economic situation is dire

[snowychap]

Land of Leather has now gone into administration.

[Gringo]

oh and to those who think somehow it is only this country in trouble apparently tomorrow or Wednesday Germany will announce a huge economic stimulus package

Are there any people on here who have said they think that it is only this country in trouble? Just because they don't preface every sentence with "These problems, which started in the US by the way, ...."

[ianrobo1]

no most rational people say this is a global recession

where you live Gringo is arugably having it worse

remember when the german finance minister had a go at Brown and now his own government are following the same plans

there is no other major country not doing the same

[leviramsey]

Barron's just came out with their annual Roundtable issue (well, Part 1...)... some choice quotes:

The [u.S. (but it probably generalizes)] government can't cure a disease that has been more than a decade in the making. The US built up gigantic financial imbalances and debt levels the world has never seen. Massive increases in public debt and spending can't replace the lost private-sector debt and cutbacks in consumer spending, allowing us to go on our merry way. The stock market is experiencing a knock-back rally, similar to what was seen in 1930...

It came about after the Fed slashed interest rates to 3.5% from 6% and then to 1.5%. President Hoover ordered federal departments to speed up construction projects and the state governments to expand public works projects. He went to Congress asking for a huge tax cut and a doubling of spending on public buildings, dams, highways, and harbors. That sounds familiar. Hoover predicted the crisis would end in 60 days. He received widespread praise for his intervention.

The market has had its worst crash since the Great Depression and a new President is promising to pull out all the stops....

The stock market has rallied about 20% and could go up 40 or 50%. Then reality is going to set in: the reality that the economy is terrible, the unemployment rate is going to rise, the Fed's policies are imprecise. The dollar could get killed sometime this year, causing all kinds of problems. We have a more protectionist Congress. Deficit spending is unlikely to work. In sum we have a date with more traditional bear market levels. You'll see single-digit P/Es that were typical in 1982, '74, even '30 and '32. The market will go down significantly and then hit a bottom.

There is no such thing as good public policy, certainly not in the US. The current crisis was produced largely by policy measures that led to the formation of Fannie Mae and Freddie Mac... it all led to increased leverage. Fed policy has been a disaster. Instead of smoothing markets, it has increased volatility. By cutting interest rates, the Fed created bubbles -- in housing, in commodities. Now that the federal-funds rate has been slashed just about to zero, you're not getting anything for your money when you deposit it in the banking system or buy Treasuries. There's no such thing as investment: everybody becomes a trader.

With few exceptions, the US doesn't produce anything. It is a consumption-led economy. When the economy expands, the US imports from other countries, such as China, which increase industrial production and capital spending. From '02 to '07 the markets of emerging economies outperformed the US. But when the economy slowed in '08, it was a catastrophe for those emerging economies....

It would be best at this point for the US to have about 10% less consumption. It would make people save again and follow Christian principles of frugality and humility. I doubt it will happen, but it would be good for the US.

The US economy fell off the cliff between October and December and will stabilize at a lower level. Some indicators will look better than expected and that will justify the present rally. Stocks will probably go up 50% from their November lows, with the S&P hitting around 1100. After that, reality will set in and in real terms, the market will go much lower for much longer.

Around the world, governments are throwing money at the system to revitalize debt growth. With the Fed buying up everything and boosting the federal deficit, hyperinflation will be the eventual result.

A true market low will be lower, but in a hyperinflationary environment, you can have nominal price gains while going lower in real (inflation-adjusted) terms. Between the start of 2008 and November, almost every asset market collapsed but the dollar was strong. After November, the asset markets recovered and the dollar went down again. There's an inverse correlation. Some say the dollar will collapse this year, but collapse against what? The euro? The ruble? Those currencies are even weaker. In the very long run, each citizen must become their own central bank, holding some physical gold, platinum silver, and platinum -- physically hold, not hold through derivatives.

For several years we have said we're in the midst of a generational change in the global economy and the financial complex. About two months ago Barton Biggs [a hedge fund manager] said, "I'm a child of the bull market." He went on to explain that he'd been trained to buy the dips because assets always eventually went up in price.

For the past 50 years, asset price inflation has been the context, the foundation of much of the economic growth in the United States and around the world. It led to additional leverage, which led to additional asset inflation. In the past 12 months, the global economy and financial complex experienced a forced deleveraging. Assets deflated by $20 to $30 trillion. We were all children of the bull market, but the bul market is over. Deleveraging will be the context for the next five to 10 years. It will lead to lower profit margins and higher interest rates.

[This year], it depends in part on the extent to which governments can fill the hole left by deleveraging. Can they take us out of an illiquidity trap that is damaging not only to asset prices but to the real economy? If so, there's hope for 2009. More likely, policy will come up short and we'll have a global recession perhaps stretching into 2010.

The important thing is what happens in 2010, 2011, and 2012. We're setting up for low equity returns, low economic growth, high real interest rates, and 5-7% returns at most in all asset classes. The double-digit rebound that historically followed sell-offs isn't going to happen any time soon.

And then an interesting discussion:

Hickey: It's hard to predict what the market will do when you don't know what the Fed will do. The Fed has tripled the size of its balance sheet and is plowing ground we've never seen before. Here are my facsimiles of deutschemarks from the Weimar Republic [holds up sheaf of papers]. They collapsed in value when Germany started printing money after World War I. It happened very quickly and can happen again.

The Germans were successful at reflating. But they weren't successful at saving their economy. Bernanke is on record saying, "I will not make the mistakes of the 1930s. I will not make the mistakes of Japan in the '90s."

Mario Gabelli: So you're saying he's going to make the mistake of Weimar Germany?

Hickey: There's a possibility of that. Every month that there's a horrible employment report, the government prints more money.

Faber: The worse the economy, the more they'll print. It's like in Zimbabwe now or Latin America in the '80s. They had large deficits and printed money, and in local currency everything went up. But the currency collapsed.

Oscar Schafer: Isn't the federal government increasing its balance sheet to offset the private sector?

Gross: Exactly. The situation isn't similar. Weimar Germany basically reflated to get out from under its wartime debts. Zimbabwe is a situation unto itself. In the US, there has been asset destruction in the trillions of dollars that has to be repaired. To say that the Fed is increasing its balance sheet by a few trillion and that this will lead to hyperinflation is a miscalculation.

Faber: I'm prepared to bet Bill that in 10 years, the US has very high inflation. With growing deficits, it will be very hard for the Fed to raise rates in real terms. Once the rates go up again, there will be another disaster.

The whole process of deleveraging is deflationary. It will last several years. Where most economists will probably err is in how the corporate and household sectors react to this. They probably have built into their models expectations that those sectors will react to fiscal stimulus as they always did. That is wrong. In previous deep recessions, the household sector lost about 5% of its net worth. This time around, it has lost about 20%. Households will be much more cautious for years. Instead of spending, they will save. There will be changes to the corporate sector, too. S&P earnings peaked at $100. This year, they could be $20 to $40. The consensus estimates are way too optimistic. Much depends on whether the problems in the real economy cause the financial industry to relapse. The behavior and thinking of corporate executives will change dramatically. Companies will repair balance sheets instead of spending and expanding, and that's why the deleveraging process could take years and years. Economic growth will be much lower in the next five to six years.

We are in a synchronized global slump. Peak to trough, US GDP will probably go down by 5 percentage points.

It could be worse than Japan. Deleveraging usually means that returns on equity drop below the previous cyclical lows. Corporate return on equity peaked at around 15-16% and previous cyclical lows were about 8-9%. ROE will probably drop below that this cycle, which will mean much lower earnings. That feeds into valuations which means that stocks will eventually go much lower, to single-digit P/Es and high dividend yields.

In the past 10-20 years, risk was high, but perceived risk was low. That's why everyone bought the dips and took on leverage. Now we're moving into a world of high perceived risk, but real risk will eventually turn out to be much lower. That will lead to a very different valuation of equities and bonds. In two or three years, there will be bargains in the market. But we are not there yet. We are in a structural bear market and this is a transitional year. There will be bear market rallies, and then the markets will go down more.

[RichardCanning]

Barclays are binning another 2,100 jobs, this is actually getting ridiculous now. Everyday thousands of jobs are going!

[drat01]

Barclays are binning another 2,100 jobs, this is actually getting ridiculous now. Everyday thousands of jobs are going!

Barclays is to cut at least 2,100 jobs globally across its investment banking and wealth management businesses

Which shows that this is NOT a UK only issue

[Gringo]

Barclays are binning another 2,100 jobs, this is actually getting ridiculous now. Everyday thousands of jobs are going!

Barclays is to cut at least 2,100 jobs globally across its investment banking and wealth management businesses

Which shows that this is NOT a UK only issue

oh and to those who think somehow it is only this country in trouble apparently tomorrow or Wednesday Germany will announce a huge economic stimulus package

Are there any people on here who have said they think that it is only this country in trouble? Just because they don't preface every sentence with "These problems, which started in the US by the way, ...."

When the global boom was going on one party claimed that it was responsilbe for the growth of the economy, whilst the other claimed it was their assured management.

Now the boom has bust one party is claiming it is the failure of the global economy whilst the other claims it was the result of thier opponents mismanagement.

[ianrobo1]

ye all that is true Gringo, what is also rue is no one from any party or economic theory has the answers ....

this is unique no set answers or remedies for it

[snowychap]

Some interesting ideas here at the nef.

In particular:

From the ashes of the crash: 20 first steps from new economics to rebuild a better economy

and

Triple Crunch: Joined-up solutions to financial chaos, oil decline and climate change to transform the economy.

To download them you need to register on the site.

Their ideas include demergers of banks; use of multilevel, complimentary currencies; a maximum wage differential or maximum wage; using Post Offices as a national banking system; looking at smaller-scale financing for the local economy; bringing everything back on to balance sheets.

From the intro of the first pamphlett:

Critically, governments need to act, not to shore up and rebuild the old financial system but to help build a new system that serves society instead of acting as its master. These are choices Governments can and must make. For the future’s sake, lets make sure that they do.

[ianrobo1]

interesting snowy because you and I would agree with a lot of that

of course all still based o the markets

but tunrig the PO into a natioal bank is such an obvious one

[drat01]

PoundStretcher and M&S are to merge

New company will be called - StretchMarks

[CastleBromVilla]

PoundStretcher and M&S are to merge

New company will be called - StretchMarks

[snowychap]

interesting snowy because you and I would agree with a lot of that

I think I agree with quite a bit of what they suggest (though perhaps they don't go far enough in some areas).

I quite liked this in their bit about a maximum wage:

Ironically, more than 100 years ago, business guru JP Morgan said no company should have a differential between highest paid and lowest paid greater than 10.

but tunrig the PO into a natioal bank is such an obvious one

This is what they say about the P.O. in the one pamphlet:

4. Create a secure, accessible local banking system for people by growing the role of post offices

Following on from the reforms above, and in the context of building new, stable, secure financial institutions to meet local economic needs, such as mutuals, credit unions and cooperatives, the Post Office should be grown into a national banking system that delivers stable, accessible and dependable services to the public and businesses. It stands to be one of the best guarantees underpinning economic resilience, promoting financial inclusion and allowing people to invest and save with confidence and security.

But, more than that, deposits made through the Post Office Bank could play a vital role in reconnecting the banking system with the productive economy. As a trusted source of information and advice, and a vital part of social fabric, the Post Office’s role as a shopfront for the state should be expanded providing direct, local access to a range of government services. Local and national government should be encouraged to direct services through the network.

The Government should halt immediately the closure programme targeting 2500 local post offices and abandon plans to break up Royal Mail. Instead, it should build it up as both financially viable and as a cohesive social and economic institution. And, as an essential component, Royal Mail must be retained as a powerful national network and not cherry-picked by competitors and run down by a government and a regulator which have put too much faith in the deregulated market.

[ianrobo1]

for me it is the only way the RM has a future and given today;s conditions is a vote winner

[tonyh29]

Pedigree Chum have gone bust ...

they've just called in the retriever

[tonyh29]

Quote:

Barclays is to cut at least 2,100 jobs globally across its investment banking and wealth management businesses

Which shows that this is NOT a UK only issue

curious but how does it prove this ?

it is possible that their overseas areas are struggling and they decided to cut back , however it's also just as possible that they have to cut back on headcount and can't afford to loose 2100 from one area thus they have to spread it around a bit or even that they are trying to protect it's UK workforce ...

there are so many variables , but it doesn't really prove anything

[tonyh29]

4. Create a secure, accessible local banking system for people by growing the role of post offices

you mean National Girobank which was then allowed to spawn into Aliiance and Leicester when the government at that time decided to privatise it ...

[Genie]

More bad news at Jaguar Landrover

Jaguar Land Rover is to axe 450 jobs, including 300 managers, the car giant says.

The cuts, including 150 agency staff, follow the "severe reduction" in demand for new cars, said the company.

Jaguar Land Rover also announced that managers will not receive any bonuses this year, while pay rises have been deferred to October.

The company said it had started consultations with employee representatives on the proposed redundancy programme.

Chief executive David Smith said: "It is only right and proper that our response to the unavoidable impact of the credit crunch and a severe reduction in demand includes actions across all grades and functions in the company.

"We don't expect sales conditions to return to normal levels for some time.

"It is critical that Jaguar Land Rover becomes a more efficient and dynamic organisation to face up to the challenges that we will meet in the years ahead."

[ianrobo1]

Quote:

Barclays is to cut at least 2,100 jobs globally across its investment banking and wealth management businesses

Which shows that this is NOT a UK only issue

curious but how does it prove this ?

it is possible that their overseas areas are struggling and they decided to cut back , however it's also just as possible that they have to cut back on headcount and can't afford to loose 2100 from one area thus they have to spread it around a bit or even that they are trying to protect it's UK workforce ...

there are so many variables , but it doesn't really prove anything

well doesn;t the record job losses in america prove that

or the 15% fall in manufacturing in Spain ?

or the 1500 reduncaies at Dell in Ireland

or the £40bn pachkage just announced by Merkel and a predicted 1.5% fall in GDP in the 4th quarter ?

etc. etc. etc.

[mykeyb]

It certainly isnt a UK only issue.

The question is how well we do during the recession compared to the rest of the world - that will tell how well the government are handling it.