28JAN09:
Q1-09 DOW: 8900
Q2-09 DOW: 7250
Q3-09 DOW: 5810
Q4-09 DOW: 3960
CITI NATIONALIZED
OBAMA GETS SICK 27AUG09:
Mini Crash 21SEP09 Predicted correctly:
Bailout=Bonuses
Demise of Bear Stearns
Demise of Lehman Bros.
Demise of AIG
Subprime would cause problems
Date of 2007 crash
CRAs were to blame
G20 riots were a party
Northern Rock run
Northern Rock Nationalization
HBOS and RBS demise
UBS really was Useless
One of the upshots of today's economic unwind is a revival in political debate. Whereas we have have been blinded by personality and how governments should spend our taxes, we are now ironically facing a future of unprecedented debt levels and political bungling that will impact us all for the next 50 years. Everyone is talking politics which is a healthy thing. Politics = Creativity = France.
The credit crunch was about unacceptable levels of private debt and now this burden is being taken on by governments too who are suddenly abandoning monetarism with its low interest and inflation rates to a discredited Keynesian model where spending at all costs will get us out of this mess. Politicians who are around for such a short period of time can cause havoc. Bush enjoyed a massive surplus and is leaving office with a massive deficit. The problem with increasing debt as we hit recession are as follows:
1. Public Sector Pensions - future liability unknown. These are not accounted for and in most Western countries the number of civil servants is at record levels and rising. 2. Much of the West is facing an ageing population who are not tax payers. They are servants to the civil servants and expensive to run. 3. Interest Payments on debt have to be serviced for many years in the future. Our children will be paying off our credit exuberance for the next 50 years. 4. More government debt crowds out the private sector and investment will fall. 5. Government bond auctions will require higher interest rates to attract buyers. 6. Tax must go up to pay for it all. 7. The price of iPhones will collapse.
Nice.
FINANCIAL CRISIS: GOVERNMENT DEBT RISING AT FASTEST RATE SINCE 1946
Alistair Darling has become the first Chancellor in history to borrow at a rate of £200 million a day as the economy heads into its first recession since the early 1990s.
Despite this, Mr Darling has said that he is prepared to spend his way out of trouble and will raise public borrowing further if necessary. Experts warned that the money would eventually have to be paid back in the form of higher taxes or lower spending for future generations.
Research from the Centre for Policy Studies showed government debt has now climbed to the equivalent of £75,984 for every household.
Fintag says Thank goodness we have cheap air travel so we can arbitrage. Consumers are riddled with debt and so are governments. In 1946 consumers had virtually no debt - just hope for the future. This time it is very different. I expect personal bankruptcy to go through the roof and taxes to rise rapidly too. Why do we all believe that debt will help us escape? This is politics of fantasy and debt is what got us into this mess.
This is the death of the West. Asia - it is your turn now.
CREDIT CRUNCH FORCES MILLENNIUM TO CLOSE HEDGE FUND
UK-based Millennium Global Investments started unwinding its Millennium Global Emerging Credit Fund last week, after some banks changed the terms of their credit lines, a person familiar with the situation told Financial News.
The hedge fund, with $800m in assets under management, was affected by the “complete collapse of the financial markets,” the person said, adding that the firm had no other option. The source said it would take some time to unwind the fund given “the current state of the market.”
Fintag says Another fund bites the dust and more assets sold on the market for a song. Another reason that excessive debt is a bad thing.
Ben Bernanke, the Chairman of the US Federal Reserve, fuelled a global fightback by battered stock markets yesterday, boosting hopes that Washington will soon order new tax cuts and extra public spending to shore up the faltering American economy.
Mr Bernanke's explicit backing for fresh “fiscal stimulus” measures to bolster US growth, combined with rising optimism that the global financial turmoil may be abating, drove a resurgence in shares on both sides of the Atlantic.
Fintag says We have an election in 2 weeks time. Why are we listening to yesterday's man? Obama wants taxes to go up and the bearded academic who helped create this mess with Alan "put" Greenspan wants to borrow now and pay later. Help ...
Treasury secretary Henry M. Paulson Jr. says taxpayers have nothing to fear from the government's injection of $125 billion of their money into nine American banks. It is, in Mr. Paulson's words, “an investment, not an expenditure.” Run the numbers to see what it would take for Uncle Sam to get his money back — plus a modest bonus for his troubles — and it looks as if Mr. Paulson may be right.
In return for its cash, the Treasury gets preferred stock that pays 5 percent annual dividends. On the first $125 billion, that's $6.25 billion a year, or $31.25 billion over five years, at which point the dividends increase to 9 percent. Since the banks will endeavor to pay off the preferred stock before then, the Treasury can probably finance its investment by selling five-year bonds, which on Monday yielded 2.85 percent.
Fintag says Investment! If the private sector is sucked dry, these investments will collapse. Unless of course the governments abandon mark to market pricing and pretend they are worth more than they are. This is like kids in a sweet shop buying a jar of un-opened cookies and holding onto them for 30 years in the hope they can sell them on ebay for a turn. Crazy.
CORPORATE GOVERNANCE BECOMES HOT TOPIC FOR HEDGE FUNDS
Corporate governance has been dismissed by some as only for 'open-toed sandal wearers', not for the well heeled investors around Mayfair and Connecticut. Some in corporate circles complain the focus on governance has taken the management away from boards and replaced it with an exercise in box ticking.
Over the past decade, the markets have seen a well-publicised rise in activism by investors focused on the strategy of individual companies and on the way they are governed, remunerated and structured. Even mainstream institutional investors have been involved in requisitioning resolutions to remove board members at companies like Management Consulting Group and Whatman.
The research suggests there is a genuine benefit to good governance. It can improve operating performance and increase the return on shares, while at the same time reducing the volatility of that return. To add real value to a company, governance must be seen as a holistic device for delivering better performance, not as an exercise in box-ticking.
This is the advantage of the IVIS approach. Adding extra value is beneficial for shareholders, and executive directors, employees, customers and the wider society as a whole.
Fintag says Regulation ...no wonder compliance and risk averse people are feeling so smug. But this is the new world it seems. Being offshore in such a relief. Private pools of capital are private. I think.
While the public financial markets are in crisis, U.S. private equity firms not only continue to stockpile capital but have picked up the pace of their fund-raising.
Private equity firms raised $222.6 billion for 264 funds during the first three quarters of 2008, 11% ahead of the $200.4 billion raised for 298 funds in the same time last year, according to Dow Jones Private Equity Analyst. That is in contrast to the halfway point of this year, when fund- raising slightly lagged last year's pace, and is despite a slow-down in buyout fund-raising. The full-year fund-raising record of $313 billion was set in 2007.
Fintag says Interesting that Private Equity funds are filling up again. I had lunch with an old Pirate yesterday and he told me the attraction is that the money is locked up and marked-to-fantasy. This means low volatility, a decent fantasy return and the investors will be long gone before the assets are redeemed worthless.
I like it.
AMID THE RUBBLE OF GLOBAL FINANCE, A BLUEPRINT FOR BRETTON WOODS II
The international financial system is broken. An integrated set of reforms will be needed to achieve sustained economic growth and shared prosperity. The G8 leaders of Europe, Japan and the US have agreed on an emergency summit this autumn in New York to revamp the international system - a good idea, provided it initiates a wide-ranging set of changes rather than being a one-off meeting focused on market regulation.
The G8 leaders are keen to start on regulation and that is understandable. Wall Street, the City of London and other financial centres ran wild with undercapitalised borrowing and lending stoked by over-the-top fees and bonuses. Alan Greenspan's Federal Reserve fed the financial bubble with rock-bottom interest rates and regulatory forbearance, when it had the chance to restrain it. And the derivatives market was allowed to become so vast and unwieldy that there is no clarity as to who owes what to whom in tens of trillions of dollars of credit default swaps and other derivatives.
Fintag says Will protectionism rear its ugly head again? You bet. When markets and countries are distorted capital flies to where it is safest and gets the best return. Forget climate change and poverty - the West will soon have its own poverty to fend off and anyway, if we dump debt onto our grand children why not let them sort out our polluting ways? Capitalism is a friend to us all. Socialism is a distortion that ends in tears.
What is happening in the markets is an unwind. A correction. It is not the end of the world. The markets have hardly fallen.
bloomberg says " Wall Street's Woes Trickle Down to Caterers, Limos, Headhunters "
For now, the fact that a lot of national borrowing is denominated in U.S. dollars is leading to what we call trickle-up wealth destruction. Pakistan, Ukraine, the Baltic states, Hungary, all of these Nation States are forced to go to the IMF and borrow money to meet their sovereign obligations. They don't have the foreign currency reserves and can't borrow in current market conditions.
You see, not all governments are big enough to guarantee their largest banks without putting their own credit ratings at risk. And not all governments are well capitalised, or have big tax bases upon which to securitise future borrowing. The credit crisis, then, is bringing not just private sector institutions, but governments too.
Eventually, the U.S. government itself may default on its debt. Since the British invention of a funded national debt in the 17th century, governments have been able to run perpetual debts by funding the interest payments on borrowed money with tax revenues. You simply keep rolling over the debt, using taxes to pay the interest and principal to bond holders.
America faces a situation where tax revenues are declining as the economy shrinks. Payments to the Baby Boomers are about to rise as a percentage of Federal spending. The Congress and the President and the Fed have added trillions on to the long-term liabilities side of the government balance sheet.
Karl Marx is back in fashion, says one German publisher, who attributes his new popularity to the economic crisis.
Publisher Karl-Dietz said it sold 1,500 copies of Das Kapital this year - up from the 200 it usually sells annually.
Written in 1867, sales of the tome rarely hit double digits but have been on the rise since 2005.
Marxist economic philosophy - and in particular its Russian Leninist version - fell out of favour with the collapse of the Soviet Union in the late 1980s.
"It's definitely in vogue right now," said the publisher's director Joern Schuetrumpf.
CARACAS, Venezuela — As the price of oil roared to ever higher levels in recent years, the leaders of Venezuela, Iran and Russia muscled their way onto the world stage, using checkbook diplomacy and, on occasion, intimidation.
Now, plummeting oil prices are raising questions about whether the countries can sustain their spending — and their bids to challenge United States hegemony.
For all three nations, oil money was a means to an ideological end.
Fintag says Reversion back to mean.
JOINT U.S.-NEW YORK INQUIRY INTO CREDIT-DEFAULT SWAPS
n an unusual partnership, New York State and federal prosecutors are investigating trading in credit-default swaps, the insurancelike securities that have come under close scrutiny for their role in the financial crisis.
Prosecutors are looking at whether traders manipulated the largely unregulated market for credit-default swaps to drive down the price of financial shares over the last year, people briefed on the investigation said.
Fintag says At long last. The CDS market is a sham.
1. Vince Cable - deputy leader of the Liberal Democrats
2. Christopher Wood - chief strategist of CLSA, a broking firm in the Asia-Pacific Market.
3. Founders of www.stock-market-crash.net - website aimed at investors
4. Henry Weingarten - astrologer
5. Nouriel Roubini - economics professor
6. Nikolai Kondratiev - Russian Marxist economist
7. Founders of Housepricecrash.co.uk - property website
8. Lord Oakeshott - Liberal Democrat Treasury spokesman
9. Stephen Roach - senior executive at Morgan Stanley
10. Ron Paul - Republican Congressman
Fintag says And no mention of FiNTAG? What a shock. I must hat tip Stephen Roach who got it all spot on. Not that we should be gloating of course. We are all having too much gloom and doom and need perking up. Who is going to predict the bottom? Now that is much more difficult.
Until Monday night, France's banks had given no indication they were interested in acessing a €40bn recapitalisation fund unveiled by the government last week.
But Ms Lagarde said Crédit Agricole would receive €3bn, BNP Paribas €2.55bn, Société Générale €1.7bn, Crédit Mutuel €1.2bn, Caisse d'Epargne €1.1bn, and Banque Populaire €0.95bn.
Fintag says My Hall of Shame is out of date already.
29 comments
anonymous said ...
Not sure that I agree. I love paying tax and look forward to paying 100%.
21 Oct 08 - 07:51 gmt
anonymous said ...
I'd like to know when the piper will have to be paid for all this intervention. Seems to me its all make believe anyways and nobody will be paying back any of the money that is being given to the banks or Iceland.
None of this is real or we'd see it in the Dow Jones index which should be way off but is only about 4000 points down.
Japan was at 42,000 when their problems hit and they're at..what?...9k+ and this is a decade later.
21 Oct 08 - 07:59 gmt
anonymous said ...
Note the emphasis on who won:
"The collapse of swap spreads and mortgage spreads today reflects a real change of sentiment and is the market voting that the central banks have won this round of the war." - acrossthecurve.com
21 Oct 08 - 08:01 gmt
anonymous said ...
Nice brownies...... but can we agree that they're a little expensive?
21 Oct 08 - 08:02 gmt
MsR said ...
I think you'll find that £1.50 per unit is pretty good for so called 'artisan' brownie. I like a squashier, deadlier brownie so I use unsalted butter, ground almonds and a lot of dark chocolate in mine which would work out at £2.50 per unit if I sold them.
21 Oct 08 - 08:32 gmt
A confused graduate... said ...
Has anyone got any advice for a graduate in his final year hoping to pursue a career in the City? Or should I simply face reality, pack my bags and go travelling for a year (or 5) until the economy stabilises again? Thanks.
21 Oct 08 - 08:57 gmt
MsR said ...
Graduate, are you just confused or have you been drinking absinthe?
21 Oct 08 - 09:00 gmt
A confused graduate... said ...
MsR, the former. I don't do absinthe...
21 Oct 08 - 09:07 gmt
Finbar said ...
Sorry, I had to take down the chocolate brownie for Health and Safety reasons. Hope you enjoy the chart instead ...
21 Oct 08 - 09:42 gmt
anonymous said ...
Grad... well I think you should, its now city boys staple drink along with meths. good luck
21 Oct 08 - 09:52 gmt
anonymous said ...
Has MsR ever contributed anything here on any subject -- the success of her 'career', her supposed physical attributes, her fashion-sense, her knowledge of the London restaurant/bar scene, her cooking skills -- that haven't been self-aggrandizing?
21 Oct 08 - 11:01 gmt
Moron said ...
she's a woman anon....u need to learn to patronize their insecurities a little bit...poor little helpless creatues:))
21 Oct 08 - 11:03 gmt
MsR said ...
Goodness anon, you let me down at some point? Were we lovers? Were you crap?
21 Oct 08 - 11:15 gmt
MacroHedgeBoy said ...
@graduate. Become a civil servant - most bankers are now anyway
21 Oct 08 - 11:26 gmt
Moron said ...
ms r .... r u a good lover:))
21 Oct 08 - 11:27 gmt
MsR said ...
Nah, I'm so full of myself I just lie there and let the bloke do all the work...Usually I file my nails and scroll thru my Blackberry while they do it....talk about other guys, you know that sort of stuff...nah, really crap. Need lessons.
Want to help me out?
21 Oct 08 - 11:38 gmt
Moron said ...
i'd say u are wild Ms R...and very very adventurous:))
21 Oct 08 - 11:45 gmt
MsR said ...
Nah, rubbish but if I was with someone like anon 11.01 who is clearly very discerning,humble and highly amusing I reckon I might be able to manage it.
Moron go and make some money...I have to write some words now for my imaginary career...you are always good value...life is miserable enough now without some banter. Best
21 Oct 08 - 12:06 gmt
anonymous said ...
Too bad about Stephen Roach Clip. He was talking the doom and gloom bearing down and it got him exiled to China (he was always, as a Congressperson said, a panda-lover). And as soon as he was gone, MS analysts forecast 4% (!!) growth in US GDP for 2008.
21 Oct 08 - 12:34 gmt
KONG said ...
I see our boy Robert Peston has been up to his old tricks. He really is a disgrace to a disgraceful profession.
21 Oct 08 - 12:50 gmt
cockyspiv said ...
Anon / MsR / Moron
Please get a room
21 Oct 08 - 13:22 gmt
Robert Peston said ...
Thank you
21 Oct 08 - 13:23 gmt
Moron said ...
but we got a room...a chat room.......www.fintag.com:))))
21 Oct 08 - 14:14 gmt
Moron said ...
ladies.....having done some more considered analysis....i have hereby reached the conclusion that santa is dead....the path of least resistance remains down....bear market continues despite yesterday's rally....and from now to the end of the year...money will be made on the short side.............don't buy the bottom is in bullsh*t!!
21 Oct 08 - 14:28 gmt
Jaa said ...
Well done Moron, after all the good calls you made i couldn't believe YOU of all people were trying to call a bottom..Small bounce tomnorrow.... 800spx by end of week.
21 Oct 08 - 15:07 gmt
Tradebot said ...
Santa, hmm. How did I manage to left him out from my list of evil beardos. Gifts for nothing, live on credit, awful Christmas songs. And he is a Red too...
21 Oct 08 - 15:18 gmt
Moron said ...
Jaa......if u knew who i really am.....u would say....Moron rocks:))) dribble dribble dribble:))
21 Oct 08 - 16:10 gmt
Moron said ...
it seems to me that the us markets are on a rather downward sloping trajectory at the moment....this is boring:)))
21 Oct 08 - 17:19 gmt
anonymous said ...
I see that Argentina is now seizing private pension funds to pay the bills. Mr. Taggit, would you recommend pulling out the money and stuffing it into the mattress now?
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