Zimbabwe: racism and international meddling

Mines in Zimbabwe

Zimbabwe on Saturday welcomed the failure of a Western-backed U.N. Security Council resolution to impose sanctions over its violent presidential elections, calling it a victory over racism and meddling in its affairs. (Reuters)

Racist...

Robert Mugabe is a member of the Shona tribe (as is opposition leader Morgan Tsvangirai), which comprises 70% of the population of Zimbabwe, occupying the centre and north of the country.

The Matabele (Ndebele) tribe, who tend to live in the southern part, make up half of the remaining minority, and (not surprisingly, in view of their post-Independence massacres by Mugabe's troops) are supporters of the MDC (Movement for Democratic Change). ''The denial of food to opposition strongholds has replaced overt violence as the government's principal tool of repression,'' the ICG wrote in August 2002.

Meddling...

Zimbabwe's natural resources include "coal, chromium ore [10% of the world's reserves], asbestos, gold, nickel, copper, iron ore, vanadium, lithium, tin, platinum group metals" (CIA World Factbook), and there are 10 or so foreign-owned mining companies operating there. The Zimbabwean kleptocracy has turned from seizing farms (which they either don't know how to run, or can't be bothered to), to grabbing controlling interests in foreign-owned firms, and a 25% no-compensation stake in mining companies. Presumably, in the latter case, they'll leave the operational side to the experts.

In 2005, the Chinese government and Chinese businesses supplied T-shirts for ZANU-PF supporters, jets and trucks for the Army, and the architectural plans and blue tiles for Mugabe's new 25-bedroom mansion. The recent attempt (April 2008) to ship a load of arms in, so that Mr Mugabe could deal with his little local difficulty, was described by the Chinese as "normal military trade". Annual trade between these two countries was expected to reach $500 million this year.

Zimbabwe is touting Russia for trade and business deals, including tourism (uniformed hunting trips in Matabeleland?)

Perhaps the reason 84-year-old Mugabe is hanging on, is that he and his entourage have a tiger by the tail. How could they get out of their land-locked country alive?

 

UPDATE

 

But why Russia? The New York Times fishes for an explanation as to why Russia indicates some willingness to consider sanctions, and then reneged, dragging China with her. The NYT is baffled, limply quoting the US Ambassador to the UN: “Something happened in Moscow.”

 

Could it be that Zimbabwe in itself has little interest for Russia, but this veto is a dog-whistle to other African nations where the Ivans may develop more serious business links?

 

Or could it be, as this blogger hypothesises, part of the Great Game between Russia and the US, particularly reflecting missile defence technology?

How skilfully does Robert Mugabe, the Dom Mintoff of East Africa, play off great nations against one another! If only his skills benefitted his country, also.

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UK the financial "black sheep"

The UK now has the worst fiscal profile of any developed country in the North Atlantic sphere.

Daily Telegraph (htp: Mish)

Are oil speculators to blame?

Russell Roberts at Cafe Hayek discusses a spam email from United Airlines, which blames speculation for much of the high price of oil. Naturally, he puts on his quizzical econ spectacles and says it's like blaming a thermometer for hot weather; but maybe that's just a bit too sideways.

For isn't it interesting that in 20 years, the proportion of oil contracts purchased by middlemen who don't deliver, has risen from 21% to 66%?

And isn't there a big Space Hopper of excess liquidity squmphing around the world's markets and destabilising them, as Dr Marc Faber claims? Indeed, Faber has spent years making money from predicting the future movement of this excess. In an interview on "Financial Sense" on January 12, Faber said:

... we had during the excessive consumption period 1998-2006, a current account deficit in the US that increased from 2% of GDP to over 7% of GDP, and at the end was supplying the world with $800 billion annually. And this river flows into the world through the American current account deficits, and essentially provided the world with the so-called excess liquidity and created booms in everything from art prices to commodities, stocks, bonds, real estate, what not.
I suggest that now that the Space Hopper has been punctured, the speculators riding it have been squmphing around even faster, trying to visit as many markets as they can before their toy goes totally flat.

Dow and FTSE: making progress towards fair value

Time for some bankers to pack their bags

Karl Denninger continues his holy-roller rant against banks, supervisory authorities etc and reiterates the need for all the financial horror to be made plain. This is what ought to happen, but I'd have thought it's obvious that the results are likely to be so painful that delaying tactics will continue for as long as possible.

One of the outcomes, he thinks, will be major lawsuits:

We haven't even gotten to litigation risk yet, but you can bet we will. I envision racketeering suits coming in the next year or so as its rather apparent to me that this was not some "rogue deal" but rather a systematic approach to intentional understatement of risk.

I wonder how many banking and rating agency executives are even now quietly liquidating their assets and checking which countries do not have extradition agreements with the USA.

Brunei, Kuwait, the Maldives, the Philippines, Qatar, Tunisia and the UAE could be bearable; some might even allow you to buy a drink. Samoa?

Vietnam's on the rise, even if the dong is under pressure at the moment. Dr Marc Faber has an interest there, and he is no fool.

Why were construction companies caught in the credit crunch?

That's my question. Years ago I went to a Midlands construction company to prospect them for business, and learned that they had a long-term strategy of buying land when the market was depressed and developing it when the upturn came (well, duh, you're saying, doubtless). They'd done this for several business cycles, as (I assume) any well-established firm in their sector would have done.

It was obvious to me ages ago that house prices had gotten silly. How did major building companies get it so wrong this time, when watching the trend is so fundamental to their survival?

Commodities fall needed to rescue share prices

Bill Cara: "the new reality today is that Crude Oil at about $90-$100 and Gold at $820 is required to stave a total collapse of securities prices across the board. If that’s what the authorities want, ultimately that’s what they will get."

Mr Cara is also expecting many banks to fail.

Special education funding increases clientele

Over at Cafe Hayek, the cheery US econ blog, a report that funding special needs in education turns schools into bounty hunters and expands the market. The increasing value of "Special Ed" brings more marginal land under cultivation, so to speak.

Being in this field myself, I hear rumours that the UK's current approach to individual assessment and funding of special needs will eventually be phased out, to be replaced by some formula for grants to schools, perhaps based on such factors as the proportion of pupils receiving free school meals. Presumably the schools will then have to be more expert in diagnosing and addressing such special needs as may exist among their intake, but I wonder whether the extra funding will be used strictly for that purpose - or pay for more computers, sports equipment, an upgrade to the Head's Lexus, who knows?

On the other hand, you could hardly have a lengthier, more cumbersome and expensive approach to special needs diagnosis, than the one we have now. I get letters from educational psychologists dictated onto their snappy little digital dictaphones, but typed 6 - 8 weeks later and finally received (by second class post) after a further two weeks. Good thing these kids aren't being treated for busted legs.

Checking your deposit protection may not be enough

1. "total credit losses from subprime mortgages and other bad debts could reach a staggering $1.6 trillion"

2. "The FDIC has $52.8 billion in its insurance fund to cover bank failures."

Education, literacy and discipline

A thread began at Alice's, originally about the decline in manufacturing industry, but moving on to the expense and alleged uselessness of public services, particularly education - bring back the cane, we're turning out kids who can't read, etc. Here's some news from the front:

When it was available, corporal punishment didn't have to be used often. An unexpected consequence of the ban-the-cane soft-handedness is that children are now assaulted by each other much more frequently, and quite often in the classroom in front of the teacher - whom G*d help if she (and it will usually be a she, these days) tries to get involved.

But as to functional illiteracy, in the absence of old-style discipline (and I agree that schools are not nearly brutal enough), maybe we've got almost as far as we can go, because we're swimming against strong tides. In the past, we had a literate culture and media, and parents who reinforced social rules and had aspirations for their children. The children of today are more likely to have complex and dysfunctional homes, their TVs (I often turn off at 9 to avoid the crapshed) and computers are full of violent fantasy and their neighbourhoods are ruled by postcode-based gangs rather than the police.

With the best will in the world, teachers cannot impose marital fidelity, sobriety, male employment, moral self-restraint in public entertainment, and the free run of the Queen's writ throughout her realm. Quite seriously, we in the education system can hear the creaking and groaning from the pit props in the mine.

Teachers will continue to be moderately well-remunerated as long as our rulers maintain the pretence that schools can do the principal work of child-rearing; when the scales fall from our eyes and we start to take responsibility for our offspring and the example we set them, schools will go back to standardised textbooks and employ humble, low-paid functionaries to steer the children through them. The public purse will benefit, and more importantly so will the next generation, for whom the present one has so little regard.

Dinner at G8

WORLD leaders sat down to an 18-course gastronomic extravaganza at a G8 summit in Japan, which is focusing on the food crisis.

Don't scoff.

I've tried to work up an alternative menu, esp. for Gordon Brown's place (roast turkey?), but so far all I can manage is the wine:

Sweet Cherie (n/a)

Sancerre smiles

Beau jolly

Sham pain

Con yak

Emerging markets inflation could break the current system

... says Nouriel Roubini, and there's already a fund to speculate on consequential revaluation of developing world currencies, according to this.

Inside the news media

A comment from "Ryan" on the previous post is too good not to feature up-front (hope you don't mind, Ryan):

My sister is a journalist, but stays away from the nationals. She points out that the big papers get all their real news from Reuters and the local papers, then work it up into a much bigger story. They don't employ many real reporters or journalists - its too expensive. They prefer talking heads that can offer news-views which add a narrative to a story dug up by someone else and which matches the editorial line of the paper.

My sister also tells me that the papers have dirt on almost every public figure, but they CHOOSE who to turn over. This gives them enormous power over those that they chose to support - they can make you king one day and pauper the next. You can see they do this all the time with celebs, building them up one year and tearing them down the next, but we never imagine that they employ the same tactics with politicians - but they do.

She used to tell me all the tactics that papers would use to tell a story their way with their own spin on it. For instance, how often have you seen a phrase along the lines of "A spokesman said"? No name given. Why? It means the line was made up by the writer and attributed to someone real to give it substance. "A spokesmon", "unnamed sources", "A source within the Labour party" etc etc etc. Yes, they may all refer to a real person - but they could just have been made up by the journo to get his opinion across whilst making it sound like he has his finger on the pulse.

She showed me a story that she sold to the Guardian for £50. It was one column inch. The Guardian worked it up to half a page - all of it made up and based on opinion. She was pissed off: "I should have got £2500 if the story had really been that big!"

Take a story, remove the bits that are attributable to named sources - and what is left is usually made up. The attributable bit has probably come right from Reuters. That's why I don't read papers anymore and rarely watch TV news. Its 90% made up by wet-behind-the- ears kids that know nothing about the world we live in but make up a narrative for the news that suits their editor.

Can anyone else give us any more on the ways of journalists and the news media, please?

Here is the news

Lead story on Classic FM news this morning: "It looks like Britain's heading for a recession."

FLASH: Queen Anne's dead.

Where does the news come from? Is it any use? 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.

December 1, 1978: publication of the Times and Sunday Times suspended for 11 months. During the journalists' industrial dispute, a spoof paper comes out, called "Not The Times". At that time, a strap line for the Financial Times was ""Don't you wish you were better informed?", so the send-up featured a picture of a steam locomotive that had crashed right through the wall of a railway terminus and down onto the pavement beneath, with the headline "What could you have done, had you been better informed?"

...this one, as I recall

Useless, or trivial. As the Poet Laureate Alfred Austin wrote about the terminally-ill King Edward:

"Along the wire the electric message came,
He is no better, He is much the same."

So, who determines the news agenda? Are journalists much cop any more? Are they allowed to be?

... which brings us back to gold.

A quote from the Economist article cited yesterday:

real returns from American shares were just 0.1% a year from 1966-81; they fell a dismal 1.3% a year from 1973 to 1981.

Although that performance was much better than the painfully negative returns suffered by holders of government bonds, it was a long way short of the 6-7% returns that shares have historically achieved. Gold was a much better inflation hedge, earning an annual 10.9% in real terms between 1966 and 1981.

Which is, I suppose, what Marc Faber means by recommending gold at this point.

Inflation bad for investors as well as depositors

I wondered recently what was the effect of inflation on shares - are they a hedge? Past history suggests not.

Now there is corroboration from a more distinguished source - the Economist.

And Nicola Horlick says don't buy shares for 2 - 3 years.

Well now, I've been leading the experts for a while. When I call the bottom correctly, it'll be time to start my own hedge fund. Usual terms: 2 and 20.

Government and homelessness

The "Pathfinder" project for urban renewal has come in for some criticism, because so far it's meant a net loss of 9,000 homes and many of those whose houses have been demolished have not received sufficient compensation to buy something similar elsewhere (see here and here, with an attempt at more balanced discussion in the Liverpool Daily Post).

I suspect we don't have a housing shortage, but a housing misallocation. There are lots of old people rattling around in houses too large for them, and too expensive for them to maintain properly. And how many million bedrooms have been converted into domestic gyms, games rooms etc? We simply expect far more space than we used to, and so the "shortage" is a function of our choices.

But there is a limit on land space, if we want to retain the capacity to feed ourselves in hard times. Maybe we should review policies on housing, housing benefit, local taxation etc. And the policy of using foreign labour to keep down wage rates, and so create traps for our working and under-classes. And is there a Gramscian plan to undermine the cultural cohesion of the country by means of deliberate negligence in border controls, with the side-effect of worsening the pressure on accommodation?

Governments have a talent for creating problems that will long survive them. After four centuries, Northern Ireland still has its difficulties. And look at Fiji, where a century ago British planters imported Indians for indentured service periods of ten years. By the end of their contractual decade, quite naturally the labourers had married, had children and put down roots in the island. The historical result is festering resentment between ethnic groups, leading to outbursts such as George Speight's rebellion in 2000.

Similarly, covering England's green and pleasant land with concrete, tarmac and brick will also have persistent unpleasant consequences. And is there any way to change it back? Could we put a foot depth of earth along a disused motorway to convert it to arable use? So, new building on agricultural land, flood plains etc is tricky, and now we are seeing some of the problems of brownfield development.

But there's a huge number of houses built in the Thirties that need refurbishment. There may be a boom in plumbers, plasters, electricians and bricklayers; while at the same time we may see growing white-collar unemployment, as a result of outsourced information-processing. Maybe the working class will be victorious, after all, while the chattering classes fill holes in their shoes and jumpers with old copies of the Guardian.

I know it can happen, because it did happen in the Thirties - read Helen Forrester, whose debt-burdened middle-class father made the mistake of leaving London post-Crash, to return to his Liverpool birthplace, where the parish had no statutory obligation to support him. Helen wrote that if the Depression comes again, the things to stock up will be newspapers, razor blades and soap. And in her case, a purse inside her clothes so that her own family couldn't steal her meagre savings.

What are recessions and bear markets?

I'm reading picky definitions, e.g. a bear market is one that drops 20% in two months, and a recession is two quarters of negative GDP.

Says who?

What we're in now waddles and quacks like a duck, and darned if it isn't a duck. I say we're in a recession and a bear market, and have been so since the year 2000. A recession, because our manufacturing industries are in steeper decline and will take the rest of the economy down slowly with them*; a bear market, because the stockmarket is more likely to go down than up, over the course of the next year or two.

I once paid for a repair to a slow leak in one of my tyres, and only when I ran over a nail did I discover that the repair had been effected using an old-fashioned inner tube. It went totally flat in two seconds. Thank goodness I wasn't on the motorway. Now, any problems, I get a new tyre.
Monetary inflation was used as an inner tube to repair the economy from around 2003 on. Subprime was the nail.

* For corroboration see "Alice" on the UK current account deficit and our declining trade.

Make the punishment fit the crime

After this, and this, I begin to think about about the return, not only of capital punishment, but the gibbet. I really never thought I'd get to this stage; but I never thought society would, either.

Blaming the prophets

In this week's Spectator, Christopher Fildes discusses the way short-sellers get blamed for market falls, although they take hair-raising risks in doing so. He paraphrases Fred Schwed on the unfairness of such criticism: "In good times, he said, nobody minded the short sellers except their families, who minded going bankrupt. In bad times they were a receptacle for blame." I'd go back further:

But who wants to be foretold the weather? It is bad enough when it comes, without our having the misery of knowing about it beforehand. The prophet we like is the old man who, on the particularly gloomy-looking morning of some day when we particularly want it to be fine, looks round the horizon with a particularly knowing eye, and says:

"Oh no, sir, I think it will clear up all right. It will break all right enough, sir."

"Ah, he knows", we say, as we wish him good-morning, and start off; "wonderful how these old fellows can tell!"

And we feel an affection for that man which is not at all lessened by the circumstances of its NOT clearing up, but continuing to rain steadily all day.

"Ah, well," we feel, "he did his best."

For the man that prophesies us bad weather, on the contrary, we entertain only bitter and revengeful thoughts.

"Going to clear up, d'ye think?" we shout, cheerily, as we pass.

"Well, no, sir; I'm afraid it's settled down for the day," he replies, shaking his head.

"Stupid old fool!" we mutter, "what's HE know about it?" And, if his portent proves correct, we come back feeling still more angry against him, and with a vague notion that, somehow or other, he has had something to do with it.

Jerome K Jerome: "Three Men In A Boat", Chapter 5

So, don't blame me, please, but I still think investors won't be out of the woods until 2010.

Credit default insurance and murky dealings

You have to have car insurance, it's a legal requirement. So it occurred to me a long time ago that you could make some money selling very low-cost car insurance that (when you looked at the fine print) promised nothing, thus making a safe profit for the company, fooling the regulators and satisfying the cheapskate customer, all at the same time. Fine, till the regulators find out.

According to Karl Denninger today, this is exactly what's happened in the case of UBS insuring one of its mortgage debt packages against default losses. The insurer, it's alleged, has totally inadequate capital for the insurance it's undertaken, but the insurance suited UBS because it permitted the stinking package to be left off the balance sheet.

Oh, to be a lawyer now.

Housing: have we reached the "point of maximum pessimism"?

Blanche Evans of Realty Times thinks the most of the bad news in housing has already been built into the market; she was interviewed on iTulip a couple of years ago, predicting a downturn but also saying that housing would be supported by the government, to some extent.

Benjamin Graham said we should “buy from pessimists and sell to optimists”. The smart money has done the second part, maybe it should look out for the first soon.

Peter Schiff using the word "collapse"

Some hot collars in this discussion. But a question does arise for me, which is this: if the US economy has to be rebased on savings and investments, but the sinking dollar raises prices of food, fuel etc, it's going to be very hard to find the money to improve the savings rate. Especially if those who have serious money are doing what Schiff and others would recommend as their financial advisers, i.e. buying foreign stocks and holding foreign currency.

And the same goes for us in the UK, I would think.

Could deflation reduce the price of gold?

Last year, Robert McHugh predicted that the Dow would drop to 9,000, at least in terms of the price of gold. By January 22 this year, that had happened.

But people like Karl Denninger have been saying for a long time that the outcome of the credit crunch will be deflationary, and Mr Denninger is more emphatic than ever about that now. And that's not just the view of a private investor who backs his judgment with his own hard-earned money: the Bank for International Settlements (htp: Michael Panzner) also thinks deflation a serious possibility.

I recently did a little primitive chartism and thought it possible that the Dow might revert to what looks like a longer-term trend line that includes the 9,000 mark.

Turning to the price of gold, it has certainly soared over the past few years, but there's been debate about manipulation. Frank Veneroso thinks central banks have been releasing stocks of gold to keep the price down, yet at the same time it is suspected that speculators have been boosting the price, possibly using leveraging (borrowing extra cash to increase the returns).

So another way for McHugh's prediction to come true (again), would be for both the Dow and the gold price to come down together. The ratio implicit in his prediction (13.51) could imply that the Dow hits 9,000 and gold drops to about $666 per ounce, or about 30% off where it is now.

Not impossible, if leveraged speculators have to disinvest to repay their borrowings in a hurry; and it would still only be a reversion to where gold was two years ago (and even then, nearly double what it had been three years before that).

Investment challenges in a bear market

If you don't believe me, believe a sophisticated investor like Karl Denninger:

One thing to remember folks - the test of your prowess as an investor does not come in a bull market. It's easy to make money in a bull market - you just buy the index.

No, the test is whether you keep your money in a Bear market. Note that I didn't say "make money". I said keep your money.

If you have the same amount of money now in your investment accounts as you did at SPX 1576 in October, you are doing better than 90% of all institutional money managers and 95% of all individual investors. This puts you in the top 5% - and that's just by going to cash in October and sitting on your hands.

If you've actually made money since then, you're in the top 1%.

The potential for Near Eastern industrialisation

Why shouldn't the eastern seaboard of the Mediterranean bcome a manufacturing centre to rival any in the world?

• There is still a vast amount of oil in Arabia, but water, too - e.g. under the Judean desert, plus three aquifers under the Sahara.
  
• The dry atmospheric conditions are conducive to the long-term storage of stocks of new cars, planes etc.
• The sunny region would be very suitable for "green" energy systems, too, such as solar updraft towers.
• The Arab leaders have enormous reserves of capital.
• There are many people in those countries who would benefit enormously from the work and wealth if their countries industrialised.
• There is land a-plenty for development.
• The eastern Med is beautifully located for producers to get their goods by sea to Western European and North African markets, and the Red Sea for the Middle and Far East.

I don't see why it couldn't happen, once political peace and good governance are established - and what incentives to do so!

Marc Faber update: take refuge in gold

Dr Faber has become a gold bug again, but is expecting a correction in other commodities. In a climate of low interest rates and high inflation, Adrian Ash seconds the call for gold.

And here's an extract from Faber's monthly "Market Comment" three years ago (July 5, 2005):

... Lastly, think about the following situation. The US manufacturing sector becomes very weak. The housing market falls and consumption declines. But oil goes through the roof because the empire of eternally rising home prices has just bombed Iran (very likely, in my opinion). Now the Fed cuts interest rates and eases massively. Just think what the stock, bond, foreign exchange, and gold market will do? The initial reaction might be a flight to safety – into government bonds and gold, and out of stocks. But, thereafter, a massive sell-off in bonds could occur as inflationary pressures build from sky high energy prices and massive money printing.

I have to confess, that I am not so sure exactly how this situation would play itself out, but it is worth thinking about it.

Worth the US$ 200 annual subscription, you may think. Especially since some of it goes towards the education of poor children in northern Thailand.

Janszen says next bubble will be in energy

A "bubble cycle" instead of a business cycle... house prices to revert to trend and fall 38% from peak... a $12 trillion gap to plug with fresh securities in a different sector as the current bubble collapses... government legislation to clear the way for the speculative rush... $12 tn + an extra $8 tn = $20 tn... it's going to be... ALTERNATIVE ENERGY.

Read iTulip founder Eric Janszen's Harpers article.

"Caloriefornia or bust!" Any views from energy investment specialists (e.g. Nick Drew)?

A defence of blogging

In early times, learning was only to be had by digging and mining; it is now the circulating medium. Men may become learned in many ways besides the means of erudite courses of instruction: that is learning which enables a writer to inform his readers of matters applicable to the purposes of either profit or pleasure, of which they were not previously aware. In this sense, many are learned who do not suspect themselves in possession of this envied distinction. A prejudice lingers, however, in favour of that description of learning gained by hard study over tall books, and under the dim light of the lamp. But this is only the theory: in practice, men appreciate the living learning only which cheers the evening of leisure, or guides the daily labour - enlightens the professions, or instructs the statesman.

From "The Spectator" magazine, inaugural issue, July 5, 1828.

Yet how swiftly do some other publications forget their humble origins, which have subsequently attained eminent status. "Private Eye" lampoons the "online community" in its column "From The Message Boards"; but in 1961, there were its founders Christopher Booker and Willie Rushton, using typewriter, Letraset, hand-drawn cartoons, scissors and glue (in Willie's mother's flat, I seem to remember) to compose their witty and scurrilous magazine; and the new technology of photo-litho offset to print it. How is this different from the homeworkers of the blogosphere, and the use of the new capabilities of the Internet? Was not Private Eye the original blogpaper?

Liberty Marr'd by its Champions

A gentleman writes, that Mr Andrew Marr, the news-reporter and erstwhile foe of judge-made privacy law, now desires to be kept privy not only certain information concerning himself, but also the knowledge that he has secured an injunction to that effect from the court.

If any correspondent should care to illuminate this dark matter, he shall find us all ears; though we grant, that ears cannot see.

Might it be item 35 here? As revealed by Guido in January?

UPDATE: Another gentleman writes in defence of Mr Marr's right to privacy

*** 2009 UPDATE: Alastair Campbell implies exposure of Andrew Marr

Making money out of distressed financials

Michael Panzner has come across a real estate blogpost that includes this idea:

Several of the deal guys said that banks they contacted three months ago about buying assets are all of a sudden calling back. Three months ago they said everything was fine. The idea du jour is to buy the bank to get the bank’s real estate. Sounds screwy to me but I’ll write some more about this one tomorrow.

This reminds me of something I read many years ago in "Adam Smith" (George Goodman) and wrote about here almost exactly a year ago - buying bankrupt (or nearly so) stock that includes the rights to tangible assets.

I don't have the cash or sophistication for this one, but maybe one of you out there knows how to work out whether a bank's shares are selling at a discount to the value of its underlying assets.

There's always an angle, isn't there?

Inflation not purely a monetary phenomenon

I'm puzzled. Milton Friedman said, "Inflation is always and everywhere a monetary phenomenon," yet when I apply this to the UK it doesn't work.

I looked at the Bank of England's figures for M4 from end 1963 to end 2007, and by my calculation the monetary base has increased by a factor of about 240; yet prices have increased only 15 times in the same period. (*)

Currently (and time permitting) I'm also working through David Hackett Fischer's "The Great Wave". In his concluding chapter, he lists seven different causal explanations of inflation, and none of them quite fits the observed facts, not even monetarism. For example, in the sixteenth century, European prices began to rise some time before the imports of gold and silver from the New World could have made a difference.

His idea is that inflation-waves are "autogenous" (don't academics love this kind of label?), by which he means that people make decisions based on current circumstances and their personal predictions for the future, and that helps shape the next set of circumstances. It's like watching a football game unfold, each player adjusting his movements according to his perception of the others.

Fischer thinks that one important factor in the price-wave of the Middle Ages was a trend towards marrying earlier and having more children, which put pressure on natural resources at the same time as altering the ratio of working adults to dependant children. Perhaps this has modern echoes in the growing longevity and reducing mortality rate in the developing world, plus the increasing numbers of dependant elderly in most places.

At any rate, inflation in the West is likely to become less susceptible to control by adjusting the interest rate. What will the Monetary Policy Committee do then?

Perhaps it might help if we established some control over the actual amounts pumped into the economy by the banks (and other creditors). I can dimly remember the news in the 60s, about limits on how much you could borrow to buy fridges, washing machines etc - apparently a minimum deposit was a requirement of the Hire Purchase Act 1964.

However (it seems), Japanese manufacturers found ways to get round this and offer (in effect) 100% loans, and then came the pandemic of credit cards, starting with "your flexible friend" Access (1972). Telegram Sam the drug dealer is always friendly, at first.
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(*) Unless, of course, the discrepancy is accounted for by (a) the need for the monetary base to expand each year to cover interest on loans already made, and (b) much extra money being locked-up in real estate - an awful lot of building and rebuilding took place as the postwar economy recovered.

Investment, inflation and market collapses

We have had no fewer than three major financial institutions (outside the US) call for an utter collapse of the equity markets in the last two weeks.

... says Karl Denninger. Seems like the pros are sitting around waiting for someone else to panic first. Then it'll be time to get in, right?

I recently looked at what happened to shares when a period of inflation begins. You might think that since inflation will also balloon the underlying tangible assets of companies, shares would do okay. But here's the results:

If you're an active investor, you may start thinking about opportunities. Look at the red zones. Draw a line from a deep points to a high one, and feel the greed; but draw lines from a temporary rally to another low, and feel the disappointment. You do need to get your timing right.

But inflation heavily penalises the passive investor, too. His boat settles onto the harbour mud; while the unlucky speculator dives headfirst off the retaining wall, deep into the goo. Inflation raises the risks for all.

Crime and punishment

Henry Wallis: "The Stone Breaker" (1857)

(I've brightened Wallis' painting above, but the foreground in the original is very dark, making a contrast with the gleaming, unreachable beauty of the twilit sky and its reflection on the lake.)

In a country with proper justice, nobody would dare intimidate a witness.

In such a country, wrongdoers are afraid of the law. They'd know that such a crime would certainly be prosecuted and that they'd end up doing at least 15 years breaking rocks.

... says Peter Hitchens in today's Sunday Grumbler.

"Pitee renneth sone in gentil herte," said Chaucer, sometimes ironically. The worthy compassion shown to unfortunates by the Victorians has, gone too far, some argue.

But there are now different reasons to pity. Prisons do not punish the wrongdoer in the old-fashioned ways, but the incarcerated man is no longer protected against bullying, beating, buggery and theft. In how many movies do we hear the police threaten a criminal with what his fellows will do to him in prison? Judge Mental does not put on his black cap and say, "You will be taken from here to a place of detention where you will have your arm forced up your back and..."

Then there's life outside, for the neglected underclass. "Theodore Dalrymple", a doctor who has dealt with many prisoners in Birmingham (UK), used to note in the Spectator magazine that prisoners' health improved considerably in prison, because of no (or reduced) access to drugs. Read the good doctor here on how the liberal approach to mind-altering substances is pretty much a sentence of death (prolonged and degrading). Here's an extract on alcohol:

I once worked as a doctor on a British government aid project to Africa. We were building a road through remote African bush. The contract stipulated that the construction company could import, free of all taxes, alcoholic drinks from the United Kingdom...

Of course, the necessity to go to work somewhat limited the workers’ consumption of alcohol. Nevertheless, drunkenness among them far outstripped anything I have ever seen, before or since. I discovered that, when alcohol is effectively free of charge, a fifth of British construction workers will regularly go to bed so drunk that they are incontinent both of urine and feces. I remember one man who very rarely got as far as his bed at night: he fell asleep in the lavatory, where he was usually found the next morning. Half the men shook in the mornings and resorted to the hair of the dog to steady their hands before they drove their bulldozers and other heavy machines (which they frequently wrecked, at enormous expense to the British taxpayer); hangovers were universal. The men were either drunk or hung over for months on end.

Our soft-handedness on crime and drugs, is really an extreme hard-heartedness.

The economy is like a rainforest

The news always speaks of "the economy" as though it was one homogeneous whole. In fact, it's a host of micro-economies, financial equivalents of ecological niches.

In the rainforest, there are places that are light or dark, hot or cool, high or low, wet or dry. In the economy, there are savers, borrowers, amateur and professional investors, crooks, marks, young bold, cautious old, workers, shirkers and berserkers.

So centralised economic policy is enormously difficult. An intervention that helps one part, may hurt another, and further action is implied. It's like the tablets for hypertension that give you gout, which means you need tablets for the gout, which are likely to harm the lining of your stomach. Some might say, throw the lot away and have a glass of sherry before bedtime.

Or, in rainforest terms, let each species find its niche and organise its own survival strategies.

But I don't think this is an argument for complete liberal laissez-faire. To extend the analogy, maybe it's better to prevent harm than to seek to do good; the forest guardians need to control the rubber and banana companies, the clear-cutting loggers and polluting miners.

Dow Jones - worse bubble than the FTSE?

Just out of interest, I thought I'd do the same trend-spotting exercise for the Dow Jones as I did yesterday for the FTSE, i.e. extrapolating the highs and lows in the late 80s and early 90s.

The results are very different. October 2007 saw the Dow's highest-ever peak, and today, after falling over 2,000 points from that point, it still stands about where it was in the tech bubble of December 2000 (see yellow line).

And my hi-lo wedge (red lines) suggest that the Dow has been seriously above trend for most of the last 11 years. Of course, you can draw lines however you like, but I'm trying to do approximately the same as for the FTSE and the implication is that the Dow "ought" to be between 7,000 - 10,000, centring around the 8,500 mark. This chimes with what Robert McHugh predicted last year (9,000). (If you draw the "high" line to connect the '87 and '94 peaks, the hi-lo lines converge towards 7,000!)

I wonder what's keeping it up?

Stockmarket crash - a golden opportunity

I thought I was a bear: Wolfie says there's near-panic, City Unslicker talks about the FTSE losing a couple of thousand points, now Richard Lander on CityWire reports a prediction of the FTSE as low as 3,000 and another 60% to come off the S&P 500.

We could be approaching a once-in-a-generation Templeton opportunity, a financial fire-and-forget that could richly reward those who save very hard right now. Give the rifle another pull-through, hitch up your belt, and wait...

The FTSE - semi-wild guesses about fair value

I suggested on Wednesday that the market may already have lost much of its bubble, considered in real terms, and here below is my simple attempt at chartism.

What I've done is to draw two purple lines, one connecting the lows in the mid-80s/early 90s, and the other the highs in the same period. I've chosen that time-frame because it's before the silliness of the late 90s, and it does also include a period when the UK economy was in the doldrums.

Using these parameters, the late 90s and early 00s were well above trend, whereas last year's highs only just peeped above the upper line and the current value is hovering a little above the centre of the hi-lo wedge.

The implications are that the next low, if it comes soon, shouldn't be worse than around 4,500, and by 2010 (when I'm guessing the tide will turn) the bracket would be in the 4,700 - 7,000 bracket, with a midpoint of c. 5,850.

Taking the market at close yesterday and extrapolating to that 5,850 midpoint, would imply a future return (ignoring dividends) over the next 16 months, of c. 2.5% p.a. - not nearly as good as cash, especially in an ISA. On the same assumptions, to achieve an ex-dividend return of 6% p.a. would require entry into the market at c. 5,400.

On this tentative line of reasoning, we should be looking for a re-entry opportunity somewhere in the 4,500 - 5,400 level, say 5,000. Shall we wait for the next shoe to drop?

Inflation vs deflation - the iTulip debate

Find the time to have a look at this in iTulip. Lots of plums in this cake, including a suggestion that the USA is quietly negotiating a replacement for the dollar, with the Chinese. And 30% annual inflation in a few years' time.

How much of the crash is behind us?

The FTSE is closing somewhere around 5,666.10 today. It closed at 5,709.50 on 17 February 1998, which was the first time the market had breached today's level.

So we've spent a little over 10 years to get nowhere in nominal terms, and meanwhile the value of money has dropped by approximately 25%.

Yes, shares pay dividends, but most people buy them as part of some collective arrangement that involves initial and recurring charges and/or fees. After charges (and taxes, remember), it would have taken a net dividend yield of about 3% per year simple, or 2.65% compound, merely to replace the value lost to inflation.

So quite possibly the putative investor in the FTSE has actually fallen behind where he was in 1998.

Are the pessimists lagging behind the news? Has the worst happened already?

Littlejohn vs Toynbee

"... do you think about global warming when you're flying to your villa in Italy?"

A sought-after moment, I believe.

Investment in agriculture sparkles

Watching the idiot's lantern last night and who should be interviewed (on the subject of food prices and speculation) but Hugh Hendry, about whom I wrote last year. And his CF Eclectica Agriculture Fund currently ranks top out of 317 in the sector (up 35% in a year).

Of course, the poor are being hit badly (not the poor here, who aren't really poor). Hendry argues that rising food prices will encourage more (and much-needed) investment in agriculture.

Taking a line for a walk

Timothy McMahon at FinTrend reckons we should be looking to buy into US stocks this summer, using the rate of return graph above.

How far should we heed the chartists? Like cardsharps fleecing marks on a sinking Mississippi paddlewheeler, are they better at short-term plays, but inattentive to catastrophe?


Wreck of the "Sultana" off Memphis, Tennessee, April 27, 1865

Does freedom from self-destruction need a nudge?

I recently wondered whether freedom may not sometimes be an internal issue, as well as external. Isn't addiction a condition of being unfree? Is there some way of helping the unfree, without illiberal coercion?

As it happens, this is the thesis of a new book, "Nudge", by Richard Thaler and Cass Sunstein. It is critically reviewed by David Gordon here on the Mises website.

We are already being heavily nudged by our tax-greedy government and large commercial concerns, to gamble and drink away our wealth and future security. Surely there are ways in which we might diminish the temptation a little, to increase the possibility of rational, self-beneficial choice.

Comparisons are odious

Why has the American stockmarket done so much better than us since 1990?

And which way will these lines turn now?

Plodding On

Lead story in The Grumbler today: "Police are forced to cut frontline jobs to save on fuel cost".

Of course, there's always foot patrols. Peter Hitchens has often pointed out the usefulness of walking the beat in preventing crime. It all went wrong in the Sixties. As J. B. Morton wrote in his fantasy-satirical "Beachcomber" column in the Daily Express at that time:

"A Dictionary For Today

...FLYING SQUAD: A special contingent of police whose business is to arrive at the scene of a crime shortly after the departure of all those connected with it."

So much for the pale blue Ford Anglia and the comical attempt to imitate American cops as portrayed in shows like "The Streets of San Francisco."

I had to trawl around to find what I remembered as the origin of the term "bobby on the beat", but here we are at last:

"A standard piece of police equipment from the 1830's to the 1880's was the rattle for raising the alarm, most operated like the standard football rattle, when twirled round it made a distinctive sound. In the 1880's the police began using a whistle in place of the rattle, early versions used the 'pea' type (still used by football referees) but in about 1910 the more familiar tubular 'air whistle' was invented. The whistle was carried inside the front of the tunic or jacket attached to a silver chain which was fastened to a button on the front of the tunic. When breast pockets appeared the whistle moved to the right hand pocket with a silver chain still attached to the jacket button. In practice the whistle was found to have limited range and a bobby calling for assistance would often beat his truncheon on the pavement to alert nearby colleagues. Police personal radios appeared in the 1970's and some forces had lost their whistles by the 1990's but other forces felt it was a part of the uniform and have retained it."

(Source)

And it worked. So instead of moving forward to the world of "1984" or re-creating the secret police of the Austro-Hungarian Empire, why don't we build on the notion of "Police Community Support Officers" (or "The Ankh-Morpork Watch" as my wife calls them) and revive the Watch as it was up until the early nineteenth century? The roots of our police force are in the citizens' right and duty to maintain order in their own communities. As motorised mobility for the peasantry declines, crime, its detection and punishment may well become localised again.

And a reduction in sophistication would be appropriate. The old police recruitment poster said "Can you Read? Can you write? Can you fight?" - not, "Can you gobble the punter's biscuits and swill his tea while expressing sympathy for his unfortunate experience and sharing his frustration at the powerlessness of the criminal justice system?"

Handy-dandy, which is which?

The two countries here each went to the polls to ascertain the will of the people.

The result in one case was declared unsatisfactory by the ruling party and an order given that the issue be readdressed within three months.

The result in the other case was declared unsatisfactory by the ruling party and an order given that the issue be readdressed within four months.

Robert Mugabe has yet to declare his candidacy for the Presidency of the European Parliament.

Now what?

Grasping the nettle

Read in the Daily Express (no snide comments, please!) appalling article about Stalin's "Poison Dwarf", Nikolai Yezhov, who was responsible for the deaths of some 3 million people, most of them innocent.

I suppose it's a dangerous question to ask, but is assassination always morally wrong? Was the life of Nikolai Yezhov really worth the lives of 3 million of his victims?

This article justifies it in the context of Israeli national self-defence (no spittle-flecked anti-Semitic comments, please, the same arguments can be expressed using other contexts), but what if the enemy is within one's own society? For example, was Stauffenberg correct in his attempt to blow up Hitler, his leader?

I suppose this must lead to the question of whether right and wrong actions receive their due in another world, rather than this one, where villains appear much safer, live much longer, than the innocent. Mao, Stalin, Pol Pot, Idi Amin...

Our dear representatives

htp: "Nomad", in his comment on the EU Parliament post yesterday.

Why has Bill Gates stepped off now?

Watched a programme last night about Bill Gates and his decision to concentrate on philanthropy in future. I didn't quite buy his body language when he was talking to Fiona Bruce, especially on the topic of the business strategies employed by Microsoft against Netscape, which triggered-off a massively expensive court case brought by the US Government.

What I've read about business moghuls suggests that, however rich, they never want to give up. They can always try to get bigger and outdo, or do in, a business rival. Robert Maxwell's downfall was his obsessive competition with Rupert Murdoch, which got down to the personal. For example, learning that Murdoch had flown to New York for a business dinner at a swanky restaurant, Maxwell immediately got on Concorde and shot across the Atlantic, so he could be at a neighbouring table.

And these people will compete in the smallest way. I read an article which said in passing that while his chauffeur-driven car was waiting at a red light, Maxwell saw next to him a very nice sports car (possibly a Ferrari). He leaned out of his window and helpfully informed the neighbouring driver that his rear tyre was flat, so that as the man glanced back, Maxwell's car could be first through the intersection when the lights changed.

So why is Gates, such a fierce competitor that his employees refer to themselves as "Microserfs", "retiring" at 52? Is it because he is smart enough to know when his business has peaked, and seeing a rival in Google (and a challenge from freeware) that he can't beat (despite his firm's attempt to purchase Yahoo!), he's withdrawn before defeat is clear? In which case, what are the implications for investors in Microsoft?

Shut down the EU Parliament

Just looked up a bit about my Parliamentary MP, whom I never see or hear. It set me thinking.

Who is your Euro MP? Exactly. And compared to EU MPs' pay, exes, fiddles and nepotism, Westminster MPs are poor relations and almost Simon-pure.

What do you think will happen when "ever-closer union" (that definition of a black hole) is achieved? A boom in ermine and coronets, silk swags and bunting, grand sandstone palaces, plum strudel at Demel's, superb black coffee, and secret police.

Somewhere even now, a new Jaroslav Hasek is inventing a new Schweik.

UPDATE

Here's how to find your MEPs. Does anyone you know, remember voting for them?

Disaster, illustrated

Ross Perot has returned to warn America again of the dangers of her unbalanced economy. Click on the link in the previous sentence to see Perot's site and charts.

htp: Michael Panzner, quoting the Washington Post.

Sackerson's challenge

We're not really poor if we're drinking bottled water.

When I was advising clients on pensions etc, I'd go through the usual regulatory rigmarole on affordability, and on paper they would only be able to do £20 or £50 per month. I'd be putting myself at risk recommending more than they could "afford".

But in many cases, next time I saw them, they'd done one of the following: (a) bought a new car on credit; (b) allowed their partner to give up work, and/or started a family; (c) moved house and massively increased their mortgage. It's amazing what you can afford, when you're motivated.

So while taking a benevolent interest in the government's mishandling of the economy, why don't we get radical? "Action direct": get out of debt and save money for the challenges, and opportunities, to come.

My challenge: if you're in a steady job now, what percentage of your gross income could you save, if absolutely necessary? For if my hunch about deflation now, and inflation later, proves right, you could make an absolute killing in the next 10 years.

Ouroboros and the Left

"Ryan" makes reference in a comment on my previous post, to the "Gramscian left". I was too busy in the 70s, trying to get a degree, to look at yawn-inducing Marxist theory, but perhaps I was wrong. For following up this reference I find Wikipedia explaining Gramsci's notion of "cultural hegemony" and how to subvert it:

Gramsci therefore argued for a strategic distinction between a "war of position" and a "war of manoeuvre". The war of position is a culture war in which anti-capitalist elements seek to gain a dominant voice in mass media, mass organizations, and educational institutions to heighten class consciousness, teach revolutionary analysis and theory, and inspire revolutionary organization. Following the success of the war of position, communist leaders would be empowered to begin the war of manoeuvre, the actual insurrection against capitalism, with mass support.

Is it too much to say that in British schools at least, there has been a "war of position"? Hymns in assembly, RE, British history, the cane, the authority of the teacher - all in the bin. And all since, oh, I would say the mid-80s*. Now, the teacher is a kind of Lyons nippy, swiftly and attentively addressing every need of every child, and with no expectation of a tip.

And as the revolution approaches its moment of crisis, the Government (members of which have assisted with the first phase) has sealed itself into its Downing Street compound, like the East German rulers before their fall. Gordon Brown, formerly the student Rector of Edinburgh University, learned early how the power system had loopholes and having exploited them, is closing them. So the surrounding area is legally a protest-free zone and our new Stasi is set on harmless teenage student demonstrators.

Despite these efforts, and like Kronos, the Revolution may eat its children. Yet Zeus survived because Kronos was given a Rock to eat instead...

* after first flutterings with the William Tyndale affair (1974), Chris Searle's "Classrooms of Resistance"(1975) and other inputs.

Chicks up front!

In the 60s/70s, a fellow trainee teacher told me, the tactic at demos when the police arrived was to call "Chicks up front!"* and have the girls form a protective cordon for the male hairies. The assumption was that the police wouldn't beat up girls (not a safe bet in France, I think).

Now, in London, near the Mother of Parliaments, a 17-year-old girl can be arrested, charged, taken to a police station and regularly woken up at the low point of her circadian rhythm in order to tempt her to make a statement without the benefit of legal representation. All this, simply for carrying a placard. My country shames me.

Anybody reading, who has any influence with the powers that be, please communicate our shame, chagrin and anger.

*corroborated here - and either inspired by, or inspiring, the Viet Cong according to "DreadPirateRoberts" (see his April 30, 2008 5:04 pm comment here)

MSM: news suppression service

... But the draft documents reveal how close the [Northern] Rock was to a virtual wipe-out.
The Daily Mail first learned of the bank's secret plans in January but, after a late night call from Mr Darling, was begged not to publish.

(From this morning's Grumbler.)

Has the Press become an arm of Government?

Off licence alcohol purchases - minimum age 21

At last, some small attempt to rein-in the alcoholisation of the young, even if only in Scotland.

Michael White confuses matters by yoking this good horse to a bad one (morning-after pills for the underaged). Nevertheless, I wonder if we might make progress in this direction, as with smoking, but perhaps in a different way. as it's not just the young who have drink problems.

I think availability is a key factor. Imagine having a beer (or other tipple of your choice) tap next to each cold-water tap in the home - who could resist? Yet alcohol is nearly as accessible these days - supermarkets, post offices, even petrol stations. Rather than try to enforce an age limit (another pile of arrest records to write), let's try to remove some of the temptation: let's reduce the number of off-licences.

My preferred solution would be not to renew the liquor licence for a supermarket if there is an alternative outlet within a certain distance. Supermarket shelving has a narrative all its own - and booze is near the end so we can say to ourselves or our partners, "Shall we?" "Go on, then." It's a cunningly-positioned add-on to household shopping, encouraging the potentially dangerous habit of steady home drinking.

No stagnation, but a house price crash

A carefully-reasoned post by "Alice Cook" on UK Housing Bubble concludes that house prices will drop 25% quickly (by the end of next year).

The alternative (house prices stagnate, allowing inflation to achieve the same result more slowly) has become unsustainable because of fears respecting the stability of the banks.

Drink is the curse of the post-working classes

The main change in the structure of capital during this century has been the relative stagnation of industrial capital and the growth of the service sector of the economy. This trend, which has been most marked in the south of England, has had consequences for inner city working class areas: de-industrialisation, mobility of labour, and post-war rehousing policies have combined to dislocate the pattern of community based upon local work and extended families and associated cultural traditions (Cohen, 1972). Population has been decanted to the New Towns, and more generally, to the suburbs, where social life has focussed upon the nuclear family, and the home is increasingly regarded as a place of leisure, recreation and consumption. It is in this context that off-licence sales have become more important. The 1961 Licensing Act relaxed restrictions on the opening of off-licences, and the 1964 Licensing Act facilitated supermarket sales. By the late 1970s, most beer was still sold in public houses, but one third of all wine and half of spirits were consumed at home (Thurman, 1981; 4).

... from Alcohol, Youth, and the State by Nicholas Dorn (RKP, 1983)

Taking on the supermarkets now would be like eradicating the Taliban. Remember how they took on the government and won easily, e.g. in 1991? So much for the rule of law.

Licensing Act 1964 - legal summary
2003 Licensing Act - summary

On the coarsening of British culture

"On what little things does happiness depend!" wrote Oscar Wilde in the Nightingale and the Rose. He was referring to the heartbreak endured by a student who needed to get a red rose to impress a professor's daughter. Actually it turned out that the professor's daughter was a bloody idiot and didn't deserve the red rose that was only secured through the agonising death of a lovely nightingale; he should've just written a request for fellatio on the back of a bus ticket and stuck it to her forehead - and insisted on the return of the ticket.

Thus Russell Brand, in the Guardian newspaper. His louche autobiography is entitled "My Booky Wook", though for some reason he doesn't apply the same baby-linguistic titling approach to his blog or website ("My Blogy... no! No! Career death!"). For there are things these jokers take very, very seriously: banknotes.

The Teflon coating on his deadly bullets of vulgarity is a trifling pretension to verbal and literary sophistication. And it's happening all around, and so very well rewarded.

Of course, the next generation is past TV. So what are your children playing on the Internet? Here's some of the games I've seen ten-year-olds chuckling at in the last fortnight:

Stair Fall
The Torture Game
The Last Stand 2

And as fast as you block these entertainments, new routes to them appear via new game compendium sites. And more and more new games, most of them free of charge.

But the work of psychic corruption must proceed, so we must be inoculated against notions of censorship by tendentious TV biopics of well-meaning moral campaigners like Mary Whitehouse, who was of course not nearly so posh, sophisticated, well-breeched and well-connected as the moguls she took on. So smart are we that she is to be condemned as much for her eyewear as for her lower-middle-class status and dowdy profession (schoolteaching - art and sex education).

I think we must wait for the University rebels of the late Sixties to retire or die before we can start the salvage operation.

In the paper shop

6.30 a.m. today. An elderly man is poring over the pink Lottery result printout in the newsagent's. He's had four numbers come up.

"Drinks are on you, then," I say.

"I've spent £35,000 since the Lottery started, and had five back," he says.

He'd come to the shop at six, having forgotten that it opens at half-past. He thinks he's in the early stages of Alzheimer's.

__________________________________

Here's some lines of comment that could come out of this, but you can easily expand them yourself, I'm sure:

• Mathematics - the Lottery gives back 45% in prizes, but averaging-out could take forever
• What is a Government doing, making gambling so easy and readily available (and it started under the Tories)?
• How much would this man have had, if he'd saved £208 per month since 1994?
• Now that insurance salesmen have disappeared, what has happened to savings among the C2/D classes? Has financial consumer protection (after the pensions mis-selling compensation and regulation bonanza) indirectly impoverished them and made them more dependent on the State?

I expect you can come up with more, and better.

And then there's drink, from allowing supermarkets to sell it along with your groceries, to 24-hour booze licensing.

Are misguided arguments for liberty being used to enslave people to their weaknesses? Should heavily-capitalised businesses be allowed to batten on those flaws?

Oil: back to the Seventies

Found on InflationData.com

Unbidden, The Time Warp came to me (though I had thought the word "shimmy" appeared in the lyrics). And, of course, as usual, the Brits manage to get themselves into a worse pickle:

Found on Mish's.

Fasten your seatbelts

"Chervil" (author of the Australian Green Living blog) has kindly directed me to this article in the Sydney Morning Herald, which refers to ideas about economic long cycles:

David Hackett Fischer has studied the behaviour and historical meaning of inflation not just over the last decade, or the last century, but over the last 800 years. He sees the world positioned in a dangerous moment of possibility, on the rearing crest of the fourth great wave of inflation in eight centuries.

I would still be grateful for any information about what I shall call "sim economics" - potentially so much more useful than other simulation games.

Anybody able to help, please?

Help required: economic modelling

Following reported opinion from Marc Faber and others that we may expect sell-offs in commodities, bonds, equities and real estate, and given concerns about the quality of our currencies, the question arises, where should we hold our cash?

It seem that in the USA and UK, we are holding down interest rates to avoid crippling homeowners, the home-loan-based economy, and what's left of our industries, and also in the hope that we can repay our debts to foreigners with devalued cash. On the other side, countries like China and Japan seem to be trying to prevent their currencies from appreciating, so as to preserve their trading advantage.

So one party is letting their currencies sink, and the other is trying to stop theirs rising. To this amateur, the world's foreign exchange system looks like a bunch of corks tied to an unchained anchor and flung into the sea. Will the string on the corks hold, or break under the strain, or be abruptly cut?

Is there any computer- or board-game-based model of the world economic system, that might make it clear to me how this wretched thing works?

And how is the ordinary person to save money and preserve its value in real terms, without having to be super-sophisticated? I know something about American TIPS and British NS&I Index-Linked Savings Certifcates, but I'm leery of handing the government what little money they haven't already extracted from me in taxes. And I don't trust them to define inflation fairly.

Does anybody know how this boneshaker of a contraption actually operates, so we can make sensible decisions?

Speaker or silencer?

I now read in The Grumbler that David Davis was prevented by the Speaker of the House of Commons from delivering his resignation speech to the House, and had to go outside the building to say it to journalists instead. Words fail.

What oil hike?

The Mogambo Guru (too long absent from these pages) points out that a major factor in the increase in the price of oil, is simply the decline in the dollar. We here in the UK don't see it, because the pound is staring the dollar in the eye as both go screaming parachuteless towards the ground.

At least Richard Daughty is one who will not go gentle into that good night.

Now, isn't this what happened in the Seventies? Only we were conned into thinking it was down to wicked Arabs, when really the story was increased monetary inflation for some years pre-1974.

Marc Faber, cash and Cambodia

I said on Monday that Marc Faber was, by and large, in favour of keeping his money in his pocket, and a quick Google News trawl shows that his mind hasn't changed:

Stocks, Real Estate and Oil Are Overvalued, Marc Faber Says

Why rising inflation will trigger a bond market rout

Cambodia Starts to Beckon Private Equity
For investors, Cambodia could be the next Vietnam

The last is interesting. I have suspected for some time that Dr Faber lives in northern Thailand, not simply to hide in Shangri-La but to be nearer to the places where real bargains may be found, and so that his hunches can be informed by personal networking and under-the-radar experience. Quirky and fast-moving, he would not be the man to manage a large institutional fund: I think his lightning ex-ski champ reflexes demand more challenge.

An after-thought: if you do think cash is best, there's still the question of which currency.

Is it OK to have principles?

Shadow Home Secretary David Davis resigns his Parliamentary seat to fight a by-election on the issue of civil liberty in Britain, and Michael White in the Guardian plays the sneering curmudgeon; parti pris?

UPDATE

Someone put the text of Mr Davis' speech as a comment to Michael White's piece. Here are a couple of extracts:

This Counter Terrorism Bill will in all likelihood be rejected by the House of Lords... But because the impetus behind it is political, the government will be tempted to use the Parliament Act...
It has no democratic mandate to do this...

... I am just a piece in this chess game.

Folly? Vanity? My eye (and Betty Martin).

Are free trade and small government the answer?

Liberal economists argue consistently for free trade, libertarians argue constantly for smaller government. We can easily see the faults of over-regulation and the centralisation of power.

But what would happen to the poorest if we really did move towards laissez-faire capitalism? I don't mean the poor in India and China, who are currently benefiting from open markets; I mean the poorest in the USA and UK. Would things really sort themselves out to the good of all?

Or would we find that we'd leapt from the frying pan into the fire?

An appetite for investment risk?

How does the quote from Jonathan Wilmot in the previous post sit with the new Risk Appetite Investable Index fund his firm launched last month?

Just curious.

Cashhhhhhh... don't tell anybody

"There is now the distinct possibility of a simultaneous sell-off in global bonds, equities and commodities," said Jonathan Wilmot from Credit Suisse.

... reports Ambrose Evans-Pritchard in the Telegraph (I must start to read the big-words papers). Anyhow, this is what Marc Faber said months ago. Short-term, I have a feeling DE is still on for the 'flation hors d'oeuvre, with IN as the entree.

By the way, are any managers of collective investment funds actually saying the type of thing Wilmot is saying, to their clients (not the big, favoured ones, the others, the Moms 'n' Pops)?

(htp: Karl Denninger)

Please read this man

David Parsley writes in today's Sunday Express, a piece titled "Homes Panic Is A Bank Ploy" (not yet available on the Net for free, but look for it again soon). The content is self-evident, but please, read and believe him. Spread the word. Find more such pieces by optimistic counter-contrarians, and publicise them. Blow away all that negative thinking.

That way, I may have more time to sell my house at current ridiculous market prices, which for personal reasons I can't yet.