A regular look at what's just below the horizon
17th December 2008
Tumbling into the Euro
Almost exactly two months ago (17th October) we urged readers to sell Sterling and buy Euros as a relatively safe haven. At that time, the exchange rate was 1.26.6. Tonight it is exactly 1.08. One of the oldest exchange reserve currencies on the planet is about to be rescued by hiding behind the EU's tinpot Euro.
We have spent more than the USA (an economy 37 times bigger than ours) on bailing out an economy which was supposed to be stronger than any other in Europe.
We have doubled the National Debt in a year. Pensions have been first shattered by the stock market crash, and then devalued by a 25% drop in Sterling's exchange rate. Even after the most comprehensive and rapidly effected U-turn in British political history, New Labour's economic policy is a catastrophe that will pauperise this country for at least two generations.
So prepare for the ultimate attempt by this loss-making Government to pay itself a whopping bonus: five more years in power.
Gordon plans to claim the credit for a 'wise' move into the fast lane of Europe by adopting the Euro, and then follow it up with a surprise February election - a decision he's telegraphed by refusing to keep a promise to brief the Tories on key pre-election starting January 4th 2009.
14th December 2008
And now, that Darling debt theory in plain English
It's a shame more Brits don't have bank accounts in the Eurozone. It would give all of us a salutary lesson in first, how our personal debts have got out of control; and second, why our neighbours have more reality in their backsides than Mr Darling does in his silver-crowned noddle.
In France, debit cards only came in with ATMs, and credit card penetration is much lower. You can sign a cheque without any bank card or ID anywhere in France, because it is a criminal offence to issue a cheque for funds one doesn't have: do it twice, and you automatically spend time in the pokey. Think on that, Essex boys.
In Germany (where they know a bit about hyperinflation) you will be refused further credit in the vast majority of cases if you have two hundred Euros of oustanding debt.
And in the same country (here comes the plain, unequivocal English) the Government estimates that even after their economic stimulus package, the percentage of Government debt to GDP will be 3%. Ours will be at least 56%.
So this is one of those occasions when one has to go with one's common sense, and realise that commentators like David 'I know all the numbers' Smith in the Sunday Times are so often wrong because they lack the arse/elbow differentiation dimension. Describing the German finance minister's critique of British fiscal madness as 'a bit limp', Smiffy gets it wrong again by opining 'UK debt is overwhelmingly domestic' and that actually we're jolly well alright and stop being so beastly to Mr Brown. Set against its GDP and collateral reserves, Great Britain has by far the most toxic debt level in the developed world. Except of course for Iceland....which went bust in Ocober.
Hmmm....
Prepare for the regulatory backlash
An insider tells me the HBOS lending book is surreal - and the liabilities higher than most media estimates. Amazon,it seems, is stretching the deregulatory limits of so-called employment into that territory marked 'slavery'. The two terminally nasty and misanthropic Barclay brothers 'punish' their Sark serfs by withdrawing all support from that island over a tiff about power - thus depriving 140 islanders of a living. Sort of 'it's my ball and I'm taking it home'.
I now fear greatly the venomous degree of backlash there is going to be against financiers, the vengeful wealthy, nondom bankers and multinational business: not because I don't want to see them all cleared out for good,but because it could all so easily take on a revolutionaryand violent edge - and/or command-style regulation that will only stifle but not cure.
Back once again to nby's Clintonian rewrite: 'It's the Culture, stupid'.
We now have a working title for the Movement aimed at using online pressure to speed up the pace of cultural reform - and, as an opener, at least get it started: ACORN. If you want to be part of it (in however minor a role) email to the editor john@johnaward.net
13th December 2008
The crassness of the VAT cut is quickly exposed
As our own trade visits suggested over the last fortnight, consumers are ignoring the VAT cut and focusing on paying less by buying cheaper brands and/or own-label. We're also informed anecdotally that Asda and Lidl have gained share, while Waitrose, M&S and Sainsbury have lost out. (See Lidl by Lidl)
This may be a situation the established big boys find hard to reverse. Whereas in my advertising days the small Euro-stores had under 5% share, they now have nearly a quarter of the market. And Asda's UK CEO Andy Bond remarked yesterday, "This isn't a blip....anyone waiting for things to get back to normal is mad....we are moving into the era where frugality is cool".
Bit too heavy on the hype pedal there (as a Walmart subsidiary, Mr Bond has an agenda) but nevertheless he does have a point. Somehow, I find the cheap-chique of Lidl far more to my taste: there is interesting exotica in there, as opposed to just tat at Asda. I too must declare an interest in that in my Virtual World, Asda and Tesco would only be allowed out at weekends - and only then under heavy armed guard.
However, the reality is that Asda have a far bigger and more capacious store estate. Waitrose and M&S will suffer but survive, Tesco and Asda will be locked in mortal combat (with consequent lower margins). And Sainsbury....well, they've lost the plot, I'm afraid. They feel already like a brand from another era: the original Yuppie brand which tried to cash in on the larging-it superchef mania, Sainsbury no longer has a mission or raison d'etre. In many ways, it no longer has a defined market. The really big gainer (but from a smaller base) must be Lidl.
"The shops are heaving" says the braindead Tessa Jowell. Yes, dear. But then it is Christmas, and most people don't have a personal shopper to do it all for them. The reality is that the VAT cut has cost you and me a fortune, and made diddly-squat of difference. (As the German finance minister has so accurately pointed out)
8th December 2008
How banks work, No.491
At last the UK Government is getting tough with banks who don't pass on rate cuts to mortgagees, but fall over their knickers to pass more on to depositors. I have equivocal feelings about this (I don't think we should be dropping any High Street rates - we should be raising them) but it is about time the bankers were given a poke with a very sharp stick on the issue. And on another hand again, the banks are between a rock and a hard place.
The reason is simple. Without stable deposits and confident, trusting depositors, banks couldn't operate in the first place. Because they are largely a bunch of arrogant pin-brains in pin-stripes, most bankers (like the rest of us and the inevitability of death) shove this unalterable reality to the far recesses of their minds. This is not that difficult, because they are gainfully employed 24/7 lending money to kamikaze pilots and asbestos workers on the one hand, and republics that rate several levels below banana on the other.
In the end of course, the bad debts roll in, word gets out - and the depositors jump ship. This last rat-departure has been happening on a massive scale to UK banks in recent months. Darling knows this, but keeps quiet about it, as well as a copious nappy round his bottom at all times. The truth is that banks do need every penny they can get - and handing on rate cuts isn't prudent banking in a cashflow drought.
We should, however, remember that this is a situation the banks crafted single-handed without any help from others - so it is very much their fault. But since the Government waded in with our money to help them (making any sterling investment dodgier) they have exacerbated this latest wave of withdrawals - so it is very much their fault too.
Thus, to sum up today's two main points, governments are deflating debt and thus strangling business to create the twin horrors of slump and inflation; while bankers and governments have created a situation where confidence in currencies must fall and banks have no money to kick-start genuinely entrepreneurial business.
Hurrah.
2nd December 2008
Snoopy & the Press Barons
Ding-ding, round 57. A wrestle to the finish between - in the dark corner - Rocky 'Haywire' New Labour; and in the Blue Corner, Damian 'The Demon' Pressleaks-Tory.
If only it were funny. Not far over the horizon now - unless somebody gets a grip, and quickly - is the final slide over the precipice, down into The Dark Corner. That nasty, creepy place where people inform on each other, bogey-men are invented to justify the destruction of liberty, and reality finally ends in favour of Newspeak.
There are two tragic things about the Green affair. The first is that an Opposition MP had to resort to quasi-illegal activities to find out the truth; and the second is that - like the distraction caused by the economic mess - it is taking attention away from what is already a done deal: the Government's 'plan' to give a £12billion carte-blanche to GCHQ so that they may watch our every journey and every website visit, read our every text message and email, and listen to every phone call we make.
The media's behaviour and ownership also gives the Government and the security services a popular cause: let's put these tabloid bastards and their amoral owners back in the box. But like it not, the press reptiles are by far the lesser of two enormous evils: both threaten our privacy - but there is redress against the media, and none against totalitarian government.
Wicked back-hand stroke from Ian Blair or not, the Green operation was an exercise in 'Just watch it - we're onto you'. Let's hope it has really backfired.
At it again....
With all the markets going south and the Buck looking dodgey - guess what? The price of gold edged steadily down yesterday by over fifty dollars. And then following a disastrous session in Asia and Russia, gold fell another twelve bucks in the hour before the FTSE opened. And guess what? The FTSE shot up again this morning - and the Dollar recovered some of its lost ground.
You may well ask - after the Nikkei fell 6.8% and the Russian index 5.7% - what on earth the FTSE might have to be cheerful about. It's certainly what the vast team of Nobel Prizewinning hacks here at Fort Yesterday would like to know.
Meanwhile, it's good to see the UK press pack finally in concert with nby: our Five Reasons Why Darling is Mad piece was pretty well echoed during the week - and currency dealers marked the £ down further at 1.17 to the Euro.
Anyway, this is where we are. $5.2 trillion and counting, but the effect on economic performance, bank lending, share values, consumer spending and industrial output has gone from negligible to negative. Negligence tends to have this effect, we find.
The only effects, in fact, have been falling interest rates, rising national debts - and therefore the very real likelihood of mass deflation in most areas of life. Precisely where Japan found itself a decade ago when it did, um, precisely what Captain Brown and the Poolswinners are up to right now.
A long, long recession following a medium term slump is what you should prepare for - plus a retained faith that, sooner or later, the US will empty Fort Knox and then finally give up: so Gold will go through the roof, the stratosphere, and most of the solar system. However, the near-certainty that one day a lynch-mob will do for The One-Eyed Trouser Snake should remain to give us all a degree of comfort.
27th November 2008
Investment update
Forty-eight hours on, and the Budget's content and mendacity are under a stark media spotlight. But if you've been folowing things, you should be in good shape.
1.Gold The metal remains volatile but is holding its own at between 810 and $840. Given nby's original buy advice at $715, this will already have more than compensated for lost interest income on other investment products. As long as governments continue to cut interest rates and borrow money, the only way for gold prices in the medium term is up, up and then up some more
2. Bonds and Gilts With governments needing to raise cash, these remainanother safeish haven - but again, not UK government products. As we advised a fortnight back, German Bonds look good value. The Wall Street Journal earlier this week described UK products in this sector as 'among the most risky in the developed world'. A runon the Treasury remains a real possibility
3. Currencies The previous advice holds good - only more so. Those who bought Euros at 1.266 to the Pound have seen their investment benefit - the rate this morning (27.11.08) is 1.195. The dollar is also losing against the Euro. Sterling has rallied over the last few days, but there is no bull signal here at all: currency dealers remain 100% bearish about the currency's prospects - with very good reason.
24th November 2008
This isn't stimulation, it's simulation
Five simple reasons why the Government's economic vibrator isn't going to get anyone excited:
1. The payments given to the old and poor will go largely on utility 'survival' bills
2. Debt holidays and non-repossession deals cannot disguise the fact that those without a job are unemployed with no source of income. Sooner or later, lenders will foreclose
3. The idea of 2.5% off a price making any diference is laughable. Proof-positive once again that these people simply never go shopping
4. The underlying problem will remain the same - our economy is over-dependent on financial services, completely dependent on debt-spending, and living in the shadow of a truly horrendous government debt mountain. Brown's endless comparisons with the debt/GDP ratios of other G8 countries are apples alongside pears in several ways - and all of these nations (with the exception of Spain) have far more gold reserves than us
5. The Chancellor's growth forecasts are ludicrously optimistic and completely out of line with other forecasts - including those of the Bank of England.
As the IMF wrote only a fortnight ago, 'Reflation packages are only appropriate when public finances are sound'
19th November 2008
Give that Wino a Millers
Here's an extract from a respected investment site I've been watching for a month or two:
'The ECB cut its rate by half a percentage point to 3.25% and the BOE lowered its rate 1.5% points to 3%. The Bank of Japan dropped its rate to 0.3%. This may seem good on the surface - it is not..... Central banks are trying to use negative real interest rates (nominal rates minus inflation rate) to convince consumers to spend their money instead of saving it. This is not good monetary policy. Savings is the only way to wealth accumulation. The road the bankers would have us take is the road to poverty via debt-servitude. This is wealth transference from the many to the few.'
The banks are essentially treating the patient with a slightly less pernicious dose of what's been killing him for ten years; as immunisation goes, this is the wrong way round - but anyway, the analogy is more one of giving a sip of low-abv beer to an alcoholic. It is not the answer. (As you may have noticed, the banks themselves are taking an entirely different kind of medicine - the Libor rate is still disgracefully high)
I cannot think of a way to put this more simply: if growth can only be achieved with loose credit and imprudent tax cuts, then there is something wrong with the growth model. And what's wrong with the growth model right now is that it contains the word growth.
Nothing is going to deliver growth for the time being: we need to get over that unchangeable fact and move on to new solutions.
The system in place at the moment is madness for the West, and bad for the planet's ecology. What we are suffering is the direct consequence of an irrational criterion for socio-economic health: production output - 'let's make more and more and more and more'.
People will not spend their tax cuts - well, the idiots will - but one can't base an economic system on idiots: we did that with the banks, and look what happened with that one. Wise electors will save the tax cuts. While there is a sort of poetic justice in the Government giving people back their money for the wrong reasons - having taken it off them for the wrong reasons in the first place - this will be no consolation to folks in genuine need of the NHS, unemployment benefit and aged care in the future. And it will most certainly NOT kick-start the economy.
The requirement in the short term is for consumers to retrench: to reduce debt, make do with what they've got - and spend some of the time previously spent buying stuff pondering on why the only answer the G20 could come up with was more of the same.
Yes, shareholders will have to do without their precious dividends and bankers without their bonuses and multinationals without their increased profits and agrobusiness without its bigger and bigger surpluses.To these ladies and gentlemen, I say "You have a roof over your head, money in the bank, more than enough food and your job. Be thankful for that."
18th November 2008
Pricks in the balloon
The Russian RTS market index has lost first 12% and then 7% during the last two days. Hurrah I hear you cry - but think twice all you soccer fans. As you read here first, the Premiership bubble is about to burst.
Consider: those who have lost paper fortunes in the market's slide include Roman Abramovich and Alisher Usmanov, the respective backers of London's Chelsea and Arsenal soccer clubs. Rumours also continue regarding the Arab bailout requirements of those formerly rich folks backing Manchester City. As we already know, the Glazer family who own Manchester United are effectively in hock to the US Government. And despite their furious denials, Liverpool owners George Gillette and Tom Hicks are deep in the wealth poverty trap as well.
That's the top five clubs in the Premiership.
While purists like me welcome this as a long overdue prelude to the emergence of real footie again - and the disappearance of all that WAG and soccer wedding vulgarity - this is bad news for almost all the game's Establishment: the incompetently greedy FA, the bombastic ref-bashing managers, and above all the nationality-hopping Sky Man Rupert Murdoch.
Where now for the Dollar?
It may have escaped your attention (although widely reported, it didn't hit many headlines) but Hank Paulson's 'absolutely crucial' plan to save America from toxic debt was quietly abandoned last Thursday. Cast your minds back three weeks to when the world held its breath - would Congress approve the plan? - and once again we are faced with a combination of crude blackmail and sheer incompetence on the part of the Fed. There was no 'must do' (just as there were no WOMD about to be launched): in fact, the wicked part of me suspects that Paulson hoped Congress would reject the plan - thus allowing the Fed to dump the blame on Capitol Hill.
Conspiracy theory aside, the big question now has to be why: why did Big Hank abandon the scheme? (And while we're at it, what happened to the money?)
Taking the second part first: it went to his chums on Wall Street. This much was apparent when soon afterwards, the US Government made both the recipients and amounts of money involved virtually a State secret - as indeed have New Labour over here.
The thing is, it didn't go on toxic debt: it went on recapitalising the banks for a future in which that debt will be elsewhere. And it didn't go to wipe out toxic debt because it would not even have scratched the surface of it.
No: the debt will be removed by the simple old expedient of printing money, and using it to wipe Wall Street's backside.
This has not gone unremarked by the foreign exchange traders, most of whom can add up. Gold was dumped on twenty-four separate trading days from late September to mid November 2008, and the NYSE plunges have also been lessened by this process. Thus a rise in the dollar has been seen - but we must accept that this is just temporary: the Fed and Treasury have combined to create 3 trillion new dollars in the last two months - and the market knows it. As of Monday and Tuesday this week (17th November 2008) the buck's rise has faltered.
If you've any sense, you'll watch the dollar's value carefully - and look for a safer haven. As ever, the signs are that this might well be gold.
Nby's hypothesis remains that the use of 'deep storage' (Fort Knox) gold has disguised the true value of the dollar for some time now. (See Gold) Until such time as there is proof - and don't hold your breath - it must remain just that: a powerful hypothesis based on reams of incriminating data, but still just a theory all the same. However, in recent days the gold/dollar/Dow movements have changed.
To explain as briefly as possible, against all the odds, since August this year (2008) gold's 'spot' price has been bizarrely unstable in the context of falling housing, currency and stock market values in the US. While gold market tampering is the most likely reason, the last two days' trading have seen gold moving up and down with stocks, but against the dollar and property prices: in other words, behaving like a free market where paper is losing credibility.
I see this as potentially a buy signal for the shiny metal. Stay tuned.
14th November 2008
Inflation and deflation are no longer either ors
The biggest differences between this depression and previous ones are (1) speed of communication (2) the ever-presence of geopolitics as a factor and (3) dwindling fossil fuel resources.
The last two factors mean that, this time,we will get both deflation and inflation. In the longer term, not just the price but also the usage restrictions on water will make it a resource more valuable than oil is today - unless somebody develops a rapid and cost-effective means of desalination. The price of oil will depend entirely on how pernicious the Russians and Arabs are allowed to be about it - and how quickly fusion and solar propulsion and generation beomes practicle. But as resources run down (and greedy shareholders ensure that exploration falters still further) the only way for most natural resources is up. Thus driving and home heating costs will go through the roof - insulation or no. With land-use switching (often for no good reason) to biofuels rather than food grain, the medium-term outlook for food prices is also pessimistic. And finally, despite the short-term electioneering of New Labour on the subject of tax cuts, by 2010 the long process of major tax increases will have begun.
Obviously however, this means the price of other things will plummet. By mid to late 2009, some car marques will be - after deals - half the price they were three months ago. Good quality clothing will be available at ridiculously low prices. Bankruptcy auctions will boom as never before, and be a must-attend for those looking for shrewd forward-buying. Electrical products (especially in entertainment and computers) will allow almost anyone with the cash to trade up dramatically.
So broadly speaking, anything emanating from government or the public sector and the former utilities will sky-rocket in price - not least because of the disgraceful feather-bedding enjoyed by civil servants. High on this list will be the provision of public services. Some public services will simply no longer be affordable, the most tragic of these being hospital care for anything but emergencies. (Heating and food costs alone will sink the NHS as we know it - helped along by ludicrous admininstrative over-manning). Money invested in well-run and honest private medical suppliers and insurers will repay the investment many times over.
By contrast, any products outside genuine necessities being produced for the free market must be sold off for any price the supplier can get. For things with no hygiene or fashion shelf-life, here too fortunes will be made by those with the cash to buy in bulk now and store safely for when the new world finally emerges from the ashes of the old. Certain types of furniture, soft furnishings, floorcoverings, bricks, seasoned wood, motor bikes, mountain bikes, laptops, HDTVs - not only is the list eclectic and long, very low rents on what's left of our shopping streets with long rent-free periods will mean the rapid appearance and disappearance of rough and ready outlets selling this kind of stock.
Daft as it sounds, any averagely comfortable person over fifty should do the following: immediately - invest in whatever kind of effective insulation they can find; buy as much firewood and coal as they can lay their hands on; invest in a gold tracker fund; after Christmas - buy thermal clothes and ultra-warm outerwear; around April - use the gold profit to scout around the holiday companies and get some mega-cheap sun to cheer themselves up; July - buy a new car and take a motoring holiday in the UK.
10th November 2008
The Bank of China
Rewind if you will to last week's piece on China's 'effective annexation of Africa'. Part of the evidence I used to reach this conclusion was the enormous £15 billion stake it took in South Africa's national bank. Now it emerges that Bank of China is the leading light in an attempt to buy HBOS and keep it independent. This is of course a further attempt at economic imperialism.
The site (see nbys passim) has been arguing for the last nine months that most bank refinancing over the period since the global banking system began to unwind has been undertaken by Arabs and Chinese - both of whom have clear economic and geopolitical agendas.
There is a reckoning coming down the road. Most folks are too blind or distracted to notice it. You'd do well to ensure you do - and make decisions as to where you'd like to live accordingly.
6th November 2008
Lest we lose the plot.....
In this section was a fairly lengthy survey of how our individual liberties, human rights, ecological quality, constitutional protections and geopolitical strengths are busy being eroded by a combination of UK government incompetence, security services obsessional control disorder, and the cynical colonisation aims of totalitarian States.
What's more, the current slight banking difficulties are being used as 'a good day to bury this news item' with mind-boggling cynicism.
However, when I came back to buff and hone it this afternoon, it had disappeared into the ether forever. Such is the nature of software today: tell it you want to delete a bloody infuriating little stick man from the corner of one's page and it asks you forty-six times if you really want to do that. Exit War & Peace without saving it and macromedia goes 'Oh alright then, if you insist'.
Buddhists tell us that good always comes from bad. And in this case, it's that you get to take my word for it on the following trends:
New Labour is vandalising everything from Magna Carta, freedom of speech and the Rule of Law to our inalienable right to be left alone
The security services have secured a massive £12 billion budget to monitor every last email or text we send and every website we visit
China is effectively annexing Africa
The ice caps are melting, the ozone hole is growing, vital flora are being strangled by climate change....and for all that we're doing about it, we might as well ask Schwarzenegger to wee on one of his strangely recurrent forest fires - or Dubya to command the Tsunami waves retreat.
So there. DOW FALLS 8% AS AMERICA EXPLODES SHOCK. STERLING LOSES 7% AGAINST YUAN AS INDIA SINKS. 428 MPs DROWN AS PASSING ICEBERG MELTS ON PARLIAMENT. WOMAN VAPOURISED BY GOVERNMENT ELECTRONIC DECREE AFTER CALLING PM COMPLETE WASTE OF OXYGEN.
5th November 2008
The Worst is yet to Come
A couple of quotes from respected commentators I thought you'd appreciate:
'Of the major cities, London, disproportionately dominated by its financial centre, will suffer the most. All the related service industries - such as law firms, expensive restaurants and British Airways, which is so dependent on business and first-class financial traffic - will suffer. As revenues drop, so too will the demand for commercial real estate - expect empty offices across the city. The top end of the residential market is also falling sharply, as the rich bankers who bought Mayfair mansions in the good times are now flying home.
Being by far the most 'financialised' of the large economies - much more so than the US, let alone France, Germany, Italy or Japan - London's crisis cannot be confined within the M25. The whole of the UK will be affected.' (Edward Luttwak)
'But really, are there any reasons to be joyful? Or are we all justified in wandering around like characters in a Strindberg play? The short answer is yes, it really is that awful. And unless you have lots of cash, or even better, gold, it is going to be tough.' (Philip Delves Broughton)
Returning to the cash and gold thing, Sterling stands lower still at £1.228 against the Euro. My view is that a number of potential Euro investors are hanging fire until the full ramifications of Eastern Euro countries have come to light. I will only repeat that both the EU and the USA have much deeper pockets than we do. Even if the Euro doesn't exist in four years' time, it's still a better bet than the Pound, for its value will simply be converted into the old currency: and if that happens, the safest place for cash will be, without doubt, the Mark. Or German bonds.
Gold continues to infuriate but becomes less mysterious as time goes on. During relative market stability over the last few trading days, the Gold price wobbled a bit but basically stayed well above my buy-advice figure of $685. Overnight it stood at $758 - a tidy profit on the investment. But in the knowledge that awful economic contraction data would be released, US authorities dumped yet more gold to send it back down to $737 - as always, in the hour or so before the Dow opened. This didn't stop the NYSE losing 485 points on the day. There are signs that whoever is trying to hold back the waves may be giving up hope. Plus - of course - within two months the US will have a brand new administration. Perhaps President Obama will not think this a good use of gold reserves. Or maybe he'll step it up on the grounds of not wanting to inherit scorched earth. Either way, gold remains the best medium-term place to be.
24th October 2008
Sterling, UK National debt, falling interest rates and the continuing gold mystery
I hope readers with a relevant problem took my advice about deserting Sterling. Since I made the call five days ago, the £ has fallen hard against the buck, and steadily against the Euro.
There is now concerted pressure to reduce UK interest rates. My view - as a Brit patriot - is that this is madness, and will only accelerate the move out of our currency. But madness will prevail, because in Cool Britannia it usually does.
Perhaps some of you took a punt on gold. In which case, you've had the rollercoaster effect, but also a warm feeling that it's beginning to look like the cap is coming off this metal. It rose today to $748 at one point, and then settled at $727 - but rose strongly during the day from a low of $685. You probably lost on the week, but if you were able to get hold of a reasonable amount of the metal, you did very well. Leave it untouched and wait for the tide to turn. For an updated essay on the gold price manpulation saga, go here.
A new oil cartel
Iran, Qatar and the Russian Federation became the alternative OPEC this week, although their aims are somewhat different: Iran and the RF have a largely unhidden agenda to screw up everyone else for entirely irrational religious and geopolitical reasons respectively.
Overall this is very bad news for everyone in the West, and another excellent reason to buy a more fuel-efficient car and/or change your method of domestic energy.
Silver makes a move
Following our piece about the gold/silver ratio last week, millions of investors went into the latter. I'm not suggesting any correlation you understand - just that already the ratio has fallen from 83 to 72-i between the two. It has a long way to fall yet, which could stillmake silver a very, very profitable investment. But DO remember that there's 17.5% vat to cough up.
19th October 2008
Getting out of cash Sterling
It pains me to give nby readers this advice - partly because I'm an old-fashioned lover of my country, and also because I'm always boffing on about the media showing reponsibility: the man shouting on Speaker's Corner should follow his own advice. But there comes a time when a country is being so badly run - and an awful culture gaining ground as a result - that decent families must come before the State.
If you ask around the world of commerce and finance at the minute - in Asia, America or the EU - it will quickly become apparent that nobody, but nobody, believes in Sterling any more. The adjustment down in value we've been seeing of late is nothing more than the gunpowder sparks heading towards an explosion not even Guido Fawkes could've envisaged.
There are obvious reasons for this. Dealers, traders, economists, bankers or just plain captains of commerce shake their heads at the size of Britain's government borrowing levels. On this basis alone, we are perceived in the City and abroad as somewhere between Mexico and Italy. Politicos giggle when one points this out. Half an hour after something similar was said to me back in May, Miliband came on television to insist that 'nobody sees Britain that way any more'. Given this was the Foreign Secretary speaking, you can get some idea of just how on the ball New Labour's space cadets are re this one. Suffice to say, the overwhelming majority of opinion leaders believe the UK can never come back from this money-pit.
Another consideration is that informed people laugh out loud when Brown repeats his mantra about Britain being 'better equipped than most' to survive an economic disaster which (as recently as July) he still didn't see as a certain recession. The bloke does indeed know what he's talking about, but that's not what he's telling you and me - which makes the crime that much greater. Our economic outlook is dire. It is probably worse now than it was in 1970. The world recession which approaches is only one reason why this is so: we are hopelessly overdependent on financial services, and that scorched Square Mile of earth upon which we now look is one in which we have lost more crops than most. The Government has worked hard to disguise this situation (via spin, dissembled statistics and brazenly assertive lies) but the reality we all face in October 2008 is that the UK is a place where things are distributed rather than made. Exports are invisible rather than tangible. A frightening proportion of those in employment work in service businesses (especially retail) that will be decimated by falling house prices, inroads made by the internet, and restaurant/coffee/alcohol froth being blown away by the icy breath of slump.
Today, Britain makes dependency, exports a dying money-trade, and imports a deadly combination of cheap labour, truculent religionists and expensive gadgetry. Our one jewel is the Stock Exchange - but this too is fighting for its life in the face of virtual alternative trading platforms, and a badly tarnished reputation for shrewd money. (And in my opinion will always be a flawed diamond).
We have but one British industry growing faster than anywhere else: surveillance. By the time our currency has collapsed, we will have one other - tourism. Given that certainty, might I suggest that about the daftest thing we could do into the foreseeable future is declare ourselves a republic? The Royal family (for all its recent dysfunctionality) retains two vital USPs: an unbeatable glamour which attracts tourists, and a rediscovery of the plot via Prince Charles and his elder son. (To be fair to Harry, I do think the bloke is at least brave and up for it: a full-time job playing to his strengths will be the making of him - as was, to some extent, his time in Iraq).
What can we do?
The investment task for just about everyone in the world for some time into the future will be preserving what wealth they have during a period which - while evolution really - will go at a speed to make it seem like Year Zero revolution at times.
The objective, therefore, is to put as much as one can into universally tradeable assets - and have the 'readies' in things likely to retain enough value to at least defend living standards. Sadly, there is no way that Sterling can take its place in such a portfolio.
Last week we advised 'you're too late for Gold'. Thanks to major-league selling (probably by the Fed) this is not necessarily the case: it must go higher in the end.
The following is a simple list. It's what I'm doing. What you take, what you leave (and who you deal with) is down to you. And as always, if you want to email us or use the forum, feel free.
1. Any liquid-access assets in Sterling should be used to buy Euros immediately. If you can get an exchange rate at 1.245 or above, snap it up. (This assessment posted 19.10.08)
2. If you have available liquid assets - but more than enough income already - buy as much gold as you can. Covert price-capping of this precious metal has left it at the ludicrously cheap price of $783.50 an oz. (19.10.08) This is a short-term opportunity at least, but may not last. If you lack the time or interest to keep an eye on the price every day, then don't do it. I think it's highly likely likely that, after a certain point of stock market decline, the price will sky-rocket in the medium-term - it all depends on when the central banks run out of both money and will to damp down the desire for gold as a safe haven. The precious metals sector is volatile: while this is not what you'd call a punt, in the current environment I'd call it a limited window with some risk.
3. Safer and longer-term are two more options, which I'm spreading 50:50. First, safe government bonds. Safe at the moment probably means Germany - there are some Bunds available, and short of civilisation's end, it's hard to see how they can lose on the long view. Second, silver.
Silver has one big disadvantage in normal times - it's VAT rated at 17.5%, whereas gold isn't. But as noted above, in these times the game is owning things of long-term tradeable value - not chasing high interest rates: that way lies the madness of Icelandics.
Everything else is upside. There is far less silver on the planet than gold - so it has intrinsic scarcity value. Several religions encourage its purchase, and human beings will always need religion. It too is insanely undervalued today at $9.31 (19.10.08)- in absolute terms, cheap - two thousand quid buys a lot of silver. In terms relative to gold, it is at an historical low-point tailor-made for the patient investor: at times in the past trading at 15:1 in favour of gold, silver is roughly at 83:1 right now. I usually shrink from saying this, but in my view the only way for silver is up. It may well be that rare thing, a safe Heaven.
16th October 2008
A silver lining?
I am indebted to several bullion dealers for the following insights; but special mention should be made of www.chards.co.uk, a highly-rated and sensible lot who gave us much of their increasingly valuable time this week.
The price of silver has fallen some 32% so far this year. All eyes of course are on gold....but the relationship between these two precious metals is hugely out of whack at the moment. Historically, the accepted gold/silver price equation has been 15:1. Today it is 83:1. Another major difference with silver is that there isn't that much of it. (One unwelcome difference is that it's rated at 17.5% for VAT).
But even taking that into account, as a safe haven it could represent very good value at the moment. I've just bought some. I may buy more.
Silver is currently at $9.50 an oz. It could reach fifty dollars.
PS There is an Indian religious festival during October which will massage the price short-term. Ignore it and stay where you are. This is a medium-term play rather than a short-term punt.
13th October 2008
Momentous Monday...or Mad Monday?
There's very little further for nby to add above and beyond its last observation about the capital injections and cashflow guarantees. Not only will they fail, they aren't addressing the real problem.
This problem starts (see panel left) with the reality that two-thirds of the UK population think neither Party will be any good at improving the economic situation. People don't believe any more. What's more, the situation is even more pessimistic among middle to upper-middle City workers. This is a crisis of confidence, full stop. The FTSE has rallied in some degree- and the Dow did well. Lest we forget, this was one day - with no bad news, and free money.
Should a rally develop, it can only be short-term. For while some brands in some sectors are cheap (already a bit of smart money has left Gold to start snapping them up) they are few and far between. The charmingly-titled 'Bottomfeeders' can only pick off one or two bits: most shares cost less than they did three months ago, but some are heading to as near as damn it valueless: airlines, parts of retail and construction to name the three most obvious.
A second problem concerns the sort of promises and observations still being made by the clowns who landed everyone in this. On BBCNews this morning, a BGC spokesman described the Prime Minister's clean-up promises (empty as they are) as 'offensive posturing'. I don't think this gentleman has any idea quite how offensive things are going to get in the end. Equally, if you examine the liquidity undertakings given by the UK's Big Four, they tend to refer to offering mortgages. Mortgages! The British economy needs more mortgages today like Peter Mandelson needs another job.
The delusional, arrogant mindset is still firmly in place. There it will stay, until the next wave hits.
The medium term - what should we be expecting?
We're defining 'medium term' here as the point where the job-losing, big non-financial company-collapsing stage is already well under way; and a dawning awareness of the British Government's parlous situation has filtered down to a level below the wide-awake reality checkers - perhaps to embrace many middle class retired people, the small businesses watching their footfall disappear and order books empty, and vaguely numerate retail employees.
From here on, we think, the ramifications will diversify into institutional sectors, social problems, foreign policy, and the structure of government.
Anyone watching the Cabinet in general and Brown in particular talk nonsense about money being 'set aside' will know soon enough that (while probably for once the right thing to say) it is mere dissembling to distract the population from the twin realities of more national debt and higher taxes.
We think the NHS is now doomedin the medium term.
Nearly all spending on education will stop abruptly.
Public sector trade unions will show no more vision this time than they did in 1976.
And all aged care - from State Pension provision to nursing homes - will go from being poor to barely sustainable.
The biggest and most obvious problem identified by the tabloid media so far is 'rising crime'. We don't entirely agree with this. Our view is that - because of past plot-loss in the role of policing, and now the exacerbated financial disaster over collapsed Icelandic banks - crime detection will fall, thus causing the type and relative importance of crime-types most commonly seen to change dramatically. Governments always exaggerate the link between desperation and crime: in fact, professional upper-end petty and occasionally violent criminals usually drive things - and they will simply become more daring. This will make it very likely that small-scale and even individual security becomes one of the few growth sectors between now and 2012. Obviously, bankruptcy fraud and stock theft will also increase - as will insurance premiums: but insurance sales will fall as both people and businesses gamble on not having it.
The illegal trade in handguns and general personal defence weaponry will sky-rocket.
Social deprivation among those weened onto dependency will become desperation, but not necessarily criminal. Resentment among poor whites will increase racial tensions. This combined with further Islamist atrocities could quickly develop into sporadic - possibly major - violence. The biggest increase we expect to see in the poorest areas is hard-drug dependency, and once again lower levels of detection. Falling levels of mugging incidence will rapidly reverse inorder to feed new habits. Inter-gang gun violence will continue to increase. Within five years, most if not all UK police will be armed.
Constricted security surveillance budgets must inevitably lead to more targeted searches at those airports still extant following widespread airline collapse. This will bring forth further charges of racial discrimination, and thus act as a Far Right recruiting officer.
Several of these factors taken together strongly suggest rapid growth in BNP membership and support. Within three years, however, the BNP could easily be overtaken by a more 'acceptably' extreme disiciplinarian Party.
Foreign policy will be dominated by five concerns: American distraction, Islamism, Chinese imperial expansion, EU disarray and Russian energy opportunism. These factors are of course mutually interdependent.
Whatever statements are being made in 2008 during an election year, the USA will effectively withdraw from Iraq. It may even abandon the line being drawn in Afghanistan. Great Britain can't even afford to sail its navy let alone equip and maintain an army fighting against insurgency on a grand (yet ethereal) scale. All this will increase Islamist confidence to the point of hubris. The situation in Turkey will become sensitive to the point of barring it from EU membership.
Although itself affected by the credit crisis in Western markets, China's problem remains one of sustaining its output growth and obtaining both the energy and raw materials to do so. Already spreading its largely unopposed influence in Africa, China will almost certainly benefit from the coming chaos in South Africa. The Gold and diamond resources available here will make it a prize well worth any geopolitical risk involved.
A distracted America is unlikely to stop this, and an increasingly splintered EU lacks real motivation towards the task of containment. The complete lack of Russian interest in or respect for either the diplomatic involvement or military determination of the European Union is blatantly obvious already. So too is the hasty retreat behind the borders of national politics in times of trouble. This plus a very low level of electorate support for the more grandiose aims and expenditures of Brussels means that, almost certainly, the EU will see its influence reduced. There is a 50/50 chance that by 2012 there will not be a fully functioning Euro at all.
We expect the EU withdrawal movement in the UK to make huge gains over the next five years. We also predict that the Russian leadership will make at least one further, major energy-blackmail move. This will evoke some sabre-rattling by the West, but little else. Resultant RF hubris will be every bit as dangerous as that of Islamists.
On several previous occasions nby has argued for a smaller role for national government and a greatly increased emphasis on local government/economic self-sufficiency - as triggers for both greater citizen involvement in administration and a smaller carbon footprint. We think the local Council investment carelessness that has now come to light (and the quite staggering size of the Government's bailout gamble) must accelerate this process. And as in turn local taxes increase dramatically, so too will the level of accountability and involvement demanded by taxpayers.
9th October 2008
WILL THE £500 BILLION PACKAGE SOLVE ANYTHING?
No, not much. Here are the key points in plain English:
1. The Government is not writing off bad debt - it's buying £50 billion's worth of shares in UK banks it deems to be in trouble. Toxic bad debt will remain, and still discourage any and all lending. The rest - £350 billion in new money and £100 billion previously committed - will be walking around money for banks who can't get it anywhere else. The capital investment has been forced on the Government (it thinks) by lunatics on the trading floors panicking. The working capital injection was felt necessary (it isn't) because predator banks and wholesalers lack either the bottle or the sense of duty to help them. They won't help each other, so we've got to help all of them. It really is that simple - and don't let anyone tell you otherwise.
2. The 'damage' in terms of selling bank shares and freezing liquidity has already been done. The predator sharks - J P Morgan, Lloyds (now Lloyds HBOS) and Santander - have bought up everything worthwhile going cheap...with the help of Hedge Funds: whether accidental or planned, nobody will ever be able to prove. Those who insist that Armageddon was the only alternative should ask themselves why the predators are doing just fine. Governments should guarantee ordinary people's savings, but leave greedy bankers with pathetic business models to fall by the wayside. Predators will take up the slack in the market. We have all been conned out of half a trillion pounds sterling.
3. The cost of this to you and me cannot be overestimated. The £ will fall further in value (because Government debt is astronomical and the economic outlook awful). Some 47% of UK tax income has been gambled on this disaster today (and a further 17% previously) so taxes must rise. As well as raised taxes, Government borrowing must increase (more pressure on the £) and the Bank of England must print rather more money than it would like, so inflation will rise.* Services must and will be cut, whatever lying politicians claim. Remember: one banking system bailout equals THREE National Health Services. [ * I don't agree that this will become critical. Once demand slumps entirely, deflation - especially on electrical items, cars, furniture, luxury goods and of course properties - will kick in]
4. We have all forgotten that most of the time, the banking system is merely something oiling the wheels of industry, commerce and business. The stock exchange banking sector isn't the main game in town: exchanges are there to raise money for business by having confidence in growing markets. All markets are now going backwards: we are heading for a depression, not a recession. The spread-out of gloom will drive the FTSE down to 3500 by year-end at least - possibly more. Whatever equities you hold privately now, dump them and buy gilts. These at least are backed by the Treasury. You're too late for Gold.
5. Large insurance and pension suppliers dare not dump their equities, otherwise there would be a real stock market meltdown: they simply wouldn't be ableto offload it all. (They at least have more sense than to try) But smaller final-salary suppliers must get out (I estimate) somewhere around 4000. Added to the economic outlook, this too will ensure a further slump in the FTSE index. Some people I've spoken to expect this to fall below 3000. I don't. But then, I drew the line at a 35% property market correction three years ago: others put it higher, and I'm beginning to agree with them.
6. The amount of froth on the High streets of Britain was always silly; now it looks suicidal. Expect the depression to cut a swathe through much of it, and give anyone brave enough to start a retail business in a year's time the cheapest rents in modern history. Failed banks, estate agents, coffee shops, shoe chains, DIY, middle-market and designer clothing outlets, furniture retailers, car showrooms, restaurants and electronics stores will create excess supply for at least five years. If you're employed in any retail business, you should think hard about getting out.
And the political fallout?
Up to a week ago I saw nothing that could save Gordon Brown in particular and New Labour in general. At the time I wrote 'Only a major cock-up by Cameron stands between him and Number Ten'. Currently - for the first time since Brown took over - New Labour's communications strategy is outclassing that of the Conservatives. And Dave is cocking up bigtime.
The first faux pas by Cameron was to drivel on about senior bonuses at PMQs yesterday. The rescue package should be antithetical to everything the Tories stand for: but Cameron has bottled the chance to say so. Misplaced patriotism? Perhaps - or a loss of nerve. Either way, the result is that the Tories are on Page seven at best right now.
The golden opportunitythey've missed is to say 'bail out the depositors but not the fat cats'. Well, events have already passed that one by.
Brown and Darling, meanwhile, have looked workmanlike and determined. The Icesave disaster was both customer/voter orientated and swiftly handled (with a positive air) by the Chancellor. Where were the Tories in all this? Completely on the back foot....why haven't they gone for the jugular on local council exposures to Icelandic banks?
Brown in turn has lightened up - exactly the right thing to do. Addressing a conference yesterday, he heard a mobile go off and quipped "Not another bank failure is it?" It brought the house down: and every station ran it.
Expect to see Brown's popularity ratings improve this week. And don't work too hard on who's behind all this. The Campbell/Mandelson team is back on deck. As so often with New Labour, completely the wrong strategy is being spun to look like decisive action. The Tories need to wake up: there's too much consensus and not enough spine at the moment.
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Sorry, but the legals insist on this. While the author of these observations and guidance will always try hard to ensure that all advice is based on experience, reliable sources and sound judgement, neither he nor the management of Not Born Yesterday accept any responsibility for actions taken either partially or wholly on the basis of such observations, guidance and advice.