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Conscious Uncouplings
“Now we see everything that’s going wrong
With the world and those who lead it
We just feel like we don’t have the means
To rise above and beat it.”
— Waitng on the World to Change, John Mayer
“Boswell: I do indeed come from Scotland, but I cannot help it.
Johnson: That, Sir, I fnd, is what a very great many of your
countrymen cannot help.”
— James Boswell & Samuel Johnson
“The 50-50-90 rule: anytime you have a 50-50 chance of
getting something right, there’s a 90% probability you’ll
get it wrong.”
— Andy Rooney
“And when you trust your television
What you get is what you got
Cause when they own the information, oh
They can bend it all they want.”
— Waitng on the World to Change, John Mayer
To learn more about Grant's new investment newsleter,
Bull's Eye Investor, Click here
A walk around the fringes of fnance
By Grant Williams
9 June 2014
9 june 2014
THINGS THAT MAKE YOU GO HMMM... ....................................................3
Paper Money Is Unft for a World of High Crime and Low Infation ............................20
Trading to Infuence Gold Price Fix Was “Routine” ...............................................22
Russia-China Gas Deal Could Ignite a Shift in Global Trading ...................................24
The Lessons of History ................................................................................25
IMF Sounds Alarm on UK House Prices But Changes Its Tune on Austerity ....................26
Interview with Marine Le Pen: “I Don’t Want This European Soviet Union” ..................28
Businessman “Who Bought HK$270M of Gold” Ends Up with Metal Bars ......................29
Wall Street Concerned Over China’s Gold Hoarding ..............................................30
What Must the EU Do to Survive? ...................................................................31
CHARTS THAT MAKE YOU GO HMMM... ..................................................33
WORDS THAT MAKE YOU GO HMMM... ...................................................36
AND FINALLY... .............................................................................37
9 june 2014
Things That Make You Go Hmmm...
It is with hearts full of sadness that we have decided to separate. We have been working
hard for well over a year, some of it together, some of it separated, to see what might
have been possible between us, and we have come to the conclusion that while we love
each other very much we will remain separate.
We are, however, and always will be a family,
and in many ways we are closer than we have
ever been.
We are parents frst and foremost, to two
incredibly wonderful children, and we ask for
their and our space and privacy to be respected
at this diffcult time.
We have always conducted our relationship
privately, and we hope that as we consciously uncouple and coparent, we will be able to
continue in the same manner.
Love, Gwynneth & Chris
With that simple statement, issued on March 25th, one of the world’s best-known celebrity
couples, the Oscar-winning actress Gwynneth Paltrow and Coldplay lead singer Chris Martin,
went their separate ways.
No muss, no fuss. On the contrary, it was clean, simple, and effective (unless you factor in the
amount of ridicule the two were subjected to in the popular press for their choice of words).
Now, contrast that ending of a life lived together under the spotlight to the EU’s unholy
alliance, clinging to a union which has long since deteriorated into frostiness and antipathy.
If that union were a marriage, its members would claim to be staying together for the sake
of the kids — only this time, their stubborn refusal to acknowledge that they probably never
should have gotten together in the frst place is hurting those kids in ways that are clear to just
about everybody except the “parents.”
The latest Eurostat youth unemployment fgures for the Eurozone show a drop in total youth
unemployment for both the EU-28 AND the EA-18 — that’s the good news.
The bad news is this:
The EU-28 still has 22.8%, or 5,340,000, of its under 25s unemployed. In the EA-18 that
percentage rises to 23.7%, or 3,426,000.
What’s more, the nations where that number has risen over the last twelve months are perhaps
not those you’d expect.
9 june 2014
Austria, Finland, Cyprus, the Netherlands, Italy, and Belgium all have more under-25s
unemployed now than they had 12 months ago.
March 2014
March 2013



EU Unemployment (Under-25)
March 2013/March 2014
Source: Eurostat
(For reasons explained with a simple “Data Not Available” footnote by Eurostat, data is missing
for Greece in both February and March of 2014, but I’m quietly confdent in stating that
Greece’s number will still be above 50%.)
Back in late 2013, the World Economic Forum released its “Global Agenda Report,” and high on
the list of priorities was youth unemployment:
(UK Daily Telegraph): A lost generation of jobless youth in the eurozone could tear the
single currency apart if nothing is done to address chronic levels of unemployment, the
World Economic Forum (WEF) has warned.
“There is a growing consensus on the fact that unless we address chronic joblessness we
will see an escalation in social unrest,” said S. D. Shibulal, chief executive of Infosys,
who contributed to the WEF’s Global Agenda Report.
“People, particularly the youth, need to be productively employed, or we will witness
rising crime rates, stagnating economies and the deterioration of our social fabric,” he
John Lipsky, who served as acting managing director of the International Monetary Fund
during the height of the Greek crisis in 2011, said the problem was likely to get worse
before it got better.
9 june 2014
He told the Telegraph: “Right now it’s hard to see any decisive move back the other way
at a time in which everyone feels their circumstances are under threat and are worried
about their economic future.”
Across the world, the number of people who say the economic situation in their country
is “bad” is climbing — despite the much-vaunted recovery we all keep hearing about from
No surprise in the numbers from Greece or China; Japan feels about right, despite the miracle
cure of Abenomics; and the Brits will always have something to complain about; but in the US
— where supposedly things are getting markedly better according to policymakers and central
bankers — we fnd a surprisingly strong majority who claim things are not just “not good” —
they’re “bad.”
Disenfranchisement amongst youth and disenchantment amongst the more reliable voting
classes has led to a rather predictable outcome, one which was demonstrated beyond any
doubt whatsoever in the recent EU elections.
When I wrote about what were then upcoming
elections (“Behold Politics,” TTMYGH, Jan
27, 2014), I said that the previously ignored
elections for the EU Parliament would be the
single most important event of the frst half of
2014. And, as the dust settles, it looks as though
I was right.
Across the continent, electorates sought a cure
for the ails they blamed upon the incumbent party.
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Things That Make You Go Hmmm...
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9 june 2014
They sought an antidote, and they found it in the anti-vote.
The one overriding theme as Europe went to the polls was a surge in votes cast for opposition
parties. Not just parties IN opposition, but parties OF opposition — opposition to “Europe.”
In the UK, Nigel Farage’s Ukip party became the frst party outside the Tories and Labour to win
a national election outright; and, as he promised he would, he caused a “political earthquake”:
(UK Guardian): Nigel Farage has unleashed his much-promised political earthquake
across British politics as Ukip stormed to victory in the European elections, performing
powerfully across the country.
The Eurosceptic party’s victory marked the frst time in modern history that neither
Labour nor the Conservatives have won a British national election.
In a stunning warning to the established political parties, Ukip was on course to win as
much as 28% of the national poll. That is a near doubling of the 16.5% it secured in the
last European elections in 2009, when it came second to the Tories with 13 seats....
Twenty years ago, in its frst European election, Ukip managed 1% of the vote.... Ukip
polled strongly across the country, except in some urban areas, and was expected to
take a seat in Scotland, which formally declares on Monday. The SNP showed no increase
in its share of the vote on 2009, but topped the poll in the nation.
The Tories, Labour and the Lib Dems will acknowledge that this is a powerful symbolic
moment: a party that was founded in 1993 has pulled ahead of all the established
parties, whose roots date back more than 100 years.
Meanwhile, across the rest of continental Europe, anti-EU parties shook the establishment to its
(NY Times): An angry eruption of populist insurgency in the elections for the
European Parliament rippled across the Continent on Monday, unnerving the political
establishment and calling into question the very institutions and assumptions at the
heart of Europe’s post-World War II order.
Four days of balloting across 28 countries elected scores of rebellious outsiders,
including a clutch of xenophobes, racists and even neo-Nazis. In Britain, Denmark,
France and Greece, insurgent forces from the far right and, in Greece’s case, also from
the radical left stunned the established political parties.
Whilst the upstarts failed to win enough seats to control the EU chamber, they have ensured
that the Eurosceptic voice will be heard louder than ever, and as the NY Times so beautifully
put it:
... [T]he insurgents’ success has nonetheless upended a once-immutable belief, laid out
in the 1957 Treaty of Rome, that Europe is moving, ftfully but inevitably, toward “ever
closer union.”
9 june 2014
It also threatened to redraw the domestic political landscape in several core members
of the 28-nation bloc, putting pressure on mainstream parties, particularly in Britain
and France, to reshape their policies to recover lost ground.
Nowhere was the establishment shaken more severely than at the very core of Europe — France
— where François Hollande (arguably the least “presidential” leader to hold offce in Europe in
several decades) saw his socialist party trounced by the far right Front National, led by Marine
Le Pen.
Hollande’s comments in the wake of what was a truly stunning defeat bore testament to the
damage done to the status quo. Bemoaning the public’s “distrust of Europe and of government
parties...,” Hollande hit the nail on the head when he said, “The European elections have
delivered their truth, and it is painful.”
For some, François, for some.
Meanwhile in Greece, Alex Tsipras, the frebrand leader of the staunchly anti-EU (and radically
LEFT-wing) Syriza, delivered on his pre-ballot promises, and the opposite end of the political
spectrum had their day in the sun, too:
(Links): The victory of the radical left was not particularly surprising, although
undeniably historic. The Coalition of the Radical Left (SYRIZA) is now the biggest party
in Greece having received 26.56% of the vote and winning six members of the European
Parliament (MEPs), whereas the leading governmental right-wing party, New Democracy,
received 22.73%.
The neo-Nazi party, Golden Dawn, is now the third-biggest party in Greece (9.40%),
electing three MEPs for the frst time in modern Greek political history.
But beyond the headlines, the result in Greece was a huge slap in the face for the austerity
(Links): In order to grasp fully the signifcance of this result, we need to factor in the
successes of the radical left represented by SYRIZA in the municipal and provincial
elections that took place on May 18 and 25. SYRIZA managed to secure a victory in the
largest province of the country (Attiki), where Rena Dourou marginally yet decisively
beat the government-supported candidate, who has held the post for 12 years. Perhaps
even more impressively Gabriel Sakellarides, a young radical economist supported by
SYRIZA, secured an unprecedented 48.60% in the municipality of Athens, a traditionally
conservative constituency. Further, candidates supported by SYRIZA managed to come
frst in the second round of the municipal elections in a number of working-class
Crucially, it is the frst time in Greek political history that a left-wing party has clearly
come frst in the European election.... The victory of SYRIZA acquires added political
and symbolic value given that it constitutes an anti-austerity vote with clearly left-wing
characteristics in a wider European context of the rise of the extreme-right.
9 june 2014
Socialists UMP National Front
Conservative Labour UKIP
Podemos Socialists Popular Party
Left/Liberals Social Democrats Danish
People's Party
Golden Dawn New Democracy Syriza
Forza Italia Five Star Democrats
2014 EU Election Results
(Anti-EU/Insurgent Parties in Red)
Source: NY Times
Whilst the anti-EU bloc failed to get enough seats to derail the bureaucracy of Brussels, they
DID win enough to create some serious waves and make it far harder to railroad through policy
the next time the wheels on the wagon start to wobble.
Overall, what the elections showed was the deep (and deepening) level of dissatisfaction with
the EU project, and in the wake of some crushing results a couple of things have stood out.
Firstly, there was the marked willingness of certain previously pro-Europe politicians (who had
been sitting conspicuously on the fence) to start pandering to the anti-EU crowd as if they’d
been anti-Europe all along.
David Cameron, for example, in the wake of the Tories’ defeat to Ukip, started getting awfully
(and very publicly) tough on Europe — calling for “real change” to Britain’s deal with Europe
and even threatening the nuclear option of leaving the Union if things didn’t go his way (a
stance guaranteed to play very well to the disgruntled Tory supporters who had defected to
Ukip on the back of Nigel Farage’s antagonism towards “Mr. Barosso” and company:
(UK Daily Mail): David Cameron today signaled he would call for Britain to leave the
European Union if Brussels refuses his demands for change.
Tough talk, Dave. Sadly, though, Cameron then exposed his naiveté:
But he repeatedly insisted he remains confdent his plan to overhaul the EU’s powers
will be successful.
9 june 2014
Dave... you can’t “change” Europe — certainly not when there are people like Jean-Claude
Juncker around.
(Bruno Waterfeld): Jean-Claude Juncker was an
architect of the troubled euro and has spoken
of the need to mislead the public in order to
advance the European Union’s cause.
If any individual represents the “old Europe”
and the wheeling and dealing that led to the
fawed euro and the EU constitution it is Mr
Juncker, who is one of the last believers in a
United States of Europe.
Mr Juncker, 59, was until last December the
prime minister of Luxembourg and the EU’s
longest serving leader until he was forced to
resign last year in a bizarre scandal involving
illegal phone tapping by the Grand Duchy’s
secret service.
The longest serving veteran of Brussels deal-
making, until last year Jean-Claude Juncker
headed the powerful Eurogroup meetings
of eurozone fnance ministers frefghting the crisis in the EU’s single currency — an
institution he had helped create, warts and all, in the Nineties.
“We decide on something, leave it lying around and wait and see what happens. If no
one kicks up a fuss, because most people don’t understand what has been decided, we
continue step by step until there is no turning back,” he said of the euro’s introduction.
At the height of the eurozone crisis, Mr Juncker was described as the “master of lies”
for organising a meeting of fnance ministers to talk about whether Greece could remain
in the single currency and then trying to deny it was taking place.
Germany’s Suddeutsche Zeitung accused Mr Juncker of “taking the lead on the
deception” and warned he had managed “to fritter away the last remaining trust the
people of Europe still have”.
Mr Juncker has never hidden his view that the compromises and deals being worked out
in EU meetings or leaders or ministers need be protected from public scrutiny, by lies if
“When it becomes serious, you have to lie,” he said.
“When it becomes serious, you have to lie.”
9 june 2014
Juncker is now the de facto front-runner for the most powerful post in the EU based on a
convoluted system of voting around blocs within Parliament.
The post Juncker craves so much — President of the European Commission, the most powerful
position in Europe — is, of course, NOT entrusted to the votes of the European electorate but
rather decided upon behind closed doors amongst unaccountable politicians.
Of COURSE! Why select the top job democratically? This is Europe.
But, the wave of public dissatisfaction with Europe has led many of Juncker’s backers to decide
it is better for them NOT to be seen to be behind his bid; and despite an almost embarrassingly
tenacious attempt on Juncker’s part to get the post he desires oh so badly, his support has
crumbled in recent days as it has become clear to the political class in Brussels that being seen
to be in his camp would be bad for THEM.
The other interesting thing to come out of the EU elections is the sheer level of antipathy
towards being one big, happy European family that rages right across the continent.
A desire to NOT be part of the greater whole is hardly something new or unexpected in Europe
— far from it. A quick look at the map above will tell you all you need to know.
9 june 2014
The map shows all the currently active separatist movements in Europe, from the more
widely known Basques and Catalans in Spain that both seek secession from Spain proper to the
citizens of Venice, who want out of Italy (the word ballot actually originates from the Venetian
word ballotta or “little ball”), and the Cornish Nationalist Party of Southwest England, who
demand independence for Cornwall. (Anybody who’s ever stopped to ask for directions from a
Cornwallian will realize that televising THOSE debates would require subtitling on a level never
before attempted.)
But I digress. Across Europe — indeed, across the world — the voting public are primed to be
mobilized in the service of causes that are inherently not in their best interests because they
are angry, upset, confused, and don’t know whom to blame. The natural targets of their ire
are, of course, incumbents (and in the case of Europe, that ire is correctly targeted), but their
frustration leaves them open to making decisions which are at best ludicrous and at worst
downright dangerous to their well-being.
Nowhere is that more obviously displayed than around latitude 54°N, where England and
Scotland share a border.
September 18, 2014, has been decreed the date upon which every Scot will have the right to
enter a booth and answer one simple question:
“Should Scotland be an independent country?”
Time for a little history:
The Acts of Union between England and Scotland were passed in 1707. Although both countries
had shared a monarch since 1603 when James I of England simultaneously became James VI of
Scotland (see you, Jimmy?), an offcial joining of the kingdoms had not taken place.
However, a somewhat disastrous attempt by the Scots to establish a trading colony called
“Caledonia” on the Isthmus of Panama at the Gulf of Darien in the late 1690s set in motion a
chain of events that would lead directly to the choice being presented to Scots in a mere 16
The project became known as the Darien Disaster; and, as gambles go, it was a typically
Scottish one.
Between a quarter and a half of all the money
circulating in Scotland at the time was used to
back the Darien Company, established by an Act of
Parliament in 1695 to hold a monopoly in trading
with India, Africa, and the Americas. After a fractious
process involving competing company factions, the frst
expedition was decided upon, and William Peterson
set off for Darien in July 1698. The best one could say
about the Darien Company was that it did have a very
cool fag.
9 june 2014
Five ships and 1,200 colonists successfully navigated their way to Darien; but due to poor
planning, inadequate provisioning, lack of demand for trade goods, swirly weather, outbreaks
of disease, and a siege laid by Spanish forces, the Scots abandoned Darien in April of 1700 and
headed home — most likely with some wicked sunburn.
When the accounting had been done, the Darien Disaster had drained roughly a quarter of
Scotland’s liquid assets in a little under two years, and the country had no choice but to ask the
English for a little something to tide them over — you know, just until they got back on their
The English government agreed to cover the debts owed to the Scottish people by its
government; the Act of Union was signed in 1707; and England and Scotland, putting a long
history of tribal confict frmly behind them, became one big happy family.
The precedent of government handouts to the people of Scotland was also established.
Fast-forward a little over 300 years, and it appears the
Scots are fnally back on their feet.
A little round fellow by the name of Alex Salmond (the
d, unlike the man, sadly, is silent) has, in his roles as
leader of the Scottish National Party and, more
infuentially, First Minister of Scotland, agitated for the
country of his birth to renounce the Acts of Union and
become an independent nation. With the upcoming
referendum on September 18, he is a step closer to
realizing the country’s his dream.
In the picture (above, right) Salmond can be
seen making the traditional Scottish salute which
involves the simultaneous raising of two thumbs in
a gesture of friendship and something the Scots call
fandabidoziness — a greeting that Scotland’s fnest
ambassadors have been taking to the rest of the world
for generations.
But back to the referendum.
The case against Scotland’s going it alone has been
laid out by everybody from David Cameron to David
Bowie, and it encompasses a raft of economic and
societal logic which is hard to refute — starting with
the common currency, the good old British pound:
9 june 2014
(The Week): Alex Salmond was “pilloried” for the assumption... that Scotland will
be allowed to keep sterling. Salmond says David Cameron would be “in breach of
undertakings to the Scottish people” if he refuses to allow an independent Scotland
to join a sterling currency union, the Guardian reports. But the Chancellor, George
Osborne, has made it clear that it is “highly unlikely” that Scotland will be allowed to
keep using the currency after independence. Former prime minister Gordon Brown has
also said that Scotland “could not force the UK into a currency union against its will.”
Salmond promised his constituents that he would use Scotland’s economic bargaining power
to join the European Union but — in a nod to the anti-EU sentiment gripping Europe — made
another promise, that the country would not have to adopt the euro:
The currency issue is further complicated by the desire for a newly independent
Scotland to join the EU, but opt out of the Euro. Salmond says there’s “no prospect”
of Scotland joining the Euro, but experts believe it may be forced to use the European
currency. Professor Jo Murkens, an expert on Scottish independence and European
constitutional law, told the Scottish Express: “Every new applicant state has to commit
themselves in law to adopting the euro. There have been no opt-outs. It is a condition
of membership.”
Then there’s the debt:
Another thorny issue raised by the separation of the two countries is the amount of the
UK’s £1 trillion national debt that will be inherited by Scotland. The White Paper says
Scotland will take on a share amounting to between £100bn and £130bn. As a proportion
of GDP — gross domestic product, which is boosted in Scotland due to income from North
Sea oil — the document says this is “less than the debt of the rest of the UK expressed
in the same terms”. Alex Salmond has said that he may not agree to taking on Scotland’s
share of the national debt if Scotland was not allowed joint control of the pound.
You have to hand it to Salmond — he’s got some front: “We want to pool the debt, but not the
revenues from North Sea oil & gas. We want to keep the pound and we want to be a part of the
EU but not use the euro.”
Folks, if anybody promises YOU that kind of Nirvana, you should immediately cast your vote for
the other guy, whoever he may be.
In a recent poll from the Centre for Macroeconomics, only one respondent out of the 46
respected academic and city economists surveyed agreed that Scotland would be better off in
economic terms if it left the United Kingdom (no word if that respondent was, in fact, Salmond
himself, who, amazingly enough, is a trained economist who served seven years as an assistant
economist at the Royal Bank of Scotl.... ah...); and the chief battleground for the economic
debate centres around the oil revenues from the UK’s North Sea felds, which will provide the
bulk of an independent Scotland’s income and which employ some 450,000 people across the
9 june 2014
Source: HMRC/OBR
Since 1964, when the frst licenses were granted, 42 billion barrels of oil have been extracted
from the North Sea, with a further 24 billion estimated to be recoverable. That equates to
roughly £57 bn in tax revenue between now and 2018 — according to the Scottish Government,
at least. But those fgures have recently been called into question — by one of Salmond’s own
advisors — and that has put a little dent in Salmond’s plan:
(Scotsman.com): One of Alex Salmond’s economic advisers has produced fgures
suggesting that the Scottish Government’s oil revenue forecasts are out by around £2
In evidence to Holyrood’s fnance committee, Professor Andrew Hughes Hallett — a key
member of Alex Salmond’s Council of Economic Advisers — said “it would be reasonable
to expect North Sea oil revenues to rise to £4.5-5bn [per year] between 2016-20”.
Last week, the government released a paper claiming oil revenues would be £6.9bn for
2016-17 — which the SNP says would be the frst year of independence.
At First Minister’s Questions yesterday, Conservative leader Ruth Davidson MSP
challenged Mr Salmond to explain the £2bn discrepancy in the fgures.
The government claims that Prof Hughes Hallett’s fgures were submitted before its oil
paper was published last week.
Ms Davidson said: “Numerous experts have questioned Alex Salmond’s infated oil
fgures, but his knee-jerk response is to say that everyone else is wrong.
9 june 2014
“Now, the First Minister’s own expert adviser has said his oil revenue estimates are £2bn
“This is the same man who Alex Salmond has said is part of a group which contains
the ‘most formidable intellectual frepower ever to have tackled economic
underperformance’. The First Minister’s economic case for an independent Scotland
is reliant on high oil revenues — now we know they are just a piece of fction. These
infated oil fgures are an attempt to con the people of Scotland, but Alex Salmond has
been caught red-handed.
“With just 100 days until the referendum vote, the entire basis for the SNP’s separation
mathematics has been blown apart.”
Certainly the production profle of the North Sea felds lends an air of credence to the UK Offce
of Budget Responsibility’s forecasts of a 38% fall in oil revenue by 2017-18:
Source: Oil & Gas UK
The issue of oil and how to divide the revenues is at the very heart of the argument for and
against independence for Scotland.
Should the split be made purely on geographical basis, with the border between the two
countries establishing who owns what, then Scotland would have the rights to 95% of the UK’s
current oil and gas reserves. On a per capita basis, that would drop to 9%; so, as you can see, as
go the oil revenues, so goes Scotland’s future.
9 june 2014
Away from North Sea oil, Scotland’s economy relies on three main pillars to generate the
£26 billion in export revenue it takes in, namely whisky — without an e — which generates
up to £4.3 bn (though 80% of the whisky brewed in Scotland is produced by foreign-owned
companies), electronics (ah’ve nae idea) and fnancial services. (Edinburgh was ranked 15th
in the list of world fnancial centres in 2007 but fell to 37th in 2012, following damage to its
reputation in the wake of the GFC; and in 2014 it was ranked 64th, so that contribution is
defnitely on the wane, I am afraid.)
Moving to the expenditure side of the balance sheet, Scotland’s benefts culture is something
that has driven the voting in countless elections:
(UK Daily Mail, October 2012): Almost nine in ten Scots receive more from the state
than they pay in tax because of a “corrosive sense of entitlement” north of the border,
a top Tory said yesterday.
Ruth Davidson, leader of the Scottish Conservatives, said it was ‘frightening’ only
283,080 households — 12 per cent of the total — pay more in taxes than they get back in
public services...
“It is staggering that public sector expenditure makes up a full 50 per cent of Scotland’s
gross domestic product and only 12 per cent of households are net contributors, where
the taxes they pay outweigh the benefts they receive through public spending.
“Only 12 per cent are responsible for generating Scotland’s wealth. There are people
with household incomes of £50,000 who are paying tens of thousands of pounds in
taxation and even that doesn’t cover the amount of money that government spends in
their name.”
She said it was “frightening” that the average Scottish household consumed £14,151
more in public services every year than it pays in tax, according to the Offce for
National Statistics.
Yes... I know it’s the Daily Mail... but still... data from 2012–13 show that Scotland generated
9.1% (£53.1bn; this included a geographical share of North Sea oil revenue — without that,
the fgures were 8.2% and £47.6bn of the UK’s tax revenues) and received 9.3% (£65.2bn) of
That could be a problem in a brave new Scotland.
The reasons for the Scots NOT to secede from the Union are clear and, to an outsider like me,
utterly compelling, whilst, as far as I can fathom, the campaign FOR independence can be
neatly summed up by the motivational poster below. And yet, amazingly, according to the polls
the decision looks as though it could go down to the wire (although, encouragingly, the “No”
vote has had a surge in recent weeks).
9 june 2014
Source: BBC
Although it may be hard to fathom after what you’ve just read, I dearly love both Scotland
AND the Scots (that should hopefully save me a kick in the heed from a wonderful Scottish
friend of mine who offered to cook me dinner on Tuesday — before reading this, hopefully);
and I genuinely hope they do the right thing and opt to stay a part of the United Kingdom
on September the 18th. But, amazingly, it’s by no means a foregone conclusion at this point
that they will, and the possible ramifcations of a “Yes” vote to the question of Scottish
independence have a bunch of career politicians right across Europe quaking in their boots:
(Washington Post): the European ramifcations of Scottish independence go well beyond
those of a possible one-third minority of “anti-European populists” in the European
Parliament. While it is an exaggeration to predict a “re-balkanization of Europe”, there
is no doubt that the Scottish referendum will have consequences for other E.U. member
9 june 2014
For example, Belgium is feeling the pressure of the increasingly popular and radical
separatist New Flemish Alliance (N-VA), the most popular party within the Dutch-
speaking part of Flanders, while Spain has been confronted with mass demonstrations
in favor of Basque and Catalan independence. So far the national elites have tried to
stave off separatist claims by arguing that the new states would be too small to survive
economically and that the European Union will not allow them to join as independent
states. But if Scotland can pull it off, this important argument will have run its course.
Ah yes, those “national elites.” National elites like our friend Jean-Claude Juncker and his
ilk, who either like the status quo very much indeed, thank you very much, or seek to take
advantage of the high levels of dissatisfaction in Europe to persuade people to vote for things
they really oughtn’t to.
The EU elections have shown the world that people will vote for anybody who manages to
capture the mood of the public at a given juncture — even if that person is an extremist, as in
the case of Marine Le Pen in France and Golden Dawn and Syriza in Greece.
Alex Salmond is trying to pull his own variety of wool over the eyes of the Scottish public, and
who knows? Maybe, tragically, he succeeds.
To me, by far the most interesting vignette in this little circus is that surrounding Farage’s Ukip,
who have managed to shrug off bogus attempts to tar them with what is surely currently one of
the most powerful words in the English language: racist, and surged in the polls based on their
opposition to Europe and putting the “Great” back into Britain.
Farage has captured the anti-European mood in the UK; and despite attempts to paint him
and his party as extremists, the great British public have seen through the desperate angling
of the establishment and voted for him in their droves. It remains to be seen how that anti-EU
sentiment will translate into votes in the 2015 General Election.
So let’s recap what we’ve learned today. Well, we’ve seen that a sense of national identity can,
under the right conditions, move large groups of people to vote in ways you might ordinarily
expect them not to...
(The Atlantic): ...Plebiscito.eu, an organization representing a coalition of Venetian
nationalist groups, held an unoffcial referendum on breaking with Rome. Voters were
frst asked the main question — “Do you want Veneto to become an independent and
sovereign federal republic?” — followed by three sub-questions on membership in the
European Union, NATO, and the eurozone. The region’s 3.7 million eligible voters used a
unique digital ID number to cast ballots online, and organizers estimate that more than
2 million voters ultimately participated in the poll.
[Results were] 2,102,969 votes in favor of independence — a whopping 89 percent of all
ballots cast — to 257,266 votes against. Venetians also said yes to joining NATO, the EU,
and the eurozone. The overwhelming victory surprised even ardent supporters of the
initiative, as most polls before the referendum estimated only about 65 percent of the
region’s voters supported independence.
9 june 2014
We’ve seen that Jean-Claude Juncker has about as much self-respect as we thought he did...
(UK Guardian): Jean-Claude Juncker, the embattled frontrunner to head a new EU
executive, delivered a bitter attack on Britain on Thursday, vowing he would not get
on his knees to secure backing as next president of the European commission. He
also strongly criticised European leaders, complaining he was being ignored after the
grouping of Europe’s centre-right parties won the European election.
Strongly opposed by David Cameron in his ambition to become the next president of
the commission, Juncker declared he would not genufect before the British, lambasted
what he described as a British press campaign against his candidacy, and warned that he
was running out of time to secure the most powerful post in Brussels....
The Luxembourger sounded aggrieved and abandoned. But he vowed to fght on, seeking
to mobilise a broad coalition in the parliament in his support.
And we’ve discovered that politicians will bend the facts to suit their side of the argument
whenever possible...
(UK Daily Express): Alex Salmond was accused of continuing to mislead voters yesterday
over his claims that a separate Scotland would effortlessly become a new member of
the European Union.
It emerged that Mr Salmond’s assurance that a new Scottish state would quickly and
easily be assimilated into the EU was far from the truth.
He has stated that legal advice given to the UK Government earlier this year said it was
“realistic” to assume a newly independent Scotland could be within the EU in about 18
The First Minister also insists a breakaway country would start life in the EU on the
same terms as the UK, including an opt-out from the euro.
But it has been revealed that subsequent legal advice given to Westminster, and seen by
Mr Salmond’s government, has highlighted major diffculties with his vision.
Shameless politicians who are willing to put aside technicalities such as the truth and a voting
population that is tired of the status quo and looking for a change?
The conscious uncouplings may have only just begun.
9 june 2014
Right, then ... having hopefully not offended my Scottish friends too much, it’s time
to get to the meat of this week’s Things That Make You Go Hmmm..., and we kick off with
Kenneth Rogoff’s thoughts on the future of paper currency — just to make sure we start with a
few laughs.
We have several articles on gold this week, including the story of HK$270m of gold bars shipped
from Ghana, which turned out to be fake (hard to believe that could happen, I know), the
curious concerns of Wall Street over China’s “hoarding” of the yellow metal, and the inside
story of the gold “fx” and the STAGGERING news that rigging the gold price has been “routine.”
(Say it ain’t so? Surely?)
A deal between China and Russia looks set to change the energy landscape forever, and as the
25th anniversary of Tiananmen Square passes, we look at the lessons learned from a black day
in Chinese history.
The IMF issues a mea culpa and a warning to Britain; Mats Persson tells us what the EU needs to
do to survive; and we get to spend a little time in the company of Marine Le Pen, courtesy of
Der Spiegel.
Charts? Well there’s the Household Balance Sheet, the distinct lack of bears, and a look at the
various types of stock fraud. We round things off with the incomparable Stephanie Pomboy, the
indefatigable Steen Jakobson, and the in-trouble Edward Snowden.
That should keep you going for a little while.
Until Next Time...
Paper money is unft for a world of high crime & low infation
Abolishing physical currency would achieve two valuable objectives, writes Kenneth Rogoff
Has the time come to consider phasing out anonymous paper currency, starting with large-
denomination notes? Getting rid of physical currency and replacing it with electronic money
would kill two birds with one stone.
First, it would eliminate the zero bound on policy interest rates that has handcuffed central
banks since the fnancial crisis. At present, if central banks try setting rates too far below zero,
people will start bailing out into cash. Second, phasing out currency would address the concern
that a signifcant fraction, particularly of large-denomination notes, appears to be used to
facilitate tax evasion and illegal activity.
9 june 2014
Yes, there are some important arguments in favour of the status quo. These include a likely loss
of seigniorage revenue — the proft central banks make by printing money — even if anonymous
paper currency is replaced with purportedly anonymous electronic government currency. Even
though central bank “profts” are turned over to national treasuries, the ability to skim off
expenses without having to beg can help insulate central banks from political pressures. But
the real costs to governments would be much less than the loss of seigniorage revenues might
indicate, because they would gain revenue by making tax evasion more diffcult. There would
also be savings from crime reduction.
Another issue is that society may want to preserve the right for individuals to make anonymous
payments in certain activities, even if it is desirable to strip away the cloak of anonymity from
those engaged in tax evasion and crime. Anonymity, for example, facilitates experimentation at
the fringes of society with activities that might ultimately become legal (buying marijuana, for
The idea of fnding creative ways to get around the zero bound on interest rates has been
championed for more than a decade by Willem Buiter, a former UK Monetary Policy Committee
member. Phasing out paper currency is by far the simplest. With electronic payments
mechanisms becoming increasingly prevalent even in small transactions, and with the supply of
paper currency overwhelmingly top-heavy with large-denomination notes, the case for keeping
the currency status quo has weakened.
Without going into gory detail, in both the eurozone and the US there is roughly $4,000 in
circulation for every man, woman and child, and it is not easy to fnd. In Japan the fgure is
almost double that. In the US and Japan, more than 75 per cent of currency is held in the
largest denomination notes, the $100 bill and the Y10,000 note. The situation in the eurozone
is different only in that there is a larger range of high-denomination notes going all the way to
€500, but the basic point is similar.
“In arresting Mexican drugs lord Joaquín ‘El Chapo’ Guzmán, authorities found more than
$200m in cash — and this was not a frst”
True, it is likely that a signifcant share — perhaps half — of dollars and euros circulates
internationally. Some portion of this is surely abetting illegal activity and tax evasion. (In
arresting Joaquín “El Chapo” Guzmán, the Mexican drug lord, two months ago, authorities
found a room containing more than $200m, and this was not a frst.) Then again, dollars and
euros, including large-denomination notes, are also used for legal purposes. Even so, there still
appears to be a very large share circulating in domestic underground economies, estimated
to be at least 7-8 per cent of gross domestic product for the US and considerably higher for
Of course, if governments could credibly issue an anonymous electronic currency, the problem
of the zero bound would still be solved and central banks could keep pushing their product.
Even if this outcome is feasible, however, it is hardly desirable.
9 june 2014
Note that if governments do stop issuing anonymous currency, then they would probably have
to ensure that the private sector did not proffer a Bitcoin-like substitute. Otherwise, illegal
activities would proceed unabated, and the government would forfeit even the small infation
tax revenue it gets now. Finally, a shift away from anonymous paper currency would ideally
involve co-operation among governments.
Perhaps the right place to begin is by phasing out large denomination notes. This might be
enough to accomplish the main objectives. It is time to consider whether paper currency is
vestigial, or worse.
*** FT / LINK
Trading to infuence gold price fx was “routine”
When the UK’s fnancial regulator slapped a £26m fne on Barclays for lax controls related to
the gold fx, it offered more ammunition to critics of the near-century-old benchmark. But it
also gave precious metal traders in the City of London plenty to think about.
While the Financial Conduct Authority says the case appears to be a one off — the work of
a single trader — some market professionals have a different view. They claim the practice
of nudging a tradeable benchmark in order to protect a “digital” derivatives contract — as a
Barclays employee did — was routine in the industry.
As a result, customers of Barclays and other market-making banks may be looking to see if they
too have cause for complaint, according to one hedge fund manager active in the gold market.
“If I was at the FCA I would be looking at all banks trading digitals. This could be the tip of the
iceberg — there’s a massive issue with exotic derivatives and barriers.”
In the City, digital options are common in the precious metals sector and, especially, in forex
trading. A payout is triggered if a predetermined price — or “barrier” — is breached at expiry
date. If it is not, the option holder gets nothing.
One former precious metals manager at a big investment bank says there has long been an
understanding among market participants that sellers and buyers of digitals would try to
protect their positions if the benchmark price and barrier were close together near expiry.
“These are not Ma and Pa products, they are for super-professionals,” says the former manager.
“There’s a fundamental belief that both parties can aggress or defend their book, and I would
have expected my traders to do so.”
In the case of gold, this means trying to move the benchmark price, which is set during the
twice daily auction “fxing” process run by four banks, including Barclays.
9 june 2014
That is what the Barclays trader, Daniel Plunkett, did on June 28, 2012. Exactly a year earlier,
the bank had sold an options contract to an unnamed customer stating that if after 12 months
the gold price were above $1,558.96 a troy ounce, the client would receive $3.9m.
By placing a large sell order on the fx, Mr Plunkett pushed the gold price beneath the barrier,
thus avoiding the payout. After the counterparty complained, the FCA became involved.
Barclays paid the client the $3.9m, and was fned. Mr Plunkett was also fned — £95,600 — and
banned from working in the City.
In its ruling, the FCA criticised Barclays for its poor controls related to the gold fx and said the
bank had failed to “manage conficts of interests between itself and its customers”.
“We expect all frms to look hard at their reference rate and benchmark operations to ensure
this type of behaviour isn’t being replicated,” said Tracey McDermott, the FCA’s director of
enforcement and fnancial crime.
The identity of the Barclays client has not been revealed. But a senior gold trader with
knowledge of the transaction says it was not another investment bank or hedge fund.
“This was not professionals going head to head,” he says.
Philip Klapwijk, managing director of Precious Metals Insights, a consultancy, says digital
options were also sold to funds, as well as to private banks, and then repackaged for sale to
wealthy individuals, typically as interest rate products. In these cases, the option seller pushing
around a benchmark was “not quite cricket”, Mr Klapwijk said.
The hedge fund manager who believes the problem is more widespread agrees, and says his
frm would have also complained to the FCA had it been in the same position as the Barclays
“If you have Goldman Sachs on one side and JPMorgan on the other, the gloves are off. But not
everybody in the market has the same level of sophistication and vindictiveness.”
He adds that tighter regulation has made banks selling derivatives think more about their
business models, and what is fair....
*** FT / LINK
9 june 2014
Russia-China gas deal could ignite a shift in global trading
“The unipolar model of the world is over”, declared Vladimir Putin last week.
“The global picture has completely changed”.
The St Petersburg International Economic Forum was less well-attended than usual. During
previous visits to this annual “Russian Davos”, now in its 18th year, I’ve regularly been mown
down by American and West European CEOs, as they’ve purposefully stomped down carpet-tiled
corridors, their retinue of aides and cameras in tow.
This year, while plenty of Western executives did make the annual trek to Russia’s beautiful
second city, keen to sell more cars, soap powder and fnancial services in Europe’s most
valuable consumer market, the corridors were safer. Many of the top names stayed away.
The sanctions imposed on Russia in response to events in Ukraine put Western business leaders
under pressure. Fearing unsavoury headlines, and often responding to specifc government
requests, some of our best-known corporate pole-climbers gave “Putin’s vanity summit” a miss.
Such absences, along with the UK’s local and European election shenanigans, meant the St
Petersburg Forum generated less comment than usual. Yet I’d say this year’s event provided
confrmation of one of the most important pieces of news to emerge from Russia since the
Soviet Union was dissolved a quarter of a century ago.
I’m referring to the $400bn (£237bn) deal struck between Moscow and Beijing, under which
Russia will supply 38bn cubic metres (bcm) of gas to China over 30 years from 2018. Before that
happens, the two sides are to share the estimated $77bn cost of building the new “Power of
Siberia” pipeline, stretching from Eastern Siberia to China’s populous north-east.
While that will already amount to the world’s biggest construction project, this joint initiative
could yet see a second pipeline built to the Western Provinces of the People’s Republic,
expanding Russia’s annual Chinese gas sale to 61bcm.
This deal has been a long time coming. Last spring, after a decade of negotiation, state-run
energy giants Gazprom and CNPC signed a memorandum of understanding regarding the initial
pipeline route. Putin’s visit to China last week, followed by events in St Petersburg, cemented
the high politics of the tie-up.
Some say the Ukrainian crisis has forced an “isolated” Russia to do this China deal now, in a
scramble for allies. Others judge that Beijing, showing its disapproval of Western adventurism
and lingering Cold War attitudes, is deliberately standing next to Moscow in a joint display
of strength. Whichever way you spin it, the outcome is the same. Russia, source of a third of
all natural gas used in Western Europe, will soon have a major alternative market for its vast
exports. And that can only put upward pressure on both wholesale and retail gas prices.
9 june 2014
Enemies for much of the Cold War, Russia and China are now building serious commercial ties
across their 2,700-mile border. Under-reported in the West, this fast-strengthening relationship
will do much to shape the world economy in the years and decades to come.
As recently as 2003, cross-border trade between Russia and China amounted to just $12bn.
Over the last decade, that’s expanded more than seven-fold, reaching $90bn last year. Both
sides recognise the synergies between the world’s largest energy exporter and the world’s most
populous nation and biggest manufacturer.
In 2009, Russia’s oil giant Rosneft secured a $25bn oil swap contract with China. Last year, that
relationship deepened, after Rosneft agreed to double oil supplies to China in a deal valued at
a colossal $270bn. This refected Russia’s plan to shift its focus away from saturated and crisis-
ridden European energy markets and towards Asia — a plan well in train years before recent
events in Ukraine.
Under the latest oil agreement, Russia pumps an extra 300,000 barrels to China daily for the
next 25 years, doubling the crude it already sells to the energy-hungry People’s Republic. The
speed of change in the direction of Russia’s oil exports has been stark. Russia now sends about
750,000 barrels a day to Asia, a ffth of the oil it sells abroad, helped by the East Siberia Pacifc
Ocean crude pipeline, linking Russia to China, which opened in 2010....
The lessons of history
Even after the Chinese army moved into Tiananmen Square on the night of June 3rd 1989, and
cleared it of the detritus left by the students who had occupied it for most of the previous
seven weeks, it was several days before observers were certain who was in control of China.
Your correspondent, looking down Beijing’s central boulevard, Chang’an Avenue, at a maze of
still-burning barricades a day after the bloody operation, was not alone in wondering whether
the Communist Party could ever heal. This newspaper, with which he was not then linked,
summed up a common view: “This week China looked into the abyss of coup, counter-coup and
civil war”. Foreign doomsayers were proved wrong. But even after 25 years of relative stability,
it is still wise to be cautious about the cohesion of Chinese politics.
It was not just foreign observers who were given to apocalyptic musings at the time. “If the
rebels had had their way, there would have been a civil war,” Deng Xiaoping told a visiting
Chinese-American physicist, Tsung-Dao Lee, three months after the army crackdown that left
hundreds, if not thousands, dead. Thanks to strenuous efforts by the Communist Party to erase
memories of what happened (see article), many in China now have only a dim understanding of
the history of the protests in Tiananmen Square and the nationwide unrest they triggered.
9 june 2014
But Deng’s analysis is remarkably close to the mainstream among the generation of young urban
residents who have grown up since: if they have heard of the 1989 protests, many feel that,
though the killings may have been bad, the army’s resolute action helped to create the stability
that allowed China’s economy to grow from one that was then smaller than Britain’s into the
world’s second-largest.
This argument, however, glosses over the factional infghting within the party that paralysed
decision-making and allowed the protests to grow to the scale they did. Even after Tiananmen,
Deng appeared to recognise that political stability was by no means assured. By 1992, then
retired, he had concluded that the collapse of the Soviet Union and its allies was mainly
attributable to their failure to make citizens richer. To avoid a similar fate for China, he went
on his famous “southern tour” to drum up support for a fresh round of economic reform. It was
this bold move, in the face of stiff conservative resistance, rather than the crushing of largely
peaceful dissent, that laid the groundwork for China’s prosperity today. As he tottered round
southern China, berating conservatives and calling for the liberation of China’s economy from
ideological shackles, he remarked: “If any problem occurs in China, it will arise from within the
party.” His words remain apt.
Not since the collapse of the Qing dynasty in 1911 has China enjoyed such a prolonged period
of stability as it has between Tiananmen and today (barring a handful of high-level purges and
numerous street protests, most of them isolated and triggered by local grievances). Yet political
risk is as important to bear in mind as the wobbles that are causing growing numbers of
observers to worry about China’s economy. Neither kind of risk is grounds for immediate alarm.
The government appears suffciently in control of the economy’s levers (not least through
ownership of the main commercial banks) and has suffcient assets at its disposal to prevent a
sharp slowdown, at least for another few years. But one important lesson of Tiananmen is that
politics in China has a capacity to surprise. Your correspondent recalls respected analysts in the
months before June 1989 pooh-poohing rumours of a serious rift within the leadership....
IMF sounds alarm on UK house prices but changes its tune on
The International Monetary Fund has warned that a housing bubble could derail the UK’s
economic recovery, as it urged the government to consider reining in the Help to Buy scheme
and called on the Bank of England to clamp down on risky mortgages.
The IMF also ended its row with George Osborne over austerity by describing the chancellor’s
defcit reduction plan as “appropriate” in its annual review of the British economy. Christine
Lagarde, the IMF’s managing director, admitted that the organisation had underestimated the
strength of the UK’s economic recovery and predicted that it would continue for the next few
9 june 2014
But in the same week that the European commission expressed concerns over the domestic
housing market, Lagarde added to the chorus of concern over the role of property in Britain’s
economic revival. Presenting the report in London on Friday, she said the UK needed to restrict
high loan-to-income mortgages and reconsider the Help to Buy mortgage subsidy programme to
prevent families becoming vulnerable to a collapse in house values or a surprise interest rate
Responding to the review, the chancellor conceded that Britain must keep a close eye on rising
house prices and indebtedness, but welcomed the IMF’s overall endorsement. Osborne made
clear that he expects the Bank of England to take action, which could include limiting mortgage
ratios and recommending changes to Help to Buy, if it sees a housing bubble forming.
Osborne said: “I agree with Christine Lagarde that we need to be alert to the build-up of debt
in the housing market. We need to be alert when we see house prices rising. I have given the
Bank of England tools to do the job, and they should not hesitate to use those tools if they see
these developments turning into a risk to the British economy.”
Lagarde called on the Bank of England to deploy “macro-prudential” measures to address the
fnancial risk, including potential caps on loan-to-income and loan-to-value mortgage ratios.
Later this month, the Bank’s fnancial policy committee (FPC) will announce whether it is taking
action to cool the market in the wake of a warning from deputy governor Sir Jon Cunliffe that it
was the brightest of “blinking warning lights” of risk.
Lagarde said action should be taken “in a gradual, fexible way” to see whether the measures
worked. “Clearly it is something that needs to be watched and depending on circumstances, on
pricing levels, those macro-prudential measures should be further activated if necessary.”
Published in the same week that the Nationwide building society reported record average
house prices, the IMF report said that the property market remained one of the major threats
to the recovery, alongside poor productivity growth and the weakness of the banking sector.
The withdrawal of low interest rates in the UK and the US could also undermine much of the
progress made since the recession should it be mishandled by central banks and treasury
policymakers, it said.
It said: “A steady increase in the size of new mortgages compared with borrower incomes
suggests that households are gradually becoming more vulnerable to income and interest rate
Treasury offcials are understood to be confdent that restrictions on home loans will cool the
market over the coming months without the need for a hike in interest rates....
9 june 2014
Interview with Marine Le Pen: “I Don’t Want This European
Soviet Union”
SPIEGEL: Ms. Le Pen, having won 25 percent of the French vote, your Front National party
stands as one of the primary benefciaries of the May 25 European Parliament election. How
could such a thing come to pass?
Le Pen: The French want to regain control of their own country. They want to determine the
course of their own economy and their immigration policies. They want their own laws to take
precedence over those of the European Union. The French have understood that the EU does
not live up to the utopia they were sold. It has distanced itself signifcantly from a democratic
mode of operation.
SPIEGEL: Yet, prior to the election, it was said that the establishment of lead candidates for
the two biggest groups — Jean-Claude Juncker for the center-right and Martin Schulz for the
center-left — would strengthen democracy in the EU.
Le Pen: That is totally bogus. Everybody knew that the parliament wouldn’t be making the fnal
decision on the next president of the European Commission.
SPIEGEL: Do you want to destroy Europe?
Le Pen: I want to destroy the EU, not Europe! I believe in a Europe of nation-states. I believe
in Airbus and Ariane, in a Europe based on cooperation. But I don’t want this European Soviet
SPIEGEL: The EU is a vast project for peace. It has helped ensure 70 years without war on the
Le Pen: No. Europe is war. Economic war. It is the increase of hostilities between the countries.
Germans are denigrated as being cruel, the Greeks as fraudsters, the French as lazy. Ms. Merkel
can’t travel to any European country without being protected by hundreds of police. That is not
SPIEGEL: You now intend to head to Brussels only to fght the system.
Le Pen: And why not? The EU is deeply harmful, it is an anti-democratic monster. I want to
prevent it from becoming fatter, from continuing to breathe, from grabbing everything with its
paws and from extending its tentacles into all areas of our legislation. In our glorious history,
millions have died to ensure that our country remains free. Today, we are simply allowing our
right to self-determination to be stolen from us.
SPIEGEL: In truth, though, you didn’t win the elections because of the EU, but because the
French are furious with their economic situation and with President François Hollande. Have
you thanked him?
9 june 2014
Le Pen: No. Then I would have had to call Nicolas Sarkozy as well. France is in this situation
because the conservative Union for a Popular Movement (Sarkozy’s party) and the Socialists
(Hollande’s party) submitted to European treaties. These treaties promote German interests
quite well, but they are poor at defending France’s interests.
SPIEGEL: Germany is to be blamed for France’s misery?
Le Pen: Whenever I hear people utter anti-German sentiments, I say: You can’t blame Germany
for defending its own interests. I can’t blame Ms. Merkel for saying she wants a strong euro.
I place the blame with our own leaders who are not defending our interests. A strong euro is
ruining our economy.
SPIEGEL: Why would you say that the euro is only helping Germany?
Le Pen: For a very simple reason: It was created by Germany, for Germany.
SPIEGEL: It was François Mitterand who wanted the euro in order to contain Germany. In fact, it
was diffcult for the Germans to give up their beloved deutsche mark.
Le Pen: That’s another story. Mitterand wanted to push integration forward with the euro.
But from an economic standpoint, the euro is German. Were we to return to our national
currencies, the D-Mark would be the only one to appreciate in value, which would be a
competitive disadvantage for Germany. Our currency, by contrast, would be devalued, which
would give us a bit of room to breathe.
Businessman “who bought HK$270m of gold” ends up with
metal bars
Police were last night making arrangements with a mainland businessman to check whether
HK$270 million of gold bullion he bought in Africa was genuine after part of the consignment
was swapped with metal bars.
On Wednesday, Zhao Jingjun, 43, opened part of his shipment in front of his buyer in Hong Kong
and discovered the gold had been switched for worthless metal.
A senior offcer said it would be the city’s biggest heist in a decade if it was confrmed that all
the gold had been stolen.
An initial inquiry showed Zhao purchased 998kg of gold bars from a company in Ghana in mid-
April, police said.
The consignment, in 14 cases, was escorted by his staff and delivered from Ghana on a
chartered fight late last month.
9 june 2014
“Offcers were told that his employee confrmed the cases contained the gold before it was
loaded onto the chartered fight in Ghana,” a police source said.
The source said the employee left Hong Kong after the consignment was handed to the staff of
a logistics company at Chek Lap Kok airport. It was then couriered to a Tsuen Wan warehouse.
The businessman arrived from Hebei province on Monday and checked into the Kowloon Shangri-
La hotel in Tsim Sha Tsui. On Wednesday, he had fve of the cases couriered to his buyer’s Hung
Hom offce.
“When he opened the boxes, he found they were flled with metal bars instead of gold bullion,”
the source said. “He told offcers the cases appeared to have been tampered with.”
Police received a report from Zhao on Wednesday night when he returned to his hotel room.
He went to Tsim Sha Tsui police station yesterday with documents proving he bought the bullion
in Ghana and that it was delivered to Hong Kong.
A police investigator said: “We don’t rule out the possibility that the gold bullion may have
been switched for metal bars before being delivered to Hong Kong.”
Zhao has reportedly made several such transactions. His business activities include the purchase
of iron ore from Australia, Africa and South America.
Four years ago, 265 gold bars were taken from a Yuen Long company. Police arrested three men
and recovered most of the HK$90 million in bullion stolen.
Wall Street concerned over China’s gold hoarding
The People’s Bank of China, China’s central bank, is the world’s biggest gold hoarder and the
bane of Wall Street traders, reports the Chinese-language fnancial news website BwChinese,
citing a Hong Kong fnancial analyst.
Leung Hai-ming told the portal that China’s central bank took advantage of the US Federal
Reserve’s quantitative easing program in 2013, when the price of gold fell by 27%. The bank
bought in over 1,000 tonnes of gold, representing almost one third of the world’s 3,756 tonnes
last year.
There is reportedly less than 180,000 tonnes of gold reserves left, and only 20% of that
remaining gold is tradable. This means that the People’s Bank of China will likely keep hold of
the gold, limiting the gold trading volume — a concern for both the US government and Wall
Street traders.
9 june 2014
Leung said that the US Federal Reserve loans gold to investment banks such as Goldman Sachs,
Citibank, JPMorgan Chase, Morgan Stanley and others every year to trade in the market. The
amount of gold ranges between 400-500 tonnes and the move acts to artifcially suppress gold
prices. When the prices are in their favor, these investment banks buy back the gold and return
it to the Fed.
But this measure is absolutely useless because China’s is hoarding the gold and does not follow
the rules, Leung said. When it sees that gold prices are going down, the frst thing it does is
buy them, and does not sell when prices continue to fall. It seems that Wall Street cannot do
anything to counter China on this, according to Leung.
The analyst said that the People’s Bank of China is putting pressure on Washington and Wall
Street as the US dollar has been linked with gold prices since its rise as the leading global
currency. The Fed hopes to manipulate gold prices in its favor, Leung said, but the Chinese
central bank is standing in its way.
What must the EU do to survive?
“Europe hit by a populist earthquake,” read the headlines after the European elections that
last month saw record numbers vote for anti-establishment parties of various shades. Tony
Blair warned on Monday that Ukip’s victory should be seen as a “wake-up call” for the need to
reform Europe. But where to start?
As any engineer will tell you, too much tension and a bridge collapses when hit by an
earthquake or hefty wind. The trick is to build in so-called movable bearings, providing the
fexibility needed for the structure to withstand severe stress. Flexibility, too, is the answer to
Europe’s current predicament.
What if we could start from scratch and build a new European Union more equipped to handle
the economic and democratic realities of the 21st century? What would it look like?
Well, frst, we should create a robust “club” test. In which areas does it make sense for a
large set of diverse countries to club together? How do we ensure that, say, Orthodox, post-
Communist Bulgaria with a GDP per head of £4,670 and Lutheran, social democrat Sweden with
a GDP per head of £37,195 are both at ease? How to reconcile the historical demand in some
countries for more integration, with the deep-felt desire by voters in others for less? And how
to do it without sacrifcing Europe’s greatest invention: democracy?
“No nation was ever ruined by trade,” said Benjamin Franklin. In our test, the single market in
Europe is a no-brainer. Trading with another country is easy. All you need to agree is: “I accept
your products if you accept mine”. Though perhaps needing an arbiter, the principle is bottom-
up and doesn’t require the creation of some superstate to function.
9 june 2014
Therefore, if we believe in economies of scale and the beneft of competition, the potential
size of a single market is infnite and must be Europe’s foundation. This isn’t an ideological
starting point — it’s a practical one.
This single market should also include areas like services and energy — hugely benefting from
an expanded trading place — and free movement of workers, which represents surprisingly
effective allocation of human capital. But in order for it to stand politically, free movement
cannot involve mutual and unrestricted access to welfare systems that differ wildly (from the
needs-based model in the UK to the contributory systems found elsewhere in the EU).
Pollution doesn’t stop at borders, but micromanaging the precise energy mix of vastly different
economies — from coal-dependent Poland to the renewables-abundant Denmark — is a recipe
for prohibitively expensive one-size-fts-all policies. Similarly, labour market rules — the
result of centuries of national democratic discourse — should not be set in Brussels. Given
the sensitivity, foreign policy and fghting cross-border crime are best achieved through deals
between national governments rather than outsourced to EU bureaucrats or judges.
A common currency and budget simply aren’t conducive to large clubs. Yes, homogenous
countries can beneft from sharing a currency — it can reduce costs for exporters, for example.
However, the euro locked vastly different countries, cultures and economic structures into one
monetary system, under a single interest rate, forever binding together the problems of all its
members, debtor or creditor, large or small. The result: a sluggish economic block and a huge
amount of political resentment on all sides. We would not repeat this mistake if we were to
start from scratch.
9 june 2014
Charts That Make You Go Hmmm...
Source: Zerohedge/Bloomberg/Rydex
Back in March we asked “What happens when this chart goes to zero?” with regard
to the exuberant lack of bears in the AAII survey. The last 3 months have seen that sentiment
morph into actual positioning as institutional investors have been net sellers of US equities
since April leaving assets in bear funds at record lows.
As FBN’s JC O’Hara notes, it’s a sign of capitulation when there’s no one left to bet on a
decline... and remember that margin has already rolled over... meaning the levered longs are
unwinding too...
9 june 2014
Q1 2014 Q4 2013 Q3 2013 Q2 2013 Q1 2013 Q4 2012 Q3 2012 Q2 2012 Q1 2012
Z1: Household Balance Sheet % Increase QoQ
Q1 2012 - Q1 2014
Source: Federal Reserve
The Fed’s Z1 report contains, amongst other goodies, the percentage increase in
America’s household balance sheet.
As you can see here, with household net worth increasing by 10% or more in 6 of the last 9
quarters, I think it’s fairly safe to say that asset infation is alive and well in the United States.
Now... if we can only get those pesky wages up, too...
9 june 2014
Bernie Madoff. Bre-X. Enron. These are names that send shivers down your spine.
However, these instances of stock fraud and ponzi schemes also serve as a great lesson. It’s
absolutely essential for investors to know the different types of stock fraud, especially when
dealing with small-cap companies and high-growth opportunities.
This great summary by Timothy Sykes’ team goes through many of the types of stock fraud and
breaks them down. Like The Who, make sure you “won’t get fooled again.”
Source: Visual Capitalist
9 june 2014
Words That Make You Go Hmmm...
Stephanie Pomboy gave a tour
de force performance at this year’s Wine
Country Conference in Sonoma in early May,
with her presentation of “The Confessions of
Ben Bernanke.”
There are many reasons why Stephanie is
followed by many of the smartest people in
the world of fnance, and this presentation
gives a glimpse into why...
Steen Jakobsen is one of the few
CIOs of major banks who is prepared (and
allowed) to say exactly what he thinks about
the state of the global economy — even when
the story he tells is somewhat alarming.
In this great interview with Chris Martenson,
Steen explains why he is 70% in fxed income
and why he expects a 30% stock market
correction before 2014 is in the books.
There’s plenty more to get your teeth into, so
sit back and enjoy Steen’s take...
No matter what your opinion of
Edward Snowden and his actions, the full NBC
interview is a chance to see him, hear him
speak, and make up your own mind about him
without resorting to media spin.
9 june 2014
and fnally...
Two videos for you this week, folks.
The frst is a wonderful piece from John Oliver
in which he skewers net neutrality and the cable
As funny as this piece is (and it is hilarious), this issue
is a tremendously important one that far too few
people understand — something that is being counted
upon by those looking to gain an advantage from
proposed legislation — so share this with as many people as you can.
This won’t interest EVERYBODY, however. If you don’t use the internet, then this one probably
isn’t for you...
The second is a song that, once you hear it, will be in your head for days. Behind the
song, however, is a far more important ideal.
Creative Destruction is an open source music project
which allows anybody to use the songs contributed
free of charge for any purpose — commercial or
otherwise. No permission needed for anything.
Anybody can share, sample, remix — even sell — the
songs uploaded as they see ft.
The frst upload “Thank You Market” is catchy as hell.
I’m going to be following this one with great interest,
and I suggest you do the same.
Thank You Market
Creative Destruction Project (Soundcloud)
9 june 2014
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 frm and its investors.
Grant has 28 years of experience in fnance 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
ASFA Annual Conference 2013: ‘Wizened In Oz’
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’
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
refect the positioning of one or all of the Vulpes funds—though I will not be
making any specifc recommendations in this publication.
9 june 2014
9 june 2014
9 june 2014
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