The Gothic Economist

Economic Strains from Covid 19

2020-05-04T20:18:00.002+02:00

Liquid is Key

We are over two months into the crisis in Europe. One thing this has pointed out to me, that I remember when I finished school in Ireland in 2009, at the height of the euro-zone crisis. I looked at a brand new petrol station having the pumps taken away, and over the street next to it, a boarded up coffee shop. It doesn't matter the situation, cash is king!

A financial crisis is like a heart attack. It hits the pump of the economy hard and the organs, as the blood stops pumping cannot support the body, as they do not have sufficient liquidity. The defibrillator is the central bank, which is the key to getting trust restored and applying the voltage funding to kick start the heart.

A depression on the other hand, is a much more difficult patient. Serious organ failure, complimented with underlying health conditions; a quadruple blowout. There is no clear solution to get this patient out of the coma. More important, is how the economy is sustained during coma and its slow recovery; as it is very easy for the large corporates to eat up their solvent but less liquid competitors.

There are right now, three tiers of balance sheet a business could be.

Solid cash generation on hand, few illiquid assets i.e. tech companies.
Easy access to capital markets, with a higher cost of financing due to the demand.
Cannot access credit and capital impairment probability is high. SMEs and capital-intensive industry.

The final pillar will be the major part of the life support. The ECB and Fed injected over $3 trillion between themselves, with bond buying. However, this is a macro move. Governments have taken their turn in supporting their central banks, but must step in quickly, consistently and effectively, to support the small domestic economy. Caution should be exercised carefully in the aid to large industry, as it could be throwing Semtex at itself or rattling the sabre of next door neighbours.

Germany is facing serious scrutiny of unfair advantage. As the EU relaxed its law on state aid due to Covid-19, the German ministry filed the largest proportion of state-aid claims to the EU, as it helps to prop up big industries, most notably the airline industry. Though, this has hit hard with less wealthy EU member states left to see their home industries put at a negative advantage.

Cheaper than Water

Being a producer of black gold in 2020 will be remembered as not the best time in the world, being the owner of an empty mine shaft on the other hand.... Oil traders have scoured the globe to find empty Scandinavian salt caves, to unused rail tankers to fill the glutted supply of unwanted crude.

In late April, Brent fell below zero from the mid-seventies in value of long-ago January, for the first time in history, causing an interesting phenomenon of a contango. As the spot price fell below zero, future prices overtook in value. Traders had the unique ability to buy and sell back deliveries on the futures market at a reasonable profit complimenting an additional surge in storage demand.

Cheap oil has the incentive of attracting a quicker rebound to the global economy. However, this comes with its downside when too low. OPEC is seen sometimes as a group of spoilt children, fighting over the lion’s share of production. But it plays an important stabilisation role of its members economies. Rural communities in Nigeria are highly dependant on the sale of oil as a source of income, as are most mid-African and middle eastern nations. However, with values not expected to go up anytime soon to break-even levels, civil unrest will be highly probable, even with OPEC cuts.

It would not be a far stretch to think additionally the oil crash was not intentional. It is well versed the Russian-Saudi annoyance towards the young shale and fracking industry in the US, which commands a higher break-even price and is not state supported, thus leaving room to quickly shock the unprotected industry, before slowing the pumps.

Closing remarks with a Gothic upswing

There will be a lot more debt in society, and a stronger desire of companies to look at resilience before efficiency, as a global supply chain can only be efficient if effective.

The rewiring of supply chains away from the inter-dependence of global health will be a major step, already in process. The epidemic in some ways may have triggered an inevitability, as US-China trade tensions from 2019 linger on and the crumbling of the EU collective continues its course.

It would not be a far reaching thought to see a pre Great Depression scenario, whereby the cost of goods and services increases, as well as barriers to entry for international trade, through taxes and tariffs for the protection of home industry. This will deeply stimulate cost push and demand pull inflation. Though, with the technological overview to monitor the economy and global cooperative approaches in the 21st century, it could create a balancing in the distribution of wealth to domestic economies, to the lower income earners. This would occur, as new employment is created locally and low skilled labour is required, leading to social policies winning greater favour in local government institutions, perhaps in the mid-term to incentivise the demand for labour.

Macroeconomic Pathogens

2020-03-09T22:41:00.002+01:00

As Andrew Bailey warms up to his new office as governor of the Bank of England, he has a weather pattern that doesn’t sit well. He must wield the hand of a strained monetary policy in an upcoming Brexit world, and look to his fellow BoE economists in the impact modelling of Covid-19 on the UK. He knows the effectiveness of his institution is being tested, and as the rain pours down on thread needle street, the Dow Jones Level - 1 circuit breaker is hit.

Level 1: A drop of 7% from the prior day's closing price of the S&P 500 triggers a 15-minute trading halt. Trading is not halted if the drop occurs at or after 3:25 p.m. ET.

Level 2: A drop of 13% triggers a 15-minute halt. Trading is not halted if the drop occurs at or after 3:25 p.m. ET.

Level 3: A drop of 20% triggers a halt for the rest of the trading day, and trading resumes the following day.

Viruses and the economy

A pandemic is an interesting economic scenario, because it really has an open rule book to how it behaves, depending on the origin. It typically hits supply first, instead of demand. No matter how high the want for Parmesan cheese may be. A closed factory with a quarantined workforce in Italy will not meet the consumer demand. Take this with the additional pressure from panic buying, and we have an inverse relationship occurring.

In December, in a small district in the city of Wuhan, China. A local food market formulated, under the correct conditions Covid-19 that became the kick-starter to the correction of the world economy and largest global pathogenic outbreak in the industrialised world. Covid-19 has taken advantage of our interdependent infrastructure and supply chain. Bringing the economic might of China to a halt, and has now spread beyond borders and across the globe. Now with halted production, the dynamic borrowing small & medium enterprises in China depend on are becoming the first economic casualties.

Troubled water for the fishes

March was always going to be a difficult month. Fragile OPEC talks took place whereby leading oil producing states turned hostile in talks. Already having to deal with an economic slowdown from the virus, led to a terrible disagreement on supply cuts in order to combat the decline in oil receipts. This combined with negative data ensuing from the previous week, made markets on the 9^th of March hit the circuit breakers on US indices.

What further impact will be felt, is still early days, however these corrections will turn the portfolio manager to dive deeper into their folder and see which institutions and corporations are weak on the cash side and are “zombies” to this economic stagnation.

Airlines usually are the first ones with blood in the water and will be an interesting case with the crippled airline manufacturing issues from Boeing. However, they are hit in two ways. A reduction in sales, though also a reduction in fuel costs as now Jet fuel futures turn cheap. Yet, sales will take precedent, in combination to employee costs from the Covid-19 impact. March is the main month that fills the balance sheet and with the high ratios of the industry of net debt to Ebitda, the sharks will be circling for the bite.

Passing of the Baton to Fiscal

The last ten years has seen the largest global injection of cash into financial markets, with central banks fighting the faults of a stalling global economy. Yet, there are some human elements central bankers cannot solve, and where politicians will have no choice but to step up, as monetary policy shows its limit.

Government bonds took up the majority of the capital flight as US and European notes hit historic highs and as the fed made an emergency cut of 50 basis points, the central bankers of the world reaffirmed their position. Fiscal policy needs to step to the plate.

Despite these warnings for many years, few economies are willing or able to act. The US congress passed a $8bn emergency corona virus response bill, to help struggling industries, though the euro-zone's export animal Germany needs to act fast, and reduce it's bickering on the purse string to the €1tn budget for the euro-zone. Despite having year-on-year fiscal surpluses Berlin has yet to relieve the several quarters of weak growth to fiscal policy.

Closing remarks

After some further debating, OPEC will reach an agreement after their economies woo on sentiment. Yet, depending on the global fiscal response to small and medium sized industries, the a short lived bear could be an underestimation.

This brings me to my most beloved index. The VIX made it's comeback from the volatility and mania of 2008 on Monday, and acts as a careful reminder to governments and institutions, of the many weak spots the economy still has, if left unbalanced.

Making the Markets; Inflation with a vengence

2017-03-15T00:11:00.002+01:00

Today not only marks my return to the blog; but the real start of Brexit, as English stomachs begin vomiting economic downfall in their own borders.
I returned to my opinion column, as what any goth can tell you they are good at, feeling bad things are about to happen.

Inflation & Abenomics

The regressive move of initiating article 50, will effect growth. However let us not forget about growth's eviler more volatile brother; Inflation. For the last decade this chap has been really quiet. In some cases such as Japan, they are doing their upmost to increase it. The so called complexity of Abenomics aka the John Maynard Keynes Hybrid.

For Abenomics to succeed, Japanese consumers will need to reverse deflationary forces of excess saving and encourage an increased propensity of consumption.
Age: the unsustainable ratio of the elderly to the working population, fallout should fiscal stimulus fail, and snowballing costs for imports.
Abe’s structural reforms carry with them several risks. The domestic agriculture sector could suffer from increased marketplace competition should tariffs on imports be removed.
Any agreements with the TPP would mean greater dependency on government support among Japanese farmers, adding a further load on finances.

But the characteristic of inflation can be very underestimated. Primarily it's effect on domestic trade, especially in protectionist countries. I.E. The soon to be USA & UK.

Great Depression background

The last time a developed country experienced inflationary issues due to protectionism mixed in with specialisation, was the time of the great depression. Domestic growth was steadily increasing, as was full employment. Though the balance of payments of the United states was terrible, as well as domestic borrowing. Eventually leading to over production, due to trade barriers eliminating any trade advantage being exported, leading to the value of USD dropping and the cost of living increasing until the fatal Black Tuesday.

The Human reasoning

Behavioural economics shows a desire of more inward looking domestic buying, and the likelihood of imports been desired decreasing, due to political & social thought. Yet the knock on effect is a reduced import volume, at the same a reduced desired to employ necessary labour to foreigners, where the greatest supply to meet the demand is found for less desired roles.

With what people around Europe and North America are believing in as a necessary solution to fight globalisation is to bar immigrants and Refugees from crossing their borders. I can understand their frustration. Yet, on a 21st century political wheel and democratic legislation and time consumption being in place, this position of thought, is a very dangerous one for setting off the demon of inflation.

The Diabetic shock

Combine the GDP demon with the perceived cost of borrowing and its desire to increase, however still artificially low, to keep the economy fat. If an obesity bubble kicks off. Hiking rates, is like giving the fat man no more sugar and tons of insulation. Eventually he will have no more sugar to keep him alive. We can see that the US Fed is letting the man off the sugar, as inflation is making itself. Part of the advantage when comparing now to black Tuesday, is the fact the Central Banks are prepared to combat it, where as in 1929 they stood by and watched

Super Summer, Super Thursday, Black Monday & End of Brazil's Commodity Cycle

2015-09-01T14:16:00.001+02:00

Thursday the 6th of August signalled no change in Bank of England’s interest rate (Currently 0.5%), China’s central bank getting ready to move its weight in the direction of returning to devaluation, in order to boost exports, and from the other side of the Pacific, the looks of the US dollar strength year on year 20% bringing thoughts on the soon to be basis rate increase by the Federal Reserve.

S&P 500 Turmoil

The major topics to be highlighted here are miscommunication and fundamental problems in the announcement of Central banks in the recent affairs of August.

Carney’s MPC

When double the information is released, as well as Mark Carney’s patented monetary trick of forward guidance, a market feels more reassured.

An 8-1 vote amongst the MPC committee, reaffirmed the near whole agreement of the current state of inflation targeting. Not only was the move concrete, it marked also the strength of the Canadian central banker’s hold at sailing the market through unknown hotspots arising.

The Forward guidance Mark Carney delivered was however the thought of many analysts; the UK economy is ‘in need in care’. The absolute truth and gut feeling for the majority, after an interesting summer change in growth levels, they know things could soon spike like a thunderbolt from the heavens, right down to the ground.

Reasons?

Most greatly mentioned is falling commodity prices, leading to lower inflation, also the continuing unknown course within the Euro-zone area, Russia and the slowdown in growth within the Far East and emerging economies. Hopefully due to this Carney could hopefully see the weighing scales to dip on either of the following two.

Most consumers will decide to save, increasing MPS,
Consumers will be driven to consume more, due to the fall in production, fall in commodity prices, the price of goods will become less, keeping inflation positive.

As much as the second will help GDP, the first is more of a key issue, when it comes to either stagnation or end of the growth cycle.

Far East Volatility

Last week has been quite the roller coaster ride as Asian Stocks bore a significant plunge in value on Monday, then making a deep recovery by Thursday; Is this the end of Chinese volatility?

Vix Volatility Index S&P 500

At the beginning of August, The Peoples Bank of China conducted devaluation of their international yuan currency, in order to help boost exports to deal with the crash in the Chinese markets. Though the delivery of the information was poor. The sudden unexpected change in the exchange rate policy, led to market turmoil that only calmed after clarification by the PBOC.

“China will maintain economic operations within a reasonable range”

The initial feel by the markets led to a global selloff of risky assets, as they believed it was a reaction to the abrupt deterioration in Chinese growth.

In the following days, China clarified the message by ensuring that the move they had made in devaluation was designed to

“Enhance market-orientation and benchmark status”.

The acknowledgement of poor communication had the effect of calming the markets, as the above statement gave light to moves the PBOC had made. First their purchasing of currency, the knowledge of $3.6Tr USD being in reserve, as well as US federal reserve rate hikes being on the horizon soon enough. Domestically also the Renminbi’s real exchange rate has appreciated >25% since 2007.

Forecast

The gut feeling of analysts and my own personal assumptions, are that we can expect a steady slowdown in Chinese growth. This of course, leading to weaker demand in commodities, thereby having a knock-on effect on the Australian economy. At the end meaning, that portfolio diversification is crucial and that we should expect more surprises from China, as they grapple to deal with a crucial situation with their economy.

Economic Forecast: The Weather in Rio is looking bleak

For the body of Christ that towers over Rio, the Brazilian government also sees the world looking down. The country faces the end of its commodity growth cycle; and if that was not enough huge corruption, declining consumer confidence and preparation towards the Olympic Games.

Due to the rise in supply of oil, slowdown in emerging market production levels, and weak capital markets, Brazil is facing a dire position. The major fall of the Petrobas scandal, in its corruption and rescue cost to the economy, has only contributed more to the slowdown in economic growth and widening of the Brazilian deficit.

The situation, began by Brazil revaluating its surplus targets that sparked a selloff of Brazilian assets. Soon enough it led to an announcement by Standard & Poors, warning of the investment status being downgraded.

Brazil is desperately trying to take control of its inflation. In the last seven meetings of Brazil’s central bank, there has been an increase in interest rates each time, which now stands at 14.25%. Coupled together with two consecutive quarters of declining GDP, South America’s largest economy is now in recession.

The Gothic Economist's Referendum view

2014-09-15T13:56:00.002+02:00

So here is my last view of the referendum, I would like to say that in all of my posts or comments on the Scottish vote, they have all been taken from an economic & behavioural viewpoint.

The Currency

The UK will not enter a monetary union with Scotland regardless of the debt levels, due to the fact it gives a major error to the UK economy’s currency fluctuations. Also the Scottish economy will have to devalue itself to become competitive. Establish trade agreements which we have no knowledge of, seeing as Scotland’s requirements for EU membership do not exist is a big risk, and puts Scotland in unknown territory.

The major issue is that if there is no currency union or even if there was, the deposits of every bank account in Scotland would no longer be guaranteed by the Bank of England.

So we can assume a new currency will be established and will most likely be a pegged mechanism, that will see a central bank created with its own monetary policy. However this peg will require reserves of more than 40 Bn GBP, in order to defend any currency attack. If it were to be mature and stable the Hong Kong equivalent is 135 Bn GBP.

The local economy

For those people who feel Scotland will thrive within 3 years, will be sincerely disappointed and of course the UK will be worse off without Scotland, because Scotland is bringing down their economy. Which investor in their right mind desires to keep their assets in an area where uncertainty is high, and that losses deem to be most certain.

Companies are scaring the Scottish public,and this is for a reason. It is that bad and these companies will be heavily taxed. They may still operate in Scotland but they will not mind becoming more tax avoidant, as it will cost less. Thus the Scottish economy will be relying more on income tax. Austerity will have to occur in the first year and the Scottish government would have to go to the money markets, though the money markets are highly unlikely to be friendly in the first 5 years.

Oil & current world economic cycle

There are a few major issues with the commodities side. Oil is a great thing, but bear in mind if your currency does not hold large reserves... If an oil spike were to occur (which many economists will see as being certain as gravity this winter), Scotland will have serious problems. Especially as we are about to enter another recessive phase in the growth cycle. I take this as it can already be seen from slowdowns in Chinese growth.

Chinese Economic seriousness

China is looking more by every month of turning into a Japanese economic cycle. The fear behind this is, is that is the debt burden http://time.com/3332552/china-japan-economic-crisis/ . What is more troubling is the heavy value the Bank of China have in US Treasury Securities which they may sell, even more so now for Geo-Economic strategy.

The UK Economy

The UK will be a separate country, whose obligations are to help its own UK citizens and will rightfully do so. However Scotland will be a foreign country and it will take some time to establish itself as a working economy, and the UK will have its own problems to think about, due to the serious loss of assets and investment which will have occurred. Nearly 1 Billion GBP left the economy last week, just due to the referendum.

The Geo political economic world.

From my previous post, the world looks like it is entering the brink again, thus for a new economy to prosper from this is looking rather doubtful.

The Scottish Currency and Putin Economics

2014-08-27T16:20:00.001+02:00

The week beginning was marked with Russia forcing aid into rebel held eastern Ukraine and the Second debate on Scottish independence from the United Kingdom.

Alex Salmond a bachelor of Economics and History, that went on to be leader of the Scottish National Party went against former Chancellor of the Exchequer Alistair Darling in a Televised debate on Monday night.

The debate, was a battle of words, with no answers for many on analysing and interpreting the outcome of Scotland's economy. The major being the currency. Alex Salmond fended off the question, though to many researchers and analysts the answer is a separate diluted currency. With this answer assumed as the most logical for an independent Scottish economy to function, let a alone work, the creation of a currency is inevitable.

The major issue en-laced within the UK government's need is that all UK debt is embedded in valuations of assets, such as assets in Scotland. This would in turn affect the borrowing capabilities and pricing for the remainder of the UK. Though the same would be for Scotland, the Scottish economy would have undertake its share of the debt produced from toxic assets incurred within the financial crisis. This in itself will cause capital flight to likely occur.

How to get the debt from Scotland is more of a major issue that the UK has to figure out, and will markets react to an unsound Scottish balance of payments book? With the quick decision making of the financial markets, and how to justify the information, the risk is acute.

Russia's economy is set for a strong downturn with the economic sanctions taking a deep toll on the balance of payments. Vladimir's game strategy back in march, was very successful as the economic sanctions over Russian influence on Crimea would have lifted and Russian territory would have expanded. It was a great strategic move as the markets saw their financial power see no change in the political strategy of the Kremlin. Though we are nearing September, and long term sanctions are not favourable. Even for a low rouble.

Though with low economic growth for Russia, will it be likely that Putin, takes a more aggressive stance in the Ukraine Crisis? After heightening the tensions with Kiev after sending a large convoy of "Aid" supplies into the rebel stronghold, Russian provocation of the west is becoming less forward strategy.Though a lot of moves made by the Russian premier in March were new out of the rule book.

Looking at the soft and hard currency position. Many companies from and working within Russia,are finding it next to impossible for day to day transactions to be conducted in the Russian Rouble. The oil and gas sector is heavily dependant on outside technology and skills, a major area the economic sanctions are effecting. Companies such as BP who own a major majority of Rosneft(Russian national oil company), are left being unable to transfer income to the UK subsidiaries or supply their projects.

From an investing point of view for game strategy, the likelihood of an escalation occurring even more is inapt. Conciliation of Russia and Ukraine, in order for the easing of economic sanctions is greater probability. However with multiple fields of major medical, civil and political unrest around the continental plate, there is greater chance of the less probable decision occurring, as with widespread risk, there is a greater prospect to get away with more.

Stormy seas ahead G.E.

A Russian Trade Union, a love story with Ukraine

2013-11-21T14:37:00.001+01:00

An interesting new political strategy is happening in Eastern Europe and on the north Asian plateau and it all smells too much like strategic economics again. Russia is moving its economic weight, but this time for a new strategic move of geographic proportion, an expansion into the realm of the trade/Customs union.

The EU is not only a unity of policies, with endless bilateral agreements and an entanglement of laws. Its main function at the end, is primarily to liberalise the movement of free trade within the European countries, which we closely now refer to as member states.

The reason to join a customs/trade union are simple, export growth that can lead a much better balanced current account for a country. Germany currently being the most prosperous, and even more so since the European Monetary Union was introduced, has led the way in showing how free trade is a great source for GDP.

Russia is currently focusing on expanding its customs union to the former USSR satellite states and then maybe further onto the Eurasian plate. It wants to take advantage of its natural resource position and the export dependency a lot of the former satellite states still have on it.

Ukraine was poised and ready to become a member state of the European Union, though it all smells now like a large bluff. At the end of it all, it comes down to your largest trading partner. Ukraine does its trade with Russia a significant amount more than with the EU. Having then a bilateral agreement between the two, would significantly reduce export/import costs. Also most Ukrainians feel more Russian than European in culture, one thing resented by many of the eastern bloc is the European unity and fear of culture loss.

(Click to enlarge image)

Though behind these arguments lies the main reason. Russia has always dominated the energy supply of the eastern European sector, and Ukraine knows this too well. Vladimir Putin has also imposed heavy custom checks on Ukrainian imports creating losses in the billions in theory. Embargoes from chocolate to steel pipes were also imposed upon goods this year and Mr Putin goes further on this, with forwardly stating that the Customs union as a whole may impose high levies in order to protect the Union for EU goods possibly entering their market.

The Payoff for Russia is vast. Not only does it secure a competitive advantage of trade with the Ukraine and cuts off basically its trade relations with the EU. It further tightens its power over the former soviet state and overall makes it ever so more dependent on Russia.

Vladimir Putin is also winning powerful game with the EU over its diplomatic procedure. That in all the EUs democratic ways are rather pointless in competitive arguments, as even if the Ukraine in someways would prefer to be courting itself with the EU commission, it still has to get into bed with Moscow. But this is by far not the first major hit by Russian Bear: slowly but surely it is geographically taking back its land.

It is amazing the unfortunate though inevitable power that strategic reason can have in undemocratic environments, but it is a good example of how maybe technocratic procedures could eliminate these problems for the EU, as it battles several fronts. Banking unity, Soverigen debt restructuring, migrational issues and strategic economics.

Tata for now
G.E.

Central Banking 2014 Upgrades & Arab Uprising Part II

2013-08-01T22:45:00.000+02:00

Good evening to all

The month of July has been rather amusing in market volatility and global economic indicators balancing out each other, mixed in with the typical political cocktail of civil unrest.

ECB and Bank of England Harmony

With the markets losing some of the power and confidence in tactic decision making, today they looked to the words of Mark Carney (Bank of England) and Mario Draghi (ECB). The Outlook of both and interest rate decision remained unchanged, though new weapons such as market guidance are becoming more weighted on market volatility.

A Central bank’s words are one the most secretly kept letters before an announcement, as these words are the recurring power mover of any market. Previously a central bank would never try to give their opinion on forward assumptions of market growth, though the new Bank of England governor changed the norm. So these words are now a typical aspect for market makers to expect in the medium term.

Liberalisation of the ECB was also in discussion; the idea of releasing the minutes of the ECB, could be seen as a more accurate way of the market valuing the future. Though in the Gothic economist’s opinion this will only produce more wild fire, and take less value of the central bank’s overall decision.

Vertigo Markets

So with the last month being pinned to fallout part 2, of the financial crisis shows that the wounds slowly are healing, for now... The patient is still in intensive care.

The redbull juice of quantitative easing, unfortunately could be working. Grumbles for the Gothic economist, as his positive monetarist views against Keynesian borrowing malarkey as being the devils work could succeed, as the S&P climbed today. However... These growth patterns with an over capitalised market, may bring future worries, to the mix.

Today the US market saw growth patterns that had not been seen since 2011, amongst these positive movements, there has also been frailness at the midpoint, due to fears of reduced growth within in china and liquidity worries for domestic and medium sized businesses.

The Brent crude benchmark has been on rapid brinks of decline and ascension. The Chinese downturn in GDP forecast, and the US growth results have been players on this. Since July continuing into August has seen many Middle Eastern civil problems affect oil output, and with US sanctions on cutting Iranian oil exports have been also implemented this week. Hence this fall going into the winter season for the northern hemisphere could see prices above $112 a barrel.

Positives that can be seen are controlled inflation position within Europe and US, also boosted exports in some of the sovereignly constrained Euro zone countries.

Burn Baby Burn

The Middle East and North African political process is still far from maturing in stability. With Nigerian tensions, the Egyptian political problem and summer maintenance schedules, the fall could haunt the price yet.

Libya has been flooded with protests and shut down of its ports, leaving the OPEC state with no oil and in some cased more than 50% fall in refining, giving August and September contracts a rise.

The markets could possibly become more active in their discontent with the Arab uprising, as foreign direct investment thoughts to Africa becomes less desirable.

The biggest problem is that due to these cuts in production, you cannot stop oil extraction straight away, so all you can do is flare. The burning of fuel in some parts of Africa have forecast to total over $100m a month, and with Flaring already being a major issue within Northern Canada, more investment and maintenance is demanded within the Oil & natural gas sector.

This week saw oil spills in Thailand, Nigeria and evidence of manufacturing faults with an Exxon pipeline in Canada. Enough said on future prices and environmental damage.

Closing Black Words

The energy sector will continue to climb, as middle east tensions are predicted to continue , if US continues to give out low unemployment data and growth support. Though this highly unlikely, and in the fall, markets will become more volatile, as the deadline for the US borrowing limit comes closer.

Buy while you still can...

Bad US timing in Africa as Resource war is in full swing

2013-07-01T21:35:00.001+02:00

As Obama makes his first real appearance in Africa, has he come far too late? As the president touched down in South Africa, he was greeted with more welcoming protests than the warmth he may have encountered on his trip to the G8 summit in Northern Ireland.

Africa itself is the new Jewel in the eye of slowing down major economies in the northern Hemisphere and where strategic economics may now work with African ways of life, which was unheard of back in the 80s-90s. Holding vast realms of natural resources and economies egger to grow, China has been making the most progress out of all nations, though has also been finding out, that Africa is not always easily bought and tapped.

Late jump from the gate

The Current Obama administration did not make an appearance in its last term, and through this the US has been living off the success of the Clinton administration’s duty free policy on African goods and the Bush administration’s poverty donations, though there is still nothing yet from Obama.

As he was escorted through Cape town in his usual armed battalion, including the support of the South African’s catalogue of Gorilla proof Jeeps, the president had come at a time of when millions of the continent’s inhabitants prepared for the mourning of Nelson Mandela, as well the general view of that Barak Obama “Another US President”. This comes from the Geo political position most south Africans see Mr Obama lying in. From the Libya Crisis and toppling of the Gaddafi regime last year, the involvement of more US drone aircraft in Africa and the current interactions and geopolitical moving in Syria.

Contractual ease by China

China has been conducting much more investment, as it saw the emptiness of foreign competition implementing strategy on the continent. China is finding it easy business doing deals in Africa, as a pragmatic position is taken for politics. There are no political improvements linked to any investment deal which may include a more stable government as some nations saw with previous western deals, giving much better political face to china.

Also with weak colonial might at the moment, no one is in the position to lecture China on its resource and foreign investment policies at this current time. Also with the increase of inflation in China, it is only be a matter of time until manufacturing is transferred overseas to Africa in order to reduce production costs.

Though making deals with Zimbabwe and Sudan hasn’t helped other sides of Chinese interests and shows more importance to business relationships than China’s social responsibility.

DIY Africa

The main issues with Africa are usually down to a few big factors where one or more is active:

Political Corruption
Civil Unrest
Inadequate Infrastructure

The oil industry is probably the wisest of the high risks from African operations. Companies such as BP and Exxon Mobil have dealt with losing oil wells due to political tensions, such as in Somalia; workers being captured and ransomed off and the sabotage from local greed and jealousy, which is the most interesting one in my opinion.

In Nigeria a local communities jealousy over another that has a well contract from an oil firm, will usually result in pipes being cut, or well heads being set ablaze. The market for D grade black market oil is then created through tribal gangs stealing the unrefined liquid and in the meantime the environment being damaged. With Nigeria cultures you are taught not to share or help, so other communities do not work together. The only cooperative relationship that usually occurs is when cleaning companies pay gangs to destroy wells in order to get cleaning contracts.

Energy shortages are also a major issue. Known for its mass ownership of electric generators, Africa’s civil infrastructure is in desperate need of being created.

The Future

There are certain countries such as South Africa and Angola which provide a forward vision for the Continent, with maybe only one of the three issues being faced.

As the US ranks third as trading partner to the continent, it will be rather soon that more foreign direct investment moves swiftly in. This is also contributed to the the reduction in global market liquidity seen in the past weeks, on the basis of changing Central banking monetary policy (mostly from the US) and the predicted slowdown in emerging markets. Africa due to its minerals has not experienced a reduction in investment hunger so much and with still a very large gap in market capacity across the board of sectors from resource extraction to government development projects, whilst the northern boundary has the rope pulled tighter, the centre realms of the equator look promising, just how much for Africa and more so, how will the economic transition process effect Political engineering and efficiency? This issue brought up when Libya was still continuing in conflict.

Tata

G.E.

Die Hard Economics vs Bitcoin

2013-05-15T20:32:00.000+02:00

Whilst changing to a connecting flight in Zurich, one overheard from the men’s wash basin that “John McLane from Vienna is asked to make his way and board his connecting flight to Miami”, the thoughts of mass panic and chaos swelled into the Gothic Economist’s mind. Gliding out of the bathroom, with the swing of a Black aluminium case and looking like the perfect 21^st century terrorist with some electronic body dance moves thrown in. He thought to himself; where would John McLane be needed soon?

The word Bitcoin very few may of heard up until recently, when it’s price surged from 11$ in 2011 to over 200$ this year. The fundamental laws that govern this virtual currency are beautiful, from freedom, to the potential downfall spike of a financial market.

The Dark Past

No one knows who the creator or creators of this virtual copper really are… Though tales are told in the Far East; and it is said to have originated from a hacking liberal collective known as Satoshi Nakamoto. This possible origin inspires the use of Bitcoin as pure freedom, so in a way this would make sense for its origin. But trusting the algorithmic workings of a hacking community for what is now by investors seen as a very real object in the currency market, for me does spark concerns. More so are these concerns set ablaze with the value of this virtual coin being at over the $100 apiece.

No Monetary Policy, No Problem

If you are loathing of central banks and the continuous tax avoidance cleansing has rattled you to the puzzlement. The trust of your wealth management intermediary is in question? Then look no further!

The currency, being digital is not guaranteed or controlled by anything up to the heavens other than the free market. Hence for tax avoiders and people looking to acquire new safe havens, Bitcoin could prove to be fruitful. The work which occurs within Bitcoin is supply increase. There is cap currently on the currency until 2050, but until then it is up to you to solve algorithmic puzzles in order to win a few of the coins, by downloading ‘Bit miner’

Taxation & Stealth

Her majesty’s government met with figures from taxation to the online intelligence service (GCHQ), in order to discuss the problems of the new coin.

The central problem which the UK government and many others become sour at, is the notion that Bitcoin is near completely untraceable in transaction origin, and is impossible for any governing body other than the demand & supply of the free market to control. These founding rules have made this meeting turn to the operation of most likely bending these two main principles and eventuallz when they are bent, or with the help of some other countries broken, then taxation will be most likely to occur.

Uses and Commodity problems

Currently the uses of the coin movements are speculative and most likely large untraceable transactions, though rapidly online shops and services that are beginning to accept it. The only current backaches are the fears of Bitcoin becoming a commodity currency. The limiting factors of algorithms prove a big issue in dealing with this.

The coin I believe is a great step into the new way the world now works as more transactions become electronic. The frustrations I believe will come as countries try to file away at these, and then Bitcoin may take a turn for the worse.

So as we see that governments try their best to cling onto the new ounces of digital power, how will they send John McLane in, even if he ends up on the wrong side? Possibly using the powers of Tron, he will visualise into an arcade game and with 8 Bit explosions and Tetris pack punches he will fight the new virtual blanket of crime. At least Sir Mervyn King can now breath easily, that these and the remaining issues of monetary policy are not his problem anymore...Please insert coin here^^

Wealth management stays strong, Shale keeps on fracking and France feels the heat...

2013-05-09T10:28:00.001+02:00

Tax Privacy lies no more

The continuing transition of banking secrecy becoming more open, continued last week, as Luxembourg, the British territory of Bermuda and Chiefs of Uni Credit began a mixture of transitioning towards a mixture of openness towards taxation figures, and bank balances.

The Austrian chancellor though is going one step further. He has been given approval to negotiate with the US a tax centred upon foreign bank account holdings. More centered towards account holders in the US, it will most likely be a two part situation for EU member states also. Austria is also signing up with the US to a mutual administrative assistance in regards to tax matters.

The movement is a combination of pressures implemented from the EU and US. Allowing for tracking of financial intermediaries that can involved in a rouge transactions, to increasing the strain on beating tax avoidance. Obviously a growing concern for large investors, though that hasn't put them off too much...

Regardless of this big shake up, wealth management and private banking are still on the rise. The likes of Goldman Sachs and JP Morgan are preferring to have a stickier type of deposit holder, where reserves are less volatile than those entwined within their investment arms.

As all these changes for reform, glide out of the former Habsburg empire, from neighbouring italy Tax evasion scandels for Mr Belesconi as he loses his appeal for a zero four-year jail sentance, for his punishments for tax evasion. FT article

Black Clovers

Ireland has now been recognized for offshore exploits to a once ignored segment of the Eurasian plate. This will hopefully bring a few more receipts into the stagnant Irish economy, though still striving as the only euro-zone member, that is currently able to repay its debts to creditors and the ECB.

Whilst the ocean floor is being discovered off the west coast of Kerry, in the US, commercial competitive rates of liquefied natural gas have raised hopes for the department of Energy, as the mining of shale has unlocked vast amounts of the fuel source. So much that the US is on high prospects to be net exporter by 2020.

The new energy boom is acting as a boost to the US recovery, as will eventually be reflected within the future months whilst the Brent Crude price fluctuates The oil price staying firm on still low growth forecasts, and possibly more so into the end of 2013, that the US's energy chat moves further away from coal and oil, in the hope to reduce CO2 emissions and increase its strategic dominance, by becoming less energy dependent.

French woes

Last Friday marked 25 years of the Franco-German relationship within the council of financial and economic affairs. Though a Francois Hollande has certainly realized he and his government may have really played with fire, in relation to their bullish comments amongst other EU nations over the previous weeks.

With taking advantage of trade woes with UK & China, and insulting government figures in Germany, it is only obvious for Mr Hollande to possibly expect a more uncooperative relationship, in regards to their views against the Germans and their strong Hayek position. As well he also needs to manage a healthy cabinet reshuffle.

Protectionism and National independence is becoming more an issue, and with the organisations, such as the WTO, being in a crisis, slowly taxes and tarrifs may comeback into being. Though it is more likely that free-trade-areas and economic zones will continue to exist, just with larger import/export costs.

The Euro and Europe , Which will last?

2013-03-21T17:54:00.003+01:00

A good day to all.
The debauchery of this week foretells the story of a possible burn up in the re-entering of the euro into uncharted waters. The UK government delvers its budget and Iraq is seen as the place not to do oil business. Also old news, we have new executive pope for the Vatican bank.

The Drop Ultimatum

Cyprus has now joined the PIIGS (Porturagal, Ireland, Italy, Greece and Spain), to become the sixth country to need emergency funds to support its crumbling financial system. Germany is leaving the terms melt into Cyprus for time being as the emergency funds run low. German pins lay sealed against the collars of the ECB & IMF as no room is left for breathing.

The idea of a leaving of the Euro is more likely than maybe dear readers may imagine... Cyprus is in a few good corners for this to work. Firstly it is a small country and second Russia is a big backer in Cypriot infrastructure, though the last thing the oligarchs want is their back-door into the EU being lost. Still it seems that the church, being the largest landowner in Cyprus has agreed to help out the Cypriot government. At the same time Cyprus losing it's trading advantage from having the increased cost of currency exchange transactions will not be a pleasant move.

Cyprus wants to stay part of the euro, though the only current options at its disposal are to take a percentage of deposit holders reserves, which by far will fuel a bank run. Or try and lipo out any money that is in the economy. This evening from the democratic side of the government, mentioned the ability to raise at least funds from the nationalisation of the state pension scheme, though this is not reassurance to safety. Neither in the same interview conducted on Monday's BBC 'Newsnight' program that they are also looking at a Euro zone exit and going back to the Cyprus pound.

The stickier ends of Black Gold

Ten years after the invasion of Iraq by British and US forces, there have been many rumours that it was not for weapons of mass destruction but for the sweet blood of the world that everyone is desperate for. Well the truth of ten years on Iraq can possibly be one of the worst places to buy a lease to drill.
FT interactive map of Iraq Oil ten years on

Iraq has only seen production levels hit similar sums before the war. a few years ago oil firms were running to buy up leases, but with the low margins and excessive problems with payments by government, bad infrastructure and continuing unrest, many have chosen to pull out.

In the other view it has shown that iraq is unafraid of playing hardball over its resources and despite what many think. Iraq is incharge of its oil and many would rather face other countries beaucreacy than Iraq's.

The Endpoint

So time for the monthly forecast from Mr Gothic Economist...

http://youtu.be/-LSxpxjMQ9c?t=1m5s (a bit of music for the mood)

We may see the first ever exit of a country from the euro-zone. It could be a marvellous move, or spell continuing economic black areas for the euro. My guess is with the tiredness of Germany and it's direct position on Cyprus, the currency exit looks very possible.

Negative growth is forecast for the next two months of the year with a continuing rise in inflation and maybe an increase interest rates soon to combat this, regardless of what Mark Carney (New bank of England head) is known for. It would be a bold move; maybe bold enough to reduce the ongoing increase in the cost of living.

A continued increase in the cost of the barrel of oil. Barak Obama may have visited the middle east to cool tensions, but the only thing that is possible from that is stagnation as the best outcome.

And the new Argentinian pope will keep on watching & Playing from the Vatican Bank.

Good Evening!
http://www.youtube.com/watch?v=F0PLZzi2JJo

February Gothic Viewpoint

2013-02-26T13:42:00.000+01:00

The far outcries of a weary Britain’s Triple – A downgrade, and the far reaching wails of a Banshee that stay echoing with a once dominant oil giant could be the marks of February 2013, which Economics nerds remember.

Apart from that the dear lust I have in returning to the desolate sector which I call short-term trading. Research and hunger for a weakened Sterling drives me into vast array that this is 2013 and yes people need to be proactive in objects other than chess, in order to survive the Darwinian rules of life.

Iran goes Keynesian

For me, yes I will remember it for these two things, plus Iran’s new adventurous plans for 20 new uranium rich reactors.

Iran’s strategy of its announcement on the new nuclear reactor plans, may pay off in the long term. The strong decisions that Iran will not back down, regardless of international pressure on its nuclear programme as a known Islamic radical state, could pave the wave for new balance of payments to enter the country. Looking at in terms of the size of Iran, one could easily assume that Iran will have a power production surplus in cheap electricity, which could be provided to an oil dependent power consuming gulf.

As much as its nuclear programme is seen as a major threat to Israel and other nations, it could bring forth a new frontier of gulf power. Iran could enrich nuclear weapons, but instead it is taking positive approach in order to combat economic sanction bestowed upon them.

Wireless momentum

At the moment there are two groups pushing forward for one next big thing in world electronic devices. The ability to charge battery powered devices wirelessly from the handheld mp3s and smartphones, to the 12V battery in your car. The ‘Wireless power consortium’ and ‘Power matters’ alliances are the two big groups pushing this forward and competing. A future billion € industry that will maybe see the combination is well with wireless signals in order to keep the spectrum of signals generic and together, as the invisible spectrum gets more and more stuck together.

Only Fools and horses – The Long view

Well apart from the horse meat scandal. Some other people have silver lined their pockets in an array of marvelous moves within the economy.

As the currency attacks become far greater on central banks, deemed by hedge & Pension fund managers as being the new innocent flesh to be cleaned from bones, a sudden eye takes a glimpse where does it go from here?

Well with dilution in the power of central banks, the multiplier effect of virtual power transfers over to the hedge funds at a smiling rate, as they know after the submission of Bank of England to the new round of QE, they will easily take bets on world recession part II.

The Gothic Viewpoint

The central bank may take an extreme monetarism approach to curb the economy as economic collapse may look inevitable, pressing the political side of the coin in to reduce tax receipts in the short-term, in order to reduce the downturn in a rise in central bank interest rates. The proposal seems more to create a wave of laughing amongst some readers. But think of Europe in particular, what options are left before part II is not prophecy anymore?

So the Banshee has not given up yet haunting the tickers at the world indices and another wave of gothic worthy financial depression I may get to rant about. But one thing is for certain, that humans do become innovative, and are able to find ways to adapt to constraints. Well that’s the nice way to put it… now to listen to Rome!

Tata

Gothic Economist

The beautiful Economy

2013-01-25T23:22:00.002+01:00

Friday marked the UK seeing negative growth again, letting flow wonderful politics into a more aching country of why the economy does not work the way people want it to...

More onto bigger things in the world... Switzerland played host to the world economic forum, where the UK was on the firing line at trying to explain what their position for the future will hold with themselves and the very patient European Union. The UK is currently doing it's utmost to have special privileges given to itself in order that it can remain in the EU without having all the new sanctions put in place that every other member state will have implemented into their infrastructure. Though obviously this is very unlikely to happen, France took a firm root of describing the UK wanting an a la carte menu, where as Germany's foreign minister took a light cherry picking expression instead. Regardless of this the current UK ruling conservative party is leaving this to a referendum of 2017, but what companies in the UK do not need right now is uncertainty. Already financial institutions are seeking possible new bases in Frankfurt for new european operations as the 'City' now looks less of a stronghold for profitable conduction of business.

The US itself produced stress at the beginning of the year with it's comedy styling debt ceiling. The strain of the ceiling's pressure and stress on the markets could be eased if the policy was altered to allow the Federal reserve to borrow above the limit, whilst the US congress decides on which policy implementations to support it. I highly doubt that congress will let the US default on it's debts; it is as likely as me going to sleep in latex after a night out. Possible, but highly uncomfortable as much as I may not want to get out of it!

Onto the future... China and Japan seemed to have announced that they will attempt to build new relations with each other, though in the eye of beholder this will stay continue to remain a brewing cauldron.

The tale of two Islands in Asia

2012-11-21T17:11:00.000+01:00

We are a week into the glimpse of China's new management board, upon the stage for China, seven suits encased with red ties stood before the world.

Mr Xi Jinping is now leader of an >80m Chinese communist party with his six new team members at the helm also, however attending the congressional announcement was former president Jiang Zemin. He was there for one reason only, to reassure the world, that as much pressure china's political system is under to become democratic, it will not cease. Mr Jiang actually got more attention due to this, compared with the new president at the congressional announcement, as Mr Xi is seen to be more open in a rational sense to changes within the political system.

This would be honey to the ears of Japan, as it announces it largest trade deficit with China, and this is not due to organic economic slowdown, it is down to a bunch of islands that Japan purchased. This has now led to negative growth in nearly two quarters, ergo Japan will be declaring a recession. Though even with a slightly easier going president, that's not to say members of the old school are not present in the other six.

Going to Behavioural and Strategic impact. The US has taken a very notoriously cunning step and in some ways it will overall benefit China. The US shifted the fire-power of 40,000 troops to conduct exercises in the area, in a mutual indication to China, that it would standby Japan to defend it's territory, as Japan and the US have a treaty on defence of each other.
However at the same time, the US will now be overtaking Japan as largest export partner to China. So throwing a few 40,000 troops in an area to keep Japan happy for a while, whilst you take over their trading position is quite a good deal.
But it is just not the US that are conducting strategic positioning China is producing bilateral trade agreements with South Korea, so to anyone's guess, economic pressure is fully being exerted onto the sword of the samurai. In return Japan is attempting trade agreements with the EU and Australia, regardless it will loose out.
Though it's not all sunshine and butterflies for the red flowers.
China's investor arms are going into the emerging markets, as western traders start getting bullish with their Chinese weighted portfolios. They seek non domestic protection, and as much as China racks on more tax incentives and lifts investment barriers, non of this is being seen to make a world of good; only behavioural investment sense of desperation, just making traders increase their bet values against China.

So China is plotting the downfall or economic suicide of Japan with its sustainable deficit of +200% of GDP.
Though it could be worse... You could be Greece, having to deal with your politicians not agreeing with the death dealers aka IMF and the EU, which just entered negative growth also. http://www.ft.com/intl/cms/s/2/0a35504a-0615-11e1-a079-00144feabdc0.html#axzz2CnY7xTPX

Whilst you then have to watch energy companies pay fines, of larger sums that what your country so desperately needs.
http://www.ft.com/intl/cms/s/0/555fa13c-2f46-11e2-8e4b-00144feabdc0.html#axzz2CnY7xTPX

Positive economics combined with the church of monetarism and Hayek. It lacks so much irrational emotion in these scaring areas, its hard to believe this is how economies work the best!!

Tata for now... GE

The Arctic, Russia and the West

2012-09-26T15:06:00.000+02:00

The Arctic, the final frontier and one of the most unexplored regions for oil; it has stayed very unexplored for a reason. Shell this week announced their suspension of their drilling, this included France's Total. Combined spending of these two companies within the region is estimated at approximately $7-9Bn. This has occurred due to countless safety problems and the high guarantee of not being able to contain a spill if occurred. ENI and Exxon Mobil though still have their hands hooked into the exploration of the Russian Arctic, but progress has yet to be made, or is it really Russia's Arctic?

Countless disputes between Norway and Russia over the northern territory have continued, leading more secondary companies to conduct their northern drilling explorations from Greenland, yet progress is still yet to be made, one of the suffers of $1Bn yet to make a comeback is Cairn Energy. Russia may though, as well as BP be drawing a quick line under their exploration problems, if the long battle zone of TNK-BP joint venture can be settled.Therefore rebidding of Rosneft (Russia's state oil company) can start again, bringing BP back into the Strategic oil club, and more importantly growing in size since it's asset sale to cover it's remaining Gulf of Mexico disaster repayments.

If the deal with Rosneft is completed soon, BP could quickly become the largest licensed drilling holder within the Arctic. The company is known to be at the front of hard drilling conditions, but also for their failure to operate safely. If BP through the help of Rosneft throws $12Bn give or take, with their newest Arctic technology, they could become successful in domineering the one fifth of the worlds, untapped oil resources.
The company is now finalising the selling of two refineries in the US, leaving it desperate to grow more. Taking a more primary/tertiary model of growth, will be beneficial for the company, though refining oil is turning into a more profitable area of the oil sector. Many new companies are entering this market such as Marathon Petroleum and buying refineries of the likes of BP.

If success is seen in Russia, the strategic energy chart will be weighed more heavily towards the old bears, as the unrest within North Africa and the Middle East continues. Though the slowdown in economic growth has, allowed for the demand price of oil to drop to lows of $108.00 bbl, showing that as much as oil production risk may have increased, the demand has dropped. Though I think it is safe to assume that OPEC will drop supply if it decreases "too much".

Another attack from Europe is occurring. Just before this winter the EU began a probe into GazProm (Russia's state gas company) for it's price fixing to Europe, but more on that in the next entry.
Tata GE

How to dismantle an atomic Eurozone, Putin Punches & Barrels of Black

2012-06-13T02:37:00.000+02:00

After some weekend back pressure, Spain eventually retracted from their denial, they needed money.However... the speed in which it took, was like a bullet leaving a gun, when comparing it to the other euro-bailouts, which leaves our dear Gothic analyser in pondering. How long till the others start renegotiating their bailouts after Spain's easy cash injection?

The weakness of Europe couldn't be better portrayed this week as the value of currency continues to fall, as the markets speculate the eventual truth...The euro-zone will never be the same.

On Tuesday it was announced that the banks of Europe will now be interlinked into a european banking system infrastructure that could be complete by January next year, though that is to say that we will still be looking at the same Europe by then. The banking entwining is just an extra stepping stone in the pond towards the european fiscal union. But like so many european policies an extra stepping stone might just be delaying, the eventual splash and dampness of the ever so deep Stygian pond.

Taking a leap to Syria and we see the real site of Strategic economics and Geo-political heavyweights Russia, not leaving any breathing space and taking full advantage of gaining more political might in the middle east by the revealing of arms and now helicopter gunships support to Syria. This is nothing new for Russia to supply Syria even before the Arab spring uprising first began.

In a way it is an inevitability that Russia would do this, as it is in a current position of just turning into a fuel supplier if it were not to challenge itself to keeping the fight in its corner of the ring, plus with a troubled financial world it's the best time for Russia to do it's dirty deeds.

At the same time OPEC meets in Vienna to see what to do about the collusion oil breakers Saudi Arabia, that has continued to break its quota on oil production, though as markets predict economic slowdown. Mr Gothic economist can only say, that it could be in your interest to fill up your tank before the week is out, as Saudi Arabia will either reduce its supply; or the others will.

I had a befuddled moment of clarity, where I remember how god had created economists to make weather forecasts look good. In economics we can an only assume; and as a Gothic economist I can only assume the worst, Good day to all

P.S. Do not prithee peace, it shall not be soon!

Germany vs Greece... The Epitaph of the Euro-Zone

2012-02-15T19:11:00.001+01:00

Western Europe has experienced a rough spell of weather, the cold wind spitting up snow where the sand meets the seas in Portugal. The same cold bitter winds engulf Greece; and they have had enough of it.

As much as the snow for many has only been a cause for depressed thoughts and feelings. Most dark people will tell you, winter is our summer. Even as a Gothic-economist, the snow gets buried in the financial section of the newspapers still^^The words of default have loomed in the cracks of the euro-zone, though they stay there, freezing further and widening the cracks. The thaw then happens every time new bailout funds are given, only to expand the deepening debt more and more into Europe.

With €130bn up for Greek grabs again plus €200bn debt restructuring plan, default is still going to be there. The German Bund rate fell to one it's lowest levels following the yearn for safe-havens away from Greece, as investors struggle to see why they should still leave financial risk in Greek hands. With €14.5bn due in bond repayments next month, it is only inevitable that Greece is staying frozen. The forces of euro paper expressing their emotions have grown now to the AAA+ & A1 remaining european countries as they lose patience with the delayed default.

Looking towards my main opinion, it is hard to see why Greece has not defaulted yet? Yes there is the thoughts of it turning into a systemic plague with the other debt ridden countries. Though the longer they keep giving free money to Greece, the less money the other Eurostar countries have for their own safety.

With the occurrence now also turning into euro member hatred expressed in Greece, as protesters in Athens burn the German flag. How long will it be until Germany realises they have been saving their neighbour that won't repay the favour?

The other options that have to be considered are the strategic implications of a Greek default, with regards to political and civil backlash. The look of the Greek people can be seen to bestow civil unrest for the long term and how these unfavourable emotions could spill into the other member states. Avoidance of civil unrest after all the inorganic alterations in the economic foundations of Greece will only occur naturally, even if that means we have to leave Greece crumble so it can slowly rebuild itself back.

The worry for me does not lie with Greece, but the rest of Europe, more and more can it be seen that the european nations slowly copy the recovery phase similar to that of Japan's 1990 years? If so...The deed comes nearer and nearer.

This is monetarist and positive economic thought... Do not tamper with money in sovereign areas, it will only deepen the blade.

Adiós

What to do??

2011-12-07T14:38:00.000+01:00

I had no idea what on earth to write about last week...There was too much to write about!! Instead I made a draft of my views last week which I did not finish.

So the world has turned into the rule of the bond market. If you want to know what happens, look at the rating agencies a few purpose done government leaks and the market speculation.

one day this week at 13.30 the rallying of stocks occurred on the DAX bringing it up by 3% percent within minutes. Though still peripheral pressure was implemented on Europe.

The worrying thing was that the Chinese Central Bank cut deposit rates for banks as the China markets closed negative, possibly showing a new landmine that could go off on the already fuel leaking world market.

Still I think one kind of cranky positive result that has come out this week so far is that the UK economy doesn't seem to be needing to fear the rating agencies for the time being only the Strike currently occurring which is seeing huge amounts of public Sector workers affect the growth of the UK economy.

Middle East, Democracy and Civil Unrest

2011-11-21T17:32:00.002+01:00

If you had to think of a chess match of strategic economics, this would be it.

In chess you have to be as many steps ahead of the opponent as possible, so that the main outcome is to bait your challenger into thinking that he can see your next move. The same can be said in the real world and this could be the playing game with the middle east.

Democracy is one of the stages in the building-blocs to becoming a more advanced country, but the trick is to know when that should be done, otherwise your country could stall or even worse be at the mercy of strategic interplay whether it be economics or geo-politics.

What better way to give an excuse to allow for more foreign intervention than to allow the people in the country, to remove the autocratic government and then have the temporary elected government become corrupt. This is the case in Egypt, this week the military government took action against protesting on the main Cairo square. This resulted in deaths, showing the new Egypt as unstable, allowing for more international pressure to be put on the OPEC state.

Libya at the moment is in a good position, the current governing body seems to have a good strategy to the recovery of the country and implementing democracy in the short medium-term. Also there is an equal amount of cooperation happening in Libya between the government and public, as they give ease and criticism to the transition. Libya was also one of the most developed African countries, thus for the democracy transition, it was inevitably going to be easier. Nonetheless they still had a civil war occur and bombing with NATO (though I think this was in tern for economic aid transaction for the future).

Syria remains highly unstable and also could show a more dangerous side of strategic economics... Allow the country to internally remove itself, where the remaining controller still has a wielding power. This is cost effectiveness for any country which sees a strategic advantage whether be in implementing a new government strategy or for fundamental resources such as geographic dominance or natural resources for the example. Also external countries have less a reason to enter Syria as it's resource return is low and the public are not that cooperative.

I will continue more tomorrow on this topic, though I just spotted an announcement on 'Moody's' rating agency, which has the French AAA credit rating under view. This is just primarily down to market speculation, as we all know whether it be fundamental behavioural theory or strategic economics, the market is always proactive, though never as rational as a monkey.
Tata

2025...The period for nuclear & renewable energy

2011-11-18T17:58:00.003+01:00

I'm taking a mini break from the EU as the Financial Times this week has been reporting on the nuclear debate going on around the world currently, after the Japanese earthquake produced our second largest nuclear energy industrial incident. Not only that I was also invited to attend an ecological economics speech yesterday where nuclear was condemned (as well as positive economics & monetarism which is really two my economic areas). So I thought about giving my opinion, mixed in with scientific facts.

We cannot smell it, feel it; though we breath it in, it tans our skin, it's in the food we eat; it is there and that is what radiation is, the invisible particles of life. It has been there all our lives, from the sun, the earth, from atomic testing to the medical industry, but why are we scared of it?

My main three points about why people are against anything with the elements, are nuclear waste and nuclear destruction, be it weapons or meltdown. Though I feel a lot of the science is left unspoken, and facts can be larger than words, so here I go at trying to balance out the atomic debate with some economics as well.

The Science
Background radiation is everywhere and the biggest contributor is Radon, which comes from decaying elements in rocks within the earth's crust. Radon is approx 50% of background radiation and gamma and beta from the same decaying in the ground is 14%. 12 % is internal, what this means is we are technically radioactive as we have carbon -14 inside us, not only that, but what we eat has C-14, radioactive potassium as well as other radioactive elements inside. The next is the Cosmic, that's 10% contributed by space.
So...we have approximately 86% of radiation today being non-man made.

Man Made Radiation
The biggest man-made contributor of radiation is the medical industry...12%.

Air travel contributes 0.4%, fallout 0.4% occupational 0.2% and nuclear waste <0.1 %. This is all by the way up to present day factual numbers, from the UN, NAEA.

NAEA

The Dangers
I really hate going into this topic as it is very sensitive for me on both sides valuing any loss in life is worrying area for me, but sometimes it has to be shown.
There have been many more and troubling disasters outside nuclear energy, the nuclear medical industry and other areas are much more worrying, here are examples:
http://en.wikipedia.org/wiki/List_of_civilian_radiation_accidents
My point here is that medical contributes more to background radiation, though we don't scrutinise x-rays, cat scans or cancer treatment?
And the horrible summary is that I have seen what oil has done to some poorest areas of the planet pollution wise in real life. We don't want to see it, smell it, touch it though we are addicted, that is what oil is for modern society and how many people have died due to it?

The Economics
My main concern is Germany's promise to scrap nuclear reactors by 2020. The funny thing is, to make up for that loss in nuclear, you have to build more coal fire power stations, which actually give out more radiation than a nuclear power station as well as carbon dioxide which then in turn goes in global warming. They are creating more wind farms and other renewable sources, but the energy production of wind turbine is so small, compared to energy demanded, it is an unrealistic approach and is very expensive contributor to the rise also in energy companies increasing their bills, as well as the price of oil being more susceptible to shocks and increasing due to demand and supply.
People right now and in future years cannot afford this until technology in the renewable sector improves and governments can afford to run deficits.

Conclusion
My goal is not to say we should be Nuclear forever, but when you have depleting highly demanded natural resources. A society which is going through depleted income, that will eventually have to pay more continuously for energy. A time where new nations demand more energy, and geopolitics becomes more powerful... To look away from Nuclear is really a scary mistake I feel.

Renewable energy is the future beyond a doubt, within 5-10 years we most likely will have fusion near perfected for power generation testing, and wind energy being actually cheap in a competitive market. That is where the future lies, but to jump on the green band wagon completely does not make sense from an environmental and economic point of view.

Autonomy...Shift to Fiscal Union and then expansion of EFTA

2011-11-14T15:12:00.001+01:00

Apologies on not responding on the weekend as promised, though I wanted to see what the situation regarding Italy was going to turn out by mid-week. So I hope you'll agree with me that it was indeed on good decision to make, whether that be regarding sheer laziness on my part or not knowing what interesting drama to compose on here.

Italy recieved it's first batch of Technocrats on Monday with little enthusiasm given for Mario Monti, though there was a lot of cheering & celebration for the departure of the late Mr B at what power there country has, as the IMF & ECB hammer a few more nails into the default coffin.

The use of this new technocratic power may see the newest change occurring the Europe; Fiscal control. This is maybe the one thing we can thank Greece and Italy speeding up for us. With trying to implement a whole rounded Monetary policy for the € member states, while different Fiscal control occurs really can eliminate the use of it all together. The evolution of the European Union since it's beginning has seen more conformity and policy decision making unity within most of it's key members, so to make it not happen would be a real slump.

I'm not a pro € person, though to bring confidence back to the European area and secure the long term future of the € this has to happen. The break up of the euro could still occur, though it would just be threats being eliminated that may cause future problems such as Greece and Italy(though would highly doubt Italy with the sovereign debt exposure other European banks have for it).

The problem that the euro-zone faced from the beginning was the unsynchronised fiscal policies. The main outcome for the eurozone is that fiscal harmony will occur and that the remaining EU countries will most likely merge into a separate trade agreement. There already exists this and it's name is EFTA (including Lichtenstein, Switzerland, Norway, Iceland). The merge may not be taken too kindly, though with proactive market actions being the the touch of death, you have to afford to lose some power.
I will be adding to this post this week, have to run to lectures!

When the IMF reaffirms in your mind, why it is the Last Resort...

2011-11-03T20:45:00.004+01:00

This week really marked a major time within the History of the European Monetary Union, the first stages of Greece having no more power in it's own country.

After the markets being stressed over the future of the €zone and Italy, it seemed a deal had been sealed on the weekend and the markets were looking hopeful for Monday, that was until the Greek PM flew back to Athens and announced there would be a referendum vote given to the Greek people to ask if they still wanted to be part of the euro and EU. Obviously the markets went to the panic button and Italian bond yields rose to the roof (The higher the bond yield, the higher the cost for Italy to borrow).

The last time I read of such a immediate of loss of power, was in the Oil Crisis peak of the 70s when the UK had to borrow from The International Monetary Fund. The IMF is the lender of last resort by any country's eyes, and when a combined package with the ECB was made in the last weekend of October, Greece seemed to think it had time to hold a referendum. The heads of the IMF, Germany & France just turned round and refused to give Greece any extra money this week until Greece did the right thing. Now Greece will not be trusted for a very long time...

There is without a doubt in my mind that the Greek PM did the wrong thing, he could have nearly produced the default on Tuesday. It was that serious and also he wasted a huge amount of money within the market. Not only that but when you take into consideration that Greek bond holders lost >50% of their value on their assets negotiated between the ECB & main holders, you can see why Angela Merkel, Nicholas Sarkozy & Christine Lagarde may want to hire an assassination Squad to take down George Papandreou.

Today FT.com produced an interactive map of the possibilities of the Fallout of the EU if Greece were to default, it's interesting whichever way you take it.

http://www.ft.com/cms/s/0/0a35504a-0615-11e1-a079-00144feabdc0.html#axzz1cXJyG6ms

I don't want to be 'I told you so'...but the default is only becoming more likely, November 2011 will be something European Economic history. The EU will be quite likely, kicking Greece into the dessert by the end of the month to sacrifice the few for the many. Then stage two gets under way... Italy

I'll promise I'll lighten the mood with one of my silly graphs on the weekend^^ Maybe zombies could trigger the collapse of the Eurozone? Stay tuned!

Greece's Future Epitaph and ECB loses a few Nukes along the way...

2011-10-12T15:38:00.002+02:00

So time to get to the major future of the exotic € member states and really what is the future for Greece and also now Italy, which I will discuss in the next post.

In contrast to Italy and Spain (and arguably the remaining lesser deceased EMU members) Greece is insolvent and in need of debt restructuring, so now it is from a typical investors eye like this.

Greece is on life-support and we are getting ready to find out what he has in the 'family will' and who gets what debts that he goes to grave without paying.

The main problem is who Greece borrowed money off, which has left a lot of our own banks now having to realise they won't really see their money again, making the lunch group investors not know why they shouldn't move more to the BRIC countries(Brazil, Russia, India & China).

The fire-power of the European Central Bank is also under attack, the uncompromising dedication for the ECB to support illiquidity issues of governments is crucial in some ways, though it is getting more in-tuned with political decisions and this by any economist outlook gets us extremely scared.

This is due to the ECB being the grim reaper; who lives and who dies is up to them and unfortunately that is the way it goes in positive economics, though it is being slowed down now. If the ECB had its way it would have back in late July refused help to Greece and provided them with a little get out of town cash and help with defaulting, because the longer it is left the harder the fence becomes to stop greece's plague attacking Italy and Spain.

What we discussed this morning in my Behavioural lecture was also the civil situation, a lot of us showed how Greece would likely come to civil unrest, from negative growth and high unemployment with zero money, what would you do if you were Greek?

http://www.ft.com/cms/s/0/4220f626-d54c-11df-8e86-00144feabdc0.html#axzz1aXhw5yiu

This link gives an interactive outlook on the € members on their unemployment and GDP readings as well as their competitiveness.

I think the biggest scare is that people will have to see it like this in the eyes of most analysts as the most likely options.

1.Germany leads a € break up- possible? but unlikely right now

2.Disorderly € breakup of the bottom pile?survival of € will occur though will cause large political disruption.

3.ECB takes a hit and one country exists without contagion- meh we doubt it yet we need to still think it

4.IMF decides that Default and debt restructure will occur- As likely as a bomb falling to the ground

5.Growth and inflation stabilisation occur and everything is mulled wine & butterflies-That is as likely as my monetary integration teacher deciding she is wearing latex to the lecture this afternoon. Desirable, yet highly improbable.

Amazon.de Widgets

The Upside of Econ-Goth Blogging

2011-10-06T19:03:00.003+02:00

For lesser part of a reason I have began to learn the new interesting side of Behaviour & Experimental economics.

Why does this entitle me to a blog spot one might ask?
Well I'm using my most lousy excuse as being a Goth.With the worldwide outlook continuing to resemble the mind of a paranoid priest from the rural area of Ireland coming into contact with Glee, there isn't much bleaker to be seen than that through the eyes of the typical dark mind of a Goth. Therefore we can take a much better macro overview than the average stressed out economist etc. as gloom is our natural area for optimism so we do not exaggerate the extent to the end of days.

So what qualifies me to waste yours and definitely my invaluable time?
Well I couldn't give a rats arse what you think as us economic students are based on mostly assumption. I'm assuming your time is less valuable, thus you chose to waste your diminishing supply on me. Ergo until your interest diminishes, I assume you will continue reading.

So you just learnt the Law of Diminishing Marginal Utility.

What I will talk about?
Well even I don't know, as any narcissistic person will tell you, I do like hearing my own opinion on things and I do have a agar eye for new material on the subject so I believe it will be about:
1.Current and future areas
2.New "exciting" material!