Financial Meltdown (The World)

[Dinosaur]

http://www.telegraph.co.uk/finance/fina ... l-out.html

And more doom and gloom about sterling including Mr Jim Rogers of Quantum, who I believe resides in Singapore, telling everyone to get rid of their Sterling quickly. Well that's just going to send it down further. Couldn't one of you guys in Singapore go see Jim and tell him to shut his cakehole.

[baloo]

I just received an SMS from Kah Motors offering free COE for all models.

They must be suffering.

[Pinklepurr]

Hmmm...but then the COE isn't really costing much right now is it? Wasn't Cat B only $200 this last round? Even the open category was only about $3200.

[baloo]

yeah, but Honda have a heap of cars under 1600cc. The $200 COE was the first thing that crossed my mind but it seems it's more than that.

[Fuzz]

Hold on for more storms coming ...

Global tidal wave of 70,000 job cuts

By Brian Moss in New York

Reuters

January 27, 2009 11:27am


* 70,000 jobs cut in one day
* Workers fired as profits tumble
* ING, GM, Caterpillar cut jobs

A TIDAL wave of layoffs washed across the world overnight, sending 70,000 workers into joblessness as the pain of the global recession worsened.

Tumbling corporate profits and a dire outlook led major companies in the US and Europe to dramatic job cuts in an effort to reduce costs and keep their business afloat.

The darkening view was reinforced by the IMF, which revised its forecast for global growth down from 2.2 per cent to 0.5 per cent. The IMF says the US economy will shrink by 1.6 per cent and the eurozone by 2 per cent this year.

The tsunami of layoffs started in Europe, with electronics maker Philips cutting 6000 jobs after a bigger-than-expected €1.5 billion loss ($3 billion).

Dutch bank ING cut 7000 of its 130,000 jobs, replaced its CEO and got guarantees from the Dutch government.

Corus, Europe's second-largest steelmaker, said 3500 jobs would go worldwide, including 2500 in Britain.

In the US, Caterpillar, the world's largest maker of heavy equipment, said it would cut 20,000 jobs after profit fell 32 per cent. Capterpillar says 2009 will be its worst year since the end of World War II.

Mobile phone group Sprint Nextel will cut up 8000 jobs, or about 14 per cent of its workforce.

Retailer Home Depot said it will cut 7000 jobs, or about 2 per cent of its workforce and General Motors said will fire 2000 more workers at two assembly plants.

The world's largest drug company Pfizer, said it will buy rival Wyeth and 15 per cent of the companies' combined 130,000 workers, another 19,500 jobs.

[Joseph27]

Is Keynesianism dead?

"WHEN you are in a hole, stop digging." This sensible law was coined by Denis Healey, Britain's chancellor of the exchequer during the 1970s. Unfortunately, Healey did not take his own advice. Under his stewardship government finances collapsed, leading to the humiliating need to borrow from the International Monetary Fund. Within a year, Margaret Thatcher was in Downing Street. She revived Britain's fortunes by returning to sound money, cutting government spending, cutting taxes and allowing failing industries to go to the wall.

This is the exact opposite to the economic policy being followed in the US by Barack Obama, Nancy Pelosi and the Democrats, by Gordon Brown in Britain, and by Kevin Rudd here in Australia. Instead of sound money, the policy is one of throwing good money after bad.

The new policy of demand management through government spending - known as Keynesianism - will not work. It never has, for the simple reason that governments cannot run economies and they do not create wealth. By throwing government money around in any number of bail-outs, infrastructure programs and pet social projects, governments are running up debt and simultaneously failing to revive the economy.

Take, for example, the case made for infrastructure investment or public capital spending. The Keynesian argument is that this pumps money into the economy and helps fuel recovery and growth. This, the Left argues, was behind the success of Roosevelt's New Deal in the 1930s. But the New Deal was not a success: the recession was deep and lasted 10 years. It was the tooling up for World War II that ended the Great Depression, and the return of growth in the private sector. The New Deal actually made things worse because it delayed the recovery in the private sector. Similar policies were followed under national socialism in Germany: the building of autobahns, canals, dams, railways, airports, organic farming around the cities. Money was also pumped into the car industry.

Of course, there were infrastructure projects carried out at this time, no doubt many of them a good thing, including the Hoover Dam and the Tennessee Valley water project in the US. But they had little effect on reflating the economy in any immediate sense or even over a period of 10 years. The reason for this is that of funds committed to any project, only about 10 per cent is spent in the early years of planning and engineering. Moreover, most of what is spent goes on materials and land rather than on the payroll. From about year three of any project, at best 35 per cent of spending will feed into the economy in the form of wages and salaries. So capital projects take a long time to get up and running, and their economic impact is less than 35 per cent of total spending. By the time a large project is completed, the recovery in the economy should already be well under way. That is, if there is a recovery.

The most worrying thing about Keynesianism is that governments raise the money they spend from borrowing, issuing new bonds and, eventually, printing money. Printing money is a sure-fire recipe for inflation: real inflation, not the modest 3per cent of 2008 that was occasioned simply by movements in prices and the cost of oil. Real inflation is where your currency loses value because there are too many notes in circulation. The National Socialists introduced Mefo bills for this very purpose. In the US, Roosevelt introduced Swopism, a kind of corporate economy, based on the idea of nation-building and national unity, where big business and government effectively undermined free market competition.

Solving one problem will likely cause another, in this present case the return of inflation from about 2012. To deal with this, monetary policy will again be tightened, and by about 2016 there will be another mild recession. The pattern of boom and bust will continue, made worse not better by central intervention.

Cutting taxes and interest rates is a more straightforward and more immediate policy mechanism in normal times. Of course, the banking collapse made the recession we were already heading into - thanks to the interest rate hikes of 2006-2008 - much worse. Now the problem is a lack of liquidity as banks refuse to lend to each other. The reason they are so reluctant is that no one knows where all the bad debt from the US sub-prime mortgage fiasco is. So while the various banking bailouts have bought time and prevented a sudden run on the banks, they have not solved the basic problem of bad debt. In my view, it is now time to let a few banks go under in order to flush out the poison. After all, giving taxpayers' money to the banks to sit tight and not lend to anyone is in no one's interest.

My proposal then is to cut the government bank deposit guarantee to a sensible level - say $100,000 - and advise people to spread their savings among a number of accounts to that limit. At the same time, governments should freeze any loans they have made to the banks. The more money is moved around, the less control the banks will have and those that have the worst debts will fail.

Having thus cleaned out the stables, policy can then stimulate the private sector by a combination of low interest rates and tax cuts. Economic recovery will then follow, without the need for governments to hawk all our futures. This is because the fundamentals of economic life are still strong: new markets, new technologies, new demographics, new centres of wealth and new consumers. This is not rocket science. Capitalism will recover, but only when governments get out of the way and stop spreading doom and panic. I just hope Obama gets it before it is too late.

[Dinosaur]

Joseph27 - have you considered being a politician? I will vote for you.

BTW your mood needs changing - tis year o' the ox now

[Morrolan]

This is the exact opposite to the economic policy being followed in the US by Barack Obama, Nancy Pelosi and the Democrats, by Gordon Brown in Britain, and by Kevin Rudd here in Australia. Instead of sound money, the policy is one of throwing good money after bad.

the author seems to forget that the policy n the US was initiated by the Republicans and that the Democrats have little choice but to continue as stopping halfway (i.e. only the banks have their 700 billion), IMO, is worse than continuing.

Similar policies were followed under national socialism in Germany: the building of autobahns, canals, dams, railways, airports, organic farming around the cities. Money was also pumped into the car industry.

yet, it worked in Germany...

he also neglects to mention the Marshall Plan after WW2 that successfully helped the shattered European economies recover.

Cutting taxes and interest rates is a more straightforward and more immediate policy mechanism in normal times.

yes, we saw how 'successful' that was in Japan...

My proposal then is to cut the government bank deposit guarantee to a sensible level - say $100,000 - and advise people to spread their savings among a number of accounts to that limit. At the same time, governments should freeze any loans they have made to the banks. The more money is moved around, the less control the banks will have and those that have the worst debts will fail.

this paragraph doesn't make sense.

Having thus cleaned out the stables, policy can then stimulate the private sector by a combination of low interest rates and tax cuts. Economic recovery will then follow, without the need for governments to hawk all our futures. This is because the fundamentals of economic life are still strong: new markets, new technologies, new demographics, new centres of wealth and new consumers. This is not rocket science. Capitalism will recover, but only when governments get out of the way and stop spreading doom and panic. I just hope Obama gets it before it is too late.

overly simplistic.

[baloo]

What are people's thoughts on the SGD ? It's Singapore's only effective means of combatting inflation etc so does anyone think we'll see the government let it slowly drift down to the $1.84 to the USD levels we saw a few years ago ?

[Morrolan]

What are people's thoughts on the SGD ? It's Singapore's only effective means of combatting inflation etc so does anyone think we'll see the government let it slowly drift down to the $1.84 to the USD levels we saw a few years ago ?

i think with the current recession, the latent risk of inflation is the last thing on Singapore's mind... it is however, the only tool they have to try and improve exports and revive the economy given that the interest already is very low.
since as a tool, exchange rate manipulation is rather blunt, and Sing doesn't have many options it may remain in recession longer than most.

according to ANZ research:

We expect the MAS to announce a re-centring and
widening of its S$NEER policy band, allowing greater
flexibility in the exchange rate. Our model suggests that
this may have already taken place on a de-facto basis. No
change in the slope of the band (currently zero percent) is
anticipated unless the global recession becomes deep and
protracted—something we will not have a handle on until
the middle of next year. Notably, the MAS maintained a
zero percent appreciation path in its policy band during
the downturn in 2001, when GDP contracted by 2.2%.

Maintaining a “zero” slope in the policy band does not
preclude large movements in USD-SGD. USD-SGD has
already travelled 14% (between July and November), of
which 8% occurred while the MAS officially maintained a
tightening bias.

Timing the announcement of the policy shift will be tricky,
as a widening of the band will add to selling pressure in
the SGD. As such, authorities will probably want to recentre
at the strongest level possible. In short, be wary
around USD-SGD dips.

[Joseph27]

First and foremost I didnt write the above - its from todays Australian newspaper. I was interested to get Morrolan's reply so thanks

I agree that it is over simplistic - the language is that a politician used to carve out the public opinion desired by the politican. The militarisation of Germany during the 1930's, the reconstruction of europe, the militarisation of the US after 1941 to now, not to mention the countless other examples all had positive effects - nonetheless I don't feel entirely confident by Obama's spending spree. Another trillion dollars is deepening the hole - there has to be alternatives surely

[Morrolan]

a recent economic report on Asia from ANZ who have an excellent economic research dept.

[Morrolan]

nonetheless I don't feel entirely confident by Obama's spending spree. Another trillion dollars is deepening the hole - there has to be alternatives surely

no argument there, thing is no one has found the alternatives yet, nor do they seem to want to take the time to find them...

[Bob the Builder]

a recent economic report on Asia from ANZ who have an excellent economic research dept.

Interesting read. That was considerably more "positive" than I expected it to be.

[Fat Bob]

I heard the builders couldn't get jobs anymore. Shouldn't you re-name yourself Bob Dole?

[Bob the Builder]

I've just moved back to Poland

[Kooky]

I heard the builders couldn't get jobs anymore.

You jest...

A new friend of mine and her family moved to Sydney the week before Christmas, relocated from Dubai with her husband's construction company, and at the weekend they retrenched him. (They haven't even got their shipping.)

The expat boards are full of construction workers trying to get out of Dubai before they're pushed. Rumour has it the airport carpark is full of abandoned lease cars.

[Morrolan]

i was in Dubai last week and it was pretty dismal. hotels and restaurants empty, but for the odd Russian here and there. understand Dubai's financial position is rather bad as well.

[avatarless]

Ugh. What is Geithner thinking? At least Madoff ran a LEGITIMATE ponzi scheme.

[baloo]

BDI jumps in record rise
--------------------------------------------------------------------------------
Thursday, 5 February 2009
Kristie Batten

IN A signal that the iron ore market may be recovering, the Baltic Dry Index has risen the most since its introduction in 1985.

The BDI is a measure of the price of moving raw materials by sea and is issued daily by the London-based Baltic Exchange.

The index has fluctuated wildly over the past year, plunging from 11,793 points in May 2008 to 663 points in December, as the world economy slowed.

According to Bloomberg, the BDI jumped 15% to 1316 points yesterday in its best start to the year since 1986 and the number of idled capesize vessels dropped to near zero, signalling a recovery in the iron ore market.

Capesize rates hit a record low of $US2316 a day in early December and have since increased to $21,810 per day, the highest since October.

Panamax rates jumped 14% to $8005 per day.

BHP Billiton chief executive officer Marius Kloppers told reporters yesterday the iron ore spot price had jumped back up to near benchmark levels, indicating that steelmakers may be replenishing stocks.

“BHP believes that the de-stocking in iron ore is practically complete, which we would support because we have access to some data which comes out of Beijing that has been telling us now for some months that the demand for spot iron ore is increasing and the spot prices have actually increased dramatically over the last couple of months,” DJ Carmichael head of research Paul Adams told MiningNews.net.

“That would seem to indicate to us the fact that BHP is right in that assumption that de-stocking probably is more or less complete.”

Morrolan Rogers, what say you ? An anomoly or are we seeing commodities coming back ?

[Morrolan]

commodities have never been away, they've just corrected. i think i posted a while ago about the opportunities in shipping and they are there, however not just yet. the increase in the BFI is relative especially when you have a look at the chart (the increase hardly registers).

this move is to be expected after a exaggerated correction like we had recently, but it's too early to say whether it's a dead cat bounce or the start of a more fundamental move up to more realistic levels.

there's a lot of newbuilds up for delivery this year(especially Capesize), that are hanging over a saturated market, so a bit more pain before we see a real improvement for shipping rates.

hard commodities will see good growth in volume as China's stimulation package gets going probably in the beginning of the second half of the year, but prices of for instance iron ore from Australia will be a lot lower as the Chinese will be getting back at greedy Australian mining companies.

i don't think oil's going to be doing a lot of firming, though. i'm guessing we'll stay well below $75/barrel this year.

[azzam]

Don't let Baloo slap me please. I'm not being snide, honest.
I would really like to know what these mean:

a. "there's a lot of newbuilds up for delivery this year(especially Capesize), that are hanging over a saturated market"
b. What is a "dead cat bounce"? Meaning it comes back down again?

Also, my friend in the oil industry says oil will be back over $100 by next year. Because supply will be capped, so prices will go back up again. Be interesting to see if he's right.

[baloo]

a) I could be wrong but I think M was saying a lot of new tankers have been built and will be delivered this year which will further weaken the shipping industry. I took Capesize to mean a certain size of tanker.

b) A dead cat bounce is a figurative term used by traders in the finance industry to describe a pattern wherein a spectacular decline in the price of a stock is immediately followed by a moderate and temporary rise before resuming its downward movement, with the connotation that the rise was not an indication of improving circumstances in the fundamentals of the stock. It is derived from the notion that "even a dead cat will bounce if it falls from a great height". * Source Wikipedia

[Morrolan]

a) I could be wrong but I think M was saying a lot of new tankers have been built and will be delivered this year which will further weaken the shipping industry. I took Capesize to mean a certain size of tanker.

b) A dead cat bounce is a figurative term used by traders in the finance industry to describe a pattern wherein a spectacular decline in the price of a stock is immediately followed by a moderate and temporary rise before resuming its downward movement, with the connotation that the rise was not an indication of improving circumstances in the fundamentals of the stock. It is derived from the notion that "even a dead cat will bounce if it falls from a great height". * Source Wikipedia

exactly... except for Capesize: it's a type of bulk carrier. it's the size mainly used to carry the big shipments of ore and coal.

[BoD]

so it's not a comment on its ability to stay upright in rough seas?