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“It was in the reign of George III that the aforesaid personages lived and quarreled; good or bad, handsome or ugly, rich or poor they are all equal now.” - William Makepeace Thackeray

For those who thought I gave up on the blog, I can understand why - but rest assured I have not.  It has been a terribly busy period in my life and something just had to give for a while.  Even now there are quite a few things that I need to get started on but I feel compelled to capture my thoughts before the moment slips by completely.

It would be an understatement to suggest that 2011 has brought great turmoil and change so far.  Going back a few months we saw regimes in Tunisia and Egypt fall in a matter of days or weeks.  Many other governments in the Middle East and North Africa are quite unstable and leaders are concerned they will encounter mass demonstrations or worse.  At this moment it seems the US, Britain and France are trying to help a ragtag group of rebels overthrow Muammar Gaddafi and his government - for what legitimate reason I have no idea.  I suppose it is remotely possible that prudent leadership will gain power in these countries and bring a better future for the people, but I am far too cynical to believe it is likely.  In this region of the world, I think all we can honestly hope for is a reasonable level of stability under strong and often militant leadership.  Western democracy just doesn’t work very well as there are too many radical groups that will challenge power at any cost.

As if this isn’t enough to deal with, the Earth has been delivering some deadly natural distasters of late.  Haiti, Chile, China, New Zealand and most recently Japan, have all been rocked by terrible earthquakes.  Japan’s 9.0 earthquake was the worst in over 100 years and the subsequent tsunami wiped many coastal towns off the map and started a nuclear disaster that is still unfolding.  It is as if Pandora’s atomic box has been opened and no matter how hard the humans try, we can’t contain the deadly, seeping force from within.  Tens of thousands died from the earthquake and tsunami and more will die from radiation sickness at some point in the future.  I have many friends and colleagues in Japan, so this has been very difficult for me.  Japan is an amazing country and I have the utmost respect and appreciation for the Japanese culture.  If there is any good news from this disaster, it is that it happened in Japan where people will work day and night to fix the problems and rebuild what has been destroyed.  I know this doesn’t erase the death and destruction but it is my best attempt to consider a brighter side (as dim as it might be).

Finally we have the quagmire that is the United States right now.  The once powerful nation that is so divided and buried in debt that we can’t seem to figure out what to do - except start wars in the Middle East and North Africa.  I only hope that God hasn’t given up on us yet because it seems he is the only one that can save us from ourselves.  Time will tell and so we will just wait and see.  In the meantime we would all be wise to pray for a brighter tomorrow.

As I watch Charl Swartzel slip on the Green Jacket at Augusta National, I can’t help but wonder what the World’s Greatest Golfer, Bobby Jones, would think about the 21st Century.  Like me, he probably wouldn’t know what to think.

“None of them would have survived without government help.”  - Timothy Geithner, Treasury Secretary

Last week the Federal Reserve released detailed information on the steps they took to stabilize the financial markets during the uber tense period from early 2008 through 2010.  Most of us were quite surprised to learn of the magnitude and frequency of intervention.  Although some will never completely agree, it was quite clear to me that we were truly on the edge of the abyss and without the Fed’s intervention there would have been a complete wipeout.

To add to the intrigue, my favorite system manipulator, Goldman Sachs - which once suggested it had plenty of cash to weather the storm - borrowed 84 times during the crisis window and more than $20 billion on at least one occasion.  I could add a few comments on this but I will take the high road at this time.  One thing you can say about Goldman, they know how to create their own destiny.

Shortly after this broke, the U.S. jobs report came out with dismal November job growth - so poor compared to other more encouraging indicators that many are questioning whether the report is accurate.  Regardless of what job growth actually is, while most of the key economies around the world have stabilized, there are still many potholes in the road to Shangri-La.  All you have to do is consider, Greece, Spain, Portugal and Ireland.

Since this blog is supposed to be about prudent personal finance and the global economy, my suggestion as we hopefully enjoy the 2010 holiday season, is to keep your job if you have one, find a job if you don’t and in both cases avoid excessive debt and save every dollar (or pound, yen, rupee, euro, etc.) you can.  There are and always will be investments worth pursuing but be very cautious unless you have adequate liquid to cover any possible losses.  Cheers and All the Best during this special time of the year!

“Justice, sir, is the great interest of man on earth.  It is the ligament which holds civilized beings and civilized nations together.” - Daniel Webster

July 15th was a big day in case you didn’t notice.  Most important by a mile, British Petroleum reported that “no oil was leaking into the Gulf of Mexico from the Deepwater Horizon oil spill” for the first time since it began on April 20th.  It is hard to imagine than anyone would not be relieved to learn this, but of course some could care less.  While the leak is now plugged, it is estimated that nearly 5 million barrels of crude oil gushed into the Gulf at a rate of up to 62,000 barrels per day.  The market value of this oil would have been approximately $350 million - instead the cleanup and litigation will cost many tens of billions.  It is so dreadful to think of the mass destruction, pain, suffering and death this tragedy has caused and by no means should this be minimized, but at this very moment it is nice to know that the leak is stopped and a little sun is peaking through.

On this very same day, the SEC announced that Goldman, Sachs & Co. will pay $550 million and reform its business practices to settle SEC charges that Goldman misled investors in a subprime mortgage product just as the U.S. housing market was beginning to collapse.  It is rather ironic that in agreeing to the largest ever penalty to be paid by a Wall Street firm, Goldman merely acknowledged that the marketing materials for the subprime product contained incomplete information.  While this is a setback for our friends at Goldman, I suspect the firm had the best (and most expensive) minds working on this little resolution.  After all, Goldman makes money going up, they make money coming down and they will always find a way to get back on their feet - bet your bottom dollar.

July 15th was pretty good if you ask me.

“With the strengthening of the administration, the rescheduling of debt and a broad package of social and economic measures.  Dutch island governance should restart in a stronger position.  Because public finance is of crucial importance for residents and visitors alike, greater financial supervision is being implemented.”  - Els Croon

As you might have noticed, it has been a few months since my last entry.  This was largely due to the fact that I have been extremely busy with work but I must also confess that the depressing state of the world played a part.  There have clearly been more than a few rough periods in the history of mankind but for me this is a real low point.

Most of the countries around the globe are struggling to maintain their positions of power as their respective economies sputter toward recovery.  In the U.S., constant missteps by the administration and congress are very disheartening and it is all but certain that elections later this year will alter the political landscape once again.  Britain and Japan have just installed new leadership and both are desperate for something positive to happen from the bleakness.

As if all this isn’t enough, there is a hole in the Gulf of Mexico that has been spewing toxic oil at a rate of roughly 100,000 barrels per day since 20 April.

Quite frankly, it is all just too painful to think about - so if you don’t mind I will try to enjoy my family vacation and commit to a more inspired entry in July.  Hopefully I will have some good news by then. 

“Complex societies are focused on a center, which may not be located physically where it is literally implied, but which is a symbolic source of the framework of society.  It is not only the location of legal and governmental institutions, but is the source of order and the symbol of moral authority and social continuity.  The center partakes of the nature of the sacred.”  - Joseph A. Tainter, The Collapse of Complex Societies

It was a rather frantic month for me and most of the headlines missed my attention.  I did notice one rather curious article about JP Morgan Chase’s $1.4 billion tax refund.  Apparently JP Morgan Chase is capitalizing on a provision in the American Recovery and Reinvestment Act which allows the mega bank to take losses from 2008 and 2009 and apply them against taxes paid during the previous five years instead of the previous two.

And the train has departed from the station because according to an analysis of security filings by Wall Street Journal, more than 250 companies expect $12 billion worth of federal tax refunds under the provision.

Maybe I am foolish to be concerned that the provision (…gift, whatever) is expected to cost taxpayers $33 billion during its first year.  I suppose everything is relative and we are playing with trillions now - right?

“Tragedy is thus a representation of an action that is worth serious attention, complete in itself and of some amplitude E’ by means of pity and fear bringing about the purgation of such emotions.”  - Aristotle

…in the news that is - and it isn’t good.  It seems that Greece has a real financial crisis on her hands.  Greece’s budget deficit is twice what the Government reported as recently as mid-2009.  So once Moody’s downgraded the debt a few months ago, there seems to be serious concern that a sovereign European nation is at risk of default.

Greece, in the form of the Prime Minister George Papandreou, is asking for help from other EU countries and while the EU has indicated that it will assist to prevent default, details are sketchy for now.  We will soon find out if the EU will put the money where their mouth is come April and May when Greece has some 20 billion euros worth of bonds and T-bills maturing.

Let’s hope this gets sorted out or it could send other European countries like Spain and Portugal over the edge as well.  Interestingly, it has been reported that Goldman Sachs (our favorite investment bank at the center of the universe) helped the Greek government to mask the true extent of its deficit with the help of a derivatives deal that “legally” circumvented the EU rules.  Is there anything that Goldman Sachs isn’t involved in?

“For if the trumpet give an uncertain sound, who shall prepare himself to the battle?”  - 1 Corinthians 14:8

There are still many that believe the U.S. Government should have allowed the big banks along with Fannie and Freddie and AIG to go under.  I recall one colleague explaining to me that the “invisible hand” would have corrected the situation.  He went on to suggest that any institution responsible for this disaster should have to pay for their foolishness anyway.  Being somewhat of a Keynesian, I never believed the government should look the other way and now I am more convinced than ever that we were on the brink of complete global financial wipeout that would have truly changed the course of human history.  The current environment is unpleasant but it could be far, far worse.

For those that think this was all some grand conspiracy to change the political landscape or that our leaders are really in control, a recent article by Laura Blumenfeld in the Washington Post about Neil Kashkari, former Interim Assistant Secretary of the Treasury for Financial Stability, and a book by Henry Paulson, Secretary of the Treasury during the darkest hours of the crisis, tell a different story.

“Seven hundred billion was a number out of the air,” Kashkari recalls.  “It was a political calculus.  I said, ‘We don’t know how much is enough.  We need as much as we can get [from Congress].  What about a trillion?’ ‘No way,’ Hank shook his head.  I said, ‘Okay, what about 700 billion?’  We didn’t know if it would work.  We had to project confidence, hold up the world.  We couldn’t admit how scared we were, or how uncertain.”

And according to Paulson, after he and Timothy Geithner failed to find a buyer for Lehman Brothers, “My stomach tightened up and it was one of those times during the crisis where I was momentarily overcome by fear.”  He then called home to his wife Wendy: “And I said, ‘Everybody’s going to be looking to me for answers, and I don’t have any.  Please help me, pray for me.’  But boy, that was, that was a dark, dark hour.”

We will never know what would have happened with a different group of leaders - but I for one am grateful it didn’t turn out worse.  The question is: did we learn from our dreadful mistakes?

“After the pact, the Royal Navy was required to scrap the Grand Fleet’s backbone.  The Admiralty pledged itself never to build a naval base in Hong Kong.  England’s absolute command of the seas, so vital to the Empire, was over.  Britannia no longer ruled the waves, not because world opinion objected, but because, having spent 5,000,000 pounds sterling during the war, it simply couldn’t afford to.” - William Manchester, The Last Lion

It might not be apparent why I included this passage which describes how dramatically Britain’s course was altered following World War I.  I would like to believe this isn’t indicative of where the U.S. is heading following the second Gulf War, but there are certainly parallels that should be considered.  While I don’t believe a diminished future is sealed for the United States of America quite yet, it should be clear that our current course could easily lead us to become a second-rate world power.  It is not possible for a single country, no matter how big and powerful, to please and/or protect all the humans on the planet.  Enough said.

I think most will agree that 2009 is ending with a slightly positive momentum compared to where we were a year ago.  Just for fun, here is my annual recap…and here’s to a better 2010 - because we all know there is plenty of room for further improvement.

January 2009 - 1.  The U.S. Congressional Budget Office estimates the federal government will run a $1.2 trillion budget deficit in fiscal year 2009 and that the enactment of the economic-stimulus plan would increase that deficit; 2.  The Bank of England cuts interest rates to 1.5%, its lowest level in its 315-year history; 3.  Icelandic prime minister Geir Haarde announces the collapse of his coalition government in the wake of the country’s financial crisis.

February 2009 - 1.  California’s government goes broke and issues IOUs on all expenditures not required by law; 2.  Bankruptcies in the United Kingdom rose during 2008 by 50% to an all-time high; 3.  The Dow Jones Industrial Average and S&P fall to their lowest levels since 1997.

March 2009 - 1.  The UK’s government increases its ownership stake in Lloyd’s Banking Group from 43% to approximately 60%; 2.  Japan’s economy posts a record deficit of 172.8 billion yen; 3.  Premier Wen Jiabao says China may introduce a new stimulus package if the current financial crisis intensifies and he also expresses concern over U.S. Treasury securities.

April 2009 - 1.  The Group of 20 announces a US$1 trillion agreement to combat the current financial crisis; 2.  China imposes pay limits for executive officers of state-owned financial institutions; 3.  China’s economy grows by 6.1% in the first quarter 2009, the lowest increase since 1999.

May 2009 - 1.  The Eurozone’s 16 national economies contract by 2.5% throughout the first fiscal quarter of 2009.

June 2009 - 1.  General Motors, once the largest and most powerful corporation in the world, files for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code; 2.  Iceland’s rate of unemployment reaches 11.8%.

July 2009 - 1.  General Motors emerges from bankruptcy protection after 40 days under court supervision; 2.  China’s foreign exchange reserves reached a record US$ 2.13 trillion; 3.  The Dow Jones Industrial Average closes above 9,000 for the first time since January.

August 2009 - 1.  Hong Kong posts 3.3% growth over its previous quarter, far exceeding predictions, signaling an end to its recession; 2.  The U.S. budget deficit will reach $1.6 trillion, the highest ever recorded; 3.  The Democratic Party of Japan wins 308 seats in the 480 seat House of Representatives, ending nearly 50 years of control by the Liberal Democratic Party.

September 2009 - 1.  The G-20 Finance Ministers outline plans for banking reform, including tougher regulation of financial institutions.

October 2009  - 1.  The International Monetary Fund states that the global economy is “recovering faster than expected”, raising its forcast for global growth to 3.1% for 2010, up from 2.5%; 2.  The Dow Jones closes above 10,000 points for the first time in more than a year.

November 2009 - 1.  Dubai World, the state-owned real estate and ports giant, asks for a moratorium on its US$59 billion in debt until at least May 30, 2010; 2.  The Central Bank of the United Arab Emirates announces it will provide liquidity to Dubai banks.

December 2009 - 1.  The FDIC, which insures deposits in U.S. commercial banks, runs a deficit of US$ 8.2 billion; 2.  Japan unveils a 7.2 trillion yen stimulus package to strengthen the country’s economy amid signs it is weakening; 3.  140 U.S. banks failed in 2009.

And so…raise your glass to a better 2010 for all.  Cheers!

“Gratitude unlocks the fullness of life.  It turns what we have into enough, and more.  It turns denial into acceptance, chaos to order, confusion to clarity.  It can turn a meal into a feast, a house into a home, a stranger into a friend.  Gratitude makes sense of our past, brings peace for today and creates a vision for tomorrow.”  - Melody Beattie

From now until the New Year we are expected to contemplate the good things in our lives and hopefully bring some happiness to those we care about.  If this is not on your agenda then you are certainly missing out.  There is plenty of time for striving and dissatisfaction - so make the most of this gift.  Be grateful and generous every chance you get.

Much has changed since the financial meltdown began in September 2008, just over a year ago.  And while it remains less than rosy, I think most will agree that recovery has come sooner than expected.  This is not to suggest that the millions of people around the world that are unemployed, bankrupt, or both are feeling good right now - but it could easily be far worse.  I predict it will be a long time before we get back to an easy time of prosperity for nearly all.  In fact, I seriously doubt real estate will be the same in my lifetime - but overall it will be better for most.  In the meantime (especially during this Season), I suggest you thank God for the good things in your life and be a source of encouragement for others.

“We are business partners who share material interests rather than common values.  Obama wants us to become strategic partners or friends but we aren’t either of those.” - Yan Xuetong

I am not convinced anyone really knows what China is up to - maybe not even China.  Is China now suddenly a peaceful giant more focused on improving the standard of living and quality of life of her billion-plus citizens or are the leaders strategically positioning the country for world domination?  We do know more about the current position than where the Chinese actually want to be.  For example, we know China has bailed out the U.S. to the tune of over a trillion dollars (in treasury securities, etc.) and the two countries are mutually dependent to a large degree.  We also know China is aggressively building military strength and developing advanced technologies for space exploration.

Rather than surmise what China’s real intentions are, I thought it would be more useful to include a few interesting points from lecture recently presented by the former Chinese Ambassador Ma Zhengang at the London School of Economics and Political Science (15 Oct 2009).  According to Ambassador Zhengang:

1.  “China is the third largest economy and the third largest trade power in the world with the largest foreign reserves.”

2.  “With the end of the cold war between the two superpowers, people all over the world were expecting of peace and development in real earnest.  But their fond dream was frustrated by the hegemonical ambitions of the United States.”

3.  “As the only superpower in the world, the U.S. cherished a blind belief in unilateralism and tried to build up an international order dominated by itself.  They failed to see the world trend towards multi-polarity and the development of globalization, and announced arrogantly that the U.S. could go it alone”.

4.  ”The world balance of power is undergoing changes of great significance.  This has begun to reshape gradually the whole international landscape, politically, economically and socially.”

5.  “The development of globalization has made countries in the world much more linked and connected, and interests are increasingly interwoven.  Under such circumstances, any action from selfish motives with an aim of profiting at the expenses of others would often bring harm to oneself.  There is less and less room for zero-sum games.  Mutual cooperation for win-win results has become a universal concept and a new catch word of the time.”

6.  “The global financial crisis begun in the United States swept rapidly over the world and almost in an instant took the world economy from boom to bust.  Many parts of the world have plunged in a grave depression.”

 7.  “The present international system, including the international financial system, is in for major changes.  Reform is imperative.”

8.  “As the largest developing country with one fifth of the world’s population, China’s emergence as a global power is certainly the most influential event in the present epoch.”

9.  “The total purpose of China’s development is for the continuous raising of quantity and quality of the Chinese people’s life, material and cultural, and contribute to the progresses of the world, but not for world domination and hegemony.”

10.  “China’s development is mainly relying on China’s own human and material resources, but not on external expansion and plunder.”

11.  “China stands for common development and common prosperity.  China cannot develop in isolation from the rest of the world, nor can the world enjoy prosperity and stability without China.”

12.  “China is promoting building a harmonious world of lasting peace and common prosperity.  The key concepts are: Peace, Cooperation, Win-win Results, Diversity and Tolerance.”

What do you think - do you buy it?