Mystery Economic Theatre 2013
 

So the old year is gone and the new year has begun. It might be time to reflect on the good and bad of the year and to consider the impact of recent events on the new year we have begun.

The "Fiscal Cliff" has been supposedly avoided by an 11th hour deal that basically maintains the status quo. The only significant change is that taxes on dividends and incomes over $400,000 (single) or $450,000 (married) will rise a bit.

Was this a huge win for Obama? No, actually it may turn out to be a strategic mistake of earthshaking dimensions. Why? Because Obama let the deal go through with relatively few concessions. The next major argument will be over raising the debt ceiling and you can bet the republicans will hold feet to the fire until they get concessions on Social Security, Medicare, and Medicaid. I have a serious problem with the reductions to Social Security because I know they will have me as a target. I fit almost exactly the profile of a person who will draw the maximum when I retire in about 14 years.

Reminds me of an old adventure game years ago, if you kick the dog, the dog bites your leg.

DarJones

[QUOTE=Fusion_power;323279]< snip > The next major argument will be over raising the debt ceiling and you can bet the republicans will hold feet to the fire until they get concessions on Social Security, Medicare, and Medicaid.[/QUOTE]
But Obama has stuff on his side, too -- e.g., do away with Congressional power to set, or at least enforce, a debt ceiling.

This is what I wrote a year ago as predictions for 2012:

1. Obama will win.
2. Euro will appreciate with respect to dollar. Low inflation in eurozone.
3. Greece will be kept on the brink of bankruptcy, but nothing like bankruptcy (or leaving eurozone) will happen. Paying huge interest rates for its debt, situation of Greece will worsen.
4. There will not be a real winter in Europe, as it was in previous years. Unfortunately, this becomes a rule.


I am ready to hear that my predictions were wrong, I am used to this. I already read on this forum that "euro will weaken further with respect to dollar". Well, euro appreciated about 20% with respect to a dollar in 2012. But everybody has the right to have his own opinion, even if it is totally wrong.

Now it is time to state new predictions for 2013. I will restrict myself to a fiscal cliff problem to be short.

1. Debt ceiling will be risen. It is the simplest way, not harmful for anybody (for the time being).
2. At the end of 2013 it will appear that budget deficit is bigger then it was in 2012.
3. No smaller debt, no budget cuts (or very little), no tax hikes.

Let me remind that these are only my predictions. Reality can be substantially different.

'Well, euro appreciated about 20% with respect to a dollar in 2012' just doesn't seem to be true; EUR/USD went from 1.30 to 1.22 then back to 1.32, which isn't a 20% move even if you look at it optimistically.

I expect low inflation and low interest rates indefinitely - the Western world is now Japan, and the consequences of increasing inflation or interest rates would be bad enough that the increase won't happen.

[QUOTE=ewmayer;323334][url=http://finance.yahoo.com/q/hp?s=FXE&a=11&b=12&c=2005&d=00&e=1&f=2013&g=m]Historical end-of-month data[/url] show a gain of less than 1% in 2012. But hey, you had the sign right...

Or was your "20%" based on the same kind of arithmetic the Greek government uses when it promises "20% public sector spending cuts" in order to get the next tranche of bailout monies?

[I could get used to this "sniping from the sidelines" thing.][/QUOTE]



When I wrote predictions for 2012 (post #2) euro was about 1.16. Yes, it does not make 20% rise, but about 10%. Even in this situation it is hard to say about "further weakening".
Your table in the quoted link is not table of euro values. It is entitled "CurrencyShares Euro Trust (FXE)". Probably it is something based on futures of euro. Futures for euro depend on values of euro, but it is not the same.


BTW. Number 1% is also positive. So where is your "further weakening"?

U.S. Fiscal Cliff Deal Leaves House Republicans Angry, Deal In Jeopardy
 

[url]http://www.huffingtonpost.com/2013/01/01/us-fiscal-cliff_n_2393102.html[/url]

[QUOTE] A high-stakes, multi-layered game of chicken is underway in the Capitol, as House Republicans grapple with how to handle a fiscal cliff bill sent their way by an overwhelming bipartisan vote, even while it's wildly unpopular within their conference.[/QUOTE]

[QUOTE]They'll have no difficulty making life uncomfortable for Senate Minority Leader Mitch McConnell (R-Ky.), who they blame for getting them in this mess, said one GOP source close to the situation. "He jammed the House. He's gonna get re-jammed," he said of the possibility the House amends the bill and sends it back to the Senate.[/QUOTE]

I am delighted to see this disarray among Republicans. I don't like what came out of the Senate. The concessions on income levels on which taxes would increase should not, and need not have been made. It would make me very happy if House Republicans shoot down the deal. It also seems that now Ryan, as well as Cantor have their knives out and at Boehner's back. Still, I'd rather have Boehner than either of those toxic characters as Speaker.

[QUOTE=ewmayer;323342]There are surely many people who would be interested to know in which "Forex market" the Euro dipped that far below $1.20 at any point last year. Your claimed $1.16 start-of-2012 number represents a 10% discount over what "the other Euro" (you know, the one actually used by the EMU) was trading at at the time. I for one would love to be able to buy Euros (or any other currency) at a 10% discount relative to the official exchange rate? Got a link to the Forex site which permits you to do so?

The ETF I quoted simply tracks the EURUSB exchange rate, 1:1. You can see the official exchange rate data [url=http://www.bloomberg.com/quote/EURUSD:CUR]at Bloomberg[/url], if you prefer.[/QUOTE]


Yes, it was 1.16, I remember it. All charts that I know show only values for the past 6 months. But the discussion is not about exact numbers, but whether euro appreciated with respect to dollar or not i.e. whether I was right in my predictions or not.
On the other hand your statement "further weakening of euro" indicates that according to you, euro values dropped in the near past. Even your charts contradict this. For the past 6 months euro was rising almost constantly and in the entire year increased 1% (according to you). Positive 1%.

[QUOTE=ewmayer;323346]Ah, I see, you're getting your data from [url]www.ijustpulledanumberoutofmybutt.com[/url] - carry on.[/QUOTE]


I wish you Happy New Year too.

Consider the growth in the number of dollars in the world economy now vs a year ago. It is obvious that the U.S. currency should have slipped relative to most major currencies. It is an insidious form of inflation where the impact is shoved onto other nations instead of felt at home. It makes U.S. goods cheaper to sell overseas and makes overseas goods more expensive in the U.S.

If I were putting a name to this period of history, I would probably call it the Era of Dysfunctional Governments. Why is it not possible for government leaders to do their job? Why do we have huge deficits? Where will this logically lead over the next year and the years after that? Anyone care to comment on these themes?

DarJones

[QUOTE=Fusion_power;323370]Consider the growth in the number of dollars in the world economy now vs a year ago. It is obvious that the U.S. currency should have slipped relative to most major currencies.

DarJones[/QUOTE]



It was not so obvious in time I was writing my predictions for 2012 (see post #3). In this time euro was going down, everybody was talking about disappearance of euro.

Press responses
 

Some possibly interesting [URL="http://www.bbc.co.uk/news/world-us-canada-20891883"]responses from the world's press.[/URL]

[QUOTE=Fusion_power;323370] Why is it not possible for government leaders to do their job? Why do we have huge deficits?[/QUOTE]

It is hard for government leaders to do their job when there are very well-funded campaigns devoted to telling the world that their job cannot be done. In any case, what their job is includes a strong component of providing for people who have difficulty providing for themselves, and, during a nasty recession, that encompasses a lot of people and you have to run a large deficit to do the provision.

[QUOTE=ewmayer;323659][b]Friday Humor:[/b]

Mostly for laughs, ZH offers Hedge fund "guru" Byron Wien's [url=http://www.zerohedge.com/news/2013-01-02/byron-wiens-2013-predictions-unveiled]2013 predictions[/url].

Der Wiener almost had me believing he could possibly be serious in these until I got to the bit about the "mild recession that began [in Europe] in 2012." Nice one, Lord Byron, you irrepressible card, you. :)[/QUOTE]Mad, bad, and dangerous to know.

Mint the Coin. This is the Krugman solution to the debt ceiling.

So what is "the coin"? While printing money is the domain of the Federal Reserve, the U.S. treasury dept has the authority to mint coins. Most of those coins are limited by specific authorization acts of the U.S. congress which specify the face value and maximum number to be minted. But there is one significant exception. Congress authorized the treasury to mint platinum coins of any denomination. The intent was to authorize the production of commemorative and collectible coins, but the specific authorization does not limit the denomination of coin that can be minted. Therefore the somewhat oddball suggestion has been made for Treasury to mint a $1 Trillion coin that would then be presented to the federal reserve to redeem an equivalent amount of fed held debt. The Fed would have to accept the coin because it is legal tender duly minted by Treasury. The result would be that treasury is now holding the debt which has been paid off and the federal reserve would have $1 Trillion of borrowing authority with which to fund government operations. Sounds like a nifty trick doesn't it?

Can anyone else spot the flaws with this "solution"?

DarJones

one caveat I could see is that if the coin actually contained as much platinum as it's value suggest, it would weigh about 734 million pounds according to a precious metal calculator I found online.

[QUOTE=ewmayer;324758]No takers on the "glaring fubar" question? (Or was it too blatantly obvious?)
[/QUOTE]

Too blatantly obvious. In fact there are so many things wrong with that statement I don't know where to start.

[QUOTE=ewmayer;324975]
o And speaking of fubarificity,[/QUOTE]fubarifity or fubaricity, but surely not fubarificity.

Cheesehead, that is downright sesquipedalian.

Has anyone noticed the slippage of the Yen vs the Dollar recently? Japan is deliberately weakening the yen in hopes of stimulating exports which should boost their economy. The net effect is to make imported goods such as oil more expensive. This is a risky move on Japan's part, but if successful would bring them out of the economic doldrums of the past 25 or so years.

DarJones

[QUOTE=ewmayer;325073]The funny thing about the recent plunge of the JPY is that just a month ago ZeroHedge pundit Bruce Krasting [url=http://www.zerohedge.com/contributed/2012-12-17/and]penned a post describing the following destructive addiction[/url] to which he has seen innumerable friends succumb over the past few decades:


It will be interesting to see where the JPY is at EOY.
-------------------------------

[b]Friday Humor, late Thursday edition: UK Shoppers Have a Beef With Tesco Supermarkets[/b]

[url=http://www.bloomberg.com/news/2013-01-16/tesco-s-u-k-revival-suffers-blow-as-horse-dna-found-in-burgers.html]Tesco’s U.K. Revival Hit as Horse DNA Found in Burgers[/url]

The funny thing is, the horse meat was probably the healthiest part of the whole "pink slime in a tube" concoction - no chance of catching vCJD (akak Mad Cow disease) from horse meat, and it's probably leaner than cow meat, to boot. (Or perhaps "to hoof" is more appropriate in the present context).

The wording of the above snip inspires me to a bit of [url=http://www.squidoo.com/mister-ed-merchandise]Mr. Ed[/url]-themed musical doggerel
[i]
The source of the horse, of course, of course,
'Cause no one eats meat from a horse, of course
That is, of course, unless the horse
Is the famous (and tasteful) Mister Ed ...[/i]

------------------------------

Edit: On a more serious note, Mish mentions several safety issues with horsemeat [url=http://globaleconomicanalysis.blogspot.com/2013/01/the-extra-value-horse-burger.html]here[/url], related not to the meat per se but to the fact that horses are not generally raised as food animals as are cows.[/QUOTE]The authorities stressed that there were no human health issues involved.

It's a matter of honesty in labelling and of obeying audit-trail regulations. If the products had been labelled as containing a mixture of beef and horse meat, the sources of each of which had been properly documented, the burgers would have been perfectly legal to be on sale.

[QUOTE=xilman;325098]The authorities stressed that there were no human health issues involved.

It's a matter of honesty in labelling and of obeying audit-trail regulations. If the products had been labelled as containing a mixture of beef and horse meat, the sources of each of which had been properly documented, the burgers would have been perfectly legal to be on sale.[/QUOTE]My problem with things like this is how can I trust them at all? We had a big pet food scandal a few of years back where a manufactures put a waste product from china in pet food to make the nitrogen readings higher thus falsely indicate higher protein content. The end result was a bunch of pets dying from kidney damage.

Man: Would you sleep with me for a million dollars?
Woman: hmmm....
Man: How about for one dollar?
Woman: Just what do you think I am?
Man: We're past that; now we're negotiating price.

[QUOTE=ewmayer;325242]Odds on either Rajoy or Timmay making a weepy confession on Oprah's show in years to come?[/QUOTE]

Wouldn't it be cool if Oprah could cut the bullshit, and asked some serious questions?

She's worth $2.7 billion according to Forbes.

FFC, I respect Bill Gates more than her....

[QUOTE=ewmayer;325258]Those 2 bits are highly correlated - she'd be worth a lot less (in $ terms) if she ever cut the bullshit and asked some serious questions.[/QUOTE]

Just how much does one need to be worth to condenser yourselves to have won?

Separate question: if you never need, why don't you ask important questions?

[QUOTE=ewmayer;325258]Those 2 bits are highly correlated - she'd be worth a lot less (in $ terms) if she ever cut the bullshit and asked some serious questions. Like most everyone else in the lapdog MSM, she is keenly aware that "fawning over royalty" pays.[/QUOTE]

I have to disagree with both of you. To the best of my knowledge, Oprah does not claim to be a journalist, she does not work for a news show/network. Oprah provides light entertainment, self-help, and human interest stories. She does her job well, built her empire from scratch - kudos to her.

A better example would be Baba Wawa who does claim to be a journalist and produces ever-so-enlightening shows like "Ten most interesting people...".

So the problem is the legions of people who think Oprah is a journalist. She certainly doesn't try to disabuse any of her millions of acolytes that she is not a journalist.

[QUOTE=garo;325321]So the problem is the legions of people who think Oprah is a journalist.[/QUOTE]

In a nutshell, yes. Anybody who tunes into Oprah or shows like Entertainment Tonight, and there probably are millions of them, thinking they are getting hard-hitting journalism on the important topics of the day is a bit of a fool.

[QUOTE=ewmayer;325613]The number of high-level prosecutions will of course remain stuck at zero[/QUOTE]It's not a criminal prosecution, but ProPublica reporter Jesse Eisinger just posted an article about one private lawsuit "brought in a New York State Supreme Court in Manhattan against Morgan Stanley by a Taiwanese bank" that has managed to get some document discovery.

"Explosive Charge: Morgan Stanley Peddled Security Its Own Employee Called ‘Nuclear Holocaust’"
[URL]http://www.propublica.org/thetrade/item/explosive-charge-morgan-stanley-peddled-security-its-own-employee-called-nu[/URL]

[quote]. . .

We are never going to have a full understanding of what bad behavior bankers conducted in the years leading up to the financial crisis. The Justice Department and the Securities and Exchange Commission have failed to hold big wrongdoers to account.

We are left with what scraps we can get from those private lawsuits lucky enough to get over the high hurdles for document discovery. [URL="http://iapps.courts.state.ny.us/webcivil/FCASSearch"]A case[/URL] brought in the New York State Supreme Court in Manhattan against Morgan Stanley by a Taiwanese bank, which bought a piece of the same deal the Chinese bank did, has cleared that bar.

The results are explosive. Hundreds of pages of internal Morgan Stanley documents, released publicly last week, shed much new light on what bankers knew at the height of the housing bubble and what they did with that secret knowledge.

The lawsuit concerns a $500 million [URL="http://topics.nytimes.com/top/reference/timestopics/subjects/c/collateralized-debt-obligations/index.html?inline=nyt-classifier"]collateralized debt obligation[/URL] called Stack 2006-1, created in the first half of 2006. Collections of mortgage-backed securities, C.D.O.'s were at the heart of the financial crisis.

But the documents suggest a pattern of behavior larger than this one deal: People across the bank understood that the American housing market was in trouble. They took advantage of that knowledge to create and then bet against securities and then also to unload garbage investments on unsuspecting buyers.

. . .[/quote]

Leave it to the party of (claim-to-be) strict constitutionalists to propose something (Senators don't get paid until they pass a budget) that violates the most recent amendment to the U.S. Constitution (or at least can't take effect during the current Congress).

"27th Amendment gets publicity in budget battle"
[url]http://news.yahoo.com/27th-amendment-gets-publicity-budget-battle-111609688.html[/url]

I just want to know how much Ewmayer dedicated to shorting Apple computer? It was an obvious huge short just 4 months ago when it hit $705 per share. It is still a huge short today at $450 per share.

DarJones

ZeroHedge is the Jim Cramer of the short side.

[QUOTE=ewmayer;327077]HFTs and Fed POMOs pushed DJIA > 14k today, "just to say we did it and support the 'all is well' meme". DJIA priced in the cost of most any real goods compared to 2007 highs tells a very different story. Despite today's Ecstasy-pill party on Wall Street, internals of the latest US employment data were quite ugly.[/QUOTE]

My question is you knew about the POMO. You knew that the Bernank would stop at nothing. How did your portfolio profit from this knowledge.

[SIZE="5"][SUP][SUP]The DOW closed above 14,000[/SUP][/SUP][/SIZE][attach]9231[/attach]

[QUOTE=ewmayer;327089]I was pointing out the ever-widening macro/market disconnects ... as far as my own cash, since the equity long side is supported almost entirely by CB-money-printing and "faith in the system" I have no intention of buying into this latest engineered bubble:
I assume your firm is long bearded financial patriarch futures?[/QUOTE]

Look if your contention is that [URL="http://en.wikipedia.org/wiki/WarGames"]"The only winning move is not to play"[/URL], I sympathize. But if you complain too much about POMO and CB-meddling it begins to sound like sour grapes. Like it or not, the stock market doubled in the last four years and you sat it out. Ask yourself if being right is more important than making money. (Full disclosure: I sat out most of the rally too.) The stock market is a game and the winners are the ones who make more money, not the ones that get their macro predictions right, ....eventually. As regards my firm, company policy prohibits comment.

Look nobody puts money in the stock market in order to lose money. I have very strong macro opinions but I'm trying hard - and mostly failing - to let them interfere with my plays in the stock market. If you want to complain about the economy, go right ahead. There is a lot that is wrong. While I disagree a lot less with Mr. K than you do, it is a discussion we can have in a civil fashion. But when you start complaining about the fake pumped up stock market, well you are fair game. You are a Mammonite too.

How do you know I am not an addict too?

PS: [url]http://xkcd.com/592/[/url] Read the alt-text.

Quit sniping. I'm already too P.O.ed to put up with that garbage.

[url]http://www.bbc.co.uk/news/21331018[/url]

It is not bad enough that they were an integral part of the meltdown, they deny they did anything wrong. After all, another ratings agency blessed every single one of them.

Logical conclusion, both ratings agencies were corrupt.

I say blindfold em, stand em up against a wall, and start shooting. But make sure at least one gun is loaded with blanks. That way, every one of the shooters will have plausible deniability that they did the deed.

DarJones

[URL="http://blogs.reuters.com/great-debate/2013/02/04/fixing-too-big-to-fail/"]RMS talks economy[/URL]

Edit: [URL="http://www.smbc-comics.com/index.php?db=comics&id=2868#comic"]Relevant[/URL]

Richard is one of my personal heros. I was very impressed by his book "Free as in Freedom" outlining his views on the free software movement. I would guess that George is at least in principle in agreement with this point of view in his making the source code for Prime95 public (with stated reservations), and I applaud the ideal of making the free exchange of ideas possible free of economic considerations. Richard was a year older than me but two years ahead in class when I was a student at Harvard from 1972 through 1974. My friends and I assumed wrongly due to his conservative dress at that time that he was headed for the corporate world. We couldn't have been more wrong, happily! Richard is an original thinker and totally uncompromising in his view of the world. For anyone unfamiliar with his thinking, I would totally recommend either reading his written works or browsing his website.

[QUOTE=Dubslow;327657][URL="http://blogs.reuters.com/great-debate/2013/02/04/fixing-too-big-to-fail/"]RMS talks economy[/URL]

Edit: [URL="http://www.smbc-comics.com/index.php?db=comics&id=2868#comic"]Relevant[/URL][/QUOTE]

Thanks for both of those, but especially for the Stallman piece. Unfortunately, the more cogent a plan to effect change is, the more fiercely the "corp-rats", and their legislative and judicial pawns will fight to prevent its enactment.

Re: USPS
 

If you live in a rural area or Alaska, you are going to be out of luck. Fedex ain't giving you the same service.

BTW, I read a long-form article last week - cannot find a link now - that talked about how a lot of the USPS deficit is due to te Congress critters. Back in the mid-oughties when USPS was flush with cash, Congress made it pre-pay its pension contributions (alone among all federal agencies) so that Congress would have less trouble balancing its budget. If you take that out the USPS operating deficit is well under $1 billion. Congress prevents the USPS from charging the economic price of mailing a letter because it is regulated as a public good. And then they complain about the deficit. In Germany, for example, the cost of mailing a first class letter is 60% more.

The USPS is one of those institutions that is a common good. When it goes in this orgy of deficit-cutting, you will miss it.

As with USPS, so it is with Amtrak. Starved for funds because Congress says it should pay everything from the fare box, and even make a profit! Last I knew, they begrudged one billion for the entire nationwide rail system.

Amtrak, pitiful as it is compared to the rest of the developed world, should be treated as a common good, like the mail.

hmm north korea has made a nuclear trial.
Well, if NK do anything to SK, , some will feel their duty should be to free NK, right?
Oh and the weapon industry need a boost, right?
[COLOR="White"]this is trolling, don't over-react[/COLOR]

[URL="http://www.bloomberg.com/news/2013-01-28/libor-lies-revealed-in-rigging-of-300-trillion-benchmark.html"]Libor Lies Revealed in Rigging of $300 Trillion Benchmark [/URL]:[quote]The benchmark rate for more than $300 trillion of contracts was based on honesty. New evidence in banking's biggest scandal shows traders took it as a license to cheat.[/quote]I think the money quote from this article comes from "The Maestro":[quote=Alan Greenspan]Through all of my experience, what I never contemplated was that there were bankers who would purposely misrepresent facts to banking authorities. You were honorbound to report accurately, and it never entered my mind that, aside from a fringe element, it would be otherwise. I was wrong.[/quote]

[QUOTE=ewmayer;329877]... to convince the hoi polloi that ...[/QUOTE]
[pedantry]
Shame on you Ernst. I thought you knew that "hoi polloi" is Greek for "the people" and therefore doesn't require another definite article. I'll be charitable and assume that you failed to proof-read your text before posting.
[/pedantry]

:wink:

Too Big To Jail
 

Matt Taibbi's latest.
[URL]http://www.rollingstone.com/politics/news/gangster-bankers-too-big-to-jail-20130214[/URL]


[QUOTE]For at least half a decade, the storied British colonial banking power helped to wash hundreds of millions of dollars for drug mobs, including Mexico's Sinaloa drug cartel, suspected in tens of thousands of murders just in the past 10 years – people so totally evil, jokes former New York Attorney General Eliot Spitzer, that "they make the guys on Wall Street look good." The bank also moved money for organizations linked to Al Qaeda and Hezbollah, and for Russian gangsters; helped countries like Iran, the Sudan and North Korea evade sanctions; and, in between helping murderers and terrorists and rogue states, aided countless common tax cheats in hiding their cash.[/QUOTE][QUOTE]That nobody from the bank went to jail or paid a dollar in individual fines is nothing new in this era of financial crisis. What is different about this settlement is that the Justice Department, for the first time, admitted why it decided to go soft on this particular kind of criminal. It was worried that anything more than a wrist slap for HSBC might undermine the world economy. "Had the U.S. authorities decided to press criminal charges," said Assistant Attorney General Lanny Breuer at a press conference to announce the settlement, "HSBC would almost certainly have lost its banking license in the U.S., the future of the institution would have been under threat and the entire banking system would have been destabilized."[/QUOTE]

Edit: Ooh! A two-fer:
[URL]http://www.rollingstone.com/politics/blogs/taibblog/at-least-were-not-measles-rationalizing-drone-attacks-hits-new-low-20130214[/URL]
[QUOTE]In this piece, the author's thesis is that all this fuss about America's drone policy is overdone and perhaps a little hysterical. Yes, he admits, there are some figures that suggest that as many as 900 civilians have been killed in drone strikes between 2004 and 2013. But, he notes, that only averages out to about 100 civilians a year.
...
So there it is, folks. Welcome to the honor of American citizenship. Should we replace [I]E Pluribus Unum [/I]with [I]We Don[/I]'[I]t Kill as Many Children as Measles?[/I] Of course people aren't mad about bombs being dropped on them from space without reason; they're mad because anti-Americanism is alluring![/QUOTE]

[QUOTE=ewmayer;329953]I mangle Latin, too - "Romanus eunt domus" all the way, baby!

------------------------------------

On the "tales of stealth inflation" front:

[url=www.reuters.com/article/2013/02/17/us-beam-makersmark-idUSBRE91G0EM20130217?feedType=RSS&feedName=domesticNews]Maker's Mark reverses decision to lower alcohol content[/url]: [i](Reuters) - Maker's Mark said it was taking back a decision to reduce the alcohol content in its bourbon because of a large number of complaints from customers.[/i][/QUOTE]I hadn't realised that Maker's Muck was under threat. I can't say that I drink a lot of it, a bottle a year at most, but I would have complained as well had I known.

[QUOTE=ewmayer;329995]Visitors to SoCal may have encountered a doubled-Spanish version of the same effect:[/QUOTE]The [I][FONT="Comic Sans MS"]Los Angeles[/FONT][/I] Angels of Anaheim?

Try this one on your bilingual friend:
Reach into your pocket, take out your keys. Hold one between the thumb and first finger of one hand. Point at it with the other index finger. Utter the following in your best Spanish mangling accent "Llave, aquí." Keep repeating and pointing at it (while saying the last word) until they begin to laugh.

Somewhat off topic...
 

Somewhat off topic...

So, Barbados had general elections today. The polls closed at 1800 local time.

I turn on my TV (which I don't often do) at 1820 and tuned to the local (government controlled) CBC (Caribbean Broadcasting Corporation) station (108) to watch the results.

What do I find? "Days of our Lives". A soup opera with a bunch of white people having issues...

Sigh....

Stuff Investments in a Mattress?
 

The following article indicates that bonds may take a tumble.....

[url]http://www.dailyfinance.com/2013/02/22/bonds-riskier-than-stocks-interest-rates-yields-bubble/[/url]


With sequestration about to hit (any guesses what it will do to equities? nudge nudge..... :smile:)

And bonds about to take a fall........

perhaps we should stuff everything under the bed.

[QUOTE=R.D. Silverman;330470]The following article indicates that bonds may take a tumble.....

[url]http://www.dailyfinance.com/2013/02/22/bonds-riskier-than-stocks-interest-rates-yields-bubble/[/url]


With sequestration about to hit (any guesses what it will do to equities? nudge nudge..... :smile:)

And bonds about to take a fall........

perhaps we should stuff everything under the bed.[/QUOTE]Ever tried sleeping on gold bricks? Very uncomfortable, or so I'm told.

[url="http://www.philsoc.org/2011Fall/2292transcript.html"]An extremely rare technical talk on high frequency trading[/url]

[QUOTE=jasonp;331080][url="http://www.philsoc.org/2011Fall/2292transcript.html"]An extremely rare technical talk on high frequency trading[/url][/QUOTE]

HFT seems to be illegal under existing insider trading laws.

If a company is going to announce something that will affect
the price of its stock and I know about it ahead of time, I can't
trade on the information until it becomes public [b]AND[/b] the
market has time to absorb the information. If the announcement
comes at noon tomorrow, I can't place a buy order at 12:01 because
there hasn't been enough time for the market to absorb the news
even though technically I waited to act until after the announcement.

When a company places a large order and then cancels it in milliseconds
or less, the market does not have the time to ABSORB the information.
(i.e. the placement of a large order can affect stock price). Cancelling
an order very quickly, before the market has time to absorb the info
seems to violate insider trading law.

Opinions?

[QUOTE=R.D. Silverman;331094]HFT seems to be illegal under existing insider trading laws.

If a company is going to announce something that will affect
the price of its stock and I know about it ahead of time, I can't
trade on the information until it becomes public [b]AND[/b] the
market has time to absorb the information. If the announcement
comes at noon tomorrow, I can't place a buy order at 12:01 because
there hasn't been enough time for the market to absorb the news
even though technically I waited to act until after the announcement.

When a company places a large order and then cancels it in milliseconds
or less, the market does not have the time to ABSORB the information.
(i.e. the placement of a large order can affect stock price). Cancelling
an order very quickly, before the market has time to absorb the info
seems to violate insider trading law.

Opinions?[/QUOTE]Your analysis makes sense to me. But, there again, IANAL.

My gut reaction is that there is no well-defined (i.e. enforceable) definition of "enough time for the market to absorb the news".

[QUOTE=jasonp;331080][url="http://www.philsoc.org/2011Fall/2292transcript.html"]An extremely rare technical talk on high frequency trading[/url][/QUOTE]

Anyone want to guess where a large number of GPUs are deployed?

Umm so do we have a ppt or something of this talk? Sounds interesting though I am not sure how accurate the views of a non-practitioner would be. You have to remember that all HFT firms are extremely tight-lipped about what they do because to not do so would give up competitive advantage.

@ Bob Silverman: Apart from the debate over the definition of "enough time for the market to absorb the news", the more material issue in my opinion is one of fairness. Or rather equal opportunity. Does someone have exclusive rights over sending orders before anyone else? If not, and the only barrier is the vast amount of money and technical know-how required to become a player in HFT, then the playing field is level enough for the SEC to not take any action against HFT.

Now if we talk about a transaction tax, say even 0.01% then you will see a LOT of HFT firms go out of business.

Finally, 12:01??? [B]AYFKM[/B]?? If the news is out at 12:00, you can be pretty sure there are orders out at 12:00:00.020.

[QUOTE=garo;331130]Does someone have exclusive rights over sending orders before anyone else?[/QUOTE]

Only in the case of seller making an "offer" (read: "ask order"). But then they can immediately withdraw it.

[QUOTE=garo;331130]If not, and the only barrier is the vast amount of money and technical know-how required to become a player in HFT, then the playing field is level enough for the SEC to not take any action against HFT.[/QUOTE]

I agree with you. But it is a [I][U]vast[/U][/I] "amount of money and technical know-how required to become a player". And all of these, of course, have "Level 1 Access".

Some players go so far as to build or rent dedicated fiber-optic network connections to get a few milliseconds' advantage.

[QUOTE=garo;331130]Now if we talk about a transaction tax, say even 0.01% then you will see a LOT of HFT firms go out of business.[/QUOTE]

Completely agree.

As it is now, any "retail day trader" might as well burn their money. Or buy lottery tickets.

[QUOTE=ewmayer;331138]HFT orders-designed-to-not-be-executed violate existing black-letter laws against market manipulation.[/QUOTE]

Care to cite those laws?

(And, for the record, I used to play in this space. But long before humans were "Only Human" [Matrix reference].)

[QUOTE=ewmayer;331155]...but cites much of the key applicable case law. Note the frequent usage of the term "bona fide" w.r.to market making and market buy/sell orders.[/QUOTE]

OK... Thanks for that (sincerely).

But if the "police" and the "courts" don't enforce the "law", what use is it? (I realize this is your fundamental point.)

Ernst, ever heard of an IOC or FOK?

[QUOTE=garo;331130]Finally, 12:01??? [B]AYFKM[/B]?? If the news is out at 12:00, you can be pretty sure there are orders out at 12:00:00.020.[/QUOTE]

[b]Not[/b] from any people with inside information.

There are firms out there that have computers hooked up to news feeds that parse the information and send orders out in an automated fashion. That is NOT inside information as the news feeds are public.

#10.

More from the Beeb.
 

[URL="http://www.bbc.co.uk/news/magazine-21636723"]No comment.
[/URL]

Paul

[QUOTE=ewmayer;332438]Another quips: "Hey, take it easy with those bananas - those don't grow on trees, you know."[/QUOTE]You'd be amazed at how many people, outside banana growing areas, think that bananas [b]do[/b] grow on trees.

[QUOTE=xilman;332498]You'd be amazed at how many people, outside banana growing areas, think that bananas [B]do[/B] grow on trees.[/QUOTE]
Half of those who [B]do[/B] know that that's false, wouldn't know that they grow UP not down. (no innuendos please)

Hilarious
 

Take the ZeroHedge test:
[url]http://nihoncassandra.blogspot.com/2013/03/take-zero-hedge-test.html[/url]
Ernst, this is a must for you!

Oh and in the Niall Ferguson doesn't know what he is talking about department an excellent takedown from 2011.
[url]http://www.lrb.co.uk/v33/n21/pankaj-mishra/watch-this-man[/url]

Back in 1957 the BBC successfully fooled thousands and thousands of people into believing that [I]spaghetti[/I] grows on trees!
[YOUTUBE]27ugSKW4-QQ[/YOUTUBE]

I think one of the best ways to make a money comparison that deals with inflation is to mentally buy gold with the money you have in the period in question. If the total gold goes up, actual value has gone up, if it goes down, value has gone down. It's sort of a new take on crowdsourcing, a million morons doing their own thing somehow manages to form into the right answer.

I haven't looked into this, but I'm guessing when the value of gold spikes, then it's a good idea to not get into risky investments. Call it a theory :)

[QUOTE=garo;332512]Take the ZeroHedge test:
[URL]http://nihoncassandra.blogspot.com/2013/03/take-zero-hedge-test.html[/URL]
...
[/QUOTE]

[QUOTE=jasong;332652]I think one of the best ways to make a money comparison that deals with inflation is to mentally buy gold with the money you have in the period in question. If the total gold goes up, actual value has gone up, if it goes down, value has gone down. It's sort of a new take on crowdsourcing, a million morons doing their own thing somehow manages to form into the right answer.

I haven't looked into this, but I'm guessing ... :)[/QUOTE]
Obviously, you haven't taken the test.

[QUOTE=Batalov;332716]Obviously, you haven't taken the test.[/QUOTE]
Did you know Republicans are more likely to laugh at stuff that parodies their point of view than Democrats in a similar situation?

Doesn't anyone want to comment about the debacle in Cyprus as linked above? Bank deposits will be subject to a special "tax". No matter how you slice this, the meaning is clear. There is no "moral hazard" for EU lenders. Meaning that they won't accept a loss no matter what. The moral hazard has all been transferred to the owners of the deposits.

It is not just what is being done to Cyprus that is a problem, it is the certainty that it will be done again to the next country to request a bailout. The predictable result will be massive runs on banks at the slightest sign a nation is in trouble. Instead of having deposits in the bank to mitigate the stresses of a bad economy, the banks will be faced with rapidly declining deposits at the very time they are most needed. More important will be the insidious flow of cash out of countries having difficulties. The money has to go somewhere and putting it in a mattress will only work for a certain amount. It will flow into "safe" economies as deposits. So the EU will have to figure out how to trace down the accounts of citizens no matter what nation they are held in. Do you smell escalation?

DarJones

[QUOTE=Fusion_power;333977]Doesn't anyone want to comment about the debacle in Cyprus as linked above? Bank deposits will be subject to a special "tax". No matter how you slice this, the meaning is clear. There is no "moral hazard" for EU lenders. Meaning that they won't accept a loss no matter what. The moral hazard has all been transferred to the owners of the deposits.

It is not just what is being done to Cyprus that is a problem, it is the certainty that it will be done again to the next country to request a bailout.[/quote]Perhaps the tax's "real" aim is to discourage future bailout requests.

[quote]The predictable result will be massive runs on banks at the slightest sign a nation is in trouble. Instead of having deposits in the bank to mitigate the stresses of a bad economy, the banks will be faced with rapidly declining deposits at the very time they are most needed. More important will be the insidious flow of cash out of countries having difficulties. The money has to go somewhere and putting it in a mattress will only work for a certain amount. It will flow into "safe" economies as deposits. So the EU will have to figure out how to trace down the accounts of citizens no matter what nation they are held in. Do you smell escalation?[/QUOTE]... and perhaps those who designed it for that "real" aim didn't think through the ramifications well enough.

[I]"The Eurozone and the EU will survive the current crisis over Cyprus and, in doing so, take a major step towards full political union."[/I]

Will Hopper was a neighbor in 2010, the year my wife and I lived in London. I think his book, [URL="http://www.puritangift.com/en/"]The Puritan Gift[/URL], may become a business classic on the rise and fall of American Capitalism. He has oddball takes on the European Situation that often turn out to be correct. Today's [URL="http://www.puritangift.com/en/blog/2013/03/23/the-eurozone-and-the-eu-will-survive-the-current-crisis-over-cyprus-and-in-doing-so-take-a-major-step-towards-full-political-union/"]blog[/URL] stakes the position of inevitable and desirable political union.

[QUOTE=wblipp;334663]Hopper was a neighbor in 2010, the year my wife and I lived in London.[/QUOTE]Shades of [I]Blue Velvet [/I]there William.
You don't mean Dennis in Lumberton do you?

D

[QUOTE=davieddy;334719]Shades of [I]Blue Velvet [/I]there William.
You don't mean Dennis in Lumberton do you?

D[/QUOTE]

Will reminds of Grace more than Dennis.

The Cyprus Solution is now in place. Depositors with more than 100,000 euros in an account will be clipped on the pretext that accounts are only insured up to the 100,000 mark. They are expecting to clip 4.2 Billion euros off of 38 Billion in uninsured deposits.

How did the banks get into this shape? It started with setting up the country as a tax advantaged banking and finance center. The banks then offered relatively high rates of return for deposits. This attracted exorbitantly high levels of deposits which are currently about 8 times the nation's GDP. The banks were able to buy debt in amounts far exceeding safe levels and invested heavily in Greek debt which received a 75% haircut about a year ago. The resulting losses left the Cypriot banks financially insolvent. I have not checked for other losses that affected the outcome, but you can bet that Greek debt was the tip of the iceberg.

The proposed solution is to combine the largest 2 banks - Bank of Cyprus and Laiki - into one good bank and one bad bank. Laiki, the bad bank, will be scuttled while deposits are transferred to Bank of Cyprus.

Now this brings up one really interesting question. What happens to the @4.2 Billion euros that will be clipped from accounts exceeding 100,000 euros in value?

DarJones

[QUOTE=Fusion_power;334900]The Cyprus Solution is now in place. Depositors with more than 100,000 euros in an account will be clipped on the pretext that accounts are only insured up to the 100,000 mark. They are expecting to clip 4.2 Billion euros off of 38 Billion in uninsured deposits.

How did the banks get into this shape? It started with setting up the country as a tax advantaged banking and finance center. The banks then offered relatively high rates of return for deposits. This attracted exorbitantly high levels of deposits which are currently about 8 times the nation's GDP. The banks were able to buy debt in amounts far exceeding safe levels and invested heavily in Greek debt which received a 75% haircut about a year ago. The resulting losses left the Cypriot banks financially insolvent. I have not checked for other losses that affected the outcome, but you can bet that Greek debt was the tip of the iceberg.

The proposed solution is to combine the largest 2 banks - Bank of Cyprus and Laiki - into one good bank and one bad bank. Laiki, the bad bank, will be scuttled while deposits are transferred to Bank of Cyprus.

Now this brings up one really interesting question. What happens to the @4.2 Billion euros that will be clipped from accounts exceeding 100,000 euros in value?

DarJones[/QUOTE]

I have no sympathy for the bond holders. But the depositors got scrod....

......
A man jumps into a taxi in Boston and says:

"Take me to where I can get scrod".

The driver responds:

"That's the first time I ever heard it in the past pluperfect".

[QUOTE=R.D. Silverman;334904]I have no sympathy for the bond holders. But the depositors got scrod....

......
A man jumps into a taxi in Boston and says:

"Take me to where I can get scrod".

The driver responds:

"That's the first time I ever heard it in the past pluperfect".[/QUOTE]:smile:

Not heard that one before. Thought I'd heard most grammatical jokes in English by now.

No penny was taken away from deposits of Cyprus people yet. Cyprus crisis revealed a real problem of existing banking system. Large countries are forced to keep low interest rates for deposits in their banks. Low interest rates cause cash flowing abroad to the countries like Cyprus. This is an unwritten law of economy. No crisis will avert it.
Now a clear message was issued. And this message is "Don't deposit your money in unreliable banks. Come to us." But this will work for a short period of time, since it is against the law of economy.

[QUOTE=literka;335058]No penny was taken away from deposits of Cyprus people yet...[/QUOTE]
And not a single penny [I]will[/I] be taken! Only euros and cents can be taken, or [I]lepta[/I] if you insist. :smile:

In Russian, there's an ancient borrowed expression: "[I]внести свою лепту[/I]". [I]Lepto (pl.lepta)[/I] = a Greek eurocent. In this particular case, leptas will not be "carried in", they will be "carried out".

[QUOTE]Do deposit guarantees inherently connote moral hazard in regard to risk-taking yield-chasing by banks?[/QUOTE]

This highlights regulatory failure more than anything else. Had the banks in Cyprus been regulated more effectively, then the risk, yield, implosion paradigm might have been averted. This brings on the question of the Too Big To Fail banks here in the U.S. Are regulators actually regulating them? Or are they a runaway train on a collision course that will put the U.S. taxpayer on the hook at some near term future date? Just how much does fractional reserve lending contribute to this pig sty?

I would also point out that there is a huge amount of finger pointing at Greece involved in this story. Greece contributed by destroying principal and interest sought by the bank, but the real problem was in the Cyprus banking system and by inference in the Eurozone structure as regards banking. There is no Eurozone wide banking regulator, ipso facto, there will be regulatory deficiencies until this is resolved.

I can just see Germany caterwauling over the loss of autonomy if they have to hand over bank regulation to a Eurozone wide authority.

DarJones

Thoughts on the EU's response to the Cypriot crisis, by Stratfor's founder and chairman:

&quot;Europe's Disturbing Precedent in the Cyprus Bailout&quot;
[URL="http://www.stratfor.com/weekly/europes-disturbing-precedent-cyprus-bailout"]
http://www.stratfor.com/weekly/europes-disturbing-precedent-cyprus-bailout[/URL]

(I intended to quote the entire article here, but I'm having difficulty getting it displayed in proper format.)

[QUOTE=ewmayer;335144]Eurozone-existential question: Given that Cyprus has implemented "temporary" capital controls [url=http://globaleconomicanalysis.blogspot.com/2013/03/you-have-to-destroy-maastricht-treaty.html]in violation of the Maastricht treaty[/url] and that a "Cyprus Euro" is thus quite different from a "Rest-of Euro", is Cyprus really still in the EMU?

Gold-rush-era mining camps and their "wildcat dollars" come to mind here: Sure that piece of scrip spends just like a real dollar ... as long as the gold is flowing and enough people believe it will continue to do so until they all have a chance to convert it into "real money". By the time most of the scripholders realize the jig is up and they've traded their hard-won gold (i.e. labor) for now-worthless paper and the scrip issuers are long gone with the gold, it's too late to do anything about it.[/QUOTE]One of the things that popped on my radar a day or so ago is a lot of smoke about opening a bitcoin ATM in Cyprus. A simple search can show a lot of chatter about it. It's below the level of things worthwhile to talk especially in keeping with perennial bitcoin linkspam but has surrealistically injected itself into the Cyprus money discussion.

[QUOTE=Batalov;335061]And not a single penny [I]will[/I] be taken! Only euros and cents can be taken, or [I]lepta[/I] if you insist. :smile:
[/QUOTE]


Be serious! It is obvious that "penny" in my post symbolizes any small amount.

Crew-cut
 

A pretty severe hair cut for the Bank of Cyprus depositors: [URL="http://www.bbc.co.uk/news/business-21982652"]up to 60%[/URL]

As for Laiki depositors, it could be closer to a shave than a cut. No details out yet but it's almost certainly going to be more impressive.

Now that the Cyprus crisis is "solved", on to the next stop: Slovenia !
Stay tuned !

"And the beat goes on; and the beat goes on..." -- Sonny & Cher
or how about:

"Who'll be the next in line? Who'll be the next in line for heartache ?"
-- the Kinks

Would anyone be surprised to find that there were some HUGE transfers of funds from Cyprus banks to other European banks in the 15 days prior to the shutdown and haricut? (I spelled that right, think Hari Kari)

[url]http://translate.google.com/translate?sl=el&tl=en&js=n&prev=_t&hl=el&ie=UTF-8&eotf=1&u=http%3A%2F%2Fwww.protothema.gr%2Fpolitics%2Farticle%2F%3Faid%3D267996&act=url[/url]

A partial summary is that there were 132 major funds transfers and at least one of them was a business with direct family links to the president of Cyprus. I can see a field day coming with this. There will have to be a token sacrifice, lets say some elderly grandmother whose son works in the banking industry. She pulled out her life savings of 1 Million euros just 3 days before the haricut. Now she will be tried and convicted of some crime. Meanwhile, the 3/4 of a billion dollars that was removed by businesses will be ignored.

DarJones

A Stratfor piece:

"Beyond the Post-Cold War World"
[URL="http://www.stratfor.com/weekly/beyond-post-cold-war-world?utm_source=freelist-f&utm_medium=email&utm_campaign=20130402&utm_term=gweekly&utm_content=readmore&elq=0cb651aa74124f8f84c922b140282b36"]http://www.stratfor.com/weekly/beyond-post-cold-war-world?[/URL]

[quote=George Friedman]... There were, of course, many other aspects and phases of the confrontation, but in the end, the Cold War was a struggle built on Europe's decline.

. . .

Three things defined the post-Cold War world. The first was U.S. power. The second was the rise of China as the center of global industrial growth based on low wages. The third was the re-emergence of Europe as a massive, integrated economic power. Meanwhile, Russia, the main remnant of the Soviet Union, reeled while Japan shifted to a dramatically different economic mode.

. . .

[B]The Three Pillars of the International System[/B]

In this new era, Europe is reeling economically and is divided politically. The idea of Europe codified in Maastricht no longer defines Europe. Like the Japanese economic miracle before it, the Chinese economic miracle is drawing to a close and Beijing is beginning to examine its military options. The United States is withdrawing from Afghanistan and reconsidering the relationship between global pre-eminence and global omnipotence. Nothing is as it was in 1991.

Europe primarily defined itself as an economic power, with sovereignty largely retained by its members but shaped by the rule of the European Union. Europe tried to have it all: economic integration and individual states. But now this untenable idea has reached its end and Europe is fragmenting. ...

. . .

I have already said much about China, having argued for several years that China's economy couldn't possibly continue to expand at the same rate. Leaving aside all the specific arguments, extraordinarily rapid growth in an export-oriented economy requires economic health among its customers. It is nice to imagine expanded domestic demand, but in a country as impoverished as China, increasing demand requires revolutionizing life in the interior. China has tried this many times. It has never worked, and in any case China certainly couldn't make it work in the time needed. Instead, Beijing is maintaining growth by slashing profit margins on exports. What growth exists is neither what it used to be nor anywhere near as profitable. That sort of growth in Japan undermined financial viability as money was lent to companies to continue exporting and employing people -- money that would never be repaid.

It is interesting to recall the extravagant claims about the future of Japan in the 1980s. Awestruck by growth rates, Westerners did not see the hollowing out of the financial system as growth rates were sustained by cutting prices and profits. Japan's miracle seemed to be eternal. It wasn't, and neither is China's. And China has a problem that Japan didn't: a billion impoverished people. Japan exists, but behaves differently than it did before; the same is happening to China.

Both Europe and China thought about the world in the post-Cold War period similarly. Each believed that geopolitical questions and even questions of domestic politics could be suppressed and sometimes even ignored. They believed this because they both thought they had entered a period of permanent prosperity. 1991-2008 was in fact a period of extraordinary prosperity, one that both Europe and China simply assumed would never end and one whose prosperity would moot geopolitics and politics.

Periods of prosperity, of course, always alternate with periods of austerity, and now history has caught up with Europe and China. ...

And the United States has emerged from the post-Cold War period with one towering lesson: However attractive military intervention is, it always looks easier at the beginning than at the end. The greatest military power in the world has the ability to defeat armies. But it is far more difficult to reshape societies in America's image. A Great Power manages the routine matters of the world not through military intervention, but through manipulating the balance of power. The issue is not that America is in decline. Rather, it is that even with the power the United States had in 2001, it could not impose its political will -- even though it had the power to disrupt and destroy regimes -- unless it was prepared to commit all of its power and treasure to transforming a country like Afghanistan. And that is a high price to pay for Afghan democracy.

The United States has emerged into the new period with what is still the largest economy in the world with the fewest economic problems of the three pillars of the post-Cold War world. It has also emerged with the greatest military power. But it has emerged far more mature and cautious than it entered the period. There are new phases in history, but not new world orders. Economies rise and fall, there are limits to the greatest military power and a Great Power needs prudence in both lending and invading.

[B]A New Era Begins[/B]

Eras unfold in strange ways until you suddenly realize they are over. For example, the Cold War era meandered for decades, during which U.S.-Soviet detentes or the end of the Vietnam War could have seemed to signal the end of the era itself. Now, we are at a point where the post-Cold War model no longer explains the behavior of the world. We are thus entering a new era. I don't have a good buzzword for the phase we're entering, since most periods are given a label in hindsight. (The interwar period, for example, got a name only after there was another war to bracket it.) But already there are several defining characteristics to this era we can identify.

First, the United States remains the world's dominant power in all dimensions. It will act with caution, however, recognizing the crucial difference between pre-eminence and omnipotence.

Second, Europe is returning to its normal condition of multiple competing nation-states. While Germany will dream of a Europe in which it can write the budgets of lesser states, the EU nation-states will look at Cyprus and choose default before losing sovereignty.

Third, Russia is re-emerging. As the European Peninsula fragments, the Russians will do what they always do: fish in muddy waters. Russia is giving preferential terms for natural gas imports to some countries, buying metallurgical facilities in Hungary and Poland, and buying rail terminals in Slovakia. Russia has always been economically dysfunctional yet wielded outsized influence -- recall the Cold War. The deals they are making, of which this is a small sample, are not in their economic interests, but they increase Moscow's political influence substantially.

Fourth, China is becoming self-absorbed in trying to manage its new economic realities. Aligning the Communist Party with lower growth rates is not easy. The Party's reason for being is prosperity. Without prosperity, it has little to offer beyond a much more authoritarian state.

And fifth, a host of new countries will emerge to supplement China as the world's low-wage, high-growth epicenter. Latin America, Africa and less-developed parts of Southeast Asia are all emerging as contenders.

[B]Relativity in the Balance of Power[/B]

There is a paradox in all of this. While the United States has committed many errors, the fragmentation of Europe and the weakening of China mean the United States emerges more powerful, since power is relative. It was said that the post-Cold War world was America's time of dominance. I would argue that it was the preface of U.S. dominance. Its two great counterbalances are losing their ability to counter U.S. power because they mistakenly believed that real power was economic power. The United States had combined power -- economic, political and military -- and that allowed it to maintain its overall power when economic power faltered.

A fragmented Europe has no chance at balancing the United States. And while China is reaching for military power, it will take many years to produce the kind of power that is global, and it can do so only if its economy allows it to. The United States defeated the Soviet Union in the Cold War because of its balanced power. Europe and China defeated themselves because they placed all their chips on economics. And now we enter the new era.[/quote]

Some comments on that analysis:

[quote=George Friedman]
And the United States has emerged from the post-Cold War period with one towering lesson: However attractive military intervention is, it always looks easier at the beginning than at the end.[/quote]How long will this lesson stay learned? One, one-and-a-half generations?

[quote]The greatest military power in the world has the ability to defeat armies. But it is far more difficult to reshape societies in America's image.[/quote]Republicans who decried "nation-building" seem to have had that part right.

[quote]A Great Power manages the routine matters of the world not through military intervention, but through manipulating the balance of power.[/quote]... but will they get this right?

[quote]Third, Russia is re-emerging. ... The deals they are making, of which this is a small sample, [B]are not in their economic interests, but they increase Moscow's political influence substantially[/B].[/quote]Haven't the references to "soft power" in recent years meant "political power"?

[quote]... It was said that the post-Cold War world was America's time of dominance. I would argue that it was the preface of U.S. dominance. Its two great counterbalances are losing their ability to counter U.S. power [B]because they mistakenly believed that real power was economic power. The United States had combined power -- economic, political and military -- and that allowed it to maintain its overall power when economic power faltered.[/B][/quote]Those who scorn "soft power", or "hard power"!, beware. "Combined power" trumps either alone.

[QUOTE=cheesehead;335878]Those who scorn "soft power", or "hard power"!, beware. "Combined power" trumps either alone.[/QUOTE]Who was it that recommended speaking softly and carrying a big stick?

In case it wasn't clear, that was a rhetorical question.

Recent events indicate that 60% levy tax for deposits in Cyprus banks is very improbable. It will be much smaller or there will not be any tax at all. I wrote about it before expressing doubts about it. Moreover, deposits are not frozen so every day amount of deposits is melting down.

[url]http://thecontributor.com/opinion/corporate-betrayal-america[/url]

Worth reading to see where the profits and taxes are actually being made and paid. Corporate profits are at record high levels, but taxes are paid in Caribbean tax havens.

The UK has Starbucks using all the profits to purchase arbitrarily inflated coffee beans effectively moving the profits from the UK to a Dutch subsidiary. Similar manipulations are used by most large corporations.

DarJones

"The 37 Percent Mystery: Where Did All the Workers Go?"
[URL]http://www.theatlantic.com/business/archive/2013/04/the-37-percent-mystery-where-did-all-the-workers-go/274786/[/URL]
[quote]The answer comes down to (in order of importance): demographics, college attendance, the Great Recession, and the decline of manufacturing

. . .

The share of adult Americans who have a job (or are looking for a job) has fallen to its lowest point since 1979, hovering around 63 percent.

That means 37 percent of working-age Americans aren't working. ...

But what's the story of how it's changed over time? Why is the participation rate declining? Let's investigate.

. . .

Indeed, that's precisely what demographers have long predicted: The slow decline of the participation rate from this decade through the 2030s, as the Boomers moved into retirement.

. . .

This very important picture tells us two things. First, the participation rate was expected to drop, with or without a recession. Second, the drop is happening much faster than we expected. The economy is behaving as though it's 2025 rather than 2013. What pushed the participation rate down prematurely?

The obvious answer is that the recession happened. The recession effect on participation rates is pretty clear when you zoom in on the data.
. . .

But the recession's effect is more complicated than you might think. According to a new paper by Kerwin Kofi Charles, Erik Hurst, and Matthew J. Notowidigdo, what we're really seeing is the decline of [I]manufacturing[/I], which is only being felt now because the band-aid provided by a temporary construction bubble was ripped clean off the labor market. Nearly 40 percent of the increase in non-working Americans between 2000 and 2011 "can be attributed to manufacturing decline," they wrote. The housing boom shifted some of these jobs to construction. But after the bust, the crutch was gone -- and so were the workers.

It's about time for an upshot. So, where did all the workers go? Four answers, in order of importance.

[B](1) They retired.[/B] The country is getting older, and older countries have a smaller share of workers.
[B](2) They went to school.[/B] More young people are going to college, and young people in college are less likely to look for work.
[B](3) They just stayed home[/B] -- they stopped looking for work and decided instead to raise their kids; they sat on the couch waiting for the market to thaw; they filed for disability insurance. The recession discouraged them from seeking a job.
[B](4) And the factories closed. [/B]Behind all of these stories lurks the long decline of manufacturing, which has very little to do with the Great Recession, or college attendance, or demographics, but nonetheless explains a significant portion of falling participation rates among prime-age workers.

So there you have it, the answer to the 37 percent mystery in five words: [I]Retirement, college, recession, and manufacturing.[/I][/quote]

Is anyone riding the bitcoin rally?

Mass dumping of gold for bitcoins?

[QUOTE=jasonp;337207]Mass dumping of gold for bitcoins?[/QUOTE]Hmm... that wasn't mentioned on "Nightly Business Report".

Any currency is a medium of exchange. It allows me to sell tomato seed (which I produce) converting to currency, then use the currency to purchase food to eat. When we work at a job, we are converting our labor to currency which is then used to provide the necessities we need to live. The currency is therefore just a medium of exchange.

When a currency is linked to a specific item such as gold, then the currency fluctuates in parallel with the underlying linked item. This results in disparities when I convert my product into currency and then use the currency to purchase supplies. In other words, if we were on a gold standard, then I might have converted my tomato seed into gold at $1600 per ounce, then purchase something today when gold is at $1300 per ounce. In effect, I would have lost @18% of the value of my product.

This illustrates the losses that can be incurred with conversion from goods to currency to goods. Why is this important? Well, any effort to create an arbitrary currency such as bitcoin has to be denominated in terms of the value it can be used to purchase. When the bitcoins fluctuate in value, there will be gains and losses in currency conversion. This instability leads to hedging of positions by either deliberately holding currency or else deliberately holding goods, depending on whether you anticipate a rise in value of the currency or a rise in value of the goods.

I read a book by Robert Heinlein years ago that suggested using wheat as the underlying good to which currency should be tied. The logic is that wheat is a fundamental good required for life since it is a food that most people eat. The currency was called "wheat dollars". One wheat dollar could be used to purchase one bushel of wheat. The problem with this economy would be that the price of wheat could never fluctuate but the cost of inputs to produce the wheat could rise or fall. Sooner or later, the economy would destabilize and lead to either overproduction or underproduction of wheat.

From studying various currency systems, it is obvious that none of them are good for the average person. The objective of the currency issuer always conflicts with the objectives of the currency user. The economy always requires that a certain amount of goods and services produced must be destroyed in order to maintain currency stability. The productive capacity of an economy is bounded by the fluctuations of the currency.

Just some thoughts on currency and markets for a Monday evening.

DarJones