FOMC Takes a Dovish View Despite Inflationary Risks

Thursday, June 28, 2007

In a widely expected non-move the Federal Open Market Committee (FOMC) decided unanimously to keep the Fed Funds rate unchanged at 5.25%, extending the grace period for overstretched consumers/debtors who are fearing the times of painful mortage rate-adjustments. Such adjustments are now upheld for at least another quarter.
The brief statement says:
The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5-1/4 percent.
Economic growth appears to have been moderate during the first half of this year, despite the ongoing adjustment in the housing sector. The economy seems likely to continue to expand at a moderate pace over coming quarters.
Readings on core inflation have improved modestly in recent months. However, a sustained moderation in inflation pressures has yet to be convincingly demonstrated. Moreover, the high level of resource utilization has the potential to sustain those pressures.
In these circumstances, the Committee's predominant policy concern remains the risk that inflation will fail to moderate as expected. Future policy adjustments will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.

It seems the doves are flying high at the Federal Reserve despite a sky full of warning signs. Recent headline inflation figures and a revision of the deflator from 4.0% to 4.2% for today's final GDP growth figures for Q1 2007 from the Bureau of Economic Analysis seem to prove the FOMC's expecations that inflation will not moderate as hoped. Q1 growth was revised to an annualized rate of 0.7% (0.6%.)
With oil futures creeping above $70 such hopes seem far-flung anyway.
Conclusion: The FOMC seems to be more concerned about choking a sharply slowing economy than fighting the worrisome uptrend in consumer prices that are poorly reflected in the Fed's favored gauge, the highly hypothetical "core" rate of inflation that may help complacency at the Fed's part but in no way mirrors consumers daily experiences at the cash register.
The continued hold on rates may be a temporary relief at first sight, but the easy monetary policy will only prolong the credit financed shopping spree of consumers who are already indebted up to their ears.

Two Strong "Buy" Recommendations

Monday, June 25, 2007

Rainy Vancouver weather creates ample opportunities to catch up with that ever growing pile of books next to me. The troubles at Bear Stearns and new figures confirming the down trend in housing should not come as a surprise to readers of Michael Panzner's latest book "Financial Armageddon" that warns us all of the dramatic paradigm shift that will lead to a major depression. Panzner paints an extremely pessimistic picture of the times to come. The page-turner concludes that a downturn in housing is only the primer for an avalaunch of worse developments to come. Panzner, a Wall Street veteran of 25 years, does an excellent job on detailing the coming full blown depression - I agree on that. What is missing, though, is a chapter on how we could turn the tiller around. This is no blame as this is probably the hardest part for all those concerned with markets and the economy.
An other book I thoroughly enjoyed on the weekend is not exactly new and had topped bestseller rankings several years ago. In "Confessions of an Economic Hitman" author John Perkins spills the beans and tells that the world works the way many have always suspected. According to him loans to the developing world never had another reason than to keep a country servile to the wishes of its American masters. Perkins published a sequel this month, titled "The Secret of the American Empire," which will be part of my next order.
And if you ever wondered whether the president-in-charge's policy has a predecessor in the past I recommend to read "Leviathan" by Thomas Hobbes which is a 356 year old blueprint for conservative governments more concerned with upholding the current system of authority than in promoting democracy. And yes, according to Hobbes there is a set of divine laws that should be followed by everybody. Religious freedom was as much as a topic then as it is now.

Will Real Estate Prayer Luncheons Help?

Saturday, June 23, 2007

After spending their time in real estate investment clubs only 2 years ago Florida realtors turn to God as a last hope in the real estate slump. According to a story by Keri Holt for North West Florida News more than 300 persons with a keen interest in the property market attended a real estate prayer luncheon to ask for God's blessing. Take it as one more piece of anecdotal evidence that this market is tanking.
Read the full article below:
"More than 300 people with a keen interest in the Emerald Coast's real estate market gathered Wednesday at Destiny Worship Center to ask for God's blessing.
The Real Estate Prayer Luncheon was organized in hopes of breathing life and positive thinking into the area's slumping housing market.
It was the first of what the organizers - co-owner of Crye Leike Coastal Realty Wanda Duke, former Destin City Councilman Mel Ponder and Destiny Worship Center Pastor Steve Vaggalis - hope will become a regular, uplifting event.
"The heartbeat of today's economic community is on the backs of the real estate community," Ponder told the crowd.
The event was an hour and a half of fellowship over lunch, scripture readings, prayer and testimonials. Those gathered had one goal - "changing the climate in the area."
"We need to think positively and get everyone on the same page," Duke said. "Positive things that come out of your mouth will end with positive results. If we lose hope, we lose everything."
Real estates sales are down all along the Emerald Coast. According to figures from Metro Market Trends, total sales in Okaloosa County in May were down 44 percent compared to May 2006, and year-to-date sales in 2007 are down 36 percent compared to last year.
During the luncheon, several speakers, including Buddy Runnels of Cornerstone Development Group and the Sterling Co., reassured the crowd by reminding them that the market has gone down before, but it always comes back up.
"You must have vision, perseverance and passion," Runnels said. "Work hard. Things are positive; they're just in the future."
The luncheon ended with Vaggalis inviting all Realtors present to come to the front of the church auditorium for a special prayer directed toward them.
"We are helpless people turning to a helpful God," Vaggalis said. "That's what this luncheon is all about."

"We The People" Or "Me The President"???

Friday, June 22, 2007

President George Bush's approval ratings have plummeted to a new low. A Newsweek poll I picked up here comes to the conclusion that only 26% of Americans approve how Dubya handles his job. Approval for the Iraq war dwindled to a record low of 23% and only half of the USA agrees on Homeland Security.
The bad political news don't end here today. Knowing that this adminstration is not exactly popular for showing humour Bush's vice Dick Cheney really sees himself as standing above the law. According to a story on the CNN website Cheney's office refused to cooperate with the National Archives' Information Security Oversight Office, an agency that oversees classified information. The report says Cheney first refused to cooperate and then tried to abolish the agency altogether.
According to a letter from William Leonard, director of the oversight office, Cheney's office argued it did not meet the definition of an executive branch agency and therefore was exempt.
The vice president's arguments come amid of flood of secrecy inside the Beltway. No other presidential administration has classified so many documents like the Bush predators in the White House. Cheney recently also took criticism for destroying records about visitors to his office, citing he would not get "candid answers" otherwise. Well, he could always make use of "soft torture" in order to get such.
This administration has lost its credibility abroad already. As we can now safely assume that the invasion of Iraq was not about cheaper oil - crude has gone five-fold since - one has to wonder who legitimates the policies of this president who rules in an unconstitutional mode that rather follows the concept of "me the president" instead of "we the people" as the constitution stipulates.
If any other country would operate as the USA does nowadays it would immediately be accused of threatening democracy and furthering the agenda of religious fundamentalists.

EU Wants To Limit Cars' Top Speed at 100 MPH

Alert for car buffs. Better get your Ferrari soon. The European Union considers to limit the top speed of all cars registered in the EU at 100 miles per hour. According to a report from German TV station n-tv the new proposal aims at curbing greenhouse gases and shall go into effect from 2013. One can safely assume that German and Italian car manufacturers will be up in arms to block any advance of this proposal.

PHOTO: Cars like this collector Ferrari may be limited to a top speed of 100 mph after 2012. And what to do with the extra 8 cylinders not needed anymore? Photo courtesy of

NYT - Justice Deals a Blow to Investors Alleging Corporate Fraud

So let me recount. The current administration does not want to look too close into hedge funds, can permit companies to withhold price relevant information if it is in "the national interest" (hello Freddie and Fannie) and does not want to inquire the mortgage sector either(hello Freddie and Fannie again). Only earlier this week Treasury secretary Henry Paulson also opined that third parties in contract with a fraudster should be immune from civil prosecution.
Justice dealt shareholders another blow by raising the threshold for investors wanting to sue a company for alleged fraud, the NYT reports. The 8:1 decision in the Supreme Court will make it easier for companies to dismiss lawsuits and block the often embarrassing pre-trial fact finding.
The decision stems from a lawsuit against Tellabs which had given an overly optimistic financial picture of the company. Read the article in its full length:
The Supreme Court dealt a new blow today to investors suing companies over accusations of fraud when it set a higher standard to prevent the lawsuits from being dismissed.
The decision was the second this week by the court that was a defeat for shareholders and a victory for the defendant companies. On Monday, the justices ruled that securities underwriters on Wall Street are generally immune from civil antitrust lawsuits.
It comes as senior officials including Treasury Secretary Henry M. Paulson Jr. have been pushing for the imposition of new limits on shareholder lawsuits. Mr. Paulson, along with other Bush administration officials and some senior Congressional Democrats and Republicans, have maintained that shareholder lawsuits and regulations written in the aftermath of the corporate scandals involving such companies as Enron and Worldcom may be causing too many companies to look to overseas markets to raise capital.
Earlier this week, Mr. Paulson told a Congressional committee that investors should not be permitted to sue third parties accused of assisting a company that engages in fraud. Mr. Paulson, a former chief executive at the investment bank Goldman Sachs, was responding to a question about a case before the Supreme Court that could determine whether investors will be able to sue law firms, investment banks and others that work with companies accused of fraud. The administration has also been considering a request by the nation’s top accounting firms to impose new limits on their liability from lawsuits.
Administration critics say that there are unrelated reasons why more companies are using foreign markets, and that there are already significant limits that have been imposed on shareholders to prevent frivolous suits. They cite the steadily sharp decline in of shareholder lawsuits in recent years and say the increasing number of restrictions imposed on such suits would deter investors from bringing meritorious claims. They also maintain that the threat of investor lawsuits makes them more transparent to shareholders and is beneficial to the way corporations are governed.
Today, the Supreme Court waded into the debate on the side of the defendants. By a vote of 8-to-1, it set a legal standard that makes it easier for companies and their executives to get shareholder lawsuits dismissed.
The decision involved a securities fraud lawsuit against Tellabs Inc., a maker of equipment for fiber optic networks, for statements made by senior executives in 2000 and 2001 that turned out to be overly optimistic about the company's financial picture.
The investors accused the company and top executives, including Richard C. Notebaert, the chief executive at the time, of overstating projections of revenues and demand for certain products. A federal district judge in Chicago found that the investors had produced enough evidence to show that Mr. Notebaert's statements were misleading, but that there was not enough evidence to show that he and others had intentionally mislead investors.
The central dispute in the case was a provision of the Private Securities Litigation Reform Act of 1995. It was adopted by Congress as a check on abusive lawsuits.
The law imposes more exacting standards on investor complaints with a goal of giving judges greater authority to dismiss suits that have no merit before defendants have to participate in costly and potentially embarrassing, pretrial fact-finding.
The law requires shareholders to "state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind." That state of mind - the intention "to deceive, manipulate or defraud" - is known as scienter.
Congress provided virtually no guidance on how to calculate a "strong inference" of scienter, leaving the appeals courts around the nation to impose different rules about how much evidence the investors needed to prevent their complaints from being dismissed. A central issue in the cases was the amount of weight that the courts must give to alternative explanations provided by defendants.
In allowing the case against Tellabs to proceed, a federal appeals court in Chicago rejected stiffer standards adopted by other appeals courts and found that the investors had provided enough evidence to show the company's intention to defraud. The court said it would permit the complaint to proceed if "a reasonable person could infer that the defendant acted with the required intent."
But the Supreme Court said that was not enough. Writing for the court, Justice Ruth Bader Ginsburg said that judges considering whether to dismiss a case at the outset must give credit to explanations offered by companies and their executives.
"The inference of scienter must be more than merely 'reasonable' or 'permissible' - it must be cogent and compelling, thus strong in light of other explanations," Justice Ginsburg said. "A complaint will survive, we hold, only if a reasonable person would deem the inference of scienter cogent and at least as compelling as any opposing inference one could draw from the facts alleged."
Tellabs and Mr. Notebaert maintained that he had no financial reason to mislead investors because he did not sell any stock during the relevant period. Justice Ginsburg said that courts should weigh the possible motives of the defendants but that "the absence of a motive allegation is not fatal."
The court sent the case, Tellabs v. Makor Issues and Rights, back to the lower court to apply the new standard.
Justice John Paul Stevens dissented. He said he would apply a standard of "probable cause" of guilt, the same burden of proof used for criminal warrants and indictments. "It is most unlikely that Congress intended us to adopt a standard that makes it more difficult to commence a civil case than a criminal case," he said. Under such a standard, he said, he would have affirmed the judgment of the appeals court.
While concurring with the majority opinion, Justices Antonin Scalia and Samuel A. Alito Jr. wrote separate opinions calling for a higher standard than the one adopted by the court. They would have required investors to show the inference of scienter was “more plausible” than the inference of innocence.
Criticizing the court’s new standard, Justice Scalia wrote: "If a jade falcon were stolen from a room to which only A and B had access, could it possibly be said there was a 'strong inference' that B was the thief? I think not, and I therefore think that the court’s test must fail."

Unbiased Journalism Under Threat From Both Sides

Thursday, June 21, 2007

Stories on the bribe-ability of journalists are probably as old as the press itself. But while we have got used to the common perception that politicians try to buy the press MSNBC investigative reporter Bill Dedman sheds an entirely different light of the oftentimes cosy relationships between politicians and reporters covering their beat. According to a feature posted here it is nowadays journalists donating for political causes and not the other way round.
Dedman identified 144 journalists
"who made political contributions from 2004 through the start of the 2008 campaign, according to the public records of the Federal Election Commission. Most of the newsroom checkbooks leaned to the left: 125 journalists gave to Democrats and liberal causes. Only 17 gave to Republicans. Two gave to both parties."

A comparison of media policies covering politicking can be found at this link.
Outnumbering the GOP supporters by a factor of 9:1 journalists on the moderate left of the spectrum donated mostly sums in the 3-digit range. Republicans make up with the value of their donations. According to the report,
"financial columnist Liz Peek at The New York Sun gave $90,000 to the Grand Old Party."
I did not know tabloid journalists were paid that well.

Rising Yields Detain Wall Street's Advances

The ghost of rising yields has captured Wall Street. Since last week's inflation data the stock market has not been able to sustain its rally and the bond market took signs of waning interest in T-bonds by foreign central banks as a reason to digest higher yields.
Bespoke has this chart comparing the spread in the yield curve with the S&P 500.

GRAPH: A steepening of the yield curve has generally boded bad for the S&P 500 index. Chart courtesy of Bespoke.

While it has to be seen at what speed the subprime woes will also affect the broader mortgage market, Joe Average has turned pessimistic. According to a Gallup poll reported by
"7 out of 10 Americans believe the economy is getting worse - the most negative reading in nearly six years.
Only one in three Americans rate the economy today as either excellent or good, while the percentage saying the economy is getting better fell from 28% to 23% in one month.
Gallup adds: "For the first time this year, a majority of Americans are negative about the employment market, saying it is a bad time to find a quality job."
The 70% negative rating is up 10 points since April. Also, just in the past month, there has been a significant five-point drop, from 28% to 23%, in the percentage saying conditions are getting better.
"When asked about the most pressing financial problems their family faces today, Americans mention healthcare costs, lack of money or low wages, and oil and gas prices," Gallup reports. "Healthcare costs are mentioned by 16% of Americans while 13% say low wages and 11% say oil and gas prices. These percentages are virtually unchanged from last month."

Expecting markets to hold their ranges until next week's FOMC meeting another problem is creeping up the gutter: Yield spreads between T-bonds and other issuers with a lesser rating have further reduced, proving that the market still likes to disregard risk. A painful correction is building up, I'd say.
Other than that I liked a story in the IHT that says cutting subsidies for cotton farmers in the US would positively impact African cotton farmers. Don't expect that to happen anytime soon, though.
Looking for more turns in the US agricultural industry? Here we go.
Two farmers in North Dakota have filed a federal lawsuit to be allowed to grow hemp, reports. According to the report the farmers were granted a state license to grow hemp with a low THC content but are not allowed to do so unter federal laws which stipulate that growing hemp is forbidden because all hemp contains minimal traces of THC. Let us always remeber that there would be no United States of A if there had been no hemp from which to produce ropes and sails for vessels crossing the Atlantic.

Wall Street Zig-zags on Contradictory Housing News

Wednesday, June 20, 2007

The good news of today: Housing permits rose 3% to 1.501 million units.
The bad news of today: The first 2.1% decline in housing starts in 4 months.
Wall Street took the news, reported by Bloomberg here, and went on a zig-course to finish a tad higher.
The FT had this report, stating that homebuilders' confidence has dropped to a 15-year low.
So far the market also seems resilient to factor in rising oil prices. Crude climbed above the $69 mark again and the hot summer driving season promises solid demand.
Other than that it was a quiet day where the following out-of-the-norm headlines captured my attention:
  • China halts tax rebates on 2,800 export items has the following:
"The government will eliminate or cut tax rebates for more than 2,800 export items from July 1 - in the boldest move yet to rein in exports since it joined the World Trade Organization in 2001.
The affected items account for 37 percent of all export products, the Ministry of Finance announced yesterday.
Export tax rebates for 553 "highly energy-consuming and resource-intensive" products, such as cement, fertilizer and non-ferrous metals, will be eliminated, the ministry said.
Rebates for another 2,268 products, described as "easy to trigger trade frictions", will be slashed from 8-17 percent to 5-11 percent. They include garments, toys, steel products and motorcycles.
Chinese officials have urged the World Trade Organization (WTO) to put less pressure on China when it comes to agricultural issues during its drector-general Pascal Lamy's visit to the country.
By imposing restrictions on more categories, Washington has ignored China's efforts at enlarging imports from the United States, which will negatively affect the process of balancing two-way trade, Yao Shenhong, a spokesman for the Ministry of Commerce, said yesterday.
Yesterday's announcement follows the imposition or raising of export tariffs on 142 categories of goods effective June 1. The products include steel billets and non-ferrous metal minerals.
Both steps are part of the policy package designed to control soaring exports and bloating trade surplus.
From January to May, exports surged 27.8 percent year-on-year to $443.5 billion; and the trade surplus rocketed 83.1 percent to $85.7 billion, according to Customs statistics.
The huge surplus has aggravated such problems as trade conflicts with other countries and pressures on China to revalue the renminbi, as well as excessive liquidity at home, the ministry said.
Liu Xueqin, a researcher with the Chinese Academy of International Trade and Economic Cooperation affiliated to the Ministry of Commerce, said: "The new policy will restrain exports because it affects a broad range of products."
Domestic producers say they are already feeling the pressure from the export control measures.
"Our steel companies are at threat (of losing foreign markets). But we can understand the overall significance of the policy," Qi Xiangdong, deputy secretary general of the China Iron & Steel Association, told China Daily.
The association predicted earlier that, as a result of the export disincentives, the country - the world's top steel producer - would this year export no more or even less than last year.
Steel exports totaled 43 million tons in 2006, a growth of 110 percent over 2005.
The finance ministry said the new policy will also help slow down investment in fixed assets and reduce over-capacity; and lead to sustainable development.
Many industrial sectors, such as steel, cement and motorcycles, are believed to have excessive production capacity in relation to domestic demand."

Disneyworld for Goldbugs

Monday, June 18, 2007

I spent all day at this year's Gold, PGM & Diamond Conference in Vancouver. Some 300 exhibitors, predominantly junior explorers, developers and miners, created a kind of Disneyworld for goldbugs. As my portfolio allocation for gold stocks is exhausted I focused on silver companies. The global liquidity glut does not stop at their doors. All companies I talked to reported a trouble-free environment for raising more capital as investors have begun to take note of the secular bull market in precious metals.
Taking it from my experiences in the past I see the biggest potential with juniors that are in the stage of transforming from developer to miner and have secured financing. Combine that with a well-experienced management that holds a substantial share and some upcoming analyst coverage in the pipeline and you may have a stock I want to buy.
With a market cap of only roughly $150 billion the precious metals industry has a long way to go.
What is a bit irritating, though, is the absence of physical gold buyers. A small random sample of 10 visitors did not produce any bullion gold holders. When I asked at what level they would buy, answers centered around another retreat to $500/oz. I am confident these goldbugs will jump on the train once gold breaks above its all-time high at $850 as all fundamentals promote higher prices.
Silver miners did not disagree that the white metal could fetch closer to $50 an ounce than the current paltry $13.20 in the mid-term.
I will follow up with some notes on the companies that attracted my attention.

Have a Look at the Spanish Property Bubble

Saturday, June 16, 2007

I've witnessed it last December with my own eyes. The Spanish - and French and Italian - property boom consists to a good part of unfinished houses. Driving along the Mediterranean coast for a good 2500 miles from Genova/Italy via France and Andorra to Tarifa/Spain one sees uncountable numbers of primarily "second" homes hidden behind a forest of "For Sale" signs. While owners of prime beachfront property may see a slower decline of values it is to be doubted that the myriad of available accommodation running up to 50 miles deep into what really can only be called pampa will turn a profit amidst rising interest rates.

spanish house for sale
PHOTO: A Google image search for "spain unfinished houses" turned up this one as #1 from 29,400 pix. This 1,700 square feet house "near" Spain's Almeria, an hour from the coast, has an asking price of 170,500 Euros or some $225,000 which coincides to be close to the US average single home price. This is a good example of the new ruins of Europe that will litter the landscape for decades to come. Or would you bid for it?
A website aggregating property ads offers a lot of criticism how official Spanish data misrepresent the actual situation on the Iberian peninsula. According to their well presented data the average house price can vary from 39,000 Euros in Ruritania Remote to 610,000 Euros in Barcelona.
So much to back up about my anecdotal evidence that leveraged present day buyers in wide parts of Europe are very likely to suffer hardship to a yet uncertain degree that will depend on the speed of further rate hikes by the European Central Bank (ECB). President Jean-Claude Trichet has not changed his view that credit is "ample" in the Euroarea. Double-digit Euro money supply figures from May show interesting developments in the detail: Annual growth rates of consumer loans are on the decrease while the financial sector is in a trend of piling up more long-term debt.
What I am concerned about is that these property bubbles are beginning to burst while lending rates - and maybe standards too - are still at historically relatively low levels in Europe.
But in a financial world where increasingly much emphasis is again put on "relative" or "beta" performance nothing can be ruled out as long as the ECB does not tackle runaway money supply growth in earnest.

Spell it I-N-F-L-A-T-I-O-N

Friday, June 15, 2007

Weren't it for the latest set of data, I could agree that all is fine with the US economy as long as the military monster keeps destroying assets paid for by the taxpayer. An F-16 crashed in Iraq today - wonderful, add a couple of 100 million to next quarters GDP in replacement costs. Other countries take a more peaceful road towards economic progress.
Other than that 2007 will be remembered as the year when INFLATION became the buzzword all over the globe.
According to the BLS (pdf) the headline inflation figure rose to 0.7% (April 0.4%) in May which means that even official statistics despite all the hedonic changes now record an annualized inflation rate of 8.4%. In this context it has to be questioned whether the US economy isn't already in a recession that is only hidden by engineering a too low deflator for the official GDP figure which was only plus 0.6% (annualized) in Q1 2007. That official figure is anyway already within the statistical margin of error.
This may also be reflected in today's release of industrial production which showed no MoM gain at all after a bumpy ride in the first quarter.
Coming back to inflation, and I stop talking about the core rate which applies to not one living consumer in this world, the BLS release also said that the CPI-U for urban consumers has risen to an annual rate of 5.5% in the first five months of this year, compared to a rise of 2.5% a year earlier. This means that the current Fed Funds rate does not cover inflation anymore. I would not be surprised to see the Federal Reserve opting for a rate rise at the next FOMC meeting in two weeks.
But the Fed sits between a rock and a hard place. Any rate rise would transform into higher borrowing costs for consumers who already cover an ever-growing part of their expenses with credit card payments. Revolving credit rose to $888 billion in Q1 or roughly 10% more than in the quarter before.
As home equity extraction has slowed down due to the turmoil in the subprime sector I take this as a sign that the US consumer has never before been so highly leveraged as he is now. For more insight into the daily deteriorations of the US private property market turn to Calculated Risk.
While the $ is off its lows and gives the FOMC some leeway in their upcoming rate decision, a gradual withdrawal of foreign investors from the US bond market now also includes foreign central banks whose vaults are already full with US debt paper declining in prices. But seeing 10 year yields rise 50 basis points within four weeks it looks as if the Federal Reserve is getting into a marketing problem with its currency that is only backed by belief (Latin: credit) but no assets.
It is also hard to believe that the problem in the subprime lending sector will be contained as is the Fed's hope. The Fed has also been hoping to keep inflation contained, but has not backed up its wish by real action. So shall we believe their cautious optimism for the mortgage/property sector? I don't.
NOTE: As I have moved to Vancouver I am not in the position to deliver just-in-time content anymore for Europe and the East coast. This will improve in October again.

As the Fed Has Been Pausing...

Thursday, June 14, 2007

... so have I. While the Federal Reserve has shifted its language from "contained inflation expectations" into the direction of giving more weighting to terms expressing "upward price pressures" ($3.nn gasoline), I have done some on the ground research on 3 continents. Having spent the last 10 months travelling in India, France, Spain and West Africa - a listing that also reflects my projections of expected economic growth - I had ample opportunity to check the Indian economic wonder myself, see the uncountable not yet finished second homes littering thousands of miles of Mediterranean coast and the hinterland, and found out that travelling Africa on one's own in a vintage van was a tougher challenge than I am built for. This led to a 180 degree turn into uber-civilization after swallowing a lot of sand in the Sahara. Since May I am enjoying life in the wonderful city of Vancouver as this put me closer to where I see the most upward action in equities in the years to come: Precious metals and commodities companies.

PHOTO: This is my Ford Transit Mk1, built in 1973. The car had only 12,000 kilometers on the clock. It was previously owned by a fire fighting station in the Austrian province of Styria where it served as an environmental protection vehicle. I guess they only used it as a teaser at their annual fundraisers: It was completely corrosion-free when I bought it. Under the guidance of my friends Alexander Stracker and Zoltan, who run a car workshop in Lassee, Austria, the Ford was given a complete overhaul. We took the engine apart, renewed all seals and fittings and replaced all parts that may have become faulty from standing in a garage for nearly 33 years. Don’t ask about the cost; I stopped counting long ago. To say so much: I could have bought a well equipped Land Rover instead. But they don’t come with twin rear wheels and this friendly looks…

It is a bit hard to find the thread after nearly a year of absence from regular blogging. To start it up again I hope you enjoy this post about my journey towards West Africa.
Preparing for the Big Journey
It has been more than a year that I came up with the idea to travel to Africa. Had I initially intended to do it backpacker’s style - as I have done before in Europe, Latin America, North Africa and South East Asia - I changed my mind when I saw this car - and immediately fell in love with it. Isn't it the dream of everybody; jumping into a van and taking off to discover those parts of the world one only knows from books or the TV screen?
Starting preparations in March 2006 I had to overcome lots of obstacles before the car could be registered again. Austrian authorities dictated me a long list of things to change to make it a civilian car. For understandable reasons I do not disclose how we circumvented it all. But had I followed their demands, the Transit would never have become the kind of car I saw fit for my adventure to come. Who needs a heater in Africa?
And, yes, contrary to all regulations I was able to keep the blue rotating lights on the roof and the fire fighter’s siren! I kicked out the 20 kg fire extinguisher and two gas masks though…
I chose the car mainly for its simplicity and its almost total lack of electrics and electronics - that was before we fitted a 2000 watt stereo and several boxes of gadgets I will list at a later point of time.
The Transit has a 1,7 liter V4 engine whose 65 HP are commissioned to pull a total load of 3 tons (while consuming anywhere between 14 and 20 liters gasoline per 100 kilometers.) Don’t honk if you drive behind me on a mountain road at a cool 30 kph, my stereo will reliably black out your sounds of impatience…
Having skippered two boats before I know one is never “ready” for the journey. As boats may only become seaworthy, cars may only become roadworthy.
I found out as soon as I was on the road. My Becker Traffic Pro GPS which was installed in my other car before failed as soon as I left Austria due to a faulty CD player. And every time I want to recline my ventilated Recaro seats the fuse burns through. I am still working on this problem as it is quite a nuisance. Whereas the GPS radio will be of no use once I leave the old continent anyway. At least it functions as a bridge between my iPod and the countless AudioDynamics and Kicx woofers, tweeters and coax speakers spread in the interior, powered by 3 Sinfoni amplifiers.

Last Delays
Before we started working on the car - that is, Alex and Zoltan did all the real work while I was given such tasks like degreasing the engine, cleaning the underbody before rust-proofing it, changing tires, painting and mounting the rooftop-gallery - a friend had said it would take at least two weeks of intense work to get the car Africa-worthy.
That was in early April. I finally left the garage on December 1 after hundreds of manhours needed for overhauling the engine, replacing everything from rear breaks to shock absorbers and installing such gadgets as flat screens in the sun shields and a rear view camera after I broke a rear light at my first attempt to drive in reverse gear.

Highway Robbers
On December 3 I finally adjusted my seat and left Vienna. The joy of being on the road again was only overshadowed by the sadness that I will not be able to see my beloved daughter Fiona in the coming months/years as frequently as I would like to.
Heading straight towards Italy with the intention to get to the southern tip of Spain where I will catch a ferry to Morocco I drove for almost 18 hours in one go before taking a rest on highway gas station somewhere west of Milan. Please note that I drive not more than 80 kph as this is the speed where the engine sounds and feels best.
Instead of taking the shortest route via Genova I diverted to Torino and crossed into France on a small mountain pass. To that impatient driver in his shiny BMW 645: If you have got so much money; buy yourself some time!
I drove onto the French highway again just east of Nice. Having been behind the steering wheel another 12 hours again I was looking for a calm place where I could take an extended nap in the rear of the Transit which is fitted with a platform that divides the van horizontally. I sleep on top of 100 liters of spare gasoline, a 64 kg second 300 Ah battery and all the stuff I think I will need in Africa.
I remember falling asleep with a broad smile on my face, directing my last thoughts to the happiness that has overcome me since I started out.
Six hours later, at 2 AM I woke up to some noise.
When I turned my head I thought I could not believe my eyes: Somebody had entered my locked car. I jumped up to give chase but the culprit was faster and escaped in a car with East European number plates. With him went two daypacks containing the following - much missed - items:
  • My new MacBookPro,
  • a spare hard disk with my 60 GB music collection,
  • a bag full of electronic accessories like chargers, USB sticks, batteries, cables etc.
  • My drivers license, the car registration and my Austrian press ID (invalid since 2003.)
  • All bank, credit, debit and other plastic cards (health and car insurance, frequent flyer cards.)
  • All codes for these cards plus the transaction codes for my online banking.
  • About 550 US dollars in cash and some Swiss, English, Scottish, Croatian, Indian currency amounting to another 200 Euros which I had kept in my second wallet
  • Pictures showing Fiona when she was 4; 5; 7; 8; 9; 11 and 12 years old.
  • Sunglasses and some other things I cannot remember and therefore are probably not needed for my journey.
Despite this mishap after only 30 hours into my open-ended journey I could still count myself lucky: The robbers (I saw a second guy running to the black escape car) had missed out on my photo camera, my passport, 600 Euros, the brand new iPod and my mobile phone lying in the drivers door compartment.

Forced Break In Cannes
After recomposing myself I went to the gas station attendant who told me, "it happens almost everyday here" (how reassuring) and gave me directions for the next police station.
Driving into Cannes I saw a sign "Police Municipal," only to find out it was not their business. For a theft report I had to go to "Police National."
Arriving there at 4:45 AM I was told to wait for the change of guard at 6 AM.
At 6 AM I was told I had to wait until 8 AM until their colleague who speaks English would come in on duty.
At 8 AM I was told he would be a bit late. He finally showed up at 9 AM (so much about work ethics of French government employees who enjoy a 35-hour workweek.)
After giving my name and the reason for my "visit" it took another 45 minutes until I was able to file a theft report which took about 7 minutes.
As the thieves had not gotten my cash I enjoyed a first espresso double in the first rays of the morning sun before driving to the Croisette, the famous beach promenade of Cannes. Sorry, no topless beauties there at this time of the year.
Watched by countless police on flashy motor cycles busy riding up and down the Croisette and issuing parking tickets (where is the police on highways?) I parked my red van amidst several Ferraris and Bentleys in a tow-away zone and went to the "Office de Tourisme" where I was supplied with a booklet listing all Cannes hotels.
Although I felt like I deserved a place like the 550 Euro a night Ritz-Carlton I thought it more wise to choose something with a few stars less as I did not know then how long I would need to stay in Cannes.

PHOTO: Cannes seaside.
I walked to cozy looking Hotel America and made my next mistake: I started the request for a room with the words, "I was just robbed on the highway and all my credit cards were stolen…" Before I could even place my question for a single room for 3 or 4 nights and offer a cash deposit the woman at the reception (ladies behave otherwise) interrupted me, saying "we are fully booked. I cannot help you," making me feel like a bum who had asked for spare change.
I was too tired to go into a rage that I only wanted a room and no help. So I can only take revenge here: Please spread the word that Hotel America is not the kind of place that is willing to comfort travellers that do not fall into the norm of tie-wearing suits on business trip.
I got smarter from this experience and called another hotel. Things improved from here: Hotel Embassy, a nice 3-star place 3 blocks away from the Croisette in, welcomed me warmly and I thoroughly enjoyed 4 nights there, with the staff assisting in all my needs like finding a place where to buy a new Apple laptop (13" Mac Book.)

Modifying the Transit Into A Fortress
After a day of rest and a first princely dinner consisting of goose liver pate, lobster and mousse au chocolat, washed down with a bottle of Bordeaux I had a good night's sleep and scouted the yellow pages for a car mechanic that would install lock bars on all doors of the Transit. The thieves had forcefully entered the Transit by violently picking the lock on the right front door making it unlockable
My eyes fell onto an ad for a garage that specialised in vintage cars. My 1973 Transit would certainly qualify for that, I thought.
When driving into monsieur Bernard Excoffiers “P3” garage I first was not sure if this was the right place. Nestled amidst several serious-size yachts was a gigantic shed that resembled more a motor museum than a workplace, filled with Lamborghinis, Ferraris, Aston Martins and of course Bentleys - which are as commonplace in Cannes as Volkswagens are in Germany.
Lucky me; he instantly took a liking to my charming red van. One day later the Transit was fitted with lock bars on all doors. At a very fair 125 Euros this is probably the most important improvement to the Transit for the regions I am about to go to. Thanks again monsieur Coffier. If I will ever own a Lamborghini I am sure to visit you again for a cruise and a café on the Croisette.
Now one can enter the car only with a handful of keys - or by smashing a window. But beware! I now carry pepper spray and a 650.000 volt taser at all times and keep two Rambo-style knives within reach!
I don't want to bore you with all the bureaucratic paperwork, phone calls and faxes necessary to get new documents and bank cards. First I was quite worried because the thieves had not only stolen my plastic cards but also the codes needed to transfer money out of my accounts. With the help of my dad (big THANK YOU!) - all emergency phone numbers were in the stolen daypacks too - I was able to have everything blocked within 30 minutes after the burglary. The thieves were still able to use my cards for a few small change items until 4 days after the theft.

The Journey Continues
Several sea food platters and bottles of Bordeaux later I felt fit to continue my journey. Had I originally intended to drive to the ferry from Spain to Morocco as quick as possible my taste for the fabuluos things the French cuisine has to offer changed that.

Papal Competition in Avignon
From Cannes I drove to Avignon, the city where Catholic renegades established a papacy in competition to the Vatican in the 14th century, protecting themselves in the biggest gothic cathedral in the world. The centre of Avignon is still almost entirely surrounded by its old city walls.
While eating almost always costs you a fortune in France unless you resort to a - uaaggh - McDonalds or can survive on (mostly delicious) sandwiches one can make up for it by staying in cheap but still comfortable hotels featuring everything a traveller really needs. That is: A secure room (and parking), a comfortable mattress, WiFi internet access and a private bathroom. Etap hotels, rated with 2 stars, offer all this for 32 to 45 Euros a night, depending on the location of their hotels.
I have stayed in countless 5 star places while still on big company expenses but when it comes to my own money I was never able to tell the difference between a 50 or a 500 Euro room as soon as I close my eyes for sleeping.
And about internet: In France you can buy a WiFi pass from orange that gives you 24 hour highspeed airtime for 20 Euros. With 17,000 hotspots in the grande nation I have never run into trouble finding a hotspot immediately. In many cases my Mac found open networks where I could catch a virtual free-ride.

On the Tracks of Vincent van Gogh
Studying the map I was destined to learn more lessons about the French "savoir vivre" (knowing how to live well.) Arles, the city where Vincent van Gogh roamed around for 444 days 118 years ago (local papers then reported on a foreigner whose drinking habits made him a nuisance for the town and a danger for women and children especially,) seemed the right place to enjoy another lovely small French town. I set myself a strict schedule: Not more than 4 days; because Vincent was thrown into a mental ward when the Arlesiennes had finally enough of his coma-drinking bouts. So I adhered to a rule once advertised broadly in France in the 1970s: Not more than one bottle of wine per day. It is a tough rule when you eat out twice a day.
Eating out in France means at least a 3-course meal with a bottle of wine, coffee and cognac.
Arles, home to a Roman arena seating 25,000 and an amphitheatre for 10,000 spectators, won me over immediately. I stayed at the lovely Hotel Calendal. From my cozily decorated room for 69 Euros I overlooked both the arena and the amphitheatre - and had the Transit in permanent view. Staff there was the friendliest I encountered anywhere in France; and that’s not only because they spoke English in a country where people sometimes can be quite arrogant when you have no sufficient command of their language.
I cannot remember all the restaurants I have been to. But this place 200 metres from my hotel was an outstanding experience. Duck’s liver with plum sauce was just the perfect starter before an entrée of Cassoulet, a local stew made from white beans, duck’s legs, Lyon sausages and pork.

From Arles I took a train to Marseille in order to get the last paperwork done that I needed in order to regain all my documents without returning to Austria. Again a thank you to the friendly lady at the Austrian consulate who also directed me to Marseille’s best Bouillabaisse restaurant.
Restaurant Rhul at the eastern end of the Croisette, Marseille's beach promenade, was definitively worth the hour-long walk from the old port of Marseille. I feasted on several kilos of fish in this wonderful fish broth and enjoyed a unique view of the Mediterreanean coast and the island where Chateau d’If is located, the fictional place where Alexandre Dumas' Count of Monte Christo was incarcerated for 24 years. All fictions have a true core. In this case the place really served as prison for several decades.

On the way to Spain I decide to drive via Carcassonne, probably Europes's biggest medieval fortress with an outer and an inner defence wall. Again I sleep in an Etap Hotel - for only 35 Euros and a secure parking place.
Early in the morning I walk up to the fortress. As tourists are still at breakfast downtown and souvenir shops are still closed I indulge in feeling like a knight in the old times. Kevin Costner shot Robin Hood here - and it is easy to understand why. At every corner you expect a group sword-carrying wildhearts to emerge from a pub of low reputation.
Aaah, nice to write something different. And now I am ready for the coming market gyrations where the Fed could raise rates as early as this month, depending on inflation data later this week.

पुरेल्य अ Test

Saturday, June 09, 2007

just getting familiar with some new settings after the long absence.

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