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Archive for May, 2008

Optimism will lose you money in todays markets.

Posted by Adrian on May 29, 2008

Personally I believe that general financial reporting is poor, occasionally an article, or a repost from another that has been doing the rounds from Reuters, through to Bloomberg and then across to the Financial Times – does hold some analytical merit. Times Online and New York Times has been good at reporting, Tom Keene from Bloomberg online; is an excellent interviewer, a sensible journalistic approach with middle ground view on market/economic estimates.

But generally, as I said, poor journalism and reporting.

Seven years ago or even going back a couple years prior to the tech crash for 2000, the world, not just America, began it’s global boom (liquidity from the US). Synchronized and the same time fueled after interest rates were cut so low in the US in the period of 2001 and 2003. Credit markets expanded and the securitization market (Wall street firms) sprung to life. China and India gobbled up commodities from Australian, Brazil and Argentina.

Global property booms began in every country in the world, from Bangladesh to New York. Property bubbles expanded – and as we know now, are deflating rapidly in developing countries, more notable US and UK.

Everyone is now aware of the seriousness of the dramatic fall in the US property market (subprime), the effects that had on the credit markets, the extreme poor timing of the Federal reserve for dropping interest rates so low at a time with booming commodity markets – only exasperating the high oil price and foods. It’s mess, no doubt there. Recession denial reverberates into a bizarre optimism in business reporting. The credit markets are not even half way through from unwinding. The credit crunch is still on. The stock market is volatile, the commodity markets are contributing to food inflation, oil inflation. If you are optimistic and investor in the markets, you’ll lose money. To believe that the US Fed has saved the day by cutting rates, buying massive amount of toxic waste from banks and bailing out investments banks. Is not only naive, but you’ll be on your own with that one.

The banks are freaking out, after a regulation bill ( now passed) to limit fees on cards and credit and extend the repayment period (on credit) – is going to shut down any profit left to make in the secrutization markets, debt and credit card markets. So the banks may pull credit lines or just shut off credit and write down their losses.

I read an article recently from CNNmoney, with was quite short sighted. If the world falls into a deep prolonged recession or depression, we may not get a deflationary aspect, nor a sharp decline. What we could get us a stagflation style recession, or a crumbling of the financial system that may take years to rebuild or regain normality. Credit lines will be cut and consumption will slow down, industry will be effected from stagnated expansion through the inability to preform with rising costs and oil costs. Also, economies could all fail at the same time, Europe, US some Asian countries such as Japan and Singapore, Malaysia, South Korea.

Deflation in the oil markets, would only occur if; 1. They find a massive oil field, which is unlikely. 2. China and India’s economy crash and oil demand slows dramatically.

Deflation in the food markets, will rely on improved climates for rice and wheat. In that sense you can throw in global warming into the equation. Which would indicate food shortages will continue, hence inflation of food based commodities will always rise.

High unemployment will be tied into higher oil prices and rising costs on highly leveraged companies.

It’s looking more like a stagflation global recession. Also It may not be a short recession in 2008 with moderate growth in the coming quarters of 2009 (US). But a crumbling of financial confidence, wealth and economic sustainability that may last longer that a year, or two A person I work with made an analogy, that the global economy maybe amidst a slow crumble, coming apart in pieces like a dried up cake.

We may not get a global sharp downturn in dramatic terms, but a prolonged collapsing (or crumbling financial system). But we may see some sharp dips, especially in stock markets and obviously property markets.

I would be willing to look at stocks again, when it becomes more bear market orientated. But companies that are oil reliant, like the automobile and aircraft industry are currently extremely volatile and dangerous to invest in.

To think my dad years ago had shares in an Airship company (yes they went bust 80’s style). Maybe airships will come back, once the airline industry finally has had it’s day and that could be close.

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The morbius glass schlock, horror, 80’s, grindhouse, sex and violence movie marathon. 1970’s doomsday future shock movies; Omega Man, Soylent Green, Roller Ball, Demon Seed

Posted by Adrian on May 27, 2008

As the 21st century rolls on, we have to look back into history at a time when there was political, social and economic upheaval. The 1970’s could be a historic reflection to what is occurring now, especially with the oil shocks of 73′ and 79′, the stagflation, the growing high unemployment and general feel that Russia and the America were going to obliterate the world in a Nuclear fireball (with a possible new cold war starting in the 21st century – same old players). There was also a uncertainly, apart from social, geopolitical and economic there was a technological uncertainty. In other words, would technology either help us or destroy us.

The themes of a worrying and terrifying future possibilities were reflected in popular culture, especially movies at the time. Science Fiction really came into its forte in 1970’s with it’s forecasts of a technological and sociological nightmare. Which as we all know (if you remember the 1980’s re-run of these movies my Gen X readers) was the social and political madness of class division, totalitarianism and human exploitation – with a nice dash of biological and nuclear horrors unleashed. To set the tone of a dismal look into the future.

Omega Man (1971), Directed by Boris Sagal.

Starring Charlton Heston, remade recently with actor Will Smith under the original book name (which is based on both movies) I am Legend. But keeping with the theme of 1970’s uncertainly and fear. Omega Man was a movie that fitted that time of the cold war, biological weapons and humanity becoming stripped down to it’s primitive survival instinct. Omega Man also dealt with the paranoia of technology, hence the main villains in the movie the mutated and zombie like ‘Family’; that are somwhat immune to the biological agent that has wiped out most of humanity.

Omega Man has a hippie feel, anti technology overtone. The two extremes, that advancement in human technology lead to to warring countries almost destroying the human race and the zombie like hippie, anti tech, psychotic cult group (the Family) – that blame man and technology and are hellbent on destroying any traces of human advancement (or what is left of it).

Caught in the middle is Charlton Heston character Col. Neville, M.D, an ex-army scientist who injected himself with a vaccine prior to the biological out break. He encounters survivors that appear immune or are at least not to far of from becoming like the mutant, crazy Family survivors. He tries to save them, so you have sacrifice, some religious overtones and the ‘brave new world’ theme ala the survivors going off into the horizon.

note: watch Robert Rodriguez Planet Terror homage to 1970’s end of the world drama’s, with the plight of the survivors at the end of the flick.

Soylent Green (1973) Directed by Richard Fleischer

Another 1970’s sci fi that attempts to look into a future possibility of an overcrowded planet and environmental devastation – it’s effects on the human race. Food has become scarce, meat and fresh vegetables are rare, instead the population is given a processed vegan soy alternative; hence the name Soylent Green. But the would be processed vegan soy treats are from from being vegan.

Charlton Heston returns as the main star, who uncovers the secret of the Soylent Green ingredients, the powerful food processing company Soylent Green and it’s conspiracy to feed humanity the corpses of humanity. It is movie that looks at environmental degradation, loss of food and food inflation (prices). Overpopulation and human exploitation, as a company makes it’s profits of feeding the dead to the living.

Rollerball (1975) Directed by Norman Jewison

The companies rule the world, free markets have collapsed, competition is non existent (within the free market) and the wealthy handful rule the world.

Interesting 1970’s flick, the rich are a drugged out crazy bunch of hedonistic idiots, the populous are entertained by a roman holiday game called Rollerball. Which is basically guys on rollerskates that speed around an indoor track and kill each other, while trying to score a point with a metallic type ball.

Rollerball has a groovy chic 70’s feel, you gotta see some of the interiors in this movie. But the premise of the movie is individuality has been wiped and replaced with an almost robotic existence to a corporate homogeneous view on humanity. Women, which is a theme in most of these 1970’s future shock flicks, are accessories – like furniture. In Rollerball, humans are now seen as mere commodities on a broad scale. Deals and privileges are exchanged for devotion to the upper echelon corporate mindset. Which is like I said, a tripped out psychedelic experience of superiority. It is a reminder, at a time probably in the 1970’s when corporate structure was taking a footing in global business. So if a corporate world becomes to uncompetitive and cartel orientated, we might end up with a future like in Rollerball.

For it’s time this was an ultraviolet movie, but now, say compared with movies in a similar genera of violence. It is quite tame and comical, especially the Japanese Rollerball team.

James Cann plays Johnathan E, who is an old warhorse of the Rollerball game. The corporate honchos want him gone, offer him a nice package. But Mr Diehard won’t go down, so the last game (the corporate moguls hope) will kill him. But we know otherwise.

The moral, you gotta have tons of death and mayhem to wake up the stupor. Classic 70’s sci fi

Demon Seed (1977). Directed by Donald Cammell

This movie would reveal the hype of extreme artificial intelligence and paranoia that the 1970’s had to offer.

An over ambitious doctor (Dr Alex Harris), and his artificial intelligence creation Proteus, which is a bio-mechanical (has it’s own synthetic DNA) self aware computer system. Enter the frustrated, possibly over bored wife Julie Christie, who unfortunately becomes a human experiment courtesy of the ever curious (and crazy) Proteus.

Most of the filming takes place in the house of Dr Alex Harris, as the good Doctor becomes more and more obsessed (putting pressure of the all ready strained marriage) with the Proteus project and it’s funding. Leaves his wife Susan (Julie Christie) at the mercy of the growingly psychotic and obsessive Proteus system- in which Dr Harris has remotely connected Proteus to his house.

The situation takes a turn for the worst, as Proteus takes over the house with poor Susan stuck inside. Demon Seed is a movie that creates fear from evolving technology and self aware technology. If technology was to become a higher order over humans, could we become less superior?

But the premise of Demon Seed is the outcome of the movie, so in a sense it is horror aspired Sci Fi. As Susan is held against her will and forcefully impregnated by Proteus. As the machine wants to become more human, or achieve a higher order of human evolution.

A slightly dated movie, but never the less still holds up as a decent science fiction horror. Interesting too, because as discussed the 1970’s was a pivotal point in a lot ways, from technology, economics and social uncertainty. Demon Seed polarizes that fear of runaway, self aware and potentially psychotic artificial intelligence.

So a movie that has a helpless women impregnated by a maniacal machine, we do get to see the baby at the end. But I won’t spoil the ending; lets just say it is a bizarre ending.

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World Crisis scenarios for the 21st century – Worldwide economic depression (update 14)

Posted by Adrian on May 22, 2008

World Crisis scenarios for the 21st century – Worldwide economic depression (update 14)

The relatively short eye in this financial storm that we are currently all residing in, is now moving and it appears back to the market turbulence of the last 6mths – maybe the worst is yet to come. The credit market and liquidity issue, which was a credit crunch that froze up the banking markets or money markets. Was essentially a precursor or a delay to an inevitable systematic crash of the financial system.

The Federal Reserve as we all know cut rates right down to 2.00%, amidst rapidly climbing oil prices (scarcity) and food prices (scarcity); which everyone on the planet is feeling i.e inflation on food and oil. Also the commodity markets have been a hedge against inflation and a declining US dollar; this has also boosted oil and food inflation (what, rice etc).

But the banks are still contracting, the only aspect of the markets that showed signs of normality was the stock market, although the so called market normality was a buying back into volatile markets. This of course will be very short lived.

The US and quite possibly the world will fall into a severe stagflation based recession. To what extent this will develop into a depression, especially in the US is still speculative. But with high inflation eroding incomes, even if people do adjust (somewhat) to inflation, asset values, employment will all decline. Oil will do the rest by slowing down or shutting down industry.

Funds managers may have their eyes on stocks, and an persistent bull market – that in all retrospect is still a very volatile stock market, from May 19th 2008 the Dow it’s self pushed back up to 13028 points – which indicated the return of the bull market. But, in two days (20th, 21st of May 2008 ) the Dow has dropped -427 points. These are big drops in a short period of time.

The Federal Reserve is closer, in a ambiguous way, in accepting that the US is in recession, from CNNmoney:

The Fed said in its minutes that members now expect the economy to shrink in the first half of the year — the clearest signal yet that Federal Reserve chairman Ben Bernanke and other bankers believe the economy is in a recession.”

With most central banks now caught in an inflation, or more particularly a stagflation trap. They can either cut rates, in which the European central bank may do, or leave rates on hold as the Bank of England and Federal Reserve will eventually end up doing. But in the US, inflation (which statically could be higher than what it is now) could move into the upper 5% and 10% range, refer to graph:

With interest rates so low in the US and mixed with a extremely fragile economy, even if they begin to increase rates it will send the US into a sharper economic decline, and quite possible into a severe recession (or depression). A terrible situation of economic uncertainty. The erosion of prosperity and wealth by inflation and declining asset values, just needs to be topped with higher unemployment – as it was seen in the stagflation/inflation period of the 1970’s and early 1980’s refer to graph that shows the higher unemployment,

I’ll finish with what David Tice of Prudent Bear fund said recently on Bloomberg

“Tice predicts U.S. equities will enter a bear market that may exceed the 15-year slump from 1965 to 1980. Moreover, he says if the Fed and Wall Street don’t break their addiction to easy credit, the economy will eventually crash in a depression — a condition marked by reduced purchasing power, unemployment and corporate failures.

The U.S. can’t continue to inflate bubbles in stocks, real estate and other assets without crippling the financial system, Tice says.

`Drunken Sailors’

“We’ve become a country of drunken sailors” he says, snapping his fingers as he makes his point. “If you spend, spend, spend, there are going to be consequences to that — you can’t borrow your way to prosperity.”

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Behemoth – The left hand ov god clip

Posted by Adrian on May 21, 2008

Ok, I mean what metal band or death metal band (if you are into this music) or whatever have done a clip as theatrical as this one? A lot of effort has gone into this, good clip, I dig it. Look for the Hell inspied orgy scene at the end of the clip.

Fun.

Good drummer.

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The Un-Men (Vertigo comics) – written by John Whalen and illustrated by Mike Hawthorne

Posted by Adrian on May 21, 2008

Crazy comic, three pages into #7 shows a baby (albeit a mutant) being born out of a mans head. You gotta see this to believe it, below is somewhat a censored version.

Too bad vertigo canceled this bizarre series.

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World Crisis scenarios for the 21st Century – Peak Oil. (update 11)

Posted by Adrian on May 19, 2008

World Crisis scenarios for the 21st Century – Peak Oil. (update 11)

Oil continues it’s steady climb (closed at 126.29 a barrel), as it can be seen in graph below; there doesn’t appear to be overbought signals here at all. Therefor you would be hard pressed in assuming that a bubble is forming in the oil markets, or it’s over priced.

The recent tragic earth quake in China (Sichuan Province) will effect the oil price (push it higher), reports have indicated the Chinese government will release 6, 313 tons (could end up being more, depending on the scale of the rescue and clean up after the quake) of oil related products (jet fuel, diesel etc) to help the relief effort. This oil comes from the massive Chinese reserves, as China has horded and kept provisional amounts of oil (in respect to their economic expansion) because of the global scarcity in oil reserves and output.

There is no oil bubble, oil will be heading towards $150+ a barrel in late June early July.

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US, Japan, New Zealand and inflation/recession conditions, Food and Oil prices – May 2008 summary

Posted by Adrian on May 15, 2008

The US economy desperate for any news that may reinvigorate a collapsing economy that now is clearly in Recession. No bottom to the housing foreclosures is in it’s self a worry, oil continues it’s march upwards. Goldman Sachs called $200 a barrel this year. I agree, I personally see 150+ in the next few months, say July 2008. If China starts to go into a hard landing, and that’s a possibility as exports have had a rapid decline. Oil may decline, but the oil hording that has taken place (globally, namely China) indicate that the 150+ range could eventuate very quickly. With Wall street clinging on to news that the credit crisis is somwhat over (I would say it’s not even half way through). Europe’s greater economy has started to tip downward, UK is in big trouble with a housing bubble that is ready to pop on a grand scale. Spain (also huge housing bubble) now imports water to Barcelona, this is another indicator of the severity of Northern Hemisphere droughts. Food and oil all have had huge impact on inflation in every country in the world. Oil is the big scare, with the 150+ barrel looming. Oil inflation will invertible shoot up food and other service based costs.

The stock markets are still indicating volatility, to me it’s a market that could get a big reality kick – especially when it’s pure speculation that is driving up stock prices. A big correction could be in the works, with the LIBOR rates about to get an overall. In other words corrected, so interbank lending rates could be a lot higher . This could shock the system, especially with the dodgey disclosure of banks and the recent ‘calming’ effect from the Fed’s liquidity into markets. We know the central banks have spent billions bailing out a handful of insolvent banks. All that it take now is a competitor or some leak, or an analyst really showing the dismal balance sheet of a particular bank.

Japan’s machine orders down . Recession now stares down on Japan and New Zealand

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“I get paid in Euros T-shirt” – company Exact Science

Posted by Adrian on May 9, 2008

With Fed chairman Ben Bernanke almost completely destroying the US dollar (with his maniacal rate cutting). Can you blame people wanting to be paid in Euros?

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German Bank troubles, Credit crunch still on. Profit losses and writdowns in coming quarters

Posted by Adrian on May 7, 2008

Just don’t believe that the credit crunch is a passing phase, apart from the fact the ‘crunch’ effected primary a banking industry, which in turn effected it’s financing capabilities. The point is the real economy, the street economy will feel the after effects of a contracting and shaky banking system – even if it does stabilize. This after shock hasn’t been felt just yet, as the credit markets are still unwinding, and write downs will continue.

As mentioned in Is gold correcting (update 4). A German bank could be in trouble connected to the subprime mess, from bloomberg 7th May 2008

Commerzbank wrote down the value of investments including subprime-related securities by 244 million euros, bringing total losses from the credit crunch to 827 million euros. Larger rival Deutsche Bank AG last week reported its first quarterly loss in five years after 2.7 billion euros in writedowns. Germany’s biggest private and state-owned banks have announced more than 33 billion euros in markdowns since July.

“The decline in profit and further writedowns were inevitable because March was the worst month of the financial crisis so far,” Manfred Jacob, a Frankfurt-based analyst at SEB AG”

This could also indicate that there is still ‘junk’ in other European banks, namely German, Swiss (UBS) and UK banks. Effecting both Euribor and Libor rates, so the calm (that was misleading saying ‘the worst is over’) by the Bank of England and their horrible government in the UK should be overlooked. Expect some more writedowns and possible a bank officially going under. Which may be a mortgage bank in the States.

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Is Gold correcting? (update 4)

Posted by Adrian on May 5, 2008

Still at this point there does not appear to be a substantial correction in the gold price, apart from the general volatility in the markets, gold is holding it’s own between $800 and $900 an ounce. With the USD rising somewhat and a slight calm to the markets, after the central banks have flooded the finance sector with liquidity. But as we are all aware the liquidity is designed to prop up an ailing banking system, which in turn is actually tightening liquidity. There is also delevraging in the private sector and the credit crunch is far from over, as it will move into motor vehicle/credit card and student loans. Not to forget the US housing depression hasn’t reached bottom with rising defaults still occurring.

The stock market has had some rallies, with Asian stock markets returning to higher levels again. But, this is on speculation and mostly driven by institutional investors in a volatile trading market. So the commodity market is going reflect degrees of that volatility.

I see support of gold at 835 and it’s currently looking very oversold under the 100 and 50 day averages. although I would say that the selling off (relevantly cautious sell off) of gold – is not dramatic. It would indicate that gold (and most commodities) are still seen as solid investment in volatile markets.

Depending on central bank policies, both from Europe and the US in regards to the USD. If it’s decided that the European central bank will buy a load of US dollars, in an effort to stabilize the declining US dollar we may see gold lose some more value. But Europe is caught flux of declining markets and inflation, a central bank that doesn’t know whether it should cut rates or increase them. In the meantime gold will continue it’s climb back into the 900 range. This may exasperate faster in the coming months if a bigger US mortgage bank needs to be bailed out, or a German bank is in trouble. Whatever the case gold is performing well in the crazy markets.

Summary: Gold currently at 860, support 836, resistance 909. May trade back in to the 900 range.

Is Gold correcting ? Hits $1000.00! (update 3)

Is Gold correcting? Soon $1000.00 and ounce (update 2)

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