ttmygh 14 october 2013

7/27/2019 Ttmygh 14 October 2013

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Copyright Mauldin Economics. Unauthorized disclosure prohibited. Use of content subject to terms of use stated on last page.

Chekhov's Gun

"Were done when I say were done."

Walter White/Heisenberg, Breaking Bad

"It's not

What you thought

When you rst began it

You got

What you wantNow you can hardly stand it though,

By now you know

It's not going to stop

'Til you wise up"

Aimee Mann, Wise Up (from Magnolia)

"Remove everything that has no relevance to the story. If you sayin the rst chapter that there is a rie hanging on the wall, in thesecond or third chapter it absolutely must go off. If it's not going tobe red, it shouldn't be hanging there."

Anton Chekhov

o learn more about Grant's new investment newsleer,

Bull's Eye Investor, Click here

THINGS THAT MAKE YOU GO

Hmmm...A walk around the fringes of nance

By Grant Williams

14 OCTOBER
http://www.mauldineconomics.com/go/bxgUc/MEChttp://www.mauldineconomics.com/go/bxgUc/MEC


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ContentsTHINGS THAT MAKE YOU GO HMMM... ....................................................3

Factional Conicts Have the Power to Destroy Empires And Republics ....................18U.S. Said to Open Criminal Probe of FX Market Rigging .........................................20

Sound the Retweet ....................................................................................21

IMF Predicts Riskier and Bleaker Times Ahead for Australia ....................................22

Americas Default on Its Debt Is Inevitable ........................................................23

Lost in Germany: Spanish Jobseekers Lured on False Pretenses ...............................25

The Secrets Contained Within the Imposing Walls of the Kremlin .............................26

The Fire Fueling Gold .................................................................................27

How Legal Eagles in Inner Mongolia Destroyed Each Other in Public Tit for Tat .............29

CHARTS THAT MAKE YOU GO HMMM... ..................................................32

WORDS THAT MAKE YOU GO HMMM... ...................................................35

AND FINALLY ................................................................................36
http://-/?-http://-/?-


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Things That Make You GoHmmm...During my recent hiatus a number of things happened which I suspect will be the subject offeverish debate amongst the chattering classes (myself included) for months if not years to

come.

Amidst it all was a bald, bearded man of a certain age, who had transformed himself from alifelong academic into a feared and almost mythical leader, becoming in the process the focusof the world as he stared down all kinds of trouble in the name of protecting his "family".

This man did whatever he felt was necessary in order to further his agenda; and though itmeant making many enemies, he dared look straight into the eyes of both his detractors andthose who would defy him, and he never blinked.

He did what had to be done.

But lately he had been trying to nd a way out. He didn't want the responsibility anymore, andhe felt as though it was time to quit and leave the empire to whoever was bold enough to seizeit.

Sure, he tried to quit, but that wasn't something he could just do on a whim. Loose endsneeded to be tied up, and promises had to be made good and powerful people placated.

For anyone who doesn't know the outcome of this tale, don't worry that I might ruin the ending... because that outcome hasn't been written yet. The best we can do is just guess at how it allplays out.

Wait? What? Oh... Breaking Bad?Nooooo... I wasn't talking about Walter White, I was talkingabout Ben Bernanke. Except, he DID blink...


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Yes, whilst I was away the Fed announced to the world that, although they had done all thehard work to convince the world that the Dreaded Taper was a done deal that allowed bothbond and equity markets to price in a reduction in the amount of asset purchases being madeevery month by Bernanke (or, as he has become known in nancial circles, "Buysenberg"), whenit came to crunch time, the Fed didn't have the guts to pull the trigger. To use the Englishphrase, "they bottled it".

Now, any self-respecting drug lord central bank head (hell, anyparent) knows that, in order tomaintain respect, in order to continue to be feared, you MUST be prepared to follow throughwith your threats, even if you don't necessarily want to. That's just how the world works.You don't threaten to rain down badness on people and then shy away. If you do that, yourcredibility is gone and your reputation is in tatters.

In this world, reputation is everything.

In the months leading up to the September FOMC meeting, the world was put on standby for a

change in Fed policy, a process that had been innocuously labelled a "taper" by the Fed (checkout the video interview with Elliot Management's Paul Singer in this week's videos section for anerudite and I am willing to bet 100% accurate assessment of how that phrase came to bechosen); and, as the Fed have come to expect in recent years, their preparatory jawboning wasworking its customary magic.

Source: NY Times


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Between May 22, when Bernanke rst uttered the T-word, to September 12th, on the eve ofthe FOMC decision, condence in the Fed's beginning their taper climbed relentlessly higher,reaching 67% right before the hammer was supposed to fall.

But a funny thing happened on the way to the forum: the Fed pulled a Cassius Clay and shook

up the world.

When the Taper was tossed on the table in late May, a couple of turbulent months followed; butimmediately before the decision was due on September 12, markets were sanguine:

(WSJ, September 18, 2013): If investors are concerned about the imminent end to theFederal Reserve's monetary stimulus, the markets haven't noticed.

Despite widespread expectations that the Fed will announce a trimming of a bond-buying program aimed at pushing down interest rates and propping up the economicrecovery, fund managers have been in a buying mood lately.

The blue-chip Dow Jones Industrial Average on Tuesday advanced for the 11th time in 14trading sessions, and U.S. Treasury prices rose for the fth straight day.

Many investors expect the Fed to decide to cut its $85 billion monthly purchases ofbonds by about $10 billion to $15 billion. Markets were roiled in May and June after Fedchief Ben Bernanke said the U.S. central bank would consider reducing purchases in a

process dubbed "tapering."

Some investors dismiss the prospect of much turbulence this time. They say players instock, bond and commodity markets have had time to prepare for potential Fed action,

assuming the Fed acts largely within market expectations, and that a selloff in bondssince Mr. Bernanke's comments means there is less potential for a large price declinenow.

It's important to realize that this was absolutely the environment the Fed had sought to createin the preceding months: a market that had priced in a reduction in stimulus without fallingapart. There had been juuuuuust enough uncertainty to keep people on their toes, but not somuch as to cause panic.

The central banker's holy grail.

So imagine the market's surprise when the FOMC decision was announced. Actually, don't botherimagining it; I'll save you the trouble of taxing your imagination:

(UK Daily Telegraph, September 19, 2013): The Fed shocked markets across the worldby leaving its $85bn-a-month asset purchase scheme unchanged on Wednesday, despite

guiding traders to believe that so-called tapering would begin this month. Most Fedfollowers had expected the stimulus programme to be reduced by between $5bn and$15bn a month.

Markets soared on the promise of more stimulus...


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Shook up the world, shocked markets... whatever; the point is this: surely, having done all thehard work to prepare the market for the onset of a reduction in stimulus, and having gotten itcomfortable with less free money, it was almost foolish of the Fed to not go through with it,right? Well, it seems I'm not the only one who thinks so:

(UK Daily Telegraph): The US Federal Reserve has damaged its credibility and sownconfusion about central banks communication strategies by surprising markets with itsdecision to keep quantitative easing on hold, economists have warned.

(AP): Stocks, bonds and precious metals are rallying following the Feds decision to keepits stimulus measures in place. But a slew of market watchers are concerned about thelong-term ramications of such a move.

Eric Green, global head of rates, FX and commodity research at TD Securities, says theFeds latest announcement shows the central bank is running scared.

This FOMC edition feels less dovish than it does outright scared, Mr. Green says.Condence in the outlook has dimmed. That Bernanke had a free pass to begin thattapering process and chose not to follow is telling. The Fed had the market preciselywhere it needed to be. The delay today has the effect of raising the benchmark totapering and ultimately makes that rst step harder to achieve.

(Peter Boockvar): The grand monetary experiment now going on 5 years continues fullspeed ahead Bottom line, while the economic data over the past few months did notcall for a taper according to the Feds econometric models, I believe they are making amassive mistake as this QE policy does nothing but manipulate and distort asset priceswith no lasting positive impact on the economy. Rip this band aid off already I say. I will

repeat again to the Fed, there will NEVER be the right time to cut back, and today wasthe perfect opportunity to do so because the market was ready for it. Playing gamesnow over this with the market will not smooth the eventual ease. Either way, the USbond market has already started the tightening process, and that is what participantsshould be focused on.

Now, nobody will convince me that the collective brains at the Federal Reserve wouldn't havegured out that, after all the talk, failing to taper would damage their credibility enormously.So one has to wonder, how bad must things really be in order that they would sacrice theircredibility so willingly? After all, they could have gone ahead with the Taper and then foundanother way to throw the market a bone later if they had to, but instead they chose to blink inthe face of their toughest moment since the tarp was pulled off the printing press in the Fedbasement back in 2008.

But before we go any farther, let's remind ourselves what sort of beast the Taper actually is.


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Remember, the Taper is NOT the withdrawal of stimulus, it's simply a slowing of the existingstimulus. The way the press talks about the Taper, it is easy to forget that, once the Fed begintheir program, all they will be doing is printing slightlyless free money every month than theycurrently are.

Leave it to my friends at Zerohedge to lay this concept out in an easy-to-understand chart:

Source: Zerohedge

Yes, folks, that's right, the Taper (assuming it was as much as $20 billion a month) would meana difference of just $300 billion by the end of 2014.

Now, I'll admit that $300 billion USED to be an awful lot of money. But now? Not so much.

In 1995, $1.3 billion was enough to bring down Barings Bank, the oldest merchant bank inLondon, amidst warnings that unless something was done the global nancial system would bebrought to its knees.

In 1998, Long Term Capital Management required a $3.6 billion bailout from 14 nancialinstitutions after losing $4.6 billion in less than four months when the Russian debt crisis playedhavoc with its models. At the time, dire warnings were issued about the global nancial systembeing brought to its knees unless action was taken immediately.


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In March of 2008, Bear Stearns received a 28-day, $25 billion loan from the Federal Reserve inorder to avert its collapse (and the global nancial system being brought to its knees), and justdays later that $25 billion loan to Bear Stearns morphed into a $30 billion loan to JP Morgan,who in absorbing Bear Stearns kept the global nancial system from being brought to its knees.

Six months later, on September 15th, Lehman Brothers went belly-up; and in order to stop theglobal nancial system from becoming the global nancial system being brought to its knees,Buysenberg and then-Treasury Secretary Hank Paulson (or, as they were known back in thosedays, "Los Pollos Hermanos"), crafted a $787 billion bailout package (the Fabled TARP), which,thankfully, prevented the global nancial system being brought to its knees.

Now, a mere ve years on, we nd ourselves in theposition of requiring roughly three Bear Stearnsbailouts every month just to keep things humming.

Put another way, we require 23.6 LTCM bailouts or

65.38 Baring Brothers bailouts every month, just tokeep the global nancial system from being brought toits knees.

"How does that stack up against CPI?", I hear you say.Well, I'm glad you asked.

The $1.3 billion tab for Barings in 1995, when adjustedfor CPI, equates to $2 billion in 2013 dollars.

But the Fed is spending 42.5x that amount. Every.

Single. Month.

No ination, you say? Well some things are increasing in price at an annualised rate that beliesthe 1.8% core rate published by the BLS. We've already looked at bailouts, and there's never anyshortage of press about wine auctions or ne-art sales breaking record after record, but whatabout... oh I don't know, diamonds, perhaps?

(Sky News): A "awless" white diamond which is the size of a small egg has been sold atauction for a record $30.6m (19m).

The 118-carat oval gem is the largest and most signicant such diamond graded by the

Gemological Institute of America.

It weighed 299 carats when it was mined in southern Africa in 2011 but Sotheby's willnot name the country because the seller wishes to remain anonymous.

Two phone bidders competed for the diamond in six minutes of bidding until onedropped out.

It was bought for $27.3m at the jewellery auction in Hong Kong, but the total priceincluding commission came to $30.6m.


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That was more than the previous record of $26.7m (16.6m) for a white diamond set inMay at Christie's in Geneva, Switzerland.

Or maybe racehorses?

(Yahoo): A world record fee has been paid for a one-year-old lly which became themost expensive horse in history.

Qatari Sheikh Joann Al Thani successfully bid ve million guineas (5.25 million) for theyearling lly at the Tattersalls bloodstock auction in Newmarket.

The as-yet-unnamed lly is the daughter of the most sought-after stallion on theplanet, 2001 Derby winner Galileo, and Alluring Park, and became the most expensivehorse of any age sold at public auction in Europe, beating a record set in 2006 byMagical Romance (4.6m guineas).

But... tuna sh?

Last January, a world record was set for the most expensive bluen tuna sh ever sold, whenKiyoshi Kimura, president of the Japanese chain Sushi Zanmai, bought a 593-pound sh forUS$736,000. The previous record? $416,000.

This year, Kimura-san outdid himself:

(Eater.com): Kiyoshi Kimura, a businessman who owns the Sushi Zanmai chain ofrestaurants in Japan, has once again set the record for purchasing the most expensivebluen tuna ever. According to the New York Times, Kimura paid 155.4 million yen (US$1.76 million) for the 488 pound sh. That's around $3,600 per pound. Kimura also setthe same record about a year ago when he paid $736,000 for a 593 pound bluen.

For those of you at home doing the math on a cost-per-pound basis, that's an increase of 290%in 12 months.

Ination goes where the money goes and the money is going to the wealthy, so is it anywonder we read pieces like this?

(UK Daily Telegraph): The second bi-annual Candy GPS Report, produced by Candy &Candy, Savills World Research and Deutsche Asset & Wealth Management, revealed thatthere was a 34pc jump in individuals worth more than $30m (18.7m) between 2009 and

2012.

A 34% jump in the number of individuals worth more than $30m? In three years?

Staggering.


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My great friend Simon Mikhailovich pointed out to me the last time we met that nowadaysyou can be worth $85 million and not be able to afford a penthouse apartment overlookingNew York's Central Park; and he's right, this is the extreme ination we have all suspected butcouldn't nd because we were looking in the wrong places.

But I digress... Back to Buysenberg and the weapon that gives this edition of Things That MakeYou Go Hmmm... its title.

Russian playwright Anton Chekhov, renowned as one of thegreatest authors of short stories in history, fathered what hasbecome a key dramatic principle when he stated:

"Remove everything that has no relevance to the story. If you sayin the rst chapter that there is a rie hanging on the wall, inthe second or third chapter it absolutely must go off. If it's not

going to be red, it shouldn't be hanging there."

Chekhov believed that every element in a narrative should beboth necessary and irreplaceable and that everything else that isin any way extraneous to the story should be removed.

Nowhere should that principle be applied more diligently than incentral bank communications to the markets, but it appears thatthe opposite tack is adopted more often than not.

Alan Greenspan was famous for introducing "Fedspeak" to the markets during his tenure.Described by Alan Blinder as "a turgid dialect of English", Fedspeak had many critics:

"Known as Fed Speak, the convoluted rhetoric has befuddled even the wisest ofinterpreters."

Wealth Building Strategies in Energy, Metals and Other Markets:

(Wikipedia): The deliberately confusing and carefully rehearsed cryptic languagedescribed as an "indecipherable, Delphic dialect" is meant to "give people a sense thatthere's no way they could understand economics and nance" and thus allow the FederalReserve and government to manage the economy with less interference from the

general public...

The notion of fed speak originated from the fact that nancial markets placed a heavyvalue on the statements made by Federal Reserve governors, which could in turn lead toa self-fullling prophecy. To prevent this, the governors developed a language, termed

fedspeak, in which ambiguous and cautious statements were made to purposefullyobscure and detract meaning from the statement.

As recently as July of this year, in a conversation with the NBER, Bernanke explained his ownfeelings about clear communication:


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(WSJ): Well, as I said in my remarks, Im a very big believer, the Fed Reserve is a verybig believer, in transparency and communication. I think transparency in central bankingis kind of like truth-telling in everyday life.

You got to be consistent about it. You cant be opportunistic about it.

Now, in Breaking Bad, at the opening of the nal season, creator Vince Gilligan begins with ascene in which a dishevelled Walter White opens the trunk of a 1977 Cadillac Sedan de Ville tond an M60 and a couple of hundred rounds of ammunition sitting there, plain as day.


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No spoilers here but you'd better believe the M60 gets used.

So why, having set the stage for the Taper, did the Fed not pull their own trigger? What didthey see in the data that made them feel that buying "only", say, $65 billion every month wouldmean the "recovery" would falter?

Was it ination?

Apart from uctuations due to changes in energy prices, ination has been runningbelow the Committees longer-run objective, but longer-term ination expectationshave remained stable...

Guess not.

(Un)employment?

The Committee sees the downside risks to the outlook for the economy and the labor

market as having diminished, on net, since last fall...

Nope.

Well that's the dual mandate taken care of. What else could it be, then?

1.5

2.0

2.5

3.0

%

Oct 2012 Dec 2012 Feb 2013 Apr 2013 Jun 2013 Aug 2013 Oct 2013

Taper Talk

Begins

US 10-Year Treasury YieldOctober 2012 - October 2013

Source: Bloomberg

Ahhhh...... of course.


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The Fed has painted itself into an almighty corner with QE, and it looks as though we are nallygetting to the point in the process where that fact begins to (a) occur to people and (b) matter.

Bill Fleckenstein has often spoken about the Fed's reaching the point where it "loses controlof the bond market", and it is quite possible that we are rapidly approaching that point (the

signs have certainly been strong in Japan). We may be there already. We won't know until wecan look in the rearview mirror, I'm afraid; but the nonvirtuous circle the Fed has created isextremely clear:

Interest Rates

Rise

Housing Market

Recovery Falters

Fed Buys

Bonds

(QE)

Interest Rates

Fall

Housing

Market

Recovers

Economy

Strengthens

Economy

Weakens

Fed Slows

Bond Buying

(Taper)

Source: TTMYGH

The simple truth, as you can see from the diagram above, is that the economy and the marketsare now 100% dependent on the largesse of the Federal Reserve to sustain them.

What you CAN'T see from the diagram is the scary proposition that the Federal Reserve in turnis entirely dependent upon hope to get itself out of this unholy cycle.


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The Fed is hoping (as are the ECB, BoE, and BoJ) that the economy recovers sufciently throughmassive stimulus so that the recovery will be "self-sustaining"; but, as can clearly be seen bythe action of the markets in recent weeks and months, that strategy (such as it is) appearsdoomed to failure.

Fortunately, Obama has nally been left with just nominated Janet Yellen as the new Fed chair,and she can be relied upon to continue Greenspan & Bernanke's work in conjuring unlimitedfree money out of thin air:

(Zerohedge): Now that Janet Yellen has been named to lead the Federal Reserve theglobal nancial markets should factor out any possibility that the Fed will diminishtheir Quantitative easing program anytime during her tenure. In fact, nancial forecastsshould assume that not only is a taper off the table, but that the QE program is nowmore likely to be perpetuated and expanded.

Unlike her predecessors, Janet Yellen has never had a youthful dalliance with hawkishmonetary ideas. Before taking charge of the Fed both Alan Greenspan, and to alesser extent Ben Bernanke, had advocated for the benets of a strong currency andlow ination and had warned of the dangers of overly accommodative policy and

unnecessary stimulus. (Both largely abandoned these ideals once they took the reins ofpower, but their urge to stimulate may have been restrained by a vestigial bias againstthe excesses of Keynesianism.) Janet Yellen, who has been on the liberal/dovish endof the monetary spectrum for her entire professional career, has no such baggage. Asa result, we can expect her to never waver in her belief that stimulus is the answer toevery economic question.

Which is great for the status quo, but if we take another look at that chart of the US 10-yearTreasury yield again, we see something that ought to set alarm bells ringing:


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The retracement of interest rates AFTER the Fed's refusal to follow up their tough talk with aTaper has been far less marked than the rout that ensued after the subject was rst tabled;and that spells trouble, because the housing market the engine of the US "recovery" cannotstand higher rates without being choked off.

Already, we have seen the average rate for a 30-yearmortgage ratcheting higher.

In September 2012 that average rate stood at around3.60%, but a year later it was 4.5%. Now I know thatdoesn't sound like much, but a 25% increase in thecost of a mortgage will most denitely crimp activity.

If you don't believe me, then check out the chartbelow, which shows the average 30-year mortgagerate in the USA as calculated by Bankrate.com.

As you can see, we have come a long, long way from the levels before the housing "recovery"took hold. And we are denitely not in Kansas anymore:

3

4

5

Average 30-year mortgage rate: 4.3%

Average 30-year mortgage rate: 3.5%


%

Bankrate.com US 30-Year MortgageOctober 2012 - October 2013

Source: Bankrate.com

As for how the higher rates translate into activity in the housing market, well, there's aneasy way to take a look at that, too, courtesy of the Mortgage Bankers Association's monthlyMortgage Renance Index:

1.5

2.0

2.5

3.0

%


Taper Talk

Begins

US 10-Year Treasury YieldOctober 2012 - October 2013


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(MBA): Mortgage applications decreased 13.5 percent from one week earlier, accordingto data from the Mortgage Bankers Associations (MBA) Weekly Mortgage ApplicationsSurvey for the week ending September 6, 2013. This weeks results included anadjustment for the Labor Day holiday....

The Renance Index decreased 20 percent from the previous week. The Renance Indexhas fallen 71 percent from its recent peak the week of May 3, 2013 and is at the lowestlevel since June 2009. The seasonally adjusted Purchase Index decreased 3 percent fromone week earlier.

Source: MBA/Calculated Risk

Bill McBride of Calculated Risk chips in with his own 2c:

(Calculated Risk): The renance index is down 71% since early May.

The last time the index declined like this was in late 2010 and early 2011 whenmortgages increased sharply with the Ten Year Treasury rising from 2.5% to 3.5%. We'veseen an even larger increase over the last few months with the Ten Year Treasury yieldup from 1.6% to over 2.96% today. We will probably see the renance index back to

2000 levels soon.

A return to 2000 levels in renance activity is NOT conducive to a strong housing market, anda weak housing market is not conducive to a strong economy. What's more, a weak economy isnot conducive to any kind of tapering, yet a lack of tapering is most assuredly not conducive tothe Federal Reserve's credibility.

So what next?


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Well, Janet Yellen might well confound everybody and launch the Taper as her rst orderof business. Or Buysenberg may even begin it as his last act in power; but either way, themarket will now likely call the Fed's bluff, because it knows that the gun hanging on the wallin the shape of the Taper is not guaranteed to be red. It may even turn out to be completelysuperuous to the narrative; and if that is the case, then chances are it will never be red.

Just as Walter White's honest intentions in trying to protect his family ended up trapping him inan ever-worsening spiral where countless millions of dollars only made his situation worse, BenBernanke is in a similar prison of his own making.

Eventually, this pile of dollars is going to be the thing that sinks Bernanke... or Yellen...or whoever has the helm on the fateful day when reality reasserts itself. That may not betomorrow or next week; but, based on recent events, that day is a lot nearer to hand than mostpeople thought just a few short months ago.

The Fed realizes the truth of that hence the abandonment of both the Taper and their owncredibility but their chances of averting catastrophe are receding daily.

The ending of Breaking Badhas been hailed by many critics as perhaps the most perfect,most satisfying denouement in television history, and in large part that praise is due to VinceGilligan's masterful ability to follow the principle of Chekhov's gun and make sure that everydramatic device employed throughout the series had a reason and a purpose. No misdirection,no unnecessary devices, just brilliant, honest storytelling.

That is the vital difference between Breaking Badand a Freaking Fed.

Rather than write the story and end it in a manner of their own choosing, they are nowprisoners of the narrative.

I fear the worst.

*******


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OK ... so my extended break is at an end, and it feels as though I never left.

I have somehow managed to not touch upon the debt-ceiling asco this week and to dwellonly briey on the appointment of Janet Yellen, but I suspect both those subjects will featureheavily in coming weeks. In the meantime, plenty of other activity has caught my eye.

This week, Ambrose Evans-Pritchard kicks things off with an explanation of the potentiallydisastrous outcome for a divided United States; and from there we head to Mongolia to observea very public legal spat, to Moscow to learn out about the secrets held within the walls ofthe Kremlin, and to Germany, where Spanish jobseekers are nding that reality doesn't matchpromise.

Jim Grant explains why America's default on its debt is inevitable; the IMF forecasts bleakertimes ahead for Australia; and the FX markets are the latest to be awarded the dubious honorof a criminal investigation.

Frank Holmes explains the re fueling gold; we read the bewildering story of mistaken identitysurrounding the upcoming Twitter IPO; and we look at charts of Fed holdings of securities, thegold price versus the debt ceiling, and all the creditors of the United States of America.

The videos section presents three giants of the industry Paul Singer, Bill Fleckenstein, andRay Dalio and we wrap up with some invaluable advice for anyone visiting New York City,courtesy of Johnny T.

Until Next Time ... get outta the way!

*******

Factional conicts have the power to destroy empires and

republicsThe US Founding Fathers abhorred factions. The 10th Federalist Paper by James Madison in 1787is a study of how to defend the edgeling republic against the dangers of organised zealotry,the curse that blighted earlier republics in world history.

Madison dened factions as groups of citizen "united and actuated by some common impulse

of passion, or of interest, adverse to the rights of other citizens, or to the permanent andaggregate interests of the community".

The bone of contention was thought to be disputes over the "unequal distribution of property",and so it has proved to be as we see today in the bitter ght between debtors and creditors, orbetween those who live off government and those who pay for it.


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Madison believed a powerful continental Congress rooted in Washington rather than statelegislatures would work against factions. Regional diversity would muddy the ideologicalwaters. This is in fact what happened.

For much of the 20th Century the Democratic Party was a coalition of blacks, Jews, and Irish,

Italian, and Polish Catholic immigrants in the North, and "Bol Weevil" conservatives in theSouth.

They had little in common. This allowed for uid political deals on Capitol Hill, with alliancescrossing party lines. Gridlock was mostly avoided even though the US constitution fostersdivided government.

This coalition no longer exists. Democrat dalliance with "leftist" social doctrines since the 1970s Roe v Wade, gun control, et al has turned the South into a Republican stronghold. WhileNorthern cities have become more militantly Democrat.

The numbers of voters who split their tickets fell to 11pc in the 2012 elections, an all-time low.A record number identify themselves as hard-core Democrats or Republicans, and they are moreconcentrated in their bastions.

"Republican districts are redder than ever: Democrat districts are bluer. Ideological polarisationin the House is wider than it has ever been," said the Washington Post.

A Princeton study said the rift is even more extreme than under Reconstruction after the CivilWar. The rancour is off the charts. This is why the clash over the debt ceiling has become sounpredictable, and so dangerous. Neither side has much incentive to reach across the divide.Each is looking to its own militant core.

The Obama Administration has made matters worse by alarmist hyperbole. The Treasuryclaimed last week that a US default after October 17 would lead to a collapse of the dollar anda catastrophic spike in US Treasury yields, all ending in another Lehman crash "or worse".

It might indeed go horribly wrong, but not by this mechanism. The dollar would more likelysurge and US yields would plummet in the frantic scramble for safe havens, just asoccurred in the Lehman crisis.

This in turn would cause havoc for emerging markets, and another spasm of the European debtcrisis. No serious investor thinks the US will actually walk away from its debts. That is not what

the debate is about....

*** AMBROSE EVANS-PRITCHARD / LINK
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/10368306/Factional-conflicts-have-the-power-to-destroy-empires-and-republics.htmlhttp://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/10368306/Factional-conflicts-have-the-power-to-destroy-empires-and-republics.html


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U.S. Said to Open Criminal Probe of FX Market RiggingThe U.S. Justice Department has opened a criminal investigation of possible manipulation ofthe $5.3 trillion-a-day foreign exchange market, a person familiar with the matter said.

The Federal Bureau of Investigation, which is also looking into alleged rigging of interestrates associated with the London interbank offered rate, or Libor, is in the early stages of itscurrency market probe, said the person, who asked not to be identied because the inquiry iscondential.

The U.S. investigation comes as the U.K. Financial Conduct Authority said in June it wasreviewing potential manipulation of exchange rates. That month, allegations that dealers atbanks pooled information through instant messages and used client orders to move benchmarkcurrency rates were reported by Bloomberg News. Regulators are probing the alleged abuse ofnancial benchmarks used in markets from oil to interest rate swaps by the rms that play a

central role in setting them.Swiss regulators said last week they were coordinating closely with authorities in othercountries as multiple banks around the world are potentially implicated. The probes includealleged manipulation of ISDAx, a benchmark in the $379 trillion market for interest-rateswaps.

The International Organization of Securities Commissions, the Madrid-based group representingregulators from more than 100 countries, set tougher guidelines for publishing benchmarks in aJuly 17 report, including making prices based on observable deals where possible to increasetransparency.

Regulators, including European Union Competition Commissioner Joaquin Almunia, may examinecommodities markets, having already increased investigations of manipulation of benchmarksfor oil, interest rates, derivatives and foreign exchange.

EU investigators searched the ofces of Platts, the unit of New York-based McGraw HillFinancial Inc. that assesses the price of Dated Brent, the benchmark for more than half ofthe worlds crude. Kathleen Tanzy, a New York-based spokeswoman for Platts, said in an Oct.4 e-mailed statement that the companys aim is to bring transparency to price discovery bypublishing as much detailed and meaningful information as possible.

In a Bloomberg News survey conducted over eight weeks, commodities traders who buy and sellas much as $5.67 trillion of raw materials a year say the benchmark prices for everything fromoil to iron ore to gasoline are wrong as often as 27 percent of the time.

The person familiar with the U.S. currency market probe didnt say which banks may be underscrutiny. Peter Carr, a spokesman for the U.S. Justice Department, declined to comment on theinvestigation....

*** BLOOMBERG / LINK
http://www.bloomberg.com/news/2013-10-11/u-s-said-to-open-criminal-probe-of-fx-market-rigging.htmlhttp://www.bloomberg.com/news/2013-10-11/u-s-said-to-open-criminal-probe-of-fx-market-rigging.html


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14 OCTOBER 2013

Sound the retweetFOR want of a letter, a fortune was lost. Shares in Tweeter, a bankrupt electronics retailer,briey soared 1,800% on October 4th because some investors mistook its ticker symbol TWTRQfor TWTR, the shorthand chosen by Twitter ahead of the microblogging services planned

stockmarket otation. Trading was halted after the regulator stepped in. But those who boughtat the peak price will be regretting their foolishness.

So what happened to the idea of an efcient market, in which prices are set by rationalinvestors in command of all pertinent public information? Those who piled into the stock failedto grasp two important facts: rst, Twitter has yet to oat and second, when it does list, theissue price is highly unlikely to be a few cents.

Academics accept there will always be irrational, or foolish, investors but argue that these willbe driven out of business by arbitrageurs who can prot from mispricings. In theory, there wasmoney to be made on October 4th by shorting Tweeter stock (ie, betting on a falling price). In

practice, however, arbitrageurs may not be able to take advantage of such opportunities: itmay be impossible to borrow the stock needed to establish a short position.

Furthermore, regulators tend to dislike short-sellers, fearing that they transform marketdownturns into routs. So they impose all sorts of restrictions on the practice. But short-selling isa precarious profession. Dedicated short-sellers need to make money in falling markets so theycan be around to contain irrational exuberance in rising ones. If it were easier to sell short,there would be fewer bubbles.

The dotcom boom of the late 1990s contained some classic examples of investor irrationality.Companies could add millions to their market value merely by adding the letter e to the

start of their name, even though they had no coherent internet strategy. 3Com, an electronicscompany, oated a stake in its subsidiary Palm, a maker of hand-held computers; its remainingholding in Palm was soon worth more than 3Com itself. In other words, investors were applyinga negative value to the underlying business of 3Com, which was protable at the time.

Investors ocked to buy internet incubators, the 20th-century equivalent of the South Seabubbles undertaking of great advantage but no one to know what it is. The incubatorspromised to buy stakes in unspecied dotcom companies. They resembled closed-end funds andmight expect to trade at a discount to their asset value, to allow for tax and other costs. Butoften they commanded huge premiums: one company, Oxygen, oated on the market with 2p

per share in cash and closed the rst day at 65p. In effect, investors were buying pound coinsfor 32.50 a throw.

Nor were these mispricings as temporary as the Tweeter affair. The 3Com/Palm discrepancypersisted for months. Those fund managers who stood aside from the dotcom foolishness, suchas the late Tony Dye at Phillips & Drew, lost clients and eventually their jobs as a result.


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Of course, when a new technology such as the internet bursts upon the scene, a great dealof uncertainty is inevitable. Investors will feel sure that some companies will emerge asstockmarket giants, but will not know which. That will encourage the tendency to spreadtheir bets, backing almost any company with a plausible strategy. The net effect will be that,in aggregate, the valuation of the sector will be ridiculously high; dozens of companies willbe priced as if they will become the next Microsoft or Google, even though only a couple willmanage it....

*** ECONOMIST / LINK

IMF predicts riskier and bleaker times ahead for AustraliaThe latest World Economic Outlook released by the IMF on Wednesday was a bit of a soberingdocument. Given that the IMF has been delivering pretty sober assessments for more than four

years now, it's not that surprising.

This time the outlook also involved a bit of looking back at how good things were expected tobe before the GFC/great recession hit, and how bad they were predicted to be once it did.What is striking is that for many countries and parts of the world, 2013 nds them in a worseposition than where they were expected to be in April 2009 when the IMF issued its rst bleakoutlook after the tumult of the GFC.

So while there has been some joy in the UK because the IMF has revised its prediction forgrowth in 2013 from the meagre 0.7% expected in the April WEO up to 1.4%, it is worthremembering that back in April 2009 the IMF expected the UK to be growing about 2.8% by now.

For the next three years it kept revising down that prediction. Only in the past year has the IMFbeen too pessimistic.

For Australia, the reverse is true. If we look at the predictions for GDP growth from 2007onwards, the IMF in 2008, before the GFC hit, was rather buoyant about Australia's future. Itexpected by the end of 2013 Australia's economy would have grown 20% above where it was in2007. When the GFC hit, the IMF got real gloomy and revised this down to a mere 9.2%. And yeton Wednesday the IMF reported Australia's economy growing by 16% since 2007.

In fact, if you look at a comparison of where the IMF expected advanced economies to be by2014 when the GFC hit and where they are now, Australia has performed better than all but

Singapore, Taiwan and Israel.

Countries like Korea and China have grown faster than Australia, but they were expected to doso. Back in April 2009 the IMF expected Australia, the US and Canada to get through the GFCwith much the same growth, but only Australia performed above expectations.
http://www.economist.com/news/finance-and-economics/21587796-when-investors-make-irrational-decisions-sound-retweethttp://www.economist.com/news/finance-and-economics/21587796-when-investors-make-irrational-decisions-sound-retweet


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So Australia has gone through the GFC much better than expected, but interestingly, backin 2010 the IMF thought we would be in better shape than we are now. Moreover, the latestoutlook has revised down the estimate for Australia's GDP growth in 2014 from its April estimateof 3.3% to 2.8%.

Similarly, it has changed its expectations of our unemployment. In April it thoughtunemployment in 2014 would reach 5.2%, now it says 6.0% is the more likely outcome. TreasurerJoe Hockey noted this increase, saying, "Worryingly, the IMF forecasts Australia's unemployment

rate to rise from 5.6 per cent in 2013 to 6.0 per cent in 2014." As Michael Pascoe observed,however, the IMF's forecast on unemployment is actually rather more optimistic than that ofthe Treasury, which in the pre-election economic and scal outlook predicted unemployment toreach 6.25% by June 2014....

*** GREG JERICHO (THE GUARDIAN) / LINK

Americas default on its debt is inevitableThere is precedent for a government shutdown, Lloyd Blankfein, the chief executive ofcer

of Goldman Sachs, remarked last week. Theres no precedent for default.

How wrong he is.

The U.S. government defaulted after the Revolutionary War, and it defaulted at intervalsthereafter. Moreover, on the authority of the chairman of the Federal Reserve Board, thegovernment means to keep right on shirking, dodging or trimming, if not legally defaulting.
http://www.theguardian.com/business/grogonomics/2013/oct/10/imf-predicts-riskier-times-australiahttp://www.theguardian.com/business/grogonomics/2013/oct/10/imf-predicts-riskier-times-australia


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Default means to not pay as promised, and politics may interrupt the timely service of thegovernments debts. The consequences of such a disruption could as everyone knows by now set Wall Street on its ear. But after the various branches of government resume talking andinvestors have collected themselves, the Treasury will have no trouble nding the necessary

billions with which to pay its bills. The Federal Reserve can materialize the scrip on a computerscreen.

Things were very different when America owed the kind of dollars that couldnt just bewhistled into existence. By 1790, the new republic was in arrears on $11,710,000 in foreigndebt. These were obligations payable in gold and silver. Alexander Hamilton, the rst secretaryof the Treasury, duly paid them. In doing so, he cured a default.

Hamiltons dollar was dened as a little less than 1/20 of an ounce of gold. So were those of hissuccessors, all the way up to the administration of Franklin D. Roosevelt. But in the whirlwindof the rst hundred days of the New Deal, the dollar came in for redenition.

The country needed a cheaper and more abundant currency, FDR said. By and by, the dollarsvalue was reduced to 1/35 of an ounce of gold.

By any fair denition, this was another default. Creditors both domestic and foreign had lentdollars weighing just what the Founders had said they should weigh. They expected to berepaid in identical money.

Language to this effect a gold clause was standard in debt contracts of the time,including instruments binding the Treasury. But Congress resolved to abrogate those contracts,and in 1935 the Supreme Court upheld Congress.

The American default, as this piece of domestic stimulus was known in foreign parts ,provoked condemnation in the City of London. One of the most egregious defaults in history,judged the London Financial News. For repudiation of the gold clause is nothing less than that.The plea that recent developments have created abnormal circumstances is wholly irrelevant.It was precisely against such circumstances that the gold clause was designed to safeguardbondholders.

The lighter Roosevelt dollar did service until 1971, when President Richard M. Nixon lightenedit again. In fact, Nixon allowed it to oat. No longer was the value of the greenback dened inlaw as a particular weight of gold or silver. It became what it looked like: a piece of paper.

Yet the U.S. government continued to nd trusting creditors. Since the Nixon default, thepublics holdings of the federal debt have climbed from $303 billion to $11.9 trillion....

*** JIM GRANT (WASHINGTON POST) / LINK
http://www.washingtonpost.com/opinions/americas-default-on-its-debt-is-inevitable/2013/10/10/1451d416-302c-11e3-bbed-a8a60c601153_story.htmlhttp://www.washingtonpost.com/opinions/americas-default-on-its-debt-is-inevitable/2013/10/10/1451d416-302c-11e3-bbed-a8a60c601153_story.html


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14 OCTOBER 2013

Lost in Germany: Spanish Jobseekers Lured on False

PretensesThey were promised new jobs in Germany but their hopes have now been quashed. Nearly

130 would-be Spanish workers are stranded in Erfurt after private employment agenciesapparently failed to follow through.

When night falls in Erfurt, Diego Lopez has to go into the "hole." That's what the 21-year-oldSpaniard calls the cellar of an old school where he and 20 of his countrymen have been sleepingin recent weeks. Bunk beds are crammed next to each other in two small rooms, which smelllike sweat and dirty socks, Lopez says. The ventilation system doesn't work properly, and theyall have to share a single shower, he adds.

But unlike their last accommodations, at least the heat works and they don't have to sleepon the oor. Furthermore, Lopez can still afford to stay here. A night in the "hole" costs 3.50

($4.74).

A trained geriatric nurse, he is one of 128 Spaniards who have been stranded in Erfurt afterbeing promised jobs that didn't come through. Full of hope, they struck out for Germany twoweeks ago to take part in a program that the Federal Employment Agency calls "The job of mylife." The new initiative promises young people from ailing southern European countries eitherdual vocational training or employment as a skilled worker, along with language courses andlodging all subsidized by the German state. And it was this program that two private jobplacement agencies used to lure the Spaniards to the eastern German state of Thuringia.

Their dream jobs never materialized, though. "They deceived us shamelessly," Lopez says. He'stalking about Kerstin S. and Sven K., the heads of the agencies X-Job and Sphinx Consulting."Sven told me that I would earn 818 per month and live in a four-bedroom shared apartment,"he says.

Instead of a work contract at an Altenburg care facility and a at share, however, he wasplaced in a grim building with no running water. The companies put other fellow jobseekersin unheated barracks in an industrial part of town. Some program participants report havingto spend the night in cars. Meanwhile, they haven't seen a cent of the funding they werepromised.

But far worse for the Spanish jobseekers was nding out that there weren't jobs waitingfor them after all. Hardly any of them received the job contracts they were promised, andoften the companies had been given hardly any information about the newcomers at all. Theapplicants, companies and politicians all agree: Both placement agencies failed.


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"Fundamental due diligence was obviously violated," says Matthias Machning, Thuringia'seconomy minister. Machning, of the center-left Social Democratic Party, is alarmed: Spanishjournalists are coming to Erfurt by the dozen to report on their fellow countrymen. "Germanyis not paradise," the radio station Cardena Ser called one of its segments. On Wednesday,

Machning convened an initial crisis summit with representatives of the region's businesscommunity and the Spanish Embassy. "This is about the image of Thuringia and of Germany,"said the politician.

"These agents overreached hopelessly," says Dirk Ellinger, head of the German Hotel andRestaurant Association (Dehoga) in Thuringia. "They didn't even manage to produce accuratename lists of the program participants." Kerstin S. set out to place 70 Spanish trainees withrestaurants, hotels and large-scale culinary companies. For a nominal premium of 250 theagent pledged a comprehensive, worry-free package: from the pre-selection of qualiedcandidates, to the organization of German classes, to accommodation in Thuringia.

But Kirsten S. repeatedly botched appointments with the businesses, missed deadlines andmade false claims, says Ellinger. "And then when the rst Spanish person arrived, she sent mean email asking how quickly I could draw up an internship contract" ostensibly to enableher to apply for the government subsidies of several hundred euros per month held out as aprospect to the "Job of my life" participants....

*** DER SPIEGEL / LINK

The secrets contained within the imposing walls of the

KremlinEveryone has some idea of what the Kremlin is. The red stars and the ring of Gothic-lookingwalls and towers have represented Russia and its government so many times that they are like atrademark.

Today, it is the ag of the Russian Federation that utters from a handsome cupola inside thewalls; the implication is that Putin's Russia is as mighty and immutable as any historic empire.But that is not the only message written in the stone and brick. The secret is to look behind thedazzling facades.

In the eight centuries of its existence, the Kremlin has been used to symbolise everything fromSoviet dictatorship and proletarian revolution to imperial tsarism and even an inscrutabletheocracy. The palaces are opulent, but there is menace here, as well as power. In 1839, acelebrated French traveller called the Marquis de Custine described the fortress as a "satanicmonument", "a habitation that would suit some of the personages of the Apocalypse". "Like thebones of certain gigantic animals," he concluded, "the Kremlin proves to us the history of aworld of which we might doubt until after seeing the remains."
http://www.spiegel.de/international/europe/spanish-jobseekers-stranded-in-germany-a-927361.htmlhttp://www.spiegel.de/international/europe/spanish-jobseekers-stranded-in-germany-a-927361.html


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But there is far more to the Kremlin than a pile of ancient bones. Its timelessness is the resultof careful image-management. Parts of the citadel are truly old, including its most sacredbuilding, the Cathedral of the Dormition whose structure was completed in 1479. The pavedsquare around this is the focus of most guided tours, and it includes two other cathedrals, a

16th-century belltower and a palace that looks like a giant jewel-box.If you stand here for long enough, you might imagine golden-robed boyars, but the presentsetting would have been entirely alien to them. Today's Kremlin is Stalin's creation, anexpurgated version of a mid-19th-century complex that was in turn unrecognisably transformedafter Napoleon abandoned it in 1812. And there had been innumerable programmes ofrebuilding before that. The Kremlin may well be a perfect symbol of the Russian past, but whatit embodies is not some romance of eternity, but disinformation, upheaval and loss.

Founded in the 12th century, the fortress started life as a collection of timber palaces andchurches on a hill between two riverbanks. Its main defence back then was not its ugly, clay-

smeared wooden walls but its remote location in the heart of dense and uninviting virgin forest.

The place came close to ruin many times. But Moscow's princes always managed to survive,they kept their Mongol overlords on side, and their victories over neighbours, cousins andovermighty courtiers were rewarded with a steady ow of cash and manpower. By the time theMongol empire started to unravel in the 15th century, Moscow's citadel was home to the region'sdominant military power.

The Kremlin of the guidebooks dates from this moment. It was built on the orders of Ivan III, aprince whose calculating use of sovereignty exceeded even 15th-century European standards.When he turned his mind to a new fortress, Ivan did not rely on the skills of local men. The

future symbol of Russian statehood was designed by Italian contemporaries of Leonardo daVinci, including a Milanese straight from the Sforza court and an architect from Bologna whodoubled as cannon-founder, mint-master and all-purpose magician....

*** DAVID HAY / FULL COMMENTARY (EMAIL)

The Fire Fueling GoldGold took quite a beating in September, bucking its seasonal average monthly return of 2.3

percent. The political battle between President Barack Obama and Congress, Chinas GoldenWeek, and Indias gold import restrictions likely weighed on the metal.

Septembers correction only adds to the negative sentiment toward the precious metal. Theassumption from many market pundits is that gold is no longer attractive as an investment.With rising rates and continuing low ination, U.S. investors believe they have a solid case forselling their holdings.

However, this could be a premature assessment, causing these bears to potentially lose out on alucrative position.
mailto:dhay%40evergreencapital.net?subject=Things%20That%20Make%20You%20Go%20Hmmm.....%20Referralmailto:dhay%40evergreencapital.net?subject=Things%20That%20Make%20You%20Go%20Hmmm.....%20Referral


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Allow me to use an ice cube to explain.

One of the strongest drivers of the Fear Trade is real interest rates. Whenever a country hasnegative-to-low real rates of return, which means the inationary rate (CPI) is greater than thecurrent interest rate, gold tends to rise in that countrys currency.

Our model tells us that the tipping point for gold is when real interest rates go above the2-percent mark.

Consider the ice cube, which shows how new equilibriums can have signicant effects. At 31degrees, H2O is a solid chunk, but when the temperature increases, the mass slowly begins toturn into a liquid. Above 32 degrees, ice changes form from solid to liquid, but its still made ofhydrogen and oxygen.

Because money is like water, when many other economic dynamics, such as population growth,urbanization rates and changes in government policies, reach their tipping point, the velocity of

money tends to be altered.

As global investors, we watch for changes in these trends to know how to invest in commoditiesand markets, nd new opportunities and adjust for risk.

So, how close to golds tipping point are we? In other words, what is the real interest ratetoday? As you can see below, Treasury investors continue to lose money, as the 5-year bill yields1.41 percent and ination sits at 1.5 percent. This is nowhere near the 2 percent mark.

I would be worried about gold if real interest rates solidly crossed the 2 percent threshold foran extended amount of time, because it would have a dramatic effect on gold as an asset class.

In a high interest rate environment, gold and silver lose their attraction as a store of value.In order for that tipping point to happen, rates would need to continue rising above ination,and ination would need to remain low. These are the forecasts made by many gold sellerstoday; however I wouldnt get too trigger happy just yet, as recent data challenges theseassumptions...

Then theres the suggestion of ination manipulation. Even though the U.S. has been reportinga low ination number, things feel more expensive to many Americans. Disposable incomehas been growing less than ination in recent years; perhaps thats why many people feelsqueezed.

Also consider Williams chart below. It shows monthly ination data going back for more than acentury. The blue and grey shaded areas represent BLS historical Consumer Price Index (CPI).You can clearly see the wild swings of ination and deation, especially during World War I, theGreat Depression, and World War II, as well as the stagation of the 1970s and early 1980s.


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Source: US Global Investors

However, shortly after disco, bell bottoms, and episodes of All in the Family faded frommemory, the U.S. adjusted CPI, not once but twice, rst in the early 1980s and again in themid-1990s. If you use the pre-1982 calculation, you end up with a much different inationpicture. This is the area shaded in red....

*** US GLOBAL INVESTORS / LINK

How Legal Eagles in Inner Mongolia Destroyed Each Other inPublic Tit for Tat

(Hohhot) "Your honor, I wish to report on somebody," Du Wen said loudly.

One day at the end of 2011 during his trial in the Intermediate People's Court in Hohhot, InnerMongolia, defendant Du suddenly proclaimed he had something to announce to the courtand requested an audience with leadership of the autonomous region in northern China. Thepresiding judge granted the request and called a recess.

The person Du denounced was Wu Zhizhong, vice secretary of the region's government and

director of the Inner Mongolia's Ofce of Legislative Affairs. On May 4, 2010, Wu had placed acall to the criminal investigation department of the region's public security bureau reporting Dufor illegally possessing rearms. That call led to Du's arrest.

Wu and Du were once as close as father and son, but now the two both nd themselves inprison.
http://www.usfunds.com/investor-resources/frank-talk/the-fire-fueling-gold/#.Ulji_hac9MYhttp://www.usfunds.com/investor-resources/frank-talk/the-fire-fueling-gold/#.Ulji_hac9MY


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On September 16, trial proceedings began in the Hohhot Intermediate People's Court for Wuand his wife, Yu Huilong, on suspicion of corruption, accepting bribes, embezzling public funds,holding large sums of money from unidentied sources and concealing foreign bank accountsfrom ofcials.

Wu was charged with corruption involving over 10.66 million yuan, taking over 5.45 million yuanin bribes, and embezzling 34.2 million yuan. The indictment also said that Wu was unable toprove the origins of over 28.17 million yuan, HK $19,757 and US$ 1.15 million in his possession.He is also accused of concealing CA $1.77 million and US $5.1 million in overseas accounts.

Wu, an ethnic Mongolian and native of Baotou, turns 62 this year. A veteran of the InnerMongolia court system, he has served as head of the Baotou Intermediate People's Court andassociate director of the Inner Mongolia Supreme People's Court's standing committee, inaddition to other positions. He has long been considered a big shot in Inner Mongolian legalcircles.

More recently he served as vice secretary and director of the Ofce of Legislative Affairs of theInner Mongolia government.

Du, a native of Chifeng, Inner Mongolia, is 34 years old. He served in the military in the late1990s, until he discovered a passion for the law and began studying to become an attorney.Around 2000, Du left the military and began practicing law.

Du met Wu through his law practice in Chifeng and quickly became his right-hand man.

Sources said that despite the age difference, Du and Wu formed a close relationship. Du carriedout Wu's orders, and Wu was good to him. At one point Wu tried to nd Du a position in the

Ofce of Legislative Affairs as a government functionary, but his idea was shot down.

In March 2006, Wu and Du set up the Inner Mongolia Dianzhang Law and Sociology ResearchInstitute under the name of Wu's daughter-in-law, Ao Youna. Ao fronted 51 million yuan, Ducontributed 49 million and served as legal representative.

The region's Ofce of Legislative Affairs presided over the decision to allow the institute tobe established as a private nonprot organization under its umbrella. In August 2010 Wu wasappointed chairman of the institute's board.

The consultancy soon began managing legal affairs for the Inner Mongolia government.

In March 2008, a parcel of land in Shenzhen owned by the Inner Mongolia government was, byorder of a local court, to be sold to a Shenzhen company to repay a 6 million yuan debt.

A vice chairman of the Inner Mongolia government convened a meeting with members of thegovernment's General Ofce and Wu to discuss countermeasures. After the meeting, Wu took Duand others to Guangzhou to handle the situation.

Even though the Inner Mongolia government claimed ownership of the land, the lease was in thename of a private company.


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Wu and Du obtained support from Inner Mongolian courts and the Shenzhen Bureau of StateLand Resources and Housing. After detailed planning, the Inner Mongolia Supreme People'sCourt quickly approved a case to have the land sequestrated and the matter adjudicated. TheShenzhen Bureau of State Land Resources and Housing quickly processed the ownership transferprocedures to endorse the regional government as the owner.

The work in the land case gave rise to a considerable amount of bribes and kickbacks. It wasthese expenses that opened the rift between Wu and Du.

Prosecutors say that in November 2008, Wu led a report on the Shenzhen land case withthe Inner Mongolia leadership, requesting 22 million yuan in fees to be paid to Du's legalconsultancy. On November 24, 2008, the region's Department of Finance paid 22 million yuan in"special case-handling fees" to Wu's institute.

The money was designated as compensation for the parcel of land in Shenzhen. Wu earmarkedabout 6.1 million yuan of that sum to Du to be paid to grease the palms of relevant people in

Shenzhen. However, Wu soon became suspicious that Du had stolen a large part of the sum. Dudenied having stolen any public funds meant to be "given as gifts," but was nevertheless unableto explain where 4 million yuan of the fees had gone....

*** CAIXIN / LINK
http://english.caixin.com/2013-10-08/100588918.htmlhttp://english.caixin.com/2013-10-08/100588918.html


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Charts That Make You GoHmmm...

Source: SoberLook

As discussed previously ... US commercial banks have been scaling back on theirloan portfolio growth. Banks have been even more aggressive however in reducing growth oftheir securities holdings. The year-over-year growth is at the lowest level since the nancialcrisis. The reasons vary. In some cases it was simply about trimming treasuries and MBS holdingsas rates rose sharply this summer. In other cases, such as with corporate bonds, it is due to thevarious regulatory pressures, e.g. the Volcker Rule.

And while banks are cutting their securities inventory, the Fed keeps buying. Recently the Fed'holdings of securities (mostly treasuries and MBS) materially exceeded that of all US bankscombined. Prior to the nancial crisis banks owned 2.5 times the amount of securities held bythe Fed. The chart below puts it in perspective. Before the securities buying program is overhowever, the differential is expected to widen even further....

*** SOBERLOOK / LINK
http://soberlook.com/2013/10/the-fed-now-holds-more-securities-than.htmlhttp://soberlook.com/2013/10/the-fed-now-holds-more-securities-than.html


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Gold Versus The Debt Ceiling

www.Sharelynx.com

Presented without comment ... except to say thanks to my buddy Nick Laird ofwww.sharelynx.com for yet another fantastic illustration of the madness.
http://www.sharelynx.com/http://www.signalfinancialgroup.com/seasonal/SeasonalGC.phphttp://www.sharelynx.com/


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Everyone the U.S. government owes money to, in one graph, broken down bycategory and by how much government debt they hold courtesy of my buddy Barry Ritholtz atThe Big Picture.

Source: NPR/Te Big Picture


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Words That Make You GoHmmm...

Paul Singer of Elliot Managementis absolutely one of the smartest minds innance, and it's always enlightening to hearhim speak. In this great interview with theWSJ's Gerald Baker, Paul discusses why theFed should just admit that they've doneenough, and he takes us inside the meetingat which the term taperwas coined... greatstuff.

CLICK TO WATCH

Regular readers know that inmy opinion, Bill Fleckenstein is one of thebest market observers around, and his level-headed approach to sometimes utterlyperplexing markets is a real breath of freshair. This week he discusses those markets,along with the Fed and gold, with Eric King.

CLICK TO LISTEN

Rounding out the nancial titans forthis week is another of the true greats, RayDalio of Bridgewater Associates.

This 30-minute video is a fantastic primer onthe economy that will appeal to everyone.

Watch it yourself and forward the linkto anybody who understands (or, moreimportantly, doesn't) what makes the worldtick.

CLICK TO WATCH
http://live.wsj.com/video/paul-singer-fed-should-say-weve-done-enough/D8CC69DB-E583-494C-B2E3-0067FCC5D166.html#!D8CC69DB-E583-494C-B2E3-0067FCC5D166http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2013/10/6_Bill_Fleckenstein.htmlhttp://www.youtube.com/watch?v=PHe0bXAIuk0&feature=player_embeddedhttp://www.youtube.com/watch?v=PHe0bXAIuk0&feature=player_embeddedhttp://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2013/10/6_Bill_Fleckenstein.htmlhttp://live.wsj.com/video/paul-singer-fed-should-say-weve-done-enough/D8CC69DB-E583-494C-B2E3-0067FCC5D166.html#!D8CC69DB-E583-494C-B2E3-0067FCC5D166


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14 OCTOBER 2013

and fnally...Meet Johnny T. Johnny has a few friendly and helpful pieces of advice for anyonevisiting New York City.

If you've been, you'll get it. If you've lived there, you'll love it.

If you haven't? Go! ... but get outta the way.

CLICK HERE TO WATCH VIDEO

Hmmm...
http://www.youtube.com/watch?v=8LmPBPWHJu4http://www.youtube.com/watch?v=8LmPBPWHJu4


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14 OCTOBER 2013

Grant Williams

Grant Williams is the portfolio manager of the VulpesPrecious Metals Fund and strategy advisor to VulpesInvestment Management in Singapore a hedge fundrunning over $280 million of largely partners capitalacross multiple strategies.

The high level of capital committed by the Vulpespartners ensures the strongest possible alignmentbetween the rm and its investors.

Grant has 28 years of experience in nance on theAsian, Australian, European, and US markets andhas held senior positions at several international

investment houses.Grant has been writing Things That Make You Go Hmmm... since 2009.

For more information on Vulpes, please visit www.vulpesinvest.com.

*******

Follow me on Twitter: @TTMYGH

YouTube Video Channel: http://www.youtube.com/user/GWTTMYGH

66th Annual CFA Conference, Singapore 2013 Presentation: "Do The Math"

Mines & Money, Hong Kong 2013 Presentation: "Risk: It's Not Just A Board Game"

Fall 2012 Presentation: "Extraordinary Popular Delusions & the Madness of Markets"

California Investment Conference 2012 Presentation: "Simplicity": Part I : Part II

As a result of my role at Vulpes Investment Management, it falls uponme to disclose that, from time to time, the views I express and/or thecommentary I write in the pages of Things That Make You Go Hmmm... may

reect the positioning of one or all of the Vulpes fundsthough I will not bemaking any specic recommendations in this publication.
http://www.vulpesinvest.com/https://twitter.com/ttmyghhttp://www.youtube.com/user/GWTTMYGHhttp://www.youtube.com/watch?v=Osq1yxSFVG0http://www.youtube.com/watch?v=wzzoBVK3fyEhttp://www.youtube.com/watch?v=b4zOAHoncF0http://www.youtube.com/watch?v=Ri6rIF40iSAhttp://www.youtube.com/watch?v=xoMAYAKHQqUhttp://www.youtube.com/watch?v=xoMAYAKHQqUhttp://www.youtube.com/watch?v=Ri6rIF40iSAhttp://www.youtube.com/watch?v=b4zOAHoncF0http://www.youtube.com/watch?v=wzzoBVK3fyEhttp://www.youtube.com/watch?v=Osq1yxSFVG0http://www.youtube.com/user/GWTTMYGHhttps://twitter.com/ttmyghhttp://www.vulpesinvest.com/


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The Mauldin Economics web site, Yield Shark, Bulls Eye Investor, Things That Make You Go Hmmm, Thoughts From the Frontline, Outside

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ttmygh 14 october 2013

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