Saturday, June 11, 2011
Friday, June 03, 2011
Why the stockmarket could fall by 70% in real terms
(The following article was published yesterday on Seeking Alpha.)
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My Feb. 11 SA estimate that the Dow could drop to 4,500 is echoed in a May 16 video interview with Russell Napier, who is predicting an equities bottom at around S&P 400. Actually, this is even lower than my guess, in proportion to the index chosen, but Napier says his figure is an average of what he expects valuations to be.
I've had a little abuse for this view, some rather personal, and it seems I'm too dumb to notice that the market has just had its biggest, fastest rise in history. Actually, the latter fact has not escaped me, and I take my hat off to those who have got on and off the Enron-like ride at the perfect moments -- so far.
What we've really seen in the last decade is two economic heart attacks and liberal use of the defibrillator: First a slash in interest rates that (given the venality and criminality of some in the financial world) led indirectly to the busting of the housing market and some major banks, and then a pouring of resources into the banking system that is now busting the credit of whole governments.
In a way, conventional market analysis is now hardly relevant, because the system is so grossly interfered with by government that everything hangs on what the Fed decides to do ... and how long it can get away with it. I pointed out several months ago that China (among others) is becoming very antsy about the export of America's inflation to the developing world.
In a May 10 interview with MoneyWeek's editor Merryn Somerset Webb, Napier says he expects the "reset" to come in two stages: First deflation, and then sharp inflation. I've pondered the in/de question for a long time, and his analysis seems plausible to me. We're so interconnected these days that a bust wouldn't just wipe out profligate banks, but also would crater the pensions and investments on which we have come to depend ... not to mention the taxman, who (particularly here in the UK) has found it very convenient to harvest money from the swollen financial sector. So inflation will be seen as the way to steal wealth to spackle up the cracks in the system. (Can you make a whole house out of spackle and duct tape, though?)
What's unusual about the current situation is that bonds are not on the other end of the seesaw to equities. Napier foresees a swift move up in interest rates that will undermine both. They say you shouldn't give an estimate and a timeframe at the same time, but he does, for the bear "pit": 2014. We shall see.
Meantime, Mike Shedlock today gives an alternative view, pointing out that corporations are holding a lot of cash. Maybe so, though I'd like to know more about who has the cash and who has the debt; whether some have both; and what the latter may do if interest rates spike. Not to mention what will happen to the demand side when ordinary Americans finally run out of money, as indeed many are doing already.
I have suggested that cash is not a bad place to be, unless you are one of the SA-reading gunslingers who has a sharp eye and sharper reflexes. Given the growing vulnerability of the US dollar (and various moves to weaken its position as the world's reserve currency), Napier has said (in the May 16 interview linked above) we might consider the currencies of emerging markets.
And I hedge my bet on the destination of the market by saying it may not be Dow 4,500 or S&P 400 in nominal terms -- but the market could well be there after adjusting for inflation.
Finally, there is a bright gleam in the dark: As Napier says, the bottom won't be in for long, and those who have the cash then and get in fast can "go to the beach" for years afterward. Like, as the FT interviewer said, in 1982.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
INVESTMENT DISCLOSURE: None. Still in cash, and missing all those day-trading opportunities.
DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.
_______________________________________
My Feb. 11 SA estimate that the Dow could drop to 4,500 is echoed in a May 16 video interview with Russell Napier, who is predicting an equities bottom at around S&P 400. Actually, this is even lower than my guess, in proportion to the index chosen, but Napier says his figure is an average of what he expects valuations to be.
I've had a little abuse for this view, some rather personal, and it seems I'm too dumb to notice that the market has just had its biggest, fastest rise in history. Actually, the latter fact has not escaped me, and I take my hat off to those who have got on and off the Enron-like ride at the perfect moments -- so far.
What we've really seen in the last decade is two economic heart attacks and liberal use of the defibrillator: First a slash in interest rates that (given the venality and criminality of some in the financial world) led indirectly to the busting of the housing market and some major banks, and then a pouring of resources into the banking system that is now busting the credit of whole governments.
In a way, conventional market analysis is now hardly relevant, because the system is so grossly interfered with by government that everything hangs on what the Fed decides to do ... and how long it can get away with it. I pointed out several months ago that China (among others) is becoming very antsy about the export of America's inflation to the developing world.
In a May 10 interview with MoneyWeek's editor Merryn Somerset Webb, Napier says he expects the "reset" to come in two stages: First deflation, and then sharp inflation. I've pondered the in/de question for a long time, and his analysis seems plausible to me. We're so interconnected these days that a bust wouldn't just wipe out profligate banks, but also would crater the pensions and investments on which we have come to depend ... not to mention the taxman, who (particularly here in the UK) has found it very convenient to harvest money from the swollen financial sector. So inflation will be seen as the way to steal wealth to spackle up the cracks in the system. (Can you make a whole house out of spackle and duct tape, though?)
What's unusual about the current situation is that bonds are not on the other end of the seesaw to equities. Napier foresees a swift move up in interest rates that will undermine both. They say you shouldn't give an estimate and a timeframe at the same time, but he does, for the bear "pit": 2014. We shall see.
Meantime, Mike Shedlock today gives an alternative view, pointing out that corporations are holding a lot of cash. Maybe so, though I'd like to know more about who has the cash and who has the debt; whether some have both; and what the latter may do if interest rates spike. Not to mention what will happen to the demand side when ordinary Americans finally run out of money, as indeed many are doing already.
I have suggested that cash is not a bad place to be, unless you are one of the SA-reading gunslingers who has a sharp eye and sharper reflexes. Given the growing vulnerability of the US dollar (and various moves to weaken its position as the world's reserve currency), Napier has said (in the May 16 interview linked above) we might consider the currencies of emerging markets.
And I hedge my bet on the destination of the market by saying it may not be Dow 4,500 or S&P 400 in nominal terms -- but the market could well be there after adjusting for inflation.
Finally, there is a bright gleam in the dark: As Napier says, the bottom won't be in for long, and those who have the cash then and get in fast can "go to the beach" for years afterward. Like, as the FT interviewer said, in 1982.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
INVESTMENT DISCLOSURE: None. Still in cash, and missing all those day-trading opportunities.
DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.
Saturday, May 28, 2011
NS&I Savings Certificates - the clock is ticking!
If you're considering buying an NS&I Savings Certificate, especially the (RPI-) index-linked version, you may need to decide quickly.
NS&I's site says they "expect [them] to be on sale for a sustained period of time", which gives them room for manoeuvre as to timing and could leave ditherers suddenly high and dry. They also say "we are currently experiencing high volumes of calls" and this could mean that they will reach their overall sales target well before the end of the financial year - which is why, reportedly, the Certificates were withdrawn from sale last July . It's also worth noting that there is no specific target for Savings Certificates - as I reported here last month, it is merely expected that NS&I will end the tax year managing £2 billion more than it did at the beginning - spread over all its products, including e.g. Premium Bonds.
Moreover, there is commercial pressure to withdraw the Certificates. I reported that they were back on 12 May, and a mere two weeks later the Nationwide Building Society began complaining of "unfair competition" from NS&I.
The Government is in a cleft stick: people should have a secure and inflation-proof haven for their cash, but it is also a priority to get banks and building societies lending again to stimulate the economy.
It has also been observed that since the financial sector has been allowed to dominate the economy, the Treasury has become semi-dependent on taxes on bankers' bonuses. I have to bite my tongue at this point!
Actually, the competition complained of is not as fearsome as it was. True, you can invest up to £15,000 for a 5-year period (and can also buy them for children aged seven or more); but the 2- and 3- year versions are no longer available for new purchases (existing ones can usually be rolled-over on maturity), so the maximum you can invest has been sharply reduced: in 2006 you could have committed up to £45,000 per person, by buying three different versions at the same time!
Further, although the Certificates are still RPI-linked and tax-free, the additional interest is now only 0.5% per year. As before, you can access the cash before the end of the 5-year term (I suspect this term was chosen as being the least attractive), but you lose a year's interest.
Having said that, I still think they are better than what you can get elsewhere. As this FT article says (see end), the commercial alternatives are either taxable or carry a degree of investment risk.
If you do want to get in (and remember, this is NOT a personalised recommendation!), do so before the market whinges the Government into submission. You can apply online here.
INVESTMENT DISCLOSURE: We're just considering buying some ourselves!
DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.
NS&I's site says they "expect [them] to be on sale for a sustained period of time", which gives them room for manoeuvre as to timing and could leave ditherers suddenly high and dry. They also say "we are currently experiencing high volumes of calls" and this could mean that they will reach their overall sales target well before the end of the financial year - which is why, reportedly, the Certificates were withdrawn from sale last July . It's also worth noting that there is no specific target for Savings Certificates - as I reported here last month, it is merely expected that NS&I will end the tax year managing £2 billion more than it did at the beginning - spread over all its products, including e.g. Premium Bonds.
Moreover, there is commercial pressure to withdraw the Certificates. I reported that they were back on 12 May, and a mere two weeks later the Nationwide Building Society began complaining of "unfair competition" from NS&I.
The Government is in a cleft stick: people should have a secure and inflation-proof haven for their cash, but it is also a priority to get banks and building societies lending again to stimulate the economy.
It has also been observed that since the financial sector has been allowed to dominate the economy, the Treasury has become semi-dependent on taxes on bankers' bonuses. I have to bite my tongue at this point!
Actually, the competition complained of is not as fearsome as it was. True, you can invest up to £15,000 for a 5-year period (and can also buy them for children aged seven or more); but the 2- and 3- year versions are no longer available for new purchases (existing ones can usually be rolled-over on maturity), so the maximum you can invest has been sharply reduced: in 2006 you could have committed up to £45,000 per person, by buying three different versions at the same time!
Further, although the Certificates are still RPI-linked and tax-free, the additional interest is now only 0.5% per year. As before, you can access the cash before the end of the 5-year term (I suspect this term was chosen as being the least attractive), but you lose a year's interest.
Having said that, I still think they are better than what you can get elsewhere. As this FT article says (see end), the commercial alternatives are either taxable or carry a degree of investment risk.
If you do want to get in (and remember, this is NOT a personalised recommendation!), do so before the market whinges the Government into submission. You can apply online here.
INVESTMENT DISCLOSURE: We're just considering buying some ourselves!
DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.
Sunday, May 15, 2011
Letter to The Spectator: GM contrarianism
Sir;
Matt Ridley’s statement (Diary, 14 May) that “GM allows the organic dream of drastic cuts in pesticide use to come true without high cost” must surely be disingenuous coat-trailing, or at least an instance of grossly unbalanced journalism. Before he ripostes that this was only a passing comment in a desultory diary, I should like to suggest that the subject of how we are going to feed ourselves and our descendants deserves better than a contrarian throwaway line.
Mr Ridley makes no reference to research (e.g. as quoted by Friends of the Earth in 2008) that indicates increased use of pesticides in conjunction with GM crops. Is he also unaware of the common assertion that one of the purposes of GM in cereals is to develop crops that are resistant to the side-effects of herbicides and some pesticides, so helping to expand the market for the agrichemical industry? Does he further wish us to believe that he is ignorant of the debate about monoculture farming: how it allegedly increases liability to disease and pests, which in turn encourages the use of chemicals that harm wildlife and soil microorganisms and degrade the soil structure?
As a meat-eating, leather-shoe-wearing Westerner, I should like those who come long after me to have the same options; it is not only the plastic-sandaled devotees of Gaia who are concerned about sustainability, or the integrity of our environment.
Matt Ridley’s statement (Diary, 14 May) that “GM allows the organic dream of drastic cuts in pesticide use to come true without high cost” must surely be disingenuous coat-trailing, or at least an instance of grossly unbalanced journalism. Before he ripostes that this was only a passing comment in a desultory diary, I should like to suggest that the subject of how we are going to feed ourselves and our descendants deserves better than a contrarian throwaway line.
Mr Ridley makes no reference to research (e.g. as quoted by Friends of the Earth in 2008) that indicates increased use of pesticides in conjunction with GM crops. Is he also unaware of the common assertion that one of the purposes of GM in cereals is to develop crops that are resistant to the side-effects of herbicides and some pesticides, so helping to expand the market for the agrichemical industry? Does he further wish us to believe that he is ignorant of the debate about monoculture farming: how it allegedly increases liability to disease and pests, which in turn encourages the use of chemicals that harm wildlife and soil microorganisms and degrade the soil structure?
As a meat-eating, leather-shoe-wearing Westerner, I should like those who come long after me to have the same options; it is not only the plastic-sandaled devotees of Gaia who are concerned about sustainability, or the integrity of our environment.
Thursday, May 12, 2011
NS&I Savings Certificates return!
Five-year index-linked and fixed rate NS&I Certificates are now available again, according to a hotline email received here today.
Demand is likely to be high so if you want to get in, NS&I recommend applying online.
INVESTMENT DISCLOSURE: None. Still in cash, and missing all those day-trading opportunities.
DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.
Demand is likely to be high so if you want to get in, NS&I recommend applying online.
INVESTMENT DISCLOSURE: None. Still in cash, and missing all those day-trading opportunities.
DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.
Tuesday, May 10, 2011
Quizlet
Who said this?
"The purpose of agriculture is not just to produce the maximum amount of food, at the cheapest direct cost, employing the least number of people. The true purpose should be to produce a diversity of food, of a quality which respects human health, in a way which cares for the environment and which aims at maintaining employment at a level that ensures social stability in rural communities."
1. Hugh Fearnley-Whittingstall
2. Tony Benn
3. David Miliband
4. Sir James Goldsmith
5. Ross Finnie
6. Barbara Ward and Rene Dubos
7. Nick Brown
"The purpose of agriculture is not just to produce the maximum amount of food, at the cheapest direct cost, employing the least number of people. The true purpose should be to produce a diversity of food, of a quality which respects human health, in a way which cares for the environment and which aims at maintaining employment at a level that ensures social stability in rural communities."
1. Hugh Fearnley-Whittingstall
2. Tony Benn
3. David Miliband
4. Sir James Goldsmith
5. Ross Finnie
6. Barbara Ward and Rene Dubos
7. Nick Brown
Saturday, May 07, 2011
We need both AV and compulsory voting
It looks as though the Alternative Vote will be given a resounding raspberry.
A shame, because we may soon see radical policies in Scotland on the "mandate" of a majority party that has won overt support from less than 25% of eligible voters.
Here, thanks to The Guardian's Datablog, are the results of the Scottish Assembly Elections, expressed as a percentage of the electorate, 49.64% of whom abstained:
This is hardly the basis on which Mr Salmond can feel justified in reversing the Highland Clearances, or whatever he plans to do with the systemically-distorted power he is set to wield.
The Celtic Twilight is perhaps better represented by the party I call (with apologies to Dylan Thomas) "Fforeggub" - which has just put in a storming performance in my own ward's local council election, garnering over two-thirds of the potential vote. This democratic failure has ousted the nice Lib Dem lady (I voted UKIP, on principle) in favour of the Labour bod, who got less than 16% of the franchise:
In an increasingly divided and crisis-beset country, I'd argue that we need not only the Alternative Vote but (as I said last month) mandatory voting.
For me, a spoiled ballot is spoilt behaviour, and an abstention is a moral abdication. It is not a worthy exercise of your liberty to surrender liberty itself. The blasé line "Don't vote, it only encourages them" is exactly wrong: the failure to vote empowers and emboldens those who squabble to grab the country out of each other's hands and play recklessly with it.
A shame, because we may soon see radical policies in Scotland on the "mandate" of a majority party that has won overt support from less than 25% of eligible voters.
Here, thanks to The Guardian's Datablog, are the results of the Scottish Assembly Elections, expressed as a percentage of the electorate, 49.64% of whom abstained:
This is hardly the basis on which Mr Salmond can feel justified in reversing the Highland Clearances, or whatever he plans to do with the systemically-distorted power he is set to wield.
The Celtic Twilight is perhaps better represented by the party I call (with apologies to Dylan Thomas) "Fforeggub" - which has just put in a storming performance in my own ward's local council election, garnering over two-thirds of the potential vote. This democratic failure has ousted the nice Lib Dem lady (I voted UKIP, on principle) in favour of the Labour bod, who got less than 16% of the franchise:
In an increasingly divided and crisis-beset country, I'd argue that we need not only the Alternative Vote but (as I said last month) mandatory voting.
For me, a spoiled ballot is spoilt behaviour, and an abstention is a moral abdication. It is not a worthy exercise of your liberty to surrender liberty itself. The blasé line "Don't vote, it only encourages them" is exactly wrong: the failure to vote empowers and emboldens those who squabble to grab the country out of each other's hands and play recklessly with it.
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