Thursday, July 30, 2009

I so hate this.....

UK regulator summons oil market players. FT article!

The UK regulator (FSA- Financial Services Authority) has consistently maintained that the surge in oil prices to record levels close to $150 a barrel last year was due to fundamental supply and demand factors and not to speculative flows.
It pains me to even listen to this be broken down into a dog and pony show.

Why would we listen to the FSA, the financial services watchdog--the watchdog that allowed the collapse in the first place with respect to the credit crunch and the economic meltdown spurred by Wall St. and London City-- to tell us that they don't feel that there is a problem with the speculation causing all of the fluctuations in the oil market?

What do you expect them to say? Say that they were not doing a good enough job?

Listen, the fear of the economic fundamentals collapsing from political and commercial intangibles, which spurred speculators to spot the price of oil on those broad assumptions.

Don't tell me either than speculation had nothing to do with it at all. Yes, I do agree, fundamentals played a role but a bit role. But, economic fundamentals did not and do not set the price. The speculators do in the futures market.

They price according to WHAT THEY FEEL is the right price. And, they further price on the premise of what production would be in the future and to how much people would be willing to pay.

Quit all of the God dammned lies.

Wednesday, July 29, 2009

I need pictures!

I was just added by a guy called Scott, who has a blog about politics...
POLITICS: By Scott/... and I noticed he had a picture up with every blog.

I need an upgrade with the colour as well. The colour is a little too dark. That and pics, should have folks reading.

The content is good. But, presentation, can go allot further.

Sunday, July 26, 2009

Ease the tension!

How do you put toothpaste back into its tube? Ask Chairman of the United States Federal Reserve, Ben Bernanke. He has a plan to tame inflation, after the U.S. banking system and the economy, on the whole, received massive dollops of capital heaped onto it. Good luck, Uncle Ben!

But, what tools does he have, truly, if any, to tame inflation in the short term and long term? In order to answer that question, we don't have to look back at the beginning of the credit crisis, but only at the response and its intended impact.

The first and foremost thing should be to undo what you did, if there really is a huge concern. But, things have changed since the state intervention. Least of which, is that a few banks and credit institutions, went out of business. Also, more importantly, producers and businesses also have scaled back production or have gone out of business as well. In addition, no one is quite sure-- well some of us are sure-- which way the U.S. stimulus package would create a bubble, or if whether or not international markets, for particularly oil and gold, would create a situation where trying to tamp inflation would be ineffective, coupled with the idea that it may, at this time, do more damage to growth.

Forget about your inflation target range and, perhaps, put on your output gap caps! The U.S is in for the third phase of this crisis. The first being the actual credit squeeze, the other in combating deflationary pressure and the other, now, managing inflationary expectations.

Due to the reality of 2008, with regard to blocked credit markets, the Federal Reserve, with the acceptance of the U.S. Treasury under both president's Bush and Obama, implemented two plans: The Target Asset Relief Program (TARP) and a strategic monetary tool, Quantitative Easing (QE).

TARP was supposed to, by all intents and purposes, inject credit back into the market, through the Fed. purchasing troubled assets that, under then present circumstances, could not have been sold. In addition, this was also supposed to induce banks to lend to businesses and home owners again, once the risk of writing down or the loss of those troubled assets, mostly home securities and collateralised debt obligations (CDO's), were removed from balance sheets.

The critical issue of contention are the warrants- stock options- the US government took in companies that sold their troubled assets to the government. These warrants are essentially equity the US government bought into banks in exchange for expunging the current market value of the troubled asset from the bank sheets.

The premise for this policy, with regard to spurring banking activity while creating stability and security within the market, with the aid of a sub-program, the public private investment program (P-PIP), was for the government to be able to make a profit on these assets, when the market gets back to normal as well as for the private investors, who participated in the program.

Herein lay the major issue. Banks don't want to buy back those troubled assets, or, in other terms, recoup their warrants from the Fed.. They are more than willing to allow the government to own these assets, and resume banking activity under a new slate- even though the US government, in essence of those warrants, owns stakes in those companies. So, the Fed is stuck with these assets for a time, which it will have to sell at below what ever the future the market value is, even though they should make a profit with all things considered, but at the same time rewarding the banks that failed by absolving their losses.

This may be a good thing. For one, the US government does not have to inject as much credit, at a time that is of their choosing if they wish to do so, and over-inflate the US economy. The second issue is that, through this mechanism, the government can control the price of those assets and ease them back into the market, while still making a considerable profit for the tax payers, for it to go back into useful public projects. The only concern is if traditional investors hold out for a lower than fair market price for the assets and create a bottom market, only to over-heat on the real market when the government winds up TARP.

The second policy response, as said, has been with QE.

QE, quite simply, allows central banks to increase the amount of credit into an economy, by purchasing government bonds in the open markets, and in effect, increasing liquidity to private banks.

The U.S. Fed, in this case, created money to purchase these government securities held by private banks, in order to free up credit markets after traditional policy responses, interest rate cuts, were proven ineffective.

Princeton University Professor, Paul Krugman, suggests that the U.S. is in a liquidity trap of sorts, where it does not matter if whether or not QE or the interest rate remain at or cut below 0%. His premise rests on the then obvious fact that the rate cuts didn't work and, hence, QE was made an additional tool. But, while that may be true and while confidence has crept back into the markets, the issue now; is if whether or not it worked too well for the private sector?

I say this, under the premise that the Fed. bought these government bonds at a time when the market was looking for credit, and the Fed. bought their securities at a nearly rock bottom market price and interest rate. The plan would be to, now, implement a reverse repurchase agreement with the banks that sold government bonds to the Fed., which may or may not be bought back by banks at a relatively high rate. Leaving the Fed. with assets on its own balance sheet, which it may find difficult to sell at a higher price, which would absolutely sop credit out of the market if welcomed by the banks, while at the same time, leaving banks with the capital the Fed. injected, with no guarantee, unless we were to have lending restrictions through the U.S. Treasury- which may be counter-productive to the recovery effort- in order to stave off inflation.

The good and bad thing about the amount of liquidity through QE, is that the U.S. dollar is weak compared to other currencies. This may encourage, seeing that the worst is over, international investors to buy the dollar in hopes of making an appreciable profit. This would mean dollars would exit the U.S. market, to, let's say, China.

While no plan is fool proof and having no plan at all, can, in some cases, be better than a bad plan. Any plan for inflation however, should take into consideration some of the things that have been done to increase inflation as aforementioned in this article. Don't assume that the interventions are 180 degree undoable either.

Thursday, July 23, 2009

What type of Economic system does the Bahamas have?

I normally don't comment on Bahamian concerns as a matter for focus, or, for that matter, want to convey the idea that I'm a dues ex-machina of sorts, drifting down from the rafters with solutions to any of today’s problems. However, my bias to my country has gotten the better of me on this lap. While it will be from an external and totally unprejudiced concept, the issues can be related to that of the system we have today and I must ask the reader, to allow me to find the range, so to speak, to deliver a message that isn’t path breaking by any means, but needs to be reiterated in any event.

What type of economic system does the Bahamas have? To quote a statement made recently about the Bahamian society in general; we have a "buck-up" society [economic system]. To attempt to put it more diplomatically, we have an open economic system, which is not entirely economically focused on efficiency. While that sounds laissez faire at its utmost, the idea that we have more law than we need is also relevant.

For the benefit of the general public, there are several systems and many different ideologies that back that system up with intellectual arguments. The most popular of these are either or, two main types- the market economic system and the command system. The former is a system based on supply and demand and the latter, is, quite directly, a communist style system where the government has control over production.

To be fair, no single economy is or was either of the extreme. For example, many developed countries have a system where the supply and demand for, let's say, energy, is set by obvious supply and demand forces. You need energy, so you have to buy oil or oil bi-products, at least. So, an economy supplies the public with oil for energy to consume. But, with regard to the capital market structure and those ever pesky derivatives placed on commodities, the price may not be set by simple supply and demand. But, placed on whether or not the price of a good may be more or less expensive in the future. So, you are paying for the future price, which may not be set by the current demand for oil.

That is not supply and demand in the purest sense. But, this is the price of the supply being commanded by what forecasters think a good is worth in the future.

On the other hand, the former Soviet Union was a command economy in almost the strictest sense. But, the misconception of the former SU was that the government controlled, wholly and solely, the means of production. This wasn’t quite the case before Perestroika in the 1980's and certainly not after. The truth lay in the fact that the former Soviet Union, had government control, but the means of production was set between powerful oligarchs that controlled the means of production on behalf of the state. The government, in turn, had the power to- as does every country through the strictest form of eminent domain- "own" the entity, but not in control of the forces that made the goods produced valuable or needed. I guess you can imagine the corruption at the highest level.

The logic of the matter however, is that a state or entity, can only, or, will only, be able to produce the goods that people need or want. Aside from necessities like food and water, if the entity owns the means of production, there is no guarantee, unless the consumer is forced to pay for something unwanted, that anyone at anytime would purchase anything.

This leaves the case open for the second misconception about the SU; the issue that it did not have any competing industries in the same sector. The fact of the matter is, particularly with oil and gas, the SU had several competing government agencies responsible for the market share. The notion that, yes, the government owned the entities was true. However, the same entities were not operating without competition.

With both extremes, market economies and command economies, the Bahamas lies in between neither. For example, we have wholly owned state entities. They are not subject to competition, which is true. The state does not own everything, however.

The Bahamas, from all verbal intent and crude attempt, seems to be patterned after the Anglo-Saxon (AS) economic model. This is a model which proposes the capitalist version of the market economic system, which is then tethered by the Westminster System of governance from the position of parliamentary democracy from the fasciations of ethnic sameness and religion.

This is evident in the predominance of the religious cultural state of being in the Bahamas, with the back drop of US and British influence, the latter having least of which, the political system and the former, with the premium placed on the USA's free market, capitalist ideology.

This isn't to say that this is the best for the Bahamas. Or, for that matter, that we have the capacity to follow this fluid economic model to a tee. In fact, many have supported the idea of drastic measures- most important of which is the defenestration of the AS model and all institutions that subscribe to it. However, the argument that it speaks directly to our cultural experience, from premise that it relates to the origin on our Commonwealth's existence and that of its indigenous people, is something that is obviously incongruent to what the experience is on the ground.

One large fact is that the common law protection for property rights, which underpins the AS model, when we are now in the era of increasing formality of a purposefully pervasive opaque legal structure, on top of the issue that less and less Bahamians have access to real property due to sky-rocketing prices triple to what they were 20 years ago under this current ideological system--in addition to the exposure to what the complexities of intellectual property-which global economy has placed a significant premium- means to Bahamian entrepreneurial ideas and the weak institutional protection for those ideas, signifies to this author, as I assume that it does for allot of Bahamian people, that this system is way beyond inefficient. In fact, it is, perhaps, regressive and at worst, oppressive.

One important point I wish to impart in the idea of fairness, is that the AS model is fluid. But, it has not been maximized by former colonies. For what ever reason, changes still rests on the progenitor and their acknowledgement of what changes former colonies wish to work within that geographical framework. From this aspect, the salience of what is deemed as important macro-economic principles are very strong.

The AS model isn't the only working game or variant in town. While my preference for a Coordinated Market Economy (CME) style is up for another discussion, the extent to which reality of economic adjustment will be continuous, planned or not, whether it is led by a new social order, a new political pecking order or the new economic order, itself, is not.

Tuesday, July 21, 2009

Japan goes back to the people!

Elections, if we want to call them that, are on in Japan. Taro Aso, the beleaguered Japanese prime minister, is behind in the polls. Rumour has it that he, nearly, but not all as yet, would have resigned from the post in any event. The talk of the town is that the democrats, as rag tag as they are with a no name leader, will win....great God!

I wonder what has happened to the Japanese government? This is the most instability, per say, their country has had since the end of the world war. Considering the fact that of the last 40+ years, the liberals were the majority party. So what gives?

The wind of change, perhaps. In any event, I will be watching very closely. Does not help that the Japanese economy has been in flux for the last 2 years. A bit of good news about exports last month, but nothing to really write home about.

Thursday, July 16, 2009

Goldman and JP Morgan raked in the dough!

Did it surprise anyone? Surprise anyone that Goldman Sachs and JP Morgan, heaped in massive profits in their last quarter?

I don't have the figures to quote directly- to lazy to go an google the exact amount- but it is in the record books and the bank sheets and the pockets of a lucky few.

Eff you, Washington, we can make our own money thank you very much.

To be fair, there are reasons to why they were able to make their own money.

For one, Goldman Sachs, at least, did not follow the same management and investment style Lehman Bros and Bear Stearn's did. In fact, they ran a very conservative balance sheet, of mixed assets that were able to offset themselves from the subprime mortgage meltdown.

JP, to some extent, played it safe and took affirmative action to make sure its bank sheets were clean. Perhaps JP was a survivor by accident? When every one else was hogging in on the subprime CDS trades, they were the ones left out of the business.

The second reason, is that they are two of the very few houses that are still in fully functioning operation, without government bailout money. For the mere fact that they were able to stand on their own and take government funds as a matter of dictate from DC, over that of them having to, allowed their reputation to be saved and do business the way it is supposed to.

Goldman and JP consolidated and took the pickings from the carcases of bank houses that hit the floor, like Lehman, took the best parts, and cut the staff of those who they didn't need. They had their pick of the litter as to which banks and businesses they would buy and allow to consolidate.

Goldman, also, at least, has high ranking friends in DC, who could have foretold the eminent danger ahead and send signals to their house, that this is what you need to do to stay in business. Joe Louis didn't get the memo when he bought Bear Stearn's, but the staff at Goldman- with their ex-chief Hank Paulson as Treasury and immediate past Secretary- did.

Jamie Dimon at JP Morgan, is just a smart and crafty dude and messaged his bank's position, very carefully. Kudoes to him.

I love a good story. We can hopefully start the next week better. So much for stimulus.

Sunday, July 12, 2009

American Stimulus 2: The return of the left!

I guess the news has hit mainstream that the recent American stimulus plan, The American Recovery and Reinvestment Act of 2009 (TARRA), didn't exactly stimulate the American economy the way it was billed it. Sensible economists knew it was not targeted enough to small business and the traditional economy. Conservative fiscal hawks knew it spent too much- over $800 billion of 40% tax cuts and 60% cold hard cash- to begin cutting the budget deficit. And, political scientists and politicians, alike, knew it was the pay off pitch to traditional democratic and left leaning party supporters of the Obama campaign. But, why did it pass in the first place and why is there talk of another stimulus by the end of this year or early next year?

Let's remember some of the facts. For all intents and purposes, this is the third- yes third- American stimulus plan, if we count the TARP, 2008 (Troubled Asset Relief Program) that was supposed to save the American economy, by bolstering and bailing out the financial system, with the financial system, being the "plumbing" for the American economic engine. However, this program didn't encourage financial institutions to lend the money it had or the newly injected funds it received from the American government, as it was envisioned.

There was a bit of politics being played by the large financials, as well as there were legitimate economic reasons to why they were reluctant to lend- even though firms like Goldman Sachs and JP Morgan had pretty stable and profitable companies during this economic crisis. More importantly, the job losses further fueled the fear for investors of a profitable investment climate for the USA in the short term, coupled with job losses being tied to the housing market and how that affected the wider economy.

To the extent that TARRA, 2009 actually supported the traditional sector as well as acted as a psychological support mechanism to the TARP, 2008, was something that was overshadowed by the overwhelming urge for lawmakers to do something, which, in itself, eased the burden of the economic crisis and gave the market confidence that the worst was possibly over.

However, the recent job losses in the USA- 467,000 jobs in June and the unemployment rate ticked up another tenth of a percentage point to a 26-year high of 9.5 percent- shows that there is more economic pains to bear.

What was wrong with TARRA, 2009 was that it was heterotactic as it related to core and related inputs that are proven drivers of direct and rapid economic growth. For example, TARRA 2009’s focus on education, increased state funding and agriculture and to a smaller extent, transportation, which could have been understood as construction related and could have aided traditional economic forces, but certainly all are not components for growth through stimulating investment and consumer spending.

Also, stimulus funds were geared towards industries that were not yet tested and proven to be viable engines of economic growth, like green technology and even worse, subsidies to state legislatures for pet projects that have nothing to do with creating employment or spurring investment for Small and Medium Enterprises (SME's). In the USA, SME's employ over 80% of the total work force.

When President Obama said he represented change, he meant change. Even at the direct and immediate cost of the traditional American economic engine, at the core, barring the financial services sector. I guess you could not possibly attempt to implement change, if you invested stimulus funds and energy into the things of old. (Why should we have thought that the party of big government could have possibly done any better by the private sector and for the wider economy?) I digress.

More importantly though, over 30% of the funds allocated in the stimulus were given directly to the states in the union, and legislators have, in turn, padded their local budgets as they too are facing difficult times with regard to the economic downturn and the loss of state revenue due to it.

Enter from the left, Vice President Biden, Speaker of the US Congress Nancy Pelosi and her whip, Steny Hoyer, with the idea of an American Stimulus 2.

How exactly will TARRA 2 be formatted is up for debate. In fact, there were talks that TARRA 1, could have been expanded and would have possibly be ballooned to $ 1.5 trillion along with the mention that if that wasn't possible, TARRA 2, could have been in the pipeline allot sooner. Whatever the semantics are, there is a need to do more for the American economy and TARRA 2 must come.

If TARRA 2 is to be, it should be directed toward SME’s, if it is to jump start the job market. Private sector employment should be the key focus and assistance should be in the form of tax credits and employment subsidies, in the short term. For the long term, however, issues like expanding partially state funded health insurance and allowing for regulations to fasciate and create synergies within inter and intra-industries, with special regard to expanding property rights through fully liberalised patent legislation and improved clustering.

Secondly, TARRA 2 should have incentives for financials to back and issue direct consumer and credit card loans, as well as finding room for an amnesty or facilitated amortisation of credit card debt. While the downside is that this would, possibly, fuel another bubble, I must remind the reader that the bubble that caused this crisis was the packaging of these toxic assets and specialised derivatives products built on those bad loans and not the extension of those bad loans themselves. While a high amount of default is unacceptable, if tighter lending rules are applied on top of sensible derivatives regulations, the bubble that burst from this aspect can be minimized if, at all, voided.

Whatever the case may be, certainly, American stimulus packages have not seen their end.

Friday, July 10, 2009

Happy 36th Independence Bahamas!

It's been 36 years since we were made independent from Great Britain, my country of birth the Bahamas has. It is not all rosy, but it ain't all bad either. No more Queen, but we have a young democracy that has critical flaws. One being which we can't seem to find a way to allow for strong debate, without it being deadlocked or forced down the throats of everyone and sundry or on the other end, the plaintiff ending up in tremendous social difficulty. The second is that we have not found a way to provide for equity for a greater majority, to which Bahamians can find ownership and control the flows of this country.

My feeling is that since Independence, we have not had any major changes from the status quo in the Bahamas since the early 80's. Nothing else is new with regard to economic reform or political reform, for any Bahamian to feel sound in mind to stand on his or her own feet and say what's best moving forward without being racked over the coals, first.

I would not trade my country of birth for anything, except for the USA, or being born as royalty in some Nordic country, however. Other than that, I like the Bahamas compared to any other country quite fine.

Happy Independence Bahamas!


Update from The Han province.

Apparently, this latest disruption in the Han province, all resulted from a fight that exposed all of the tensions in that area.

Reports have it that there is a long standing issue with ethnic tension in the Han province, with the minorities easily infuriated.

Just for the record, there are all 55 minorities in China and it's about 46 mirorities living in the Han province, with the Uighurs being one of them. There are almost 80 dialects in China and they all speak their own dialect in their particular provinces, but they will speak Mandarin when speaking to others.

What a conincidence that the Uighurs the US government let go to Bermuda, are from the same place that is having the tensions in the Han province in China.

Wednesday, July 8, 2009

Pictures from the rioting in China...

A fellow blogger in China gave ear to my request for photos and information on the rioting in China.

I have a few pictures to put up of what's been taking place. I am awaiting some details from my friend on what the dynamics of the issues are. But, preliminarily, it is ethnic in the Han region and with other minorities.

What was the purpose for the flare--land dispute, victimisation or corruption, is yet to be determined by me. However, I will continue to reach out to get the story!

Tuesday, July 7, 2009

More calls for commodities futures trading regulations!

At some point you are going to have to do something about commodities trading. Not just talk.

The FT reports that Gary Gensler, chairman of the US Commodity Futures Trading Commission,the US futures regulator, said on Tuesday the agency would hold hearings to determine whether federal speculative limits should be set on “all commodities of finite supply,” in particular oil, natural gas and energy commodities.

This may be a little harsh, but we need to go hard the other way in order to see our way around making it better for everyone.

However, we have had commentary that these measures would do nothing to curb the high price of oil. The problem has always been OPEC. They cut supply when they want to and have done so in the last few months, in order to raise the price of oil.

I think we need to deal with both of them in a way that shuts them down. Let's face it, no one will be upset if we clamp oil producing countries. In fact, we can really put them into the international sphere and further put pressure on them like how we have done with Iran and now, we have put a regime in place in Iraq that is stable--regardless if the war was necessary or not, removing Saddam Hussein did work out to a more stable government in Iraq.

As with commodities trading, I wrote an article earlier about what we need to do to look at the issue. Here.

Hopefully my recommendations would hit the main stream blog matrix and be seen by someone who reads into these things. And, magically, end up as a talking point. In fact, my first point and last point, adds up to what the main point about trade limits and transparency at the end of the FT article.

We can only hope that there will be more.....

Monday, July 6, 2009

Measuring Aid for Trade....

Is it doable? The WTO has gone through a review of their Aid for Trade programme for developing and least developing countries. They reported several key areas, as well as the success in Asia between Cambodia, China, Lao People’s Democratic Republic, Myanmar, Thailand and Viet Nam with regard to the programme and how it has facilitated trade.

Robert Zoelick, World Bank President, has also noted key successes in Africa, in particular in Mali and their mango producers.

Most notable there were no statistics to back up the claims of success stories. I guess this is the dilemma when we begin to track economic success to policy.

But, what ever facilitates greater trade, can't be bad....

WTO Aid for Trade Report