The sadness of Italy.

I will be taking a break with morbius glass blog postings filed under Finance and Economics. Strategy and Society. Blog updates will begin early next year. It has been, to say the least, and incredible year for the world financial markets. The housing turmoil in America, worldwide liquidity/credit problems and declining and slowing (in some case rapidly) economies through out the world. Overshadowed also by high inflation.

There is no intention for a depressive outlook, but as a trader I want to be informed about the world markets. As a person, I want to be aware of the social/economic problems and it’s implications on our society.

I will conclude morbius glass Finance and Economics. Strategy and Society for 2007 with a sad reminder of what happens when a country is on the verge of a financial collapse, or a social/economic depressed situation within that society. The country is Italy. Which was followed briefly in some of my blog posting throughout 2007, but only regarding Italy’s low birth rates and lagging GDP.

Italy was one the lagging countries in the European economic boom. It’s has suffered high inflation and competition from China with manufacturing, furniture, clothing. Bloomberg Dec 17 2007

“Dec. 17 (Bloomberg) — Dressed in his best Sunday suit, Fausto Cepponi took his wife and seven-year-old son out for dinner — at a soup kitchen.

“I never thought I would be in this position,” said Cepponi, 45, a security guard, dining in an 800-seat charity cafeteria near Rome’s main train station. “I have a job, I had a car, but everything has become so expensive and what I earn just isn’t enough. I panic every third week of the month.”

Also very good article in the New York Times. In a Funk, Italy Sings an Aria of Disappointment

Have a good break, be safe enjoy time with family and friends. Watch the markets very carefully, be careful and good luck into 2008.

The morbius glass schlock, horror, 80’s, grindhouse, sex and violence movie marathon. Asian GrindHouse, Japanese Chambara – Lady Snowblood.

Grindhouse. You know, I think Quentin Tarantino did take a gamble with his and Robert Rodriguez‘s collaborated homage to the 1970’s Grindhouse movie industry. Who would get it? I mean really who remembers Grindhouse cinema? It was an obscure definition, which only movie historians and fans really understanding the term and history of 1960’s and 1970’s cinema. Even if you were born in the 70’s, say a gen X’er; most if not all Grindhouse 1970’s movies ended up on video in the 1980’s. So the term Grindhouse never really existed in the late 70’s and especially the 1980’s when kids at school would pass around a VHS copy of Isa, She Devil of the SS – the term Grindhouse was never talked about.

Which is why I believe Tarantino’s and Rodriguez’s movie Grindhouse was a flop at the box office. No one got it, as far as a homage to Grindhouse cinema, hence the movies Death Proof and Planet Terror now being released separately under their film names, rather under the original ‘Grindhouse’ release.

Anyway, Grindhouse cinema also had an Asian component by the name of Chambara Films, namely samurai exploitation movies that came out of Japan in the 1970’s. The most popular one was Lone Wolf and Cub. These Chambara films emerged out of the late 1970’s into the early 1980’s. Mostly samurai based but with modern tweaks to the story, and blood and decapitation scenes that still haven’t been topped by today’s standards. I mean, full body decapitations with the special effects guys running a hose (of course you don’t see this) through the decapitated half and allowing a watery spray of blood to flood out – which would in some scenes last a good 10 seconds. All most comical to look at on film, but never the less the blood letting scenes became a trademark of modern samurai movies

One of the coolest and fun Chambara Grindhouse Samurai flicks was Lady Snowblood with Meiko Kaji who became Japan’s leading actress in Japaneses Samurai exploitation flicks. Quentin Tarantino got a good bulk of his ideas for Kill Bill from the Lady Snowblood series. A basic revenge story, parents killed, child orphaned then trained by a samurai master; in which she becomes and inconspicuous komodo wearing killing machine. A lot of violence, a lot of action, decapitations and those hose like blood sprays. I like Lone Wolf and Cub, but Lady Snowblood is great series and interesting perspective into the 1970’s Japanese exploitation film industry at the time. Check out Lady Snowblood 1, and look for the animation insert middle part of the movie (not in the youtube trailer), Tarantino also took that idea of inserting basic animation into the Kill Bill storyline.

Lady Snowblood 1 Trailer: Blizzard From The Netherworld

Kill Bill animation (inserted into a scene for background narration on one of the main characters).

and for the hell of it, the Gogo and the Black Mamba fight (Kill Bill). Yeah I know which one you wanted to win…

Morbius Glass Forecasts for 2008 (economic)

When I compiled the World Crisis scenarios for the 21st century. It was done with with gathering evidence for potential risks that the human race face in the 21 st century. The recognized risks are Global Warming, Bird Flu, Nuclear War/conflict or tensions, economic problems globally. In late 2006 the first morbius glass forecast was posted filed under Forecasts for 2007, the main aspect for that forecast was the economic news from the US at the time. Which was the falling housing market (subprime mortgages), I called the recession in the US mid 2007, it could be argued that the US went into a growth recession mid 2007, as growth was negligible or even at times negative to GDP in the last quarters of 2007. Suffice to say what was not anticipated was the severity of the wide spread global credit crunch and a far reaching and alarming liquidity crisis between financial institutions which has the potential for a complete freeze of liquid money markets. However I did follow the credit/liquidity and US housing crisis though out 2007, filed under Finance and Economics/ Strategy and Society. I overestimated Europe and assumed that their policy of monetary tightening would slow down inflationary pressures, in which both the European Central Bank and Bank of England has allowed inflation to become a runaway train. With massively overinflated housing markets in Spain and Ireland the indicators are pointing to an economically dangerous tipping point for the Euro zone economy. With the UK now in a housing based recessionary down slide, not unlike the US. So for 2008 morbius glass forecasts they will all be predominantly economic based, I personally believe we are entering into a serious and problematic year economically for the world. This will also be followed in the World Crisis Scenarios for the 21st century – updates.

• Overinflated housing markets such as Spain and Ireland will collapse, this will also cause their stock-markets to also decline sharply. Refinancing and injections of liquidity will be negligent as local banks have contracted balance sheets, unable to look for liquidity themselves. Loans and money used to for development and expansion will become nonexistent.

• The UK will go into a severe recession similar to the US, lead by the housing market and subprime borrowers. Higher inflation will also effect the consumer, a possible UK bank may become insolvent, similar to Northern Rock but without a bail out fund. The Bank of England will continue cutting rates to spur the economy, this will only compound inflation.

• Inflation worldwide will be a major issue for the world economies, with developing economies paying more for fuel, food and amenities. Prices will decline in all asset markets (throughout 2008 ) more notably in the property markets, this will lead to a massive glut in housing in most developed world markets. Affordability problems will shift from assets such as housing (it will decline) to basic consumer amenities such as food (food costs will rise dramatically). Spurred on from the drought conditions in the Northern and Southern hemispheres. Wheat, milk and crop foods will become a scarce commodity. Unfortunately this will lead to new food (most needed) shortages in Africa and even the middle east.

• Oil will reach $120.00+ for a barrel of oil, the $100.00 dollar market will be the mark that traders will trade from, no longer slipping under $100.00. Peak Oil theory may hold greater validity as oil will become too expensive to draw from the ground causing the oil price too skyrocket in 2008. This will effect everything from industry and to the consumer, this could lead to inter border conflicts in oil regions

• The biofuel industry will collapse in 2008, due to the expense of running the industry. Corn and other plantation biofuels will cease to be profitable, governments may exercise protective tariffs to keep the prices down on crop based biofuels. With fossil fuel costs increasing and the mechanics of the bio industry still reliant on fossil oil for its operations. The costs will be enormous. No cheap renewable biofuel will be available, therefore biofules as a fossil oil alternative will be unappealing to both industry and the consumers.

• The global credit crunch will be severe and devastating as banks will contract their accounts and become at times illiquid. Possible restrictions on credit and accounts may occur, with banks trying to keep their accounts from becoming insolvent. We may see halts on credit card use, despite repayments being regular. HSBC noted in a recent disclosure statement that they could freeze any account and anytime for any reason. Will banks rewrite their ‘conditions’ to customer accounts to protect their balance sheets? The liquidity crisis will worsen despite injection of funds by the world banks. Forecloses will continue in the US, moving over to the Jumbo Loan market. Falling houses prices and huge inventory of unsold stock will see a collapsed housing market never seen in the history of America. Surpassing the Great Depression housing collapse.

• Due to interconnected global money markets, America can sneeze and the world will feel it. In the case of China, the country just needs to pause and look concerned and it will feel like a heart attack for the rest of the World. The term ‘De-coupling’ was a phrase coined by optimist economists, if the world is to shake off an American economic down-slide it could de-couple it’s self from the US and adjoin it’s self to Asia. A terribly misleading term, because de-coupling cannot exist in a global financial market as it is the current market. The world markets are still connected to the US markets and their trade markets. China will slow and contract in 2008 causing another shudder to the financial markets. Especially to countries that relied heavily on China for their exports. China will make the same error Japan made in the early 90’s with far too much liquidity . The Chinese markets will panic at some point in 2008 causing a massive sell off of equities, Chinese banks may also constrict under the liquidity crisis that is sweeping the world in 2008. A Chinese stock market crash is very possible in 2008.

• All markets will decline, with exception to commodity markets which will rise. Gold will stop it’s correction in 2007, and increase in value right throughout 2008. It may reach $1000.00 and ounce mid 2008. Wheat, other food commodities markets will also increase.

• The USD may be sold off (Asian reserves, Japan and China) and middle eastern countries may also drop the dollar peg, opting for a broader currency market. This will cause the USD to collapse and send the world into a currency crisis. No real ‘flight to quality’ currency will exists in 2008. Rumor has it some hedge funds have long bets that in 2008 the USD will no longer be pegged to the Riyal and other middle eastern currencies.

• In 2008 the world will enter into a stagflation (food, oil) based recession, in no way comparable to the 1970’s era of stagflation. We will also see rapidly declining prices in housing globally.

Spain’s contracting property market.

I have discussed the problematic Spanish property market on morbius glass (briefly) in Real estate Price Forecast (US) First Ever Decline, Spanish Property Market in dramatic decline article, although the link to the Barcelona Reporter may not be working. The sharp decline in property sales in the months of April/May 2007 caused the Spanish stock market to plunge; which was an indicator of the overinflated mortgage market in Spain. More detailed analysis of the Spanish market was looked at with the article Credit markets still vulnerable. Liquidity still and issue for the world banks. European mortgage and debt markets next to collapse after the US? Recently I discussed the severe ramifications of a global meltdown of the mortgage markets (simultaneously), this was analyzed in the article World Crisis scenarios for the 21st Century – Worldwide economic depression (update 8 ). More specifically the vulnerable European mortgage markets such as Ireland and Spain.

Bloomberg has recently posted a new article regarding Spain’s declining property market and the effect it will have on greater Europe Spain’s Sinking Property Market May Roil Europe (Update1)

Fed cuts both fed fund and discount rate 25 basis points, not the 50 basis point – market expectations

The Federal reserve cut the Fed Fund rate down 25 basis points from 4.50% to 4.25%, I expected a 50 basis point cut, on both the Fed Fund and the Discount rate. Despite the 25 basis cut from both bank rates, the Dow still plunged 294.26 points. Some may argue that this was due to the fact that the markets were expecting a bigger cut (50 basis points) especially from the discount rate (the fed lending rate to other banks, now 4.75% from 5.00%). Is this really the reason the market plunged? Or is the market in trouble regardless of rate cuts, even larger ones? I feel that the stock market is now locked into downward spiraling fear factor. The jitters and plunging stocks is due now entirely to the credit crisis, which in my in opinion is going to create a more severe credit freeze to the world markets. It could be suggested that any cuts now may do nothing, as rallies on the Dow Jones may become less and less, with larger drops expected into next year. Especially watching the first two quarters of 2008.

Banking write downs and losses continue. Which bank will eventually become insolvent?

Swiss banking giant UBS (chart) has revealed a massive write down of $10 billion dollars. These huge asset losses are connected with the subrprime mortgage market which is continuing to collapse in the US. These write downs or asset held depreciation (mortgage backed securities) have escalated towards the end of 2007, with the Q2 and Q3 next year (2008 ) promising to reveal even further losses from investment and retail banks that were connected directly, or even indirectly to the American subprime mortgage market.

The question is could these huge write downs cause any one of the big, medium investment or retail banks to become insolvent?

UBS needed emergency shots of capital amidst the losses it endured in 2007, the extra capital that was injected into the bank came from Government of Singapore investment corporation and the Oman government, the contributed amounts totaled $11.4 billion.

An obviously serious situation for a large investment bank to be in, from BBC Business:

“BBC business editor Robert Peston said that the fact UBS had felt the need to raise so much new capital was “all you need to know about the gravity of what has occurred, both for UBS and for the world financial system”.

The US housing market will continue it’s rapid deterioration throughout 2008, with mortgages resetting to higher percentages throughout the new year. This will put further strain of the mortgage backed securities that the investment banks hold, not to mention the contraction of the lending and retail banking sector, from Associated Press:

“Defaults and foreclosures have skyrocketed this year as subprime borrowers struggled with too-high payments and resetting interest rates. Bank of America Securities estimates that $361 billion in subprime loans are scheduled to reset next year (2008), and falling home prices and tighter lending standards will keep these borrowers from refinancing into more manageable loans.”

Regarding Washington Mutual Inc (lender and savings bank).

“SEATTLE (AP) – Washington Mutual Inc., the nation’s largest savings and loan, said Monday problems in the mortgage and credit markets are forcing it to close offices, slash over 3,100 jobs, and set aside far more than expected for loan losses in its fourth quarter.”

It will be a matter of time when we do hear about a bank becoming insolvent, as global contraction on money and investment takes hold next year in 2008.

The morbius glass schlock, horror, 80’s, grindhouse, sex and violence movie marathon. Dawn of The Dead (1977) George A Romero

A collection of classic b-grade, even c-grade (and lower) of movies that I grew up with. Various video nastiness from the 80’s, the grind house movies from the 70’s and some sexploitation and violencia style movies of the martial arts kind. Might throw in some late 80’s stuff too. All courtesy of youtube, so don’t expect a full 2hr run here, just trailers and excerpts

First up, Dawn of The Dead, the original George A Romero classic, 2nd in his zombie series and a damn fine piece of independent film making way back in 1977, so you got horror, suspense and even some social/political commentary (dare I say a look into consumption America). With the main scenes revolving around an abandoned shopping mall, with the blunt observation (from the non zombie characters in the film) of the mindless zombies, “What are they (the zombies) doing? Why do they come here (the mall)?” answer: “Some kind of instinct, memory of what they used to do. This was an important place in their lives.”

Not to forget Tom Savini’s makeup and gore effects, even for that time (’77, ’78), he still managed to pull off some classic ‘zombie chomping down human meat’ scenes. All and all a definitive milstone in the zombie, horror gene.

The coming US Federal Reserve rate cut. UK and Europe will follow despite rising inflation.

It is widely anticipated that the Federal Reserve will cut interest rates (now at 4.50%) by half of a percent or 50 basis points after their meeting on December 11th, it would be also expected that the discount fund rate (now at 5.00%) will also decrease by 50 basis points. This anticipated rate cut has somewhat spurred the erratic Dow Jones to rally at the mere thought of a Fed cut.

Is aggressive rate cutting going to do anything to reinvigorate the US economy? Probably not, in fact most likely not. Can it help the US economy from sliding into a severe recession? No.

The problem is the contraction in the banking sector, banks have all reevaluated their balance sheets as borrowing capital has become scarce, due to the credit crisis which has enveloped the financial world. The credit crisis that most people should be aware of now, stemmed from the US sub prime mortgage market collapse. So all the banks and lenders will be tightening their requirements to lend capital to consumers and other banks. It should also be noted that cutting rates is on the speculation that the poor consumer will reemerge with more debt, hence borrowing more funds to purchase more assets (which are falling in value anyway i.e houses). But as I just mentioned, the banks will be in a position of frugality with their lending practices and less like they were in the midst of the housing/worldwide economic boom (giving out credit). In fact fees and general costs will be past down to the consumer, this is happening all around the world. Retail banks independent of their reserve banks, are increasing fees, tightening credit lines and limiting their general exposure to ‘risk’. Again it seems like all aspects of the financial markets these days are become more disproportional, while reserve banks cut rates, retails banks will increase rates, or limit their exposure to uncertain risk markets. So any continued economic expansion on the reliance of credit is over.

But the real danger in a worldwide rate cutting policy, if to avoid a worldwide recession, is inflation. You don’t have to be an economist to see the price of living has increased at a rapid pace. This can be seen with food, fuel and service utilities. With food shortages occurring in Europe and the southern hemisphere, the costs of wheat, milk have increased dramatically. From Reuters: World face food shortages, price rises.

“The world eats more than it produces currently, and over the last five or six years that is reflected in the decline in stocks and storage levels. That cannot go on, and exhaustion of stocks will be reached soon,” he told a conference in Beijing.

Countries such as Mexico have already experienced food riots over soaring prices, von Braun added in a report released at the same meeting, held by the Consultative Group on International Agricultural Research.

“The days of falling food prices may be over,” said von Braun, lead author of the “World Food Situation” report.”

Europe is now showing it’s vulnerability to any credit crunch crisis, more particular at this point is the UK. With a good chance the Bank of England will cut rates after the 6th December 2007; the European Central Bank may do the same, or hold rates. Whatever the case the greater European Union will occur higher inflation, from FT.com Pressure intensify on Bank to cut rates:

“It faces a current problem in balancing the risks of slowing activity with those of rising inflationary pressures.

The British Retail Consortium on Wednesday said higher food prices had fuelled the highest rate of shop price inflation so far this year.”

Cutting rates is a pointless and dangerous exercise for the reserve banks of the world to consider at this point in time, falling currencies and rising costs namely food and fuel leaves no room open for expanding exports markets to thrive in (a theory of an appropriate rate cut). What should be taken into account is the depreciation of currencies and higher costs for general living expenses, not to mention the huge accumulated debt from individuals. The ever growing threat of de-pegging USD from countries that have oil ‘power’, whether countries like Iran and Venezuela have the balls to completely de-peg their currencies from the dollar and swap to a volatile Euro remains to be seen. But a massive reserve sell off of the USD from China and Japan is a very real possibility.

And if the UK does cut their rates and Europe may follow, amidst of higher inflation, then there will be no ‘quality’ currency left in the world.

World Crisis scenarios for the 21st century – Bird Flu (H5N1) and other pandemic Virus concerns (update 4)

World Crisis scenarios for the 21st century – Bird Flu (H5N1) and other pandemic Virus concerns (update 4)

“Mr Lu, died after being admitted to hospital on 27 November with severe chills and fever. It said he had no known contact with dead poultry, and no outbreaks of bird flu were reported nearby.”

Outbreak is the H5N1 strain, the animal to human strain

From the BBC.com

Australia’s trade deficit widens, hyperinflation on the way?

With figures indicating a $2.98 billion AUD (October 2007) increase from a deficit of $1.92 billion AUD in September 2007, meaning imports out weighed exports. A prolonged drought and apparent infrastructure constraints on main export industries such as mining. The inflated AUD, primarily from investor speculation, has added to the import boom; thus creating a larger than expected trade deficit. Australia still has over inflated and bubble oriented markets such as housing. The credit market problems worldwide will also effect consumers in Australia, pushing up interest rates on loan and general bank charges. Oil and food will also contribute too inflationary pressures. So, with disproportional markets occurring within the Australia economy, with a hope that exports will pick up and the trade deficit can shrink somewhat, it still appears that Australia is running hot. With little net income coming into the country (trade surplus) It would all indicate to a heavily leveraged local economy, with consumer and businesses alike deeply indebted, with local consumer demand not slowing; which I believe is leading to hyperinflation.

Suffice to say the Australia economy could be heading for a sharp downturn, with or without problems occurring in America. Although a global credit and liquidity squeeze will effect all world markets detrimentally. Some more so than others, especially markets that are running hot with inflationary pressures, such as Australia.

It would be false dichotomy to assume that a trade deficit and a booming increase in imports may offer cheaper goods to the consumer. With global imbalances and global inflation, prices are rising not falling. All at the detriment of falling currencies, namely the US dollar.