Will the rally in commodities eventually weigh on the market? Part 2

Chart 7

Chart 8

Chart 9

I believe that one of the factors keeping global rates relatively low has been the weakness of Japan. That weakness has been largely the result of a deflationary problem which is just now showing signs of dissipating. [The threat of Asian deflation after 1998 was one of the factors driving global bond yields to historically low levels].
The relative weakness of Japan (and rates near 1%) has acted as a weight on global yields since then. Today’s announcement that Japan’s GDP was revised up to 3.3% makes its economy potentially stronger than the U.S. or Europe. That increases the odds for higher Japanese bond yields; which in turn increases the odds for higher U.S. bond yields. That suggests to me that Japan may hold one of the keys to the upward revision in global interest rates. Charts 7, 8 & 9 show a similarity between Japanese stocks (Chart 7) and U.S. bond yields (Chart 8). To make the point more graphically, the final Chart (9) overlays the Nikkei 225 (orange line) and the yield on the 10-Year T-Note yield since 1989. It looks to me like the two lines have been closely correlated for the last 20 years. A falling Japan from 1990 to 2003 acted as a depressant on U.S. bond yields. A rising Japan is now having the opposite effect.
T-Bill yields have suddenly slumped (see chart 8)
This is the first big drop from a peak like this since early 2001 (i.e., the early days of the last recession). So what could be causing the current T-Bill yield decline?
1) There was evidence of a distinct flight to safety from the jittery mortgage securities market following the sub-prime meltdown.
2) There is also clear evidence of an impending US business cycle contraction. US Eurodollar libor deposit rates haven’t budged which has caused the Ted spread (Eurodollar yield minus T-Bill yield) to widen dramatically. This is really a measure of credit market distress and therefore should be seen as a warning for junk bond and emerging market debt credit spreads. As usual for wisdom on this Michael Belkin is a good place to look - he believes that a junk bond market dislocation is long overdue.
What does this mean for the US (and by implication global) economy? Well in the real world real indicators are turning negative despite all the CNBC and official/quasi official hype that things are
i) different this time
ii) have never been better
iii) are definitely no cause for alarm (why would they need to keep saying this if they really believed either i) or ii) above)
There may be a further top in the latest market rally although there is clearly now greater volatility and more downside action in the markets, but the stock markets just measure forecasted sentiment; this is ephemeral. Every day living and business conditions are real and the latest consumer sentiment reading (down 5 points from May according to the University of Michigan survey data) reflects the impact on US consumers of higher fuel prices and lower housing value. Here’s a question that isn’t being asked - if house prices gave fallen and this is just temporary why aren’t people rushing into the market? Either they can’t (they’re feeling the squeeze) or they don’t want to (they think that prices are geared further south) or both! Whichever way, it’s bad news for the outlook and it makes sense that Belkin’s extremely statistical analysis is forecasting a deeper deterioration in consumer sentiment going forward.
So, taking all of that on board, how can you reconcile the recent rise in longer-term US interest rates with the decline in T-Bill yields? Belkin draws a comparison with the last recession when the 10Yr/3 month Treasury yield spread went from zero to +350 basis points in 2001 as longer-term interest rates remained static while the Fed forced short-term interest rates lower. This time might not be too different although junk bond and emerging market debt excesses are certainly more extreme now than they were in early 2001. These could be one of the catalysts of a shock to the whole system: junk and emerging bond markets could be the stronger aftershock of the initial sub-prime quake that shook the markets in February.
So all of this is bleak for US consumer confidence, economic growth and corporate earnings (exactly the opposite of the current Wall Street euphoria). In fact in the US indices such as Utilities and Transports seem to have rolled over and commenced a downtrend already. Watch the S&P500 and DJIA Industrials carefully - they could still move higher but any decline over the next few weeks could be signal the end of the innocence for all those who still believe the 3 hypes above.
Globally, it seems clear that UK, Italy, Spain and France are poised to follow although the German picture is more open to short term question (there may be a time delay). Emerging equity markets are in a long term uptrend but don’t be surprised to see a fall of 40-50% short term. Sidelined but poised is a good emerging equity stance right now.
Belkin think that energy stocks performance has boosted the market lately but that “Energy stocks should trade down with the market, when stock indexes finally break down. Energy stock outperformance has been the ‘hook’ that has kept speculation going in the latest rally. When that hook fails, the tent might collapse.”
The time isn’t now but it could be imminent.
Enjoy your day!

The above data and research was compiled from sources believed to be reliable. However, neither MBMG International Ltd nor its officers can accept any liability for any errors or omissions in the above article nor bear any responsibility for any losses achieved as a result of any actions taken or not taken as a consequence of reading the above article. For more information please contact Graham Macdonald on [email protected]@mbmg-international.com.com

Snap Shots: by Harry Flashman

The sky’s the limit

One of the more rewarding photographic subjects is the sky. It appears in almost every outdoors picture and has so many different appearances, from bright blue, to fluffy white clouds, sunsets, overcast and stormy and finally the night sky. Plenty to choose from. And of course there is always the Bangkok sky, noted for its homogenous all over dirty off-white color!
There is not too much you can do about the Bangkok sky, but try using the widest angle lens in the bag and you have a chance of getting a blue sky background. The reason for this is that you are compressing more sky into the 35 mm frame, so if there is any blue up there, you are deepening the color.
However, very often, grey featureless sky cannot be avoided. If this is the case, compose the shot to exclude the dull sky from the picture as much as possible. There is a limit sometimes!
If you have access to a bunch of filters, there are other ways to make the sky more interesting. Generally, you are trying to reduce the contrast between the sky and the foreground, because the camera (film or digital) cannot get both of them accurately exposed. So if the foreground is white or bright you will need to dampen it down a bit, or if the sky is too bright, then you have to deepen in to get closer to the foreground exposure. This is where graduated filters will make life easier. The Cokin style that slides up and down is best, and when you have finished composing the shot, use the preview setting to see exactly what you are going to get.
However, today’s automated cameras handle exposure well, especially when your subject is set against a uniform background of blue sky, green vegetation, or dark water. When your subject is against a background of bright sky or water, the camera often underexposes your subject. Your SLR camera has several ways to overcome this tendency, through use of spot metering or by compensating to adjust exposure. Take the readings from the brighter areas of sky or clouds to get better photographs. If you do not have spot metering, then switch to manual mode under these conditions, and take readings from different areas. Select the one which will compensate for underexposure.
Having mentioned digital, these cameras have many advantages when you are out shooting skies. One of the best features is the instant feedback you get on your technique. You can review your exposure, composition, and sharpness on screen, and shoot again if necessary. Today’s digital SLRs are also fairly quiet. In low light, you can easily use 400 and even 800 ISO settings without the ‘grainy’ look that equivalent films produce.
There is also another very easy way to get your skies exposed correctly, and that is by ‘bracketing’. This is where you take three shots, one at the exposure you (or the camera) thinks it should be, then another one stop more exposure and the third at one stop less exposure. You can do five exposures if you like, though three is generally enough. Some of the newer cameras (and professional ones) will do this automatically.
A few other tips when shooting skies, particularly if the sky is the main subject: one is to hold the camera to give a horizontal horizon, this being one of the most obvious. Drunken horizons will spoil even the greatest sky shots. The other is not to place the horizon slap bang in the middle of the frame, but make it at one third. If the sky is the feature, then make if two thirds sky. Another tip is to take some shots in the vertical (portrait) frame as well as the usual horizontal one.
Finally, when shooting rainbows, make the background a dark color if possible. Dark and stormy clouds in the sky are ideal. The colors of the rainbow stand out better against darker colors, but will blend into light skies.
Remember, the sky’s the limit.

Modern Medicine: by Dr. Iain Corness, Consultant

Gallstones - Fat, Fair, Female, Fertile and Forty

I have mentioned gallstones (cholelithiasis) before and used the mnemonic Fat, Fair, Female, Fertile and Forty as being the catchy 5F’s we used as medical students to remind us of the typical gallstone sufferer. Of course, like all catchy mnemonics it isn’t quite true as 10 percent of men can also have gallstone problems, and a fair percentage of the dusky maidens get them and even infants and small children have been known to have the problem.
Being one of those strange organs that lives somewhere within the abdomen, many people are not really quite sure of where it is. Here’s how to find it. Your liver is in the upper right side of the belly, just below the diaphragm tucked under the ribs and the gall bladder, which manufactures the stones, is attached to the underside of your liver and is involved with digestion.
The gallbladder is connected to the liver and the intestine, and its primary role is to store the bile, which is produced by the liver, until the bile is needed to aid in digestion.
Cholecystitis is an inflammation of the gallbladder that causes severe abdominal pain. In 90 percent of cases, acute cholecystitis is caused by gallstones obstructing the duct leading from the gallbladder.
Ninety percent of cholecystitis cases resolve spontaneously; however, complications will develop in 10 percent of cases that will require surgery, antibiotics or other treatments.
So where do these gallstones come from? Well, 80 percent of them are made up of our old friend cholesterol, or cholesterol mixed with pigment, that’s why you can get such pretty colors, though I am yet to see any made into a necklace, but it could catch on I suppose. The cholesterol stays in solution until something happens to slow down the emptying of the gall bladder, or thicken the solution, such as happens during fasting (eating is good for you). This results in what we call biliary “sludge” which then hardens and turns into gallstones. So cholesterol can block more than just your coronary arteries.
Factors which increase the likelihood of developing gallstones include increasing age, obesity, a diet high in animal fats and certain medical conditions such as diabetes. Oh yes, pregnancy also increases the incidence. (With all these problems that can happen with procreation, it is a wonder the human race has got this far!)
The management of gallstones has also changed dramatically over the past 20 years because of three main factors. The first was the development of Ultrasound visualization. At last we had a way of accurately diagnosing gallstones. Not only could we now “see” the gallstones, but we could tell if they were the cause of the pain by being able to pick out inflammation in the gall bladder wall.
The second development was ERCP (you know how we love acronyms in medicine) which stands for Endoscopic Retrograde CholangioPancreatography. At the end of the operating telescope (called the Endoscope) the surgeon can sneak into the bile duct and scoop out stones that are blocking the duct which has been causing jaundice.
The third development was Laparoscopic Cholecystectomy and was pioneered in 1987 by a French surgical team. Instead of practically sawing you in half to get at the gall bladder, hiding under the liver as it does, this is a much less invasive method, where the operating laparoscope is inserted through a small incision in the abdominal wall, and the surgeon does the job under the direct vision. While this results in less trauma, shorter hospitalization and quicker recovery, it is not always successful and the operation may have to be converted to the older “open” method.
It is also important to remember that gallstones can be found incidentally, and if they are causing no problems, the answer is simply to leave them alone. The chances of developing symptoms over 20 years are about 18 percent the good books tell me, so with an 82 percent chance of getting off with nothing, who is going to volunteer for an operation? What “gall” to even suggest it!

Learn to Live to Learn: with Andrew Watson

Death smiles at us all

“Death smiles at us all; sometimes all we can do is smile back,” were the words that set the seal on Russell Crowe’s final, if inevitable victory over Joaquin Phoenix (real name Joaquin Bottom, according to “Wikipedia”) in “Gladiator”. It takes time to arrive at the point where you’re just happy to take your time and savour every second. Sometimes of course, it takes a catastrophe. If I dwell on it for long, I can easily become upset thinking about the number of lovely people I have known who haven’t made it, a feeling exacerbated by seeing those less worthy still alive. I can’t accept that the “good die young”, it simply won’t suffice.
It’s tempting, indeed natural, to search for logic where there is none. I’d like to think that God punishes those who have it coming, or that Karma sees them get what they deserve, but whilst I can see the reason in the concept that those who perpetrate evil are themselves devoured by it, there’s just too much gratuitous, unnecessary injustice and violence in the world for me to accept that there’s any divine retribution afoot. Instances of comeuppance seem left to chance; more often that not, coincidental.
I was in London recently. For the first time in ten years I had the outrageous pleasure to witness the citrus colours of autumn. Orange and red cadmiums sank into startling spectrum reds along a riverside canvas that unseeing onlookers are prone to describe as “grey” but which is, in fact, all subtle raw umbers and low greens. It was wonderful. That dirty old river, the Thames, had a distinctly chilled glint about it as it edged forwards like a great protective serpent around its nest. It was all surprisingly still, as if the swelter of summer had worn London ragged and the great city was ready for its winter hibernation. Except that London, like many a modern metropolis, is in little need of rest. It veritably hums with the to-ing and fro-ing of a million or more, milling “like flies around Waterloo underground” (Davies, ’67) and any other place you might care to mention.
Despite maintaining a residence in the city of my birth, I felt like a stranger. It has been much the same whenever I have returned in my decade away; ten years of increasingly rapid change, or so it would appear. But I enjoy taking the time to wander at leisure through the alleys along which I used to scurry for no justifiable reason. It helps to know the tricks of course; where to go and when, so as not be caught up in some terrible jam. I am a convert to London’s public transport system. Despite being disgustingly over-priced, it’s still cheaper than it was (in real terms) and it seemed to me that I got everywhere I needed to go in extremely impressive time. Thank you Ken Livingstone, resurrected Lord Mayor of London (he must still be giving Thatcher nightmares).
I’m never entirely sure how this has happened, but my good fortune has allowed me an apartment situated on the river, adjacent to the MI5 building on Vauxhall Bridge. From the balcony, the cream of London’s landmarks old and new, are on view; the Houses of Parliament, the London Eye and Westminster Abbey. It’s a short walk across the river, past the “old” Tate and Millbank to Parliament Square, where a recently unveiled and appropriately animate statue of Nelson Mandela outshines most of the other sculptures, save perhaps the guardian figure of Churchill. But what, I wondered, is Smuts of South Africa doing there, alongside Palmerston and Pitt? And there’s David Lloyd George (no doubting his pedigree), cast in cartoon venetian red with flowing wizard-esque cloak, looking rather like an escapee from “Toy Story”.
Ever since reading “The da Vinci Code” I have hankered after a visit to Westminster Abbey, but had hitherto, for some hedonistic reason or other, never found the time. Now, suddenly, I had both the time and the inclination. And yet I did not enter. The entrance price for everybody (no double pricing here save for “worshippers”) is 10 (ten) pounds, about 650 baht. If you’re a “worshipper” you get in for nothing. Now, I “worship” as it happens, but somehow I thought it beneath my dignity to have my prayers at the behest of someone else. By which I mean, if I pay ten quid, does that mean I cannot pray? Or does it mean that if I do pay, that I get a pound back for every “Amen”? I was reminded of the Church of the Holy Sepulchre in Jerusalem, where upon exiting the narrow sanctuary of Christ’s supposed tomb, a monk bungs a candle into your hand and holds out his own expectantly with the words, “10 shekels for the candle”. Already!
I wanted to learn more about the clandestine larceny of the Abbey, so I found a corpulent, cheerful, cockney warden, guardian of the entrance to the southern nave. He must have seen me coming. “When,” I inquired politely (I may have had a hint of a smirk on my face) “did they start charging for entrance to the Abbey?” He didn’t bat an eyelid; he’d heard it all before; “1697” he replied with a confident grin, “3D (three pence): it was a lot of money in those days”. “Yes, well ten pounds is quite a lot of money now.” I retorted. He wasn’t impressed and I was on my way. “I’ll come back on a Sunday,” I called.
I have to admit that my stroll that day did have an ulterior motive. I was heading for Smithfields, the market made famous for its meat and in particular, I was looking for a tiny alley called “Cloth Court,” reeking with history. On the fifth floor (they call it the third but believe me it’s a long way up) of a winding staircase at number two, the Esther Benjamins Trust has its London headquarters. There, it was my happy duty to hand over a cheque for 1,300 US dollars, representing the cumulative generosity of children aged 3-18 who attended the hugely successful Garden International School of Football last year, one incredibly generous student in particular called “Smile” and the Pattaya Mail, spreading the culture of giving, far and wide. Now there’s a legacy worth leaving behind. But more of this, next week.
Next week: It is in giving that we receive.

Doc English, the Language Doctor: Reading for the first time with your child

Hello folks, the English Surgery is now open! For the benefit of any newcomers, this column includes tips and techniques for teaching your children English at home. I hope you find them useful. For the next few weeks we are concentrating on teaching your child to enjoy reading.
Last week we went shopping for books and I hope you now have a number of interesting story books that are suitable for your child. This week, I will discuss how to create an effective learning environment at home, where children will feel comfortable and happy learning English.
First, choose a regular time and place to read and share your books. Choose somewhere quiet, away from any distractions and somewhere where you will not easily be disturbed. Bedtime reading is a great idea, as it allows your child to think more deeply about the story as they drift off to sleep. However, make sure your child is not too sleepy when you start as you want them to interact a little bit!
I find that my younger students like to choose a quiet corner of the room in which to sit and read, when reading by themselves. It helps if the area is comfortable, with lots of cushions and maybe soft toys and puppets to allow them to role play the story with their friends after they have read. Over time, you should allow your child to build up their own library of books. Children enjoy exchanging books with friends. Encourage them to do this and to share what they have learnt from their books with their friends. Invite friends over for ‘reading parties’ or start a book club with other parents and have parents and children all read together on a regular basis.
Use books as a reward over time for your child’s good behaviour. You will soon build up an impressive collection of books this way and eradicate bad behaviour at the same time! You could also include a CD player or recording ‘device’ in your new library, so as to allow your child to listen to (and create their own) talking books. Include also stationery, scrap paper, colours, etc., to allow your child to draw illustrations from their stories and to create their own simple books.
From my experiences as a teacher, I have noticed that my students progress in English at a much faster rate if their parents are reading regularly with them at home. Often it seems that students that spend less time reading at home are less interested in books and stories. Students that don’t read at home also appear less motivated to learn and speak English. Reading with your child on a regular basis is essential to their success in English, as once the child is reading independently, they are soon able to teach themselves. Encourage your child to enjoy reading please! Just twenty minutes a day can make a BIG difference to your child’s development in English, believe me!
Next week, we look at the power of prediction and how to encourage your child to talk about and discuss their story books before they read. I hope you enjoy creating your little library together this week and sharing your new books with your friends.
You can write to the Pattaya Mail or email me at docenglishpattaya@gmail .com and I will try to answer your questions or suggestions, either by returning an email or through this column. Your feedback is most welcome.
Best regards,
Doc English