Friday, April 29, 2011

A right royal knees up

Mandarin

Mandarin © fintag

News comments:
A day of positive news.

So there I was last night at the Mandarin chatting to those women who just love your company and in comes the Queen. Life doesn't get any more surreal. (telegraph)

So the cynics out there are pointing to the parallels of the 1981 royal wedding (recession and misery). Whatever one's views on the monarchy, it is about the only thing the UK has left that makes it different from other countries. Romantic fairy tales and all that.

So today all my news links are positive.

Today's shorts:
Why cash will never disappear (huffpost)

Police clear out undesirables pre Wedding (guardian)

Today's longs:
Dollar worth peanuts (telegraph)

Bernankes gold call option (bloomberg)

Oil companies just cannot stop making profits (reuters)

Starbucks is becoming the world's largest conference room provider (reuters)

Gossip:
Will and Kate have 3 children and divorce in 2024.



Thursday, April 28, 2011

Bernanke is the new Oprah

Look both ways

Look both ways © fintag

News comments:
So we listened to the Ben Bernanke press conference. (guardian)

He isn't of course telling us the whole truth but he was quite candid. The problem is it was like a Big Mac. You felt good at the time but afterwards you were still hungry. You see it is not that clear whether the Fed has a strategy or not.

So there will be more monetary support but less easing to contain inflation. This is like saying "The bed offers great support and is as hard as a rock so won't give much but will ease your back pain." Uh?

So the printing presses will be on standby and will be printing at the same time.

The buying and distorting of the US yield curve will stop in June and then the Fed will start using rates again to curb inflation. Is that what he said?

I always thought the role of the Fed was to support the USD. It appears not.

So we may or may not have inflation, rising unemployment, more QE, more put option sales, a weaker dollar but whatever, Bernanke can always blame commodity prices which are ....based in USD.

Today's shorts:
Sanatander, like Spain, bailed out by the Brazilians (bloomberg)

Today's longs:
UK is turning Japanese (telegraph)

Gossip:
Bernanke to replace Oprah.



Wednesday, April 27, 2011

Struggling to get out of first gear

Las Vegas

LV © fintag

News comments:
When people can't be bothered to gamble then we must all be depressed.

Today I was so depressed after reading a few news stories on Bloomberg, I too have gone back to bed.

The rich are abandoning Las Vegas. (bloomberg)

A Swiss bank having paid out its bonuses tells us no bonuses this year (bloomberg)

A UK bank having paid out its bonuses tells us no bonuses this year (bloomberg)

As predicted in this fintag blog post, Sat Navs are old hat (bloomberg)

Brits no longer drinking beer (bloomberg)

Low rates, low GBP, improved exports and low UK growth (bloomberg)

Japan to be abandoned as radiation is much worse than previously reported (bloomberg)

Gossip:
Depression to be lifted at the sight of a happy couple tomorrow.



Tuesday, April 26, 2011

Retweet: UK has debt problems

UK Debt

Debt countdown © fintag

News comments:
As reported by the EU statistics office, the UK is in third place.

Of course this is old news although the EUcrats have insisted they use a methodology that makes comparison fairer. A level playing field. And all that. Not that the governments involved are known for telling the truth as we have witnessed over the last few years where saying "everything is fine and we don't need to be bailed out" really means "we are fckued and want some cheap facility to keep us get elected for another 4 years".

So there is that IMF chart again represented in Excel and so looking rather shabby.

The UK is in a mess but has history and tradition and yes its been there before (1981, the year of the last Royal Wedding ...and yes my ticket has arrived and I have no view so decided to hand to the Blairs who look a little glum at not being invited).

But you Yankees out there need not feel smug for I have been reading lots of books about the 1920s and 1930s and there are incredible parallels between the end of the British Empire and the end of USA world dominance. It is all so clear why gold is the new T Bill.

(telegraph)

Today's shorts:
HSBC no longer the world's bank as it leaves Russia (for obvious reasons) (reuters)

Today's longs:
US starts the long recovery and says googbye to Jap Crap cars (bloomberg)

Gossip:
Sales of Royal Wedding tat to pay off UK debt.



Monday, April 25, 2011

Nintendo, Nokia and Night Night

Games

Red Dead XBox © fintag

News comments:
Nintendo. It is old hat like Nokia.

Once upon a time Nintendo ruled gaming and Nokia ruled mobile phones. But no more. Nintendo is a relic and its devices are being replaced by smart phones. We hear the most used camera for flickr pictures is a smartphone (iPhone 4) and Sat Navs are being replaced by iTracking smart phones. Technology is a tough space to be in and keeping up is a hard act, one which Nintendo have yet to do. Nokia is also struggling and seems to think we all want complicated menus and big button phones.

Back to Nintendo. The Wii was a novelty and so was its headache inducing 3DS. So it is no surprise its profits are down. Way down. And it will probably never recover. (bloomberg)

Today's shorts:
Kate Middleton on the Kings Road (only kidding) (telegraph)

Tony Blair to watch the Royal Wedding on his Nintendo (daily mail)

Today's longs:
Gold, Silver but no bronze (bloomberg)

Gossip:
iXbox to be launched in 2013.



Sunday, April 24, 2011

Battling against the tide

Battling against the tide

Surfing in cornwall © fintag

News comments:
Gold.

I have an old solid gold Omega watch. Everyday it goes up in value. Not because the watch is desirable but because the stuff it is made out of is in huge demand.

Any rational person would see the Gold bubble as a bubble. It is volatile, there is no income, it is madness. But this time this bubble is quite different and so cannot be called a bubble. It is a flight to quality.

The world is in turmoil. Although some events will come and go, others will be with us for a very long time. Take the middle east. It is a mess but it will sort itself out. Take inflation. Prices will go up and they will go down. Take oil. Nuclear isn't the solution but something else is. Take interest rates. Rates go up and they go down. Take debt. Debt goes up and goes down again. Usually.

Today's shorts:
Glencore kick England (telegraph)

iTracker tracks users to the bathroom (bloomberg)

Today's longs:
Gold (telegraph)

Gossip:
Tesco's carparks to be handed over to UK homeless.



Friday, April 22, 2011

Starbucks come on down

Starbucks

Starbucks © fintag

News comments:
As you know my feelings towards Starbucks is somewhat hit and miss.

Recently I noted Starbucks was a great place to save money yet at the same time its tea just doesn't cut it. But I am here to be convinced so I am delighted by the report in Bloomberg that "Starbucks Targets Coffee Drinkers Who Wouldn’t Be Caught Dead at Starbucks".

Now that is a fast way to attract customers but can I point out that coffee is not healthy and I would suggest it targets tea drinkers like myself. I would like these please:

A cup that only someone with 3 inch lips can drink from is replaced with a delicate bone china cup and saucer.

Tea bags are lazy. I never see coffee bags so why tea bags? Please replace with loose tea.

Milk. Why cannot I use 1% milk? The UK branches like to provide semi skimmed.

Temperature. The water is way to hot and scolds the tea.

Hopefully that is helpful.

Today's shorts:
TG know no gray (bloomberg)

Loser Brown takes job (reuters)

Today's longs:
Money launderers pour money into London (telegraph)

Gossip:
Starbucks to give me a hundred quid for my consultancy advice.



Wednesday, April 20, 2011

Do that and this happens

The Bernanke Mix

The Bernanke Mix © fintag

News comments:
Trying to help can often have serious side effects.

Take the EU's policy on lightbulbs. Today we have to use energy efficient lightbulbs that are toxic and give you cancer if you sit near them. They never intended this to happen but it did. (telegraph)

Take China's need for energy. It burns coal and is polluting its people. It has power shortages and would so like to build nuclear power stations but it cannot. So the people have to go without power. (reuters)

Take low rates. As time passes and economies stay sluggish, credit will loosen up as it did in the early 2000's. We all live to lever and by 2016 the world will experience a credit crunch 2.0. (bloomberg)

Take an oil spill. As time passes the oil spilled by BP disappears and the company berated so vehemently by Obama forces them to sue the real culprits; some American companies for USD40bn. (cityam)

Take US interest rates. As time passes, Ben Bernanke realizes he is now a low rate addict and cannot face up to cold turkey. (businessweek)

Today's shorts:
Dow gives middle finger to S&P (bloomberg)

The MPC (Muppet Puppet Committee) keeps eyes closed (cityam)

Today's longs:
France starts trade war (reuters)

Gossip:
Untitled Kate to say I will not.



Tuesday, April 19, 2011

Fancy earning 60% p.a?

Greece

Greece et al © fintag

News comments:
Want to earn 60% p.a. EUR guaranteed by the ECB?

Greece is on the verge of collapse. Whatever that means. What it means to us is opportunity. While the euro politicians flap about trying to stop the contagion and wondering why they have once more been duped by Athens, Greek long dated debt is looking very attractive indeed. But beware. A bit like when you go on a dating website and there is a real hottie and you cannot believe your luck. But after some impressive emailing it turns out to be a hairy biker and it will be you getting the haircut. Big yields mean buyer beware of not getting your capital back.

This debt is junk or is it (telegraph)? Will the ECB really allow Greece to default? And if it does, it would be a temporary measure surely? But this is the wrong tree to bark at as this return is peanuts and only a mad fool would buy it (like BarCap for example). And that's why the best bet is on Greek bank deposits.

There are Greek banks (wiki) offering customers 60% p.a. 30 day liquidity. I kid you not. They are not advertising this but they are trying to lock in their existing customers. These banks need capital and are paying for it. Banks aren't going to go bust on the ECB's watch so get out there now and open an account at your local Greek bank. The Greeks like negotiating so ask for silly returns and short term lock in periods.

What will happen to Greece?
The main risk to Greece is it being removed from the Euro. This is highly likely and plans are afoot to use Greece as a test country. So it is very likely we will soon have a two tier Euro. South Africa and China have had 2 currencies so why not the Eurozone? So the threat is you deposit EUR and get back a new currency. However, the ECB is slow and dithering so you probably have about 6 months.

Today's shorts:
Greek man tells William what to do on his honeymoon night (mandc)

Today's longs:
Wonga.com to buy out Citigroup (ft)

Bank of Uselessness stares motionless into the big truck's headlights (reuters)

US government to nationalize Standard & Poor (bloomberg)

Gossip:
Greece to force the UK's royal family back to Greece, assets and all.



What if the USD was downgraded?

Class of AAA

Class of AAA © fintag

News comments:
What if the USD was kicked out of the AAA club?

Lots of noise yesterday but little movement in the USD. You see the USD is a special currency in which all other currencies are effectively benchmarked. USD is what gold used to be. Think of a Mercedes Benz. It has for decades been the gold standard of car quality. Think of Apple. It has for the last few years been the design standard of PDAs. And so on. They all have one think in common; a time period of excellence before they get overtaken or taken out. The USD has been propping up countries since the second world war but its time maybe running out. If the USD was downgraded and looking at the economics should be on the same rating as Ireland or Greece, what would happen next?

If we look at the current members of the AAA club, we notice there are lots of small countries. How can the Isle of Man have the same rating as the USA? Anyway, if Germany and France kicked out all the reprobates of the Eurozone and joined up with the UK, I think it would have a good chance of upending the USD as top dog. If the Netherlands, Canada, Denmark and Sweden were added to this AAA club along with Australia this new currency to be called the AAA would be pretty awesome. Problem is it will never happen. So what is the alternative to the USD?

You tell me because I haven't a clue.

Today's shorts:
Bernanke fails to get off his meds (bloomberg)

Today's longs:
MEE says there is no alternative (reuters)

Gossip:
Super injunction actor isn't XXXXXXXX from star wars.



Monday, April 18, 2011

America and Europe go to war

Fight

Babylon's Burning © The Times

News comments:
As Harry Hill would say, "Which is better? The USD or the EUR? There is only one way to find out ...fight!" (youtube)

Post IMF bail out of the UK in the late 1970s, the UK endured some inflation, unemployment and social unrest. Today we are too civilized to entertain such nonsense, but it appears the current market manipulation tussle between the Fed in the blue corner and the ECB in the red corner is just about to hot up and instead of civil war we will soon be facing a real war.

USD
The Fed has been keeping short term rates low to stimulate its economy. It is also selling huge default insurance on its long term debt in an attempt to get long term yields down. The cynical Ben Bernanke has been buying up the long term debt and replacing it with low rate junk (ftalphaville). Of course, the biggest threat to this hedging trade on the US balance sheet is inflation and credit ratings.

America is the world's reserve currency so it has a nice Triple A. Well, unusually for an American owned Credit Rating Agency (CRA), Standard & Poor has decided to put the USA onto negative watch. (bloomberg). Reasons given are TOO MUCH DEBT AND ITS A CREDIT RISK.

So this means their is a chance of default risk. But not to worry because the US can just buy more debt and print more money. For the time being.

Now inflation is picking up. All over the place, input and output prices are rising and a dose of interest rates should bring it down again. It will also strengthen the USD and make imports from inflation ridden China cheaper too.

But the Fed is more obsessed about saving the banking sector. Inflation is for the poor to worry about it. Bernanke wants to keep US debt yields nice and low and with its put option deluge it is doing a great job. The threat of this going horribly wrong is when inflation really starts kicking in and its currency going into free fall.

The politicians want rates to be low to keep the servicing and financing of their debts low too. The recent budget fights have all assumed low rates of interest and this seems reasonable because the USA is artificially keeping rates down so it can issue cheap long term debt to fund long term projects. (latimes). But what if nobody wanted the debt at current yields?

This is the beginning of the end of the USD being the world's favorite currency. (fintag)

EUR
The CRA's have been pounding the likes of Ireland, Greece and Portugal which is odd because its debt is tiny in relative and absolute terms against the USA. Europe is dysfunctional the way America is. America may have states but Europe has countries. California is like Greece;

However, Europe which has the same inflation rate as the USA has decided interest rates have to rise. When rates rise, hot money comes in and where does it come from? Holders of the USD.

So the ECB is going to kill the USD by hiking rates (bloomberg). The USA will be facing further declines, more inflation and higher long term yields before it will have to put up short term rates. If Bernanke keeps his stubborn hat on, the USD will just keep on declining and places like China will keep on selling.

So who will win?

The USD has won the first few rounds but there is a large gash over its left eye. Left and red and opaque to the EUR which has taking some steroids without the USD noticing.

Today's shorts:
Brits abandon Europe because it is too expensive (telegraph)

Today's longs:
Greeks to go on strike (reuters)

Chinese to have a piece of Citi (reuters)

Gossip:
Bernanke is the love child of Bernie Madoff.



Sunday, April 17, 2011

Hungry, indebted and inflating

PIGS

Debt © fintag

News comments:
Food, debt, inflation, unemployment, war, radiation.

Robert Zoellick is a man you wouldn't let your children near. He would scare the living daylights out of them. As president of the World Bank he has lots of statistics at his disposal and it is giving him nightmares and last week he freaked the rest of us out. (bbc). There are a number of reasons why we need to hide under our duvets;

Food - prices going mad
Food price hikes will cure obesity says China(xinhuanet)http://www.blogger.com/img/blank.gif

Debt - debt to pay off debt madness
Europe to print more money (wsj)

The great American put option (marketskeptics)

Inflation - printing money = price madness
China stops its banks from lending money (bloomberg)

USA hasn't got a clue policy (cnbc)

China panics as it faces up to capitalist economics (cityam)

Unemployment - greedy old people have ruined it for the young
Graduates scramble for US jobs (huffpost)

War - the never ending middle east story
Libya to avoid full scale invasion (for now) (telegraph)

Radiation - Japan pretends it will be over by Christmas
Tepco says it was all overblown (guardian)

Today's shorts:
How to Money Launder USD300m. Apparently. (telegraph)

Today's longs:
Euro endures beating (bloomberg)

Gossip:
World Bank to seek banking license.



Friday, April 15, 2011

Random insights

GO CCY

GO GBP © fintag

News comments:
A random walk is sometimes good for the soul.

Euro inflation just keeps on coming. Not as fast as China's 5.4% or the UK's 4% but the same as the USA - 2.7% - means only one thing (bbc)

A friend has a hedge fund with USD1.25bn and is struggling to raise money because the fund is too small despite excellent performance and long track record.

A friend who is a consultant for the large Investment Banks told me DB were by far the most dysfunctional and a really unhappy place to work. The people have no direction and are disenfranchised. The others? Citi and UBS. Citi has too many workers, hundreds of thousands to be precise, and it is like working for the civil service. UBS is just "odd". Interestingly he told me Goldmans is also in turmoil as it is not sure where to position itself. (bloomberg)

Do you really believe the Chinese inflation numbers? (bloomberg)

Ireland: from potatoes to private jets to potatoes. That is the way its going. (guardian)

Ireland: From being richest man to destitute (dailymail)

Today's shorts:
Bernanke sleeps well as inflation continues to rise (bloomberg)

Birthers in Arizona (huffpost)

Today's longs:
EUR debt to increase (telegraph)

Gossip:
Inflation to be blamed on the bankers.



Thursday, April 14, 2011

So you want to work in Investment Banking?

Time Lord

Time travel © fintag

News comments:
So you fancy a career as an Investment Banker? Is this a good long term choice?

[IF YOU ARE OVER 25, DON'T BOTHER READING THE REST]

Once upon a time the smart people went into Investment Banking. It had the best technologists, package makers, fortune tellers and sales people. Today the smart people see bankers in the same light as real estate agents or burger flippers. But don't discount a career in Investment Banking because the next 10 years are going to be great fun and profitable. If you survive you will be wealthy beyond your dreams and if not you will have experienced probably the end of banking as we know it and have some great stories to tell your grandchildren.

My previous life as a banker was summed up by LTCM, the Russian bond crisis, the dot com bubble and as a hedgie the subprime debt fest debacle. Money was made and lost on misinformation. There is one common theme with these events and that is a lack of transparency, for bankers love packaging simple things and making them complicated and not telling the whole story. We all learned afterwards that not all was what it seemed. AAA is not a safe bet and governments lie. A liquid piece of paper can soon turn into third degree burns and valuers can make big errors of judgment.

Bankers are great story tellers. They like extreme endings. They like holding back on parts of the plot until the story ends and then walking into the sunset living the life a 1000 people could live off.

The regulators chop and change and the legislation comes and go. Although the laggard regulators eventually catch up, there are still new opaque business models to make money off. It took the authorities nearly 20 years to bring OTC derivatives onto exchanges. The authorities are slow and always try to solve last years perceived threats. Bankers are clever and have the world to play with whereas regulators are stuck in their own jurisdictions. Until there is a Global regulator which will never happen whilst China and the Middle East live by different rules, the playground has lots of hidden nooks and crannies to hide and plan and exploit in.

Today the banks are in an extraordinary position. Assets are guaranteed, interest rates are very low. Corporations are loaded with cash invested in short term government debt waiting for the next bank led opportunity to make more money. Here are some indicators and potential opportunities to think about over the next 10 years:

ETFs: Huge market, opaque and a bubble ready to explode. Packaging up illiquid assets and making them liquid. Bankers love that. It is so subprime. UCITS 4, funds for the plebs, commissions wrapped up as admin fees, license fees, risk fees, any old fees. ETF indices for hedging, equities and fixed income wrapped up into tranches, income and capital strips, recycling old sales into new sales, this is the place to be.


M&A:
With low rates, and truck loads of cash, IPOs and Mergers are going to explode. Bankers love an Ocado / Facebook overvaluation story. It is so lastminute.com. Corporate finance is going to come with a vengeance. Tax structures will become so complex they can never be wound down. So complex the courts will never come to a decision.

Hedge Funds: As opaque as could be, with the requlators forcing banks to spin out prop desks, hedge funds will morph into private equity and VC and M&A and become the new Investment Banks. They love leverage and there are ways banks can lend to them without it impacting their capital adequacy. Money market funds. Overnight. Liquid. But during the night and invested illiquids which are passed around like subprime tranches of old. Lending to off balance vehicles owned by cartels that lend onto hedge funds. Nothing new. Just new ways of doing old things.

SWFs: Sovereign Wealth Funds are opaque, huge and growing. Unregulated they can do whatever they want. But they need advisors. When QE2 stops, who buys US debt?

Real Estate: The last bastion of money launderers, regulators struggle to control real estate bubbles because people need houses and places to work. It is opaque and real.

Data: Banks make money off data they have and noone else has. Scraping websites, inside trading, selling of corp secrets, banks already own data that makes them money. Take Markit.

Agriculture: This will be the next packaged bubble. We have had hard commodities but the markets in timber and many food stuffs have spreads as wide as Cherie Blairs mouth ready to be exploited. When we see ETFs in teak and prozac and solar generated electricity then the bankers are back to their old ways.

Lending: Banks lending to people is old hat. Lending between companies and people is the way forward. Banks in China, SPVs in Singapore, SIVs in Iraq. New ways to lend, micro lending, wonga.com, peer to peer, bartering, lending exchanges, credit unions, and so on. Remember its the governments who need to borrow and they will be trying lots of new tricks to get paid and it will be the banks who will be placing their debt for huge fees.

FX: There was a time when it seemed we would end up with only one currency pair - USD/EUR. The good news is the EUR will collapse and the USD will diminish as the world currency.

Bankers love beating the system and if that is you, join an investment bank. The biscuits are good, the first class travel fun and for a period of your life you can feel full of yourself until it all ends, happily or not. If you have no moral compass and don't give a fcku then sign up. I hate investment banks and investment bankers with a passion. They are evil scum. But I am me and you are you and while the opportunity exists, make the most of it before the world turns into a red tape socialist utopian nightmare just as China turns into a full blown capitalist country.

You only live once and you never know, but you might be the person who turns the Investment Banking industry into a fun lovin' cuddly Apple. Now that is a goal worth pursuing.

Today's shorts:
IMF and the wall of debt (telegraph)

Investment Bank dupes clients (bloomberg)

Investment Bank pays for inside trading (marketwatch)

Today's longs:
Investment Banks to help sort out subprime foreclosure mess (bizjournal)

Gossip:
Investment Banking to move head offices to Bob Diamond's yacht.



Easy to borrow, hard to repay

Debt projectiles

Debt projectiles © fintag

News comments:
I am fixated by the Obama debt reduction rhetoric.

Looking at the simple facts, America has lots of old and obese people. It has a large number who are very poor and some world leading companies that provide jobs for millions but which are moving to Asia and Europe to avoid tax and red tape. The President has imposed huge future liabilities on its people in the form of healthcare and is seeking another 4 years in office so he can retire and have a good life with his family.

But look at the chart. Another chart and another actual and forecast debt reduction. It makes you want to cry. Is this achievable? Well the only way it can be achieved is if most of the American population (old and uneconomic of course) is wiped out by Japanese radiation.

Does anyone have the ability to talk to Richard Nixon to see if he has any ideas?

Today's shorts:
Bankers to follow the route of the super injunction (telegraph)

3D porn debut (reuters)

Today's longs:
Obama is Nixon and Carter (OregonLive)

BP. Something fishy (bbc)

Gossip:
US Banks to switch debits into credits overnight to vanquish debt.



Wednesday, April 13, 2011

Sovereign debt maturity

Debt Maturity

Debt Maturity © IMF

News comments:
The UK isn't all stupid.

As can be seen, the UK prefers to issue long dated gilts and is in the strong position of not having to refinance in uncertain markets unlike the USA which is keeping rates low because it has some serious debt issuance in the near term.

Cloud cuckoo land Obama is dreaming that the USA will knock off trillions of the US debt over the next 12 years. Good luck is all I can say. Obama wants to put up taxes in a country where the tax rates are pretty high already. He wants to cut spending but not on anything that will impact his 2nd term in office so is pushing out the difficult decisions to the next President. (bloomberg)

Today's shorts:
Shorting DB out pigged (bloomberg)

Guilty til proven innocent regulators set up Minority Report unit (bloomberg)

Today's longs:
Google to help students pay off loans (telegraph)

Gossip:
Obama hypnotises the American people into believing he will make their lives better.



Gordon Ramsey struggles to get finance

GR

Gordon Ramsey Debt Problem © fintag

News comments:
So there I was taking a pee and I stumbled across these men.

Opposite Gordon Ramsey in One New Change, a shopping mall in the City of London, is Jamie Olivers restaurant that is taking in USD200k a week. Jamie and Gordon aren't the best of pals but Jamie Oliver is making money and Gordon isn't. His "to be opened Spring 2011" has been changed to September 2011.

Debt is a killer.



Burning fields

Burning

Burning fields © fintag

News comments:
The fire is out there and coming to get you.

Most of us live normal lives. We see things as they are but sometimes they are so obvious we don't see them at all. A couple of weeks ago I saw a fire from nearby fields. I pretended they weren't there and went inside. It was only the next day when I saw the scorched earth I realised it was much worse than I had expected.

Take some of the news right now. One moment its fine, the next it is horror.

Frontpoint man did well then is arrested for fraud (bloomberg)

I was once asked to be a Huffington Blogger and am glad I didn't join as I would be a slave (telegraph)

Only a few days ago us Brits were laughing and singing and now we are all on prozac and cry all day long (telegraph)

Once upon a time JP Morgan wanted to be the next Goldman Sachs and today it is the next Goldman Sachs (guardian)

Europe launched the USD killing EUR but the USD is fighting back (guardian)

Wall street has no wall and now has a wall of debt (reuters)

Gossip:
(bloomberg)



Tuesday, April 12, 2011

IMF believes the hype

IMF

IMF optimism © fintag

News comments:
The IMF's Fiscal Report is interesting reading. (imf pdf)

Basically it shames a few countries for their debt woes. The usual characters, Ireland, Spain, Greece, Portugal and of course the UK. However, the country with the worst is the USA. Obama's debt legacy, its short term borrowing and its very optimistic debt reduction leaves the USA languishing with the Japan in the hall of debt shame.

But the IMF is a US run organization and has decided to be bullish about the prospects of debt repayment. Take a look at the chart. Looks like a couple of years and we will have cleared it all up.

Today's shorts:
Obama: Tax, tax and more tax (bloomberg)

Pre Madoff Petters (finalternatives)

Today's longs:
Are you being serious?

Gossip:
IMF to become Obama's PR provider of choice.



Japan nukes itself

Dungerness

Dungerness © fintag

News comments:
March 11 I said

"Scared? You should be. We are all praying its not a Level 7 like Chernobyl" (fintag)

March 15 I said

"Of course this isn't another Chernobyl. So the experts keep telling us. The governments of most countries try to cover up unpleasant realities and truths and unfortunately Japan is one of those with a track record of lies." (fintag)

April 11 the media says

"Japan upgrades nuclear crisis to same level as Chernobyl" (guardian)

I love Japan, its culture, its country, its people. What always alarms me about Japan is its insularity (immigrants are not welcome), its a country that was nuked by the allies and has been nuked by its own ineffectiveness, its people are very secretive and they have refused international help.

We are getting mixed messages from TEPCO and the Japanese government and its advisers. We really are clueless and if this is worse than Chernobyl, Japan will take years to recover.

So there I was at Dungerness a few months ago. It is an old nuclear power station on the south coast of the UK. If it suffered a Chernobyl, London would be knocked out big time.

But that is alarmist and solutions will be found. Hopefully we can all participate in the debate. We are so obsessed about Banking transparency, it is time we started embracing government transparency too.

Today's shorts:
Allied Irish makes a mistake (cityam)

Bankers party like its 1999 (bloomberg) (fintag)

Today's longs:
Oxfam to take over Oxford Street (reuters)

Gossip:
Japanese tourist industry to close down.



Lags, Laggards and the Bank of England

Bank of England

Bank of England © fintag

News comments:
So the MPC muppets were right all along.

Inaction sometimes leads to the optimal outcome. The MPC at the Bank of England have been staring into the headlights of inflation and today have gone to the canteen for an extra donut to celebrate inflation falling to 4% (telegraph). This is still way above the average in Europe and the 2% target but hey its going down.

Given the worst squeeze on disposable incomes for nearly 100 years (ftadviser), this supply led inflation is going to go back up as import costs increase due to falling GBP, so the MPC need to put rates up quickly. Of course they won't and inflation will go back up and they will sit cross fingered hoping the British people just give up buying anything for a year.

In all my years on this planet I have never seen such ineptitude. It takes many months for interest rate changes to feed through to inflation but that is not my concern. The UK is turning into Japan but without the savings ratio. Now that is frightening.

The MPC loves these people:
The coalition government
MPs in marginal seats
Those with mortgages
Those who have large credit card balances
Manufacturers
Debt lovers

The MPC hates these people:
Those who rent
Those who are old and live off savings
Those who are on low incomes

Time to short GBP big time.

[Will someone fix firefox 4 and Blogger so it stops randomly pasting in http://www.blogger.com/img/blank.gif everywhere. Thanks.]

Today's shorts:
Fish and Chips now a luxury (bloomberg)

UK interest rates to be held til end of year (reuters)

UK to stop growing (telegraph)

Today's longs:
Portugal to leave Euro soon (reuters)

Gossip:
GBP to be thrashed around on the currency markets.



Monday, April 11, 2011

Bankers are just clever civil servants

Banks

Banks © fintag

News comments:
Some of the Banks are too big to fail, apparently. (yahoo)

This is of course not just PR spin from the self preservation society known as Investment Banking but spin from the regulators and kick back lovin' governments. Big Banks are the engine rooms of capitalism and without them the world would go back to pebbles and bartering. This suits the authorities. Regulators can be given huge budgets and create jobs and Governments can use the banks to help them place their crappy government debt. It's a win - win.

And yet banks have failed all over the world and life goes on.

Take 2010. 157 banks in the USA collapsed.

Take 2011. In the first 4 months of this year in the USA, 26 Banks have failed.
(wikipedia)

There has been little global media coverage because this is normal. It really is. When a bank runs into cashflow timing issues, the next day the bank is closed down. The problem is the big banks are too big for the authorities to foreclose. This is good for the stakeholders of the banks who enjoy all the upsides without worrying about not getting their capital back because Governments can no longer afford to help their regulators foreclose banks. The bankers love it because their jobs are safe and they can take big bets with limited downside. Even if the bank fails, like Lehman, there are lots of other banks who will buy the assets (people) like Nomura and Barclays did post its demise, so job security is built in too.

Life as a civil servant is pretty cushty. On the whole. But you aren’t paid that much because it’s a public duty to serve the people. But you have a large government's balance sheet to keep you protected.

Life as a banker is pretty cushty. On the whole. You are paid a lot because you are in an oligopoly and its your duty to serve the other bankers because you are in it together. And you have a large government's balance sheet to keep you protected.

Conflicted man talks nonsense
So here is Paul Volcker bemoaning banks cannot be made smaller:
"...to break them up to the point where the remaining units would be small enough so you wouldn't worry about their failure seems almost impossible” (telegraph)

Why is a banker worth so much?
What does a bank actually do? What do bankers do? They manage cashflow. That is all they do. Manage cash. They might provide advice and take fees so they can go to the other banks who charge fees for access to their cash. They might sell bits of paper for fees and cash. They might buy assets from other banks and sell them to other banks. They might lend money to enable someone to buy a house. They might borrow money from Joe Public and given them a return for doing so.

When Depositors want their cash back, the bank has to sell something to pay them back. Or it borrows from another bank. Lehman lost the vote of confidence and when nobody would lend to them, and despite crawling to the lender of last resort, the FED who said no too, the bank went down. Lehman went bust and PWC and many lawyers made a mint from clearing up the mess.

When markets are liquid, banks like Lehman could borrow very easily. When the other banks started to say no, that was the end of Lehman. It was a big test in the end. The US government had to let Lehman go to see what the impact would be. They were proven right. It has had no lasting impact at all. In fact the banks were so scared afterwards, they began to behave better. Now the banks are back to their old tricks. As regulation comes in, out come the new products, the arbitrage, the off balance sheet vehicles, the CoCos, the ETFs, and so on. It is business as usual. Too big to fail.

Fixing the problem
So what are the answers?

1. No bank must be allowed to list on a stock market.
2. Any banker earning above the salary of the President must have unlimited liability for the rest of their lives. If the bank goes down, then so do they. No ifs, no buts.
3. The board of a bank must be partners.
4. Tier 1 capital should be 20%. If a bank wants it less than this, it pays an insurance premium to a bail out fund or better still the lender of last resort.
5. The lender of last resort must have unlimited liability. It must be the regulator and if it messes up, all partners must be liable.
6. No bank must have more than 20% of market share (however defined).
7. Retail banks (loans/deposits) must be ring fenced. Assets can never be repackaged and sold on.
8. Borrowing to build real estate to be banned completely.

Something like that.

Today's shorts:
End the Fed (end the fed)

Today's longs:
Banks too expensive for poor people (telegraph)

Gossip:
Microsoft and Google to become banks.



Six degrees of Westfield

Westfield to Glass Steagall © fintag

News comments:
So there I was driving passed Westfield in London, one of the world's largest shopping malls. And this reminded me of Bill Clinton canceling the Glass Steagall act. What a mistake that was.

Built on old land next to some of the nastiest council estates in London, Westfield is a cross between an airport and a luxury shopping mall in Hong Kong. At its basics, its a large building with outlets that are rent out to distributors of goods made mostly in China.

China enjoys inside trading and is making lots of money from it. (sydney herald)

Western governments are trying to implement one policy for all nations regarding regulation. (gfs)

Citigroup rumors were swishing around post Lehman that it would go bust and now its selling its property in Canary Wharf. (cityam)

Banks are too powerful and need to be broken up into smaller pieces. (wikipedia)

Banks used to be kept down under the Glass Steagall Act in the USA and in many ways this is being re enacted via other legislation. (cityam)

Today's shorts:
Snail King realises the errors of his ways (dailymail)

Today's longs:
Golf can be quite entertaining (denver post)

Gossip:
Banks to stop accepting cash.



Thursday, April 7, 2011

Low rates of interest are bad for us all

Lu Shengzhong

Lu Shengzhong © fintag

News comments:
Low interest rates have made us complacent; a big storm is just around the corner.

Interest rates are used to control inflation mostly (and currency strength too). However the spreads between inflation and interest rates for most Western economies are at historic highs because rate setters falsely believe that low rates = growth and happiness.

Governments used to be very frightened of inflation because it is a long term destroyer of countries. Look at Zimbabwe, Iraq, Yemen, Vietnam, India, Italy, Argentina, the UK, China, USSR, the list of victims is endless. In times of inflationary trouble the safe haven has been the USD (although Gold appears to be the new USD) and with the Euro trying to take over as the world currency questions are being asked - what happens if inflation destroys the USA or Europe? Well if rates were hiked up we could prevent armageddon.

But we are all like goldfish. The long forgotten Greenspan Put is why the USA is in such a financial mess (low rates for too long) but we are all too smart to learn from history. We are heading towards an economic crisis that will be the worst any of us has ever faced unless rates are hiked up pretty quickly.

We are all crack heads, it seems, where we will give up tomorrow but never do. The impact on our grandchildren will be trade wars, wars and Belgravia being full of Squatters.

There is good reason why bankers bonuses are larger than ever and we can blame the semi-god rate setters who are helping them big time.

Here are some reasons why low rates are bad for us all (unless you are a banker of course):

Liquidity
Low rates are no use if you cannot borrow at these low rates. Which is what is happening otherwise we would all have refinanced our debts and be living in huge mansions and driving million dollar cars on nearly interest free credit.

The psyche is this. If rates are high, people are sensible. They worry about servicing their debts and so act responsible. If rates are low, people act irrationally and go mad. And this is what is happening. People and Companies are not refinancing fast enough because they cannot. They are stuck but banks aren't calling these loans in and so are pretending everything is all right. Well pain has to come sometime.

Asset bubbles
At the moment banks have capital issues and cannot lend at the risk levels they once did but that isn't stopping them from generating and enjoying various asset bubbles such as in new areas where the collateral is deemed safe – commodities for example. And believe it or not but real estate too where cash is still pouring into the building of empty buildings.

Commodities are very volatile and as prices go up so does the capital collateral needed to trade. So the banks pour more money in because they are making money on the bubble and the bubble just keeps on growing so why not pour more into the bubble. Ask yourself why is Oil so high? Cars are becoming more efficient and solar panels are becoming cheaper. Demand is also sluggish. The middle east conflict hasn’t interrupted supply at all. Oil is a speculative boom, so make money off this while it lasts.

The Tech 2.0 bubble. Facebook and Twitter are not worth billions but with walls of cash looking for returns then yes they are worth billions and the bubble will just keep on growing whilst bankers pump and dump until we look in the mirror and realize its just another AOL debacle.

Once interest rates go up, the banks will pull their lending and put it somewhere else and these bubbles will pop. Which is good for us all.

Those who live off fixed income struggle
Pensioners suffer with low rates. Low rates means less income and if inflation is eroding the value of their income, they suffer even more. In fact the value of cash in most developed countries is eroding so fast (after taxes and inflation) you might as well spend it all and max the credit card out as it will probably be cheaper.

No wonder 1 dollar trick brothels are being found all over the country and depression is the new virus inflicting western society. (wikipedia)

Being a hippie is fine if you have a trust fund behind you otherwise it isn’t much fun.

Why bother saving?
Banks don’t need savers. Banks can borrow at near zero from each other and those freindly money printing lenders of last resort like the Fed, BoE and ECB and buy risk free govt debt with yields of 3% to 6%.

Companies who are cash rich can do the same and do. Why should they bother to lend to risky businesses when they can make these sorts of returns?

So if you are a saver then you might as well put your money in the stock markets and try and make returns that exceed inflation and be part of another asset bubble like gold and oil and tech 2.0 and other assets where the is no real reason apart from swathes of cash speculating that these assets are worth so much when their fundamentals show them to be worth a bunch of daffodils.

And of course the US Treasuries bubble. America borrows way too much but there are walls of cash form the middle east and China that want to own a piece of the American dream so they just keep on buying it. This is the next bubble for when the Fed puts up rates, bond prices will fall. With inflation pushing up, investors want a real rate of return and the existing bonds will not do it. So the US government will be forced to offer higher yields that need to be serviced and as the CRAs struggle to keep America’s AAA status these yields will move upwards and the US will become even more indebted which will cause inflation and the USA will turn Japanese where it will be caught in the trap of having to keep rates low until it can clear its debts which it will fail to do.

Real estate bad debts
Most of the world’s banks have huge real estate bad debts. The regulators know this and so do the politicians. If they were forced to foreclose, the carnage would be global (just look at the Irish banks). With banks being forced to hold more liquid debt, like government debt (so the banks are just fueling the great government debt bubble), they are making money for themselves, keeping governments propped up and not investing in new businesses.

Consumers aren’t taking advantage of this cheap debt
Why? Because consumers are already over indebted and the banks don’t want to force consumers into foreclosure so are making it hard for them to refinance. Regulators are making it more difficult for consumers to take out cheap debt too, because they were berated during the credit crunch for not controlling credit card lifestyles. Consumers are getting poor savings rates and but cannot get cheap debt to leverage their way out. No wonder consumers are feeling so depressed, unless you are a banker of course where life couldn't be more rosey.

Carry trade
Low rates is an opportunity to borrow cheap and invest elsewhere. This is the great Japanese ponzi scheme that kept much of the last boom alive. Low rate countries are used as ATMs and their currencies end up being tossed around like a rag doll on a windy night. If we are not careful the USA will be the next carry trade currency if it isn't already.

Turning Japanese
Japan has had low rates for years. It has struggled to grow internally and imports are expensive. It has survived because the Japanese love saving and this has been the cheap supply of capital that Japanese companies have relied upon but this will start running out unless it prints more money as it has done in the past and reflates and add to its huge debt / gdp imbalance (a staggering 200%). (time.com)

Older Japanese are hard workers where as the youngsters are not and are often termed Slackers. This is causing internal structural issues just as in the USA where "Entitlement" is the new Obama created socialist disease (big government). Over 90% of Japanese debt is owned by the Japanese but as the Slackers refuse to save and the pension funds dwindle the Japanese will be forced to seek external borrowers and this is where the trouble will begin. Its people are highly taxed and they spend their disposable income on Japanese government debt. This cannot last.

The Japanese Banks have got so used to low rates and above inflation Japanese govt debt yields that if rates rose the bonds would fall in value and the banks would be hit so hard there would be a banking crisis. Again.

Japan has one primary customer it sells to - the USA. The low rates in Japan have created huge car and entertainment businesses because they have had cheaper capital than the Americans. Japanese exporters have done exceptionally very well (thanks to the guilt of nuking Japan) and until the time the USA wakes up and slaps huge tariffs on Japan, it will sink completely. China has learned a lot from Japan and it laughs at the pathetic Americans who buy its cheap produce and then gives the money back to the Americans to keep the demand cycle going. It is so brilliant, China is just a huge hedge fund.

Finally...
These issues are complicated but rates need to go up fast. This will clear out the bad debts, help pensioners gain a real income and focus consumers on assets instead of liabilities. They will help burst these bubbles that are causing us all pain (gas prices for example) and most importantly contain inflation.

Today's shorts:
Why the US is in a worse place than Greece (sudden debt)

UK to bail out Portugal (telegraph)

BoE spoil my day but ECB shines (reuters)

Today's longs:
So you think the USD is still the world's currency? (fintag)

Gossip:
Sharia compliant funds to be fall to pieces as rates rise.



Rates to rise

BoE

Bank of England © fintag

News comments:
Interest rate predictions.

With rising inflation the new virus of 2011, interest rates are on the rise. Why rates are being put up is because this is historically what has been used to curb inflation in the past. There are other ways but this is the nasty way. Economists tell you it reduces the money supply, dampens growth, inflates currencies, reduces disposable income, that sort of thing. Of course if every country has the same inflation rate, interest rates would be the same. Well not quite but I am not here to tell you about the whys and hows of economics for I am assuming you are as clueless as I and in any event knowing how something is supposed to work doesn't mean it will work the way you believe it will.

History will show that the antics of the ECB, BoE and Fed over the past few years were reckless. Things should be allowed to go bust and by putting rates so low after the credit crunch and ignoring bad debts hoping they would go away was madness. We have a few people controlling our destinies. Will the 1970s repeat themselves or will it be the 1930s all over? Or will raising rates have the effect of savings going up and obesity going down? Who knows.

Whatever the upshot, there is a lot of anxiety out there. Depression is on the increase (pa) / (bbc).

The Bank of England and ECB are itching to put up rates. Politicians are not so keen, especially in the PIG countries where every basis point means the cost of borrowing increases. (guardian)

So we have a few experts telling us rates are going up in the next few days (unless you live in China where this is becoming a common occurrence).

My prediction is the Bank of England and the ECB will rise rates by a pathetic 25bips.

Today's shorts:
Bloomberg thinks King will continue to stare into the headlights (bloomberg)

Today's longs:
ECB is going to raise rates until the PIGS squeal and die (bloomberg)

UK banks tier capital to be destroyed by bomber Moody (reuters)

Gold and oil reach new highs (reuters)

Lone man predicts BoE will raise rates (telegraph)

Gossip:
Rates to rise.



Wednesday, April 6, 2011

News: Mostly pants

Pebbles

It takes a long time to make a pebble © fintag

News comments:
It takes a long time to make a pebble.

Imagine if everyday there was a news headline explaining why and how the Pebble was evolving. Headlines like "Pebble turned over today due to strong tides" or "Pebble dried out in the sun" or "Seagull stands on Pebble" or "Small child throws Pebble at Seagull" and so on would be very dull indeed. So dull you wouldn't bother reading about the daily antics of the Pebble. Maybe a quarterly update would suffice.

So everyday we have to be told why the markets moved up and down. Markets are very complex and move for thousands of reasons so when we read "Markets moved up because Goldman published a report" you know its all pants.

But you know all this. Here are some news links that may or may not be very important.

Today's shorts:
US is preparing for bankruptcy (bloomberg)

Can collector seeds hedge fund (finalternatives)

Today's longs:
Luxury food is what we want in tough times (guardian)

Gossip:
Financial news to be regulated by a regulator.



Tuesday, April 5, 2011

USA to take a short break

Where is WeiWei?

Where is WeiWei? © fintag

News comments:
So the USA is closing down for a bit.

Personally I am more concerned about the whereabouts of Ai Weiwei. China is a country we all depend on but it has no concept of human rights. The man is an artist and I hope he starts twittering soon.

Of course if I was an American citizen, my concerns would be more immediate like will I have electricity and water at the weekend? Obama's diplomacy and stubbornness is showing through and its no coincidence gold is running away again.

I have spent 2 hours reading about the potential shut down and don't understand it. For a world superpower it does have odd processes. Why doesn't Obama get Bernanke to print some more dollars?

Today's shorts:
USA takes a short break (guardian)

Ai Weiwei is missing (telegraph)

UK to bail out the world (telegraph)

Today's longs:
Finbar Taggit favourite to win CityAM award (cityam)

1 in 7 chance Euro splits (telegraph)

Gossip:
Obama to hand over his Amex card to the Republicans.



The OECD is like the Wizard of Oz

WOz

Wizard of Oz © fintag

News comments:
The Wizard of Oz hid behind a curtain and told everyone what to do.

The OECD (Organisation for Economic Co-operation and Development) does pretty much the same. It really grates when this non profit organisation, funded by the world's richest countries, goes about telling countries what they should and shouldn't do. It's as if they are all card carry members of the "Plato's Republic" society.

The OECD is funded 25% by the USA so no wonder it has in recent times spent a lot of its USD500m budget flagging up tax havens and criticizing countries for having low tax as if low tax was a sin. I thought low tax demonstrated prudence but when tax hungry countries like the USA are involved, they will slag off anything that takes income away from them.

The USA should get its house in order. With Geitner fighting to get the USA credit card limit increased, or people will be on the streets, (bloomberg), you know why the USA loves to support the OECD.

The Republicans realize like most Americans and the rest of the world that debt is bad. The fact they want to follow the UK and slash public budgets makes sense and it it is no surprise that the socialist leaning OECD comes out and says the UK will have slower growth than everyone else because of its cost cutting. (telegraph)

[Update: And so the Tea Party have decided a USD6Trillion budget slash is in order - take that Obama ... (bloomberg)]

Growth with debt, Ireland style, isn't a good idea but the OECD seems to think it is.

There is something sinister about the OECD I don't like. It is always predicting. Does anybody ever monitor if these predictions ever turn out correct? I wish someone would and hold this waste of space organization to account. [Editor: spelled with a z too.]

Today's shorts:
OECD says G7 will be fine (except Japan) (huffpost)

Today's longs:
Chinese raise rates again (cityam) because it is running scared of inflation (fintag)

Gossip:
UK to leave the OECD to save money.



Oxford shows its true colors

Oxford with UC © fintag

News comments:
Oxford win again.

After the trouncing of Cambridge at the 2011 boat race (guardian), Oxford did it again last night by winning the University Challenge. (telegraph)

Despite Oxford falling down the world rankings, it is pulling all the stops to ensure it wins at the things that matter. Like rowing and pub quizzes.

But that is crass and I am sure you wondering what this has to do with the markets.

The letters of Kafka perhaps? (markets being irrational and all that) (bbc)

Oxford pointing out that most people in the UK are migrants (bbc)

All forms of entertainment to be banned in Oxford and elsewhere (oxfordmail)

I mean its not that I even went to Oxford. However, I was intrigued that the team members with the most brains were Australian, American and Matthew Chan who is described on facebook as hot. As usual, the Brits needed outsiders.

Gossip:
No Hot Gossip.



Fintagleaks spot on again

Bank of England

Bank of England © fintag

News comments:
And so fintag gets it spot on again.

As reported in bloomberg "King Soothes BOE Staff With Canteen Cost Pledge After Pay Freeze".

Having inside contacts at King Towers is why a few weeks ago I was able to joke about the canteen costs at the Bank of England being a real concern to the MPC rate setters. Now we learn staff are being given food and blankets to avoid having to live outside in the real world. You see fruit baskets and canteens are the barometers of success and staff expect to be looked after.

The memo Bloomberg have is dated 1st April so its probably a joke; but then most of the Bank of England is a joke anyway so it probably isn't. Is it?

Bank of England

MPC's Canteen Concerns (15 Feb 2011) © fintag


Today's shorts:
Oil moving towards 150 (telegraph)

Today's longs:
Moody's spanks Portugal again (cityam)

Gossip:
Under the Freedom of Access act, the Bank of England is to open its Canteen to City Workers.



Monday, April 4, 2011

Running the UK by Powerpoint

UK 2011

UK 2011 © fintag

News comments:
The ONS is now on YouTube. Why didn't you tell me?

The UK produces lots of meaningless statistics. But no more. The ONS (Office for National Statistics) is now explaining the statistics on YouTube. The narrator is a pseudo Welsh Rob Peston and its very illuminating. Ideally I would like Mervyn King or Nick Clegg to provide a narrative and maybe they will in the future.

Today's shorts:
ONS Powerpoint explanation on GDP (youtube)

Today's longs:
Unemployment in the last few recessions (youtube)

Gossip:
Houses of Parliament to be replaced by YouTube.



Greedy old people and poor young people

In the long run we are all dead

Death as Art © fintag

News comments:
The UK and its interest only mortgage.

If you want to borrow to buy a house you get the options of just paying interest on the principal debt OR a repayment where you pay interest and the debt.

Interest only is great if you believe in rampant inflation and flog the house CGT free for a packet. Repayment is great if you want to own an asset after a number of years outright and don't believe asset taxes and squatters will take your home away.

It is a tough choice.

The UK government, like most governments, are short termist like interest only house owners. They want it now and they want it cheap. So they issue lots of debt and service interest. And they do it again. And again. And again until the interest payments start dwarfing the revenue used to pay it off (that revenue being mostly tax or the profits on the sale of government assets like gold; remember him, that flog it all now, spend like mad chancellor Gordon Brown?)

The UK's interest only mortgage has a staggering GB62Bn interest payment schedule in 2015. (spectator). Now this is more than the education budget so I have a plan. Why not abolish state education (it is pretty crap anyway) and just have a private system? Or forget being masters of the world and close down the MoD and join the likes of Germany and Switzerland who seem to do pretty well without owning tanks and missiles and fighting-fodder? Or if this last one is a bit extreme, create a mercenary MoD and sell its services?

Borrowing is so easy when you are a AAA and don't care about the next generation. Solving this problem is not easy but the worst solution is borrowing even more because one day even Japan will not be able to service its debt without serious implications on its currency and way of life.

So here is my plug for the March Against Debt on May 14th.

Today's shorts:
Brits bet on property and inflation (cityam)

Today's longs:
Banks start losing money: lower dividends, higher bonuses then (bloomberg)

Gossip:
Houses of Parliament to be turned into a hotel.



Inflation: Better than a good curry

The Big Picture

The Big Picture © fintag

News comments:
Inflation.

We all love inflation. As asset prices rise, we feel good. That car you bought for 100 is worth 100 three years later. Depreciation has been beaten by inflation. That house you bought for 100 is now worth 300 and you didn't do anything except just live in it. Yesterday you earned 100 and now you earn 150 despite being less productive. That 100 debt you have is in real terms now only worth 50 and so have reduced your debt without paying it off.

However, inflation only benefits those who can ensure their income increases at the same or faster pace than the basket of goods and services inflation is based off. Or those who are "rich" and just have lots of capital. The net effect is inflation is a very good thing. Or is it?

Governments don't like inflation because it impacts their currency. High inflation deflates a currency. As it deflates, import prices increase and add to the inflation. And so it goes on. Argentina. Zimbabwe. UK.

Go back to the 1970's in the UK and inflation was so bad compared to other countries the government had to constrain wage inflation which was running at a higher rate than inflation with the consequences of falling company revenues and taxes. The unions went on strike and the people lived by candle light amongst piles of uncollected trash.

Of course the idea came first from Richard Nixon, who implemented one of the first peace time incomes policy to curb inflation. This blatant attempt to control the markets ended up with massive hikes in inflation when these temporary policies were stopped.

Short term inflation is good (hence Ben Bernankes attempts to reflate) but in the medium to long term it is devastating.

So what is going on with the equities markets? Is it in a parallel universe? I am afraid so. If you want to see what impact the ECB's rate rise is going to do to Europe, in its belated attempts to combat inflation, then check out the bond markets for they really do tell you what the future holds.

You see those who work in equities have inflated egos whilst those in fixed income have more chance of making money.

Today's shorts:
Poland rates (bloomberg)

Graduates now earn less than the minimum wage thanks to inflation (scotsman)

Australians inflate (wsj)

Indians suffer scurvy from inflation (the hindu)

Smoke, mirrors and the Taylor Rule (wikipedia)

Today's longs:
iPad eaters (bloomberg)

Gossip:
Google to charge for searches.