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OK, this is the post and hope it works:-

 

 

 

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Volume 4 - Issue 51

October 13, 2008

 

 

 

Why The Worst Will Soon Be Over

from Bedlam Asset Management

 

 

The credit crisis is global. Interestingly, some of the more creative and straight forward solutions are coming from England. This week in Outside the Box I am presenting you with a very well written (even entertaining) letter from Bedlam Asset Management from London www.bedlamplc.com on their view of the crisis. It is always instructive to look at your problems from the point of view of another party, and even more some when they give you some thoughtful and cogent analysis.

 

I have to admit, seeing green on my screen feels good, but we are in a recession that is global and is likely to get worse. What we need to do now is assess what our response will be. First, we need to avoid the pitfalls and then look around for the opportunities which will be presented us. I think this week's Outside the Box will help you think through your personal situation.

 

John Mauldin, Editor

Outside the Box

 

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Swiss Franc at Everbank

 

 

 

 

 

Why The Worst Will Soon Be Over

from Bedlam Asset Management

 

"I've seen an elephant fly",

weather forecasts, and why the worst will soon be over

 

It is almost sad for us that the worst of the world's largest ever bank crisis is just about to or may even have passed its peak. It was fun not to hold any and be thought a crazy, even though if any bank director was asked the right questions, it was clear the system had to fall over. Now that it has, we move on (but still hold no financials). There are other aspects we'll miss too. The impotence of Politicians revealed -- no power to affect the direction of the business cycle, and even less understanding of the economies over which they portentously believed themselves in charge. Who will forget the British Chancellor's vacant stare whenever asked a simple financial question, even as his eyebrows squirmed like caterpillars in their death throes thus betraying his ignorance?

 

Then there's the regulators, so far behind the curve it's embarrassing. No wonder in recent speeches PM Brown announced that he and the Treasury would sort out the banks, even though the role is split between the FSA and the Bank of England. We won't miss the shocks after combing through the balance sheets of Bradford and Bingley, Anglo-Irish, Northern Rock, RBS, Soc Gen and UBS to discover how weak and sloppy were their business models; and we look forward to illogical panic reactions ending. For in the midst of the largest financial fire in history, more effort has been expended on arguing who is to blame, rather than trying to find the extinguishers. Happy, happy days. Farewell.

 

If you do not weep uncontrollably whilst watching Dumbo (the movie, not the people above), then you have no soul. The climax of the story is that without his white feather he could not fly, and was but a terrified and rather badly drawn pachyderm at the top of the high dive. With a little persuasion however, he realised the lack of his comfort blanket did not preclude him from his destiny, so off he flew. The multiple financial implosions of September and early October reduced governments, central banks and regulators into a Dumboesque, catatonic inertia. Fortunately, the panic in all markets has made them realise that they did have sufficient powers: if not to fly, then at least to prevent an immediate Depression. Thus for the first time this century, there is good clarity on the medium term future, both for the global economy and stock markets. This is one of a steep recession, followed by several years of a mild and stuttering recovery. Surprisingly, this is a good result.

The eye of the storm has just passed over

 

As long ago as 1999, a long and thoughtful front page article in the New York Times highlighted the dangers of the world's two largest mortgage underwriters, Fannie Mae and Freddie Mac. They had just been blessed by the regulators, Congress and President Clinton to tear up the risk book: to offer large and easy mortgage terms to those Americans who could never realistically hope to own a home. This relaxation of prudent lending rules was soon widely imitated, particularly in economies with a property owning mentality. The consequence was a global economic growth chimera, accelerated by the reduction of the dead hand of bureaucracy in third world countries such China and India. This allowed them to achieve far better growth rates.

 

From 1999 onwards the hurricane started to build, moving ever closer to the world's financial system, obvious even to the man in the street. Yet the near-term gains were so beneficial to individuals and government budgets that every Finance Minister threw prudence down the well. Chancellors even became popular. Bizarrely, the only people who did not recognise the inevitable were the regulators, senior bankers and fund managers. In 2007, the storm ripped into the banks. There was a brief calm as the eye came overhead, within which complete regulatory and political paralysis developed, even as institution after institution imploded. Now the eye is passing; we're back into the other side of the storm. Initially the winds will be extreme, but each crisis will be a little less than the one before. It is the best possible outcome, for the alternative was an immediate vertical drop into a deep economic Depression. This would have made the 1930s look a picnic. The 'positive' alternative may not seem that glamorous as many small countries are already in recession and the major ones will follow before the end of this year. Yet this recession will be a 45 degree slope, not a 90 degree fall. This is because the correct response is now in train. It means that as early as 2010, a stuttering recovery could commence.

The British solution goes global?

 

It is a great surprise that three small islands off North Western Europe have been the cause, and the cure, of the crisis. It was Ireland's emergency guarantee of all deposits which set off the nuclear reaction: risible, because its blanket nature covering all deposits for its six banks worked out at $576bn, nearly three times gross domestic product, $130,000 per head or $200,000 per person in employment. Within these numbers was a sub-liability of nearly $50,000 per head over foreign deposits, mostly British. Despite now excellent Anglo-Irish relations, if these guarantees had been called, they could never have been paid. Immediately Germany, Spain, Greece and smaller countries followed suit. Mildly anti-EU British politicians then peculiarly started to bleat about supra-national solutions - an impossible dream - and did nothing. More sensible foreign leaders reacted nationally to the inevitable consequences of their electorates seeing their local banks disappear in a puff of smoke. Fortunately, market mechanisms then kicked in. Large British deposits were being sucked out, into unreal Irish bank guarantees at an alarming rate. Meanwhile in Iceland, the third offshore island, the entire bank system finally decided to die. Although this was assured much earlier (see Pick of the Week No. 48, "Abdul and Jorvik Go Shopping"), it had staggered on for a surprisingly long time. The twin Irish/Iceland events resulted in dramatic falls in British asset prices and even worse gridlock in the lending markets. Outflows to Ireland were swiftly followed by a sudden realisation that simply idiotic deposits worth over

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MattFromGA

I think the OFW reaction to the "downturn" will be positive, especially so for the medical community. Lets face it, the reason OFWs are in demand is because of the low cost and/or lack of local talent. Hospitals will still need to staff, so the first to go will be the expensive native nurses to be replaced with cheaper nurses from the emigrant population. The same thing has seemed to hold true for the software consulting industry. While projects do get canceled when funds run low, critical projects still need to get done and they would rather use consultants than FTEs. Off shore development is going strong, with places like India and the Philippines capable of benefiting from corporate cut backs.

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The article by John Mauldin is interesting , although I dont agree with some of his analysis or conclusions.

 

Overall, my guess is that it will be four or five years before we get back to something approaching "normal", or rather, before confidence is restored.

Meanwhile, it will certainly be an exciting time for some, disaster for many, and general uncertainty for most.

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Well it appears the record bounce on Monday was a "dead cat bounce" as I sit here watching CNBC the Dow is down 545 points, and the A$ has slipped again after struggling back to 72c to the U.S.$ has gone back to 67.32, Sheeesh were is the world headed for?

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Off shore development is going strong, with places like India and the Philippines capable of benefiting from corporate cut backs.

 

Really? I was reading an article the other day on the Indian BPO industry. Debt collection is one of the few areas where they are still aggressively recruiting new staff. I read another article from an Indian paper that said the BPO industry was having some tough times.

 

http://www.assamtribune.com/scripts/detail...id=oct0408/at06

 

 

All that said, yesterday at my wife's work, they had a meeting where they announced that everyone was getting pretty hefty raise.

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MattFromGA
Really? I was reading an article the other day on the Indian BPO industry. Debt collection is one of the few areas where they are still aggressively recruiting new staff. I read another article from an Indian paper that said the BPO industry was having some tough times.

 

I stay close to the day to day happenings in the industry, and get about 10 job offers a day in the USA. Regardless of the economy, unless a business just wants to go out of business completely, they are going to have big need for software developers. Do you think FedEx, American Express or Bank Of America can just stop it all? Sure, there are cream puff projects being canceled but there are always cream puff projects being canceled anyway.

 

While I am not a fly on the wall for executives everywhere, I am sure that they are still pushing for the H1B visa program to be expanded. The way some of you guys are talking about here, nobody has a job, nobody can find a job, and the world is coming to an end this weekend... oops wait isnt in supposed to come to an end on 2012? Whew I guess we still go a few more years left.

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Ever since the great depression the government has always won. New understandings about how economies work thank to people like John Maynard Keynes and others have helped. I don't have a crystal ball and cannot predict the future. There have always been some saying the end is coming, The economy is going to collapse and we are going back to the stone age or something like that, all BS as far as I am concerned. Now it is true we have some major F-ups and we have been in a recession for some time now. 2009 will suck big time for the poor and overspending folks but there will be plenty of new opportunities to make lots of money :unsure: Have you noticed Warren Buffet is now the richest man in the world? Smart people are making a lot of money off this.

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MattFromGA

I think love's attitude is spot on. Thats the kind of attitude it takes to make money in today's world. Wining, crying and worrying over the latest conjecture by some smoke room conspiracy theorist is the sure fire way to not only have a shit stained outlook on life but actually help self fulfill your own silly fears.

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mattwilkie
I think love's attitude is spot on. Thats the kind of attitude it takes to make money in today's world. Wining, crying and worrying over the latest conjecture by some smoke room conspiracy theorist is the sure fire way to not only have a shit stained outlook on life but actually help self fulfill your own silly fears.

 

 

Truth is though the tax payers are bailing out the markets did it need to be done? Well personally i think if it all went down the toilet the economies of countries would stabilise at a more sustainable level. Do i think there is conspiracy theories i think personally its rich staying rich.. The fuel crisis the rice crisis where are they now? Truth is its all speculative markets and if you can force panic at the right time you can make a lot of money.

 

Do i think it makes any difference to general economy spending all this money.. to the man on the street truth is no we are still heading for a downturn in world economy we are just delaying the issue. The UK housing market in places such as London have already dropped by 20% in value unemployments growing and will keep growing for at least the next 6 months then i believe it will level out and sit there for the next couple of years.

 

How about the man on the street? Simply the majority of people have stopped spending to see what happens this is going to stall housing and retail markets. Is it something to worry about? Well i was in my local town the other day and a complete area part of the town centre is all available for rent the shops are gone and no doubt its the same all over the country. If it was a business would be seen as a correction on overspending problem is the debts are generally going to have to be written off because people simply cant afford to pay and going bankrupt resets you back to Zero in 5 years. This is where a lot more money will be disappearing over the forthcoming years. Odd thing about all this is i seen it coming 3 years ago and the financial markets didnt?? I dont believe that.

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I think love's attitude is spot on. Thats the kind of attitude it takes to make money in today's world. Wining, crying and worrying over the latest conjecture by some smoke room conspiracy theorist is the sure fire way to not only have a s*** stained outlook on life but actually help self fulfill your own silly fears.

 

 

I think praying will help more than attitude.

 

Which attitude do you mean anyway? Being optimistic when you are on death row and dreaming of golfing in Hawaii?

 

.

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MattFromGA

Im talking about a positive outlook, with a belief that you can do what you want to do to make money. Thats the beginning, as it also takes hard work. However, if you start with a negative outlook like "oh... they sky is falling... the world is falling apart... what will i do.. what will i do???!!!"... well, you may as well slit your own throat, never mind actually get out of the rut to try and earn a living.

 

Read Steven Covey's Seven Habits material or Tony Robins Personal Power to help get a better understanding about these issues.

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mattwilkie
Im talking about a positive outlook, with a belief that you can do what you want to do to make money. Thats the beginning, as it also takes hard work. However, if you start with a negative outlook like "oh... they sky is falling... the world is falling apart... what will i do.. what will i do???!!!"... well, you may as well slit your own throat, never mind actually get out of the rut to try and earn a living.

 

Read Steven Covey's Seven Habits material or Tony Robins Personal Power to help get a better understanding about these issues.

 

Truth is its a media circus.. most of the markets are based on speculation and "what ifs" the media can turn it upside down and inside out painting doom and gloom or recovery. Because the majority of people follow what they are told blind. No one asks questions the U.S. and U.K. tax payers have lost billions of

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Positive thinking and attitude is fine as long as you have a realistic outlook. Basing your personal faith on the faith of the world economy is just dreaming. These days you have to be realistic about what will happen in the next 5 years because it will be mind boggling for most people (Iceland is giving us an example on a smaller scale right now). What the world leaders are trying to do right now is to patch the situation and make people believe that all will be fine, which will probably be successful for another year or so. I am not saying that the world will come to an end but the ones who will not prepare themselves and put their trust in governments will be lost souls in the universe. The problem is that there is not too much an individual can do now as the masses always prefer to be sheep and are thinking that governments are acting in the peoples interest. Most governments and politicians are forced to act selfish and corrupt by masses of sheep who prefer smiley faces rather than realistic leaders. All I can say: Look into the mirror and you know whose fault it is.

 

Maybe at the end of all this we will see a revolution and the end of capitalism as we know it.

 

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