Monday, April 30, 2012

The EoT argument

Typical EOT ("End of Timer") argument:

Global financial assets, as a group, will be more valuable in 20-30 years than they are today.

This assumption is very unlikely to be true.


We are living through an era of decline and turbulence.

The global system is failing and the magnitude, scale, and frequency of future disruptions (due to inevitable financial, environmental, etc. trends) will be greater than anything we have ever experienced historically.

As a result, it’s very unlikely that global scale financial assets will be more valuable in 20-30 years than they are today.

Impeccable logic.  Assume the consequent, throw in some assumptions ("inevitable trends"!!) that already prove what is to be proven, then BAM!! Q.E.D.

Dear Readers...whenever you see the word "inevitable" please raise your Bovine Scatology meters (in classic "Spinal Tap" style) to 11 before concluding what you just read was either true and/or informative.

That Man...

...a continuing series...

Readers here will note my differences with Niall Ferguson, and once again I must take issue with his line of thought.

In a recent interview, he puts forth the disconcerting notion that America is drifting toward a Welfare-type state where risk-taking is frowned upon and incentive structures are tilted toward general poverty. He bases his conclusion on a series of anecdotes and analogies from the past.

In addition to the above conclusion-based arguments about the future of the United States, he proceeds with the following:

"It would be very surprising if Brazil was to fall back. The costs of being Venezuela or Argentina are too obvious to anybody in the region, and the benefits of being Brazil are even more obvious. Not only for Brazil, but quite a substantial number of the Spanish-speaking countries—Peru, Chile, Colombia, Mexico—the picture is sustained institutional improvement, with a long way still to go. Compared with where these countries were 20 years ago, they are closer to rule of law. If you had invested in those countries 10 years ago, you would be in a much better place than if you had invested in North America. I'm cautiously optimistic about the region."

This is a curious statement.  While it is true in a strict sense that Peru, Chile, Columbia and Mexico have experienced good returns in the past 10 years.  In the past 5, they have not gone so well, and going forward, where is capital likely to flow?  And, given Mr. Ferguson's penchant for historical citation, how many examples in history can be recalled with a similar sequence of "sustained institutional improvement"? 

As for Europe, I increasingly believe that it must fight a war (either civil or against some other country or bloc of countries) to gain any legitimacy or engender some spirit of solidarity among its incredibly varied citizenry.  Doubtlessly, the Kakistocracy has thought of this, and this remains one of my concerns going forward for regions adjacent to the EU area.

Meanwhile, Japanese and U.S. bonds continue to strengthen, in complete contradiction to Mr. Ferguson's continued calls for a "debt crisis" that relies on the same incorrect model of National Accounts being equivalent to Household accounts.  Any analysis that does not acknowledge the crucial nature of sovereign currency issuance will be doomed.

Oh well, I Suppose I should expect nothing less given the less than critical nature of this interview...with hardball inquiries that focus the mind like this:

Can you liken this to anything in history?

Saturday, April 28, 2012

On Mathematics...

A recent post by that somewhat superficial appellation of a “Facebook Friend” presented the following problem:

“There are 2 Identical Hotels (“A” and “B”) next to each other.  Both of the buildings contain 100 rooms numbered 1-100.  110 guests are blindfolded and randomly put into rooms 1-10 of building A, and rooms 1-100 of building B.  You are one of those people, and you are told that your room number is 9.  What is the probability that you are in building A?”

My response:  “I am blindfolded and “someone” tells me I am in room 9?  The answer is 50/50, because I don’t believe what I am told given that I am blindfolded and it is unclear from the problem exactly what type of situation I am in”.

Yes, readers, I am aware that this can be solved with some Bayesian calisthenics (what is the probability of being in hotel A if someone says you are in room 13?...0%, etc.)  But context is everything and it’s that most luxuriant tapestry that provides the fabric for real answers to every meaningful question.

On Term Limits...

Revolution as enforced term limits

Term limits are a natural and beneficial part of constitutional republics.  They acknowledge the inherent propensity for power to concentrate, corrupt, and ultimately destroy sitting governments.

Indeed, there are times when I, The Recapitulator, think it would serve most nations best if they elected a random person from the populace, or perhaps a chronic alcoholic to ensure Government is run so poorly that they cannot create any more problems than are already on the ledger.

Unfortunately, they are too often not applied in arenas where limitations are as essential as enumerated powers.  For example, in the United States, two parties have effectively controlled the Federal Government for the better part of 200 years.  There was a time when the differences between them were easily understood and provided something along the order of “competition” between them.

Now, it appears that only the claims on their respective marketing materials and oratory differentiates the two.

Throughout the world and its history, violent revolution has punctuated the advancement of populace, and one might look upon (admittedly in a very favorable light) as enforced term limits upon Government.   However, this (obviously) comes with massive costs and other “inefficiencies”, and it would be much better for a Country to experience these types of transitions in a more peaceful, orderly manner.

Therefore, Countries today and their citizens should look seriously at official term limits for political parties, should a few number dominate the political class in a certain way and for a certain time.  Or at least (if the myriad problems with the above suggestion hold in practice) term limits for every public servant in the country, both on a local (in a particular office) and global (in public service).  This would at least give a fighting chance in avoiding something more spectacularly violent down the road.

This ties together with one of my interests in the coming decades:  New Country Formation.  When power is concentrated in a few monolithic monopolies in the business world, small start-ups, capitalizing on their agility and lack of bureaucratic inertia, naturally form and flourish.  I fully expect this to happen with nations as well.  Indeed, the U.S. was once such a stripling, and now, as a mighty grown oak, will doubtlessly cause some seeds to seek purchase.

Friday, April 27, 2012


It is time now to discuss eventualities and trajectories for the global economy.   The Great Rate Compression that I discussed in years ago is now running its course.  The end-game for the Euro remains tantalizingly close (I have never made my position unclear as to the wisdom of the "European Union" experiment) and the world is beginning to understand that Mercantilist China is an entirely different animal than the United States during its Industrial Revolution.

Once the Great Rate Compression unwinds and capital costs return to historical levels, it will be akin to witholding a drug from a group of addicts.  You quickly see who enjoys a stronger will and stronger physical constitution.  The coming years will test every government and culture on the planet.

Within the decade, we should see the first proxy wars in Africa.  Most likely, they will be waged between the United States and China, but Russia is also a possibility.  Businesses that specialize in weaponry, transportation, logistical assistance, etc. should do very well given newfound interest in Sub-Saharan Africa.  In a gold rush, it is better to sell shovels to the prospector than engage in prospecting, and the U.S. understands the Achilles heel of all developing nations:  raw materials.  Guaranteeing access to these markets and providing security services for same remains a growth business for able sovereigns.

I can't stress this point enough:  the only nation on the planet who can provide these services for anyone and anywhere at any time is the United States.  In times of economic stress (and the conflict that comes with it) these services increase in value.  Ask yourself, dear reader:  Are the coming 10 years likely to be more peaceful than the previous 10 years?

The U.S. should sharpen its "Obama Doctrine" with respect to Latin America after Obama's victory in October.  This strategy synergizes well with U.S. African interests and prohibits any ideological (read: Communist or the quasi-pseudo faith worshipped in the PRC) discord in its geological neighborhood.  I have no doubt the current administration will have a far larger Foreign Policy presence in its second term.

The U.S. practices a military policy of "stratego-diplomacy" and "optical containment" by demonstrating its military capabilities from Australia to the Malacca Straights to the South China Sea while simultaneously employing a liberal trade policy.  This will eventually neutralize the China threat entirely because China is competing on one metric (cost).  However, in the short term China remains an emaciated junky that consistently runs to its dealer when it needs a fix.  As for regional conflicts,  North Korea is an easy target for China.  The ideological currency gained from "freeing one's communist brethren" would do wonders to satiate an angry and skeptical domestic populace.  It would also save the embarrassment (and threat) of a united Korea.

France faces a difficult time.  With regional rivals quickly reverting back to historical "normalcy", its ability to legislate and demand asymmetric terms out of proportion to its importance is coming to a close.  This may change, if France sees itself as a security guarantor for Eastern Europe and the Caucasus.  Providing regional services would be of great benefit to that nation, especially considering Germany seems unwilling to engage in one of its traditional national pastimes.

So, we do indeed live in interesting times.  Emerging Markets will become squeezed by more aggressive nations until the security contractors arrive.  The U.S. benefits from all this and will not experience the inflation that so many have called for.  Other developed nations (the entirety of the EU without Germany, who will most certainly leave the Euro) most certainly will.


After many, many iterations of this "stimulus tool", you would think they would know better.  Recall the oft-cited definition of insanity:  Doing the same things over and over yet expecting different results.

April 27 (Bloomberg) -- The Bank of Japan expanded its plan for government-bond purchases by 10 trillion yen ($124 billion) after the world’s third-largest economy showed signs of slowing and lawmakers pressed for more aggressive steps.         
 The BOJ will boost its asset-purchase fund to 40 trillion yen by June 2013, compared with the previous target of 30 trillion yen by year-end, it said in a statement today in Tokyo. A separate central bank program providing funds to banks was pared by 5 trillion yen amid lackluster demand for loans.         
 Governor Masaaki Shirakawa was under pressure to act after a group of lawmakers proposed overhauling the BOJ’s governing law to ensure steps to end the deflation afflicting the nation for more than a decade. The BOJ today said today its 1 percent inflation goal will be achieved before too long, a prediction of victory that undermines the impact of today’s stimulus, according to Credit Suisse Group AG’s chief Japan economist.         
 “The effect of these positive actions could be completely erased,” said Tokyo-based Hiromichi Shirakawa, who worked at the central bank before joining Credit Suisse. “It’s like the BOJ said it’s going to press on the accelerator and they suddenly hit the brake hard.”         

Thursday, April 26, 2012

Stratego diplomacy...

..."Stratego" was an early gateway into more challenging strategy games for many youths (myself included) growing up in the 1980s, and involved moving chess-like pieces in a fairly straightforward manner to destroy your opponent.  Lying and cheating are somewhat encouraged in the game and "disagreements" occur often given the rules of the game and the average age of its participants.

Wargames have always been a part of play for young people, but in today's world of nuclear weaponry and intercontinental missile systems, there is a diminished respect for the subtleties of troop movements and logistical reconnoiter. 

So, enter the "Naval Exercise" or modern day wargame as a means of effective communication to an adversary as to your intentions with reasonably peaceful effects. 

I would be remiss in not bringing the most expensive wargame ever to your attention and its political uses (in light of the initial spectacular disaster).

In any case, here we are, playing Stratego once again. Full article here.

Vietnam and the United States on Monday began their annual naval exchange near a former U.S. army base in Danang city amid mounting tensions over competing sovereignty claims in the South China Sea.

With salvage and disaster training as well as a performance from the military band, the schedule of events seems harmless enough. However, some observers say the activities are an intrinsic part of a delicate diplomatic balancing act over contested territory in the South China Sea.

This year's event is larger than in 2011, with 1,400 personnel and three ships, including a guided missile destroyer, said Lieutenant Commander Mike Morley who attended the opening ceremony


...we don't actually think there should be austerity, just the idea of it should suffice."  The introduction of new standards achieved, the process of political capture is now complete.  Full article here.  This also can be translated as "get in now for this deal of the Millenium before the Chinese do!!"

Officials believe they have enough legal leeway to relax budget deficit targets for eurozone states without violating the Stability and Growth Pact, though the plans risk a serious showdown with Germany. "The Stability Pact is not stupid. There are elements of flexibility when growth is lower than expected," said a senior Commission strategist.
Current EU rules stipulate that every state must cut its deficit to 3pc of GDP by next year but this is not written in stone. "So long as a country is doing its homework and taking 'effective action', we can show some flexibility," the strategist said.
Marco Buti, director-general of economics at the Commission, said EU framework "leaves considerable scope for modulating the fiscal policy reaction" and "explicitly allows for the playing of automatic stabilisers" in response to shocks.

Monday, April 23, 2012

Still The One...

...a continuing series.  All the cries of "the U.S. is losing its exhalted status as reserve currency" fall on deaf ears to real money as yields on 10-year treasuries stick to the 2% area.

Sunday, April 22, 2012

No Way...

The sophmoric movie "Bill and Ted' Excellent Adventure" was forgettable but for Keanu Reaves's stellar acting skills (ok, maybe not...)  In one critical scene, he utters the phrase "No Way" to describe his astonishment in meeting a time-traveling version of himself.

The ensuing hilarity continues to the suprise of no-one who has followed this blog for the last 5 years.  What is equally amazing is that the Chief Economist in question has not disappeared.  I am certain I cannot match the acting skills, but if I went back in time and met myself 5 years ago and told him (me) of the below, I am sure we both would say "NO WAY!" in a most sarcastic fashion.

A major debt crisis may be hiding behind China's speedy economic growth and could cause its economy to collapse, warns a chief economist at Shanghai Securities Co, saying the central and local governments in China have incurred enormous debts. If these hidden debts are taken into account, total debt could be 68.33% of China's gross domestic product, higher than the alarm threshold of 60% set by the international community.
A Shanghai Securities Co research report said China's cumulative internal and external national debt was 6.75 trillion yuan (US$1.07 trillion) at the end of 2010, while its hidden debts were 10.94 trillion yuan (US$1.73 trillion).
Hidden debts refers to debts for which governments assume responsibility of repayment in case of default. For instance, debts incurred by the Ministry of Railways, shortages in social insurance funds, and nonperforming assets of state-owned banks and financial institutions are typical hidden debts.

Thursday, April 19, 2012

It is now officially hilairous... obvious these problems are now to the "experts".  Almost makes me want to go the other way and invest there....almost.  Full article here.

Judging from a recent series of scathing speeches by one of the PLA's top generals, details of which were obtained by Foreign Policy, it can't: The institution is riddled with corruption and professional decay, compromised by ties of patronage, and asphyxiated by the ever-greater effort required to impose political control. The speeches, one in late December and the other in mid-February, were given by Gen. Liu Yuan, the son of a former president of China and one of the PLA's rising stars; the speeches and Liu's actions suggest that the PLA might be the site of the next major struggle for control of the Communist Party, of the type that recently brought down former Chongqing party boss Bo Xilai. Liu is the political commissar and the most powerful official of the PLA's General Logistics Department, which handles enormous contracts in land, housing, food, finance, and services for China's 2.3 million-strong military.

Wednesday, April 18, 2012

The Master of Puppets...

...obey your master, indeed. As I have alluded to, the U.S. is picking up all the chips left on the table as this poker game of Realpolitik continues its grind. The naive calls for the "end of empire" and all that nonsense look so distant now.

WASHINGTON (Reuters) - The United States on Wednesday threw its support behind a bid to boost the International Monetary Fund's financial resources, signaling greater satisfaction among Group of 20 nations with Europe's efforts to resolve its debt crisis.

The U.S. government will not chip in more money of its own, but warm words from Treasury Secretary Timothy Geithner for commitments by others may clear a path for G20 nations meeting this week in Washington to agree on a way to bolster the IMF's war chest.

The idea is to bulk up so the Fund so it can aid non-European countries that get caught up in the maelstrom emanating from the euro zone.

There is no...

..."in fact" when it comes to the Paper Dragon. Market commentary that simply takes what the CCP publishes as "fact" is doubly suspect. This came across my desk, and I normally don't take a second glance at such things, but forearmed is forewarned. (emphasis added)

The copper’s strong acceleration in January, when the metal gained about 11%, was blamed to good economic news. In two months the macroeconomic environment has quickly changed, in fact last week sharp fall was caused by Chinese gross domestic producer data. In fact China’s economy expanded 8.1% percent in the first quarter from year earlier, disappointing consensus expectations of an 8.4% outcome. This data is the lowest in almost three years and strongly weighted on the copper, seen China is the first consumer of this metal, absorbing 40% of total production. Yesterday International Monetary Fund, which boosted its growth outlook, restored copper’s strength.


...raising the minimum wage by 35% and then indexing to increases in inflation. Truly astonishing. Check that...I suppose I should not be surprised by reactionary measures such as this. The notion of minimum wage has been exhaustively debated, but I don't recall seeing such a reflexively conceptualized bill.

WASHINGTON -- Legislation introduced by Sen. Tom Harkin (D-Iowa) on Thursday included a litany of measures aimed at boosting income for low-wage workers, most notably raising the minimum wage significantly and pegging it to inflation.

Along with spending on school modernization and renewable energy development, the Rebuild America Act calls for raising the minimum wage from the current federal level of $7.25 to $9.80 -- a 35 percent hike -- over the course of two and a half years, then indexing it so it rises with the cost of living. For restaurant servers and other tipped employees, the minimum wage before tips would leap from the current $2.13 to $6.86, and then track at 70 percent of the normal minimum wage.

The bill would also require employers to offer their workers paid sick days, make more white-collar workers eligible for overtime pay that they're currently exempted from, and give more workers the right to join a union.

Look closely.

The next few days ought to be quite memorable...

Monday, April 16, 2012

Still The One.

Oh, how all those comments regarding the death of the dollar and the inevitable upward trajectory for rates seem so absurd.

April 16 (Bloomberg) -- Treasury 10-year note yields dropped below 2 percent for a second day amid mounting speculation the European sovereign-debt crisis is intensifying, increasing investor appetite for the safest assets.

Yields on the benchmark note touched the lowest level in more than five weeks even as a report showed retail sales in the U.S. rose more than forecast in March. Spanish bond yields reached a four-month high before debt auctions this week. A separate report showed manufacturing in the New York region expanded in April at the slowest pace in five month

We should not be surprised... what politicians do in these times. Expropriation is but one example of the massive political risks being marshalled back into the markets.

Argentina, which defaulted on a record $95 billion of debt in 2001, said it plans to seize 51 percent of oil producer YPF (YPF) (YPF) SA to stem an increase in fuel imports and boost control over the nation’s crude reserves.

Argentina will send a bill to Congress to take control of the Buenos Aires-based company from Spain’s Repsol YPF SA (YPFD) and avoid becoming “an unviable country,” after oil production slumped, President Cristina Fernandez de Kirchner said today in a speech in the Argentine capital. Compensation for the seizure will be determined by the National Appraisal Tribunal, she said.

Saturday, April 14, 2012

Galbraiths's Bezel...

...Bo Xilai anyone? Close confidant of Xu Ming?

Just a coincidence. Certainly.

Oh, and I will refrain from writing prosaically about the internet blockage in China last week. No comparison to the Great Wall is needed.


...solving a perceived problem without anything approaching a full understanding of the consequences. Welcome to politics.

The difficulty with the below "solution" is that the ECB has already been established as a priority creditor with respect to defaulting nations (see Greece). Thus, if the ECB bought MORE bonds than it already owns, the remaining creditors would be in an even more untenable position if defaults or restructurings occur. Sovereign guarantees are not able to be priced once the ECB moves in with force, and instead of increasing stability, it has the perverse effect of forcing the remaining holders into limbo.

A Spanish minister called on the European Central Bank to do more to stem the sovereign debt crisis as the cost of insuring the country’s bonds against default surged to a record.

“They should step up purchases of bonds,” Jaime Garcia- Legaz, a deputy minister in Luis de Guindos’s Economy Ministry, said yesterday in an interview.

His comments came as ECB officials split over the steps to tame the crisis amid growing expectations that Spain will be the next euro member to seek a European bailout. Spanish banks’ borrowings from the ECB surged almost 50 percent in March, data showed yesterday, as they took almost a third of the longer-term lending offered to euro-region institutions.

My response... a message board discussing China's imminent and inevitable rise to global dominion:

This discussion began with the perceived importance of China purchasing land abroad and the ramifications thereof. I was (and still am) of the opinion that China is one of the largest unsustainable economic bubbles (in nominal and real terms) in history, and that its accounting systems, property rights, blatant mercantilist policies and completely ossified political structure will guarantee its downfall. Others here took the position that China is going to bestride the globe "soon" as its most powerful country.

Now, 10 months on from the beginning of our conversation, we have plenty of evidence on my side of the ledger. The question is, where does the capital flow now, and what are the effects? Forget China overtaking the United States by 2030...I doubt it will remain a "Country" by then.

We must think in variant terms here. It is during these times in history that the political geography re-forms form from economic tectonics.

The People's Republic made the same mistake Russia did. They tried to compete myopically in an arena where they enjoyed a temporary competitive advantage. This advantage faded over time and caused more and more destabilization.

In the U.S.S.R.'s case, it was nuclear and conventional armaments using a surplus of Physics genius. In the P.R.C., it is Economic development via low labor costs and zero respect for engineering rights and intellectual property laws.

But we see the destabilizing effects once these advantages are ameliorated...we also see the danger of myopically pursuing the same strategy after your competitors have altered their own behavior. The U.S.S.R. continued to invest in nuclear weaponry while its populace was miserable. The P.R.C. continues to practice a mercantilistic "export, export, export our way to growth!" while its populace grows miserable.

They share similar processes in strategy formation. They will also share similar fates.

Wednesday, April 11, 2012

From the IMF's...

...Global Financial Stability Report. Economicst often get the causalities wrong when considering trade balances and Current Account balances. The issue is not the goods going from one place to another. Its about the relative scarcity of "safe" financial assets. This is both the cause of the U.S. Current Account deficit and the primary reason that Treasuries continue to "fly off the shelves".

Its not an "imbalance". It is a reality in a more dangerous, more uncertain world.

…In the United States, foreign investors have dominated the market for U.S. Treasuries in view of its large size and depth and its high perceived degree of safety. However, post crisis monetary stabilization efforts increased the prominence of the Federal Reserve as a holder of government debt.

In Europe and Japan, domestic banks have played an important role as sovereign debt investors, in each case accounting for about 25 percent of outstanding sovereign debt (Figure 3.6). In the United Kingdom, insurance companies and pension funds have been traditional holders of government securities, although the Bank of England and foreign investors assumed a more prominent role after the global financial crisis.

Tuesday, April 10, 2012

Galbraith's Bezel...

Setting up camp for a long, arduous campaign in the Middle Kingdom. Note the "crowding out" effect of state funds going to the best connected (read: run by Communist party members or their cronies) firms instead of the most efficient or innovative ones. This, as I have said many, many, many times on this blog starting a Lustrum ago, will end very badly.

When a Chinese court sentenced 28- year-old Wu Ying, known as “Rich Sister,” to death for taking $55.7 million from investors without paying them back, it sparked an unexpected firestorm that has drawn in China’s top leadership.

Her crime involved a common, illegal practice in China: raising money from the public with promises to pay back high interest rates. Known as shadow banking, these underground lending and investing networks are estimated to total $1.3 trillion, according to Ren Xianfang, an economist with IHS Global Insight Ltd. (IHS) (IHS) in Beijing. That’s the size of the 2011 U.S. government deficit.

Operating outside the banking system or government regulation, the informal networks provide an important source of economic growth, capital for private companies and return for investors seeking to beat inflation. Premier Wen Jiabao, in an unusual move, weighed in on the case at a March 14 news conference. His comments highlighted a public debate over the importance of shadow banking to the Chinese economy, government efforts to bring it under control -- and whether capital punishment is an effective means to do so.

“Chinese companies, especially small ones, need access to funds,” Wen said when asked about Wu’s case. “Banks have yet to be able to meet those companies’ needs, and there is a massive amount of idle private capital. We need to bring private finance out into the open.”

Club Med

What would Europe look like without its sickly meditteranean members? Today's market actions (and the associated moves in U.S. Treasuries) put the U.S. decidedly ahead of all competitors.

LONDON (Dow Jones)--European stock markets tumbled on Tuesday, as Italian and Spanish stocks posted steep losses and the government bond yields of both nations continued to surge on the back of rising sovereign-debt concerns.

The Spanish IBEX 35 index dropped 3% to 7,433.60, its lowest closing level since March 2009, as growing fears about the country's budgetary situation dampened investor sentiment. The Italian FTSE MIB index sank 5% to 14,458.88, which was the biggest one-day drop since the beginning of November. The pan-European Stoxx Europe 600 index closed 2.5% lower at 252.57.

Galbraith's Bezel...

...reaching high saturation points over there.

TORONTO (Reuters)—Sino-Forest, the Chinese forestry company whose stock collapsed after a short-seller's fraud accusations, said on Monday [April 9] that Canada's top securities regulator found that its conduct ran afoul of sections of securities law pertaining to fraud.

The Ontario Securities Commission made its findings known to Sino-Forest by serving the Toronto-listed company and some of its current and former executives with enforcement notices, the company said in a statement.

Sino-Forest provided few details about the notices but said the matters in question were "of a serious nature." It signaled the OSC was considering formal allegations pertaining to false or misleading statements and possible fraud.

The case is the most prominent among a spate of accounting scandals that have tainted the image of Chinese companies listed in North America. The accusations have prompted trading halts, delistings, lawsuits and regulatory probes in both the United States and Canada.

Monday, April 09, 2012

Galbraith's Bezel...

...seen once again in the Middle Kingdom. Much more of this to come as the Emperor really does not have any more clothes in the closet. You can't really blame this man for vanishing, given that the punishment for just about any offense in China is death.

DALIAN ( Caixin Online ) — The sudden disappearance of a self-made billionaire in the coastal city of Dalian has unnerved not only bank executives concerned about loans they made to his companies, but also government officials who have lent generous support to the expansion of his business empire.

Xu Ming, chairman of Dalian Shide Group Co. Ltd., has been out of contact with his companies since March 14, a corporation announcement said.

The notification, dated March 31, says: “So far, the corporate group has not received any official notice related to Chairman Xu Ming, nor has any government department or agency launched any investigation against Shide Group and its subsidiary companies.”

Iberian Blues...

...continue. At this point the question must be asked, who will exit the Euro first? Most likely one of the larger members who can "afford" to go it alone.

The fetish of false issue and conflict resolution continues unabated. It is a dangerous game.

The reliance of eurozone banks on the European Central Bank was
demonstrated on Monday when Portugal revealed that its domestic banks
were tapping the central bank for record amounts of funding.

The Bank of Portugal said the use by domestic banks for the various
facilities available from the ECB rose to €56.3bn in March – up from
€47.5bn in February and greater than the previous record level of
€49.1bn in August 2010.

Bailed out by the EU and International Monetary Fund in April 2011 for
€78bn, Portugal has €12bn earmarked for bolstering its banks' capital
positions if necessary in the months ahead.

Captain Nemo said it best...

...when, in Jules Verne's classic "Twenty Thousand Leagues under the Sea" he uttered:

"Professor, you must not confound statics with dynamics or you will be exposed to grave errors"

And so...

“The relative risk of emerging markets compared with developed markets has changed,” said Campbell R. Harvey, a professor of international business at Duke University.

The average debt level of emerging-market countries like Brazil and China is far lower than that of developed ones like the United States and Japan, Professor Harvey said. In addition, emerging economies have continued to surge, even as much of the developed world keeps struggling with the aftermath of the 2008 financial crisis. Today, emerging markets represent about one-third of world G.D.P., and that share should increase in coming decades, he said.

The Economic Priesthood...

...summed up in a quote from Johnson Chalmers from the book "Blowback: The Costs and Consequences of American Empire".

"Economics split from the social sciences and took up a new position somewhere close to mathematics. Economists were now endlessly called upon by governmental bodies to testify that the American economy was unmatchable, even if it sometimes behaved badly because of overspending liberals, pork-barrel politics, or greedy monopolists. Alternatives to it were understood to be either converging with it or destined to fail. Economics no longer studied the economy; it spoke ex cathredra about what was orthodox and what was heresy."

Sovereignity bulwark

This amicus briefing is due to the Foreign Policy implications of allowing private creditors to effect relations with another state. This is one of the fault-lines that will define what is "sovereign" throughout this century, given that physical coercion ("gun-boat diplomacy) is now out of favor.

On Wednesday, U.S. government lawyers filed an "amicus curiae" or friend-of-the-court brief, asking that the 2nd U.S. Circuit Court of Appeals reverse Griesa's rulings, according to documents obtained by Reuters and reported in the Argentine media on Friday.

The judge's orders "could enable a single creditor to thwart the implementation of an internationally supported restructuring plan, and thereby undermine the decades of effort the United States has expended to encourage a system of cooperative resolution of sovereign debt crises," U.S. lawyers wrote.

Griesa accepted an interpretation of the "pari passu" clause included in many bonds that NML's parent company, Elliott Associates, used to disrupt a Peruvian debt exchange in 2000.

Please send food.

The latest chapter in the "send food and/or aid or we do something stupid" saga that is North Korea.

· TALK NORTH KOREA PREPARING NUCLEAR TEST: According to sources in South Korea, North Korea may be preparing to test a nuclear weapon after potentially testing a long range rocket this week.

Friday, April 06, 2012

That mediterranean...

...the rotten underbelly of the failed Euro experiment. I am sure the Italian government is feverishly busy preparing a response to the imminent downgrades coming when Moody's releases its Italian Bank reports on April 16.

April 6 (Bloomberg) -- Italian banks borrowings from the European Central Bank rose in March to the most on record with the countrys lenders taking up almost a quarter of the funds offered to European lenders amid revived concerns about Europes debt crisis.
Total borrowing by Italian banks surged almost 40 percent to 270 billion euros ($353 billion) from 195 billion euros in February, the Bank of Italy said on its website today. Most of the funding, about 268 billion euros, was from longer-term refinancing operations, while 2.4 billion euros came from the main refinancing operations, the data show. Lenders in the whole euro area borrowed about 1.15 trillion euros from the ECB.
Italian banks, which took on more than 255 billion euros from the ECB in two auctions of three-year loans beginning in December, are struggling to fund themselves as the debt crisis has pushed up the cost of funding and made it harder for banks to access the interbank market and reach wholesale investors.

Thursday, April 05, 2012


...on Sino-American Relations. In most of these discussions, Chinese economic growth is merely assumed. I of course disagree, but Mr. Kissinger does lay out most of the security issues here.

Full article here.

The key decision facing both Beijing and Washington is whether to move toward a genuine effort at cooperation or fall into a new version of historic patterns of international rivalry. Both countries have adopted the rhetoric of community. They have even established a high-level forum for it, the Strategic and Economic Dialogue, which meets twice a year. It has been productive on immediate issues, but it is still in the foothills of its ultimate assignment to produce a truly global economic and political order. And if a global order does not emerge in the economic field, barriers to progress on more emotional and less positive-sum issues, such as territory and security, may grow insurmountable.

Making it easier... "invest" in China. What timing.

China Securities Regulatory Commission increased quotas for qualified foreign institutional investors to $80bn from $30bn.


...from the far East. If instability spreads, this will be a important period for "optical backstops" and associated rescue packages from China.

From The Economist:

The Communist Party sticks to its principles and the economy stalls
Mar 31st 2012 | HANOI | from the print edition

AMID the bustling trade and raucous traffic of the Vietnamese capital, innumerable banners exhort citizens to “Celebrate the Spring, Celebrate the Party.” These days, Hanoians do not have much to celebrate. Not long ago, Vietnam was one of the developing world’s pin-ups. Now it is lagging badly.

The most immediate concern is inflation, which last year rose to above 20% for the second time in three years (see chart). Vietnam now has Asia’s highest inflation rate, a fact that government censors have asked local journalists to stop reporting. Thousands of businesses have gone bankrupt, property prices have collapsed and banks and state-owned enterprises (SOEs) are riddled with bad debts.

The reversal has been sudden. Vietnam’s GDP increased by more than 8% a year from 2003 to 2007, when the country attracted a surge of foreign investment. Now the World Bank is predicting that growth will average 6% a year in the five-year period up to the end of 2012. McKinsey, a consultancy, argues that unless Vietnam boosts its labour productivity by more than half, growth is likely to dwindle to below 5%. That will be well short of the government’s target of 7-8%. As McKinsey argues, “the difference sounds small, but it isn’t.” By 2020, Vietnam’s economy could be almost a third smaller than it would have been had economy continued to grow at 7% a year.


Interesting article regarding the use and promotion of modern expressionist art during the Cold War.

Full article here.

"We wanted to unite all the people who were writers, who were
musicians, who were artists, to demonstrate that the West and the
United States was devoted to freedom of expression and to intellectual
achievement, without any rigid barriers as to what you must write, and
what you must say, and what you must do, and what you must paint,
which was what was going on in the Soviet Union. I think it was the
most important division that the agency had, and I think that it
played an enormous role in the Cold War."

Wednesday, April 04, 2012

The difficulty...

...with putting band-aids over bullet wounds is becoming more apparant to even casual observers of the Euro-area.

But of course you already knew this.

Prime Minister Mariano Rajoy said Spain’s situation is one of “extreme difficulty” and signaled that his budget cuts are less painful than a bailout would be, as demand for the nation’s debt slumped at an auction.

“Spain is facing an economic situation of extreme difficulty, I repeat, of extreme difficulty, and anyone who doesn’t understand that is fooling themselves,” Rajoy told a meeting of his People’s Party today in the southern coastal city of Malaga.

Tuesday, April 03, 2012


...the obvious political machinations conducted by the administration to ostracize the SCOTUS prior to its "official" ruling, there still lies the question of law and the challenge to the ACA under the enumerated powers of the Constitution, and more specifically, the commerce clause.

The claim of an unbroken historical understanding of the Commerce Clause put forward by Obamacare supporters is nothing more than a myth cooked up for the occasion. But to supporters of the ACA, it is a necessary myth, which they invoke in order to lend legitimacy to their case for the constitutionality of the law. And on this point at least, for all their anger and resentment, they are correct. It is far easier to extend Wickard v. Filburn to the case of supposed inaction if that decision were on all-fours with Gibbons.

Monday, April 02, 2012

Nice article... The Economist regarding the similarity between Treasuries and cash (a pity the article does not go a bit deeper into the discussion and mention QE as being, fundamentally, a simple asset swap between interest and non-interest bearing assets, nor does it seem to grasp that the world's desire to net save "safe" assets far exceeds the supply of said assets at this moment in History).

Still, its nice to see the ball rolling a bit further than usual at The Economist, which has been woefully simplistic in recent years.

Full article here.

That, the authors say, is evidence of the higher value investors place on holding something that is 100% safe (a Treasury bond) rather than almost 100% safe (the AAA-rated corporate bond). At the same time the spread between AAA-rated and lower-rated corporate bonds also widens, a sign that the supply of Treasuries has a broader effect on the price of safer assets. Lower amounts of Treasury debt also lead to a wider spread between Treasury-bill yields and the interest paid on federally insured bank certificates of deposit. Since both are guaranteed by the government, the authors attribute the lower relative yields on T-bills to increased demand for their superior liquidity.

The Obama Doctrine...

...Years ago I speculated (and wrote a brief White Paper) regarding the probability of increased activity by the United States in the Antipodean continents of South America and Africa. There were a number of reasons for my interest.

It appears now that events have conspired to force this quasi-doctrine to fruition.

Full article here. It matters not wether the substance of the article is pretext or a real threat. The interests are there.

"We are looking for some legislative authority ... that might be able
to give us some broader authorities, legislative authorities and
multiyear funding for some of the types of activities that I'd like to
do in terms of building coalitions to take on these complex threats,"
Sheehan said.

DoD will hand over a slate of potential legislative options being
drafted by Sheehan's office to lawmakers "in the weeks and months
ahead," he added.

However, the Pentagon is already beginning to move ahead with its
plans for both continents.

U.S. special forces have been in Uganda since October, providing
support to local forces going after Ugandan warlord Joseph Kony and
his Lord's Resistance Army.

Defense Secretary Leon Panetta announced in February that U.S. special
forces and counterinsurgency specialists returning from Iraq and
Afghanistan will be redeployed to a number of global hot spots,
specifically those in Africa and South America.

Minding the gap...

...between regulatory chasms will never stop financial bubbles. It certainly will continue to ossify the free movement of capital. Instead of several small bubbles forming we will continue to see these massive imbalances caused by the inability of capital to quickly adjust due to regulatory over-reach.

Article from The Hill.

Federal regulators are facing opposition from business groups as they try to develop a system to ensure that large institutions do not cause another financial crisis.

At issue is how regulators will determine what financial firms deserve the title "systemically significant." Lawmakers developed the designation after the financial crisis, when a chain reaction among financial firms nearly sparked a global panic.

Sunday, April 01, 2012


...I can certainly see why the head of the Banking lobby in Japan would be concerned, but the real risks here are much less grave than what is claimed.

From Bloomberg:

Japan must quickly overhaul the tax system to prevent government borrowing costs from spiraling in the next decade, the new head of the nation’s banking lobby said.

“The risk of a tumble in government bond prices would increase if taxation and social security reform are left unsolved for years,” said Yasuhiro Sato, whose tenure as chairman of the Japanese Bankers Association began yesterday. “The country’s financial assets are dwindling with the aging population dipping into savings.”

Japanese banks hold a record amount of the nation’s bonds, prompting central bank Governor Masaaki Shirakawa to warn in February that lenders risk incurring trillions of yen in losses if yields rise. Prime Minister Yoshihiko Noda faces opposition to his plan to double the sales tax by 2015 to pay for swelling welfare costs and contain the world’s biggest public debt.