Sunday, May 31, 2009

Recessiomics - Bring back the 'Phillips' water pump finance computer (with an added nuclear reactor - to show inflation).


















There has been of late a kinda glee from followers of the Micheal Keynes economic model. Since every government on the planet has embarked on massive stimulus buyouts, lump sums and everything else they can do to stave a huge wave of deflation (depression style...would it be that bad?). Tiny bounces in economic activity has occurred as taxpayer funded stimulus washes through the global economy (we have already talked about a runaway bull market in stocks and some currencies).

William Phillip
was an economist from the 1950's. He created the worlds first analog financial computer MONIAC 'Monetary National Income Analogue Computer' (above), actually it was a machine that used water to show the ebb and flow of liquidity (money) through a economic cycle (using colored water). Simplistic as it was, it however allowed people to physically see how money can move from parts of society and back again.

But in someways apart from complex mathematical algorithms that detailed financial formulas represent, one cannot dismiss the unknown aspects of variables (Taleb's Blacks Swan theory). If Keynesian followers (goverments) are now downgrading inflation (as they are at the moment) with a very old inflation equation and quoting from Micheal Keynes. They actually miss the simple point that the global stimulus will be flushed out of the economic system, as goverments will go broke and a global tax shortfall will drain anything back into goverment accounts. Starving the private sector of funds and according to their theory, private funds would then replace the goverment liquidity. Of course this is a fallacy especially at a time when prices are going upward. Yes, currently food, oil, amenities, insurance, transport costs, even mortgage rates are all on the rise; the denial of inflation is quite bizarre.

Mix inflation with goverment deficits, global shortage on raw materials and high unemployment, which are all occurring in tandem, this is all gonna end in tears. As there will be no advantage for private investment and expansion in an stag/inflation environment - with goverments taking anything left.

We all could have just taken the deflation pain (cheap stuff though!) and rebuilt our economies from the ground up.

Still with central banks and governments running a massive Keynes bet (with our money). If William Phillips had ( for arguments sake) built a little nuclear reactor into his machine to show the balancing act of inflation (hot reactor - high inflation, a cool reactor - deflation). The reactor would be just about to go into a critical meltdown, as one of his students would be saying, 'why is the core red hot and smoking'?

The Angels - No Secrets (1980)

Thursday, May 28, 2009

Asia's recovery out look 2009

As opposed to the Could Asia go into a depression? update 2 (there is always an opposite, right?)

A distinct possibility of end year Asian recovery, but I'll let the wolf comment here

South Korea Industrial output up 2.6% (April 2009)

*Japan's Factory output up 5.2% (April 2009)

* Although Japans CPI down (deflation), unemployment up, housing starts down in fact it's 'dead in the water'.

A possible buy on Japan after the flu season finishes (Asia/Pacific season just began) toward end year 2009. Unemployment and construction is on the downside. Also watch geopolitical issues from North Korea middle to end year 2009. Factor stock market shocks despite liquidity injections into the economy.

Await for stimulus to be washed out of the system (again end year 2009), see how the whole economy is still holding up.

*morbius glass does not give investment advice. Trade at your own risk

Wednesday, May 27, 2009

I like it...


The Australian Dollar and the Brazilian Real - sell off on the cards.

The foreign exchange markets are for short term trading . They are suited for institutional traders, banks and brokerage firms that trade in FX. Otherwise they are high risk environments for a sole trader. The high risk reasons is because bigger institutions that trade in FX usually have larger margins and trade on a narrow daily trading range.

The best way to trade foreign exchange for the everyday investor is to look at FX warrants or derivatives that follow the FX markets. These warrants are traded on stock indices or other listed indices that trades warrants. The advantage with trading FX warrants (puts or calls) is you don't have a margin, it is not option trading e.g no stop loss or take profit and no margin calls. Like a stock it either increases in value of deceases in value, depending on the changes in the FX market. So if you are not a 5 day week FX trader the best way to look at the FX market, is to trade with currency warrants especially for long term trades.

There are not many high yield currencies left since the globally economy contracted rapidly in 2008. Most central banks went on a rate cutting spree, the list as follows:

(*includes next central bank meeting dates)
*
Bank of CanadaJun 04 2009Apr 21 20090.25%
Bank of EnglandJun 04 2009Mar 05 20090.5%
Bank of JapanJun 16 2009Dec 19 20080.1%
European Central BankJun 04 2009May 07 20091%
Federal ReserveJun 24 2009Dec 16 20080.25%
Swiss National BankJun 18 2009Mar 12 20090.25%
The Reserve Bank of AustraliaJun 02 2009Apr 07 20093%

As the Federal Reserve loses control on trying to bring down interest rates and narrow credit spreads (by buying treasuries and printing money) the Treasury Yield curve widens for Government debt. This means that inflation (which is already here in a stagflation form) will rise further. To the point that either the Federal Reserve will have to raise interest rates to contain a total hyperinflation breakout. But the Fed is stuck in a money printing mode in which they will find it very hard to get out of; so this will effect the US dollar hence the current trading range and lows, please refer to graph (note trading range between 81 and 77
77 being support, any fall below a psychological support of 77 could extend to further selling):














The US dollar will not be replaced anytime soon. The conspiracy theory could be said, that US dollar weakness will extend to other currencies as the it will be impossible to remove the USD as the global base currency. If the USD was removed (extremely unlikely in the medium term) it would throw the FX markets and trade markets into complete turmoil. This would essentially be a far worst meltdown than anything the credit crisis could achieve. So the USD will remain as the base currency, only to ensure that other currencies will weaken to compete in export markets. So across the board currency depreciation is more likely as a stagflated style of hyperinflation occurs globally.

In saying this, the last risk appetite currencies could be sold off in earnest. Particularly currencies that compete in export markets. The Aussie and the Brazilian Real have done well with USD weakness. But I am long term bearish on both the Real and the AUD, please refer to graph of AUS and BRL (Brazil Real) - (note a divergence between the AUD and the BRL, with the AUD stronger against the USD and the BRL weaker against the USD). Eventually will see both currencies weaker against the USD. Depending on how weak both the Australian and Brazilian economies get over a period of time, as both economies will attempt to devalue their currencies to protect their export (commodity markets) markets.















I hold put currency warrants on the AUD and Real.


*morbius glass does not give investment advice. Trade at your own risk

Tuesday, May 26, 2009

The Conference Board - Consumer Confidence Index (CCI) . It's bullshit

As the market started to drift 'south' again they had to release something that would extend the rally that was originally started by the Obama bounce, although I think they are kinda clutching at straws with the latest Conference Board market contribution. I don't really believe anything these people put out. Economically they are clueless. Markets are lapping any good news, even though some of it is...say bullshit. C'mon for months into 2008 they (Consumer Board) denied the US was in recession which started in 2007.

Check this out from their website (note "Housing Market Correction nearly over"!!!) - I wonder how many flunkies (in 2008) out there took market bets via this piece of 'wonderful and insightful' (yeah I am being sarcastic) information:

"Recession Unlikely, Housing Sector Correction Nearly Over

Feb. 20, 2008

Printer-friendly version
Email a Colleague

Despite continuing turmoil in the housing and financial markets, a U.S. recession is not imminent, The Conference Board reports today.

"While the correction in the financial sector is just beginning, the correction in the housing sector is nearly over," declares Gail D. Fosler, President and Chief Economist of The Conference Board. Her analysis appears in StraightTalk, a newsletter designed exclusively for members of The Conference Board's global business network.

While the U.S. economy has weakened, business activity and corporate profits continue to rise. Consumer spending is continuing at a rate of 2 to 2.5 percent a year, and with the exception of the auto industry, the economy is showing gains virtually across the board.

"Exports are booming and imports and import penetration are down," says Fosler. "While there is continuing uncertainty about the economic outlook, economic shocks from the contracting financial sector are not enough to tip the U.S. economy into recession."

U.S. Economy is Still Resilient

It has been a long time since the U.S. economy has experienced the kind of sustained downturn reflected in recent stock market declines. The 2001 recession was short-lived, and despite huge losses in the technology and manufacturing sectors, there was almost an undetectable decline in GDP. The last deep recession in the U.S. economy began in 1990. The economy weathered the 1987 stock market crash and the 1988 savings and loan crisis before being plunged into a recession by the Gulf War.

"Similarities between the current situation and the period leading up to the 1990 recession are striking, but there are also many differences," says Fosler. "The business sector today is fundamentally stronger than at any time since the 1960s, and booming exports are helping support solid and continued structural productivity gains. Also, the policy sector is moving to establish a solid floor of tax and interest rate cuts to support the economy."

Housing Market Correction About Over

The housing market correction is about over, says Fosler. Given the lags in the impact of the housing sector on the economy, even at current activity levels, housing will likely subtract about 0.4 percentage points from 2008 growth. Housing affordability is beginning to improve, and with the recent interest rate cuts and home price declines, it should improve further and limit the downside risk. January and February are not big months for housing, but rising affordability bodes well for the spring selling season.

Demographic trends also favor housing. The rise in households is increasingly outpacing the rise in permits, so the ratio is rising over time and is reaching a point normally associated with recovery in housing activity. The long housing boom of the past 15 years has taken the home ownership rate up from 64 percent to a peak of 69 percent in 2004, reflecting an intrinsic demand for housing. All of this adds up to good structural demand for housing if the credit markets and lending institutions can ease the credit flow."

Incredible.

And recently they pull out their Consumer Confidence survey of just 5000 households! They hit the market with consumer sentiment is returning. But a dodgy over emphasized market gauge (even for a downside) doesn't tell you squat, plus it is truly trumped by the latest (released same day as the CCI index) S&P/Schiller housing idex, from Bloomberg: "A report from S&P/Case-Shiller today showed home prices in 20 U.S. metropolitan areas fell a more-than-forecast 18.7 percent in March from the same month last year, as foreclosures surged."

How does that Public Enemy track go again...

Interpol - Heinrich Maneuver.




Very good band, creative and interesting. A good combination these days.

Monday, May 25, 2009

We are caught in economic crisis cycle.

The global economies contracted rapidly after the investment bank Lehman Brother's (2008) crash, credit spreads widened and banks became insolvent overnight. The big fear that governments had at the time was a run on banks, which could have occurred en masse; therefor the whole financial system (in their opinion) could have collapsed completely. So the collapse was adverted by massive amounts of money being pumped into the system by central banks and government intervention. This, according to some economists, say the 'actions' by central banks averted a Financial Armageddon or severe global depression.

The question is did they really advert anything? Or just delay the invertible, which may be twice the pain.

You look at the markets as a place that is broken into two things, gain and loss. It could be argued how far the psychology of gain and the fear of loss goes. But the desire to look at opportunities and prospects is what drives the whole free market. A loss is a loss, in the sense there is risk of venturing into somewhat uncharted markets. The theory would be that you avoid loss by restraining from over speculating i.e you would calculate the risk. As the gain could be substantial depending on the demand for the trade. Bubbles are then created and then deflated, a good trader knows when to buy and sell and this takes years to learn because it's the discipline of understanding what gain and loss means whether psychological or biologically driven. But the risk taking is all yours as is the potential downside (loss) and upside (gain) within the free markets.

In my opinion the markets are currently confused you can look at it from two angles, 1. that liquidity has gone back into domestic markets or 2. recent rallies have been underpinned by policy makers and central bank flunkies. After very oversold markets a rally was on the cards, but a rally stimulated by very little but political spin, in which helped the updraft of the market stock euphoria. Timed or not, it occurred within a time frame, please refer to How are the markets trading? Liquidity inflows? Green Shoots? Or market hysteria?.

The point is government intervention into the free markets has distorted the stock market (and other markets). Governments originally encouraged over speculation by the consumer and institutional trader. This was via overabundance of money or liquidity in the system, thus causing overinflated markets in every sense. It should have corrected normally (cyclical recessions), it didn't instead more money was pumped in, interest rates were artificially low and banks/financial institutions became reckless with lending (the psychology of lost and gain didn't exist per se, as easy money was available). When the market finally corrected, after the Lehman crash in 2008, the market was trying to find a bottom more particularly in stocks. The market bottom was then supported by government/central bank spending (again). So with the banks hording liquidity and the interbank credit spreads narrowing (to a point), the flow of money is no where close to what it used to be, pre 2008. It is now the tax payer that is essentially holding the whole financial system together.

But there are festering problems occurring even in the very premature talk of global economic recovery, even more absurd when some say the 'worst is behind us'. As mentioned the global economy is so extraordinarily fragile as it is held together by goverment spending and one could argue reckless spending too.

There is but a prefect storm of economic problem's occurring. Lets look at some of them:

  • Stagflation has been, in my opinion, with us since the middle of 2008 when food prices spiked. It can be said that the US recession started in late 2007, despite prices declining on most non essential items. Prices rose on essential items like food and amenities. A property lawyer that I know mentioned to me that even though interest rates have fallen (somewhat) for mortgages, land taxes, insurance and property registration have increased. The simply way to look at stagflation in this recession environment is to see that a loaf of bread has increased in price, yet a Blu Ray DVD player has decreased in price. Stagflation will get worst as R & D funds in major technology companies will dry up, old technology won't be replaced as quickly i,e people will use software and hardware longer with out replacing it regularly. Prices will drop on tech goods and then remain in a static (lower) price range.

  • Commercial property is a time bomb. Look at a central business district anywhere in the world, more particularly UK, USA, Australia, Asia, Middle East; and see the lease signs and the vacant areas. That's declining value right there, falling value that is leveraged with debt refer to US commercial property market next to collapse?
Central banks and goverments have shown total irresponsibility with their rescue packages/bailouts and stimulus and so on. Not only do they continue to distort free market economics with intervention. They are destroying the budgets and paving the way for a severe bout of a 'lost decades' ala Japan in the late 1980's mid 1990's, via tax increases and shrinking capital to the private sector.

  • The US situation is frightening, in fact it is horrifying in an economic sense. The hazy figure of 1.4 and 1.8 trillion in deficit which is saying to the market that this figure is growing by the day. The 2 trillion + mark would be closer than we think. Still Obama's administration needs to raise the 2 trillion to cover the deficit and their ad hoc infrastructure plans, bank bail out and stimulus measures. This week on Tuesday 26th and Wednesday 27th 2009 the US Treasury is going to try auction $40bn of two year notes on Tuesday, $35bn of five year bonds on Wednesday and $25bn of seven year debt on Thursday. The market will be watching how much the debt binged 'out of control' Federal reserve buys and if overseas investors actually buy.

Still the goverments of the world are now all facing 'structural' deficits, so a next crisis is a global deficit crisis. Similar to the banks/liquidity crisis of 2008. A deficit crisis will be whole countries freezing up lending (to debtor nations) and the failure of buying of Bonds and Treasuries or governments debt (from other countries). It doesn't make sense to assume that countries can self capitalize without foreign investment.

  • So from a deficit crisis this will lead to a currency trade war, I suspect it has already occurred with the US dollar debasing. Others will follow suit especially export based countries, so a protectionism trade war with currencies will also occur combined with an inter-continent deficit crisis. The inflows of money from country to country will simply dry up. A terrible assumption by certain economists is that a severe 'structural' deficit will be off set with people saving rather than spending. The assumption is people save in preparation for higher taxes, but to remove the stagflation/inflation equation from the calculation is misleading. Both inflation and stagflation will rob people of their wealth. They will be taxed from everywhere, mixed with diminished wealth and collapse asset values. This will guarantee that a society or economy will remain stagnant with flat line growth for years.

Sunday, May 24, 2009

You close off a 'put' position on the AUD...

...and North Korea goes and sets off a nuclear bomb (test or earthquake?). Hence the markets going all (mildly) risk averse (sells high yield and risk orientated assets). Still I am long term bearish on the AUD (discuss this in a later post).

Wednesday, May 20, 2009

post from "Dealbreaker" - re: politicians smoking crack and a 'the worst is behind us' economic recovery punt.

Further to my theory that they (politicians - globally) have tried to rally markets and have been quite successful (albeit it will wane on the downside soon) with a collective effort to raise confidence (with some money).

A funny post from Dealbreaker:

"Nothing is fucked people. Nothing. Nothing at all. Green shoots are made thick oak. Cats have filed for voluntary separations from dogs and are no longer living together. Britney will retire from creating... anything. Including children. The Flu is cured. So is cancer. Just relax, will you?
Lawmakers in Washington are increasingly optimistic that the prospect of economic Armageddon is behind them.

Despite rising unemployment and continued dismal news in the housing market, which instigated the financial crisis, there's been a definite shift in the Beltway's economic mood.

"We're headed toward the bottom," said Rep. Paul Hodes (D-N.H.), who expects continued uncertainty in the economy but sees a recovery on the horizon.

"It will be a very slow, gradual recovery," he said. "But it's like falling off a cliff. It's the place where the cliff hits the beach, that kind of end of collapse."

...where your battered and crushed body will be gently nestled in a bloody bed of sand, quietly caressing you before the crabs begin to pick at your lips and the seagulls your eyes. How very beautifully peacefully consoling. Hey, how about you raise my taxes now?"

Could Asia go into a depression? (update 2)

Could Asia go into a depression? (update 2)

  • South Korea exports drop (May 2009) year on year -22.4%
  • South Korea imports drop (" ") y/y -42.2%
  • Singapore GDP fell to -3.9%. (- 6% an -9% is on the horizon).
  • Japan's Tertiary index (domestic/consumer services) has collapsed -4.0%. (A slump of very restrained domestic spending at 12 year low. Market should be shitting it's self once Government starts tax hikes, that could be in 2009)
  • Japan's crude steel index drops -43.6% y/y largest drop since records began (1949) for crude steel.

Oil on a 25mth cyclical bull run?

As discussed in 2009 oil price - note January lows 2007/2009. Start of a 'oil' bull market?, the oil price has moved up from $56 and broken through resistance line at $60. We could be at the start of a cyclical bull run that occurred in January 1st 2007. The current new market highs after the lows of 33.22 on January 1st 2009 have mirrored a similar patten within a two year period of January 1st 2007 and January 1st 2009.

Of course there has been murmurs within the market of a global recovery, we all know deep down that a recovery isn't going top happen anytime soon and the current stock market rallies have been on the back of political 'support' which is slowly dissipating out of the market. Support by means of trying to instill confidence which in turn created a type of illusion in the market, causing the market players to overly anticipate an economic recovery.

The question is can oil hold it's own and break out further into high 60's? Which can be answered as a distinct possibility. China has been hording oil as it is a net importer and Japan has been doing the same. Although the US Oil reserves are declining. Not to mention that output on oil could be slowing and demand increasing. Even mild demand could move the oil price higher. Another factor of course is US dollar weakness and geopolitical issues which always effects the oil price. But we are looking at this as a cyclical patten, from a technical chart perspective it is clearly there.

(Please click on graph for larger image.) Note the oil price could peak at $70.00 within the next few weeks or early June 2009












*morbius glass does not give investment advice. Trade at your own risk

Tuesday, May 19, 2009

Morbius Glass store - Blu Ray Players



Please do your research before purchasing (please right click on DVD player and open in new window).

Could Asia go into a depression? (update 1)

Could Asia go into a depression? (update 1)

This will be a new blog post (continuously) until Asia 'officially' recovers. The title of the post will be Could Asia go into a depression?. In light of the rather tiring dialogue about an Asian recovery pulling the world out of recession. This is simply not happening, there is a prolonged slump in Asia that could become a domestic problem especially for their banks, in which they were able to dodge the subprime (US) bullet. However like Spain's well capitalised banks, the domestic 'bullet' will not be dodged.

Institutional investors are mindlessly locked in on an upswing of political 'goodnews' rhetoric (yes politicians have successful rallied markets, - hence the recent rallies. Note recently UK's Chancellor Alistair Darling saying that UK will return to growth in 2009

These posts are for the everyday trader, to judge for themselves when a buying time will be right for Asia. So it's bad news until good news arrives.

  • Japans GDP drops -4.0% worst drop in economic contraction recorded in history

Some bar opening in NYC... and Daria Werbowy

To me opening high end bars (a sports bar in NYC) in a recession is kinda pointless, still whatever people are into. Me personally, would like to see a coffee shop (not run of the mill), yeah it sells booze too, but it's dark, intimate and hidden away.

Anyway here is a pic of Daria Werbowy (yes I would like to invite her to a dark, intimate coffee shop...for a coffee and cake of course):


















Original article came from mens.style, click here

Monday, May 18, 2009

How are the markets trading? Liquidity inflows? Green Shoots? Or market hysteria?

There are some subtle arguments forming about the recent stock rallies. The consensus view is that there is improvement in the economy (better 'bad' news), not from overall improvement in asset markets per se. In the sense, that a report may come out that housing stats have slightly improved, or company profit has come in better than expected (from a low base). The stock market then reacts to news, it's the search for good news after such a pronounced slump in equity markets for the last 8mths. The other argument from a smaller camp is that liquidity pumped in from central banks, namely the Federal Reserve is supportive of asset prices, thus underpinning price fluctuations within the stock market. Money returns to the market and stocks are bought.

The better 'bad' news argument overshadows the liquidity argument by the fact that the rallies are turning into a buying hysteria - on the small amount of good news. The psychology of the current market doesn't seem to represent a rational perspective. It could be argued that the recent market rallies (US) started after The US President Barack Obama announced that stocks were cheap on March the 5th 2009, please refer to graph:




The continued rally from March 9th 2009 was from the speculative internal memorandum by Citigroup chairman Vikram Pandit, stating that Citigroup will return to profit, mirroring profits from 2007. please refer to graph (note rally point from March 9th 2009 - running deal time daily):


Even though economic fundamentals remain poor, good 'bad' news have rallied the markets to the highs that we currently have, although it pains me to say this, it is President Obama and Treasury Secretary Tim Geithner (re: bank bailouts/toxic assets - despite the banks remaining unprofitable in 2009. Watch for write downs relating to commercial real esate) that are currently underpinning the stock market. Yes politicians and Government officials have successfully rallied stock markets.

A better example and a more recent one of political stock market related hysteria is the Indian market, rallied occurred after India's National Congress Party were voted in as a majority (Tuesday, 19 May 2009), the market rallied to 651.50 (17.74%) in one day!
please refer to graph (running real time daily):



The liquidity argument holds some truth (supporting stock prices) on the pretext of the Fed and Treasury flooding the market with liquidity, but it is a volatile perspective; especially on the back of a global tax shortfall as discussed in "Green shoots". The Global economic recovery, or plastic weeds in quicksand? Be concerned regarding a Global tax shortfall.

If the Obama administration decides to increase taxes for Corporate profits, this will eventually squeeze out liquidity from the markets. This could happen sooner than later as they (US government) will desperately try and fill the deficit hole.

The point is, the market is buying on speculation even if it is from liquidity perspective which I am beginning to doubt. But the speculation is on a political/market influence that is trying to create a artificial environment of market confidence. Reflecting back to the Indian (nifty exchange) stock market surge which is nothing less than bizarre and an alarming aspect of irrational aspects of the market. We are now well overdue for a substantial correction in the market, the longer the market overreacts (on the upside) to 'not so bad' political/economic news, the harsher the correction will be.

Sunday, May 17, 2009

The 'Duke' arrival soundtrack ' Escape From New York'

First please check out the The morbius glass schlock, horror, 80’s, grindhouse, sex and violence movie marathon – Escape From New York (1981) Director: John Carpenter. , don't worry the movie mathron is still going.

Anyway, not only is Escape From New York a damn slick 80's cult flick , the soundtrack is just so good.

Especially the Dukes entrance track:

Thursday, May 14, 2009

Could Asia go into a depression?

  • Singapore retail down -5.1%
  • China's Foreign Direct investment down -21.01% year on year ( q1 2008)
  • China's power output down -4.3% y/y " "
  • China's exports slump -22.6% (April 2009)
  • Malaysian manufacturing investments down -67.1% y/y " "
  • Japan's Machine orders down -1.3% wiping our gain of 0.6% in February 2009
  • Japan's Corporate Good's Price Index down -3.8% a steepest decline since 1987. A 22 - year low. (Japan is in a deflationary 'death' spiral)
  • Hong Kong bankruptcies up 56% y/y " "

Recessionomics - update 2. No job? Have some Viagra

Recessionomics - update 2

Pharmaceutical companies are not known for their generosity. I always think that capitalism has a brutal irony about it, what it takes away it returns in a smaller quantity. I guess the consumer can't be totally fleeced and a degree of happiness must be ensured otherwise society doesn't function, right? So the key word here is function. So in a crazy world on recessionmics, the drug maker Pfizer is offering to give free Vigra to the jobless.

Wednesday, May 13, 2009

US commercial property market next to collapse?

"NEW YORK (Reuters) - At least two-thirds of the $410 billion of U.S. commercial mortgage-backed securities (CMBS) loans that mature from this year through 2018 are not likely to qualify for refinancing, according to a report by Deutsche Bank.

The predictions get worse for loans made in 2007 -- the height of the commercial real estate bubble -- where 80 percent are unlikely to qualify, according to the report released on Thursday by Deutsche Bank debt researchers."

This has kinda flown under the radar of late, but it is something to keep an eye on. Especially Chinese/Hong Kong money that poured into office/commercial real estate market in the West.

Full article here

Stock markets will start to drift - 'South of heaven'

As discussed in S&P 500 over valued? The Fed money pump keep stocks buoyant. Supports could break on more 'gloom'. The markets, lead by US indices are starting to drift down. To argue that a bigger sell is on the cards holds validity. Especially in the sense that shorting finacial stocks and consumer based stocks will be in vogue again. As long as Asia's exports slump, US consumer is cutting spending and in survival mode. Markets may be ready for another shock 'sell' depending on some worst news coming out.

The trend is down (graph is running real time - daily):

Tuesday, May 12, 2009

Australia's economic situtaion (update 1)

Australia's economic situation (update 1)

Australia is an amazing country, but poorly governed (like most countries). In fact politicians in Australia (like most countries) are out of touch with reality. Australia unfortunately is a follower, it's political system follows America's flow. What the Obama administration (and previously Bush's) implicates into it's polices, Australia does the same. Which is a big shame as Australia has an economic disaster unfolding.

You don't need to really look at the complexities of economics and the different theories to know one thing; if a value is taken out of an equation it needs to be brought back to complete the formula, simply put you cannot spend money with out getting that money from somewhere else. With the Australian budget recently released, it is all but a muddled spending spree, with no thought or foresight and a dreadful bet that the world will boom in 2 years for 2009. This simply will not happen. The global economy is on a de-leveraging rollercoaster ride and the bottom has yet to be reached and you can be ensured that several 'other' crisis are lining up. From a currency crisis on the US Dollar through to widespread protectionism, food/environment, oil, viruses and so on.

Creating massive deficits now, as Australia has, following the US and the rest of the world. Is not a good thing at all, in fact Australia is in a serious situation if the commodity markets do not return to 2004 levels (which they won't). So it will leave the Government no choice but to sell it's debt to the Reserve bank which will then print money (like the US). The housing market in Australia will eventually collapse and significantly, the problem is the goverment is trying to underpin a 'boom' housing market. But continuing the first home owner grants, this was not cut from the budget as it should have been. This is going to put further strain on the deficit as it blows out more, but the private sector and the banks will cut down on growth and lending. So essentially the market will go bust with or without home grants.

If the US gets a credit down grade, in which it may very soon. Australia will also get a downgraded at some point. Exasperating a inflationary precursor as the Australian goverment will have to devalue the Australia dollar, they will have no choice. Commodity producing countries that trade with China will make sure that their exports are cheaper. An Australian dollar collapse is very possible, especially when unemployment begins to peak in 2010.

The problem with increased governmental spending it reduces private demand in two ways, the main is eventual tax increases and the second is an increase in interest rates. It would appear that Australia, like the US will opt for tax increases rather than raising interest rates (to return to surplus). Tax increases will shrink private expansion as companies will still try and keep costs down - so to believe that companies will expand rapidly and employ on mass in the near future is unfortunately a fallacy. You can thank Government's for creating deficits on public accounts for this.

As mentioned regardless all central banks will print money, lead by the Federal Reserve to keep economies flush with capital. Still private business will find it extremely hard to remain profitable in a high taxed and "crowding out" by goverment spending.

Japan is a good example of how stimulus plans and goverment deficits cause extended slumps, especially the lost decade era after the economy tanked in the early 90's. Japan's stimulus measures attributed little to stimulate the economy, as the Japanese goverment built roads and bridges to 'nowhere'. The Keynesian argument is that they (Japan) didn't spend enough, a rational economic view would argue that reckless goverment spending crimped private demand and made borrowing costs too high for company expansion. Either way, Australia is heading down that path as is the rest of Asia. China's over capacity and stockpiling of commodities mixed with a collapsed export market is frightening, not only for commodity producing countries; but for China it's self as it's private sector will shrink (demand).

Monday, May 11, 2009

Global currencies devaluing – protectionism end games (update 1)

China is starting to flip over currency devaluation, not their own, but with what the rest of the world embarking on as far as devaluing their currencies. As most developing countries are depreciating their currencies as discussed in Global currencies devaluing – protectionism end games. Export figures recently released show that China's export markets are declining rapidly from an earlier bounce in late May 2009, the fall year on year has collapsed to -22.60%.

There is no doubt that protectionism is evolving within economic polices, starting with currency devaluation. All countries that rely on heavily exports are now in competition with each other with their currencies. Money supply and interest rate cuts have ensured currencies have declined and this of course makes exports cheaper; but as countries all fight for market share other protectionist policies will be implicated.

China is now questioning countries doing what they did with currency depreciation, from the Ministry of Commerce, "many countries are devaluing their currencies, which has weaken the competitiveness of Chinese exports". This report came out after the huge slump in Chinese exports.

mec.research Store - PROJECT ORION The True Story of the Atomic Spaceship

Futurism blog - 'The Future that never was'.

I like Futurism, it's hit or miss; but there have been some amazing hits. Such as automatic sliding doors ala Star Trek (1950's).

There are a lot of examples of Futurists ideas getting it right, but there has been some classic misses (thankfully) in there. Such as the idea of exploding hydrogen bombs to propel a huge spacecraft for deep space travel. See below:Project Orion (1957)

Check out this blog paleo future that tracks the ideas of the past (with some very close predictions)

Sunday, May 10, 2009

Stock market getting nervous?

It should.

With almost no positive fundamentals supporting stock advances, it's a rally that is looking very precarious in it's present state. China heading into deflation? South Korea exports lower and consumer lending down, Asia still showing export market problems, Fannie Mae 23.2 billion dollar loss (good indicator that the mortgage book losses will keep coming...with other banks!), HSBC (US) looking bad with loan provision increasing (4 billion a quater) - again good bellwethers (banks) to the state of the US mortgage market; meaning there is more pain ahead. AIG is a basket case.

And the VIX looks like traders are locking in for a 'sell':

Thursday, May 7, 2009

Lonely Boy - Steve Jones (1979)




It's in my head, now it's in yours

Wednesday, May 6, 2009

The Economic charade. What would the 'Wolf' say again?


What a fuzzy world we live in and it's a perilous one at that, basically hanging by a thread (economically speaking and maybe socially too). Still 'leaders' like to instill confidence in a collapsed world, even when they repackage decay and sell it back to the market. The market is currently buying it, but for how long?

Err on the side of caution as we move into the next quarters of 2009, everyone knows the US banks are insolvent, Asia exports markets are barely functioning, a global tax shortfall will ensure people will be poor for decades and unemployment numbers seem to make no sense (note Australia's ridicules jump into robust employment, after a brutal decline last month). So your gut starts to figure out something is not quite right a big sell off is on the cards, or something else.

What ever the case, when some idiot politician says the worst is behind us even though global growth been crunched. I always think of the 'Wolf' and that immortal quote from Pulp Fiction:

"let's not start sucking each others dicks quite yet"


2009 oil price - note January lows 2007/2009. Start of a 'oil' bull market?

As it was pointed out in this post Oil Price moving upward. Oil is now recovery from it's lows of 33.22 on the 1st January 2009, coincidentally the corresponding low of 49.91 on a monthly graph was back in 1st January 2007. In which after the 2007 January low we reached a high 147 1st July 2008. So from the 1st Jan 2007 lows oil kept climbing and then once the global economy crashed in 2008 oil then bounced off the 33.22 low (1st Jan 2009).

From that perspective on a historic account the oil price is now moving upward. There is hesitant talk of global recovery, which I still feel is unlikely in the near term, so on the back of global demand building the oil price is recovering from it's low base. So I am buying oil and oil stocks, as oil was very oversold and has now bounced off it's Jan 2009 low.

Please refer to graph, Note the two lows in a period of 25mths, as mentioned the coincidence is that both lows started on 1st Jan in a 2 years and 1mth difference. Are we in for a bull run on oil? A distinct possibility.

*morbius glass does not give investment advice. Trade at your own risk

Tuesday, May 5, 2009

Investment update - May 2009

There is undoubtedly a strong rally occurring in global stock markets. This is down to two things, one Government spending ala infrastructure/stimulus and central banks flooding the world with liquidity, namely the Federal Reserve which is buying everything and anything from the private markets and allowing the private markets to borrow and dump liabilities onto the Federal Reserve balance sheet. More importantly (regarding stock market gains) is the Commercial Paper market for relatively healthy businesses so they can borrow and finance operations. This has helped recapitalize huge losses that have devastated balances sheets. A return to profit has become a priority, this includes restocking inventories and sacking staff. This has brought some confidence back to market, hence the recent rallies

Pharmaceuticals have been a good buy for my portfolio, bought in late 2008 when they were cheap stocks, especially smaller biotechnology stocks. I bought these stocks in speculation that bird flu or SARS would return instead an unknown influenza popped up called A H1H1 (or as the media call it 'Swine Flu). Within a day after the WHO lifted the pandemic gauge to Stage 5, any biotech or pharmaceuticals that produce or are developing flu vaccines doubled in price; it was quite incredible. Pharmaceuticals are largely ignored stocks, expect when a merger takes place, when the Stage 5 alarm was raised these stocks traded in massive volumes in a short period of time. However there is a speculative buy, especially smaller biotechs ( although watch for mergers), until the Northern Hemisphere gets the all clear, this won't be till next year when their winter finishes. September 2009 is when the WHO, Center for disease control (CDC) will be watching how the 2009 flu seasons takes hold in the Winter months of 2009. Still there is restocking of flu drugs which will add profit to companies.

Gold and Silver are still solid hedgers, I am looking for more inflation protective buys. But that this point with the US dollar declining, Gold looks solid, Silver is relevantly cheap. So its a buy between physical silver/gold, ETF's or Gold warrants.

Oil and oil exploration stocks are attractive, this is not because the world is going to return to speed anytime soon (economically speaking). But inventories and oil exploration problems could occur, namely financial, war/geopolitical issues, output problems. Again oil can be bought with warrants. A good hedge for inflation, especially against the USD.

Food stocks, such as well placed food companies or market brands such as Supermarkets. Inflation on food and oil is still with us, as prices haven't retreated after this spike in food prices middle 2008. Depending how the 2009 winter for the Northern Hemisphere fairs up, if they go through a drought period, we may see food prices further increase.

I hold puts on the last of high yielding currencies, such as the EURO, AUD, NZD, CAD. Commodity producing countries with massive deficits may have a hard time to retuning to surplus, especially if the countries currency is too high for exports to be competitive (in a depressed market). Europe is a whisper away from joining the UK and USA in printing money, so I would expect the EUR to reflect this once Quantitative Easing takes place. Germany may struggle as support for the EURO, so a sell on the EURO is possible; could see a major decline.

Commodities may boom out from a depressed currency market, as currencies weaken further into 2009.

I still believe valuations are far too high, for European, China and of course US stocks. The bounce in global output is very minor, China needs to consume it's own produce on the scale as the US consumer once did ( a leading global consumer); this is an impossible notion. China now (with government stimulus/market intervention) has a stock market bubble forming, as it also has an over capacity with inventories. Deflation looks very real for the Chinese economy.

If the current rallies continue on Wall Street we may see a bubble form, as mentioned there is now an over valuation occurring and the volume of trade is showing that older positions are being held with new ones forming. So in other words a lot of money is being pumped into the Stock markets on long positions (this can also be seen with the VIX option index as risk is being played down). It won't take much for a major sell to take place, when? Is very hard to say, but with a stock market that just came out of one of the biggest declines in history to suddenly rally almost into a bull market makes one wary. We have yet to have a 'graveyard market' form.

Straight from bear to bull - that's overbought signal right there.

*morbius glass does not give investment advice. Trade at your own risk

Sunday, May 3, 2009

World Crisis scenarios for the 21st century - Bird Flu (H5N1) and other pandemic Virus concerns (update 10 )

There has been a lot of confusion, misinformation and questions surrounding the influenza A virus subtype H1N1 or as it is incorrectly named in media reports as the 'Swine Flu', below is some bullet points from my current understanding of the influenza out break

World Crisis scenarios for the 21st century - Bird Flu (H5N1) and other pandemic Virus concerns (update 10 )
  • The influenza A virus H1h1 does not come from pigs, in fact there is no evidence at this point to suggest that a direct link from pigs to human occurred. The Swine Flu is a disease that is transmitted from pigs to human. This new influenza is a mixture of various other influenza strains or DNA, that has become a new influenza. However the A H1h1 virus can be transmitted to animals. This will ensure that the virus collects other strains of influenza as it moves out animals back to humans. But as mentioned, this particular strain did not originate from pigs.
  • This new strain on influenza has never been seen before, it appears to have gathered various other influenza strains in it's present state. A vaccine is apparently months off. The Southern Hemisphere is now passing into the Flu cycle, the big fear is as the A H1h1 passes through the Southern Hemisphere it will pick up virulence (collecting other flu strains and mutating) as the Northern Hemisphere goes into it Flu season, from September 2009 into the colder months of 2010. At that point A H1h1 could become a real killer.
  • This new influenza strain seems to effect younger people with healthy immune systems, scientist's are perplexed at this, although there is a theory that older people may be somwhat immune to older strains in the A H1h1 genetic makeup, an early Avian strain from the 1950's, or a Swine Flu af 1920. This could deliver a degree of immunity to the older generation. Younger people may be hit with a cocktail of unknown (for their immune system) influenza strains.