Stock up your larder

Reading "The Grumbler" today, I was struck by Rosie Boycott's article on our vulnerability to oil and food shortages, particularly now that so much of our food supply is dependent on the supermarkets' just-in-time logistics.

I believe the Mormons have a rule that members of their church must have 12 months' security set up for their families - I remember an old colour supplement article with a picture of a Mormon sitting on a year's supply of baked beans. Doesn't seem so daft now - and it's worth remembering why landlocked Utah is the Seagull State.

More generally, there is now a feeling that the government has failed to prepare for material and financial shocks. Genesis 41 has been obscurely referenced by George Osborne ("Our competitors used the fat years to prepare for the lean years"), though back in 2002 Treasury Committee member Dr Nick Palmer was using the same analogy, but in Gordon Brown's favour ("in the first years [Gordon Brown] repaid a lot of government debt so as to give us a really strong basis for difficult times as and when they arose").

On the financial front, I think the government cracked in 2003, when extra liquidity (simplified graph here) began to be released into the system, over-hydrating the housing market. Radix malorum est cupiditas, and that applies here if you interpret "cupiditas" in the general sense of over-attachment to worldly things, especially to power and its accompaniments.

Buffett eyes Europe

A most interesting article by Matthew Lynn in this week's Spectator. It's certainly worth reading in full, but here's a few points and questions arising:

• Buffett's got $35 billion in cash to go a-shopping, and thinks Europe is more promising than the emerging markets - partly because Europe is already in recession.
• Have European companies endured because many have remained family-owned? Is the Anglo-Saxon model of capitalism too erratic and destructive?
• How important are hunches in investing? Lynn says, "Buffett doesn’t believe in extended due diligence or complex financial models. He chooses his investments based on what he feels about the people in charge, and whether he likes their products." And recently, George Soros said that for all his research, he pays attention to his own psychosomatic backaches.
• How much vital business information is conveyed - or betrayed - by tone of voice and body language? Mark McCormack said that he liked to go to meetings on his own, so that he wouldn't have to worry about unconscious non-verbal signals given away by an underling's reactions. For the same reason, he loved the opposition to come with company. Is the most important bit of investment reserach the site visit?

How many trillions?

A while ago, the pessimistic figure being discussed was $1 trillion of losses; yesterday the FT looked at the prospect of $5 trillion of liabilities emerging from off-balance obscurity, to lurch back onto already-weak bank balance sheets.

There comes a point when it gets so dire it starts to become funny. Ah well, time to clean house.

A splendid rant

Karl Denninger lays all about him vigorously today. Where are the Brit bloggers to match him? Any nominations for UK financial Jeremiah of the Year?

Democracy - a cut flower

I think we are not a democracy, but a competing selection of complex oligarchies with a mechanism for periodic bloodless overthrow.

I put the above comment about the British system on the ever-elegant Angels in Marble. Is it too cynical?

What does democracy mean here? What should it be like?

Is democracy the best system, or should we turn to authoritarianism, which seems to be working for the Russians and Chinese, as an increasing number of opinion-formers seem to be suggesting?

Is that happening anyway? Are the people watching the bottom rung of the ladder of power rise out of reach?

Why interest rates should increase - and (IMO) probably won't

Hundreds of millions of Chinese, Indian, Vietnamese, East European and other emerging market workers and many millions of enterprises have entered the global marketplace as suppliers of goods and services that are competitive with those produced by the UK (so-called "core" goods and services) and as demanders of commodities, especially energy, metals and food (so-called "non-core" goods). As a result, the price of energy, food, metals and other commodities, relative to that of manufactures and services, has risen.

Willem Buiter gives a beautifully clear and concise view of the factors affecting inflation and argues for an increase in lending rates.

But the hard, narrow path upward is often avoided, especially in "democracies" where the governing party feels its hold on power slipping.

Besides, a depreciating pound is helping maintain orders for what remains of our manufacturing industry. Why halt the pound's fall?

Maybe we should start doing our FTSE charts in Euros, so we can see the real effect of rotting currency. Like Alice and the Red Queen, when the stockmarkets stand still, they are actually falling back, once you price them against the rest of the world's money.

I note that Mish used the Red Queen's Race analogy two years ago, and presciently outlined the monetary and economic dilemma for the USA - and, I suspect, the UK:

Bernanke is trapped in "Wonderland" but unlike Alice has no way out.Bernanke gets to choose between hyperinflation and deflation. The moment he can not run fast enough, the US economy will implode. If he runs too fast, the value of the US dollar as well as the FED's power will both come to a very abrupt stop.

A long way to go yet

Equities are not cheap enough and need to decline by at least 50 percent.

These and other observations recently from Morgan Stanley's Teun Draaisma are reported here in FT Alphaville.