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7/31/2019 Things That Make You Go Hmmm September 3d, 2012
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THINGS THAT MAKE YOU GO
HmmmA walk around the fringes of nance
02September2012 1
For AFREE Subscription to Tings Tat Make You Go Hmmm..... clickHERE
Does anything in nature despair except man? Ananimal with a foot caught in a trap does not seem
to despair. It is too busy trying to survive. It is allclosed in, to a kind of still, intense waiting. Is thisa key? Keep busy with survival. Imitate the trees.Learn to lose in order to recover, and rememberthat nothing stays the same for long, not even pain,psychic pain. Sit it out. Let it all pass. Let it go mAY SArtON,JO UR NAL OF A SOLI TU DE
I would feel more optimistic about a bright futurefor man if he spent less time proving that he canoutwit Nature and more time tasting her sweetnessand respecting her seniority E. B. White
Do no angy wih h ain; i sily dos noknow how o fall uwads Vladimir Nabakov
Adopt the pace of nature: her secret is paence. Ralph Waldo Emerson
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2.THINGS TH AT MAKE YOU GOHmmm...
02September2012 2
A little overThree years ago, when I started wring Things That Make You Go Hmmm.....it was a vastly dierent product that was distributed to a small group of mostly friends of mine who,
for some strange reason, had a passing interest in my thoughts on a variety of subjects.
For me it began as a way to share informaon that was a lile below the surface with people who,
like me, were trying to gure out how to put together a jigsaw without the picture on the box lid andas a means to engage in a dialogue with sharp minds all around the world in an aempt to gure
out not only what was happening but, more importantly, what was going to happen.
What began as an experiment became a labour of love and then morphed into something I hadnt
ever envisioned it would become as the internet took over and I found myself exchanging thoughts
and ideas with dierent people from all walks of life all around the globe. It was upliing, inspiring
and deeply humbling in equal part.
As my subscriber list has grown, so has the me taken to try and make sure that what I send out
every week is as good as I can possibly make it. If I cant think of anything of interest to write about,
I would rather not write anything than send out something I wasnt happy with because I felt a need
to be out there every week.Thankfully, travel aside, the weeks I havent been able to nd a topic worthy of discussion have been
very few and far between (and for that I owe a debt of gratude principally to Jean-Claude Juncker,
Mario Draghi, Franois Hollande and the rest of the inhabitants of Europes clown car).
Through all the madness of the last few years, I have been a one-man show; wring, designing and
publishing Things That Make You go Hmmm..... then sending it out as a somewhat cumbersome .pdf
aachment to a subscriber list that has become larger than I had ever considered possible.
It has become increasingly clear over recent months, however, that, in order to connue producing
Things That Make You Go Hmmm....., I was going to need help from people far more savvy than me
in the world of publishing as it was apparent I had now reached the point where I needed to address
the various shortcomings that are part and parcel of being a one-man band.
One o therst investment leers that I began reading on a regular basis was JohnMauldins thoughs Fo th Fonlin. It was mely, insighul, extremely well-wrien and very
educaonal. It was the inspiraon behind my decision to begin wring things tha mak You Go
Hmmm.....
Over the past few years I have been fortunate enough to have goen to know John personally
through my wring and our shared desire to try and navigate a safe passage through the invesng
mineeld in which we nd ourselves. He has been extremely generous with his me and always gra-
cious in the donaon of his advice to a neophyte in an area where he is the consummate profession-
al and so it was to John that I turned for help in trying to take Things That Make You Go Hmmm.....
An Important Announcementfor readers of Things That Make You Go Hmmm.....
7/31/2019 Things That Make You Go Hmmm September 3d, 2012
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3.THINGS TH AT MAKE YOU GOHmmm...
02September2012 3
to the next stage of its development.
As of next week, the team at Mauldin Economics will be taking over the publicaon ofthings tha
Make You Go Hmmm..... and I am really excited about the changes you will see.
My amateur eorts at design and publicaon have been replaced by those of a slick team of profes-
sionals who make the dierence between enthusiasc hack (me) and people who know what they
are doing (them) embarrassingly apparent.
But what does this mean for you, dear reader?
Well, frankly, not an awful lot apart from the fact that you will receive a vastly-improved product.
Most importantly, the content and style of this piece absolutely will not change. My voice will not
be altered or fltered in any waya good thing in some eyes, maybe not so in others. It will just look
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From next week, subscribers will receive Things That Make You Go Hmmm..... directly from Mauldin
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It will be delivered in the form of an email with links to a downloadable PDF le as well as the HTML
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will make reading on iPads and mobile devices far easier. There will also be an archive of past issues
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Please add the following email address to your whitelist if you dont want me to end up in your spam
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Joining the Mauldin Economics team will help me devote more me to wringand, hopefully, expand my readership whilst making the whole experience more enjoyable for the
people who maer mostthe readers.
In addion to Things That Make You Go Hmmm..... John and I are working on what we think will be
another excing collaboraon that will be unveiled soonbut more on that a lile later.
Unl then, Id like to thank all of you for your support over the last few years and I look forward to
the next few with great ancipaon.
For now, though, its back to business...
Grant
http://www.mauldineconomics.com/http://localhost/var/www/apps/conversion/current/tmp/scratch_6/[email protected]://localhost/var/www/apps/conversion/current/tmp/scratch_6/[email protected]://www.mauldineconomics.com/7/31/2019 Things That Make You Go Hmmm September 3d, 2012
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4.THINGS TH AT MAKE YOU GOHmmm...
02September2012 4
Te list ofhuman phobias is compre-hensive to say the least. Over the centuries the
human race has managed to nd a way to be
afraid of just about everything around it. Some
of the fears are familiar ones such as the fear
of conned spacesclaustrophobia, or that
of open spacesagrophobia, and some are a
lile morehow can I put this so as not to up-
set any katagelophobes out there?eccentric.
Did you know, fo xal ha Ghydoho-
bia is the fear of crossing bridges? Or that Dex-trophobia is a fear of objects at the right side
of the body? Having Consecotaleophobia (an
innate fear of chopscks) is certainly a handicap
if you han o liv in his a of h wold
and if you suer from Bolshephobia, your fear
of Bolsheviks would have made Octobers prey
rough growing up in Russia.
You hink hos a sang? How aou h
specicity of these phobias (which I think we
can safely le under irraonal):
Arachibutyrophobia - Fear of peanut buer
scking to the roof of the mouth.
Zemmiphobia - Fear of the great mole rat.
Rhabdophobia - Fear of being severely
punished or beaten by a rod, or of being
severely cricized. Also fear of a magic wand
Pteronophobia - Fear of being ckled by
feathers
Peladophobia - Fear of bald people
I could go on for a long, long me with these,
u ha would only us h haasohos
amongst you so lets get back to business.
The reason I bring this up is that each and every
huan hoia is a land sons ha a fw
(in the case of kyphophobia, the fear of stoop-
ing) or indeed many (in the case of thanatopho-
bia, the fear of death) develop over the course
of their lives, and yet each and every one of us
came into this world with the same two iden-
cal fears; loud noises (ligyrophobia) and falling
(bathophobia).
This innate fear of falling, common to all humanings, ay go so way owads xlaining
h osssion h wold ss o hav wih
prevenng recessions and avoiding deaon.
Recessions are always seen as a bad thing for
the economy and, since the days when Alan
Greenspans bony ngers were wrapped around
the Federal Reserves monetary levers, there
has n a wa wagd on h downwad half
of the business cycle in an aempt to literally
abolish it as though that were a) possible or b)
desirable.
Just as a world lled with only sunshine would
vnually uninhaial o a fos wihou
the occasional re would ulmately se itself,
the business cycle needs the occasional bust to
counteract the booms that cause overheang
and excess. Thats just the way it is Im afraid.
We may not like it. We may be afraid of falling,
but nature need take its course.
by fa h iggs fa of h as sval yas
has been that of deaon.
SOURCE: MATT GROENING
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5.THINGS TH AT MAKE YOU GOHmmm...
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(Investopedia): Deaon: A general decline
fall in prices, oen caused by a reduc-
onfall in the supply of money or credit.Deaon can be caused also by a decrease
fall in government, personal or investmentspending. The opposite of inaon, deaon
has the side eect of increased unemploy-
ment since there is a lowerfall in the levelof demand in the economy, which can lead
to an economic depression. Central banks
aempt to stop severe deaon, along with
severe inaon, in an aempt to keep the
excessive dropfall in prices to a minimum.
The declinefall in prices of assets, is oenknown as Asset Deaon.
Scary stu. All that falling.
The word Depression, when used in an eco-
nomic context, seems to spark the kind of fear
amongst the cizens of developed economies
that can only be borne of a phobia.
Grainy photos of long lines of men clad in
greatcoats and homburg
has lining u fo ih jos
or soup are etched in thecollecve conscious and
the fear that we could fall
back there again is enough
o k vn h os sanguin of n awak
at night. For central bank heads it is the pure
embodiment of terror.
Collecve bathophobia amongst central plan-
ners has led in recent years to an extraordinary
set of measures which have been enactedwe
are constantly toldwith the explicit purpose
of avoiding a Depression.
Non oh han bn bnank xlaind his
recently to a group of students at George Wash-
ington University in one of a series of lectures
designed to explain just what an amazing job
bnny and h Fds had don ov h as sv-
eral years in avoiding another you-know-what:
(Polico): The subtext in Ben Bernankes
third college lecture was clear: his Fed
helped stop a second Great Depression.
Appearing before students at George Wash-
ington University on Tuesday, the Federal
Reserve chairman contrasted his academicexpersethe depressionagainst his per-
sonal experiences.
The Great Depression was much worse
than the recent recession, the former Princ-
eton University professor said. Without a
forceful policy response, we would have had
a much worse outcome....
If the Fed had not leapt into the crisis as the
lender of last resort, Bernanke said Tuesday,
the enre global economy would have melt-
ed down as was the case in 1929. Suddenly,
there was no trust whatsoever, even among
the largest nancial instuons, he said.
This emove term is always used in the con-
text of what they are trying to stave o, but
interesngly enough, whenever the possibility
of a Depression is discussed in real terms as
oosd o i ing sohing ha us
defeated, the possibility of one occurring is
quickly dismissed in sooth-
ing toneswe cant havepeople frightened now, can
w?
bu wha a h oigins of
this quest to avoid such falls and why is there
such a huge desire to immediately put a stop to
recessions of any kind? Aer all, they are just
natures way of healing a broken economy. The
fact that they somemes break to the upside
is no lss dangous han whn hy ak o
h downsid and y noody ss o hav
any ga dsi o o uls whil hy ainang.
If the economy wasnt allowed to get ahead of
itself in the rst place, any recessions would be
far less dramacbut of course, in such a sce-
naio, nih would h xansions and ha
we just cant have now, can we?
by now, you ay wll wonding jus wha
the hell is happening in the le-hand margin of
this page. Well, Ill tell you.
... Without a orceul policyresponse, we would have had amuch worse outcome.,
1797
1800
1810
1820
1830
1840
1850
1860
1870
1880
1890
1900
1805
1815
1825
1835
1845
1855
1865
1875
1885
1895
7/31/2019 Things That Make You Go Hmmm September 3d, 2012
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6.THINGS TH AT MAKE YOU GOHmmm...
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The meline you see there is a representaon
of recessions (yellow) and panics or depres-
sions (red) in the United States of America from1797 to the present day. As can be clearly seen
from the rst part of this chart, between 1797
and 1900, the United States was in recession or
depression (or even full-on panic) for 54 years
versus 50 years of normal economic condi-
ons.
As you can see on this page, things got a lot
more stable during the 20th centuryal-
though, between the turn of the century and
h nd of h Ga Dssion in 1933, h
bad years (seventeen) sll outweighed thestable (sixteen).
It was only aer the Great Depression that
things became far steadier andif we omit
the WWII yearsthe period where the rao
of recessionary condions to expansionary is
easily the lowest is clearly aer 1971 (which of
course, quite coincidentally, saw the abolion
of the dollars peg to gold).
But what did the US economy look like through
all these booms and busts, I wonder? Well, if
w ak a look a noinal GDp on a logaih-
mic scale over roughly the same period as the
charts in the margins of pages 5 and 6, it may
come as something of a surprise:
th daag don y h Ga Dssion is
clearly apparent but what is quite extraordinary
is the relave smoothness of the progressionwhich is shown by the overlaid red trendline.
Booms/busts, recessions/depressions and even
the odd panic for the most part did lile to stop
the US juggernaut. They felt good (or bad) at
the me, no doubt, but like most events, once
viwd hough h is of hisoy, hy a
compressed into brief moments in me.
I have no doubt that the last ve years along
with the next ve will spawn more books than
any period in history since WWII and for those
of us living hough his uuln iod of
modern history, it seems endless, but y years
on, ol will osv wha w hav lald
the Global Financial Crisis as a moment in me
just as we do the Great Depression. I am sure
it will be a moment in me that will doubtless
teach a lot of lessonsthough I
fa h lssons land hough
h isaks w ad will fa
ouwigh hos lssons land
from brilliant decision-making or
decisive acon.
Oddly nough, h an a h
hl of h US Fdal rsv
as w naviga hs soy sas
is widely recognized as one of
the worlds greatest authories
on The Great Depressionwhich
makes many of his acons all the
more troubling. History, I suspect,
will no kind o hi, u fo
now the jury remains out.
In 2008, as the GFC threatened
to drag the world into a Depression (see, I
told you), the Chairman of the Federal Reserve
and renowned Great Depression scholar, Ben
Bernanke, set about instung the plan he was
convinced would avert the great fall of which he
was petried.
His extensive studies had led him to the con-
vicon that the most serious mistake made
duing h 1930s was ha h Fdal rsv
1910
1920
1930
1940
1950
1960
1970
1980
1990
2000
1905
1901
1915
1925
1935
1945
1955
1965
1975
1985
1995
2005
SOURCE: ZEROHEDGE
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7.THINGS TH AT MAKE YOU GOHmmm...
02September2012 7
of the day, under the combined stewardship
of Roy A. Young (1927-1930), Eugene I. Meyer
(1930-1933) and Eugene R. Black (1933-1934)failed to step hard enough on the smulatory
dal, and ha o ensure the same thing didnt
han again, all h had o do was, wll, in
money basicallya belief he outlined in his
most famous speech to date, delivered at the
Naonal Economists Club, Washington, D.C. on
November 21, 2002:
I am condent that the Fed would take
whatever means necessary to prevent
signicant deaon in the United States
and, moreover, that the U.S. central bank, incooperaon with other parts of the govern-
ment as needed, has sucient policy instru-
ments to ensure that any deaon that
might occur would be both mild and brief...
But the U.S. government has a technology,
called a prinng press (or, today, its elec-
tronic equivalent), that allows it to produce
as many U.S. dollars as it wishes at essen-
ally no cost. By increasing the number of
U.S. dollars in circulaon, or even by cred-
ibly threatening to do so, the U.S. govern-
ment can also reduce the value of a dollar
in terms of goods and services, which is
equivalent to raising the prices in dollars ofthose goods and services. We conclude that,
under a paper-money system, a determined
government can always generate higher
spending and hence posive inaon.
The speech was entled Deaon: Making
Sure It Doesnt Happen Here.
Its hard to be sure about anything except
dah, axs and h ms lowing any kind of
a lead, but this speech more than just about
any other given by the man Marc Faber calls
Meeester Bernaaanky gives us a valuable
insight into the workings of the central bankers
brain.
They are sure they can do what they need to
do.
Thus far, Bernankes certainty has led to two
rounds of Quantave Easing followed in short
order by Operaon Twist.
Claly, i sands o ason ha Qe1 was il-
mented with the rm belief that it alone wouldbe enough to provide the necessary jolt to the
SOURCE: BLOOMBERG
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8.THINGS TH AT MAKE YOU GOHmmm...
02September2012 8
system and stave o deaon. Aer all, when
you are sure that the only mistake made by
Depression-era central bank chiefs was toolile, rather than too much, why would you
go o half-cocked? Aer studying for so long,
bnank was hadly likly o ak h sa
mistake as his predecessors.
Except, QE1 didnt x things. Sure, it made
some things beer; the S&P soared over 50%
during the experiment (but then the Feds man-
date doesnt extend to ensuring equity markets
are as high as they can possibly beor so I
thought) and bond prices inially rallied sharply,
hough y h nd of h xin, hy hadretraced all their gains as the chart on the previ-
ous page demonstrates (red
aows show h ovn
in hprice of US 10-ya
asuys whils yllow a-
rows measure the price of
the S&P500 during the vari-
ous Fed intervenons).
this us hav n af-
ing for Ben Bernanke.
Aer all, he knewexactlywhat the errors in policy
w hough h Ds-
sion and h knewwith absolute certainty that
he could make sure deaon couldnt happen
here... and yet, his measures had failed to al -
leviate the problem. How bizarre.
As can clearly be seen in the aforemenoned
chart, immediately QE1 stopped, bond and
equity prices moved sharply. The S&P500 fell
15% in three months whilst bonds, having fallen
through most of QE1, began rising in ancipa-on of some addional smulus.
Markets were frontrunning the Feds next
easing. Its amazing how quickly this adapve
haviou hans, huh?
Qe2 was onlynecessary because QE1 had failed
to sasfactorily address the problems facing
the US economy and so it stands to reason that,
based upon his extensive research, the Fed
Chaian would now do nough o ensure a
sasfactory outcome. Aer all, knowing exactly
what was needed, youd hardly be likely to go
o half-cocked twice now, would you?
Sure enough, aer the aking of so havy
prots due to the largesse of the Fed sha fall
in equity prices, the onset of QE2 propelled the
S&P500 almost 30% higher once again, but the
eects on the bond marketground zero for
intervenonwere even more illustrave.
As soon as the announcement was made that
Qe2 would gin, h ond ak slid -
cipitously as those who had bought bonds in
ancipaon of more acon happily cashed in
and sold to the greatest of fools; the Fed.
th nd of Qe2 ough
about the predictable
sell-o in equies but for
the rst me, bonds were
starng to actually do what
the plan had intended and
increase in price.
Perhaps the medicine was
nally reaching the paent?
Perhaps.
Now, it isnt the kind of thing that is talked
about at cocktail pares at the Marriner S.
Eccles building, but the rise in US government
bond prices just happened to coincide with a
sudden rise in the worlds understanding of two
things:
1) The degree to which Europe was in trouble
2) The true level of incompetence of its lead-
ers
As equies slumped, bonds kept on rising
(though this was in large part due to the onset
of coulrophobiaa fear of clowns; in this case,
those running Europe) and, despite prices being
aially high han a h ginning of Qe1,
Operaon Twist was announced to target a
specic part of the interest rate curve because,
by now, things sll werent working out quite as
bnank had n sure they would.
... Now, it isnt the kind othing that is talked about atcocktail parties at the MarrinerS. Eccles building, but the risein US government bond prices
just happened to coincide witha sudden rise in the worlds un-
derstanding o two things...
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9.THINGS TH AT MAKE YOU GOHmmm...
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One can almost imagine his creeping atychipho-
bia (fear of failure) becoming too much to bear.
And so it was that, as August 2012 came to a
close, the S&P500 was a lile under 10% from
its all-me high (set in the halcyon days of 2007
when debt was abundant and cheap, the only
fa was ha of issing ou and h had nv-
er been a naonwide fall in housing prices), the
US government could borrow money at lower
rates than just about any me in its history.....
and the world was praccally begging for QE3.
Wha us hav n going hough h ind
of bn bnank?
H was a an who knw exactlywha h
ndd o do o ensure a favourable outcome
and y all h sd o hav don was o g
the world hooked on a steady dose of smulus.
US unloyn was suonly fusing o
drop which was denitely not in keeping with
a successful execuon of one half of the Feds
mandate, but inaon wasif you believe the
ocial stascs at leastbenign.
Surely he could hardly jusfy intervenonin ond aks wih h US al o oow
ony all h way ou o 7 yas fo having
to pay more than 1%? Or with a TIPS curve that
in the past two years had gone negave out to
TWENTY years (Green curve, chart, below. The
red curve is this week in 2010)?
Surely there was no way the non-polical Fed
Chairman could intervene in markets with only
66 days le unl a Presidenal elecon, was
h?
Suly, wih oinn s of his own
Federal Reserve system decrying both the suc-
cess (or lack of it) of previous QE as well as the
likely eect of further rounds he couldnt go
again?
*DJ Feds Plosser: Dont Think More Easing Is
Needed Right Now CNBC*DJ Feds Plosser: Consumers Want to Save
More CNBC
*DJ Feds Plosser: Businesses Dont Want to
Invest Because of Uncertainty CNBC
*PLOSSER: MONETARY POLICY CANT FIX
ECONOMY HEADWINDS
*DJ Feds Plosser: Monetary Policy Is at an
Extraordinary Level of Accommodaon
CNBC
*DJ Feds Plosser: When Excess Reserves
Flow Out, Risk of Inaon Will Grow CNBC*DJ Feds Plosser: Unl Uncertainty Decreas-
es, Headwinds Will Connue CNBC
*PLOSSER SAYS SIZE OF BALANCE SHEET IS A
RISK DOWN THE ROAD
*DJ Feds Plosser: No Point in
Growing Balance Sheet Further
CNBC
*DJ Feds Plosser: Accommoda-
on Creates Risks -CNBC
Surely he couldnt?
Ofcourse he could!
(WSJ): A deant Ben Bernanke
sought to shoot down cricism
of the Federal Reserves easy-
money policies and strengthen
the case for new eorts by the
central bank to bring down what
he described as gravely high
unemployment.
Markets have been on edge forSOURCE: BLOOMBERG
7/31/2019 Things That Make You Go Hmmm September 3d, 2012
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10.THINGS TH AT MAKE YOU GOHmmm...
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months about whether the Fed will launch
another large bond-buying program. Fed
Chairman Bernanke, speaking Friday at thecentral banks annual retreat here, oered a
vigorous defense of the Feds $2.3 trillion in
bond purchases since 2008, esmang they
helped lead to more than two million jobs
and signaled that he is strongly considering
another installment.
Central bank securies purchases have pro-
vided meaningful support to the economic
recovery, he said adding later that, we
should not rule out the further use of such
policies if economic condions warrant.
Now, at this stage I should point out that it
is, for the moment, just talk on Bernankes
partaer all, why ease when you get exactly
the same eect merely by talking about doing
so?but the Fed is playing a very dangerous
game.
With stock market volumes at generaonal
lows while markets crawl to within coo-ee
of their all-me highs, it is readily apparent
that those parcipants sll playing are doingso in ancipaon of geng a nice, juicy Fed-
induced bump into which to sell their holdings.
The only problem is the fact that those on the
sidelines arent chrematophobes, (afraid of
money) nor are they waing for prices to climb
another 15% before they step in to buy. They
are waing for what they see as an inevitable
correcon to more aracve levels once either
common sense about the global slowdown that
is clearly underway asserts itself, or the
Fed disappoints.
QE3 IScomingfolks. Maybe not quite yet,
u soon and whn i dos,
it will be a coordinated
blitz between the Fed,
h eCb, h boe and
h pbOC wih h
boJ agging along
because... well,
why no? No
only will it be coordinated, but it will be gigan-
c. Its really all they have le now.
The fear of falling that surrounds deaon has
paralyzed the world for the last four years and
drasc measures have been taken to stave o
that which central planners fear the most.
Lately, the big problem the world has faced has
been Europes unwillingness to g is had ou
of is a** come to a collecve decision about
how to tackle the suocang debt, but in recent
weeks Mario Draghi has seemingly lost paence
with polical leaders and has begun to force
the issue.
Coincidentally, this week, as he opted not to
aend Jackson Hole, in an op-ed published, im-
portantly, in Germanys Die Zeit, Draghi signaled
just how Europe was going to nally turn on the
prinng presses:
The ECB will do what is necessary to ensure
price stability. It will remain independent.
And it will always act within its mandate.
Yet it should be understood that fullling our
mandate somemes requires us to go be-yond standard monetary policy tools. When
markets are fragmented or inuenced by
irraonal fears, our monetary policy signals
do not reach cizens evenly across the euro
area. We have to x such blockages to en-
sure a single monetary policy, and therefore
price stability for all euro-area cizens.
This may at mes require exceponal mea-
sures. But this is our responsibility as the
central bank of the euro area as a whole.
In essence?
In order to uphold the
law, Your Honour, some-
mes we have to
break the law
Daghi has o-
isd o always act
wihin his an-
dateexcept
when circum-
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11.THINGS TH AT MAKE YOU GOHmmm...
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stances dictate that he go outside it.
Temporarily of course.
That sound you heard? That was the dust-cov-
ered tarp being hauled o the prinng press in
the ECB basement.
Aer four years of aggressive, yet ulmately
fule smulus by the Federal Reserve, BoE and
PBOC, the ECB is about to join the prinng party
and when that happens, the inaon/deaon
debate is basically over.
Dont believe me? Ask gold which broke out this
week in the wake of Bernankes speech aerstaunchly (and somewhat surprisingly) refus-
ing to wilt in the face of a lot of commentary in
the run-up to Jackson Hole that had suggested
there would be no QE3.
Noally ha alk alon would hav n
enough to send gold scampering lower but not
this me.. Its almost as if someone knew some-
thing? But that would be crazy talk.
So... will the combined might of the Avngs
worlds central bankers be enough to quell the
fa of falling ha all of us a on wih? Wll,one thing is for certain, it will not be for the
wan of ying and in h nx fw onhs hy
seem likely to unleash the quantave Kraaken
once and for all.
By lining up the kind of unlimited smulus mea-
sures that the likes of Draghi and the Feds Eric
Rosengren have been advocang, the deaon
trade will be over and we can all go about our
lives safe from our fear of falling.
Of course, at that point, the human race will
have another irraonal fear to deal with:
Zimbabwephobia
*******
OK.... so aquick rundown of whatsin store this week and then Im oua here:
Spain
More Spain
Dutch socialists
Rampant food price inaon
An $8 trillion budget decit A French naonalizaon (perish the
thought)
The closing of a dierent gold window
An assessment of Indias economy
Draghis bales with Eurocrats
An OECD endorsement for ECB bond-
buying
An interview with Jens Wiedmann
Monetary transmission blockages
Gold & Silver charts
A history of hyperinaon CPI..no, wait...PCE..no. Wait...which are
we using now?
Jim Grant
Jon Stewart
Michael Steele
and John Mauldin
Thats it from me, but before I go, can anyone
ll whos ida of a jok i was o ak h
name for a fear of long words:
hippopotomonstrosesquipedaliophobia
Thats just not fair.
Until next time...
Gold
SOURCE: BLOOMBERG
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12.THINGS TH AT MAKE YOU GOHmmm...
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Contents 02 S 2012
Your Window To Buy Gold Below $1,700 Is Closing
Daghi plan Und tha Aid eU Sli
World Food Prices Jumped 10 Percent In July: World Bank
Goldman: US Faces $8 Trillion Budget Shorall Through 2022
India: Is This The Boom?
French Government Agrees Rescue For Mortgage Lender
Sain Loss bank Suo
Spains Debt Buyer Of Last Resort Becomes Seller In Scramble To Fund Deposit Oulows
Dutch Embrace Radical Le As European Dream Sours
OECD Backs Plans For ECB Bond Market Intervenon
Too Close To State Financing Via The Prinng Press
Charts That Make You Go Hmmm.....
Words That Make You Go Hmmm.....
And Finally.....
7/31/2019 Things That Make You Go Hmmm September 3d, 2012
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13.THINGS TH AT MAKE YOU GOHmmm...
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I think theres a good ason obuy gold if you can, and as soon as possible.
Heres why:
Based on the data I chart below, I believe the
window of me to buy gold for less than $1,700
an ounce is very limited.
I examined golds three largest correcons since
the bull market began in 2001, including how
long it took to recover from those correcons
and establish new highs.
The conclusion that emerged is that the current
lull in gold prices will almost certainly end soon,if it hasnt already.
Gold set a record on September 5, 2011 at
$1,895 an ounce (London PM Fix) and to date
has fallen as low as $1,531 (December 29,
2011), a decline of 19.2%. Gold has tested that
level several mes since but never broke below
it.
In order to determine how long it might take
to breach $1,895 again, I measured the me it
took to mount new highs aer big correconsin the past.
The following chart details the three largest cor-
recons since 2001, and calculates how many
weeks it took the gold price to a) breach the old
high, and b) stay above that level.
In 2006, aer a total decline of 22.6%, it took a
ya and fou onhs fo gold o suass is old
high. Aer the 2008 meltdown, it was a year
and six onhs la fo h al hi a nwrecord. The 16.2% drop in 2003 lasted seven
onhs, and anoh wo onhs fo h
price stayed above it.
You can see that our correcon has lasted just
shy of a year. If we matched the recovery me
of 2006, gold would hit a new high on Christmas
Eve (Merry Christmas!).
But heres the thing: thats how long it would
take gold to breach $1,900 again it will take
a couple months or more for the price to work
up to that level, meaning the remaining me to
uy gold und $1,700 will likly asud
in days or weeks, not months.
This is bolstered by the fact that the price
moved up strongly last week.
And just as importantly, were on the doorstep
of the seasonally strongest month of the year.
This is an educated guess, of course, but what
the data make clear is that all correcons even-
tually end even the bloodbath in 2008.The current lag will come to an end too, and
were certainly closer to the end of this correc-
ve period than the beginning.
This has direct investment implicaons.
First, once gold breaches its old high, youll
probably never be able to buy it at current
prices again in this cycle.
O O O JEFF CLARK/ LINK
Pressure is mountingonh euoan Cnal bank o wa down
emergency measures to prop up Spain and
Italy, aer reports that the chief of Germanys
bundsank hand o qui in os a
the plan.
Pressure is mounng on the European Central
Bank to water down emergency measures to
prop up Spain and Italy, aer divisions within
the eurozone were laid bare by reports that
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14.THINGS TH AT MAKE YOU GOHmmm...
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the chief of Germanys Bundesbank threatened
to quit in protest at the plan.
ECB president Mario Draghi was expected next
wk o unvil a nw ond-uying oga
to help the two struggling eurozone states go
on without a formal bail-out. Analysts now
expect the measures to fall short of Mr Draghis
vow to do whatever it takes aer the German
government had to persuade the inuenal
Jens Weidmann to stay in his post.
Details of the ri emerged as economists
prepared to cut their growth forecasts for the
single currency bloc once again, following dis-
mal eurozone unemployment gures that saw
joblessness rise above 18m for the rst me. It
also came as Madrid signed up to a vital nan-
cial reform package to secure a 100bn (79bn)
eurozone bail-out for its banks.
m Daghi aad o hav
secured the authority to
ss ahad wih his ond-
buying programme aer
winning h suo of h
German chancellor, AngelaMerkel. With just days to
go, he has been confronted
with a new problem.
Sing u h ssu, fllow Gan eCb
policymaker Jrg Asmussen said the ECB should
only buy bonds if the Internaonal Monetary
Fund was involved in seng an economic
reform programme in return. Analysts expect
m Widann o ouvod on h eCb nx
wk, u his ha o qui would u ms
Merkel, the regions power-broker, in an awk-ward polical posion as the Bundesbank is
revered in Germany.
by ing so ousokn fohand, h hos
to limit the extent of the operaon, a senior
ECB source told Reuters. That would constantly
put a queson mark over how far we could go.
Berenberg Bank economist Holger Schmieding
said: Opposion from Weidmann and reserva-
ons from some other council members will
mean that ECB bond purchases could be highly
condional . . . and not bring yields down quite
as much as Italy and Spain might like to see.
Adding to the sense of uncertainty, ECB ocials
on Fiday nigh said govnos would -
sented with a list of opons for bond purchases
h day fo hy si down o dlia h
plan. Economists said the process increased the
chances of a decision being pushed back.
O O O UK DAILY TELEGRAPH / LINK
World food prices jud 10percent in July as drought parched crop lands
in h Unid Sas and easn euo, hWold bank said in a san uging govn-
ments to shore up programs that protect their
most vulnerable populaons.
From June to July, corn and wheat prices rose
by 25 percent each, soybean prices by 17 per-
cent, and only rice prices
went down, by 4 percent,
h Wold bank said on
Thursday.
Overall, the World Banks
Food Price Index, which
tracks the price of interna-
onally traded food com-
modies, was 6 percent higher than in July of
last year, and 1 percent over the previous peak
of February 2011.
U.S. soybean futures hit a record high of $17.78
per bushel in trading on Thursday, while corn
futures remained near the record of $8.49 set
earlier this month.
We cannot allow these historic price hikes toturn into a lifeme of perils as families take
their children out of school and eat less nutri-
ous food to compensate for the high prices,
World Bank Group President Jim Yong Kim
said. Countries must strengthen their targeted
ogas o as h ssu on h os
vulnerable populaon, and implement the right
policies.
Africa and the Middle East are parcularly
vulnerable, but so are people in other countries
where the prices of grains have gone up abrupt-
... An absolute majority oSocialists would increase theprobability that the government
will be able to deliver tougherscal austerity,
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15.THINGS TH AT MAKE YOU GOHmmm...
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ly, Kim added.
A sv dough in h Unid
States has sharply cut corn and
soyan yilds his ya, whil a
dy su in russia, Ukain and
Kazakhstan has hurt wheat output.
th Wold bank said is xs do
not foresee a repeat of 2008, when
a food price spike triggered riots in
some countries.
However, negave factors -- such
as exporters pursuing panic poli-
cies, a severe El Nino, disappoint-ing Southern hemisphere crops, or
strong increases in energy prices
-- could cause signicant further
grain prices hikes such as those experienced
four years ago, the bank said.
Separately, nance ministers from the 21-mem-
ber Asia Pacic Economic Cooperaon (APEC)
group issued a statement at their meeng on
Thursday in Moscow urging countries to avoid
export bans in response to food price con-
cerns.
ApeC russia iosd a oay
embargo on grain exports two years ago aer
crops failed.
APEC leaders are expected to address food
security concerns when they meet next week in
Vladivostok.
I think this is one of the areas where APEC
member economies can really work together ...
to ensure the inaonary results of drought do
not impact the poorest and most disadvantaged
people in the world, a U.S. State Department
ocial told reporters on Wednesday.
O O O REUTERS / LINK
Goldmans latest analysisof h US udg shows a sagging ga of
$8 trillion in the next 10 years. This materially
diverges from the latest White House projecon
as well as from the CBOs baseline.
GS: - Through 2022, we forecast a cumulave
decit of roughly $8 trillion (3.9%) under a
business as usual assumpon that envisions
extension of most current policies but no fur-
ther decit reducon measures.
The queson of course is whether Goldmans
nightmare scenario could be altered by the
changing of the guard in Washington. The
answer isnt enrely obvious. The US govern-
ment clearly needs to shrink. But according to
Goldmans model, increased austerity - which
would presumably be a policy of the Romney
Administraon - is likely to slow economic
growth and reduce tax revenue. The lower tax
revenue would oset lower government spend-
ing. This is something we may unfortunately be
already witnessing in Europe (Italy for example).
GS: - The two main risks to the forecast are
related, but work in opposite direcons. First,there is a clear possibility of greater scal re-
straint than we assume in our forecast [presum-
ably due to a change in Washington]. While we
assume that most of the spending reducons
enacted in 2011 will be maintained, we make
no assumpon regarding the enactment of
another round of decit reducon measures in
2013. The second risk, working in the opposite
direcon, is that growth could come in under
our forecast, parcularly if the rst risk--ghter-
than-expected scal policy--does indeed mate-
CLICK TO ENLARGE
SOURCE: GOLDMAN SACHS
http://2.bp.blogspot.com/-AndlJ9CCA1Y/UEEeQcsZlfI/AAAAAAAALCM/m-M5JWnCkA8/s1600/Debt+to+GDP+ratio+forecast.pnghttp://2.bp.blogspot.com/-AndlJ9CCA1Y/UEEeQcsZlfI/AAAAAAAALCM/m-M5JWnCkA8/s1600/Debt+to+GDP+ratio+forecast.pnghttp://2.bp.blogspot.com/-AndlJ9CCA1Y/UEEeQcsZlfI/AAAAAAAALCM/m-M5JWnCkA8/s1600/Debt+to+GDP+ratio+forecast.pnghttp://www.reuters.com/article/2012/08/30/us-worldbank-food-prices-idUSBRE87T18P201208307/31/2019 Things That Make You Go Hmmm September 3d, 2012
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rialize.
This does not bode well for the US public debt
levels going forward no maer who is in the
White House. The following chart shows Gold-
mans projecon (compared with the White
House and the CBO) of the US debt to GDP rao
- creeping toward mid 80s. A number of econo-
mists unaliated with the government or with
GS think Goldmans forecast is quite realisc
and may in fact be a bit opmisc.
O O O SOBERLOOK / LINK
India does not trust its economicstascs much. So far the economys saggingperformance has been the result of a collapse
in private-sector invest-
ment. The fear has long
n ha h ol will
spread from the countrys
oad oos o is ss,
with consumpon faltering.
Unasy aou h liailiy
of ocial data, for months
Mumbais analysts have
been scouring for clues thatpeople are penny pinching. The most recent
scare came from biscuits. Indias top manufac-
turer has complained of a sudden slowdown in
the numbers being munched in the countryside.
Y fo all h gis aou hi liailiy, h
latest GDP gures, published on August 31st,
paint a less worrying picture. For the rst me
in a year and half Indias economy has stopped
decelerang. GDP expanded at a rate of 5.5%
in the quarter ending June, compared with the
previous year. That is sll poorthe fourth-
slowest gure for a decade, and far below the
governments rose-nted forecasts. But it is
slightly beer than expected and also ahead of
the prior quarters 5.3% rate. A slump has not
turned into a rout. Bears had talked of growth
below 5%, at which point another bout of panic
and a sell-o of the rupee would have been like-
ly. Based on the breakdown of GDP by sector, a
surge in construcon seems to have helped li
performance a lile.
Whether this is an inecon point, though,
is far less clear. For a start there is, as always,
a stascal twist. Indias number-crunchersprovide an alternave breakdown of GDP by ex-
penditure, which is also calculated on a slightly
dierent basis (at market prices rather than
factor cost). This is not the benchmark measure
of growth in India and is said to be even less
reliable than most data. Sll, it shows overall
growth dropped to 3.9%. Private consumpon
did slow down. Capital investment remained
moribund. And the only thing showing animal
spirits was government consumpon.
Assume, however, that private consumpon isholding up. That sll leaves the original sin, the
governments decit. Including the central gov-
nn and h sas, i is
set to hit 8-9% this year and
iss h udg ags y
a mile. A rising oil price has
meant the cost of fuel sub-
sidies has soared. Despite
its promises, an embaled
government has lacked the
nerve to tackle them. A bigdecit is not about mere
book-keeping. The central bank, among oth-
ers, reckons it is at the root of Indias troubles,
crowding out more producve private invest-
ment and causing inaon. And, unless dealt
wih soon, high oowing ay o h
credit-rang agencies to carry out their threat
to downgrade India to junk status.
O O O ECONOMIST / LINK
Te French governmentsaid on Saturday it had agreed to rescue trou-bled mortgage provider Credit Immobilier de
France aer a fruitless search for a buyer for the
lender, which faced a liquidity crisis.
CIF had been up for sale since at least May
aer its future was thrown into doubt by the
evaporaon of once-cheap funding from credit
markets, on which it depends to nance its
operaons.
To allow the CIF group to respect its overall
... a run-o scenario is prob-ably not the preerred solutiono the French government dueto the importance o the bankslending activities to the Frenchhousing market...
http://www.economist.com/blogs/banyan/2012/08/indias-economyhttp://soberlook.com/2012/08/goldman-us-to-face-8-trillion-budget.html7/31/2019 Things That Make You Go Hmmm September 3d, 2012
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commitments, the state decided to respond
favoualy o is qus o gan i a guaan-
tee, Finance Minister Pierre Moscovici said in astatement.
The CIF rescue is the latest in a series of head-
aches for newly elected Socialist President Fran-
ois Holland, whos govnn is alady
struggling to minimise planned lay-os at other
crisis-hit companies like Peugeot and Carrefour,
as well as the nal wind-down of Franco-Belgian
lender Dexia.
The state guarantee to CIF, facing the expiraon
of a 1.75bn covered bond in early October,
was subject to approval by the European Com-
mission, Moscovici said.
On Tuesday, Moodys cut CIFs credit rang,
cing what it said was an increasing probability
that the banking group would be placed into a
run-o scenario rather
than being rescued as a go-
ing concern, raising risks for
its creditors.
The government, which said
CIFs business model hadbeen weakened by incom-
ing tougher bank capital
raos, did not say whether it would sll seek a
buyer or try to wind down the group.
Moodys said a run-o scenario is probably
not the preferred soluon of the French gov-
ernment due to the importance of the banks
lending acvies to the French housing market,
especially in assisng less privileged house-
holds.
Howv, a o y L Figao nwsa,
whose online edion broke the news of the
government rescue, said a winding down of the
group, which has about 300 branches, was the
most likely outcome.
Earlier this week, business daily Les Echos re-
od ha anoh govnn-ownd ank,
Banque Postale, was opposed to rescuing CIF
itself.
CIFs Chief Execuve Claude Sadoun is resigning,
to be replaced by Bernard Sevez.
The government, which did not menon Sa-
doun by name, said it would ask the companys
previous CEO to relinquish all potenal sever-
ance payments.
O O O FT / LINK
Spain is be-ginningo losh suo of is anks as
las-so uys of govn-
n d, wih lndsslling ou of hi holdings
at the fastest pace in more
than two years in July, ratcheng up pressure on
h euoan Cnal bank o s in and u an
end to the countrys burgeoning debt crisis.
The sales are a blow to Madrid, which was
increasingly reliant on domesc banks to buy its
debt aer an exodus of foreign investors. Do-
mesc lenders, under polical pressure to sup-
port the sovereign, used cheap loans from the
ECB to buy an extra EUR87bn of debt betweenDecember 2011 and March this year.
bu ha suo has gun o , wih Sanish
banks selling over EUR17bn of debt since then,
according to ECB data. In July alone, domesc
lenders reduced their holdings by EUR9.3bn,
in part to meet an oulow of deposits, signal-
ling that money is now too ght to support the
sovereign.
The spike in yields that we saw in July is con-
sistent with deposit oulows and a local sell-oCLICK TO ENLARGE
... An absolute majority oSocialists would increase theprobability that the government
will be able to deliver tougherscal austerity,
SOURCE: ZEROHEDGE
http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2012/08-2/SPGBs.jpghttp://www.zerohedge.com/sites/default/files/images/user5/imageroot/2012/08-2/SPGBs.jpghttp://www.ft.com/intl/cms/s/0/885a6476-f456-11e1-9921-00144feabdc0.html#axzz25GRWrRdxhttp://www.zerohedge.com/sites/default/files/images/user5/imageroot/2012/08-2/SPGBs.jpg7/31/2019 Things That Make You Go Hmmm September 3d, 2012
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of sovign a, said Sohail malik, snio
porolio manager for European Credit Manage-
ments special situaons team. The rm hasUSD9.5bn in assets under management. Ul-
mately, you need one enty to assume a huge
amount of supply and that can only be the ECB.
Yilds on Sanish 10-ya govnn onds
hit a euro-era record high of 7.7% in July. While
they have since come down aer ECB President
Mario Draghi signalled the central bank might
willing o uy Sanish d, h a as y
no concrete plans for a rescue. The ECB meets
again this Thursday.
We saw some improvement aer the Draghi
speech, so the rally must have been backed up
by opportunisc hedge funds and trading books
of banks, said Malik. The yield on 10-year debt
is currently about 6.6%. But the endgame is
that we need an enty to
aso a hug aoun of
supply.
madid is lanning a fuh
seven debt aucons before
h nd of h ya, hnext coming on Thursday.
th sovign has alady
completed about two-thirds
of its planned EUR86bn of
debt issuance this year, but
the nal slog could be dicult if the ECB fails to
buy and domesc banks connue to shrink their
holdings.
Spanish banks are facing problems of their own.
Data released last week showed that custom-
ers withdrew EUR74bn of deposits in July alone- equivalent to 4.7% of total deposits and the
biggest monthly oulow since records began.
Since June last year, clients have withdrawn
EUR233bn, or 13% of the total then.
A need to raise cash to meet those withdraw-
als may have prompted the recent bond sales,
as oh asss ownd y anks - ainly loans
and mortgages - are far less liquid. Spanish bank
ond holdings a doinad y Sanish gov-
ernment debt, but also include those of other
countries.
O O O REUTERS (VIA ZEROHEDGE) / LINK
Te Dutch Socialist ay(SP) is an organisaon once known for its Mao-
is syahis and hai of howing oaos
at polical opponents. It now nds itself within
touching distance of becoming the biggest
parliamentary force, eclipsing its more moder-
ate rivals in the Labour party and on course to
gain at least 30 parliamentary seats. Just as the
unexpected success of the lewing Syriza party
in beleaguered Greece set alarm bells ringing in
Brussels, the SP has become another surprisepackage of European polics at a me when
more centrist policians seem to lack ideas.
While [Geert] Wilders [right-wing Freedom]
party made its name through divisive ideas such
as a ax on musli hads-
carves, a favourite SP slogan
reads: Theres enough to
go round for everyone. But
that inclusive message is
intended to carry menac-
ing implicaons for bank-s, usinss and h eU
powerbrokers of Brussels.
An-austerity and exasper-
ated by endless eurozone
bailouts, the SPs leader, Emile Roemer, 50,
has pledged to abandon the governments
plan to bring the budget decit below 3% by
2013, largely through healthcare cuts and wage
freezes, and face down German chancellor
Angela Merkel and the European commission if
they object.
Conservave plans to extend the rerement age
from 65 to 67 would also be torn up. And in an
echo of French president Franois Hollandes in-
tenon to raise more money from the very rich,
income tax would be raised from 52% to 65% on
those earning above 119,000 a year. A public
investment programme, partly nanced by the
proceeds, would be aimed at turning around
the ailing Dutch economy.
... Data released last weekshowed that customers with-drew EUR74bn o deposits in
July alone - equivalent to 4.7%o total deposits and the biggestmonthly outfow since recordsbegan
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For an avuncular former teacher, known for a
toothy smile and somemes nicknamed Fozzie
Bear, it adds up to an uncompromising plat-form designed to cause palpitaons in both the
Amsterdam stock exchange and European com-
mission corridors.
On Europe, Roemer has sll more to say. A
eurozone banking union has been ruled out, as
has the so-called European stability mechanism
(ESM), which would allow nes to be imposed
on countries refusing to maintain balanced bud-
gets. There would be no more Dutch agreement
to bailouts of Greece, or any other country.
For a once-marginal party that used to stay
out of parliamentary polics, this twin strategy
targeng cuts at home and bailouts abroad
has struck a deafening chord. The Netherlands
no longer feels like a safe haven in the eurozone
storm. In May, the Euro-
pean commission predicted
that the economy would
contract by nearly 1% this
year. House prices are fall-
ing a an alaing a and
in July the rang agencyMoodys publically contem-
lad a downgad of h
countrys cherished triple A rang on govern-
ment debt.
Many voters have had enough. In one poll,
some 70% expressed a preference for greater
economic smulus and fewer cuts in 2013.
Another survey found that only 58% of Dutch
ol w now in favou of eU shi,
compared with 76% in 2010, a drop that rep-
sns a ajo wol in on of h foundmembers of the EU.
Ov a fw onhs, h ild-annd ro
has transformed the polical debate. Prime
minister Mark Rue has taken to warning that
an SP-led government would imperil the coun-
try. The SP has the economic themes, said
Aalberts. And the foreigners Dutch people are
concerned with at the moment are Polish and
Greek, not Muslim.
There was ample evidence of that at the Wes-
selerbrink market in Enschede, where the SP
was doing a thriving trade in symbolic foamos oaos, handd ou o asssy
in one of the citys poorer areas. In this eastern
city, which boasts a proud industrial heritage
but has a highly uncertain future, the talk
among the shoppers was of medical charges,
money worries and the malign inuence of
Brussels bureaucrats and proigate Greeks.
O O O UK GUARDIAN / LINK
Te OECD has wadd ino hdispute over emergency measures to prop upSpain and Italy, backing plans for the European
Cnal bank o uy u d of suggling uo-
zone naons.
euo us xloi h window of oou-
nity oered by the rela-
ve calm in the markets to
tackle the eurozone debt
crisis, the Organisaon for
Economic Co-operaon
and Development (OECD)
warned.
Wading ino h disu
over controversial acon to address the prob-
lems, the Paris-based think tank backed plans
for large-scale buying of government bonds, or
debt, by the European Central Bank.
I think it is now me that the European au-
thories push strongly toward a soluon, Pier
Carlo Padoan, the watchdogs chief economist,
said. It is me to exploit what seems to be a
credit-opening from markets on the Europeansituaon.
Pressure is mounng on the ECB to water down
the emergency measures to prop up Spain and
Italy, following reports that Jens Weidmann, the
chief of Germanys Bundesbank, threatened to
quit in protest at the plan.
Mr Padoan made clear his support for cen-
tral bank acon, arguing that the high yields,
or interest rates, faced by weaker southern
... the talk among the shopperswas o medical charges, moneyworries and the malign infu-ence o Brussels bureaucratsand profigate Greeks.
http://www.guardian.co.uk/world/2012/sep/02/netherlands-elections-socialist-party7/31/2019 Things That Make You Go Hmmm September 3d, 2012
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20.THINGS TH AT MAKE YOU GOHmmm...
02September2012 20
European naons did not reect their economic
fundanals, u ah h fa ha h uo-
zone could fragment.
So invning in ond aks, i is a vy
important temporary backstop to a wider
strategy, he told Reuters. If the ECB comes up
with proposals that provide concrete content to
h idas aou suo of ond aks, ha
would be extremely important.
ECB president Mario Draghi was expected next
wk o unvil a nw ond-uying oga
to help the two struggling eurozone states go
on without a formal bail-out. He appeared to
have secured the authority to press ahead aer
winning the support of the German chancellor,
Angela Merkel.
However analysts now expect the measures to
fall short of Mr Draghis vow to do whatever
it takes aer the German government had to
persuade the inuenal Mr Weidmann to stay
in his post. Stepping up the pressure, fellow
German ECB policymaker Jrg Asmussen said
the ECB should only buy bonds if the Interna-
onal Monetary Fund was involved in seng aneconomic reform programme in return.
Analysts expect Mr Weidmann to be outvoted
on h eCb nx wk, u his ha o qui
would put Ms Merkel, the regions power-
broker, in an awkward polical posion as the
Bundesbank is revered in Germany.
by ing so ousokn fohand, h hos
to limit the extent of the operaon, a senior
ECB source told Reuters. That would constantly
put a queson mark over how far we could go.
O O O UK DAILY TELEGRAPH / LINK
Jens Weidmann, the44-year-old head of Germanys central bank,
has made a name for himself by championing
price stability and opposing bond purchases
by the European Central Bank. In a SPIEGEL
interview, he cricizes the ECBs latest plans andinsists he only wants to secure the euros long-
term future.
SPIEGEL: Mr. Weidmann, US President
Barack Obama reportedly asked German
Chancellor Angela Merkel for your phone
number. Has he already called you?
Weidmann: I havent received a call from
President Obama. I occasionally talk on the
phone with US Treasury Secretary Timothy
Geithner, though. It s an important part
of my job to promote the posions of the
Bundesbank during conversaons with
monetary and nancial policy makers from
around the world.
SPIEGEL: That doesnt appear to have been
parcularly fruiul. In all Western capital
cies, from Washington to London, and from
Paris to Rome, you are regarded as the man
who wants to destroy the euro. Is this al-
legaon jused?
Weidmann: No, not at all. I want to help en-sure that the euro remains a stable currency.
The framework for this is laid out primarily
by the Maastricht Treaty, with its rules and
condions for European nancial and mon-
etary policy. I take that as my yardsck.
SPIEGEL: But the framework doesnt work
anymore.
Weidmann: The framework has been
stretched and, in some cases, disregarded.CLICK TO ENLARGE
SOURCE: DER SPIEGEL
http://www.spiegel.de/international/europe/bild-852285-394489.htmlhttp://www.spiegel.de/international/europe/bild-852285-394489.htmlhttp://www.spiegel.de/international/europe/bild-852285-394489.htmlhttp://www.telegraph.co.uk/finance/financialcrisis/9514153/Debt-crisis-OECD-backs-plans-for-ECB-bond-market-intervention.html7/31/2019 Things That Make You Go Hmmm September 3d, 2012
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21.CHARTS THAT MAKE YOU GO Hmmm...
02September2012 21
...in post WII Hungary the equivalent daily inaon rate of 207%, the highest everrecorded, led to a price doubling every 15 hours, certainly one upping such well-known instance of
CTRL-P abandon as Zimbabwe (24.7 hours) and Weimar Germany (a tortoise-like 3.70 days)... What
we will point is that at no me in recorded history did a monetary regime end in hyperdeaon. In
fact there is not one hyperdeaonary episode of note...
O O O ZEROHEDGE / LINK
CLICK TO ENLARGE
SOURCE: CATO/ZEROHEDGE
http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2012/08-2/Hyperinflations.jpghttp://www.zerohedge.com/sites/default/files/images/user5/imageroot/2012/08-2/Hyperinflations.jpghttp://www.zerohedge.com/sites/default/files/images/user5/imageroot/2012/08-2/Hyperinflations.jpghttp://www.zerohedge.com/news/monetary-endgame-score-date-hyperinflations-56-hyperdeflations-07/31/2019 Things That Make You Go Hmmm September 3d, 2012
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22.CHARTS THAT MAKE YOU GO Hmmm...
02September2012 22
A great graphicfo Jo usulas of bloo-
berg (via Barry Ritholtz) that
shows where the blockages are
in h onay ansission
system...
File this one under Gomer Pyle:The BEAs Personal Consumpon Expenditures (PCE) Chain-type Price Index for July, released yes-
terday, shows core inaon below the Federal Reserves 2% target at 1.65%. In contrast, the CoreConsumer Price Index, also data through July, is above the target at 2.10%. The Fed, of course,
is on record as using PCE as its
primary inaon gauge... Here
is a chart that helps us compare
the cumulave change in the
two indexes since 1960. Over
me, the PCE price index reects
signicantly lower growth in
inaon than does CPI.
O O O D SHORT/ LINK
CLICK TO ENLARGE
SOURCE: BRUSUELAS/RITHOLTZ
CLICK TO ENLARGE
SOURCE: D SHORT
http://ow.ly/i/TxWX/originalhttp://ow.ly/i/TxWX/originalhttp://advisorperspectives.com/dshort/charts/inflation/headline-core-comps.html?CPI-PCE-cumulative-change.gifhttp://advisorperspectives.com/dshort/charts/inflation/headline-core-comps.html?CPI-PCE-cumulative-change.gifhttp://advisorperspectives.com/dshort/charts/inflation/headline-core-comps.html?CPI-PCE-cumulative-change.gifhttp://ow.ly/i/TxWX/originalhttp://advisorperspectives.com/dshort/updates/CPI-PCE-Comparison.php7/31/2019 Things That Make You Go Hmmm September 3d, 2012
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23.CHARTS THAT MAKE YOU GO Hmmm...
02September2012 23
wo charts from JessesCaf Americain:
Top: Silver weekly chart
Boom: Gold daily chart
As the much-lamented Swingout Sister
once said:
When explanaons make no sense
When every answers wrong
Youre ghng with lost condence
All expectaons come
The me has come to make or breakMove on dont hesitate
Breakout
Dont stop to ask
Now youve found a break to make at last
CLICK TO ENLARGE
SOURCE: JESSES CAFE AMERICAIN
SOURCE: JESSES CAFE AMERICAIN
http://3.bp.blogspot.com/-0ZlskDvZcFU/UEErqC540eI/AAAAAAAAYe8/E2s6fH8TNzo/s1600/golddaily5.PNGhttp://3.bp.blogspot.com/-0ZlskDvZcFU/UEErqC540eI/AAAAAAAAYe8/E2s6fH8TNzo/s1600/golddaily5.PNGhttp://1.bp.blogspot.com/-XtkX7M7LoGA/UEErqoRnMUI/AAAAAAAAYfE/ihlO4mcORyA/s1600/silverweekly4.PNGhttp://1.bp.blogspot.com/-XtkX7M7LoGA/UEErqoRnMUI/AAAAAAAAYfE/ihlO4mcORyA/s1600/silverweekly4.PNGhttp://1.bp.blogspot.com/-XtkX7M7LoGA/UEErqoRnMUI/AAAAAAAAYfE/ihlO4mcORyA/s1600/silverweekly4.PNGhttp://3.bp.blogspot.com/-0ZlskDvZcFU/UEErqC540eI/AAAAAAAAYe8/E2s6fH8TNzo/s1600/golddaily5.PNG7/31/2019 Things That Make You Go Hmmm September 3d, 2012
24/26
24.
02September2012 24
WORDS THAT MAKE YOU GO Hmmm...
wo guys in bowes. No, not Charlie Sheens lat-est sitcom, but Jim Grant talking to another man in a bowe
(Tom Keene) who, frankly, I wish would stop interrupng
him.
Jim lays out the case for a gold standard and explains some
(but certainly not all) of the Feds shortcomings in his usual
erudite and considered manner.
What we need is a central bank that has the humility not
to do what it cannot do. And the Fed cannot do what others
have failed to do, namely to plan an economy from a central
desk in the capital city.
Amen to that.(courtesy of zerohedge)
Ordinarily, Daily Showclips are reserved for the And Finally... page,
u his inviw wih fo rNC Chai-
man, Michael Steele deserves a place here.When the discussion turns to Ron Pauls
treatment by the current RNC, Steele pulls
no punches...
(courtesy of Robert Wenzel)
More Mauldin for you as John talks to Eric King about hisrecent travels through Europe, the upcoming German Constuonal Court ruling
and the chances of a Grexit (boy, I HATE that term). John also shares his thoughts
on China, gold and the US elecons. Parsanship aside, this is an excellent inter-
view.
CLICK TO WATCH
CLICK TO WATCH
CLICK TO LISTEN
http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2012/8/24_John_Mauldin_files/John%20Mauldin%208%3A24%3A2012.mp3http://www.economicpolicyjournal.com/2012/08/wow-listen-to-former-rnc-chairman_31.htmlhttp://www.zerohedge.com/news/jim-grant-refuses-get-lost-hall-mirrors-market7/31/2019 Things That Make You Go Hmmm September 3d, 2012
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26.THINGS TH AT MAKE YOU GOHmmm...
As a result of my role at Vulpes Investment Management, it falls upon me to disclose that, from me-to-me,
the views I express and/or the commentary I write in the pages ofThings That Make You Go Hmmm..... ay
reect the posioning of one or all of the Vulpes funds - though I will not be making any specic recommen-
daons in this publicaon.
Grant
www.vulpesinvest.com
Grant Williams
Grant Williams is a portfolio and strategyadvisor to Vulpes Investment Managementin Singapore - a hedge fund running over$250million of largely partners capitalacross multiple strategies.
The high level of capital committed by theVulpes partners ensures the strongest possi-ble alignment between us and our investors.
In Q4 2012 we will be launching the VulpesAgricultural Land Investment Company(VALIC), a globally-diversied agricultural land vehicle which will provide truly diver-sied exposure to the agricultural sector through a global portfolio of physical farm-land assets.
Grant has 26 years of experience in nance on the Asian, Australian, European and
US markets and has held senior positions at several international investment houses.
Grant has been writing Things That Make You Go Hmmm..... since 2009.
For more information on Vulpes please visit www.vulpesinvest.com
*******
Follow me on Twier: @ttmYGH
YouTube Video Channel: hp://www.youtube.com/user/GWTTMYGH
California Investment Conference 2012 Presentaon: Simplicity: Part I : Part II
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