YOUR MONEY

And the Truth shall ... be ignored

The last 3 weeks have been full of news re: Central banks and their governors. 

Ben Bernanke’s term is up and it is unclear if President Obama will ask him to stay on.  Mark carey has already abandoned the ship of Canada and should be delighted to go to the U.K., especially as its Finance Minister just recently announced the Bank of England will be allowed more ‘latitude’ and ‘tools’ to revive the British economy. (So much for arm’s distance central bank independence for England!)

The BRICS – Brazil, Russia, India, China and South Africa – the best of the best in the ‘developing world’ have announced this week they will be forming their own, central bank, independent of the World Bank and the IMF (International Monetary Fund) headquartered in Washington. If they can agree as to where the headquarters will be, what exchange rates and regulations to employ, it is hoped this new,  breakaway bank will be up and running in 5 years!

And, oh yes, the new prime Minster of Japan has gotten his way as promised in the Japanese elections.  His government and new Bank of Japan appointee are committed to spend, spend, spend to get Japan’s economy out of ‘decades long‘ recession.  Their target will be 2% inflation.  Not keeping inflation to under 2% as is the primary and stated goal of the central banks in the U.S., Canada) and the EU, but to inflate the economy from its decades long deflation to 2% or higher inflation! (See G&M, March 2, 2013, B8, “New BOJ chief calls easing ‘indispensible’”).

It is therefore refreshing amid all the quantitative easing that is flooding the West and Japan will free money and growing national debt, that one man again has stood up and spoken the truth.

Masaaki Shirakawa, the newly replaced head of the Bank of Japan, at his final media scrum, said the following (G&M, March 20, 2013, B8, BOJ chief takes final swipe”):

“[P]ast figures in Japan as well as in Europe and the U.S. show that the link between monetary base and prices had been broken. [my italics]”

“If influencing expectations refers to the notion that central banks can use words [my italics] to control markets in the way they want, then that is dangerous.”

 

“If there was one single measure that would have resolved the problem, just like clearing a fog, then we wouldn’t have been in this state for the last 15 years.”

 

Put briefly, central bankers can only do two things to affect economic change:

1. increase or decrease the amount of money in circulation by means that are indirect and only trickle down to the real world marketplace of consumers and industrialists.

2. make bold speeches to scare people into complying

 

As he points out, in his first quote, these two ‘tools’ no longer work, and have not worked in Japan for over 15 years, and they are not working in the U.S. and Europe. Billions of dollars and yen of cash infusion into the banks has not led to factory growth and new jobs, nor encouraged ‘consumer demand’ through spending by individuals and families.

 

Major corporations are sitting on billions of cash in their vaults, leaving the stock exchanges to a few IPOs seeking a fast buck from the naive public, desperate (but hopeful) pension and investment funds and general buy and sell speculators.  It no longer is the main source of cash for corporate growth as a recent UK study has shown.

 

National, provincial/state debt is massive so there is little room to ‘spend more’ on new things or even established needs without massive tax increases or ballooning federal debt and mortgaging the future for the next 50 to 100 years!  (And no politician will survive the next election on massive tax increases – so it’s almost a non-starter.)

 

And individual and family debt has become so high in the West that even a rise in mortgage and other loans rates -- by 1% to 2% -- could cause mass bankruptcy.   Too many people in the west have been spending and buying like crazy for over a decade, lost much of their savings in the crash of 2008, and are hanging on – barely – with inter- bank prime at 1% or less since 2008.

 

So, Mr. Shirakawa is right and telling the truth; truths  governments and central bankers and stock markets do not want to admit.

Our capitalist model is broken, and the power of the state to direct the economy is wishful thinking.    

 

And churning out more and more government ’money’ is not only ineffective and unproductive, but insanity and the path to national and international bankruptcy!!!

Technology

Electric cars and flying pigs

 The likelihood that electric cars will rule the future is quickly evaporating.   It is a foolish idea whose (battery) life is rapidly dwindling.

That is the conclusion from recent facts highlighted by Konrad Yakabuski in the Globe and Mail, March 28, 2013, A17 “The road to electric cars is strewn with potholes”.

He points out the following:

1. Electric car sales in Canada and elsewhere are far below predictions – even with government rebate subsidies.  Saving-the-environment argument is not working. And the public is not buying the idea that electric cars are cheaper in the long run as any extra car purchase price will soon be made up by savings on gas.   Less than 3000 electric hybrid cars are on Canadian roads.

2. A study by Bjorn Lomborg has shown that over a driving distance of 80,000, a modern, conventional car has the same carbon footprint as an electric hybrid – if all the environmental costs  -- from start to finish --are included.  Building a normal car does involve energy but mining for lithium and the manufacture of massive lithium batteries has double the carbon footprint. (Battery disposal and recycling is another hot topic.)

3. Electric cars are NIMBY – no air pollutants in my back yard, thank you. The electricity needed to recharge the vehicles is not from nothing.  Massive electricity plants and grid networks will be needed that are not yet built.  [As pointed out in a previous blog of mine, Sept. 4, 2010,  Toronto Hydro says that if even just 10% of cars were recharging overnight in a neighbourhood, it would crash the local grid. Overnight recharging would also eliminate the cheap overnight electricity rate as it would become a ‘high demand’ period. Electricity costs would rise by at least 30% in Toronto compared to today’s deeply discounted 7 p.m. to 7 a.m. rate.]

And with the exception of hydro electricity and inconsistent solar and poor wind power, standard energy plants will be used and increased – with the world’s most common current fuel,  coal.  [Alternative nuclear energy and even natural gas have their dangers and environmental costs as well.]

4. The Israeli innovator, Shai Agassi, who has convinced Renault, the Israel and Danish governments and entrepreneurs from Australia to Hawaii to buy into his ‘easy solution’: set up battery exchange garages which can remove a depleted battery and replace it with a fully charged one in under 5 minutes – yes, the system works, has been deposed from the head of his company and the firm has lost U.S. $500,000,000 on the venture. Garages have been shut down everywhere except for the tiny countries of Israel and Denmark -- where range anxiety is reduced and the need for few stations the norm – due to the postage-stamp size of these lands.

5. Finally, the article offers the ultimate harakiri in a quote by the vice-chairman of Toyota, the company that first developed the electric car, the Prius, and which continues to sell it. According to Takeshi Uchiyamada, “Because of its shortcomings – driving range, cost and recharging times – the electric vehicle is not a viable replacement for most conventional cars.”

 

Mazda Motor Company has long realized this truth about electric cars and refused to get into this doomed game -- to win environmentalist brownie points.  As it has publically stated in the past, improvements to the conventional car: using lighter materials, better electronics and engine designs, will be far easier and more effective ways to cut carbon footprints and help the planet.

 

And, as a final note, do we really want to shut down ¼ of a continent when there is an electrical grid malfunction and chain reaction?  Think India in 2012, the eastern coast of North America in 1965 and numerous such occurrences in between as listed in Wikipedia’s “List of power outages”.  Millions of people were left without electricity – for any purpose, including recharging that electric car.  So let us not put all other energy needs in one highly fragile basket.

Gasoline and diesel are Gaia’s preferred, and superior, energy storage systems for vehicles.

YOUR MONEY

YOUR MONEY

Looney Tunes, 3 Stooges and the World of Finance

The world’s finances are getting weirder and weirder by the day!

Yesterday, March 11, 2013, the share price of RIM/Blackberry soared 13% on the TSX because the Blackberry Z10 phone is about to be released in the U.S. and the physical keyboard model Q10 is due very soon as well.  Meanwhile Apple is going into free fall as its shares have dropped from it being the most valuable company on the planet to middle-of- the-pack after losing 40% in value since September!           And word on Wall Street is that derivative/hedge funds are now bailing out big time (G&M, March 12, 2013, p. B4) as no sign of a new, blockbuster product is in sight – at least not until Apple’s standard fall announcements.

So, since the U.S. and corporate and government America are key Blackberry users, what a surprise the company is launching in the U.S. as promised.     And what a surprise that Apple’s share price, like Facebook’s IPO share price insanity, was and continues to be based on ‘speculative fantasies’ of new and more frequent super-inventions.  Steve Jobs, in his prime,  released  an ‘upgrade’ once a year at best, and a new product only every few years.   So why are the ‘great minds’ and analysts expecting ‘breakthroughs’ every 6 months or less?    That’s stupid and assumes an exponential pace to technological innovation.

Meanwhile, Ian Campbell in the G&M today, B11 encourasges the European Union Central bank to reduc4e its 0.75% prime rate even LOWER and consider going into NEGATIVE PRIME RATES -- to spur on a continent  in recession and possible deflation.  He is not alone in this advice as Maclean's magazine (March 18, 2013, p. 52 ‘Upside Down Interest”) recommended the same strategy for the U.S. , following the Bank of England which is toying with the idea.  Precedents by Sweden in 2009 and Denmark in 2012 are admired,  as are two (unnamed) Swiss Banks who began to CHARGE INTEREST for large institutions who kept money in their accounts.

So the logic is as follows:  You have given banks billions of super cheap or near free money (M1) for 4 years now but your economies are still at minimal growth and massive unemployment. So now let’s try something else, something new and against all capitalist economic market theory!

Force banks and large companies with cash to spend it by penalizing savings, pressure them to create jobs when they see no new markets to justify major capital outlays – and all will be well!   

So, in brief, if the free cash carrot didn’t work, hit them over the head with a stick!  To hell with the risks of over-expansion by companies and their collapse into  bankruptcy!!!  Central bankers know more about running successful businesses than corporate leaders who have survived the worst Great Recession since 1929!!! 

Let the dice be thrown and hope for the best!!!

Oh, and by the way, expect Warren Buffet and his company to flee your jurisdiction because Buffet believes in storing lots of cash : for a rainy day or future ‘opportunities’ that he likes; not what some Central banker will force him into.

Meanwhile, gold bullion’s steady drop to $1550.00 or so an ounce (at this second) from over $1,800.00 -should suggest the end of a long ‘bull run’ as some analysts are warning, this drop is being praised as  and a ‘buy opportunity’  by  others who envision a $2,000.00 an ounce price soon.   The fact that gold bullion prices have had no connection to the actual cost or volume of gold that miners produce for over 2 years is ignored by one and all!!!   (As highlighted in a previous bog, gold should be going for only $800.00 a ounce – if the speculative elements were not allowed to run wild.)

Then too, instead of the great economic crash and ‘disaster’ predicted by all pundits due to The U.S.’s January 1 sequestering – i.e., automatic cuts to federal spending of  (a mere) 2% and small tax rate increases for people in general,  The Dow Jones index is on a tear ever since, reaching new record highs every day!!!

So the great political and partisan standoff that paralysed the U.S. Congress and government for months – resulting in the automatic changes --  without ‘playing politics’ and ‘pork barrel favoritism’ have been the best thing Washington has done for the U.S.  economy – at least in the eyes of Dow Jones investors.

 

Finally, as highlighted by David Berman in the G&M today, citing The Economist, new studies have shown that stock market trajectories (up or down) are unrelated to the actual state of the economy from the GDP standpoint.   Citing Robert Shiller and a Bank of New York Mellon study, “[There is] no relationship between U.S. gross domestic product growth and the S&P 500 between 1970 and 2012.    

Wow!!!  So much for rational economic theory and stock market investing – or should I say SPECULATION!!!

 

In the light of all the above ‘irrationality’ and ‘illogic’, there is a ray of hope for a return to normalcy from the auto industry:  Chrysler Corporation is finally returning to leasing vehicles as in the past (G&M, March 12, 2013, b1).

Now all 3 U.S. auto manufacturers are back to the financial health and optimism of the past. Truck sales are booming, oil and natural gas are spewing forth across America, and all may yet turn out well for the U.S. (and by extension, Canada) – if politicians, central bankers and pundits stay out of the way.

And, of course, never trust your money to stock market indices, just to companies that give good dividends and have a track record of SLOW and STABLE growth.

Leave the Apple and Facebook stocks to their real market: high rollers, speculators, and the occasional individual who, like Forrest Gump, lucked in.

YOUR MONEY

YOUR MONEY

Carney bows out -- smiling

Mark Carney, head of Canada’s central bank, has just pronounced how great he is in his most recent update on the economy.

Yes, interest rates will stay at 1% for the foreseeable future, inflation is under 2%, and the housing bubble is in check, and the overall economy is doing fine, thanks to his stewardship.

Sounds great and a fine last note for someone leaving to take over as head of the UK central bank.

We should all sing Carney’s praises and thank him for saving our ship from sinking.

BUT

The ongoing 1% prime rate is a disaster for pension funds and insurance companies and even banks!  And Mr. Carney has no real choice as it is U.S. Ben Bernanke’s policy as well, the EU’s and Japan’s.

The housing bubble, if it has really been deflated, is the doings of Federal Finance Minister Jim Flaherty and his imposition of all kinds of ‘restrictions’ on home financing over the last year or so.  He is the one cracking the whip on this issue, not Carney with his meaningless ‘speeches’ and ‘pleading for self-restraint’.

And even the value of the Canadian dollar, which has dropped in the last 2 weeks to 3 cents below the U.S. dollar – hopefully helping exports  (but hurting imports and adding to INFLATION) -- is not Carney’s doing though he has repeated spoken for years of the harm a high Canadian dollar does.

China’s slowing demand for raw materials and the drop in tar sands oil prices has done it – as the world of currency speculators – oh, I meant investors – have now bet against Canada’s future growth and improvement in 2013.  The drop in the Canadian dollar – against the U.S. Greenback and all major currencies - says other people think we are going to have a worse economy this year, even worse than those great debtors, the U.S. and Europe.

So thank you Mr. Carney for your economic leadership and single-handed successes.

Go to England, and may the Fates, U.K. Finance Minister and currency speculators make you look a genius for your pronouncements.

GAIA

GAIA

Camels everywhere

The recent discoveries in  the Arctic Circle at Ellesmere Island are throwing paleontologists a huge curve and re-writing the history of that famous desert animal, the camel.

According to research published this week, (see G&M, March 6, 2013, A4) some 3.4 million years ago, Ellesmere Island, a land of ice and chilling cold, once had a climate 14 to 23 degrees Celsius warmer than today, supported larch trees and possibly birch and similar deciduous species and was home to the earliest (now) known camels.  The camel link is based on a thumb length bone which shows distinct camel genetics. Other Ellewsmere fossils attest to beavers and ducks during that era as well.

So, what does that say to those who fear Global Warming and lament how we humans are raising world temperatures, sea levels and leading to climate Armageddon.

We  Homo Sapiens were not around 3.4 million years ago. We were not to blame then for massive climate change, and we are not a significant factor today.  We are still ‘human ants’ in the overall world biosphere of Gaia!

YOUR MONEY

Not much joy on Wall Street and Bay Street

The New Year used to be the best time of the year on Wall Street and Bay Street as Banks and brokerages give out salary top up bonuses based on the year’s sales and profits.  For many, the bonuses dwarfed their regular salary and often allowed for a new Mercedes or Porsche or Ferrari or Lamborghini to suddenly appear on the driveway.

But not this year.   Newspaper reports and radio shows say bonuses will be far less than normal and in some cases half the expected premium.

Wall Street and Bay Street are looking at harder times as the two  life bloods of the industry – client stock purchase and sell orders, and speculative derivative funds and other ‘plays’ are all going sour.

If the Great Recession is over in the U.S. and Canada at least – supposedly ending in-2009 – slow growth of around 2% to 3% has made ‘recovery’ and ‘optimism’ delusional stock broker dreams.

Firstly, brokers make their money as ‘transaction fees”: whether buying for a client or selling.   They get the same transaction fee ‘profit’  either way, so they don’t care if the customer is making money or losing money as their commission is by the trade.  That is why the Stock Market Crash of 1929 was fantastic business for the first day or two – huge volume and tons of trade commissions --  and the same for every sudden ‘bust’ ever since. 

What kills the industry is the aftermath: when people have no money to make new purchases (for later resale).  The volume factor is key  to brokerages, not whether a stock or index goes up or down!

But newspaper stock market sections, TV analyst shows and radio market highlights are almost exclusively designed to promote buying (of stocks/bonds/Indexes/ETFs)  and fail to mention the most essential point -- market volumes --  unless someone slips up.

One analyst, in a radio interview on 680News in early February, let the truth slip out.

What seemed like a new ‘bull run’ as stock market indices rose and rose during 2012 was an illusion! Transaction volume had dropped by up to 80% and he did not expect much of a revival in 2013.           Not with Europe still in financial limbo, China retrenching, Japan in another recession, the Arab/oil world in political chaos and the U.S. up to its eyeballs in debt. 

With no sign of a turnaround in the foreseeable future, stock markets will no longer be the ‘money machines’ for brokerages as in the past.

So say goodbye to those great bonuses.

And hope you still have a job by April Fool’s Day, 2013.

YOUR MONEY

Governments, fools and the new casino

 When Western governments abandoned the gold standard and allowed their currencies to ‘float’ on the ‘open market’,  they made billions by selling off their gold reserves. But they also lost ‘control’   to the ‘open market’ of currency trades and all the speculation that it involves.

Instead of being ‘in charge’ governments become ‘secondary players’ and only ‘react’ when things become dire.

Governments may defend their actions under the guise of ‘capitalist ideology’ and ‘free, open markets’ (as stated by a recent minister to the G20) but what governments are really doing is losing control of their economic future by abrogating responsibility! 

If it is illegal to print money in your home – i.e., counterfeiting – because it hurts those who accept the worthless bills and it distorts the economy, so too does letting currency traders and those wealthy enough to put  down $20,000,000+ ‘bets’ on a currency’s rise or fall.

In fact, according to the international newswire and financial advice agency, Reuters, today’s wise investor should turn away from volatile and money losing stock markets and instead move to the “real hot spot”  “where the action is”: foreign exchange speculation (G&M, Feb 19,2013, B12)

So don’t waste your time going to a casino if you have lots of money. 

Play the latest crap shoot from the comfort of home and your computer/smart phone:  world currencies and the world economy!