Tuesday, April 30, 2013

Right on schedule...

...since we have bases there, and Africomm as well, operations can now begin in earnest.  Note the admission of official U.S. personnel (as opposed to more clandestine operations or contractors.)

Nothing new to readers here.

Full article here.

The Pentagon has deployed a small number of troops to Mali to support allied forces fighting there, despite repeated pledges by the Obama administration not to put “boots on the ground” in the war-torn African country.
About 10 U.S. military personnel are in Mali to provide “liaison support” to French and African troops but are not engaged in combat operations, said Lt. Col. Robert Firman, a Pentagon spokesman. Twelve others are assigned to the U.S. Embassy in Bamako, the capital, he added.


...noticed this a few days ago.

​Today, the Office of Foreign Assets Control (OFAC) issued a general licenseauthorizing all transactions involving two banks in Zimbabwe, Agricultural Development Bank of Zimbabwe and Infrastructure Development Bank of Zimbabwe, provided the transactions do not otherwise involve any person whose property and interests in property are blocked.

Monday, April 29, 2013

What is a Haven?

Whilst driving around New Orleans this evening on a mission to procure tomorrow's coffee, I turned on one of the ubiquitous "conservative" talk shows whose basic arguments sound like the rantings of a 15 year old boy who just read the U.S. constitution for the first time in its entirety.

Everyone is an expert.  I mean, the shows are by design so simplistic as be cautiously relegated to the "entertainment" block of daily time as they provide a negative cognitive load.  Neither useful information  nor useful "analysis" is proffered.

Anyway, during one of the intermissions an advertisement by a website, BuyBelize, outlined some of the positive aspects of moving assets from the U.S.  I have heard many excellent things about Belize (and Panama, and various other Caribbean type tax havens) with respect to its excellent institutional infrastructure.  Its business practices appear to be of good standard considering the geography.

But what of real security?  What of "hard" protection of assets outside of civil means (using the prevailing legal system to uphold contract law).  I don't understand why this is not deemed a critical issues when analyzing any off-shore asset parking destination.

Belize, for example, has a Defense Force of 1000 people (unknown # of combat troops).  Its Air force comprises of Four (4) aircraft, all of a transport designation.  Its Annual Budget is 32 Million.  It borders Mexico and Guatemala.  It is close to Nicaragua and Honduras.

Imagine if a great many people followed the clarion call to park Millions (perhaps Billions) of dollars into Belize.  Imagine the real estate and economic implications.  Now consider what has happened in Venezuela, Cuba (especially!), Mexico, Nicaragua, Honduras, etc., etc.  Because with the military capabilities as they stand***, it would take considerably less than the book value of projected assets to topple the regime.

All risk assessment starts with Power.  Everything that follows is academic.

(***The Belize Defense Force has a partnership with the Louisiana National Guard...which would considerably bolster the defense capabilities of Belize, but it is unknown how far these political commitments would advance.

Its too bad...

...Mr. Falkenstein is "retiring" from active blogging...I will miss observations like this:

Most debates are like the one on Global Warming, where not a single person is an expert on all the arguments, and in the end it becomes a weighting of myriad consistent and inconsistent datapoints, where the weighting is a function of one's common sense: every argument has some supporting and inconsistent data. In such cases people can't help but let their higher preferences guide this weighting, why pro and anti government people clearly cleeve on this seemingly factual issue. This tends to make arguing less productive.

How many times...

...have I spoke about Russia and its extremely advantageous position.  Now this "has actually happened" in Syria.

I believe the sport equivalent is "drafting" in car racing...

BREAKING -- IFAX: 2 land-to-air missiles fired at Russian passenger
plane over Syria; aircraft avoided being hit

Sunday, April 28, 2013

Stable Nation-States...

...and well-defined borders are a relatively new phenomenon that will likely not past the tests of time.

It is always amusing to read of Western academics describing the myriad problems in Africa as if Europe was some kind of Monolith of consistency...

One need only look at this well-done time lapse to see that notion is false.

Friday, April 26, 2013

The meticulously preserved skeletons of past crimes...

...can be found in most metropolitan areas. (this will be a long post).

No, I am not talking about grisly tales of bones being discovered in some urban repository, rather I am talking about architecture.

Architecture has always been a fascinating subject to me.  It lies at a cultural, economic, and technological intersection and typically remains for decades and sometimes centuries.  A record of past epochs and empires...what they thought was aesthetic...how they spent their wealth (and even clues as to why they spent it).  The location and concentration of architectural achievement is also telling with respect to the scaleability of the source of wealth providing it.

In the title to this post, I allueded to "crime", but that is probably not fair as that particular term is a very liquid one when referring to the sources of wealth and its "legality".  What is fair to say is that many of the most interesting architectural achievments are concentrated in a few cities, and at times of massive influx of wealth.  Even more interesting is that ostentatiousness appears to be directly correlated with what can charitably be termed "distatstful" sources of income.

Consider for example the City of London, with its regal homes, many of which were built by profits from Opium trading via the East India Company.

Or perhaps the most egregious example, Versailles, which cost  France an estimated 50% of GDP for 10+ years.

Opulence and conspicuous consumption seem attracted to the relative ease of fortune accumulation.

Another Bazooka...

..."just in case we need it"...

Incentivizing term deposits at the Fed is an interesting policy tool, but it should be used with caution as rates respond negatively to liquidity events.  Its also a given that the Fed "should" never let money center banks use this tool in size as it will inevitably force the Fed's hand (with respect to "early withdrawal penalties") to return the funds as quickly as possible with zero penalty.

Unlike mere mortals, the Money Center banks can make a couple of phone calls to D.C. and explain that levying a penalty during market stresses ("we really need our term deposit funds back") only exacerbates the problem.

The Federal Reserve plans to conduct fixed-rate offerings of term deposits with full allotment of tenders under the Term Deposit Facility (TDF) as part of the ongoing program of small-value offerings announced on September 8, 2010. The Board had previously announced that it would consider various formats for the TDF as part of the development of the facility.

These small-value operations are designed to ensure the operational readiness of the TDF and to provide eligible institutions with an opportunity to gain familiarity with term deposit procedures. The development of the TDF and the ongoing small-value TDF operations are a matter of prudent planning and have no implications for the near-term conduct of monetary policy.

Thursday, April 25, 2013

With the entire world...

...short the Yen, may I remind everyone that the appellation "Widowmaker" has been ascribed to trading Japanese Bonds and/or currency for very good reasons...

When certain very successful business men (one of whom also owns a basketball team in Texas) appear on Television and expound upon the 1-way trade that is short Yen, please do be careful and understand that said person is one of the most astute bubble identifiers of in investment history...and that he must SELL his positions to someone willing to BUY them in order to profit.

You don't push the price up of something you wish to sell, do you?

Deflation, a continuing series...

Expanding on my previous post due to some questions via email:

The "interest rate" channel of income is effectively zero and has been for nearly 5 years now.  This has caused Billions of dollars lost in "opportunity" interest income.  The effect of this, and on government taxation policy ("income" not being quite what it was, recent healthy tax receipts notwithstanding) is to shift taxation emphasis FROM income TO assets.  The effects of this will be profound.

One more important point:  The value of the dollar is intimately tied to soft and hard American power.  If "goodwill" was an accounting line item with respect to the asset side of Government, it would reflect a massive number in the case of America.  Owning American bonds and assets comes with a tacit guarantee of safety AND the possibility of American military security.  Foreign demand for U.S. bonds will not decrease appreciably.

Abe Wan-Kenobi...

Abe of Japan channels his inner Obi-Wan, telling the collective Luke Skywalkers of the world that he is telling the truth, from a certain point of view...

such relativistic arguments cited by Mr. Abe will not be applied to hostile action against the Sendaku Islands...I am fairly certain that the definition of "invasion" will be very clear to him at that point.

TOKYO—Japanese Prime Minister Shinzo Abe has stepped up his campaign
to revisit Japan's wartime history, responding to criticism from Asian
neighbors with a new round of comments further aggravating tensions
with South Korea and China.

With emotions running high over visits by members of his cabinet to a
wartime memorial, Mr. Abe stoked passions further by appearing to
question whether Japan's World War II aggression and occupation of
countries around the region could be labeled as an "invasion."

"The definition of what constitutes an 'invasion' has yet to be
established in academia or in the international community," Mr. Abe
said in parliament Tuesday, after a fellow lawmaker asked whether he
supported a 1995 apology issued by Japan's prime minister at the time
for Japan's colonial behavior. "Things that happened between nations
will look different depending on which side you view them from."

Wednesday, April 24, 2013

Homo Homini Lupus

It is interesting how the idea of international security has evolved into its current state.  What is simply assumed among western nations is some Pollyanna notion that civil and reasonable discourse will solve all the problems of the world (or at least delay tough solutions until someone, somewhere, with some new engine for economic growth appears...the odds of which are quite good actually as incentives work).

It is also interesting to note the particular aversion to Mercenary armies has been jettisoned in favor of efficiency and expediency.  I applaud this development.

I have been reading quite a bit about Africa (which has always been a beacon of curiosity to me since I read "The Power of One" as a child, to say nothing of the spectacular sounds and visuals of the movie "Zulu".) and in particular the actions of Executive Outcomes in Angola and especially Sierra Leone.

The important point being that a 200 man force costing around $20 Million U.S. secured peace in a very dangerous place at a very dangerous time...and when they left, a "Peace-Keeping" force from the U.N. of 17,000 (costing an order of magnitude more at the least) could not preserve these accomplishments in the slightest.

So mercenaries are useful...the problem with the U.S. is that they do not burnish "Brand U.S.A.", and so are contracted out and absorb far too much blame if anything goes awry.

It is remarkable that Africa served as the laboratory for this experiment...it has always been thus.  So pay special attention to the myriad conflicts and property interests playing out in the Dark Continent, dear readers.  They will have ramifications.

Deflationary pressures...

Continue unabated throughout the Developed world.  As I wrote here years ago with respect to the great rate compression, the interest channel of income has all but ossified with "safe" rates at or near zero bound.

As if that was not enough the continued commitment of G20 governments to engage in austerity in order to fix a debt problem (which is, of course, illusory for the largest issuers of sovereign currency) is a further drag on deficits...deficits that need to be high in order for any reasonable hope of recovery to surface.

And, as if that were not bad enough, the austerity programs include additional taxation, which further drains demand from respective economies.  Once again, readers, think of taxation (in modern fiat currency arrangements) as demand management systems.

Something has to give, and it will of course be the commitment of the politicians, but these of course are the most susceptible to lag and to the reluctance of three little words that politicians avoid with pathological consistency:  "I was wrong".

Tuesday, April 16, 2013


Nothing more I can add that I have not already said many times here.  It was silly for people to believe "money printing" was occurring with QE that would transform inflation expectations without a corresponding explosion in loan activity via banks.

Thursday, April 11, 2013

I can hear...

...the cheering at the Pentagon all the way from here in New Orleans with regard to the "threats", nuclear and otherwise emanating from the bankrupt nation of North Korea.

Like my previous post intimated, this is all theater in one fashion or another, and it would not surprise The Recapitulator in the least if there was some quid pro quo occurring.

Friday, April 05, 2013

How to legitimize Asian military build-up...

...as the saying goes "I am not saying, I am juuuuuust saying"

If I were a hyperpower with a large (somewhat enigmatic, if not outrightly hostile, and with a "core ideology" at odds with my own) competitor who would normally dislike my presence in their sphere of influence, how would I go about justifying a large deployment of military assets?

"Convincing" a neighboring dictator to make some silly threats (imminent missile attack!) might be one of those ways.   Maybe this dictator actually likes American culture and...oh, I don't know...Basketball or something.

Foreign Policy is never direct, is it?  The Recapitulator notes Dennis Rodman was recently there.  I saw him at O'Hare and thought to myself "where is he going" but the Korean Peninsula was not on my top three possible destinations.

Just saying.

Central Bank asset purchases

The Bank of Japan has been doing this for a better part of a decade, with little effect.  I say little because the net effect of all these Bank Purchases and QE programs is near zero.

Its the Trade balance of Japan that is effected.  Japanese capital flows out of the country and buys ANY asset in the world with "some" yield.  This has the effect of  weakening the Yen somewhat, which is promptly netted out in all these BOJ purchase programs.  Even Polish bonds are seeing inflows.

The effects are severe and perverse, much as we see similar "asset swap" programs  in the U.S. (QE is just a nice way of saying "we are swapping low yielding assets for zero yielding ones") the effect is a temporary gain in asset prices followed by a continued deterioration in economic fundamentals.

The effects are dubious, but the risk is enormous:  the perverse effect of "fictitious demand" causing the supply of assets to decrease, with all sorts of nasty ramifications.

What price discovery is effectuated by capital markets these days?  Its a disconcerting question.

Thursday, April 04, 2013

Time to sell Defense and Weapons Manufacturers...

...because leaks like this will inevitably ruffle the feathers of the DOJ in the U.S. and the SFO in the U.K. with regards to the Foreign Corrupt Trade Practices Act and related OECD rules.

It has happened before...

A number of journalistic outlets are cooperating in a project to describe the contents of 200 gigabytes of financial information from private incorporation agencies in the British Virgin Islands. The International Consortium of Investigative Journalists has links to all the stories using the data.