Perceptric Forum

The Real News

Chris Gilbey — Sun, 24 Aug 2008 12:07:54 +1000

Its probably not surprising that the really important news is hardly ever to be found at the front of the newspaper - if in the newspaper at all!

Take the current global fascination with the fall of Fannie Mae and Freddie Mac. Most people outside of America were unfamiliar with the names up until a month or so ago. Now the financial pages continue to pore over the possibilities of them both failing totally.

But now we are starting to see what lies beneath as reported in Bloomberg.

And it is really interesting to find out who is the most exposed. Most of the papers talk about the "investors" as if they are all mums and dads who have invested their superannuation. It turns out that the people holding most of the paper are actually Chinese banks.

China's $376 billion of long-term U.S. agency debt is mostly in Fannie and Freddie assets, according to James McCormack, head of Asian sovereign ratings at Fitch Ratings Ltd. in Hong Kong. The Chinese government probably holds the bulk of that amount, according to McCormack.

Industrial & Commercial Bank of China yesterday reported a $2.7 billion holding. Bank of China Ltd. may have $20 billion, according to CLSA Ltd., the Hong Kong-based investment banking arm of France's Credit Agricole SA. CLSA puts the exposure of the six biggest Chinese banks at $30 billion.

``The seriousness of such failures could be beyond the stretch of people's imagination,'' said Yu, a professor at the Institute of World Economics & Politics at the Chinese Academy of Social Sciences in Beijing. He didn't explain why he held that view.

I can imagine the quandary that the decision makers in Washington must be in. Either they let Fannie and Freddie fall and mightily piss of the Chinese, or they save it and continue to delay and increase the ultimate impact of the train wreck that is the US economy.

You would think it would be an easy choice.

Socialized Capitalism

Chris Gilbey — Tue, 05 Aug 2008 06:17:26 +1000

This is what Nouriel Roubini has to say about the current moves in the US to bail out the banks according to an article in Reuters:

"They have swapped U.S. Treasury bonds for toxic securities. It is privatizing the gains and profits, and socializing the losses as usual. This is socialism for Wall Street and the rich."

The good news is that Roubini is bullish about the global economy!

Crumbling Economy, Accelerating Memes

Chris Gilbey — Wed, 30 Jul 2008 08:42:44 +1000

I haven't blogged for a while.... the news about the global economy has been so widely reported and I didn't feel I had anything significant to add that hadn't been said before.

Suffice to say that I have been blogging about the problems in the US economy and the inter-connectedness of other economies for quite a while... And people are starting to wake up to the concept that if you spend a trillion dollars or so on a war and have to borrow the money from other countries at some point someone wakes up and smells the coffee and says "by the way what are your assets really worth?"

The opportunity now surely has to be for people around the world to subscribe to a new vision.

That vision has to be to move away from the cultural meme that was originated in the US by Edward Bernays. That meme goes, "We have to move the US from being a needs based society to a desires based society". I would venture to say that this concept was the most significant cultural export since the advent of Christ.

That meme which in essence is about self interest drives consumerism in China and India and everywhere. And it is out of control greed that is wrecking the planet. Every shareholder looking for a guaranteed ROI and every consumer looking for the latest greatest flat panel screen to view the latest blockbuster movie is a contributor.

And I am no different. I'm also looking for the quick investment in a stock that is going to go through a three to four x growth over the next six months and make an easy buck....

So how do we break free from this downward spiral?

The answer is that we are not going to, but it will be done for us.

I was reading a report from Ken Rutkowski earlier this morning about American consumerism. What I think is interesting is that the speed of the transmission of memes is increasing at a massive rate. And populism of an idea is going to cause the shipwreck regardless of what anyone does at the top to try to keep the ship of state afloat.

Here is what Ken's article said:

Word travels fast
The Internet has had a profound effect on financial markets and consumer confidence due to its near-instantaneous relay of information. To get another angle on U.S. consumer confidence, Nielsen Online, through its BuzzMetrics service, monitors consumer chatter on the Internet, tracking consumer-generated content on more than 70 million blogs. Results showed dramatic jumps in economic discussions on the heels of critical events. For example, when the Federal Reserve announced a 0.75% rate cut and the Dow Jones Industrial Average plummeted 400 points in January, economic discussion increased 26% compared to the prior week. Negative sentiment inched up again between February and March to 65%, as news of the sub-prime lending fiasco and ethics violations spread. In this age of consumer control, the new building blocks of competitive advantage will require a pulse on consumer sentiment as one of the best ways to foster consumer engagement and loyalty.

This is the thing that is going to truly alter society next. People are going to run from one side of the boat to the other as contrary stories appear. Eventually the boat capsizes. Sorry to be a doomsayer, but this is what is going to happen.

It is really about the big ideas in society.

Look at Afghanistan. That seems to be the next big focus for the western world's military misadventures.

The unfortunate reality is that while there may be Taleban or Al Quaida there using it as a staging base and they may be the problem, the real issue is the asymmetric issue of how they work. Afghanistan is the global centre of the opium trade. And from opium you get heroin. And heroin is sold at huge profits. While heroin is illegal it attracts high margins. If you legalized heroin you would remove its black market mark up and remove its profitability.

The problem is that the profits from illegal drugs like the profits from illegal arms are the life blood of the global banking industry. Think about it: Even drug dealers have to move their money around somehow. And the easiest way to do that is through the legitimate banking industry. I read sometime ago that around a third of the money in the financial system is from illegal drugs. So the point is that the people who touch that money are making money from it. They don't want their profits to decline so they aren't going to put any pressure on governments to do what needs to be done - to control the distribution of drugs by regulation.

So while you have that, no change will take place. The Teleban is not really any different to organized crime. And organized crime isnt getting any smaller...

So the train wreck unfolds slowly at first and then suddenly it goes into real time....

Somewhere in the next year or so we will see the results...

Housing Price Trend In UK

Chris Gilbey — Sat, 12 Jul 2008 16:21:12 +1000

The UK seems to be having a seriously rocky road economically at the moment, and the future doesn't look too good either.

Check out the housing price trends. Looks set to drop a whopping 25% over the next 24 months according to The Times:

Economists gave warning that there was worse to come. Yesterday Howard Archer, of Global Insight, the economic consultancy, changed his forecast for house price falls this year to 15 per cent, up from 12 per cent, with a further 12 per cent fall next year. Michael Saunders, of Citigroup, the investment bank, said: “It is fair to say that we are now in the worst housing slide for more than 50 years.”

More info here if you are interested.

The Bears Come Home To Roost

Chris Gilbey — Mon, 07 Jul 2008 10:33:15 +1000

Check out this blog posting by Mike Shedlock.

He is a financial analyst who has excerpted some recent comments by Henry Paulson, the US Treasury Secretary.

From those comments he deduces that the US is preparing for some serious blood on the tracks in terms of the financial markets!

Here is what he says:

In my estimation this is tacit admission that large financial institutions are poised to fail, and the tools are not in place "to limit that impact and facilitate an orderly failure".

Impact To Economy From Floods

Chris Gilbey — Thu, 03 Jul 2008 16:48:36 +1000

If ever there were examples of how interconnected we all are, we are seeing them right now.

First we had the oil price crisis which some people think is caused by speculators, but in reality is caused by the fact that the speculators have formed a belief that there is limited supply and increased demand. Hence market forces will set prices higher and higher until there is no further tolerance for higher price.

Now we have the news that the wild card of the Iowa floods is having greater impact on the local farmers than we might have expected. Check out this story.....(From Moneyweek)

"A catastrophe for Iowa farmers will not be just a catastrophe for Midwestern Americans. In the Iowa floods, we’ll see more evidence of how the problems of weird weather (climate change) combine and ramify the problems associated with Peak Oil. In this particular case they lead to an inflection point sometime around the 2008 harvest season, which will also be our time of political harvest.

These are not your daddy’s or granddaddy’s floods. These are 500-year floods, events not seen before non-Indian people started living out on that stretch of the North American prairie. The vast majority of homeowners in Eastern Iowa did not have flood insurance because the likelihood of being affected above the 500-year-line was so miniscule — their insurance agents actually advised them against getting it."

It seems that not only has the move into corn/ethanol reduced the availability of food, but now with the increased price of delivery via trucks and the reduced amount of recompense that farmers will receive via insurance that there are significant stresses on the whole agribusiness/infrastructure ecosystem.

Expect that the speculators will get onto this next and drive up futures in all food products in the US and that will impact prices in other countries too.

The Case of The Stolen Rhubarb

Chris Gilbey — Sun, 29 Jun 2008 16:20:54 +1000

Unbelievable but true. People in the UK are stealing each other's vegetables!

Things must be getting tough...

Read this story in the Telegraph.

Kelvin Brittain, a 52-year-old security officer who has a plot in Bushbury, Wolverhampton, said two wheelbarrow loads of rhubarb and beetroot had recently been plundered from a neighbouring plot.

Interview With Richard Heinberg

Chris Gilbey — Thu, 19 Jun 2008 20:16:26 +1000

Kerry O'Brien did an interview with an global oil expert by the name of Richard Heinberg.

The program web page is here. You can go to the video or read the transcript of the interview there.

This is something really important to watch or read. This guy talks really convincingly about what the near future for the world is. He argues extremely succinctly about how global oil supply is what it is all about and if there really was enough supply the speculation would not be there. So we can expect volatility and high prices.

That means a total rethink of all global logistics including transportation, the way that we grow food, and the fundamental way that we operate in society.

If as Richard Heinberg suggests we need to build transportation around electricity, it is going to mean massive opportunity to those who plan to be in areas of business that provide into that kind of infrastructure.

Watch the interview - it is extremely important!

The Real Cost Of War...

Chris Gilbey — Mon, 26 May 2008 14:54:53 +1000

The real cost of war is the amount we are all paying to fill our cars right now.

Here is what one of the leading oil economists has to say about it...

The oil economist Dr Mamdouh Salameh, who advises both the World Bank and the UN Industrial Development Organisation (Unido), told The Independent on Sunday that the price of oil would now be no more than $40 a barrel, less than a third of the record $135 a barrel reached last week, if it had not been for the Iraq war.

Continuing On The Edge

Chris Gilbey — Mon, 31 Mar 2008 17:02:40 +1000

And here is some more news about the US that should be putting people's teeth on edge....

Yesterday's release of the Case/Schiller Index of the 20 largest cities in the country, shows that housing prices have slipped 10.7 per cent in the last year while sales were down 23 per cent year over year. That means that retail equity of US homes just took a $2 trillion haircut. Still, prices have a long way to go before they catch up to the 50 percent decline in sales from the peak in 2005. From this point on, prices should fall and fall fast; following a trajectory as steep as sales. Many economists expect housing prices to drop at least 30 per cent, which means that $6 trillion will be shaved from aggregate home equity. In a slumping market, many homeowners will be better off just "walking away" from their mortgage instead of making payments on an asset of steadily decreasing value. Who wants to make monthly payments on a $500,000 mortgage when the current value of the house is $350,000? It's easier to pack the kids and vamoose then waste a lifetime as a mortgage slave. Besides, the Bush administration has no interest in helping the little guy stay out of foreclosure. It's a joke. All of the rescue plans are designed with just one purpose in mind; to save Wall Street and the banking establishment.

Get into the bunker and make sure you have lots of supplies! And at the same time I am reading stories that based on Cheney's recent visit there, the Saudi's are starting to do nuclear fallout exercises.