"Don't it always seem to go....you don't know what you got till it's gone..." Hi there - welcome to this weekend's offering - and Joni Mitchell's Big Yellow Taxi pretty much sums up the state of western - style economies at the moment. It's all "going" fast - mostly whence it came - ie "nowhere". And nowhere is that fact more apparent than the imminent bankruptcy of an entire nation. I refer to Iceland, where things are not bad - they're dire - and Icelanders are now faced with the very real prospect of their country being unable to meet any of its debt obligations. What will be the outcome? Back to eating cod and lamb I guess, and no more caviar and foie gras for a mighty long time. And of course we're also going to see the effects of the "legislate in haste, repent when it's too late" syndrome, not only with the laughable USA "bailout" but maybe more immediately anent Ireland's seemingly clever decision to guarantee all bank deposits, no matter how much these might be. The thinking was superficial at best - once other countries work out the best ways to guarantee deposits, Ireland is going to find itself in a real mess. Why? Because by acting as they did (and thinking that the total sum guaranteed would be €400bn) they demonstrated their lack of understanding of simple economics as related to human behaviour. What happened? There was an initial inflow of funds that has taken the total sum up to about €450bn so far, so there is now even more money to find if Irish banks do indeed fail - over €100m for every citizen of the Emerald Isle (Republic of) in fact. Now the next thing to look at is the Irish economy itself. Upon what had its "Celtic Tiger" boom been founded? Three things - massive EU handouts, an inflow of big US businesses (eg Dell) who wanted access to Europe and got big tax concessions (government bribes, basically) to locate to Ireland, and an utterly crazy property market. You think the UK's property market has been a tad irrational since the Broon one became chancellor? - just take a look at the Irish Republic! Anyway, the point is that the Irish economy is now not that far behind Iceland's in terms of its fundamental instability - and the sole reason it has not (yet) got to the Icelandic level of disaster is the fact that it's in the eurozone so there has been no run on its currency. BUT - if (and to be fair, it's still a little bit more of an "if" than a "when") the Irish financial system goes into meltdown, then the "100%" depositor guarantees just ain't gonna be possible to meet. The American companies - such as Dell - are pulling out (and have been doing so for some time) so jobs are fast disappearing, and thus so too are tax revenues. EU "aid" has dried up, and of course the building industry/house valuations/mortgage lending/bank bad debt etc etc scenario is a disaster zone. What's left to underpin the Irish economy? Let's think.....hmm - not a lot springs to mind. Goodness - even France is now "officially" in recession, and it is a major, stable world class economy where generally speaking, you can't get a mortgage bigger than your annual salary - so that personal indebtedness is tiny compared to certain other countries - and it certainly still has an extremely broadly based economy. If a country like that is in recession, what hope is there for more vulnerable economies over the next few years? Where would YOU prefer to keep your dosh, 100% guarantees or not? A "guarantEE" after all, is worth exactly as much as is the "guarantOR".... (Please don't email me with "Where should I put my savings?" I'm afraid only YOU can decide that - but I would suggest that "cash is king" and will be for a fair while.)

Over the water, the much trumpeted US "Wall St Bailout" hasn't exactly caused stock markets to jump - more about that in tonight's video updates. Don't you love the name of the new Treasury dept that is "dealing" with the whole thing: "Office of Financial Stability." And its head honcho is a Paulson chum from Goldmans. Oh yes, and the "aye" vote for the package was bought with about $150bn of "pork barrel" bribes. (Try Google if you haven't heard the expression.) Not to mention the $25bn that has gone rather surreptitiously to the US auto industry this (election!) year, the $21bn to farmers, the "assistance" to Walmart, the military contracts ..... honestly, you couldn't make this stuff up! Oops, hang on a minute Williams - not to worry - the Treasury Dept has announced that "The US taxpayer will be guaranteed full repayment of the bailout cash once the crisis eases." Ho Ho Ho. That is really a good one. Excuse me while I wipe away the tears of laughter. A professor at Maryland University summed things up pretty well (commenting on the bailout) when he suggested "This won't reform the practices of large banks - this could be the first of many crises." Oh yes. The recent Eagles song "Frail Grasp on the Big Picture" yet again comes to mind (try the search engine with that exact phrase for an earlier reference thereto. I'm not as good with words as they are!) And on the subject of songs, some of the words of The Tractors also come to mind - "If they took all the cityslick bankers, and put 'em on John Deere tractors...." Ah, the Williams musical "taste" eh! And some people have the gall to suggest that I have none...."eclectic" - that's the word I'm looking for....

Moving rapidly along, Wachovia bank has gone but it "didn't fail." Yeah, right.

In the UK, Santander Bank gets 200 Bradford & Bingley branches and around £22bn in savings deposits. The shareholders (all 850000 of them!) get zilch. The UK taxpayer gets £41bn less than zilch. Great deal, Gordy baby! You can become my agent any time....not.

Allie Eyebrows will make the startling announcement tomorrow that UK tax revenues are "well down" and that borrowing requirements are "well up" - or words to that effect. It's great to know that those at the top are so au fait with what's going on. But UK Plc will perhaps be saved by its very own SEF in the persona of Mr Mandelson, aka Count Dracula....time will tell! Allie will certainly be sidelined, that's for sure - the Broon one's new equivalent of the Office of Financial Stability will see to that.

Marks & Sparks opens its biggest Asian store (in Shanghai) on the same day as it admits UK trading is pretty dire - but it will still go ahead with opening 50 stores in India over the next 5 years. Hmm. To whom does Indian industry sell its products? Wouldn't be the depression - bound West would it? Oh well, we'll see how that all pans out in due course.

MFI finds its own wee SEF and gets an injection of £25m. The same day, it then pays out its rent arrears - a mere pittance of £19m. How long will the other £6m last you, guys?

Warren Buffet surely must be seeking a place in the history books as one of the saviours of the Yank economy - he has bought $3bn of GE (General Electric) preferred stock and gets a 10% yield thereon. Because of his revered status, nobody seems to have stopped to question the economics thereof - but this cynic reckons it's either due to the "history book" motivation as above (probable) or the day when Mr B began to lose the plot (less probable - but possible nonetheless.) 10% of $3bn is something, but 10% of very little is....very little. Anyway, I could be wrong - that's a pretty regular occurrence after all! But it's coming into the season when the underlying insurance policies regarding toxic waste (use the search engine re "toxic waste") come up for pricing and general sorting out - ie when insurance companies in effect will be required to divvy up on the likes of Freddie Mac losses - and thus when basically it's more than likely that an awful lot of odorous material will be hitting the proverbial fan after the earth shattering revelation that in fact the dosh simply isn't there - and GE stock etc could well take a heck of a hammering along with all other massive borrowers. Look out for some fun and games there. The "bottom" of this particular pit still isn't remotely visible - not even with a searchlight!

Moving on to the REALLY silly stuff - first we have the impressively - named Food and Climate Research Unit at Surrey University, which has come out with the pronouncement that in order to save the planet, rationing will have to be introduced via legislation, because people won't voluntarily change their eating habits. You will be allowed four "modest" portions of meat and one litre of milk a week, along with "limited" quantities of chocolate and alcohol. In what parallel universe do these idiots live? You can just imagine little Johnny being bribed to grass on his parents - "Mummy and Daddy had FILLET STEAK for Sunday dinner - and TWO bottles of wine!" Speaking of grass, I note that the World Health Organisation is urging legislators to legalise cannabis - will that too then be rationed by the Food Police?

Moving along, what about the planned "teacher training" junket to Marbella? Eighty of them were going to be flown to some posh hotel for a couple of days training - presumably in how to get their beach towels on the pool deckchairs before the Germans beat them to it - but due to "media interest" the trip has been cancelled. The "training" is now being held in the school. The poor dears. (But the Marbella hotel and the flights still have to be paid for!) As mentioned somewhere earlier, you really couldn't make this stuff up if you tried!

Anyway, to end on a more serious note, the main reason why all these supposed "bailouts" are doomed to failure, is the fact that current banking problems are NOT to do with a lack of "liquidity" - ie the availability of cash to lend - the stuff governments are frantically trying to inject. The problem is to do with "solvency" or rather the lack thereof. Two of you (thanks for that!) emailed me a couple of days ago asking me to comment on an article they had read somewhere, from one of the talking heads, saying just that. My response was that the guy in question must have been reading WICS of March 16th this year.....

OK - that's your lot for tonight - I'm afraid you'll have to make do with only the video updates as regards today's charts, because "Mr Paint" has just decided to throw a wobbly and is refusing to talk to "Mrs Sharescope". Either that or Mrs S is the guilty party - but I can't get the glitch sorted till some time tomorrow, unfortunately. Apologies for that.

Anyway, things will doubtless be reconciled soon enough between them and divorce won't result - so on that cheering note, I'll see you again next weekend. Until then, happy trading and/or just "watching events unfold"!

Ian

 

'IMPORTANT NOTICE: These WICS charts are for EDUCATIONAL PURPOSES ONLY. They represent only MY understanding of what is happening in the market for any particular share, stock, commodity or index. In NO circumstances should they be construed as recommendations to trade. If I choose to trade what I see, that is MY decision. YOU must, in turn, come to YOUR OWN conclusions about what action, if any, YOU might choose to take'.