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Ash is like Cash


Ash is like cash. The airline eruption disruption now is blamed on 'too much modeling, too little research'. That sounds familiar. Big picture forecasts of how the wind would blow took the place of micro examination of just what the impact on actual engines would be.

In investing too, beware the broad brush. For example, the speedy recovery of the 'fear index', the VIX, a measure of volatility, may not mean that all is now well again. There are a few alternative ways to view this indicator. One is to say that the trend reversal a sharp VIX move heralds has already happened, which I think is overstating Wall St.'s drop.

Alternatively, you could argue, as does Tom McClellan in his Oscillator that the VIX rebound came too fast and is 'a sign of trader complacency'. For all that, I remain skeptical of Tom's astonishing forecast that there will be a real correction by April 27. Such precision reeks of voodoo to this fundamentalist.

Chartist Tom replies: 'I love fundamentalists; they are the ones who buy when my charts tell me to sell.' A correction is normally defined as a 10% drop in markets.

If this happens on Monday April 26, I will not be guiding your trading and investing as that is the day of my planned return to the Home of the Brave from London. Tom edits

The IMF has come up with a two-pronged tax to build up cash for problems in the financial sector. It was asked to come up with a plan on behalf of the G20 group of countries. But its solutions to the The taxes fall on banks. The first is a flat tax on uninsured liabilities, which is to say deposits at banks, and was expected. The other is a tax on profits and bonuses which builds on resentment over fatcat pay. Both would be worldwide and permanent, but of course are based on ideas like the Tobin tax that have been floated for years.

The causes and cures for the recent financial crisis are out of whack. The crisis was caused by excessive leverage, with too little capital behind banks and other players. But it was exacerbated by the lack of clear rules on how to define the existence and the adequacy of bank capital. Similarly, there was no common standard to define risk or liquidity against which that capital was supposed to be available and mobilizable. What does the IMF package do about these issues, M. Straus-Kahn? Nothing much.

Countries which think they are being made to pay for the excesses of others are furious with the IMF proposal which could even have perverse effects, reducing capital at banks, and incentivizing some risk-taking because there will be a single measure of capital for all parts of a bank.

Canada, our neighbor to the north, is taking the lead in attacking the way financial reform proposals are shaping up, mainly because its banks think they were more prudent that yankee banks. Today the Financial Times published a broad attack on reform ideas (including Bank for International Settlements reforms as well as the IMF ones) signed by the heads of the six largest Canada banks, including one we have invested in.

There are a couple of problems for the Canadians in taking on Strauss-Kahn, however. The bank regulators of Quebec Province, as well as those of Israel, already operate tax regimes similar to what the IMF has proposed.

The important news from London where I am still stuck is that thanks to the intervention of the British Crown Prince, the future post apartment buildings being put up by the Al-Thani Qatari royals at Chelsea Barracks will not be Richard Rogers 'moderne', which so offended Prince Charles, a free-lance architectural critic. Instead, the 12.8 acre site will be filled with 'classical-style' buildings, which means they will be symmetrical, aligned at right angles, and with brick rather than glass curtain walls. This will fit in better with Sir Christopher Wren's 18th century building housing the Chelsea Pensioners, retired British soldiers.

More for paid subscribers follows with hot news from many lands starting with Israel and Australia, Mexico, China, Singapore, Finland, and France.