Spain

UKIP or Marie Antoinette (Madame Déficit as she was known)

HOW ON EARTH CAN IT BE RIGHT FOR US TO ORDER CAVIAR OR FOIE GRAS AND HAND THE BILL TO PEOPLE WHO HAVE NOT YET BEEN BORN?  OH YES, I KNOW, LET THEM EAT CAKE.

It will take a bit of reading to get at the headline above but stay with it.

 Commodities News…  Smaller less profitable (higher production cost) Iron Ore miners in Australia are cutting management jobs/ wages and are applying to the government for a reduction in state royalty payments. Large exporters of Coal eg Indonesia and Columbia have announced higher 2015 production /export production targets to make up the governments revenue shortfall from weaker prices. These are two examples I have been expecting and helps prove why this is an economic turning point see BRICs..The Future Looks Cabbage Like.. and others including Chinese Deflation Cancer Spreads. Oil is mentioned later.
Social Unrest… Worldwide anti-government protests, which I foretold in Global Dissatisfaction with Governments Can Only Spread…are on the increase but for some reason the BBC ( and the wider media) seem reluctant to publicise.  As I talked about in Profound inequality in America…Time To Act!… the depth of disparity between haves and have nots is now  close to breaking point. The reasons for disruption differ but the catalyst is truly born out of a sense of injustice. The political landscape, like commodities, is getting closer to a once in a lifetime earth quake. UKIP along with anti conformist EU parties are well and truly on the march. France, Germany, Greece, Sweden, Spain are all experiencing the movement. Globally, protests  in many countries are aimed at bringing down failing and corrupt governments. Others are based on religious grounds. The significant loss of revenue commodity rich economies will experience in 2015 will not allow corrupt governments  continuity in bribing the electorate. Whilst, as mentioned earlier, they will attempt to expand export volumes, the overall economic reality is they will cut spending or in some cases huge energy subsidies thus exposing the core failure of the global economy. It is built on wasteful unsustainable  government spending.  This is either financed by over valued commodities, due to excessive QE (numerous blogs on the subject starting with Quantitative Easing …April 2013)… Or mammoth government spending/debt which is only allowed to exist because of??… Yes you guess it excessive non debt reduction linked    QE.
This story does not end well. Be afraid, be very afraid. I only hope my allegance to UKIP is not misplaced and they remain an un-whipped political party where their elected officials are allowed to vote with their conscience and in line with the wishes of their respective  electorates.

Due to the weakness of commodity revenue, Australia is cutting overseas aid, civil servants and departments…tomorrow they will announce the extent to which the commodity crash has raised its budget deficit. The current deterioration in its global trade position is the biggest since records began in 1959. It is interesting the measures this realistic government is taking in view of the deficit escalation it faces, as opposed to those by the Coalition in the UK.  This sensible approach, whilst short term negative for all concerned is better in the long term. Unlike of course, the UK and for that matter many other nations in huge debt, who have chosen to spend and borrow even more to plaster over the cracks on their watch. This gives them immediate credibility eg George Osbrown (Osborne/Brown)  but just lumbers future generations with the liability. HOW ON EARTH CAN IT BE RIGHT FOR US TO ORDER CAVIAR or FOISGRAS AND HAND THE BILL TO PEOPLE WHO HAVE NOT YET BEEN BORN. OH YES, I KNOW, LET THEM EAT CAKE!…see we got there in the end. Remember, this was the start of the French Revoloution…Hopefully, Farrage, I and my colleagues will do like wise but in the whole of Europe.

EU… So, we are being asked to pay more into the budget pot whilst France gets the lions share of our additional contribution. This is justified due to their weaker economic performance… well bear this in mind.

A 2013 global study of working hours revealed the French worked the fewest hours of any country in the world. The report by Swiss bank UBS found the French graft for just 1,480 hours a year, with 27 days annual holiday.Britons work 1,782 hours a year – 301 more than the French – and have 20 days holiday a year… still happy to work your socks off to stay in Europe?… I could go on and tell you about the extent of black market activities in many EU countries which lowers their official GDP thus reducing the amount they pay…but I wont.

OIL   A quick update on a topical issue. Below is an extract from a recent press article (Daily Telegraph)

The world’s leading oil and gas companies are taking on debt and selling assets on an unprecedented scale to cover a shortfall in cash, calling into question the long-term viability of large parts of the industry.The US Energy Information Administration (EIA) said a review of 127 companies across the globe found that they had increased net debt by $106bn in the year to March, in order to cover the surging costs of machinery and exploration, while still paying generous dividends at the same time. They also sold off a net $73bn of assets.This is a major departure from historical trends. Such a shortfall typically happens only in or just after recessions. For it to occur five years into an economic expansion points to a deep structural malaise.The EIA said revenues from oil and gas sales have reached a plateau since 2011, stagnating at $568bn over the last year as oil hovers near $100 a barrel. Yet costs have continued to rise relentlessly. Companies have exhausted the low-hanging fruit and are being forced to explore fields in ever more difficult regions.The EIA said the shortfall between cash earnings from operations and expenditure — mostly CAPEX and dividends — has widened from $18bn in 2010 to $110bn during the past three years. Companies appear to have been borrowing heavily both to keep dividends steady and to buy back their own shares, spending an average of $39bn on repurchases since 2011.

When analysts talk of the big boon to consumption from lower Oil prices, bear in mind four things. Global Annual Investment in fossil fuels is $1 trillion most currently based on $80 brake even. Companies have been encouraged by Investment Banks to buy back large swathes of share capital (Very good in expansion…possibly fatal in contraction) Governments are spending revenues which at current $60 price, do not exist. Consumers (and Governments) are burdened  with huge debts.

Sadly, todays article front page of the business section Telegraph` £55bn of Oil projects face axe (North Sea)` fails in the most important issue. Namely that the UK Treasury takes around a third of the profits made by companies in the UK Continental Shelf. I suggest they read my last blog Sterling…Beware The Reaper!!!  Lets not forget the GREENS. Last year 62% of all money invested in UK Enterprise Investment Schemes (EIS) were made in Renewable Energy…MY GUESS…They all need Oil above $100 to be viable…All this leads me to my favourite Warren Buffett saying…

“When the tide goes out you can see who is swimming without trunks” Ladies, be prepared to avert your gaze!

Issues for future blogs

Is Globalisation or EU causing depopulation of rural areas eg Spain has one area twice the land mass of Belgium that is almost deserted. French villages shrinking (FT Weekend)…Deflation tsunami on the way?..Summer 2015 very bad for European and North African holiday resorts as Russian holidaymakers disappear…Why is UK  paying more into EU pot than countries that spend far more as a percentage of income on pensioners?

 

 

 

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Sunday, December 14th, 2014 Consumer Debt, Debt, GDP, Japan, National Debt, Oil, Predictions, QE 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

Beauty Queen suffers ill wind…Phew!!

Important FX Chart points in £ vs. the $ and Euro.

David Cameron and his chancellor are basking in the glow of accolades bestowed upon them for their tough budgetary approach to the UK`s dire debt problem. Markets have rewarded them with borrowing costs at lows not seen since the 19th century. They should be careful of Greeks bearing gifts!

The coalition are following a correct path of attempting to reduce the government led economy and raise the Industrial Private sector. Firstly, they need to reverse a legacy of the Blair/Brown era which oversaw a reduction of 1 million manufacturing/engineering jobs (a continuation of the previous government) to be replaced by 1 million additional civil servants. At the end of the 19th century, Britain was the leading global manufacturer with 15% of total production. Today it is 9th with 2.2%. Still not bad considering we have less than 1% of total population.

The Ill Wind  *

Sterling has a very important part to play in this re-habilitation. The decline of Sterling (c.25% trade weighted) following the financial collapse, helped, along with the promise of pro- industry reform, breathe life into the now feeble (in terms of total GDP) manufacturing sector. That strong uplift (resulting in a 15-20% improvement in European competitiveness) to export potential, is now showing signs of reversal.

In the second half of 2011, Sterling advanced 6.60% vs. the Euro and fell 5.48% vs. the Dollar. Given these movements UK plc has lost 5% in export competitiveness vs. our largest trading partner (Europe). It could have been worse (-9%) had Sterling matched the Dollar`s performance vs. the Euro.

The additional Pan European austerity measures implemented from January 1st 2012 will reduce disposable incomes still further than the negative wage growth I expect this year. Inflation adjusted incomes in Portugal, Ireland, Italy, Greece and Spain (PIIGS) public sector, will likely fall by 5%. These countries have extremely bloated public sectors which will suffer further as budget cuts take hold. This environment of lower spending is not one you want to be losing traction in.

Making things even worse is Sterling strength vs. the Eastern European currencies over the last 6 months e.g. Poland +17% Hungary +23%. Of course the dire prospects of Hungary and its possible economic collapse have not helped. Industrial investment in Eastern bloc countries has ballooned since EU membership, and as such, view the consumer markets of the rich western partners good hunting grounds for their cheap labour exports. Couple this with talk of significant labour reforms in the PIIGS (labour costs grew 20% vs. Germany 9% over last 5) and things start to look a little ominous for the UK in the coming year. Remember that if they (PIIGS) manage to reform stiff labour regulations, they have enormous unemployment e.g. 23% in Spain.

IMPORTANT CURRENCY LEVELS..I am not saying these chart points will be broken, just what if they were.

£/$  Is near a very important support level of 1.5350. Having been used as a technical support with several bounces from that level going back to Sept 2010. The more bounces the greater the move if breached. 4 such bounces make this a key level. Initial target being 1.50. Two reasons, one being it`s a big round number and they always act as support/resistance, secondly, a trend support line from March 2009 and May 2010 lows.

However, this break of 1.5350 is more likely to herald a move to £/$ 1.40 which is the low point of the last 10 years having acted as support in 2001 and 2009

£/Euro Is near an interesting but not so strong support of 0 .82 or as I prefer 1.22. A breach would indicate a fall (rise in Sterling) of around 3-5%. However, a breach of the 0.78 (1.28) level would indicate a retrench back to 0.68 (1.50 Euro`s to the £) …Unlikely…

So, to recap; if Sterling falls vs. the Dollar our input costs rise putting downward pressure on corporate margins (if prices can`t be raised). If Sterling rises vs. the Euro, will the last one leaving Britain please put the lights out!.

 

* I have assumed a 30% Industrial cost exposure to the $ via Energy and Commodities. I have no idea if that is right..

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Sunday, January 8th, 2012 Debt, Euro, GBP, GDP, National Debt, Predictions, UK, USD No Comments

Economageddon..The end is near..Thank goodness!

In the words of the late prime minister Harold Macmillan

 `A successful economy must be based on the production of wealth and marketable goods, We must transfer away from an overreliance on services, back to production. We cannot go on borrowing for ever`

During a televised interview at the time. He held up ten fingers stating that at the time of great prosperity in Britain, 7 out of these ten would be concentrating on exactly that (production) and the other 3 would be involved in support roles (National and Local govt) and services. He then stated that currently (1976) 3 people were involved in productive activities and the other 7 were in support roles. Hence, the government finances and social divide were in a mess.

Why is this important? The world is now closing in on the biggest economic catastrophe in history.

Greece will leave the Euro very soon.
Its finances are in exactly the same shape as explained by Macmillan. Prior to the financial collapse 70% of the working population were in the service sector (yes this includes tourism but the large inefficient  public sector is the problem).

The increases in taxation over the last year have made no impact on the annual debt increase. The economy is contracting at a 5-6% rate and has contracted for 4 years. Debt has increased in 2011 by €20.5bn vs €19.5bn in 2010. December will see a further cut in salaries (25%) this time for workers in 11 public sector companies (Electric,Gas,Water,Mining, Port Authorities, Postal and finance).
January 2012
will be the final straw as income tax is being increased and a property tax imposed collected via utility bills and Electricity bills are due to rise by 15%…Merry xmas… 2011 saw a ban on property repossession which is storing up further problems for the banking system. Consumption will implode further along with taxation. The one bright spot is the Black economy. Already estimated to be twice the size of Germany and the UK. This will clearly grow if Greece attempts to stay in the Euro. Thus hampering any further debt collection. Germany is reluctant to allow its default and departure as the repercussions will be vast not least of course in the German banks who have underwritten a large proportion of the Greek Credit Default Swaps (CDS or Debt Insurance to the lay man). Yesterday the IMF representative in Greece claimed further tax increase would be pointless and implied the
further spending cuts would be the best move. The implications on Greek departure are too numerous and best left for another day. However, an interesting thought. If you go and borrow E1million from a Greek bank in Athens, transfer the money to a London bank, would the debt de-value at the same rate as a deposit and become Drachma?  http://nationaldebtclocks.com/greece.htm

 

Spain is lying all the way to the ECB. Given that the Spanish banks are being kept afloat by the ECB it is important to feel that the Government and institutions are being honest about the problems they face. Think again, they are Mediterranean. How can you tell if they are lying? Simple, if their lips are moving they are lying! Local authorities have been delaying
paying wages all year eg the beach life guards and fireman in Benidorm (approx €2m) who were not paid in the summer, protested and were finally appeased when promised payment when the winter water rates were paid. Hospitals have a record of not paying Pharma suppliers, some owing several years back payment. Other are cutting off the lights on main roads, selling off fleet vehicles and cutting salaries sharply. A report out today states local authorities have 900,000 too many employees (remember Macmillan!). Although official government
debt is only 50% of that of Greece per capita, the devolved regions cannot be trusted to give a true level of debt. With so many bills going unpaid the debt must be significantly higher. Energy prices are going up 15% in January and several car manufacturers will be mothballing production during the first quarter. Unemployment will go higher from here. During the boom times Spain was building around 800,000 annually. It was importing so much that it was the third biggest driver of Global growth. Now, with 1.5million ish homes for sale
and only 25,000 per month selling rate, it could be prices have another 20% to fall in 2012. This will help to bring the fall in line with Ireland. The Partido Popular has confirmed it will scrap the E210 monthly housing allowance paid to young householders. As a side issue, the EU encouraged and financed some crazy investments in this country not least unwanted airports and approx E500m to refurbish the bullfighting facilities. As in Greece, here too the Black economy is higher than the norm and will only grow as further taxes are imposed. Both
Spain and Ireland are seeing modest but important population declines due to poor employment prospects. This makes the debt turn around all the more difficult. http://nationaldebtclocks.com/spain.htm

 

Japan. The Elephant in the room will soon roar! When
we talk about debt, Japan is the daddy of them all. Nearly Y1 Quadrillion or 200% of GDP. How can they sleep at night! It leaves my ghast well and truly flabbered when I hear people saying that all is ok as they have such a large savings pile via the public’s pension pot. The total population size has stagnated around 127m and is widely forecast to start a gradual downward path. However, the population is only holding steady due to the extended longevity of life. Over 65`s went from 7% in 1970 to 14% in 1994 then 20% in 2006. It took
Sweden 85 years and France 115 years to go from 7% to 14%. This is a double bad whammy. Firstly the economy is not benefiting from growth in numbers but secondly and more importantly, it is ageing rapidly. 2012 sees the start of the peak retirement cycle lasting some 20 years. This is the last thing you need with a massive debt mountain. Politicians have been indecisive and lack public backing. Talk of raising the 5% consumption tax is a hot potato. Salary cuts are being perused by big business, government officials and public service in
general. Consumption is slowing and the strong currency is strangling output. The re-build package is to be funded by a disputed measures of tax increases and disposals of the large Tobacco and Postal stakes. Deflation will become an extreme problem in 2012 which in turn will add to downward pressure on tax revenues.

http://nationaldebtclocks.com/japan.htm

 

 

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Sunday, December 18th, 2011 Debt, Euro, Japan, National Debt, UK, Uncategorized, Yen 5 Comments
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