While we're doing the visuals, let's have a look at Marc Faber. I find you can learn so much about people from their face, voice and physical posture. Faber comes across as frank, clear, careful to say it right, thought-out.
This interview is several months old, but has many nuggets of enduring value, such as a possible 30-40% drop in emerging markets, political prospects for Thailand, Japan as a buying opportunity, and gold as a store of value against the relentless decay of paper currency.
Note how he says at the end that Americans should not hold gold in America, for fear of expropriation in a crisis. Warnings like that made in his gentle and cautious way are all the more stark.
Part 1:
Part 2:
Tuesday, July 03, 2007
Inflation? We should be enjoying gentle, long-term deflation!
Richard Daughty, aka The Mogambo Guru, is on YouTube! In print, his rants are so funny that you can forget he's entirely serious. Here, he goes through the theory of money and the scam that is inflation, in two-and-a-half minutes. A gem, as they say.
Monday, July 02, 2007
Inflation: the evidence
If you want to see what monetarists would assert is the fountain of inflation in the UK, here are the M4 money supply figures from the Bank of England, going back to 1963.
The average rise over the whole series is 13.485% per annum; over the last, "prudent" 10 years, 9.99% p.a.
To put it another way, if £1 could have been invested in 1963 at an interest rate that kept pace with this monetary expansion, it would now be worth something like £261. And that's assuming you would have been allowed this interest tax-free, so as to preserve the value of your money.
Contrast that result with the inflation statistics as given by this paper in the House of Commons Library. The figures only go up to 1998, but let's assume purchase prices kept to their approximate target of 2.5% p.a. after that. According to this research, a "basket" of goods and services worth £1 in 1963 would now cost about £15.
Where has the rest of the inflation come out? Asset prices, presumably, or bank profits. Or have the monetarists got it wrong?
One thing's for sure: even after adding net interest at available rates, cash savers have seen an enormous, long-term dilution of their share of the country's circulating money. They would, I estimate, need to receive about 6.7% per annum ABOVE purchase price inflation, to match the money supply increases.
If I've got it wrong, do please show me where the error has occurred.
The average rise over the whole series is 13.485% per annum; over the last, "prudent" 10 years, 9.99% p.a.
To put it another way, if £1 could have been invested in 1963 at an interest rate that kept pace with this monetary expansion, it would now be worth something like £261. And that's assuming you would have been allowed this interest tax-free, so as to preserve the value of your money.
Contrast that result with the inflation statistics as given by this paper in the House of Commons Library. The figures only go up to 1998, but let's assume purchase prices kept to their approximate target of 2.5% p.a. after that. According to this research, a "basket" of goods and services worth £1 in 1963 would now cost about £15.
Where has the rest of the inflation come out? Asset prices, presumably, or bank profits. Or have the monetarists got it wrong?
One thing's for sure: even after adding net interest at available rates, cash savers have seen an enormous, long-term dilution of their share of the country's circulating money. They would, I estimate, need to receive about 6.7% per annum ABOVE purchase price inflation, to match the money supply increases.
If I've got it wrong, do please show me where the error has occurred.
The Daily Reckoning's Blog
The Daily Reckoning blog started in April 2006 and also features some free reports. You may wish to link / contribute to it.
Sunday, July 01, 2007
What's wrong with money?
Many a truth is spoken in jest, and Douglas Adams' "The Hitchhiker's Guide To The Galaxy" is full of wry truths. Here's one about money on Planet Earth:
Most of the people living on it were unhappy for pretty much of the time. Many solutions were suggested for this problem, but most of these were largely concerned with the movements of small, green pieces of paper, which is odd, because on the whole, it wasn't the small, green pieces of paper which were unhappy.
It's odd how money seems more important than the here-and-now. Some would say that money changes real life for the worse, because it is a distorted representation of reality.
One solution is to try to amend the money system. This site reproduces the text of Richard Douthwaite's "The Ecology Of Money", a piece on money and community currency systems.
Another is to try to live without money, or nearly so, and instead have a more direct relationship with the land - for example, the Tinker's Bubble community in Somerset. I don't know whether the whole world can go that way - not everyone is so skilful, or can get hold of such lovely land and resources in such a relatively peaceful, prosperous and tolerant country; but to quote the poet Elizabeth Jennings, "sickness for Eden was so strong".
Meanwhile, the rest of us have to use some of our precious time, trying to prevent the value of our savings being stolen by inflation, and avoiding the worst consequences of an ill-managed economic system that, if it breaks down, could lead to a long period of hardship.
Most of the people living on it were unhappy for pretty much of the time. Many solutions were suggested for this problem, but most of these were largely concerned with the movements of small, green pieces of paper, which is odd, because on the whole, it wasn't the small, green pieces of paper which were unhappy.
It's odd how money seems more important than the here-and-now. Some would say that money changes real life for the worse, because it is a distorted representation of reality.
One solution is to try to amend the money system. This site reproduces the text of Richard Douthwaite's "The Ecology Of Money", a piece on money and community currency systems.
Another is to try to live without money, or nearly so, and instead have a more direct relationship with the land - for example, the Tinker's Bubble community in Somerset. I don't know whether the whole world can go that way - not everyone is so skilful, or can get hold of such lovely land and resources in such a relatively peaceful, prosperous and tolerant country; but to quote the poet Elizabeth Jennings, "sickness for Eden was so strong".
Meanwhile, the rest of us have to use some of our precious time, trying to prevent the value of our savings being stolen by inflation, and avoiding the worst consequences of an ill-managed economic system that, if it breaks down, could lead to a long period of hardship.
The Australian housing market suffers, too
It's not just the US and UK that suffer from home lending problems. The Contrarian Investors' Journal commented yesterday on housing-related debt and reduced property valuations in Australia.
Subprime lending in the US housing market rocking the boat
The Bloomberg financial site is following the subprime mortgage story, and quotes Peter Schiff (see my review of his book) as predicting that the majority of such loans will default.
In the US as in the UK, inflation has made house prices rise fast, and in turn this has encouraged lenders to offer mortgages almost recklessly: high loan to valuation (sometimes even more than 100%), borrowers with a less than perfect track record of honouring their commitments.
Also, and unlike in the UK, the US mortgage has traditionally been a long-term, fixed rate deal, but more recently, many homeowners have taken out loans with a short-term, very low initial interest rate, and now they are coming out of the initial period into higher, variable rates. This would be a challenge anyway, but the variable rates are rising as the government seeks to rein in inflation.
You would expect that the lenders have most to worry about, but there has been a trend towards putting blocks of these debts together and selling them on to third parties as income-yielding investments. Since this gets risky debt off the lenders' hands, the lenders don't mind doing more of the same, so there is a temptation to become careless about quality.
But that risk has been transferred to the investment market, so a wave of defaults will hit returns on investments. And the investor isn't always quite aware of the degree of risk involved. The worst-risk packages are known as "equity tranches" and some have been sold to pension funds - see Michael Panzner's submission to Seeking Alpha. Some would see this hawking of bad risk as looking for suckers, and even with knowledge of his fiduciary obligation, the buyer may sometimes be a bit more gullible if it's not his own money he's investing.
In the US as in the UK, inflation has made house prices rise fast, and in turn this has encouraged lenders to offer mortgages almost recklessly: high loan to valuation (sometimes even more than 100%), borrowers with a less than perfect track record of honouring their commitments.
Also, and unlike in the UK, the US mortgage has traditionally been a long-term, fixed rate deal, but more recently, many homeowners have taken out loans with a short-term, very low initial interest rate, and now they are coming out of the initial period into higher, variable rates. This would be a challenge anyway, but the variable rates are rising as the government seeks to rein in inflation.
You would expect that the lenders have most to worry about, but there has been a trend towards putting blocks of these debts together and selling them on to third parties as income-yielding investments. Since this gets risky debt off the lenders' hands, the lenders don't mind doing more of the same, so there is a temptation to become careless about quality.
But that risk has been transferred to the investment market, so a wave of defaults will hit returns on investments. And the investor isn't always quite aware of the degree of risk involved. The worst-risk packages are known as "equity tranches" and some have been sold to pension funds - see Michael Panzner's submission to Seeking Alpha. Some would see this hawking of bad risk as looking for suckers, and even with knowledge of his fiduciary obligation, the buyer may sometimes be a bit more gullible if it's not his own money he's investing.
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