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Archive for October, 2008

You might as well “write off” the whole Japanese economy

Posted by Adrian on October 31, 2008

If they decide to cut rates to 0.25% (from the 7year low) and intervene with FX reserves (to try and drop the JPY gains).

Is there anything worth investing in Japan? Stocks are 20+ years of ‘going nowhere’, JPY is volatile (maybe a sell ‘short-term’), property (is history). The whole economy looks like it will never recover, ever.

When inflation comes back on board (and it will, with a vengeance)…Japan will be wiped off the economic map.

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Europe and America pump the money, Stock market rallies, main Indices still -20% -40% oversold. – It’s Halloween! (upate 1)

Posted by Adrian on October 30, 2008

The US federal Reserve are swapping currencies to pump US dollars into countries such as Brazil, Argentina, South Korea, Australia and New Zealand. This would indicate two things, all those countries are going be straining with large account deficits, which has yet to narrow and now will not narrow with a current global slump, the other point would be the commodity based countries will be hit hard on a US slowdown and US dollar funding is under pressure. Note the recent currency sell offs with the countries mentioned.

The money pumping (fiscal stimulus) is reeving up from Japan to German to dump money onto the consumers. As we know from the US experiment with a fiscal stimulus, the consumer is under huge pressure, so fiscal stimulus (which are token) will either put into savings (causing a greater downturn), or pay down debt. It is actually quite pointless, a politically driven tool (economic intervention) that has, as mentioned numerous times on this blog, causes more volatility in the market.

But economically the governments of the world are driving blind, throwing money around everywhere (mind you except for infrastructure development!), the commodity producing countries are still grappling with high inflation and I would still dispute whether core prices have actually declined in the US and Europe (namely food).

Also with business trying to deleverage and shrink to cope in difficult economic environments. The discounting on prices may not be so prevalent; if the business is highly leveraged. Staff will go before prices are dropped on products. What is dangerous in regards to the amount of business debt out there , so again rather than a business model dropping prices and trying to maintain competitiveness. They may maintain prices (or increase). The invertible outcome is the business will just cease to exist. This could become a widespread phenomenon, as credit markets are still tight and business leverage is still high – it could end just going straight to ‘bust.’

So with the IMF central banks and governments, who allowed all this to unfold, attend all these forums and meetings and I quote from the Telegraph, “A world system must be envisaged that is more coherent because it is simpler and more efficient because it is more coordinated,”.

I guess these guys have to justify their existence, but they do nothing. The worst politically and economically error in history was allowing money to be flooded into the economies which then unleashed massive credit growth in all the world economies. This is the error. Consumer excess fulled for political gain and self interested parties in pointless economic positions; such as the central banks and so called regulatory bodies.

The global recession hasn’t even entered the sharp ‘downward’ trend yet. We are just as the cusp, the US will ‘officially’ go into recession soon (although their slowdown has been going on for just under a year).

So stock markets maintain rallies despite the awful US economic numbers – yet all indices still remain very oversold, from Timesonline:

“The main drag on growth came with consumer spending, which slumped in the third quarter at an annual equivalent rate of 3.1 per cent. This marked the first drop in US consumer spending since the end of 1991 and the biggest since the second quarter of 1980.

Economic activity was also sapped as businesses cut back on their investment spending, which fell at a 1 per cent annual rate, after rising by an annual 2.5 per cent in the second quarter. It was the first drop in business investment since the end of 2006.”

But it is Halloween, so in light of Halloween (if you care) are terms used in the market too describe the ‘the dark’, ‘scary’ and ‘the dead’.

I use the term ‘zombie’ a lot, not just because I like zombie movies (which I do). But zombie’s in business and the market fits appropriately (especially now), hence the term ‘zombie business’.

Below is the term and it’s definition, from Investopiedia:

Zombie
In the supernatural world, a zombie is a reanimated corpse infused with the magical energy of voodoo.
Zombies in the investing world aren’t that different from their supernatural cousins. They are companies that are insolvent or on the brink of insolvency, but are still operating as if nothing’s wrong. Although zombies are in or close to Chapter 11 – which allows a business to continue to operate while restructuring its debt – a zombie company is perceived as not having a chance. Therefore, much like the supernatural zombie, the corporate zombie doesn’t know that it’s already dead. As an investor, you should avoid zombie companies like you would avoid the living dead.

In light on AIG’s ‘cooked’ accounts

Voodoo Accounting
Voodoo is a religion practiced chiefly in Caribbean countries and some African countries. In most Western countries, the term “voodoo” connotes black magic and unexplained phenomenon.

Hence the term voodoo accounting: it occurs when a company uses some highly suspicious accounting methods to disguise what’s really going on with the business. These methods can be as simple as spooky math (when numbers don’t add up) or as complex as cooking the books through cookie jar accounting or the big bath. Voodoo accounting can also raise zombies of its own. The corporate zombies mentioned above are exactly the type of companies that would use some voodoo accounting to cover up their major financial woes.

Graveyard Markets

A graveyard market, on the other hand, pops up right where you’d expect it to – at the end of a prolonged bear market, when investors have just finished weathering a financial storm. They aren’t exactly moving and shaking like they used to. At the same time, any new investors are tentatively eyeing a market that just beat up the big players. Thus, there is no action either from those already on the inside or from potential new investors on the outside. The parallel between this type of the market and a graveyard is obvious: the dead (longtime investors) can’t get out, and the living (new investors) aren’t rushing to get in.

Investopedia

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Asian Leopard Cat

Posted by Adrian on October 30, 2008

how awesome does this cat look…

I heard about some guy from NYC that bought one, he said it tore his apartment apart. Although they are small cats.

The hybrid domestic cat is the Bengal, check him out (my cat)

Posted in Popular Culture/Culture | Tagged: , | 2 Comments »

Watch Global Currency markets. Country bankruptcy ‘endgames’.

Posted by Adrian on October 27, 2008

Hungary, Ukraine, Argentina, South Korea are countries that could cause a domino effect (within their regions) of risk aversion and panic, sending ‘interconnected’ economies into free fall. Bank of Korea just slashed rates down 0.75%, now siting at 4.25%. The South Korea Won has been hammered in the currencies markets, the barometer of a country’s economic situation is their currency. The Won is indicating that South Korea is going to be hit hard by the major consumption economy (USA) prolonged recession , this may cause the rest of Asia to go into a meltdown. Hence Asian markets liquidating stocks and running out of stocks into the Japanese Yen, powering the Yen to all time highs. This has caused the Yen to be favored over the Euro, which as one point was at 1.66 Yen on November 6th 2007, the Euro now is facing down, a good chance it could bounce off 1.00 Yen. This by no means indicating that the Japanese economy is booming, in fact Japan is a country that is so negative with an ailing stock market, the general market that doesn’t know where the bottom could be – the Nikkei could go much lower before any kind of rebound.

Nikkei (225) 23 yr graph, note the highs in 1990 just shy of 40,000 points, through to the current 7,649. That is 18 years of losses (long term)!

The Japanese YEN like the US dollar are considered low risk as opposed to the EUR, it could be surmised that European economy is collapsing more dramatically than Asia and the US. Ukraine just being bailed out by the IMF, Hungry cold be next and other European countries namely Eastern European could all start to face the reality of defaulting. Of course the big question is Russia’s economic situation?

If there is an ‘endgame’ in the markets would could see whole countries go bankrupt, a global slump with a slew of countries that are broke, from the Americas to Europe and parts of Asia

The constant reminder of volatility in the market is the intervention of all the global central banks and governments; this intervention is of course delaying a huge invertible outcome. Thus at the same time causing a market to become even more jittery.

One can solely blame intervention by global governments and central Banks for the volatility, check the VIX out:incredible.

The market simple can’t find a bottom. With a accelerated global slump occurring the worst thing the central banks and governments can do is pump money into the system and cut interest rates.

Especially with the extreme market volatility with emerging and developed economies currencies.

A range of currencies will be sold off dramatically in the market, if Argentina or a European country or countries start knocking on the IMF door. If South Korea looks for a bailout package, expect the Australian Dollar and New Zealand Dollar to crash below current supports. With the AUD most definitely heading below 0.60.

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

CNBC reporters versus Jim Rogers

Posted by Adrian on October 24, 2008

I like Jim Rogers, smart guy and to the point with no BS. He hacks into the Federal Reserve and that foolish Ben Bernanke, why not? Those financial controllers at the helm using tax payers money have been wrong literally every time they open their mouths.

Jim Rogers being an ardent critic of the incompetence of the US Federal Reserve, with CNN business reporters living in a kinda shielded bubble, muddled by graphs, statistics and their own paranoia of show ratings. It’s a classic example of a clash of reality (Rogers) with denial (CNBC)

Anyway, one reporter tries to derail Jim rogers with the ‘AIG didn’t go bankrupt’ (by legal definition) and ‘look at all that deflation out there (stocks, home prices) how is anything going to be inflationary?’ and the Federal Reserve is staving off a 2nd Great Depression by ‘flooding the markets with liquidity and buying banks’.

AIG were bankrupt in the business sense, yes a business can go bankrupt and still operate, hence the term ‘zombie business’. More so applicable since the US government literally owns the whole thing now, just take a look at their share price. The legal definition is filing for bankruptcy’s (Chapter 11).

Again, one should use that term Zombie banks in conjunction with a market perspective on bankruptcy. The market will see unprofitable business entities that just sit there with a government animating the entity, as businesses that shouldn’t exist. Whether they will stop consumer panic or not, at the end of the day it won’t matter; a zombie business offers nothing to the greater economy.

Regardless the market can declare a business bankrupt quicker than any court.

Credit expansion caused bubbles, now unwinding and coming down like a sledge hammer. Whether the central banks of the world can stave of banks runs is still disputable, you can sustain panic but only for so long. But to sustain panic by creating another bubble is double the pain.

Yes deflation in stocks and inflation on a loaf of bread. Since most if not all the governments of the world have played down inflation for so long, we might just get a nasty stagflation slump.

Jim Rogers has a nice little dig at the business report saying how they suggest buying ‘tech’ shares in a time when silicon valley will shrink (note recently Yahoo sacking staff.)

Anyway the CNBC reporter is fucking clueless.

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The Euro’s rapid decline

Posted by Adrian on October 23, 2008

Super models, billionaires and European tourists pushed their luck with the European euro. All on the premise that the US dollar would tank into oblivion.

The market (generally) didn’t factor in rapid declines especially when risk aversion has kicked in big time. Since the USD was so over sold and dead in the water for so long, any high risk over bought currencies were going to get a wake up call.

The EUR has, refer to graph (hit lows of 0.97 although I would say that is glitch in the system, still what a sight):

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Countries at risk of bankruptcy: Argentina, South America

Posted by Adrian on October 22, 2008

As emerging economies come under increasing strain, particularly from tighter credit conditions and risk aversion; namely on currency exchange. High inflation has been an extreme problem for emerging economies. The one country or region that has been followed extensively on morbius glass (in regards to inflation and over valued stocks) has been Argentina and the South American economy.

Argentina already with a track record of defaulting on it’s loans is about to do it again. The Argentine president Cristina Fernandez de Kirchner recently requested that the Argentinian pension funds now come under government control, you don’t need to be an market analyst to know that the proposal is to pay off government debt. This is acknowledged through out the market and now looks certain that Argentina will be the first South American country to go bankrupt.

The current play down on Argentina’s looming default is it will be contained default (in other words the market has factored this in, bonds, stocks etc), we have heard that before haven’t we? Say the credit crisis, the words ‘contained’, ‘de-coupling’ and other phrases that simplified global connected markets and their perilous influence on each other. Synchronised booms are now being followed with a bust. South American economies could go into free fall on the extent of a rapidly slowing Chinese economy. With emerging markets showing weakness, to the point of going bankrupt. This would be a clearer indication that the broader global economy is in a lot of trouble.

Please refer to previous posts following Argentina and the South American economy:

Posted: Jan 8th 2008

Australia entering into hyperinflation? (update1) – America’s recession, Australia and South America’s China bet.

Posted: Jan 22nd 2008

All global stock markets decline, reinforced by the global Liquidity and Credit crisis.

Posted: Feb 13th 2008

Inflation – Asia, Southern Hemisphere

Posted:March 6th 2008

Argentina, Brazil high inflation, energy issues could lead to sharp decline on Stockmarket

Posted:

12th June 2008 Market conditions return to extreme volatility

Posted: October 9th 2008

Brace for a global recession (update 1) – ‘you can’t talk or buy your self outta this one’ (re governments and central banks). Commodity producing countries will take big hit’s.

Of course the share price of a country is it’s currency, this will be followed closely on morbius glass:

The Argentine Perso Cross rates against the US dollar:

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

Recession’s and society change.

Posted by Adrian on October 21, 2008

When I was at school they never taught children the concept of adaptation. Of course I am not a big fan of modern day schooling, if fact the education system is a shambles – and I still think there is that left over late 1970’s and 1980’s psychometric and behavioral biology, that still lingers in the schooling system. Which I believe caused a huge amount of harm to child development in education. The rigid schooling system, ala disciplinary grading and ‘survival of the fittest’ doesn’t really prepare children for the future. Although the education system is intrinsically locked into this current capitalistic system that is amidst a change; a change into the unknown. Could this effect education too? Hard to say, but I have heard certain commentators mock the ‘education system’ commenting on every second student wanting to graduate university with an MBA, or become a CFA, or CPA, in other words work in finance and become a captain of industries. Although the huge recession that is about to hit the world globally is going to ‘mock’ that romanticism of upper schooling and it’s migration to the high paid jobs in the finance industry.

So when I use the term adaptation, I mean it in the sense that life is unpredictable, there is no straight plan or structure. This is the problem, because schooling, education doesn’t allow flexibility. Since you lean and develop problem solving (based on a ‘programming’ from traditional style schooling), it is also essentially to have that ability of adjusting to change – which is not taught, how could it be? Our educational systems prepare slots for children to fit into; the system can’t handle a break or divergence in the educational structure. So therefor children after leaving school find it hard to adapt to change in the workplace. The intrinsic ability in oneself (cultural and/or biological) to change and adapt, especially when taught one way of thinking, is in the small minority.

For the most part, if we are talking about business structure and employment, we tend to believe in the authoritarian solution (refer to the the current fiasco of our financial ‘leaders’ and their ‘plans’). We hope that somewhere at the top they have got it sorted, they will develop the strategy to implicate change and adaption. Sadly if you believed that the leaders have got the master plan, you will most likely see the veiled betrayal instead. My ears bleed when I hear the clueless, inept and blind (leaders) spew out some crazy talk.

So with a return of the robber barron’s and government’ looking out for the rich (almost too blatantly), does that mean that our old nemesis of the free markets Communism will come into play? Highly unlikely. But still a change is there somewhere, maybe something we haven’t seen before a development of a new economic, free market model.

How our recessionary society will react is hard to predict as far as trends (survival or otherwise) in an economic depressed economy. But history has shown what occurs in economic down-times. Yes there will be less money going around, although no this may not be a deflationary recession. So there are so many variables in this ‘slump’. One meaning that some prices will continue to rise. The survival aspect is hearsay, but the outcome after a harsh recession (especially the unfolding present one) could be dramatic and unclear.

There a good article on the changes of lifestyle in an economic downturn, mostly negative (lifestyles), written in the New York Times. Although the article doesn’t discuss in detail adaption when things go south economically and it’s widespread social implication. It does talk about the various trends that occur, people are generally healthy (physically), they lose weight, although mental illness becomes a widespread proplem.

Regardless it’s an interesting read, despite the fact there is a lot of unknown aspects to what this recession may have in store for us all. Article here

Recently on the BBC there was an re-enactment of an discussion with a London Banker, who wanted to remain anonymous. It was an actor that had a transcript (possibly from an interview), the banker went onto say ‘yes we were responsible for the mess’, ‘but so was everyone else’ and he also said ‘we knew deep down something wasn’t right with the whole market (CDO’s, CDS – mortgage related securities and derivatives) but we didn’t stop’.

The point I am trying to make here is the continued equilibrium in everything just doesn’t exist, for some reason we don’t accept that things will come to end. I discussed this in an older post I wrote at the end of 2007 called Forecasts and Risk assessments. Can we predict the future?

Old Models become obsolete, new ones are born. But the question is asked do we learn from our mistakes this time? Or continue to make them?

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morbius glass quote of the month October 2008 – Platoon 1986 (Oliver Stone)

Posted by Adrian on October 17, 2008

I dedicate this quote to everyone who reads this blog. Especially in light of the economic problems in the world at the moment and it’s effect on people.

From one of my favorite movies, Oliver Stone’s Platoon,

Charlie Sheen’s Character Taylor: “Have you ever gotten into a mistake that you just can’t get out of, King?”

King’s reply:

“There is a way out of everything, man. Just keep your pecker hard and your powder dry and the worm will turn.

The quote is self explanatory, if your a female reading this blog replace ‘pecker’ with being positive or a close comparison.

Posted in Popular Culture/Culture | Tagged: , | 1 Comment »

Secret Six #1. Written by Gail Simone; Art by Nicola Scott and Doug Hazlewood; Cover by Cliff Chiang.

Posted by Adrian on October 17, 2008

I like Gail Simone’s writing. It’s cynical, offbeat and doesn’t follow the straight line, or formula. Well there is style and I guess you could say formula in her writing. But her style which is a far cry from black and white scenarios, she merges a lot more chaos, unpredictability and individuality in her stories. Unique character traits because her characters do not follow the standard structures. She writes about the anti-hero, or the reality that no one is that good all the time (as far as comic heroes go). The Secret Six fits into this unique paradigm. Each character has issues, but they seem relatively stable and honest in their view of the world. I mean to a point where you can relate and identify with the characters, or maybe it’s the realization that since we all have gone through a time of governmental, society even scientific assumptions that theorized, ‘yes we know how humans think and act now’ or ‘we broke that mysteries human code’ and finally ‘yes they are predictable’. Hence our horrible leaders like that dreadful English Prime Minister Tony Blair (famous quote “Why, thanks to economic growth, billions of pounds of wealth has been created, not lost in … boom and bust” – 1999 speach) and his hopeless predecessor (that fool Gordon Brown – UK), not to forget the political joke (and a bad one) of the 21st century George Bush and also not to forget the slew of other ‘leaders; that made statements and policy pertaining that society and culture is a one track ‘stable’ mind (the joke is on them of course – re: economic chaos and turmoil). Remember George Bush’s ridicules verbal vomit when he said, ‘if you are either with us or against us’. The premise being ‘us’ a homogeneous mass of ‘yes men’ and ‘yes women’ (a society of dumbed down gullible fools, ok may that was true to a degree – but we are all snapping out of that now, right?).

My point is when you read Simone’s comics, particularly her Secret Six series, she kinda tears that one track homogeneous thought patten into a billion pieces, reaches the expectation that chaos and mayhem is the basis around culture and society. Which is basically the human condition (culture), of course at the end of the day, that chaos, that uniqueness and unfortunately at times mayhem and violence. Gives rise to progression that then fights against oppression and tyranny. Yeah philosophical, but what the fuck.

So, the Secret Six are heroes, they know what is right and wrong and that blurring line between, but it’s done with the expectation that at the end of the day, ‘what’s in it for me’ and ‘no I don’t work for you’ or believe in your moral crusade. Which is to serve your self interest and I end up getting shafted in the end. It’s the highest bidder that gets their attention, but the way the Secret Six are as characters, someone is always trying to double cross them.

Anyway, it’s a great comic, well written, clean art. Very much worth checking out. Recommended.

Check here for my older reviews.

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