Tag: news

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Austerity and crisis are not negative–they are the only dynamics that force smart thinking and the re-alignment of values, resources and strategic goals.

Unsurprisingly, the status quo position on austerity (real or imagined)–that it's terribly, horribly negative–is precisely backwards: austerity is the one essential positive motivator of productive strategic planning, prioritization and decision-making.

By austerity, I mean a broad-based definition: when resources are not up to the demands of the status quo. In other words, austerity is a relative term; for the household accustomed to a lifestyle that requires $15,000 a month, a cut to $10,000 a month is a drastic austerity budget, even though the $10,000 per month budget is insanely bloated to those managing on $3,000 per month.

The dynamic of austerity being required to force productive planning, prioritization and decision-making is scale-invariant: that is, it applies to every bit of the spectrum, from individuals to couples to households to small enterprises to communities to corporations to government agencies to nation-states.

For a military machine accustomed to expanding outlays and a $700+ billion annual budget, a cut of $50 billion is viewed as extreme austerity–even though it wasn't that long ago that the Pentagon budget was well under $500 billion.

An insightful article in the latest issue of Foreign Affairs describes how austerity has in the past forced the U.S. military to realign resources with goals via hardnosed, realistic, productive strategic thinking: How Budget Crises Have Improved U.S. Strategy.

When there is funding for every program and response to every potential threat, money is thrown around without regard to strategic planning, which is the process of assessing and ranking risks and threats and formulating a strategy that prioritizes resources and goals: in other words, smart planning.
the author of the essay neatly summarizes this process:
 

"In World War II, the paucity of the resources on hand actually forced U.S. policymakers to make tough but smart choices. A combination of austerity and crisis helped forge a core strategic concept, a new threat assessment, an appreciation of the indissoluble links between interests and values, and a calibration of priorities."

The dynamic of austerity coupled with crisis is the key driver of smart, strategic planning for individuals, households, communities, organizations, enterprises and nations; without austerity/crisis-driven assessment, prioritizing and planning, resources are squandered on impractical, low-yield distractions that have been jumbled up with key priorities by muddled, politically-expedient thinking.

If you have enough borrowing power to fund everything that every politically potent constituency wants, you are ontologically (inherently) ill-prepared for crisis. Muddled strategic planning leads to a confusion of competing priorities, none of which are integrated in a grand strategy with clear goals, priorities and planning.

Historical analogies abound; here is one. In a previous Musings (When Risk Is Separated From Gain, The System Is Doomed, Musing Report 47, 2011), I discussed Japan's muddled plan for the Midway campaign in World War II, a convoluted political marriage of competing Army and Navy plans. Rather than clarify the goal and prioritize the means to accomplish it, the Japanese high command attempted to please every key power center by combining each constituency's ideas and goals into a complex tactical plan that worked politically but which was militarily diffused and internally inconsistent. Junior officers' well-founded critiques of the plan were suppressed by top brass fearing political blowback.

The end result was a completely avoidable military catastrophe that essentially ended Japan's hope of prevailing in the war: four aircraft carriers sunk, the cream of the Navy's carrier pilot cadre lost. These losses forced a shift of strategy from expansion and victory to defense and a vain hope for a favorable settlement of hostilities.

This failure to force clear strategic thinking was the natural result of Japan's string of early victories, which generated a widespread hubris in the leadership, i.e. the belief that available resources could magically accomplish any goal conjured by central command.

This is a precise analogy to the U.S., not just militarily, but every facet of its society and economy: politically expedient, kick-the-can-down-the-road "no limits on anything" means no strategy, no priorities, no planning and ultimately, no clear thinking at the top, which then guarantees complete failure.

This perfectly captures the essence of the Affordable Care Act (ACA or ObamaCare) monstrosity: a program intended to satisfy or placate every politically powerful constituency is a muddled, complicated mess doomed to systemic failure on multiple levels.The ACA was ultimately a political plan which ignored (thanks to a complete absence of austerity) the actual resources of the nation and its bloated, inefficient, perverse-incentivized healthcare system.

Austerity and crisis are not negative–they are the only dynamics that force smart thinking and the re-alignment of values, resources and strategic goals. Trying to fund everything to please or placate every powerful constituency ends up failing everyone in catastrophic fashion.

This essay was drawn from Musings Report 51, one of the weekly reports sent exclusively to subscribers and major contributors (i.e. those who contribute $50 or more annually).

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Just barely hours after we covered the second deadly explosion in the southern Russian city of Volgograd in as many months, this time in its packed train station, the city was rocked by yet another suicide bombing in what is clearly a terrorist campaign to spook Russia and its Sochi winter games visitors just over a month ahead of the olympics.  This time, a bomb ripped apart a trolleybus killing all 14 people aboard, and wounding another 28 in the second deadly attack blamed on suicide bombers.  According to Reuters, “Investigators said they believed a male suicide bomber set off the blast, a day after a similar attack killed at least 17 in the main rail station of a city that serves as a gateway to the southern wedge of Russian territory bounded by the Black and Caspian Seas and the Caucasus mountains.” Even Putin, so far non-committal, is starting to take these daily escalations seriously: “President Vladimir Putin, who has staked his prestige on February’s Sochi Games and dismissed threats from Chechen and other Islamist militants in the nearby North Caucasus, ordered tighter security nationwide after the morning rush-hour blast.”

Sunday’s attack was the deadliest to strike the ethnic Russian heartlands since January 2011, when a male suicide bomber from the North Caucasus killed 37 people in the arrivals hall of a busy Moscow airport.

There is practically no question that the two blasts were coordinated and arranged by the same group: the bomb used was packed with “identical” shrapnel to that in the rail station, indicating they may have been made in the same place and supporting suspicions the bombings were linked, said Vladimir Markin, a spokesman for the investigators. Health Ministry spokesman Oleg Salagai said 14 people were killed and 28 wounded in the bombing on Monday.

And while this could merely be the retaliation by Saudi Arabia, as we reported yesterday, for Russia’s foiling of its Syrian plans and thus merely chess in the grand scheme of thing, to the people on the ground the terrorist escalations are all too real.

A Reuters journalist saw the blue and white trolleybus – a bus powered by overhead electric cables – reduced to a twisted, gutted carcass, its roof blown off and bodies and debris strewn across the street. Windows in nearby apartments were blown out by the explosion, which investigators called a “terrorist act”.

 

“For the second day, we are dying. It’s a nightmare,” a woman near the scene said, her voice trembling as she choked back tears. “What are we supposed to do, just walk now?”

 

“There was smoke and people were lying in the street,” said Olga, who works nearby. “The driver was thrown a long way. She was alive and moaning … Her hands and clothes were bloody,”

 

There was no immediate claim of responsibility.

Perhaps one should seek a comment from Prince Bandar, who during the summer of 2013 implicitly threatened Putin that “the terrorist threat is growing in light of the phenomena spawned by the Arab Spring. We have lost some regimes. And what we got in return were terrorist experiences, as evidenced by the experience of the Muslim Brotherhood in Egypt and the extremist groups in Libya…. As an example, I can give you a guarantee to protect the Winter Olympics in the city of Sochi on the Black Sea next year. The Chechen groups that threaten the security of the games are controlled by us…“

And sure enough, these same Chechen groups have made it quite clear that Saudi Arabia is displeased:

In an online video posted in July, the Chechen leader of insurgents who want to carve an Islamic state out of the swathe of mainly Muslim provinces south of Volgograd, urged militants to use “maximum force” to prevent the Games from going ahead. “Terrorists in Volgograd aim to terrorize others around the world, making them stay away from the Sochi Olympics,” said Dmitry Trenin, an analyst with the Moscow Carnegie Centre.

So now the world looks to Putin:

In power since 2000, Putin secured the Games for Russia and has staked his reputation on a safe and successful Olympics, even freeing jailed opponents including oil tycoon Mikhail Khodorkovsky and the Pussy Riot punk band to remove a cause for international criticism at the event.

 

Putin was first elected after winning popularity for a war against Chechen rebels, but attacks by Islamist militants whose insurgency is rooted in that war have clouded his 14 years in power and now confront him with his biggest security challenge.

 

Police said additional officers were being deployed to railway stations and airports nationwide after the bombing at the Volgograd rail station on Sunday, but the attacks raised questions about the effectiveness of security measures.

 

The police force in Volgograd, a city of a million people on the west bank of the river Volga, has been depleted as some 600 officers were redeployed to Sochi to tighten security around Olympic sites, a police officer told Reuters.

 

More attacks can be expected before the Olympics and cities in southern Russia where the Games are not being held are easier targets than Sochi, said Alexei Filatov, a prominent former member of Russia’s elite anti-terrorism force, Alfa.

 

“The threat is greatest now because it is when terrorists can make the biggest impression,” he said. “The security measures were beefed up long ago around Sochi, so terrorists will strike instead in these nearby cities like Volgograd.”

Perhaps the bigger question is whether Russia will continue to focus on the pawns in the terrorist campaign, or finally shift its attention to the puppetmaster controlling, arming and funding the Islamist militants in the region: one of America’s fondest (at least until recently) allies in the region.

Reuters’ video coverage of the blast is below.

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• Americans on Wrong Side of Income Gap Run Out of Means to Cope (BBG)
• Michael Schumacher battles for life after ski fall (Reuters)
• Professors for hire: Academics Who Defend Wall St. Reap Reward (NYT)
• Chinese police kill eight in Xinjiang ‘terrorist attack’ (Reuters)
• How to Prevent a War Between China and Japan (BBG)
• Unemployment Benefits Lapse Severs Lifeline for Longtime Jobless (BBG)
• Japan’s homeless recruited for murky Fukushima clean-up (Reuters)
• China Local-Government Debt Surges to $3 Trillion (WSJ)
• How unexpected: Britons less inclined to pay down mortgage debt (Reuters)
• Paschi Volatile as Owner Wins $4.1 Billion Sale Delay (BBG)
• Schauble: “Low interest rates cannot continue for ever” (Reuters)
• China Says Abe Closed Door to Meetings After Visiting Shrine (BBG)
• Home Prices Back at Peaks in Some Areas (WSJ)
• Turkey Is Biggest Loser in Stocks as Erdogan Crisis Persists (BBG)

 

Overnight Media Digest

WSJ

* Saudi Arabia pledged $3 billion to bolster Lebanon’s armed forces, in a challenge to the Iranian-allied Hezbollah militia’s decades-long status as Lebanon’s main power broker and security force.

* The housing recovery remains uneven as cities that were spared in bust soar, but many others struggle.

* Sales of long-term “junk” bonds are lagging and prices are down, the latest sign that investors are flocking to shorter-term securities that are less vulnerable to rising interest rates.

* Blackstone Group is spending $200 million for preferred stock of struggling footwear company Crocs.

* Amazon.com isn’t that forthcoming with details about its Prime program, but that doesn’t diminish its importance.

* The Securities and Exchange Commission is pushing life insurers to disclose the potential cost if they are forced to halt use of controversial “captive” entities, according to regulatory filings and people familiar with the matter.

* Acer Inc said Monday that three senior executives had recently left the company and some of them won’t be replaced as the embattled personal-computer maker tries to keep costs low.

* As Chesapeake Energy Corp burned through cash in recent years, it raised billions of dollars by selling pieces of its empire: oil and gas properties, pipelines, even royalties from wells yet to be drilled.

* Technology giants Google Inc and Apple Inc are about to expand their battle for digital supremacy to a new front: the automobile.

Next week at the Consumer Electronics Show in Las Vegas, Google and German auto maker Audi AG plan to announce that they are working together to develop in-car entertainment and information systems that are based on Google’s Android software, people familiar with the matter said.

 

FT

Financial regulators in the UK have warned that consumers are increasingly being targeted by “dubious” firms offering investment opportunities in graphene, the carbon-based wonder material with a vast range of potential applications.

Activist hedge funds are fighting for the right to pay bonuses to directors that they place on corporate boards.This comes as 33 US companies have amended their bylaws to disqualify any directors that receive payment from outsiders, in the hope of deterring attacks by activist investors such as Carl Icahn, Bill Ackman and Daniel Loeb.

David Cameron has quietly dropped his support for a new generation of “garden cities” in a move that raises questions over the government’s commitment to tackling Britain’s escalating housing shortage.

Europe is ripe for a surge of leveraged buyout restructurings as banks sell their worst-performing loans to “distress investors” eager to take over the borrowers.

The gold mining sector is braced for asset writedowns and a fall in the amount of reserves in the ground after the precipitous drop in the price of the metal this year

 

NYT

* Emails and other confidential documents show that JPMorgan Chase and Co escalated what it called its “Sons and Daughters” hiring program, adding the children of China’s ruling elite, and tracking how those hires translated into business deals with the Chinese government.

* Democrats are hoping that a push to raise the federal minimum wage and a campaign to place state-level wage proposals on the ballot will help their chances in hotly contested congressional races.

* Media conglomerate Time Warner Inc hopes to spin off its Time Inc unit into a separate public company within the next six months.

* The United States, the country that invented the Internet, is falling dangerously behind in offering high-speed, affordable broadband service to businesses and consumers, according to technology experts and an array of recent studies.

* Twitter Inc is trading at a much higher valuation than proven Internet powerhouses like Facebook Inc and Google Inc. The company, which has released no major news or financial information since its initial public offering, has not stopped investors’ exuberance about its potential to eventually bring in billions of dollars from advertising, coupled with Wall Street’s penchant for hopping onto any fast train, from propelling the shares to nosebleed levels.

 

Canada

THE GLOBE AND MAIL

* Toronto Hydro Chief Executive Anthony Haines said on Sunday that he expected power would be fully restored in the city on Monday.

* Hundreds of people filed into a Montreal funeral home on Sunday to pay their respects to reputed Mafia boss Vito Rizzuto. Rizzuto, the head of a criminal organization with reach across Canada and beyond, died of natural causes in a Montreal hospital last Monday at age 67.

Reports in the business section:

* Big companies such as Royal Bank of Canada and Manulife Financial Corp are getting serious about cutting real estate costs by giving employees less room. That could have a profound impact on the market as developers plan millions of square feet of new space.

* Kinross Gold
Corp will complete a critical study on its Tasiast gold mine in the first quarter of the new year, a step that will determine whether the company will expand its troubled mine in the Mauritanian desert.

* The Mutual Fund Dealers Association of Canada, the watchdog for Canada’s mutual fund dealers, is searching for ways to be less burdensome on its members as increased regulation and changing investor demands reshape a maturing business.

* Aimia Inc is poised to enter a new era in 2014 with Toronto-Dominion Bank as its new partner and long-standing ally CIBC both offering credit cards linked to Aimia’s Aeroplan rewards. However, current customers of CIBC Aerogold Visa cards won’t initially see any change and the companies are saying it won’t be until mid-2014 until the transition is completed.

NATIONAL POST

* The federal government is working on a new way to warn Canadians about the need to protect themselves from the dangers of frigid weather. When the new system is introduced, perhaps as early as in 2014, Canadians will no longer see separate wind chill warnings in Environment Canada forecasts or on its website.

* A top United Nations official is praising Prime Minister Stephen Harper government’s foreign policy initiative to end forced marriage of young girls, even if Canada won’t fund projects that would allow victims access to an abortion. The Conservative government’s practice of not allowing aid dollars to go towards organizations that offer abortions to victimized girls or war-rape victims has sparked heated criticism in some quarters.

FINANCIAL POST

* Tech startups are increasingly inflating job titles to attract much-needed workers, says AdZuna, a young British company that surveys classified ads in the UK, Canada, South Africa, Germany and Brazil.

* Consensus is forming that 2014 will be the economic turning point for the United States and that is traditionally good news for Canada. However, Canada has some headwinds that, until addressed, will likely decouple Canada’s growth from its neighbor’s in the short and medium term

 

China

CHINA SECURITIES JOURNAL

– A front-page editorial emphasizes the importance of the State Council’s recent policy guidelines on protecting small- and medium-sized investors, saying that increased protections are crucial to the healthy development of China’s capital markets.

FINANCIAL NEWS

– China Postal Express & Logistics Co., Ltd withdrew its application for an initial public offering, becoming the latest of 292 companies that have withdrawn applications for IPOs on the Shanghai and Shenzhen stock exchanges.

SHANGHAI SECURITIES NEWS

– A front-page editorial praises the State Council’s policy document on protecting small and medium-sized investors as a historical milestone, particularly the focus on increasing the influence of capital market investors relative to companies raising capital in the market.

CHINA DAILY

– China can play a bigger role in the Arctic, but China is still “far from becoming a power player in the Arctic”, said the head of the polar strategic research division under the Polar Research Institute of China.

PEOPLE’S DAILY

– President Xi Jinping joined diners for dumplings recently, showing his closeness to the people, said a commentary in the paper that acts as the party’s mouthpiece. Such a man-of-the-people work ethic will lead to the satisfaction of the masses and assist in achieving the “China Dreams”, the paper said.

 

Britain

The Telegraph

GOVERNMENT COULD SELLOFF REMAINING LLOYDS STAKE IN 2014

The Government could complete the privatisation of Lloyds Banking Group in 2014 with the sale of the state’s remaining 33 percent holding in the lender, according to sources close to the process.

BURBERRY AND SAINSBURY’S SEENS AS POSSIBLE TAKEOVER TARGETS

Top British companies such as Burberry, J Sainsbury and Chemring have been tipped as takeover targets next year by investment bank UBS

The Guardian

CABLE QUIZES HUNT OVER NHS RISK FROM PRIVATISED PLASMA FIRM

The business secretary, Vince Cable, has asked his cabinet colleague Jeremy Hunt at the Department of Health for assurances that the recent privatisation of the state-owned blood plasma company will not leave the NHS short of life-saving products.

BATTLE FOR FUTURE OF SKIES: BOEING DREAMLINER V AIRBUS A380

Despite a troubled birth a year ago, Boeing’s flagship plane has overtaken the larger A380 in terms of orders.

The Times

COAL PLANTS WILL STAY SHUT DESPITE THREAT OF BLACKOUTS

The Government has ruled out challenging European environmental legislation that has forced the closure of many of Britain’s biggest coal plants and left the country at risk of blackouts within two years.

WE DON’T WANT YOUR HELP, AGENCIES TELL BIG TOBACCO

Tobacco companies should no longer be allowed to fund raids on premises suspected of selling illegal cigarettes, or sponsor the training of sniffer dogs, under new guidelines to be issued next year.

The Independent

INSURANCE BROKERS MAKE CLAIM FOR UNFAIR TREATMENT BY FCA

Britain’s top regulator has been accused of backtracking on a promise to introduce “proportionate” red-tape on insurance brokers after launching 10 industry reviews in nine months.

CBI BOSS CALLS ON FIRMS TO PAY STAFF MORE THAN MINIMUM WAGE

The head of the CBI will today call for companies to start paying their staff more, saying the large number of people working for the minimum wage is a “serious challenge” that business and the Government must address.

 

Fly On The Wall 7:00 AM Market Snapshot

ANALYST RESEARCH

Upgrades

Disney (DIS) upgraded to Buy from Neutral at Guggenheim

Downgrades

Myriad Genetics (MYGN) downgraded to Underperform at JMP Securities
POZEN (POZN) downgraded to Neutral from Strong Buy at Ascendiant

Initiations

Entergy (ETR) coverage resumed with a Neutral at Goldman
Ocera Therapeutics (OCRX) initiated with a Buy at Stifel
StoneCastle (BANX) initiated with a Market Perform at JMP Securities
Westmoreland Coal (WLB) initiated with a Buy at Brean Capital

HOT STOCKS

Crocs (CROX) entered financial partnership with Blackstone (BX), raised buyback plan to $350M, CEO to retire in April
Abbott (ABT) to pay $5.475M to settle DOJ claims
Genzyme (SNY) received Complete Response Letter from FDA on Lemtrada application

NEWSPAPERS/WEBSITES

• Investors are homing in on shares seen as bargains, a shift that bulls say could keep this year’s epic stock rally going in 2014. The “inexpensive” category includes those with relatively low valuations based on earnings forecasts and increasing estimated profits (DAL, BIIB, AAPL), the Wall Street Journal reports 
• BMW and Toyota (TM) agreed to develop a joint platform for sports cars, and with two different vehicles, Reuters reports
• For investors in internet stocks, this year’s gains haven’t been anxiety-free, thanks to uncomfortable memories of the 1999 Internet bubble and subsequent bust. Market strategists and tech experts say the comparison is overblown, Reuters reports
• U.S. regulators’ Dodd-Frank rules properly balance Wall Street’s pursuit of profits with the public’s need for a stable financial system, said Commodity Futures Trading Commission Chairman Gary Gensler, following the American Bankers Association’s court challenge of the Volcker Rule, Bloomberg reports
• Five years after the equity bull market began, U.S. investors returned to stocks in 2013, just in time for the best relative returns versus bonds on record. S&P’s 500 Index rose 29%, beating government debt by 32 percentage points, the widest spread s
  ince at least 1978, Bloomberg reports

BARRON’S

Coca-Cola (KO) could rise 20% or more in 2014
Air France-KLM (AFLYY) shares could rise 25%
Loral Space & Communications (LORL), Wendy’s (WEN), Carmike Cinemas (CKEC), Crocs (CROX), Orient Express Hotels (OEH), Outerwall (OUTR) mentioned positively as small caps
Staple stocks such as Wal-Mart (WMT), Procter & Gamble (PG), Coca-Cola (KO) a good defensive bet against risk of market downswing
Cisco Systems (CSCO), EMC (EMC), NetApp (NTAP), F5 Networks (FFIV), VMware (VMW) underperformed in 2013, likely to “continue to suffer” in 2014
Giant Interactive (GA), China Finance Online (JRJC), Noah Holdings (NOAH) are “stealth” China real estate plays

SYNDICATE

Cobalt (CIE) files automatic mixed securities shelf
Peregrine (PPHM) files to sell $100M of common, preferred stock

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Heading into the North American open, stocks in Europe are seen broadly lower, with consumer services seen as the worst performing sector, where the UK based retailers have underperformed amid fears that a combination of heavy discounting, along with bad weather, impacted heavily on overall performance. Of note, the SMI index in Switzerland underperformed throughout the session, with Swatch shares under pressure after officials were unable to say what caused the fire at the weekend at the co.’s ETA unit factory in Grenchen, which destroyed one workshop and damaged another. As expected, traded volume is far below the daily avg and this trend is expected to continue this week.  The euro is stronger against the dollar. Japanese 10yr bond yields rise; Italian yields decline. Commodities little changed, with silver, gold underperforming and natural gas outperforming. U.S. pending home sales, Dallas Fed manufacturing data due later.

• S&P 500 futures up 0.1% to 1837.5
• Stoxx 600 down 0.2% to 327.1
• US 10Yr yield little changed at 3%
• German 10Yr yield down 1bps to 1.95%
• MSCI Asia Pacific up 0.4% to 141
• Gold spot down 0.7% to $1205.2/oz

Overnight bulletin summary from Bloomberg

• Treasuries steady, 10Y yield holding near 3%; asset class has declined 2.3% this year, according to BofAML indexes, first yearly loss since 2009 as Fed scales back bond buys.
• Trading this week expected to be quiet; no Fed speakers scheduled until Bernanke and Plosser on Jan. 3, no Treasury note or bond auctions until 3Y/10Y/30Y cycle week of Jan. 6; little if any corporate issuance expected
• China’s local-government debt swelled to 17.9t yuan ($2.95t), a 48% increase over the previous two years, according to a report by the National Audit Office
• China ruled out talking to Japan’s Abe, saying he “closed the door” to any meetings with Chinese leaders after visiting a site that memorializes fallen Japanese soldiers including war criminals
• China’s benchmark money-market rate fell for a fifth day after the first weekly cash injection by the central bank this month, and the yuan touched a 20-year high  following a record fixing
• Turkey’s Prime Minister Erdogan enters the last week of 2013 reeling from a corruption probe that has splintered his party and highlighted economic vulnerabilities
• Suicide bombers at a train station and on a trolleybus killed at least 30 people within 24 hours in the southern city of Volgograd, raising the security threat less than six weeks before Russia hosts the Winter Olympics
• Sovereign yields mixed. Nikkei +0.7%, Shanghai -0.2%. U.S. equity-index futures steady. WTI crude little changed, copper high, gold declines

Asian Headlines

The Nikkei 225 was supported by JPY weakness (USD/JPY touched on its highest level in 5 years) and closed higher by 0.69% at 16291.31 to record a 56.72% gain for the year and its best year since 1972.

EU & UK Headlines

ECB President Draghi sees no urgent need to cut the Eurozone’s main interest rate further and sees no signs of deflation.

ECB’s Weidmann ruled out another haircut to Greece’s state debt, urging Athens instead to press on with reforms to their completion.

In related news Greece will return to international bond markets in the second half of 2014 and issue 5y securities according to Finance Minister Stournaras.

Barclays pan-Euro agg month-end extensions: +0.03y

Barclays Sterling month-end extensions:+0.06y

US Headlines

Of note, the US 10y yield closed at 3.0% on Friday, and at its highest level since July 2011, after printing at high of 3.19% at the CBOT pit open.
Barclays US Tsys month-end extensions:+0.07y

Equities

Heading into the North American open, stocks in Europe are seen broadly lower, with consumer services seen as the worst performing sector, where the UK based retailers have underperformed amid fears that a combination of heavy discounting, along with bad weather, impacted heavily on overall performance.

Of note, health care sector has under performed its peers, where Sanofi shares are seen lower by around 1% following reports that the company does not anticipate Lemtrada to be approved by end March.

After failing to open on time and then subsequently opening lower by over 5%, Monte Paschi shares have edged into positive territory after it was reported that although co.’s shareholders have authorised a EUR 3bln capital increase, it will only take place after mid-May. Il Sole 24 Ore reported that the postponement of the capital increase may promote alternative hypothesis for the bank.

FX

Overnight in Asia, analysts at JPMorgan said that Japan will almost certainly fail to meet its 2% inflation target, which will prompt further BoJ easing in April. In line with this view, JPMorgan put its 2014 USD/JPY forecasts at 104 in Q1, 100 in Q2, 102 in Q3 and 106 in Q4. Nevertheless, USD/JPY knocked out barrier options on its ascent through 105.25 to record a fresh 5 year high, but met resistance ahead of the 105.50 level where a key Fibonacci level and larger option barriers have capped further gains in the pair.

 China’s National Development and Reform Commission says it needs to closely monitor effects on China and South Korean exports from a weaker JPY.

Commodities

Libya’s eastern Hariga port will resume oil exports within days after the authorities reached an agreement with protesters to end 4 months of blockage, according to an oil official.

Rockets fired from Lebanon hit open areas in northern Israel over the weekend, prompting retaliatory artillery fire according to the Israeli army.

A top Iranian nuclear negotiator has expressed hope that a deal with world powers could be implemented in a month but technical talks on the matter are proceeding slowly.

At least 15 people have been killed and 23 others hurt in a suspected suicide bombing on a trolleybus in the Russian city of Volgograd, officials say.

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Submitted by Zachary Zeck of The Diplomat,

As many of my colleagues have pointed out, last week China celebrated Mao Zedong’s birthday. Mao was many things to many people. For me, he was first and foremost a revolutionary. Mao was at least as significant to revolutions in the 20th century as Vladimir Lenin, and Mao’s model of revolution—building support among the peasantry before moving to the cities—was widely emulated by anti-colonial leaders throughout the world. During his time in power, Mao also gave material support to many of these anti-colonial movements.

For these reasons, Mao’s birthday seems like an apt time to ponder why Americans are so fascinated and supportive of revolutions. Although often times despising their outcomes, Americans—particularly American elites—are predisposed to generally support revolutionary movements. This inclination has endured across time. Many American elites—particularly Thomas Jefferson—initially looked very favorably on the French Revolution. Jefferson at times even defended the French rebels’ later excesses, writing to one American critic of their actions: “Time and truth will rescue & embalm their memories, while their posterity will be enjoying that very liberty for which they would never have hesitated to offer up their lives. the liberty of the whole earth was depending on the issue of the contest, and was ever such a prize won with as little innocent blood?”

Americans similarly initially cheered the onset of the Arab Spring (although none of these uprisings have produced genuine revolutions to date, the general feeling in the beginning was that they would). There was almost no reason for the U.S. to be hopeful about U.S. policy in an Arab world in which publics had a greater say, given the widespread dislike of America among Arab populations. While some in the U.S. recognized this reality, they generally cast aside these concerns. Typical was former Secretary of State Condoleezza Rice’s response, who implored that in Egypt, America should “trust that in the long arc of history those shared beliefs will matter more than the immediate disruptions that lie ahead and that, ultimately, our interests and ideals will be well served.”

It seems to me that Americans’ support for revolutions is entirely misplaced. To begin with, as a status-quo power in the international system, the U.S. has little geopolitically to gain from the instability and large-scale changes that are the hallmarks of modern revolutions.

More importantly, even the normative considerations that undergird Americans’ support for revolutions are based on misperceptions. For example, many Americans look favorably on revolutions today because America itself won its independence from England in a war that became known in the U.S. as the American Revolution. Since the American Revolution is unanimously seen as a positive, many Americans assume that revolutions today will also improve the societies in which they occur.

Despite its name, however, the American Revolution was not a revolution. At most, it was a war of national liberation. For the better part of a century before the war, American colonial elites effectively ruled the colonies under the British policy of salutary neglect. As England’s fiscal woes worsened following the French and Indian War, the Crown tried to crack down on the colonies in order to extract more benefits from its ownership of them. Most of the colonial elites objected to these policy changes, such as having to pay higher taxes to the monarch, and eventually convinced most of the colonial population to fight a war to free them from England’s increasing demands. Following the independence war, however, the same elites who governed under salutatory neglect effectively resumed ruling the now independent United States. Little of the underlying socioeconomic order was changed by the war, save for England’s nominal overseer role. And in the years that followed the American elite created a socioeconomic order that in many ways was modeled on England.

The other reason Americans support revolutions is because they believe they will transform autocracies into democracies. But this again is mistaken. Although the initial protesters may be seeking democratic changes, they almost never achieve them. This is certainly true of the major revolutions of the 19th and 20th centuries—namely, the French, Russian, Chinese and Iranian revolutions.

Although some of the 20th century national liberation movements led to democracies, the vast majority only replaced the colonial powers with local strongmen. Furthermore, those national liberation movements that did lead to democracy were not very revolutionary at all. India, for example, won its independence from Britain without a major violent struggle against London. The system it adopted maintained many of the institutions of British India. Perhaps the most successful revolutions with regards to democracy were the uprisings against the Soviet Union and its satellites, which in some cases produced partially free, albeit unstable democracies. Still, the former Soviet bloc is hardly considered a beacon for democratic governance today.

The reason why revolutions do not produce stable democracies has less to do with the greed of revolutionary leaders than the nature of revolutions themselves. The rapid overhaul of political and socioeconomic orders—what Marx called the superstructure—will almost by definition need to overcome fierce resistance from those who have interests in the existing order, as well as those who have a different vision for the future. In nearly every case, this resistance can only be eliminated in the short term through violent means. Thus, one of the most common characteristics of modern revolutions is widespread bloodshed. Mao and Stalin, for instance, almost certainly killed more people while imposing their socioeconomic orders in China and Russia than died globally from World War II.

And this is why revolutions don’t produce liberal democracies. Societies torn apart by widespread violence and strife are hardly fertile grounds for democracy. For democracies to function over the long term there needs to be some shared consensuses among the major social, political, and economic actors in these countries. These necessary consensuses take time to develop and tend to only grow in relatively peaceful and stable societies. Thus, the strongest democracies today—including America’s—tended to come about as a result of evolutionary, not revolutionary, social and political change.

If the U.S. wants a world full of democracies, it must do a better job at formulating and sustaining long-term policies promoting evolutionary changes within societies, instead of holding out for widespread mass unrest to immediately replace authoritarian states with full-fledged democracies.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/EyXhuX8VDZo/story01.htm Tyler Durden