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Archive for July, 2008

Overview of countries effected by credit, liquidity and inflation; recession conditions – Japan, Spain, Iceland, Australia – (update 6)

Posted by Adrian on July 31, 2008

Australia is poised to enter a ‘sharp’ stagflation recession. This is no surprise, as the extraordinary over leveraged Australian consumer’s property values will decline rapidly, from Bloomberg:

Household debt has almost doubled since 1999 to around 160 percent of incomes, a higher ratio than in the U.S. and U.K., according to AMP Capital Investors. The median national house price soared about 140 percent in the same period.

“By every metric I can think of, Australian houses are too expensive,” Minack said, costing an average of six years’ earnings, double what Americans paid before their property market started falling in 2006.

Prices in the property market — described by the International Monetary Fund in April as one of the world’s most “overvalued” — will fall 30 percent by 2010, according to Gerard Minack, senior economist at Morgan Stanley in Sydney. Prices dropped in all of Australia’s major cities last month for the first time since just before the Great Depression.

“I panicked” when the figures came in, said John Edwards, chief executive officer of Residex Ltd., a Sydney company that tracks property prices. “We’ve been doing this for 20 years and have data that goes as far back as 1865, and it’s really abnormal.”

The Australia stock market has been one of the poor performers of last 7mths. Collapsed banking stocks have dragged the index well into Bear territory.

Although the Australian banks, similar to the Spanish banks have not leveraged as much as the US banks; Australian banks, like European banks have invested heavily into the US mortgage securities market – hence the recent disclosures of losses and write downs (both in Australia and Europe). This should be noted that major Australian banks have put aside provisions for domestic losses, so the banks are showing vulnerability to both domestic and overseas markets. More problematic for Australian banks is a sharp domestic downturn in property, that will tip Australia into a sharp recession.

in conclusion,

“The Washington-based IMF says Australian house prices were overvalued by almost 25 percent in the decade through 2007 when compared with household income and ability to pay debt. Only Ireland, the Netherlands and the U.K. were higher.

A crash would “result in a significant negative wealth shock” for Australians, whose spending accounts for about 60 percent of the economy, Minack said. While growth is expected to continue for a 17th straight year in 2008, the Reserve Bank of Australia forecasts it will slow to 2.25 percent from 3.9 percent in 2007.”


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Overview of countries effected by credit, liquidity and inflation; recession conditions – Japan, Spain, Iceland, Australia – (update 5)

Posted by Adrian on July 31, 2008

Japan in recession? Like America, most probably. Japan’s industry production has had 2% declines, making it two quarters of 0.7% declines. Two quarter declines in the industry index points too recession.

The TOPIX doesn’t look too healthy either, apart from slight rallies from Wall Street volatility (buying) and a spill over confidence to other indices. The TOPIX is a declining market,

refer to 3mth graph:

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Stock market bottoms, China and ‘creative destruction’ in a changing world

Posted by Adrian on July 30, 2008

As global stock indices fall into bear markets, the world economy is slowing at a synchronized pace. To what extend the world economy slows into a prolonged recession or a deep sudden recession (depression), or years of a crumbling depressed economic system is still speculative. But never the less the market unwinding has only begun, with the credit markets, bank systemic failures, corporate defaults and insolvency.

One economist who works for a big investment company mentioned on a business report that ‘if’ a recession takes place, it will be a consumer based one not ‘corporate’, as he then went on to reminded us of what occurred in the 90’s (corporate defaults which lead to a recession). Of course this is incorrect and he works for a corporate entity that does not want to admit weakness (profit losses). The truth is a global recession will be from both sides, both consumer and corporate. We have already seen the banks write down 400 billion+ of losses, this could extend into the trillions as the credit crunch continues on; the consumer that has been fed credit and in turn over leveraged, is also going to lead onto losses and bankruptcy’s – individuals, small business, medium size businesses. Refinancing of debt will be hard to arrange and credit lines on maxed out credit accounts will be cut.

Investors are now trying to determine the ‘bottom’ for the markets, for both housing and the stock market. Some have prematurely called bottoms recently for example the US Dow and S & P 500; and the US dollar. All in which are oversold, but to what extent that will show signs of recovery is still uncertain and risky. I am bearish still on the US dollar, because I fear that the USD will be de-pegged from middle eastern currencies and China may sell off reserves. So I still feel the USD will fall further, unless the Federal Reserve in an emergency meeting raise rates. This could happen, but unlikely, unless Chairman Bernanke resigns.

I saw a documentary the other day called ‘The Cars That Ate China’, it was well done and informative documentary in regards to the consumption for motor vehicle’s in China and the motor vehicle consumption (metaphorically speaking) of China. The immense pollution from cars, the ancient Hutong neighborhoods being destroyed for roads and developments. The car giants like Mercedes/Daimler Chrysler (making cars in China), advertising firms making car ads (for the huge Chinese market). All Interwoven with a hyper driven Chinese economy that still in all retrospect is a restive country, both individual and politically. Great interviews and profiles of various Chinese from young Chinese males involved in a VW car club, the ad hoc staff of ‘car beautification’ cleaning stations by roadsides and the son of a peasant farmer that has bought a new car. The appetite for cars in China is astounding, they want we have or had, there is a fascination with western wealth. Even though they do not seem that connected to individual wealth creation, but an emulation (of western Individual wealth) in a collective and mass hysteria sense. China is actually frightening in their level of consumption. A colleague of mine went to China two years ago on a business trip, it was her first time and she told me was blown away with the level of development and activity – not to mention also the level of pollution. According to the documentary (The Cars that ate China) 25% of California’s pollution is blown in from China.

Like I mentioned the ‘frightening’ aspect of a mega consumer economy like China is the appetite for resources. It doesn’t appear that China is trying develop a new energy source, it still relies heavily on oil, coal and Nuclear. The China boom in a lot of ways did not involve innovation, just consumption and development of infrastructure. A person that I know that worked in advertising pointed this out, China’s not innovating anything. It’s a country that is buying commodities, and selling cheap goods to Americans (of course that is slowing dramatically via a US recession).

The point is as markets begin to drop lower, the chances of investing in distressed market’s will begin to present themselves. Which is fine, but if we step out of an economic perspective and shift into sociological and philosophical perspective. The headwinds of global change could be dramatic, despite that idea that markets will be cheaper; the energy (oil) that drives markets could become problematic. if China does not slow down on consumption, particularly for raw materials and stays constant. We are going to have a problem. With global inflation and dwindling recourses to fuel that consumption, one analyst who lives in China made that estimate that China could consumer the resources of four earths if it continues at the ‘warp speed’ of its economy.

So if four earths are enough for a booming China, and we only have one. This one. How is oil ever going to decrease in price?

So stocks globally (including developing economies) could continue to fall lower, we may see creative destruction among a slew of companies of the old. New energy resources, say geothermal or advance solar could come into play, if by an ’11th hr’ scenario or a dramatic climate event occurs – governments could pour billions to fund/or partner a renewable energy company/s.

Biotech could gain some recognition as a sector, especially if Bird Flu eventually mutates to human to human strain.

The airline industry will continue to downsize and try and run on higher oil costs. If Boeing, or Virgin are able to develop smaller faster planes that eat up less fuel – there could be some long term investment options there. If Zeppelin can reinvigorate sustainable airship fleet (low emissions) for freight and people that would prefer to travel at a slower pace and possibly cheaper (low fuel, or no fuel driven). We may see airships in our sky’s again.

The markets are clearly changing, even when markets bottom out after a prolonged recession, energy, global warming and peak oil scenarios will offer little reprieve.

In the meantime continue watching the markets and the global economy.

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Bear Markets, sucker rallies, looming credit defaults

Posted by Adrian on July 25, 2008

The depressed US housing market is continuing to erode confidence in the banking sector, stocks, profits etc. With the banks in the US reporting losses, the Dow and S & P 500 now all in bear market territory staged ‘sucker rallies’ on the premise that bank losses were ‘not as bad’ as first estimated. These recent rallies have been wiped away with the Dow losing 283.10 points (July 24th 2008 ) bringing the index down to 11,349.28 points

The main concern is the collapsed credit markets, as banks still hold deprecating assets, usually any sort of secularization that is tied into (US) mortgage backed securities. Also the costs of protecting credit defaults swaps is increasing as the likely hood of high risk company defaults could increase towards the end of 2008.

The Markit iTraxx measure is showing Asia, Australia moving up; as the pricing for CDO’s for bigger companies becomes more expensive. The price orientated default risks are a good indicator of how the market sees company debt.

The Markit iTraxx Asia index (excluding Japan) rose 523 +

Australia’s Markit iTraxx index rose 133+

(from Bloomberg data)

The Australian rise in the CDO’S iTraxx market could be on the back of The National Australia Bank increase of cash provisions of $830 million, this was tentatively explained in response to decaying US credit markets (namely housing and MBS and CDO markets). But I would say Australian banks are more concerned about domestic company/housing credit defaults, if not more, than the US credit markets which are so decayed now – it is essentially a dead market. But never the less the portfolio of bank assets in Australia could be very problematic. Not only do they (Australia banks) appeared to have held a lot of toxic waste assets from the CDO markets (US mortgage backed securities), but they will be major worries of the over leveraged and local housing bubble – that was fueled by banks feeding outsourced credit into the local housing market.

Australian banks are undoubtedly in a bad situation with major funding issues from asset depreciation both internationally and local. No wonder their is a major sell on their stocks.

Bear Markets now seem synchronized on global stock indexes, Brazil which has a completely out of control inflation problem has now enter a bear market with their stocks with the IBOVESPA now sitting at 57,434 points a decline from May 20th 2008 peak of 73,517 points – a huge fall of 16,083 points or a 22% drop.

please refer to graph, Brazilian BVSP compared with the US dow

(please note the 3yr graph above is running real time daily statistics)

As mentioned in Gold and oil drop, stocks maintain rallies, in regards to the recent week of stock market rallies. The global credit crunch will now enter the bankruptcy stage, with not only banks finding hard to raise capital; but companies that have over leveraged and will find it hard, if not completely unable to refinance debt. Another aspect to watch, will be at some point the banks will cut credit lines to consumers.

I suspect a sharp increase in unemployment figures globally in the next 6mths.

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Obama’s santioned ‘ok to go’

Posted by Adrian on July 24, 2008

In regards to the post The West/Israel preparing for air strikes against Iran? There was some hope that Barack Obama would be the negotiating statesman with the Iran/Israel dilemma. This is obviously not the case, from Bloomberg,

“Democratic presidential candidate Barack Obama said that as president he would protect Israel’s security and would “take no options off the table” to prevent Iran from obtaining a nuclear weapon.

“A nuclear Iran would pose a grave threat,” Obama told reporters today in Sderot, Israel. “The world must prevent Iran from obtaining a nuclear weapon.”

Barack Obama has had little effect on the markets, as he is in somewhat a meaningless player in a changing social and economic global environment.

It was mentioned in the media that a military strike against Iran would be orchestrated (by Israel) prior to Obama being elected as president. Obama may have been the last hurdle ( as far as a US diplomacy against airstrikes) to an attack against Iran. It has been overcome.

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‘Fatal Justice’ movie poster.

Posted by Adrian on July 24, 2008

Keeping in line with the The morbius glass schlock, horror, 80’s, grindhouse, sex and violence movie marathon, comes this gem by the name of ‘Fatal Justice’. No, I haven’t seen it. But judging from the poster, this movie could be so bad it’s good.

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B.P.R.D.: The Warning #1 (of 5)

Posted by Adrian on July 23, 2008

I forgot how endearing these comics are, Mike Mignola is a gifted writer with a distinct style. Note his success (creation) with the Hellboy character and movies (although adapted from comics to cinema by Guillermo Del Toro). The B.P.R.D (Bureau for Paranormal Research and Defense) is a spin off from the Hellboy comics.

The stories in the B.P.R.D books are centered around the paranormal and urban myths/folklore of the last 100 years. So you got quasi cults from the 1900’s late 1800’s ranging from English Egyptian cults of the 1900’s, séance cults, museum curators, forbidden antiquities, various doom’s day cults of yesterday, resurrected mummies, evil Nazi occultism ; all tied in with interesting heroes that have depth and sincerity.

This is the sought of comic you read (if you can) in art deco flat on a winters afternoon.

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Gold and oil drop, stocks maintain rallies.

Posted by Adrian on July 23, 2008

I prematurity called a bull run for gold going into the high 900’s (please refer here). The reasons behind a possible (although it didn’t occur) gold rally last week, or early this week was at the time the speculation that another US bank would be in dire trouble. Of course, whether speculation or not, the US banking sector is in trouble. But when we now talk about dire trouble, we mean on the brink of bankruptcy. This hasn’t happened on a broader scale, Fannie Mae and Freddie Mac most probably will be lifted out of insolvency problems by treasury and Federal intervention (although it may not end there, there could be further issues with both mortgage banks as for banks and sovereign funds will try and offload all the depreciating Mae and Mac assets).

But stock market rallies in Bear market environments aren’t uncommon, the amazing aspect to these rallies is that whilst the Banking sector continues to downgrades it’s self (from bank employed analyst to bank employed analyst); it still maintained a rise. Despite a massive loss from Wachovia at a reported $8.86 billion loss, Washington Mutual at $3.3 billion loss and online brokerage firm E-Trade at $94.6 million. In recessionary and credit tight environments, there is such a narrow chance that struggle banks and financial institutions will be able to raise capital. So eventually a bank or banks are going to bite the dust, to what point some banks will be revealed as ‘zombie businesses’ will depend on the ferocity of rival analysts, market accounting rules (revealing losses) and so on.

The credit crunch for banks is entering the insolvency stage now.

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The West/Israel preparing for air stikes against Iran?

Posted by Adrian on July 22, 2008

After the recent Geneva talks that were essentially window dressing for the media and were never going to deliver a resolution of Iran’s uranium enrichment program. UK prime minister Gordon Brown has now pledged support, most probably military and logistic support too Israel for pending air strikes against Iran’s nuclear facilities. Mr Brown has given Iran a 2 week deadline, or it will face harsher sanctions. Which everyone should be aware of don’t mean much. Iran, the world’s second major (OPEC) oil exporter holds the bargaining chip, which is oil. They can increase and decrease input at will. International sanctions that effect Iran’s various financial and import markets, only serve to exasperate Iran’s leverage with oil. We must remember that the West in someways is going down a risky route, with the US dollar at all time lows, oil production is slowing (hence the the growing validity to the ‘peak oil argument) driving up the high oil price, despite geopolitical tensions. The Oil price could stand at $110.00 $130.00 without a Iran/Israel standoff. We have seen public backlash against high oil prices in Europe, Asia and the States. Any tweaking of the oil output by Iran, will effect global stability (our oil dependence) with or without Iran shooting a missile back at Israel. To top it all off, Iran’s public (at the pump) pay for the cheapest oil in world.

But it seems all but inevitable that Israel will launch an aerial attack against Iran, as mentioned in World Crisis scenarios for the 21st century – Peak Oil (update 14) Oil heading towards $150.00 this could be factored in either at the end of Brown’s ‘veiled threat’ deadline (in which Secretary of State Condenlezza Rice is also supporting) either late July 2008, or early August 2008.

Surgical air strikes don’t work, this has been proven in the last 20 years of modern warfare. The posturing and in some ways (if one was to look at this from a military analyst perspective) procrastination from Israel in regards to military action against Iran; it would be foolish to assume Iran will be in ‘shock and awe’ when Israel launch such an attack. So any afterglow of glory that occurred from the 1967 ‘Operation Focus’ (6 day war) attacks against Egypt by Israel is all but faded. This can also be evident in the disastrous and poorly timed attack against Lebanon in 2006. Which not only cost the life’s of 1,123 Lebanese civilians, but proved to be a military blunder by Israel.

So, if Israel commits to an attack against Iran in the coming months, this attack or strike will constitute not as a quick victory (refer to the US quagmire in Iraq). The question could be asked, will there be a full scale war against Iran, with US and UK and Israel involved? Or, a series of attacks by Israel too dismantle Iran’s Nuclear facilities?

What ever the case, it will be a military failure, with the out come of oil easily going above $150 and to $200 a barrel. The middle east won’t explode in an orgy of violence. Sunni Saudi Arabia couldn’t care less if Shi’a Iran was wiped of the map. Israel, France and even the US have recently offered ‘olive branches’ to countries such as Syria (France), Lebanese (Israel – recent prisoner swap, for two dead Israeli solders), the US with new Iraqi government talks. This ‘goodwill’ exercise from the countries mentioned is all to try and protect various fronts of Israel, namely the Lebanese southern boarder with Israel and Syria support to Iran (in a pending attack by Israel).

The conflicts in the middle east are forever wars, that are prolonged, costly and essentially have a devastating effect on the civilian populations. It was a shame that Barak Obama, who quite possibly will be America’s next president, coming out recently and pledging his support for a war in Afghanistan. Going as far as saying that he would pull all American troops out of Iraq and dump them in Afghanistan. History has shown that no army has ever conquered Afghanistan, from Alexander the Great, through to the English in the 1800’s and the Russia’s 1986 failed war. Now the West is making the same mistake, if Afghanistan is the country that swallows armies, the same could be said for the rest of middle east. As for the rest of the world, extreme high oil price is the best weapon that could be deployed against our societies. So any war in the middle east will effect us all and with the current global economy so fragile, with no recovery in sight for the credit crisis and liquidity crisis – the higher oil price from any Israeli/allied air strike against Iran, is the final nail in the coffin for the precariously uncertain global economy.

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The morbius glass schlock, horror, 80’s, grindhouse, sex and violence movie marathon; HP Lovecrafts – Re-Animator (1985)

Posted by Adrian on July 17, 2008

Firstly, just want to get something of my chest that is in someways, in fact a lot of ways is irrelevant to this blog post.

I used to be a James Bond fan, I got the tail end of Sean Connery’s run and picked up on Roger Moore as James Bond (as I was growing up), although lost interest between Pierce Brosnan and Pierce Brosnan (not that he was a bad James Bond, just the franchise was running dry, correct?).

Recently I saw the new James Bond Daniel Craig in Casino Royale (I know this is yesterday’s news, if anyone cares).

What a dreadful piece of junk of a movie, in fact it was excruciating to the point the DVD nearly got flung through the living room window (it was open). The producers are trying to reinvent the wheel, in fact Hollywood has made a meal of prequels, beginning of”s (prequels), remakes, part 3’s, 4’s, 5’s etc etc, in the last 10 years. So it is kinda shit sticking to shit with no where to go for new ideas. Anyway, remember when James Bond was a campy, well dressed, well groomed, chauvinistic killer of bad guys and a sex machine towards women (both bad and good) ? Well the new bond Daniel Craig (James Bond) aint , Casino Royale is laughable and sad at the same time. We learn how he mastered the trademark Martini drink (“shaken but not stirred”), in a poker game as he anxiously came up with the drink and commented by saying ‘that’s not half bad’; we also learn that he never wore fitted suits until his squeeze at the time suggested it, his balls (yes testicles) where tortured in a bizarre scene by a villain (lame villain) with a knotted rope and a naked James Bond sitting on chair (balls hanging through). Which essentially would have killed his sex life thereafter.

Fucking rubbish.

Feel better now.

Ok, gore and horror or horror and gore whatever way you want to see how gore fits into horror, or horror fits in to gore; the one thing for sure is horror films aint what they used to be. As Generation X become old and whiny (not to forget cranky) in our late 30’s, we do remember a time when music was music, films where films. A time when a movie was not just pumped out only to be revamped for the DVD market with ‘extras’. It was the anticipation for a new cinema flick, when a new movie posted would be put up on a billboard with ‘coming soon’ under it, no ‘You Tube’, no internet previews just a belated excitement of a new or coming release.

I remember this poster back in 1985, I think I just left seeing Rocky 4 (he fights the evil communist guy, remember?) and I saw this poster in the foyer area. It looked cool, HP Lovecraft? Who is that? Who cares, there is a head in a medical baking dish with a guy holding a fluorescent injection (poster below shows testube).

Suffice to say it was R and by memory the cinema at the time (near where I lived) was fairly strict with the over 18 thing, lucky for us it appeared on video pretty quickly after the cinema release and our old friend at the video store all those years ago let us rent it out. Yes the horror section was under the XXX adult section and yes we paused longer at the horror section, with eyes drifting upward towards the The Devil in Miss Jones 2 cover. But Re-Animator is one of the movies that for me sum up fond memories of growing up as a teen in the 1980’s. It is such a 80’s movie.

Re-Animator is tongue and cheek horror, with some nudity (courtesy of Barbara Crampton scenes) which still make me chuckle ( particularly the decapitated ‘reanimated’ head and naked woman scene). Mix in the mad scientist theme and his hapless assistant ( medical grad student), a great music score and you have a 1980’s horror classic. How close is this to HP Lovecrafts novel is any ones guess (I haven’t read it). But It is a movie of mayhem, horror, sex/nudity, craziness and gore effects. I always get the impression (when I look over the DVD once and awhile) that it was a fun movie to make, you get the feeling everyone was relaxed with this production.

There was some sequels after Re-Animator, mostly poor in comparison with this original.


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