finance – Page 18630

Ukraine Tanks Stopped By Unarmed Woman

There days ago it was the male “separatists” that stopped Ukraine tanks armed with just their bodies. Yesterday, in the seceding Ukraine town of Kramatorsk, it is a woman’s turn.

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Obama Administration Encouraged Insider Trading

Back in 2011, many people were outraged when it was revealed that two months before the US Treasury pushed the insolvent GSEs into bankruptcy, then Treasury Secretary, Goldman alum Hank Paulson held a secret meeting with various hedge funds (most of them headed by Goldman alumni themselves) in which he gave them advance warning about the imminent bankruptcy, and allowing them to trade appropriately on material, and certainly non-public information.

Since then the general population has gotten far more used to encouraged criminal activity and facilitated insider trading by the government so comparable revelations no longer generate the expected loathing and disgusts, which is perhaps why over the past week the Obama administration once again leaked material information, in effect allowing and encouraging frontrunning of public data, when it told “asset managers last week that it was planning additional sanctions against Russia over the conflict in Ukraine.”

Bloomberg reports that the meeting, convened a week before talks with Russia in Geneva that ended yesterday, left managers grappling with the question of whether the government intended to follow through, or was trying to trigger asset sales through the threat of sanctions, said the person. Former administration officials have said forcing Russia out of global financial markets is the strongest tool President Barack Obama has at his disposal in trying to defuse the ongoing crisis between Russia and Ukraine.

Officials from the Treasury Department and the National Security Council met in Washington with mutual-fund and hedge-fund managers, according to a person who attended. Their comments sent a message that more sanctions are on the way and that investors, if they were concerned about the impact, should manage that risk, said the person, who asked not to be identified because the discussions weren’t public.

The meeting in Washington last week included several mutual-fund companies with large bond units, according to the person. Separately, the U.S. Securities and Exchange Commission has been asking U.S. asset managers about their investments in Russian securities, said the person.

The National Security Council is the president’s main forum for considering national security and foreign policy matters.

At least while Obama was happy leaking clearly material information to a select few, he didn’t force them to sell Russian assets. At least not yet:

An administration official, who asked for anonymity to discuss internal deliberations, said there have been no specific requests made to investors not to invest in Russia. The official said the Department of Commerce and the Treasury do have conversations with the business community to explain what they’re doing, such as briefing executives after a sanctions announcement. The official said the government maintains open lines of communication so businesses understand what policy makers are doinga.

No, the perfectly public trading “reco” was left to Obama spokesman Jay Carney. We all know what happened after.

As for those who participated, their actions indicate quite clearly that when it comes to securities laws, there are “laws”, or rather loopholes, for the chosen ones, and then there are laws for everyone else.

One bond manager at a large U.S. mutual-fund company, who also asked not to be named citing company policy, said the firm has been working to sell Russian debt and wasn’t inclined to return to the market in the near future. The person, who hadn’t heard of any government attempts to influence money managers, said the company perceives risk in Russia as having increased significantly.

So just in case those lovely anchors with ultra white tooth veneers of financial comedy TV are still confused why the general public has completely given up on the stock, and every other “market”, it is not only the HFT parasites, it is not only the Fed’s gross manipulation of every asset class known to man and economist. It is the fact that insider trading is not only condoned but encouraged from the very top, and what’s worse – it benefits only those who no longer have to worry about money ever again.

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Ukraine “De-escalation” Voided As Pro-Russia Militia Refuse To Vacate Occupied Buildings

If yesterday we had questions about the half life of the effectiveness of the latest diplomatic de-escalation of Ukraine tensions ‘achieved’ in Geneva, following news that both Ukraine would continue its anti-terrorist operation and that fighting had broken out in various east Ukraine locations after the agreement, today any questions have been swept aside following news that the Ukraine “separatist” milita, who after all is the primary object of Ukraine “anti-terrorist activities”, has announced that they will only leave the occupied east Ukraine buildings if the interim government in Kiev resigns. Denis Pushilin, a spokesman of the self-appointed Donetsk People’s Republic, told reporters that the insurgents do not recognize the Ukrainian government as legitimate.

Indeed, in an amusing twist, the militia has flipped the Geneva agreement on its head, alleging that if they are to abide by a signed document, so should the “illegitimate” government, which as a reminder took power following a US-assisted coup, even though an explicit agreement was signed on February 21 between Ukraine and western powers previously retaining Yanukovich as president of the country, and ushering in presidential elections later in 2014. Needless to say, that agreement was made null and void within hours of signing. It is only logical, and perfectly expected, that so should this one.

“This is a reasonable agreement but everyone should vacate the buildings and that includes Yatsenyuk and Turchynov,” he said referring to the acting Ukrainian prime minister and president.

BP Manager In Charge of Cleaning Up the Gulf Oil Spill Sold $1 Million In BP Stock Before the Severity of Spill Became Known

The Securities and Exchange Commission announced today:

The Securities and Exchange Commission today charged a former 20-year employee of BP p.l.c. and a senior responder during the 2010 Deepwater Horizon oil spill with insider trading in BP securities based on confidential information about the magnitude of the disaster. The price of BP securities fell significantly after the April 20, 2010 explosion on the Deepwater Horizon rig, and the subsequent oil spill in the Gulf of Mexico, resulted in an extensive clean-up effort.

According to the SEC’s complaint, filed in U.S. District Court for the Eastern District of Louisiana, BP tasked Keith A. Seilhan with coordinating BP’s oil collection and clean-up operations in the Gulf of Mexico and along the coast. Seilhan, an experienced crisis manager, directed BP’s oil skimming operations and its efforts to contain the expansion of the oil spill.

The complaint alleges that within days, Seilhan received nonpublic information on the extent of the evolving disaster, including oil flow estimates and data on the volume of oil floating on the surface of the Gulf.

“Seilhan sold his family’s BP securities after he received confidential information about the severity of the spill that the public didn’t know,” said Daniel M. Hawke, chief of the Division of Enforcement’s Market Abuse Unit.

***

The complaint alleges that by April 29, 2010, in filings to the SEC, BP estimated that the flow rate of the spill was up to 5,000 barrels of oil per day (bopd). The company’s public estimate was significantly less than the actual flow rate, which was estimated later to be between 52,700 and 62,200 bopd. The information that Seilhan obtained indicated that the magnitude of the oil spill and thus, BP’s potential liability and financial exposure, was likely to be greater than had been publicly disclosed.

According to the complaint, while in possession of this material, nonpublic information, and in breach of duties owed to BP and its shareholders, Seilhan directed the sale of his family’s entire $1 million portfolio of BP securities over the course of two days in late April 2010. The trades allowed Seilhan to avoid losses and reap unjust profits ….

Interestingly, the head of BP – Tony Hayward – sold 1.4 million pounds worth of BP shares a few weeks before the start of the Gulf oil spill. While – at first glance – this sound like it could not possibly have been connected to the Gulf spill, BP actually had major problems with the Gulf well months before the spill.

Sadly, Mr. Seilhan, Mr. Hayward and the rest of the BP team made normal oil-skimming procedures impossible because they sunk the oil with Corexit dispersant … so the oil skimmers couldn’t get to it.

And it is beyond doubt that BP and the government blatantly low-balled the amount of oil spilled.

Indeed, most people still don’t understand that – while the well was “capped” in 2010 – top experts say that the oil spill could have increased the amount of oil flowing form natural seeps in the area … so that more oil continues to leak into the Gulf for years. Indeed, large oil slicks have flowed for years after the BP well was capped (and BP’s explanations for this phenomenon don’t hold up to scrutiny.)

Postscript: Some BP personnel were criminally indicted for manslaughter and lying to federal investigators.

But the U.S. has let BP back into the Gulf. And BP is going to drill even deeper … with an even greater potential for disaster (and see this).

via Zero Hedge http://ift.tt/1f0zgF1 George Washington

PaGiNG DR KRuGMaN…

Paul dabbled in the occult
The spirit of Keynes he’d consult
He was told in a trance
To help debt advance
With a system collapse the result
The Limerick King

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“Hillary For President” Fundraiser Busted For Illegal Campaign Contributions

If you listen carefully, you can hear the stampede of politicians distancing themselves from their once best-friend – Hotel magnate Sant Singh Chatwal – as AP reports, he plead guilty Thursday to charges he secretly funneled more than $180,000 in illegal campaign contributions to three unnamed candidates and coached someone to lie about it. Without the contributions “nobody will even talk to you,” Chatwal said. “That’s the only way to buy them, get into the system.” Welcome to the ugly truth of American politik.

The FT details that Sant Singh Chatwal, chairman of Hampshire Hotels Management, pleaded guilty on Thursday to making more than $180,000 in illegal federal campaign donations to three candidates through “straw donors” who were reimbursed, the DoJ said in a statement.

He raised at least $100,000 for Hillary Clinton in her 2008 presidential campaign against Barack Obama.

The justice department did not comment on whether Mrs Clinton was one of the three candidates, but it said there was no allegation that candidates took part in or were aware of Mr Chatwal’s scheme.

Mr Chatwal was skirting legal limits on contributions to an individual candidate’s campaign of $2,300 in 2008 and $2,400 in 2010.

As AP explains the fraud was extensive…

Court papers allege that between 2007 and 2011, Chatwal used his employees, business associates and contractors who worked on his hotels to collect contributions from straw donors in Queens, Long Island and elsewhere. He then arranged to pay the donors back, a violation of the election laws.

As part the scheme, an unnamed business associate submitted a bill to Chatwal for $104,745 in 2011 for purported work done for one of Chatwal’s companies. Prosecutors allege that $69,000 of the total actually was reimbursement for money the associate had raised via straw donors.

In a conversation recorded in 2012, Chatwal instructed the associate that if he were asked if Chatwal gave him the money back, he should respond, “Never.”

Chatwal directly backed several Democratic candidates with his own money — at least $31,200 since 2004, according to Federal Election Commission records.

Among them were New York Reps. Joe Crowley and Gary Ackerman, along with California Rep. Howard Berman and Florida Rep. Robert Wexler. He also gave money to Montana Sen. Jon Tester, Nevada Sen. Harry Reid, Connecticut Sen. Chris Dodd and Virginia Sen. Mark Warner.

And leaves the ugly truth of American politics behind…

An informant caught Sant Singh Chatwal on tape in 2010 explaining that he believed his illegal fundraising bought him access to people in power.

Without the contributions “nobody will even talk to you,” Chatwal said. “That’s the only way to buy them, get into the system.”

via Zero Hedge http://ift.tt/1hREj0g Tyler Durden

What Oil War Premium?

Central bank’s ongoing and so-far-successful efforts to crush short-term volatility and encourage hapless individuals into the world’s nominally rising stock markets has had consequences. Inequalities abound (rich vs poor, corporate profits vs capex/jobs, bond yields vs growth hopes) but nowhere else is this more evident – given the ever-increasing crescendo of the drum-beat of war around the world – than in oil price volatility. As the chart below shows… oil price volatility is at its lowest in 21 years. We can’t help but be reminded of Taleb’s priceless phrase that “there is no freedom without noise – and no stability without volatility.”

This constant suppression of short-term volatility can lead to only one thing…

The Black Swan of Cairo

How Suppressing Volatility Makes the World Less Predictable and More Dangerous

Complex systems that have artificially suppressed volatility tend to become extremely fragile, while at the same time exhibiting no visible risks. In fact, they tend to be too calm and exhibit minimal variability as silent risks accumulate beneath the surface. Although the stated intention of political leaders and economic policymakers is to stabilize the system by inhibiting fluctuations, the result tends to be the opposite. These arti?cially constrained systems become prone to “Black Swans” — that is, they become extremely vulnerable to large-scale events that lie far from the statistical norm and were largely unpredictable to a given set of observers.

Such environments eventually experience massive blowups, catching everyone off-guard and undoing years of stability or, in some cases, ending up far worse than they were in their initial volatile state. Indeed, the longer it takes for the blowup to occur, the worse the resulting harm in both economic and political systems.

Seeking to restrict variability seems to be good policy (who does not prefer stability to chaos?), so it is with very good intentions that policymakers unwittingly increase the risk of major blowups. And it is the same misperception of the properties of natural systems that led to both the economic crisis of 2007-8 and the current turmoil in the Arab world. The policy implications are identical: to make systems robust, all risks must be visible and out in the open — fluctuat nec mergitur (it fluctuates but does not sink) goes the Latin saying.

…

As Jean-Jacques Rousseau put it, “A little bit of agitation gives motivation to the soul, and what really makes the species prosper is not peace so much as freedom.” With freedom comes some unpredictable fluctuation. This is one of life’s packages: there is no freedom without noise — and no stability without volatility.

Read more here

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Princeton Study Confirms ‘US Is An Oligarchy’

Submitted by Mike Krieger of Liberty Blitzkrieg blog,

Despite the seemingly strong empirical support in previous studies for theories of majoritarian democracy, our analyses suggest that majorities of the American public actually have little influence over the policies our government adopts. Americans do enjoy many features central to democratic governance, such as regular elections, freedom of speech and association, and a widespread (if still contested) franchise. But we believe that if policymaking is dominated by powerful business organizations and a small number of affluent Americans, then America’s claims to being a democratic society are seriously threatened.

– From a recent study titled Testing Theories of American Politics: Elites, Interest Groups, and Average Citizens by Martin Gilens of Princeton University and Benjamin I. Page of Northwestern University

In response to the publication of an academic study that essentially proves the United States is nothing more than an oligarchy, many commentators have quipped sentiments that go something like “so tell me something I don’t know.” While I agree that the conclusion is far from surprising to anyone paying attention, the study is significant for two main reasons.

First, there is a certain influential segment of the population which has a disposition which requires empirical evidence and academic studies before they will take any theory seriously. Second, some of the conclusions can actually prove quite helpful to activists who want to have a greater impact in changing things. This shouldn’t be particularly difficult since their impact at the moment is next to zero.

What is most incredible to me is that the data under scrutiny in the study was from 1981-2002. One can only imagine how much worse things have gotten since the 2008 financial crisis. The study found that even when 80% of the population favored a particular public policy change, it was only instituted 43% of the time. We saw this first hand with the bankster bailout in 2008, when Americans across the board were opposed to it, but Congress passed TARP anyway (although they had to vote twice).

Even more importantly, several years of supposed “economic recovery” has not changed the public’s perception of the bankster bailouts. For example, a 2012 study showed that only 23% percent of Americans favored the bank bailouts and the disgust was completely bipartisan, as the Huffington Post points out.

Personally, I think the banker bailouts will go down as one of the most significant turning points in American history. Despite widespread disapproval, Congress passed TARP and it was at that moment that many Americans “woke up” to the fact they are nothing more than economic slaves with no voice. That they are serfs. Even more importantly, once oligarchs saw what they could get away with they kept doubling down and doubling down until we find ourselves in the precarious position we are in today. A society filled with angst and resentment at the fact that the 0.01% have stolen everything.

Another thing that the study noted was that average citizens sometimes got what they wanted, but this is almost always when their preferences overlap with the oligarchs. When this occurs it is entirely coincidental, and in many cases may the result of public opinion being molded by the elite-controlled special interest groups themselves. How pathetic.

I read the entire 42 page study and have highlighted what I found to be the key excerpts below. Please share with others and enjoy:

Multivariate analysis indicates that economic elites and organized groups representing business interests have substantial independent impacts on U.S. government policy, while average citizens and mass-based interest groups have little or no independent influence. The results provide substantial support for theories of Economic Elite Domination and for theories of Biased Pluralism, but not for theories of Majoritarian Electoral Democracy or Majoritarian Pluralism.

Until very recently, however, it has been impossible to test the differing predictions of these theories against each other within a single statistical model that permits one to analyze the independent effects of each set of actors upon policy outcomes.

A major challenge to majoritarian pluralist theories, however, is posed by Mancur Olson’s argument that collective action by large, dispersed sets of individuals with individually small but collectively large interests tends to be prevented by the “free rider” problem. Barring special circumstances (selective incentives, byproducts, coercion), individuals who would benefit from collective action may have no incentive to personally form or join an organized group. If everyone thinks this way and lets George do it, the job is not likely to get done. This reasoning suggests that Truman’s “potential groups” may in fact be unlikely to form, even if millions of peoples’ interests are neglected or harmed by government. Aware of the collective action problem, officials may feel free to ignore much of the population and act against the interests of the average citizen.

As to empirical evidence concerning interest groups, it is well established that organized groups regularly lobby and fraternize with public officials; move through revolving doors between public and private employment; provide self-serving information to officials; draft legislation; and spend a great deal of money on election campaigns. Moreover, in harmony with theories of biased pluralism, the evidence clearly indicates that most U.S. interest groups and lobbyists represent business firms or professionals. Relatively few represent the poor or even the economic interests of ordinary workers, particularly now that the U.S. labor movement has become so weak.

What makes possible an empirical effort of this sort is the existence of a unique data set, compiled over many years by one of us (Gilens) for a different but related purpose: for estimating the influence upon public policy of “affluent” citizens, poor citizens, and those in the middle of the income distribution.

Gilens and a small army of research assistants gathered data on a large, diverse set of policy cases: 1,779 instances between 1981 and 2002 in which a national survey of the general public asked a favor/oppose question about a proposed policy change.

In any case, the imprecision that results from use of our “affluent” proxy is likely to produce underestimates of the impact of economic elites on policy making. If we find substantial effects upon policy even when using this imperfect measure, therefore, it will be reasonable to infer that the impact upon policy of truly wealthy citizens is still greater.

Some particular U.S. membership organizations – especially the AARP and labor unions– do tend to favor the same policies as average citizens. But other membership groups take stands that are unrelated (pro-life and pro-choice groups) or negatively related (gun owners) to what the average American wants. Some membership groups may reflect the views of corporate backers or their most affluent constituents. Others focus on issues on which the public is fairly evenly divided. Whatever the reasons, all mass-based groups taken together simply do not add up, in aggregate, to good representatives of the citizenry as a whole. Business-oriented groups do even worse, with a modest negative over-all correlation of -.10.

The estimated impact of average citizens’ preferences drops precipitously, to a non-significant, near-zero level. Clearly the median citizen or “median voter” at the heart of theories of Majoritarian Electoral Democracy does not do well when put up against economic elites and organized interest groups. The chief predictions of pure theories of Majoritarian Electoral Democracy can be decisively rejected. Not only do ordinary citizens not have uniquely substantial power over policy decisions; they have little or no independent influence on policy at all.

By contrast, economic elites are estimated to have a quite substantial, highly significant, independent impact on policy. This does not mean that theories of Economic Elite Domination are wholly upheld, since our results indicate that individual elites must share their policy influence with organized interest groups. Still, economic elites stand out as quite influential – more so than any other set of actors studied here – in the making of U.S. public policy.

The incredible thing here is that they use the 90th percentile to gauge the “economic elite,” when we well know that it is the “oligarchs” themselves and the businesses they run that call all the shots. It would have been interesting if they isolated the impact of the 0.01%.

These results suggest that reality is best captured by mixed theories in which both individual economic elites and organized interest groups (including corporations, largely owned and controlled by wealthy elites) play a substantial part in affecting public policy, but the general public has little or no independent influence.

In our 1,779 policy cases, narrow pro-change majorities of the public got the policy changes they wanted only about 30% of the time. More strikingly, even overwhelmingly large pro-change majorities, with 80% of the public favoring a policy change, got that change only about 43% of the time.

Amidst all of the bad news in this study, there is one conclusion from which we can find a silver lining.

The importance of business groups’ numerical advantage is also revealed when we rescale our measures of business and mass-oriented interest group alignments to reflect the differing number of groups in each of these categories. Using this rescaled measure, a parallel analysis to that in table 4 shows that on a group-for-group basis the average individual business group and the average mass-oriented group appears to be about equally influential. The greater total influence of business groups in our analysis results chiefly from the fact that more of them are generally engaged on each issue (roughly twice as many, on average), not that a single business-oriented group has more clout on average than a single mass based group.

Relatively few mass-based interest groups are active, they do not (in the aggregate) represent the public very well, and they have less collective impact on policy than do business-oriented groups – whose stands tend to be negatively related to the preferences of average citizens. These business groups are far more numerous and active; they spend much more money; and they tend to get their way.

What the paragraphs above demonstrate is that the public has become very, very bad at organizing and that they aren’t even in the same ballpark as the the business groups. While mass-based interest groups will never be able to compete financially, we now live in a world of crowd-funding and a great deal of angst. Thus, there appears to be some low hanging fruit available for the activist community to pick at and become more organized.

Furthermore, the preferences of economic elites (as measured by our proxy, the preferences of “affluent” citizens) have far more independent impact upon policy change than the preferences of average citizens do. To be sure, this does not mean that ordinary citizens always lose out; they fairly often get the policies they favor, but only because those policies happen also to be preferred by the economically elite citizens who wield the actual influence.

But sure, keep chanting USA! USA! and keep sending your children to die overseas for no good reason.

Of course our findings speak most directly to the “first face” of power: the ability of actors to shape policy outcomes on contested issues. But they also reflect – to some degree, at least – the “second face” of power: the ability to shape the agenda of issues that policy makers consider. The set of policy alternatives that we analyze is considerably broader than the set discussed seriously by policy makers or brought to a vote in Congress, and our alternatives are (on average) more popular among the general public than among interest groups. Thus the fate of these policies can reflect policy makers’ refusing to consider them rather than considering but rejecting them. (From our data we cannot distinguish between the two.) Our results speak less clearly to the “third face” of power: the ability of elites to shape the public’s preferences. We know that interest groups and policy makers themselves often devote considerable effort to shaping opinion. If they are successful, this might help explain the high correlation we find between elite and mass preferences. But it cannot have greatly inflated our estimate of average citizens’ influence on policy making, which is near zero.

So what’s the conclusion? Well we aren’t a Democracy and we aren’t a Constitutional Republic. As I and many others have noted, we have descended into something far worse, an neo-fedualistic Oligarchy.

What do our findings say about democracy in America? They certainly constitute troubling news for advocates of “populistic” democracy, who want governments to respond primarily or exclusively to the policy preferences of their citizens. In the United States, our findings indicate, the majority does not rule –– at least not in the causal sense of actually determining policy outcomes. When a majority of citizens disagrees with economic elites and/or with organized interests, they generally lose. Moreover, because of the strong status quo bias built into the U.S. political system, even when fairly large majorities of Americans favor policy change, they generally do not get it.

A possible objection to populistic democracy is that average citizens are inattentive to politics and ignorant about public policy; why should we worry if their poorly informed preferences do not influence policy making? Perhaps economic elites and interest group leaders enjoy greater policy expertise than the average citizen does. Perhaps they know better which policies will benefit everyone, and perhaps they seek the common good, rather than selfish ends, when deciding which policies to support.

But we tend to doubt it. We believe instead that – collectively – ordinary citizens generally know their own values and interests pretty well, and that their expressed policy preferences are worthy of respect. Moreover, we are not so sure about the informational advantages of elites. Yes, detailed policy knowledge tends to rise with income and status. Surely wealthy Americans and corporate executives tend to know a lot about tax and regulatory policies that directly affect them. But how much do they know about the human impact of Social Security, Medicare, Food Stamps, or unemployment insurance, none of which is likely to be crucial to their own well-being? Most important, we see no reason to think that informational expertise is always accompanied by an inclination to transcend one’s own interests or a determination to work for the common good.

All in all, we believe that the public is likely to be a more certain guardian of its own interests than any feasible alternative.

Leaving aside the difficult issue of divergent interests and motives, we would urge that the superior wisdom of economic elites or organized interest groups should not simply be assumed. It should be put to empirical test. New empirical research will be needed to pin down precisely who knows how much, and what, about which public policies.

Our findings also point toward the need to learn more about exactly which economic elites (the “merely affluent”? the top 1%? the top 0.01%?) have how much impact upon public policy, and to what ends they wield their influence. Similar questions arise about the precise extent of influence of particular sets of organized interest groups. And we need to know more about the policy preferences and the political influence of various actors not considered here, including political party activists, government officials, and other non-economic elites. We hope that our work will encourage further exploration of these issues.

Despite the seemingly strong empirical support in previous studies for theories of majoritarian democracy, our analyses suggest that majorities of the American public actually have little influence over the policies our government adopts. Americans do enjoy many features central to democratic governance, such as regular elections, freedom of speech and association, and a widespread (if still contested) franchise. But we believe that if policymaking is dominated by powerful business organizations and a small number of affluent Americans, then America’s claims to being a democratic society are seriously threatened.

So when Sam Zell or any other oligarch prances around on television saying that the “poor should be more like the rich,” what he’s really saying is you need to sell your soul and attempt to become an oligarch. Otherwise, you’re fucked.

This is a truly excellent study and I suggest you read the entire thing here, if you have the time.

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

A Blueprint for Investing in Frontier Markets

By: Mark Wallace at http://ift.tt/146186R

Our friends at Pathfinder Capital have created an excellent report on frontier markets. These guys live and breath the frontier, putting boots on the ground where most of us wouldn’t care to visit.

Both of the founders are ex-military guys who cut their teeth in places like Libya, Iraq and eastern Europe. Chris and I have spent a lot of time with them, including at our Meet Ups in Mongolia, Cambodia, Singapore and Sri Lanka. We really respect their analysis and expertise. We recommend taking the time to download and review their report linked at the end of this post.

——–

Courtesy of Pathfinder Capital

Last week we attended an asset management conference in London, in which the agenda featured several prominent speakers and a panel conference on emerging markets. We noted that some of the UK’s largest fund managers would be represented in the discussion, so with our curiosity piqued we walked down to Threadneedle Street in order to listen in.

For the most part the event did not disappoint – it’s always useful to hear other fund managers discuss the issues that keep them awake at night. However we were somewhat taken aback by one comment at the emerging markets panel; in general, this person (a partner at a firm claiming to focus on the emerging markets) told the audience that he didn’t see any reason to distinguish between the emerging and frontier markets, given the relatively high correlations of their currencies and equity indices.

In our opinion, this comment couldn’t have been further off the mark – and we have the empirical evidence to back it up. At the bottom of this post you can see a link to our latest white paper “Introducing the I-3”. We have spent the past several months building this document, with special thanks to our friends Owain Mulligan (currently at London Business School) and Joe Holliday (currently at Harvard Business School) for their invaluable assistance.

Many institutional investors have acknowledged that frontier markets deserve consideration as a distinct asset class. After twenty years of strong growth, the “traditional” emerging markets (the famed BRICs of Brazil, Russia, India and China) are beginning to resemble developed Western economies. However, the majority of global growth in the next decade will instead be generated by “frontier markets”. Indeed, over the past five years, 43 of the 47 highest-growth economies have come from the frontier. Less than one third of those are represented on mainstream equity indices.

Traditional definitions of the frontier market are unsatisfactory. They are typically defined as “those markets that are not yet classified as developed or emerging markets”. While this is technically true, and a valid first step, frontier markets can also be defined by the specific characteristics they exhibit in comparison to more developed economies:

Lower liquidity
Smaller market capitalization
Higher trading costs
Higher volatility
Reduced transparency
Higher geopolitical/sovereign political risk

It should also be recognized that frontier markets are not homogenous. In fact, they can be further broken down into three distinct categories that we have identified as the I-3:

Indexed Frontier. Countries that are included on mainstream equity indices.
Illiquid Frontier. Countries that have small stock exchanges with low trading volumes and low market cap-to-GDP ratios.
Isolated Frontier. Those high-growth economies that do not have a sovereign stock exchange, or participate in a regional stock exchange.

Between 2008 and 2012, forty-seven economies achieved an average annual GDP growth rate greater than 5% (see Figure 1). Of these, none were developed economies and only four were classified as emerging markets, leaving 43 from the frontier.

Most investors overlook frontier markets due to perceptions of higher risk and, often more so, a general lack of familiarity. Frontier markets also have little or no representation in mainstream equity indices and are therefore not easily investable. While a handful of frontier-focused indices exist, their market capitalization remains very small when compared to emerging markets equity indices. This lack of representation creates difficulties for the investor who seeks exposure to this exciting asset class. In this era of quantitative easing and negative real deposit rates, investors are increasingly turning to the high growth opportunities offered in the frontier markets. After reading the attached document, we believe that the reasons behind this trend will become plainly evident.

——–

You can read Pathfinder’s latest “Introducing the I-3” white paper here.

– Mark

“Country selection is more important in frontier markets than in emerging markets.” – Cliff Quisenberry, Caravan Capital Management

via Zero Hedge http://ift.tt/1eFmwIW Capitalist Exploits

Putin’s Top 10 Q&A Quotes: “The US Will Cut Off Their Nose To Spite Their Face”

Originally posted at Russia Today,

Ukraine’s crisis was, predictably, at the center of Vladimir Putin’s annual televised interview. He said the situation can only be solved through a compromise between internal players. Below are the president’s ten most significant quotes.

“[Yanukovich] didn’t have the heart to sign an act that would see force used against his citizens”

Answering a question from an ex-Berkut – Ukrainian special forces – commander as to whether the ousted Ukrainian President Viktor Yanukovich has always been such a “weakling and traitor,” Putin said that Yanukovich did his duty as he thought was right, proper and necessary.

“I spoke with him, certainly, many times, during the crisis, and after he arrived in the Russian Federation; we talked about using force… The gist of his answer was that he thought about using force many times, but he didn’t have the heart to sign an act that would see force used against his citizens,” Putin said.

“Faina Ivanovna, dear, what would you need Alaska for?”

Asked by a pensioner if Alaska could follow Crimea’s example, Putin said “We’re a northern country. 70 percent of our territory is in the North or Far North. Is Alaska in the southern hemisphere? It’s cold there as well. Let’s keep cool about it,” Putin said.

According to Putin, he is also aware of the fact that some Russians call Alaska “Ice-Krym” (“Krym” is the Russian for Crimea).

“Tanks, jets against own people?! Are they nuts?”

The Russian President said he thought that asking activists in the southeast of Ukraine to hand in their weapons was the right approach, but this measure should also be applied to armed Ukrainian nationalist groups.

Putin also said that the crisis in Ukraine can only be solved through a compromise in the interests of the Ukrainian people.

“The coup-appointed government in Kiev needs to come to its senses before we can negotiate,” said Putin.

“They don’t want to see us in PACE? Better lost than found!”

Russia won’t insist on staying in several international organizations, but isn’t planning to walk out in protest, Putin said.

“The world is developing intensively, and if there a player who wants to turn it unipolar and align all organizations according to their will, it won’t succeed,” the president added.

“It’s hard to speak with people who whisper at home, afraid of US surveillance.”

Putin noted that there are some problems in the dialogue between Moscow and its European partners.

“Many Western countries have voluntarily relinquished a large part of their sovereignty. That is, among other things, the result of bloc policy. It’s sometimes really difficult to negotiate with them on geopolitical issues,” he said.

“It’s difficult to talk to people who whisper even at home, afraid of Americans eavesdropping on them. It’s not a figure of speech, not a joke, I’m serious.”

“Obama is a decent, courageous man, he would save me from drowning”

To the question whether Obama would save the Russian President from drowning, Putin answered that the US president is “a decent, courageous man” and “would save” him.

However, Putin stressed that the relationship between them wasn’t a close one.

“In addition to intergovernmental relations, there are personal relations, but I don’t think I have a close personal relationship with Obama,” the president said.

“You’re an ex-intelligence agent, I have something to do with intelligence, let’s use professional terms” – Putin to Snowden

Russia’s president received a question from Edward Snowden who was granted political asylum last August. Snowden asked Putin if Russia is involved in “intercepting, storing and analyzing the data on communication carried out by millions of people” and whether Russia’s president thinks this kind of mass control is fair and justified.

Putin stressed Snowden was an ex-intelligence agent, while he himself used to be in intelligence, so Russia’s president said he would be speaking “using professional terms.”

“First of all, we have strict laws governing the usage of any special means – including ones to monitor telephone conversations or the internet – by intelligence. This regulation makes it necessary to get a court order to surveil an individual. That’s why we can’t carry out mass surveillance, and we don’t, in accordance with our law,” Putin said.

“No plans to remain President for life”

Putin, who served as president for two consecutive terms between 2000 and 2008 and was elected again in 2012, was asked if he wanted to remain Russia’s head of state for life.

“No,” was his answer.

“Russia didn’t annex Crimea by force, but created conditions for people’s self-determination”

“Russia did not annex Crimea by force. Russia created conditions – indeed, with the help of special formations and the armed forces, I’ll be honest – for the free expression of will by people living in Crimea and Sevastopol,” Putin said.

“The decision on joining [Russia] was made by the people themselves. Russia responded to that appeal and accepted Crimea and Sevastopol into its family. That’s natural, it couldn’t be any other way.”

“Punishing others, the US will cut off their nose to spite their face”

Putin was asked why the US can do whatever it wants and no one punishes them, while attempts are being made to punish Russia.

“The US is certainly one of the world’s leaders. At some point it seemed that it was the only leader and a uni-polar system was in place. Today it appears that is not the case. Everything in the world is interdependent and once you try to punish someone, in the end you will cut off your nose to spite your face,” he said.

via Zero Hedge http://ift.tt/1i0cNHU Tyler Durden