Archive for March, 2013

UK Budget…2013 Review

UK Budget and the continued austerity measures. I will not look at the details of a bland pointless budget just its focus.

(Click to enlarge) Thank you to my good friend M.Jones for the artwork.

George Osborne. As I see him. Monopoly money or Sterling? There will not be a lot of difference in value by the time he has finished.

First off, why is George Osborne dressed as the Statue of Liberty?

I see his and indeed his predecessors policies as encouraging large scale immigration. Below is part of the poem by Emma Lazarus which is mounted on a bronze plaque on the statue.

“Give me your tired, your poor, Your huddled masses yearning to breathe free, The wretched refuse of your teeming shore. Send these, the homeless, tempest-tost to me, I lift my lamp beside the golden door!”

This sentiment epitomises exactly how the Labour chancellor Gordon Brown treated these islands. He turned a blind eye to the massive influx of immigrants both legal and illegal. By doing so he helped push the UK economy along with the growing population demanding ever more housing and consumption. The positive economic affects of this policy now have to be paid for. The housing demand drove average pricing to an historic high verses average wages. This overvaluation is still much in place today. Whats more the debt accumulated during that housing boom is still very much in evidence. The total debt, both Government, Corporate and Private, is around 515% (highest in the developed world with Japan) of our total GDP and RISING!…To give you some history on the numbers, in 1987 we had accumulated 200% and in 2003 it was 300%. In 1976, when the then Labour Government went cap in hand to the IMF to rescue the country from bankruptcy, our total (Government) debt was only half where it is now adjusted for inflation.

The Budget focus is very much on getting people to invest in housing. Not by cutting Stamp Duty thus making it cheaper but by getting you the public to take on more debt! By doing this, you are not only buying new houses which are priced way above the equivalent second hand property, but you are generating significant extra tax for the Government (VAT on fees, moving etc and Stamp Duty). This is a cynical move which only benefits share holders and senior executives at the major property companies. The additional loan exposure assumed by the Government only adds to the narrow focus of our economy on internal combustion, instead of, solid exposure to the rest of the world by exporting. Two subtle major negatives of this policy are lost on this government. Firstly, the machinery and equipment used in the construction industry is mostly imported. Secondly, the large developers are giving very short term contracts to the companies (sub-contractors) building the properties. This allows the companies that lost out in the first round of contracts to come back and cut costs further. This policy is driving wages lower. Being the only major component with enough flexibility, it is being driven by the availability of cheap foreign labour. To help this sector in the way he is proposing is just mad! The huddled Masses and Wretched Refuse will keep on coming despite Mr Cameron’s latest policy announcement. Closing the gate after the horse has bolted comes to mind. In 20011, 87% of all jobs created in this country went to migrants!!!

Austerity. Is this budget really what it says on the box??

No!!! The way I see Austerity is this (allowing all to share in our problem)

The Poor who go by Bus will have to Walk more. The Car Driving Class (Ford) will have to take the Bus more. The Luxurx Car Driver will have to buy Ford`s from now on. The Uber Rich will have to give the Chaufer the push and drive the Luxury Car  themselves. The Super Uber Rich will have to get rid of the Helicopter Pilot and get a Chauffeur.

 

The Austerity that George (and his soon to be financial wizard at the Bank of England) see it, is somewhat different. By pretending to cut spending, which has actually risen throughout the coalitions term of office, we all think they are turning back the tide of debt. Wrong! In this parliament alone (2010-2015) they intend to borrow around 150% of the total DEBT ACCUMALTED BY ALL THE GOVERNMENTS from 1694 (Bof E founded) to 1997 when Labour came to power…Yes, more money in 5 years that the total debt accumulated over 303 years. To get away with such prolific spending, they have encouraged the Bank of England to buy 1/3 (£375bn)  of all outstanding Government securities (QE). This of course puts vast pots of money into the hands of the people who created the Banking Crisis in the first place. The major net affect is to drive up financial asset prices in the hope that it will drag other assets with it. The only big winners from this policy at the moment are the Uber and Super Uber Rich.

So, the way Osborne Austerity works is this.

The Poor (British) who go by Bus will have to Walk to the job Centre as an Immigrant has taken his job. The Poor Immigrant will no longer starve in his own country but will now take a bus to work in the UK.  The Car Driving Class (Ford) will have to take the Bus more. The Luxury Car Driver will have to buy Ford`s from now on. The Uber Rich will give the Chauffeur the push and HIRE A HELICOPTER PILOT. The Super Uber Rich will ADD A PILOT (Private Jet) to his payroll alongside his Helicopter Pilot.

The longer we go on spending as much as we are makes the eventual disaster all the more painful. Our economy is driven to such a large extent by internal demand, which is driven by Government handouts paid for with debt, that the total debt will get to a point where we cannot pay it back. I think we are there already but the markets are only just getting it.

Since I warned on December 23rd, that George had three months before the worry set in, Sterling has fallen, we have lost our AAA rating and the cost of insuring our state debt has risen by 70%. I think the tide is on the way out for him and sadly for us.

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Tuesday, March 26th, 2013 Consumer Debt, Debt, GBP, GDP, National Debt, QE, UK No Comments

Cyprus vs Rhode Island, New England.

Arthur (aka the late great Dudley Moore) said `Rhode Island could beat the crap out of it in a fight and it is so small they recently had the whole Island carpeted`

Now of course he was not talking about Cyprus but he could well of. In economic terms, Cyprus is a pimple on the arse of the world.

However, it speaks volumes about how Europe is run. Politicians and unelected officials revelling in spending the electorates money on ever grander, wilder uneconomic schemes. Building up debts for future generations without concern whilst drawing magnificent rewards for them and their families. If you want to look at some of these projects, look no further than the new airports in Spain which have never been used. Or, the Harbour in Madeira ( Marina do Lugar de Baixo) which was built on the most exposed Atlantic coast which has now been abandoned, after three attempts to repair it,  having been crushed by the huge waves so popular with local surfers. In fact Madeira is a far better example of the EU crazy wasteful system. It has a population of 250,000 but with encouragement from the EU and its Portuguese parent, they now have EU 6,000,000,000 DEBT. yes EU6bn for just 250,000 people. Not bad for an Island of only 309 square miles.

Lets look at the wider issue. The real anger of UKIP voting people in the UK is why we should be paying so much into this corrupt financial and economic  system (EU). Vast amounts of money have been spent giving villages lavish civic buildings and grand sports facilities whilst employing vast swathes of the local population from the public purse. This was not spending along the German lines, which is focused on expanding the export potential of the country. A lesson we in the UK need to emulate.

Rhode Island, which some believe was named after the Greek island, has a similar population (1.1m ish) to Cyprus but has only one third of the land mass (1,214 sqr miles vs 3,572 sqr miles). On that smaller land mass they generate double the GDP of Cyprus and has managed on a debt to GDP of slightly less than 50%. The debt of Cyprus is of course, when banks bad debt taken into account,  completely out of sync with economic reality.

The EU has not had its accounts signed off by accountants for as long as I can recall. All because the level of fraud and corruption is too big to quantify. Why then should we allow these thieves to pick our pockets day in and day out. We give around £45 million per day to the EU. On top of that we gave Ireland £8bn to help its bailout. The sad truth of the matter is, we need revolution. People need to revolt and who is more revolting that the French. Sadly, they are taking soo much money out of our pockets with the Common Agricultural Policy (CAP) they are reluctant to do what they are famous for.

I would love to stand for UKIP at the next election. I did stand as an Independent in the 2010 General Election. I believe they will win as people have had enough of the main political parties.

On another issue. The Central Banks which have employed QE so aggressively, to help governments carry on running large annual budget deficits, should now demand far more fiscal prudence from those governments before any further monetary stimulus is applied. At the moment they are just helping them add to what is already a frightening level of state debt. Japan, USA and Europe are all in that boat. Yes, the adjustment will be painful, but how painful will it be when this mad experiment with excessive QE finally unravels.

YOU HAVE BEEN WARNED.

I still think the only way out of this mess is GERPEL see Kurzarbeit achieved where Blitzkrieg failed!

 

 

 

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Monday, March 18th, 2013 Debt, Euro, National Debt, Predictions, UK No Comments

UK Trade Figures Shine Poor Light On Ireland.

UK Trade Volumes are shrinking.

Whilst the trade balance, either positive or negative is of extreme importance, the total volume of Imports and Exports can be far more important on certain occasions. Given recent trends I think this is now worth looking at.

Overall trade shrunk in January 2013 vs Jan. 2012. Exports down 4.98% and Imports down 3.58%. Of course one has to look beyond Oil and Erratics to get a clear picture. But even excluding these it is still contracting. -1.8% and -1.6% .  Overall 2012 saw a growth in trade with Imports up 1.87% and Exports up 0.46%. However, this was a significant slowdown from the 2011 performance which saw double digit growth in trade. As the year  (2012) progressed the positive start turned weaker. Q1 2012 vs 2011 saw growth in both Imports 5.7% and Exports 3.94%. By Q4 both had turned negative, Imports -0.46% and Exports -3.60% (ex-Oil and erratics -1.01% and -2.40% respectively) .

If the current scenario continues, 2013 GDP could turn very ugly. The contraction in trade will financially impact two main areas, corporate profitability and Government revenues. So lets not get carried away with a shrinking trade deficit. Growth in trade begets compound growth. Contraction, if sustained, can do like wise.

Within today’s figures was a rather remarkable and altogether worrying development for Ireland and its European partners who are bailing it out. In the last 3 months to January, imports from Ireland have shrunk 19%. This is an acceleration from the 4Q 2012 contraction of 13% vs 4Q 2011.

Why is this important?

The UK is Irealnd`s biggest trading partner and accounts for 31% of its Imports and 15% of its Exports (in 2012).  On the other hand Ireland is also important to the UK being its 5th largest export destination (5.8% of total) and its 9th biggest supplier (3.2% of total). If Ireland cannot arrest this fall in trade, two things will happen. Firstly, it will see its already huge budget deficit start to grow again …see IRELAND… Never Was a Silk Purse!.. bringing about a second crisis, and Secondly, a sharp reduction in the demand for British goods. Hey ho…

Sterling is not helping and the decline in its value is becoming more pronounced see Sterling Looks over its Own Cliff. Other countries seen weakening exports to the UK were Belgium, Italy, Holland, Spain and Sweden. I am growing increasingly concerned with Sweden’s very narrow focus of exports and how the weakness of Sterling and more importantly the Yen (major competitors in its industry focus) will weaken its economy sharply.

I am waiting until the next UK Government Borrowing figures ahead of next weeks budget to update…

 

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Tuesday, March 12th, 2013 GBP, GDP, National Debt, Predictions, UK No Comments

What have Spanish Villas and Ships got in Common?

We are getting awfully close to a Banking Crisis!  German Banking System in Crisis

This week saw another piece in the jig saw of collapse that I have been warning of for nearly 18 months.  The ClarkSea Index (see below for details) has just registered its lowest level in its 23 year history. Although its weekly decline of $223 (3.04%) to $7,111 per/day charter rate, is a far cry from the record $5,000 (12%) drop in the 2008 crash, it has to be put in perspective that the daily rate fell from $43,000 per/day at that time.

Why is all this so important?

With an estimated 60% of shipping loans now in the `not performing` bracket  it is important to bear in mind the attitude of the lenders. The biggest lenders won’t foreclose even if ships are worth less than the outstanding debt and owners can’t meet repayments. They would much rather restructure with the belief that valuations will rise following an expected pick up in overall shipping activity. This process of protecting ship valuations (by not foreclosing) helps the lenders to make provisions rather than crystallising losses. Perfect sense in normal business cycles and has indeed paid off in previous shipping downturns. I believe this time things are different. (see my many blogs on the subject) This years 20% decline (in the ClarkSea Index) to the all time low, makes the process of restructuring more difficult. We are now close to a point where new restructuring deals will be impossible to stack up economically. The additional debt being laid at the feet of borrowers is futile. Additionally, previously restructured deals must now be looking shaky. All this looks remarkably like the Spanish Banking crisis which I predicted in some of my blogs at the birth of Finance-Reaper. Two/Three years ago Spanish banks refused to sell off foreclosed property which was piling up on their books. Instead they were offering special zero rate mortgages to buyers  (at book price of the asset). The rest is history. This prolonged the process of restructuring and even allowed some developments to carry on adding to the surplus supply. With 2013 seeing a further surge in new ships hurtling off the slipways of Korea, China, Japan et all, supply is growing. Yes, I hear you, older ships are being scrapped at the fastest pace in many a year, still not enough to change my opinion. Meanwhile, I believe world trade is contracting. Yes, I hear you, I am crazy! But I do not believe a word China says. I have written many articles on the Steel industry as a bellwether for China producing at a loss just to maintain employment. This is true of many industries in that country. Chinese steel inventories are mounting, now reaching 9 year highs. The EU is now threatening to impose further trade dumping duties of steep pipes from China. All non- Chinese steel companies share prices are close to 15 year lows with the likelihood of further production closures to come. All this whilst China is hitting all time high production output. IRON ORE will retrace the losses seen late last year when common sense prevails. Problem is, with 20 million farm hands joining the urban sprawl per annum, they need to have jobs. China needs to keep production of basic material like Steel and Aluminium at full tilt as they are such big employers. The longer the excess production goes on the bigger the downturn when it comes. All this is alarming for those bankers who are sitting on shipping loans with the hope of a significant pick up in trade. Confusing!

ClarkSea Index (Compiled by the worlds leading ship broker, Clarkson PLC)

A weighted average index of earnings for the main vessel types where the weighting is based on the number of vessels in each fleet sector.

UK…I will follow up on my many recent warnings about the economy and Sterling. The January Public Sector Accounts were on the face of it better. Believe me, they were not! I will review them next week.

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Sunday, March 3rd, 2013 China, Debt, Shipping, Steel No Comments
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