things that make you go hmmm... june 3, 2013. deus ex machina, by grant williams

7/28/2019 Things that make you go hmmm... June 3, 2013. Deus Ex Machina, by Grant Williams.

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Deus Ex Machina

"Human misery must somewhere have a stop; there is no windthat always blows a storm; great good fortune comes to failure in

the end. All is change; all yields its place and goes; to persevere,trusting in what hopes he has, is courage in a man. The cowarddespairs."

Euripides

"Talk sense to a fool and he calls you foolish."

Euripides

"Those whom God wishes to destroy, he frst makes angry."

Euripides

"Question everything. Learn something. Answernothing."

Euripides

"The wisest men follow their owndirection."

Euripides

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

03 JUNE
http://www.mauldineconomics.com/go/bwx2C/TTMhttp://www.mauldineconomics.com/go/bwx2C/TTM


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

Oregon Law School Graduate Beats Back $50,000 in Student Loans ..........................19EU Threatens France Over Economic Failings .....................................................20

Europe Needs Overhaul, EU Commissioner Says ..................................................21

The American Consumer Is Not Okay ...............................................................21

Portuguese Bestseller Calls for Euro Exit ..........................................................23

Recession Out of the Picture As Fermanagh Puts on a Brave Face for G8 Leaders ..........24

Goldilocks and the Ten Bears ........................................................................25

Shocking ................................................................................................27

No Saviour in Sight as World Credit Cycle Rolls Over ............................................28

Bonds Tumble Worldwide as Stocks Reach Highs on Growth Optimism .......................29

CHARTS THAT MAKE YOU GO HMMM... ..................................................31

WORDS THAT MAKE YOU GO HMMM... ..................................................34

AND FINALLY ................................................................................35


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Things That Make You GoHmmm...The tiny island of Salamis in Greece was the birthplace, in 480 BC, of one of the three greattragedians of the Classical Athenian era. Aeschylus and Sophocles were the other two, but the

third member of that legendary triumvirate was not only the author of some 92 plays but alsothe subject of one of the earliest knock-knock jokes ever recorded:

Knock-knock

Who's there?

Euripides

Euripides who?

Euripides trousers? You menda dese trousers.

OK, so the Ancient Greeks in general (and Atheniantragedians in particular) were hardly renowned fortheir jokes; and certainly, modern-day Greeks havepainfully little to laugh about as their country slides

headlong into a depression, thanks to political intransigence amongst European politicians;nonetheless, Euripides was a man who made his mark on the theatrical world and, despite hisreputation as one of the great tragedians, he is widely acclaimed for having pioneered dramaticdevices that were later adapted to comedy:

(Wikipedia): Euripides is identied with theatrical innovations that have profoundlyinuenced drama down to modern times, especially in the representation of traditional,mythical heroes as ordinary people in extraordinary circumstances. This new approachled him to pioneer developments that later writers adapted to comedy, some of whichare characteristic of romance. Yet he also became "the most tragic of poets", focusing onthe inner lives and motives of his characters in a way previously unknown. He was "thecreator of ... that cage which is the theatre of Shakespeare's Othello, Racine's Phdre,of Ibsen and Strindberg," in which "... imprisoned men and women destroy each otherby the intensity of their loves and hates", and yet he was also the literary ancestor ofcomic dramatists as diverse as Menander and George Bernard Shaw.

Euripides' most famed works are familiar to anybody who studied the classics in school.

Heracles, The Suppliants, Helen, Medea, and Cyclops have all kept schoolchildren from havingfun spellbound for hours, but there is one dramatic device with which Euripides becameassociated that has led to even his most celebrated works being heavily criticized by dramaticscholars (and by that I don't mean scholars with a air for the dramatic, but rather those whostudy... oh, you know what I mean) down through the ages.

That dramatic device is known as deus ex machina, which literally translates as "god from themachine".

SALAMIS

Ancient Greece


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A deus ex machina plot device is something that solves a dramatic problem through the sudden(and often improbable) intervention of an outside agent in the form of a character, ability,object, or event.

(Wikipedia): Depending on how it's done, it can be intended to move the story forward

when the writer has "painted himself into a corner" and sees no other way out, tosurprise the audience, to bring a happy ending into the tale, or as a comedic device.

The rst recorded usage of the term deus exmachina is widely acknowledged to have comein Horace'sArs Poetica, in which he warnsaspiring poets never to use such a deviceto solve plot complexities. Horace makesreference to the usage of a primitive crane(mechane) by which the ancient Greeks used

to lower actors playing gods onto the stageat opportune moments in order to resolvesituations for which David E. Kelley himselfcould not have come up with a satisfactoryplot twist.

Anybody not see where I'm going with this?

The massive global build-up of credit and leverage, fueled by cheap money, that was allowed toourish in the years before the events of 2008 was as dead-end a plot progression as one couldpossibly imagine; and once the collapse post-Lehman manifested itself, it was clear that the

only possible way to advance the story without having to go through an inevitable, even morepainful second act, was through the use of a deus ex machina. And lo and behold, up steppedthe world's central bankers, all of whom were blissfully happy to be lowered by crane ontothe stage with instructions to employ whatever means they felt necessary no matter howimprobable these might seem to the audience to move the story quickly towards the happyending so craved by those in attendance.

Of course, one of the beauties of such dramatic devices is that, human nature being what itis, the audience is nearly always complicit in their willing suspension of disbelief which,incidentally, is another term coined by a writer, this time Samuel Taylor Coleridge, who

concluded, quite rightly, that:... if a writer could infuse a "human interest and a semblance of truth" into a fantastictale, the reader would suspend judgment concerning the implausibility of the narrative.

Perhaps these writer fellows are onto something.


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Certainly, since the events of 2008, the "audience" has been only too happy to accept asperfectly normal many situations that previously would have had them stalking out of thetheatre in droves.

I have covered many of these improbable situations in the pages of Things That Make You Go

Hmmm... as well as in my various presentations, but the key point bears reinforcement: weare living in the midst of a gigantic laboratory experiment with all the attendant possibilities ofsomething going BANG!

The more I ponder the situation in which the world nds itself as we approach the fthanniversary of the Lehman bankruptcy, the more it is apparent to me that the deus ex machinaebeing dropped into each and every market around the world right now by our central banks, aredangling from a very rickety crane indeed.

The story so far is one of credit. Credit and debt. Credit and debt and confusion about the truedriving forces behind world growth.

As can clearly be seen in the chart below, courtesy of the St. Louis Fed, the expansion of USGDP over the last 85 years pales in comparison to the growth in credit liabilities outstandingover the same period. In fact, since 2008, outstanding credit has picked up markedly and isonce again tracing out a far steeper trajectory than GDP.

-10,000

0

10,000

20,000

30,000

40,000

50,000

60,000

1929 1939 1949 1959 1969 1979 1989 1999 2009 2012

All Sectors: Credit Market Instruments (liabilities)

United States: Total Credit Market Instruments vs GDP1929-2012

US Gross Domestic Product

Source: St. Louis Fed

Felix Salmon addressed this phenomenon back in early 2012:


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(Reuters): From 1970 through the beginning of the crisis in 2008, [US] GDP grew at apretty steady pace. But the amount of debt required to generate that output just gotbigger and bigger the rate of growth of the credit market was much faster than therate of growth of GDP.

In 1970, GDP was $1 trillion while the credit market was $1.6 trillion: a ratio of 1.6 to 1.By 2000, when GDP reached $10 trillion, the credit market had grown to $28.1 trillion: aratio of 2.8 to 1. And by mid-2008, when GDP was $14.4 trillion, the credit market was$53.6 trillion. Thats a ratio of 3.7 to 1.

But, of course, this hasn't mattered to the audience, who thus far have felt richer, seen theirstandard of living improve, and enjoyed unprecedented prosperity, as rst the West and latterlythe East have boomed.

This story of credit outstripping real growth is hardly conned to the USA.

Take Australia for example. Slightly different credit metric, eerily similar chart:

Source: Mark the Graph


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China? Well, they're not quite as forthcoming, of course, but a look at private-sector debt as a% of GDP certainly gives you the idea. Throw into the mix the stimulus package equal to 16% ofGDP that was announced by the Chinese in November 2008, and the estimate (from S&P) thatoutstanding Chinese shadow banking credit totaled $3.7 trillion by the end of 2012 (equal to34% of on-balance-sheet loans and 44% of GDP), and the picture starts to come into focus.

30

60

90

120

150

1977 1982 1987 1992 1997 2002 2007 2012

Total Chinese Private Sector Credit (%)

Chinese Private Sector Debt (as % of GDP)1977 - 2012

Source: Bloomberg

But what ingenious plot devices have the lowered gods been using to extricate the actors fromthe corner into which they have painted themselves?

Well, in a nutshell, they have taken a leaf out of The Book of Bruce (Dickinson) ... and calledfor more cowbell.


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Source: Saturday Night Live

Now, I'm probably being presumptuous in assuming that everyone has seen the famous "MoreCowbell" sketch from Saturday Night Live, so I include a link to it above; but, according toanecdotal evidence provided by none other than Christopher Walken himself in a Q&A sessionwith Details.com, the sketch has certainly made it to my part of the world:

(Details.com): Q: A lot of guys my age are obsessed with your More cowbell routinefrom Saturday Night Live.

A: I was eating in a restaurant in Singapore, and an Asian couple was at the next table,and the guy turned to me and he said, Chris, you know what this salad needs? I said,

What? He said, More cowbell.QE has become the ultimate plot device of central bankers around the globe and, as manyhave predicted, they have now reached the point where the chances of extracting themselvesgracefully have diminished to the point of virtual invisibility.

We have already seen QE morph from a switch...

(Alan Blinder): Chairman Bernanke rst outlined the major components of its strategy inhis July 2009 Congressional testimony, followed by a speech in October 2009 and furthertestimonies in February and March 2010. So by now we have a pretty good picture of theFeds planned exit strategy. Here are the key elements, listed in what may or may not

prove to be the correct temporal order:

1. In designing its [extraordinary liquidity] facilities, [the Fed] incorporated features... aimed at encouraging borrowers to reduce their use of the facilities as nancialconditions returned to normal

2. normalizing the terms of regular discount window loans

3. passively redeeming agency debt and MBS as they mature or are repaid
http://vimeo.com/39387904http://vimeo.com/39387904


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4. increasing the interest on reserves

5. offer to depository institutions term deposits, which ... could not be counted asreserves

6. reducing the quantity of reserves via reverse repurchase agreements7. redeeming or selling securities in conventional open-market operations.

... in which things are simply turned off once "normal conditions have been restored", to a dial:

(FOMC Minutes, May 2013): The Committee will closely monitor incoming information oneconomic and nancial developments in coming months. The Committee will continueits purchases of Treasury and agency mortgage-backed securities, and employ itsother policy tools as appropriate, until the outlook for the labor market has improvedsubstantially in a context of price stability.

The Committee is prepared to increase or reduce the pace of its purchases tomaintain appropriate policy accommodation as the outlook for the labor market or

ination changes. In determining the size, pace, and composition of its asset purchases,the Committee will continue to take appropriate account of the likely efcacy and costsof such purchases as well as the extent of progress toward its economic objectives.[emphasis added]

The Fed simply dials the stimulus up or down, depending on the market's requirements. Genius!What could be better?

But since the word tapering has entered the Fed's lexicon, things have been getting a littlescrewy around Chairman Bernanke's communications with the media.

It has become more than apparent to anyone paying attention that the market is focused on QEto the point of xation, and now the gods have gotten themselves into something of a pickle asthey try to advance the story.

Courtesy of this great chart from Soberlook, let's see what "tapering" might actually look like,shall we?


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Source: Soberlook

And there we have the facts of life on "tapering": the Fed's balance sheet will grow at an ever-so-slightly less steep rate once they start to taper.

Excellent!

Oh, but the fuss!

Stocks Plummet on Fed Tapering Fears The Street

Mortgage Rates Surge as Fed Tapering Fears Mount CNBC.com

Stocks Drift Higher as Weak Data Cool Tapering Fears Fox Business

Bernanke's QE Dance: Fed Could Taper in Next Two Meetings Forbes

Fed's Bullard wants ination pickup before tapering QE Reuters

Fed could start tapering QE3 this summer: Williams Marketwatch


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One thing that SHOULD be clear is that the audience has now completely forgotten about theplay and is focused solely on the gods as they bounce about on the stage, waving their arms andagonizing over which of their dramatic devices to use in order to move the story along to itshappy conclusion.

Will they use more cowbell ... or will they use less cowbell?

In Japan, the answer is "More Cowbell!"

Source: ECB, FRB, Boe, BOJ, Credit Suisse

In England, with Mervyn King about to give up his seat at the credenza and hand the pen andnotepaper to Mark Carney, we hear a familiar sound:

(UK Daily Telegraph): Mark Carney will try to devalue the pound by as much as 15pcafter he takes over as Bank of England Governor in July in a last ditch attempt tocement the UK recovery, Pimco, the worlds largest bond house, has warned....

I think a lot of what Mark Carney is going to do clearly hes not going to state thisupfront is to try and keep sterling certainly from going up and, probably, hes going towant to see it go lower, [Mike] Amey [PIMCO managing director and sterling bond head]

said....

He added that he expected Mr Carney to restart quantitative easing (QE) to buy gilts "asone of the routes to talk the currency down". Andrew Balls, Pimcos European head anda member of its global investment committee, added: "With growth models hampered,lots of countries are looking to the trade channel to try to improve growth and thatleads you to the exchange rate channel".

More cowbell!!!


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Even in Europe, Mario Draghi seemingly has a fever, and the only prescription is ... you guessedit: MORE COWBELL!!!

(Reuters, May 2, 2013): The European Central Bank cut interest rates for the rst timein 10 months on Thursday and held out the possibility of further policy action to support

the recession-hit euro zone economy.... Draghi stuck with the ECB's forecast thateconomic recovery will take hold later in the year but highlighted "downside risks" tothat position.

The ECB would "monitor very closely" all incoming evidence, Draghi said, a phrase whichin the past has suggested further policy action to come....

The sudden slump in price pressures has also raised the possibility of the ECB having tolook at policy tools beyond interest rates to counter any further slide in ination.

"Ultimately, we think the ECB will have to purchase private-sector assets in order to x

the transmission mechanism," said Andrew Bosomworth at PIMCO, the world's largestbond fund.

Such asset purchases could take the ECB into the realm of quantitative easing (QE) creating money to buy assets, a policy it has so far eschewed but which other majorcentral banks have embraced.

Berenberg Bank's Holger Schmieding said that if other institutions, such as theEuropean Investment Bank, helped promote an ABS market for SME loans, the ECB couldeventually pave a way to some quantitative easing.

The ECB could accept such packaged loans as collateral at its liquidity operations, oreven buy them outright, he said.

"If so, this would extend the ECB's toolbox and could potentially open the way for alittle 'quantitative easing' by the ECB later on," Schmieding added.

Ah yes, that's how it starts: "a little quantitative easing", especially since all the cool kids aredoing it.

But peer pressure is a dangerous thing after all, if you're "easing" and there's one kid whoisn't, it's human nature to try to get that one kid to join the gang.

Not surprisingly, then, on May 21st, 2013, the cool kids blatantly ganged up on Draghi,increasing the pressure on him to give them more damn cowbell:

(Bloomberg): Federal Reserve Bank of St. Louis President James Bullard said Europerisks an extended period of low growth and deation like Japans unless the EuropeanCentral Bank acts with an aggressive quantitative easing program.


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You should worry about it, and then take policy action to avoid it, Bullard said inFrankfurt today in response to an audience question after a speech. You want to be

pretty sure that you dont get stuck in that situation, and one way to get stuck would beto be passive in this situation and not take some aggressive action to try to get inationback....

Speaking in the ECBs home town, Bullard said the central banks governing council maywant to consider a quantitative easing program thats weighted to account for grossdomestic product differences in the 17-member euro area.

Meanwhile the very same day, across the Atlantic, RBoC Governor Mark Carney stepped to themicrophone to say his goodbyes to Canada as he left for the mustier connes of the Bank ofEngland, but he opted to talk about ... well, read for yourself:

(WSJ): Europe faces a decade of stagnation without sustained and signicant reforms,Mark Carney, the incoming governor of the Bank of England, warned Tuesday.

Mr. Carney, currently Canadas top central banker, said Europe can draw lessons fromJapan on the dangers of taking half measures.

Its been almost six years since the global nancial crisis, but Europe remains miredin recession, scal austerity, low condence and tight credit conditions restrainingeconomic activity, he said.

Deep challenges persist in its nancial system. Without sustained and signicantreforms, a decade of stagnation threatens, Mr. Carney said in his nal public address as

governor of the Bank of Canada.

Conspiracy? Coincidence? A slip of the veil? Who knows?

All I DO know is this:

No matter how hard the various and sundry gods decide they need to hit the cowbell, they haveleft themselves an essentially impossible task. Commentators talk about their having to "threadthe needle"; but if that is indeed the right analogy, then they'll have to thread it by throwingthe cotton through the eye of the needle from across the room blindfolded.


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Source: Things That Make You Go Hmmm...

Already, the rising sensitivity of markets to ANY kind of increased chatter from the gods ismaking it clear that, unless they execute awlessly, they are going to have a disaster on theirhands, as was demonstrated perfectly by last Friday's market action.

The chart below is the S&P 500, and as you can see, it fell pretty hard in the afternoon session.Why?

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10:00 11:00 12:00 13:00 14:00 15:00 16:00

S&P500: May 31, 2013

Source: Bloomberg

Well, according to Zerohedge, it came down to 34 little words:


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(Zerohedge): There is much consternation about what triggered today's rapid escalationof selling pressure in US stocks. As the evening wends on and traders sip their Absinthe,it appears an embargoed record of the Fed's Advisory Panel minutes was at least a majorconcern as it raised the very real specter that those in charge are concerned at themonster they have created:

"There is also concern about thepossibility of a breakout of ination, althoughcurrent ination risk is not considered unmanageable, and of an unsustainablebubble in equity and xed-income markets given current prices."

"Unsustainable bubble"? And this not from some fringe blog but from ... central bankers?

And there were some bonus words, which have to be read to be believed:

Uncertainty exists about how markets will reestablish normal valuations whenthe Fed withdraws from the market. It will likely be difcult to unwind policy

accommodation, andthe end of monetary easing may be painful for consumersand businesses. Given the Feds balance sheet increase of approximately $2.5trillion since 2008, the Fed may now be perceived as integral to the housing

nance system.

Now, if that is the reaction to any suggestion that the Fed is just looking at thepossibilities ofwhat might happen if they did decide topotentiallypull back QE ... what does the world looklike when they go ahead and do it?

Well, fortunately, the good folks at Bianco Research this week demonstrated quite succinctlyhow the S&P 500 reacts to QE On/QE Off and Taper/No Taper (Thanks, GN):

First Non QE Period March 31, 2010 to August 27, 2010 (-8.97%)

QE 2 August 27, 2010 to June 30, 2011 (22.81%)

Second Non QE Period June 30, 2011 to August 26, 2011 (-9.99%)

Operation Twist August 26, 2011 to April 4, 2012 (18.88%)

Hilsenrath Says QE to End with Twists End April 4, 2012 to June 6, 2012 (-5.99%)

Hilsenrath Backtracks on QEs End June 6, 2012 to August 17, 2012 (7.83%)

QE 3 August 17, 2012 to November 29, 2012 (-0.16%)

QE 3 Expanded - November 29, 2012 to May 1, 2013 (12.82%)

FOMC Says Increase or Reduce May 1, 2013 to Present (4.53% as of May 30, 2013)

What can be clearly seen here is the new-found reliance that the market has placed on thecommunication of Fed policy.


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Whether it comes from the mouths of the committee members themselves (as the Zerohedgearticle points out), or from media stooges who have been designated as quasi-ofcialspokesmen (180 seconds after the release of most recent Fed minutes, the WSJ's Hilsenrathpublished a 410-word piece titled "Parsing the Fed Minutes: Debating When To Pull Back". Comeon! Please! At least make an EFFORT to make it look like he didn't get a head start, guys),the market is watching for any sign that the free-money spigot is about to be turned off, andinvestors are ready to dump stocks at the drop of a hint hat.

That doesn't make threading that needle any easier.

Meanwhile, over in Japan, as I pointed out last time, a similar situation is brewing only withtwo VERY signicant differences: the stakes are MUCH higher (for now, at least), and the BoJgods are even more hopeless than their US counterparts at communicating their intentions tothe market. Their ineptitude is reected in the elevated level of volatility in both the Nikkeiand the JGB markets.

A random selection of Bloomberg alert headlines from the last month or so speaks to thecommunication difculty:

Kuroda Wants to Avoid Increasing Volatility in Bond Market

Kuroda Condent Boj Can Buy Bonds as Pledged

Boj's Kuroda Pledges All Necessary Steps for 2% Ination

Abe Says It's Possible Boj Will Fail to Reach Ination Target

Abe Says Economy Subject to Unforeseen Circumstances

Kuroda: Forex Intervention Is Govt's Responsibility

Kuroda Says Price Rises Without Wages Gains Are Undesirable

Kuroda Says Boj Has Done What's Necessary and Possible for Now

Two simple charts (top: Nikkei, bottom:JGB futures) will demonstrate the dangersof uncertainty, when the gods are loweredonto the stage and the audience looks to

them to resolve the seemingly intractabledifculties and conjure up a way (no matterhow implausible) to move everything swiftlyforward to the happiest of endings ... andthey dither.

Sometimes, even greats like Euripides, Sophocles, and Aeschylus found themselves in situationsso impossible to resolve that the audience refused to play ball and willingly suspend theirdisbelief.


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I didn't serve with Euripides, Sophocles, or Aeschylus. I didn't know Euripides, Sophocles, orAeschylus. Euripides, Sophocles, and Aeschylus weren't friends of mine. But Governor / Mr.Chairman, you're no Euripides, Sophocles, or Aeschylus.

Source: Bloomberg


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So there we have it. The audience is forced to watch as the gods bang the cowbell andspout the worst dialogue since Ever After, when Drew Barrymore's character, Danielle (thepurported inspiration for Cinderella), tries to explain to Leonardo da Vinci (just go with it) thehopelessness of her romance, with this bit of brilliance:

"A bird may love a sh, signore, but where will they live?"

(I had young kids in 1998.) Meanwhile the plot gets ever more mangled as unemployment soarsacross Europe, China slows down markedly, commodities markets smell deation, and the USis undecided as to whether it is undergoing a real recovery. With bit-part players like Australiaand Canada starting to get a little shaky with their lines and ination once again beginning tobite in Brazil, there is no telling how the gods will manage to get everything to come out rightthis time.

All we do know is that whatever they come up with will need lots of cowbell accompaniment.

*******There's plenty for you to get your teeth into this week, including three pieces from AmbroseEvans-Pritchard (who has been on a roll lately), tackling EU unemployment, the slowing of thecredit cycle, and some curious developments in Portugal.

My great friend David Hay of Evergreen has a rare treat for us this week, as he is kind enoughto share the thoughts of Anatole Kaletsky on "Goldilocks and the Ten Bears"; Stephen Roach hasconcerns about the health of the American consumer; and we meet an aspiring lawyer fromOregon who failed the bar exam twice, locked his keys in his car, and ten years later won alandmark lawsuit that could open up an absolutely enormous can of worms.

Meanwhile, after a few months' absence from the front pages, Europe is warming up again;and this week an EU Commissioner calls Europe "truly abysmal" and calls for an overhaul, Irishofcials take the Potemkin Village analogy to new (and ridiculous) levels, and the EU gets toughwith France (nally) as the vaunted European core fractures just a little more.

The Economist weighs in on the great Japan debate; we look at charts of household debt, EUunemployment, and a fascinating take on physical gold demand, courtesy of Eric Sprott; and,as though that weren't enough, we have a video debate between gold bulls and bears, a historylesson from Jim Puplava, and Eric Sprott talking about that great chart plus a whole bunch ofother good stuff to boot.

Until Next Time.

*******


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Oregon law school graduate beats back $50,000 in student

loansThe nancial advice gets repeated as a mantra: Student loans are the one form of debt that

can't be forgiven, even in bankruptcy. But a Klamath Falls man has proven that's not alwaystrue.

Mike Hedlund waged a 10-year legal battle to force his lender to discharge most of the $85,000in federal student loans he built up while earning his 1997 law degree from WillametteUniversity in Salem. He argued that, even when working full-time and living frugally, he couldnot repay that much money and also maintain a minimal standard of living for himself and hisfamily.

Last week, in a decision that could affect debtors in eight states, a panel of the Ninth CircuitCourt of Appeals in Pasadena, Calif., ruled in Hedlund's favor.

It upheld a bankruptcy judge's ruling that Hedlund proved all three factors necessary to have$53,000 of his debt forgiven: He made a good faith effort to repay the money; he can't earnenough to both repay the money and maintain a basic standard of living; and his inability toearn substantially more is likely to persist.

One twist to the case: Hedlund was unable to make much use of his expensive law degree. Hefailed the Oregon bar exam twice in his rst year out of law school, then locked his keys insidehis car on the way to his third scheduled test, and so missed it entirely. He did not try again.

Instead, Hedlund got a $40,000-a-year job as a Klamath County juvenile probation ofcer, a job

he still holds.

"I had planned on making $200 an hour instead of $20 when I agreed" to take out loans totalingabout $100,000, Hedlund said.

But testimony from an employment expert convinced judges that Hedlund holds a good-payingjob for Klamath Falls and wouldn't likely earn a whole lot more as a starting lawyer there,particularly if he worked in the public sector.

Hedland expressed happiness and relief to have won, lowering his debt to $32,000 plus interest.

"I owe a car instead of a house now," he said. "It's huge for me. What I've wanted all along issomething I can afford," not having the slate wiped clean, he said.

He and his wife have three daughters, and his wife works one day a week. He coaches soccer onthe side to supplement his income and continues to live frugally, he said. "We don't go on manyvacations, other than day trips. My newest car is six or seven years old and our other one is a'96 Explorer."

"I am happy that maybe this will help someone else in their dealings with the student loanpeople," he added.


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When Hedlund graduated from Willamette, he owed two student loan companies. He struggledto pay either of them, but reached a deal with the smaller lender to repay $18,000 at $50 amonth....

*** OREGON LIVE / LINK

EU threatens France over economic failingsThe European Commission will use sweeping new powers backed by sanctions to imposecontroversial social and economic reforms on European countries later this week.

France, Spain and Slovenia are set to be criticised in a major commission report on Wednesdayas countries that have failed, amid recession and the nancial crisis, to cut public debt and toimplement structural reforms of their economies.

The commission is also expected to express concern over Britain, with a warning that thecontinuing credit crunch is jeopardising growth and attempts to cut public debt, although theGovernment, outside the eurozone, can escape the humiliation of having sanctions imposed.

European Union studies on macroeconomic imbalances have been given new teeth thisyear under eurozone governance legislation that gives the commission powers, backed bysubstantial nes, to override national sovereignty to impose reforms.

The macroeconomic imbalance procedure is very broad, intrusive and has, for the rsttime, teeth. Sanctions can be taken unless countries implement structural reforms, a senior

European ofcial told The Sunday Telegraph. This has moved on over the last 12 months froma naming and shaming exercise to interventions with a cutting edge for the eurozone. Thecommission is going to go much further than ever before.

Under the new eurozone rules, if a country fails to address the gravity of imbalances [it] caneventually lead to the imposition of sanctions on euro area member states under a new radicalprocedure that makes it easier for the commission to impose reforms.

Enforcement is strengthened by the expanded use of 'reverse qualied majority voting. Underthis voting system, a commission recommendation or proposal is considered adopted unless aqualied majority of member states votes against it, EU legislation agreed last November has

decreed.

Slovenia could be the rst country to trigger the new intrusive imbalance procedure amid alingering banking crisis that has been compared to Cyprus, but other countries, including Franceand Spain are expected to be given a red card....

*** UK DAILY TELEGRAPH / LINK
http://www.oregonlive.com/education/index.ssf/2013/05/oregon_law_school_graduate_bea.htmlhttp://www.telegraph.co.uk/finance/financialcrisis/10080922/EU-threatens-France-over-economic-failings.htmlhttp://www.telegraph.co.uk/finance/financialcrisis/10080922/EU-threatens-France-over-economic-failings.htmlhttp://www.oregonlive.com/education/index.ssf/2013/05/oregon_law_school_graduate_bea.html


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04 JUNE 2013

Europe Needs Overhaul, EU Commissioner SaysMany European leaders have recently suggested that the Continent is on the road to economicrecovery. EU Commissioner Gnther Oettinger, however, says the bloc is in a "truly abysmalstate" and that France, in particular, needs reform.

The European Union has done its best lately to exude optimism about its efforts to emergefrom the ongoing euro crisis. Not only have important steps been made, say EU leaders, butincreased political and economic integration mean that the future of the bloc is bright.

European Energy Commissioner Gnther Oettinger, however, would beg to differ. Oettinger,Germany's representative on the EU's executive body, held a speech on Tuesday at the German-Belgian-Luxembourgian Chamber of Commerce in which he outlined what he sees as the EU'sshortcomings.

"Europe is in dire need of an overhaul," he said, according to the German tabloid Bild. But

Brussels, he continued, "still hasn't recognized its truly abysmal state."

The commissioner reserved most of his bile for France, identifying it as a principal point ofconcern and saying that it "is not prepared at all for that which is necessary." Specically, hesaid that the country needs to undertake a far-reaching "pension reform, which in truth meanspension cuts." In addition, he demanded that the retirement age be raised and that the numberof public servants be slashed. He added that the country has "little innovation."

It is not the rst time that Oettinger has given public vent to his frustrations regarding the EU'spath. In an April interview with the Cologne daily Klner Stadt-Anzeiger, he said the EU crisiswouldn't be over for another decade and that, despite comments from European Commission

President Jos Manuel Barroso about austerity having reached its limits, Europe must continueto save.

"In the coming years, we can't offer services in the form of pensions, smaller class sizes, greaterpolice presence, fewer potholes and other benets" at the level we have until now, he said.

*** DER SPIEGEL / LINK

The American Consumer is Not Okay

The spin-doctors are hard at work talking up Americas subpar economic recovery. All eyes areon households. Thanks to falling unemployment, rising home values, and record stock prices, anemerging consensus of forecasters, market participants, and policymakers has now concludedthat the American consumer is nally back.

Dont believe it. First, consider the facts: Over the 21 quarters since the beginning of 2008,real (ination-adjusted) personal consumption has risen at an average annual rate of just 0.9%.
http://www.spiegel.de/international/europe/european-commissioner-oettinger-says-eu-needs-overhaul-a-902553.htmlhttp://www.spiegel.de/international/europe/european-commissioner-oettinger-says-eu-needs-overhaul-a-902553.html


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04 JUNE 2013

That is by far the most protracted period of weakness in real US consumer demand since theend of World War II and a massive slowdown from the pre-crisis pace of 3.6% annual realconsumption growth from 1996 to 2007.

With household consumption accounting for about 70% of the US economy, that 2.7-percentage-

point gap between pre-crisis and post-crisis trends has been enough to knock 1.9 percentagepoints off the post-crisis trend in real GDP growth. Look no further for the cause ofunacceptably high US unemployment.

To appreciate fully the unique character of this consumer-demand shortfall, trends over thepast 21 quarters need to be broken down into two distinct sub-periods. First, there was a 2.2%annualized decline from the rst quarter of 2008 through the second quarter of 2009. This wascrisis-driven carnage, highlighted by a 4.5% annualized collapse in the nal two quarters of2008.

Second, this six-quarter plunge was followed, from mid-2009 through early 2013, by 15 quarters

of annualized consumption growth averaging just 2% an upturn that pales in comparison withwhat would have been expected based on past consumer-spending cycles.

That key point appears all but lost on the consumer-recovery crowd. In recent speechesand discussions with current and former central bankers, I have been criticized for focusingtoo much on the 0.9% trend of the past 21 quarters and paying too little attention to the 2%recovery phase of the post-crisis period.

At least its a recovery, they claim, and a sign of healing that can be attributed mainly to theheroic, unconventional efforts of the US Federal Reserve.

This brings us to the second part of the argument against optimism: analytics. One of therst concepts to which an economics student is exposed in a basic macro course is pent-upconsumer demand. Discretionary consumption is typically deferred during recessions, especiallyfor long-lasting durable goods such as motor vehicles, furniture, and appliances. Once therecession ends and recovery begins, a stock-adjustment response takes hold, as householdscompensate for foregone replacement and update their aging durable goods.

Over most of the postwar period, this post-recession release of pent-up consumer demand hasbeen a powerful source of support for economic recovery. In the eight recoveries since theearly 1950s (excluding the brief pop following the credit-controls-induced slump in the 1980s),the stock-adjustment response lifted real consumption growth by 6.1%, on average, for vequarters following business-cycle downturns; spurts of 7-8% growth were not uncommon for aquarter or two.

By contrast, the release of pent-up demand in the current cycle amounted to just 3%annualized growth in the ve quarters from early 2010 to early 2011. Moreover, the strongestquarterly gain was a 4.1% increase in the fourth quarter of 2010.

This is a stunning result....

*** STEPHEN ROACH / LINK
http://www.project-syndicate.org/commentary/america-s-over-hyped-consumer-recovery-by-stephen-s--roachhttp://www.project-syndicate.org/commentary/america-s-over-hyped-consumer-recovery-by-stephen-s--roach


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04 JUNE 2013

Portuguese bestseller calls for euro exitPortugal is waking up. A new book calling forwithdrawal from the euro and a return to the escudohas vaulted to the top of the bestseller list.

The incendiary tract Porque Debemos Sair doEuro (Why We Should Leave The Euro) is writtenby Professor Joo Ferreira do Amaral from the InsitutoSuperior de Economia e Gesto (ISEG).

The professor has already secured the backing of LusAntnio Noronha Nascimento, the chief justice ofPortugals Supreme Court.

This follows the apostasy of Jernimo de Sousa, the

Secretary-General of the Portuguese Communist Party, who has called for a referendum onboth the euro and the EU. De Sousa says the EU is unreformable, has been hijacked by adirectorate of dominant powers, and has led to the death of Portuguese sovereignty.

The new book makes a poignant parallel with Portugals subjugation by Phillip II of Spain, andits travails as a captive province of the Spanish Empire for 60 years.

In 1581 Portugal surrendered to Spain. In 1992 it laid itself at the feet of a EuropeanCommission increasingly answering to Germanys tune. There was no referendum, the voterswere never consulted. The Portuguese elites, who hoped to benet richly from EuropeanStructural Funds, cavalierly handed over our currency and with it our monetary sovereignty.

The rest is history.

From 2008 onwards, the European Commission broke with tradition and became an organ atthe service of a new power. The Portuguese economy succumbed, choked by the new Mark.The tragedy was widely foretold in advance. In the 1990s several voices had alerted us to thedangers of joining the single currency.

One of them of course was the economist Joo Ferreira do Amaral himself, now relishing hisbitter/sweet moment of vindication. The nub of his argument is that euro exit is not a luxurychoice. It is the only possible way for Portugal to recover under the current EMU structure.

Unlike some, the Professor does not think the situation will get any better for Portugal if theeurozone crisis calms down. On the contrary, the deeper damage will be ever greater.

He warns that the euro could rise to $1.50 or $1.60 to the dollar, leading to the naldevastation of Portugals manufacturing industry (which often competes directly with China,emerging Asia, and North Africa).

This debate was bound to occur eventually. Portugals EMU position is self-evidently untenable,though many on this blog thread insist otherwise.


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04 JUNE 2013

Its combined (non-nancial) public and private debt has hit 370pc of GDP, the highest inthe world after Japan. The difference is that Japan remains a fully sovereign nation with asovereign central bank and currency, and can therefore do something about it.

The Portuguese economy is shrinking by 3pc to 4pc a year and keeps missing its decit targets

like Greece before it, though less dramatically as it chases its own tail in a downwarddeationary spiral. The crucial point is that nominal GDP is contracting violently. This meansthat the nominal debt load is rising on a shrinking nominal base, what is known as a negativedenominator effect.

Do the leaders of Portugal fully understand the implications of this? Does the brilliant nanceminister Vitor Gaspar an ECB veteran have a credible answer to this fundamental point?Does he recognise that the policy of internal devaluation must necessarily make this worse?...

*** AMBROSE EVANS-PRITCHARD / LINK

Recession out of the picture as Fermanagh puts on a brave

face for G8 leadersHundreds of thousands of pounds have been spent on a Fermanagh facelift as the countyprepares for the G8 summit in just under three weeks time, but locals complain the work paidfor by the local council and the Stormont Executive is little more than skin deep.

More than 100 properties within range of the sumptuous Lough Erne resort which hosts the

worlds wealthiest leaders, have been tidied up, painted or power-hosed.

However, locals say the makeover only serves to hide a deeper malaise which US presidentBarack Obama, German chancellor Angela Merkel, French president Franois Hollande andothers will not get to see.

Two shops in Belcoo, right on the border with Blacklion, Co Cavan, have been painted over toappear as thriving businesses. The reality, as in other parts of the county, is rather more stark.

Just a few weeks ago, Flanagans a former butchersand vegetable shop in the neat village was cleaned

and repainted with bespoke images of a thrivingbusiness placed in the windows. Any G8 delegatepassing on the way to discuss global capitalism wouldeasily be fooled into thinking that all is well with thefree-market system in Fermanagh. But, the facts aredifferent.
http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100024723/portuguese-bestseller-calls-for-euro-exit/http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100024723/portuguese-bestseller-calls-for-euro-exit/


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04 JUNE 2013

Jim Sheridan, director of Belcoo Enterprises Limited, welcomes any attempt to tidy the areabut laments the wrecking effects recession and the demise of the Celtic Tiger have had locally.

That work happened just a few weeks ago, he said. The council got that place painted butit went under sometime last year. A lot of people round here worked in construction and that

work has gone now.

The butchers business has been replaced by a picture of a butchers business. Across the road isa similar tale. A small business premises has been made to look like an ofce supplies store. Itused to be a pharmacy, now relocated on the village main street.

Elsewhere in Fermanagh, billboard-sized pictures of the gorgeous scenery have been located tomask the occasional stark and abandoned building site or other eyesore.

All is paid for by so-called dereliction funding. About 300,000 was made available by theDepartment of the Environment and the Department for Social Development. A second round of

funding is expected. Late last year the council wrote to the owners of properties in need of afacelift seeking permission for the work. The scheme was put together with the greatest hasteto make sure the properties, mostly in Enniskillen itself, were authorised for improvements.

Council chief executive Brendan Hegarty said at the time the initiative was a phenomenalopportunity.

We want to present the county as best as we can and promote it in terms of industry andtourism, he said....

*** IRISH TIMES / LINK

Goldilocks And The Ten BearsTwo weeks ago, as the S&P 500 soared out of the trading range in which it had been trappedfor 13 years we suggested that this break-out could mark the start of a secular bull marketin global equities. This idea provoked derision and even outrage from many clients. While wecannot do justice to all of the objections we received, it seemed helpful to summarize the maincriticisms and offer a defence of our bullish position. The counter-arguments we heard mostoften can be grouped under ten headings. To put things more colorfully, Goldilocks in the fairy

tale faced only three bears, but our views are under attack from at least ten bears, with plentyof others lurking in the shadows.

Bear #1: There is no convincing evidence yet that the US will avoid another summer slowdownand the global economy has not yet improved sufciently for a bull market to take off.

Goldilocks: The US economic indicators are looking increasingly healthy, the slowdown in Marchand April seems to have been an aberration, maybe due to cold weather. Europe is still veryweak but it is no longer that important and the rest of the world is in decent shape.
http://www.irishtimes.com/news/recession-out-of-the-picture-as-fermanagh-puts-on-a-brave-face-for-g8-leaders-1.1409112http://www.irishtimes.com/news/recession-out-of-the-picture-as-fermanagh-puts-on-a-brave-face-for-g8-leaders-1.1409112


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04 JUNE 2013

Because of the rapidly increasing weight of fast-growing emerging markets in the globaleconomy, the 3.3% global growth forecast by the International Monetary Fund this year is onlya little slower than the average of 3.6% from 1995 to 2004. And even if the US and the worldeconomy do run into another summer soft-patch, this will merely mark a pause in the post-2009

recovery and act as the launchpad for the next powerful leg of the bull market, to judge bythe experience of the past four years. In any case, the economic outlook is never clear in theearly phase of a bull market. If evidence for global economic recovery were unambiguous andundeniable, then equity prices would already be much higher.

Bear #2: In that case, how can you say that this is the start of a new bull market? This rallystarted in April 2009. This isnt a frisky young bull with lots of upside potential but a geriatricready for the knackers yard.

Goldilocks: The gains of the past four years were merely a recovery from one of the worstbear markets on record. Many investors were convinced that this was a dead cat bounce, to be

followed by another slump once the losses of 2008 were retraced.

If the S&P 500 had recoiled from its 2000 and 2007 highs, bears would have hailed this as proofthat equities were still stuck in a long-term trading range, with a serious risk that the lowerhalf of the 13-year range was re-tested. But the S&P has now risen 6.5% above its previousall-time high. In the past 100 years each time US stock prices have broken decisively throughprevious record highs, large further gains have followed ranging from 20% to 900%. Of course,past performance does not prove anything, but

it does remind that equity prices generally break out of previously established ranges for goodreasons; because bullish forces are gaining ground in the world economy, even when analysts do

not yet detect them.

Bear #3: But this break-out has nothing to do with economic fundamentals. It is totallydependent on monetary stimulus mainly from the Federal Reserve but now also from theBank of Japan.

Goldilocks: That may or may not be true, but who cares? As long as the stimulus continuesequity investors will keep making money. And we now know that the stimulus will continue untilthe US economy is growing fast enough to get unemployment to 6.5%. So either the centralbanks will succeed in stimulating stronger growth (at least in nominal GDP) or they will keepon printing money. Either scenario is bullish for equities. As the Roman Emperor Vespasian

remarked when he taxed public toilets to raise money,pecunia non olet (money doesntsmell)....

*** ANATOLE KALETSKY V IA DAVID HAY / FULL COMMENTARY (EMAIL)
mailto:dhay%40evergreencapital.net?subject=Things%20That%20Make%20You%20Go%20Hmmm%E2%80%A6%20Referralhttp://localhost/var/www/apps/conversion/tmp/scratch_8/[email protected]:dhay%40evergreencapital.net?subject=Things%20That%20Make%20You%20Go%20Hmmm%E2%80%A6%20Referral


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04 JUNE 2013

ShockingIT IS the one thing that was not supposed to happen. On April 4th the Bank of Japan (BoJ)announced its shock-and-awe plan to hoover up 7 trillion ($68 billion) of government bonds amonth and double the monetary base. But instead of producing rising bond prices and fallingyields, the central banks actions have so far led to the opposite. On May 23rd the yield onten-year Japanese government bonds touched 1%, three times higher than before the BoJsApril announcement. And on the same day Japanese stocks plunged, with the Nikkei 225 indexdropping by 7% (see chart). Could Abenomics, the economic-revival plan of Shinzo Abe,Japans prime minister, already be coming unstuck?

The most tangible success for Abenomics had been a soaring stockmarket: the Nikkei shareindex rose by 79% in the year to May 22nd. Although its fall since its peak reached 13% on May30th, this partly reects prot-taking.

But the spike in bond yields is continuing to unnerve investors. In April Haruhiko Kuroda, thegovernor of the BoJ, had said the bank would encourage further falls in nominal interest rates.Given the rise in bond yields since, says Naka Matsuzawa, chief strategist at Nomura Securities,an investment bank, you can say that the easing by the Bank of Japan has in one sense alreadyfailed.

The nub of the problem is that the banks twin aimsgenerating ination and bringing down yieldsaresomewhat contradictory. Holders of low-yieldinggovernment bonds who believe that the BoJ willachieve its ination target of 2% in two years may

respond by selling. Their sales over the past fewweeks have pushed up nominal yields far more quicklythan the BoJ expected. Higher ination, which wouldbring down real rates, has not yet arrived. Pessimiststherefore argue that borrowing costs are rising, posinga threat to any early economic recovery.

Optimists see things differently. First, they pointout, bond yields may have simply returned to theirrecent trading range; at around 0.3% just before the

BoJs April announcement they were unusually low, even for Japan. Second, the banks aim togenerate ination expectations seems to have succeeded (at least in the case of bond traders).And third, higher volatility in bond yields is to be expected after such a big intervention by thecentral bank.

Both Taro Aso, the nance minister, and Mr Abe last week called on the BoJ to reassure thebond market. Mr Kuroda has made some confusing statements. On May 22nd he said that thespike in rates would not affect the economy.


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But he also argued that the central bank does not have full control over long-term rates. Afterplunging stockmarkets compounded worries about bond-market volatility, Mr Kuroda pledged todo more to keep rates stable.

A particular fear is that higher volatility could provoke a repeat of the value-at-risk shock

of 2003, when market-risk models spurred further selling once volatility triggers had beenbreached. The worst scenario is that bond-market volatility could focus attention on Japanspublic debt, which stands at nearly 250% of GDP. Owning so many government bonds, banks areheavily exposed to any rise in yields: an increase of only one percentage point would mean aloss of 10 trillion for Japans banks overall, according to J.P. Morgan.

So far there is no connection between volatile bond yields and the scal position, says anofcial at the nance ministry. Mr Kuroda reminded the government this week that it, too,has a role to play in reassuring bond investorsby pursuing scal consolidation. It soon has todecide whether to go ahead with a planned rise in the consumption tax in April 2014 to boost

tax revenues. A package of structural reforms to boost long-term economic growth, the detailsof which will be announced soon, would also calm nerves.

*** ECONOMIST / LINK

No saviour in sight as world credit cycle rolls overThis may be as good as it gets for the world economy. The HSBC index for the global businesscycle hit a three-year high around Easter, and has since rolled over.

Any country that has failed to lock in a self-sustaining recovery by now must expect to pay theprice for the failings of its policy establishment, and some risk a slide into outright deation.

We see building evidence of a cyclical downturn, said Fredrik Nerbrand, HSBCs global assetguru. We nd it highly troubling that the eurozone is still marred in a recession at the sametime as our cyclical indicators appear to have peaked.

The bank said there is a market disconnect between the worlds gloomy outlook and talkof tapering by the US Federal Reserve, the supposed moment when it starts to wind down its$85bn of monthly bond purchases.

It is surprising to me that HSBCs leading indicator has taken so long to buckle, sincecommodities topped in September and the Dutch CPB index of world trade contracted over theFebruary-March period. Rarely has there ever been such an equity boom on such quicksand.
http://www.economist.com/node/21578701http://www.economist.com/node/21578701


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04 JUNE 2013

Mr Nerbrand said slowing momentum should send shivers down the spine of any investors thatare long risk. Yet markets are betting that central banks will come to the rescue yet again ifneed be. This may be so, but only after they have rst struck a blow against moral hazard anddemonstrated their distaste for asset bubbles. The central banks take their time. Mr Nerbrandsays they will not act until the markets have already priced in a sub-optimal outcome, CanaryWharf dialect for a nasty sell-off.

HSBC said it is cutting its holdings of high yield credit, emerging market debt, gold and realestate REITs. It is plumping instead for US Treasuries, the least rotten apple in the barrow. Anastonishing 42pc of its tactical portfolio is now in US Treasuries.

We have been through these episodes of putative Fed tightening twice since the Lehman crisis.Markets tanked in 2010 and again in 2012 after the Fed turned off the spigot.

It took a while for the Fed to recoil on both occasions, and it may take even longer this time.Key insiders are fretting that the longer QE goes on, the harder it will be to unwind. The global

consensus for QE is, in any case, crumbling. The Bank for International Settlements has more orless said that emergency stimulus is becoming a dangerous addiction.

Much of this critique is, in my view, misguided, and risks a repeat of the Feds great policy errorof 1937, when it killed recovery stone dead. Yet QE critics clearly have a point. As Pimcos BillGross puts it, there are bubbles everywhere. The Credit Suisse index of Global Risk Appetitehas been irting with the euphoria line, not far short of levels seen in 1987, 2000 and 2007.

The share of leveraged cove-lite loans issued this year without covenant safeguards hasbeen twice as high as in 2007, the last peak just before Armaggedon. Companies are borrowingcheap to buy back their own stock at nosebleed prices, and doing so en masse with the carefreeabandon of those pre-Lehman days. By some estimates this has driven half the US equity gainsthis year. No wonder Fed hawks such as Richard Fisher are watching this with horror....


Bonds Drop Globally as Stocks Reach Highs on Growth

Optimism

Global bond markets posted their biggest monthly losses in nine years in May as the U.S. dollarrallied and stocks reached record highs amid speculation a strengthening U.S. economy willallow the Federal Reserve to reduce its monetary stimulus.

The over $40 trillion of bonds in the Bank of America Merrill Lynch Global Broad Market Indexfell 1.5 percent on average, led by a 2 percent drop in Treasuries. The MSCI World Index lost 0.3percent while the Standard & Poors 500 reached a record high. The U.S. Dollar Index jumped2 percent as the greenback gained versus all its major peers. The S&P GSCI Total Return Indexof metals, fuels and agricultural products dropped 1.5 percent a month after falling the mostsince May 2012.
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/10087843/No-saviour-in-sight-as-world-credit-cycle-rolls-over.htmlhttp://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/10087843/No-saviour-in-sight-as-world-credit-cycle-rolls-over.html


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04 JUNE 2013

Employment gains and increases in housing and consumer condence suggested the recoveryin the U.S. economy, the worlds largest, is gaining momentum, prompting traders to increasebets the Fed will scale back its $85 billion in monthly debt purchases later this year. TheOrganization for Economic Cooperation and Development predicts faster global economicgrowth, led by the U.S. and Japan.

Investors attempt to access what the Fed will do with its bond-buying program has beenpretty central to the performance of all asset classes, Neil Mackinnon, a global macrostrategist at VTB Capital Plc in London, said May 30 in a telephone interview. The markets arevery sensitive to the idea that the Fed might ease back on their debt purchases.

Bernanke Testimony

Yields on U.S. Treasuries, German bunds and U.K. gilts are all forecast to rise by year-end fromcurrent levels, while those in Japan may fall, according to separate surveys of analysts byBloomberg News.

Fed Chairman Ben S. Bernanke said during a response to questions following Congressionaltestimony on May 22 that the central bank could consider reducing the amount of Treasuriesand mortgage debt it buys within the next few meetings if ofcials see signs of sustainedimprovement in the labor market.

The OECD sees growth among all its member countries accelerating to 2.3 percent next yearfrom 1.2 percent this year. China, which isnt part of the group, will expand 8.4 percent in 2014after growth of 7.8 percent this year, according to the OECD report.

The tone of the economic data has certainly been getting better and that is certainly one of

the reasons why yields are pushing a little bit higher along with this talk of a Fed taper of debtpurchases, Ira Jersey, an interest-rate strategist in New York at Credit Suisse Group AG, said ina May 29 interview on Bloomberg Radio.

*** BLOOMBERG / LINK
http://www.bloomberg.com/news/2013-06-02/bonds-tumble-worldwide-as-stocks-reach-highs-on-growth-optimism.htmlhttp://www.bloomberg.com/news/2013-06-02/bonds-tumble-worldwide-as-stocks-reach-highs-on-growth-optimism.html


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Charts That Make You GoHmmm...

Source: The Economist

In the years leading up to the nancial crisis, household debt soared in most richcountries. There were a couple of notable exceptions: Germany and Japan, neither ofwhich experienced a housing boom that caused debt to accumulate. The ratio of debt todisposable income rose by an average of 30 percentage points, to 130%, in OECD countriesbetween pre-boom 2000 and pre-crisis 2007. Since then debt levels have fallen in America,Britain and Germany, but they have continued to rise in countries such as France, Italy andthe Netherlands, where property prices are still declining. In 2012 household debt in theNetherlands was a whopping 285% of disposable income.

*** THE ECONOMIST / LINK
http://www.economist.com/news/economic-and-financial-indicators/21578669-household-debthttp://www.economist.com/news/economic-and-financial-indicators/21578669-household-debt


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Source: Eric Sprott/KWN

Its my hypothesis that there was a dearth (scarcity) of gold, and as you know Ivewritten many articles questioning whether central banks had any gold left. The conclusion Ihad was of course that they didnt because we could see all of this huge new demand coming

in.

Im talking over a 10-year period where I can identify approximately 2,300 tons of net-newdemand coming into a market where the supply was staying the same at roughly 4,000 tons ayear. I said, Well, this is physical delivery. Where is the gold coming from?

So it wasnt a surprise for me to see that all of the sudden these anecdotal items were comingup about how people couldnt get delivery (of gold). Then we start this decline by variousmajor investment banks saying, Short gold. What I think was really happening was that theshortage was becoming very, very acute.

So I decided to do a comparison of Shanghai premiums to what happens to the GLD. Pretty wellany time that the Shanghai premiums go up, the GLD inventory starts declining. GLD has lostabout 300 tons of gold, which is a lot of tons of gold when you gure that the miners, ex-China,ex-Russia, only produce 2,200 tons of gold. This was 300 tons in the rst four months of theyear."...

*** ERIC SPROTT / LINK
http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/5/31_Sprott_-_This_Is_Why_There_Is_Such_A_Massive_Shortage_Of_Gold.htmlhttp://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/5/31_Sprott_-_This_Is_Why_There_Is_Such_A_Massive_Shortage_Of_Gold.htmlhttp://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/5/31_Sprott_-_This_Is_Why_There_Is_Such_A_Massive_Shortage_Of_Gold.htmlhttp://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/5/31_Sprott_-_This_Is_Why_There_Is_Such_A_Massive_Shortage_Of_Gold.html


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04 JUNE 2013

Another month, another 95,000 people lost their jobs in the eurozone.

The EMU unemployment rate nudged up a point to 12.2pc, but this understates those who havedropped out of workforce. The European Commission says the real rate for Italy is around 20pc,not the declared rate of 11.2pc.

There are now 19.4 million registered unemployed in Euroland and 26.6 million in the EU as awhole. There are 5.6m youths below the age of 25 looking for jobs.

Frankly, I have nothing further to say on this. The chart below contrasts EMU policy failure withthe US and Japan....


Source: UK Daily Telegraph
http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100024744/a-portrait-of-european-policy-failure/http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100024744/a-portrait-of-european-policy-failure/http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100024744/a-portrait-of-european-policy-failure/http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100024744/a-portrait-of-european-policy-failure/


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04 JUNE 2013

Words That Make You GoHmmm...

Further to his fascinating chart ofShanghai gold premiums on page 30, EricSprott expands on what that phenomenonmeans in the broader context, addresses thesmackdown in April, and posits an alternative,much rosier explanation for the drawdown inGLD holdings. Eric even waxes lyrical on theJapanese bond market. Denitely somethingfor everyone in this interview...

CLICK TO LISTEN

Jim Puplava is not only an extremelynice man, but he's a great student of bothmarkets and history. In this fascinatingeditorial, Jim compares today with the late1960s and early 1970s and the subjects oneverybody's lips back then. Interest rates,

ination, Middle East turmoil, gold, taxes,political scandals... the list is eerie indeed.

CLICK TO LISTEN

The Association of Mining Analystsin London held a bulls vs. bears debate on

gold recently, so pick a side, pull up a chair,and join in...

CLICK TO WATCH
http://kingworldnews.com/kingworldnews/Broadcast/Entries/2013/6/2_Eric_Sprott_files/Eric%20Sprott%206%3A2%3A2013.mp3http://www.financialsensenewshour.com/broadcast/fsn2013-0601-2.mp3http://www.ama.org.uk/gold-debate/http://www.ama.org.uk/gold-debate/http://www.financialsensenewshour.com/broadcast/fsn2013-0601-2.mp3http://kingworldnews.com/kingworldnews/Broadcast/Entries/2013/6/2_Eric_Sprott_files/Eric%20Sprott%206%3A2%3A2013.mp3


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04 JUNE 2013

and fnally...

CLICK HERE TO VIEW PHOTOS

At 14 years of age we are still fully entitled to be careless and unburdened, but 14-year-old Zev from Natick, Massachusetts, will make you feel you couldve done more at that age.This teenager, now better known by his nickname ddle oak, has already become an internet

sensation thanks to his Little Folk photo series that goes way beyond his age in ideas andtechnique.

Fiddle oak says hes been into photography since he was 8, and today he works together withhis 17-year-old sister Nellie, taking pictures with a camera he calls Betsy. Usually he makeshimself miniature in these self-portraits, ending up at the height of the grass or a playingcard...

Simply stunning. (Thanks, Simon.)

Hmmm...
http://www.boredpanda.com/14-year-old-self-portraits-fiddle-oak/http://www.boredpanda.com/14-year-old-self-portraits-fiddle-oak/


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04 JUNE 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.

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

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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

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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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things that make you go hmmm... june 3, 2013. deus ex machina, by grant williams

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