Hmmm

A walk around the fringes of finance

THINGS THAT MAKE YOU GO

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Come you back to Mandalay, Where the old Flotilla lay: Cant you ear their paddles chunkin from Rangoon to Mandalay ? On the road to Mandalay, Where the flyin-fishes play, An the dawn comes up like thunder outer China crost the Bay!
RuDYARD KIPLINg, MANDALAY

Be careful about Burma. Most people cannot remember whether it was Siam and has become Thailand, or whether it is now part of Malaysia and should be called Sri Lanka.
Alexander Cockburn

The value systems of those with access to power and of those far removed from such access cannot be the same. The viewpoint of the privileged is unlike that of the underprivileged
Aung San Suu Kyi

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2.

Todays edition of

Things That Make You Go Hmmm..... x be longer on history than most and will form the background to a short series of pieces I intend to write about a country that is potentially on the verge of the kind of growth the entire world sorely needs and yet only Asia seems capable of providing. Consequently, if history and background arent really your thing, Id recommend skipping forward to page 10 where youll find articles of a more topical nature but for those of you who, like me, are fascinated by history and the world around us, join me on a trip back in time to a country thateven by Asian standardshas been one of the basket cases of history. That history, though, could well be about to change in a profound way.

thriving port along the trade routes between Calcutta and Singapore. Many of those years were fraught with unrest as cultures clashed and seemingly insignificant differences such as the refusal of the British to break with their own tradition and remove their shoes when entering pagodas were enough to cause severe rioting and the loss of many lives, but the quid-pro-quo was that Burma became the most-developed and wealthiest country in Southeast Asia under British colonial rule. In April 1937, Burma became a separately administered colony of Great Britain and Ba Maw was installed as the countrys first Prime Minister. Amazingly enough, Ba was a very outspoken opponent of British rule in Burma (begging the question of how that little fact escaped those in Britain conducting the vetting process) and, after strongly opposing Burmese participation in WWII, he resigned from the legislative assembly in 1940 and was arrested for sedition. It was at this time that an exiled Burmese activist with a family pedigree of resistance (his great uncle had fought against the British annexation of Burma in 1886) named Aung San formed the Burma Independence Army from his base, curiously enough, in Japan and these displaced Burmese took up arms against the Allies. Burma would be decimated by WWII as it became a major battleground due to its geographical significance and the richness of its resources. Though many Burmese initially fought on the side of the invading Japanese army, the vast majority switched allegiance by 1945 and it was in the aftermath of the war that Aung San negotiated the Panglong Agreement which guaranteed the countrys independence and firmly established him as the father of modern Burma. Aung San was tragically assassinated by political rivals six months before his dream of an independent Burma was finally realised but, despite this setback, on January 4, 1948, Burma finally became an independent republic with Sao Shwe Thaik as its first President and U Nu as its first Prime Minister.

such places as Rangoon, Mandalay and Irrawaddy evoke memories of a bygone era when the once-mighty British Empire included many far-flung outposts which inspired not only adventure but poetry. One such outpost was Burma, a country of tremendous strategic importance that was conquered by the British after a series of Anglo-Burmese Wars between 1824 and 1885. With the fall of Mandalay in 1886, Burmas last monarch, King Thibaw Min, abdicated, setting the stage for a little under 60 years of British rule during which time the city of Rangoon was anointed the countrys capital and grew into an

he names of

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The next 14 years were relatively stable and reasonably peaceful after the turmoil that had gone before. It was during this time that Burmas U Thant became Secretary General of the United Nations (a position he would hold for ten years), taking with him to New York from his homeland a young woman named Aung san suu Kyi, daughter of Aung san, as Burma: The Facts an administrative Myanmar: The Facts assistant. this young size: 676,578km2 woman was later to win the Nobel Peace Population: 55 million (2011 est.) Prize in 1991 and Literacy: 89.9% play an enormous Working Age role in shaping the 62% Population: country - but that is Regions: 7 a story half-written, to which we shall reEthnic States: 7 turn shortly. Religion : Buddhist (89%) Christian (4%) In March of 1962, however, darkness Muslim (4%) descended upon Language: Burmese (65%) Burma when a miliCurrency: Kyat (870/$) tary coup dtat, led by General Ne Win, GDP per capita: US$840 (2011est.) overthrew the government, plunging the country into decades of violent misrule by an oppressive Junta. In 1974, a new constitution of the Socialist Republic of the Union of Burma was adopted which instituted a one-party socialist system. The good news? It led to the resignation of the military rulers. The bad news? They continued to rule anyway, through the Burma Socialist Programme Party (BSPP) and decimated the countryturning it into one of the most impoverished in the world through a rule based on the toxic combination of Soviet-style central planning and superstitious beliefs. I know, I know... how could such a system that combined two such brilliant ideas possibly go wrong? Periodic protests during this period were swiftly and brutally suppressed, but on the 8th of August, 1988 (in perhaps something of a harbinger for those currently attempting to fix Europepay attention mesdames et messieurs) it was, of all things, a bizarre piece of economic

mismanagement by Ne Win that would finally lead to his downfall and the installation of a new military regime when he abruptly and foolishly decided to demonetize several largedenomination kyat bills - a move that instantly affected Burmas middle class, turning many of them into paupers overnight and sparking what became known as the 8888 Uprising (8th of the 8th 88). The bloody protests that sprang up across the country were eventually quelled after yet another military coup in September by the State Law and Order Restoration Council (SLORC)which imposed even more draconian conditions upon the poor citizens of Burma than those they had endured under Ne Win. But amidst the turmoil it was the formation, in September 1988, of the National League for Democracy under the leadership of that young lady who had left her home for New York a decade earlier, Aung San Suu Kyi, that was to mark this upheaval as a crucial turning point for Burma as it turned away from Socialism and inched towards a more democratic structure. Inched being very much the operative word. The following year, the SLORC officially changed the countrys English name to The Union of Myanmar and, in a move that would make them the laughing stock of repressive regimes everywhere, they promised that, in 1990, they would hold free elections for the first time in 30 years. old-fashioned, but if Im handicapping a free election between a brutal, military junta and a democratic party of the people, I am concerned with only one variable; are the elections truly free? If they are (and I think its safe to say that such regimes have a fairly spotty record when it comes to such things), then Ill happily take the points and back the democrats. Of course, such elections are never truly free (no, Mr. Putin, they are NOT. Weve discussed this before. Im busy, leave me alone) and so the smart money always goes on the ruling party. But a funny thing happened on the way to the

Now, call me

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(Priscilla Clapp): On August 15, 2007, Burmas military government announced that all government subsidies would be removed from imported diesel and natural gas, which The military junta simply power the countrys modes of refused to step down then ... He tends to be seen as transportation and electricity quietly set about repressing generation. The cost of diesel being sullen, humorless and the populist NLDimprisonfuel immediately doubled, ing many of its leaders and rather withdrawn, a hardliner, and the cost of natural gas skilled manipulator and an placing Aung San Suu Kyi rose as much as 500 percent, under house arrest where opponent of the democratiza- creating a wave of inflation in she remained for 16 of the other essential commodities, tion of Burma next 21 years. The SLORC such as rice, cooking oil, and changed their name to the other foodstuffs. TransportaState Peace and Development Council (SPDC) tion became so costly that many people, unin 1997 but the old switcheroo failed to fool able to afford the commute to work, started anybody. Nevertheless, the junta remained in bunking on city streets. Political activists who power until 2007 under the leadership of Genhad been leading small and sporadic urban eral Than Shwe, whose claims to fame include demonstrations over the past year to protest being ranked No. 4 on Parade Magazines 2009 rising prices and poor economic conditions Worlds Worst Dictators list and placing an reacted immediately, calling on the governimpressive No. 2 on Listverses Top Ten Worst ment to engage in dialogue with the people Living Dictators list (seriously). Shwe was deabout such dramatic unilateral economic described thus by the Democratic Voice of Burma: cisions. (Democratic Voice of Burma): ...He tends to By August 19, people were marching in the be seen as being sullen, humorless and rathhundreds through the streets of Rangoon, er withdrawn, a hardliner, skilled manipulaled by activists from the 88 Students group tor and an opponent of the democratization and the National League for Democracy of Burma. (NLD)... Within two days, the regime arrested a large number of 88 Students leaders, but According to his eHarmony profile he also liked similar marches had already spread to severlong walks, 1940s film noir and labradoodles. al other cities around the country, suggesting But I digress. the existence of an extensive underground organization. In late August, Buddhist monks in the western city of Sittwe began to join the something about the marches. On September 5, a group of some heat of August in Myanmar because, after the six hundred monks marching in the town of 8888 Uprising nineteen years previous, the situPakkoku in central Burma were brutally atation boiled over once again in August of 2007 tacked by Swan Ah Shin (SAS),[ a group of and, amazingly enough, despite the repressive pro-government street toughs], who tied brutality of the regime to that point, it was once several monks to poles and beat and disagain economic missteps that finally brought robed them. When local officials visited the about an angry revolt amongst the people of monastery to discuss this incident, they were Myanmar (pay attention, Brussels... pay attenNormally that might be a problem for a regime, but not in Myanmar.

ballot boxes asone can only imagineeach of the ruling generals assumed that one of the others was going to fix the result and, amazingly, the NLD won an astonishing 80% of the seats.

tion). The course of events was described brilliantly by the US Institute of Peaces Priscilla Clapp in a must-read, November 2007 report entitled Burmas Long Road To Democracy:

There must be

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taken hostage by the monks, their cars were burned, and they were given an ultimatum for the government to deliver an apology by September 17 for the attack on the marching monks. Within days, the All Burma Monks Alliance (ABMA) surfaced for the first time and demanded that the government apologize to the monks for the Pakkoku incident, reduce commodity prices, release all political prisoners, and enter into dialogue for national reconciliation with the democratic forces. The ABMA pledged to boycott the State Peace and Development Council (SPDC) by refusing to accept alms from them (thus keeping them from earning Buddhist merit) if they did not meet these demands by September 17. When no apology was forthcoming, tens of thousands of monks, surrounded by sympathetic citizens, marched through the streets of several Burmese towns and cities during the week of September 17, chanting blessings for the people. By now it was apparent that the regime faced a far more organized opposition that it had imagined. As the monks invited the public to join the peaceful, disciplined marches during the following week, the crowds burgeoned, and the regime began to clench its fist. Military reinforcements were sent to Rangoon, and on September 27, police, army, and USDA forces began raiding monasteries, preventing monks from going out, and rounding up marchers in the streets by force. Thousands were hauled off to makeshift prisons, and the Sangha (the Burmese order of Buddhist monks) was stripped of its political power. This time, however, unlike in 1988, the world witnessed the oppression in great detail via cell phones, digital cameras, and the Internet. Long after the protests were quelled, the regimes security forces, armed with pictures of marchers found on the Internet, continued to comb city neighborhoods in the dead of the night, arresting suspects as they slept and hauling them off to jail.

In the wake of what became known as

the Saffron Revolution, a constitutional referendum was held in May 2008, which promised a discipline-flourishing democracy and bestowed yet another name-change upon the Union of Myanmar which would henceforth be known as the Republic of the Union of Myanmar (evoking Monty Pythons Judean Popular Peoples Front) but perhaps most importantly it set the stage for a full and free general election in 2010 (the first to be held in Myanmar in 20 years) which, despite being decried as fraudulent by many Western nations in the wake of a resounding win for the military ruling party, looks to have potentially been the beginning of real reform after so many false dawns. After the 2010 election, Myanmars aging military rulers began a series of reforms towards a more liberal democracy and a mixed economy. Their motives were likely selfish as, after years in absolute power, they were wealthy beyond imagination with offspring who wanted to travel the world (which was prohibited by EU, US and Swiss sanctions) and they had most likely decided that an orderly, self-determined transition into quiet retirement was infinitely preferable to the alternative. Whatever the reasons, they matter little as, if you talk to citizens of Myanmar now, the feeling amongst the population is very much that the reforms are both real and irreversible and the success of the NLD in byelections held on 1st April of this year (I know, right?) was a graphic illustration of this as Aung San Suu Kyis party swept 43 of the 45 constituency seats available and she herself took her seat in the Pyithu Hluttaw (Lower House) of the Burmese parliament representing the constituency of Kawhmu. Such events had been inconceivable only months earlier but, with the visit of Hillary Clinton to Myanmar in December 2011 (the first visit by a US Secretary of State in 50 years), the imminent lifting of sanctions and Myanmars election to the chair of ASEAN in 2014, progress is proving swift and sweeping. Myanmars prospects havent looked this good in a generation.

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chief trading partner, Thailand (see map).

6.

So, after an unusually lengthy, but con-

textually important history lesson today, we now reach the stuff that will make you want to reach for a notebook and jot down a few facts and figures because, believe me, those facts and figures will definitely make you go Hmmm.....

Myanmars coastline stretches for some 3,000km and, in the Irrawaddy River, its borders enclose Asias only self-contained river network as the source, middle course and mouth of this great waterway are all within Myanmar. The river is 1,550km long and by far the most important waterway in the country. Myanmar is the second-largest country by area in ASEAN, the fifth largest by population and one of the richest in terms of the natural resources it possesses. It is also the poorest. According to IMF estimates, Myanmars GDP per capita in 2011 is estimated to have been $804. To put that into perspective, it is roughly one sixth that of Thailand and less than one sixtieth of the country I call home, Singapore (chart, below, left). Amazingly enough, Singapore has basically no natural resources but has parlayed a critical geographical location, a stable, democratic political system, sound financial management, an absence of corruption and an incredibly pro-business, low-tax regime into a ranking of third in per capita GDP behind only Qatar and Luxembourg according to IMF estimates. What makes this disparity between the two Asian nations all the more staggering is the sheer level of natural resources that Myanmar possesses. The country produces coal, timber, lead, copper, zinc, tin and limestone in relative abundance, but it is in teak, oil & gas and precious stones that Myanmar finds itself punching a long way above its weight. Over 75% of the worlds teak is produced in Myanmar, along with over 90% of the worlds jade and 90% of the worlds rubies. It has the worlds 4th-largest proven reserves of natural gas with 11.4 trillion cubic feet and has the 65th largest oil reserves on the planet (Myanmar has been exporting oil since 1853). Amazingly enough, only half of the countrys land area has been geographically surveyed so further riches undoubtedly lie beneath Myanmars fertile soil.

Lets start by placing Myanmar in context with its neighbours and fellow members of ASEAN (Association of southeast Asian Nations); Indonesia, Malaysia, the Philippines, Singapore, Brunei, Thailand, Cambodia, Laos, and Vietnam. Myanmar is situated on the west coast of Indochina and shares a border with India, China, Laos and its
$60,000 50,713 $50,000

$40,000

36,532

$30,000

ASEAN GDP Per Capita (US$) 2011 Estimates (IMF)

$20,000

$10,000

8,617 5,281 3,469 2,255 3,476 1,204 912 840 Myanmar

1,362

$0

or e

sia

ay sia

nd

ne

am

di

do ne

La os

Ca m bo

un

Th a

ng

lip

al

tn

Ph i

Si

In

Vi e

SOURCE: IMF

AS

Br

EA N

ei

ap

ila

pi

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10%

9.7%

bilities become only too clear all-too quickly as a recent report from UBS highlighted:
7.6% 7.5% 7.1% 6.3%

8%

ASEAN Real GDP CAGR (%) 2001-2011

5.5% 5.1% 4.9% 4.5% 5.8%

The average life expectancy in Thailand is 10 years longer than Myanmar and infant mortality rates are five times lower. Electricity consumption and car ownership per capita in Thailand is 20 times that of Myanmar. In Thailand, mobile phone penetration exceeds 115%. In Myanmar today it is just 1%. Tourist arrivals to Thailand are 40 times that to Myanmar. Given the range of attractions in Myanmar (including 100 sq km of temples in Bagan and several hundred islands in the Andaman Sea), the growth potential is significant. Tourist arrivals to Myanmar for the whole of 2011 were only equivalent to arrivals to Thailand for a single week. Myanmar has three international airports but 93% of arrivals still land in Yangon (Rangoon). There are more hotel rooms in Bangkok than in the whole of Myanmar In 2009, Myanmar exports totalled US$9bln as opposed to Thailands US$225bln

6%

4%

2% 1.4%

a or e sia ne s ay sia nd

0%
am di Ca m bo tn do lip La al ng

Th a

un

Vi e

Ph i

Si

In

SOURCE: IMF/UBS

The agricultural sector in Myanmar employs over 60% of the workforce and, along with being the worlds 7th-largest rice producer, Myanmar farms over 50 different crops as well as being home to a burgeoning aquaculture industry. Over the past 10 years, Myanmars GDP has grown at an astonishing 9.7% CAGR (chart, above), outpacing every one of its ASEAN neighbours and, in fact, if official statistics are to be believed, despite heavy sanctions, during the period 1998-2007, its economy grew at 12.7% faster than both India and China. If official statistics are to be believed. Myanmars GDP was US$20bln in 1989 but, after the abandonment of socialism and a series of economic reforms in the wake of the 8888 Uprising, it was re-based to US$3bln in 1990. It took almost twenty years for the former level to be reached but, between 2007 and 2011, GDP soared 150% to stand at US$50bln in 2011 according to the IMF. It is mouth-watering to imagine the possibilities in Myanmar should it be truly freed from the political shackles under which it has been operating for most of its existence and, through a simple comparison with its closest neighbour and main trading partner, Thailand, those possi-

AS

Myanmar

os

ne

pi

ei

Br

EA

ap

ila

But thats not all. Want some more? How about we look at Myanmars property market where there has been minimal development of any kind over the past 10 years? Currently, just one office building on Sathorn Road, Bangkok contains more space than for the whole of Yangon. The retail space in Central World in Bangkok exceeds the total retail space for all of Yangon. Yangon only has 740 serviced apartments, compared to 15,000 in Bangkok.

Or the automotive market?:

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Myanmar does not manufacture vehicles domestically. Rather, they are imported under permit. The relatively few permits awarded each year means that the number of registered vehicles in Myanmar is very low; approximately 300,000 compared to 5,400,000 in Thailand.

As you can probably imagine, Foreign Direct Investment in Myanmar has soared (chart, below) after the new President, Thein Sein declared after taking office that, in Myanmar, it was ...no longer business as usual. Sein pledged to root out corruption, boost trade and attract foreign investmentbut the story surrounding that is something for next time!
800 700 600 500 400 300 200 100 0 1980 1981 1982 1983

siderable time in Europe (where else?) as things continue to slowly fall apart just as the elected heads of the Eurozone return from the beach in time for next weeks Greek repayment to the ECB (look for some clever tricks to be pulled in order to get through that date and to the (hopeful) ratification of the ESM by the German Constitutional Court on September 12.) Belgiums finance minister decides not to play ball as he declares buying Italian and Spanish debt makes no sense, John Hussman returns after a long absence as he takes a look at projected earnings and finds that cheap is a matter of debate, former BoE MPC members encourage Mervyn King to step on the gas and Nomuras Alistair Newton coins the term Brixit. Germany considers an EU referendum (but probably not seriously), we look at the Chinese Golden Elephant, get a Postcard From The Edge in Greece and find out a little about Chinas African Money Tree.

Foreign Direct Investment (FDI) Net In ows 1980 - 2010 (US$m)

The euro cannot possibly survive as it currently exists (at least according to a Reuters special report), we SOURCE: WORLD BANK/UBS check out US sugar intake, So thats a potted history of Myanmar and a look Chinas African resource grab and look at healthat some of the staggering potential for growth in care costs and the ethanol crush spread in the wake of the us drought. a country that once sat astride Asia but, through a series of disastrous political choices, foreign Last but not least, we hear from two Nigel Farsanctions, economic mismanagement and miliages, have the US deficit explained to us as only tary oppression, disintegrated into poverty and an accountant can and Bert Dohmen of the terchaos. Next time we will take a look at some of rific Wellington Letter sees tremendous opporthe US$91 billion of infrastructure projects betunities in the gold market. ing developed and hear from a good friend of mine who moved to Yangon to be in the heart Thats all from me. Until next time, as they say of perhaps the biggest story to emerge in Asia in Myanmar: in decades. kyeethu go yothei, ywedu go layza, ngethu ******* go thana
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

1984

In this weeks

edition of Things That Make You Go Hmmm..... we spend some con-

Google it!!!

2010

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Contents
Buying Spain And Italys Debt Makes No Sense Germany Considers Holding EU Referendum Postcard From The Edge Chinas Answer To Subprime Bets: The Golden Elephant Why The Eurozone Cannot Possibly Survive Intact It Starts: First Asian Bank Mulls British Exit From The EU Chinas African Money Tree

13 August 2012

No Clue Bank Of England Urged To Drop Anguished Religious Ethics Over QE Begging For Trouble On GRExit, SPAilout, And Draghis White Knight Charts That Make You Go Hmmm..... Words That Make You Go Hmmm..... And Finally.....

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Bank should not buy Spanish and Italian debt because it makes no sense and will take away the pressure on politicians to act, Belgiums central bank governor has said. Luc Coene told Belgian newspapers De Tijd and LEcho that buying the bonds of these countries would only serve to weaken the ECB and do nothing to resolve underlying issues of competitiveness. It makes no sense for the ECB to start financing those countries, said Mr Coene, It would only lead to the ECB taking on the whole public debt of Spain and Italy onto its balance sheet, he said. That would in turn weaken the ECB and do nothing to resolve the underlying problems. Mr Coene also said that the central banks efforts to calm markets last summer with around 135bn of additional debt purchases on the secondary market via its Securities Markets programme took away the pressure on politicians to act.

The European Central

Stability Facility (EFSF) before the ECB could step in. Even if we were ready to act now, there would not be the grounds for doing so, he said.
O O O

UK DAILY TELEGRAPH / LINK

A bottle of liquor and a half-empty glass

stand on the table next to Angela Merkel, who is studying a confidential document with a sullen expression. How to Break Up the Euro, is the title. That, at least, is how Britains Economist imagines the chancellors predicament these days. Tempted, Angela? is the headline on the cover of the current issue.

We havent forgotten what happened in August of last year: We bought Italian bonds and right after that the Italian government reneged on its pledges, he said. The conclusion is clear: When you take away the market pressure, you take away the pressure on politicians to act. Spanish and Italian borrowing costs edged up on Friday, following a week of steady falls on hopes that Spanish PM Mariano Rajoy would make a formal request for EU aid, which would then trigger action from the ECB. President Mario Draghi initially disappointed markets at his monthly press conference by reiterating that the ECB cannot replace governments, and that countries would have to request assistance from the European Financial

Indeed, the chancellor is in a tricky position at the moment, as she fails to get the euro crisis under control. Of course, ... It makes no sense for the the Economists notion of a ECB to start financing those secret plan to break up the is purely fictitious. countries, said Mr Coene, It euro zoneinto the current deBut it fits would only lead to the ECB bate, where more and more taking on the whole public politicians from Germanys coalition government are debt of Spain and Italy onto talking about radical steps to its balance sheet solve the euro crisis. Officially, though, Merkels line is that she wants more Europe, not less. In the chancellors bid to save the common currency, she is willing to go to the very limits of what is permissible under the German constitution. That was made clear by her support for the permanent euro rescue fund, the European Stability Mechanism (ESM), and her pet project, the fiscal pact. But Merkel still wants more. We need a political union, she recently said on German public television station ARD. That means we have to give up further competencies to Europe, step by step, in an ongoing process. But that will probably not work, given the limits of the German constitution, something that members of the opposition have been pointing out for some time. In the meantime, more and

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more people within the governing parties have been talking about holding a referendum in Germany on the European Union. Rainer Brderle, the floor leader of the business-friendly Free Democrats, Merkels junior coalition partner, said on Friday that there could come a point when a referendum on Europe becomes necessary. Horst Seehofer, head of the Christian Social Union (CSU), the Bavarian sister party to Merkels Christian Democratic Union (CDU), has even called for several referendums. Finance Minister Wolfgang Schuble has also talked about holding a national vote on the EU. Such a vote could indeed be a way to get the much needed legitimacy for a transfer of national competences to Brussels. But how would it actually work in practice? SPIEGEL ONLINE presents an overview of some possibilities. There are three conceivable options for a referendum: 1. The Voluntary Way

cant competencies to Brussels; the enlargement of the European Union through new member states; and German financial support for other EU states. What is striking here is that the Csu would answer no to all of these questions. And the party believes that an increasingly euroskeptic German population would also say the same. But not even Seehofer himself appears to believe that the constitution would really be amended to include his proposed referendums. 2. The Forced Way Even more likely than opening up the constitution for referendums is that it comes up for discussion as a consequence of European integration. And this, of course, would require Germans to decide on a new constitution. Article 146 of the constitution stipulates that the current constitution shall cease to apply on the day on which a constitution freely adopted by the German people takes effect....
O O O

DER SPIEGEL / LINK

The German constitution, officially known as from Patmos. Her the Basic Law, does not make much mention of husband had lost his job and come back to the isdirect democracy. Referendums are only specifiland to be with their two children and find work. cally foreseen for the case of a reorganization of After he failed and she fell ill with cancer, they germanys territory and for the event that the ran out of money. The bank seized their house; Basic Law, which was originally supposed to be they could not pay the electricity bill. She was temporary, is superseded ashamed, she told Lazaros by a new constitution. ... Greece will have to slash Papageorgiou, of ArtosThere have been repeated its budget deficit by a total of Drassi, a charity in Athens calls to give the population a greater say beyond 11.5 billion in 2013 and 2014. that feeds the poor. Six ordinary elections, espe- Failure would mean being cut off months ago she would never have dreamt she would cially from the opposition. from European funds, leaving come to depend on charity, In contrast to the CDU, the the government with no choice but today she needed help. CSU and FDP are open to but to print its own currency the idea. Under the brilliant blue Athenian sky, anger has Critics say that questions about transfers of comgiven way to weariness and gloom. Outside petence or measures to save the euro are too Greeces parliament, in Syntagma Square, complex. But CSU leader Seehofer considers marchers once braved tear-gas and protesters those objections to be pure arrogance towards thronged a tented city. But it is quiet now. Sumthe people. In the newspaper Die Welt, Seehofer mer has lured greeks with money to the islands listed three areas where people should have and the beaches; the growing numbers who are more say. They include: the transfer of signifi-

The woman was

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without it have gone home instead. On Patission Avenue, about 20 minutes away, shop after shop is barred. Nobody knows how many of them will open again when Athenians return. The only certainty is that life will get harder. Last week the troika was in town. Representing the IMF, the European Central Bank and the European Commission, it must judge whether Greece should receive the next 31.5 billion ($39 billion) of rescue funds, which the government will mostly spend on recapitalising the banks and paying debt interest. To qualify, Greece will have to slash its budget deficit by a total of 11.5 billion in 2013 and 2014. Failure would mean being cut off from European funds, leaving the government with no choice but to print its own currency. In effect, Greece would be out of the euro. The troika left Athens on August 5th reporting good progress and saying that it would be back in September to finish its work. A bond payment falling due before then will be covered by short-term debt. However, the reality is as bleak as the communiqu is bland. True, the economy is rebalancing. Basic wages in Greece have fallen by 22%, there has been fiscal consolidation and the privatesector labour market has been reformed. Yet the public sector has not shed any of the 100,000 jobs it gained in a splurge of spending before the crunch. The target for privatisation this year has been cut from 3 billion to 300m. Unemployment is over 22% and climbing month by miserable month. And the economy, which has seen only one quarters growth since the end of 2008, is expected to shrink by more than 7% in 2012.
SOURCE: EUROSTAT/ECONOMIST

The glimmer of good news is that the mercurial prime minister, Antonis Samaras, who has at times rejected the austerity deal with the rest of the euro zone, now seems fully behind it. As if pinned to the spot by his impaired vision, the result of a detached retina, he seems to recognise that his future is now based on Greece staying in the euro. That means convincing a sceptical euro zone that Greece really wants to change. We will prove that we mean business, that we are dedicated and mean to implement our plan, he declares. Credibility depends in turn on the finance minister, Yannis Stournaras, a respected economist, whose technical expertise might just alloy with Mr Samarass political guile to create a machine that can get things done. The two men understand that not a euro of fresh money is to be had right nowindeed, they must know that plenty of euro-zone countries would like nothing more than to throw Greece out.
O O O

ECONOMIST / LINK

The Chinese investment vehi-

cle known as Golden Elephant No. 38 promises buyers a 7.2 percent return per year. Thats more than double the rate offered on savings accounts nationally. Absent from the products prospectus is any indication of the asset underpinning Golden Elephant: a near-empty housing project in the rural town of Taihe, at the end of a dirt path amid rice fields in one of Chinas poorest provinces. They havent even built a proper road here, said Li Chun, a car repairman, who said he lives in the project. The local government is holding onto the flats and only wants to sell them when prices go up. Golden Elephant No. 38 is one of thousands of wealth-management products, instruments aimed at monied investors, which have shown phenomenal growth over the last five years. Sales of them soared 43 percent in the first half of 2012 to 12.14 trillion yuan ($1.90 trillion), according to a report by CN Benefit, a Chinese wealth-management consultancy.

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They are usually created in Chinas shadow banking system - non-banking institutions that are not subject to the same regulations as banks - which has grown to account for around a fifth of all new financing in China. Like the subprime-debt lending spree in the United States that helped spark the 2008 financial crisis, the products are often opaque, and usually dependent on high-risk underlying assets, such as the Taihe housing project. Financial instability in the worlds second-largest economy could have global ramifications, and warning bells have begun to sound about the way these products are marketed in China.

ing securitized assets, it said, adding that a regulation issued last year clearly states that WMP prospectuses must indicate how the money is being used, and the percentage of money that is being put into each asset class. The commission is looking into further strengthening the regulatory framework over these products, and will continue to encourage the wealth management industrys growth under the principles of transparency and sufficient risk control. After a five-year bonanza in sales of these products, signs of trouble are building. China Credit Trust Co, one of the countrys biggest trust companies, has disclosed that one of its wealth funds, Jinkai #1, is at risk of default because of money it lent to coal company Zhenfu energy Group. Zhenfus boss has been arrested, amid reports he owed a total of 500 million yuan.
O O O

It has become a mammoth industry, comprising an array of financial products. Analysts have different ways of measuring the size of the sector. Barclays estimates some 22 trillion yuan worth of wealth management products will be issued this ... Chinas shadow banking year. Fitch Ratings says Chi- system... has grown to account nas banks had about 10.4 for around a fifth of all new trillion yuan in wealth management product liability at financing in China the end of June this year Reuters reviewed more than 50 wealth-management and trust loan products, available online and at bank branches in China, with the aim of tracking, for the first time in certain cases, where investors money in these products ends up. All, except two, failed to explain or even display the underlying asset behind the product. the China Banking Regulatory Commission, which oversees banking products, said more than 20,000 wealth management products were now in circulation, from a few hundred just five years ago. In an email response to the questions raised in this story, the regulator told Reuters new banking regulations require more transparency about these products. It is uncommon to find wealth management products that fail to clearly specify the underly-

REUTERS / LINK

Financial Times had an editorial, Politics is adding to Spanish woes, which they ended with the following:

Last week the

While they wait, Madrid should stick with the policies it is pursuing but intensify its work on the banking sector. If high yields persist, Spain can bear it for a while no one should buy the kabbalism according to which a certain level of yields marks the entrance to a black hole. The eurozone needs to convince investors it will be able to act if panic persists, which it can best do by giving the new rescue fund a banking license. But the best remedy against panic is reassurance. A greater sense of political competence in Madrid and of decisiveness in Brussels would do wonders. I see it very differently. Policy is certainly adding to the problems in Spain, but I dont think it is because, as the editorial claims, Prime Minister Mariano Rajoy has mismanaged the political process, and I am not sure that greater political competence in Madrid, or decisiveness in Brus-

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sels (!), will do anything at all, let alone wonders.

der to repay its external debt Spain must run a large trade surplus. If it ends up however with The problem, I think, is much more serious than a trade surplus caused simply by a collapse in Rajoys flunking hard choices, and I dont think domestic demand and soaring unemployment, there was anything he could do to increase the which is the current path, domestic politics will countrys credibility in a significant way. We have become unmanageable and Spain will eventulong passed that stage. ally be forced to leave the euro in order to regain comWhy? Because, as I have ... Spain has already started petitiveness in a less painful been suggesting for the last on its downward spiral and way. One of the good things six to twelve months, Spain there is almost nothing Rajoy about a well-functioning has already started on its or anyone else can do to prevent democracy is that it simply downward spiral and there is almost nothing Rajoy or all parts of the economy...from wont permit a debt crisis to be resolved by forcing an unanyone else can do to pre- acting each in their own way acceptable burden onto the vent all parts of the economy to increase the debt burden, working population. workers, small businesses, increase economic uncertainty, large businesses, creditors, the requirement for a trade depositors, and yes, policy- make the balance sheet more surplus is the key point. makers from acting each fragile, and reduce growth Even if there were no capital in their own way to increase flight, and assuming we are the debt burden, increase economic uncertainty, unlikely to see large investment-driven private make the balance sheet more fragile, and reduce inflows into Spain for many years a pretty safe growth. These different economic agents by now bet, I would think Spain must run a large trade are simply behaving rationally in response to desurplus in order to repay foreign debt holders clining credibility, and unless we expect from (technically Spain must actually run a current acthem a huge burst of irrational cheer, there is no count surplus, but in practice this means a trade reason to expect them to change their behavior. surplus). Of course capital flight, which is already large and rising, as I will discuss later, means that All of their actions, of course, reduce credibility Spain must run an even larger trade surplus than further, and as credibility drops it simply reinotherwise if it is going to repay external debt. forces the adverse behavior of all the rationally misbehaving economic agents. This is the dreadO O O MICHAEL PETTIS (VIA MISH) / LINK ed self-reinforcing loop typical of countries in Expectations of a new asset purchase program the nightmare stage of a debt crisis. by the Fed continue to persist as various pundits We have seen this process many times before anticipate its unveiled at the Jackson Hole gathin the history of sovereign debt crises, and it is ering. mind-numbingly mechanical. No matter how CNBC: - Ebullient stock markets are increaswell Rajoy implements fiscal austerity (assumingly pricing in the possibility that the Federing that this is indeed the right thing to do), al Reserve will soon unveil another round of no matter how many times policymakers plead monetary stimulus, Pimco Managing Direcwith markets to give them time to implement tor Neel Kashkari told CNBC Wednesday. reforms, no matter how often the government begs workers and businesses to have more conThe Fed is really in a box right now, said fidence, at this point it is going to be incredibly Kashkari, who was an architect of the Troudifficult for Spain to escape from this cycle. bled Asset Relief Program that bailed out The problem is arithmetic, not confidence. Basic balance of payments math tells us that in ormajor banks during the 2008 financial crisis. Inflation expectations and stocks are at levels

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that appear to be assuming imminent Fed action, he told CNBCs Squawk Box. Those indicators have already priced in that the Fed should act, Kashkari said. As a result, the fund manager suggested Fed Chairman Ben Bernankes hands appear to be tied ahead of a closely watched speech on the economic outlook later this month in Jackson Hole, Wyo. Market participants are looking for a fix, a repeat of the high Bernanke delivered at Jackson Hole in 2010 when QE2 was introduced. Markets however are in for a major disappointment because no outright asset purchases will be announced. There are multiple reasons for this, including the fact that real rates are now deep in the negative territory (as discussed here) and the policy as expressed in long-term real rates is far more accommodative than it was in 2010. But what makes 2012 entirely different is that the key concern that pushed the Fed into asset purchases in 2010 no longer exists. The summer of 2010 was marked by renewed fears of deflation driven by credit contraction. The Fed was afraid of Japan-style deflationary pressures that are extremely difficult to arrest as bank lending shuts down. In the months preceding the 2010 Jackson Hole speech, credit was contracting sharply with banks steadily shrinking balance sheets. As discussed before, just the opposite

is true in 2012 - credit is expanding at a decent pace. The chart below compares the trends now and in 2010. So what should we expect from Bernanke this time around? It will likely be more of the same things weve already heard recently: 1. US economic growth has lost some momentum. Growth in employment has been slow and the unemployment rate remains elevated. 2. Europe poses downside risks. A slowdown in emerging markets is also a concern. 3. The Fed will remain vigilant and expects to maintain a highly accommodative stance for monetary policy. 4. The Fed is to continue with Maturity Extension Program (Twist) and Reinvestment Policy (reinvesting in MBS to maintain constant balances). Thats basically it. If the markets are pricing in more from Jackson Hole - which the recent equity rally suggests may be the case - we are setting up for a sharp selloff in risk assets. CNBC: - If he doesnt deliver in Jackson Hole youll see these risk markets react and fall back, Kashkari said. Investors clamoring for more quantitative easing suggests theres downside risk from here if the Fed doesnt move,
O O O

SOBERLOOK / LINK

So we have a new term: BRIXIt.

Japans biggest bank Nomura has issued an 11page study evaluating the likelihood that the UK will leave the European Union entirely or partly. Events could accelerate as soon as this autumn if eurozone woes force the Government to commit to a firm date for a BRIXIT referendum. The effect a looser relationship with the EU would have on the UK economy in general and on the financial services sector in the UK in particular is not clear at this time, even though British eurosceptics argue that being freed from EU regulation would be a booster. However, the

SOURCE: SOBERLOOK

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prospect is, in our view, bound to raise concerns indeed, is doing so already in the City. The core point is that the eurozone may have to take drastic steps in integration (fiscal union, etc) to save the euro, making it nigh impossible for a fully sovereign state to remain part of the Project. In other words, it is not so much Britain leaving the EU as the EU leaving the treaty-based club of sovereign states it was supposed to be.

to repatriate powers which EU partners may be unwilling to concede within he context of the single market. Third, and finally, we do not rule out the possibility of a serious schism between the EU nd the UK developing over non-crisis-related issues, with the 2014-20 EU budget an obvious potential bone of contention.

In the event of either the second or the third of these scenarios occurring, Mr Cameron could find himself in a very difficult position The report is part of the banks Issues which indeed, ie, under even more intense pressure keep me awake at night series. from within the ranks of his own party to call an immediate referendum but knowing that, It does not take sides. if he were to agree, this could be a bridge too Here are a few extracts, written by Alastair Newfar for the pro-EU LibDems who would try to ton (an ex-British diplomat, former head to Tony force an early election rather than support Blairs G7 team, and intelthe legislation necessary to ligence co-ordinator in the ... assuming the eurozone does hold a referendum. Thus, if first Gulf War). Unfortunatethere is to be a referendum not collapse completely it is ly, we cannot post the whole in the UK on EU memberreport online because of only a matter of time, in our ship, it does indeed look likeNomuras compliance rules. view, before crisis-related steps ly to be after the next elecThe bank emphasises that are agreed which necessitate tion, rather than before; but this is his personal opinion. this could be at the price of treaty changes the election being brought A deepening of the euroforward. zone crisis in the immediate future remains O O O AMBROSE EVANS-PRITCHARD / LINK a real possibility despite the recent efforts of the ECB in particular to calm markets. This, in turn, could spur acceleration in integration never feel in order to try to prevent the collapse of the a hard pull on no strings attached loans from eurozone, thereby advancing projects which China. Thats because for the past few decades, are likely to prove difficult for the British govaid has been tethered to infrastructure projects, ernment. which experts say are only going to grow. One thing which is clear is that (assuming Since the first Forum on ChinaAfrica Cooperathe eurozone does not collapse completely) it tion (FOCAC) was held in 2000, China has offered is only a matter of time, in our view, before hundreds of billions of yuan to African councrisis-related steps are agreed which necessitries in the form of interest-free and preferential tate treaty changes. In those circumstances, loans. the British government will almost certainly demand treaty change for treaty change in On the fifth ministerial meeting of FOCAC on an effort to repatriate powers, ie be looking July 19 in Beijing, the Ministry of Commerce anto win repatriation of powers to London for nounced that China had written off 391 overdue every concession on treaty reform sought by loans owed by the most heavily indebted and the eurozone on a one-for-one basis. Howevleast-developed nations globally by the end of er, in so doing the UK would likely be looking 2011. Of these, 14 debts of nine African coun-

African countries may

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tries were included. At the 2006 FOCAC, China announced that it would provide a total of US$ 5 billion to African nations in the subsequent three years. By 2009, the pledge was doubled to US$ 10 billion. China followed through on the guarantees and has now promised US$ 20 billion in soft loans between 2012 and 2015. Yet at home, critics say spending abroad has neglected financing for far more pressing domestic needs. In response to such observations, assistant Minister of Commerce Zhang Lijin said at this years forum that Chinas aid to Africa is simply doing the best it can, and that in proportion to GDP, aid amounts are marginal.

China provided a total of 256.3 billion yuan in aid globally. The white paper described three principal forms of aid: non-reimbursable donations, interestfree loans and soft loans. The former two are provided by the Ministry of Finance, while the latter is issued by the policy bank, Export-Import Bank of China. According to official data, by the end of 2009, approximately 40 percent of Chinas foreign aid was in the form of non-reimbursable donations, the majority of which were used for small- and medium-scale social construction projects such as hospitals, schools, wells and affordable housing.
O O O

CAIXIN / LINK

Chinas aid programs to Africa began in the Adam Posen 1950s through construchas said the Bank of England tion projects in the explicit ... In April 2011, China reshould drop its anguished promotion of an ideological religious ethics over how program. Support from Afri- leased its first white paper on to stimulate the economy, can countries in the United foreign aid. The paper stated while former MPC member Nations General Assembly that in 2009, China provided led to a crucial turning point a total of 256.3 billion yuan in Danny Blanchflower said it has no clue about where in Chinas standing on the aid globally the economy is going. global stage two decades later a permanent seat on Mr Posen, who for over a the UN Security Council. year was alone in calling for more quantitative easing, said the BoE should not limit its asset It is our African brothers that carried us into the purchases to government bonds. United Nations, Mao Zedong once remarked.

Outgoing rate setter

With the exception of recognizing the one China policy, the outcomes that Chinese foreign aid disbursements seek to realize remain unofficially acknowledged, given almost zero conditionalities for aid provision. Unlike other countries that distribute foreign aid through foreign affairs ministries or relief agencies, the Ministry of Commerce is chiefly responsible for foreign aid funds. But little is known about the total amount of foreign aid that China has spent in Africa. In April 2011, China released its first white paper on foreign aid. The paper stated that in 2009,

I personally view the teeth-gnashing and garment-rending about whats fiscal and monetary as too much drama for too little content, the Financial Times quoted him as saying in an interview. Many central bankers believe only elected government can buy private sector assets. Mr Posen said that provided the BoE did not buy debt direct from the government, he didnt think it mattered that much what assets the central bank acts on. The Bank of England launched a third round of quantitative easing asset purchases in July tak-

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ing it to 375bn in an attempt to stimulate the economy. It is buying the debt on the secondary market, that is debt that has already been issued. I have no question in my mind that what were doing with QE is preventing things from getting much worse, but that doesnt mean you couldnt have an additional or better instrument, he said. Mr Posen also said austerity measures to tackle Britains biggest peacetime debt has had a greater brake on recovery than the BoE and the government expected.

with low private savings rates see Too Little to Lock In), Wall Street is quite happy to look at the ratio of prices to near-term earnings estimates and conclude that valuations are satisfactory. But stocks are not a claim on one year of earnings. They are a claim on a very long stream of cash flows that will actually be delivered into the hands of investors. Unfortunately, the conclusion that stocks are appropriately valued rests on the implicit assumption that profit margins will remain elevated into the indefinite future.

We presently estimate a projected 10-year total (nominal) return for the S&P 500 of less than 4.6% annually. Nothing in recent years, much He felt the outlook for the economy could have less the past decade, indicates any material been improved if the BoE has acted faster and change in the relationship between actual marmore decisively to signs of a slowdown. ket returns and expected market returns as we Mr Blanchflower echoed his view in the Indeestimate them using a range of fundamentals pendent, writing: It is blindingly apparent that including normalized earnthe MPC should have done ings. Indeed, the 5.1% total much more monetary stim- ... It is blindingly apparent return of the S&P 500 over ulus a while ago, including that the MPC should have done the most recent 10-year peunconventional asset pur- much more monetary stimulus riod has been right on target chases, as suggested by my a while ago, including uncon- (see also my July 7, 2002 old friend Adam Posen. comment). Its notable that ventional asset purchases even without compelling He said the MPCs new valuations a decade ago, we growth forecast with a central projection of lifted 70% of our hedges several months later in growth of 2pc by 2013 and beyond with only a early 2003, at what turned out to be the start of slim prospect of zero or negative growth look the next bull market something to remember broadly similar to the one from May 2011 and for those who misunderstand our two-data sets looks equally unlikely to be correct. issue of 2009-early 2010 and assume that well Mr Blanchflower writes: The MPC didnt know never lift our hedges until the market is deeply where the economy had been, didnt know undervalued. where it was when they made the forecast, and I anticipate that a decade from now, the S&P had no clue where it was going and still doesnt. 500 will have achieved a total return that is very O O O UK DAILY TELEGRAPH / LINK weak from a long-term perspective. Remember also that you dont lock in a 10-year return. focus on European You ride it out. I continue to expect that invescrisis and the hope of central bank interventors will have numerous opportunities to accept tion, one of the essential features of the investrisk in the coming years in expectation of much ment climate at least for long-term investors better prospective returns than are presently is easy to lose in the shuffle. That feature is likely. valuation. Its an easy concern to overlook, beOf course, with the yield on the 10-year Treasury cause with corporate profit margins close to bond at just 1.6%, one might argue that a pro70% above historical norms (largely because of spective 10-year return of nearly 4.6% on stocks unsustainably large government deficits coupled

With the daily

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that your ending wealth is nearly completely determined within that horizon. In contrast, stocks are very long-term assets, with an effective duration roughly equal to the price/dividend ratio*, which means that changes in valuation dramatically affect the terminal value of your investment even for horizons out to 30-40 years, and sometimes longer when valuations are rich and yields are low.
O O O

JOHN HUSSMAN / LINK

In March, the last figures that are avail-

is still very good by comparison, and should be enough to prevent any substantial adjustment to lower prices and higher prospective returns. to inform that argument, Ive added the 10year Treasury bond yield to our standard chart [above]. Note that the correlation between 10year S&P 500 returns and 10-year Treasury bond yields (which reflect both expected and actual 10-year returns, provided no default occurs) is just 0.1. There is virtually no relationship at all, with the exception of the early-1980s, when the prospective and actual returns were quite high for both as a result of inflation shocks. While the simultaneous rally in both stocks and bonds from the early 1980s through the late1990s gave the illusion that the 10-year bond yields and forward operating earnings yields had a precise point-for-point relationship, spawning an unfortunate little cottage industry of adherents to the Fed Model, this model is based entirely on the relationship between stock yields and bond yields during a specific 16-year period of sustained disinflation, and there is no evidence or even sound theory supporting that spurious one-to-one correlation more generally. Why arent the 10-year returns of stocks and bonds (prospective or actual) more closely related? The reason is simple, really. 10-year bonds have an effective duration of only about 7-8 years, depending on the coupon, which means

SOURCE: HUSSMAN FUNDS

able, the Spanish banks lost $66 billion of capital as the citizens of Spain moved their money to safer havens. What the LTRO gave the populace took away and the situation is unsustainable. Spain will soon be forced into a full-fledged bailout in my opinion which will require money for the regions and for the banks. My best surmise is about $350-400 billion that will be required and while it may come in tranches; that will be the total. This will then shift the focus to Italy in the short run and then onto France and Germany and just how much can be afforded in this rush into financial imprudence dictated by trying to maintain a Union that can no longer stand under its own weight or national interests. The debts in Europe are no longer trivial and someone has to pay in the end. Free money, even printed money, is never really free and always has consequences which would be the downgrades of Germany and France in the short term and all of the increased costs of funding that would come with it.

I think what amazes me the most is that so many people have the honest opinion that Sir Draghi is going to come charging out from the round table, from the gilded gates of the ECB and save Europe. That White Knight is subject to the whims of germany and the rest and all of the talk of independence and the separation of Church and State is just that; talk. I fear these people are hitching their wagon to some shooting star that wont shoot. Blitzen, Donner and the other reindeer are still out in the pasture fattening up for their Christmas ride and are not available to bring presents this early in the year.
O O O

ZEROHEDGE / LINK

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Healthcare costs in
France (red line) and the USA (blue line). Sheesh.

CLICK TO ENLARGE

SOURCE: FRED/JESSE/BUSINESS INSIDER

The so-called ethanol crush spread is calculated as follows:

Crush Spread = (Ethanol price per gallon x 2.8) - Corn price per bushel This decline in spread means that ethanol prices are sufficiently sticky and will not rise in proportion to corn prices. And the 3% expected reduction in ethanol prices will simply reduce ethanol exports. EIA does not expect the current situation in corn markets to have a significant effect on the pump price of gasoline. Given the year-to-date ethanol supply and the availability of banked renewable identification number (RIN) credits, the current relationship between the prices of ethanol and petroleum-based gasoline components, and the relatively modest share of ethanol in the overall gasoline pool [10%], we expect gasoline prices will continue to be driven by crude oil prices and refining margins. The impact of the forecasted decline in domestic ethanol production should be primarily reflected in reduced ethanol exports. So when politicians begin taking credit for reducing gasoline prices by pressuring the EPA to relax the ethanol rules, its nothing more than political gamesmanship. Changing the mixing rules will do little to impact the cost of gasoline because its not ethanol but crude oil prices that determine how much we pay at the pump.
O O O SOURCE: EIA/SOBER LOOK

SOBERLOOK / LINK

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SOURCE: STRATFOR (VIA BARRY RITHOLTZ)

Chinas thirst for raw materials (and diversification from dollars into hard assets) is outlined beautifully in this great graphic from Stratfor which details investment offers made by Chinese firms since 2010. Dont expect this to slow down any time soon. (thanks Barry)

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HARD TALK

Hes back. Twice.

Two doses of Nigel Farage for you this week as he take on an extremely confrontational interviewer on the BBCs HardTalk programme an, in an interview with Eric King, lays out, amongst other things, the extent of his feelings towards Franois Hollande. As always, Nigel pulls no punches and leaves us in no doubt to where he stands on just about every issue. Click either side of Nigel to listen to the interview of your choice...

a s

KWN
CLICK EITHER TO LISTEN

an accountant... oh BOY, is Hal Mason an accountant. Here in this short video, Hal demonstrates why the US budget cannot be balanced. I dont think this will come as a shock to anybody who has been paying attention, but when it is laid out in such stark simplicity it becomes even more sobering. One day, this problem, that currently seems to matter to nobody, will matter to everybody. (courtesy of Tim Iacono)

Hal Mason is

CLICK TO WATCH

that we are coming up on a tremendous buying opportunity in the gold market as he sees much higher prices longer term. He also believes the general market is very difficult to short, as the risk-on, risk-off trades, and increased volatility make shorting very difficult. Here, he talks to Jim Puplava about these and other thoughts. An excellent interview.

Bert Dohmen believes

CLICK TO LISTEN

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and finally

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THINGS THAT MAKE YOU GO HMMM..... 2012

COMMENTS

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Grant Williams
Grant Williams is a portfolio and strategy advisor to Vulpes Investment Management in Singapore - a hedge fund running over $250million of largely partners capital across multiple strategies. The high level of capital committed by the Vulpes partners ensures the strongest possible alignment between us and our investors. In Q4 2012 we will be launching the Vulpes Agricultural Land Investment Company (VALIC), a globally-diversified agricultural land vehicle which will provide truly diversified exposure to the agricultural sector through a global portfolio of physical farmland assets. Grant has 26 years of experience in finance on the Asian, Australian, European and US markets and has held senior positions at several international investment houses. Grant has been writing Things That Make You Go Hmmm..... since 2009. For more information on Vulpes please visit www.vulpesinvest.com

*******
Follow me on Twitter: @TTMYGH YouTube Video Channel: http://www.youtube.com/user/GWTTMYGH California Investment Conference 2012 Presentation: Simplicity: Part I : Part II

As a result of my role at Vulpes Investment Management, it falls upon me to disclose that, from time-to-time, the views I express and/or the commentary I write in the pages of Things That Make You Go Hmmm..... may reflect the positioning of one or all of the Vulpes funds - though I will not be making any specific recommendations in this publication.

Grant

www.vulpesinvest.com

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