Tongan Faintly Dainties + WB and IMF Speak Out

Kimball Corson
11/03/2009, Neiafu, Vava'u, Tonga

Two girls on a wharf. The pretty one afterward threw me a kiss I did not catch, photographically. Shoot, by age, I could be her great grandfather. Ah, to be young again. She is definitely a cutie pie. I have always appreciated genuinely attractive women and they know it instantly.

Note the "I love you" handsign. (http://en.wikipedia.org/wiki/Types_of_gestures)
Both girls spoke English, as do most Tongans here.
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The World Bank and the IMF Speak Out Against World Asset Bubbles

While not viewing the matter as broadly as some of us do, both the World Bank and the IMF are becoming aware of asset prices bubbling up in various parts of the world.

The World Bank warns that the sudden appearance of billions of dollars of investment capital in east Asia is "raising concerns about asset bubbles" in equity markets throughout Asia and in real estate markets in Hong Kong, Singapore, Vietnam and indeed, mainland China.

At the same time, the International Monetary Fund cited the risk arising from a flood of investment capital, particularly in Asia, pushing up asset prices so that they become divorced from the underlying economic realities. The IMF too is focused on asset bubbles.

Our own stock market, well up on its March lows, hovers more at a DOW level befitting a strong V shaped recovery, if not a stable, full employment economy in the middle of a strong growth cycle. While the flow of money against consumer goods worldwide may be waning well below what policy makers would like to see, the flow against financial assets is accelerating, pushing the prices of those assets up, so that now we even have conservative institutions like the World Bank and the IMF speaking up about the matter.

While some deflationary forces exert themselves in regard to consumer goods and services on a worldwide basis, the opposite is true of financial assets. They are undergoing substantial inflation, also worldwide. The flow of funds is strongly away from those in the bottom halves of income distributions with high average propensities to purchase consumer goods and services and concentrated much more in the hands of wealthier families and businesses with lower average propensities to consume and higher propensities to purchase financial assets.

The ultimate source of most of these moneys worldwide is the U.S. federal government and Federal Reserve System, either directly via the carry trade and the zero interest rate policy, or indirectly through various similar means.

Policy makers in Washington, if they are aware of the problem and if they understand it, seem to have no comment and voice no concerns about it.
Indeed, the Federal Reserve just said, in effect, that the zero interest rate policy will be continued.

Posted and published on seekingalpha.com

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The Old Harbor + Where to Invest?

Kimball Corson
11/03/2009, Near Neiafu, Vava'u, Tonga

Just over the hill from Neiafu. Mostly now reefed in, but an area off to the lower right is still accessible by boat at any time. At low tide, as here, wandering pigs go out on the reef and root for edibles. Taken with a 300mm lens.
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The Problem of Where to Invest Now

If, as Nouriel Roubini suggests, we face an asset price bubble worldwide, arising out of the Fed's zero interest rate policy and the carry trade, what assets are safe for long positions in this bubbled up condition?

Not the dollar, if the Fed drops that policy or complications arise. Besides, basically the dollar is going nowhere, neither solidly up nor down. It mirror images the reverse of the stock market, also going nowhere.

Gold and silver? They too are bubbled assets, but silver less so.

Brazil, the emerging markets, China and maybe the BRICs? As I have shown elsewhere, because of trending in the stock market and human nature, ETFs and the like in these areas move or trend with the market, and are therefore are too open to collapse in a deflating price bubble, regardless of underlying real conditions.

No sanctuary there. Foreign currencies? Perhaps, but only if financial assets have not bubbled up in the relevant country, from the mother of all worldwide asset price bubbles.

Perhaps the Brazilian real, as Brazil struggles to isolate itself from these problems and its own economy is relatively healthy. The real has moved above $0.50US recently for the first time and now hovers near $0.58. But such investments are not easy or practical for many. Too, U.S. access to the currency may be subject to the trending problem I identify above. Not too much is left.

If the Fed decides at some future point to reverse its zero interest rate and associated policies, then the threat of collapse in asset prices world wide increases markedly. If it does not reverse its policies, but instead prolongs them, then more worldwide asset prices will continue to rise to accompany those already bubbled up.

However, price rises in assets already bubbled up tend to occur more slowly, as caution and better knowledge of the situation set in, just as in our own stock market. Serious slippage in prices can occur, but has not yet developed in our own stock market. Just understanding the situation and believing the gains of being in the market are not worth the risks can sideline many, but as I will show, they are not really sidelined. There are very few if any sanctuaries from the systemic risks.

Yet short positions entail some danger here as well these days, although mostly minor from small movements to the upside. Shorting anything much can therefore be as risky and profitless as taking long positions. If that is so and we face bubbled prices, is there anywhere left to safely invest?

The quick answer is largely nowhere, on simple long and short positions. Cash, if the dollars slides, is no better than gold if asset prices fall. Few foreign currencies are not similarly vulnerable from their own local asset price bubbles.

The problem is further compounded by most real economies, other than China, several in the far east and Brazil. The real economies of most major national players on the world scene are too much going nowhere. Many, like the U.S., hover at zero growth or worst and that growth is from a lower depressed level that some say is going to be the world's "new normal" because structural problem in the U.S. and in other countries are not being addressed. In short, from these circumstances, we find no immediate and compelling argument, to take long or short positions, especially given the risks and poor returns. We get no help from this quarter either.

We seem to be trending nowhere in real or financial terms at the moment, but simply sit hovered near the apex of too many asset price bubbles. Presently, the Fed's policies are doing more to expand the scope of those prices bubbles worldwide than they are to press existing price bubbles higher. This is because of the risk and return problem I identify here and the higher returns on more remote and less accessible assets in the world that are not so bubbled up. The far corners of the world affected are not so easily reached by U.S. investors who lack ready access.

Gold, silver and other precious metals cease to become a worthy store of value to the extent their prices are also bubbled up and face the prospect of collapse or decline like other prices. Sure, the store of value function might well be restored with a huge collapse, but consider the losses incurred by hold such assets to reach that point. This is the reason more countries have not followed India's example of stock piling gold. Only a Fall of Rome scenario, like that painted by Richard Duncan, gives stock piling gold any real prospect. The more likely prospect is many will simply buy such metals at higher prices and then watch their prices fall.

The perversity of the situation is that not even cash - the classical refuge from the market - is safe. The dollar too is vulnerable, especially if we consider the prospect of inflation. Too many seem not to realize this and think that by being out of the market and into cash they are shielded from risk. Some risks, yes, but not the risk of a declining dollar or the prospect of inflation.

We no longer face, in any particular stock, just the risks of a good company facing an uncertain economy. We have that situation and more. We face in any particular stock now not only market trending risks, but certain serious systemic risks arising out of the policies that have been adopted by those who make them in Washington. The systemic risks have increased markedly and affect us all. They arise largely as a set of unintended and unforeseen consequences by policy makers.

We proceed at our peril. All of us should come to realize that there are no true safe havens left and, regardless of how much we would like to garner a little profit now at minimal risk, few good opportunities exist to do so either, long or short.

Posted and published on seekingalpha.com

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Tongan Buddies + New Economic Indicator?

Kimball Corson
11/03/2009, Neiafu, Vava'u, Tonga

On the stairs near a bar.
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A New Economic Indicator?

The Washington Post recently reported that --

"In a year of job losses, foreclosures and bag lunches, Americans have spent record-breaking amounts of money on guns and ammunition. The most obvious sign of their demand: empty ammunition shelves.

"At points during the past year, bullets have been selling faster than factories could make them.

"Gun owners have bought about 12 billion rounds of ammunition in the past year, industry officials estimate. That's up from 7 billion to 10 billion in a normal year.

"It has happened, oddly, at a time when the two concerns that usually make people buy guns and bullets -- crime and increased gun control -- seem less threatening than usual. . . ."

The reasons for the increased sales are said to be varied, however, the more interesting and common reason voiced is that economic insecurity is now being translated into physical insecurity of possible criminal violence, most likely attending public unrest.

That view turns such sales increases into an economic indicator. One obviously reserved for periods of great economic insecurity, stress and concern.

Posted and published on seekingalpha.com

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A Swimmer

Kimball Corson
11/03/2009, Neiafu, Vava'u, Tonga

At a pier on a rainy day.
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School Girls + 10.2% Unemployment Figure

Kimball Corson
10/30/2009, Neiafu, Vava'u, Tonga

It is significant to realize that the majority of the peoples of the world have large brown feet, that fit less well into shoes, but work much better than ours without them. That is just the way it is . . . White Foot.
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11/6/09
The Official Unemployment Rate Is Now Over 10% and Rising

The government's just released unemployment report now puts the official unemployment rate at over 10%. Actually, the official figure is 10.2%, which is up from 9.8% more recently, and significantly higher than the 9.9% that was widely forecast. This is bad news and the highest unemployment rate since 1982. The true unemployment figure is, of course, considerably higher, given how the government mistabulates the numbers. It is closer to 18%.

Nonfarm payrolls for October fell 190,000. That is worse than the widely forecast decline of 175,000. Worse, job losses for the previous month were upwardly revised to reflect nonfarm job losses of 219,000. Average weekly hourly hours remained the same at 33.

The stock market managed to squeak out a very modest gain the day of the announcement, notwithstanding the news, and did not plumment two or three hundred points as might be expected, given how badly off forecasts were and the downward revision of the earlier employment number. A bubbled up market to be sure.

This new 10% unemployment figure needs to be considered in tandem with the real, non-governmentally generated GDP growth rate, estimated at about .5% for 3Q. The two figures together are truly not what we could hope for and raise the specter of serious trouble ahead for the U.S. economy, especially in light of the world asset price bubble that is developing, thanks to policies of the Federal Reserve.

Posted but not published on seekingalpha.com

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God and Water

Kimball Corson
10/30/2009, Neiafu, Vava'u, Tonga

God keeps the cistern full, but it is important that the cross be higher than the cistern. The Creator of this universe is very concerned about such things.

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Church Admin Office

Kimball Corson
10/30/2009, Neiafu, Vava'u, Tonga