Underneath the headlines, debt continues to increase

There's much argument on the wires about the issue of inflation vs deflation. As James Quinn points out, the mainstream media aren't helping much because if they comment at all, they may still misunderstand what they're reporting. The official figures appear to show that debt in the US is reducing, but this needs to be reinterpreted in the light of write-offs:

If consumer debt was $13.8 trillion at the end of 2008 and the banks have since written off 5.66% of that debt, total write-offs were $800 billion. If total consumer debt now sits at $13.5 trillion, then consumers have actually taken on $500 billion of additional debt since the end of 2008. The consumer hasn’t cut back at all. They are still spending and borrowing. It is beyond my comprehension that no one on CNBC or in the other mainstream media can do simple math to figure out that the deleveraging story is just a Big Lie.

Reading around, it seems that a lot of credit card debt has been written-off, but better-risk customers may be increasing their usage, especially business owners (perhaps finding a way around the dearth in other forms of bank lending):

Credit cards are now the most common source of financing for America’s small-business owners. (Source: National Small Business Association survey, 2008)

44 percent of small-business owners identified credit cards as a source of financing that their company had used in the previous 12 months —- more than any other source of financing, including business earnings. In 1993, only 16 percent of small-businesses owners identified credit cards as a source of funding they had used in the preceding 12 months. (Source: National Small Business Association survey, 2008)

DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.

Gold up, shares down?

Hot on the heels of China, which has recently increased its gold hoard to over 1,000 tonnes and intends to accumulate far more, comes Russia, which has acquired an extra 10% in the last seven months.

This is at a time when the wealthy are turning pessimistic about the economy again. As I said two years ago, generally I now see newspapers as useless, except for tidbits like that: "Other than weather forecasts, the last usable information I can remember is from the summer of 1987, when I learned that Sir James Goldsmith had sold all his shares on the Paris Bourse, which confirmed my feelings about the way the market was going - but that item came from Private Eye magazine." The current pessimism is reflected not only in last night's close on the Dow (now below 10,000 again), but also in a surge in demand for safe government bonds, as "Jesse" reports.

I said a few days ago that the price of gold was well above its inflation-adjusted trend, but the interest of foreign countries, bearish millionaires and speculative funds boosted by cheaply borrowed money may keep the market buoyant for some time yet.
And I'm sure we'll all be watching the stockmarket with some interest this autumn.

DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.

Gold up, shares down?

Hot on the heels of China, which has recently increased its gold hoard to over 1,000 tonnes and intends to accumulate far more, comes Russia, which has acquired an extra 10% in the last seven months.

This is at a time when the wealthy are turning pessimistic about the economy again. As I said two years ago, generally I now see newspapers as useless, except for tidbits like that: "Other than weather forecasts, the last usable information I can remember is from the summer of 1987, when I learned that Sir James Goldsmith had sold all his shares on the Paris Bourse, which confirmed my feelings about the way the market was going - but that item came from Private Eye magazine." The current pessimism is reflected not only in last night's close on the Dow (now below 10,000 again), but also in a surge in demand for safe government bonds, as "Jesse" reports.

I said a few days ago that the price of gold was well above its inflation-adjusted trend, but the interest of foreign countries, bearish millionaires and speculative funds boosted by cheaply borrowed money may keep the market buoyant for some time yet.
And I'm sure we'll all be watching the stockmarket with some interest this autumn.

DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.

Don't look at the FTSE, all is NOT well here

Gary Dorsch points out that the UK bond market is a better indicator of local economic conditions than the UK stockmarket:

FTSE-100 companies equal about 85% of the market capitalization of the London Stock Exchange, and nearly half the companies are headquartered outside the UK. Roughly one-third of the FTSE is concentrated in the natural resource sector. Thus, the Footsie is viewed as a global bellwether rather than a reflection of the state of the British economy.

Right now the sharp downward trajectory of UK gilt yields is flashing warning signals of a sharp downturn in the British economy, which could trigger deflation in wages and UK home prices.

DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.

Time to invest in helium?

One for the commodity punters: the Daily Mail reports on the potential price boom in helium:

The world's biggest store of helium - the most commonly used inert gas - lies in a disused airfield in Amarillo, Texas, and is being sold off far too cheaply.

But in 1996, the US government passed a law which states that the facility - the US National Helium Reserve - must be completely sold off by 2015 to recoup the price of installing it.

This means that the helium, a non-renewable gas, is being quickly sold off at increasingly cheap prices, making it uneconomical to recycle [...] The US stores around 80 per cent of the world's helium and so its decision to let it go at an extremely low price has a massive knock-on effect on its market. [...] The only way to obtain more helium would be to capture it from the decay of tritium - a radioactive hydrogen isotope, which the U.S. stopped making in 1988.

The article says that because of the too-low price, it's being used very much faster than it can be replaced and reserves will be used up in 25 years. Professor Robert Richardson of Cornell University is arguing for a return to the free market in this commodity.

According to this site, major companies supplying helium in the US are Air Products (NYSE: APD) and Praxair (NYSE:PX).

Too exciting for me as an investor, and besides I don't know when in the next 25 years the market surge might start, if at all. But it's another story in the saga of finite world resources.

DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.

When will the bear market end? How bad will it get?

Tim W. Wood at Financial Sense reckons the last bull market ran from 1974 to 2007 (extended by government interference or support, depending on your point of view). His research tells him that bear markets last one-third as long as the preceding bull market, so he sees the present stockmarket rally as a "dead cat bounce".

That's my gut feeling, too, though I'm aware of the dangers of confirmation bias.

Below, I give two charts showing the course of the Dow from August 1929 (close to its pre-Crash peak) to August 2010, 82 years later. The first shows the raw index, which as you see only breached the 2,000 mark in the late 80s, making the last 20 years look freakish.



The second adjusts the Dow for inflation as measured by the CPI, so we can see where we are "in real terms" in comparison to the great speculative bull market of the late 1920s. Note that the recent low point (March 2009) is above the high point of the bull run that ended in January 1966, whereas the low of June 1982 was less than 40% of the 1929 peak.


If the eventual market bottom this time has the same relationship to the 1966 peak, as 1982 had to 1929, the Dow should go below 5,200 points (adjusted for inflation between now and the future low point).

So much has changed over the last 3 generations that the attempt to turn historical data into predictable cycles may be fruitless. On the one hand, debt is now an even greater burden than in 1929; on the other, big companies are multinational and the fortunes of Wall Street are less bound up with those of Main Street.

Yet global trade means that the fortunes of sovereign nations are increasingly interconnected, and while China is set to overtake Japan in size of economy, it is also (apparently) heading for a Western-style banking bust; should China choose to raid its overseas investments to tackle such a crisis, then the American markets (where China holds over $1 trillion of assets) are in trouble.

I still feel that a major breakdown is on the way, I just don't know exactly when. It's like waiting for the Big One in California: every day it's "not today", yet it's never "never".

DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.

Killer facts about the British standard of living

Average income in the UK is lower than in the Falkland Islands.

Iceland's per capita income is 14 rungs higher than ours.

Norwegians earn 2/3rds more than we do.

https://www.cia.gov/library/publications/the-world-factbook/rankorder/2004rank.html?countryName=Iceland&countryCode=ic&regionCode=eu&rank=20#ic