Rolling around life's arcade

To go gold or not?

2009-05-25T09:06:00.000-07:00

This from

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/5373570/Gold-bugs-at-last-have-their-perfect-trinity.html

A number of readers have written to me in tones of polite reproach asking why I fret about deflation when governments everywhere are spending and printing as if there was no tomorrow. I admit to being tortured by self-doubt, like others grappling with this extraordinary situation.

What we know is that inflation is already negative in Ireland (-3.5pc), China (-1.5pc), Thailand (-0.9pc), Korea (-0.5pc), US (-0.7), Japan (-0.3), Switzerland (-0.3, Spain (-0.2pc). The eurozone may be negative by July. Alistair Darling said Britain's retail RPI inflation used to set wage deals will be minus 3pc by September.

Does this constitute deflation in a meaningful sense? Not yet, perhaps. But it is moving too close for comfort in a world stretched by extreme leverage. The economies of the US, Japan, the eurozone, and Britain have been contracting in "nominal" as well as "real" terms – which smacks of the 1930s.

The "yen GDP" of Japan has shrunk by 10pc in one year; the "euro GDP" of Germany has shrunk 6.2pc, and Italy's by 4.7pc ; the "dollar GDP" of the US has shrunk 3.3pc. Debts are not shrinking, however.

GMO's Jeremy Grantham says in his latest note, Last Hurrah And Seven Lean Years, that the market value of equities, houses and commercial property in the US reached $50 trillion in the boom. This "perceived wealth" sustained $25 trillion of debt.

The crash has cut this wealth to $30 trillion, but the debts are still there. America's debt-gearing has exploded, as it has in the UK and Europe. This looks awfully like Irving Fisher's "debt deflation" trap of 1933. It will be a long slog for households to bring their debt-to-wealth ratios down to manageable levels.

Forecast global decline rate

2009-05-17T03:03:00.000-07:00

This from Yale Global at
http://yaleglobal.yale.edu/display.article?id=12338&gclid=CKuZwr6Lw5oCFYEvpAodaWrmrw
The total market value of financial assets held worldwide has declined by about a third, or more than $50 trillion, in 2008 according to a report by the Asian Development Bank. Container traffic in the world’s busiest ports is down by more than 20 percent. While trade volumes show greater volatility than GDP, the figures for the former show a near precipitous decline relative to the former. The IMF expects global GDP to decrease by 1.3 percent in 2009, while economists from the World Trade Organization forecast a 9 percent decline for global trade in the same year, both the largest drops on record since World War II. Export volumes are expected to decrease in every major region of the world. Indeed, double-digit declines in real national variables are so rare that declines in export volumes of over 30 percent, such as in the case of Japan, make one wonder about the “bubble-like” nature of the underlying demand. On the other hand, while Euro area GDP and US GDP are both expected to contract in 2009, emerging economies are the one bright spot with a GDP growth forecast of 1.6 percent.

Capital well running dry

2009-04-27T08:45:00.000-07:00

This from
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/5220118/The-capital-well-is-running-dry-and-some-economies-will-wither.html

The world is running out of capital. We cannot take it for granted that the global bond markets will prove deep enough to fund the $6 trillion or so needed for the Obama fiscal package, US-European bank bail-outs, and ballooning deficits almost everywhere.

Unless this capital is forthcoming, a clutch of countries will prove unable to roll over their debts at a bearable cost. Those that cannot print money to tide them through, either because they no longer have a national currency (Ireland, Club Med), or because they borrowed abroad (East Europe), run the biggest risk of default.

Traders already whisper that some governments are buying their own debt through proxies at bond auctions to keep up illusions – not to be confused with transparent buying by central banks under quantitative easing. This cannot continue for long.

US hedge fund Hayman Advisers is betting on the biggest wave of state bankruptcies and restructurings since 1934. The worst profiles are almost all in Europe – the epicentre of leverage, and denial. As the IMF said last week, Europe's banks have written down 17pc of their losses – American banks have swallowed half.

"We have spent a good part of six months combing through the world's sovereign balance sheets to understand how much leverage we are dealing with. The results are shocking," said Hayman's Kyle Bass.

It looked easy for Western governments during the credit bubble, when China, Russia, emerging Asia, and petro-powers were accumulating $1.3 trillion a year in reserves, recycling this wealth back into US Treasuries and agency debt, or European bonds.

The tap has been turned off. These countries have become net sellers. Central bank holdings have fallen by $248bn to $6.7 trillion over the last six months. The oil crash has forced both Russia and Venezuela to slash reserves by a third. China let slip last week that it would use more of its $40bn monthly surplus to shore up growth at home and invest in harder assets – perhaps mining companies.

A disturbing number of states look like Iceland once you dig into the entrails, and most are in Europe where liabilities average 4.2 times GDP, compared with 2pc for the US. "There could be a cluster of defaults over the next three years, possibly sooner," he said.

Last gasp for A-REIT's?

2009-04-23T23:10:00.000-07:00

This from
http://www.businessspectator.com.au/bs.nsf/Article/A-REITs-last-gasp-pd20090424-RE5CS?OpenDocument&src=kgb
Goldman Sachs’ property analysts have called it a “canary in the coalmine’’ warning. Does the Dexus Property Group’s $749 million equity raising presage another jolt of fear, loathing and threat for the reeling A-REIT sector?

The reason that the analysts were taken aback by Dexus’ capital raising is that they saw no obvious need for it.

Dexus has a high-quality office and industrial property portfolio, is at the lower end of sector gearing levels (37 per cent) and has no debt maturing until February next year, when $550 million is due. It has another $671 million that will need to be refinanced between September and December next year...

The A-REITs face a particular problem. The domestic banks are trying to reduce their exposures to a volatile sector. They are also re-pricing their lending to the sector to reflect their perception of increasing risk – debt, for the A-REITS, even if it is available comes at an increasingly expensive cost.

Traditionally foreign banks have been major lenders to the property sector but there is concern that they will face pressures to redirect capital and balance sheet capacity to their home economies, particularly those banks that have received assistance from their taxpayers. That’s why the federal government is trying to establish the ‘RuddBank’ with the four domestic majors.

As the A-REITs head into an accelerating cycle of devaluations – Stockland this week flagged revaluations (downwards) of $650 million to $700 million because of the movements in capitalisation rates – the focus on their gearing and liquidity will intensify.

There is a circular element to their predicament that makes the Dexus ‘solution’ potentially destructive.

The stronger A-REITS that get in early and hard with the next round of equity raising will put pressure on the rest to fall into line at even bigger and more dilutionary discounts to weakening equity values even as investor wariness towards the sector increases, casting doubt over the availability of equity for the weaker or more tardy trusts.

Blue skies in China

2009-04-16T14:58:00.000-07:00

This from
http://business.smh.com.au/business/positive-signs-in-chinas-economy-20090416-a901.html
SMH calls it postive signs in China, while other articles call it a slowdown?

"China's statistics bureau yesterday said GDP grew 6.1 per cent in the March quarter against the corresponding quarter last year, the lowest since quarterly records began in 1992, due to a 20 per cent collapse in exports.

The Treasurer, Wayne Swan, said the China GDP figure "provides stark evidence of the impact of the global recession on the mining boom" and warned that next month's budget would include "substantially worse" estimates of growth and government revenue than contained in the February budget update."

But what has kept the Chinese economy going?

"The figures also showed the largest part of China's economy - urban fixed asset investment -A Herald analysis of five Beijing government air-monitoring stations shows the city enjoyed more blue-sky days in each of January, February and March than in any previous month in nine years of records, as steel factories closed their doors and motorists used public transport. surged 30.3 per cent in the year to March 31 as state-owned banks poured cash into roads, railways, power plants, property development and asset speculation."

Meanwhile, what does "more blue skies" in Beijing tell us?

"A Herald analysis of five Beijing government air-monitoring stations shows the city enjoyed more blue-sky days in each of January, February and March than in any previous month in nine years of records, as steel factories closed their doors and motorists used public transport."

Copper?

2009-04-15T21:42:00.000-07:00

This extract from
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/5160120/A-Copper-Standard-for-the-worlds-currency-system.html
Beijing suspects that the US Federal Reserve is engineering a covert default on America's debt by printing money. Premier Wen Jiabao issued a blunt warning last month that China was tiring of US bonds. "We have lent a huge amount of money to the US, so of course we are concerned about the safety of our assets," he said.

This is slightly disingenuous. China has the world's largest reserves - $1.95 trillion, mostly in dollars - because it has been holding down the yuan to boost exports. This mercantilist strategy has reached its limits.

The beauty of recycling China's surplus into metals instead of US bonds is that it kills so many birds with one stone: it stops the yuan rising, without provoking complaints of currency manipulation by Washington; metals are easily stored in warehouses, unlike oil; the holdings are likely to rise in value over time since the earth's crust is gradually depleting its accessible ores. Above all, such a policy safeguards China's industrial revolution, while the West may one day face a supply crisis. ...

China's State Reserves Bureau (SRB) has instead been buying copper and other industrial metals over recent months on a scale that appears to go beyond the usual rebuilding of stocks for commercial reasons.

Nobu Su, head of Taiwan's TMT group, which ships commodities to China, said Beijing is trying to extricate itself from dollar dependency as fast as it can.

"China has woken up. The West is a black hole with all this money being printed. The Chinese are buying raw materials because it is a much better way to use their $1.9 trillion of reserves. They get ten times the impact, and can cover their infrastructure for 50 years."

Can the USA raise $3.25 Trillion this year?

2009-04-15T06:41:00.000-07:00

This from MoneyAndMarkets:

To be sure, the dollar's strength has surprised a lot of people, including me. And it's tough to bet against the greenback when other currencies are looking even worse. Now, however, the dollar may be coming up against some simple but brutal math — foreign central banks may not be able to finance much of the 2009 U.S. fiscal deficit.

The U.S. needs to borrow $3.25 trillion this fiscal year, according to Goldman Sachs. President Obama is asking Congress to approve a whopping $3.55 trillion budget for 2010, and that may not be enough — the nonpartisan Congressional Budget Office estimated the deficit at $1.38 trillion, higher than the White House's $1.17 trillion projection.

So, if foreign central banks stop or even slow down their purchases of U.S. Treasuries, the mighty greenback could be in for a humbling plunge.

Ireland collapses

2009-04-08T02:17:00.000-07:00

This from
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/5121728/Ireland-imposes-emergency-cuts.html

Dublin has unveiled the harshest austerity measures in the history of the Irish Republic, raising taxes and slashing expenditure in an emergency budget despite mounting evidence that the country is already tipping into debt deflation.

Brian Lenihan, the finance minister, outlined a grim package of 1930s-style retrenchment, slashing child benefit and allowances for jobseekers. Road and railways projects will be frozen. There will be a cull of junior ministers save costs. Two-thirds of the belt-tightening will come from tax rises. A pension levy of 1pc – imposed in the face of bitter protests in January – will be doubled to 2pc.

"These measures will reduce all our living standards. I'm acutely aware of that," Mr Lehinan told the Dail. He said draconian measures were needed to stop the budget deficit spiralling to 13pc of GDP.

Ireland is facing a triple whammy of fiscal, monetary and exchange-rate policies that are all too restrictive for the underlying needs of the Irish economy. There appears to be little that Dublin can do to change course under the constraints of Europe's monetary union.

In his funereal speech, Mr Lenihan said the economy would contract by 7.7pc this year, the sharpest fall among the OECD club of rich nations. Consumer prices will tumble 4pc as the downturn tightens the deflation vice.

Switzerland into deflation, Japan over a cliff

2009-04-07T06:41:00.000-07:00

This from the Telegraph
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/5110578/Swiss-slide-into-deflation-signals-the-next-chapter-of-this-global-crisis.html

Swiss consumer prices fell 0.4pc in March (year-on-year). Swiss CPI will be minus 1pc at least by July, nearing the level where spending psychology changes. By the time you have a self-feeding spiral, it is too late.

"This is something that we must prevent at all costs. The current situation is extraordinarily serious," said Philipp Hildebrand, a governor of the Swiss National Bank.

he SNB is not easily spooked. It is the world's benchmark bank, the keeper of the monetary flame. Yet even the SNB's hard men have thrown away the rule book, taking emergency action to force down the exchange rate of the Swiss franc.

Here lies the danger. If other countries try to export deflation by this means, we will face a second phase of the global crisis. Taiwan is already devaluing. Korea, Singapore, and Sweden all seem tempted to follow. Japan is chomping at the bit.

"We don't fully realise in the West what a catastrophic collapse Japan has suffered," says Albert Edwards, global strategist at Société Générale. "The West has dumped a large part of its economic downturn onto Japan by devaluing against the yen."

This is about to go into reverse as Tokyo hits the ping-pong ball back across the net. "As the unfolding collapse in the yen gathers pace, the West will see its green shoots incinerated to dust," he said.

Japan's industrial output fell 38pc in February (year-on-year), mostly concentrated into the last four months. No major economy imploded at this speed in the 1930s. The country has been hit by a double shock. As an export power it has taken the brunt of Anglo-Saxon belt-tightening: as the world's top creditor it is cursed by a "safe-haven" currency that soars in moments of danger – largely because the Japanese bring home their wealth till the storm passes. Normally, Japan can cope. This time, the yen's rise has pushed the economy over a cliff.

The yen must come back down to earth, and soon, or Japanese society will start to disintegrate. If necessary, the Bank of Japan will force it down by intervention, as occurred in 2003-2004.

Globally industrial production falls 15%!

2009-04-07T06:34:00.000-07:00

This extract from MoneyAndMarkets:
In the last five months, global industrial production has tumbled 15 percent, an unprecedented drop in such a short period.

The gloom is spreading pretty darn fast, too. Just last week, the World Bank warned that it expects the world's economy to shrink 1.7 percent in 2009 ... the first global economic decline since World War II.

The World Bank also warned that the world's richest countries — the same countries at the London G-20 meeting — will see their economies shrink by even more (3 percent)!

That's quite a contrast compared to the 2.1 percent growth that the World Bank expects for what it calls the developing countries.

Think about that: The richer the country ... the worse things are going to get, while what we would consider poor countries are humming right along.

And according to the World Bank:

"What began six months ago as a massive de-leveraging in financial markets has turned into one of the sharpest global economic downturns in recent history."

Hans Timmer, manager of the bank's global prospects group added,

"Even with a return to positive growth, the problems that are being created at the moment because of the sharp fall [in growth] will remain with us in 2010 and 2011."

The Organization for Economic Co-operation and Development (OECD), which represents the world's richest nations, has an even gloomier forecast and predicted that global trade would shrink by more than 13 percent in 2009.

After the G20

2009-04-05T18:02:00.000-07:00

So the G20 meeting has come and gone but at least we didn't see endless repetitions of "whatever it takes" as the answer! With promises to shore up the IMF, focus is now turning to what each country is doing about protectionism, which looks like a case of "do as I say not as I do".
The most interesting news came out of an apparently offhand proposal by the Chinese to replace the US dollar as the worlds' reserve currency.
Of course there is nothing to replace it any time soon, but what is the problem about having the US dollar as the reserve currency? The problem is that it is a great thing for a country to be a reserve currency. In the case of the US, they discovered in the past decade that you can print as many dollars as you like and people will still take them, so we end up with the lax fiscal discipline that has got us into this mess.
Meanwhile, we continue to combine printing money to shore up institutions, with calls for wage restraint. Need I draw attention again to the direct link between wage reductions and deflation?
At the Company or entity level, wage restraint makes sense, but at the national aggregate level, wages in turn become the driver of spending or demand. Cut wages 5% (and include the effects of unemployment in that calculation) and spending reduces say 5%, which becomes a self fulfilling prophecy.
In my view, the current policies are actually contributing to a deepening of deflation and the recession, not solving it.

Falling US house prices

2009-04-01T02:43:00.000-07:00

As though to emphasize my earlier blog, the latest Case-Shiller home price index has come out, showing continuing price falls. This extract from
http://www.nytimes.com/2009/04/01/business/economy/01econ.html?em
"It may be spring on the calendar but housing prices are locked into perpetual winter.

The Standard & Poor’s Case-Shiller Home Price Index, a widely watched measure of 20 metropolitan areas, fell 19 percent in January from a year earlier. That was a record drop, slightly edging out the previous month.

Prices in the worst-hit metropolitan areas have now fallen nearly by half. None of the cities showed month-to-month improvements. Thirteen showed record annual rates of decline.

“There’s no daylight that I can see in this report,” said David Blitzer, chairman of S.& P.’s index committee.

He cited the numbers for Phoenix as “gruesome.” Prices there fell 5.5 percent in one month, and are now down 48.5 percent from their June 2006 peak."

Indian summer

2009-04-01T02:00:00.001-07:00

Many writers are picking up the theme that Australia is living in an "Indian summer", i.e. living as though the recession is not all that bad, while the rest of the world is seriously worried about the outlook.
China, that country that was supposed to keep us afloat, has seen a reversal in growth this month, as reported at
http://www.nytimes.com/2009/04/01/business/global/01iht-asiaecon.html?_r=1&ref=global-home
"As world leaders assemble in London for the Group of 20 summit this week, the latest evidence of the severity of the economic crisis emerged from Asia on Wednesday, with business confidence in Japan plummeting to a record low, South Korean exports falling for a fifth consecutive month and manufacturing conditions deteriorating in China.

The data from three of Asia’s largest economies underscored a picture of slumping exports and production and hammered home the point that despite some recent tentative signs that the situation may at least have stopped worsening in some parts of the world, the global economy remains in the middle of the worst downturn in decades.

South Korea also has had to grapple with falling exports, with data on Wednesday showing overseas shipments in March fell 21.2 percent from a year earlier. Imports slumped 36 percent.

And in China, a purchasing managers index compiled by the brokerage CLSA slipped back in March, snapping a three-month streak of tentative improvement. The index came in at 44.8, down from 45.1 in February. It was the eighth month in a row that it came in below 50, which marks the dividing line between expansion and contraction."

Sub prime US mortgages

2009-03-31T20:04:00.001-07:00

The sub prime housing loans in the US, that triggered the current recession, faced problems because the interest rate "reset" from a low honeymoon rate, to a high rate.
These loan resets mostly peaked in 2008 and 2009 is seeing a low number of resets.
This is contributing to housing prices falling less slowly in the US, and perhaps to the current feeling of a potential bottoming of the recession.
However, before we get the party hats out, we are months away from going into a second wave, as the later Alt-A's and Arms are going to produce an equivalent wave of resets in the second half of 2009 through 2011.
By some estimates, this second wave adds up to US$1.5 Trillion of mortgages, and the expected level of defaults will be a downward pressure on the economy until then.

The rally

2009-03-30T03:31:00.000-07:00

Well its time to look back on the rally; no, not the car racing in Melbourne over the weekend, but the last couple of weeks that saw the first real rally in the stock market in 18 months, as some markets gained almost 20%. Of course, no rally lasts forever and today Monday has seen markets come off their highs.
The question going forward is: was this a bear market rally or the first signal of a coming recovery?
If a bear market rally, we would look to see the markets retrace much of the gains. Suggesting this is that the rally was more about the absence of bad news, than the reporting of good news.
On the other hand, if the falls turn out to be a bit of profit taking and day trader nervousness, followed by a flat period, then we might have reason to be more optimistic.
On the plus side, UK today reported a rise in mortgage applications, off a low base to be sure, but the first positive news from there in a long time.
On the down side, it seems that President Obama is in no hurry to save the car industry in the USA after all, with Chrysler now considering chapter 11, though, surprise, surprise, Chrysler now thinks it can go in and out of chapter 11 in a month and survive without government support. What happened to the need for all those billions? If it turns out that they were just trying it on, should we believe that the banks are in as bad a state as they claim? I'm sure that, whatever the truth of it, there are more than a few greedy souls in there somewhere figuring out how much of those billions they can pay themselves.

Inconsistent policies

2009-03-29T18:09:00.000-07:00

One of the hallmarks of a Labor Government is the ability to follow a set of mutually inconsistent policies without being able to see the problem. In the case of heading off deflation, they share the same blind spot as the USA.
The problem is this. Among the policies being used to do "whatever it takes" to rescue the world from recession, there are two significant policies:
1. Freeing up credit, by pumping money into the economy (QE), and reducing interest rates. Here the message is: go out and borrow and spend to get the economy going again.
2. Limiting pay rises, imposing pay freezes, and related unemployment. Here the messages is: times are tough, do your bit by accepting lower pay.
Then our masters wonder why, on receiving their handout, people are saving it rather than spending it! Just who exactly is going to wildly splash out on more housing, credit card debt and consumer spending, in the face of no pay rises or the risk of unemployment?
If you were to ask the Treasurer Wayne Swan why people should have pay freezes, I suspect that he would have trouble giving you a coherent answer, other than the general feeling that in tough times people should show restraint in pay.
The big worry at the moment seems to be the risk of deflation.
Let's turn this around - suppose that you actually wanted to cause deflation? How would you go about it?
Well one step would be to prevent wages increasing, or even to encourage wage decreases. Tie it in with shorter hours in some companies, and a 10% rise in unemployment (where unemployment = a 100% wage reduction). At the company level it makes sense, trying to undercut rivals, but wages in turn become the nations' spending power, and reductions across the board = spending cuts and deflation across the board.
The missing link in the deflation debate is wage rises. The fastest way to increase inflation is at the wages part of the cycle - grant a 10% wage increase across the board and prices will go up, so no deflation.
Of course, what doesn't go up is the nominal level of debt, and this would imply a drop in the cost of debt servicing, though interest rates would have to continue to be held low.
The main losers in this scenario would be the banks, but they are losing anyway and arguably their losses would be less once we stop deflation.
If this is such an obvious step, why aren't economists calling for it, you ask?
I'll give two reasons.
First, there is the inbuilt belief that inflation is wrong, though most people have forgotten why exactly. Inflation is sometimes the right answer but few economists seem to have stopped to rethink their subconscious beliefs.
Second, banks are the losers when inflation rises. Economists, for the most part, work for banks. What do you think of their chances for being allowed to propose a solution that harms the bank, even if it benefits their customers?

Bank lending in Australia

2009-03-29T18:01:00.000-07:00

The residential market in Perth is continuing to trade and look healthy, with a high level of sales at the weekend - at least in the under $700,000 bracket.
The same cannot be said of the commercial property market and in todays AFR the banks are reported to be wary of further lending in commercial.
While making lots of noises about "supporting their customers" and rolling over loans, those of us in the market are quite aware that the banks are using any excuse to reduce exposure where they can. In saying that they will roll over existing loans, they are acknowledging the reality that, if banks won't offer loans to purchasers, then there are no buyers out there. So they have little choice, its either force properties onto the market at fire sale prices, or roll the loans and hope that eventually the crisis eases.
Even when they will roll loans, its difficult for listed or unlisted funds. The bank is keen to:
a. get a realistic valuation (for that, read 20 % less than the last valuation), and
b. see the LTV ratio pull back from 65% to maybe 55%, and
c. get the equity holders to put some of their money in, before the bank signs the deal.
So in practice most Funds in the country will be required to raise a further 20% of equity before the bank will deal, from reluctant investors at that.
The good funds will probably manage it, while new funds could have a ball collecting cheap properties, and the poorest funds will still go under and have to sell at fire sale prices. I'm busy figuring who goes into which list!

What will come out of the G20 meeting?

2009-03-21T03:13:00.000-07:00

From IHT
http://www.iht.com/articles/2009/03/20/opinion/edbrooks.php
David Brooks:

"This is a global crisis, and a core lesson of the Great Depression is that a global crisis calls for a global response. As such, Tim Geithner and Larry Summers are preparing for the upcoming G-20 summit with an agenda that has the merit of actually addressing the problem at hand: coordinate global stimulus, strengthen the International Monetary Fund, preserve open trade.

But the G-20 process is heading toward global impotence because the Europeans are dismissing this approach. Instead, they want to spend this moment of peril working on a long-term architecture to regulate global finance. The world is in flames and they want directorates and multilateral symposia and vague plans for a powerless "college of supervisors." This is what Marie Antoinette would be for if she were an annual Davos attendee...

Many people used to wonder how the world's leaders could be so myopic at various points in history — like during the Versailles Treaty or the turmoil of the 1930s. We don't have to wonder any more. We get to watch the cosmic myopia replay itself in our own times."

Our world leaders feel the need to be seen to be doing something, and that usually means lots of international serious looking meetings while proclaiming that we'll do "whatever it takes", while actually not achieving anything.

"Whatever it takes" can be interpreted as "I'm trying to think of something to do but can't offhand".

The cost to date

2009-03-19T00:47:00.001-07:00

These interesting facts courtesy of New York Times at
http://www.nytimes.com/interactive/2009/02/04/business/20090205-bailout-totals-graphic.html
As at Feb 4, 2009:
"Adding Up the Government’s Total Bailout Tab

Beyond the $700 billion bailout known as TARP, which has been used to prop up banks and car companies, the government has created an array of other programs to provide support to the struggling financial system. Through March 18, the government has made commitments of about $9.9 trillion and spent $2.2 trillion. Here is an overview, organized by the role the government has assumed in each case.

The Government as Investor
$5.4 trillion

Spent: $1.2 trillion

Includes direct investments in financial institutions, purchases of high-grade corporate debt and purchases of mortgage-backed securities issued by Fannie Mae, Freddie Mac and Ginnie Mae.

The Government as Lender
$2.3 trillion

Spent: $729 billion

A significant expansion of the government's traditional overnight lending to banks, including extending terms to as many as 90 days and allowing borrowing by other financial institutions.

The Government as Insurer
$2.1 trillion

Spent: $286 billion

Includes insuring debt issued by financial institutions and guaranteeing poorly performing assets owned by banks and Fannie Mae and Freddie Mac.

Commercial paper The Federal Reserve has become the buyer of last resort in the $1.6 trillion commercial paper market.

Committed: $1.6 trillion

Spent: $238 billion

Federal Home Loan Bank securities The Treasury and the Federal Reserve have begun buying debt and mortgage-backed securities from Fannie Mae, Freddie Mac and Ginnie Mae.

$1.5 trillion

$358 billion

Public-private investment fund This fund, which is not operational yet, will seek private investors and use a combination of private and public money to buy nonperforming assets from banks.

$1.0 trillion

$0 billion

Troubled Asset Relief Program (TARP) | See TARP recipients » In return for bailout cash, the Treasury now owns stock in hundreds of banks, General Motors, Chrysler and the insurer A.I.G. Two of the largest recipients are Bank of America ($45 billion) and Citigroup ($45 billion cash and $5 billion in support of a loan guarantee).

$700 billion

$540 billion

Money market funds The Treasury originally guaranteed these accounts up to $50 billion, but the program has been extended by the Federal Reserve, which has, in a few cases, had to step in and buy some illiquid assets of some funds to help them meet their obligations.

$600 billion

$7 billion

A.I.G. The Federal Reserve has provided seed money to create investment vehicles to buy, hold and possibly dispose of bad securities held or insured by A.I.G.

$53 billion

$43 billion

Bear Stearns The Federal Reserve bought distressed assets from Bear Stearns to facilitate its sale to JPMorgan Chase.

$29 billion

$29 billion

Reserve U.S. Government Fund Despite the name, this was a private fund, not part of the government. It was the first big money market fund to experience liquidity problems, and the Treasury eventually bought some high-quality assets to help the fund unwind.

$4 billion

$4 billion

Given that it has taken the USA 230 years to run up its first $10 Trillion of debt (and half of that in the last 8 years), adding the next $10 Trillion in one year is not bad going! I wonder when it gets paid off?

Tensions up in UK banking sector

2009-03-17T02:48:00.000-07:00

From the Telegraph today at
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/4996806/Bank-of-England-warns-tensions-in-banking-system-at-fever-pitch.html
" Bank of England warns tensions in banking system at fever pitch.

Tensions in the financial system are approaching the fever pitch they reached before the collapse of Lehman Brothers last October, the Bank of England has warned..

However, most worryingly, it warns that the credit default swap spread rates on large banks - a key measure of concerns about their possibly insolvency - picked up to their highest level since just before the collapse of Lehman.

The Bulletin says: "With a number of banks reporting large credit losses and write-downs for 2008 Q4, perceptions about bank counterparty risk appeared to pick up again. Consistent with that, premia on UK banks' credit default swaps rose, and approached levels reached in October 2008 when fears about system-wide failure were intense."

Some good news at last

2009-03-16T03:30:00.000-07:00

In todays IHT at
http://www.iht.com/articles/2009/03/15/business/market.php
"The economist John Kenneth Galbraith once said, "The only function of economic forecasting is to make astrology look respectable."

Still, we have to ask: Was that the bottom we just hit?

After months of punishing economic news, the gloom seemed to lift last week, if only for a moment. The U.S. stock market shot up 12 percent in four days. Two of the biggest banks in America said they had returned to profitability. General Motors said it would not need an additional $2 billion in government help this month. And retail sales were better than expected.

Then again, perhaps that's what passes for good news these days.

The market is still down by more than 50 percent since its high 17 months ago. Yes, the banks made money, but for just two months, and never mind the billions of bad assets that remain on their books. G.M. will still, in all likelihood, need billions in taxpayer help down the road and there's no guarantee it will survive. And those retail sales numbers? They were still bad, just not as bad as analysts were expecting.

Still, there was a sense among some economists and Wall Street analysts that if the bottom was not touched, perhaps the free fall was at least slowing. Which leads to a question: When we do hit the bottom — this year or years from now — how will we know?"

We are entering one of those phases in which the news, if not exactly good, is at least middling fair, which could lead to an upturn. Or then again, we've been here before, and it could be just a pause before we hit the next run of bad news. Only time will tell.

Let's have a bear rally

2009-03-16T02:08:00.000-07:00

The BoE has stated that the UK is heading into 1930's territory - this report extracted from the Telegraph
http://www.telegraph.co.uk/finance/financetopics/recession/4996994/Britain-showing-signs-of-heading-towards-1930s-style-depression-says-Bank.html
"Britain is showing signs of sliding towards a 1930s-style depression, the Bank of England says today for the first time.The country is displaying early symptoms of being trapped in a so-called “debt deflation trap” where families find themselves pushed further and further into the red every month, according to a Bank report published today.The stark warning will cause serious concerns, since it was this combination of falling prices and soaring debt burdens that plagued the US in the 1930s."

In part, this statement should be seen as a BoE justification for QE, but it is a serious concern.

Meanwhile the markets have shrugged off weeks of bad news and in the past week everyone seems to have decided its time for a rally, even if it is a bear rally, since the economic news hardly points to recovery yet. But I'm not complaining. Last week I bought some CHC, one of the very few REIT's that I have any faith in, and I've shown a 33% return on the week. Not bad for a reasonable stock with a high yield! As for the rest of the REIT's I fully expect three quarters of them to go under this year, or have a deeply discounted share offering or similar. With real property values expected to fall 20%, they can hardly avoid it if they are already sitting on the edge of their banking covenants.

Listed property trusts/ REIT's in Australia

2009-03-10T20:35:00.001-07:00

Todays AFR carried a summary of the reporting season for REIT's headed "Debt may be death knell for stretched trusts".
In brief, most of them (the smaller trusts at any rate) are up against their debt covenants at gearing of 50% to 60%, after the Dec 08 round of property revaluations. But the review of properties that I carry out makes me believe that already values are 10% to 20% less than book value.
The article carries forecasts that 2009 will see further falls in values of 20% (IPD John Garimort) to 40% (Charlie Aitken Southern Cross).
Even 20% would be enough to be terminal, and I'm predicting that, by the end of 2009, those trusts that cannot raise more equity will be in default and have to close down in a fire sale. That implies a load more property on the market for sale.
Banks know this and are in no hurry to extend more debt. Reports are that they will only lend to trusts that first show the ability to raise more equity from their investors. i.e. if the investors won't pour more money in, then the banks won't.
So although REIT's have dropped 60% to 80% in 2008, they are nowhere near bottom and there will be a bloodbath in the sector this year.
The plus is that, if we can raise equity for a new fund, property prices later this year should represent a good tactical purchase.

Going down

2009-03-10T20:29:00.000-07:00

This, inter alia, from Martin Weiss MoneyandMarkets, today:

"Just yesterday, the World Bank abandoned all attempts to sugar coat this crisis. In a shocking report, the global institution warned that the world economy will shrink for the first time since World War II and that industrial production will plunge a staggering 15% — a global depression reminiscent of the 1930s.

Meanwhile ...

* The Asian Development Bank reported that more than $50 trillion in invested wealth vanished into thin air last year.

* Superstar investor Warren Buffett warned on CNBC that the U.S. economy “has fallen off a cliff” ... is “in a shambles” ... and that we are experiencing “close to the worst-case scenario.”

* The feared “D” word has spread swiftly through the news media, as the reality of depression finally sinks in."

Meanwhile, todays AFR, page 7, reported that, for Australian industry, new forward orders are down over 25%. It is interesting to look at the chart. In approx terms, for the last 5 years, new forward orders grew between 5% and 10% a year, which was consistent with economic growth of 3% to 5%.

Now, new forward orders have fallen between 20% to 25%. If the same arithmetic applies, what does that imply for economic "growth" going forward? If it implied a 10% contraction, that would put us in Depression territory, but politicians and the Reserve Bank are still pitching for zero growth or thereabouts. Time will tell.

Buffett: the Emperor has no underwear

2009-03-09T21:55:00.000-07:00

This extract from Sydney Morning Herald at:
http://business.smh.com.au/business/world-business/buffett-says-economy-has-fallen-off-a-cliff-20090310-8tho.html

Warren Buffett said on Monday the US economy had "fallen off a cliff" but would eventually recover, although a rebound could kindle inflation worse than that experienced in the late 1970s.

Speaking on CNBC television, the 78-year-old US billionaire said the country is experiencing a "close to the worst-case" scenario of falling business activity and rising unemployment, causing consumer confidence and spending to tumble.

Buffett said Americans, including himself, did not predict the severity of home price declines, which led to problems with securitizations and other debt whose value depended on home prices continuing to rise, or at least not plummet.

"It was like some kids saying the emperor has no clothes, and then after he says that, he says now that the emperor doesn't have any underwear either," Buffett said. "We want to err on the side next time of not allowing big institutions to get as unchecked on leverage as we have allowed them to do."

Buffett said the economy was mere hours away from collapse last September when credit markets seized up, Lehman Brothers Holdings Inc went bankrupt and insurer American International Group Inc got its first bailout.

Rudd Bank Inc.

2009-03-09T19:41:00.000-07:00

Developers line up for Rudd Bank Cash
These extracts from the Sydney Morning Herald
http://business.smh.com.au/business/developers-line-up-for-rudd-bank-cash-20090309-8tbo.html
"THE country's big property companies have begun presenting their case for taxpayer support from the Australian Business Investment Partnership, the $4 billion venture between the Federal Government and the big four banks established to help commercial property players refinance their debts...
With the risk of breaking covenants growing at these low [real estate] prices, the banks are putting pressure on the trusts to raise cash via equity issues to show commitment from trust managers that they are not relying solely on borrowing from banks...
"The ABIP offers up to $30 billion of loan protection. Total corporate real estate debt in Australia is about $150 billion and around 13 per cent of total lending is from foreign banks, equal to about $20 billion," Mr [Simon] Wheatley said."
So there is $20 Billion of foreign lending for developers in Australia. I've seen earlier numbers suggesting $56 Billion of foreign lending for REIT's so I'm not clear whether that includes the $20B. If Rudd Bank is to provide $4B, then they must be assuming that the other $16B or $52B gets rolled over, i.e. the foreign banks continue to lend.
There are two problems to address.
1. Having advertised willingness to take over foreign debt, will this encourage foreign banks to play hardball and exit more of the market than they otherwise would have done?
2. Rudd Bank is presumably supplying Australian dollars, but those foreign banks will have to be repaid in US dollars or other foreign currency. So there is still a currency exchange issue. At worst, having to raise $56B of foreign currency would still play havoc with the A$ exchange rates, even if Rudd Bank provides all that dough.

The level of debt in the USA

2009-03-09T18:35:00.001-07:00

Martin Weiss of Money And Markets had these interesting notes in an email today:

Fact #1. As in the early 1930s, the essence of this crisis is a debt collapse.

Fact #2. The debts today are far greater; and their collapse, more impactful. Specifically, in 1929, for every dollar of GDP, the U.S. had $1.70 in debt; today, it has $3.50, or nearly twice as much. In 1929, there were virtually no derivatives; today, among U.S. commercial banks alone, there are $176 trillion. In 1929, the U.S. was a creditor nation with no debts to foreign countries; now it's the world's largest debtor nation, owing more than $2 trillion abroad.

Fact #3. Between its peak in 1929 and its ultimate bottom in 1932, the Dow Jones Industrial Average fell 89 percent, the equivalent of a decline to Dow 1500 in today's market.

Thus, even if this depression is not more severe than the 1930s, a devastating, long-term bear market still lies ahead.

Hows the weather on planet Europe?

2009-03-09T03:29:00.000-07:00

These comments from todays UK Telegraph newspaper at
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/4958395/Thanks-to-the-Bank-its-a-crisis-in-the-eurozone-its-a-total-catastrophe.html
"Spain's agony is already well advanced. Industrial output has fallen 24pc. Some 352,000 people have lost their jobs in two months. BBVA expects unemployment to reach 20pc next year, touching 4.5m. Premier Jose Luis Zapatero can do nothing as long as Spain remains in monetary union...

As it is we have seen industrial production collapse in every region. The drops in January were: Japan (-31pc), Korea (-26pc), Russia (-16pc), Brazil (-15pc), Italy (-14pc), Germany (-12pc). Falls that took two years from late 1929 have been compressed into five months.

Those who say this is nothing like the Great Depression are complacent. Household debt is higher today, and UK banks are in worse shape. (No bank of size failed in the British Empire during the slump). Britain's economy contracted by 5.6pc from peak to trough in the early 1930s (Eichengreen). Some put the figure at nearer 8pc. We may surpass that this time...

Nobel laureate Paul Krugman says the Fed has been as far behind the curve today as it was then, given the faster pace of collapse. It is bizarre that Ben Bernanke has not started to buy US Treasuries a full three months after he floated the idea, despite a yield rise of 80 basis points.

He has been stymied by the hawks. Kansas chief Thomas Hoenig said last week that the top priority is to drain liquidity before recovery later this year sets off inflation. Well, Mr Hoenig said last May that inflation psychology was gaining a hold "not seen since the 1970s and early 1980s" with a risk that inflation would become "embedded in the economy." The price spike broke within weeks. If his model was wrong then, why is it right now?

As for the ECB, it has not reached the starting line. Jean-Claude Trichet insists that there is no danger of deflation in Europe. What is the weather like on his planet, asked Mr Krugman."

Its a time to feel sorry for those countries that are in the Euro zone, and the Euro itself is now under pressure with falls forecast if the futures market is any guide.

Larry Summers

2009-03-08T23:50:00.000-07:00

"The right macro-economic focus for the G20 is on global
demand and the world needs more global demand ... This notion
that the economy is self-stabilising is usually right, but it
is wrong a few times a century. And this is one of those
times." -  US National Economic Council Director Larry Summers

World Bank offers dire forecast for world economy

2009-03-08T23:26:00.000-07:00

This news item from the International Herald Tribune at
http://www.iht.com/articles/2009/03/08/business/econ.php
"In a bleaker assessment than those of most private forecasters, the World Bank predicted Sunday that the global economy would shrink in 2009 for the first time since World War II.

The bank did not provide a specific estimate, but bank officials said its economists would be publishing one in the next several weeks.

Until now, even extremely pessimistic forecasters have predicted that the global economy would eke out a tiny expansion but had warned that even a growth rate of 5 percent in China would be a disastrous slowdown, given the enormous pressure there to create jobs for the country's rural population.

The World Bank also warned that global trade would contract for the first time since 1982, and that the decline would be the biggest since the 1930s....

The bank said developing countries, many of which had been growing rapidly in recent years, were now being devastated by plunging exports, falling commodity prices, declining foreign investment and vanishing credit.

The effect of the global slowdown varies widely among countries, and the drop in prices for oil and other commodities has created winners and losers, But as a whole, the bank said, emerging-market countries faced a combined financing gap in 2009 of at least $270 billion and as much as $700 billion.

The report detailed the variety of ways in which the global slowdown had hammered poorer countries in Latin America, Central Europe, Asia and Africa.

Central European countries like Poland, Hungary and the Czech Republic are hurting from diminished exports to Western Europe as well as a severe credit crunch among major European banks, which have suffered huge losses on U.S. mortgages and mortgage-backed securities."

Eastern Europe

2009-03-08T22:29:00.000-07:00

The financial crisis in Eastern Europe is deepening with the lack of support from the EU. In Australia, we tend to think of Eastern Europe, if we think of it at all, as a vague backward area somewhere between Europe proper and Russia. But this area, the countries in it, owe $3.6 Trillion in hard foreign currency!
It is unthinkable that they could be allowed to collapse, yet it might happen.
Things in lending are connected like a wheel. If they defaulted on $3.6 Trillion, they would take most of the European banks with them, since those banks count that $3.6 Trillion as an asset and it would be lost.
In turn, it would spread to American banks, the final straw to topple them. The world cannot afford to lose a sum of that magnitude and America and Europe would be compelled to step in and provide the supporting equity. How? By the only source left: quantitative easing = printing money.
It reveals that the world financial system is now little more than a pack of cards, needing only one nudge to topple.
It is the straw on the back of the camel scenario.
One wrong move, minor in itself, can upset the whole applecart to use another idiom.
Remember that World War One was triggered by the assassination of a minor Count in Herzegovina, a country pretty much no-one had heard of before the war.
Meanwhile in Australia we seem to be living on another planet, counting ourselves lucky to be surviving the crisis better than almost any other country, while the rest of the world is fretting about the future.
Australia has been the lucky country before and may yet be again, but I can't help feeling that we are living in blissful ignorance. Hope I'm wrong.

Europe’s banks face a $2 trillion dollar shortage

2009-03-05T20:46:00.000-08:00

From March 6 Telegraph UK
http://www.telegraph.co.uk/finance/financetopics/recession/4939796/Europes-banks-face-a-2-trillion-dollar-shortage.html

European banks face a US dollar “funding gap” of almost $2 trillion as a result of aggressive expansion around the world and may have difficulties rolling over debts, according to a report by the Bank for International Settlement.

The BIS said European and British banks have relied on an “unstable” source of funding, borrowing in their local currencies to finance “long positions in US dollars”. Much of this has to be rolled over in short-term debt markets.

“The build-up of large net US dollar positions exposed these banks to funding risk, or the risk that their funding positions could not be rolled over,” said the BIS.

The report, entitled “US dollar shortage in global banking”, helps explain why there has been such a frantic scramble for dollars each time the credit crisis takes a turn for the worse. Many investors have been wrong-footed by the powerful rally in the dollar against almost all currencies, except the yen.

British banks had accumulated a dollar "funding gap" of $300bn by mid 2007. The latest BIS data up to the third quarter of 2008 shows that this exposure has been trimmed by “deleveraging” but it still largely hanging over the UK financial institutions.

Swiss banks had a funding gap of $300bn at the onset of the credit crunch, an extremely high figure relative to Swiss GDP. German banks were $300bn short, and Dutch banks were $150bn short. Belgian and French banks were neutral.

The BIS said the total “funding gap” in dollars was around $2.2 trillion at the peak, when money market liabilities are included. This had fallen to around $2 trillion by the time of the Lehman Brothers collapse. The data is collected with a lag but it appears that there are still huge dollar liabilities to be covered.

Simon Derrick, currency chief at the Bank of New York Mellon, said the implications are obvious. “The global bullion of the last eight years was funded on dollar balance sheets, so the capital destruction we’re seeing leaves banks starved for dollars. Dollar is clearly going to appreciate a lot further,” he said.

Bank of England's licence to print money - 75b pounds

2009-03-05T19:36:00.000-08:00

From today March 6

business.smh.com.au/business/world-business/bank-of-englands-licence-to-print-money--75b-pounds-20090306-8q8y.html

The Bank of England is to pump out 75 billion pounds sterling ($163.43 billion) of newly-printed money after slashing interest rates to a record-low 0.5% in a twin-pronged attack on the global credit crunch.

In an extraordinary bid to free Britain from its first recession in 18 years, the BoE said it would issue the equivalent of $US106 billion or 84 billion euros via so-called "quantitative easing" measures.

The Bank of England plans to buy government bonds from commercial banks in the hope that the institutions will again lend in vast quantities to businesses and individuals after sitting tight since the credit crisis erupted in 2007.

"Quantitative easing is the last-chance saloon for the Bank of England," GFT market strategist David Morrison told AFP.

Thomas Friedman

2009-03-05T16:30:00.000-08:00

From the New York Times, March 3, the highly respected Thomas Friedman writes:
"I fear that [Obama's] first term could be eaten by Citigroup, AIG, Bank of America, Merrill Lynch, and the whole housing/sub-prime credit bubble.
I hope my fears are exaggerated. But ask yourself this: Why couldn't former Treasury secretary Henry Paulson solve this problem? And why does it seem as though his successor Timothy Geithner won't even look us in the eye and spell out his strategy?... It is because they know... that "we're gonna need a bigger boat" and they're too afraid to tell us just how big.
This problem is more complicated that you can imagine. We are coming off a 20 year credit binge. As a country, too many of us stopped making money by making "stuff" and started making money from money - consumers making money out of rising home prices and using the profits to buy flat-screen TVs from China on their credit cards, and bankers making money by creating complex securities and leverage so more and more consumers could get in on the credit game."

Australian recession to be deeper says Shann

2009-03-05T16:24:00.000-08:00

Ed Shann writes in todays Financial Review p 59 that everyone is still too optimistic.
"Australia is headed for a deep, extended recession. The sooner that is accepted the sooner we can adopt appropriate policies, rather than running around in denial.... this is not a normal recession that we will bounce out of in six months. It is a credit crunch and asset price deflation that is unique in our lifetimes.
Real national income declines by 4% in 2009 even on optimistic Reserve Bank forecasts. Real national income declines by more than real nominal output, because rising import prices reduce real income."
With our A$ having dropped from US$0.96 last year to around US$0.62 now, prices of imported goods will have to rise through 2009, increasing inflation.

On balance, its still downhill

2009-03-05T16:21:00.000-08:00

Europe slashes interest rates by 0.5% to 1.5%, while the Australian Reserve Bank still considers 3.25% to be low enough.
From
http://business.smh.com.au/business/world-business/rates-slashed-as-disaster-bites-20090306-8q7c.html

The ECB hacked its eurozone base rate back by half a point to 1.50% - its lowest level in the bank's 10-year history - and governor Jean-Claude Trichet said the rate could be cut even further in the bloc, where the recession has worsened.

"We did not decide ex ante that we were at the lowest level," Trichet said.

In a sign of trouble ahead, the ECB also slashed a previous forecast of 0.5-per cent contraction in the eurozone economy in 2009 to a huge 2.7 per cent.

The Bank of England cut interest rates for the sixth consecutive month, this time by half a percentage point to just 0.5%; the rate is now equal to that in Canada after that country's central bank cut rates there earlier this week.

The Bank of England also announcing plans - dubbed quantitative easing - to pump tens of billions of pounds in newly created money into Britain's economy in an unprecedented move aimed at boosting bank lending.

"Quantitative easing is the last-chance saloon for the Bank of England," GFT market strategist David Morrison said.

Japanese recession - no end in sight

2009-03-05T02:48:00.000-08:00

Japan's Prime Minister Taro Aso says there is "no bottom in sight'' for Asia's largest economy, which is deteriorating rapidly because of plunging exports amid a global downturn.

"The economy is rapidly worsening,'' hitting hard those companies that export to the United States and China, Mr Aso told a parliamentary committee today.

"We have no bottom in sight'' in the downturn, he added. "It's clear that the economy is in a severe state.''

Mr Aso was speaking after official figures showed Japanese companies are slashing their investments in plants and equipment at a record pace.

Investment dropped by 17.3% in the three months to December from a year earlier, led by car makers and other manufacturers, the finance ministry said. It was the biggest fall since comparable records began in 2002.

Amid the recession, Japanese companies have launched massive job cuts.

Mr Aso said it was "extremely difficult'' to predict how the labour market would fare from now but said stimulus measures could improve the economy in the latter half of fiscal year 2009 which starts in April.

From Sydney Morning Herald March 5

http://business.smh.com.au/business/world-business/no-bottom-in-sight-in-japans-recession-pm-20090305-8peh.html

Australia in recession

2009-03-03T17:34:00.000-08:00

So its official - in the Dec 08 quarter Australian GDP fell 0.5%, though it rose 0.2% in the preceding quarter so technically we are not in a recession - yet. Forecasts for the Mar 09 quarter are for a fall, so its only a matter of time.
The government has been timing the stimulus packages to try and avoid 2 back to back quarters of GDP fall in an effort to avoid the recession label. Its an example of how the responses to the global contraction are aimed at other targets. While the press suggests a picture of world leaders pulling together to solve the crisis, the reality is that each is aiming at their own personal targets. In Labors case, the recession has given them a leave pass to spend as much money as they like on any project that they care to mention, whether or not this is a sensible response. But Labor MP's love spending public money so don't expect anyone to question it.
Meanwhile the stock markets fall yet again, touching ASX 3100 this morning and there are signs of capitulation as investors start to give up on shares altogether. That could be interpreted as a positive - when absolutely everyone has sold, then maybe its time to buy.
There had been a glimmer of hope in the past few weeks that the bottom had been reached. But this past week has put paid to that as the roller coaster resumes its downward run.
The next big global worry is the imminent collapse of Eastern European nations. The proper response would be for the European Union to bail those eastern countries out, but the EU leaders have chosen the wrong moment to decide not to help. They will have to, eventually, but the mess will be far worse as a result of their turning their backs on it.
What do the EU leaders expect to achieve? Would they really be comfortable with a Union consisting of Britain France and Germany having full employment while unemployment in the eastern EU countries hits 50%? How would they handle the resultant wave of migration? Its just not on. They have to look for an outcome that shares the pain and gain equally between european nations or risk collapse.

A recession catch-up

2009-03-02T18:34:00.000-08:00

From todays Money Manager site
http://www.moneymanager.com.au/articles/2009/02/21/1234633122469.html
David Potts writes:
But by how much? The pity is economic statistics date so quickly.They're as useless as the sharemarket in telling you where we're at right now.The only difference is the sharemarket always looks ahead, so share prices today are based on what is expected to happen to profits in six or nine months, while economic statistics look behind. And then often as not change their mind.All you can do is follow the trends, unless something big comes along to throw them out - a global banking crisis, for instance.

G'day, it's your global recession here. Long time no see.

Let me say I really do appreciate that $42 billion budgetary gift from that nice Mr Swan. So fast too - what a strain it must be to spend money like that. You wouldn't know where to start. Or finish.

Still, I wish he'd asked me first. What's a recession supposed to do with all that money? Save it I suppose. Don't get me wrong, it'll come in handy for later.

Anyway, thought you'd like an update from the economic front.

Global forces of evil out there are gnawing away at confidence, destroying the banking system and throwing children overboard.

As you can see from the postcards I've collected from the front, the markets still have the upper hand. The global banking system is clinging to government-financed life support and the situation, if anything, is deteriorating.

Growth

There is a trend in the way economists are reducing their growth forecasts. Or I should say shrinkage forecasts.

Take Japan for example, which was shrinking by about 5 per cent until the December quarter; now it's more like 13 per cent.

That puts one of our biggest trading partners past a recession and somewhere near a depression.

In the US, officially in recession for more than a year, some economists are predicting a slump in the order of 5 per cent this year.

It could be just as bad in the UK.

Remember the recession we had to have in 1990 produced a far more subdued drop of 1.4 per cent at its lowest point.

As for the more recent recession in 2000, it didn't even exist. The statistician owns up to a drop of 0.9 per cent in one quarter but that was for only three months and by the end of the year gross domestic product was higher than at the start.

In just two months the International Monetary Fund has amended its forecast for a decline from minus 0.3 per cent to minus 2 per cent for the advanced economies, which are the biggest countries except for China.

And don't get your hopes up there either.

You might remember how BHP Billiton and Rio Tinto, as well as most economic commentators, were talking about how China was "de-coupled" from the world economy because of its huge need for infrastructure.

Well it's re-coupled quick smart. In the globalised world economy it was a leading player both in trade and the financial system, where it's been re-investing its export surpluses into, whoops, US banks.

Far from being immune, China will be hit by a double whammy. It faces shrinking returns from its exports as well as its investments (if not downright losses).

Little wonder then its growth rate has halved, though so far to a still respectable 6.8 per cent. But watch for worse to come.

Did I mention global growth fell by 1.5 per cent in the December quarter, the largest fall since official records began in 1960?

Meanwhile the official forecast for Australia may as well be dry inland and showers about the coast for all the use it will be.

Officialdom is doing such weird contortions to avoid mentioning my name - just call me Recession - that it can't bring itself to forecast one.

And so it says GDP will grow 0.75 per cent in 2009-10, or using the Reserve Bank's more familiar measure, which is June quarter on June quarter, 0.25 per cent for the financial year.

Nice try, but this hides more than it reveals.

For a start it includes farming, which not only suffers the vagaries of the weather but isn't where most jobs are generated.

So a more realistic picture is non-farm GDP, which gets closer to what you're seeing out there. The forecast is 0 per cent. Notice that's the year to the June quarter and would be quite consistent with the economy shrinking in the year to the March quarter.

Anyway even on the official figures, the first half of the next financial year will be nothing to write home about. Non-farm GDP will climb from zero growth to an annual rate of just 0.25 per cent after taking inflation into account, a slight improvement.

Even by this time next year, the industrial economy will be growing by only 1.25 per cent in real terms.

It's more realistic to expect Australia will be hit as hard as everybody else, only later thanks to the run-out of the commodities boom that bought, on borrowed money, more time.

Sorry but the Government's $42 billion pressie, producing a deficit of 1.9 per cent of GDP, won't make much difference.

In the fine print, Treasury said "it is expected to be some time before household confidence improves and consumption recovers to the levels of recent years".

The Reserve Bank also has reservations. It says the combination of lower interest rates and the budget deficit will "take time to be effective and could be expected to have only a modest effect on the near-term outlook."

The truth is that the expected 30 per cent to 40 per cent fall in Australia's terms of trade this year - a rise of about the same order last year fuelled the economic boom - will more than overwhelm the spending spree.

So expect Australia to be hit hard. The only question is whether it is carried by the economy, and so jobs, or by the dollar.

Jobs

The unemployment rate is creeping up but the job market is always the last to go into recession so don't get your hopes up. Surveys of job vacancies show the situation is grim.

The reason unemployment doesn't rise straight away is that employers tend to hang on as long as they can because of the high cost of training new people.

But if the business goes under ...

By the same token, long after the economy picks up again unemployment will still be creeping up.

While the spending package will create 90,000 jobs "over two years", according to Treasury, that's nothing compared with the 200,000 to 300,000 that would be lost if the prediction of a 7 per cent unemployment rate came to pass.

And that could be optimistic considering the biggest generator of jobs is business investment, which is forecast to slump by 15.5 per cent in real terms next financial year.

The worst-hit industries will be mining and finance, both of which - perhaps not entirely by coincidence - were paying inflated salaries at the peak of the boom.

One industry that should be able to put on jobs is construction, which has been in the doldrums for some time.

But the problem builders face is shown by this comment from the Australian Industry Group-Housing Industry Association's Performance of Construction Index: "Construction companies widely commented that the deteriorating state of the economy and the ongoing lack of credit availability had resulted in clients delaying tenders and further cutting back on new project work."

There's also another complication for younger workers.

The collapse in the value of super could prompt many baby boomers to postpone their retirement, creating a bottleneck in the food chain.

Dollar

Still all is not lost. The bright spot is the dollar.

Normally you wouldn't want to rely on it as it's likely to do anything. And has.

But this time it has been a gem. The lower it goes, the more it protects Australia.

Where the dollar goes and why is a great mystery to economists, if not holidaymakers.

But a paper by the Reserve Bank shows it's not really so unpredictable. It's just weird, that's all.

It turns out that whatever is happening to the Australian economy leaves little impression on its value. So a good GDP figure can just as easily see the dollar drop.

It's not that the market disapproves; it just doesn't care.

The reason is that it has bigger fish to fry. Owning Australian dollars is always linked to something else.

So as often as not, foreign dollar-holders are forced to sell because something has gone wrong with another investment, such as bonds, the sharemarket, gold or whatever.

This can even involve closing out a profitable position.

Something correlated closely with the dollar lately has been, of all things, Wall Street.

It matches the S&P 500. So the lower the S&P 500 goes, the weaker the dollar.

Well, that makes it easy. Now just work out where Wall Street is going. Some help.

Inflation

Inflation is down and out, thanks to me if I may say so.

There's even talk of deflation, where prices fall. Like shares and property values.

But it's hard to believe deflation would ever be a problem in Australia.

Meanwhile the remnant of what's left of inflation is forecast by the Reserve Bank to drop to 1.75 per cent by the June quarter. It kicks up a bit after that to about 2.5 per cent, but that's only because the build-up in inflation last year will be flowing through.

Treasury says the underlying rate will drop to 2 per cent in 2009-10.

Count on the weak dollar to prevent deflation but because spending will be falling, the chances are that retailers will have to wear any higher costs.

Even then inventories are building up in China, which should keep costs down.

That leaves the weather as the only real threat on the inflation front. Certainly the floods up north don't augur well for food prices.

Interest Rates

The Reserve Bank might have been a bit slow in cutting rates but it's made up for it since.

You could say it's running out of breath.

Unless there's another shock from overseas - sorry, no promises - the days of 1 percentage point slices are over.

The next cut will probably be 0.5 of a percentage point at most, then slipping to 0.25 of a percentage point.

By which point it might be time to look at fixing your mortgage at these low rates.

If nothing else, there's no better time to get stuck into that mortgage. Anyway until next time I remain,

Yours gloomily

G Recession

How much of a recession?

2009-03-02T18:31:00.000-08:00

Remember the "recession we had to have"?
In 1989 - 1993 we experienced the second worst post-war recession.
Yet it is interesting to look back on the numbers. The Australian economy contracted by 1.4% and that was enough to create a 4 year period of financial misery.
Numbers are being updated as I write, but it looks like the Australian economy has already shrunk 1.5% and has further to fall in 2009. That gives a useful comparison that we are in for a worse time than we had in the 1990's.

On the global economy

2009-03-02T18:18:00.000-08:00

Not having updated my blog for a while, I've been too busy following the demise of the global economy and have decided to take the blog in a new direction, covering the global economic news.
I was one of the first, I think, to pick up that we were heading into a recession. In a speech to a Property Council audience in October 2007 I forecast that 2008 would see a recession coming and that it was time to sell things, reduce debt and be cautious. It turned out to be quite prescient, though even I didn't see the extent of how bad things would become. But at least I got the direction right, when others were still busily gearing up and buying.
It annoys me when fund managers, who have lost bucketloads of investors' money, claim that no-one could have seen it coming. If you looked at global economic news, it was quite clear that a downturn was coming. The sudden drop in the stock exchanges in August 2007 was an early warning sign, but many Directors and fund managers were too busy working on their own affairs to lift their heads up and look at what was happening around them.
Also, too many CEO's were being "rewarded" for growing the business, which in fact meant continuing to take risks and bet the house, regardless.
How do you reward a CEO for playing safe and shrinking the business in preparation for a recession? They didn't, and those companies got what they deserved. The Boards' of such companies should be sued by shareholders in my opinion.
A major role of a CEO is to look outside the business and pilot it through expected conditions ahead. Too many CEO's have been promoted from the CFO or COO roles, where they are used to micro managing the business, or playing with accounts, and assume that the CEO role is more of the same, for more money. It is in fact a totally different role, and the best companies are ones that did not pursue this route.
So here we are with a dreadful global economy, where the chances of a Depression are high enough to worry. Where is it all going?
Don't know yet, but I'll keep track of the news here.

Sand art

2008-11-09T21:30:00.003-08:00

Also in Northbridge is this group having just commenced on building a sand sculpture.

Iceland

2008-11-09T21:29:00.001-08:00

It is tempting to suggest that this is what is left of Iceland after the banking collapse :)

Display in town

2008-11-09T21:27:00.001-08:00

By the Art Centre in Northbridge is an open air display, currently on, showing "Earth From Above" in large photos which are quite impressive and worth a look. Those brown dots crossing the river are cows.

Growing plants

2008-11-09T21:24:00.000-08:00

I've got quite a collection of plants growing in pots now, tomatoes, beans, zuchini, etc. though my poor beans had suffered from their popularity with the local snail population. Only thing is I couldn't ever see any snails. Eventually discovered their hiding place - these pots have a rim at the top, and underneath the rim is a perfect hiding place for snails that I now have to sweep out regularly!

Handy work at home

2008-11-09T21:22:00.001-08:00

I've laid some more paving leading up to the gazebo with a step, which though I say it myself looks pretty good. It means we can come straight out of the gazebo and a few steps to the pool in summer.

Royal Show

2008-11-09T21:18:00.000-08:00

A month ago I visited the Royal Show in Perth. Traveling from town by train, it is two stops past Karrakatta, which is the stop for the cemetery. It is a toss-up which stop offers more excitement. It took me only 50 minutes to exhaust the Royal Show and each year I swear I won't bother going back again! I enjoyed seeing the Alpacas though.

Great picture

2008-11-02T17:13:00.000-08:00

I've referred before to the great lakelands photos taken by Tony Richards daily at www.lakelandcam.co.uk and this one I think deserves a prize as one of the best of 2008, capturing the morning mist at Kirkby Quay.

Coniston water boathouses

2008-11-02T16:03:00.000-08:00

Here are the boathouses as they are today, courtesy of pictures provided by Dan, with the water half way up the boathouses.

Bank Ground farmhouse in October

2008-11-02T15:57:00.000-08:00

After a months rest watching the world economy do a performance worthy of a circus act, I'm putting pen to paper again, well keyboard to screen doesn't sound as good somehow!

Thanks to Dan for sending some pictures through. After torrential rain, Coniston is at high water and the previously land-bound boathouses are now full of water. Here is a current picture of Bank Ground.

Just how bad can it get?

2008-10-09T21:11:00.000-07:00

A year ago almost to the day I gave a public lecture at a Property Council of Australia event. It was supposed to be about what sort of property to buy in 2008. Alone among the 3 presenters, I said that I thought the then-month-old sub-prime crisis marked a sea-change and that 2008 would be a bad year, that it was time to play safe, sell down, reduce borrowings and be cautious. At the time I was on my own, but now? A guy who was in the audience cornered me yesterday. "Phil", he said, "your forecast last year was wrong!" "How so?" I asked. "You were much too optimistic!" came the reply. Now I have a sense of deja-vu since we are staring down the barrel at the impossible. Could the global economic system really collapse? None of the fixes to date have made any impact. The world is freezing up, not in a global warming sense, but in a financial sense. Is it time to stock up on food and head for the hills? An increasing number of global researchers are moving that way. Trouble is, the economy is like a bicycle. A bicycle stays upright as long as it is moving fast. Hit the brakes and stand still, and it falls over. The economy is a thing of motion. It is not made to stop. There is no "emergency stop" button on a capitalist economy and worse there is no "restart" button. If it ever stops, it dies. A frightening thought, yet one that has come to mind for many people around the globe in the last three days. We've bailed everything out. There are no parachutes left. The financial floes are seizing up. I'm now starting to believe the unthinkable, that our Australian banks, along with all global banks, could suffer a run from depositors wanting their money back. All it takes is one news item on TV showing queues of anxious depositors, and it is all over. Because the banks cannot give everyone their money back. It is lent to others, so they in turn have to ring up all borrowers and mortgagees and demand instant repayment of those. But hang on, that's you again isn't it? It goes in a circle. Our Prime Minister Kevin Rudd has appeared on TV every day this week to assure us that our banks are sound and that we don't need to worry. There's no smoke without fire, the saying goes. I don't know about you, but the sight of a Prime Minister on TV telling me not to worry is enough to make me worry! None of us wants to spread panic, though, between you and I, I've drawn cash out of the bank today to keep aside, just in case. In a best case scenario, it all calms down next week, TED spreads (whoever knew what those were?) drop, lending increases, and we all carry on with the storm having passed by. But if it doesn't, just what do we do when the governments have run out of options? The USA has no money left. If $11 Trillion of government borrowings hasn't fixed things, what next? The only answer left is inflation, i.e. print money. We could imagine this scenario: All US banks collapse, leading to global banks collapsing. All banks get nationalized, i.e. owned by the government. The US declares a default on its $11 Trillion debt and (handily) wipes it off. On the way, the capital balances of most countries, super funds, etc. are wiped out. The US prints dollars and inflation rises to some unbelievable figure. Will that cure the ills, and preface a new dawn in which a fresh economy starts? I hope we don't have to find out. This morning, the UK leads the way in the news, and Australia is uncomfortably close behind. Here are some extracts from The Telegraph: Financial crisis: Home safe sales soar as trust in banks collapses Worried savers are taking their cash out of banks and investing in home safes in an attempt to beat the current banking crisis. Sales of household safes have soared as the ongoing economic downturn has seen the markets collapse and banks pushed into hasty mergers. Russ Reader, managing director of Leigh Safes said: "It's simple, if there is a lack of confidence in banks buy safes and put the contents on their home insurance. "We've seen a 25 per cent increase in sales and inquiries over the last four weeks, in particular for higher-grade safes that insurance companies approve for larger sums." Debris from the City and Wall Street will destroy innocent lives It is hard to comprehend the scale of pain that is about to be inflicted on people who least deserve it, says Jeff Randall, but at its heart will be unemployment. It was the age of credulity. For a decade or more, Britain and America put their faith in a westernised version of a Melanesian cargo cult. It was as though millions of consumers expected to accumulate the riches of dreams through little more than positive thinking and negative saving. For millions of unknowing punters, fear was removed from the equation. Bling went the strings of household purses. Mortgages, it seemed, contained the magic to deliver not just homes but the cargo of high rollers. With no deposits, no questions, 125 per cent of collateral, five times income, make that six, why miss out? Shopping like the stars became a leisure activity. Contrary to Mr Greenspan's assertions, however, risk had not been transferred. It had been souped up. Sub-prime wizardry had increased the system's gearing. Borrowers and lenders were propelled towards a crash. That happened a year ago when credit was crunched, along with the rest of us. Amid all the banking gobbledygook about collateralised debt obligations, tier-one capital ratios and structured investment vehicles, it's hard to comprehend the scale of pain that is about to be inflicted on people who least deserve it. Debris from the implosion of parallel universes in the City and Wall Street is about to destroy innocent lives. If all this seems gloomy, that's because it is. Spectacularly so. Trust in paper assets has been dissipated to the point that the cost of insuring a default on US Treasury bonds, ie, Uncle Sam going bust, has risen fourfold since the start of 2008. The unthinkable is being thought. Goodbye credulity, hello austerity.

Japan to build Space Elevator

2008-09-23T20:53:00.000-07:00

News hit overnight that the Japanese are moving to be the first to construct a Space Elevator, triggered by the Japanese edition of my book "Leaving the Planet by Space Elevator" with Dr. Brad Edwards. See www.leavingtheplanet.com for more info.

This is exciting news for me and very surprising, though the Japanese are surely best placed to make this happen.

A review of the story is provided here:

Japan to build a Space Elevator

When NASA finally gets to land it's first manned mission to the Moon in 50 years, in 2020 or later, they may find a Japanese restaurant waiting for them!

Japan has announced that it is commencing research on the construction of a Space Elevator. This is intended to replace rockets as the means of leaving Earth and is expected to reduce the cost of access to space by 95%. According to a report by Leo Lewis in the English Times newspaper, Shuichi Ono, chairman of the Japan Space Elevator Association considers that the Japanese can construct the world's first Space Elevator for around US$10 Billion.

The announcement has caught the Americans, and NASA in particular, by surprise. Long regarded as science fiction, the Space Elevator was proven to be a workable concept, when the NASA Institute of Advanced Concepts commissioned then NASA engineer Dr. Brad Edwards to study it. Utilising the newly discovered carbon nanofibre material, it was demonstrated that an Elevator could be built. Until the discovery of carbon nanofibre, quite simply no material was strong enough to build a 100,000 km cable into the heavens - it would break under its own weight. But carbon nanofibre can have a strength up to 200 times stronger than steel, enough to build such a cable.

The Japanese are already the worlds' largest producer of carbon nanofibre, but not at the strength needed to build a space elevator cable. It is expected that it will take five years of work in Japanese laboratories to achieve the breakthroughs needed to engineer the cable. If they succeed, the Japanese will again be at the forefront of technology. Not only will they have cheap and regular access to space, but what else can be done on Earth with a material 200 times stronger than steel? It will revolutionize the construction industries and is expected to replace much of the concrete, copper, iron and steel currently used in construction.

The current NASA program envisages a series of manned Moon landings in the 2020's, but the program is already suffering delays and budget cutbacks. A gap of several years is appearing between the retirement of the existing shuttle fleet, and the commissioning of its replacement. The critical element is that NASA still plans on using rockets for at least the next 30 years. It has funded some research into carbon nanofibre and the Space Elevator, but changing existing plans to accommodate a Space Elevator has met with stiff resistance, with a belief that, at best, an Elevator could not be constructed until the 2030's or later.

This gap has created an opportunity that the Japanese are now seizing. Once the carbon nanofibre material is available, the deployment of a Space Elevator can be done inside of a year, even if it is, admittedly, a complex engineering project. So if the Japanese can produce the material by say 2014, it is possible that they could deploy a Space Elevator by 2015 and be running regular shuttles to the Moon by 2018, long before any other nation gets there.

It is perhaps no coincidence that Japan is the first country to be conducting high-definition imagery and mapping of the Moon, with its lunar explorer satellite Kaguya (Selene), a product of the Japan Aerospace Exploration Agency (JAXA). While NASA still relies on Apollo era imagery until its much delayed LRO gets launched in 2009, Japan suddenly looks well positioned to take the lead in the new space race.

It can only be a matter of time before other nations wake up to the potential of a Space Elevator. Both the Chinese and the Russians are known to have an interest in the project. Its strategic importance cannot be understated. The first country to construct and own a Space Elevator can launch into space and to the Moon at a cost of less than 5% of the rocket based cost for other countries. Too, the Elevator is expected to handle up to six launches a day of a jumbo jet 747-sized cargo or ship that can carry 20 tonnes per launch. Shipping a Caterpillar tractor to the Moon suddenly becomes feasible, for example, and the first country to have this capacity will likely control all space exploration for the foreseeable future.

The Japanese interest in the Space Elevator was sparked by a book by an Australian author, Philip Ragan. Phil co-wrote the key book on the subject with Dr. Brad Edwards. Dr. Edwards is the leading researcher and engineer in the Space Elevator field. Philip is a fund manager based in Perth. Recognizing that few people realized what exciting developments in the field were taking place, Philip and Brad wrote "Leaving the Planet by Space Elevator" which was release at the NASA X-Prize competition in October 2006.

The book contained a Foreword by Sir Arthur C Clarke, a keen supporter of the project since his initial science fiction book "The Fountains of Paradise" postulated a space elevator in 1979. Sadly, the Foreword was one of the last things written by Sir Arthur.

The book was translated into Japanese and released in Japan in April 2008, where it surprised Brad and Philip by entering the Japanese best seller list. Now they know why! Philip says: "We have been pleasantly surprised by the speed with which the Japanese recognized the significance of the project and the considerable resources, US$10 Billion, that they are considering allocating to its development. By the end of the 21st century, travel into space via Space Elevator will be commonplace. Our grandchildren will be traveling to the Moon and Mars the way we now travel around the globe. The Space Elevator will be to the 21st century what the jet airplane has been to the 20th century."

Of course there are plenty of doubts and challenges ahead, and their book, information on which is available at www.leavingtheplanet.com addresses current thinking on how these will be addressed. Brad and Philip are to attend a conference with the Japanese in Tokyo in November.

See

http://www.timesonline.co.uk/tol/news/uk/science/article4799369.ece

www.leavingtheplanet.com

Nuts Bags

2008-09-18T22:16:00.002-07:00

My son Tim is proud to get into his new shop at Gosnells Markets this week, with his line of hundreds of varieties of nuts. Here are some opening pictures.

The week in summary

2008-09-18T22:16:00.001-07:00

Another miserable week with the weather raining and cold, matching the world financial markets. Few people realize how close the global economy came to collapse this week, but with trillions of dollars in bailouts planned or underway, inflation must be on its way, and no-one is deemed immune anymore.

Anyway a bit of light relief from the Alex cartoon, courtesy The Telegraph UK.

Fathers Day again

2008-09-11T04:25:00.000-07:00

Here is a lovely picture of my wife and daughter at the Fathers Day picnic last Sunday! Sitting on the grass by the river it was a beautiful day to be out.

Oakford cont'd

2008-09-09T19:50:00.001-07:00

If I tell my wife that this is the new bathroom it would soon put paid to the idea of moving!

Oakford

2008-09-09T19:48:00.000-07:00

Out looking at a rural property for sale in Oakford, not far from where we live, I caught this rainbow in a photo while standing near some horses in a paddock.

Winter in the park

2008-09-09T19:47:00.001-07:00

It may well be Spring but it still looks like a sunny winters' day in the little park near our house by the tennis courts.

Perth, Australia

2008-09-09T19:45:00.002-07:00

Here are another couple of photos about town -

One from Murdoch train station showing the freeway on its way to Perth CBD in the distance,

One of the construction work finally underway at City Square in town.

Perth Fathers Day

2008-09-08T18:38:00.000-07:00

Gee its been a while since I"ve updated the old blog so thought I'd better get down to it early on this sunny Tuesday morning. In the interval my young son has been in and out of hospital with something like conjunctivitis, thankfully all well and better now.

Tim suffered from his car blowing up on him, a piston went through the engine casing which is not something I've every come across, so he's having to borrow my car while he figures out a replacement. Since he has to keep his business at the Gosnells Railway Market going, he has a lot on, plus he is about to rent a proper shop there and moves in a couple of weeks.

At home I've started growing some plants, tomatoes, lettuce, rocket, runner beans, etc. and have been nursing them through the cold nights and putting them out in the sunshine in the day. They are evidently enjoying the treatment as they are looking healthy and growing.

Took the dogs for a walk around the lake last night. After the heavy rains of July the lake has only now subsided to its natural water level, and the surrounding grass is still looking muddy. With Spring advancing it is getting lighter for a while longer in the evenings, enough to give us time to go for a relaxed walk before dark again.

Meanwhile we have had a State Election, and what a lark, the existing incumbents Labor who thought they'd get back in easily are on a knife edge to be thrown out, assuming that Libs and Nats can talk nicely to each other. I work on the theory that governments should be changed regularly in a democracy, otherwise they start forgetting that its our money they are spending and get too cocky!

The pictures are from our Fathers Day picnic on Sunday, on the banks of the river at Shelley foreshore.

Our dogs

2008-08-31T22:53:00.001-07:00

Our dogs don't like being left behind when we go out, sitting at the gate with a reproachful look on their faces.

Monday

2008-08-31T22:49:00.000-07:00

Sep 1 has started off wet, with light drizzle coming down on the way to work.
By the time I got to my office on level 49 a mist had drifted in, obscuring much of the eastern suburbs.

Perth Friday

2008-08-28T20:17:00.001-07:00

The end of the working week rolls up already and its been a busy one as you can see by the lack of blog updates this week! I've been up on the rooftop of an office building this morning and captured some views of Perth not usually seen, looking down on the Mill Street junction (what looks like a ghostly trail of white is actually the sunlight reflecting off a building) and the City Square development hole in the ground which is now under construction.

The Kit Kat Club

2008-08-21T21:16:00.000-07:00

Only a few days after writing about the English Kit Kat Club I open my copy of The Economist and read about a new book on the subject and realize I made a few errors in my references from memory!
To quote,

"THEY gathered to eat a “collation of oven trumpery” at the invitation of Jacob Tonson, a publisher and bookseller. The kitchen produced mutton pies, cheesecakes, golden custards, puff-pastry apple tarts and rosewater codling tarts. Between mouthfuls the conversation flickered between politics, poetry, architecture and the regrettable lack of culture among the English. It was all rounded off with a toast to a beautiful woman singled out by a member of the club. Cutlery was coming into use at the time, but using fingers and fingerbowls was fine too. Above all, they drank a lot.

The Kit-Cat Club, named after Christopher Cat, the owner of the inn where they met, flourished for a couple of decades, beginning in the 1690s."
Ref: http://www.economist.com/books/displaystory.cfm?story_id=11919277

The book review is of The Kit-Cat Club: Friends Who Imagined a Nation
By Ophelia Field
and one that I'll probably get, or at least hint about for Christmas!

Murdoch train station

2008-08-21T21:08:00.000-07:00

Some photo's of my local train station, which opened earlier this year. They show the line going into Perth, and, across the freeway, a mural painted on the concrete wall to discourage "taggers" aka graffiti artists.
It was perishing cold this morning, even though the sun was out and the sky was blue. A strong cold wind is blowing from the Antarctic bringing down the apparent temperature to something like freezing! That in turn was created by an unusually strong high pressure system to the south of Albany. Coming in at a pressure of 1041 hp at its centre, it made news as the strongest high pressure system recorded since the 1920's, and created the very strong winds that are blowing the cold air. At least it is really fresh air!

Early morning in the city

2008-08-19T18:12:00.001-07:00

It's early on a crisp cold morning as I arrived in Perth today, with a clear blue sky overhead again. The early sun catches the warm red bricks of the Bankwest branch, previously the Majestic Hotel, below my office building.

In the city

2008-08-18T23:42:00.000-07:00

Here is the park on the corner of William St and Hay St yesterday on a pleasant afternoon, with the popular coffee shop Ecucina doing its' morning trade. It's a place I end up in a lot, for meetings. In the old days we would hold meetings in Board Rooms but the world has turned full circle and we'd rather meet in coffee shops, which was their main purpose when they first appeared in London. The famous Kit Kat Club of the early 1800's was not, as you may suppose, a tavern, but a coffee shop frequented by Isaac Newton and the like. They had a crazy spell where all business was supposed to be done in rhyme at the time when poetry took off. Since such older men were poor at composing poems, hordes of teenage students would hang around and earn money by being paid to compose the masters' wishes in rhyme, for a fee. Thankfully we don't have to do that today, though rather worse rhymes get heard in pubs equipped with karaoke machines!
Today has turned cloudy with occasional showers, hardly enough to water anything.

Sunday picnic at Shelley foreshore

2008-08-17T18:56:00.000-07:00

Sunday was even warmer, reaching 24C in the afternoon and we took a picnic lunch to the riverside. After the heavy rain in late July it has now turned dry. We have had 16 days without rain, which is unusual for August - the driest run since 1926, though some showers are forecast in a couple of days time.
Later in the afternoon my wife flew off to Bali with a girlfriend for a weeks' break while leaving me at work!

Out in the countryside

2008-08-17T18:54:00.000-07:00

A beautiful warm Saturday saw us driving around Chittering and Bindoon. This orchard has mandarins and oranges already growing and ripening in the unseasonally warm and dry winter weather that we are having.

2008-08-17T18:52:00.000-07:00

Windermere

2008-08-13T23:40:00.000-07:00

And this one from the same source, on Lake Windermere which I immediately recognized from the rowing boat. That's right girls, don't let the weather stop you enjoying yourselves! But shouldn't the poor rower (or is it rowee?) be given a courtesy umbrella in exchange for the hard work?

Eastbourne

2008-08-13T23:37:00.001-07:00

Meanwhile lest we in Perth Australia complain about the weather, here is a picture of the English enjoying their summer holiday at Eastbourne, taken from http://www.telegraph.co.uk/news/picturegalleries/uknews/2552820/The-British-summer-washout-continues.html?image=7
The weather forecast there is "very changeable". So is that more changeable than just "changeable"?

Perth buildings

2008-08-12T20:26:00.000-07:00

Some palm trees tucked in uncomfortably between the high-rise office towers in Perth, with the morning sun catching the silver walls of Allendale Square, built in 1976 but still looking fresh and modern.
Some people complain about the number of high-rise buildings in Perth, though they probably don't work inside them. To those of us working in town, it's a different story, since being high up in a high-rise office tower means a great view of the surrounding city. There is something wonderful about sitting in your office and gazing out at the Swan River, checking the tide, watching boats sailing in the Wednesday or Thursday afternoon regatta's (how do they get the time off to go sailing anyway?) and viewing the Indian Ocean in the distance.

Perth statues

2008-08-12T20:23:00.000-07:00

A photo along St Georges Tce Perth today, of the bronze statues at number 44. They are meant to represent the typical look and dress of men (no women), from the early settler days, right through to modern man with his mobile phone.

Sunset on the lake

2008-08-12T20:20:00.000-07:00

Walking the dog at sunset with a nice view over our lake, and our little ducklings scratching for food in the mud covered bank, which has yet to dry out after the rains.

Sunday football

2008-08-10T23:53:00.000-07:00

The team, Whitfords Under-10's, won the game by 1 point, the closest margin of the season, but they ended up undefeated and top of the ladder, so all were happy.

Sunday football

2008-08-10T23:50:00.000-07:00

Sunday morning and my son had his last footie game of the season. It was a sunny but crisp and cool morning made colder by the strong southerly wind, which also played havoc during the game and resulted in many would-be goals becoming a single point instead.
A warm coffee was most welcome!

Interest rates

2008-08-05T20:21:00.000-07:00

The interest rate quoted on 3 year bank debt at indicative rates has come down since June by a full percentage point, even lower if you take todays rate at 6.80% though it hasn't flowed through into mortgage rates yet, but it is a sign that the next move in interest rates may be down. Taking line and origination fees into account it should be possible to borrow for 3 years for commercial loans at about 7.8% right now, a far cry from the 9.5% residential mortgage rates.
Figures courtesy of Commonwealth Bank of Australia.

Perth Australia

2008-08-05T19:12:00.000-07:00

The view out of my office window on a lovely still and sunny morning, with not a breath of wind.
Went to the Astronomy Club last night; I'm speaking there next month on my Space Elevator book - see www.leavingtheplanet.com for details. Currently Jupiter is high in the sky with one of the best views we get of it. It is only this good every 11 years or so. In Perth, go outside at 10 p.m. and look directly overhead - it's the brightest "star" in the sky there.
Meanwhile "good" news on the economic front. The economy is now considered so bad, and people suffering so much, that the Reserve Bank is being tipped to reduce interest rates, maybe as soon as next month, though my betting is that it won't be before next year. A run of good news tends to be followed by a run of bad news, etc. so I'm sure there will be a phase somewhere when we change and think that interest rates will go up instead. Meanwhile, the rate on 3 year debt has dropped from a high of 8.14% in June to 6.80% today, though 90 day money is still higher at 7.60% giving a positive yield curve, so the markets are pricing in expectations of rate falls. That must be good news for anyone with a mortgage.

Murray Street Perth

2008-08-05T19:10:00.000-07:00

Murray Street mall in Perth at lunchtime looking quieter these days. People are reported to be spending less though the retailers are thankful that more and more people are moving to Perth which helps offset that.

Dam Water

2008-08-04T23:25:00.000-07:00

Perth has a water problem being in a drought prone part of Australia. In 2002 we were in danger of running out, but thankfully 2007 was a good year for rain, and so far 2008 is following along. If 2008 continues to repeat last year then we may end up with our dams 50% full for the first time in a decade.
It's been a long time since they were 100% full. I can remember in the 80's seeing that, with the slipways overflowing, but not any more.
This graph shows the annual storage patterns, see www.watercorporation.com.au
In round figures, the bottom 20% of water in the dams is not usable, so 20% storage is regarded as "empty". Perth uses about 15% of dam capacity each year, so in simple terms, we need the dams to be at least 35% full by Christmas to have enough water.
We were less than that in 2002 and again in 2006, which led to the water rationing that we had.
Currently after the July rains the dams are 43% full and if this year matches last year, we could well have them 50% full by Christmas, i.e. 2 years capacity.
This would be thanks to heavier than average rain, but also to the Desalination Plant opened 2 years ago, which now supplies 20% of Perths' water usage. It was criticized by the nimby lobby when it was built, but the dire warnings of the environmental lobby about salt in the ocean (isn't it salt water anyway?) turned out to be overblown, and without it we'd still be struggling for our water supply. It occurs to me that the environmentalists also failed to take into account the positive benefits that come from the Plant, in that more water is left in the dams in the hills, which improves the environment there.
Of course, the climate being variable, we'll probably see more dry years to come, but it would be nice to see our dams overflowing once again.

Sunny Perth

2008-08-04T20:19:00.000-07:00

Meanwhile here is how the centre of Perth WA looks this Tuesday morning. The hole in the ground by St Georges Tce is the new office tower finally commencing construction 20 years late, while you can also see the blue water of the river looking inviting, and the Indian Ocean in the distance.

Meanwhile back at the Lakes

2008-08-04T19:16:00.000-07:00

I was pleased to see, this morning, this picture from Coniston UK of the lake, taken adjacent to Bank Ground cottage where we stayed in June. Dan wrote to tell me that they've had a very warm couple of weeks and sunshine there, though it's now turned to rain again.
Picture taken by Tony Richards.
See www.lakelandcam.co.uk

Bunny and I by the lake

2008-08-03T20:45:00.000-07:00

Here is "Bunny" and I by the water line on our walk. We call her "Bunny" after the energizer - bunny as her idea of a walk is to run faster than I can keep up, until the batteries run out and she flops down to rest!

More on the lake

2008-08-03T20:41:00.001-07:00

We have a family of ducks, with 7 ducklings, on the lake, where they've been for a couple of weeks now, enjoying the rain.
A grebe has started nesting in some of the rushes, but its an unfortunate spot as, with a sunny week forecast, it is likely to have dried out within a week or two.

Heavy rain on our lake

2008-08-03T20:37:00.001-07:00

The heavy rain has raised the water levels in our lake to the highest that I've seen them, any more and the paths would be flooded.
Here we are taking the dogs for a walk around the lake, with the water lapping the very edge of the ornamental wall feature.
Emily the dog was not impressed at being dragged to the edge of the water to take a look. She has very definite ideas about exactly where a dog should walk, and its once around the lake only, no second laps please!

Still raining after all these years

2008-07-30T23:15:00.000-07:00

Yes it's still raining in Perth today. It might surprise people in England to know that in Perth Australia we get as much rainfall as in parts of the British Isles; the only difference is that it all comes down in July and August instead of dribbling down all year.
This rainy week has been welcomed by kayakers who are lined up for the Avon Descent, a white water race down the Avon River, this coming weekend. I'll be driving up to Walyunga to watch the action on Sunday morning.
Meanwhile, as a memory of a nice warm summer, here is an old picture from 2005 of the beach on Christmas Day at Swanbourne.

Sunday footie

2008-07-28T21:23:00.000-07:00

Here is the keen team warming up. They went on to win the game with my son pleased at scoring two goals. They are undefeated this season.

Sunday footie

2008-07-28T21:21:00.001-07:00

Sunday meanwhile dawned wet and rainy but my son was keen as ever to go to his football game (Aussie rules under-10).
Usually there is quite a crowd watching but as you can see, this Sunday most of the mums and siblings chose to stay in bed and send out the dads to dutifully stand in the rain!

Alpacas

2008-07-28T21:18:00.000-07:00

Last Saturday nearby was an Alpaca Show and I went to have a look. In the Llama family the Alpaca is a charming looking animal grown for its fine wool.

Ducks

2008-07-28T21:15:00.000-07:00

Our lake is high again with the heavy rains adding to the water level, which we saw while walking the dogs. We have a small duck family that have had ducklings, which I think is unusual in the middle of winter, so we have to make sure that the dogs are tightly leased while walking past them so as not to scare the ducklings!
This part of the lake would be bone dry in the middle of summer.

Chittering

2008-07-28T21:13:00.001-07:00

We took a day out last Saturday and drove out into the countryside at Chittering and this photo was taken while having coffee at a cafe in Lower Chittering. It is a beautiful area and so close to Perth, only about 1 hour drive from the city centre.

Back again

2008-07-28T21:07:00.000-07:00

hello again, back writing after an absence of a couple of weeks as I've been down with this flu that has been going around. It took me 10 days to get over it and it leaves you quite weak, so though I'm back at work now it will take me another week or so to fully recover, I reckon.
We are getting intervals of heavy rain in between sunny spells. As you can see in the picture from my office, there is heavy rain over the Swan River here in Perth, and a rainbow is showing over South Perth.
One of the good things about being ill at home was that I could stay up late and watch the Tour De France cycling on tv and get to lie in! It was a shame that Cadel Evans didn't make the top spot though to any other person coming second would still count as a major achievement. The scenery was stunning and a good advert for a french holiday.

Sunset at the lake

2008-07-16T02:36:00.000-07:00

This was the view looking into the setting sun. By the time we had walked once around the lake it had gone below the horizon and it was getting dark already.

Rain and the lake

2008-07-16T02:34:00.000-07:00

The farmers are pleased with the rain that we've had over the past few days with promises of a good crop this year. As you can see from the lake by our house, the water level is way up, past the palm trees and the ground is really wet underfoot. We took the dogs for a walk but there were no ducks or birds around for the little one to chase, much to her disappointment!

Where is Europe?

2008-07-15T19:26:00.000-07:00

Where is Europe’s eastern border?
The Pacific Ocean if you believe the Sydney Morning Herald as shown in the attached picture!
In their travel page, hover the mouse over “Europe” and this is what you get on the map!

In Perth already

2008-07-13T20:07:00.000-07:00

In Perth already with the view down William Street showing the new train station (Esplanade Station) in the distance.

Perth Monday morning

2008-07-13T20:04:00.000-07:00

Here is the view of the Swan River on Monday morning, on the train having just passed Canning Bridge. It is a cloudy but dry morning with the air still and no movement on the river.

Alliance francaise

2008-07-13T20:01:00.000-07:00

Saturday night and it was the turn of the Alliance Francaise Bastille Day Ball at the Fremantle Sailing Club. What with the Tour de France currently on we thought it only right to join in and we enjoyed an evening of dining and dancing with friends.

Saturday lunch

2008-07-13T19:56:00.000-07:00

We went into the Swan Valley for lunch today where a good friend of ours was having his 50th birthday at Sittella's restaurant. Although the weather was cool, Sittela's is a marvelous place with a great outlook over the valley and grapevines, all bare at this time of year.
We really enjoyed lunch and it reminded us how picturesque the Swan Valley is. It is Perths' metro wine growing area so quite handy.