Down the Road Archives

A Plain man's guide to investing events


 

 

14th December 2009

A glimpse of how bad things really are. I've had a busy week attending seminars and reading economic tracts, phoning bankers and studying the media response to Ally Doo-Lally's Do-Nothing PBR. It's been enlightening and deeply depressing in equal measure.

Let's look at a few symptoms.

In the context of two stock markets showing obvious signs of being over-bought, Gold dropped $84 in three days. I'd love to say I either saw this coming (or have the remotest understanding of why it happened) but I don't. The price has slowly recovered a little, but I don't buy the idea that an eighty-bucks fall is down to profit taking. Rather, I see it as more gold moving east again. Either way, weeeiiird or what? A sign of poor health - perhaps even panic bordering on insanity.

$14 trillion have been spent on global bailout and QE - roughly 30% of planetary GDP. To date, just 30% of UK bank debt and 10% of EU debt has been audited. These are not encouraging numbers: they suggest there might be worse to come. More to the point, they suggest that banks don't lend because they daren't lend. Nby remains steadfast in its opposition to zero rates of interest: they lull idiots into a false sense of security, and starve banks of potential income with which to repair balance sheets.

$13 trillion is the outstanding world government debt recorded by the OECD. While reassuringly close to the bailout stats, we must remember that the public won't buy Bonds forever: a combination of fund-shortage and lost trust must lead sooner or later to what I'd call bond fatigue. Governments get their money from bond issues, personal taxes, business taxes, banking taxes and bank loans. None of those routes is looking good right now.

Three years ago, nby posted a UK piece asking 'What happens when Government money runs out?' There were few responses to it. Sovereign debt default is now - at last - being discussed openly. The Ukraine asked the IMF for emergency rescue funds Friday last. Greek finances are a mess, and Spain has question marks that are not easy to assuage. Dubai may indeed be the end of the beginning.

Meanwhile, we've been posting stuff about the insurance sector for an age. They don't lend risky stuff like banks, but they do make lifetime promises to millions of people....in a world where a few days can be a long, long time. A stock market at certain levels is no good to them: if they bailed out en masse, there is a meltdown possibility.

Ultimately, currencies must reflect economic realities, and stock markets genuine underlying growth possibilities. Gillian Tett's insight at the Full Circle Investment Seminar last Thursday is well worth repeating here:

"We have gone in a short time from blind faith in complex banking, to losing all trust in anything markets, bankers and governments say".

Ms Tett's question - as a psychologist and anthropologist - was how the investment specialist and the general public might react from now on. A rapt audience was clearly wondering the same thing.

All I can do is tell you what I'm up to. I'm increasing my exposure to gold, not buying any more bonds....and accepting the fact that if I have to give everything in the UK up for a move to our French property - where I have land to grow things in and neighbours with whom I can barter for protein - then I will do it, however regretfully.

 

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Don’t be put off by jargon: there’s nothing to it.

Basically, Japan is knackered because its currency is very valuable. It’s valuable because Japan is knackered. Interest rates in the US and Great Britain are at 0% because they owe everyone else a huge amount of money. These rates render their currencies of very little value, and annoy those owed the money, whose assets are going up in value because there’s nothing else to invest in. As these asset values are increasing (but they aren’t really worth anything like that much) they want interest rates to go up so the assets will come down again. But the West don’t want high interest rates and low asset values, because that would mean it’d be expensive to invest in recovery, and the electors like feeling their homes are worth lots of money….which they can’t spend anyway because (a) they need to live somewhere and (b) the debt on the property is so huge they no money. The only exception to this rule is the EU, where the economy is a bit of a joke, but the currency is worth a fortune because it’s the only one left that isn’t worth nothing. (See earlier re Japan)

In fact, what the West wants is all the banks to lend cheap money so the economies will recover, but the banks won’t lend the money because they lost it all lending to rich Russians and poor Americans. So government banks have  been easing the quantities of money required by printing more of it, and encouraging the other banks to lend cheaply by keeping the rates at 0%. But business doesn’t want the money, because none of its customers have the money to buy products even if they made more of them. And the banks want higher interest rates so they can start making money again and feel better about all that money the taxpayer gave them towards their bonuses.

So all in all, the banks and the Asians have pretty much the same idea: get the interest rates up so Western governments will owe even more money, and be even more in debt and raise more taxes meaning the consumer has no money to buy their own expensive products, but enough money to pay bank overdraft bills and buy very cheap Asian products….which (because they’re so shoddy) will need to be bought all over again three months later – and thus keep the Eastern economies going really well.

And then one day, all the money that the West had at one time will be owed to the East, who won’t really have any of it because the West will default on account of not being able to sell their products any more. And at that point everyone in the World will be equally broke, and so we’ll be out of the woods.

That’s more or less it. And if it sounds bad, just think how really awful it would be if we didn’t have dynamic banks and G20 summits and free-market growth economies to pay for it all.

 

5th December 2009

The madness of crowds. Sometimes I get emails like this one, which plonked into my inbox from the USA a week ago:

'I really don't get it. You're obviously doing well out of the stock markets and yet at every opportunity you say the system sucks. Isn't this a little hypocritical?'

Perhaps it is. But then, if you remember, Mr Brown has stolen part of my pension, and £5500 of my cash - as well as selling all my gold and reducing my interest income to 0%. So my friends (and the American correspondent is a good egg) I must resort to holding my nose while clawing some of the money back.

Yesterday however, an example of precisely why a world based entirely on bourse-raised finance is doomed to get almost everything wrong. I refer of course to the news that America's jobless rate has fallen to 'only' 10%.

This was the effect of the news over a period of 2 minutes and 34 seconds on the FTSE:

Forty points up in under three minutes. Not bad considering that a fall in the US jobless rate has nothing whatever to do with the likely recovery here in Britain. Not a single UK job or market or indeed anyone here will benefit from this; in fact if anything, our slow recovery and a US bounce-back will be bad for us in export markets.

Now look at the effect on the gold price:

A staggering $37 drop in the metal's price as a safe haven on the basis of one period of employment data. But if even this has your mind boggling at the jerking knees on the trading floor, take a look at what happened in the market supposedly getting well again:

Nope, your eyes don't deceive you: the one market you'd expect to be happy-happy land dropped off a cliff some three hours later. This was because the Dollar rallied (thus pushing commodities lower) and because too much of the market was entirely selfishly engaged in creating higher commodity prices, the market dropped 150 points.

Now the thing you'd really, really want for a full-blown economic recovery is low commodity prices - because then manufacturers could buy the stuff and start converting it into good-value sales to hard-pressed consumers....as well as reducing inflationary pressures.

I'm not sure I need to go much further with this analysis, beyond making a simple observation: if amateurs like me can do really well out of the stock markets, that might suggest their reactions to news are entirely predictable. Or put another way, predictably neurotic.

I remain a firm fan of capitalism as by far the best of many flawed economic systems designed to improve the lot of the human race. Since the industrial revolution began, Man's material wellbeing has increased by 3500%. Before that, it had risen an estimated 15% since the Roman invasion of Britain.

But the success of a system doesn't mean that one version of the system is The Only Way. Consider:

* The successful recoveries of Germany and Japan after World War II were based on long-term support from large government and private banks, not short-term bourse trading.

* Two of the most successful outfits in Britain (the Co-op and JLP) are based on employee shareholder democracies. There are very few of these, so the fact that just the two have produced consistently high quality at low prices for completely different target audiences for many years might suggest there are capitalist alternatives on offer.

* I've managed companies subject to the whims of traders and markets. Most of the market traders I met were mad, young and dangerously uninformed.

* The remote shareholders of bourse-quoted companies frequently know little or nothing about either these companies or the sectors they're in. In turn, their investment aims can be as near as damnit antithetical to the commercial aims of those companies.

* Bourses and investment bankers have business models dependent on the idea of mergers and takeovers. Yet every talented senior manager I've met (and The Economist) agree with me that corporate culture and shareholder value tend to be destroyed by such transactions. Certainly, organic growth protects employees, culture and cheap-cost profits better than any other model.

* The CIA website (of all places) records via a mountain of data that mixed-mission economies perform better than either command or free-market alternatives in terms of productivity, mass wealth creation and social stability.

So this, my friends, is why - after £850 billion of our money has been spent rescuing just a few thousand pillocks who are once again paying themselves Million Pound bonuses (55,000 of the buggers, according to the latest figures) - I have doubts that this really is the best way to interpret capitalism.

 

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2nd December 2009

Go-go-go-gold. You know things are hot in the gold sector when the Gold Price websites are all crashing....and they were this afternoon. Within a few weeks, the price will be up there at eight times what our Greatest Ever Chancellor sold the stuff for all those long years ago when he was rebalancing our investment portfolio. For those of you not that interested in history, this was roughly a decade before he gave all that carefully garnered investment money to the banks in just ten weeks. After that, he gave them all our money as well. Then he tried to give the banking sector money he didn't have....but even Salvador Darling drew the line at that one.

It peaked at $1197 this afternoon (noon New York time) and it's hard to see much in its way from here on.

However, I would sound a note of caution here for the medium term. With the US flogging the stuff hand over fist to the Chinese (and the Chinese getting lots of gold mining expertise from South African fellow-travellers) there's a lot more of the stuff coming out of the ground than there was. As long as governments keep on ignoring the danger signs about overbought stocks and overinflated asset prices, the shiny metal will keep on climbing. But there will come a time (not for two years at least, but it'll come one day) when supply exceeds demand.

The Chinese are mad for the stuff, but they should remember the Spanish mistake in the 17th century: the conquistadores mined and sold so much silver, it became almost worthless at one point.

Scarcity is everything when it comes to precious metals.

And once more down on the Big Dipper. There was a 'surprise' drop in sales and a 'surprise' drop in consumer confidence in the latest set of figures. The inverted commas are there purely to confirm that Ally Dali is destined to become Our Most Surprised Ever Chancellor.

Everything surprises Mr Darling: Northern Rock going bang, the recession, the severity of the recession, RBS's demise, the length of the recession, the speed of coming out of the recession, the size of the national debt, the fall-off in Government tax income, the downgrading of our borrowing status with S&P, the size of the HBOS debt problem, the failure of VAT cuts, the failure of 0% interest rates and the failure of QE.

But let us not dwell on these unforeseen certainties. Let us instead run quickly just one more time through why the double-dip cometh.

1. Bonkers traders have talked the FTSE up to a level miles beyond anything that reflects our economic and fiscal position. (As they did up to 2007). 2. Labour's spent all the money available for further economic stimulation.(As they did up to 1975). 3. We have still not been seen/told about 60-70% of the toxic debt in the UK and on the Euopean continent. The danger areas are northern and eastern Europe going bang. (Just as Iceland did in 2008). 4. This (and following) Governments have no choice but to raise taxes steeply. This must smother any latent demand. (As it did from 1976-77). 5. Personal debt remains at an enormously high level, and consumers are piling in to reduce it. In turn, business doesn't want loans at any price - even 0% - because it knows the punters have no money. (Just as it was from 1988-90).

As we said last week, zero rates cannot be maintained. They will have to rise for umpteen reasons; so by the time business wants some, the banks won't be able to afford cheap rates any more.

It's a mess. Accept it, and dig in for the bad times to come.

 

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26th November 2009

Dubai, Dubai, dooooooh, spookeeee.... The folks who've been chattering on about us being 'out of the woods' financially on Planet Earth over the last few weeks had an attack of serious nausea this morning when the white elephant that is Dubai up and announced that they'd like their zillion trillion dollar debt rescheduled just a bit if that was alright, please. Within an hour, the cost of insuring debt in the region leapt from $360,000 per ten million to $500,000.

Dubai's tallest this and biggest that had felt to many like a modern day parable of Babel for some time, although this correspondent thought the place really was in generally good shape. Silly me for believing all those reassuring press releases for potential investors; lucky me for having no money in the region. The effect on the FTSE was real and immediate: it dropped 3.2% on the day.

But as well as showing how jittery the world still is (and highlighting once again that the crises from here on will be regional) this episode might at last focus British minds on just how quickly everything will turn unpleasant as and when Brown, Darling, Meddlesome & Ptrs have to make a similar announcement.

This is what we the pessimists mean when we say 'debt spiralling out of control'. Once you let slip the truth of it, the vultures get nervous.

Thars Gold in them thar crises. Oddly (because the world is upside down nowadays) gold dropped on the news that people had lost faith in El Vegas-on-Sea. They set course for what was being called 'even safer havens' - for example German Bonds. You read it here first etc etc, but such things are no longer the blue chip places they were: Germany is, let's not forget, in the Euro....the world's most overvalued currency.

This shouldn't bother those of us in the yellow metal, as it came close to $1200 an oz in Asia last night - and as I write has levelled off at $1185. And it will of course go higher, because upside down or not, gold is both the first and last resort for anyone who can afford it.

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signs clear that economy and stock markets about to go into reverse

Not Born Yesterday offers exclusive extracts from a recent Full Circle Asset Management report. The hugely successful UK wealth managers share none of the Brown/Treasury optimism

'The long-term chart for Gilts is very bearish. It is not possible to be bearish about gilt yields, and bullish about stock markets, the economy and inflation'.

With these stark words, Full Circle last week used empirical analysis and experience rather than blind polemic optimism to confirm what nby has been saying for months: Crash 2 is coming.

The company added:

'Nothing has happened to dim our optimism about the future for the gold price...this might go to $1500 an oz in the fairly short-term'.

This is not idle talk: Full Circle called gold's imminent rise at $812 an oz, so they know that of which they speak.

They were also right about poor lending controls, an overbought stock market, and toxic debt throughout 2007.

I must declare an interest here: I am one of their clients. As a result of this, my pension grew substantially during 2008 when everyone else's fell back. And before anyone begins to suspect that this is thinly disguised advertorial, I should reiterate that - as a matter of policy - nby does not accept advertisements from commercial organisations.

What this information does highlight, however, is that the deranged forecasts of the Government and its Treasury (which have now been wrong seven periods in a row) bear no relation at all to what's happening on the ground.

Recent nby postings ridiculing the way in which the Government is constantly 'shocked and surprised' by economic and fiscal data are meant as far more than just puerile satire: they are a warning to every voter in the UK.

The warning is not 'Vote Conservative'. Rather, it is a cautionary tale for everyone who would be led by feelgood predictions. The Establishment as a whole might have us believe that the worst is behind us, but this is rubbish: our current problems have been manufactured from a global switch in power from West to East, and exacerbated by dated social engineering ideas.

They are coming home to roost.

Last night (5.11.09) gold was trading at $1092 an ounce

 

October 22nd

The NYSE Bubble.

So then, we're over five thou in London and ten in Noo Yoik. There's only one question left really: why?

If we lived in a rational world, investors would read the data. About shipping indices, retail margins, real growth minus taxpayer pump-ups, export market shares, underlying unemployment trends, consumer debt repayment, little credit take-up despite 0% rates, structural economic problems, the price of (and demand for) real gold bullion, and perhaps above all the horrendous debt schedules both the UK and US face.

But the world is covered in human beings - five billion too many of them - and so it is emotional, while being at the same time prone to irrational optimism. Further, the original wiring (via which those with the biggest biceps and mouths get to run stuff) has as yet to evolve into something more sensible.

In the States, the S&P p/e average is now an eye-watering 144. In a heavily recessed economy, this isn't unusual: earnings have been so poor, even the heavily-discounted prices produced high p/es. But in the current scenario (unique in my experience) the stock price rises have of late been more of an explanation. In short, the vast majority of stocks are overpriced: if the outlook is not as foreseen (ie, general recovery) those ratios will soon look silly. And as one can't adjust the earnings, the prices must fall even further. I think the outlook is ridiculously optimistic - both for the short and medium term.

One reason for this in Britain is the appalling swathe that has cut our ability to earn money: the Government spin machine has reached a dizzying speed (and ministerial attempts to disguise failure new heights of mendacious hypocrisy) but neither can ultimately transmute fantasy into fact. Business Minister Lord Mandelson in the last three months has revealed himself as not just an opportunist chancer (we knew that already) but also a man convinced he could sell the other sort of business to a cleanliness obsessive.

But on a broader canvas, the biggest driver of capitalism since the late eighteenth century - the banking system - simply isn't operating in the way it should. Still frail but desperate to hide this, its investment specialists have returned to the madness of 2006. They are, to be sure, little boys in paper boats, convinced that every typhoon has but one wave.

Yesterday, the FSA's head Lord Turner argued (as has Mervyn King) that banks must be split up by function in order to ensure that the madness of a few risk-takers should not be visited upon the sane majority. Both men are right, but what they avoid admitting (for obvious reasons) is that the capitalisation of most European banks is still unsafe, and largely unknown. The fact that they do not have the resources any more to bankroll a structural economic recovery is a key fact - and one hugely exacerbated by the fact that our own Treasury is in an even worse position to pump in a second big economic boost.

I shall be staying in gold and the odd commodity for some time to come. And at some point (probably early in 2010) I'll be taking positions in Asian markets. Because gold bars (like diamonds) are forever - and the foreseeable future lies in the East.

 

Ben the Benanka Banker Speaks

 

“Compensation practices at some banking organizations have led to misaligned incentives and excessive risk-taking, contributing to bank losses and financial instability,” Fed Chairman Ben S. Bernanke said today in a statement. “The Federal Reserve is working to ensure that compensation packages appropriately tie rewards to longer-term performance.”

Hahahahaaaaaaaaaaooooohahahhohohohooooooohaha....oh dear me, hanky someone hoooohahahahahahohohohohaaarrrr.....that's better.

It gets increasingly hard to comment on this sort of stuff without resorting to Littlejohn syntax in order to express one's dismayed anger. Suffice to say that if ever there was a group of people convinced we really were all Born Yesterday, it is the banking community and its shrinking number of apologists. However, I shall attempt manfully to avoid who oh why and split infinitives in order to analyse Benny's latest statement.

One, 'misaligned incentives' is a polite way of saying 'rewards grossly out of proportion to the effort involved'.

Two, 'excessive risk-taking' is a euphemism for 'lending money to trees in the hope they will one day produce everlasting leaves'.

Three, 'contributing to' is code for 'causing'.

Four, the Fed Reserve may say it is working, but mainly it is hoping. There's not a lot left any more.

Five, 'longer-term banking performance' is one of the world's great oxymorons.

I'm a bit of a one for your parallel, and there is a good one in this case. It runs like this, and might hopefully one day emanate from the Oval Office:

'As compensation for their dedication and hitherto misaligned incentives, we have decided to award all current banking bonuses to the US and British Army grunts currently getting their asses shot off in Afghanistan in order to support a hopelessly corrupt regime which doesn't really want us there anyway. Any opposition to this edict will result in said opponents being conscripted into undertaking excessively risky operations against Taliban suicide squads. In this context, the Administration wishes it be understood that troop losses and Mideast political instability are regarded as an acceptable consequence of teaching Wall Street buttheads a lesson'.

15th October 2009

Banking round that Corner. The FT interviewed the Bank of England's 'Mr QE' Paul Fisher today, and was assured by this gentlemen that we have now 'turned the corner' of recovery. Given some of the other things he said (and some of the signs around) corners are something to be avoided as metaphors in todays bizarre financial world. Corners are, after all, capable of being tight, and dark - and becoming places one is painted into.

Many of us here in Realityville UK & Partners think there is a corner coming, but the manhole around the other side has the cover off, and the pedestrian is suffering from what we experts call Browneyes syndrome. Equally, even those who see the manhole may turn back to this side of the corner again, and thus there will be turning back, rather than turning of corners.

Sotto voce and towards the end of the piece, Fisher also casually slipped in the fact that 8% of structural economic output has been mislaid since 2007. In early 2008, this column remarked upon that very unfortunate feature, pointing out how at such a rate going forward we would have no economy at all by 2020. But then, so much else is due to come good in 2020, I doubt we'll notice the difference: our pets, for example, will all be at University, and thus far too busy to notice.

What this 'sizeable chunk' (his words, not mine) of lost output doesn't include is all our service industries, especially those of a financial nature. This would - at a conservative estimate - treble that loss. But once Paul had used the damage analogy, my already overheated mind went beyond the corner as a parellel, and on to that of a gallant Lancaster bomber returning from Nazi Germany circa1942. If we express the lost income in this context, from next year Britannia will be a four-engined plane with one engine lost due to heavy flak over Hamburg. With one engine missing, it is much, much easier to bank and thus turn corners; the problem will be (having avoided the manhole-trap by the neat strategem of being airborne) getting over the borrowing mountain which will then lie dead ahead.

Paul Fisher talked of Sterling's declining value as if it were a pathetic anti-aircraft battery with no ammunition. It isn't actually: our exports have not rallied at all as a result of it, anyone who ever travels abroad has taken a pay cut of at least 30%, and other nations will not sit idly by if we reduce our foreign debt by aiming for parity with the Zimbabwean plastic daffodil.

The declining Quid, if I may make so bold, is a reflection of the market having spotted that our artfully banking 3-engined Lanc is straining like a bloody iron lung with emphesaema to get over the approaching Everest of debt.

It must be nice being Paul Fisher. Your pension is, after all, invested in Gilts which (given the National Debt feature) are paying out rather well at the minute. It must also be reassuring to be as myopically dense as he so clearly is.

As for the rest off us here over Berlin, it's a tad disturbing that such a being is holding the joystick of RAF Bomber 647 Squadron QE-Quantitative Easing .

For we can see him now, hoving into view: navigator's caught a packet, flak-holes are peppering the old crate, one engine is US, undercarriage is shot, port wing's a bit dicky.....and there's one beggar of a hill to throttle over after Holland. But tally-ho Blue Leader, bombs gone - and the last one in the Ritz is a cissy.

This essay won the Jamie Oliver Best Baked Parallel Award 2009

 

 

8th October 2009

Swimming against the tide ....Gold reached a peak of $1061 this morning, but more dumping as the NYSE opened this afternoon stemmed further rises. It's settled down at $1054 - twelve bucks up from the day before.

Camerlot....does it exist? (Cont) 'The Tory leader said the expansion of the State had undermined responsibility in society, suggesting that the private sector, civil society and families should all take a bigger role in delivering social progress'. (Financial Times)

There was a certain sombre seriousness to the Toff this afternoon. I could have done without yet another reference to his dead son (when will politicos stop doing this?) but overall he struck some good notes. At least there was a degree of realism - but the FT went on to suggest that many economic observers were 'terrified' by the Cameron-Osborne talk of swingeing cuts. Nothing much to bother us there (economists are far often wrong than right) and anyway, Georgie-Porgie's cuts are deckchairs on the Titanic. But the italicised quote above had a disturbing ring to it....rather too much of a salute to Thatcherism for my taste: proof yet again that Dave's Right wing remains very powerful.

I would've preferred a message along these lines:

'The expansion, remoteness and abject failure of central government means we need a return to community and family responsibility - as well as a massive devolution of power down to that level. We must also interrogate market economics far more throroughly, and ask ourselves what exactly globalism really contributes to the real lives of contemporary Britons. The responsibility for good triumphing over evil ultimately relies on good people: and no national 'system' can ever deliver that. Only a Conservative Party committed to the same opportunity for all within a holistic, high-standard educational system can do that'.

But that was never going to happen. And so tonight, I feel just as disenfranchised as ever.

7th October 2009

And so it proved....gold shot up as investors deserted the US dollar for the Aussie version. So this morning - just before the NYSE opened - Fort Knox began dumping again to support the Buck.

It's an old theory, but looking better as time goes on.

Tesco's alright, we're alright. So says CEO Sir Terry Leahy-hee-hee. Sadly, there has never been much of a correlation between the happiness of Tesco shareholders and the rest of us, but in this case Tel Boy is especially well wide of the mark.

Here's why he's wrong about Tesco: the only reason Sir Terry's sales are holding up is because key areas (like crap meat) have been very heavily discounted. This has given the (largely erroneous) impression that the best deals are at Big T. In fact, they're at Morrisons and - if you're cosmopolitan - Lidl. But even though Tesco's shoulder-prices have stayed high, Terence is unable to hide the fact that profits are up half as much as sales. This is called 'lower margins'. QED.

Here's why he's wrong about us: Whatever side of the Pond one's looking at, neither QE nor daft VAT cuts nor slashed prices are tempting many of us back to the shops. The stats show clearly that (with the exception of the very heavily indebted space cadets) most of us are cutting back to repay debt: and no matter what any 'expert' neo-conservative geek wants to tell you, that is precisely what we should all be doing right now. Homes and families are, after all, much more important than omnivorous retailers and their obese shareholders.

Just watch this 'recovery' falter when we need to put rates up to defend the Pound - and put taxes up to stop a run on the Pound.

No small change at the Banks. What - not even a teeny-weeny one? Nope. Who says this - Greenpeace? Swampy? Arthur Scargill? Nope - the irrepressible Martin Wolf, by far the most sane and insightful macro columnist on the FT.

He's just been to a banking symposium, and is thus able to confirm what is becoming increasingly clear with every week: their delusions of grandeur are beginning to return. Time for some more injections of lithium, I fancy. In the meantime, Martin sums up their attitude as "Thanks for your money - now please go away".

It's a very good piece, and in outlining the five R's required for genuine recovery, he points out that the last (but by no means least) of these is 'reform'. That's the nettle that nobody has, as yet, grasped as such. We've had a ton of rhetoric from O'Drama, endless threats from Dali and Frown - but no great big whacks across the head or insistence that these jerks pay us back every penny they squandered.

In November 2008, I wrote as follows: 'Everyone tells us that now is not the time for reprisals. But that's the problem - it never will be the time. They'll all get off scot-free and carry on as before.'

One of my better ones, that.

Globalglobalglobal....regional. The turkey with OCD in Downing Street will continue to think globally, but as the Aussie Dollar rate rise demonstrates, the world is variously advancing or falling deeper into the pit regionally. There was no sign today that anyone expects the rise down-under to be repeated elsewhere for a while yet - and for my money, they're right. China, India and Brazil will boom by feeding domestic markets. The French will get by because they have very strict debt rules. Japan will try more radical stuff (and for them perhaps now the only way is up) and the Germans will continue to export successfully because they make good products that last....despite the price of the Euro. By contrast, the UK's export record will carry on being lamentable - despite a cheap Pound - because we don't make much of quality or value for money any more. The same goes for the USA. And (yawn) yes, one day soon the hubris-fuelled EU will have to wake up to the appalling situation in its Eastern Empire.

But we are, of course, in a far worse position in these Isles: because we lack resources, modern plant, training, direction, money, agriculture, and a Government which knows up from down.

 

6th October 2009

 

You read it here first

You will also continue no doubt to note that (as we predicted) gold does best when the stock markets are relaxed and western currencies are holding their own. This is entirely abnormal, and demonstrates yet again how US/Chinese gold shipments continue to depress its price artificially.

Believe me - the gold dumps will continue, but once the old Fort is empty, people in gold are going to make very serious money indeed.

4th October 2009

The Ascent of Money. This is the title of a book about currencies, banks, stock markets, insurance, bonds and all the other stuff that goes to make up capitalism's method of raising money to make yet more money. It's by Niall Ferguson, it's a Penguin - and for a penny under ten quid you can marvel at how bonkers and yet oddly productive it can be.

In my view Mr Ferguson underestimates the degree to which the Bourse system is irretrievably broken, but he is the master of his subject - and both a lucid and engaging storyteller. In this volume is all the evidence you'll ever need to convince you that Homo sapiens was incapable of telling villains and vipers from good guys and gurus long before Enron, Madoff, Lehman and all the other pillocks.

More to the point, however, his book was (and is) infinitely more prescient than Brown, Bush and Blair. But not more so than your very own nby. The current Common Sense exchange rate from Ferguson to nby is 1:1. However, the nby:Brown rate has plummeted to 1:6,000,000, having been 200,000:1 just three years ago. When I last looked at the markets, the nby:Bush exchange rate was 1:3.7milliard and falling - although a late dash by Blair looks like he has caught the Brussels gravy train after all. Thus by Christmas it seems likely that trading in these latter curencies will be suspended. In his case, hopefully by piano wire round the goolies.

But there IS something more to this posting than one Penguin paperback - and my usually bitter prose, found by certain French legionnaires of my acquaintance to be trop acidique. It is this: the use of the noun 'ascent' in relation to money.

I've been boffing on for some months now about how this particular world fiscal crisis (and it is much more fiscal now than economic) has been treated by everything from 0% interest rates to printing money (QE). Every treatent has so far failed. There are no real green shoots in the West - just hopeless greenhorns full of shit and blind faith. While I coined the term 'indeflation', on the whole it was mainly ironic. There is only ever one result of QE, and that is rampant inflation. Note: the removal of State giveaways from the US car market has (as we predicted) put it right back where it was. The same thing exactly will happen here. This is why (once the brakes of US sales to the Chinese are worn down to the linings) gold prices will sky-rocket. They will do so because, in a real free-market global economy, they can do nothing else in such a ridiculous environment of fiscal insanity.

And in such a context, I'd like if I may to quote a gem from Niall Ferguson's wonderful book. This concerns the hopelessly naive manner in which social welfare has been provided by Western European governments. But significantly, Ferguson's quotation (of Chilean economist Jose Pinera) was about the Chile that was melting down thirty years ago, not the UK of today:

'What began as a system of large-scale insurance had simply become a system of taxation, with today's contribution being used to pay today's benefits'

Back in 2005, a now defunct nby column (Funny Business) asked readers 'Have you ever wondered why the original pension and health care contributions begun in 1948 were never invested as any other investment pot would be?' Well - mouths, babes, innocents etc. Under Allende in Chile, the annual inflation rate asended to 900%. Not a good idea if there is no real national pension fund being invested - only a current account being raided.

The quotation in red above is as good a description of UK welfare funding in 2009 as you'll find....except that the contributions now can't keep up with the benefits. And lest you think this comparison exaggerated, I would remind you that no less an organisation than the IMF ten weeks ago pointed out that only Argentina is more badly equipped than the UK to deal with any further need for economic investment.

Thus ultlimately, the thing by which contemporary young Britons will remember the New Labour Project in general - and Our Greatest Ever Chancellor in particular - will be the ascent of inflation, and the descent of our currency's value.

25th September 2009

Gold: the continuing story. The most loyal amongst you will know that for three years nby was vilified by much of the financial Establishment: partly for saying that an unprecedented collapse was coming, but primarily for having the audacity to suggest that the Gold market was being manipulated downwards by block selling on a massive scale. Ha-ha they all said, but none of the central banks are selling it, so where is it coming from you silly boy? "Fort Knox" I replied.

More laughter. "And pray tell us o wise one, who's buying it?" "The Chinese" I replied. Much wetting of underwear from the assembled ranks.

Listen, I could've been entirely wrong....but I wasn't. Out of the blue a few months back, the Beijing chaps up and admitted they had trebled their gold reserves, apparently overnight. True, they have (with technical help from Hard Left South Africans) opened up several new mines of late: but even they only put some 17% of the total down to that.

It would do all of us good to remember that no US President has even crossed the threshold of Fort Knox since Harry Truman in 1951. Nobody outside of some mysterious auditing gnome somewhere has the foggiest idea whether there's 30 million troy ouncess of the stuff in there, or some gold-painted Hershey bars.

When the world changes this dramatically - and a new financial super-power emerges - the old superpower has to sell the family silver just to keep up - or in this case, the Fort Knox gold. It isn't the first time it's happened, and it won't be the last. After becoming rich on South American silver in the sixteenth century, Spain failed to realise* that the invention of share- based Bourses and controlled paper currency circulation had devalued their metal (through overproduction) and made it an old-fashioned form of payment. The Madrid monarchy sold tons of the stuff over the following century, and wound up defaulting on its debts nine times. The same fate almost certainly awaits the US in time. (And of course, the UK)

But why would the Americans sell so much of it? This too I've been asked in a fairly challenging manner over and over since early 2007. And the truth is, partly I don't know - but I'm collecting reasons as time goes on. Being an empiricist rather than a conspiracy nutter, I try to observe and verify rather than merely speculate.

It seems to me there've been three key reasons over time. At first, the US wanted to stop a wholesale stampede out of the stock market in 2007/8: they reasoned (rightly in my view) that if the flight to gold pushed the price through the $1000 ceiling, everyone would pile into the shiny stuff and the Dow would be at minus 6000 by Christmas. So huge dollops of gold were sold. The ruse worked.

Then - as the Dollar fell, thus helping US debt problems - it became clear that once it reached the Mexican peso level, nobody would want it as the chief Reserve Currency any more. So defence of the Buck became all, and even bigger dollops of gold were shipped over to China. This strategy upped the Dollar's value quite well after September 2008, but of late has been less successful. Now the huge 'dump' selling has begun again - because aside from another slide in $ value, the gold price went up to $1027 two weeks ago (mid September 2009). And so now with the stock market 'recovery' faltering, both these reasons lie behind the new dumping strategy. (If you want to observe it, here's a tip: go to Bloomberg and watch Asian stock performance from the previous 'night'. If the markets there are nervous - and London is down - watch the live streamed gold price between 8.30 - 9.00 am New York time the following day [3 pm UK time]. You will see a steep fall of anything from $8 to $25 in the gold price. On 9/11, the gold price fell just over $2. Here's an example from Thursday this week (24.9.09)

The third reason is more prosaic: the Americans need cash, and the Chinese want gold. You have right there 100% of all the requirements for a thriving market.

That said, the Canute principle applies: one can't hold back an overwhelming natural force forever. Just as Spain mined more silver without comprehending the negative effect on its price, so the US and the UK are now printing money. This plus the obvious realities of (a) a hyped 'recovery' and (b) a ludicrously oversold stock market mean big equity falls and massive gold gains.

Meanwhile, I wonder if President O'Drama has the bottle to request a visit to Fort Knox?

* The best book I've ever read on this subject is 'The Ascent of Money' by Niall Ferguson.

18th September 2009

There is a madness much greater than that of credit default swaps alone: it is the global Bourses per se - and their catalysts in the business of alchemy, remote shareholders. If sharing a house with a Bourse floor trader would involve second by changes in the grocery list (following obsessive reference to what the folks next door were buying) then living with your average shareholder would consist of constant demands that the floor polish be 25% brighter, the windows 50% more clear, and the cleaning lady fired.

These people see everything and discern nothing. They have an eye for every detail, but are blind to the painter's subject.

Really skilled wealth-managers use a combination of experience, common sense, insight, statistics and creative flair to do more than merely observe: they interpret. One of the biggest scams of modern life is process disguised as ideas, observation masquerading as interpretation. By contrast, this is a well-researched and intelligent extract from a view given to me by one of the outstanding practitioners in this field:

'We think it unlikely, if economic recovery were really under way, that long-term gilts would perform as well as they are at the moment.....the weakness of the shipping freight index continues unabated....companies and households are cutting back....in this context, how can corporate profits increase?'

The report goes on to note that Barrick Gold, central banks and China have all turned into major gold buyers. Given the background, it expects the gold price to go to $1500 in the next six months. I think they're being conservative - but others must make up their own minds.

If you want to know more about this company - Full Circle Asset Management - go to their website http://www.fullcircleasset.co.uk

The views expressed in this column are not necessarily those of Full Circle, nor theirs mine

16th September 2009

'Sept. 16 (Bloomberg) -- A year after the bankruptcy of Lehman Brothers Holdings Inc., credit-default swaps have lost their stigma for disaster and are contributing to the growing confidence in the credit markets.'

Unbelievable, but true. And yet at the same time, entirely predictable: governments having spectacularly failed to divert bankers away from their silly little game of Russian roulette (from which nobody benefits but them) they've gone back into the craps pit at the very first opportunity.

When it comes to global banking, we need regime change, period. Then we need systemic change. Then we need to regionalise in orer to stop future domino effects, and limit the power any one of them can amass.

This is easy to explain and difficult to do, because government depends on banks. So governmental regime change is required too, with more power to local level and massive reductions in lawless privilege.

The core problem is always at the top. A bloodless, electronic revolution could sort it within six months. But until we, the investors, taxpayers and other assorted folks robbed blind by this grisly scam get off our arses and do something, it will always be there.....and only get worse.

I'm not anti-capitalist, I'm anti-swine. If it's impossible to be an ehtical capitalist, the game's up anyway. It is perfectly possible to to lead a moral capitalist life - cue mantra: 'It's the Culture, stupid'.

Gold trading ranges. The shiny stuff is up at $1017 today as I write. With every week, its trading range gets higher and higher. I've been plugging this line without offering formal advice (because I mustn't) for a year now. All I can say is that I got in with much of our spare cash at $827 - and if I didn't have a new roof to pay for, I'd be piling more in now.

There are various reasons for this rise; the technical ones are still largely beyond me to be honest, but the common sense, observational ones are clear:

1. Western governments are printing money - still largely in the UK (as Merv the Swerve admitted yesterday) to little effect, because consumers in debt are now once-bitten. The 'model' is bust, and the smart money wants a safe haven from it.

2. Anything China's collecting I want too.

3. The oil price continues to languish, suggesting a continuance of nerves about economic performance in several regions.

4. Huge EU debts have still not been declared (see below)

5. The UK house-price 'recovery' can't last (see below) thus reducing further the options available for low-tax capital growth

6. Packaged-product banking madness is back with us already (see above) showing to anyone with grey matter that the learnings from Lehman et al are zero-diddly-squat. There will probably be another stock dive within the year (all markets except China and Brazil are, in my view, massively over-bought) but above all, none of the systemic global banking flaws have been addressed. For the investing strategist, therefore, the safe-haven rule applies.

Sterling. Almost alone among commentators of late, we've been bearish about the Pound. It's back down to a (falling) range of Euro 1.11.5 - 1.13.5 now....so more or less 70% of its recent recovery has been wiped out.

It's hard to have confidence in a currency being over-produced and watched over by people stuck in a 1966 time-warp. But traders know that reality is at last dawning on the fiscal probity dimension - and that its relative value to the Euro doesn't take anywhere near enough account of the multivariate problems bubbling under away just below the EU's apparently gliding progress.

I have to get some money over to France early next year. Sterling will be, I think, in a much better state by then.

9th September 2009

The U.K. housing market slump will resume next year as the squeeze on mortgage lending persists, Ernst & Young LLC’s Item Club said.

After “dipping” in the first half of 2010, prices will then stagnate for two years, the research group, which uses the same economic model as the U.K. Treasury, said in a report today in London. Mortgage finance may “remain scarce and expensive” as banks rebuild balance sheets while the economy emerges from the recession, the Item Club said.

Seen here first

Home

3rd September 2009

BP's Big Find. In case you missed it, BP found oil reserves in the Gulf of Mexico yesterday equalto the total output of Saudi Arabia. This is going to make reading the runes on oil prices even harder for the time being - especially as the find has already begun loosening the exploration purse-string of other oil giants in the US.

For the time being it might cause a rise based on perhaps longer oil reserve futures than many had assumed...ie, more confidence in it as a fuel per se. After that, this and other finds will depress the price owing to oversupply. In between the two, falling demand outside China and India could also have a negative price effect - depending on which regions recover first, and by how much.

If it was my money, I'd get out of oil now for a bit: there are too many unknowns to make it even a safe long-term bet.

Gold's Big Leap... and anyway, with Gold now edging up to a higher and higher trading range, this metal remains the best hedge against Governments printing money. Stock markets remain overvalued - and we in turn remain of the view that sooner rather than later the market traders will realise this.

Indeed, they're already doing so. The Dow and FTSE have been variously down and sideways for several days now.

Investing in China. Sept. 3 (Bloomberg) -- Stocks in China rose the most in six months, driving the yen and Treasuries lower, on speculation the government will adopt measures to boost equities after the Shanghai index fell into a bear market.

You read it here first

30th August 2009

London property drivel up 100%. The FT's front page (and a big feature on the Bloomberg site) trumpeted a 234% increase in sales of London properties priced over £1million.

As always, it's as well to get past the % thing and into the numbers. The sales involved 250 expensive properties in a City with approximately eight million homes. And the increase is being compared to a year ago, when people leaping from the balconies of their multi-million-pound-multiplexes were no longer a source of fascination. The top and bottom of this 'story' is that 75 fat cat properties were sold a year ago, whereas in August 2009 a further 175 were sold.

The other good idea when dealing with stories of this nature is the source - upmarket £1M+ estate agent Knight Frank - and the 'sources' they in turn quote:

“We are at the beginning of a V-shaped recovery,” said Stephen Yorke, chairman of D & G Investment Management. The company manages the 10 million-pound Prime London Capital Fund, owner of eight rental properties in Chelsea, Knightsbridge and Belgravia.

So there you have it: recovery is V-shaped. Or pear-shaped, depending on your eyesight....and agenda. As the nby corrrespondent for Canadas & Canaries is fond of observing 'IABATO' - it's all bollocks and that's official.

Miserable old bugger still at it, boo-hiss. Correct, I still am. But this time around - compared to June 2007 and earlier - the MOB (Miserable old Bugger) has some heavy hitters on his side.

The FT noted yesterday that the 'positive figures' realised by the ONS Thursday last had negative downsides as well as positive upsides in the uprising ongoing confidence space:

'...the weakness of consumer spending and business investment levels remain severe....economists remain unclear where the recovery will come from in the light of soaring debt....it is a technical reversal, not really a recovery at all.'

John Plender of Quintain plc has a similar view in relation to the stock markets:

'...the S&P 500 is once again well above fair value....the robustness of this recovery is questionable....cash for clunkers only brings expenditure forward....(and)...shifting the burden of indebtedness from the household to the public sector...cannot be sustained as it threatens our debt ratings....(we must)....move our economy away from debt financed consumption, but this is very difficult in current-account deficit countries'.

Spot on: you read it here first, save only for the elegance and brevity of this observation. Mr Plender is clearly a good egg.

 

28th August 2009

Continue to think in Chinese. Today in the world that's back to form and full of beans, Toyota pulled out of a production plant in the US it jointly owns with General Motors. This is the first time a Japanese car company has ever retreated from a partnership abroad, or abandoned a factory. In the US, both Walmart and AT&T figures were worse than expected.

The UK is awash with yet more bollocks about how manufacturers are restocking, the rate of decline is slowing, the figures are better than expected....and other short-term observations which take little or no account of more important things. Of this, more in a paragraph or few.

As we suggested back in May, while Chinese governmental credit relaxation is causing a domestic Sino-boom to keep employment and the feelgood factor up, there hasn't been a lot to keep the Chinese stock market happy. Ergo, during this month it's fallen 15%. There are various reasons for this, not the least of them being how parlous the Chinese think our marvelously recovering Western situation really is. Being far more intelligent than their counterparts in that self-same Wild West, Chinese bourse traders understand perfectly well what Beijing strategy is (over there, d'yer see, they're all rowing the same way) but equally they're being cautious about (a) how much money fangwoi roundeyes owes them and (b) what's going to happen if in the long term the market for their goods is restricted to South America, India, Manhattan, Kightsbridge, and the home market.

So I repeat: as a medium to long-term investment, Chinese stocks are remarkably attractive to sharp investors right now. Whether you wish to join them is entirely a matter for you.

Returning as promised to Britain and Everything's Alright Now, there's no doubt that the current figures contain some joy - if only for the One-Eyed Noodle from Fyfe, and his portraitiste Salvador Darling. But those who forget at what cost this fragile recovery has been bought will live to regret it. Both here and in the States, the only thing that has stepped in between arses and mud in the automotive business is a 100% Government salvage scheme: but in the medium term, the US car business is in bad shape, and the UK's is as ever non-existent. In terms of both design and price, neither of us has a long-term future in the car industry.

 

27th August 2009

The peak you see above is the £ at 1.18 to the Euro at the start of the month. The plunge to the right of this is what's happened since. It now stands at 1.13.5. In simple terms (because I'm a simple man) this means that if you took August off to go to Italy or wherever, the £1000 spending money that accompanied you is now worth £950. Or rather it isn't, because of course by now it's August 27th and most of it has gone on filthy Veronese women, Chianti and large meals.

Anyway, this is just another sign that everything's tickerty-boo and the Government is looking after your needs in every conceivable way, up to but not including any help whatsoever in alleviating them.

 

26th August 2009

The strange gap between behaviour and reality. This morning we awake (as will the Americans in a few hours time) to find their debt sitting somewhat uncomfortably at $1.6 trillion. At WPP, profits fell by half in the first six months of 2009. But consumer confidence in the US has moved from 47.4 to 54.1. Well let's see, the rate of decline in US house prices dropped from 16.8 15.1%, so that's a tickertape parade right there. Oil prices only fell 2.32%, so that's worth a hip-hip-hooray. Oh, and Japanese car-maker Toyota has suspended its production line for a year. Well at least it hasn't gone bust. Could've been worse. Look on the bright side. Don't talk the economy down. It's all a question of confidence. Everything'll be fine by next year.

I always know when folks are feeling better about stuff, because the dribble of 'why are you such a miserable old bugger?' starts up again. As do bank profits, bonuses, dilution of clean-up controls on MPs' fraud, and £20,000 expenditures on grace-and-favour apartments. Well, as I've said before, having 20:20 vision does not a happy observer make, and also doth not soothe the savage breast of the myopic.

Sorry to keep repeating myself, but right now we don't have a global economy - we have a set of regional economies. They range from the basket-cases of the UK and north-east Europe, the false calm before the storm of the Eastern EU, the enigma of Russia, and the apparent strength of France and Germany to the boom of India and Brazil, the domestic consumption orgy of China and the near-zero output of Japan: where, oddly enough, at long last probably the only way is up. And where, by the way, they did exactly what Dali & Broon have been doing, after which they didn't see any signs of turnaround for a decade.

More exactly, what we have is a Chinese economy. Their influence is now so all-embracing that it is pointless looking anywhere else as far as long-term trends are concerned. But equally, in the short to medium term the only place to be looking is in one's own back yard. Especially if you're British.

In Britain, having paid its top swinging dicks huge bonuses for lending silly money to deranged people, RBS is now capping the final salary pension scheme for all the lower ranks who didn't do any of that shit. The Lloyds group cut another 200 jobs (none of them senior) bringing the total to 7,500 this year- the cost of thirty or so sugar addicts at HBOS being given the sweetie factory to run for five years. Yesterday Brown admitted there would be big defence cuts. Already, budgets are being frozen throughout Whitehall. Hospital building has been stopped. NHS Trusts are closing wards to meet PFI debt costs. The unemployment bill is still rising. Six million UK 'employees' are now wholly dependent on the State for their income - and this doesn't include the seventeen million or so State pensioners. The UK has five million folks of working age who have never had a job under New Labour. Plenty of room there for forward not back, I'd say.

Britain's boom has indeed become a bust (despite the Mad One's ludicrous boast to have banished it) but there is more to this bust than previous ones. This is chiefly because the boom itself was a fantasy. And if you think this contrarian to the point of delusion, look at the figures.

There were trebles all round at the Treasury in Q1 this year when our trade deficit 'narrowed' to £8.5 billion. Or put another way, at that rate our trade deficit annually would be (and more or less is) £100 billion a year. A trillion pounds a decade. But this is no new trend: going back to 2004 and a world full of new paradigms, the deficit by quarter never fell below £6 billion. At the very moment Brown declared eternal wealth to be our lucky fate, the deficit was £12.5billion.

Type 'uk national debt' into the ONSonline site, and the search engine predictably says no data matched the request. Type that into the BoE's site, and it refers you to a speech given to the Yorkshire Chamber of Commerce by Mervyn King. On Planet Search Engine, all is still well with the world la-la-la-la-lah. Elsewhere, the figures are freely available. In June 2009, the UK national debt was just a few tenners under £800 billion - or four-fifths of the way towards equalling the annual trade imbalance (making the grand total of red numbers a shade over two trillion quid...which, oddly enough, is almost precisely the amount (£2.1trillion) the Government spent bailing out our banks last year. Funny how the numbers on either side of an equation cancel out quite neatly.

This unhappy process of deepening debt will now be accelerated (and a few ten-foot high jumps added) by three factors. One, Standard & Poors have begun downgrading our borrower status, meaning we have to pay more to borrow to try and pay back what we already overspent. Two, our income from output is falling while benefit costs are rising: so there's less money to pay off the debt and thus it will roll upwards and get worse and result in further S&P downgradings and therefore cost us even more. And three, two-thirds of our normally expected invisible export earnings have gone west with the collapse of our financial services reputation.

This is more than a bust. It is a the fast lane to Newgate Prison. As nby predicted in early 2007, 'the United Kingdom is trading insolvently, and is about to reach the end of that road - national bankrputcy'. Alone among observers of the currency over the last two months, we have consistently said that the Pound is only a short-term buy: once the full reality of just how flat broke we are finally dawns on the challenged blokes trading on the Bourse floors, it must and will head for the basement again.

Hurrah you think - that will make our exports cheaper.....and printing money via QE will add to that lucky happenstance. Wrong again, I'm afraid: Britain's trade deficit has nothing to do with price and everything to do with reduced demand for what we make; if we print too much money, other countries will simply retaliate by doing the same; countries like Saudi Arabia and China will not stand idly by and watch as we dilute our debts; and the most likely end-result of any country with crap output and lousy infrastructure printing money is, of course, hyper-inflation.

The more sharp-eyed among you (not including the Beeb's news website of course) will have noticed that the £ lost two cents against the Euro during the last four trading sessions. As I write, the rate is down to 1.138. But as I say, forget global and forget short term: watch the regional outlooks and your own country's bleak future. Then get the hell out of the Pound.

25th August 2009

Why another property collapse is a cast-iron certainty, and imminent. If you've got a buyer on the hook haggling about a few grand either way, forget the money and go for exchange as quickly as you can. And preferably, don't buy another property just yet: rent.

Here's why. Despite all the optimistic drivel coming out of the lending industry, they haven't got much money - and what they do have ain't gonna be cheap. Further, despite the 'official' news that prices are rising again, this means no more than there are some seriously dense buyers out there: Rightmove's study (which I trust) shows prices falling again by 2.2%. I haven't met a single seller this year who got anywhere near the asking price - unless they started off at a sensibly discounted level. Realism about worth is a key driver in the current market.

But above all else, with 0% interest rates everything is beginning to creak audibly. The Government can't go on printing money forever - much as it would like to if this meant getting reelected: interest rates must and will rise. The current Administration will try to put this off until after May 2010, but that's unlikely to fly in Threadneedle Street. At this point every bank in the country will rush to put borrower rates up as high as possible. And then just watch the rates of default go through the roof. Tons of housing will come onto the market, buyer confidence will collapse...and the cash buyer will be able to pick up a serious bargain.

We should also bear in mind that 'property' encompasses far more than house-prices. The commercial development and small-retail rental markets are in a parlous state. Some major players will collapse - and this too will knock confidence.

Home

 

24th August 2009

Recession over: everything terrific. As the FTSE roars towards 5000 and the NYSE hits 9500, wherever we look the recession is declared 'over'. So let's take a closer look.

First off, one man's recession is another man's boom. As nby has been insisting for two months now, there is now no longer a 'global' crisis, any more than there is a 'global' economy: there are merely a series of regional crises ranging from medium term to basket case. The Chinese, Indians and Brazilians do not have a lot to worry about: their own citizens can soak up production for some time yet. Others, however, are in deeper poo.

As most nby readers live in the UK, we would do well to examine the bases upon which (a) the recession is declared over and (b) the recession is defined as the issue in the first place.

Over the last week, the £ has devalued by 1.35% against the Euro. Over the last year, it has devalued by 23% against that currency. Our market share gain in the EU over that time has been.....zero. In the world at large, it has declined for the third year in a row.

The UK unemployment rate rose to 7.8% - 2.4% higher than a year ago.

Our manufacturing output is 13.8% lower than it was this time last year.

In 2005, this is what an insider's global banking website said about UK expertise: 'The UK banking sector, following the US and Japan, is the world’s third largest, and considered foremost in terms of efficiency, dynamism and return on capital'. Now think on these figures very carefully - in the last year, the fall in UK bank valuations has been as follows:

-RBS minus 91%

-Barclays minus 71%

- HBOS - no longer solvent, owned by Lloyds

- Lloyds minus 86%

During that period, falls elsewhere have been as follows:

-Deutsche Bank minus 52%

- BNP Paribas minus 46%

-Credit Agricole minus 44%

-Santander minus 51%

-Credit Suisse minus 24%

-National Bank of Australia minus 32%

The industry that represented 62% of our GNP in 2007 is now a busted flush. Not only has our banking reputation collapsed, but the very use of the word 'nationalisation' has scared off investors from America and the Middle East via India to China.

Germany makes stuff. France makes some stuff and grows a lot of stuff. Their banking sectors are in better shape than ours will be for a long, long time. We score 0/3 on these vital dimensions.

In short, my simple thesis is this: we don't have an economy to speak of any more. In the one we have, six million members of the workforce are paid by you and me, the taxpayer.

In this woeful context, we owe more money than we could ever pay back (based on such a pathetic commercial and manufacturing outlook) in a million years.

Talk of the recession being over isn't just premature - it's irrelevant. What's over is our ability to compete. And we have all the idiots from Thatcher via Major to Blair and Brown to thank for this. I have no political agenda, only one of survival: we need things to grow, make and sell....or within a generation we will be on a par with Indonesia - but with all the responsibilities of a Great Britain to its 70 million citizens.

I will return to what ordinary - especially older - investors are able to do (if anything) in the light of this catastrophic outlook.

18th August 2009

Professor Gormont O'Deon's index of consumer confidence. I'm not normally a one for the silly charts, but this one caught me eye last week. With remarkable consistency, it shows a clear and direct correlation between the FTSE and the consumption of popcorn in cinemas.

 

Make of it what you will - but bear it in mind the next time you see a graph claiming causality between two factors.

16th August 2009

Denial 2: Myopia. Tomorrow is Monday, with perhaps another fortnight of the silly season to go. The weekend's papers, however, looked as if (when it comes to economics) they were settling in for the silly decade, starting now.

Surveying the 'news' as an opener to this posting, it read more or less like this: Tesco is DOUBLING its Clubcard points in an effort to prop up already heavily-discounted sales. The State-owned B&B made a stonking £328M loss. Several columnists accepted that the FTSE looked as if it was posed to head down again. The gloss was taken off the property 'recovery' with the news that buyers are still negotiating prices down on almost every sale. And in the midst of this, Britain stood nose-deep in debt, losing market share around the world and unable to cut the red tape and credit drought strangling new businesses throughout the country. First France, then Germany - then even Japan - reported their slumps to be 'over'. But the UK remained struggling to get out of its debt-crater.

In this context, the Times ran a completely bonkers profile of Alistair Campbell, saying he had been 'proved right after all'. About what, exactly - the 2009 high tides in his Scottish island hideaway? In the Telegraph, Damian Reece told us to 'cheer up,the recession isn't going to be anything like as bad' because the Government's stimulus package seemed to be working. This despite the BoE has said three times that 'this is a fragile recovery' (code for 'about to shatter at any minute') and the IMF says we sure as hell better not need any more fiscal stimulus, cos yooze is broke.

So as always, I return to reading those who suggest they might be (a) sane and (b) prescient, given their track record:

Martin Wolf at the FT: 'The worst of the financial crisis may be behind us, but the financial system remains undercapitalised and weighed down with an as yet unknown burden of doubtful assets. The probability of mischief down the road is close to 100 per cent'

Philip Stevens at the FT: 'There was a surprising degree of co-operation on the international response to the crisis in financial markets. But the restoration of calm has been the signal for cracks to appear about what to do next'

Edmund Conway at the Daily Telegraph: '...we should not presuppose from the fall in foreclosures that our housing market and its inhabitants are suddenly in a far better financial condition than previously supposed. Instead, what is more likely is that the pain, once again, has merely been deferred rather than actually avoided. Hundreds of thousands of households are clinging onto their properties by virtue of the perverse interest rate environment we’re living in at the moment, but the moment rates start to rise they will be smashed by the rise in their debt costs.'

 

15th August 2009

Why the system is bollocks, and our troubles aren't over by a long chalk. Very few of you will know who Michel Rocard is, so I should mention that he used to head up France's Socialist Party. Normally a person with those credentials wouldn't be up my boulevard, but he's just written a piece for the economics website Project Syndicate. This is a precis of his quite remarkably astute diagnosis of the good and bad in capitalism (italics and highlights are mine):

'The free market is part of a basic freedom that is rooted in everyday life....This system is fantastic. By the time of the French Revolution, the standard of living had hardly doubled since the Roman Empire. Today, it is 150 times higher....Nevertheless, left to itself, the system is unstable. It undergoes a crisis about once a decade....After the war, the belief that the system needed to be stabilized became widespread.  Eventually, a more balanced system emerged. The achievement was stunning: 30 years of consistent and rapid economic growth, full and permanent employment in all developed nations, and no financial or economic crisis. Standards of living rose nearly ten-fold during this period....Capitalism’s political success, however, came at the very moment when the system was starting to deteriorate. Shareholders organized themselves into pension funds, investment funds, and hedge funds. Because of their pressure, employment fell, reducing the share of wages in total national income by 10% over the past 30 years....We are now in a strange period in which governments, bankers, and journalists herald the end of the crisis just because large banks are no longer failing every week. But nothing has been solved, and unemployment continues to rise....Even worse, the banking sector is trying to take advantage of publicly financed rescue packages to protect its privileges, including immorally huge bonuses and extravagant freedoms to create speculative financial assets with no links to the real economy.... The root of the crisis remains the fall in purchasing power on the part of the middle and lower classes, and the collapse of speculative bubbles created by the wealthy classes’ greed for more. But if we are to have a system where nearly everybody can become better off, the wealthy cannot become ever wealthier at the same time.....A bleak future awaits us.'

As a reasonable (and reasoned) summary, I can't fault this. Anyone who can, please email me at john@johnaward.net

 

14th August 2009

South Africa's Central Bank, Episode Two. Further to ours of 17th July this year, sharp-eyed observers will have noted that outgoing anagram Tito Mboweni* shocked and stunned South Africans today by lowering the country's lending rate half a point to 7%. This was not of course Tito's idea, but that of gung-ho incoming ANC leftwinger Gill Marcus, she of the very close relationship with China on the gold thing.

The left of the ANC as a whole has engineered this move. It wishes to start a borrowing boom to create jobs for all those black Africans it has so far failed to employ, rehouse or in any other way make better off than they were before.

The next step down Mugabe Lane will be foreign earnings being overwhelmed by domestic consumption and Government largesse, to be followed in turn by money-printing, more admin fuck-ups and further high living by the emerging corrupt Chieftains who will run things after Mandela's demise.

* Better known as I, wine bottom

 

12th August 2009

What do we do when it becomes apparent that QE isn't working? This is a very good question, and one the markets continue to ignore. QE by the way is quantitative easing - aka printing money because the banks haven't got any left to lend. Apart from launching QE2 (for which the UK has no money set-aside, ring-fenced or any other daft idea Gordon comes out with) there are no options left in Pandora's Box.

Yesterday's US economic data bucked the recent blind-faith trend on the trading floors, causing the Asian markets to do badly the following morning. Even China's main bourse dived by nearly two and a half per cent - a dangerous situation in that we are back to where we were last year (house of cards hit by fly etc etc) only in a slightly different way.

As I've observed several times recently, the 'global' banking financial crisis is over, but it's by no means The End. Now the regionally varied econo-fiscal crisis begins. China doesn't need the US markets that much at the moment (it is credit-relaxing its domestic consumers like there's no tomorrow) but obviously Japan does, and one day China will require further export expansion in order to keep on piling the Gold high - which they need for their proposed colonisation of Africa.

The words I've highlighted should be obvious to serious investors by now, but sadly not to the incompetents trading shares. My main point is this: the banking screw-up has left western governments with a fiscal debt crisis...biggest in the US, worst in the UK, and about to get worse in the Eurozone. In all these places, the situation is simply exacerbating an underlying, long-term economic position which has been carefully hidden by government for years and ignored by the media: huge losses in overseas markets.....in turn causing exacerbation of the fiscal crisis via rising trade deficits. (In case you hadn't noticed, the export performances of the US and UK in 2009 have been little short of disastrous - beaten for awfulness by only one country - the original neolib-flu patient, Japan.

Now while China and India - and Brazil - can spend a deal of time engaged in gleeful hand-rubbing about all this, the meisters in charge know there are huge potential medium-term dangers for them if their own main export markets are hyper-inflating basket cases. At the moment, nobody in the West has any post QE ideas, the US debt is massive (and mostly owed to China), and the financial/industrial/political 'leaderships' are ignoring the herd of large elephants in their room: spiralling debt, rising welfare/bailout costs, and falling export income.

The latest US data suggest that the window's been redesigned but there's a lot of unsold stock inside. Hence the very nervous response by the Asian markets overnight.

Again, take heed all ye who visit this column of doom and gloom: I'd like it all to get better too, but you can't base a recovery on swapping a financial crisis for an econo-fiscal one. I suggest you all email Salvador Darling and Secretary Geithner with the message 'Can we tackle the elephant thing now please?'

 

10th August 2009

State pension age could rise to 70 (S Tel 9.8.09)

Not much one can say about this, really. As you can read in The Slog , NHS cutbacks have already begun, and within perhaps even my lifetime there will be neither health nor old age insurance. Odd to think that the Party which played the largest role in introducing them has (through its profligacy) brought such fine ideas to an end.

Little countries to the north-east. A fortnight ago, Lithuania announced that its economy had shrunk by 22.4 per cent during the second quarter of 2009. Latvia and Estonia seem certain to show similar falls when they announce their figures. Dalia Grybauskaite, the Lithuanian president, has told various Western sources that her country might have to apply to the IMF for a loan. Latvia has already done so, and last week agreed its second loan in eight months from joint IMF/EU fund.

As we predicted first three months ago, the debts of former Soviet satellites so hastily incorporated into this mad Hell-in-a-handcart thing called the EU will start to become a millstone very soon. This is just the start: stand by for Hungary, Slovakia and Romania next.

 

29th July 2009

Here we gold again. Sorry, awful pun....but this has been such a recurrent theme on nby over the last eighteen months, I feel the need to keep refreshing it.

The latest stock market 'recovery' having stalled in the mud of Squanders, I knew at the start of this week what would happen next: an attack on the gold price. Opinions vary as to (a) whether this whole idea is a fantasy (b) if it isn't, who's selling what to whom, and (c) why are they doing it? As to (a), the vast majority of observers are in the 'it's a fantasy' camp, but being contrarian is nothing new for this column: in the contemporary financial 'system', today's nutter is tomorrow's seer. But the other two questions/doubts deserve a thorough examination.

I'd be happy to be the man supplying it, but neither I nor anyone else outside the Sino-American Establishment will ever be given the opportunity. That's because in both the US and China, there are two types of gold. In the US, there is Federal Reserve gold (freely available for auditing) and Fort Knox 'deep reserve' gold (which no President has even visited since 1952, and to which access for any and all Congressional investigators has been denied since that date). Sounds like conspiracy paranoia bollocks? Check it out - you'll find this is 100% accurate.

In China, there is gold we have already bought that we're happy to tell you about.....and gold we haven't bought or mined yet, but will soon. For definition differences, see previous paragraph.

Throughout 2008, nearly all the media, governmental and Establishment gold specialists nby contacted about manipulation of the gold price rubbished the idea. It has been my experience over four decades that the more folks laugh at a theory, the more likely it is to be proved correct. It has also been my experience that if enough facts build up about whether something is a duck or not, chances are it'll turn out to be a duck. Here are five very strong pointers:

1. Falling gold prices since mid 2007 have nearly always preceded stock market days expected by opinion leaders to be bad. Furthermore, they tend to take place in the half-hour before and after London and New York markets open.

2. The falls range in size, but are never less than ten bucks - and have been as high as thirty-five. On 9/11*, the price fell $3.50.

3. Before the latest econo-fiscal crisis, gold had ALWAYS risen in price during a period of plummeting equities, and ALWAYS risen faster still during uncertainty about currency values/governments printing money. We've had all these factors over the last two years, but the price of gold has on the whole remained stubbornly below a $1000 breakthrough level.

4. On April 24th 2009, out of a clear azure-blue sky, the Wall Street Journal's Marketwatch website announced a dramatic increase in China's gold reserves to 1054 metric tons. Hu Xiaolian (the man in charge of foreign holdings) said the reserves had risen steadily by 454 tons since 2003. But this didn't entirely tally with the 600 metric ton increase over the stated March 2009 level....a level which previous Chinese figures insisted hadn't changed since 2002. Confused? You will be after thinking about this: the 600 month-on-month tonnage 2009 increase represents a 132% leap. Ho Xiaolian speak forked tongue or have big maths problem.

Clearly, the Chinese bought it from somewhere - their mining output is growing, but not by 132% of existing reserves a month.

Qu: Who has the most gold after China? Who is China's biggest trading partner? Who owes most cash currency debt to China?

Ans: (In backwards writing for security reasons) aciremA.

5. Demand for the metal. In December 2008, Swiss refiners admitted 'having great difficulty in keeping up with demand for gold bullion'. Call any bullion dealer, and they will tell you that you can have a limited amount - usually at a 40-50% premium to the stated bank paper-tracker price.

So the conclusions I draw respectively from all this are as follows:

1. A large amount of gold has been sold by the USA to China, with two complementary aims: to stem a wholesale desertion of the stock market, and reassure the Chinese that there's plenty more where that came from in terms of holding Yankee debt in something more tangible than paper. Both those things aside, this does of course represent a massive shift of power from West to East: America is (like a number of central banks in Europe) selling off the family's best tableware.

2. Manipulation of the gold market has been going on for at least two years - at first to defend the dollar, and then to defend US equities. If the biggest attack ever on America's homeland produced a $3 fall, 'market forces' do not generate $20 falls on a regular basis in line with regular time zones. That is just a silly, silly idea.

3. The gold price is being capped by massive sales benefitting both vendor and purchaser; and bona fide investors are being cheated out of their gains as sensible buyers.

4. The Chinese figures are contradictory and nonsensical. Their release is based on the well-known theory of all elites, viz, if the People are asleep and/or frightened, you can sell them any old tosh as an explanation.

5. There is no precedent in recorded human history for (a) a safe haven falling in price during uncertainty and (b) a falling price sitting alongside insatiable demand. To believe otherwise really is to have been Born Yesterday.

At exactly 8.00 am London time today, the gold price fell by $9.50. At precisely 8.30 am New York time, the gold price began a further rapid fall of $11. The FTSE (having plunged 100 points in the twenty opening minutes) recovered during the day to be half a per cent up. The Dow (having plunged 80 points in its opening half-hour) recovered to end two-thirds of a per cent down.

As to interpretation of all the foregoing, the choice is yours.

*....and no, this is not another 9/11 conspiracy theory.

 

28th July 2009

Le Trompe D'oil. This column has various mantras, and one is 'watch the price of crude'. Throughout the goforit micro-rally of the last ten days, this would've served medium to long-term investors well: the guys deciding what oil is worth are as good a barometer as you'll get. God knows what that'll be when the fossil fuels run out, but in the meantime you cannot have an economic recovery that's real without genuine demand for oil.

I like to think nby will fess up on getting things wrong, and I certainly thought two months ago that Chinese and Indian demand alone would keep the oil price reasonably healthy. The fact that it barely moved in July (and is now heading south again) tells you exactly how bad things are.

There is, naturally, a segment of traders who always knew the 'rally' wasn't based on anything beyond taxpayers'money, and they're the ones who baled out for profit today.

 

24th July 2009

Reality returns. The UK's Q2 contraction was 2.5 times as much (yawn again) 'as experts were expecting'. Well stuff the experts, the rest of us have eyes and ears and were quite certain that the Government reassurances were a load of old bilge. The FTSE rose 0.37% on the news. I think this tells you all you need to know about Bourse trading.

Henry Thornton down under. This bloke blogs on financial and other matters at http://www.henrythornton.com/blog.asp?blog_id=1545. For the site as a whole just stop at the second forward-slash.

He wrote a piece a little while ago based on Big Red's article about how economists are blind, clueless and in various other ways people of special needs. This is it http://www.henrythornton.com/blog.asp?blog_id=1543 and I particularly liked the bit about bland and Wild West economies, seeding etc etc. Worth a look.

Henry thinks I'm an iconoclast. Correct. Otherwise known as The Phantom Bollocks Reconstructer. Soon to be a movie starring very big guys with foreign accents. Ioooorll be baaarrrkkk.

23rd July 2009

Market soars on good news. It is hard sometimes when financial people who've been seriously (and serially) wrong for the last three years write in to go yah-boo sucks at an nby prediction that seems for about ten seconds to be going awry. Not only did the markets soar today (and one soar = three rises) but the carmaker Ford was fingered by several commentators as the driver (sorry) behind market progress. You may recall that two weeks ago we said Ford would one day wind up in deep doo-doo on account of debt unaffordability, and the Bear rally was over.

In point of fact, Ford was just one of many companies to publish 'good' results today. So lets look at those confidence boosters in detail.

1. Ford's profit was based on debt restructuring (aka putting off the inevitable). It's quarterly numbers actually showed a substantial loss ($424 million)....after $2.8 billion of debt restructuring were taken into account. The cash loss on margin was 'only' $1 billion...which was '$1.7 billion less than in the first quarter'. And the wholly-owned subsidiary Volvo doubled its quarterly loss as revenues fell by over a billion dollars. Ford's CFO described talks to sell the Swedish carmaker as 'ongoing'. The company is 'on target' to break even (in real-real terms as opposed to auditing fantasies) by 2011. That soon, huh? Put out more flags.

2. Big earnings were reported by healthcare companies. Bristol Myers Squibb (ironic name or what?), Celgene and Intuitive Surgical all beat their estimates. Given the population keeps growing and ain't nobody wants to die, this is hardly surprising; plus of course, the industry must be relishing the idea of Obama's health security plans. (I am too, but I know from experience that public health = soaring drugco profits)

3. The other two good results came from Amazon (diversifying into clothes) and Ebay (making a turn at every turn with an extra turn at each turn that occurs to them in turn). The downside of this is that you won't find many physical retailers posting megaprofits, and Ebay is the sort of business bound to boom when people no longer want to pay top dollar for new. In case the Bourse traders hadn't noticed, there is a global switch taking place in how we buy stuff, and if these two guys can't make money in that environment then we might as well all pack up and go home.

Flushed with optimism in the face of these results, the FTSE rose 1.47%, and the NYSE - which had more time to show how insane it is - leapt by 2.23%.

Now hear this, as the Americans say: crude oil was down on the day. Gold remained strong. The Dollar did zilch against the Euro. The Ford 'surge' is based on the stupendous news that it's the only Motown brand not to file for bankruptcy and just might make nothing by 2011...if we're lucky. The Chinese and Indian carmakers undercut Ford prices, and will equal their design skills by 2012. Sub-brand Mercury's future is described as 'bleak'. The company's small-car plans are dubbed 'vague' and 'optimistic' by the US trade press.

Now hear this again, as nby is often forced to say: in 2006, a Lehman Brothers partner described my article in Market Leader (about organic cultural corporate growth being preferable to globalist bollocks) as 'laughably naive'. Revenge, dish, cold etc etc. In mid 2007, nby forecast a 30% downward correction in the UK housing market. Soon afterwards we forecast a FTSE low of 3500 in 2008: the low was 3497. The editorial policy of both the site and this column remains the same: this is a capitalist website which believes we need a new kind of capitalism. And the starting point should be bringing globalised banking and business to an end, along with braindead idiots marking up prices on the basis that it looks like the sun might come up tomorrow. And clearing out all those uppity, impatient, greedy remote shareholders.

Home

 

20th July 2009

The Bank of England has 70% of its pension funds in index-linked gilts. There's not a lot more one can say about this fact really, except that knowing it is like sort of legal insider trading. Let's face it, the Establishment will always ensure they're bombproof (and bugger us lot) so if that's what they're doing, who are we to look a gift-horse in the mouth, a nod's as good as a wink to a blind horse and it's horses for courses, so don't wait until the horse has bolted.

Feels like a good horse to back. I'm all horsed out now.

Three initials you didn't know until this week. CIT is a key US player in the business of fronting small retailers and businesses with cash to pay for materials and inventory. Many of those companies will create tomorrow's jobs and sector leaders. Without CIT, that isn'tgoing to happen. This is the biggest, bitterest pill the NYSE has had to swallow since Lehman.

Last night it was looking like curtains for the company. However, the Board approved a deal with major bondholders to keep the company out of bankruptcylate this afternoon UK time. A usually reliable nby source said the deal will give the company about $3 billion. And another source told me "they'll go through that in a month".

We shall see.

19th July 2009

President Zuma and the new Central Bank Governor. It's always worthwhile keeping a close eye on what Jake Zuma is up to. Today we were given the 'asked to leave and so I said yes' line on the Former Governor of SA Bank, Tito Mboweni. He is to be replaced by Gill Marcus.

The powerful government-aligned Congress of South African Trade Unions (COSATU) has been lobbying to boot out existing governor Mboweni, blaming the bank's inflation targeting policy for high interest rates and rising food prices. That is, to say the least off it, something of a random kind of blame. Basically, COSATU want job creation, and inflation control doesn't do job creation.

Gill Marcus is a white middle class former ANC hardliner, and very left-wing. She left South Africa along with many other activists in 1969, was recruited by the ANC in London during 1970, working full time for the organisation from 1975 onwards. She edited a newsletter, the Weekly News Briefing, which was distributed by the ANC around the world. When the ANC came within sight of power, she was 'instructed' (the ANC's own word) to return to SA immediately.

Her climb to power since then has been meteoric- especially since the ANC Left captured the Party and Zuma became President. Marcus is a specialist in Gold, and is the exec Chairwoman of Gold Fields Ltd....although her main job is as Chairwoman of Absa Bank - SA's biggest. This powerful lady has now been squeezed into a pivotal economic role by Zoooomer - a close ally vital to keeping the Whites and the West onside - and after pressure from the Trade Unions. Indeed, Marcus avoided answering a question at the news conference where her appointment was announced by Zuma on whether or not she would continue to pursue inflation targeting, saying the journalist was on a "fishing expedition". And indeed ducky, sounds like he caught a big one.

The South African opposition said it was "unacceptable that a new Governor should dodge a question fundamental to South Africa's economic framework and the foundation of our monetary policy: the market needs a clear answer as soon as possible."

But what of Ms Marcus's other links? Well, there is her interest in Gold. A recent press release by the company noted that

'Gold Fields will retain exploration joint ventures with Sino (Gold Co) over the Jinshu project and other nominated properties in China'

In June 2007, China launched a China-Africa development fund to the value of US$1billion to encourage, finance and support Chinese companies in their investments across the African continent. (See nbys passim) In October 2007, China's largest bank, the Industrial and Commercial Bank of China, bought a 20% stake in South Africa's Standard Bank for US$5.5-billion. This is the biggest single foreign direct investment in South Africa to date. (See also nbys passim)

This may represent nothing more than a string of unconnected facts. But in appointing her, Zuma could be said to be signalling a move East and Left.

Certainly, Beijing will not be displeased by the appointment.

Home

16th July 2009

Holidays almost here, world saved. Sliding sideways into August, the world of financiers is about to go on holiday. This means we are probably all safe from their clutches for at least six weeks.

Although I didn't make my debut on the planet until nine years after 1939, I am a historian by discipline and thus have studied that year very closely. I would imagine that 2009 is rather like 1939 for the thinking folks. For two months now I have had the same sense of slightly disembodied foreboding I had throughout 2005. But things have speeded up since then: and one can't help feeling that (having had the 1938 Czech crisis) we are now about to get the Second World War.

I've predicted this for a month or two now, and most commentators with insight are driving up the same boulevard. Some (like Martin Wolf of the FT) are being commendably circumspect. Others with a mission to sell are churning out alarmist stuff. For once, there is plenty to be alarmed about.

My money is in gold: what you do with any you have is your affair. But in a spirit of graveyard hilarity, I offer you this brief sketch penned yesterday:

First man: I went to buy some gold
Second Man: Excellent idea. How much did you invest?
Man1: Nothing. But I wanted to put £20,000 in
M2: Why didn't you borrow it?
M1: I tried. I told the bank it was a solid gold investment.
M2: And what did they say?
M1: Too risky. They suggested I invest in gilts because the Government owns those.
M2: Right. So you invested in gilts then?
M1: Nope.
M2: You didn't? Why not?
M1: Bank said they had no money to lend me.
M2: Ah, right. But every bank needs money.
M1: Correct. So I asked them how they could get more money.
M2: And what did they say?
M1: They said they needed everyone to invest in gilts.
M2: Aaahh...right. But they wouldn't, as it were, lend you the money to ensure that....
M1: .....precisely.

15th July 2009

Cars selling again and China getting richer. These two things alone seem to have boosted the markets again today. Erm, what happens when the scrappage money runs out? And, um, why is China's massive surplus wealth good news for the West? And er, um....anyone notice UK unemployment rose by a record amount to May? Also um er um what about Chinese hyper-inflation once the string-pullers in Beijing fancy a nap?

13th July 2009

No news is good news. You know you're in an optimistic market when there is no news of any significance and the major markets go up between 1.5 and 2.5%. But the word optimistic is not interchangeable with 'bull' - all it tells you is that Bourses are a bear-pit inhabited by Pooh Bears of Very Little Brain. "OK guys, nuttin' happened today...let's pile in". Imagine if commuting were to be conducted in the same manner: "No trains today...let's put all the money on there being lots of much better trains tomorrow".

Meanwhile, some of the ground has been made up from last week. Sideways again.....but even that is pessimistic for the FTSE when you look at the state of Britain.....

This from last Friday's Telegraph:

'In calculations that will spark further criticism over the state of the public finances, an IMF paper presented to world's leaders has laid bare how the UK's indebtedness has left it unable to provide the vital stimulus the economy could need over the next 18 months.

Every other G20 country apart from the UK and Argentina has been able to budget for temporary spending increases or tax cuts next year to help drag their economies out of recession, according to the paper, presented to a recent G20 meeting in Basel. Even Germany, whose finance minister Peer Steinbruck has accused the UK of "crass Keynesianism", plans to spend a full 2pc of its economic output on such measures next year.'

Even allowing for the right-wing bias of the paper, like it or not the IMF did present such a dossier and it did say precisely what is written above.

So it's us and Argentina, then. Perhaps we could fight a war about who comes last. Or do a credit default swop and hope for the best.

I jest because that's rapidly becoming the only way to avoid feeling utterly depressed: not just with the Government's pathetically blind obsession with self-justification and post-rationalisation, but because the warren full of Eton bunnies on the other side also seem unable to score a direct hit on what is now a punctured barrage balloon.

For the investor, the serious side is clear enough. Despite a dollar devaluing itself daily and a Euro wobbling in expectation of enormous toxic debt still to come, were it me I would no more invest long-term in UK Government bonds or Sterling than take a punt on Zimbabwe joining the G8 next year.

 

10th July 2009

"Thank God it's Friday" said the market as it closed today. We're sort of back where we were....FTSE heading for 4000 and the Dow for 8000.

7th July 2009

In March nby showed how senior US corporates were selling eight times more of their own stock than they were buying. The figure last month was up to slightly over twenty. Or put another way, only 5% of American insiders expect their stock to be worth more this time next year.

It is always more important to ask the folks who allegedly know what they're talking about. Even among these, during difficult times most of them are wrong. Now it could be that the 95% of top bananas selling are also wrong - but there are two strong arguments against that hypothesis. First, these guys have seen the books: they're not guessing, they know. And second, they aren't people proffering advice, they're self-interested executives protecting their wealth.

Back here in bankrupt Britain, most feelers I've put out to the commercial property sector suggest that things are in a dire state. While nobody is going to cry a river about this, the important point is that (like the umpteen charity shops everywhere) it reflects just how awful things are for independent retailers.

The same is true of small businesses in general, still as ever being starved of funds by the banks. More evidence about this has just emerged from the Bankers' Association. Since the start of the year, bank lending to non-financial companies has fallen at a steady but astronomical £1billion a month. It is hysterical in this context to see the Chancellor (who owns half of the banks by now) talking tough in various TV studios about how 'this has to stop': wrong intransitive use of the verb there, Ally - it's down to you my Caledonian friend.

But much as I'd love to drop the giant anvil of blame upon the Scottish Duo, the truth is somewhat different. While Brown and Darling are as always lying their heads off, there is no point in coercing those who have no money to lend money. This remains the rock which dare not speak its hard place in UK economics at the moment: the fact is that a frightening amount of our taxpayers' money shot straight out of the banks' back door and into the pockets of global investors (especially in the Middle East and Asia) and hasn't returned. Banks which don't lend money to people and businesses are pointless.

Some observers think interest rates won't rise much here, if at all. I could be wrong, but I don't agree: without higher margins on what little income they've got, the banks will become a bigger and bigger drain on the Exchequer - and without more of our money being available from the taxpayer for them to lend, the economy will come to a dead stop before too long. Lack of commercial lending liquidity has got nothing to do with interest rates, and everything to do with naked fear. Rates must rise.

 

3rd July 2009

From this column, June 29th: 'Who knows what will start the ball rolling downhill? The answer is that nobody does - but possibly, just two or three bits of bad news in a row might be enough to start a selling frenzy'.

Based on the US unemployment figures being (altogether now, 'far worse than expected') the Dow dropped 2.63% today. And on hearing the news mid afternoon, the FTSE fell 2.45% down from its normally sideways gait.

The European Central Bank also confirmed that at 9.5% the Eurozone unemployment rate was surprisingly high. The Euronext index fell off a cliff - down 8%.

Vicky Redwood, of Capital Economics, said the UK outlook was "not overly encouraging for bank lending". She said this in the context of UK personal loan and mortgage defaults reaching new peaks. (The Government scheme, it has been clear for three weeks now, is another futile New Labour gesture of no real value)

"Overall, we continue to doubt that lending will rise by enough to support a strong and sustained recovery in the wider economy," she said.

California Governor Arnie Schwarzenegger declared a fiscal emergency in his State to address a budget deficit of some $24.3bn (£14.5bn).

Is this the next downturn? I doubt it myself: it's more of a curtain raiser, creating broader awareness that the rally isn't based on anything other than blind faith - with the accent on blind. For my money, the next tipping point will come when a major problem comes to light. Around the various world capitals, there are folks who already know what and where some of them are. When those living in the foothills of Vesuvius hear the rumble...then there'll be another disorderly panic.

2nd July 2009

From this column June 27th: 'This is no longer a World Crisis: from here on it's a case of varying regional conditions.'

From the WSJ website this evening:

'The U.S. and euro zone jobless data added to gloomy data from across the developed world, but more bright spots appeared in developing nations.'

Following the day's bad-news haul, China ploughed on regardless, up 1%. From a low of 216 on October 8th last, the Chinese B index has grown steadily to 514 yesterday. However, we need to look at this more closely: 'varying regional conditions' doesn't necessarily always mean East/South good, West bad.

While getting jolly sniffy about Americans printing money, China's reflation package makes America's look like a minor attack of flatulence - which may of course be exactly what it is. But that nasty thought aside, China's Yuan printing presses are working overtime to increase both lending and overall supply at a far higher rate than that of the US. My water tells me this is beginning to look as if the boom after the bust may turn into another bust.

One key question here is obvious: if we're not buying their stuff, who is? And the answer is, they are.

Data from the Chinese Bureau of Statistics (NBS) recently showed that China's domestic consumption had maintained an upward trend since the beginning of the year. For example, China's retail sales rose 14.8 percent in April year on year.

    *Rural spending, driven by a government rebate policy on home-appliance purchases and other commodities, grew by 16.7 percent in April, which was 2.8 percentage points higher than urban growth, according to NBS.

    *The booming property and car markets also showed the same trend as China became the world's largest vehicle market again with more than 1.15 million cars sold in April, up 25 percent from a year earlier.

    *In the housing sector, China's real-estate climate index was finally back to growth after ten months of decline. Property sales rose by 17.5 percent in acreage from a year earlier in the first four months of 2009. (My highlights)

On the one hand, one looks at this picture and sees the USA circa 1950, only multiplied by five: the demand seems without limit in the medium term.

But on the other, America achieved the boom years half a century ago by exploiting huge raw material assets, having access to incredibly cheap energy, and having world markets (starved of supply by war) gagging for its products. Virtually no new money above normal demand was printed during the 1950s. This clearly isn't what's going on in the Land of the Inscrutable Ones: a combination of initiatives, relief and easing are driving this consumption.

One good thing about autocracy is that everyone gets behind the ball rather than listening to forty-seven conflicting opinions. The bad thing is that the goforits outnumber the tooth-suckers and believe it'll last forever. For some time to come, life will be good - and getting much better - for the average Chinese citizen. However, as we saw with the global cockup last year, the speed of collapse, reaction and a degree of at least temporary stabilisation took us from 1929-1932 in five months flat. The same may well be true of China's domestic consumption.

My point is that the UK's never-had-it-so-good Macmillan years were also fuelled by aspirant domestic consumption - while demand for and the price of British export goods both went in the wrong direction. The result was a Pound worth 15% less in everyone's pocket.

Perhaps China could be heading for its own version of this. And if so, perhaps again it will go from1956-1964 in, say, eighteen months.

Whatever the parallels right or wrong, money being supplied into the domestic market cannot be maintained at this rate without inflation. If I'd been in the Yuan and the Chinese stock market since the start of the year, I'd be taking today's levels and thinking 'this much is more than enough profit: the second it starts to fall for a few days at a level still above that, sell. If it goes back to that level, sell quickly'.

But then, I am a Bear wrapped in the raiments of Job and wearing doubting Thomas's discarded hat.

  

30th June 2009

Funny how the timing pans out sometimes. Following yesterday's posting, this morning the news of a catastrophic fall of 2.4% in UK output during Q1was underlined by 2,100 layoffs announced by Lloyds Bank, the lucky recipient of the money pit formerly known as HBOS.

There is more to this than just 'worse than expected' figures on economic growth - after all, every last Government and Treasury forecast since late 2007 has been miles out. The key point here is that while New Labour refuses to accept the reality of a need for drastic spending cuts now (See Political Wing) such delusion alongside poor output figures makes the likelihood of long-term Government debt spiralling out of control more and more of a probability.

This isn't high finance, just 3rd year maths: if expenditure is higher than allowed for (or expected by the markets) and output - aka earnings with which to pay off debt - are markedly lower than forecast, then those lending the UK money have already upped the ante on the basis of S&P's downgrade last month. They will now notch it up another half-point or so.

This is effectively like a mortgagee defaulting on the schedule before a single payment has been made. The £ immediately dropped a whole cent against the Euro, while the FTSE dropped 1%; and notably, Lord Meddlesome was nowhere to be heard intoning about the need to stop talking Britain down.

We can of course rest assured that within six months of their defeat in 2010, Fondlebum and what's left of a bitterly infighting Labour Party will be blaming all this on the Cameroons. But that is politics smear-style from the man who calls smear every time he is rightfully accused of skulduggery. The more important point for our nation is that even another nine months of static output, lost export markets and collapsing financial services reputation will be too long: down the road apiece this time, dear Reader, is the awful spectre of exponentially rising debt and a hyper-inflated currency.

If ever we needed a democrat to emerge and start sorting the mess out, then now is the time: cometh the hour, cometh nobody on the horizon as yet.

29th June 2009

Sliding gently sideways. This is an aditional entry to the earlier observation (early June) discussing the portents for a further step downwards in several equity markets. But as the previous entry below argues, the size of step-change downwards must and will vary by region. (In China, there is just a chance it may not happen at all).

Looking at the markets since the so-called rally began - and especially over the last fortnight - it is clear that almost every market is in 'wait and see' mode, and almost every indicator sliding sideways.

The OECD predicts 2010 Japanese growth at 0.7%. The FTSE is firmly in a groove between 4300 and 4500; similarly, the Dow's range has settled in the 8300-8600 band. After it's earlier race to $988, Gold is now back in the $930-950 range. Oil's rise has stopped in favour of a $67-71 window, and the Dear Old Pound has been between E1.16.5 - 1.17.5 for ten days.

Once the insane enthusiasm of 2007 had morphed into the 2008 jitters, the indicators at that time looked pretty much as they do now. This doesn't require a degree in Economics: only the common sense to see that uncertainty is running things at the moment.

But four things will make things worse as 2009 turns into Crash II:

1. East European bad debt and massive pressures on the EU budget. There must be serious doubt about whether the Union can survive this.

2. The lack of reality or ideas in the UK especially, where debt projections are already taking on a surreal air.

3. The failure of further large, non-financial manufacturing and service concerns - definitely a mobile network, and probably another car manufacturer.

4. The realisation that East European problems will land largely in the coffers of the European banking system - only 17% of whose liabilities are as yet known.

Who knows what will start the ball rolling downhill? The answer is that nobody does - but possibly, just two or three bits of bad news in a row might be enough to start a selling frenzy.

27th June 2009

'Coordination falls away as the crisis abates'. (Guardian) You read it here first

This is no longer a World Crisis: from here on it's a case of varying regional conditions. Despite short-term uncertainty, China and India know (as does everyone else) that Europe is in denial, Britain is in the mire, Japan is in freefall, and the US is all over the place. While these areas have divisions about everything from government approach to long-term recovery, they don't.

The United States has more of its debt in the open - and a lot more gold to sell to China as and when things get sticky. The UK by contrast has a debt it can't manage - and a banking system unwilling to tell the truth to a Government unable to control the banks. But ultimately, both will need to become siege economies if they are to survive the medium term.

In the West, the mainland EU is nevertheless potentially the biggest basket case - closely followed by Russia. The two are linked by former Soviet satellites sitting on a volcano of bad debt and economic disaster. While the RF would like to recapture them, however, it is the EU which will be saddled with the cost. This remains the money-pit which dare not speak its name.

As for Japan, it has the same debt management problem as the UK, and a quite different (but more profound) socio-political crisis. It may yet become the first modern liberal democracy to start unravelling.

In this overall context, investment management will once more - at last - be about watching genuine trends, signs, local opinion and data about the different outlooks these groupings face, and the varying speeds at which they will go forwards, back, or into neutral.

 

25th June 2009

'Ford is to raise its UK prices by an average of 4%, blaming the move on the weakness of the pound against the euro.

It is the third time this year that Ford has raised prices. They rose by 4.7% in February and by 3.75% in April.'

(BBCNews website this morning)

If pretty Bobby Peston is such an all-knowing financial deity, why isn't the Beeb's news site spilling the beans on Ford's real problem: an inability to service debt which is now due for payment?

The Ford top guys told the BBC that while raising prices in a slump might seem 'counter-intuitive', fear not because we know what we're doing. So does everyone apart from Auntie, apparently.

First off, the Quid is worth a good 12% more against the Euro than it was three months ago. OK, fair does - it has been falling again in the last few weeks: but this is a debate about the past, not the present.

Second, Ford's head is not in the same tumbril-basket as GM right now because they at least had the foresight to borrow cash when it got cheap - and borrow big. Also, hats off to their news management chaps who managed to keep this policy far from the media limelight. But the truth will out in the end. Except on the BBCNews website.

Unsustainable debt management and daft business models will see off far more corporate household names as we move into Stage Three of the seismic shift. Among these I would name (but undoubtedly not shame) Ford, Vodafone, much of the advertising and insurance sectors, and whole swathes of the media.

 

24th June 2009

Oh the grand old Mervyn King

he had some monetary men

he marched rates up to top of the hill

then he marched them down again

And when they were up we were down, and then it was all tits up

by the time they halfway rose again we had all been sold a pup

Little bit unfair on Sir Merv this doggerel, because (see latest Political Wing) ever since late 2007 he's been muzzled by Borrow & Barmy in numbers Ten & Eleven Downing Street. The limerick (and it could well be that this is a limerick wrapped in a doggerel and hidden behind a mist of poetry) is really rather more about whether those pulling the levers - yawn, not again - know whether it's Sunday or Crystal Palace, green shoots or the return of Japanese hogweed.

It's pointless making the accusation of incompetence, because they were all found guilty of that (and let off) a year back. Also none of us know the right thing(s) to do either. But among myself and a growing number of contrarians, we sure as hell knew what NOT to do....and that was:

1. Cut VAT and thus waste £12 billion

2. Cut interest rates as a price lever applied to a market ruled not by price but by fear.

3. Rescue banking corporate entities when we could simply have rescued the investors.

To date, government in total and troubled parts of the financial Establishment have separately and severally rubbished these ideas as naive. They are nothing of the kind.

* The arguments in support of the VAT cut afterwards were so risible as to be verging on infantile ('Please sir, I left my homework at home'). They were saved from further public ridicule by the expenses saga - Brown is indeed lucky in his choice of crises - but suffice to record here that none of the numbers added up, and ultimately the civil service 'assessment' asked us to believe that £11 billion of uplift was worth all the expense and hassle of a £12 billion tax cut. It remains unlikely not to say impossible that the Government's 2.5% played a bigger role than product being sold at just above half-price at retail. Throughout the 'report', one was reminded of the Tessa Jowell scream of triumph when drinking didn't increase for the first fortnight after her Pisshead's Charter became law.

*The contrarian minority who averred that cutting interest rates would make no difference have morphed into the great majority of informed business journalists. The policy not only drastically reduced the spending power of over sixties (34% of whom are nowhere near the breadline - silver spending has been helping to sustain our non-economy for years) it produced no extra business investment because the banks couldn't/wouldn't lend - and it was a mixture of both those reasons. Finally,it delivered us quite unnecessarily into the hands of deflation.

*The third fiasco - and by miles the most expensive - is something about which one simply cannot get a reasoned debate going: why take on all the bank losses, flog off the good bits....and then saddle the taxpayer with the cost? Various insane assertions are made to cover this ragged arse of a scam, but they really are direct from the Bunuel school of story-telling: 'the system would've collapsed (it did) the markets would've lost confidence (they did) and Britain would have lost its image for financial services expertise (it has)'. I am sure (and my inbox supports the idea) that the public coughed up to rescue these useless and palaeolithic institutions because banks and government are from time to time cripple and crutch. The roles change, but the double act doesn't. Except for today, when they are both crippled...but daren't admit it. They're not exactly a mutual admiration society, but they are without doubt a mutual interest society. (I will forego the temptation to make irony hay from those last three words)

I was struck dumb during PMQs yesterday when yet again Brown used the phrase 'we are insisting that banks start lending to business again'. Why insist, you clodhead? You own the bastards. And part of the answer is, with 70% of toxic debt still undeclared, the banks daren't lend. Naturally, the Government knows this full well. 'He who pays the piper calls the tune' goes the old saying. Trouble is, neither government nor banking can afford the pipe any more: they've borrowed a pipe, but it only seems to play one tune.

 

23rd June 2009

Clearly, the influence of this column spreads even further than far and wide; no sooner had I called oil a buy than it got hopelessly overbought, and is now falling to its ccurrent real value - perhaps around $60. But I did say 'this isn't a short punt': the buy message is based on inevitable medium-term Chinese demand, and the coming scarcity value.

Many blamed the market falls on this drop, but the chicken and egg thing applies again here: the World Bank's overdue spoonful of reality affected both markets and commodities in a multi-directional circle.

On the Dow Jones index yesterday, 88% of all stocks went down in value. This is the highest proportion for many years, and reflected a market fall of 2.35%. The FTSE also lost 2.57%. Overnight, Japan, China and India followed suit.

Once again, gold was mysteriously dumped just before each market opened. Perhaps these days we should start saying 'Gold was offered to China, and she snapped it up', as this is clearly what's happening. Whatever the reason, dumping on this scale reflects the same morbid governmental fears that preceded the 2008 crash. More and more of the signs of a second Downwave are now gradually collecting.

Very few people have been paying much attention to the Russian indices in recent weeks - but they should: there have been some huge daily falls. Overnight it was (as I posted this, another 7% down). This and nervousness about the Euro reflect in turn the growing realisation that much of Eastern Europe (probably led by Russia itself) is about to turn into Iceland II. But once again, oil is at the core of this: Russia simply cannot afford a second stage of slump - as a major oil-producer its debts and capital expenditure problems demand a revival in the world economy. But the world doesn't work like that.

Yet in this classic 'safe haven' environment, thanks to pressured selling to raise much-needed cash for the West, Gold still slumbers down at $922....and the Chinese are getting it for a steal. I must confess that the continuing failure of gold to take off has surprised me in the same way that - early in 2008 - I almost started to believe I was wrong about massive stock and housing market corrections. But several recent articles support my view that Gold will explode as more solids hit the fan. One particular chart of interest is that of the value of gold when traced over sixty years against house prices. Depending in your viewpoint, the data suggest that housing in the UK is still 25% overvalued, and Gold undervalued by at least the same amount. Both are in my view true.

Home

 

22nd June 2009

There is no point in getting angry about the award of a potential £9.6 million package to new RBS supremo Stephen Hester. One should merely view the development as a highly relevant piece of evidence in the growing case of The Citizen vs The Establishment.

Try as it may to position itself as separate to – indeed, the castigator of – the banking system, Britain’s governing elite demonstrates in every dealing with these bizarre people that they are joined at the hip.

Stephen Hester is a central-casting member of what these days passes for the Ruling Class. The son of an Oxbridge don who himself graduated from Oxford in PPE, Hester has a house in Holland Park and owns 350 acres of prime Oxfordshire, in the middle of which sits his pile, Broughton Grange.

Mr Hester is thus very well-connected (the desperate Alistair Darling hired him as Deputy Chairman at Northern Rock when it was temporarily nationalised) but his track-record is, shall we say, patchy.

He was first the Financial Operating Officer and then COO of Abbey National, where he was intimately involved in defining the business model that led so successfully to Abbey’s rescue by Santandar and imminent disappearance from Britain’s high streets.

In 2004 he moved to British Land as CEO – but was caught unawares three years later by the entirely unforeseeable commercial property slump. Shortly before that time he remarked “I don’t think we are about to see a market decline”.

We must all draw our own conclusions as to Mr Hester’s management abilities, but in the meantime it should suffice to observe that this pay award (and his original appointment) represent the recycling of old blood by dead wood.

Life will not get better until the Constitutional and financial structures of our country are changed forever. As an older bourgeois, it is odd for me to write in the style of Ken Leninspart. But that’s what brazen privilege and arrant incompetence do: they radicalise people.

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18th June 2009

The World Bank raises its forecast for growth in China amid signs that the economy is doing better than expected. (BBCNews website). You read it here first.

Those seeing green shoots are colour-blind. Excellent piece by David Blanchflower (former BoE MPC member) in today's Torygraph at http://www.telegraph.co.uk/finance/financetopics/financialcrisis/5561259/Green-shoots-Strictly-for-the-colour-blind.html

Like nby, he points out the simple truth: banks have no money to lend business, consumers have no money or inclination to spend, and all the statistics show quite clearly that the slump is deepening. This can only be exacerbated by the coming rises in interest rates.

Once more (twice in three days) one has a nasty feeling in the bowels that nobody knows what to do. Except the FTSE, which is going bear again... and is back down to 4280. In the US, things are still going up, down and sideways...or in other words, nowhere. (See 10th June entry The Monte Carlo Rally)

If I was silly enough to be still in equities, I'd be selling like mad over tealyhe next two days. Doubtless Lord Meddlesome would say I was talking the market down, but then we must remember that he is mad.

16th June 2009

Let's get back to the numbers. Three months ago, this column half-jokingly said we were going to enter a period I dubbed 'indeflation'. It was meant to be a gag about flation being indecisive (not many laughed) but the serious edge was to do with the difference between between debt deflation and produce/grocery inflation. This month's new economic figures make the point rather more elegantly than I did.

Thus while the UK's RPI is up 2.2%, the full (CPI) index is down 1.1% year-on-year. In fact some folks are doing very well on their mortgage costs (halved in many cases) but this will not last. The Bank of England (having marched its soldiers all the way down) will now march them up again....otherwise, rampant inflation - in the context of quantitative easing - could become hyper-inflation.

So the sensible debt money should now try and fix the interest rate on mortgages.

Either way, the feeling remains firmly lodged in my gut that the big swinging things pulling the levers remain clueless as to what the next move should be. They know what it will be (higher interest rates) but not what it should be. As yet, answers to the question 'So how will this stimulate demand and investment?' are like hen's teeth.

In short, I remain very bearish about this 'recovery'. The unemployment rate is up 1.8% on the year - and up 0.8% on the month. I'd love to see the Macaroon point this acceleration out at PMQs tomorrow lunchtime, but I'm not holding my breath.

Our GDP is down 4.1% on the year (that's a slump in my book) but again, down 1.9% on the quarter. I doubt if Dave and his chums can divide by two and multiply by four, so I can't see that statistic coming out in the Commons exchange tomorrow either.

The UK's trade balance was off by £3 billion, and shows once again how hopelessly dependent we are on the EU as a market: trade outside the Union was £11 billion adrift. Retail sales, manufacturing, production output in total, and productivity - all of them are getting worse.

At long last, the markets spotted this and knocked down the FTSE by 2.7% yesterday, with only a 0.06% clawback today. The Dow is now down nearly 4% in two days.

But the £ continues to climb against the Euro....as realisation seeps in that East European toxic debt is going to make some of its predecessors look like the teddy bears' picnic.

So just ran that past me again.....where exactly is this 'recovery' going to come from?

 

10th June 2009

Oiling the Wheels. From nby a month ago: 'As we wait without holding our breath for the post-fossil fuel age, oil is still the business; I fancy the Russians to do more mucking about with supplies; and the Chinese will get back to gobbling it up very soon. Finally, they're not making any more of it.'

Chinese industrial output rose 8.9% in May - 'much higher than expected'...but not here.

The oil price today is at $71, having been $54 on 10th May. You stay in if you want to, but I'm selling. What follows is connected to this.

Monte Carlo Rally. Look closely, and you'll see quite a few similarities between the stock markets today, and as they were just before the 2008 plunge.

Lots of trading, lots of advancing prices - but the market as a whole going sideways. Gold going up in price....but then inexplicably diving $15 just before NYSE trading starts. Oil easing up in price....but not stratospherically so. Rallies to good news, but then more horizontal movement in the absence of further news either way.

On stocks, gold and oil, the net result is a steady movement sideways.

As with Monte Carlo, the game is called 'faisons nos jeux', but the chip-piles are of short height. Wait and see. Softly softly. Hope for the best - but expect the worst.

The major stock markets are over-bought at the moment. You stay in if you want to, but I'm selling. However, I'm thinking of making China an exception to this. Perhaps. "It has been a good day, but I am not entirely sure if there is entirely any real justification behind it," said Peter Dixon, economist at Commerzbank."I think the market is going up in advance of a recovery. I am not sure if this is sustainable," he said. Too right, mate.

3rd June 2009

Gold dumping days are here again. Eight months ago we reported several times (including one lengthy essay) about US manipulation of the gold market as a defence of the Dollar and the Dow Index. Things having settled down of late (and a change of Administration seemingly unwilling to use below-the-belt tactics) the practice ended.

But today (in the context of a plummeting dollar) a bout of strong pessimism set in on the Anglo-Saxon markets, and so a new season of secret gold sales began. When we first started banging on about this in 2008, two hypotheses were set out: (1) The gold being sold came from deep reserves in Fort Knox, and (2) it was being flogged to the Chinese.

During the whole of this saga, nby received just three emails from readers. All were currency dealers, and all ridiculed the theories.

But then last month, Beijing casually announced that they had doubled their gold reserves. And lest we forget, the secrecy surrounding Fort Knox is such that no President since Truman in 1952 has even been in the place.

At precisely twenty eight minutes past ten am New York time today, somebody started selling gold in the context of a bullion maket which is so heavily demanded, ordinary investors like me can't get hold of the stuff at anywhere near the quoted spot price. And so the metal's tracker 'price' crashed from $985 to $962 in just six hours.

Why? Well, see above....but at the same time, we need to bear in mind that this is no 'conspiracy theory': this is a case of geopolitical need. Just like the Eurobanks selling their investments in Asia, so the Americans are selling their birthright. The reason common to both is obvious, in that these are desperate attempts to survive.

But for folks like me trying to protect my tiny pot, this is disgraceful market manipulation on a global scale. And I am bloody angry about it.

 

2nd June 2009

Chinese banker very inscrutable. But Confucian banker not at all confused. He say:

“It’s very difficult at the moment because there are still so many uncertainties." Guo Shuqing, Chairman of China Construction Bank. Sounds a bit enigmatic I know, but Guo went on to suggest that with only 17% of western bank liabilities known, they would hold off any investment in Western banks until they, um, were known in full. Quite right too, Shuqing - and keep on reading nby.

Arab banker very shrewd. 'International Petroleum Investment Corp, an investment vehicle of the Abu Dhabi royal family, was finalising a placing of 1.3bn Barclays shares with institutional investors. The group also invited offers for its entire £1.5bn holding of Barclays capital notes in a process that will be completed by Wednesday' (Financial Times today)

To say this came as a bit of a shock to Barclays stockholders is akin to suggesting that the Israelis were slightly upset to be attacked on Yom Kippur. Barclays management sold the deal to shareholders by stressing it would allow the bank to steer clear of nationalisation (aka stop it going up the pictures). But the IPIC's chairman Sheikh Mansour bin Zayed al-Nahyan appears to have pulled off a pearler of a sting, trousering £1.5bn on a £3.5bn investment in double quick time. This seems to be entirely unrelated as a strategy to the description he gave of himself some months back as 'a long-term investor'.

NB As you all know, Muslims are not allowed to make money on financial share dealings.

Verdict: The smart money knows there are more wrigglies in the ongoing can-can: more legs will soon be heading skywards at the Folies Bankeres.

Oh - and er, never trust a Saudi Royal.

 

29th May 2009

Brock's fireworks. American financial guru Woody Brock is never less than controversial. He's also a card-carrying neo-liberalist Republican when it comes to economics, so his perpetual anti-Obama rants do wear thin after a while. But say what you like, the bugger is nearly always right. A Republican surely - but fierce critic of the debt-madness of Reganomics too. And equal distaste is reserved for Dubya, whom generally he thinks quite bright but idle. Waydergo, Woody.

His latest free internet-wide essay is ostensibly about national GDP/Debt ratios, which to steer immediately away from the jargon means what a country earns annually versus what it owes overseas creditors since forever. For much of the essay, Brock seems keen to convince us that both Obama and Secretary Geithner (the US Treasury Secretary) are closet Commies, purely because - having rescued a staggeringly incompetent and crooked banking sector - they now seem hot on the idea of keeping an eye on the, um, banking sector. Let's face it, you can hardly blame them.

Bit if Woody Brock is typical of the US Right, he is completely atypical in every other way. Like me and other contrarians (for example my own investment managers www.fullcircleasset.co.uk ) he doesn't believe a word of the 'the worst is over' balm that's been drizzled over everyone since the stock markets began their latest rally. Whereas my opinion comes from gut instinct and painfully learned experience, Brock's is based on a mountain of relevant data and astonishing levels of insight.

It's hard to nutshell his thesis, but here goes.

Debt is one of those areas of maths where the interest multiples can quickly be lost in a flurry of 'it's only £ x billion a year'. Even worse, if those lending you money lose faith in your ability to repay, both the interest rate (and the pound of flesh they want if it goes tits up) rise alarmingly. (Since Woody wrote his piece, you may have noticed that S&P have downgraded the UK to 'unstable' as a debtor nation. Moodys have in turn done the same to Britain's mutual building societies).

Brock argues (rightly in my view) that governments always put the best gloss on economic growth in order to make the debt look manageable. Words like Alistair and Darling come to mind here, but being an American Mr B has a broader vision which takes in most of the major Western power blocs, and his conclusion is simple: there is no way that growth based o current policies can or will be enough to keep up with debt growth.

Being a gun-toting goferit sort, Woody Brock completely fails to take into account the fact that during the time periods of which he writes, the Earth might become something hot enough to barbecue chicken. This is a weird but entirely unexpected omission: however, my own hobby-horses aside, the need to control and conserve energy output only adds to his point, which is absolutely spot-on. There are a crowd of leaders in the West (and they are a crowd, with all the madness thereof) who think this is merely a bigger blip than usual and once folks start consuming again, everything will be just dandy. They quite clearly won't, and Brock has the graphs which - if they don't prove it - certainly ring eminently more true than the drivel being put out by EU and other Western leaders.

He foresees a time when (almost before anyone's really noticed) the US Debt to earnings ratio will be 18:1, and heading rapidly down Zuma Lane towards Mugabeland. I don't like to think what ours would be on that basis, but I do embrace the guy's analysis wholeheartedly. Unsurprisingly, Brock is all for cutting welfare benefits, slashing Government waste and an immediate stop to what he terms 'spending rather than investing'. Interestingly though, his is ALL FOR Federal infrastructural investment to repair transport links etc and create short-term jobs - as well as the right soil for a medium-term growth spurt: without which (he insists) it's nuts and berries in the hedgerows for all of us.

Here, Woody Brock's ferocious critique of the Obama adminstration is entirely justified. They have, he argues, a plan: but the plan is deficient in the details of the plan, thus giving rise to the suspicion that there may, as such, be no plan at all. He is also wary of a post-election emphasis on 'fairer' wealth distribution, and this too ticks all my boxes. What's the point in spending to redistribute wealth if all the wealth is about to disappear anyway? Like, maybe what we need here is MORE wealth guys, huh?

Dramatic growth based on the infrastructural fertilisation is, he argues, the only way the big nations have even a hope of keeping their debt levels manageable.

Paradoxically, although I think even Brock's pessimistic analysis is overflowing with optimism and output-led thinking, I differ from him not in the analysis but in the conclusions he reaches.

He seems to me a man of two vital assumptions. One, growth is a must - and A Good Thing. And two, the electorates around the world in all those places not called America are likely to look on quietly in awed wonder while yet another huge dollop of resources-rape occurs, and all that trickle-down dosh somehow seems to keep on gushing upwards to the bonkers 0.7%. In this, he remains a brilliant economo-fiscal mind whose vision borders on genius. But there is far more to the human species than economics and banking - as we are all discovering to our cost.

The two assumptions are where we part company. Ultimately, from here on growth as we have known it is a deadly mirage: until such time as entirely clean and renewable energy forms are fully up and running, growth must be ditched as a criterion of capitalist success - as must the factory output/citizen consumption model. That could be in ten years, but thirty is probably a lot more realistic.

So too are neo-liberalist ideas about wealth creation redundant. Despite the appetitive wiring of Homo sapiens, this assumption may need to be declared dead, and buried in a lead casket. To paraphrase John Lennon, social revolution is what happens when you're busy making economic growth plans. I suspect the Japanese will turn out to be the first nation learning this lesson.

There remains, in my view, only one way out of the mess, and that's a drastic - up to 70% - cut in the global human population, alongside an equally dramatic shift in diet away from those using flatulent cattle as the fuel. Economic growth as the means of solving human problems is like building more motorways to stop traffic jams: the more wealth you create, the more people will keep on multiplying. As the twenty-first century progresses (if we're not careful) human/economic interaction will turn into an equivalent of the M25 between 4pm and 6 on weekdays.

Sadly, my opinion is unchanged as to the likelihood of any of these attitudinal or behavioural changes taking place - at least, not in any libertarian society with universal suffrage. So as an investor, I am still left with one immediare question: if Brock is right about national debt getting out of control - but wrong about growth spurt possibilities - what should I do with our shrinking pot of gold in that environment?

Funny that word should turn up again. Gold, I mean. I have no doubt that on the debt thing, Brock is not only right - even his expectation of growth-spurts is both optimistic and ecologically impractical. And that means three things:

1. Currencies will be devalued by widespread inflation. Gold is the best hedge against this, and I intend to not only stay in it but possibly also extend my exposure.

2. As Governments need more money and get more downgraded and so need yet more money (recurring) they will raise interest rates to attract it. This should (although who knows any more?) result in a dash out of equities and into interest-bearing institutional products - certainly for pension providers and older investors. The best bet for me therefore would be to get savings into that sector as rates rise and not fix.

3. Sooner or later (could be later given the dimness of the current generation of traders) the shovers and makers on the Bourses will suss the outlook in general, and two other things in particular: one, no currency is trustworthy any more - with the possible exception of the Chinese Yuan; and two, another market crash must come - given (a) the pressure on governmental and private providers to ageing populations, (b) the need for those Silvers to protect their living standards and (c) more expensive investment costs for businesses already hit by falling consumption. So for me, the desire to stay out of equities remains. Were I in the current rally, I'd take some profit and get the hell out.

As to what I'd do were the world's leaders persuaded that I might be new improved Broad-Brock with Vistavision, I still feel (although this is comnon-sense and thus may not be relevant) that the final stage of our current medium-term difficulties will be some form of write-off and reconfiguration of global banking and governmental debt. The whole shebang is so complex now, I seriously doubt if anyone anywhere has the remotest idea of either what to do, or what the knock-on effects of doing it might be.

The global economic vehicle has come a long way, and now stands at 97,994 miles. Let's cut short the misery and wind it forward to nought again. That's my analogy, and I'm sticking to it.

 

***The author is at pains to point out that these are personal opinions and reflect only what he intends to do. They do not represent - and should not be construed as representing - formal financial consultancy advice in any way, shape or form. Markets remain volatile and these are only opinions: in financial investment, there is no certainty any more, and such extends to personal opinions....which as the Americans rightly observe, are like assholes: everyone's got one.

21st May 2009

The inevitable judgement arrives. Following the IMF's starkly offered opinion that UK public spending is 'out of control', it yesterday urged the Government (after 'it's bold and ambitious reflation') 'to adopt more ambitious plans to reduce the huge scale of government borrowing'. This is the IMF's usual fork-tongue-speak-both-sides-mouth approach to national finances, but reading between the lines it's obvious they think Brown et Fils are bonkers.

Today however comes the view that some of us have been expecting for three months or more: ratings agency S & P revised its outlook for the UK from 'stable' to 'negative'. The agency said Britain's triple-A rating for its government bonds was at risk in the future if whoever's in power after 2010 doesn't produce what it called 'a credible plan to put its debts on a secure downward trajectory'. This is thinly veiled code for 'clearly this shower aren't going to sort it out, so it's down to the Cameroons after the Election to get stuck in'.

And get stuck in they must. This hasn't happened since1978 (dead people and mountains of rubbish in streets etc etc) but the situation we face now is far, far worse. Here's why: whereas thirty odd years ago we still had a stonking great industrial base, today two-thirds of our 'economy' is based on a somewhat busted flush called 'British banking skills'. Yesterday, yet more data emerged to show that these same bankers continue to starve the country's young potential economy of borrowing they desperately need in order to expand.

But with a lower S&P rating it will cost Britain more to borrow - meaning spiralling debts and no money to pump taxpayers support behind new industry....the bankers having opted out of this as 'too risky', ho-ho.

The stock market dived almost immediately and the Pound fell by 0.8%. Either the pundits are wrong about our currency getting stronger against the Euro, or the EU's future debts are likely to be even more horrendous than ours. At the minute, I genuinely do not have enough data to decide between those two delightful options.

Stay tuned - and in the meantime remember: you read it here first

 

18th May 2009

To those who think me deranged for wanting to do away with Bourses over time, I offer these Top Ten observations. Not opinions, by the way, but facts:

1. Japan is going down the tubes and becoming isolationist as the fifty-year hegemony of the ruling Party stutters to a close. The Japanese have made it clear they do not intend to buy any more US debt. If they don't, this would be catastrophic for the Americans.

2. Germany just recorded the worst quarter on quarter output fall in the country's economic history. The link between German, Italian and Swedish loans on the one hand, and East European meltdown on the other, is about as hard to see as a dog's bollocks.

3. The world's media empires are about to collapse under the combined weight of silly debt and technological advance. Murdoch's Newscorp just recorded a 97% fall in profits. Felix Dennis is in trouble. So too is the Independent.

4. Britain's mutuals are in trouble, and the West Bromwich looks likely to fail.

5. The biggest car company in recorded history is bankrupt.

6. The mother of democratic Parliaments is mired in corruption, and the Government allegedly dealing with the biggest economic crisis in seventy years is lead by a Dead Duck and powerless to stop rebellion in its Party.

7. The FTSE rose 2.3% today, and the Dow nearly 2%. Why? Er, um...because

8. Treasury Secretary Geithner offered qualified professional investors who participate in the so-called TALF (Term Asset-Backed Securities Loan Facility) a safety net of historic proportions. CNN wrote, 'Two months into the program, as the first TALF- backed deals hit the market, you can see why the likes of hedge fund Fortress Investment Group are drooling over it'. Hey guys - the Hedgies like it, so it must be good for business.

9. Lowe's, one of the largest US home improvement retailers, projected a higher fiscal second-quarter profit after posting a 22% decline in the first.

10. This is what we investment experts call The New Maths: 'One crappy retailer has one good quarter + one desperate Fedsec offer of free money = 10 x A gigantic Tsunami of global shit heading for town'.

We've been here before, have we not? But no lessons have been learned. Yet.

17th May 2009

From a US website yesterday...

This might be what one calls the ripple effect:

'California Treasurer Bill Lockyer has asked Tim Geithner to provide assistance under the TARP, warning of a hit to public services and infrastructure if the money is not forthcoming.

Lockyer wants the TARP to provide insurance to banks who themselves provide insurance backstopping California's short-term borrowings. That insurance would cover the banks in the event of a default by California - making the deals a surefire moneymaker for the banks.'

Make hay while the sun shines. Make money while Rome burns. Etc etc etc

14th May 2009

An American reader quite rightly points out that other commodities like steel and copper have also been outperforming even the rallying market of late. I agree: but a reversal of confidence would hit them harder than either gold or steel. Either way, this is a chap who should know, and in what remains of the old world economy, metals do tend to come back first. So if you're feeling VERY patient (and there ain't much choice at the moment) they'd be one of the first places to go.

Shares on both sides of the Atlantic headed south again today. Following recent fantasy optimism, the Bank of England brought everyone back down to earth by saying that the recovery - if any - would be 'very slow and protracted'. In the US, retail sales dropped month-on-month by 0.4% (worse than expected) and over 10% over the previous year. In particular, petrol sales were down 36.4% compared with the same month of 2008, while motor vehicle and parts sales were down 20.7%.

See the posting of two days ago: 'With taxpayers crippled by the biggest loan bill in history and still deep in debt - where's the disposable income that will drive this complete recovery?'

Where indeed?

 

13th May 2009

I wrote the following piece for The First Post earlier this week.

 

Do confidence monitors really have anything to offer investors? Since M&S supremo Stuart Rose remarked that ‘people are fed up of being fed up’ last month, the phrase has quickly become part of contemporary chatter-currency. Indeed, when one looks at the market research data available, it’s hard to ignore the apparent relevance of the observation.

In April, MORI’s economic optimism index showed 27% of UK respondents expecting things to get worse over the next year – whereas a year ago, 70% felt that way. Similarly, Nationwide’s Confidence Monitor rose eight points to hit fifty. And over the last two months, stock markets have shown a sustained rally. A whole range of people out there are feeling more upbeat than they were.

But investors should ask themselves two questions: does it matter that folks are fed up of being fed up? And did these research projects talk to the right people?

Most stockbrokers will tell you investment is ‘all about confidence’. The trouble is, it isn’t. Market recoveries are partly about regaining confidence, and partly about monitoring vital fiscal and economic data. Unsubstantiated confidence is what causes silly investing and lending.

People are, I’m quite sure, fed up of being fed up, but that’s not going to make certain facts go away. The FT’s manufacturing barometer in April was -2.8, quite a plunge from the 0.4% of February. The CBI’s most recent survey showed 64% of manufacturers had seen a drop in orders. The EU's statistical agency Eurostat recorded the highest ever drop (4.2%) in retail sales volumes in March. And it’s only the increase in US unemployment that has slowed – the rate itself is still higher at a whopping 8.9%.

Faith can indeed move mountains. Blind faith causes people to fall off the end of piers.

The second issue is equally important. Early marketing and advertising research tried to turn consumers into experts – ‘do you think this campaign will be a success?’ and a great deal of political focus group activity does the same thing: ‘So how would you rate Gordon Brown’s economic performance?’. These were and are both pointless questions, because the interviewees don’t know.

It’s the same with mass- market confidence indices: they’re informative rather than informed opinions. A look at ‘inside track’ views and behaviour in relation to the current economic and investment outlook presents a very different picture indeed.

In April, US senior corporates sold $353 Million of their own stock in what’s supposed to be an emerging bull market. Furthermore, this figure is 8.3 times what they bought. That’s another way of saying that for those in the know, bear sentiment is running at eight times bull.

The other age-old market research lesson from this is ‘watch what people do as well as what they say’. Before US Treasury Secretary Geithner’s recent bank ‘stress test’, both Bank of America and Citicorp respectively said they had ‘no further capital requirement’ and the ‘regulated capital base was strong’. It now emerges that BoA needs $34 billion, and Citi £50 billion.

In short, there are plenty of people being interviewed out there ‘who would say that’. UK and European banks continue to make reassuring noises about their outlooks; but the IMF remains emphatic that we’ve still only seen 17% of their real liabilities. Another intelligent (and so far very accurate) observer, FT columnist Martin Wolf, said only a fortnight ago, “Those who hope for a swift return to what they thought normal two years ago are deluded”.

The first and last job of any good market researcher is to sift - via data, experience and intuition – lies from truth in people’s responses. Stuart Rose is under pressure at M&S and has a vested interest in talking things up. Wayne and Bianca want to stop being fed up because cheerful is better. And bankers are, well, bankers.

Confidence as expressed in research studies can be self-fulfilling in a good way. But when the cognoscenti are buying gold, laying people off and selling stock, the chances are that upbeat statements are more confidence trick than trend.

(This differs slightly from the piece that appeared. Think of it as the director's cut)

 

12th May 2009

David Smith of the Sundry Mimes is at it again. There is now, he says (9.5.09) a 'consensus' that recovery has begun....and the 'only' thing that can stop it is if the private sector doesn't pile in with more confidence next year.

Mr Smith has been wrong so often over the last two years, like Times colleague Daniel Finkelstein his continued attraction of veneration is puzzling. To be fair, Dave does quote some interesting stats to support his argument that by 2012 we'll be back where we started and everyone will wonder what all the fuss was about. On the other hand, you can read my version at The First Post today ( http://www.thefirstpost.co.uk/47523,news,public-might-be-confident-on-economy-but-its-financial-experts-we-should-watch-recession ) and form an entirely different view. And on that third hand if you're from Planet Twinkle (hello Alistair, darling) you can bear the following in mind:

* With only 17% of European bank toxicity revealed, and East European collapse heading our way, where is the bank lending going to come from for this private sector surge?

* With taxpayers crippled by the biggest loan bill in history and still deep in debt - where's the disposable income that will drive this complete recovery?

* With the UK losing share in export markets despite a weak Pound - and our credibility as bankers shot to pieces - what will be the portfolio of output for the UK - wind power perhaps?

*Has anyone noticed the number of mutuals looking worried, thanks to being sold toxic bonds by those nice investment bankers? Hello?

The medium-term outlook for the UK is awful. Of course we will get over this crisis, but there will be no 'return to normal'. Our financial, industrial and energy resources dictate that reality.

Perhaps 3500 was the bottom. Looked at objectively with what we know today, I'd say 4400 - 4800 is neither cheap nor expensive as a FTSE level. But ultimately, any Bourse will reflect real potential in the long-term. If the FTSE is above 5500 in 2012, I shall be very surprised. But then, they're all mad on the trading floor, so maybe I shouldn't be.

Commodities seem to me like a no-no for some time to come yet - with two exceptions. A month ago there was only one - gold - but now I fancy that Texas Tea is worth a longer-term position. As we wait without holding our breath for the post-fossil fuel age, oil is still the business; I fancy the Russians to do more mucking about with supplies; and the Chinese will get back to gobbling it up very soon. Finally, they're not making any more of it.

But this isn't a punt: buy some and then be patient.

 

11th May 2009

The Times today:

This bullish spirit may lack legs for the long run

You read it here first

7th May 2009

The Market Rallies. These last 24 hours have been more important for American recovery than any other period since the nonsense began. Effectively, Treasury Secretary Geithner has told the banks 'fess up on liabilities - or else'. Shame that the previous Administration didn't do this a year ago - but anyway, what the numbers appear to show is that total liabilities are under $100 billion. (And that government henchmen like Goldman Sachs and Morgan the Pirate are rolling in it. Funny that)

A hundred billion is small change these days - no mentions of the T word - and so not surprisingly the markets have responded well. Once again this week, we're in full 'the Bear market's over' mode.

This view betrays yet again the feeling of those on Wall Street that only the banks matter - that there is no other economy beyond banking. But then,we always knew that.

My judgement is this: if you've made some money out of this rally, cash it in now - or by the end of this week. This advice is especially strongly given if you live in Europe. My feeling is that the 'global' recession is effectively over: it will be replaced by all kinds of different regional slumps from here on in.

The USA is now in a reasonable position, chiefly because there is a growing conviction that all the brown stuff has at last hit the fan. This is not true in the UK, where the Brownshirts' strategy is confused, flawed and being rendered incoherent by the death-throes of the One-Eyed Trouser Snake. And it most certainly is not true in the wider EU, where all the short-term debt mountains and longer-term economic imbalances have still to be sorted out - with no sign that anyone's trying that hard. (All too busy having lunch in Brussels,no doubt)

Specifically in the UK, there remain four problems unique to us. Firstly, the banks are far from fessed up: some estimates think the East European liabilities (aka Russian) could be almost twice the gdp's size in value. Secondly - ironic beyond belief this one - our banks were hugely successful before they finally caught Look I Can Fly syndrome. So much so in fact that they are 62% of our total gdp. You may have noticed that our initial bailout (£900b) cost more than the American one at $700b. Now you know why: our banking interests are enormous....but as we've been shown to be about as competent as a eunuch rapist, much of that market share is disappearing fast.

The third point too stems from this success. The simple truth is that it is the only success story of the last twenty years. Despite the Pound's disastrous drop in value, we continue to lose share in almost all our export markets. The UK has an almost entirely service-driven economy, a reality that some of us have been railing about for a decade: the decimation of British industry after twelve years of gesture government make the Mad Handbag's scorched-earth approach look positively benificent. France has its agriculture and Germany remains the world's biggest exporter of durable goods. To tackle these gallic and Hun hordes, we have seven kackered banks. Hence the growing imbalance of payments between the UK and the rest of the world.

Last and absolutely not least, the Government - all of us - are so up to our eyes in debt compared to our ability to pay, it is truly frightening for anyone who can tell spin from reality. This is why the Pound has fallen; it has rallied relative to the Euro because currency traders, being hard-headed chaps, can spot that the other EU nations are still in denial, and devoid of a strategy: they didn't have a banking crisis to concentrate their minds like we did. Expect to see some further strengthening of the Pound in the medium term; but once the European mainland gets through its recession (and unless we start investing big-time in smaller entrepreneurial production stuff right now) Britain will be left behind like never before.

Long-term, the Pound remains a sell curency; and for the UKmedium term at least, Gold remains a better bet than equities.

Gold. A year ago, nby suggested exclusively (if you can do such a thing) that the Americans might well be selling gold to the Chinese - for them it was a defence of the Dollar and falling markets, and for the Chinese the logical move for a Power which will be in charge for much of the 21st century. Nonsense said the experts. But then two weeks ago the Chinese suddenly announced that their gold bullion reserves had doubled....and the US continues to obfuscate about its own sales in recent years.

About nine months ago,we suggested that some central banks would like to flog off their gold if they could do it discreetly - and in fact might already be doing so. The Swiss came out of the closet first, and today most central banks followed suit to admit to large-scale disposals. (They need the money)

Does this mean you should get out of gold? Emphatically not: for two reasons. First, now that these disposals (secret or otherwise) are out of the way, gold will start to behave more like a natural market again. And second- in a world where governments are printing money in order to refloat and repay - the only way for a naturally-behaving gold market is up.

Buy whatever you can get hold of.

By the way, I've been getting some stick for referring to Robert Peston as 'Mandelson's mouthpiece' (a horrid thought indeed) and generally suggesting that he's massively overrated. Last night and this morning saw more evidence of the fact that my critics are wrong on this issue.

On BBCNews last night, Bobby 'exclusively' revealed that the Tata automotive talks are near to collapse. The version he gave - Government playing hardball, protecting taxpayers' interests, cunning enough to realise that Tata has its own money - was pure Mandy. If you were a beleaguered Business Secretary playing poker empty-handed with very rich Indians, then forcing the other side to play fair by this sort of leaking is Page One. Or more accurately, the last throw into the pot: put up or shut up.

Hence my continuing view: Peston is a Government mouthpiece. He may be a dupe or he may just be lazy - but he's a mouthpiece.

 

30th April 2009

Well, like a Brock's rocket the madmen sent prices soaring....and then diving. The only insightful thing Bush ever saidin his whole Presidency was (when asked what happens on Wall Street) "I dunno....maybe they all get drunk a lot". But by this afternoon,the hangover was kicking in.

Brock's rocket makes me think of Lord Brocket. Charmingman - I met him once, and he showed me his huge collection of Ferraris. This later got him into a spot of bother with the insurance companies.

And another thing.....Beijing has doubled its gold reserves. Just like that.

I wonder who sold it to them? Surely it could not have been Mr F. Knox - as first suggested in these columns?

Keep buying whatever gold you can lay your hands on. It's one of the few certs left.

29th April 2009

You may have wondered why the FTSE shot upwards this morning. As so often happens, it's to do with things taking place a long way away.

Stocks were zooming skywards because the rate of decline in the US was expected to drop from 6% to 4.9%. It is perfectly possible that one day an old soak in Glasgow will slip over to his licensed grocer, buy two bottles of Scotch instead of one, and thus set off a global recovery. As the bankers allege that the whole crunch was started by Elmer Frump’s tree-house in Kentucky, why not? The entire system is mad, but while it exists, it's as well to know why shares are leaping or plunging, and whether to take any notice of it.

As things turned out, the decline accelerated to 6.1%.....but the markets kept on rising. System, mad, etc etc.

The short answer is, unless you're a professional,ignore this sort of stuff. Now that the US-linked part of the mess has unrolled, we in Europe should be more worried about the outstanding foreign liabilities of our banks (they stand at three times the UK gdp) and the state of economies where many of these loans have been advanced (the former eastern Europe and Soviet Union).

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