Crash 2 The Sequel!

[Malcolm Robinson]

There is a perfect storm looming and it could start today.

If the American payroll stats are negative look for a market route.

In Europe we now have the Spanish PM admitting the latest rescue package isn't working and Spanish and Italian 10yr. bonds are heading northwards towards the magical 7% mark. Once they hit that they are technically insolvent and there isn't enough money in the ECB to bail them out.

I believe what we have seen is a transfer of wealth from West to East, along with our jobs, but our leaders have hoodwinked their populations into believing all was fine and dandy in the garden. The only way that illusion could be maintained was to allow debt levels to escalate and so maintain living standards. In effect they have and are creating new credit cards (QE) to pay the mortgagees with and there is no chance of any repayments just another credit card to pay off balances. That in itself created bubbles in economies such as the housing one we are about to see explode. That is why the only real expansion of jobs in the supposed boom part of the cycle was in the public sector something which is having a dragging effect on our economy at a time of shrinkage. If we consider the associated benefits some of these people have, pensions, golden handshakes/goodbyes protected working conditions etc. even clearing them out to get back to some equilibrium is vastly expensive especially at a time of cost cutting.

What is needed are leaders with fortitude both morally and intellectually but what we have are leaders who are career politicians with no real world experience and the backbone of amoebas. This could end very badly for them, it's certainly going to end very badly for us!

[Malcolm Robinson]

Don't know if anyone caught this t'other night but at last Peter Schiff makes it onot British TV screens!

http://www.youtube.com/watch?v=jG4JemfAvlo&feature=player_embedded#at=80

[Malcolm Robinson]

Could very well be a case of assume the position!

[Malcolm Robinson]

About 1 week ago Trichet said the ECB wouldn't be buying Italian or Spanish bonds, well as has been the case for the last 3 years what the guy says and does are two completely different things, the ECB will be buying those bonds to try and stop them heading into the realms of the other PIGs'.

I still think Italy will be the trigger it's just too big for Germany to swallow and I would be surprised if France didn't come under some pressure now.

The UK is avoiding the worst effects at the moment because it hasn't been under the microscope, when it does I doubt sterling will be seen as the safe haven it's purported to be. I found Vince the Cable's comments at the weekend pure fantasy!

We are still borrowing money to pay day to day expenses and until we start to live within our means we are as vulnerable as anywhere else.

We are about to kiss all that QE money a lot of western governments have spent propping up banking goodbye, that's mismanagement on a grand scale! In the UK that's £200 billion and they are talking about adding another £50 billion. It hasn't worked and the way it is being rolled out it can never work satisfactorily. It has been used to protect Government bond ratings and banking sectors at the expense of tax payers and savers.

If we had taken the bust 3 years ago, and some people were arguing 10 years ago things were getting out of hand, we would probably be coming out of recession about now. The way this crisis has been handled we could very well see a depression. What we don't need is to get back to the position which has put us into this mess, what is needed is a complete change to the way we run our economy, if not society!

The Yanks are in a bigger mess but this time China has told them to sort themselves out, last time they bailed them out now they need to protect those investments because they have probably used them to buy protected commodity lines of supply.

Hedge funds are now buying put options; there is only one way this is going.

[Malcolm Robinson]

Like the BoE the ECB is blatantly dancing with strings attached to its political masters. Remember these institutions are supposed to be independent of political interference, their only role to set fiscal policy using the dry auspices of sovereign economics.

Trichet has now said because Spain and Italy are willing to ramp up their austerity packages he has instructed the ECB to buy their bonds, a complete reversal of his position only a couple of weeks ago. Looking at the lessons somebody within that institution should have learnt with respect to the same policy regarding Greece, Portugal and Ireland we can clearly see it hasn't worked, so why should it work now? Admittedly the bond rates of Spain and Italy have gone somewhat south (5.35%) but just as Greek bonds did when the ECB intervened, 10ys rates went from 13% to 7.8% at the start of the 'shock and awe' package but are now 15.5%, I expect in the next week or two to see these bonds above the 6% rate they were at last week. Will that be deemed a failure?

The ECB must be sitting on quite large losses with its bond purchases however the way its accounts are finalised they are actually reported as profits????? I wonder if the same accountants might like to prepare my tax returns! What is happening is that, like the BoE, the ECB are socialising losses onto tax payers whilst paying banks to take toxic bonds off their hands, in other words using tax payer's money to pay private banking bonuses!

These people need to be lined up against a wall and pretty dammed quickly.

[Malcolm Robinson]

Well Merve has come out and cut the forecast for economic growth in the UK and warned that inflation could hit 5% in the autumn. No !*!@# Sherlock, look at the utilities bills dropping through doors and see where they are going.

The BoE have now cut their UK growth forecast from 2% this year to 1.4%. Even the 2% wasn't enough to start repaying all the debt piles we are building up so any cut is even worse news.

Having allowed the politicians to magically alter the inflation figures and start using CPI instead of RPI even that has been a short lived breathing space.

Merve also states that the outlook for the world economy has deteriorated and he sees particular demand problems emanating from the Euro area. Is there anyone left in the country, apart from MPC members, who couldn't have come out with that gem months ago?

If these are the BoE forecasts and cutting edge economic policies then we should be questioning the competence of the people involved!

[Malcolm Robinson]

''U.K. House Prices Fall to 19-Month Low as Loan Restrictions Deter Buyers.''

[Malcolm Robinson]

It is a bit paradoxical that GGG's favourite economic pin up Gal has taken over the reins at the IMF at the same time her last position in the French government would have probably become untenable.

She has overseen a debt spiral in France which can only be imagined at. Even her ardent supporter Sarko is calling for an investigation into how things have become so bad. (There isn't really much that is as distasteful as someone responsible calling for heads to roll as long as it isn't his!) Having made France insolvent she can now do the same to the rest of the world!

Interestingly the IMF have released a document, well slipped it under the door really, about what the big multinationals gaining huge cash mountains through ZIRP and QEs are doing with their ill-gotten gains, that were meant to be spent on investment and hiring', as opposed to shareholders and bonuses. They are now using this cash pile to 'invest' in treasuries as a safe haven, that's why their yields are going down when they should be going up to reflect risk, and other quite risky investments which the IMF are warning against.

Maybe if everyone read this stuff or it was written for easy reading then we might see bankers hanging off every lamp post in the capital!

As it is until we see real banking reform we are stuck making bankers into billionaires while we scratch around to pay living costs going through the roof because of inflation. What is happening is immoral if not illegal and yes let's reintroduce the death penalty!

[Malcolm Robinson]

If markets continue today as yesterday expect another weekend of hectic activity by world leaders.

European debts, American recession, Chinese inflation, Japanese deflation......what price a global economy now?

[threegee]

If markets continue today as yesterday expect another weekend of hectic activity by world leaders.

European debts, American recession, Chinese inflation, Japanese deflation......what price a global economy now?

World leaders you say! That's exactly what we haven't got! There are solutions out there but they are all politically unacceptable.

For the UK the first thing that needs to be done is to kill the minimum wage to get people back to work according to their capacity. Then get rid of all the politically driven so-called employment protection - get back to the days where an employee could walk straight into employment without their potential employer having to worry about all the long-term consequences. The dole should rapidly become a top-up system - not a substitute for work that everyone else has to shoulder.

The planning laws need to be scrapped too. There's already a start on this but it doesn't go far enough. There should be an implicit right to build, and anyone who feels that it's inappropriate should have to do a lot more than write a letter of objection. That's how we got all those listed buildings - and precious few since we started overprotecting them, and making people conform to lowest-common-denominator style for new constructions!

Overprotection in Banking (and fat bankers) led up to the present mess, and a lot of the banking regulation needs to be quickly rolled back to allow local banks (ones that can be allowed to fail) to exist once again. We'll get back truly local banking jobs again, bank managers that can manage with local knowledge, and real competition for our savings.

Hundreds of other reforms are needed, but none are going to be floated by the present spineless political class, because they have to explain in more than a sound-bite why they are truly necessary. That's not to mention the fact that their party probably supported the populist crap that introduced much of the self-immolating stuff in the first place - so they'd have to admit to being wrong!

With all this goes an automatic reduction in state expenditure on things that at the end of the day limit growth, and are only there for political gloss. i.e. The cuts become automatic and obvious; no need to agonise about which is the lesser evil, and how to "fairly" apportion scarce resources. Huge droves of government/quasi-government drones would have to find real and productive jobs, with the release of their wages redeployed to pay down Gordo's debt mountain, and properly fund working people's pensions (not theirs!).

Maybe we need the collapse of the World as we know it to shed all the baggage wished onto us by the liberal elite, and to get back to basics? There is no leadership to speak of out there at the moment, so natural forces may have to do the job for us.

[Malcolm Robinson]

GGG,

I will read that properly when I have time but I am starting to wonder if the way business raises its investment is the most beneficial or even productive? The 'ism's' don't seem to be able to work for very long maybe we should be looking at some form of mutuality. I can certainly see the case for that in delivery but not too sure how that could work a finance vehicle to preplace private equity?

As for the politicos………….

[threegee]

GGG,

I will read that properly when I have time but I am starting to wonder if the way business raises its investment is the most beneficial or even productive? The 'ism's' don't seem to be able to work for very long maybe we should be looking at some form of mutuality. I can certainly see the case for that in delivery but not too sure how that could work a finance vehicle to preplace private equity?

As for the politicos………….

Share Capital actually works pretty well. Where it's inefficient is once again due to over-regulation - which kills competition, allows merchant banks to charge exorbitant fees, and excludes smaller enterprises on cost grounds. I've had people say that all the post-flotation market trading is froth and does nothing to further enterprise. But that ignores the fact that investors have to be provided with an exit on their own timescale or they wouldn't commit in the first place. Ditto the evil "shorting", which - rather than the parasitic activity it's often represented to be by poor managements - limits excess and brings the guilty and inept to book. Day traders generally trade themselves into the ground, and longer-term investors near universally win on the law of averages providing they spread their capital around enough. The public purse creams off a cut on every transaction win or lose.

So it's not a part of our system that's badly broke, and so doesn't need much fixing. It has - in most respects - actually improved over the years, particularly since the advent of on-line trading. Nothing at all the FSA did of course; just market forces!

[threegee]

Pretty much says it all about the irrationality behind the current mess:

http://www.bbc.co.uk/news/magazine-14587364

Some of the conclusions we'd already reached here, but it takes a wider view of them. The "Sooner or later leaders will emerge who accept that Greece will have to leave the euro, even though the process is bound to be extremely traumatic” has obvious parallels in the UK experience of the 1980's. General conclusion: politicians can't change their spots; you just have to hope that more rational ones come along to save something from the stupidity, and the unenlightened self-interest, of their predecessors.

[Malcolm Robinson]

'Kill the minimum wage…….'

WNBL……..That was introduced to stop exploitation of low paid workers, the problem is it has now become a pay scale in its own right, not something it is designed for. Maybe it's time for a pay CEILING!

Dole should be based on what has been contributed by the individual, probably for a set term.

Planning, I daren't even start with that one!

Overregulation in banking led to the present mess….????? Wasn't it lack of regulation which allowed the likes of chaos theory to be used when valuing assets and made these institutions ''too big to fail.''

Share Capital…….the theory doesn't match the delivery! It's the big boys which call all the shots at the expense of smaller investors. The big boys are the super-rich who take equity stakes, pension and hedge funds who have no real interest in the company other than to see it pay out more by way of dividends, banks, venture capitalists and financiers who are only there to make a quick buck. The whole thing has been corrupted to give advantage to a certain group at the expense of the swath of private investors.

I will only read and watch the BBC if Peston doesn't have anything to do with it, if there was ever anyone who demonstrated the Peter Principle………

That BBC article sums up what has already been said on this board months ago, you can't have a fiscal union with some sort of political union and trying to drive the latter with the former cannot work, irrespective of what the personal objectives of the EU political class are!

As for Greece (and the others) the whole thing is now in the realms of fantasy. They are being forced to sell any national assets they hold, implement an austerity policy detailed by others who have no real empathy with the Greek people and all in the name of saving the Euro project. Greece has no possible chance of being in a position of actually making any sort of reparation to these bailouts and in fact the actions taken will make her end up in a worse position rather than cure anything.

At the inception of the Euro there were no polices written down for any country to exit and the fact that most didn't even hit the entry criteria would seem to me to be tantamount to irresponsibility, if not worse, by our political class.

[threegee]

'Kill the minimum wage…….'

WNBL……..That was introduced to stop exploitation of low paid workers, the problem is it has now become a pay scale in its own right, not something it is designed for. Maybe it's time for a pay CEILING!

Will Not Be Liked? Amazing that when you mention this the old meaningless socialist e-word always comes up in the first sentence. In recent times TMW has done more damage to people's chances of getting a job, and to British industry, than anything else. The government has no right to dictate what parties should or should not accept in free negotiation - particularly when it does it for tawdry vote-getting purposes. If the government thinks that people aren't being paid enough as an hourly rate then it should put it's money where its mouth is and provide the extra out of the public purse. It would be a fraction of what they already pay on the dole and make good economic sense for everyone. It's also good social engineering because TMW stupidity destroys the work habit and actively encourages state dependency. There are disabled people sitting bored at home but wanting to work and employers willing to employ them, but big-brother socialism says no. Crazy!

Dole should be based on what has been contributed by the individual, probably for a set term.

Planning, I daren't even start with that one!

That's curtains for a lot of people on the dole then! Set term maybe - it works in the USA. If you are going to have a true insurance scheme then HMG is the last organisation anyone should trust to run it!

Well, a start already has been made on planning, so lets see how far they get. I'd be surprised if enacted reforms have a fraction of the impact on the economy as they could have though.

Overregulation in banking led to the present mess….????? Wasn't it lack of regulation which allowed the likes of chaos theory to be used when valuing assets and made these institutions ''too big to fail.''

Share Capital…….the theory doesn't match the delivery! It's the big boys which call all the shots at the expense of smaller investors. The big boys are the super-rich who take equity stakes, pension and hedge funds who have no real interest in the company other than to see it pay out more by way of dividends, banks, venture capitalists and financiers who are only there to make a quick buck. The whole thing has been corrupted to give advantage to a certain group at the expense of the swath of private investors.

No it wasn't lack of regulation, it was lack of transparency caused by over-regulation. Too many people to pass the buck to; too many regulations to quote to cover your backside; and a supreme overall lack of common sense. The simply huge amount of current "compliance" kills competition because it militates towards ever larger organisations who can support the layers of unproductive activity. In amongst this hide the "financial engineers" who come up with ever-more complicated, obscure and interdependent "financial products" designed - as if by magic - to wring ever greater returns out of simple market activities for the issuers. The net result is patterns of trading that no one understands, least of all the issuers of these "products".

It might be hard for the politicos to understand this, but you can't regulate your way out of this sort of thing. The only sane approach is a back to basics one. Back to what worked in the past. Back to people who understand their customers and the true risk to lenders they represent - the local bank manager.

The last bit isn't true, and I speak as one of those small investors. There's a different set of constraints to the big boys, but smaller investors can - and frequently do - run rings around them. As I said the real problem with the markets is where smaller companies who need to raise capital meet up with far too much regulation and level of expense. The sort of investors who would punt on very small companies don't need the level of protection promised by the main markets. Not even the level of protection offered by AIM. We need a "Dragon's Den" market for smaller enterprises where risk can be widely spread and maybe the level of any individual's single investment is severely limited. This, of course, wouldn't interest larger investors, but the potential returns and excitement would certainly interest many experienced smaller ones.

I will only read and watch the BBC if Peston doesn't have anything to do with it, if there was ever anyone who demonstrated the Peter Principle………

That BBC article sums up what has already been said on this board months ago, you can't have a fiscal union with some sort of political union and trying to drive the latter with the former cannot work, irrespective of what the personal objectives of the EU political class are!

As for Greece (and the others) the whole thing is now in the realms of fantasy. They are being forced to sell any national assets they hold, implement an austerity policy detailed by others who have no real empathy with the Greek people and all in the name of saving the Euro project. Greece has no possible chance of being in a position of actually making any sort of reparation to these bailouts and in fact the actions taken will make her end up in a worse position rather than cure anything.

At the inception of the Euro there were no polices written down for any country to exit and the fact that most didn't even hit the entry criteria would seem to me to be tantamount to irresponsibility, if not worse, by our political class.

Agreed.

[Malcolm Robinson]

No not ''Will Not Be Liked''………more like ''Whey Not B... (looming) Likely!''

I find that whole argument MW v staffing to be crazy unless anyone wants the UK to be a third world sweatshop! Just as '' the old meaningless socialist e-word always comes up in the first sentence'' whenever free market fundamentalists discuss the subject they always refer to some job creating bonanza if MW was abolished. I just don't see that anyway given other factors in the equation. If that worked the UK should be awash with private sector jobs seeing as our MW is about £6 and on the continent it's about 9 Euros, given present exchange rates that's nearly a 50% differential making labour costs in the UK much lower than other EU countries who have signed up to MW. Can't really see the stampede by continental companies wanting to exploit that?

Planning, looking at the local picture we see those 12 proposed flats down the bottom end of town have been turned down by planners. OK there might be valid reasons for that but what struck me was the planning gain imposed on that pretty small development. Having to make contributions to a children's play area AND indoor and outdoor sports provision either on or off site seems a pretty stiff imposition. I also know of two smaller developments which have been told they have to make similar provisions. If we stack that up against the planning gain on what could be the biggest development in the Town, Tesco, if it ever goes ahead, then we see a CCTV camera repaired, as long as it's moved off their building! We should be getting a pretty healthy contribution to addressing the lack of sporting and leisure facilities in the Town instead we are getting a camera resited?????? Unbelievable!

Also NCC have just been forced to look again at their policy regarding those notices at the side of the A1 telling passing traffic where different small businesses are and how to get to them. The reason they were banned, driver distraction. Remember when we couldn't get ''Home of Bedlington.co.uk'' on the bottom of the Bedlington signs, the reason, driver distraction! This is the same authority who is selling advertising on roundabouts for 15K a pop! Unbelievable!

The building we are trying to regenerate, we can't get free advice because we want to do something with it. If we wanted to tear it down the advice is free?????? Unbelievable!

''No it wasn't lack of regulation, it was lack of transparency caused by over-regulation.''

I disagree if the regulators had understood what was going on they could and should have stopped the worst excesses of a market which was clearly out of control. There probably is too much regulation in the wrong areas, the easy stuff, but the lack of regulation in the ephemeral areas of financial instruments certainly contributed to a huge build-up of toxicity in supposedly sound assets and as soon as someone said the Emperor has no clothes on, the pack of card folded.

[Malcolm Robinson]

Bank Bailouts explained.................

For the Fed hear ECB or BoE.

For Ben Bernanke.......Trichet or our own Merve the swerve.

[Malcolm Robinson]

Quantitative Easing Explained.................same rules apply.

[Malcolm Robinson]

Inflation Explained.............just change the Ben Bernanke and the fed to Merve and the BoE.

[Malcolm Robinson]

European money laundering explained...........

[Malcolm Robinson]

Back to domestic UK issues, if we emerged from recession by a fraction of a percentage point the latest reports by the construction industry look to be alarming. Looks like they are reporting a 7% fall and as they represent about 6% of the economy that could be a negative 0.4% impact onto GDP figures.

[Malcolm Robinson]

Yet another interesting graph, this time showing the influx of cash assets into Uncle SAM from...........probably EU banks diving for cover!

[Malcolm Robinson]

We could expect to see Greece exit the Euro within days if not a week or two looking at German pronouncements post Pomeranian election results. Germany now seems to be insisting on its own bailout terms for Club Med with failure to hit imposed austerity measures cancelling any new loans.

I always thought Italy would be the one to break the Euro it now looks likely Germany could for what are paradoxically similar reasons yet seemingly the inverse.

I would expect more and more Euro politicians to start and play to their own nation interests in the hope of remaining in power!

[Malcolm Robinson]

Here is an interesting snippet…………the Fed handed over 1.2 trillion to financial institutions and basically hid the transactions. They only came to light, Aug 22^nd, after Bloomberg News lengthy battle for disclosure. This wasn’t part of the 16.1 trillion the Fed handed over to US and foreign financial institutions between 2007-2010 and neither is it part of the 2 trillion QE programme, nor is it part of the 700 billion Tarps programme. So basically it was money ‘diverted’ into top flight world financial institutions to keep them afloat! The lists read like a who’s who in banking. To list a few……. Morgan Stanley, Citigroup, Bank of America, State Street, Goldman Sachs, JPMorgan Chase, even Countrywide Financial got in on the act. More interestingly for me is the fact that European banks accounted for about 50% of the book and the biggest borrower….RBS! Others included, UBS, Dexia, French Société Générale, Deutsche Bank, Barclays, and Crédit Suisse.

Now it could be argued that they were merely borrowing at best rate because the disclosed annual interest payments of around 13 billion represents a rate of around 1%! Or it could be that without this ‘injection’ they would have gone to the wall and taken the rest of the sector with them. One thing is for sure taxpayers are well and truly on the hook for larger than admitted liabilities!

[Malcolm Robinson]

Looks like the start of the scramble to try and protect who gets paid now. It’s now universally accepted Greece has to default and that will impact onto the banking sector. If there are contagions, Portugal, Spain et al, and banks look to be as frightened now as they did 2009, then some banks will fail. Sovereigns shouldn’t as they can theoretically print and devalue their way to oblivion but who is going to take a New Greek drachma when it would probably devalue the next day?

The whole Euro project is a mess with one group out in front who we should blame, the political class and their unelected underlings!