Global Downturn 'Is an Earthquake, not a Tremor'
Former World Bank President James Wolfensohn talks to SPIEGEL about the global financial crisis and his hope that Barack Obama will be the right president to lead the US out of recession.
SPIEGEL: Mr. Wolfensohn, you are known to be an advocate of socially responsible capitalism. How do you view the Wall Street community these days?
Wolfensohn: Well, I think the Wall Street community is preoccupied by survival. We're having a downturn of unprecedented proportions, and so it's not surprising that issues of global social responsibility are pushed to the back. That doesn't mean that it is correct and it doesn't mean that we are still not better off in this country than in many other countries.
SPIEGEL: By the way, did you take part in this wild game? Did you lose a lot of money?
Wolfensohn: Personally?
SPIEGEL: Yes.
Wolfensohn: The answer is no because when I got out of the World Bank and became special envoy to the Israeli-Palestinian negotiations in the Middle East for a year, I got very liquid, and I've never gotten into debt since then. So I've had a very balanced portfolio. Having said that, I learned today that one of the investments that I made with quite a trustful and elite firm is being affected because that firm made an investment in the gentleman who lost $50 billion. And so I had never heard of him, and I never was informed that the investment manager that I had given money to was doing business with him.
SPIEGEL: The gentleman you are talking about is Bernard Madoff, who is alleged to have run a $50 billion Ponzi scheme. You never met him?
Wolfensohn: No, but I was given the good news today that unknown to me I had a small part of my investment in assets at that terrible firm.
SPIEGEL: German President Horst Köhler, former head of the International Monetary Fund. ...
Wolfensohn: ... I know him extremely well ...
SPIEGEL: ... asked bank managers to apologize for their role in the financial crisis.
Wolfensohn: Horst Köhler is a remarkable man, and a very close friend, and it's exactly what I would expect him to demand because he has a very high moral standard. I'm not sure that the people that he is talking about would feel it was necessary to do that. It would be a sort of catharsis but in this country they would have to word their apology very carefully for fear that they would give grounds for legal action.
SPIEGEL: Our former Chancellor Helmut Schmidt says it's all a matter of so-called predatory capitalism. Do you agree?
Wolfensohn: Well, it's not the system, the system did not drive it. It was driven by individuals, and the individuals created a capitalist system that was full of excesses and not regulated. So it wasn't because there was a system; it was because individuals took advantage in the absence of appropriate regulation.
SPIEGEL: Has it to do with the American way of doing business, the American way of life, the American dream?
Wolfensohn: Well, your banks -- also in their international activities -- engaged heavily in this practice and had substantial losses as a consequence of this crisis.
SPIEGEL: But they didn't invent this business.
Wolfensohn: Avarice is not contained only in the United States. So if something is making money here, it's very apparent from the reports of your financial institutions and your investors, as well as other foreign banks, that sophisticated investors were investing very heavily in this system. So I give you that it was invented here, but I must say that there were some willing buyers and participants in other parts of the world.
SPIEGEL: Europeans love to feel morally superior to Americans. You grew up in Australia, you became an American citizen…
Wolfensohn: … I'm an American citizen, I ran Carnegie Hall for 20 years, the Kennedy Center for five years, and I've done lots of things for social causes here and abroad. And there are many like me. The perception in Europe of these money-hungry Americans is wonderful, but it's not true. I don't think you hear people in the United States talking down Europe. I hear more criticism in Europe of the United States, but I don't think it matters. We're in the middle of a crisis now which is global.
SPIEGEL: You're right, of course.
Wolfensohn: It's hitting China, it's hitting India, it's hitting the Middle East.
SPIEGEL: And it is hitting Russia, where you just returned from.
Wolfensohn: They lost $150 billion in reserves in six weeks, which is a quarter of their reserves, so the ruble is under intense pressure. There are frailties in many parts of the world, and a lot of the people that lost money are not innocent victims of the activities of the United States and Alan Greenspan. They are active participants in the markets. You have a few examples in this country and a few examples in your own country of institutions that have been more sophisticated. Take (German private bank) Metzler Bank, which I happen to know very well. It was not in any of this stuff, but that's because Fritz Metzler is very conservative and smart, and there are a few people here that are equally conservative as well.
SPIEGEL: Our government-owned banks are heavily affected.
Wolfensohn: That's what I'm saying. They still have not determined what is the extent of the loss.
SPIEGEL: You are personally focused on the emerging markets. How will China or India feel the pain?
Wolfensohn: I think pain is widespread. We had here just a few days ago the visit of a Chinese delegation that was meeting with a few people in this country, both to inquire and also to project an air of confidence and competence, which certainly exists in China. I think you have extremely good management teams in China. But the scope of the problem is just enormous. For years it has always been the assumption that if you drop below 7 percent growth in China, the country will be in trouble in terms of civil disturbances and they will not be able to hold it altogether. Now they're talking about 5.5 percent growth for next year in China. There was a three day meeting in the Politburo to consider this challenge. They have the capacity to re-stimulate, of course, because they have $2 trillion of reserves.
SPIEGEL: What about India, which has less room to maneuver?
Wolfensohn: The mind of the public in India has been taken off the economics at the moment by the Pakistan confrontation. This does not diminish economic pressure but gets the population angry at the country next door. My biggest worry I think is the 53 countries in sub-Saharan Africa that have depended significantly on natural resource exports and where the prices in everything from iron ore to bauxite to oil have dropped hugely. And you do not yet have the internal market in sub-Saharan Africa. It produces maybe 1.5 percent of global GDP at the moment, with 800 to 900 million people, but by 2050 it'll be 2 billion people.
SPIEGEL: Do you expect a human crisis on top of the financial crisis?
Wolfensohn: Well, the best estimates put out by the World Bank, and they've drawn on other research, is that by 2050 the average per capita income in sub-Saharan Africa, in today's dollars, will grow from $700 per capita to $1,700 per capita. In China and India, in 2050 the per capita income will be above $40,000 per capita, and in Germany and the United States it will be $98,000 per capita. So you have this enormous gap between Africa and the rest of the world.
'It's Not the Government's Responsibility to Bail Out all the Banks'
SPIEGEL: Do you expect an anti-American mood as a fallout of this crisis?
Wolfensohn: What has surprised me is that we had a $100 billion forgiveness of African debt done largely by the Europeans and by the Americans significantly. So far as I know, there has been no thank you for that. And immediately China and India come in, China with a $10 billion program and India with a much smaller program but a visible program.
Three years ago, if you remember, the African leaders went first to Beijing and the African businessmen went to New Delhi. And at the same time as all the debts were being forgiven, they're claiming that their new best friends are the Chinese and the Indians, who are pushing also to build political relationships between the East and Africa as well as access to natural resources. And so you see this new dimension, but the amount of money which they're putting up is still significantly less than what the West is doing and what western NGO's do.
But we're losing the battle down there because the Chinese and the Indians are just better at it. They're better publicists, they are building the president's homes, soccer stadiums, they're building roads and hospitals and you now have 750,000 Chinese living in sub-Saharan Africa.
SPIEGEL: To contain the crisis there are numerous stimulus packages, and rescue and bailout plans. The financial crisis is still not under control, though. What do you expect next?
Wolfensohn: Well, I think you've got about $9 trillion of announced packages, from which about $3 trillion have been drawn down.
SPIEGEL: Worldwide or only in the US?
Wolfensohn: Just the United States. We've got in addition to that $6 or 7 trillion in Europe and other parts of the world. What I expect is that we need to understand precisely what this is for. Governments cannot buy all the bad assets of banks because the shareholders have to suffer, and it's not the responsibility of government to go and bail out all the banks. They get nationalized typically before that with the shareholders wiped out.
SPIEGEL: Are governments taking the correct action?
Wolfensohn: What they've done this time is what they did not do in the 30's. In the 1930's they did not provide liquidity to the banks, so the banks went under very quickly. This time, Ben Bernanke, the chairman of the Federal Reserve Bank, is an expert on that area -- it's what he did his thesis on -- and he has provided liquidity to the financial institutions. The government is trying in some elements, notably mortgages, to try and rewrite the mortgages, to stretch them out, to make them sustainable for individuals so that you neither have a human crisis in terms of housing nor a bank crisis. So all that seems reasonable, but if we were to have a crisis in credit card debt or a crisis in loans to industrial companies or loans between banks, it is not the responsibility or the authority of the federal government to come and bail out every financial institution.
It was thought when they had the $700 billion package that the banks would re-stimulate, they would increase their lending. Quite the contrary happened. What the banks have done is to try and strengthen their capital ratios. And so every bank that I know in this country is looking inwards to try and see how they can strengthen the capital of the institution because what they're worried about is the next wave of disasters and bad debts.
SPIEGEL: You sound very skeptical. But is it not a good idea for banks to ask their clients about their business plan and whether they will be able to repay the loan?
Wolfensohn: Even good companies that have previously had credit lines are being restrained because they have to pay back some of their credit lines because the banks are contracting. In that event, the good companies become more limited in what they can do. The companies that are marginal probably go under or are weakened, and the companies that are bad get nothing. So you have this downward pressure on economic activity as a result of very necessary conservativism on the part of the banks. Now President-elect Obama is trying to put a trillion dollars out there to re-stimulate economic activity. This is what was done by FDR during the period of reconstruction in this country, and it is what was done in your own country after the Depression -- governments have public works programs, to put people to work.
SPIEGEL: Will it work nowadays?
Wolfensohn: Well, it will get some people to work, and it keeps them off the streets.
SPIEGEL: But will it be a sustainable business model for all countries?
Wolfensohn: I personally am not smart enough to know how long it will take for confidence to return, both to the consumer, which is what is necessary, and then to the companies.
SPIEGEL: Can one buy trust in the market?
Wolfensohn: No.
SPIEGEL: But that's what governments are trying to do.
Wolfensohn: You create a situation where you can rebuild a certain measure of trust. It's easier to do that with 8 percent unemployment than with 12 or 13 percent unemployment.
SPIEGEL: Everybody in the United States is talking about Obama taking taxpayers' money. But isn't it foreign money -- Chinese money, Indian money?
Wolfensohn: He is not going to be able to raise a trillion dollars in extra taxes. But it's very conceivable that the federal deficit will move from $11 trillion to $12 trillion or maybe more.
SPIEGEL: The Fed is said to be determined to print as much money as needed to stimulate the US economy.
Wolfensohn: I saw that headline in The New York Times, and I hope that no one said it. There is a very good financial team coming in. Tim Geithner as secretary of the Treasury is first rate, Larry Summers in the White House is first rate. You've got Paul Volcker who was my partner, in a sort of advisory capacity with a bunch of other people. Everybody that has got anything to contribute intellectually is around and ready to help. But it's not just an intellectual game. It is a game that is now being played out at a level of uncertainty that we've not seen since the 30's. This is not another adjustment as we had in the 80's. This is a shift in the earth. This is an earthquake. It is not a tremor.
SPIEGEL: How long is it going to take to get out of this mess?
Wolfensohn: I don't think anybody knows, frankly.
SPIEGEL: And there's no alternative to the government's attempt to do everything which might be helpful in order to solve this crisis?
Wolfensohn: No. To the extent that private sector will do it, the government would be thrilled, and I'm sure that they will come up with every conceivable incentive for individuals to spend and for the private sector to grow because that's the nature of American capitalism.
SPIEGEL: Are you confident that Obama is the right president in this period of time?
Wolfensohn: First of all, I don't think any single man could do this whole thing, and so you have to look at the cabinet that he's put together, and I think his choices have been, from what I can see, very admirable.
SPIEGEL: But he's the one who has to make the decisions after all.
Wolfensohn: He does, and that is a challenge that he faces, and the reason he was elected is because people think he has the balance and the judgment to do it. Just as John F. Kennedy was elected at a young age, and I think in retrospect people would say to his period as president he performed pretty well.
SPIEGEL: Do you know Barack Obama?
Wolfensohn: I've met him, but I don't know him.
SPIEGEL: Will a new form of capitalism arise when the crisis is over?
Wolfensohn: I would hope that we come out of this with a free enterprise system continuing without a lot of trade barriers and with a more enlightened government in terms of control of excesses. That will work for a while, and then there'll be some other set of excesses which hits the next generation, and that's the way it works.
SPIEGEL: Mr. Wolfensohn, thank you very much for this interview.
Interview conducted by Gerhard Spörl and Gabor Steingart.
URL:
http://www.spiegel.de/international/business/0,1518,600382,00.html
10 January 2009
GEAB reflect on the Gulf's Investments
The residential and commercial real estate boom in the oil-states of the Persian Gulf will come to a sudden stop at the turn of the year 2008/2009 when the effects of US recessflation, European stagflation and Asian economic slowdown combine.
In this matter we should keep in mind that the dithyrambic leaflets and articles on the Dubai’s real estate and the like were written by those very companies, media and experts who praised the American real estate opportunities two years ago, and the UK or Spanish ones a year ago. The market upon which petro-monarchies expect to make their colossal construction investments profitable only exists in the minds of their developers, bankers and all those who believe in them.
It is nothing but a desert mirage.
Indeed, at the time of Internet and A380s, Asians and Europeans need no intermediaries to make business. These “booms” only exist because there is a need today to make the best possible use of those mountains of US dollars losing value every day and nowadays impossible to invest in the US.
These investments will not be profitable and these regions will be full of incredible ghost-cities within a decade. If, in addition to this, the United States and Israel decide to attack Iran in the coming months, ongoing construction work will not even be completed.
geap
In this matter we should keep in mind that the dithyrambic leaflets and articles on the Dubai’s real estate and the like were written by those very companies, media and experts who praised the American real estate opportunities two years ago, and the UK or Spanish ones a year ago. The market upon which petro-monarchies expect to make their colossal construction investments profitable only exists in the minds of their developers, bankers and all those who believe in them.
It is nothing but a desert mirage.
Indeed, at the time of Internet and A380s, Asians and Europeans need no intermediaries to make business. These “booms” only exist because there is a need today to make the best possible use of those mountains of US dollars losing value every day and nowadays impossible to invest in the US.
These investments will not be profitable and these regions will be full of incredible ghost-cities within a decade. If, in addition to this, the United States and Israel decide to attack Iran in the coming months, ongoing construction work will not even be completed.
geap
Merrill Lynch says rich turning to gold bars for safety
Gary Dugan, the chief investment officer for the US bank, said there has been a remarkable change in sentiment. "People are genuinely worried about what the world is going to look like in 2009. It is amazing how many clients want physical gold, not ETFs," he said, referring to exchange trade funds listed in London, New York, and other bourses.
"They are so worried they want a portable asset in their house. I never thought I would be getting calls from clients saying they want a box of krugerrands," he said.
Merrill predicted that gold would soon blast through its all time-high of $1,030 an ounce, and would hit $1,150 by June.
The metal should do well whatever happens. If deflation sets in and rocks the economic system it will serve as a safe-haven, but if massive monetary stimulus gains traction and sets off inflation once again it will also come into its own as a store of value. "It's win-win either way," said Mr Dugan.
He added that deflation may prove the greater risk in coming months. "It's very difficult to get the deflation psychology out of the human brain once prices start falling. People stop buying things because they think it will be cheaper if they wait."
Merrill expects global inflation to hover near zero, with rates of minus 1pc in the industrial economies. This means that yields on AAA sovereign bonds now at 3pc will offer a real return of 4pc a year, which is stellar in this grim climate. "Don't start selling your government bonds," Mr Dugan said, dismissing talk of a bond bubble as misguided.
He warned that the eurozone was likely to come under strain this year as slump deepens. "There is going to be friction as governments in the south start talking politically about coming out of the euro.
I don't see the tensions in Greece as a one-off. It is a sign of social strain in countries that have lost competitiveness."
"They are so worried they want a portable asset in their house. I never thought I would be getting calls from clients saying they want a box of krugerrands," he said.
Merrill predicted that gold would soon blast through its all time-high of $1,030 an ounce, and would hit $1,150 by June.
The metal should do well whatever happens. If deflation sets in and rocks the economic system it will serve as a safe-haven, but if massive monetary stimulus gains traction and sets off inflation once again it will also come into its own as a store of value. "It's win-win either way," said Mr Dugan.
He added that deflation may prove the greater risk in coming months. "It's very difficult to get the deflation psychology out of the human brain once prices start falling. People stop buying things because they think it will be cheaper if they wait."
Merrill expects global inflation to hover near zero, with rates of minus 1pc in the industrial economies. This means that yields on AAA sovereign bonds now at 3pc will offer a real return of 4pc a year, which is stellar in this grim climate. "Don't start selling your government bonds," Mr Dugan said, dismissing talk of a bond bubble as misguided.
He warned that the eurozone was likely to come under strain this year as slump deepens. "There is going to be friction as governments in the south start talking politically about coming out of the euro.
I don't see the tensions in Greece as a one-off. It is a sign of social strain in countries that have lost competitiveness."
9 January 2009
US Consumer Credit turns down, sharply
This spells depression, not recession. % change from a year ago, free fall.(below)
Jan. 8 (Bloomberg) -- Consumer borrowing dropped by a record $7.9 billion in November as Americans scrambled to boost savings in face of the deepening recession and amid an investor exodus from securities backed by credit-card and other loans.
The slump brought consumer credit down to $2.57 trillion, and capped the first back-to-back monthly decline since 1992, the Federal Reserve said today in Washington. The biggest decrease came in securitized assets, an area where Fed policy makers are creating a new $200 billion lending program to shore up credit.
Today's figures foreshadow a prolonged drop in consumer spending as households try to reduce debt with their net worth declining and job losses accelerating, analysts said.
8 January 2009
Typealyzing my content
I ran posts tagged "Kevin McKern" here via Typealyzer and discovered I is a thinker mostly, but sometimes, ocassionally, using other texts, a scientist. A look at http://www.uclassify.com/ revealed that while I was mostly male, some of my posts were quite girly, but, in an age where cooperation and communication are more essential than hunting skills, pig headed endurance and brute strength, I'll take that as a complement, thanks!
Hat tip to the dude, a fellow thinker, as if I care!
In short "INTPs live in the world of theoretical possibilities. They see everything in terms of how it could be improved, or what it could be turned into. They live primarily inside their own minds, having the ability to analyze difficult problems, identify patterns, and come up with logical explanations. They seek clarity in everything, and are therefore driven to build knowledge. They are the "absent-minded professors", who highly value intelligence and the ability to apply logic to theories to find solutions. They typically are so strongly driven to turn problems into logical explanations, that they live much of their lives within their own heads, and may not place as much importance or value on the external world. Their natural drive to turn theories into concrete understanding may turn into a feeling of personal responsibility to solve theoretical problems, and help society move towards a higher understanding.
INTPs value knowledge above all else. Their minds are constantly working to generate new theories, or to prove or disprove existing theories. They approach problems and theories with enthusiasm and skepticism, ignoring existing rules and opinions and defining their own approach to the resolution. They seek patterns and logical explanations for anything that interests them. They're usually extremely bright, and able to be objectively critical in their analysis. They love new ideas, and become very excited over abstractions and theories. They love to discuss these concepts with others. They may seem "dreamy" and distant to others, because they spend a lot of time inside their minds musing over theories. They hate to work on routine things - they would much prefer to build complex theoretical solutions, and leave the implementation of the system to others. They are intensely interested in theory, and will put forth tremendous amounts of time and energy into finding a solution to a problem with has piqued their interest."
More here
Hat tip to the dude, a fellow thinker, as if I care!
In short "INTPs live in the world of theoretical possibilities. They see everything in terms of how it could be improved, or what it could be turned into. They live primarily inside their own minds, having the ability to analyze difficult problems, identify patterns, and come up with logical explanations. They seek clarity in everything, and are therefore driven to build knowledge. They are the "absent-minded professors", who highly value intelligence and the ability to apply logic to theories to find solutions. They typically are so strongly driven to turn problems into logical explanations, that they live much of their lives within their own heads, and may not place as much importance or value on the external world. Their natural drive to turn theories into concrete understanding may turn into a feeling of personal responsibility to solve theoretical problems, and help society move towards a higher understanding.
INTPs value knowledge above all else. Their minds are constantly working to generate new theories, or to prove or disprove existing theories. They approach problems and theories with enthusiasm and skepticism, ignoring existing rules and opinions and defining their own approach to the resolution. They seek patterns and logical explanations for anything that interests them. They're usually extremely bright, and able to be objectively critical in their analysis. They love new ideas, and become very excited over abstractions and theories. They love to discuss these concepts with others. They may seem "dreamy" and distant to others, because they spend a lot of time inside their minds musing over theories. They hate to work on routine things - they would much prefer to build complex theoretical solutions, and leave the implementation of the system to others. They are intensely interested in theory, and will put forth tremendous amounts of time and energy into finding a solution to a problem with has piqued their interest."
More here
15 reminders of how happy talk misled us a decade ago ~ Marketwatch
"Nothing even really changes in Wall Street's bubble-blowing brain:
October 1999: James Glassman, author "Dow 36,000." "What is dangerous is for Americans not to be in the market. We're going to reach a point where stocks are correctly priced, and we think that's 36,000 ... It's not a bubble. Far from it. The stock market is undervalued." (Fact: dot-com PE's were astronomical, most over 40)
December 1999: Joseph Battipaglia, market analyst. "Some fear a burst Internet bubble, but our analysis shows that Internet companies account for only 7% of the overall Nasdaq market cap but carry expected long-term growth rates twice those of other rapidly growing segments within tech." (Fact: Internet Index lost two-thirds within six months.)
December 1999: Larry Wachtel, Prudential. "Most of these stocks are reasonably priced. There's no reason for them to correct violently in the year 2000." (Fact: Nasdaq lost 50% in 2000.)
December 1999: Ralph Acampora, Prudential Securities. "I'm not saying this is a straight line up. I'm not saying you can't have pauses. I'm saying any kind of declines, buy them!" (Fact: He also predicted a 14,000 Dow by year-end 2000, and an 11-year bull.)
February 2000: Larry Kudlow, CNBC host. "This correction will run its course until the middle of the year. Then things will pick up again, because not even Greenspan can stop the Internet economy." (Fact: This faux economist is still hosting a cable show.)
April 2000: Myron Kandel, CNN. "The bottom line is, before the end of the year, the Nasdaq and Dow will be at new record highs." (Fact: In September he even predicted a rally to 12,000 by election day 2000.)
September 2000: Jim Cramer, Mad Money host. "SUNW probably has the best near-term outlook of any company I know." (Fact: Within four months Sun Microsystems dropped from $60 to $30. Down to $10 in a year. Below $3 in two years.)
November 2000: Louis Rukeyser on CNN. "Over the next year or two" the stock market "will be higher, and I know over the next five to 10 years it will be higher." (Fact: The market continued sinking, we fell into a recession, and tech lost 70% within two years.)
December 2000: Jeffrey Applegate, Lehman Strategist. "The bulk of the correction is behind us, so now is the time to be offensive, not defensive." (Fact: A sucker's rally.)
December 2000: Alan Greenspan. "The three- to five-year earnings projections of more than a thousand analysts, though exhibiting some signs of flattening in recent months, have generally held firm. Such expectations, should they persist, bode well for continued capital deepening and sustained growth." (Fact: In 2008 he admitted he misled America.)
January 2001: Suze Orman, financial guru. "In the low 60s here, I think the QQQ, they're a buy. They may go down, but if you dollar-cost average, where you put money every single month into them, I think, in the long run, it's the way to play the Nasdaq." (Fact: You lose -- the QQQ lost 60% more by October 2002.)
March 2001: Maria Bartiromo, CNBC anchor. "The individual out there is actually not throwing money at things that they do not understand, and is actually using the news and using the information out there to make smart decisions." (Fact: Maria sounds more like a writer for The Onion.)
April 2001: Abby Joseph Cohen, Goldman Sachs. "The time to be nervous was a year ago. The S&P then was overvalued, it's now undervalued." (Fact: The markets continued down for another 18 months.).
August 2001: Lou Dobbs, CNN. "Let me make it very clear. I'm a bull, on the market, on the economy. And let me repeat, I am a bull." (Fact: The market was actually in bear territory for another year as the Dow and Nasdaq lost another third.).
June 2002: Larry Kudlow, CNBC host. "The shock therapy of a decisive war will elevate the stock market by a couple thousand points." (Fact: For Larry, war is just another "economic stimulus program." He also said the Dow would hit 35,000 by 2010.)
Yes folks, in spite of all this happy-talk nonsense (laced with enticing yet lethal rhetoric about "Climbing a Wall-of-Worry," "Suckers Rallies," "Dead-Cat Bounces," "Bottom-Feeding" and "Buy-on-Dips" opportunities) please be patient. Remember, it took 30 months to hit the last bottom as the Dow fell about 40% from 11,722 in early 2000 to 7,286 in October 2002.
Expect more of the same today, because "BS" is still Wall Street's official language. In both bear and bull markets the lure is the same, to get you to drink the Kool-Aid, to feed a new bubble and to make them (not you) rich. "
October 1999: James Glassman, author "Dow 36,000." "What is dangerous is for Americans not to be in the market. We're going to reach a point where stocks are correctly priced, and we think that's 36,000 ... It's not a bubble. Far from it. The stock market is undervalued." (Fact: dot-com PE's were astronomical, most over 40)
December 1999: Joseph Battipaglia, market analyst. "Some fear a burst Internet bubble, but our analysis shows that Internet companies account for only 7% of the overall Nasdaq market cap but carry expected long-term growth rates twice those of other rapidly growing segments within tech." (Fact: Internet Index lost two-thirds within six months.)
December 1999: Larry Wachtel, Prudential. "Most of these stocks are reasonably priced. There's no reason for them to correct violently in the year 2000." (Fact: Nasdaq lost 50% in 2000.)
December 1999: Ralph Acampora, Prudential Securities. "I'm not saying this is a straight line up. I'm not saying you can't have pauses. I'm saying any kind of declines, buy them!" (Fact: He also predicted a 14,000 Dow by year-end 2000, and an 11-year bull.)
February 2000: Larry Kudlow, CNBC host. "This correction will run its course until the middle of the year. Then things will pick up again, because not even Greenspan can stop the Internet economy." (Fact: This faux economist is still hosting a cable show.)
April 2000: Myron Kandel, CNN. "The bottom line is, before the end of the year, the Nasdaq and Dow will be at new record highs." (Fact: In September he even predicted a rally to 12,000 by election day 2000.)
September 2000: Jim Cramer, Mad Money host. "SUNW probably has the best near-term outlook of any company I know." (Fact: Within four months Sun Microsystems dropped from $60 to $30. Down to $10 in a year. Below $3 in two years.)
November 2000: Louis Rukeyser on CNN. "Over the next year or two" the stock market "will be higher, and I know over the next five to 10 years it will be higher." (Fact: The market continued sinking, we fell into a recession, and tech lost 70% within two years.)
December 2000: Jeffrey Applegate, Lehman Strategist. "The bulk of the correction is behind us, so now is the time to be offensive, not defensive." (Fact: A sucker's rally.)
December 2000: Alan Greenspan. "The three- to five-year earnings projections of more than a thousand analysts, though exhibiting some signs of flattening in recent months, have generally held firm. Such expectations, should they persist, bode well for continued capital deepening and sustained growth." (Fact: In 2008 he admitted he misled America.)
January 2001: Suze Orman, financial guru. "In the low 60s here, I think the QQQ, they're a buy. They may go down, but if you dollar-cost average, where you put money every single month into them, I think, in the long run, it's the way to play the Nasdaq." (Fact: You lose -- the QQQ lost 60% more by October 2002.)
March 2001: Maria Bartiromo, CNBC anchor. "The individual out there is actually not throwing money at things that they do not understand, and is actually using the news and using the information out there to make smart decisions." (Fact: Maria sounds more like a writer for The Onion.)
April 2001: Abby Joseph Cohen, Goldman Sachs. "The time to be nervous was a year ago. The S&P then was overvalued, it's now undervalued." (Fact: The markets continued down for another 18 months.).
August 2001: Lou Dobbs, CNN. "Let me make it very clear. I'm a bull, on the market, on the economy. And let me repeat, I am a bull." (Fact: The market was actually in bear territory for another year as the Dow and Nasdaq lost another third.).
June 2002: Larry Kudlow, CNBC host. "The shock therapy of a decisive war will elevate the stock market by a couple thousand points." (Fact: For Larry, war is just another "economic stimulus program." He also said the Dow would hit 35,000 by 2010.)
Yes folks, in spite of all this happy-talk nonsense (laced with enticing yet lethal rhetoric about "Climbing a Wall-of-Worry," "Suckers Rallies," "Dead-Cat Bounces," "Bottom-Feeding" and "Buy-on-Dips" opportunities) please be patient. Remember, it took 30 months to hit the last bottom as the Dow fell about 40% from 11,722 in early 2000 to 7,286 in October 2002.
Expect more of the same today, because "BS" is still Wall Street's official language. In both bear and bull markets the lure is the same, to get you to drink the Kool-Aid, to feed a new bubble and to make them (not you) rich. "
The collapse of bezzle demand
The embezzler is busy spending and adding to demand while the man who has been embezzled has yet to feel any loss and so is also spending illusionary gains in wealth.
The negative wealth effect of the losses comming to light is massive.
Galbraith explains.
"In many ways the effect of the crash on embezzlement was more significant than on suicide. To the economist embezzlement is the most interesting of crimes. Alone among the various forms of larceny it has a time parameter. Weeks, months, or years may elapse between the commission of the crime and its discovery. (This is a period, incidentally, when the embezzler has his gain and the man who has been embezzled, oddly enough, feels no loss. There is a net increase in psychic wealth.)
At any given time there exists an inventory of undiscovered embezzlement in -- or more precisely not in -- the country's businesses and banks. This inventory -- it should perhaps be called the bezzle -- amounts at any moment to many millions of dollars. It also varies in size with the business cycle. In good times people are relaxed, trusting, and money is plentiful. But even though money is plentiful, there are always many people who ned more. Under these circumstances the rate of embezzlement grows, the rate of discovery falls off, and the bezzle increases rapidly. In depression all is reversed. Money is watched with a narrow, suspicious eye. The man who handles it is assumed to be dishonest until he proves himself otherwise. Audits are penetrating and meticulous. Commercial morality is enormously improved. The bezzle shrinks.
The stock market boom and the ensuing crash caused a traumatic exaggeration of these normal relationships. To the normal needs for money, for home, family and dissipation, was added, during the boom, the new and overwhelming requirement for funds to play the market or to meet margin calls. Money was exceptionally plentiful. People were also exceptionally trusting. A bank president who was himself trusting Kreuger, Hopson, and Insull was obviously unlikely to suspect his lifelong friend the cashier. In the late twenties the bezzle grew apace."
The negative wealth effect of the losses comming to light is massive.
Galbraith explains.
"In many ways the effect of the crash on embezzlement was more significant than on suicide. To the economist embezzlement is the most interesting of crimes. Alone among the various forms of larceny it has a time parameter. Weeks, months, or years may elapse between the commission of the crime and its discovery. (This is a period, incidentally, when the embezzler has his gain and the man who has been embezzled, oddly enough, feels no loss. There is a net increase in psychic wealth.)
At any given time there exists an inventory of undiscovered embezzlement in -- or more precisely not in -- the country's businesses and banks. This inventory -- it should perhaps be called the bezzle -- amounts at any moment to many millions of dollars. It also varies in size with the business cycle. In good times people are relaxed, trusting, and money is plentiful. But even though money is plentiful, there are always many people who ned more. Under these circumstances the rate of embezzlement grows, the rate of discovery falls off, and the bezzle increases rapidly. In depression all is reversed. Money is watched with a narrow, suspicious eye. The man who handles it is assumed to be dishonest until he proves himself otherwise. Audits are penetrating and meticulous. Commercial morality is enormously improved. The bezzle shrinks.
The stock market boom and the ensuing crash caused a traumatic exaggeration of these normal relationships. To the normal needs for money, for home, family and dissipation, was added, during the boom, the new and overwhelming requirement for funds to play the market or to meet margin calls. Money was exceptionally plentiful. People were also exceptionally trusting. A bank president who was himself trusting Kreuger, Hopson, and Insull was obviously unlikely to suspect his lifelong friend the cashier. In the late twenties the bezzle grew apace."
NYT ~ Satyam Chief Admits Huge Fraud
By HEATHER TIMMONS and BETTINA WASSENER
NEW DELHI — Satyam Computer Services, a leading Indian outsourcing company that serves more than a third of the Fortune 500 companies, significantly inflated its earnings and assets for years, the chairman and co-founder said Wednesday, roiling Indian stock markets and throwing the industry into turmoil.
The chairman, Ramalinga Raju, resigned after revealing that he had systematically falsified accounts as the company expanded from a handful of employees into a back-office giant with a work force of 53,000 and operations in 66 countries.
Mr. Raju said Wednesday that 50.4 billion rupees, or $1.04 billion, of the 53.6 billion rupees in cash and bank loans the company listed as assets for its second quarter, which ended in September, were nonexistent.
Revenue for the quarter was 20 percent lower than the 27 billion rupees reported, and the company’s operating margin was a fraction of what it declared, he said Wednesday in a letter to directors that was distributed by the Bombay Stock Exchange.
Satyam serves as the back office for some of the largest banks, manufacturers, health care and media companies in the world, handling everything from computer systems to customer service. Clients have included General Electric, General Motors, Nestlé and the United States government. In some cases, Satyam is even responsible for clients’ finances and accounting.
The revelations could cause a major shake-up in India’s enormous outsourcing industry, analysts said, and may force many large companies to investigate and perhaps revamp their back offices.
“This development is going to have a major impact on Satyam’s business with its clients,” said analysts with Religare Hichens Harrison on Wednesday. In the short term “we will see lot of Satyam’s clients migrating to competition like Infosys, TCS and Wipro,” they said. Satyam is the fourth-largest outsourcing firm after the three named.
In the four-and-a-half page letter distributed by the Bombay stock exchange, Mr. Raju described a small discrepancy that grew beyond his control. “What started as a marginal gap between actual operating profit and the one reflected in the books of accounts continued to grow over the years. It has attained unmanageable proportions as the size of company operations grew,” he wrote. “It was like riding a tiger, not knowing how to get off without being eaten.”
Mr. Raju said he had tried and failed to bridge the gap, including an effort in December to buy two construction firms in which the company’s founders held stakes. Speaking of a “deep regret” and a “tremendous burden,” Mr. Raju said that neither he nor the co-founder and managing director, B. Rama Raju, had “taken one rupee/dollar from the company.” He said the board had no knowledge of the situation, nor did his or the managing director’s families.
The size and scope of the fraud raises questions about regulatory oversight in India and beyond. In addition to India, Satyam has been listed on the New York Stock Exchange since 2001, and on Euronext since January of 2008. The company has been audited by PricewaterhouseCoopers since its listing on the New York Stock exchange.
Satyam has been under close scrutiny in recent months, after an October report that the company had been banned from World Bank contracts for installing spy software on some World Bank computers. Satyam denied the accusation but in December, the World Bank confirmed without elaboration on the cause that Satyam had been banned. Also in December, Satyam’s investors revolted after the company proposed buying two firms with ties to Mr. Raju’s sons.
On Dec. 30, analysts with Forrester Research warned that corporations that rely on Satyam might ultimately need to stop doing business with the company. “Firms should take the initial steps of reviewing the exit clauses in their current Satyam contracts,” in case management or direction of the company changed, Forrester said.
The scandal raised questions over accounting standards in India as a whole, as observers asked whether similar problems might lie buried elsewhere. The risk premium for Indian companies will rise in investors’ eyes, said Nilesh Jasani, India strategist at Credit Suisse.
R. K. Gupta, managing director at Taurus Asset Management in New Delhi, told Reuters: “If a company’s chairman himself says they built fictitious assets, who do you believe here?” The fraud has “put a question mark on the entire corporate governance system in India,” he said.
News of the scandal — quickly compared with the collapse of Enron — sent jitters through the Indian stock market, and the benchmark Sensex index fell more than 5 percent. Shares in Satyam fell more than 70 percent.
Just a few months ago, Mr. Raju was trying to persuade investors that the company was sound. In October, he surprised analysts with better-than-expected results, saying he was “pleased” that the company had “achieved this in a challenging global macroeconomic environment, and amidst the volatile currency scenario that became reality.”
But by late December, it seems he had little support from the board or investors, and four of the company’s directors resigned in recent weeks. Satyam recently retained Merrill Lynch for strategic advice, a move that is generally a precursor to a sale.
Mr. Raju said in his statement that he “sincerely apologized” to shareholders and employees and asked them to stand by the company. “I am now prepared to subject myself to the laws of the land and face consequences thereof,” he said.
Heather Timmons reported from New Delhi and Bettina Wassener from Hong Kong.
NEW DELHI — Satyam Computer Services, a leading Indian outsourcing company that serves more than a third of the Fortune 500 companies, significantly inflated its earnings and assets for years, the chairman and co-founder said Wednesday, roiling Indian stock markets and throwing the industry into turmoil.
The chairman, Ramalinga Raju, resigned after revealing that he had systematically falsified accounts as the company expanded from a handful of employees into a back-office giant with a work force of 53,000 and operations in 66 countries.
Mr. Raju said Wednesday that 50.4 billion rupees, or $1.04 billion, of the 53.6 billion rupees in cash and bank loans the company listed as assets for its second quarter, which ended in September, were nonexistent.
Revenue for the quarter was 20 percent lower than the 27 billion rupees reported, and the company’s operating margin was a fraction of what it declared, he said Wednesday in a letter to directors that was distributed by the Bombay Stock Exchange.
Satyam serves as the back office for some of the largest banks, manufacturers, health care and media companies in the world, handling everything from computer systems to customer service. Clients have included General Electric, General Motors, Nestlé and the United States government. In some cases, Satyam is even responsible for clients’ finances and accounting.
The revelations could cause a major shake-up in India’s enormous outsourcing industry, analysts said, and may force many large companies to investigate and perhaps revamp their back offices.
“This development is going to have a major impact on Satyam’s business with its clients,” said analysts with Religare Hichens Harrison on Wednesday. In the short term “we will see lot of Satyam’s clients migrating to competition like Infosys, TCS and Wipro,” they said. Satyam is the fourth-largest outsourcing firm after the three named.
In the four-and-a-half page letter distributed by the Bombay stock exchange, Mr. Raju described a small discrepancy that grew beyond his control. “What started as a marginal gap between actual operating profit and the one reflected in the books of accounts continued to grow over the years. It has attained unmanageable proportions as the size of company operations grew,” he wrote. “It was like riding a tiger, not knowing how to get off without being eaten.”
Mr. Raju said he had tried and failed to bridge the gap, including an effort in December to buy two construction firms in which the company’s founders held stakes. Speaking of a “deep regret” and a “tremendous burden,” Mr. Raju said that neither he nor the co-founder and managing director, B. Rama Raju, had “taken one rupee/dollar from the company.” He said the board had no knowledge of the situation, nor did his or the managing director’s families.
The size and scope of the fraud raises questions about regulatory oversight in India and beyond. In addition to India, Satyam has been listed on the New York Stock Exchange since 2001, and on Euronext since January of 2008. The company has been audited by PricewaterhouseCoopers since its listing on the New York Stock exchange.
Satyam has been under close scrutiny in recent months, after an October report that the company had been banned from World Bank contracts for installing spy software on some World Bank computers. Satyam denied the accusation but in December, the World Bank confirmed without elaboration on the cause that Satyam had been banned. Also in December, Satyam’s investors revolted after the company proposed buying two firms with ties to Mr. Raju’s sons.
On Dec. 30, analysts with Forrester Research warned that corporations that rely on Satyam might ultimately need to stop doing business with the company. “Firms should take the initial steps of reviewing the exit clauses in their current Satyam contracts,” in case management or direction of the company changed, Forrester said.
The scandal raised questions over accounting standards in India as a whole, as observers asked whether similar problems might lie buried elsewhere. The risk premium for Indian companies will rise in investors’ eyes, said Nilesh Jasani, India strategist at Credit Suisse.
R. K. Gupta, managing director at Taurus Asset Management in New Delhi, told Reuters: “If a company’s chairman himself says they built fictitious assets, who do you believe here?” The fraud has “put a question mark on the entire corporate governance system in India,” he said.
News of the scandal — quickly compared with the collapse of Enron — sent jitters through the Indian stock market, and the benchmark Sensex index fell more than 5 percent. Shares in Satyam fell more than 70 percent.
Just a few months ago, Mr. Raju was trying to persuade investors that the company was sound. In October, he surprised analysts with better-than-expected results, saying he was “pleased” that the company had “achieved this in a challenging global macroeconomic environment, and amidst the volatile currency scenario that became reality.”
But by late December, it seems he had little support from the board or investors, and four of the company’s directors resigned in recent weeks. Satyam recently retained Merrill Lynch for strategic advice, a move that is generally a precursor to a sale.
Mr. Raju said in his statement that he “sincerely apologized” to shareholders and employees and asked them to stand by the company. “I am now prepared to subject myself to the laws of the land and face consequences thereof,” he said.
Heather Timmons reported from New Delhi and Bettina Wassener from Hong Kong.
Bailout Cost Exceeds All American Wars
By Bethany Stotts | December 18, 2008
From CNS.com:
“The total value of the bailouts undertaken by the federal government in 2008 now exceeds the combined cost of every major war the United States has ever engaged in, according to a comparison of war costs calculated by the Congressional Research Service (CRS) and the value of the bailouts as calculated by Bloomberg News or Bianco Research.
According to CRS, all major U.S. wars (including such events as the American Revolution, the War of 1812, the Civil War, the Spanish American War, World War I, World War II, Korea, Vietnam, Iraq and Afghanistan, but not the invasion of Panama or the Kosovo War), cost a total of $7.2 trillion in inflation-adjusted 2008 dollars.
According to Bloomberg, the federal government has made commitments worth a total of $8.5 trillion in the bailouts of 2008. That includes actual expenditures as well as loan and asset guarantees.
Bianco Research puts the total value of the bailouts at $8.7 trillion.
The $296 billion spent on World War II, America’s most expensive war, would be $4.1 trillion adjusted to today’s dollars, according to the CRS report from June.
The adjusted cost of the Civil War would be $60.4 billion for both the Union and the Confederacy combined. The inflation-adjusted cost of the Vietnam War would be $686 billion. The cost of the current Iraq war up to last June was $648 billion, while the adjusted cost for Afghanistan to that point was $171 billion.
The total cost of the American Revolution was a relatively inexpensive $1.8 billion.”
This doesn’t necessarily count the $1 trillion “stimulus” bill that will come up in January or the additional $1 trillion that the Federal Reserve says it is likely to guarantee in the near future. From Marketwatch on December 16,
”The Fed’s balance sheet has risen to $2.25 trillion over the past two months from $850 billion and has made promises to spend about a $1 trillion more.
The Fed is using the money to ease strains in the market for the debt of Fannie Mae and Freddie Mac and mortgage-backed securities issued by these GSEs.
These purchases may be expanded, the Fed said.“The FOMC is also evaluating the potential benefits of purchasing longer-term Treasury securities,” the Fed said.
....By February, the Fed is also going to begin buying credit card debt and student loans.
This template could be expanded.
Under this plan, the Treasury is assuming the risk of loss while the Fed is making the purchases.”
Actually, the taxpayer is assuming the risk of loss while the Fed continues to make purchases.
From CNS.com:
“The total value of the bailouts undertaken by the federal government in 2008 now exceeds the combined cost of every major war the United States has ever engaged in, according to a comparison of war costs calculated by the Congressional Research Service (CRS) and the value of the bailouts as calculated by Bloomberg News or Bianco Research.
According to CRS, all major U.S. wars (including such events as the American Revolution, the War of 1812, the Civil War, the Spanish American War, World War I, World War II, Korea, Vietnam, Iraq and Afghanistan, but not the invasion of Panama or the Kosovo War), cost a total of $7.2 trillion in inflation-adjusted 2008 dollars.
According to Bloomberg, the federal government has made commitments worth a total of $8.5 trillion in the bailouts of 2008. That includes actual expenditures as well as loan and asset guarantees.
Bianco Research puts the total value of the bailouts at $8.7 trillion.
The $296 billion spent on World War II, America’s most expensive war, would be $4.1 trillion adjusted to today’s dollars, according to the CRS report from June.
The adjusted cost of the Civil War would be $60.4 billion for both the Union and the Confederacy combined. The inflation-adjusted cost of the Vietnam War would be $686 billion. The cost of the current Iraq war up to last June was $648 billion, while the adjusted cost for Afghanistan to that point was $171 billion.
The total cost of the American Revolution was a relatively inexpensive $1.8 billion.”
This doesn’t necessarily count the $1 trillion “stimulus” bill that will come up in January or the additional $1 trillion that the Federal Reserve says it is likely to guarantee in the near future. From Marketwatch on December 16,
”The Fed’s balance sheet has risen to $2.25 trillion over the past two months from $850 billion and has made promises to spend about a $1 trillion more.
The Fed is using the money to ease strains in the market for the debt of Fannie Mae and Freddie Mac and mortgage-backed securities issued by these GSEs.
These purchases may be expanded, the Fed said.“The FOMC is also evaluating the potential benefits of purchasing longer-term Treasury securities,” the Fed said.
....By February, the Fed is also going to begin buying credit card debt and student loans.
This template could be expanded.
Under this plan, the Treasury is assuming the risk of loss while the Fed is making the purchases.”
Actually, the taxpayer is assuming the risk of loss while the Fed continues to make purchases.
7 January 2009
Windschuttle's own goal with anti anti-science
Quadrant falls victim to its own reasoning, ain't we all so desperate to attend to what we want to hear, even nit picker conservatives like Windy. The following item is a classic one from today's Sydney Morning Herald.
A hoax aimed at Keith Windschuttle and Quadrant was elaborately
planned, writes David Marr.
AFTER a terrible two hours, Keith Windschuttle convinced himself he hadn't been hoaxed at all. He was greatly relieved. How embarrassing such a stumble could have been for this fierce nitpicker, scourge of sloppy academics and current editor of the conservative Quadrant magazine.
"It was a shock when I got the call," Windschuttle told the Herald. It came at 9.30 yesterday morning, warning him that an article in the current issue of his magazine was a fake perpetrated by the non-existent "Sharon Gould" posing as a 41-year-old New Yorker based in Brisbane. His heart sank but he got to work.
He had published "Scare campaigns and science reporting" without checking what he called the "nitty gritty" of its facts, and he had put it in the magazine without showing it to anyone familiar with its subject, genetic engineering. But in two busy hours yesterday he was able to satisfy himself the article was "only 10 to 15 per cent invented. When I discovered that my gloom and embarrassment changed completely."
After Margaret Simons broke the story in the online newsletter Crikey yesterday, Windschuttle hit back on his own website declaring the "Gould" article "simply a piece of fraudulent journalism submitted to Quadrant under false pretences". After a bit more thought he added that Crikey's editor, Jonathan Green, "should be aware that his publication's involvement in the manufacture of this story is unethical".
The hoax was beautifully done. Provoked by Quadrant's embrace of global warming sceptics, the unidentified hoaxer concocted the article early last year and sent it to Windschuttle. The aim was to "employ some of Quadrant's sleight-of-hand reasoning devices to argue something ludicrous", the hoaxer later wrote. "Something like the importance of putting human genes into food crops to save civilisation from its own ills, and how this sort of science shouldn't be scrutinised by the media because, you know, it's empirical."
She - or perhaps he - waited patiently until August before contacting Windschuttle and asking if Quadrant was interested. He had lost the article. Could she send it again? She did and he took it up enthusiastically. Windschuttle is right to say that it had every appearance of genuineness. It was a good hoax. But had he checked its key claims, the whole article would have unravelled.
The hoaxer wrote that "buried" in the footnotes of a scientific paper was the remarkable story that the CSIRO had been deterred from commercialising a great breakthrough in genetic engineering "because of perceived moral issues among the public". The paper exists. So do its authors. But it is not about genetic engineering, and as those familiar with scientific publications know, such papers never have footnotes.
Windschuttle didn't check the paper or ring the CSIRO. He says: "We're not a science journal." But in any case, he doesn't believe Quadrant has to check the facts in its articles. Though he has flayed historians for small errors in obscure footnotes in the past, he doesn't believe his handling of the article falls short of his own standards. "I am not the author in this case. I'm the editor."
The hoaxer reported on his or her blog: "So neatly did my essay conform with reactionary ideology that Quadrant, it seems, didn't even check the putative author's credentials."
Windschuttle, meanwhile, argues that only the name of the author was fake. "A real person wrote that article."
And real people wrote "Ern Malley's" poetry. Quadrant's first editor, James McAuley, was one of the perpetrators of that great hoax. Was Windschuttle willing to reflect on the ironies, the connections, the contrasts?
"I don't want to go there."
A hoax aimed at Keith Windschuttle and Quadrant was elaborately
planned, writes David Marr.
AFTER a terrible two hours, Keith Windschuttle convinced himself he hadn't been hoaxed at all. He was greatly relieved. How embarrassing such a stumble could have been for this fierce nitpicker, scourge of sloppy academics and current editor of the conservative Quadrant magazine.
"It was a shock when I got the call," Windschuttle told the Herald. It came at 9.30 yesterday morning, warning him that an article in the current issue of his magazine was a fake perpetrated by the non-existent "Sharon Gould" posing as a 41-year-old New Yorker based in Brisbane. His heart sank but he got to work.
He had published "Scare campaigns and science reporting" without checking what he called the "nitty gritty" of its facts, and he had put it in the magazine without showing it to anyone familiar with its subject, genetic engineering. But in two busy hours yesterday he was able to satisfy himself the article was "only 10 to 15 per cent invented. When I discovered that my gloom and embarrassment changed completely."
After Margaret Simons broke the story in the online newsletter Crikey yesterday, Windschuttle hit back on his own website declaring the "Gould" article "simply a piece of fraudulent journalism submitted to Quadrant under false pretences". After a bit more thought he added that Crikey's editor, Jonathan Green, "should be aware that his publication's involvement in the manufacture of this story is unethical".
The hoax was beautifully done. Provoked by Quadrant's embrace of global warming sceptics, the unidentified hoaxer concocted the article early last year and sent it to Windschuttle. The aim was to "employ some of Quadrant's sleight-of-hand reasoning devices to argue something ludicrous", the hoaxer later wrote. "Something like the importance of putting human genes into food crops to save civilisation from its own ills, and how this sort of science shouldn't be scrutinised by the media because, you know, it's empirical."
She - or perhaps he - waited patiently until August before contacting Windschuttle and asking if Quadrant was interested. He had lost the article. Could she send it again? She did and he took it up enthusiastically. Windschuttle is right to say that it had every appearance of genuineness. It was a good hoax. But had he checked its key claims, the whole article would have unravelled.
The hoaxer wrote that "buried" in the footnotes of a scientific paper was the remarkable story that the CSIRO had been deterred from commercialising a great breakthrough in genetic engineering "because of perceived moral issues among the public". The paper exists. So do its authors. But it is not about genetic engineering, and as those familiar with scientific publications know, such papers never have footnotes.
Windschuttle didn't check the paper or ring the CSIRO. He says: "We're not a science journal." But in any case, he doesn't believe Quadrant has to check the facts in its articles. Though he has flayed historians for small errors in obscure footnotes in the past, he doesn't believe his handling of the article falls short of his own standards. "I am not the author in this case. I'm the editor."
The hoaxer reported on his or her blog: "So neatly did my essay conform with reactionary ideology that Quadrant, it seems, didn't even check the putative author's credentials."
Windschuttle, meanwhile, argues that only the name of the author was fake. "A real person wrote that article."
And real people wrote "Ern Malley's" poetry. Quadrant's first editor, James McAuley, was one of the perpetrators of that great hoax. Was Windschuttle willing to reflect on the ironies, the connections, the contrasts?
"I don't want to go there."
Faint praise for Gold ~ it rose the least since 2004 but sell rallies
Fron todays SMH, quoted in full......
"Gold rose, erasing earlier losses, on speculation that the dollar's rally will stall, boosting the appeal of the precious metal as an alternative investment.
The dollar climbed as much as 1.7% against a weighted basket of six major currencies before paring gains. Gold, which generally moves in the opposite direction of the currency, last year rose the least since 2004 as the dollar advanced for the first time since 2005.
Gold turned when the dollar started to weaken, said Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago. The additional amount of money thats sloshing around the financial system will weaken the dollar.
Gold futures for February delivery rose $US8.20, or 1%, to $US866 an ounce on the New York Mercantile Exchanges Comex division, after earlier touching $US838.80, the lowest in more than a week. The metal rose 5.5% in 2008.
Silver futures for March delivery rose 17.5 cents, or 1.5%, to $US11.445 an ounce. The metal fell 24% last year.
The US government has pledged more than $US8.5 trillion as of Nov. 25 to bail out financial companies and help the country recover from a recession. A Democratic aide said President-elect Barack Obama favors a $US775 billion stimulus package to revive the economy.
Golds gains accelerated after testing the 200-day moving average and rebounding, a bullish signal to some traders who look at historical price charts.
Gold touched the 200-day moving average and didnt fall apart, McGhee said.
Sell on Rallies
Still, gold should be sold into rallies, some analysts said. Societe Generale predicted gold will average $US650 an ounce this year. Gold futures averaged about $US874 last year.
Deleveraging in the first half of this year will keep gold under some pressure and rallies may be false dawns, analysts at Societe Generale said today in a report.
Some investors bought platinum on speculation that government bailouts of US automakers and proposed tax cuts for consumers will revive demand for cars. US car and light truck sales plunged 36% last month, capping the worst year since 1992.
Silver, platinum, and palladium, which all have wider industrial applications than gold, had annual declines last year.
About 60% of platinum is used in pollution-control parts for car and truck engines. The metal tumbled 38% last year while palladium lost 50%.
Platinum futures for April delivery rose $US10.60, or 1.1%, to $US968.20 an ounce on Nymex. Palladium futures for March delivery gained $US14.10, or 7.6%, to $US199.05 an ounce."
"Gold rose, erasing earlier losses, on speculation that the dollar's rally will stall, boosting the appeal of the precious metal as an alternative investment.
The dollar climbed as much as 1.7% against a weighted basket of six major currencies before paring gains. Gold, which generally moves in the opposite direction of the currency, last year rose the least since 2004 as the dollar advanced for the first time since 2005.
Gold turned when the dollar started to weaken, said Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago. The additional amount of money thats sloshing around the financial system will weaken the dollar.
Gold futures for February delivery rose $US8.20, or 1%, to $US866 an ounce on the New York Mercantile Exchanges Comex division, after earlier touching $US838.80, the lowest in more than a week. The metal rose 5.5% in 2008.
Silver futures for March delivery rose 17.5 cents, or 1.5%, to $US11.445 an ounce. The metal fell 24% last year.
The US government has pledged more than $US8.5 trillion as of Nov. 25 to bail out financial companies and help the country recover from a recession. A Democratic aide said President-elect Barack Obama favors a $US775 billion stimulus package to revive the economy.
Golds gains accelerated after testing the 200-day moving average and rebounding, a bullish signal to some traders who look at historical price charts.
Gold touched the 200-day moving average and didnt fall apart, McGhee said.
Sell on Rallies
Still, gold should be sold into rallies, some analysts said. Societe Generale predicted gold will average $US650 an ounce this year. Gold futures averaged about $US874 last year.
Deleveraging in the first half of this year will keep gold under some pressure and rallies may be false dawns, analysts at Societe Generale said today in a report.
Some investors bought platinum on speculation that government bailouts of US automakers and proposed tax cuts for consumers will revive demand for cars. US car and light truck sales plunged 36% last month, capping the worst year since 1992.
Silver, platinum, and palladium, which all have wider industrial applications than gold, had annual declines last year.
About 60% of platinum is used in pollution-control parts for car and truck engines. The metal tumbled 38% last year while palladium lost 50%.
Platinum futures for April delivery rose $US10.60, or 1.1%, to $US968.20 an ounce on Nymex. Palladium futures for March delivery gained $US14.10, or 7.6%, to $US199.05 an ounce."
We need a new story...a list thread considers
"We need a new Story." CarryOnMyWaywardSon NEW 1/5/2009 8:05:21 PM
According to Deepak Chopra and Grant Morrison, the current Story is not serving us well. We need a new one.
RE: Very nicely worded Calvin Bear NEW 1/5/2009 8:20:07 PM
I like the idea that some religions are ' more adaptive...' Logically, such religions - if really existing - might, be more akin to Universal Nature as we can observe it as scientists. But is is all a question of degree - some of the Universe is continuously adapting to a kind of change, and some is not.
Of course the trouble with words is that they represent a kind of Venn diagram of idea-meaning:
"Islamic civilisation remains the great frustration of word polity." To which someone in the Arab world may well rejoin "Zionist civilisation remains the great frustration of world polity!"
These ways of discussing such questions are just mathematical observations.
Yet, whilst mathematical, they are also under-evolved mathematics; arithmetical and not yet astro-physical, to extend the metaphor.
You cannot get away from some treatment of socio-religious stances in peoples of nationstates when you consider economics. And to some extent even Marxism is a religion - or has become one at least.
But I think one has to consider this precise moment in our lives as another one of those great phases where the facades supported by flawed systems crack irretrievably. As they did in Rome, the fashionable religious ideas give way to new ideas. Much remains but fundamentals change wholly.
The contemporary concept of monolithic economics, monolithic democratic politics, monolithic 'great' religions are all part of the facade that has cracked.
As in the most basic finance, it does or it does not (serve as tender) - it does or it does not satisfy the inner human being, it does or it does not provide any divine sense...
God has to enter the microchip, to be current.
Calvin J. Bear
RE: This is why I love Zoroastrians white_bear NEW 1/5/2009 8:23:10 PM
Not only do they not proselytize, but they refuse to accept converts.
If only all religions operated that way.
RE: By the way - Spengler is wrong here white_bear NEW 1/5/2009 9:23:16 PM
In my opinion, the connection between biology and existence will be severed within the next century. The workings of the brain are being decoded at a rapid rate, and the methods by which individual neurons interact to form a mind is slowly being prized apart.
I expect that by the end of this century, it will be technologically possible to re-create the function of the human brain without the actual body. Here there will be people "alive", whose biological form died long long ago. And there will also maybe be "people" who never had biological form.
At that time, having more resources will again translate directly into having more physical (although not necessarily biological) presence.
RE: The real tragedy of nutjobs.... white_bear NEW 1/5/2009 9:43:22 PM
...is not just that they imagine pathetic wackoisms that couldn't exist in reality.
The real tragedy is that they are unable to grasp the wonders that actually are possible.
RE: why would white bear need to explain that? SugarMagnolia NEW 1/5/2009 9:54:18 PM
that association between the Fed and Govt is has been established by many sources to the point where it's not even questioned, except by idiots with their head buried in mammalian fertilizer.
RE: why would white bear need to explain that? SugarMagnolia NEW 1/5/2009 9:54:18 PM
that association between the Fed and Govt is has been established by many sources to the point where it's not even questioned, except by idiots with their head buried in mammalian fertilizer.
RE: Somebody has stolen orginal "White Bear" screen na... mickey mouse NEW 1/5/2009 9:52:03 PM
This "White Bear" is a fake. Notice that there are two spaces between "White" and "Bear." That's how the screen name was stolen.
RE: who the heck is fred? SugarMagnolia NEW 1/5/2009 9:54:40 PM
RE: A long list of Banned User Identities SugarMagnolia NEW 1/5/2009 10:02:40 PM
who the heck is Lee?
Lee Atwater? Lee Majors? Robert E. Lee?
RE: Equal time SS aussiebear NEW 1/5/2009 10:20:44 PM
Post some more links to Miers spaceships. Fact is, I couldn't characterise my attitude to your views better myself, even if I disagree with wb often enough.
RE: I agree with White bear and Calvin aussiebear NEW 1/5/2009 10:15:03 PM
Much more than the detractors, anyway.
Islam was once very progressive, it preserved the Greek classics for us and bought us news of zero. Non catholics and Jews were much safer in classic Islamic civilisation than the Holy roman empire and fled the west if they could.
The crusades and the mongols destroyed their confidence but post colonalism it is the only common thread around which to organise resistance to both modernity and western economic interests. It will not last.
Any great new civilisation of the future will have a religion to suit, quite probably one where god and the microchip go well together and possibly one with a host of unembodied people available to consult. Like a library, only more complex. In fact White bears notion is not that different, one of degree, not kind, in the final analysis.
I find the same people who insist that human consciousness can't run on another substrate are the same ones who insist it can run without any substrate at all.
White bears imagination is not at least fatally wounded by silly certainies and reworked verities.
RE: Is that the real White bear.. aussiebear NEW 1/5/2009 10:23:10 PM
Of course it is. Don't you recognise the beast by its roar. Unmistakable.
RE: Any religion is a waste of time and resources Yogibear101 NEW 1/5/2009 10:41:44 PM
...let alone human life. Kill in the name of god? Yeah, right.
RE: Any religion is a waste of time and resources Bigfoot NEW 1/5/2009 11:00:50 PM
"Praise the Lord and pass the ammunition."
RE: Religions are an endangered species. smokey NEW 1/5/2009 11:03:46 PM
The old Rosicrucians taught that mankind emerged from the animal kingdom as a species-centered order.
Animal species are led through instinct.
Species' instinct is an innate connection to an invisible hierarchy -- a metaphysical government which dictates to each member of the species what actions to take to promote the survival of the species.
However due to the higher consciousness, or the capacity-to-think of the new human species, this metaphysical government faded into a more physical government which took the form of a tribal form of culture.
Within these tribes were the medicine men, or sorcerers which had the ability to bridge the gap between the metaphysical realm or species instinct and the physical realm of thought/action. These tribes were led in spirit through the tribal chiefs. Like wild animals, they knew where to go, what to do, what to eat -- essentially how to live.
As mankind's consciousness (capacity to think) developed, this tribal format was replaced by the more verbal construct of city/state government. To bridge the mental gap between the metaphysical, invisible world of the sorcerers and the more material world, religions were established wherein the anointed few were believed to have direct communication with the invisible authorities. These anointed few then directed the actions of the masses through supposedly divine laws.
We are at the point now where mankind's capacity to think has developed beyond the reality of physical hierarchies. Technology has presented the possibility that each and every individual has the ability maintain a connection to a higher intelligence which can dictate action directly. This growing individualism is replacing all other "isms" created by cultural doctrine.
Religions are going the way of tribes. Individualism is replacing the need for any type of external government whether it be religion, nation or family.
As the current cultural establishment collapses under the weight of human evolution, the personal government of each individual will replace all other hierarchies. This personal government will be tempered by each individual's need to get along with other individuals in order to survive.
The 60's hippie days were a rehearsal (hopefully not "dress").
The real movie is about to roll.....
Babe.
0.
RE: Religions will die at first contact Yogibear101 NEW 1/5/2009 11:08:03 PM
...with an alien race. Ask sheeple.
RE: I dunno. Evangelicals will probably try to... CarryOnMyWaywardSon NEW 1/5/2009 11:28:20 PM
... convert the aliens.
According to Deepak Chopra and Grant Morrison, the current Story is not serving us well. We need a new one.
RE: Very nicely worded Calvin Bear NEW 1/5/2009 8:20:07 PM
I like the idea that some religions are ' more adaptive...' Logically, such religions - if really existing - might, be more akin to Universal Nature as we can observe it as scientists. But is is all a question of degree - some of the Universe is continuously adapting to a kind of change, and some is not.
Of course the trouble with words is that they represent a kind of Venn diagram of idea-meaning:
"Islamic civilisation remains the great frustration of word polity." To which someone in the Arab world may well rejoin "Zionist civilisation remains the great frustration of world polity!"
These ways of discussing such questions are just mathematical observations.
Yet, whilst mathematical, they are also under-evolved mathematics; arithmetical and not yet astro-physical, to extend the metaphor.
You cannot get away from some treatment of socio-religious stances in peoples of nationstates when you consider economics. And to some extent even Marxism is a religion - or has become one at least.
But I think one has to consider this precise moment in our lives as another one of those great phases where the facades supported by flawed systems crack irretrievably. As they did in Rome, the fashionable religious ideas give way to new ideas. Much remains but fundamentals change wholly.
The contemporary concept of monolithic economics, monolithic democratic politics, monolithic 'great' religions are all part of the facade that has cracked.
As in the most basic finance, it does or it does not (serve as tender) - it does or it does not satisfy the inner human being, it does or it does not provide any divine sense...
God has to enter the microchip, to be current.
Calvin J. Bear
RE: This is why I love Zoroastrians white_bear NEW 1/5/2009 8:23:10 PM
Not only do they not proselytize, but they refuse to accept converts.
If only all religions operated that way.
RE: By the way - Spengler is wrong here white_bear NEW 1/5/2009 9:23:16 PM
In my opinion, the connection between biology and existence will be severed within the next century. The workings of the brain are being decoded at a rapid rate, and the methods by which individual neurons interact to form a mind is slowly being prized apart.
I expect that by the end of this century, it will be technologically possible to re-create the function of the human brain without the actual body. Here there will be people "alive", whose biological form died long long ago. And there will also maybe be "people" who never had biological form.
At that time, having more resources will again translate directly into having more physical (although not necessarily biological) presence.
RE: The real tragedy of nutjobs.... white_bear NEW 1/5/2009 9:43:22 PM
...is not just that they imagine pathetic wackoisms that couldn't exist in reality.
The real tragedy is that they are unable to grasp the wonders that actually are possible.
RE: why would white bear need to explain that? SugarMagnolia NEW 1/5/2009 9:54:18 PM
that association between the Fed and Govt is has been established by many sources to the point where it's not even questioned, except by idiots with their head buried in mammalian fertilizer.
RE: why would white bear need to explain that? SugarMagnolia NEW 1/5/2009 9:54:18 PM
that association between the Fed and Govt is has been established by many sources to the point where it's not even questioned, except by idiots with their head buried in mammalian fertilizer.
RE: Somebody has stolen orginal "White Bear" screen na... mickey mouse NEW 1/5/2009 9:52:03 PM
This "White Bear" is a fake. Notice that there are two spaces between "White" and "Bear." That's how the screen name was stolen.
RE: who the heck is fred? SugarMagnolia NEW 1/5/2009 9:54:40 PM
RE: A long list of Banned User Identities SugarMagnolia NEW 1/5/2009 10:02:40 PM
who the heck is Lee?
Lee Atwater? Lee Majors? Robert E. Lee?
RE: Equal time SS aussiebear NEW 1/5/2009 10:20:44 PM
Post some more links to Miers spaceships. Fact is, I couldn't characterise my attitude to your views better myself, even if I disagree with wb often enough.
RE: I agree with White bear and Calvin aussiebear NEW 1/5/2009 10:15:03 PM
Much more than the detractors, anyway.
Islam was once very progressive, it preserved the Greek classics for us and bought us news of zero. Non catholics and Jews were much safer in classic Islamic civilisation than the Holy roman empire and fled the west if they could.
The crusades and the mongols destroyed their confidence but post colonalism it is the only common thread around which to organise resistance to both modernity and western economic interests. It will not last.
Any great new civilisation of the future will have a religion to suit, quite probably one where god and the microchip go well together and possibly one with a host of unembodied people available to consult. Like a library, only more complex. In fact White bears notion is not that different, one of degree, not kind, in the final analysis.
I find the same people who insist that human consciousness can't run on another substrate are the same ones who insist it can run without any substrate at all.
White bears imagination is not at least fatally wounded by silly certainies and reworked verities.
RE: Is that the real White bear.. aussiebear NEW 1/5/2009 10:23:10 PM
Of course it is. Don't you recognise the beast by its roar. Unmistakable.
RE: Any religion is a waste of time and resources Yogibear101 NEW 1/5/2009 10:41:44 PM
...let alone human life. Kill in the name of god? Yeah, right.
RE: Any religion is a waste of time and resources Bigfoot NEW 1/5/2009 11:00:50 PM
"Praise the Lord and pass the ammunition."
RE: Religions are an endangered species. smokey NEW 1/5/2009 11:03:46 PM
The old Rosicrucians taught that mankind emerged from the animal kingdom as a species-centered order.
Animal species are led through instinct.
Species' instinct is an innate connection to an invisible hierarchy -- a metaphysical government which dictates to each member of the species what actions to take to promote the survival of the species.
However due to the higher consciousness, or the capacity-to-think of the new human species, this metaphysical government faded into a more physical government which took the form of a tribal form of culture.
Within these tribes were the medicine men, or sorcerers which had the ability to bridge the gap between the metaphysical realm or species instinct and the physical realm of thought/action. These tribes were led in spirit through the tribal chiefs. Like wild animals, they knew where to go, what to do, what to eat -- essentially how to live.
As mankind's consciousness (capacity to think) developed, this tribal format was replaced by the more verbal construct of city/state government. To bridge the mental gap between the metaphysical, invisible world of the sorcerers and the more material world, religions were established wherein the anointed few were believed to have direct communication with the invisible authorities. These anointed few then directed the actions of the masses through supposedly divine laws.
We are at the point now where mankind's capacity to think has developed beyond the reality of physical hierarchies. Technology has presented the possibility that each and every individual has the ability maintain a connection to a higher intelligence which can dictate action directly. This growing individualism is replacing all other "isms" created by cultural doctrine.
Religions are going the way of tribes. Individualism is replacing the need for any type of external government whether it be religion, nation or family.
As the current cultural establishment collapses under the weight of human evolution, the personal government of each individual will replace all other hierarchies. This personal government will be tempered by each individual's need to get along with other individuals in order to survive.
The 60's hippie days were a rehearsal (hopefully not "dress").
The real movie is about to roll.....
Babe.
0.
RE: Religions will die at first contact Yogibear101 NEW 1/5/2009 11:08:03 PM
...with an alien race. Ask sheeple.
RE: I dunno. Evangelicals will probably try to... CarryOnMyWaywardSon NEW 1/5/2009 11:28:20 PM
... convert the aliens.
6 January 2009
Flee the US dollar and US Treasuries
Teo items today on the subject. The final bubble is getting ready to burst. Expect inflation and rising rates driven in the US, UK and australian cases by a falling currency. Consider gold and silver...
Item 1.
The long-held assumption that US assets - particularly government bonds - are a safe haven will soon be overturned as investors lose their patience with the world's biggest economy, according to Willem Buiter.
Professor Buiter, a former Monetary Policy Committee member who is now at the London School of Economics, said this increasing disenchantment would result in an exodus of foreign cash from the US.
The warning comes despite the dollar having strengthened significantly against other major currencies, including sterling and the euro, after hitting historic lows last year. It will reignite fears about the currency's prospects, as well as sparking fears about the sustainability of President-Elect Barack Obama's mooted plans for a Keynesian-style increase in public spending to pull the US out of recession.
Writing on his blog, Prof Buiter said: "There will, before long (my best guess is between two and five years from now) be a global dumping of US dollar assets, including US government assets. Old habits die hard. The US dollar and US Treasury bills and bonds are still viewed as a safe haven by many. But learning takes place."
He said that the dollar had been kept elevated in recent years by what some called "dark matter" or "American alpha" - an assumption that the US could earn more on its overseas investments than foreign investors could make on their American assets. However, this notion had been gradually dismantled in recent years, before being dealt a fatal blow by the current financial crisis, he said.
"The past eight years of imperial overstretch, hubris and domestic and international abuse of power on the part of the Bush administration has left the US materially weakened financially, economically, politically and morally," he said. "Even the most hard-nosed, Guantanamo Bay-indifferent potential foreign investor in the US must recognise that its financial system has collapsed."
He said investors would, rightly, suspect that the US would have to generate major inflation to whittle away its debt and this dollar collapse means that the US has less leeway for major spending plans than politicians realise.
Item 2
Jan. 5 (Bloomberg) -- Wall Street’s biggest bond firms say Treasuries will fall for the first time in a decade as efforts to spur the economy gain traction and the flight to safety that drove the best returns in government debt since 1995 wanes.
Benchmark 10-year notes may lose 3.5 percent this year, the first loss since declining 8.3 percent in 1999, based on the median forecast of the 17 primary government security dealers that trade with the Federal Reserve. After last year’s rally, yields are so low coupon payments can’t make up for any drop in bond prices, they said.
“We could start to see stability sooner than the market would otherwise expect,” said William O’Donnell, a U.S. government bond strategist at UBS Securities LLC in Stamford, Connecticut, one of the dealers and a unit of Switzerland’s biggest bank. “As the pendulum swings from risk aversion to risk seeking that will reduce Treasury demand.”
The last time investors lost money on U.S. government bonds was the year after the 1998 bailout of hedge fund Long-Term Capital Management LP and Russia’s default sent investors rushing to Treasuries. Yields on 10-year notes rose to 6.44 percent in 1999 from 4.65 percent.
This year, 10-year notes will rise to 3 percent after ending at 2.21 percent in 2008, when the government had to rescue the U.S. banking system and Lehman Brothers Holdings Inc. collapsed, according to the survey. Two-year notes will increase to 1.2 percent from 0.77 percent, the dealers said. O’Donnell expects 10-year notes to jump to 2.75 percent and two-year rates to surge to 2.25 percent.
Ten-year yields climbed 10 basis points to 2.47 percent by 9:05 a.m. in New York. That’s the highest level since Dec. 16. Two-year note yields rose two basis points to 0.84 percent.
‘Massive Supply’
Bond firms are turning bearish because the government’s efforts to prop up the financial system and spend its way out of the worst recession in 25 years will lead to record debt sales in 2009. Returns may also be hurt in 2010 as attempts to flood the market with cash reignite inflation.
President-elect Barack Obama’s stimulus, which may total $850 billion, and the already-passed $700 billion bank-rescue bill, will force the U.S. to borrow as much as $2 trillion in the 12 months ending Sept. 30, 2009, Treasury Assistant Secretary Karthik Ramanathan said Dec. 10, citing analysts’ estimates. That compares with $892 billion in notes and bonds sold during the last fiscal year.
“We are coming with a massive supply of Treasuries and the question is who is going to own them,” said Dominic Konstam, head of interest-rate strategy at Credit Suisse Securities USA LLC in New York.
Forecasts Wrong
Dealers see parallels to 1998, when 10-year note yields dropped as low as 4.16 percent after Long-Term Capital lost $4 billion and Russia defaulted. U.S. debt returned 10 percent, before losing 2.38 percent in 1999.
Wall Street got its forecast wrong last year. Primary dealers said 10-year yields would rise to 4.30 percent as the economy skirted a recession, according to a Bloomberg News survey.
Instead, investors piled into government debt to flee riskier assets as the economy entered its first recession since 2001, while losses and writedowns at financial companies rose to $1 trillion, according to data compiled by Bloomberg. Treasuries returned 14 percent, indexes compiled by New York-based Merrill Lynch & Co. show.
Government bonds outperformed the Standard & Poor’s 500 Index by 53 percentage points, the widest margin since Merrill Lynch started calculating fixed-income returns in 1978.
Zero Yields
Treasuries may surprise dealers again should the recession prevent inflation from accelerating and keep investors from buying higher-yielding assets, said Kevin Logan, senior market economist in New York at Dresdner Kleinwort. Dresdner, a unit of Frankfurt-based Commerzbank AG, expects two-year yields to reach 1.20 percent.
“There’s no secret that the deficit will be $1 trillion and yet still yields on T-bills are at zero,” Logan said.
Traders’ expectations for inflation over the next decade are near the lowest on record, based on the 0.11 percentage- point gap between yields on 10-year Treasury Inflation Protected Securities, or TIPS, and notes with the same maturity. The gap briefly turned negative in December as investors predicted deflation.
Investor concerns about more credit-market turmoil remain elevated even after markets calmed in November and December. Rates on three-month Treasury bills turned negative last month, falling as low as minus 0.04 percent on Dec. 4.
TED Spread
Three-month bill rates are at 0.086 percent, compared with 3.38 percent at the start of 2008. While the difference between what it costs banks and the government to borrow for three months narrowed to 1.33 percentage points from 4.64 percentage points in September, the so-called TED spread remains above the average of 0.32 percentage point this decade before credit markets began to seize up in the second half of 2007.
Japan shows that yields can stay low even as the government steps up sales. While the country’s government bond market is the world’s biggest, at about $8.7 trillion, or more than 1.5 times gross domestic product, 10-year government bond yields are 1.17 percent. The U.S. market totals about $5.8 trillion, or 42 percent of GDP.
Policymakers in Japan drove long-term yields lower to counter deflation in the 1990s through a policy of so-called quantitative easing in which the central bank bought government securities. The Fed announced plans to buy up to $700 billion in bonds backed by home and consumer loans and said in December that it may purchase longer-maturity Treasuries.
Buying Treasuries
“It’s more likely than not that they buy” Treasuries, Bruce Kasman, chief economist at JPMorgan Chase & Co. in New York, said in a Dec. 19 interview. “It will be a strategy, in a world where the economy is going to be in recession for the first half of the year, to keep long-term interest rates low.”
JPMorgan, one of the two firms most bullish on U.S. debt, expects two-year yields to fall to 0.5 percent. Merrill Lynch chief North American economist David Rosenberg forecast a decline to 0.4 percent. Merrill Lynch sees the 10-year yield at 1.50 percent, and JPMorgan expects it to drop to 1.65 percent.
None of the 62 economists polled by Bloomberg a year ago expected 10-year yields to end 2008 below 3.5 percent. Rosenberg, who called the recession that was officially declared to have started in December 2007, predicted a yield of 3.7 percent.
The economy will likely shrink by 1 percent this year after expanding 1.2 percent in 2008, according to the median estimate of 58 economists surveyed by Bloomberg. By year-end, the economy may be growing at a 1.8 percent pace, the survey shows.
Best Month
Unlike a year ago, the Fed has no more room to cut borrowing costs after slashing its target interest rate for overnight loans between banks to as low as zero from 4.25 percent. All of the firms surveyed expect the Fed to keep rates at the current level through 2009.
Record low yields are encouraging some investors to buy assets offering greater returns.
After reaching the highest yields on record relative to Treasuries in early December, investment-grade company bonds returned 6.1 percent, the best month since May 1985, while speculative-grade debt gained 6.6 percent, the most since February 1991, Merrill Lynch indexes show. Yields on Fannie Mae, Freddie Mac and Ginnie Mae mortgage bonds declined to record lows last week after the Fed announced plans to buy $500 billion of the securities sooner than expected.
Foreign Investors
U.S. stocks and corporate debt will beat Treasuries in 2009 as economic growth revives, Bob Doll, the chief investment officer of global equities at New York-based BlackRock Inc., said in a Bloomberg Television interview Dec. 18. BlackRock manages $502 billion in bonds.
Zurich-based Credit Suisse, the most bearish of the dealers, expects foreign investors that hold a majority of all U.S. government debt to buy fewer Treasuries, or even sell the securities, as the dollar depreciates, Konstam said. Ten-year yields will rise to 4.25 percent, with two-year yields reaching 1.75 percent, Konstam forecast.
China, which owns $652.9 billion of Treasuries, more than any other foreign country, cut the share of dollars in its $1.9 trillion of reserves to about 45 percent this year from more than 70 percent in 2003, Deutsche Bank AG in Frankfurt estimates.
‘Substantial Reversal’
Treasury 10-year yields may undergo a “substantial reversal” in the first quarter because past trading patterns suggest 2008’s gains are “not sustainable,” a team led by Jordan Kotick, global head of technical strategy at Barclays in New York, wrote in a research report Dec. 22.
Fund managers have never been more bearish on Treasuries, according to Ried, Thunberg & Co. The Jersey City, New Jersey- based research firm’s sentiment index fell to a record low 35 in its survey dated Jan. 5. A reading below 50 means that investors expect bond prices to fall through June.
“We are going through the worst part of the downturn,” said Michael Moran, chief economist at Daiwa Securities America Inc. in New York. “Right now there is this flight to quality happening and I think over time that will fade; interest rates will likely increase.”
Following are the results of Bloomberg’s survey, conducted from Dec. 19 to Dec. 31:
Firm Fed 2s 10s BNP Paribas 0.25 1.4 2.7 Banc of America NA 1.8 3.1 Barclays Capital 0-0.25 0.7 3.3 Cantor Fitzgerald 0-0.25 1 3 Citigroup NA NA 3 Credit Suisse NA 1.75 4.25 Daiwa Securities 0-0.25 1.6 2.9 Deutsche Bank 0-0.25 0.75 2.50 Dresdner Kleinwort 0-0.25 1.2 3 Goldman Sachs 0.13 0.75 3.2 HSBC Securities 0-0.25 NA 2 JPMorgan 0-0.25 0.5 1.65 Merrill Lynch 0-0.25 0.4 1.5 Mizuho 0-0.25 1 2.1 Morgan Stanley 0.10 1.25 3.25 RBS Greenwich Capital 0-0.25 1.35 3.60 UBS 0-0.25 2.25 2.75
Item 1.
The long-held assumption that US assets - particularly government bonds - are a safe haven will soon be overturned as investors lose their patience with the world's biggest economy, according to Willem Buiter.
Professor Buiter, a former Monetary Policy Committee member who is now at the London School of Economics, said this increasing disenchantment would result in an exodus of foreign cash from the US.
The warning comes despite the dollar having strengthened significantly against other major currencies, including sterling and the euro, after hitting historic lows last year. It will reignite fears about the currency's prospects, as well as sparking fears about the sustainability of President-Elect Barack Obama's mooted plans for a Keynesian-style increase in public spending to pull the US out of recession.
Writing on his blog, Prof Buiter said: "There will, before long (my best guess is between two and five years from now) be a global dumping of US dollar assets, including US government assets. Old habits die hard. The US dollar and US Treasury bills and bonds are still viewed as a safe haven by many. But learning takes place."
He said that the dollar had been kept elevated in recent years by what some called "dark matter" or "American alpha" - an assumption that the US could earn more on its overseas investments than foreign investors could make on their American assets. However, this notion had been gradually dismantled in recent years, before being dealt a fatal blow by the current financial crisis, he said.
"The past eight years of imperial overstretch, hubris and domestic and international abuse of power on the part of the Bush administration has left the US materially weakened financially, economically, politically and morally," he said. "Even the most hard-nosed, Guantanamo Bay-indifferent potential foreign investor in the US must recognise that its financial system has collapsed."
He said investors would, rightly, suspect that the US would have to generate major inflation to whittle away its debt and this dollar collapse means that the US has less leeway for major spending plans than politicians realise.
Item 2
Jan. 5 (Bloomberg) -- Wall Street’s biggest bond firms say Treasuries will fall for the first time in a decade as efforts to spur the economy gain traction and the flight to safety that drove the best returns in government debt since 1995 wanes.
Benchmark 10-year notes may lose 3.5 percent this year, the first loss since declining 8.3 percent in 1999, based on the median forecast of the 17 primary government security dealers that trade with the Federal Reserve. After last year’s rally, yields are so low coupon payments can’t make up for any drop in bond prices, they said.
“We could start to see stability sooner than the market would otherwise expect,” said William O’Donnell, a U.S. government bond strategist at UBS Securities LLC in Stamford, Connecticut, one of the dealers and a unit of Switzerland’s biggest bank. “As the pendulum swings from risk aversion to risk seeking that will reduce Treasury demand.”
The last time investors lost money on U.S. government bonds was the year after the 1998 bailout of hedge fund Long-Term Capital Management LP and Russia’s default sent investors rushing to Treasuries. Yields on 10-year notes rose to 6.44 percent in 1999 from 4.65 percent.
This year, 10-year notes will rise to 3 percent after ending at 2.21 percent in 2008, when the government had to rescue the U.S. banking system and Lehman Brothers Holdings Inc. collapsed, according to the survey. Two-year notes will increase to 1.2 percent from 0.77 percent, the dealers said. O’Donnell expects 10-year notes to jump to 2.75 percent and two-year rates to surge to 2.25 percent.
Ten-year yields climbed 10 basis points to 2.47 percent by 9:05 a.m. in New York. That’s the highest level since Dec. 16. Two-year note yields rose two basis points to 0.84 percent.
‘Massive Supply’
Bond firms are turning bearish because the government’s efforts to prop up the financial system and spend its way out of the worst recession in 25 years will lead to record debt sales in 2009. Returns may also be hurt in 2010 as attempts to flood the market with cash reignite inflation.
President-elect Barack Obama’s stimulus, which may total $850 billion, and the already-passed $700 billion bank-rescue bill, will force the U.S. to borrow as much as $2 trillion in the 12 months ending Sept. 30, 2009, Treasury Assistant Secretary Karthik Ramanathan said Dec. 10, citing analysts’ estimates. That compares with $892 billion in notes and bonds sold during the last fiscal year.
“We are coming with a massive supply of Treasuries and the question is who is going to own them,” said Dominic Konstam, head of interest-rate strategy at Credit Suisse Securities USA LLC in New York.
Forecasts Wrong
Dealers see parallels to 1998, when 10-year note yields dropped as low as 4.16 percent after Long-Term Capital lost $4 billion and Russia defaulted. U.S. debt returned 10 percent, before losing 2.38 percent in 1999.
Wall Street got its forecast wrong last year. Primary dealers said 10-year yields would rise to 4.30 percent as the economy skirted a recession, according to a Bloomberg News survey.
Instead, investors piled into government debt to flee riskier assets as the economy entered its first recession since 2001, while losses and writedowns at financial companies rose to $1 trillion, according to data compiled by Bloomberg. Treasuries returned 14 percent, indexes compiled by New York-based Merrill Lynch & Co. show.
Government bonds outperformed the Standard & Poor’s 500 Index by 53 percentage points, the widest margin since Merrill Lynch started calculating fixed-income returns in 1978.
Zero Yields
Treasuries may surprise dealers again should the recession prevent inflation from accelerating and keep investors from buying higher-yielding assets, said Kevin Logan, senior market economist in New York at Dresdner Kleinwort. Dresdner, a unit of Frankfurt-based Commerzbank AG, expects two-year yields to reach 1.20 percent.
“There’s no secret that the deficit will be $1 trillion and yet still yields on T-bills are at zero,” Logan said.
Traders’ expectations for inflation over the next decade are near the lowest on record, based on the 0.11 percentage- point gap between yields on 10-year Treasury Inflation Protected Securities, or TIPS, and notes with the same maturity. The gap briefly turned negative in December as investors predicted deflation.
Investor concerns about more credit-market turmoil remain elevated even after markets calmed in November and December. Rates on three-month Treasury bills turned negative last month, falling as low as minus 0.04 percent on Dec. 4.
TED Spread
Three-month bill rates are at 0.086 percent, compared with 3.38 percent at the start of 2008. While the difference between what it costs banks and the government to borrow for three months narrowed to 1.33 percentage points from 4.64 percentage points in September, the so-called TED spread remains above the average of 0.32 percentage point this decade before credit markets began to seize up in the second half of 2007.
Japan shows that yields can stay low even as the government steps up sales. While the country’s government bond market is the world’s biggest, at about $8.7 trillion, or more than 1.5 times gross domestic product, 10-year government bond yields are 1.17 percent. The U.S. market totals about $5.8 trillion, or 42 percent of GDP.
Policymakers in Japan drove long-term yields lower to counter deflation in the 1990s through a policy of so-called quantitative easing in which the central bank bought government securities. The Fed announced plans to buy up to $700 billion in bonds backed by home and consumer loans and said in December that it may purchase longer-maturity Treasuries.
Buying Treasuries
“It’s more likely than not that they buy” Treasuries, Bruce Kasman, chief economist at JPMorgan Chase & Co. in New York, said in a Dec. 19 interview. “It will be a strategy, in a world where the economy is going to be in recession for the first half of the year, to keep long-term interest rates low.”
JPMorgan, one of the two firms most bullish on U.S. debt, expects two-year yields to fall to 0.5 percent. Merrill Lynch chief North American economist David Rosenberg forecast a decline to 0.4 percent. Merrill Lynch sees the 10-year yield at 1.50 percent, and JPMorgan expects it to drop to 1.65 percent.
None of the 62 economists polled by Bloomberg a year ago expected 10-year yields to end 2008 below 3.5 percent. Rosenberg, who called the recession that was officially declared to have started in December 2007, predicted a yield of 3.7 percent.
The economy will likely shrink by 1 percent this year after expanding 1.2 percent in 2008, according to the median estimate of 58 economists surveyed by Bloomberg. By year-end, the economy may be growing at a 1.8 percent pace, the survey shows.
Best Month
Unlike a year ago, the Fed has no more room to cut borrowing costs after slashing its target interest rate for overnight loans between banks to as low as zero from 4.25 percent. All of the firms surveyed expect the Fed to keep rates at the current level through 2009.
Record low yields are encouraging some investors to buy assets offering greater returns.
After reaching the highest yields on record relative to Treasuries in early December, investment-grade company bonds returned 6.1 percent, the best month since May 1985, while speculative-grade debt gained 6.6 percent, the most since February 1991, Merrill Lynch indexes show. Yields on Fannie Mae, Freddie Mac and Ginnie Mae mortgage bonds declined to record lows last week after the Fed announced plans to buy $500 billion of the securities sooner than expected.
Foreign Investors
U.S. stocks and corporate debt will beat Treasuries in 2009 as economic growth revives, Bob Doll, the chief investment officer of global equities at New York-based BlackRock Inc., said in a Bloomberg Television interview Dec. 18. BlackRock manages $502 billion in bonds.
Zurich-based Credit Suisse, the most bearish of the dealers, expects foreign investors that hold a majority of all U.S. government debt to buy fewer Treasuries, or even sell the securities, as the dollar depreciates, Konstam said. Ten-year yields will rise to 4.25 percent, with two-year yields reaching 1.75 percent, Konstam forecast.
China, which owns $652.9 billion of Treasuries, more than any other foreign country, cut the share of dollars in its $1.9 trillion of reserves to about 45 percent this year from more than 70 percent in 2003, Deutsche Bank AG in Frankfurt estimates.
‘Substantial Reversal’
Treasury 10-year yields may undergo a “substantial reversal” in the first quarter because past trading patterns suggest 2008’s gains are “not sustainable,” a team led by Jordan Kotick, global head of technical strategy at Barclays in New York, wrote in a research report Dec. 22.
Fund managers have never been more bearish on Treasuries, according to Ried, Thunberg & Co. The Jersey City, New Jersey- based research firm’s sentiment index fell to a record low 35 in its survey dated Jan. 5. A reading below 50 means that investors expect bond prices to fall through June.
“We are going through the worst part of the downturn,” said Michael Moran, chief economist at Daiwa Securities America Inc. in New York. “Right now there is this flight to quality happening and I think over time that will fade; interest rates will likely increase.”
Following are the results of Bloomberg’s survey, conducted from Dec. 19 to Dec. 31:
Firm Fed 2s 10s BNP Paribas 0.25 1.4 2.7 Banc of America NA 1.8 3.1 Barclays Capital 0-0.25 0.7 3.3 Cantor Fitzgerald 0-0.25 1 3 Citigroup NA NA 3 Credit Suisse NA 1.75 4.25 Daiwa Securities 0-0.25 1.6 2.9 Deutsche Bank 0-0.25 0.75 2.50 Dresdner Kleinwort 0-0.25 1.2 3 Goldman Sachs 0.13 0.75 3.2 HSBC Securities 0-0.25 NA 2 JPMorgan 0-0.25 0.5 1.65 Merrill Lynch 0-0.25 0.4 1.5 Mizuho 0-0.25 1 2.1 Morgan Stanley 0.10 1.25 3.25 RBS Greenwich Capital 0-0.25 1.35 3.60 UBS 0-0.25 2.25 2.75
5 January 2009
Crime and Prohibition
Governments will need new revenues and to lower current expenses. Charles Hugh Smith over at two minds makes the case well.
"By a wide margin, no policy has failed more spectacularly and at greater cost in human lives and national treasure than the "war on drugs." No policy runs so counter to well-established research or law enforcement views, yet at the same time no policy is more heavily defended politically as "essential" and "unquestioned."
"Last week saw the 75th anniversary of the repeal of Prohibition. In Washington, Law Enforcement Against Prohibition (LEAP) - a group of former cops and drug-war veterans who have soured on America's war on drugs - gathered to celebrate the anniversary, and to argue for an end to America's current prohibition on marijuana and more serious drugs.
Essentially, they believe that the war on drugs creates criminals. Richard Van Wickler, a onetime New Hampshire county corrections superintendent, noted during a LEAP conference call last week that despite America's drug laws, 114 million Americans (out of more than 300 million) have used illegal drugs, 35 million of them in the last year. The law is not much of a deterrent.
World Health Organization researchers found that 42.4 percent of Americans had tried marijuana - the highest ratio of any of 17 countries surveyed. New Zealand, which has tough drug policies, scored a close second place at 41.9 percent. Dutch residents can buy cannabis at coffee shops, yet less than 20 percent of Dutch respondents said they had tried cannabis. Researchers concluded, "Drug use does not appear to be related to drug policy, as countries with more stringent policies (e.g., the United States) did not have lower levels of illegal drug use than countries with more liberal policies (e.g. the Netherlands)."
Meanwhile, drug prohibition does work, Van Wickler added, as "a wonderful opportunity for organized crime."
read it all here
"By a wide margin, no policy has failed more spectacularly and at greater cost in human lives and national treasure than the "war on drugs." No policy runs so counter to well-established research or law enforcement views, yet at the same time no policy is more heavily defended politically as "essential" and "unquestioned."
"Last week saw the 75th anniversary of the repeal of Prohibition. In Washington, Law Enforcement Against Prohibition (LEAP) - a group of former cops and drug-war veterans who have soured on America's war on drugs - gathered to celebrate the anniversary, and to argue for an end to America's current prohibition on marijuana and more serious drugs.
Essentially, they believe that the war on drugs creates criminals. Richard Van Wickler, a onetime New Hampshire county corrections superintendent, noted during a LEAP conference call last week that despite America's drug laws, 114 million Americans (out of more than 300 million) have used illegal drugs, 35 million of them in the last year. The law is not much of a deterrent.
World Health Organization researchers found that 42.4 percent of Americans had tried marijuana - the highest ratio of any of 17 countries surveyed. New Zealand, which has tough drug policies, scored a close second place at 41.9 percent. Dutch residents can buy cannabis at coffee shops, yet less than 20 percent of Dutch respondents said they had tried cannabis. Researchers concluded, "Drug use does not appear to be related to drug policy, as countries with more stringent policies (e.g., the United States) did not have lower levels of illegal drug use than countries with more liberal policies (e.g. the Netherlands)."
Meanwhile, drug prohibition does work, Van Wickler added, as "a wonderful opportunity for organized crime."
read it all here
NYT ~ The End of the Financial World as We Know It
AMERICANS enter the New Year in a strange new role: financial lunatics. We’ve been viewed by the wider world with mistrust and suspicion on other matters, but on the subject of money even our harshest critics have been inclined to believe that we knew what we were doing. They watched our investment bankers and emulated them: for a long time now half the planet’s college graduates seemed to want nothing more out of life than a job on Wall Street.
This is one reason the collapse of our financial system has inspired not merely a national but a global crisis of confidence. Good God, the world seems to be saying, if they don’t know what they are doing with money, who does?
Incredibly, intelligent people the world over remain willing to lend us money and even listen to our advice; they appear not to have realized the full extent of our madness. We have at least a brief chance to cure ourselves. But first we need to ask: of what?
To that end consider the strange story of Harry Markopolos. Mr. Markopolos is the former investment officer with Rampart Investment Management in Boston who, for nine years, tried to explain to the Securities and Exchange Commission that Bernard L. Madoff couldn’t be anything other than a fraud. Mr. Madoff’s investment performance, given his stated strategy, was not merely improbable but mathematically impossible. And so, Mr. Markopolos reasoned, Bernard Madoff must be doing something other than what he said he was doing.
In his devastatingly persuasive 17-page letter to the S.E.C., Mr. Markopolos saw two possible scenarios. In the “Unlikely” scenario: Mr. Madoff, who acted as a broker as well as an investor, was “front-running” his brokerage customers. A customer might submit an order to Madoff Securities to buy shares in I.B.M. at a certain price, for example, and Madoff Securities instantly would buy I.B.M. shares for its own portfolio ahead of the customer order. If I.B.M.’s shares rose, Mr. Madoff kept them; if they fell he fobbed them off onto the poor customer.
In the “Highly Likely” scenario, wrote Mr. Markopolos, “Madoff Securities is the world’s largest Ponzi Scheme.” Which, as we now know, it was.
Harry Markopolos sent his report to the S.E.C. on Nov. 7, 2005 — more than three years before Mr. Madoff was finally exposed — but he had been trying to explain the fraud to them since 1999. He had no direct financial interest in exposing Mr. Madoff — he wasn’t an unhappy investor or a disgruntled employee. There was no way to short shares in Madoff Securities, and so Mr. Markopolos could not have made money directly from Mr. Madoff’s failure. To judge from his letter, Harry Markopolos anticipated mainly downsides for himself: he declined to put his name on it for fear of what might happen to him and his family if anyone found out he had written it. And yet the S.E.C.’s cursory investigation of Mr. Madoff pronounced him free of fraud.
What’s interesting about the Madoff scandal, in retrospect, is how little interest anyone inside the financial system had in exposing it. It wasn’t just Harry Markopolos who smelled a rat. As Mr. Markopolos explained in his letter, Goldman Sachs was refusing to do business with Mr. Madoff; many others doubted Mr. Madoff’s profits or assumed he was front-running his customers and steered clear of him. Between the lines, Mr. Markopolos hinted that even some of Mr. Madoff’s investors may have suspected that they were the beneficiaries of a scam. After all, it wasn’t all that hard to see that the profits were too good to be true. Some of Mr. Madoff’s investors may have reasoned that the worst that could happen to them, if the authorities put a stop to the front-running, was that a good thing would come to an end.
The Madoff scandal echoes a deeper absence inside our financial system, which has been undermined not merely by bad behavior but by the lack of checks and balances to discourage it. “Greed” doesn’t cut it as a satisfying explanation for the current financial crisis. Greed was necessary but insufficient; in any case, we are as likely to eliminate greed from our national character as we are lust and envy. The fixable problem isn’t the greed of the few but the misaligned interests of the many.
A lot has been said and written, for instance, about the corrupting effects on Wall Street of gigantic bonuses. What happened inside the major Wall Street firms, though, was more deeply unsettling than greedy people lusting for big checks: leaders of public corporations, especially financial corporations, are as good as required to lead for the short term.
Richard Fuld, the former chief executive of Lehman Brothers, E. Stanley O’Neal, the former chief executive of Merrill Lynch, and Charles O. Prince III, Citigroup’s chief executive, may have paid themselves humongous sums of money at the end of each year, as a result of the bond market bonanza. But if any one of them had set himself up as a whistleblower — had stood up and said “this business is irresponsible and we are not going to participate in it” — he would probably have been fired. Not immediately, perhaps. But a few quarters of earnings that lagged behind those of every other Wall Street firm would invite outrage from subordinates, who would flee for other, less responsible firms, and from shareholders, who would call for his resignation. Eventually he’d be replaced by someone willing to make money from the credit bubble.
OUR financial catastrophe, like Bernard Madoff’s pyramid scheme, required all sorts of important, plugged-in people to sacrifice our collective long-term interests for short-term gain. The pressure to do this in today’s financial markets is immense. Obviously the greater the market pressure to excel in the short term, the greater the need for pressure from outside the market to consider the longer term. But that’s the problem: there is no longer any serious pressure from outside the market. The tyranny of the short term has extended itself with frightening ease into the entities that were meant to, one way or another, discipline Wall Street, and force it to consider its enlightened self-interest.
The credit-rating agencies, for instance.
Everyone now knows that Moody’s and Standard & Poor’s botched their analyses of bonds backed by home mortgages. But their most costly mistake — one that deserves a lot more attention than it has received — lies in their area of putative expertise: measuring corporate risk.
Over the last 20 years American financial institutions have taken on more and more risk, with the blessing of regulators, with hardly a word from the rating agencies, which, incidentally, are paid by the issuers of the bonds they rate. Seldom if ever did Moody’s or Standard & Poor’s say, “If you put one more risky asset on your balance sheet, you will face a serious downgrade.”
The American International Group, Fannie Mae, Freddie Mac, General Electric and the municipal bond guarantors Ambac Financial and MBIA all had triple-A ratings. (G.E. still does!) Large investment banks like Lehman and Merrill Lynch all had solid investment grade ratings. It’s almost as if the higher the rating of a financial institution, the more likely it was to contribute to financial catastrophe. But of course all these big financial companies fueled the creation of the credit products that in turn fueled the revenues of Moody’s and Standard & Poor’s.
These oligopolies, which are actually sanctioned by the S.E.C., didn’t merely do their jobs badly. They didn’t simply miss a few calls here and there. In pursuit of their own short-term earnings, they did exactly the opposite of what they were meant to do: rather than expose financial risk they systematically disguised it.
This is a subject that might be profitably explored in Washington. There are many questions an enterprising United States senator might want to ask the credit-rating agencies. Here is one: Why did you allow MBIA to keep its triple-A rating for so long? In 1990 MBIA was in the relatively simple business of insuring municipal bonds. It had $931 million in equity and only $200 million of debt — and a plausible triple-A rating.
By 2006 MBIA had plunged into the much riskier business of guaranteeing collateralized debt obligations, or C.D.O.’s. But by then it had $7.2 billion in equity against an astounding $26.2 billion in debt. That is, even as it insured ever-greater risks in its business, it also took greater risks on its balance sheet.
Yet the rating agencies didn’t so much as blink. On Wall Street the problem was hardly a secret: many people understood that MBIA didn’t deserve to be rated triple-A. As far back as 2002, a hedge fund called Gotham Partners published a persuasive report, widely circulated, entitled: “Is MBIA Triple A?” (The answer was obviously no.)
At the same time, almost everyone believed that the rating agencies would never downgrade MBIA, because doing so was not in their short-term financial interest. A downgrade of MBIA would force the rating agencies to go through the costly and cumbersome process of re-rating tens of thousands of credits that bore triple-A ratings simply by virtue of MBIA’s guarantee. It would stick a wrench in the machine that enriched them. (In June, finally, the rating agencies downgraded MBIA, after MBIA’s failure became such an open secret that nobody any longer cared about its formal credit rating.)
The S.E.C. now promises modest new measures to contain the damage that the rating agencies can do — measures that fail to address the central problem: that the raters are paid by the issuers.
But this should come as no surprise, for the S.E.C. itself is plagued by similarly wacky incentives. Indeed, one of the great social benefits of the Madoff scandal may be to finally reveal the S.E.C. for what it has become.
Created to protect investors from financial predators, the commission has somehow evolved into a mechanism for protecting financial predators with political clout from investors. (The task it has performed most diligently during this crisis has been to question, intimidate and impose rules on short-sellers — the only market players who have a financial incentive to expose fraud and abuse.)
The instinct to avoid short-term political heat is part of the problem; anything the S.E.C. does to roil the markets, or reduce the share price of any given company, also roils the careers of the people who run the S.E.C. Thus it seldom penalizes serious corporate and management malfeasance — out of some misguided notion that to do so would cause stock prices to fall, shareholders to suffer and confidence to be undermined. Preserving confidence, even when that confidence is false, has been near the top of the S.E.C.’s agenda.
IT’S not hard to see why the S.E.C. behaves as it does. If you work for the enforcement division of the S.E.C. you probably know in the back of your mind, and in the front too, that if you maintain good relations with Wall Street you might soon be paid huge sums of money to be employed by it.
The commission’s most recent director of enforcement is the general counsel at JPMorgan Chase; the enforcement chief before him became general counsel at Deutsche Bank; and one of his predecessors became a managing director for Credit Suisse before moving on to Morgan Stanley. A casual observer could be forgiven for thinking that the whole point of landing the job as the S.E.C.’s director of enforcement is to position oneself for the better paying one on Wall Street.
At the back of the version of Harry Markopolos’s brave paper currently making the rounds is a copy of an e-mail message, dated April 2, 2008, from Mr. Markopolos to Jonathan S. Sokobin. Mr. Sokobin was then the new head of the commission’s office of risk assessment, a job that had been vacant for more than a year after its previous occupant had left to — you guessed it — take a higher-paying job on Wall Street.
At any rate, Mr. Markopolos clearly hoped that a new face might mean a new ear — one that might be receptive to the truth. He phoned Mr. Sokobin and then sent him his paper. “Attached is a submission I’ve made to the S.E.C. three times in Boston,” he wrote. “Each time Boston sent this to New York. Meagan Cheung, branch chief, in New York actually investigated this but with no result that I am aware of. In my conversations with her, I did not believe that she had the derivatives or mathematical background to understand the violations.”
How does this happen? How can the person in charge of assessing Wall Street firms not have the tools to understand them? Is the S.E.C. that inept? Perhaps, but the problem inside the commission is far worse — because inept people can be replaced. The problem is systemic. The new director of risk assessment was no more likely to grasp the risk of Bernard Madoff than the old director of risk assessment because the new guy’s thoughts and beliefs were guided by the same incentives: the need to curry favor with the politically influential and the desire to keep sweet the Wall Street elite.
And here’s the most incredible thing of all: 18 months into the most spectacular man-made financial calamity in modern experience, nothing has been done to change that, or any of the other bad incentives that led us here in the first place.
SAY what you will about our government’s approach to the financial crisis, you cannot accuse it of wasting its energy being consistent or trying to win over the masses. In the past year there have been at least seven different bailouts, and six different strategies. And none of them seem to have pleased anyone except a handful of financiers.
When Bear Stearns failed, the government induced JPMorgan Chase to buy it by offering a knockdown price and guaranteeing Bear Stearns’s shakiest assets. Bear Stearns bondholders were made whole and its stockholders lost most of their money.
Then came the collapse of the government-sponsored entities, Fannie Mae and Freddie Mac, both promptly nationalized. Management was replaced, shareholders badly diluted, creditors left intact but with some uncertainty. Next came Lehman Brothers, which was, of course, allowed to go bankrupt. At first, the Treasury and the Federal Reserve claimed they had allowed Lehman to fail in order to signal that recklessly managed Wall Street firms did not all come with government guarantees; but then, when chaos ensued, and people started saying that letting Lehman fail was a dumb thing to have done, they changed their story and claimed they lacked the legal authority to rescue the firm.
But then a few days later A.I.G. failed, or tried to, yet was given the gift of life with enormous government loans. Washington Mutual and Wachovia promptly followed: the first was unceremoniously seized by the Treasury, wiping out both its creditors and shareholders; the second was batted around for a bit. Initially, the Treasury tried to persuade Citigroup to buy it — again at a knockdown price and with a guarantee of the bad assets. (The Bear Stearns model.) Eventually, Wachovia went to Wells Fargo, after the Internal Revenue Service jumped in and sweetened the pot with a tax subsidy.
In the middle of all this, Treasury Secretary Henry M. Paulson Jr. persuaded Congress that he needed $700 billion to buy distressed assets from banks — telling the senators and representatives that if they didn’t give him the money the stock market would collapse. Once handed the money, he abandoned his promised strategy, and instead of buying assets at market prices, began to overpay for preferred stocks in the banks themselves. Which is to say that he essentially began giving away billions of dollars to Citigroup, Morgan Stanley, Goldman Sachs and a few others unnaturally selected for survival. The stock market fell anyway.
It’s hard to know what Mr. Paulson was thinking as he never really had to explain himself, at least not in public. But the general idea appears to be that if you give the banks capital they will in turn use it to make loans in order to stimulate the economy. Never mind that if you want banks to make smart, prudent loans, you probably shouldn’t give money to bankers who sunk themselves by making a lot of stupid, imprudent ones. If you want banks to re-lend the money, you need to provide them not with preferred stock, which is essentially a loan, but with tangible common equity — so that they might write off their losses, resolve their troubled assets and then begin to make new loans, something they won’t be able to do until they’re confident in their own balance sheets. But as it happened, the banks took the taxpayer money and just sat on it.
Continued at "How to Repair a Broken Financial World."
Michael Lewis, a contributing editor at Vanity Fair and the author of “Liar’s Poker,” is writing a book about the collapse of Wall Street. David Einhorn is the president of Greenlight Capital, a hedge fund, and the author of “Fooling Some of the People All of the Time.” Investment accounts managed by Greenlight may have a position (long or short) in the securities discussed in this article.
This is one reason the collapse of our financial system has inspired not merely a national but a global crisis of confidence. Good God, the world seems to be saying, if they don’t know what they are doing with money, who does?
Incredibly, intelligent people the world over remain willing to lend us money and even listen to our advice; they appear not to have realized the full extent of our madness. We have at least a brief chance to cure ourselves. But first we need to ask: of what?
To that end consider the strange story of Harry Markopolos. Mr. Markopolos is the former investment officer with Rampart Investment Management in Boston who, for nine years, tried to explain to the Securities and Exchange Commission that Bernard L. Madoff couldn’t be anything other than a fraud. Mr. Madoff’s investment performance, given his stated strategy, was not merely improbable but mathematically impossible. And so, Mr. Markopolos reasoned, Bernard Madoff must be doing something other than what he said he was doing.
In his devastatingly persuasive 17-page letter to the S.E.C., Mr. Markopolos saw two possible scenarios. In the “Unlikely” scenario: Mr. Madoff, who acted as a broker as well as an investor, was “front-running” his brokerage customers. A customer might submit an order to Madoff Securities to buy shares in I.B.M. at a certain price, for example, and Madoff Securities instantly would buy I.B.M. shares for its own portfolio ahead of the customer order. If I.B.M.’s shares rose, Mr. Madoff kept them; if they fell he fobbed them off onto the poor customer.
In the “Highly Likely” scenario, wrote Mr. Markopolos, “Madoff Securities is the world’s largest Ponzi Scheme.” Which, as we now know, it was.
Harry Markopolos sent his report to the S.E.C. on Nov. 7, 2005 — more than three years before Mr. Madoff was finally exposed — but he had been trying to explain the fraud to them since 1999. He had no direct financial interest in exposing Mr. Madoff — he wasn’t an unhappy investor or a disgruntled employee. There was no way to short shares in Madoff Securities, and so Mr. Markopolos could not have made money directly from Mr. Madoff’s failure. To judge from his letter, Harry Markopolos anticipated mainly downsides for himself: he declined to put his name on it for fear of what might happen to him and his family if anyone found out he had written it. And yet the S.E.C.’s cursory investigation of Mr. Madoff pronounced him free of fraud.
What’s interesting about the Madoff scandal, in retrospect, is how little interest anyone inside the financial system had in exposing it. It wasn’t just Harry Markopolos who smelled a rat. As Mr. Markopolos explained in his letter, Goldman Sachs was refusing to do business with Mr. Madoff; many others doubted Mr. Madoff’s profits or assumed he was front-running his customers and steered clear of him. Between the lines, Mr. Markopolos hinted that even some of Mr. Madoff’s investors may have suspected that they were the beneficiaries of a scam. After all, it wasn’t all that hard to see that the profits were too good to be true. Some of Mr. Madoff’s investors may have reasoned that the worst that could happen to them, if the authorities put a stop to the front-running, was that a good thing would come to an end.
The Madoff scandal echoes a deeper absence inside our financial system, which has been undermined not merely by bad behavior but by the lack of checks and balances to discourage it. “Greed” doesn’t cut it as a satisfying explanation for the current financial crisis. Greed was necessary but insufficient; in any case, we are as likely to eliminate greed from our national character as we are lust and envy. The fixable problem isn’t the greed of the few but the misaligned interests of the many.
A lot has been said and written, for instance, about the corrupting effects on Wall Street of gigantic bonuses. What happened inside the major Wall Street firms, though, was more deeply unsettling than greedy people lusting for big checks: leaders of public corporations, especially financial corporations, are as good as required to lead for the short term.
Richard Fuld, the former chief executive of Lehman Brothers, E. Stanley O’Neal, the former chief executive of Merrill Lynch, and Charles O. Prince III, Citigroup’s chief executive, may have paid themselves humongous sums of money at the end of each year, as a result of the bond market bonanza. But if any one of them had set himself up as a whistleblower — had stood up and said “this business is irresponsible and we are not going to participate in it” — he would probably have been fired. Not immediately, perhaps. But a few quarters of earnings that lagged behind those of every other Wall Street firm would invite outrage from subordinates, who would flee for other, less responsible firms, and from shareholders, who would call for his resignation. Eventually he’d be replaced by someone willing to make money from the credit bubble.
OUR financial catastrophe, like Bernard Madoff’s pyramid scheme, required all sorts of important, plugged-in people to sacrifice our collective long-term interests for short-term gain. The pressure to do this in today’s financial markets is immense. Obviously the greater the market pressure to excel in the short term, the greater the need for pressure from outside the market to consider the longer term. But that’s the problem: there is no longer any serious pressure from outside the market. The tyranny of the short term has extended itself with frightening ease into the entities that were meant to, one way or another, discipline Wall Street, and force it to consider its enlightened self-interest.
The credit-rating agencies, for instance.
Everyone now knows that Moody’s and Standard & Poor’s botched their analyses of bonds backed by home mortgages. But their most costly mistake — one that deserves a lot more attention than it has received — lies in their area of putative expertise: measuring corporate risk.
Over the last 20 years American financial institutions have taken on more and more risk, with the blessing of regulators, with hardly a word from the rating agencies, which, incidentally, are paid by the issuers of the bonds they rate. Seldom if ever did Moody’s or Standard & Poor’s say, “If you put one more risky asset on your balance sheet, you will face a serious downgrade.”
The American International Group, Fannie Mae, Freddie Mac, General Electric and the municipal bond guarantors Ambac Financial and MBIA all had triple-A ratings. (G.E. still does!) Large investment banks like Lehman and Merrill Lynch all had solid investment grade ratings. It’s almost as if the higher the rating of a financial institution, the more likely it was to contribute to financial catastrophe. But of course all these big financial companies fueled the creation of the credit products that in turn fueled the revenues of Moody’s and Standard & Poor’s.
These oligopolies, which are actually sanctioned by the S.E.C., didn’t merely do their jobs badly. They didn’t simply miss a few calls here and there. In pursuit of their own short-term earnings, they did exactly the opposite of what they were meant to do: rather than expose financial risk they systematically disguised it.
This is a subject that might be profitably explored in Washington. There are many questions an enterprising United States senator might want to ask the credit-rating agencies. Here is one: Why did you allow MBIA to keep its triple-A rating for so long? In 1990 MBIA was in the relatively simple business of insuring municipal bonds. It had $931 million in equity and only $200 million of debt — and a plausible triple-A rating.
By 2006 MBIA had plunged into the much riskier business of guaranteeing collateralized debt obligations, or C.D.O.’s. But by then it had $7.2 billion in equity against an astounding $26.2 billion in debt. That is, even as it insured ever-greater risks in its business, it also took greater risks on its balance sheet.
Yet the rating agencies didn’t so much as blink. On Wall Street the problem was hardly a secret: many people understood that MBIA didn’t deserve to be rated triple-A. As far back as 2002, a hedge fund called Gotham Partners published a persuasive report, widely circulated, entitled: “Is MBIA Triple A?” (The answer was obviously no.)
At the same time, almost everyone believed that the rating agencies would never downgrade MBIA, because doing so was not in their short-term financial interest. A downgrade of MBIA would force the rating agencies to go through the costly and cumbersome process of re-rating tens of thousands of credits that bore triple-A ratings simply by virtue of MBIA’s guarantee. It would stick a wrench in the machine that enriched them. (In June, finally, the rating agencies downgraded MBIA, after MBIA’s failure became such an open secret that nobody any longer cared about its formal credit rating.)
The S.E.C. now promises modest new measures to contain the damage that the rating agencies can do — measures that fail to address the central problem: that the raters are paid by the issuers.
But this should come as no surprise, for the S.E.C. itself is plagued by similarly wacky incentives. Indeed, one of the great social benefits of the Madoff scandal may be to finally reveal the S.E.C. for what it has become.
Created to protect investors from financial predators, the commission has somehow evolved into a mechanism for protecting financial predators with political clout from investors. (The task it has performed most diligently during this crisis has been to question, intimidate and impose rules on short-sellers — the only market players who have a financial incentive to expose fraud and abuse.)
The instinct to avoid short-term political heat is part of the problem; anything the S.E.C. does to roil the markets, or reduce the share price of any given company, also roils the careers of the people who run the S.E.C. Thus it seldom penalizes serious corporate and management malfeasance — out of some misguided notion that to do so would cause stock prices to fall, shareholders to suffer and confidence to be undermined. Preserving confidence, even when that confidence is false, has been near the top of the S.E.C.’s agenda.
IT’S not hard to see why the S.E.C. behaves as it does. If you work for the enforcement division of the S.E.C. you probably know in the back of your mind, and in the front too, that if you maintain good relations with Wall Street you might soon be paid huge sums of money to be employed by it.
The commission’s most recent director of enforcement is the general counsel at JPMorgan Chase; the enforcement chief before him became general counsel at Deutsche Bank; and one of his predecessors became a managing director for Credit Suisse before moving on to Morgan Stanley. A casual observer could be forgiven for thinking that the whole point of landing the job as the S.E.C.’s director of enforcement is to position oneself for the better paying one on Wall Street.
At the back of the version of Harry Markopolos’s brave paper currently making the rounds is a copy of an e-mail message, dated April 2, 2008, from Mr. Markopolos to Jonathan S. Sokobin. Mr. Sokobin was then the new head of the commission’s office of risk assessment, a job that had been vacant for more than a year after its previous occupant had left to — you guessed it — take a higher-paying job on Wall Street.
At any rate, Mr. Markopolos clearly hoped that a new face might mean a new ear — one that might be receptive to the truth. He phoned Mr. Sokobin and then sent him his paper. “Attached is a submission I’ve made to the S.E.C. three times in Boston,” he wrote. “Each time Boston sent this to New York. Meagan Cheung, branch chief, in New York actually investigated this but with no result that I am aware of. In my conversations with her, I did not believe that she had the derivatives or mathematical background to understand the violations.”
How does this happen? How can the person in charge of assessing Wall Street firms not have the tools to understand them? Is the S.E.C. that inept? Perhaps, but the problem inside the commission is far worse — because inept people can be replaced. The problem is systemic. The new director of risk assessment was no more likely to grasp the risk of Bernard Madoff than the old director of risk assessment because the new guy’s thoughts and beliefs were guided by the same incentives: the need to curry favor with the politically influential and the desire to keep sweet the Wall Street elite.
And here’s the most incredible thing of all: 18 months into the most spectacular man-made financial calamity in modern experience, nothing has been done to change that, or any of the other bad incentives that led us here in the first place.
SAY what you will about our government’s approach to the financial crisis, you cannot accuse it of wasting its energy being consistent or trying to win over the masses. In the past year there have been at least seven different bailouts, and six different strategies. And none of them seem to have pleased anyone except a handful of financiers.
When Bear Stearns failed, the government induced JPMorgan Chase to buy it by offering a knockdown price and guaranteeing Bear Stearns’s shakiest assets. Bear Stearns bondholders were made whole and its stockholders lost most of their money.
Then came the collapse of the government-sponsored entities, Fannie Mae and Freddie Mac, both promptly nationalized. Management was replaced, shareholders badly diluted, creditors left intact but with some uncertainty. Next came Lehman Brothers, which was, of course, allowed to go bankrupt. At first, the Treasury and the Federal Reserve claimed they had allowed Lehman to fail in order to signal that recklessly managed Wall Street firms did not all come with government guarantees; but then, when chaos ensued, and people started saying that letting Lehman fail was a dumb thing to have done, they changed their story and claimed they lacked the legal authority to rescue the firm.
But then a few days later A.I.G. failed, or tried to, yet was given the gift of life with enormous government loans. Washington Mutual and Wachovia promptly followed: the first was unceremoniously seized by the Treasury, wiping out both its creditors and shareholders; the second was batted around for a bit. Initially, the Treasury tried to persuade Citigroup to buy it — again at a knockdown price and with a guarantee of the bad assets. (The Bear Stearns model.) Eventually, Wachovia went to Wells Fargo, after the Internal Revenue Service jumped in and sweetened the pot with a tax subsidy.
In the middle of all this, Treasury Secretary Henry M. Paulson Jr. persuaded Congress that he needed $700 billion to buy distressed assets from banks — telling the senators and representatives that if they didn’t give him the money the stock market would collapse. Once handed the money, he abandoned his promised strategy, and instead of buying assets at market prices, began to overpay for preferred stocks in the banks themselves. Which is to say that he essentially began giving away billions of dollars to Citigroup, Morgan Stanley, Goldman Sachs and a few others unnaturally selected for survival. The stock market fell anyway.
It’s hard to know what Mr. Paulson was thinking as he never really had to explain himself, at least not in public. But the general idea appears to be that if you give the banks capital they will in turn use it to make loans in order to stimulate the economy. Never mind that if you want banks to make smart, prudent loans, you probably shouldn’t give money to bankers who sunk themselves by making a lot of stupid, imprudent ones. If you want banks to re-lend the money, you need to provide them not with preferred stock, which is essentially a loan, but with tangible common equity — so that they might write off their losses, resolve their troubled assets and then begin to make new loans, something they won’t be able to do until they’re confident in their own balance sheets. But as it happened, the banks took the taxpayer money and just sat on it.
Continued at "How to Repair a Broken Financial World."
Michael Lewis, a contributing editor at Vanity Fair and the author of “Liar’s Poker,” is writing a book about the collapse of Wall Street. David Einhorn is the president of Greenlight Capital, a hedge fund, and the author of “Fooling Some of the People All of the Time.” Investment accounts managed by Greenlight may have a position (long or short) in the securities discussed in this article.
3 January 2009
Labor's salvation would be the moral courage
And the political courage to turn on those who used a once in a lifetime credit bubble to enrich themselves by looting public companies. The complication is that the money captured the ALP as well and they would have to start with a good long look at Sussex Street.
Verrender in todays SMH is building a nice list:
"If David Coe was in the wrong place at the wrong time in 2008, the corollary is that his success during the previous two decades was all down to luck, an argument that was never put forward during the boom. On the contrary, a famous article in one business journal during that time proclaimed Coe and several others as "Masters of the universe."
Charming, disarming, hugely ambitious, intelligent and driven, Coe knows how to work an audience, either en masse or individually. He's a master in the art of massaging public opinion.
Until late 2007 he almost universally was regarded as a "good bloke", who had established himself as a benefactor and philanthropist. But it became clear that generosity began at home when he and his erstwhile business partner, Gordon Fell, crossed the line with their aptly named Rubicon Holdings.
This was a property management company with listed trusts operating in Europe, America and Japan. In a short space of time, Coe, Fell and another partner loaded the company up with debt, spent billions acquiring what turned out to be overvalued real estate and then bought dodgy debts from other real estate players which sweetened the blancmange. Then, shortly after the credit squeeze hit late last year, they sold the whole mess to Allco.
Between them, the Rubicon founders personally pulled about $64 million from the sale of their privately controlled company to Allco, a public company of which they were both directors. That doesn't take into account the $100 million or so in fees they raked from Rubicon before the sale."
Lets put David Coe on the short list, anyway.
Verrender in todays SMH is building a nice list:
"If David Coe was in the wrong place at the wrong time in 2008, the corollary is that his success during the previous two decades was all down to luck, an argument that was never put forward during the boom. On the contrary, a famous article in one business journal during that time proclaimed Coe and several others as "Masters of the universe."
Charming, disarming, hugely ambitious, intelligent and driven, Coe knows how to work an audience, either en masse or individually. He's a master in the art of massaging public opinion.
Until late 2007 he almost universally was regarded as a "good bloke", who had established himself as a benefactor and philanthropist. But it became clear that generosity began at home when he and his erstwhile business partner, Gordon Fell, crossed the line with their aptly named Rubicon Holdings.
This was a property management company with listed trusts operating in Europe, America and Japan. In a short space of time, Coe, Fell and another partner loaded the company up with debt, spent billions acquiring what turned out to be overvalued real estate and then bought dodgy debts from other real estate players which sweetened the blancmange. Then, shortly after the credit squeeze hit late last year, they sold the whole mess to Allco.
Between them, the Rubicon founders personally pulled about $64 million from the sale of their privately controlled company to Allco, a public company of which they were both directors. That doesn't take into account the $100 million or so in fees they raked from Rubicon before the sale."
Lets put David Coe on the short list, anyway.
Item: India introduces futures contracts for Gold and Silver
""The National Commodity and Derivatives Exchange Limited (NCDEX), is set to launch international futures contracts in gold and silver on Monday, December 29, 2008. These contracts named Gold International and Silver International can be bought and sold in lots of one kg and 30 kg respectively.
As per the official release, the contract size has been defined keeping in view the Indian consumer and the recent price trends. These contracts will be physically settled at Ahmedabad. Contracts would be settled on the basis of international prices in rupee denomination. The contracts will expire on the last trading day of the month prior to expiry of the corresponding international bullion futures contract and settlement will be done on expiry at Import parity costing.
The contract has other advantages such as real time & transparent International price hedging contracts in term of Rupees for Importers as well as traders and delivery logic is based on Intentional matching.
With the introduction of futures market in India, NCDEX started offering contracts in Gold and Silver. It currently offers futures trading in 1 kg gold & 30 kg Silver contracts. These contracts are available for trading during all 12 months of the year and are settled by compulsory delivery mechanism. On account of persistent market demand and keeping in mind the fact that India is a big importer of bullion, NCDEX has now introduced these new contracts.""
As per the official release, the contract size has been defined keeping in view the Indian consumer and the recent price trends. These contracts will be physically settled at Ahmedabad. Contracts would be settled on the basis of international prices in rupee denomination. The contracts will expire on the last trading day of the month prior to expiry of the corresponding international bullion futures contract and settlement will be done on expiry at Import parity costing.
The contract has other advantages such as real time & transparent International price hedging contracts in term of Rupees for Importers as well as traders and delivery logic is based on Intentional matching.
With the introduction of futures market in India, NCDEX started offering contracts in Gold and Silver. It currently offers futures trading in 1 kg gold & 30 kg Silver contracts. These contracts are available for trading during all 12 months of the year and are settled by compulsory delivery mechanism. On account of persistent market demand and keeping in mind the fact that India is a big importer of bullion, NCDEX has now introduced these new contracts.""
Lose family, friends and clients billions
Sucide is the decent thing to do. My problem is that we havent seen enough of them.
Predictions continued ~ China
"Unexpected drop in China's imports and exports
By Andrew Jacobs and David Barboza
According to statistics released by the Chinese government Wednesday, exports fell 2.2 percent from November 2007 to November 2008 the largest year-over-year monthly decline since April 1999.
Imports to China also plunged sharply last month, falling 17.9 percent and widening China's trade surplus to a record $40 billion, from $35.2 billion in October.
…
In a survey of more than a dozen analysts last month, no one predicted that imports would decline. The drop in exports stretched across all major trade commodities with steel leading the downward spiral.
Chinese imports fell 17.9 percent in November and China's trade surplus widened to a record $40 billion! Meanwhile exports only fell 2.2 percent!"
China's trade surplus was $262 billion in 2007. If we multiply China's $40 billion November surplus by twelve months, we get a $480 billion annual trade surplus, nearly twice the 2007 number! If this went on China's trade surplus in 2009 would be near a trillion.
Over Christmas, China announced its intentions to make the yuan an international currency! You have the Chinese central bank quoted as saying that, "The US dollar is unlikely to be stable next year". How much more evidence do you need to figure out where all this is going?
as per my predictions of this year, strong household balance sheets and a trade surplus puts china firmly in the strong economy catagory. The Chinese have a great capacity to expand the domestic economy.
One possible strategy would be fiscal stimulus and to combat the inflation otherwise caused let the yuan rise.
By Andrew Jacobs and David Barboza
According to statistics released by the Chinese government Wednesday, exports fell 2.2 percent from November 2007 to November 2008 the largest year-over-year monthly decline since April 1999.
Imports to China also plunged sharply last month, falling 17.9 percent and widening China's trade surplus to a record $40 billion, from $35.2 billion in October.
…
In a survey of more than a dozen analysts last month, no one predicted that imports would decline. The drop in exports stretched across all major trade commodities with steel leading the downward spiral.
Chinese imports fell 17.9 percent in November and China's trade surplus widened to a record $40 billion! Meanwhile exports only fell 2.2 percent!"
China's trade surplus was $262 billion in 2007. If we multiply China's $40 billion November surplus by twelve months, we get a $480 billion annual trade surplus, nearly twice the 2007 number! If this went on China's trade surplus in 2009 would be near a trillion.
Over Christmas, China announced its intentions to make the yuan an international currency! You have the Chinese central bank quoted as saying that, "The US dollar is unlikely to be stable next year". How much more evidence do you need to figure out where all this is going?
as per my predictions of this year, strong household balance sheets and a trade surplus puts china firmly in the strong economy catagory. The Chinese have a great capacity to expand the domestic economy.
One possible strategy would be fiscal stimulus and to combat the inflation otherwise caused let the yuan rise.
2 January 2009
Market to be lower this time next year ~Martin Hutchinson
2009 looks like another Bear year
by Martin Hutchinson December 29, 2008
In 2008, we have seen a Bear year of close to record-breaking proportions. The current record holder is 1931, when the Standard and Poor’s 500 Index was down 41.9%; a bad day this week could easily take it below the 853, at which its 2008 drop would equal that record. The market has by far beaten my definition of a “Bear Superbowl” – a 25% stock market decline. The question now for Bear fans is 2009: if that, too, is a Bear year with a stock market decline, then the 2000s (2000-02, 2008-09) will be the first decade with five years of decline since the 1930s.
Economically, the prospects for the early part of 2009 look a little better than they did a month ago. The flood of cheap money into the system has caused a renewed upsurge in mortgage refinancing, which has benefited consumer income statements if not balance sheets. The sharp decline in commodity and energy prices has fed into consumer prices, which by dropping 1.2% in November allowed personal incomes (down only 0.2%) to produce a rise in real spending as well as an increase in the savings rate. Durable goods orders (excluding transportation) were up in November, when they had been expected to be down.
In other words, the economic decline, which had appeared to be accelerating to an alarming rate, has slowed considerably. If President-elect Barack Obama injects stimulus into the economy early in the New Year, the recession may bottom out and economic recovery become apparent by the late spring. Presumably, that would be accompanied by some kind of bounce in the stock market.
That may seem like good news, but it really isn’t, because the imbalances that caused the economic decline would still be present. House prices would have been stabilized by the cheap mortgage money, but would still be above their long-term equilibrium, and expensive in terms of earnings. The savings rate would have been suppressed, so would still be far below the level at which the U.S. economy is self-sustaining without endless infusions of capital from Asia and the Middle East. Budget deficits would be creating difficulties in the Treasury financing market, forcing up long-term interest rates.
Most important, the recent increases in the U.S. money supply would be working their way rapidly through to inflation. Conventional Bernankeist wisdom is that only deflation is a threat now, that rapid increases in the money supply are needed to combat a decline in money’s velocity and that those increases can be withdrawn quickly when inflation looks like turning up.
One look at the statistics will tell you that’s nonsense. The broad money supply, for which the St Louis Fed’s MZM series (which takes into account currency, checking, savings and money market accounts but not certificates of deposit) is the best available proxy, has risen at an annual rate of 16.6% in the last two months or 10.1% in the last year; removing that amount of money quickly is clearly likely to be difficult. More startling still, however, is the behavior of narrow money in the form of the monetary base, which had been increasing at 3-to-4% per annum in the period to September, but has gone completely haywire since then, increasing at an annual rate of 990.9% in the three months to December. No, that’s not a typo, in those three months the monetary base has been increasing at almost 1,000% per annum. Over the last year, its average rate of increase is 86% per annum, but that reflects nine months of gentle increase followed by explosion.
A rapid 10% decrease in broad money is probably impossible without wrenching the economy into a deep recession; a halving in the monetary base is certainly impossible without collapsing the banking system. Hence, the excessive increases in money supply will not be withdrawn, though the pace of increase will presumably be moderated. The Fed will not reverse course when inflation appears, but will instead act feebly as it has in every inflationary manifestation since 1995. Inflation will thus get a good grip; based on the usual temporal relationship between money supply increases and inflation we should expect consumer prices to be increasing at an annual rate of more than 10% within 18 months of today.
Outside the United States, the picture is remarkably similar. All major monetary authorities have indulged in excessive monetary creation; pretty well all major governments are joyfully giving in to the temptation towards “fiscal stimulus.” In the e-Euro zone, for example, euro M3 (another broad measure of money supply) increased at an annual rate of 20.8% in October and will very likely have accelerated in November as interest rate declines only began on November 9. Thus the recessions underway around the world are likely to see reversals as quick as that in the United States, so that by the middle of 2009 the global economy will appear to have resumed growth.
Worldwide, the end of economic shrinkage, gigantic budget deficits and the beginnings of inflation’s reappearance will cause both a reversal in commodity price declines and a sharp upward movement in the gold price. They will also produce a crisis in the world’s bond markets, as discussed in this column November 12, as the extraordinarily low yields of recent months prove to be wholly unsustainable. There will be a flight to index-linked bonds that will overwhelm those relatively illiquid markets and a flight to gold that will completely overwhelm that relatively small market (total investor demand for gold in the third quarter of 2008 was a mere $30 billion, according to the World Gold Council.)
Before resurging inflation has spread from economists’ discussions to a matter of daily public concern, the bond market collapse will once more bring turmoil to the world’s financial markets. This time, governments will be unable to provide either monetary or fiscal assistance, because their monetary and fiscal profligacy will have been the root of the problem, not a possible solution to it. President Bill Clinton’s electoral strategist James Carville once expressed a wish to be reincarnated as the bond market, because it had more power than presidents. In the second half of 2009, we are likely to see the full power that a collapsing bond market can wield.
The result of bond market collapse will be a second downward leg of the recession, its power proportional to the excessive monetary and fiscal weapons that have been used in the attempt to escape from the first leg. It is likely to be deeper than the first downturn, and much more prolonged, since the normal forces producing rapid economic recovery will be thwarted by “crowding out” in the capital markets and the high real interest rates necessary to fight inflation.
Andrew Mellon in 1929 claimed that the best way to fight recession was to allow a liquidation of all the excesses of the previous boom as rapidly as possible after which economic growth could resume. Mellon’s method produced sharp recessions but short ones; the 1920-21 recession, for example lasted less than a year even though it was quite deep. Our less stringent methods of dealing with recessions, in particular our abandonment of monetary and fiscal discipline, are likely to cut short recessions only in the very short term. If fiscal and monetary stimuli are excessive, the recession returns, fortified by a burst of high inflation, wreaking more damage than a Mellonian recession and lasting much longer. The price of indiscipline by politicians is thus high, and is paid by the populace as a whole.
The forecast for 2009’s stock market derives from the economic forecast. In the early months of the year, the market may well be quite strong, as the recession appears to bottom out and investors seek “bargains’ at levels that appear cheap compared to the bubble of 1996-2007. However, later in the year, as reality begins to dawn, the market will once again be weak. I have calculated previously that the stock market’s equilibrium level can be assessed as the Dow Jones Industrial Average 4,000 level reached in early 1995, inflated by nominal Gross Domestic Product. That would give a current figure of around Dow 7,900. However the bond market collapse will provide an extraordinary shock to the system and will send the stock market far below its equilibrium level, perhaps to as low as Dow 5,000 or even 4,000. At the end of 2009, the market will probably be lower than today, but still dropping.
Thus 2009 is likely to be another Bear year, making the 2000s the equal of the 1930s in their destruction of investor value.
by Martin Hutchinson December 29, 2008
In 2008, we have seen a Bear year of close to record-breaking proportions. The current record holder is 1931, when the Standard and Poor’s 500 Index was down 41.9%; a bad day this week could easily take it below the 853, at which its 2008 drop would equal that record. The market has by far beaten my definition of a “Bear Superbowl” – a 25% stock market decline. The question now for Bear fans is 2009: if that, too, is a Bear year with a stock market decline, then the 2000s (2000-02, 2008-09) will be the first decade with five years of decline since the 1930s.
Economically, the prospects for the early part of 2009 look a little better than they did a month ago. The flood of cheap money into the system has caused a renewed upsurge in mortgage refinancing, which has benefited consumer income statements if not balance sheets. The sharp decline in commodity and energy prices has fed into consumer prices, which by dropping 1.2% in November allowed personal incomes (down only 0.2%) to produce a rise in real spending as well as an increase in the savings rate. Durable goods orders (excluding transportation) were up in November, when they had been expected to be down.
In other words, the economic decline, which had appeared to be accelerating to an alarming rate, has slowed considerably. If President-elect Barack Obama injects stimulus into the economy early in the New Year, the recession may bottom out and economic recovery become apparent by the late spring. Presumably, that would be accompanied by some kind of bounce in the stock market.
That may seem like good news, but it really isn’t, because the imbalances that caused the economic decline would still be present. House prices would have been stabilized by the cheap mortgage money, but would still be above their long-term equilibrium, and expensive in terms of earnings. The savings rate would have been suppressed, so would still be far below the level at which the U.S. economy is self-sustaining without endless infusions of capital from Asia and the Middle East. Budget deficits would be creating difficulties in the Treasury financing market, forcing up long-term interest rates.
Most important, the recent increases in the U.S. money supply would be working their way rapidly through to inflation. Conventional Bernankeist wisdom is that only deflation is a threat now, that rapid increases in the money supply are needed to combat a decline in money’s velocity and that those increases can be withdrawn quickly when inflation looks like turning up.
One look at the statistics will tell you that’s nonsense. The broad money supply, for which the St Louis Fed’s MZM series (which takes into account currency, checking, savings and money market accounts but not certificates of deposit) is the best available proxy, has risen at an annual rate of 16.6% in the last two months or 10.1% in the last year; removing that amount of money quickly is clearly likely to be difficult. More startling still, however, is the behavior of narrow money in the form of the monetary base, which had been increasing at 3-to-4% per annum in the period to September, but has gone completely haywire since then, increasing at an annual rate of 990.9% in the three months to December. No, that’s not a typo, in those three months the monetary base has been increasing at almost 1,000% per annum. Over the last year, its average rate of increase is 86% per annum, but that reflects nine months of gentle increase followed by explosion.
A rapid 10% decrease in broad money is probably impossible without wrenching the economy into a deep recession; a halving in the monetary base is certainly impossible without collapsing the banking system. Hence, the excessive increases in money supply will not be withdrawn, though the pace of increase will presumably be moderated. The Fed will not reverse course when inflation appears, but will instead act feebly as it has in every inflationary manifestation since 1995. Inflation will thus get a good grip; based on the usual temporal relationship between money supply increases and inflation we should expect consumer prices to be increasing at an annual rate of more than 10% within 18 months of today.
Outside the United States, the picture is remarkably similar. All major monetary authorities have indulged in excessive monetary creation; pretty well all major governments are joyfully giving in to the temptation towards “fiscal stimulus.” In the e-Euro zone, for example, euro M3 (another broad measure of money supply) increased at an annual rate of 20.8% in October and will very likely have accelerated in November as interest rate declines only began on November 9. Thus the recessions underway around the world are likely to see reversals as quick as that in the United States, so that by the middle of 2009 the global economy will appear to have resumed growth.
Worldwide, the end of economic shrinkage, gigantic budget deficits and the beginnings of inflation’s reappearance will cause both a reversal in commodity price declines and a sharp upward movement in the gold price. They will also produce a crisis in the world’s bond markets, as discussed in this column November 12, as the extraordinarily low yields of recent months prove to be wholly unsustainable. There will be a flight to index-linked bonds that will overwhelm those relatively illiquid markets and a flight to gold that will completely overwhelm that relatively small market (total investor demand for gold in the third quarter of 2008 was a mere $30 billion, according to the World Gold Council.)
Before resurging inflation has spread from economists’ discussions to a matter of daily public concern, the bond market collapse will once more bring turmoil to the world’s financial markets. This time, governments will be unable to provide either monetary or fiscal assistance, because their monetary and fiscal profligacy will have been the root of the problem, not a possible solution to it. President Bill Clinton’s electoral strategist James Carville once expressed a wish to be reincarnated as the bond market, because it had more power than presidents. In the second half of 2009, we are likely to see the full power that a collapsing bond market can wield.
The result of bond market collapse will be a second downward leg of the recession, its power proportional to the excessive monetary and fiscal weapons that have been used in the attempt to escape from the first leg. It is likely to be deeper than the first downturn, and much more prolonged, since the normal forces producing rapid economic recovery will be thwarted by “crowding out” in the capital markets and the high real interest rates necessary to fight inflation.
Andrew Mellon in 1929 claimed that the best way to fight recession was to allow a liquidation of all the excesses of the previous boom as rapidly as possible after which economic growth could resume. Mellon’s method produced sharp recessions but short ones; the 1920-21 recession, for example lasted less than a year even though it was quite deep. Our less stringent methods of dealing with recessions, in particular our abandonment of monetary and fiscal discipline, are likely to cut short recessions only in the very short term. If fiscal and monetary stimuli are excessive, the recession returns, fortified by a burst of high inflation, wreaking more damage than a Mellonian recession and lasting much longer. The price of indiscipline by politicians is thus high, and is paid by the populace as a whole.
The forecast for 2009’s stock market derives from the economic forecast. In the early months of the year, the market may well be quite strong, as the recession appears to bottom out and investors seek “bargains’ at levels that appear cheap compared to the bubble of 1996-2007. However, later in the year, as reality begins to dawn, the market will once again be weak. I have calculated previously that the stock market’s equilibrium level can be assessed as the Dow Jones Industrial Average 4,000 level reached in early 1995, inflated by nominal Gross Domestic Product. That would give a current figure of around Dow 7,900. However the bond market collapse will provide an extraordinary shock to the system and will send the stock market far below its equilibrium level, perhaps to as low as Dow 5,000 or even 4,000. At the end of 2009, the market will probably be lower than today, but still dropping.
Thus 2009 is likely to be another Bear year, making the 2000s the equal of the 1930s in their destruction of investor value.
1 January 2009
My predictions for 2009 (Kevin McKern)
1) New lows in all markets in real terms before nominal increases as inflation due to a US dollar decline effects US indexes. Hyperstagpression.
2) Strongest economies defined by strong household balance sheets on one side and reasonable current accounts on the trade side, on this basis europe and the euro are revealed to be stronger than realised. Swiss and UK and emerging europe excluded.
3) Social disorder in USA, less in China than expected.
4) The UK and Australia follow Iceland down the weak currency gurgler before the crisis finally focuses on the USA and the question of dollar hegemony itself. Its not the end of the world, only the end of Anglo-dollar finance.
5) Dollar hegemony cracks as treasuries fall. Nations flee peg. Gold goes to 1500, Silver to 40. Massive deflation becomes apparent, but only against liquid financial assets without counterparty risk, that is real money, that is gold and silver. Everywhere else a flight to real assets from dollar holding drives inflation.
6) The equilibrium numeric models of the economy to be totally discredited as we grope for a new economic paradigm.
7) Oil and most commodities do much better than expected, especially agriculture.
8) Gold and silver miners, Newcrest, Lihir, Newmont are the standout stocks. As are Oil stocks are as niche alternate energy stocks.
9) ASX-200 goes below 2800.
10) More pain and yet more pain for years to come. No going back. War and rumour of war.
2) Strongest economies defined by strong household balance sheets on one side and reasonable current accounts on the trade side, on this basis europe and the euro are revealed to be stronger than realised. Swiss and UK and emerging europe excluded.
3) Social disorder in USA, less in China than expected.
4) The UK and Australia follow Iceland down the weak currency gurgler before the crisis finally focuses on the USA and the question of dollar hegemony itself. Its not the end of the world, only the end of Anglo-dollar finance.
5) Dollar hegemony cracks as treasuries fall. Nations flee peg. Gold goes to 1500, Silver to 40. Massive deflation becomes apparent, but only against liquid financial assets without counterparty risk, that is real money, that is gold and silver. Everywhere else a flight to real assets from dollar holding drives inflation.
6) The equilibrium numeric models of the economy to be totally discredited as we grope for a new economic paradigm.
7) Oil and most commodities do much better than expected, especially agriculture.
8) Gold and silver miners, Newcrest, Lihir, Newmont are the standout stocks. As are Oil stocks are as niche alternate energy stocks.
9) ASX-200 goes below 2800.
10) More pain and yet more pain for years to come. No going back. War and rumour of war.
China and Russia's hotline/ Hu on crisis
BEIJING, Dec. 29 (Xinhua) -- Chen Bingde, chief of General Staff of the People's Liberation Army (PLA) of China and his Russian counterpart Nikolay Makarov held their first-ever conversation via direct phone link on Monday.
Both military leaders hailed the successful launch of the direct phone link.
Chen said the launch of the direct phone link between the two countries' chiefs of general staff is another important measure for deepening pragmatic cooperation between Chinese and Russian militaries and another showcase of the tow countries' mutual political trust and strategic cooperation.
The direct phone link will help the two sides maintain timely communication on significant issues such as the exchange and cooperation between the armies and exchange views and collaborate stances in time on international and regional affairs, so as to promote the exchange and cooperation between the two militaries, Chen added.
For his part, Makarov said the launch of the direct phone link once more showcased the high-level of the China-Russia strategic partnership and the two countries' military ties.
He expressed his willingness to work with the Chinese side to keep frequent exchanges on the two armies' cooperation and other important issues in order to push forward their military ties.
The two leaders also exchanged views on international and regional situation, bilateral relations, and other issues of common concern.
Hu listed the effort against the unusual snow in southern China in the beginning of 2008, the 8.0-magnitude May 12 Sichuan earthquake, the successful hosting of the Olympics and Paralympics, the flight of the Shenzhou VII manned spacecraft and the hosting of the Asia-Euro Summit in October.
"Domestically. China's economic power and overall national strength has further expanded and people's living standards further improved in the past year. The Chinese people have also enhanced friendly exchanges and substantial cooperation with the people of the world, and they jointly coped with severe challenges like the global financial crisis and made new contributions to world peace and common development," he said.
The past year also marked the 30th anniversary of China's reform and opening-up, and the country has pressed ahead with the drive, Hu said.
He noted that Chinese people of all ethnic groups are working hard for an even better life.
Hu said that "2009 will be a historic year for the Chinese people," as it will mark the 60th anniversary of the founding of the People's Republic of China.
"Historic changes have taken place in China in the past 60 years. So have its relations with the world."
In the new year, the country will "seek stable and relatively fast economic growth based mainly on boosting domestic demand, improve its sustainable development ability by changing the pattern of development and carrying out restructuring, solve major problems that concern the public interest and promote sound, rapid economic and social development," he said.
"We will continue to adhere to the principle of 'One Country, Two Systems' and 'Hong Kong people governing Hong Kong', 'Macao people governing Macao' with a high degree of autonomy. We will join hands with compatriots in Hong Kong and Macao to promote the long-term prosperity and stability of both regions," he said.
On the Taiwan issue, he said, "We will adhere to the principle of 'peaceful reunification and one country, two systems', firmly grasp the theme of peaceful development of cross-Straits relations, strengthen cross-Straits exchanges and cooperation, and work for the well-being of compatriots on both sides of the Taiwan Straits, strive for regional peace and safeguard the fundamental interests of the Chinese nation."
The world is undergoing major changes, with the overall international situation stable but the global financial crisis rapidly spreading, Hu said. World economic growth is dramatically slowing and world peace and development still face severe challenges.
"Strengthening international cooperation and jointly coping with the challenges are the common aspirations of people around the world and a must for promoting the common development of all countries.
"I want to take this opportunity to reiterate that China will unswervingly adhere to a peaceful development and opening-up policy that aims at win-win and reciprocity, actively exchange and cooperate with the countries of the world, actively participate in international efforts to weather the global financial crisis, seek to promote world economic growth and the progress of human civilization and continue to work with all nations to help build a world of lasting peace, common prosperity and harmony."
Both military leaders hailed the successful launch of the direct phone link.
Chen said the launch of the direct phone link between the two countries' chiefs of general staff is another important measure for deepening pragmatic cooperation between Chinese and Russian militaries and another showcase of the tow countries' mutual political trust and strategic cooperation.
The direct phone link will help the two sides maintain timely communication on significant issues such as the exchange and cooperation between the armies and exchange views and collaborate stances in time on international and regional affairs, so as to promote the exchange and cooperation between the two militaries, Chen added.
For his part, Makarov said the launch of the direct phone link once more showcased the high-level of the China-Russia strategic partnership and the two countries' military ties.
He expressed his willingness to work with the Chinese side to keep frequent exchanges on the two armies' cooperation and other important issues in order to push forward their military ties.
The two leaders also exchanged views on international and regional situation, bilateral relations, and other issues of common concern.
Hu listed the effort against the unusual snow in southern China in the beginning of 2008, the 8.0-magnitude May 12 Sichuan earthquake, the successful hosting of the Olympics and Paralympics, the flight of the Shenzhou VII manned spacecraft and the hosting of the Asia-Euro Summit in October.
"Domestically. China's economic power and overall national strength has further expanded and people's living standards further improved in the past year. The Chinese people have also enhanced friendly exchanges and substantial cooperation with the people of the world, and they jointly coped with severe challenges like the global financial crisis and made new contributions to world peace and common development," he said.
The past year also marked the 30th anniversary of China's reform and opening-up, and the country has pressed ahead with the drive, Hu said.
He noted that Chinese people of all ethnic groups are working hard for an even better life.
Hu said that "2009 will be a historic year for the Chinese people," as it will mark the 60th anniversary of the founding of the People's Republic of China.
"Historic changes have taken place in China in the past 60 years. So have its relations with the world."
In the new year, the country will "seek stable and relatively fast economic growth based mainly on boosting domestic demand, improve its sustainable development ability by changing the pattern of development and carrying out restructuring, solve major problems that concern the public interest and promote sound, rapid economic and social development," he said.
"We will continue to adhere to the principle of 'One Country, Two Systems' and 'Hong Kong people governing Hong Kong', 'Macao people governing Macao' with a high degree of autonomy. We will join hands with compatriots in Hong Kong and Macao to promote the long-term prosperity and stability of both regions," he said.
On the Taiwan issue, he said, "We will adhere to the principle of 'peaceful reunification and one country, two systems', firmly grasp the theme of peaceful development of cross-Straits relations, strengthen cross-Straits exchanges and cooperation, and work for the well-being of compatriots on both sides of the Taiwan Straits, strive for regional peace and safeguard the fundamental interests of the Chinese nation."
The world is undergoing major changes, with the overall international situation stable but the global financial crisis rapidly spreading, Hu said. World economic growth is dramatically slowing and world peace and development still face severe challenges.
"Strengthening international cooperation and jointly coping with the challenges are the common aspirations of people around the world and a must for promoting the common development of all countries.
"I want to take this opportunity to reiterate that China will unswervingly adhere to a peaceful development and opening-up policy that aims at win-win and reciprocity, actively exchange and cooperate with the countries of the world, actively participate in international efforts to weather the global financial crisis, seek to promote world economic growth and the progress of human civilization and continue to work with all nations to help build a world of lasting peace, common prosperity and harmony."
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