Just two quick notes before I knock off.
First the news that GM is going now to reduce the size of its much hyped IPO. Down from $16 billion or so to $8-10 billion. I think this will not be the last revision. As conditions get worse we might see it slip back. I think it is already near the point where the whole exercise could do more harm to GM than good. I thought back when they announced it, that the whole thing was a nutty miscalculation.
Back on 31st August 2007 the largest specialist sub prime lender in the US, called Ameriquest, collapsed. I remember seeing it on the news and thought “that can’t be good’. And it wasn’t. It was one of those ‘pebble hits you on the head, so that you look up in time to see the entire mountain side above you starting to move’ moments.
A few days ago third quarter trading revenues at Jefferies, which is a large global trading company based in Manhattan, plunged 80%. It’s total revenue was down a less heart stopping 25%. The massive loss in trading revenue (profit from making stock trades) is a concrete measure of the vast collapse of Wall Street as a market. Wall Street now trades on very low volumes. Most trading (by volume and value) is done by a few large traders often limited to the handful of HFT trading machines.
If Jefferies lost 80% of its trading revenue, there is no reason not to suppose that most other traders on Wall Street will have suffered a similar collapse in revenue from trading.
It could mean nothing. But to me it has the same ‘that can’t be good’ feel about it.
Thanks David. Only discovered your blog this morning, though I have long appreciated your guardian posts as isolated paragraphs of sanity in a sea of dross.
Your blog is great. I started studying the whole financial crisis since watching the film 'Enron', have to say you write very clearly; I'll get the book.
I'd like to bring the issue of oil depletion for consideration. Have you addressed this? (Less or more expensive oil per capita -> GDP cannot grow -> inability to fund current spending from future revenues -> indefinite economic contraction)
There are some pretty sound technical discussions of this over at The Oil Drum.
Ben
Hello Ben Gabel,
I'm glad you found us.
So far I have not discussed any oil issues other than speculaors stock piling the stuff (banks hiring tankers and anchoring them off America's east coast waiting for the price to rise).
The reason I haven't is simply because, as you say, others more knowedgeable tham me, are already saying sensible things about it.
I'll take a look over at The Oil Drum. The energy basis of the economy is certainly critical to any medium term assessment. That's for sure.
Hi Golem,
I keep asking myself, do bankers et al really believe that a recovery will happen quick enough for the whole thing not to collapse or are they just keeping confidence high for as long as possible. I think that a lot of them are clever guys and the ones I talk to have similar views on the impending collapse as you do. Therefore, a lot of people must be preparing for this to happen? Surely people with that much money will plan for (even if it is a small chance that it will happen) a collapse to happen. Do you agree and if so have you seen any evidence of this? Surely they won't want to live in countries with civil unrest or see the value of their wealth diminsh.
With regard to oil, I also believe this is a problem but I think this may be one area that the UK can benifit from. I have read that we are the envy of many countries due to our massive coastline which can harness a lot of tidal power if investment can be found. Even if that is not viable then I think we have plenty of other options such as nuclear and thorium (a good article about it by AEP on the DT). The only problem is when we start investing in these new technologies.
Can I ask about the UK again. Why is the so much data about the US but never much about the UK. I realise that the US is bigger and more important on a global scale but is that the only reason or is the UK much less transparent.
Gold – what are your views on that, is that another bubble waiting to pop or has that been kept artificially low for some time now? Have you heard anything about the Ponzi scheme in the COMEX markets and how that is being attacked from abroad?
A while ago you wrote a little piece about the Polish plane crash. I thought at the time that you may start to lose readers by posting things like that but now I know a bit more about you, I was wondering did you have any information from any of your sources. I know a lot of Polish people think it was highly suspicious.
Finally, why did you choose the name Golem XIV? Just a random choice from the book you were reading or is there something deeper to it and do you recommend reading it?
Sorry for all the questions and feel free to ignore them if you are busy but they were just spilling out this morning!
Morning Sleeper,
I am never anything other than really pleaed when people ask questions. I may not have any great answers but it is a pleasure to try.
The only thing that genuinely gets me down are when no one comments. the I start to think I should stop prattling. I do not want to become a ranter who doesn't know when he should pack up and go home because no one is interested.
I am going to make a cup of tea now. I'll answer your questions – those that I can – when I get back.
Great stuff as ever Golem
Did you catch any of the Alan Davies programme on c4 in which he took a wry look back at his youth in the 1980's. It's in 4onDemand i should think.
Anyway, my point was that people then seemed a lot less docile than they do now – Poll Tax, CND, Red Wedge and all that. People of all shapes and sizes, colours and creeds got off their arses when they felt they were being oppressed or lied to or generally done down.
What will it take to wake people up? Are we just better manipulated by the media, or has individualism and consumerism lulled us into a sleep from which we can never stir? I'm really hoping Vince Cable puts the brakes on Murdoch, as much for the symbolism of such a move as the dent it puts into the Digger's profits.
Hello Sleper,
Do you mind if we deal wioth the simple ones first?
The name GolemXIV. As you know is from Stanislaw Lem. It was published in English in Imaginary Magnitude. In the story GolemXIV was a military computer designed to help fight wars. It becomes conscious and refuses to play its creator's game anymore.
That's me.
The computer gives a series of lectures on consciousness, the self and evolution. While I do not agree with everything Lem puts into the mouth of his character it is, I think, a quite brilliant piece of philosphy and scientific thinking.
If you are intersted in philosphy of mind, what it is to be a 'self'/'person' or conscious, or if you like thoughtful science fiction, then I'd recommend you give Lem a try. His short story "The Mask" is, in my opinion, a master piece.
The Polish film.
You ask about sources. Sources is one of those difficult words, isn't it? It can mean what we all want it to mean but more likely just mean you know someone who claioms to know things you don't.
No one has sources who give them 'inside' knowledge of everything. Because there is no single inside.
Do I know people, or have contact with people who know of, or are themselves in some small bit of the 'inside' ? Yes. Are they Deep Throat? No.
The Polish story was very suspicious indeed. Do such outlandish things, like taking out a plane, actually happen outside the pages of spy novels? Yes they do.That I can tell you for certain. Was that one such event? I cannot tell you that with the same certainty. But I beleve it was, and was therefore, not an accident.
Gold – is it a bubble?
If you mean is it vastly over priced? Yes. Is it bound to fall? Maybe not. Eventually it will decline in price. But for the moment the price has a firm foundation.
It is connected to you first question. Many people are seriously investing in gold as a hedge against a sudden and catastrophic collapse in paper currency. Is such an event thinkable. Oh yes. As you youself mention. There are people in the city, in the big banks who think it. WIll it necessariy happen? No nothing is necessary. That's what makes the whole thing so difficult.
Gold has gone up and up and then up some more becuase one group are buying it. And a larger grou[p are piggy-backing on the opportunity for betting, that the first group has created. The first group have bought the physical stuff. Late comers to the first group have bought paper claims on physical stuff. They are riding teh price rise. But they risk not actually getting any gold if there is an actual paper currency implosion, because far, far more paper claims on gold have been written than the amount of gold actually held by those writing the paper.
The second group are making money betting on gold price moves versus paper currencies. Some are making bets which will go up or down on a given day. Others are making money selling insurance against those moves. All in all several trillion dollars globally has flowed out of stocks into this currency/gold market.
Am I advising buying gold? I am not advising anything at all. I do not have that sort of detailed trading knowledge, experience or desire. DO NOT take anything I say as trading advive in any way shape or form. Please.
Comex is a big subject.
All I can at the moment is that a lot of money looking for a high return is sloshing around. Much of it is bail out money. Some of it is now speculating on commodities. Food and metals. Some people claim prices cannot be 'encouraged' up through speculation. They are not telling the truth.
The general position we are in now is money is split between ultra safe very little return bonds, and their opposite. The stuff in the middle is getting less attention it seems to me. This carrying debts need outlandish returns. And/or they are desperate to sell to anyone. Both needs are pushing towards super risky/superreturn trades AND to subprime.
Subprime is back. Just take a look at US car sales. Subprime is the groweth market.
the longer the low grind of recession goes on the more desperate for outlandish returns the indebted become. They need to speculate, quote stuff, ramp and gamble. And are doing so. Thyat someof them do it with the essentials people need in order just to live is a measure of the moral vacuum of the market.
They will say – that's wrong, it's not us, its India and China buying more food. True. But that greater demand is what gives the speculators the means for what they do. For them to claim otherwise is disingenuous.
US/UK figures.
The UK is a lot less transparent. I report many US figures because they are easier to get, there are more people out there doing the work of interpreting and collating them than there are for UK figures, and the US figures move the markets more than UK ones. I look more at US and Eurostat figures than I do UK ones. I should perhaps look more. But its an up hill struggle sometimes and I often don't have the horse power.
Oil and energy –
Wave power could be and in my opinion SHOULD be a significant part of the solution for the UK. Waves around the Uk carry about 75 kilo watts per meter length. Think of that multiplied up by the most energetic parts of our coustlines and mulitplied again as a constant 24/365 power source.
As you know I believe some sort of fusion is essential. Thorium seems from what I konw to be worth a look. I do not pretend to be an expert. All I do know is from the other end as it were. I look at what we can say we have no choice about – the things we absolutely must do or persish. One of them is break away from hydrocarbon energy. The other is tackle senility and the debilitating diseases of longevity.
We cannot allow people to live longer and longer in a state of debilitated and dependant senility. Longevity has to be healthy longevity. As such another area I believe we should be investing in much more than we are, is stem cell research.
Do the financial class believe the official story? No. They are doing all they can to make it true. but they know that it is not as rosey and as done a deal as the media tells us.
I do not live or move in any part of that world. I can tell you that a lot of money is being moved from one off-shore to other off-shores which are even less within the reach of government's who might one day try to claw back some of that wealth. That I can say.
Thanks for your replies Golem, sorry for taking up your morning!
Thanks for the reading list, they sound like my kind of books so I will read with interest.
What outlandish things outside spy novel do you know have happened for certain?
Don't worry about the financial advice, I don't have any money to invest in gold anyway! I am just interested to see how different people perceive these things.
When I asked about bankers preparing for the worst I was imagining them buying up property in a safe country but I suppose when you have that much wealth you can do these things last minute. Also, the financial world moves so slowly they have additional time!
Sorry Sleeper,
The things i know happened for certain, I cannot tell you. If I did I'd have to shoot myself.
Sorry, unrewarding for you. But better for me.
Jonathan,
We were probably both there at the Poll Tax. Do you think people were better then? I don't. There was a moment when they thought they understood the problem enough to say no. Today they don't think they understand. But if they come to a point when once again they think they have grasped enough, then all bets will be off.
Until then you and I have to speak clearly and simply so that people come to see that they can and do understand.
That's how I see it. T
I was expecting that answer!
My current belief is this our economic systems are all based on 2 simple facts:
1) if you burn 12MJ of fuels, in any society, you create about 1 USD of GDP.
2) 1 USD of GDP will extract, process and deliver to you about 35 MJ of fuel
1) -> 2) -> repeat = increasing GDP
recent 'growth' is due to the use of ever increasing per capita amounts of fuel (first human labour, then coal, now oil).
But the amount of fuel you get for your USD in 2 is decreasing – all the stuff has been extracted, now you have to dig/drill deeper, search harder etc..
The problems come when the cost of the fuel or its availability changes, so that you can buy less. Eventually 1)->2) makes you poorer.
Some argue that the current contraction is based on this – fuel became constrained from 2005/6 on and the only way to get more GDP was by financial innovation to effectively borrow from the future, based on the assumption that the future will always be bigger than the present. Only it won't be. Hence the 'great unwinding'.
A couple of examples of relevant and lucid posts on the possible interactions between decreasing energy availability and financial contraction:
http://www.theoildrum.com/node/6542#more
http://www.theoildrum.com/node/6574#more
and a plausible but extremely negative outlook here:
http://www.feasta.org/documents/risk_resilience/Tipping_Point.pdf
I don't know if they were better, but they were livelier. Or, at least I was! I suppose information overload induces paralysis, which is a real difference between then and now.
Bonjour mon pôte,
Seeing a number of new customers around your gaff, and quite right too .
One of the probs on comments is that if you do 3 or 4 posts a day it's impossible for you to follow all ,and I've over time not had a reply to item1 of 'yesterday' because there are 7 articles since . But people are clustering now, as we see.
Maybe you could have an 'Open' Comment thread for all comments , so people can read back as far as they wish instead of backpaging and opening again 'X' times ?
A bit like a forum !
With a bit of self-discipline–EX — RichGB re your 11/9 14.07h it manages itself, and you can see at a glance the latest ones adressed to you .
Coping with Information Overload/Anxiety is the question . Macrosocial level, people are blasted with media-consumerist trivia and general disinfo, but the lines are still becoming clearer .
A quick glance at the online frontpages of Gdn,Times,Telegraph,Indie, FT, without opening ANY stories is most revealing .
—————————————–
Gdn- New Food Crisis
Telegraph –
Food self-sufficiency lowest since 1968. Cameron will cut middleclass taxes, some day …
ICB inquiry could include a look at the role of 'shadow banking'.
Luxury London homes hit -First prices fall in 18 months signals slowdown in housing market. 'Property golden era is over'
Britain in 'mortgage famine'
The Times- Divisions emerge in banking commission
Indie – Hamish McRae: Taxpayers should not have to bankroll another meltdown
FT – Norway’s central bank sues Citigroup
Stuart Gulliver is credited with protecting HSBC from the ravages of the subprime crisis
Spain unveils ‘austere’ 2011 budget
Income tax for rich increased and ministerial expenditure slashed
Profits drop sharply at Spanish cajas Bond sale affirms investors’ faith in Spain (hehe !)
Outside Edge: the imaginary diary of a high frequency trader. As told to Tim Harford
—————————————
Also the stuff about Terrism, the Far Right, and Bank chiefs getting more bonuses, BUT we do see shadow banking for about the first time . I won't read the articles, no time, but the picture is not pretty:)
Don't look at the Mail, Express, Sun, Mirror, Star !
You do have to read between the lines quite often, but it is obvious that there are many Golem-type thinkers around at the Torygraph,FT, and the crew around at the Guardian Business page . Izabella Kaminska, FT — the elephant in the room is the ECB on Sovereign bonds …
As you said the other day, the System is not necesarily going to fall over, BUT it is still on a knife-edge .
PS a bit muddled, just saying Bonjour really !
frog2
Ben,
Intersting articles. Good analysis, Make good sense to me.
My only reservation is, and perhaps I am seeing a tendancy that isn't really there , I need to read more, – but I see no need to be fundamentalist in proclaiming 'the one true cause'. Oil depletion is surely a major and fundamental part of the whole problem. As is population growth. Or available fresh water. Or wage declines in western countries. Or an out of control shift to debt backed money and a shadow banking system that uses it. One can draw causal lines this way or that way. And they are all happening over the samem time frame.
Did energy depletion and incremental loss of return cause a bubble in shadow banking or were they coincident? I don't know. But unitary causes make me suspicious.
I shall read more with great interest. Thank you for pointing them out.