Perspectives on the global economic meltdown (Jan 26 2010)

kubhamanyu · Post by **kubhamanyu** » 05 Aug 2010 08:06

What signals are there of chinese devaluation, in the near term?
I can find this statement, which appears to say that they don't expect it to appreciate, that is the signal, but they just let it float?
http://www.pbc.gov.cn/english/detail.as ... 00&id=1488

SwamyG · Post by **SwamyG** » 05 Aug 2010 08:14

Sanjay
As they say you need salt, meat, ammunition and a gun. No gold-vold. Knowing swimming and martial arts might be handy

It is a man eat man world out there. Half the anal-yeasts say eCONomy is good, the other half say "no good". The money managers who depend on bear market are crying sky is falling down, another set say "it is slowly recovering onlee". In the global kitchen everybody's kichadi is cooking onlee.

Lord Buddha, several thousand years ago,knew this would happen, so he took off from his palace. Tell SHQ to pack a small goodie-bag and get ready for Vanaprastha; and then once the content of the goodie-bag disappears, just take up sanyasa. Fruits, leaves, clean water, fresh air is all you need....wait a minute they say there is a waiting list to get into the forest. All forests have been converted into Jungle Resorts. So Vanaprastha would have to wait.

enqyoob · Post by **enqyoob** » 05 Aug 2010 08:29

What happens if the Tea Partyists get their wish, the evil BOcracy is overthrown, the Austrian School of Pani-Khanomics takes over.. and in keeping with Election Promises (that may be the last election in Dera Abe Khan) pulls the Yoo Ess out of the Yoo Enn and the Dubya-Pee-Tee and Duniya Bank?

No, Yoo Ess exports will not be so greatly hit, because right now the best Yoo Ess exports are not price-based-competitive, they are want-based or greed-based or fear-based. Besides, bilateral trade agreements will be made. But the effect on several other things may be spectacular, if you love disaster movies.

enqyoob · Post by **enqyoob** » 05 Aug 2010 08:34

AoA! Hold everything! Desi urban high-rise market is about to explode, with new opportunities for sub-sub-letting: Imitate HongKongistan
And we don't even need books in those bookshelves, who reads books any more?

Sanjay M · Post by **Sanjay M** » 05 Aug 2010 08:49

Okay, let's come up with a sequence of events to describe the psy-war between Exuberance and Fear (aka. Bull vs Bear), since it is these fundamental emotions which exacerbate economic cyclical swings.

China's economy is continuing to expand at the USA's expense. Exuberance of Chinese causes them to throw lots of money into real estate. Meanwhile Fear by Chinese leaders of growing wage-hike protests (aka. Fear of the lamp-post)means they are allowing their yuan currency to continue appreciating against USD, to give their people more purchasing power and less reason to protest. Meanwhile growing Fear in Americans on their economic outlook causes them to cut back on household expenditures. This causes a slowdown in Chinese exports (we're seeing that right now - that's the phase we're in right now)

Eventually, Chinese slowdown in exports triggers a collapse of the real estate bubble, which Chinese have irrationally thrown too much money into, due to their irrational over-Exuberance. This then triggers a capital flight out of China, by Fearful foreign investors.
The bubble starts to implode rapidly/catastrophically, in a panic of Fear. Out of Fear of economic catastrophe, Chinese govt then quickly moves to reverse the valuation of the yuan, in an effort to have their economy export its way out of recession, which means China buying more US treasuries.

As a result of this influx of funds, USD is buoyed up, and gold collapses as speculators pull out of it due to Fear that the USD is now more attractive.

Who will manage their emotional rollercoaster ride better? The ones who manage their emotions worse will be taken advantage of. The ones who manage their emotions better will be able to see more clearly how to take advantage of the emotions of others.

SwamyG · Post by **SwamyG** » 05 Aug 2010 08:55

^^^^
Okay, let us assume the Chinese Manufacturing collapses; the Walmart ships laden with plastic bunnies no longer docks at San Francisco. Who is going to manufacture cheap and elegant plastic bunnies for Family Dollar stores?

Carl_T · Post by **Carl_T** » 05 Aug 2010 08:56

SwamyG wrote:I am seriously thinking to cash out from my stocks. After suffering, couple of years, of thousands and thousands of dollars of paper-loss, I broke even recently. I know this is not a Stocks tip dhaaga, so let me phrase my question this way to all you eCONgurus: "Do you think the stock market is going to tank in the next month or two?"

The goal is long term growth rather than short term movements so I think you should only have an amount of money in the market that you're willing to lose in the short term.

It is impossible to forecast these near term fluctuations, the market moves as major news is released and it pieces together a fundamental picture of the economy, so by the time the economy is either shown to have expanded or contracted, the stock market is already up or down by then. If you're predicting market movements, you're looking at something no one else knows about or no one is looking at. I would like to know what that is then! So please state your rationale.

Sanjay M · Post by **Sanjay M** » 05 Aug 2010 08:57

^^^
SwamyG,
Americans are already leading that curve by initiating their cutbacks on purchases of Chinese plastic dogsh*t.
Chinese manufacturing doesn't collapse instantaneously, and meanwhile the Chinese govt reacts quickly to devaluate its currency by quickly purchasing US treasury debt.

Carl_T · Post by **Carl_T** » 05 Aug 2010 09:01

enqyoob wrote:
The idea that you or I or even a mutual-fund manager might buy a company's stock based on fundamental developments seems positively quaint nowadays. Now, large "investors" buy and sell gigantic blocks of indexes--representing tens of millions of bundled shares and occasionally acquired with buckets of borrowed money. It's as if they were dealing in gold or crude oil or currencies rather than giving a thumbs up or down on 3M or Caterpillar or UPS.

These traders have elbowed aside long-term investors. Instead of caring about balance sheets and price-earnings ratios, they learn about high-frequency trading, dark pools, naked access and automated market structures. Where once stocks traded mainly on the New York Stock Exchange, a few regional exchanges and Nasdaq, they now change hands on more than 60 "trading platforms" where enormous numbers of shares move all day and all night--and on weekends, too.

This actually makes a lot of opportunities for the small, individual investor doing his due diligence carefully. Think about it.

It implies that the fundamentals aren't reflected in the price, thus lots of mispricings should appear.

Satya_anveshi · Post by **Satya_anveshi** » 05 Aug 2010 09:05

SwamyG garu,

it goes like this
CNBC=>GE=>Consumer Debt=>Company Results=>WS

In the bullish market, the more the euphoria the more debt consumers take and results will follow. In current situation, the more the stimulus the more the gain to each in this value chain.

Negotiating how much benefits to get from an already declared program is different than taking a stab at governing leaders. So, I don't think the Hilary for VP type of thing is coming from anywhere outside of BO's admin itself. Having said that I realize we are in the political mood now; it takes extra suaveness to read different games these guys play.

vina · Post by **vina** » 05 Aug 2010 09:10

enqyoob-ud-din-al-gas-turbiney wrote:AoA! Hold everything! Desi urban high-rise market is about to explode, with new opportunities for sub-sub-letting

Lets face it. In Yindia, al Hong-Kong esque high rises are the future. The kind of population density we have rules out anything else in the metro area. Right now, Yindia is low rise land, but giving way to Mumbaiesque high rises and equally unfortunately slums along the way. That is a direct corollary of limited land in metro areas and the consequent rise in prices.

Why even in Bangalore , Kerala, the days of stately bungalows in the Cantt are long gone. I can't believe what has happened to Haudin road in Ulsoor, no more old stately bungalows in 5 ground plots anywhere. All bungalows knocked down and ugly apts in their place. Sure , sure, it may not happen immediately to Alapuzha , Haryana (now dont go dissing Alapuzha, my folks on mother's side come from there originally.. Allepey, ernakulam and then trivandrum and then Bangalore over 5 generations),it might not happen in the interiors, but heck even the lake front on Vembanad all along , shacks and groves have given way to 5 star properties and kattuvellams used to carry rice and other stuff (great great grandpa was a coir exporter out of Allepey) to Ernakulam in ancient days are now fancy schmanzy "house boats" (over 700 on vembanad lake) with 3 bedrooms (air conditioned onree, thank you), with running water and phive isthaar so-soo facilities in suite. Now descendants of former "natives" like yours truly get "cultural immersion" done for SHQ and kid from "house poat" onree after flying into Kochi and taking taxi to boat jetty.

Now when shacks and coconut groves and langot wearing fishermen and poatmen now all turn phive ishtar , all sporting cellphones and ipods, prices go up onree no? especially for land which is in short supply!.

Also, think of this , if you visit Singapore, there is a Metro station called "Kolamayer" , it sounded vaguely SDRE (there is dhobi ghat as well, which reeks of SDRE ness), but on digging deeper, I discovered that "Kolamayer" is actually "Kollam Iyer" . Now if Dhoti wearing SDRE goes from Kollam to Singapore and the place becomes "Kolamayer" with a TFTA Metro right in front of it with 100000000% land value appreciation, then when SDRE stays at Kollam and a huuuuuuuuuuge "Joy Alukkas" and a "Wedding Selection" Burkha store are the things that greet you when you enter Kollam in the rutted NH 47 from Alapuzha , then it just means that SDRE Kollam has arrived as well and if not 100000000000% appreciation, you will have 1000% appreciation there. Whether sustainable or not is a different proposition. It might not continue at 1000%, but it wont become 0 % either.

Singha · Post by **Singha** » 05 Aug 2010 09:16

there is a bizarre proposal in BBMP to make helipads mandatory in new buildings over 20 storeys as if anyone has the employer or personal funds to commute in helis. this is said to ease the traffic situation - BMTC will run CH53 helis from rooftop to rooftop?
dont these people use their heads and media ask 2 questions before printing anything at face value?

vina · Post by **vina** » 05 Aug 2010 09:19

Singha wrote:there is a bizarre proposal in BBMP to make helipads mandatory in new buildings over 20 storeys as if anyone has the employer or personal funds to commute in helis. this is said to ease the traffic situation - BMTC will run CH53 helis from rooftop to rooftop?
dont these people use their heads and media ask 2 questions before printing anything at face value?

More bizzare when you consider that existing buildings WITH helipads are not allowed to operate helicopters in India (I think the Accenture building in Bannerghatta Road has a helipad).

Singha · Post by **Singha** » 05 Aug 2010 09:21

yes and never used. even UB city helipad has likely never been used.

Klaus · Post by **Klaus** » 05 Aug 2010 09:33

Carl_T wrote:
SwamyG wrote:I am seriously thinking to cash out from my stocks. After suffering, couple of years, of thousands and thousands of dollars of paper-loss, I broke even recently. I know this is not a Stocks tip dhaaga, so let me phrase my question this way to all you eCONgurus: "Do you think the stock market is going to tank in the next month or two?"
The goal is long term growth rather than short term movements so I think you should only have an amount of money in the market that you're willing to lose in the short term.

It is impossible to forecast these near term fluctuations, the market moves as major news is released and it pieces together a fundamental picture of the economy, so by the time the economy is either shown to have expanded or contracted, the stock market is already up or down by then. If you're predicting market movements, you're looking at something no one else knows about or no one is looking at. I would like to know what that is then! So please state your rationale.

Here, you are stating the age-old belief of the market moderating and "taking care" of itself in the long term. This has been proven cr@p after the sub-prime mortgage disaster.

Carl_T · Post by **Carl_T** » 05 Aug 2010 09:43

I've never said anything about the market "moderating" or "taking care" of "itself". If you feel so, please do point out where in my post.

Satya_anveshi · Post by **Satya_anveshi** » 05 Aug 2010 09:56

Folks, please resist the random firing in the air before Hari/Suraj agree on IB4TLs. This has become Nukkad outside the burka. I think still we have some more journey to cover and pop corn to finish

as far as global economic meltdown topic is concerned.

Hari Seldon · Post by **Hari Seldon** » 05 Aug 2010 10:22

All this real estate focus leads me to post something from the one place where the madate from heaven ensures that realty cannot crash: dlagonland.

Facts:
1. PRC has an extremely low interest rate on deposity (<1%). Aam Cheenis have no where else to deposit their monies but in state run banks only.
2. Deposit rates are <1% but domestic inflation rates are way higher (reports differ but all of them are higher). Sanitizing the USD glut with local renminbi is one reason, perhaps.
3. Result: as Yves puts it

we are seeing an even more extreme version of what negative real interest rates in the US produced: leveraged asset speculation, particularly in the biggest asset class, residential real estate.

4. Prices are completely outta line with local rents and incomes. This NYT article says:

And as the prices of new apartments soar — in Shanghai, for instance, they often exceed $200,000, while the average disposable income is about $4,000 a year — the trend also threatens to undermine the central government’s goal of affordable housing for the rising middle class.

More expert comment:

The residential RE stuff is completely baffling: the valuation differences between cities are large; but none of them look cheap. Shanghai may be extreme – but even at the more modest (!) house price = 8x salary in other cities, a 30-year mortgage @ 6% or so takes 60% of gross average income (unless my calcs are completely shot) . So I can’t understand who is buying housing at all or how or what they are living on – even if the parents and grandparents are helping out their 1 child, it is quite a stretch. Rental yields 2-4% depending on location so that’s no good if there’s much gearing.

And then there's this Andy Xie piece that's over the moon. Try keeping a straight face only...

How many flats in China are sitting empty? The media recently floated a story — denied by power companies — that 64.5 million urban electricity meters registered zero consumption over a recent, six-month period. That led to a theory that China has enough empty apartments to house 200 million people….
...
One useful figure for analysts is China’s living space per capita….Based on this limited data, however, we can confidently conclude that China does not have a housing shortage. Moreover, its per-capita living space is higher than in Europe and Japan.
Jai Ho!
Indeed, if we adopt Japan’s standard, China already has sufficient urban housing space for every man, woman and child in the country.

Far more important than general data, however, are the housing figures pointing to a huge quantity of empty flats apparently being held only for speculation.

Read it all.

Suraj · Post by **Suraj** » 05 Aug 2010 10:35

vina: Cochin has seen a huge spike in midrise (~10-30 floors) construction, particularly northern reaches of Marine Drive, Thripunithara, Kaloor, Kakkanad and other parts around the NH-47 bypass . My parents have a home in one of those areas, built in the early-mid 90s before the boom, and their place looks positively odd now, with several tall buildings nearby. 10 years ago it 'away from civilization' for all practical purposes. They got solicitations asking to buy out their properties, with offers running into crores, which they were sorely tempted to, but the inertia and headache of moving made them pause, since they're basically happy there now.

RE prices are a function of land availability. Measures that will significantly bring prices in line within 'realistic' lines include rationalization and transparency of land titles and RE sales records (who bought when for how much), effectively enforced zoning measures, and property tax management. The current unrealistic prices are a function of the constrained availability of real estate, with the demand just bidding up the price. Comparing some US locality with some Indian one and expressing shock at prices is meaningless. All real estate is local.

PS: My mother's family too is from Alleppey

Neshant · Post by **Neshant** » 05 Aug 2010 10:46

Sanjay M wrote:So imho, that means US treasuries are a better bet than gold - at least for the near/medium term. Then wait until they really soar/swell up, and then dump them for gold which would have fallen in the meantime. Because gold will swell back up as fears return over US debt exposure due to all the Chinese purchases of US debt. Anyone disagree?

Your position is exactly that of Robert Prechter who predicts deflation of all asset classes where cash is king in the near (1 to 5 year) term. He claims hyper-inflation may occur after this but only if the govt is able to get its hands on a printing press perhaps by nationalising the federal reserve.

He believes that the federal reserve will not take junk onto its balance sheet and will only agree to hold govt bonds and other good assets. In short, he believes the federal reserve will not willy nilly print up a bunch of money for monetization. That's where I part company with him.

The prime objective of this criminal banking cartel is to pass on the losses of its (insolvent) share holder banks to society. So its hard to believe they aren't dreaming up some scheme to leave some sucker holding the bag. There just aren't enough foreign suckers to offload the losses on...

I'm hedging it both ways, accumulating US dollar cash/short term govt treasuries (as prechter suggests) and accumulating gold (as prechter advises against) for the time being. If this great deflation comes about which I doubt, I'll be ready to jump in like a kid in a candy store and start buying. If not, the gold should protect me against the printing & inflating by Ali Baba & the 40 thieves at the federal reserve.

Whichever way this tree falls, I should be able to weather it. What I'm sure of is that the west is headed for a lower standard of living with a sh&tload of taxes coming down the pike to pay for the fraud of banking & financing, bailout hounds, pension pumpers, SS ponzi schemes and various other rackets even while the printing goes on unabated. This is not going to end well.

The only spoiler to all this is if some new productive industry that has the size & scope of IT/Internet in the 90s suddenly comes about. The only thing looking promising is genetics. Something out of the blue like free energy, anti-gravity or artificial intelligence would be a wild card. But all things being equal, with the focus on the useless banking & financing sector which produces nothing other than scams, I expect things to drop like a toilet seat as Prechter suggests.

ShivaS · Post by **ShivaS** » 05 Aug 2010 10:55

Your position is exactly that of Robert Prechter who predicts deflation of all asset classes where cash is king in the near (1 to 5 year) term. He claims hyper-inflation may occur after this but only if the govt is able to get its hands on a printing press perhaps by nationalising the federal reserve.

This was exactly predicted by John Snow a while on this very thread. Last I contacted him he sticks to his guns on that.

Deflation ---> Stagflation -----> Hyperinflation

look at Argentina and Zimbabwae for near analogus models.

Argentina's economy started to slowly lose ground after 1930,[78] when it entered the Great Depression, after which it recovered slowly. Erratic policies helped lead to serious bouts of stagflation in the 1949–52 and 1959–63 cycles, and the country lost its place among the world's prosperous nations, even as it continued to industrialize.[15] Following a promising decade, the economy further declined during the military dictatorship that lasted from 1976 to 1983 and for some time afterwards.[79] The dictatorship's chief economist, José Alfredo Martínez de Hoz, advanced a disorganized, corrupt, monetarist[80] financial liberalization that increased the debt burden and interrupted industrial development and upward social mobility; over 400,000 companies of all sizes went bankrupt by 1982[15] and economic decisions made from 1983 through 2001 failed to reverse the situation.

Record foreign debt interest payments, tax evasion and capital flight resulted in a balance of payments crisis that plagued Argentina with severe stagflation from 1975 to 1990. Attempting to remedy this, economist Domingo Cavallo pegged the peso to the U.S. dollar in 1991 and limited the growth in the money supply.

from wikipedia

abhischekcc · Post by **abhischekcc** » 05 Aug 2010 14:03

N^3, your idea that India is a cheap version of AMerica is a cheap version of the marxist idea that India is a cheap version of the USSR.

Hari Seldon · Post by **Hari Seldon** » 05 Aug 2010 14:47

^^^abcc,

Bottomline is the insistence that yindia is a cheap version. Of something that can be debated later.

Brings more and more into perspective the fact that there is no alternative to finding our own path, our own original version - cheap or otherwise. I hope its cheap and mass-scalable, FWIW.

abhischekcc · Post by **abhischekcc** » 05 Aug 2010 14:57

I think I will put one personal anecdote into the debate.

Since I am wife hunting these days, I meet a lot of girls from differnt professions and have a long chit chat.

One of these happened to be a manager from SBI corporate loans department. These are the guys that lend to DLF, Unitech etc. Asked her whether property prices are crashing/falling/right-sizing due to the money squeeze.

She said that while prices per se are not falling (developers being reluctant to reduce and all), new projects are getting affected with delays and cancellations.

Take it FWIW.

Singha · Post by **Singha** » 05 Aug 2010 15:31

bankers make good wives. stable job (esp if PSU bank) , reasonably good at dealing with people, not too long hours, time bound payhikes and pay commission reports, diversification of your cash flow source across professions. onlee problem with PSU banks is around every 3 yrs they get transferred. but I do think pvt banks offer some better option for people wanting to be posted at one place. most women bankers tend to marry men bankers I think to take advantage of dual transfer policy on humanitarian grounds.

vina · Post by **vina** » 05 Aug 2010 15:56

bankers make good wives. stable job (esp if PSU bank) , reasonably good at dealing with people, not too long hours, time bound payhikes and pay commission repo

Hmm. The ones I know are inbeshtment bankers in New York. Long hour, highly stressed, job security moves lock step with economy, highly driven, tough as nails , career oriented.. good as girlfriends don't know about wife material.

enqyoob · Post by **enqyoob** » 05 Aug 2010 16:29

My idea is certainly not that India is a cheap version of America. It is that urban India is (a) overpriced, (b) dismal in quality of services, (c) more corrupt than the Wild West and Africa combined and (d) lacks the basic controls that America instituted because of hard experience over 200+ years. This is seen in financial institutions, advertising, pollution control, transportation, you name it. There are super-well-intentioned government officials and initiatives, but these are thwarted by the "NBPJ" gang of Rahul Mehta's expositions, by the mafia and the cattle herd mentality of the vast majority. So the disasters occur after a delay, and are quite predictable, though they are also amplified in India. As for whether Indians are trying to do a cheap, superficial imitation of the worst of America, well... who am I to say, but watching Indian TV and reading Indian newspapers certainly does convey that impression. Wonder why..

The predictive value is however, in realizing that India is far from being immune to the disasters due to excesses that are seen in the US. The same things occur after a delay, and things crash a lot harder because there are no controls, no realization and no swift action when there is realization. For instance, the American stock market went down some 50% in the 2007-2009 recession, while Indian funds went down 60 to 75 percent. "Delinking" indeed

Likewise, there is completely senseless bubbling in urban real estate and in several other things, and these are going to crash because the fundamentals are crooked. In India, the words "Ponzi Scheme" cannot be explained as being bad, because it describes most market scenarios - you go rush to join something not because it makes sense, but because others are doing it, and you want to get ahead of the next guy trying to get there. The government is far too slow (except to institute knee-jerk babucratic orders that get tossed out at the first legal challenge) and the body of Indian law is 100 years behind the times, so it is completely hopeless in dealing with modern realities.

As for bankers... in the early 90s Indian loan rates were around 19%. I asked a banker why their bank would lend anyone money at 19%, and what was the chance of a legitimate production enterprise making enough profit margin to keep their heads above water while repaying a debt at 19%. He said he asked his bosses that, and they sort-of gave glazed looks - they had to keep lending because everyone else was doing the same. There was phoren currency pouring in from Gulf, so liquidity was not a problem.

Sure enough, several banks incl. nationalized banks in India came very very close to bankruptcy and were presumably saved by the govt printing paper money, and expats sending foreign currency. Indian bank's CEO spent time as a guest of the guvrmand in the Father-in-Law's residence. SBI bosses just got scammed by Harshad Mehta to some monstrous amount in the stock market. UTI came close to bankruptcy.

And this was all done with no help from criminal American NBJ types.

I am surprised there hasn't yet been a credit card blowout in India.

Hari Seldon · Post by **Hari Seldon** » 05 Aug 2010 16:31

Quality-e-life (Q-e-L) indices tumble a notch further in UQ. Or maybe not so much for aam aadmi.

Am told an awful lot of gubmint supported 'art' and 'artists' are high-flying modern-art types, druggies, MF Hussein type controversy-hores or all the above.

Aam UQ aadmi may not miss that much after all, perhaps. Or not.

British government moves to dramatically cut public funding for the arts

LONDON -- The art scene exploded in Britain over the past decade, giving rise to jewels like the Tate Modern museum on the silvery banks of the Thames and sparking a renaissance of playwrights, filmmakers, artists and dancers. The fuel for that boom: a surge in generosity from Britain's single biggest patron of the arts -- the government.

But now cash-strapped and desperate to slash the largest budget deficit in Europe, the new ruling coalition of Conservatives and Liberal Democrats is moving to close the curtain on an era of what they describe as excessive government patronage.

The coalition is preparing to cut arts funding so dramatically that it could sharply reduce or sever the financial lifelines for hundreds of cultural institutions from the National Theatre to the British Museum....
The cuts are set to be so deep that some observers say even the famously free London museums might need to consider admission fees, potentially affecting the pockets of millions of tourists who flock to the British capital each year.

The cuts would be more than a temporary fix. Officials are calling for a permanent shift toward the U.S. model of private philanthropy as the main benefactor of the arts, upending a tradition of government sponsorship that helped produce the likes of Academy Award-winning directors...
The move underscores the profound changes in the role of government that are taking place from Greece to Spain to Britain. It happens as European nations scramble to rein in runaway spending, in part by slashing public funds to sectors that came to survive -- even thrive -- because of them.

Well, if brit museums are facing issues, maybe they can 'lease' back India's treasures back to Yindia, for the next 1000 yrs, eh? OTOH, going by the way the likes of Sri Kalmadi have scammed the simple hosting of a game (show), dunno how much scamming will happen over museum exhibits.

Also, yes, its no surpirse that gubmint (i.e. taxpayer) funded 'art' tends to be more to the left of the general taxpaying populace than privately funded 'art'.

Large arts institutions in Britain often garner more than 50 percent of their budgets from public funds, compared with roughly 10 percent for major institutions in the United States.

That is precisely what the British government says must change. Although the cuts have not yet been detailed, some organizations, including the UK Film Council, are already in the process of being shut down. The government has also demanded major institutions come up with contingency plans for 25 to 30 percent reductions in public funding.
...
Spalding, for instance, said it was exactly the independence afforded by government funding that has helped London become a beacon for controversial pieces, such as one staged last year at Sadler's Wells in which the pope sexually abuses an altar boy through interpretive dance.

"In America, the art scene has become more conservative because it depends on private funding," Spalding said. "Sponsors are not interested in the young, experimental scene, and that's what I fear we may be about to lose -- our independence."

Yeah, whatever. They'll still find the money to find and fund DIEs, commies and traitors amongst SDRE pimtelligentsia - the ASRoy, AAdiga, pankaj mishra types with some award of the other, I guess. The show goes on.

SwamyG · Post by **SwamyG** » 05 Aug 2010 18:18

Carl_T wrote:If you're predicting market movements, you're looking at something no one else knows about or no one is looking at. I would like to know what that is then! So please state your rationale.

Carl ji: Very simple. I lost money (paper loss) and sat on my musharaaf for 2-3 years to recover - I knew it will come up one. Meanwhile gaining all the illness I can get from a sedentary life. Going by 50% of the anal-yeasts predictions it is bad economy, since I have broken even, why not cash out and sit on my musharaaf doing some stress relief therapy like meditation for some time. When the markets are sufficiently lower I can get in and buy, no?

Hari Seldon · Post by **Hari Seldon** » 05 Aug 2010 18:37

Uh-oh. It's getting ugly, or will mighty soon. Seems the Wall St speculatori have re-discovered commodity ETFs.

BTW, where do the wall st types get their monies from when they spend away soooo much on bonuses alone, eh?

It’s very hard, when you work at a too-big-to-fail institution, not to make a profit. When you have access to discount window money at an interest rate of 0.25%, money which you can -electronically- carry across the street to purchase US Treasuries that pay, say, 2.75%, you are set for a 1000% profit margin (even "only" 500% is not that shabby either). You try losing money that way; it ain't easy.

Of course, behind the scenes plays another government policy: the same banks that are handed all this money and profit for free don't have to fess up to their losses either. The free dough is handed to a group of financials that are nothing but the proverbial walking dead. If they were obliged to clean up their balance sheets with the inclusion of all the securities and other paper that hasn't been worth more than pennies on the dollar for several years now, they'd no longer be able to raise nearly enough capital on the open market to continue their dead man's walk, let alone heal.

And now, loaded with all that free dough, what do the banksters do?
Speculators Rediscover Agricultural Commodities (Spiegel)

[..] The turbulence in the cocoa market is the most recent sign that speculation is back, and that the international financial markets have rediscovered agricultural commodities. They are now betting big again on commodities like wheat, coffee, rice and soybeans. As a result, prices are no longer determined by supply and demand, but by investment banks and hedge funds.

Cocoa isn't the only commodity that has become significantly more expensive in recent months. The price of wheat has gone up by 17 percent since April, and soybeans by 12 percent. At the beginning of the year, sugar prices climbed to their highest level in three decades in the space of only a few months and then plunged by almost half. But now sugar prices are back up, climbing by almost 6 percent since April. The food price index of the United Nations Food and Agriculture Organization (FAO), which aggregates price movements for key agriculture products, climbed to 163 points in June. This is only 15 percent lower than the all-time high of 191 points in 2008.

Uh oh....like moi said, uglee is the word.

Last year, Goldman Sachs earned $5 billion in profits with commodities alone. Other major players include the Bank of America, Citigroup, Deutsche Bank, Morgan Stanley and J.P. Morgan. They are no longer merely offering classic funds, but are now trading in financial instruments that function similarly to the subprime mortgage loans on the now-collapsed US real estate market. With these instruments, known as collateralized commodities obligations, or CCOs, profits are based on market prices. The higher the trading prices of wheat, rice and soybeans, the bigger the profits.

Nothing's been learnt, or what? Allowing janta to pump and short securities they do not own didn't work out so well in 2008, did it? But in the commodity futures mkt, its all kosher, eh? You might wonder, what do these jerks do with all the commodities they now suddenly own?

... only about 2 percent of commodities futures now end with a real exchange of goods, the FAO concluded in a June study.

"As a result, these deals attract investors who are not interested in the commodity itself, but merely in speculative profit," the FAO concludes morosely. The finding is all the more remarkable given the widespread political and social outrage aimed at food speculators just two years ago.

Time for regulation to get into the act with turbo speed and zimbly ban derivative products in food commodities, perhaps?

enqyoob · Post by **enqyoob** » 05 Aug 2010 18:56

... only about 2 percent of commodities futures now end with a real exchange of goods, the FAO concluded in a June study.

"As a result, these deals attract investors who are not interested in the commodity itself, but merely in speculative profit,"

Hari, what is new here? Ppl have been trading in pork bellies and all sorts of other things, for ages, and never expect to have to receive a shipment of any of this to their homes. There used to be Art Buchwald satires on these, decades ago. Even 2 years ago, speculation in commodities was rife, because the stock market had tanked. That's what bid up food prices 2 years ago.

Is the new feature than BANKS are now speculating in pork bellies?

Also, what losses? Wells Fargo / Wachovia claims very large profits, for instance.
Come to think of it, even Delta Airlines posted a 2nd quarter profit of some $0.5B a few weeks ago.
I guess I just don't see where this crash fear is, it looks more and more like hype generated by extreme right-wing types who would rather see their country destroyed than be out of power and have BO&Co rule.

These stories ring of the classic

DID you know his sister is a THESPIAN??

story as elections draw near.

BTW, some time back I heard a report that the real "lending practices" at banks have nothing to do with buying Treasury Securities. The report was precisely that the Big Boys sit in back rooms and straight gamble, (OK, maybe on 3rd derivatives of pork belly futures). Again, this was BEFORE the crash of 2008.

SwamyG · Post by **SwamyG** » 05 Aug 2010 19:30

Sanjay M wrote:^^^
SwamyG,
Americans are already leading that curve by initiating their cutbacks on purchases of Chinese plastic dogsh*t.
Chinese manufacturing doesn't collapse instantaneously, and meanwhile the Chinese govt reacts quickly to devaluate its currency by quickly purchasing US treasury debt.

For America's own good health, for that matter's any country's good health; manufacturing jobs have to return. Employment has to be spread across agriculture, manufacturing and services sector to lend some balance. The agriculture employs 2-3% (let us round it off to 5%) onlee.
In my non-eCONmic mind, it is prudent to have as many employed, as possible, in producing essential goods & services. But then it is not efficient; so the next best thing would be to have a sizable population employed so when people stop spending on non-essential goods & services there is some safety net for the whole society - by virtue of good number of people being gainfully employed.

This might fly against all efficiency or modern thoughts. Definitely, this will keep innovations down & quality/standard of living down. But it will also keep check of all the crazy innovations down too. So instead of a few batters hitting 700 home runs; more batters will hit 100 or 250 home runs. Batters will score more singles and doubles.

Hari Seldon · Post by **Hari Seldon** » 05 Aug 2010 20:41

^^^ n^3 saar,

Point isn't that such stuff was happening decades ago. Decades ago, there was Glass-Steagall that prevented two arms of a bank from making, colluding and rigging markets with fibre-optic levels of insider-info carryover.

Point is that when modern investment banks got in on this game, post their annulment of the last of the prudent checks and balances, the removal of leverage ratio caps thanks to Sri Hanky Paulson's lobbying of the SEC, in Dec 2004, armed with TONS of loose liquidity that could (and did) unleash mayhem in the commodities marts the kind that could only be done by sovereign gubmints previously. Consider for instance the speculative orgy that drove up crude prices to $140+ a barrel in 2008. Doesn't seem based on fundamentals or demand-supply intersections, does it? And its creation, powered over a span of a few short months, when rumor had it that armies of full tankers were idling away in the carribean, storage for the well bought arbitrage play, had real effects in the real world - caused misallocation of resources - the corn-ethanol craze for one.

Imagine now, these cutie-pies getting their (middle) fingers into the agro- commodities pie. The banks are loaded more than ever with liquidity - Fed's excess reserves that can't be lent for lack of credit-worthy borrowers in the tfta world - and this will now be diverted to create chaos in the commodity markets I fear - to rig them, lead to hoarding, misallocations, price surges, scarcities and what not... Sure, lets hope it doesn't come to pass but the signs don't look promising.

And no, I doubt anyone here cares enough about sri obama 1 way or the other. The stark realization that the 2 parties in the US are but one when it comes to policy decisions that matter washed much of that urge away. IMVVHO and std disclaimers and all.

Jai ho.

Hari Seldon · Post by **Hari Seldon** » 05 Aug 2010 21:00

NN Taleb in huffpo writes about a topic that was written abt hajaar earlier also - still worth repeating. A nation is only as good as the character of its public service leaders. Both Yindia and Yamerika were blessed with some very fine people in critical moments in their history. But seems like, times have changed, both here and there. Only.

The Regulator Franchise, or the Alan Blinder Problem

Last year, in Davos, during a private coffee conversation that I thought aimed at saving the world from, among other things, moral hazard, I was interrupted by Alan Blinder, a former Vice Chairman of the Federal Reserve Bank of the United States, who tried to sell me a peculiar investment product. It allowed the high net-worth investor to go around the regulations limiting deposit insurance (at the time, $100,000) and benefit from coverage for near unlimited amounts. The investor would deposit funds in any amount and Prof. Blinder's company would break it up in smaller accounts and invest in banks, thus escaping the limit; it would look like a single account but would be insured in full. In other words, it would allow the super-rich to scam taxpayers by getting free government sponsored insurance. Yes, scam taxpayers. Legally. With the help of former civil servants who have an insider edge.

I blurted out: "isn't this unethical?" I was told in response, "We have plenty of former regulators on the staff," implying that what was legal was ethical.

Yawn. So what, you ask. Well, it is how commonplace this practice has become that's part of the problem.

Tell me if you understand the problem in its full simplicity: former regulators and public officials who were employed by the citizens to represent their best interests can use the expertise and contacts acquired on the job to benefit from glitches in the system upon joining private employment -- law firms, etc.

Think about it a bit further: the more complex the regulation, the more bureaucratic the network, the more a regulator who knows the loops and glitches would benefit from it later, as his regulator edge would be a convex function of his differential knowledge. This is a franchise. (Note that this franchise is not limited to finance; the car company Toyota hired former U.S. regulators and used their "expertise" to handle investigations of its car defects).

First, the more complicated the regulation, the more prone to arbitrages by insiders. So 2,300 pages of regulation will be a gold mine for former regulators. The incentive of a regulator is to have complex regulation.

Second, the difference between letter and spirit of regulation is harder to detect in a complex system. The point is technical, but complex environments with nonlinearities are easier to game than linear ones with a small number of variables. The same applies to the gap between legal and ethical.

Third, regulation, like drugs, has side effects, and like drugs, it can harm the patient -- something in my work I call the iatrogenics (harm done by the healer). People do not mention that regulation helped promote the Value-at-Risk method of risk measurement in replacement to age-tested heuristics -- these methods blew up banks.

Fourth, we need a more severe monitoring of the activities of public officials and a solution to the following conflict. In African countries, government officials get explicit bribes. In the United States they have the implicit, never mentioned, promise to go work for a bank at a later date with a sinecure offering, say $5 million a year, if they are seen favorably by the industry. And the "regulations" of such activities are easily skirted.

Yes, yes. We in Yindia are hajaar worse off. Our explicit bribes are horrible, sdre and worse than that of the soup-e-rear first world. But that still doesn't take away from the fact that the US, the country that in many ways could would and should have been our model for emulation has let itself down in many ways.

Yves comments:

This may all seem to be so “dog bites man” in America so as to no longer elicit any outrage. The famed regulatory revolving door, and all the benefits that former officials and their new private sector masters gain from a legally permitted but socially destructive form of trading of insider know how is now considered business as usual in the US.

It’s remarkable to see how quickly conditions have decayed in the US. One of my colleagues, Amar Bhide, wrote a Harvard Business Review story in 1994 that was completely sincere (and would have been seen as accurate then) in describing one of the critical advantages of the US capital markets was that they weren’t simply the deepest, but also the cleanest in the world, with sound regulations, best investor investor protection, the most wide ranging disclosure.

Why 1994? In Early 2008 we had b-school profs teach corporate governance courses trumpeting the soup-e-rear governance and transparency and ethics and what not of the khanian system over that of , say, Brazil or Yindia. Granted its all relative and the SDREs are simply incorrigible, but the RBI+SEBI as regulators seems to have learned from mistakes made around the world and saved us a packet of trouble here.

Added later:
I remember excerpting Bill Buiter's conjectures, first of 'regulatory capture' and later, as TARP unfolded, of 'state capture' itself here a year+ ago. Which is the reason why honest, upright, competent folks like Liz Warren and Bill Black are anathema to the powers that be in DC today.

Anyway, let Yves have the final word:

Unfortunately, the Obama administration had the opportunity execute more fundamental reform at the outset. Worse, Obama himself recognized it; he was reading biographies and speeches of FDR as president elect, yet chose to pass on an historical opportunity.

Although I have not read Depression era politics extensively, it appears two critical elements are missing now. One is that despite the chicanery of the Roaring Twenties, ideas like character and public service still meant a great deal. Those values are pretty much dead now. Second was that Roosevelt was not cowed by bankers or businessmen. For instance, when he told his economic advisers (rather out of the blue) that he was going off the gold standard (which the US had done as an expedient, but the assumption was it would go back soon) he was met with a firestorm of criticism which he airly brushed aside. I can’t imagine any senior politician now having the confidence now to defy the will of the banking industry. And it isn’t simply due to the role of corporate funding in campaigning; the roots are deeper. Being in office now is all about winning, about keeping one’s hold on power, so it isn’t surprising that everyone has a price.

Carl_T · Post by **Carl_T** » 05 Aug 2010 21:00

SwamyG wrote:
Carl_T wrote:If you're predicting market movements, you're looking at something no one else knows about or no one is looking at. I would like to know what that is then! So please state your rationale.
Carl ji: Very simple. I lost money (paper loss) and sat on my musharaaf for 2-3 years to recover - I knew it will come up one. Meanwhile gaining all the illness I can get from a sedentary life. Going by 50% of the anal-yeasts predictions it is bad economy, since I have broken even, why not cash out and sit on my musharaaf doing some stress relief therapy like meditation for some time. When the markets are sufficiently lower I can get in and buy, no?

No ji for me please, I'm younger than most here.

I agree, there's nothing wrong with that strategy, if you've been taking losses it makes sense to get out while you're in green.

BUT to play DA, and take a more aggressive view... what will you do if markets all of a sudden rise in 2 mos time?

SwamyG · Post by **SwamyG** » 05 Aug 2010 21:15

^^^
The law of gravity will pull it down again, and I will enter back onlee. My definition of greed is when one takes extraordinary risk to get benefits; sometimes leading to decisions that one would normally would not take. Just like the age-old advice to not make rash decisions in anger or in a deep emotional state. Coming from a middle-class, I believe in building the wealth slowly and if I can avoid couple of years of stress and just have to wait it out on the sidelines, so be it.

hnair · Post by **hnair** » 05 Aug 2010 23:55

vina wrote:
Singha wrote:there is a bizarre proposal in BBMP to make helipads mandatory in new buildings over 20 storeys as if anyone has the employer or personal funds to commute in helis. this is said to ease the traffic situation - BMTC will run CH53 helis from rooftop to rooftop?
dont these people use their heads and media ask 2 questions before printing anything at face value?
More bizzare when you consider that existing buildings WITH helipads are not allowed to operate helicopters in India (I think the Accenture building in Bannerghatta Road has a helipad).

I heard someone say this regulation became widespread in India, post-9/11. It is more for emergency evacuations and such. This is for buildings beyond the reach of telescoping arm fire engines. So it is apparently not a commuter infra.

Not sure if it is used for non-neta purposes or not, as it was originally envisaged

enqyoob · Post by **enqyoob** » 06 Aug 2010 08:59

Point is that when modern investment banks got in on this game, post their annulment of the last of the prudent checks and balances, the removal of leverage ratio caps thanks to Sri Hanky Paulson's lobbying of the SEC, in Dec 2004,

Ah! (Tubelight flash) Thanks.

But do you think ppl who run banks have nearly the smarts of the Berkshire Fund or Goldman Sachs types to do really massive manipulation? Do banks pay the sort of $$$$ to attract the real crooks?

Why doesn't the FDIC crack down and say that funds insured by them cannot be used to (fill in the blanks)? After all, they are the ones left holding the bag?

vina · Post by **vina** » 06 Aug 2010 09:10

Why doesn't the FDIC crack down and say that funds insured by them cannot be used to (fill in the blanks)? After all, they are the ones left holding the bag?

Well, that is what they have done. All banks now have got a banking license (including Goldman) and the govt has leverage over them now due to the bailout /TARP and they are being made to fall in line, while the Volker proposals work their way through congress.

The banks are being made to shed their proprietary business (where they bet their own capital to trade in the markets and have "internal" hedge funds and private equity) and they are being made to exit those businesses. So really the salad days of fat cats like Blankenfein (the current Goldman CEO, who is from the trading side) are over. For most , it will be back to fee based business and traditional advisory and investment banking and corporate finance.

And yes, much of the problems with the derivatives were that they were private contracts/over the counter/ totally unregulated. Now they will be required to list in exchanges and that will mean strong regulation.

One of the things that you need to appreciate is that the "problem" was with the unregulated, totally cow boy , opaque private markets that collapsed. The usual well, known, well regulated, SDRE exchanged based derivatives all came smelling of roses.

Hari Seldon · Post by **Hari Seldon** » 06 Aug 2010 10:06

TAE tweets:
http://twitter.com/AutomaticEarth

TAE 5/8: Hungary's median wage remains not much higher than it was when the nation broke free from the disintegrating Soviet empire in 1989

A trend that hasn't gone unnoticed even in the khanate. The median wage fell in real terms from the 70s onwards when manufacturing hollowed out and income disparity rose to pre-depression levels. Again.Now, sure, we SDREs are in a bad situation regarding our own disparity etc but the trend from the 90s onwards says that the median wage has gone up and not down in real terms (provided you believe the WPI inflation figs the GOI relies on).

TAE 5/8:Car sales fell 24pc in Spain, 26pc in Italy & 13pc in France as scrappage schemes are phased out and consumers brace for austerity.

Consumer Metrics Institute's Contraction Watch is now showing a 4pc contraction in the US economy http://bit.ly/9F1JV2 Updated daily.

Consumers are cutting back all over the emerged world, seems like. The ripple effects on the emerging world cannot be happy, IMHO.

TAE 5/8: Ireland said its budget deficit would reach 18.7pc of GDP this year despite wage cuts and 1930s-style austerity policies

I feel for Ireland. Abject, object lesson in how not to play by the IMF rulebook. Cock-a-snook dammit and default, I say! The worst part of this pain is that its probably pointless. It won;t get them the 'normal' again.

TAE 5/8: There is an estimated $730 billion in outstanding federal and private student-loan debt, says Mark Kantrowitz of FinAid

TAE 5/8: Only 40% of student debt is actively being repaid. The rest is in default, or in deferment or in forbearance.

And student debt-serfdom is also delaying family formation in this cohort, crucially.

On banker bonuses

TAE 5/8: City bonuses this year are expected to rise from £6bn to £6.8bn, according to the Centre for Economics and Business Research (UK)

TAE 5/8: HSBC revealed that it had set aside $2.52bn (£1.6bn) in bonuses for its investment bankers in the first half.

TAE 5/8: Banks' return on assets – a more precise measure of their productivity – has been flat or even falling over the last century

Bankers are neither smart nor deserve to be paid huge bonuses. They win by levering up with huge debt or by forcing the taxpayer to cough up

And so on and on. Read it all. Jai ho.