*** FUTURE POSTS WILL ALSO APPEAR AT 'NOW AND NEXT' : https://rolfnorfolk.substack.com
Monday, August 11, 2008
On me fait tort
Beauty
Britney and Madonna at MTV Awards Ceremony
As my wife points out, it's not their sexuality they're exploiting, it's men's. It's just not fair on me.
By the way, Tarantino is sizing up Britney for a big part. Maybe this stunt (from 2003) gave him the idea.
Sunday, August 10, 2008
At last, education for life (instead of lifelong education)
"Before I went to university, I imagined it as an extraordinary place where you'd get a chance to escape from commercial pressures and examine the great questions of life in beautiful surroundings with fascinating people, and so become a better, wiser, more interesting person."
So did I, and mostly what I learned was how naïf I'd been.
Good luck with the new venture.
IN- or DE: Denninger reasserts his position
... In a deflationary environment the banker gets as much of your money as he can, and then he also gets the house! [...] The banker makes money in terms of real value in a deflationary environment. You, on the other hand, being debt, get rammed."
In short, cui bono?
And in the Marc Faber interview cited in the previous post, Dr Doom maintains that the drop in the price of oil shows that we're already in recession; the drying-up - the sucking back out - of excess liquidity is what will make the dollar more valuable.
I once read a short story by Brian Aldiss, in which invisible vampire aliens ravage a farmer's livestock - all one can see is the double puncture. The skin is pierced, the innards liquefy and are drained. Sturdily, the farmer accepts that he has a new class of customer.
Is this not like banking and government? Without mortgages and inheritance tax, how otherwise would almost everybody in each generation be forced to buy their living quarters anew?
The view from Agamotto's Eye
Mish relays an interview with Marc Faber, who is a bull on the US dollar (not US stocks) and Japan.
"Europe will have to cut interest rates as well, and their economies are most likely much weaker than perceived...
... We are in a seven year bull market for commodities, so commodities can easily drop 50%. Some have already done that like nickel, lead, and zinc. Others will follow. But after that, I think that the bull market in commodities will reassert itself. But my view was that for the second half of 2008 commodities would go down."
Saturday, August 09, 2008
Can we undo the damage of easy credit?
The road back from economic folly will be long, hard, narrow and possibly untrodden, warns London Banker in a masterly essay on the need to re-establish a savings culture.
(htp: Jesse's Cafe Americain)
Paris Hilton: an observation
Posh tarts and Pop Tarts
The Grumbler today whines about schoolgirls aping whores to get attention - a survival strategy in today's feckless-male world, I'd have thought - and a Dr Ringrose of London's Institute of Education (they never ask actual schoolteachers, do they) opines that teaching about the history of feminism is "needed to overcome the negative influences of celebrities such as Paris Hilton, Britney Spears and Christina Aguilera".
Paris Hilton is a world-famous millionaire socialite am-porn star and now part-time political commentatrix. Britney Spears is a world-famous millionaire entertainer, and her disastrous private life is a moneymaker for her and a raft of reporters and photographers; besides, her misdeeds and misfortunes are no worse than those of the underclass whose offspring I teach, nor much different from the self-indulgence of many rich and aristocratic women in the first half of the twentieth century. Christina Aguilera ditto - and currently a Google search for her yields nearly 29 million pages.
Emmeline Pankhurst was a rich businessman's daughter, married a barrister, joined the Independent Labour Party, toured North America lecturing on VD and joined the Conservative Party when she returned. Her daughter Adela went to Australia, joined the Communists and then the Fascists. Another daughter, Sylvia, got knocked-up out of wedlock and she and her mother fell out and never met again. The third, Christabel, enthusiastically promoted the First World War and internment of enemy aliens, visited Russia after the Revolution to urge its continuation in the conflict with Germany, became a Christian evangelist in the USA, returned to Britain, was made a Dame Commander of the British Empire in 1936, and fled the country when war broke out again.
Yep, I can just see all that on the syllabus.
Friday, August 08, 2008
The need for civil rights
Professor James Duane explains in shocking detail why, in the USA, everybody should remember to exercise their right under the Fifth Amendment to remain silent. (htp: Obnoxio The Clown, referring to Philip Thomas' post)
You have the right to remain silent. Anything you say can and will be used against you in a court of law. You have the right to speak to an attorney and to have an attorney present during any questioning. If you cannot afford a lawyer, one will be provided for you at government expense."
How about here in Britain?
"Free legal advice is worth what you pay for it." Having said that, here is a site purporting to give advice to activists being questioned by police in the UK.
How many laws are on the Statute Books in the United Kingdom? Is there anybody in the country of legal age who could not be accused of having broken one of them? Do we not have too much law?
Thursday, August 07, 2008
Wednesday, August 06, 2008
Bill Gates: charity begins at home
While I'm in the mood for mad ideas, how about sparing some fraction of that (oh, a billion?) to go back to Bill's crazy source code and finally straighten out all the problems with Microsoft's core products, then send out a one-use-only disk to all previous purchasers, to reload everybody's programs with reliable updated versions?
Or should I stick with dreaming up more realistic schemes, like the deposit-free banking idea?
Fractional reserve banking - why bother?
A question: why bother with any kind of reserve?
Once you've determined that banks can lend a high multiple of deposits, you may as well make deposits entirely irrelevant. In fact, it would save quite a bit on operating costs if you could have banks that specifically didn't take deposits from anybody - no cash in or out, so no tellers, no branches. Let the Federal Reserve or the Bank of England give a handful of providers a total lending limit, and then stand back and watch them pump away.
Insolvency? Loan-to-value not good enough? Raise the limits again, pump harder. Get a punter to overpay for one house and you increase the value of all the others in the street, so making their mortgages safer. And if the bank doesn't have to pay interest to depositors, it can charge as little as it likes for its loans.
I can't see the flaw here, any more than I can see the difference between a banker and a swindler.
I don't know why I didn't think of it before.
House prices underpinned by shortages, boosted by inflation?
"Real estate could become a very good investment and inflation hedge once the government starts seriously printing money," commented Jim from San Marcos (who still has a realtor's licence) after his July 27th post.
I hate computers
I also have an ASUS laptop that has a nervous breakdown when I ask it to connect to the Internet and my printer at the same time. In fact, it's now objecting to my mouse as well. I half-suspect the power management system is compromised by some ASUS virus that informs Peking of my every keystroke; put that down to paranoia if you like, but we'll see what the history books say one day.
But is the Mac really as simple and reliable as the middle picture suggests? And is Linux really so powerful and jazzy? Before I throw this computer from some carefully-selected high place, I'd appreciate guidance on its replacement.
By the way, here's Daniel Bozet's original cartoon; I thought the one above looked unbalanced.
And here's some techno comment on BoingBoing, that obviously I don't quite understand.
If telephones were like this, I'd be using liveried runners.
Check memes with Snopes.com
What have I learned?
- Meme alterations tend to add spite - compare the original with its viral successor
- I should include Snopes and Larry Miller in my blogroll
In the piece concerned, I particularly liked the imagined reversal of position between Jews and Arabs. I'm always grateful for a mental flip that lends me a new perspective.
Tuesday, August 05, 2008
USA $800 billion subsidy to Asian investors
Further comment from Mish.
The taxpayer pays all - and presumably we're looking to do something similar here, to keep the banking show on the road.
This may be the time when those predictions about the Dow hitting 9,000 and gold breaking through $1,200 start to come true.
Monday, August 04, 2008
Gold
Logical consistency
Reading the Guardian
This morning, on the paper run while the kettle was boiling, I caught sight of its trailer on the front page: "How the wealthy lost touch with the rest of us/Polly Toynbee" (actually, it's also by David Walker, though it doesn't say so there).
I thought, I'll grit my teeth and have a go. There must be some reason why teachers like me read this stuff. Here (in the G2 section) it is.
Fisk it yourself. Note the sly references to (ugh!) the Daily Mail and (ahhh!) how hard teachers work. Then note what isn't said, for example about Toynbee's own high income and wealth, foreign property etc.
And look at the unexamined implicit assumptions in statements like "...others deserve a share of that, too." Unless you are religious (and I include in that category anyone who talks about Man with a capital M), why should anyone care about anybody who's not a blood relation (and the ever-logical Mao didn't even do that)?
So I guess my gripe is that here we have a coldly commercial product pretending to morality; which perhaps I should admire for the artist's control of her line, more than for its social comment.
Friday, August 01, 2008
David Cameron: a flaw?
In this week's Spectator, Charles Moore publishes an SMS text from a businesswoman friend, giving her immediate impressions of meeting David Cameron, and although she is clearly struck by the man's looks and personality, one little sentence jumped out at me: "Doesn't really listen." I think I know what she means, because it gels with how I read his body language every time I see him on the news: he is tightly focused on maintaining his grip on the Protean figure of Success, and will not be distracted. That has its dangers.
Thursday, July 31, 2008
Breaking radio silence
So, inflation or deflation? The Mogambo Guru rants that only inflation (which he hates) can save us now. But in the first link above, Louis P. Stanasolovich comments:
High debt levels also have another side effect: disinflation. Because consumers and businesses have limited spending, they must retrench once they reach their saturation points. When the demand for goods and services diminishes due to the over-extension of credit, the result is disinflation.
In other words, we will have to live poorer - no matter what the currency does. We see in Zimbabwe that you can have billions and it won't buy you a square meal. What inflation can do, is disguise the problems for a while (as it did post-2000) - until the system breaks down completely. Who has the public spirit and grit to stop the charade now?
By the way (since The Mogambo Guru loves gold)... Krugerrand = going out to get more champagne.
Friday, July 25, 2008
Inflation, deflation, the world economy and freedom
The Federal Reserve controls the "monetary base" of physical currency and bank deposits, which represent only 15% of the money supply; the rest is bank lending. Currently, the banks are in a fright, so they are reducing credit, on which the economy depends. But if the Federal Reserve increases the monetary base, the banks' ability to multiply their deposits could lead to hyperinflation and the destruction of the dollar altogether. Hence the attempts to maintain confidence in the banking system instead, even if that means expensive financial support.
This isn't enough for the monetarists. They say the lending in the recent boom went on consumer spending, which encouraged producers to make too much of the wrong stuff and so the economy developed in the wrong way. The econo-Puritans say we should accept deflation because, although temporarily painful, it will rebalance the economy for a more sustainable long-term future.
However, nobody likes nasty medicine, so a political question is whether democracies will allow politicians to take timely corrective action. Past history suggests that we'll only vote for the treatment when we're half-dead, and even then, we'll curse the doctor afterwards.
My feeling is that this tendency to delay means that underneath the business cycle is a fatal linear trend, moving wealth and power to less democratic countries. When the world economy recovers, it may be on very different terms: for although (e.g.) China may suffer a setback as the Western consumer reduces spending, Chinese industrial capacity has been growing over recent years - not only the factories and tools, but equally importantly the skills base. At the upturn, the East will be well-placed to cater for reviving demand, while the West struggles to supply appropriately-skilled labour, and tries to buy back some of the industrial materials it had previously exported. And as the East industrialises, it will generate locally a greater proportion of world demand.
I cannot see how we can avoid becoming poorer, on average, than we have been in past decades, even if an elite in our society grows richer and more powerful (a phenomenon associated with more impoverished economies). We cannot rely on high-end production: China will address its quality issues, as Japan did in the 1950s. Nor can we be complacent about intellectual property rights, in a world where might makes right.
But China itself has deep problems - an growing and ageing population; an increasingly unbalanced demographic structure, thanks to attempts to limit family size; pollution; water shortgages; declining quality of farm land. The Chinese leadership faces a long-term challenge in dealing with unsatisfiable domestic expectations, which will tend to make it intransigent in its relations with foreign powers. The East-West contest may become characterized by desperation on both sides.
And so democracy in the West will come under pressure. In difficult times, people are thrown back on a network of social relationships and mutual expectations, but sudden, unreal access of wealth has tempted us to put our faith in the amassing of cash, and/or government intervention, to the detriment of agreed internal social control and support systems. When the system enters its failure phase, which Fischer ("The Great Wave") thinks may be starting, the social threads begin to snap: inflation, crime, family breakdown, war. The reification of the ties that bind us together tempts our government to maintain the social order through externalised means of surveillance and enforcement. Ultimately, the mismanagement of national budgets is a freedom issue.
Banks: the legal recriminations begin.
Thursday, July 24, 2008
For the gold bugs
China shakes the steel world
Readers of James Kynge's "China Shakes the World" will recall that Wenrong acquired Phoenix in 2004 partly in order to get into production fast, but also because, having bought it at scrap valuation during the last steel recession, he would not be encumbered with the debts that would wipe out his rivals in the next one.
Which means that he's looking beyond the next recession. And when the recovery comes, where will the West's capacity be found? Those who say that the East's fortunes are bound up with those of the West, had better get new spectacles to correct their short-sightedness.
GSE losses "only $25 billion"
Could I please have "only" 1% of the lower figure for my modest needs? You won't miss it - after all, look at what you haven't missed so far. I'd even write you a specially nice letter of thanks.
Mugabe "fighting extradition to the Hague"
Mugabe fights crimes extradition
1 day ago
Former Zimbabwean leader Robert Mugabe is battling extradition from Zimbabwe to the Netherlands, where he faces trial for genocide.
Mugabe's lawyers have been given three days to appeal against the extradition ruling by a Zimbabwean judge.
If the extradition goes ahead he will stand trial at the International Criminal Tribunal in The Hague on war crimes charges - including masterminding the massacre of thousands of Ndebele in Matabeleland during the liberation war of the 1980s.
Meanwhile, the arrest of the former Zimbabwean leader could help pave the way for Zimbabwe finally to join the European Union, Foreign Secretary David Miliband signalled.
Attending a meeting of the EU foreign ministers in Brussels, Mr Miliband said that the actions of the Zimbabwean government "bodes very well for long-term relations".
Mugabe was arrested while travelling on a bus in Harare, Zimbabwe. The one-time education lecturer had been practising as a tutor in legal studies during his period as a fugitive from international justice.
The Financial Times reports British and US intelligence helped trap Mugabe. The newspaper says they co-operated with Zimbabwean intelligence services, using both signals and human intelligence to track him down.
Mugabe's lawyer said his client was in good spirits but was not co-operating with police.
The hunt for Mugabe's right-hand man, Emmerson Mnangagwa, continues.
Now aged 61, his whereabouts are not known, but is believed that he could be hiding in Zimbabwe with the help of hardliners in the police and military and Mashona loyalists.
Wednesday, July 23, 2008
Mish: "The entire US banking system is insolvent."
Big rewards for corporate failure
Investment wise owl Christopher Fildes has long advocated that, if they expect a bonus when things go well, directors should pay a "malus" when the company suffers. The French already use a bonus/malus system as a stick-and-carrot for car drivers.
Maybe then I'd be more reconciled to gross inequalities of wealth.
New: UK private schools fully-funded by the State
I've often wondered what the education system does with all the money - £6,000 a head times 30 children (if you're an English or maths teacher) = £180,000, but the classroom teacher's standard pay and pension might only use £30k-£40k a year.
Here's the website for the Swedish outfit trying their luck with a couple of academies in Greater London.
In praise of Patrick O'Flynn
- The rise of the East
- The growing power of foreign authoritarian regimes
- The purchase of British enterprises by foreign sovereign wealth funds, and the consequent export of our future dividend income
- Increasing foreign-held UK public debt (again, more income exported)
- Our vulnerability to energy repricing, and inadequate energy security
- Inflation in food and fuel
- Our unbalanced national budget, what with the cost of unemployment, and rising costs in other social benefits such as the NHS
- Inefficiency in the public sector
- The UK's squandering of its North Sea oil opportunity (cf. Norway's £300 billion investment fund)
- British economic decline, and our deterioriating manufacturing base
Spot on. But it's still tucked away on page 12 in yesterday's paper edition, well after Madeleine McCann and Amy Winehouse. This stuff should be hitting the front page all the time, because long after we've forgotten the celeb victims of today, we'll be counting the cost of our government's political and economic negligence and incompetence.
Gold fever may return
The Mogambo Guru gives value, not just in comic entertainment, but also in his useful references. One of them is to Adrian Ash, who points out that gold is now worth less than 2% of world financial assets, whereas at times of "investor stress" (and as late as 1982) it has risen to 20-25%. It may be time to consider the argument for precious metals, not so much as investments as insurance against the severe loss of value of other assets.
The EU and Radavan Karadzic
The Balkans are being knocked into shape, or so the empire-builders think. Kosova declared independence in February 2008 (in the teeth of an attempted legal challenge by Serbia) and has been recognised by the USA and many other countries. The 100,000 Serbs in Kosova make up only 5% of the new nation's population, and compared to the 10 million in Serbia itself they are, presumably, of little account politically there, also. Besides, of course, Kosovans are not wolves.
Tuesday, July 22, 2008
Whose country?
I hope that is true for the USA, and I wish it were true here. Are we deluding ourselves when we talk of "our" Government?
Worrying signs
Karl Denninger points out that short-selling actually acts as a kind of price support in the market, since ultimately the short seller has to buy the shares he's sold to someone else; and so the new ban on short-selling selected financials has removed the floor beneath them. Jim in San Marcos found he couldn't do any short-selling in that sector for three hours yesterday, and doesn't know whether that means we're looking at free-fall or a sudden rally. Either way, it seems to prove the point that banning short-selling increases volatility, the sensible investor's enemy and the gambler's fatal siren.
If two views make a market, does silencing one leave the other free to become a whimsical dictator?
Inequality revisited
As we've seen recently, there's more than one way to interpret the facts. At what point do the rich cease to inspire those beneath them, and begin to squeeze them? Doesn't it take money to make money? If so, shouldn't the lower orders be left with some after paying their bills? Is there an optimum level for the Gini Index?
UPDATE
Trevor Phillips on inequality on Britain: "People can see the economic slowdown coming. Everyone is happy to take some of the pain as long as that pain is shared fairly and what we want to do is to make sure that the burden doesn't fall unfairly on some groups rather than others."
Sunday, July 20, 2008
Inequality
- Gini Index/Coefficient of inequality explained here
- Wikipedia lists countries by inequality here
- The CIA Factbook gives the Gini Index of the USA as 45 (in 2007), the UK as 34 (in 2005)
- Increase of USA's Gini coefficient since 1967 here
Richest 2% Own Half World Wealth; Bottom 50% Own 1% - UN Report (5 December 2006)
"the richest 1% of adults alone owned 40% of global assets in the year 2000"
The wealth gap is widening again (Daily Mail, 26 June 2008)
Why is the 'wealth gap' a bad thing? (MSNBC says it's not, what matters is opportunity)
Wealth gap widens (CNN, 29 August 2006)
"In the early 1960s, the top 1 percent of households in terms of net worth held 125 times the median wealth in the United States. Today, that gap has grown to 190 times..."
Wealth Gap Is Increasing, Study Shows (ScienceDaily, 9 August 2007)
"The poorest ten percent of families actually had a negative net worth---more liabilities than assets..."
*** Sackerson's Prophet Prize for this: ***
Globalization Has Increased the Wealth Gap (interview with Nobel prize-winning economist Joseph Stiglitz , author of "Globalization and Its Discontents", posted 15 January 2007)
"I think we are in a precarious position. We might be lucky and wander our way through this mess. There is a significant probability, however, that global interest rates could rise. If that happened, households with a large amount of debt would find it very difficult to meet their mortgage payments, and home prices would go down, which would lead to a reduction in consumption. Last year Americans consumed more than their income, something that is obviously not sustainable. The only way they could get away with it was by taking out money from their houses. But if home prices go down, they won't be able to do that any more. So there is a significant risk of a large economic slowdown. And government, by piling on so much debt and having such a large deficit, does not have much room to maneuver."
Why the wealth gap keeps growing (essay by Paul van Eeden, 17 November 2006)
"The fact is that people all over the world are getting poorer -- not because of free enterprise, open markets or globalization but because government created monetary inflation robs them of their living standards. The only ones who can immunize themselves are those with sufficient capital and that is why the rich get richer and the poor get poorer."
Market manipulation in financials?
To me, it feels like touting for sucker money. What happens later, when the short-selling ban is lifted? When the government (via regulators) begins to manipulate the market in this way, it looks like a sign that we are in trouble.
Saturday, July 19, 2008
Should sterling now decline against the US dollar?
Also interesting to hear the discussion on Radio 4's Any Questions, where the assertion that Gordon had stuck to the EU's "40% of GDP" borrowing guideline wasn't challenged by anyone, despite the massive off-book PFI financing.
Break free
Thanks to iTulip, I'm working my way through a series of YouTube postings of an Argentinian documentary. It describes how banks and multinational companies raided Argentina from the nineteenth century onwards, and how successive betrayals by popular politicians and union leaders have perpetuated the crisis.
Some years ago, I watched a documentary about an old American farmer, trying to make ends meet while crop prices fell and the bank continued sucking up interest from his debts. Finally, he did a brave, bold, heroic thing: he sold. He took the farming equipment he had acquired with a life's work, and auctioned it to his farming neighbours, who were rooting for him. Then he cleared his bank debt entirely, gave the home farm unencumbered to his son, left the big sky and went with his wife to live in a little flat in town.
I don't think I shall ever forget the dignity and restraint he showed when the bank telephoned him with hypocritical words of goodwill.
Pay off your debts, save cash (or whatever will keep its value), and don't put it all in the bank.
M4 up
To put it in context, click here for BoE long run stats on M4.
Friday, July 18, 2008
Comments, please
UPDATE
That rant has indeed been copied and pasted as the author suggests, with slight variations. I've done a little digging via Google (there's about 1,600 instances) and the earliest date-stamped version I can find so far is 26th February 2008 here, though quite likely there's earlier ones.
I don't know what he's got against Oprah.
The "1% own 50%" claim startled me - looks like England in the 19th century. Anybody able to confirm the inequality data? And will the sucking-up of wealth by the rich destroy the economy, as the ranter claims?
Should we let Africa starve?
"Africa’s peoples are outstripping their resources, and causing catastrophic ecological degradation," says Myers. Perhaps, if they do things as they have done before. But on that basis, one would never have predicted the growth of Europe's population to its current size.
One of my relations by marriage went to Kenya to try his fortune some years ago, and having married a local girl from the Kikuyu tribe, bought a farm. His new wife is clever and sent off for pamphlets on farming, from which she learned that you can multiply the productivity of your land by companion-planting several crops. I wonder how much more food Africa could produce if agricultural skills there were better developed and disseminated.
Even in Europe, there are disparities in efficiency. Up to the end of World War 2, my grandfather had a farm in East Prussia. His 600 acres produced at least as much as the 2,000-acre farms of his neighbours. He compounded this advantage by diddling the taxman, telling the latter that as a simple farmer, he didn't understand finance and would the taxman please assess him on what his land could be judged to yield. You may be sure that he paid his tax bill without argument.
And what about modernising energy supplies, too? As a child, I saw a map of the Congo Basin and fantasised about damming the encircling ring of mountain ranges to make the world's greatest hydro-electric project, supplying the electricity needs for the whole of Africa. Of course, I hadn't considered ecological consequences; but in the Sixties, all I ever (over)heard of "ecology" was an brief, excited discussion between two of my teachers. This doesn't vitiate the argument for looking for efficient energy production that doesn't require chopping down all the forests to cook on wood fires like traditional tribespeople, or middle-class hippies.
Yes, some African countries are spectacularly badly governed; but I don't think we should rush to a money-saving despair for their peoples.
Wednesday, July 16, 2008
Bubble economy is beyond satire
Recession-Plagued Nation Demands New Bubble To Invest In
... The current economic woes, brought on by the collapse of the so-called "housing bubble," are considered the worst to hit investors since the equally untenable dot-com bubble burst in 2001. According to investment experts, now that the option of making millions of dollars in a short time with imaginary profits from bad real-estate deals has disappeared, the need for another spontaneous make-believe source of wealth has never been more urgent....
Has the author read iTulip's Eric Janszen on the "bubble economy"? If he has, he'll know Janszen expects the next craze to be alternative energy - full Harper's article here.
Free trade, or shop local?
A thought: what if we in the UK really don't have much of a comparative advantage in any area, long-term? Once the East has caught up on skills, what do we have that anyone will want to buy?
And what about the monetary distortions in the market? It's like Monopoly with some players cheating by using secret stashes of extra banknotes.
Are the economists misled by an idealised picture of economics?
Will the UK/US trade balance influence the dollar value of sterling?
Or will we be more influenced by the desire not to devalue the amount we have loaned to the US via Treasury bonds? And then there is the possible extra unemployment that could result from UK goods becoming more expensive in dollar terms.
Any forex experts care to give a view?
UPDATE: Here's the answer, it seems:
Weak jobs data knocks pound vs dollar and euro (Reuters)
UPUPDATE: ...And here's a different answer:
Sterling up versus dollar, banks support (Reuters)
Wouldn't roulette be more honest, somehow? "Manque! Pair! Impair! Passe! Noir! Rouge! Numero 17!"
Tuesday, July 15, 2008
How far can the FTSE fall?
Bank deposits are investments, and can go wrong
I want to talk about IndyMac for a bit.
The news has covered a few really, truly sad stories. People with $200,000, $300,000, $400,000 or more in there who have seen 50% of their balance over $100k disappear overnight.
Older people who literally have their life savings in these institutions. People who are relatively unsophisticated, but have been told through the years that the government will make it all ok, and who believed it.
It tugs at your heart to see a 70+ year old man pleading for them to let him have his money - money that he worked and saved a lifetime for.
If only it were that easy.
People don't think of a bank as being an investment, but it is.
You are lending your money to the bank so they can make money with it, and they pay your a coupon - interest, or the "safekeeping" in the case of a checking account that does not pay interest - in return!
US banks: uninsured deposits stand at $2.6 trillion
"FDIC Recap
There is $6.84 Trillion in bank deposits.
$2.60 Trillion of that is uninsured.
Total cash on hand at banks is $273.7 Billion."
So 89% of uninsured deposits are not covered by available cash in the bank.
Monday, July 14, 2008
TMS a better measure of the money supply?
Mish says when you look at the situation correctly, we are definitely in DEflation.
Ron Paul and Tibet: is he right?
On Wednesday, the House overwhelmingly passed a resolution calling on China to “end its crackdown on Tibet and release Tibetans imprisoned for “nonviolent” demonstrations.” The resolution passed on a vote of 413-1, with ”Rep. Ron Paul, R-Texas, who recently dropped out of the presidential race, was the lone congressman voting against it.”
(Reuters)
This entry is given prominence in Reuters' site (world news section), but is three months old, a point I didn't spot at first. Still, I think the underlying issues are enduring and (given the imminent start of the Games) topical.
The almost-complete unanimity of the vote seems rather suspicious, but although we are used to the army being out of step with Ron Paul in financial matters, is he right in this case? Some might think you cannot have a policy of "liberty in one country", any more than "socialism in one country."
Can't find much in Google News about it, but here's a bit of blog discussion, updated here.
Sunday, July 13, 2008
Bear market: Steiff comes home
Steiff is one of a small number of German firms which are swimming against the tide and leaving China, despite its cheaper workforce and a burgeoning consumer population. With fuel at record highs, some cite mounting transport costs.
Production of Steiff toys, which include a distinctive long-limbed bear with a melancholy growl, will come back to Germany and other countries in Europe by the end of 2009.
(Reuters)
That's sort of heartening, except that as it continues to develop, China will deal with quality issues. Japan listened to W. Edwards Deming in the 1950s and soon "Made in Japan" meant, not cheap, tinny and shoddy, but innovative, reliable and affordable.
In any case, this is clutching at straws. Tiny companies making high-value toys won't sustain Western Europe. We need major changes if we're going to become globally competitive. For example, health and welfare provision will have to be reassessed as the budgets shrink.
And here's a big debate to come: how much education? How much benefits the economy, how much is positional (Swiss finishing school for your daughter, etc), and how much is luxury consumption, like foreign holidays and Lagerfeld dresses?
How much education is simply an illogical, implicit pretence that the government is doing something to give all children relative advantage, particularly yours? How much is to disguise unemployment? How much is to keep potential young criminals penned-in during the daytime on weekdays? How much is to baby-mind children so that women can be driven out of their homes to do low-paid work?
As the money dries up, there will be an education debate, and it will be messy.
US lending market: Apocalypse Now?
It's getting hot. The collapse of IndyMac may take 10% - 20% of the FDIC's balance sheet, and that's assuming a savers' panic doesn't start.
If the government underwrites Fannie Mae and Freddie Mac, the Federal public debt doubles (goes up by $5 trillion), the US' credit rating is compromised (it's starting to happen already) and all debts will cost more in interest - maybe 3% extra. KD's recommendation is that the two monster lenders be put into receivership and wound down over time; this means a steep drop in house prices so that they can be afforded on more sensible terms and conditions.
His advice to you: head for the high ground. Get out of debt, get your savings balance below the FDIC's $100k ceiling, think about buying Treasury bonds. "If the government goes down you will need steel, lead and brass, not money."
BUT...
See Jim from San Marcos on the same matter. And someone copied Denninger's piece whole into a comment at Jim's, to which the latter responded:
"There is a very peculiar situation here from a stock ownership position. These two stocks are being shorted en-mass. I kind of get the feeling that neither one is going to zero. I smell a bear trap here. You can be right but still be dead wrong."
Saturday, July 12, 2008
Roubini: bailing out government mortgage lenders could downgrade the USA's national credit rating
Nouriel Roubini, quoted in Mish's.
The housing bubble: 5 - 12 years to the turn
Their point about real estate being an illiquid market seems valid to me, and I've suggested before now that we should expect a decline and a long stall, rather than an equity-style crash.
Zimbabwe: racism and international meddling
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?
The English libel laws used to be much loved by the rich and famous, and to a large degree London remains the libel capital of the world to which freebooters of all nationalities, including our own, flock in order to pick up some usually undeserved loot.
Now these and other folk have fastened on to Article Eight of the Human Rights Act. Of course, their and everyone else's privacy must be respected, but so must the right of a free Press to write about the private misbehaviour - more often financial rather than sexual - of the rich and powerful.
Does Mr Glover think this should apply to celeb journalists, also? It seems to me that some members of the Fourth Estate are rich and powerful, when compared to the rest of us.
Signs of the times
And I read long ago that some professional investors look for all sorts of straws in the wind, for example, the length of women's skirts (shorter = more confident, boomtime).
Any similar?
UK economy: between a rock and a hard place
There's often a kind of self-destructive excitement as a crisis develops, as at the gathering of forces for a war. But the Rupert Brookes will be succeeded by the Wilfred Owens.
I have believed for about 9 years that we are in for an unpleasant time, and that is why I returned to the public sector pro tem at the end of 1999: I really did (and do) think that everybody should prepare for a storm. I have also been encouraging my clients to become/stay cautious, for the last 10 years. I thought we'd returned to sanity in 2003, when the FTSE had halved from its start-2000 peak, but off we went again. From my amateur perspective (and who exactly is an expert on the world economy?), the delay in facing economic reality has allowed the patient's condition to worsen.
Mark Wadsworth's opening comment here was "Sell to rent. Cash is King." Yes, I agree, at this stage. I was talking to my wife last year about selling the house (and, I think, the year before that) but personal circumstances and priorities often trump the cold financial calculations, don't they?
However, I don't think cash will be king for a long period. I can't see the government rapidly shrinking the public sector, and at the same time we shall see reduced earnings, more insolvencies and increasing unemployment in the private sector. The financial sector, which has helped our nation's books to nearly balance, is being hit in banking and investment now, and will (I think) be hit worse in future; that cow will yield far less milk to the Treasury, and so the budget will be even more unbalanced than it is today.
Europe seems keen to enforce a discipline on the Chancellor of the Exchequer, that it has been unwilling to emulate with respect to its own accounts for many years; if the EU continues to take such a rigid line, maybe there will be a tear in the EU fabric, along the line of the English Channel.
Meanwhile, I think Gordon Brown's reputation as a money manager is ruined. As has been said, he failed to fix the roof when the weather was fine. A playboy can seem a financial wizard as long as he keeps partying on his yacht, but the adoring guests will disembark when the holes below the waterline make themselves felt.
(I wonder what would have happened if the Conservatives had won again in 1997? Can we be confident that the consequences would have been better?)
To right the ship of State will take money, or (since we hardly know what faith to place in money any more) perhaps it would be apter to say, wealth. This, I think, is where the "cash is king" slogan will wear thin. At the moment, we see a devaluation/destocking in houses, cars, computers and other big-ticket items. It's a good time for Loadsamoney to go shopping, even if the price of his dried pasta is up 40%.
But when the stocks have been run down to match shrunken demand levels, and Loadsamoney's firm is on the skids, the game will probably change. RPI is on the up, but now the causes are more external than internal: we have forgotten the lessons of WWII and have become very dependent on imports of food and fuel, which are major components of those inflation indices that aim to reflect the circumstances of the ordinary person. So interest rate rises are unlikely to reduce the cost of such necessities, except indirectly insofar as they may help strengthen sterling; yet a weakening in sterling is the hope for our trade in manufactures (the pound has dropped 15% or so against the Euro, in the last year). Indeed, we seem to have a policy of shadowing the plummeting US dollar, as once we shadowed the Deutschmark; perhaps, perceiving this strategy, George Soros will stage another coup, to our country's cost, again.
If revenues are down because of recession (or the D-word), where else will the Chancellor find wealth to repair the yacht? More sale of assets to sovereign wealth funds (there goes the family silver)? More bonds sold to trade-surplus foreigners (but will they have the cash, at a time when their own economies may be slumping together with Western consumer demand)? (Perhaps they will, if the US insists on handing the Chinese mortgage bail-out money - see Mish!)
Left high and dry in public view as the tide of wealth recedes, will be the billions in cash held by the crafty, the nervous and the cautious old. And the subtlest way to steal it is by inflation.
I do not know what will be the best store of wealth when major inflation strikes. All the world's gold currently above ground could be made into a cube that would fit comfortably under the arches of the Eiffel Tower (and historically, a fair bit of it could have been found not far away from the Tour Eiffel, stashed away in French ceiling-bowl lights). The gold market is small enough to be a prey to manipulation both ways.
Perhaps a safer store of value would be NS&I index-linked savings certificates. If inflation gets too bad, the easy way out for the government will be not to launch new issues, and the old ones have a maximum term of 5 years. There could theoretically be a problem for investors, in the effect of inflation between the date of maturity and the date the money is cleared in the investor's bank account, but we must hope that the government will never permit a hyperinflation.
And I note that landowners such as the Duke of Westminster have rarely sold their land because of temporary monetary inflation. Even if house prices do decline towards 3 times earnings, they will always have a value, and if rented out, will create an income. Perhaps Mark's comment would then be reversed: buy to rent, not sell to rent. Even now, as many try to get out from under the mortgage trap, there are signs that renting out property is a promising sector, since (I understand) demand is increasing faster than supply.
I'd be interested to hear other ideas.
Zimbabwe: racism and international meddling
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?
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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Friday, July 11, 2008
UK the financial "black sheep"
Daily Telegraph (htp: Mish)
Are oil speculators to blame?
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.
Thursday, July 10, 2008
Time for some bankers to pack their bags
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?
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?