Ufos – do we have anything of interest to say?

Recent sighting of UFOs over Zurich, reminds me that I have now been seeing UFO reports in the media for over 50 years.  During this time sighted UFOs have been described as either cigar shapes or discs, consistent with any photographs taken.

If any of these UFOs are from another planet, whether our galaxy or elsewhere, it seems improbable that they would need to make multiple visits.  If they are one time visits from different planets, it seems improbable that the craft would look the same.

It is also difficult to think of a convincing reason why the craft would need to be manned (‘lifed’?), by ‘aliens’ – who some claim to have seen. We don’t send manned exploratory vehicles into deep space, and a technically advanced planet would presumably have no need to send along inhabitants either.

But if we are not alone in the Universe, where is everybody?

 I am persuaded by the statistical argument of the probability of other life forms on other planets in the Universe, but I am unable to imagine why if other forms of life exist, and were ‘intelligent’, they would need to communicate with us.  But many people insist that if there were other intelligent life in the Universe, it would have communicated with us by now, or at least we would have detected radio waves recognisably generated by life forms.

Really?  On Earth we have only had the capacity to transmit radio waves for a little over 100 years.  At some point in the future we may be communicating telepathically, or in some inconceivable way (remember radio communication would have seemed inconceivable in 1809) way which does not rely upon radio waves, and so the technology ‘window’ during which intelligence might use radio waves might be relatively short lived.

Suppose we had the capability to travel back in time, 1,000, 2,000, 3,000 years on our own planet, we would probably do so, but why we would want to communicate with anybody we found  – what would be the point? 

Another difficulty I have is that whereas I can relate to the statistical argument for life elsewhere, I am in difficulty in believing that it would have to be intelligent life.  I see no reason why life here could not have continued for an indefinite further number of millennia, without intelligent life evolving from other life forms.

The assumption that communication is even possible between different species is also taking much for granted. As technologically advanced as we suppose we are, we cannot understand what dogs and chimpanzees are saying to each other, so why do we suppose that we could be understood by, or understand an alien intelligence?

If we can’t find a good enough reason to learn to talk to mice, for example, why should anyone from another galaxy have reason to communicate with us?

The inflated elephant in Lex’s room

I do not believe there is an active conspiracy, but I do think that the collective power of the large and amorphous city establishment (this includes the Financial Times), consciously and unconsciously limits the agenda for discussion, to one which is survival friendly for the tribe.

The FT depends upon financial advertising and as a consequence, must align itself with the culture and interests of its City-centric readers otherwise they would stop buying it. You are no more likely to find a serious analysis of the disaster caused by the shadow banking system, together with an argument for its dissolution in the FT, than an article in the Meat Trades Journal promoting vegetarianism.

This year Britain’s central bank has set UK’s lowest central bank interest rate for 315 years. As a consequence, since March, asset prices have commenced a new spectacular inflation.  This phenomenon and the tsunami of central bank created credit accompanying it, has rendered any conventional analysis of variable such as earnings per share and profit ratios (see Lex most days), irrelevant.

That is the news Lex!

No bun rating today, the elephant ate it.

Lex – more bun than burger again this morning

Financial Times  subscribers deserve more analysis and reflection from the paper’s lead commentator than another sterile discussion about the level of the S&P .  Today Lex states that the S&P is too high. “valuations look toppy indeed”.  

The column supports this view with references to the current S&P constituents average percentage profit levels, which at about 35% are high compared with the 29% historic average since 1947.

But it is glaringly obvious that as all the major stock markets have moved up and down in unison, an analysis of the ‘value’ level of a particular market by reference to its domestic history is inadequate

Whatever is driving the S&P is the same as that driving the SMI, FTSE, DAX etc – see the chart below.


The markets cannot be explained in terms value variables because the world markets are driven by something else.

What drives all markets together? Try, credit, price of credit, availability of credit, liquidity.

 Capital asset market prices are driven by liquidity, its pointless in pretending any longer that their prices are determined by value.

I award Lex, 70% bun rating for this piece, and 30% meat.

Swapping uncertainty

“We, the G20 Finance Ministers and Central Bank Governors, reaffirmed our commitment to strengthen the financial system to prevent the build-up of excessive risk and future crises and support sustainable growth.”  From the communiqué issued this weekend.

In finance, the financial system is the system that allows the transfer of money between savers and borrowers”.  Wikipedia

But the financial system being strengthened is  no longer just a system that “that allows the transfer of money between savers and borrowers”

It is now also a system in which banks rely upon creating derivative instruments to maintain substantial profitability. The “transfer of money between savers and borrowers”, does not depend upon the existence of derivative intruments and other complexities for its execution. Money has been transferred efficiently between savers and borrowers for centuries without the intermediation of recent innovative fee absorbing structures, which are more akin to a new tax on the transfer of money.

A typical example is an interest rate hedge, the manifest purpose of which is to allow one party to hedge i.e. to insure against a damaging change in interest rates over a defined period. A property investment company buying a property yielding 8 % with a variable interest rate loan commencing at 5% might decide to lock into the 3% differential by purchasing a derivative contract should interest rates increase to say, 9%. It would do this if it thought interest rates were more likely to increase than decline over the period.

In recent years, many finance directors of quoted companies have taken a view, i.e. decided they have a better idea than the market,  of the movement in future interest rates and hedged the interest rates on their borrowings accordingly.  Most property companies which took out interest rate swaps did so to protect themselves from what was  perceived to be the risk of interest rates rising in the future.

A call on interest rates, is a call on interest rates. You can’t hedge yourself out of the financial pain of being wrong by taking out an interest rate hedge, because taking out a hedge is taking a position on future interest rates, which are unpredictable.

Now because their guesses were wrong  (instead of increasing, interest rates declined to the lowest levels in decades), huge liabilities have been created in the balance sheet of these property companies, in some cases sufficient to threaten their solvency or independence. An examination of the latest balance sheet from Brixton plc (BXTN) will show what can happen!

It isn’t quite a zero sum game though, for the creators of the hedges, it is a money spinner whether the roulette ball falls on red or black.

Is this the financial system G20 wish to strengthen?

The City, Zug style

Zug is a quietly booming city. Only the sound of the occasional helicopters used here to transport building materials to the upper floors of construction sites suggest dynamism.

From April until October the smell of cow dung wafts through Zug’s modestly affluent streets.   The  City has crisp borders with its farm neighbours. Where office blocks end, pasture begins. It is a precisely constructed city, the parts fitting together like Lego.

Although living in Zug city, I can buy milk from a farmhouse 500 metres away.

When I first arrived, nostalgic for the atmosphere of London City bars, I discovered the Almodobar. During the early Summer evenings it fills with financial traders in their shirtsleeves drinking beer from the bottle, and I am comforted.

The Siemens Building where the Almodobar was situated, is a brilliant white modern, climate controlled block, where blinds and shutters whirr intermittently adjusting the sunlight falling on the two large trees growing in the heart of the complex, and keeping the sun out of eyes of the many screen traders located there.

And, at about 800 metres, it is about as far as you can get anywhere in the city,  from  a cow pat.

Welcome to the City,  Zug style.

Hope filled economists and the hopelessness of economic forecasting

In November 2007, which Nobel prize winning economist*  said:

 “So I am skeptical about the argument that the sub-prime mortgage problem will contaminate the whole mortgage market, that housing construction will come to a halt, and that the economy will slip into a recession. Every step in this chain is questionable and none has been quantified. If we have learned anything from the past 20 years it is that there is a lot of stability built into the real economy.”

* Robert E. Lucas Nobel Prize winner 1995

Economic forecasting is a fraud. There are just too many variables.  Maybe the majority of human activities are economic variables. It is difficult to think of any which are not.

Given that almost all human activity has economic consequences how can we possibly know the future outcomes of the infinite combinations of variables acting on each other. Life (i.e. Life as in “Life is what happens when you’re busy making other plans”) and economic activity are inseparable,

Five years, two years, one year before it happened, how many economists forecast the current level of interest rates, the lowest interest rates for hundreds of years?  Ultra low interest rates, a key variable, will not have been fed into any economic models designed to predict future outcomes at any time in the past.  Garbage in garbage out.

The BOE interest rate setting committee argued for years about relatively trivial adjustments in the level of interest and inflation. All that work and reflection was been rendered irrelevant by the unanticipated credit contraction of the past two years.

The price of oil is another example of a key variable producing unanticipated outcomes. The 150$ barrel was no more anticipated in 2008 than the 25$ barrel in 1973. Energy prices are another key input of econometric modelling and forecasting.

Imagine a world in which economics were so developed that forecasts were accurate. Predicted outcomes happened. All economic variables could be effectively predicted and controlled to attain a specific economic objective. How would this be possible and at the same time for human beings to remain free?

Our economic life is inseparable from our existence and the consequences and effects of the economy touch every moment of human existence. If economic forecasting worked, would we need anyone other than economists in government?

Or would we have no need for government?

The disenfranchisement of capital – how the city stole your vote

In the UK people struggled for centuries to achieve universal suffrage in 1918. The right to vote for all is a key component of democracy.

In the UK today, the right to vote to elect MPs is barely relevant. The main party’s preoccupations have become fossilised arguments about relatively trivial changes in the funding of public services and taxation. Parliament and its activities have become marginalised and unconnected to many of the modern levers of power.

According to Marx, alienation arose when workers sold their labour power to the capitalists who thereby became the owner of the labour process; the product of the workers labour thus became alien to the worker.

The modern day equivalent is the alienation which arises the when the nowadays, middle class worker, is disenfranchised from the rights of his capital or savings as he passes them to the city establishment to manage in return for a modest money rent.

The financial establishment are the monopoly owners of the power that is attached to this capital. The power is derived from the separation of the vote which is stapled to capital in the hand of its owners, and the concentration of that vote into blocks wielded by the city establishments in their own interests – primarily their own enrichment and perpetuation.

Every share, bond and deposit, carries the right to vote in varying circumstances. Very few individual investors bother to vote and many obstacles exist to deter them if they want to. The majority of votes are exercised by the city establishment in pursuit of their own interests, which are not the same interests as the interests of the owners of the voted savings.

The capital power and the rights which run with it, are thereby expropriated by and for the benefit of the financial establishment.

Key policies and decisions over the economy are determined by the financial establishment, whose power is derived from control of people’s capital (savings, pensions, insurances bank deposits, equities etc).

There is no conspiracy; it is the way things have developed as savings capital has increase enormously over the past fifty years, and political awareness of this development has not been encouraged.

This appropriation of votes is reminiscent of voting abuses that The Reform Act of 1832, set out to abolish. Even the labour party has abolished the union block vote at their conferences because it was undemocratic and unfair, but such is the power of the financial establishment that party manifestos are silent on the issues which determine the shape of people’s lives.

How is this going to change?