Confidence trick

The irony is that whereas confidence is everything right now, absoutely everything, confidence surveys are a piece of pish. Partly, this is because they’re all about ordinal data i.e. stuff that can be rank ordered, but not precisely quantified, and as such can never be much of a guide e.g. if I’m a very, very confident consumer as opposed to just a confident one does that mean I’m going to buy 3 new tellies as opposed to one (neither, I’ve got a perfectly serviceable telly already thank you)?

However, its also because they’re based on a stupid premise. How I feel and what I think today may not translate into what I do tomorrow plus how I feel today may well be influenced by specific today things like say the fact the curry in the staff canteen was actually quite passable for a change. And when you start asking people what they think they might be doing in 12 months time, well that’s just pish really.

At best what you might get out of a finely tuned confidence survey is advance warning as to the probable direction of a more significant metric e.g. a downturn in a consumer confidence survey today probably means the retail sales data published in a fortnight will also be heading down. But, then that’s no so much foresight as it is methodology - it takes longer to produce retail sales data than it does consumer confidence surveys.

Despite this all these business sponsored surveys get trotted out as if they were somehow meaningful because of how we get spoon fed economic news. The process this entails goes a little something like this:

1) Company A wants to boost its brand, present itself as a credible organisation etc.,
2) Company A makes widgets, so it pays some people to do a widget confidence survey
3) Company A issues the widget survey with its brand plastered all over it
4) Company A also makes available a spokesperson too thick to produce a widget survey, but with enough chat to talk about the significance and meaning of it
5) News Organisation B needs news. It receives a copy of Company A’s widget survey, gets in touch and gets some quotes. If the survey is considered really important it gets some rent-a-quotes from a range of widget experts in other companies.
6) Repeat on a monthly basis

Everyone involved in the above process has a vested interest in taking it all terribly, terribly seriously - Company A wants to punt its brand, News Organisation B doesn’t want to be seen printing dreck/does want to fill up some column inches quickly and the rent-a-quotes get to ride on Company A’s coat tails.

What we get as a result is distracting shite and noise instead of analysis. Actually its worse than what. The process set out above, especially the uncritical way in which things get presented, has established the survey and the specially commissioned report as a key means of justifying well absolutely fucking anything really with the public sector a big offender here. Hence we get expert reports on the economic benefits of not smoking, Edinburgh trams, high speed rail links, renewable energy and so on and so on, each and every one of them you realise, the instance you look at the assumptions in the appendix, being rotten pieces of shite.

So aye, back to confidence and how it can’t be measured. Well it can sort of, ish, like right now share prices and the cost of insuring sovereign debt against it not being repaid (i.e. the CDS spreads of say Greece compared to Germany) provide bloody good clues as to how financiers are feeling and its scary, scary biscuit time let me tell you in an oh fuck are we going to see another liquidity crisis with institutions no lending to each other again. And if that happens it will fuck shit up for everyone else.

And because we all have a clear vested interest in this I reckon the brute human aspect of what's going on should be drawn out far more than it is. Like fuck the references to high falutin’ financial models, business plans, exogenous econometric growth theories, the need for credible fiscal re-balancing vs consumer deleveraging programmes and what no, essentially, it’s a bunch of people going “fucking hell, fuck knows what’s about to happen” and in a self-fulfilling prophecy type styley holding onto all the cash they can to protect themselves in a way that destroys the circulation of cash capitalism needs to function (oh the joys of individually self-interested and rational actions leading on to a collectively irrational outcome). Probably the only saving grace right now is that it’s a Thursday i.e. there’s only tomorrow left to panic before the weekend stops trading/allows for emergency meetings by the great and the good.

The other point of course is that the same people doing the panicking are typically the same ones who move asset prices in response to waste of time confidence surveys. They do this because its easy, because everyone else does and because they‘re not as bright as they‘re presented as being and don't understand what's happenning, in fact them realising they don't is part of the problem. They and the companies they work for are also the same ones squealing about the notion of a Tobin tax and extra regulation despite the fact the only thing that’s going to sort this shit out is governments i.e. the tax funded public sector, setting out a clear plan and a clear direction.

Anticipation

Ooohh, tomorrow's going to be dead exciting - if you consider financial stuff exciting - in a what the feck will happen now America's been downgraded and the ECB is in emergency talks.

Was interesting reading the Robert Peston blog on this "Bankers and investors want to see the ECB buying Italian debt, in the way it has previously bought Irish, Portuguese and Greek debt."

I mean obviously we should all do whatever bankers and investors want when they want it. Obviously. However, buying Italian debt in itself wouldn't be enough I reckon. This has worked on a sequential basis with each of the PIIGS economies getting a turn at being baled out. Given this and the driving force here which is bankers and investors want the public sector i.e. us, to cough up so they don't lose any money (at the same time as however many millions are being made by other bankers and investors shorting entire economies), I reckon something bigger is needed e.g. the ECB will also be willing to buy Spanish and Belgium debt or a definition is constructed as to when it will intervene.

Anyhoo, interesting times. I wonder how much will be wiped off the FTSE if there isn't a big announcement about somnething?

2:1

That being the latest score in the great American football game. Reading the S&P report on why they downgraded America the first (own) goal was the political process itself. In fact the overview emphasises, draws attention to and reiterates how the fucked up debt ceiling debate undermined their view of America:

“We lowered our long-term rating on the U.S. because we believe that the prolonged controversy over raising the statutory debt ceiling and the related fiscal policy debate indicate that further near-term progress … will remain a contentious and fitful process … The political brinksmanship of recent months highlights what we see as America's governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed.”

As the brinkmanship was driven by the Tea Party nutters, then that’s one up to the Democrats. However, that the plans were also perceived as not doing enough to cut spending is the Democrats fault, so that’s one all.

But, fiscal policy is also about raising revenues or as S&P put it “It appears that for now, new revenues have dropped down on the menu of policy options”, something that the Tea Party nutters made damn sure happened, so that’s another Democrat goal I reckon.

But, yeah, this is all crazy. Like for one thing a rating agency got it right for a change. For another, how deeply, politically incompetent are the Democrats, like didn’t they learn anything from the health care debacle? And is the probable response here of having a go at S&P, mealy mouthed references to no other agency downgrading them and not saying diddly about raising taxes going to have much effect? I mean jumping jehoshaphat, they're dealing with mentals so perhaps that should be drawn out a tad more. The main quote included here makes clear it’s the decision-making process that’s the primary issue i.e. the way the Tea Party Republican mentals are fucking up the working of the polity. Despite this the Republicans will completely ignore that (along with potential tax rises) so this can all get blamed on not cutting spending enough because, as has already been said, they are fucking mentals.

So now that the previously unthinkable has once again become the actual, Monday will be interesting in share price land, volatile to say the least as the uncertainty over what happens next, aided by the resumption of mental politicking in America, shits on confidence levels. The emphasis placed by S&P on the efficacy or otherwise of the decision-making process is an interesting point with regards to the Euro-zone while here the ConDems will make major big use of the downgrade to justify their policies. Cunts.

Pass the parcel

You know when pictures like this one start getting used things aren't going terribly well. This time round its a bit of a biggie I reckon and all because of a game of pass the parcel.

Ireland provides a nice example of what this entailed:

The Irish banks did loads of mental lending; when confidence in the financial system evaporated in 2007-08 all the big institutional investors stopped lending to them. Before they ran out of money, the Irish government stepped in and guarantied all Irish bank deposits to stop absolutely everyone taking their money out of them. There was also some support from the European Central Bank.

However, shit done got fucked up already. So because the Irish banks had stopped throwing money at residential and commercial property bubbles, both collapsed. Allova sudden Irish banks were about to lose more money on their mental lending than they could ever afford, so again the government stepped in nationalising here, capital injecting there and buying whole debt portfolios off them to draw a line under the potential bank losses (and give them some cash in the process).

Oopsy, cos all this help fucked Ireland’s economy because after paying out all that cash and taking on the banking system’s problems, allova sudden it wasn’t the banks that were fucked (well they still are), rather the government was suddenly up shit creek without a bail out because it had taken on more than it could manage and now no-one trusted it either (and presumably did some sums looking at total national tax revenues vs. debt repayment costs over a given period of time).

To varying degrees similar processes were repeated across the world. The thing is though all of this was dead easy. Well it wasn‘t, but it is compared to the current situation. When the banks were bailed out, and the debt parcel effectively passed from the private to the public sector, national governments stepped in to bail out their own banks i.e. they looked after their own and did so without needing to secure the agreement of dozens of other nation states. When there was the need for multinational agreement i.e. Barclays and Lehman Brothers or Fortis bank, things either didn’t work out or work very well.

Now though its different and potentially worse for all sorts of reasons including:

For a start, in the past a government stepping in to bail out, shore up, re-capitalise a bank etc., was a soothing, calming, lovely thing, a bit like putting financial market sentiment in a bath with smelly candles. Now? it’s a fucking terrifying prospect, to a large extent because governments don’t have the cash to help out any longer.

That shit with the debt ceiling was a clear sign of Americans being fucking mental. Viewed from over here, the Tea Party lot were previously an uneasy joke. The notion that those vicious, self-destructive, mega rich serving morons are able to influence and disrupt stuff is a very bad thing; there is no cavalry on the horizon

Its far more abstract and clashes with national sentiment; the Greek bailout involved Germany and France ultimately helping out their own banks (which would otherwise have lost squillions due to their exposure to Greece) and meant their companies could still export to Greece. But, that’s abstract and prone to getting lost in nationalistic and political rhetoric - Germany directly bailing out a German bank is easier to understand and gain support for than German taxes being spent filling the whole created by another country’s wasteful ways etc.,

The logistics are a nightmare; its the EU fer crhissakes, all those countries having to get together to review proposals, debate them and then vote is a cat herding process that takes aaaaaaaaaaaages whereas market sentiment and confidence operates in nano-seconds. And anyway any aid figure agreed today will be far too low tomorrow (as the Bank of England special liquidity arrangements made perfectly clear). Plus, if Barrosso’s letter proved anything its that there’s some utter morons involved who, I’m guessing, are more than happy to put their vanity ahead of the global economy so they can get on the telly, however destructive the consequences.

The sheer size of the problem; the credit crunch originated in one part of the US mortgage market whereas Italy and Spain are amongst the largest economies in the entire fricking world.

Anyhoo, the really scary bit comes when everyone stops lending to each other again and even more bits start toppling over. And getting party political for a mo, to my mind it highlights how successful Alastair Darling was as chancellor when he did his drive by negotiations and drew a line under the British crisis, at least for a while. For me the lesson from that experience about what’s needed now is a clear, quick and effective decision making capability, a clear, multi-faceted, all bases covered plan and more financial support available than could ever possibly be used (with plenty of rules to avoid or at least limit the moral hazard). From a British perspective though I reckon we’re potentially fucked if it really starts hitting here; the Tories were dithering fools thru-out their time in opposition during the credit crunch while the LibDems were and remain completely out their league, whatever Vince Cable might say.

Anyhoo, mebbe bond holders will finally get the real humping this time round that they deserve or mebbe we'll see the Euro zone collapse and a run into protectionism. Who knows. On a different note I reckon if the ConDems had really wanted to stick it up Gordon Brown they should have put forward Darling as a candidate for running the IMF, cos he da man.

deja vu

I mind the weird feeling in my gut and sense of free-falling into fuck knows what or where I had in 2008 due to a combination of watching all the numbers on some Bloomberg screens turn repeatedly red and a constant stream of bad news. Alongside this all the great and the good I talked to just really didn't have a clue what was going on or what could possibly be done.

I had that yesterday after I was daft enough to look at some 12 month trends in bank shares cos I got wondering after reading about first Italy engaging in crisis talks and then that moronic EU statement. Scarey biscuits.

Bitch move vs shitfers

I mind finding out about the spin that was going to be spun following the takeover of a company - any redundancies would be in the hundreds was going to be the party line, except by hundreds they meant potentially 19 hundred and 99, which any normal person would call 2,000. Except thousand is a nasty word in this context whereas hundreds is much less bad. What reminded me of this deliberate spin was Barclays announcing they were going to be chopping heads again using their own fantastic obfuscation tatic.

To recap an earlier post, this involves announcing X number of planned redundancies one day and another X number of redundancies a day or two later. In 2009 this meant 2,100 followed by another 2,100 a wee bitty later.

The rationale for this is straightforward - in an age of google and lazy fact checking, chances are the two announcements will get mixed up and the total number lost sight of. And please don't think for a second the two numbers being the same was a coincidence, rather query how arbitrary the decision making was behind both totals, like were extra people made redundant to hit that magic 2,100 in one area despite the impact this would have on service quality and stress levels? Or alternatively were 200 or so lame ducks retained in the second wave, sacrificing shareholder funds in the process, to secure moderately better PR?

Anyhoo, aren't financial service sector employers cunts? This time round Barclays are talking about 1,400 followed by a further 1,400 so it could be worse I guess. And the political and public response is .................................... yeah right.

Not rocket science pt.1

Science is mind-blowingly complex yet vast wodges of it are successfully communicated to us ordinary punters every day via the telly, radio, books and what no. Finance is not as complex as science yet is unsuccessfully communicated to us via much the same media every day as well, which is a shame because finance is continuing to fuck everyday lives every day. I encountered a practical example of this yesterday when a fabulous person explained they couldn’t tell the difference between the stream of gibberish, including the currency cat pictured above, presented satirically as financial news by The Day Today and what actually gets presented to us as news.

Mebbe you could look to the vested interests running thru the core of most of the talking heads presented to us as financial or economic “experts” and how of course they’re going to big up the complexity to justify the need for their apparent expertise. There’s also probably some socialisation shit going on as well in that these talking heads overuse jargon because everyone they work besides does the same. But, feck that I reckon its more constructive to simply spell out some of the shit that’s happened using here the example of monoline insurance and the associated catastrophe that was the monoline wrapped bond.

Oh no I’ve used jargon, except its no really. Monoline insurers are so called because they started off having only one line of business, hence mono. And they’re insurers because well they’re insurance companies. A wrapped bond? Well a bond is simply a type of debt and the “wrapper” wrapped round it an insurance policy taken out against the debt not being repaid cos the borrower(s) defaulted. “Wrapping” bonds like this sounds like a good idea what with the additional peace of mind it presumably gave which in turn made people more willing to lend to those wanting to borrow via bonds.

Except, it didn’t work out that way for some related reasons. One, swathes of the monoline industry sold far more insurance against residential mortgages defaulting than they could ever, EVER pay out against in the event of things going tits up. Two, this reflected the fact the premiums/cost of the insurance policies sold were teeny relative to the amounts being insured i.e. when you’re charging say the $77,500 premium for every $100m insured quoted here, there was never any possibility of them building up the financial reserves needed for a potential rainy day. Three, the monoline insurers piled into insuring residential mortgage related debt like mentals and as a result placed too many of their eggs in one basket.

So they come across as having been fucking shite portfolio managers who didn't understand the market they were insuring; housing, when it goes down the tubes - judging by the periodic UK experience - tends to go down en masse prompting widespread, systemic repayment issues as opposed to selective ones (and that’s no even taking into account the whole sub-prime shite of lending to untested borrowers for which there was no data on which to base an assessment of the default risk)

I reckon the first bit of this needs brought out a bit more though; these insurance companies sold insurance policies that in practice they could never honour if ever called upon to do so. This was nothing to do with the small print or crap like that, rather they never had the cash to pay out without wiping themselves out or at least grossly fucking themselves up. Monoline insurers sold rainy day insurance that only worked in the sunshine; they were fucking shysters.

Even better, I mind reading late last year about one of them that’d had been taken into bankruptcy protection where the people who’d bought the insurance were legally obliged to keep paying the premiums despite the fact there was no way they’d be able to claim on the actual policies. Now that is fucked up.

Its pretty obvious why these monoline shysters did it - they hit their quarterly sales targets and pocketed bonuses before shit done got fucked up. However, the people buying it also got the gravy; they bought some mortgage debt frelated thing for say $X, then got it insured and hey presto because thanks to some accounting rules, its paper value increased to $X+Y so they got their bonuses as well. And when there’s gravy like that to be made so easily no one is going to ask too many questions.

You could dismiss things at this point in a moral huff give and point out how it exemplifies the whole privatisation of profit socialisation of losses thang. You could even refer to bad regulation, greedy shortsightedness, the need to change accounting rules and what no. Except the original rationale for monoline wrapped bonds highlights the wider problems they created for the rest of us. Monoline insurance made it easier to get credit on an incredible scale (this article mentions $125 trillion of monoline wrapped credit derivative exposure i.e. derived from as opposed to the actual underlying debt fer chrissakes). Hence, the above shyster business helped make the bubble we’re still contending with (think say Greek sovereign debt crisis) even bigger than it would otherwise have been.

So given this "product"'s contribution to our current economic woes, I reckon the gits involved should be done for misleading customers or at the very least barred from ever working in any financial services company ever again on the grounds that if they didn’t not act in good faith, then they’re too incompetent to trust (aye right, like either of those things are ever going to happen).