Jun 182011

The media are once again obsessing about the economy, or more accurately the lack thereof, to a back-drop of procrastinating politicians who are no more qualified to administer public finances than chimps are to perform brain surgery.

Everyone seems to accept that a country’s economy shall be measured by the ratio of its public debt to its GDP. I question this, on the grounds that whilst America’s 8.5 trillion dollars is a lot of debt, it represents about 27’000 per inhabitant, which doesn’t really sound that bad. The Icelandic 15 billion dollar debt pales in comparison, but per inhabitant it’s 47’000, which is nearly double that if the USA.

Here’s the Public Debt versus GDP for a cherry-picked set of countries, essentially the developed and significant nations:

The numbers are in USD, source CIA Factbook, IMF and World Bank, in this spreadsheet PublicFinances.xls. The horizontal scale shows productivity, the vertical scale measures indebtedness. The grey triangle encompasses those countries whose public debt is less than a year’s GDP.

There are three coloured clusters, which group those who have similar economic habits.

  1. The Spendthrifts, with debt exceeding GDP. Japan has been trying to kick-start its economy for over a decade, it clearly hasn’t worked. That Iceland, Ireland and Greece are heavily in debt is hardly a surprise, but I didn’t expect Belgium and Singapore to be here.
  2. The Western Norm, with debt between 50% and 100% of GDP. Essentially the rest of Europe and the USA. Israel’s economic habits, predictably, are the same.
  3. The Cautious, with debt less than 50% of GDP. Here we have the Nordic countries, the true bankers and unexpectedly, Canada and Australia.

The others make for a few interesting observations.

China and India, regularly upheld as models of economic development, are still in abject poverty at the individual’s level. When average inhabitant generates 4$/day (India) or even 19$/day (China), even a homoeopathic increase in employment will give you 10% growth a year; certainly not a notable achievement. To put that into perspective, if China’s GDP increases by 10% (compounded) every year, it’ll reach Germany’s current productivity in 2035. I’m not holding my breath.

Despite their immense income from oil, the average Saudi’s income is barely a third that of an Irishman (but the Irishman has twenty times the debt).

Finally, for all the current fretting over the American debt, it’s comparatively modest in relation to the population. The Greek and Irish economies are getting lots of publicity, but there are others whose public finances are much worse. Italy, Belgium, Iceland and above all Japan are going to have a much rougher time putting their houses in order.

May 292011

The Democrats and Republicans are slogging it out, trying to find a way to reduce the US debt. A laudable effort, but frankly, it’s pissing in the ocean. To see the big picture, we’ll take a look how the US government has been running its shop over the last century or so. Take the first half of that period, up until 1970, when the gold standard was abandoned. Notice that all numbers are in millions of dollars:

The second World War made a nasty dent in the finances, but that’s perfectly understandable. I’ve shaded the years where the books showed a ‘profit’ in green; there are precious few and the amounts are insignificant.

Since 1970, the picture changes drastically, we have to multiply the scale by a factor of 50’000; we’ve moved from millions to billions:

You might notice, correctly, that the debt in 2011 is shown around 9.6 trillion, when it is in fact 14.3 trillion. Presumably there’s another 5 trillion that was borrowed somewhere; a trifle that we’ll ignore.

The message to take away here is that the US government has balanced its books in 4 years out of the last 40. Perhaps more telling is that those 4 rare years are thanks solely to the dotcom bubble and the true value is directly correlated to the main thing it generated: hype.

The average American thus owes some 47’000$ on behalf of his government (and an average of 7’000$ on his credit card, but that’s another story).

Put in household terms, this is like earning 100’000 a year, spending 176’000 and borrowing a further 19’742 to pay the interest on the 657’864 that you borrowed in previous years.

Let’s zoom in on how the White House sees that debt evolving:

The dotcom money is put into perspective and we get to the part where I’m asking myself who’s been smoking something dubious. Remember, these are the numbers I obtained from the White House, which predicts that the debt will be reduced by 1’000’000’000’000$ in the next 4 years.

Thus, every American man, woman and child is going to reduce spending by 833$ every year, not to eliminate the debt, but simply to halve the yearly budget deficit.

The Americans are definitely in the shit; but the shit they’re in isn’t the shit that they’ve been smoking.

Dec 212010

A year ago I wrote an article predicting that the US dollar would be worthless, against the Swiss Franc and the Japanese Yen, by around 2020. A year has passed and the US dollar has been falling in line with my prediction, so I felt it might be interesting to re-visit the subject with a slightly different tack. Also, today seems like an auspicious date for doomsday predictions.

Rather than dealing with absolute exchange rates, I set out to try and show the relative strengths of currencies amongst themselves. To illustrate, let’s suppose that a glass of wine costs 5 USD.

  • On day one, we buy a 100mL glass with a dollar’s worth each of USD, GBP, EUR, JPY and CHF.
  • A month later, we need a refill. The wine still has the same value, but the exchange rates have changed.
  • Suppose GBP has risen by X% (and nothing else has changed). As we’re buying the wine with equal fifths of each currency, the USD’s value must decrease by X%, thus we will to pay more USD and less GBP.
  • These increases and decreases change the relative strengths of the currencies, and it is this that we shall study.

This is nothing more than my own version of the Dollar Index. The maths is simple, as you may surmise from this Excel spreadsheet:  forex2010

A first look over the past decade seems to illustrate some trends (click to enlarge):

The first 2 years show a pronounced strengthening of the USD, in the aftermath of the dot-com boom, but as of 2002 the USD has been declining steadily. The Federal Reserve Bank of Cleveland wrote an eloquent paper suggesting that the decline was due to the US current account deficit. This correlation held for a few years, but the USD continued to fall even when the account deficit started diminishing in 2006. I find it reassuring that the experts’ tea-leaves are no better at forex predictions than mine.

Moving on, if we set the starting point in 2002, the picture becomes much clearer:

Notice that the stock market crash of 2008 occurred on the 16th of September 2008, yet the currencies tumbled 6 weeks earlier. The documented mass buying of USD and JPY started then, not in September. I wonder why?

From 2002 to 2008, the EUR was clearly the strongest currency, even through the crash, and things remained relatively rosy until Greece admitted to cheating in its financial reporting and more than doubled its deficit in late 2009.  The Greeks were followed by the Irish, the Portugese, et al in a landslide where most of Europe had to own up to the vast borrowing over the past decade.

For the USD, its been downhill pretty well all the way. 2005 showed a slight rally, at least in part due to the Chinese severing the dollar peg mid-year. The second rally during the 2008 crisis was due solely to panic selling and Obama’s election in January 2009 created but a short-lived blip. Finally, the first half of 2010 saw the USD gaining some lost ground, but it was quickly reversed once the Fed starting printing money in earnest.

Returning to the glass of wine analogy, if in 2000 you held Swiss Francs, today you’d get a 136mL top-up; if you held US dollars, you’d only have 82mL in your glass. If you see the glass half-full, that’s a 60% loss; if you see it half-empty, it’s a 66% loss, either way it’s a huge difference.

My predictions

The Americans have chosen to get rid of their debt by devaluation. They don’t care, it’s not their loss. I’m very bearish and if the Chinese start selling their T-Bills in the not-so-distant future, the USD will become worthless overnight.

The Brits will take their medicine better than most, but the GBP will continue to lose value steadily for many years to come.

Europe will never really get its act together, simply because a single currency doesn’t make a single mentality. Issuing more and more bonds to buy back yesterday’s borrowing is just a stop-gap solution to delay the inevitable devaluation of the Euro.

The Japanese, industrious and disciplined, will grind on and climb steadily back to a comfortable position, exactly following the slope of the last decade.

For lack of a floating rate, it’s impossible to foresee how the Yuan will progress, but even cave-dwellers can see that it can only be upwards.

Finally, Switzerland, as usual, will remain a haven for both clean and slightly-soiled money. Their relations with their European neighbours will degrade (for a good part due to jealousy), and like the Yen, I predict that the CHF will continue on its current slope.

Graphically, here’s how I see the relative strengths:

which in forex terms, looks like this:

In summary:

  • The GBP will fall more or less in step with the EUR
  • Near the end of 2012, we’ll see 100 JPY = 1 EUR
  • At the end of 2015, the big bang when 1 CHF = 2 USD = 2 EUR.

Remember, you read it here first.

Apr 272010

The scene :

A late evening in a plush boardroom on the 54th floor in Lower Manhattan. A dozen portly businessmen are seated around the huge table, where the remains of a large dinner have been replaced by a collection of rare whiskies. At the head of the table, a balding, corpulent man interrupts the others:

— Now then Gentlemen, enough banter, we have a problem. Anyone want a splash of this 50 year-old Midleton? I had a case flown in from Dublin last week, it’s awfully rare.

Who’s got the cigars? Richard, we all know what a kike you are, but pass the box along, there’s a good chap.

So, if you’re all comfortably pickled, let’s get down to business. Where’s Peter?

— In the john, I think the oysters disagreed with him.

— I see. Why is that Finance Directors are always absent when you need them?

[he pauses to finish lighting his cigar]

As I was saying, we have a problem, and a serious one: the SEC is on our ass, with a vengeance.

These chocolates really are sublime, are they not?

My assistant has calculated that we’ve ripped off about 50 million investors with these… what are they called? Structured derivations?

— “Derivatives”, Lloyd

— Yes, derivatives, whatever, for billions of dollars, that John-Alfred has siphoned off to Switzerland.

— Fucking Swiss, it’s always their fault, with their banking secrecy.

— Stop kvetching Charles, you bloody hypocrite, we all know where you’ve stashed your booty. I won’t remind you of those stock options that materialized on your Zurich account last year now, shall I?

No, we have to choose somebody who’s going to carry the can.

[a long silence ensues]

— Don’t be silly now, I wasn’t suggesting anybody in the top management, we’ll trim back the bonuses in the lower echelons, not here.

No, we need some miserable klutz, preferably someone that nobody here knows, so that we can plead ignorance, and throw the creep out on the street for a public sacrifice.

Richard, you’re good in the sniveling role, you can go on CNN and cry how ashamed we all are, when the word gets out.

— Yes, Lloyd, but who?

— How should I know? Surely one of you must have an insubordinate little rat that you’re dying to get rid of? You know, the nerdy type, with big glasses, who can’t lace his own shoes, disconnected from reality. Ideal for a little crying with Richard. C’mon, give me a name.

— But Lloyd, we don’t know the employees, we barely speak to them, everything’s done by email. Most of mine, I don’t even know where their offices are.

— So it’s up to me to fix things, as usual. Charles, pass me that PC. Where’s the H.R. page? Ah, here. Let me see now.

God, where do you hire these people? They all look like retards. Hasn’t somebody given H.R. instructions not to hire hicks? OK, I’ll click randomly. Here we are, Jay Ratlivich, a nasty-sounding name and he looks the part. What do you think?

— He’s in facilities management Lloyd. Difficult to pin something on him.

— Which hardly facilitates my task. Alright, how about this one, Mustafa Albariz, terrorist overtones, he’ll do.

— Hardly Lloyd, he’s in agricultural finance. He deals in manure, not credit default swaps.

— Pass back the whiskey would you Richard? Alright, my final offer, this one looks ideal, Fabrice Tourre. Ah, a trader, they’re like arrogant hamsters on methedrine that lot. And he’s French to boot, perfect, the frogs are always fucking things up.

— But Lloyd, he’s only 28, they’ll never believe we let someone so young play with billions.

— Charles, two years ago, you’d never have believed we’d have a black President. It’s simply a question of manipulating the press. We’re doing God’s work, if it’s good enough for Him, it’s good enough for us.

Porter, this is right up your street. Get your I.T. guys to siphon off all his emails and dress them up to incriminate the little bastard completely. Then leak the whole lot to press, you know the ropes. Whilst you’re at it, credit a couple of million to his account, back-dated to last June; we’ll leak his bank statement when the shit hits the fan.

That’s settled then. Fiddle the I.T. records, prepare a press statement, media plan, the usual stuff. Oh, and we’d better announce some layoffs. Charles, make sure the severance payments and restructuring charges are completely tax-deductible. Whilst you’re at it, announce that we won’t be paying a dividend this year, teach those shareholder assholes a lesson. I want all that on my desk first thing in the morning.

Anyone for a drop of this 1984 Dom Perignon to celebrate? It really is the best year in the cellar.

(Adapted from the original French article on www.boursorama.com)

Nov 182009

The USD has dropped pretty well back to parity with the Swiss Franc.
Based on the forex rates since 1970:
Source: Pacific Exchange Rates

This extrapolation suggests that the USD will be worthless:
– against JPY in 2018
– against CHF in 2020
– against EUR in 2042 (DEM in graph, fixed rate 1.95583 since 31/12/1998)

As the graph also suggests, the GBP, which more or less matches the USD, will become worthless in the mid 2020’s.

Of course, as any investor knows, past performance doesn’t predict anything in the future. Nonetheless it would seem that the trend will not only continue, but is likely to sharpen. The reason for this is simple; the U.S. government is borrowing and printing money at a heretofore unseen rate:
U.S. Public debt Source www.whitehouse.gov
and as every investor also knows, borrowed money has to be re-paid sooner or later.

In my opinion it will be sooner rather than later. Nearly 50% of U.S. debt is held by the Chinese and Japanese:
Foreign holders of United_States treasury securities
Source www.treas.gov
At some point the pain of holding securities whose value is continuously decreasing will exceed the perceived benefits. When that happens, U.S. creditors will start selling and the result can only be further devaluation of the dollar.

Nay-sayers will argue that the Chinese will soon have to devalue the Yuan. Maybe, but once the Yuan were to be floated, there’s no good reason for it’s value to lower, quite the opposite given their balance of payments.
The other argument is that the U.S. could raise the interest rate on the USD. In the short-term, this would certainly produce a buy signal, but in the long run this will fail, simply because the dollar will devalue more or less in step with the increasing interest rate. Let’s face it, a bond that pays, say, 15% p/a has been and always will be a junk bond, even if it’s printed by the U.S. Treasury.

As the Chinese proverb says “We are going to live in interesting times”

Feb 242009

I elected to pay my dues to SWITCH.CH by credit card and got redirected to this:


Now I have a credit card from UBS, I’m paying SWITCH and I end up at CARCENTER.CH on what looks like a teenage-hacker effort?

Believe it or not, this is indeed UBS’s implementation of 3D-Secure, which as you can read in that Wikipedia article, seems to be less than perfect. Amusingly, returning to the same URL I get this:


which pretty well says it all. With all the other snafus the bank has been accumulating, one wonders how long it can go on…

Oct 292008

The media are lathering us all up to the prespective of a great depression, matched only by 1929. Obama is just hanging in on page 4, and only because some deranged young idiot was supposedly plotting to assassinate him. As for McCain and Palin, they’ve completely dissapeared from the news radar, at least here in Switzerland.

I never cease to be amazed at how short peoples’ memory is. The stock market has gone through innumerable crises, the 1973-1974 wiped 45% off the DOW,  black Monday (1987) took 22.6% off the DOW and the .COM bubble in 2000 cost speculators (and others) about $5 trillion. The world’s banks employees, motivated by bonuses that bear no relation to their true added value have been playing the market for years and now we are at the day of reckoning. And so what? We’ve lived through them before, we’ll live through this one again, and in 3 years the autumn-2008 meltdown will be no more than a page on Wikipedia, like the others.

But. And there is a “but” this time round. The previous disasters were accompanied by liberal doses of “well, take your medecine”. This time it’s very different. Governments suddenly made billions available to ailing banks and in the same breath announced that money for all other causes was short. Here in Switzerland, where UBS was bailed to the tune of 68’000’000’000 CHF (about the same number of dollars), the minimum interest rate on pension funds was slashed simultaneously.

Let us take a step back. In 1974 (and 1987, and 2000), we were fed the same crap. In 2006-2007, everyone was back to worshipping the incredible economy.

Will we never learn?

Oct 162008

Many traffic-light solutions for Excel exist but all the ones I tried only work for a single light, and I needed an array like this:

I wanted to create a light by simply typing a formula in the light’s cell, with the colour of the light determined by a value in cell elsewhere. The light must change colour as soon as the underlying value changes. This wasn’t as simple to implement as I thought, but in the end a bit of VBA led to this formula :
and the rest of the lights are created by dragging this formula right and down.

The parameters to the TrafficLight function are:

  1. The cell containing the value which determines the colour of the light.
  2. The threshold to change from red to amber.
  3. The threshold to change from amber to green.

in this example, the Sheet2 looks like this:

Project 1 has a value of 64 and thus is amber.

Here’s a ZIP file with the .XLS and the images project-progress-dashboard, feel free to use it as you see fit.


  1. The red and green images have an exclamation mark and a tick superimposed so that they are recognisable on a black-and-white printout.
  2. You must keep the 3 GIF files in the same directory as the spreadsheet.
  3. There is one bug. If you resize a cell containing a light such that the light is no longer contained within the cell’s boundaries, the light will not be deleted when its underlying value changes (you end up with an orphaned light). To fix this, there is a “Remove lights” button; clicking it will delete all images and pressing F9 will re-generate correctly.
Oct 152008

Quite astonishing that for once the European politicians have got their act together and addressed the financial cesspool that the banks have created. A shining performance by Sarkozy and Brown, from whom nobody expected such alacrity and cooperation.

On the other side of the pond (is Bush still president over there?), McCain is too busy slinging mud at Obama in a last-ditch effort and Paulson’s plan seems rather ineffectual by comparison to the Europeans’.

It seems that Europe is finally assuming the role it should take; with a population of some 450 million it’s about time.

May 312007

I was flabbergasted to learn that the price of car insurance in Switzerland is a function of your nationality. The surcharge can be as high as 97% if your unlucky enough to be from pretty well anywhere in the sourth-eastern Medditerranean area and, curiously, anywhere in north or south America (article in French).

The insurers argument is that drivers from certain countries statistically have more accidents. Now I can follow the reasoning, the problem is that each company has wildly differing prices for a given nationality, which to me smells of poor statistics. If the sample is large, the surcharges should be approximately the same.

What’s even worse is that the no-claims bonus is aplied on the surcharged price. This means that a driver from country X, whose initial policy has a 94% surcharge, who has no accidents for 10 years is penalised forever.

Legal as it may be, this practice stinks of racism. Shame on the Swiss; are they alone in doing this?