No Good Options Left - John Mauldin

The current situation in the largest world economy can well be summarized in the way John Mauldin did his latest newsletter. The conclusion is that there are no good options left and whether the path from here is controlled (evolution) or left to market (revolution) is the only question. An excellent read.

Like teenagers, we as a US polity have made a number of bad choices over the past decade. We allowed banks to overleverage and, in the case of AIG (and others), sell what were essentially naked call options of credit default swaps, based on their firm balance sheets, far in excess of their net worth; and that put our entire financial system at risk. We gave mortgages to people who could not pay them, and did so in such large amounts that we again brought down the entire world financial system to the point that only with staggering amounts of taxpayer money was it brought back from the brink of Armageddon. We assumed that home prices were not in a bubble but were a permanent fixture of ever-rising value, and we borrowed against our homes to finance what seemed like the perfect lifestyle. We did not regulate the mortgage markets. We ran large and growing government deficits. We did not save enough. We allowed rating agencies to degrade their ratings to a point where they no longer meant anything. The list is much longer, but you get the idea.

Now, we are faced with a continuing crisis and the aftermath of multiple bubbles bursting. We are left with a massive government deficit and growing public debt, record unemployment, and consumers who are desperately trying to repair their balance sheets.

If present trends are left unchecked, we will need to find $15 trillion in the next ten years, just to pay for US government debt, let alone state, county, and city debt. And perhaps some loans for business will be needed? Where can all this money come from? The answer is that it can't be found. Long before we get to 2019 there will be an upheaval in the market, forcing what could be unpleasant changes.

RBA Lifts Rate to 3.5%

Today's RBA decision was for another base point (0.25%) raise. The official cash rate in Australia is now 3.5%.
RBA lifts cash rate by 25bps to 3.5% - News - Business Spectator

Double-dip recession unlikely: ECB's Weber

A member of the governing council of the European Central Bank said that it is unlikely that the Euro zone will fall back into recession soon after exiting it. He added that there are elements pointing that the double-dip recession is not likely to happen in other major economies, either.
So it seems not only the economy is out of the woods for now but there is no immediate danger of falling back into recession in the short to medium term.

Double-dip recession unlikely: ECB's Weber - News - Business Spectator

OneDirect High Interest Saver Discontinued

OneDirect has discontinued their High Interest Saver account. Any remaining funds in the account will be transferred to the linked transactional account.

Lost Hopes

It is interesting to look back... In 2008, and a bit earlier, it was very popular to read and/or write a blog on finance. It was the time of boom, money was plentiful, and whatever you did, it only seemed possible to make money. Gearing additionally boosted already astronomical gains. Not too many were even remotely aware of what was at risk.
During that time I read a few interesting blogs, checking advice and reviews of different options. Fortunately, I never invested into things I did not understand or that sounded too much like sales pitch and no substance. And I was never a fan of astronomical gains as something always was fishy about those.
Now, looking back at one of those blogs... The person who writes it became a millionaire in 2007 or 2008. Investing, gearing, property, etc. It was all fabulous. One would expect to take advice from such a person as they had "done it". Their success was there to prove whatever they did was right. With a grain of salt, of course.
Today, one of those blogs contains the following sub-title:

I lost half a million dollars on the stock market in just twelve months! Learn how you, too can become an ex-millionaire with almost no effort!

Enough said, I think.
On the positive side - this is the typical market index loss for 2008. Staying invested will likely help. Only the ones who moved out of the market, and failed to enter back soon after February 2009, have actually lost their wealth. Most of it was inflated before 2008, anyway. Good luck and be careful what you trust.

Weak Recovery for Balkans only in 2010

According to the European Bank for Reconstruction and Development (EBRD), Balkan economies will further shrink in 2009, albeit at a slower pace. A weak recovery is expected only in 2010. However, the full consequences of the crisis are to be felt only next year as corporate bankruptcies continue and lending conditions continue to be constrained as foreign banks continue to shrink their asset exposure in the region.

Balkan Economies: Fragile Recovery in 2010 :: BalkanInsight.com

World Economic Forum's 2009 Financial Development Report

From RGE newsletter... Australia is 2nd on the world's Financial Development Index.

World Economic Forum's 2009 Financial Development Report: UK Comes First

On October 8, 2009, the World Economic Forum launched its second Financial Development Index, a rigorous, comprehensive analysis of financial systems and capital markets in 55 countries that analyzes key drivers of financial system development and economic growth in developing and developed countries. The research was led by Dr. Nouriel Roubini. Global financial centers continue to top the index, yet financial instability affected them adversely pulling down their scores relative to the 2008 report. The UK, aided by the relative strength of its banking and non-banking financial activities, claimed the index’s top spot from the U.S., which fell to the third position following Australia on account of lower financial stability scores and a weakened banking sector.

U instead of W?

Nouriel Roubini has adjusted his conclusions. Instead of W-shaped recovery, this (now) should be an U-shaped one. The news keep surprising for the better. That's why it's called a recovery, after all.

In Thoughts on Where We Are,
Nouriel clarifies the growth scenarios that make the U-shaped recovery
more likely and discusses why it is unlikely that the Fed will raise
rates any time soon.

RBA Lifts Rate to 3.25%

As some analysts expected and predicted, Reserve Bank of Australia lifted the official cash rate from 3% to 3.25%. As hinted earlier, 3% was an emergency rate and it was about time for it to change.
RBA lifts cash rate to 3.25% - News - Business Spectator

Anglo-American Crisis and European Recovery

Another great analysis and comparison between the economic realities of UK/USA vs Europe (Germany/France). Differences in economic base caused this crisis to affect mostly US and UK. European economies were not that affected and are likely to recover sooner.
A valuable read.

RGE - We Shouldn’t be Surprised by Signs of an Early European Recovery