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Showing posts from August, 2011

Market Capitulation

Markets capitulate when all policy options run out, and it becomes clear that a definite new policy direction must be undertaken. We are getting quite close to that point in the current market volatility. As various commentators take the economic temperature after their return from some agreeable foreign holiday, it is becoming clear that we are close to a major failure of confidence. The inter-bank market is beginning to freeze again, and the implications are plain: banks are finding it ever more difficult to finance themselves, and governments and central banks are running out of options to support them. Clearly governments are finding it more and more difficult to get their sums to add up, as the nascent economic recovery stalls. However, perhaps paradoxically, the failure of confidence may end up reducing uncertainty: it will be clear that the crisis continues, and that therefore the policy prescriptions will be clearer too. In other words, I think we are on course for a classic

Hurricane Media

As a relatively small hurricane moves the east coast of the United States in a relatively rare direct hit, can really be the only one to regard the media coverage as ludicrous? Every trite cliche, every slick and empty phrase has been trotted out in support of the IMPORTANCE OF THE STORY, and for a day or two it will doubtless be a nuisance to my friends on the East Coast. It is not, however, the end of the world if New York experiences a bit of sea flooding- and the City and indeed the country are well prepared: Hurricane Katrina, this ain't. So why treat it as though it is? This is news as a horror show. This is news as "entertainment". It shows the media at its most base, most trivial, and most dangerous. The great pictures and the potential for nasties justifies the massive editorial commitment to the story, even if -as we hope, and as seems likely- it turns into a pretty minor event. Such editorializing should remind us of the essentially tabloid natur

The Crickets sing on the verges

The Northern sky of Estonia makes for a long twilight in the summer, and as the seasons gradually roll past I drive out from Tallinn in mid evening. The air is full of the smell of the new-harvested barley- a wholesome, delicious smell like fresh linen. The crickets are singing in the verges- the sign of late summer, as all the swallows have gathered and started their trek south. The storks too have already started for Africa, and before long the great ribbons of clanking geese will be seen decorating the sky. The late summer light- grey-white and flecked with the colours of the sunset makes every needle of the sharp shapes of the pines and spruce stand out as a tangible shadow. Passing the woods leaves the cool scent of earth and the sound of the small birds in the air. The warm days of summer are drawing to an end, and before long the languor will be replaced by the brittle chill and the first frost. The winter- long and dark and snowy- looms as a presence at the end of this day

Buy/Sell, by Cell

This brilliant KAL cartoon from the Economist used to be on many desks at UBS in the 1990s. I think it may well help explain the skittishness of the markets recently. The fact is that the economics data at the moment is rather ambiguous, and the market is filling the information gap by talking to itself. Of course there is much that is pretty bleak: the US downgrade, the downward revision in growth across much of the developed world, the growing sense that the debt crisis is likely to require many years to finally get things under control. On the other hand, stocks now look historically cheap on virtually very measure that one can think of. Although the price of gold continues to rise, and so- paradoxically given the downgrade- do US Treasuries: all of the safe havens are looking historically expensive, even as they keep powering upwards. Meanwhile risk assets languish: perhaps this rejection of risk is now overdone, and the strong of nerve can consider things from the big picture

Rating the ratings agencies

Amid all of the controversy over the downgrade of the United states debt rating from AAA to AA+ by Standard & Poors- which seems to have resulted in the early exit of the President of S&P , Deven Sharma, from his job- it is easy to lose sight of the bigger picture. In Estonia there has been a mild celebration at a two notch upgrade in the Estonian credit rating to AA-, that is to say only three notches below the United States and just one below Japan (according to Moody's, another one of the big three rating agencies, which now also includes Fitch). The celebration was rather mooted simply because the value of such a rating is no longer the unquestioned blue ribbon it once was. Although, for regulatory reasons, investors are compelled to pay attention to ratings, the fact is that much of the latest credit crisis came about when structures, such as CDOs, which had been rated AAA by the agencies (largely, it should be said, for technical reasons) turned out to be worthle

Lockerbie and Libya

The fall of the Qaddafi compound in Tripoli may not be the precise end of the vile regime, However, I -for one- will mark the fall of the lunatic Colonel with a certain savage delight. The wreckage of the fuselage of Pan Am flight 103 looked like small pieces of paper on the hills around Lockerbie. The gouge in the highway looked like a giant bite into the carriageway. Now, maybe we can find the truth behind that vile and cowardly act. Though it is still a difficult and dangerous time for the Libyan people, it really does seem like the end of a disgusting regime. Our avowed enemies are set to replaced by our avowed friends. For that relief, we should praise those who have helped to bring it about. The battle is not yet finished, but the war surely is. Long live Libyan freedom and democracy! And if that seems a little idealistic, then I would just remind people of the depravity of the regime just removed. The future can only be better than the past.

Morality and Humbug

I am not sure whether or not the UK can blame a general moral collapse for the riots that convulsed the country in early August, although that is what Prime Minister Cameron appears to believe . I am, however, pretty sure that any comments about morality from Tony Blair should be treated with disdain, if not actual contempt. As Peter Mandelson helps himself to the point where he can now afford an £8 million house , and Mr. Blair himself continues to collect ever larger cheques from various international investment banks , it seems pretty clear to me that at least two of the new Labour triumvirate have parleyed their public service into private profit. Mandelson, of course, was a notably indifferent minister, being forced to resign on two separate occasions for reasons directly concerned with a rather careless attitude to money. It remains to be seen how history will judge Mr. Blair, but given the aftermath of his policies in Iraq and the economic catastrophe that hit the UK sho

Why A Billionaire pleads for higher taxes

In most Western countries, the rich are taxed less than the poor. This is even though most Western politicians demand that the rich should pay more tax than the poor, both in absolute terms and also in relative terms. Yet the fact is that these same politicians then enact policies that precisely fail to bring this about. They enact more and more detailed tax codes in order to "close loopholes" and to promote some specific social or political benefit, and with every regulation that they put into place they increase the burden on the the low and middle income earners, but not necessarily on the high income earners. Indeed some, rather self-serving, rightist politicians deliberately reduce tax rates on the rich "in order to promote incentives", as though becoming wealthy was not incentive enough. As your economics text book will tell you, there are essentially three components to creating wealth in the modern capitalist world: Land, Capital and Labour. Of these,

The Tea Party, Americanism and where the US goes next

It is a saying attributed to Huey Long, the one time Governor of Louisiana, that "If Fascism ever comes to America, it will arrive under the disguise of Americanism". As I contemplate American politics in the second decade of the second Millennium, I am beginning to wonder what is coming next, because it is hard to believe that the money soaked banalities of the Republican straw poll in Iowa constitutes much that is particularly optimistic. The decline of America has been predicted for most of its history, Clemenceau famously once said that "America is the only country to have gone from barbarism to decadence, without the usual interval of civilization". Yet, in fact the United States has overcome many serious challenges in the past, not least the existential challenge of the civil war, and proved itself a robust and flexible political entity and an economic and social powerhouse. If, as a foreigner, I can hardly share the jingoist sentiments of many of its booste

Riot thoughts from abroad

From a distance, it is hard not to see the similarities between the current riots across the UK and the student riots of a few months ago. At that time, I pointed out that there was an organised cadre of so-called "anarchists" determined to cause trouble. Clearly, when one looks at the new targets for the rioters: Oxford Street, Notting Hill, it seems pretty obvious that the same or at least a very similar group is operating here again. They are trouble makers, without a viable vision, simply spurred on by a dead ideology. They can not be taken seriously as a political force in themselves. However the damage that these criminals are causing, not just to the political process, but to the communities where the rioting has been most focused, is significant and the challenge must now be met. All of the community work that has been put into improving the security and prosperity of such places as Tottenham and the St Paul's area of Bristol has been lost- to the drastic de


The fact that the United States political class as a whole clearly lacks the will to raise taxes is the fundamental reason behind the downgrade of the US credit rating. The inability of the Congress to understand that it is not just about the ability to spend less money, but to raise more revenue that underlines the strength of a country's credit rating is why America now faces an undeniable crisis. Unless the Americans can get their house in order, the market will force ever more stringent restrictions on the freedom of action of the Federal government, the State governments and indeed all US based borrowers. Although this downgrade has been predicted for some time, it is only now that market capitulation accepts the horrible truth: the US has neither the capacity nor the political will to pay its bills in full. Doubtless it will be President Obama that pays the political price, but ultimately this crisis is the fault of the Republicans: the wastrel President, George W. Bush and

The Silly Season

I notice that this is the one thousandth post on this blog. Something of a milestone, and not one I always expected to hit. The content has varied- mostly comments on topics of the moment, and therefore easily dated. Sometimes whimsical, and therefore easily ignored, sometimes polemical, and therefore easily discounted. Some of my pieces are a lot better than others, but when I compare with the newspaper columnists, I do not feel unduly ashamed about the overall quality. It is interesting identifying what people want to read: some pieces that I expect might strike a spark end up with a pretty low readership, while I have occasionally been surprised by a blog, that I had rather rattled off, gaining a much higher hit rate. It is not always possible to predict what will interest people. Of course the key to successful blog is regularly updating content, and given the intense nature of my work, that is not always possible. As July slips into August the so-called silly season is upon us, al

The skin of their teeth

As Congress prepares to vote on he increase in the US debt ceiling, it is salutary to reflect on the way that a routine Congressional vote has very nearly turned into an existential crisis for the United States itself. We can hope that the vote marks the nadir of the US crisis, and indeed there are some signs that, despite recent disappointing growth numbers, America may now be turning the corner. In the UK too, several indicators are showing some improvement: in particular the Coalition is currently ahead of its plans in the process of deficit reduction. The determination of the British government has been rewarded by Gilts now trading inside US Treasuries for the first time in many years. The political horsetrading in the UK has actually led to progress in deficit reduction, a sharp contrast to the US which still faces a rising tide of red ink, unless the growth outlook improves soon and the politicians continue to bicker. So if the US has indeed avoided the catastrophe of default,