Thursday, May 30, 2013

Austerity me?...

Austerity YOU!.

Migration as economy-sinking mobile mercenary army...these tactics are becoming an exercise in hilarity.

Berlin/Rome (DPA) -- Germany's biggest selling newspaper voiced
outrage Thursday that Italy gave cash grants to hundreds of
African migrants, reportedly with the advice to travel north to
   Bild described the individual grants of 500 euros (650
dollars) per head as a "reward to leave."
   It said 300 of them were in the northern port city of Hamburg
and homeless, whereas the German Interior Ministry had on
Wednesday quoted a lower figure of around 150.
   In Italy, the Interior Ministry confirmed that cash payments
were given to migrants leaving temporary refuge centres that were
set up in 2011 to host people fleeing Arab Spring uprisings, and
which were closed on December 31.
   "It is not true that the money was given with the advice to go
to Germany. This is a slanderous and unpleasant interpretation
given by the German press," Italy's ambassador to Berlin, Elio
Menzione, told the ANSA news agency.
   In Rome, the Interior Ministry explained that the money was
given to migrants to help them integrate in Italy, but added that
those with regular residence permits had the right, under
European Union rules, to travel within the Schengen area for up
to three months.

Predictions are tough...

...especially when they are about the future. - Yogi Berra.

My daily in-box of readings typically include commentary from this or that asset manager.  The following sentence (name changed) sort of raised my eyebrow for some reason:

"At Acme Asset Management, we do not attempt to predict the future. Our focus continues to be seeking to identify quality businesses priced at what we believe to be a discount to their intrinsic values"

If you believe that an intrinsic value that has not manifested itself at the present, but will do so at a future date, how are you NOT engaged in prediction?

Wednesday, May 29, 2013

Just in time for the March Against Monsanto...

...I noticed the below story.  I know nothing of the relevant issues (well, at least much less than anyone who despises Monsanto, who seem to know everything the company has ever done and can read the minds of its top officers and Board members and have found nothing but malice and evil), but as readers know I am a big fan of pseudo-events and the tendency for Media to be manipulated by various competing groups.  This appears to be an instant classic in terms of a pre-rally molotov-style article.  Its so interesting in its brevity and multiple negative implications with respect to its target.

WASHINGTON (Reuters) - A strain of genetically engineered wheat that was never approved for or consumption was found sprouting on a farm in Oregon, the U.S. Agriculture Department said on Wednesday.
The wheat was developed years ago by biotechnology company Monsanto Co but never put into use in the face of worldwide opposition to genetically engineered wheat.


Name the country that is the subject of the following news snippet (adorned with appropriate substitutes for said country).  For readers here, a simple task.

Why state such impossible prescriptions?  It is akin to stating "The U.S. must shrink its Defense Budget by half and reinvigorate the private sector without effecting employment".  It sounds nice, but impossible to implement given current political inertia.

“Less efficient and more highly leveraged borrowers have been kept afloat, tying up credit that could be used to generate more growth,” said David Loevinger, former senior coordinator for Paper Dragons affairs at the U.S. Treasury Department. “To boost growth, Flaccid Drake needs to channel more financing to its private enterprises, which are both more profitable and less leveraged than their state-owned counterparts.”
State enterprises have seen their return on equity fall by half in six years, according to CLSA Asia-Pacific Markets in Hong Kong. The biggest concern from Obtuse Wyrm's credit surge is the money going to companies and state-run enterprises whose performance is deteriorating, Francis Cheung, head of China-Hong Kong strategy, wrote in a May 9 report.


Well, that experiment did not last long, now did it?

The European Commission has said it will allow some EU member states to slow their pace of austerity cuts, amid concerns over growth.
France, Spain, Poland, Portugal, the Netherlands and Slovenia are all being given more time to complete their austerity plans.
France will get two more years to bring its budget deficit below 3% of GDP.
Commission president Jose Manuel Barroso said the extra time must be "used wisely" to lift competitiveness.

Tuesday, May 28, 2013

In my view...

...this practice of Chinese government authorities incentivizing all kinds of mendacious behavior is endemic, and taking a literal "statistics on the table" view of their official figures would be madness.

Full article here, but suffice to say another example of illusory growth.

"With 50 million yuan worth of products, a firm could create the illusion of several billion yuan worth of trades," a source familiar with the practice said. "Then it could borrow several billion yuan from overseas banks, and move the funds freely through trades under the current account."
Some overseas loans have been channeled to domestic banks' wealth management plans, which offer yields higher than the borrowing cost. With the right bet on the offshore yuan Non-deliverable Forward, a futures contract, the borrowing company also stands to benefit from yuan appreciation.
Reining in trade-based currency arbitrage could be difficult, the Shenzhen government official said. Take rough gold processing for example. Customs is in no position to stop the business because simple processing is a legal business in bonded areas, he said.
But SAFE's tougher forex requirements may have begun to bite. One trader in Shenzhen's Futian bonded area said his company stopped faking imports and exports. Banks have halted financing to re-export businesses, a banker familiar with the situation said.


...a continuing saga.  If you are going to compete with the most recognized brand in the world (the U.S. Dollar), you had better have more backing than a few developers and a quirky DIY community.

This news snippet does not bode well for the future of Bitcoin.

Federal prosecutors have accused Liberty Reserve, a digital currency company, and its founder of running a $6 billion money laundering operation that became a "bank of choice for the criminal underworld."

The case, described by federal prosecutors in Manhattan as one of the biggest money-laundering schemes ever uncovered, comes just months after regulators warned that digital currency exchanges should follow traditional antimoney laundering rules.

Monday, May 27, 2013

Activity... the Subcontinent...

 May 27 (Bloomberg) -- Senior members of India’s ruling
  Congress party were among at least 27 people killed as their
  convoy was ambushed by 300 communist insurgents, in one of the
  most deadly attacks on politicians of a four decade offensive.

      Guerrillas blasted landmines to stop vehicles carrying
  Congress leaders from a May 25 party rally in central
  Chhattisgarh province before singling out their targets and
  opening fire, the Press Trust of India reported.

     The Congress party’s state chief Nand Kumar Patel and
  Mahendra Karma, the architect of a villager force called the
  Salwa Judum that was used by the state to counter the so-called
  Naxalites, were both killed, the state’s police chief Ramniwas
  said in a phone interview yesterday. A former federal minister,
  V.C. Shukla, was one of 32 people injured and airlifted to a
  hospital near New Delhi.

      The rebel group, formally known as the Communist Party of
  India (Maoist), trace their origins back to the ideology of Mao
  Zedong and are active in about a dozen of the country’s 28
  states, many of them rich in iron ore, coal, bauxite, manganese
  and other minerals. Prime Minister Manmohan Singh has called the
  insurgents the greatest threat to India’s internal security.

Wednesday, May 22, 2013


...Once again, its not called "the widowmaker" for nothing.

May 22 (Bloomberg) -- The Bank of Japan pledged to adjust its unprecedented stimulus program as needed after a jump in bond yields that highlighted risks linked to policy makers’ campaign to revive the world’s third-largest economy.
BOJ Governor Haruhiko Kuroda told reporters in Tokyo that the central bank will conduct its debt purchases in a flexible manner, and that the recent volatility in government securities isn’t yet affecting the economy. He spoke after the BOJ board affirmed its plan to double the monetary base in two years as it seeks to end 15 years of entrenched deflation.
The biggest surge in government debt yields in five years threatens to undermine the BOJ’s stimulus, with companies including steelmaker JFE Holdings Inc. pulling bond sales amid the tumult. The prospects of a growth rebound and the emergence of inflation has contributed to sending the rate on 10-year bonds up more than a quarter percentage point in two weeks.

High-Priest Bernanke...

...settles the "tapering" issue.

We will continue to purchase what we wish, ALL HAIL THE FED, AND IN CONCLUSION, CARTHAGE MUST BE DESTROYED.

"A premature tightening of monetary policy could lead interest rates to rise temporarily but would also carry a substantial risk of slowing or ending the economic recovery and causing inflation to fall further."


"many of these participants indicated that continued progress, more confidence in the outlook, or diminished downside risks would be required before slowing the pace of purchases would become appropriate."

Tuesday, May 21, 2013

In case you had not noticed...

...the Fed is being about as "transparent" with respect to its intentions as is possible.  The below from a  speech given today from N.Y. Fed leader Dudley.  As I said before, with the Fed vacuuming up massive amounts of duration, the risk profile of "America's Portfolio" has added considerably more risk.

Safe haven assets are in such low supply that the very definition of "safe" is being expanded. This includes the available collateral pool for high-level financial transactions, which is where I believe the first cracks will show during the Fall.

Our view is that asset purchases work primarily through the asset side of the balance sheet by transferring duration risk from the private sector to the central bank’s balance sheet.  This pushes down risk premia, and prompts private sector investors to move into riskier assets.  As a result, financial market conditions ease, supporting wealth and aggregate demand.  The fact that such purchases increase the amount of reserves in the banking system and the size of the monetary base is a byproduct—not the goal—of these actions.

The wrong conclusion...

No mention of the massive supply destruction (or "holding" or whatever happeans to financial assets when they are brought back into the loving arms of their respective Central Bank) that is really causing this chase.

Here’s this week’s mind-boggler of a stat: So voracious is the global appetite for debt that yields on almost $20 trillion of government securities are below 1 percent, according to Bank of America (BAC) data.
Such little cost to borrow such an inconceivably large sum. These are at once generous and stingy times: If you are an economy or a corporation with any modicum of creditworthiness, your debt will get snapped up on low, long, easy terms. If you’re an investor, you have to hustle and dig for yield that you might think you can live with, and for a long time—at least well into an uncertain future.
The average yield to maturity for the Bank of America Merrill Lynch Global Broad Market Sovereign Plus Index fell to a record low 1.34 percent last week, compared to 3.28 percent five years ago, with the amount of bonds in the benchmark having since more than doubled, to $23 trillion. Again, tens of trillions are being bandied about here. With central banks in Washington, Europe, and Japan avowedly expansionary—flexing new tools to conjure up fresh tender to buy bonds—yields constantly hit up against a ceiling. Barclays (BCS) predicts that central banks will buy $2.5 trillion of seemingly safe assets such as government securities this year, which is actually more than current net supply of $2 trillion.

Its impossible... know what net positions the men of Newport Beach are running.  But it is always instructive to listen to what they think we think they think they have.

Pacific Investment Management Co. is favoring local bonds in Brazil, Mexico and South Africa as emerging-market notes pay more than U.S. high-yield corporate debt for the first time in two years.
Relatively high amounts earned on securities in developing nations offer compensation for risks from slower growth to faster inflation worldwide, according to Ramin Toloui, global co-head of emerging-markets portfolio management at Pimco. The manager of the world’s biggest fixed-income fund has a positive outlook on the currencies of Brazil, Mexico, China and India and likes “high-quality” dollar sovereign debt from the first three countries, along with Russia and South Korea, he said.
Emerging-market local debt offered 5.22 percent on May 7, 25 basis points more than high-yield bonds in the U.S., the biggest premium since May 2011, according to indexes from JPMorgan Chase & Co. and Barclays Plc. Developing economies will expand 5.3 percent this year, compared with a 1.2 percent growth in advanced nations, according to forecasts by the International Monetary Fund released on April 16.

Monday, May 20, 2013

Be wary...

...GEFCON 3 appears to be imminent in the next 3-6 months.  Refer to previous post.

Friday, May 17, 2013

With France in Recession... will be beneficial to complete another of my popular "Trajectories" posts, which will be forthcoming soon.

Thursday, May 16, 2013


I wrote about Bitcoin before and its prospects, so it comes as no surprise that it will be decisively crushed via the rubric of "regulatory problems".    Regulators generally perform two (related) functions in a quasi-pseudo "free market" such as ours.  First, they smooth resistances for their real (read: the firms they regulate, those that are "in the club") employers.  Second, they terminate new entrants and would-be competitors using draconian, lack of due-process methods employed with extreme prejudice.

Bitcoin Exchange in U.S. Crosshairs Banked at Wells Fargo
by Brian Browdie
MAY 16, 2013 8:43am ET

A move by the U.S. government to rein in the unregulated use of Bitcoin involved the seizure of a Japanese company's account at Wells Fargo (WFC).

Mt. Gox, the world's largest exchange for trading the virtual currency, has operated as an unlicensed money transmitting business in violation of federal law, the Department of Homeland Security charged in warrants issued recently by the U.S. District Court in Baltimore.

The warrants authorize the government to seize funds held in accounts that Mt. Gox, based in Tokyo, allegedly maintains at Wells Fargo, the nation's fourth-biggest bank, and at Dwolla, an alternative payments provider in Des Moines, Iowa.

While opening a Wells Fargo account for a subsidiary in 2011, Mt. Gox's chief executive allegedly answered "no" when asked by the bank if his company dealt in, exchanged or transmitted money.

A Wells Fargo spokesman would not discuss the warrant on Wednesday.

U.S. law requires businesses that transmit money to adhere to state licensing laws and to register with the Treasury Department's Financial Crimes Enforcement Network, which enforces laws that aim to prevent money laundering.

Businesses that register with Fincen also must authenticate the identity of customers and report suspicious activity, a requirement that runs counter to the setup of Bitcoin, which enables users to transact anonymously.

In March, Fincen issued rules "clarifying" that registration requirements apply to certain businesses that deal in bitcoins and other cryptocurrencies. Neither Mt. Gox nor Mutum Sigillum, the Delaware-based subsidiary of the exchange that banked at Wells Fargo, has registered with Fincen as a money services business, the government charged.

"The moment an exchanger is considered a money transmitter a whole slew of regulations fall on you," says Juan Llanos, a risk management expert. "This should be seen as a huge red flag by Bitcoin entrepreneurs."

Wednesday, May 15, 2013


The below snippet illustrates some problems, both conceptual and of a more parochial nature.

We are in Terra Incognito with respect to the Global Experiment in Fiat Currencies (GEFCON), and no one really knows what happens to financial assets once they cross the Event Horizon of the Fed (or any other Central Bank) and are duly transformed into...something else.  The Fed (or insert your favorite Central Bank) takes Treasuries and distributes cash.  Then what?

Switching back to more earthly concerns, what happens when the supply of collateral for most large financial transactions is artificially shrunk?  Simple: the exchanges change the collateral requirements and begin accepting lesser form of collateral.  This is most likely where the next big Financial dislocation will arise...the cascades of forced collateral sales once it is understood what precarious foundations the bond markets stands upon.

Its early...we are only at GEFCON 4, but there are some major risks going forward within the 3-5 year range.

JPMorgan estimates that the world's central banks and commercial banks alone now hold some $24 trillion worth of bonds - or 55 percent of the entire $44 trillion universe of government, asset-backed and corporate bonds as captured by Barclays Multiverse Global Bond Index.
What's more, these players hold more than two thirds of the government bond subset, which amounts to about $25 trillion.

Tuesday, May 14, 2013

These same people...

...have been calling for a massive correction for years now.  This from one of the more bombastic "journalistic pieces" from a popular EOT ("end of timer") website.  There position is of course diametrically opposed to my own (at least that is, until September and October) which has been documented here.

The below remarks simply assume the premise.  Stock markets will correct because the reality is they will correct.  And they are simply wrong to assume "no one sees a severe market retracement".  Most players in the game are VERY cognizant of the possibility, and it may indeed be one of those "welp, can't risk losing to my benchmark" situation for many asset managers.  What is "complacency" anyway?

However, citing Margin debt as some sort of indicator is not the most rigorous way (since it measures margin of both buyers and sellers...and this is complicated by the fact that these days the stock market is wagged the derivatives markets) to bolster your position of a market correction.

Most realize a correction is coming, but the opportunity cost is too high right now with ZIRP, etc. to be out of equities.  My opinion is simple:  Come the Fall, the fall will come.

As stated above, with margin debt at historically high levels when the "herd" begins to turn it will not be a slow and methodical process but rather a stampede with little regard to valuation or fundamental measures.The reality is that the stock market is extremely vulnerable to a sharp correction.   Currently, complacency is near record levels and no one sees a severe market retracement as a possibility.  The common belief is that there is "no bubble" in assets and the Federal Reserve has everything under control.

Seems legit...

...The "most volatile commodity" is now a "safe haven".  Hey, why not, its not as if Gold lived up to expectations of all the gloom and doomers who predicted 10,000 an ounce and rampant U.S. inflation.

War is Peace.  Ignorance is Strength.  Volatility is Safety.

Natural gas, the worst-performing and most volatile commodity of the past decade amid a glut in supply, is replacing gold as a haven for commodity investors as the metal slumps.
The heating and power-plant fuel produced the best risk- adjusted returns of 24 commodities in the Standard & Poor’s GSCI index over the last 12 months, rebounding from the worst ranking in the prior 10 years, the BLOOMBERG RISKLESS RETURN RANKING shows. Gold, the decade’s top performer, and silver tumbled as a stock market rally and a rising dollar curbed demand for the metals as a refuge.

When a forecast...

...makes big news, you have to wonder about the veracity of official statistics.  Readers here know that  "official statistics" is something of a misnomer when it comes to the Paper Dragon, but the arrogant tenor of a country tweaking its growth rate in nice, round numbers is yet more evidence of farce.

According to local media reports, China could lower its official growth forecast to 7 percent next year – a move that would definitely be worth watching and one that suggests Beijing is growing more comfortable with slower pace of growth, China watchers say.
Economic growth of 7 percent is the bottom line for policymakers and any stimulus efforts could make the task of controlling the property market and inflation much harder, the China Securities Journal reported late last week.

Monday, May 13, 2013

This kind of thing...

..has been going on a long time.  Once you have control of information access, that logical step is to scale that into more aggressive uses.  To use a "hypothetical":  SUPPOSE that you hold a strange or thinly-held security and actively monitored said security using your "ubiquitous information and quoting terminal".  Someone who works for that information service could (since they know your identity) infer your entire portfolio holdings.

This is a big deal.  And players big and small have griped and snipped, but it now appears they have had enough and are going to media competitors to spread the word.  Reuters and others must be loving this.

Talk about a nanny state.
Irked Goldman Sachs brass recently confronted Bloomberg LP over concerns reporters
at the business news service have been using the company’s ubiquitous terminals to
keep tabs on some employees of the Wall Street bank, The Post has learned.
The ability to spy on Bloomberg terminal users came to light recently when Goldman
officials learned that at least one reporter at the news service had access to a 
wide array of information about customer usage, sources said.
In one instance, a Bloomberg reporter asked a Goldman executive if a partner at the 
bank had recently left the firm — noting casually that he hadn’t logged into his 
Bloomberg terminal in some time, sources added.

Sunday, May 12, 2013

Regarding Architecture...

...and exploring the issues raised in a previous post.  We can now add structures that are, ahem, "superfluous" to the list of warning signs of a massive bubble.

What will the historians of call these examples of malinvestment?

Saturday, May 11, 2013

The more things change... is that "German Problem" once again. This time under the more bloodless manifestation of Globalization (v. 3.1.1)  The below remarks from Mark J. Grant capture the current situation.  The European Union is indeed a One Horse Carriage.

I am not impolite but neither will I ignore the truth and dance around it in the name of proper European etiquette. I have been told, more than once, that it is not socially acceptable to mention the German past or what they are trying to do in the present. Yes, well, I am a tougher boy than that.

We do not even need to get to motivation. It is not necessary to undertake the tricky subject of just what the Germans are trying to accomplish. We can just remain on the surface and avoid that discussion. The simple truth is, for whatever reasons, that the Germans are totally in control of the European Union. Even France, once a partner, has been thrust aside. There are the Germans and then there is everyone else. The ball is called in Berlin and Brussels is just a front for the ambitions of the Germans and to think anything else is a colossal mistake.

If England does not wake up and recognize what is happening then it will be Neville Chamberlin all over again. Appeasement is never a good answer and today no war is threatened just financial domination. Over time, if Britain remains in the European Union, they will get pushed down into the mud, lose their ability to govern themselves, watch as their financial institutions get trampled by Frankfurt. The Germans will force them into a space presently occupied by Greece, Slovenia and Cyprus. Retribution for two World Wars will finally be won in Berlin.

In Europe today there are no tanks rumbling through the countryside. There are no bullets being fired across anyone's boundaries. What there is, however, is a war of domination and control being fought with money and the German's are winning the battle.

I will go further; there is no longer a European Union. The concept now exists just in name only. There is a German Reich and a bunch of appeased nations that cling to it. Money and trade are both the carrots and the sticks and Berlin uses both side of this coin effectively. It is a very clever ploy; Germany prospers as their neighbors suffer and the capital of a Continent is used to prop up the ambitions and lifestyle of a single nation.

Next week the British will decide for themselves as is their current right. However, my friends, if you decide incorrectly you may no longer be granted the right to make such a decision again as Brussels declares your right to decide "Verboten" sometime in the future. The directive may come from Belgium but the policy will be formulated in Berlin. Choose wisely now while you are still allowed to choose.

                        Mark J. Grant

Thursday, May 09, 2013

I mean...

...I don't normally link to this avid member of the EOT ("End of Timers") crew, but I have been talking about precisely this kind of cronyism for years now.  What a galactic hypocrisy the "People's Republic of China" has become.

As I have said before, the inner circle is nervous and it is no wonder we see all this activity by Chinese firms in low income countries that would presumably offer good terms for expatriates to quietly live out there remaining days in the shadow of a "friendly" (read: purchased) Government.

Its obvious to me that the Revolutionaries and their children know a winter of discontent when they see it...and have decided to quietly ferret away assets for the day of reckoning.

Wednesday, May 08, 2013

So Thailand...

...the bellweather Numero Uno, and now Oman want to jump on the Dollar bond bandwagon.

Rates are going to be low forever, right?

(Reuters) - Oman is considering whether to issue a U.S. dollar-denominated sovereign bond, its first international bond since 1997 and its second ever, to facilitate debt sales by its private sector, finance minister Darwish al-Balushi told Reuters.
"This year we do not plan but maybe for next year, and this is not because of our immediate borrowing requirements but because we want to pave the way for the private sector," Balushi said late on Saturday.

Does anyone...

...really truly believe that Europe will brush these growing pains and begin anew the inevitable unification of the disparate nations into something resembling the United States?

The only difference between this Utopia and the Marxist version are their mechanisms for self-deception.  The entire process has been marginalized to an experiment into the limits of political patronage...I mean, at least here the United States we have something approaching accountability.

Putting the Cart before the Horse...ultimate design before experimentation in human organizations has proven to be at the minimum ineffectual, at maximum a terror on earth.

This notion of  "political unity by design" in my view takes an extremely narrow view of human history, and does not even bother to consult human nature.

Unleash the (pick your enforcement vehicle)!!!!


As if my previous post was a signal to the gods, the Uruk-Hai (again referencing my previous post...pick any fictional unit of enforcement for dubious ends) have been unleashed upon an impetuous but weak adversary.  Making a currency that benefited from disfavor of other currencies was never going to win points with Governments...especially the guys at "THE" Government:

Senior officials at a top U.S. financial regulator are discussing whether Bitcoin, the controversial cybercurrency, might fall under their regulatory remit.
Bitcoin "is for sure something we need to explore," Bart Chilton, one of the five commissioners at the Commodity Futures Trading Commission told the Financial Times. A person familiar with the CFTC's thinking said that the regulator is "seriously" examining the issue.
Said Mr. Chilton: "It's not monopoly money we're talking about here—real people can have real risk in these instruments, and we need to ensure that we protect markets and consumers, even in what at first blush appear to be 'out there' transactions."

Tuesday, May 07, 2013


When everyone is calm, its time to review your exit plan.  Once banks fully recapitalize and China slows down considerably, inflation will make a return.  This should happen in 2-3 years, but the warning signs will manifest themselves (in some rather interesting term structure patterns) within 24 months.  That will be the signal for "everybody" to get back into Real Estate and start this merry-go-round over again.

Bond investors are gaining confidence that Federal Reserve Chairman Ben S. Bernanke will unwind the central bank’s unprecedented $3.3 trillion balance sheet without sparking a crash similar to 1994, when Alan Greenspan surprised the market by doubling benchmark lending rates in 12 months.
Though sovereign debt levels have more than quadrupled to $23 trillion, yields for 10-year Treasuries (USGG10YR) are 5 percentage points lower than they were in 1994 and forward measures show the current 1.74 percent level rising only to 2.04 percent in a year. Policy makers’ forecasts of no rise in the target interest rate for overnight loans between banks until 2015 are damping yields in a market dominated by the Fed’s $1.84 trillion, or 15.4 percent of the $11.94 trillion in marketable U.S. debt.

Saturday, May 04, 2013


Firstly, it does not appear to be a true "currency" but rather a payment system comparable to PayPal or similar systems (buyers and sellers of anonymous transactions don't really care about the value of bitcoins as they are simultaenously buying and selling them as by-product of a transaction)

Secondly, it is in precarious position as it is neither backed by a commodity nor (more importantly) can be utilized to satisfy a tax liability (in any fiat currency).

Thirdly, its has neither soft nor hard Power, so will be hunted down and killed by those who do.

Governments, like Orcs (or Dothraki or whatever fictional aggressive race you like), only respect Power.  If you don't have it, whatever you have of value will be confiscated or destroyed.

Friday, May 03, 2013

The Great Rate Compression...

...nearing its final descent.  In three years this experiment will be memory.  The problems with exceedingly low G20 interest rates coupled with a SHORTAGE of quality assets to invest available funds has been extremely deflationary.  This was pirmarily counteracted by massive deficit spending on the other side of the ledger.

Now, the calls of Austerity are being heeded.

Economic activity lags official policy, so give this bout 6 months before the torches are at the proverbial gate.

Negative real rates.  The bar has certainly been lowered.

Yields on eurozone sovereign debt fall across the board in the wake of the ECB's rate cut as investors react to Mario Draghi's perceived willingness to cut the deposit rate below zero, something policymaker Ewald Nowotny dismissed as not a near-term option. Yields on French, Austrian, and Belgian bonds hit record lows as spreads against safe haven German bunds (BUND) compress in Italy and Spain.


...many ways to play this (for Putin)...certainly defining it as a "war on terror" is one of them.

Boston Bomb Trail Leads Into Heart of Putin’s Own War on Terror

Six blocks from the Caspian Sea, on Kotrova Street in central Makhachkala, sits a mosque being watched by undercover Russian agents charged with preventing acts of terror.
As worshipers spill out into the streets, American investigators are watching now, too, as they try to reconstruct the events that led to the most high-profile terrorist assault in the U.S. since Sept. 11, 2001.
It’s here that Tamerlan Tsarnaev, the man U.S. authorities say masterminded the Boston Marathon bombings, went to worship during a six-month trip to Dagestan last year, according to his father. Since President Vladimir Putin tamed Tsarnaev’s ancestral homeland Chechnya, where federal forces fought two wars against Islamic militants, neighboring Dagestan has emerged as the center of separatist violence on the Russian side of the Caucasus Mountains.
“We know there were militants who started their path to Islam at this mosque,” Rezvan Kurbanov, a former deputy premier of Dagestan who oversaw security in the region in 2010 and 2011, said in an interview in Moscow. “We’ve had our eye on this mosque for a long time.”

Thursday, May 02, 2013


...found a new place to stuff all that BBB- paper!  Let it ride!

ECB/CYPRUS: the European Central Bank announced it has suspended the application of the minimum credit rating threshold in the collateral eligibility requirements for the purposes of the Eurosystem's credit operations in the case of marketable debt instruments issued or guaranteed by the Cypriot government. This suspension will be maintained until further notice, said the ECB.

A word about critical thinking.

It should be applied everywhere.  Like the gravity or the speed of light...a "Big C" type of constant.

For example, I recently received this article from some colleagues.  These are incredibly intelligent, well-educated people whom I respect and admire.  What followed turned into a diatribe against the government and its use of force and coercion to stop religious practices.

Of course, the article does not say anything of the kind.  It merely states the Pentagon met with someone and followed up with a typically anodyne statement regarding officers proselytizing their subordinates.  

But propaganda is useful, is it not?  So what should follow such a ridiculous claim as "people will be court marshaled for speaking about religion" is a critical analysis guided by one of my favorite maxims: "extraordinary claims require extraordinary proof" AND a careful understanding of qui bono - who benefits from this claim and its resulting backlash by the masses.

One should not turn off the critical thinking facilities because one agrees with a premise or general tenor of an argument.

Wednesday, May 01, 2013

Risks ahead... I stated in a previous post, the largest risk ahead, for equities, is the declining deficit having a large non-linear effect on GDP prints.

This risk seems to be lost on proponents of austerity and Niall Fergusons of the world.

Niall Ferguson at it again...

...from the man who brought you a really, really bad prediction, fellow Harvard guy Niall Ferguson comes to the rescue of his colleagues at Harvard and produces more terribly inaccurate Conventional Wisdom.  I don't even know where to start with most of this, but suffice to say that he does not seem to grok sovereign currency issuers and Fed asset accounting.  No doubt this vigorous defense will earn him trips to Davos and Jackson Hole for life...which is, of course, the point.

“You can’t borrow trillions of dollars a year for the rest of time,” Ferguson says in an interview with The Daily Ticker at the Milken Institute Global Conference 2013. “Once a government gets to a very very high level of debt, the risk is very small increases in borrowing costs which create a vast ocean of red ink. So that risk is not negligible. Very large debts do not simply disappear by magic.”
Ferguson argues that Carmen Reinhart’s and Ken Rogoff’s conclusions about the relationship between high debt and low growth are still true. The two Harvard economists had to defend their seminal book “This Time is Different: Eight Centuries of Financial Folly” after three University of Massachusetts academics “correctly identified a spreadsheet coding error that led us to miscalculate the growth rates of highly indebted countries since World War II,” according to Reinhart and Rogoff. (Lawmakers across the world cited their work as justification to institute austerity policies; they argued that economic growth slowed after a country's public debt equaled 90 percent of its GDP).


...these kinds of deals will happen more often now that Africom has arrived.  This is great for the continent, but this is early in the game.  There is still a large tradition of "get what I can...NOW" for obvious reasons in Africa and building a culture that "cough" respects and understands the time-preference value of consumption "cough", will be challenging.  Law and (especially) Order will help immensely.

Rwanda's debt, which has to be paid back by 2023, carries a coupon of 6.625 per cent, which is the annual interest the government will be paying for the $400m (about Rwf250b) acquired by issuing the bond.
While some analysts were wondering if it wouldn't be smart for Rwanda to use the recently discovered confidence of investors in its economy and borrow more money that it needs to finance its infrastructure projects, the government will apparently not rush to take more loans.
"We can't afford to borrow up to a dangerous level," Gatete said, highlighting that his is a "responsible" government. "No one has money to give out free of charge."