Month: February 2014

Authored by George Soros, originally posted at Project Syndicate,

Following a crescendo of terrifying violence, the Ukrainian uprising has had a surprisingly positive outcome. Contrary to all rational expectations, a group of citizens armed with not much more than sticks and shields made of cardboard boxes and metal garbage-can lids overwhelmed a police force firing live ammunition. There were many casualties, but the citizens prevailed. This was one of those historic moments that leave a lasting imprint on a society’s collective memory.

How could such a thing happen? Werner Heisenberg’s uncertainty principle in quantum mechanics offers a fitting metaphor. According to Heisenberg, subatomic phenomena can manifest themselves as particles or waves; similarly, human beings may alternate between behaving as individual particles or as components of a larger wave. In other words, the unpredictability of historical events like those in Ukraine has to do with an element of uncertainty in human identity.

People’s identity is made up of individual elements and elements of larger units to which they belong, and peoples’ impact on reality depends on which elements dominate their behavior. When civilians launched a suicidal attack on an armed force in Kyiv on February 20, their sense of representing “the nation” far outweighed their concern with their individual mortality. The result was to swing a deeply divided society from the verge of civil war to an unprecedented sense of unity.

Whether that unity endures will depend on how Europe responds. Ukrainians have demonstrated their allegiance to a European Union that is itself hopelessly divided, with the euro crisis pitting creditor and debtor countries against one another. That is why the EU was hopelessly outmaneuvered by Russia in the negotiations with Ukraine over an Association Agreement.

True to form, the EU under German leadership offered far too little and demanded far too much from Ukraine. Now, after the Ukrainian people’s commitment to closer ties with Europe fueled a successful popular insurrection, the EU, along with the International Monetary Fund, is putting together a multibillion-dollar rescue package to save the country from financial collapse. But that will not be sufficient to sustain the national unity that Ukraine will need in the coming years.

I established the Renaissance Foundation in Ukraine in 1990 – before the country achieved independence. The foundation did not participate in the recent uprising, but it did serve as a defender of those targeted by official repression. The foundation is now ready to support Ukrainians’ strongly felt desire to establish resilient democratic institutions (above all, an independent and professional judiciary). But Ukraine will need outside assistance that only the EU can provide: management expertise and access to markets.

In the remarkable transformation of Central Europe’s economies in the 1990’s, management expertise and market access resulted from massive investments by German and other EU-based companies, which integrated local producers into their global value chains. Ukraine, with its high-quality human capital and diversified economy, is a potentially attractive investment destination. But realizing this potential requires improving the business climate across the economy as a whole and within individual sectors – particularly by addressing the endemic corruption and weak rule of law that are deterring foreign and domestic investors alike.

In addition to encouraging foreign direct investment, the EU could provide support to train local companies’ managers and help them develop their business strategies, with service providers remunerated by equity stakes or profit-sharing. An effective way to roll out such support to a large number of companies would be to combine it with credit lines provided by commercial banks. To encourage participation, the European Bank for Reconstruction and Development (EBRD) could invest in companies alongside foreign and local investors, as it did in Central Europe.

Ukraine would thus open its domestic market to goods manufactured or assembled by European companies’ wholly- or partly-owned subsidiaries, while the EU would increase market access for Ukrainian companies and help them integrate into global markets.

I hope and trust that Europe under German leadership will rise to the occasion. I have been arguing for several years that Germany should accept the responsibilities and liabilities of its dominant position in Europe. Today, Ukraine needs a modern-day equivalent of the Marshall Plan, by which the United States helped to reconstruct Europe after World War II. Germany ought to play the same role today as the US did then.

I must, however, end with a word of caution. The Marshall Plan did not include the Soviet bloc, thereby reinforcing the Cold War division of Europe. A replay of the Cold War would cause immense damage to both Russia and Europe, and most of all to Ukraine, which is situated between them. Ukraine depends on Russian gas, and it needs access to European markets for its products; it must have good relations with both sides.

Here, too, Germany should take the lead. Chancellor Angela Merkel must reach out to President Vladimir Putin to ensure that Russia is a partner, not an opponent, in the Ukrainian renaissance.

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How the volatility of the market can be seen every day! Yesterday, the London financiers were out there celebrating on their 14-year high and backing that the ‘only way was up’. Then today they woke up too late after hitting the bottle too much and now that high has dropped as China’s economy is causing greater concerns for the rest of the financial world.

How things change in the space of just a few hours. Nothing is constant and nothing lasts forever. But a rose by any other name still smells of the same thing and here it is pretty much of a stench. People might be harping on about the bankruptcy imminently to be announced by Mt. Gox and the collapse of the Bitcoin Foundation just over the horizon, but aren’t the financial markets doing the self-same thing and just virtually inflating their own markets?

Yesterday shares around the world reached highs amidst a succession of mergers. The FTSE 100 hadn’t been that high since 2000. But, it was only analysts that stood back and calmly stated that there needed to be supporting arguments to believe that the economy was out of the dark ages and into brighter times. They were right today and it was only false hopes and wishing that pushed the markets higher yesterday.

• It was all virally emanating from Wall Street which saw the S&P 500 hit an all-time high, closing up 0.62% at 1847. 
• The Dow Jones Industrial Average increased to 16207, up 0.6%.
• The NASDAQ rose 0.69% to 4292. 
• The FTSE 100 closed at 6865, with an increase of 28 points.
• That’s just 70 points short of the dotcom days of 1999 when the old year went out with a bang.
• Investors around the world are confident (perhaps overly so, as usual) and the Facebook purchase of WhatsApp has something to do with that buoyancy. 
• But balls eventually stop bouncing when there’s no momentum left. 
• There was also talk of the merger going on between Dixons and Carphone Warehouse in the UK that had some effect on investor confidence.
• Although you only have to look at Consumer confidence to get some of the picture. 
• The figures released today show that they are lower than expected and stand at 78.1, rather than the estimated 80. 
• What exactly do consumers have to be confident about?

As usual the market was not showing the reality of the economic situation and we have been hearing of over-pricing in the market for weeks and even months now. But, some in the UK are expecting the FTSE to go beyond the 7000-mark in the next few months. Europe was doing much the same thing and was riding on the crest of that wave too.

• The DAX increased by 0.5% yesterday by close and Spain saw a 1.2%-rise. 
• But, on opening today the Dow Jones Industrial Average had already lost 52 points to 16154, or 0.3%. 
• The S&P 500 also dropped 1.8% or 0.1% to 1845. Where did all the confidence go?

Have the investors suddenly woken up to the fact that it’s all based upon nothing? The highs that we are experiencing are nothing more than fabricated evidence and that it’s pointless throwing money out of the windows and let alone a helicopter unless the economy is really stabilized.

• France has just announced that it will miss its deficit target set for 2015 (3.9%). 
• So will Spain (6.5%). 
• That will mean more budget cuts in the future. 
• The forecasts just released on growth by the European Commission say that GDP will grow by 1.2% in 2014, rising to 1.8% by next year for the EU.
• Cyprus will suffer a worse contraction than economists had forecast for this year, down by -4.8%.
• Inflation has also been lowered from 1.5% to just 1%.

The FTSE 100 dropped this morning by 61 points, or 0.9% to 6804 by mid-day today. Now it is down 0.41% at 6810 at 15.45 GMT. So is it going to reach the 7000-mark and break the records? It was the Shanghai Composite that dampened the confidence of the investors this morning as it recorded its biggest decrease for the past half year, down by 2%.

• The Shanghai Composite fell because there was an unexpected slowdown in house-price growth according to figures released yesterday. 
• The housing bubble has been in the spotlight for the past few months now and there is a prediction that it is getting closer. 
• Banks are also slowing down on their lending and the government is placing a tighter control on credit.

The London Stock Exchange is like a bipolar sufferer going from one extreme to another, constantly on the medication. We are just watching them go through their elevated agitated mood of euphoria, mania. The bout of extreme depression will follow, impairing not their but our ability to function in daily life.

That’s the good thing about their disorder. They get the euphoric partying stage and we end up with the depression.

Originally posted: The Ups and Downs of the Stock Exchange

 

via Zero Hedge http://ift.tt/1hioRrG Pivotfarm

Shortly after the US warned Russia over its "provocative actions" with regard Ukraine…

• *KERRY: RUSSIA MILITARY MOVE ON UKRAINE WOULD BE GRAVE MISTAKE

RiaNovosti reports defense minister Sergei Shoigu saying Russia plans "to expand permanent military presence outside its borders by placing military bases in a number of foreign countries," including Vietnam, Cuba, Venezuela, Nicaragua, the Seychelles, and Singapore. "The talks are under way, and we are close to signing the relevant documents," Shoigu told reporters in Moscow.

Via RiaNovosti,

Russia is planning to expand its permanent military presence outside its borders by placing military bases in a number of foreign countries, Defense Minister Sergei Shoigu said Wednesday.

 

Shoigu said the list includes Vietnam, Cuba, Venezuela, Nicaragua, the Seychelles, Singapore and several other countries.

 

“The talks are under way, and we are close to signing the relevant documents,” Shoigu told reporters in Moscow.

 

The minister added that the negotiations cover not only military bases but also visits to ports in such countries on favorable conditions as well as the opening of refueling sites for Russian strategic bombers on patrol.

 

Moscow currently has only one naval base outside the former Soviet Union – in Tartus, Syria, but the fate of this naval facility is uncertain because of the ongoing civil war in that country.

 

Post-Soviet Russia closed a large naval base in Vietnam and a radar base in Cuba in 2002 due to financial constraints.

 

However, Russia has started reviving its navy and strategic aviation since mid-2000s, seeing them as a tool to project the Russian image abroad and to protect its national interests around the globe.

 

Now, Moscow needs to place such military assets in strategically important regions of the world to make them work effectively toward the goal of expanding Russia’s global influence.

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Submitted by Charles Hugh-Smith of OfTwoMinds blog,

The math of netting $1 billion is daunting.

The mainstream financial media nearly wet its collective pants with excitement in reporting that the planet's corporations paid $1 trillion in dividends in 2013. What they didn't report is that clearing billions in profit is about to get much harder.

As a refresher, let's look at what it takes to net $1 billion in net profit.

You sell 10 products or services that each yield $100 million in net profit. There aren't too many such products or services. Aircraft carriers come to mind, but there are fewer than 40 active-duty carriers in the world. A semiconductor fabrication plant that costs $1+ billion might yield $100 million in net profit for its vendors, but there aren't many $1+ billion fabs around.

You sell 100 products or services that each yield $10 million in net profit. Examples include large airliners, power plants, etc.

You sell 1,000 products or services that each yield $1 million in net profit.

You sell 10,000 products or services that each yield $100,000 in net profit.

You sell 100,000 products or services that each yield $10,000 in net profit.

You sell 1,000,000 products or services that each yield $1,000 in net profit.

You sell 10,000,000 products or services that each yield $100 in net profit.

You sell 100,000,000 products or services that each yield $10 in net profit.

You sell 1,000,000,000 products or services that each yield $1 in net profit.

Let's consider a well-known example of a highly profitable company: Apple. Back in the good old days, when Macintosh computers were scarce and highly desirable, Apple famously netted $1,000 per computer in profit. (Please adjust for inflation to dial in the time-frame.)

So Apple had to sell 1 million Macs to net $1 billion.

Margins have dropped considerably as competition increased and the cost of components dropped. Can any company net $1,000 nowadays on a personal computer? It seems unlikely, as technology works to lower costs and increase supply, reducing margins.

Let's say Apple nets $100 per iPhone and iPad. If so, Apple has to sell 10,000,000 of these devices to net $1 billion.

But since low-cost Android phones and tablets can be had in China for $50 each wholesale, manufacturers without the cache of the Apple brand and features have to sell 100,000,000 such low-cost phones and tablets at $10 net profit each to net $1 billion.

At the consumer-products level, companies selling shampoo, diapers, etc. have to sell 1 billion items that each net $1 to reap $1 billion in net profit.

As the costs of production and the demand both decline, profits plummet along with prices and sales. Apple looks ahead and sees a market for smart phones and tablets that is increasingly saturated in advanced economies (i.e. everyone who wanted one has already bought one, and the market for replacements is not a high-growth scenario) and increasingly competitive in emerging markets (i.e. consumers might desire an Apple product but are unable to afford one, so they buy a $50 device instead).

Thus it is not entirely surprising that Apple is looking far afield for new opportunities to reap high margins and profits: Apple exploring cars, medical devices to reignite growth (S.F. Chronicle, subscription required)
 

Such a buying spree has ignited fierce speculation in tech circles and on Wall Street about Apple's future ambitions, especially as smartphone and tablet sales start to slow. Most of that speculation has centered on wearable technology or perhaps a souped-up upgrade of Apple TV.But Apple is thinking bigger. Much bigger.

A source tells The Chronicle that Perica met with Tesla CEO Elon Musk in Cupertino last spring around the same time analysts suggested Apple acquire the electric car giant.

The newspaper has also learned that Apple is heavily exploring medical devices, specifically sensor technology that can help predict heart attacks. Led by Tomlinson Holman, a renowned audio engineer who invented THX and 10.2 surround sound, Apple is exploring ways to predict heart attacks by studying the sound blood makes at it flows through arteries.

Taken together, Apple's potential forays into automobiles and medical devices, two industries worlds away from consumer electronics, underscore the company's deep desire to move away from iPhones and iPads and take big risks.

Allow me to state the obvious: Apple is grasping at straws in its search for new ways to net $1 billion. Electric autos are a small but growing market, but Mr. Musk appears to be doing quite well on his own at Tesla and has little incentive to cut anyone else into the deal.

High-cost medical devices depend on the tottering sickcare system for payment, and if the Affordable Care Act (ACA) has indeed provided the final destabilizing push over the cliff, counting on the gummit to pay full price for millions of costly devices/tests may not be a sure bet any more.

The math of netting $1 billion is daunting. You have to sell a million products or services that net $1,000 each to clear $1 billion. Say the battery pack on an electric car costs $12,000 now. It's certainly possible to net $1,000 on each pack at that price. But you have to sell 1 million packs a year to net $1 billion. Since electric autos are selling in the thousands, not millions, it will be a long time before anyone can sell 1 million battery packs a year.

As the price of batteries declines, it will become more difficult to net $1,000 per pack. By the time the price has declined to the point that someone can sell 1 million packs a year, the net profit per pack might be $100 rather than $1,000.

Here's the macro picture: China and the emerging markets are slowing as various credit bubbles pop, meaning the profits from moving commodities to Asia will plummet. The developed world is also depending on credit bubbles and the one-time consumption of seed corn (capital/equity) for its anemic expansion. Eating Our Seed Corn: How Much of our "Growth" Is From One-Time Cashouts? (February 25, 2014)

The point is this: technology lowers margins, and credit bubbles inevitably pop. Any company or nation that depends on maintaining high margins in credit-bubble-based "growth" is about to find that it's much harder to net $1 billion, much less $1 trillion.

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Kevin Lau, the 49-year-old former editor of the respected Ming Pao newspaper (who was unexpectedly replaced last month by journalist with no experience) following his reporting on human rights abuses in China is in critical condition after being attacked with a meat-cleaver. As The Daily Mail reports, slashed three times by a man in a crash helmet in a residential neighbourhood who then fled on a motorbike, police said. His sudden dismissal sparked protests across the city over freedom of the press as the move raised fears among journalists that the newspaper's owners were moving to curb aggressive reporting on human rights and corruption in China. It appears, given this attack, they were right.

 

Via The Daily Mail,

The former editor of a Hong Kong newspaper is in critical condition after being attacked with a meat clever earlier today.

Kevin Lau was slashed three times by a man in a crash helmet in a residential neighbourhood who then fled on a motorbike, police said.

Lau was hospitalised in critical condition with slashes in his back and legs, said Kwan King-pan, acting superintendent of Hong Kong Police.

Police are searching for two men in connection with the attack.

'One of them alighted from the motorcycle and used a chopper to attack the victim,' police spokesman Simon Kwan told reporters.

'He suffered three wounds, one in his back and two in his legs,' Mr Kwan said, adding that the back wound was deep.

Police did not announce any motive for the attack and appealed to the public for information. 

Lau was replaced last month after criticising the Chinese government over human right's abuses

Lau, 49, was named editor of the respected Ming Pao newspaper in 2012 but was replaced last month by a Malaysian journalist with no local experience.

Lau was transferred to the parent company's electronic publishing unit.

The move raised fears among journalists that the newspaper's owners were moving to curb aggressive reporting on human rights and corruption in China.

His sudden dismissal sparked protests across the city over freedom of the press.

The Hong Kong Journalists Association said it was shocked and angered by the attack, calling it a 'serious provocation to Hong Kong press freedom.'

Speaking outside hospital, Hong Kong leader Leung Chun-ying said: 'We strongly condemn this savage act.'

Freedom of speech and the press is a growing concern in the semi-autonomous Chinese city, where such rights are guaranteed by its mini-constitution.

On Sunday, thousands of people took to the streets to protest Lau's dismissal, the ousting of an outspoken radio host, and reports that Beijing-backed businesses were pulling ads from some newspapers over editorial stances.

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Harvard’s Research Computing department’s 14,000-core supercomputer “Odyssey” has been moonlighting as a virtual currency miner. As The Register reports, a Harvard student has had their access credentials revoked after the discovery that the Odyssey cluster had been scheduled for use in a Dogecoin mining operation. Harvard is not happy: “Any participation in ‘Klondike’ style digital mining operations or contests for profit requiring Harvard owned assets to examine digital currency key strength and length are strictly prohibited for fairly obvious reasons.”

That someone would seek to employ a supercomputer cluster in a mining operation is hardly a surprise, given the current market for Bitcoin and the various altcoin formats.

As The Crimson reports,

“A “dogecoin” (bitcoin derivative) mining operation had been set up on the Odyssey cluster consuming significant resources in order to participate in a mining contest,” wrote Assistant Dean for Research Computing James A. Cuff, in an email to the FAS Research Computing Users Group last Friday.

Cuff went on to write that research computing resources cannot be used for “personal or private gain or any non-research related activity.” He wrote that the person involved in the mining operation no longer has access to “any and all research computing facilities on a fully permanent basis.”

…

“The Odyssey cluster is a bunch of computers networked together in a way that allows fast data transfer between processors. Although each individual processor isn’t much more powerful than your personal laptop, having many processors together can be a huge benefit when doing scientific computing,”

Or mining virtual currencies…

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