Sunday, June 30, 2013

It is truly fitting...

...that the country most responsible for the Euro project (when it suited their interests) should now speak of the first country to secede (when it suites their interests) from this silly experiment.

Mrs Le Pen said her first order of business on setting foot in the Elysee Palace will be to announce a referendum on EU membership, "rendez vous" one year later. "I will negotiate over the points on which there can be no compromise. If the result is inadequate, I will call for withdrawal," she said.

Saturday, June 29, 2013

The real news...

...regarding the below snippet is not so much the financial fall-out.  The real news here is WHERE the bonds were issued and under what LAW they are governed.  Bonds issued in the U.S. and subject to U.S. jurisdiction are good substitutes for Aid packages (that are subject to various political tendrils).  Bonds issued in London and subject to U.K. law are also good substitutes for direct Aid packages given the similarities of U.K. and U.S. default, liquidation, and Bankruptcy law.

The point being that Western powers have wrestled a massive portion of control away from China and other waning interests in Sub-Saharan Africa...once again outmaneuvered by its more nimble, open, and adaptable opponents.

In purely financial terms, these Bonds are extremely risky...but the The West (primarily the U.S.) is the House, and The House always wins.

Full article here.  And its once again notable that Economists always see events like these in purely economic terms.

IN RECENT years, a growing number of African governments have issued eurobonds, diversifying away from traditional sources of finance such as concessional debt and foreign direct investment.
Taking the lead in October 2007, Ghana earned the distinction of being the first sub-Saharan country other than South Africa to issue bonds in 30 years. This sparked a sovereign borrowing spree in the region. Nine other countries followed suit. By February, these 10 African economies had collectively raised $8.1bn from their maiden sovereign-bond issues, with an average maturity of 11.2 years and an average coupon rate of 6.2%. These countries’ existing foreign debt, by contrast, carried an average interest rate of 1.6% with an average maturity of 28.7 years.
Sovereign bonds carry higher borrowing costs than concessional debt does. So why are developing countries resorting to sovereign-bond issues? And why have lenders suddenly found these countries desirable? One explanation is that this is just another manifestation of investors’ search for yield. Moreover, recent analyses have demonstrated the woeful inadequacy of official assistance and concessional lending for meeting Africa’s infrastructure needs. Moreover, the conditionality and monitoring associated with the multilateral institutions make them less attractive sources of financing.

Friday, June 28, 2013

Achieving Europe...

..."What are you talking about".  Indeed.  Professor Galbraith gives a nice and relatively short (20 minutes) lecture about the challenges ahead.  Of course, all of this was discussed here years ago, but its nice to see people lay out the problem in clear words once again.

Lecture here.


I have written about this phenomena previously.  In all seriousness though...what do we expect the spread of outcomes to look like if these policies are followed?  One of those laugh or cry headlines here:

Ireland falls back into recession despite multibillion-euro austerity drive

Official data revision of final three months of 2012 means Ireland has
endured three successive quarters of recession

An anti-cuts protest in Dublin this weekAn anti-cuts protest in Dublin
this week. Photograph: Diego Puerta/Demotix/Corbis
Henry McDonald in Dublin

Ireland is back in recession for the first time since its 2010
bailout, official figures have confirmed.

Tuesday, June 25, 2013

Capital flows...

...continue to flow to the most productive and safe jurisdictions.  This particular data set is pretty noisy (currency and financial asset fluctuation account for the Lion's share of the second derivative here) but its still a fairly good indicator of where capital is flowing.

The U.S. net international investment position at the end of the first quarter of 2013 was -$4,277.1 billion (preliminary) as the value of foreign investments in the United States exceeded the value of U.S. investments abroad. At the end of the fourth quarter and year 2012, the U.S. net international investment position was -$3,863.9 billion (revised). The -$413.2 billion change in the net position reflected a $394.2 billion increase in the value of foreign-owned assets in the United States and a $19.0 billion decrease in the value of U.S.-owned assets abroad.

Monday, June 24, 2013

Interesting perspective...

...on the nature of international capital.  Fitch must also believe that a relatively seamless transition to another jurisdiction is can be achieved given some social instability in Bermuda.

I have been to Bermuda.  It is a lovely place for those with liquid capital...and a large boat...

 In addition, Bermuda-based insurers tend to hold very little if any Bermuda sovereign debt or Bermuda currency. In addition, they maintain relatively minor investments in Bermuda banks and other Bermuda-based companies. While most Bermuda insurers have some level of deposits held at Bermuda banks, these amounts are generally quite limited. In addition, investment custodians are typically located outside of Bermuda. As a result of this very limited linkage of Bermuda-based (re)insurers to the island's fiscal issues and local economy, Fitch believes stress experienced by Bermuda would have minimal impact on the credit quality of its (re)insurers.

Here we go...

DJ Dudley: Fed Has Fallen Short On Job, Inflation Goals

Thursday, June 20, 2013


...the volatility has arrived before I had anticipated.  Although bonds have weakened, I still consider them to be in play given the simple fact that if rates are allowed to drift upwards, the nascent housing "recovery" will stall and severely effect employment, GDP, aggregate demand, etc.

As I have said previously, it is the wrong time to speak of "austerity" throughout the G20 and it was definitely a mistake to implement it.

The Fed overplayed its hand with respect to its "tapering" marketing campaign.

Monday, June 17, 2013

Shalom Ben...

...have fun back at Princeton...

 June 17 (Bloomberg) -- President Barack Obama said Federal
  Reserve Chairman Ben S. Bernanke has stayed in his post “longer
  than he wanted,” one of the clearest signals the central bank
  chief will leave when his current term expires next year.

     “Ben Bernanke’s done an outstanding job,” Obama said in
  an interview with Charlie Rose that airs tonight, when asked
  about nominating him for another term subject to Senate
  approval. “He’s already stayed a lot longer than he wanted or
  he was supposed to.”


Yet more "news" that readers here will find amusing...if only because this was discussed years ago on this blog.

Fitch says China credit bubble unprecedented in modern world history
China's shadow banking system is out of control and under mounting stress as borrowers struggle to roll over short-term debts, Fitch Ratings has warned.

The agency said the scale of credit was so extreme that the country would find it very hard to grow its way out of the excesses as in past episodes, implying tougher times ahead.

"The credit-driven growth model is clearly falling apart. This could feed into a massive over-capacity problem, and potentially into a Japanese-style deflation," said Charlene Chu, the agency's senior director in Beijing.

"There is no transparency in the shadow banking system, and systemic risk is rising. We have no idea who the borrowers are, who the lenders are, and what the quality of assets is, and this undermines signalling," she told The Daily Telegraph.

While the non-performing loan rate of the banks may look benign at just 1pc, this has become irrelevant as trusts, wealth-management funds, offshore vehicles and other forms of irregular lending make up over half of all new credit. "It means nothing if you can off-load any bad asset you want. A lot of the banking exposure to property is not booked as property," she said.

Thursday, June 13, 2013


Ok... I guess we will take your work for it...


Wednesday, June 12, 2013

Since when...

...did internal Executive Branch "process" become a proxy and substitute for 5th amendment rights.

That's all I am going to say on that topic.

The problem with "human rights"...

...and "humanitarians" is simple.  They simply assume that the same processes that drive human nature in Tyrants and Dictators do not apply to those who would be the leaders of whatever "international consensus" which would enforce "international law".

Just about every Tyrant in history started out as some sort of Revolutionary bent on returning rights back to the people...and even if this was not the case, how can you predict human behavior ex ante?  Given the enormous power that would hypothetically be ceded to some congress of "international law", how would this power be effectively checked?  Can you imagine the potential abuses if a person or group of people had "legal" jurisdiction over the entire Planet?

Plato was just as naive.  Holding that a class of people is immune to the sway of Power is silly and not borne out by the most casual observation of reality.  Empower the perfectly logical and pragmatic Philosopher King at your peril.

Or, as the Metal Musician/Poet Dave Mustaine wrote:

"You take a mortal man
and put him in control
watch him become a God
watch people's heads a roll"

And so I read the below statement by a respected human rights advocate and shudder to think what the world would be like if they were somehow given what they wanted.

"I have seen what national sovereignty can do in terms of damaging the resident population”, Laura Boldrini continued  “I refer to dictatorships, ethnic cleansing, mass extermination and civil wars. Like many, I have been indignant at the indifference of the world. I believe that when faced with the mortification of human dignity there is a right and duty to interfere in internal affairs. However, on two conditions. Firstly that one acts by scrupulously applying international law and not in a unilateral way or with improvised coalitions. Secondly, interference does not necessarily mean armed intervention. Here it is necessary to make  distinctions: the military do their job, humanitarian workers do another. The two may come into contact, but the agendas are separate".

We agree with you..., precisely, do they accomplish this terrible and totally illegal system of surveillance?  We are just curious...

Ah, like the great Lily Tomlin said: "No matter how cynical you get, its impossible to keep up"

Russia would consider granting asylum to NSA whistleblower Edward Snowden, Vladimir Putin's spokesman Dmitry Peskov said Tuesday.
Snowden fled the United States after leaking information about the NSA's secret surveillance of phone records and information collected by Internet providers. Afterrevealing his identity to the public, he said that he had sought refuge in Hong Kong, and was hoping "to seek asylum in a country with shared values."
Snowden has not made any requests for asylum yet, but Peskov told Russian newspaper Kommersant, "If such an appeal is given, it will be considered."
"We'll act according to facts," he said. The Guardian reported Tuesday that the statement prompted other Russian officials to declare their support for Snowden. As the newspaper noted, the country has a poor record for human rights and free speech, but has been known to support critics of the United States.

How not to inspire confidence in a Central Bank.

This statement would be an excellent exhibit for historians of the future.  Of course, if time = money...


Tuesday, June 11, 2013


It seems the collateral (and liquidity) questions are being partially answered today.  Again, its not time for a major reprisal.  Bonds will be fine once the equity rotation begins to wane.

The Widowmaker...

...strikes again.  Tough to see that one coming.

Shhh... hear that? (Silence).  That is the sound of nobody caring.

The U.S.’s AA+ credit rating outlook was increased to stable from negative by Standard & Poor’s, based on receding fiscal risks, less than two years after the company stripped the world’s largest economy of its top ranking.
The U.S. has a less than one-in-three likelihood of a downgrade in the “near term” with the revision, S&P said today in a statement. The New York-based company said it sees “tentative improvements,” such as the deal politicians reached to resolve what became known as the fiscal cliff and through spending cuts in the Budget Control Act of 2011.

Thursday, June 06, 2013

Risk on...

...Risk off.

The Karate Kid is a somewhat heartwarming (if still bad) rendition of a revenge story***.  Young spindly kid gets beat up by bully.  Kid takes Karate lessons from Okinawan Master.  Kid defeats bully in a tournament.  Bully graciously accepts defeat for some reason.   At this time in American culture (1984) Karate and Japanese martial arts held massive sway over young impressionable males such as yours truly.

This was largely due to the work of the great Sho Kosugi, whose myriad ridiculous "Ninja" movies (Enter the Ninja, Revenge of the Ninja, Pray for Death, etc.) convinced us all that Japanese martial arts, as opposed to, say, Boxing, was the way to go.  This marketing effort gave "The Karate Kid" credibility...just train for a couple of months and you too could defeat a physically superior opponent.  Forget studying other styles of combat and engaging in intense physical training for several years...just start washing fences and floors and voila!, you had the basics down and were instantly proficient in a street-level physical confrontation.

Of course, the entire genre was instantly destroyed by the abomination known as "Gymkata".  When adolescent men see a movie where the protagonist is defeating a mob armed with spears by performing pommel horse maneuvers, well, to put that into the modern vernacular, the Shark was truly jumped.

The point being marketing and media in the financial markets tend to overly simplify something incredibly complex.  There are no rules like "risk on, risk off" that work in the real world.

It would seem that every time bonds or stocks move 1%, pundits begin talking about "risk on" and "risk off" positions that would leave naive observers to believe these defensive positions somehow block losses.

Who can possibly find it profitable to trade every time markets move 1%, and getting suckered into a bad position at least 50% of the time.  You add the Vig of commissions and other "market frictions" (read: costs) and I have no idea who does this.  Its just another version of a bad marketing ploy...only this time instead of the quick fix of Karate, we have the quick fix of following some ephemeral market trend like "risk on, risk off".

***the film "Conan the Barbarian" abrogates the need to ever make another revenge movie.  What is the point.


Life imitating art...just about every response by official channels reads like MiniTru releases (sans Newspeak) with respect to what I thought "everyone" knew:  that all phone conversations in the U.S. have been recorded for at least 5 years.

Such power...I am certain it will not be misused...


I think the MOF and BOJ exercise their facility for cruelty.  Just as Bond shorts were clinking the champagne glasses, the following non-expansionary policy guidance appears:


Again, the "Widowmaker" trade's reputation is not undeserved...

Map of the day...

...U.S. Carrier Group locations...

Wednesday, June 05, 2013

Chart of the day...

...emphasizing the point of the previous post...these things have a tendency for reversion...

To laugh or cry...

...Austerity does what again?

The International Monetary Fund is to admit that it has made serious mistakes in the handling of the sovereign debt crisis in Greece, according to internal reports due to be published later on Wednesday.
Documents presented to the Fund's board last Friday will reveal that the Washington-based organisation underestimated the damage austeritywould cause to the eurozone country, which has required two bailouts in the past three years.
The Wall Street Journal reported that the papers would say that financial support from the Fund, the European Central Bank and the European Commission had bought time for Greece but had only been made possible because the IMF had bent its own rules to make the country's debt look more sustainable than it was. According to the WSJ report, Greece failed to meet three of the Fund's four tests to qualify for help.

Closer... the end of the "Great Rate Compression".  The last countries to attempt similar monetary easing as the developed nations will (of course) be the most damaged by the eventual global interest rate expansion (some would say "normalization")

Its not here yet.  But as the great Mark Cuban said "in business and in life, there are three I's:  Innovators, Imitators, and Idiots, and it helps to know which of those categories you fall into".

I will refrain form labeling entire countries under these guidelines, but as always, the maximum benefit accrues to those with initiative.

India’s bond yield held at the lowest level in a week as easing inflation and slowing economic growth spurred speculation the central bank will add to three interest-rate cuts this year.
Gross domestic product climbed a decade-low 5 percent in the 12 months ended March, below the 10-year average of about 8 percent, official data showed last week. Reserve Bank of India Governor Duvvuri Subbarao said May 14 that inflation at a 41-month low of 4.89 percent in April would be taken into consideration at the next monetary policy review.
“Sovereign bond yields have eased sharply in anticipation of easier monetary policy and lower inflation,” said Gaurav Kapur, a senior economist at Royal Bank of Scotland Group Plc in Mumbai. “While the RBI may not reduce rates on the 17th of June in its mid-quarter review of monetary policy, it is likely to guide that the room for policy rate cuts can increase.”

Deposit wars.

Its Money Market Funds vs. Money Center Banks in a winner take all contest.

My money is on the big boys.

So expect further pressure for regulatory apparatchiks to force assets to the Money Center Banks...because they are such excellent stewards of capital...

Tuesday, June 04, 2013

The Game... this:  Will the global rise in equities and corresponding wealth effect force the current broken Monetary Channel back into something resembling a healthy banking system?

This is happening quickly in the U.S., less so in the other major economies and Europe as usual being the laggards.  So I fully expect the U.S. to benefit from this global rotation and continue to lead.

We are still in the land of negative real yields.  The Fed's main concern is getting out of this predicament and returning to "normal" monetary policy and creation.

Monday, June 03, 2013

A little late... the party, but certainly a shot across the bow for China, who regards the Continent as its own Saudi Arabia.  I have told readers here that Africa is THE chessboard for the world now, and proxy kinetic conflicts and more prosaic financial battles will determine the winner.

In Japan's case, they cannot afford to appear weak given China's position and will happily open another theater of competition to distract from the Sengoku issue.

Full article here.

Japanese Prime Minister Shinzo Abe pledged 3.2 trillion yen ($32 billion) to Africa as his government seeks to catch up with China in pursuing resources, markets and influence on the continent.
Abe announced the five-year commitment of public and private support in a speech today at theTokyo International Conference on African Development. Officials from about 50 nations are attending the meeting, held every five years, which is the biggest African development event outside the continent since it began in 1993.