Friday 26 February 2010

A glimpse behind the curtain of the failing Brown-Darling marriage

Interesting insight into the straining relationship of our country's two top men.

There is still a glimmer of hope that Alistair might prevent Gordon taking the UK beyond the debt line-in-the-sand that must not be crossed, at least until the election is over.

As an aside, isn't it funny how the Blair-Brown relationship also certainly had its strains in the past. I wonder who might be at fault?

Euro gold: left the station?

In my last post I asked if you think the gold price in British Pounds might be about to lift-off, or fall-back. This post shows a similar chart of gold priced in Euros though, and this one has a different question that it begs. The price has just moved to new all-time-high price in Euros, and has slightly fallen back. It might appear to you that this price returned to the previous all-time-high area from December 2009, but will it bounce off this price level to confirm a move higher dead ahead, or will it fall through and result in a significant fall from here?

Again, who knows. But it might be instructive to watch and find out.

Pound gold: blast-off or bomb-out?

Who can say. Take a look at this chart and see what you think.

Very shortly, the price bumps up to the previous all-time-high price from a few months ago and either it will blast off through it to new all-time-high somewhere higher, probably significantly higher. Or it will "double top" and fall away over the coming months, probably to a place significantly lower. Be interesting to see what happens at this critical juncture in time.

I would take this opportunity to refer you again to my recent posts about (a) the technical chart of the Pound, suggesting possible bad times could be ahead for holders of Pounds, plus also (b) the technical chart of the Baltic Dry Index displaying similar characteristics, again hinting at bad times ahead but this time for the global economy as a whole.

Thursday 25 February 2010

All eyes are on Greece and the Euro. But watch the British Pound.

Just one pertient snip from the article linked for you below:

Jim Rogers, the millionaire financier, went further warning that the pound could "collapse" within weeks, heralding a downturn worse than 2008/09 and in turn leading to a "global economic winter".

Read it and weep here:

I refer you again to my recent observation of the chart technicals of the British Pound, here.

Plus also my observation earlier today on the Baltic Dry Index, which I would say is a good leading indicator of global economic strength (or otherwise). Here.

How to win friends and influence people

Greece to Germany: "Dear bank manager, please may I have a loan from you? You theiving b@stard."

That'll be one step closer to the IMF then, probably to expulsion from the eurozone too...

Baltic Dry Index 50/200DMA bearish crossover watch?

I took a look at the Baltic Dry shipping index to see what's up with the world economy. Found myself looking at the 50 day moving average crossing below the 200 day moving average line. Might be worth watching over the next few weeks as a leading indicator for the much-feared double dip(?).

Wednesday 24 February 2010

What has Labour promised UBS will (or won't?) happen to them if they publicly support the view of continued government deficit spending?

It just seems to me that UBS would know better than to really believe the Pound is worth more when more of them will be printed. It just runs completely contrary to the very basics of supply-and-demand. Printing money is the very definition of inflation, and inflation is necessarily the sworn enemy of bond investors.

So why would they come out today with an analysis/warning that if the rampant deficit spending (money printing) is curtailed then there will be a run on the Pound and it will fall in value to $1.05? It just defies logic. People will sell their Pound-denominated assets if they feel that selling later instead would result in them getting less valuable Pounds then than they would now. Not the other way around.

It would make far more sense if they said the complete opposite!

No, I'm sorry but this smells like a political favour to me. I just wonder what size and shape of a carrot they have been offered to do this..? (Or what stick they have been threatened with if they do not...)

Deficit spending is always and everywhere a disasterous idea

A great article on Bloomberg by Matthew Lynn, about the quackery of Keynesian deficit spending, and how it is going to ruin the UK and finally prove to the world once and for all what a complete crock the whole theory is.

Here's a snippet, but you ought to read the whole thing:

The Keynesian consensus is that things would have been far worse without the stimulus provided by government. And if the economy isn’t pumped up with inflated demand, it will collapse back into recession. If it’s not working, that just proves the stimulus should be even larger.

It is the argument quacks always push: If the medicine isn’t working, increase the dosage.

Rogoff has been misquoted by the Telegraph I think?

Removal of fiscal stimulus has deflationary implications, not inflationary as stated in the last line of this article.

Fiscal stimulus is inherently inflationary; that is the entire point of it (to counteract other surrounding deflationary forces).

I say he must have been misquoted, because I find it impossible to believe a man of these credentials would misunderstand something as basic as that.

Tuesday 23 February 2010

QE back on the menu already.

Merv "The Swerve" King at the BoE has come out today (already!?) and hinted to us all that Quantative Easing will be back on the agenda again soon, due to stalling economic recovery. Quickly followed up by another MPC member, David Miles, stating now that his vote to suspend money-printing last time he was asked was a "finely balanced decision". That sure sounds like politician-speak for "I was wrong to vote for suspension of that program", to me.

As you might recall, I forecast QE would be resumed within 6 months -- it looks now like perhaps that forecast was too optimistic and I'm thinking perhaps it'll be closer to just 3 months or so abstention from momma's soothing money-printing teat(?). There there crybaby debt junkies, momma print it better again...

Note also once again we see the Party Line being wheeled out -- that our own recovery is delicate but sustained, the problems that are adversely affecting us are somewhere else. Our own massive over-extentions of debt both private and public are not the cause of our problems, no siree Bob. Previously the US was the party to blame for our problems, this time around we have the Euro bloc to blame it on. Pretty convenient huh? :-\

Watch the current government try to steadily devalue the Pound by 50% over time, so that the debts seem like they're actually manageable. They're half way done with that so far over the last couple of years. I hope that those foreign creditors who still hold (none of them are still buying) our Gilts don't get a whiff of this ruse and make that more than 50%, and over a lot less time. Yeah, like they are not already well aware and just watching to see if the next elected government can quickly get the message and set our collective house in order. If not, game over for the Pound.

The incredible, vanishing greenback

Dear Mr Brown, putting off cutting our deficits unfortunately just cannot wait.

I don't care how much you would like to be the nice guy who keeps employing more people in your swollen government departments, handing out more welfare money like it's orange squash while the private sector workers who pay for it all are dwindling in number each passing day, and generally buying as many desperate votes as you can before the election. We just do not have the luxury of being able to keep building this debt, I don't care how many of your personal friends you can convince to embarrass themselves in public by signing your ludicrous, self-serving letters. Just take a look at how many billions of pounds we are wasting in coming years simply to pay the interest on all the debts you have racked up so far. No, this simply cannot, and therefore will not, continue. The participants in the bond market will not stand for it, and eventually the taxpaying public will wake up to reality and they won't either.

At the same time as you are grandstanding that Britain must continue to rack up these debts, you are yourself also stating publicly that you agree that the debt is a problem that must be addressed. Be a man, do what you yourself know is right. Stop spending money we do not have.

Friday 19 February 2010

Jack-boot Brown is who has made petrol more expensive

The AA are warning that petrol prices are reaching the pain point again. Currently prices are around £1.10/gallon for regular unleaded. They also state that wholesale prices recently went down by 2p/gallon but it has not been immediately passed onto consumers on this occasion as has been the case in the recent past, for reasons of competition among vendors.

For my part, I have noticed and repeatedly commented to my long-suffering dear wife and anyone else that makes the mistake of mentioning the topic within earshot, that petrol prices are extremely elevated for some time now. I recall when the crude oil price briefly spiked up to $147/barrel a couple of years ago, the price of a gallon was trying to break through £1.00 and the fuel stations all had to run around with stickers to prefix their pumps and signage with £1 because they were not setup to cope with prices in triple digits. Do you remember those halcyon days perhaps?

Since that time, crude prices are about half what they were, and yet here we are in the UK with pump prices that are higher than they were while crude was double what it costs now. Something is wrong with the math here, no? That something is largely the value of the Pound. The value of the Pound is down heavily over the last couple of years, mostly due to international confidence in the economic stewardship of Gordon Brown's Labour government. There is still a long way further down it can and most likely will be taken, unfortunately.

To lash out against this reality, in the run-up to the election, Gordon today is trying to convince us all that the Conservatives are not only wrong to disagree with his misguided policies, but now he wishes to convince us all, through the carefully selected phrasing that they are "The Right Wing", that they are worse than the BNP and the Nazi's put together. Worse still, he attempts to paint them as not only The Right Wing, but also implies they are at the same time evil Libertarians, against government in principle. (The alert among you will notice that there is something of a contradiction in here already!) Would that the Conservatives were for Liberty, which in my view would make them more attractive, but they have been at great pains in the last few months to paint themselves as being against evil Libertarians themselves.

The Conservatives are not against government, they want to BE the government!

Truly, this is starting to look like a desperate man, fighting with the last remaining options he still has available to him. It is sad to watch. The last, desperate days of the British Reich clinging to power. Forgive me if I do not shed any tears.

Sadly, Teeside steel workers cost themselves their own jobs

The unfortunate truth for the steelworkers -- which I would clarify for you I do have great sympathy for on a personal level by the way, in spite of appearances -- is that they were just paid too much. I don't mean they are paid too much compared to investment bankers, or doctors, or anyone else around them in the UK economy, but they are paid too much in global terms.

Steel products are bought and sold on global markets, like any other commodity. People elsewhere in the world make the same steel for less money, so they are able to compete on these globally-priced markets and survive. People buy steel from other countries, just because it is cheaper. UK steelworkers (not exclusively) are just paid too much, and it is uneconomical to employ them. That is the plain reality of global economic progress, unfortunately.

The government can talk all it wants to about how it wants to preserve these jobs, but it is just impossible to do so. It was never going to happen. It's not about the plant itself, product quality, a lack of sympathy for these people and their community that has bet the ranch on this one industry, or any other variable you might take into consideration. It just comes down to staff costs and a global economic system.

This was the same story for the coal workers, the shipyard workers, the textile mill workers, call centre workers, computer software developers, the list just goes on and gets longer with time as more things become possible from anywhere. If you're doing a commodity job, one that could just as easily be done elsewhere, then you are competing with workers elsewhere, and you will not win unless you are prepared to be paid what those workers elsewhere are being paid, or less. That's just the maths.

It's a big, bad world out there these days. You can no longer look at your own country's economy in isolation, at least not if you wish to survive in the long term. All those cheap TVs, clothes, furniture, etc in the shops at everyday low prices, they came at a price. Now it's time for us to pay the bills I'm afraid. :-(

Labour are admitting defeat, laying groundwork for playground "told you so" politics

Brown and Darling have managed to find three times as many economic illiterates to write them a letter telling them they're right, compared to the 20 economists who wrote to endorse the Conservative's opposing view a week ago. Well now, three times as many you say? They must be the ones who are right then, eh?

These people are worse than ignorant of the real world around them. These are people that have fancy titles and expensive educations behind them. People that the man in the street feels like he should trust their opinion, for those reasons alone. They know far more about the way things work than the average Joe, eh? But you just cannot buy or be taught common sense, or honesty, unfortunately.

The article cites past bad experiences of withdrawing fiscal stimulus prematurely, stating that this caused a worsening of those recessions. Most notable, they include Japan in this list. This is truly stunning, given that the Japanese government have still not to this very day, 20 years on, removed any fiscal stimulus -- they're still piling it on like cheap margarine, as thick as they can get it to stick to the crumbing bread that is their economy. No matter how much they slap on of this toxic hydrogenated vegetable fat masquerading as a tasty and healthy natural substance akin to soothing butter, their economy goes nowhere. They have built unnecessary roads and bridges to everywhere and nowhere, invested in wholely unnecessary items like for example their bullet train network (the country isn't that big, and it's mired in a 20 year recession; how much speed-of-sound inter-city travel is strictly necessary and at such massive cost?). They print up yen every week of the year and use it to buy their own bonds (just like Zimbabwe did, and the US and UK have done for the last year). If Japan shows you one thing, it is that these government fiscal initiatives just waste money and prolong the economic pain for much, much longer. It could not be any more clear. The situation is, without any hint of a possible question now, the exact opposite of what these "economists" claim is the case. But that just doesn't happen to suit their personal agenda I guess -- will tell lies for political favour.

My view is that Gordon has admitted defeat for Labour behind closed doors and is laying the groundwork for playing politics with "we told you so" in opposition. He knows that the goose is cooked and the Conservatives will be running the show very shortly. The Conservatives can see clearly that they have no choice but to cut public spending and to reduce the national debt -- because overseas investors are not and will not buy our government bonds, so the debts already cannot be financed legitimately. The only people allowing the government to run up this national debt over the last year are the members of the Bank of England's monetary policy committee, and if you think they are truly independant of the government, think again. Perhaps you would like to buy London Bridge from me sometime? Gordon is stating clearly that Labour would do what the Conservatives will not, they will continue to rack up national debt for as long as they can get away with it by any means open to them (money printing). It is a lie because if by some miracle Labour were to find themselves voted back in again, they will have no choice but to do the same thing -- if they keep up this money printing, it is being made very clear that our currency will find itself quickly on the rocks and heading for the graveyard of history, alongside ye olde Zimbabwe Dollar of yore and many others throughout history. Cameron can look forward to being held up as the New Thatcher over the course of the coming years, a new figure of popular hatred for having "caused" the pain everyone will be experiencing, as fiscal reality and balance sheet repair is once again necessarily forced upon us all by the Conservatives, after and as a direct result of another extended period of Labour economic incompetence and mismanagement. Wonderful.

Perhaps we have finally found a candidate for New Land Of The Free?

I don't know whether I could cope with the insecurity of having Russia as a hostile neighbour with a welcoming tunnel through the mountains right onto the coutry's doormat, but it turns out that Georgia could well be the country that stands to protect your liberty and financial security in future.

Thursday 18 February 2010

Surprise interest rate rise in the US

In a surprise event, the US Fed has increased its discount rate (the rate banks can borrow from it at) from 0.5% to 0.75% (a 50% increase, to state the obvious - but it looks more significant when you put it in those terms, I think).

Additionally worthy of note is that the loans can only now be made overnight. The money borrowed must be returned to the Fed next day now.

Interesting. Dollar up on this shock news, gold/silver/platinum/etc, plus other major currencies all down hard at the same time as you might expect. Stock markets are not going to like it.

Hmm... its almost like someone WANTS a return to recession for some reason isn't it? Like they want some evidence to justify something they wish to do or reinstate. (Like, say, QE because the economy hits the skids again shortly perhaps...)

Be interesting to monitor what follow-through there is in the various markets on this theme tomorrow and into next week. Especially since it's options expiration week. Particularly worth watching is the gold market, which is currently at a critical juncture where it could technically breakout either to the upside or downside and participants are awaiting their cues as to intermediate-term direction. One might be cynical about the timing of this rate increase and its motives... ;-)

We are SO screwed in the UK

In all of recorded history up to January 2009, the UK accrued a national debt of £708billion. That took everything bad in our entire history to achieve: WWI, WWII, coping with the 1930's depression, the 1970's disaster and IMF bailout, everything.

In one additional year, 2009, this national debt has been extended to £848.5billion — an increase of 19.84% in one year. That is quite some achievement right there. Worse still, it is still growing and our beloved government have no intention of doing anything else but extend it further.

Unfortunately, this debt is now so massive that it is wholely unpayable. At least, it will be unpayable without devaluing the Pound further through more Quantitative Easing. Upcoming new Gilt issues will once again be bought with more freshly-printed money (just like last year) — they will have to be, because the Chinese, Japanese and Arabs are the only people with that kind of money to invest, and they have certainly not been buying our bonds (they're selling). In fact, they all have their own domestic problems to direct their massive foreign exchange reserves at just now. Just about the only party buying Gilts for the last year or so has been the Bank of England, with QE money it had printed specially for just that purpose. Who will buy now, while QE has been "suspended" by the BoE? Meanwhile, Gordon has plans to continue spending like there is no tomorrow.

Gordon Brown will still stand up with a straight face and tell the world that Labour have done the right thing and will continue to do more of the same [for just as long as they can get away with it]. He has bankrupted us one and all.

What a disaster awaits us. Thanks, Gordon. :-(

Austin,TX plane crash: One man's attempt to stick it to The Man?

Karl Denninger of the Market Ticker, strongly suspects that the guy whose plane flew into the office building in Austin,TX today did it intentionally -- in stark contrast to the mainstream media reports.

Interesting turn of events. There's a story behind every story. Still, this would be a rather extreme version of "raising awareness" if you ask me.

The ultimate asset bubble is gold

People have continually misinterpretted George Soros' recent comments that "gold is the ultimate asset bubble". All commentators that I have seen in the media appear to take him to mean gold has been in a bubble, that has now popped.

My take is that George Soros is doing what George Soros always does. He has identified a longer term investment theme that he sincerely believes in the fundamentals of, wastes no time acting on that understanding of the situation, and makes no bones about telling people what he thinks is going to ultimately happen. On past history of his performance, I think you and I ought to take notice of what he thinks.

What he thinks, if you ask me, is that gold will be the ultimate asset bubble. He even goes on to say that he expects to lose money on this bet. (Can you hear the implied word "initially" here? A seasoned investing legend like this guy does not invest in anything that he truly believes he'll lose money on.) Likely over the next quarter or two, perhaps a year maybe even two, who knows, he will probably record "paper losses" on his carried position. But I reckon he's right, that in the longer term the price of gold will go ballistic and that paper losses he reports along the way (while carrying the position, not closing it) will seem trivial by comparison when the time does come that he wishes to collect his speculative gains by finally selling his holding.

Gold will not do this because it pays a competitive rate of interest for holding it, nor will it provide dividend income from its operating profits over time. In fact, gold will not fundamentally increase in value at all. On the contrary, the currencies that you use to buy the stuff with will be the thing losing value, as confidence in the governments issuing those currencies declines. That is the stuff that always causes hyperinflation.

Click for BBC article stating Soros doubles down on his investment in gold

The Greater Depression

Telegraph article: Unemployment figures mask UK labour markets grim reality The main thrust of the article is that you can roughly add 50% to the unemployment statistics, because there are even more people who are "part time, but who don't choose to be" than there are "officially" unemployed. That is a Depression-era level of unemployment.

My take is that things are worse even than that. I for one am working part time and don't choose to, but I am on nobody's statistics. There will be a LOT of people the same as me.

Sadly, I can see things getting worse still from here, before they get better. This will come to be referred to as the Greater Depression when people read about the story of now in their history books (in certain circles the unfolding situation has already been termed that for some years). Probably few people in the coming decades will bother to read this section of their history books though, much as we all spent little time thinking about the Great Depression until we could see one of our own coming right at us recently, until about 80 years or so time -- when it is time for them also to experience their own Greater Still Depression.

It's just time. If your interest is piqued by this statement I make here, you will find the book The Fourth Turning is thought-provoking reading for your library list.

Even some Democrats are starting to see how corrupt the Democrats are

“How are you going to tell a person who makes $40,000 that they must pay money to make sure that people keep jobs who make $80,000, roughly, and who have defined pensions that they will never see?” Caddell said. “You cannot ask ordinary Americans who have no jobs, whose pensions have been ransacked, and whose pay has been stagnant, to keep rewarding people who don’t face the same kind of conditions and risk.”

“The people who pay for it are suffering,” he said. “The taxpayers are going to explode. This is the big coming issue of our time.”

See the full article here.

Wednesday 17 February 2010

Deflation is the future. THEN inflation.

One would think the money wonks at the US Fed (and the BoE, or the ECB for that matter) would know what's going on with their debt-based monetary system. But it would appear not.

Why are they surprised that M3 (broad cash and credit in the system) has contracted, and continues to? You would think they of all people would understand that people going bankrupt or otherwise defaulting on their loans, would mean a massive decrease in outstanding credit? There are massive numbers of foreclosed, and soon-to-be-foreclosed, residential properties across the US, UK, Europe, Canada, Australia, China, Dubai -- just about everywhere really. Commercial property loans are similarly having to be defaulted on in volume because the "investors" find they are now unable to rollover their loans due to restricted credit plus also negative equity when payback day comes. Private sector businesses of just about all stripes (consumer staples excepted) are pulling in their horns, laying off as many staff as they can get away with, and generally battening down the hatches for a gale force storm dead ahead, if not indeed entering Chapter 11 bankruptcy proceedings already, perhaps leading to a wind-up and default on their loans and pension obligations, or perhaps a renegotiation that makes the payments affordable in the new reality of today's eyes-wide-open, debt-averse world.

How come even an untrained numpty like me can see that these deflationary hurricane forces are completely overwhelming, when put up against their so-far-pitiful 'Quantitative Easing' efforts? Don't get me wrong, they are printing up a LOT of money - but even this seemingly massive amount is nothing compared to what they are attempting to replace in collapsing credit.

How come I can see clearly that they will not only resume those QE efforts before very long, but they will ramp them up a notch because it is clear what has gone before is like a fly on an elephant?

Short term, we will be treated to a bout of deflationary shock. We will then all collectively cry uncle again, and QE will be once again an acceptable and "necessary" evil, and they will do it in spades. Soon after that point, inflation will kick up a gear -- perhaps sufficent to reverse the nominal asset price slides (note: not the "real" asset prices) and make the debts carriable again, who knows?

What should have happened instead of all this, is that the deflationary collapse should have been allowed to happen in 2007 when it tried to clear the decks. It is a natural and unavoidable part of the Capitalist system. For a couple of godawful months there would have been horrendous fear and panic. The banks would have had to accept that they had to go cold turkey and then very quickly died. The governments would have had no choice but to step in and reimburse the depositors at those banks with freshly-printed money (QE), not the banks themselves who had taken the risks -- he who lives by the sword, dies by the sword. New banks would have been setup in a hurry, new banks that didn't have the legacy toxic assets and were therefore fundamentally strong. This situation would have (a) been a lot cheaper than what has so far happened and which has so far done nothing to cure the underlying problems, (b) would have seen the massive overextention of credit fully and completely written off and purged from the system, so we could move on from a new stable baseline again, and (c) would have occurred so quickly that nobody would have had the time to react -- business would have carried on pretty much as before, people would still have their jobs, demand for products would have very temporarily waned and then very quickly returned almost to normal again. In short, it would have been a nasty storm, but it would be well and truly over by now.

Instead we spent a fortune on tinfoil hats for bankers, and the unpayable debts are still out there being covered up and sat on. They are still going to blow up.

How come a man on the street like me, nothing to do with economics or finance in my background, can see this -- and yet the omnipotent financial and economic uberpowers with all their interest rate levers, magic paper money potions, thick dark velvet curtains, and loudhailers (telling us not to look behind their curtains and certainly not take any notice of the ordinary looking men you see there) can't?

Tuesday 16 February 2010

EU talking shop: business as usual

Well, after an additional day of mulling over the options over nibbles and champagne in Brussels, the solution to The Greek Question is... (fanfare)...

"No idea. Let's wait another month and see how it looks by then. Maybe it just goes away?"

Brilliant! We may be paying out billions to keep those Euro elites at the Brussels talking shop fed and watered every month, but they're worth it aren't they? I mean, for entertainment value of course -- they're the best clowns in the entire continent.

Still, at least the men in black suits from the IMF get a nice outing to Athens; I hear it's nice this time of year. I hope the smell of BBQ politician might not be too overpowering for them.

EU meeting on Greece rolls on into Tuesday

Seems they were not able to agree on a solution yesterday after all. Well, to be fair it is an intractible problem, and there are a lot of people who need to agree and who have different agendas.

Here is what I consider the most interesting and telling line in the BBC news article I just read on this subject:

But Mr Juncker said it would be "unwise" to publicly detail "the measures we are putting in place".

To my mind, this reads that they are indeed going to print money one way or another, which is exactly what would be unwise for people to understand - because this would be sufficient cause to sell euros further.

Monday 15 February 2010

China to allow the yuan to strengthen

This is an easy one. The yuan has been cast as being manipulated lower than natural by the Chinese authorities, to give its exporters a significant advantage on world markets (they still make stuff and sell it to other people, unlike us, so this policy actually does work for them). They have made money hand over fist making stuff and selling it to us in the West, they have money coming out the wazzoo now (we just have debts coming out the wazzoo).

Lately, the canny Chinese have realised that they no longer have such massive exports generating income for them. In fact, their concern recently is that they now have too many dollars, euros, pounds, etc, in their forex reserves - they would like to get rid of them (and ideally get gold instead, if it will just go down cheap enough to make it an excellent long term buy again... which it is about to do in 2010 I strongly believe - but that is a whole other story...).

So, if you are an export-based economy, and you realise that fewer people are buying your stuff, and in fact this is set to get worse if you read the tealeaves, and at the same time you have people around the world screaming at you to let your currency go higher... what could be better than to do exactly what they ask of you, and let your currecy appreciate? Let it go up BIG I say! This will make everything in the world that they wish to buy cheaper. If you are forced to move from a make-and-export emphasis, to a buy-and-consume emphasis, hell yes please make our purchases cheaper O smart people elsewhere in the world.

Those Chinese, they're smart. Our financial elites are begging them to do what is in their best interests anyway at this juncture. Which is only right, given they hold all the cards at this game of global poker we're in.

The next story will be we have had to raise interest rates in order that they will continue to buy our worthless government debt. Can you say "may I wash your car please sir?" in Cantonese...

Quiet day today. What next for the Greek issue..?

"News" (anything that matters, economically at least) is thin on the ground so far today, mainly due to the US holiday that means the markets and Washington are out of action until tomorrow.

There is also a baited pause while the world waits to hear the outcome of the European head-honchos meeting, where they will decide what to do about The Greek Question. Whatever the outcome from this meeting when it is published, we can expect fireworks of one kind or another to kick off.

My guess is that the Germans will pull back from the recent hints it could fire in with a big stack of cash for the Greeks to stop the Euro project getting bust wide open with attacks on similarly debt-afflicted countries around the bloc. I think that the German financial-lever-pullers (a) can't really afford it anyway because they're up against a wall themselves like everyone else, not that this has stopped any government from doing it just the same recently of course, and (b) now understand clearly that their voters will crucify them at the next opportunity if they do, which is the more pertinent consideration.

What is needed is a way to say that the ECB will print up whatever Euros are required to ensure the Greeks (and the Portuguese, Spaniards, Italians, et al) will be able to rollover their maturing bonds. But to do so in a way that doesn't make anyone think rampant money-printing inflationary hellfire approaching so they sell sell sell the Euro into oblivion. A tough ask.

Perhaps the solution will be for the ECB to buy Greek debt bonds for the next few months, so there is no question about their ability to finance those debt rollovers at reasonable rates of interest, but at the same time the Germans can say that their taxpayers are not the ones footing the bill while the rest of Europe goes out for a free party. This seems to me like it would be the least-bad among the options.

We'll find out soon enough, later today...

Friday 12 February 2010

Sovereign Alchemy Will Fail

Here is an article that summarises the massive financial problems of today and how they will resolve themselves before very long. It is not light reading, but I found it to be a good and fairly complete distillation of a very big subject. A subject that will affect you even if you ignore it, hence I recommend it to you.

New Jersey enters state of fiscal emergency, Democrat senators tell them they can't stop spending money

On the one hand you have the Governor of NJ comes out and tells it like it is, and informs everyone who'll listen that public spending must stop now, or there will be even worse trouble very shortly:

Calling New Jersey on "the edge of bankruptcy," Gov. Chris Christie today declared a fiscal emergency, seizing broad powers to freeze aid to more than 500 school districts and cut from higher education, hospitals and the Public Advocate.

On the other hand, you have the Democrat senators at the Federal level telling the Governor that he must continue to spend:

Democrats who control both houses of the Legislature immediately balked at Christie's move to unilaterally freeze school aid. They said school aid is directly tied to property taxes, and excess surplus should be returned to residents as property tax relief.

Pray tell, at what point do the Democrats (or Labour in the UK) understand that they have run right out of other people's money to spend on their politically-motivated largesse? They can no longer afford the tab for buying up votes.

Thursday 11 February 2010

What price democracy?

“A democracy is nothing more than mob rule, where fifty-one percent of the people take away the rights of the other forty-nine.” (Thomas Jefferson)

2010: A bad year for Ye Olde Pound?

Take a look at this chart of the British Pound (chart courtesy of

Notice the two red down-facing arrows I have annotated, and the red and blue lines on the graph itself. The blue line is the 50-day moving average ("MA") of the black line (the value of the Pound), and the red line is the 200-day MA. This is a standard basic chart that most people will start out from, with the 50 and 200 day moving average in addition to the item itself that is being examined, before moving on to add other tools that help them come to their conclusions.

Back in early 2008 (the first of the two red arrows I have placed on the chart), you can see that the 50-day MA crossed below the 200-day MA. This is a negative sign in a chart. As would then be anticipated, the Pound went on to temporarily bounce back up to the 200-day to test it, and fell away again. This is a very negative sign as far as anyone analysing this chart will be concerned, and they would sell the item on seeing this occur. And they did, right through to early 2009 when the price bottomed out and went on to break up above the 50-day MA again, decline to bounce off it for a test, and then race back up to and through the 200-day MA. So, that's history and chart technicals 101 out of the way.

I just noticed today that the 50-day MA has broken back below the 200-day MA late last week (see the second red arrow). Going forward it will be telling to watch and see if the price can bounce back and go back up through the 200-day MA line again, in which case we can relax. Or it might go back and touch it, then bounce off it for another sell signal. If that happens, the Pound might drop significantly from these levels again.

Wednesday 10 February 2010

Phew. Glad to have booked that long fixed mortgage yesterday!

Telegraph: Mortgage rates to rise as Mervyn King rules out liquidity scheme extension

From January 2011, if not before since mortgage lenders are not stupid, mortgages will get more expensive due to the closing of the Bank of England's Special Liquidity Scheme, and the already-yawning £300billion chasm between demand and supply for wholesale credit over the coming years. This doesn't come across to me as a good thing for the property market. Long-dated house price index put options might be worth adding to ye olde watchlist.

Mervyn is busy today, also implying openly that the Quantitative Easing program is currently only suspended, not closed, and is actually likely to be resumed. I still keep my neck out and say within 6 months they warm the printing presses up again for another workout. Anything to keep the government able to sell all those Gilts they need to issue in coming years, even if the BoE is still just about the only buyer...

Tuesday 9 February 2010

Surprise, surprise. Devaluing the Pound didn't help.

Supposedly, the devaluation of the Pound was going to help our economy by boosting exports. We consumers in the UK would buy less stuff from abroad, and the consumers abroad would buy stuff from us instead.

This plan works in theory, looking backwards to when Britain was a manufacturing powerhouse, but all along I have said I couldn't see this working this time around, since we don't make much any more. We just sell each other houses, haircuts, do each others nails -- and sell global investors complex financial instruments, which those investors now see as toxic and no longer wish to buy. To make matters worse, the whole world is in economic trouble so even if we did still make great stuff that people really wanted, nobody is in a position to buy it all anyway.

Today the good old BBC have an article stating this indeed has proven to be the case -- the trade deficit has widened, not narrowed.

All that we have to show for this devaluation of our currency, through Quantitative Easing that our benevolent government have mandated, is that everything now costs us more to buy on world markets. Nice going, bozos! This is why you will notice that discretionary goods (things you don't HAVE to buy, like a sofa or a new bath or kitchen cupboards, etc) are down in price, but staple goods (things you DO, like food and energy) have not. This diverging trend is set to continue and become more marked in my opinion. Buy consumer staples on dips, sell consumer discretionary on rallies.

Most importantly, sell the Pound. Thats what Gordon Brown wants to do.

Royal Bank of Facebook?

Noticed that Facebook platform supports "virtual wallet" functionality, where you can buy Facebook Credits with "real money", and then you can spend those credits online within Facebook applications. I'm presuming there are hooks in the API so that 3rd party application developers (as well as Facebook themselves) will be able to leverage this facility to get payments from your wallet (presumably Facebook will get a transaction fee for processing it).

How long will it be before we see an ecosystem of pay-for services through FB? Being able to send credits to a Friend's wallet when you want to, etc? Buy them flowers, chocolates, pizzas or whatever -- real ones that actually turn up, not just ones that they see on their screen?

How long then before you can get a Facebook Visa debit card in your wallet, so you can use your Facebook Credits anywhere? Maybe use them in other banks ATMs to withdraw cash?

Interesting development...

The UK must not be STUPID

"The PIGS (Portugal, Italy, Greece and Spain) are old hat. The new acronym on trading floors for possible dominoes if Greece should fall is STUPID (Spain, Turkey, UK, Portugal, Italy, Dubai)."


I ponder this momentarily and decide that if even the Greek government is now paying over 6% interest on its debt issues, as a result of diminished confidence in their economy, then what kind of rate must Greek citizens be having to agree to if they try to take out a mortgage deal right now? It just doesn't bear thinking about.

I look inwardly to my own situation, I see myself in the UK, a country that is approaching the crosshairs of the speculators' rifles, and I see myself having no choice but to keep up paying the mortgage on my home for the foreseeable future.

I finally was able to call the nice people at Santander (Abbey) yesterday to see what kind of deals they have to offer me currently, as my fixed rate finishes in a few months. Among the items on the menu they had 2 years fixed for 3.89%, and 5 years fixed for 4.99% (there are also 2 and 3 year Trackers at 2.19% over the BoE base rate and 2.09% over BoE base, respectively). Both of the fixed rate deals have a £125 booking fee applicable, which seems very reasonable (the Trackers have £624 booking fees). I was very surprised that there is an offer of 5 years under 5%.

This morning, after mulling over the options, and considering the potential outlook for rates going forward, I think I am going to opt for the security of 5 years fixed. It would be nice to have a couple hundred quid a month less to pay by going on the cheapest-today Tracker, but frankly the last thing I could cope with is rates going up massively. It's not worth the risk and the sleepless nights that would ensue. What price can you put on 5 years of sleep?

Monday 8 February 2010

Gordon Brown telling the Greeks to get tough on the public sector? WTF?

The man who upholds that he was (and still is) right to spend spend spend, who has over the last decade inexorably grown the UK public debt to intolerable and now approaching bankrupting levels, who has steadily expanded the public sector beyond sustainability, and continues to avoid making the necessary cuts that will avoid a sovereign debt crisis in the UK... this man is going to join with other European leaders in a Greece-bashing ceremony, where he will join in the chant that the Greek government should take a big, fat red pen to their public sector budgets, in order to avoid looming fiscal disaster?

Talk about the pot calling the kettle black! :-\

Click image to see an
even bigger wazzock

Friday 5 February 2010

Blant of a similarly half-employed self-employed person

I just came across this blog rant ("blant") written by someone such as myself who is not currently "unemployed" but who is partially-employed. I empathised very much with her. I thought you would find her story interesting, because one day it could be you. (No, I didn't think it would be me either, and I don't suppose she ever thought it would be her.)

She signs on at the Job Centre Plus every week, because she is only currently able to find employment for less than 16 hours per week. She does not receive any benefits from signing on, but this post tells the tale of how the bureaucracy of the welfare state obstructs her even so much as taking a few days of holiday with her family to briefly escape the grim reality of her everyday life.

I suspect, like myself, she has contributed massively to the coffers of the welfare state over the years of being gainfully employed, probably a lot more than she realised. In return, at her hour of need now, she finds that she does not qualify to receive anything back from the government, except obstructing her right to freedom.

There are many, many of us cooling our heels currently that are not part of the official unemployment statistics -- which is good, because the official statistics are already bad enough without us.

Personally, I prefer not to have anything to do with the Job Centre (or anything else to do with the government, if it can be avoided). I guess for the time being I am lucky that I do not have to go down that route.

I hope you never find yourselves unexpectedly in this situation. If you are, I hope you have prepared accordingly in advance.

Ultimate Green Tech initiative? Hey, what did you mean 'no soil to grow food soon'?!

I was musing to myself 'if CO2 is such a big problem, surely there is some way to split it to give off the O, leaving the C?' (Carbon actually being in short supply and of great use. Britain-facing-food-crisis-as-worlds-soil-vanishes-in-60-years.html)

After a very quick trawl I came across this article. This was the closest I found to getting 2xO and 1xC in the five minutes I devoted to it: 1xO and 1xCO, carbon monoxide.

First thought: "hmmm... carbon monoxide eh... that's not so great!". But hold on there, because actually CO is useful and can be readily made into fuel products. You can run power stations, cars, trucks, trains and planes on stuff made out of carbon monoxide. Wow! Not only could this process help with getting rid of CO2, it can help deal with Peak Oil too.

So these guys have a product in their labs that can use solar energy to convert CO2 into oxygen and the necessary feedstock to create synthetic energy products. Surely this is the ultimate Green Tech product in the making?? Something that uses the sun's power to get rid of greenhouse gas carbon dioxide, give us much-needed oxygen and a source for alternative energy to help reduce dependence on oil/gas.

Why wasn't this all over the media? That article was out almost 2 years ago now. Why isn't this product being heavily invested in and by now rolled out on a massive scale to fix the (claimed) climate change issue cause by (supposedly) carbon dioxide? You think that maybe the people who will make a lot of money out of carbon trading, wouldn't make any money out of a product like this? Just call me cynical.

Senator Ron Paul, the lone voice of reason in democratic government

He told his colleagues all along what was going to happen, way ahead of time. Nobody wanted to listen, and then it all happened. Still they won't listen.

He's talking to you. Are you listening?

An example of union idiocy

Firstly, do the Unite union leaders not think that their members going on strike to demand improved pay and conditions is not "bullying and harassment"? At least the non-union staff members are expressing their alternative version of "bullying and harassment" in private, on a graffiti wall in their own offices -- not in front of all of the nation's media and at the expense of the travelling public. Where do these people get off with this ridiculous claim of injustice?? I presume the people who disagree with the union's point of view should sit down and shut up? I wish I had access to that graffiti wall, I can tell you!

Secondly, can the union leadership not easily recognise that any company its members work for, while reporting a £50M loss for the year and operating within a sector of business that is crippled globally with players falling like dominos all over the world, demonstrably cannot afford to give its staff better pay and benefits just now? Especially when those staff already enjoy the best pay and benefits in comparison to staff at all of the company's competitors.


I am on record forecasting QE will resume in the next few months

In this article Edmund Conway may not come right out and say that Quantitative Easing will be resumed, he appears to be implying that he thinks it is likely, as do I. I would guess within 6 months at this point. Let's see.

Thursday 4 February 2010

Greece: Countdown to necessary IMF bailout commences...

The Greek government gets the message and makes a half-hearted start on doing the necessary. The Greek voters, meanwhile, express that they have other ideas.

You think the bond markets will look on this spectacle with a complacent sigh and a smile for the Greeks, while they go back to merrily buying up Greek debt? No, me neither. I check the runes in my forecasting bag of tricks, and I see the euro is off 0.81% (and rising) against the dollar so far today, in spite of a story that Moodys are raising the idea of a US government debt downgrade again today. Yep, I'd say that wasn't good for the Greeks, or Europe as a whole.

Meanwhile, Portugal also find itself under the microscope today. Spain is also starting to get a mention.

The UK is also moving in from the edge of the bond trader radar methinks. Let's hope it stays messier elsewhere, and they let us away with it a while longer, eh? The pound is currently off against the USD by 0.75% (and rising) so far today.

Gold is also down heavily (off 3.4% in USD), mostly since the NY open at 14:00 (UK time). April 2010 1088 PUTs came in handy, deeply out of the money this morning, very much in the money this afternoon. Every little helps.

Another interesting day.

Mortgage rates: danger dead ahead?

A couple weeks ago I was musing interest rates can only go up and the SVR seems like the worst place to be, if you have a choice.

Today the Telegraph are saying pretty much the same thing.

I do acknowledge that there is currently some competition among the banks to set reasonable fixed rate levels, over 2 years in particular, and that as a result of this it is possible the rates you can get might just go a little lower from here in the short term. Over the medium term, I am confident that both the BoE base rate will increase, and also that banks will start to increase their margin spread over the base rate for their offerings.

VERY glad to be coming off my last fixed rate deal shortly, now closing in on the point where I can painlessly negotiate a new (lower - nice!) fixed rate over two years with the Abbey. Nothing like a bit of certainty for a while to help you sleep at night i reckon. I won't be too surprised to see in a year's time the BoE base rate is pushing 3%, in which case anything with "3." at the start of it now will look like a steal... (Or there is another financial crisis by then and rates go down to 0%, who knows!)

Tuesday 2 February 2010

If I know Gordon Brown, this article tells me more Quantitative Easing is coming. £300B+ of it.

The UK banking system is set to be £300 Billion pounds short of funds to cover the amount of mortgage demand between now and 2014. This doesn't sound like a factor that is going to help support the housing market to me...

As I say, it won't be politically expedient for Gordon for there to be Credit Crunch 2. So I would say we can rely on him to lean on the Bank of England to print up another £300B or so to paper over this little problem. Why not? We printed up £200B last year and things are still working OK aren't they? What's another £300B...

These days a Billion doesn't sound like a lot does it? So, brother can I borrow a Billion from you? No? Oh well, worth a try.

Mirror, mirror, on the wall. Where is the most expensive country to live in all the world?

Australia. Justaboutanytown, Australia.

Nice to see my home town (Bournemouth, UK) is the 6th most expensive city in the world. (This is in terms of housing affordability against local earning power.)

London, the only other UK city in the top 20, ranks 14th.

The most expensive city on earth in these terms is Vancouver, Canada (BC).

The cheapest country on earth to live in you ask? Manytowns, USA.

This is all according to data compiled and analysed by Mish.

Kondratieff Winter: an update from the source

Today the Long Wave folks have a new article up, giving their forecast for 2010 in the context of their assessment we are firmly in the economic Winter of the Kondratieff cycle.

It's interesting, if a little dark, reading. I'd say it was better to know how bad things might be about to get, perhaps you can prepare and avoid the worst effects - just in case it's correct.


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