Saturday, April 10, 2010

Whose bonds would you buy?

CMA have released their first quarter report on sovereign debt ratings, as implied by market pricing of the 5-year default risk on government bonds. I give below a rearranged extract to show where the USA and the UK stand in relation to other countries.

It's worth noting that despite recent improvement, the UK is still out of the "AAA" bracket.

Wednesday, April 07, 2010

Circles and straight lines

The above chart from here (htp: Global Perspectives) is another of those attempts to perceive underlying order in the apparently random movement of the market and the economy. I've tried the same myself and suggested that the period from 2000 on may be like 1966 - 1982 (the last top and bottom of the market when adjusted for inflation). The interesting thing about the above picture is that the c. 16-year cycle appears to work over a much longer time - starting with the later part of the nineteenth century.

The cycle is not very regular - it varies from about 12 - 20 years - but tends to support my feeling that the real bottom this time may lie in the next 5 - 10 years.

Another quibble is that while some aspects may have a circular form, there are also linear developments that could change everything. One such is China's awakening from its centuries-long economic slumber, with the result that the world's financial centre of gravity is shifting from West to East; another, related to the first, is the unprecedented growth of debt in Western economies. A third is the development of computer technology and lightspeed communications, so that knowledge and expertise that took centuries to acquire can be transferred rapidly to developing economies. What we have lost through folly, we may not be able to regain through hard work.

This is why some commentators have switched their attention to the social, political and military implications of a permanent power shift - from democracies to authoritarian governments of one kind or another. Michael Panzner has tried to follow up the success of his Financial Armageddon with just such a conspectus, but events in the next decades will be determined by even more complex and subtle factors than the ones that led to the crashing end of the twentieth century's money system.

It would be a neat finish to observe that the Titanic had a casino and that the latter didn't have any effect on the iceberg - but (perhaps fortunately for haters of the glib), the ship didn't have a gambling joint. Though there was multimillionaire John Jacob Astor and his cronies, playing high stakes card games in the smoking room.

In short, for those who are focused on the money, I still believe worse is to come than has happened already. Others should remember it's not all about money.
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The turning point may be 2016 - 2020

The above chart from here (htp: Global Perspectives) is another of those attempts to perceive underlying order in the apparently random movement of the market and the economy. I've tried the same myself and suggested that the period from 2000 on may be like 1966 - 1982 (the last top and bottom of the market when adjusted for inflation). The interesting thing about the above picture is that the c. 16-year cycle appears to work over a much longer time - starting with the later part of the nineteenth century.

The cycle is not very regular - it varies from about 12 - 20 years - but tend to support my feeling that the real bottom this time may lie in the next 5 - 10 years.

Another quibble is that while some aspects may have a circular form, there are also linear developments that could change everything. One such is China's awakening from its centuries-long economic slumber, with the result that the world's financial centre of gravity is shifting from West to East; another, related to the first, is the unprecedented growth of debt in Western economies. A third is the development of computer technology and lightspeed communications, so that knowledge and expertise that took centuries to acquire can be transferred rapidly to developing economies. What we have lost through folly, we may not be able to regain through hard work.

This is why some commentators have switched their attention to the social, political and military implications of a permanent power shift - from democracies to authoritarian governments of one kind or another. Michael Panzner has tried to follow up the success of his Financial Armageddon with just such a conspectus, but events in the next decades will be determined by even more complex and subtle factors than the ones that led to the crashing end of the twentieth century's money system.

It would be a neat finish to observe that the Titanic had a casino and that the latter didn't have any effect on the iceberg - but (perhaps fortunately for haters of the glib), the ship didn't have a gambling joint. Though there was multimillionaire John Jacob Astor and his cronies, playing high stakes card games in the smoking room.

In short, for those who are focused on the money, I still believe worse is to come than has happened already. Others should remember it's not all about money.

Monday, April 05, 2010

Paging Lord Tebbit...

I like Norman Tebbit; he is his own man. And he has the courtesy to respond to commenters on his blog, however deranged they may be. Perhaps he will respond to the following, which I have submitted to this post of his:

Are Conservatives really conservative, in the sense of wishing to preserve the country? A message I have been trying to get out for some time, is that the financial bust that has scarcely begun, has its roots in excessive growth of the money supply not only under Labour but also under Conservative administrations.

Regrettably, The Bank of England’s website gives figures for M4 only as far back as 1963, but comparing annual changes in M4 with GDP, it’s clear that that banks have run riot for most of the last 47 years. Far more has been lent into the economy than could be justified by growth in economic activity, and the result has been a debt-fuelled ballooning of asset valuations.

From 1979 to 1990, GDP grew annually by an average of 8% or so, but M4 by 19% p.a., a difference of 11% p.a. compound. The New Labour years have seen something like 10% M4 growth and 5% GDP growth p.a., in other words a discrepancy of only half that experienced during the boom years of the 1980s.

Perhaps one could argue ignorance as a plea in mitigation by both political parties; after all, only some 12 professional economists out of an estimated 20,000 worldwide predicted the credit crunch (because debt does not feature highly in classical economic theory) – though I was relaying warnings from mid-2007 onwards, via my blog. But surely ignorance can be no excuse now.

What, then, do the Conservatives propose to do to deal with a banking system that has brought us to the verge of final national destruction?

Tuesday, March 30, 2010

Housing - plenty of room to drop

Charles Hugh Smith points out that in some areas, property values have already dropped by over 70% from their heady 2006 peak.

In a nutshell

All the shares of a single stock are valued at the price it last traded at. Sounds a little like how it used to work in the housing market.

"Jim in San Marcos"

Sunday, March 28, 2010

Tossers

4.10 p.m. BST today: a couple of Labour canvassers come to the door.

- We're from the Labour Party, can we count on your support?

- No. I can't vote for any of the major parties, because they won't give us a vote on membership of the EU. I believe that membership of the EU without a referendum is ultra vires.

- Ah, so I'll put you down as UKIP, then.

- No. I don't want in or out, I want a referendum.

- I recall we had one in the...

- No. That was on membership of the Common Market, not membership of the EU.

After asking whether my wife (they used her first name) was in, and my telling them that she was but was otherwise engaged, they left.

See you all again in five years' time, no doubt.