IN THE BEGINNING THERE WAS WAR

24 March 2023

day!https://www.livingintheair.org/2022/11/eckhart-tolle.html?m=1

There's a book that has just come out which I haven't read and it's entitled " in the beginning there was War"

How true is that! I've been looking at some videos on YouTube about history and all it is is the history of war and Conflict forever, it's been going on since the beginning of time, we've never really had peace ... Pax Romana maybe.

But where does that quote come from? it comes from the New Testament. it's either Genesis or John or both saying that "in the beginning there was the word". The Word.

What does this mean, "the word". So I looked it up and actually it's not just a word, it's a whole huge system of logic and reason. It is translated from the Greek "logos" which goes back to 700 BC.

The idea is that there is a structure and function or purpose to the universe, ok, this is something like Ekke is trying to say, created by God or some supernatural being, or really anything that you think explains the way we are all connected to each other by the logic and rules of the universe.

Now war is completely the opposite as it is chaos and disorder and destruction.

Perhaps it's a bit "manichean" to see things like this - structure and order v. chaos and destruction, true. But even so, who is the evil one, if it isn't America? Evil, dark, full of hate, the destroyer.

Not to say Putin wouldn't be the same if he were top dog, or Xi ... " the scum rises to the top". It is the nature of man, we are not God.

My rant for the day.

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DIRECT LINE INSURANCE

23 March 2023

Price: 143.90

Obvious to most that financial stocks are in trouble becuse their quality balance sheets are getting a clawing from angry interest rate tigers. It is a bit facile to say liabilities don't match assets, yet it is true that long-dated guilts may have to be sold at below par to meet demands from depositors. Would you call this a liquidity issue? Or is it LDI? - Liability-Driven Investment strategy misfired?

I pity the Fed - hugely qualified, high IQs the highest, know their history and have their own massive experience, but cannot manage a multi-factorial world, so many moving parts, always get it wrong.

What did they do? For these regional banks, they will take on these good-quality bonds at par, so at zero cost theses banks can honour withdrawals, no more bank runs.

And yet ...

To continue ... the story so far ... We can now understand the macroeconomics and changing regulations at work in the insurance industry generally, but still there is opaqueness - some analysts advise the clouds will lift September-time. Six month investment strategy then...

The CEO made a special divi payout of 100m, when he should have been building his buffers post covid; and secondly, he thought lowering premiums would take market share enough to keep up his EPS. He was wrong on both counts and he's gone as a result.

DLG has a new advanced-pricing model. Not sure how it works but it is being trialed in car insurance then rolled out to other product segments.

There is a threat to the traditionally-run insurance industry, weighed down with heavy admin costs that come out of the premiums. That threat is a new business model, P2P, from insurance brokerage firms like Bought By Many, Friendsurance, Guevara, InsPeer and PeerCover. These new online Brorkers underwrite their own policies rather going to the Carriers.

The problem is that until now, there has been a fundamental conflict of interests between the insurers, with their massive reserves sufficient to cover the worst of rainy days, and the insured, protected by heavy regulation but always interested in bending their claims.

Plus, to repeat, the premiums that are held against a rainy day are invested in low risk government bonds, but as we have seen this low risk turns out to be illusory in a fast-rising interest rate environment; and in any case the coupons are not enough to keep up with with inflation in repair costs, nor the rising numbers of claims.

But what if you could accurately segment the customers by risk profile - I imagine this part of the new advanced-pricing software - but also by social affiliation (friends, family, colleagues, clubs...), then pool the premiums in a transparent way and offer discounts to pool memebers, giving them an incentive to good behaviour? This is what we call a network effect.

Further, investors in the business, who provide the capital reserve, could now invest in any of the groups, and an organisation such as Uvamo would cover any claims that exceeded the total amount in the pool.

This would mean the insurers and the insured are one and the same group. The whole business to be managed on line by AI algos. Still a dream? See how a new outfit, 'Lemonade' (finding sweet solutions to sour problems) is a new organisation challenging the way that insurance companies work "with a peer-to-peer business model fueled by self-serve technology."

DLG interim results August seem too early to bring good news.

But a new CEO can bring clarity over the summer on the regulatory front (releasing insurance funds for equity investment?) and recalibrate DLG's new pricing model to support P2P insurance.

If this happens, we can expect sector-performance for next March's results and probably a great deal more.

With a poor view on the Fundamentals, I cling to a Technical trading analysis that suggests buy mid 140s, sell mid-180s, over next six months, for a 25% SP gain

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THE MANUFACTURE OF CONSENT

20 March 2023

You might ask why the media sensors the truth about the war in Ukraine and you might ask how the truth is censored. This article mainly explores the second question. 

As to the Why the truth is censored, we live in an information age and this is a war by information, or by defamation. If you consider all the sacrifices the public has made in order for the West to win this war, then it is necessary to keep them on board, at the expense of the truth, because otherwise the West's political system will begin to lose support and legigimacy, the power of the people can cause its collapse.

Very interesting discussion developing on points made in an earlier piece here.

https://youtu.be/73G_4pPmNf0

This is an exploration of exactly how "consent is manufactured", to use Chomsky's words. 

Until now we have been able to see quite easily the power of conformity and group think at work feeding us a diet of the same propaganda every day in support of NATO and the West.

And we can also imagine that if you take a dissenting line, as a journalist, your job might be under threat - I think but don't know for sure, that most journalists are freelance writers.

But in this video there are other more subtle explanations... like for example 'access': that if you don't tow the line you won't have access for yourself and your pieces in the public eye and in the eye of business and politicians. The more you conform, the more access you get and the more work and attention comes your way.

Also, how it is not just at an individual level, but it works more globally, there are cogs within cogs, so that media groups form part of an industry and the profits, the revenues, to keep a news organisation going, depend on their towing government and MoD lines ie keeping the propaganda flowing.

There is another point. It is interesting operationally to observe how the government or the Ministry of Defence feed a line to the media; which then writes it up in their morning news or op-ed; and then the next day the government is able to cite this op-ed saying look we are not the only ones who think this...

There is what Katrina in the video called 'seduction', which is where you, as a journo, are positively drawn in  because to be included is to be on the inside, amongst the rich famous and powerful, and being in this company flatters your ego, you are associated with powerful and well-known figures, your ego gets a boost.

There's also that a journalist doesn't have to fight too hard for his place in the sun if he is or she is writing pieces that conform, it's just plain easier and safer to run with the herd.

And then for the anecdote, there's the story of the contrarian Scott Ritter who was saying time and again that there were no weapons of mass destruction in Iraq... Of course I'd forgotten that story and here is Scott Ritter making news today, exposing the lies of government and mainstream Media.

It's true as well that if you go out on a limb against your country you are accused of being unpatriotic anti-american treasonous even.

The analysis of how consent is obtained also takes us into questioning the value of our democracy whether we really live in a free and democratic society where we can express our own opinions in or is it that war limits are freedom of thought and speech.

Furthermore in a democracy the leadership is accountable to the people and yet how is it that despite all these lies and despite the absolute disasters of all the wars from Panama to Yugoslavia to Afghanistan to Iraq to Libya and Syria; and now to Ukraine in spite of all these disasters absolutely no one has been held accountable.

What is astounding and incomprehensible almost is that all the truth about these wars was known at the time but there was no penetration into the public space so descent was relegated to the fringes and even today with the Ukraine war which was debated in the UK parliament a couple of weeks ago absolutely all the party leaders were pushing for more support for Ukraine with the objective of pushing the Russians completely out of Ukraine including the Crimea.

Pretty much everyone these days acknowledges that the Iraq war was a disaster and yet who took us into it if it wasn't Biden and blinken and here they are again and there doesn't appear to be any remorse or apology for these neocon wars,  it's just simply blamed on group think,  individual choices, but it looks very much like there is a structural problem, what you might call C Wright Mills's 'industrial military government complex', it's a story of backscratching and revolving doors.

The thing to grasp is that the most god-awful mistakes were made, but no one has apologised, nothing has been learnt and we carry on making the same mistakes. In fact you could say that the decline of American power, the end of the unipolar moment, began with the war in Iraq.

Why is it we love the dissenters in other countries, but not our own?

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SV BANK - V.2

15 March 2023

SIilicon Valley Bank bought long-dated US treasuries with its customers deposits. This is recommended practise, it should a safe,no-risk investment, no one would expect the US government to default. It bought when interest rates were at historic lows. But the Fed has increased interest rates since then, in order to combat inflation, and the price of these bonds has fallen, taking SVB with it.

1. The trouble is the banks' customers were tech startups with big loans and small revenues.

Then rising loan int charges and many of these still-low-revenue startups had trouble repaying their loans.

So some had to draw cash out of their current account.

The bank didn't have enough current assets to reimburse and so it had to sell some of its bonds ... very safe but long-term government bonds 

But because interest rates have been rising, these Bonds were worth less than par value ie the balance sheet was potentially having liabilities exceed assets.

Once other customers got a whiff of trouble at the bank, that their deposits may not be safe, they wanted to withdraw their money as well.

If so many customers turn up at the bank asking for their money and the bank can't give it to them because it doesn't have it, well then this is called a bank run !!!

I do not understand why SVB hadn't hedged against this risk of default with a Credit Default Swap. 

Normally, when you own a bond, issued by govt or corporate, you can expect to receive regular interest payments - the "coupon" - but there is always the risk the borrower can't make repayments ie defaults. 

A corporate treasurer or anyone owning bonds should insure against this risk - "hedge" against the risk of default - by swapping the risk of default on the expected fixed income stream with another investor, who agrees to reimburse them if the borrower defaults.

These CDS, Credit Default Swaps, contracts would commonly be maintained by regular payments of a premium - much like the regular premiums due on an insurance policy. 

Why wasn't SVB worried about the borrowers who issued the bond (the loan) defaulting? Why didn't SVB buy CDS to offset or swap that risk? They borrowed short, in effect, from their depositors; and invested long in government treasuries; but didn't take out a hedge against a fall in the value of their assets, presumably because they are expected to hold the asset to maturity and thus the par value would be returned.

What they didn't expect was to have to sell these treasuries before maturity in a market where are rising interest rates had reduced the value you of the asset and thus they were forced to crystallise a loss on their balance sheet.

Now, liabilities exceeded assets and SVB became insolvent. There would be a run on the bank because depositors couldn't get their money out and the fed had to take over to reassure markets even though this was only a medium-sized bank.

2. To avoid a bank run and the contagion to other banks, the US Fed (the BFTP) decided to guarantee the value of those government bonds *at Par*, even if the bank had to sell them at below par they would still get full par value from this govt top-up (bailout) 

And this stemmed the tide of customers and prevented a bank run ... in any case, the bank has shut its doors, taken over by the Fed ... it's the shareholders and unsecured Bond holders who will pay pay this time and not the taxpayer like in 2008.

3. Of course, the worry now is there are many companies with government and corporate bonds on their balance sheets 

And because of this problem that risk is being repriced, we can see it in the share price 

For example legal and general LGEN.L is down to 230 GBp. Where its value before was around 260 maybe even 300.

Many big companies have seen their share price fall by five percent today and more.

4. My question is : will the Fed step in to protect the value of corporate bonds as well as government bonds? and will the Bank of England follow suit ?

In which case legal and general for example is an absolute bargain at the moment at 230 GBp.

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SILICON VALLEY BANK - ANOTHER LEHMAN MOMENT? OR BUY THIS DIP?

14 March 2023

No. Not another Lehman moment. The system is safe though you wouldn't think so from the world reaction to the collapse of a relatively small bank. The Fed had to step in to save a run on the bank. Here's the story.

It seems that the bank was lending money to the Startup VC tech industry (... and also to the California wine industry curiously, the vineyards) 

and one of the conditions for a start-up fledgling company being granted a loan was that it must also choose SVB for its bank account 

So in other words SVB had a whole load of tech industry commercial account customers and almost no retail customer

 in fact 90% of the money flushing through the bank came from commercial tech, it seems, which is most unusual and highly unbalanced. That is a risk that regulators should have spotted especially as the CEO of the bank also sits on the regional Fed board (hmmmmm...).

The money its customers placed with it, SVB very wisely invested in American government bonds. Nothing safer, you would think -  these were long dated American government bonds meaning you are totally guaranteed to get back full par value at the end....if you hold it to the end, to maturity.

But like the LDI affair in the UK, interest rates started to go up up up some months ago, as we know, and this made it more and more difficult for some of its highly-indebted customers to repay their loan from their low startup revenues.

Some well-known celebrity (I forget his name) announced a few days ago that SVB was getting into difficulty - some customers were wanting to withdraw from their cash account to make loan repayments.

And so of course as soon as the word got around from that Bay area dinner table, many of the bank's customers started to get anxious and wanted to withdraw their money.

The money you remember had been put into safe long dated government bonds ... which now SVB had to sell, at whatever prices it could get.

It would have been ok if only the customers could have waited till the bonds could be sold at face (par) value ... the bank could have matched liabilities to assets according to the redemption dates of the bonds.

But they couldn't, the customers wanted their money now. So the bank was forced to sell off some of these bonds before maturity. But as we know, interest rates had risen since the bank had bought the bond, so the value of the bonds had fallen below par. The bank had to sell them off cheap, take a hit to its balance sheet. The bank had to mark the bonds to market prices ("mark to market" means you reconcile the value of your assets to market prices every three months, but this does not apply to long-dated bonds ... unless you sell them of course) and this is where the the assets were no longer able to cover the liabilities and why the Fed and FDIC had to step in, saving depositors but unlike 2008 this time the shareholders and unsecured Bond holders will pay and not the tax payers as in 2008. TO SAVE A RUN ON THE BANK.

Sad story. It is only a medium-sized bank with 210 billion dollars of assets, ie no risk to the banking system, and yet look at the, albeit temporary, damage to a fragile nervous world financial system from the uncertainty caused by this bank's collapse!

EPILOGUE 15 MARCH

1. BFTP will accept government bonds and similar at par value (most unusual) as collateral against insurance in the case of a bank needing to restructure, making bankruns a near impossibility.

2. They say the Fed will carry on raising rates until something breaks and it looks like something has just broken. So instead of 50 basis points at the next meeting it's more likely to be 25.

3. But the fight against inflation is ever more important - it is runni g at 10% now and that is on conventional measures - and this means the pause in Fed rate hikes can only be temporary.

4. HSBC UK has bought the bank for £1 which is a good deal for the UK albeit the HSBC share price fell 9% on the news.

5. Since the new BFTP guarantee referred to above does not cover uninsured loans, this is likely to reprice risk, raising the cost of capital for banks and thus lowering their margins and their share prices.

6. Yes this is a good moment to buy the dips and in particular tactical trades on regional US banks, or there is an ETF, $KRE, that specialises in regional US banks. It has fallen considerably and it's a good moment to buy and resell once price has reverted to the mean, given that there is now very little risk in future of similar bank runs.

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THE ROAD TO A NEW WORLD ORDER

10 March 2023

It is a really complicated lineup, global international relations. 

After the last war, America formalised its Order. An rules-based international foundational Order consists of three things. First, there is a set of fundamental values - Liberalism in this case  Second, a set of rules and the institutions to enforce them. Third, this is backed by a reserve trading currency and a military. The purpose of the American Order is to keep the world a safe place for trade and assure its hegemony.

Initially, this Order had to contend with a peer competitor, the "Soviet menace". Then in 1989, the Soviet Union collapsed, America had triumphed, and gree from peer competition America could switch its focus to sowing its vision of a borderless world where democratic nations could freely trade and their peoples enjoy peace, freedom, security and prosperity - basically, keep the shipping lanes open and America the top dog. American could now go where it wanted, evangelise its culture of freedom democracy and donuts, enjoy the attractiveness of the dollar to other nations. America could lead "the free world" and draw in power and money to an imperium founded in financial and military domination.

 to now having overcome one rival in 1991, the emergence of a new rival for America and re-emergence of its old chosen enemy to again contain.

We still think in terms of blocks : America + Europe + 1st island ring v. Asia or "the global South". But is this reality?

Because if you look objectively, you see this Western alliance, strong and unified - but then what is America doing wrecking its ally's economy blowing up the pipeline, demanding sanctions on Germany that limit its imports and soon sanction to reduce trade with China? - Turkey in NATO and soon in BRICS, Mexico will be joining - The Hse of Saud buying petrol from Russia, security from America, imports from China and, very significantly in a deal brokered by China, at the moment taking down the fence 1,400 years old with Iran - an India that won't take sides - the belt road and rail which is a dollar-free zone where most of the planet live and trade - the increasing power and membership of the SCO Shanghai Cooperation Organisation

?

Outside The West we see a fragmented world, a world where nation-states determine their own interests on a multitude of subjects and make independent transactions with each other accordingly, so a world of nation-states truly coming of age. It is not unipolar, not bipolar and not multi-polar, only the West remains as a block, the rest is a net of emancipted individual nations buying and vying with each other.

Will Europe go this way? Fragment? How relevent is the EU, is it doing its job and how long will it last?

So in my take on this mess, there is a sense and a direction. The world had one Order, that split, now it is fragmenting, the old Order isn't giving up without a fight,  maybe we are on the way to nation-states re-coalescing round a new world Order?

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WAR AND OUR UNIVERSAL CONNECTION

2 March 2023

Crimea has been Russian since 1783. Potemkin built it for Catherine the Great and populated it. Before that it was an Ottoman outpost. But originally, it was probably Minoan or Mycean.

It's been Russian for 350 years.

Sebastopol is home to the Russian navy. In geopolitics, Crimea is of literally vital importance to all Russia.

This war is aimed at taking away Russia's access to the Black Sea, containing weakening and changing the govt, and breaking up the Russian-speaking culture.

It's just because America will always want to knock out potential rivals. Its worry is a Russia-Germany, ie European, tie-up. Next, it will be the turn of the Chinese. We cannot go on living like this, it is a hell-on-earth.

The world is - imho - at the most dangerous moment in recorded history, mainly because the escalations will eventually go nuclear. We all need to step back, calm down and start talking. We need to think about what you might call our "universal connection" ... because if we're not careful, pretty soon we won't be connected any more!

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