edited and revised from various sources by Alex Wong
In 1933, when the US Dollar was still pegged to the Gold Standard, Franklin Roosevelt took an extraodinary step to overcome the Great Depression by devaluing the dollar via an executive order, whereby the government confiscated gold and raising its price by 69.3%. Due to the devalued dollar, asset and consumer prices started increasing, which kick-started a new round of inflation. This is called a reflation policy (re-inflation).
Consider George Soros’ recent proposal for a new monetary system involving the Special Drawing Rights, or SDRs, at the IMF: Currencies should be devalued … then repegged to each other and to SDRs … and then SDRs would be circulated as an international currency. (This sounds strikingly similar to Mahathir's proposal of Dinar Emas. Ironically, Mahathir blames Soros for all things evil about the 1998 Asian Financial Crisis).
Fears of the unknown long-term effects from the global financial crisis have sparked a new gold rush. With retail and wholesale clients around the world stocking up on the precious metal, many physical gold makers have been forced to suspend orders. (Remark: Please don't confuse this physical gold with the gold sold at the jewelry shop. Those are cosmetic golds. What is meant here is the gold in the form of Bullions and Coins, with 99.9% purity).
As the World Gold Council reported that the dollar demand for gold reached a quarterly record of $US32 billion ($50.73 billion) in the third quarter, industry insiders said the race to secure physical gold had reached an intensity that had never been witnessed before.
Europe are leading the demand, with Russia, Ukraine, Middle East and US all buying --All around the world there has been a heavy run on physical gold and there is a shortage of supply.
The only thing that is depressing the price of gold is the Futures market where mainly paper gold is traded. Notice that gold has an artificially low price on the paper contracts, which contradicts with staggering huge demand for physical gold. This condition defies the economic nature of real supply and real demand.
The paper gold market is flawed, and many people now want no part of it. What physical gold becomes available is being grabbed immediately. The gold futures contracts are traded at the COMEX and NYMEX, whose prices are routinely suppressed by a high volume of uneconomic short contracts by hedge funds, major banks and financial institutions.
However, with newly energized Russia & China building their gold treasures, with Arabs turning from distrusted Western paper and more toward gold & silver, look for the new players to offer support to the gold price. Gold is hitting back with a vengence.
Thursday, November 27, 2008
Friday, November 21, 2008
Why Is The US Dollar Gaining Ground?
by Alex Wong
The trillion dollar question that we continually ask ourselves is: Why is the US Dollar gaining against almost all other currencies when it is the US economy that is facing the biggest contraction and with the largest unprecedented current account and budget deficit?
According to a top aide in Japan, "The dollar now looks strong for a technical reason. The funds of US financial firms that had invested in the world are being repatriated into the homeland, causing dollar-buying. But once this conversion into the dollars is done, the currency will head south."
But George Soros has a different point of view, "The American and European financial authorities committed themselves not to allow any of their major financial institutions to fail. But guaranteeing that the banks at the center of the global financial system will not fail has precipitated a new crisis that has caught the authorities unaware: countries at the periphery, whether in Eastern Europe, Asia, or Latin America, could not offer similarly credible guarantees, and financial capital started fleeing from the periphery to the center. All currencies fell against the dollar and the yen, some of them precipitously."
Below are excerpts from George Soros' recent article:
This remarkable sequence of events can be understood only if we abandon the prevailing theory of market behavior. As a way of explaining financial markets, I propose an alternative paradigm that differs from the current one in two respects. First, financial markets do not reflect prevailing conditions accurately; they provide a picture that is always biased or distorted in one way or another. Second, the distorted views held by market participants and expressed in market prices can, under certain circumstances, affect the so-called fundamentals that market prices are supposed to reflect. This two-way circular connection between market prices and the underlying reality I call reflexivity.
While the two-way connection is present at all times, it is only occasionally, and in special circumstances, that it gives rise to financial crises. Usually markets correct their own mistakes, but occasionally there is a misconception or misinterpretation that finds a way to reinforce a trend that is already present in reality and by doing so it also reinforces itself. Such self- reinforcing processes may carry markets into far-from-equilibrium territory. Unless something happens to abort the reflexive interaction sooner, it may persist until the misconception becomes so glaring that it has to be recognized as such. When that happens the trend becomes unsustainable and when it is reversed the self-reinforcing process starts working in the opposite direction, causing a sharp downward movement.
The typical sequence of boom and bust has an asymmetric shape. The boom develops slowly and accelerates gradually. The bust, when it occurs, tends to be short and sharp. The asymmetry is due to the role that credit plays. As prices rise, the same collateral can support a greater amount of credit. Rising prices also tend to generate optimism and encourage a greater use of leverage—borrowing for investment purposes. At the peak of the boom both the value of the collateral and the degree of leverage reach a peak. When the price trend is reversed participants are vulnerable to margin calls and, as we've seen in 2008, the forced liquidation of collateral leads to a catastrophic acceleration on the downside.
Bubbles thus have two components: a trend that prevails in reality and a misconception relating to that trend. The simplest and most common example is to be found in real estate. The trend consists of an increased willingness to lend and a rise in prices. The misconception is that the value of the real estate is independent of the willingness to lend. That misconception encourages bankers to become more lax in their lending practices as prices rise and defaults on mortgage payments diminish. That is how real estate bubbles, including the recent housing bubble, are born. It is remarkable how the misconception continues to recur in various guises in spite of a long history of real estate bubbles bursting.
Bubbles are not the only manifestations of reflexivity in financial markets, but they are the most spectacular. Bubbles always involve the expansion and contraction of credit and they tend to have catastrophic consequences. Since financial markets are prone to produce bubbles and bubbles cause trouble, financial markets have become regulated by the financial authorities. In the United States they include the Federal Reserve, the Treasury, the Securities and Exchange Commission, and many other agencies.
It is important to recognize that regulators base their decisions on a distorted view of reality just as much as market participants—perhaps even more so because regulators are not only human but also bureaucratic and subject to political influences. So the interplay between regulators and market participants is also reflexive in character. In contrast to bubbles, which occur only infrequently, the cat-and-mouse game between regulators and markets goes on continuously. As a consequence reflexivity is at work at all times and it is a mistake to ignore its influence. Yet that is exactly what the prevailing theory of financial markets has done and that mistake is ultimately responsible for the severity of the current crisis.
The trillion dollar question that we continually ask ourselves is: Why is the US Dollar gaining against almost all other currencies when it is the US economy that is facing the biggest contraction and with the largest unprecedented current account and budget deficit?
According to a top aide in Japan, "The dollar now looks strong for a technical reason. The funds of US financial firms that had invested in the world are being repatriated into the homeland, causing dollar-buying. But once this conversion into the dollars is done, the currency will head south."
But George Soros has a different point of view, "The American and European financial authorities committed themselves not to allow any of their major financial institutions to fail. But guaranteeing that the banks at the center of the global financial system will not fail has precipitated a new crisis that has caught the authorities unaware: countries at the periphery, whether in Eastern Europe, Asia, or Latin America, could not offer similarly credible guarantees, and financial capital started fleeing from the periphery to the center. All currencies fell against the dollar and the yen, some of them precipitously."
Below are excerpts from George Soros' recent article:
This remarkable sequence of events can be understood only if we abandon the prevailing theory of market behavior. As a way of explaining financial markets, I propose an alternative paradigm that differs from the current one in two respects. First, financial markets do not reflect prevailing conditions accurately; they provide a picture that is always biased or distorted in one way or another. Second, the distorted views held by market participants and expressed in market prices can, under certain circumstances, affect the so-called fundamentals that market prices are supposed to reflect. This two-way circular connection between market prices and the underlying reality I call reflexivity.
While the two-way connection is present at all times, it is only occasionally, and in special circumstances, that it gives rise to financial crises. Usually markets correct their own mistakes, but occasionally there is a misconception or misinterpretation that finds a way to reinforce a trend that is already present in reality and by doing so it also reinforces itself. Such self- reinforcing processes may carry markets into far-from-equilibrium territory. Unless something happens to abort the reflexive interaction sooner, it may persist until the misconception becomes so glaring that it has to be recognized as such. When that happens the trend becomes unsustainable and when it is reversed the self-reinforcing process starts working in the opposite direction, causing a sharp downward movement.
The typical sequence of boom and bust has an asymmetric shape. The boom develops slowly and accelerates gradually. The bust, when it occurs, tends to be short and sharp. The asymmetry is due to the role that credit plays. As prices rise, the same collateral can support a greater amount of credit. Rising prices also tend to generate optimism and encourage a greater use of leverage—borrowing for investment purposes. At the peak of the boom both the value of the collateral and the degree of leverage reach a peak. When the price trend is reversed participants are vulnerable to margin calls and, as we've seen in 2008, the forced liquidation of collateral leads to a catastrophic acceleration on the downside.
Bubbles thus have two components: a trend that prevails in reality and a misconception relating to that trend. The simplest and most common example is to be found in real estate. The trend consists of an increased willingness to lend and a rise in prices. The misconception is that the value of the real estate is independent of the willingness to lend. That misconception encourages bankers to become more lax in their lending practices as prices rise and defaults on mortgage payments diminish. That is how real estate bubbles, including the recent housing bubble, are born. It is remarkable how the misconception continues to recur in various guises in spite of a long history of real estate bubbles bursting.
Bubbles are not the only manifestations of reflexivity in financial markets, but they are the most spectacular. Bubbles always involve the expansion and contraction of credit and they tend to have catastrophic consequences. Since financial markets are prone to produce bubbles and bubbles cause trouble, financial markets have become regulated by the financial authorities. In the United States they include the Federal Reserve, the Treasury, the Securities and Exchange Commission, and many other agencies.
It is important to recognize that regulators base their decisions on a distorted view of reality just as much as market participants—perhaps even more so because regulators are not only human but also bureaucratic and subject to political influences. So the interplay between regulators and market participants is also reflexive in character. In contrast to bubbles, which occur only infrequently, the cat-and-mouse game between regulators and markets goes on continuously. As a consequence reflexivity is at work at all times and it is a mistake to ignore its influence. Yet that is exactly what the prevailing theory of financial markets has done and that mistake is ultimately responsible for the severity of the current crisis.
Wednesday, November 19, 2008
Calm Like A Bomb: The Impending World Recession Part 2
by Nouriel Roubini
This is a continuation of the article, "Calm Like A Bomb: The Impending World Recession".
Below is the edited piece of Nouriel Roubini's recent article:
I’ve been saying for a while this will be the worst financial crisis the US has experienced since the Great Depression and it looks like the worst one.
I think there’s a growing recognition that this was not just a subprime mortgage problem, where there much more generalized asset bubble and credit bubble in the economy. There were massive excesses also of underwriting in commercial real estate, the boom in the indebtedness of the household sector included also unsecured consumer credit like credit cards, auto loans, student loans with all this other excesses in the corporate sector.
And even in the corporate sector that was on average in better shape than the housing sector there was a fat tail of corporates that were highly indebted with little profits. They issued a huge amount of junk bonds and corporate default rates that had been very very low, for the last couple of years, are going to be surging in a major way, and once this major surge of corporate defaults is going to occur this is other huge time bomb of the CDS market where about $55 trillion of nominal protection has been sold against an outstanding stock of only $6 trillion of corporate bonds. So when you add it all up as you remember I’d estimated that the losses would be at least $1 trillion, and more likely close to $2 trillion.
This housing recession is not bottoming out. The production of new homes starting is falling sharply, but demand until recently had fallen even more, therefore this excess supply of inventory of the new and existing homes kept on becoming larger, and that put downward pressure on home prices.
Based on Case-Shiller, home prices have already fallen by about 20 percent from the peak, given the excess supply number and other factors I would expect home prices are going to fall another 20 percent for a cumulative fall of 40 percent from the peak. Now in 1991, the cumulative fall based on Case-Shiller was only 5 percent, now we’re going to have 20, another 20, 40 — something we haven’t seen since the Great Depression. If it’s more like 40 percent, then the losses is another $800 billion. So you’re in a situation in which you can wipe out a good chunk of the capital of the financial system.
If you look at the 2nd quarter data, Eurozone growth was becoming negative, UK growth was becoming negative, Canadian growth was becoming negative. Same in New Zealand, same for Japan, same for most of the other advanced economies. About 60 percent of GDP, that is most of the GDP of the advanced economies was already contracting in the 2nd quarter of this year. This is before these other shocks are going to make these things more severe.
At this point it looks like we’re not going to have just a US recession, or an advanced economies recession, we’re also going to have a global economic recession, because there is a massive amount now of re-coupling in financial markets and also in real economies, also among emerging market economies.
So we are going to have a global economic recession. And by the way, within the emerging markets, there are about a dozen economies are now on the verge of a financial crisis. Thinking emerging Europe — countries like Latvia, Estonia, Lithuania, Hungary, Bulgaria, Romania, Turkey, Belarus, Ukraine; you go into Asia, trouble in Pakistan, Indonesia and Korea. You go into Latin America — trouble in Argentina, in Ecuador, Venezuela, just to name a few. So this is a global economic recession.
Now why do I think that the bottom in financial market is not been reached yet — for 3 reasons and I’ll conclude on that. The first one is that I think that the flow of market-economic news are going to surprise on the downside for the next few weeks and months. People have priced now a US recession, but if this US recession is I believe going to be more like 24 months, rather than only 8 months, and is going to be global, then there will be surprises on consumption, investment, on housing, on employment and industrial production.
Secondly, I think there will be negative surprises also for earnings. Not just earnings of financial firms, but also in a severe recession a sharp contraction of the earnings of the non-financial corporate sector.
And the third reason is that while the sources of a systemic financial meltdown has been somehow contained, I still see as a lot of potential threats to the financial system. One is this major surge of corporate defaults is going to occur in the next year or so. The second one is related to it is the blowup is going to occur in the CDS market is a major source of the systemic risk. Third of all you are going to have hundreds of hedge funds are going to go bust in the next few months.
And finally there is this other time bomb of many emerging market economies, the risk of a financial crisis. And any of them going bust could have contagious and systemic effects. And one example — take Iceland. Little small island of 300,000 folks in the middle of Atlantic. Their banks had borrowed an amount of money was 12 times the GDP of the country to buy toxic MBSs, CDOs and you name it. Now the banks are bust, the government doesn’t have resources to bail out the banks, and these banks will have to sell, in a highly distressed and illiquid market, a huge amount of distressed assets. And even a small tiny island like Iceland can have systemic effects on asset prices, let alone if you have a blowup of Hungary, or Argentina, or Korea, or other economies.
So, for the last few months people have always been calling the bottom. Every time there was a major event they said this is the cathartic event that says the markets have bottomed out. They said it after Bear Stearns, after Fannie and Freddie, after AIG, after TARP, after the G7 Communique. And each time markets have rallied for a little bit, and have gone further south. Unfortunately I don’t think we’re at the bottom of the housing crisis, we’re not at the bottom of the mortgage crisis, we’re not at the bottom of the financial and banking crisis, and certainly we’re not at the bottom of the severe economic crisis. So I’m quite still pessimistic looking ahead.
This is a continuation of the article, "Calm Like A Bomb: The Impending World Recession".
Below is the edited piece of Nouriel Roubini's recent article:
I’ve been saying for a while this will be the worst financial crisis the US has experienced since the Great Depression and it looks like the worst one.
I think there’s a growing recognition that this was not just a subprime mortgage problem, where there much more generalized asset bubble and credit bubble in the economy. There were massive excesses also of underwriting in commercial real estate, the boom in the indebtedness of the household sector included also unsecured consumer credit like credit cards, auto loans, student loans with all this other excesses in the corporate sector.
And even in the corporate sector that was on average in better shape than the housing sector there was a fat tail of corporates that were highly indebted with little profits. They issued a huge amount of junk bonds and corporate default rates that had been very very low, for the last couple of years, are going to be surging in a major way, and once this major surge of corporate defaults is going to occur this is other huge time bomb of the CDS market where about $55 trillion of nominal protection has been sold against an outstanding stock of only $6 trillion of corporate bonds. So when you add it all up as you remember I’d estimated that the losses would be at least $1 trillion, and more likely close to $2 trillion.
This housing recession is not bottoming out. The production of new homes starting is falling sharply, but demand until recently had fallen even more, therefore this excess supply of inventory of the new and existing homes kept on becoming larger, and that put downward pressure on home prices.
Based on Case-Shiller, home prices have already fallen by about 20 percent from the peak, given the excess supply number and other factors I would expect home prices are going to fall another 20 percent for a cumulative fall of 40 percent from the peak. Now in 1991, the cumulative fall based on Case-Shiller was only 5 percent, now we’re going to have 20, another 20, 40 — something we haven’t seen since the Great Depression. If it’s more like 40 percent, then the losses is another $800 billion. So you’re in a situation in which you can wipe out a good chunk of the capital of the financial system.
If you look at the 2nd quarter data, Eurozone growth was becoming negative, UK growth was becoming negative, Canadian growth was becoming negative. Same in New Zealand, same for Japan, same for most of the other advanced economies. About 60 percent of GDP, that is most of the GDP of the advanced economies was already contracting in the 2nd quarter of this year. This is before these other shocks are going to make these things more severe.
At this point it looks like we’re not going to have just a US recession, or an advanced economies recession, we’re also going to have a global economic recession, because there is a massive amount now of re-coupling in financial markets and also in real economies, also among emerging market economies.
So we are going to have a global economic recession. And by the way, within the emerging markets, there are about a dozen economies are now on the verge of a financial crisis. Thinking emerging Europe — countries like Latvia, Estonia, Lithuania, Hungary, Bulgaria, Romania, Turkey, Belarus, Ukraine; you go into Asia, trouble in Pakistan, Indonesia and Korea. You go into Latin America — trouble in Argentina, in Ecuador, Venezuela, just to name a few. So this is a global economic recession.
Now why do I think that the bottom in financial market is not been reached yet — for 3 reasons and I’ll conclude on that. The first one is that I think that the flow of market-economic news are going to surprise on the downside for the next few weeks and months. People have priced now a US recession, but if this US recession is I believe going to be more like 24 months, rather than only 8 months, and is going to be global, then there will be surprises on consumption, investment, on housing, on employment and industrial production.
Secondly, I think there will be negative surprises also for earnings. Not just earnings of financial firms, but also in a severe recession a sharp contraction of the earnings of the non-financial corporate sector.
And the third reason is that while the sources of a systemic financial meltdown has been somehow contained, I still see as a lot of potential threats to the financial system. One is this major surge of corporate defaults is going to occur in the next year or so. The second one is related to it is the blowup is going to occur in the CDS market is a major source of the systemic risk. Third of all you are going to have hundreds of hedge funds are going to go bust in the next few months.
And finally there is this other time bomb of many emerging market economies, the risk of a financial crisis. And any of them going bust could have contagious and systemic effects. And one example — take Iceland. Little small island of 300,000 folks in the middle of Atlantic. Their banks had borrowed an amount of money was 12 times the GDP of the country to buy toxic MBSs, CDOs and you name it. Now the banks are bust, the government doesn’t have resources to bail out the banks, and these banks will have to sell, in a highly distressed and illiquid market, a huge amount of distressed assets. And even a small tiny island like Iceland can have systemic effects on asset prices, let alone if you have a blowup of Hungary, or Argentina, or Korea, or other economies.
So, for the last few months people have always been calling the bottom. Every time there was a major event they said this is the cathartic event that says the markets have bottomed out. They said it after Bear Stearns, after Fannie and Freddie, after AIG, after TARP, after the G7 Communique. And each time markets have rallied for a little bit, and have gone further south. Unfortunately I don’t think we’re at the bottom of the housing crisis, we’re not at the bottom of the mortgage crisis, we’re not at the bottom of the financial and banking crisis, and certainly we’re not at the bottom of the severe economic crisis. So I’m quite still pessimistic looking ahead.
Friday, November 14, 2008
Who Freed RPK?
by jingoisticbuthornydesperado
1) Is it Anwar?
2) Is it Badawi?
3) Is it Najib?
4) Is it Mahatir?
Anwar? No, I don’t think so. He does not have the power to convince our judiciary to release RPK.
Najib? No! Who is an idiot who would have wanted to release RPK after all the misery Najib has put RPK through? RPK has a score to settle, well that is what Najib fears anyway! But whether or not RPK will put country or personal vendetta first, I think it is an answer we would have already all guessed pretty accurately. Not to mention the articles that RPK write about has been a venom to Najib’s political career.
Mahatir? Bollocks! This is a twat who complains about restriction of free speech when he is the perpetrator behind almost absolute control of the mainstream media. A malicious hypocrite I should say. He supports Najib to become the PM, that would have been in my opinion, endorsing putting RPK behind bars to ensure Najib’s safe passage to the creme de la creme of all political posts.
Badawi? Yes, I do think so. This guy whom we love to despise ironically could be the very guy to have allowed for the release of RPK. I don’t think Badawi is the leader of the Gamorrah, he is just a really, really inadequate administrator who listens to all the wrong advises like George W. Bush Junior. However, he in my opinion is a very formidable ‘chess’ player. Twice he has played better than expected by Mahatir. The first one is the ‘promise’ to pass the premier post to Najib after his first term as prime minister. The second one is to have out-think Anwar to prevent September 16 from becoming a reality. By the way, Mahatir thinks Badawi is no match for Anwar ‘chess’ play. Maybe Badawi is an idiot, it is just that his political opponents have been extremely jinxed, hence Badawi is able to come right to the top for now…..
All of us, including RPK I suspect, know that Najib will make a more disgusting PM than Badawi. RPK will devote more resources from preventing Najib’s ambition from becoming a reality. Anwar launching another take over in December if we are to believe Anwar, which might be true considering the economic and financial chaos gripping the world. Badawi is in control of the military, Syed Hamid Albar will have to watch his back this time before putting RPK back into ISA because he no longer has the military support of Najib. Najib will be attacked from the sides, from the front and from the back.
While Najib is trying to tighten up all the screws (together with Mahatir?), Badawi is hecticly loosening the bolts and nuts. He has given Najib the most undesirable job of the country at the moment, control the military, release RPK (with the support of the military?). Are we seeing a rise in political temeprature again? I would think so. Maybe Badawi is truely a reformer but with Najib in the way all these years. Or maybe he is going for a Kamikaze attack? Or maybe he is a cohort of Anwar? The latter seems like a histrionic fantasy.
We pin all our hopes on Anwar succeeding in his quest and release RPK. But in the world of extreme juxtaposition, Badawi turned out to be THE ONE!
1) Is it Anwar?
2) Is it Badawi?
3) Is it Najib?
4) Is it Mahatir?
Anwar? No, I don’t think so. He does not have the power to convince our judiciary to release RPK.
Najib? No! Who is an idiot who would have wanted to release RPK after all the misery Najib has put RPK through? RPK has a score to settle, well that is what Najib fears anyway! But whether or not RPK will put country or personal vendetta first, I think it is an answer we would have already all guessed pretty accurately. Not to mention the articles that RPK write about has been a venom to Najib’s political career.
Mahatir? Bollocks! This is a twat who complains about restriction of free speech when he is the perpetrator behind almost absolute control of the mainstream media. A malicious hypocrite I should say. He supports Najib to become the PM, that would have been in my opinion, endorsing putting RPK behind bars to ensure Najib’s safe passage to the creme de la creme of all political posts.
Badawi? Yes, I do think so. This guy whom we love to despise ironically could be the very guy to have allowed for the release of RPK. I don’t think Badawi is the leader of the Gamorrah, he is just a really, really inadequate administrator who listens to all the wrong advises like George W. Bush Junior. However, he in my opinion is a very formidable ‘chess’ player. Twice he has played better than expected by Mahatir. The first one is the ‘promise’ to pass the premier post to Najib after his first term as prime minister. The second one is to have out-think Anwar to prevent September 16 from becoming a reality. By the way, Mahatir thinks Badawi is no match for Anwar ‘chess’ play. Maybe Badawi is an idiot, it is just that his political opponents have been extremely jinxed, hence Badawi is able to come right to the top for now…..
All of us, including RPK I suspect, know that Najib will make a more disgusting PM than Badawi. RPK will devote more resources from preventing Najib’s ambition from becoming a reality. Anwar launching another take over in December if we are to believe Anwar, which might be true considering the economic and financial chaos gripping the world. Badawi is in control of the military, Syed Hamid Albar will have to watch his back this time before putting RPK back into ISA because he no longer has the military support of Najib. Najib will be attacked from the sides, from the front and from the back.
While Najib is trying to tighten up all the screws (together with Mahatir?), Badawi is hecticly loosening the bolts and nuts. He has given Najib the most undesirable job of the country at the moment, control the military, release RPK (with the support of the military?). Are we seeing a rise in political temeprature again? I would think so. Maybe Badawi is truely a reformer but with Najib in the way all these years. Or maybe he is going for a Kamikaze attack? Or maybe he is a cohort of Anwar? The latter seems like a histrionic fantasy.
We pin all our hopes on Anwar succeeding in his quest and release RPK. But in the world of extreme juxtaposition, Badawi turned out to be THE ONE!
Friday, November 7, 2008
Calm Like A Bomb: The Impending World Recession
by Nouriel Roubini
For the last few years the global economy has been running on two engines, the U.S. on the consumption side and China on the production side, both lifting the entire global economy. The U.S. has been the consumer of first and last resort spending more than its income and running large current account deficits while China (and other emerging market economies) has been the producer of first and last resort, spending less than its income and running ever larger current account surpluses.
For the last few months the first engine of global growth has effectively shut down as the latest batch of macro news from the U.S. are worse than awful. More worrisome there are now increasing signs that the other main engine of the global economy – China - is also stalling. Let us consider now in detail the evidence that China may be on its way to a hard landing.
The main outlet of Chinese exports – the U.S. consumer – is now collapsing for the first time in two decades. Chinese exports to the U.S. were growing at an annualized rate of over 20% a year ago; while the most recent bilateral trade data from the U.S. now show that this export growth has now fallen down to 0%.
After an ok second quarter in the U.S. (boosted by the tax rebates) U.S. retailers hoped that the consumer downturn would be minor: they thus placed over the summer massive orders for Chinese (and other imported) goods for Q3 and Q4. But now the U.S. holiday season clearly looks like the worst that the U.S. will experience in decades and the result of it will be a huge overhang of unsold Chinese good.
Thus, you can expect that orders of Chinese goods for Q1 of 2009 and the rest of 2009 will be sharply down dragging Chinese exports to the U.S. into sharply negative territory. And it is not just Chinese exports to the U.S.: until a few months ago the U.S. was starting to contract but the rest of the advanced economies (Europe, Canada, Japan and Australia/New Zealand) were growing at a sustained rate, thus boosting Chinese exports. But there is now strong evidence that a severe recession has now started in almost all of the advanced economies. You can thus expect that Chinese export growth to Europe, Canada, Japan, etc. will sharply decelerate in the next few quarters, thus adding to the fall in Chinese net exports.
A hard landing in the Chinese economy and in investment would lead to a sharp increase in non-performing loans of the – still mostly public – state banks; the implicit liabilities from a serious banking problem would then add to the implicit and explicit budget deficits and public debt. Note that the poor quality of the underwriting by Chinese banks –that financed a huge overinvestment in the economy - has been hidden for the last few years by the high growth of the economy. Once net exports go bust and real investment sharply falls we will see a massive surge in non-performing loans that financed low return and marginal investment projects. The ensuing fiscal costs of cleaning up the banking system could be really high.
The first engine of global growth – the U.S. on the consumption side – has now already shut down. The second engine of global growth – China on the production side – is also on its way to stalling. Thus, with the two main engines of global growth now in serious trouble a global hard landing is now almost a certainty. And a hard landing in China will have severe effects on growth in emerging market economies in Asia, Africa and Latin America as Chinese demand for raw materials and intermediate inputs has been a major source of economic growth for emerging markets and commodity exporters. So brace yourself for an ugly and protracted global economic contraction in 2009.
For the last few years the global economy has been running on two engines, the U.S. on the consumption side and China on the production side, both lifting the entire global economy. The U.S. has been the consumer of first and last resort spending more than its income and running large current account deficits while China (and other emerging market economies) has been the producer of first and last resort, spending less than its income and running ever larger current account surpluses.
For the last few months the first engine of global growth has effectively shut down as the latest batch of macro news from the U.S. are worse than awful. More worrisome there are now increasing signs that the other main engine of the global economy – China - is also stalling. Let us consider now in detail the evidence that China may be on its way to a hard landing.
The main outlet of Chinese exports – the U.S. consumer – is now collapsing for the first time in two decades. Chinese exports to the U.S. were growing at an annualized rate of over 20% a year ago; while the most recent bilateral trade data from the U.S. now show that this export growth has now fallen down to 0%.
After an ok second quarter in the U.S. (boosted by the tax rebates) U.S. retailers hoped that the consumer downturn would be minor: they thus placed over the summer massive orders for Chinese (and other imported) goods for Q3 and Q4. But now the U.S. holiday season clearly looks like the worst that the U.S. will experience in decades and the result of it will be a huge overhang of unsold Chinese good.
Thus, you can expect that orders of Chinese goods for Q1 of 2009 and the rest of 2009 will be sharply down dragging Chinese exports to the U.S. into sharply negative territory. And it is not just Chinese exports to the U.S.: until a few months ago the U.S. was starting to contract but the rest of the advanced economies (Europe, Canada, Japan and Australia/New Zealand) were growing at a sustained rate, thus boosting Chinese exports. But there is now strong evidence that a severe recession has now started in almost all of the advanced economies. You can thus expect that Chinese export growth to Europe, Canada, Japan, etc. will sharply decelerate in the next few quarters, thus adding to the fall in Chinese net exports.
A hard landing in the Chinese economy and in investment would lead to a sharp increase in non-performing loans of the – still mostly public – state banks; the implicit liabilities from a serious banking problem would then add to the implicit and explicit budget deficits and public debt. Note that the poor quality of the underwriting by Chinese banks –that financed a huge overinvestment in the economy - has been hidden for the last few years by the high growth of the economy. Once net exports go bust and real investment sharply falls we will see a massive surge in non-performing loans that financed low return and marginal investment projects. The ensuing fiscal costs of cleaning up the banking system could be really high.
The first engine of global growth – the U.S. on the consumption side – has now already shut down. The second engine of global growth – China on the production side – is also on its way to stalling. Thus, with the two main engines of global growth now in serious trouble a global hard landing is now almost a certainty. And a hard landing in China will have severe effects on growth in emerging market economies in Asia, Africa and Latin America as Chinese demand for raw materials and intermediate inputs has been a major source of economic growth for emerging markets and commodity exporters. So brace yourself for an ugly and protracted global economic contraction in 2009.
Wednesday, November 5, 2008
Obama's Historic Win
Admin
The meltdown of the US financial markets ultimately ended any hope of McCain becoming president. Obama managed to cast his rival as out of touch and erratic, and repeatedly linked him with what he portrayed as the devastating policies of the Bush administration.
As Americans were increasingly worried about their futures, Mr. Obama’s message of help for the middle class and promise of steady leadership was resonating with the white, working-class voters he had been seeking to win over for nearly two years.
Stuart Stevens, a longtime political strategist said "If a house is on fire, the owner does not care what color the fireman is".
Below are excerpts of Obama's acceptance speech delivered at Grant Park in Chicago one hour after it became clear he'd be the next President of the United States of America. :
On the significance of his election:
"If there is anyone out there who still doubts that America is a place where all things are possible; who still wonders if the dream of our founders is alive in our time; who still questions the power of our democracy, tonight is your answer."
***
"It's been a long time coming, but tonight, because of what we did on this day, in this election, at this defining moment, change has come to America."
***
"I will never forget who this victory truly belongs to - it belongs to you."
Echoes of the 2004 speech that made him a household name:
"It's the answer spoken by young and old, rich and poor, Democrat and Republican, black, white, Latino, Asian, Native American, gay, straight, disabled and not disabled - Americans who sent a message to the world that we have never been a collection of Red States and Blue States: we are, and always will be, the United States of America."
On John McCain:
"I just received an extraordinarily gracious call from Senator McCain. He fought long and hard in this campaign, and he's fought even longer and harder for the country he loves. He has endured sacrifices for America that most of us cannot begin to imagine, and we are better off for the service rendered by this brave and selfless leader. I congratulate him and Governor Palin for all they have achieved, and I look forward to working with them to renew this nation's promise in the months ahead."
On his family:
"I would not be standing here tonight without the unyielding support of my best friend for the last sixteen years, the rock of our family and the love of my life, our nation's next First Lady, Michelle Obama. Sasha and Malia, I love you both so much, and you have earned the new puppy that's coming with us to the White House. And while she's no longer with us, I know my grandmother is watching, along with the family that made me who I am. I miss them tonight, and know that my debt to them is beyond measure."
On the future:
"The road ahead will be long. Our climb will be steep. We may not get there in one year or even one term, but America - I have never been more hopeful than I am tonight that we will get there. I promise you - we as a people will get there.
There will be setbacks and false starts. There are many who won't agree with every decision or policy I make as President, and we know that government can't solve every problem. But I will always be honest with you about the challenges we face. I will listen to you, especially when we disagree. And above all, I will ask you join in the work of remaking this nation the only way it's been done in America for two-hundred and twenty-one years - block by block, brick by brick, calloused hand by calloused hand."
On bipartisanship:
"Let us remember that it was a man from this state who first carried the banner of the Republican Party to the White House - a party founded on the values of self-reliance, individual liberty, and national unity. Those are values we all share, and while the Democratic Party has won a great victory tonight, we do so with a measure of humility and determination to heal the divides that have held back our progress. As Lincoln said to a nation far more divided than ours, "We are not enemies, but friends...though passion may have strained it must not break our bonds of affection." And to those Americans whose support I have yet to earn - I may not have won your vote, but I hear your voices, I need your help, and I will be your President too."
On the genius of America:
"To all those who have wondered if America's beacon still burns as bright - tonight we proved once more that the true strength of our nation comes not from our the might of our arms or the scale of our wealth, but from the enduring power of our ideals: democracy, liberty, opportunity, and unyielding hope.
For that is the true genius of America - that America can change. Our union can be perfected. And what we have already achieved gives us hope for what we can and must achieve tomorrow."
On the moment:
"America, we have come so far. We have seen so much. But there is so much more to do. So tonight, let us ask ourselves - if our children should live to see the next century; if my daughters should be so lucky to live as long as Ann Nixon Cooper, what change will they see? What progress will we have made?
This is our chance to answer that call. This is our moment. This is our time - to put our people back to work and open doors of opportunity for our kids; to restore prosperity and promote the cause of peace; to reclaim the American Dream and reaffirm that fundamental truth - that out of many, we are one; that while we breathe, we hope, and where we are met with cynicism, and doubt, and those who tell us that we can't, we will respond with that timeless creed that sums up the spirit of a people:
Yes We Can.
The meltdown of the US financial markets ultimately ended any hope of McCain becoming president. Obama managed to cast his rival as out of touch and erratic, and repeatedly linked him with what he portrayed as the devastating policies of the Bush administration.
As Americans were increasingly worried about their futures, Mr. Obama’s message of help for the middle class and promise of steady leadership was resonating with the white, working-class voters he had been seeking to win over for nearly two years.
Stuart Stevens, a longtime political strategist said "If a house is on fire, the owner does not care what color the fireman is".
Below are excerpts of Obama's acceptance speech delivered at Grant Park in Chicago one hour after it became clear he'd be the next President of the United States of America. :
On the significance of his election:
"If there is anyone out there who still doubts that America is a place where all things are possible; who still wonders if the dream of our founders is alive in our time; who still questions the power of our democracy, tonight is your answer."
***
"It's been a long time coming, but tonight, because of what we did on this day, in this election, at this defining moment, change has come to America."
***
"I will never forget who this victory truly belongs to - it belongs to you."
Echoes of the 2004 speech that made him a household name:
"It's the answer spoken by young and old, rich and poor, Democrat and Republican, black, white, Latino, Asian, Native American, gay, straight, disabled and not disabled - Americans who sent a message to the world that we have never been a collection of Red States and Blue States: we are, and always will be, the United States of America."
On John McCain:
"I just received an extraordinarily gracious call from Senator McCain. He fought long and hard in this campaign, and he's fought even longer and harder for the country he loves. He has endured sacrifices for America that most of us cannot begin to imagine, and we are better off for the service rendered by this brave and selfless leader. I congratulate him and Governor Palin for all they have achieved, and I look forward to working with them to renew this nation's promise in the months ahead."
On his family:
"I would not be standing here tonight without the unyielding support of my best friend for the last sixteen years, the rock of our family and the love of my life, our nation's next First Lady, Michelle Obama. Sasha and Malia, I love you both so much, and you have earned the new puppy that's coming with us to the White House. And while she's no longer with us, I know my grandmother is watching, along with the family that made me who I am. I miss them tonight, and know that my debt to them is beyond measure."
On the future:
"The road ahead will be long. Our climb will be steep. We may not get there in one year or even one term, but America - I have never been more hopeful than I am tonight that we will get there. I promise you - we as a people will get there.
There will be setbacks and false starts. There are many who won't agree with every decision or policy I make as President, and we know that government can't solve every problem. But I will always be honest with you about the challenges we face. I will listen to you, especially when we disagree. And above all, I will ask you join in the work of remaking this nation the only way it's been done in America for two-hundred and twenty-one years - block by block, brick by brick, calloused hand by calloused hand."
On bipartisanship:
"Let us remember that it was a man from this state who first carried the banner of the Republican Party to the White House - a party founded on the values of self-reliance, individual liberty, and national unity. Those are values we all share, and while the Democratic Party has won a great victory tonight, we do so with a measure of humility and determination to heal the divides that have held back our progress. As Lincoln said to a nation far more divided than ours, "We are not enemies, but friends...though passion may have strained it must not break our bonds of affection." And to those Americans whose support I have yet to earn - I may not have won your vote, but I hear your voices, I need your help, and I will be your President too."
On the genius of America:
"To all those who have wondered if America's beacon still burns as bright - tonight we proved once more that the true strength of our nation comes not from our the might of our arms or the scale of our wealth, but from the enduring power of our ideals: democracy, liberty, opportunity, and unyielding hope.
For that is the true genius of America - that America can change. Our union can be perfected. And what we have already achieved gives us hope for what we can and must achieve tomorrow."
On the moment:
"America, we have come so far. We have seen so much. But there is so much more to do. So tonight, let us ask ourselves - if our children should live to see the next century; if my daughters should be so lucky to live as long as Ann Nixon Cooper, what change will they see? What progress will we have made?
This is our chance to answer that call. This is our moment. This is our time - to put our people back to work and open doors of opportunity for our kids; to restore prosperity and promote the cause of peace; to reclaim the American Dream and reaffirm that fundamental truth - that out of many, we are one; that while we breathe, we hope, and where we are met with cynicism, and doubt, and those who tell us that we can't, we will respond with that timeless creed that sums up the spirit of a people:
Yes We Can.
Monday, November 3, 2008
The Temple of Doom
by Rory Carroll
Population explosion, ecological disaster and weak leadership ... that's what probably killed off the Maya at the height of their powers. Are the modern-day parallels too close for us to ignore?
Recent events have injected a jarring note into Mayan studies: a sense of anxiety, even foreboding. Serious people are asking a question that at first sounds ridiculous. What if the fate of the Maya is to be our fate? What if climate change and the global financial crisis are harbingers of a system that is destined to warp, buckle and collapse?
There are, striking parallels between the Maya fall and our era's convulsions. We think we are different. In fact . . . all of those powerful societies of the past thought that they too were unique, right up to the moment of their collapse. The Maya, like us, were at the apex of their power when things began to unravel, he says. As stock markets zigzag into uncharted territory and ice caps continue to melt, it is a view increasingly echoed by scholars and commentators.
And what lessons does it hold for us? The ancients built a very clever and advanced society but were undone by their own success. Populations grew and stretched natural resources to breaking point. Political elites failed to resolve the escalating economic problems and the system collapsed. There was no need for an external cataclysm or a plague. What did for the Maya was a slow-boiling environmental-driven crisis that its leaders failed to recognise and resolve until too late.
Because peak population, wealth, resource consumption, and waste production are accompanied by peak environmental impact - approaching the limit at which impact outstrips resources - we can now understand why declines of societies tend to follow swiftly on their peaks.
To explain the mysterious collapse some scholars posit an invasion, or disease, or shifting trade routes, or a drought. There is wide agreement, however, that a leading cause was environmental pressure. The carrying capacity of the ecosystem was pushed to its limits. Lakes became silted and soils exhausted. Tilling and man-made reservoirs provided more food and water but population growth outstripped technological innovation.
Complex and organised it may have been but Mayan society resembled a frog who stays in slowly boiling water. Things were brewing within the system that were not picked up until too late. When the political elites did react they made things worse by offering greater sacrifices to the gods and plundering neighbours. The kingdoms were interdependent and there was a ripple effect. They did not respond correctly to a crisis which, in hindsight, was as clear as day.
The environmental trouble built up over centuries and was partly concealed by short-term fluctuations in rainfall patterns and harvest yields. But when the tipping point came, events moved quickly. Their success was built on very thin ice. Kings were supposed to keep order and avoid chaos through rituals and sacrifice. When manifestly they couldn't do it people lost confidence and the whole system of kingship fell apart.
Which brings us to modern parallels. Consider the fall of the Enron Corporation in 2001. That was the first tremor. Human beings are always surprised when things collapse just when they seem most successful. We look around and we think we're fat, we're clever, we're comfortable and we don't think we're on the edge of something nasty. Hubris? No: ignorance."
In common with the Maya, we're not very rational in how we think about how the world works. They had their rituals and sacrifices. Magic, in other words. And we also believe in magic: that money and innovation can get us out of the inherent limits of our system, that the old rules don't apply to us.
This is a modish view these days but it was considered cranky luddism back during the 1980s stockmarket boom and the 1990s dotcom bubble. That was when masters of the universe bestrode Wall Street and Francis Fukuyama caught the triumphalist liberal economic zeitgeist with his book The End of History and the Last Man. That era, to borrow from Star Wars, feels a long time ago in a galaxy far, far away. Now Bear Stearns and Lehman Brothers are history and governments are taking over banks and propping up markets.
Several commentators have argued that the financial crisis is but a squall compared with the ecological hurricane they say is coming. A European study estimates deforestation alone is causing a loss of natural capital worth between $2 trillion and $5tn annually. The two crises have the same cause. In both cases, those who exploit the resource have demanded impossible rates of return and invoked debts that can never be repaid. In both cases we denied the likely consequences.
Eventually pressure on scarce resources will overwhelm technology - and do for us as it did for the Maya.
The gloom may be misplaced. Reports of capitalism's death have been exaggerated before and it has stubbornly survived Karl Marx, the Great Depression, world wars and oil shocks. And in contrast to the Maya, it is possible our technology will prevail over population and environmental pressures. Malthusian doomsayers have consistently underestimated the capacity of better irrigation, pesticides, new strains of crops and other technologies to boost food yields. The rate of population growth is slowing and human numbers are expected to peak at around 9.2 billion by 2050 before declining.
If the gloomy environmental prognosis is correct, and global warming is set to wreak major havoc, what are the chances we will respond better than the Maya? Electing Bush instead of Al Gore suggests limited wisdom in picking kings, and emasculating the Kyoto treaty was perhaps as sensible as burning corn harvests to appease the gods. When Republicans chant, "Drill, baby, drill!" it is not much of a stretch to picture them, barefoot and in traditional huipil shirts, rooting for another sacrifice.
Civilisations rise - and collapse - for many different reasons. No civilisation lasts for ever. Most go for between 200 and 600 years. The Maya, Romans and Angkor of Cambodia lasted 600.
And us? Western civilisation began with the Renaissance, so we're already hitting 600years.
Population explosion, ecological disaster and weak leadership ... that's what probably killed off the Maya at the height of their powers. Are the modern-day parallels too close for us to ignore?
Recent events have injected a jarring note into Mayan studies: a sense of anxiety, even foreboding. Serious people are asking a question that at first sounds ridiculous. What if the fate of the Maya is to be our fate? What if climate change and the global financial crisis are harbingers of a system that is destined to warp, buckle and collapse?
There are, striking parallels between the Maya fall and our era's convulsions. We think we are different. In fact . . . all of those powerful societies of the past thought that they too were unique, right up to the moment of their collapse. The Maya, like us, were at the apex of their power when things began to unravel, he says. As stock markets zigzag into uncharted territory and ice caps continue to melt, it is a view increasingly echoed by scholars and commentators.
And what lessons does it hold for us? The ancients built a very clever and advanced society but were undone by their own success. Populations grew and stretched natural resources to breaking point. Political elites failed to resolve the escalating economic problems and the system collapsed. There was no need for an external cataclysm or a plague. What did for the Maya was a slow-boiling environmental-driven crisis that its leaders failed to recognise and resolve until too late.
Because peak population, wealth, resource consumption, and waste production are accompanied by peak environmental impact - approaching the limit at which impact outstrips resources - we can now understand why declines of societies tend to follow swiftly on their peaks.
To explain the mysterious collapse some scholars posit an invasion, or disease, or shifting trade routes, or a drought. There is wide agreement, however, that a leading cause was environmental pressure. The carrying capacity of the ecosystem was pushed to its limits. Lakes became silted and soils exhausted. Tilling and man-made reservoirs provided more food and water but population growth outstripped technological innovation.
Complex and organised it may have been but Mayan society resembled a frog who stays in slowly boiling water. Things were brewing within the system that were not picked up until too late. When the political elites did react they made things worse by offering greater sacrifices to the gods and plundering neighbours. The kingdoms were interdependent and there was a ripple effect. They did not respond correctly to a crisis which, in hindsight, was as clear as day.
The environmental trouble built up over centuries and was partly concealed by short-term fluctuations in rainfall patterns and harvest yields. But when the tipping point came, events moved quickly. Their success was built on very thin ice. Kings were supposed to keep order and avoid chaos through rituals and sacrifice. When manifestly they couldn't do it people lost confidence and the whole system of kingship fell apart.
Which brings us to modern parallels. Consider the fall of the Enron Corporation in 2001. That was the first tremor. Human beings are always surprised when things collapse just when they seem most successful. We look around and we think we're fat, we're clever, we're comfortable and we don't think we're on the edge of something nasty. Hubris? No: ignorance."
In common with the Maya, we're not very rational in how we think about how the world works. They had their rituals and sacrifices. Magic, in other words. And we also believe in magic: that money and innovation can get us out of the inherent limits of our system, that the old rules don't apply to us.
This is a modish view these days but it was considered cranky luddism back during the 1980s stockmarket boom and the 1990s dotcom bubble. That was when masters of the universe bestrode Wall Street and Francis Fukuyama caught the triumphalist liberal economic zeitgeist with his book The End of History and the Last Man. That era, to borrow from Star Wars, feels a long time ago in a galaxy far, far away. Now Bear Stearns and Lehman Brothers are history and governments are taking over banks and propping up markets.
Several commentators have argued that the financial crisis is but a squall compared with the ecological hurricane they say is coming. A European study estimates deforestation alone is causing a loss of natural capital worth between $2 trillion and $5tn annually. The two crises have the same cause. In both cases, those who exploit the resource have demanded impossible rates of return and invoked debts that can never be repaid. In both cases we denied the likely consequences.
Eventually pressure on scarce resources will overwhelm technology - and do for us as it did for the Maya.
The gloom may be misplaced. Reports of capitalism's death have been exaggerated before and it has stubbornly survived Karl Marx, the Great Depression, world wars and oil shocks. And in contrast to the Maya, it is possible our technology will prevail over population and environmental pressures. Malthusian doomsayers have consistently underestimated the capacity of better irrigation, pesticides, new strains of crops and other technologies to boost food yields. The rate of population growth is slowing and human numbers are expected to peak at around 9.2 billion by 2050 before declining.
If the gloomy environmental prognosis is correct, and global warming is set to wreak major havoc, what are the chances we will respond better than the Maya? Electing Bush instead of Al Gore suggests limited wisdom in picking kings, and emasculating the Kyoto treaty was perhaps as sensible as burning corn harvests to appease the gods. When Republicans chant, "Drill, baby, drill!" it is not much of a stretch to picture them, barefoot and in traditional huipil shirts, rooting for another sacrifice.
Civilisations rise - and collapse - for many different reasons. No civilisation lasts for ever. Most go for between 200 and 600 years. The Maya, Romans and Angkor of Cambodia lasted 600.
And us? Western civilisation began with the Renaissance, so we're already hitting 600years.
Sunday, November 2, 2008
Survival of the Fittest M&M
by R Crutch
Whenever I get a package of plain M&Ms, I make it my duty to continue the strength and robustness of the candy as a species. To this end, I hold M&M duels.
Taking two candies between my thumb and forefinger, I apply pressure, squeezing them together until one of them breaks and splinters. That is the "loser," and I eat the inferior one immediately. The winner gets to go another round.
I have found that, in general, the brown and red M&Ms are tougher, and the newer blue ones are genetically inferior. I have hypothesized that the blue M&Ms as a race cannot survive long in the intense theater of competition that is the modern candy and snack-food world.
Occasionally I will get a mutation, a candy that is misshapen, or pointier, or flatter than the rest. Almost invariably this proves to be a weakness, but on very rare occasions it gives the candy extra strength. In this way, the species continues to adapt to its environment.
When I reach the end of the pack, I am left with one M&M, the strongest of the herd. Since it would make no sense to eat this one as well, I pack it neatly in an envelope and send it to M&M Mars, A Division of Mars, Inc., Hackettstown, NJ 17840-1503 U.S.A., along with a 3x5 card reading, "Please use this M&M for breeding purposes."
This week they wrote back to thank me, and sent me a coupon for a free 1/2 pound bag of plain M&Ms. I consider this "grant money." I have set aside the weekend for a grand tournament. From a field of hundreds, we will discover the True Champion.
There can be only one.
Whenever I get a package of plain M&Ms, I make it my duty to continue the strength and robustness of the candy as a species. To this end, I hold M&M duels.
Taking two candies between my thumb and forefinger, I apply pressure, squeezing them together until one of them breaks and splinters. That is the "loser," and I eat the inferior one immediately. The winner gets to go another round.
I have found that, in general, the brown and red M&Ms are tougher, and the newer blue ones are genetically inferior. I have hypothesized that the blue M&Ms as a race cannot survive long in the intense theater of competition that is the modern candy and snack-food world.
Occasionally I will get a mutation, a candy that is misshapen, or pointier, or flatter than the rest. Almost invariably this proves to be a weakness, but on very rare occasions it gives the candy extra strength. In this way, the species continues to adapt to its environment.
When I reach the end of the pack, I am left with one M&M, the strongest of the herd. Since it would make no sense to eat this one as well, I pack it neatly in an envelope and send it to M&M Mars, A Division of Mars, Inc., Hackettstown, NJ 17840-1503 U.S.A., along with a 3x5 card reading, "Please use this M&M for breeding purposes."
This week they wrote back to thank me, and sent me a coupon for a free 1/2 pound bag of plain M&Ms. I consider this "grant money." I have set aside the weekend for a grand tournament. From a field of hundreds, we will discover the True Champion.
There can be only one.
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