What is the point, you may have asked yourself, to these great thoughts that are being thunk? It is a question worth asking, and answering. But before we go there I think it might be profitable to spend some time putting the big picture together. This will give us some context for our future discussions, a framework to place the various puzzle pieces we examine.
First of all, it is my view that we aren’t headed for a glorious future filled with human accomplishment. I don’t know how long it will take us to not reach that end, but we are inexorably moving away from it. That was a backward way of saying that we’re headed towards an uninviting destination in the proverbial hand-basket. Of course, this outlook is colored by events happening in America that aren’t necessarily representative of the rest of the world, but I don’t think that matters. As an example, Mark Steyn has written in “America Alone: The End of the World as We Know It” about the rapidly changing demographic in Europe, citing the low birth rates of the ethnic European peoples at the same time that immigration and the high birth rates of the Islamic people in Europe are already altering the political landscape and in as little as a decade or two that continent will be controlled by persons who lack a Western cultural heritage and are followers of an extremist religious philosophy bent upon domination and extermination of all who hold an opposing point of view. So, the bad news is all around us.
And the evidence pointing to this conclusion can be found in a variety of places. The shifts in cultural mores, political thought, economic conditions and geo-politics can all be indicators of the overall direction of life. I recognize, however, that others might look at the same set of conditions or circumstances that I am viewing and come to a dramatically different conclusion. That, in itself, is a strong argument in favor of my point. It used to be, not all that long ago, that Americans shared a fairly consistent view of the world. This view was independent of ethnic, economic or religious background. There was a common understanding that some things were right and some things were wrong. Kids didn’t grow up as hooligans because even when parents weren’t around there were always friends, neighbors and society to censure and decry shameful behavior. In fact, as a society we’ve entirely lost our sense of shame. How else can you explain the debased and moronic antics that pass for humor and entertainment on TV and in the movies? In some ways I can find sympathy for the revulsion that religious Islamists feel toward our society. I can’t sympathize with their extreme positions, but I think I know where they’re coming from.
I’ll pick up this thread next time and we’ll see where it goes from here.
Wednesday, January 16, 2008
Tuesday, January 15, 2008
America for Sale!
Here are some recent headlines and stories. I point these out because I want to start laying a foundation for your appreciation of the global economic situation that exists today and which is moving along a trajectory that will have huge implications for our future.
Citigroup to Take $16 Billion Writedown, Merrill Says
By Edward Evans
Jan. 8 (Bloomberg) -- Citigroup Inc., the biggest U.S. bank, may be forced to write down $16 billion in the fourth quarter and post a larger loss than previously estimated, Merrill Lynch & Co. analyst Guy Moszkowski said.
Citi Loses Almost $10B, Slashes Dividend
Tuesday January 15, 9:38 am ET By Madlen Read, AP Business Writer
NEW YORK (AP) -- Citigroup Inc. lost almost $10 billion in last year's final three months, the largest quarterly deficit in the bank's 196-year history, and slashed its dividend as it recorded a mammoth write-down for bad bets on the mortgage industry.
The nation's largest bank wrote down the value of its portfolio by $18.1 billion. It also boosted loan-loss reserves by $4.1 billion, signaling further problems in its consumer businesses as deflated home prices, high energy and food costs, and rising unemployment weigh on people's ability to make their loan payments.
To cut expenses, it slashed 4,200 jobs in the fourth quarter in addition to the 17,000 layoffs announced in the spring, and chief financial officer Gary Crittenden said during a conference call that more job cuts would be on the way.
Chief Executive Vikram Pandit, who replaced Charles Prince in December, said the fourth-quarter results were "unacceptable", and that he was "not yet finished" in his review of whether any of the global bank's core operations need to be cut or sold.
To bolster its capital, the bank also said Tuesday it has lined up $12.5 billion in new investments from sovereign wealth funds and existing shareholders.
That includes $6.88 billion from the Government of Singapore Investment Corp. for a 4 percent stake. Other investors were Capital Research Global Investors, Capital World Investors, the Kuwait Investment Authority, the New Jersey Division of Investment, shareholder Prince Alwaleed bin Talal of Saudi Arabia and former chief executive Sanford Weill and his family foundation.
The $12.5 billion in fresh equity adds to the $7.5 billion that Citi got in November from the Abu Dhabi Investment Authority in exchange for a 4.9 percent stake in the company.
Over the past several weeks, Asian funds have been buying up the battered stocks of struggling U.S. banks. Early Tuesday, Merrill Lynch said it will receive a total of $6.6 billion from the Korean Investment Corp., Kuwait Investment Authority and Japan's Mizuho Corporate Bank -- in addition to the $4.4 billion it has already gotten from Singapore's state-run Temasek Holdings. Pandit said Citigroup would continue to sell off "non-core" assets. The bank has already sold shares in Redecard, a card business in Latin America, and an ownership interest in a unit of the Japanese brokerage Nikko Cordial it bought last year.
Merrill Lynch to Get $6.6 Billion
Tuesday January 15, 6:45 am ET By Stephen Bernard, AP Business Writer
NEW YORK (AP) -- Merrill Lynch & Co. said Tuesday that it is getting a cash infusion of $6.6 billion from three foreign investment funds.
The Korean Investment Corp., Kuwait Investment Authority and Mizuho Corporate Bank will receive a special class of stock for their combined $6.6 billion investment. All will be passive investors and none will have any rights of control.
Both the Korean and Kuwaiti investment groups are owned by the state governments. Mizuho is a Japanese investment bank.
Working with the foreign investors will allow Merrill Lynch to broaden its relationships and operations around the world, Merrill Lynch's new chairman and chief executive, John Thain, said in a statement. The investors will receive a 9 percent dividend and their class of stock will be convertible to common shares in two years and nine months.
This is the second round of capital raising Merrill Lynch has announced in the past month. On Dec. 24, Merrill Lynch said it would sell a stake in itself of up to $5 billion to Singapore's state-run Temasek Holdings and an additional $1.2 billion stake to Davis Selected Advisers.
Where should I begin? Sovereign Wealth Funds – SWF – get used to the name. This is a euphemism for ‘America is on SALE!’ Simply put, these funds are all the US$$ held by foreign governments after selling us cars, trinkets and oil. Since it has become painfully evident that the dollars aren’t good for long term holding the SWF’s are spending them like sailors on shore leave, buying up tangible US-based assets, including shares in US banks and other financial institutions. I don’t have any disagreement with this activity, it is the marketplace doing what it does best, allocating capital to where it will be treated best. But there are geo-political implications that are apparently being ignored – at best, or not understood – at worst, by the movers and shakers in our government. There are several Trillion dollars held by these SWFs, and that will buy a lot of good ol’ American apple pie. What happens when the foreign owners of these “American” companies start making business decisions that aren’t exactly in the best interest of US citizens? What happens when they decide it is good business, for them, to move jobs out of America? As I see it there are two alternatives, either we let it happen and deal with the new circumstances of life as renters or the US government intervenes to save American jobs and our way of life. This would involve a breach of contract at the very least, and I would expect this to start a cascade of effects that would be unpleasant and most likely even less acceptable than the first alternative. What's my point? Only that you need to be aware this is happening so that you can start connecting the dots for yourself.
One other point, did you happen to catch that part in the Merrill story about claiming “all will be passive investors and none will have rights of control” and then buried a little lower for only the serious reader we find the note that all of this will eventually convert to common stock, which does confer “rights of control”. Make no mistake, these foreign investors will not be satisfied to remain passive. It might not change tomorrow, or next month or next year. But it will change.
One last excerpt from the Citigroup news:
Citigroup's $18.1 billion writedown was significantly wider than the $6 billion writedown it took in the third quarter last year, and bigger than the $8 billion to $11 billion it guessed in October that it would take for the fourth quarter.
Citigroup said as of Dec. 31, it had a total of $37.3 billion in direct subprime mortgage exposure, down from $54.6 billion three months prior.
So, let’s do some math. At the end of September Citi had $54.6B in subprime exposure. At the time they guessed they might lose $8-$11B, turns out they lost $18B. Now they have $37.3B in exposure. How much will they lose over this next 3 months? According to the article they’ve sold at least 10% of the company to foreign entities, several in the Mideast and Asia. This is not over by a long shot. Stay tuned.
Citigroup to Take $16 Billion Writedown, Merrill Says
By Edward Evans
Jan. 8 (Bloomberg) -- Citigroup Inc., the biggest U.S. bank, may be forced to write down $16 billion in the fourth quarter and post a larger loss than previously estimated, Merrill Lynch & Co. analyst Guy Moszkowski said.
Citi Loses Almost $10B, Slashes Dividend
Tuesday January 15, 9:38 am ET By Madlen Read, AP Business Writer
NEW YORK (AP) -- Citigroup Inc. lost almost $10 billion in last year's final three months, the largest quarterly deficit in the bank's 196-year history, and slashed its dividend as it recorded a mammoth write-down for bad bets on the mortgage industry.
The nation's largest bank wrote down the value of its portfolio by $18.1 billion. It also boosted loan-loss reserves by $4.1 billion, signaling further problems in its consumer businesses as deflated home prices, high energy and food costs, and rising unemployment weigh on people's ability to make their loan payments.
To cut expenses, it slashed 4,200 jobs in the fourth quarter in addition to the 17,000 layoffs announced in the spring, and chief financial officer Gary Crittenden said during a conference call that more job cuts would be on the way.
Chief Executive Vikram Pandit, who replaced Charles Prince in December, said the fourth-quarter results were "unacceptable", and that he was "not yet finished" in his review of whether any of the global bank's core operations need to be cut or sold.
To bolster its capital, the bank also said Tuesday it has lined up $12.5 billion in new investments from sovereign wealth funds and existing shareholders.
That includes $6.88 billion from the Government of Singapore Investment Corp. for a 4 percent stake. Other investors were Capital Research Global Investors, Capital World Investors, the Kuwait Investment Authority, the New Jersey Division of Investment, shareholder Prince Alwaleed bin Talal of Saudi Arabia and former chief executive Sanford Weill and his family foundation.
The $12.5 billion in fresh equity adds to the $7.5 billion that Citi got in November from the Abu Dhabi Investment Authority in exchange for a 4.9 percent stake in the company.
Over the past several weeks, Asian funds have been buying up the battered stocks of struggling U.S. banks. Early Tuesday, Merrill Lynch said it will receive a total of $6.6 billion from the Korean Investment Corp., Kuwait Investment Authority and Japan's Mizuho Corporate Bank -- in addition to the $4.4 billion it has already gotten from Singapore's state-run Temasek Holdings. Pandit said Citigroup would continue to sell off "non-core" assets. The bank has already sold shares in Redecard, a card business in Latin America, and an ownership interest in a unit of the Japanese brokerage Nikko Cordial it bought last year.
Merrill Lynch to Get $6.6 Billion
Tuesday January 15, 6:45 am ET By Stephen Bernard, AP Business Writer
NEW YORK (AP) -- Merrill Lynch & Co. said Tuesday that it is getting a cash infusion of $6.6 billion from three foreign investment funds.
The Korean Investment Corp., Kuwait Investment Authority and Mizuho Corporate Bank will receive a special class of stock for their combined $6.6 billion investment. All will be passive investors and none will have any rights of control.
Both the Korean and Kuwaiti investment groups are owned by the state governments. Mizuho is a Japanese investment bank.
Working with the foreign investors will allow Merrill Lynch to broaden its relationships and operations around the world, Merrill Lynch's new chairman and chief executive, John Thain, said in a statement. The investors will receive a 9 percent dividend and their class of stock will be convertible to common shares in two years and nine months.
This is the second round of capital raising Merrill Lynch has announced in the past month. On Dec. 24, Merrill Lynch said it would sell a stake in itself of up to $5 billion to Singapore's state-run Temasek Holdings and an additional $1.2 billion stake to Davis Selected Advisers.
Where should I begin? Sovereign Wealth Funds – SWF – get used to the name. This is a euphemism for ‘America is on SALE!’ Simply put, these funds are all the US$$ held by foreign governments after selling us cars, trinkets and oil. Since it has become painfully evident that the dollars aren’t good for long term holding the SWF’s are spending them like sailors on shore leave, buying up tangible US-based assets, including shares in US banks and other financial institutions. I don’t have any disagreement with this activity, it is the marketplace doing what it does best, allocating capital to where it will be treated best. But there are geo-political implications that are apparently being ignored – at best, or not understood – at worst, by the movers and shakers in our government. There are several Trillion dollars held by these SWFs, and that will buy a lot of good ol’ American apple pie. What happens when the foreign owners of these “American” companies start making business decisions that aren’t exactly in the best interest of US citizens? What happens when they decide it is good business, for them, to move jobs out of America? As I see it there are two alternatives, either we let it happen and deal with the new circumstances of life as renters or the US government intervenes to save American jobs and our way of life. This would involve a breach of contract at the very least, and I would expect this to start a cascade of effects that would be unpleasant and most likely even less acceptable than the first alternative. What's my point? Only that you need to be aware this is happening so that you can start connecting the dots for yourself.
One other point, did you happen to catch that part in the Merrill story about claiming “all will be passive investors and none will have rights of control” and then buried a little lower for only the serious reader we find the note that all of this will eventually convert to common stock, which does confer “rights of control”. Make no mistake, these foreign investors will not be satisfied to remain passive. It might not change tomorrow, or next month or next year. But it will change.
One last excerpt from the Citigroup news:
Citigroup's $18.1 billion writedown was significantly wider than the $6 billion writedown it took in the third quarter last year, and bigger than the $8 billion to $11 billion it guessed in October that it would take for the fourth quarter.
Citigroup said as of Dec. 31, it had a total of $37.3 billion in direct subprime mortgage exposure, down from $54.6 billion three months prior.
So, let’s do some math. At the end of September Citi had $54.6B in subprime exposure. At the time they guessed they might lose $8-$11B, turns out they lost $18B. Now they have $37.3B in exposure. How much will they lose over this next 3 months? According to the article they’ve sold at least 10% of the company to foreign entities, several in the Mideast and Asia. This is not over by a long shot. Stay tuned.
Lasting Value
The graphic below is interesting in several ways, but I'll comment on only one feature in this post.
The concept of exchange between items of tangible value, such as oil and gold, initially assumes that the quantities of exchange would be expected to remain the same. But, in the real world things such as supply and demand enter into play and have to be given due consideration. Some of that is evident in this graphic.
The other thing that I see is that there appears to be a baseline "value" relationship between oil and gold, somewhere in the region of 10 barrels per ounce. That is about where we are today. If you accept this notion, then there isn't any cause to complain about the "price" of oil, because it real terms it hasn't changed from its baseline. What becomes clear is that the value of the US dollar has dropped. A rational response to this situation would be to convert all of your US dollars into gold, at least whenever you've accumulated enough of them to make the transaction costs acceptable. Then, whenever you're ready to purchase real commodities you re-convert gold into dollars and make the purchase. Theoretically, at least, your store of gold will preserve its "value" relative to other tangible commodities, independent of the number of dollars represented by the pile of gold.
What do you think?
The concept of exchange between items of tangible value, such as oil and gold, initially assumes that the quantities of exchange would be expected to remain the same. But, in the real world things such as supply and demand enter into play and have to be given due consideration. Some of that is evident in this graphic.
The other thing that I see is that there appears to be a baseline "value" relationship between oil and gold, somewhere in the region of 10 barrels per ounce. That is about where we are today. If you accept this notion, then there isn't any cause to complain about the "price" of oil, because it real terms it hasn't changed from its baseline. What becomes clear is that the value of the US dollar has dropped. A rational response to this situation would be to convert all of your US dollars into gold, at least whenever you've accumulated enough of them to make the transaction costs acceptable. Then, whenever you're ready to purchase real commodities you re-convert gold into dollars and make the purchase. Theoretically, at least, your store of gold will preserve its "value" relative to other tangible commodities, independent of the number of dollars represented by the pile of gold.
What do you think?
Stand By
After incessant cajoling from my compatriot I've decided to take pen in hand, figuratively speaking, and become one of the authors on this blog. Stand by for occassional posts as I seen various evidences of this trip we are all making in the proverbial 'handbasket'.
I hope you enjoy my musings.
I hope you enjoy my musings.
Monday, January 7, 2008
Security
Expect the Democratic Administration to pursue with great vigor a foreign policy of appeasement and conciliation. Our troops will be withdrawn from the current hot spots, and in similar fashion to #3 above they will go beyond that to recall troops from even more overseas locations, as well. They’ll be rallying to the cry to “bring our boys home”, which will be the setup for the next item. The added benefit to this policy is that it will free up some dollars that had been going to the Defense Dept. so that they can be more “productively” spent through the various entitlement programs, otherwise known as voter snares.
With America taking deliberate steps to disengage from any appearance of hostile intent with respect to anything having to do with Islam, the radical element of that culture will begin the plotting necessary to bring down a rain of terror on the US and Israel. This will be evidenced by a period, probably less than a year, of apparent peace. This will be the time they take to lull us into a false security and to establish their own readiness for what follows. It might take longer, if the US is slowed down in extracting itself from the Middle East. I don’t believe they will want to start something while US troops are still in the field.
Terror strikes against both the US and Israel will follow. I expect that the damage in Israel will be kept within limits, since I don’t believe there is any illusion in the rational Islamic mind about Israel’s willingness to use any means necessary to protect itself. The key word is rational. If irrational Islamic radicals start to move against Israel I think we could easily transition into a situation that would potentially be a fulfillment of the events of Ezekiel 38.
I expect the terrorists will place fewer limits upon what can be done against the American people and the homeland. I think they will strike in a variety of ways, against populations and against our infrastructure. I believe they will attempt to disrupt our commerce and our communications. Chaos in America will free them for action around the world. I also think they will strike against Europe and foment Islamic rebellion in those countries. The “sophisticated” European disdain for America’s “cowboy diplomacy” will not save them from the terror.
The clueless Democrats will blame the initial terrorist attacks on Bush, on his policies and actions that have caused fear and loathing to rise in the hearts of otherwise peace-loving Islamists. I don’t know how many thousands of Americans will have to die before it starts to dawn on even the Democrats that those people really do hate us and they want to kill us.
With America taking deliberate steps to disengage from any appearance of hostile intent with respect to anything having to do with Islam, the radical element of that culture will begin the plotting necessary to bring down a rain of terror on the US and Israel. This will be evidenced by a period, probably less than a year, of apparent peace. This will be the time they take to lull us into a false security and to establish their own readiness for what follows. It might take longer, if the US is slowed down in extracting itself from the Middle East. I don’t believe they will want to start something while US troops are still in the field.
Terror strikes against both the US and Israel will follow. I expect that the damage in Israel will be kept within limits, since I don’t believe there is any illusion in the rational Islamic mind about Israel’s willingness to use any means necessary to protect itself. The key word is rational. If irrational Islamic radicals start to move against Israel I think we could easily transition into a situation that would potentially be a fulfillment of the events of Ezekiel 38.
I expect the terrorists will place fewer limits upon what can be done against the American people and the homeland. I think they will strike in a variety of ways, against populations and against our infrastructure. I believe they will attempt to disrupt our commerce and our communications. Chaos in America will free them for action around the world. I also think they will strike against Europe and foment Islamic rebellion in those countries. The “sophisticated” European disdain for America’s “cowboy diplomacy” will not save them from the terror.
The clueless Democrats will blame the initial terrorist attacks on Bush, on his policies and actions that have caused fear and loathing to rise in the hearts of otherwise peace-loving Islamists. I don’t know how many thousands of Americans will have to die before it starts to dawn on even the Democrats that those people really do hate us and they want to kill us.
Civil Liberties
Although the Democrats have made little noises about the erosion of “liberties” that come as a consequence of the legislation passed to create Homeland Security, and all that entails, the truth of the matter is that they absolutely love the new controls this will give them over the population. Expect to see even greater abuses of power over the sovereignty of the people under the Democrats. The irony will be that they can use the excuse, conveniently provided by the bumbling Republicans, that they are being “strong for America”. The only departure in this arena will be the opening of our borders, as a sign that we are loving and caring and would never want to offend anyone by shutting them out.
Taxes
Hold on to your wallets, taxes will not be going down. At least, not for the “rich”. And according to a Democrat, you’re rich if you don’t have your hand out begging for something from the government. As far as they are concerned, if you don’t need them, then they do need you (to pay taxes, that is).
The decline of the Right
There will be a determined effort to undermine the influence of the conservative Right in America. I believe the main thrust in this area will be in education. As we saw in a recent Truth Project lesson, if you can control the past (by teaching them only what you want them to know), then you can control the future. Expect to see more efforts to marginalize home-schooling, either by attaching onerous regulations to it, or by making it harder to obtain credit for having been home-schooled. I expect that all educational alternatives to the NEA-sponsored public education system will become harder and harder to maintain.
Dems in control
The Democratic candidate for President will win the election in 2008, by a landslide margin in the Electoral College. I would not be surprised if the Republican candidate gets fewer than 50 electoral votes.
The Democratic majority in both the House and Senate will be even larger after the 2008 elections.
The Democrats will take advantage of their legislative primacy by enacting a wide variety of legislation, all in a reaction to their pent up frustration with the “lack of progress” in making social advances due to the Republican obstructions of the Bush years. Due to the reactionary element behind this legislative push, much of the legislation will be quite a bit further left-of-center than we might usually expect from mainline legislation. They will succeed in this effort,
because they can,
the Republican party will be fractured, ineffective and still in a daze by the sheer enormity of their electoral losses,and because they are in control of, and masters of the effective use of the spin machine.
The Democratic majority in both the House and Senate will be even larger after the 2008 elections.
The Democrats will take advantage of their legislative primacy by enacting a wide variety of legislation, all in a reaction to their pent up frustration with the “lack of progress” in making social advances due to the Republican obstructions of the Bush years. Due to the reactionary element behind this legislative push, much of the legislation will be quite a bit further left-of-center than we might usually expect from mainline legislation. They will succeed in this effort,
because they can,
the Republican party will be fractured, ineffective and still in a daze by the sheer enormity of their electoral losses,and because they are in control of, and masters of the effective use of the spin machine.
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