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Agric |
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Veteran Posts: 214  | [1/11/11 - dates are when I wrote, will try to do at least weekly updates here] George shoots himself in head... Bullet passes through greeks' chest, then Euroland balls, and lodges in the gut of the global financial system. I kind of understand Papandreou's logic - what chance has he got of greek compliance with austerity measures without a plebecite? But the air will be blue when he next meets Merkel and Sarkozy. No one saw this move coming, George has been very naughty and it's hard to imagine him and the greeks not getting a very serious spanking. The recent Euroland solution, so lauded (and marginally better than I expected), intended to prop things up for at least 6 to 12 months, looks dead within a week. George's time as greek PM could be over by weekend, his govt soon after. A January referendum is far too long for Euroland to wait on. Stocks are down 5 to 10% in less than 2 days, Italy's 10 year bonds are now paying over 6% - close to unsustainable. We need some rabbits from hats, NOW. This will be the pattern henceforth: crises patched up with emergency short term measures and platitudes until the unbelievable is accepted as unbelievable. Then the inevitable fever will run its course and the patient (global financial system) will live or die. Difficult to conceive of Greece staying within Euroland if they do not impose the required austerity, certainly Germany won't keep feeding them if they don't take the nasty medicine - Merkel has little choice, her electorate and parliament are close to rebellion, too. But there probably is too much time between now and a greek referendum and / or election, enough time for Euroland to come crashing down. We shall see. Technically on stocks, they followed a quite neat rangebound sinewave through August and September, broke those lows on 3rd /4th Oct then bounced as if stung up through the range high - this last Oct was the best month since 1974, near 15% gain for the US S&P 500 index. This could be a 'megaphone pattern' forming, which should have another lower low and higher high before breaking violently down. If so we should see a drop to about two thirds of Monday's stock levels sometime in January. This is an interesting stage in the rollercoaster, there could be *BIG* surprises round one of the next very near corners so strap in tight. My current best guess is game over in 12 +/- 3 months. [2/11/11] George got his spanking: do the austerity or get out of Euroland. He reckons he can hold the referendum as early as 4th Dec, I read somewhere that Greece needs more bailout money on 5th Dec so that's cutting things a bit fine if it's true (they ain't getting any more money unless they do what they've been told and agreed to). The cost of lending to insolvent banks if Greece totally defaults on its bonds would probably wipe out all the remaining 250bn euro in the unleveraged 440bn euro EFSF so there needs to be a scramble to bolster and / or leverage the EFSF just in case. December 4th seems both too close yet too distant in different ways, the next 5 weeks could be very unpredictable and chaotic, navigating a safe path will probably be difficult. Somehow contagion must be stopped from spreading to Italy - if that happens in the near-ish future it's hard to see where the money could come from to keep Italy, and the banks exposed to its debt, afloat. More positively, exiting Euroland will likely be significantly more painful for Greece than staying in and taking the medicine so they should, if sane, vote to stay in. That would almost certainly be the less dangerous short-medium term result for Euroland and the financial system. G20 meets 3/11/11, greek govt confidence vote and US NFP data 4/11/11, heigh ho. [3/11/11] Greek bonds now worth 30% of face value - banks getting 50% for them plus bailout loans look a bargain. Italian 10 year bonds at 6.4% interest. Greece all over the place, nowt significant out of G20, inconclusive day despite all the flap. [4/11/11] G20 ends, pathetic, very disappointing; basically says 'Euroland should sort its problems out' but does nothing constructive to help. China will let its Yuan float more flexibly (I haven't seen any hard detail on this, may not be any), I would say this is a smart move and good timing on China's part. Some noises about bolstering IMF funds but nothing concrete, I read on Bloomberg that the IMF war chest is a mere $391bn - a drop in this storm - it needs much more. US NFP headline number disappointed slightly but upward revisions of about 50k jobs for each of last 2 months made it quite positive. Greek bonds value up to 37% of face value, Italy 10 year bond at 6.41% interest. George scrapes home in his confidence vote and aims to create a new coalition govt to agree Euroland terms. Objective: to buy enough time to get next fix of Euroland money, an addict will promise everything, a loving parent will believe almost anything. | ||
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| John Wood |
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Regular Posts: 79  Location: Cromarty | After Greece, Italy. We are entering a new world where governments are not elected but appointed by the financial markets over the heads of the people. Berlusconi has cleverly stepped aside to let someone else take the flak for the unpopular measures about to hit his country, while retaining his majority in the Italian Parliament so he can come back and rescue the people from the nasty Eurocrats when (if?) the time comes. It seems the banks that were too big to fail and who had to be bailed out by taxpayers are now taking over entire countries. This is not a good sign at all. The only solution for real people living real lives is to have real, locally based economies that are less dependent on the greedy international money markets. In other words, the Transition model! | ||
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| Martin |
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Veteran Posts: 275 | I agree with most of this, but it's a bit simplistic to suggest the financial markets have somehow usurped the democratic process. Governments have to be able to deliver what they promise and the Greek and Italian governments made popular promises, got elected, but found they couldn't deliver. So then they have to either go back to the electorate and say "sorry, I got it wrong, but here's a new plan" - which is what Papandreou tried to do - or they accept that they have lost authority and let someone else have a go - which is what Papandreou and Berlusconi eventually had to do. There is, admittedly, at that point a pretty severe democratic failure because in both cases the new PM emerges without election - but to some extent that's a feature of proportional representation, where no one politician is elected as PM, it's the one who can put together a workable majority (or even a workable minority) who gets the job. | ||
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| Agric |
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Veteran Posts: 214 | [6/11/11] George paid the price of his aberrant referendum call, a temporary coalition greek govt without Papandreou will be formed to pass the necessary austerity measures prior to a general election. Expect the focus to now move to Italy and (probably more importantly) where Euroland will conjure the required EFSF money from, real or imaginary. I need to find a good link to real time sovereign bond interest rates, heard these over the weekend for 10 year bonds: Greece 24% (shorter term are much higher), Portugal 11%, Ireland 8%, Hungary 8%. The higher the rate the more likely markets expect default. Will be interesting to see market behaviour on Monday. Will they stage a relief rally because the Euroland world hasn't collapsed yet or will they drop because the future doesn't look too bright? My head says up, my gut says down. We had the first decent frosts of this winter last night and tonight, time to make rowanberry jelly (if the birds and winds haven't taken them) and sloe gin. [9/11/11] Credit default swap (CDS) bets that italian bond interest rates would go up grew on Monday and Tuesday, and they got their payoff today with 10 year reaching 7.4%. Italy can't refinance maturing bonds at that rate (nor could any sane country), it's today's headline story. Good to see the mainstream media doing an adequate job of covering and analysing the situation. Someone with access to cheaper money needs to borrow it then lend on to Italy circumventing market rates, as we plus EC and IMF did for Ireland. Italy is not a basket case like Greece, its economy is probably sound, trade balance of payments and current account deficit better than UK I think. Problems are: low growth, somewhat high debt, political uncertainty, lack of credible austerity measures. The latter two could be partly sorted out within days. Trouble is, traders wanting to make a fast buck can chase interest rates higher by making CDS bets and make those bucks - despite that behavior ultimately destroying the financial system they depend on. That's capitalism in the financial system for you, folks; it will eat itself unless we implement mechanisms to stop it doing so. Italy needs to do its bit by ditching Berlusconi, appointing a national unity govt, passing austerity measures. Euroland's task is harder: it must rapidly bolster the EFSF, give the ECB necessary powers (despite German reservations), and commit to buying italian debt - just like US, Japan and UK have done for theirs. Dunno if they can do these things in time. US Stock markets did indeed go mildly up on Monday and Tuesday, just to prove how disconnected from reality they've become, then had a 3%+ down day today once they realised they couldn't totally ignore reality any longer. My favoured scenario is for them to meander lower till the end of Nov wiping out the Oct surge, rally through Dec (the 'Santa Claus rally' which has become a bit of a fixture) and crash down starting sometime in January. The implication of that is probably: apparently workable patches will be found for the Euroland crisis which will function for a couple of months then come unstuck. But there are many possible paths from here, quite hard to see which ones will dominate, what unexpected spanners might radically change the velocity (direction and speed) of our trajectory. Another strong-ish possibility is the Euroland patches work for 4 to 10 months and other factors become the main determinants meanwhile. [10/11/11] Italy 1 year bond auction of 5bn euro debt - 2x oversubscribed, at 6.09%, near 2% lower than markets were pricing their 1 year bonds yesterday; before rejoicing too much consider that there was probably a lot of arm twisting going on to ensure it was successful. Greece appoints Lukas Papademos as prime minister who has a background in physics and economics, worked at the greek central bank, piloted Greece into the euro. The European Commission's Euroland growth forecast for 2012 cut to 0.5% from 1.8% estimated six months ago, we should be so lucky I'd say. [13/11/11] Silvio kept his word and resigned last night amid rejoicing on italian streets, Italy has a new technocratic govt led by Mario Monti (respected economist, 10 years as EU Commissioner, sounds like a good choice - for the markets at least). Spain should be the third change of Euroland govt in 3 weeks, they have an election coming next weekend - democracy rules for a change! Will be interesting to see whether unelected technocrats fare better or worse than elected politicians. Stocks were Tigger-ish on Friday and may be so Monday but I expect their buoyancy to subside very soon. Euro has held up surprisingly well, lost only 5% vs US$ in last month, Gold approaching its all time highs again, oil strong recently - WTI threatening $100, Brent around $115. No word on where Euroland intends to conjure its much needed money from yet. Another Italy bond auction tomorrow. Syria has reached a dangerous point now with the Arab League suspending its govt from membership, talking with the Syrian opposition, and organised attacks on embassies like Saud's within Syria. [14/11/11] Italy auction of 3bn euro 5 year bonds at 6.29%, about on a par with the previous 1 year auction but not a very encouraging sign. Spain sold some at over 6%, ominous. [17/11/11] Interesting movements in oil prices the last few weeks. The spread (difference) between WTI and Brent, which reached a record of $27.88 on Oct 14th, has narrowed to less than $10 today with Brent trading at $111.88 and WTI $102.59 (next month contract in each case). This year's Brent high was approx $127 and WTI's $114.83 back in March. WTI's low was $74.95 on Oct 4th (which was lowest since Sept 24th 2010) so it's had a 30%+ rise in 6 weeks. Why? The Seaway Pipeline between Cushing, Oklahoma, where WTI is priced, and the Gulf of Mexico is going to be reversed to move oil from Cushing to the Gulf. Previously all the pipelines have run from the Gulf to Cushing but early this year a new pipeline from the north into Cushing left Cushing oversupplied, hence the abnormally low price for WTI since. The Seaway Pipeline reversal will take up to 6 months to implement. I need to revisit data on oil supply and stocks soon, I'm pretty sure they've been failing to meet demand for the last 6+ months despite a slowing global economy. [18/11/11] A spanish sale of 10 year bonds today had an average interest rate of 6.975%, getting scary, up from 5.4% for a similar sale 2 months ago. Spain's only real problem is the current weak state of its economy; its borrowing and current account deficit as a proportion of GDP are lower than most developed economies and it has been more proactive than just about any country in introducing austerity measures. Spain doesn't need to roll-over (refinance maturing) any significant existing debt until next April so these high interest rates should not be a serious problem before then. Perhaps the 'bond vigilanties' are being a bit overzealous prior to the spanish election. These bond vigilanties are near mythical beasts who punish profligate govts by demanding painfully high interest rates for their debt. Really they are just a part of the financial system which buy large amounts of govt bonds. Once upon a long ago time they probably behaved near rationally and served a partly useful purpose but nowadays they chase the fast bucks and are no more rational than the rest of the system. Spain doesn't need more austerity, it needs to spend a bit more to lubricate its economy, more austerity will worsen its economic situation. Yet more austerity is just what the centre-right PP (People's Party) which will almost certainly win the election on Sunday bacause the electorate will punish the socialists for the austerity pain already implemented, is promising. The bond vigilanties are effecting a self-fulfilling prophesy by unfairly attacking Spain, perhaps that is what they desire? If the vigilanties were to behave fairly they would, instead, be punishing US and Japan for monetizing (buying) huge amounts of their own debt. But that would spoil the party, LOL. Yes, we are still in the looking glass world, the inevitable adjustment to reality is looking more painful by the day. [19/11/11] Heard that Goldman Sachs and J P Morgan have, between them, issued $5 trillion of CDS (credit default swaps = bond insurance). This is a mind numbing number, I'm sure it's more than all Eurozone debt by a substantial amount and equally sure much of it is just gambling that bond interest rates will go up rather than insurance. GS and JPM are not saying who's debt the CDS are written against but you can be sure they are using their info to game the markets. [21/11/11] Spain went PP yesterday, as expected. They got a safe overall majority and take office in a month. Egyptian cabinet has offered to resign, protests there against the military for going slow with reform and ceeding power have intensified in the last few days. Stocks lost 3% last week and over 2% today, UK's FTSE has been down 6 days in a row - very unusual. The potential megaphone pattern I anticipated is probably broken but a 'three peaks and a domed house' pattern may be forming with similar results a couple of months hence. If so we may not see the 'Santa Claus rally' and the big down leg could have already started. US bipartisan 'supercommittee' has failed to agree on at least $1.2 trillion of deficit reduction over the next 10 years, now automatic spending cuts falling evenly on domestic and defence spending will be implemented starting in 2013. Or will they? There's talk the Republicans will try to block the defence cuts - that could get messy. These automatic cuts were designed to be unacceptable to both Republican and Democrat sides in the hope of focusing their minds to come up with something better. The impasse has been Democrats requiring some tax increases but Republicans requiring no tax increases - all spending cuts. [23/11/11] Another 2% off stocks today, FTSE down 8 consecutive days, longest such stretch since 2003 - surprising 2008 didn't make such a stretch but that was a more confused, unexpected and precipitate fall, this one has been a slow-ish grind by comparison. They've now clearly broken back well into the range that held from early August through mid October. The thing that puzzles me is why they broke out above it in the absence of positive data. I see no reason for the fall to pause before the low end of that range which is about 5% lower than now. ECB is encouraging the eurobond idea but unless Euroland has a collective fit of panic, and Germany a sudden conversion, they are unlikely to be real within 6 months - and that is probably too long to rescue the system. The best eurobond solution, and easier to implement, is to not replace countries' bonds with them but to use them explicitly to finance the EFSF which can then use the funds to loan to troubled Euroland economies - at a profit - while imposing budgetary discipline on them, rather like a Euroland IMF. This could be implemented quicker and be easier for Germany to accept, and would help counter attacks by the market gamblers (for now, at least). US 2011Q3 GDP got revised down to 2.0% from 2.5% (annualized basis), rather worse than pundits expected (2.3%). They still predict 2.5% for 2011Q4 and similar but moderating growth in 2012, amazing what fairy dust can do. The Yemeni head man promises to ceed power within 30 days, there's a good chance Yemen will split into north and south countries within a year, if there's time for that. Egypt still in flux, some concessions from the military - presidential election by July 2012 - but not clear if that will calm things much. Death count from egyptian protests was 35 last I heard, so things are quite serious. Summarizing: Euroland fragility persisting and increasing, no sign of a sufficiently imminent solution. Yemen, Syria, Egypt in moderately serious turmoil with no real signs of respite. Much of global economy more clearly flat-lining. Stock markets in a fairly fast downwards grind. Positives: commodities are being taken down with stocks (but not as much and could be collateral liquidation); mid-east unrest not spreading yet; european unrest has quietened a bit. Feels like a slow motion car crash, a fuel tank could explode anytime. I think things are now slipping and respites of more than a month or so calm are unlikely, before long (less than a year) we'll probably fall off that cliff. [26/11/11] UK FTSE stopped sliding Friday ending a 9 day 8% drop, US stocks continued their slide, S&P500 has had a 7 day 7.5% drop. More problems with Euroland bond interest rates. We should be nearing a pause point about here, stocks are well oversold and almost never go down continuously for more than 2 weeks. But Euroland and the markets are on very thin ice now. Typical market patterns and seasonality indicate that stocks should end this calendar year between 5 and 10% higher than they stand now, if they don't it would be troubling and may increase risks henceforth. No big change in Middle East, though Syria failed to comply with Arab League demands to allow observers etc and the League are meeting this weekend to decide sanctions. Something I've said before: when possible tipping points are reached things can shift very fast, we are at one of those points now. Odds generally (and do now) favour stabilisation but one of these times there will be a snap and we'll be in a new reality with little possibility of getting back to what we presently consider 'normal'. There is a high probability that one of these shifts will, sooner or later, disable some of the things we, in developed countries, depend on to live as we have for decades. I think that will take 2 such shifts from here, but it could happen in one. My current best guess of when we reach the 50/50 probability of present reality persisting is 14/10/2012, we'll be lucky to get much past then in one piece. It's difficult to guage yet how traumatic the initial breakdown will be, I don't expect it to be total, something of similar scale to the Great Depression and / or the start of the two 20th century global-ish wars - though I don't expect the outbreak of a global war at this stage. On my 'levels of collapse' scale I'm expecting something between levels 1 and 2; how it takes shape and how we respond will determine the probability and severity of further collapse to between levels 2 and 4 on that scale. [28/11/11] OECD downgrades UK GDP forecast for 2012 from 1.8% to 0.5% and says UK has entered a shallow recession already. Stocks go boing by about 2.5%, just a reaction to: oversold levels, two weeks down slide and relief that US retail has done OK to well in the post Thanksgiving sales - a last hurrah, methinks. Tomorrow is GO's Autumn Statement, will be sobering however much he dresses it up. He'll be doing his bit to encourage growth yet contain the inevitably rising govt borrowing due to our lack of growth. It will be over-optimistic - public sector cutbacks began barely 6 months ago and have not yet reached maximum velocity, they'll crimp growth and increase spending due to benefits etc for at least a further year. Despite the howling from Labour I'm largely in agreement with the coalition policy of reducing spending at present rates, I don't think they had any real choice and think we would be in a worse situation already if they had not. However, I'm sure the policies I'd announce tomorrow would be radically different from GO's. Fundamental would be: growth as we have known it is over, it's time to rebalance the economy in a steady-state way and look to maximise our self-sufficiency without resorting to protectionism. One surprise I think he might announce is rowing back a bit on the cut to PV feed in tarriffs, probably by reducing the cut and phasing it in over a longer period. [30/11/11] GO did his stuff, I didn't get the PV FIT tweak I wanted. Good news: he and the govt almost comprehend how bad the mess is (UK and global) we're in. Bad news: that's about all the good news. Given his perception and remit he did the expected, the screwing down of public sector pay to 2 years of 1% rise after 2 years of freeze is probably the most significant measure. Even if things go as well as can be expected we're in for a very painful 5 years, and probability favours worse. UK growth forecasts for 2011 to 2014: 0.9%, 0.7%, 2%+, 2%+ won't happen, be lucky to get half that. Public sector had its tantrum in aid of pensions they will never get. Average UK personal wealth won't increase from 2006 to 2016 - even assuming BAU and their optimistic assumptions, interesting to speculate on when that last occured! Tuitti fruiti, get your tuitti fruiti here. Best tuitti fruiti, best prices. Substitute US$ for ice cream. In what I see as a panic measure to avoid a credit crunch due to lack of interbank lending and increasing scarcity of US$ for short term deposits the US Fed and other central banks said they would make near unlimited US$ available dirt cheap (down from 1.0% to 0.5% interest) to the banking system. Another desperate sticking plaster, possibly in response to rumours that a major european bank might collapse and need resuscitation. Stocks bounced 4% in response. Is this the Santa Claus rally starting a tad early? Could be all the medium rabbits have been pulled out of hats now. We'll be needing the big rabbit soon - a properly funded solution to the Euroland problem. The smoke and mirrors solution announced a few days back involving partial insurance of bonds impressed no one. That magic trick failed, could be a sign of what will come. I know there are some amongst us who've thought I'm rather apocalyptically bonkers, I hope you're closer to thinking the unthinkable. We're on another edge like October 2008 now, we probably won't fall off this one but before long we do slip and this reality shatters. The biggest change in human society since industrialization or possibly even agriculture may be about to happen - enjoy the ride! [06/12/11] Ireland's budget really squeezed their pips, especially the spending and public sector employment cuts building on the previous cut backs which started on the day of Alaistair Darling's last autumn statement. Unemployment is currently above 14% in Ireland and set to go higher despite their budget's avowed intent to put jobs as the primary objective. Ireland has been the most vigourous economy in its attempts to balance its budget, we may have needed to follow suit (and may yet) had the markets lost faith in our policies. Last week stock markets gained about 7%, the best week in 3 years, but look to be stalling at resistance levels. Much will depend on this week's important Euroland action and the response to it. It looks difficult for Euroland to implement policies which will have any real impact before about March 2012 so I expect any positive effect to be short term - and that may have already been discounted by the markets. [07/12/11] Saw "Inside Job" on TV tonight, it does a pretty good job of explaining the causes of the 2008 financial crises and fleshed out a few bones even for me. Not sure how comprehensible it would be if you didn't have a fair grasp of such things already, I hope I could provide a more concise and understandable version. As I watched the latter stages my main thoughts were: it would be wise to liquidate the major US financial players like Ma Goldman,JPM and some others - their influence is far too great and malevolent; break up some of the less influential large ones; levy a serious tax on all significant personal banking earnings since 2000. For credibility's sake major Goldman and JPM employees should be barred from important US public office (since shooting is not presently an option). Been thinking lately of the disparate ways US and Europe have been responding over the last couple of years. US has seriously greased wheels and printed money, Europe has imposed austerity and applied as little oil as it could. So far it would seem Europe has got it wrong, but there are two buts: US$ reserve currency is necessary for their option; it's a long game. Will the US strategy work or backfire? What happens to us all if it goes wrong? | ||
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| Agric |
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Veteran Posts: 214 | [16/05/12] Six months passed, why so long? The big rabbit came out of the hat, with surprisingly little flourish. Euroland conjured LTRO (Long Term Refinancing Option) on 8th Dec 2011 to lend a trillion euros to European-ish banks at 1% annual interest for 3 year terms, about half available Dec 2011, half March 2012. Intended to settle financial markets for a year or more it worked for less than 6 months, the system is feeling queasy again. The logic was impeccable: ECB can't lend to sovereigns directly so lend to banks who'll buy the sovereign debt (incidentally making shedloads of money due to interest rate differentials) 'cos they ain't gonna lend to anyone else. (btw 1 trillion euros is over 3,000 euros for every living human in the EC). Stocks ripped up (that's where the surplus money goes, folks), only faltering in the last month. They are now on a cusp again, testing levels (on the way down) that I thought they wouldn't have exceeded if they were the least bit rational. Almost as if the last 6 months didn't happen, LOL. Amazing what a trillion euros can do. Or not. So, we have bought 6 months continued BAU and are now at another point where the system's unreality threatens to make contact with reality again. Each time this contact with reality looms another rabbit is (must be) found to avoid it. Each time the can is kicked down the road - not as far as was hoped - at huge ultimate cost. No real attempt is made to solve the real problem, but that is because there is no viable solution within the present paradigm. Each successive solution costs more and works shorter, the final frantic attempts at reality avoidance will be interesting to watch when they happen later this year. Many would have you believe this is a greek / PIIGS / Euroland problem. It's not, or rather: that is only the most presently obvious symptom. The problem is systemic: the present financial system is non-viable, incapable of changing sufficiently to become sustainable, and must inevitably break before a viable alternative can be (hopefully) devised and implemented. In an amusing aside, JPM lost a couple of $billion in the last month or so due to a flawed hedging strategy (one designed to minimise the risk of losing money) mostly based on CDS (Credit Default Swaps = bond insurance) derivative transactions. Well, I had to laugh, but they made about that much profit in 2011Q3 using a similar scam betting against themselves. What goes round... Where are we now? Growth in all OECD countries has been substantially below what was expected six months ago, paradigm broken. The greek / Euroland problems are providing a nice proxy for the global system - there is no workable solution. Fudges might be found to delay the inevitable for months or even a year or two but ultimately there is a gap that cannot be bridged however hard we wish or try. I expect the present Euro reality to break this summer (before end September) and the global economic reality to break in about November. Logically the latter would begin with a failure of confidence in Japanese debt and economy but the process will likely be confused, unexpected triggers are very probable. I can't see what potent sticking plasters remain to be invented now, no doubt feverish work is going on to devise something. Monetary policy has been losened as much as possible, banks given about as much near free money as can credibly be printed. Perhaps an immense beefing up of supranational funds like IMF, ECB with more imaginary money - but we must be nearing the point where realisation will dawn that there isn't enough real money in the world to unwind this mess. However, it's reasonably likely we'll have month of relative quiet now - pending the greek election re-run - before Euroland begins its possibly final thrash. After that there might be a few months before the whole system spasms and probably implodes, to some significant extent at least. Obama will be lucky to get his re-election done in time. But it could happen all together, surprisingly suddenly, and now. Then it is a question of how chaotic things become and when 'the powers', both official / country and less official, deem it appropriate to step in with fairly drastic actions. [18/05/12] Yesterday US stocks broke through significant levels and they've continued down today. Although their 10% decline over the last couple of weeks is the worst for 6 months, technicals suggest a further 10% drop before much chance of a pause (1,180 and 1,070 on S&P 500 look critical now, currently at 1,295 from over 1,400 two weeks ago). Rumours and alarums of runs on spanish banks, nothing substantiated (though it's probably happening). Mutterings of greek (euro) money being withdrawn and stuffed under mattresses, invested in overseas property, deposited in foreign banks - all expected in reality and baseless rumour. Think what you would do in this situation if you were a greek and had more than two sticks to rub together. If there is a 'grexit' (greek exit of euro) it will be messy and very, very hard to plan, manage and execute. Financial magic greater than any seen since 2008 will be needed to keep Greece in the euro. G8 meeting this weekend at Camp David, major Euroland meeting next weekend. I will be surprised if either do anywhere near enough to make much difference. But they must. It's last chance saloon now, and not just for Greece or the euro, the whole financial system is at serious risk. Some of the participants half recognise that, but I'm not sure any of them really believe it - yet. More positively... The coming week's weather could be the best of the year for us so far - make the most of it 'cos a cool and rainy spell threatens to return around 28th May. | ||
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| John Wood |
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Regular Posts: 79 Location: Cromarty | Thanks Agric, I always enjoy these and it's good to see them back after the winter. The absurdity of this Alice in Wonderland system gets more and more evident and I am sure you are right that it can't last much longer. It looks like curtains for corporate 'casino' capitalism. People are beginning to realise this emperor has no clothes. Time to get gardening! | ||
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| Agric |
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Veteran Posts: 214 | I'm doing a very poor job of timely posting this here, sorry, will try to do better and aim at a weekly at least update now we are approaching this autumn's cusp. It almost reads nostalgically, LOL. [22/5/12] The Seaway Pipeline reversal was made operational in the last week (see [17/11/11] comments in this thread), we should see WTI oil price move towards parity with Brent over the coming months - Brent has been trading at $10 to $25 premium over the last year or so due to relative glut at Cushing. The spread better in me would sell Brent and buy WTI. Nowt obvious came out of G8 at Camp David. However, the two measures which bought us the last 6 months' stability (unlimited cheap US$ to ease interbank lending and ECB's LTRO) came about 1 month after the last G20 meeting on 3/11/11, there's a chance that isn't coincidental and maybe we'll see similar tricks in a few weeks. Stocks and commodities have paused their slide but odds favour the next significant move being further down. I'd bet that we've seen the 2012 highs for stocks already and, by implication, for the foreseeable future. [1/6/12] [9am] NFP day coming up, and the irish referendum result on new Euroland fiscal rules. Stocks' oversold little bounce ended a couple of days ago and there was a distinct (0.8%) sell off in the last 30 minutes last night. US 2012Q1 GDP was revised down again to 1.9% annualised yesterday. Virtually all US, OECD and BRIC data this week has been worse than markets expected. Notably China and India have been slowing lately, perhaps we have the first significant signs of globalisation unwinding. Over the last couple of months Spain has taken over Italy's position as the most likely big Euroland country to need a bailout, partly for similar reasons as Ireland: banks needing refinancing due to property market collapse. Spain has a less bad soverign debt situation than most OECD countries but that would change if it had to bail out its troubled banks, and spanish bond interest rates have reached danger levels of close to 7% (on 10 year). I've not mentioned France's election yet - Sarkozy lost to Francois Hollande who's much less interested in austerity and more interested in increasing spending to generate growth. Merkel and Germany's austerity stance is looking somewhat isolated, expect Euroland moves to encourage growth but where can the money come from I wonder. [3pm] NFP bad, +69k vs 150k expected, and -50k adjustment to prior two months in total. Initially US stocks sold off near 2%, will the Fed's cohorts manage to goose them up later in the day? Methinks the tide is too strong. [1am] Correct call, they ended about 2.5% down with indexes through 200 day moving averages, last time that happened the next 5 days saw a 12% decline. Even I would be surprised if that repeated but violating the 200 day MA support virtually guarantees further drops in the coming sessions. Some mirage and / or conjuring trick needs to come to the rescue. Ireland voted 60/40 in favour of approving the fiscal rules, markets barely noticed. [16/6/12] Last weekend brought the spanish banks' bailout, not read a proper analysis of its details yet but the bones are: up to 100bn euro from EFSF, which is now getting close to a bare cupboard, to be used only for recapitatising banks, at 3% interest with no austerity strings for spanish govt. Bound to cause envy in Ireland, Italy, Greece who are paying much higher interest with govt strings for their bailouts (govt bonds in the case of Italy) - expect some re-negotiations of their terms. But those noises are subdued pending Sunday's greek election re-run which will set the table for what happens next. Govts and central banks have been at pains to emphasize they stand ready with buckets of liquidity to put out any fires caused by the greek election and the financial system has been relatively calm over the last few days. Stocks have, surprisingly to me and despite worse than expected economic data, bounced around in a fairly narrow range with alternating up and down days, some fairly big. The ups seem to be due to speculation on QE3 from the Fed at their meeting next week. This is a somewhat delicate matter since goosing the US economy close to an election is seen as politically partisan, Romney's team have already been making loud warning noises to the Fed. This week is the last time before the election the Fed could get away with any moetary easing except as emergency response to a serious crisis. If there's no QE3 expect stocks to drop, if there is QE3 this week they will likely go up over coming months, the odds look 40% they will QE3. Commodities have generally had a bad 12 months, down over 20% overall, though some foodstuffs (cattle, rice, wheat) have held up well. Oil is reaching the point where some of the unconventional sources (deepwater, canadian tar sands, fracked shales) are close to becoming uneconomic, and some OPEC nations are feeling pain, so I expect oil prices to rebound within a few weeks, though the price could go lower yet in the very short term. July could be a good time to fill up your heating oil tanks. [18/6/12] The Greek result was about as good as the EU could expect: two pro-austerity deal parties (New Democracy - conservative, and Pasok - socialist, normally sworn enemies) have sufficient seats for a majority in parliament despite the majority of votes having been cast for anti-austerity deal parties. It should be possible for a coalition to be cobbled together (probably need a 3rd party to referee the fisticuffs) but the probability of any coalition lasting a year doesn't look high. Asian markets responded positively, as did european for the first hour or so, but Europe and US ended more or less flat citing concern that spanish 10yr bond yields increased to over 7%. Egypt's presidential election happened serenely enough, result to be known in a couple more days (Muslim Brotherhood candidate seems confident) - which is sooner than the president's powers will be. In the days prior, however, Egypt's constitutional court nullified last year's parliamentary elections and disbanded the parliament, and the presently ruling military council granted itself wide ranging powers including drafting the constitution. Exactly who will have what constitutional powers in future seems very murky, there could be trouble. The media have been quiet-ish on Syria for a week, it looked to be spiraling into more obvious civil war after reports of grotesque atrocities which our media were laying at the syrian regime's door. All has not been sweetness and light in Libya over the last few months, Yemen is probably in worse shape than it was a few months ago, and the Saud heir designate died a couple of days ago. European sanctions on Iranian oil coming into effect on 1st July. Plenty of scope for more 'arab spring' chaos to come. G20 meeting just starting, US Fed meeting mid-week. But I'd guess that many more Brits know much more about the euro-football and / or Corrie and Eastenders than the stuff I've spouted about today. [20/6/12] Only one significant item from the G20: China and others stumped up money to beef up the IMF's emergency fund in exchange for increased influence within the IMF which has basically been a US poodle / arm of its economic imperialism. Will update details once I've been online to find them. Fed 'stands ready' to QE3 if and when necessary, meanwhile extends 'Operation Twist' to end of 2012 costing $267bn. Operation Twist simply buys back previously issued longer term US bonds (debt) which are already sloshing round the money markets, funding those purchases by selling shorter term bonds. The objective is to reduce longer term market interest rates - which has a beneficial effect on mortgage and business loan costs - and it seems to do that reasonably well. The downside is: because longer duration govt debt is replaced by shorter duration debt there will be more debt to refinance (rollover) in the medium term, this will hurt if (when!) interest rates increase, though the Fed says it will keep them at current near zero levels at least till end 2014. A prudent country would issue more long to very long term debt when interest rates are low, like now, and UK has been doing so. Fed also downgraded its assessment of the US economy and its growth over the 3 years, blaming it on Europe, US Congress and unemployment being stubborn. Initial market response was fairly neutral but I will be surprised if we don't get a bit of a drop in stocks over next days and weeks as a result (they want their QE3). Greece has a govt: New Democracy + Pasok + Democratic Left. Next step is renegotiation with Euroland, Germany still being publically somewhat inflexible on that. Greece needs regular and substantial transfusions of money in the next few months, it would not be helpful for the renegotiaton to degenerate into a game of chicken. Announcement of egyptian president is delayed, citing a large number of complaints about the voting process which need to be investigated. Uh-oh. Could get nasty. [22/6/12] Midsummer was cool and wet and that weather looks likely to persist till Sunday at least. The earliest potatoes, planted outside on 10/4/12, need about another week before they're worth digging. This spring has been very stop-start with more emphasis on the stop. The first 'Smith Period' of the year on 8/9th June was very early (normally it's in July) but only just met the criteria and doesn't seem to have caused any blight here. Latest US econonews was bad: Philly Fed and Empire State manufacturing indexes significantly worse than expected and indicating contraction, housing data suggesting the spring bounce probably illusory. Egyptian presidential result expected Sunday, relative quiet on arabian and Euroland news for now. Unlikely to last long. [24/6/12] Syria shot down aTurkish military jet. Ooops, not something I would do if I was Assad, Turkey has a fairly potent military machine. Accidentally? Deliberately (and, if so, why)? In or out of syrian airspace? Not much news on this later in day, though Turkey are looking more likely to pursue diplomatic UN / NATO response than direct military action. Morsi, Muslim Brotherhood candidate, won Egypt by 52 to 48% - a slim-ish margin but better than the majority in most US presidential elections since 1960. Probably just as well, there could have been rebellion on the streets if the the result was rigged the other way, perhaps the delay was to consider and wisely reject that option. We'll have to wait for a constitution to be devised and probably for new parliamentary elections before we know the real state of affairs. Apologies to those who feel otherwise, I'm rather glad England lost, should reduce the tedium of footie dominance of media. [26/6/12] Syria is now in a state of [civil] war according to its president, Assad. I expect significant desertions from Assad's military and a fairly swift demise for his regime. This will be the cusp of the Arab Spring, Syria was always the keystone of the present arab order, the shape of what will unroll henceforth should be much clearer in a couple of months. Could the House of Saud fall this year? Perhaps not as long a shot as you might think. Despite a couple of weak up days US stocks have fallen about 4% in the 4 market days since Fed meet. Some fools are calling it a buying opportunity, the wise are saying: keep on the sidelines, it's a time to be nervous and watch. Technicals say rangebound with likely breakout lower. Merkel reportedly says ' No Eurobonds as long as I live', I say: be careful what you wish for, Angela. [27/6/12] Stockton, California, population 290,000, declares bankruptcy, the biggest US municipal bankruptcy so far. There will be more such, many more. A major cause is absurdly generous retirement packages for municipal workers brought in over the last 20+ years; before long some municipalities will have insufficient revenue to pay just their retirees' pensions and healthcare. Reductions in property taxes due to the continuing housing slump are a significant factor, too. About 20 US states are financially perilous, including California whose economy is about the same size as UK's. This US problem is perhaps of similar magnitude to that of Euroland, how will they be bailed out? The Fed could print another planetload more money for them but would the financially responsible US states wear that? Barclays, along with various other (as yet un-named) major UK and global banks, were deliberately mis-stating their interbank interest rates over several years (2005-2009 in Barclays' case) to distort derivative markets to their advantage and potentially rig LIBOR (London InterBank Offered Rate, a globally important benchmark interest rate). Barclays have been fined £290m by UK and US financial regulation authorities, more and bigger fines for other banks are probable, and quite possibly criminal proceedings particularly in US where laws against this sort of malfeasance are stronger. Fallout from this could be seismic. The banking and financial system really does seem to be rotten to its core; it needs ripping up and replacing with something more honest, transparent, honourable and fit for purpose. Oddly, Barclays and banking shares were up over 1% on the day. Bonkers. [28/6/12] LOL, UK major bank shares down 10 to 15% today, what could the markets have been thinking yesterday (the news broke around UK market open time)? Perhaps the public and political reaction since has surprised? Maybe the threat of expensive legal battles over compensation? Whatever, the markets thought it no big deal yesterday (I think that says something) and changed their mind today. Should I really be surprised? The serious radio media's take on this today has been similar to mine yesterday but they haven't started to talk about ripping the banks up and replacing them with something better - yet! I'm pleased to hear some decent infomation, analysis and comment. US stocks were having a bad-ish day but recovered 1% in last 30 minutes to close little down, no apparent reason for the rebound, I suspect the usuals. I've been watching the markets (stocks, commodities, currencies) quite closely for a decade now and I'm pretty sure that much of the significant action is engineered, particularly US stocks. The markets are largely rigged, the banks have no honour, there is no integrity left in the financial system, it is beyond redemption, better it is taken down in a controlled manner like Bear Stearns than chaotically like Lehman. Yet another Eurosummit is in progress. No signs yet that Angela will self immolate, minimal signs anything else particularly useful will ensue. The US Supreme court, by a margin of 5 to 4, approved Obamacare more than was expected. Important politically, but the US system breaks before it will have much effect on the people. Afterthought. My big puzzle regarding the interbank interest rate thing: if it was somewhat obvious and being investigated over 5 years ago why has it taken so long to come out? Hmmm. I think a lot more folks knew a lot more than they're letting on (including BoE, FSA, possibly some in govt exchequer dept - but, no doubt, unofficially and with plausible deniability). [3/7/12, morning] Surprise! Apparently significant action from Eurosummit: ESM (Euro Stability Mechanism, which the EFSF plus additional funds morphs into this month) will be able to lend directly to banks, bypassing govts - hence avoiding degrading countries' balance sheets. Also will be allowed to purchase govt debt to reduce interest rates. Essentially the ESM fund of the ECB will be able to do some of the things that other central banks have been doing the last few years = Quantitative Easing. However, the exact rules and oversight mechanisms (Merkel's quid pro quo) will not be clarified until December. Oooops, too late, expect them to be cobbled together sooner in response to the crisis deepening. Partial answers to my afterthought above. Barclays chairman Marcus Ajius resigned Monday, pundits say to take heat off CEO Bob Diamond - to no avail as he resigned today citing 'external pressure', presumably BoE and FSA. Rumours of tacit complicity between BoE and Barclays on understating interbank rates. This would not be too surprising, though very naughty, since it would make the state of the financial system seem less bad than it really was. I think quite a few have sold their souls. Bob is testifying to the treasury select committee on Wednesday, could be interesting to put it mildly. Might some heads at BoE and FSA roll, too? Barclays' shares are up on the news, maybe the markets are just being silly again. [later that night] "Was this symptomatic of the rest of the bank? No, absolutely not." (Marcus Ajius, who's temporarily unresigned to choose the next Baclays CEO). Pull the other one, it's symptomatic of many aspects of the whole banking system, nay - all the financial system, nowadays. COO of Barclays has fallen on his sword, too. Seems that Mervyn King pulled the trigger on Diamond, I would bet the bullet will ricochet and take down some on his side (BoE and FSA). US regulator says 4 other banks collaborated with Barclays in understating interbank rates and are under investigation. Labour vs Tory spat over type and scope of inquiry into banking system, I have sympathy with both sides - it needs to be independent but needs to work fast. My suggestion would be a standing independent oversight committee chaired by a judge with a couple each of: politicians, lawyers, recently ex-bankers and financial regulators. With a remit to interview on oath, produce rapid initial findings then to boldly go wherever they like in their investigations. [10/7/12] Egypt's Constitutional Court rules Morsi's reconvening of parliament 'unconstitutional'. By what f***ing constitution? I ask. This could get messy unless all sides play nice; I can easily imagine the military taking a too inflexible line, Morsi calling their bluff and the people onto the streets. Tianaman Square anyone? But this is one of those times when religion comes in handy, providing a sufficiently strong unifying force, the muslim faction of the people would trump the army. The outcome would probably be a more radically islamic Egypt, exactly what 75% of the egyptian people, its army, and all the non-muslim world, don't want. Bob Diamond's interrogation last week was tame. As was Paul Tucker's (Deputy Govener BoE) yesterday. Questioning was pathetic, doesn't bode well for the banking inquiry to come (Tories got their way). Last Friday's NFP was +80k, worse than the insipid +100K expected, prior months' revisions were negligible. Stocks are meandering nowhere, probably waiting on the US earnings season starting soon, but this June was the best June for US stocks in a decade - for no reason whatsoever! (except, perhaps, a bad May). Euroland looking slightly dodgey again already (a mere 11 days after the last miracle cure), spanish 10yr bonds up to 7% despite 30bn euro being released this July to fund its banks. [16/7/12] Civil war in Syria may be moving towards a relatively imminent denouement, active conflicts getting nearer to central Damascas. US retail sales -0.5% in June, third negative month in a row for a 3 month total of -1.2%, worst since late 2008 when the financial crisis became manifest. 2012Q2 US GDP unlikely to make +1.5% annualised, 6 months ago +3% was expected. Because of the ways US GDP is fiddled I take less than +1.5% to indicate recession, ergo: US is now in recession. IMF revised global growth forecasts distinctly down vs. 3 months ago assessment, especially hard on UK which is now expected to grow 0.2% (from 0.8%) in 2012. Stocks not cratering yet, still hoping for more money printing (aka QE3) to top up the punchbowl. Junkie idiots. Early signs from US Q2 earnings season are lukewarm at best, forward advisories worse. Econonews over last month or so has been almost unremittingly bad. Something needs to be conjured soon else Obama will lose. When he was elected I thought there was a fair chance he would be brave enough to change things sufficiently to make a positive difference. He hasn't; perhaps the US system / machine make it impossible unless faced with breakdown. I thought the same of Tony Blair, too. Maybe I'm too easily fooled and need to become yet more cynical. But US will fall off its cliff quite soon and I would pefer Obama over Romney when that happens. I think another chance of a cusp is very near, the gap between the widely perceived reality and the probably true reality looks close to too wide to maintain. Barclays' ex-COO testified to the treasury committee today, he thought BoE had asked Barclays to understate their borrowing rate for LIBOR. He may well have, but the likelihood of proving the BoE even hinted so looks remote. Good ol' plausible deniability. Probable truth is: several LIBOR contributants were understating their interbank borrowing rates when it suited their trades and / or to bolster confidence in their bank, and BoE knew and was not unhappy about this fraud - probably gave a tacit (deniable) OK and possibly encouragement. There will be a case for damages for businesses forcibly sold LIBOR based interest rate swap hedges as insurance for loans, but most other folks will have gained from the fraud. Heck, it played its part in keeping the system afloat 4 years ago. I tire of this financial (and economic) reality, it is so rotten and doomed. We really need to take the pain and make something new. Sadly, though that will ultimately happen, smoke, mirrors, illusion and delusion will probably delay it a while yet. Spain had another bout of austerity last week to get its bank bailout fix. :-(( US heat wave and drought has intensified over last couple of weeks, US corn and wheat prices have gained 40% in last couple of months (were up 4.5% today) - they might double again in next month or so unless weather improves (gets cooler and wetter) mighty fast - and there's no forecast of that. Methinks it'll be 2008 again in grain prices; if we get a decent August / Sept for harvest here wheat and barley farmers could do nicely if they haven't hedged their crop. (a lot of ifs, I know) The US hot / dry and our cool / wet weather is directly due, in part at least, to the jet stream getting stuck in a somewhat abnormal track for an inordinately long time. Possibly due (according to some credible scientists) to the Arctic getting too hot. Roll a 6-sided die to get which year from now that the Arctic is ice free in summer, all rolls end on a nasty snake to slide down but I don't know if the later ones are better or worse. Japan got seriously wet recently: floods, landslides, many tens of deaths. Forecast is for atypical rains to continue. It's not climate change, move on, nothing to worry about. George Monbiot reckons peak oil is so far off that we'll fry ourselves before it happens. The Leonardo Maugeri study he bases his disbelief in imminent peak oil on has been convincingly torn to shreds by several who know more. He's half right: we'll fry ourselves. I suppose being half-right is a decent qualification nowadays. I guess I need to quantify my position since GM thinks (if he agrees with LM) we can produce 110mbpd (all liquids definition) by 2020. Current production is just over 89mbpd - GM quotes the IEA OMR as saying 91mbpd but I think he may have misread demand as supply: http://omrpublic.iea.org/ I predict global production will never exceed 92mbpd averaged over 6 months (all liquids, 95% probability I estimate, read my 2001-2015 piece for the argument), and that production in 2020 will be below 85mbpd - I think it will be below 50mbpd due to external constraints, if anyone is in a position to measure it. Hey, fellow frog, it's pleasantly warm in this pond. I feel sleepy, fix me another G&T. [20/7/12] A Greenland weather station, "Summit", which rarely records above freezing temps (4 such days in 2001-2011) has just recorded 4 above freezing days in a row. Big chunk has fallen off Greenland's Petermann glacier, Arctic looks like it could be melting its way to a new ice extent minimum this Sept - depends mostly on wind patterns later in summer. Planet looks to be transitioning from ENSO Neutral to El Nino, should make for a quieter than average North Atlantic hurricane season due to higher wind shear in critical areas. Jet Stream moving north to its more usual position, depressions should now be clipping NW Scotland rather than stomping through central England. Soybeans made an all time record high this week, corn within 2% of one, wheat prices continue boyant approaching $10 per bushel (they very briefly spiked to $19 on the Kansas exchange in 2008); 64% of mainland USA now in moderate or worse drought (2nd worst in US history), 42% in severe or worse drought (5th worst in US history). Insurance losses expected to top $50bn making it in the top 4 of losses due to natural disaster; interestingly only one of those was a hurricane, other 3 droughts. Events in Syria quicken: suicide bomber took out 4 of the ruling cadre, Assad forced to pull troops back to Damascas and Aleppo to attempt to re-assert control there, rebels take control of some border posts which will facilitate armaments acquisition. Russia stubbornly continues to back the wrong horse, thwarting UN resolutions. Mervyn King testified to the treasury select committee saying the BoE had absolutely no evidence of anything untoward with LIBOR prior to the revelations a couple of weeks ago. He sounded quite convincing, too, I'll never believe another word he says! US regulators told BoE of their suspicions in 2008. [23/7/12] Beijing has its heaviest rains for 60 years, death toll 37 so far. A presumably co-ordinated series of explosions in Iraq have killed over 100 and injured over 200 more. Spain's 10 year bond interest rate went over 7.5%, european stocks down 2% today in response. Syrian rebels are having a good go at Aleppo, BBC correspondents don't rate their chances since "they're only armed with AK-47's". If you've ever fired an AK-47 you might raise an eyebrow at that. [24/7/12] Apple, AT&T, UPS, Netflix all miss earnings and revenue estimates and give less than positive views on coming months. US stocks are down 2.5% in last 3 trading days and might drop that much tomorrow (Apple off over 5% overnight). Dreams of QE3 and a good 2012Q2 earnings season are what have kept US stocks floating on air. UK GDP tomorrow, US Friday, neither will be pretty, if US prints below 1% (annualised, 1.3% expected) market incontinence may follow. Assad uses jets on Aleppo; more senior defections and army units joining rebels. Writing is clearly on the wall, Assad should leave now else will likely be treated as Gaddafi. [26/7/12] Aleppo increasingly looks like the decisive syrian battlegound. Rebels say they hold about half of it, Assad sends forces from Damascas. Was last week's rebel offensive in Damascas a feignt? Or is their Aleppo move? Or both? Or neither? Whatever, the rebels seem to be dictating events now, unless Assad can wrest the initiative back soon he is likely lost before long. UK 2012Q2 GDP initial estimate was -0.7% (not annualised), worse than anyone predicted (I guessed -0.5%), let's hope the olympics make a significant difference to Q3. UK GDP has contracted in 5 of the last 7 quarters. US Q2 is out tomorrow, I guess +1.2% annualised but US initial estimates are usually optimistic and get revised down later. Stocks didn't sink yesterday and they bounced today due to Mario Draghi (ECB head) saying it can do everything needed to save the euro and it will be enough. Liar! Merkel has not ceeded him half the power and ammunition he needs. After Mervyn King's dissembling last week, Ben Bernanke is looking the most honest major central bank head, wow! Facebook's results tonight disappointed, as have US Q2 corporate earnings generally. Just fairydust and dreams of QE3 keeping stocks up now, logic suggests -10% over next 6 weeks but nothing between +10% and -20% would surprise me. Historic data strongly suggests that now is an annual seasonal low in the gold price (it was $1560-ish last time I looked a couple of days ago). About 70% of the time in the last decade the price has gone up 20%+ at sometime over the following 6 months. If you're thinking of parking money in a gold denominated bank account (eg Goldmoney) for a few months then now is as good a time as any. [28/7/12] US Q2 GDP initial estimate is +1.5% annualised, slightly better than expected, but 6 months ago they were predicting 3%+ by now. My guess is that will get revised down a couple of pips in next couple of months and UK's will get revised up a notch. Stocks still optimistic on Draghi's comments, since supported by Merkel, but that's all hot air, we need to see the money before long. It was options expiry Friday, that tends to goose stocks up, and DJIA broke above 13,000 for the first time in a while. Similar happened at end of April, expect August to be a negative month. The Aleppo confrontation looks inevitable and imminent. Pundits envisage a brutal and bloody artilliary pounding by Assad's forces, and fear the massacre of most of the rebels. I expect the rebels to fair better. Barclays' profits were better than expected despite setting aside £450m to compensate for mis-sold interest rate swaps. Spain's unemployment reaches 24.6% (50% for under 25s). [2/8/12] Mario "big girl's blouse" Draghi was only teasing last week (as I opined), now says I will do everything but not just yet. Angela has the key to his chastity belt and it's hidden where he can't get it. Markets disappointed, droop. NFP day tomorrow, +100k expected so the bar is set very low. They should wake up soonish and realise the US is heading towards recession (which I contest it is already in). Scotland's population sets a new high of 5.254m (previous record was in 1974) due mostly to us incomers - heading for the hills, perhaps. Syria proceeding according to expectations, Kofi Anan gives up on his peace job there, expect events to move quite swiftly now towards a rebel victory, they seem to have secured a supply route from Turkey into Aleppo for arms. [3/8/12] NFP +173k, stocks got all excited and gained close to 2%. However, unemployment rate rose from 8.2% to 8.3%. Such discrepancies are common, somewhat dependent on what proportion of the unemployed are bothered to seek work and the different methodologies for the NFP and unemployment stats. [12/8/12] This year's summer arctic ice looks to be heading for new record minima which should occur in the second or third week of September. Until just over a week ago it was managing to keep pace with 2007, the previous record year, despite weather conditions not being anywhere near as conducive for melting. Then there was a big depression for several days which churned and pushed the ice around, stirred up the water layers (lower layers are warmer than surface), and increased melting significantly. Arctic ice seems to have conclusively passed the point of no return, odds favour it being summer ice free within 5 years. Back in 2006, after the then record 2005 but before the more amazing 2007, my guess was 2016. This year could make that optimistic (ie it could be sooner). The last IPCC report suggested 2040 based on data up to 2006 - a big reduction from the prior one which said 2100. links... [13/8/12] Arctic ice melt made a late slot in the BBC R4 6pm news which mentioned new data suggesting it could be summer ice free within a decade. US drought worsens, corn prices duly made new records a couple of weeks ago and continue to trade above the old ones. This has been mentioned in BBC news programs, too. The grain harvests in 2009 to 2011 were good and above demand but this year could knock stockpiles down to the dangerous levels of 2008/9. Corn ethanol production is looking increasingly unacceptable. Egypt's president Morsi yesterday sacked the army's head man amongst others. About a week ago Syria's prime minister defected after just a couple of weeks in the job. Rebels shot down a syrian regime jet today. [16/8/12] UK employment has been quietly improving for the last year despite negative GDP over that time. This is rather like the US over the last decade - increases in part time work and self-employment, and people dropping out of the workforce. So, less positive than it might seem. US authorities have subpoenaed 7 banks on LIBOR fixing (JPM, UBS, Barclays, RBS ...), this is going to be a long running saga with probably major fines / compensation costs on the banks. Stocks have been bobbing just below their April highs lately, we'll know by mid September whether the remainder of the year will be positve or negative (after Ben's annual Jackson Hole speech and the next Fed meeting). Markets are still hoping for more QE, I think they'll be disappointed unless it's in response to things taking a seriously bad turn. [22/8/12] All's fairly quiet, US stocks continue to threaten their 2012 highs on very low volume. UK govt borrowing in July was troublingly high, Euroland mostly on holiday but Greece will be trying a bit of re-negotiation with Merkel and Hollande later this week. FOMC minutes say most of its participants favour more QE, Romney and Obama virtually tied in the presidential race might tie FOMC hands a bit - particularly if Ben wants to keep his job if Romney wins. [24/8/12] UK 2012Q2 GDP revised up to -0.5% whoopee! The second week of September is looking interesting: Fed meet - last chance of QE before election, Greece needs another infusion of money and isn't meeting its austerity commitments. [26/8/12] Soon to be hurricane Isaac looks headed for New Orleans with landfall overnight Tuesday GMT as a category 2, the storm surge and rain will cause the most damage. Isaac is a big storm and NO may well catch the NE quadrant which is worst for storm surge. [27/8/12] Isaac remains on course, currently perhaps a bit weaker than expected but now entering hotter waters, it will be called a hurricane in a few hours, eyewall looks to have formed. Estimated landfall just west of NO, surge expected at +12' so should not breach levees. Isaac killed 19 so far in Haiti but it may intensify the cholera outbreak there. Some models predict Kirk following similar path to hit in almost 2 weeks (far too long ahead to be reliable). Arctic ice already below all previous recent records, on all ways of measuring, with about 2 to 3 weeks melting to go. Neil Armstrong of one small step moon landing fame has died. It's 40 years this coming December since the last and twelfth human trod the moon, will we ever set foot off-planet again I wonder. [1/9/12] Ben didn't say much at Jackson Hole yesterday beyond summarizing the benefits of the Fed's QE programs in making the recession and recovery better than it would otherwise have been and re-stating that any further QE would be dependent on future data. Ben seems to be leaning towards additional measures at the mid-September Fed meet but it looks finely balanced. Stocks are where they were a month ago and look like they need more QE to rally further. The GOP nomination fest of Romney / Ryan was as good as they could expect, probably got strategy right on speeches' content. The presidential race has Obama still ahead by a whisker but I think if the economy is even slightly worse in two months it will be Romney's to lose at the presidential debates. US GDP was revised slightly up from an annualised +1.5% to +1.7% at second estimate. Isaac brought a lot of rain - up to 20" - and a fair amount of flooding to NO and a large area of the eastern Gulf states. Hopes are it will bring a decent rainfall of 6 to 9" to the drought stricken Missisissipi valley states. Kirk has curved North, should pass between Iceland and Scotland Monday / Tuesday as a fairly normal depression. | ||
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Veteran Posts: 214 | [5/9/12] A huge financial week coming up: BoE and ECB tomorrow, NFP Friday, more Euroland / ECB stuff and german court ruling on whether certain ESFS / ESM actions are permitted early next week, Fed meet to QE or not midweek. This Thursday the spotlight is on big girl's blouse (= BGB), Mario Draghi of the ECB; will he buy bonds, especially spanish, and if so, when and with what strictures. I always get the feeling he will disappoint but tease the markets enough to keep them afloat. Even if he does deliver, the german court could derail it next week. Pundits are expecting NFP +125k after last month's surprisingly good +175k. If it's +150k or better, without significant downward revisions to prior months, then markets will likely get excited. Below +100k will tilt trajectories down for what, seasonally, is often a negative couple of months in the markets. Incredible that a 50k difference in a workforce of around 150m should have such influence, especially given that NFP is a largely fictional number. Gold is toying with $1700, up 8% since its seasonal low around 25th July; it might near $2000 by yearend given slightly favourable currents. By 14th Sept the stage will be set for what could be a turbulent couple of months. [6/9/12] Draghi promises potentially unlimited buying of Euroland countries' short term bonds provided those countries beg for assistance and agree (austerity) terms first. Kind of like an agreed overdraft - which can be withdrawn at any time on the whim of the ECB. A couple of interesting wrinkles - probably hatched by the Bundesbank... The buying will be on the secondary market, not direct from govt auctions. The purchases will be 'sterilized' so they do not increase liquidity, presumably this means the ECB will sell an equivalent amount of other securities. I guess that would be other govt's bonds that it already holds. I have the feeling this process may not work too well in practice, may have unintended adverse consequences. Perhaps the hope is they'll never have to do it, that the words will suffice. If so, they will be disappointed, their bluff will be called. Markets liked it and jumped about 2%, it is perhaps more than they feared, but there's a long step, perhaps even a giant leap, between this statement and the ECB actually doing anything - Mario is a BGB, after all. No other changes to BoE or ECB rates and QE. Gold comfortably leaped the $1700 fence. After hearing Michelle Obama's and Bill Clinton's speeches at the Dem convention it's hard to see how anyone could not vote for Barak. But methinks Clinton's mantra "It's the economy, stupid" echoes hauntingly down the empty corridors of most americans' minds. [2/11/12] A long gap, things have been mostly quiet. The Fed did more than expected in Sept - extended Twist to end 2012 at least and started the unsterilized buying of $45bn MBS (mortgage backed securities) per month for as long as they see fit, it's being called QE Infinity. They are very intent on getting the housing market going, it was already showing some signs of life. Markets liked it but the mid Sept peaks have not been reached since, econodata hasn't been bad but Q3 company results and future guidance have disappointed. Stocks and commodities have range traded for 7 weeks and are presently near the bottom of that 5-ish% range. Hurricane Sandy hit New Jersey a few days ago. It was a huge storm, 1000 miles across, affected 50m people, killed between 50 and 100 in USA, shut off power to 8m households and businesses. The storm surge was its main effect, breaking many all time records, flooding Atlantic City, most low lying parts of New York and some of its subway system, and many other coastal places. Insurance costs will be more than $25bn but expected to have a positive effect on GDP by siphoning that money into the cleanup and reconstruction. US 2012Q3 GDP preliminary estimate was +2% annualized, at high end of expectations; Sept NFP was as expected but the household survey showed a drop in unemployment due to huge numbers no longer seeking work (increased over 350k in a month), pundits smelt a rat to favour Obama. UK employment has continued to be better than expected given the last 9 months recession which ended in 2012Q3 with +1% GDP (not annualized, preliminary). US NFP is due out today, the last important data before the election next week, way too close to call. The electoral college probably marginally favours Obama but Romney has been doing quite well over the last couple of months. The result could be virtually a dead heat with perhaps a single state deciding, or a late surge for either could give a clear win. Dems should hold the Senate, GOP the Congress. My very unconfident and unhappy hunch is that Romney will squeak a very narrow win when voters ask themselves 'are you better off than 4 years ago?'. Checked online for the Zogby forum which I've frequented for the last couple of US presidential elections but, boo hoo, it is no more - Zogby International merged with some Brasilian outfit and they closed the forum down. Nothing dramatically different in Europe but the time when real action is required, rather than words and promises, nears. Syria continues to simmer, I thought it would be reaching the end of Assad about now but it's taking longer. Some contagion to Lebanon. [update 13:30] NFP +171k, above most estimates, but household survey had unemployment up from 7.8% to 7.9%. Converse of last month's data, predictably, and also overall seen as positive, LOL. [8/11/12] My unhappy hunch was wrong, happily; Obama won relatively comfortably in the electoral college, only losing North Carolina of the swing states. The overall vote was tight, Obama had a 2.3% lead - so if 12 voters in 1,000 switched from Obama to Romney the latter would have won the popular vote. Much credit must go to the Obama ground team for getting out their vote, and there was probably a slight positive effect from the way Obama handled storm Sandy. The GOP ('Grand Old Party' = Republicans) have strayed too far to the right as a result of Tea Party influence and their innate reactionary positions on such things as abortion, immigrants, race, welfare, taxes, spending etc. Their primary supporters seem to be white, more male than female, more old than young. Virtually all eligible african americans and about 80% hispanics voted Obama. The GOP should have paid more attention to GW Bush - who had more reliable, if nefarious, ways of winning an election than getting legitimate votes. Maybe the masses of Democrat lawyers standing ready to contest dubious results helped (130 in Ohio alone). Democrats did slightly better in the Senate and House than expected, too, mostly due to several Tea Party Republican candidates self destructing. Stocks sold off 2.4% next day (yesterday), interestingly Smith and Wesson were up 10% on no specific news - sell stocks and buy guns perhaps? (Pundit explanation a day later is expecting a surge in gun sales due to increased risk of anti-gun legislation). Stocks are now just below early September levels prior to ECB and Fed stimuli announcements, and have broken important resistance levels (including 200 day moving averages except for S&P500) on the way down, they need to stabilise and recover a bit else will likely drop further over the next month. Attention now turns to the 'fiscal cliff': a swath of tax increases and spending cuts (about 2:1) due to happen on Jan 1st 2013 which are estimated to cut US GDP by 4% in 2013 if implemented. Some compromise needs to be cobbled together between the President, House and Senate before yearend. I don't think this will be a serious short term problem, if they can't find a medium / long term solution they'll probably just kick the can down the road by 3 to 6 months. The election result should shift the onus a bit towards the GOP to compromise. The US has barely begun to do anything about reducing its budget deficit yet, sometime in the next 6 to 12 months it must. The Greek govt barely managed to get its latest round of austerity measures passed in parliament so it should get its next bailout payment needed within a month. Nervousness about Euroland is increasing now the US elections are done. [Later] US stocks dropped a further 1+% today, S&P500 broke its 200 day MA, DJIA back to late July levels. China's handover to its next generation of leaders who should hold power for a decade is happening in its usual unruffled way. [9/11/12] Estimates of insured costs of storm Sandy are around $50bn now, probably putting it into the all-time top 5 of US insurance losses due to natural disasters. This year's US drought is expected to be in the top 5 also. Hmmm, 2 of the US's worst weather related insurance losses in one year... I wonder if they'll join the dots? Stocks flat, but I think the technical damage has been done and a further drop of about 5% is probable over next 4 weeks. [13/11/12] US Stocks were eerily flat yesterday, today they attempted to rally and were up till the last hour, but ended down about 0.5%. I'm having a funny feeling about the markets, they could be setting up for a very big downer. I'll try to roughly estimate odds to end November (13 trading sessions from now): 10% >20% down 20% >10% down 30% >5% down 35% flat 5% >5% up So, median probability of about -7% and about as much chance of a crash as a gain. The VIX (volatility index) is much too low for the market action we're seeing, increasing the chance of a significant move down. (Today's close: S&P 1375, DJIA 12,756, Nasdaq 2884, WTI 85.33, Gold 1725, $/Eu 1.2706, DXY 81.10) Japan's trading account looks like it's stuck in serious deficit (3 consecutive deficit months, worst half year since its records began in 1979). Expect doubts about its ability to finance its national debt - presently 235% of GDP - to grow in coming months. Japan's 2012Q3 GDP was -3.5% annualized. Most of the Syrian rebel groups "agreed on Sunday to unify their fighting forces under a supreme military council and set up a national judicial commission for rebel-held areas in Syria." That coalition was recognised on Monday by the six member states of the Gulf Cooperation Council: Saudi Arabia, Bahrain, United Arab Emirates, Oman, Qatar and Kuwait. Today France was the first western nation to recognise the "Syrian National Coalition" as being the "sole representative of the Syrian people and thus the future provisional government of a democratic Syria". The annual UN General Assembly resolution condemning the fifty year long US embargo against Cuba was held today. There were a record 188 votes in favour; United States, Israel and Republic of Palau opposed the resolution; the Marshall Islands and Micronesia abstained. | ||
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| Anne Thomas |
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Extreme Veteran Posts: 319 | So what happens now? America has still not agreed a budget and the debt ceiling looms. Will they cobble something together? Will America default? What would happen then? What do you think, Agric? | ||
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| Martin |
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Veteran Posts: 275 | Spoke to Agric today and his computer's on the blink, but we discussed this and agreed, Americans will kick the can down the road, no-one wants to face up to the underlying problems but a default is unthinkable whilst they can carry on printing money, seemingly immune from the inflationary consequences one might expect. We disagreed slightly about the short-term market sensitivities, he thought the chance of a default hadn't been priced into the markets, I thought it had to some extent. I guess we'll see tomorrow. | ||
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| Anne Thomas |
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Extreme Veteran Posts: 319 | Well the can has been kicked down the road again both in America and in the UK, but how long can this continue? This article makes disturbing reading. It compares the UK debt to GDP ratio to the Weimar republic, with good reason. There seem to be two responses to this; 1) Get all your money out of the UK and invest in a country or business you think is a better bet. Oil shares anyone? 2) Put your money into making your lifestyle as sustainable as possible. If you can produce all the energy and food you need yourself then you have a lot less to fear. http://info.moneyweek.com/urgent-bulletins/the-end-of-britain/?infi... | ||
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| Martin |
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Veteran Posts: 275 | I'm a bit sceptical about Money Week's track record - if you make enough predictions, it's easy to point to a few that have turned out right and ignore the majority which were wide of the mark. But, looking at the charts in the article it's difficult to argue with their view that things can't last, particularly if you add in the other problems facing us - an ageing population, resource shortages, the cost of either averting or dealing with climate change. It's also worth noting that the UK public debt as a %age of GDP is about the same as the USA's - so if we've got problems, so have they. And if the USA's got problems it's going to be difficult to find a country that's a better bet! | ||
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| Anne Thomas |
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Extreme Veteran Posts: 319 | It's obviously worth noting too that they are trying to sell their magazine and their advice. Even so, I think they do raise legitimate concerns. The current solution to a recession largely caused by a housing and consumer spending bubble as well as the obvious peak in oil price, (which seems to be largely ignored) is ... get people to buy more houses and spend more money they don't have, build more roads and ignore climate change or peak resources or at any rate don't do anything too rash or out of step with other countries. Apparently the coal industry has decided to hold their own summit alongside the climate summit in Warsaw. http://www.irishtimes.com/news/world/europe/un-climate-chief-urged-... And DECC seems to be crawling with fossil fuel industry 'secondments'. http://www.theguardian.com/environment/2013/nov/10/gas-industry-emp... | ||
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