Allah, Jesus, Zen & Capitalism

I thought we might start this week with some lyric’s from Holly Near’s song, “I’m Not Afraid”.

I’m not afraid of your Yahweh;

I’m not afraid of your Allah;

I’m not afraid of your Jesus;

I’m afraid of what you do in the name of your god.

For my part I’m a little afraid of what people do in the name of their new god, Capitalism. My famous last words, “Well the markets seem to have settled down a little” last week have certainly come home to roost. As I’ve said in previous weeks the 'multiplier effect' through derivatives, etc. in the market creates a serious price push in either direction (but particularly downwards) when there is a lack of offsetting market interest in buying (or selling).

The last week or so has only served to illustrate the harsh reality of that point. There is so much borrowing out there in the global market that any material erosion in confidence will see an immediate, and in this case, prolonged flight to safety. Safety is still perceived as US dollars. In the first stage the problem areas suffer, in the second and more dangerous stage markets considered to be secondary to the US dollar markets such as Australia are also hit, as foreign money flees home to avoid currency risk.

Over time the position will reverse, primarily as people can’t get strong returns in US secured assets at the moment. So the appetite for security will be replaced with an appetite for a better return and the money will flow out again. Picking the timing of this is where the money will be made, and the collateral damage caused through the process will once again leave various individuals either poorer or on the street.

Professional traders, however, love volatility and they are best placed and informed to take advantage of these movements. Goldman Sach’s achieved a “perfect” quarter in their last results i.e they made net trading gains on every single working day during the quarter. So I’m sure we will see another round of big bonuses at year end.

There has also been much talk in the media of the cross borrowing within the EU, and I’d like to add my penny’s worth. There are some striking parallels with the old “keiretsu” structure of major Japanese trading houses who owned the banks and had cross shareholdings across the entire industrial complex. When Japan’s credit bubble burst in the 90’s they held things up for years and Japan stumbled through decades of mediocre growth. Some fared better than others, but it was a slow and painful process, and it still hasn’t finished. The situation currently within the EU certainly has parallels and could well end up the same way.

For those who think Japan has a vast middle class and has actually held up well during this time, I’d like to share some comments from a recent article in Voice of America in Japan.

“The definition of 'poverty' in Japan appears to be a household where the breadwinner earns less than JPY2m (US$18,000) a year. Certainly not a huge amount and definitely not enough to feed, house, and educate a family with two children. Yet in 2007 there were 10m households in Japan with earnings at this level.

Perhaps even more surprising is that 4.3m households had even less income - earning less than JPY1m a year. Many of these stony-broke households were elderly people."

The researcher went on to say that Japan has the 4th highest level of poverty in the OECD. Please note that these numbers are all based on 2007 data and are pre the Global Financial crisis.

One of the things that has happened in Japan is that it’s picked up the American model of using casual labour at either minimum or close to minimum wage. As Japan has a tight immigration policy, most of this work is typically falling to those who are either young, or previously laid off. Hence even in Japan the gap between well off, middle class, and subsistence living is growing, and growing quickly. Those on the old “job for life” terms and conditions live the old Japan lifestyle and the rest struggle to get there.

In America, the casual work / low paid work is covered off largely through immigration, legal or otherwise and the major career opportunity in this social bracket, if you can accept the risk is to join the military who employ almost 1.5 million people.

The issue here really is about the world wide gap between the haves, those with a reasonable level of living, and the battlers. There needs to be better balance if we are to avoid future unrest similar to that seen in Greece. A very small “few” profited very handsomely from the Global Financial Crisis, however the debt overhang from this will need to be carried by the “many”, for years if not decades to come.

People are finally waking up to this fact, unfortunately it will be up to governments to try and restore the balance so that profits are made from producing real things of benefit. Don’t get me wrong, I still think Capitalism is a good model, but it also needs a human face. Speculators have a place to balance risk, but not to drive and increase risk to make “super” profits.

Anyway that’s enough from the “soapbox” section. I won’t bother with any stock commentary this week; frankly a monkey throwing darts at a wall could pretty much pick a winner at current price levels.

Keeping the slightly spiritual theme I started with, I will, however, leave you with something to think about (or not as the case may be). This is a well-known story (first compiled circa AD700) about Hui-neng a Buddhist monk who founded a Zen school and became the Sixth Patriarch in China".

"Two monks were arguing about the temple flag waving in the wind.

One said, "The flag moves."

The other said, "The wind moves."

They argued back and forth but could not agree.

The Sixth Ancestor said, "Gentlemen!

It is not the wind that moves;

it is not the flag that moves;

it is your mind that moves."

- The Mumonkan Case 29, translation by Robert Aitken