It is Obvious

Chris Rick has got altogether too much to say

Archive for November, 2011

The rain in Spain…

Posted by chrisrick13 on November 22, 2011

It is obvious: listen to the markets

I was not going to write on money/economics/finance today…

The Spanish government sold short dated bonds today in the 3 month to 6 month range.  The BBC’s description of it noted that one rate of interest had more than doubled, while the other had ‘surged’ even though the rate had somewhat less than doubled.

No matter how it is presented there is a clear message.  People buying Spanish bonds will be repaid with interest, big interest.  Had there have been serious risk of default then the cost would have been much higher.

So this market has judged that Spanish debt is a good bet out to 6 months.  There is the proviso that the likes of the ECB have not been in there buying debt to support the price.

That bet might be that Spain will still be servicing its debts.  It also might be that Spain will collapse but someone will step in and honour those debts.  I think that while possible this one is unlikely as buyers of bonds will want the simplicity of the bond and not some convoluted repayment method through a third party.

Of course the people who are gambling in that market may have got it wrong.  If they have not then it is saying that there will be no huge collapse over the next 3 months and maybe 6.

So we can relax and have a decent Christmas.

It is obvious: listen to the markets: money talks

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Two plus two?

Posted by chrisrick13 on November 22, 2011

It is obvious: don’t be average

When I was at my first junior school there was a guy called Francis Grafton in my class.  I remember him well because he was different.  He was what could only be described as a quiet gentle person who had no enemies.  During the breaks he didn’t play with anyone else.  He just pretended he was in a car and drove around the playground, changing gear and making all the hand signals, the wrong ones or the right ones at the wrong time.  I tried to talk to him about it but he would have none of it.

I suspect  he was somewhat brighter than me and just a couple of notches further up the autistic spectrum.  At school he got no special treatment or help whatsoever.  There were others I remember that were off in the same direction and uniformly they were just ‘allowed for’ in normal classroom activities.

My wife has spent nearly 20 years helping children with problems and now trains teachers to help such children.  I think her main success has been to get a lot of illiterate children to the stage where they can read.  This is a huge step up.  Once you can read effectively a new universe opens up in front of you.  Not only do you have opportunities, you stop being a taker from society and become a giver.  At least, you can do that – you may choose not to.

So I would agree that education, or maybe care, has improved in an area where it was badly needed.  People just left by the education system are now discovered, scooped up and dragged along with the rest of the population…if they care to be so dragged.

In parallel with that I have long arguments with my wife about mainstream education.  (Keep your eyes open for the news: enraged Croydon teacher strangles husband.)  I can give one example from many.  In the year before O-levels I studied differentiation at school.  I had also learnt the proofs to five key geometric theorems (remember Pythagoras…not unless you are over 50 it seems) and studied a hundred others.  These are not done at school now.  The last exam paper I looked at was much more linked to real-life problems but barely took me to the end of the second year of what was a three-year course when I did it.  Are our children being sufficiently equipped with arithmetical skills?  I won’t say mathematical because not too many of us need maths skills.

Then I have to wonder when was the last time I multiplied two 4 digit numbers together?  I know I can do it but I have a calculator on both my laptop and phone.  If I have paper and pen to hand I can do it quicker than using either calculator.  Most of the time though it is simpler and quicker to tap the numbers in and press the button.  I have noticed that I can no longer do joined-up writing.  At least joined-up writing that anyone including myself can read.  I taught myself to touch-type, which I can no longer do.  However I can 10-finger type, mostly touch-type, at sufficient speed that fixing spelling mistakes/typos it is quicker to delete back to the error and re-type than to move to the problem and edit.  Not that there are many of those I need to do as Word, even if a little over-zealously at times, corrects most of my errors and passes sniffy comments on my grammar.

So what skills do I need in this world that school can equip me with?  Literacy is a universal that I think few will argue with.  Beyond that?  I’m not sure.  One of my big complaints is that nobody taught me how to negotiate.  Nobody taught me how to complain.  I think that approximate arithmetic skills would be useful: what is the result of 105 multiplied by 121…12,000 plus a bit, which is good enough for most cases when you need that calculation.

But those basic and useful skills, provided you have a good mentor, can be recognised and grabbed.  With little effort you can place yourself ahead of everyone else.

It is obvious: don’t be average – choose your parents well.

(PS.  I found a Francis Grafton on the internet living not far from my school.  He has a wife and child…I hope it is him.)

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Posted by chrisrick13 on November 21, 2011

It is obvious: there’s a monkey at the door

I am still trying to understand why there are such big economic problems and where we are going.  It seems that everything is centred around growth (the enemy) and debt.  Along with that we have deficit or surplus, but that is just a matter of debt getting bigger or smaller.

The banking system needs growth to survive.  It is that simple.  Our national economies are indebted and mostly borrowing more.  If those economies can keep on growing and ‘earning more’ then they can continue to service debts and borrow more.  If they can’t grow then they will default on their loans and the rest of the world (if there still is one) will exact horrible retribution on the countries that do.

Step forward Dr Bartlet (again, again).  At the required 2% growth rate we will be doing twice what we do now in 35 years.  We will not manage that, obviously.  Therefore a UK default is guaranteed some time over the next 35 years.  This is simple logic.

The problem is that it looks like the date for that particular nightmare is not far away for many countries.  The Euro is a side issue that is merely changing speed not destination.

The UK economy is thoroughly intertwined with the UK housing market.  At the moment there are few first-time buyers which means there is not a market in UK housing.  House prices are going down in absolute terms in most of the country and inflation adjusted terms everywhere.  London does have house prices edging up which is just creating a bubble for a later steeper fall.  There is no logical reason to put money into a house on an investment basis.  There are plenty of reasons not to put your own money into a house as, with a mortgage, you will get plenty of leverage rapidly reducing your deposit to zero.

Thus I find it difficult to understand why the government that is, rightly, criticising Labour for trying to borrow its way out of a debt problem should be encouraging people to borrow!  What is more they are encouraging them to borrow and asking me to take the risk of their default…which is more or less inevitable.

Perhaps I am really insane.  This is all a fantasy that my rabid brain has come up with.  Can’t think of a better explanation for what I see world leaders doing.

It is obvious: there’s a monkey at the door and he’s got the complete works of Shakespeare

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Nothing changes

Posted by chrisrick13 on November 17, 2011

It is obvious: shouting doesn’t change anything

Going to have a few days off.  Before I go…

I heard the solutions to the Eurozone problems being described as two-thirds of an IMF.  This on the basis that the IMF has only one solution no matter what the country or problem is.  The missing third is printing money which simply can’t be done for one country alone in the Eurozone.  He also said that the IMF only deals with liquidity problems which this is not.  An interesting view.  He also agreed with me, which is why I liked him, that so far he had not heard mention of any solutions, just delaying tactics.

He also mentioned the herd of elephants hammering at the door to get in: Spain.  He thought that the countries with problems that we have all been looking at these past few months are just a minor distraction to the main event.  He also said that Spain’s problems, caused by much the same mechanisms as the others had manifested themselves differently.  However that place has been reached and Spanish bond yields are on the march.

I have a small hope that all the actions taken so far are all part of a grand plan.  When Spain needs action all the carefully prepared measures will be rolled out and Spain will be handled.  I have a hope but no expectation.  That is also disappointing because the PIIGS acronym has been out there for a long time.

So although they are worrying, the words coming out of the leaders of Europe and Germany and France in particular are just that: words.  They have delayed the inevitable but that is all.  It is like talking to a ‘jumper’ on the ledge of a building 40 floors up.  So far he/she has been persuaded not to jump.  During all this time the people on the ground have just had their heads back watching.  Nobody has moved to put a net or airbags out.  Nobody has actually done anything.

I think the problem is that to get to a solution involves going through the pain of paying back some of the money we have all borrowed.  No political party wants that pain undertaken on their watch.  For all governments at the moment it is a matter of get power.  Delay, delay.  Hand the problem over to the opposition.  The Labour party are proposing that we solve our debt problem by borrowing more.  They are only doing this to stop the Conservatives adopting that policy, because if they did then they might last to the end of the parliament and hand the problem back to Labour.  This was not the plan when they lost at the last election.  The idea of borrowing to increase debt so that we can last until the economy starts to grow again so we can pay off debt is ludicrous.  I am surprised not more is made of it.  I am also surprised that the search for growth is not questioned more.

So on Monday the world will still be here, the Euro will still exist, no countries will have defaulted, Germany will not have invaded Poland, Assad will still rule Syria, world stock markets will be about where they are now and if not will be the day after, and I will have put on 6 pounds over the weekend.

It is obvious: shouting doesn’t change anything but you often feel better for it

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The Brothers Grimm have taken over

Posted by chrisrick13 on November 16, 2011

It is obvious: it is a democracy and I have my vote

I have an occasional theme on words.  They annoy, amuse and amaze.  I put one set in my last blog: rioting in the streets.  I have to admit that I have never had a riot in my front room.  Were there to be one it is unlikely to be widely reported.  I don’t really see any viable location for a riot other than in the streets.

For some reason Mervyn King is taking questions from the press.  He has just said that the big challenge is getting inflation back to target.  I don’t think that it is a challenge at all given that he is not doing anything to reduce inflation and is actively doing things that most people think will increase inflation.

He has just said that there are a lot of factors that will cause it to drop back to the target level.  However he, and everyone else it would seem, has missed the point.  After two years of high inflation relative to the target (and more to come) then that inflation has occured, it exists.  The purchasing power of someone on fixed income has reduced by in excess of 15% the fact that it then stabilises to a low level does nothing to increase the purchasing power for that person.  It remains reduced by 15% for the rest of eternity.  I might mention those on wages that are not increasing as they are effectively on fixed incomes.

Nobody asked him why he had failed to predict anything with any accuracy.  Being 100% wrong on just about any prediction does not fill anyone with confidence about anything he says.  He thinks things will be back to normal in 3 years.  So if I take his forecasting record or apply my normalisation factor then it will be 6 years…though what is normal?

He was asked if we will have a recession soon.  This requires a ‘Yes’ or ‘No’.  He couldn’t do it.

Try and remember that he said inflation had peaked and would drop sharply.  Lets see where it is over the coming months.

The meeting was for the quarterly inflation report.  It also contained a revision to the growth forecast.  They now say it will be 1%.  He is now getting close to the consensus view at a time when there are only 2 months left in the year.

Following on from that a Labour MP was interviewed.  He said that Labour paid down debt when it was in power and consequently the UK came into the crash in much better shape than most other countries!!!!!!!!!!!!!!  The interviewer said not a word.  Given the total debt of this country and its people nearly tripled under Labour rule I find it stunning that he said it and stunning that it was allowed to go unchallenged.

I think that the BBC ought to hire a group of marksmen and station one by the side of interviewers with instructions to shoot any that lie and any interviewers that fail to challenge lies.

It is obvious: it is a democracy and I have my vote…it really is not enough

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Screaming at the waves

Posted by chrisrick13 on November 16, 2011

It is obvious: history repeats itself

I have been away digging ground and slaughtering plants in Dorset.  It is amazing: as soon as you turn your back on a bunch of plants they leap out the ground.  This meant I had no opportunity to watch tv during the day and collapsed in a heap in the evening.

This morning I listened to the radio coming back from the station and put the tv on.  German politicians were being quoted – I know not how accurately.  It sounded much like the language that was heard just before the invasion of Poland.  However we are in a different world now.

Still I hear a lot of words from politicians and not a lot of action.  Such action as there is seems to be the wrong action and mostly seems to have effects opposite to those intended.  Read Shaun Richards to see it all picked apart.

Do you remember the meeting, not two months ago, that agreed to increase the EFSF to £1tn, cut Greek bond prices by 50% (at least some of them), put a trivial £100bn into the banks.  As they chant on the terraces at footbal matches: it’s all gone quiet over there.

At the same time democracy has been side-stepped with the imposition of un-elected people put in charge of Greece and Italy.  There was a short rally in bond prices in Italy, but already prices are going down again (yields up).  I think that Berlusconi has been under-estimated.  Someone who has made more money than all but a handful of people in history did not do it entirely on luck.  Also we are continually fooled by the media.  Scenes of people shouting abuse at Berlusconi on the television screen are memorable.  Was it 10 people?  100 people?  1000 people?  There are 80 million in Italy (notice I spelled out ‘million’ to give it greater effect) and many of them still love Berlusconi.

Berlusconi carefully put in place a set of austerity measures before he left office.  They are severe and he can stand up in the future and put his name against them.  At the moment he does not want to.  The Italian people will not accept these measures, but he is not going to implement them, just as he did not implement any of the others he proposed.  No, Mario Monti is going to propose a set of even more draconian austerity measures and will start to implement them.  When the population refuses to take part and riots in the streets Berlusconi will be able to stand up and sagely say that the Italian people should have stayed with him.  He will offer to do something a little less painful and will be seen as a saviour.  It might be that Merkel and Sarkozy are smart political operators but they are not grounded in the real world: Berlusconi is.

There are interesting times to come.  The speed will be another of those exponential curves: when the corner is turned things will happen fast.  In the meantime we have the entertainment of watching politicians screaming at the waves.  If only they were as wise as Canute.

It is obvious: history repeats itself but only the history writers notice it

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Meet the new boss. Same as the old boss.

Posted by chrisrick13 on November 12, 2011

It is obvious: Won’t get fooled again

I wanted to be first, but I’ll bet the Saturday papers or some news programme has beaten me to it.

Italy and Greece have new Prime Ministers.  So the Euro crisis is over.


Only I’m not laughing.  I’m not good with foreign names but Mr Papandreou has been replaced by Mr Papademos as Prime Minister of Greece.  Does this change Greece’s position?  Not one jot.  When the Greek people were rioting in the streets were they rioting against the government.  Yes they were.  Was it because they did not like them?  Not it was not.  It was because they did not like what they were doing.  Mr Papademos is going to do more of the same.  Expect the Greek people to act the same.

Mr Monti is about to become the Italian Prime Minister.  I have heard the full weight of publicity swing behind him.  He is the favourite and is ‘OK’ becasue he is a technocrat.  I would really like to know who decided he is ‘OK’.

Mr Monti is not yet a done-deal, but near enough.  What is he going to do that is any different to Berlusconi?  The same but more of it.  Does that change anything for Italy?  Not really.

I have now arrived at the thing that worries me.  We have two leaders of EU countries that are not elected.  I am not at all sure how they get appointed.  Who did it?  What mandate have they got?  How can they be got rid of?  All of Tony Ben’s famous questions.

We also have the hew head of the ECB…appointed.  The new head of the IMF…appointed.  The EU commisioners…appointed.  The MPC members…appointed.  The head of the BoE…appointed.

It seems to me that democracy is having a tough time of it out there.  I am worried.

It is obvious: Won’t get fooled again – we already have been.

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A stitch in time

Posted by chrisrick13 on November 11, 2011

It is obvious: when the revolution comes they will be first up against the wall

When you are negotiating you spend a lot of time analysing what the other party is doing to work backwards to their motivations and what they really want from it.  Often what they present as their goals are nothing of the sort.  Frequently you can find no goal that will explain the other party’s actions.  At this point it almost certainly means that you are missing information and is a signal that you need to find out more.  You can find yourself wasting a lot of time negotiating something that is totally irrelevant to the other party.

So it is that Bashar Assad became a doctor and even did postgraduate medicine at an eye hospital in London.  When his older brother died in a car accident he became the heir apparent to his father.  His power base was built in a determined manner and on his father’s death he took over with absolute control.

Roll forward to this year and this doctor has supressd the population in brutal fashion just as his father did and supporting terrorism as enthusiastically as his father.  He is now sending troops into Homs to shoot civilians because they have the temerity to question what he is doing.  A neat irony as that is where he got his medical training and expertise when in the army.  I wonder what information we are missing?  It would have been so easy for him to have a very comfortable life in London.  A longer life expectancy as well.

Syria has banned reporters.  Everyone knows that this is so that they can commit atrocities without having it all being shown on tv all over the world…except perhaps in China, Russia and other countries equally scared of having their actions submitted to public scrutiny.  At least this is a catch-22 they cannot escape.  Only now in this world of satellites and satellite phones the pictures do get on to tv.  I notice that with even handedness the BBC always say that they cannot guarantee the provenance of the pictures.  Except that they do it in a way that is un-necessarily harsh.  They could even get local people to verify location.  No matter, at least the footage gets to the tv screen.  (I wonder how long it will be before people start wondering where the word  ‘footage’ came from.)

I notice that there have been calls for the Syrian rulers to be charged by the International Court in the Hague.  There is plenty of evidence.  So why has Assad not been charged?  The answer is simple.  There are other agendas we do not know about.  Assad is doing something of value to China/Russia/USA/Saudi Arabia.  When he stops being useful the courts will be let off their leashes, but not before.

Before he is dragged to the courts I have some other candidates guilty of crimes against humanity to occupy the judges’ time.  The crime I am thinking of is: not doing the bleedin obvious.

Italy is moving to a new PM and government.  One that is called technocratic.  This means that they are economic experts and will fix the economy without the baggage of all the promises made to interested parties to secure power in the first place.  I feel sure that if an economist is allowed to run Italy then it will have no chance whatsoever.

What is required?  I have listened and read.  Indeed a lot more since my puzzlement at the apparent good state of the Italian economy being called bad.  As I understand it, there is a need for structural reforms of the Italian economy to move it to the point where it is viable as a country.  Structural is a euphemism for removing power from interested parties and redistributing the wealth that went with the power.  For Italy it means reducing most people’s wages by 25% and using the increased competitiveness to repay debt to a level that is affordable.  The most telling point was that there were chances to fix things many years ago at a fraction of the cost today.

This has been obvious for many years.  I have found disinterested experts saying this needed doing, going back many years.  So why didn’t those in power do something about it?  I don’t want  nor expect an answer.  I would simply like to have them made accountable.  Perhaps they should be made to pay or receive a percentage of the difference in national debt between when they came to power and when they left.

It is obvious: when the revolution comes they will be first up against the wall…along with the telephone sanitizers, the advertising account managers, the lawyers, the estate agents, the parking attendants, foreign call centre operators, plumbers, those that drive in the third lane on the motorway, the guy three houses down with the barking dog, the person who wrote ‘Greensleeves’, professional footballers, reporters who start their report with ‘Well’ and the person who decided to collect my rubbish only once a fortnight.

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It is simple

Posted by chrisrick13 on November 10, 2011

It is obvious: there is a problem with the foundations of the Euro

I have been puzzled about why Italy can pay 14% on its debt in the early nineties and have a small deficit yet be deemed unable to service its debt at 7% today with the same deficit.  I just heard an explanation.  The problem lies in the lack of growth and the Euro.

First of all although there is an ECB it is not a central bank like the BoE.  This is described as monetary union without fiscal union.  This simply means the same currency with each country running its own economy but missing some important tools that it needs: the ability to set interest rates and to print money.  In the UK England subsidises Scotland.  In the US California subsidises North Dakota.  In Europe Germany does not want to subsidise anyone and neither does France.  This model does not work and there are plenty of people in the world ready to borrow money (and be lent it) to bet against the Euro in general and bonds of countries like Greece and Italy in particular.  This is what is going on.  With fiscal union this cross-subsidy would happen and the bets would not be made.

As for Italy, it has no growth (the enemy) which could be used to get it out of trouble (for a few more years).  However it is in a place where the money it pays to its workers is about 25% more than it can afford to pay and still make things at prices people want to pay.  Cutting wages to that level will not happen as there would be a social breakdown in the country…actually that would work but it would involve a lot of bodies.  The other way out is to inflate away your debt and at the same time effectively cut wages.  This does not involve so many bodies, but in the Euro is not possible.  Italy did not get into this place overnight.  It took 12 years of the Euro to get here because people were prepared to lend money to Italy based on future earnings.  Now they can all see that future earnings are all going to be used to pay interest with little chance that principle will be repaid.  So nobody is prepared to lend Italy money except at rates it can’t afford.  Indeed the higher and higher interest rates do not represent a market of debt for the country they are really a way of telling Italy that they are not interested in lending her money.  The only likely buyer of Italian debt is the ECB which does not have unlimited funds and certainly less than the gamblers in the markets.  Every 10 Euros that the ECB spent last month buying Italian debt represents a 2 Euro profit for anyone betting against Italian debt…and a lot of people are doing that.  It is a very rough calculation but via our involvement in the EU and the IMF the ECB has spent £1bn of our money.  I know I am coming round a lot but I’ll be over to collect another £20 off you shortly…and £4 has been gifted to a gambler already.

So, although I have said Italy is a small step away from the virtual spiral of no deficit (unlike the UK which is a huge couple of steps away) the ability to take those steps just does not exist.

It really does not matter if Berlusconi is in charge or not.  The Italians have to start to produce things with a 25% reduction in labour costs.  The chances of persuading the people to do that are zero, so a messy default with rioting on the streets is highly likely unless fiscal union takes place.

It is obvious: there is a problem with the foundations of the Euro so why are they still working on the roof and where are the walls?

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Watch out – idiots about

Posted by chrisrick13 on November 9, 2011

It is obvious: why don’t you say what you mean?

My fear of the new head of the IMF (the architect of the EFSF) is well founded.  I read this in the press yesterday:

Ms Lagarde called upon China to alter its export-led growth policies and boost domestic demand to rebalance its economy and sustain long-term growth.

If China gets its growth down to 7% then it will be doing twice as much as it is doing now in 10 years.  Will that happen?  Do you think it could get it down to 1% in an orderly fashion?  Do you think this puts a limit on the time span before there is serious rioting in the streets in China?  (Given that there is non-serious rioting in the streets now.)

It is obvious: why don’t you say what you mean or mean what you say?

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