up its human and physical industrial resources. We are focussing on the present recession, but not what the world will look like afterwards. When Asia has sufficiently developed its domestic demand, it will lose its enthusiasm for US Treasury debt, and the credit markets will tear at our economies with higher interest rates. Already, the search is well under way for an alternative to the US dollar as a world trading currency; and foreign investors, sovereign wealth funds and oil-rich governments are building up holdings in our bellwether businesses (e.g. Barclays Bank), thus converting imbalance into equity and exporting our future dividends.
Besides, the Dow and FTSE companies derive an increasing proportion of their income from abroad, so stock indices no longer reflect national prosperity. Real wages have stalled, and seem set to decline against a background of rising inflation and global competition; this, plus an interest rate correction, might strengthen the downward trend for house prices.
In short, successive governments have failed to repair our economic structure, and bear market rallies notwithstanding, I think we must eventually recalibrate our measures of normality.
Darwin's Bicentennial
The 'balance of Nature' is a misleading phrase. It is not a Disney-esque harmony, but the sweaty struggle of wrestlers, with efficiency of predation competing with that of procreation. A small change in environment, or the introduction of a new disease or species can lead to rapid extinction.
If an ecological niche opens, or gains resources, there is an explosion of varieties. When resources are abundant and predators scarce, even the weaker ones can thrive for a while. This explains the fat, waddling dodo.
The Industrial Revolution, and the Agricultural one that came before it, were the product of a few minds, and the sweat of many. They drove the move to more cities, which meant larger companies and bigger government. This widened the niche for a parasitic class of people who produce nothing, but are sometimes necessary. We call them consultants, middle managers, investment specialists (sorry Sackerson!), marketing gurus, guidance and life coaches, and the like.
With no predators, and a virtually infinite supply of resources (they print the money!), this class grew like a cancer. We have now reached the point that it consumes most of what we produce, and the system is shutting down. Since the typical politician or bureaucrat is of this class, the obvious answer is to give them more. Hence the Bush stimulus package.
I could be wrong, but I think that we are simply postponing the inevitable.
If an ecological niche opens, or gains resources, there is an explosion of varieties. When resources are abundant and predators scarce, even the weaker ones can thrive for a while. This explains the fat, waddling dodo.
The Industrial Revolution, and the Agricultural one that came before it, were the product of a few minds, and the sweat of many. They drove the move to more cities, which meant larger companies and bigger government. This widened the niche for a parasitic class of people who produce nothing, but are sometimes necessary. We call them consultants, middle managers, investment specialists (sorry Sackerson!), marketing gurus, guidance and life coaches, and the like.
With no predators, and a virtually infinite supply of resources (they print the money!), this class grew like a cancer. We have now reached the point that it consumes most of what we produce, and the system is shutting down. Since the typical politician or bureaucrat is of this class, the obvious answer is to give them more. Hence the Bush stimulus package.
I could be wrong, but I think that we are simply postponing the inevitable.
Wednesday, February 25, 2009
Dow update
Adjusted for CPI inflation, the Dow is now back to where it was in December 1995.
This is still above the peak of the previous long cycle, ending in January 1966 - and still over 4 times higher than the low of July 1982. We only think of it as catastrophic because we got used to more recent, wildly inflated valuations.
I'm still hoping that the end position will be no worse than 4,000 points - a drop of 45% from today's close.
This is still above the peak of the previous long cycle, ending in January 1966 - and still over 4 times higher than the low of July 1982. We only think of it as catastrophic because we got used to more recent, wildly inflated valuations.
I'm still hoping that the end position will be no worse than 4,000 points - a drop of 45% from today's close.
Theft by inflation has begun already
The UK Debt Management Office website shows that a UK Treasury bond offering 5% annual interest is, because of its current traded price, actually yielding 2.522793%.
But the risk of default, almost as high as Italy's government debt and far higher than even the USA's, is (as Jesse quotes) currently priced at 1.63%. (The market currently prices the risk of USA default at 1%.)
So after insuring for risk, 5-year UK sovereign debt earns you less than 0.893%.
Inflation, as measured by the Consumer Price Index*, now runs at 3%. In other words, a "safe" government bond loses you more than 2% a year.
And that's before inflation really gets going.
_____________________________________
*The Retail Price Index is a different measure of inflation, which takes into account mortgage costs. So after recent savage cuts in the bank rate, currently RPI should be negative. But wait until the private capital credit strike leads to higher interest rates, and judge.
But the risk of default, almost as high as Italy's government debt and far higher than even the USA's, is (as Jesse quotes) currently priced at 1.63%. (The market currently prices the risk of USA default at 1%.)
So after insuring for risk, 5-year UK sovereign debt earns you less than 0.893%.
Inflation, as measured by the Consumer Price Index*, now runs at 3%. In other words, a "safe" government bond loses you more than 2% a year.
And that's before inflation really gets going.
_____________________________________
*The Retail Price Index is a different measure of inflation, which takes into account mortgage costs. So after recent savage cuts in the bank rate, currently RPI should be negative. But wait until the private capital credit strike leads to higher interest rates, and judge.
How long will the bear market last?
Jesse quotes this comparison of the current bear market with three previous ones, mixing stats for the Dow and the S&P 500:
I'd suggest we should look at when the recent bubble really burst - end 1999, then desperately disguised by monetary inflation from 2002/03 onwards; if that's right, we have maybe another 6 years to go through.
But taking similar periods for the Dow only, adjusting for CPI inflation, and adding the long period from 1966 to 1982, we get this:
I'd suggest we should look at when the recent bubble really burst - end 1999, then desperately disguised by monetary inflation from 2002/03 onwards; if that's right, we have maybe another 6 years to go through. The shapes of these two lines do sort of rhyme, don't they? And if so, looking at where the end of the red line is, maybe a bear market rally is now due, like the c. '75 - '76 mini-recovery.
End point in real terms this time, my guess, is the equivalent of 4,000 points today. However, there are features unique to the present situation, especially the size of debts, the loss of much of the West's manufacturing base, and the interconnectedness of modern world markets and economies.
Tuesday, February 24, 2009
Cash (equivalent) and gold - iTulip
Our primary concern at this stage is no longer our readers' portfolios but their ability to weather a US dollar crisis if one erupts. In response, we are increasing our gold allocation to 30% and moving all Treasury holdings to the very shortest maturities, to three month Treasury bills, until we see indications that conditions are stabilizing. We encourage you to engage with the community to actively discuss strategies that are appropriate for you.
The rest is here.
The rest is here.
Sunday, February 22, 2009
Good luck, right action
Reportedly, George Soros doesn't see the bottom of the market yet. We judge by recent experience and think ourselves hard done by, yet look at the following chart, which takes the Dow and adjusts it for inflation:
What they're really talking about is inflation. Debt, which is fixed in nominal terms, becomes cruelly heavier as the assets pledged against it become worth less and less. The pain will get so bad that the government will crack, as it always does, and debauch the currency. Holding cash just now is great, for those lucky enough to have it; but if Robin Hood can't confiscate it through taxation, he'll bleed it white by printing lots more fiat currency for himself (and the people who keep voting for him), so sucking real value out of your money. If you can't face investing, be prepared to spend like a sailor on shore leave when inflation hits town.
My clients generally aren't traders. In the same interview cited above, Faber said:
Recently I bought some U.S. stocks for the first time in a long time. If you buy Intel , Cisco , Yahoo! , Oracle and Microsoft , you will do much better in the next 10 years than you would with Treasuries. These stocks will double and even triple -- before going to zero.
That's not for my clients - they like the idea of the double and triple (who doesn't?), but not enough to risk the "going to zero".
That said, investment - including in commodities - is going to be part of their fight back against the attempt to take away everything they've saved. Inflationary periods do sap the real value of shares, they hit cash even worse. Look at the position of the man who invested in the (dollar-denominated) Dow from the start of 2008 up till last Friday's seeming debacle, compared with the poor chap who "played safe" and held good old British pounds:
All that has happened is that the illusory gains of the last 12 years, more than accounted for by extra debt taken on in that time, have now unwound. Yet we're still nowhere near where we were in 1987, which (if you were around then) we thought of as an exciting time for investment. To get back to that peaklet in real terms, the Dow would have to drop below 5,000 points.
But to return to the low point of the recession that preceded it - around July 1982 - the Dow would have to break down below 1,800. Even then, that miserable score is a big advance on the low of 50 years before that (July 1932: CPI-adjusted Dow would equate to c. 833 points).
Karl Denninger has said recently that he sees 2,000 points as a possibility; I've suggested a low of c. 4,000, because in these 40-year cycles, each peak and each low has been higher than in the previous cycle.
However, seeing how unbelievably high the Dow went in recent years (way above anything that could have been extrapolated from the highs of 1929 and 1965!), maybe a correspondingly low low is not out of the question.
So why am I planning to set up a new brokerage on my own? Why don't I send a copy of this blog to all my clients, together with news of my retirement from the industry and a valedictory "Good luck, because you're going to need it"? (Actually, I have repeatedly advertised this blog to clients; I only wish the viewing stats could show me that they all read it.)
The Mogambo Guru has taken to signing off his rants with a sarcastic "Wheee! This investing stuff is easy!" - he recommends gold, silver and oil. Over on Financial Sense a couple of days ago, Martin Goldberg opines, "The important question for most investors is whether to be in cash or gold" (cash for now, he thinks). Marc Faber has long been saying that we are entering a long bull market in commodities, and has just said he thinks an ounce of gold will one day be worth more than the Dow.What they're really talking about is inflation. Debt, which is fixed in nominal terms, becomes cruelly heavier as the assets pledged against it become worth less and less. The pain will get so bad that the government will crack, as it always does, and debauch the currency. Holding cash just now is great, for those lucky enough to have it; but if Robin Hood can't confiscate it through taxation, he'll bleed it white by printing lots more fiat currency for himself (and the people who keep voting for him), so sucking real value out of your money. If you can't face investing, be prepared to spend like a sailor on shore leave when inflation hits town.
My clients generally aren't traders. In the same interview cited above, Faber said:
Recently I bought some U.S. stocks for the first time in a long time. If you buy Intel , Cisco , Yahoo! , Oracle and Microsoft , you will do much better in the next 10 years than you would with Treasuries. These stocks will double and even triple -- before going to zero.
That's not for my clients - they like the idea of the double and triple (who doesn't?), but not enough to risk the "going to zero".
That said, investment - including in commodities - is going to be part of their fight back against the attempt to take away everything they've saved. Inflationary periods do sap the real value of shares, they hit cash even worse. Look at the position of the man who invested in the (dollar-denominated) Dow from the start of 2008 up till last Friday's seeming debacle, compared with the poor chap who "played safe" and held good old British pounds:
The picture will change when the dollar dives, of course; though maybe the pound will dive along with it. To hold what you have, you'll have to keep on your feet, balancing the relative merits of currencies and asset classes. For me and most of my clients, it won't be about getting rich; it'll be about not getting robbed.
I'd have been happier with a world where money kept its value, and I'm not alone. The blogosphere is now crowded with people who have their own schemes for a fair and just economic world. But none of these ideal arrangements will enter into reality. There's too much to be made out of destroying it, by a handful of traders, and the politicians - and the bankers who will eventually employ the politicians when they leave office. We must take, not the right action, but the appropriate action.
Good luck, because you're going to need it.
Tuesday, February 17, 2009
Sunday, February 15, 2009
Can we do it?
We live in an era in which every one of us needs massive amounts of technology just to survive, and lots more to stay as comfortable as we are. Yet, paradoxically, there is a great deal of denigration in the UK and US for mathematics, science and engineering and the people who have skills in those areas, which discourages many from those fields of study. It is to the point where there are sometimes two jobs per graduate.
Can we make the cultural shift to nurture and reward those people, or are we doomed to drop backwards?
Yet another conversation with a wealthy parent (she pushes papers, he is a corporate lawyer) does not give me much hope. All the ones that I have talked to assume that we need such specialists, who will be someone else's children, but their own will go to college, graduate in non-technical fields, and then have successful high-paying careers. I cannot make these parents understand that we have run out of the wealth to get the technology from elsewhere, so we have to make it here. Without a manufacturing base, those nice parasitic managerial and service jobs just won't exist.
Or perhaps I'm wrong, and should have gone into accounting, instead of mathematics teaching and engineering research.
Can we make the cultural shift to nurture and reward those people, or are we doomed to drop backwards?
Yet another conversation with a wealthy parent (she pushes papers, he is a corporate lawyer) does not give me much hope. All the ones that I have talked to assume that we need such specialists, who will be someone else's children, but their own will go to college, graduate in non-technical fields, and then have successful high-paying careers. I cannot make these parents understand that we have run out of the wealth to get the technology from elsewhere, so we have to make it here. Without a manufacturing base, those nice parasitic managerial and service jobs just won't exist.
Or perhaps I'm wrong, and should have gone into accounting, instead of mathematics teaching and engineering research.
Saturday, February 14, 2009
Where is Paul Moore's bonus?
Paul Moore, former head of risk management at HBOS (which, by the way, has just cratered its new owner, Lloyds Bank), was sacked in 2005 by Sir James Crosby, allegedly for warning about the bank's excessive lending.
Whistleblowers generally suffer for speaking out. Under the Public Interest Disclosure Act 1998, there is no limit for compensation paid by industrial tribunals in whistleblower cases; but I should very much like to know what is the average paid out under such circumstances, and the most that has ever been paid.
Mr Moore has received "substantial damages" but was also gagged, so I regard whatever he was paid, as merely a recompense for his silence. I doubt whether the damages come anywhere close to the "compensation" paid to some greedy, corrupt and incompetent senior executives at top banking and financial firms; and I think it should.
The OFT has introduced a scheme to award up to £100k for cartel-breaking snitches. Big, fat, hairy deal: five bankers spent £44,000 on wine alone on a single evening in 2001.
Maybe demobureaucracy doesn't work; maybe we should go back to old-fashioned kingship. In Shakespeare's Henry V, the King goes about his camp in disguise before the crucial battle:
KING HENRY V: I myself heard the king say he would not be ransomed.
WILLIAMS: Ay, he said so, to make us fight cheerfully: but when our throats are cut, he may be ransomed, and we ne'er the wiser.
KING HENRY V: If I live to see it, I will never trust his word after.
WILLIAMS: You pay him then. That's a perilous shot out of an elder-gun, that a poor and private displeasure can do against a monarch! you may as well go about to turn the sun to ice with fanning in his face with a peacock's feather.
After the battle, the King calls a trembling Williams out of the ranks and reveals himself as the anonymous interlocutor of the night before; but instead of dealing with his frankly-spoken subject as one might expect of a ruthless Plantagenet monarch, he returns Williams' challenge-glove, filled with gold coin from the royal treasury.
And how might King Solomon have adjudicated a dispute between a CEO and his erstwhile employee? Is it not possible that, in some cases, he would have taken years of earnings from one and passed it directly to the other? Where are the mega-bonuses for those who risk their careers to defend their firm, its shareholders and the general public?
Whistleblowers generally suffer for speaking out. Under the Public Interest Disclosure Act 1998, there is no limit for compensation paid by industrial tribunals in whistleblower cases; but I should very much like to know what is the average paid out under such circumstances, and the most that has ever been paid.
Mr Moore has received "substantial damages" but was also gagged, so I regard whatever he was paid, as merely a recompense for his silence. I doubt whether the damages come anywhere close to the "compensation" paid to some greedy, corrupt and incompetent senior executives at top banking and financial firms; and I think it should.
The OFT has introduced a scheme to award up to £100k for cartel-breaking snitches. Big, fat, hairy deal: five bankers spent £44,000 on wine alone on a single evening in 2001.
Maybe demobureaucracy doesn't work; maybe we should go back to old-fashioned kingship. In Shakespeare's Henry V, the King goes about his camp in disguise before the crucial battle:
KING HENRY V: I myself heard the king say he would not be ransomed.
WILLIAMS: Ay, he said so, to make us fight cheerfully: but when our throats are cut, he may be ransomed, and we ne'er the wiser.
KING HENRY V: If I live to see it, I will never trust his word after.
WILLIAMS: You pay him then. That's a perilous shot out of an elder-gun, that a poor and private displeasure can do against a monarch! you may as well go about to turn the sun to ice with fanning in his face with a peacock's feather.
After the battle, the King calls a trembling Williams out of the ranks and reveals himself as the anonymous interlocutor of the night before; but instead of dealing with his frankly-spoken subject as one might expect of a ruthless Plantagenet monarch, he returns Williams' challenge-glove, filled with gold coin from the royal treasury.
And how might King Solomon have adjudicated a dispute between a CEO and his erstwhile employee? Is it not possible that, in some cases, he would have taken years of earnings from one and passed it directly to the other? Where are the mega-bonuses for those who risk their careers to defend their firm, its shareholders and the general public?
Should we leave the EU?
Is this a fair picture of our relationship with the Far East and Europe? If so, what happens if we disconnect from "ever-closer union?" Wouldn't they just throw away the straw and drink straight out of the glass?
Friday, February 13, 2009
Confusion
America gets het up about a mother of 14, but feeds over 160 million cats and dogs daily. I must say, Nadya Suleman's website is a work of art, though.
Let them eat dirt
It begins, but so much sooner than I expected.
A panicky middle class moves from worrying about its bank account, to railing against those richer and stronger than itself, to turning on those poorer or weaker than itself. Then it seeks to connect the two:
"However you slice it this is ridiculous. FOURTEEN children as a single parent? Assuming she has medical "insurance" from somewhere, exactly how does a desire to have as many kids as humanly possible entitle her to this sort of abuse of that insurance? If she doesn't have insurance, who's footing the bill? And how do you possibly go out and earn a living while raising fourteen kids?
This is what the nation is up against.
This is why California is broke."
"...there are two Americas. A poor America on socialism and a wealthy America on capitalism...
A vast sea of perhaps well intentioned government programs, all initially set into motion in the 1960's, that were going to lift the nation's poor out of poverty.
A benevolent Uncle Sam welcomed mostly poor black Americans onto the government plantation. Those who accepted the invitation switched mindsets from "How do I take care of myself?" to "What do I have to do to stay on the plantation?""
"Because society no longer believes that it's appropriate to let these children die because of the gross irresponsibility of the mother, the only humane way to prevent this sort of stuff from happening again is to require sterilization of anyone who would receive food stamps or other sorts of welfare. "
Long ago, bailouts were unheard of; failure meant starvation, perhaps death. Consider the caveman: Ug's tribal chief couldn't afford to say, "It OK Ug no kill deer this week. It not Ug's fault. Tribe will bail out Ug."
If he wants his tribe to stick around, the chief must say, "Ug no kill deer: Ug family starve."
(For a moment, one has a vision: Ug family no starve; Ug family kill, eat Virginian economics professor.)
But the tendency... We must punish the wicked rich, correct the feckless poor, do something about the swelling ranks of the disabled, and then we'll all be jolly, prosperous and middle class. Without the bad, sad and mad, everyone would be happy. Patriotic citizens must form a united front... The communists are a deadly threat, and must be firmly suppressed... It's for the working man and the national good that we must for a while band together, almost as though we were socialists...
The clouds were boiling red and yellow over the Alps. Standing on the balcony of the Leader's retreat, the party gazed awestruck. A woman said to Him, "Das bedeutet blut, blut, und mehr blut." The Leader paled, trembled violently and said, "Wenn das sein musss, dann lass es sein."
So proud and lofty is some sort of sin
Which many take delight and pleasure in
Whose conversation God doth much dislike
And yet He shakes His sword before He strike
A panicky middle class moves from worrying about its bank account, to railing against those richer and stronger than itself, to turning on those poorer or weaker than itself. Then it seeks to connect the two:
"However you slice it this is ridiculous. FOURTEEN children as a single parent? Assuming she has medical "insurance" from somewhere, exactly how does a desire to have as many kids as humanly possible entitle her to this sort of abuse of that insurance? If she doesn't have insurance, who's footing the bill? And how do you possibly go out and earn a living while raising fourteen kids?
This is what the nation is up against.
This is why California is broke."
"...there are two Americas. A poor America on socialism and a wealthy America on capitalism...
A vast sea of perhaps well intentioned government programs, all initially set into motion in the 1960's, that were going to lift the nation's poor out of poverty.
A benevolent Uncle Sam welcomed mostly poor black Americans onto the government plantation. Those who accepted the invitation switched mindsets from "How do I take care of myself?" to "What do I have to do to stay on the plantation?""
"Because society no longer believes that it's appropriate to let these children die because of the gross irresponsibility of the mother, the only humane way to prevent this sort of stuff from happening again is to require sterilization of anyone who would receive food stamps or other sorts of welfare. "
Long ago, bailouts were unheard of; failure meant starvation, perhaps death. Consider the caveman: Ug's tribal chief couldn't afford to say, "It OK Ug no kill deer this week. It not Ug's fault. Tribe will bail out Ug."
If he wants his tribe to stick around, the chief must say, "Ug no kill deer: Ug family starve."
(For a moment, one has a vision: Ug family no starve; Ug family kill, eat Virginian economics professor.)
But the tendency... We must punish the wicked rich, correct the feckless poor, do something about the swelling ranks of the disabled, and then we'll all be jolly, prosperous and middle class. Without the bad, sad and mad, everyone would be happy. Patriotic citizens must form a united front... The communists are a deadly threat, and must be firmly suppressed... It's for the working man and the national good that we must for a while band together, almost as though we were socialists...
The clouds were boiling red and yellow over the Alps. Standing on the balcony of the Leader's retreat, the party gazed awestruck. A woman said to Him, "Das bedeutet blut, blut, und mehr blut." The Leader paled, trembled violently and said, "Wenn das sein musss, dann lass es sein."
So proud and lofty is some sort of sin
Which many take delight and pleasure in
Whose conversation God doth much dislike
And yet He shakes His sword before He strike
Thursday, February 12, 2009
Symmetry; asymmetry
"China’s January surplus ($39.1b) is roughly the same size as the United States’ December deficit ($39.9b). It is reasonable to think it will roughly match the United States January deficit as well.
The extreme symmetry captures something real. Deficits and surpluses are shrinking globally now that the price of oil is at levels that roughly cover the oil exporters imports. Right now China’s (growing) surplus is clearly the main counterpart to the United States’ (shrinking) deficit" - Brad Setser
"I believe there is a greater than 25pc chance of a departure from the Eurozone given the social and economic behaviours of some countries within it" - John Moulton on the UK and the Euro.
The extreme symmetry captures something real. Deficits and surpluses are shrinking globally now that the price of oil is at levels that roughly cover the oil exporters imports. Right now China’s (growing) surplus is clearly the main counterpart to the United States’ (shrinking) deficit" - Brad Setser
"I believe there is a greater than 25pc chance of a departure from the Eurozone given the social and economic behaviours of some countries within it" - John Moulton on the UK and the Euro.
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