Monday, August 24, 2015

The Entirely Unexpected Crumbling of the Ponzi Empire continued

"Then the Gods of the Market tumbled, and their smooth-tongued wizards withdrew,
And the hearts of the meanest were humbled and began to believe it was true
That All is not Gold that Glitters, and Two and Two make Four―
And the Gods of the Copybook Headings limped up to explain it once more."
"As it will be in the future, it was at the birth of Man―
There are only four things certain since Social Progress began:―
That the Dog returns to his Vomit and the Sow returns to her Mire,
And the burnt Fool’s bandaged finger goes wabbling back to the Fire."

From 'The Gods of the Copybook Headings' by Rudyard Kipling

And so it has come to this. Kipling had it pegged over a century ago. After all that zero-interest rate manipulation of the world economy to maintain the 'recovery' for the last 7 years, this is the direction of CCC ie. junk -rated corporate paper yields – that's the cost of money for corporations deemed most at risk of default; now 16%. Twelve months ago it was 5% and things were looking rosy according to official statistics; Janet Yellen gave her coy assurances, recovery was on track although rates wouldn't be lifted until the time was ripe.  And now the market has decided the wizards have maybe just lost control although the Irving Fishers and Joe Hockeys are johnny-on- the- spot to soothe the fearful.
They claim(ed) that all the conditions for prosperity are in place and there is nothing to worry about.  

"The stock market has reached a permanently high plateau." Irving Fisher, 1929

But there really is something to worry about and it's not the sharemarket so much as the bond market.  Since bank account returns were/are zero or less in some cases (you are CHARGED to keep your money in the bank), all bonds, especially junk was very much in demand amongst savers seeking some kind of a yield.  They hedged risk by buying into ETFs (exchange traded funds) in which they didn't need to fear just one corporate bankrupcy; the ETF owned a BUNDLE of this stuff, and you could trade in and out of your ETFs very easily. Unfortunately there is very little liquidity in the underlying bonds which have to be added or subtracted to the inventory of your fund according to investors cashing in or out. And of course as ever-reduced corporate circumstances are super-charged by fear, yields must rise as sales or purchases of existing bonds compete with new issues. Thus a 7% hit per annum reflecting on the total capital value over several years is a fast trip to poverty for your 411k or whatever you call the saved assets that will see you through your old age. And if you think you don't own this crap, your super fund probably does or barely better- rated, seeing as they are competing with each other to headline great quarterly results.

And none should forget the 2008 debacle where ratings agencies lost most of their credibility, having been paid for their efforts by the borrowers themselves and inexplicably failed to downgrade that debt even when the companies were technically insolvent and it was too late. Once again the taxpayer manned-up to ensure the stability of the global financial system and the silver-tongued wizards mostly hung onto their jobs; most famously amongst or regarding mortgage providers. And so there was one more heading for the British schoolboy's copybook; Dutch Tulip Madness, Mississippi Bubble, South Sea Bubble, Crash of '29, Hitler's Defeat in the East, End of Empire, Savings and Loan Disaster, and then U.S. Housing Crash. A page or two follows each, sometimes only a paragraph will suffice.

Exacerbating the whole affair is the chart of world sharemarkets, vaguely the inverse of junk bond yields. That means many more corporations are coming onto the list of notable downgrades. Even gold-standard industrial shares like Caterpillar was down 25% before the latest swoon.  (Luckily for Burnie we no longer depend on them.)   At some stage CAT will certainly be joined by loss-making speculative marvels like Netflix and with the decline of the real market leaders faith will die and yeah, this be the beginning of the end times when all shall be lost, for there is nowhere for interest rates to go but up where the real market leads and no-one is fit or crazy enough to borrow the banker's free (to them only) monies beyond the walking dead who have nothing left to lose but their credit ratings.
It is only now that the West has actually begun noticing; disaster has been the lot of the BRICS, Cypress, Greece and finally China which puts the whole mess suddenly on our own doorstep. And for Greece the rest of Euroland is throwing new money down the rathole each time a payment comes due. 'To give them time'; but it isn't the Greeks who are being saved, it is the biggest banks in Europe who had noticed an anomaly in bond yields over the EC average, ie. Greek debt paid higher yields on all that free money and they are loaded up the wazoo. When the smoke clears all those derivative contracts that protected big bondholders will be humongous new debt, owed by bankrupt counterparties.

The ancient Greeks had their own headings; and knew that hubris is inevitably followed by nemesis and nothing much can be done about it other than bitch and write tragic (unfunny) plays about people who fall into holes of their own making. But with the intellectual backing of the best and brightest at the US Federal Reserve, its associated institutions and the economic grunt of all Euroland behind modern Greece maybe it was going to be different this time, and prosperity would come to stay on their little, used-up peninsula.  Had not the world's bankers graduated from fraudulent coin- clipping and banknote printing to fool-proof high- speed computer- algorithm- hedged 50 -fold capital leveraging honestly designated as debt (which all currency is acknowledged to be these days) rather than something (anything?) more substantial? And by generating so much money and charging so many smart bankers with flinging it out there while it has some value could the whole world not enjoy the pleasures of exponential growth and consumption brought forward? Why not the folks in Saloniki?   Like they had done in Dublin (there's a missed heading there) and they want to in Burnie and Irishtown (Tasmania) at any cost when pigs shall fly.  But that won't crimp anybodies' election campaign, and the bankers didn't get to put the money out there, their trading divisions were pleased to get it instead and wrote those same derivative contracts knowing the EC would never let a member down.

Prognostication is such a gas. 'The seven headed beast shall arise from the sea,' 'how art the mighty fallen!'  But to make it stick there has to be a sweetener that people can apply to themselves; 'the meek raised up,' the other infidels or iniquitous confounded, the chosen people attain to the land of Israel, North Dakota or some hellhole relatively better than Damascus or Los Angeles.   So there is a slough of books out there about the coming religious come economic catastrophe which really gives me pause. If all those morons foresee disaster maybe I should hedge for the same old by sticking with the one sure-fire recipe for the ignorant which we all are at our core.  There is just too much information out there and the worst category (that never made the Dick Chaney taxonomy ) is the 'unknowns thought to be knowns.'

The formula is so simple.   In love, business or investing always target the unloved.   Your chances are better if only because your entry level risk and outlay is relatively very low and you have little to lose but your self-respect.

And the trouble with Biblical Prophecy and the like is that it is only obvious in retrospect, which is not much use. 'The sea shall deliver up its dead' could mean the resurrection of  all us munchkins for another bite of the cherry or just stinky global warming-delivered gigantic methane farts from icy muck on the freezing bottoms of the deepest oceans that will tip the planet into a human-free Venusian hell-world.  There is quite a discrepancy here so these things would be good to know. The cold war soviets were involved in all manner of think-tank operations, psi-war and metaphysical research that would keep them ahead of the west, and of course the CIA had to match them wherever and however insane. They also decided to analyze the bible as if it were an actual piece of secret code to be broken and perhaps thereby discover something concrete to work with.   Many thousands of hours of supercomputer calculations with billions of iterations generated a lot of English phrases but most were as cryptic as the original book. The only one that was truly close to having spoken to us in our time was “Bobby, don't go to Dallas.”

That's probably my joke, but nothing is certain these days.

And for a really good analysis of the share market and where its heading try this link.  Remember there is a limit on the depths of disdain and the contempt that may yet be visited upon the unloved; it is absolute rejection and ultimately total disinterest.  It is  there the foundations of great fortunes shall be built, but never exempt fraud, faith, theft and nepotism.

Monday, August 17, 2015

Does God or Anybody Else Really Want a Plebiscite?

            "Matin's one thing the Lord and I see eye to eye on but
             durned if I can figger why He went and created them      
             consarned green-gutted turnip worms!"
                          from 'Tobacco Road' by Erskine Caldwell

The logical thought processes of children and simpletons are such a hoot; so guileless in their innocence. It's not until they grow up and start dealing with the broader social consequences of their own damnfoolery that it isn't funny anymore.
That is especially true in politics; always in the public eye; utterly dependent on a fickle and diverse constituency, and burdened with the co-incidental bonehead ideology of your faithful support base who understand your silence perfectly well as long as they get an occasional wink and nod.   One wink too far and the whole farce unravels in a twinkling of an eye.  But there may be a way out: if the will of the people on gay marriage rights reverts back to the people then let hellfire or a more temporal embarrassment fall back on their own heads for a change.  “Let a thousand schools of thought contend” as Chairman Mao famously wrote, but they really mean it this time.   Let the people decide the fate of same sex  couples, and having been tossed the hot potato we have no choice but to rejoice.

Most of us won't. We didn't elect these people to shirk their responsibilities. We, the vast silent majority who are so cavalierly claimed as everybody's constituency might rather take our cue from the Book of Job and silently endure our many pestilences as we await our chance to turf these fools.   It might be thought that the writer here is outside the box for having opened his mouth, but it isn't so.  This isn't part of a debate on the mechanics of marriage equality because I don't give a rat's if gays and lesbians marry or how people define their marriages, partnerships or whatever.   As a liberal it isn't my business how other people pursue happiness and fulfilment as long as it doesn't actually impinge negatively on someone else's, which is something Tony Abbott and a fraction of his brain-dead big L essential partisan support base can't comprehend.  The thing is, regardless of our own orientation we all know someone and the polls are unequivocal.

In my extended a family a young woman in another country has married her girlfriend, and they organized to have a baby. Her (highly educated, professional - probably a negative in the all- important numbers game) mother says “It isn't what I would have chosen for my children, but they are deliriously happy, and who could stand in their way?”

A rhetorical question this; in which 'who' translates as 'what kind of slimeball.'

And the other thing about it is the same old which is always money. The unravelling of the great united Liberal party leadership has shown up another glaring disconnect which is the way these people handle public funds. They came in not only as our bright-eyed saviours replacing a dysfunctional Labour government but as angels of probity and thrift to repair the budget.  That's something all of us great unwashed sympathize with even though we like to be personally exempt where belt- tightening is concerned.  Yet most of us man- up to our patriotic duty; not that you are given much choice if you have left the workforce.  There is an army out there in the CES scrutinizing every receipt of yourself and the housemate that regularly or once shared your bodily fluids.  They don't care about sex or marital status.  There is no hypocrisy in the bureaucracy when it comes to  your hip pocket.    They have lists of everything you own and they insist on regular asset revaluations if to their advantage.  They subtract deemed receipts on investments, losing or otherwise which include a pound of flesh from whatever you might be so stingy or cunning as to have given away in the last decade.   My own part pension has been cut off nearly as many times as it has been received at God knows what cost to public finances and now its gone which must double the savings to the public purse.   A stinking $90 a week came at compliance costs of time and travel that would have paid the same had I continued dragging myself to work.  Most of that was due to government IT failings.  If the cheques had continued to   arrive regularly it would have been worth about $4500 a year which isn't quite enough for the speaker's famous short helicopter ride or a half a holiday in Kakadu for the elect and their families.   And now we are being offered a 100 million dollar exercise in futility to haul the monkeys down off their own petards.

In terms of budget repair that's TWENTY THOUSAND TIMES worse than the helicopter ride which inspired an inquiry to redefine 'the rules' (for them) which will take a committee of appointed experts several months and many millions of dollars before they can report their findings. But it really shouldn't be that complicated; all these problems could easily be resolved by leadership with the 'ticker' to take a moral stand or come down a tad from 'ticker' to the more descriptive Spanish term 'cojones' as in "a weakling without cojones who has never seen his wife's privates".   Anyway why should we need rules on this matter?  If your moral code is the criminal code, please do the world a favour; step in front of a bus, resign or start by staying out of public life. There are more suitable professions like 'share market tout' although that seems be part of the political job description these days as our elected house of reps morphs into some redundant, impecunious and noisy department of the Commonwealth Employment Service.   The CES will NOT be valuing their own incomes, assets and chopping political pensions accordingly. 

So there's an absurd gap between public and political entitlements and they just don't get it. Some of the back-benchers might and Malcolm Turnbull certainly does. Unfortunately he can't hide his contempt in the party room and they hate his guts or he would have been drafted for the leadership months ago. 

It's the first time in ten years we have had snow and it has been bitter for a week.  There hasn't been any grass growth this winter and we are facing the mother of el ninos this spring.  We have been adjured not to politicize these things by talking climate change; maybe it's just part of the natural variation by which species are regularly swept from the world.  Two days ago I noticed a ewe in labour down the wet and wind-swept paddock.  It's unmistakable even from a long distance,  they lay on their sides with a hind leg stretched straight out off the ground and muzzle in the air.  The lamb was only partly born and I walked the ewe up the hill to a small shed, being regarded the whole time by this vaguely familiar, prick-eared, demonic, tortured little face staring out at me; just like on TV.  She had twins, tiny and premature, hardly bigger than puppies and I helped pull them out because she was too weak and they were too immature to present their forefeet first.  One still had its eyes sealed.  Even with food for the ewe and shelter they were dying for lack of milk she couldn't produce, and a surfeit of milk substitute which they couldn't handle.  

This morning I got out of bed certain of the worst.  Michael Roche of Queensland Resources Council is on the radio crying for the 14000 desperate Townsvillians who were so looking forward to working at the Carmichael coal mine, going beyond the government's 10000 job figure even, while Adani Corp. has claimed to need only 1464 people.  Of course there is a long-term small multiplier and a short construction surge.  Perhaps there are also thousands  of people in other towns from Bowen to Brisbane who are also looking for work.  Absolutely everyone in the world was so keen to cash in on the rewards of growth and development; high prices inspired huge capital expenditures with accompanying huge debt burdens and now the inevitable oversupply means no-one can prosper.  Some casualties of the commodities bust are gone now; some as big as Glencore are hypothermal but still breathing sonorously.

 And the last lamb was dead, even as its mother had finally come into milk.  I looked on Gumtree to find an orphan and there it was. 

"Spots, an adorable healthy week-old orphan lamb happily adapted to the bottle.  This little fellow will take a lot of attention.  $100."

Maybe there are people out there without some kind of life partner but lots of leisure, money and undirected love to give, but a grown sheep in good condition is barely worth that kind of money.  I would have taken the skin off the tiny corpse and tied it over a ring-in, which the ewe would have accepted as her own in an  instant.  Or if  the situation was reversed given the lamb away to save knocking it on the head.  Notch up yet another 14002 people out there with sh** for brains.

Saturday, August 1, 2015

Deconstructing the F 35 Boondoggle

"Eekoff!  Eekoff!"

"That naughty Tubby Bear has put ginger beer in the tank of my car instead of petrol!"

                                                             from "Noddy and the Aeroplane" by Enid Blyton

And so Noddy's car coughed and was still.  It was thanks to Big Ears (and the bear) that little Noddy got the use of an aeroplane in the last book of the series.  Unfortunately this is unlikely to be Tony Abbott's last disaster in his own series but he is in the good company of several nodding little wooden men; heads of government who couldn't say no to our great strategic patron.  But some are smarter than others and are furtively seeking the exits. 

"It's a great plane, great plane!" he exclaimed stepping from the cockpit of a mock-up.  Maybe it had been planned as a photo- op with a real one but they aren't quite flying properly yet, nor will they ever in any satisfactory sense.    Of course it isn't all his baby but he knows you have to go along if you want to get along.

So how did it come to this?  Better yet to ask how does mediocrity defend itself in a communal milieu; be it kindergarten, a political party, corporation or civilization.  Tubby Bear was only supposed to wash the car but turn your back and the cunning little bounder is servicing it for his own ends.

Firstly an admission that I have no experience with aeronautical engineering, hardly knowing a flap from an aileron.  But the methods, tools and principles are the same and I could confidently build an aircraft in my garage.  That's something every musician understands.  They can all play Beethoven.  Some play it well, but only Ludwig Van could compose it.  As a self-taught engineer of one-offs for myself and others I am in the enviable position of never having had to get anything off the ground.  It's when you are airborne like on a bridge or held up by wings that the mathematics counts to the nth degree.  My own work requires none of that, it rests firmly and humbly on terra firma; sleek and  functional; well beyond the standards of health and safety or the penny-pinching economics of mass production.  And humbly because as a non-visionary who can actually do things I understand that in everything we do we stand on the shoulders of giants - from smaller men who built the machines that roll and weld perfectly square and dimensioned, straight hollow steel members, and the geniuses who worked out how to produce the perfect super-hard spheres and cylinders and races that constitute the bearings we take for granted and buy off- the- shelf for a pittance.  Without these my work would be uncertain and clunky and our civilization would grind to a halt.  On the upside the German blitzkrieg could never have rolled over Poland.  And somehow that took a while to sink in; the allies never got around to bombing Schweinfurt until 1943.

And at the top of the hierarchy stand the men who discovered the boxes - the ones that ridiculous dreamers think outside of which are also known as the laws of nature.  That's where our calculations come from and no-one with an education wastes time imagining anything outside of that.  We don't write off the possibility of the supernatural absolutely but life is short and your chances are shite.  But you see these fantasies all the time in glossy magazines - the artist's conception of some giant airliner -as big as an Airbus 380 with  solar panels covering the wings, and through the picture windows happy passengers stroll or lounge in the comfort of some stratospheric saloon that makes today's first class look like a cattle crush and there is a headline: "The Future of Civil Aviation".  Hey they make kid's solar toys that fly OK.  Which is true and so would this if it could be only a single millimetre thick and fly around at walking speed with no payload whenever the sun peeked through.  A principle isn't enough, the metrics have to be possible.

"But solar panels are getting more efficient, now up to 27 %."

So at 100 % efficiency the toy could go 15 km an hour.  The extra lift can float lots of extra weight per square centimeter; maybe you can four times the thickness/strength and thereby double the dimensions of the craft.  And that last is roughly the mathematics of the problem.  When I was a boy some of the comic books had a single page in every issue; Ripley's 'Believe It or Not'.  The most famous item was "If a flea were the size of a man it could jump over the Empire State Building."   In fact a flea  has an exoskeleton and couldn't even jump if it was any bigger than a bumblebee.  Everything is competitively constructed and in all ways bounded by the limits of possibility. The exoskeleton is obsolete above the waterline long before you get to mouse size, and if you are going to go scaling you have to get it right.

In those years of innocence there was a service station near home overlooking the Trans Canada Highway run by some Jehovah's Witnesses.  They had wearied after living through a couple of unmet deadlines for Armageddon and while remaining ever hopeful, had grudgingly settled down to a life of ordinary toil.  Outside the shop, standing proudly on the tarmac and proclaimed by signage stood the "Do-All Jack" and it was visible to the entire nation as it passed by.  It must have belonged to one of the congregation.  At that time automobiles had frames; and this was an old Ford or Chevvy frame with the mechanicals intact and a short boom pivoted from vertical off the back end.  Cable wound pulleys replaced the back wheels and the hydraulic brake system had been split by adding another brake cylinder which gave fairly precise control of the operation with a clutch pedal and the two joysticks braking either side of the differential.  More cables somehow rigged to those and other pulleys held up the boom.  You could see that it was a second-rate crane and might be used to hammer in fenceposts or drill a well; perhaps it could pull out small stumps.  Perhaps a careful,  lucky operator could work it successfully without anybody getting killed or maimed.  I never learned how it was to be moved about to do those things because it had no wings or wheels.  To the most casual observer it was obvious that it did absolutely nothing very well.

And so with the help of Ripley, the Jehovah's Witnesses and Tubby Bear we can reconstruct the development of the F35.  It might have been a great concept and will go down in history as might-have- been a great aircraft.  The thing on the drawing boards in the engineering department at Lockheed Martin was a sleek and stealthy twin engine fighter/bomber with a great power to weight ratio that would exploit the latest new lightweight materials for the skin and airframe and could thereby have room for some extras and still fly right up beside the hottest conventional machinery for a long time to come.  Of course there might have been unexpected structural problems with the new technology but that's to be expected and it was nothing that couldn't be rectified.  As in Darwinian theory the unviable permutations are removed by sexual selection or death and it's not often you get get to choose without running the program.

It happened something like this.  Lockheed-Martin's aging, glad- handing General 'Tubby' Olsen (USAF, ret.) who owes his position to called-in favours met with the rest of his marketing staff and asked themselves some searching questions.  Like 'what has our plane got that General Dynamics doesn't have in spades?' and more important the unspoken one of 'how do we make our mark on this thing and  continue to appear indispensible?'  And they spoke to the bean counters who knew that volume sales to their allies were the only way unit costs could be kept down and validate their own positions and prestige via the balance sheets.  So it had to have sex appeal or the operational equivalent.

"We toss a few cookies to the allies.  They get some jobs.  We got stealth.  We got.....uh.. what about STOVL like that Harrier thing?"  They had never forgiven the Marines for going to the Brits over that one.

"Christ that's an idea.  You could fly the b**** out of any field or off a barge.  Even the Greeks could afford a carrier."  The massive general appeal would leave the sales competition in the dust and although the Greeks could have their carrier; cost overruns would ensure it would be forever planeless.

The Harrier is small and old and ugly.  As a short take-off vertical landing aircraft (STOVL) it has directional jets and a lot of power for its substantial weight.  It can lift off virtually straight off the ground, is incredibly agile and a great attack aircraft.  But it doesn't fly far and fast and you couldn't sell Australia or Canada on it.  When the engineers heard the news they were ropeable.  One of them screamed, tearing at his hair.  "Both those f***ing engines have to be at full power each end of the flight.  You can't wind turbines up and down against each other in this kind of thing.  We can't write the software!  Where and how the hell with everything else do you propose we put in the ducting?"

But management was convinced and  adamant and tossed them a billion dollars and gave them a year to look into it.  And once you have spent a billion dollars it's just like home at which you can look back but you can't ever go back.  And meanwhile the marketeers had wasted no time pulling out all the stops with the customers who were already convinced.  So Short Take-Off and Vertical Landing was written in stone and there was only one way out, one more compromise.  The concept was heading for the special rendezvous the gods of hubris save for so many technical wonders of the world:  the Titanic with its iceberg, the Hindenburg with its mooring mast, the Do-All Jack with destiny.   It had to be a single engine aircraft.

That would have been alright if it was as small as the Harrier.  But it couldn't be because it is also a long range fighter/bomber and the concept has been scaled up so now there are 15 tonnes of this pig to boost into the air, twice the weight of the Harrier.  Ripley's flea was not a goer because weight hence structural and energy requirements run away exponentially against a linear increase in size.  The engine has to produce a minimum of 1:1 thrust to aircraft weight,  to bring the thing straight down successfully,  and is itself a prisoner of the same principle.  At full power the turbine blades are stressed to the edge of failure.  It produces the highest thrust to engine weight ratio of any jet engine ever.  It can't be pushed any harder, so far engines last about 15 hours and still can't power the plane abreast of the competition.  Nor are there  runways that can take all those tonnes of super- heated blast on the tarmac. So we have bought into something that will carry all that junk with it but nonetheless be limited to ordinary landings on ordinary runways.   It will be fully operational as such for pilots presently being born, which gives time for 2 more world wars with a re-construction of the U.N. or its successor in between.   Worst of all a quantum leap in metallurgy is required to begin to make it a threat to someone else and nobody knows if that is possible.  If not, Australia's security AND budget have been compromised for the long term.  In rational markets nobody buys into things like that, especially with an open-ended price tag.  Unless.

Back when the Witnesses came around on Saturdays in the course of their duty they used to say"We are the generation that will never taste death."  Nevertheless the service station proprietor died, and it must have been quite a surprise.  But that's alright, everybody miscalculates occasionally and most people do little harm thereby.  The business was demolished to widen the highway and the Do-All Jack disappeared at the same time, having sat those many years doing nothing.  They managed to carry it off for scrap in the end.

And Prime Minister Tony Abbott has so much to deal with, he can't keep his finger on every pulse.  The natives are restless over trade deals undealt, the price of coal and iron ore, treatment of the desperate dispossessed who risk death in our blue ocean, the squeals of cut-off part pensioners; hibernating in their crumbly, mouldering  little Sydney biscuit-boxes with unlikely, eye-popping million dollar price tags and they are still too self-serving to rejoice that their stinking stipend is freed up for national defense and budget repair.  At every venue he faces some noisy and unruly circus of the disaffected with signage and funny clothes.  Heading homewards one afternoon he encounters another lot -  it seems to have a 'Wizard of Oz' theme.  There are the usual college kids with funny hats, lollipops and streamers.  A big bloke is dressed badly as the cowardly lion, the Wicked Witch of the East is there with her broomstick, helicopter and jet plane toys, and there are other animals.  The car slows and stops.
"Shall we move these silly people along?" the driver asks impatiently, tugging distractedly at his protruding earlobe.
The PM silently gives his assent.  The driver leans roughly on the horn.

 "Parp parp!"