8 March 2009

Random Lucid Voices

Bottom line, until we start coming forth with a new class of manufacturing and innovation all the rest is rearranging deck chairs on the Titanic. Retail, Finance, Insurance, etc can not sustain an economy. We have to make something. At 23rd in the world in Math and Science, I dont think we can claim to be the smartest, most innovative workers anymore. We have to reclaim that and it will take many years. The get rich schemes of exporting American Symbols and financial engineering to the rest of the world has come to a halt. And 12 times "hopeful" S&P earnings is not cheap, especially in a severe downturn. We have 100's of Chapter 11's coming and this will put even more pressure on this non manufacturing economy. And finally, who's going to soak up all the cost of cancelled pensions, annuities that cannot be paid, and all the baby boomers who are getting older, need more medical care and have no way to afford it? The goverment will. All the squabbling about policies being right or left are completely besides the point and a total distraction. In the end it will not matter. We have to reinvent the country and it will take years, many years. Lastly, (and most incredible to me), look at all the largest companies and the huge amounts of debt they have. You would think after 20 years of prosperity, they would have large cash positions and little debt. Not the case, they spent it all and got levered up to the hiilt. Try doing some screens to large caps with debt to equity less than 0.5 and let me know what you find. I'll save you the trouble, there are not many. Debt is poison and we are full of it from the individual, to the companies, to the goverment. We owe, we owe and its laid off from work we go. Getting back to a nation of savers and living within our means will kill the markets because it is opposite of what our system demands: consuption. Japan may have had a lost decade (actually 2) in their markets, but the people save. We have a lost decade and no savings.

There's so much I would like to say here, but can't for one reason or another. There definitely is a set of severe problems with banks and with credit. It appears there is lending going on and the loans departments are even ADDING to their quantum of lending. Underlying these figures however is a difficulty in selling real estate that has moved real estate technically to well beyond what could be accepted as having any kind of genuine financial asset status - this of course has extended into the derivative side which previously was the technical justification for claiming reasl estate was a financial asset at all in the first place.

In one specific location that I have a reasonably good understanding of - Australia - ity has become the case that ALL banks have no way out of a real estate-linked lending formula, even though they already realise that the collateral is not liquid in the open market.

I have started to detect an aggression and anger in the tones of lenders and agents and lending brokers that is a kind of a 'you're wrong property CANNOT go down, we still have money at low interest to lend and why won't you come at it at these ridiculously high prices you are wrong you are wrong you are wrong PLEEEZZZ borrow and clear these dog assets off our off-book books you bastard why won't you let us prove our stupid dream was right.' You know that attitude? Well that one.

The number of times I've heard some broker or supposed lender say to me you can't secure (I think they mean securitize) cash that's why banks won't lend you money at their lowest stated rate (which is pure bs - I get it from a wholesale division of XXX Bank at US rates right now, onshore, in Australia! Explain that.)

I think Australian banks and those still fantasizing about people in good long term jobs borrowing vast sums for real estate so that they can package and re-sell and take current account commissions from very long out capital accounts will presently find that the Australian government cannot print bail-out money in quite the same way the US can. Moreover, NO ONE can without limit.

The biggest non-official money market and credit providing sector in Australia are the racehorse bookmakers - and they in fact always were in years gone by but not since the Eighties.

I don't think Central Banks and government economists have understood the unofficial side to the money market. We are in for a special and a different kind of deflation and a serious and multi-year, well, Depression.

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