USA - Economy (latest in RED)

Dumping of US treasuries imminent, starting with Korea, says Burnick

"Matt" on US M3, the money supply, inflation

California realtors report house prices collapsing (htp: Drudge Report, LA Times)

Skills shortgage hampering US job repatriation, says AT&T chief (htp: Drudge Report)

2008 US durable goods report: semiconductors down sharply since New Year (htp: Karl Denninger)

Brad Setser presentation (Sept 2006): "Chinese Financing of the United States"

"Naked Capitalism"blog: "China now buys a lot of US debt through London..."

In 2007, UK increased holding of US public debt by 224% to $300 bn, Japan reduced by $50 bn

Major sectors of US economy already in foreign hands

Sub-prime and Credit Crunch (latest in RED)

"IMF states that the UK is particularly exposed to the current crisis"

"Not until total debt comes down to a realistic number can a real recovery take place. If debt is to be destroyed to that magnitude the deflation will be monstrous."

Mish: "Germany fears global meltdown"

Hutchinson: new financial system by 2013

Derivatives: Banking capital "insufficient to handle even one per cent of potential losses."

California realtors report house prices collapsing (htp: Drudge Report, LA Times)

KPMG criticised for allegedly poor auditing of failed US mortgage firm (htp: Drudge Report)

More on the "sucker clause"
Denninger: JPM may have been forced to bid more for Bear Stearns by trick clause

Subprime explained using stickman cartoons (htp: Neatorama)

"Wat Tyler": UK GDP to fall 1.3%

Wagner: Goldman thinks recession means 30% house price drop, 39% mortgages in negative equity

Amerman: 2007 subprime a prelude to much bigger potential crisis

Denninger: house prices to fall 15% - 50%

China's need to expand territory (latest in RED)

Chinese strategic interest in Tibet, and also the Indian region of Arunachal Pradesh
Chinese incursions into Arunachal Pradesh (2007 story)

"China Watch" from Jane's Intelligence Review

Official Chinese government website (incl. environment & international issues)

China angling for territory swap with India

Russia's north-eastern border with China: future tensions?

"Maps published in China show Burma as part of Chinese territory"

Unsustainable exploitation of Tibet's natural resources by China

Lovelock: "China uninhabitable by 2040"
Dr William Gray disagrees, predicts cooling within next 10 years (audio)

Chinese agricultural production "could drop 10% by 2050" because of climate change

Climate change in Tibet threatening East Asia's water supply

Investment (latest in RED)

Susan Walker: hold T-notes, not gold or the Dow, in a recession

John Mauldin: p/e ratio a predictor of bull/bear markets; detailed guidance on investment principles

From "The Big Picture" blog

Monty Guild: stock rally if mortgage bond market stabilises; invest in non-leveraged areas

Faber: historically, volatility bad for investors - stay out, take your girl on holiday

Falling US dollar threatens yen "carry trade", could trigger investment crisis

Gold a haven in crisis, NOT a long-term inflation-adjusted investment

Henry To: Cash-to-equity ratio at 20-year high, US stock market "oversold"

Denninger: Deleveraging of hedge funds may hit equities, commodities

Inflation - UK (latest in RED)

UK M4 accelerated in past 5 years

Prof. Costas Milas: M4 money supply growth up to 10% p.a. not significantly inflationary

M4 expansion offset by declining velocity of money (see 2005 slide below) (plus UK M4 in £billions, below, right)

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BoE Bulletin (Q3 2007): "Interpreting Movements in Broad Money"

Intermission

The FTSE has just closed at 5,414.40, about 1,150 points down from a recent high (10 December 2007) of 6,565.40.

But the gyrations have gone on for much longer. The FTSE bust UPwards through 5,438 on 29 October 1998, heading for nearly 7,000 by the end of 1999; popped and went through 5,417.60 in a DOWNwards direction on 29 August 2001; hit bottom (3,287) on 12 March 2003; rose back UP through 5,358.60 on 2 November 2005 - and here we are again.

Except we haven't factored-in inflation, so each later revisiting of the 5,400 level represents a further loss in real terms.

Meanwhile, let's take a look at what we might do to preserve what little wealth we have.

Residential property: costs about double its long term trend (3x income). But Mrs S isn't keen on a caravan, not even, as I suggested, "if we get a nice horse".

Stocks: the S&P's long-term trend p/e ratio is a little under 15, so to get back to that it should fall by 25 - 30%. Looks like we're partway there. Emerging markets have boomed, but as that sage Christopher Fildes said many years ago, the definition of an emerging market is that is is a market from which it may be difficult to emerge.

Bonds: a painful subject, with CDOs and the like. Hard to tell quality from rubbish at the moment, and if the credit contraction forces interest rates up, the capital value of bonds will have to fall to match the yield available on other kinds of loaned money.

Commodities: some markets such as gold are small enough to be manipulated by speculators (and sales from stock) - and much of the investment in them may be leveraged, which brings in extra uncertainty because the credit crunch could force sales to cover cash calls. Others, such as oil, may be affected by reduced demand in a recession. So commodities are not a no-brainer for the amateur investor. How many will know when they've reached the top of the price spike? Agriculture might be interesting, though, as I reported a while ago and as Jimmy Rogers says now, according to Contrarian Investor.

No wonder Marc Faber said last year that he saw bubbles everywhere. He has since gotten into gold, among other things, but he is a very smart, quick-moving trader. If I had any serious money, I'd rather use him (and others like him) than try to compete with him.

What else?

Some governments offer their own instruments for matching inflation - Index Linked Savings Certificates in the UK, TIPS in the USA, for example.

I suppose that if you expect food and fuel to rise in price, you might stock up - though a John Denver-type petrol store is probably unwise, if not illegal. And even tinned food, rice and dried pasta will only stay in good condition for so long.

And not everything is likely to go up. We look as though we're in for an odd combination of inflation and deflation. Houses, stocks, maybe bonds, maybe some commodities, may present buying opportunities sometime. And how about those consumer durables - the cars, computers etc you may want to renew or upgrade sometime? So cash really doesn't seem that bad to me, so long as you make sure you're maximising your rights under local depositor protection laws.

And then there's the bigger picture. Douglas Adams, author of The Hitchhiker's Guide To The Galaxy, observed of unhappiness: "Many solutions were suggested for this problem, but most of these were largely concerned with the movement 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." My point is not that money is unimportant, but that it won't be enough to see ourselves all right - we still have to live with our neighbours. It's important to get the economy straightened-out, because when others are unhappy and insecure, we shan't be safe, either. Perhaps there's a selfish element in altruism.

It's pretty clear how things are now, and there's no need to keep the sirens going when you can see the fire. All I hope is that concerted, imaginative action will minimise the damage. A wilder hope is that we might reform the system - especially our rotten currencies and remote, self-centred politicians. I've learned much from joining in the debate, but don't think I have much more to contribute at this stage, so I think I'll be better off giving my ego a rest and reading you, instead.

My final guess, for now: it'll be time to get back into the swim in the Spring of 2010.

Wise after the event

I'm stung into a rant by an article I've just read. A classic example of mainstream journalist wisdom here - and only one of very many similar now available, I'm sure.

I'm don't know what the economics editor of one of the UK's most successful papers earns, but I'd be happy for him to earn double if he could tell us all this "it was so obvious" stuff BEFORE the crisis.

Not that it couldn't have been foreseen. In the late 90s, I was so concerned at US debts and the massive zoom in tech stocks driving the FTSE and Dow into the stratosphere, and so apprehensive of what I thought would be the inevitable aftermath, that I warned clients not to get into the frenzy, reminded them they had an option to switch into cash, moved my wife's pension savings into cash, and (despite the awfulness of modern British schools) resumed teaching as well as holding onto the financial advice business.

Am I wise? No, I listened to what many others were saying, and wasn't blinded by greed. But I wouldn't have learned it from the papers.

And the smugness! "Above all, the current crisis will force us to relearn one of the oldest lessons of all, one from neither the Seventies nor the Thirties but the wisdom of the centuries: that what you owe, you must one day repay." The credit bubble was created by banks, permitted by regulators and governments, and exploited by financial engineers and intermediaries - yet it is the private debtor and the taxpayer that will pay. Don't hold your breath waiting to see unemployed bankers selling the Big Issue.