Tuesday, July 15, 2008
How far can the FTSE fall?
The FTSE hit a long-term low at 3,287 at the close of 12 March 2003. If it were to drop to 5,000 now, that would still mean about 8% p.a. compound growth.
Bank deposits are investments, and can go wrong
Karl Denninger takes us back to basics about banks and "your money" (highlighting is mine):
I want to talk about IndyMac for a bit.
The news has covered a few really, truly sad stories. People with $200,000, $300,000, $400,000 or more in there who have seen 50% of their balance over $100k disappear overnight.
Older people who literally have their life savings in these institutions. People who are relatively unsophisticated, but have been told through the years that the government will make it all ok, and who believed it.
It tugs at your heart to see a 70+ year old man pleading for them to let him have his money - money that he worked and saved a lifetime for.
If only it were that easy.
People don't think of a bank as being an investment, but it is.
You are lending your money to the bank so they can make money with it, and they pay your a coupon - interest, or the "safekeeping" in the case of a checking account that does not pay interest - in return!
I want to talk about IndyMac for a bit.
The news has covered a few really, truly sad stories. People with $200,000, $300,000, $400,000 or more in there who have seen 50% of their balance over $100k disappear overnight.
Older people who literally have their life savings in these institutions. People who are relatively unsophisticated, but have been told through the years that the government will make it all ok, and who believed it.
It tugs at your heart to see a 70+ year old man pleading for them to let him have his money - money that he worked and saved a lifetime for.
If only it were that easy.
People don't think of a bank as being an investment, but it is.
You are lending your money to the bank so they can make money with it, and they pay your a coupon - interest, or the "safekeeping" in the case of a checking account that does not pay interest - in return!
US banks: uninsured deposits stand at $2.6 trillion
Mish calculates the potential for disaster if depositors lose confidence:
"FDIC Recap
There is $6.84 Trillion in bank deposits.
$2.60 Trillion of that is uninsured.
Total cash on hand at banks is $273.7 Billion."
So 89% of uninsured deposits are not covered by available cash in the bank.
"FDIC Recap
There is $6.84 Trillion in bank deposits.
$2.60 Trillion of that is uninsured.
Total cash on hand at banks is $273.7 Billion."
So 89% of uninsured deposits are not covered by available cash in the bank.
Monday, July 14, 2008
TMS a better measure of the money supply?
What looks like an important idea and discussion of "True Money Supply" in Mish. I shall have to chew on it for a bit, but thought the finance-oriented reader might care to do the same.
Mish says when you look at the situation correctly, we are definitely in DEflation.
Mish says when you look at the situation correctly, we are definitely in DEflation.
Ron Paul and Tibet: is he right?
House and Senate Pass Resolutions on Chinese Crackdown of Tibet
On Wednesday, the House overwhelmingly passed a resolution calling on China to “end its crackdown on Tibet and release Tibetans imprisoned for “nonviolent” demonstrations.” The resolution passed on a vote of 413-1, with ”Rep. Ron Paul, R-Texas, who recently dropped out of the presidential race, was the lone congressman voting against it.”
(Reuters)
This entry is given prominence in Reuters' site (world news section), but is three months old, a point I didn't spot at first. Still, I think the underlying issues are enduring and (given the imminent start of the Games) topical.
The almost-complete unanimity of the vote seems rather suspicious, but although we are used to the army being out of step with Ron Paul in financial matters, is he right in this case? Some might think you cannot have a policy of "liberty in one country", any more than "socialism in one country."
Can't find much in Google News about it, but here's a bit of blog discussion, updated here.
On Wednesday, the House overwhelmingly passed a resolution calling on China to “end its crackdown on Tibet and release Tibetans imprisoned for “nonviolent” demonstrations.” The resolution passed on a vote of 413-1, with ”Rep. Ron Paul, R-Texas, who recently dropped out of the presidential race, was the lone congressman voting against it.”
(Reuters)
This entry is given prominence in Reuters' site (world news section), but is three months old, a point I didn't spot at first. Still, I think the underlying issues are enduring and (given the imminent start of the Games) topical.
The almost-complete unanimity of the vote seems rather suspicious, but although we are used to the army being out of step with Ron Paul in financial matters, is he right in this case? Some might think you cannot have a policy of "liberty in one country", any more than "socialism in one country."
Can't find much in Google News about it, but here's a bit of blog discussion, updated here.
Sunday, July 13, 2008
Bear market: Steiff comes home
Chasing lower costs, Steiff outsourced around a fifth of its production to China in 2003 but has now decided to come back because of concerns about quality and staff turnover.
Steiff is one of a small number of German firms which are swimming against the tide and leaving China, despite its cheaper workforce and a burgeoning consumer population. With fuel at record highs, some cite mounting transport costs.
Production of Steiff toys, which include a distinctive long-limbed bear with a melancholy growl, will come back to Germany and other countries in Europe by the end of 2009.
(Reuters)
That's sort of heartening, except that as it continues to develop, China will deal with quality issues. Japan listened to W. Edwards Deming in the 1950s and soon "Made in Japan" meant, not cheap, tinny and shoddy, but innovative, reliable and affordable.
In any case, this is clutching at straws. Tiny companies making high-value toys won't sustain Western Europe. We need major changes if we're going to become globally competitive. For example, health and welfare provision will have to be reassessed as the budgets shrink.
And here's a big debate to come: how much education? How much benefits the economy, how much is positional (Swiss finishing school for your daughter, etc), and how much is luxury consumption, like foreign holidays and Lagerfeld dresses?
How much education is simply an illogical, implicit pretence that the government is doing something to give all children relative advantage, particularly yours? How much is to disguise unemployment? How much is to keep potential young criminals penned-in during the daytime on weekdays? How much is to baby-mind children so that women can be driven out of their homes to do low-paid work?
As the money dries up, there will be an education debate, and it will be messy.
Steiff is one of a small number of German firms which are swimming against the tide and leaving China, despite its cheaper workforce and a burgeoning consumer population. With fuel at record highs, some cite mounting transport costs.
Production of Steiff toys, which include a distinctive long-limbed bear with a melancholy growl, will come back to Germany and other countries in Europe by the end of 2009.
(Reuters)
That's sort of heartening, except that as it continues to develop, China will deal with quality issues. Japan listened to W. Edwards Deming in the 1950s and soon "Made in Japan" meant, not cheap, tinny and shoddy, but innovative, reliable and affordable.
In any case, this is clutching at straws. Tiny companies making high-value toys won't sustain Western Europe. We need major changes if we're going to become globally competitive. For example, health and welfare provision will have to be reassessed as the budgets shrink.
And here's a big debate to come: how much education? How much benefits the economy, how much is positional (Swiss finishing school for your daughter, etc), and how much is luxury consumption, like foreign holidays and Lagerfeld dresses?
How much education is simply an illogical, implicit pretence that the government is doing something to give all children relative advantage, particularly yours? How much is to disguise unemployment? How much is to keep potential young criminals penned-in during the daytime on weekdays? How much is to baby-mind children so that women can be driven out of their homes to do low-paid work?
As the money dries up, there will be an education debate, and it will be messy.
US lending market: Apocalypse Now?
Some points from Denninger's latest (summary in my words):
It's getting hot. The collapse of IndyMac may take 10% - 20% of the FDIC's balance sheet, and that's assuming a savers' panic doesn't start.
If the government underwrites Fannie Mae and Freddie Mac, the Federal public debt doubles (goes up by $5 trillion), the US' credit rating is compromised (it's starting to happen already) and all debts will cost more in interest - maybe 3% extra. KD's recommendation is that the two monster lenders be put into receivership and wound down over time; this means a steep drop in house prices so that they can be afforded on more sensible terms and conditions.
His advice to you: head for the high ground. Get out of debt, get your savings balance below the FDIC's $100k ceiling, think about buying Treasury bonds. "If the government goes down you will need steel, lead and brass, not money."
BUT...
See Jim from San Marcos on the same matter. And someone copied Denninger's piece whole into a comment at Jim's, to which the latter responded:
"There is a very peculiar situation here from a stock ownership position. These two stocks are being shorted en-mass. I kind of get the feeling that neither one is going to zero. I smell a bear trap here. You can be right but still be dead wrong."
It's getting hot. The collapse of IndyMac may take 10% - 20% of the FDIC's balance sheet, and that's assuming a savers' panic doesn't start.
If the government underwrites Fannie Mae and Freddie Mac, the Federal public debt doubles (goes up by $5 trillion), the US' credit rating is compromised (it's starting to happen already) and all debts will cost more in interest - maybe 3% extra. KD's recommendation is that the two monster lenders be put into receivership and wound down over time; this means a steep drop in house prices so that they can be afforded on more sensible terms and conditions.
His advice to you: head for the high ground. Get out of debt, get your savings balance below the FDIC's $100k ceiling, think about buying Treasury bonds. "If the government goes down you will need steel, lead and brass, not money."
BUT...
See Jim from San Marcos on the same matter. And someone copied Denninger's piece whole into a comment at Jim's, to which the latter responded:
"There is a very peculiar situation here from a stock ownership position. These two stocks are being shorted en-mass. I kind of get the feeling that neither one is going to zero. I smell a bear trap here. You can be right but still be dead wrong."
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