Jul 20, 2010


On August 14, 2010 we shall be half way through the year of the tiger. How is it shaping up?

Who pays the piper calls the tune

The US has been stripped of its AAA credit rating. So have Britain, France and Germany...

This morning, the Dagong Global Credit Rating Co., China's first real attempt at a ratings agency, initiated coverage on the sovereign debt of 50 different countries. Dagong analysts claim to give a greater value to nations with the best "wealth-creating capacity" and biggest foreign reserves. They strive to "not be affected by ideology," insisting that "it is the newly-created social wealth that supports the national funding capacity and constitutes the primary source of debt repayment." [Their ratings certainly have a more reasonable appearance than those of Moody who have a very cozy relationship to the companies they rate.]


Perhaps we should consider these new ratings to be another subtle shot across the bow from the Far East... The Chinese are not nearly as ignorant as most Westerners would want them to be.

But there are larger trends afoot, fellow reckoner. Real estate in the US, for instance, is still trying to find a market-clearing price. Inventories are swelling, including the ominous-sounding "shadow inventory" - properties that would-be sellers are holding back from the market in the hope they'll fetch a better price down the road. And now we learn that the aftershocks of the subprime quake are beginning to ripple through the millionaire's market. You might have seen this quote in yesterday's issue, from The New York Times: “More than one in seven homeowners with loans in excess of a million dollars are seriously delinquent, according to data compiled for The New York Times by the real estate analytics firm CoreLogic...”

Maybe the foreigners will buy them up on the cheap, then? Well, them foreigners 'ave got problems of their own, sir...

We can probably count the Europeans out of the game for a little while, at least. Ratings agency Moody's finally downgraded Portugal's sovereign debt rating today, sparking fresh concerns about "contagion" of the continent's ongoing crisis. The agency (which must fairly be in contention for the Christopher Columbus Award for discovering something a long time after a large number of people already knew about it) cited worsening public finances and weak growth outlook as the reason behind their knuckle-rap. Portugal's government finances will continue to deteriorate for "at least another two to three years," Moody's team of clairvoyants announced.

So how about all those cashed-up Asian buyers? Your editor is in Beijing this week, on his second visit to China's capital city. As you might expect, it's pretty hard to get a grasp on what's really going on here. Early this morning we took a taxicab to what we thought was going to be an old "Hutong" - traditionally some of the poorer areas of the city with narrow, snaking alleyways and, in recent years, very low cost housing for migrant workers from the provinces. After a 15-minute drive from our hotel, the taxi driver stopped in front of a shiny new shopping mall. "New China" was all he said before handing us the receipt.” The Daily Reckoning Wednesday, July 14, 2010

The Gulf of Mexico Oil Spill

Multiple cracks and fissures are apparent in the sea floor of the Gulf of Mexico, mostly releasing bubbles of methane. Adolescents lighting each others’ farts have long demonstrated methane to be a very flammable gas. Bill Clinton advocates the Omega Plan, and the Los Alamos laboratories have been recruited to develop it. The Omega Plan is to seal the entire well by means of a nuclear device (a small atomic bomb). It seems certain to create an explosion that should wipe out all of Mexico and most of the continental United States to the Canadian border. The resultant fireball and tsunami will keep the president’s promise to get rid of Guantanamo, however. Areas of the central plains may survive, and hopefully the West Coast, but the New York to Washington power corridor should look much like Baghdad does now if the nuclear option goes ahead.

Individual Initiatives

Phillip Hewitson, an elderly man, from Norwich in England, was going up to bed, when his wife told him that he'd left the light on in the garden shed, which she could see from the bedroom window. Phillip opened the back door to go turn off the light, but saw that there were people in the shed stealing things.

He phoned the police, who asked "Is someone in your house?"

He said “No, but some people are breaking into my garden shed and stealing from me.”

The police dispatcher said "All patrols are busy. You should lock your doors and an officer will be along when one is available."

Phillip said, "Okay."

He hung up the phone and counted to 30.

Then he phoned the police again.

"Hello, I just called you a few seconds ago because there were people stealing things from my shed. Well you don't have to worry about them now because I just shot them." and he hung up.

Within five minutes, six police cars, a SWAT team, a helicopter, two fire trucks, a paramedic, and an ambulance showed up at the Hewitson`s' residence, and caught the burglars red-handed.

One of the policemen said to Phillip, "I thought you said that you'd shot them!"

Phillip said, "I thought you said there was nobody available!"

Don't mess with old people”

The most controlled media in the world, in dutiful gridlock lockstep calling all Gaza relief convoys “Pro Palestinian” is concentrating on freak shows at the periphery, such as the inevitability of a Palin/Petraeus presidency to come.


“Do what thou wilt shall be the whole of the law.” Aleister Crowley (“the man who chose evil”), mountaineer and magician

Update November 9, 2010

One of China’s leading credit rating agencies has downgraded United States of America government debt [from a previous rating of AA+ to A+] in response to what it sees as deliberate devaluation of the dollar by quantitative easing and other means.

If China, now the second biggest economy in the world, stops buying US government bonds this could have a very negative effect on the global recovery. The Dagong Global Credit Rating Company analysis is highly critical of American attempts to borrow their way out of debt. It criticises competitive currency devaluation and predicts a “long-term recession”.

Dagong Global Credit says: “In order to rescue the national crisis, the US government resorted to the extreme economic policy of depreciating the U.S. dollar at all costs and this fully exposes the deep-rooted problem in the development and the management model of national economy.

“It would be difficult for the U.S. to find the correct path to revive the US economy should the US government fail to understand the source of the credit crunch and the development law of a modern credit economy, and stick to the mindset of traditional economic management model, which indicates that the US economic and social development will enter a long-term recession phase.”

The analysis concludes: “The potential overall crisis in the world resulting from the US dollar depreciation will increase the uncertainty of the U.S. economic recovery. Under the circumstances that none of the economic factors influencing the U.S. economy has turned better explicitly it is possible that the US will continue to expand the use of its loose monetary policy, damaging the interests the creditors.

“Therefore, given the current situation, the United States may face much unpredictable risks in solvency in the coming one to two years. Accordingly, Dagong assigns negative outlook on both local and foreign currency sovereign credit ratings of the United States.”

The bombshell follows fears about the outlook for bondholders expressed closer to home by fund managers, including the American giant Merrill Lynch. Max King, global investment strategist at Investec Asset Management, who passed the Chinese note to me said: “Dagong is well respected as an independent credit rating agency which takes a more conservative view than better-known American credit rating agencies.

“It is interesting to see what people with money outside the American sphere of influence think. Until recently, the US had been regarded as beyond reproach but now independent analysts say the position is deteriorating and likely to deteriorate further."


The recent assigning of a AAA credit rating to Great Britain by the US ratings firm Moody's was universally ignored.


Wahyusamputra said...

Aleister Crowley was a guy who practised sex magic, between guys, to raise demons and evil spirits, literally. It's sort of interesting that the law he made for his band of buggers at the abbey of Thelema in France can now be seen as merely a description of general behaviour world wide.

Wahyusamputra said...

In the matter of ratings:

-Investors want AAA-rated securities

-Investment banks deliver whatever their clients want

-Investment banks pay ratings agencies for their services

-The service of a ratings agency is to rate securities.

You can pick your metaphor. It's like a student who pays his teacher to grade his papers. Or a plaintiff paying the judge's salary.

Wahyusamputra said...

Update of November 9, 2010 from Fortune:


China downgrades U.S. debt Posted by Colin Barr November 9, 2010 2:42 pm

The state-backed Dagong Global Credit Rating Co. on Tuesday downgraded its rating on the United States to A-plus from double-A, maintaining its negative outlook.

It warned that the Federal Reserve's plan to buy $600 billion of Treasury securities over eight months in its second go at so-called quantitative easing could trigger a creditor crisis.

"The new round of quantitative easing monetary policy adopted by the Federal Reserve has brought about an obvious trend of depreciation of the U.S. dollar, and the continuation and deepening of credit crisis in the U.S.," Dagong writes in its latest report on its U.S. rating. "Such a move entirely encroaches on the interests of the creditors, indicating the decline of the U.S. government's intention of debt repayment."

One critique of the Fed's decision is that it won't actually accomplish what the Fed is setting out to do, which is to bolster domestic employment. Meanwhile, many critics contend, additional money-creation is apt to inflate asset bubbles elsewhere and eventually end in ruinous inflation for everyone.

"Analysis shows that the crisis confronting the U.S. cannot be ultimately resolved through currency depreciation," it writes. "On the contrary, it is likely that an overall crisis might be triggered by the U.S. government's policy to continuously depreciate the U.S. dollar against the will of creditors."

... when it started coverage of the U.S. and other big debt-addled nations in July, [2010] it gave them lower ratings than agencies in the U.S. in part because "Dagong does not apply ideology as demarcation and fairly maintains interests of various circles in the national credit relationship."

Note: Moody’s assigning its previous AAA to Britain, for example, went unremarked, perhaps unnoticed, by everybody.