Don't take on gunslingers

A client raised an important point some weeks ago: when he decides to sell or switch his holdings in a collective investment (e.g. an insurance bond or pension), the company wants to receive the authorisation in writing, by which time it could be too late. The traders can act straight away, on the price they see on their screens.

Paul Lamont echoes this in SafeHaven:

The Wall Street Firms will know if the Ambac deal fails long before investors. We commented last April: "As the editor of The Commercial and Financial Chronicle in November of 1929 reported on the Great Crash, 'the crowd didn't sell, they got sold out.' The trading desks of the Wall Street Firms will cash out as the panic develops, the lady in Omaha will be stuck on the phone with a busy signal... To avoid this, investors should be moving now to financially healthy institutions and buying U.S. Treasury Bills."

You can't outdraw the fast hand, but you can get out of town when you hear he's coming.

Creak... squeak... pop!

This and more is in the latest ContraryInvestor piece on SafeHaven. Almost all of the above is concentrated in a mere five banks.

The tone is not doomster:

The world is not about to come to an end. Through adversity is born opportunity for those prepared both emotionally and financially.

As with Northern Rock, I expect that when calamity strikes, the bank directors and financial regulators will still have good payoffs and pensions. What a tolerant society we live in.

What the rubber mat said

I sat in my clients' office yesterday afternoon, waiting for them to arrive. The office had lovely new desks; as it turned out, not new, but taken from another business that has recently closed.

The reason for the delay - at least for one of the directors - was a last-moment requirement for tico rubber, needed next morning for anti-vibration matting under a five-ton machine that was being re-sited. The usual supplier, a major international concern, has recently shut down the closest depot to Birmingham. Rationalisation. Outsourcing. Globalization.

So while waiting, I tried to help my client find the material somewhere else. Googling away, we found it in the far north of England, or Cornwall; too far. Maybe just possibly in Market Harborough or Leicester? On calling the nearer companies, specifications and stock levels were doubtful.

My clients' business is contrarian: they move machines, and although originally that meant from one UK site to another, more often now it involves sending them abroad. As the decline of British manufacturing industry has accelerated, they've been very busy recently. For obvious reasons, the bonanza will end sometime.

But back to the matting. Once, suppliers of components you needed would be close at hand. Now we could be looking at journeys to the ends of the country - meaning cost, delay and maybe, sometimes, a lost contract.

The Pearl River in China is now home to myriads of small manufacturers, and the synergy improves everyone's productive capacity. Like it used to in Birmingham, "city of a thousand trades". But now in the UK, we could be dropping below the threshold of economic viability for manufacturing industry.

That's what the mat said to me.

What's your house worth?

Home prices WILL contract so that the median house is 2.5-3x the median income

says Karl Denninger. Now do your sums.

Some interesting comments and suggestions (including my usual twopenn'orth) on this post at the Capitalists@work blog - people seriously discussing inflation hedging and survivalism, here in the UK. We're getting beyond ivory-tower discussion.

Beyond gold

This blog by Thomas H. Greco looks interesting. The author, an American, has taken the trouble to address a convention in Malaysia on currency issues,and you'll recall that they're trialling the gold dinar in the province of Kelantan.

Greco thinks that modern technology may let us keep accounts of exchanges without having to resort to traditional forms of currency. I suppose this could be similar to Local Exchange Trading Systems. It's also interesting that he's featured and commented on Ron Paul's proposal that currency systems should be allowed to compete. Greco even looks at Air Miles as one candidate!

Going down

Another grizzly, this time Captain Hook:

You should know that when banks begin to fail in the States, and they will, things could spiral out of control to the extent controls will to need be placed on both digital and physical movement. Transfers between banks will cease up completely, debts will be called in (so pay them off now), systems from food distribution to medical care will break down, and Martial Law will be the result as the population retaliates. Life will change as you know it.

[...] Japan has never really escaped the credit crunch that gripped their economy back in the 90's after bubblizing the real estate market. That's the tell-tale-sign a bubble economy is on its last legs you know - when master planners need resort to bubblizing the real estate market. Generally it's all down hill after that on a secular (long-term) basis because this is a reflection of not just a turn in the larger credit cycle; but more, and the driver of credit growth in the end, this is the signal demographic constraints have turned negative. [...] It's a simple numbers game, where an aging population is less prone to take on debt.

He considers the possibility of a Japanese-style asset deflation, which gels with my earlier thoughts regarding a generation-long UK property slump.

Place your bets

Peter Navarro lays out three global economic scenarios and their effects on different asset classes. The grid looks a bit like the betting board for roulette, or possibly craps. At any rate, a good tool for helping you decide.

To me, decoupling seems the least likely at this stage; I don't feel the rest of the world has yet built up demand sufficient to be unaffected by the loss of the American consumer. But what do I know.

I'm guessing the first scenario for a while, followed by the third when governments panic.