Friday, 26 August 2011

09:30 – Colin loves sticks, and we always try to keep a “good stick” on hand. That is, one that’s solid wood and maybe a cm or two in diameter by 30 or 40 cm long. Yesterday, I let Colin off leash while I rolled the yard cart from the curb to the back yard and rolled the trash cart up to the curb. He ran around our and our neighbors’ back yards while I was doing that, and when he returned he didn’t have his good stick. So, while I was taking him for a walk, I looked for another good stick. I found what looked like an ideal candidate, but when I picked it up it was rotten and weighed next to nothing.

Which got me to thinking about Steve Jobs, who has just retired as CEO of Apple. Even with Jobs’ retirement, the value of Apple’s outstanding stock is still greater than the cumulative value of Europe’s 91 large banks. Like the stick I rejected, Europe’s banks appear solid but are actually rotten and lightweight.

The main problem is that those banks have huge exposure to Eurozone sovereign debt. Due to an accounting oddity, sovereign debt, regardless of its actual solidity, is always considered to be default-proof, and so is carried on balance sheets at nominal value. The reality is very different, of course. A bank that holds, say, €1 billion of Greek sovereign debt even now carries that debt on its balance sheet as a €1 billion asset. Current yields on 2-year Greek debt are getting very close to 50%, which means that debt should be written down on balance sheets to a small fraction of nominal, if not written off entirely. But the banks haven’t done that, for Greek, Portuguese, and Irish debt or any of the other peripheral sovereign debt, let alone “core” Eurozone debt issued by France or Belgium. The ridiculous bank “stress test” done a couple of months ago estimated that Europe’s largest 91 banks would require only about €2.4 billion to meet capitalization requirements. The reality is that they’ll need more like €150 billion to meet even the minimum requirements with rosy assumptions including high EU growth and no sovereign defaults.

Back in the real world, the truth is that all or nearly all of those banks are already bankrupt, and the EU no longer has the ammunition to do anything about that. The ECB is already bent completely out of its intended shape, engaging in legally-questionable if not outright illegal purchases of sovereign bonds and accepting essentially worthless paper as collateral. In effect, the ECB itself is in deep trouble, with its nominal balance sheet having no relation to reality. Making matters worse, as the EU lender of last resort, the ECB is now attempting to do what the banks themselves should be doing. The situation in the EU is so bad now that banks no longer trust each other. Banks with a temporary surplus would ordinarily do overnight loans of those surplus funds to other banks, earning some interest in the process. Instead, those banks are depositing the excess funds with the ECB, earning only tiny amounts of interest on them.

So it’s true. The ECB and Europe’s commercial banks are rotten sticks. Even Colin wouldn’t touch them.

I just got orders for the last two chemistry kits I had already built, so we’ll build another dozen or so kits this weekend. We’re still in pretty good shape in terms of components to build more kits, but once this batch of components runs out it looks like we’ll have to increase the price of the kits by $10 or so to cover increased costs. I hate to do that, because we’re trying to keep the kits as affordable as possible, but anyone who thinks these massive so-called “quantitative easings” don’t affect prices doesn’t understand economics. The true definition of inflation is “an increase in the money supply”, and quantitative easing is simply a weasel phrase for inflating the currency. That shows up sooner or later, usually sooner, in the prices we pay for everything.

5 Comments and discussion on "Friday, 26 August 2011"

  1. Ray Thompson says:

    Colin loves sticks, and we always try to keep a “good stick” on hand. That is, one that’s solid wood and maybe a cm or two in diameter by 30 or 40 cm long

    Years ago I had a lab that liked nothing better than to chase something and bring it back. Stick, ball and her favorite a frisbee, which she was quite good at catching in mid air.

    I stopped using sticks when she chased down a stick and got it wrong in her mouth and jammed the stick into her mouth. It took a trip to the vet to have the problem solved. So we thought. A couple of months later when she sometimes opened her jaw she would scream in pain.

    After about three times of that we took her back to the vet. They did an xray and found part of the stick was still jammed in her head between her brain and her jawbone. It took surgery to remove the stick.

    The vet told is to never, ever use a stick again. We had been using racquetballs as they are tough and last a long time. They also don’t get soaked liked tennis balls. The vet told us to never, ever use a racquetball as they are too small. Stick with the tennis balls and frisbee if we must. He was not too keen on the frisbee because of possible damage to the teeth when she caught the frisbee.

    So be careful with the stick because if the stick lands wrong Colin could damage his mouth if he is too aggressive.

  2. Robert Bruce Thompson says:

    Good advice. But try telling Colin not to pick up sticks.

    The other problem is that he hasn’t learned the “bring it back” part yet. He much prefers keep-away and unless I act like I’m coming to take it from him he just lies down and waits. I get as much exercise as he does, almost, and I hate exercise.

  3. BGrigg says:

    Is bubblewrap OK to wrap my dog in?

    Shit happens, and shit happens to dogs. My son fell and jammed a toy into his eye, should I remove all toys from his whereabouts? My dog likes to chase rocks, not balls, not sticks, but rocks. Everyone tells me that I shouldn’t “let” my dog chase rocks, as it will hurt her teeth. This is an animal that will likely live only ten years, but I should worry about rounding over her teeth?

    Nothing beats a good, strong stick. Except maybe another stick, that is.

  4. Raymond Thompson says:

    Is bubblewrap OK to wrap my dog in?

    Sure, as long it is biodegradeble.

    Even after the vet told us not to us sticks, and us carefully explaining it to the dog, she promptly went out and found another stick to be tossed. Walking in Frozen Head State Park was always a “give me a stick” adventure for the dog, in fact her favorite.

    I have also been told to not feed my dog pork chop bones. But you know what, she likes pork chop bones and considers them a treat. She just crunches them like I would Dorritos. So I do it.

    The point was to not stop the activity, but just be aware of what can happen. If the dog is ever in pain after chasing a stick then it is worth looking into the situation.

    I did not stop using racquet balls as “I think” my dog was smart enough to not swallow one. Tennis balls just got too nasty. I figured the crud on the tennis balls was worse than any chance of injesting a racquet ball.

    If we all followed the advice of safety experts and others that are “trying to protect us” we would be sitting in our house, locked behind 3 steel doors, no flammable objects in the house, nothing ever plugged in, never drive on any highway, sterilize all our food, never eat bacon, and only use toys for our kids that are made of ….. (I can’t think of anything).

    Life is a risk. You can chose to enjoy life and it’s risks, or you can sit home and never do anything. Now where did I put those lawn darts?

  5. BGrigg says:

    I loved lawn darts, and never knew anyone so stupid as to stand near the landing zone. YMMV

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