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THINGS THAT MAKE YOU GO

A walk around the fringes of finance

By Grant Williams

To learn more about Grant's new investment newsletter, Bull's Eye Investor, Click here

01 April 2014

Fight Club
I dont want to belong to any club that will accept me as a member. - Groucho Marx In another world... - Angela Merkel on Vladimir Putin after a phone call in early March 2014 This is my last election. After my election I have more flexibility. - Barack Obama to Dmitry Medvedev (remember him?), March 2012 The truest wild beasts live in the most populous places. - Baltasar Gracian Those are my principles, and if you dont like them ...well, I have others. - Groucho Marx

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

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Contents
THINGS THAT MAKE YOU GO HMMM... ....................................................3
Jens Weidmann: QE Not Out of the Question ..................................................18 Media Revolution in Spain as Readers Search for New Voices ..................................19 Jeremy Grantham: The Fed Is Killing the Recovery ..............................................21 Hong Kong Agrees to Give Financial Data of Americans Working in City to US Tax Authorities ..............................................................................................23 Japan Buyers Rush To Snap Up Gold as Tax Rise Looms ..........................................24 Jim Rickards: China Is Importing Gold Secretly Using Military Channels .....................26 How Rumour Sparked Panic and Three-Day Bank Run in Chinese City ........................27 Guardian Reporting of Snowden Leaks Threatened with Closure ...........................29 Why Obamas Legacy Hinges on Europe ............................................................30 Russia in Audacious Gold for Alaska Swap Bid .....................................................32

CHARTS THAT MAKE YOU GO HMMM... ..................................................34 WORDS THAT MAKE YOU GO HMMM... ...................................................37 AND FINALLY... .............................................................................38

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Things That Make You Go Hmmm...

Sometimes the sand shifts beneath your feet without your realizing it. Other times you can see it happening. In November 1975, at a summit meeting in the picturesque Chteau de Rambouillet near Paris, leaders of the six richest industrial powers gathered to form a rather exclusive, though completely informal, little club. To receive Grant Williams' Things That Make You Go Hmmm... delivered to your inbox:

SUBSCRIBE NOW! Takeo Miki, Prime Minister of Japan; President Gerald Ford of the United States; the United Kingdoms PM, Harold Wilson; West German Chancellor Helmut Schmidt; and Aldo Moro, Prime Minister of Italy, joined Valry Giscard dEstang, the French President, in establishing what was tagged the Group of Six or, as it would become known in todays AOW (abbreviation-obsessed world), the G-6. A year later, upset at being left out of the club, Canada applied for and was granted membership after a month-long pledge drive in which Prime Minister Stephen Harper had to shotgun a six-pack of Molson, ride a moose bareback through the streets of Montreal, and ring the doorbell at the White House and run away. Thus was borne the Group of Seven (G-7 see how this works? Pretty clever, huh?). The G-7 would meet informally (at enormous taxpayer expense) in a few dive bars like the Dorado Beach Resort in Puerto Rico, the Schaumburg Palace in Bonn, the Akasaka Palace in Tokyo, and the San Giorgio Maggiore in Venice; and at these gatherings the attendees would eat gourmet meals, quaff the finest wines, and discuss how to make the world a better, fairer place (right, a tweet of the menu, sent out somewhat ill-advisedly by David Cameron from the latest G-8 gathering, in June 2013). Your tax dollars hard at work.

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Anyway, the little club remained closed to outsiders until, in 1997, UK PM Tony Blair and US President Bill Clinton invited Russian President Boris Yeltsin to pop along to Naples to observe the G-7 on the understanding that full membership in the club would be forthcoming. To nobodys surprise, in 1998 Russia participated in its first informal gathering, and, hey presto, the club was now....? Come on....? Yes, youve got it, the G-8! Among its members, in 2012 the G-8 accounted for 50.1% of nominal global GDP:

G-8 % Of Global GDP (Nominal)

2012

Rest Of The World

Canada Russia Italy UK France Germany Japan USA RoW

Source: United Nations

The G-8 essentially encompasses the top third of the world, as you can see from this map (the EU is included on the fringes of the G-8, as they are represented at each meeting though they cannot host or chair. The EU essentially applies the same policy as my mother used to when she wouldnt let me go out and play with my friends unless I took my little brother along with me):

Source: Wikipedia

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However, even a cursory glance at the list of the worlds largest economies is enough to make glaringly obvious the elephant in the room: the G-8 is actually the G-8 of the top 11, since China, Brazil, and India actually occupy places 2, 7 and 10 on the list of the worlds largest economies. Poor old Canada has been pipped by India, though it has a healthy lead over #12, Australia. (God forbid the Aussies ever make it into the club. The menu for any summit hosted by them would look altogether different than that tweeted by the clueless Cameron, though the dress code thongs & boardies would at least mean none of those group photos of uncomfortable-looking men in expensive suits.) In order to counter this glaring imbalance, both the UK and France have suggested that the group be expanded to include what has been labeled The Outreach Five. Seriously? That sounds like the worst Motown band of all time; but everything MUST have a cute little moniker, so this lot are the O-5, and they have attended several meetings (purely as observers, of course). The O-5 are: China, Brazil, India, Mexico, and South Africa. Now, the first three on that list are self-explanatory, and Mexico with a GDP of $1.1 trillion (which puts it at #14 on the list) has a pretty solid case for inclusion, but South Africa? A GDP of $384 billion (which puts it at #29, just behind Thailand, Poland, Belgium and Iran) is something of a stretch, although... I suppose Capetown and the Kruger National Park DO make for great venues for informal gatherings. Cynical? Moi? Anyway, amidst the ongoing turmoil in and around Ukraine and in amongst the threats and counter-threats this past week, was a movement, led by Britains David Cameron, to punish Russias President, Vladimir Putin, by telling him he was no longer part of this very exclusive club: (UK Daily Telegraph): The Group of Seven big economies (G7) should cancel a meeting with Russia in June, British Prime Minister David Cameron said on Monday as world leaders kicked off a two-day nuclear security summit in The Hague.

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We should be clear theres not going to be a G8 summit this year in Russia, Mr Cameron told reporters ahead of a hastily-convened meeting with other leaders of the G7 a group of industrialised nations that excludes Russia, which joined in 1998 to form the G8. The other six members of the G-7 rallied round Cameron and agreed that the upcoming summit in Sochi, scheduled for June, would be moved to the bright lights of Brussels, and Russia would be excluded though they were at pains to point out that the exclusion would be temporary. Having been slapped across the back of the legs, it was time for Putin to make the promises necessary to reingratiate himself with the giants of the G-7, like Franois Hollande, who talked tough as Russian troops casually wandered into sensitive military installations in Crimea, meeting precisely zero resistance: (Reuters): We have to also think about other sanctions if there is an escalation, French President Francois Hollande said before the summit. If there are illegitimate claims, if there are troop operations, if there are threats, then there will be other sanctions. However, just when the G-7 had Vlad the Invader right where they wanted him, he outmaneuvered them in a manner that could potentially shift those sands I was talking about in previously unfathomable ways. (Get ready for handshakes between a bunch of important yet unfamiliar people, folks. Lots of em.) First up was a move by Russia towards closer alignment with one of the glaring omissions from the G-8 and the undisputed leader of the O-5 China: (Reuters): When President Vladimir Putin signed a treaty this week annexing Crimea to great fanfare in the Kremlin and anger in the West, a trusted lieutenant was making his way to Asia to shore up ties with Russias eastern allies. Forcing home the symbolism of his trip, Igor Sechin gathered media in Tokyo the next day to warn Western governments that more sanctions over Moscows seizure of the Black Sea peninsula from Ukraine would be counter-productive. The underlying message from the head of Russias biggest oil company, Rosneft, was clear: If Europe and the United States isolate Russia, Moscow will look East for new business, energy deals, military contracts and political alliances.

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The Holy Grail for Moscow is a natural gas supply deal with China that is apparently now close after years of negotiations. If it can be signed when Putin visits China in May, he will be able to hold it up to show that global power has shifted eastwards and he does not need the West. The worse Russias relations are with the West, the closer Russia will want to be to China. If China supports you, no one can say youre isolated, said Vasily Kashin, a China expert at the Analysis of Strategies and Technologies (CAST) think tank. Some of the signs are encouraging for Putin. Last Saturday China abstained in a U.N. Security Council vote on a draft resolution declaring invalid the referendum in which Crimea went on to back union with Russia. Although China is nervous about referendums in restive regions of other countries which might serve as a precedent for Tibet and Taiwan, it has refused to criticize Moscow. The possibility of that gas deal getting done drifted across the media without really making any kind of a mark, but the numbers around it are worth highlighting. Gazprom, the state-owned gas firm, plans on shipping 38 billion cubic metres of natural gas to China every year beginning in 2018. Trade between the two nations grew 8.2% in 2013 to $8.1 billion, but this is a tiny number in the scheme of things and only enough to give Russia seventh place on the list of Chinas largest export markets. Russia fares even worse in terms of trade going in the opposite direction, as they languish outside the top 10 countries sending goods into the Middle Kingdom. This will change. Count on it. Its safe to say that, going forward, this mushrooming trade will NOT be conducted in US dollars, but rather via the recent bilateral direct-trade agreements signed between the two Eastern superpowers to enable deals to be struck directly in yuan and rubles bypassing the US dollar. SIDETRACK ALERT! Incidentally, this agreement with Russia is just one of a slew of similar pacts made by the Chinese in recent months; and just this week there were yet more announcements of important tie-ups between China and her trading partners that will bring the isolation of the US dollar inching closer still:

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(Bloomberg): Germanys Bundesbank and the Peoples Bank of China agreed to cooperate in the clearing and settling of payments in renminbi, paving the way for Frankfurt to corner a share of the offshore market. The central banks signed a memorandum of understanding in Berlin today, when Chinese President Xi Jinping met German Chancellor Angela Merkel, the Frankfurt-based Bundesbank said in an e-mailed statement.... China is loosening exchange-rate controls in an overhaul of its $9 trillion economy. The accord follows the establishment of a 350 billion-yuan ($56 billion) and 45 billion-euro ($62 billion) bilateral swap line between the PBOC and the ECB in October, bolstering access to trade finance in the euro area... Elsewhere, the UK had a similar announcement to make: (BBC): The Bank of England has agreed a deal with the Peoples Bank of China to make London a hub for Chinese currency dealing. The memorandum of understanding, to be signed on Monday, sets out settlement and clearing arrangements for the renminbi, or yuan, in London. The signing is expected to be followed by the appointment of a London clearing bank for yuan. 62% of yuan payments outside of China already take place in London. Following an agreement with Beijing last year, London asset managers are the only ones in the West able to invest directly in Chinese stocks and shares in yuan. Last year the UK and Chinese central banks signed a three-year currency swap arrangement worth 200bn yuan which allows them to swap currencies and can be used by firms to settle trade in local currencies rather than in US dollars. The emphasis in that last paragraph is most definitely mine. Amazingly enough, the yuan a currency which operates within a fixed band and under strict government control has become the second most-used currency in global trade finance, overtaking the euro last October. My good friend Simon Hunt a man who is as clued in as anybody I know about what is really going on in China has been monitoring developments in Chinese yuan-based trade very closely, and I used his fantastic database to create the chart below for a panel I spoke on in Australia late last year.

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The chart shows the dramatic acceleration of global trade which is being conducted in yuan. Amazingly enough, from a starting base of near zero in 2009, the yuan now accounts for an eyewatering 17% of global trade. (You can learn more about Simons excellent service by clicking HERE.)

China: % Share of Global Trade in Yuan

4

20

15

10

YUAN (BN)
1

%
5

0 2009

2010

2011

2012

(Jan-June)

2013

Source: Simon Hunt

Source: Simon Hunt Strategic Services

But after that little detour into the weeds of Chinas currency strategy, its time to return to our regularly scheduled programming and our friends in Russia. When we left Vlad & his chums, Russia had just announced a big natural gas deal with the Chinese; and now, as we rejoin our story, we find Mr Putin wasting no time at all in cozying up to another large nation which has been conspicuously absent from any club beginning with G India: (Reuters): Rosneft, the worlds top listed oil producer by output, may join forces with Indian state-run Oil and Natural Gas Corp to supply oil to India over the long term, the Russian state-controlled company said on Tuesday.

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Rosneft CEO Igor Sechin, an ally of President Vladimir Putin, traveled to India on Sunday, part of a wider Asian trip to shore up ties with eastern allies at a time when Moscow is being shunned by the West over its annexation of Crimea. With EU nations threatening to cut their reliance on Russian oil and gas, Russian officials have started to look East. Rosneft said it had also agreed with ONGC they may join forces in Rosnefts yet-tobe built liquefied natural gas plant in the far east of Russia to the benefit of Indian consumers.... The company said Sechin and the head of Indian conglomerate Reliance Industries also met and discussed potential cooperation in developing Russias offshore resources, viewed by Moscow as a source of future oil production growth. India was the last country in Sechins Asian trip, where he also visited Japan, South Korea and Vietnam.... Russia is trying to diversify its energy flows away from its core European markets, with Rosneft leading the race with plans to triple oil flows to China to over 1 million barrels per day in coming years. Russia, China, and India, along with Brazil, would make for a very powerful informal alliance indeed throw in our friends in Mexico and the likes of Indonesia, Japan, Pakistan, Bangladesh, and Nigeria (the countries filling out the rest of the slots in the list of the worlds mostpopulous nations ex-the USA all of whom have natural alliances with the rest of the group) and you have a body which represents roughly 30% of global GDP. Even more importantly, they contain 42% of the worlds population, and THAT is where whatever growth the world manages to generate in the coming years will be coming from.

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Lets call them the GoP (the Group of People):

Group of People: % of Global GDP & Population

Global GDP
RoW Bangladesh Pakistan Nigeria Indonesia China

Global Population
Russia Brazil Japan Mexico India

Source: United Nations/Census Data

A world in which those countries were aligned would look very interesting indeed:

Note the key footholds in both South America and Africa. This is the nature of the current shifting of the political sandscape.

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Countries are maneuvering for a place in the post-US-dollar world they see rushing towards them as US hegemony comes under increasing pressure, both from inside its borders (it has the largest deficit in world economic history) and abroad (major powers are aligning with the explicit purpose of reducing dependence on the increasingly shaky US dollar). Make no mistake: should the Chinese ever announce some kind of commodity-backed currency (and that commodity would most likely be gold), or should the GoP announce a central peg of their own around which they could (and would) all trade, they would supplant the dollar as the worlds reserve currency, and it would be game over for the US. Nothing would please Russia more, and China would shed not a tear. The parlour games being played around Ukraine are just one example of the political sandscape shifting in ways both obvious and barely perceptible. Elsewhere, very quietly, the ground beneath the political incumbency is becoming more unstable by the day. Last week in France, Marine Le Pens Front National secured what sounds at first glance like a poor result in local elections, but the far-right partys garnering of 5% of the total votes cast while fielding candidates in fewer than 600 of the countrys 36,000 municipalities shook the French political establishment to its foundations: (UK Guardian): The FN secured one mayor elected outright in the northern town of Hnin-Beaumont, a former coalmining area traditionally in Socialist hands, and enough votes to take part in the second-round runoff in nearly 230 municipalities. The FN goes into next Sundays vote ahead in a number of major and symbolic towns and cities including Avignon, Perpignan and Bziers. Commentators said the country had been washed by a wave of bleu Marine (a play on the FN leaders name and the colour navy blue). Le Monde described it as a political earthquake. The new age of the extreme right read the headline in the left-leaning Nouvel Observateur magazine. Even if the FN only ends up with a handful of town halls, its certainly a historic performance and success for Le Pens party. The FN appears more and more clearly as an alternative, capable of taking responsibility and managing the affairs of a community, and this is the greatest success of Marine Le Pen. Frances biggest selling newspaper, Ouest-France, said the FN was now the third political force in the country. I wrote recently about the potential for some seismic changes in the European political landscape in Behold, Politics, and the votes cast for Marine Le Pens Front National last week are the first concrete sign of those changes beginning to take place.

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Elsewhere this past week in Europe, there was another sign of things to come and this time it played out in the UK as Deputy Prime Minister Nick Clegg of the pro-European Liberal Democrats threw down the gauntlet to the staunchly anti-European Nigel Farage of UKIP to join him in the first of two live televised debates ostensibly on whether the UK should remain part of Europe, but in reality a desperate attempt to both blunt the challenge presented by Farages surging popularity and at the same time restore some credibility to Cleggs ailing junior coalition partners. As regular readers will know, Farage is the very embodiment of the anti-establishment movement. A pint-drinking, chain-smoking everyman who looks like hed be more at home debating the issues of the day in a London pub than in the European parliament, Farage spent 20 years as a commodity trader and is one of the few politicians amongst the current crop to have a background in the private sector. Clegg, on the other hand, is the archetypal politician: public school and Oxbridge-educated, related to aristocracy (albeit of the Russian variety), and a man who has been involved in politics for his entire adult life. The debate was fascinating to watch. Farages bluster and soapbox oratory versus the polished politics of Clegg. Farages passion and intensity versus Cleggs measured tone. In the aftermath, the political pundits had their say on who emerged victorious, and they were unanimous: Mary Riddell: No minds will have been changed. The Faragistes who see their champion as the battler against faceless, bloodless, heartless power-brokers will be happy. But Nick won. As he should have. Easily. Dan Hodges: Nick Clegg kept calm and stuck to the facts. And it became clear facts are Nigel Farages enemy. He became increasingly angry and bombastic. By the end Clegg was engaging easily and effectively with his audience. Nigel Farage appeared to be cracking jokes to amuse only himself. His explanation of his reason for employing his wife was especially embarrassing. Fortunately, by that point, few people in the audience appeared to be listening to him. Toby Young: Overall, Clegg came across as more in command of the detail (possibly because hed been briefed by the civil service beforehand) and for that reason I think he edged it.... Farage will certainly have pleased his supporters, but not much more than that.

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So... a humiliating public mauling of poor Nigel. But heres where it gets interesting: (UK Daily Telegraph ): In the Telegraphs poll more than 81 per cent of readers said they thought Nigel Farage had won the debate. A YouGov poll found that 57 per cent of people thought Mr Farage won the debate. This is perhaps the most important point. Regardless of what those who spend their lives around politics believe, the public is ready for change, and they will be very hard to sway unless somehow they feel that quality of their lives can improve drastically and that is not about to happen. Measuring political performance by traditional metrics is a waste of time in a world where the people will simply vote for change. We saw it in Greece, we saw it in Spain, and now weve seen it in France. Next up, European elections in six weeks time. Public disaffection with the worlds leaders is growing by the day you can feel it and nowhere was that made more apparent recently than in Holland last week when Barack Obama, halfway through his tour of Europe, took to the stage alongside Dutch PM Mark Rutte. Obama, so used to adoring hordes not only at home, but wherever in the world he is reading a teleprompter giving a soaring lesson in oratory was presented with the answer to the age-old question about the sound of one hand clapping after he concluded, at a press conference, remarks espousing the USAs core values of privacy, the rule of law, and individual rights. (Click HERE to watch the most awkward end to a speech since Sally Field accepted the Oscar for Best Actress in 1985.) People cant even bring themselves to be polite to the incumbent political class anymore not even to a rock star like Obama. Make no mistake, from Ukraine to Holland, from the United Kingdom and France to Greece, Italy, and beyond, politicians are under immense pressure to do something in order not to lose their grasp on power. There was case in point just this week when embattled Turkish PM Tayyip Erdogan blocked the access of his electorate to both Twitter and YouTube. The reason? Well, that would be because the social media sites leaked a recording of his government planning a false-flag war with Syria to galvanize support behind him. Unable to deny the authenticity of the recording, Erdogan went on the offensive, denouncing the leaks as an act of terrorism against Turkey. (Where have we heard THAT phrase before?)
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And you wonder WHY people are tiring of the incumbent political class? But that kind of thing is the domain of dictators and tyrants, right? I mean its not as though Western leaders would engage in baseless fearmongering to try to demonize a perceived enemy in order to try to sway public opinion... (UK Daily Telegraph): [S]omewhere on the landscape behind that line of trees, or hidden by that rise Western governments believe that Russia is gathering an army fully equipped to invade eastern Ukraine. President Barack Obama gave a warning on Friday that Russian troops were massing along that border, adding: It may simply be an effort to intimidate Ukraine or it may be that theyve got additional plans. The Americans have not named specific locations, but it appears that intelligence analysts have concluded that Russian forces are gathering the three elements needed for a sustained offensive artillery, supplies and communications under the cover of military exercises. The most conservative American assessments, apparently based on satellite data, say that Russia has massed between 40,000 and 50,000 troops within striking distance of Ukraine, including those already in Crimea. That total has apparently risen from 30,000 only a week ago. But the Russian invasion force if it is here is very well camouflaged. As the fog lifted, murky shapes were revealed as trees, houses and old Lada cars. No tanks emerged from the gloom, no suspicious flights of helicopters passed overhead, and no green painted trucks rumbled down the roads. In a 200 mile trip along the border region, the only Russian armour on display in this flat landscape was of a much older vintage, and stood on plinths in town squares. Its tough to hide 40,000 troops not to mention the accessories they tend to bring with them. The interesting shift here, however, is the tone of the press coverage, which has shifted noticeably to the inquisitorial since the embarrassment of Iraq and the WMD fallacy. A skeptical and emboldened press is perhaps the most dangerous opponent for embattled governments right now. Men like Putin understand the ruthlessness required to keep an iron grip on power, and the press is largely an irrelevance to them, while those in the West prefer the velvet glove approach writing checks to their electorate, taking the softly, softly approach with their foreign policy, and constantly courting the press desperate for approval (echoes of Sally Field once again).

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Russias temporary exclusion from the G-8/G-7 and the accompanying sanctions are designed to send a message to Vladimir Putin and force him to the negotiating table over Crimea; but though the sanctions imposed will certainly cause some discomfort in Russia, the Western press is already questioning the validity of moves which impact individual companies such as Rossiya Bank and Rusal (the worlds largest aluminium company, which teeters on the brink of insolvency in the wake of the recently imposed sanctions): (FT): Rusal warned of material uncertainty over its future as the worlds largest aluminium producer reported a $3.2bn loss in its worst annual performance since 2008. The Russian aluminium group, controlled by Oleg Deripaska and listed in Hong Kong, confirmed that it had asked lenders to delay a repayment due next month on part of its $10bn net debt pile. It said that it expected to complete long-running negotiations with its banks to amend the terms of its debt, but warned that there could be no certainty it would succeed. Management acknowledge that these conditions result in the existence of a material uncertainty with respect to the groups ability to continue as a going concern, the company said. Rusals auditor, KPMG, included an emphasis of matter paragraph in its report on the companys earnings statement to draw attention to the issue. Expect no such compassion from Putin. Instead, Russias leader is already working to tighten his alliances and broaden his power base amongst the GoP. Many commentators point to the potentially devastating effect on Russias economy that the sanctions put in place by the EU and the US might have, whilst others emphasise Russias moves to strengthen their ties to the East and reduce reliance upon their Western trading partners.

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One thing is certain: the combination of Putins hardline approach and refusal to play by Western rules, along with the Wests desperation not to take any action without the explicit backing of their electorates, means that, for now at least, Putins path through what could have been a tricky bracket has been very smooth indeed.

(Thanks, Mikey)

How this plays out is anybodys guess right now, but this much I know: one should NEVER underestimate the ability of the average Russian to bear hardship, nor should one ever underestimate the Wests lack of fortitude once any situation becomes politically unpalatable. I also know that everywhere you look around the world, electorates are just itching to vote for change and to hand power to new parties and new leaders, many of which are extreme in nature and possess the ability to seriously upset the status quo. What else do I know? Well, I know that neither Russia nor China feels the USs place at the top of the food chain is either justified or indefinitely sustainable, and they both smell weakness. Ukraine is just one in a series of situations which will shape and reshape the geopolitical sandscape in coming decades, and the squabbles amongst the G-8/G-7 threaten to strengthen existing alliances and forge new ones in the crucible of conflict. Pay very close attention to the sand beneath your feet, folks. It is unstable and unpredictable, and that is the most dangerous combination of all ask Vlad.

*******

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OK ... this week we have a bunch of good stuff to get to, starting with the oh-so-quiet first

signs of acceptance of QE by the Bundesbank, who have been backed into a rather tight corner by the intransigence of Mario Draghi. From Frankfurt we head south to Spain to find a media revolution in progress; east to Hong Kong where the tendrils of the IRS seem to have wrapped themselves around yet another offshore financial centre; and on to Japan, where, as Abenomics reaches its day of judgment, the citizens of the Land of the Rising Sun vote with their wallets, and those votes are being cast in gold. Jeremy Grantham explains how the Fed is killing the recovery; Jim Rickards highlights some of the less obvious channels the Chinese are using to beef up their gold stockpile; and the editor of the UK Guardian newspaper speaks for the first time about extent of the threats made by the British government over the Snowden affair. A bank run in China shows that the Chinese are just as prone to panic as people in the West; Der Spiegel highlights Barack Obamas rather uncomfortable dependency on Europe; Russia continues to make mischief this time threatening to ride to the rescue of the unsettled citizens of Alaska; and in our charts section, we find that MH370 was far from an unusual occurrence, note that Chinese debt is approaching dangerous levels, and take a look at the real price of gold since 1971. This weeks interviews are a real treat, as we have two Jims and a Bill for you. The great Jim Grant professes his love for Henry Hazlitt; Jim Rickards has plenty to say on the gold markets and the coming Big Reset; and my two friends Bill Fleckenstein and Jim Puplava get together to chat about everything from bond markets to gold to playing chicken dont miss any of those. All thats left for me is to wish you all a good week.

Until Next Time... ******* Jens Weidmann: QE not out of the question
Quantitative easing in the eurozone is not out of the question and could be used to revive the ailing 18-nation bloc, according to the head of Germanys central bank. In a dramatic softening of his stance on asset purchases, Jens Weidmann said the European Central Bank could consider purchasing eurozone government bonds or private sector assets.

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Of course any private or public assets that we might buy would have to meet certain quality standards, Mr Weidmann said in an interview with Market News. But the overall question is one of effectiveness, costs and side-effects. The intended effects would then have to be weighed against the costs and side-effects. Mr Weidmann cited limits under the ECBs mandate on funding eurozone governments. However, he added: This does not mean that a QE programme is generally out of the question. But we have to ensure that the prohibition of monetary financing is respected, he said. We need to discuss this and ideally achieve a common view. Mr Weidmann also said the ECB could introduce negative interest rates to counter a strong appreciation of the euro, a move which he appeared to favour over QE. Mario Draghi, the president of the ECB, said this month that the euros strength had undermined its attempts to stabilise the single currency bloc and kept inflation which currently stands at a record low of 0.7pc well below its target of 2pc. However, Mr Weidmann said the benefits and costs of negative interest rates needed to be examined further. Introducing the policy would be going into uncharted territory, he said, while its effect on the cost of credit would be questionable. Several international bodies, including the International Monetary Fund and the Organisation for Economic Co-operation and Development have called for the ECB to embark on a programme of asset purchases to fight deflation. Mr Draghi said this month that QE was one of three measures the ECB could deploy to aid Europes credit recovery. We have hinted on several occasions at various measures. One was the revitalisation of the ABS (asset backed securities) market, and another one was funding for lending. And a third could be QE, he said. However, launching QE could prove to be problematic. The German constitutional court ruled last month that the ECBs bond rescue plan, known as Outright Monetary Transactions (OMT) is probably Ultra Vires.
*** SZU PING CHAN, THE TELEGRAPH / LINK

Media revolution in Spain as readers search for new voices

To lose one top editor at a major Spanish newspaper may be regarded as a misfortune. To lose two looks like carelessness. But when Spains three leading dailies each replace their editors in as many months, its clear that something is afoot. Many explain the changes in leadership at El Pas, El Mundo and La Vanguardia by pointing to the countrys economic crisis, which has caused advertising revenue to shrink and circulations to drop. Others evoke a storyline familiar to newspapers the world over: the migration of readers from print to the internet.
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But media analysts in Spain say there is another factor in play. Nearly 40 years after the countrys transition to democracy, there have been more than 300 journalism startups. Staffed by a mix of veteran journalists laid off during the economic crisis and young journalists trying to gain a foothold in an industry where few are hiring, the startups tout themselves as willing to ask the questions that traditional Spanish media will not. As Spain teetered on the brink of financial meltdown, Spaniards started demanding more accountability from their institutions, said Rafael Anbal, a former journalist who now works in communications. People went looking for sources of information that arent directly related to power. In contrast, traditional media sought to weather the crisis by becoming more institutionalised. Anbal pointed to the countrys leading daily, El Pas, founded in the late 1970s, just months after the death of the dictator Francisco Franco. Mired in debt, the papers owner, Prisa, recently struck a deal that would earn it a reprieve from creditors but see 16% of its shares handed over to the companys bankers. The result, said former El Pas journalist Pere Rusiol, is that it is now impossible to untangle the papers coverage from its financial situation. You cant have press freedom in a company thats bankrupt and belongs to the bank. He cited a Spanish national court investigation into a Swiss bank account with ties to the Botn family, which runs Santander bank. This was a news story that appeared in all the international papers. But El Pas didnt put it on the front page, said Rusiol, who now works with the satirical magazine Mongolia and the monthly Alternativas Econmicas. Theres a lot of evidence to show that its not possible to do any kind of journalism or anything even minimally worthy of the name in traditional media. When El Mundos Pedro J Ramrez was ousted this year, the editor played up the notion that political forces had exerted considerable influence on the newsroom. In his final editorial as director of the paper he had founded 25 years earlier, he linked his fate to the papers reporting on the alleged secret payments that had the prime minister, Mariano Rajoy, fending off calls for resignation. This power has converted El Mundo into an outcast and the big companies of the Ibex [stock market index] with a few honourable exceptions acted accordingly. Ramrez remains with the paper as a columnist. Ramn Salaverra, author of several books on Spains media landscape, cautioned against writing off traditional media in Spain just yet. Two of Spains top online startups, the centreright El Confidencial now the countrys most-read online daily and the left-leaning eldiario. es get more than 5m hits a month and have unquestionable influence, said Salaverra. But El Pas and El Mundo continue to be the papers of record in Spain, and attract audiences three times the size of even the most successful startups, he said.

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Startups say their focus has shifted to increasing audiences. People working for eight startups will take to the streets on 30 March to hand out a one-day newspaper, compiled using content from each of their projects. The goal, according to the team behind the initiative, is to introduce Spaniards to media that are divorced from traditional power structures and institutions. Reporters at El Pas were hesitant to speak on the record about pressures on the newsroom. But as one reporter said, Everybody knows here that if you start working on a story about a bank, nobody is ever going to tell you that you shouldnt do it. Theyre going to tell you that you dont have enough to back the story, or that this story isnt what you think it is. Some of this reluctance was tied to newspapers history, he said. We were created to change this country, we helped to change it and then we ended up thinking that some of our obligation is to defend democracy and the system as well....
*** UK GUARDIAN / LINK

Jeremy Grantham: The Fed is killing the recovery

If you hate the Federal Reserve, you have a new hero. A few weeks ago, Jeremy Grantham, the co-founder of money management firm GMO, called newly appointed Federal Reserve chairman Janet Yellen ignorant in the New York Times. He also said the reason for the slow recovery was not the severe financial crisis, continued high unemployment, or the many standoffs in Washington. Instead, he blamed the Fed for ruining the recovery it was supposed to stimulate. To someone who believes in the laws of economics, its hard to overstate how odd that claim is. Its positively bonkers. Low interest rates stimulate the economy. The Fed has done everything in its power to keep interest rates down, lower and longer than anyone can remember. That should have helped the economy. And yet the recovery has been just meh. So, either Grantham is bonkers, or he is onto something. Fortune recently caught up with him to find out. Fortune: You believe the Feds policies, particularly quantitative easing, have slowed the recovery. Whats your proof? Grantham: Its quite likely that the recovery has been slowed down because of the Feds actions. Of course, were dealing with anecdotal evidence here because there is no control. But go back to the 1980s and the U.S. had an aggregate debt level of about 1.3 times GDP. Then we had a massive spike over the next two decades to about 3.3 times debt. And GDP over that time period has been slowed. There isnt any room in that data for the belief that more debt creates growth.

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In the economic crisis after World War I, there was no attempt at intervention or bailouts, and the economy came roaring back. In the S&L crisis, we liquidated the bad banks and their bad real estate bets. Property prices fell, capitalist juices started to flow, and the economy came roaring back. This time around, we did not liquidate the guys who made the bad bets. Can you really blame the Fed for the bailouts? That was an act of Congress. I dont like to get into the details. The Bernanke put the market belief that if anything goes bad the Fed will come to the rescue has had a profound impact on people and how they act. Okay, but thats still not proof that quantitative easing slowed the recovery. Theres no proof on the other side, that the economy is any stronger from quantitative easing. Theres some indication that the crash would have been worse and the downturn would have been sharper had the Fed not stepped in, but by now the depths of that recession would have been forgotten, the system would have been healthier, and we would have regained our growth. Its economic doctrine that lower interest rates boost the economy. Are you saying thats wrong? Economic doctrine says the market is efficient. My view of the economy is not really principlebased. Higher interest rates would have increased the wealth of savers. Instead, they became collateral damage of Bernankes policies. The theory is that lower interest rates are supposed to spur capital spending, right? Then why is capital spending so weak at this stage of the cycle. There is no evidence at all that quantitative easing has boosted capital spending. We have always come roaring back from recessions, even after the mismanaged Great Depression. This time we are not. Its anecdotal evidence, but we have never had such a limited recovery. But the Fed does seem to have boosted stocks. Even if it did nothing else, doesnt a better market help the economy? Yes, I agree that the Fed can manipulate stock prices. Thats perhaps the only thing they can do. But why would you want to get an advantage from the wealth effect when you know you are going to have to give it all back when the Fed reverses course. At the same time, the Fed encourages steady increasing leverage and more asset bubbles. Its clear to most investing professionals that they can benefit from an asymmetric bet here. The Fed gives them very cheap leverage on the upside, and then bails them out on the downside. And you should have more confidence of that now. The only ones who have really benefited from QE are hedge fund managers. Okay, but then I guess that means you think stocks are going higher? I thought I had read your prediction that the market would disappoint investors.

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We do think the market is going to go higher because the Fed hasnt ended its game, and it wont stop playing until we are in old-fashioned bubble territory and it bursts, which usually happens at two standard deviations from the markets mean. That would take us to 2,350 on the S&P 500, or roughly 25% from where we are now. So are you putting your clients money into the market? No. You asked me where the market is headed from here. But to invest our clients money on the basis of speculation being driven by the Feds misguided policies doesnt seem like the best thing to do with our clients money. We invest our clients money based on our seven-year prediction. And over the next seven years, we think the market will have negative returns. The next bust will be unlike any other, because the Fed and other centrals banks around the world have taken on all this leverage that was out there and put it on their balance sheets. We have never had this before. Assets are overpriced generally. They will be cheap again. Thats how we will pay for this. Its going to be very painful for investors.
*** FORTUNE / LINK

Hong Kong agrees to give financial data of Americans working in city to US tax authorities
Hong Kong tax officials will soon be able to pass information about the finances of Americans working in Hong Kong to their US counterparts under an agreement signed yesterday as part of Washingtons global crackdown on tax evasion. The Financial Services and Treasury Bureau said the tax-information exchange agreement allowed the US to file a request to the Inland Revenue Department under specified conditions. The bureau said that provided the basis for a further agreement that would enable US tax authorities to seek information directly from local banks. Tax experts said the agreement was crucial for Americas controversial anti-tax evasion law, which takes effect later this year. The Foreign Account Tax Compliance Act was passed in 2010. It takes effect in July. It requires foreign financial institutions such as banks to declare to the US tax authorities the foreign holdings of anyone liable under US tax rules. If the institutions did not comply, the US tax authorities would withhold 30 per cent of their US-sourced income, according to Ivan Strunin, managing director of Deloittes Asia Pacific International Core of Excellence (US Tax Service).

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Without an intergovernmental agreement, financial institutions that provided the information might breach privacy laws. Signed into law by President Barack Obama in 2010, the law was originally supposed to take effect on January 1 last year. That was postponed to January 1 this year and then to July 1. Secretary for Financial Services and the Treasury Professor Chan Ka-keung said after signing the first agreement with US Consul General Clifford Hart that it demonstrated Hong Kongs continued commitment to fulfilling its international obligations. The [agreement] with the US has adopted highly prudent safeguard measures to protect taxpayers privacy and the confidentiality of information exchanged, he said. For the agreement to take effect, the Chief Executive in Council will have to make an order under the Inland Revenue Ordinance. The order will take effect unless the Legislative Council objects to it. The Post reported earlier that Cathay Pacific planned to comply with the US law. Cathay pilots said they were concerned about privacy and were puzzled why companies in Hong Kong needed to comply with the regulations of a foreign country. How can Cathay give a foreign government our details without our permission? There is a good case [that this is] against Hong Kong [privacy] law, one American pilot said.
*** SOUTH CHINA MORNING POST / LINK

Japan buyers rush to snap up gold as tax rise looms

A landmark increase in Japans sales tax has led to a rush for small gold bars as retail investors pile into the precious metal to avoid next weeks rate rise. Tanaka Kikinzoku Jewelry, a precious metals specialist, reported that sales of gold ingots across seven of its shops are up more than 500 per cent this month, as customers rush to take advantage of the current 5 per cent rate of consumption tax before it rises to 8 per cent on 1 April. At the companys flagship store in Ginza on Thursday, people queued for up to three hours to buy 500g bars worth about Y2.3m ($22,500). March has been the busiest month in Tanakas 120year history. Prime Minister Shinzo Abe has embarked on a series of radical reforms dubbed Abenomics in an attempt to weaken the yen and boost the ailing Japanese economy, prompting investors to buy gold as a hedge against the spectre of higher inflation.

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Investors are being drawn to the metal not just because of higher taxes, said Itsuo Toshima, an adviser to pension funds.Slowly and steadily, people are preparing for the worst, which is the failure of Abenomics. To protect the value of wealth, gold comes into play as an inflation hedge, and if the economy goes back to deflationary circumstances then, again, money seeking safe havens would flow into gold. Economists are divided on whether Abenomics can survive a rise in the deeply unpopular sales tax, which is being increased to help stabilise Japans huge public debt. Last time a Japanese government tried to hike the levy in 1997, a deep recession followed. Japans hunger for gold bars is at odds with general sentiment towards the precious metal, the price of which fell 28 per cent last year, bring an end to a 12 year bull run. Yet Yuichi Bruce Ikemizu, head of commodities trading at Standard Bank in Tokyo, said retail buyers had been tempted into purchases by lower prices. The Fruit of Gold ETF managed by Mitsubishi UFJ Trust and Banking, the countrys most popular bullion-backed investment vehicle, saw its assets rise from 5.6 tonnes, when Mr Abe assumed power in December 2012, to 6.9 tonnes now even as the US dollar price of gold fell by more than a fifth over that period. Individual investors in the fund numbered 15,243 in mid-January, a sharp increase from 9,849 a year earlier, said general manager Osamu Hoshi. At Tanakas third-floor store in Ginza, one 33-year trader at a foreign-owned brokerage, who did not want to be named, said the tax increase represented a good opportunity to buy more gold as he was worried about holding too many yen-denominated assets. I plan to hold it for a long time until there is a good time to sell when the yen collapses or something, he said. Even a strong rise in Japanese gold purchases is unlikely to affect the global bullion market. Last year consumer demand in Japan was 21.3 tonnes, according to the World Gold Council, compared to 1,066 tonnes in China and 975 tonnes in India....

*** FINANCIAL TIMES / LINK

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Jim Rickards: China Is Importing Gold Secretly Using Military Channels

Jim, as you know, China is now the worlds largest consumer of gold. While the WGC states that its record demand in 2013 was only 1,065.8 tonnes, the China Gold Association estimates gold consumption was 1,176 tonnes. On the other hand, several pundits like Koos Jansen say that the real China gold demand was much more than 2,000 tonnes last year. Who should we believe? There are many estimates of official and non-official accumulation of gold in China. The truth is that no one knows the exact number because China is non-transparent about the total amount of gold coming into the country and its own mining output, and it is not-transparent about how much of that gold goes for personal acquisition and now much to government reserves. So, all analysts, myself included, are working with imperfect or incomplete information. We do know that some gold comes into China using military channels and is not reported to any authority. As a result, even the best estimates may be too low. The best guide is to assume China has some target in mind, probably 5,000 tonnes or higher, and will continue to accumulate through diverse channels until that target is reached. My estimate is that China will announce it has over 5,000 tonnes of gold in early 2015. It probably has at least 3,000 tonnes today. Why is China buying such big quantities of gold? Is Beijing preparing for the collapse of the fiat monetary system? Do they want to replace the USD with yuan as a reserve currency? China has no prospect for replacing the USD with the yuan as a global reserve currency. This would require China to open its capital account, which it does not want to do. It also requires a good rule of law and a deep liquid bond market with financing and hedging instruments, which it does not have. So, the yuan will not be a reserve currency for at least ten years, possible longer and the Chinese know this. The reason China is acquiring gold is to hedge its exposure to dollars. China actually wants a strong dollar because they own over $3 trillion in dollar denominated paper they cannot dump. If the U.S. inflates and devalues the dollar, gold will go much higher in price. Whatever China loses on its paper due to dollar inflation, it will make up on its gold profits. So, China is hedging dollars with gold. Other investors should do likewise. Gold is going from West to Far East, thats a fact. It seems that the developed economies are being left only with paper gold. Could this lead to future war tensions between China and Russia on one hand, and the US, Europe and Japan on the other? Gold is certainly moving quickly from vaults in the U.S. and Europe to as those maintained by the COMEX and the GLD ETF, in the direction of vaults in China including those of the government. Much of this gold passes through Swiss refineries where it is melted down from 400-ounce bars of 99.90% purity and re-refined and recast into 1-kilo bars of 99.99% purity.

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When gold moves from west to east, there is no change in the total stock of gold, but there is a reduction in the floating supply since COMEX and GLD gold is available for trading and leasing whereas Chinas official gold is not. This implies a gradual unwinding of paper short positions in gold, because there is less physical available to support the paper trading. In turn, this supports a higher price for physical gold. A higher price for gold means a low value for the dollar when measured in gold. This will increase tensions between China and the U.S. Tensions are already high between China and Japan over the South China Sea islands, and between the U.S. and Russia over Ukraine. Taken in combination, the potential for a mistake or escalation resulting in actual warfare prompted partly by increasing gold prices is growing more likely....
*** JIM RICKARDS / LINK

How rumour sparked panic and three-day bank run in Chinese city
The rumour spread quickly. A small rural lender in eastern China had turned down a customers request to withdraw 200,000 yuan (19,420 pounds). Bankers and local officials say it never happened, but true or not the rumour was all it took to spark a run on a bank as the story passed quickly from person to person, among depositors, bystanders and even bank employees. Savers feared the bank in Yancheng, a city in Sheyang county, had run out of money and soon hundreds of customers had rushed to its doors demanding the withdrawal of their money despite assurances from regulators and the central bank that their money was safe. The panic in a corner of the coastal Jiangsu province north of Shanghai, while isolated, struck a raw nerve and won national airplay, possibly reflecting public anxiety over Chinas financial system after the countrys first domestic bond default this month shattered assumptions the government would always step in to prevent institutions from collapsing. Rumours also find especially fertile ground here after the failure last January of some lessregulated rural credit co-operatives. Jin Wenjun saw the drama unfold. He started to notice more people than usual arriving at the Jiangsu Sheyang Rural Commercial Bank next door to his liquor store on Monday afternoon. By evening there were hundreds spilling out into the courtyard in front of the bank in this rural town near a high-tech park surrounded by rice and rape plant fields. Bank officials tried to assure the depositors that there was enough money to go around, but the crowd kept growing.

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In response, local officials and bank managers kept branches open 24 hours a day and trucked in cash by armoured vehicle to satisfy hundreds of customers, some of whom brought large baskets to carry their cash out of the bank. Jin found himself at the bank branch just after midnight to withdraw 95,000 yuan for his friend from a village 20 kms (12 miles) away. He was uncomfortable. It was late and he couldnt wait, so he left me his ID card to withdraw his cash, Jin said. By Tuesday, the crisis of confidence had engulfed another bank, the nearby Rural Commercial Bank of Huanghai. One person passed on the news to 10 people, 10 people passed it to 100, and that turned into something pretty terrifying, said Miao Dongmei, a customer of the Sheyang bank who owns an infant supply store across the street from the first branch to be hit by the run. Claiming to be a Yancheng resident, one user of Sina Weibos Twitter-like service repeated the story on Monday about the failed 200,000 yuan withdrawal, adding that rumours are the bank is going bankrupt. When later contacted by Reuters online, he said he had heard the rumour from his mother when she came back from town. Huanghai and Jiangsu Sheyang banks declined to comment. Yancheng police said on the forces official microblog on Thursday that they had detained a person suspected of spreading rumours. Chinas banks are tightly controlled by the state and bank bankruptcies are virtually unheard of, so the crisis has baffled many outsiders. Yet in Sheyang, fears of a bank collapse resonate. In recent years, this corner of hard-strapped Jiangsu province has experienced a boom in the number of loan guarantee, or danbao, companies and rural capital co-operatives. These often shadowy private financial institutions promised higher returns on deposits than banks, but many have since failed. Qu Guohua, a spiky haired former migrant worker in his 50s, nearly lost 30,000 yuan in a credit guarantee scheme that went up in flames. What saved him one day in January 2013 was a tip-off from a friend at a rural co-operative just down the street from the loan guarantee company where he had his money. He told me the other one was going to go out of business and I better go get my money quick, he said. Qu managed to get his cash, but others behind him in line were not so lucky, he said.

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That helps explain why lines formed so quickly once the rumours started circulating this week. Luck has it, he deposited the cash in a bank next door: Sheyang Rural Commercial Bank....
*** REUTERS / LINK

Guardian reporting of Snowden leaks threatened with closure, conference told

The Guardian deputy editor Paul Johnson has clarified his statement at a radio conference in Dublin that the British Government would close down the newspaper over the Edward Snowden spying affair. Mr Johnson was asked on Tuesday at the Radiodays conference what specific threats were made by the British Government if they were to publish Mr Snowdens revelations of mass surveillance by US and UK security agencies. Mr Johnson responded: Yes, we were being threatened with being closed down. When pressed as to if that meant the closure of the newspaper, he added: Well there are specific threats made and there have been specific threats made legally. We didnt know if they were under the terror laws or the more ordinary laws about the seizure of journalistic material. He then played a video to show how the newspaper dealt with the threat. He has since contacted The Irish Times to state that he meant to convey that the British Government would close down its coverage of the Snowden leaks, rather than the newspaper itself. Mr Snowden is now in Russia, where he has temporary asylum. He is wanted by the US authorities on espionage charges. He has been responsible for one of the biggest intelligence leaks of all time, using his access to data systems to reveal the extent to which British and US agencies were spying on ordinary citizens and world leaders including German chancellor Angela Merkel. Speaking at the Conference Centre Dublin (CCD) on Tuesday, Mr Johnson, who was in charge of handling the Snowden material, said it was much more difficult to work on than the WikiLeaks tapes because of the intense scrutiny the newspaper was subjected to by the British intelligence services. As a contractor working for the NSA, Mr Snowden had access to an enormous amount of classified information.

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However, Mr Johnson said he had been told by a senior British government official that 850,000 Americans had the same level of access to classified information as Mr Snowden. The Guardian became involved with Mr Snowden because of the work the newspaper did in relation to WikiLeaks and the phone hacking at the News of the World . Mr Johnson told the conference: It was the most difficult story we have ever done and that includes WikiLeaks, because reporters and editors couldnt speak to each other. We could only speak using encryption systems. The Guardian set up a secure room and used new computers that had no outside access to the internet, with a guard outside the door all the time. Mr Johnson revealed that a senior civil servant had told the papers editor, Alan Rusbridger, that the prime minister, the deputy prime minister, the foreign secretary, the home secretary and the attorney general have got a problem with you. Mr Johnson said the whole attitude in the UK was that national security trumped press freedom and that the newspaper should not publish a word. This was in contrast to the US, where the Snowden revelations had led to a debate about how far intelligence agencies should go to protect the state. We were accused of endangering national security and peoples lives. It left us in a very difficult position, he said.
*** IRISH TIMES / LINK

Why Obamas Legacy Hinges on Europe

Barack Obama is has a reputation for extreme rationality or for being coldly calculating, depending on the viewpoint. Self-control is paramount, and he rarely loses it. One can assume, then, that Obamas barbed comments on Russia, delivered at a Tuesday press conference in The Hague, were designed to provoke. They also show just how vexed the US president is by Russian President Vladimir Putins exploits in Crimea. Russia, Obama said following the Nuclear Security Summit in the Netherlands, is a regional power that is threatening its neighbors not out of strength, but out of weakness. It is a comment that is sure to ruffle Putins feathers; the Russian president, after all, has shown a penchant for consulting the czarist playbook it his attempt to boost his countrys role on the global stage. But Obama wasnt done yet. The US too exerts influence over its neighbors, the president said. However: We generally dont need to invade them in order to have a strong cooperative relationship with them. And: Russian actions are a problem. They dont pose the number one security threat to the United States.

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Source: Der Spiegel

It would be difficult to prove the US president wrong. Russian power is certainly not what it used to be and its expansionary tendencies are largely a reaction to the weak geopolitical position in which it finds itself. And it certainly does not represent a direct threat to the US: An invasion of Alaska seems unlikely and a nuclear attack is out of the question. But indirectly, Russia does present a grave danger to Obama himself. Putin is threatening Obamas credibility as the leader and guarantor of the West. From the very beginning of his presidency, Obama has been more focused on consolidating US forces rather than embarking on new international adventures. He has significantly reduced Americas military footprint overseas, vocally demanded more help from US allies, emphasized the need for multilateral conflict solutions and preferred to focus on domestic issues as much as possible. Obamas retrenchment largely reflects the desires of the American electorate after eight years of George W. Bush. What does it mean for the current crisis, though? Does his cautious approach to foreign policy automatically mean he is a weak president? And was it a factor in Putins decision to act in Crimea? No matter how Obama views Russia, the Ukraine crisis and how he chooses to confront Putin will be decisive for his foreign policy legacy. That he ended the wars in Iraq and Afghanistan is certainly worthy of praise. But a triumph of his own making remains to be seen. For any president engaged in retrenchment, policy success is not measured simply by how well the United States extricates itself from old involvements, Stephen Sestanovich, the renowned Russia expert and former advisor to US Secretary of State Madeleine Albright, writes in his new book Maximalist: America in the World from Truman to Obama. The decisive question, he writes, is: How well are new challenges handled? There are plenty of them: the conflict with Iran over its nuclear program, the civil war in Syria, a budding military dictatorship in Egypt, Chinas more aggressive stance toward US allies in Asia and now Putins Russia. The limits to Obamas power are being tested across the globe. And almost all autocrats present America as the enemy as a way of stabilizing their own power.
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Republican hawks have long since begun joking about Obamas allegedly nave attempt to reset US relations with Russia. His predecessor George W. Bush, a man who was driven by obsessions in much the same way that Putin is, is now being celebrated as a strong president, although he wasnt even able to apply sanctions comparable to the current ones in response to Russias conflict with Georgia in 2008. But Obamas mistake is that he underestimated the revanchist nature of Putins foreign policy. The Russian president is much less interested in cooperation with the West than he is in constructing an alternative to the West. Putin is a man of the past one whom Obama had sought to drag into the 21st century. Mission failed....
*** DER SPIEGEL / LINK

Russia in Audacious Gold For Alaska Swap Bid

After their recent annexation of Crimea, Russian leaders have upped the ante this week with a bold bid to return Alaska to Russian control, offering 91,374 ounces of gold with a value of $118,238,941 for the former Russian territory, which was sold to the United States on August 1, 1867. The sum represents a $1 increase in the inflation-adjusted sale price and has been denounced by US officials as far too low. US Secretary of State William Seward instigated the deal to buy Alaska, previously known as Russian America, from the Russian;s and the purchase became known amongst Americans as Sewards Folly though that perception changed abruptly when gold and oil were found beneath the frozen ground. Far from folly, the $7,200,000 check written to secure the 663,300 square miles now seems like a bargain.

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Emboldened by a recent petition to the White House for Alaska to secede and join the Russian Federation, this week Russian Overseas Territory Minister Anton Dec outlined Russias bold plans for what is already being called Dnnolaska or reunification of Alaska amongst Russias power elite: Alaska is Russian territory. Our people have been settled there since 14,000 BC, and the sale of the territory to the Americans was an act of terrorism pure and simple, said Dec against a backdrop of photographs of early Russian settlers in Alaska. Over 6,000 people have stated their desire to return to Russian control after the Palin era, and we will do all within our power to ensure the safety and freedom from persecution of all Russians no matter where they reside. Alaskan Minister for the Outdoors, Buddy Kenyaspera-Dime, himself a naturalized Russian, said: Clearly, this is simply another example of Russian expansionist mischief-making. Alaskans remain very happy to be part of the United States the greatest country on earth. Any suggestions to the contrary are ludicrous. Offering such a sum is clearly not a serious attempt to open negotiations, and any realistic bid would need to be of a magnitude far, far higher if it were to be entertained by the people of the great state of Alaska. Spokesmen for both the Kremlin and the White House refused to comment.

*** AFN / LINK

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Charts That Make You Go Hmmm...

Source: SoberLook

Flight MH370 is, perhaps rather surprisingly, not the first plane to go missing in

strange circumstances far from it. Over the last 65 years, some 83 aircraft have vanished mysteriously. This interactive infographic from Bloomberg sheds some light on just how commonplace this seemingly bizarre situation actually is.
*** BLOOMBERG / LINK

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Source: Business Insider

Talking about

a countrys total debt is always risky.

For example, if youre talking about government debt, then its important to understand the nature of the debt. Is it in the governments own currency that they can freely print (asw Japan, the US, and the UK can do)? How much of the debt is external? When looking at privatesector debt, financial debt can complicate the picture (so a country like the UK ends up looking like it uses much more debt than it does, simply because finance is a bigger part of the economy). This chart from Citi looks simply at household and non-financial-sector debt by key regions around the world. You can see how Chinas private-sector debt has surged past everyones, nearing 200% of GDP. This has become one of Chinas primary policy concerns. The leadership is worried (probably rightly) about the sustainability of an economy that is built so much on debt. Its also why the first-ever Chinese corporate default, which happened earlier this month, is so worrisome. (How many more will there be?) Bigger picture, its why more and more people are talking about China having a Minsky moment, when all of this debt build-up will end up in some kind of big-bang crash.
*** BUSINESS INSIDER / LINK

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In 2008,

I graphed the annual US price of gold. In this post, I revisit gold but this time I graphed the market price along with the real price (adjusted for inflation using 2012 dollars). When you take the inflation into account, the annual price of gold has spiked over $1,700 twice since the US left the gold standard, once in 1980 and again in 2012. In this graphic, I briefly touch upon the history of gold standard. Beginning in 1792, the US Mint pegged the dollar to gold and silver. In 1900 the US went on the gold standard (i.e. the dollar was pegged just to gold). During this time, except for monetary crisises, the market price for gold matched the official price set by the US government. In the 1970s, the US finally left the gold standard and allowed the dollar to float freely on international currency markets.
*** VIZUALIZING ECONOMICS / LINK

Source: Visualizing Economics

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Words That Make You Go Hmmm...

My admiration
for Jim Grant is welldocumented. Its always a treat to get to see him speak. This week, we get the considerable benefit of his wisdom in an extended speech at the Von Mises Institute, entitled Hazlitt, My Hero. A brilliant mind, an entertaining speech, and lessons for us all. Jim is a true master. CLICK TO WATCH

Two of my favourite people in finance,

Jim Puplava and Bill Fleckenstein, got together recently to chat about the dangerous game of chicken the market is playing with the Fed and what might happen when the central bank loses control of the bond market and faces sharply falling equity prices. Will they blink? CLICK TO LISTEN

This interview

with JIm Rickards provides some fascinating insight into gold market manipulation, the ongoing currency war that is quietly raging across the world, and what the global monetary system may look like after the next big reset, which JIm believes will be bigger than the Fed. Fascinating stuff. CLICK TO LISTEN

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and finally...
Dubbing Benny Hills much-loved theme tune, Yakkity Sax, over these
Dont ask me why it just cracks me up... Thanks, Mossy. concertgoers at a rave in Holland is a stroke of sheer genius and provides for the funniest 47 seconds I can remember.

CLICK HERE TO WATCH VIDEO

Hmmm...

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Grant Williams
Grant Williams is the portfolio manager of the Vulpes Precious Metals Fund and strategy advisor to Vulpes Investment Management in Singapore a hedge fund running over $280 million of largely partners capital across multiple strategies. The high level of capital committed by the Vulpes partners ensures the strongest possible alignment between the firm and its investors. Grant has 28 years of experience in finance on the Asian, Australian, European and US markets and has held senior positions at several international investment houses. Grant has been writing Things That Make You Go Hmmm... since 2009. For more information on Vulpes, please visit www.vulpesinvest.com.

*******
Follow me on Twitter: @TTMYGH YouTube Video Channel: http://www.youtube.com/user/GWTTMYGH ASFA Annual Conference 2013: Wizened In Oz 66th Annual CFA Conference, Singapore 2013 Presentation: Do The Math Mines & Money, Hong Kong 2013 Presentation: Risk: Its Not Just A Board Game Fall 2012 Presentation: Extraordinary Popular Delusions & the Madness of Markets As a result of my role at Vulpes Investment Management, it falls upon me to disclose that, from time to time, the views I express and/or the commentary I write in the pages of Things That Make You Go Hmmm... may reflect the positioning of one or all of the Vulpes fundsthough I will not be making any specific recommendations in this publication.

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The Mauldin Economics web site, Yield Shark, Bulls Eye Investor, Things That Make You Go Hmmm, Thoughts From the Frontline, Outside the Box, Over My Shoulder, and Conversations are published by Mauldin Economics, LLC. Information contained in such publications is obtained from sources believed to be reliable, but its accuracy cannot be guaranteed. The information contained in such publications is not intended to constitute individual investment advice and is not designed to meet your personal financial situation. The opinions expressed in such publications are those of the publisher and are subject to change without notice. The information in such publications may become outdated and there is no obligation to update any such information. Grant Williams, the editor of this publication, is an adviser to certain funds managed by Vulpes Investment Management Private Limited and/or its affiliates. These Vulpes funds may hold or acquire securities covered in this publication, and may purchase or sell such securities at any time, all without prior notice to any of the subscribers to this publication. Such holdings and transactions by these Vulpes funds may result in potential conflicts of interest, although the editor believes that any such conflict of interest will be mitigated by the nature of such securities and the limited size of the holdings of such securities by the applicable Vulpes funds. John Mauldin, Mauldin Economics, LLC and other entities in which he has an interest, employees, officers, family, and associates may from time to time have positions in the securities or commodities covered in these publications or web site. Corporate policies are in effect that attempt to avoid potential conflicts of interest and resolve conflicts of interest that do arise in a timely fashion. Mauldin Economics, LLC reserves the right to cancel any subscription at any time, and if it does so it will promptly refund to the subscriber the amount of the subscription payment previously received relating to the remaining subscription period. Cancellation of a subscription may result from any unauthorized use or reproduction or rebroadcast of any Casey publication or website, any infringement or misappropriation of Mauldin Economics, LLCs proprietary rights, or any other reason determined in the sole discretion of Mauldin Economics, LLC.

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