Insight & Understanding

To maintain a blog as informative as "Ants & Grasshoppers", one has to scour for information, not just from local and national news outlets, but also from international outlets as well, because one can not truly understand the global economy if readings are limited to American based publications.

I discovered the other day while perusing a publication called 'The Edge Singapore', an interview conducted with a man named Richard Duncan who accurately predicted the last global crisis and is well respected, particularly in Asian economic policy circles.   He conducted an interview with the publication about the global economy and touching upon the various regions of the world.

Because the interview was a bit long, I have condensed a bit to keep the information most relevant and germaine to the reader without altering the context of the answers Mr. Duncan gives.

Though the rest of this posting will be directly from the interview with full credit given to its source, for the purpose of making it easier for you to read and follow, I've highlighted all Mr Duncan's responses in blue font.  Also, any portions underlined or made Bold was done by A&G for emphasis.

I hope you find it as informative...

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Bangkok-based Duncan is currently chief economist at Blackhorse Asset Management. He recently spoke to The Edge Singapore on the sidelines of an investors’ forum. 

The Edge: The US Federal Reserve is about to end the latest round of quantitative easing, or QE2, next month. The markets are fairly nervous about what might happen next. What’s your take?

RD: When QE2 stops, the US economy will weaken again, the global economy will weaken, stock and bond prices will drop. So, interest rates will go up, commodity prices will drop. The US economy will start moving back towards a recession and, around the end of the year, we’ll have QE3 or another round of quantitative easing, and then everything will spike up again — equities, bonds, commodities, all sorts of assets.

The Edge: So, you are predicting another speculative bubble in commodities and other assets? 

RD: It doesn’t cost anything to print money. Yes, I believe inflation will move higher. But, before we get there, when QE2 stops next month, we will probably see a significant correction in commodity prices that will be disinflationary. That will help alleviate inflationary pressures long before QE3 starts.

There are really three different kinds of inflation. The first, what the Fed looks at, is consumer price index, excluding food and energy. That’s been trending downwards for years because of globalization. 

The marginal cost of labor has dropped 90% or 95%.  In the past, if you hired someone to produce car parts in Michigan, you might pay US$200 a day. You can hire someone in Chennai for about 5% of that. In China or Thailand, you’d pay a little bit more, but still far cheaper than Michigan. This represents an unprecedented collapse in the cost of labor.

Nothing like this has ever occurred in history. If it wasn’t for this — all the paper money that is being created by central bank easing — it would have created hyperinflation.

There is also asset price inflation like stocks or real estate. The whole purpose of QE2 was to create asset price inflation. The Fed wanted stock markets to go up, bond prices to be higher, so interest rates were lower and that worked out very well. Since QE2 started, stocks have surged 25% from where they were just before it was announced...

The real problem is the third kind of inflation or commodity price inflation, including food, which is now a serious global issue. You have two billion people who live on less than US$3 a day. As food prices rise, they become hungrier.

That’s what North African revolutions have been all about. Egyptians and Tunisians didn’t wake up one morning and decide they wanted more democracy. They woke up hungry because of food price inflation, which was a consequence of QE2.

The Edge: So, you see a global economy in turmoil?

RD: I believe that the global economy is a very sick patient that is being kept alive by life support primarily in the form of budget deficits. The US deficit has reached 10% of GDP, or US$1.4 trillion ($1.7 trillion). It looks like the US economy might still grow more than 2% this year, but if it weren’t for the 10% budget deficit, the growth rate might actually be minus 8% or far slower.

The budget deficit has kept the economy from collapsing and is being financed in large parts by quantitative easing of US$600 billion over seven months, or roughly US$3 billion a day. That’s new money that the Fed is creating from nothing and using it to buy Treasury bonds.

The Fed has been buying every new bond that the government has sold over the last few months, and that has kept bond prices higher and interest rates lower, which in turn has helped support the economy and forced the people who would normally buy those bonds to buy equities, which is why you have stock prices moving 25% higher and helping create a wealth effect that drives consumption.

The Edge:  So, what should President Obama or the Congress do now? Is there a way out or just a steady deterioration from here on?

RD: The US has two choices. The government can spend less and the US will collapse into a depression, from where it will be all downhill, or just spend more wisely. The US needs to spend in a way that actually restructures the economy and restore its economic viability. It looks like the US government will have a US$10 trillion budget deficit over the next 10 years...

Swimming w Sharks

Yesterday A&G made a very sound and accurate pronouncement that few if any other financial blogs or news sites had mentioned yesterday-- That all the bad economic data and sudden negative reporting of the economy after over a full year of fascist-like "recovery" propaganda is agenda driven.  The goal is that Wall St. wants QE 3 desperately.

Today, op ed pieces are catching up with A&G... here's part of one from MarketWatch.com (quotes in blue font):

"With investor panic growing faster than the U.S. economy is weakening, all eyes turn to Fed chief Ben Bernanke this month to see if he will launch a third round of bond buying to prop up the global markets... Stock markets, housing markets and jobs payrolls may be falling faster than Greek debt ratings these past few weeks, but in part that's because investors are looking for any excuse to sell after we had four strong months at the beginning of the year. 


The June swoon, or sell-in-May-and-go-away, or the end of the eight-best-months seasonal trading pattern, or whatever the jargon is for it on Wall Street, is a traditional Wall Street occurrence and this year investors are playing it up like it's Lehman Brothers all over again."

Very interesting.. in other words, if you didn't already get it by now, the stock market is a game-- one giant collisional, ultra-corrupt, immoral, ponzi-scheme 'game'.  And they want more of that free taxpayer $$ from the Fed- its the markets' morphine.

The op-ed writer actually thinks Bernanke will not do QE 3 and all these investors/traders will be severely disappointed but its interesting what is predicted...

"Investors would be wrong to hope Bernanke will ride to the rescue again with a third round of quantitative easing, or QE3, by buying Treasury bonds in bulk.  Of course, the Fed will keep buying in some format, but the massive program itself will end this month and we'll be on our own.  


In fact, the summer scare in the markets plays well into Bernanke's strategy of preventing a crisis of no buyers of Treasury bonds when QE2 ends by delivering a steady supply of new buyers spooked about the outlook for stocks and commodities.  Instead of an emergency as bond buying dries up and interest rates soar, as feared just a few weeks ago, we now have plenty of investors willing to help keep rates low by buying bonds the next few weeks as June advances."

This is technical information presented and many will not understand it.  What's important to take from that is that the Fed manipulates the economy and the market at every turn.  If it does push forth QE 3 or some variation, the manipulation in terms of interest rates, etc is quite obvious.  And if the Fed chooses to do nothing, Bernanke, like a master chess player, has contingencies and strategies to steer cockroach investors in the directions he wishes them to go, much like he's steering savers into the market by offering them crippling interest rates.

Nothing about the Fed and how it conducts business is accidental.  Even if/when its policies end up being wrong and detrimental to the nation, they're still carefully thought out plans allowing for maneuverability.

And if you're going to swim with sharks i.e. play the market, you're going to eventually get devoured

Breaking down Robert Reich's Op Ed

Robert Reich, former Labor Secretary under President Clinton wrote an op-ed column yesterday entitled 'Back towards a US double-dip' in which he lays out how weak the economy really is.

Rather than restate his points, I will briefly comment on a couple points he makes which seemed to strike my interest.

First, some general statistics as Reich states..

"Average hourly earnings of production and non-supervisory employees – who make up 80 per cent of non-government workers – dropped to $8.76 in April. Adjusted for inflation, that’s lower than they were in the depths of the recession."

" (Housing prices) are now 33 per cent below their 2006 peak. That is a bigger drop than recorded in the Great Depression. Homes are the largest single asset of the American middle class, so as housing prices drop many Americans feel poorer."

Then Reich says the following..  "The recovery has stalled"

Certainly an intelligent and learned man such as Mr. Reich should know there never was any recovery in the first place so the economy is not really stalling.  Its just declining at a more precipitous rate.

Reich also talks about how the American consumer which constitutes 70% of the total economy can not seem to jump-start it, and adds this very curious comment..

"Banks, with equal justification, are reluctant to lend to them."

There is NO justification for banks to not lend..  None.  Part of the reason they collectively received hundreds of billions in interest-free taxpayer dollars was to take it and re-invest in the community via lending.  Instead they pocketed the money to cover their toxic assets on their burnt mortgages.  Unless a perspective lendee is completely penniless and homeless, there's no excuse for banks to not lend, and Reich saying banks are justified to be reluctant is simply Ignorant.

Then Reich talks about how party politics play a role in addressing the economy in any meaningful way.   First he describes the Republicans as basically "quietly hoping the economy stays rotten up until election day."  Then Reich adds this interesting nugget concerning the Democrats,

"They (the Democrats) would rather not dwell on the slowdown because they do not want to spook the bond market or add to the prevailing gloom (Jimmy Carter’s ill-fated comment about the nation’s “malaise” during the stagflation of the late 1970s has served as a permanent admonition for presidents to stay upbeat)."

This is fascinating- it explains why this Administration keeps Hard-Selling this "recovery" nonsense, and why a very corporate and predominately liberal media keep using the term in every single article no matter how bad the news they're reporting.  It is scared to death of even remotely acknowledging how bad things are.   Might lose some votes... Yikes..

** Interestingly, the new cutesy media buzzword to describe this morbid economy is "slowdown" as if to imply America has previously been in an amazing rapid 'recovery'  but Now its slowing.  Remember all the gobbletygook terminology the Administration and media used in the past... "jobless recovery"?  V-shaped recovery?  U-shaped recovery?  

Here are some more accurate buzzword terms:

"Lightning Bolt" recovery-- see how it keeps jagging downward

A "Dog chasing Tail" recovery -- An' round n round she goes

A "Daydreaming" recovery -- Mm, everything IS better now

"Flying piggie" recovery --  Self explanatory

"Ahh, but Of Course...."

As I sit and watch the Dow now at -282 (12,287) as of 3:45p, a lightbulb went off... Yes.. it is so clear now..

It just dawned on me why you've had all these articles in the mainstream media suddenly and miraculously pessimistic (or realistic) about the US economy when they haven't displayed this form of honesty in over a year...

They didn't find religion, as the saying goes..

Its more insidious and agenda driven-- 

QE 2 (Quantitative Easing) is set to run out very soon with no more coming..

$50 billion/mo for 12 months ($600B) and its set to end in June.

And Dammit-- they WANT QE 3!

When you add QE 1, Wall St has been artificially pumped by close to $2 Trillion

To most corporations and Wall St on the whole, life without some form of QE to prop them up, is like expecting your vehicle to work without a car battery or gasoline.  The free taxpayer $$ is the juice which allows them to pretend they're strong and solvent.

So what you're seeing... and will be seeing in the coming days and weeks is secret communication to the Fed from Wall St. via the media's suddenly negative spin of the economy, and they're basically saying this"

 "Pssst... Heyy, you- Fed!  Yeah, you!.. Heyy, we need more free cash over this way cause we're running out of steam you see, and if you don't continue pumping more free dough our way, the US economy's gonna get it & it ain't gonna look pretty"

But see, here's the thing.. and this is IMPORTANT--   American finance is So Evil and the Fed is so all-consuming & powerful that its Also very possible that Bernanke said to Wall St, "Hey, I Want to give you lots more free $$.. you're my brothers after all, but you need to make things look bad out there or I won't have the political cover needed for a third corporate bailout."

So its hard to pinpoint just how Orchestrated this whole charade is... For example, when the Fed "leaks" information as to what its considering doing, such as QE or keeping interest rates dead-low, its not someone in the Fed secretly giving this info away behind Bernanke's back.  Its a tool to allow corporations and investors to know of the Fed's intentions ahead of making it official so based on their response, the Fed sees if such decisions need to be modulated to suit those entities' best interests.

I told you it was Evil...

So to summarize, expect the market to have some real dramatic swings in the coming weeks, and a lot of gloomy forecasts and agenda-ridden news items on it until Wall St. gets its way or tanks the economy until it wins.

And another mystery of the Evil world of finance is solved...

June 1st (economically its Dec 1st)

All economies run in cycles; ebbs and flows much like seasons in a year.  When an economy is in a downturn, even when mild it is a "winter".  When true recovery occurs, that's the equivalent of "spring".  When things are bustling, its "summer" and when the economy starts giving signs its slowing down and changes are afoot, that's the "autumn".

Economies do not work in perfect 12 month cycles like weather but the analogy is still accurate.

For Wall St. and big business, they experienced a very short "winter" period back in late 2008 until March 2009.  Due to trillions of Fed money, they experienced a sincere recovery; a true "springtime" into "summer".  Of course the rest of the nation never felt it. How could they when they were purposely excluded from the 'party'.  They were just repeatedly told spring was here and summer was just around the corner, so Stay Calm.  

And just as everyday people are itching for a sincere recovery to affect them, now you see signs of "autumn" in Wall St. and the corporate world.   While yesterday the market went up 128 points based on nothing but greed, today its down 213pts as of 1:50p based on fear.

So... I peeked at the Drudge Report, and saw this header via a CNBC article:

"We are on the verge of a Great, Great Depression..."

So how could one Not avoid clicking on that link, right?

The official title of the CNBC article is Wall Street Baffled by Slowing Economy, Low Yields: Trader  and this what the trader, Peter Yastrow, market strategist for Yastrow Origer, told CNBC --

"What we’ve got right now is almost near panic going on with money managers and people who are responsible for money... They can not find a yield and you just don’t want to be putting your money into commodities or things that are punts that might work out or they might not depending on what happens with the economy."

And then the kicker...

"Interest rates are amazingly low and that, thanks to Ben Bernanke, is driving everything... We’re on the verge of a great, great depression. The [Federal Reserve] knows it.  We have many, many homeowners that are totally underwater here and cannot get out from under. The technology frontier is limited right now. We definitely have an innovation slowdown and the economy’s gonna suffer."

I used to think people lived in la-la land and embraced this "recovery" nonsense.  Then I realized it wasn't the case.  The media keep working to hard-sell this 'recovery' specifically Because "We the People" do Not accept it.

June 2nd is the 2nd "anniversary" of the nation supposedly being in 'recovery', so an investment strategy company released its monthly poll data including a question about whether people believed the nation is in recovery.   Surprisingly, 66% believe the nation is still in recession which means only 33% drink Kool Aid.

The summary of the past two years is this:   A small group most people have never heard of, the National Bureau of Economic Research’s (NBER) Business Cycle Dating Committee decided on June 2nd, 2009 that the nation is no longer in recession.  Making themselves the official arbiters of peaks and troughs in the business cycle, they determined that economic conditions have ceased to decline, thus recession is over...  Taaa Daaaa!  

And this declaration from a small group of know-nothings means that every politician and media outlet have safe cover to blast "Recovery" as often as they wish and never be technically wrong even though they are.

The truth is--  and I hate it as much as you -- is that while it is June 1st on the calendar, and its sunny & warm outside (unless you live south of the equator; there its wintertime), on the economic calendar, it turned December 1st.

Most things in life we have no power or influence over-- nations going to war, budget cuts, etc.. but we have control over our own finances.  People do as they wish obviously but it would be irresponsible of me to lay out the bad without some suggestions to empower oneself.   

The famous adage of "A penny saved is a penny earned" will become more and more important as time goes on, except to modernize the adage and make it really relate to you, think of it as "$100 saved is $100 earned".  For instance, if you Must travel for summer vacation, consider local sites that use up less gasoline and don't require hotel stays.  If you need a new dress or suit, perhaps a brand label costing twice as much as another label is the best way to go, etc...  Any money you save now, is money you will have for the future, when things get really dicey and you will Most need it.

Remember, you can still live for today and enjoy life to its fullest but one can never forget there's a 'tomorrow' and day after that..  Its still not too late for grasshoppers to act like ants.

BMW SERIE 1 (SPY)

Quindi confermato il frontale con i fari a trapezio rovesciato e non sembra affatto male...anzi...
Interessanti le superfici della fiancata (forse meglio sulla 3 porte che sulla 5 porte)
Nel posteriore il perimetro dei fari anticipa delle forme un po' semplici, ma l'andamento del lunotto e la bombatura del portellone creano un bell' effetto.

Quickie Quiz w. Pretty Pics

This is kind of a repetitious posting especially if you're a regular follower of A&G but the points are so important to remember, it can not be restated enough--  so here's a refresher offered up as a very easy quiz...

**  All photos taken by Me- doubleclick to make larger **

1)  In a terrible month of May filled with terrible unemployment data, really terrible numbers on consumer confidence and Horrifically Terrible plunging housing numbers, the stock market yesterday finished up 128pts to close at 12,569...  

Why?

a)  Oil prices inched higher to near $103 a barrel
b)  US dollar weakened further vs. other currencies
c)  Both A & B

Ans:   C
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2)  When oil prices per barrel go up, it means?

a)  Price of gas per gallon goes up
b)  Price of gas per gallon goes down
c)  Has no connection to what you pay at pump

Ans:  A
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3)  How many gallons of gasoline does one barrel of oil produce?

a)  30
b)  60
c) 119

Ans:  C - 119 gallons of gasoline synthesized (40 gal of oil in 1 barrel)
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4)  If Oil is at $103/barrel, & produces 119 gal. of gas, how much per gal?

a)  $0.87/gal
b)  $1.02/gal
c)  $1.11/gal

Ans:  A-  When oil is $103/barrel, it means 87 cents/gal of gasoline which you then pay $3.90 per gallon for at the pump.
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5)  When US dollar weakens, it means...

a)  US Corps make more $$ exporting; US consumers must pay more
b)  US Corps make less $$ exporting; US consumers pay less
c)  Has no connection to costs of goods & services

Ans:   A-  What's good for corporations is never ever good for you
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7)  Why is the US devaluing its currency besides helping with exports?

a)  weaker the US dollar, the less it has to pay back to China & other creditors
b)  Chinese currency, Renminbi is devalued 6-1; US trying to bridge gap
c)  A & B

Ans:  C
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8)  Why do everyday people still invest in Wall St?

a) Intentionally low interest rates kill savers & force them into market
b) They are naive and believe everything is OK again
c)  Both A & B

Ans   C
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9)  If employment & housing is so bad, why so much 'Recovery' talk?

a)  Media & government have agenda to push optimism
b)  It is unintentional and completely accidental
c)  No one's saying recovery.. that's just silliness

Ans:  A
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10)  What piece of legislation has helped everyday Americans the most?

a)  The National Economic Recovery Act of 2009 providing free job training for those unemployed and extending benefits for '99ers' to 200 weeks
b)  The C.A.R.E. Act establishing a moratorium on home evictions and providing a 5 year freeze on ARM rates kicking in for homeowners
c)  Absolutely NOTHING; option A & B are made up

Answer: C- unfortunately