RISKY BUSINESS
A sea-change in risk perception
By Jephraim P Gundzik
Overly loose monetary policy in the US and Japan has masked rising global investment risk. This tidal wave of cheap dollars and yen encouraged investors to ignore age-old risks associated with soaring credit growth.
Plunging stock markets around the world and dollar depreciation indicate that risk perceptions are changing dramatically. This change in risk perception will produce a prolonged and sharp correction in all of the world's stock markets. Growing risk aversion will push US Treasury yields lower, triggering dollar devaluation and soaring precious-metals prices in the months ahead.
Blame the Fed and the BOJ
In an attempt to deflect imported deflation from Japan, the US Federal Reserve under Alan Greenspan began to loosen monetary policy in early 2001. After the terrorist attacks on New York City and the Pentagon in September 2001, the Greenspan Fed pushed interest rates aggressively lower to support the US economy and financial system. Though the economy began to recover in 2002, the Fed maintained its aggressive easing through 2004, pushing US interest rates to a 50-year low.
The Fed reversed course in late 2004, but the very slow pace of monetary-policy tightening did little to weaken thriving mortgage-credit growth, which continued to bound higher in 2005. The combination of super-loose monetary policy and very gradual monetary-policy tightening encouraged mortgage lenders in the US greatly to loosen credit standards, triggering unprecedented growth in US real-estate values and home construction.
The booming housing market accelerated US economic growth, further obscuring investment risk associated with very rapid credit growth and sharply deteriorating credit standards.
The Bank of Japan (BOJ) followed the Fed's example throughout the early 2000s, leaving nominal interest rates at 0%. Monetary policy in Japan was further loosened after the BOJ implemented its quantitative easing policy, which flooded the financial system with cash in the hope of reviving domestic credit growth and private demand. Rapidly changing demographics in Japan muted the impact of the BOJ's free-money policy. This forced the BOJ to prolong this policy, which remains largely in place.
Though the BOJ had trouble boosting private demand at home, its free-money policy began to flow through the financial system, which became an intermediary for external yen borrowing. This external borrowing, more commonly known as the yen carry trade, lavished trillions of yen on foreign banks, brokers, insurance companies and investors who subsequently invested in much higher-yielding assets, especially in emerging-market countries.
The limitless supply of ultra-cheap yen from the BOJ greatly obscured investment risk not only in Japan but wherever the yen carry trade was used by investors to boost returns. Because the yen carry trade was employed in stock, bond and real-estate markets around the world, the BOJ in effect muted global investment risk, pushing asset values to massively overvalued levels relative to risk.
Risk exists after all
Though monetary policy in the US and Japan remains extremely loose, the sudden downdraft in global equity markets and dollar depreciation, which began early this month, indicate that risk perceptions have changed dramatically. This sudden shift was driven by unexpected weakness in the US economy - the product of the collapsing housing market, soaring real-estate foreclosures, and their very negative impact on the US financial system.
Investors around the world ignored excruciatingly obvious indications, which first appeared in early 2006, that the US housing market was rapidly weakening. Investors also failed to understand the negative implications this weakness held for global economic growth and asset values. While the Fed and the BOJ are to blame for obscuring investment risk, the perpetuation of this masquerade has been greatly abetted by the world's largest investment banks and brokerages.
These institutions, with their exceedingly optimistic global economic outlooks, also encouraged investors to ignore investment risk associated with super-fast credit growth. The time has come to pay the piper. Banks, brokerages and investors will pay a huge price over the next several months for ignoring rising investment risk over the past several years. Unlike the mid-2006 mild correction in global asset values and the dollar, the current correction promises to be exceedingly brutal.
The 2006 mini-correction was driven by fear that monetary policy in the US and Japan would tighten significantly. The Fed and the BOJ quickly allayed these fears by keeping monetary policy overly loose. This led to a rebound in asset values and dollar appreciation against the yen as investors redoubled their yen-carry-trade positions.
In contrast, the current correction is being driven by the closing gap between US economic reality and perceptions spun by banks and brokers promising a "Goldilocks" recovery. As the reality of rapidly slowing US economic growth and spreading problems in the financial system overtakes investors, the overvalued US equity market will continue its downward trek, falling another 20% at least. To be sure, the gathering US economic recession will force the Fed to loosen monetary policy further. However, this will do little to arrest the decline of the economy or the stock market.
Though interest rates will fall in the US, this will not immediately stimulate a resurgence in the housing market. Mortgage lenders and banks saddled with growing non-performing loan portfolios will continue to tighten credit standards, leaving many potential borrowers in the cold. At the same time, surging foreclosures will add to the housing supply, forcing home prices much lower. This loss of home equity combined with a credit drought will undercut private demand in the US, prompting a rise in unemployment and further weakness in private demand.
A 20% correction in US stocks will push stock markets around the world lower. However, emerging-market equity and bond prices are likely to plunge much more deeply. The yen carry trade has pushed hundreds of billions of dollars into emerging-market assets over the past two years, though investment risk in many countries has increased exponentially. Economic recession and falling interest rates in the US could prove to be the dollar's death knell, forcing sustained unwinding of the yen carry trade.
Dollar weakness will greatly benefit precious metals, especially gold, in 2007. Falling US interest rates will also benefit precious metals, particularly if rising commodity prices continue to push global inflation higher. The pendulum has begun to swing away from risk predilection toward risk aversion. Fasten your seatbelts, because this swing is gaining momentum.
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Jephraim P Gundzik is president of Condor Advisers. Condor Advisers provides investment risk analysis to individuals and institutions worldwide. Visit www.condoradvisers.com for more information.
16 March 2007
15 March 2007
Top investor sees U.S. property crash
MOSCOW (Reuters) - Commodities investment guru Jim Rogers stepped into the U.S. subprime fray on Wednesday, predicting a real estate crash that would trigger defaults and spread contagion to emerging markets.
"You can't believe how bad it's going to get before it gets any better," the prominent U.S. fund manager told Reuters by telephone from New York.
"It's going to be a disaster for many people who don't have a clue about what happens when a real estate bubble pops.
"It is going to be a huge mess," said Rogers, who has put his $15 million belle epoque mansion on Manhattan's Upper West Side on the market and is planning to move to Asia.
Worries about losses in the U.S. mortgage market have sent stock prices falling in Asia and Europe, with shares in financial services companies falling the most.
Some investors fear the problems of lenders who make subprime loans to people with weak credit histories are spreading to mainstream financial firms and will worsen the U.S. housing slowdown.
"Real estate prices will go down 40-50 percent in bubble areas. There will be massive defaults. This time it'll be worse because we haven't had this kind of speculative buying in U.S. history," Rogers said.
"When markets turn from bubble to reality, a lot of people get burned."
The fund manager, who co-founded the Quantum Fund with billionaire investor George Soros in the 1970s and has focused on commodities since 1998, said the crisis would spread to emerging markets which he said now faced a prolonged bear run.
"When you have a financial crisis, it reverberates in other financial markets, especially in those with speculative excess," he said.
"Right now, there is huge speculative excess in emerging markets around the world. There will be a lot of money coming out of emerging markets.
"I've sold out of emerging markets except for China," said Rogers, long a prominent China bull.
Even in China, the world's fastest expanding economy, Rogers said stocks were overvalued and could go down 30-40 percent.
But he added: "China is one of the few countries in the world where I'm willing to sit out a 30-40 percent decline."
The last stock market bubble to burst was the dot-com craze which sparked a crash from March 2000 to October 2002.
When the last bubble burst in Japan, said Rogers, stock prices went down 85 percent despite the country's high savings rate and huge balance of payment surplus.
"This is the end of the liquidity party," said Rogers. "Some emerging markets will go down 80 percent, some will go down 50 percent. Some will most probably collapse."
"You can't believe how bad it's going to get before it gets any better," the prominent U.S. fund manager told Reuters by telephone from New York.
"It's going to be a disaster for many people who don't have a clue about what happens when a real estate bubble pops.
"It is going to be a huge mess," said Rogers, who has put his $15 million belle epoque mansion on Manhattan's Upper West Side on the market and is planning to move to Asia.
Worries about losses in the U.S. mortgage market have sent stock prices falling in Asia and Europe, with shares in financial services companies falling the most.
Some investors fear the problems of lenders who make subprime loans to people with weak credit histories are spreading to mainstream financial firms and will worsen the U.S. housing slowdown.
"Real estate prices will go down 40-50 percent in bubble areas. There will be massive defaults. This time it'll be worse because we haven't had this kind of speculative buying in U.S. history," Rogers said.
"When markets turn from bubble to reality, a lot of people get burned."
The fund manager, who co-founded the Quantum Fund with billionaire investor George Soros in the 1970s and has focused on commodities since 1998, said the crisis would spread to emerging markets which he said now faced a prolonged bear run.
"When you have a financial crisis, it reverberates in other financial markets, especially in those with speculative excess," he said.
"Right now, there is huge speculative excess in emerging markets around the world. There will be a lot of money coming out of emerging markets.
"I've sold out of emerging markets except for China," said Rogers, long a prominent China bull.
Even in China, the world's fastest expanding economy, Rogers said stocks were overvalued and could go down 30-40 percent.
But he added: "China is one of the few countries in the world where I'm willing to sit out a 30-40 percent decline."
The last stock market bubble to burst was the dot-com craze which sparked a crash from March 2000 to October 2002.
When the last bubble burst in Japan, said Rogers, stock prices went down 85 percent despite the country's high savings rate and huge balance of payment surplus.
"This is the end of the liquidity party," said Rogers. "Some emerging markets will go down 80 percent, some will go down 50 percent. Some will most probably collapse."
14 March 2007
Leaving Iraq: The Grim Truth
Rolling Stone : Leaving Iraq: The Grim Truth: "The war in Iraq isn't over yet, but -- surge or no surge -- the United States has already lost. That's the grim consensus of a panel of experts assembled by Rolling Stone to assess the future of Iraq. 'Even if we had a million men to go in, it's too late now,' says retired four-star Gen. Tony McPeak, who served on the Joint Chiefs of Staff during the Gulf War. 'Humpty Dumpty can't be put back together again.'
Those on the panel -- including diplomats, counterterror analysts and a former top military commander -- agree that President Bush's attempt to secure Baghdad will only succeed in dragging out the conflict, creating something far beyond any Vietnam-style 'quagmire.' The surge won't bring an end to the sectarian cleansing that has ravaged Iraq, as the newly empowered Shiite majority seeks to settle scores built up during centuries of oppressive rule by the Sunni minority. It will do nothing to defuse the powder keg that an independence-minded Kurdistan, in Iraq's northern provinces, poses to the governments of Turkey, Syria and Iran, which have long brutalized their own Kurdish separatists. And it will only worsen the global war on terror."
Those on the panel -- including diplomats, counterterror analysts and a former top military commander -- agree that President Bush's attempt to secure Baghdad will only succeed in dragging out the conflict, creating something far beyond any Vietnam-style 'quagmire.' The surge won't bring an end to the sectarian cleansing that has ravaged Iraq, as the newly empowered Shiite majority seeks to settle scores built up during centuries of oppressive rule by the Sunni minority. It will do nothing to defuse the powder keg that an independence-minded Kurdistan, in Iraq's northern provinces, poses to the governments of Turkey, Syria and Iran, which have long brutalized their own Kurdish separatists. And it will only worsen the global war on terror."
The Minsky Moment: They Can Run, But They Can’t Hide
The collapse of New Century this week illustrates in spades the end game of Ponzi finance. All the incentives for Ponzi business models are front loaded, that being collecting fees and commissions for silly season and often fraudulent transactions. Once the string has been run, the loots from these transactions are stuffed into the criminal rat lines, and the game of musical chairs begins.
It is at this twisting in the wind “break point” that the hyperreality crowd gets the “surprise”, that makes their denial no longer an illusionary asset, but a liability. There is then a mad scramble to determine who becomes the final bagholders of the Ponzi scam. That’s when a term that will without doubt become increasingly familiar enters the lexicon, the “margin call”. Margin calls pull the plug on Ponzi finance “liquidity”.
New Century said in a securities filing yesterday that all its lenders had frozen their credit lines and were demanding that it buy back $8.4 billion in loans that it issued using the money it borrowed from the banks — money New Century says it does not have.
Of course all the players will pretend and proclaim that it will be somebody else who will end up holding these Old Maid Cards, or guarantee their loss claims. They will also pretend that this drama will be drawn out, and that they can head for the exits in an orderly fashion. In reality though historic Minsky moments of this magnitude unfold quite rapidly. In fact, last night we were greeted with yet another budding implosion, this time an outfit with the hyperreal motherhood and apple pie name Accredited Home Lenders.
What continues to be remarkable about these turkey shoot setups is how the shares stay levitated right up to the very end. Incredibly, even on the eve of their collapses these firms are fully supported by Wall Street dead fish with “buy recommendations”. Despite the overwhelming evidence that Toto has pulled the curtain on the magnificent Wizard of Oz, these firms still are treated as credible institutions? A thinking person has to wonder at what point the marks tire of “surprises” and the commentary from shills, thus accelerating the Minsky moment.
link
It is at this twisting in the wind “break point” that the hyperreality crowd gets the “surprise”, that makes their denial no longer an illusionary asset, but a liability. There is then a mad scramble to determine who becomes the final bagholders of the Ponzi scam. That’s when a term that will without doubt become increasingly familiar enters the lexicon, the “margin call”. Margin calls pull the plug on Ponzi finance “liquidity”.
New Century said in a securities filing yesterday that all its lenders had frozen their credit lines and were demanding that it buy back $8.4 billion in loans that it issued using the money it borrowed from the banks — money New Century says it does not have.
Of course all the players will pretend and proclaim that it will be somebody else who will end up holding these Old Maid Cards, or guarantee their loss claims. They will also pretend that this drama will be drawn out, and that they can head for the exits in an orderly fashion. In reality though historic Minsky moments of this magnitude unfold quite rapidly. In fact, last night we were greeted with yet another budding implosion, this time an outfit with the hyperreal motherhood and apple pie name Accredited Home Lenders.
What continues to be remarkable about these turkey shoot setups is how the shares stay levitated right up to the very end. Incredibly, even on the eve of their collapses these firms are fully supported by Wall Street dead fish with “buy recommendations”. Despite the overwhelming evidence that Toto has pulled the curtain on the magnificent Wizard of Oz, these firms still are treated as credible institutions? A thinking person has to wonder at what point the marks tire of “surprises” and the commentary from shills, thus accelerating the Minsky moment.
link
12 March 2007
Peak Gold
St. LOUIS (ResourceInvestor.com) -- Yesterday, South Africa’s Chamber of Mines reported that gold output fell last year to 275 tonnes, down 8% from 2005. Some sources say South Africa’s decline in gold production is now becoming a global affair, as seen in leading gold producing countries.
According to stats from GoldSheets.com, U.S. gold output for last year declined from 262 tonnes to 260 tonnes. Australian production fell to 251 tonnes from 263 tonnes. Gold produced in Peru declined to 203 tonnes from 207 tonnes. Russian gold output dropped 4 tonnes in 2006 to152 tonnes, while Canada fell from 118 tonnes to 104 tonnes.
“Production in Australia, South Africa, Canada and Peru is expected to continue slumping in the next few years, probably stabilizing in 2010, but never reaching their peak levels from years past,” said Neal R. Ryan, Vice President and Director of Economic Research for Blanchard and Company, Inc. Peak Oil
According to stats from GoldSheets.com, U.S. gold output for last year declined from 262 tonnes to 260 tonnes. Australian production fell to 251 tonnes from 263 tonnes. Gold produced in Peru declined to 203 tonnes from 207 tonnes. Russian gold output dropped 4 tonnes in 2006 to152 tonnes, while Canada fell from 118 tonnes to 104 tonnes.
“Production in Australia, South Africa, Canada and Peru is expected to continue slumping in the next few years, probably stabilizing in 2010, but never reaching their peak levels from years past,” said Neal R. Ryan, Vice President and Director of Economic Research for Blanchard and Company, Inc. Peak Oil
6 March 2007
Profound Prediction from Priceton
May correction and early top in 2007 predicted in 1997. The 6.8 year international confidence cycle.
1 March 2007
(OT) Chaney in Afghanistan -- amusing and insightfull
The Swamp - Chicago Tribune - Blogs.: "One of the most peculiar artifices of the White House is the 'senior administration official.''
This is the official who provides all sorts of background information and insight into the White House's thinking on policies and practices for reporters, but refuses to permit his or her name to be cited.
Such as this 'senior administration official,'' who spoke with reporters about Vice President Dick Cheney's intentions with his visits to Pakistan and Afghanistan this week as the vice president was flying out of Kabul on a military transport jet, according to an official White House transcript released:"
This is the official who provides all sorts of background information and insight into the White House's thinking on policies and practices for reporters, but refuses to permit his or her name to be cited.
Such as this 'senior administration official,'' who spoke with reporters about Vice President Dick Cheney's intentions with his visits to Pakistan and Afghanistan this week as the vice president was flying out of Kabul on a military transport jet, according to an official White House transcript released:"
28 February 2007
A European Perspective
Feb 27, 2007 Gold and Uranium - A European Perspective Dudley Baker 321gold . . . Inc: "The question now becomes, 'will the European investors EVER be investing in 'our' (U.S. and Canadian) bull market in the precious metals stocks?' Most analysts assume (I know, this is usually trouble) that all investors in the world will one day be investing in the precious metals stocks and/or warrants. Maybe - Maybe Not!! Is it possible this bull market will remain basically a U.S. and Canadian affair? Do we need the rest of the investors of the world to assist with driving the mining shares to the outrageous price levels predicted by some analysts as we peak in the coming years?
Conclusion:
Investors' views and opinions of the world financial markets, gold, uranium, etc. are dictated by the specific currency in which we make our investment decisions. As the U.S. dollar rises or declines, the Euro rises or declines as well as all other currencies of the world, investors are faced with making investment decisions as viewed from their particular currency. It is possible the lack of European investors in the mining shares is a sign that we are still in the early stages of this bull market. Perhaps; but it is entirely possible that this bull market will take place basically on this side of the pond. Either way it will still be a great party but the more investors the better before the clock strikes midnight."
Conclusion:
Investors' views and opinions of the world financial markets, gold, uranium, etc. are dictated by the specific currency in which we make our investment decisions. As the U.S. dollar rises or declines, the Euro rises or declines as well as all other currencies of the world, investors are faced with making investment decisions as viewed from their particular currency. It is possible the lack of European investors in the mining shares is a sign that we are still in the early stages of this bull market. Perhaps; but it is entirely possible that this bull market will take place basically on this side of the pond. Either way it will still be a great party but the more investors the better before the clock strikes midnight."
Great Balls of Fire Financials Hit Bigtime
Feb 28, 2007 Great Balls of Fire Richard Russell 321gold . . . Inc: "Yesterday the Shanghai Stock Exchange Composite suffered its biggest loss in a decade -- down about 9%. The Chinese government has been warning that it would slow China's furious rate of growth. Bank reserves were contracted a few times, the Chinese central bank stepped on the brakes. The result -- a major smash in Chinese stocks. It was a crash heard 'round the world.
If China slows down, China's enormous export of goods will slow down. China's huge use of commodities will slow down. The activities of 1.3 billion Chinese people will slow down. How much of a change the nine percent drop in Chinese stocks will bring on, remains to be seen. Some see it as merely a temporary warning, a 'gut-check.' Others take it more seriously. My opinion -- major bull moves don't tend to end this way. Major tops entail weeks, more often months, of distribution. I haven't seen the signs of steady distribution yet. I've seen overvaluation, over-speculation, over-optimism, ignoring of risk -- but I have not yet [seen] the signs of distribution.
It used to be said that when the US sneezed, the rest of the world caught a cold. And I wonder, has that changed? Is it China that has now taken the US's place? When China coughs, is the rest of the world in trouble. Hard to believe, but that may well be the case today. Below, a daily chart of FXI, the 'China 25 Index Fund.'"
If China slows down, China's enormous export of goods will slow down. China's huge use of commodities will slow down. The activities of 1.3 billion Chinese people will slow down. How much of a change the nine percent drop in Chinese stocks will bring on, remains to be seen. Some see it as merely a temporary warning, a 'gut-check.' Others take it more seriously. My opinion -- major bull moves don't tend to end this way. Major tops entail weeks, more often months, of distribution. I haven't seen the signs of steady distribution yet. I've seen overvaluation, over-speculation, over-optimism, ignoring of risk -- but I have not yet [seen] the signs of distribution.
It used to be said that when the US sneezed, the rest of the world caught a cold. And I wonder, has that changed? Is it China that has now taken the US's place? When China coughs, is the rest of the world in trouble. Hard to believe, but that may well be the case today. Below, a daily chart of FXI, the 'China 25 Index Fund.'"
Calm Before the Storm?
Safe Haven Calm Before the Storm?: "CURRENT SITUATION - Everything seems to be going well in the financial world and the investing public is busy doing what it does best - bidding up stock prices after a big rally. Today, there is no regard for risk with the investors' greed being stoked by the mainstream financial media which claims that the US economy is in a sweet spot due to reasonable growth and low inflation (as measured by the bogus official statistics). In all fairness, the bulls have plenty to cheer about. After all, the long-term bond-yield in the US is still relatively low, the price of oil has taken a tumble and global stock markets are flirting with their record-highs. So, I ask myself whether we should join the herd or is it time for caution?
My observation is that dark clouds are gathering over the horizon and this is the time to be on guard. In fact, we may be experiencing the proverbial calm before the storm. Bearing in mind the recent developments in the Middle-East, I suspect that a geo-political disaster is around the corner. I hope I am wrong but it increasingly looks as though either Israel or the US will attack Iran over its 'nuclear program'. I had first forecast this in August 2005 and believe my fears will be validated in the near future. Over the past few weeks, Washington has increased its rhetoric over Iran's 'nuclear program' and dispatched the USS John C. Stennis and USS Eisenhower aircraft carrier groups to Iran. This is an ominous development and suggests that we may be at the brink of another war."
My observation is that dark clouds are gathering over the horizon and this is the time to be on guard. In fact, we may be experiencing the proverbial calm before the storm. Bearing in mind the recent developments in the Middle-East, I suspect that a geo-political disaster is around the corner. I hope I am wrong but it increasingly looks as though either Israel or the US will attack Iran over its 'nuclear program'. I had first forecast this in August 2005 and believe my fears will be validated in the near future. Over the past few weeks, Washington has increased its rhetoric over Iran's 'nuclear program' and dispatched the USS John C. Stennis and USS Eisenhower aircraft carrier groups to Iran. This is an ominous development and suggests that we may be at the brink of another war."
US recession and financial distress
Today we had a meltdown of many stock markets, first in China, then in Europe, the U.S., emerging markets and globally. What happened today is consistent with my outlook for a U.S. hard landing this year.
The China crash had its source in the stock market bubble in China that is now beginning to burst as Chinese authorities started to crack down on these speculative excesses. This crash may be the beginning of a broader downward adjustment in the stock market in China that may lead to a broader economic slowdown in China.
We also had contagion from China to other global stock markets. This contagion is a combination of the China crash and of the lousy economic news out of the US. ..This is not the first time that financial contagion happens from emerging markets to advanced economies: in the fall of 1997 when the Asian crisis became global a collapse of the Hong Kong market in October led to a sharp sell-off of the Dow Jones (500 points in one day), as the one we had today. Also the collapse of Russia in August 1998 led - with a short lag - to contagion to US financial markets and to the LTCM near-bankruptcy. So shocks from emerging markets can affect markets and economies in developed countries, especially when the latter have meaningful financial and real vulnerabilities, like the US today.
The US is likely to enter into a recession in 2007; and even a likely and early easing of monetary policy by the Fed will not prevent such a recession as there are too many weaknesses in the US economy: a housing recession, an auto recession, a manufacturing recession, a real investment recession (as corporations are reducing real capital investment and inventories are falling), a US consumer that is on the ropes and at its tipping point; a meltdown in sub-prime mortgages that is leading to a generalized credit crunch in the economy. It is already ugly and it will get uglier in the real economy and in the financial markets. We are likely to observe a vicious cycle where a credit crunch and a persistent sell-off in equities leads to a worsening of the real economy with a hard landing (recession) that then weakens further the financial system. One cannot rule out a broader banking crisis if a deep recession occurs.
What will be the fallout of a US recession for the rest of the world? Europe, Asia and the rest of the world will not decouple from a US hard landing. If the US were to experience a soft landing Europe and the rest of the world will do fine. But if a US recession does occur there will be a significant economic slowdown in Europe, as well as in China, Asia and other emerging markets. China will be a primary victim as its excesses and its dependence on exports to the US are particularly important. So it is still the case that when the US sneezes the rest of the world gets the cold.
A US recession will be the result of the bubbles and excesses of the US economy in the last few years: a housing bubble now going bust; negative household savings; negative government savings (i.e. large budget deficits), low national savings and thus a large current account deficit. The party will be soon over; and the complacency and under-pricing of risk in financial markets will soon be corrected with painful consequences for the US and the global economy. The US economy has been living in a financial bubble for too long. Now this bubble is bursting – yesterday in housing and sub-prime, today in the stock market, soon enough in a wide range of other risky assets. The fallout will be very painful for the US and the world once a US recession and severe financial sector distress interact in a vicious cycle.
The China crash had its source in the stock market bubble in China that is now beginning to burst as Chinese authorities started to crack down on these speculative excesses. This crash may be the beginning of a broader downward adjustment in the stock market in China that may lead to a broader economic slowdown in China.
We also had contagion from China to other global stock markets. This contagion is a combination of the China crash and of the lousy economic news out of the US. ..This is not the first time that financial contagion happens from emerging markets to advanced economies: in the fall of 1997 when the Asian crisis became global a collapse of the Hong Kong market in October led to a sharp sell-off of the Dow Jones (500 points in one day), as the one we had today. Also the collapse of Russia in August 1998 led - with a short lag - to contagion to US financial markets and to the LTCM near-bankruptcy. So shocks from emerging markets can affect markets and economies in developed countries, especially when the latter have meaningful financial and real vulnerabilities, like the US today.
The US is likely to enter into a recession in 2007; and even a likely and early easing of monetary policy by the Fed will not prevent such a recession as there are too many weaknesses in the US economy: a housing recession, an auto recession, a manufacturing recession, a real investment recession (as corporations are reducing real capital investment and inventories are falling), a US consumer that is on the ropes and at its tipping point; a meltdown in sub-prime mortgages that is leading to a generalized credit crunch in the economy. It is already ugly and it will get uglier in the real economy and in the financial markets. We are likely to observe a vicious cycle where a credit crunch and a persistent sell-off in equities leads to a worsening of the real economy with a hard landing (recession) that then weakens further the financial system. One cannot rule out a broader banking crisis if a deep recession occurs.
What will be the fallout of a US recession for the rest of the world? Europe, Asia and the rest of the world will not decouple from a US hard landing. If the US were to experience a soft landing Europe and the rest of the world will do fine. But if a US recession does occur there will be a significant economic slowdown in Europe, as well as in China, Asia and other emerging markets. China will be a primary victim as its excesses and its dependence on exports to the US are particularly important. So it is still the case that when the US sneezes the rest of the world gets the cold.
A US recession will be the result of the bubbles and excesses of the US economy in the last few years: a housing bubble now going bust; negative household savings; negative government savings (i.e. large budget deficits), low national savings and thus a large current account deficit. The party will be soon over; and the complacency and under-pricing of risk in financial markets will soon be corrected with painful consequences for the US and the global economy. The US economy has been living in a financial bubble for too long. Now this bubble is bursting – yesterday in housing and sub-prime, today in the stock market, soon enough in a wide range of other risky assets. The fallout will be very painful for the US and the world once a US recession and severe financial sector distress interact in a vicious cycle.
27 February 2007
Fieldstone Accepts Buyout by C-BASS ((CS), (CSGN.VX), (FICC), J.P. Morgan Chase & Co. (JPM), Lehman Brothers Holdings Inc. (LEH), MGIC Investment Corp. (MTG), Radian Group Inc. (RDN), (CH001213), (US46
Fieldstone Accepts Buyout by C-BASS ((CS), (CSGN.VX), (FICC), J.P. Morgan Chase & Co. (JPM), Lehman Brothers Holdings Inc. (LEH), MGIC Investment Corp. (MTG), Radian Group Inc. (RDN), (CH001213), (US46: "NEW YORK -(Dow Jones)- Mortgage lender Fieldstone Investment Corp. (FICC) said Friday it agreed to be bought for about $259 million by C-BASS LLC, a purchaser of credit-sensitive assets like home loans to people with poor credit, becoming the latest subprime lender to sell out amid an ongoing shakeout in the sector.
New York-based C-BASS, majority-owned by mortgage insurers MGIC Investment Corp. (MTG) and Radian Group Inc. (RDN), will buy Fieldstone for $5.53 a share in cash, a 113% premium to Fieldstone's closing price Thursday. The two insurers announced plan to merge early this month. Fieldstone's shares recently traded up 95.8%, or $2.49, to $5.09 on volume of 10,3 million compared with average daily volume of 787,600.
The deal is worth $259 million based on 46.9 million Fieldstone shares outstanding, according to CapitalIQ. The purchase price is subject to a reduction of 20 cents a share should Fieldstone not settle litigation before the merger, the companies said. "
New York-based C-BASS, majority-owned by mortgage insurers MGIC Investment Corp. (MTG) and Radian Group Inc. (RDN), will buy Fieldstone for $5.53 a share in cash, a 113% premium to Fieldstone's closing price Thursday. The two insurers announced plan to merge early this month. Fieldstone's shares recently traded up 95.8%, or $2.49, to $5.09 on volume of 10,3 million compared with average daily volume of 787,600.
The deal is worth $259 million based on 46.9 million Fieldstone shares outstanding, according to CapitalIQ. The purchase price is subject to a reduction of 20 cents a share should Fieldstone not settle litigation before the merger, the companies said. "
The Food Chain of Finance
THE TRIUMPH OF CREDIT MARKETINGAND ITS INEVITABLE IMPLICATION, by Jeffrey Webster, Editor, Investment Sense. 'Leaving aside ethical questions, which depend on the reader’s personal sense of justice, the fact is that there are practical limits beyond which consumers simply become incapable of paying. In fact the “Merchants of Misery” may well enjoy a period of fervid growth in the initial phases of the contraction. However at some point social mores will switch from a general acceptance of aggressive debt promotion and massive profit margins earned on the poor to a sense of disgust and a desire to reform. No doubt there will be a new wave of anti-usury laws targeting Second Tier enterprises like rent-to-own, check cashing and pawn shops. No tree grows to the sky. Eventually the three decade promotion of debt to the highest risk groups will backfire, leading to unprecedented losses through exceedingly high rates of default.'"
Atlantic Free Press - Hard Truths for Hard Times - The Second Great Depression
Atlantic Free Press - Hard Truths for Hard Times - The Second Great Depression: "This week’s data on the sagging real estate market leaves no doubt that the housing bubble is quickly crashing to earth and that hard times are on the way. “The slump in home prices from the end of 2005 to the end of 2006 was the biggest year over year drop since the National Association of Realtors started keeping track in 1982.” (New York Times) The Commerce Dept announced that the construction of new homes fell in January by a whopping 14.3%. Prices fell in half of the nation’s major markets and “existing home sales declined in 40 states”. Arizona, Florida, California, and Virginia have seen precipitous drops in sales. The Commerce Department also reported that “the number of vacant homes increased by 34% in 2006 to 2.1 million at the end of the year, nearly double the long-term vacancy rate.” (Marketwatch)"
26 February 2007
It's the sitting that does it!
"And right here let me say one thing: After spending many years in Wall Street and after making and losing millions of dollars, I want to tell you this: It never was my thinking that made the big money for me. It was always my sitting. Got that? My sitting tight! It is no trick at all to be right on the market. You always find lots of early bulls in bull markets and early bears in bear markets. I've known many men who were right at exactly the right time, and began buying or selling stocks when prices were at the very level which should show the greatest profit. And their experience invariably matched mine-that is, they made no real money out of it. Men who can both be right and sit tight are uncommon. I found it one of the hardest things to learn. But it is only after a stock operator has firmly grasped this that he can make big money. It is literally true that millions come easier to a trader, after he knows how to trade than hundreds did in the days of his ignorance". -Jesse Livermore (Reminiscences of a Stock Operator)
22 February 2007
Storm Cloud at the Global Bazaar? - washingtonpost.com
Robert J. Samuelson - Storm Cloud at the Global Bazaar? - washingtonpost.com: "Global finance is mysterious, exciting and sometimes reckless. A specter now haunts it -- the specter of excess 'liquidity.' Will this prove a passing anxiety or, as in 1997 and 1998 with the Asian financial crisis, will it threaten the stability of the entire global economy? Good question."
Australia was once awash with gold, says new geological study
"The chemistry of gold in brine suggests that water has a lot higher capacity to carry gold than we have been able to measure. We have very salty groundwater in parts of Australia, particularly in some of our gold-bearing regions," ABC quoted him as saying.Dr Frank Reith and his team, also a part of the study, found that bacteria played a key role in forming gold grains and nuggets. They found that certain species of bacteria removed gold from the soil and deposited pure grains of it around them.Dr McPhail said these two pieces of evidence became important when scientists looked back millions of years, to periods when Australian rocks were subject to a process known as deep weathering."During these times, the rocks were being weathered by interaction with the atmosphere and water," Dr McPhail said."That weathering may have taken place during times when much of Australia was less arid than it is now. Over millions of years you get climate changes. There were periods when a lot of Australia was tropical," added Dr Reith.Dr McPhail said these hot, wet conditions would have provided the ideal environment for gold-moving bugs and for water to contain higher gold concentrations."During those times, and we're talking about 60 million years ago or 12 million years ago for example, groundwater may have contained more gold," he said."The work could prove a boon for mineral explorers," he added."If gold was more mobile in the geological past, such as during deep weathering episodes, then this work could help focus exploration in weathered terrains. It could point to new deposits," he said. (ANI)
Westpac report finds risks and opportunities in climate change
Westpac Internet -Latest news: "The 2006 report sets out Westpac's non-financial performance across more than 110 indicators covering human, social and environmental capital. The report again emphases the links between sustainability and shareholder value, with Westpac CEO, Dr David Morgan, stating that managing social, environmental and workplace performance, along with stakeholder relationships and other intangibles, is fundamentally linked to long-term shareholder value.
Dr Morgan said the value proposition was most obvious around climate change, with 2006 shaping up as a turning point in Australia: 'With widespread acceptance that climate change is real, business has a tiger by the tail. There are critical risks but also real business opportunities - from lending in a water and carbon-constrained environment to valuing next generation assets.'
In 2006 Westpac was a key member of the Australian Business Roundtable on Climate Change; commenced trading in the EU Emission Trading Scheme (EU ETS), and was recognised for 'best in class' management and disclosure practices in the Carbon Disclosure Project's (CDP) global Climate Leaders Index. Westpac continues to look at pursuing the ultimate goal of carbon neutrality; that is zero net emissions."
Dr Morgan said the value proposition was most obvious around climate change, with 2006 shaping up as a turning point in Australia: 'With widespread acceptance that climate change is real, business has a tiger by the tail. There are critical risks but also real business opportunities - from lending in a water and carbon-constrained environment to valuing next generation assets.'
In 2006 Westpac was a key member of the Australian Business Roundtable on Climate Change; commenced trading in the EU Emission Trading Scheme (EU ETS), and was recognised for 'best in class' management and disclosure practices in the Carbon Disclosure Project's (CDP) global Climate Leaders Index. Westpac continues to look at pursuing the ultimate goal of carbon neutrality; that is zero net emissions."
Can 4% of Homeowners Sink the Entire Market?
charles hugh smith-Weblog and wEssays: "That's $6.5 trillion, which means all 50 million mortgage holders are left with a grand total of $1.5 trillion in net equity. If housing values decline 15%, that's a $2.85 trillion haircut off net equity. If we set 2/3 of that against mortgaged real estate, (the other 1/3 being a decline in the value of free and clear homes), then the decline collectively suffered by all mortgage holders is $1.9 trillion--enough to put them in a negative equity hole.
This is a staggering conclusion, for it suggests just how a 'mere' 4% delinquency/foreclosure rate could trigger a 'modest' 15% decline in housing values, which would put the nation's mortgage holders (if taken in aggregate) under water: the nation's household debt would exceed the value of the mortgaged residential real estate.
So let's put this together. With the Pareto Principle in hand, we can foresee the distinct possibility that when a mere 4% of outstanding mortgages enter delinquency / foreclosure, then a 'tipping point' will be reached, triggering effects which far outsize the proximate causes.
Please examine the chart above carefully. Over 69% of the population are homeowners, and another 26% are in poverty. According to the FDIC, the recent surge in ownership from 64% to 69.5% has created a pool of 'at-risk' borrowers who couldn't have purchased a house with a conventional mortgage. Of the remaining 4% who are not homeowners or those living below the poverty line, the recent stalling home ownership rates at about 69.1-69.7% suggests these households are just above the poverty level and unable to buy a house, not yuppies renting penthouse suites who are now ready to buy a McMansion. "
This is a staggering conclusion, for it suggests just how a 'mere' 4% delinquency/foreclosure rate could trigger a 'modest' 15% decline in housing values, which would put the nation's mortgage holders (if taken in aggregate) under water: the nation's household debt would exceed the value of the mortgaged residential real estate.
So let's put this together. With the Pareto Principle in hand, we can foresee the distinct possibility that when a mere 4% of outstanding mortgages enter delinquency / foreclosure, then a 'tipping point' will be reached, triggering effects which far outsize the proximate causes.
Please examine the chart above carefully. Over 69% of the population are homeowners, and another 26% are in poverty. According to the FDIC, the recent surge in ownership from 64% to 69.5% has created a pool of 'at-risk' borrowers who couldn't have purchased a house with a conventional mortgage. Of the remaining 4% who are not homeowners or those living below the poverty line, the recent stalling home ownership rates at about 69.1-69.7% suggests these households are just above the poverty level and unable to buy a house, not yuppies renting penthouse suites who are now ready to buy a McMansion. "
The Korea Times : Year of Pig Ushers in Hopeful Year
The Korea Times : Year of Pig Ushers in Hopeful Year: "A pig ironically has a dual image _ both positive and negative.
Since it began living as a domestic animal in Korea some 2,000 years ago, pigs have brought a lot of myths and superstitions closely associated with wealth, good luck and sometimes a mythical supernatural power in sacrificial rituals.
However, pigs are also synonymous with greed, laziness, stupidity and dirtiness.
Pigs found in Korean history carry these mixed blessings long grafted onto folk culture and handed down to current times.
This year will find many people fussing a lot more than usual over all kinds of myths and rumors as the year of 2007 ushers in the year of a pig, hopefully an abundant year.
Year of the Golden Pig?
The belief about pigs is expected to be exaggerated more than ever this year.
The lunar calendar designates each year as one of the 12 zodiac animals; the pig is the 12th zodiac animal.
The lunar year follows the sequence of the 12 zodiac animals _ rat, ox, tiger, rabbit, dragon, snake, horse, sheep, monkey, rooster, dog and lastly, pig.
But this pig year, called the year of ``chonghae,’’ which means a red pig, returns every 60 years."
Since it began living as a domestic animal in Korea some 2,000 years ago, pigs have brought a lot of myths and superstitions closely associated with wealth, good luck and sometimes a mythical supernatural power in sacrificial rituals.
However, pigs are also synonymous with greed, laziness, stupidity and dirtiness.
Pigs found in Korean history carry these mixed blessings long grafted onto folk culture and handed down to current times.
This year will find many people fussing a lot more than usual over all kinds of myths and rumors as the year of 2007 ushers in the year of a pig, hopefully an abundant year.
Year of the Golden Pig?
The belief about pigs is expected to be exaggerated more than ever this year.
The lunar calendar designates each year as one of the 12 zodiac animals; the pig is the 12th zodiac animal.
The lunar year follows the sequence of the 12 zodiac animals _ rat, ox, tiger, rabbit, dragon, snake, horse, sheep, monkey, rooster, dog and lastly, pig.
But this pig year, called the year of ``chonghae,’’ which means a red pig, returns every 60 years."
21 February 2007
Monday view: Cheap solar power poised to undercut oil and gas by half
Within five years, solar power will be cheap enough to compete with carbon-generated electricity, even in Britain, Scandinavia or upper Siberia. In a decade, the cost may have fallen so dramatically that solar cells could undercut oil, gas, coal and nuclear power by up to half. Technology is leaping ahead of a stale political debate about fossil fuels.
Anil Sethi, the chief executive of the Swiss start-up company Flisom, says he looks forward to the day - not so far off - when entire cities in America and Europe generate their heating, lighting and air-conditioning needs from solar films on buildings with enough left over to feed a surplus back into the grid.
The secret? Mr Sethi lovingly cradles a piece of dark polymer foil, as thin a sheet of paper. It is 200 times lighter than the normal glass-based solar materials, which require expensive substrates and roof support. Indeed, it is so light it can be stuck to the sides of buildings.
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Rather than being manufactured laboriously piece by piece, it can be mass-produced in cheap rolls like packaging - in any colour.
The "tipping point" will arrive when the capital cost of solar power falls below $1 (51p) per watt, roughly the cost of carbon power. We are not there yet. The best options today vary from $3 to $4 per watt - down from $100 in the late 1970s.
Mr Sethi believes his product will cut the cost to 80 cents per watt within five years, and 50 cents in a decade.
It is based on a CIGS (CuInGaSe2) semiconductor compound that absorbs light by freeing electrons. This is then embedded on the polymer base. It will be ready commercially in late 2009.
"It'll even work on a cold, grey, cloudy day in England, which still produces 25pc to 30pc of the optimal light level. That is enough, if you cover half the roof," he said.
"We don't need subsidies, we just need governments to get out of the way and do no harm. They've spent $170bn subsidising nuclear power over the last thirty years," he said.
His ultra-light technology, based on a copper indium compound, can power mobile phones and laptop computers with a sliver of foil.
"You won't have to get down on your knees ever again to hunt for plug socket," he said
Michael Rogol, a solar expert at Credit Lyonnais, expects the solar industry to grow from $7bn in 2004 to nearer $40bn by 2010, with operating earnings of $3bn.
The sector is poised to outstrip wind power. It is a remarkable boom for a technology long dismissed by experts as hopelessly unviable. link
Anil Sethi, the chief executive of the Swiss start-up company Flisom, says he looks forward to the day - not so far off - when entire cities in America and Europe generate their heating, lighting and air-conditioning needs from solar films on buildings with enough left over to feed a surplus back into the grid.
The secret? Mr Sethi lovingly cradles a piece of dark polymer foil, as thin a sheet of paper. It is 200 times lighter than the normal glass-based solar materials, which require expensive substrates and roof support. Indeed, it is so light it can be stuck to the sides of buildings.
advertisement
Rather than being manufactured laboriously piece by piece, it can be mass-produced in cheap rolls like packaging - in any colour.
The "tipping point" will arrive when the capital cost of solar power falls below $1 (51p) per watt, roughly the cost of carbon power. We are not there yet. The best options today vary from $3 to $4 per watt - down from $100 in the late 1970s.
Mr Sethi believes his product will cut the cost to 80 cents per watt within five years, and 50 cents in a decade.
It is based on a CIGS (CuInGaSe2) semiconductor compound that absorbs light by freeing electrons. This is then embedded on the polymer base. It will be ready commercially in late 2009.
"It'll even work on a cold, grey, cloudy day in England, which still produces 25pc to 30pc of the optimal light level. That is enough, if you cover half the roof," he said.
"We don't need subsidies, we just need governments to get out of the way and do no harm. They've spent $170bn subsidising nuclear power over the last thirty years," he said.
His ultra-light technology, based on a copper indium compound, can power mobile phones and laptop computers with a sliver of foil.
"You won't have to get down on your knees ever again to hunt for plug socket," he said
Michael Rogol, a solar expert at Credit Lyonnais, expects the solar industry to grow from $7bn in 2004 to nearer $40bn by 2010, with operating earnings of $3bn.
The sector is poised to outstrip wind power. It is a remarkable boom for a technology long dismissed by experts as hopelessly unviable. link
16 February 2007
Ghawar Is Dying
August,2001--"Ghawar is dying." Could those three simple words signal the beginning of the end for the industrialized human civilization on Planet Earth? No one in a position of knowledge or authority has uttered them publicly yet, nor are they likely to for a few years to come. So we do have some time--but not much. Then again, they may have been said quietly two years ago and we would never know. Life's funny that way. Too bad this isn't a laughing matter.
Some two hundred kilometers east of Riyadh, Saudi Arabia, is a stretch of uninhabited and unremarkable desert in the Empty Quarter. This hot, desolate landscape sits above the largest oil field in the world: the Ghawar. It's a big chunk of nothing one hundred and fifty miles long and twenty-five miles wide, but thousands of meters below its surface lie seventy billion barrels of oil patiently waiting to be pumped out. They've waited for millions of years. A few more won't matter. And after that? After that, Ghawar will no longer be dying. It will be dead. Nothing left but sand and sinkholes.
Before you sit back, all smug and comfy with that seventy billion barrel figure, let me do a bit of quick math for you: that's only an 875 day supply of oil for the world at the current rate of use. (And that rate rises every year, just as the Ghawar's not unlimited oil reserves get lower.) Admittedly, the Ghawar is not our only source of oil. (And unless you happen to be Saudi, its not even your oil at all, now is it?) Still, the Ghawar is The Big One, and when it goes, things will change--forever. The only questions are: When will it happen, and how will we know?
The when is easy, if vague: it could happen at any time from two years ago to twenty years from now. But how will we know? That's a far more difficult question to answer.
I can picture a Mercedes Unimog lumbering alongside pipelines in the desert, stopping at each well head. At each stop, a man climbs down from the machine and walks over to the well. He looks and records a number from the gauge, then returns to the truck. This scene plays out over and over. It would take days to record all the numbers from the wells in the Ghawar. Still, it must be done. Those hand-written numbers are given to a field technician who dutifully records them, one well at a time, in a computer database. All that data gets sent to the Saudi government, where the numbers are studied, analyzed, and agonized over. If the figures are the same as or higher than the last figures, life is good. If not, then what?
What if the Ghawar IS dying? It would be easy enough to play with the numbers for a year or two--until the decline rate starts to speed up and the loss can't be hidden. After that? Plan B might call for a declared "voluntary reduction" in oil production to "stabilize the market at the optimum level." Yeah, right. How in the world would you ever know exactly how much oil is being pumped or shipped from a country half way around the world to other countries you've never seen? The answer is obvious: You wouldn't. You never will. C'est la vie.
Somewhere in Los Angeles, on quite literally the other side of the world, an SUV pulls into a gas station and the driver gets out. The pump is turned on and a gas tank is filled. Sure, it cost more here at this big, fancy franchise than it did over at that little independent station, but the indy was closed today. Matter of fact, hasn't it been closed for about a week now? What's up with that? Ah, well. At least it's not that much more. What's an extra buck or two to fill the tank? No big deal. Unless Ghawar is dying, in which case it is a very big deal indeed--and will get considerably bigger before it's all over. Maybe this was a sign of a weakening pulse?
You're Invited to the FuneralMeasured up against the big scheme of things, the death of Ghawar and our oil-powered industrial civilization will fall somewhere between the Black Plague of 14th Century Europe and the meteor that wiped out the dinosaurs. Unlike the plague, this will effect humans world-wide, but unlike the meteor, it will effect only humans. Chickens may some day cross the road with impunity. Animals both large and small will prosper (Hey, you try whaling in a row boat!) And the earth will undoubtedly cool off a bit. Too bad we all won't be here to enjoy it.
With the death of Ghawar will undoubtedly come the deaths of humans. Many humans, it would seem, the result of probably unavoidable wars for the last remaining oil to the much-predicted pandemics and mass starvation. Estimates on the sustainable limit to humans on this planet have ranged from an utterly dismal 1/70th of the current population (about 100 million) to an almost cheerful (by comparison) two billion. Keep in mind there's six billion of us here right now, so some of you will have to leave. You'll stay for the funeral, though, won't you? I mean, after all, Ghawar is dying.
I don't expect to be told. Politics and the global economy being what they are these days, I really can't picture anyone standing up in front of a row of television cameras and announcing to the world that the largest field of crude oil known to man is, in fact, drying up. What's Arabic for, "Ghawar is dying"? It doesn't matter. It's a phrase we'll never need to know--or hear. If it is the biggest, it will also be the last. By the time Ghawar begins to die--and by the time we hear about it--hundreds of other oil fields all over the world will also be dead and gone. Ghawar will still be pumping crude oil at an impressive rate as the industrial world of man comes to a creaking, painful halt. That's the irony of it, you see: by the time the Ghawar starts to run dry, we will have either found another way to get things done or simply stopped doing them. There's a very good chance that the last of the oil in the Ghawar will remain in the ground, untouched and unneeded, forever.
So is the Ghawar dying? Does it matter? There may come a time when all the SUVs in Los Angeles will roll to a tank-dry halt. After the riots and the wars, after the yelling and screaming and dying, what's left of humanity (if we have any humanity left) will stand up, dust itself off and get on with Life. The Ghawar, virtually unknown today, will be all but forgotten by then. The troubles of Saudi Arabia and the Middle East will cease to be a common feature of the nightly news, as they would no longer have anything to offer the West--nothing left to fight over. Just footnotes in a history book.
Cries and WhispersMaybe what's called for here, as Blutto Blutowski so eloquently put it, is a stupid and futile gesture that could serve as a mind-bite for the masses--some bit of mysterious innuedno that could spread like backfence gossip or a clever teaser ad. Tell people the world is running out of oil and they glaze like a donut. We know the direct approach doesn't work. We have to be subtle. Devious. Underhanded. But without any actual outright lying. (The truth is, after all, so much more annoying!) So how about bumper stickers? Everybody reads them when they're stuck in traffic or stopped at a light. You do. I do. And if you read it on a bumper sticker, it must be true, right? All we need now is a whole pile of "Ghawar is Dying" bumper stickers. It need not say any more than that. The truth is always mysterious and seldom obvious. Let 'em figure it out for themselves. Of course, the ultimate irony would be to see that bumper sticker on a big SUV--the very thing that's draining the Ghawar to death. That's right up there with "Honk if you hate noise pollution"! HA!
Ghawar is dying. If you whisper it quietly, maybe people will listen. If not, the approaching silence will get their attention soon enough.
Some two hundred kilometers east of Riyadh, Saudi Arabia, is a stretch of uninhabited and unremarkable desert in the Empty Quarter. This hot, desolate landscape sits above the largest oil field in the world: the Ghawar. It's a big chunk of nothing one hundred and fifty miles long and twenty-five miles wide, but thousands of meters below its surface lie seventy billion barrels of oil patiently waiting to be pumped out. They've waited for millions of years. A few more won't matter. And after that? After that, Ghawar will no longer be dying. It will be dead. Nothing left but sand and sinkholes.
Before you sit back, all smug and comfy with that seventy billion barrel figure, let me do a bit of quick math for you: that's only an 875 day supply of oil for the world at the current rate of use. (And that rate rises every year, just as the Ghawar's not unlimited oil reserves get lower.) Admittedly, the Ghawar is not our only source of oil. (And unless you happen to be Saudi, its not even your oil at all, now is it?) Still, the Ghawar is The Big One, and when it goes, things will change--forever. The only questions are: When will it happen, and how will we know?
The when is easy, if vague: it could happen at any time from two years ago to twenty years from now. But how will we know? That's a far more difficult question to answer.
I can picture a Mercedes Unimog lumbering alongside pipelines in the desert, stopping at each well head. At each stop, a man climbs down from the machine and walks over to the well. He looks and records a number from the gauge, then returns to the truck. This scene plays out over and over. It would take days to record all the numbers from the wells in the Ghawar. Still, it must be done. Those hand-written numbers are given to a field technician who dutifully records them, one well at a time, in a computer database. All that data gets sent to the Saudi government, where the numbers are studied, analyzed, and agonized over. If the figures are the same as or higher than the last figures, life is good. If not, then what?
What if the Ghawar IS dying? It would be easy enough to play with the numbers for a year or two--until the decline rate starts to speed up and the loss can't be hidden. After that? Plan B might call for a declared "voluntary reduction" in oil production to "stabilize the market at the optimum level." Yeah, right. How in the world would you ever know exactly how much oil is being pumped or shipped from a country half way around the world to other countries you've never seen? The answer is obvious: You wouldn't. You never will. C'est la vie.
Somewhere in Los Angeles, on quite literally the other side of the world, an SUV pulls into a gas station and the driver gets out. The pump is turned on and a gas tank is filled. Sure, it cost more here at this big, fancy franchise than it did over at that little independent station, but the indy was closed today. Matter of fact, hasn't it been closed for about a week now? What's up with that? Ah, well. At least it's not that much more. What's an extra buck or two to fill the tank? No big deal. Unless Ghawar is dying, in which case it is a very big deal indeed--and will get considerably bigger before it's all over. Maybe this was a sign of a weakening pulse?
You're Invited to the FuneralMeasured up against the big scheme of things, the death of Ghawar and our oil-powered industrial civilization will fall somewhere between the Black Plague of 14th Century Europe and the meteor that wiped out the dinosaurs. Unlike the plague, this will effect humans world-wide, but unlike the meteor, it will effect only humans. Chickens may some day cross the road with impunity. Animals both large and small will prosper (Hey, you try whaling in a row boat!) And the earth will undoubtedly cool off a bit. Too bad we all won't be here to enjoy it.
With the death of Ghawar will undoubtedly come the deaths of humans. Many humans, it would seem, the result of probably unavoidable wars for the last remaining oil to the much-predicted pandemics and mass starvation. Estimates on the sustainable limit to humans on this planet have ranged from an utterly dismal 1/70th of the current population (about 100 million) to an almost cheerful (by comparison) two billion. Keep in mind there's six billion of us here right now, so some of you will have to leave. You'll stay for the funeral, though, won't you? I mean, after all, Ghawar is dying.
I don't expect to be told. Politics and the global economy being what they are these days, I really can't picture anyone standing up in front of a row of television cameras and announcing to the world that the largest field of crude oil known to man is, in fact, drying up. What's Arabic for, "Ghawar is dying"? It doesn't matter. It's a phrase we'll never need to know--or hear. If it is the biggest, it will also be the last. By the time Ghawar begins to die--and by the time we hear about it--hundreds of other oil fields all over the world will also be dead and gone. Ghawar will still be pumping crude oil at an impressive rate as the industrial world of man comes to a creaking, painful halt. That's the irony of it, you see: by the time the Ghawar starts to run dry, we will have either found another way to get things done or simply stopped doing them. There's a very good chance that the last of the oil in the Ghawar will remain in the ground, untouched and unneeded, forever.
So is the Ghawar dying? Does it matter? There may come a time when all the SUVs in Los Angeles will roll to a tank-dry halt. After the riots and the wars, after the yelling and screaming and dying, what's left of humanity (if we have any humanity left) will stand up, dust itself off and get on with Life. The Ghawar, virtually unknown today, will be all but forgotten by then. The troubles of Saudi Arabia and the Middle East will cease to be a common feature of the nightly news, as they would no longer have anything to offer the West--nothing left to fight over. Just footnotes in a history book.
Cries and WhispersMaybe what's called for here, as Blutto Blutowski so eloquently put it, is a stupid and futile gesture that could serve as a mind-bite for the masses--some bit of mysterious innuedno that could spread like backfence gossip or a clever teaser ad. Tell people the world is running out of oil and they glaze like a donut. We know the direct approach doesn't work. We have to be subtle. Devious. Underhanded. But without any actual outright lying. (The truth is, after all, so much more annoying!) So how about bumper stickers? Everybody reads them when they're stuck in traffic or stopped at a light. You do. I do. And if you read it on a bumper sticker, it must be true, right? All we need now is a whole pile of "Ghawar is Dying" bumper stickers. It need not say any more than that. The truth is always mysterious and seldom obvious. Let 'em figure it out for themselves. Of course, the ultimate irony would be to see that bumper sticker on a big SUV--the very thing that's draining the Ghawar to death. That's right up there with "Honk if you hate noise pollution"! HA!
Ghawar is dying. If you whisper it quietly, maybe people will listen. If not, the approaching silence will get their attention soon enough.
13 February 2007
Dell's saga: When facts don't matter - MSN Money
Dell's saga: When facts don't matter - MSN Money: "Obviously, this level of lunacy can't continue indefinitely, but while it goes on, it can reach any magnitude. There's no determining in advance whether it lasts for five minutes or 90 days. One can only try to tell when it has exhausted itself. All I can say is, the spectacle that I see on a daily basis is really something for the history books."
12 February 2007
Uranium: How high could the price go…$576?
Uranium: How high could the price go…$576?: "As uranium prices continue to rocket upwards vast profits are being made in uranium stocks. However it is impossible to ignore the question: How high could the uranium price go?
This article is meant to be provocative and stimulating with the aim being to encourage more discussion resulting in the picture for uranium becoming clearer for investment purposes.
Oil is generally considered the staple fuel of the world, along with the other fossil fuels. It recently made an all time high, but when you take inflation into account oil was at its most expensive in 1980 when it reached levels of around $37.75 a barrel which is $92.26 in today’s US dollars. As oil prices rise, the cost of energy from oil-powered plants rises considerably. "
This article is meant to be provocative and stimulating with the aim being to encourage more discussion resulting in the picture for uranium becoming clearer for investment purposes.
Oil is generally considered the staple fuel of the world, along with the other fossil fuels. It recently made an all time high, but when you take inflation into account oil was at its most expensive in 1980 when it reached levels of around $37.75 a barrel which is $92.26 in today’s US dollars. As oil prices rise, the cost of energy from oil-powered plants rises considerably. "
8 February 2007
TraderFeed: Inside The Trader's Brain: Decision-Making and Emotional Arousal
TraderFeed: Inside The Trader's Brain: Decision-Making and Emotional Arousal: "Sometimes, looking back on our trading decisions, we wonder if we were in our right minds. How accurate that concern turns out to be! Some of the best trading psychology interventions are the ones that keep us in our right minds as we make decisions under conditions of risk and uncertainty."
7 February 2007
Europe 2020
Europe 2020: "Both metals are in a bull-marke,t which started in 2001 for silver and 1999 or 2001 for gold after a bear market since 1980. And what was before? (Graph11) shows you the price of gold since 1800 in US$ with an Elliott wave labeling. According to that labeling, this bull market is a fifth wave and the next one too. Fifth waves in tangibles are driven by fear, the strongest human emotion and therefore the biggest price moves take part in these parts of the bull market. Around 150,000 tonnes of gold have ever been mind by mankind and maybe 90% or 2,500 bio US$ are still around, but not liquid as lots of it disappeared in jewellery. Central banks say they hold 32,000 tonnes, but reliable research by many writers on this page come only to around half of it. Relative to a total world debt of at least 120,000 bio $US, gold is scarce and confirms the fifth wave.
Goldmines are scarce too as the capitalisation is only about 150 bio US$, relative to world stock markets of around 25,000 bio $US. Mines or metal? (Chart 12) shows the gold mining index HUI divided by silver. Mines have been stronger than silver, but are due for a corrective move against silver. Is gold cheap? Graph 13 shows the Dow industrial against gold since 1792. In 1869, at the top of the gold bull market and the end of the US Civil War, 0.17 ounces bought on Dow Jones. If the Dow Jones would drop to 5000, it would need 29,000 ounces to achieve the same ratio. Can the crisis become that heavy? Graph 14 shows Zurich real estate in gold in 1900 one ounce bought 2.9 square meters of real estate, now around 0.15. Zurichs, sell your house, buy gold and you will get at least 30 of them!! Graph 15 shows gold in real terms measured against the Swiss CPI (it's probably less cheated than the US CPI)."
Goldmines are scarce too as the capitalisation is only about 150 bio US$, relative to world stock markets of around 25,000 bio $US. Mines or metal? (Chart 12) shows the gold mining index HUI divided by silver. Mines have been stronger than silver, but are due for a corrective move against silver. Is gold cheap? Graph 13 shows the Dow industrial against gold since 1792. In 1869, at the top of the gold bull market and the end of the US Civil War, 0.17 ounces bought on Dow Jones. If the Dow Jones would drop to 5000, it would need 29,000 ounces to achieve the same ratio. Can the crisis become that heavy? Graph 14 shows Zurich real estate in gold in 1900 one ounce bought 2.9 square meters of real estate, now around 0.15. Zurichs, sell your house, buy gold and you will get at least 30 of them!! Graph 15 shows gold in real terms measured against the Swiss CPI (it's probably less cheated than the US CPI)."
Off to a Good Start in 2007
Safe Haven Off to a Good Start in 2007: "Silver also looks great. It's strong, solid and even though it weakened more than gold recently, it's still stronger than gold on a major trend basis (see Chart 3C). Silver shares have been the best of all, better than gold and silver, and much better than gold shares.
Silver is also poised to rise further. Chart 3A shows its solid rise above its rising 65-week moving average now at $11.30. With the leading indicator poised to move higher, silver now has the potential of reaching its May high near $14.88, and possibly surpassing it before the indicator reaches overbought (see Chart 3B).
Both gold and silver will be in a new ballgame above the May highs. Looking at silver's big picture on Chart 4, you can see that once silver breaks above the May high it will also be clearly breaking above its 1983 high, and it will be starting to enter the top side of its mega upchannel. Silver's next upside target would then be $22 before it eventually goes on to test the 1980 highs near $50.
For now, it's best to keep a larger portion of your metals portfolio in the physical metals or their ETFs, and keep more silver shares than gold shares"
Silver is also poised to rise further. Chart 3A shows its solid rise above its rising 65-week moving average now at $11.30. With the leading indicator poised to move higher, silver now has the potential of reaching its May high near $14.88, and possibly surpassing it before the indicator reaches overbought (see Chart 3B).
Both gold and silver will be in a new ballgame above the May highs. Looking at silver's big picture on Chart 4, you can see that once silver breaks above the May high it will also be clearly breaking above its 1983 high, and it will be starting to enter the top side of its mega upchannel. Silver's next upside target would then be $22 before it eventually goes on to test the 1980 highs near $50.
For now, it's best to keep a larger portion of your metals portfolio in the physical metals or their ETFs, and keep more silver shares than gold shares"
Brittleness and Risk,
charles hugh smith-Weblog and wEssays: "So what happens when authorities stamp out all small forest fires? They create the perfect conditions for a gigantic conflagration. The flaw is the old forest management policy of suppressing all forest fires was revealed when a huge uncontrollable fire swept through Yellowstone National Park some years ago. In other words: a system which allows occasional fires is resilient, while one which suppresses all small fires guarantees a giant conflagration.
In financial terms, this 'normal cycle' of growth, small fires and regrowth is 'the business cycle' in which credit and business expand, eventually reaching an unsustainable level (high inventories, too much debt and capacity, etc.) Businesses go bankrupt, defaulting on credit, people save rather than borrow, and capital is accumulated for the next cycle of investment and borrowing. "
In financial terms, this 'normal cycle' of growth, small fires and regrowth is 'the business cycle' in which credit and business expand, eventually reaching an unsustainable level (high inventories, too much debt and capacity, etc.) Businesses go bankrupt, defaulting on credit, people save rather than borrow, and capital is accumulated for the next cycle of investment and borrowing. "
6 February 2007
Game Over: Thirty-Six Sure-Fire Signs That Your Empire Is Crumbling
Game Over: Thirty-Six Sure-Fire Signs That Your Empire Is Crumbling: "So. You’ve built yourself an empire, eh?
Well, bully for you!
What’s next, you ask? Well, now you’ve got to do what everybody does when they have an empire, of course. You’ve got to worry about it falling apart, mate!
But how to tell for sure? Let me see if I can be helpful. Here are some rules of thumb to keep in mind, thirty-six sure-fire indicators that your empire is falling apart:
You know your empire’s crumbling when the folks who are gearing up their empire to replace yours start blowing up satellites in space. And then they don’t bother to return your phone calls when you ring up to ask why.
You know your empire’s crumbling when those same folks are cutting deals left, right and center across Asia, Latin America and Africa, while you, your lousy terms, and your arrogant attitude are no longer welcome.
You know your empire’s crumbling when you’re spending your grandchildren’s money like a drunken sailor, and letting your soon-to-be rivals finance your little splurge (i.e., letting them own your country). "
Well, bully for you!
What’s next, you ask? Well, now you’ve got to do what everybody does when they have an empire, of course. You’ve got to worry about it falling apart, mate!
But how to tell for sure? Let me see if I can be helpful. Here are some rules of thumb to keep in mind, thirty-six sure-fire indicators that your empire is falling apart:
You know your empire’s crumbling when the folks who are gearing up their empire to replace yours start blowing up satellites in space. And then they don’t bother to return your phone calls when you ring up to ask why.
You know your empire’s crumbling when those same folks are cutting deals left, right and center across Asia, Latin America and Africa, while you, your lousy terms, and your arrogant attitude are no longer welcome.
You know your empire’s crumbling when you’re spending your grandchildren’s money like a drunken sailor, and letting your soon-to-be rivals finance your little splurge (i.e., letting them own your country). "
31 January 2007
Financial Sense Online Market WrapUp with Frank Barbera, 01/30/07
Financial Sense Online Market WrapUp with Frank Barbera, 01/30/07: "Blissfully unaware, the average American sails through another day listening to the radio reports of a growing economy and the illusion of deep-seated prosperity. For twenty years, the US economy has been in a “boom,” with technology spearheading the economic growth and the standard of living continuously on the rise. At least this is the impression that has been created."
Decision Point ®: Top Advisor's Corner: John Kosar
Decision Point ®: Top Advisor's Corner: John Kosar: "In our January 10th Stock Sector Overview, we said:
'...although this (Materials) sector appears to be susceptible to more near-term weakness and relative underperformance, we believe that the sideways activity of the sector’s relative strength line versus the broad market during the past six months is indicative of a larger, more significant emerging bottom as is being suggested by a multi-year under-invested extreme in our Rydex Materials Ratio. A stabilizing and eventually outperforming Materials Sector later on this year squares with our larger view that an increase in inflationary pressures is likely to be a key economic factor for both the Fed and the financial markets in 2007.'"
'...although this (Materials) sector appears to be susceptible to more near-term weakness and relative underperformance, we believe that the sideways activity of the sector’s relative strength line versus the broad market during the past six months is indicative of a larger, more significant emerging bottom as is being suggested by a multi-year under-invested extreme in our Rydex Materials Ratio. A stabilizing and eventually outperforming Materials Sector later on this year squares with our larger view that an increase in inflationary pressures is likely to be a key economic factor for both the Fed and the financial markets in 2007.'"
Mish's Global Economic Trend Analysis: Mr. Practical on the Yen, Carry Trade, and Credit Expansion
Mish's Global Economic Trend Analysis: Mr. Practical on the Yen, Carry Trade, and Credit Expansion: "But these are not normal times. With GDP growing at 2-3% (I believe this to be overstated) and M3 (broad money) growing at an astounding 13% for the world’s largest economy, we have our first clue that things are not normal. Money is free to any who want to take the risk. When money supply grows you can by definition be sure that debt is growing commensurately. Debt is not used prudently because it is created easily for anyone and everyone out of thin air by central banks. Almost all of the current liquidity is coming from debt creation. This is the definition of inflation."
Not normal times
But these are not normal times. With GDP growing at 2-3% (I believe this to be overstated) and M3 (broad money) growing at an astounding 13% for the world’s largest economy, we have our first clue that things are not normal. Money is free to any who want to take the risk. When money supply grows you can by definition be sure that debt is growing commensurately. Debt is not used prudently because it is created easily for anyone and everyone out of thin air by central banks. Almost all of the current liquidity is coming from debt creation. This is the definition of inflation.
30 January 2007
PIMCO Bonds - Investment Outlook- February 2007 "100 Bottles of Beer on the Wall"
PIMCO Bonds - Investment Outlook- February 2007 "100 Bottles of Beer on the Wall": "my critical point is that asset prices are no longer entirely a function of the real economy: it can be just the reverse. The real economy is being driven by asset prices, which in turn are influenced by financial flows of non-historic origin, composition, and uncertain longevity."
16 January 2007
Gerard Minack --Crash a coming
Courtesy Gerard Minack Morgan Stanley Sydney"I keep insisting that equity markets are a bubble,but not a TMT-like PE bubble, an earnings bubble.Look at the US as an example. US earnings per shareare now almost 70% above their long-term trend(Exhibit 1). Earnings haven't been that far above trendin a long time – since 1916, in fact. In other words, thissort of bubble is rarer than a 5-0 Ashes whitewash.The earnings surge has taken the after-tax profit shareof GDP to a post-1945 high. The profit-share is 54%above its long-term average. The only time the profitshare has been further above its average was in 1929.This is bearish big-picture stuff – so long as you believethat returns (or profit share) mean-revert. The counterargumentis that in a globalized world it makes nosense to compare profits of US firms, which can beearned anywhere in the world, to US GDP. In fact, it'sworth noting that 1916 – when EPS saw its largest-evergap to the trend – was at the end of the great Victorianera of globalization. In other words, globalizationremoves or loosens domestic constraints on profits.However, I'm not so sure it is the principal reason whymargins are so now high, at least in the US. Here are afew points to note:First, note that even after adjusting for the profits USfirms make on their offshore sales, margins on sales inthe US are around post-1945 highs.Exhibit 2 shows two series. One is after-tax profits ofUS corporates (relative to corporate GDP), whichreflects their US-sourced earnings, as well as profitsmade offshore. The second is profits earned in the US,which includes the profits made by non-US firmsoperating in America.
14 January 2007
Expensive workers are good for you
Sanders Research Associates - The Rise and Decline of the Great American Corporation: "Expensive workers are good for you
The problem of cheaper labor abroad has been treated as if it was a problem with no solution. There is simply nothing that can be done, one reads, which means that the American working and middle classes are doomed. If the cost of labor were indeed the main consideration in production, this would be true. But it most emphatically is not true.
The central factor in the creation of economic wealth and growth is not the cheapness of labor, but the productive power of machinery. If cheap labor were the road to international competitiveness, then the oversupply of near-starving peasants in China and India would have kept them at the top of the world food chain for the last 1000 years."
The problem of cheaper labor abroad has been treated as if it was a problem with no solution. There is simply nothing that can be done, one reads, which means that the American working and middle classes are doomed. If the cost of labor were indeed the main consideration in production, this would be true. But it most emphatically is not true.
The central factor in the creation of economic wealth and growth is not the cheapness of labor, but the productive power of machinery. If cheap labor were the road to international competitiveness, then the oversupply of near-starving peasants in China and India would have kept them at the top of the world food chain for the last 1000 years."
Sanders Research Associates - The Rise and Decline of the Great American Corporation
Sanders Research Associates - The Rise and Decline of the Great American Corporation: "But surely these corporations are smarter than that, they must have some plan to deal with a shrinking American market? No. Advised by a class of professional economists who are trained to explain why this is the best of all possible worlds as long as the corporations can do whatever they want, blinded by greed and the low-hanging fruit of greater profits from lower wages, no CEO will think to do what Henry Ford did when he introduced the $5 day for workers. Ford justified his largesse by pointing out that his workers could now afford to buy his cars."
Sanders Research Associates - Why a democratic economy would be a more efficient economy, Part I
Sanders Research Associates - Why a democratic economy would be a more efficient economy, Part I: "Agricultural societies are where hierarchies first became established. Whether this happened from necessity, imposition from outside, or both, one can not know; but the result was that a grain surplus was created by the unfortunate field workers which the elite used to keep themselves and their military compatriots in fine fettle. Effectively, the poor peasants were forced to create the food to feed their masters. A priest class emerged to create religions to try and convince the masses that servitude was what the gods wanted; today, neoclassical economists serve essentially the same function."
13 January 2007
Former aide criticizes Carter over Mideast book - Los Angeles Times
Former aide criticizes Carter over Mideast book - Los Angeles Times: "Stein, who was director of the Carter Center from 1983 to 1986 and had continued to serve as a fellow there, spoke to a crowd of nearly 1,000 Thursday night at Los Angeles' Sinai Temple. His comments came against a backdrop of escalating controversy over the former president's bestselling book 'Palestine: Peace Not Apartheid.'
In the book, Carter traces the stops and starts of the Israeli-Palestinian peace process, beginning with his first visit to Israel in 1973 and continuing to the present, through his 1977-1981 presidency and the historic peace accord he brokered between Israel and Egypt. "
In the book, Carter traces the stops and starts of the Israeli-Palestinian peace process, beginning with his first visit to Israel in 1973 and continuing to the present, through his 1977-1981 presidency and the historic peace accord he brokered between Israel and Egypt. "
8 January 2007
euphoria too excessive
immobilienblasen: question the euphoria / disaster risk may rise : "Jan. 8 (Bloomberg) -- Bennet Sedacca, president of Atlantic Advisors LLC in Winter Park, Florida, recalls being an equity trader during the October 1987 stock-market crash, .....
...... In the last three months he has reduced his holdings of stocks and raised investments in short-term Treasury and other securities on the view that another crash may be coming, two decades later.
``Disasters may be rare, but I see the kind of conditions that could make one happen,'' said Sedacca. ``It's like a big keg of dynamite with a fuse. I don't know when, but I think the conditions exist for the explosion to eventually occur.'' "
...... In the last three months he has reduced his holdings of stocks and raised investments in short-term Treasury and other securities on the view that another crash may be coming, two decades later.
``Disasters may be rare, but I see the kind of conditions that could make one happen,'' said Sedacca. ``It's like a big keg of dynamite with a fuse. I don't know when, but I think the conditions exist for the explosion to eventually occur.'' "
6 January 2007
US Dollar/Euro/OPEC/Iran War/Iran Oil US Dollar/Euro Replacing US Dollar For Oil/Death Of The Dollar
US Dollar/Euro/OPEC/Iran War/Iran Oil US Dollar/Euro Replacing US Dollar For Oil/Death Of The Dollar: "The Euro-zone does not run a huge trade deficit nor is it heavily indebted to the rest of the world like the US and interest rates in the Euro-zone are also significantly higher. The Euro-zone has a larger share of world trade than the US and is the Middle East’s main trading partner. And nearly everything you can buy for dollars you can also buy for euros—apart, of course, from oil. If OPEC were to convert their dollar assets to euro assets and then require payment for oil in Euros, their assets would immediately increase in value, since oil-importing countries would be forced to also convert part of their assets, driving the prices up. [Common Dreams Nov 15/04]
In the coming rearrangement of the world economic order, the euro could easily hold equal parity with the US dollar—if not supplant it outright as the world’s premiere “product”."
In the coming rearrangement of the world economic order, the euro could easily hold equal parity with the US dollar—if not supplant it outright as the world’s premiere “product”."
5 January 2007
Global Liquidity issues
immobilienblasen: The global gusher / economist: "First, average real interest rates in the developed world are still below their long-term average. Second, America's huge current-account deficit and the consequent build-up of foreign-exchange reserves by countries with external surpluses has also pumped vast quantities of dollars into the financial system. A large chunk of Asia's reserves and oil exporters' petrodollars have been used to buy American Treasury securities, thereby reducing bond yields. In turn, low bond-market returns have encouraged bigger inflows into higher yielding emerging-market bonds, equities and property, especially in Asia. Liquidity has been further boosted by the use of derivatives, and by carry trades(borrowing in currencies with low interest rates, such as yen, to buy higher-yielding currencies).
The spread on emerging-market bond yields over American Treasury bonds fell to another record low last week. Share prices in emerging economies have risen by 243% on average from their trough in 2003. That still leaves the average price/earnings ratio below its historical average and less than that in developed countries, so for most markets it is premature to talk about bubbles. But if asset prices continue to climb at their recent pace, central bankers will become increasingly nervous. "
The spread on emerging-market bond yields over American Treasury bonds fell to another record low last week. Share prices in emerging economies have risen by 243% on average from their trough in 2003. That still leaves the average price/earnings ratio below its historical average and less than that in developed countries, so for most markets it is premature to talk about bubbles. But if asset prices continue to climb at their recent pace, central bankers will become increasingly nervous. "
The Mortgage Lender Implode-O-Meter
The Mortgage Lender Implode-O-Meter: "I set this page up to keep track of mortgage lenders in the US going bust since approximately December 2006, when it seems the first of them started going under. Many observers (including myself) have been anticipating this for some time, as rising home prices (and other financial assets) have collided with the deteriorating consumer balance sheet and low-as-they-can-possibly-go interest rates (heavily reliant on the dole of China and the oil exporters). "
24 December 2006
BitTorrent Sites Compared
Ten Most Used BitTorrent Sites Compared: "I was rather surprised with these results, BTJunkie has nearly double the amount of torrents as the next leading competitor. The reason for such the dramatic increase is that they index both private and public trackers. Keep in mind that this benchmark is not very reliable because these sites all have different removal policies, making the quality of these numbers range"
14 December 2006
Gold's rise points to inflation
Gold's rise points to inflation: "The real annual inflation rate is closer to 8% than the 2% or 3% governments claim, a prominent U.S. economist said yesterday.
David Ranson, president of Boston-based H. C. Wainwright & Co. Economics Inc., defines inflation as a decline in the purchasing power of a national currency. He prefers that definition to flawed ones like the rising cost of living or increasing labour costs.
Official government-massaged measures such as the consumer price index (CPI) do not detect the onset of inflation as quickly as financial markets, he says. The latter indicate 'current inflation is much higher than policymakers realize and is still accelerating.'"
David Ranson, president of Boston-based H. C. Wainwright & Co. Economics Inc., defines inflation as a decline in the purchasing power of a national currency. He prefers that definition to flawed ones like the rising cost of living or increasing labour costs.
Official government-massaged measures such as the consumer price index (CPI) do not detect the onset of inflation as quickly as financial markets, he says. The latter indicate 'current inflation is much higher than policymakers realize and is still accelerating.'"
Eaton Vance manager: Markets poised for upset | Industry Summits | Reuters.com
"NEW YORK (Reuters) - Financial markets are vulnerable to a significant correction in the next 12 months that might be triggered by an event in the derivatives markets, a well-known municipal bond manager said on Tuesday.
'I will be very surprised if we don't get an accident in the next months,' Thomas Metzold, who invests roughly $4.5 billion in the Eaton Vance National Municipals Fund, told the Reuters Investment Outlook Summit in New York.
'Whether it is in the credit default swap market or a leveraged buyout scenario, there is going to be a major default and all this liquidity that is out there can dry up pretty quickly,' Metzold said.
Looking back to 1998 when hedge fund Long Term Capital Management collapsed, Metzold said the biggest problem was that LTCM had so much exposure to counterparties that none of them knew how much the others had. 'And it all came tumbling,' he said."
'I will be very surprised if we don't get an accident in the next months,' Thomas Metzold, who invests roughly $4.5 billion in the Eaton Vance National Municipals Fund, told the Reuters Investment Outlook Summit in New York.
'Whether it is in the credit default swap market or a leveraged buyout scenario, there is going to be a major default and all this liquidity that is out there can dry up pretty quickly,' Metzold said.
Looking back to 1998 when hedge fund Long Term Capital Management collapsed, Metzold said the biggest problem was that LTCM had so much exposure to counterparties that none of them knew how much the others had. 'And it all came tumbling,' he said."
10 December 2006
A Brief, Superficial, and Arbitrary History of Property-Price Collapses
PrudentBear.com - The One-Stop Shop for the Bear Case: "The Anderson Forecast team at UCLA might restore one’s hope that academic economists fulfill a productive function. Having disparaged the California housing boom through its ascent, a springtime presentation by one of its economists predicted the swoon that has come to pass. Alas, he stumbled. Asked if a real estate crash was in store, he reverted to form: Southern California is in no way comparable to such one-industry towns as Houston, and besides, California had never suffered a real estate meltdown. On the first point, with 2% of adults in California now proudly waving real estate licenses to sell, houses to California today may be as dominant a force as oil to Houston in the 1980s. On the second point, one of the worst real estate debacles in the history of the United States occurred on the ground where he stood."
1 December 2006
The Dow Jones all time high and the coming correction! | Dr. Marc Faber
The Dow Jones all time high and the coming correction! | Dr. Marc Faber: "In short a combination of factors that has usually led to a sharp correction (1987) or a serious bear market (1973/74)). And whereas I think that stock markets could still make a new high into early next year, the majority of equities may already have peaked out.
As a contrarian, I would therefore now rather be short the S&P 500 than maintain long positions. The expected Fed fund rate cuts have probably already been largely discounted by the stock market. In short a combination of factors that has usually led to a sharp correction (1987) or a serious bear market (1973/74)). And whereas I think that stock markets could still make a new high into early next year, the majority of equities may already have peaked out.
As a contrarian, I would therefore now rather be short the S&P 500 than maintain long positions. The expected Fed fund rate cuts have probably already been largely discounted by the stock market. "
As a contrarian, I would therefore now rather be short the S&P 500 than maintain long positions. The expected Fed fund rate cuts have probably already been largely discounted by the stock market. In short a combination of factors that has usually led to a sharp correction (1987) or a serious bear market (1973/74)). And whereas I think that stock markets could still make a new high into early next year, the majority of equities may already have peaked out.
As a contrarian, I would therefore now rather be short the S&P 500 than maintain long positions. The expected Fed fund rate cuts have probably already been largely discounted by the stock market. "
21 November 2006
Raymond James - Investment Strategy by Jeffrey Saut
Raymond James - Investment Strategy by Jeffrey Saut: "“’My solution to the current market,’ the Great Winfield said. ‘Kids. This is a kids’ market. This is Billy the Kid, Johnny the Kid, and Sheldon the Kid.’
‘Aren’t they cute?’ the Great Winfield asked. ‘Aren’t they fuzzy? Look at them, like teddy bears. It’s their market. I have taken them on for the duration.’
‘I give them a little stake, they find the stocks, and we split the profits,’ he said. ‘Billy the Kid here started with five thousand dollars and has run it up over half a million in the last six months.’ ‘Wow!’ I said. I asked Billy the Kid how he did it.
‘Computer leasing stocks, sir!’ he said, like a cadet being quizzed by an upper classman. ‘The need for computers is practically infinite,’ said Billy the Kid. ‘Leasing has proved the only way to sell them, and computer companies themselves do not have the capital. Therefore, earnings will be up a hundred percent this year, will double next year, and will double again the year after. The surface has barely been scratched. The rise has scarcely begun.’
‘Look at the skepticism on the face of this dirty old man,’ said the Great Winfield, pointing at me. ‘Look at him, framing questions about depreciation, about how fast these computers are written off. I know what he’s going to ask. He’s going to ask what makes a finance company worth fifty times earnings. Right?’ ‘Right,’ I admitted."
‘Aren’t they cute?’ the Great Winfield asked. ‘Aren’t they fuzzy? Look at them, like teddy bears. It’s their market. I have taken them on for the duration.’
‘I give them a little stake, they find the stocks, and we split the profits,’ he said. ‘Billy the Kid here started with five thousand dollars and has run it up over half a million in the last six months.’ ‘Wow!’ I said. I asked Billy the Kid how he did it.
‘Computer leasing stocks, sir!’ he said, like a cadet being quizzed by an upper classman. ‘The need for computers is practically infinite,’ said Billy the Kid. ‘Leasing has proved the only way to sell them, and computer companies themselves do not have the capital. Therefore, earnings will be up a hundred percent this year, will double next year, and will double again the year after. The surface has barely been scratched. The rise has scarcely begun.’
‘Look at the skepticism on the face of this dirty old man,’ said the Great Winfield, pointing at me. ‘Look at him, framing questions about depreciation, about how fast these computers are written off. I know what he’s going to ask. He’s going to ask what makes a finance company worth fifty times earnings. Right?’ ‘Right,’ I admitted."
9 November 2006
Consumer credit down by most since April 1992 - MarketWatch
Consumer credit down by most since April 1992 - MarketWatch: "WASHINGTON (MarketWatch) -- U.S. consumer credit outstanding fell by the biggest amount since April 1992 in September as households took out fewer loans for items like automobiles and boats, the Federal Reserve said Tuesday.
Total consumer credit fell by $1.20 billion in September, or by a seasonally adjusted annual rate of 0.61%, to $2.366 trillion, the Fed said.
In April 1992, outstanding consumer credit fell by $1.78 billion, according to the Fed.
The decline was unexpected. Wall Street economists surveyed by MarketWatch were expecting consumer credit to grow by $5.4 billion in September. See Economic Calendar.
Most of the decline was in so-called nonrevolving credit, like loans for cars and boats. Nonrevolving credit fell by $4.05 billion, or by a seasonally adjusted annual rate of 3.21%, to $1.50 billion. "
Total consumer credit fell by $1.20 billion in September, or by a seasonally adjusted annual rate of 0.61%, to $2.366 trillion, the Fed said.
In April 1992, outstanding consumer credit fell by $1.78 billion, according to the Fed.
The decline was unexpected. Wall Street economists surveyed by MarketWatch were expecting consumer credit to grow by $5.4 billion in September. See Economic Calendar.
Most of the decline was in so-called nonrevolving credit, like loans for cars and boats. Nonrevolving credit fell by $4.05 billion, or by a seasonally adjusted annual rate of 3.21%, to $1.50 billion. "
21 October 2006
The alternative engine
Asia and the world economy | The alternative engine | Economist.com: "AMERICAN consumers have been one of the main engines of global growth for the past decade. But now, as America's housing boom threatens to turn into a bust, many forecasters expect household spending to stall. A few even worry that America could come perilously close to a recession in 2007. Previous American downturns have usually dragged the rest of the world economy down, too. Yet this time its fate will depend largely upon whether China and the other Asian economies can decouple from the slowing American locomotive.
According to conventional wisdom, American consumers have single-handedly kept the world economy chugging along, whereas cautious Europeans and Asians have preferred to save. Yet the importance of America's role in global growth is often exaggerated. During the past five years America has accounted for only 13% of global real GDP growth, using purchasing-power parity (PPP) weights."
According to conventional wisdom, American consumers have single-handedly kept the world economy chugging along, whereas cautious Europeans and Asians have preferred to save. Yet the importance of America's role in global growth is often exaggerated. During the past five years America has accounted for only 13% of global real GDP growth, using purchasing-power parity (PPP) weights."
20 October 2006
Risks of recession continuing to rise | Chicago Tribune
Risks of recession continuing to rise | Chicago Tribune: "Most major polls of economists have said the chances of a recession and its ill-begotten progeny, a bear market, are very low.
While stock market bulls may take comfort in that, they should remember this: Not one recession in the past 50 years was forecast in advance by a major poll of economic forecasters, said James Stack, a market historian and editor of InvesTech Research.
Recessions and bears can and often do arrive unexpectedly. Savvy investors simply cannot rely on assurances that the economy won't lapse into recession, generally defined as two consecutive quarters of negative economic growth.
Recent polls of economists put the odds of this at less than 25 percent.
'At this stage of an economic recovery, now going into the fifth year, it is time for investors to get more defensive and more conservative,' Stack said. 'They have to navigate their portfolio through treacherous waters for the next six to nine months.'
That's because bear markets typically presage recessions and can lop off 20 percent or more of an investor's portfolio."
While stock market bulls may take comfort in that, they should remember this: Not one recession in the past 50 years was forecast in advance by a major poll of economic forecasters, said James Stack, a market historian and editor of InvesTech Research.
Recessions and bears can and often do arrive unexpectedly. Savvy investors simply cannot rely on assurances that the economy won't lapse into recession, generally defined as two consecutive quarters of negative economic growth.
Recent polls of economists put the odds of this at less than 25 percent.
'At this stage of an economic recovery, now going into the fifth year, it is time for investors to get more defensive and more conservative,' Stack said. 'They have to navigate their portfolio through treacherous waters for the next six to nine months.'
That's because bear markets typically presage recessions and can lop off 20 percent or more of an investor's portfolio."
19 October 2006
Credit Extreme
Safe Haven | Credit Extreme Emotion: "Sentiment Update
For the last 11 days, MBH Commodities' Daily Sentiment Indicator (DSI) has recorded a 90% or higher bullish reading for the S&P500 index. This is the highest 10 day average ever recorded in the 19 year history of this indicator. Investors are now more optimistic towards this index than they were at tops in late 1987 or early 2000, which led to falls of 35% and 50%, respectively. The NASDAQ's sentiment is also at extreme levels. For the last 10 days, an average of 92% of investors surveyed believe the NASDAQ will go higher. What makes this even more amazing is that the S&P500 and NASDAQ indexes are not making new highs. With extreme optimism levels not seen in over 19 years in these equity markets, it would be wise to prepare for a historic sell off."
For the last 11 days, MBH Commodities' Daily Sentiment Indicator (DSI) has recorded a 90% or higher bullish reading for the S&P500 index. This is the highest 10 day average ever recorded in the 19 year history of this indicator. Investors are now more optimistic towards this index than they were at tops in late 1987 or early 2000, which led to falls of 35% and 50%, respectively. The NASDAQ's sentiment is also at extreme levels. For the last 10 days, an average of 92% of investors surveyed believe the NASDAQ will go higher. What makes this even more amazing is that the S&P500 and NASDAQ indexes are not making new highs. With extreme optimism levels not seen in over 19 years in these equity markets, it would be wise to prepare for a historic sell off."
17 October 2006
Credit Crunch
The Comming credit crunch
Despite the steadily expanding U.S. economy, a perfect storm of rising mortgage rates, disappearing health-insurance coverage, stagnant wages and relentless college-tuition increases is gathering on the financial horizon for many Americans, threatening a flood of debt and bankruptcies. The warning signs are hard to miss:
The amount of consumer credit outstanding, led by brisk growth in credit card use, more than doubled in the first six months of the year, according to the Federal Reserve. Over the past two years, consumers increased their non-mortgage debt by 12.5 percent, reaching an average of $11,669 early this year, says Experian Consumer Direct, a company that compiles credit reports and scores. Meanwhile, the average number of late payments rose 19 percent, indicating increasing difficulty managing the greater debt load.
Mortgage foreclosures are on the upswing from historic lows, says Bob Visini, a spokesperson for First American LoanPerformance, a mortgage data company in San Francisco. There also is a significant increase in late mortgage payments among sub-prime borrowers, generally those with credit scores below 680 on a scale of 300 to 850. Nationwide, just over 10 percent of sub-prime borrowers are at least 30 days late on their mortgage payments."
Despite the steadily expanding U.S. economy, a perfect storm of rising mortgage rates, disappearing health-insurance coverage, stagnant wages and relentless college-tuition increases is gathering on the financial horizon for many Americans, threatening a flood of debt and bankruptcies. The warning signs are hard to miss:
The amount of consumer credit outstanding, led by brisk growth in credit card use, more than doubled in the first six months of the year, according to the Federal Reserve. Over the past two years, consumers increased their non-mortgage debt by 12.5 percent, reaching an average of $11,669 early this year, says Experian Consumer Direct, a company that compiles credit reports and scores. Meanwhile, the average number of late payments rose 19 percent, indicating increasing difficulty managing the greater debt load.
Mortgage foreclosures are on the upswing from historic lows, says Bob Visini, a spokesperson for First American LoanPerformance, a mortgage data company in San Francisco. There also is a significant increase in late mortgage payments among sub-prime borrowers, generally those with credit scores below 680 on a scale of 300 to 850. Nationwide, just over 10 percent of sub-prime borrowers are at least 30 days late on their mortgage payments."
11 October 2006
6 October 2006
Please, Proceed to the Nearest Exit
PrudentBear.com - The One-Stop Shop for the Bear Case: "Today, as I write this article, a financial storm continues to build. Still, most people don’t want to be bothered with the details. With such pretty pie charts predicting fair winds, they feel secure aboard the “USS Stocks for the Long Term,” chanting the “Buy-n-Hold” mantra should they ever feel a tinge of concern. Yet, when this modern marvel collides with the iceberg of science and history, the pain will cause them to begin searching for what went wrong. Understandably, they want their lives to go as normal. Unfortunately, the thinly disguised marketing materials most investors (and advisors) look to for guidance carry a heavy consequence which will affect many for the rest of their lives."
3 October 2006
Guardian Unlimited Business | | America is living beyond its means
Guardian Unlimited Business | | America is living beyond its means: "It's 2056. After a coup in Saudi Arabia, the new government announces it is cutting off supplies of its dwindling stock of oil to the United States. The White House responds by sending in the troops, but is forced to withdraw after Beijing says it will only continue shoring up the dollar if the military action is called off.
Marking the 100th anniversary of Suez, the Americans have no choice but to comply. Fanciful? Ludicrous? Certainly, that would have been the reaction of the traders on Wall Street who last week sent the Dow Jones industrial average to within a whisker of its all-time high. But even if the US can avoid a hard landing in the short term, as equity dealers believe it can, the medium and long-term risks to the economy remain."
Marking the 100th anniversary of Suez, the Americans have no choice but to comply. Fanciful? Ludicrous? Certainly, that would have been the reaction of the traders on Wall Street who last week sent the Dow Jones industrial average to within a whisker of its all-time high. But even if the US can avoid a hard landing in the short term, as equity dealers believe it can, the medium and long-term risks to the economy remain."
28 September 2006
Home-Equity Loss Rate Rises to Most Since 2001
Bloomberg.com: Bonds: "Sept. 27 (Bloomberg) -- The rate of losses on U.S. home- equity loans in June reached its worst level since 2001 because of more foreclosures, Moody's Investors Service said.
The loss rate climbed to 1.05 percent of total loans from 0.8 percent in June 2005, Moody's said in a statement yesterday. The amount of loans with payments more than 60 days late rose to 6.76 percent from 5.86 percent. There were $551.1 billion of securities backed by home-equity loans outstanding at the end of last year, according to the Bond Market Association.
Destruction from Hurricane Katrina in Louisiana, Mississippi and Alabama last year along with layoffs in the Detroit area by carmakers Ford Motor Co. and General Motors Corp. this year have left more people unable to pay bills, said Michael Youngblood, a Friedman Billings Ramsey & Co. analyst.
``We have seen much greater weakness in the rust belt cities than anticipated,'' Youngblood said in an interview today.
The share of mortgages entering foreclosure at the end of June was the highest since the fourth quarter of 2004, according to a Sept. 13 report by the Mortgage Bankers Association in Washington. And prices of existing homes fell last month for the first time in 11 years as sales dipped to the lowest level since early 2004, the National Association of Realtors said yesterday. "
The loss rate climbed to 1.05 percent of total loans from 0.8 percent in June 2005, Moody's said in a statement yesterday. The amount of loans with payments more than 60 days late rose to 6.76 percent from 5.86 percent. There were $551.1 billion of securities backed by home-equity loans outstanding at the end of last year, according to the Bond Market Association.
Destruction from Hurricane Katrina in Louisiana, Mississippi and Alabama last year along with layoffs in the Detroit area by carmakers Ford Motor Co. and General Motors Corp. this year have left more people unable to pay bills, said Michael Youngblood, a Friedman Billings Ramsey & Co. analyst.
``We have seen much greater weakness in the rust belt cities than anticipated,'' Youngblood said in an interview today.
The share of mortgages entering foreclosure at the end of June was the highest since the fourth quarter of 2004, according to a Sept. 13 report by the Mortgage Bankers Association in Washington. And prices of existing homes fell last month for the first time in 11 years as sales dipped to the lowest level since early 2004, the National Association of Realtors said yesterday. "
25 September 2006
PAKISTAN: MULLAH OMAR BEHIND PEACE DEAL BETWEEN GOVT. AND TALIBAN, REPORT
PAKISTAN: MULLAH OMAR BEHIND PEACE DEAL BETWEEN GOVT. AND TALIBAN, REPORT: "London, 25 Sept. (AKI/DAWN) - The fugitive Taliban commander Mullah Omar has emerged as the key player behind the controversial peace deal between the Pakistani government and the pro-Taliban rebels in the tribal region of Waziristan. The online edition of the British daily Telegraph reported that the Taliban’s one-eyed spiritual leader, who has a 10 million dollars price on his head for refusing to hand over Osama bin Laden after the September 11 attacks, signed a letter explicitly endorsing the recently announced truce."
23 September 2006
U.S. real estate crash could cause global ripples
globeandmail.com : U.S. real estate crash could cause global ripples: "VANCOUVER -- The United States real estate market has entered a period of 'unprecedented volatility,' and banks, insurance providers, and government housing agencies should brace for global ripple effects, Yale economist and author Robert Shiller told a conference yesterday.
'There is a serious risk of worldwide recession coming up in the next couple of years because of the turning of the real estate market,' said Mr. Shiller, speaking at the annual congress of the International Union for Housing Finance (IUHF) in Vancouver."
'There is a serious risk of worldwide recession coming up in the next couple of years because of the turning of the real estate market,' said Mr. Shiller, speaking at the annual congress of the International Union for Housing Finance (IUHF) in Vancouver."
Global Growth Downgrades Continue
BCA Research - Independent Investment Research Since 1949: "The ZEW survey of analyst expectations for the euro area and the global economy slipped again in September. The global indicator is now near past cyclical lows, with the U.S. component notably weak. The euro area measure also continues to fall, which is in marked contrast to other surveys that indicate momentum remains strong. While the global economy is clearly cooling, the ZEW measures overstate the pace of the deceleration. However, the weakness of the euro zone reading calls into question the ability of the region to de-couple from U.S. and global trend. Bottom line: the developing global growth slowdown will be broad-based, with all major regions moderating. "
19 September 2006
SAC's Cohen sees risk of mass hedge fund exit: WSJ | Business News | Reuters.com
SAC's Cohen sees risk of mass hedge fund exit: WSJ | Business News | Reuters.com: "NEW YORK (Reuters) - Steven Cohen, the billionaire founder of SAC Capital Advisors, said in an interview with the Wall Street Journal that there may eventually be a sharp fall in the stock market, exacerbated by hedge funds crowding into similar shares.
In the interview, published on Sunday, the 50-year-old head of one of the world's most closely watched investment firms also said he was now making bigger bets and holding stocks for a longer time.
'It's hard to find ideas that aren't picked over, and harder to get real returns and differentiate yourself,' Cohen said in the interview. 'We're entering a new environment. The days of big returns are gone.'
The highly secretive investor, whose net worth Forbes magazine estimates to be around $2.5 billion, was also quoted as saying there were risks in burgeoning hedge funds investing in the same stocks.
'There will be a real decline that may devastate hedge funds that have crowded into the same stocks,' he said, adding that he was not worried about that happening this year.
'Hedge funds are bigger than they used to be. Their positions are bigger,' he said. 'I worry that if everyone were to sell, could we get out?'
© Reuters 2006. All Rights Reserved."
In the interview, published on Sunday, the 50-year-old head of one of the world's most closely watched investment firms also said he was now making bigger bets and holding stocks for a longer time.
'It's hard to find ideas that aren't picked over, and harder to get real returns and differentiate yourself,' Cohen said in the interview. 'We're entering a new environment. The days of big returns are gone.'
The highly secretive investor, whose net worth Forbes magazine estimates to be around $2.5 billion, was also quoted as saying there were risks in burgeoning hedge funds investing in the same stocks.
'There will be a real decline that may devastate hedge funds that have crowded into the same stocks,' he said, adding that he was not worried about that happening this year.
'Hedge funds are bigger than they used to be. Their positions are bigger,' he said. 'I worry that if everyone were to sell, could we get out?'
© Reuters 2006. All Rights Reserved."
13 September 2006
Situation Called Dire in West Iraq - washingtonpost.com
Situation Called Dire in West Iraq - washingtonpost.com: "The chief of intelligence for the Marine Corps in Iraq recently filed an unusual secret report concluding that the prospects for securing that country's western Anbar province are dim and that there is almost nothing the U.S. military can do to improve the political and social situation there, said several military officers and intelligence officials familiar with its contents.
The officials described Col. Pete Devlin's classified assessment of the dire state of Anbar as the first time that a senior U.S. military officer has filed so negative a report from Iraq."
The officials described Col. Pete Devlin's classified assessment of the dire state of Anbar as the first time that a senior U.S. military officer has filed so negative a report from Iraq."
8 September 2006
Pollution costs China 511.8 billion yuan in 2004
Pollution costs China 511.8 billion yuan in 2004: "BEIJING -- Environmental pollution caused China to suffer 511.8 billion yuan (about US$64 billion) in economic losses in 2004, which amounted to 3.05 percent of GDP that year, according to a government research report released on Thursday.
It is China's first research report on China's 'green national economy', also called 'green GDP', which is calculated by subtracting the cost of natural resources used and the cost of environmental degradation from the GDP.
'This marks only the beginning of our efforts in Green GDP calculation. Our formula is still not complete and we have to keep working hard to improve it,' said Pan Yue, deputy director of the State Environmental Protection Administration (SEPA), at a press conference in Beijing.
The report was jointly released by the SEPA and the National Bureau of Statistics.
The 'Green GDP' calculation system is based on the cost of using five kinds of natural resources - land, minerals, forest, water and fisheries - and the cost of two kinds of environmental degradation - environmental pollution and ecological damage. "
It is China's first research report on China's 'green national economy', also called 'green GDP', which is calculated by subtracting the cost of natural resources used and the cost of environmental degradation from the GDP.
'This marks only the beginning of our efforts in Green GDP calculation. Our formula is still not complete and we have to keep working hard to improve it,' said Pan Yue, deputy director of the State Environmental Protection Administration (SEPA), at a press conference in Beijing.
The report was jointly released by the SEPA and the National Bureau of Statistics.
The 'Green GDP' calculation system is based on the cost of using five kinds of natural resources - land, minerals, forest, water and fisheries - and the cost of two kinds of environmental degradation - environmental pollution and ecological damage. "
"Smoking gun" evidence uncovered in Ohio of massive vote fraud
Wayne Madsen Report - Home: "After the November 2004 presidential election, this editor reported on massive vote fraud, particularly in Ohio. The relevant articles are found here, here, here, and here. Sources within the U.S. Intelligence Community provided information on the financing -- via foreign funding sources, covert intelligence networks, and illegal pseudo-banking routes -- of programmers, election officials, and others to ensure that Bush and Cheney captured Ohio's critical 20 electoral votes.
Pursuant to a federal law that permits the destruction of ballots, including absentee ballots, 22 months after a federal election, ballots from the 2004 Ohio election were scheduled to be destroyed on Sept. 2, but the intervention of Columbus-based attorney Cliff Arnebeck and the New York-based Center for Constitutional Rights with the U.S. Court in Columbus resulted in a protective order being issued for ballots and voting records in all 88 Ohio counties. This decision upset the corrupt Ohio Republican Party and its gubernatorial standard bearer Kenneth Blackwell, the Secretary of State who helped engineer the 2004 electoral vote fraud coup in his state, who wanted to begin the document shredding process in Sept. 2. "
Pursuant to a federal law that permits the destruction of ballots, including absentee ballots, 22 months after a federal election, ballots from the 2004 Ohio election were scheduled to be destroyed on Sept. 2, but the intervention of Columbus-based attorney Cliff Arnebeck and the New York-based Center for Constitutional Rights with the U.S. Court in Columbus resulted in a protective order being issued for ballots and voting records in all 88 Ohio counties. This decision upset the corrupt Ohio Republican Party and its gubernatorial standard bearer Kenneth Blackwell, the Secretary of State who helped engineer the 2004 electoral vote fraud coup in his state, who wanted to begin the document shredding process in Sept. 2. "
"Smoking gun" evidence uncovered in Ohio of massive vote fraud
Wayne Madsen Report - Home: "After the November 2004 presidential election, this editor reported on massive vote fraud, particularly in Ohio. The relevant articles are found here, here, here, and here. Sources within the U.S. Intelligence Community provided information on the financing -- via foreign funding sources, covert intelligence networks, and illegal pseudo-banking routes -- of programmers, election officials, and others to ensure that Bush and Cheney captured Ohio's critical 20 electoral votes.
Pursuant to a federal law that permits the destruction of ballots, including absentee ballots, 22 months after a federal election, ballots from the 2004 Ohio election were scheduled to be destroyed on Sept. 2, but the intervention of Columbus-based attorney Cliff Arnebeck and the New York-based Center for Constitutional Rights with the U.S. Court in Columbus resulted in a protective order being issued for ballots and voting records in all 88 Ohio counties. This decision upset the corrupt Ohio Republican Party and its gubernatorial standard bearer Kenneth Blackwell, the Secretary of State who helped engineer the 2004 electoral vote fraud coup in his state, who wanted to begin the document shredding process in Sept. 2. "
Pursuant to a federal law that permits the destruction of ballots, including absentee ballots, 22 months after a federal election, ballots from the 2004 Ohio election were scheduled to be destroyed on Sept. 2, but the intervention of Columbus-based attorney Cliff Arnebeck and the New York-based Center for Constitutional Rights with the U.S. Court in Columbus resulted in a protective order being issued for ballots and voting records in all 88 Ohio counties. This decision upset the corrupt Ohio Republican Party and its gubernatorial standard bearer Kenneth Blackwell, the Secretary of State who helped engineer the 2004 electoral vote fraud coup in his state, who wanted to begin the document shredding process in Sept. 2. "
If You Can't Trust a Poll
White Collar Crime Prof Blog: March 7, 2005 - March 13, 2005: "Everyone reads reports about surveys and political polls as if they were gospel, but what if the pollster is taking liberties with the data? An indictment returned in the District of Connecticut presents that very scenario involving DataUSA Inc . (now called ViewPointUSA Inc.), which has been charged along with its owner (Tracy Costin) and a manger (Darryl Hylton) with conspiracy and wire fraud for providing political and business clients with falsified data. The indictment alleges that employees were told to speak with cats and dogs for information. The company's website (www.datausainc.com) has the following statement: 'DataUSA upheld the highest standards in data collection as demonstrated in the excellence of our data. DataUSA's predictions of voting behavior and consumer behavior routinely reflected to be within 1% to 2% of actual behavior. We are proud of the quality data collected and want to thank you for teaming with DataUSA and for your support over the years.'
A press release by the U.S. Attorney described the allegations:
According to the Indictment, DATAUSA INC. (“DataUSA”) conducts surveys and political polls for numerous clients throughout the United States. The surveys or polls are conducted through the use of computers and telephones. COSTIN, the owner and director of operations for DataUSA, was charged with conspiracy to engage and engaging in a wire fraud scheme to defraud clients of DataUSA by falsifying and fabricating survey results. According to the Indictment, both COSTIN and HYLTON, a DataUSA manager, and others not named in the indictment, engaged in a scheme to defraud by unilaterally instructing DataUSA employees to alter survey data and to fabricate surveys and otherwise falsify their contents"
A press release by the U.S. Attorney described the allegations:
According to the Indictment, DATAUSA INC. (“DataUSA”) conducts surveys and political polls for numerous clients throughout the United States. The surveys or polls are conducted through the use of computers and telephones. COSTIN, the owner and director of operations for DataUSA, was charged with conspiracy to engage and engaging in a wire fraud scheme to defraud clients of DataUSA by falsifying and fabricating survey results. According to the Indictment, both COSTIN and HYLTON, a DataUSA manager, and others not named in the indictment, engaged in a scheme to defraud by unilaterally instructing DataUSA employees to alter survey data and to fabricate surveys and otherwise falsify their contents"
7 September 2006
Victims of Foreclosure, Predatory Mortgages on the Rise California Foreclosure Attorney Cites Reasons and Troubling Statistics
Victims of Foreclosure, Predatory Mortgages on the Rise California Foreclosure Attorney Cites Reasons and Troubling Statistics: "San Diego, CA (PRWEB) September 7, 2006 -- According to San Diego County records, mortgage defaults have skyrocketed an astounding 219% since the same time last year. In July 2005 there were 345 defaults. In July 2006 there were 756 defaults, a first step toward a lender’s foreclosure on a property. In July 2005 there were 91 trustee sales of homes.
In the same month this year there were 299 trustee sales, more than three times the year before. California foreclosure attorney John F. Brady, who specializes in rescuing homeowners from mortgages in default, credits the rise in defaults and trustee sales to the influx of inexperienced real estate agents, aggressive new mortgage brokers, naïve first time buyers, little or no money down below-market adjustable interest rate loans and predatory mortgage lending practices.
According to HUD and the Center for Responsible Lending, a national watchdog organization, predatory mortgage lending involves a wide array of abusive practices including excessive fees, abusive prepayment penalties, kickbacks to brokers, loan flipping, unnecessary products, mandatory arbitration, and steering & targeting. “You would think mostly low income folks would be the victim’s of predatory mortgages, says Brady,“however recent studies show that three out of four loans were made to borrowers with middle and upper incomes.” "
In the same month this year there were 299 trustee sales, more than three times the year before. California foreclosure attorney John F. Brady, who specializes in rescuing homeowners from mortgages in default, credits the rise in defaults and trustee sales to the influx of inexperienced real estate agents, aggressive new mortgage brokers, naïve first time buyers, little or no money down below-market adjustable interest rate loans and predatory mortgage lending practices.
According to HUD and the Center for Responsible Lending, a national watchdog organization, predatory mortgage lending involves a wide array of abusive practices including excessive fees, abusive prepayment penalties, kickbacks to brokers, loan flipping, unnecessary products, mandatory arbitration, and steering & targeting. “You would think mostly low income folks would be the victim’s of predatory mortgages, says Brady,“however recent studies show that three out of four loans were made to borrowers with middle and upper incomes.” "
CPAs Pessimistic about Economy
CPAs Pessimistic about Economy - - CFO.com: "More than half of certified public accountants polled by the American Institute of Certified Public Accountants, many of them CFOs or controllers, are pessimistic about the state of the U.S. economy. The opinions of 54 percent of accountants polled ranged from neutral to very pessimistic. That's up from 41 percent expressing similar sentiments in December 2005, the last time the AICPA conducted this kind of survey.
'The lack of enthusiasm for the state of the economy among these CPA executives seems to mirror that of consumers in general,' said John Morrow, AICPA Vice President for members in business and industry, in a statement."
'The lack of enthusiasm for the state of the economy among these CPA executives seems to mirror that of consumers in general,' said John Morrow, AICPA Vice President for members in business and industry, in a statement."
2 September 2006
US: Bullish or Bearish?
Morgan Stanley: "On balance, I remain constructive on the structural prognosis while I have turned more pessimistic on the cyclical outlook.
Four months ago, I dared to pen my first constructive piece on the global macro outlook in years (see my 1 May dispatch, “World on the Mend”). Yet recently, I have warned of the mounting downside risks to world economic growth in 2007 (see my 14 August dispatch, “Not Much Fizz Left in the Global Economy”). How do I reconcile these seemingly contradictory points of view?
My optimistic assessment was primarily a call on the global policy architecture -- the structural framework that governs the cross-border interplay between national economies and world financial markets. I was encouraged because the so-called stewards of globalization finally seemed to be taking the threat of mounting global imbalances seriously. The 22 April meetings of the G-7 and the IMF were watershed events -- singling out global imbalances as an increasingly worrisome threat to sustainable growth in the world economy. The IMF introduced a new paradigm of surveillance and consultation that moved from a single-country to a multilateral framework. I drew added encouragement from pro-consumption rumblings in China that pointed to a rebalancing of that economy away from excess dependence on exports and fixed investment. For years, I worried that the authorities were asleep at the switch as an increasingly unbalanced world veered toward a highly disruptive strain of global rebalancing. With global policy makers finally waking up to the threat, I argued that it made sense to reduce the odds of a crisis endgame"
Four months ago, I dared to pen my first constructive piece on the global macro outlook in years (see my 1 May dispatch, “World on the Mend”). Yet recently, I have warned of the mounting downside risks to world economic growth in 2007 (see my 14 August dispatch, “Not Much Fizz Left in the Global Economy”). How do I reconcile these seemingly contradictory points of view?
My optimistic assessment was primarily a call on the global policy architecture -- the structural framework that governs the cross-border interplay between national economies and world financial markets. I was encouraged because the so-called stewards of globalization finally seemed to be taking the threat of mounting global imbalances seriously. The 22 April meetings of the G-7 and the IMF were watershed events -- singling out global imbalances as an increasingly worrisome threat to sustainable growth in the world economy. The IMF introduced a new paradigm of surveillance and consultation that moved from a single-country to a multilateral framework. I drew added encouragement from pro-consumption rumblings in China that pointed to a rebalancing of that economy away from excess dependence on exports and fixed investment. For years, I worried that the authorities were asleep at the switch as an increasingly unbalanced world veered toward a highly disruptive strain of global rebalancing. With global policy makers finally waking up to the threat, I argued that it made sense to reduce the odds of a crisis endgame"
mish's latest
Thursday, August 31, 2006
On the Cusp
The Detroit Free Press has a Michigan Census Snapshot that I would like to share.
In a dramatic sign of its ailing economy, Michigan's household income dropped, more children joined the ranks of poor people and the number of people living below the poverty level jumped in the suburbs, according to census figures released Tuesday.
The figures show Michigan's median household income fell more than any other state's during the last six years. It was $46,039 in 2005 -- 12% less than what it was in 1999 when adjusted for inflation. None of the 28 counties and 21 municipalities for which data were reported showed a rise in median household income between 1999 and 2005, the estimates show.
The news was grim in other areas, too. In 2005:
• 19% of children in Michigan lived in poverty, up from six years ago.
• Almost a third of the state's African Americans lived below the poverty level.
• Detroit remained one of the poorest big cities in the country with almost a third of its residents living below the poverty line.
• Cities and townships posted drops in median household incomes ranging from 24% to 6% and poverty rates increased in all but three cities.
"I hate to superimpose worse news on top of bad news, but this is not a cycle," said David Littman, a senior economist for the Mackinac Center for Public Policy, a Midland-based think tank. "We're in a secular decline here in Michigan. As the economy slows nationally, we're going to sink much farther relative to the other states. We've only just begun.
"We're going to see Michigan sink to levels that no one has ever seen. We're going to be looking at the highest unemployment rates in the nation for the next five to 10 years."
Following is a chart showing the income drop of Michigan vs. other states.
The next two charts show how various counties in Michigan have fared.
Thanks to the Detroit Free Press for all of the above charts.
More statistics and a better chart can be found in this PDF.
I believe Michigan is a harbinger of times to come for much of the US. So do a few others.
Regli on Silicon Investor writes "Michigan will be called unrepresentative until people realize in a few years to a decade that it is not. The only advantage it has is that it came first."
John Vosilla on Silicon Investor is asking "Is Florida going to follow in Michigan's footsteps?"
Vosilla was referring to the St. Petersburg Times article Economic gloom tightens grip
Battered by fuel prices, a housing slump and storm fears, Floridians are less confident in the economy than at any time since 1993.
Floridians' confidence in the economy plunged this month to its lowest level in 13 years, University of Florida economists said Tuesday.
The chill in the housing market, higher interest rates and fuel prices appear to be taking their toll. National confidence numbers also fell in August, but not as much as they did in Florida.
The Florida Consumer Confidence Index fell 11 points to 76, while the national index, compiled by the Conference Board, went from 107 to 99.6.
The Florida drop is very similar to the one that occurred last September in the wake of Hurricane Katrina, only this time there was no hurricane to blame. Chris McCarty, director of survey research at the University of Florida's Bureau of Economic and Business Research, thinks the changed outlook for housing is at least partly responsible.
"Florida is in a position to really be affected by a decline in housing," McCarty said.
"There are a lot of overvalued markets in Florida, and there are a lot of risky loans, some of which are going to readjust right about now," he said. "Also, a lot of employment increases over the last few years have been related to housing."
When projects get canceled or put on hold, that has a direct impact on jobs and a secondary impact on sales of appliances and furniture, he said.
Many consumers also are feeling the pinch of higher energy prices at the gas pump and in their utility bills.
"The feedback I get from people when they cancel their appointments at the last minute is that they're broke," said Valerie Bohr, 41, who owns Brilliance Color and Hairstyles in Largo. "Just this week I had two people tell me they got electric bills over $400. People can't afford to come in and get their hair done if they're working to pay an electric bill like that."
She worries about being able to keep her salon open.
Hmmm. People can't afford to come in and get their hair done if they're working to pay an electric bill like that." She worries about being able to keep her salon open.
Translation: Regardless of what it costs to run that salon, Brilliance Color and Hairstyles in Largo simply is in no position to even attempt to raise prices.
Bennigan's restaurant dropped the price of their half pound burger from $7.99 to $4.99.
That's a drop of $3 or 37.54 percent! That can't happen can it? At least that is what I am told with rising input costs on food and energy. OK, Bennigan's is just one restaurant, big deal. No, it's not just one restaurant, and yes it is indeed a very big deal. It is all about discretionary spending and a slow change from consumption to saving.
I talked about that idea recently (along with Kevin Depew) and was mainly scoffed at judging by the blog responses to The Psychology of Deflation.
The facts are what they are and here they are:
* Prices of homes are dropping.
* Land prices are dropping.
* Prices at restaurant are dropping.
* Prices at some nail salons are dropping.
* Now we see that hair salon owners might not be able to stay in business.
Hey, what's the problem?
Concrete prices rising, energy prices rising, copper prices rising?
The solution is simple: Just raise your prices!
I am told that "must" happen.
Meanwhile I watch the opposite happen.
I talked about PPI prices in Intermediate vs. Finished PPI.
Input prices rising?
What's the problem?
Just raise output prices.
It has to happen. Right?
Well why isn't it?
Am I declaring victory in my call for deflation?
No way. I will instead sit back (probably for quite some time) and watch the inflationists explain away things that "can not happen" that are happening.
Here are a couple more facts to consider.
1. The $CRB just busted a 5 year trendline.
2. Changes in secular trends do not change easily or overnight.
Actually I think we are about to see a cyclical change in the $CRB but a secular change in regards to consumption and savings. The implications of those two points will make the Fed's problem all the more difficult.
Will the Fed counteract? Yes they will. Indeed, the reaction to the next few moves by the Fed over the next year or so will be the proof of the pudding. That makes it too early to declare victory even as all sign are currently pointed "down town".
We will see what "Helicopter Drop" Bernanke has up his sleeves (or not).
We are now at an economic inflection point. There may be a headfake at this point in either direction.
I will offer this prediction.
It is an easy one, yet one that few believe.
Many more states will follow the path of Michigan.
We are indeed on the cusp..... of deflation.
It is ironic that the Fed unleashed the very beast they feared by fighting it too early, at a time when there simply was no threat. Now that the threat is real, no one sees it.
On the Cusp
The Detroit Free Press has a Michigan Census Snapshot that I would like to share.
In a dramatic sign of its ailing economy, Michigan's household income dropped, more children joined the ranks of poor people and the number of people living below the poverty level jumped in the suburbs, according to census figures released Tuesday.
The figures show Michigan's median household income fell more than any other state's during the last six years. It was $46,039 in 2005 -- 12% less than what it was in 1999 when adjusted for inflation. None of the 28 counties and 21 municipalities for which data were reported showed a rise in median household income between 1999 and 2005, the estimates show.
The news was grim in other areas, too. In 2005:
• 19% of children in Michigan lived in poverty, up from six years ago.
• Almost a third of the state's African Americans lived below the poverty level.
• Detroit remained one of the poorest big cities in the country with almost a third of its residents living below the poverty line.
• Cities and townships posted drops in median household incomes ranging from 24% to 6% and poverty rates increased in all but three cities.
"I hate to superimpose worse news on top of bad news, but this is not a cycle," said David Littman, a senior economist for the Mackinac Center for Public Policy, a Midland-based think tank. "We're in a secular decline here in Michigan. As the economy slows nationally, we're going to sink much farther relative to the other states. We've only just begun.
"We're going to see Michigan sink to levels that no one has ever seen. We're going to be looking at the highest unemployment rates in the nation for the next five to 10 years."
Following is a chart showing the income drop of Michigan vs. other states.
The next two charts show how various counties in Michigan have fared.
Thanks to the Detroit Free Press for all of the above charts.
More statistics and a better chart can be found in this PDF.
I believe Michigan is a harbinger of times to come for much of the US. So do a few others.
Regli on Silicon Investor writes "Michigan will be called unrepresentative until people realize in a few years to a decade that it is not. The only advantage it has is that it came first."
John Vosilla on Silicon Investor is asking "Is Florida going to follow in Michigan's footsteps?"
Vosilla was referring to the St. Petersburg Times article Economic gloom tightens grip
Battered by fuel prices, a housing slump and storm fears, Floridians are less confident in the economy than at any time since 1993.
Floridians' confidence in the economy plunged this month to its lowest level in 13 years, University of Florida economists said Tuesday.
The chill in the housing market, higher interest rates and fuel prices appear to be taking their toll. National confidence numbers also fell in August, but not as much as they did in Florida.
The Florida Consumer Confidence Index fell 11 points to 76, while the national index, compiled by the Conference Board, went from 107 to 99.6.
The Florida drop is very similar to the one that occurred last September in the wake of Hurricane Katrina, only this time there was no hurricane to blame. Chris McCarty, director of survey research at the University of Florida's Bureau of Economic and Business Research, thinks the changed outlook for housing is at least partly responsible.
"Florida is in a position to really be affected by a decline in housing," McCarty said.
"There are a lot of overvalued markets in Florida, and there are a lot of risky loans, some of which are going to readjust right about now," he said. "Also, a lot of employment increases over the last few years have been related to housing."
When projects get canceled or put on hold, that has a direct impact on jobs and a secondary impact on sales of appliances and furniture, he said.
Many consumers also are feeling the pinch of higher energy prices at the gas pump and in their utility bills.
"The feedback I get from people when they cancel their appointments at the last minute is that they're broke," said Valerie Bohr, 41, who owns Brilliance Color and Hairstyles in Largo. "Just this week I had two people tell me they got electric bills over $400. People can't afford to come in and get their hair done if they're working to pay an electric bill like that."
She worries about being able to keep her salon open.
Hmmm. People can't afford to come in and get their hair done if they're working to pay an electric bill like that." She worries about being able to keep her salon open.
Translation: Regardless of what it costs to run that salon, Brilliance Color and Hairstyles in Largo simply is in no position to even attempt to raise prices.
Bennigan's restaurant dropped the price of their half pound burger from $7.99 to $4.99.
That's a drop of $3 or 37.54 percent! That can't happen can it? At least that is what I am told with rising input costs on food and energy. OK, Bennigan's is just one restaurant, big deal. No, it's not just one restaurant, and yes it is indeed a very big deal. It is all about discretionary spending and a slow change from consumption to saving.
I talked about that idea recently (along with Kevin Depew) and was mainly scoffed at judging by the blog responses to The Psychology of Deflation.
The facts are what they are and here they are:
* Prices of homes are dropping.
* Land prices are dropping.
* Prices at restaurant are dropping.
* Prices at some nail salons are dropping.
* Now we see that hair salon owners might not be able to stay in business.
Hey, what's the problem?
Concrete prices rising, energy prices rising, copper prices rising?
The solution is simple: Just raise your prices!
I am told that "must" happen.
Meanwhile I watch the opposite happen.
I talked about PPI prices in Intermediate vs. Finished PPI.
Input prices rising?
What's the problem?
Just raise output prices.
It has to happen. Right?
Well why isn't it?
Am I declaring victory in my call for deflation?
No way. I will instead sit back (probably for quite some time) and watch the inflationists explain away things that "can not happen" that are happening.
Here are a couple more facts to consider.
1. The $CRB just busted a 5 year trendline.
2. Changes in secular trends do not change easily or overnight.
Actually I think we are about to see a cyclical change in the $CRB but a secular change in regards to consumption and savings. The implications of those two points will make the Fed's problem all the more difficult.
Will the Fed counteract? Yes they will. Indeed, the reaction to the next few moves by the Fed over the next year or so will be the proof of the pudding. That makes it too early to declare victory even as all sign are currently pointed "down town".
We will see what "Helicopter Drop" Bernanke has up his sleeves (or not).
We are now at an economic inflection point. There may be a headfake at this point in either direction.
I will offer this prediction.
It is an easy one, yet one that few believe.
Many more states will follow the path of Michigan.
We are indeed on the cusp..... of deflation.
It is ironic that the Fed unleashed the very beast they feared by fighting it too early, at a time when there simply was no threat. Now that the threat is real, no one sees it.
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