The Recapitulator

Meanwhile...

2012-02-09T09:10:00.001-06:00

...In Argentina, the "irregularity" of cash use in the economy must be addressed. Never a good sign.

The government will restrict daily cash transactions to 1.000 Pesos
(231 US dollars) per person, down from 10.000 Pesos, according to a
statement in the Official Gazette. The measure affects activity in the
stock and bond markets, investment funds and in the futures markets.
Operations above the limit will have to be done through Argentine bank
accounts that are authorized by the central bank.

“They are forcing a higher level of formality in the economy, as cash
transactions allow more irregularities,” said Felipe Hernandez, an
analyst at RBS Securities Inc. in Stamford, Connecticut. “This is in
line with other measures to prevent money laundering, for which the
government has been under a great deal of pressure.”

Where...

2012-02-06T14:33:00.000-06:00

...were those carrier groups at again?

*OBAMA ISSUES ORDER FREEZING IRANIAN GOVERNMENT PROPERTY IN U.S.

Uh-oh...

2012-02-06T08:49:00.003-06:00

...capitulation is never a good sign, no matter what bias (bearish/bullish/neutral) you have. The next two months look set for a return of volatility.

Strategists at the biggest banks are capitulating on their bearish
forecasts after the best start to a year for global stocks since 1994
and gains of more than 7 percent in emerging-market currencies.
Just two weeks after saying that investors should “remain cautious,”
Larry Hatheway, the chief economist at UBS AG (UBSN), raised his
recommendations on global shares and high-yield bonds in a Jan. 23
note to customers entitled, “Wrong, but not too late.” Royal Bank of
Scotland Group Plc (RBS), and Benoit Anne, the global head of
emerging-markets strategy at Societe Generale (GLE) SA, said their
estimates for developing nations were proven wrong.

Kindly move your export demand meter...

2012-02-06T07:35:00.001-06:00

...a continuing series...

Feb. 6 (Bloomberg) -- Chinese Premier Wen Jiabao raised the prospect of contributing to the euro-area’s bailout programs, telling Chancellor Angela Merkel that China may be prepared to assist in resolving its debt crisis.
The Chinese government is considering funding options for the temporary European Financial Stability Facility and its permanent successor, the European Stability Mechanism, through the International Monetary Fund to help stabilize the monetary union, Wen said yesterday after meeting Merkel in Beijing. China has previously said that it needs more detail on any plan to contribute funds to the euro area.

Kindly move your export demand meter...

2012-02-02T12:43:00.002-06:00

...back to its previous setting.

02Feb12 RTRS-CHINA PREMIER WEN SAYS IT IS VERY IMPORTANT TO RESOLVE THE EURO DEBT CRISIS

Over-taxed.

2012-02-01T07:58:00.002-06:00

Given the size of government that we have (theoretically at least) "agreed" to. This is a drag on aggregate demand that we certainly don't need right now.

If current laws remain unchanged, federal revenues will grow by almost
10 percent in fiscal year 2012, to a total of about $2.5 trillion, the
Congressional Budget Office (CBO) projects. Those revenues will equal
16.3 percent of gross domestic product (GDP), substantially above the
range of 15.1 percent to 15.4 percent of GDP seen in the past three
years, though still well below the roughly 18 percent of GDP that
revenues have averaged over the past 40 years (see Figure 4-1). Almost
all of the projected growth in revenues relative to GDP in 2012 comes
from changes in tax rules that have already occurred or that are
scheduled to occur this year under current law. The most notable are
the acceleration of businesses' tax deductions for the depreciation of
new equipment into 2011 and 2012 (which reduced revenues to a greater
extent in 2011 than it will in 2012) and the scheduled expiration at
the end of February 2012 of a 2 percentage-point reduction in the
payroll tax rate for Social Security.

Rational expectations.

2012-01-31T16:45:00.002-06:00

I never understood this term. It sound almost Hegelian in its finality and simplistic tone. Why is a local average used in such a bewildering (P) Density is beyond me.

About those "Malvinas" Islands...

2012-01-31T12:23:00.004-06:00

...the British resort to 19th century displays of power...which is largely appropriate due to the continued nonsense sprouting from Buenos Aires regarding reversion rights to the Falkland Islands. In matters of "national interest", power is the only arbiter. Once oil as opposed to sheep became the economic issue, that question was closed for the U.K. Full article (and impressive stock photo with similar Falkland Geography) here.

The HMS Dauntless will set sail for the Falkland Islands in the coming weeks armed with a battery of missiles that could "take out all of South America's fighter aircraft let alone Argentina's," according to one Navy source.
The Type 45 destroyer is the most advanced anti-aircraft and anti-ballistic ship in the world equipped with 48 Sea Viper missiles and the Sampson radar, which is more advanced than Heathrow air traffic control

Changing cycles...

2012-01-25T08:18:00.002-06:00

...late to the party, as always. The ironic thing is this may all come to pass, but markets will have a different reaction given the forward-looking prospects of the actors and the discounting that has already been priced in.

In other words, a viable strategy would be to invest exactly opposite to the IMF's esteemed forecast. In other institutional news, The Recapitulator also notes the "Smartest Guy" is being considered as the head of the World Bank. To laugh or cry...

On Tuesday, the International Monetary Fund said that it predicts slowing global economic growth and a rising risk of global economic calamity if governments fail to act appropriately.

Last fall, the IMF predicted that the global economy would expand by a paltry 4 percent, but has since downgraded its expectations to 3.25 percent global economic growth in 2012.

The economy that makes up the largest chunk of the projected growth is China (the world’s most rapidly expanding economy), which is expected to enjoy 8.2 percent growth over the next year. In comparison, the United States, which owes trillions of dollars to the Chinese, is expected to experience only 1.8 percent economic growth in 2012.

The IMF says that the slowed global economic growth falls heavily on the economic disaster unfolding in eurozone countries, where a “mild recession” is expected to take hold.

All things being equal...

2012-01-24T22:25:00.002-06:00

...serves as the death knell for analytical thought amongst policy makers. This elicited an "um...what???" from your humble blogger when it came across the wires:

LEHMAN WOULDN'T HAVE HAPPENED IF DOLLAR WAS STABLE, HANKE SAYS

Hanke being part of the Cato institute, seems to have conspicuously ejected the entire context of Lehman's downfall.

Enter the Dragon...

2012-01-23T07:02:00.003-06:00

...the problem with a dependence on FDI is the mercurial nature of that type of investment.

Jan. 22 (PTI) --
From K J M Varma China's foreign exchange
reserves amounting to over USD 3 trillion declined for the
second straight month in December, snapping the trend of years
of accumulation.
Chinese lenders bought USD 142.5 billion on behalf of their
clients in December, while they sold USD 157.8 billion, marking
the second monthly deficit, China's State Administration of
Foreign Exchange (SAFE) said in a statement.
The December deficit stood at USD 15.3 billion, up from USD
800 million in November.
China sits on the world's largest forex reserves.
The SAFE data came after the central bank had said earlier
this month that the country's yuan funds outstanding for foreign
exchanges fell to 25. 36 trillion yuan in December.
Analysts said the deficit, like falling yuan funds, is a
result of a narrowing trade surplus, a slowdown in the growth of
foreign direct investment and weakened expectation for yuan's
appreciation.

And now...

2012-01-19T08:16:00.002-06:00

...claims and Housing starts display positive numbers. The CPI reflects a bit of deflation.

Quite the contrast to the cacophony of the Doom Cult.

The professional class...

2012-01-18T13:20:00.002-06:00

...of politicians have done a couple of things today that attracted my attention.

The first, of course, is the SOPA act that is garnering all kinds of attention. Question for the class: Who is the chief sponsor of the bill and what industry was his main campaign donor?

The second is the vast amount of information and investigatory power that can be focused during presidential competitions. This brief is quite stunning in breadth, depth, and tone.

Chatter...

2012-01-18T12:52:00.002-06:00

...the doomsters on the attack again. That correction I spoke about previously is starting to bubble now.

Welcome to the 2012...

2012-01-18T12:42:00.001-06:00

...World Bank Funding Drive. Operators are standing by to take your donations.

Beijing, January 18, 2012 – Developing countries should prepare for further downside risks, as Euro Area debt problems and weakening growth in several big emerging economies are dimming global growth prospects, says the World Bank in the newly-released Global Economic Prospects (GEP) 2012.

The Bank has lowered its growth forecast for 2012 to 5.4 percent for developing countries and 1.4 percent for high-income countries (-0.3 percent for the Euro Area), down from its June estimates of 6.2 and 2.7 percent (1.8 percent for the Euro Area), respectively. Global growth is now projected at 2.5 and 3.1[1] percent for 2012 and 2013, respectively.

Slower growth is already visible in weakening global trade and commodity prices. Global exports of goods and services expanded an estimated 6.6 percent in 2011 (down from 12.4 percent in 2010), and are projected to rise by only 4.7 percent in 2012. Meanwhile, global prices of energy, metals and minerals, and agricultural products are down 10, 25 and 19 percent respectively since peaks in early 2011. Declining commodity prices have contributed to an easing of headline inflation in most developing countries. Although international food prices eased in recent months, down 14 percent from their peak in February 2011, food security for the poorest, including in the Horn of Africa, remains a central concern.

“Developing countries need to evaluate their vulnerabilities and prepare for further shocks, while there is still time,” said Justin Yifu Lin, the World Bank’s Chief Economist and Senior Vice President for Development Economics.

PPI

2012-01-18T09:14:00.002-06:00

Shows deflationary pressures. We are five years into this "money printing" and so-called reversion into Banana Republic status because of excessively loose monetary policy.

So again, I ask, where is the inflation? How long does it take for mainstream economic theorists and media pundits to realize they are fundamentally wrong on the subject of money creation in a fiat currency world?

Michigan...

2012-01-13T10:34:00.003-06:00

...consumer sentiment surprises to the upside.

The same folks who incessantly against the premature demise of the business cycle at economic peaks now seem perplexed by the cycle's symmetry.

ORLY???

2012-01-10T18:47:00.001-06:00

Thank goodness for rating agencies.

LONDON—Fitch Ratings on Tuesday pointed to Italy as the euro-zone member that poses the greatest threat to the currency bloc's future, as the lack of a regionwide plan to prevent the sovereign-debt crisis from spreading has coupled with the country's large debt burden and high borrowing costs.

Of course...

2012-01-10T12:30:00.004-06:00

...a "correction" (whatever that means) is likely in the coming months given the recent up-ticks in lending activity, employment, and today's bond auctions, but this should not preclude observers from concluding the overall trajectory of the recovery. This is especially true considering the previous engines for growth in the world (the "de-coupled" emerging markets and the Euro are) and in the doldrums and in China's case is effectively inviting disaster. I don't see how encouraging this type of capital injection (with its peripatetic nature) is a viable solution.

-- China will open capital markets further to foreign investors - securities regulator

-- China will seek a greater role for long-term institutional investors in a bid to boost the country's sagging stock market, the regulator adds

-- Comments come after Premier Wen Jiabao said the government will take measures to boost market confidence

-- The regulator pledges to advance reform of initial public offering system and delisting mechanisms

-- Regulator seeks to roll out more futures products, including government bond futures and silver futures as well as financial derivatives like options

Consumer Credit...

2012-01-09T14:33:00.002-06:00

...to the continuing dismay of the EOTers, the engines of recovery continue to hum along.

U.S. November Consumer Credit
Nov. Oct.
2011 2011
===================================
------------------
Total $2,477.7 $2,457.3
Dollar change $20.4 $6.0
Annual % chg. 9.9% 2.9%

The dangers of specialization...

2012-01-09T07:31:00.003-06:00

...Economics like any other field (especically within the strata of social studies) suffers greatly from over-specialization. The more abstract the thought, the more removed from the daily reality of problem-solving it becomes.

For example, your blogger has (inter alia) a degree in philosophy, and loves to read anything written under that broad category. But I equal parts shudder and waive my hands dismissively when I come across sentences such as this one that has long ceased to have any causal, probative, logical, explanatory, or moral value:

Therefore, what has been proposed above as a means of redirecting the development of postmodernity toward more livable, human dimensions is a heterotelic narrative transitivity—an active reimmersion of narrative in the social—which contrasts sharply with the autotelic concern for their own procedures and the hermetic intransitivity of modernist self-consciousness and late modernist self-reflexivity.
-- Joseph Francese, Narrating Postmodern Time and Space

Employment...

2012-01-06T16:33:00.003-06:00

...comes in strong as suspected. The same folks who used the Employment figures when they were near 10% as a sign of weakness (not doubting the accuracy and veracity of the figures) now use them as disconfirming evidence. A curious double-standard.

ADP

2012-01-05T08:07:00.002-06:00

Surprises to the upside. Seasonal adjustments aside, this is welcome and something the EOTers will engage in procrustean mental gymnastics in order to ignore.

The future...

2012-01-04T17:31:00.002-06:00

...is being invested in right now. Does this look like a chart that portends great suffering and doom in the coming decade or is this a positive leading indicator for increased economic activity. And yet the Mayan doom-cult is the only sound in the media echo chamber.

Ponzi

2012-01-04T13:42:00.003-06:00

So many times the term is misapplied. None more egregious than when describing the global financial system. It is a gross simplification that intellectual Hedgehogs (in Isiah Berlin's nomenclature) use when they cannot wrap their collective brains around the simple fact that in a floating or soft currency world, an incremental payment fraud system is completely inapplicable.

But whatever, the types of quotes below are seldom viewed with a self-critical lens...or chastened with some humility.

Oliver Cromwell summed it up centuries ago: "I beseech you, in the bowels of Christ, think it possible you may be mistaken"

Lastly, the gradual creep higher in US interest rates after QE3 and QE4 resulted in several near-failed auctions looks as though it could signal the beginning of a fundamental shift that may potentially, in 2013, bring about the final unraveling of the global government bond ponzi scheme.

The EOTers shudder...

2012-01-03T09:32:00.002-06:00

...and fulminate.

The great function of the market, as discounting mechanism for future probable outcomes, continues its march. With "DOOM!" being the popular and erudite response to the current global imbroglio, it is no surprise to readers here that the markets have promptly gone the other way...and not without data.

U.S. December ISM Manufacturing Index:
Dec. Nov.
2011 2011
===================================
Manufacturing index 53.9 52.7
Prices paid 47.5 45.0
Production 59.9 56.6
New orders 57.6 56.7
Backlog of orders 48.0 45.0
Supplier deliveries 49.9 49.9
Inventories 47.1 48.3
Customer inventories 42.5 50.0
Employment 55.1 51.8
New export orders 53.0 52.0
Imports 54.0 49.0

Setting up shop...

2011-12-29T14:39:00.001-06:00

...and with anti-climactic results to readers here. The Obama Doctrine is humming along.

The military’s legendary expeditionary construction units, the Navy’s Seabees are set to return to their World War II roots this spring when a construction detail Naval Mobile Construction Battalion 3 heads to Africa to greatly expand the runways at a remote Kenyan airstrip to allow it to handle large cargo planes.
Sailors from the detail will haul their own heavy construction equipment, such as a a mobile concrete batching plant, pavers and steam rollers to a remote part of the African nation to expand an austere airstrip into one capable of handling large jet aircraft.
While the Seabees declined to comment on where the airfield is, how large the new runway will be or even the specific types aircraft that will be able to use it, they did tell DT that this is the largest project they’ve worked on in a long time. The project is so large that the sailors are bringing their own asphalt prepping [batching] plant with them; something the Seabees haven’t done in a long time.
“This is the first time we’ve set up a batch plant up, this is a newly procured system, the Seabees haven’t done their own asphalt batching — the process of making asphalt — for several years; its almost an extinct skill,” Lt. Cdr. Bill Wohead, Naval Construction Battalion 3’s operations officer told DT recently. “We’re the first (Seabee) battalion to go through all this training, we’re the first battalion to use this brand new equipment and we’re the first battalion that’s going to use it all in concert to create a project in the middle of nowhere.”

Quote of the Day...

2011-12-29T06:06:00.002-06:00

...and summing up the dangers of the unchecked concentration of power.

The Law has placed the collective force at the disposal of the unscrupulous who wish, without risk, to exploit the person, liberty, and property of others. It has converted plunder into a right, in order to protect plunder. And it has converted lawful defense into a crime, in order to punish lawful defense.

-Frederick Bastiat

A Wild Austrian Economist Appears!!

2011-12-28T22:16:00.003-06:00

The following is from a recent article in The Economist lamenting the travails of modern economic theory (whatever that is) and a worthy group of upstart challengers. The article concludes thusly:

The bygone and the marginalised always look strange. But would it not also be strange to imagine that, in 30 or 50 years, economic historians will look back on the current crisis and say that mainstream macroeconomics offered the best analysis and prescriptions that could have been conceived? If they agree that it did not, then there seems a chance that they will think perspectives outside the mainstream might have helped.

Decades ago macroeconomics resembled an “intellectual witch’s brew”, according to Olivier Blanchard, chief economist of the International Monetary Fund. It contained “many ingredients, some of them exotic—many insights, but also a great deal of confusion”. Things then became more rigorous and refined: disagreements remained, but within set limits. Now, on the blogs, the economic conversation boils and bubbles again. That ferment is surely spreading into the academy—and in time some new quintessence will be brought forth, perhaps from materials now considered base.

This "quintessence" (like some sort of 5th element shipped via UPS from Mt. Olympus) is a fiction. Economics is a historical construct that is inextricably linked to contextual events, each dependent upon the actions of millions of humans (and in some cases, the actions of a very few of them). So there will be no Great Synthesis ready to take its rightful place among the objective sciences. Business cycle theory applies equally to the academic discipline of Economics as well. Influence is achieved, prescriptions made, failure is inevitable, and challengers appear in the firmament to begin the cycle anew, with the next generation of adherents ready for battle.

Producing volatility

2011-12-28T21:34:00.001-06:00

...in order to beg for relevancy. This is no different from the more lurid and prurient representations we have heard from "shock radio" or gangster rap.

The word "reprobate" comes to mind...

The UN general assembly granted a request from North Korea to hold a moment of silence for Kim Jong-il, the country's former leader who died on Saturday. The tribute was boycotted by western delegations. Nassir Abdulaziz al-Nasser, president of the 193-nation assembly, called for the minute of silence before the start of a routine meeting

LOLOLOLOLOLOL

2011-12-27T00:48:00.001-06:00

Cant...stop...laughing...

Jiang Shusheng made the statement during a meeting with the head of Argentina’s Lower House Julian Dominguez who also underlined the recent Mercosur solidarity support to Argentina’s request in the Falklands/Malvinas dispute.
The Chinese top official originally arrived in Buenos Aires as a special envoy from President Hu Jintao to President Cristina Fernandez swearing in ceremony last December 10.
“China will continue to support the Argentine claim of sovereignty over the Islas Malvinas”, said Jiang Shusheng who added that “solidarity with Argentina on the Malvinas issue is an invariable position of China’s foreign policy”.
Jiang Shusheng also praised Argentina for its role as the rotating president of the Group of 77 of non aligned countries saying “Argentina worked for world integration and peace”.

Muddling along...

2011-12-23T09:49:00.002-06:00

...without any inflationary pressures from the "money printing" of QE.

Personal income increased $8.5 billion, or 0.1 percent, and disposable personal income (DPI) decreased $5.0 billion, or less than 0.1 percent, in November, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $13.1 billion, or 0.1 percent in November. In October, personal income increased $47.2 billion, or 0.4 percent, DPI increased $27.2 billion, or 0.2 percent, and PCE increased $11.3 billion, or 0.1 percent, based on revised estimates.

Once again...

2011-12-23T09:22:00.003-06:00

..the wrong tools being considered because of wrong assumptions. QE does not lead to "inflation" nor does it combat "deflation". These officials think asset swaps lead to increased economic activity...something reinforced by bond-houses that love this sort of political volatility.

Never ask a barber if you need a haircut...and if you simply look at the employers (current and prospective) of these officials who claim QE is both essential and effective in combating deflation, you will see the influence matrix.

European Central Bank Executive Board member Lorenzo Bini Smaghi said that policy makers shouldn’t shirk from using quantitative easing if deflation becomes a danger to the euro region.
“I do not understand the quasi-religious discussions about quantitative easing,” Bini Smaghi, who will leave his post at the end of the month, said in an interview published yesterday by the Financial Times. The ECB confirmed the comments. “It is appropriate if economic conditions justify it, in particular in countries facing a liquidity trap that may lead to deflation.”
Unlike the U.S. Federal Reserve and the Bank of England, the ECB has offset liquidity created by purchases of government bonds so that such operations don’t amount to quantitative easing that stokes inflation. ECB Executive Board member Juergen Stark told Germany’s Die Welt newspaper in an interview published today that the central bank doesn’t “have a mandate” for unlimited purchases of government bonds.

The Obama Doctrine...

2011-12-20T10:05:00.004-06:00

...at work in the antipodes. A larger U.S. presence in Africa was predicted here as soon as Obama was president both as a vehicle for proxy competition with other nations as well as a bulkhead for energy security and inexpensive labor.

This is just the beginning.

BANGUI, Central African Republic - U.S. Special Forces troops have set up a base in the Central African Republic as part of their regional hunt for fighters from the Ugandan-born Lord's Resistance Army (LRA) group, military sources said.

"The deployment of this contingent, the size of which is unknown, was carried out very discreetly with Ugandan military aircraft," a Central African military official said Dec. 19 on condition of anonymity.

The U.S. troops set up a base in Obo and are expected to coordinate their efforts with local government forces and Ugandan soldiers.

U.S. President Barack Obama in October announced he was sending 100 Special Forces troops to Kampala, Uganda, to help Uganda track down LRA chief and international fugitive Joseph Kony, who has wreaked havoc over four nations for more than two decades.

Besides Obo, the U.S. forces also have a forward base in South Sudan. They began deploying in Uganda earlier this month.

Paradigms Lost...

2011-12-16T11:29:00.006-06:00

...How is it possible, in light of the massive and continuous "money printing" of QE, QE2, (QEnth), are CPI and other price indexes (unrelated to commodities, which is a separate beast altogether) deflating? As I have outlined on this blog on numerous occassions, QE is a simple asset swap between an asset with zero interest (cash) and an asset paying interest.

In this environment, where the CREDIT CHANNEL OF MONETARY CREATION REMAINS BROKEN, QE is actually DEFLATIONARY. The following CPI numbers bear this out. I have emphasized (the admittedly hard to read) relevant portion which indicates all item CPI to have DECREASED from 3.5 to 3.4 in the October/November time period. In addition, earnings statistics released today show that real income decreased as well. Where is the inflation?

======================================
Nov. Oct.
Weight 2011 2011
======================================
All items 100.0% 0.0% -0.1%
(3 decimals) 100.0%-0.019% -0.085%
6-mo annualize n/a 1.7% 2.1%
ex-food/energy 77.2% 0.2% 0.1%
(3 decimals) 77.2% 0.173% 0.136%
Y/Y
All items NSA 100.0% 3.4% 3.5% (3 decimals) 100.0% 3.394% 3.525%
ex-food/energy 77.2% 2.2% 2.1%
(3 decimals) 77.2% 2.153% 2.100%
All items SA 100.0% 3.4% 3.6%
(3 decimals) 100.0% 3.412% 3.559%

Inconceivable.

2011-12-15T08:18:00.002-06:00

One of the great moments in cinema occurs in the film "The Princess Bride" in which the players discuss the use of the word "inconceivable".

So, in internet speak, "I will just leave this here".

BEIJING — China's manufacturing activity contracted in December while
foreign direct investment fell for the first time in 28 months, data
showed Thursday, as crises in the US and Europe drag on the economy.

The bleak data came as a senior government researcher forecast exports
growth would halve in 2012 from this year and pull the pace of
economic expansion below nine percent for the first time in more than
a decade.

Mounting evidence that China is slowing will ratchet up pressure on
Beijing to further loosen monetary and fiscal policies to prevent the
world's second biggest economy from suffering a painful hard landing.

The preliminary HSBC purchasing managers' index (PMI) reached 49 in
December, slightly up from 47.7 in November -- the first contraction
in nearly three years -- as consumers from New York to Paris cut back
on holiday spending due to deepening economic woes.

Statutum in favorem principum

2011-12-14T21:51:00.003-06:00

Expect concessions to be extracted from the larger Euro members. This will be a temporary fix, of course, but such behavior is rational and expected when weakness is perceived.

The Statutum in favorem principum is a good example of this. In order to solidify his Germanic holdings, the Holy Roman Emperor Frederick II ceded veto authority to regional prince with respect to any additional laws. These actions had the additional effect of validating England's newly minted Magna Carta, itself a testament to the dangers of the concentration of power.

Unproductive war was the cause of most of the above. Unproductive investment is the cause today.

So it goes. Power concentrated, pressured, exploded, and dissipated. We are in the pressured stage.

And yet...

2011-12-13T14:07:00.002-06:00

...the bond auction today went swimmingly, the dollar rallies, and gold declines.

How can this be? Given all the EOTs ("End Of Timers") constant rhetoric about the impending demise of the U.S.?

The only reason...

2011-12-13T13:31:00.002-06:00

...market participants appear on Television is to effect sentiment...or rather to give the appearance to their competitors and counter-parties that they have the power to effect sentiment.

Vivid tales of impending destruction and mayhem make for good theater.

The Fire Marshall...

2011-12-10T11:18:00.006-06:00

...has officially warned about the falty exits in the crowded movie theater. What, precisely, do you own when you hold ETFs (or other similar securities) backed by the promise to deliver?

“The promise given was a necessity of the past: the word broken is a
necessity of the present.” -Machiavelli

An HSBC Holdings Plc (HSBA) unit sued the MF Global Inc. brokerage trustee to establish whether he or another person is the rightful owner of gold bars worth about $850,000 and silver bars underlying contracts between the brokerage and a client. Five gold bars and 15 silver bars underlie eight Comex contracts between the brokerage and its client Jason Fane of Ithaca, New York, the unit of London-based HSBC said in a court filing yesterday. Both parties have asserted claims to the bars, creating difficulties for HSBC, which is storing them, the bank said. HSBC asked a judge to decide who the rightful owner is.

“HSBC has received conflicting instructions regarding ownership and disposition of the property,” it said. “Accordingly, HSBC is exposed to multiple liabilities with respect to the disposition of the properties.” The unit is HSBC Bank USA National Association.

Bullion is selling for about $1,717 an ounce on the Comex in New York, up about 21 percent this year, as investors bought the metal to protect their wealth from Europe’s escalating debt crisis, and reached a record $1,923.70 in September. Treasuries returned 9.3 percent, a Bank of America Corp. index shows.

‘Bars Are Mine’
“These bars are mine,” Fane said in an e-mail today. “We had a letter from HSBC that they were on the loading dock to be shipped to our warehouse contractor when there was some action taken by a third party to stop or delay shipment.”

Better late than never...

2011-12-09T21:52:00.004-06:00

...The men of Newport pull a neck-breaking about-face. Recall the positions from earlier this year (emphasized here of course)

Bill Gross, who runs the world’s biggest bond mutual fund at Pacific Investment Management Co., increased his holdings of Treasuries and mortgage debt amid a bet U.S. interest rates will stay low for years.
Government and Treasury debt as a percentage of the $241 billion Total Return Fund (PTTRX) climbed to 23 percent from 19 percent the previous month, according to data posted on Newport Beach, California-based Pimco’s website today. Mortgage securities, the fund’s largest holdings, were increased to 43 percent from 38 percent in October. Pimco doesn’t comment on portfolio changes.
Gross eliminated Treasuries from the portfolio in February and has increased the holdings amount since then. U.S. growth won’t prevent the Federal Reserve from signaling that borrowing rates will remain lower longer than policy makers have already indicated, Gross said during a Dec. 2 Bloomberg radio interview after a report showed the jobless rate declined in November. Gross said the Fed will keep the target rate close to zero for as long as four years.

Why...

2011-12-08T12:05:00.000-06:00

...do some countries act as pilot fish time after time???

Hungary Looks Set for Downgrade, Possible Default as Recession Looms

Hungary looks the most probable eastern European Union nation to have
its credit rating downgraded and to default on its sovereign debt as
the prospect of a recession looms.

The outlook for the economy has deteriorated because of deleveraging
by the western parent companies of local banks, a worsening external
trade outlook and tighter monetary policy.

Hungary formally approached the International Monetary Fund for
financial support on Nov. 27, the second time it’s held out the
begging bowl in three years, after the forint fell to a record low
against the euro and Moody’s downgraded the country’s debt to junk
status. S&P and Fitch may follow suit if negotiations with the IMF
become prolonged.

Hungary’s credit-default swap spreads suggest investors see a
sovereign default as increasingly likely. Five-year CDS for Hungary
have doubled since August to 540 basis points. The yield on the
10-year government bond rose to 8.54 percent yesterday, 33 basis
points above that of bailed-out Ireland.

LOL

2011-12-06T12:35:00.003-06:00

The promise to pay that is fabricated from other promises to pay is downgraded by S&P. Where is the Alexander that can cut this gordian knot?

LONDON—Standard & Poor's Corp. Tuesday said it placed the long-term
credit rating of the European Financial Stability Facility, or EFSF,
on credit watch negative.

This follows the placement on watch negative of the six European
sovereigns that guarantee its financial obligations. The six
sovereigns are triple-A rated Austria, Finland, France, Germany,
Luxembourg and The Netherlands.

Standard & Poor's could downgrade the EFSF by one or two notches
depending on the outcome of its review on the EFSF member sovereigns.
The rating will likely be the same as the lowest issuer rating, unless
further credit enhancements are put in place. If this is the case,
Standard & Poor's could affirm the EFSF triple-A rating on the basis
that these compensate the reduced creditworthiness of its guarantors

Ultimate Final European Solution #3,237...

2011-12-06T12:25:00.004-06:00

...jettison the troublesome concepts of self-determination and "sovereignity", subsidiarity and simply transfer power back to the EU core to IMPOSE austerity measures amongst member states as a workable solution. Good luck with that. The Charge of the Light Brigade in financial terms.

The European commission could be empowered to impose austerity measures on eurozone countries that are being bailed out, usurping the functions of government in countries such as Greece, Ireland, or Portugal.

Bailed-out countries could also be stripped of their voting rights in the European Union, under radical proposals that have been circulating at the highest level in Brussels before this week's crucial EU summit on the sovereign debt crisis.

A confidential paper for EU leaders by the EU council president, Herman Van Rompuy, who will chair the summit on Thursday and Friday, said eurobonds or the pooling of eurozone debt would be a powerful tool in resolving the crisis, despite fierce German resistance to the idea.

It called for "more intrusive control of national budgetary policies by the EU" and laid out various options for enforcing fiscal discipline supra-nationally.

PRINT! (Then what?)

2011-12-06T08:31:00.003-06:00

All the King's horses and all the King's men getting on the inflation < deflation risk (which is true) and that inflation is easier to contain once unleashed than deflation (which may or may not be true). The party line has infiltrated the popular business press...so you know what that means.

In normal times it would be legitimate to worry about the consequences of money printing and outsize debts. But history tells us these are anything but normal times.

We teetered on the edge of this same precipice 80 years ago, in 1931. A succession of major European banks went bust. Bailing them out was beyond the resources of fiscally overstretched governments. Failure to agree on orderly debt reductions led to disorderly defaults, tariff wars, and a further worldwide collapse of production and employment.

The game.

2011-12-05T11:56:00.004-06:00

The Paper Dragon continues to pressure its competitors for more IMF power...effectively positioning itself for a more "multi-lateral" world where IMF SDRs are the only true global reserve "currency".

These efforts should fail as the Paper Dragon's competitors (principally the U.S.) understand this strategy and are simply waiting for the inevitable massive GDP and associated wealth collapse.

The Slippery slope...

2011-12-05T10:55:00.003-06:00

...makes an appearance in the Health Care debates. Soviet Russia would comfortable with the highlighted language. Full article here.

Asked why Americans were still deeply divided over the new health care law, signed 20 months ago, Dr. Berwick said: “It’s a complex, complicated law. To explain it takes a while. To understand it takes an investment that I’m not sure the man or woman in the street wants to make or ought to make.”

But, Dr. Berwick said, just as Americans supported manned missions to the moon without knowing the details of rocket science, they ought to support the new law because of its ultimate destination.

“We are a nation headed for justice, for fairness and justice in access to care,” Dr. Berwick said. “We are a nation headed for much more healing and much safer care. There is a moon shot here. But somehow we have not put together that story in a way that’s compelling.”

An article...

2011-12-05T06:41:00.002-06:00

...making the rounds (again, as it was written earlier this year). Also much discussion of "optical back stops" for the EU system (the concept that what is perceived as a fully funded economic backstop are really only a bundle of promises to borrow and spend).

In the realm of economics, price controls
are designed to constrain volatility on
the grounds that stable prices are a good
thing. But although these controls might
work in some rare situations, the long-term
eªect of any such system is an eventual
and extremely costly blowup whose cleanup
costs can far exceed the beneﬁts accrued.
The risks of a dictatorship, no matter how
seemingly stable, are no diªerent, in the
long run, from those of an artiﬁcially
controlled price.

Such attempts to institutionally engineer
the world come in two types: those that
conform to the world as it is and those
that attempt to reform the world. The
nature of humans, quite reasonably, is to
intervene in an effort to alter their world
and the outcomes it produces. But government
interventions are laden with unintended—
and unforeseen—consequences, particularly
in complex systems, so humans must work
with nature by tolerating systems that
absorb human imperfections rather than
seek to change them

Famous quote of the day...

2011-12-05T06:13:00.002-06:00

“I have always found the word ‘Europe’ on the lips of those who wanted something from others which they dared not demand in their own names!” -German Chancellor Otto Bismark,1880

Bienvenue à la décennie perdue

2011-12-05T06:07:00.002-06:00

Sarkozy waxes "heroically" (read: like a demagogue) about the causes, effects and best proscriptions for recovery. Full speech here.

Exchange rates are at the heart of the financial crisis just as they are at the heart of the distortions affecting global trade. And if we don’t take care, monetary dumping will end up generating extremely violent trade wars, so paving the way for the worst protectionism. A French manufacturer can make all the productivity gains in the world. He can, at a pinch, compete with the Chinese workers’ low wages, but he can’t compensate for the undervaluing of the Chinese currency. (…)

So I repeat just how necessary I think it is for heads of State and government of the main countries concerned to meet before the end of the year to learn the lessons of the financial crisis and coordinate their efforts to restore confidence. (…)

I am convinced that the sickness runs deep and that there has to be a root and branch revision of the whole global financial and monetary system, as was done at Bretton Woods after the Second World War. This will allow us to create the tools for global regulation, now made essential by the globalization of trade. We can’t go on managing the economy of the twenty-first century with the instruments of the twentieth, no more than we can design tomorrow’s world with yesterday’s ideas.

When every day the central banks are making cash injections into banks and American taxpayers are on the point of spending a trillion dollars to prevent widescale bankruptcy, it seems to me that we need no longer question the legitimacy of public authority intervention in the operation of the financial system! (…)

In these exceptional circumstances when everyone absolutely has to act, I call on Europe to ponder its ability to cope with the emergency, to rethink its rules, its principles, learning the lessons of what is happening in the world. Europe must give itself the means to act when the situation demands and not condemn itself to inaction.

If Europe wants to safeguard its interests. If it wants to have a say in reorganizing the global economy, its leaders must start thinking together about its competition doctrine – to my mind, competition is only a means and not an end in itself –, about its ability to mobilize resources and prepare the future, about the economic policy instruments and objectives assigned to monetary policy. I know it’s difficult because there are 27 countries in the EU, but when the world changes, Europe has to change too. Europe has to be capable of drastically changing its own dogmas. (…) As EU President, I shall propose initiatives along these lines at the next European Council on 15 October.

The recent post...

2011-12-05T05:27:00.001-06:00

...on U.S. carrier location and the reasons for same appears to be bearing fruit. Full Article.

Tehran quickly latched onto US Defense Secretary Leon Panetta's warning Friday, Dec. 2 that an Israeli strike at Iran's nuclear facilities would cause unpredictable results. Sunday, Iran issued two threats: to hit back beyond its borders for a US reconnaissance drone which its military claimed to have shot down near the border with Afghanistan and Pakistan and that an oil embargo on its exports would boost the price of oil to $250 a barrel.
This was another way of threatening a tit for tat in the form of a blockade on the Strait of Hormuz, the most important oil channel in the world, and the transit of Saudi and Gulf oil. This was a reference to another of the US defense secretary's warning Friday that: "…any disruption of the free flow of commerce through the Persian Gulf is a very grave threat to all of us" and a red line for the US."
The unmanned aerial vehicle the Iranian military claimed in a report on English language Press TV to have shot down Sunday over the eastern part of the country was described in Tehran's statement was an RQ-170.

Its instructive to note...

2011-12-03T22:37:00.003-06:00

...how the popular media is fed much of their material and bias by financial market participants. Those who are short (and facing various margin calls) are in full propaganda mode providing "information" that has zero probative value with respect to economic prospects.

NEW YORK (Reuters) - Earnings season is just over a month away, but the early signals are not comforting.

Companies cutting forecasts outpace those raising estimates by the greatest ratio in 10 years, and some sectors, such as materials, have seen a dramatic fall in expectations for the soon-to-be ended fourth quarter, according to Thomson Reuters data.

It is a stark reminder that even as U.S. economic data has improved in recent weeks, the euro zone debt crisis and concerns about slowing growth in China still cast a long shadow.

Estimates for fourth-quarter S&P earnings growth have tumbled over the past two months as global macroeconomic headwinds prompted analysts to slash forecasts.

The S&P is now seen posting earnings growth of 10 percent in the fourth quarter, down from a forecast for 15 percent growth on October 3.

"With all the uncertainties out there - from geopolitical issues to the risk that we could be headed towards another recession - this suggests the economy is barely keeping its altitude above the tree line right now," said Michael Mullaney, a portfolio manager for the Boston-based Fiduciary Trust Co.

"It's good that we're still expecting growth, but it is nowhere near as robust as what we were expecting, to a significant degree."

Always worth listening...

2011-12-03T15:33:00.002-06:00

...to the great Richard Epstein. The brief discussion is an excellent summation of adverse outcomes and unintended consequences.

False Dichotomy...

2011-12-03T12:28:00.002-06:00

...there is no distinction. Both states, by themselves, can only exist in theory, as they are inextricably linked to one another.

Arguing over the definitions of capitalism at this point is tantamount to discussing how to remove liquid from water.

Economics Professor Chris Coyne draws the distinction between crony capitalism and legitimate capitalism. Crony capitalism is government favoritism fueled by handouts and is responsible for the plight of the 99%. Legitimate capitalism, on the other hand, uses competition to align consumer and producer interests and serves to improve everyone's standard of living.

Ugly...

2011-12-02T14:44:00.001-06:00

...all the way around.

Sen. Tom Coburn (R-Okla.) says he is planning legislation directing the U.S. government to veto an expanded role for the fund.

Senate Republican Steering Committee Chairman Jim DeMint (R-S.C.) and Rep. Cathy McMorris Rodgers (Wash.), a member of the House Republican leadership, also have legislation to curb the proposed intervention.
“I’m adamantly against the IMF being involved in this,” Coburn said.

“We’re throwing good money after bad down a hole that I think is not a solvable problem,” he said.

“Europe is going to default eventually, so why would you socialize their profligate spending,” he added.

Facepalm...

2011-12-02T13:47:00.000-06:00

...the continuing series...

(Boston Fed President version)

*ROSENGREN: HIGH UNEMPLOYMENT RATE IS BECAUSE 'NOT ENOUGH GDP'

Some Hedge Funds...

2011-12-02T10:01:00.002-06:00

...nicely summed up (in code) by a friend of mine:

collect(funds[client])
deduct(funds[client]*.02)
lev = funds[client] + borrow(funds[client]*5)
repeat until (or(funds[client]=0, date=12/31))
results = wager(obviousmacrobet[lev])
if results > 0, deduct(results*.2)
if funds[client] = 0, write(letter[apology,"cygne noir",sigma[rand(6,9)]])

IMF involvement...

2011-12-02T09:55:00.002-06:00

...basically communicates that adult supervision (in the form of the IMF and the U.S.) is needed for the romper room of adolescents that is the Euro area.

This would be relevent...

2011-11-28T12:07:00.002-06:00

...if the same warnings were given two years ago. Like the sirens in action films being audible *just* in time for the final credits to start rolling.

While Moody’s central scenario remains that the euro area will be
preserved without further widespread defaults, even this ‘positive’
scenario carries very negative rating implications in the interim period.
The rating agency notes that the political impetus to implement an
effective resolution plan may only emerge after a series of shocks, which
may lead to more countries losing access to market funding for a
sustained period and requiring a support programme. This would very
likely cause those countries’ ratings to be moved into speculative grade
in view of the solvency tests that would likely be required and the
burden-sharing that might be imposed if (as is likely) support were to be
needed for a sustained period.

However, over the past few weeks, the likelihood of even more negative
scenarios has risen. This reflects, among other factors, the political
uncertainties in Greece and Italy, uncertainty around the final haircut
imposed on holders of Greek debt, the emphasis in the recent Euro Summit
statement on the conditional nature of the existing support programmes
and the further worsening of the economic outlook across the euro area.
Alternative outcomes fall into two broad categories: those involving one
or more defaults by euro area countries (in addition to Greece’s PSI
programme); and those additionally involving exits from the euro area.

Tensions increase

2011-11-26T12:21:00.002-06:00

The inexperience is telling. Much, much more of this to come.

The company involved, New Forests Company, grows forests in African countries with the purpose of selling credits from the carbon-dioxide its trees soak up to polluters abroad. Its investors include the World Bank, through its private investment arm, and the Hongkong and Shanghai Banking Corporation, HSBC.

In 2005, the Ugandan government granted New Forests a 50-year license to grow pine and eucalyptus forests in three districts, and the company has applied to the United Nations to trade under the mechanism. The company expects that it could earn up to $1.8 million a year.

But there was just one problem: people were living on the land where the company wanted to plant trees. Indeed, they had been there a while.

Carrier Group Locations

2011-11-20T12:08:00.003-06:00

Foreign policy being inextricably tied to economic interests, it is instructive to note where U.S. Carrier groups are located. The Recapitulator notes multiple carrier groups in and around the persian gulf.

(Link can be found on this blog titled "Carrier Group Locations" in the "Useful Links" section to the right)

Redenomination risk.

2011-11-20T11:59:00.002-06:00

An issue as old as finance (the risk that the currency you possess from another country or culture is not what is currently used in said country) makes a comeback with respect to the Euro area.

full article here: http://www.businessinsider.com/redemonination-risk-in-europe-2011-11

Investors should consider three main parameters when evaluating redenomination
risk:

1) legal jurisdiction under which a given obligation belongs; 2) whether a break-up can happen in a multilaterally agreed fashion; and 3) the type of Eurozone break-up which is being considered, including whether the Euro would cease to exist.

In a scenario of a limited Eurozone break-up, where the Euro remains in existence for core Eurozone countries, the risk of redenomination is likely to be substantially higher for local law obligations in peripheral countries than for foreign law obligations. From this perspective, local law obligations should trade at a discount to similar foreign law obligations.

In a scenario of a full-blown Eurozone break-up, evaluating the redenomination risk is more complex, as even foreign law obligations would have to be redenominated in some form. In this case, redenomination could happen either into new national currencies (in accordance with the so-called Lex Monetae principle), or into a new European Currency Unit (ECU-2). This additional complexity in the full-blown break-up scenario leaves it harder to judge the appropriate relative risk premia on
local versus foreign law instruments.

The distinction between local and foreign law jurisdiction also becomes less important in situations involving insolvency. In those instances, the lower redenomination risk associated with foreign law obligations may be negated by higher haircuts. Hence, the legal jurisdiction therefore seems most relevant from a trading perspective in connection with high quality corporate credits which are
highly resilient to insolvency.

Read more: http://www.businessinsider.com/redemonination-risk-in-europe-2011-11#ixzz1eGmIEklu

Ring-Fencing...

2011-11-17T08:23:00.002-06:00

...a continuing series...this is shaping up to be another containment strategy. Something we have a great deal of experience with.

When President Obama met with Australian Prime Minister Julia Gillard on Wednesday, they announced plans for the first sustained American military presence in Australia.

By the end of 2012, 250 Marines will begin six month rotations, and in the years ahead, that force will build out to 2,500. They'll train alongside Australian troops and live on Australian bases. In addition, the U.S. Air Force will have additional access to Australian airfields.

At the news conference with the Prime Minister, President Obama said:

The United States of America has no stronger ally than Australia. We are bound by common values, the rights and the freedoms that we cherish. And for nearly a century, we’ve stood together in defense of these freedoms. And I'm very happy to be here as we celebrate the 60th anniversary of our alliance, and as we work together to strengthen it for the future.

Problems and flash points

2011-11-17T07:41:00.003-06:00

While "indexes" are fraught with computational and aggregation error, this failed state index is interesting. Nothing that we have not contemplated before, but the granularity of the data gathered is as good as can be at the moment.

AEP...

2011-11-14T08:45:00.001-06:00

...Once again, the illusion of control is laid bare by the Euroskeptic.

Chancellor Angela Merkel tells us that peace in Europe can no longer be taken for granted, and she is right. Her own Gothic actions and her inflexible imposition of 1930s Gold Standard contraction and debt-deflation on Southern Europe is itself preparing the ground for Europe’s civil war (hopefully pacific), a rebellion by the South against the North.
Italy’s youth are turning. Watch the footage of students chanting "democracy" and brandishing their "95 Theses" of Wittenberg revolt as poet Van Rompuy tried to speak in Fiesole.
"No to Austerity," starts the Luther List: "Troika out of Greece", "IMF and ECB out of Italy, Ireland, and Portugal", it goes on.
"The EU has become ever less accountable to the people of Europe. The undemocratic structures have infiltrated the very structures of the Union," they said.

The intrinsic...

2011-11-11T08:22:00.002-06:00

...and pathological need for order in humans takes various (but universal in frequency and intensity) manifestations.

One of these is the requirement that market changes have a "cause". Any cause will do. So last weeks volatility was immediately ascribed to problems in Europe. But, as we know the discounting nature of the markets, there is likely something else causing trepidation in U.S. stocks.

So the following article is a more likely "cause".

Call it Wall Street's other geopolitical driver, one played out not in Athens or Rome, but close to home in Washington.

WSJ's Janet Hook reports on yet another week ending without a deal from the congressional deficit supercommittee. Plus, what is likelihood that the deficit negotiations will come down to the 11th hour?

As stock-market investors fret over sovereign-debt contagion in Europe, a Nov. 23 deadline for the U.S. Congress's so-called budget supercommittee is fast approaching. The committee is assigned to devise at least $1.2 trillion in deficit-reduction measures over 10 years, or else automatic cuts ordained by Washington's summer debt-ceiling agreement are triggered.

Friday's market action gave little hint that investors remain perturbed over Europe's debt situation, much less any happenings in Washington, as the Dow Jones Industrial Average surged by triple digits. But the gains came on the kind of light volume that usually suggests a lack of participation.

Um...

2011-11-09T15:26:00.001-06:00

...what? Interesting diplomacy.

WASHINGTON, Nov. 8, 2011 /PRNewswire via COMTEX/ -- In the run-up to the international climate negotiations in Durban later this month, China has responded to efforts to ban the trading of widely discredited HFC-23 offsets by threatening to release huge amounts of the potent industrial chemical into the atmosphere unless other nations pay what amounts to a climate ransom.

China's threat comes after the European Union and other nations moved to ban HFC-23 credits from internal carbon markets in recognition of the perverse incentives created by these credits under the UN Clean Development Mechanism (CDM). The vast amounts paid for HFC-23 offsets have led factories in China and elsewhere to manufacture far more HCFC-22 and its HFC-23 by-product than necessary, just to maximize the amounts paid to destroy HFC-23 through the UN-backed carbon trading scheme.

Modest improvement...

2011-11-08T10:41:00.002-06:00

...it does appear the trajectory is not full-on descent into chaos, as the EOTers have constantly proclaimed...

Hires

In September, the hires rate was little changed at 3.2 percent for
total nonfarm. The hires rate increased in construction and
professional and business services as well as in 3 out of 4 regions.
(See table 2.) The number of hires in September was 4.2 million, up
from 3.6 million in October 2009 (the most recent trough) but below
the 5.0 million hires recorded when the recession began in December
2007. The number of hires has increased 17 percent since the end of
the recession in June 2009.

Over the past 12 months, the hires rate (not seasonally adjusted) was
little changed for total nonfarm, total private, and government. The
hires rate increased for construction and professional and business
services. The hires rate increased in the Midwest and decreased in the
Northeast.

Excellent example...

2011-11-08T10:35:00.003-06:00

...of a Sovereign's ability to change self-imposed rules in the name of economic growth, mirroed by the ability of industry to apply pressure for the same reasons. Note also the insular nature of the process.

That German exports have remained strong despite the brewing crisis in Europe is hardly a secret. Indeed, a new report emerged on Tuesday indicating that exports actually climbed in October by 0.9 percent relative to September. In comparison to September 2010, exports even skyrocketed by a hefty 10.5 percent.
Chancellor Angela Merkel, it would seem, is anxious to do her best to ensure that the trend continues. And according to information obtained by SPIEGEL, arms exports have become one of her administration's focuses.
In a position paper delivered to the European Commission on Oct. 27, which SPIEGEL has seen, the German government argues that, when it comes to export controls, "The effort to prevent proliferation and destabilizing arms accumulations should not unreasonably hinder or impede legal trade, particularly when it comes to economic relations with new regional powers."
The document focuses on so-called "dual-use goods" which have both military and civilian applications. Both "foreign and security policy considerations" as well as "economic interests" should be "adequately considered," the position paper states. German arms exports amounted to €15.1 billion between 2005 and 2010, making it the world's third leading weapons exporter.
The words "human rights" do not make an appearance in the 21-page document, though Merkel frequently emphasizes that her government's security policy is "values driven."

Dangerous opportunities...

2011-11-06T19:34:00.001-06:00

...for governments to jettison principal in the name of expediency.

In Greece and Italy, there has been strong criticism of the perceived arrogance of "Merkozy," as the Franco-German duumvirate are increasingly nicknamed, in summoning their prime ministers to receive ultimatums.

German and French officials shrug off such complaints as inevitable, noting that EU partners are even more unhappy when France and Germany do not agree, since that paralyses Europe.

"There is always a trade-off between legitimacy and efficacy," said an EU official involved in the Frankfurt Group. "The euro area institutions were not designed for crisis management so we need innovative solutions.

"In an emergency like this, we have to have a structure that works," he said, adding that the presence of the European Commission and of European Council President Herman Van Rompuy guaranteed that the interests of smaller member states would be taken into account.

Powder Kegs...

2011-11-05T13:04:00.002-05:00

...as I have said before, Italy is the real weak link in the entire Euro problem.

Nov. 5 (Bloomberg) -- Italian Prime Minister Silvio Berlusconi’s closest aides told him he doesn’t have a majority in parliament anymore and he should consider stepping aside, la Repubblica reported, without saying where it got the information.

Rational response to regulation...

2011-11-05T08:22:00.002-05:00

...interesting circumventions should be applauded, not prosecuted. But that is a different world unfortunately. Interesting article.

System D is a slang phrase pirated from French-speaking Africa and the Caribbean. The French have a word that they often use to describe particularly effective and motivated people. They call them débrouillards. To say a man is a débrouillard is to tell people how resourceful and ingenious he is. The former French colonies have sculpted this word to their own social and economic reality. They say that inventive, self-starting, entrepreneurial merchants who are doing business on their own, without registering or being regulated by the bureaucracy and, for the most part, without paying taxes, are part of "l'economie de la débrouillardise." Or, sweetened for street use, "Systeme D." This essentially translates as the ingenuity economy, the economy of improvisation and self-reliance, the do-it-yourself, or DIY, economy. A number of well-known chefs have also appropriated the term to describe the skill and sheer joy necessary to improvise a gourmet meal using only the mismatched ingredients that happen to be at hand in a kitchen.

Channelling Sartre...

2011-11-05T08:12:00.001-05:00

*PAPANDREOU SAYS G-20 MUST ADMIT PEOPLE EXIST AS WELL AS MARKETS

Totally?

2011-11-03T08:35:00.002-05:00

DJ Obama To Merkel: We Are Totally Invested In Your Success

Slight improvement...

2011-11-02T08:35:00.001-05:00

...with all the turmoil, modest signs of change in growth's pesky second derivative.

Sovereignity makes a comeback...

2011-11-01T18:31:00.002-05:00

...in Europe of all places.

Animals have a tendency to return home when lost. So it is with politicians who make unwarrented expeditions into Global Goverment.

PAPANDREOU SAYS G-20 MUST STATE COUNTRIES ARE ABOVE MARKETS

And yet these bonds rally...

2011-10-31T13:40:00.001-05:00

From August 3, this year.

MF Global Holdings Ltd. (MF) took the cult of the Wall Street chief executive officer to a new level with its sale of bonds that pay a higher rate if Chairman and CEO Jon Corzine quits to take a job from the U.S. president.
The futures broker sold $325 million of five-year unsecured notes, the company said today in a statement. The notes will pay an extra percentage point of interest if Corzine is named to a federal post and confirmed by the Senate before July 2013, New York-based MF Global said yesterday in a regulatory filing.
“That seems crazy,” said William Larkin, a fixed-income portfolio manager who oversees $500 million at Cabot Money Management Inc. in Salem, Massachusetts, and has 22 years of experience. “I’ve never heard of something like this.”

MF Global

2011-10-31T09:46:00.003-05:00

...its not just its exposure (and the ramifications of European Banks who are in the same position), but with 17 billion or so in debt of its own, who is now holding an empty bag?

This is quite the haircut...

*MF GLOBAL 6¼% BONDS TRADE AS LOW AS 35 CENTS

The Lost Decade...

2011-10-31T09:03:00.001-05:00

...continues for Japan. Bridges to no-where, and now "back up" cities.

Japan is considering building a new city that would take over the functions of Tokyo if the capital was crippled by an earthquake or other natural disaster.

The plan is being put forward by a group of politicians from across the spectrum and comes nearly eight months after the north-east of Japan was devastated by a magnitude 9 earthquake and tsunami. Nearly 20,000 people were killed or are still listed as missing, while experts are still trying to bring the damaged reactors at the Fukushima Daiichi nuclear plant under control.

If the earthquake had struck closer to Tokyo - which seismologists believe is overdue for a major tremor - then the results could have been catastrophic, the politicians said.

The planned new city - given the less-than-inspiring title of IRTBBC, standing for Integrated Resort, Tourism, Business and Backup City - could be built on a 1,236-acre site now occupied by Itami Airport, which used to be the main gateway to Osaka but has been largely superseded by Kansai International Airport.

Ring-Fencing...

2011-10-30T21:27:00.002-05:00

...here it comes. The academic and propaganda machines for INCREASED euro-area powers and fiscal "cooperation" (read: entanglement) are in full rapid-fire print mode.

To wit, from this paper:

The stronger the statutory base establishing national fiscal rules (that may vary between mere party coalition agreements and constitutional law), the lower risk premia will be. But also the enforcement mechanisms of the rules turn out to be important while the body in charge of the supervision of compliance with the fiscal rule appears to be somewhat less important. Our results thus show that rules become the more credible to market participants the stronger their binding character is, and the more
effectively they can be enforced. Moreover, the results point to significant benefits in terms of interest rate cost on public debt.

Breaking moratorium...

2011-10-30T08:09:00.002-05:00

...only to provide evidence of my position...When Time Magazine takes a break from celebrity worship and stating the obvious to opine on economic happenstance, its good to take a step back and calculate what is already priced in the markets...

Meanwhile...in Michigan...

2011-10-28T10:48:00.001-05:00

...Consumer confidence ticking up. The seeds being planted and the popular media guiding ever so faithfully for the retail investor to go the other way and be bearish...its just so easy for the market mistriss to pick the pockets of the weakest hand and be on its merry way to the best October ever for equities.

The Hound heeds his master...

2011-10-28T10:46:00.000-05:00

...and remains loyal.

Speaking on his way to Perth, Australia, for a Commonwealth summit, the Prime Minister also warned against the 17 Eurozone nations colluding to undermine the European Union's free market rules.

He said: "London is the centre of financial services in Europe. It's under constant attack through Brussels directives. It's an area of concern, it's a key national interest that we need to defend."

Mr Cameron said that he will fight to prevent closer integration of the Eurozone countries leading to anti-competitive regulations.

"As the 27 we need to make sure that the single market is adequately looked after."

"There are a lot of things the eurozone is doing together. Having more meetings alone, establishing machinery - it raises the question of could there be caucasing?"

Final Post regarding the Paper Dragon

2011-10-27T11:35:00.002-05:00

What has been obvious to readers here for 4 years is suddenly "news" all over the popular business media. Time to move on to future bubbles and valuation plays.

The Markets...

2011-10-27T08:35:00.001-05:00

...are a discounting mechanism. I am currently inundated by calls and emails from people who cannot believe this rally was possible. As I said before, given the dismal projections the market had priced in, the news today was obviously welcomed.

AEP...

2011-10-27T08:33:00.003-05:00

...the great Euroskpetic opines on the EFSF. The terms imposed by the Paper Dragon will be most interesting to me. The larger question being what and where is the collateral for all of this activity?

Whether it proves any more successful than past efforts over the past two years is far from clear. The package is a huge gamble. If it goes wrong, it may accelerate contagion to core Europe, hastening the denouement so feared by EU leaders.
The EU's €440bn bail-out fund (EFSF) will be leveraged "several fold" – perhaps to €1 trillion – chiefly by insuring the first 20pc loss of new bonds by Italy, Spain and other debtors. This creates a two-tier market, instantly downgrading old debt to lower status.
The plan will "probably" be buttressed by an off-books fund that uses EFSF seed money to rope in the International Monetary Fund, China, Japan and Russia.
French President Nicolas Sarkozy said he would call his Chinese counter-part Hu Jintao on Thursday to garner support.
Beijing will almost certainly impose terms, renewing its demand for open-door access for Chinese state firms investing in EU industry and for an end to Europe's veto on "full market status" for China under global trade laws.

Guaranteed.

2011-10-27T08:22:00.002-05:00

The current rally based off of the positive GDP report and "solution" to the Greek problems is welcomed. The previous weeks of incessant reports regarding the destruction of Western Civilization were always far too dramatic to descend into reality.

But the European problem does remain, and they will have to determine if they want a United Europe or something different. My opinion on this has been fairly consistent; that the EU will mutate into "something else".

Any strategist who is either perma-bullish or perma-bearish will always enjoy periods of success, but risk having their emotional position percolate into their intellectual positions and thus disproportionately effect their logic. Guarding against a foolish consistency is something we all must strive to achieve.

Massive EU exposure...

2011-10-26T12:42:00.002-05:00

...is obviously effecting firms such as MF Global in the states...but in this late hour it is the Paper Dragon who is making the news. This is clearly in China's best interests to keep the lights on in the factories making all those "goods".

Oct. 26 (PTI) -- China has agreeed to invest in Europe's bailout fund, two senior EU diplomats told AFP today hours from a crunch summit on the eurozone debt crisis.

"China is in," said one of new plans to boost the European Financial Stability Fund (EFSF) with a spin-off investment vehicle to be used to prop up debt-laden nations.
"But not yet Brazil, Russia, India or South Africa," he added, referring to the four other countries in the BRICS group of emerging powers.
The diplomats gave no indication as to the scale of China's likely investment, although an EU official said EFSF chief executive Klaus Regling would leave for Beijing tomorrow, after the summit.

The Paper Dragon.

2011-10-24T09:54:00.003-05:00

I have been warning against investment in China for some years now, so this next message will be brief.

The pace of decline in the Middle Kingdom is increasing in pace now. We must talk in terms of months and weeks instead of years when discussing the deflation of the biggest bubble in the history of the world.

As they say in New York: "I'm just sayin"

Must Read.

2011-10-24T08:46:00.003-05:00

This is mandatory reading, and the memes and ideas presented will percolate among the popular press and augments some of the arguments on this blog regarding the Unites States relatively strong position versus competitor nations.

The Sword or the Crozier...

2011-10-24T08:37:00.005-05:00

...another continuing series in addition to the "by cloth or gavel" posts on this blog.

Readers here will note that power, like nature, abhors a vacuum. The Catholic church has given opinion on world governance previously, and now feels free to opine on the optimal way to reform the global financial system.

the emphasized phrase below is quite troubling to anyone who understands how power mutates with time...and the myriad problems with defining what constitutes a "public authority with universal competence".

VATICAN CITY—The Vatican on Wednesday said it was preparing a series of proposals for reforming the global financial system that would include the creation of a “public authority with universal competence.”
A document entitled “For a reform of the financial system through the perspective of a public authority with universal competence” will be presented on Monday by the Vatican’s Pontifical Council for Justice and Peace.

Decoupling...

2011-10-21T16:22:00.001-05:00

...another meaningless term rightly relegated to the dustbin of history.

The euro-zone debt crisis is spilling over to emerging-market banks, signaling new risks for economies that had largely brushed off European troubles for the past two years, an industry survey found.

Across Asia, Eastern Europe, Latin America and elsewhere around the world, banks are tightening credit standards and facing an increase in bad loans, according to the survey to be released Friday by the Institute of International Finance, a global association of big banks.

Prudential risk...

2011-10-20T12:21:00.002-05:00

...much more on this phenomenon later. Global markets have assumed the free flow of capital, unconstrained by political pressures, for too long now.

The European banking crisis is spilling over into commodities trading with French banks, the main financiers of trading houses, reining in their lending.

BNP Paribas and a handful of other European banks, including Société Générale and Crédit Agricole, provide most of the credit lines that underpin the business of the publicity shy Swiss-based traders that dominate commodities markets.

Industry executives said that as the banks have to boost their capital buffers, credit to the trading industry is becoming scarcer and costlier, particularly in US dollars, the currency of the global commodity markets.

What is the point of independent ratings...

2011-10-20T12:17:00.002-05:00

...if they can be censored? Rather, set the ratings and let the market set the clearing rate on the "informational content" of the ratings. I particularly appreciate the use of "ill thought out", as if political organizations can be trusted to provide objective, rational viewpoints.

BRUSSELS (Reuters) - The European Union's executive may ask for powers to censor credit ratings for countries in crisis, its financial reform chief said on Thursday, describing a ban as one way of stopping fallout from "ill-thought-out" ratings.

The proposal, which officials cautioned may be impossible to police, would be the most stringent curb yet on rating agencies and highlights frustration in France, which was this week warned by Moody's that its top rating was under threat, and Germany.

Das is right again...

2011-10-18T09:30:00.002-05:00

...The great Satyajit Das, one of the few macro-economists worth listening to (I am partial to him because he does not feel compelled to window-dress economic arguments in usesless mathematical models that hopelessly conflate variables) lays out the Paper Dragon's problem in a recent Bloomberg interview:

China’s Ponzi

Pressley: Chinese state-controlled banks are meantime on the hook for bad loans to state-owned companies. Is that a Ponzi scheme?

Das: It is. I do a simple piece of mathematics. The Chinese say they’re growing at about 10 percent. But they’re pumping the system full of bank debt equal to 30 percent to 40 percent of gross domestic product. Of that, a third to a quarter isn’t coming back.

If one-third doesn’t come back, they’re losing 10 percent. The state-owned companies’ production shows up as GDP. Are they growing at 10 percent, or do the losses mean they’re growing at zero? Are they converting capital into income? Isn’t that what the U.S. did when it borrowed against home equity to fund growth?

Even the NY Times has figured it out...

2011-10-17T12:31:00.004-05:00

...what I have been stating for years. The massive leverage and inflation pressures in China are no longer easily concealed by Communist Party. Its downhill, mit großer Geschwindigkeit, from here. I say that in German because comparisons to the Weimar era are not overblown at this point.

Under an economic system that favors state-run banks and companies over wage earners, the government keeps the interest rate on savings accounts so artificially low that it cannot keep pace with China’s rising inflation. At the same time, other factors in which the government plays a role — a weak social safety net, depressed wages and soaring home prices — create a hoarding impulse that compels many people to keep saving anyway, against an uncertain future.

Indeed, economists say this nation’s decade of remarkable economic growth, led by exports and government investment in big projects like China’s high-speed rail network, has to a great extent been underwritten by the household savings — not the spending — of the country’s 1.3 billion people.

This system, which some experts refer to as state capitalism, depends on the transfer of wealth from Chinese households to state-run banks, government-backed corporations and the affluent few who are well enough connected to benefit from the arrangement.

Balance Sheet expansion...

2011-10-16T22:26:00.001-05:00

...at the Fed a near certainty at this point. I have pointed this out in the past as a friendly warning, but now it appears massive additional asset purchases are inevitable.

IMF power grab

2011-10-16T09:22:00.002-05:00

...extracting the maximum amount of concessions and promises of further "responsibility" while posturing as the only grown up in the room.

Deft.

The downside is if an agreement is not reached, the IMF will have made so many enemies that it can effectively surrender its charter.

The key is ECB guarantees...something that should have been done a year ago.

PARIS — European officials working to address the region’s financial
crisis have rejected key recommendations from the United States and
the International Monetary Fund, casting doubt on whether an emerging
plan will be as broad or fast-acting as hoped.

As crisis negotiations continued this weekend, European officials said
they had reached general agreement on a response they were confident
would restore faith in European banks and government finances.

The detailed plan to be agreed on by European officials next weekend
“will be decisive,” French Finance Minister Francois Baroin said
Saturday as he concluded a two-day session with finance ministers from
the Group of 20 major economic powers.

But the plan excludes the open-ended use of the European Central Bank
as a guarantor of government debt and the swift infusion of public
capital into banks that U.S. and IMF officials say could be critical
to restoring confidence in the euro region. Both were central elements
of the effort to shore up the U.S. financial system three years ago.

Right on time...

2011-10-16T01:01:00.002-05:00

...the Obama Doctrine is now "fully operational".

The vacuum is obvious. Operations will move towards Africa as I have written extensively in the past.

Just One Fix

2011-10-15T22:36:00.001-05:00

Another round of talks to "fix" the Euro. The entire world can feel the fear emanating from Frankfurt and Brussels.

(Reuters) - The world's leading economies pressed Europe on Saturday
to act decisively within eight days to resolve the euro zone's
sovereign debt crisis which is endangering the world economy.

In unusually direct language, finance ministers and central bankers of
the Group of 20 major economies said they expected an October 23
European Union summit to "decisively address the current challenges
through a comprehensive plan".

French Finance Minister Francois Baroin, who chaired the meeting, said
Berlin and Paris, the leading euro zone powers, were well on the way
to agreeing a plan to reduce Greece's debt, stop contagion and protect
Europe's banks.

Non-euro countries highlighted the damage the European crisis was
already doing to their economies and underlined the urgent need for
action by the 17-nation single currency area.

"Europe needs to get its act together because unless the crisis is put
to an end, it will start to affect emerging economies which have
enjoyed strong growth," Japanese Finance Minister Jun Azumi said.