ttmygh - horse, pig, helmet, man, woman

7/27/2019 TTMYGH - Horse, Pig, Helmet, Man, Woman

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

Horse, Pig, Helmet, Man, Woman

"Sometimes the reader will decidesomething else than the author's intent;this is certainly true of attempts toempirically decipher reality."

John M. Ford

"But if thought corrupts language, languagecan also corrupt thought."

George Orwell, 1984

"Don't use words too big for the subject.Don't say infnitely when you meanvery; otherwise you'll have no word leftwhen you want to talk about somethingREALLY infnite."

C.S. Lewis

"The past is always tense, thefuture perfect."

Zadie Smith

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

22 JULY
http://www.mauldineconomics.com/go/bxgUc/MEChttp://www.mauldineconomics.com/go/bxgUc/MEC


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

Nigel Farage and Marina Hyde Go for A Pint ......................................................14The Painful Truth: Greece Needs a Debt Haircut Now ...........................................15

Gold Futures Hiccup Indicates Demand Outpacing Supply ......................................17

"Detroit Will Rise Again": Glimmers Of Deance After City's Bankruptcy .....................18

Man With Plan ..........................................................................................19

How an Airline Buyer's Buddies Crashed, Burned .................................................20

Now That Detroit's Gone Bust, Is Your City Next? .................................................22

How To Spot a Liar ....................................................................................24

Maybe It's May? .........................................................................................25

Cooking the Numbers in Buenos Aires ..............................................................27

CHARTS THAT MAKE YOU GO HMMM... ..................................................29

WORDS THAT MAKE YOU GO HMMM... ..................................................33

AND FINALLY ................................................................................34


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Things That Make You GoHmmm...Arthur Evans died in July of 1941 at the age of 90.

A rather ordinary name disguised an extraordinarylife during which the famed archaeologist made many

notable discoveries, including the unearthing of theMinoan Palace at Knossos, the site of a famous Greekmythological tale.

Legend has it that this huge palace complex whichcomprised hundreds of rooms linked by a labyrinthof passages, was home to the fearsome Minotaur,the half-man, half-bull who devoured seven youngAthenian men and seven maidens every seven years

until he was killed by Theseus with the sword of hisfather, King Aegeus.

Of course, this being Greek mythology, anunequivocally happy ending just wouldn't do, so the

tale nishes with Theseus's neglecting to raise a white sail upon his return as a sign to his fatherthat he has been successful in his quest, and Aegeus's promptly committing suicide by throwinghimself into the sea that today bears his name.

What is it with Greeks and a dearth of happy endings? Actually, scratch that question. We'll getback to it later.

Where were we? Ah yes, Arthur Evans.

During his excavation at Knossos, Evans would also discover a series of tablets dating back tothe Bronze Age that bore a riddle in the form of a set of mysterious inscriptions destined tobafe the world for the next half a century haunting Evans to his grave.

The inscriptions were like nothing ever seen previously: although they contained a set ofpictograms that were fairly easy to decipher, there was also a set of cryptic characters thatwould consume some of the smartest minds of a generation until, 52 years after their discovery,an Englishman called Michael Ventris would at last be credited with solving the riddle of the

language that Evans had, for reasons known to only himself, named Linear Script Class B orLinear B for short.

In the years that intervened between Evans's discovery and Ventris's solution, an Americancollege professor named Alice Kober would devote her life to the unraveling of Linear B; but,though her work undoubtedly laid the groundwork for Ventris's discovery, it was the Englishmanwho received the acclaim. Such is the way in matters like these, unfortunately.


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The pictograms contained in Linear B were simple in construction let's face it, even I couldhave gured this little lot out:

Horse Pig Helmet Man Woman

... but the rest of the inscriptions were bafing.

In fact, after 40 years of studying them, Evans had managed to decipher just a single word:total. This word appeared at the bottom of what were clearly accounts and inventories, but thewider meanings of the components of those accounts were shrouded in mystery.

Ventris didn't come across Kober's life's work until two years after her death at age 43. Then,using an all-important "key" derived from her exhaustive research, he nally unlocked the codeand solved the riddle. By then, of course, it was too late for Evans and too late for Kober.

It may well be that, in 40 years or so, historians will uncover the recent comments andtestimony of Ben Bernanke and his fellow Fed governors and spend a lifetime parsing them todetect any semblance of sense contained therein. Unfortunately, we who would invest or dobusiness are forced to try and decipher them in the here and now, and that causes enormousproblems.

Lately, Fedspeak Nonlinear B has plummeted to new depths of indecipherability as frantic Fedgovernors, terried by the extent of the reaction to the slightest hint that the Free MoneyExpress is pulling into the station, have scrambled to ne-tune the effects their hieroglyphicshave had on markets.

Source: Spartanburg Herald-Journal


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Bernanke himself has been the "key" to solving the latest riddle, but so far the Da Benci Codehas remained an enigma. Take for example this week's Humphrey Hawkins testimony his lastbefore he retires in January 2014 .

The closest we have to a "key" these days is something

called the "Hilsenrath Stone", which was uncovereda few years ago based on word-frequency patterns

in Bernanke's speech. Using the Hilsenrath Stone, wecan readily discern the specic bits of language thatBernanke himself thought were important, and byextension we may be able to decipher the wider code.

Let's begin.

In his recent post-testimony piece in the Wall Street

Journal, Hilsenrath highlights four key passages from

Bernanke that the Fed wants us to focus on he thinksare important and then comments on them. I lay them

out below with the keys from the Hilsenrath Stoneunderlined in bold. Using these 'keys' we can deciphera message hidden amidst the runes:

(WSJ): 1) WHAT HE SAID: "The risks remain that tight

scal policy will restrain economic growth over thenext few quarters by more than we currently expect,or that the debate concerning other scal policy

issues, such as the status of the debt ceiling, will evolve in a way that could hamper therecovery. More generally, with the recovery still proceeding at only a moderate pace,the economy remains vulnerable to unanticipated shocks, including the possibility that

global economic growth may be slower than currently anticipated."

WHAT IT MEANS: Lots of focus on downside risks here which is striking, becausethe Fed said in its June policy statement that downside risks to the economy haddiminished. That's a slightly "dovish" tilt toward easy money.

2) WHAT HE SAID: "I emphasize that, because our asset purchases depend on economicand nancial developments, they are by no means on a present course. On the one hand,

if economic conditions were to improve faster than expected, and ination appearedto be rising decisively back toward our objective, the pace of asset purchases could bereduced somewhat more quickly. On the other hand, if the outlook for employmentwere to become relatively less favorable, if ination did not appear to be movingback toward 2 percent, or if nancial conditions which have tightened recently were judged to be insufciently accommodative to allow us to attain our mandatedobjectives, the current pace of purchases could be maintained longer."


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WHAT IT MEANS: Mr. Bernanke tries to be even-handed here about the outlook forbond purchases, but he spends a lot more time talking about the conditions that couldconvince the Fed to leave bond buying in place than he does on the conditions thatwould convince the Fed to pull back sooner than planned. Another dovish tilt.

3) WHAT HE SAID: "If a substantial part of the reductions in measured unemploymentwere judged to reect cyclical declines in labor force participation rather than gainsin employment, the committee would be unlikely to view a decline in unemploymentto 6.5 percent (unemployment rate) as a sufcient reason to raise its target for the

federal funds rate. Likewise, the committee would be unlikely to raise the funds rate ifination remained persistently below our longer-run objective."

WHAT IT MEANS: The Fed has said it won't raise the fed funds rate until after the joblessrate falls below 6.5%. These comments, along with others Bernanke has made, suggestthe Fed could wait for a while even after the jobless rate falls below 6.5% before tryingto raise short-term rates. The 6.5% threshold appears to carry less and less meaning

as the Fed tries to emphasize low rates for a long time.

4) WHAT HE SAID: "The [Fed] is certainly aware that very low ination poses risks toeconomic performance for example by raising the real cost of capital investment and increases the risk of outright deation. Consequently, we will monitor this situationclosely as well, and we will act as needed to ensure that ination moves back towardour 2 percent objective over time."

WHAT IT MEANS: There seems to be a little shift in emphasis here. The Fed's preferredmeasure of ination is around 1%, below the Fed's 2% goal. In his press conferencein June, Mr. Bernanke emphasized his view that ination has been driven down by

"transitory factors." Wednesday he seemed to emphasize the damaging effects of lowination. A little tilt toward keeping monetary policy easy.

Yes, the Hilsenrath stone makes it quite clear that Bernanke's testimony is decidedly dovish,and it's hardly surprising he would lean that way, given the market's reaction to this littleBernanke nugget contained in the June FOMC statement:

(Marketwatch): If the incoming data are broadly consistent with this forecast, theCommittee currently anticipates that it would be appropriate to moderate the monthly

pace of purchases later this year. And if the subsequent data remain broadly alignedwith our current expectations for the economy, we would continue to reduce the paceof purchases in measured steps through the rst half of next year, ending purchasesaround midyear ....

The market saw these words and deciphered them instantly to mean that the Fed was goingto begin "tapering" later this year and end bond purchases altogether around halfway through

2014.


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Now, I have absolutely noidea how the market couldpossiblyread that into Bernanke'sstatement, do you?

Thanks to the total clarity of his statement, experienced commentators were able toimmediately hop up on Twitter and share their conclusive opinions on the Da Benci Code.

Felix Salmon, who knows a bit about these things, tweeted:

"The message I'm getting from FOMC/Bernanke isdovish; the markets are hearing it as hawkish."

John Carney another experienced watcher disagreed with him100%:

"You are wrong."

Mission accomplished. Another great result for the communications arm of the Federal Reserve.

In his subsequent press conference, Bernanke then tossed a few more confusing crumbs to thefaithful, to help them decipher the code:

... the Committee expects a considerable interval of time to pass between when theCommittee will cease adding accommodation through asset purchases and the timewhen the Committee will begin to reduce accommodation by moving the federal fundsrate target toward more normal levels.

Dovish! No, hawkish! No, Dovish! Wait ... what was the question again?

In the end, the S&P 500 decided that discretion was the better part of valor ... and promptlyfell out of bed:

1625

1630

1635

1640

1645

1650

1655

FOMC Statement Released

Bernanke Press Conference Begins

1

2 3

1

2

Market deciphers code3

S&P500 Index June 19 2013

10:00am 11:00am 12:00pm 1:00pm 2:00pm 3:00pm 4:00pm

Source: Bloomberg


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While the yield on the US 10-year treasury spiked higher in anticipation of the taper:

1.5

2.0

2.5

3.0

January February March April May June July

Taper TalkBegins

Damage ControlBegins

US 10-Year Treasury Yield(%) 2013

%

Source: Bloomberg

Yet another brilliant chunk of the Code was delivered to the marketplace by the samepeople who brought you the document entitled "FOMC Policy on External Communications ofCommittee Participants" (updated on January 29, 2013). Its preamble states:

The Federal Open Market Committee (FOMC) is committed to providing clear and timelyinformation to the public about the Committee's monetary policy actions and therationale for those decisions.

Do you want to tell them, or shall I?

In the Q&A that followed the rst day of his testimony this week, however, in the midst of yetmore confusing and contrary words, Bernanke may have given us a true "key" that will enable usto nally decipher FOMC communications.

When asked how the Fed would prevent a spike in interest rates, Bernanke chose to play theanswer for laughs:

"By communicating, by not surprising people, by letting them know what our plan is andhow it relates to the economy."

When asked how the Fed would exit its easy money policy, he went for hubris:

"We know how to exit. We know how to do it without ination.... We have all the toolswe need to exit without any concern about ination."

When asked about the market's addiction to Fed policy, he just plain went off the reservation:

"Well, the main thing that supports the stock market or other markets is the underlyingeconomy ...."


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But wait, there's more:

"The reason I think that markets have improved so much since 2009 is because Fed policyand other policies have succeeded in providing a stronger economy with low ination."

Oh Boy!

But then, when questioned about the strength of the economy, Bernanke gave us what looks tobe the true key to deciphering the confusing symbols around the "taper":

"I don't think the Fed can get interest rates up very much, because the economy is weak,ination rates are low. If we were to tighten policy, the economy would tank."

Yes, when you use that key, everything magically falls into place, just as it did for MichaelVentris when he saw Alice Kober's notes on Linear B.

However, just to muddy the waters a bit further, on the same day July 13 Fed governors

Charles Plosser and James Bullard both spoke on the subject of tapering, and the symbols wereonce again ... perplexing:

(Dow Jones): Mr. Bullard said that if ination goes under 1%, he'd want the Fed to act.He said the "simplest" way the Fed could counter under-target ination is by extendingits current bond-buying stimulus program for longer than currently planned, and takeoff the table for now any move toward shrinking the monthly size of the effort....

Mr. Bullard's outlook was countered by Philadelphia Fed leader Charles Plosser, who alsospoke Friday. "The time has come for us to exit our current asset purchase program andcommit to a way forward that seeks to normalize monetary policy," the ofcial said in aspeech.

Mr. Plosser wants the bond-buying effort completed by year end. He said that he's openshrink the program whenever other policymakers are ready, and he said he was agnosticabout the strategy for slowing the purchases. The ofcial also doubts that pressing

forward with bond buying could push up ination over the medium term.

The difference? The dovish Bullard is a voting member of the FOMC, and the hawkish Plosserisn't.

In talking about a "tanking" economy, Bernanke was referring to ZIRP not QE and was

at great pains to reinforce the idea that rates will be held essentially at zero for someconsiderable time to come; but the crucial point is his statement that "the Fed [can't] getinterest rates up very much, because the economy is weak...."

In a nutshell, that is the problem.

The US economy and by extension the US government simply cannot afford to let interestrates rise, because the economy is too weak to support higher rates, and the government can'tafford to pay higher interest rates on its massively increased debt load.


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The important point is that, ultimately, it won't be the Fedthat decides where interest ratesare, but rather the market; and should the Fed follow through on its trial balloon and beginto wind back bond purchases, the market has demonstrated that it will send rates higher veryquickly indeed a completely unaffordable outcome.

As always, Bill Fleckenstein (readers can subscribe to Bill's peerless service his thoughts arethe very rst thing I read each and every morning by clicking HERE) put things into calmperspective this week, and his comments on the situation the Fed nds itself in bear repeatingto a wider audience:

Thus, when I contemplate the amount of damage that will be done by four years (andcounting) of QE, I really just shudder in wonder at how big the disaster might be,though there is no doubt it will be a disaster. The Fed has expanded its balance sheet to$3.5 trillion and now owns over 20% of outstanding U.S. debt.

Either it is going to continue to buy bonds forever, which is impossible, or there is going

to be a massive dislocation at some moment in time because someone else is going tohave to buy that debt when the Fed ultimately stops, even if it doesn't choose to sellanything (and just lets the debt run off). There will be no painless extrication from QE,and as I have said, I don't believe the Fed will be able to leave ZIRP willingly.

Precisely.

But it's not only Bernanke and his cronies who talk in mysterious dialects. Everywhere we lookover the past few years, strange communications have been popping up, such as this peculiarone from May 2010 that I've pored over and can't seem to make heads or tails of:

(Reuters): European nance ministers triggered a record 110 billion euro ($147 billion)bailout for debt-stricken Greece on Sunday after Athens committed itself to years ofpainful austerity.

After weeks of tough talk and procrastination due to erce public opposition tohandouts for the Greeks, German Chancellor Angela Merkel nally threw her fullsupport behind the EU/IMF package, vowing to ght for parliamentary approval byFriday.

Euro zone ministers, meeting in emergency session, approved the three-year packageof emergency loans and agreed the rst funds would be released in time for Athens to

make a big debt repayment to creditors on May 19.

In exchange for by far the largest bailout ever assembled for a country, Prime MinisterGeorge Papandreou announced further spending cuts and tax increases totaling 30billion euros over three years on top of tough measures already taken.... "Thesesacrices will give us breathing space and the time we need to make great changes," hesaid....
http://www.fleckensteincapital.com/http://www.fleckensteincapital.com/


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Economists were more positive. "The aid package will help defuse the primary cause ofconcern for creditors which is the imminent risk of default," said Lena Komileva, headof G7 market economics at Tullett Prebon....

Papaconstantinou said the deal would cover a large part of Greek borrowing needs for

the next three years. In return Athens promised to slash its budget decit to the EUlimit of three percent of GDP by 2014 from 13.6 percent last year.

Papaconstantinou said Greece's public debt would soar to nearly 150 percent of GDP ahigher peak than forecast earlier but start falling from 2014. Both he and EU and IMFofcials insisted there had been no talk of restructuring Greece's debts.

Now, I am familiar with some of these character combinations, but others bafe me.

"Debt-stricken Greece"I can understand immediately, and "Eurozone ministers, meeting inemergency session"is another very familiar string of characters, but then we get to the more

cryptographically challenging chunks, such as "These sacrices will give us breathing space andthe time we need to make great changes"and "The aid package will help defuse the primarycause of concern for creditors which is the imminent risk of default". I have no idea what thesesymbols, strung together, might mean.

Then there's this weird and wonderful string:

Athens promised to slash its budget decit to the EU limit of three percent of GDP by2014 from 13.6 percent last year.

Now, generally speaking, as we have discussed, when trying to decipher strange languages,

a key is used that comprises known symbols that can be matched against the text in order todiscern patterns.

In the case of the above runes, one might, for example, use a set of symbols that makes perfectsense, such as this one that was uncovered during a recent dig at the famous Der Spiegel site inGermany:

The Greek recovery may be facing yet another hurdle. According to a report by Germandaily Sddeutsche Zeitung, the beleaguered country needs another massive inux ofmoney if it is to avoid insolvency. The paper cites an unnamed ofcial at the EuropeanCommission as saying that the "nancial gap" could be as large as 10 billion.

A shortfall in Greek accounts of 10bn? Now THAT makes far more sense.

The unknown characters "defuse ... the imminent risk of default"look vaguely similar toanother passage uncovered at Der Spiegel that might offer clues to their meaning:

Greek Economy Minister Kostis Hatzidakis told German daily Die Welt earlier this monththat he expects Europe to agree to another debt haircut for the country.

... but it's hard to align the two and make any kind of real sense out of them.


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The simple truth is that, despite strange pronouncements to the contrary, Greece is comingback to the trough again; and, over time, even another 10bn will not be enough to solve thecountry's problems.

Greece is bankrupt. Still. It is trussed up in the straitjacket of the euro when it needs exibility

in its currency; and the decisions being made in the name of preserving the European dreamare condemning the nation to disaster but that reality never seems to tally with what policymakers, intent on doling out catnip to the masses, are saying.

The whole matter of the disconnect is itself a bafing sort of meta-code that could stand somedeciphering. Why can't these economic ofcials talk straight?

What all this clearly demonstrates is that everywhere you look, the language emanating fromgovernments and central banks is becoming more and more difcult to sort out; and I am afraidthere is a very simple reason for that: they have ventured into uncharted realms and have

absolutely no idea how they will ever nd their way back.

The one thing I am certain of, though, is that the trip our so-called leaders are taking us on willend in disaster, and perhaps by using a disastrous outcome as the cipher key we may nd thatall the symbols fall neatly, if disturbingly, into place.

Shortly before he turned 30, Michael Ventris, an architect (who, rather improbably for sucha profession, had never attended university), nally solved the mystery of Linear B by simplyusing three-symbol strings to phonetically spell out Cretan place names. As he plugged invarious cities, a chain reaction began, and the language unmasked itself before his gratefuleyes.

On June 1, 1952, Ventris announced to the world that he had solved the riddle of Linear B,a language that had been spoken 500 years before Homer and 700 years before the Greekalphabet was devised.

Four years later, he was dead, victim of a car crash that looked suspiciously like suicide.

Laboring to decipher the indecipherable can lead to the most unpredictable of outcomes. Had

the Minoans known that people like Evans, Kober, and Ventris would be haunted to their gravestrying to gure out what was to the Minoans a perfectly straightforward way to communicate,perhaps they would have tried to do things a little differently but then, they weren't actuallytrying to hide anything or guide anyone to a preferred conclusion.

They were just counting horses, pigs, helmets, men, and women.

Pay careful attention, folks, and do your best to discern the true meanings behind the wordsthat tumble, willy-nilly, from the mouths of policy makers around the globe.

What they say and what they really mean are, I am afraid, two completely different things;and unlike the simple Minoan accounts, the ones we have to reconcile today are corrupted bytrillions of dollars of freshly printed money.


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Something just doesn't add up.

(The amazing story of Linear B is the subject of a wonderful book calledThe Riddle ofthe Labyrinth, by Margalit Fox, and a BBC documentary, "A Very English Genius", whichyou can watch by clicking on the links here: Part IPart IIPart IIIPart IV)

*******

With all that cleared up nicely, let's get into the meat of this week's Things That Make You GoHmmm..., which leads off with perhaps the only truly straightforward politician of them all,Nigel Farage, whom we nd enjoying a pint in an English pub with Marina Hyde.

From the pub we venture to Detroit in the aftermath of the biggest municipal bankruptcy inUS history; to Greece to hear all about that little matter of a 10bn shortfall; to Japan, wherelast weekend's Diet election (the Diet is the Japanese parliament, not a slimmed-down vote)has cleared the way for Abenomics to really hit its stride; to Buenos Aires, where the Kirchnergovernment continues to meddle in the kitchen; and to China, where an airline magnate hascrashed and burned in spectacular fashion.

The upheaval in the bullion market is front and center again this week, as we take another lookat what the disturbance in the GOFO rate means, view some great long-term charts from NickLaird of ShareLynx, marvel at collapsing COMEX inventories, and enjoy a magnicent interviewwith Andrew Maguire, who does a superb job of clarifying some of the more confusing action inthe world of gold.

We have a rare chance to hear from John Paulson; Mike Shedlock covers a wide range ofsubjects in a great interview; we nd out how to spot a liar and take in an interesting chart onAmerica's missing money; and nally there is a welcome return by my great friend David Hayof Evergreen, who kindly shares his thoughts on the current state of the US bond market andpoints out some strong parallels with days gone by.

That's all from me for now....

Until Next Time.

*******
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Nigel Farage and Marina Hyde go for a pintObviously gunpoint would be involved, but can you rank the three main party leaders inorder of who you'd have a pint with? "Easy peasy," says Nigel Farage, leader of local electionsbreakout star the UK Independence party. "Clegg rst. We were MEPs together for ve years,

and he's a perfectly nice bloke. The other two well, Cameron last he doesn't even likepeople, apart from his own narrow little set."

Would Ed Miliband drink a pint, I wonder?

"I think he'd have a fruit crush," giggles Farage. "But are they fun people who you'd want tohave a pint with? No "

I am having a pint with Farage well, he's having a pint and I'm having a bottled beer, like theLady Muck I am because I wrote a column in which I said I could stand to have a pint withhim, and the Guardian took it as a features pitch. I think Noel Edmonds calls this sort of wish

fulllment "cosmic ordering".

Farage, of course, hasn't had the best of luck in pubs, what with being barricaded in anEdinburgh one by Scottish lefties, so we eschew the Gorbals in favour of St James. As we walkto meet him, Ukip's press ofcer insists this is categorically the last time anyone is going to beallowed to photograph him with a pint in his hand. "That's what they say," laughs Farage later,"but they won't get to me." The walk takes a while, because Farage has mistaken which RedLion we're supposed to be meeting in. We wander between various Red Lion pubs looking forFarage, which feels vaguely like it might be a metaphor for Where We At as a nation, beforending him having a pint (bitter, naturally) and a fag (Rothmans, naturally) outside somewherecalled The Golden Lion.

Speaking of metaphors, I say when we're settled, let's talk about that light aircraft crash yousomewhat miraculously survived during the 2010 general election. To recap: you nosedivedto Earth, on polling day, in an accident literally caused by Ukip branding, in that your planebecame tangled in a party banner it was trailing. Lesser men than you might have seen that as

some sort of sledgehammer political omen.

"Quite the reverse!" hoots Farage, who came through a car smash and testicular cancer in hisearly 20s and since then has opted to "just not worry about anything too much". "Looking backon that plane ride, it was a ridiculously stupid thing to have done, like so much of my life".

As expected, Farage delights in telling a story against himself, a disarming trait which hasassisted him in his rise from affable, pint-toting anti-politician to affable, pint-toting anti-politician who might conceivably, in the increasingly bizarro world of British politics, hold somesort of balance of power at some point in the future.

Over a couple of pints, we cover all the big stuff: Victoria Beckham, rivers of blood, what it'llbe like being deputy PM to Boris ("Boris needs me; he needs lightening up"), and the attempt toban menthol cigarettes.


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(I need hardly tell you which joyless international political body is planning that, but the goodnews is that Farage has promised to get on a plane to Brussels and ruddy sort them out.) Weestablish that he'd never do reality TV, unless they do Strictly Come Drinking, and marvel thatUkip has got where it is with a mere nine nine! paid staff, and a war chest Farage classiesas "two bob and a bag of marbles". He cheerfully admits he couldn't name a favourite noveleven from the days he still had time to read them, and can only narrow down his cinematictastes to "spy stuff" and Richard Curtis-style "English stuff".

Scrupulous about standing his round, he stresses that as a point of principle, he'd never, ever,involve his wife or four children in his work, which is partly the reason he was up in the planethat day to avoid the cliched snap of them all striding en famille to the polling station. Ofthe other leaders, he marvels: "They talk about doing school runs and things like that. I do thattwice a term." So do they, probably. "Well, who knows, but they all tell you how wonderful theyare with children. They're really good at doing the nappy changes and all this sort of thing,and I've got to tell you: I'm useless with young children. Completely useless. I mean, so bad it's

frightening."

In the absence of domestic-bliss propaganda, perhaps the Ukip message would benet fromsome celebrity endorsement? "I'm working on some big ideas," Farage condes. No names, nopack drill, obviously, though he will say that: "Jamie Oliver's comments were very interestingthe other day. When I get time off, I'm going to follow up and go and see him. Posh Spice," headds, "is vehemently Eurosceptic. She's made some very, very strong comments about it."

My gut feeling is that she'll stay out of it. "I don't know," he replies, shortly before conrminghis personal credo as: "I travel optimistically".

*** UK GUARDIAN / LINK

The Painful Truth: Greece Needs a Debt Haircut NowGerman Finance Minister Wolfgang Schuble visited a ghost town in Athens on Thursday. Theonly thing left that can help Greece pull itself out of the crisis is a debt haircut by publiccreditors. Anything else is reckless.

Athens must have come across like a ghost town to German Finance Minister Wolfgang Schubleduring his visit to the Greek capital on Thursday. The city center was sealed off and protests

were banned. There were considerable fears that riots might break out because of the hatredmany Greek people harbor toward the nance minister. The leftist newspaper Avgi greeted hisarrival with a well-known Latin slogan: "Ave, Schuble, morituri te salutant" Hail, Schuble,those who are about to die salute you. When state visitors in a united Europe are received in

that fashion, something has clearly gone terribly wrong.
http://www.guardian.co.uk/politics/2013/jul/20/nigel-farage-marina-hyde-pinthttp://www.guardian.co.uk/politics/2013/jul/20/nigel-farage-marina-hyde-pint


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Source: Der Spiegel

Athens gives Schuble a good opportunity to view the rubble of the failed policies towardGreece of recent years. At the beginning of the crisis, experts with the European Union andthe International Monetary Fund (IMF) predicted a short period of pain for the country. If itworked hard to achieve its austerity homework, the worst would soon pass, they said. Instead,the Greek economy has been in a state of recession for ve years now, with no end in sight.Unemployment is at 27 percent. And the country's so-called rescuers would consider it a successif that gure were to climb just a little bit slower.

Of course there are no easy xes for a crisis this deep nor is there a single culprit. The forcesof inertia among Greece's political and administrative elite contributed a great deal to thecurrent misery. But Schuble has also played a rule by blocking possible paths out of the crisisfor the country.

The issue now is a further debt haircut that would make it possible for the country to sheditself of a tremendous burden. During the current calendar year, Greece's mountain of debtwill grow by around 330 billion ($432 billion). That's almost 180 percent of annual economicoutput. Few other countries in the world have liabilities that high at least none with the kindof weak economic structure Greece has. The interest payments the Greek state has to sendabroad are making the recession even worse, which in turn is causing debt levels to rise. How is

Greece ever going to get itself out of this vicious circle?

It already happened once, at the beginning of 2012, that private creditors forgave a part ofGreece's debt. But it was already clear at the time that it wouldn't go far enough. In order totruly and sustainably help the country out, public creditors (e.g. the governments of countrieslike Germany) would also have to write off part of the money they lent to Greece. Currently,two-thirds of Greece's bonds are held by public creditors abroad.


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Whether one wants to call that step a haircut, debt forgiveness or a state bankruptcy is ofsecondary importance the different designations only dene the conditions under which thedebt is trimmed. What is clear, though, is that Greece would be given a fair chance to grow itsway out of the crisis on its own.

Of course, there is one hitch. The pain would no longer be felt exclusively by the Greeks it would also hit taxpayers in the rest of Europe, especially those in Germany. For the rsttime in the four years of the crisis, their pocketbooks would be hit massively because themoney from the loans to Greece that are written off would then be missing somewhere else in

government budgets.

*** DER SPIEGEL / LINK

Gold futures hiccup indicates demand outpacing supplyA dislocation in the gold futures market indicating that demand for physical delivery of themetal is now far outweighing supply has intensied in recent weeks, increasing concern in themarket that the change may not be a momentary blip and participants may have become over-leveraged.

Gold went into backwardation in comparison to the three-month futures contract in earlyJanuary, meaning the spot price rose above the short-dated future contact. Now that processlooks set to creep out the futures curve to longer-dated maturities, signalling some cause foralarm.

"The fact that has remained and widened ... indicates that the physical market has tightenedup substantially, a postulation that is corroborated by the growing premiums being paid ... andthe ongoing wholesale delays in the delivery of substantial bullion tonnage," wrote Ned Naylor-Leyland of Cheviot Asset Management in a report this month.

"What is happening now is that the absolutely inevitable 'run' on the 100:1 leveraged bullionbanking system is truly underway."

Backwardation is a concern in gold markets because in theory demand for physical deliveryshould never outweigh supply, since the amount of available gold is a known, xed quantity.The event is not unprecedented, as it also happened during the nancial crisis of 2008 and

corrected itself the following year.

The current dislocation indicates that holders of gold futures have begun demanding delivery.

But because of the large amount of leverage in the market, participants are not able to deliveron their obligations.

"More and more people want their gold today, at a higher price, no matter that they canbuy a future much cheaper," said Guillermo Barba, economist at the New Austrian School ofEconomics in Mexico.
http://www.spiegel.de/international/europe/greek-austerity-reforms-failing-despite-billions-in-bailout-funds-a-910078.htmlhttp://www.spiegel.de/international/europe/greek-austerity-reforms-failing-despite-billions-in-bailout-funds-a-910078.html


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The high demand lately for spot physical delivery has played a part in the yellow metal's recentrebound from its low of US$1200 per troy ounce at the end of June to US$1283 on July 18. Butanalysts say it is difcult to determine both the cause of the backwardation and whether it willpersist.

"It could be a whole range of factors; a bullion bank may have overcommitted in the physicalmarket, miners have reinitiated hedging programs since the April price dive and have to borrowgold to hedge, and that may have cascaded up the chain of physical demand," said Robin Bhar,commodities strategist at Societe Generale.

"With the gold market you don't nd out the reasoning or explanation for an event until days,weeks, or even months after the event. What's strange here is that a time of seasonal demandweakness we have strong physical demand and backwardation."

*** REUTERS / LINK

"Detroit will rise again": glimmers of deance after city's

bankcruptcyJames Morris is the owner of DSE, a downtown Detroit T-shirt business. He hadn't noticed thathis city had led for bankruptcy and he doesn't particularly care. "There hasn't been a momentwhen Detroit wasn't dealing with problems. Now it's just ofcial," he said.

The facts of Detroit's dissolution are astonishing: 76,000 homes and buildings in once-

prosperous neighbourhoods abandoned; vast factories crumbling like monuments to America'smanufacturing heyday. But on the weekend following the city's symbolic admission of defeat,there was deance in the air and a sense that Detroit can turn the corner.

"This was always a place of great community," said writer and publisher Cary Loren. "The carindustry's gone and it's not coming back. Capitalism has failed us, but so what? We'll just go onto the next thing."

The resurrection of Detroit will not happen overnight. No city better illustrates an economist'snightmare scenario collapsing industry triggering a rapid decline in population to the pointthat there is no longer a tax base to meet ever-increasing pension and healthcare costs, or the

money to maintain services.

In Detroit's application for protection from creditors, emergency manager Kevin Orr said thatby 2017, 65% of the city's nancial obligation will be "legacy" costs on previous debts. No othermajor US city has similar obligations exceeding 20% of revenues.

Orr, who was appointed in March, explained his decision to act: "We were not getting to wherewe need to be, so I pulled the trigger." He added that the nancial irregularities in Detroit'smanagement were hardly new. "This has been going on for a very long time."
http://www.reuters.com/article/2013/07/19/derivatives-gold-idUSL1N0FP1CB20130719http://www.reuters.com/article/2013/07/19/derivatives-gold-idUSL1N0FP1CB20130719


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As it stands, 40% of Detroit street lights are broken. It takes, on average, an hour for policeor ambulance services to respond to emergency calls. Gang murders are carried out in vacant

buildings that are then set on re, in the knowledge that overstretched emergency services willnot attempt a search.

The ight from blighted areas appears to be accelerating in the past decade alone, Detroit'spopulation has fallen by 26%. It now stands at 700,000, having once been two million.

Remaining residents in districts such as Brightmoor, north-west of the centre, are besieged byvandalism and crime. Streets have been turned into ad hoc dumps for car tyres and abandoned

boats. One spray-painted sign reads simply: "Dumpers will be shot."

What isn't dumped is stolen. Factories and homes have largely been stripped of anything ofvalue, so thieves now target cars' catalytic converters. Illiteracy runs at around 47%; half theadults in some areas are unemployed. In many neighbourhoods, the only sign of activity is aslow trudge to the liquor store.

In 1950, Detroit was 82% white. The "white ight" after the 1967 race riots ipped the ratio it's now 82% black. When the 2008 nancial crisis reduced the cost of living in the suburbs, theblack population moved out of the centre, too. "No other city in America has been blighted likeDetroit but I think the bankruptcy will bring an end to it," said Lenon Smith, a lifelong Detroitresident. "Everybody is optimistic that we can now reinvest in our communities and amenities."

*** THE OBSERVER / LINK

Man with planSix years ago, during his rst, dismal term as Japan's prime minister, Shinzo Abe championedthe nationalist but spacey slogan of wanting to build a "beautiful country". All voters could see,however, was a gaffe-prone cabinet and a struggling economy. In 2007, in an election for half ofthe 242 seats in the upper house of the Diet, they dealt Mr Abe and his Liberal Democratic Party(LDP) a crushing defeat at the hands of the Democratic Party of Japan (DPJ). Mr Abe was soongone, and just two years later the LDP was evicted from government altogether.

Now, campaigning for an upper-house election again, on July 21st, Mr Abe talks of little butlivelihoods and the economy. On the stump in Yamagata prefecture, a farming heartland in the

north of Japan's main island, he goes into excruciating detail about companies' summer bonusesand boasts of Japan's strong growth in the rst three months of the year (an annualised 4.1%) all to wild applause.

Mr Abe likes to acknowledge that it was not so much his party that won the general electionbringing the LDP back to power last December. Rather, it was the DPJ that lost it: after itseuphoric victory in 2009, it made a hash of government. Yet now voters appear to warm to theLDP on its own merits. Despite the party's history of tending to vested interests, it has taken upthe economic concerns of a broader slice of the population.
http://www.guardian.co.uk/world/2013/jul/20/bankrupt-detroit-pins-hopes-creative-hubhttp://www.guardian.co.uk/world/2013/jul/20/bankrupt-detroit-pins-hopes-creative-hub


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In particular, the zz of "Abenomics", the programme of monetary easing, scal stimulus andstructural reforms, has caught on with the country. Businesses large and small, along with theiremployees, are the loudest cheerleaders for the economic revival plan.

So uncannily high and stable is the popular support for Mr Abe's government in opinion polls,

that Shisaku, a wry blog on Japanese politics, wonders whether the LDP is replicating thousandsof supporters in a biocomplex under its Tokyo headquarters. Mr Abe's cabinet is the rst in two-dozen years to have had rising approval rates for three straight months after taking ofce,according to the Yomiuri Shimbun, the country's biggest newspaper. Some 57% of Japaneseapprove of the cabinet today, according to the public broadcaster, almost twice the typical ratefor Japanese governments at the same stage (and much higher than Mr Abe's rst one).

Such popularity gives the LDP every chance of winning back control of the powerful upperhouse, allowing the government more easily to bring in deep-seated changes. Supply-sidemeasures such as making the labour market more exible are the most far-reaching part of

Abenomics, but they require radical legislation.

Just how big a win the LDP will pull off is the question. Polls for the seats to be allocated by

proportional representation suggest that around 40% of Japanese back the party, compared withjust 6% for the DPJ. With New Komeito, its coalition partner, the LDP looks likely to win the63 seats needed to control the upper house. Mr Abe is openly aiming for a 70-seat win, whichwould allow the coalition to dominate the chamber's legislative committees. Mr Abe's dearestwish is to secure the two-thirds majority, including allies, that he already enjoys in the lowerhouse. It would allow him radically to revise the meek constitution imposed by America afterJapan's wartime defeat. It is a key part of his dreams for a "beautiful country". Yet the electoralarithmetic looks too daunting, for he would need 92 more seats.

*** ECONOMIST / LINK

How an Airline Buyer's Buddies Crashed, BurnedEight years after Li Zeyuan bought an entire airline, earning the wings he still wears today as alegendary investor, the 60-year-old was breathing with an oxygen mask and ghting tears whilepleading innocent in a Beijing courtroom.

Li no longer controls Shenzhen Airlines, although he remains on staff as a generously paidsenior consultant. He's also a well-connected nancier and ex-con who was in and out of prisonbefore raising via questionable ofcials say illegal means 2.72 billion yuan to buy ShenzhenAirlines.

Li's holding company, Shenzhen Huirun Investments Co. Ltd., acquired a 65 percent stake in thenationwide carrier in a May 2005 auction, frustrating more prominent bidders, including CITICGroup and Air China.
http://www.economist.com/news/asia/21582044-shinzo-abe-prime-minister-enjoys-uncanny-popularity-man-planhttp://www.economist.com/news/asia/21582044-shinzo-abe-prime-minister-enjoys-uncanny-popularity-man-plan


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Authorities say Huiran, set up in March 2005 with registered capital of a mere 10 million yuanin borrowed cash, was little more than a shell for a nancing scheme that funneled borrowedmoney into the deal. And Li raised the cash by massaging his personal connections to high-

ranking military, government and business leaders.

"I don't have money" personally, he said. "I'm just foolishly bold."

The airline succeeded, winning Li respect for his business savvy. Today, Shenzhen Airlinesoperates a eet of nearly 100 aircraft, and serves 135 domestic and international routes. Butsince 2010, Huirun has been only a minor stakeholder while Air China holds a 51 percent stake.

One morning in late 2009, police stopped Li on a highway while he drove to Chongqing fromHunan Province. He was detained and held until last April, when he was brought to Beijing tostand trial with ve other former Shenzhen Airlines executives, including ex-chairman ZhaoXiang and former China Southern Airlines chief Li Kun.

Each man was charged in Beijing Second Intermediate People's Court with embezzling someof the more than 2 billion yuan tied to the airline takeover. Prosecutors say Li, for example,eeced the airline to pay back Huirun's original investors.

Li once admitted that to nance the airline's takeover he had "borrowed a chicken to lay eggs,borrowed a ship to make a voyage." In other words, his plan was always based on leveragingwhat was expected to be growing equity in the airline for new loans, which in turn would beused to pay down debt. Li was condent the company would grow quickly, and his nancingstrategy, at least for awhile, succeeded.

Prosecutors say the executives embezzled airline funds for personal gain. Li is also charged with

breaking his parole requirements, and thus could be forced to serve not only prison time forembezzlement a crime that carries a maximum life in prison but also serve the six yearsremaining on his previous prison term when he was released in 2003.

As of late June, Li had been brought into the Beijing court for three hearings.

At the rst hearing in April, an emotional Li suffered a serious nose bleed. He showed up for theMay hearing with an IV tube in his arm. And in June, a haggard Li faced judges while wearing anoxygen mask.

As of early July, Li and his former colleagues were awaiting court rulings. There was no

timetable for decisions.

*** CAIXIN / LINK
http://english.caixin.com/2013-07-12/100555207.htmlhttp://english.caixin.com/2013-07-12/100555207.html


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Now That Detroit's Gone Bust, Is Your City Next?Detroit's bankruptcy ling is one depressing read. Poverty, crime, blight you name the maladyand there's plenty of data to back it up. And unfortunately, Detroit's not alone. You may bewondering which city hits the wall next.

I'm not making predictions, but I've looked at one indicator that may offer some clues:population loss.

As any good Ponzi Schemer will tell you, your future looks much better when there are morepeople moving in than moving out. Once the population change turns negative, a vicious circlecan take hold, and that's exactly what we saw in Detroit.

In addition to spending excesses and mismanagement, the city's nancial problems stem fromthe challenges of downsizing infrastructure as quickly as the tax base contracts. Here are a fewlowlights from the bankruptcy declaration:

The average cost to demolish an abandoned building of which Detroit has about78,000, or 20% of the housing stock is approximately $8500.

Of about 11,000 to 12,000 res each year, approximately 60% occur in abandonedbuildings.

The city closed 210 parks in scal year 2009 and recently announced that 50 of theremaining 107 parks were slated for closure.

The city's Public Lighting Department is able to keep only about 60% of theapproximately 88,000 street lamps in operation.

The Detroit courts' case clearance rates have been running at only 18.6% forviolent crimes and 8.7% for all crimes.

Only 10 to 14 of the city's 36 ambulances were in service in the rst quarter of2013.

And now for a look at other cities that are battling severe population loss. Hereare the top 15, ranked by the decline from each city's population peak, accordingto the decennial U.S. census:


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Source: Zerohedge

And here are the top 15 ranked by the percentage decline (for this list, I required a populationof at least 125,000 in or before 1960):

*** ZEROHEDGE / LINK
http://www.zerohedge.com/news/2013-07-20/now-detroit%E2%80%99s-gone-bust-your-city-nexthttp://www.zerohedge.com/news/2013-07-20/now-detroit%E2%80%99s-gone-bust-your-city-next


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How to Spot a LiarWant to know if someone's lying to you? Telltale signs may include running of the mouth, anexcessive use of third-person pronouns, and an increase in profanity.

These are among the ndings of a recent experimental study that delves into the languageof deception, detailed in the paper Evidence for the Pinocchio Effect: Linguistic DifferencesBetween Lies, Deception by Omissions, and Truths, which was published in the journal DiscourseProcesses. Asked why the topic of deception is important to business research, negotiationexpert Deepak Malhotra responds wryly: "As it turns out, some people will lie and cheat inbusiness!"

Malhotra, the Eli Goldston Professor of Business Administration at Harvard Business School,coauthored the paper with Associate Professor Lyn M. Van Swol and doctoral candidate Michael

T. Braun, both from the University of WisconsinMadison. "Most people admit to having lied in

negotiations, and everyone believes they've been lied to in these contexts," Malhotra says. "Wemay be able to improve the situation if we can equip people to detect and deter the unethicalbehavior of others."

"Evidence for the Pinocchio Effect" lls a key gap in the eld of deception research, says VanSwol, the study's lead author. Previous studies have examined the linguistic differences betweenlies and truthful statements. But this one goes a step further to consider the differencesbetween at-out lying and so-called deception by omission that is, the willful avoidanceof divulging important information, either by changing the subject or by saying as little aspossible.

To garner a sample of truth tellers, liars, and deceivers by omission, the researchers recruited104 participants to play the ultimatum game, a popular tool among experimental economists.In the traditional version of the game, one player (the allocator) receives a sum of moneyand proposes how to divvy it up with a partner (the receiver). The receiver has the option ofeither accepting the proposed split or refusing the allocator's proposal in which case neitherplayer gets any of the money. Because receivers will often reject offers they perceive as unfair,leaving both parties with nothing, it behooves the allocator to offer an amount that will bedeemed fair by the receiver. In many instances, allocators choose to share half, Malhotra says.

For the purposes of the deception experiment, the rules of the ultimatum game differedfrom the traditional version in three ways. First, in this version, the allocator received an

endowment of either $30 or $5 to share with the receiver. The receiver had no way of verifyinghow much money the allocator had been given, information which the allocator was notrequired to divulge. Hence, an allocator could conceivably give the receiver $2 and keep $28,and the receiver would be none the wiser, perhaps assuming only $5 was in play. The secondchange was that if the receiver rejected the allocator's offer he or she would receive a defaultamount of $7.50 (or $1.25) whereas the allocator would get no money at all.


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Finally, each game included two minutes of videotaped conversation in which the receiver couldgrill the allocator with questions, prior to deciding whether to accept or reject the offer. Thisprovided ample opportunity for the allocator to tell the truth about the money, lie, or try toavoid the subject altogether. "We wanted to create a situation where people could choose to lie

or not lie, and it would happen naturally," Van Swol says.

Ultimately, the receiver had to decide whether the proposed allocation was fair and honest,based only on a conversation with the allocator. Thus, it behooved the allocator to be either afair person or a good liar.

As it turned out, 70 percent of the allocators were honest, telling the receivers the trueamount of the endowment and/or offering them at least half of the pot. The remaining 30percent of allocators were classied either as liars (meaning they at-out lied about theamount of the endowment) or as deceivers by omission (meaning they evaded questions aboutthe amount of the endowment, but ultimately offered the receiver less than half).

*** HARVARD BUSINESS SCHOOL/WORKING KNOWLEDGE / LINK

Maybe It's May?Mayday! Mayday! Mayday! Not to be confused with that rst day of May, when the workers ofthe world unite to march down boulevards with TV cameras rolling, before they themselves rollinto a nearby pub, the "mayday" I'm talking about is the legendary distress signal.

In case you think I was annoyingly redundant (even more than usual) with my opening three-

peat, that's the way it is done at least if it's done right. The triple iteration is to make surethis broadcast of a life-threatening crisis is not confused with random noise like the kind ourbeloved Fed seems to specialize in lately.

Moreover, if you wondered why the most cherished day of Bolsheviks everywhere came torepresent the ultimate SOS, it's because it evolved from the French term "venez m'aider," or"come help me." (Given the current state of France's economy and government nances, youcan rest assured that President Francois Hollande will soon be yelling "Venez m'aider!" at thetop of his lungs.)

It's been a very long time since the US government bond market needed to issue its own mayday

call. In fact, it was nine years ago, back in May of 2004, when the yield on Treasuries zoomedto a level that seemed almost inconceivable just a few weeks earlier. Admittedly, the bondbloodbath in 2004 started in April, but it gained momentum in the rst two weeks of May beforeessentially peaking out at just under 5%, up a shocking 100 basis points (1%) from where it wastrading on April Fool's Day of that year. (See Figures 11 and 12.)
http://hbswk.hbs.edu/item/7234.htmlhttp://hbswk.hbs.edu/item/7234.html


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Of course, as Mark Twain was wont to say, history doesn't repeat itself but it does rhyme; thus,this year has not been an exact clone of 2004. However, there's been a lot of rhyming happeningbased on the fact that nearly the entire run-up in Treasury yields that would happen over the

full Fed tightening cycle from June of 2004 until December of 2006 was achieved by mid-May of

that year.To be precise, even though the Fed would soon embark on a tightening campaign that wouldlast for two and a half years, during which it raised its overnight rate 17 times by a total of400 basis points (4%), almost the entire increase in longer term Treasury yields was over by thesecond week in May of 2004! And, as you can see in Figure 12 on the previous page, this wasbefore the Fed even raised rates once, a move it didn't make until late June of that year.

Although it's true that the 10-year Treasury note did poke its head above a 5% yield numeroustimes over the next few years, the reality is that the bulk of the rate rise occurred before thenFed-head Alan Greenspan ever lifted his nger (or overnight rate). Remarkably, in early 2007

despite rising ination, surging commodity prices, and a credit-fueled housing and consumerspending boom the yield on the 10-year treasury note was right where it was in mid-May of2004: 4.8%.

By contrast, 10 years earlier, in 1994, the bond market pasting which bankrupted OrangeCounty, California coincided with actual Fed hikes and played out over a much longer timeframe, as you can see below. (See Figures 13 and 14.)

*** DAVID HAY (EVERGREEN CAPITAL) / FULL COMMENTARY
mailto:info%40evergreencapital.net?subject=Things%20That%20Make%20You%20Go%20Hmmm.....%20Commentarymailto:info%40evergreencapital.net?subject=Things%20That%20Make%20You%20Go%20Hmmm.....%20Commentary


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Cooking the numbers in Buenos AiresArgentina's ofcial economic growth surprised analysts with a 7.8% year over year jump in May.

MercoPress: Argentina's economic activity jumped 7.8% in May from a year earlier,

according to the country's questioned stats ofce, Indec. President Cristina Fernandezhad anticipated the news earlier in the week in a televised speech. ...The monthly EMAEeconomic activity index is a close proxy for GDP, which is reported quarterly.

Cristina Fernandez should be congratulated for this incredible achievement in the face ofnumerous adversities faced by the nation. But can the growth numbers be trusted?

MercoPress: Argentina is widely accused of manipulating ination data and, to alesser extent, growth data. It faces potential sanctions by the IMF, which has issued a"declaration of censure" against Argentina over the quality of its statistics.

Even though the ination number is heavily "understated", the growth numbers reported bythe offcials should be more reliable? But this 7.8% number is meant to approximate the "real"instead of the "nominal" measure of the GDP growth. Which means that ination numbers arekey to this determination. The ofcial ination rate reported by the same government agencyis 10.5%, while the actual number is more than double that amount. Computed using a moreaccurate ination measure, the real GDP is likely to be negative.

GS: The ofcial Indec gures (0.8% mom, 10.5% yoy in June) are reporting less than halfthe ination in the economy as measured by non-ofcial entities.

Ination is likely to remain entrenched above 20% during 2013-2014, given inertial

pressures, the continuation of very accommodative monetary conditions, a deterioratingscal stance, and accelerating ARS [Argentina peso] depreciation. The monetary stanceremains very lax (negative real interest rates), and the central bank continued toaccommodate ination at a very high level. In all, we expect the authorities to continueto subordinate low and stable ination to scal and growth imperatives (severe scaldominance). This strategy is likely to lead to further pressure on the ARS to depreciate.

And pressure on the ARS continues. Earlier this year when Argentina was expected to default onits dollar debt (see post), the dollar hoarding in the black market forced greenbacks to spiketo over 10 pesos. Since then the peso stabilized at around 8, but recently the black marketactivity has picked up again.


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Source: Sober Look

With ination numbers understated (and unlikely to improve), the real GDP growth is made to

look far better than it really is. And given that the economy will be a major determinant of theOctober 2013 mid-term elections outcome, the Cristina Fernandez government continues tocook the country's key economic indicators.

*** SOBER LOOK / LINK
http://soberlook.com/2013/07/cooking-numbers-in-buenos-aires.htmlhttp://soberlook.com/2013/07/cooking-numbers-in-buenos-aires.html


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Charts That Make You GoHmmm...

Source: Stacy Herbert

The contrast between the Shanghai Gold Exchange (SGE) and the COMEX is put intoclear focus by this collection of charts from Stacy Herbert.

Though volume on the COMEX dwarfs that of the SGE, it's clear from the massive disparitybetween these two exchanges, as far as deliveries of physical metal are concerned, that one isa paper market and the other a real market for physical gold.

More and more, the bullion markets are beginning to focus on Shanghai to nd out what thereal demand is like for physical metal.


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Source: ZeroHedge

With a national debt approaching $17 trillion, Uncle Sam is tightening his belt and

looking under the cushions for extra change. But a closer look at his pocket book reveals justhow little he knows about where your money is going. The following infographic provides a fewexamples that will make you think twice about Uncle Sam's accounting skills.

*** ZEROHEDGE /LINK
http://www.zerohedge.com/news/2013-07-11/visualizing-uncle-sams-missing-moneyhttp://www.zerohedge.com/news/2013-07-11/visualizing-uncle-sams-missing-moneyhttp://www.zerohedge.com/news/2013-07-11/visualizing-uncle-sams-missing-moneyhttp://www.zerohedge.com/news/2013-07-11/visualizing-uncle-sams-missing-money


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Source: ShareLynx

The chart above is one of a series of fantastic long-term gold and silver charts thatNick Laird of ShareLynx has painstakingly put together over an extended time period. He hasmade them available to nonsubscribers to his work, and they make fascinating viewing foranybody interested in precious metals.

Any chart that goes back EIGHT CENTURIES can be relied upon to give a pretty goodperspective, in my opinion, and these charts do just that.

Yet more phenomenal work from Nick.

For over a month, JPMorgan managed to mysteriously avoid matching up the gold heldin its (world's largest) vault with the Comex delivery notice update. However, as of today,that particular can will be kicked no more. Starting yesterday, JPM reported that just under12,000 ounces of Eligible gold (the same Registered gold that two days earlier saw its warrantsdetached and converted to Eligible) were withdrawn from its warehouse 100 feet below CMP 1.But it was today's move that was the kicker, as a whopping 90,311 ounces of Eligible gold werewithdrawn, accounting for a massive 66% of the rm's entire inventory of non-Registered gold,and leaving a token 46K ounces, or a little over 1 tonne, in JPM's possession.
http://www.sharelynx.com/http://www.sharelynx.com/http://www.sharelynx.com/http://www.sharelynx.com/


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23 JULY 2013

Needless to say, today's massive move, which increasingly puts JPM's gold holdings in the dangerzone vis-a-vis future delivery notices which just refuse to stop, has pushed total JPM vault goldto a new all time low of just 436k ounces, or a little under 14k tonnes, with just 12 tonnes,or 390k ounces, of Registered gold left and rapidly draining. And to think that two years agoaround this time JPM had over 3 million ounces of gold in its possession.

*** ZEROHEDGE / LINK
http://www.zerohedge.com/news/2013-07-19/jpm-eligible-gold-plummets-66-one-day-total-gold-fresh-all-time-lowhttp://www.zerohedge.com/news/2013-07-19/jpm-eligible-gold-plummets-66-one-day-total-gold-fresh-all-time-low


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23 JULY 2013

Words That Make You GoHmmm...

Mike Shedlock is a regular in thesepages, and this week we get to hear histhoughts on the identity of the next Fed Chair... person, the bond market, gold, Europe,the German elections, and much more....

CLICK TO LISTEN

Following on from last week's Things

That Make You Go Hmmm... and the ongoingdisappearance of gold from storage facilities,Andrew Maguire gives a great interview with

Eric King on the tight supply being seen in the

gold (and silver) bullion markets.

Andrew has an incredible understanding of

the mechanics of the bullion markets, and heexplains what is happening with great clarity.

This is a must-listen for anyone interested

in trying to gure out what all the evidencemeans for gold....

CLICK TO LISTEN

John Paulson is a name that hasbecome synonymous with gold over the past

few years, and the amount of scorn heapedupon the performance of his gold fund has

been utterly ridiculous.

In this excellent interview, Paulson discussesthis fact and the rationale around his gold

trade and offers a bunch of other fascinating

insights on money printing, ination, the Fed,and the housing market to name but a few.

A great chance to spend twenty minutes with

one of the sharpest minds in the business....

CLICK TO WATCH
http://www.youtube.com/watch?v=340t-4LGZL8http://kingworldnews.com/kingworldnews/Broadcast/Entries/2013/7/20_Andrew_Maguire_files/Andrew%20Maguire%207%3A20%3A2013.mp3http://video.cnbc.com/gallery/?video=3000183690&play=1http://video.cnbc.com/gallery/?video=3000183690&play=1http://kingworldnews.com/kingworldnews/Broadcast/Entries/2013/7/20_Andrew_Maguire_files/Andrew%20Maguire%207%3A20%3A2013.mp3http://www.youtube.com/watch?v=340t-4LGZL8


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23 JULY 2013

and fnally...Rory McIlroy has beaten just about every human on the planet, so for the latestEuropean Tour challenge he's up against a robot. Or a Golf Laboratory Computer ControlledHitting Machine, to be precise...

CLICK TO WATCH

Hmmm...
http://www.youtube.com/watch?v=Ft2fLuz9mF0http://www.youtube.com/watch?v=Ft2fLuz9mF0


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23 JULY 2013

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 fundrunning over $280 million of largely partners' capitalacross multiple strategies.

The high level of capital committed by the Vulpes

partners ensures the strongest possible alignment

between the rm and its investors.

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

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

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

*******

Follow me on Twitter: @TTMYGH

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

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

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

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

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

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

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


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

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ttmygh - horse, pig, helmet, man, woman

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