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Archive for January, 2009

Capital flights, deficits and protectionism

Posted by Adrian on January 28, 2009

As discussed in World Crisis scenarios for the 21st century – Worldwide economic depression – (update 16), Financial Times online have published an article entitled “Capital flows to developing world at risk”.

This is a fear that is creeping in, whether from high risk countries with massive liabilities, or deficits enlarging creating vulnerability or protectionism causing a retraction of trade and funds. Although not spelt out in the article, it is clear that a worrying sign that a recession could become more of a depressed slump is now being reported.

The financial crisis is so bad even at this point, as the taxpayer is literally holding up the whole global economic system. So the person in the street eventually is going to question governments and their fiscal policy of propping up banks and ‘bad’ businesses.

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Women in Lounge soundtrack (Italian)

Posted by Adrian on January 28, 2009

I wrote a blog piece on this CD awhile back. Dusted off this CD last night. I forgot how good this CD is and the model on the front cover is absolutely gorgeous.

1960’s chill out music with a dash of liquid psychedelics.

935825

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DUBSTEP – Bar 9

Posted by Adrian on January 27, 2009

My cat likes Dubstep, he just sits there looking into my stereo’s speakers.

For humans, think Reggae of a nightmare world of the future. Say dub reggae meets a ‘Bladerunner’ future, in a technocratic fusion of horror.

Sounds good hey?

Check it out:

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World Crisis scenarios for the 21st century – Worldwide economic depression – (update 16)

Posted by Adrian on January 26, 2009

World Crisis scenarios for the 21st century – Worldwide economic depression – (update 16)

2009 could possibly the start of a global economic depression. As governments all over the world scramble to support collapsing asset prices, via stimulus packages and company bailouts, a massive bout of deflation is looming.

In one day (26th Monday 2009) 70,000 jobs were lost from Caterpillar, General Motors, Sprint Nextel, Home Depot and Pfizer

The jobs losses into 2009 will quicken as momentum builds on the economic downturn, what will make the economic situation worst is the government spending programs. Developed countries such as the UK and some European countries may go bankrupt in 2009. UK in particular becoming vulnerable by it’s government spending huge amounts of money to secure banks and the amount of risk it now carries at defaulting on foreign liabilities. This was evident in the dramatic sell off of the GBP (against the Japanese Yen), please refer to graph:
gbp_jpy3

The fear on top of a severe L-shaped recession is now a capital flight of investors pulling funds out of countries, this is a real possibility and an alarming one especially when countries like the UK, America and European countries relay on capital inflows into their markets. The US is another country in a extraordinary risky situation, depending on how deep the recession is in America, and for arguments sake the economy stabilises in 2010; by that stage America could have defaulted on it’s debt and will have little chance of raising capital via oversea investors. Why? If Obama ignites a trade war based on protectionism, this might be cascading effect as economies start to retract from each other. The flow of capital ceases, trade diminished and money is no longer injected into an economy. Instead they (Governments) rev up the money printers for capital, but this also is detrimental as it combines a collapsing economy with inflation. Which ever way it’s look at, a depressed global economic situation appears eminent. Whether a deflation, stagflation orientated depression in 2009, so far it is not looking good.

If the UK goes into a very steep recession and at some point struggles to raise capital and becomes an insolvent country. This will put pressure on the EURO and other countries that have not benefit from a shielded aspect of the EU (which could turn out to be an illusion). Spain, Ireland are at risk of going bankrupt. Iceland would be the bellwether, even though they weren’t in the EU or had the EURO as support. Iceland was still an open economy, as the whole Europe union is, if one country goes down in the EU, then it is without doubt others will follow and the EURO could be sold off dramatically, please refer to graph (EUR and GBP against the YEN) – note the downward pressure on the EUR with the GBP.

eur_jpy_gbp_jpy

Worst still for the EU is some sort of protectionism takes place in Europe, this could essentially be the beginning of the end of the Europe Union.

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Obama and Obama’s team could be the final nail in the coffin for US economy

Posted by Adrian on January 23, 2009

Obama’s overly large and ‘crazy’ economic team have already started trouble. Namely issuing a indication that the US administration could fall into protectionism for the US economy.

Big name companies such as Caterpillar have voiced concerns about a protectionism agenda, now the Treasurer to be (and you thought Hank Paulson was bad) Timothy Geithner, has now issued all sorts of warnings at Asia, namely Japan and China for FX market interference. With currency depreciation from China and Japan maybe selling a ton of it’s currency to drop the powering Yen.

If the new Treasurer to be Timothy Geithner was joking, fair enough. But he isn’t, in fact he has to understand the US economy is so damaged that China who is also damaged, although not as bad  as the US (at this point, but getting there). Could sink the US if a trade war was to occur. Everyone knows China holds a lot of US Treasuries and if they get itchy fingers…

As countries attempt a ‘survival of the fittest’, the US is treading on very shaky ground issuing warnings in the global markets. So Obama’s inward economic perspective, could also mean a larger implosion for the US economy.

With the UK going bankrupt at some point in 2009, the US could be next inline.

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Currency markets revealing the dire problems in global economies

Posted by Adrian on January 21, 2009

The economic crisis that is gripping the banking sector and inter market credit markets, has polarized governments to establish an intervention problem beyond anything seen in the history of capitalism and global markets. As discussed numerous times on morbius glass this intervention is short sighted and dangerous for the future of market stability. So this economic crisis could have essentially burnt it’s self out albeit harshly, but that is the down side of capitalism; you play markets in boom times expect at some point a bust. That is the reality of markets. Still the belief that government intervention from fiscal stimulus to bank and company bailouts will work, has now developed into a frenetic hysteria of ‘bailouts’. Of course this will lead to the next crisis, or more correctly has exasperated the next crisis which in all retrospect could be worst than the credit markets imploding.

So with global economies and the markets still collapsing, the unsure aspect and volatility will continue to erode confidence. A widespread panic is developing again this could be the final drop in global markets, particularly stocks. But currencies are an excellent bellwether to it’s perspective economies.

The next crisis (and this could be sudden) could be accumulation of two things both leading into each other as a severe blow to a countries economic stability. The first is currency destruction, which is now happening on a broader economic front, as all countries have gone mad with stimulus packages and bailouts. A risky disposition under the false pretense that somehow countries will avoid a nasty bout of inflation down the line. We know this as untrue as inflation may not have entirely disappeared. Declines on discretionary items may have fallen dramatically, but I still hear and see increase in energy bills, food. Although containable at this point, it is not unfeasible to see a spike in food prices (depending on weather and climate change) and even oil (depending on the geopolitical volatility of the middle east and output shrinking/costs increasing).

When the UK recently decided to bail out RBS, claiming to 70% ownership of the company. The Great Britain Pound was immediately sold off, this was also on news the the UK government would insure credit worthy mortgages and guarantee bank debt. Not just for one bank, but for all banks. Hence the market factoring in that the UK government has now taken on huge risks, including the Bank of England’s terrible balance sheets which now rely on money printing to continue the flow into the UK economy. Not only does a falling pound represent the losing value of it’s worth, but the risk now of a country that may find it hard to raise capital; it’s government debt could be downgraded. As was Spain’s recently, also Portugal, Greece, Italy, Ukraine. Germany, France and the UK are close to be downgraded as credit worthy nations, in other words no one will want the debt.

Refer to graph of the GBP against the Japanese Yen (From 1.41 7th January 2009, down to 1.24 on the 20th January 2009. The sell off was primary on news of the bank bailout out and government intervention into the UK banking system):

gbp_jpy

With Ireland recently threatening to pull out of the EU if it isn’t bailed out by the EU also effected EURO. The crisis is now in a panic phase, that extends not just from the credit/banking crisis; but politically. As politicians attempt to save their own necks, they are inevitably causing more harm to economic stability than good. It’s a ripple effect, that is becoming more an more pronounced. Disproportional and ‘ad hoc’ intervention is creating far more volatility and market panic, if they were to just allow the markets to correct itself naturally.

In saying that, the EURO was sold off dramatically when Standard and Poor down graded Spain’s sovereign debt, this is a warning shot to the FX markets; that European countries all could be downgraded in someway. With Ireland and Spain who are both extremely over leveraged especially in the property markets.

Refer to graph EURO against the Japanese Yen (from 131  18th December 2008 to 115  20th January 2009)

eur_jpy

One of the better currencies (not in value) for measuring risk and volatility in the global markets is the Australian dollar. Once a favorite in carry trading, especially with Japanese FX traders. The AUD collapsed timed with the stock market collapse in September 2008 from .85 down to .60 in October 2008. Now bouncing around in a wide volatile range between .60 and .72, this would indicate the extreme volatility in the global markets. Although now the AUD is on the downside again, it could most probably breakthrough the .60 support. Especially if Australia gets a rating downgrade, or the Reserve Bank cuts rates aggressively in the coming months. Also to note is Australian government intervention in the banking sector of local credit markets. Other factors global too watch that will effect the AUD is the commodity markets, when or if a recovery occurs soon. Which may be unlikely in the short term.

refer to graph AUD/USD:

aud_usd2

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WOLVERINE # 70 (Marvel Comics) “OLD MAN LOGAN”. Writer: MARK MILLAR Art: STEVE MCNIVEN

Posted by Adrian on January 19, 2009

wolv070_cov

I just picked this comic up, written by Mark Miller art by Steve Mcniven. Nothing better (as far as comics go) than seeing what Wolverine could inflict with his claws. So this comic aint for the faint hearted. It’s gore intensive to a point. An odd story or take on the Wolverine character, reminds me of an old western story where the gunslinger has hung up his gun (after a terrible event forced him to give away violence), of course we know eventually he comes around and blows the bad guys into oblivion.

Miller is a good writer and the artist Mcniven backs it up, with clean lines and a fluid story board.

The story, well 50 years ago Wolverine killed the X-Men by error. It’s alternative future, a decimated America with Wolverine and a blind Hawkseye wandering through the American wasteland.

An interesting ride, check it out.

Posted in Books, Comic Reviews | Tagged: , , , , , , | 2 Comments »

UK bank bail outs, money pumps and governments guaranteeing toxic waste

Posted by Adrian on January 19, 2009

Most investors know by now that bank bail outs from their Central Banks and Treasury’s don’t do much, except a slight rally (on announcement) in bank stocks then down again. UK banks are a mess, with UK government reportable offering to underwrite UK mortgages from various banks, which essentially will shove more waste onto the Bank of England’s balance sheet and their treasury. US president Barack Obama has said recently that he wants the banks that receive huge chunks of what is left from the TARP monies to “not sit on it”, to start “credit flowing again”. Of course bank they will sit on the money, as they are business wanting to remain solvent and hopefully at some point profitable. In damaged and confidence smashed markets, money flows don’t move much at all. With governments kindly giving nice huge amounts to banks that should have been decimated off the face of the economic map – they are now just sitting tight, although with very little profit to show the markets. They (banks) can essentially sit this out when market returns to normality and that may be 5-8 years from now. Regardless in the meantime the country loaning or giving them money may have gone bankrupt.

Say for argument sake a bank/or banks start giving out credit again, via taxpayer reassurance and guarantees from their county’s central bank. The taxpayer (if inclined) could make the assumption (correctly) that the credit being pushed bank into the system is basically taxpayer funded. The possibility of consumers then taking on huge amounts of debt again (unlikely though) could be done in such a way where the consumer may feel vindicated if they default on that debt. In other words whilst credit is still being offered and I am paying for it via taxpayer funded schemes through central banks, who cares. Give me more!  I joked about this with a friend and envisioned (jokingly) taxpayers running up huge credit card payments then throwing the cards in bin and applying for more, since the governments are now underwriting bank debt, a continued cycle of credit busts.

Of course this is not going to happen, banks most likely will continue hording and as mentioned high risk consumers who are not credit worthy (that is pretty much everyone) won’t get loans.

Make no mistake this is government policy interference in the markets, which is short sited and dangerous. Account deficit’s, downgraded of government debt and eventual bust on US Treasuries and the US dollar. It is frightening what governments are doing to the economies. They are destroying their accounts and currencies; note Ireland recently threatening to pull out of the EU, unless the EU bailout Ireland’s economy (an indication that Ireland is potential ready to default on it’s debt). Government funding is going to be extraordinarily hard to obtain and since they are all going to run into huge account deficits, expect big hikes in taxes including savage cuts to essential public spending. Inflation no doubt will arrive again, even against a collapsing economy – with currency destruction now widespread, the USD could lead the charge into a currency collapse with the EURO hot on it’s heels. If the EU breaks up and the USD collapses further into 2009 – that will send a shock wave into the markets that would make Lehman collapse look like an entree.

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Israel has lost the plot in Gaza.

Posted by Adrian on January 15, 2009

The is a great quote from Sun Tzu ‘The Art of War’, it goes. “if the smaller side is stubborn, it becomes the captive of the larger side”. This quote could be interpreted as Israel as the larger side and Hamas being the smaller. But it can’t, instead it unfortunately reads the other way around. Israel is now becoming desperate and stubborn, especially with a cease fire being frantically pieced together by the UN and Egypt. The propaganda war has already being lost for Israel, whether deliberately or not the mass of civilian Palestinian causalities is so disproportional it is shocking.

The governments of the world and the UN, media and pretty much everyone agrees that Israel has gone too far and now is becoming entrenched in the same old error that America made in Vietnam, Iraq and next will be Afghanistan – a quagmire war. In which they become stuck in a continual battle that is un-winnable within the context of traditional warfare. The enemy adapts and adapts very well, entrenching positions and scaling back, relying on the other side to inflict it’s superior firepower that ends up killing a lot of civilians. Hence the smaller side gains a winning hand by showing the media the huge amount atrocities committed. If Israel is playing into this tactic, they will lose on a broader front, both from it’s standing in the world, it’s military antics and it’s political leadership.

So far Israel has targeted the UN three times, all from the excuse that Hamas has fired on Israeli positions near or in UN compounds. Of course all denied by the UN. What Israel could be doing is desperately trying to turn the media attention on Hamas, by saying Hamas are utilizing the UN as shields. This could be Israel’s attempt at demonizing the enemy. Has it worked? No. The media doesn’t buy it (because the have been banned independently from entering the Gaza strip), the UN certainly doesn’t buy it; so of course it will be another dent for the Israeli campaign.

Yet the civilian causalities pile up, disgraceful and aimless attacks on civilian positions serves only to weaken the moral of the campaign, both military and Israeli (home) support. Of course the US has a vested interest for Israel in the middle east which is to be it’s guard dog to watch Iran. So don’t expect too much from the incoming Obama administration.

Listening to some of theses Israeli officials, you wonder if these guys take some heavy drugs. Although an ex Israeli military commander did make a lot of sense in the media recently saying that the Israel’s outcome to ‘win’ this war, may not be achieved. Hamas knows this that is why they continue with their rocket attacks into Israel.

Hamas also knows they can’t win against Israel, it’s a deadlock with civilian annihilation (mostly from Gaza)

So some major negotiating has take tale place between Hamas and Israel. As demonstrated Israel could turn the whole Gaza strip into a desert. They both need to talk and resolve this once and for all.

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2009 – Get ready for massive deflation, US dollar destruction and the global economy slump further into recession – Japan in recession is now facing sharp deflation (update 1)

Posted by Adrian on January 15, 2009

Japan could be the first nation to record record falls in prices hence the term deflation. A country that relies heavily on continue demand from wealthy developed nations is now amidst a nasty deflation spiral. Although I would say the deflation will grip the whole global economy it would be worth noting the countries that are especially prone to a deflation downturn will go first, such as Japan

refer to graph:
jpcgpi0109

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