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Vision Quest
In a time of deceit, telling the truth
is a revolutionary act.
George Orwell
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THINGS THAT MAKE YOU GO
Hmmm...
A walk around the fringes of fnance
By Grant Williams
07 July 2014
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THINGS THAT MAKE YOU GO
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07 july 2014
Contents
THINGS THAT MAKE YOU GO HMMM... ....................................................3
The Lie That Started the First World War .........................................................15
Erste Predict Record Loss As Romania Adds to Hungary Woes ..................................16
[Chinese] Banks Start Using New Loan-to-Deposit Ratio on July 1 .............................18
The 70-Year Itch .......................................................................................20
Is Christine Lagarde the Most Dangerous Woman in the World? ................................21
Why Report to U.S. Congress Issues Warning about Chinese Internet Firms ..................23
Trading Blows ..........................................................................................25
Spain Says to Charge Tax of 0.03 Percent on Bank Deposits ....................................26
We Must End This Addiction to Debt as the Engine of Growth ..................................27
CHARTS THAT MAKE YOU GO HMMM... ..................................................30
WORDS THAT MAKE YOU GO HMMM... ...................................................33
AND FINALLY... .............................................................................34
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Things That Make You Go Hmmm...
It started out as something of a pilgrimage... but well get to that a little later.
One of the best things about writing Things That Make
You Go Hmmm... is the number of incredibly bright
people all around the world that I get to interact with
on a regular basis.
The world is full of smart, engaged, experienced
people from all walks of life all of whom have
stories to tell and wisdom to impart.
Perhaps nowhere is this more evident than in the
world of fnance.
Finance is something that touches the lives of literally
every person on the planet in some way, shape, or
form; and over the past few years, as the world has
teetered on the brink of a meltdown the like of
which we havent seen in three generations only to
seemingly recover again in remarkably short order, the
subject of fnance has become more important than
ever before, even as comprehending its myriad moving
parts has become more troublesome.
As weve all tried to navigate our way through the
post-GFC landscape, weve had to come to terms
with a completely new world and to deal with some
incredibly powerful outside forces which have infuenced the marketplace in ways we could
barely have conceived of just six short years ago.
Of course, there were many who saw 2008 coming a long way off and who profted handsomely
from the events that transpired around the collapse of Lehman Bros. They took the actions that
they saw as imperative no matter how many people told them they were wrong.
Many of those same people have navigated the post-Lehman, central bank-led New World with
equal skill.
But heres the thing:
Hardly anybody has a clue who most of those people are.
In some cases, thats just the way the folks in question want it to be; but many of these people
are only too willing to share their wisdom should you (a) be able to fnd them and (b) shape
your questions in such a way as to engage them.
?
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Now, with that as background, lets get back to that pilgrimage I mentioned at the beginning.
About three years ago, somebody sent me a piece of writing he thought I would like, with the
strict warning that I wasnt to forward it to anybody, quote from it, or make any reference to it
in any way in my own writing. Period.
My friend was quite forceful about this and told me that he had never forwarded anything
written by this particular author before, because the material was available only to a very
small group of people, was extremely expensive to subscribe to, and the author was (quite
rightly) fercely protective of his work.
The only reason he had sent it to me was that it contained an article on a subject I had recently
written about, and the authors thoughts were very well-aligned with my own.
Obviously, my interest was piqued, and so I sat down to read the 60-odd-page, chart-flled
literary magical mystery tour I had been sent.
It was one of the best things Id ever read.
There was something about the way the author wrote colloquially, but clearly, with great
understanding of his subject that enabled him to convey complex concepts effectively, and
the quality and depth of his thinking resonated strongly with me.
I read the piece a few times and then began to wonder who this guy was and, more
importantly to me at that point, why I had never heard of him before.
My research into the mysterious author revealed just enough for me to understand that I
SHOULD have heard of him, and the question as to why I was unfamiliar with his work turned
180 degrees I became fascinated with the fact that our paths HADNT crossed up to this
point.
Interestingly, over the next few months I began hearing his name more often, and as I traveled
around the world I occasionally happened to see copies of his work sitting on the odd desk
and it was always on the desks of seriously smart, highly engaged people. So, whenever I could,
I snuck a look at his writing to see where his thought process was taking him.
Maybe it was my imagination, or maybe it was
because I was now looking for it, but each time
I heard his name or came across his work, I had
the feeling that Id stumbled upon some kind of
bizarre, exclusive club into which I hadnt been
invited. And that feeling grew.
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All I knew about the mysterious stranger was that he lived in a tiny fshing village on the
Valencian Coast of Spain, that he had retired at a young age from running one of the worlds
largest hedge funds (at the time, anyway), and that he was a truly brilliant and original thinker.
So I emailed him.
I had been invited to speak at a small gathering in Spain; and because my travels rarely
included Europe, I fgured I should at least make the effort to meet him while I was so close,
and so I offered to drive out to his village and buy him dinner.
To my surprise and delight, he responded the same day, said he was familiar with my own
writing, and very graciously accepted my offer to feed him.
A month later I found myself sitting at a beachside bar overlooking the Mediterranean Sea,
having dinner with Raoul Pal and his colleague Remi Ttot.
For the past ten years, Raoul has been writing and publishing The Global Macro Investor from
his home in the picturesque town of Javea. GMI is utterly brilliant.
As the evening wore on, the conversation fowed easily among the three of us as we realized
that we all saw the world in the same way. Not only that, but we had some very defnite ideas
about how fnancial information reaches its audience about the quality of that information
and also about the platforms used to disseminate it.
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That conversation, which continued into the early morning hours, was the genesis of a project I
touched upon briefy in last weeks Things That Make You Go Hmmm...:
Real Vision Television.
R E A L I S I O N
Following last weeks mention of the project in these pages, I was inundated with emails asking
for more details about what were doing; so even though we are several weeks away from
launching, this week I thought Id explain in more depth how Real Vision Television came to be,
what it aims to achieve, who is involved in it, and how we plan to deliver it.
Lets begin at the beginning.
Raoul and I shared a strong belief that the current state of fnancial television is abject.
Stifed by the need to fll 24 hours of programming and
sell advertising space, the likes of CNBC have become
less a source of insightful fnancial commentary and
more an attempt to sell a vision of a fnancial utopia,
aided and abetted by a seemingly never-ending stream
of CEOs who, naturally, explain why their company
is doing brilliantly despite the weak economy and
commentators who have a natural bias towards the
bullish and cant help but shout down anyone who
might dare offer a bearish vision of the status quo.
(Yes, Maria, Charlie & Jim, Im talking about you.)
Many of the guests who appear on the station simply dont offer any REAL value to the viewer,
and tuning into the ones who do is an arduous task which requires watching an awful lot of
programming that is of no use.
Consequently, many people simply watch the screen with the volume muted until they see
someone they want to hear from.
CNBC has, essentially, become a very primitive version of on-demand fnancial television but
with an awful lot of content defnitely NOT in demand. To us, turning the volume up every now
and then is not our idea of on-demand.
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Waking up to these facts, viewers have been switching off in their droves a phenomenon
which runs counter to a well-established historical trend that normally sees an acceleration in
viewership as euphoria drives markets to new highs:
(Zerohedge): While those in the fnancial industry who are forced to make profts by
trading other peoples money (note: never their own) enjoy CNBC for the comedic
content and the endless barrage of humorous propaganda (while getting their
actionable info from Bloomberg and sellside soft-dollar services), the retail investor
has traditionally relied on the Comcast channel for news updates, biased as they may
be (remember: the Fed, ECB and BOJ are only micromanaging the global economy and
injecting trillions because all is swell and self-sustainingly recovering and stuff) and
trading recommendations.
At least thats how it used to work. However, when one looks at the most recent CNBC
ratings, something odd emerges: either the retail investor has found an alternative
media outlet for getting their fnancial information during the day (or simply is tired
of being lied to about some magical recovery that only affects 1% of the population) or
said retail investor simply no longer exists despite all the endless propaganda to the
contrary spewed by CNBC itself.
The reason? According to the latest Nielsen Media Research data, in the second quarter
of 2014, CNBC business day viewership for all viewers just dropped to 162,000 a new
(and depressing for Comcast) low, on par with Q2 of 1997!
What Raoul and I realized was that, between us, we knew an extraordinary number of people
who had brilliant insights into many different corners of the fnancial world but who, in many
cases, remained completely unknown outside a handful of people in the investment industry.
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These people were research analysts, fund managers, strategists, newsletter writers,
technicians, traders, and everything in between; and, we felt, they would be happy to share
their knowledge with an audience if we gave them one that was truly interested in what they
had to say.
We fgured there was an incredible amount of value locked away in the brains of the smartest
fnancial minds we knew and that, somehow, right at the point when their wisdom was most
needed by a world rattled by 2008 and still struggling to come to terms with the new landscape
created and controlled by the central banks, the mainstream fnancial media had failed its
audience.
So, rather than sit and complain, we decided right then and there (at 4 a.m. on Raouls deck)
to try to do something about it.
Now, Ill be the frst to admit that in my life there
have been an awful lot of things I have decided to do
something about at 4 a.m.; but, unlike my brilliant
idea for a phone which required a negative breath-
test after midnight to unlock the number of a wife
or girlfriend (the folks at Breathometer are missing a
trick, if you ask me), or my masterful strategies which
absolutely guaranteed England would win the World
Cups of 1998, 2002, and 2010, this one remained at the
front of my mind the next day.
Raouls, too.
So we drew up a long list of the smartest people we
knew, and we began contacting them with a very
simple proposition:
If we built an on-demand internet-based TV
channel which concentrated solely on delivering
fnancial insights to an audience made up
exclusively of people seeking to educate
themselves about the fnancial world and to
make decisions that will improve their fnancial
future, would they want to be a part of it?
The answer was an unequivocal Yes.
From household names to people who, though brilliant, could walk unrecognized across their
own front yard, everyone we spoke to was eager to be involved and had their own ideas for
both the kind of content we should produce and friends of their own who they thought would
be of tremendous value to the audience.
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Despite the terrible reputation the fnancial industry has cultivated in recent years, in our
experience it also contains some of the most intelligent, engaging, thoughtful, and original
people youll fnd anywhere on the planet.
Those are the people we want to bring to a wider audience an audience that needs them now
more than ever before.
However, we both realized that putting a bunch of video content on YouTube in another cookie-
cutter platform was not going to do it. We instinctively knew that the platform we needed in
order to be able to deliver our message effectively didnt yet exist.
We needed a completely new and spectacular way to deliver the content we would create,
a medium which would instantly differentiate the look and feel of our content from existing
channels in the same way that its quality set it apart.
That was where Remi came in.
Remi is the rarest of creatures a very likable Frenchman (Im just kidding, Frenchies je
vous aime), with a razor-sharp brain, a tireless work ethic (I know, right?); and he just happens
to be an accomplished web and graphic designer; so we set him the task of marshaling the
creation of what we knew would be crucial to delivering the kind of viewer experience required
for Real Vision Television to succeed: the worlds best video player. From scratch.
And, amazingly, he did it but well get to that in a minute.
The fnal piece of the puzzle was fnding someone who
could give this crazy idea of ours a form, a shape, and
an identity. None of us had any experience in that
world, but fortunately we knew a man who did, and
that man was Damian Horner.
Damian, a slight 48-year-old man with a regional
English accent and a collection of achingly trendy
knitwear, is a multi-award-winning advertising
executive who has been exhibited in the Tate Modern
Gallery in London and named to Campaign magazines
A-list of the 100 most infuential people in media.
More importantly, he was a friend.
More importantly still, he would work for food.
The next eighteen months passed in a blur of late-
night Skype sessions, online strategy meetings,
cajoling, begging, and frequent returns to a well-worn
drawing board; but slowly our vision began to take
shape.
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As I explained, that vision required a totally new and best-in-class video platform, and Remi
delivered it.
We vizualized a totally new experience for our subscribers, and that meant reinventing
television on the internet creating a full-screen, high-defnition platform that looked
gorgeous on everything from a full-size smart TV to a tablet to a smartphone and that gave
anybody using it the feeling that this was something different.
We wanted viewers to forget they were using the internet within moments of entering the
world of Real Vision Television, so they could focus on the quality of the content. We feel we
have reached that milestone with our video player, so here is your frst look at Real Vision
Television:
The video player is fully functional and performs beautifully. It defaults to full-screen, high-
defnition and provides an immersive experience from start to fnish.
Content is organized in categories and is searchable by keywords, or you can scroll through the
videos to see what takes your fancy.
Viewers can scrub through videos, jump backwards and forwards in 15-second increments, add
and annotate bookmarks in order to mark specifc soundbites they want to return to, and also
add comments in a self-policing community which will weed out trolling and impose timeouts
on anyone guilty of abusive posting.
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The timer for each video counts backwards, and the control overlay disappears after a couple
of seconds but reappears at the click of a mouse.
We have also designed a revolutionary Heat Map, which functions like a video word cloud,
enabling viewers to instantaneously identify the content currently most in demand around the
world, to ensure they stay informed at all times.
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The Heat Map puts the most popular video at the front of a stack which can be scrolled through
to fnd the videos a subscriber most wants to watch, and videos can be saved to a watchlist to
view later on mobile devices, enabling viewers to watch the fnest fnancial minds in the world
at a time that suits them best.
Despite the amount of time and resources that have gone into developing the Real Vision
Television platform, it is the content that will determine its value. Based on the feedback we
have had so far from the contributors we have approached and from the guinea pigs viewers we
have asked to watch early previews, we are really excited about what we will unleash upon the
world in a few weeks.
Real Vision will have presentations, trading tips, market analysis, technical analysis, interviews
with some of the very brightest fnancial minds youve never heard of (as well as many you
have), as well as special one-off programs looking at the issues uppermost in the collective
conscious (Chinas shadow-banking sector, Abenomics, and the Taper being three already in
progress).
We will also have special insights offered by people who touch the world of fnance only
tangentially but who have so much to offer in terms of understanding the full mosaic high-
end art dealers who can explain what is REALLY going on with those infamous Russian and
Chinese billionaires supposedly snapping up every rare piece of art that hits the auction blocks;
real estate professionals with real information to counter the apocryphal stories about billions
of dollars of living space lying empty at the heart of the worlds richest cities.
We will offer interviews with business authors,
strategists, economists, bankers, brokers, and
independent thinkers from the four corners of the
globe.
We will also focus heavily on the next generation, with
educational material from some of the worlds most
legendary investors aimed specifcally at economics
students in universities all around the world, for whom
the failures of traditional economic theory are an
enormous (and growing) problem.
And heres the important part.
All of this information will come to you unfltered,
unbiased, and unadulterated.
Raoul and I know there is a real need to bring truth
back to fnance and to bring fnance back to an
audience that needs a dose of reality now more than
ever before.
In short, Real Vision is a revolution.
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In an age of ever more pervasive groupthink, Real Vision is about freedom of thought, freedom
of expression, and the freedom to entertain and weigh the merits of ideas you wont fnd
anywhere else. Only by revolutionizing the way you get your fnancial information can you hope
to break free from the chains of mainstream media reporting and understand the new world
within which every fnancial decision now has to be made.
Our goal is to better educate our viewers by stretching their minds and giving them the ability
to broaden their own individual decision-making framework.
We want to make sure people understand the frailties of governments and central banks
indeed, the entire monetary system itself in a world where those institutions are held up as
either infallible or immutable. We want to help people understand fnancial opportunities in
parts of the world and areas of fnance where traditional channels wont take their viewers
because they are too niche, and we want to create a platform for important viewpoints
which often get drowned out.
We want to give our viewers the ability to decide what information is important to them
not to have that choice made for them by programming directors with only a rudimentary
understanding of the fnancial landscape.
So thats Real Vision Television but where do you
come in?
Well, we are looking for people who want truth in
their fnancial information and who want to come on
this journey with us. Raoul, Remi, Damian, and I feel
that this is just the start of an important revolution,
and we want you to be a part of it alongside us.
Real Vision Television will be a subscription-based
service; and when we launch, that subscription
price will be set at just $200 per year for our initial
subscribers. That subscription fee will give our viewers
access to a collection of brilliant fnancial minds
and the ability to hear their thoughts in a way never
before possible free of any flter whatsoever.
As our content library continues to grow, so will the
value of a subscription; but based on what we have
created so far with those who have already begun
working with us, its clear that Real Vision will be
immensely valuable, right from Launch Day.
If you are someone who is curious about and who cares
about fnance, and if you want to make better decisions about your fnancial future, then Real
Vision Television is for you.
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If you fnd yourself distrusting the fnancial information you are receiving from the media or the
global banking community, then Real Vision Television is for you.
If you believe the future could take us down unexplored decentralized avenues think bitcoin
or a radically transformed gold market which traditional media are reluctant to explore, you
can count on Real Vision to give you the information and analysis you need to be able decide for
yourself. No more being forced to rely on biased opinions from people who champion the status
quo and refuse to open their minds enough to do the sometimes diffcult job of understanding
new concepts. Real Vision will bring the thought leaders in these areas to you and let you
decide.
Above all, if you want freedom of information, freedom of thought, freedom of opinion, and
freedom of expression, then join us on this journey.
Right now, theres nothing for you to do but sign up and register your interest in Real Vision
Television at www.realvisiontv.com. Doing so wont cost you a penny; and once you are
registered, you will be kept in touch with all the developments as we move closer to our launch
in several weeks time.
In the meantime, we will be releasing a series of short video clips exclusively to those who have
registered, to give you a feel for what Real Vision is all about; so please sign up to make sure
you are amongst the frst to experience Real Vision Television.
Three years ago, this journey began with my being exposed, quite by chance, to some of the
most brilliant fnancial insights Id ever seen from someone Id never heard of but who is now,
Im delighted to say, my business partner. Now, with the launch of Real Vision Television, Raoul,
Remi, Damian and I want to make sure as many of you as possible are given the chance to make
similar journeys, by bringing you the very best fnancial minds in the world through the worlds
best video platform.
Get Real.
*******
OK ... so after that impassioned call to arms, its time to settle back down again and outline
what youll fnd in the remaining pages of this weeks Things That Make You Go Hmmm....
In keeping with the theme of this weeks edition, we begin, on the anniversary of WWI, with a
look at the big media lie that began the war to end all wars. From there we stay in Austria to
hear about the travails of Erste Bank, which this week unveiled a little problem to the world, in
the shape of a potential $2 billion loss.
Meanwhile, Chinese banks begin to use new loan-to-deposit ratios; Chinese internet companies
feature heavily in a US Congressional report; and Christine Lagarde is fagged as the most
dangerous woman in the world by Martin Armstrong.
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On the 70th anniversary of Bretton Woods, we take a look back at the lessons being ignored
today, whilst two more current agreements TTIP & TPP hide potentially huge problems for
the world.
Here in Spain, the government has just announced the outright theft of savings on a grand scale
a retroactive tax on deposits.
Jeremy Warner explains why the Wests addiction to debt MUST stop, and Jesse Colombo sees a
disaster coming and has the charts to prove it.
Speaking of charts, Sober Look has some good ones on the scale of Japans QE experiment, and
Zerohedge shows just why the Great Rotation may have ended almost before it began.
Paul Hodges on the Baby Boomers, Chris Martenson on the exponential function, and yours truly
in conversation with Eric King on gold round things up for another week.
For those amongst you who may fnd themselves in San Antonios Hill Country in mid-September,
I will be speaking at the Casey Fall Summit, which runs from September 19-21, alongside a
stellar group of speakers including Jim Rickards, Doug Casey, Mike Shedlock, and my good friend
David Tice, to name but a few. Early-bird pricing ($300 discount) ends on July 15th. If you are in
the area, please drop by and say hi.
All that remains is for me to wish you adios from Spain!
Until Next Time...
*******
The lie that started the First World War
This day 100 years ago dawned memorably bright over Sarajevo. After days of stormy rain,
Sunday June 28,1914 began cloudless as Austria-Hungary, the imperial power that held dominion
over the small Balkan province of Bosnia, prepared for a show of ostentatious pageantry in its
capital.
Loyal citizens came out in their thousands, lining the route into the city centre that was to
be used for a rare offcial visit by a top member of the Habsburg royal house, Archduke Franz
Ferdinand, second only in imperial protocol to the venerable, mutton-chopped emperor
himself, Franz Joseph. Witnesses remember the morning sun being ferce as the crowds
gathered, eight deep in places, many of them waving the yellow imperial standard of Austria-
Hungary with its double-headed black eagle, some shouting Long Live the Archduke as the
Grf & Stift limousine drove sedately by. An imperial 21-gun salute, from the fortress high in
the hills that ring Sarajevo, sent out puffs of smoke, vivid white against the blue summer sky.
But the crowd was seeded with six would-be assassins united in their loathing of Austria-
Hungary. By the time the sun set, what happened in Sarajevo would plunge the world into the
darkness of global war for the frst time.
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The details were well recorded: how the frst attacker lost his nerve as the cortege passed, how
the next attacker threw a grenade that struck the limousine but did not harm the Archduke,
how the royal party nevertheless continued with the visit, how three would-be assassins melted
away into the crowd and how one, a 19-year-old peasant, stood his ground.
Gavrilo Princip was his name and he took up station at the street corner where the royal vehicle
was scheduled to turn right, according to the route fagged up for days in local newspapers, off
the wide riverside boulevard that gives Sarajevo its spine, before taking the Archduke to visit a
museum.
What might be called the devils luck then enters the story as the decision had been taken after
the grenade attack for the Archdukes car not to turn right but to continue down the boulevard.
All the senior members of the royal party were informed. But nobody told the driver.
When the driver made the turn, an imperial offcer on board with the Archduke and his wife,
Sophie ordered: Stop. The driver braked immediately, presenting the assassin with his
targets right in front of him in a now stationary car, the canvas roof folded helpfully back
because of the sunny conditions.
Princip needed to take only half a step forward before he aimed his 9mm, semi-automatic
Browning pistol and fred what amounted to the starting gun for modern history. The killing
of the Archduke and his wife was the trigger for the First World War. What happened next is a
bone well worried by historians. But the details of who Princip was, his motivation, his actions
and his support network have been mired ever since in political bias, ethnic rivalry and sloppy
homework.
We have been told that: Princip jumped on the running board of the Archdukes limousine to
take his shot, the Archdukes wife was pregnant when she died, the shooting happened on the
anniversary of their marriage, the car did not have a reverse gear, the Archduke caught the
grenade thrown earlier and tossed it away safely, and Princip stopped to eat a last sandwich at
the caf on the corner before emerging to take his shot. Its all myth....
*** UK DAILY TELEGRAPH / LINK
Erste Predict Record Loss as Romania Adds to Hungary Woes
Erste Group Bank AG (EBS), the Austrian bank earning most of its income in eastern Europe,
plunged as a bad-debt clean-up forced by Romanian regulators and fee refunds in Hungary will
cause a record loss this year.
Erste, which owns the second-largest Hungarian and the biggest Romanian bank, will post as
much as a 1.6 billion-euro ($2.2 billion) loss this year as bad-loan provisions will rise 40 percent
more than forecast earlier and trigger additional writedowns, it said in a statement yesterday.
The shares fell 16 percent to 19.52 euros in Vienna as of 3:37 p.m., the lowest level in almost a
year.
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This is a clearly bad surprise as it comes in addition to the already badly surprising warning
issued by the group at the beginning of this year, Natixis Securities SAS analyst Steven Gould
said in a note to clients. These announcements hurt the managements credibility going
forward.
Erste, the third-biggest bank in eastern Europe after UniCredit SpA (UCG) and Raiffeisen Bank
International AG (RBI), invested in the former communist bloc in the past decade, seeking
higher growth and proft than available in its domestic market. That bet turned sour in Hungary
and Romania after 2009 when the economic downturn caused borrowers to miss repayments.
The provisions are caused by new rules due to be approved by Parliament in Hungary today,
forcing banks to refund unfair loan fees, and by the Romanian central banks push for faster
bad-debt reduction amid the European Central Banks bank health check, Vienna-based Erste
said. Writedowns on goodwill and deferred tax assets, triggered by the loan-loss provisions, may
reach as much as 1 billion euros.
By taking these measures, we have done everything in our power to avoid one-off effects from
2015 onward, Chief Executive Offcer Andreas Treichl said in the statement. We are convinced
that these measures will also help us pass the asset-quality review and stress test comfortably.
The loss wont hit Erstes regulatory capital to the full extent, and the banks common equity
Tier 1 ratio will reach about 10 percent by the end of the year without raising fresh capital,
Erste said. Thats because goodwill, brand value and other intangible assets of its Romanian
unit that Erste is writing down arent part of the regulatory capital.
The bank expects a return to proft and a return on tangible equity of 8 percent to 10 percent
next year, Erste said. This equals net income of 700 million euros to 900 million euros,
according to Francesca Tondi, an analyst at Morgan Stanley. The new guidance will result in
near-term pressure for the stock and potentially cap its upside for some time, she said in a
note.
Hungary contributed to Erstes loss with a new law forcing banks to repay some loan costs to
customers. The law, approved by Parliament in Budapest today, will require banks to refund
certain expenses on as much as 6.5 trillion forint ($28 billion) of loans going back as far as 10
years.
Hungarys mostly western-owned banks have lost billions of euros since 2008 because of foreign-
currency mortgages and loans they gave to households. The Hungarian forints plunge led to
soaring repayments and defaults on mostly Swiss-franc denominated credit, which became
widespread last decade as clients sought lower interest rates.
The central bank estimates the law will cost banks as much as $4 billion, dwarfng losses
of about $1.7 billion that Prime Minister Viktor Orban imposed three years ago. Erste trails
OTP Bank Nyrt in total assets in the country neighboring Austria, where KBC Groep NV (KBC),
Bayerische Landesbank, Raiffeisen and Intesa Sanpaolo are also among the top 10 lenders.
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The market is severely complacent and arguably underestimating some of the disruptive
impact the proposed path will have on the banks in the short to medium run, said Peter Attard
Montalto, a London-based economist at Nomura International Plc.
Provisions will soar by even more in Romania, the Black Sea country of 20 million where Erste
bought Banca Comerciala Romana SA for 3.75 billion euros in 2005, six times its book value at
the time. They are caused by the central banks pressure on banks to clean up their balance
sheets as part of the ECBs bank health check, Erste said.
The Romanian measures will cause bad-debt charges to fall to 1 percent to 1.5 percent of
gross loans next year, from more than 4 percent in the frst quarter. The stock of bad loans will
decline by 800 million euros, or 25 percent, this year.
Treichl, the longest-serving CEO of a major European bank, told Austrian radio in an interview
that he didnt rue having invested in Hungary and Romania and thought he was still the right
head for the company.
Yes, were having problems in some countries, he told the Oe1 radio station. But there will
be times again when our shareholders will be glad that were in Hungary and Romania.
*** BLOOMBERG / LINK
[Chinese] Banks Start Using New Loan-To-Deposit Ratio on
July 1
Starting July 1 banks in China are using a new method of calculating the loan-to-deposit ratio, a
change that the regulator and analysts say will allow for more loans to be extended.
The China Banking Regulatory Commission (CBRC) announced on June 30 the new set of rules
for fguring the ratio, which is capped by law at 75 percent, meaning that banks cannot lend
out more than three-quarters of the deposits they accept.
A CBRC offcial has said the regulator will consider adjusting the way the ratio is calculated to
allow for more lending. That includes broadening the range of deposits to include relatively
stable funds.
The new rules differ from the old ones in both loan and deposit calculations, the announcement
shows.
Six types of loans can now be excluded from the formula. They include loans linked to the
central banks re-lending program and proceeds from the sales of a special fnancial bond that
raises money to support small and micro businesses. Loans made using money raised from bonds
that investors cannot redeem for at least one year are also excluded under the new rules.
These loans all have clear and stable sources of funding and thus do not need to be matched
with general deposits, the regulator said.
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Two sources of funds have been added to the deposits side. One is the planned large-sum
certifcates of deposits (CDs) that can be issued to both companies and individuals. A foreign-
invested bank can also count the amount of yuan deposits made by its foreign parent bank as
long as the deposits maturity is longer than one year.
Moreover, the 75-percent cap on the ratio now applies to only yuan-denominated loans and
deposits. Previously, foreign loans and deposits were also included.
This means banks will not face penalties even when their forex and yuan loan-to-deposit ratio
exceeds 75 percent, experts say.
Quantitative tests have shown that the changes can allow banks to have more liquidity for
making loans to fuel economic growth, a CBRC offcial with knowledge of the matter said.
The regulator has said the banking industrys average loan-to-deposit ratio as of March 31 was
below 70 percent, but the fgures for some bigger banks were much higher.
The new calculation rules can help ease the pressure on banks of meeting the requirement, and
would also encourage a lender to issue more bonds and CDs, which are relatively stable and
conducive to stabilizing liquidity risk, a banker familiar with the situation said.
Excluding foreign currency-denominated loans will effectively reduce the current level of the
ratio by about 2.5 percentage points, E Yongjian, an analyst with the Bank of Communications
fnancial research center, said based on a rough calculation using data from the central bank.
The data shows that foreign exchange deposits and loans accounted for about 3 and 6 percent
of the total, and on average, banks lent out 50 percent more forex than they took in and the
rest had to be made up by converting yuan into the foreign currency, he said.
Experts have discussed what types of funds can be used to calculate deposits in the ratio.
Before the new rules set in, it equated to the sum of a banks outstanding loans, including
general loans, trade fnance loans and discounted bills, divided by the banks deposits, including
individual and corporate deposits and wealth management products whose repayments are
guaranteed by the bank.
Deposits from fnancial institutions except insurance companies were not counted toward the
balance of deposits....
*** CAIXIN / LINK
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The 70-year itch
AMERICA learned the benefts of economic co-operation the hard way. Its failure to create
institutions to help steer the world economy after the frst world war exacerbated the Great
Depression and paved the way for the next confagration.
That is why, at a small resort in New Hampshire as the second world war was drawing to a
close, America and its allies sketched out a rough management plan for the world economy and
created some institutions to safeguard it (see Buttonwood). Despite some faws, the Bretton
Woods agreements, signed 70 years ago this month, helped usher in a long and relatively
peaceful period of economic growth.
Yet todays pre-eminent powers seem to have forgotten this lesson. America and Europe have
failed to strengthen and reform the offspring of Bretton Woods, the IMF and the World Bank;
they have been sluggish in providing a bigger role for China in these institutions (it still has less
voting power than the Benelux countries). Meanwhile, China, like America a century ago, fexes
its muscles close to home but outsources global leadership to others. The combination could
lead to another dangerous, rudderless spell for the world economy.
Parts of the Bretton Woods system have proved more durable than others: its capital controls
and fxed exchange rates had largely gone by the end of the 1970s. But the whole edifce now
looks rickety. Countries moan over destabilising capital fows while global trade talks remain
in near-stasis. Barack Obama sensibly promoted a plan to give the IMF more resources and
increase the clout of fast-growing developing countries within it. Yet Congress now refuses to
support the agreed reforms. Meanwhile both America and Europe have pursued ambitious trade
deals with each other and non-Chinese Asia. And again Congress has in effect blocked those
efforts too, before the deals have even been struck.
China has taken the hint. Its interest in the World Bank and IMF, always half-hearted, is waning.
Instead, Chinas leaders are working to build a separate system. At a summit later this month
the leaders of Brazil, Russia, India, China and South Africa are expected to agree to create
a $50 billion BRICS development bank and consider a BRICS contingency fund modelled
on the IMF. China also plans to create an Asian infrastructure bank that will rival the Asian
Development Bank, a regional lender dominated by Japan (see article).
Like the Wests regional trade deals, Chinas institution-building looks benign in isolation.
Why not invest in underdeveloped countries? Yet its furry of initiatives, which conspicuously
excludes rich countries, may signal a strategic shift. Rather than take more responsibility within
the existing system, China seems to be creating a rival one.
If John Maynard Keynes were alive, he would sigh not just at the risks in all this economic
nationalism but also the huge missed opportunity. Freer trade through multilateral deals would
help the world economy and reduce the allure of mercantilist policies that invite retaliation.
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Or imagine what would happen if the West and China worked together to liberalise the latters
capital account: Chinas fnancial markets would become less distorted, while the emergence
of the yuan as a global reserve currency would ease Western fears about their currencies
overvaluation. Perhaps it is time to send another group of dignitaries to New Hampshire.
*** ECONOMIST / LINK
Is Christine Lagarde The Most Dangerous Woman In The
World?
I have gone on record that the most dangerous organization is the now French led IMF with
Christine Lagarde at the helm, which has presented a concept report that debt cuts for over-
indebted states are uncompromising and are to be performed more effectively in the future
by defaulting on retirement accounts held in life insurance, mutual funds and other types of
pension schemes, or arbitrarily extending debt perpetually so you cannot redeem. Yes you read
correctly, the new IMF paper is described in great detail exactly how to now allow the private
sector, which has invested in government bonds, to be expropriated to pay for the national
debts of the socialist governments.
I have been warning that there is an idea that has been running around behind the curtain that
the national debt of the USA could be settled by usurping all pension funds in the country. Here
is a remarkable blueprint that throws all previous considerations concerning the purchase of
government bonds over the cliff. The IMF working paper from December 2013 states boldly:
The distinction between external debt and domestic debt can be quite important.
Domestic debt issued in domestic currency typically offers a far wider range of partial
default options than does foreign currencydenominated external debt. Financial
repression has already been mentioned; governments can stuff debt into local pension
funds and insurance companies, forcing them through regulation to accept far lower
rates of return than they might otherwise demand.
id/Page 8 (IMF-Sovereign-Debt-Crisis)
Already in October 2013, the International Monetary Fund (IMF), suggested the Euro Crisis
should be handled by raising taxes. The IMF lobbied for a property tax in Europe that should be
imposed where there are no such taxes. The IMF has advocated for a general debt tax in the
amount of 10 percent for each household in the Eurozone, which also has only modest savings.
People are blind. They think this is authorization to go get the rich. They are going after
everyone for the rich are tiny players in the game. People do not want to hear that. They
want to think the rich can pay the bills for everyone else. That is not practical and even Julius
Caesar recognized that they may be a small group, but they are the engine of the economy that
creates jobs. It would have been popular for him to wipe out all the rich who he was against.
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But in the end, he had to solve the debt crisis by simply retroactively attribut[ing] all interest
to capital in order to solve the debt crisis that led to the frst civil war.
There is no discussion whatsoever of reforming the system. They are merely planning to default
on savers expropriating their savings, but continue to borrow forever. Nobody is even bothering
to look at the structure that simply cannot work.
The money people have saved the IMF maintains should be used for debt service by sheer force.
To reduce the enormous national debt, they maintain that government has the right to directly
usurp the savings of citizens. Whether saving money, securities or real estate, about ten
percent could be expropriated. This is the IMF view.
Because the government debt of the euro countries has increased a total of well over 90
percent of gross domestic product, they suggest that the people should sacrifce their savings
for the beneft of the state. Socialism is no longer to help the poor against the rich, but to help
the government against the people. The defnition has changed.
In January 2014, the Bundesbank joined the IMF project focusing on a wealth tax. In its
monthly report they had announced: In the exceptional situation of an imminent state
bankruptcy a one-time capital levy could but cheaper cut than the then still relevant options
if higher taxes or drastic limitations of government spending did not meet or could not be
implemented.
In the latest June 2014 working paper of the IMF, they have set forth yet another scheme
extending maturity. So you bought a 2 year note? Well, the IMF possible solution would be
to simply extend the maturity. Your 2 year note now become[s a] 20 year bond. They do not
default, you just can never redeem.
Possible remedy. The preliminary ideas in this paper would introduce greater fexibility
into the 2002 framework by providing the Fund with a broader range of potential policy
responses in the context of sovereign debt distress, while addressing the concerns that
motivated the 2002 framework. Specifcally, in circumstances where a member has
lost market access and debt is considered sustainable, but not with high probability,
the Fund would be able to provide exceptional access on the basis of a debt operation
that involves an extension of maturities (normally without any reduction of principal
or interest). Such a reprofling operation, coupled with the implementation of a
credible adjustment program, would be designed to improve the prospect of securing
sustainability and regaining market access, without having to meet the criterion of
restoring debt sustainability with high probability.
(THE FUNDS LENDING FRAMEWORK AND SOVEREIGN June 2014)
Now the June 2014 report has a new, far-reaching proposal. This shows how lawyers think in
technical defnitions of words. There is no actual default if they extend the maturity. You could
buy 30-day paper in the middle of a crisis and suddenly fnd under the IMF that 30 day note is
converted to 30 year bond at the same rate.
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The huge national debts could be reduced also according to the IMF by just expropriating all
private pension funds. The vast amount of people are watching TV shows, sports, or something
other than government and they know that.
The press will not report the real risk for that is boring news. Hence, where his occupational
pensions exist, you can suddenly wake up and fnd your future is now applied as a contribution
to government thank you for your patriotism. They have successfully convinced the evil is the
rich so pay attention to them and you will miss the political hand in your back pocket.
What investor can really judge what is hidden in his fund when the government is denying
democratic processes and control[ling] the press?...
*** MARTIN ARMSTRONG (VIA ZEROHEDGE) / LINK
Why Report to U.S. Congress Issues Warning about Chinese
Internet Firms
A U.S. congressional commission recently published a report that has been the topic of much
discussion in China.
The report was published by the U.S.-China Economic and Security Review Commission, whose
website says its job is to report on the national security implications of Sino-U.S. economic ties.
The commission recently issued a report warning investors about the risk of investing in
U.S-listed Chinese Internet companies, and the timing of its release is noteworthy because
e-commerce giant Alibaba Group Holding Ltd. is about to go public on the New York Stock
Exchange, a listing that some expect to be the largest in U.S. history.
News articles on Chinese websites covering the report view it through the lens of how Alibabas
planned IPO will be affected. Some analysts said the huge scale of Alibabas stock offering
prompted the commission to highlight risks that many other Chinese companies present, but go
unnoticed by the U.S. public.
One analyst said the report was motivated by U.S. e-commerce companies feeling threatened
by Alibaba, which is making inroads in the United States.
Heres a look at what the report says about the risks associated with Alibaba Group and other
companies and what it means.
The report to the U.S. Congress, dated June 18, warns investors about the risk of putting their
money in U.S.-listed Chinese Internet companies. It used Alibaba Group and Sina Corp.s Weibo,
Chinas version of Twitter, to demonstrate the perils their obscure corporate structures present.
Investors have been lured to such frms despite the risk because of high returns, the report
says.
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It concludes that the problems were fundamentally caused by Chinas overly restricted fnancial
markets and the governments requirement that Internet companies be majority owned by
Chinese nationals. It also says U.S. investors are not adequately protected because rule of law
in China is underdeveloped.
The report focuses on the use of variable interest entity (VIE), an arrangement commonly used
by Chinese Net companies to work around domestic policy restrictions and list overseas.
A typical VIE structure involves an overseas-incorporated entity that controls a domestic
business not through equity ownership but an array of agreements. Foreign investors invest in
the overseas holding company because they are often barred from directly holding shares in the
business the domestic frm is in.
The report says the VIE structure is a complex and highly risky scheme of legal arrangements
designed for Chinese companies to circumvent domestic regulations restricting foreign share
ownership in certain industries that the government considers important.
Investors should be wary of the structure because it is fragile, the report says. The contracts,
which are key to protecting investor interests in the VIE arrangement, exist between the
Chinese subsidiary of the foreign holding company and the frm that controls the main
operations in China. Both parties are covered by Chinese law only, so the agreements between
them are binding and enforceable only to the extent that Chinese courts are willing to uphold
them.
This is a cause for concern particularly because rule of law remains rudimentary in China, the
report says. Also, the Chinese government has been ambiguous in its attitude toward the VIE
structure, creating more uncertainty.
The report also urges U.S. investors to beware of the risk of Chinese Net companies engaging in
corrupt practices. For example, employees of Chinese Net enterprises have been caught taking
bribes to help companies avoid bad publicity.
Listing in the United States brings the companies under the jurisdiction of the U.S. Foreign
Corrupt Practices Act, and means they can be held accountable and punished even for acts of
graft that take place outside the United States.
Alibaba has a bad track record both in terms of using the VIE structure and its employees being
involved in corruption scandals. It is going public in New York using a VIE structure. To mitigate
investor concerns, Alibaba said in its prospectus that it will make the foreign-owned part of
its business hold most of its assets aside from those including licenses that must be held by a
Chinese entity.
The frms co-founder, Jack Ma, caused an uproar in 2011 when he ignored the objections of
foreign shareholders and severed the VIE link between Alibaba and Alipay, an extremely popular
e-payment tool in the country. Ma said he did so to ensure Alipay can get its payment license.
The incident served as a reminder of how little infuence foreign shareholders have over the
management of a VIE.
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Alibaba was also embroiled in a scandal in 2012, when Yan Limin, former general manager
of Alibabas group-buying business, was arrested for taking bribes in exchange for doling out
favors. He was sentenced to seven years in prison. Several other Alibaba employees were found
guilty of similar crimes.
The document says that If U.S. investors continue to buy into such Chinese VIE schemes and
the system collapses, the scenario could be akin to the 2001-2011 Chinese reverse-merger
debacle that cost U.S. investors an estimated US$ 18 billion....
*** CAIXIN / LINK
Trading blows
Two sets of sharply different international negotiations are currently under way that will have a
major infuence on global policymaking for decades to come.
At the United Nations, the Open Working Group tasked with drafting a set of targets and
objectives for poverty eradication and sustainable development has recently published its zero
draft.
Meanwhile in Brussels and Washington, closed-door negotiations are gathering pace in an effort
to fnalize two massive regional trade and investment agreements. The Transatlantic Trade and
Investment Partnership (TTIP also known as TAFTA) between the United States and the EU,
and the Trans-Pacifc Partnership (TPP) between the US, Canada and 11 other Asian and South
American countries are being hailed as the gold-standard for future regional trade deals.
The implications of, and indeed the connection between, these two processes may be lost on
your average Northern citizen. But for communities on the front line of conficts to protect
natural resources from short-term corporate profteering in the global South, they couldnt be
clearer.
Take El Salvador. In recent years, the tiny Central American nation, already suffering from
severe groundwater contamination and water shortages, has seen two visions of national
development going head to head. On the one hand, in the spirit of sustainability and
democracy, communities in the region of Cabaas have mobilized to pressure their government
not to allow a proposed cyanide-leach gold mining project that threatens their freshwater
sources. On the other, a Canadian mining corporation, backed by some local interest groups,
has been hellbent on extracting gold from the mountains.
The good news for the communities of Cabaas is that their government listened to its citizens
and imposed a moratorium on heavy metal mining a policy reiterated by the recently elected
new government. The bad news is that the corporation involved, Pacifc Rim, recently taken
over by Oceana Gold from Australia, was able to counterattack with a $300 million lawsuit.
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The El Salvador case is just one of hundreds of such investor-state cases launched by
corporations in recent years. Originally intended as a last resort for foreign investors in cases of
expropriation of assets in countries with weak judiciaries, the investor-state dispute settlement
(ISDS) system has become the weapon of choice for corporations in conficts over issues from
public health to energy policy to control over public water systems.
Using obscure investment chapters of trade agreements and bilateral investment treaties
corporations can bypass national court systems and sue governments in closed-door arbitration
tribunals.
Lawyers in the tribunals work on a for-proft basis with no accountability to any democratic
system, and corporations can sue not only to recover what they have invested in a country
when a regulatory change occurs, but also for what they expected to earn in to the future.
For the people of El Salvador, $300 million would be a devastating setback to national fnances.
And regardless of the fnal outcome, the government will now spend several million dollars
defending the case (fees not refunded to defendants even if they win). In a country where 35
per cent of the population lives below the poverty line, money that could be spent on teachers
or doctors will now end up in the pockets of corporate lawyers, mostly from the EU and the US.
The resulting chilling effect on future policymaking for fear of additional ISDS cases is
arguably one of the most insidious effects of the system.
The TPP and TTIP trade deals mentioned above are attempting to expand this system on a much
broader scale.
Although the European Commission has been pressured into carrying out a consultation on the
investment chapter of the TTIP, the consultation does not provide space for a conversation on
the structural faws inherent in the current investment rules regime, or on alternatives to it.
And these big regional deals are just the tip of the iceberg....
*** NEW INTERNATIONALIST / LINK
Spain says to charge tax of 0.03 percent on bank deposits
Spain on Friday said it would introduce a blanket taxation rate of 0.03 percent on all bank
account deposits, in a move aimed at harmonising regional tax regimes and generating revenues
for the countrys cash-strapped autonomous communities.
The regulation, which could bring around 400 million euros ($546 million) to the state coffers
based on total deposits worth 1.4 trillion euros, had been tipped as a possible sweetener
for the regions days after tough defcit limits for this year and next were set by the central
government.
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Deputy Prime Minister Soraya Saenz de Santamaria announced the move at a news conference
following a weekly cabinet meeting.
Spain is aiming for an end-of-year defcit of 5.5 percent after ending 2013 with a defcit of 6.6
percent of gross domestic product, just short of its 6.5 percent target. The regions have been
set a defcit limit of 1 percent of GDP.
The government had last year fxed a zero percent tax rate on deposits across the 17
autonomous communities to prevent some of them charging their own rates, but never ruled
out raising the taxation level.
The country has one of the lowest tax takes in the European Union after a burst property
bubble crippled the construction sector, one of the largest contributors to government coffers.
Madrid passed in June a blueprint for tax reform which aims to cut income and corporate taxes
to stimulate consumer demand and investment in the midst of a nascent economic recovery....
*** REUTERS / LINK
We must end this addiction to debt as the engine of growth
Growth is back after a fashion but debt levels are rising again, productivity growth in
advanced economies is close to post-war lows, capital spending is becalmed, and in Britain,
inroads into deep fscal and current account defcits are proceeding only at glacial pace. Is this
a sustainable economic model?
The answer from the venerable Basel-based Bank for International Settlements is a defnitive
no. As history reminds us, there is little appetite for taking the long-term view, the BIS
thunders in its latest annual report.
Few are ready to curb fnancial booms that make everyone feel illusively richer. Or to hold
back on quick fxes for output slowdowns, even if such measures threaten to add fuel to
unsustainable fnancial booms. Or to address balance sheet problems head-on during a bust
when seemingly easier policies are on offer. The temptation to go for shortcuts is simply too
strong, even if these shortcuts lead nowhere in the end.
As you can see, the BIS has lost none of none of its penchant for dampening any suggestion of
better times to come with another bucket load of gloom. The BIS is, if you like, the conscience
of markets, bankers and policymakers, so pessimism and proselytising come naturally. It is the
BISs job to warn of developing economic risks, however clement the conditions outside seem to
be.
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This gives the central banks banker the characteristics of a stopped clock. Much of the time,
it is going to be wrong, with the natural exuberance and animal spirits of markets oblivious to
its warnings. Twice a day, however, it is going to be right, as indeed it was about the fnancial
crisis, when it came closer than any to predicting the maelstrom to come.
And now its warning lights are fashing red once again about the disconnect between buoyant
fnancial markets and underlying economic realities, about a recovery which is too dependent
on debt and unconventional monetary stimulus, about the depressing lack of productivity
growth, about companies that prefer to downsize and buyback their own shares to investing
in the future, about developing asset bubbles and the risk they pose to fnancial stability, and
about the cowardly propensity of policymakers to take the easy option, rather than the tough
decisions necessary to create a durable recovery.
Is the BIS right to be playing the Prophet of Doom once more? This might seem something of a
cop out, but the answer is both yes and no. Take the UK economy. Barring accidents, the UK
probably has at least another two years of above trend growth left in it, and with a bit of luck,
rather more.
Goldman Sachs reports that its proprietary current activity indicator points to annualised
growth right now of 3.5 per cent. The investment bank has also broken with the consensus
to predict 3 per cent growth next year, with unemployment falling to 6 per cent next year
and 5.8 per cent the year after or a level generally considered to be synonymous with full
employment.
Little more than a year ago, such suggestions would have been dismissed as delusional, but
much of todays survey evidence seems to back them up. Business optimism is at its highest
level in 22 years, according to a survey of 1,500 businesses by Lloyds Bank. Perhaps it is the
likes of the BIS who are out of step with underlying realities.
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Unfortunately, the UK may be something of a special case; the international picture doesnt
look nearly so reassuring.
Some of the best evidence for this more downbeat view comes from the latest Standard &
Poors global corporate capital expenditure survey, which glumly observes that despite a
corporate sector awash with cash an astonishing $4.5 trillion of it for the top 2000 capex
spenders alone a recovery in global business investment spending still appears some way
off.
*** JEREMY WARNER, THE TELEGRAPH / LINK
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Charts That Make You Go Hmmm...
Following the bull market pattern of the past fve years, the U.S. stock
market continues to climb to new highs while shaking off all reasons for pessimism as
well as the warnings of skeptics. Stock market bulls are becoming increasingly brazen
as they drive the market to nosebleed heights, which is convincing a greater number of
people into believing in the economic recovery. Unfortunately, the public is being fooled
because the U.S. stock market and economy is experiencing another classic central bank-
driven bubble that will end in a calamity, erasing trillions of dollars of wealth.
As you will see from the charts in this article, there is so much proof that the bull market
is actually a dangerous speculative bubble that it is simply undeniable. Despite what the
cold, hard facts show, legions of pundits, economists, and investors are coming out of the
woodwork to deny the existence of what is one of the most obvious bubbles in history.
This widespread denial is what happens when emotions trump logic and reasoning.
So says Jesse Colombo as he assembles 22 more charts like this one to tell his rather compelling
story of an impending market crash.
*** JESSE COLOMBO / LINK
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www.soberlook.com
Many investors seem unaware of just how large Japans QE program has been
relative to that of other central banks. While the Fed, the ECB, and the BOE have roughly
converged to the same level (as a proportion of their GDP), the Bank of Japans balance sheet is
more than double that of its counterparts abroad.
The offcial goal of course is to stimulate credit growth to the private sector by lowering
longer term rates and boosting excess reserves in the banking system. The 10-year Japanese
government bonds now yield 0.57% and the reserves have indeed spiked.
But while weve seen small improvements in bank lending, credit growth in Japan remains
tepid.
The primary reason for this trend has to do with the lack of demand for credit. Both
households and companies are loathe to take on debt. One cant blame them of course taking
on fxed liabilities with looming risks of defation is dangerous (imagine watching your assets
depreciate, while liabilities remain fxed.) And as we saw in the US (see chart), other than
during periods of frozen credit markets, quantitative easing has not been shown to be very
effective in stimulating credit expansion.
*** SOBERLOOK / LINK
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Were going to need another meme... the great pretense of the great rotation as
investors dump bonds and buy stocks with both hands and feet as they realize growth has
reached escape velocity and its time to BTFATH... has failed. As the following chart from
JPMorgan shows, the brief period of net fows to stocks over bonds has ended. If a rally like this
cant get the animal spirits fowing in anyone but the C-Suite of your local share-buyback-ing
corporation, when will it?
*** ZEROHEDGE / LINK
Source: Zerohedge
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Words That Make You Go Hmmm...
Chris Martenson takes six
minutes out of your day to explain the
importance of exponential growth in todays
world, and its worthwhile taking that time to
hear what he has to say.
CLICK TO WATCH
This gentleman is Paul Hodges,
and chances are youve never heard of him.
Paul recently co-authored Boom, Gloom and
the New Normal: How the Ageing Western
BabyBoomers are Changing Chemical
Demand Patterns, Again, in which he looks
at important demographic issues in a world
where demography is rapidly becoming one
of the most important (but least understood)
sciences.
Fascinating stuff.
CLICK TO LISTEN
Me again, Im afraid.
Last week I got the chance to chat with Eric
King about a subject dear to both our hearts
gold and silver and specifcally the recent
strength in the metals and whether this is
fnally the end of the slide in prices that
has been causing consternation amongst the
precious metals community for the last two
years
CLICK TO LISTEN
34
THINGS THAT MAKE YOU GO
Hmmm...
07 july 2014
and fnally...
Now THIS is cool!
Take a DJ Phantom 2 Drone and a GoPro Hero 3 camera, throw in a freworks display and you
end up with some seriously amazing footage.
Like the man says, watch it in HD if you can... Fireworks as youve never seen them before.
Guaranteed.
CLICK HERE TO WATCH VIDEO
Hmmm...
35
THINGS THAT MAKE YOU GO
Hmmm...
07 july 2014
Grant Williams
Grant Williams is the portfolio manager of the Vulpes
Precious Metals Fund and strategy advisor to Vulpes
Investment Management in Singapore a hedge fund
running over $280 million of largely partners capital
across multiple strategies.
The high level of capital committed by the Vulpes
partners ensures the strongest possible alignment
between the frm and its investors.
Grant has 28 years of experience in fnance on the
Asian, Australian, European, and US markets and
has 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
ASFA Annual Conference 2013: Wizened In Oz
66th Annual CFA Conference, Singapore 2013 Presentation: Do The Math
Mines & Money, Hong Kong 2013 Presentation: Risk: Its Not Just A Board Game
Fall 2012 Presentation: Extraordinary Popular Delusions & the Madness of Markets
As a result of my role at Vulpes Investment Management, it falls upon
me to disclose that, from time to time, the views I express and/or the
commentary I write in the pages of Things That Make You Go Hmmm... may
refect the positioning of one or all of the Vulpes fundsthough I will not be
making any specifc recommendations in this publication.
36
THINGS THAT MAKE YOU GO
Hmmm...
07 july 2014
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