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

By Grant Williams

To learn more about Grant's new investment newsletter, Bull's Eye Investor, Click here »

28 MAY 2013

What On Htrae Is Going On?
"Us do opposite of all Earthly things! Us hate beauty! Us love ugliness! Is big crime to make anything perfect on Bizarro World!" – The Bizarro Code "What has happened to it all? Crazy, some are saying Where is the life that I recognize? Gone away But I won't cry for yesterday There's an ordinary world Somehow I have to find And as I try to make my way To the ordinary world I will learn to survive" – Duran Duran, Ordinary World

© 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
Tuba Player Seeking MBA Warps Fed Job Market Gauge .........................................19 The Bank of Napaj Must Crush All Resistance, And Will Do So ..................................20 HKMEx Trio Had Millions Worth of False Bank Papers ............................................22 The Hunt for Steve Cohen ............................................................................23 A Battering Ram Becomes a Stonewall .............................................................24 The Thankless Task of Greece's Top Job-Cutter ...................................................26 He Said What? ..........................................................................................27 Discussion in Spain on Leaving the Euro; Euro Exit Manifest ...................................28 A Burmese Spring ......................................................................................30

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

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Things That Make You Go Hmmm...
In the early 1960s, a new planet was discovered in the outer reaches of the universe, and it turned out to be a strange place, populated by some weird and wonderful characters. Originally the planet was a normal spheroid, but due to a peculiar set of events the planet is now cubeshaped. The planet was given the name Htrae. Htrae is better known as Bizarro World. There are differing opinions as to how the planet was created, but it is generally acknowledged that it was fused together from stray meteors in order to create a home for the Bizarros — a race of people created by Bizarro #1 through the use of a duplicator ray. The Bizarros are imperfect duplicates of humans, mostly (with the odd Kryptonian feature thrown in for good measure), and many of them, including the original Bizarro himself (Bizarro #1), are actually pretty close copies of Bizarro's arch-nemesis, Superman. Everything about Bizarro World is backwards, and the planet functions under the Bizarro Code, which states: "Us do opposite of all Earthly things! Us hate beauty! Us love ugliness! Is big crime to make anything perfect on Bizarro World!" All Bizarros have chalky-white skin, but other than that they resemble the human they were duplicated from. They even share that person's memories and feelings; however, they lack the clarity of mind to be able to act as the original would, and they cannot function as citizens of human society. In "The Bizarro Jerry," the 137th episode of the long-running "show about nothing", Seinfeld, our Superman-obsessed comedian is confronted by "Kevin", his opposite in every respect, a product of Bizarro World, the place where everything is diametrically opposed to the natural order of things as we are familiar with it. The episode has become familiar to millions; however, nothing in either Superman comics or Seinfeld is quite as Bizarro as the financial landscape in which we find ourselves today. Well, almost nothing. In one edition of Tales of the Bizarro World, the planet's mayor appoints Bizarro #1 to investigate a crime "... because you are stupider than the entire Bizarro police force put together". This is both intended and received as a great compliment.

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Ironically enough, in the very same edition there is a panel of the cartoon that shows a Bizarro bond salesman doing a roaring trade in Bizarro bonds: In case you can't quite read the text, the exchange between the salesman and his extremely eager crowd of buyers goes as follows: The bond salesman holds a bunch of bonds in his hands and implores the eager crowd to buy them, promising listeners that these particular bonds are guaranteed to lose money for anybody who purchases them. Naturally, this being Bizarro World, the response from the crowd is somewhat contrary to that which would be expected on Earth: HOWEVER ... As farcical as Bizarro World is meant to be and as much as everything that happens in it is supposed to be the absolute antithesis of what would happen in the ordinary world in which we are all supposed to function, the very scene depicted in the panel is being acted out right now here in the "real world". There are plenty of bonds for sale across the asset class that more or less guarantee losses to anyone foolish enough to buy them and hold them to maturity. Let's take our friends in Napaj, for example. Napaj has a debt-to-GDP ratio that dwarfs the rest of the world's, and this is absolutely no secret to anybody. The country has been mired in deflation for 20 years — which is also no secret to anybody — and this past week I watched Kyle Bass once again lay out the flawless logic of his case as to why Napaj's debt is about to suddenly matter to everyone and why the country is about to hit the wall in a big way. Of course, Kyle's premise is based upon logic and perfectly reasoned mathematical arguments that do NOT play well in Bizarro World; but let's indulge his reasoning and see if, in a real-world context, the Bank of Japan is, in actual fact, no better than the Bizarro bond salesman in the comic book. As Kyle points out, debt aside, Napaj's trade balance is a disaster — and undergoing anything but a cyclical decline, as the first chart on the next page clearly demonstrates. With the launch of Abenomics, the path Napaj is heading down leads to a place where the numbers don't add up: Bizarro World.
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1500

Napaj: Trade Balance (Ybln) 1963 - 2012

1200

900

600

300 JPY 0

-300

-600

-900 1963

Source: Bloomberg/Hayman Advisors

1973

1983

1993

2003

2012

To be sure, the action generated in the initial throes of Abe's Wonder Plan has had the desired effect as the yen has weakened 30% since September of last year while the Nikkei 225 has virtually doubled, adding over 80% in the same time frame. BUT, behind the facade of jubilation there are some EXTREMELY troubling signs in the Esenapaj Government Bond (JGB) market (which is far larger than the Nikkei) that seem to suggest that the theory held by Kyle Bass and several other Napaj watchers may be proven correct far sooner than many believe.
16,000

Esenapaj Yen vs Nikkei 225
September 2012-May 2013

105

15,000

14,000 95 13,000

12,000

11,000 85 10,000

9,000

8,000 Sep 2012 Oct 2012 Nov 2012 Dec 2012 Jan 2013 Feb 2013 Mar 2013 Apr 2013

75 May 2013

Source: Bloomberg

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The JGB market is Ground Zero for the whole Napaj trade, and it is a place where the Bizarro Code has been in full effect, though that effect is beginning to wane. Whenever a central bank has announced a QE program since 2009, the market has immediately jumped at the chance of a free lunch and bought the bonds that the central bank itself would soon be buying in order to sell them to the CB in question at a higher price. Simple. Effective. You could see it clearly in charts of the various Federal Reserve QE programs when 10-yr bond yields (inverted, shown in blue here) fell immediately before the commencement of the various easing programs, only to rise steadily once the greater fool Fed was in the market buying:
The Real E ect of Quantitative Easing
1 2000

2 1500

3

US 10-yr Treasury S&P500 Index 4

1000

QE1
5 2008 2009 2010

QE2

OPERATION TWIST
2011 2012

QE3 QE4
500 2013

Source: Bloomberg/TTMYGH

And the ECB's OMT and LTRO programs simply reinforced the phenomenon. But then came April of 2013 and BoJ governor Kuroda's extraordinary promise: (BBC): [Napaj's] central bank has surprised markets with the size of its latest stimulus package, as it tries to spur growth and end years of falling prices. The move was seen as a clear signal by the bank's new boss, Haruhiko Kuroda, that he was willing to spend heavily to achieve an inflation target of 2%. The bank said it would increase its purchase of government bonds by 50 trillion yen ($520bn; £350bn) per year. That is the equivalent of almost 10% of [Napaj's] annual gross domestic product. The bank added that it would buy longer-term government bonds as well as riskier assets such as exchange-traded funds and real estate trust funds.
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"The previous approach of incremental easing wasn't enough to pull Napaj out of deflation and achieve 2% inflation in two years," Mr Kuroda said. "This time, we took all necessary steps to achieve the target." There was one other move by Kuroda that beggared belief, and even the Napaj Times ("Yesterday's News Tomorrow") was onto it: (Napaj Times): Tossed to the policy wayside, however, was the BOJ's "bank note principle," which caps the amount of long-term bonds in the BOJ's possession to below the outstanding balance of bank notes in circulation. Introduced in 2001, the bank note principle basically required that the BOJ ensure that the outstanding amount of long-term JGBs it effectively held be less than the outstanding balance of bank notes issued. "If a central bank that holds such a large amount of government bonds were to purchase those bonds without making its fundamental principle of the purchases clear, increased uncertainties would create a risk premium and lead to a rise in yields on long-term government bonds," former BOJ Gov. Masaaki Shirakawa said in a speech in 2011. But Kuroda said the BOJ would not be able to reach the inflation target under that selfimposed rule, and thus the Policy Board agreed to temporarily suspend it. With that limit out of the way, the BOJ will proceed to spend about ¥7 trillion a month buying bonds, allowing its JGB holdings to eclipse the money supply. Kuroda said he'd allow this monetary experiment to run until the inflation target is met. Effectively, Kuroda announced that, in order to generate the 2% inflation he feels Napaj needs in order to finally get back on its feet again after two lost decades, it will be necessary to throw out all policy that had previously been thought sound; and should he be successful, he will, at a stroke, render those trillions in outstanding bonds a guaranteed losing investment. Bizarro. Doubling your monetary base in eighteen months and scrapping the only sensible limit in place to stop the central bank running hog wild might be deemed a tad aggressive in the real world, but not in Napaj. When the Esenapaj bond market reopened on April 4, the day after Kuroda's statement, normal Bizarro behaviour was expected to resume, with market participants front-running the BoJ and buying up JGBs hand over fist in order to sell them into the guaranteed government bid at a later date. But a funny thing happened as the bell rang to signal the start of trading.

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Instead of buyers appearing from every corner, looking for a free ride on the coattails of the Esenapaj government, the exact opposite happened: sellers swamped the market, causing trading to be stopped several times as selling overwhelmed buying. Later that day, rumours were rife in Tokyo that the BoJ, assuming their promise to buy copious amounts of JGBs would be enough to bring the front-runners out in force, had stayed out of the market until it was apparent that, unless they supported it, they would have a problem.

Source: Bloomberg

The red box shows the intraday movement of the JGB future in Tokyo the day after Kuroda's announcement, but it's tough to get a real understanding of the severity of the gyrations without taking a step back and looking at the volatility over the months leading up to the move. Once we do that, it becomes more apparent that something untoward happened that day:

Source: Bloomberg 28 MAY 2013 8

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As you can see, after 12 months of nice, controlled daily moves in the price of the JGB future, all hell broke loose on April 4th. In a single day, the future made both a new 12-month high and a new 12-month low. That, dear reader, is called volatility. As you can also see, after returning to normal briefly in the days immediately after that big move, volatility has returned to JGBs with a vengeance, with the problem centred in the 5-year JGB. My friend Pawan Kalia, who has graced these pages before, has a better understanding of the complexities of the JGB market than just about anybody I know; and he is the guy I turn to when I'm trying to figure out what's going on in the weeds. As always, he gave me some great perspective on the move and highlighted an eerie similarity between the recent moves and a period in Esenapaj bond market history that most participants would rather forget: The move since the 4th April BOJ shock has uncanny parallels with the price action in June 2003: a) Big-figure initial down move b) 50% bounce c) Consolidation for 3 weeks d) Impulsive second-wave down move Below is the sell-off in June 2003.

Source: Bloomberg/Pawan Kalia

Now, consider the price action of May 2013: a) Big-figure initial down move

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b) 50% bounce c) Consolidation for 3 weeks d) Impulsive second-wave down move

Source: Bloomberg/Pawan Kalia

Pawan then showed me a chart that should (given the quantum difference in the size of the market between 2003 and now) give many pause for thought. Here is what the continuation of that 2003 move looked like:

Source: Bloomberg/Pawan Kalia

Bouncing back to the present, after a few relatively peaceful weeks, volatility returned to JGB futures this past week — and on Thursday the Nikkei suffered what can only be called a slowmotion flash crash.

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Now, in fairness, the Nikkei has been pricing in the same news every day for months now as underweight investors rushed to climb aboard the bandwagon, BUT the move on Thursday will have reintroduced the notion that there are no sure things in the investment universe. The press was quick to blame the sudden reversal and 9% intraday fall in the Nikkei on the release of the Flash PMI figure from China, which showed that the country's manufacturing had slowed from 50.4 to 49.6. In other words, it had slowed from a VERY slow crawl to a stop. However, over in the JGB market, a far more important trigger was hit when Esenapaj 10-yr rates touched 1%. Of course, traditionally, that would be a barrier that 10-year sovereign bonds would only ever hit on the way DOWN. But not in Napaj. Not now. That 1% level signifies a TREBLING of yields since Kuroda's announcement of April 3rd, as you can see from this chart. It was THAT which triggered the sudden plummet in the Nikkei as investors got a sudden whiff of how the world works back on Earth and the reality of what rising Esenapaj bond yields mean in real terms.

Source: Bloomberg

The BoJ was forced to intervene to the tune of ¥2trln ($20bn) in order to try and regain control of rates (which, of course, means trying to force them back down to Bizarro levels), but clearly, something has snapped here. The real problem, of course, is the enormous amount of debt overhanging Napaj. Currently, debt-service costs take up 24% of GDP — and should Esenapaj yields rise to just 2.2%, a staggering 80% of government revenue will be needed to pay the interest cost on the country's debt. However, the bond market will not wait to react until the numbers no longer work.

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The main argument against the explosion of the JGB has always been that a significant amount of Esenapaj government debt is held domestically, and therefore the country will always be able to self-fund. Really? It's that simple? Back to Kyle Bass: First and foremost, we tend to hear that since 93.8% of Japan's debt is held internally, and since 95% of that 93.8% is held institutionally, Japan is much better off than those countries that finance most of their debt externally. The thesis further expands to say that as long as Japan has a current account surplus, they will be able to 'self-finance' their fiscal deficit. We tend to find that broad statements like this exhibit a colossal naiveté. How can one make a statement like this without taking into account the amplitudes of the fiscal deficit and current account? The plain and simple fact is that these optimistic statements have come to be taken as axiomatic through repetition and are patently false as Japan stands today. We expect Japan's current account surplus to amount to less than 1% of GDP this year and to decline into deficit next year, while the fiscal deficit is running at a sustained 10% of GDP. We didn't need to get out our calculators to determine that the math doesn't work. Math that doesn't work? I ALWAYS pay attention when I hear those words, and Kyle's thesis on Napaj's coming demise is a perfectly crafted trail of mathematical equations that simply don't add up. These equations lead, inevitably, to Kyle's stark conclusion: The bottom line is that Japan has reached a secular turning point in its trade balance and current account, following decades of surpluses. The current dispute with China has only served to accelerate the process. Investors can no longer make the blanket assumption that a current account surplus will provide a funding source for fiscal deficits into perpetuity.... We believe that Japan is teetering on the precipice of financial collapse, and any number of data points or events in the coming weeks and months could be the proverbial tipping point. It could be as significant as a negative structural current account, a revocation of BoJ policy independence, or even political and economic conflict with regional neighbors or perhaps something as innocuous as ratings actions or Basel III regulations that force financial institutions to reduce their hugely concentrated exposure to JGBs. What we do know is that when it does break loose, 20 years of suppressed, springloaded interest rate volatility on the back of the largest peacetime accumulation of sovereign debt will afford no time to readjust portfolios to get out of the way.

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Kyle's piece, "The Central Bankers' Potemkin Village", is an absolute must-read (you can find it here) for anyone interested in understanding the mathematical brick wall Napaj is about to run has run into. This week, Ambrose Evans-Pritchard of the UK Daily Telegraph explained why he thinks Kyle is wrong in his assumptions. As much as I like Ambrose's work (though he and I certainly disagree vehemently on the benefits of money printing), I think this time he is a long way off base: (Daily Telegraph): I don't agree that it is game over for Abenomics.... Monetary policy should take the strain, pursuing a nominal GDP target of 3pc and later 4pc to turn the vicious circle of the "denominator effect" (ie a rising debt load on a shrinking nominal base) into a virtuous circle.... I refute [Richard Koo's] claims that QE was tried and failed in Japan. It was never tried. The BoJ meddled on the margins with pinprick purchases of short-term debt, buying from the banking system, and merely pushing up the monetary base. Of course it failed. Who cares about the monetary base. It is irrelevant.... True, the ructions in Japan over the last few days have been extraordinary. Governor Kuroda was forced to reassure the nation on Friday that the BoJ has the instruments to restore order to the bond markets. Premier Shinzo Abe was very blunt in parliament, warning that "sharp increases in longterm interest rates could have a grave impact on the economy and the government's fiscal conditions. We expect the BOJ to respond appropriately," he said. Mr Abe is not pleased, I would surmise, and quite understandably so since the BoJ seems to have cocked up badly. My guess is that JGB market will settle down once they work out how to execute the task. I stick with my view that the BoJ has the means to crush all resistance, and should do so. Ambrose puts an awful lot of faith in a group of policy makers who have been universally awful for twenty years, at the very least. As Kyle so perfectly puts it: Japan has never missed an opportunity to miss an opportunity. I don't think they are about to start now. Ultimately, mathematics and the bond market will prove to be far bigger and more intractable foes than Abe and Kuroda recognize, and if push comes to shove and they are forced to peg the interest rate curve, the yen will be obliterated. Game on. But it's not just Napaj that continues to look like it's operating under the Bizarro Code.

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In my recent presentation to the 66th Annual CFA Conference here in Singapore (see video link on page 33), I picked out several mathematical equations that simply don't work: equities vs. fundamentals, the gold price vs. the price of gold, Chinese economic activity vs. the Chinese GDP number, and France vs. well ... logic. But I had only 45 minutes in which to make my points, and so there were many things I had to omit, Napaj chief amongst them. The decision to omit Napaj was based on the fact that, the day after I spoke, Kyle Bass was set to speak on the same subject, and there's no way I'm picking THAT fight. But Napaj aside, there were a few other Bizarro situations I wanted to touch upon, and I'd like to run through four of them quickly with you before we get to the meat of this week's Things That Make You Go Hmmm... In no particular order, they are: 1. The strength in the US homebuilders ETF vs the price of lumber OK, so the US housing market has unquestionably strengthened from a very low level (see the charts from the great Greg Weldon on page 30). But the price of lumber futures is suggesting that this, like being long Esenapaj equities, is also not a one-way ticket.
Homebuilders ETF (XHB) vs Lumber Future
May 2012 - May 2013
400 33

31

29 350 27

25

300

23

Lumber Future (lhs) XHB ETF (rhs)

21

19 250 May 2012 Nov 2012 May 2013

Source: Bloomberg

Perhaps lumber sees rising interest rates in our future, which would kill off any hopes of a prolonged renaissance in the housing market. Perhaps lumber prices will perform a 180°turn and shoot back up to join the XHB. Perhaps.
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2. High-yield credit vs. the S&P 500 High-yield credit swooned in February and has subsequently failed to recouple with the S&P 500. This pattern of divergence would be worrying enough in a normally functioning world; but given similar set-ups as recently as both 2011 and 2012, it's yet another Bizarro disconnect to which, perhaps, we really ought to be paying attention.
High Yield Credit (HYG) vs S&P500 November 2012 - May 2013

1700

100

1600

HYG (rhs) S&P500 (lhs)

95 1500

1400

Nov 2012

Dec 2012

Jan 2013

Feb 2013

Mar 2013

Apr 2013

90 May 2013

Source: Bloomberg

Source: Zerohedge

3. The outlandish effects that comments by central bank policy makers have on markets Last Wednesday, we saw Ben Bernanke give testimony before Congress and release the latest FOMC minutes.

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During Bernanke's testimony the Dow Jones traded up 155 points, as the Chairman's comments seemed to suggest that the QE spigot would not be turned off anytime soon — yet his assessment of the state of the US "recovery" as well as the prospects for the job market was anything but rosy. Of course, in Bizarro World bad is good, and the paucity of the recovery meant only one thing to market watchers: more stimulus and the extension of the free ride they've been given since QE1 began. Things soured, though, when the latest FOMC minutes suggested an early "tapering" of QE. The Bizarro Dow fell, naturally, closing down 80 points. The reason? This: (FOMC minutes): A number of participants expressed willingness to adjust the flow of purchases downward as early as the June meeting if the economic information received by that time showed evidence of sufficiently strong and sustained growth; however, views differed about what evidence would be necessary and the likelihood of that outcome. One participant preferred to begin decreasing the rate of purchases immediately, while another participant preferred to add more monetary accommodation at the current meeting .... Most participants emphasized that it was important for the Committee to be prepared to adjust the pace of its purchases up or down as needed. What that piece of the transcript says in real-world terms is this: Some people wanted to reduce buying of bonds sooner, and one person wanted to reduce the buying immediately, but most of us want the latitude to be able to reduce or increase purchases as the situation demands. In short, we have no idea what we are doing and are not even close to consensus. What it didn't say is this: "The money-printing-led free lunch will continue forever." Who knows WHAT these clowns mean; but I'm willing to go out on a limb and state, for the record, that not only is "tapering" not going to happen anytime soon, but moreover, that the speed with which QE is reintroduced after markets inevitably react poorly will make heads spin. 4. The curious disconnect between insider trades and the broader market Every week, a list is published of insider buys and sells in listed companies, and parsing through this data is ALWAYS instructive. Insiders are just that: officers of the companies in question, who have to file whenever they buy or sell their own company's stock. Obviously, this information ought to provide clear confirmation as to the direction of the stock market as a whole and individual sectors within it. Does it? Well, with the S&P 500 making new highs seemingly every day, the answer is, not so much.

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I have a friend in Hong Kong who follows this data religiously, and his observations are always interesting. This week was no exception. He pointed me to the following table, which shows the ratio of sellers to buyers — the higher the ratio, the more insiders are selling their own shares, and vice-versa. Technology, consumer services, consumer durables, and transportation have all seen marked increases in insider sales, but the media sector? Well, it seems to be unloved, to say the least.
Sector Technology Healthcare Consumer Services Finance Energy Consumer Non-Durables Industrial Basic Materials Consumer Durables Media Business Services Utilities Transportation 2013 104.3 35.2 94.2 29.0 12.5 96.9 41.0 48.8 114.7 1821.7 13.2 23.7 62.0 2012 39.1 32.3 29.0 20.6 10.4 56.5 29.7 33.9 33.3 75.0 26.3 20.7 9.3 2011 103.2 56.0 41.3 12.9 62.9 20.4 39.5 66.3 39.6 147.1 38.9 5.7 24.6

There are countless more of these disconnects (the strength of the euro vs. EU economic data being a key one that will likely deserve a whole edition of Things That Make You Go Hmmm... on its own shortly), which lead to a fundamental conclusion that is hard to deny:

Sdnob, seitiuqe, setar tseretni, and seicnerruc will all eventually leave Bizarro World and come crashing back down to Earth (where they are known as bonds, equities, interest rates, and currencies); and when they do, they will likely do the opposite of what they're doing right now.

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It's just math.

*******
OK ... so after a long, travel-induced absence from your inboxes, I am back and raring to go. This week we read how a tuba-playing MBA plays havoc with the Fed's job market gauge (who'da thought THAT would be easy to do?); Ambrose Evans-Pritchard (foolhardily?) backs the BoJ to "get it done" no matter what; a relentless US attorney draws ever closer to his high-profile prey; and in Hong Kong yet another gold-related scandal breaks, with the arrest of three men in a hotel room. Peggy Noonan digs into the terrifying abuse of power by the IRS; we take a look at Greece's most unpopular public servant; euro exit talk surfaces in Spain; and my great friend David Hay shares his erudition on the communications of Chairman Bernanke. We also take a detailed look inside Burma (a place that we at Vulpes are doing a lot of work on — more on that another day), courtesy of The Economist; we see some fascinating US housing charts, courtesy of the fantastic Greg Weldon; and, with an eye on precious metals, we examine all-in gold costs and look at some charts from Citi's Tom Fitzgerald that cast doubt on the mantra that the bull market is over for the yellow metal. What else? Well, we have some classic Nigel Farage as he takes the Eurocrats to task over their hypocritical attitude to tax avoidance; we hear from the great Jim Grant on the weirdness of markets and the puzzling undervaluation of gold and mining stocks; and if you have time, there's even a link to the presentation I gave to the 66th Annual CFA Conference here in Singapore last week, on mathematics and reality. All in all, there's plenty to sink your teeth into. It's good to be back.

Until Next Time. ******* Tuba Player Seeking MBA Warps Fed Job Market Gauge
Tuba player Andrew Schwartz quit the Manhattan School of Music in 2011 when he saw opportunities shrinking and orchestras struggling. After a series of low-paid jobs such as selling stocks by phone, he left the workforce in August to pursue a master's degree in business administration. "The three letters M-B-A are going to be incredibly valuable to me," said Schwartz, 26, whose undergraduate degree is in music. "I'm sure 99.9 percent of HR people throw my applications in the garbage and the other 0.1 percent laugh at me having a music degree."

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Schwartz is among millions of Americans whose departure from the labor force since the start of the last recession adds a layer of complexity to the Federal Reserve's effort to attack unemployment by linking monetary policy to the jobless rate.When people like Schwartz stop looking for work, the government no longer counts them as unemployed, which lowers the official jobless rate. That means the Fed will need to look at other gauges of labor-market strength because the unemployment rate may send misleading signals of improvement long before payrolls start showing the substantial gains policy makers are seeking. Fed officials have pledged to keep the main interest rate near zero as long as unemployment remains above 6.5 percent. "It complicates policy," said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York and a former Fed researcher in Washington. "The unemployment rate, as they've pointed out, may be the best single number for judging the health of the labor market, but it's still imperfect, and those imperfections have grown because of the participation rate." Fed Chairman Ben S. Bernanke may be questioned about progress on stimulating job growth when he testifies tomorrow on the U.S. economic outlook before the Joint Economic Committee of Congress. The central bank's Federal Open Market Committee will gather next on June 18-19 in Washington... The unemployment rate dropped to a four-year low of 7.5 percent in April, with the labor force participation rate at 63.3 percent, the lowest level since May 1979, Labor Department data show. The participation rate measures those with jobs, or looking for work, as a percentage of the civilian U.S. population aged 16 and older. The number of so-called discouraged workers who have given up on finding work stood at 835,000 in April, near the 861,000 average over the past year, Labor Department data show. Participation may remain depressed for years, San Francisco Fed researchers said last week. Fed officials also say they must see substantial employment gains before they curb bond buying. Vice Chairman Janet Yellen has said the unemployment rate has limits as a policy guide and should be supplemented by gauges such as payroll growth....
*** BLOOMBERG / LINK

The Bank of Napaj Must Crush All Resistance, And Will Do So
Kudos to Kyle Bass at Hayman Advisers for warning that the Bank of Japan would lose control of its ¥70 trillion bond buying blitz. The spike in the 10-year yield to 1pc on Thursday was certainly shocking to behold. His point is that the BoJ faces a "rational investor paradox". The authorities are trying to drive up the inflation to 2pc and therefore to devalue Japanese government bonds (JGBs), so why on earth would you want to own them?

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"If JGB investors begin to believe that Abenomics will be successful, they will ‘rationally' sell JGBs to buy foreign bonds or equities," he told Bloomberg. He says the scramble to sell has "overwhelmed" buying by the BoJ. Governor Kuroda will now have double down with a huge increase in the scale of QE. The argument is similar to warnings by Nomura's Richard Koo, Japan's most famous economist and an arch-Keynesian. The two men reach the same conclusion coming from diametrically opposed theoretical starting points. As I reported last night, Mr Koo thinks the Abenomics plan of monetary reflation is madness. "Once inflation concerns start to emerge the BoJ will be unable to restrain a rise in yields no matter how many bonds it buys." This could lead a "loss of faith in the Japanese government" and the "beginning of the end" for Japan's economy. Mr Koo said the BoJ faces a "time inconsistency problem", a variant of Mr Bass's paradox. Markets react more quickly to events than the economy. "The Japanese authorities are trying to generate inflation first and then hope for recovery, which means debt service costs will increase before tax revenues do." This will worsen the debt trajectory, set to reach 245pc of GDP this year (IMF), roughly where Britain ended the Napoleonic Wars. But then Britain produced half the world's manufactured goods in the early 19th century, so it may be tougher for Japan. Mr Koo says "Long-term rates may rise before the real economy". If so lenders will respond to these signals more quickly that borrowers, choking credit. He says Kuroda has "altered the market structure of the last two decades" and undermined a fragile equilibrium, inviting a speculative attack on the JGB market by foreign hedge funds. So that then is the critique. I don't agree that it is game over for Abenomics. My view is that the Keynesian doctrines of endless fiscal stimulus without monetary support advocated by Mr Koo over the years is the cause of Japan's desperate crisis (though he says the economy could have achieved escape velocity long ago if they had done more of it, which is not as absurd as it sounds). Au contraire. Monetary policy should take the strain, pursuing a nominal GDP target of 3pc and later 4pc to turn the vicious circle of the "denominator effect" (ie a rising debt load on a shrinking nominal base) into a virtuous circle. This is what Takahashi Korekiyo achieved with such brilliance in the early 1930s, setting off a boom and falling debt ratios. Though he also forced the BoJ to finance fiscal spending too to kickstart recovery. I am not against that either if it works. In fact in it is a rather good idea (for Japan, not the UK obviously). Mr Koo's argument that balance sheet recessions require radical action by governments is correct, but I refute his claims that QE was tried and failed in Japan. It was never tried.
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The BoJ meddled on the margins with pinprick purchases of short-term debt, buying from the banking system, and merely pushing up the monetary base. Of course it failed. Who cares about the monetary base. It is irrelevant....
*** THE TELEGRAPH / LINK

HKMEx Trio Had Millions Worth Of False Bank Papers
Three mainland men charged in a scandal over the failed Hong Kong Mercantile Exchange (HKMEx) were found in their hotel rooms with false bank documents purporting to be worth hundreds of millions of dollars, a court heard yesterday. Dai Linyi, 65; Li Shanrong, 49; and Lian Chunyan, 50, who were arrested on Tuesday, appeared in Kowloon City Court charged with "possessing false instruments with intent". The men were detained after the Securities and Futures Commission found serious irregularities with the finances of the exchange — chaired by executive councillor Barry Cheung Chun-yuen — and handed the details of its inquiry to the police. The court heard the documents included an acknowledgment letter, two letters of guarantee and three proofs of funds allegedly issued by HSBC and Standard Chartered Bank. There were also time deposits and at least one telegraphic transfer. The acknowledgement letter, which was found among Dai's papers, was dated April 23 and allegedly issued by Standard Chartered in relation to a cheque for US$460 million (HK$3.57 billion). He also had a letter of guarantee from the same bank undertaking to pay US$460 million to a Zhang Jisheng. Li had a similar letter for the same amount that did not include a name. Dai also had a proof of funds dated May 8 and allegedly issued by HSBC confirming that US$11 million had been deposited into an account held by Lian. Both Li and Lian also held two other such "proofs" with the same descriptions. In addition, Dai and Lian had two documents dated May 7 proving the existence of two separate deposits of US$11 million each in another account held by Lian, the court heard. Prosecutors did not say exactly how the three men might be linked to the exchange. The court was told that Li, who has a sister living in Tai Po, runs a business in Dongguan. Lian, who came to Hong Kong on May 21, is an educator in Beijing. Dai, whose background was not mentioned, also faced a charge of overstaying since his last entry into Hong Kong on April 28.

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Prosecutor Ira Lui Tsz-ming said police needed more time to study the documents. No pleas were taken. Magistrate Clement Lee Hing-nin denied the trio bail and adjourned the case to July 19. A fourth suspect, who was arrested on Wednesday, was released on police bail last night.
*** SOUTH CHINA MORNING POST / LINK

The Hunt for Steve Cohen
Twenty-five years ago Wall Street, and much of America, was transfixed by a sweeping set of insider-trading investigations centered on the greatest financier of the age, junk-bond king Michael Milken, of Drexel Burnham Lambert. Day after day, week after week, month after month, stories of U.S. Attorney Rudolph Giuliani's relentless investigation dribbled out to the press. One by one, Giuliani picked off Milken's minions, confronting them at their homes, handcuffing them at their offices, pulling them before secret grand juries, indicting a few, pressing for evidence that Milken had broken the law. It all took on an inexorable quality. In their hearts, most everyone knew that Milken was going down sooner or later—and he did, paying more than $1 billion in fines and spending 22 months in prison. He was banned for life from the securities industry, and his firm was dismantled. Twenty-five years later it's all happening again. Once more a relentless U.S. attorney, this time 44-year-old Preet Bharara, has seemingly targeted the billionaire investor Steve Cohen, founder of SAC Capital Advisors, the $14 billion hedge fund based in Stamford, Connecticut. One by one, Bharara has picked off onetime SAC traders and analysts, confronting them at their homes, pulling them before grand juries, bringing criminal cases, and pressing them for evidence that Cohen has broken insider-trading laws. So far Cohen has not been charged with anything, but there is the same sense that Bharara, like Giuliani before him, has too much invested in all this to lose. "If Steve Cohen gets off," one hedge-fund manager observes, "he will be the O. J. Simpson of insider trading." In almost every way, though, today's scandal surpasses the one that brought the Roaring 80s to an end. There have been more arrests, many more convictions; C.E.O.'s have fallen, lives and companies have been ruined, all in a campaign that has increasingly put one man in the government's crosshairs: Steve Cohen, thought to be the most brilliant trader of his generation. Simply reading the headlines this spring, one could be forgiven for being a bit confused. In midMarch, after years of scoffing at every suggestion any of its traders might have done something untoward, SAC agreed to pay, without admitting guilt, the largest fine in the history of the Securities and Exchange Commission, a stunning $616 million, to settle charges of insider trading in only two trades. Some on Wall Street called it a victory for Cohen, who paid a pittance—for him—to make a messy situation go away.

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Others were not so sanguine, observing—correctly—that blood was finally in the water, that an S.E.C. fine did nothing to curtail the ongoing criminal investigation, which has already led to guilty pleas from and convictions of at least five onetime SAC employees. Cohen seems determined to ride it all out with sheer bravado. A week after the settlement, news broke that he had paid the casino owner Steve Wynn an astounding $155 million—a record sum for a U.S. collector—to buy Picasso's Le Rêve (which Wynn had accidentally put his elbow through in 2006). Days after that revelation Cohen paid $60 million for a 10,000-square-foot, seven-bedroom mansion with ocean views, on Further Lane in East Hampton. Taken together, it all had a "Let them eat cake" quality, as if Cohen were waving his billions in the government's face, daring it take him on. Their looming showdown draws on themes of money, privilege, and class that define the era. Steve Cohen isn't just another hedge-fund billionaire; he is the hedge-fund billionaire. He doesn't live in just another Greenwich, Connecticut, mansion; he lives in the largest of them all, complete with its own two-hole golf course and Jeff Koons's Balloon Dog sculpture adorning the driveway. Inside, the walls are festooned with paintings from his fabled collection of Impressionist and contemporary art, which includes Francis Bacon's Screaming Pope, hanging just outside his bedroom. Doughy and clerk-like, Cohen is nevertheless the Gatsby of our age, a middle-class kid from Long Island who caught the gambling bug fleecing his high-school pals in all-night poker games. Today he tosses around his winnings in transparent attempts to join the social elite that's never quite accepted him and his 48-year-old Puerto Rican second wife, Alex, whom he met through a dating service....
*** VANITY FAIR / LINK

A Battering Ram Becomes a Stonewall
"I don't know." "I don't remember." "I'm not familiar with that detail." "It's not my precise area." "I'm not familiar with that letter." These are quotes from the Internal Revenue Service officials who testified this week before the House and Senate. That is the authentic sound of stonewalling, and from the kind of people who run Washington in the modern age—smooth, highly credentialed and unaccountable. They're surrounded by legal and employment protections, they know how to parse a careful response, they know how to blur the essential point of a question in a blizzard of unconnected factoids. They came across as people arrogant enough to target Americans for abuse and harassment and think they'd get away with it. So what did we learn the past week, and what are the essentials to keep in mind?

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We learned the people who ran and run the IRS are not going to help Congress find out what happened in the IRS. We know we haven't gotten near the bottom of the political corruption of that agency. We do not know who ordered the targeting of conservative groups and individuals, or why, or exactly when it began. We don't know who executed the orders or directives. We do not know the full scope or extent of the scandal. We don't know, for instance, how many applicants for tax-exempt status were abused. We know the IRS commissioner wasn't telling the truth in March 2012, when he testified: "There's absolutely no targeting." We have learned that Lois Lerner lied when she claimed she had spontaneously admitted the targeting in a Q-and-A at a Washington meeting. It was part of a spin operation in which she'd planted the question with a friend. We know the tax-exempt bureau Ms. Lerner ran did not simply make mistakes because it was overwhelmed with requests—the targeting began before a surge in applications. And Ms. Lerner did not learn about the targeting in 2012—the IRS audit timeline shows she was briefed in June 2011. She said the targeting was the work of rogue agents in the Cincinnati office. But the Washington Post spoke to an IRS worker there, who said: "Everything comes from the top." We know that Lois Lerner this week announced she'd done nothing wrong, and then took the Fifth. And we know Jay Leno, grown interestingly fearless, said of the new IRS commissioner, "They're called 'acting commissioner' because you have to act like the scandal doesn't involve the White House." But the most important IRS story came not from the hearings but from Mike Huckabee's program on Fox News Channel. He interviewed and told the story of Catherine Engelbrecht—a nice woman, a citizen, an American. She and her husband live in Richmond, Texas. They have a small manufacturing business. In the past few years she became interested in public policy and founded two groups, King Street Patriots and True the Vote. In July 2010 she sent applications to the IRS for tax-exempt status. What followed was not the harassment, intrusiveness and delay we're now used to hearing of. The U.S. government came down on her with full force....
*** WALL STREET JOURNAL / LINK

The Thankless Task of Greece's Top Job-Cutter
Antonis Manitakis has the most thankless job in Greece. Tasked with slashing the grotesquely bloated public sector, he is hounded by troika officials, reviled by his countrymen and afraid of cutting too deep.

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Appearances are deceiving on Klafthmonos Square in downtown Athens. Three imposing bronze statues, the "Monument to National Reconciliation," shimmer in the bright spring sunshine. But demonstrators at the base of the monument bring to mind the original purpose of the square, the name of which translates into "Lamentation Square." Until 1911, when the Greek constitution guaranteed all civil servants jobs for life, government bureaucrats who had been let go after a change in government used to come to the square to publicly express their outrage. In the current crisis, no one has a job for life anymore, not even in the public sector. The government plans to slash at least 4,000 jobs by the end of the year and an additional 11,000 next year. Without this assurance, the so-called "troika" — comprising the EU, the International Monetary Fund and the European Central Bank — would have refused to disburse the next tranche of aid money to Greece in the amount of €7.5 billion ($9.6 billion) by June. Government agencies are expected to slash some 150,000 jobs by 2015, representing roughly one-fifth of Greece's enormous public sector. Kostas Tsikrikas, the head of the powerful union representing civil servants, is already threatening the government with a "fight to the bitter end." His rage is directed primarily at Antonis Manitakis, 69. Last May, after efforts to form a new government failed, Manitakis joined the transitional government of nonpartisan technocrats for a few weeks. After new elections in June, the smallest coalition partner, the Democratic Left, nominated the professor and renowned constitutional expert to be the minister of administrative reform. Now Manitakis is grappling with the Herculean task of reducing the size of the grotesquely inflated administrative apparatus. "I want to give my country honor and dignity once again," he says. "I want to be able to tell my grandchildren one day that there are still dreams and values for them." But until then, the top official in the civil service will have to get rid of thousands of employees, such as teachers on very small islands like Astypalea and Kastelorizo, where there are 15 teachers for 18 students. "The Greek people are responsible for their fate, and they must understand that only they can rectify problems like these," says the minister. But even Manitakis isn't quite confident enough to embark on large-scale layoffs yet. Manitakis, a lawyer by training, is sitting in his office. He is a likeable elderly man in a gray suit, surrounded by dark, heavy furniture. He doesn't resemble the standard Greek politician. He hardly ever attends public events, preferring to keep a low profile, and he doesn't like to talk to journalists. In fact, it took him 10 months after coming into office to give his first interview....
*** SPIEGEL ONLINE / LINK

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He Said What?
As hard as it is to believe now, with US stocks setting new highs on a daily basis, only four years and three months ago global financial markets were seemingly headed for extinction. In February of 2009, one of Evergreen's most devout clients asked me if I was sticking by my January prediction that the market would finish higher for the year. With stocks already down 18%, and the trend decidedly negative, I would have jumped at the chance to change it. Yet, as I pointed out to him at the time, a forecast is a forecast. Now, I'm in a similar prediction predicament. Only this time, it's due to my call for a roughly flat market this year as the S&P rips higher. If I could, I'd be dumb not to change that to a 15%, or even 30%, up-year forecast. Or would I? In the February 15th EVA, I mentioned that if this market did continue to fly it might start to resemble what we saw in 1987. Yes, I really am old enough to remember that year—in all the gory details! In fact, I had been "in the business" for eight years when the October crash occurred. Back then, portfolio insurance and program trading were all the rage. The assumption was they added liquidity and made the market less volatile (hmmm, sounds a lot like the rationalizations for flash traders, armed with their lethal algorithms, these days). For those too young to remember, 1987 was the fifth year of an incredible bull streak. A market that already was up 171% from its 1982 bottom by the spring of 1987 proceeded to rise another 21% over the course of the summer. Problems like rising interest rates and a weakening dollar were blithely ignored. And then came October, with portfolio insurance and program trading at the epicenter of the worst crash since 1929. As that month taught us, and numerous other market wind shears have since, stocks have a nasty tendency to go down much faster than they go up (latest case in point: Japan this week). Consequently, it may be a bit premature for me, or anyone else, to assume that the market will indeed finish up for the fifth straight year and in double digits to boot. It goes without saying, though, that I wish we weren't as defensively positioned this year as we have been, at least on the stock side of our portfolios. Conversely, our income portfolios have been extremely well situated, despite some hedges, to take advantage of another year of investors desperately seeking yield. This is one reason, among many, that we have elected to be more risk-averse with our growth holdings. Unquestionably, the central banks are in command right now and they are feeling the market's love (whatever happened to all the Fed conspiracy theorists and their bible, The Creature from Jekyll Island?). One of the more memorable observations I heard at the recent Mauldin/Altegris conference was from Niall Ferguson talking about a conclave of central bankers he had just attended. He was appalled by how smug they all seemed. Call me paranoid, but I don't think hubris in high places is a good thing, especially when it involves the people who have the keys to the printing presses.
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The others who are strutting a bit right now are the ultra-Keynesian economists like Paul Krugman who believe their thesis of unlimited money creation has been vindicated. Excusez moi, but I don't think this camp should start taking bows until we see how the markets and the world's economies perform once the pseudo trillions are removed from the system. Yet, the one person who above all should be feeling his oats right now seems to be having a few second thoughts. As noted in last week's EVA, Ben Bernanke, the magician-in-chief behind "large-scale asset purchases" (i.e., using smoke and mirrors money to buy government securities), recently issued a warning about investors ignoring risks. Could it be that Dr. Bernanke is starting to feel a bit like another doctor right about now—as in Frankenstein?
*** DAVID HAY / FULL COMMENTARY (EMAIL)

Discussion in Spain on Leaving the Euro; Euro Exit Manifest
Some common sense discussion is taking place in Spain regarding the necessity of Spain exiting the eurozone. For example, please consider "Opposition to the euro breaks: first manifesto to leave the single currency," as translated from [El Confidencial]. The political opposition that Spain remains part of the euro begins to crystallize. And the tool to achieve that end-Spain output of the single currency is again signing a manifest public that, for the moment, has already been signed by around 1,000 professionals convinced "the risks of deterioration and degradation that there are the enormous social suffering caused by the persistence of adjustment policies, austerity and privatization of the public ". Among the signatories are former general coordinator of United Left (IU) Julio Anguita or economists Juan Francisco Martín Seco and Pedro Montes, Manuel Monereo addition, Manuel Muela and Carlos Martinez, president of Attac Spain, or exsindicalista Agustin Moreno. Written Signatories to the start for a first finding analysis: the level of unemployment is "catastrophic," the "indebtedness of the Spanish economy to the outside is unable to cope," and "the evolution of public accounts leads inexorably to the "economic collapse of the state." Specifically, they say, more than six million unemployed, more than 2.3 billion euros of gross liabilities from the outside and a public debt of almost a billion euros, growing and already close to 100% of GDP, "are data defining an unmanageable mess, endanger destroy coexistence and social rights. " "Spain Must Have a Plan to Exit the Euro"
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Also note an article on El Economista: "Jose Carlos Diez: 'Spain Must Have a Plan to Exit the Euro' ": Jose Carlos Diez, chief economist at Intermoney, feels Spain should not be the first country to leave but "should have a plan to do it." This was pointed out in a meeting he had with el Economista. "Spain should never be forced out. We are a big country in Europe, and we must enforce our political weight, seeking alliances to solve the crisis. But if Portugal or Italy decide to leave the euro, we must have a plan to get out that day," he said, answering a question from a reader. "I hope that there is intelligent life in Europe and that day may never come," he added. Euro Exit Manifest The talk has started. That is the first step. Inquiring minds may wish to read the Euro Exit Manifest mentioned in the first link.
*** MIKE SHEDLOCK / LINK

A Burmese spring
A walk around battered, ramshackle Yangon, Myanmar's biggest city and former capital, quickly makes it clear how far the country has fallen behind the rest of Asia over the past half-century. In large part the place is but a ghostly reminder of former glories. Under British colonial rule, before independence in 1948, Rangoon (as it was then) was a thriving, cosmopolitan entrepot, the capital of Burma, one of the region's wealthiest countries. All that came to an abrupt end in 1962 after a junta of army officers, led by the brutal General Ne Win, seized power and launched the country on the quasi-Marxist "Burmese Way to Socialism". Private foreign-owned businesses were nationalised, prompting the exodus of hundreds of thousands of people, many of Indian origin. The country's tenuous attachment to democracy was broken. Myanmar, as Burma was later renamed by its ruling generals, retreated into itself. Comprehensive Western sanctions hit home from the mid-1990s onwards, only slightly alleviated by an injection of Asian money. Yangon, with its old cars and bookshops selling textbooks from the 1950s, attests to this seclusion. The colonial-era banks, law courts and department stores, once as imposing as any in Kolkata or Shanghai, have all but crumbled away. Except for the magnificent Shwedagon Pagoda, lovingly regilded to welcome the crowds of pilgrims and tourists, most of the city seems to have remained untouched for decades. Even youthful rebellion is stuck in a timewarp. Boys are still gamely attempting to flout authority by dressing up as punk-rockers.

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But now the country has seen another about-turn, almost as abrupt as that in 1962. Over the past two years dramatic reforms introduced by a new president, Thein Sein, prompted by the country's increasingly desperate economic straits, have started a rapid transition from secretive isolation to an open democracy of sorts. The mere fact of such a change taking place has surprised the world; its speed and breadth have caused widespread bewilderment.

Source: Economist

Even in careworn Yangon the signs are everywhere. The pavements are cluttered with traders selling an array of newspapers, newly licensed and privately owned, carrying pictures of Aung San Suu Kyi, the leader of the National League for Democracy (NLD). Less than two years ago the image of the defiant Nobel peace-prize laureate was banned; under a strict censorship system her name could not even be mentioned in the press. Now all censorship before publication has been lifted; any paper, such as the NLD's own newspaper D Wave, can apply to publish daily; and Miss Suu Kyi's photo festoons T-shirts, mugs and biros for sale on almost every street corner. People are still excited about being able to speak freely, even about politics, without constantly having to look over their shoulders. Some of those interviewed for this special report had never before talked to a foreigner, let alone a foreign journalist. With greater political freedom has come economic change. Almost all Western sanctions against the country have been lifted, and the country is swiftly reconnecting with the international financial system. Visitors no longer have to wander around with so many wads of dirty old kyat, the local currency, in their pockets: the first international ATM in Yangon has recently started disgorging fresh banknotes. Some outlets are now accepting credit cards. Real Western brands, rather than pirated versions, are about to appear in a few shops. An influx of relatively wealthy foreigners and returned natives will need new offices and apartments. Prime parts of Yangon are rapidly being flattened to cater for the expected demand.

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Myanmar's transformation is the most significant event to have taken place in South-East Asia in the past decade, and this special report will argue that it will have important consequences for the rest of Asia as well. In the space of just a few years almost every aspect of life has been touched by the reform programme. Not only was Miss Suu Kyi released from house arrest in November 2010, but the vast majority of the country's thousands of political prisoners have been freed. The NLD, harassed for decades and then declared illegal for refusing to participate in rigged elections in 2010, is legitimate once more. In April 2012 it won 43 out of 44 seats it contested in by-elections, the country's first free and fair polls since the 1950s: its MPs, led by Miss Suu Kyi, now sit in parliament....
*** THE ECONOMIST / LINK

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Charts That Make You Go Hmmm...

My admiration for the work of Greg Weldon is well and truly on the record; and

this week he takes a fascinating look at the median price of a new home in the United States (above), which has amazingly just hit a new all-time high, in comparison to the recovering but still clearly sick overall housing market. You can sign up for a free trial of Greg's magnificent work at www.weldononline.com.

Source: Greg Weldon 28 MAY 2013 31

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Source: Citi / Jesse's Cafe Americain

Tom Fitzpatrick

of Citigroup has a point:

As can be seen from the chart [above], Gold has never stayed below that "stairway to hell" for very long. Given that the debt limit number is going to continue higher, a reemergence of Gold strength looks inevitable. A lot of "considered opinion" suggests that by the end of the present electoral term (the end of 2016 when new presidential elections take place), that the US debt limit will be at around $22 trillion USD."

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Source: Visual Capitalist

Visual Capitalist takes a fascinating look at the cost of mining gold, including a
breakdown of what makes up the all-in cash costs of gold producers. (The Vulpes Testudo Fund holds a long position in Newmont Mining [NEM].)

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Words That Make You Go Hmmm...
In the wake of his UKIP party's
incredible performance in the UK local elections, Nigel Farage points out to his friends in the European parliament that, when it comes to vilifying companies for avoiding tax (not "EVADING" ... "AVOIDING"), they ought to perhaps begin by looking a little closer to home. CLICK TO WATCH

Jim Grant is a regular in these

pages, and my admiration for him is welldocumented. This week, in an excellent interview, he brings the kind of common sense and well-communicated rationale for which he is famed to an analysis of, amongst other things, gold bullion and mining stocks. CLICK TO LISTEN

Last week I was honoured to be asked

to speak at the 66th Annual CFA Conference here in Singapore alongside many truly great presenters. My presentation, "Do The Math", focused on the disconnect between the financial landscape surrounding us and mathematical reality.

CLICK TO WATCH

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and finally...
So ... allow me to set the scene. Two English football teams, Brentford and Doncaster Rovers, were playing each other in the last game of the season. The winner of this game would win promotion to the championship and all the financial rewards commensurate with playing in the higher league. The score was tied deep into added time, when Brentford won a penalty kick. Up stepped the colourfully named Marcello Trotter (on loan from my own team, Fulham), who wrestled the ball from the Brentford captain and demanded to take the kick — and, presumably, be covered in the glory that would accompany the victory...

CLICK HERE TO WATCH

It's a funny old game, football... Sorry Clive.

Hmmm...

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Grant Williams
Grant Williams is the portfolio manager of the Vulpes Precious Metals Fund and strategy advisor to Vulpes Investment Management in Singapore — a hedge fund running over $280 million of largely partners' capital across multiple strategies. The high level of capital committed by the Vulpes partners ensures the strongest possible alignment between the firm and its investors. Grant has 28 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 66th Annual CFA Conference, Singapore 2013 Presentation: "Do The Math": Mines & Money, Hong Kong 2013 Presentation: "Risk: It's Not Just A Board Game": 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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28 MAY 2013

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