While governments continue to say that we are in an unprecedented situation, their solution is "stimulus".
Stimulus means borrowing sums or money that nobody on the planet can even begin to grasp. Nobody has ever spend such sums before. It's like the suburban family suddenly deciding to stimulate their lives by going out on a $5,000,000 spending spree. What are they going to spend the money on? And why? Leave aside who is going to pay it back.
You can be sure that this money will not pass seamlessly through the hands of the fat cats.
Just as you can be sure that foreign aid does not usually reach the poor.
History will show that this exercise will enrich the least worthy while doing nothing for the ordinary people, or the nations taking part in it. Use whatever influence you have to find out to whom this money is going and demand accountability.
Sadly, I fear that it is a lost cause. Forget the rhetoric today from the Fed about deflation being a threat. They have to say that to justify continued 'stimulus' - money being borrowed by the public to give to those who are already very rich.
If you haven't already done so, get out of bonds, Treasuries, stocks and shares and into cash. Then immediately invest in physical gold.
Wednesday, 28 January 2009
Sunday, 18 January 2009
Gaza, Russia, and Bank Bailouts
Israel's unilateral ceasefire last night was an excellent development marred by reports that the Palestinians are still firing missiles into Israel. From an outsider's point of view, tragic though this conflict is, it is turning out to be of no great international importance. Clearly the Arab world has no stomach for a fight on this issue at this time. That is truly excellent news; a great relief.
Meanwhile with oil at the mid $30s the oil producers are in deep poo. While Saudi, Iran and other Middle Eastern fields can produce profitably at well below this price, the high oil prices of last year was a bonanza that most of them have already spent. Few offshore fields can pump profitably at these levels and the Russians are very badly hit. There will be a battle and those with the cheapest production costs will win. That competition will hopefully keep oil prices down for the time being and this will help world economies.
The problem with under-capitalised banks is surfacing again. in the UK they are talking about a £200 billion bailout. Be aware that the bailout is not just to provide money, it is to provide solvency. Banks' collateral bases are decreasing in value as debts go bad and shares fall. Income will be falling as the economy continues to plunge. It is a self-tightening screw since the inability of the banks to lend is harming the very economy that the banks need to be growing.
Governments have got to realise that you cannot push on string. It is one thing to make funds available for potential borrowers and another thing to make them borrow it. No prudent company, large, small or even self-employed, is going to borrow if by doing so they dig themselves deeper into the hole. Companies have realised that this isn't a 'blip' or a short-term pullback, this is the start of a world depression the like of which has not been seen since the 1930s. The scale of this depression is likely to be far larger than the '30s, affecting more people and more industries. The danger of loss of social cohesion and civil unrest is high and the consequences frightening particularly for the rather genteel, street-dumb folk who inhabit most of Europe and the USA.
Meanwhile with oil at the mid $30s the oil producers are in deep poo. While Saudi, Iran and other Middle Eastern fields can produce profitably at well below this price, the high oil prices of last year was a bonanza that most of them have already spent. Few offshore fields can pump profitably at these levels and the Russians are very badly hit. There will be a battle and those with the cheapest production costs will win. That competition will hopefully keep oil prices down for the time being and this will help world economies.
The problem with under-capitalised banks is surfacing again. in the UK they are talking about a £200 billion bailout. Be aware that the bailout is not just to provide money, it is to provide solvency. Banks' collateral bases are decreasing in value as debts go bad and shares fall. Income will be falling as the economy continues to plunge. It is a self-tightening screw since the inability of the banks to lend is harming the very economy that the banks need to be growing.
Governments have got to realise that you cannot push on string. It is one thing to make funds available for potential borrowers and another thing to make them borrow it. No prudent company, large, small or even self-employed, is going to borrow if by doing so they dig themselves deeper into the hole. Companies have realised that this isn't a 'blip' or a short-term pullback, this is the start of a world depression the like of which has not been seen since the 1930s. The scale of this depression is likely to be far larger than the '30s, affecting more people and more industries. The danger of loss of social cohesion and civil unrest is high and the consequences frightening particularly for the rather genteel, street-dumb folk who inhabit most of Europe and the USA.
Monday, 12 January 2009
Monday 12th January 2008
While Gaza remains the principal issue internationally, a significant fall in the price of oil today suggests that the market is not expecting Gaza to result in a wider conflict. The oil market is very close to ME affairs and while market prices are not generally a good barometer of international tension (they tend to be panicky, over-reactive and based on a short-term perspective) the oil market is different.
So cautious optimism on Gaza -- at least from the viewpoint of the west. I don't have a clue how the poor folk involved on the various sides are going to resolve their differences.
So we are back to much of the same news. Progressively gloomy reports from companies. Consumers spending less. Banks lending less. House prices and sales volumes falling. Industrial output falling. Stock markets falling. Unemployment rising. In such a scenario, with the UK and, later perhaps, the EU, starting their own versions of Quantitative Easing (printing money), we can predict with near certainty government revenue shortfalls on an unprecedented scale.
In you private and business lives, expect taxes to rise and -- most importantly -- existing taxes to be assessed and collected with an enthusiasm and rigour that you have never seen before. This might be the time to consider a tax accountant even if you haven't had one before.
Meanwhile, stock markets are likely to continue their decline, as will interest rates and currencies will continue their 'race to the bottom'.
Never before has gold looked like such an excellent investment. At the time of writing, spot is at $845. I expect it to continue its rise in the very near future.
So cautious optimism on Gaza -- at least from the viewpoint of the west. I don't have a clue how the poor folk involved on the various sides are going to resolve their differences.
So we are back to much of the same news. Progressively gloomy reports from companies. Consumers spending less. Banks lending less. House prices and sales volumes falling. Industrial output falling. Stock markets falling. Unemployment rising. In such a scenario, with the UK and, later perhaps, the EU, starting their own versions of Quantitative Easing (printing money), we can predict with near certainty government revenue shortfalls on an unprecedented scale.
In you private and business lives, expect taxes to rise and -- most importantly -- existing taxes to be assessed and collected with an enthusiasm and rigour that you have never seen before. This might be the time to consider a tax accountant even if you haven't had one before.
Meanwhile, stock markets are likely to continue their decline, as will interest rates and currencies will continue their 'race to the bottom'.
Never before has gold looked like such an excellent investment. At the time of writing, spot is at $845. I expect it to continue its rise in the very near future.
Sunday, 4 January 2009
Gaza
The situation in Gaza continues to dominate. The position is that while almost everyone is sympathetic to the Israeli need to stop Hamas from lobbing missiles into her country, nobody wants Israel to rock the boat by doing anything about it.
We are starting to see serious polarisation around the world and countries will align with whom they wish to align. East vs West.
Everything else, for the time being, is noise. A Middle East war would be the most calamitous event possible. Oil supplies severed, and spread of hostilities from the ME to Asia and Eastern Europe.
Oil and gold should gain. It should be GBP and CHF positive and possibly quite good for military stocks in the USA.
We are starting to see serious polarisation around the world and countries will align with whom they wish to align. East vs West.
Everything else, for the time being, is noise. A Middle East war would be the most calamitous event possible. Oil supplies severed, and spread of hostilities from the ME to Asia and Eastern Europe.
Oil and gold should gain. It should be GBP and CHF positive and possibly quite good for military stocks in the USA.
Friday, 2 January 2009
Gaza, Rouble and Russian Gas
The key issues to watch are Gaza, the Rouble and Russian gas supplies. For the next few days everthing else is just noise. Make no key financial decisions until these issues become clearer.
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