INVESTORS IN EURODOLLAR LAND ARE RUNNING FOR THE HILLS

5 May 2023

Since the GFC, QE tripled America's debt while keeping payments of interest flat.

Now the skies are full of chickens and black swans. America - by debt, inflation, inequality, social & political division, and war ( physical and economic) - is a complete catastrophe - as predicted here since a long time ago. 

Surely they can't be thinking of printing again? Yet cuts to social security and Medicare would send the people back to the White House. 

Already markets are panicking. The coupon for short-term US Treasuries is higher than corporate bonds and three-month T-bill rates are higher than one-month - this is markets saying they want more to hold the dollar through this debt-ceiling crisis. This really disorients calculations using the once "risk-free" rate. As proof, Standard & Poor’s have dropped America’s rating a notch - what if other rating agencies follow?

The entire world economy is built on credit and the starting point is the US Treasuries so-called risk-free rate. This is a bit more than just migrating the software code to new parameters. 

Biden and Trump have said they won't cut. Yellen at the Treasury is down to her last 30 billion and will have to prioritise interest payments over welfare cheques, swelling the Trumpist camps in the barrios. Powell at the Fed pushes forward with hikes, resists "the Fed pivot", continues to defend his mandate on "stable" prices and employment - is inflation really cooling? Pushing the workforce into unemployment to reduce wage and consumption demand doesn't seem to be working - is this because fewer and fewer are active in the labour market?

The RoW (ie eurodollar land) knows all this and is running for the hills!

Have you heard of Ray Dalio's All Weather Portfolio? ... Coming up next ...

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DEBT, GOVERNMENT AND BANKING, 13TH RECESSION HAS STARTED

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STATE OF THE ECONOMY

3 May 2023

https://www.telegraph.co.uk/business/2023/05/02/half-of-americas-banks-are-already-insolvent-credit-crunch/

AEP's articles always entertain like puppy dogs, but seem all over the place to me, it's v hard to find the logical thread, although only an economist could really pick them apart, so I'm left scratching my head - the language tickles but, you're left none the wiser.

If there is a thread to the article, then it's that half of American banks are underwater, effect; Fed over-stimulation of the economy, the cause.

But this is just not true. Those banks are only underwater because of rising interest rates which have lowered the value of safe government bonds *but* at maturity date there is no such problem.

You can't say it's a problem caused by the dollar being the world's reserve currency because QE all started off in Japan and the Euro is similarly affected. 

Obviously lending out the same depositor's dollar multiple times - what is called fractional banking - can only magnify the vulnerabilities, but then what is a capitalist financial system about if it isn't this?

If interest rates were determined by the market, and not by the fed, then where would we be? Well, rates would be high - maybe 12% - ie borrowing would be expen, there'd be little money for investment and consumption spending, and so we'd be living in an economy with little growth and a lot of unemployment.

So the fed artificially stimulates by buying up assets by QE or OMO, which are the same thing more or less, and this reduces the cost of money below the market rate and increases the money supply. 

When all is said and done, this is bound to lead to inflation and devaluation of the currency.

What happens as best I can understand, is that

1. rising interest rates kill off people borrowing money and it starts in the housing sector.

2. So if the housing sector is stamped on, then demand suffers,

3. and if demand suffers and money is expensive then profits shrink,

4. and if companies see that their profits are shrinking they lay people off, and you get rising unemployment and falling stock markets 

...and all of that is the road to what is called a recession.

... but if it's managed properly without excessive government interference, then it's just the business cycle.

https://youtu.be/PzCVj7SOx_I

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HOW TO FINANCE YOUR NEW STARTUP

2 March 2023

1. HOW TO FINANCE YOUR NEW STARTUP

2.CHECKLIST - SHOULD I INVEST IN A STARTUP?

1. HOW TO FINANCE YOUR NEW STARTUP

So you've got this great idea for a new startup but unfortunately you haven't got any customers because they don't know about the product or service you're selling and anyway you don't have a workshop or offices because you can't afford it ... what do you do?

Let's take the example of a company called Resi which is based in Brixton and will rehab your house for a fee and maybe even run the builders.

Resi's founders know there's a huge demand out there, but unfortunately that demand doesn't know about them! And anyway, where can they locate their staff and how can they take on a lease on a building when they have no track record of income or no startup capital enough to convince a landlord they can pay the rent ?

We will talk about two things here in this case that will solve Resi's problem:

-advertising inventory

-convertible loan notes.

Resi can borrow money to build its business - take out a bank loan, or issue bonds (a bond is a loan, but you can sell it on) ; or it can sell shares in its to-be-created new company. The company may exist, and even have some money - "retained earnings" - but not enough to get going.

It wants the money to build a bigger business to sell more!

There's this clever way for a start-up which has no credibility and finds it difficult to borrow money. It's called a Convertible Loan Note or convertible debt. All it is, is just an agreement with an investor to lend the startup money and the debt, or the debt-plus-interest, builds up, and at a later date this debt can be converted into shares in the company, once the revenue starts rolling in and everyone can agree the value of the company.

ITV has said they will lend Resi money, but they want Resi to use some of that money to buy advertising on ITV. That's the deal.

What is it that Resi will buy from ITV? They will buy "advertising inventory". Now what in the world is advertising inventory? It's the amount of space that the publisher - in this case ITV - has to sell. It's all its space, beit on a printed page, or a page on a website, or air time on radio or TV (linear or streaming).

Working out how much advertising costs - how much inventory Resi will need to get its customers and at what cost -  is quite complicated, but you can imagine that the important things to valuing the advertising inventory are how many users view the advert, how many click on the advert, how many fill out a form ... that kind of thing. So you can calculate how much revenue the advertiser, Resi, can expect to generate from the advertising that the publisher, ITV, sells....and so value the inventory.

It pays for the advertising from the loan, but the loan will be on very favourable terms as Resi has promised to buy advertising from ITV with it, or some of it.

So in summary, the company Resi wants to grow fast. It needs capital to start up. It buys advertising inventory from ITV using money that ITV has loaned it, in the form of a convertible loan that at some point, under agreed terms, ITV can convert into shares in the company.

For more info on Resi's idea:

https://resi.co.uk/about

https://www.itvmedia.co.uk/new-to-tv/itvadventures/itv-adventures-invest

They are located in Brixton:

020 8068 4811

https://maps.app.goo.gl/nsLpnqa4g5GhzYmm6

https://m.marketscreener.com/quote/stock/ITV-PLC-4004488/news/ITV-invests-in-architectural-technology-company-Resi-Design-43120156/

27 April 2023

2. CHECKLIST - SHOULD I INVEST IN A STARTUP?

Funding rounds, seed capital

We looked at the products and its competitors

- functions, cf with peers, place in industry, sector

We parsed the marketing and legal comm

- defining terms, taking out emotional appeals, logic, rhetoric

We examined the accoumts and some ratios

- price to sales, prospective earnings, runway, return on capital employed

We cobsidered your portfolio, your investmet strategy and some measures 

- risk/reward, relative weighting, diversification

We did what we could with the time and data available. And made a reasoned decision.

What do you think?

Run through that checklist above and write down your argument on each of the measures...as far as possible.

You wear two hats: you are the fund manager for your portfolio; you are also the customer.

So, write to your customer (who is also you!) a note explaining the action you take.

Pretty soon, you'll have quite a history - a reort each time you buy or sell, with the data on various measures that is driving your decision.

This is how to learn.

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WHO RULES AMERICA?

24 April 2023

America is run by Corporations. Corporations are owned by a handful of extremely wealthy people. America is, then, run by oligarchs.

Socrates tells us that democracy descends into oligarchy because, although we were all equal at the start, over time some people get rich while the majority poor have to borrow to survive. When they can't pay back the rich man takes the land. Unlike food, money is addictive and you can never have enough of it. 

https://youtu.be/CmazxjNHVs4

He says that the oligarchy attempts to establish itself permanently and this is called an aristocracy. The aristocrats enrich themselves at our expense and they take away our land and our liberty and put us into bondage.

There is a revolution against this and democracy returns, involving debt forgiveness and redistribution and the emergence of a benevolent dictatorship (called at the time a "tyrant" ... how language has evolved!) 

and the whole three act play repeats.... from the democracy emerge certain people who manage to get rich and money is addictive so they take all the power and our liberty and our land etc ... "you will have nothing and you will be happy" sorts of people.

If any of this makes sense then the world divides into oligarchies and dictatorships and today we are watching the collapse of the West and according to Socrates, the emergence of new and true democracies.

It's a great story Ray dalio tells a modern version of that and Socrates and Dahlia have not just made this up but they have pulled their Theory from the embers of history, Socrates going back 800 years to the time of the Sumeriums and the Babylonians; and Dalio back 500 years from Dutch to British to American and now his Rise of China.

But never mind all that philobabble, it is made very clear and operational in Michael Kantrowitz's four-light dashboard...three lights red already and now the fourth is blinking ... crikey!

https://youtu.be/IWg-9VKxTw4

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WHY WOKE

24 April 2023

https://www.thetimes.co.uk/article/bar-fights-over-bud-light-the-beer-thats-split-america-ntv53cm9k?shareToken=3a0af61f599669ef9b1edde389c9ab8a

Interesting article with a few surprising facts. Many people of an older generation would not be able to relate to this product marketing, not really understand a word of this and would have the greatest difficulty reading the article through to the end.

Especially interesting to learn why some companies persist with what many find is a real product turn-off: a Woke marketing campaign.

But reality is, Bud Light is not on a weird woke moral crusade, no, what it's trying to do is all in the interests of rejuvenating the image of Bud Light and focusing on this will, it believes, increase future sales long-term.

So they are not discouraged by a short-term negative storm from established more conservative customers, they just wait patiently for the oldies to die out.

Perhaps they could support transgenders' presentations in primary school classrooms.

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THE STATE OF WEALTH, EMPIRE AND PLANET IN 2023

20 April 2023

Today, we consider three related questions:

 - how to save our wealth?

 - how to save our Order?

 - how to save our planet?

Our belief in liberal democracy remains strong but our elite has corrupted its values. 

1. HOW TO MANAGE OUR SAVINGS?

Means how to save the economy, financial markets and the dollar.

Macroeconomic signals of a recession abound. On a four-light dashboard - housing, supplier orders, company profits and employment - the first three lights are red and the fourth is blinking. With average time delays, we are looking - according to this  macro view - at a recession this year; and on closer examination of the data, it won't be "a soft landing"...can't be, won't be.

We are saying that the economy and financial markets are done for. 

Stock market equity - where we store our savings - is where the consequences will be felt first.

What to do? Is it world equity or will some regions or countries fare better than others?

What about the business cycle? If the economy is shutting down, which sectors tumble first?

We will return to answers in a future article ... God willing ...

2. HOW TO MANAGE AMERICA'S EMPIRE?

On which we in The West depend, let's not forget.

All these troubles and threats emanate from America's hopeless mismanagement of its turn in the pecking Order.

But is the economic collapse of economies, markets and currencies the worst that can happen to us?

3. HOW TO SAVE OUR PLANET?

Noooo - we could blow our planet apart or completely deregulate the climate.

4. ARE THERE ANY REASONS TO BE CHEERFUL?

Time and again the cause seems to go back to the corruption of our values. Our belief in liberal democracy remains strong, but we have lost the benign tolerance. Our leadership is not connected to the interests of the people.

I want to understand how the elite became so adrift, how it has become so disrespectful of the people ... it is hubris, but that is just to describe...how did it happen? Is it something to do with the strength of its control, made possible by te hnology, that has allowed our leaders to become complacent about their power.

And what to do to put things back together again? Can the system be reformed? Or must it be overturned? This was Edmond Burke's question. Reform or revolution - France again points one way. How to break the control of the corporations and restore central authority on behalf of the people ... of the planet even?

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FROM COST-PLUS TO LIST-MINUS

16 April 2023

Victrex is an interesting company. It's a world leader in specialist polymers.

They say: "Victrex is an innovative world leader in high-performance polymer solutions and the number 1  polyetheretherketone (PEEK) experts. Millions of people rely on our sustainable polymers, in  smartphones, aeroplanes and cars to oil & gas operations and medical devices."

Polymers, even specialist, is just a commodity market - they sell pellets by the tonne, it's cost-plus pricing. 

Their idea is to go up the value chain, into list-price-minus, building their moat by doing high-end moulding themselves, researching and making "forms and parts". 

They are opening a new factory in Leeds and upgrading facilities in China. They aim to grow revenues from  forms and parts from 20 to 60% of tot rev by 2033. 

They've got seven mega programmes. Aerospoace structures is one and interesting as polymers are even lighter than aluminium.

In the Medical sub-division, perhaps the best example is in the $1 billion replacement knee market (this is what prompted me to investigate and to write this!!!). Early trials are going well. 

Not being cynical, but obviously war zones, esp wars of attrition, which seem to be the only way to avoid nuclear, would generate a lot of business from public health services in developed economies.

Victrex is going to help the many veterans.  Do you feel this is profiting - supporting even - from these foolish neocon wars? Or is being involved part of the philosophy that says the world does not fold to our needs, but it is for us to adapt to the world and meet the needs of the world as we find it. Take the world as is and not as we'd like it to be ... the Realist position.

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IS AMERICA SUCCEEDING?

10 April 2023

Looking at the facts, three things emerge. One is that America has started a large number of wars, especially noticeable post USSR when America was actually at its safest! You know, Vietnam, Afghanistan, Iraq...plenty more...now Ukraine

And its come off worst in all of them. It takes on little guys, still it loses.

A second thing is, look at the polls from home, the domestic audience doesn't want all this loss of blood and treasure. It wants American leadership, of course, but not this constant flexing of the military.

And thirdly, outside Europe and the Anglo Saxon world, the rest of humanity, maybe three quarters of the world population, are totally fed up with all this trouble and strife. They want peace, diplomatic resolutions, trade and balanced economies. You know, the kind of set up where you can take care of friends and family and look forward to the future. America is very unpopular abroad and fast losing influence, even at home all this propaganda is wearing thin.

And fourthly (ok four), this bad and bloody behavior of America all it does is to incite other nations and non-state groups to copy in response.

Why not just try to do more good and less harm?

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ARE RUSSIAN AND UKRAINIAN PEOPLE OF COMMON STOCK? WHY IS RUSSIA EASTERN ORTHODOX?

10 April 2023

Are Russian and Ukrainian people of common stock as Putin alleges?

Why is Russia Eastern Orthodox?

I found the answers in an airport book - here is what it says.

THE SLAVS AND MAGYARS

The Slavs were a broad group of peoples (whose history and origin are largely undocumented) who spoke a variety of Slavic languages of Indo-European descent.

Also known as the Antes or Venethi (among numerous other names), they migrated westward during the great migrations of the fifth and sixth centuries AD, settling in the regions of the Baltic, the Elbe, the Rhine (laying siege to Constantinople in AD 540), the Adriatic and the Black Sea. Thereafter, they established various Slavic states, to include the first Bulgarian Empire in AD 681 where the Slavic language of Bulgarian was spoken. The missionary activities of Byzantium (namely by the brothers St Cyril and St Methodius, who are credited with having invented the earliest Slavic alphabet) led to the southern Slavs joining the Eastern Church in the ninth century.

The eastern Slavs occupied the river valleys of the Black Sea and the hills near Kiev, and their early settlements and towns formed the basis of future Russia. In the ninth century, the Vikings sailed up the long Russian rivers to conquer the eastern Slavs, selling some of them as slaves to the south (the name Slav eventually became synonymous with 'slave'). The Nordic and pagan influence of the Vikings continued for another century, although relations between Byzantium and Kiev strengthened steadily throughout the tenth century, culminating in AD 987 when the Russian prince Vladimir finally accepted Orthodox Christianity for himself and the Russian people (a turning point in Russian history and culture).

Another Eastern European people known as the Magyars who had in the ninth century settled in Hungary and Romania (from the area of the River Volga in Russia) advanced into central and Western Europe just as it was being plagued by Viking raids. In AD 955 they were finally defeated by the German king, Otto I, at the Battle of Lechfeld. Otto in turn conquered the lands from the Rhine to far beyond the Elbe (and overwhelming, also, the Slavs who lived there).

THE GREAT SCHISM

Increasing theological and political differences between the Byzantine Eastern Churches and the Western Roman Church led to a final and permanent separation between the two in 1054, a watershed in Church history known as the Great Schism (or East-West Schism).

The estrangement between Constantinople and Rome had been brewing ever since the division of the Roman Empire into east and west and the transfer of the capital from Rome to Constantinople in the fourth century. Constantinople's increasing power and its pre eminence as the battleground between Islam and Christianity threatened the position of the Roman Church. And yet, unlike its Western counterpart, the Eastern Church was increasingly rocked by violent theological dispute amongst its patriarchates.

The cultural and linguistic differences of the east and west - Eastern theology had its roots in Greek philosopy whereas Western theology was based on Roman law -  increasingly led to a different understanding of Christian doctrine, most notably over papal primacy and the procession of the Holy Spirit from the Father and Son (the Roman Church incorporating the Son into their creed).

Matters came to a head in 1054 when Pope Leo IX and Patriarch of Constantinople Michael Cerularius suppressed Greek and Latin in their respective domains. This led to the two Churches, through their official representatives, excommunicating and denouncing each other. Constantinople later became known as the Eastern Orthodox Church; the Western Church as the Roman Catholic Church, and the rift between the two has never been healed (although in recent years dialogue has been reopened, with the excommunications revoked by both Churches in 1965).

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"WE ARE LIVING IN YOUR FUTURE"

10 April 2023

                          Artist's vision for St Persburg

    

Doing a catch-up on the effects of Western companies quitting Russia.

IKEA quit Russia six months ago and the existing Russian management simply took over the business and have renamed it, but this time prices are lower and the profits stay in Russia. Sweden's loss, they are ideology-bound.

Similarly, before the SMO, the biggest car producer in Russia was Renault. Well now same story: it's been taken over by local management and the supply chains for parts and assemblies from the West have been replaced by supply chains from China. China now has a big interest in the Russian Motor Industry and as we know is already the dominant player in the future Electric Vehicle.

After an initial rise in inflation and anxiety, especially for those living near the border, now things in Russia have quietened down and the war is not the dominant subject of conversation.

Inflation is back under control, interest rates have fallen back to 7.5% (they initially shot up to 20%), Swift has gone but it's been replaced so transfers are no problem. Efficient management of interest rates in service to the money supply, inflation and FX rates by the Russian Central Bank.

Russia is the world's number one agricultural producer, but the West has been cut out of its markets... 

...we can conclude that sanctions have failed and indeed backfired  Sanctions were the west's one chance to hammer the Russian economy and they were wasted on this pointless war over a piece of land called Ukraine that is not of any strategic value to America. 

The result is that sanctions will be well nigh impossible to make work against the real potential enemy which is China : victim economies now know what to expect and have re-jigged themselves to mitigate the effects of sanctions and to conserve their capital which may be stored in western economies. I imagine central banks and corporations are quitting the Eurodollar.

Same for energy, with India just signing a long-term oil deal for price security.

Same for commodities: cut out.

And the eu's Von delayan goes to Moscow to threaten and warn Putin. How smart is that?

The Russian government's economic plan apparently sees Russia as an industrial and construction(*) powerhouse, with the share of GDP from these sectors going from a third to a half ... which sounds like China's plan too.

The West's pivot to Asia should have been an economic success for us, but was not properly managed. Europe's share of world GDP has been shrinking and de-dollarisation is underway. The sanctions were a great success for Russia it seems. Now there is a new Iron Curtain containing and shuttering the West, and the West's (America's) pivot has military objectives to dominate, rather than cooperate. Compare this with China: China is mainly interested in money and its objectives rely on the success of its Belt and Road strategy.

When Russians visiting London or Paris or New York return home to Moscow or St Petersburg, they are relieved to be back in a situation of personal security and technological advance (and it's the same for expats who have quit America and Europe, everything in EurAsia is convenient and automated) and cleanliness on the streets, and much lower levels of stress than life in Western capital cities these days. 

Those Russians who remember the Soviet Union and have travelled, think that the EU today resembles the Soviet Union of Yesteryear.

There's one Russian commentator quoted as saying "we live in your future"... he means if we in Europe are that lucky! But really what he means is that the West is no longer a model for Russians. Just thinking about beautiful Russian women: these women are no longer interested in talking to "American boy".

So anyway visitors are surprised to find how well organised is Russia, and Moscow and St Petersburg in particular. And Russians are not much interested in the American way of life anymore.

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