Archive for January, 2015

The Conservatives Are Liars…We Need Hyperloop Ideas.

Cameron and Osborne have gone to great lengths to convince the electorate that they have halved the budget deficit…This is the official statement on the web site of The Office for National Statistics.

While the deficit in 2013/14 has fallen by a third since its peak in 2009/10, the continued reliance on borrowing has seen public sector net debt reach £1,483.3 billion, or 80.9% of GDP in December 2014.

So much for that lie…They also claim that they have been very austere in order to balance the books…well…on the same official website

Central government expenditure (current and capital) in December 2014 was £61.0 billion, an increase of £3.5 billion, or 6.2%, compared with December 2013.

And if you think they really care about you, the British Public…well this statement says it all

other current expenditure (mainly departmental spending) increased by £5.7 billion, or 1.9%, to £301.9 billion, mainly as a result of increases in departmental spending on goods & services and contributions to the EU, being partially offset by decreases in transfers to local government and current grants;

This chart just shows how our debt pile is growing at breakneck pace…

And this chart shows how this government have raised taxes and spending….not quite the picture they are hawking around the country..no wonder the economy can grow when you are spending so much money…sadly, £22bn a year is being spent on the EU and Overseas Aid…Imagine what could be done if just 50% of that was invested in long term industrial growth in the UK…Good quality jobs for our working people…not the zero hour, part time low pay no benefits this government has encouraged…

UKIP have pledged to stop this waste of money along with HS2 which will be a white elephant by the time it is completed. I would rather we invested in the Elon Musk HYPERLOOP SYSTEM.

In case you still feel they are committed to spending cuts…Central Office Staff Costs.. 2010/11 £93.6m…2011/12 £96.2m…2012/13 £99.3m…2013/14 £100.8m…2014/15 £104.7 (estimated )…

DEFINITION of ‘Austerity‘ A state of reduced spending and increased frugality in the financial sector. Austerity measures generally refer to the measures taken by governments to reduce expenditures in an attempt to shrink their growing budget deficits

 

 

 

Thursday, January 22nd, 2015 Consumer Debt, GBP, National Debt, UK No Comments

Geman Engineering.

I have been asked to explain why I believe Germany should leave the Euro…A quick note ahead of the ECB QE announcement.

It all started with the re-unification of East and West Germany…at the time, many were flabbergasted at the very generous offer by West Germany of currency conversion terms. The Ost Mark was converted at parity with the Deutsch Mark for the first 4000 marks and at 2:1 for other legitimate savings. This was seen at the time, as a very, very, generous offer and one that seemed economic suicide by the rest of the world. So, Germany was now lumbered with a country full of globally uncompetitive industries in the East. It needed to expand its output and export potential very quickly if this seemingly stupid offer was to succeed. Lets have a currency union with the basket cases of Europe who had traditionally relied on currency devaluation to allow them to continue their imprudent economic models. Of course, these poor economic models had always led to high structural interest rates which had been an impediment to consumer and in most cases government debt. Along comes the Euro. Suddenly, Germany is in bed with these lou lous and the currency falls dramatically. From its launch in 1999, the Euro lost 25% during the first three year’s. Great for Germany trying to re-capitalise an entire country. Around this time, mega investment was taking shape in the Mediterranean Counties. Low interest rates were spurring massive consumption and the big gainer in all this economic activity was construction. For instance, prior to the crash, Spain was the second biggest influence in global growth behind China. Of course, who was the biggest beneficiary of all this debt fuelled consumption and investment…come on you can guess….YES! Well done…Germany. Now, with the Eurozone credit cards maxed out, what does the worlds most prolific exporter need to do…Correct again. Encourage a weak Euro so as to sell its exports under the veil of a tin pot currency. All the prevarication since the crisis began has done little to install confidence in the Eurozone.

So, if Germany were outside the Euro, two things would happen. Firstly, a German currency would be in great demand. I believe vs the Dollar it would be 25% higher than the Euro today. Remember, Germany is in rude economic health. Like Switzerland, only possibly more so, it would have significantly negative interest rates. Secondly, the Euro without Germany would be 25% lower vs the Dollar than it is now. This would allow the strict austerity measures, strongly encouraged by the Germans, to be adhered to whilst giving a dramatic to boost to the industrial potential. It would reverse the deflationary pressures currently exhibited. Yes, interest rates would rise but investment would flow providing this ejection of Germany was linked to not only a continuation of strict austerity but also a complete overhaul of restrictive work practises as seen in places like France. OK, bond holders would get burnt but surely the people of Europe have suffered enough whilst bankers and financiers have grown fat on the spoils of a ridiculous situation.

 

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Thursday, January 22nd, 2015 Consumer Debt, Debt, Euro, National Debt, Predictions, USD No Comments

Greece Has Trump Card…USE IT!!!

Germany, as I have stated on many occasions, starting with  =”The Elephant in the Room.”  (June 2012) and again in =”Kurzarbeit achieved where Blitzkrieg failed!”  (January 2013)… is hiding in a weak economic zone to conquer the export world with an unfair advantage.

Heads up to IGINDEX and other Spread betting companies….trading idea : Short EURO notes with the GREEK suffix of Y  vs  Long EURO notes suffix X (Germany)…just an idea in the run up to 25th Jan election….I digress, back to GERPEL…

Todays move by the Swiss National Bank just reinforces just how important it is to the German economy to be linked with basket cases such as Greece. To put it mildly, Germany is a parasite of Europe. Its fortunes in economic terms are going from strength to strength. The weaker the Euro gets, the better its globally dominant export industry gets. So, Greece has a chance to play dare with Germany. As I write, the DAX is nearing 10,000 which is not far from an all time high. If the Greek elections go according to the polls and we have a new government hell bent on refusing to play by the debt rules set out by the Troika ..EU..IMF…ECB… it will lead to a Mexican Standoff between Greece the EU and Germany (not the IMF). The EU has stated that it will not renegotiate the terms of the bailout, primarily due to the snowball effect of demands from Spain, Portugal and Ireland should it do so. If Greece decides to leave the EURO as a result, the economic implications for Spain and Portugal, would be significant as they share similar economic profiles.

The mere hint of the basket cases leaving the Euro would, potentially, imply that a REVALUATION of the Euro could take place. This could result in a 30% appreciation once the anchors are removed from the economic group remaining. Excluding Greece, Portugal, Spain, Cyprus, Malta and possibly Ireland the focus would be squarely on a more solid economic footing. Sadly, such a currency move would prove fatal to the newer members situated in Eastern Europe and they would need to think seriously about membership of a club which is dominated by the German export machine.

So, Greece really has the entire German economic testicles in its hand. If they look squarely in Angela Dorothea Merkels eyes and say goodbye! The DAX would fall dramatically and all hell would be let loose. France would fall into a steep recession and Italy would itself consider bringing back the Lira as unemployment would be out of control. Interestingly, German bonds would be very volatile. Who knows where investors would go to find sanctuary. Negative interest rates in the EURO region could be the norm. Bonds markets would be in disarray as no one would know how to value. Shares, Property and other assets, in the countries leaving the Euro, would be bid up. Greek ship owners would repatriate the huge hoards of money they transferred to Northern European banks at the outset of the Greek crisis.

Currency printers like DeLaRue could make a fortune if national printers could not cope. It currently prints for UK, Finland, Portugal, Holland and Ireland (Not Greece). There is around 16bn banknotes in Euorland worth around Eur 1 trillion…

With reference to the various banknotes in the EURO: Y= Greece, M=Portugal, V=Spain. I have no idea what would happen to the value if a country left the EURO block but I would rather not have Y denominated Euros just in case….The country letter is part of the 12 digit code NOT the six digit code which just identifies who printed it.

 

 

 

 

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Thursday, January 15th, 2015 Euro, Predictions No Comments

Sterling Crisis Looms.

 

WALL STREET JOURNAL April 1975…….Headline was ‘Goodbye, Great Britain `

I have been bearish on Sterling for quite a while now. My latest recommendation to trade was in the late June blog UK OK? I Think Not… where I recommended buying Sterling/Dollar (Cable) put options. Luckily, Sterling peaked a week later around £/$ 1.72. I have on several occasions expressed my concern that Cable could retest its all time low of £/$ 1.085. My reasoning has been outlined in many blogs on the subject but the significant fall in Oil is just the catalyst to push on what I believe is an open door. The UK is not likely to reduce its annual budget deficit, which is running around £100bn, anytime soon. The Oil price will, if anything, reduce tax take significantly. With the production cost of North Sea around $55 it is possible that the £8bn direct profits tax take will be eliminated. The significantly lower price at the pumps will reduce the excise duties which as a percentage of price account for a significant slug of the final forecourt retail price. Yes, consumption of other VAT items may see increased demand but this is unlikely to offset fully. Salaries in the energy sector are already being cut this month. With nearly 500,000 workers exposed to this sector, the positives for consumption will be offset. So the budget deficit will continue at vastly elevated levels. On the trade front, the governments focus on reflating the economy by encouraging consumption, is a complete folly which only serves overseas suppliers with a boost to demand. Our previous currency calamities have been focused around poor trade performance. In 1948 a deficit (albeit only 2%) was too much for the government finance and Sterling fell dramatically from £/$ 4.20 to £/$ 2.80….this lead to a revival of manufacturing to its zenith. In the sixties (1967), the Labour government devalued the £ from £/$ 2.80 to £/$ 2.40 due to the drop in exports from a protracted dock strike coupled with middle east tensions. In 1964 when the trade deficit rose unexpectedly the Labour government went cap in hand to the G10 for a loan. Had they acted quicker to rebalance the economy the crisis to follow may have been averted.  In the seventies, the balance of payments were sent into shock by the Oil crisis. Eventually the UK would have to go cap in hand to the IMF for a loan. Prior to the loan £/$ dropped from 2.40 to 1.60. During the eighties, Thatchers battle with the unions lead to a significant fall in industrial activity and economic turmoil. In 1985 the currency hit its all time low of £/$ 1.085. Eventually, her economic formula worked and the economy recovered. It was however, the start of a long terminal decline in our manufacturing capabilities. No government since has taken this sector seriously, instead they have preferred to encourage consumer debt which in turn boosted house prices significantly which in turn drove consumption even higher. Gordon Brown took this to the all time high encouraging consumption as the mainstay of his economic miracle. From around 7.5 million people in the 1930`s, manufacturing is now a small part player in the make up of our total output. Since Thatcher, the UK has sold off a large portion of its assets. Whether it be utility companies or real estate, its been a huge sell off. Couple that with around £1 trillion of Oil taxation (both direct and indirect) and you can see the consumption bloom was finance by various short term cash injections. To make things worse, the financing of long term investments like schools and hospitals were financed off balance sheet via PFI (£240bn) only to cost a fortune over the next 30 years. University reforms have kicked massive liabilities into the future and the public sector pension scheme is in a perilous position with all liabilities also kicked into the future.

In short, the UK has lived off its income from past wealth. It has deferred costs and has mortgaged the future. Below is a chart from my blog in November 2012. We cannot continue to live like this. Employment is not growing in productive industries. The driver of lower unemployment is consumption based service sector. Eventually questions will be asked of our economic performance and the coalition will be found wanting.

This official measure of debt does not include all the off balance sheet funding liabilities which have grown substantially this millennium.

In 1997 Gordon Brown began his consumer lead socialist economy…we have to reverse this decline in our trade balance

 

If Cable breaks the 1.40 support line, the next stop is 1.085…Inflation will become a problem offsetting the strong global deflation winds blowing around.

Click to enlarge…

Post war Cable. Following the 1948 devaluation, exports bloomed and we reached a surplus around 10% of GDP. Since then, the rest of the world has beaten us at the production game. Instead of using design, research and investment  to continue strong manufacturing (like Germany) we have rested on our laurels. This is going to cost us dear as a nation.

Politicians have taken the easier short term gains and to hell with the future. Our children will inherit a very sad state of affairs.

 

 

 

 

 

 

 

 

 

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Friday, January 2nd, 2015 Consumer Debt, Debt, GBP, National Debt, Predictions, USD 1 Comment
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