The Year Of Living Dangerously

Thursdays P&L: GBP238.00

Thursdays Booze: 750cl of Absolut Blue Vodka, 3 large Remy Martin, 4 pints of Stella Artois

I love the movie The Year of Living Dangerously, possibly Mel Gibsons finest moment. When I lived in Indonesia during the Asian crisis I was drinking with an ex British army guy who had been in Borneo during that year, I asked him if Medan in ninety seven was more dangerous then Kalimantan back in sixty five. He said he thought so and neither of us should be here. it was a dangerous time and lots of people died. The thing I remember most is how you got used to chaos. If you saw large groups gathering you turned away and went another route, if you saw the Chinese shophouse owners pulling down the shutters you got off the streets and if you heard the sound of a bomb going off you just ignored it. I guess it was kind of like when I went to Belfast in the seventies. I was only a child then but I remember being amazed at how people just got on with life despite the obvious tension. Children played around the armored personnel carriers and ignored the helicopters flying above them.

My parents were use to this kind of thing, my father had spent all his live at sea since leaving Govan in Glasgow. My mother got caught up in The Angolan war when she was nine months pregnant. I was on the ship with them when I got arrested in Nigeria when I was fifteen. Kiri Kiri prison is no place for a white teenager, I can tell you that. My father predictably enough, got me out of that mess just as he did a week later when I got caught up in a riot in Douala in the Cameroons. I never went to University and often feel like I missed out, but at the same time I have had some amazing experiences and since I left home had this sort of reckless attitude that has provided me with so many opportunities.

So the business world has forgotten about Dubai already. Why not? It's only USD eighty billion of debt after all. There was a time when that would have been a lot of money - nowadays unless it is a trillion we barely notice. The Guardian says that the British tax payer has provided GBP Eight hundred and fifty billion to the banks or about GBP forty thousand per family. Think about that next time a bank gives you a charge for exceeding your overdraft or having insufficient funds for a direct debit. Why has the banking system in the UK failed so badly? Its a difficult question and one that really needs addressed. When I first started work the banks were recovering from the syndicated loans to South America. Walter Wriston, chairman of Citibank, had said "countries do not go bust" and at the time Citi had the money to write off the loans so we converted them into Brady Bonds that were nominally guaranteed by the US. Midland Bank in the UK, (remember them) nearly went bust after a disastrous acquisition Of Crocker Bank and were nearly taken over by Saatchi and Saatchi. Since then we have had the Japanese recession, the Local authority swaps scandal, the withdrawal from the ERM, the Mexican Tequilla crisis, Asian crisis, the collapse of LTCM and the Russian default. We have also had the dot com bubble and now the credit crunch. During all this time banks have spent more money on systems and software and hired more and more quants and number crunchers. Banking is really, really simple. Banks lend money and if you are a worse credit risk they charge you more than if you are a good credit. That is what they do. A bond is just a certificate saying that you have lent money to a government and company and will be repaid and receive a fixed interest rate. All financial transactions are based on the concept of credit risk. It may be hard to explain an asset backed collateralised debt obligation but the core concept is that a pool of assets will pay revenue and ok, some may default but the pool is large enough that the return from those that do not default will more than offset those that do.

I remain very bearish about the global economy and will be looking to sell shares and go long, (buy), gold at appropriate entry points.