Wednesday, August 31, 2011

Double Dip Recession Looms

The Telegraph reports that the West is facing the threat of a double-dip recession; after key measures of confidence collapsed in both the United States and Europe, with Germany suffering the steepest one-month fall since records began in the 1970s.

Whilst the USA is mulling a further round of QE, Europe is frozen like a rabbit in the headlights. Member states are bickering as to what should be done, the ECB has blundered by increasing rates this year and Germany is a house divided as the true costs of the Euro expiration are becoming apparent.

Unlesds both the USA and Europe act in unison the double dip is a certainty.

Thursday, August 25, 2011

Taking The Biscuit

The Telegraph reports that Sir Fred "The Shred" Goodwin was once so incensed at being served a pink biscuit with his tea, that he wrote an email (entitled "Rogue Biscuit") about it threatening catering staff with disciplinary action.

The incident is highlighted in a new book to be published on 5 September, by Matthew Hancock and Nadhim Zahawi, called "Masters of Nothing: How the crash will happen again unless we understand human nature".

Monday, August 22, 2011

Downfall - Cyprus Hits Point of No Return

Cyprus has barely managed to sell Euro23.1M of government bonds.

It achieved a "bid to cover ratio" of 1 (ie there were only just enough "punters" prepared to buy them), at a yield of 7% (the last auction in June achieved a yield of 6.25%).

A yield of 7% is "the point of no return"; it is the level at which Greece, Portugal and Ireland went with their begging bowls to others asking for a bailout.

Why is Cyprus having problems?

Around 40% of its largest banks' exposures are to Greece.

Meanwhile, Chancellor Angela Merkel from deep within her bunker in Berlin issued a statement to ZDF (again rejecting Eurobonds):

"It will not be possible to solve the current crisis with euro bonds.

Politicians can’t and won’t simply run after the markets.

The markets want to force us to do certain things.

That we won’t do

One can only conclude that she has either totally lost touch with reality, or is intent on deliberately destroying the Eurozone.

Sunday, August 21, 2011

Herman von Rompuy - Chief Knobhead!

Herman von Rompuy, the President of the European Union, has ruled out the issuing of a eurobond which would bring together Europe’s bid to tackle its debt problems.

Von Rompuy said that the markets were over-reacting.

So that's alright then, problem solved!

The "leaders" of the EU simply don't get it, the markets are going to tear the Eurozone to pieces unless there is a display of leadership and resolve to tackle the systemic failings within the Eurozone.

Friday, August 19, 2011

Went The Week Well?

It seems that this week is ending with shares around the world falling off the edge of a cliff, as investors panic and turn to gold.

Shares in banks such as Barclays, Lloyds Banking Group, HSBC and Royal Bank of Scotland (RBS) have taken a hammering and are now approaching levels last seen since 2009.

The rout of bank shares has been prompted by fears of a funding crisis in the European banking system, as European banks (instead of lending to each other overnight) are electing to deposit more overnight money with the ECB.

There is a genuine, and soundly based, fear that several European banks may have insufficient funds to continue operating.

In the absence of any decent political leadership on either side of the Atlantic, and unified global action to staunch the collapse, we are in danger of the fear of collapse becoming a self fulfilling prophecy.

Wednesday, August 17, 2011

The End Game

Angela Merkel and Nicolas Sarkozy have "underwhelmed" the markets with their refusal to increase the Euro bailout fund or to create a Euro bond.

In fact they managed to dig themselves into an even deeper hole, by stating that they want a European wide tax on financial transactions.

Unsurprisingly the markets are in free fall today, as it is evident that the "leaders" of Europe have neither the intention nor the political will to do anything at all.

The end result of this remarkable intransigence and failure of leadership will be the deconstruction of the Euro, and the ending of European hegemony in its current form.

Quite why the "leaders" bothered coming back from holiday is beyond me, they have merely made matters worse.

Tuesday, August 16, 2011

Lack of Political Will

Angela Merkel, the German Chancellor, is under considerable domestic political pressure not to agree to a plan for Eurobonds (intended to save the Euro from its expected demise).

A poll of Germans show that 44% want Germany to withdraw from EMU, and Merkel's coalition partners will withdraw from the government if she goes ahead with Eurobonds.

Given that there is no political will to support the policies necessary to prop up failing Southern economies (eg Spain, Italy etc), these economies will fail and will inevitably drag the Euro down with them.

Friday, August 12, 2011

Europe Plays Canute

France, Italy, Spain and Belgium have decided to take on the role of King Canute and are attempting to turn back the tides of the markets. They have banned the short-selling of banking stocks.

The ban will last 15 days.

A similar ban was put in place in 2008.

The result?

The shorters were proved right.

As such this ban will have little positive effect, and may well exacerbate the situation.

Thursday, August 11, 2011

The End of The Dollar?

The UN Conference on Trade and Development (UNCTAD) has quite correctly said that the system of currencies and capital rules, which binds the world economy, is not working properly.

UNCTAD blame this systemic failure for the financial and economic crises.

Additionally, UNCTAD have called for a new global currency that replaces the Dollar as a reserve currency.

Given the recent shenanigans in Washington, where the politicians played chicken with the Dollar and the world financial system, it is hardly surprising that the calls for abandoning the Dollar as the global reserve currency are becoming louder. Countries do not want to be held hostage again by the antics of those on Capitol Hill.

Wednesday, August 10, 2011

US Rates Frozen Until 2013

US interest rates will be kept at record low levels for at least another two years, the Federal Reserve said yesterday.

Now if only the ECB could make the same sort of announcement, then we might see a bottoming out of the falling global markets.

Sadly the ECB is completely disconnected from the real world.

Tuesday, August 09, 2011

Upsy Downsy

The FTSE is "enjoying" an up and down day, flirting with being a bear and now staging a modest recovery.

It appears that there are rumours of further quantitative easing ahead.

Monday, August 08, 2011

Dead Cat Bounce

Dead Cat Bounce
European stock and bond markets have recovered this morning (marginally), after the European Central Bank (ECB) signalled it would start buying Spanish and Italian government debt to fight the eurozone's debt crisis.

Unfortunately this is but a dead cat bounce, until the systemic failings of the Eurozone are corrected and the politicians show some decisive leadership, the ongoing decline will continue.

A Walk Down Memory Lane

1980: Ronald Reagan runs for president, promising a balanced budget

1981 - 1989: With support from congressional Republicans, Reagan runs enormous deficits, adds $2 trillion to the debt.

1993: Bill Clinton passes economic plan that lowers deficit, gets zero votes from congressional Republicans.

1998: U.S. deficit disappears for the first time in three decades. Debt clock is unplugged.

2000: George W. Bush runs for president, promising to maintain a balanced budget.

2001: CBO shows the United States is on track to pay off the entirety of its national debt within a decade.

2001 - 2009: With support from congressional Republicans, Bush runs enormous deficits, adds nearly $5 trillion to the debt.

2002: Dick Cheney declares, “Deficits don’t matter.” Congressional Republicans agree, approving tax cuts, two wars, and Medicare expansion without even trying to pay for them.

2009: Barack Obama inherits $1.3 trillion deficit from Bush; Republicans immediately condemn Obama’s fiscal irresponsibility.

2009: Congressional Democrats unveil several domestic policy initiatives — including health care reform, cap and trade, DREAM Act — which would lower the deficit. GOP opposes all of them, while continuing to push for deficit reduction.

September 2010: In Obama’s first fiscal year, the deficit shrinks by $122 billion. Republicans again condemn Obama’s fiscal irresponsibility.

October 2010: S&P endorses the nation’s AAA rating with a stable outlook, saying the United States looks to be in solid fiscal shape for the foreseeable future.

November 2010: Republicans win a U.S. House majority, citing the need for fiscal responsibility.

December 2010: Congressional Republicans demand extension of Bush tax cuts, relying entirely on deficit financing. GOP continues to accuse Obama of fiscal irresponsibility.

March 2011: Congressional Republicans declare intention to hold full faith and credit of the United States hostage — a move without precedent in American history — until massive debt-reduction plan is approved.

July 2011: Obama offers Republicans a $4 trillion debt-reduction deal. GOP refuses, pushes debt-ceiling standoff until the last possible day, rattling international markets.

August 2011: S&P downgrades U.S. debt, citing GOP refusal to consider new revenues. Republicans rejoice and blame Obama for fiscal irresponsibility.

Sunday, August 07, 2011

When Is A Meeting Not a Meeting?

Q: When is a meeting not a meeting?

A; When it is a meeting organised by EU "leaders" to resolve the Euro crisis.

Saturday, August 06, 2011

It's The Politicians Stupid - Don't Blame The Markets

By blaming the markets for not acting in the way that they were expected, EU Monetary Affairs Commissioner Olli Rehn shows just how out off touch he and the "leaders" of Europe really are.

Markets are driven by greed, fear and euphoria; they behave like packs of animals.

The markets know that the "leaders" of Europe, who are on holiday, are not up to the job of fixing the systemic failures of the Eurozone.

The Eurozone, in its present form, will fail; whatever Rehn says.

Why EU Finances Are In Such A Mess

The above video explains clearly and simply why the Eurozone and EU finances are in such a mess, and why the Euro project (in its current form) will fail.

It's The Politicians Stupid! - One Politician Got It Right!

Friday, August 05, 2011

Jose Manuel Barroso - Chief Knobhead!

Jose Manuel Barroso, President of The European Commission, has gone on holiday!


The ECB and Moral Hazard

The "moral hazard" approach taken by the ECB, is all very well.

However, if you see your neighbour's house on fire, even if he tsarted it deliberately, you help him put it out rather than wait for it to set light to your house as well.

It's The Politicians Stupid!

As markets throughout the world plunge, on fears of another financial crisis, the blame for this can be laid full square at the feet of the politicians.

Those in the US who used the stage of Capitol Hill for their self serving antics over the debt ceiling and the "leaders" of Europe, who have behaved and bickered with crass stupidity, are equally to blame.

José Manuel Barroso, the inept President of the European Commission, publicly warned that Eurozone countries are failing to stop the “contagion” of the debt crisis. All very well, maybe. However, by publicly stating that, he needless to say spooked the markets.

To add to the feeling of panic, Italy publicly stated that China has told it that if the European Central Bank will not buy Italian debt, why should China?

I have to ask, by making this public, what exactly were the Italians thinking?

1 It spooks the market even more

2 It shows that they themselves are desperate, as clearly they are trying to offload their debt to all and sundry.

Add into the melting pot the fact the the "leaders" of Europe recently claimed, with self inflated pride, that they had "solved" the Eurozone crisis and that they had earned their holidays and you have a recipe for disaster.

Take all of the above together, and it is self evident that the blame for the current crisis can be attributed to the politicians. Politicians who clearly do not understand that markets are driven by primal instincts (fear, greed, euphoria and a pack mentality).

Until the politicians actually "get it", the crisis will continue and worsen.

Thursday, August 04, 2011

ECB Plays Canute

In an attempt to hold back the tides of the market, which will swamp a "nation too big to fail" (ie Italy), the ECB will reopen its purchases of government debt.

No matter what the ECB does, it will have little effect other than to postpone the day of reckoning. The Centre for Economics and Business Research has stated that Italy, with a debt equivalent to 120% of GDP, is on an unsustainable path and "bound to default".

Playing Canute by throwing money at the problem will simply not work, the markets know that there are fundamental problems with Euroland that can only be resolved once certain countries exit the Euro.

The fact the the leaders of Euroland thought that their recent "Hail Mary" was enough to resolve the issue, so that they could all go on holiday, shows how completely out of touch with reality they are.

Wednesday, August 03, 2011

Playing Politics With People's Lives - Epilogue

The bill allowing the President to raise the US debt ceiling has finally been passed by both houses.

Crisis over?

No, the markets have reacted badly to the fall in US manufacturing and have been less than impressed with the political antics on Capitol Hill.

Whilst the politicians who brought about this crisis may feel smug and self satisfied, they should bear in mind that US creditor nations such as Russia and China will never trust them again to deal with economic issues such as this in a sensible and rational manner.

As such the long term prospects for the US economy, and Dollar as a reserve currency, are bleak; thanks to the selfish indulgences of the politicians on Capitol Hill.

Breaking News

China rating agency Dagong downgrades U.S. to A+ from A

And so it begins!

The politicians were warned!

Tuesday, August 02, 2011

Playing Politics With People's Lives - Satan's Sandwich

I see that the politicians on Capitol Hill have just about managed to act with some commonsense at the eleventh hour, and have passed a bill in Congress that allows the debt ceiling to be raised. The Senate is due to vote today.

Neither "left wing" democrats, nor the swivel eyed of the Tea Party are happy with the compromise.

Representative Emanuel Cleaver (Democrat), said:

"This deal is a sugar-coated Satan sandwich. If you lift the bun, you will not like what you see."

The bill raises the debt ceiling by $2.4 trillion, which theoretically will allow the government to meet its debt obligations until 2013.

However, $1 trillion will be cut immediately from government spending, with a further $1.4 trillion to be agreed by the end of the year.

The markets, having briefly rallied, fell as they digested the news that US manufacturing has grown at its slowest pace in two years.

Whilst all this self indulgent nonsense has been going on, those with an eye for playing the markets will have done very well out of the rise in value of gold then, if they anticipated the vote in favour of a deal, the fall back in value of gold.

Let us trust that those politicians who played games over this issue were not some of those who played the gold markets!

Monday, August 01, 2011

Playing Politics With People's Lives - Deadlock Resolved?

President Barack Obama claims that he has reached an agreement with Republican and Democratic congressional leaders, aimed at ending the US debt deadlock.

He has been on television and claimed victory.

However, there is an enormous caveat.

Reaching agreement with the leaders of both the Democrat and Republican parties does not in itself mean that the "swivel eyed" right or "loony" left factions within Congress will follow their leaders blindly down the path of compromise.

Given that the factions have taken the US, and the world, to the edge of financial chaos it is too early to claim victory for commonsense and compromise.

Ideologues do not give one jot for commonsense, or the needs of those whose who live in the real world.

As Obama warned:

"We are not done yet."