What a mess.
BEIJING: China's regulators plan to shift 2-3 trillion yuan ($308-463 billion) of debt off local governments, sources said, reducing the risk of a wave of defaults that would threaten the stability of the world's second-biggest economy.
As part of Beijing's overhaul of the finances of heavily-indebted local governments, the central government will pay off some of their loans and state banks including some of the "Big Four" will be forced to take some losses on the bad debt, said the sources, both of whom have direct knowledge of the plans.
Part of the debt will also be shifted to newly created companies, while private investors would be welcomed in projects previously off-limits to them, sources said.
Beijing will also lift a ban on provincial and municipal governments selling bonds, a step aimed at bolstering their finances with more transparent sources of funding.
Tuesday, May 31, 2011
The Economist...
...which in my experience is late to most macro developments, highlights the crony capitalism and agency risks I have been highlighting on this blog for years. The proverbial cat is out of the bag. I also love the "at least on paper" reference, as the entire world realizes they have been relying on economic and balance sheet figures that are at best "centrally managed" and at worst pure fabrications.
CHINA’S economy has, at least on paper, survived forces that have overwhelmed much of the rest of the world. But the recent round of bank tightening seems, at least indirectly, to be hitting with real force. Slowly, word has spread of Jin Libin, a resident of Inner Mongolia who ran a business empire encompassing supermarkets, mining and transport, who set himself on fire one day in April and burned to death. According to the Global Times, a government-run newspaper, he left private debts of $1.3 billion yuan ($191m) of private loans and another 150m yuan of loans from banks.
Still to be reflected is the impact of his collapse on his lenders, which, the Global Times says, included local banks, pawnshops and guaranty companies that had lent him money. No doubt there were also substantial loans from an impersonal network, a form of credit that is commonly used in China, though not legal. The consequences will not be trivial. Many other explosions driven by the same financial forces that brought down Mr Jin are sure to come.
CHINA’S economy has, at least on paper, survived forces that have overwhelmed much of the rest of the world. But the recent round of bank tightening seems, at least indirectly, to be hitting with real force. Slowly, word has spread of Jin Libin, a resident of Inner Mongolia who ran a business empire encompassing supermarkets, mining and transport, who set himself on fire one day in April and burned to death. According to the Global Times, a government-run newspaper, he left private debts of $1.3 billion yuan ($191m) of private loans and another 150m yuan of loans from banks.
Still to be reflected is the impact of his collapse on his lenders, which, the Global Times says, included local banks, pawnshops and guaranty companies that had lent him money. No doubt there were also substantial loans from an impersonal network, a form of credit that is commonly used in China, though not legal. The consequences will not be trivial. Many other explosions driven by the same financial forces that brought down Mr Jin are sure to come.
Sunday, May 29, 2011
False risks.
The below is yet another example of false beliefs regarding U.S. "debt", which is a sovereign currency issuer, and Greek obligations denominated in Euros which must be "obtained" by Greek authorities to pay these obligations. Its apples to oranges yet this simple error in assumptions colors a disproportionate portion of the debate regarding the U.S. debt ceiling. Furthermore, the risk of inflation is massively overstated with this type of analysis, as it ignores the demand side of the equation. Friedman famously said "inflation is always and everywhere a monetary phenomenon". He was incomplete. Inflation IN A FIAT CURRENCY REGIME comes from massive monetary creation by bank credit and associated wage demands.
Greece has a sovereign debt problem. The bonds of the Greek government have been downgraded by a major rating service. Their prices have fallen sharply in the market. This means that the risk is high that the government will default on its sovereign debt.
The interest rates that the Greek government must pay in order to borrow have risen sharply. This is worsening the government’s solvency and budget problems.
The government faces default. The government’s various spending cutbacks haven’t solved the problem.
They cannot solve the problem. It’s apparently too late. The government would have to restructure its debt by renegotiating with its multiple lenders. That’s a difficult and time-consuming process. It would have to work out repayment while simultaneously altering government policies so that the country’s private market economy could expand. This involves knotty political and economic issues that take years to resolve. The government doesn’t have this time.
The problem traces back to the earlier fact that for some years the government was able to borrow heavily at low interest rates. This means that it was able to sell its bonds at high prices. The problem arose because these market prices were too high.
Greece has a sovereign debt problem. The bonds of the Greek government have been downgraded by a major rating service. Their prices have fallen sharply in the market. This means that the risk is high that the government will default on its sovereign debt.
The interest rates that the Greek government must pay in order to borrow have risen sharply. This is worsening the government’s solvency and budget problems.
The government faces default. The government’s various spending cutbacks haven’t solved the problem.
They cannot solve the problem. It’s apparently too late. The government would have to restructure its debt by renegotiating with its multiple lenders. That’s a difficult and time-consuming process. It would have to work out repayment while simultaneously altering government policies so that the country’s private market economy could expand. This involves knotty political and economic issues that take years to resolve. The government doesn’t have this time.
The problem traces back to the earlier fact that for some years the government was able to borrow heavily at low interest rates. This means that it was able to sell its bonds at high prices. The problem arose because these market prices were too high.
Friday, May 27, 2011
Memorial Day
This will be an auspicious holiday, given the world is coming to grips with the fact that U.S. assets remain the only thing remotely close to "safe", even with the dismal housing numbers released today.
I expect some sort of announcement regarding the Euro situation this weekend given closed markets on Monday.
I expect some sort of announcement regarding the Euro situation this weekend given closed markets on Monday.
The Paper Dragon at home and abroad...
...the press continues the now popular assault on the business practices and "creative accounting" endemic to Chinese firms. I continued to be amazed that all of this was either ignored and how the investment world got caught up in this bubble.
First, the African problem (from The Economist)
Once feted as saviours in much of Africa, Chinese have come to be viewed with mixed feelings—especially in smaller countries where China’s weight is felt all the more. To blame, in part, are poor business practices imported alongside goods and services. Chinese construction work can be slapdash and buildings erected by mainland firms have on occasion fallen apart. A hospital in Luanda, the capital of Angola, was opened with great fanfare but cracks appeared in the walls within a few months and it soon closed. The Chinese-built road from Lusaka, Zambia’s capital, to Chirundu, 130km (81 miles) to the south-east, was quickly swept away by rains.
Business, Chinese style
Chinese expatriates in Africa come from a rough-and-tumble, anything-goes business culture that cares little about rules and regulations. Local sensitivities are routinely ignored at home, and so abroad.
Continuing on to creative accounting...
By FLOYD NORRIS
Published: May 26, 2011
To pull off a fraud that humiliates the cream of the global financial
elite, you need to have some friends. And where better to have them
than at the local bank?
The fraud at Longtop Financial Technologies, a Chinese financial
software company, was exposed this week in an amazing letter from its
auditors, Deloitte Touche Tohmatsu. It appears to be a tale of corrupt
bankers and their threats to auditors who had learned of the lies.
Deloitte, which had given clean audit opinions to Longtop for six
consecutive years, apparently was well on its way to providing a
seventh, for the fiscal year that ended March 31.
But for some reason — Deloitte did not say why —the auditor went back
to Longtop’s banks last week to again seek confirmation of cash
balances.
It appears Deloitte sought confirmations from bank headquarters,
rather than the local branches that had previously verified that
Longtop’s cash really was on deposit. And that set off panic at the
software firm.
“Within hours” of beginning the new round of confirmations on May 17,
the confirmation process was stopped, Deloitte stated in its letter of
resignation, the result of “intervention by the company’s officials
including the chief operating officer, the confirmation process was
stopped.”
First, the African problem (from The Economist)
Once feted as saviours in much of Africa, Chinese have come to be viewed with mixed feelings—especially in smaller countries where China’s weight is felt all the more. To blame, in part, are poor business practices imported alongside goods and services. Chinese construction work can be slapdash and buildings erected by mainland firms have on occasion fallen apart. A hospital in Luanda, the capital of Angola, was opened with great fanfare but cracks appeared in the walls within a few months and it soon closed. The Chinese-built road from Lusaka, Zambia’s capital, to Chirundu, 130km (81 miles) to the south-east, was quickly swept away by rains.
Business, Chinese style
Chinese expatriates in Africa come from a rough-and-tumble, anything-goes business culture that cares little about rules and regulations. Local sensitivities are routinely ignored at home, and so abroad.
Continuing on to creative accounting...
By FLOYD NORRIS
Published: May 26, 2011
To pull off a fraud that humiliates the cream of the global financial
elite, you need to have some friends. And where better to have them
than at the local bank?
The fraud at Longtop Financial Technologies, a Chinese financial
software company, was exposed this week in an amazing letter from its
auditors, Deloitte Touche Tohmatsu. It appears to be a tale of corrupt
bankers and their threats to auditors who had learned of the lies.
Deloitte, which had given clean audit opinions to Longtop for six
consecutive years, apparently was well on its way to providing a
seventh, for the fiscal year that ended March 31.
But for some reason — Deloitte did not say why —the auditor went back
to Longtop’s banks last week to again seek confirmation of cash
balances.
It appears Deloitte sought confirmations from bank headquarters,
rather than the local branches that had previously verified that
Longtop’s cash really was on deposit. And that set off panic at the
software firm.
“Within hours” of beginning the new round of confirmations on May 17,
the confirmation process was stopped, Deloitte stated in its letter of
resignation, the result of “intervention by the company’s officials
including the chief operating officer, the confirmation process was
stopped.”
Thursday, May 26, 2011
Market declines, inflation...
...lower (real) GDP forecasts, etc. And now, the world is focusing in on the demographic "challenges" the paper dragon faces.
This article is as good as any in levelling a healthy degree of skepticism regarding the Paper Dragon's prospects and global ambitions.
A snippet:
According to a United Nations forecast in 2008, the over-60 and over-65 age groups in China were expected to account for 12.3% and 8.2% of the population respectively in 2010, against 7.5% and 4.9% in India.
The new census demonstrates, however, that China’s population is aging even faster than expected. According to the survey, over-60 and over-65 make up 13.26% and 8.87% of the population.
The new Census also revealed that the imbalance between the ratio of boys to girls is also still increasing. The sex ratio in 2010 was 118.06, which is 1.2% more than 2000.
Based on the data of the 2000 census as well as the new census, China’s comprehensive national strength, from the viewpoint of its demographic structure, is currently at a historical peak. The working-age group of those 15-64 years, has reached almost 1 billion people, an all-time high, with the elderly dependency ratio less than 12%, and the general elderly dependency (ratio of the non-labor population to labor population) only 34%. In other words, China has never been less burdened by a non-labor population.
But again from the viewpoint of the demographical structure, China is set to repeat Japan’s economic recession experience of the 1990s. The difference is Japan became rich before growing old, while China is growing old before even getting rich. The average GDP of Japan today is above $40,000, while it is still just $4,000 in China.
This article is as good as any in levelling a healthy degree of skepticism regarding the Paper Dragon's prospects and global ambitions.
A snippet:
According to a United Nations forecast in 2008, the over-60 and over-65 age groups in China were expected to account for 12.3% and 8.2% of the population respectively in 2010, against 7.5% and 4.9% in India.
The new census demonstrates, however, that China’s population is aging even faster than expected. According to the survey, over-60 and over-65 make up 13.26% and 8.87% of the population.
The new Census also revealed that the imbalance between the ratio of boys to girls is also still increasing. The sex ratio in 2010 was 118.06, which is 1.2% more than 2000.
Based on the data of the 2000 census as well as the new census, China’s comprehensive national strength, from the viewpoint of its demographic structure, is currently at a historical peak. The working-age group of those 15-64 years, has reached almost 1 billion people, an all-time high, with the elderly dependency ratio less than 12%, and the general elderly dependency (ratio of the non-labor population to labor population) only 34%. In other words, China has never been less burdened by a non-labor population.
But again from the viewpoint of the demographical structure, China is set to repeat Japan’s economic recession experience of the 1990s. The difference is Japan became rich before growing old, while China is growing old before even getting rich. The average GDP of Japan today is above $40,000, while it is still just $4,000 in China.
Wednesday, May 25, 2011
Ratings agencies...
...near and far attempting to direct and hold attention.
05/25/11 Novato, California – Beijing-based Dagong Credit Rating Co. is China’s leading credit rating agency and, despite the limited international influence of its ratings, it keeps pumping out sovereign debt downgrades for the industrialized West.
The latest nation up… or down as the case may be… is the UK. It was already cut from its triple-A standing — as indicated by ratings from US agencies — to AA- in Dagong’s first headline-inducing ratings release. Recently, the UK has again been downgraded, this time to A+ with a negative outlook, due to its deteriorating solvency.
According to the BBC News:
“The agency blamed the UK’s sluggish growth, which it said would be stuck in the 1.3%-1.5% range for two more years, hurting government finances. The downgrade from AA- to A+ puts Britain on a par with Chile and heavily-indebted Belgium, and the US, which Dagong downgraded in November.
05/25/11 Novato, California – Beijing-based Dagong Credit Rating Co. is China’s leading credit rating agency and, despite the limited international influence of its ratings, it keeps pumping out sovereign debt downgrades for the industrialized West.
The latest nation up… or down as the case may be… is the UK. It was already cut from its triple-A standing — as indicated by ratings from US agencies — to AA- in Dagong’s first headline-inducing ratings release. Recently, the UK has again been downgraded, this time to A+ with a negative outlook, due to its deteriorating solvency.
According to the BBC News:
“The agency blamed the UK’s sluggish growth, which it said would be stuck in the 1.3%-1.5% range for two more years, hurting government finances. The downgrade from AA- to A+ puts Britain on a par with Chile and heavily-indebted Belgium, and the US, which Dagong downgraded in November.
Lehman, Bear, AIG, Merrill Lynch...
...Spain, Portugal, Italy, Greece.
Of these, Italy is the AIG. The largest of the four in terms of population and GDP. Greece would be akin to Lehman, since it appears its government debt is the catalyst.
If the EU does not, or cannot, guarantee a sizable portion of the liabilities of these countries, this will get very ugly very quickly.
As I have said, many strategists consider a return of Realpolitik (up to and including the point of armed conflict) such a remote possibility that contemplating risk scenarios of what a fractured Europe would look like is a colossal waste of time, and instead focus on Taiwan and the Asia arena.
I am of a different opinion on the subject and advise to refrain from entering into an entirely new point on the risk spectrum. The developed world, sans North America, is to be avoided.
Of these, Italy is the AIG. The largest of the four in terms of population and GDP. Greece would be akin to Lehman, since it appears its government debt is the catalyst.
If the EU does not, or cannot, guarantee a sizable portion of the liabilities of these countries, this will get very ugly very quickly.
As I have said, many strategists consider a return of Realpolitik (up to and including the point of armed conflict) such a remote possibility that contemplating risk scenarios of what a fractured Europe would look like is a colossal waste of time, and instead focus on Taiwan and the Asia arena.
I am of a different opinion on the subject and advise to refrain from entering into an entirely new point on the risk spectrum. The developed world, sans North America, is to be avoided.
Tuesday, May 24, 2011
Greece...
...the EU commissioner (basically a country's representative to the EU) from Greece is now openly floating the idea of an exit from the Euro and a return to the Drachma.
A completely rational response given the threat to Greek sovereignty (coupled with its proud anarchist traditions...a descent into austerity threatens the physical well-being of Greek politicians. Thus, this is no time for subtlety.
A completely rational response given the threat to Greek sovereignty (coupled with its proud anarchist traditions...a descent into austerity threatens the physical well-being of Greek politicians. Thus, this is no time for subtlety.
LatAm
It won't be long before a carrier group anchors in the Carribean above Aruba and the Antilles...perhaps my formulation of the Obama Doctrine will come to fruition after all.
The U.S. State Department announced sanctions against Venezuelan state-owned oil company Petroleos de Venezuela (PDVSA) May 24 in retaliation for Venezuela's shipments of gasoline to Iran. The sanctions bar PDVSA from any U.S. government contracts, as well as any U.S.-sourced export/import financing.
According to the State Department, the sanctions will not impact PDVSA's ability to ship oil into the United States, or the operations of its subsidiaries. While it is too early to know the precise impact the sanctions on PDVSA will have, on its face the move appears more symbolic than actually intended to harm PDVSA's business interests.
Venezuelan President Hugo Chavez announced in September 2009 a deal worth $800 million under which Venezuela would ship Iran 20,000 barrels of gasoline per day to supply its domestic consumption needs. Venezuela has admitted to occasional shipments of gasoline between 2009 and 2010, but has also made several statements indicating that it had halted shipments because Iran no longer needed Venezuelan gasoline. Closer to the truth is that the Venezuelan refining sector struggles to meet soaring domestic demand, suffers from a serious lack of maintenance and can barely keep up with its own production needs. Venezuela simply lacks both the excess capacity to supply Iran, and the financial stability to absorb opportunity costs of shipping gasoline halfway around the world.
Another pressing concern for Venezuela is the possibility that it might actually provoke a serious response out of the United States by violating U.N. sanctions against Iran. While relations between the United States and Venezuela appeared to ameliorate briefly in the wake of U.S. President Barack Obama taking office, the two quickly returned to tense relations. The most recent source of tension between the two states was the extradition to Venezuela by Colombia of accused drug kingpin Walid Makled. That U.S. sanctions against PDVSA follow what some interest groups in Washington view as a missed opportunity to gain leverage over Chavez is no coincidence. Pressure has been building in Washington to enact sanctions against Chavez and his regime, including efforts to link the Venezuelan government to international militant organization Hezbollah.
The U.S. State Department announced sanctions against Venezuelan state-owned oil company Petroleos de Venezuela (PDVSA) May 24 in retaliation for Venezuela's shipments of gasoline to Iran. The sanctions bar PDVSA from any U.S. government contracts, as well as any U.S.-sourced export/import financing.
According to the State Department, the sanctions will not impact PDVSA's ability to ship oil into the United States, or the operations of its subsidiaries. While it is too early to know the precise impact the sanctions on PDVSA will have, on its face the move appears more symbolic than actually intended to harm PDVSA's business interests.
Venezuelan President Hugo Chavez announced in September 2009 a deal worth $800 million under which Venezuela would ship Iran 20,000 barrels of gasoline per day to supply its domestic consumption needs. Venezuela has admitted to occasional shipments of gasoline between 2009 and 2010, but has also made several statements indicating that it had halted shipments because Iran no longer needed Venezuelan gasoline. Closer to the truth is that the Venezuelan refining sector struggles to meet soaring domestic demand, suffers from a serious lack of maintenance and can barely keep up with its own production needs. Venezuela simply lacks both the excess capacity to supply Iran, and the financial stability to absorb opportunity costs of shipping gasoline halfway around the world.
Another pressing concern for Venezuela is the possibility that it might actually provoke a serious response out of the United States by violating U.N. sanctions against Iran. While relations between the United States and Venezuela appeared to ameliorate briefly in the wake of U.S. President Barack Obama taking office, the two quickly returned to tense relations. The most recent source of tension between the two states was the extradition to Venezuela by Colombia of accused drug kingpin Walid Makled. That U.S. sanctions against PDVSA follow what some interest groups in Washington view as a missed opportunity to gain leverage over Chavez is no coincidence. Pressure has been building in Washington to enact sanctions against Chavez and his regime, including efforts to link the Venezuelan government to international militant organization Hezbollah.
A summation...
...of how to think about serious matters like macroeconomics.
From Fitzhugh's "In Defense of Slavery" (yes, good passages can come from bad premises)
The reader will excuse us for so often introducing the thoughts and words of others. We do so not only for the sake of their authority, but because they express our own thoughts better than we can express them ourselves. In truth, we deal out our thoughts, facts and arguments in that irregular and desultory way in which we acquired them. We are no regular built scholar--have pursued no "royal road to mathematics," nor to anything else. We have, by observation and desultory reading, picked up our information by the wayside, and endeavored to arrange, generalize and digest it for ourselves. To learn "to forget," is almost the only thing we have labored to learn. We have been so bored through life by friends... who retain on their intellectual stomachs in gross, crude, undigested, and unassimilated form, every thing that they read, and retail and repeat it in that undigested form.... We thought once this thing was original with us, but find that Say pursued this plan in writing his Political Economy. He first read all the books he could get hold of on this subject, and then took time to forget them, before he began to write.
From Fitzhugh's "In Defense of Slavery" (yes, good passages can come from bad premises)
The reader will excuse us for so often introducing the thoughts and words of others. We do so not only for the sake of their authority, but because they express our own thoughts better than we can express them ourselves. In truth, we deal out our thoughts, facts and arguments in that irregular and desultory way in which we acquired them. We are no regular built scholar--have pursued no "royal road to mathematics," nor to anything else. We have, by observation and desultory reading, picked up our information by the wayside, and endeavored to arrange, generalize and digest it for ourselves. To learn "to forget," is almost the only thing we have labored to learn. We have been so bored through life by friends... who retain on their intellectual stomachs in gross, crude, undigested, and unassimilated form, every thing that they read, and retail and repeat it in that undigested form.... We thought once this thing was original with us, but find that Say pursued this plan in writing his Political Economy. He first read all the books he could get hold of on this subject, and then took time to forget them, before he began to write.
Improvement.
The Ratings Agencies have played their part, and now its time for a more empirical view of credit ratings. This of course assumes that accurate spreads can be garnered for all the relevant securities, but it is a positive step in the right direction.
LONDON, May 1 (Reuters) - Goldman Sachs's (GS.N) fund arm is developing a new global credit strategy for institutions that will rely on market prices rather than heavily-criticised credit rating agencies.
"Clients often give investment guidelines determined by credit ratings, but we don't think that's the way to think about risk," said Andrew Wilson, global co-head of fixed income and currency at Goldman Sachs Asset Management (GSAM).
Instead, GSAM's approach is to segment credit spreads into five groups, to assess how issuers are trading in relation to their peers, Wilson told Reuters in an interview.
"So the widest 20 percent are the most risky, regardless of the rating," he said.
"That has helped us identify risky names and react in a timely fashion, as the market is a much better guide. Credit spreads widen immediately on bad news, whereas it might take a while for the ratings agencies to reflect that."
LONDON, May 1 (Reuters) - Goldman Sachs's (GS.N) fund arm is developing a new global credit strategy for institutions that will rely on market prices rather than heavily-criticised credit rating agencies.
"Clients often give investment guidelines determined by credit ratings, but we don't think that's the way to think about risk," said Andrew Wilson, global co-head of fixed income and currency at Goldman Sachs Asset Management (GSAM).
Instead, GSAM's approach is to segment credit spreads into five groups, to assess how issuers are trading in relation to their peers, Wilson told Reuters in an interview.
"So the widest 20 percent are the most risky, regardless of the rating," he said.
"That has helped us identify risky names and react in a timely fashion, as the market is a much better guide. Credit spreads widen immediately on bad news, whereas it might take a while for the ratings agencies to reflect that."
Good article...
...in The Economist regarding public relations firms and their roles in media. It is useful to be reminded that virtually everything you read, see, and hear from "popular" news media derives its material from someone or something attempting to manipulate opinion to either drive votes or sales.
A snippet:
FOR journalists, public-relations agents are like urban foxes: there seem to be more of them about these days, and they are more brazen than ever. Reporters were shocked, shocked to hear on May 12th that Burson-Marsteller (BM), a big PR agency, had tried to persuade newspaper writers and a blogger to scribble nasty things about Google’s record on privacy, while concealing that its growing rival, Facebook, was paying for this lobbying. To make things worse, BM then erased criticism of its shady spinning that had been posted on the agency’s own Facebook page. It thereby committed three cardinal sins of PR: becoming the story; getting caught; and appearing to attempt a cover-up.
The PR flacks who did Facebook’s dirty work were two ex-journalists who had only recently gone over to the dark side. Their error was to put their indecent proposal in writing, in an e-mail pitch. When the blogger, Christopher Soghoian, sensibly asked who was paying them to do so, they refused—again in writing—to say, whereupon Mr Soghoian published their exchange of messages. This prompted USA Today to reveal that it had been on the receiving end of a similar PR pitch, and the Daily Beast, an online newspaper, to reveal that Facebook was the paymaster.
More seasoned PR flacks might have done it differently. First, lunch the journalists concerned, ostensibly to discuss some other story. Then, over dessert, casually slip into the conversation the poison that their secret client wanted them to spread. With luck the reporters would follow up on the scuttlebutt without mentioning its source, assuring themselves that they had got the story through their “contacts”.
A snippet:
FOR journalists, public-relations agents are like urban foxes: there seem to be more of them about these days, and they are more brazen than ever. Reporters were shocked, shocked to hear on May 12th that Burson-Marsteller (BM), a big PR agency, had tried to persuade newspaper writers and a blogger to scribble nasty things about Google’s record on privacy, while concealing that its growing rival, Facebook, was paying for this lobbying. To make things worse, BM then erased criticism of its shady spinning that had been posted on the agency’s own Facebook page. It thereby committed three cardinal sins of PR: becoming the story; getting caught; and appearing to attempt a cover-up.
The PR flacks who did Facebook’s dirty work were two ex-journalists who had only recently gone over to the dark side. Their error was to put their indecent proposal in writing, in an e-mail pitch. When the blogger, Christopher Soghoian, sensibly asked who was paying them to do so, they refused—again in writing—to say, whereupon Mr Soghoian published their exchange of messages. This prompted USA Today to reveal that it had been on the receiving end of a similar PR pitch, and the Daily Beast, an online newspaper, to reveal that Facebook was the paymaster.
More seasoned PR flacks might have done it differently. First, lunch the journalists concerned, ostensibly to discuss some other story. Then, over dessert, casually slip into the conversation the poison that their secret client wanted them to spread. With luck the reporters would follow up on the scuttlebutt without mentioning its source, assuring themselves that they had got the story through their “contacts”.
Monday, May 23, 2011
Trajectories...
As the world moves to more competitive austerity measures and trade policies (themselves largely a badge of honor displayed by politicians to succor their constituents...and also as a distraction from previous profligacy) history has taught us several lessons.
Current events likely presage a new era of Real Politik and active competition between nations especially in the developed world. Two decades of relative cooperation will in my view yield to some harsh economic realities ahead. We note that recent and increasing attacks on all manner of civil liberties in the name of expediency and arbitrary standards of conduct by Central Governments to pick winners without regard to process as extremely dangerous precursors to putative events.
This is certainly not to say the world will end, mayan calander style, but it does require a re-thinking of global markets and what assets likely appreciate in these (transitory, it must be said...tough times do not last and life goes on) times.
As I have intimated several times on this blog, new standards of order will not be held by positive economic conditions augmenting all living standards, but by more coercive methods. History has shown us that when austerity measures are put in place, populations reject the FAITH of PROGRESS that was so vigorously sold to them by their leaders.
Nothing Changes.
Current events likely presage a new era of Real Politik and active competition between nations especially in the developed world. Two decades of relative cooperation will in my view yield to some harsh economic realities ahead. We note that recent and increasing attacks on all manner of civil liberties in the name of expediency and arbitrary standards of conduct by Central Governments to pick winners without regard to process as extremely dangerous precursors to putative events.
This is certainly not to say the world will end, mayan calander style, but it does require a re-thinking of global markets and what assets likely appreciate in these (transitory, it must be said...tough times do not last and life goes on) times.
As I have intimated several times on this blog, new standards of order will not be held by positive economic conditions augmenting all living standards, but by more coercive methods. History has shown us that when austerity measures are put in place, populations reject the FAITH of PROGRESS that was so vigorously sold to them by their leaders.
Nothing Changes.
U.S. drug policy fail
This article sums up the massive public waste U.S. drug policy generates.
She was sentenced to 12 years behind bars for selling two baggies of marijuana worth about $30.
Patricia says, "I've never been arrested. I've never had to spend any time in jail. I knew I was in trouble. I knew what I did. I didn't try to deny it or hide it. But I never thought it would be this."
She was sentenced to 12 years behind bars for selling two baggies of marijuana worth about $30.
Patricia says, "I've never been arrested. I've never had to spend any time in jail. I knew I was in trouble. I knew what I did. I didn't try to deny it or hide it. But I never thought it would be this."
Greek Fire(sale)
One of the wonderful things about general sovereign debt obligations is that they are simply obligations on tax receipts, and not secured (as are other bonds) by physical assets. This leaves some national property unencumbered for sale.
The Greek government has said it will begin to sell stakes in a number of domestic corporations "immediately" in order to raise cash to help reduce its massive debts.
These include stakes in the telecoms firm OTE, state-owned Postbank and the ports of Athens and Thessaloniki.
Earlier, European stock markets fell, partly due to continuing fears about a possible debt restructuring in Greece.
Weak eurozone economic data also hit investor sentiment.
"The cabinet decided to proceed immediately with the sale of stakes in OTE, the Postbank, the Athens and Thessaloniki ports and the Thessaloniki water company in order to front-load its ambitious privatisation programme," said Greek Finance Minister George Papaconstantinou.
The Greek government has said it will begin to sell stakes in a number of domestic corporations "immediately" in order to raise cash to help reduce its massive debts.
These include stakes in the telecoms firm OTE, state-owned Postbank and the ports of Athens and Thessaloniki.
Earlier, European stock markets fell, partly due to continuing fears about a possible debt restructuring in Greece.
Weak eurozone economic data also hit investor sentiment.
"The cabinet decided to proceed immediately with the sale of stakes in OTE, the Postbank, the Athens and Thessaloniki ports and the Thessaloniki water company in order to front-load its ambitious privatisation programme," said Greek Finance Minister George Papaconstantinou.
Friday, May 20, 2011
Relative value
Recall the excessive (read: tulip-mania levels of reality bending) prices Japanese investors were willing to pay for U.S. real estate during its boom years. Note how the story for gold demand is revolving around several narratives, whilst never seriously discussing the possibility of a collapse like every other commodity market whose values have appreciated by 100% or more. Name ONE, dear reader, that has achieved this type of price sustainability since 1972, in real or nominal currency.
There is none.
(From the WSJ)
Chinese investors are snapping up gold bars and coins, buying more than ever before in the first quarter of 2011 and overtaking Indian buyers as the world's biggest purchasers of the metal.
China's investment demand for gold more than doubled to 90.9 metric tons in the first three months of the year, outpacing India's modest rise to 85.6 tons, the World Gold Council said in its quarterly report on Thursday. China now accounts for 25% of gold investment demand, compared with India's 23%.
The report underscores the rising appetite for gold among the growing middle-class in China. Fears of the country's soaring inflation, as well as a search for new investments, is luring investors to gold, and marketing of the precious metal has also increased in recent months.
"I think people will be surprised by the strength in the Chinese demand, but we think this is a trend that is set to continue," said Eily Ong, an investment research manager at the gold council.
[More from WSJ.com: LinkedIn IPO Soars, Feeding Web Boom]
Historically, India has been the largest investment market for gold. In 2007, just before investing in gold began to take off globally, India's physical gold demand accounted for 61% of the world's total. China's was 9%. In terms of total consumer demand, which also included jewelry, India is still a bigger consumer of gold than China, taking in 291.8 tons in the first quarter, compared with China's 233.8 tons.
Still, the voracious appetite shown by Chinese buyers prompted the gold council to increase its forecast for the nation's demand.
"In March 2010, we predicted that gold demand in China would double by 2020; however, we believe that this doubling may in fact be achieved sooner," said Albert Cheng, the World Gold Council 's managing director for the Far East. "Increasing prosperity in the world's most populous country coupled with their high affinity for gold will serve to drive demand in the long term."
There is none.
(From the WSJ)
Chinese investors are snapping up gold bars and coins, buying more than ever before in the first quarter of 2011 and overtaking Indian buyers as the world's biggest purchasers of the metal.
China's investment demand for gold more than doubled to 90.9 metric tons in the first three months of the year, outpacing India's modest rise to 85.6 tons, the World Gold Council said in its quarterly report on Thursday. China now accounts for 25% of gold investment demand, compared with India's 23%.
The report underscores the rising appetite for gold among the growing middle-class in China. Fears of the country's soaring inflation, as well as a search for new investments, is luring investors to gold, and marketing of the precious metal has also increased in recent months.
"I think people will be surprised by the strength in the Chinese demand, but we think this is a trend that is set to continue," said Eily Ong, an investment research manager at the gold council.
[More from WSJ.com: LinkedIn IPO Soars, Feeding Web Boom]
Historically, India has been the largest investment market for gold. In 2007, just before investing in gold began to take off globally, India's physical gold demand accounted for 61% of the world's total. China's was 9%. In terms of total consumer demand, which also included jewelry, India is still a bigger consumer of gold than China, taking in 291.8 tons in the first quarter, compared with China's 233.8 tons.
Still, the voracious appetite shown by Chinese buyers prompted the gold council to increase its forecast for the nation's demand.
"In March 2010, we predicted that gold demand in China would double by 2020; however, we believe that this doubling may in fact be achieved sooner," said Albert Cheng, the World Gold Council 's managing director for the Far East. "Increasing prosperity in the world's most populous country coupled with their high affinity for gold will serve to drive demand in the long term."
Thursday, May 19, 2011
Dangerous rhetoric...
...emanating from just about every political head on the planet. Multiple references to a "world as it should be" and other utopian nonense is, and always has been, one of the worst states for the vast majority of people on the planet.
The Euro predicament in a story...
...From Martin Wolf of the FT. As I have said, the Euro actions are long options for Euro area nominal GDP to rise in order to "lift all ships".
A story is told of a man sentenced by his king to death. The latter tells him that he can keep his life if he teaches the monarch’s horse to talk within a year. The condemned man agrees. Asked why he did so, he answers that anything might happen: the king might die; he might die; and the horse might learn to talk.
This has been the eurozone’s approach
A story is told of a man sentenced by his king to death. The latter tells him that he can keep his life if he teaches the monarch’s horse to talk within a year. The condemned man agrees. Asked why he did so, he answers that anything might happen: the king might die; he might die; and the horse might learn to talk.
This has been the eurozone’s approach
Tuesday, May 17, 2011
Instant Classic...
...a near-perfect example of a pseudo event. Nothing substantive whatsoever in this communique.
Guests to the 44th Annual Meeting of the Board of Governors of the Asian Development Bank (ADB) have praised Vietnam’s solutions to curb inflation and stabilise the macro-economy.
IMF Deputy General Director Naoyuki Shiohara and World Bank Vice President James Adams were among the guests who were received by Prime Minister Nguyen Tan Dung on separate occasions in Hanoi on May 5.
At a reception for IMF Deputy General Director Shiohara, PM Dung hailed the practical results of the cooperation between Vietnam and the International Monetary Fund (IMF) in policy consultation and official training.
He told Shiohara that Vietnam would continue with inflation control, macro economic stabilisation and ensuring social welfare for sustainable economic development.
The PM said he hoped the IMF will continue working with Vietnam in policy consultation.
Shiohara congratulated Vietnam on its successful organisation of ADB’s 44 th annual meeting, saying that effective cooperation between the IMF and Vietnam has contributed to assisting Vietnam’s micro-economic management and policy consultation.
He hailed the Vietnamese Government’s solutions to stabilise the macroeconomy but suggested the nation continue implementing its policy in a medium and long-term to control inflation.
While receiving WB Vice President Adams, PM Dung highlighted the important contributions of the Vietnam-WB relationship to the country’s socio-economic development.
Guests to the 44th Annual Meeting of the Board of Governors of the Asian Development Bank (ADB) have praised Vietnam’s solutions to curb inflation and stabilise the macro-economy.
IMF Deputy General Director Naoyuki Shiohara and World Bank Vice President James Adams were among the guests who were received by Prime Minister Nguyen Tan Dung on separate occasions in Hanoi on May 5.
At a reception for IMF Deputy General Director Shiohara, PM Dung hailed the practical results of the cooperation between Vietnam and the International Monetary Fund (IMF) in policy consultation and official training.
He told Shiohara that Vietnam would continue with inflation control, macro economic stabilisation and ensuring social welfare for sustainable economic development.
The PM said he hoped the IMF will continue working with Vietnam in policy consultation.
Shiohara congratulated Vietnam on its successful organisation of ADB’s 44 th annual meeting, saying that effective cooperation between the IMF and Vietnam has contributed to assisting Vietnam’s micro-economic management and policy consultation.
He hailed the Vietnamese Government’s solutions to stabilise the macroeconomy but suggested the nation continue implementing its policy in a medium and long-term to control inflation.
While receiving WB Vice President Adams, PM Dung highlighted the important contributions of the Vietnam-WB relationship to the country’s socio-economic development.
The Duke of Newport Beach
Communicates his position. I agree with his prognosis but strongly disagree with his diagnosis.
The co-CEO of the world’s largest bond fund has warned America that it faces a combination of higher inflation, austerity and financial repression over the coming years as policy makers grapple with the impact of the financial crisis and the subsequent policy response.
“Think of the debt overhangs in advanced economies where projected rates of economic growth are not sufficient to avoid mounting debt and deficit problems,” said Mohamed A. El-Erian in speech at a PIMCO forum on growth.
“Some are already flashing red, and they will force even more difficult decisions between restructuring and the massive socialization of losses, like Greece,” he added.
“Others are flashing orange, like the US, and already require future sacrifices, most likely through a combination of higher inflation, austerity and, importantly, financial repression,” said El-Erian, who classifies financial repression as seeking to impose negative real rates of returns on savers.
This policy will undermine the real return contract offered to savers and, in El-Erian’s view, come instead of any bold moves to address structural problems and imbalances.
“Secular baseline portfolio positioning should minimize exposure to the negative impact of financial repression, hedge against higher inflation and currency depreciation and exploit the heightened differentiation in balance sheets and growth potentials,” El-Erian added.
The co-CEO of the world’s largest bond fund has warned America that it faces a combination of higher inflation, austerity and financial repression over the coming years as policy makers grapple with the impact of the financial crisis and the subsequent policy response.
“Think of the debt overhangs in advanced economies where projected rates of economic growth are not sufficient to avoid mounting debt and deficit problems,” said Mohamed A. El-Erian in speech at a PIMCO forum on growth.
“Some are already flashing red, and they will force even more difficult decisions between restructuring and the massive socialization of losses, like Greece,” he added.
“Others are flashing orange, like the US, and already require future sacrifices, most likely through a combination of higher inflation, austerity and, importantly, financial repression,” said El-Erian, who classifies financial repression as seeking to impose negative real rates of returns on savers.
This policy will undermine the real return contract offered to savers and, in El-Erian’s view, come instead of any bold moves to address structural problems and imbalances.
“Secular baseline portfolio positioning should minimize exposure to the negative impact of financial repression, hedge against higher inflation and currency depreciation and exploit the heightened differentiation in balance sheets and growth potentials,” El-Erian added.
Sunday, May 15, 2011
Leadership Transition
I don't rule out foul play, but that appears to be irrelevant at this point. This man has long had a "reputation", but this is remarkable given his intent to run for the French presidency.
Dominique Strauss-Kahn, head of the International Monetary Fund and a presidential hopeful in France, has been arrested and charged with attempted rape, criminal sexual act and unlawful imprisonment, New York City police and the IMF said on Sunday.
His personal attorney, William Taylor, confirmed that Mr. Strauss-Kahn would plead not guilty to the charges today, suggesting he will be arraigned on Sunday.
The arrest is set to change the course of France's presidential elections next year, likely depriving the Socialist Part of its most promising candidate and boosting the chances of reelection for French President Nicolas Sarkozy.
"Whatever the outcome of the procedure is, [Mr. Strauss-Kahn] will not be able to run for president," said Jacques Attali, a former advisor to France's late Socialist president Francois Mitterrand.
The arrest of Mr. Strauss-Kahn, 62 years old, who was apprehended by police in the first-class section of an Air France plane minutes before it left New York for Paris on Saturday night, also throws into disarray the leadership of the IMF, whose intervention has played a key role helping European leaders manage the continent's debt crisis.
Dominique Strauss-Kahn, head of the International Monetary Fund and a presidential hopeful in France, has been arrested and charged with attempted rape, criminal sexual act and unlawful imprisonment, New York City police and the IMF said on Sunday.
His personal attorney, William Taylor, confirmed that Mr. Strauss-Kahn would plead not guilty to the charges today, suggesting he will be arraigned on Sunday.
The arrest is set to change the course of France's presidential elections next year, likely depriving the Socialist Part of its most promising candidate and boosting the chances of reelection for French President Nicolas Sarkozy.
"Whatever the outcome of the procedure is, [Mr. Strauss-Kahn] will not be able to run for president," said Jacques Attali, a former advisor to France's late Socialist president Francois Mitterrand.
The arrest of Mr. Strauss-Kahn, 62 years old, who was apprehended by police in the first-class section of an Air France plane minutes before it left New York for Paris on Saturday night, also throws into disarray the leadership of the IMF, whose intervention has played a key role helping European leaders manage the continent's debt crisis.
Saturday, May 14, 2011
Advantage: G.
This should be challenged and ruled Unconstitutional by the SCOTUS. Government should enjoy broad powers, but also be tempered because of the massive Ex-Post (and in Indiana for now, Ex-Ante) powers of the state apparatus it can levy upon citizens.
INDIANAPOLIS | Overturning a common law dating back to the English Magna Carta of 1215, the Indiana Supreme Court ruled Thursday that Hoosiers have no right to resist unlawful police entry into their homes.
In a 3-2 decision, Justice Steven David writing for the court said if a police officer wants to enter a home for any reason or no reason at all, a homeowner cannot do anything to block the officer's entry.
"We believe ... a right to resist an unlawful police entry into a home is against public policy and is incompatible with modern Fourth Amendment jurisprudence," David said. "We also find that allowing resistance unnecessarily escalates the level of violence and therefore the risk of injuries to all parties involved without preventing the arrest."
David said a person arrested following an unlawful entry by police still can be released on bail and has plenty of opportunities to protest the illegal entry through the court system.
INDIANAPOLIS | Overturning a common law dating back to the English Magna Carta of 1215, the Indiana Supreme Court ruled Thursday that Hoosiers have no right to resist unlawful police entry into their homes.
In a 3-2 decision, Justice Steven David writing for the court said if a police officer wants to enter a home for any reason or no reason at all, a homeowner cannot do anything to block the officer's entry.
"We believe ... a right to resist an unlawful police entry into a home is against public policy and is incompatible with modern Fourth Amendment jurisprudence," David said. "We also find that allowing resistance unnecessarily escalates the level of violence and therefore the risk of injuries to all parties involved without preventing the arrest."
David said a person arrested following an unlawful entry by police still can be released on bail and has plenty of opportunities to protest the illegal entry through the court system.
Is Mr. Stiglitz...
...one of my readers?
I have been at odds with him over many things, but on this issue he appears to be on the right side of history.
(From "Advisor One" blog)
Nobel Prize-winning economist Joseph Stiglitz said that countries adopting an austerity-based economic policy were sure to fail. Speaking in Copenhagen on Friday, he accused European leaders of what he called “deficit fetishism,” arguing that budget cutting in lean times retards rather than encourages economic growth.
Bloomberg News quotes the Stiglitz, a Columbia University professor, paraphrasing the famous Einstein quote about insanity. Said Stiglitz: “Austerity is an experiment that has been tried before with the same results.”
The Stiglitz criticism comes on the heels of first-quarter economic results that proved stronger than expected for Europe’s leading economies, Germany and France. Even Greece, whose solvency issues triggered Europe’s economic crisis, eked out its first economic expansion in three years, with growth of 0.8% for the quarter, which matched the EU average.
I have been at odds with him over many things, but on this issue he appears to be on the right side of history.
(From "Advisor One" blog)
Nobel Prize-winning economist Joseph Stiglitz said that countries adopting an austerity-based economic policy were sure to fail. Speaking in Copenhagen on Friday, he accused European leaders of what he called “deficit fetishism,” arguing that budget cutting in lean times retards rather than encourages economic growth.
Bloomberg News quotes the Stiglitz, a Columbia University professor, paraphrasing the famous Einstein quote about insanity. Said Stiglitz: “Austerity is an experiment that has been tried before with the same results.”
The Stiglitz criticism comes on the heels of first-quarter economic results that proved stronger than expected for Europe’s leading economies, Germany and France. Even Greece, whose solvency issues triggered Europe’s economic crisis, eked out its first economic expansion in three years, with growth of 0.8% for the quarter, which matched the EU average.
Friday, May 13, 2011
The Scepter and the Sword
As I have stated previously, the tenor and location of our fleets allow us to oberve foreign policy priority and objectives.
(no specific locations for obvious reasons are provided by the Navy)
U.S.S. Enterprise: 23Mar-10May2011, Arabian Sea
U.S.S. Carl Vinson - 06May-10May2011, Indian Ocean
U.S.S. Ronald Reagan - 10May2011, North Arabian Sea
(the rest are close to/at port)
Addendum: Added link entitled "U.S. Carrier Group Locations" to useful links sections on this blog for future reference.
(no specific locations for obvious reasons are provided by the Navy)
U.S.S. Enterprise: 23Mar-10May2011, Arabian Sea
U.S.S. Carl Vinson - 06May-10May2011, Indian Ocean
U.S.S. Ronald Reagan - 10May2011, North Arabian Sea
(the rest are close to/at port)
Addendum: Added link entitled "U.S. Carrier Group Locations" to useful links sections on this blog for future reference.
Shareholder Rights...
...Paper Dragon style.
When you "own" a security, on any segment of the capital stack of a company, what precisely do you "own" if actions like these can take place without explicit shareholder approval? The proffered explanation of "we had to divest 40%+ of the company due to regulatory reasons" is amusing and its outlandishness is only in proportion to its real purpose: to ridicule and humuliate its American partners.
So again, what do you have if you invest in these companies?
(snippet from New York Times)
The latest and most significant dust-up became public this week when Yahoo said that the Alibaba Group had transferred ownership of Alipay, an online payment service, to a group led by Jack Ma, Alibaba’s chief executive. The move was particularly worrisome to Yahoo because it would seem to erode the value of its 43 percent stake in Alibaba, which also operates separate eBay-style sites for businesses and consumers.
Yahoo recently said that stake’s value had more than doubled to $2.3 billion, making it one of its most valuable assets.
The intrigue grew on Thursday when Yahoo said in another regulatory filing that it had learned of the transfer only after it was completed on March 31. Furthermore, Yahoo said that Alibaba’s management had transferred Alipay without getting approval from Alibaba’s board.
Not surprisingly, Yahoo said that it and another investor, SoftBank, “are engaged in ongoing discussions” with Alibaba. Granted, those discussions, Wall Street analysts pointed out, are taking place after the fact, not before, as would normally be the case for such major financial decisions.
Alibaba’s explanation was that it had to transfer ownership to get Alipay for a regulatory license that requires domestic ownership of certain nonfinancial institutions.
When you "own" a security, on any segment of the capital stack of a company, what precisely do you "own" if actions like these can take place without explicit shareholder approval? The proffered explanation of "we had to divest 40%+ of the company due to regulatory reasons" is amusing and its outlandishness is only in proportion to its real purpose: to ridicule and humuliate its American partners.
So again, what do you have if you invest in these companies?
(snippet from New York Times)
The latest and most significant dust-up became public this week when Yahoo said that the Alibaba Group had transferred ownership of Alipay, an online payment service, to a group led by Jack Ma, Alibaba’s chief executive. The move was particularly worrisome to Yahoo because it would seem to erode the value of its 43 percent stake in Alibaba, which also operates separate eBay-style sites for businesses and consumers.
Yahoo recently said that stake’s value had more than doubled to $2.3 billion, making it one of its most valuable assets.
The intrigue grew on Thursday when Yahoo said in another regulatory filing that it had learned of the transfer only after it was completed on March 31. Furthermore, Yahoo said that Alibaba’s management had transferred Alipay without getting approval from Alibaba’s board.
Not surprisingly, Yahoo said that it and another investor, SoftBank, “are engaged in ongoing discussions” with Alibaba. Granted, those discussions, Wall Street analysts pointed out, are taking place after the fact, not before, as would normally be the case for such major financial decisions.
Alibaba’s explanation was that it had to transfer ownership to get Alipay for a regulatory license that requires domestic ownership of certain nonfinancial institutions.
Thursday, May 12, 2011
Causation
The world is an incredibly complex place. Extricating causation from events is a very perilous, but necessary intellectual activity. The subject of causation is an inherently confounding arena of thought because of the different perspectives of those who seek to find it.
For example, in the law, causation typically focuses on "proximate cause" and "cause in fact" ("but for A happening, B would not have happened"). But these tests carry with them the luxury of an arbitrary truncation of time for the benefit of establishing blame on the parties by use of specific statutory (or common law) infractions.
In the markets and in forecasting, it would be foolish to apply such tests. Simply looking at the proximate source of market movements or civil unrest leads to profound misunderstanings and an incomplete notion of global events. However, this is why financial "news" networks are so powerful. They produce "proximate" causes for geo-political and economic events that have taken years, not days, to come to fruition. Human beings are hard-wired (likely a remnant of our own evolutionary biology) to simply stop once the proximate cause is satisfied. Striking marcasite with flint causes sparks. The sparks cause fire. Fire has many uses.
Let's take a straightforward example. The Revolutionary War in America circa 1776 was faught over tax laws, unfair limits on representation, and the desire for a sovereign state among the oppressed people in the colonies.
Perhaps. But for people like myself, these are necessary, but not sufficient events that "caused" the war. The desire for "freedom" and such are such incomplete notions, what were the catalysts behind such calls for action?
The Bengal Famine of 1770 caused the war. The Famine itself was "caused" by the ineptitude and incompetance of the British East India Company ("BEIC") officers, who clearly did not understand the macro-economic risks of their short-term profit maximizing decisions. BEIC suffered huge financial losses, and, being the world's most powerful company in a well-developed Military Industrial Complex (where government is De Facto controlled by business interests), simply compelled The Crown to enable the Tea Act of 1773 on the other side of the world in a jurisdiction that was thought to be docile and loyal.
The Tea Act levied a tax on all tea in the colonies...save those supplied by the British East India Company. These events "caused" the Boston Tea Party, an important catalyst for the Revolutionary War. They also "caused" Parliament to effectively nationalize the British East India company later that year.
Thus, it is important to note all potential economic causes for large geo-political events. There are several occurring at this very moment. As I have said before, nothing changes.
For example, in the law, causation typically focuses on "proximate cause" and "cause in fact" ("but for A happening, B would not have happened"). But these tests carry with them the luxury of an arbitrary truncation of time for the benefit of establishing blame on the parties by use of specific statutory (or common law) infractions.
In the markets and in forecasting, it would be foolish to apply such tests. Simply looking at the proximate source of market movements or civil unrest leads to profound misunderstanings and an incomplete notion of global events. However, this is why financial "news" networks are so powerful. They produce "proximate" causes for geo-political and economic events that have taken years, not days, to come to fruition. Human beings are hard-wired (likely a remnant of our own evolutionary biology) to simply stop once the proximate cause is satisfied. Striking marcasite with flint causes sparks. The sparks cause fire. Fire has many uses.
Let's take a straightforward example. The Revolutionary War in America circa 1776 was faught over tax laws, unfair limits on representation, and the desire for a sovereign state among the oppressed people in the colonies.
Perhaps. But for people like myself, these are necessary, but not sufficient events that "caused" the war. The desire for "freedom" and such are such incomplete notions, what were the catalysts behind such calls for action?
The Bengal Famine of 1770 caused the war. The Famine itself was "caused" by the ineptitude and incompetance of the British East India Company ("BEIC") officers, who clearly did not understand the macro-economic risks of their short-term profit maximizing decisions. BEIC suffered huge financial losses, and, being the world's most powerful company in a well-developed Military Industrial Complex (where government is De Facto controlled by business interests), simply compelled The Crown to enable the Tea Act of 1773 on the other side of the world in a jurisdiction that was thought to be docile and loyal.
The Tea Act levied a tax on all tea in the colonies...save those supplied by the British East India Company. These events "caused" the Boston Tea Party, an important catalyst for the Revolutionary War. They also "caused" Parliament to effectively nationalize the British East India company later that year.
Thus, it is important to note all potential economic causes for large geo-political events. There are several occurring at this very moment. As I have said before, nothing changes.
Paradigm Lost...
...a continuing series. The funding assumptions that I have discussed on this blog on numerous occasions remain an intellectual null zone for "mainstream" economists. The below article from today's FT demonstrates this once again. Sovereign issuers do not need "loans" to get "money" to pay interest or principle on debt. The desire for the world to NET SAVE U.S. financial assets is completely rational given the geopolitical and institutional framework existing at this epoch in history.
This assymetrical fetish emphasizing net exports and "debt" levels is counterproductive to understanding what the world instructs anyone willing to look. The more officials in the Euro area in particular misapply these assumptions, the more they are forced into History's classic re-booting mechansim for governments, currencies, bonds, and sovereign nations: War.
By Axel Merk
Published: May 11 2011 13:31 | Last updated: May 11 2011 13:31
Imagine a country that spends and prints trillions to patch up any problem.
Now imagine another country where there is no central Treasury, meaning that bail-outs are less easy, and which has a central bank that has mopped up liquidity over the past year, rather than engage in quantitative easing.
Why does it surprise anyone that the latter, the eurozone, has a stronger currency than the former, the US? Because of peripheral countries’ debt refinancing issues? And the potential for contagion? These are real and serious issues, but in our assessment, they should be primarily priced into the spreads of eurozone bonds, not the euro itself.
Think of it this way: in the US, Federal Reserve chairman Ben Bernanke has testified that going off the gold standard during the Great Depression helped the US recover faster than other countries. Fast-forward to today: we believe Bernanke embraces a weaker currency as a monetary policy tool to help address the current state of the US economy. What many overlook is that someone must be on the other side of that trade: today it is the eurozone, which is experiencing a strong currency, despite the many challenges in the 17-nation bloc.
A year ago, the euro appeared to be the only asset traded as a hedge against, or to profit from, all things wrong in the eurozone. This was partly driven by liquidity, because it is easier to sell the euro than to short debt of peripheral eurozone countries; and as the trade worked, others piled in. As the euro approached lows of $1.18 against the dollar, the trade was no longer a “safe” one-way bet and traders had to look elsewhere. As a result, the euro is now substantially stronger, yet peripheral bond debt is much weaker.
The one language policymakers understand is that of the bond market. A “wonderful dialogue” has been playing out, encouraging policymakers to engage in real reform. Often minority governments have made extremely tough decisions. Ultimately, it us up to each country to implement their respective reforms; political realities will cause many to fall short of promises, resulting in more bond market “encouragement”. Policymakers hate this dialogue, of course, but must respect it.
Any country may default on its debt. The problem is that it may be impossible to receive another loan, at least at palatable financing costs. Any country considering a default must be willing and able to absorb the consequences, which is an overnight eradication of the primary deficit.
This assymetrical fetish emphasizing net exports and "debt" levels is counterproductive to understanding what the world instructs anyone willing to look. The more officials in the Euro area in particular misapply these assumptions, the more they are forced into History's classic re-booting mechansim for governments, currencies, bonds, and sovereign nations: War.
By Axel Merk
Published: May 11 2011 13:31 | Last updated: May 11 2011 13:31
Imagine a country that spends and prints trillions to patch up any problem.
Now imagine another country where there is no central Treasury, meaning that bail-outs are less easy, and which has a central bank that has mopped up liquidity over the past year, rather than engage in quantitative easing.
Why does it surprise anyone that the latter, the eurozone, has a stronger currency than the former, the US? Because of peripheral countries’ debt refinancing issues? And the potential for contagion? These are real and serious issues, but in our assessment, they should be primarily priced into the spreads of eurozone bonds, not the euro itself.
Think of it this way: in the US, Federal Reserve chairman Ben Bernanke has testified that going off the gold standard during the Great Depression helped the US recover faster than other countries. Fast-forward to today: we believe Bernanke embraces a weaker currency as a monetary policy tool to help address the current state of the US economy. What many overlook is that someone must be on the other side of that trade: today it is the eurozone, which is experiencing a strong currency, despite the many challenges in the 17-nation bloc.
A year ago, the euro appeared to be the only asset traded as a hedge against, or to profit from, all things wrong in the eurozone. This was partly driven by liquidity, because it is easier to sell the euro than to short debt of peripheral eurozone countries; and as the trade worked, others piled in. As the euro approached lows of $1.18 against the dollar, the trade was no longer a “safe” one-way bet and traders had to look elsewhere. As a result, the euro is now substantially stronger, yet peripheral bond debt is much weaker.
The one language policymakers understand is that of the bond market. A “wonderful dialogue” has been playing out, encouraging policymakers to engage in real reform. Often minority governments have made extremely tough decisions. Ultimately, it us up to each country to implement their respective reforms; political realities will cause many to fall short of promises, resulting in more bond market “encouragement”. Policymakers hate this dialogue, of course, but must respect it.
Any country may default on its debt. The problem is that it may be impossible to receive another loan, at least at palatable financing costs. Any country considering a default must be willing and able to absorb the consequences, which is an overnight eradication of the primary deficit.
Tuesday, May 10, 2011
Who cares...and a bit late.
Once again...they have to say these things to appease certain constituents. Abbottabad is next to Kashmir...
So my comments in italics bespeak to the title of this post.
The relationship between Pakistan and the US is under intense scrutiny, with the Pakistani army saying that it will review co-operation with the US if there is another violation of its sovereignity.
The warning follows the special operation by US commandos on Monday inside Pakistani territory that led to the death of Osama bin Laden, the leader of al-Qaeda.
The Pakistan army threatened on Thursday to reconsider its anti-terrorism co-operation with the US if the Americans carried out another unilateral attack like the killing of bin Laden.
"COAS made it clear that any similar action violating the sovereignty of Pakistan will warrant a review on the level of military/intelligence co-operation with the United States," the army said in a statement, referring to the chief of army staff, General Ashfaq Kayani.
It said Kayani told his colleagues that a decision had been made to reduce the number of US military personnel to the "minimum essential" levels.
Although both the US and Pakistani governments have also attempted to highlight co-operation between the two, comments coming from senior officials suggest the opposite.
Earlier on Thursday, the Pakistani foreign secretary, Salman Bashir, gave warning that regional neighbours should not think they can follow America's lead.
He cautioned the US and other countries on Thursday against future raids in the country on suspected fighters, saying that such actions would have "disastrous consequences". "We feel that that sort of misadventure or miscalculation would result in a terrible catastrophe," he said.
"There should be no doubt Pakistan has adequate capacity to ensure its own defence."
So my comments in italics bespeak to the title of this post.
The relationship between Pakistan and the US is under intense scrutiny, with the Pakistani army saying that it will review co-operation with the US if there is another violation of its sovereignity.
The warning follows the special operation by US commandos on Monday inside Pakistani territory that led to the death of Osama bin Laden, the leader of al-Qaeda.
The Pakistan army threatened on Thursday to reconsider its anti-terrorism co-operation with the US if the Americans carried out another unilateral attack like the killing of bin Laden.
"COAS made it clear that any similar action violating the sovereignty of Pakistan will warrant a review on the level of military/intelligence co-operation with the United States," the army said in a statement, referring to the chief of army staff, General Ashfaq Kayani.
It said Kayani told his colleagues that a decision had been made to reduce the number of US military personnel to the "minimum essential" levels.
Although both the US and Pakistani governments have also attempted to highlight co-operation between the two, comments coming from senior officials suggest the opposite.
Earlier on Thursday, the Pakistani foreign secretary, Salman Bashir, gave warning that regional neighbours should not think they can follow America's lead.
He cautioned the US and other countries on Thursday against future raids in the country on suspected fighters, saying that such actions would have "disastrous consequences". "We feel that that sort of misadventure or miscalculation would result in a terrible catastrophe," he said.
"There should be no doubt Pakistan has adequate capacity to ensure its own defence."
Paradigm Lost
The calls never cease for the U.S. to bolster its fiscal position to avoid default. Once again, I remind the world that the U.S., as sovereign currency issuer, cannot "default" due to a result of simply crediting Treasury Security accounts at the Fed. We must all be reminded that the reason the U.S. current account deficit is large is because other countries wish to net save (hence the positive Capital Account) U.S. financial assets. AND FOR VERY GOOD REASONS. So first I present to you a snippet from a well-respected financial website that misstates the problem. Next I present you one of those VERY GOOD REASONS.
And what is a "technical default" anyway??
Allowing the U.S. Treasury to default on its obligations because of a failure to increase the sovereign debt subject to limit would be a colossal blunder. Fortunately, that’s not what those advocating tough conditions in exchange for a debt limit increase are saying. The issue presented by many in the news media is whether Congress would elect to willingly torpedo the U.S. Treasury market – and, by extension, the global financial markets that rely on Treasuries as risk-free collateral – by refusing to increase the debt ceiling. Paul Krugman has advanced another popular narrative, namely that the “constant lectures about the need to reduce the budget deficit…represent distorted priorities, since our immediate concern should be job creation.”
Achieving growth is certainly vital to securing the future, but policymakers need to stay focused on the real default issue: whether the terms of the debt limit increase this summer will be sufficiently tough to ensure that the nation’s debt-to-GDP ratio is stabilized and eventually sharply reduced. Ironically, the greater risk of default comes from an increase in the debt limit that fails to enact tough budget rules and substantial reductions in federal outlays.
Analysis of the price dynamics of the dollar, U.S. stocks, and Treasury notes during the previous debt limit “scare” in 1995-1996 makes clear that market participants discount noise about a technical default arising from a budget impasse. The last debt crisis occurred from October 1995 to March 1996 (pdf). Just as today, there was significant noise about a potential technical default with some extreme budget hawks discussing the issue with a non chalance that could supposedly “spook the markets.”
And here is but one reason why nations love to save in U.S. dollars:
NEW YORK – A lawyer for energy company Chevron found himself on the defensive Tuesday as he argued that it was urgent that the courts protect the company from an $18 billion judgment against it in Ecuador over damage done to the Ecuadorean rain forest decades ago.
Two judges on a three-judge panel of the 2nd U.S. Circuit Court of Appeals reminded attorney Randy Mastro that Chevron once fought hard to have the environmental claims brought on behalf of 30,000 people heard by courts in Ecuador rather than the United States, where lawsuits were first filed in 1993. The lawsuits eventually were moved to Ecuador, where a judge earlier this year issued the judgment against the oil giant. The appeals panel didn't immediately rule.
"Counsel," Judge Rosemary Pooler told Mastro, "you were the one who wanted to try this case in Ecuador."
And Judge Barrington Parker said he remembered presiding over a court hearing when the San Ramon, Calif.-based Chevron Corp. was trying to get the lawsuits moved out of federal court in New York.
Mastro said Ecuador has changed dramatically since then and now has one of the world's worst legal systems.
"Times have changed, your honor," Mastro replied to the judge, saying the Ecuadorean courts were now so bad that they rivaled Iran's.
He repeated arguments he had made successfully in recent months before a lower court judge, saying that the plaintiffs in the lawsuits planned to try to get countries around the world, including Venezuela and Argentina, to seize assets belonging to Chevron so the plaintiffs could "extort" a lucrative settlement.
He urged the court to let stand an order from U.S. District Judge Lewis A. Kaplan in Manhattan. The order blocks the plaintiffs from any efforts to collect the judgment pending a November trial that may determine the legitimacy of the Ecuadorean award.
Mastro said Chevron needed the court's protection because lawyers for the Ecuadorean plaintiffs last year prepared a memorandum on how to seize Chevron's assets around the world once they won a judgment. The judgment is being appealed in Ecuador.
And what is a "technical default" anyway??
Allowing the U.S. Treasury to default on its obligations because of a failure to increase the sovereign debt subject to limit would be a colossal blunder. Fortunately, that’s not what those advocating tough conditions in exchange for a debt limit increase are saying. The issue presented by many in the news media is whether Congress would elect to willingly torpedo the U.S. Treasury market – and, by extension, the global financial markets that rely on Treasuries as risk-free collateral – by refusing to increase the debt ceiling. Paul Krugman has advanced another popular narrative, namely that the “constant lectures about the need to reduce the budget deficit…represent distorted priorities, since our immediate concern should be job creation.”
Achieving growth is certainly vital to securing the future, but policymakers need to stay focused on the real default issue: whether the terms of the debt limit increase this summer will be sufficiently tough to ensure that the nation’s debt-to-GDP ratio is stabilized and eventually sharply reduced. Ironically, the greater risk of default comes from an increase in the debt limit that fails to enact tough budget rules and substantial reductions in federal outlays.
Analysis of the price dynamics of the dollar, U.S. stocks, and Treasury notes during the previous debt limit “scare” in 1995-1996 makes clear that market participants discount noise about a technical default arising from a budget impasse. The last debt crisis occurred from October 1995 to March 1996 (pdf). Just as today, there was significant noise about a potential technical default with some extreme budget hawks discussing the issue with a non chalance that could supposedly “spook the markets.”
And here is but one reason why nations love to save in U.S. dollars:
NEW YORK – A lawyer for energy company Chevron found himself on the defensive Tuesday as he argued that it was urgent that the courts protect the company from an $18 billion judgment against it in Ecuador over damage done to the Ecuadorean rain forest decades ago.
Two judges on a three-judge panel of the 2nd U.S. Circuit Court of Appeals reminded attorney Randy Mastro that Chevron once fought hard to have the environmental claims brought on behalf of 30,000 people heard by courts in Ecuador rather than the United States, where lawsuits were first filed in 1993. The lawsuits eventually were moved to Ecuador, where a judge earlier this year issued the judgment against the oil giant. The appeals panel didn't immediately rule.
"Counsel," Judge Rosemary Pooler told Mastro, "you were the one who wanted to try this case in Ecuador."
And Judge Barrington Parker said he remembered presiding over a court hearing when the San Ramon, Calif.-based Chevron Corp. was trying to get the lawsuits moved out of federal court in New York.
Mastro said Ecuador has changed dramatically since then and now has one of the world's worst legal systems.
"Times have changed, your honor," Mastro replied to the judge, saying the Ecuadorean courts were now so bad that they rivaled Iran's.
He repeated arguments he had made successfully in recent months before a lower court judge, saying that the plaintiffs in the lawsuits planned to try to get countries around the world, including Venezuela and Argentina, to seize assets belonging to Chevron so the plaintiffs could "extort" a lucrative settlement.
He urged the court to let stand an order from U.S. District Judge Lewis A. Kaplan in Manhattan. The order blocks the plaintiffs from any efforts to collect the judgment pending a November trial that may determine the legitimacy of the Ecuadorean award.
Mastro said Chevron needed the court's protection because lawyers for the Ecuadorean plaintiffs last year prepared a memorandum on how to seize Chevron's assets around the world once they won a judgment. The judgment is being appealed in Ecuador.
Of course I agree with this notion...
...that macro is due a come-back in the intellectual and economic community. The world is too complicated for analysis...synthesis must also be included in the investment process. Simple questions like "how will the world look in 5/10/15 years?" makes one appreciate the vast number of variables involved.
By Rodney N Sullivan, CFA
What are the most profound changes likely to be as the investment management business regroups from the recent global financial crisis and moves forward into the future?
In a session Sunday at the 10th Annual Research for the Practitioner Workshop immediately preceding the start of the 64th CFA Institute Annual Conference in Edinburgh, Scotland, Sergio Focardi, professor of finance at EDHEC Business School, outlined many key shifts. He observed that recent global events have highlighted the need for a better alignment of expectations with the overall ability of economies to generate returns. As such, a top-down approach in which macroeconomics plays a much bigger role has moved to the fore, Professor Focardi argued. Investors are also paying more attention to other tensions such as liquidity risk, counterparty risk, systemic risk, and the effects of leverage.
With this evolution in thinking, Professor Focardi explained, asset allocation is becoming more dynamic, even though investors may not be fully embracing tactical asset allocation per se.
Following this move toward a more dynamic asset allocation is an expansion of the universe of investable asset classes. Portfolio diversity matters—and portfolio construction is expanding beyond stocks, bonds, cash, and real estate. Other asset classes being integrated into investment portfolios include currencies, natural resources, precious metals, private equity, infrastructure, and even intangible investments such as intellectual property rights.
Finally, Professor Focardi noted that new risk management methods are emerging in response to the financial crisis. Consider how the analysis of trends can help investors achieve better diversification and manage risk more effectively. Including the evolution of selected macroeconomic variables in the modeling of trend reversals (e.g., regime shifting models) that characterize crises can be used to improve portfolio outcomes.
By Rodney N Sullivan, CFA
What are the most profound changes likely to be as the investment management business regroups from the recent global financial crisis and moves forward into the future?
In a session Sunday at the 10th Annual Research for the Practitioner Workshop immediately preceding the start of the 64th CFA Institute Annual Conference in Edinburgh, Scotland, Sergio Focardi, professor of finance at EDHEC Business School, outlined many key shifts. He observed that recent global events have highlighted the need for a better alignment of expectations with the overall ability of economies to generate returns. As such, a top-down approach in which macroeconomics plays a much bigger role has moved to the fore, Professor Focardi argued. Investors are also paying more attention to other tensions such as liquidity risk, counterparty risk, systemic risk, and the effects of leverage.
With this evolution in thinking, Professor Focardi explained, asset allocation is becoming more dynamic, even though investors may not be fully embracing tactical asset allocation per se.
Following this move toward a more dynamic asset allocation is an expansion of the universe of investable asset classes. Portfolio diversity matters—and portfolio construction is expanding beyond stocks, bonds, cash, and real estate. Other asset classes being integrated into investment portfolios include currencies, natural resources, precious metals, private equity, infrastructure, and even intangible investments such as intellectual property rights.
Finally, Professor Focardi noted that new risk management methods are emerging in response to the financial crisis. Consider how the analysis of trends can help investors achieve better diversification and manage risk more effectively. Including the evolution of selected macroeconomic variables in the modeling of trend reversals (e.g., regime shifting models) that characterize crises can be used to improve portfolio outcomes.
Fuel for debate...
...with fuel prices wreaking havoc on import and export price indexes, we still have durables (and especially semi-durables like electronics, etc.) grinding to stop. Once fuel prices fall, expect these figures to drift into negative territory.
U.S. needs more fiscal action (tax breaks/decreases) to sustain any kind of growth. This is especially true given the debt ceiling hysteria.
U.S. needs more fiscal action (tax breaks/decreases) to sustain any kind of growth. This is especially true given the debt ceiling hysteria.
Sunday, May 08, 2011
The interest rate channel
As I have maintained for some time on this blog, the interest rate channel of monetary policy is broken. Credit activity and bank lending (the primary sources of money creation) have been grinding lower. In this case, raising interest rates would create INFLATIONARY pressures due to increased interest income and also increasing non variable COSTS for firms. This effect is exacerbated by the fashion of modern finance with regard to short-term financing and the current vogue of the Corporate Treasurer as profit center. In other words, most firms are very lean, with massive dependence on external financing to achieve Positive Net Present Value project goals.
It is a strange and unprecedented set of circumstances.
It is a strange and unprecedented set of circumstances.
Greece Red-Pills
Why oh why did'nt they take the Blue Pill? Much bigger packages were needed, as the original ones simply time-buyers that bet on the return of Economic Growth. Now its deeper and deeper into the rabbit hole, and whatever shred of credibility the ECB had is gone.
(from the Sydney Morning Herald)
Euro debt crisis deepens Gareth Hutchens
May 9, 2011
.
Greece has flagged the need for more help to deal with its sovereign debt. Photo: Reuters
FRESH concerns about Greece defaulting on its debt sent a wave of panic through global debt and currency markets at the weekend, prompting a warning by Mike Smith, the chief executive of ANZ, that global credit markets face a period of renewed turmoil.
Financial markets are set to be buffeted from all sides this week as investors grapple with inflamed European bond markets, fallout from Treasurer Wayne Swan's budget and the release of key employment data.
Europe's leaders tried to prevent panic late on Friday after it emerged that Greek officials had approached European finance ministers at an unscheduled meeting in Luxembourg to plead for more help in tackling their €327 billion ($A437.7 billion) sovereign debt pile - a figure which equates to 160 per cent of national output.
Advertisement: Story continues below Currency markets were rattled after claims that Greece's debt burden could force it out of the currency union - something that was rejected by officials.
The euro fell sharply against the US dollar to $1.4337 in New York. The Australian dollar finished firmer
Interesting promotional release...
...continued. The below is from the same person (and his eponymous firm) that claims U.S. Bonds are junk and Chinese and Thailand bonds are "A" (highest) rated in the world.
My comments in italics.
With our massive deficits, we must go, hat in hand, asking for money from central banks and investors in Asia, Europe, and even Latin America.
We don't need to go to anyone. We don't need to "get" dollars from anywhere. There is no "funding" of our government by other nations. This would be true if our currency were pegged to gold, but no longer applies.
With our massive trade deficits, spending more on imports than we earn on exports, we run back for still more money from citizens of Asian, Europe, and Latin America.
imports are real benefits, exports real costs. This analayis is akin to using Newtonian physics to describe quantum physics...the two systems simply do not meld and require different assumptions to hold valid.
And now, after thousands of such trips and billions of such transactions, we are approaching our final Day of Reckoning.
Here we go...
Amazing how much has changed in just one generation, isn’t it?
Don’t our leaders see how dangerous this is? Don’t they see the consequences of their complacency?
It is amazing, I will give him that.
This is why we have issued our new Weiss Sovereign Debt Ratings. This is why we have rated the United States Government a “C,” two notches above junk.
Yup, U.S. is teetering on junk. Right. The beacon of world freedom, order, and capitalism has a debt rating equal to dictatorial plantation nations whose main exports are drugs. Outstanding.
And it’s also apparently why it has generated such an immediate press media and controversy.
Our recommendation:
If you own medium- or long-term government notes and bonds, dump them immediately.
If you have your cash in short-term U.S. Treasury bills, bank CDs, or money markets, be sure to surround them with investments that go up when the U.S. dollar falls.
And if you wish to profit from this crisis, consider adding still further to those contra-dollar investments.
Most important, get ready for the coming turmoil in global markets — caused by the Federal Reserve’s follies and Washington’s inaction.
Turmoil yes...most interesting the man does not seem to notice how the dollar and U.S. financial assets perform before, during, and after volatility spikes.
My comments in italics.
With our massive deficits, we must go, hat in hand, asking for money from central banks and investors in Asia, Europe, and even Latin America.
We don't need to go to anyone. We don't need to "get" dollars from anywhere. There is no "funding" of our government by other nations. This would be true if our currency were pegged to gold, but no longer applies.
With our massive trade deficits, spending more on imports than we earn on exports, we run back for still more money from citizens of Asian, Europe, and Latin America.
imports are real benefits, exports real costs. This analayis is akin to using Newtonian physics to describe quantum physics...the two systems simply do not meld and require different assumptions to hold valid.
And now, after thousands of such trips and billions of such transactions, we are approaching our final Day of Reckoning.
Here we go...
Amazing how much has changed in just one generation, isn’t it?
Don’t our leaders see how dangerous this is? Don’t they see the consequences of their complacency?
It is amazing, I will give him that.
This is why we have issued our new Weiss Sovereign Debt Ratings. This is why we have rated the United States Government a “C,” two notches above junk.
Yup, U.S. is teetering on junk. Right. The beacon of world freedom, order, and capitalism has a debt rating equal to dictatorial plantation nations whose main exports are drugs. Outstanding.
And it’s also apparently why it has generated such an immediate press media and controversy.
Our recommendation:
If you own medium- or long-term government notes and bonds, dump them immediately.
If you have your cash in short-term U.S. Treasury bills, bank CDs, or money markets, be sure to surround them with investments that go up when the U.S. dollar falls.
And if you wish to profit from this crisis, consider adding still further to those contra-dollar investments.
Most important, get ready for the coming turmoil in global markets — caused by the Federal Reserve’s follies and Washington’s inaction.
Turmoil yes...most interesting the man does not seem to notice how the dollar and U.S. financial assets perform before, during, and after volatility spikes.
Precisely Wrong
"I would rather be vaguely right than precisely wrong"
-J.M. Keynes
Making it easier to buy Chinese securities is akin to making purchases of any weapon system in the United States instantly legal. I should just stop talking about this issue entirely as there seems an eery correlation between my agitation levels and subsequent official U.S. action in China.
Treasury Secretary Timothy F. Geithner will urge China to allow higher interest rates when he meets with Chinese leaders this week, as the U.S. extends its push for a stronger yuan.
Geithner will say China should relax controls on the financial system, give foreign banks and insurers more access and make it easier for investors to buy Chinese financial assets, said David Loevinger, the Treasury Department’s senior coordinator for China. Officials from both nations are meeting in Washington today and tomorrow as part of the annual Strategic and Economic Dialogue.
-J.M. Keynes
Making it easier to buy Chinese securities is akin to making purchases of any weapon system in the United States instantly legal. I should just stop talking about this issue entirely as there seems an eery correlation between my agitation levels and subsequent official U.S. action in China.
Treasury Secretary Timothy F. Geithner will urge China to allow higher interest rates when he meets with Chinese leaders this week, as the U.S. extends its push for a stronger yuan.
Geithner will say China should relax controls on the financial system, give foreign banks and insurers more access and make it easier for investors to buy Chinese financial assets, said David Loevinger, the Treasury Department’s senior coordinator for China. Officials from both nations are meeting in Washington today and tomorrow as part of the annual Strategic and Economic Dialogue.
Friday, May 06, 2011
How the tides turn...
...in Newport Beach. Recall this press release. Now we have the rejoinder from the market.
(from Yahoo News)
NEW YORK (Reuters) - PIMCO's Bill Gross, who runs the world's largest bond fund, said on Friday the only way he would reverse his "short" position on U.S. government-related bonds and purchase Treasuries again is if the United States heads into another recession.
Since the news on April 11 that Gross turned more bearish on government debt including Treasuries, reflecting his growing worries over the country's fiscal deficit and debt burden, Treasury prices have been soaring.
(from Yahoo News)
NEW YORK (Reuters) - PIMCO's Bill Gross, who runs the world's largest bond fund, said on Friday the only way he would reverse his "short" position on U.S. government-related bonds and purchase Treasuries again is if the United States heads into another recession.
Since the news on April 11 that Gross turned more bearish on government debt including Treasuries, reflecting his growing worries over the country's fiscal deficit and debt burden, Treasury prices have been soaring.
When there is one door...
Someone yelled "fire" in the movie theater. I will have more to say about this in context of Galbraiths's "Bezel" measure soon.
Its a bubble. Capital flows in like a river, and blasts out like a water cannon.
05/05/2011 7:15:07 PM ET
NEW YORK/LONDON (Reuters)佑ommodity markets were beset by a nearly unprecedented onslaught of investor selling on Thursday [May 5] as modest early profit-taking on mounting economic worries snowballed into one of the worst days on record. In a slide reminiscent of the steep sell-offs in the wake of the 2008 financial crisis, Brent crude oil dived a record $12 a barrel, natural gas dropped over 7 percent and silver, whose earlier losses were a catalyst for the slide, slumped by nearly $5, its biggest one-day dive since 1980.
Roubini Directs Clients to Cut Commodities Exposure
05/05/2011 7:00:55 PM ET
NEW YORK (Reuters)由oubini Global Economics, a major investment advisory firm, told clients on Thursday [May 5] they should take profits from commodities markets, cutting exposure to raw goods to neutral from overweight, the firm's head commodities strategist told Reuters. In a note to clients, the New York-based consultant to hedge funds, private equity houses, sovereign wealth funds and other investors advised paring broad commodities exposure for the first time since at least mid-2010.
Its a bubble. Capital flows in like a river, and blasts out like a water cannon.
05/05/2011 7:15:07 PM ET
NEW YORK/LONDON (Reuters)佑ommodity markets were beset by a nearly unprecedented onslaught of investor selling on Thursday [May 5] as modest early profit-taking on mounting economic worries snowballed into one of the worst days on record. In a slide reminiscent of the steep sell-offs in the wake of the 2008 financial crisis, Brent crude oil dived a record $12 a barrel, natural gas dropped over 7 percent and silver, whose earlier losses were a catalyst for the slide, slumped by nearly $5, its biggest one-day dive since 1980.
Roubini Directs Clients to Cut Commodities Exposure
05/05/2011 7:00:55 PM ET
NEW YORK (Reuters)由oubini Global Economics, a major investment advisory firm, told clients on Thursday [May 5] they should take profits from commodities markets, cutting exposure to raw goods to neutral from overweight, the firm's head commodities strategist told Reuters. In a note to clients, the New York-based consultant to hedge funds, private equity houses, sovereign wealth funds and other investors advised paring broad commodities exposure for the first time since at least mid-2010.
Economic Tectonics...
...fissures and fault lines. A central them of this blog for the last four years is grinding toward its conclusion.
This is not news for readers here.
From Der Spiegel:
Greece's economic problems are massive, with protests against the government being held almost daily. Now Prime Minister George Papandreou apparently feels he has no other option: SPIEGEL ONLINE has obtained information from German government sources knowledgeable of the situation in Athens indicating that Papandreou's government is considering abandoning the euro and reintroducing its own currency.
Alarmed by Athens' intentions, the European Commission has called a crisis meeting in Luxembourg on Friday night. In addition to Greece's possible exit from the currency union, a speedy restructuring of the country's debt also features on the agenda. One year after the Greek crisis broke out, the development represents a potentially existential turning point for the European monetary union -- regardless which variant is ultimately decided upon for dealing with Greece's massive troubles.
Given the tense situation, the meeting in Luxembourg has been declared highly confidential, with only the euro-zone finance ministers and senior staff members permitted to attend. Finance Minister Wolfgang Schäuble of Chancellor Angela Merkel's conservative Christian Democratic Union (CDU) and Jörg Asmussen, an influential state secretary in the Finance Ministry, are attending on Germany's behalf.
This is not news for readers here.
From Der Spiegel:
Greece's economic problems are massive, with protests against the government being held almost daily. Now Prime Minister George Papandreou apparently feels he has no other option: SPIEGEL ONLINE has obtained information from German government sources knowledgeable of the situation in Athens indicating that Papandreou's government is considering abandoning the euro and reintroducing its own currency.
Alarmed by Athens' intentions, the European Commission has called a crisis meeting in Luxembourg on Friday night. In addition to Greece's possible exit from the currency union, a speedy restructuring of the country's debt also features on the agenda. One year after the Greek crisis broke out, the development represents a potentially existential turning point for the European monetary union -- regardless which variant is ultimately decided upon for dealing with Greece's massive troubles.
Given the tense situation, the meeting in Luxembourg has been declared highly confidential, with only the euro-zone finance ministers and senior staff members permitted to attend. Finance Minister Wolfgang Schäuble of Chancellor Angela Merkel's conservative Christian Democratic Union (CDU) and Jörg Asmussen, an influential state secretary in the Finance Ministry, are attending on Germany's behalf.
Thursday, May 05, 2011
The Red Giant
In stellar evolution, a Red Dwarf is a late stage star that has exhausted its supply of hydrogen in its core and has begun to fuse hydrogen (and anything else) outside the core...in effect a desperate attempt to prevent its demise. Unfortunately fusion will eventually become impossible, and without the ability to switch to other means of energy creation, the star will die.
Looking to the east we see a very large Red Giant in the form of China. It has risen to prosperity via exports. The point has passed where China should have focused on domestic demand, and instead has focused on even more export activity...even in the face of a significant financial crisis. Like the stellar Red Giant, China is dependent on one source of energy.
Thus, I would want U.S. Commerce Secretary Locke to focus on repatriating U.S. assets before its too late. The Gravity of History is going to have predictable effects on this Red Giant.
WASHINGTON, May 4 (Reuters) - U.S. Commerce Secretary Gary Locke accused Beijing on Wednesday of discouraging foreign investment to protect its own companies and promised to push against those barriers if confirmed as the next ambassador to China.
Locke, in the text of a speech for delivery at the Woodrow Wilson Center, said the United States saw Chinese investment as a "good thing" for American business and workers and only blocked it in a few cases for national security concerns.
"Unfortunately, that is not the case for American companies operating in China, where they are frequently shut out of entire industries, or they are forced to give up propriety information as a condition of operating in China," Locke said.
"This imbalance of opportunity is a major barrier to continued improvement of the United States and China's commercial relationship. And it is part of a broader trend of China recently narrowing its commercial environment after a long and fruitful period of opening."
Wednesday, May 04, 2011
The gold standard
Why on earth would the United States return to the gold standard, which effectively removes monetary policy to its competitors (think of the countries who currently produce the most gold, etc.)? I am actually in the camp of "transitory inflation" due to relative priced changes and the insane long-only "commodities as an asset class" trough. The charts above show little growth, little bank activity, and bond yields continue to grind lower.
As I have said many times, Nixon achieved the most important non-violent victory in American Foreign policy history when he jettisoned the gold standard, effectively forcing the world to accept the dollar as a hegemonic currency. The fundamental reason for this strength is the ability to achieve ORDER, anywhere on the planet, within days. Iraq was a singular testament to this.
I maintain no normative prescription as to the above...I am merely commenting on the state of the game.
Meanwhile...in Europe...
...The ECB keeps worrying about inflation while austerity measures are destroying growth prospects. They seem bound and determined to witness rounds of civil unrest. And what is the largest factor that supports a currency (and associated debt in that currency)? Civil order.
The euro rose against the dollar, approaching its highest level since December 2009 on speculation European Central Bank President Jean-Claude Trichet will signal further rate increases after policy makers meet tomorrow.
The shared currency rose versus most of its major counterparts as European services and manufacturing growth accelerated in April. New Zealand’s dollar dropped to a two-week low on the biggest net outflow of residents in more than 10 years. The dollar fell against the euro before a report forecast to show company hiring slowed in April, encouraging the Federal Reserve to keep borrowing costs low.
“The ECB has nailed its anti-inflation colors firmly to the mast, and the Fed hasn’t even got around to starting yet,” said Steven Barrow, a currency strategist at Standard Bank Plc in London. “This euro rally won’t extend too far if the ECB isn’t as hawkish as the market expects.”
The euro rose against the dollar, approaching its highest level since December 2009 on speculation European Central Bank President Jean-Claude Trichet will signal further rate increases after policy makers meet tomorrow.
The shared currency rose versus most of its major counterparts as European services and manufacturing growth accelerated in April. New Zealand’s dollar dropped to a two-week low on the biggest net outflow of residents in more than 10 years. The dollar fell against the euro before a report forecast to show company hiring slowed in April, encouraging the Federal Reserve to keep borrowing costs low.
“The ECB has nailed its anti-inflation colors firmly to the mast, and the Fed hasn’t even got around to starting yet,” said Steven Barrow, a currency strategist at Standard Bank Plc in London. “This euro rally won’t extend too far if the ECB isn’t as hawkish as the market expects.”
Australia was one of the first...
...countries to begin raising interest rates when they felt the "all clear" signal was in from global macro-economic conditions. I debated this with colleagues at the time (some of whom had similar opinions and applauded the return of monetary disclipline), and was concerned this would have grave effects for its economy going forward.
May 4 (Bloomberg) -- The cost of insuring debt of Lend Lease Group, Australia's biggest construction company, has doubled relative to Asia-Pacific developers in the past year as the highest interest rates in the developed world take a bite out of house prices and slow construction of new homes.
Five-year credit-default swaps on Lend Lease's bonds rose 47 basis points since May 2010 to 182 basis points, compared with an 8 basis-point rise for an index of 12 developers and construction companies in the region, CMA prices show. Moody's Investors Service said last month it may cut the credit rating of Leighton Holdings Ltd., Australia's largest engineering company, as poor weather delays projects and labor shortages affect the industry.
While concerns property prices will crash have abated, interest rates at 4.75 percent compared with near zero in the U.S. are slowing growth in a housing market identified by Demographia as the least affordable in the English-speaking world. Australian home prices dropped 1.7 percent in the three months to March, the biggest decline since the third quarter of 2008, a report showed this week.
May 4 (Bloomberg) -- The cost of insuring debt of Lend Lease Group, Australia's biggest construction company, has doubled relative to Asia-Pacific developers in the past year as the highest interest rates in the developed world take a bite out of house prices and slow construction of new homes.
Five-year credit-default swaps on Lend Lease's bonds rose 47 basis points since May 2010 to 182 basis points, compared with an 8 basis-point rise for an index of 12 developers and construction companies in the region, CMA prices show. Moody's Investors Service said last month it may cut the credit rating of Leighton Holdings Ltd., Australia's largest engineering company, as poor weather delays projects and labor shortages affect the industry.
While concerns property prices will crash have abated, interest rates at 4.75 percent compared with near zero in the U.S. are slowing growth in a housing market identified by Demographia as the least affordable in the English-speaking world. Australian home prices dropped 1.7 percent in the three months to March, the biggest decline since the third quarter of 2008, a report showed this week.
Tuesday, May 03, 2011
Going through the motions
Funny how this works out. The President of a (nominal) ally takes offence to an assasination by reference to some concept of "sovereignity".
London: Former Pakistani president Pervez Musharraf said Monday he was surprised Osama bin Laden was in Abbottabad, just a short distance from capital Islamabad. He also termed the US strike against the Al Qaeda leader a violation of Pakistan's sovereignty.
"It does surprise me but I don't know the details. I don't know whether he was staying there or was he coming and going from there," Musharraf told a private news channel, after US President Barack Obama announced in Washington that the world's most wanted terrorist had been killed in a US-led operation.
Meanwhile, back in the United States, our own Attorney General asserts that the action was "legitmate" and makes reference to "legality".
WASHINGTON - Attorney General Eric Holder defended as lawful on Tuesday the US operation to go into Pakistan that resulted in the death of al-Qaida leader Osama bin Laden and the taking of his body.
The acts taken were "lawful, legitimate and appropriate in every way. The people who were responsible for that action, both in the decision making and the effecting of that decision, handled themselves I think quite well," Holder told the House of Representatives' Judiciary Committee.
They have to say these things...but its always interesting to note the supposed iron-clad logical reasons supporting or disapproving actions are just tools designed for a purpose. Note how neither of them delves into the issue with specific a priori/posteriori reasons for their thinking...no, its the simple assertion of a principal that conveniently agrees with your conclusion...nothing more. The tool has done the job, solved the problem, and can be placed back in the shed. And make no mistake, both parties here have the same shed, for if the roles were reversed, the same tools would simply switch parties.
Its power, not some adherence to some principal that is at issue. But they go through the motions in the attempt to convince us (and perhaps even themselves) that it is otherwise.
Interesting promotional release...
...for this cannot be taken seriously. Always be wary of those using "statistical" measures, for there are many, many ways to do so, most of which are useless and have no predictive power. For example, this firm states they use "statistical measures" which do not take into account qualitative factors. I submit, however, that the two problems quickly conflate. Using "official" statistics from countries creates political risk at the inception of the analysis. To maintain that a myopic account of official statistics from a politically volatile jurisdiction is illusory, the statistics themselves are political mechanisms, and it is no wonder that China and Thailand move to the head of the class in the short term.
Let's see how those "A" (highest in this particular firm's scale) ratings on Thailand peform over 1/3/5/10 years from now.
But you already know the answer to that.
From CNBC:
Weiss was quick to add that while the rating seems weak, the debt
situation is not in a danger zone that would trigger panic, noting
that there was still broad market acceptance for Treasurys.
The grade reflects the U.S. massive debt burden, low international
reserves and the volatility in the American economy, he said.
The U.S. government debt is fast approaching the $14.3 trillion
ceiling, with the debt-to-GDP ratio close to 100 percent. And a
downgrade of U.S. Treasurys - one of the most widely held assets -
could theoretically raise borrowing costs and in a worst case
scenario, trigger a default on the government's debt obligations.
America's rating was ranked 33rd out of 47 nations, according to
Weiss, which began tracking sovereign debt last year. France and Japan
also got a "C" rating, while Only China and Thailand received an "A"
rating.
Weiss Ratings based its score purely on statistics, and does not take
into account qualitative factors such as political stability.
Let's see how those "A" (highest in this particular firm's scale) ratings on Thailand peform over 1/3/5/10 years from now.
But you already know the answer to that.
From CNBC:
Weiss was quick to add that while the rating seems weak, the debt
situation is not in a danger zone that would trigger panic, noting
that there was still broad market acceptance for Treasurys.
The grade reflects the U.S. massive debt burden, low international
reserves and the volatility in the American economy, he said.
The U.S. government debt is fast approaching the $14.3 trillion
ceiling, with the debt-to-GDP ratio close to 100 percent. And a
downgrade of U.S. Treasurys - one of the most widely held assets -
could theoretically raise borrowing costs and in a worst case
scenario, trigger a default on the government's debt obligations.
America's rating was ranked 33rd out of 47 nations, according to
Weiss, which began tracking sovereign debt last year. France and Japan
also got a "C" rating, while Only China and Thailand received an "A"
rating.
Weiss Ratings based its score purely on statistics, and does not take
into account qualitative factors such as political stability.
Monday, May 02, 2011
By cloth or gavel...
...a continuing series.
I will comment at length with respect to my thought on the trajectory of civilization, markets, etc. For now, this article from the New York Times details some of the themes I have been discussing on this blog. Namely, that fundamentalism will seek to supplant the prevailing rules of order; basically swapping sytems of largely arbitrary rules from the gavel to the cloth.
a snippet:
These “Reconstructionists” are believers in Christian Reconstructionism, the philosophy of R. J. Rushdoony, who died in 2001. According to Reconstructionism, a Christian theocracy under Old Testament law is the best form of government, and a radically libertarian one. Biblical law, they believe, presupposes total government decentralization, with the family and church providing order. Until that day comes, Reconstructionists believe the rights to home-school and to worship freely at least provide the barest conditions of liberty.
I will comment at length with respect to my thought on the trajectory of civilization, markets, etc. For now, this article from the New York Times details some of the themes I have been discussing on this blog. Namely, that fundamentalism will seek to supplant the prevailing rules of order; basically swapping sytems of largely arbitrary rules from the gavel to the cloth.
a snippet:
These “Reconstructionists” are believers in Christian Reconstructionism, the philosophy of R. J. Rushdoony, who died in 2001. According to Reconstructionism, a Christian theocracy under Old Testament law is the best form of government, and a radically libertarian one. Biblical law, they believe, presupposes total government decentralization, with the family and church providing order. Until that day comes, Reconstructionists believe the rights to home-school and to worship freely at least provide the barest conditions of liberty.
Sunday, May 01, 2011
Interesting move...
...By our president tonight. At what point did they have him and why the timing tonight? I also note the timing just prior to Mr. Trump announcing the sacking of another random celeb on his own TV show.
Anyway, good news.
Anyway, good news.
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