Tag Archives: Investors

“What recession”…after the economic crisis..

happy shopper

For most people the readjustment has already happened, for some they have lost half of their worth but still are worth more than most people will earn in their lifetimes, sometimes many lifetimes over..

Its only numbers on a screen or a piece of paper and that’s the way it was before the credit tsunami hit so what is different..for some if not all it is not much, for others a few they felt it in reality, they lost their job or had to sell their house(s) but strangely enough the Mercedes or BMW was still in the garage and the general feeling is it is all a blip!, something to endure for awhile then everything will get going again, we have put off the holidays (vacation) this year (tourism and airfares are going through the floor), we won’t splash out on a new (Kitchen, extension, spa bath or holiday home) and so on “times are hard” they mutter under now only two caffe lattes a day instead of the usual ten “i needed the total energy to get me through the day” cups.

things are well not that much different, the rich are still rich but poorer, and the poor are well still poor so no change there, the bankers are doing fine thank you very much now that the rest of us have fixed their equity problem but credit is still in short supply and new projects are being shut down or canceled and for ongoing projects the money has been found to finish them off and any other projects that are very advanced into the construction and planning stage they are still being advanced to their next phase, life goes on and very well thank you we still have to eat and shop so things will continue as normal, even that petrol thing has gone away so we are able to run our 4×4 at a reasonable cost again that won’t break the bank so “whats your problem”.

Well the deeper problem is that most people say “oh by 2010” next year by the way?, “that things will be on the up and up again so no problem”, their attitude is that the money they have lost will return with a golden egg, their job will reappear in some flash of light, “that house on Banksia Court is a great price now, so why don’t we put in an offer”, the investors (remember them) are gobbling up the Real Estate (read cheap) bargains at a ferocious rate and ready to sell off to the raising hordes of cashed up buyers that can gain by the exceedingly low interest rate its really wonderful this economic crisis, “best one for years and years” as the “opportunity abounds in the return of the markets and good olde cash” and its “nothing like the one in 1930 something”, this is a “new type of recession”, and remember that “9/11 event we all cruised through that and so this one will be be just like that” so “why worry”.

So with things going so swimmingly I don’t really want to spoil the party in fact it would be a shame too as I for one want things to be good and people not suffer or struggle which a lot do and one thing that is right is the fact we do still have to eat and put petrol in our cars and well “go shopping”…but to do all of this we need money and a big bite of optimism that things are fine, to which to a point things are…

…But except for the realisation that this is it, yes it, the “new new”, the recession the “real deal” and its not going to get better in fact the sooner we all except the situation the sooner we can all move forward, so lets get real shall we.

The level we are at is the real level, not a hyper level or the old (last years) level, that wasn’t a real level at all it was simply an inflated “lets not spoil the party”, level…

…a level that was so way “out of the ballpark” as the Americans put it that it was a stack of cards that was stacked on a stack of cards that was…well lets say we were living in a world of fools, we still are as the fools still believe it will all come back..the ones that will survive and prosper will accept the fact that there is a reality of now and start to live in the new world and not hope it will all come back tomorrow not because it can’t but because it shouldn’t, we won’t survive if it did because all we were doing was wasting everything on trivia, I’m not going there in this journal as that is a bigger picture, yes there will be slow growth as it should be but finance needs to more evenly balanced between classes, there will always be rich and poor, but the fall, if not the devastation of the middle class is the biggest disaster that is facing us all, it doesn’t allow people to live a better life as the gap to being rich is now too great to be bridged, and the rich only look after their own while pushing the gap even further upward, while pushing middle class lower to poverty and worse to minority spending.

And here is the real problem for as the recession deepens the middle class people spend less, why, because they will have less to spend so as they slip more to the poor end of the demographic their basic needs override the so called disposable income and with their basic needs costs rising at a rate of higher than inflation the flow on to anything else goes well down, what was a treat is then a luxury and now a luxury they can’t afford, and so on it goes, for the rich they have now a really big problem because it is this small area that they gather their fortunes, say for instance you are an upmarket clothing manufacturer and things are going great and your profits are $20 million a year, then the spending crunch hits and it will be your clothes that will take a dive first as people switch to cheaper clothing, so you cut your margins which really means your profits as remember the clothes still cost the same to make, you can only cut back so far in costs and labour and your factory bills are going through the roof which you have already done to maximise profits, so then how soon will that $20 million profit be a deficit, Airlines have already seen the reality, profit has gone through the floor and that is with cheap fuel in the tanks as well, and its not the poor Airlines either its the British Airways and Singapore Airlines that are stunned at the numbers coming out of their paperwork, once healthy they are suddenly begging for customers but it will be the small to medium profitable businesses that will really be hit and hit harder and many will go to the wall.

And of course the layoffs will continue, as these medium businesses shred their workforce (the first thing to go) it is also the larger companies that are also shredding smaller ones just to survive, the car industry is a case in point, just watching the General Motors debacle is like watching the Titanic sink..slowly with a large loss of life or in this case livelihoods and many of these new out of work company people are investing in small franchises to guarantee income but only so many can survive and many will turn to the Internet, the clever ones will make money the others won’t as the Internet is strange beast and for someone who can sell cars wouldn’t have the technical knowledge to build a really clever web site and will only copy a successful idea just like a million other out of work non-technical savvy entrepreneurs and so with their millions of sites of the same product they will fail in the giant big Internet ocean and on it goes.

But there is good news too, Real Estate will finally bottom and find its real level and so what you buy will be the value price of your property and not a hyped up price, however if your thinking of making a big profit on the property like in the good olde years then you and all those investors holding their cards close to their chests are in for one big almighty shock, and it could still go down further, but only by not much!, but still downwards and then the investors are going to panic and flood the market with properties they can’t off load as for now they have to pay for them and their expensive up keep and still lose at the sale, that is their fault as they couldn’t afford to buy them in the first place for really they just wanted to stimulate the market back into their favor and big profits, it worked very well before because as the hyper hype of pushing Real Estate prices into somewhere around Mars, investors and middle incomes could “spend spend spend” the huge margins coming their way with a sale of the higher inflated price or with a loan from the bank on well “really nothing”, suddenly now you are faced with your property being worth 15% or worse 25% less of its value in 12 months, however there is nothing wrong with this at all for now you are only back at the reality factor, in other words “It is only now what your property is really absolutely, X my heart and hope to die is really really worth”, and if you have taken out a $50 thousand dollar loan to buy a 4×4 tractor on that inflated price then well “brother your in deep shit”.

The really great news is that we are now all back on Planet Earth but its not over yet and not by a long shot, it will get far worse yet as the public spending and the severe job losses come home to roost and hit hard, and it will take years to climb out to a steady income, and make no doubt the party is well and truly over and anyone who wants to keep up the lifestyle will find themselves left behind as the world will change in a way that everyone can have a good time and not the excess of a few, yes we will still can have fun and so we should but being real with ourselves and our perception of the world will give more back than the take take mentality that has brought us to our knees, we are in a very different world than the depression of the 1930’s as we are now a global economy, we rely on each now more than ever, but right now we need to stop and really think of what sort of world we really want, and only then will we go forward..

..but for now to go forward we will go backwards and everything will settle down, somethings will be better because you will be able to afford that house at 25% off the cost and travel will be cheaper, clothes too in fact a lot of things will come down to a new realistic level, in other words the price they are today and customers will be more discerning and want quality and things that last than the cheap throwaway years of olde and with that many pricy cheap companies will fold because if you don’t adapt you will disappear, but finally things really are better than you really think as to have everything back into reality you can now plan and save and that a economic crisis is really the best thing that could have happened to you, I was so happy when it all fell down, really happy nothing has made me smile more, and I want it to continue as long as possible, mad..no, common sense because this planet needs time to recover from our continuous development, stripping of resources, over population, garbage and a million other things associated with greed and trivia.

…the economic crisis has saved us from oblivion, from killing ourselves, Its a warning to be responsible to ourselves and our home, its showed us our ugly side and it is not pretty, so heed the warning and enjoy the shortage of money instead of too much of it.

The Big Game….How to bring a small planet to its knees

Change is as they say is constant, that’s why it is called change, nothing never ever will stay the same, and now we are in a major flux, a big change, a defining moment, where in the history of the human race’s timeline we will now have a pointer to mark out a significant shift in the way we live and run this planet, the upside is we survive, the downside is the Earth will reclaim its control of its environment again because we will dwindle and disappear, it will take a couple of centuries to do so, but we will go, with a whimper and not a bang, cities will decay and the cement will turn to dust and the soil will again cover our achievements and our mistakes will be our undoing.

Everyone at this moment is having their say on our doomsday scenarios, so I will put mine in, but don’t dismiss this, it is real, very real, more real than you can ever imagine, and I am not going to go on a preach about Global Warming and Polar Icecaps disappearing because the reality is very different, and its caused by a few people with a laptop and an internet connection, and their all consuming daily activities are to just make money….for no other reason than to make more and more of something they already have in abundance, maybe its power they crave, but I think it is not that, it’s nothing more than a game, a gamble, a fun thing to do, but mostly a game, a huge poker game…..and its living and breathing in its own little world of greed and power……..

…the years 2007 and 2008 are the warning years, we’ve just had one, if another warning will come as I write this I do not know, but the big question is have we read the signs and are we willing to change, first some hard facts. In 1907 there was  approx 1,700,000,000 people on this planet, this year there is 6,720,125,767 give and take a few deaths and babies, that is 5 billion more people living on this finite world in only a hundred years, now no doubt this will curtail a little and not increase by the year 2050, even if the Catholic Church and sciencetific boffins want us to.

So to support such numbers we have had to have revolutions in agriculture and technology and we now live in more and more confined conditions, we have as a species been extremely clever in handling this overwhelming growth and even created a systems where a large majority of the population does live in extremely comfortable conditions with huge choices of food, clothing and everyday necessities provided by services and governments, we have created amazing transport networks of Road, Rail and intercontinental sea and air travel, and information services that truly makes the world a very small place, and there is a point, it is a very small place, and we all survive here every day, living mostly on top of each other in different languages and cultures, but survive we do.

A major component of the expansion has been created on one resource, Oil, it creates plastics, that created this computer I write on, it stores the food I eat, it is manufactured in a zillion different ways to meet our everyday needs, but more importantly it runs totally our transport networks, completely, absolutely, if the Oil stops we stop, completely, no oil, no food, that simple, if the Oil ran out today  we will run out of food in three days, true, I’m not scare mongering, unless you have access to any sort of grown food or a farm, even a farm will slow as the oil will not be there to run the equipment, so you will starve to death in a week’s time, maybe two, in a month or two  70% of the modern infrastructured world will be dead, the rest will fight for survival on what food they can get, the third world countries will strangely enough fair better as their infrastructures is not so oil based, but they will be soon over-run by billions of starving people, wanting even more the little they have now, and there will be no aid coming, what there is, is what there is, and we will fight for anything to keep us alive.

On top of this, is the fact that some countries, use twenty to thirty times more oil, per head of their population than other countries, why?, because it is so very cheap they can simply waste it, but also disposing anything they have used even if it is still a usable functioning product, but also running machines and industries that are simply so inefficient that they can consume this finite resource to the point of arrogance, and we haven’t even got to the money situation of the commodity as a market product yet, they say they won’t change because it will believe it or not, cost them money to do so,  a simple fact is if the population dies, they won’t have a market anyway, or a car to drive to work in, so do they have to change, the answer is yes, but I am now getting ahead of myself.

Although investing has been around since the 11th Century, it was in only 1602, the Dutch East India Company issued the first shares on the Amsterdam Stock Exchange, this allowed people to invest in a going concern, buying a share, it gave companies capital to build their businesses, and the shareholders to receive a profit on their investment, all fine and fair weather, if you wanted to trade shares, Stock Markets then rose to allow you to do so, creating portfolios of investments across  a diverse range of businesses that can soften any general ups and downs of general trading conditions, markets and weather, with this the worlds stock markets became powerhouses of capital, allowing  for the shear growth and building of the western world, in only one decade, and mostly in the last fifty years through huge financial stock markets, we have totally transformed our world around us, there have been a few blips, 1929, 1973-74, 1989, and euphoria of the Dot com. boom in 2000, there is now approx 51 Trillion US dollars invested in this market at this date, and the markets can be a bear which is going down or a bull which is going up, and except for those few blips, the market has always gone up, and so does everything else, real estate, prices, and commodities, but here we have built this machine to always make a profit, every year it goes to newer and newer heights. Mostly at the turn of the 20th century most investments was in usually within your own countries borders, but since the 1950’s it has become a global market and the advent of computer networks now anyone can pretty well invest in most world markets, but it is the shear mass of shares that now dominate, from banking giants to the housewife who wants to invest on the side, can work and share in this huge market, and it works and it works very well, however in the last ten years a creeping problem has been slowly developing within this system, a dangerous one, and even a fatal one, and a few are enjoying it as a game, a big stakes game…but still a game.

You can if you wish with your laptop connected to the internet sit on a beach in Thailand and work your share portfolio, the idea is to make a profit, in the start of share trading it took many years of the investment to create a profit from a business or company, so for most people it was a nice little top up for their retirement and when they cashed in their shares and bought a new car and a house by the beach, but through the trading houses it became quickly a few years of an up and coming company to give you a good dividend, but computers and digital communications changed all that again and quickly, years could be brought down to months and now days, sit up at night, make your deals, collect the profit the next night, a small one, maybe $100 to $200 dollars, or lose, but losing is rare, even if you lose tonight, you can usually get it back in a month or so as the market or seasons change, if you play your cards right, many were out there every night playing their cards, and if you were good, very good, you could make a million dollars a year, now there is nothing better than greed to blank out commonsense, with the internet startups you could turn a simple $2000 share into millions in months, so now everyone got in on the bandwagon, and it crashed, badly, but it didn’t stop the real hard core players to get around that, their instinct and cannyness they knew where to put the deal in and deliver, so a very good investor by now could make $50 million a year, that is not one but maybe 50 or hundred of them, soon this elite group could control $2 to $3 Trillion of the market, which is fine, but the problem is they work in a herd mentality, they watch each other like hawks, and when one moves they move, wanting the same return on their investment, not in a month but in a week or sometimes a day, this is all they do, and all they look at is the numbers, not factories, people, cities, or even property, just numbers, they even don’t know how much money or numbers they have, and the idea is to make those numbers go up, outwhit another investor, take his share, make a killing of maybe $10 million dollars a day, that is the game and the win, they are isolated from reality, they live and sleep the numbers, they are worth more money than they can ever spend in their lives, but they want more………it’s a drug.

You are a good company business man, your company has traded for over sixty years and your brand is strong, you have had a good year, profits are up way up, and you share them with your long-term investors, the hard core investor notices that there is a profit to be made, a good one, and in he comes, and your shares go from $2.65, to $18.00 overnight, then other people notice that spectacular jump and in they come, soon its pushing $28.00 per share, all wanting a profit, your rich, very very rich, but only for a brief moment, because then the hard core takes his investment cut, sells out at $28.00 a share and takes more than his huge investment back, the larger market wonders why it is falling badly and its over within a day your now worth only .68 cents a share, your business goes from a well oiled machine to an empty shed in months, your staff are redundant, and your worthless, your just numbers, nothing else, numbers a game….and he will savour his multi-million dollar win for about an hour then go straight back to numbers to find another quick victim.

Property is very good for hiding money, until well something goes wrong, really wrong.. and for the first time these speculators got hurt, really hurt, they saw years of building and saving and squirreling away their bounty disappear, they were suddenly the victims now, and it hurt really hurt…..and they wanted it back right now and straight away.

They had got also completely reckless, so much money has been made, it was became easy to make a million before lunch, remember they work on a global scale, deals are made with very large companies and mergers, shareholders just want more, if a company didn’t deliver it was smashed, destroyed, just by picking up the tab and moving on, so they have to deliver, there is no other option, vast amounts of easy money being made was now filtering down to areas that would have never had been touched in the past, credit was available and mortgages to people who never dreamed of the sort of huge sums now available to them, nothing could ever go wrong, The US Treasury and Alan Greenspan dropped early in the decade the interest rate to a low of only 0.01 percent, so it became an even larger tidal wave of paper and cheap mortgages, it couldn’t last, because of one basic rule, don’t lend money to someone that can’t pay you back, but with the insane rising of property prices, higher and higher every year everyone didn’t even think it would even slow, or even stop..ever….but it did.

And so the Sub-prime crisis of god olde USofA started, and the rest of the world followed, yes the people started to lose their homes, at first the investors didn’t care it was just a few numbers on a screen, but then reality crept in, and then more naively banks and the investors thought that they could just simply auction the off the repossessed houses and businesses and get their money back, problem was nobody bought them, and they went empty, first one a street, then a whole street then a whole suburb, then the cards really began to fall, and then banks began to fall, this was going to hurt and really badly.
For our friend in Thailand looking at his laptop screen it was a nightmare, his money was disappearing, or going down and out fast, first he was angry then he cried, then he wanted it all back, and what makes more money than anything else on this small rock…..oil.

So with his a last billion he turns to the commodities market, and so does his friends, that herd mentality kicks in and oil is suddenly the flavour of the day and the price goes up, and up and up……and up., he breath’s awhile then it goes up more, remember, he has no comprehension of time or life, just the numbers everyday on his laptop, and he is totally unaware that all around him the world just stops, just grinds slowly to a halt, people can’t move anymore, trucks go on strike, shops start to go empty, airlines first put up their fuel subsides then just go broke, first it’s the LCC (low cost carriers) then the larger ones, politicians start blaming everyone, people start blaming politicians then the Oil Companies for profits, both the politicians and the Oil men can’t believe their luck with so much brilliant easy money going in their respective banks, the Arabs are dumbstruck, the Middle-Eastern  cartels that thought they ran the Oil business realise they have no control over it at all, it’s the guy on a beach in Thailand and his greedy cronies that are now running the world.

His surprise, is the fact that when he goes shopping everything is becoming very expensive, it doesn’t worry him of course as he is worth a few billon dollars, but he also doesn’t realise that he   is the cause, unlike other investments, Oil can create a ripple effect, like a wave after wave running up on to a beach, if the price goes up, its carried along to other items, say the transport delivering the goods puts his price up because it costs more oil to do so, then the supermarket will put his prices up also to cover the cost, but here a funny thing happens too, real people those who work everyday in a job with a set income start to run out of money, so they will cut back on items including oil, to cover their basic needs, and this is what happens in an oil price crunch, everything slows down, the more oil goes up the more the world stops, and unlike a property or company investment the changes are in days and not in months or weeks so the effects of his investments are immediate, and dangerous, he has created a vacuum,  money has come in yes for him, but the money on the street has suddenly dried up.

And now he has moved on….he this time collected his bounty, so the oil price has dropped away again and world starts to breathe again, he thinks that his only problem now is to get that damn property market moving upwards again as he still has a lot on his books or he might be buying at the bottom of the market price, he needs to move it, up,  and quickly so he can get his profit from the upturn of the real estate market, but here is a fundamental problem?….
There is no free lunch, if you go to say a meeting and free food is on offer, there is the fundamental situation that although you are eating the free food, someone somewhere has had to pay for that free food, for our greedy crony, for every billion he makes someone somewhere has to give him his billions, and its usually the person at the bottom of the food chain, not the companies, not other investors, not governments, not banks, but the everyday Joe that has 3 kids and a mortgage, and the only way Joe could pay before was because his house or property investment rose, above the market, above its realistic price of worth, maybe its called a correction, but prices are put back into their correct place, and it should then level out…But it didn’t……because he stopped the world, only just for a second with his Oil investment, and it was enough, the point of pushing something to far, past the point of commonsense or rational thought, Greed, total greed is the reason…then

Its not a game anymore, those numbers are becoming real, and disappearing and very quickly, Wall Street is suddenly in turmoil, and you are part of the problem, a big part of the problem, then the investment banks are crashing, falling over ..gone, First it was Bear Sterns, Then Northern Rock in the United Kingdom, showing the major warning signs early in the year, but hey who cares, we have had worse, without that Oil spike could they have been the only ones.. then amazingly Lehman Brothers, Goldman Sachs, Merrill Lynch, and Morgan Stanley, are all gone, and life is in freefall, this is the worst of the worst, Then hope as the US Treasury creates the Emergency Economic Stabilization Act, a saviour, an act of god, he could even make a small profit out of that, but congress then voted on the bill, 228 members voted against and 205 for passing it, so it failed to pass, and the market has gone into total freefall again…..this was today, what will be tomorrow…..