Saturday, March 30, 2013

Please bribe us...

PLEASE!  ANYTHING WILL DO!  Ignore Europe!  We are a much greater threat to international security than a tiny Island nation with Russian deposits!

Logistically speaking, they have 0 capacity to wage a war 5 miles outside their own borders...and that is a generous account of their conventional capabilities.

North Korea is entering a "state of war" with South Korea, its state-run news service reports, further escalating the rhetoric against its southern neighbor and the United States.
The statement, carried by the communist country's KCNA news agency, says inter-Korean relations will be dealt with in a wartime manner.

Thursday, March 28, 2013

Laissez les bons temps rouler

Anybody here know how to translate this wonderful phrase ("let the good times roll") to Mandarin?

BEIJING—China's new leaders plan to reassign the country's top securities regulator, who has sought to clean up the country's stock markets and attract foreign capital, after only 18 months on the job, say Communist Party officials with knowledge of the decision, raising questions about how quickly and deeply leaders want to reform the financial sector and take on powerful interests.

I don't normally... to this particular website (which has a decidedly End of Timer bent to it, and has since its inception), but it does have a typically bombastic article about one of my favorite topics: Galbraith's Bezel and all those wonderful "Gold Linked" securitizations...

In other words: that physical gold that your trusted "held" on your behalf... they never really held it, and neither did you. But don't worry: all the gold "held" by various brokers professing physical possession and not to mention thousands of assorted paper gold ETFs is certainly there.

Tuesday, March 26, 2013

That sloshing sound...

...of capital is the sound of money finding the most iron-clad assets with safe legal jurisdictions and liquid capital markets.

The yields...

Monday, March 25, 2013

Much more to come...

...with regard to various collateral issues, which is one of the major problems going forward for global finance.

The Rubicon...

...has been crossed with respect to deposit holders in the Western World.  But beyond the philosophical  and legal ramifications stemming from the seizure of Cypriot bank deposits (and the inevitable comparisons to 3rd world expropriation), there are some more practical issues that I am concerned with.

First and foremost is the negotiation and storage of collateral for global markets.  Given that this measure is akin to a massive exchange control program, and even assuming that the level of global interconnectivity remains constant*** it would appear that banks will have myriad financing problems because collateral will less likely be posted to (now) untrustworthy bank than with other custodial institutions.  Again, these are Rubicon type issues with respect to the irrevocability of global banking trust.  Think about what a "best practice" is for large trading groups and the collateral they must post in order to conduct business.  Now think about how banks would alter their own financing activities if they lose this business.

Secondly, Bond volatility and the associated yield curves for all major Sovereign issuers are not currently pricing in any forward-looking significance to this event.  All one needs to do is look in some of the international covenants and their vulnerability to acts of a Sovereign regime that do not trigger official inflation figures.

Thirdly (and speaking of inflation) if Sovereigns can seize bank deposits in a "crisis", true command and control of an economy is an order of magnitude closer.  It all leads to Government out-scaling its "limitations", and historically speaking, when large groups of nations achieve that kind of power, "bad things happen".

***I have said before that interconnectivity and global cooperation itself is an illusion.  It is not some linear progressive inevitability...rather a historical curiosity caused by massive technological innovation. Things are going to become more complicated once we all get used to how this technology can be manipulated to create winners and losers.  The inimical conflict between Nation States has certainly not been conquered by global cooperation.

Sunday, March 24, 2013

Latest rumors...

have the EU area granting 40% haircuts to deposits of greater than 129k Euro.

Do these people have any idea who they are dealing with.

Very. Dangerous.

Friday, March 22, 2013


...of asset taxes for various EU countries in order to achieve compliance with debt/GDP figures.

This is the kind of thing that, if enacted, will have all kinds of unintended consequences (like asset holders effecting both the numerator and the denominator of the debt/GDP figure)

This is a good demonstration of a fatal flaw with most economic prescriptions.

Assets are NOT fungible items, merely differentiated by price, yield, and other internals.  They have unique features which includes a political and military matrix of influence.

So, when countries begin floating asset taxation directives, the assumption that investors will not steer clear of such assets in the present and future is hopelessly confused.

Tuesday, March 19, 2013


So many options for Russia. They certainly cannot let Cyprus revert back to its own currency without serious limitations on inflation...a measure hard to accomplish since servicing external debts is the major problem here.

So the measure failed at the political level, which opens up many more options for Russia and make them the only player in town.

The U.S. has been strangely silent...especially considering the strategic value of oil and gas reserves in play on the way to the gulf...

Monday, March 18, 2013

Best news leader ever...

Thank goodness the world over has this important and timely report.

(CNBC) The latest news: Russian energy giant Gazprom either has or has not offered to bail out the country in exchange for exploration rights. 

As usual...

...the popular and reactionary press is looking at the Cyprus problem as some sort of catalyst for the End of Time.

We are talking about a 10 Billion Euro bailout.  AIG alone was an order of magnitude higher than that.  Reports are stating total deposits in Cyprus of around 100 Billion...anybody look at the Fed's balance sheet and the assets it soaked up?

On an absolute basis, Cyprus is a small player.  And it is precisely because of this that rules will be bent/broken.  It is also clear that the ECB will fully bail out its "own" citizens (see Ireland, etc.) but is sending a message that tax havens for non-citizens will receive harsher treatment.

But we are speaking about a small player.  It is also unclear as to whether this "bailout" will actually happen given domestic push back in Cyprus as well as Magnanimous and Benevolent Mother Russia acting as White Knight (half of that 100 Billion in deposits are Russian).

So I don't see the End of Time for the Euro just yet.

On cue...

...the Russians respond.  This may all be rumor, but there is no question as to the strategic opportunities this presents for Russia...especially given the veneer of respectability Cypriot banks has provided Russian depositors over the years.  It also serves to weaken the status of the EU if it cannot properly take care of its own.

Russian energy giant Gazprom has offered the Republic of Cyprus a plan in which the company will undertake the restructuring of the country’s banks in exchange for exploration rights for natural gas in Cyprus’ exclusive economic zone, local media reported.

Representatives of the Russian company submitted the proposal to the office of Cypriot President Nicos Anastasiades on Sunday evening, Sigma TV reported.

The proposal states that Gazprom will fund the restructuring of the country’s crippled financial institutions in exchange for substantial control over the country’s gas resources while Cyprus won’t need to take the harsh bailout package offered by the EU.

EU offered a 10 billion euros rescue package to Cyprus with the condition of raising 5.8 billion euros ($7.5 billion) by taking a piece of every bank account in Cyprus. The originally proposed levies on deposits are 9.9 percent for acounts exceeding 100,000 euros and 6.7 percent on anything below that.


All educated and sophisticated people are aware of the onomatopoeia "ruh-roh", coined by that famous canine crimefighter Scooby Doo.

I cannot think of a better way to describe what is occurring in Cyprus.  In terms of Gross Assets, this is small news, but as a precedent for the willful disregard for the political and legal process (favoring expedience in the face of "crisis") it speaks volumes.  Simply decreeing that a 10% levy on bank deposits constitutes a "tax" stretches the already feeble credibility bands of the ECB and EU political structure to the snapping point.

Expect pressure from Russia.

Friday, March 15, 2013


...under one roof.  Putin has it all.  What could go wrong?  Full link here.  As I intimated in the previous post, this will get interesting.  Now that Putin has fait accompli in terms of absolute power, and has secured his eastern borders with commodity contracts, etc., he can focus on central Asia, either overtly or by playing The Man With No Name game with China and the U.S.  A favorable position at the moment.

Worryingly for investors, Mr. Putin nominated a confidante despite a consensus among global economic policy planners that countries with independent central bankers tend to do better economically over the long term. Yet Mr. Putin already controls other ostensibly independent institutions in Russia, like Parliament.
Mr. Putin’s government has also advocated for more seats on the bank’s board and plans to combine the functions of the stock market regulator, the equivalent of the Securities and Exchange Commission, with the central bank, further centralizing financial regulatory control.
“The central bank isn’t simply a commercial bank, it is above all the regulator of our financial system and the most powerful institution responsible for state economic policy,” Mr. Putin said in making the announcement, in comments carried by news agencies.

Very important...

Even more important than gross levels of spending is its composition.  We are not talking about protracted land wars in Asia.  We are talking about clandestine state-driven resource security or outright smash and grabs of same.

with Putin in Russia (see more recent post) consolidating absolute power and securing his borders to the East with solid economic ties, Asia and the subcontinent (as well as myriad proxy wars in Africa) will be very "interesting" places to be.  Lest we not forget that Russia has "historically" (read: always) regarded central Asia as its property...

LONDON (Reuters) - Asia's defense spending overtook Europe's for the first time last year, the International Institute for Strategic Studies (IISS) said on Thursday, reflecting China's military rise and shrinking European economies.
In its annual report on the world's militaries, it said China's defense spending in real terms rose 8.3 percent between 2011 and 2012, while in Asia as a whole, spending rose 4.94 percent last year.
At the same time, nominal defense spending among European NATO members had shrunk to around 2006 levels due to budget cuts, the IISS said in "The Military Balance 2013".
"Indeed, the increase in Asian spending has been so rapid, and the defense austerity pursued by European states so severe, that in 2012 nominal Asian spending ($287.4 billion) exceeded total official defense spending not just in NATO Europe, but across all of Europe, including spending by non-NATO European states," it said.

Thursday, March 07, 2013


to laugh or cry...

An admission such as this is greeted with both cheers and more quiet reflection for its ramifications.  Mostly cheers though from the money center banks.  A get out of jail free pass is more subtle.


“I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy,” he said. “And I think that is a function of the fact that some of these institutions have become too large.”