Month: January 2014

via Zero Hedge http://ift.tt/1cF69t4 williambanzai7

Submitted by James E. Miller of the Ludwig von Mises Institute of Canada

The Bernank Celebrates

 

When the last helicopter left the Vietnamese city of Saigon, Uncle Sam hung his head in defeat. The commies had won. The billions of dollars spent, lives lost, and damaged prestige were all lasting consequences. The war left a black mark on the U.S. government – though not one big enough to stop armchair generals from war-making in the Middle East decades later.

As one helicopter’s departure symbolized ignominy for a nation, another present-day lift off seemingly has fireworks going off in the background. Ben “helicopter” Bernanke just hosted his last meeting of the Federal Open Market Committee. He will soon bow out of his current position as Chairman of the Federal Reserve. His successor Janet Yellen is set to carry on his torch. The general consensus is she will embrace the very same policies of her predecessor.

For all his hard work, Bernanke is seeing praise from all corners of the media. In The Globe and Mail, business reporter Kevin Carmichael painted the outgoing central bank head a portrait of praise so colorful, Bernanke may as well have had a halo over his bald head. This isn’t the first time the central banker has gotten an abundance of praise. The Atlantic magazine famously declared Bernanke “The Hero” for saving the global economy. Likewise, Time gave him their Person of the Year award for 2009.

The media loves its heroes – especially when they work in the higher echelons of government. Compared to past laurels, Carmichael’s report is slightly less optimistic. Sure, he concedes, Bernanke is renowned for his relative grace under pressure. The question is: what’s the ultimate effect of his drastic actions in the wake of Wall Street’s near-meltdown? Will the economy keep rolling along as the unemployment rate drips lower? Or will the whole thing blow up in Yellen’s face?

Alan Greenspan left his spot at the Fed a veritable mensch. Just a couple years later, the housing bubble he engineered burst like water balloon. Now he spends his days irregularly commenting on the ongoing recovery, convinced that some people still care what he thinks.

Bernanke’s fate is still undecided, though some are ringing the song bell of victory. Richard Grossman, an economist at Wesleyan University, thinks that without Bernanke, “we’d be in a lot of trouble.” According to National Center of Middle Market director Anil Makhija, “[H]istory will always remember that he stood up at a very difficult time.” A majority of academic economists are in agreement: Bernanke used the printing press to keep the global economy afloat in the darkest days of 2008. When he first came to the Fed, the central bank’s balance sheet showed a total of almost $900 billion in assets – no paltry sum. When the Bernank leaves, he leaves behind a balance sheet of over $4 trillion.

For all his skepticism, Carmichael still seems to hold high views of the outgoing Fed chief. As he writes, “creation of money at that scale should have caused all kinds of problems by now: Runaway inflation, asset-price bubbles; name it. But it hasn’t.” The key here is: it hasn’t happened, yet.

The past few years haven’t just seen money creation the likes of which would make the planners in the Weimar Republic jealous. The Bernanke era also saw the mainstream economic profession chastise anyone who thought central bankers might just be clever by half. For Keynesians and statists, temperance is not allowed in the midst of a crisis. Government must act, and act it will.

Anyone who had the audacity to utter sacrilegious lines such as “maybe it isn’t a good idea to create trillions of dollars out of thin air “ was called a Cassandra or worse. Rampant hyperinflation failed to occur. The dollar did not go the way of Zimbabwe. The S&P 500 hit record highs following each bout of money injections. The amount of folks unemployed has dropped (though partially due to discouragement and a shrinking labor force).

With all this partial success and no slip ups, does Carmichael have a point in that Bernanke deserves an ample amount of praise?

Former MSNBC blowhard Keith Olbermann coined a term for this: premature jocularity. Bernanke is not breakdancing in the front lawn of the Federal Reserve building in Washington D.C., but he certainly isn’t displaying the humbleness of someone who’s unsure of their fate in the history books. New York Fed branch President Bill Dudley recently admitted his cohorts “don’t understand fully how large-scale asset purchase programs work to ease financial market conditions.” On the scale of admissions, that one is high-grade plus one. Dudley has operated the most important central bank branch in the country since 2009. The fact that they were, by all means, flying blind is not comforting.

To think that Bernanke’s extreme measures during the financial crisis will quietly slink away without consequence is an act of false comfort. The trillions added to the Fed’s balance sheet are not sitting quietly on the sideline. The dollars are working their way through the country’s largest corporations. Banks are pyramiding credit, creating money ex nihilo. The funds are likely finding their way to the stock market, often times reflective of investment in the capital goods sector. On numerous occasions, Bernanke has bragged about the robustness of Wall Street. Millions of folks might still be out of work but the banker class is living fat and happy. This is a central bank’s version of progress.

In recent months, the Fed has indicated it plans to incrementally scale back its economy-boosting efforts. This will be the final hurrah of Bernanke’s legacy – a calm unwinding of his life’s work. Even now, the delicateness of this plan is starting to show. Stocks are jittery about a Fed pullback. Traders know the free ride must come to an end sometime. The amount of money creation occurring can’t go on forever. Doing so risks a truly inflationary event, with the effervescing dollars threatening to spill over into the larger economy.

In economics the chicken must always come home to roost. Man can only live beyond his means for so long. Bernanke’s reputation hinges upon the market not tanking as his successors close up the spout of gushing currency. The endpoint is coming. When it happens, the house of cards will tumble down. And with it will come the livelihoods and hopes of many. With every boom there is a bust. It’s an immutable fact of government intervention into the economy.

As Bill Bonner writes, articles full of lavishing praise for Bernanke will begin appearing in coming weeks. Writing puff pieces on state bureaucrats is often a high-paying gig. But they all reveal a particular trend: celebrating the wise achievements of someone empowered to govern society. When businessmen are praised in print, their accomplishments are chalked up as minor victories reserved for the few. When the selfless man of charity is given his due, the praise is mild. When a lord of government sees the pages of a major periodical, it’s the kind of brown-nosing that would make a teacher’s pet uncomfortable.

For now, Bernanke will bask in exaltation. But his just deserts are coming. You can bet $4 trillion on it.

via Zero Hedge http://ift.tt/1fuhQCP Tyler Durden

Submitted by Shannon Tiezzi via The Diplomat,

On Wednesday, the United Nations Security Council held an open debate on the theme of “war, its lesson, and the search for a permanent peace.” Under-Secretary General for Political Affairs Jeffrey Feltman, addressing the Security Council, laid out the core of the problem: “As we have seen repeatedly, fighting that ends without reconciliation – especially fighting inside States – is fighting that can, and often does, resume.” In the concept paper for the debate, Prince Zeid Ra’ad Zeid Al-Hussein of Jordan wrote that the UN could play a role in “forging a deeper reconciliation among ex-combatants … based on an agreed or shared narrative, a shared memory, of a troubled past.” A common interpretation of history, Zeid believes, helps smooth tensions between former enemies.

To those following the tensions between Japan and China (as well as South Korea), the implications are obvious.  As my colleague Ankit wrote, the UN debate became a stage for China, South Korea, and North Korea to criticize Japan’s handling of history. While the fighting between these nations ended almost 70 years ago, the process of reconciliation remains incomplete. The “deeper reconciliation” Zeid described, one based on “a shared memory of a troubled past,” has not yet emerged.

China and South Korea do have a “shared memory,” as shown by their comments during the UN debate. The problem, in their eyes, is that Japan “remembers” thing differently. When calling on Japan to “face up to history” or “admit mistakes,” as Foreign Ministry Spokesperson Hua Chunying did this week, what they really mean is that Japan should accept without reservation China and South Korea’s version of history.

Here’s the problem with that approach: it’s inevitable that each country will view its past from a more sympathetic (though not necessarily approving) perspective. Generally, each country acknowledges (more or less) that mistakes were made, but no one else understands better how those mistakes happened — the mitigating factors that humanize the decision-makers. For example, Chinese citizens, in general, have a much rosier idea of Mao Zedong’s rule than non-Chinese; they know he made mistakes but will often claim that Mao did the best he could with the historical circumstances he faced.

The current tensions in Northeast Asia have another analogue: the conflicted legacy of the U.S. Civil War. As in the Northeast Asia dispute, the major issue is how to appropriately remember the war — especially the Confederates, who fought on behalf of slave-owning states.

For example, is it appropriate for Richmond, Virginia, the former capital of the Confederacy, to have a statue of famed Confederate general Robert E. Lee in the heart of the city; for high schools in the South to be named after Lee and other Confederate generals, or even after the Jefferson Davis, the President of the Confederacy, who was arrested (but never tried) for treason? And the ultimate symbolic issue, the subject of a televised debate on Newshour a few years ago — is it acceptable for Southerners (who may or may not have had ancestors fighting in the war) to fly the Confederate flag?

To many, the answer is obviously no — the Confederacy stands for slavery and all the horrors that went along with it. It symbolizes not only the oppression of an entire race, but the treason of splitting the country and provoking civil war. To fly such a flag is to intentionally celebrate those who caused untold pain and suffering to hundreds of thousands of Africans and African Americans.

To many others, though, the answer is just as obviously yes — while slavery was a terrible mistake, the Confederate soldiers were simply fighting to defend their homeland and deserve to be honored for their sacrifice. Under this line of thinking, the Confederate flag can be divested of its ties to slavery and simply honored as a symbol of Southern culture and heritage. Flying the flag has nothing to do with slavery; it symbolizes Southern pride.

In a similar way, some Japanese would argue that Yasukuni can be divested of its ties to war criminals and Japanese imperialism. In both cases, the problem is not so much a denial  of history (although extremists in both Japan and the American South have fringe theories alleviating their countrymen of all blame) but a unique interpretation of history by the average person that allows him or her to reject the mistakes of the past without rejecting national or regional pride. It’s easy to  frown upon this as Orwellian “doublethink,” but it’s common to all nations, races, and peoples. Judging it in others is easy; rooting it out in ourselves is another matter.

For those who shake their heads at how a 70-year old conflict is still riling up Northeast Asia, look at the U.S. 150 years later, and how it still hasn’t sorted out the legacy of the nation’s bloodiest war. Reconciliation doesn’t happen naturally with the passage of time. The shared memories and understandings that lead to reconciliation have to be nurtured by all sides of the conflict, and that takes both time and dedicated effort.

“Leaders need to set the example, not just in ceasing war-time rhetoric and ending the intentional promotion of grievances, but also by deeds of genuine cooperation and honest examinations of their own roles in conflict,” Feltman said at the UN debate. This clearly lays the burden of reconciliation on both sides. Not only do past aggressors need to honestly examine their roles in the conflict, but past victims must end the practice of parading their grievances. It’s tough to say which is more difficult, owning up to historical wrongs or letting them go. But both are equally necessary for the sort of reconciliation Northeast Asia needs.

That absolutely doesn’t mean that African Americans should embrace the Confederate legacy, or that Chinese and Koreans should accept Japanese politicians visiting Yasukuni. It does mean, though, that accusations and finger-pointing about past wrongs are not going to lead to present reconciliation. Indulging in such tactics doesn’t provide moral high ground; it shows an unwillingness to actually make things better.

Instead, solving the problem will take an honest conversation, not about history per se but about historical interpretations, and acknowledging of their power to wound even decades later. Right now, it’s impossible to imagine that conversation happening on an official diplomatic level, but it can just as easily take place elsewhere — in academia, or even in the comments section of articles like this one.

via Zero Hedge http://ift.tt/1koDlqs Tyler Durden

With analysts preferring gloss over the massive bellwether stock earnings misses, focus on non-GAAP manufactured releases, and cling optimistically to hopes that weak performance, inclement weather, and volatile currency fluctuations will all go away soon and that the future looks rosy. However, as Bloomberg’s Richard Yamarone notes, the US economy continues to cling to an historical subpar growth and CEO comments hardly support any hope for a change.

 

P&G [PG] Earnings Call 1/24/13: “We continue to operate in a volatile environment with uncertainty in foreign exchange, some deceleration in market growth rates and a rapidly developing policy environment.”

Apple [AAPL] Earnings Call 1/27/13: “We expect four factors to negatively impact the year-over-year revenue comparison by over $2 billion. These are channel inventory increases in the year-ago quarter that we don’t expect to repeat, lower iPod sales, a stronger U.S. dollar against a number of currencies, particularly the yen and the Australian dollar and the higher per unit deferral for Mac and iOS devices.”

Starbucks [SBUX] Earnings Call 1/23/13: “Over the last month or so, I have heard many traditional brick-and-mortar retailers attribute the downturn in their core business during holiday to factors such as a shortened holiday shopping season, a weakened consumer, the U.S. Government shutdown, and poor weather. Respectfully, those explanations ignore a larger fundamental truth and that truth is that traditional brick-and-mortar retailing is at an inflection point. No longer are many retailers only required to compete with stores on the other side of the street. They are now required to compete with stores on the other side of the country.”

Southwest Airlines [LUV] Earnings Call 1/23/13: “Our outlook right now for the economy is very stable. Hopefully, the uncertainties that we had a year ago, hopefully they won’t return. And that would be, obviously, a real good thing. And then fuel prices have been remarkably stable for now three quarters in a row. And at least our outlook, as it stands today, is for yet another quarter of stability there.”

Ethan Allen Interiors [ETH] Earnings Call 1/23/13: “We had sunshine in sunshine states. We had good businesses in California and Florida. And in fact, what happened was that October, this government shutdown did have a major impact on us. We were down 10.5 percent in October. November was somewhat better. We are up 3.6 percent and then the bad weather affected us in December and we are down 2.6 percent.”

McDonald’s [MCD] Earnings Call 1/23/13: “2013 was a difficult year and we’re keenly aware of our short-term challenges. Future economic predictions are mixed, but most assume some limited global improvement in 2014. However, we don’t expect significant changes in market dynamics, given modest growth projections for the IEO industry. Looking to January, global comparable sales are expected to be relatively flat.”

Caterpillar [CAT] Earnings Call 1/27/13: “In most regions, particularly in North America, economically we think a little better, a little better GDP around the world will help that as well. We’ve also seen actually our sales in China Construction improve as well. And it’s probably worth noting that for Construction, we still had a headwind in the fourth quarter on dealer inventory.”

Stanley Black & Decker [SWK] Earnings Call 1/24/13: “The currency trend versus the U.S. dollar for really the four major currencies that tend to have a significant impact on us. The first three have historically had a large impact on us since the merger; the European euro, the Canadian dollar, and the Brazilian real. The Argentinean peso has become more challenging over the last few years as that country continues to see governmental challenges and economic issues.”

…to see Bloomberg Orange book details  – type NI ORANGEBOOK in your terminal.

via Zero Hedge http://ift.tt/1cELUvs Tyler Durden

With analysts preferring gloss over the massive bellwether stock earnings misses, focus on non-GAAP manufactured releases, and cling optimistically to hopes that weak performance, inclement weather, and volatile currency fluctuations will all go away soon and that the future looks rosy. However, as Bloomberg’s Richard Yamarone notes, the US economy continues to cling to an historical subpar growth and CEO comments hardly support any hope for a change.

 

P&G [PG] Earnings Call 1/24/13: “We continue to operate in a volatile environment with uncertainty in foreign exchange, some deceleration in market growth rates and a rapidly developing policy environment.”

Apple [AAPL] Earnings Call 1/27/13: “We expect four factors to negatively impact the year-over-year revenue comparison by over $2 billion. These are channel inventory increases in the year-ago quarter that we don’t expect to repeat, lower iPod sales, a stronger U.S. dollar against a number of currencies, particularly the yen and the Australian dollar and the higher per unit deferral for Mac and iOS devices.”

Starbucks [SBUX] Earnings Call 1/23/13: “Over the last month or so, I have heard many traditional brick-and-mortar retailers attribute the downturn in their core business during holiday to factors such as a shortened holiday shopping season, a weakened consumer, the U.S. Government shutdown, and poor weather. Respectfully, those explanations ignore a larger fundamental truth and that truth is that traditional brick-and-mortar retailing is at an inflection point. No longer are many retailers only required to compete with stores on the other side of the street. They are now required to compete with stores on the other side of the country.”

Southwest Airlines [LUV] Earnings Call 1/23/13: “Our outlook right now for the economy is very stable. Hopefully, the uncertainties that we had a year ago, hopefully they won’t return. And that would be, obviously, a real good thing. And then fuel prices have been remarkably stable for now three quarters in a row. And at least our outlook, as it stands today, is for yet another quarter of stability there.”

Ethan Allen Interiors [ETH] Earnings Call 1/23/13: “We had sunshine in sunshine states. We had good businesses in California and Florida. And in fact, what happened was that October, this government shutdown did have a major impact on us. We were down 10.5 percent in October. November was somewhat better. We are up 3.6 percent and then the bad weather affected us in December and we are down 2.6 percent.”

McDonald’s [MCD] Earnings Call 1/23/13: “2013 was a difficult year and we’re keenly aware of our short-term challenges. Future economic predictions are mixed, but most assume some limited global improvement in 2014. However, we don’t expect significant changes in market dynamics, given modest growth projections for the IEO industry. Looking to January, global comparable sales are expected to be relatively flat.”

Caterpillar [CAT] Earnings Call 1/27/13: “In most regions, particularly in North America, economically we think a little better, a little better GDP around the world will help that as well. We’ve also seen actually our sales in China Construction improve as well. And it’s probably worth noting that for Construction, we still had a headwind in the fourth quarter on dealer inventory.”

Stanley Black & Decker [SWK] Earnings Call 1/24/13: “The currency trend versus the U.S. dollar for really the four major currencies that tend to have a significant impact on us. The first three have historically had a large impact on us since the merger; the European euro, the Canadian dollar, and the Brazilian real. The Argentinean peso has become more challenging over the last few years as that country continues to see governmental challenges and economic issues.”

…to see Bloomberg Orange book details  – type NI ORANGEBOOK in your terminal.

via Zero Hedge http://ift.tt/1cELUvs Tyler Durden

Submitted by Golem XIV via Golem XIV Thoughts blog,

Why would the central bank of Nigeria decide to sell dollars and buy Yuan?

At first glance it might not seem the most interesting or pressing question for you to consider. But I think it is one of those little loose threads that if pulled upon carefully begins to unravel the hints and traces of a much larger story. But please be warned this is speculative.

Two days ago the Nigerian Central Bank announced it was going to increase the share of its foreign currency reserves held in Yuan from 2% at present, to up to 7%. To do this it was going to sell US Dollars. Now a 5% swing in anything financial is big. In our debt drunk times it’s difficult somethimes to remember that 2.15 billion dollars (which is what 5% comes to) is actually a great deal of money, even if it is less than a drop in America’s multi trillion dollar debt ocean. On the other hand even a 5% increase in Yuan would still leave 80% of Nigeria’s $43 billion worth of reserves in dollars.

BUT while it is small in raw financial terms I think it is significant in geopolitical terms.

Nigeria is Africa’s second largest oil and gas exporter. It holds as many dollars as it does because oil is sold in dollars. Nigeria gets paid in dollars which it then needs to recycle. This is the famous petrodollar in action. It is also a major reason the dollar is still the world’s major reserve currency and that in turn is why America can have such a monumental pile of debt and still (for now) be the  risk-off haven that institutional  investors run to when other currencies and markets become too risky and unstable.

What interest me is that prior to this announcement from Nigeria’s central bank, China has, for some years now, been working hard and succesully to buy exploitation rights in Nigeria’s oil fields. In 2009 The Wall Street Journal reported,

 Chinese companies have proposed investing $50 billion to buy 6 billion barrels of oil reserves in Nigeria, the African nation’s presidential adviser on energy said Tuesday.

A year later in 2010 the WSJ reported,

Nigeria and China have signed a tentative deal to build three oil refineries in the West African state at a cost of $23 billion, in a move to boost badly needed gasoline supply in Nigeria and to position China for more access to the country’s coveted high-quality oil reserves.

And just last year China extended a $1.1 billion loan in return for a reported agreement that oil exports to China would increase from around 20 000 barrels a day to 200 000 per day by 2015. This loan was on top of a range of development agreements betwen the two countries for various infrasctructure projects such a telecoms and railways.

Nigeria had, as of 2011, over 37 billion barrels of proven oil reserves. China is now one of its major trading partners. China wants Nigerian oil and my guess is that if it isn’t doing so already it is going to trade it entirely in Yuan. Such a move would mean Nigeria would need fewer dollars and more Yuan and the PetroYuan would begin to rise at the expense of the Petrodollar.

For some years now China has been making the Yuan a settlement currency. I have written about this a lot over the years. In 2012 I wrote a piece called “A new reserve currency to challenge the dollar – What’s really going on in the Straits of Hormuz.” China has created a series of bilateral settlement agreements with, among others, the EU, South Korea, Iran, India and Russia. All of these agreements by-pass the US dollar. If China now trades its oil in Yuan where will that leave the dollar?  Of course Saudi would never agree to such a thing, would it?

Now Its a long way from Nigeria’s 200 000 barerels a day to overthrowing the dollar as the premiere oil currency. But let’s face it the US has gone to war on more than one occasion recently in part because the country involved had been going to sell its oil in Euros. And the US is Europe’s friend, isn’t it?

The US hawks have always been afflicted with dominophobia – fear of falling dominoes. Somewhere in a room in the Pentagon or Langley, there is a huddle of spooks, military types, oil men and State department advisors all wondering how to prevent this new creeping menace. Because you cannot afford to be complacent you know. It starts in one country and if you don’t do something other’s will follow and before you know it the rich Western Africa oil bonanza is flowing into Yuan, to be followed by all those North African and Middle Eastern Arab Spring countries where the clean-cut boys are already having to ‘advise’ on the need to take a firm line with potentially anti-American Muslim Brotherhood types by  locking them up, shooting them and generally branding them as terrorists.

What would happen, someone will mention almost in a whisper, if Qatar were to triumph over Saudi and then cut a multi-lateral deal to sell its gas in Euros to Europe and in Yuan to China?

But to return from the overheated imaginations of the Virginia Hawks to some sort of reality, Nigeria is increasing its Yuan reserve at the expense of the dollar and is developing far closer ties to China than to the US. Which is why I think you will soon find the US dramatically increasing its involvement, both financial and military, in Angola.

Angola is going to be America’s answer to China’s Nigeria. And I think the signs are already there.

While in Nigeria Chinese companies are expanding, in Angola the big players are the Western Oil majors: Chevron/Texaco(US), Exxonmobil (US), BP (UK), ENI (Italy), Total (FR), Maersk (DK) and Statoil (NOR). There are others but these are the big players. Of these Total is probably the largest presence producing about a third of all Angola’s oil output. And Total has recently increased its presence. Of the others Chevron is one of the largest and is expanding aggressively.

Angola itself is busy selling off new concessions. 10 new blocks containing an estimated 7 billion barrels of oil, which is over half of all Angola’s proven reserves  are to be auctioned this year. Angola has recently edged ahead of Nigeria to be Africa’s largest oil exporter. If I’m correct I expect the Western nations/companies, led by the US and new best war-buddy, France to make sure the Chinese do not get a large share of the spoils.  One to watch.

As part of this new Western push, I expect to see China also restricted in any new oil fields around Sao Tome and Principe.  The big players to date are Chervon, Exxonmobil and Nigeria. The latter suggesting a way in for the Chinese that I think the Westerners will want to push shut.  To which end what I found interesting about recent events in Soa Tome and Principe is the visit there of Isabel dos Santos, the daughter of Angola’s President for life. I have written about her and her banking empire in The Eurofiscal Corruption Contest – The Portuguese entry.  Isobel is most often refered to as Africa’s or Angola’s most famous business woman or Africa’s richest woman (She’s a billionaire). Rarely does anyone from the press raise the question of how she became so vastly wealthy.

She made a visit to the islands and both she and Angola’s state companies have begun to invest heavily. Angolan companies now have a very commanding position in the island’s economy and Angola, even though its own people live in poverty, found the money to loan Sao Tome and Principe  $180 million which is half of the island’s GDP. Top that Beijing! The Islands are Portuguese speaking, the largest bank is Portuguese, and the islands also house a broadcast station for Voice of America.

I think taken together the signs are that the West, led by America, has in mind to try to contain or perhaps even confront Chinese expansion particularly as it concerns access to oil and gas in West and North Africa, and to rare earth minerals – but that’s another story. I don’t think there can be any doubt that America and Europe are looking at Chinese expansion and its hunger for resources and see a threat. The question is what will they do?  America is accustomed to being the hegemonic power and its hawks have proved over and over that they are are quite prepared for military confrontation. The question for them would be how? Invading countries who have – in reality – very little military or economic might is one thing, but directly confronting another superpower is another.  I think all sides would see direct and open military confrontation to be out of the question. Not just for military reasons but for global economic ones as well. They need to find ways of fighting that do not sink the world economy  – neither its flows of goods and trade , nor its flows of captail and debt. Which is why I wonder about the possibility of seeing an era of new proxy wars being faught out in tit-for-tat destabilization escalating up to protracted gorilla/civil wars.

In West Africa the  front line seems to run between Angola and Nigeria.  So who would like to play a game of destabilize your neighbour? There is already unrest about Chinese goods flooding Nigeria. How tempting might it be to think about fanning flames of unrest in already unstable Nigeria espeicially in the delta?

In return what would you have to do to re-ignite the lines of mistrust and division which blighted Angola through decades of civil war? Dos Santos and the MPLA may have been the Soviet proxy but he’s a capitalist now. So, how about a nice cold-war style proxy war?  I cannot bring myself to believe that no one at the Pentagon has dusted off the old plans for such conflict and set some analysts to working up some new ones with China scribbled in, in place of Russia.

Something is, I suspect, already afoot. One last pull on that little thread, one last detail that makes me wonder. Just last April (2013) the Israeli billionaire, Dan Gertler sold back to the government of the Democratic Republic of Congo, one of the  oil companies/exploration blocks he had bought from it, but for 300% more than he paid. Anti-corruption campaigners have been up in arms.

Two facts interest me . One, that the purchase was actually financed by Sanangol, the Angolan state oil company (the company from which $32 billion had gone missing. Missing billions: billionaire dos Santos… No connection obviously). The DRC is to pay Sanangol back from oil revenue. Until that time, of course, Sanangol calls the tune.  Two, that this oil block lies between the DRC and Angola in what was contested territory but has since been decreed a zone of cooperation.

Now this sale by Gertler could just be a bog standard pillage-Africa deal. And I might well be seeing things that just aren’t there, but why now? This sort of big money, that is connected to the top of the DRC government (how do you think Gertler was able to buy the concession at the price he did? And who do you think might be the, so far, hidden second beneficiary of Gertler’s oil company? The government minister who sold the concession to him in the first place,  maybe?) moves when its contacts suggest this is a better time to lock in profit than times to come.

All in all, if I were a religious man, I would be saying a prayer for the children of Nigeria and Angola.

A note on all this speculation and non-financial stuff.  I don’t usually write this much speculation but recently I have become more convinced that we are in a watershed in which everything around us, all the rules we are used to, all the lines on the map, are up for grabs and are changing around us. For me, finance is not separate from politics so we have to understand how they rub against one another.  I hope you will bear with me.

via Zero Hedge http://ift.tt/1i0kT5N Tyler Durden

A classicial economist… and Harvard professor… preaching to the world that one’s money is not safe in the US banking system due to Ben Bernanke’s actions? And putting his withdrawal slip where his mouth is and pulling $1 million out of Bank America? Say it isn’t so…

From Terry Burnham, former Harvard economics professor, author of “Mean Genes” and “Mean Markets and Lizard Brains,” provocative poster on this page and long-time critic of the Federal Reserve, argues that the Fed’s efforts to strengthen America’s banks have perversely weakened them. First posted in PBS.

Is your money safe at the bank? An economist says ‘no’ and withdraws his

Last week I had over $1,000,000 in a checking account at Bank of America. Next week, I will have $10,000.

 

Why am I getting in line to take my money out of Bank of America? Because of Ben Bernanke and Janet Yellen, who officially begins her term as chairwoman on Feb. 1.

Before I explain, let me disclose that I have been a stopped clock of criticism of the Federal Reserve for half a decade. That’s because I believe that when the Fed intervenes in markets, it has two effects — both negative. First, it decreases overall wealth by distorting markets and causing bad investment decisions. Second, the members of the Fed become reverse Robin Hoods as they take from the poor (and unsophisticated) investors and give to the rich (and politically connected). These effects have been noticed; a Gallup poll taken in the last few days reports that only the richest Americans support the Fed. (See the table.)

Why do I risk starting a run on Bank of America by withdrawing my money and presuming that many fellow depositors will read this and rush to withdraw too? Because they pay me zero interest. Thus, even an infinitesimal chance Bank of America will not repay me in full, whenever I ask, switches the cost-benefit conclusion from stay to flee.

Let me explain: Currently, I receive zero dollars in interest on my $1,000,000. The reason I had the money in Bank of America was to keep it safe. However, the potential cost to keeping my money in Bank of America is that the bank may be unwilling or unable to return my money.

They will not be able to return my money if:

• Many other depositors like you get in line before me. Banks today promise everyone that they can have their money back instantaneously, but the bank does not actually have enough money to pay everyone at once because they have lent most of it out to other people — 90 percent or more. Thus, banks are always at risk for runs where the depositors at the front of the line get their money back, but the depositors at the back of the line do not. Consider this image from a fully insured U.S. bank, IndyMac in California, just five years ago.

• Some of the investments of Bank of America go bust. Because Bank of America has loaned out the vast majority of depositors’ money, if even a small percentage of its loans go bust, the firm is at risk for bankruptcy. Leverage, combined with some bad investments, caused the failure of Lehman Brothers in 2008 and would have caused the failure of Bank of America, AIG, Goldman Sachs, Morgan Stanley, Merrill Lynch, Bear Stearns, and many more institutions in 2008 had the government not bailed them out.

In recent days, the chances for trouble at Bank of America have become more salient because of woes in the emerging markets, particularly Argentina, Turkey, Russia and China. The emerging market fears caused the Dow Jones Industrial Average to lose more than 500 points over the last week.

Returning to my money now entrusted to Bank of America, market turmoil reminded me that this particular trustee is simply not safe. Or not safe enough, given the fact that safety is the reason I put the money there at all. The market turmoil could threaten “BofA” with bankruptcy today as it did in 2008, and as banks have experienced again and again over time.

If the chance that Bank of America will not return my money is, say, a mere 1 percent, then the expected cost to me is 1 percent of my million, or $10,000. That far exceeds the interest I receive, which, I hardly need remind depositors out there, is a cool $0. Even a 0.1 percent chance of loss has an expected cost to me of $1,000. Bank of America pays me the zero interest rate because the Federal Reserve has set interest rates to zero. Thus my incentive to leave at the first whiff of instability.

Surely, you say, the federal government is going to keep its promises, at least on insured deposits. Yes, the Federal Government (via the FDIC) insures deposits in most institutions up to $250,000. But there is a problem with this insurance. The FDIC currently has far less money in its fund than it has insured deposits: as of Sept. 1, about $41 billion in reserve against $6 trillion in insured deposits. (There are over $9 trillion on deposit at U.S. banks, by the way, so more than $3 trillion in deposits is completely uninsured.)

It’s true, of course, that when the FDIC fund risks running dry, as it did in 2009, it can go back to other parts of the federal government for help. I expect those other parts will make the utmost efforts to oblige. But consider the possibility that they may be in crisis at the very same time, for the very same reasons, or that it might take some time to get approval. Remember that Congress voted against the TARP bailout in 2008 before it relented and finally voted for the bailout.

Thus, even insured depositors risk loss and/or delay in recovering their funds. In most time periods, these risks are balanced against the reward of getting interest. Not so long ago, Bank of America would have paid me $1,000 a week in interest on my million dollars. If I were getting $1,000 a week, I might bear the risks of delay and default. However, today I am receiving $0.

So my cash is leaving Bank of America.

But if Bank of America is not safe, you must be wondering, where can you and I put our money? No path is without risk, but here are a few options.

1. Keep some cash at home, though admittedly this runs the risk of loss or setting yourself up as a target for criminals.

2. Put some cash in a safety box. There is an urban myth that this is illegal; my understanding is that cash in a safety box is legal. However, I can imagine scenarios where capital controls are placed on safety deposit box withdrawals. And suppose the bank is shut down and you can’t get to the box?

3. Pay your debts. You don’t need to be Suze Orman to know that you need liquidity, so do not use all your cash to pay debts. However, you can use some surplus, should you have any.

4. Prepay your taxes and some other obligations. Subject to the same caveat about liquidity, pay ahead. Make sure you only pay safe entities. Your local government is not going away, even in a depression, so, for example, you can prepay property taxes. (I would check with a tax accountant on the implications, however.)

5. Find a safer bank. Some local, smaller banks are much safer than the “too-big-to-fail banks.” After its mistake of letting Lehman fail, the government has learned that it must try to save giant institutions. However, the government may not be able to save all failing institutions immediately and simultaneously in a crisis. Thus, depositors in big banks face delays and defaults in the event of a true crisis. (It is important to find the right small bank; I believe all big banks are fragile, while some small banks are robust.)

Someone should start a bank (or maybe someone has) that charges (rather than pays) interest and does not make loans. Such a bank would be a good example of how Fed actions create unintended outcomes that defeat their goals. The Fed wants to stimulate lending, but an anti-lending bank could be quite successful. I would be a customer.

(Interestingly, there was a famous anti-lending bank and it was also a “BofA” — the Bank of Amsterdam, founded in 1609. The Dutch BofA charged customers for safe-keeping, did not make loans and did not allow depositors to get their money out immediately. Adam Smith discusses this BofA favorably in his “Wealth of Nations,” published in 1776. Unfortunately — and unbeknownst to Smith — the Bank of Amsterdam had starting secretly making risky loans to ventures in the East Indies and other areas, just like any other bank. When these risky ventures failed, so did the BofA.)

My point is that the Federal Reserve’s actions have myriad, unanticipated, negative consequences. Over the last week, we saw the impact on the emerging markets. The Fed had created $3 trillion of new money in the last five-plus years — three times more than in its entire prior history. A big chunk of that $3 trillion found its way, via private investors and institutions, into risky, emerging markets.

Now that the Fed is reducing (“tapering”) its new money creation (now down to $65 billion a month, or $780 billion a year, as of Wednesday’s announcement), investments are flowing out of risky areas. Some of these countries are facing absolute crises, with Argentina’s currency plummeting by more than 20 percent in under one month. That means investments in Argentina are worth 20 percent less in dollar terms than they were a month ago, even if they held their price in Pesos.

The Fed did not plan to impoverish investors by inducing them to buy overpriced Argentinian investments, of course, but that is one of the costly consequences of its actions. If you lost money in emerging markets over the last week, at one level, it is your responsibility. However, it is not crazy for you to blame the Fed for creating volatile prices that made investing more difficult.

Similarly, if you bought gold at the peak of almost $2,000 per ounce, you have lost one-third of your money; you share the blame for your golden losses with Alan Greenspan, Ben Bernanke and Janet Yellen. They removed the opportunities for safe investments and forced those with liquid assets to scramble for what safety they thought they could find. Furthermore, the uncertainty caused by the Fed has caused many assets to swing wildly in value, creating winners and losers.

The Fed played a role in the recent emerging markets turmoil. Next week, they will cause another crisis somewhere else. Eventually, the absurd effort to create wealth through monetary policy will unravel in the U.S. as it has every other time it has been tried from Weimar Germany to Robert Mugabe’s Zimbabwe.

Even after the Fed created the housing problems, we would have been better of with a small 2009 depression rather than the larger depression that lies ahead. See my Making Sen$e posts “The Stockholm Syndrome and Printing Money” and “Ben Bernanke as Easter Bunny: Why the Fed Can’t Prevent the Coming Crash” for the details of my argument.

Ever since Alan Greenspan intervened to save the stock market on Oct. 20, 1987, the Fed has sought to cushion every financial blow by adding liquidity. The trouble with trying to make the world safe for stupidity is that it creates fragility.

Bank of America and other big banks are fragile — and vulnerable to bank runs — because the Fed has set interest rates to zero. If a run gathers momentum, the government will take steps to stem it. But I am convinced they have limited ammunition and unlimited problems.

What is the solution? For you, save yourself and your family. For the system, revamp the Federal Reserve. The simplest first step would be to end the dual mandate of price stability and full employment. Price stability is enough. I favor rules over intervention. We don’t need a maestro conducting monetary policy; we need a system that promotes stability and allows people (not printing presses) to make us richer.

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We’ve previously noted that General Electric should be held partially responsible for the Fukushima reactor because General Electric knew that its reactors were unsafe:

5 of the 6 nuclear reactors at Fukushima are General Electric Mark 1 reactors.

 

GE knew decades ago that the design was faulty.

 

ABC News reported in 2011:

Thirty-five years ago, Dale G. Bridenbaugh and two of his colleagues at General Electric resigned from their jobs after becoming increasingly convinced that the nuclear reactor design they were reviewing — the Mark 1 — was so flawed it could lead to a devastating accident.

 

Questions persisted for decades about the ability of the Mark 1 to handle the immense pressures that would result if the reactor lost cooling power, and today that design is being put to the ultimate test in Japan. Five of the six reactors at the Fukushima Daiichi plant, which has been wracked since Friday’s earthquake with explosions and radiation leaks, are Mark 1s.

 

“The problems we identified in 1975 were that, in doing the design of the containment, they did not take into account the dynamic loads that could be experienced with a loss of coolant,” Bridenbaugh told ABC News in an interview. “The impact loads the containment would receive by this very rapid release of energy could tear the containment apart and create an uncontrolled release.”

 

***

 

Still, concerns about the Mark 1 design have resurfaced occasionally in the years since Bridenbaugh came forward. In 1986, for instance, Harold Denton, then the director of NRC’s Office of Nuclear Reactor Regulation, spoke critically about the design during an industry conference.

 

“I don’t have the same warm feeling about GE containment that I do about the larger dry containments,” he said, according to a report at the time that was referenced Tuesday in The Washington Post.

 

“There is a wide spectrum of ability to cope with severe accidents at GE plants,” Denton said. “And I urge you to think seriously about the ability to cope with such an event if it occurred at your plant.”

 

***

 

When asked if [the remedial measures performed on the Fukushima reactors by GE before 2011] was sufficient, he paused. “What I would say is, the Mark 1 is still a little more susceptible to an accident that would result in a loss of containment.”

The New York Times reported that other government officials warned about the dangers inherent in GE’s Mark 1 design:

In 1972, Stephen H. Hanauer, then a safety official with the Atomic Energy Commission, recommended that the Mark 1 system be discontinued because it presented unacceptable safety risks. Among the concerns cited was the smaller containment design, which was more susceptible to explosion and rupture from a buildup in hydrogen — a situation that may have unfolded at the Fukushima Daiichi plant. Later that same year, Joseph Hendrie, who would later become chairman of the Nuclear Regulatory Commission, a successor agency to the atomic commission, said the idea of a ban on such systems was attractive. But the technology had been so widely accepted by the industry and regulatory officials, he said, that “reversal of this hallowed policy, particularly at this time, could well be the end of nuclear power.”

This faulty design has made the Fukushima disaster much worse.

 

Specifically, the several reactors exploded … scattering clumps of radioactive fuel far and wide.

 

In addition, the Mark 1 included an absolutely insane design element: storing huge quantities of radioactive fuel rods 100 feet up in the air.

 

The Christian Science Monitor noted:

A particular feature of the 40-year old General Electric Mark 1 Boiling Water Reactor model – such as the six reactors at the Fukushima site – is that each reactor has a separate spent-fuel pool. These sit near the top of each reactor and adjacent to it ….

Indeed, the fuel pools have caught fires several times, and now constitute an enormous danger. [More.]

 

***

 

Heck of a job, GE …

 

Unfortunately, there are 23 virtually-identical GE Mark 1 reactors in the U.S.

 

This is not to say that Tepco and the Japanese government are not to blame also.  They are.

 

But GE and the American government are largely responsible as well.

A 1,400-person lawsuit has just been filed to hold GE – as well as 2 other companies responsible for Fukushima reactor construction, Toshiba and Hitachi – responsible.

AP reports:

About 1,400 people filed a joint lawsuit Thursday against three companies that manufactured reactors at Japan’s Fukushima Dai-ichi nuclear plant ….

 

The 1,415 plaintiffs, including 38 Fukushima residents and 357 people from outside Japan, said the manufacturers — Toshiba, GE and Hitachi — failed to make needed safety improvements to the four decade-old reactors at the Fukushima plant ….

Are they doing it for the money?

Nope:

They are seeking compensation of 100 yen ($1) each, saying their main goal is to raise awareness of the problem.

via Zero Hedge http://ift.tt/1knZWTO George Washington

Despite every talking head having written off the miners, they were the best performer across US equity sub-indices. In the US equity markets Biotech and REITs also performed well. On the other hand,  Nasdaq Insurance and NYSE Arca Oil ETF were the worst…along with the NYSE Composite Index (which represents 61% of all global market capitalization).

 

 

And for those dip-buyers proclaiming this is simply an EM crisis that will blow over… the US retailer ETF XRT is down 9.4% in January whereas EEM (the EM ETF) is down 8.6% – foreign crisis or domestic? And – it would appear – that the trades starting the 2nd half of 2013 have been unwound as oddly – Retailers, Emerging Markets, and Junior Gold Miners are all up around 2% from July 4th?!

 

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For years, Bloomberg Businessweek notes, the American residential dream went something like this: Move to a city, work hard, and eventually you’ll make enough to move out. So perhaps it’s not surprising that today many of America’s largest metropolitan areas house their highest earners on the outskirts of town. Exactly where they live varies from city to city — or rather, from suburb to suburb. Perhaps this is what they mean by 'rotten to the core'?

An analysis by Bloomberg Businessweek of data recently compiled by the U.S. Census Bureau offers a new level of detail in describing how far away — and in what direction — the nation’s top-earning suburbanites live, relative the local urban center.

 

In the New York metropolitan area, the greatest concentration of top earners live in New Jersey. In Bergen County, for example, the median household income was $84,255 in 2012.

 

Top earners have vacated Downtown L.A. and the area south of the Civic Center in favor of wide-open spaces closer to the beach.

 

Here, the highest earners populate Chicago’s North Shore suburbs, including Glencoe, Winnetka, and Highland Park. A commuter rail system leaves Cubs games an hour away.

 

Here, the wealthiest residents have congregated just west of the city center in the well-to-do River Oaks area and a bit further out in Memorial.

 

Center City in Philadelphia is surrounded by a local ring of lower-income housing. High-crime areas such as the city’s Kensington neighborhood and Camden, N.J., remain unattractive to the wealthy.

 

The top earners tend to live outside the city in suburbs to the north and east, such as Glendale and Scottsdale.

 

Source: Bloomberg Businessweek

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