Marc Faber June 2009 - Bloomberg

YouTube Link

Bloomberg interviews Marc Faber in June 2009, with Faber's calls on the coming period being on point.

Marc all this is predicated on the fact that you see the US in a hyperinflationary state. I mean you compared us to Zimbabwe in July 2008.  Do you really think its going to be that bad, i mean really, on a scale of 1 - 10, you actually have zero confidence in the US ability to exit ?

Yes, [of] that I have zero confidence, absolutely zero.  There is no political will, to reduce the deficits, and to keep money tight.  And if you read all the articles that are published in the United States, and if you read the statements by mister Bernanke, they all point towards essentially keeping interest rates artificially low and at all cost to generate some inflation.  Now the problem with inflation is that you can't just generate 3 or 6 % inflation, inflation is a dynamic process, and I can assure you, all of the viewers of Bloomberg, that they will this year be hit by higher contributions to the government, and higher insurance premiums for their insurance policies, and so forth, and so on... higher transportation costs.  I don't know that deflation is what prices they are living by, but my prices in life, they go up.

The Slope - Trading Horizon @ 3 October 2011

The major US indices are down, with the S&P500 index being around 1105, down 2.3% on the day.

This is inline with the recent trend of the last 5 straight days.

Reuters:

[ The Good Ship Dexia Beaches near the Shores of Normandy ] Banks slumped after a 10 percent fall in shares of Franco-Belgian financial group Dexia. The company is highly exposed to Greek loans and it highlighted concerns about the extent to which a default in Athens would damage already fragile European banks.

[ Some story about a Bunch of Honest Cretans ] Greece admitted it will miss its deficit targets this year, which could make the country unable to receive more international aid and run out of cash. 

 [ Meanwhile, back in the fatherland, Bank Of America and Morgan Stanley are about to require some expensive life support if they are to survive the Greek default (Note of thanks to the desk at Goldman Sachs which planted the derivative timebomb in the basement of the less-than-dextrous aforementioned European bank, within the circle of the European monetary union) ] U.S. banks including Morgan Stanley and Bank of America have all seen their credit default swap costs jump as other banks hedge their counterparty exposures and speculative traders bet on the situation worsening.

[ Margin Stanley ] Morgan Stanley has been the most volatile name in recent weeks, with the cost of insuring its debt rising to levels not seen since November 2008, according to Markit data. [ may be being circled by hedge fund vultures ] "Everyone is looking at the Morgan Stanleys of the world, looking at their CDS gapping up here," said David Lutz, managing director of trading, Stifel Nicolaus Capital Markets in Baltimore.

US Economic Events Calendar

EconoDay Calendar of Economic Events

Recommended Reading/Books

RISK
- Benoit Mandelbrot : The (Mis)Behaviour of Markets
- Nassim Nicholas Taleb : The Black Swan
- Nassim Nicholas Taleb : Fooled by Randomness
- Peter L Bernstein : Against the Odds - The Remarkable Story of Risk

INVESTMENT STRATEGY
- Benjamin Graham : The Intelligent Investor

GENERAL HISTORY
- Al Alletzhauser : The House of Nomura
- Niall Ferguson : The Ascent of Money - A Financial History of the World

2008 FINANCIAL CRISIS
- Michael Lewis : The Big Short

OIL & COMMODITIES
- Leah McGrath Goodman : The Asylum - The Renegades Who Hijacked the World's Oil Market
- Daniel Amman : The King of Oil - The Secret Lives of Marc Rich

BIOGRAPHIES
- John Perkins : Confessions of an Economic Hitman
- Jordan Belfort : The Wolf of Wall Street - How Money Destroyed a Wall Street Superman
- Daniel Amman : The King of Oil - The Secret Lives of Marc Rich
- Victor Niederhoffer : The Education of a Speculator

ORGANISED CRIME
- Misha Glenny : McMafia - Seriously Organised Crime
- James S Henry : The Blood Bankers - Tales from the Underground Economy

DERIVATIVES
- Satyajit Das : Traders, Guns & Money

Keynes on Inflation - The Economic Consequences of the Peace

A must-read, 'The Economic Consequences of the Peace' by John Maynard Keynes:

Available free online from Project Gutenberg.

Wikipedia Entry.

Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth. Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become "profiteers,", who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat. As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.

Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.

Comparison of Interest on Deposits Across Countries

International Deposit - Interest Rates Exchange

http://www.tradingeconomics.com/ - Interest Rates, List by Country

8 August 2011 - S&P Down 6.66%

So this is what having your sovereign debt rating downgraded from AAA status looks like:

S&P Downgrades US Credit Rating - aka GoodBye AAA

Full Report from S&P, available from S&P website as of 2011-08-06.

My emphasis added.

Research Update:

United States of America Long-Term Rating Lowered To 'AA+' On Political Risks And Rising Debt Burden; Outlook Negative

Overview

• We have lowered our long-term sovereign credit rating on the United States of America to 'AA+' from 'AAA' and affirmed the 'A-1+' short-term rating.
• We have also removed both the short- and long-term ratings from CreditWatch negative.
• The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government's medium-term debt dynamics.
• More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating on April 18, 2011.
• Since then, we have changed our view of the difficulties in bridging the gulf between the political parties over fiscal policy, which makes us pessimistic about the capacity of Congress and the Administration to be able to leverage their agreement this week into a broader fiscal consolidation plan that stabilizes the government's debt dynamics any time soon.
• The outlook on the long-term rating is negative. We could lower the long-term rating to 'AA' within the next two years if we see that less reduction in spending than agreed to, higher interest rates, or new fiscal pressures during the period result in a higher general government debt trajectory than we currently assume in our base case.

Rating Action

On Aug. 5, 2011, Standard & Poor's Ratings Services lowered its long-term sovereign credit rating on the United States of America to 'AA+' from 'AAA'. The outlook on the long-term rating is negative. At the same time, Standard & Poor's affirmed its 'A-1+' short-term rating on the U.S. In addition, Standard & Poor's removed both ratings from CreditWatch, where they were placed on July 14, 2011, with negative implications.

The transfer and convertibility (T&C) assessment of the U.S.--our assessment of the likelihood of official interference in the ability of U.S.-based public- and private-sector issuers to secure foreign exchange for debt service--remains 'AAA'.

Rationale

We lowered our long-term rating on the U.S. because we believe that the prolonged controversy over raising the statutory debt ceiling and the related fiscal policy debate indicate that further near-term progress containing the growth in public spending, especially on entitlements, or on reaching an agreement on raising revenues is less likely than we previously assumed and will remain a contentious and fitful process. We also believe that the fiscal consolidation plan that Congress and the Administration agreed to this week falls short of the amount that we believe is necessary to stabilize the general government debt burden by the middle of the decade.

Our lowering of the rating was prompted by our view on the rising public debt burden and our perception of greater policymaking uncertainty, consistent with our criteria (see "Sovereign Government Rating Methodology and Assumptions," June 30, 2011, especially Paragraphs 36-41). Nevertheless, we view the U.S. federal government's other economic, external, and monetary credit attributes, which form the basis for the sovereign rating, as broadly unchanged.

We have taken the ratings off CreditWatch because the Aug. 2 passage of the Budget Control Act Amendment of 2011 has removed any perceived immediate threat of payment default posed by delays to raising the government's debt ceiling. In addition, we believe that the act provides sufficient clarity to allow us to evaluate the likely course of U.S. fiscal policy for the next few years.

The political brinksmanship of recent months highlights what we see as America's governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed. The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy. Despite this year's wide-ranging debate, in our view, the differences between political parties have proven to be extraordinarily difficult to bridge, and, as we see it, the resulting agreement fell well short of the comprehensive fiscal consolidation program that some proponents had envisaged until quite recently. Republicans and Democrats have only been able to agree to relatively modest savings on discretionary spending while delegating to the Select Committee decisions on more comprehensive measures. It appears that for now, new revenues have dropped down on the menu of policy options. In addition, the plan envisions only minor policy changes on Medicare and little change in other entitlements, the containment of which we and most other independent observers regard as key to long-term fiscal sustainability.

Our opinion is that elected officials remain wary of tackling the structural issues required to effectively address the rising U.S. public debt burden in a manner consistent with a 'AAA' rating and with 'AAA' rated sovereign peers (see Sovereign Government Rating Methodology and assumptions," June 30, 2011, especially Paragraphs 36-41). In our view, the difficulty in framing a consensus on fiscal policy weakens the government's ability to manage public finances and diverts attention from the debate over how to achieve more balanced and dynamic economic growth in an era of fiscal stringency and private-sector deleveraging (ibid). A new political consensus might (or might not) emerge after the 2012 elections, but we believe that by then, the government debt burden will likely be higher, the needed medium-term fiscal adjustment potentially greater, and the inflection point on the U.S. population's demographics and other age-related spending drivers closer at hand (see "Global Aging 2011: In The U.S., Going Gray Will Likely Cost Even
More Green, Now," June 21, 2011).

Standard & Poor's takes no position on the mix of spending and revenue measures that Congress and the Administration might conclude is appropriate for putting the U.S.'s finances on a sustainable footing.

The act calls for as much as $2.4 trillion of reductions in expenditure growth over the 10 years through 2021. These cuts will be implemented in two steps: the $917 billion agreed to initially, followed by an additional $1.5 trillion that the newly formed Congressional Joint Select Committee on Deficit Reduction is supposed to recommend by November 2011. The act contains no measures to raise taxes or otherwise enhance revenues, though the committee could recommend them.

The act further provides that if Congress does not enact the committee's recommendations, cuts of $1.2 trillion will be implemented over the same time period. The reductions would mainly affect outlays for civilian discretionary spending, defense, and Medicare. We understand that this fall-back mechanism is designed to encourage Congress to embrace a more balanced mix of expenditure savings, as the committee might recommend.

We note that in a letter to Congress on Aug. 1, 2011, the Congressional Budget Office (CBO) estimated total budgetary savings under the act to be at least $2.1 trillion over the next 10 years relative to its baseline assumptions. In updating our own fiscal projections, with certain
modifications outlined below, we have relied on the CBO's latest "Alternate Fiscal Scenario" of June 2011, updated to include the CBO assumptions contained in its Aug. 1 letter to Congress. In general, the CBO's "Alternate Fiscal Scenario" assumes a continuation of recent Congressional action overriding existing law.

We view the act's measures as a step toward fiscal consolidation. However, this is within the framework of a legislative mechanism that leaves open the details of what is finally agreed to until the end of 2011, and Congress and the Administration could modify any agreement in the future. Even assuming that at least $2.1 trillion of the spending reductions the act envisages are implemented, we maintain our view that the U.S. net general government debt burden (all levels of government combined, excluding liquid financial assets) will likely continue to grow. Under our revised base case fiscal scenario--which we consider to be consistent with a 'AA+' long-term rating and a negative outlook--we now project that net general government debt would rise from an estimated 74% of GDP by the end of 2011 to 79% in 2015 and 85% by 2021. Even the projected 2015 ratio of sovereign indebtedness is high in relation to those of peer credits and, as noted, would continue to rise under the act's revised policy settings.

Compared with previous projections, our revised base case scenario now assumes that the 2001 and 2003 tax cuts, due to expire by the end of 2012, remain in place. We have changed our assumption on this because the majority of Republicans in Congress continue to resist any measure that would raise revenues, a position we believe Congress reinforced by passing the act. Key macroeconomic assumptions in the base case scenario include trend real GDP growth of 3% and consumer price inflation near 2% annually over the decade.

Our revised upside scenario--which, other things being equal, we view as consistent with the outlook on the 'AA+' long-term rating being revised to stable--retains these same macroeconomic assumptions. In addition, it incorporates $950 billion of new revenues on the assumption that the 2001 and 2003 tax cuts for high earners lapse from 2013 onwards, as the Administration is advocating. In this scenario, we project that the net general government debt would rise from an estimated 74% of GDP by the end of 2011 to 77% in 2015 and to 78% by 2021.

Our revised downside scenario--which, other things being equal, we view as being consistent with a possible further downgrade to a 'AA' long-term rating--features less-favorable macroeconomic assumptions, as outlined below and also assumes that the second round of spending cuts (at least $1.2 trillion) that the act calls for does not occur. This scenario also assumes somewhat higher nominal interest rates for U.S. Treasuries. We still believe that the role of the U.S. dollar as the key reserve currency confers a government funding advantage, one that could change only slowly over time, and that Fed policy might lean toward continued loose monetary policy at a time of fiscal tightening. Nonetheless, it is possible that interest rates could rise if investors re-price relative risks. As a result, our alternate scenario factors in a 50 basis point (bp)-75 bp rise in 10-year bond yields relative to the base and upside cases from 2013 onwards. In this scenario, we project the net public debt burden would rise from 74% of GDP in 2011 to 90% in 2015 and to 101% by 2021.

Our revised scenarios also take into account the significant negative revisions to historical GDP data that the Bureau of Economic Analysis announced on July 29. From our perspective, the effect of these revisions underscores two related points when evaluating the likely debt trajectory of the U.S. government. First, the revisions show that the recent recession was deeper than previously assumed, so the GDP this year is lower than previously thought in both nominal and real terms. Consequently, the debt burden is slightly higher. Second, the revised data highlight the sub-par path of the current economic recovery when compared with rebounds following previous post-war recessions. We believe the sluggish pace of the current economic recovery could be consistent with the experiences of countries that have had financial crises in which the slow process of debt deleveraging in the private sector leads to a persistent drag on demand. As a result, our downside case scenario assumes relatively modest real trend GDP growth of 2.5% and inflation of near 1.5% annually going forward.

When comparing the U.S. to sovereigns with 'AAA' long-term ratings that we view as relevant peers--Canada, France, Germany, and the U.K.--we also observe, based on our base case scenarios for each, that the trajectory of the U.S.'s net public debt is diverging from the others. Including the U.S., we estimate that these five sovereigns will have net general government debt to GDP ratios this year ranging from 34% (Canada) to 80% (the U.K.), with the U.S. debt burden at 74%. By 2015, we project that their net public debt to GDP
ratios will range between 30% (lowest, Canada) and 83% (highest, France), with the U.S. debt burden at 79%. However, in contrast with the U.S., we project that the net public debt burdens of these other sovereigns will begin to decline, either before or by 2015.

Standard & Poor's transfer T&C assessment of the U.S. remains 'AAA'. Our T&C assessment reflects our view of the likelihood of the sovereign restricting other public and private issuers' access to foreign exchange needed to meet debt service. Although in our view the credit standing of the U.S. government has deteriorated modestly, we see little indication that official interference of this kind is entering onto the policy agenda of either Congress or the Administration. consequently, we continue to view this risk as being highly remote.

Outlook

The outlook on the long-term rating is negative. As our downside alternate fiscal scenario illustrates, a higher public debt trajectory than we currently assume could lead us to lower the long-term rating again. On the other hand, as our upside scenario highlights, if the recommendations of the Congressional Joint Select Committee on Deficit Reduction--independently or coupled with other initiatives, such as the lapsing of the 2001 and 2003 tax cuts for high
earners--lead to fiscal consolidation measures beyond the minimum mandated, and we believe they are likely to slow the deterioration of the government's debt dynamics, the long-term rating could stabilize at 'AA+'.

On Monday, we will issue separate releases concerning affected ratings in the funds, government-related entities, financial institutions, insurance, public finance, and structured finance sectors.

Related Criteria And Research

• United States of America 'AAA/A-1+' Ratings Placed On CreditWatch Negative On Rising Risk Of Policy Stalemate, July 14, 2011
• U.S. Weekly Financial Notes: Soft Patch Or Quicksand?, Aug. 5, 2011
• Sovereign Government Rating Methodology And Assumptions, June 30, 2011
• 2011 Midyear Credit Outlook: Unresolved Economic And Regulatory Issues Loom Large, June 22, 2011
• Global Aging 2011: In The U.S., Going Gray Will Likely Cost Even More Green, Now, June 21, 2011
• United States of America 'AAA/A-1+' Rating Affirmed; Outlook Revised To Negative, April 18, 2011
• Fiscal Challenges Weighing On The 'AAA' Sovereign Credit Rating On The Government Of The United States, April 18, 2011
• A Closer Look At The Revision Of The Outlook On The U.S. Government Rating, April 18, 2011
• Banking Industry Country Risk Assessments, March 8, 2011
• Behind The Political Brinkmanship Of Raising The U.S. Debt Ceiling, Jan. 18, 2011
• U.S. Government Cost To Resolve And Relaunch Fannie Mae And Freddie Mac Could Approach $700 Billion, Nov. 4, 2010
• Global Aging 2010: In The U.S., Going Gray Will Cost A Lot More Green, Oct. 25, 2010,
• Après Le Déluge, The U.S. Dollar Remains The Key International Currency," March 10, 2010
• Banking Industry Country Risk Assessment: United States of America, Feb.

Ratings List

Rating Lowered - Sovereign Credit Rating
To - AA+/Negative/A-1+
From - AAA/Watch Neg/A-1+

United States of America (Unsolicited Ratings)
Federal Reserve System (Unsolicited Ratings)
Federal Reserve Bank of New York (Unsolicited Ratings)

This unsolicited rating(s) was initiated by Standard & Poor's. It may be based solely on publicly available information and may or may not involve the participation of the issuer. Standard & Poor's has used information from sources believed to be reliable based on standards established in our Credit Ratings Information and Data Policy but does not guarantee the accuracy, adequacy, or completeness of any information used.

Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.

Life After QE2 - August 4 2011

So this is what the S&P500 looks like in the month immediately subsequent to the end of QE2 (the second round of quantitative easing by the US Monetary Authorities), which was scheduled to complete on June 30 2011:



At the time of writing, the S&P500 has dropped from ~ 1338 on the close of July 1st 2011, to ~ 1221 on August 4th (1502 EDT), a swoon of just over 9% in a month.

Which definitely supports the idea that there is no real recovery, and that equity price increases (and inflation) are purely a monetary phenomenon, an idea that is again supported by the lack of associated improvement in employment.

The good news (especially if your are of the view that the Fed requires further commodity price decreases/deflation in order to justify further inflationary money printing) is that crude oil is also down, from ~ $100 per barrel to ~ $87 per barrel, a well overdue 13% down.



And, if anyone needs a further indicator of the seriousness of the situation, the Bank of New York Mellon has stated today that it is going to charge a negative interest rate on any large deposit where the account balance is 10% or greater than its June average balance.

Reuters:

If customers' balances are more than 10 percent above their averages in June, BNY Mellon said it will pass along some of its costs by charging the fee.
...
The charge amounts to an annual rate of 0.13 percentage point, with adjustments if one-month T-bill rates fall below zero. It will affect accounts whose average deposit is greater than $50 million.

The bank offered the following rationale:

The bank said this week it is unable to invest the "sudden significant" deposit increases because of their "transient nature," but it is concerned the deposits will weaken its capital ratios and raise its deposit insurance premiums.

Smells like something is fishy in Denmark. However, a 0.13% annual loss may be a much softer blow than the 4.1% per day loss the S&P500 is experiencing as of 1533 EDT:

It DAXn't Look Good - August 1 2011 DAX Flash Crash

So, while the American elite is busy playing debt-chicken, the German DAX index is down close to 3% (2.86%), with a rather nasty looking drop [1.3% in 1 second] in the middle of the day - ZeroHedge quotes GoldmanSach's Mark Bellak:

What just happened in Dax Futures? Lots and lots of questions on what just happened in dax futures and the exchange are unable to say too much but it appears that there was possibly a fat finger that triggered a vol break (vol break lowest indication at 2500) . What we can see is at 16:38:22 London time the market moved from 6950 to 6860 in the same second, trading a little under 1000 contracts. As we stand no one has claimed a mis-trade so all fills are good and no trades have been busted.

Confessions of an Economic Hitman - John Perkins

Wikipedia: Confessions of an Economic Hit Man is a book written by John Perkins and published in 2004. It provides Perkins' account of his career with consulting firm Chas. T. Main in Boston.

John Perkins official site
Amazon Book Page

Selected Excerpts:

[Preface]

Economic hitmen are highly paid professionals who cheat countries around the globe out of trillions of dollars. The funnel money from the World Bank, the U.S Agency for International Development (USAID), and other foreign 'aid' organisations into the coffers of huge corportions and the pockets of a few wealthy families who control the planet's natural resources. Their tools include fraudulent financial reports, rigged elections, payoffs, extortion, sex and murder. They play a game as old as empire, but one that has taken on new and terrifying dimensions during this time of globalization.

...

Some would blame our current problems on an organised conspiracy. I wish it were so simple. Members of a conspiracy can be rooted out an brought to justice. This system, however, is fuelled by something far more dangerous than conspiracy. It is driven not by a small band of men but by a concept that has become accepted as gospel: the idea that all econmic growth benefits humankind and that the greater the growth, the more widespread the benefits. This belief also has a corollary: that those people who succeed in stoking the fires of economic growth should be exalted and rewarded, while those born at the fringes are available for exploitation.

This concept is, of course, erroneous. We know that in many countries economic growth benefits only a small portion of the population and may in fact result in increasingly depserate circumstances for the majority. This effect is reinforced by the corollary belief that the captains of industry who drive this system should enjoy a special status, a belief that is the root of many of our current problems and is perhaps also the reason why the conspiracy theories abound. When men and women are rewarded for greed, greed becomes a corrupting motivator. When we equate the gluttonous consumption of the earth's resources with a status approaching sainthood, when we teach our children to emulate people who live unbalanced lives, and when we define huge sections of the population as subservient to an elite minority, we ask for trouble. And we get it.

In their drive to advance the global empire, corporations, banks, and governments (collectively the corporatocracy) use their financial and political muscle to ensure that our schools, businesses and media support both the fallacious concept and its corollary. They have brought us to a point where our global culture is a monstrous machine that requires exponentially incresing amounts of fuel and maintenance, so much so that in the end it will have consumed everything in sight, and will be left with no choice but to devour itself.

[Chapter 34]

... I remembered what the Shaurs had told me... "The world is as you dream it", they had said, and then pointed out that we in the North had dreamed of huge industries, lots of cars, and gigantic skyscrapers. Now we had discovered that our vision had in fact been a nightmare that would destroy us all.

"Change that dream", the Shuars had advised me.

...

The Prophecy of the Condor and the Eagle... states that back in the mists of history, human societies divided and took two different paths: that of the condor (representing the heart, intuitive and mystical) and that of the eagle (representing the brain, rational and material). In the 1490's, the the prophecy said, the two paths would converge, and the eagle would drive the condor to the verge of extinction. Then, five hundred years later, in the 1990's, a new epoch would begin, one in wich the condor and the eagle will have the opportunity to reunite and fly together in thes same sky, along the same path. If the condor and eagle accept this opportunity, they will create a most remarkable offspring, unlike any ever seen before.

[Epilogue]

Things are not as they appear. NBC is owned by General Electric, ABC by Disney, CBS by Viacom, and CNN is part of the huge AOL Time Warner conglomerate. Most of our newspapers, magazines and publishing houses are owned - and manipulated - by gigantic international corporations. Our media is part of the corporatocracy. The officers and directors who control nearly all of our communications outlets know their places; they are taught throughout life that one of their most important jobs is to perpetuate, strengthen and expand the system they have inherited. They are very efficient at doing so, and when opposed, they can be ruthless. So the burden falls on you to see the truth beneath the veneer and to expose it. Speak to your family and friends, spread the word.

I could give you a list of practical things to do. For instance, cut back on your oil comsumption. ... The next time your are tempted to go shopping, read a book instead, exercise, or meditate. Downsize your home, wardrobe, car, office, and most everything in your life. Protest against "free" trade agreements, and against companies that exploit people in sweatshops or that pillage the environment.

...

I could encourage you to take specific actions that will impact the institutions in your life...

Finance Reference Resources

Financial Time (FT) Lexicon

Historical South African Interest Rates

Source = South African Reserve Bank Historical Data


South African Real Prime Overdraft Rate
1968 - 2011
Source = South African Reserve Bank


South African Real Prime Overdraft Rate
2002-2011


Prime vs Repo vs Inter-Bank
2001-2011

In the period 2001-2011, the Prime Rate is typically = Repo Rate + 3.5%, while the InterBank rate is typically = Repo - 1.5%, for a situation of Prime = Interbank + 5%.


South African Interest Rate Differentials
2001 - 2011

Used Car Prices in South Africa

Online calculator used by Mutual & Federal insurance.

Options Explained

CBOT .pdf explaining options

A Simple Explanation of the Current US Debt Ponzi Scheme

US Congressman John Campbell explains the US Debt Ponzi scheme:

Treasury Bonds: I learned something last week. I learned that fully 40% of the over $9 trillion in Treasury debt currently outstanding to the public has a maturity of 3 years or less. Put another way, it means that we are rapidly approaching $4 trillion in U.S. debt that matures by 2014 or sooner. As I write this, the yield (interest rate paid) on a 2-year Treasury note is 0.645% or about 2/3 of one percent. The yield, at the same time, on a 10 year Treasury note is 3.4%, and on a 30 year is 4.55%. In bond parlance, this is called a "steep yield curve" where interest rates get much higher as you go farther out in time.

It's pretty clear why the Treasury is doing this. By issuing mostly short-term notes, the Treasury is paying less interest, thereby keeping interest costs and, consequently, the deficit down. In addition, the Federal Reserve is in the middle of its "quantitative easing #2" (QE2) under which it is buying $600 billion of our own Treasury debt over about a 6 month period. The Fed is not buying the short-term notes, but is buying 10 year maturities and longer in order to hold those rates down. And, since the Fed is earning the interest thereon (paid by the U.S. Treasury), it is improving its yield. We are currently running a deficit of about $130 billion per month, so the Fed is basically buying all of the new bond issuance from the deficit for almost 5 months.

What does this all mean? I understand that the Fed and the Treasury are trying to keep interest rates low and improve the economy and the deficit. But, when coupled with the huge deficits, these moves look a bit like a Ponzi scheme that will soon unravel.

We are printing money ($600 billion) to buy our own debt so that the full effects of the deficit are not felt. We are buying long-term bonds to artificially hold down the rates on those bonds since home mortgages and many other things are based on those rates. We are selling the short-term bonds at cheaper rates to hold down costs now, but are leaving ourselves open to huge cost increases when interest rates go up. And, we are at historic lows on these short-term bond rates. If they were to rise by 3 points (which would put them where they were at as recently as 2008), our deficit would increase by another $150 billion per year, even if the long-term rates stay the same. And, once the Fed ends QE2, even if it doesn't reverse it, the markets will then have to absorb a new influx of long-term bonds at a time when our ability to pay them is in question. The Fed can cure a bunch of this simply by printing a lot more money. That, however, will result in an inflationary period with major wealth destruction and economic malaise.

In the period between 2005-2007, we were sowing the seeds of the 2008 financial crisis through too much leverage in the private sector. But, very few people could see it coming. Today, we are sowing the seeds of another crisis with too much leverage in the public sector. This time, though, it's easy to see it coming.

Jeff Gundlach

BusinessInsider

Gundlach: "An investor is a trader who is underwater."

Bloomberg, 2010/10/05

BusinessInsider Interview 2011/02

Barrons Interview

PIMCO under Bill Gross Holds No US Treasuries

Bill Gross, who manages the world's largest mutual fund, the Total Return fund, at fixed income giant PIMCO, currently holds no US treasuries. It might be said that this is quite a statement.

2011/03/09
ZeroHedge:

Based on still to be publicly reported data by Pimco's flagship Total Return Fund, the world's largest bond fund, in the month of January, has taken its bond holdings to zero (and -14% on a Duration Weighted Exposure basis). The offset, not surprisingly, is cash. After sporting $28.6 billion in "government related" securities, TRF dropped to $0.0, while its cash holdings surged from $11.9 billion to a whopping $54.5 billion (based on total TRF holdings of $236.9 billion as of February 28). This is the most cash the flagship fund has ever held, and the lowest amount in Treasury holdings since January 2009 before it was made clear that the Fed was going to adjust QE1 to include Treasurys in addition to Mortgage Backed Securities. PIMCO's Treasury holdings peaked in June 2010 at $147.4 billion and have declined consistently ever since.

Savouri @ ToscaFund declares South Africa fatally flawed. ANC Youth League president Julius Malema backs him up.

Savvas Savouri, chief economist and partner at hedge fund TosacaFund, has issued a report (published by Reuters) in which he declares that South Africa is "socially, politically and demographically flawed. It will malfunction within 15 years. It will go the way of MENA (the Middle East and North Africa) but the blow-up will be much more serious".

By way of support, he cites the fact that "professional whites and blacks are leaving in hordes - the human capital is decaying", and that the state exhibits a "lack of centralised leadership".

Savouri forecasts that as a result of this dysfunctional state, "Russia and Australia will win out. The surge in commodity prices will benefit them".

---

Savouri has a history of being contrarian and outspoken, having previously gone on record as stating "Finance is almost lawless. The nature of regulation is so light touch that it may as well not be there at all" during an address to the London School of Economics.

---

To put the prognostication in context, here are some of the things that ANC Youth League president Julius Malema had to say at an official party function (held in the lead up to the local government elections) last week.

[It is blatantly clear to everyone but his electorate that this is primarily an attempt to redirect dissatisfaction with the ANC's actual poor delivery of service, from the corrupt government officials where it belongs, to the sitting duck target of the white minority.]

News24
We want 60% of Anglo, says Malema:

“What Anglo does with the other 40% is their business,” ANCYL president Julius Malema said at a gala dinner in Nelspruit on Friday, predicting that the ­nationalisation of mines would “happen in my lifetime”.

...



“Share that delicious piece of cake. Don’t eat it all alone!” he said to loud applause.

...

Malema said unemployment was the cause of recent political unrest, and nationalisation was the way to solve it.

“Maybe it’s time for the youth to climb into the driving seat of the car,” he said.

...

“The Oppenheimers don’t need to worry because we only want 60% of Anglo American’s money,” he said.

...

“An uprising is coming to South Africa, and the uprising won’t be against the ANC,” he said to screaming and cheering members of the ANCYL.

“The uprising will target white men and white monopolies,” he warned. “It won’t be aimed at white women."

...

And finally, the statement that should in time go down as Malema's crowning glory of logical extrapolation:

To prevent the revolution from losing steam, Malema urged a full hall in the Ehlanzeni District Municipality building to have as many babies as possible. ­

“Having babies is a revolutionary thing. You must reproduce! If you shame a black man about his large family, you should immediately change your ­attitude.”

---

If you were wondering if this was just a random, egregious outburst, then let the words of the chairperson of the South African Democratic Teachers Union, Moss Senye, as reported in the Sowetan, put your mind at rest:

Addressing about 1,000 teachers during a mass meeting yesterday, Senye said:

"Whether [Gauteng Education Board MEC] Barbara [Creecy] likes it or not, we will have our meetings. Despite Barbara, we will vote for the ANC during the elections and they will remove her. Let us not embrace satanic people. Down with Satanism.

"You cannot be friends with white people, they will Satanise you," he said.

Creecy was called "satanic" for implementing the no work, no pay policy for teachers who took part in last year's month-long public sector strike.

...

"At no stage should you be friends with white people, they will satanise you."

---

Finally, here's how Anne Paton, the widowed wife of Alan Paton, the late author of Cry the Beloved Country, describes the situation:

A character in Cry, The Beloved Country says: "I have one great fear in my heart, that one day when they are turned to loving they will find we are turned to hating." And so it has come to pass. There is now more racial tension in this country than I have ever known.

But it is not just about black-on-white crime. It is about general lawlessness. Black people suffer more than the whites. They do not have access to private security firms, and there are no police stations near them in the townships and rural areas. They are the victims of most of the hijackings, rapes and murders. They cannot run away like the whites, who are streaming out of this country in their thousands.

...

I was so sorry he [Alan Paton] did not witness the euphoria and love at the time of the election in 1994. But I am glad he is not alive now. He would have been so distressed to see what has happened to his beloved country.

Russian Ex-Goldman Algo Developer Imprisoned for IP Theft

NYTimes, 2011/03/02
Judge Unexpectedly Imprisons Ex-Goldman Programmer:

A federal judge has unexpectedly locked up the former Goldman Sachs programmer found guilty of stealing the investment bank’s computer code.

The Goldman executive, Sergey Aleynikov, had been on house arrest pending sentencing in a few weeks. But after the government warned he was a flight risk, Judge Denise L. Cote imprisoned Mr. Aleynikov, ruling that there was not “clear and convincing evidence” that he was not likely to flee the United States

He is set to be sentenced on March 18. The government is pushing for Mr. Aleynikov to serve between 8 and 10 years.

...


In December, a jury found Mr. Aleynikov guilty of stealing Goldman’s computer code for high-frequency trading when he left the bank to join a start-up in 2009. Prosecutors depicted Mr. Aleynikov, a Russian-born immigrant, as a brazen thief who uploaded thousands of lines of source code from the firm.

Mr. Marino, the lawyer for Mr. Aleynikov, called the government’s case “a silly prosecution” during the trial. He acknowledged that his client made a mistake in violating Goldman’s confidentiality policies, but insisted that he did not commit a federal crime.

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

NYTimes, 2009/07/07
The Man Accused of Stealing Goldman’s Code :

But over five days in early June, the authorities say, he stole proprietary, “black box” computer programs that Goldman uses to make lucrative, rapid-fire trades in the financial markets. Their value, experts say, could be incalculable.

Mr. Aleynikov, however, will not get a chance to use those secrets. He was arrested by federal agents on Friday evening, as he got off a plane at Newark Liberty International Airport. He has pleaded not guilty to charges of theft of trade secrets and transporting them abroad.

..

However, at a court appearance in Manhattan on July 4, Joseph Facciponti, the assistant United States attorney, told a federal judge that Mr. Aleynikov’s supposed theft posed a risk to United States financial markets and that other people may have had access to it, according to Bloomberg News.

“The bank has raised the possibility that there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways,” Mr. Facciponti said in the court, according to Bloomberg. “The copy in Germany is still out there, and we at this time do not know who else has access to it.”

Court Transcript

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

2011-03-18
NJ.com

Aleynikov has been sentenced to 8 years for the theft. ZeroHedge relevantly notes that, apart from Bernie Madoff, this is the longest sentence to be handed down to any financial professional involved in the crisis.

In the words of Joe Saluzzi from Themis Trading:

"Don't cross the the Vampire Squid."

Wikipedia:  Vampyroteuthis infernalis, lit. "vampire squid from 'Hell'"

China Unambiguously Signals Intent to Abandon the Dollar

Reuters 2011/03/03
China aims to settle nationwide trade in yuan by 2011:

China hopes to allow all exporters and importers to settle their cross-border trades in the yuan by this year, the central bank said on Wednesday, as part of plans to grow the currency's international role.
In a statement on its website www.pbc.gov.cn, the central bank said it would respond to overseas demand for the yuan to be used as a reserve currency. It added it would also allow the yuan to flow back into China more easily.

IBTimes 2011/03/03
China to allow all trades to settle in yuan, encourages use as reserve currency:

Other moves on the part of China to internationalize its currency include allowing foreign companies to issue yuan-denominated bonds and relaxing rules for foreign financial institutions to access the yuan.

Is China Buying US-Treasuries via the UK ?

- Is China Secretly Buying US Treasuries via UK Accounts?
- United Kingdom Suddenly Owns Over $500 Billion of US Treasury Securities

NYTimes - Jan 2011\
Data Shows Less Buying of U.S. Debt by China:

It is not easy to see how the Chinese government managed to keep its currency from rising more rapidly against the dollar if it did not continue buying Treasuries in 2010, and there has been speculation that it shifted purchases to accounts managed by British money managers.

If so, such purchases would show up as British purchases. As it turns out, Britain is estimated to have been the largest purchaser of Treasuries over the 12-month period, adding $356 billion to its holdings. That made it by far the largest buyer, followed by Japan. The only other major seller during the period was Russia, according to the government estimates.

If China has been buying through money managers, it may be easier at some point for it to begin selling Treasuries through the British channel without others understanding where the selling pressure is coming from.

BIS 2010 Forex Market Analysis

BIS Page
Actual Report in PDF format

Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity in 2010 - Final results
December 2010
Activity in the Foreign Exchange Market

Every three years, the Bank for International Settlements (BIS) coordinates a global central bank survey designed to yield comprehensive and internationally consistent information on the size and structure of foreign exchange (FX) and over-the-counter (OTC) derivatives markets. By increasing market transparency, the survey aims to help monetary authorities and market participants better monitor patterns of activity and exposures in the global financial system.

Fitch Indicates that US Debt Should Be Downgraded

iMarketNews.com
Wednesday, January 19, 2011 - 13:41
Fitch: US Fiscal Metrics To Be Worst Among 'AAA' Sovereigns
By Yali N'Diaye

WASHINGTON (MNI) - Fitch Ratings Wednesday said it believes "the U.S. fiscal metrics will be the worst of any 'AAA'-rated sovereign," due to the higher-than-expected deficits and debt levels expected following the extension of the Bush era tax cuts.

This despite the expected boost to U.S. GDP this year and in 2012.

And just like their peers at Standard & Poor's and Moody's, analysts at Fitch Ratings warned in their latest Credit Outlook that "the absence of a credible medium-term fiscal consolidation strategy is eroding confidence in the sustainability of public finances and commitment to low inflation, with potentially adverse implications for the U.S. sovereign credit standing."

Still, they note the "higher debt tolerance than for other 'AAA' and highly rated sovereigns" due to the "extraordinary fundamental credit strengths" of the U.S., the flexibility and dynamism of its economy and the status of the greenback as a global reserve currency.
...
This echoed Moody's analysis last week, saying that the U.S., the UK, France and Germany "still possess debt metrics, including debt affectability, that are compatible with their Aaa ratings."


Germany 1. USA -1.

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

2011-02-03
S&P says no plans to cut U.S. rating in medium term:
Ratings agency Standard & Poor's does not have any plans to downgrade the U.S. sovereign debt rating, but it believes credit risk may increase in the long term, a senior official at the agency said on Thursday.

Adjusted Closing Price - Definition

DEFINITION - investopedia

>> A stock's closing price on any given day of trading that has been amended to include any distributions and corporate actions that occurred at any time prior to the next day's open. The adjusted closing price is often used when examining historical returns or performing a detailed analysis on historical returns. <<

CALCULATION - investopedia


>>> When distributions are made, the adjusted closing price calculations are quite simple. For cash dividends, the value of the dividend is deducted from the last closing sale price of the stock. For example, let's assume that the closing price for one share of XYZ Corp. is $20 on Thursday. After close on Thursday, XYZ Corp. announces a dividend distribution of $1.50 per share. The adjusted closing price for the stock would then be $18.50 ($20-$1.50).

If XYZ Corp. announces a 2:1 stock dividend instead of a cash dividend, the adjusted closing price calculation will change. A 2:1 stock dividend means that for every share an investor owns, he or she will receive two more shares. In this case, the adjusted closing price calculation will be $20*(1/(2+1)). This will give you a price of $6.67, rounded to the nearest penny.

If XYZ Corp. announces a 2:1 stock split, investors will receive an extra share for every share they already own. This time the calculation will be $20*(1/(1x2)), resulting in an adjusted closing price of $10. <<<

Einstein on Socialism

Why Socialism
an essay by Albert Einstein

This essay was originally published in the first issue of Monthly Review (May 1949), now a long-running socialist periodical.

Is it advisable for one who is not an expert on economic and social
issues to express views on the subject of socialism? I believe for a
number of reasons that it is.

Let us first consider the question from the point of view of scientific knowledge. It might appear that there are no essential methodological differences between astronomy and economics: scientists in both fields attempt to discover laws of general acceptability for a circumscribed group of phenomena in order to make the interconnection of these phenomena as clearly understandable as possible. But in
reality such methodological differences do exist. The discovery of general laws in the field of economics is made difficult by the circumstance that observed economic phenomena are often affected by many factors which are very hard to evaluate separately. In addition, the experience which has accumulated since the beginning of the so-called civilized period of human history has—as is well known—been
largely influenced and limited by causes which are by no means exclusively economic in nature. For example, most of the major states of history owed their existence to conquest. The conquering peoples established themselves, legally and economically, as the privileged class of the conquered country. They seized for themselves a monopoly
of the land ownership and appointed a priesthood from among their own ranks. The priests, in control of education, made the class division of society into a permanent institution and created a system of values by which the people were thenceforth, to a large extent unconsciously, guided in their social behavior.

But historic tradition is, so to speak, of yesterday; nowhere have we really overcome what Thorstein Veblen called "the predatory phase" of human development. The observable economic facts belong to that phase and even such laws as we can derive from them are not applicable to other phases. Since the real purpose of socialism is precisely to overcome and advance beyond the predatory phase of human development,
economic science in its present state can throw little light on the socialist society of the future.

Second, socialism is directed towards a social-ethical end. Science, however, cannot create ends and, even less, instill them in human beings; science, at most, can supply the means by which to attain certain ends. But the ends themselves are conceived by personalities with lofty ethical ideals and—if these ends are not stillborn, but
vital and vigorous—are adopted and carried forward by those many human beings who, half unconsciously, determine the slow evolution of society.

For these reasons, we should be on our guard not to overestimate science and scientific methods when it is a question of human problems; and we should not assume that experts are the only ones who have a right to express themselves on questions affecting the organization of society.

Innumerable voices have been asserting for some time now that human society is passing through a crisis, that its stability has been gravely shattered. It is characteristic of such a situation that individuals feel indifferent or even hostile toward the group, small or large, to which they belong. In order to illustrate my meaning, let
me record here a personal experience. I recently discussed with an intelligent and well-disposed man the threat of another war, which in my opinion would seriously endanger the existence of mankind, and I remarked that only a supra-national organization would offer protection from that danger. Thereupon my visitor, very calmly and coolly, said to me: "Why are you so deeply opposed to the disappearance of the human race?"

I am sure that as little as a century ago no one would have so lightly made a statement of this kind. It is the statement of a man who has striven in vain to attain an equilibrium within himself and has more or less lost hope of succeeding. It is the expression of a painful solitude and isolation from which so many people are suffering in these days. What is the cause? Is there a way out?

It is easy to raise such questions, but difficult to answer them with any degree of assurance. I must try, however, as best I can, although I am very conscious of the fact that our feelings and strivings are often contradictory and obscure and that they cannot be expressed in easy and simple formulas.

Man is, at one and the same time, a solitary being and a social being. As a solitary being, he attempts to protect his own existence and that of those who are closest to him, to satisfy his personal desires, and to develop his innate abilities. As a social being, he seeks to gain the recognition and affection of his fellow human beings, to share in their pleasures, to comfort them in their sorrows, and to improve their conditions of life. Only the existence of these varied, frequently conflicting, strivings accounts for the special character of a man, and their specific combination determines the extent to which an individual can achieve an inner equilibrium and can
contribute to the well-being of society. It is quite possible that the relative strength of these two drives is, in the main, fixed by inheritance. But the personality that finally emerges is largely formed by the environment in which a man happens to find himself during his development, by the structure of the society in which he grows up, by the tradition of that society, and by its appraisal of particular types of behavior. The abstract concept "society" means to the individual human being the sum total of his direct and indirect relations to his contemporaries and to all the people of earlier generations. The individual is able to think, feel, strive, and work by himself; but he depends so much upon society—in his physical,
intellectual, and emotional existence—that it is impossible to think of him, or to understand him, outside the framework of society. It is "society" which provides man with food, clothing, a home, the tools of work, language, the forms of thought, and most of the content of thought; his life is made possible through the labor and the
accomplishments of the many millions past and present who are all hidden behind the small word “society.”

It is evident, therefore, that the dependence of the individual upon society is a fact of nature which cannot be abolished—just as in the case of ants and bees. However, while the whole life process of ants and bees is fixed down to the smallest detail by rigid, hereditary instincts, the social pattern and interrelationships of human beings
are very variable and susceptible to change. Memory, the capacity to make new combinations, the gift of oral communication have made possible developments among human being which are not dictated by biological necessities. Such developments manifest themselves in traditions, institutions, and organizations; in literature; in
scientific and engineering accomplishments; in works of art. This explains how it happens that, in a certain sense, man can influence his life through his own conduct, and that in this process conscious thinking and wanting can play a part.

Man acquires at birth, through heredity, a biological constitution
which we must consider fixed and unalterable, including the natural
urges which are characteristic of the human species. In addition,
during his lifetime, he acquires a cultural constitution which he
adopts from society through communication and through many other types
of influences. It is this cultural constitution which, with the
passage of time, is subject to change and which determines to a very
large extent the relationship between the individual and society.
Modern anthropology has taught us, through comparative investigation
of so-called primitive cultures, that the social behavior of human
beings may differ greatly, depending upon prevailing cultural patterns
and the types of organization which predominate in society. It is on
this that those who are striving to improve the lot of man may ground
their hopes: human beings are not condemned, because of their
biological constitution, to annihilate each other or to be at the
mercy of a cruel, self-inflicted fate.

If we ask ourselves how the structure of society and the cultural
attitude of man should be changed in order to make human life as
satisfying as possible, we should constantly be conscious of the fact
that there are certain conditions which we are unable to modify. As
mentioned before, the biological nature of man is, for all practical
purposes, not subject to change. Furthermore, technological and
demographic developments of the last few centuries have created
conditions which are here to stay. In relatively densely settled
populations with the goods which are indispensable to their continued
existence, an extreme division of labor and a highly-centralized
productive apparatus are absolutely necessary. The time—which, looking
back, seems so idyllic—is gone forever when individuals or relatively
small groups could be completely self-sufficient. It is only a slight
exaggeration to say that mankind constitutes even now a planetary
community of production and consumption.

I have now reached the point where I may indicate briefly what to me
constitutes the essence of the crisis of our time. It concerns the
relationship of the individual to society. The individual has become
more conscious than ever of his dependence upon society. But he does
not experience this dependence as a positive asset, as an organic tie,
as a protective force, but rather as a threat to his natural rights,
or even to his economic existence. Moreover, his position in society
is such that the egotistical drives of his make-up are constantly
being accentuated, while his social drives, which are by nature
weaker, progressively deteriorate. All human beings, whatever their
position in society, are suffering from this process of deterioration.
Unknowingly prisoners of their own egotism, they feel insecure,
lonely, and deprived of the naive, simple, and unsophisticated
enjoyment of life. Man can find meaning in life, short and perilous as
it is, only through devoting himself to society.

The economic anarchy of capitalist society as it exists today is, in
my opinion, the real source of the evil. We see before us a huge
community of producers the members of which are unceasingly striving
to deprive each other of the fruits of their collective labor—not by
force, but on the whole in faithful compliance with legally
established rules. In this respect, it is important to realize that
the means of production—that is to say, the entire productive capacity
that is needed for producing consumer goods as well as additional
capital goods—may legally be, and for the most part are, the private
property of individuals.

For the sake of simplicity, in the discussion that follows I shall
call “workers” all those who do not share in the ownership of the
means of production—although this does not quite correspond to the
customary use of the term. The owner of the means of production is in
a position to purchase the labor power of the worker. By using the
means of production, the worker produces new goods which become the
property of the capitalist. The essential point about this process is
the relation between what the worker produces and what he is paid,
both measured in terms of real value. Insofar as the labor contract is
“free,” what the worker receives is determined not by the real value
of the goods he produces, but by his minimum needs and by the
capitalists' requirements for labor power in relation to the number of
workers competing for jobs. It is important to understand that even in
theory the payment of the worker is not determined by the value of his
product.

Private capital tends to become concentrated in few hands, partly
because of competition among the capitalists, and partly because
technological development and the increasing division of labor
encourage the formation of larger units of production at the expense
of smaller ones. The result of these developments is an oligarchy of
private capital the enormous power of which cannot be effectively
checked even by a democratically organized political society. This is
true since the members of legislative bodies are selected by political
parties, largely financed or otherwise influenced by private
capitalists who, for all practical purposes, separate the electorate
from the legislature. The consequence is that the representatives of
the people do not in fact sufficiently protect the interests of the
underprivileged sections of the population. Moreover, under existing
conditions, private capitalists inevitably control, directly or
indirectly, the main sources of information (press, radio, education).
It is thus extremely difficult, and indeed in most cases quite
impossible, for the individual citizen to come to objective
conclusions and to make intelligent use of his political rights.

The situation prevailing in an economy based on the private ownership
of capital is thus characterized by two main principles: first, means
of production (capital) are privately owned and the owners dispose of
them as they see fit; second, the labor contract is free. Of course,
there is no such thing as a pure capitalist society in this sense. In
particular, it should be noted that the workers, through long and
bitter political struggles, have succeeded in securing a somewhat
improved form of the “free labor contract” for certain categories of
workers. But taken as a whole, the present day economy does not differ
much from “pure” capitalism.

Production is carried on for profit, not for use. There is no
provision that all those able and willing to work will always be in a
position to find employment; an “army of unemployed” almost always
exists. The worker is constantly in fear of losing his job. Since
unemployed and poorly paid workers do not provide a profitable market,
the production of consumers' goods is restricted, and great hardship
is the consequence. Technological progress frequently results in more
unemployment rather than in an easing of the burden of work for all.
The profit motive, in conjunction with competition among capitalists,
is responsible for an instability in the accumulation and utilization
of capital which leads to increasingly severe depressions. Unlimited
competition leads to a huge waste of labor, and to that crippling of
the social consciousness of individuals which I mentioned before.

This crippling of individuals I consider the worst evil of capitalism.
Our whole educational system suffers from this evil. An exaggerated
competitive attitude is inculcated into the student, who is trained to
worship acquisitive success as a preparation for his future career.

I am convinced there is only one way to eliminate these grave evils,
namely through the establishment of a socialist economy, accompanied
by an educational system which would be oriented toward social goals.
In such an economy, the means of production are owned by society
itself and are utilized in a planned fashion. A planned economy, which
adjusts production to the needs of the community, would distribute the
work to be done among all those able to work and would guarantee a
livelihood to every man, woman, and child. The education of the
individual, in addition to promoting his own innate abilities, would
attempt to develop in him a sense of responsibility for his fellow men
in place of the glorification of power and success in our present
society.

Nevertheless, it is necessary to remember that a planned economy is
not yet socialism. A planned economy as such may be accompanied by the
complete enslavement of the individual. The achievement of socialism
requires the solution of some extremely difficult socio-political
problems: how is it possible, in view of the far-reaching
centralization of political and economic power, to prevent bureaucracy
from becoming all-powerful and overweening? How can the rights of the
individual be protected and therewith a democratic counterweight to
the power of bureaucracy be assured?

Clarity about the aims and problems of socialism is of greatest
significance in our age of transition. Since, under present
circumstances, free and unhindered discussion of these problems has
come under a powerful taboo, I consider the foundation of this
magazine to be an important public service.

POMO - Permanent Open Market Operation

a POMO, is not a queer p, but a Permanent Open Market Operation, a P-OMO - a direct intervention in the market by the US monetary authority.

NY Fed: Permanent OMOs

The purchase or sale of Treasury securities on an outright basis adds or drains reserves available in the banking system. Such transactions are arranged on a routine basis to offset other changes in the Federal Reserve’s balance sheet in conjunction with efforts to maintain conditions in the market for reserves consistent with the federal funds target rate set by the Federal Open Market Committee (FOMC).

On March 18, 2009, the FOMC announced a longer-dated Treasury purchase program with a different operating goal, to help improve conditions in private credit markets.

On August 10, 2010, the FOMC directed the Open Market Trading Desk at the Federal Reserve Bank of New York to keep constant the Federal Reserve’s holdings of securities at their current level by reinvesting principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities.

On November 3, 2010, the FOMC decided to expand the Federal Reserve's holdings of securities in the SOMA to promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate.

SHIBOR - Shanghai InterBank OverNight Rate

Wikipedia:
The Shanghai Interbank Offered Rate (or Shibor, 上海银行间同业拆放利率) is a daily reference rate based on the interest rates at which banks offer to lend unsecured funds to other banks in the Shanghai wholesale (or "interbank") money market. There are eight Shibor rates, with maturities ranging from overnight to a year. They are calculated from rates quoted by 16 banks, eliminating the two highest and the two lowest rates, and then averaging the remaining 12.

http://www.shibor.org/
google translation

Current Quote & Interactive Chart @ Bloomberg

Market Overview @ China Daily

2011/01/05 @ ZeroHedge:
Here is Morgan Stanley's explanation of what is happening in China:

SHIBOR surged: As multiple RRR hikes have started to take effect, market liquidity has become very tight. Compounded with the year-end liquidity shortage and heightened expectation of further rate hikes, large banks have almost stopped lending into the interbank market. In this context, the SHIBOR has surged in the past two weeks, with the 7-day, 1-month and 3-month rates jumping 269bps, 187bps, and 74bps, respectively.

2011-01-21 @ ZeroHedge:
Today, the 7 day SHIBOR (and repo rate) has just surged to new multi-year highs and has literally exploded from 2.5% to 7.3% in a few short days.

SecondMarket

SecondMarket Site

WikiPedia:

SecondMarket (formerly Restricted Stock Partners) is an online marketplace for buying and selling illiquid assets, including auction‐rate securities, bankruptcy claims, limited partnership interests, private company stock, restricted securities in public companies, structured products, and whole loans.

SecondMarket's participants include global financial institutions, hedge funds, private equity firms, mutual funds, corporations and other institutional and accredited investors.

The website was created in 2004

Market Signals - OverBought - Paul Hickey @ Bespoke

2011-01-01 - Edward Krudy @ Reuters
Hangover or afterparty for stocks?

An array of technical factors show the market may be at the top end of its recent trading range, but strongly trending markets often produce false signals.

"There is no denying the fact that the market is overbought," said Paul Hickey, an analyst at Bespoke Investment Group in Harrison, New York. "The entire month of December the S&P 500 has closed in overbought levels everyday."

Hickey considers the S&P 500 overbought when it moves one standard deviation above its 50-day moving average. But looking at prior months where that has occurred he found performance the next month was above average instead of reverting to the mean.

"Momentum tends to carry the market further," he said.

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

Update 2015/12/15

Oil Price History - Cushing Futures, NYMEX Weekly Close

West Texas Intermediate for delivery @ Cushing OK
2001 to 2015

WTI $/barrel 2001 - 2015

West Texas Intermediate for delivery @ Cushing OK
2006 to 2015

West Texas Intermediate for delivery @ Cushing OK
2011 to 2015

West Texas Intermediate for delivery @ Cushing OK
2014 to 2015

Benoit Mandelbrot on his Set

Benoit Mandelbrot relates some thoughts on the eponymous Mandelbrot Set he investigated and popularised, in a foot-note (note # 146, p 293) to his commentary The MisBehaviour of Markets :

The Mandelbrot set starts with an old problem... The problem concerns so-called iterated functions, a kind of mathematical feedback loop that keeps operating on its own outputs again and again.

[ Definition of the Fractal Generator - An Iterated Function ]

z_1 = (z_0)^2 + c

where

z_0 is the starting value of the process
c is a constant
z_1 is the first output

Then repeat the operation,

z_2 = (z_1)^2 + c

and

z_3 = (z_2)^2 + c

If you keep doing this forever with starting numbers c like 3 or 4, the sequence (irrespective of z_0) will soar off into infinity. But if you say z and c are complex numbers, with the imaginary i [= square root of -1] in them, then the story gets more interesting... Sometimes the series will veer off into infinity, but sometimes it will not. And the precise pattern is exquisitely intricate.

With the Mandelbrot set, you start off by setting z_0 equal to 0, and then see what happens to the sequence when you try different values of c. If the sequence does not run off to infinity, then [the point] c is said to be in the Mandelbrot set. If it does, then c is not in the set.

Black and white illustrations of the set typically assign a computer-screen pixel to every value of c being tested, then paint it black if the pixel is inside the Mandelbrot set, and a variety of other colours if it is not. Different colours are often used to denote how quickly the series soars to infinity.

The surprising thing is that as you look at smaller and smaller scales - say, zoom in on values of c in a tenth of the screen, rather than the whole screen - you find the pattern of what is in the set and what is not becomes far more complicated than it first appeared. Zoom again, and yet more fine detail emerges. You can do this forever, and at each stage get an entirely different picture...

[Chaotic Nature]

The Mandelbrot set belongs to both fractal geometry and chaos theory. A chaotic system, far from being disorganised or non-organised, starts with one particular point, and cranks it through a repeating process, the outcome is unpredictable if you do not know the process - and it depends heavily on the starting point...

The basic idea is that if you stand a pencil on its point, and let it fall through the force of gravity, exactly where it lands depends on where it began, and whether it was leaning infinitesimally on one direction or another.