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About DrBob

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  1. Maybe they have realised it, which is why they're turning their pieces of paper (cash) into a solid asset (a home to live in)?
  2. Not really. Yes, every dollar must be repaid, but you don't say anything about how much every dollar is worth! The Fed are making a tacit promise to generate a sustained period of higher inflation. This is the only way out of the problem. I do not doubt that we are in a deflationary environment now (my brother works for the Uni of California where an across-the-board 8% pay cut is about to be delivered). However, a sustained period of above-average inflation remains the only solution, and will be engineered by hook or by crook.
  3. Maybe not within six months, but I am certain that economics textbooks of the future will attribute this financial crisis to the derivatives/structured finance market. Future economics students will be astonished that authorities allowed a $1 quadrillion market to develop without regulation and without transparency. Although derivatives can serve some useful purposes for productive companies (hedging against currency or interest rate shifts), they have been thoroughly abused. The development and trading of very complex products such as synthetic CDOs has become a Ponzi scheme. Trade upon trade is generated, each bringing a profit to the trader (usually a small percentage of a very large amount). The pyramid of derivatives becomes larger, the derivatives more complex, and the trading parties more closely linked. Eventually one or more large counterparties fails, and the whole structure collapses. We would have seen a derivatives-related meltdown of the entire financial system last year, but Western governments have taken unprecedented action to bail the system out. The scale of the bailouts is already huge, but will have to grow to become several times larger than that we have seen so far. Calculating net derivatives exposure is near impossible - there are too many classes of derivatives held by too many companies. Most are not exchange-traded (i.e. are traded privately between companies), so information is scarce. Some structured securities are too complex for all but a handful of individuals to comprehend (and even they probably understand the maths but not all the implications of all the underlying exposures). As a ballpark figure, I'd expect derivatives losses to amount to around five percent of the total notional value (more for CDSs and complex structured derivatives, less for straightforward interest rate swaps etc). So around $50 trillion of losses.
  4. NZ is vulnerable, yes. But particularly vulnerable, no. I don't think it's as badly placed as you suggest. NZ does not have the large banking sectors, and associated exposures, that Iceland, Ireland, Britain and Austria have/had. Unlike Eurozone members, NZ benefits from a free-floating currency, which will be allowed to fall as necessary to correct trade imbalances. NZ's main exports are in the relatively non-cyclical agricultural sector (although NZ will be hit by a tourism collapse). NZ also has a Prime Minister who intends to balance the budget, improve productivity, and who has a good concept of international money flows - John Key was a currency trader for many years. Take a read of this recent Wall Street Journal interview with the NZ Prime Minister, John Key. I think you'll find that the Prime Minister of New Zealand is speaking a hell of a lot more sense than Obama or Brown: http://online.wsj.com/article/SB123638162497057661.html I'd rather have a PM who's speaking this sort of pragmatic language than one, like Brown, who just keeps denying responsibility and blaming America.
  5. Canada would be a good choice - huge land area, food, timber, plenty of energy (oil, uranium etc). Only problem is that it shares a land border with the US! Australia is a good bet, only problem being the climate - droughts seem increasingly frequent. I'm in NZ. Definitely not boring (at least where I am). Well-placed for food self-sufficiency. However, unlike Australia, NZ has a high risk of natural disasters (volcanoes, earthquakes). Moreover, although we have plenty of self-sufficient electricity, gas, coal etc, there's not that much oil being produced: The main oil field (Tui) won't last forever, and even with Tui at full-flow, we are still a net oil importer. Having said this, provided you have a safe job, a good network of friends, and an emergency rural bolthole, you should be fine anywhere!
  6. You misunderstand the issue. If this was a simple B&B bond default, the news would not be as shocking. It's the unilateral re-writing of the rules that matters. Some investors in the B&B bonds will have bought credit default swaps (CDSs) to protect their investment. The CDS is basically an insurance contract that pays out if B&B defaults. In buying both the bond and the CDS contract, the bond investor considers themselves 100% safe: if B&B remains solvent, they get the bond payments from B&B; if B&B defaults, they get a payout from the CDS writer, which compensates for the bond losses. Now the govt has rewritten the rules so that B&B can renege on its bond payments without triggering a default (so no payout is made on the CDS contract). Some investors will have been well and truly screwed by this. The reason the govt is doing this is to avoid triggering massive losses on synthetic CDOs. Just a few more big-name bankruptcies will lead to huge losses in the synthetic CDO investments made by insurance companies, pension companies and municipalities etc.
  7. Only if everyone fulfils their counterparty obligations. Credit derivatives (of various types) constitute a huge portion of the derivatives market. If the 'promises' (that borrowings will be paid off using future income) inherent in the contracts are reneged upon, then there will be huge destruction of wealth.
  8. Pension and insurance firms have always viewed their share holdings as potentially risky assets. In my view, they are less at risk from falling share prices, and more risk from collapsing bond values. Pension and insurance firms have to invest a certain proportion of their assets "AAA" rated bonds, many of which which are now facing losses and are trading at heavy discounts. We already all know about the disaster in mortgage-backed securities. According to MarkIt, 2007 AAA-rated mortgage-backed securities are currently trading at just 30-40% of face value. The next wave of losses for pension/insurance companies might come from their purchases of synthetic CDOs. These are effectively highly-rated bonds which pay a coupon to the investor. However, if more than a certain number of reference companies default on their debts (and we're perilously close to this now), the investor loses a large chunk or all of their capital. You can read more on this here. It's the derivatives market which will f*** us all over!
  9. Agreed. I wonder whether central banks are already 'covertly' buying treasuries to artificially lower their yields. Central banks want to give the impression that they WOULD use quantitative easing if necessary, but don't want bond investors to know that they are using QE (as this might lead to their treasuries being shunned). If I were a central banker in this situation, I'd first credibly threaten to use QE. If the threat didn't work, I'd institute QE, but in a covert manner. For instance, I would lend/give money to banks on the proviso that they use a large proportion of this to buy treasuries. Or I would enter a deal with another central bank to buy each others' treasuries (either directly or via intermediaries).
  10. Is it really a monopoly? After all, you could watch a DVD on a cheap portable player or laptop, or you could read a book - many hospitals have free mobile libraries for patients. Ten years ago there were no bedside televisions in hospital wards (you'd have to go to the Day Room at the end of the ward).
  11. Deeply unethical. Whichever doctor implanted that many embryos is not fit to practise, and should have his licence revoked immediately.
  12. Good on him! Let's hope Brown is removed from power before the whistleblower is found dead in the woods
  13. Buy shares in NYSE:POT if you're talking fertiliser. Hold them in a certificated rather than nominee share trading account to reduce counterparty risk. Edit: clarity
  14. Agree with above. My GF used to live a few houses down from this one on Mayall Road about four years ago. It's not the absolute worst area, but intimidating groups of kids used to hang around the North end of it at night. A few people I knew got mugged in the area. I wouldn't want to park a nice car there. Having said that, it's good for transport (tube, bus and rail), walking distance to the bars/restaurants/clubs in Brixton & Herne Hill, and close-ish to the park. It would sell if they dropped the price by 150k.
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