Thursday, December 29, 2011

Setting up shop...

...and with anti-climactic results to readers here. The Obama Doctrine is humming along.

The military’s legendary expeditionary construction units, the Navy’s Seabees are set to return to their World War II roots this spring when a construction detail Naval Mobile Construction Battalion 3 heads to Africa to greatly expand the runways at a remote Kenyan airstrip to allow it to handle large cargo planes.
Sailors from the detail will haul their own heavy construction equipment, such as a a mobile concrete batching plant, pavers and steam rollers to a remote part of the African nation to expand an austere airstrip into one capable of handling large jet aircraft.
While the Seabees declined to comment on where the airfield is, how large the new runway will be or even the specific types aircraft that will be able to use it, they did tell DT that this is the largest project they’ve worked on in a long time. The project is so large that the sailors are bringing their own asphalt prepping [batching] plant with them; something the Seabees haven’t done in a long time.
“This is the first time we’ve set up a batch plant up, this is a newly procured system, the Seabees haven’t done their own asphalt batching — the process of making asphalt — for several years; its almost an extinct skill,” Lt. Cdr. Bill Wohead, Naval Construction Battalion 3’s operations officer told DT recently. “We’re the first (Seabee) battalion to go through all this training, we’re the first battalion to use this brand new equipment and we’re the first battalion that’s going to use it all in concert to create a project in the middle of nowhere.”

Quote of the Day...

...and summing up the dangers of the unchecked concentration of power.

The Law has placed the collective force at the disposal of the unscrupulous who wish, without risk, to exploit the person, liberty, and property of others. It has converted plunder into a right, in order to protect plunder. And it has converted lawful defense into a crime, in order to punish lawful defense.

-Frederick Bastiat

Wednesday, December 28, 2011

A Wild Austrian Economist Appears!!

The following is from a recent article in The Economist lamenting the travails of modern economic theory (whatever that is) and a worthy group of upstart challengers. The article concludes thusly:

The bygone and the marginalised always look strange. But would it not also be strange to imagine that, in 30 or 50 years, economic historians will look back on the current crisis and say that mainstream macroeconomics offered the best analysis and prescriptions that could have been conceived? If they agree that it did not, then there seems a chance that they will think perspectives outside the mainstream might have helped.

Decades ago macroeconomics resembled an “intellectual witch’s brew”, according to Olivier Blanchard, chief economist of the International Monetary Fund. It contained “many ingredients, some of them exotic—many insights, but also a great deal of confusion”. Things then became more rigorous and refined: disagreements remained, but within set limits. Now, on the blogs, the economic conversation boils and bubbles again. That ferment is surely spreading into the academy—and in time some new quintessence will be brought forth, perhaps from materials now considered base.

This "quintessence" (like some sort of 5th element shipped via UPS from Mt. Olympus) is a fiction. Economics is a historical construct that is inextricably linked to contextual events, each dependent upon the actions of millions of humans (and in some cases, the actions of a very few of them). So there will be no Great Synthesis ready to take its rightful place among the objective sciences. Business cycle theory applies equally to the academic discipline of Economics as well. Influence is achieved, prescriptions made, failure is inevitable, and challengers appear in the firmament to begin the cycle anew, with the next generation of adherents ready for battle.

Producing volatility order to beg for relevancy. This is no different from the more lurid and prurient representations we have heard from "shock radio" or gangster rap.

The word "reprobate" comes to mind...

The UN general assembly granted a request from North Korea to hold a moment of silence for Kim Jong-il, the country's former leader who died on Saturday. The tribute was boycotted by western delegations. Nassir Abdulaziz al-Nasser, president of the 193-nation assembly, called for the minute of silence before the start of a routine meeting

Tuesday, December 27, 2011



Jiang Shusheng made the statement during a meeting with the head of Argentina’s Lower House Julian Dominguez who also underlined the recent Mercosur solidarity support to Argentina’s request in the Falklands/Malvinas dispute.
The Chinese top official originally arrived in Buenos Aires as a special envoy from President Hu Jintao to President Cristina Fernandez swearing in ceremony last December 10.
“China will continue to support the Argentine claim of sovereignty over the Islas Malvinas”, said Jiang Shusheng who added that “solidarity with Argentina on the Malvinas issue is an invariable position of China’s foreign policy”.
Jiang Shusheng also praised Argentina for its role as the rotating president of the Group of 77 of non aligned countries saying “Argentina worked for world integration and peace”.

Friday, December 23, 2011

Muddling along...

...without any inflationary pressures from the "money printing" of QE.

Personal income increased $8.5 billion, or 0.1 percent, and disposable personal income (DPI) decreased $5.0 billion, or less than 0.1 percent, in November, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $13.1 billion, or 0.1 percent in November. In October, personal income increased $47.2 billion, or 0.4 percent, DPI increased $27.2 billion, or 0.2 percent, and PCE increased $11.3 billion, or 0.1 percent, based on revised estimates.

Once again...

..the wrong tools being considered because of wrong assumptions. QE does not lead to "inflation" nor does it combat "deflation". These officials think asset swaps lead to increased economic activity...something reinforced by bond-houses that love this sort of political volatility.

Never ask a barber if you need a haircut...and if you simply look at the employers (current and prospective) of these officials who claim QE is both essential and effective in combating deflation, you will see the influence matrix.

European Central Bank Executive Board member Lorenzo Bini Smaghi said that policy makers shouldn’t shirk from using quantitative easing if deflation becomes a danger to the euro region.
“I do not understand the quasi-religious discussions about quantitative easing,” Bini Smaghi, who will leave his post at the end of the month, said in an interview published yesterday by the Financial Times. The ECB confirmed the comments. “It is appropriate if economic conditions justify it, in particular in countries facing a liquidity trap that may lead to deflation.”
Unlike the U.S. Federal Reserve and the Bank of England, the ECB has offset liquidity created by purchases of government bonds so that such operations don’t amount to quantitative easing that stokes inflation. ECB Executive Board member Juergen Stark told Germany’s Die Welt newspaper in an interview published today that the central bank doesn’t “have a mandate” for unlimited purchases of government bonds.

Tuesday, December 20, 2011

The Obama Doctrine... work in the antipodes. A larger U.S. presence in Africa was predicted here as soon as Obama was president both as a vehicle for proxy competition with other nations as well as a bulkhead for energy security and inexpensive labor.

This is just the beginning.

BANGUI, Central African Republic - U.S. Special Forces troops have set up a base in the Central African Republic as part of their regional hunt for fighters from the Ugandan-born Lord's Resistance Army (LRA) group, military sources said.

"The deployment of this contingent, the size of which is unknown, was carried out very discreetly with Ugandan military aircraft," a Central African military official said Dec. 19 on condition of anonymity.

The U.S. troops set up a base in Obo and are expected to coordinate their efforts with local government forces and Ugandan soldiers.

U.S. President Barack Obama in October announced he was sending 100 Special Forces troops to Kampala, Uganda, to help Uganda track down LRA chief and international fugitive Joseph Kony, who has wreaked havoc over four nations for more than two decades.

Besides Obo, the U.S. forces also have a forward base in South Sudan. They began deploying in Uganda earlier this month.

Friday, December 16, 2011

Paradigms Lost...

...How is it possible, in light of the massive and continuous "money printing" of QE, QE2, (QEnth), are CPI and other price indexes (unrelated to commodities, which is a separate beast altogether) deflating? As I have outlined on this blog on numerous occassions, QE is a simple asset swap between an asset with zero interest (cash) and an asset paying interest.

In this environment, where the CREDIT CHANNEL OF MONETARY CREATION REMAINS BROKEN, QE is actually DEFLATIONARY. The following CPI numbers bear this out. I have emphasized (the admittedly hard to read) relevant portion which indicates all item CPI to have DECREASED from 3.5 to 3.4 in the October/November time period. In addition, earnings statistics released today show that real income decreased as well. Where is the inflation?

Nov. Oct.
Weight 2011 2011
All items 100.0% 0.0% -0.1%
(3 decimals) 100.0%-0.019% -0.085%
6-mo annualize n/a 1.7% 2.1%
ex-food/energy 77.2% 0.2% 0.1%
(3 decimals) 77.2% 0.173% 0.136%
All items NSA 100.0% 3.4% 3.5% (3 decimals) 100.0% 3.394% 3.525%
ex-food/energy 77.2% 2.2% 2.1%
(3 decimals) 77.2% 2.153% 2.100%
All items SA 100.0% 3.4% 3.6%
(3 decimals) 100.0% 3.412% 3.559%

Thursday, December 15, 2011


One of the great moments in cinema occurs in the film "The Princess Bride" in which the players discuss the use of the word "inconceivable".

So, in internet speak, "I will just leave this here".

BEIJING — China's manufacturing activity contracted in December while
foreign direct investment fell for the first time in 28 months, data
showed Thursday, as crises in the US and Europe drag on the economy.

The bleak data came as a senior government researcher forecast exports
growth would halve in 2012 from this year and pull the pace of
economic expansion below nine percent for the first time in more than
a decade.

Mounting evidence that China is slowing will ratchet up pressure on
Beijing to further loosen monetary and fiscal policies to prevent the
world's second biggest economy from suffering a painful hard landing.

The preliminary HSBC purchasing managers' index (PMI) reached 49 in
December, slightly up from 47.7 in November -- the first contraction
in nearly three years -- as consumers from New York to Paris cut back
on holiday spending due to deepening economic woes.

Wednesday, December 14, 2011

Statutum in favorem principum

Expect concessions to be extracted from the larger Euro members. This will be a temporary fix, of course, but such behavior is rational and expected when weakness is perceived.

The Statutum in favorem principum is a good example of this. In order to solidify his Germanic holdings, the Holy Roman Emperor Frederick II ceded veto authority to regional prince with respect to any additional laws. These actions had the additional effect of validating England's newly minted Magna Carta, itself a testament to the dangers of the concentration of power.

Unproductive war was the cause of most of the above. Unproductive investment is the cause today.

So it goes. Power concentrated, pressured, exploded, and dissipated. We are in the pressured stage.

Tuesday, December 13, 2011

And yet...

...the bond auction today went swimmingly, the dollar rallies, and gold declines.

How can this be? Given all the EOTs ("End Of Timers") constant rhetoric about the impending demise of the U.S.?

The only reason... participants appear on Television is to effect sentiment...or rather to give the appearance to their competitors and counter-parties that they have the power to effect sentiment.

Vivid tales of impending destruction and mayhem make for good theater.

Saturday, December 10, 2011

The Fire Marshall...

...has officially warned about the falty exits in the crowded movie theater. What, precisely, do you own when you hold ETFs (or other similar securities) backed by the promise to deliver?

“The promise given was a necessity of the past: the word broken is a
necessity of the present.” -Machiavelli

An HSBC Holdings Plc (HSBA) unit sued the MF Global Inc. brokerage trustee to establish whether he or another person is the rightful owner of gold bars worth about $850,000 and silver bars underlying contracts between the brokerage and a client. Five gold bars and 15 silver bars underlie eight Comex contracts between the brokerage and its client Jason Fane of Ithaca, New York, the unit of London-based HSBC said in a court filing yesterday. Both parties have asserted claims to the bars, creating difficulties for HSBC, which is storing them, the bank said. HSBC asked a judge to decide who the rightful owner is.

“HSBC has received conflicting instructions regarding ownership and disposition of the property,” it said. “Accordingly, HSBC is exposed to multiple liabilities with respect to the disposition of the properties.” The unit is HSBC Bank USA National Association.

Bullion is selling for about $1,717 an ounce on the Comex in New York, up about 21 percent this year, as investors bought the metal to protect their wealth from Europe’s escalating debt crisis, and reached a record $1,923.70 in September. Treasuries returned 9.3 percent, a Bank of America Corp. index shows.

‘Bars Are Mine’
“These bars are mine,” Fane said in an e-mail today. “We had a letter from HSBC that they were on the loading dock to be shipped to our warehouse contractor when there was some action taken by a third party to stop or delay shipment.”

Friday, December 09, 2011

Better late than never...

...The men of Newport pull a neck-breaking about-face. Recall the positions from earlier this year (emphasized here of course)

Bill Gross, who runs the world’s biggest bond mutual fund at Pacific Investment Management Co., increased his holdings of Treasuries and mortgage debt amid a bet U.S. interest rates will stay low for years.
Government and Treasury debt as a percentage of the $241 billion Total Return Fund (PTTRX) climbed to 23 percent from 19 percent the previous month, according to data posted on Newport Beach, California-based Pimco’s website today. Mortgage securities, the fund’s largest holdings, were increased to 43 percent from 38 percent in October. Pimco doesn’t comment on portfolio changes.
Gross eliminated Treasuries from the portfolio in February and has increased the holdings amount since then. U.S. growth won’t prevent the Federal Reserve from signaling that borrowing rates will remain lower longer than policy makers have already indicated, Gross said during a Dec. 2 Bloomberg radio interview after a report showed the jobless rate declined in November. Gross said the Fed will keep the target rate close to zero for as long as four years.

Thursday, December 08, 2011

Why... some countries act as pilot fish time after time???

Hungary Looks Set for Downgrade, Possible Default as Recession Looms

Hungary looks the most probable eastern European Union nation to have
its credit rating downgraded and to default on its sovereign debt as
the prospect of a recession looms.

The outlook for the economy has deteriorated because of deleveraging
by the western parent companies of local banks, a worsening external
trade outlook and tighter monetary policy.

Hungary formally approached the International Monetary Fund for
financial support on Nov. 27, the second time it’s held out the
begging bowl in three years, after the forint fell to a record low
against the euro and Moody’s downgraded the country’s debt to junk
status. S&P and Fitch may follow suit if negotiations with the IMF
become prolonged.

Hungary’s credit-default swap spreads suggest investors see a
sovereign default as increasingly likely. Five-year CDS for Hungary
have doubled since August to 540 basis points. The yield on the
10-year government bond rose to 8.54 percent yesterday, 33 basis
points above that of bailed-out Ireland.

Tuesday, December 06, 2011


The promise to pay that is fabricated from other promises to pay is downgraded by S&P. Where is the Alexander that can cut this gordian knot?

LONDON—Standard & Poor's Corp. Tuesday said it placed the long-term
credit rating of the European Financial Stability Facility, or EFSF,
on credit watch negative.

This follows the placement on watch negative of the six European
sovereigns that guarantee its financial obligations. The six
sovereigns are triple-A rated Austria, Finland, France, Germany,
Luxembourg and The Netherlands.

Standard & Poor's could downgrade the EFSF by one or two notches
depending on the outcome of its review on the EFSF member sovereigns.
The rating will likely be the same as the lowest issuer rating, unless
further credit enhancements are put in place. If this is the case,
Standard & Poor's could affirm the EFSF triple-A rating on the basis
that these compensate the reduced creditworthiness of its guarantors

Ultimate Final European Solution #3,237...

...jettison the troublesome concepts of self-determination and "sovereignity", subsidiarity and simply transfer power back to the EU core to IMPOSE austerity measures amongst member states as a workable solution. Good luck with that. The Charge of the Light Brigade in financial terms.

The European commission could be empowered to impose austerity measures on eurozone countries that are being bailed out, usurping the functions of government in countries such as Greece, Ireland, or Portugal.

Bailed-out countries could also be stripped of their voting rights in the European Union, under radical proposals that have been circulating at the highest level in Brussels before this week's crucial EU summit on the sovereign debt crisis.

A confidential paper for EU leaders by the EU council president, Herman Van Rompuy, who will chair the summit on Thursday and Friday, said eurobonds or the pooling of eurozone debt would be a powerful tool in resolving the crisis, despite fierce German resistance to the idea.

It called for "more intrusive control of national budgetary policies by the EU" and laid out various options for enforcing fiscal discipline supra-nationally.

PRINT! (Then what?)

All the King's horses and all the King's men getting on the inflation < deflation risk (which is true) and that inflation is easier to contain once unleashed than deflation (which may or may not be true). The party line has infiltrated the popular business you know what that means.

In normal times it would be legitimate to worry about the consequences of money printing and outsize debts. But history tells us these are anything but normal times.

We teetered on the edge of this same precipice 80 years ago, in 1931. A succession of major European banks went bust. Bailing them out was beyond the resources of fiscally overstretched governments. Failure to agree on orderly debt reductions led to disorderly defaults, tariff wars, and a further worldwide collapse of production and employment.

Monday, December 05, 2011

The game.

The Paper Dragon continues to pressure its competitors for more IMF power...effectively positioning itself for a more "multi-lateral" world where IMF SDRs are the only true global reserve "currency".

These efforts should fail as the Paper Dragon's competitors (principally the U.S.) understand this strategy and are simply waiting for the inevitable massive GDP and associated wealth collapse.

The Slippery slope...

...makes an appearance in the Health Care debates. Soviet Russia would comfortable with the highlighted language. Full article here.

Asked why Americans were still deeply divided over the new health care law, signed 20 months ago, Dr. Berwick said: “It’s a complex, complicated law. To explain it takes a while. To understand it takes an investment that I’m not sure the man or woman in the street wants to make or ought to make.”

But, Dr. Berwick said, just as Americans supported manned missions to the moon without knowing the details of rocket science, they ought to support the new law because of its ultimate destination.

“We are a nation headed for justice, for fairness and justice in access to care,” Dr. Berwick said. “We are a nation headed for much more healing and much safer care. There is a moon shot here. But somehow we have not put together that story in a way that’s compelling.”

An article...

...making the rounds (again, as it was written earlier this year). Also much discussion of "optical back stops" for the EU system (the concept that what is perceived as a fully funded economic backstop are really only a bundle of promises to borrow and spend).

In the realm of economics, price controls
are designed to constrain volatility on
the grounds that stable prices are a good
thing. But although these controls might
work in some rare situations, the long-term
eªect of any such system is an eventual
and extremely costly blowup whose cleanup
costs can far exceed the benefits accrued.
The risks of a dictatorship, no matter how
seemingly stable, are no diªerent, in the
long run, from those of an artificially
controlled price.

Such attempts to institutionally engineer
the world come in two types: those that
conform to the world as it is and those
that attempt to reform the world. The
nature of humans, quite reasonably, is to
intervene in an effort to alter their world
and the outcomes it produces. But government
interventions are laden with unintended—
and unforeseen—consequences, particularly
in complex systems, so humans must work
with nature by tolerating systems that
absorb human imperfections rather than
seek to change them

Famous quote of the day...

“I have always found the word ‘Europe’ on the lips of those who wanted something from others which they dared not demand in their own names!” -German Chancellor Otto Bismark,1880

Bienvenue à la décennie perdue

Sarkozy waxes "heroically" (read: like a demagogue) about the causes, effects and best proscriptions for recovery. Full speech here.

Exchange rates are at the heart of the financial crisis just as they are at the heart of the distortions affecting global trade. And if we don’t take care, monetary dumping will end up generating extremely violent trade wars, so paving the way for the worst protectionism. A French manufacturer can make all the productivity gains in the world. He can, at a pinch, compete with the Chinese workers’ low wages, but he can’t compensate for the undervaluing of the Chinese currency. (…)

So I repeat just how necessary I think it is for heads of State and government of the main countries concerned to meet before the end of the year to learn the lessons of the financial crisis and coordinate their efforts to restore confidence. (…)

I am convinced that the sickness runs deep and that there has to be a root and branch revision of the whole global financial and monetary system, as was done at Bretton Woods after the Second World War. This will allow us to create the tools for global regulation, now made essential by the globalization of trade. We can’t go on managing the economy of the twenty-first century with the instruments of the twentieth, no more than we can design tomorrow’s world with yesterday’s ideas.

When every day the central banks are making cash injections into banks and American taxpayers are on the point of spending a trillion dollars to prevent widescale bankruptcy, it seems to me that we need no longer question the legitimacy of public authority intervention in the operation of the financial system! (…)

In these exceptional circumstances when everyone absolutely has to act, I call on Europe to ponder its ability to cope with the emergency, to rethink its rules, its principles, learning the lessons of what is happening in the world. Europe must give itself the means to act when the situation demands and not condemn itself to inaction.

If Europe wants to safeguard its interests. If it wants to have a say in reorganizing the global economy, its leaders must start thinking together about its competition doctrine – to my mind, competition is only a means and not an end in itself –, about its ability to mobilize resources and prepare the future, about the economic policy instruments and objectives assigned to monetary policy. I know it’s difficult because there are 27 countries in the EU, but when the world changes, Europe has to change too. Europe has to be capable of drastically changing its own dogmas. (…) As EU President, I shall propose initiatives along these lines at the next European Council on 15 October.

The recent post...

...on U.S. carrier location and the reasons for same appears to be bearing fruit. Full Article.

Tehran quickly latched onto US Defense Secretary Leon Panetta's warning Friday, Dec. 2 that an Israeli strike at Iran's nuclear facilities would cause unpredictable results. Sunday, Iran issued two threats: to hit back beyond its borders for a US reconnaissance drone which its military claimed to have shot down near the border with Afghanistan and Pakistan and that an oil embargo on its exports would boost the price of oil to $250 a barrel.
This was another way of threatening a tit for tat in the form of a blockade on the Strait of Hormuz, the most important oil channel in the world, and the transit of Saudi and Gulf oil. This was a reference to another of the US defense secretary's warning Friday that: "…any disruption of the free flow of commerce through the Persian Gulf is a very grave threat to all of us" and a red line for the US."
The unmanned aerial vehicle the Iranian military claimed in a report on English language Press TV to have shot down Sunday over the eastern part of the country was described in Tehran's statement was an RQ-170.

Saturday, December 03, 2011

Its instructive to note... the popular media is fed much of their material and bias by financial market participants. Those who are short (and facing various margin calls) are in full propaganda mode providing "information" that has zero probative value with respect to economic prospects.

NEW YORK (Reuters) - Earnings season is just over a month away, but the early signals are not comforting.

Companies cutting forecasts outpace those raising estimates by the greatest ratio in 10 years, and some sectors, such as materials, have seen a dramatic fall in expectations for the soon-to-be ended fourth quarter, according to Thomson Reuters data.

It is a stark reminder that even as U.S. economic data has improved in recent weeks, the euro zone debt crisis and concerns about slowing growth in China still cast a long shadow.

Estimates for fourth-quarter S&P earnings growth have tumbled over the past two months as global macroeconomic headwinds prompted analysts to slash forecasts.

The S&P is now seen posting earnings growth of 10 percent in the fourth quarter, down from a forecast for 15 percent growth on October 3.

"With all the uncertainties out there - from geopolitical issues to the risk that we could be headed towards another recession - this suggests the economy is barely keeping its altitude above the tree line right now," said Michael Mullaney, a portfolio manager for the Boston-based Fiduciary Trust Co.

"It's good that we're still expecting growth, but it is nowhere near as robust as what we were expecting, to a significant degree."

Always worth listening... the great Richard Epstein. The brief discussion is an excellent summation of adverse outcomes and unintended consequences.

False Dichotomy...

...there is no distinction. Both states, by themselves, can only exist in theory, as they are inextricably linked to one another.

Arguing over the definitions of capitalism at this point is tantamount to discussing how to remove liquid from water.

Economics Professor Chris Coyne draws the distinction between crony capitalism and legitimate capitalism. Crony capitalism is government favoritism fueled by handouts and is responsible for the plight of the 99%. Legitimate capitalism, on the other hand, uses competition to align consumer and producer interests and serves to improve everyone's standard of living.

Friday, December 02, 2011


...all the way around.

Sen. Tom Coburn (R-Okla.) says he is planning legislation directing the U.S. government to veto an expanded role for the fund.

Senate Republican Steering Committee Chairman Jim DeMint (R-S.C.) and Rep. Cathy McMorris Rodgers (Wash.), a member of the House Republican leadership, also have legislation to curb the proposed intervention.
“I’m adamantly against the IMF being involved in this,” Coburn said.

“We’re throwing good money after bad down a hole that I think is not a solvable problem,” he said.

“Europe is going to default eventually, so why would you socialize their profligate spending,” he added.


...the continuing series...

(Boston Fed President version)


Some Hedge Funds...

...nicely summed up (in code) by a friend of mine:

lev = funds[client] + borrow(funds[client]*5)
repeat until (or(funds[client]=0, date=12/31))
results = wager(obviousmacrobet[lev])
if results > 0, deduct(results*.2)
if funds[client] = 0, write(letter[apology,"cygne noir",sigma[rand(6,9)]])

IMF involvement...

...basically communicates that adult supervision (in the form of the IMF and the U.S.) is needed for the romper room of adolescents that is the Euro area.