Krugman

...opines about something he knows very little about, with predictable results. This is not a contest for whoever can come up with the most clever analogy to describe mandatory health insurance, it is about what is the Law and what the constitution ALLOWS the government to do, and the role of the SCOTUS as a warden limiting the inexorable tendency of Power.

Then, he further exhibits his temerity by ushering a sense of "foreboding" and presumes that the SCOTUS is practicing politics merely because they disagree with the legality of Obamacare. The SCOTUS apparently already suffers from a "badly damaged" lack of faith from the populace. This argument is only interesting because it betrays Krugman's sloppy propaganda-like logic. If the SCOTUS were practicing "politics" then presumably they would not suffer from a badly damaged reputation. They would just agree with the majority of citizens and be done with legal analysis.

Thank goodness the SCOTUS has a history of doing the precise opposite. The Judiciary branch interprets the law. That is its charge. It certainly should not begin to analyze economic outcomes or let ends justify means. It alone must have the courage to say "that's enough" to the billion-ton juggernaut that is Government unconstrained.

This is what happens when Economists like Krugman are given a voice. If only they were given the Power, then all these problems would be solved. He reveals his primary motivation as a member of the inchoate Tyrant Class. In Krugman's eyes, if the SCOTUS had 1 more "liberal" member and 1 less "conservative member, then it would magically cease being a political instrument and transform itself into a righteous angel of impartial justice. His editorial would have been more accurate and honest if he just said "I don't like the impending result of the SCOTUS decision regarding Health Care and I am angry that me and my friends don't benefit somehow."

Full article here in the NYTs.

As I said, we don’t know how this will go. But it’s hard not to feel a sense of foreboding — and to worry that the nation’s already badly damaged faith in the Supreme Court’s ability to stand above politics is about to take another severe hit.

I have not...

...verified this, but it appears to be (if seen to fruition) a recipe for disaster given the inherent volatility all export-oriented economies experience.

...to say nothing of the immediate foreign policy challenge to U.S. hegemony and its consequences.

New Delhi, Mar 28 (Prensa Latina) The development and export/import
banks of member countries of BRICS are about to agree on the use of
their own currencies in commercial and credit operations within the
group., said Trade Minister of India Anand Sharma. Sharma is expected
to discuss this and other related issues on Wednesday with his
counterparts of Brazil, Russia, China and South Africa as a
preliminary to their 4th summit.

He said that initiatives of this kind will contribute to broaden trade
and investments among BRICS, which have potentials still untapped, and
facilitate our economic development as world economy remains plunged
into uncertainty.

Sharma commented that the weakened global demand of goods and
services, above all from Western markets, is affecting export
prospects and growth possibilities of member countries of the group.

On the heels...

...of a recent The Economist article claiming India's financial system was "more conservative" than the United States. This is absurd. After all, the market's reaction to S&P's "downgrade" of the U.S. was muted, to say the least. Let the sunlight in and let the market decide, because one way or another they will anyway and these measures show a hand of weakness as investors decide caution is the better part of valor.

SREI Infrastructure Finance, one of India’s biggest non-bank lenders, has won a court order blocking Fitch Ratings from publishing a downgrade to its credit rating, sources told IFR.

Fitch said on Tuesday it had received an order from the Calcutta High Court, dated March 20, preventing it from publishing a rating action on SREI.

Court documents showed that Fitch was ordered to state: “Fitch has received an order from the Hon’ble High Court of Calcutta dated March 20, 2012 pursuant to which Fitch India has been restrained from publishing a rating action with regard to SREI Infrastructure Limited. Fitch is therefore unable at this time to publish a current rating on the issuer.”

Neither the rating agency nor the issuer would elaborate on the matter, citing the ongoing legal proceedings. However, sources said the rating agency had earlier told SREI it planned to downgrade the firm.

The injunction is the most extreme reaction for years to an unwelcome rating move, and raises questions over the rating industry’s ability to provide free and independent advice.

Uh-huh...

if you say so...a continuing series...

From Bloomberg:

Italian Prime Minister Mario Monti said the euro area crisis is “almost over” and that his nation has helped to stop a worsening of the situation.

Europe had initially been slow to respond, Monti said in a speech in Tokyo today.

A recent...

...post in a popular financial website (that has a decidedly EOT bent) cites a report fulminating about the "insular" nature of European sovereign debt. Specifically, the report makes the claim that 85% of Euro-area sovereign debt is held by Euro-area residents.

I will make the simple observation that EVEN IF this is true, there is no way to verify the associated cash flows and economic benefits from the above positions given the modern tapestry of collateral, securitization, swaps, and other associated derivatives.

In other words, EVEN IF this "85%" percent figure is true (and in my estimation, it is not), the economic benefit of Euro-area bonds is most certainly not and "insular" issue.

Uh-huh...

...oh, OK, if you say so...

Brussels (DPA) -- European Union officials denied on Wednesday that plans were afoot to use eurozone bailout funds to help Spain recapitalize its banks.

"The information we have seen in the press are completely unfounded, they are not true and they do not reflect the thoughts or the position of the European Commission," Amadeu Altafaj, spokesman of EU Economy Commissioner Olli Rehn, said Wednesday.

He was referring to widespread reports in the Spanish press, quoting unnamed EU sources, indicating that the Spanish government may tap into eurozone rescue funds to recapitalize its banking sector, which is reeling from the bursting of a real estate bubble.

Spanish banks' need for more capital would be "largely met"

Dat Austerity...

...its does not "have" to be this way, but whatever.

Britons suffered the biggest drop in disposable income in more than three decades last year in a squeeze that may continue this year as energy prices increase.

Real household disposable income fell 1.2 percent, the Office for National Statistics said today in London. That’s the biggest drop since 1977 when the then Labour government sought to cap incomes growth in an attempt to bring down inflation. The report also showed that the economy shrank 0.3 percent in the fourth quarter, more than the 0.2 percent contraction previously estimated.

Balance Sheets

EOTrs ("End Of Timers") like to discuss the static position of Central Bank balance sheets, pointing to debt/GDP ratios as the harbinger of several "invevitable" consequences stemming from the vile and evil asset swapping activities of these blind and moronic institutions.

So, the above graphs are the subject of much talk this morning.

And yet, not nearly as much attention regarding the first chart above.

Its the relative, not absolute positions that one must be concerned with...to say nothing of the large difference in opacity between the Central Banks and their relative ability to employ liquidity without inflationary pressures.

By Cloth or Gavel...

...The positioning continues.

HAVANA, Cuba (AP) — Pope Benedict XVI wraps up his visit toCuba on Wednesday with an open-air Mass in the shrine of the Cuban revolution, hoping to revive the Catholic faith in this communist-run country. His other appointment promises a far more tantalizing climax: a meeting with Fidel Castro.

The former Cuban leader announced late Tuesday that he would happily meet with Benedict, saying he was asking for just a "few minutes of his very busy time" in Havana.

The Vatican had already said Benedict was available, so the confirmation from Castro was all that was needed to seal the appointment and end weeks of speculation as to whether Castro would repeat the meeting he held with Pope John Paul II during his historic 1998 visit.

"Information"

In life and in markets, "information" is not a bunch of fungible bits going to and fro. It is a decaying asset.

The most useful "information" is secrets. "News" has a different meaning in that context.

As Donald Rumsfeld said:

“The problem is that people think that news is something that is announced before it happens, as opposed to something that is reported when it does happen.”

This is largely...

...a headline-grabber, but it does illustrate the opening salvos in the war for dominion over Africa. The article also does not mention the "push" part of the equation in that wealthy Chinese are scouring the globe for jurisdictions to park their wealth (and possibly their physical location).

The administration is likely thinking very carefully how to secure the antipodes. Its where the action is. However, the U.S. must watch for over-reach. The costs of supplying information (via dollar trades) must not exceed the benefit of the dollar as a secure asset. That simple statement, more than anything, portends the future of the Dollar as hegemonic reserve currency. Recall that we import information and export security.

Of course (cough) having the renminbi as the currency is (cough) good for bilateral trades involving (cough cougharms) "military equipment".

South Africa will this week take some initial steps to unseat the US dollar as the preferred worldwide currency for trade and investment in emerging economies.

Thus, the nation is expected to become party to endorsing the Chinese currency, the renminbi, as the currency of trade in emerging markets.

This means getting a renminbi-denominated bank account, in addition to a dollar account, could be an advantage for African businesses that seek to do business in the emerging markets.

The move is set to challenge the supremacy of the US dollar. This, experts say, is the latest salvo in the greatest worldwide currency war since the 1930s.

Twilight of the Idols...

...whenever The Recapitulator reads of another enormous (and pointless) architectural masterpiece, it is time to short every security associated with same. Like I have said before, the best laid plans (especially in less than desirable jurisdictions...see my Sovereign Debt Tier List) inevitably go awry.

The latest Bridge Too Far.

The Distinguished Gentlemen...

...was a forgettable movie (sans this scene which starts at 7:40 of this clip, which leads to this result, starting at 2:00 of this clip) where the protagonist (Eddie Murphy) happens to share the last name of a recently deceased member of Congress, prompting an election run, subsequent victory, general hilarity, and an appropriate ethical crisis ending with the obligatory happy outcome.

Things that share certain characteristics are usually not exactly equivalent. This write up discusses some of the dangers of equating ETFs with ETNs, highlighting tried and true marketing tactics (familiarity) like the subject of our movie in this post.

Buying something without a complete understanding of the risks involved is never a good idea. This is something I have learned the hard way. When dealing with investment banks, assuming informational asymmetry is a survival tactic.

Core EU countries...

...weakening with the Iberian problem still looming. Not good.

More revenue...

...less profits.

Sounds good (!??!)

March 20 – China's state-owned enterprises reported ¥7.5 trillion in revenues and ¥211.97 billion in gross profits in the first two months of 2012, up 9.9% and down 11.5% respectively from the same period a year ago. The sluggish steel, real estate and machinery industries were cited for the decline in earnings.

About that Au Standard...

...Bernanke recently spoke about the shortcomings of the Gold Standard, with points captured by Joe Weisenthal of Bloomberg. Note the first point he makes is the truly preposterous notion that the U.S. should out-source foreign policy (and economic policy) to gold producing countries. Note also the #1 producing country at the moment is China. It is ironic that some of the most virulent supporters of the gold standard share similar ideologies as Mr. Paul of Texas, as any gold producing country in the world would immediately become a key U.S. interest.

To have a gold standard, you have to go dig up gold in South Africa and put it in a basement in New York. It's nonsensical.

The gold standard ends up linking everyone's currencies, causing policy in one country to transmit to another country (sort of how U.S. policy now transmits to China, because they've fixed the yuan price to the dollar). So for example, if the U.K. fixes the number of pounds to an ounce of gold, and the U.S. fixes the number of dollars to an ounce of gold, then the pound and the U.S. dollar inadvertently become linked.

It creates deflation, as William Jennings Bryan noted. The meaning of the "cross of gold" speech: Because farmers had debts fixed in gold, loss of pricing power in commodities killed them.

The gold standard tends to cause interest rates to rise during downturns and interest rates to fall during good times, the exact opposite of what monetary policy should be doing.

The economy was far more volatile under the gold standard (all the depressions and recessions back in the pre-Fed days).

The only way the gold standard works is if people are convinced that the central bank ONLY cares about maintaining the gold standard. The moment there's a hint of another priority (like falling unemployment) it all falls apart.

Gold standards leave central banks open to speculative runs, since they usually don't hold all the gold.

Read more: http://www.businessinsider.com/ben-bernanke-murders-the-gold-standard-2012-3#ixzz1plrQW6Vq

Neologism...

...I propose a new word: "Colcosmonistic" (garbled greek for "swimming alone in the universe") - "the sudden realization of your relative position in the universe is being a small animal on a small planet in a relatively modest sized galaxy".

No doubt this is how some of the Bears feel at the moment, but the list of contrarian indicators is growing, and the critical mass of pundits who jabber in unison that "the market can only go up" has almost reached its zenith.

The usual suspects...

...diplomacy in action.

The State Department announced on Tuesday that it would exempt 10
European countries and Japan from penalties for doing business with
Iran's central bank, because those countries are making significant
progress toward weaning themselves off of Iranian oil.

"I am pleased to announce that an initial group of eleven countries
has significantly reduced their volume of crude oil purchases from
Iran -- Belgium, the Czech Republic, France, Germany, Greece, Italy,
Japan, the Netherlands, Poland, Spain, and the United Kingdom. As a
result, I will report to the Congress that sanctions pursuant to
Section 1245 of the National Defense Authorization Act for 2012 (NDAA)
will not apply to the financial institutions based in these countries,
for a renewable period of 180 days," Secretary of State Hillary
Clinton said in a Tuesday statement. "The actions taken by these
countries were not easy. They had to rethink their energy needs at a
critical time for the world economy and quickly begin to find
alternatives to Iranian oil, which many had been reliant on for their
energy needs."

Yes, but...

...this is getting more difficult. Note the experience of Peru, Argentina, and now Greece.

"Governments have long been considered preferred credit risks, in spite of the fact that they may, with comparative impunity, suspend payments."

-Max Winkler, 1933

"Shifting"

...is a nice way to put it.

Last night there were even rumours of a coup in Beijing. Que the circus music.

BHP Billiton (BHP.AX), the world's biggest miner, said it was seeing signs of "flattening" iron ore demand from China, though for now it was pushing ahead with ambitious plans to expand production.

Rival Rio Tinto (RIO.AX) said it too was sticking with plans to raise capacity from its huge mines in Western Australia's Pilbara iron ore belt, betting on a soft landing for the Chinese economy.

"The (Chinese) economy is shifting, it's changing. Steel growth rates will flatten and they have flattened," Ian Ashby, president of BHP's iron ore division, said ahead of the Global Iron Ore & Steel Forecast Conference in Perth.

Guns for bailouts...

Greece was Europe’s largest importer of arms between 2007 and 2011, according to a new report by the Stockholm International Peace Research Institute (SIPRI) released on Monday.

Arms imports by Greece fell 18 percent compared to the 2002-06 period but Greece still ranked 10th internationally, falling from fourth place.

Globally the volume of international transfers of major conventional weapons was 24 percent higher in the period 2007-11 compared to 2002-06, largely due to a sharp rise in Indian arms imports, the report said.

The United States, Russia, Germany, France and Britain are the world’s top arms exporters.

Germany’s biggest market for arms exports is Greece, which imported 13 percent of weapons produced in Germany.

Greece is France’s second-biggest client, importing 10 percent of French arms exports.

Shortly...

...I will be commenting on the state of sovereignity (as a model for order in the world) and its usefulness to the modern world. Most likely I will be publishing a book on the same subject later this year.

Suffice to say that historians in future generations will look upon this time as a formative firmament for much more grandiose political tectonics. One of the more important occurrences during the last decade is that opinion and information flows are much more difficult to contain, and "control" more ephemeral.

Signs that China is getting a grip on a surge in local government debt is good news for the country’s credit standing, Moody’s Investors Service said Monday.

Moody’s said an announcement last Wednesday by Chinese Premier Wen Jiabao that local government debt rose just 300 million yuan ($47 million) on net in 2011 signaled an effective containment of the policy-induced ramp-up of local government debt in previous years.

“Containing the expansion in local government debt is credit positive for China, controlling the growth of the sovereign’s potential exposure to contingent liabilities from local governments and creditor banks,” Moody’s said in its latest weekly credit outlook.

What???

How can this be?

Who would have thought this?

China’s statistics bureau said local officials forced some hotels, coal miners and aluminum makers to report false numbers, highlighting flaws in data tracking the world’s second-largest economy.
Statistics officials in Hejin city in northern Shanxi province gave companies “seriously untrue” numbers to submit for 2011, the Beijing-based National Bureau of Statistics said in a statement on its website dated March 12.

The faith of progress...

...and its associated zealotry is one of the most dangerous concepts known to man. The following excerpt is from one of the various "tax justice" sites, the tempo and cadence of their rhetoric should be familiar to many readers here by now.

This concept of "if only" conditions based on the goal of "justice" is simply irresponsible. That model has consistently concentrated power throughout history with disasterous results. This particular tax justice musing is nothing more than the tyranny of majority complaining about smaller countries making a niche because their services are so desperately wanted. In addition, there is no words or analysis on WHY there is such a massive incentive to park assets off-shore exists. Furthermore, the estimates included are unsupported and likely presented for shock value. It is also telling what the "missing tax receipts" would be used for.

Assets held offshore, beyond the reach of effective taxation, are equal to about a third of total global assets. Over half of all world trade passes through tax havens. Developing countries lose revenues far greater than annual aid flows. We estimate that the amount of funds held offshore by individuals is about $11.5 trillion – with a resulting annual loss of tax revenue on the income from these assets of about 250 billion dollars. This is five times what the World Bank estimated in 2002 was needed to address the UN Millenium Development Goal of halving world poverty by 2015. This much money could also pay to transform the world’s energy infrastructure to tackle climate change. In 2007 the World Bank has endorsed estimates by Global Financial Integrity (GFI) that the cross-border flow of the global proceeds from criminal activities, corruption, and tax evasion at US$1-1.6 trillion per year, half from developing and transitional economies. In 2009 GFI's updated research estimated that the annual cross-border flows from developing countries alone amounts to approximately US$850 billion - US$1.1 trillion per year.

11.5 Trillion dollars? Global GDP is 60 Trillion. Does that make sense? Then we get into fantasy land. If only those assets were taxed, poverty could be eradicated.

Offshore finance is not only based in islands and small states: `offshore’ has become an insidious growth within the entire global system of finance. The largest financial centres such as London and New York, and countries like Switzerland and Singapore, offer secrecy and other special advantages to attract foreign capital flows. As corrupt dictators and other élites strip their countries’ financial assets and relocate them to these financial centres, developing countries’ economies are deprived of local investment capital and their governments are denied desperately needed tax revenues. This helps capital flow not from capital-rich countries to poor ones, as traditional economic theories might predict, but, perversely, in the other direction.
Countries that lose tax revenues become more dependent on foreign aid. Recent research has shown, for example, that sub-Saharan Africa is a net creditor to the rest of the world in the sense that external assets, measured by the stock of capital flight, exceed external liabilities, as measured by the stock of external debt. The difference is that while the assets are in private hands, the liabilities are the public debts of African governments and their people. (Read more)
Globalisation and international trade and finance have got a bad name of late. Each brings opportunities, and risks. We must now start to address seriously what may be the biggest risk of all: tax abuse, and tax havens and everything they stand for.

Capital flows to high returns and (more importantly) safety. Taxation or confiscation of assets will not help governments achieve any more or less order if the legal and cultural infrastructure is broken. To assert that "if only sub-saharan governments had more money, there would be no poverty in those countries" confuses causes and effects. It also assumes Government is this eternal construct that is morally unimpeachable when the reality is no country on this planet is more than a couple of centuries old...and all of them have sacrificed reputation in the name of expediency. The U.S. itself did this during the French Revolution when it refused to pay France on debts incurred during the American Revolution because those debts were owed to the French Crown as opposed to the nascent French Republic.

Inflation Expectations...

...is the current fashion amongst the Eunuchs to satiate and placate the masses with regards to the dangers of inflation and deflation.

And now, they produce the below, a true and instant classic of its kind:

News Release: March 16, 2012
The Federal Reserve Bank of Cleveland reports that its latest estimate of 10-year expected inflation is 1.38 percent. In other words, the public currently expects the inflation rate to be less than 2 percent on average over the next decade.

The Cleveland Fed’s estimate of inflation expectations is based on a model that combines information from a number of sources to address the shortcomings of other, commonly used measures, such as the "break-even" rate derived from Treasury inflation protected securities (TIPS) or survey-based estimates. The Cleveland Fed model can produce estimates for many time horizons, and it isolates not only inflation expectations, but several other interesting variables, such as the real interest rate and the inflation risk premium. For more detail, see the links in the See Also box at right.

Estimates are updated once a month, on the release date of the CPI.The methodology used to generate the estimates was changed slightly starting June 15, 2011, and it is documented in this working paper.

Delving into the "paper" mentioned in the last sentence, we find this gem of academic obfuscation and arrogance:

Our model differs because it has four stochastic drivers
yet seven state variables. Three of the state variables in our model are
the short-term real interest rate, expected inflation, and inflation’s “central tendency,”
and they have a large influence on the cross-section of bond yields. However, they play
no direct role in determining bonds’ risk premia. Rather, bond risk premia are completely
determined by four volatility state variables whose dynamics are mixtures of normal and chi
squared innovations that derive from changes in the aforementioned three state variables
plus realized inflation. This de-coupling of the state variables that largely determine the
cross-section of yields versus the state variables that solely determine risk premia allows
for time-varying risk premia that can even change sign.

As a result, the model’s ability to fit the cross-section and time-series of nominal yields exceeds
that of traditional affine models. Because our model better matches the empirical properties of
nominal yields, one may have greater confidence that it provides the correct starting point for
decomposing nominal yields into their real yield, expected inflation, and risk premia parts.


All of this sounds very official and precise, but let us consider what they are saying with respect to this "improved" inflation forecasting technique. They take as a parameter the difference in inflation survey expectations over two time periods. This says much about the sacrosanct status "inflation expectations" has in the Fed. To assert this variable, build a mathematical model that features it, and FIT (with a conceptual crowbar) the model's prediction of expectations to "actual" expectations does not even approach a truly useful gauge of inflation. The question that should be asked is: are expectations of inflation the same thing as inflation itself? Is inflation the kind of thing that is derailed by sanguine expectations, or does it have more clandestine tactics that destroy financial order?

The fact that this paper and its result yell "ALL CLEAR TO DEPLOY MONETARY POLICY" is testimony enough as to its purpose and rigor.

Uh...where are those carriers again?

No comment necessary. This is how you "process" interlopers and "rogue nations".

"Iran is being deleted from the world banking system Society for
Worldwide Interbank Financial Telecommunication (SWIFT) computers as
of Saturday at 1600 UTC. Once the SWIFT codes for Iranian banks are
deleted, Iranian banks will no longer be able to transfer funds to and
from other worldwide banks, turning Iranian international commerce
into a barter operation. SWIFT is taking the action at the request of
EU members to comply with international sanctions against Iran due to
its program to develop nuclear weapons. The effect will be to
drastically hinder Iran's ability to execute international business
transactions."

How...

...is this possible? Convince the world that a relatively small country is able to substantially restructure their sovereign debt, but other countries with populations multiple times greater than greece will not receive the same treatment?

*BINI SMAGHI SAYS EU MUST ACT TO SHOW GREEK PSI AN EXCEPTION

Look out below...

...its a long way down.

MADRID (MarketWatch) -- Spanish house prices fell 11.2% in the fourth quarter of 2011 on an annual basis, a decrease of almost four percentage points from the previous quarter, with the index at the lowest since the first quarter of 2007, the national statistical office said Thursday. In the third quarter, house prices fell 7.4% The prices of used homes fell 13.7% in the quarter on an annual basis. House prices have been sharply declining since the fourth quarter of 2010, amid a collapse in the housing industry, which spurred a downturn in the Spanish economy.

The world...

...has woken up to the fact that the "risk-free" rate is certainly non "risk free". It was a vaccuous concept that only made sense in textbooks as a plug to obtain numbers for homework assignments (I was subjected to many, many of these "problem sets").

to quote Professor Berra:

In theory there is no difference between theory and practice. In practice there is.

From the WSJ:

Twenty-first century economists, financial actors and regulators blithely talked of the "risk-free debt" of governments, and European bank regulators set a zero-capital requirement on the debt of their governments. The manifold proof of their error is that banks and other investors are now taking huge credit losses on their Greek government bonds.

The Vatican...

...has convinced Israel to grant it sovereingnity over King David's tomb. The question of sovereignity regarding religious sites could not even be asked even a decade ago. What has changed?

One of the themes of this blog is that religion will make a return to power and rule in this century.

Of course, with increased power comes increased vanity, but success must be allowed its eccentricities, no?

..Pope Benedict has taken the meaning of bespoke to a whole new level
by ordering a custom-blended eau de cologne just for him.

The fragrance, which mixes hints of lime tree, verbena and grass, was
concocted by the Italian boutique perfume maker Silvana Casoli, who
has previously created scents for customers including Madonna, Sting
and King Juan Carlos of Spain.

I have maintained...

...for some time that the U.S. should (and likely will) re-prioritize its presence in the world to the antipodes, and more specifically Latin America and Africa. Progress in this development have not been to my liking (and, as always, I could be completely wrong about the gravity of our foreign policy), but the Obama Doctrine (a modern day corollary to the Monroe Doctrine of the 1800s) appears to be the safest way to "de-couple" U.S. interests away from a disintegrating Europe, a tempestuous Middle East, and a downright dangerous Asia.

It appears that the U.S. is making serious moves to effectuate this, but the risks remain that it holds on to old loyalties and out-dated notions based on wars fought in previous centuries. It will take a strong president with a clear vision to accomplish the re-prioritization...so perhaps my faith is misguided given the incumbent's "whatever makes me re-electable" stance on foreign policy.

Data risk

Buying inflation protected securities seems like a wonderful idea. Simply buy the bond, and sit back as its return mirrors the increase in CPI (or some other adjusted benchmark of inflation).

The problem is, of course, the incentives to change the rules of the game once it become apparent they disadvantage one of the parties. Argentina is but the latest example of the false belief that probity and mendacity stay constant no matter the external circumstances.

March 13 (Bloomberg) -- Argentina’s manipulation of
consumer-price data is turning government bonds whose interest
payments rise and fall with inflation into securities resembling
fixed-rate debt.
The statistics agency reported today that annual inflation
was 9.7 percent in February, marking the 12th-straight month
that the rate held between 9.5 percent and 9.9 percent. The 0.4
percentage-point range over the past year, which is down from an
average annual variation of 2.7 points from 2004 through 2010,
is smaller than the ranges of 1.5 points in neighboring Brazil
and 1.8 points in the U.S.
With the government reporting inflation near 10 percent,
the 12.4 percent yield on the benchmark bonds linked to consumer
prices gives the securities a rate of return of about 22
percent. The International Monetary Fund says Argentina is
underreporting the data and economists including ex-central
bankers Alfonso Prat-Gay and Martin Redrado say consumer prices
are soaring more than 20 percent a year.
“Forget making any bet on what’s going to happen with
inflation because we know it’s distorted,” Boris Segura , a
strategist at Nomura Securities International, said in a phone
interview from London. “This is basically a fixed-rate bond.”

We shall see...

...how long it takes for the Eunach class to remonstrate one of their own who has dared to say monetary policy is not the panacea it is claimed to be.

Brad Delong, dismal scientist, is starting to come around.

In such a setup, the conclusion of Mankiw and Weinzerl that monetary policy has the exclusive role to play is straightforward: One stabilization policy tool--monetary policy--is non-distortionary. The other stabilization policy tool--fiscal policy--is distortionary. If monetary policy can do the job, there is then no need for fiscal policy. And if you do resort to fiscal policy, use the fiscal policy that is most effective at getting people to spend money on the things they were at the tipping point of buying anyway--use the investment tax credit rather than direct government purchases or tax cuts which might well not be spent. End of argument.

But are the assumptions correct? Can monetary policy do the job?

There is little [3] doubt that it can do the job--and that the conclusion is sound--in normal times, when the short-term safe nominal interest rate is away from its zero nominal lower bound, and when small bond sales to shrink and bond purchases to grow commercial-bank reserve deposits shake the entire intertemporal price structure. [4]

But does the same hold true in a liquidity trap, when short-term safe interest rates are at their zero nominal lower bound? At the zero nominal lower bound monetary policy as stabilization policy has two potential modes of effectiveness:

Even with short-term safe nominal bonds at par, the market flooded with excess reserves, and thus with reserve deposits perfect substitutes for short-term Treasuries, the monetary authority can take duration and default risk onto its balance sheet and thus free-up risk-bearing capacity to improve borrower access to credit.

Even with short-term safe nominal bonds at par, the market flooded with excess reserves, and thus with reserve deposits perfect substitutes for short-term Treasuries right now, the monetary authority can promise it will keep interest rates lower and inflation rates higher in the future than its standard reaction function would warrant.

The Sovereign Debt Tier List

Everyone loves rankings. Ordinal position, for some unknown; doubtlessly biological, demands a visceral response from people. They can be found everywhere, from positions of strength in sporting events to relative skill amongst interior decorating firms.

Therefore, The Recapitulator will humbly present his "Tier List" of rankings for sovereign debt, worldwide. The rankings will be organized into 4 tiers that represent relatively homogeneous groups. The bonds most likely to generate full face value (in nominal dollars, anyways) will be listed first in their respective tier.

Tier 1 These countries represent the pinnacle of the global financial system. They enjoy vast circulation, and are typically backed by fungible tax dollar guarantees from their respective governments. In addition, they offer prestige and security, and promise the holder a better alternative than any other liquid asset. These countries typically run Current Account deficits given their wealthy position in the world and the desire of the rest of the world to net save financial assets from these countries results in Capital Account surpluses. Furthermore they tend to have historcially stable governments, top level legal systems (emphasizing the rule of law, checks and balances, reliable term limits, and deference to Anglo-Saxon common law as its formative firmament), the ability to project power (both "soft" and "hard"), and a population that exhibits relative peace and normality. In short, the perfect jurisdiction to park assets anytime, but especially so in volatile periods.

Tier 2 These countries enjoy very low default probabilities, typically have floating currencies with stable populaces and very good legal systems based on anglo-saxon or Roman law derivatives. They have capable but small militarys that focus on national defense. These countries typically run Current Account surpluses given the medium-high and rising living standards, and also conversely run Capital Account deficits as the rest of the world finds other jurisdictions more attractive.

Tier 3 These countries enjoy low default probabilities, are typically mercantilistic in nature as they require foreign capital in order to invest in energy, weaponry, and foodstocks. Their legal and property rights systems are stable, but in application exhibit an arbitrariness not seen amongst higher tiers.

Tier 4 These countries have significant default probabilities. This could be for a number of reasons, but typically a lack of rule of law coupled with an unstable history with multiple government structures in a relatively short period of time. Lack of continuity and cultural links also contribute to the problems these countries face.

Hard to place in a portfolio (HTIAP): These countries are simply too unstable to place into any tier list of acceptable risks. They suffer from tyrranical government, sanctions from one or more "global authorities", and lack of connectivity to the global economy. Furthermore, they have little or no natural resources, difficult geography, and poor leadership.

So, without further delay, the list:

Tier 1: U.S.A., U.K, Canada, Japan, Switzerland, Netherlands

Tier 2: Norway, Germany, France, Brazil, India, Sweden, South Africa, Russia, Australia, New Zealand, South Korea, Belgium, Poland, Czech Republic, Finland, Denmark

Tier 3: China, Pakistan, Kenya, Uruguay, Italy, Mexico, Chile, Turkey, Argentina, Indonesia

Tier 4: Saudi Arabia, Venezuela, Singapore, Spain, Portugal, Ireland, Iceland, Columbia, Vietnam, Sub Saharan Africa***, Saudi Arabia, Qatar, UAE. Namibia, Columbia, Bolivia

HTIAP: Hungary, Albania, Romania, Nicaragua, Thailand, Sri Lanka

***Subject to change quickly given U.S. involvement

That man...

...once again pining for China's ascension. What could possibly go wrong between now and 2016? Niall Ferguson at it again.

So when you look ahead to the next decade, what will the U.S. and Europe’s position be in the world economy and ultimately what do you see for China and Asia in terms of their positioning?

The International Monetary Fund’s projections for the next five years give us an answer to that question of where we’re gonna be in just a few years’ time. And the answer is that the United States will no longer be the number one economy in the world in terms of gross domestic product on a purchasing parity basis.That’s an important qualification, because it makes a big difference if you calculate GDP on that basis and take account of the fact that a haircut in China is way cheaper than a haircut in the United States. But that’s a fairly widely accepted convention to take account of differences in non-tradables. And on that basis by 2016 China will be the biggest economy in the world. And the U.S. will be number two, for the first time since the 1870s the U.S. will lose its lead position.

Back-door sterilization, Nippon style...

Japan to buy Chinese government debt (they still issue that?) in an attempt to weaken the Yen. The problem is Japanese domestic demand will not lift China out of the doldrums and the (real) bump in the Yuan will not suffice to combat inflationary pressures in the Middle Kingdom...in addition:

/START RANT...and now China has even more foreign exchange to distribute to party members "just in case" the people revolt and the leaders relocate to safer jurisdictions. /END RANT.

Sorry about that dear readers, but the twin pressures of a resurgent communist government and an unruly populace have many party members (who also happen to be major capitalists) quite nervous about retaining their new-found riches.

March 13 (Reuters) - Japan said on Tuesday it had received approval from China's government to purchase 65 billion yuan ($10.3 billion) in Chinese government debt in a move that can help Japan diversify its reserves away from the dollar and strengthen economic ties between the two Asian countries.
The timing of purchases hasn't been set yet as Japan still needs to make some administrative preparations, but Japan is likely to start with a small amount and then increase purchases, Japan's Finance Minister Jun Azumi said.
Japan will also consider the impact on financial markets when it decides the timing of its purchases, Azumi said.

The life cycle of a business model...

...readers here will note this was inevitable. The cycles have changed and may indeed be reverting back to huge levered bets against binary outcomes in sectors and locations where "real" (as opposed to quote-driven) information is king.

from "Traders Magazine"

Citing internal data, he said that HFTs' U.S. equities profits were
down in 2011 to about $1 billion, which is down big from their 2008
heyday of as much as $4.49 billion. Also, HFTs now make less per trade
than in 2008 - today they make on average between $.0005 and $.00075
per share on each trade versus $.001 and $.0015 a few years ago. In
order to keep making money, these firms need to find new ways to
trade.

"The HFTs need to trade larger volumes and at wider spreads, if
possible," Gawronski said. "After ten years, the HFT business model is
maturing."...

Costless advice...

...providing normative advice (where the anchor of opinion is a strong and united Europe) is the new official sport of the ECB. There is no credibility to these kinds of threats given recent events.

FT) The ECB has sharpened its hardline stance on eurozone fiscal policy by urging the still-tougher policing of member states’ public finances. In a report on proposed European Union regulations to monitor budgets better and strengthen the surveillance of countries in difficulties, the ECB makes clear it sees significant scope for further improvement. Among the proposals in the report dated March 7, the ECB suggests the surveillance of countries that run into difficulties in the future should be strengthened by public warnings for the most recalcitrant. Where a country under surveillance is threatening the eurozone’s financial stability, there should be an automatic recommendation that it seeks financial assistance, the ECB says.

Right on Schedule...

...political pressure is forcing contradictory actions from politicians. In normal times, said politicos would have zero difficulty holding contradictory views (its part of their "value-added skillz"), but these times are clearly not normal.

As I have maintained here, much more of this to come. Promises in Brussels will yield to realities at home.

VILLEPINTE, Paris (Reuters) - President Nicolas Sarkozy, recasting
himself as France's savior from low-cost competition and high
immigration, threatened to disregard European limitations on
protectionism as he sought to give his re-election campaign a second
wind on Sunday.

Going out on a limb that risks angering France's European partners,
Sarkozy said it was time to support local companies and stop the
uncontrolled influx of immigrants and cheap imports that demonstrate
Europe's lack of protectionist controls.

Addressing some 30,000 people at a vast conference centre just outside
Paris, Sarkozy vowed to pull France out of the European Union's
open-borders Schengen zone unless there was progress over the year
ahead in fortifying Europe's borders.

He also proposed a European law similar to the "Buy American Act"
which would require governments to favor European-made products in
their purchases, and said that without advances in that area, France
would start applying the rule unilaterally.

Cluster Bombs

This notion of "default insurance" behaving like any other insurance risk has been flawed from the beginning. The generators in most insurance are truly (or very close) to random, and probability densities actually have meaning and make sense when making investment and coverage decisions.

With CDS, risks are clearly correlated and non-random. This makes CDS a VERY dangerous game to play to the unitiated and/or for those who are short term in their thinking.

This creates a perfect insolvency bomb for many banks.

March 10 (Bloomberg) -- Austria is facing a capital
injection of as much as 1 billion euros ($1.3 billion) into KA
Finanz AG less than two weeks after bailing out Oesterreichische
Volksbanken AG.

The International Swaps & Derivatives Association yesterday
ruled that Greece’s use of collective action clauses forcing
investors to take losses under the nation’s debt restructuring
will trigger default insurance payouts.

In a statement before ISDA’s decision, KA Finanz said it
may have risk provisions of about 1 billion euros if credit-
default swaps on Greece it has written are activated.

Anticlimactic...

...now has another attachment.

LONDON, March 9, 2012 – The International Swaps and Derivatives Association, Inc. (ISDA) today announced that its EMEA Credit Derivatives Determinations Committee resolved unanimously that a Restructuring Credit Event has occurred with respect to The Hellenic Republic (Greece).

The EMEA DC resolved that a Restructuring Credit Event has occurred under Section 4.7(a) of the ISDA 2003 Credit Derivatives Definitions (as amended by the July 2009 Supplement) following the exercise by The Hellenic Republic of collective action clauses to amend the terms of Greek law governed bonds issued by The Hellenic Republic such that the right of all holders of the Affected Bonds to receive payments has been reduced.

The Committee determined that an auction will be held in respect of outstanding CDS transactions on March 19. ISDA has published a list of obligations issued or guaranteed by The Hellenic Republic, which the EMEA Determinations Committee is currently in the process of reviewing. That list can be accessed here: http://www2.isda.org/preliminary-greek-obligations/.

The unholy furcate...

...of "default/non-default" is being put on trial in Greece at the moment. What is non-obvious to me is how, with the precedent set and the Iberian peninsula watching closely, this will play out on a much bigger scale.

This is all slightly reminiscent of the California power crisis around the turn of the century.

All the King's monetary operations...

...have not helped the principle cause (and remaining obstruction) of an economic recovery.

*REAL-ESTATE HOUSEHOLD WORTH FALLS BY MOST IN MORE THAN A YEAR

About those Fed currency swaps...

...once again, we need to be aware of the scale and importance of the problem of the Fed entering into what amounts to unsecured dollar loans to the ECB (and indirectly, Euro-area Banks) These are massive bets on Euro area stability without congressional approval or oversight. I do not maintain that this course of action is wrong, but a public understanding of the risks would be a more wise course of action should something "go wrong". This is highlighted by the following snippet which is largely true given the currency issues in the Euro area discussed here years ago.

Last week, the conflict escalated to a new level. Weidmann complained in a letter to ECB President Draghi that the central bank was accepting increasingly lower-grade collateral in exchange for its cash injections. This poses a danger, he warned, as the central banks in the north of the euro zone are owed ever growing amounts of money by their counterparts in the south. If the euro zone broke apart, the Bundesbank would be left holding a good deal of its bad debt from so-called TARGET2 loans, which currently amount to some €500 billion ($660 billion), he warned.

This may sound somewhat technical to most laypeople, but among leading ECB officials the letter was seen as violating a taboo. TARGET2 refers to the central banks' internal payment system, which has accumulated massive imbalances during the course of the euro crisis. These inequalities aren't problematic as long as the monetary union remains intact. So far, the Bundesbank has always played down this risk. But Weidmann's about-face is a "disastrous signal," say ECB executives because, for the first time ever, the Bundesbank "is no longer ruling out a break-up of the euro zone."

On the surface, the wrangling revolves around loan conditions and interest rates, but in reality it has to do with the basic course of European monetary policy: the question being whether a debt crisis can be combated with even more debt, or whether it will spark the next, possibly even greater crisis.

Comparative and extra-sovereign law...

...an illuminating glimpse into the machinations of power. Read this twice. The Secretary of Defense is circumventing congressional approval to commit acts of war (or "war-like actions" since the question involved a hypothetical no-fly zone in Syria). Now, this may just be a remnant of the Secretary's previous employment at the CIA. It may just be innocuous statements that a "doer" like Mr. Panetta does not concern himself with.

However, there exists a certain tilt to the current administration (and indeed of previous ones) toward centralization and unaccountable concentration of power. The POWER to employ force must be one with severely constrained manacles, lest temptation and patronage become uncontrollable.

SESSIONS: What “legal basis” are you looking for? What entity?

PANETTA: If NATO made the decision to go in, that would be one. If we developed an international coalition beyond NATO then obviously some kind of U.N. security resolution would be the basis for that.

SESSIONS: So you are saying NATO would give you a “legal basis?” And an ad hoc coalition of nations would provide a “legal basis?”

PANETTA: We would seek whatever legal basis we would need in order to make that justified. We can’t just pull them all together without getting the legal basis on which to act.

Fed...

...backtracking on previous trial balloon. This is bad comedy.

Following the wrong recipe...

...the Fed is following the Japanese recipe for combating the lack of aggregate demand and the risk of deflation.

Unfortunately, they are going down what appears to be the traditional Keynsian route...with the results somewhere between "useless" and "counterproductive". Sterilized QE is yet another asset swap whose only purpose will be providing the Fed POMO with something to do, and provide future members of the Eunuch class with data points from which to write vacuous post-mortems of Fed policy.

from the WSJ:

Federal Reserve officials are considering a new type of bond-buying program designed to subdue worries about future inflation if they decide to take new steps to boost the economy in the months ahead.

Under the new approach, the Fed would print new money to buy long-term mortgage or Treasury bonds but effectively tie up that money by borrowing it back for short periods at low rates. The aim of such an approach would be to relieve anxieties that money printing could fuel inflation later, a fear widely expressed by critics of the Fed's previous efforts to aid the recovery.

The risk...

...is that global bond markets are unable to price any form of sovereign debt given a putative avalanche of haircuts based on the precedent of Greece.

But current prices are not discounting this...yet. However, some countries are certainly using this option for political purposes.

Mr. Shaw also pointed out that the information minister had said Dr. Peter Phillips would have commented. Controversy erupted when u-s financial media house Bloomberg quoted Mrs. Simpson Miller as saying "if they could give a bailout like Greece, lord have mercy, you would see Jamaica grow and flourish." Bloomberg had also quoted her as saying the Jamaica debt exchange was a failure.

Some companies...

...have always had a close relationship with our Government. Behaving as private enterprises with some quasi government guarantee or explicit backing, these "national champions" enjoy a symbiotic relationship.

So when one of these announces the below, best to pay attention to the foreign policy and investment implications, because they represent more than economic needs and trading strategies.

GE PLANS TO RE-ENTER LIBYA, SOUTH SUDAN IN 2012

Anti-Mercantilism...

...exchange rate manipulation via proxy. A wonderful example of how important it is to have a healthy contempt for established rules.

March 7 (Bloomberg) -- The U.S. Congress passed bipartisan
legislation allowing duties by the Commerce Department to offset
government subsidies in nations such as China, sending the
measure to President Barack Obama for his signature.

Chinese Commerce Minister Chen Deming said the move was not
in line with U.S. laws or World Trade Organization rules and
accused the U.S. of “pointing fingers.” He acknowledged that
some lower-level subsidies may be “problematic.”

The bill responds to a Dec. 19 decision by a U.S. appeals
court in Washington that said existing law doesn’t authorize the
agency to set tariffs on goods from countries lacking a domestic
market to establish prices. The House yesterday passed the
legislation 370-39 after the Senate backed it March 5. U.S.
Trade Representative Ron Kirk said last week that the
administration helped to craft the measure.

And then of course there is this preposterous statement by the Chinese as a rejoinder:

China’s central government has “no prohibited subsidies
provided to economic entities,” Chen said today in Beijing at a
press briefing during the annual meeting of the National
People’s Congress, according to a live English translation
broadcast on China Central Television. He said China is a big
country and there might be “problematic” subsidies at regional
levels.

That slippery slope...

...is getting a nice coat of Vaseline. There are no set of circumstances in which the answer was "no" that would have sufficed...but still, the language used is squishy to say the least. Full article here. I would have been fine with "when an American has planned and executed attempts on the lives of other Americans, we consider him an enemy combatant, with all the ramifications inherent in that appellation".

"Some have called such operations 'assassinations.' They are not, and the use of that loaded term is misplaced. Assassinations are unlawful killings," Holder continued in his prepared remarks. "The U.S. government's use of lethal force in self defense against a leader of al Qaeda or an associated force who presents an imminent threat of violent attack would not be unlawful -- and therefore would not violate the Executive Order banning assassination or criminal statutes."

The IVth Crusade

Well, I guess the carriers are right next door...and nobody likes idle assets...

Methuselah channels Urban the II.

Good luck with that...

...engineering a soft landing and increased domestic demand should be easy right? I mean, we basically implemented mercantilist policies on the way up and that went swimmingly, so how hard can it be to partially reverse all these flows?

(Reuters) - Chinese Premier Wen Jiabao cut his nation's 2012 growth target to an eight-year low of 7.5 percent and made boosting consumer demand the year's first priority as Beijing looks to wean the economy off its reliance on external demand and foreign capital.

He lowered the target from a longstanding annual goal of 8 percent, a move investors anticipated so that Beijing has some economic leeway to rebalance the economy and defuse price pressures in the run up to a leadership change later this year.

Lower growth will allow Beijing to reform key price controls without causing an inflation spike, so monetary policy can stay broadly expansionary to ensure a steady flow of credit to the small and medium-sized firms the government wants to encourage.

Risk Transfer.

The "socialism of losses" continues on the other side of the Atlantic. The U.S. had its round of bail-outs (together with a litany of other rescues, assistance, guarantees, etc. all "provided" by the taxpayer by their benevolent and wise representatives and appointees) and now the Euro area is experiencing what it looks like when the ugly process of "Bank Re-capitalization" churns on.

Crédit Agricole, one of France's biggest banks, has used ECB loans to whittle down its financial exposure to its troubled Greek subsidiary, Emporiki. After extending more than €10 billion of loans to Emporiki, Crédit Agricole last year decided essentially to cut its losses and is instead trying to get central banks to lend money to Emporiki. Due to its foreign ownership, though, the Greek central bank has barred Emporiki from borrowing from an emergency-lending facility that other Greek banks have been tapping, according to a person familiar with the matter.

But Emporiki borrowed from the ECB. At the end of December, after the ECB's first batch of three-year loans, Emporiki had borrowed €1.8 billion from the ECB, according to Crédit Agricole. Crédit Agricole, meanwhile, reduced its loan exposure to Emporiki to €5.5 billion. It is unclear how much Emporiki borrowed from the ECB last week.

In light of my last post...

...and further expounding on the simple truth of highly competitive systems creating massive incentives for, shall we say, the aggressive pursuit of comparative advantage, my new adopted city receives some "disturbing" news:

After a lengthy investigation conducted by the NFL's security department, the league announced Friday that 22 to 27 defensive players on the New Orleans Saints maintained a "pay for performance" program that included "bounty" payments administered by then-defensive coordinator Gregg Williams during the 2009, 2010 and 2011 seasons.

This, or similar programs, are not an isolated incident. I would think they are endemic within the NFL. Just as highly competitive Fund Managers are incentivized (and encouraged, in may cases) to gain any advantage, so are NFL teams required to maintain the most competitive environments possible in order to win.

Football remains interesting to me only because of its convergence to "real" competitive systems such as military applications, and its no wonder many financial heavyweights have moved into professional sports ownership.

As for this:

The NFL said its findings were corroborated by multiple, independent sources. Asked about potential criminal charges, NFL spokesman Greg Aiello said:

“We believe that any violation of league rules should and will be handled by the commissioner.”

A very interesting comment on accountability and the place and role of sport in society.

You Can't Handle the Truth

As an asset manager, you can perform all the "best practice" due diligence in the world with respect to your fund managers, but the irresistible lure of higher returns (and higher "alpha", whatever that means these days) will always attract folks who don't ask too many hard questions...precisely because they do not want to know the answers. Its a difficult game. The asset manager wants to know how and when a fund manager makes and loses money. The Fund manager wants to keep exactly how this happens a secret, as copying investment styles is the official sport of Investment Banks.

There are many successful Funds who claim to have some "edge" when investing. They usually cloak their styles in oppressively boring platitudes designed to mask what they actually do: engage in aggressive insider trading. There are also many successful asset managers who RELY on the returns provided by these Funds engaged in this activity in order to provide the maximum benefit to, say, pensioners with definable liabilities upon retirement. The minnow in this ocean are the people who get angry at massive Wall Street and Fund bonuses while happily cashing their pension or Life Insurance annuity check that has appreciated their savings to a considerable level.

The problem for an asset manager is maintaining a "of course we did not know our thoroughly vetted and investigated Fund Managers were engaged in such activity, Mr. FBI/SEC/FINRA/FED Enforcement Officer!" fascade of plausible deniability coupled with a steady hand on the switch to remove any and all assets from a Fund Manager in the event of a Indictment/Wells Notice/Formal Investigation/etc. by said authorities. Any such notice of formal investigation applies massive pressure on individuals to cooperate and indictments are imminent. These acts will be cited when said officers ask for a raise or run for Congress. Its how the world works.

This risk is massive at the moment, with all of the above in addition to States' AG offices scanning for any reason to bring scalps to a public demanding blood and "justice". But of course, the Asset Managers will be spared. Just as when Politicians receive large campaign contributions from "interesting" people. Plausible deniability is but another gear in the world's engine.

"There are two things that you don't want to see being made: Sausage and Legislation"

You can go ahead and throw persistent Alpha in with that.

Que Mr. Nicholson.

You're not thinking big enough...

...a humorous underestimation of ambition.

As polls universally predict victory for Vladimir Putin in Russian presidential elections Sunday, a prominent Washington Russia scholar likened the once and likely future Russian president to Italy's disgraced former prime minister Silvio Berlusconi, who was ousted from power last year during the European financial crisis.
"Putin is now moving into his 'Berlusconi phase,'" Fiona Hill, a Russia scholar at the Brookings Institution, said in an analysis prepared by the think tank and sent to journalists in advance of Sunday's polls.
"Like Putin in Russia, Berlusconi dominated Italian politics," Hill wrote. "Berlusconi's brand had been tarnished for a long time, but he was still the most popular individual politician in a fractious Italian political scene." Like Putin, Berlusconi "stifled the opposition...manipulated the media, [and] had mass protests against him. But none of the political opposition seemed to be capable of dislodging him from his perch."