Rapid fire

(Picture source and story)

Duff McDonald in New York Magazine (Saturday) goes through various doomsters' scenarios. How many bullets can we dodge, especially when the system is becoming automated?

By the way, he says CNBC calls Peter Schiff "Dr Doom" - surely that would be Marc Faber?

... and the brakes have been greased

How to stop a car without brakes

Further systemic risk. Jim in San Marcos comments on changes at the New York Stock Exchange, which has completed its conversion to electronic trading and has now removed some safety checks that were designed to reduce volatility in extreme conditions.

He says that a change in sentiment (perhaps initially caused by an error) could now lead to a much more rapid drop on the markets, since pension funds and investment companies are also using programmed trading.

Trouble ahead

The money-lender's pleasant dream

Market Ticker reports that a bank has borrowed $75 million at exceptionally high interest rates, suggesting that the collateral they were offering wasn't sound enough to be acceptable. And there are futures contracts being taken out that indicate some traders expect a major financial dislocation.

In other words, this bet is one that the credit markets will go supercritical.

And it wasn't made by just one firm, one speculator, or one guy.

A few months ago I pointed out that every big equity market dump - every last one of them - has started in the credit markets. It always starts there, simply because of the volume of business transacted and the sensitivity to problems. In the equity markets one company can go "boom" and it doesn't mean much. But in the credit markets "systemic risk" - that is, a refusal to trust people as a foundational principle - once it takes hold is very, very difficult to tamp back down.

Read the whole post here. And here's the evidence (source):

"Dow 9,000", UK loans to US, poll, doom

Not as bad as this, we trust...

Dow 9,000 update

The Dow is currently at 13,806.70, up slightly from its July 6 valuation of 13,611.69. But gold has risen from $647.75 to $783.50 in the same period - up 21% in 113 days, or around 85% annualised. This means the "gold-priced Dow" is worth 11,414.54. At this rate, Robert McHugh's prediction will be fulfilled by March 8 next year.

UK holdings of US Treasury securities

The dollar has dropped by 1.8% against the British pound since July 6, which may not seem like much, but is equivalent to 5.72% annualised. The capital loss pretty much wipes out the income payable to the UK.

I have tried to publicise Britain's recent heavy increase in ownership of US debt, but it seems nobody wants to make political capital out of it. Perhaps this is because some think the pound will eventually drop even faster than the buck. Or maybe the silence is because the markets are jittery enough already, without further evidence of American financial crisis.

Poll

Please take part in the "Wall of Worry" poll (sidebar)!

Hogarth on corrupt electioneering practices

Doom

Some people are so Eeyorish that you start to cheer up. Although an American, Jeffrey Nyquist gave us a good dose of Northern European apocalyptic prophecy in Financial Sense yesterday: computer viruses, Russia and China on the march, debt, war - the lot. Pass Pappy the liquor, son, and go git mah fiddle.

Bluegrass

Having said that, the (commendably) idealistic young and their left-wing Pied Pipers should learn more about the real nature and continuing threat of communism. George Orwell said the British Left played with fire and didn't know that it was hot. I suspect that happiness for the many is more likely to come from a restrained, green-conscious form of capitalism, than from the destructive dreams of millenarian socialists.

I also suspect that a major theme this century will be the contest between Marxism and Islam. I hope for a bloodless final end to the former, which has caused such suffering to so many millions in the last century; and the ascendancy of the civilised, cultured, intellectual and tolerant traditions within the latter.

Kicking through the slush

Here's something from Seeking Alpha about the proposed new post-subprime mess bank rescue fund, the "Master-Liquidity Enhancement Conduit" or MLEC for short.

The way I remember this acronym is to imagine (falsely, of course) that MLEC stands for Merrill Lynch Emergency Cash.

By the way, Joseph Heller pointed out in Catch-22 that "enhance" does not mean "increase", it means to make something stand out against a background. No Sackerson Prose Prize for this $75-billion mealy-mouthed monicker: too much perfume in it, not enough soap.

Sovereign wealth funds and national prosperity

I have had a comment (on an earlier piece about sovereign wealth funds) from a Shromon Das, who gives his view on SWFs here and a follow-up today here.

Without pretending to technical expertise in this area, I can envisage implications for a growing ownership of equities by governments. One effect may be to reduce volatility in large-capitalisation stocks, since national treasuries can take a longer view than the individual investor.

But there must also be concern about the possible use of ownership for political purposes. For example, I wonder at the UK's having allowed foreign enterprises to take over some of our energy and water supply companies.

I began this blog for investors, but increasingly I think the real story is not about how some may make (or protect) their fortunes, but about the implications for ordinary citizens.


Today I drove past the site of the former Rover car plant in Longbridge, Birmingham. The firm was on its way out years ago and a venture capital company called Alchemy offered to take it over, cut its size and specialise in a line of sports cars. The rest of the land could be redeveloped - housing and retail. The surplus workers would have their pension rights and redundancy payouts honoured, and some could still look around for employment in other plants.

But there was an election coming (2000), so the government chose to encourage a management buyout instead. Thousands of jobs were saved, supposedly. Besides, it was said (I seem to recall) that the site was too polluted for residential development, anyhow.

Well, Rover did go bust anyway (after a £6.5 million "bridging loan" to prevent its collapse immediately before the 2005 General Election). The workers didn't get the redundancy payments they'd have had from Alchemy in 2000, and their pensions were hit too. Anyone still interested in car work elsewhere would then be five years older, in an industry that some believe discriminated on the basis of age prior to new legislation in 2006.

A Chinese firm, SAIC, has picked over the carcase, with special attention to any designs and other paperwork that might help with setting up an alternative in the Far East. And now the site is being cleared - for residential and retail development.

There is a big, shiny new building on the Bristol Road in Longbridge - a JobCentre Plus.


Where, in all this, were the working people's long-term interests really considered, even by their political representatives?

Normal service will be resumed as soon as possible

The Potter's Wheel

Off for a short break - back soon. But what a time to pick - the Federal Reserve having just granted maybe $100 billion of special exemptions to major banks (see yesterday's post).