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Archive for November, 2007

A new liquidity crisis looming. Could a declining USD spark a currency crisis? (update 1)

Posted by Adrian on November 30, 2007

As discussed on morbius glass with The decline of the USD. Will Saudi Arabia unpeg their Riyal (SAR) currency from the USD?, A new liquidity crisis looming. Could a declining USD spark a currency crisis? and Federal Reserve cuts 25 basis points, dropping the US interest rate to 4.50% – October 2007. I discussed the worrying problem of a declining USD. The Federal Reserve has indicated, courtesy of Paulson and Bernanke, that there is most likely a Fed cut coming in December 2007 that will exasperate the eventual collapse of the USD.

Gary Dorsch a contributor to the website Financial Sense. Has written a clear and objective piece of the extremely worrying aspect of the coming Fed rate cut decision and the fact that Iran and Venezuela hold so much more leverage (oil) than Washington would like to believe. Also the threat of Middle Eastern countries un-pegging their currencies from the USD and dumping the USD as a currency to trade with.

Posted in Finance and Economics. Strategy and Society | 2 Comments »

Overview of X-Men: Messiah Complex #1 (Marvel Comics). Writer Ed Brubaker Art Marc Silvestri

Posted by Adrian on November 29, 2007

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X-Men: Messiah Complex #1 (Marvel Comics)

This is a bad comic, badly written and constructed. The art is sub standard. But it’s the story that is the real let down. Just when I thought Marvel: (Chart) had lifted it’s game in some of it’s publications; the company seems preoccupied with creating ‘event’ comics. Like the Civil War run, which could have caused more of a ruckus then it did, to the World War Hulk which was actually quite good. But Messiah Complex fails in every way, what could be a interesting and creative story turns out to be quite flat, nonsensical and pointless. Not to mention Marvels marketing department idea to create a one shot comic (Messiah Complex #1) which forces the reader to split the story up by reading a dozen or so other comics where the story continues. Bad idea. In other words you are then ‘obliged’ to look into other publications (if you want to find out what happens next), the hope is you might like one (of many) hence you start collecting that publication. From the bio page for Messiah Complex #1, The story that begins here continues through all the X-Men books. Don’t miss it!” .

All at the comprise of a decent story.

The story? Well mutants (remember the movies?) are dying off, a gene that makes one a mutant has been turned off, not to mention religious crazies called the Purifiers are taking out as many mutants as they can, in steps The X-men and another splinter group called the Marauders (who are mutants, but bad ones) – all the groups are looking for the one child that has been born with the mutant gene, despite the odds. Solid base for a story, but made a mess of it by the writer Ed Brubaker. Probably not so much his fault, just the broken up contiguity of the story, by splitting the story up into different comics could be the reason.

Don’t waste your money.

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Dow Jones up 331 points on speculation of a Fed rate cut.

Posted by Adrian on November 29, 2007

The Federal Reserve may cut rates, which will only add some more life into a erratic and panic orientated market. Fed rate cuts at this point in time only serve to create short term rises with just as many major drops in all the main indices.

The possible Fed cut on December 11th will stimulate nothing (apart from short term stock market rises refer to DJIA chart) as the credit markets will continue to tighten and contract, so the consumer is going to be in no position to reinvigorate an already recessionary US economy.

The collapsing housing market in America is far from over, in fact home sales continue to plummet as property values decline – with less buyers coming into the market.

“The light at the end of the housing meltdown tunnel appears to be an oncoming train,’ Joel Naroff, an economist with Naroff Economic Advisors, said in response to the new figures. ‘With so many choices and so few buyers, the median price is cratering.'”

Check out a pretty cool article written in Fortune “Beware our shadow banking system”, quote from article, “These investments thrived as the shadow worked its voodoo; now its curse will sap money from the pockets of any and all who believed in its black magic.” (in regards to debt investments from the subprime mortgage meltdown)

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Forecasts and Risk assessments. Can we predict the future?

Posted by Adrian on November 28, 2007

Over the last year some of the biggest losses in financial history have occurred within the banking sector, especially the investment banks, hedge funds and larger retail banks. As discussed on morbius glass “finance and economy strategy and society”, the majority, if not all of these losses have occurred from mortgage debt. Attributed by the massive loan defaults of the American mortgage market in the last 12 mths from 2006 through into late 2007.

The question is could this crisis in the banking sector be avoidable? I have briefly discussed this topic in ‘Wall Street risk management and judgment comprised by blindness, madness and greed’, and also ‘The complexities of Wall Street and the simplicity of the boom bust cycle’; the easiest answer to give, in respect to the huge errors, overestimations and over enthusiasm, especially in rating investment debt, selling various SIV’s (Structured Investment Vehicle’s) from the mortgage market, was greed. It would seem that greed blinded everyone involved in the packaging of investment vehicle’s like CDO’s (Collateralized Debt Obligations). The greed that occurred, seemed to be an arrogant optimism of ‘boom’ economics, a convenient mental removal of boom bust cycles, in which risk management went out the door, literally. Replaced by a bizarre mix of blind optimism, arrogance and a detachment from reality. But, if that was the case, and the human flaws were somewhat calculated into a mathematical formula, from a risk management team – why didn’t the computer mathematical models pick up what humans may conveniently have overlooked?

In my opinion it would appear that there was too much reliance on a streamlined computer models to gauge the markets, in other words the technicality of the financial markets became supreme as far as risk evaluation. From computerworlduk.com “Greed, analytics and the mortgage lending crisis”:

“If you had to pinpoint one area where analytics really was a factor, it would be the rating agencies” that rated mortgage-backed securities, says Beardsell (Mike Beardsell, director of risk model analytics at Loan Performance). These “innovative” mortgage products presented a challenge. The agencies’ statistical models, which relied on historical records of how traditional mortgage loans performed, had to be adjusted. But “the market was changing faster than the models could keep up,” argues Beardsell. And the users of those models made a fatal assumption “

Technical analysis is extremely helpful tool, but it still relies on your own judgment and assessment outside from a mathematical formula. For stocks, FX, option and other derivative trading, 50 day and 100 day averages, overbought and under bought signals play an important role, more particularly the CCI type gauges. But all technical gauges and analysis can show a limited, non emotional and at times subjective indicator of the markets. Subjective in the sense, you can by human intervention overly manipulate technical signals. I have seen this in FX trading and Option trading, more particularly I have seen time frame shifts (on trading platforms) from 1 min to 15 mins to one day, on a broad perspective this can make a trading platform look different to other trading platforms trading the same derivatives, at the same time with the same risk. This can cause a messy overestimation of markets, especially when one can pick and choose the ‘platform’, as traders do jump from time frames to gauge the markets. This is a risk and in someways they are trying to conceptualize their own perspective, which is possibly clouding good objective judgment. This is from a traders perspective, but what of the Subprime mortgage defaults. Why was risk so broadly overlooked from their analytical programs and platforms? From: computerworlduk.com “Greed, analytics and the mortgage lending crisis“:

“In the subprime market, many borrowers could not afford the payments on adjustable rate loans two or three years later, once the low teaser rates expired. The reset rates on those loans created large rises in monthly payments, and some borrowers are now seeing their monthly payments increase by $1,000 or more. Lenders were fully aware that borrowers could not afford those payments. But in a booming housing market where values were increasing at double-digit rates, lenders just assumed that borrowers would always have more than enough equity to refinance later.”

“The value was determined by statistical models. And those models assumed that home values would continue to rise. In fact, such an assumption was critical to the marketing of the structured securities based on those mortgages. “The economics of the securitisation would be negatively impacted by a zero growth assumption,” Beardsell says, never mind a negative one.”

My point is, statistical models and graphs can show you what you want to see, thus deceptively convincing one that the process is correct. This was caused by a blinding greed factor which tuned off natural risk assessment in a person. If there wasn’t such a mad race for profits, the natural risk assessment in a person would in turn reevaluate the data. This didn’t happen.
So, it appears the computer models did get it wrong and in some ways have increased the likelihood of a wider economic crash, from “The anatomy of a crash: What Market upheaval of 1987 say about today”:

“Markets are different now. Average daily volumes on the New York Stock Exchange alone have increased tenfold since 1987, the venues on which stocks can be traded have proliferated and the speed of trading is unimaginably faster. The range of hedging opportunities using derivatives is much larger than it was.

The view from the floor is that the improvements in technology will not prevent crashes. “But it will help them happen that much faster,” says Mr Cashin, the veteran broker.

Andrew Lo, an economist at the Massachusetts Institute of Technology, argues that these developments have also made crashes more likely. “We have a much more well-integrated and well-connected set of financial markets. Disruption in one market can very easily spill over into other financial markets.”

He draws comparisons with recent events, which saw a number of quantitatively managed hedge funds – which use complex mathematical algorithms to trade swiftly among different stocks and asset classes – suffer huge losses in August amid the fall-out from the credit crisis. Portfolio insurance, Mr Lo suggests, was “a microcosm of what we see today, writ large”.

But what if it is impossible to predict anything, let alone predicting the rise and fall of financial markets. According to Nassim Nicholas Taleb, the author of The Black Swan: The Impact of the Highly Improbable. You can’t predict the world, or the changes that occur in it. It is a pure random set of errors and luck, and how one applies their luck when presented with opportunity. I have not read The Black Swan, but I have visited his website and I have read many articles about his philosophy. Which I believe holds some merit, but unfortunately does not convince me that we live in complete uncertainty, to the point that risk analysis is, according to Taleb “charlatans” who think they can map the future.”

I believe as I suspect Taleb does, that people generally are unprepared for a crisis, possible relying on too much ‘order’, or a comfortably believing that an inflexible strategy is the right path. But never the less, learning from history and anticipation of events is what human beings are good at; but unfortunately any intuition or a learned ‘gut instinct’ (from life experience) has been removed at an early age of a child’s development and replaced by a belief structure, or power structure of authority and ‘their’ analysis and forecasts. Which every human is capable of doing, if taught and encouraged – which in turn is likely to give rise to strong independent thought and decision making. So in that sense we would not rely on an analyst that works at Merill Lynch. In fact we would probably dispute it and re-analyze his or her data, and look at it with a degree of skepticism, due to the fact the analyst is working for an investment bank, and he/she works with the banks interest coming first.

The fact is when risk is presented and put on the table, one should anticipate how that is going to effect them. In a sense forecast that risk, or the problems associated with it. According to Taleb no one could anticipate September 11 2001 terrorist attacks on the World Trade Center in NYC, I agree to a point. But, one could assume that attack was going to occur eventually. In fact I remember the day it happened and a family member said at the time, ‘I am not surprised’. With growing provocative policies from neo conservatives in the West, mixed with a reemerging of Islamic fundamentalism, something was going to give – when it was going to occur was the ‘guess’. Although it could be argued the arrogance of ‘it can’t happen’ here mentally , created a lapse of real threat analysis of potential attacks on US soil. Also a bad habit of short memories occurred too when the World Trade Center was targeted once before in 1993 by an Islamic terrorist group, quote from BBC ‘on this day article’,

A suspected car bomb has exploded underneath the World Trade Center in New York killing at least five people and injuring scores more.The bombing has shocked America which had seemed immune from acts of terrorism that have plagued other parts of the world.”

Maybe the ‘guess’ or ‘assumption’ of a another pending attack could have been narrowed to specifics, due to the fact the building was targeted again with the devastating September 11 2001 attacks.

But as a review of The Black Swan (in the Telegraph.co.uk) indicates, Taleb refers to events like September 11, and my relative who saw it coming (on a broad perspective) as a Black Swan event in which the human mind then normalizes the events,

“The trouble is, we can’t cope with these Black Swans, and so we normalise them in our minds. When something bizarre happens, we tell ourselves, retrospectively, that it was bound to happen. We just didn’t see it coming. And then we brace ourselves in case it happens again. But then something else happens, again completely out of the blue. Taleb says: ‘the sources of Black Swans today have multiplied beyond measurability. In the primitive environment they were limited to newly encountered wild animals, new enemies, and abrupt weather changes.’

The problem with that assertion, in context to the September 11 WTC attacks, is that the event did happen before in 1993 albeit a smaller event, but nevertheless a possible precursor or indicator to a larger attack (it happened again in 2001). Could the event of 1993 WTC attacks have been memorised, or at least registered in my relatives brain. So he drew a correlation to the bigger, far more destructive event of 2001 attack. In which constituted to his ‘lack of surprise’?

I am more inclined to believe in the recursion theory, or Chonesthesia (Mental Time Travel). A relatively new theory based in psychology, in which our mind records data from the past to project possible futures. As our minds are constantly returning to the past to see what outcomes could be made in future events. According to Endel Tulving, PhD from apg.org “What makes mental time travel possible?” “…allows people to update information critical to surviving, thriving and dealing with changes in their world.”

The recursion aspect of the Chonestheisa theory is the repetitive mental visits of past events to project a future outcome. I remember once when I was younger and I was going to start at a new school, the night before starting at the new school I dreamt of the school, the kids, the teachers and how I thought the first day was going to be like – as I was nervous the night before and according to the chronesthesia theory, the human mind collects past events and tries to formulate a future scenario. This is needed, according to the theory, so that you can prepare for situations that may lie in front of you in the future event.

From apa.org “What makes mental time travel possible”?

“You don’t need mental time travel to remember a chemical formula or your mother’s maiden name,” he explained. “You can know a lot of things without mental time travel, but you can’t remember events from your past, or anticipate your future, without it.”

Tulving went on to explain how and why humans have adapted chronesthesia–a learned capability absent in other animals and human infants–to advance their survival. And he urged other psychologists to help build a research base on its workings.”

An interesting theory and one worth looking into further in regards to cognitive and theory of the mind studies. I’ve always remembered that quote from Taoist teachings, “know before knowing” and the classic Sun Tzu Art of War quote, “Know your self, and don’t know the enemy, you win one and lose one. Know yourself and know the enemy you will win every time”.

Posted in philosophy and science | Tagged: , , , , | 4 Comments »

World Crisis scenarios for the 21st century – Worldwide economic depression. (update 8)

Posted by Adrian on November 22, 2007

World Crisis scenarios for the 21st century – Worldwide economic depression (update 8 )

Is there a perfect storm brewing in the financial markets? America’s subprime and general mortgage market is continuing to collapse in a severe and widespread manner. In fact, the housing collapse in the US has been called the worst since the Great Depression. The liquidity and credit crunch is sending precursor shock waves thought out the markets, effecting currency exchange rates, stocks and testing the reliability of the major banking institutions in disclosing their exposure of major losses and write downs. The Dow Jones continues to edge lower as it appears the bull market is over. What ever slight jolts of upward euphoria occur, they are going to be less and less. Refer to Dow Jones graph (6 months, including the 211 point drop Nov 21st 2007):

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But this will not just be a contained single country financial problem, with global and interconnected money markets, this is going to be a ““generalized systemic financial meltdown.” as Professor Nouriel Roubini has indicated.

All countries will be effected by financial shudders in the global credit markets, with most industrialized countries and their citizens carrying huge personal debts, inflated housing markets and rising inflation on food and oil – general living costs. From Europe through to Asia. Most notable countries (in the EU) that appear vulnerable to credit crunches are Spain and Ireland. Regarding the Irish property markets, from moneyweek.com

The trouble is, just as Ireland’s consumers are stuffed full of debt and vulnerable to any waver in interest rates, Germany is recovering. And now the ECB is raising rates – which suits the consumer in Berlin, but is an utter nightmare for Dublin’s amateur property moguls.”

And, as a small open economy especially vulnerable to external developments, everything from a weakening dollar to higher interest rates – both of which seems very likely indeed – could act as a trigger for a drop, says Dr. Alan Ahearne, an economist at the National University of Galway.

“If we get a 25% drop in house prices over two to three years and a big contraction in [construction] at the same time… there’s no doubt that that would put the Irish economy into recession. And if our export sector is hit at the same time by a falling dollar then you’re getting a perfect storm of negative shocks, and then there could be quite serious trouble.”

So with the US federal Reserve paranoid of a recession, which would appear now is inevitable. The rate cutting policy will stay in place, only to signify the destruction of the US dollar, which in turn will cause major instability in all the currency markets – as globally the value of currencies, even the high yield currencies such as the EUR and CAD, NZD and AUD have shown volatility and risk from the problematic credit markets. Currently there is no real ‘flight to quality’ in currency markets as far as yields. As ‘carry traders’ have shunned risk in even the higher yield currencies. So all currencies are looking unstable.

The other major worry is the rising oil price, with Oil about to reach $100.00 this could be the final blow to the already vulnerable financial global markets. A high oil price will hamper and effect economic growth expansion and productivity, even if consumers adjust to higher oil costs, business won’t, they will pass on costs and decrease expansion (staff).

Posted in Finance and Economics. Strategy and Society | 3 Comments »

Cat Power – Chan Marshall. He War clip

Posted by Adrian on November 20, 2007

I like Chan Marshall, I like this clip too.  I hope she has recovered from her problems with alcohol and depression.

Posted in Popular Culture/Culture | Leave a Comment »

World Crisis scenarios for the 21st century – Bird Flu (H5N1) and other pandemic Virus concerns (update 3)

Posted by Adrian on November 20, 2007

World Crisis scenarios for the 21st century – Bird Flu (H5N1) and other pandemic Virus concerns – (update 3)

David Nabarro of UN, video interview. ‘World should prepare for bird flu pandemic’. From Bloomberg video (go to video/audio link)

Posted in Finance and Economics. Strategy and Society | 1 Comment »

The US Fed will need to tighten, improve dollar value, or send the world into a currency crisis.

Posted by Adrian on November 19, 2007

With the American economy going into a recessionary down-slide. The Federal Reserve has cut interest rates and will continue to do so, which has caused the plummeting value of the dollar. Combined with rising costs for oil and food America could also enter into a stagflation based recession – the more Ben Bernanke and Federal Reserve continue to cut rates, the more worthless the US dollar will be.

America’s antagonists are having a field day with this, with all sorts of threats, from de-pegging their currencies from the USD, selling off USD reserves and buying up EURO to replace the USD. But can you blame them? The US economy is extremely vulnerable to the point of a systematic crash of it’s currency and financial systems. The antagonists may utilises this has a good excuse to lay the boot in, but the truth is if the USD does go under and collapses – the currency markets will be in absolute confusion, to the point of a crisis. Europe has problems, big ones; a huge housing bubble, inflation and the resonating credit crunch that has caused massive write downs and losses in their banking sector. Not to forget the UK economy slowing down sharply, which is causing their pound to lose value on the speculation the Bank of England will cut rates soon. So the EURO would be a bad choice. Asian currencies are also volatile, with both Singapore and China becoming/are economic bubbles.

There is talk of pegging the Saudi Arabian Riyal and other middle eastern currencies to a basket of more valued currencies, a possible yet problematic solution, by trying to judge value in basket currencies amounts. In worldwide volatile markets a risky feat and a dangerous one.

from Bloomberg:

“The dollar is in free fall, everyone should be worried about it,” Venezuelan President Hugo Chavez said yesterday. “The fall of the dollar is not the fall of the dollar, it’s the fall of the American empire.”

`Worthless’

Saudi Arabia, the world’s largest oil exporter, doesn’t want the U.S. currency to “collapse,” and won’t consider the proposal, Foreign Minister Prince Saud Al-Faisal said at a meeting of oil and finance ministers that was accidentally broadcast to journalists.

“They get our oil and give us a worthless piece of paper,” said Iranian President Mahmoud Ahmadinejad yesterday. “The dollar has no economic value.”

Please also refer to A new liquidity crisis looming. Could a declining USD spark a currency crisis?

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A Trillon dollar credit crunch coming soon.

Posted by Adrian on November 19, 2007

As discussed on Morbius Glass, the widening credit crunch that has drastically caused a slew of investment banks and retail banks to write down approximately 36 billion dollars of losses directly connected to the mortgage crisis in America. Which will only widen more to the $400 billion plus range. The world banking system will no doubt feel the strains and severity of the mortgage crisis in America.

According to an article from CNNMoney, the credit crunch could estimate to be a $2 trillion dollar contraction in the banking sector. As bank balance sheets shrink. By know means is the $2 trillion a final figure, write downs and direct losses from loans will continue on.

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Overview on ‘Punisher War Journal’ Marvel Comics. Writer Matt Fraction. Art Ariel Olivetti

Posted by Adrian on November 18, 2007

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Well issue #12 is the finial (drawn) issue for artist Ariel Olivetti, and he leaves #12 with his trademark art as a memento – of how you can create expression, action and emotion in comic art. All wrapped up in Olivetti’s distinct caricature style. Amazing artist, watch our for his work in other comics. (please refer to Spotlight on ‘Punisher War Journal’ Marvel Comics. Writer Matt Fraction. Art Ariel Olivetti, for more details into Olivetti’s art and Punisher: War Journal)

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Issue #12 of the Punisher: War Journal ties in with Word War Hulk mini series, which was surprisingly a good comic, very enjoyable. With both the Punisher and his geeky gunsmith Stuart Clarke arriving back to New York, only to find the large portions of the city pretty much destroyed (courtesy of the Hulk and a bunch of horrendous looking aliens), with most of New York evacuated, only a few families remain – unable to get out. So the story takes place with the Punisher helping a little girl and her family escape the war zone. Meanwhile a four armed bug looking alien with his crew aim to stop the Punisher, kill the family and eat the little girl.

The action sequences are as usual handled extremely well by Olivetti, Matt Fraction keeps his momentum with the story, with the dead pan humour that he has written into the Punisher War Journal run. So there is a tongue and cheek feel to the story; even though the subject matter at times is serious.

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So far Fraction has been consistent with The Punisher: War Journal run, although I would like to see some risks taken with the direction of the stories. Of course Fraction doesn’t need to give it an Garth Ennis style (gritty) as such, and Ennis has his own Punisher run going. But I do think an extension of the stories are warranted, Fraction can now really build his style into something unique with the Punisher. Otherwise it will come across too light and lose some of it’s appeal. Which would be a shame, as the Punisher is a great character that can still be worked upon and given some new direction.

Issue13 has a new artist by the name Scott Wegener, he does a great job, definitely not in Olivetti’s style, but nevertheless handles the job well. The story has Fraction’s nice mix of humour and adult themes (adult themes? Jeez sounds like TV ratings…), and return of the Rhino and Kraven the Hunter with a cameo appearance of Spiderman. Again, I hope Fraction doesn’t get too lost in dragging out old B and C grade villains and heroes. I would still like to see some deeper stories and themes played out in the Punisher: War Journal.

Anyway it’s a shame to see Olivetti go, but Scott Wegener is a fresh face and he will suit the Punisher: War Journal run well. Check it out #12 #13 of the Punisher: War Journal, good stuff!punisher-war-journal-13-preview-20071109045518623.jpg

Posted in Books, Comic Reviews | 1 Comment »