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THINGS THAT MAKE YOU GO
A walk around the fringes of finance

By Grant Williams

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18 MARCH 2013

It's All Relative
"If you want your children to be intelligent, read them fairy tales. If you want them to be more intelligent, read them more fairy tales." — Albert Einstein "Two things are infinite: the universe and human stupidity; and I'm not sure about the universe." — Albert Einstein "What is right is not always popular and what is popular is not always right." — Albert Einstein "Reality is merely an illusion, albeit a very persistent one." — Albert Einstein "If you can't explain it to a six-year-old, you don't understand it yourself." — Albert Einstein
© Copyright Mauldin Economics. Unauthorized disclosure prohibited. Use of content subject to terms of use stated on last page.

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Contents
THINGS THAT MAKE YOU GO HMMM... ....................................................3
Qatar Cuts Egypt Loose As Financial Picture Darkens ............................................20 Could Gold Be the Next Libor Scandal? ............................................................21 Money and Power: Don’t Flaunt It ..................................................................22 Democracy and Deficits: Hungary and Cyprus Hijack EU Summit ..............................23 Spain's Budget Deficit Grew by 35.4% in January to 1.2% of GDP ..............................25 New Railway Company Assumes Ministry's Debts and Assets ....................................26 Massive Ships 12 Miles Offshore Provide Floating City for Entrepreneurial Start-Ups ......27 Same Time This Year? .................................................................................28 Company Insiders Are Dumping Shares! Or Are They? ............................................29

CHARTS THAT MAKE YOU GO HMMM... ..................................................31 WORDS THAT MAKE YOU GO HMMM... ..................................................34 AND FINALLY ................................................................................35

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For LD. On March 14, 1879, in Ulm, a tiny town on the banks of the river Danube in the German state of BadenWürttemberg, a boy was born to a Jewish electrical engineer and his wife. Hermann and Pauline Einstein had no idea that their first-born son would one day change the way humans look at the world around them. Albert was an average student who, in 1895, sat the entrance exam for the Swiss Federal Polytechnic Institute in Zurich. Sadly, he failed to attain the required standard in several subjects; but the young man did display surprising aptitude in both physics and mathematics, which led the Polytechnic's principal to twist a few arms to get young Albert a place at the Aargau Cantonal School in Aargau, Switzerland, where he would finish his secondary schooling. Upon leaving Aargau at age 17, Einstein enrolled in the four-year mathematics and physics teaching diploma program at the Eidgenössische Technische Hochschule (ETH) in Zurich where, in a triumph for nerds everywhere, he managed to meet, court, fall in love with, and marry his wife, Mileva Marić — romancing her as they read extracurricular physics books together. What a guy! Einstein's work is legendary, but it is his development of the General Theory of Relativity (which forms, alongside quantum mechanics, one of the two pillars of modern physics), for which he is most famous. Published in 1916, Relativity: The Special and the General Theory is (according to Wikipedia) one of the 100 most influential books ever published, sitting proudly alongside the works of such literary giants as Homer (not Simpson), Plato, Plutarch, Dante, Darwin, and Confucius. The equation Einstein proposed in his earlier (1905) 'Annus Mirabilis' papers to answer the question 'Does the inertia of an object depend upon its energy content?' has become perhaps the most famous equation ever written (though try finding somebody who can explain it): E=mc2

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What does it mean? Well here is the simplified explanation from Wikipedia: The formula is dimensionally consistent and does not depend on any specific system of measurement units. The equation E = mc2 indicates that energy always exhibits relativistic mass in whatever form the energy takes. Mass-energy equivalence does not imply that mass may be "converted" to energy, but it allows for matter to be converted to energy. Mass remains conserved (i.e., the quantity of mass remains constant), since it is a property of matter and also any type of energy. Energy is also conserved. In physics, mass must be differentiated from matter. Matter, when seen as certain types of particles, can be created and destroyed (as in particle annihilation or creation), but a closed system of precursors and products of such reactions, as a whole, retains both the original mass and energy throughout the reaction. When the system is not closed, and energy is removed from a system (for example in nuclear fission or nuclear fusion), some mass is always removed along with the energy, according to their equivalence where one always accompanies the other. This energy thus is associated with the missing mass, and this mass will be added to any other system which absorbs the removed energy. In this situation E = mc2 can be used to calculate how much mass goes along with the removed energy. It also tells how much mass will be added to any system which later absorbs this energy. This was the original use of the equation when derived by Einstein. Got that? Good, then let's move on. The relativity relationship I want to discuss today is far, far simpler to understand than that proposed by Einstein (and far, far less likely to win me any prizes of a scientific nature, but I can live with that). Ladies and gentlemen, I am proud to unveil to you, for the first time: 'Williams's Theory of Disconnectivity' After long and painstaking research, I have distilled my theory down to the following equation: OS+ps2≠R where OS is 'official statistics', ps2 is 'political spin' (squared) and R is 'reality'. I must be missing something because, try as I might, I am having a hard time understanding the bull case right now. It seems to be predicated largely on the thesis that we should buy things 'because they are going up'. (Japan is the poster child for this curious strategy, as those terrible results from Sony demonstrated a few weeks ago. Despite them, Sony stock is back to where it was before the company laid out, in no uncertain terms, just how poorly it was doing. In every single division.)

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Yes, I understand that, in nominal terms, money printing is good for stocks 'just because'; but sooner or later, reality is going to reassert itself (painfully, I might add). The projected growth in profits that is being forecast for 2013 doesn't tally with the projected growth (or lack of it) in GDP over the same period, and so something has got to give — a fact pointed out beautifully by Rick Santelli and his guest this past week in this video. Although the examples I could use to illustrate this discrepancy are approximately infinite right now, I will confine my selections to a few areas where the evidence is just too overwhelming to really leave anybody in any doubt. And yet ... they doubt. My first port of call is, of course, the US unemployment statistics: driver-in-chief of the US 'recovery' and barometer for the 'exit' that the Fed is going to engineer so beautifully. (It's sentences like that last one that make me realize that sometimes there is no sufficient way to convey via the written word the true level of sarcasm intended.) Last Friday, the BLS establishment survey announced the creation of 236,000 jobs, while the household survey saw 170,000 new jobs created; and those numbers were cheered to the echo. The unemployment rate also ticked down to 7.7%, so more good news there. (BLS): Total nonfarm payroll employment increased by 236,000 in February, and the unemployment rate edged down to 7.7 percent, the U.S. Bureau of Labor Statistics reported today. Employment increased in professional and business services, construction, and health care. But, as is always the case with government statistics, the devil is in the details; and when we look at those job gains, we find a rather curious thing: part-time jobs rose an amazing 446,000, which means that the economy actually shed 276,000 full-time jobs. Now, correct me if I'm wrong, but swapping full-time jobs for part-time jobs is not traditionally the way to a strong recovery. Ah well, no matter; the headlines were grrrreat! This week, however, Unicredit laid out nicely how this particular sausage is made; and — surprise, surprise ­ — one of the key ingredients turned out to be our old friend the Labor Participation Rate. Sure, the unemployment rate is falling: people are exhausting their benefits and dropping out the rear end of it. They are no longer officially unemployed; they have just ... gone missing. The numbers are so conclusive as to leave little doubt about the real source of the 'strength' of the recovery in jobs ... but nobody seems to care: (Reuters): The U.S. workforce has been shrinking rapidly in recent years, but a new report from UniCredit highlights just how massive the effect of this trend really is. Economist Harm Bandholz says it amounts to a gaping 3.6 percentage points of U.S. unemployment.

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That means the U.S. jobless rate, which dropped to 7.7 percent in February, would actually be around 11.3 percent without the decline in labor force participation. This would put American unemployment a lot closer to the euro zone’s recently reported record high rate of 11.9 percent. The labor force participation fell further in February to 63.5, matching an August reading that was the lowest since 1981.

Source: Reuters/BLS

Of that 3.6 percentage point decline attributable to a shrinking workforce, a little over half is due to long-term demographic factors, Bandholz’s models surmise. But the remainder represents direct damage to the U.S. job market from the Great Recession. While labor force participation has historically moved lower during economic slumps, Bandholz says the recent drop has been particularly abrupt.

Source: Reuters/FRED 18 MARCH 2013 6

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“What is unprecedented since World War II, however, is the extent of the current cyclical decline,” he writes. That makes the task of pushing for a fuller recovery in employment all the more pressing for the economy’s long-term health. The fact that there are multiple unemployment rates, including one that is labeled as the 'official' rate (U3), should be enough to raise a red flag as to how easy manipulation of those figures can be — particularly as the most comprehensive unemployment rate (U6) is almost double the official unemployment rate. It includes • part-time workers who want to work full-time but cannot due to economic reasons • 'discouraged workers', or those who have stopped looking for work because current economic conditions make them believe that no work is available for them and, • other 'marginally attached workers', or 'loosely attached workers', and those who 'would like to' and are able to work but have not looked for work recently. And, as can be clearly seen from the tables below, this has been the case for a long, long time.

Source: Portalseven

And yet ... for some reason, the disconnect between the U3 and U6 numbers, as well as fact that the falling unemployment rate is due in large part to the huge number of people dropping out of the workforce altogether, is lost on people. The reality of the situation seems to be difficult for them to grasp, and so I submit: OS+ps2≠R (Ruffer Investment Company): If this was explained to a recently arrived Martian he would no doubt be puzzled — US unemployment has almost doubled since 2007, GDP (gross domestic product) growth is a third lower and debt as a percentage of GDP is within a whisker of doubling. The market is forward looking but this is extreme.

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Indeed. The second disconnection from reality occurs daily in the barrel of monkeys they call 'Europe'. In a recent presentation, I included a slide that displayed a history of quotes from European figureheads going back to March 2009, when, according to then-Irish finance minister Brian Lenihan, Ireland had 'turned the corner'. 'Our plan is working. We have turned the corner', said Lenihan. Right-o, Brian. The slide featured a total of some twenty quotes from the likes of van Rompuy, Draghi, Monti, Schaubele, Lagarde, Hollande, Rehn, Rajoy, and Barosso, all of which asserted either that a corner had been turned or that the crisis was over and done with. It wasn't over and it isn't, but people's willingness to disconnect from reality is stupefying. The simple truth is that Europe is being held together by one thing and one thing only: Mario Draghi's promise to do 'whatever it takes' to save the euro. The disconnect between 'whatever it takes' and 'whatever we are capable of doing' is another one that seems to be lost on the investing public. These people can only do so much; trust me. We have had several reminders of the seriousness of the situation recently, and they have all been greeted with an overwhelming sense that 'it will all work out somehow'. Take this week's release of the latest Greek unemployment data: (RTE): Unemployment in debt-crippled Greece rose to a record of 26% in the last quarter of 2012, as austerity measures combined with a deep recession took a harsh toll on the workforce. The figures were worse than the previous quarter's 24.8%, and 20.7% a year earlier. The national statistical authority said today that 1.29 million people were out of a job in the three months from October to December 2012. In the under 25 age group, unemployment was 57.8%. The rate for women was 29.7%, compared with 23.3% for men. Sound like an improvement to you? Of course, that is the OS part of my equation. We then have to add in the ps2 part: Representatives of the International Monetary Fund, the European Commission and the European Central Bank were commenting after a visit to Athens. They said they would return to Greece in early April to continue their review. "Significant progress has been made but a few issues remain outstanding," the statement said.

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A 'few issues remain outstanding'? Well, that sounds innocuous enough. I guess they're referring to the nearly 4 in 10 under-25s that are without work, or perhaps the next 150,000 publicsector workers that need to be fired in order for Greece to receive the next tranche of aid — which is the only thing keeping the country afloat right now: (Bloomberg): Identifying redundant positions and putting in place a system that will lead to mandatory exits for about 150,000 civil servants by 2015 is a so-called milestone that will determine whether the country gets a 2.8 billion-euro ($3.6 billion) aid installment due this month. But don't worry. Mario Draghi will do 'whatever it takes', so close your eyes and buy stuff: it's going up. Or how about Spain? How are things progressing there? What with it being Europe's 4th-largest economy, things MUST be getting better; because if they weren't, Spanish bond yields would be soaring, right? (Fox News): Spain's central bank says the country's debt burden rose to a record 84.1 percent of its annual gross domestic product at the end of 2012. It says Friday that the country's debt mountain at the year-end was €884.4 billion ($1.14 trillion), up 20.1 percent on the previous year's total. Catalonia remained the most indebted of the country's 17 regions with debts of €51 billion, followed by Valencia with €29 billion. The Spanish government has said it expects its debt burden to rise to 90.5 percent in 2013. And yet ...

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Spain 10-Year Government Bond (Yield %)
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4 2012 2013

Source: Bloomberg

Folks, say it out loud: 'Spain's debt burden is over a trillion dollars.' SPAIN!!!! Does that sound like any kind of reality? Not to me it doesn't. But let's not continue to whip Greece and Spain — we all know the deal in both places (even if we don't want to admit it). Italy? Well, they have problems all their own in the shape of a firebrand comedian-turnedpolitician. (I was going to insert a snarky comment here, but upon reflection I think it would be redundant.) Beppe Grillo's 'Five Star Movement' came from nowhere to win the single-largest block of votes in the recent election, which saw EU stooge technocrat Mario Monti garner a paltry 10% in a firm rejection of austerity:

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(Economist): Confronted by the worst recession in their country since the 1930s and the possible implosion of Europe’s single currency, the people of Italy have decided to avoid reality. In this week’s election a quarter of the electorate—a post-war record—did not even bother to show up. Of those who did, almost 30% endorsed Silvio Berlusconi, whose ruinous policies as a clownish prime minister are a main cause of Italy’s economic woes. And a further 25% voted for the Five Star Movement, which is led by a genuine comedian, Beppe Grillo. By contrast, Mario Monti, the reform-minded technocrat who has led Italy for the past 15 months and restored much of its battered credibility, got a measly 10%. This result is a disaster for Italy and for Europe. In Rome the centre-left coalition headed by Pier Luigi Bersani, the pre-election favourite who ended up getting only a whisker more of the vote than Mr Berlusconi, is now struggling to form a government: it is unlikely to be stable or durable. The story being spun about this upheaval is that it doesn't matter and won't cause any major problems on the road to the sunlit uplands; but once again, things in the real world are not exactly meshing with the left-hand side of our little equation: (Ambrose Evans-Pritchard): Confindustria, the business federation, said 29pc of Italian firms cannot meet "operational expenses" and are starved of liquidity. A "third phase of the credit crunch" is underway that matches the shocks in 2008-2009 and again in 2011. In a research report the group said the economy was caught in a "vicious circle" where banks are too frightened to lend, driving more companies over the edge. A thousand are going bankrupt every day. Franco Bernabè, the head of Telecom Italia, echoed the warnings, lamenting that firms are literally "dying from lack of liquidity". He called on the Bank of Italy to take bolder action to head off disaster. "The Italian economy is being suffocated. The country must intervene rapidly to reinject funds into the economy", he said. Fulvio Conti, head of the energy group Enel, exhorted Rome to give the economy an immediate shot in the arm by paying €48bn in state arrears to companies, arguing that this can be done without breaching EU deficit rules. This would amount to fiscal stimulus of 1.5pc of GDP. Late payments have become a chronic problem across the board in Italy, with 47,000 official complaints last year. The research group CGIA di Mestre said half of small companies cannot pay their staff on time. OS+ps2≠R But let's lay Italy's financial problems aside, too — we'll leave them to sort out which of the many clowns on offer will lead them — and move on to France.

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Now, I could ramble on at great length about the problems facing France, and how it will probably be the straw that breaks the European camel's back (in fact, I have done); but instead, I will simply highlight a series of stories that have surfaced thus far in 2013 to show the trajectory of Germany's partner at the very core of the European Union: (Mish, France, the Hidden Zombie in Europe): Via Google Translate from Spanish, GurusBlog asks and answers the question Is France the zombie hidden in Europe? Although still quite outside the focus of the media and investors as its risk premium relative to German bonds remains relatively low, for me, leaving aside the PIIGS, which are marked by blood and fire, France is the real zombie in Europe, an economy that has been losing competitiveness rather quickly. Here are some data ... In 1999 France sold 7% of world exports. Today it only sells 3%, and the figure continues to deteriorate. In 2005 the trade balance was positive in France at +0.5% of GDP; today it is a negative 2.7% of GDP; i.e., imports far exceed exports. The French economy is becoming less competitive; for example, cars and machinery equipment sales to China are seven times lower than the annual sales volume of these products from Germany. High labor costs, which combine high wages, little flexibility to fire, and high taxes: French workers [do the fewest] hours of work in the developed world, and 86% of the contracts are fixed. 42 of every 100 euros of wage costs of a company are social charges or taxes. In Germany it's 34 out of 100 €, in the UK 26 out of 100. Since 2005, unit labor costs in France have not only increased, the cost to produce a car ... has increased 17%, while in Germany [the cost has increased] 10%, in Spain 5.8%, and 2% in Ireland. In France a worker earns on average €35.3 per hour, while in Italy the average is €25.8 and €22 in the UK and Spain. The most immediate results: The [profits] of French companies have fallen to 6.5% of GDP, a level that puts them at 60% of the European average. The reason is simple: French exports lost market share, and the only way for companies to survive is to lower margins. But lower margins mean less money to invest in new plants or technology. So the R&D of French companies has fallen 50% in the last four years.... That is a very well presented set of statistics by Guru Huky, founder of GurusBlog. Indeed, French President Francois Hollande has made matters so much worse for France, as I have commented many times.

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The remaining question at this point is how much longer France will remain a "hidden" zombie. It will be interesting to see the results (and the panic) once the bond market turns on France. February brought no improvement in the data: (Feb 6th, 2013: Markit): French service providers signalled a further reduction in business activity during January. Moreover, the rate of contraction accelerated to the fastest since March 2009. Incoming new business fell at a slower pace, but there were accelerated declines in both backlogs and employment. Input prices rose further, but output charges decreased at a sharper rate. The seasonally adjusted final Markit France Services Business Activity Index slipped to 43.6 in January from 45.2 in December. The latest reading was indicative of a marked rate of contraction that was the sharpest for almost four years. A couple of weeks later, it was time for the Markit Flash PMI; and once again, things looked remarkably less than OK: (Feb 21: Markit): Latest Flash PMI data indicated that the downturn in French private sector output deepened in February. January’s Markit Flash France Composite Output Index, based on around 85% of normal monthly survey replies, slipped from 42.7 in January to 42.3, its lowest reading since March 2009. The steeper fall in overall output was driven by an accelerated decline in the service sector where activity contracted at the fastest pace in four years. Manufacturers signalled a slightly slower decrease in production compared with one month previously, albeit still sharper than signalled in the service sector. New business placed with private sector companies in France fell again in February, extending the current sequence of contraction to one year. The rate of decline quickened slightly since January and was only marginally slower than December’s 45-month record. Service providers indicated that new business fell at the sharpest rate for just under four years. Survey respondent s commented that difficult business conditions and intensifying competitive pressures had conspired to depress inflows of new work. How about French unemployment? Well ... how can I put this delicately?
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(February 26th, 2013: France24): Unemployment numbers in France rose by 43,000 in January to 3.16 million, an increase of 10.7 percent from last year, the labour ministry revealed on Tuesday. The figure is at its highest since January 1997, when it reached 3.19 million. The number of registered French unemployed rose by 43,000 in January to 3.16 million, the labour ministry said Tuesday, to just shy of a 16-year record. The ministry said the number of registered unemployed rose by 10.7 percent from last year. Unemployment in the eurozone's second largest economy hit its modern day record of 3.19 million reached in January 1997. Rising unemployment is a setback for Socialist President Francois Hollande, who has pledged to curb the unemployment rate from the current level of more than 10 percent to a single-digit figure by December. Housing starts? (March 6, 2013: Mish): Housing starts in France will fall to 280,000-300,000 in 2013, the lowest level in 50 years, warns developer Nexity. The government wants 500,000 units per year. French president Francois Hollande thinks he knows the proper amount of houses that need to be built. Therefore, Hollande confirmed measures to support building quickly. Here is a Mish-modified translation from Les Echos... Emergency. This is the word that comes to everyone's lips about building. Housing is at its lowest level since fifty years. François Hollande confirmed in an interview yesterday that "support for building" will be amplified quickly for the "public good". The Ministry of Housing was happy about yesterday's statements from the Head of State: "This means we are moving towards an ambitious plan". We recall the campaign promise to build 500,000 homes per year, of which 150,000 will be in social housing to offset the increase in the VAT rate. The net result of all this atrocious news? Why, a suspension of efforts to reduce France's budget deficit and the suspension of 'l'austérité' (which, with French government spending being 56% of GDP, was about as real as the UK's 'Fauxsterity' program anyway): (March 10, 2013): El Economista): The French Minister of Budget, Jérôme Cahuzac, acknowledged that new taxes or spending cuts have a recessionary effect in the short term and "Given the weakness of the current situation, further efforts are ruled ask the French in 2013," said Cahuzac in an interview published by Le Journal du Dimanche.

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The 3% target was initially set for 2013, but the French government officially decided to postpone further action on account of the poor economic outlook. Hollande stressed his project to achieve "zero deficit" by the end of his term in 2017, is still in place and that France's actions are "not to please the European Commission or the rating agencies, but to regain our sovereignty, alienated by markets in recent years." ... and of course: March 13, 2013: Der Spiegel): Never before has a French president fallen in public sentiment as quickly as François Hollande. Only 10 months after entering into office, his popularity rating is plummeting ... Since taking office 10 months ago, Hollande has experienced the fastest drop in popularity ever seen in French presidential politics. In June of last year, those who said they had confidence in him numbered between 51 and 63 percent, depending on the polling institute. That number is now 30 to 37 percent, nearing the lowest approval rating of any French president on record: Nicolas Sarkozy in May 2011, at 20 percent. And yet the gap between perception and reality yawns ever more widely: (CNBC): The political risks to the euro zone and its currency have receded and if the area stays on the "right track," the region's crisis could be largely over by the end of the year, Holger Schmieding, chief economist at Berenberg Bank, told CNBC. "We are now only at a very small risk of the break up of the currency. A year ago going into the Greek elections, the risk was more severe. Now, [the euro zone crisis] looks fairly contained unless Italy throws a very funny surprise," Schmieding told CNBC. Now, as much as I malign the elected heads of Europe, the US, the UK, and Japan (to name but a few), as well as the assortment of Keynesian fools they have installed as the heads of the various central banks around the world, I do understand why they act the way they do: Political expediency. They all have to get reelected somehow; and, as Mr. "When-it-gets-serious-you-have-to-lie" himself, Jean-Claude Juncker, has so succinctly pointed out, We all know what to do, we just don’t know how to get re-elected after we’ve done it. Promising a recovery is perfectly understandable from a political standpoint. Donning rosetinted spectacles every time you read out a new economic statistical release is the sensible thing to do — after all, it's really down to the public to be aware and engaged enough to spot the spin and ignore it; but this week Mervyn King, the lame-duck Bank of England governor, took things to a whole new level of disconnectivity when he waxed lyrical about the strength of a recovery that hasn't even arrived yet:

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(UK Daily Telegraph): The economy will pick up later this year and the recovery is now “in sight”, the Governor of the Bank of England has declared. In some of his most upbeat comments since the crisis, Sir Mervyn King claimed “there is momentum behind the recovery that’s coming” and that “good progress” has been made towards a new, sustainable economy in the last few years. “I think that during the course of 2013 we will see the recovery come into sight,” he said. “If you take away what happened in the North Sea oil production and in construction, the UK economy last year grew by 1.5pc.” Overall, the economy grew by 0.2pc in 2012, according to the latest official data, and is expected to grow 1.2pc this year. Yes, folks, he really DID say: There is momentum behind the recovery that’s coming. So there we are. When things get better, they're going to get very better. Oh BOY are they going to get better, so just ignore how bad they are right now and concentrate on the level of muchbetterness that is just around the corner. Honest. Pah! As I was finishing this piece, the news finally hit the tape that Cyprus would receive a bailout — only this time there is a twist in the tale. Actually, more of a 'sting' than a twist. In a nutshell, here's what has happened: Cyprus is in trouble. The same kind of trouble we've seen elsewhere in the EU: it's banking system is under water with far too much leverage and far too many bad debts, and the government finances are shot to pieces, so the country needs a bailout. So far, so familiar. BUT ... and it's a Kim Kardashian (a big 'but') ... much of the money on deposit belongs to Russian mobsters politicians oligarchs, and so the likes of Germany don't feel quite so warm and fuzzy about throwing EU funds at the problem this time, as it sends a bad message. Plus, they figure, Russia will ultimately foot the bill if push comes to shove, since it is, after all, their money. Now, playing brinkmanship with a bunch of wealthy Russians is what's known as a classic blunder. Other examples of this were laid out quite clearly by Vizzini in The Princess Bride:

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You fool! You fell victim to one of the classic blunders — the most famous of which is "Never get involved in a land war in Asia" — but only slightly less well-known is this: "Never go against a Sicilian when death is on the line"! Ha ha ha ha ha ha ha! Ha ha ha ha ha ha ha! Ha ha ha... (At which point, for those of you who haven't seen Rob Reiner's masterpiece, Vizzini stops suddenly, his smile frozen on his face, and drops dead.) Of course, the Russians didn't blink; and so, in order to pacify certain elements within the German political class (ahead of a very important — and increasingly less-certain — German election in September), the eurocrats, in their infinite wisdom, waited until the markets closed on Friday before imposing a haircut of up to 10% on ALL depositors: (Bloomberg): Euro-area finance ministers agreed to an unprecedented tax on Cypriot bank deposits as officials unveiled a 10 billion-euro ($13 billion) rescue plan for the country, the fifth since Europe’s debt crisis broke out in 2009. Cyprus will impose a levy of 6.75 percent on deposits of less than 100,000 euros — the ceiling for European Union account insurance ­ — and 9.9 percent above that. The measures will raise 5.8 billion euros, in addition to the emergency loans, Dutch Finance Minister Jeroen Dijsselbloem, who leads the group of euro-area ministers, told reporters early today after 10 hours of talks in Brussels. The International Monetary Fund may contribute to the package and junior bondholders may also be tapped in a socalled bail-in, the ministers' statement said. Officials have struggled to find an agreement that would rescue Cyprus, which accounts for just half of a percent of the euro region’s economy, without unsettling investors in larger countries and sparking a new round of market contagion. Finance Minister Michael Sarris said the plan was the “least onerous” of the options Cyprus faced to stay afloat. “This decision should not be compared to the ideal, but to the very real possibility that much more money could have been lost in a bankruptcy of the banking system or indeed of the country,” Sarris said in Brussels. A couple of points on this before I close. Firstly, as you can see, Cyprus constitutes a massive 0.5% of EU GDP; but such is the interconnectedness of Europe (see graphic on following page) that, 0.5% or not, it matters. Secondly, this had been coming for quite some time. In these pages we have spoken many times about such a possibility in Greece (it didn't happen hasn't happened yet) and the likely fallout, but now we finally have a crystallization of the concept of the depositor haircut.

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Source: BIS

As I sat in bed watching the BBC coverage of the events in Cyprus this morning, I was struck by the level of outrage over the haircut displayed by the various people interviewed. Everybody was both outraged (understandable) and shocked (inexcusable). Plenty of people have seen the writing on the wall in recent months and have been withdrawing their euros by the billions from Cypriot banks: (WSJ, February 27): Cypriot bank deposits dropped in January, an indication that nervous depositors were withdrawing their cash from local banks amid fears that a future bailout of Cypriot lenders could involve shifting some of the losses to them. The Cypriot central bank said Wednesday that total deposits fell by 1.7 billion euros ($2.2 billion) in January to EUR68.4 billion from EUR70.2 billion in December. The bank didn't give a reason for the decline in deposits. (Euromoney, March 6): Bank of Cyprus reported that €1.7 billion of deposits left the bank in January and recent reports suggest €1 billion left Cyprus’s banks in the first two weeks of February alone. Now, see if you can posit a guess as to who might have been moving that money.

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Was it, I wonder, small depositors realizing that they were in the firing line, or was it the smart money? Sayyyyyy ... was it Russian mobsters politicians oligarchs, perchance? We have now entered a new era in the euro crisis. Anybody not in line at a Spanish or Greek bank on Monday morning, looking to withdraw their funds, deserves the eventual haircut they are likely to receive. But, lo and behold: (Reuters): The Bank of Spain said on Saturday there were no signs of capital flight from Spain as a result of developments in Cyprus, where euro zone ministers are demanding that depositors forfeit some of their savings to avert bankruptcy. "As far as I am concerned, the Spanish banking system is running under absolutely normal conditions," a spokesman for the bank said. Official Spanish sources were quick to argue that the approach taken with Cyprus would be unique. "Cyprus's situation and this agreement cannot be extrapolated to any other country in the euro zone," a Spanish economy ministry source said on Saturday. But I had best leave you for another week, as I have just realized how worked up I got here. If you made it this far, I apologize for taking up so much of your time! Many pages ago, when I first proposed Williams's Theory of Disconnectivity, you may remember, I defined the formula thusly: OS+ps2≠R Let's finish by applying some real-world values to our variables, with Cyprus as the example: OS: €5.8bn will be stolen (yes, stolen) from savers in Cypriot banks. + ps2: (WSJ, March 1, 2013): Cyprus' newly appointed Finance Minister Michalis Sarris Friday rejected talk of depositors taking losses as part of the country's bailout as he took control of the country's purse strings following Sunday's presidential elections. "There is nothing more foolish than talking about a deposits haircut," Mr. Sarris told journalists (Bloomberg): When asked if a deposit assessment could be ruled out for future rescues, [Olli] Rehn said in an interview: “It can and there is no concrete case where it should be considered.”

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≠ R: This will not be the last time depositors are screwed, and it will lead to additional capital flight elsewhere in the EU. The Europeans have not only not solved their problems, they are well along in the process of painting themselves into a corner where 'whatever it takes' and 'everything we are capable of' are at last proven to be two completely different things. But that's an equation for another day.

Until next time.
**********

A quick piece of housekeeping:
I will be speaking at Mines and Money in Hong Kong this week alongside such luminaries as Eric Sprott, Robert Friedland, and Charles Jeannes, CEO of Goldcorp. You can find out more about the agenda and speakers HERE. *******

What will you find in the pages of this week's Things That Make You Go Hmmm...?
Well, after that excessively long introduction, I'll be keeping it short and sweet. Still, you'll be treated to Egypt, gold, Hungary, Cyprus, Spain, Chinese railways, 2012 analogs, offshore floating technology parks, gold 'fixes', insider selling, and a lot of Chinese billionaires (who quite coincidentally happen to be running the country). You'll also find the wisdom of Jeremy Grantham, Kyle Bass, Mohamed El-Erian, and my great friend David Hay — please make sure to find some time for each of those gentlemen this week. I promise you, you will not be sorry you did. *******

Qatar Cuts Egypt Loose as Financial Picture Darkens
Egypt’s death spiral is now scaring off even its closest friends. Last year, Qatar give an Egypt in crisis $5 billion in aid money. But Qatar won’t help Egypt anymore, according to the FT. Qatar’s decision comes as Egypt continues its downward spiral: Shortages of diesel in recent weeks have already created long queues in filling stations, fraying tempers and sparking anger, while villagers frequently cut roads and railway lines over such grievances as water cuts and irregular gas supplies.

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The country’s toxic political atmosphere, with fractious leaders intent on undermining each other, could also fan the flames of popular fury and speed up a descent into chaos. On top of that, the rising price of imported food ingredients is putting heavy financial burdens on the country’s poor. Reuters reports: Flour and sugar are 50 percent more expensive than they were a year ago, said [baker Mohammed] Alif, and for now the bakery feels it has no choice but to absorb the increase rather than passing it on to customers: “I can’t make it more expensive because people cannot pay,” he said, pausing between filling shelves with freshly baked rolls and serving a steady flow of shoppers on the pavement. A $4.8 billion grant from the IMF could stanch the bleeding, but it requires Egypt to accept austerity measures. Austerity remains deeply unpopular with most Egyptians, and politicians are reluctant to risk losing support among constituents. With the IMF loan in limbo and Qatar now unwilling to help out, Egypt may be at the mercy of the White House. The Obama administration may be about to face a deeply ugly choice: watch Egypt sink further into chaos or ask Congress to send even more aid money than we’ve already promised—to bail out a Muslim Brotherhood government.
*** AMERICAN INTEREST / LINK

Could gold be the next Libor scandal?
US regulator considering an inquiry into London's gold and silver markets to check if prices are open to manipulation. London's financial sector was last night bracing itself for another official investigation into alleged price-fixing following reports that a US regulator is considering launching an inquiry into the City's gold and silver markets. The Commodity Futures Trading Commission is discussing whether the daily setting of gold and silver prices in London is open to manipulation, according to the Wall Street Journal, which stated that the CFTC is examining whether prices are derived sufficiently transparently. The system of setting gold prices in London is unusual and involves a twice-daily teleconference involving five banks — Barclays, Deutsche Bank, HSBC, Bank of Nova Scotia and Société Générale — while silver is set by the latter three. The price fixings are then used to determine prices worldwide.

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The news of the potential investigation comes after analysis of a similarly unusual system — the process used to determine the London interbank offered rate, known as Libor — uncovered manipulation and triggered multi-billion dollar fines against a group of banks. Barclays was hit with a £290m fine last year, which resulted in the departure of its chief executive Bob Diamond and chairman Marcus Agius. Royal Bank of Scotland is paying fines of £390m for its role in Libor-rigging. The fixing of the gold price in London dates back to September 1919, when the process involved NM Rothschild & Sons, Mocatta & Goldsmid, Samuel Montagu & Co, Pixley & Abell and Sharps & Wilkins. At the start of each gold price-fixing, the chairman announces an opening price to the other four members who relay this price to their customers. Based on orders received from them, the banks declare themselves as buyers or sellers at that price. Provided there are both buyers and sellers at that price, members are then asked to state the number of bars they wish to trade. Spokespeople for all five banks involved did not comment when contacted last night. If at the opening price there are only buyers or only sellers, or if the numbers of bars to be bought or sold does not balance, the price is moved and the same procedure is followed until a balance is achieved. The silver fix dates back to 1897.
*** UK GUARDIAN / LINK

Money and power: Don’t flaunt it
Legislative impotence aside, many of the 3,000 delegates now gathered in Beijing for the annual meeting of China’s rubber-stamp parliament are genuine movers and shakers. Delegates at this year’s National People’s Congress (NPC) include 90 people on a locally published list of China’s 1,000 richest people. To get on it you must be worth at least 1.8 billion yuan ($290m). One delegate is Zong Qinghou, chairman of the Hangzhou Wahaha Group, a soft-drink maker. Mr Zong is reckoned to be mainland China’s richest man, with a fortune worth $13 billion. There are also billionaires from the technology and property industries, all given sinecures to help keep them inside the Communist Party’s political tent. At last year’s NPC session wealthy legislators came in for sharp scrutiny—and scorn—from citizens scouring news photos for evidence of designer clothing and expensive handbags. This year delegates have been more careful to cover up their pricey status symbols.

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Yet contradictions remain in clear view. The ultra-rich make up only 3% of the delegates, but many of the rest are regional officials who also enjoy life at the top end of the inequality curve. China’s parliament may not be about rejecting legislation, but it is a good indicator of where influence lies. Many of the new senior leaders that are about to be rubber-stamped into office proclaim a desire to reduce inequality. But when it comes to preserving vested interests, in China as elsewhere, the ayes usually have it.
*** ECONOMIST / LINK

Democracy and Deficits: Hungary and Cyprus Hijack EU Summit
Stalled economic growth and high unemployment were supposed to be the focus of this week's European Union summit in Brussels. But concerns about democracy in Hungary and debt in Cyprus have taken center stage. Both issues have generated considerable strife. The focus of the European Union summit on Thursday and Friday in Brussels this week was supposed to be clear, with measures to promote growth and reduce unemployment across the Continent topping the agenda. But instead, this has been overshadowed by a number of other issues that have thrust themselves into the limelight. First and foremost among them is the extreme concern with which European leaders are viewing recent constitutional amendments pushed through by the Hungarian government of Prime Minister Viktor Orbán. Just as heads of state and government were set to begin their regularly scheduled meeting in Brussels on Thursday, the issue emerged at the forefront, with a decisive shove being provided by European Parliament President Martin Schulz. "The European Union is a community of values," Schulz said. "We cannot remain silent if a member state rides roughshod over them." Schulz demanded that European leaders take a close look at the constitutional amendments passed by Hungarian parliament on Monday to see if they counteract European values and to punish the country if they do. "In response, Orbán sharply attacked me," Schulz said, adding that the atmosphere between the Hungarian prime minister and other European leaders was "very frosty." The point was underlined during Orbán's combative press conference on Thursday afternoon. "Who is able to present even one single point of evidence -- facts, may I say -- which could be the basis for any argument that what we are doing is against democracy?" he said. "Saying 'we don't like something' is not concrete enough to react …. I am more than happy to answer their questions."

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Schulz was not alone on Thursday in questioning the recent changes made to Hungary's constitution, though. German Chancellor Angela Merkel emphasized that a parliamentary majority should not be "abused," adding that it should be "treated very carefully." And Viviane Reding, EU commissioner of justice, said that the European Commission would take a close look at the amendments and examine possible sanctions. "You don't play around with the constitution," Reding said. "You can't go and change the constitution every six months." The amendments in question are to a constitution that Orbán's government only installed last year. They were passed by an overwhelming majority on Monday evening, with 265 lawmakers voting in favor, and just 11 against, with 33 abstentions. Orbán's conservative Fidesz party holds more than the two-thirds parliamentary majority necessary to pass constitutional amendments in Hungary. The changes will severely limit the powers of the country's constitutional court and likewise erode freedom of expression. Several laws the constitutional court had previously rejected, such as a ban on the homeless from loitering in public places, were also anchored into the constitution. Orbán showed no signs of backing down on Thursday, saying defiantly: "As far as I can see, we are talking about political opinions here. They cannot replace facts." Yet despite Orbán's apparent pleasure in the massive turnout for his Thursday afternoon press conference, his country was not the only issue to highjack the summit agenda. Though Merkel said repeatedly on Thursday that a potential Cyprus bailout was not on the schedule, it was a major topic in smaller, informal groups on the summit sidelines. Luxembourg Prime Minister Jean-Claude Juncker, who was also, until recently, head of the Euro Group, demanded that a solution to the issue be found by Friday evening. Specifically, Juncker was referring to the parallel meeting of euro-zone finance ministers in Brussels on Friday, saying the gathering "must not only make progress towards a solution to the Cyprus question, but present it in finalized form" by Friday evening. The head of the Cypriot central bank, Panicos Demetriades, likewise piled pressure on the eurozone on Thursday saying that his country presents a "systemic danger" to the common currency. "The greatest risks are coming from the periphery and at present that is Cyprus," he said, adding that the bailout must be ready by the end of the month....
*** DER SPIEGEL / LINK

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Spain's Budget Deficit Grew by 35.4% in January to 1.2% of GDP
Here's a story you can expect to see in the Wall Street Journal or Financial Times tomorrow. You can read it here today. Via Google Translate, El Economista reports Spain's Budget Deficit Grew by 35.4% in January to 1.2% of GDP. The government deficit in terms of national accounts in January reached 12.729 billion euros, equivalent to 1.2% of GDP, representing an increase of 35.4% over January 2012. According to the budget execution data published in January by the Ministry of Finance website, the cash deficit in January came to 15,252,000, which is the result of a fall in net income of 37% (5.789 billion) and an incease in expenses of 15.4% (21.041 billion). Tax revenues fell 20% to 10.608 billion, by the accumulation of returns earlier this year, among other causes, says Finance. In fact, the state's revenue from indirect taxes (VAT and special) was negative at EUR 1.647 billion as a result of increased returns, but ... the territorial government had total revenues of 1.530 billion, 29.1% less. The corporate tax revenue has also resulted in negative returns by 1.131 billion. Revenue from direct taxes (income and companies) fell by 18.2% to 9.078 billion. In the expenditures item, there was a notable increase of 23.3% from the payment of interest on the debt, which rose from 6.250 billion in January 2012 to 7.709 billion euros in January 2013. There was also a 10.4% increase in payments by current transfers to 9.474 billion. Within these transfers, Social Security payments grew by 40.2% (2.334 billion), mainly [because] the state budget for 2013 makes a greater contribution to the minimum pension supplements. In the first month of the year, the central government deficit reached 0.89%. The state deficit target for 2013 is 3.8% of GDP, while the target for the total deficit of public administration is 4.5%, [down] from 6.7% in 2012, as recently reported by the Ministry of Finance. Spain must cut its budget deficit to 2.8% in 2014, but it is expected that the European Commission will extend the deadline for compliance with this commitment.

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Spain's budget deficit for the month of January was 0.89%, not counting regional deficits. • The target for the entire year is 3.8% of GDP. • On that basis, Spain went through 23.42% of its annual budget in a single month. • Spain's deficit target including regions and transfer payment is 4.5% of GDP. • The deficit including regions and transfer payments was 1.2% of GDP. • On that basis, Spain blew 26.67 % of its budget in a single month. • Territorial government revenues declined 29.1%. • Income Tax revenue (corporate + personal) fell 18.2%. • Social Security payments grew by 40.2%. • Overall transfer payments increased 23.3%. Odds Spain hits its budget target of 4.5% in 2013 is precisely 0.00%.
*** MISH / LINK

New Railway Company Assumes Ministry's Debts and Assets
The State Council says the new China Railway Co. will inherit the assets, debts and personnel of the former Ministry of Railways. The cabinet's policies for establishing the commercial arm of the ministry were posted on gov. cn, the central people's government website, on March 14. A ministry source had said its huge debt burden would not be shouldered by the new company alone because some of the debts were incurred as a result of providing public services, and it would be against the goal of restructuring to saddle the new business with government liabilities. The ministry said it had red ink of 2.66 trillion yuan by the end of September. The ministry's 18 subordinate railway bureaus and three transport companies will be regarded as the state assets of the new company. It will also carry on the business and civil contracts signed by the ministry and manage the intangible assets, intellectual property rights, brands and trademark of the former ministry and the railways system. The company, approved by the State Council and an enterprise solely funded by the state, will be controlled by the Ministry of Finance on behalf of the State Council. There had been speculation that the State-owned Assets Supervision and Administration Commission would run the new company.
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The registered capital of the new company will be 1.036 trillion yuan. Like any state-owned company it is tasked with maintaining and appreciating the value of its assets. Its leaders will be managed by the central government and the company's general manager shoulders the full responsibility of the firm. The new company will continue to be entitled the preferential tax policies enjoyed by the former ministry. The main businesses of the new company are passenger and freight transportation, and it is in charge of drafting the railway investment and construction plans. The decision to dissolve the ministry was part of a long-awaited move by the National People's Congress to consolidate central government agencies for better governance. As a result, the ministry would spin off most of its administrative responsibilities to the State Railways Office, a new department headed by the Ministry of Transport, which will also be in charge of planning railway development strategy.
*** CAIXIN / LINK

Massive Ships 12-Miles Offshore to Provide Floating City for Entrepreneurial Start-Ups
A company named Blueseed is a year away from offering entrepreneurs an inexpensive place, near Silicon Valley, in which to develop their products. "Blueseed will station a ship 12 nautical miles from the coast of San Francisco, in international waters. The location will allow startup entrepreneurs from anywhere in the world to start or grow their company near Silicon Valley, without the need for a U.S. work visa. The ship will be converted into a coworking and co-living space, and will have high-speed Internet access and daily transportation to the mainland via ferry boat. So far, over 1000 entrepreneurs from 60+ countries expressed interest in living on the ship."
*** MISH / LINK

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Same time, this year?
As I’ve written at least once before, there’s an old Wall Street saying that the most dangerous words when it comes to investing are: “This time is different.” Yet, based on stock indices breaking out to new highs (or on the verge of doing so in the case of the S&P 500), that does seem to be the collective wisdom. Implicitly, investors are voting with their money that the pattern of the last few years won’t repeat. In fact, I am reading an increasing number of comments about the booming US economy. However, the brainiacs at a very important entity disagree, and inveterate contrarians might want to hear them out. The Economic Cycle Research Institute, popularly known as ECRI, isn’t your typical me-too economic think tank. For one thing (and a most important thing it is), ECRI correctly forecasted the last three recessions. The rest of the economic soothsaying community at large has, embarrassingly, somehow managed to miss all three (though certain renegades such as David Rosenberg have been exceptions to that sorry rule). Despite this commendable track record, ECRI of late has been the object of withering criticism, even derision. This is due to its now infamous call in late 2011 that the US economy was either in recession or soon would be. Because it appears that no recession developed last year, the prevailing Wall Street view is that ECRI has lost the plot. Thus, it was with great interest that I read its March 2013 missive written by ECRI co-founder and COO, Lakshman Achuthan (warning: don’t try pronouncing his name to impress your friends after a couple of adult beverages). It was truly one of the clearest and most concise overviews I have seen of our current economic rhythm. ECRI has a term for what we are going through right now: the Yo-Yo Years. When you reflect on the chart from the previous page (courtesy of another powerhouse econometric firm, ISI), it’s hard to argue with the Yo-Yo description. But it begs the question as to why this has been the case, which might also shed some light on whether the pattern will continue this year. Or, could it be that this up-then-down cycle is simply a coincidence? It’s been my experience that one should be highly skeptical of coincidences, especially as they pertain to the financial markets and the economy. Yet, they do occur and it’s possible that’s all it has been. Mr. Achuthan, however, believes there is a logical explanation and that it is directly related to the cliff dive in global business activity in late 2008 and early 2009.

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Here’s why: The government’s computer programs, which make seasonal adjustments to realtime economic data, have apparently incorporated the unprecedented plunge of ’08-’09 as “a lasting change in the seasonal pattern itself, rather than being an isolated event.” He goes on to note: “So, in recent years, the seasonal factors for the fall and winter months have effectively been expecting the data to be so weak that they are being adjusted upward in a way that makes them fairly strong.” Of course, this could be a classic case of torturing the data until they tell you what you want to hear but, in my mind, Mr. Achuthan’s analysis is thoroughly credible. The next pressing question is: Does he see the pattern being broken this year? Some cynics have accused ECRI of rationalizing its missed call. However, its view is that recessions are never contemporaneously recognized; rather, their actual start isn’t identified for several quarters after they’re underway. Thus, ECRI believes the summer of 2012 may well be the official start of the next downturn. Lending considerable credence to its contention, the following chart (left) shows the rate of change in nominal GDP (this is a measure of total economic activity, including inflation, versus the more typical real GDP). As you can see, and as Mr. Achuthan points out, since 1981 the economy has gone into recession each time nominal GDP has fallen below 3.7%, which it recently just did....
*** DAVID HAY / FULL COMMENTARY (EMAIL)

Company Insiders Are Dumping Shares! Or Are They?
Scary reports suggest that corporate insiders are betting heavily on an imminent stock-market decline. But a closer look at the data shows that insiders aren't nearly as bearish as they might appear. They might even be bullish. Insiders—officers, directors and the largest shareholders—presumably know more about their companies' prospects than do the rest of us. So it would be a very bad omen indeed if a large number of insiders from many different companies were aggressively selling their companies' shares.

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But simply focusing on the total number of shares that insiders collectively have sold—which is the number that typically gets the most media attention—doesn't tell the whole story. That is because that total can all too easily be skewed by just a few insiders selling a large number of shares. In that event, the headline number reflecting overall insider behavior would be painting a bleak picture even while the consensus of insiders would be neutral or even bullish. That is a good description of insider behavior in recent weeks. Consider a ratio of the number of shares that insiders sell in a given week to the number they buy. According to the Vickers Weekly Insider Report, a publication of Argus Research, this ratio by the first week of February had risen to nearly 8 to 1. By late February it had swelled to almost 10 to 1, which was the "most-bearish level since we began recording the reading in 1998," according to David Coleman, editor of the report. The alarming readings suggested it was time to reduce stock holdings or get out altogether. Investors who heeded the warning missed some of the stock market's impressive march into record territory. A fuller understanding of the insider data would have saved those investors from prematurely selling out, according to Nejat Seyhun, a professor at the University of Michigan and one of academia's leading experts on insider behavior. It turns out that the large number of insider sales in recent weeks was the result of just a few insiders selling a huge number of shares. Investors can draw no conclusion about the overall market from just those few "megasales," Mr. Seyhun says, regardless of whether the insider executed those sales in his personal brokerage account or as part of a preplanned schedule in a so-called 10b5-1 plan. This is for two reasons, Mr. Seyhun says. The first is the fallacy of trying to infer from just a few insiders' actions what tens of thousands of insiders believe. The second is that the insiders who executed these megasales are among the group of insiders who have the least amount of inside information....
*** WSJ / LINK

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Charts That Make You Go Hmmm...
In 2012, Chinese investment into Australia remained heavily concentrated
on mining resources and energy in response to continued Chinese demand for construction and energy-related commodities. However,we witnessed a gradual shift of investment from resources to energy, particularly to the LNG sector. 8% of Chinese investment went into a variety of other sectors. Despite public commentary that Chinese investors are ‘buying up Australian farms and land’, our analysis shows that Chinese investment of USD296 million into Australian agriculture accounted for only 2.6% of total Chinese investment inflows in 2012.
*** KPMG / LINK

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London Gold 'Fix'
What would have happened to your 'investment' if you were able to buy the London a.m. gold fix and sell the London p.m. gold fix? The lower chart is what would have happened if you'd bought the London p.m. fix and sold at the London a.m. fix the following morning....

Source: Nick Laird at www.sharelynx.com

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2013 is looking eerily similar to 2012. A reminder of how that played out, courtesy of
Jesse's Café Américain:

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Words That Make You Go Hmmm...
Jeremy Grantham
is one of my idols, and his recent appearance on Charlie Rose was breathtaking. Jeremy's grasp of the world he inhabits is second to none, and the clarity with which he can explain difficult concepts is incredible. Please watch this video and share it with as many people as you can. CLICK TO WATCH

Mohamed El-Erian

of PIMCO, interviewed on BNN this week, gave a fascinating insight into his thinking on the socalled 'Great Rotation'. Perhaps unsurprisingly, the largest bond manager in the world is NOT seeing anything of the sort. Mohamed despairs over what he sees as artificial prices everywhere and the domino effect of central bank policy. A great interview. CLICK TO WATCH PART ONE / PART TWO

Kyle Bass

is no stranger to the these pages, but each time he appears, he just gets better. In this recent presentation to the Myron Scholes Global Markets Forum in Chicago (starting at 7:46), Kyle once again tries to explain the nightmare-in-waiting that is Japan. In my opinion, he does so brilliantly. Anyone who DOESN'T understand this after Kyle's presentation needs to watch it again. In a week when I have focused on Albert Einstein, the answer really is simply in the numbers. CLICK TO WATCH
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and finally...
David Brent is back!!! If you're a Ricky Gervais hater (I know they're out there),
then this isn't for you; but if, like me, you appreciate The Office as a work of comedic genius, then Brent's appearance on Comic Relief in the UK this past week will have you in hysterics — particularly the finished video for 'Equality Street'. Brilliant!

CLICK HERE TO WATCH

CLICK HERE TO WATCH

Hmmm...

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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 $250 million of largely partners’ capital across multiple strategies. The high level of capital committed by the Vulpes partners ensures the strongest possible alignment between our investors and ourselves. In Q1 2013, we will be closing the Vulpes Agricultural Land Investment Company (VALIC), a globally diversified agricultural land vehicle that 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 Fall 2012 Presentation: 'Extraordinary Popular Delusions & the Madness of Markets': 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.

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