Tag Archives: GDP

A Nice Surprise for Chancellor Gideon.

The UK economy grew 0.6% in the fourth quarter of 2015, higher than the previous estimate of 0.5%.

As a result, the economy grew by 2.3% for the whole of 2015, rather than 2.2% as previously thought, according to the Office for National Statistics (ONS).

Unsurprisingly, the figure came as a surprise to experts, who had forecast that it would remain unchanged.

One wonders whether Chancellor Gideon will blame the Global Economy for this morsel of good fortune.

Export worries.

cameron and osborne

David Cameron and George Osborne both appear to think that meeting other politicians somehow creates international trade. The fact is that politicians have very little influence on commerce and none at all on corporate trade-related decision-making.

The three months to September 2015 saw British exporters experience the weakest growth in orders since the second quarter of 2009 when the country was in the grip of recession.

Admittedly, manufacturing represents only about 10% of GDP but nevertheless it is worrying to see the UK’s export drive going into reverse at exactly the time when the government is dispensing such positive economic mood-music.

Yes, we understand that the UK economy is in better shape than most other European countries but then again, in the land of the blind, the one-eyed man IS king!

Our overall economic growth has slowed to 0.5% per quarter but it is most likely that almost all of that growth is as a result of domestic demand – which is certainly not particularly encouraging within the global economy.

A Markit survey published yesterday shows that  in spite of the rhetoric, the construction sector also slowed in October.

Economic Recovery: Fact or Faith?

Whenever man has struggled with solutions to big problems, he has turned to his God, who has consistently said that if man endures deprivations and suffering on this Earth, he will get his just reward in Heaven.

The weird thing is that here we are in the Year 5PL (Post Lehman) and our politicians are behaving just like those prophets of old. WITHOUT any proof and relying solely on faith, they say “Endure the austerity and soon you will be transported to the economic heaven.” Meanwhile they (the prophets) search for “signs”. For instance, a small statistical variation in economic data is seized upon as a “sign” that all will soon be well. (Chancellor Osborne did it again yesterday when he announced “encouraging signs that the economy is healing” HERE In fact, he repeats the holy phrase.)

Is that true? Have we been offered any proof? Do we have to accept the words of the prophets without question or are we being heretical and behaving like Doubting Thomases?

If the New Religion is true, then we have been witnessing the longest Resurrection ever!

There is much talk of “positive sentiment” and Central Bankers accept gifts and many sacrifices from the people and prophets….but, is there really room for faith in economic thinking?

Currently, it would appear that it is all we have.

(As you listen to the Chancellor, notice the total lack of numbers and dates in the affirmation of his faith)

Government Debt: “We’re all in this together.”

Never mind all that “Debt as a percentage of GDP” nonsense. Here’s a picture of government debt on a simple picture, courtesy of ukpublicspending.co.uk.

It is OUT OF CONTROL.

All steep graphs are scary, no matter which way they’re pointing. Make no mistake, the above graph is so scary and the Chancellor is running out of options so fast, that we are about to reach a very significant and critical moment in Britain’s social and economic history.

Because Chancellor Gideon has well-and-truly painted himself into a corner and is greedy for cash, he will soon become like a schoolkid with his nose pressed up against the sweet-shop window. But what will he be looking at? Surely, there’s nothing left to plunder.

Currently, our savings are languishing in banks, gradually losing their value. Investment rates are lower than inflation and currently it seems as if the differential will continue to increase. THAT will erode our savings at an accelerated rate.

Dormant bank savings accounts have already been looted in order to fund one of the Chancellor’s rapidly growing array of “schemes” to stimulate the economy. On this occasion, the booty (up to £400 MILLION) will be destined for the Big Society Bank (remember?) which has now been rebranded BIG SOCIETY CAPITAL (BSC). Forty percent of  BSC shares are owned by Barclays, HSBC, Lloyds Banking Group and RBS (They are preference shares which means that in the event of a collapse, the banks will have preference over other shareholders).

So what could the Chancellor and the banks be planning next? What happened in Cyprus ought to give us a clue.

As a country, we are not spending enough. One way to encourage us to spend would be to threaten our savings either by way of a levy (tax) or seizure.

You may be thinking “Yes, but surely, our savings are protected?” Yes, they are. The capital is protected  but our cash is not protected against taxes.

Within four to five years, the government will have to find about £70 BILLION per year JUST in order to fund the interest payments on the money it owes. So where will it find the money?

It is there somewhere. Here’s a clue:

The richest 1% of our population, many of whom famously squirrel away  their cash offshore, won’t be affected and neither will the large corporations  – they pay tax when they want to plus they are also lucky enough to be able to decide how much to pay.

That leaves the ordinary Saver and Depositor.

The only thing that the government needs to decide is how to present the raid on our money so as to disguise what essentially will be a tax. There are several ways in which the exercise can be delivered.

For instance, a Cyprus-like levy. Simple and straightforward.

There may be some sort of government share-offer, designed to relieve us of our cash or even a mandatory Government Bond which those with a certain level of savings will be bound to purchase.

I would suspect that even Pension Funds are no longer safe.

But the really scary thing is that because this will be a concerted and choreographed international assault by governments and banks, there will be nowhere to run.

We are well and truly “All in this together”………well….most of us.

Between Gold & a Hard Place.

2011 will be remembered as the year when the gold price really took off. It will also be remembered as the year of the PIIGS.

That’s Portugal, Italy, Ireland, Greece, Spain.

So what would happen if we combined the two? What would happen if the PIIGS decided to sell their gold in order to clear their debt? (As recently suggested by Germany’s Vice Chancellor).

And while we’re at it,  let’s get away from expressing sovereign debt in percentages of GDP. No-one understands that anyway.

Let’s be different and look at it all in cash terms:

The total gold holding of the PIIGS is about 3250 tonnes. At current prices that’s worth about 132 billion euros. That’s 132,000,000,000 euros.

Unfortunately their combined outstanding sovereign debt is about 3,300 billion euros. That’s 3,300,000,000,000 euros

For instance, Portugal has about 390 tonnes of gold, currently worth about 15 billion euros.  That is about 20% of its latest bailout package.

The biggest Eurozone gold hoarder is Italy. It is also the world’s fourth-largest owner of the metal . Italy’s  2,450 tonnes is worth about 95 billion euros at today’s prices. That’s 95,000,000,000 euros.

Italy’s government has $2.45 trillion dollars in debt. That’s 2,450,000,000,000 euros.

It is estimated that as a result of inevitable defaults, banks will LOSE £200 billion euros. That’s 200,000,000,000.

Hence all that nervousness around bank shares.

It’s all theoretical anyway because gold is not the property of the PIIGS’ governments to sell. Gold is part of a country’s Foreign Exchange Reserves which are managed by central banks and cannot be used to finance the public sector – except apparently, in certain Middle Eastern states.

What a mess!

Finally, in case you’re still wondering why the politicians have not actually put into place a plan to sort-out the debt-related issues, it is because they don’t really know what to do. Plus, they are playing the NOMW game.

NOMW? Not On My Watch.

President Sarkozy has an election to fight in 2012 and Bundeskanzlerin Merkel has one in 2013.

Can they possibly keep it all going until then?

No.

Send out the Clowns

Your Prime Minister

Gordon Brown and the New Labour inepts are very fond of statistics. Most of the time, their statistics are “weighted”, “massaged” or wrong. Their presentation is often designed to mislead. Here are some simple numbers which clearly show New Labour’s main “successes”.

They came to power in 1997 and that is probably the best starting point:

1. INFLATION.  1997 2.5% ,  2010  3.5%

2. UNEMPLOYMENT.1997 2million ,  2010 2.5million

3. NATIONAL DEBT. 1997 42% of GDP,   2010 53% of GDP

4. LITRE PETROL. 1997 50p , 2010 £1.20

5. BUDGET DEFICIT. 1997 ZERO, 2010 £170 BILLION

Needless to say, there are many other such comparisons. The only thing that can be said with certainty is that New Labour has destroyed the British Economy and that we have completed the journey from economic superpower to third-world economy.

Time is running out and we should waste no time in running this bunch of posturing clowns out of town with Gordo the Clown leading the way.

The Labour claims that they led us out of recession through their fiscal policies is a lie. They did it by printing money and postponing the inevitable collapse.

 

While Rome Burns

 

A million-and-one things are distracting our politicians  – naturally-occurring disasters  such as the  Chile tsunami, the  Haiti earthquake, Global Warming-induced freezing weather. Then there are exceptional occurrences such as the Vancouver Games, the death of Michael Foot, the war in Afghanistan, a non-domiciled Lord  and the impending United Kingdom General Election. All are events which have provided many opportunities to ignore the one great constant, the real “elephant in the room”.  The economy.

If history teaches us anything, it’s that when even ONE major government defaults on its debts, economic chaos can follow. Unfortunately, it’s a lesson that few appear to have learned.  A crisis can unfold in just  in FIVE quick steps:

1. A  single country’s debt default will   cause ALL gilts and bonds to crash, as  investors  stampede for the gilt/bond market exits, dumping as much as they can, as fast as they can.

2.  As the gilt and bond market collapses, interest rates climb and credit tightens. The rates on mortgages, car loans and other long-term debts go through the roof. They are followed by rates tied to short-term money markets such as credit cards and other unsecured loans. 

3. Consumers stop consuming, that is to say, spending goes down. 

4. Corporate earnings and stock prices fall.

5. Unemployment rises.

Our “faux-recovery” would  stop dead in its tracks and we would all be forced  to take a hard reality check because Page 2 of the so-called “double-dip” recession will have arrived. Remember that the current recovery is only here as a result of Western Governments throwing non-existent money at the banks, purely as a stop-gap but in the vain hope that some new and hitherto unknown economic alchemy would miraculously manifest itself and those elusive green shoots of economic recovery would appear out of nowhere.  A triumph of “fingers crossed” political hope over harsh economic reality.

A disturbing tapestry is already beginning to unfold – not just in ONE major Western country but in TEN of them!

We’ve known for some time that Greece, Italy and Ireland are at risk of default — and this week, we saw how investors’ fears and uncertainties caused them to begin dumping British pounds and gilts. The soaring costs of Credit Default Swaps — “insurance policies” that protect investors against default — on the debts of Portugal, Romania, Lithuania, Latvia, Iceland and the Ukraine are a clear sign that investors believe that all of these countries are at an elevated risk of default.

Put simply, it would only take  only ONE sovereign debt default to crush this fictitiously anaemic recovery … but no fewer than TEN major Western countries are now at risk!

THREE powerful forecasting tools are confirming that a  bond/gilt conflagration, stock market decline and double-dip recession are now “peeking ” over the horizon and are about to sneak up on us.

CYCLICAL ANALYSIS:  The cycles identified by the USA-based Foundation for the Study of Cycles have accurately anticipated nearly every major shift in market direction  since the  early 1970s. Its current prediction is that Stocks will begin to fall this year and will continue to do so for the following two years. They also anticipate that by the end of 2011, gold will have crossed the $2000 per ounce barrier. 

POLITICIANS and WORLD BANKERS:  Right now, they’re all fed up with bailouts of failed bankers with their continued  intransigence and hand-wringing.  Politicians can only watch  the skyrocketing  deficits and debts  which they created through initiating out-of-control borrowing by their Treasuries. The  mindless money-printing by the the Bank of England, the Fed and other central banks has only amplified the problem. As a result of their collective actions, there is now far more than just the mere spectre  of higher taxes and savage public spending cuts. There is no other way out because all governments need more revenue as well as lower expenditure.  Unfortunately, politicians appear to be frozen in fear and have adopted the  “Let’s wait -and-see and watch these oncoming headlights”  approach.

In the United Kingdom, we have a General Election within two months and within seven months, the Americans have their mid-term Congressional elections.  The net result is that we are languishing in a sort of economic limbo where  indecision and uncertainty are pushing investors’ nerves to breaking point – which usually means that they develop the urge to sell .

The United Kingdom has another potentially destructive issue which is causing yet more nervousness among investors. The latest polls suggest that after the General Election,  there may be a “hung parliament” with neither of the two major parties achieving an overall majority. That means that there is no clear message or even anticipation as to how the country’s massive budget deficit will be dealt with. There are not-only ideological reasons for the uncertainty but even economists cannot agree as to which will be the best way forward. That makes investors very nervous and is a very good reason for the politicians to say as little as possible – and that is exactly what they are doing.

Massive government debts have forced them  to accept that the days  of Central Bank bailouts and other “stimuli” are numbered.  That, in turn, means that the momentary economic stability  that  the recent government-induced  bursts of consumer spending will soon come to an end.

VOLATILITY ANALYSIS:  Currently, the volatility indicators that  professional traders rely on — in the gilt/bond as well as currency markets etc. are signaling that the economic stability and investment trends that most investors have depended on for the last year or so are coming  to an end. The smart money is now beginning to bet on major directional shifts in all major asset classes — plus, the generally accepted “word on the streets” is that the current ersatz recovery is beginning to unravel.

Meanwhile, politicians are grateful for all the little distractions that appear to be keeping their collective eye off the ball. While the economy burns, if Obama, Brown et al were each handed a fiddle, there is little doubt that they would play it.

Straw-Clutch Economics

“I don’t think so!”

The Office for National Statistics (ONS) tells us that during October, November and December 2009 (Q4), the economy, or more specifically UK’s production and service sectors grew by 0.1%.  That’s the good news.

The bad news is that  during the whole of 2009, our Gross Domestic Product (GDP) fell by a record 4.8%.

You have to remember that the above figures are derived statistically with a plus/minus margin of error and in addition, that today’s announcement is not based on all the available data . Therefore if the margin of error is, say +/- 0.1%,  then  that should  put today’s announcement into perspective. The growth figure is so minute as to be meaningless.

Officially, after 18 months of negative growth, the government is telling us that we are now officially “out of recession”. The Chancellor has said that “confidence is returning” but there seemed to be a bit of a “whistling in the dark” aspect to his statement.

The car scrappage scheme and  cash handouts to the banks have treated the economic symptom but definitely not the cause.  In spite of  £178 billions-worth of public borrowing during the last 18 months, economic output fell by 6%.

Had the announcement said that the  0.1% economic growth been as a result of increased spending and increased production then we might have been more inclined to show a bit more enthusiasm. As things stand, it is impossible to extrapolate from such a weak figure and agree with the government that the United Kingdom’s recession is over.

Some commentators are agreeing with the government and saying  that the economy has just crossed the line in coming out 0f the recession. The economy has definitely not crossed the line on its own steam – it was pushed by a panicked government. Because current figures have too much “static” in them, primarily as a result of the government’s monetary intervention, it is difficult to see how we can claim to be witnessing real economic growth. Real growth will only come when the government backs off and allows the economy to stand on its own shaky feet.

It is not even 100% certain that 2009 Q4 figures are either accurate or that they represent any meaningful trend.

What the media have not fully explained is that the 0.1% figure is only preliminary and therefore more of a “guesstimate” rather than a “set-in-stone” absolute.  The ONS has to strike a balance between accuracy and the pressure on them to produce some sort of number. Consequently, the figure given today is only based on about 40% of the available data. The 0.1% figure will definitely be revised with the real possibility of a downward revision. That could mean that technically we are still in recession. Two more revised figures will be published – on 26th February and 30th March.

Most analysts and commentators (and, one suspects, the government) had been expecting  and hoping for a decisive upward swing in the economy but what has been delivered is the economic equivalent of a damp squib. The economy is still operating at way below pre-recession levels – and will probably continue to do so for a long time yet.

The pound-sterling will now get a pasting on the foreign exchanges and the best that the Chancellor will probably come up with, will be that “it will be good for exports”.

As usual, this is a lacklustre result from a lacklustre economy, led by a lacklustre government which seems to be doomed to the political equivalent of a Jolly Boy’s outing to the Dignitas Clinic.

 

 

Fools Gold?

A couple of days ago, the FTSE 100 index rose by about 2% and gold reached a new high. In addition, the economy shrank by only 0.3%, compared to the experts’ predictions of 0.4% and the banks had a Supreme Court judgement in their favour. So why the continuing uneasy feeling?

Next year, interest rates are going to rise and that means that borrowers, both corporate and personal will begin to have difficulty in repaying their loans. This means another wave  of write-downs for the banking sector and they could be as huge as last year’s write-downs. Plus it could mean a huge wave of foreclosures on borrowers who can’t afford the new, higher monthly repayments.

The Gross Domestic Product may well rise in the short-term but the ability for business and taxpayers to service a debt does not depend on a rising GDP figure. It depends on income. That’s why the high  unemployment rate is very bad news for the housing market and for the banks — again.

It’s still too early for the mortgage reset problem to derail the banking system and stop the economic rebound in its tracks, so there will be more days like today when the FTSE has a healthy “Bounce” and all appears well and on the up.

Nevertheless, the looming debt problem does explain the Treasury’s and the Bank of England’s apparent reluctance to return to a more normal monetary policy.  In addition, the Treasury and the Bank of England have completely abandoned any semblance of fiscal discipline. Consequently, the United Kingdom is running an ever-larger budget deficit.

As interest rates rise, absolute debt levels will climb ever-higher and spiral upwards. In plain English, we’re going to be dedicating a larger and larger share of the United Kingdom’s budget or income to pay interest on debt. That applies to both the government and the taxpayer. That will inevitably result in higher taxation and a watering-down of public services.

As a nation, we are in hock as never before and currently it looks as if the government has no intention of changing that fact. Their “wait and see” policies are extremely dangerous because  both the actual and hidden costs of our debt are rising every day. 

It looks as if the Bank of England and the government are expecting another major “dip” in the economy because they know that their current economic policies make another dip almost inevitable. That is why there is the occasional mention of a “double dip” recession. We’ve had the first one and now we’re awaiting the next one.

So why is the price of gold currently going through the roof? It’s because gold  has always been THE insurance against  the follies of government, especially against inflation. Gold speculators are expecting inflation. Hence the mad scramble for gold.

In the past, the majority of monetary regimes were based on money backed by gold and silver. Silver is no longer a precious metal and gold is only backing the currency of a few countries. 

If central banks around the world fail to remove the emergency stimuli before their current  measures translate into inflation, ALL currencies will fall in value relative to hard, tangible assets like gold.  That is when we will have global inflation.

Big  spikes in inflation have always had one major characteristic –  a strongly rising budget deficit mainly financed by monetising government debt. That characreristic is present today, and not just in the United Kingdom but globally. Monetising debt means turning something into money. In our case, the government “issues”  debt in order to finance its spending – for instance on buying worthless bank assets. The Bank of England then buys that debt by printing money.

Most of the the world is using money based solely on promises and faith. Hence the constant repetition of the word “confidence” – it is not confidence based on assets or REAL money but on hope.

When the financial crisis hit in 2007/08, governments all over the world reacted the same way: They started a debt binge accompanied by an extremely lax monetary policy. Central banks such as the Bank of England monetised government debt. That was the birth of modern “quantitative easing.”

These are the very same policies (debt and printing ever-increasing amounts of money) that were present during every large jump in inflation in history and these policies are the fundamental drivers behind the advance in the price of gold.

As long as there is no major fiscal and monetary policy change, inflation will heat up and gold’s bull market will continue. 

Hence the uneasiness whilst enjoying the sunshine of what looks like a mini-boom.