Sweet and sour economics

An Australian lawyer has commented on my inaugural post, which was a review of Michael Panzner's prescient "Financial Armageddon". He (or she) says:

I got a copy of this book. I found it somewhat depressing. Don't get me wrong, it was realistic and all. Thing is the scenarios were done in a pretty pessimistic way—at least for my liking.

My reply:

Sourness tends to go down badly with the enviably vigorous and cheerful Australian, but remember the irrationally exuberant times in which this book was written - in a way, it was a spoonful of vinegar to make the toffee mixture right.

Three of the four problems are finally in public debate; the question now is whether the derivatives market will be brought under proper control before a disruption there causes a crisis that the current economic system can't handle. Theoretically there is a counterparty for every bet, but if someone welches on a big one (and the derivatives market is inconceivably enormous) there could be a domino effect.

Depression is often swallowed anger born of frustration, which in turn comes from trying to fix things that are out of your control. The real lesson of this book is to turn to the things you can fix yourself. Get out of debt, develop more than one line of income, build up emergency reserves of cash, tools and supplies, build up and nurture your social network, consider where you should be residing in case society becomes unstable, and remember (as we were beginning to forget in those days) that life is not just about money. Especially when fiat money in its present form may be an endangered species.

What housing shortage?

Panellists on Radio 4's Any Questions? and Charles Moore in this week's Spectator magazine agree (with lots of others, it seems) that there is a housing shortage in the UK and the only question is how to satisfy it. I beg to differ, or at least think we can question the assumption.

1. "According to The Empty Homes Agency, there are an estimated 870,000 empty homes in the UK and enough empty commercial property to create 420,000 new homes", according to the BBC website section on Homes.

2. There are over 245,000 registered second homes in the UK, according to Schofields home insurers.

3. The 2001 census showed that average home occupation in England and Wales had declined from 10 years before, from 2.51 to 2.36 persons.

4. According to the official Housing Survey of 2008/9, 7.7 million households were couples with no dependent children; there were also 6.2 million single person households (up from 3.8 million in 1981).

5. The same survey showed that the average (mean) dwelling had 2.8 bedrooms, rising to 3.0 bedrooms for owner-occupiers. Fewer than 3% of households were defined as overcrowded.

6. According to a 2005 Home Office study, there were 310,000 - 570,000 illegal immigrants in the UK, a figure which MigrationWatch thought to be underestimated by 15,000 - 85,000. This is a separate issue from the 8.7% of the population who are economic migrants to the UK, and whose real net contribution to the economy (after taking into account all benefits to which they and their dependants may be entitled) is a matter of debate.

We are not in the situation we faced in 1945, when soldiers returning home from war squatted on military sites and even caves. The modern "housing shortage" is an arbitrary notion.

Real and imaginary threats to America

These are wild times and there are definitely things to worry about, but unfortunately the rains of misfortune are also bringing many crazy worms to the surface.

For instance, one story doing the rounds is that the 5.8 quake of 23 August 2011 (I was in Long Island at the time and it was mildly interesting) was caused by a nuclear explosion. For some, this segues into talk of a vast secret network of underground tunnels, stolen nuclear weapons and some kind of underground battle. Illuminati, aliens, the lot.

Worse, the excitable conspiracy theorists appear to be doctoring the data. See the alleged seismograph readout in the link above, which looks most odd because (unlike with normal earthquakes) there seem to be no p-wave tremors before the major shaking; then see the actual readouts from the Seismological Observatory at Virgina Tech. To save you the bother, here they are:

What are the nutters thinking when they do this? Are they like those mediaeval monks at St Denis, Naples and elsewhere, who created and manipulated effigies so that they appeared to speak to the faithful? Believers themselves (we must hope they were not simply cynical), they considered it their duty to perpetrate pious fraud in order to foster the faith in others. Is that what we have here, now?

Yet it seems there are more mundane, yet real, threats we should guard against. For example, according to this article (htp: Robert Wenzel) it seems that the United States government is choosing where to hold a trial for Julian Assange, according to vested local interests that may influence the kind of jury he will face. If true, this makes a mockery of justice - and my reading of John Grisham's fiction suggests that such manouevres are quite believable, perhaps common.

Meanwhile, Americans are thrown into a panic by the Islamic bogeyman, who in the worst atrocity on US soil ten years ago claimed under 3,000 lives. Every life counts, and we have New York fire and police in our extended family, so I don't for a moment undervalue the horror of what was done that day. Yet look at the year 2000 for comparison: the 9/11 toll is less than deaths ascribed to asbestos (3,750), medication errors (7,391), chewing tobacco and snuff (7,430), alcohol (85,000), infections acquired in hospitals and long-term care facilities (90,000), medical errors (98,000), adult obesity (111,909) and active smoking (389,290). Should the Patriot Act include provisions for hunting down and destroying brewers, tobacco companies, insulating firms, doctors, nurses and the makers of Twinkies?

The real threat to America is its own government, which uses fright tactics to cause its citizens to abandon their Constitutional safeguards against tyranny. The battle may be lost here in Britain, where our unwritten constitution has been so easily and quickly subverted; but I would urge my American friends to go back to those yellowing documents stored in Washington DC, so that "government of the people, by the people, for the people shall not perish from the earth." If you do not throw down your coat and stand to fight here and now, then where and when?

Who's bailing out Uncle Sam?

Just a couple of graphs to show which foreign countries have most increased their holdings of US Treasury securities.

The UK seems the odd man out, bearing in mind its own financial difficulties, but it is widely suspected that much of the UK's holdings are cat's-paw transactions on behalf of China.

INVESTMENT DISCLOSURE: None. Still in cash (and index-linked National Savings Certificates), and missing all those day-trading opportunities.

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.

Is gold still fairly priced?

At the time I first accepted Richard Daughty's argument that gold represented a great buying opportunity, I didn't have the money available. So, seeing the phenomenal rise in the price over the last few years, have I missed the boat?

It depends. Yes, if what I want is the chance to buy in well below trend and "make a killing"; but perhaps not, even now, if I'm merely seeking something that may protect my savings against inflation.

There are so many ways to define inflation, especially if you are a government incentivised to keep the official figure low. But let's take a look at one monetarist measure, the Mises Institute's "True Money Supply", and compare that to the price of gold since 1971 (the year of the "Nixon shock"):

According to the above, gold is just about on its long-term trend line; not a bargain, but that's not the issue here. However, that trend does include the dramatic spike of 1980, from which peak it took some years to climb down. So let's re-do the line from 1985 onwards:





Seen this way, we're a little above average at the moment, which is perhaps why Marc Faber is hoping for a near-term pullback of $100 - $200; but it's not egregiously high, which doubtless explains why he still sees it as his favourite investment.

Another straw in the wind is a comment by an investment banker on a recent blog-piece of mine entitled "Cash: the investment of the century". "Wolfie" says (Aug. 17):

"I'm currently 100% cash but I think the time has come to break cover and take a 30-40% gold holding. A storm gathers."

I certainly have to take seriously an industry insider who is clearly as bearish and cash-based as myself, but wouldn't you know it, I've been in the USA for the last fortnight and unable to do anything about it up till now.

Perhaps it's "a sign" that I was in NY for Tuesday's 'quake and had to fly out of Newark two days early, just ahead of Hurricane Irene. In any case, I'm now considering following Wolfie's suit sometime soon, even though I don't like the price much. For in the mass of unused money in bank holdings lodged with the Federal Reserve, and also with the more fortunate of transnational corporations who have been fleecing the American consumer for decades and blaming the Chinese who get to see only 15% of the action, lies true storm force potential.

I think we have some time yet before the cloud of cash makes landfall - I've been eyeing 2016 as the approximate end of the real underlying recession - but I shan't delay my preparations quite that long. As the ancient Greek saying goes, there is no borrowing a sword in time of war.

INVESTMENT DISCLOSURE: None. Still in cash (and index-linked National Savings Certificates), and missing all those day-trading opportunities.

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.

Nail that journo!

This site allows you to spot lazy journalists rehashing other people's news stories.

Htp: Autonomous Mind.

NY quake explained

Lloyd Blankfein dropped his wallet.