Things that make you go hmmm... Grant Williams, May 28, 2013.

7/23/2019 Things that make you go hmmm... Grant Williams, May 28, 2013.

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

What On Htrae Is Going On?

"Us do opposite of all Earthly things! Us hate

beauty! Us love ugliness! Is big crime to makeanything perfect on Bizarro World!"

The Bizarro Code

"What has happened to it all?

Crazy, some are saying

Where is the life that I recognize?

Gone away

But I won't cry for yesterday

There's an ordinary world

Somehow I have to fnd

And as I try to make my way

To the ordinary world

I will learn to survive"

Duran Duran, Ordinary World

o learn more about Grant's new investment newsleer,

Bull's Eye Investor, Click here

THINGS THAT MAKE YOU GO

Hmmm...A walk around the fringes of nance

By Grant Williams

28 MAY
http://www.mauldineconomics.com/go/bwu7L/TTMhttp://www.mauldineconomics.com/go/bwu7L/TTM


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

Tuba Player Seeking MBA Warps Fed Job Market Gauge .........................................19The Bank of Napaj Must Crush All Resistance, And Will Do So ..................................20

HKMEx Trio Had Millions Worth of False Bank Papers ............................................22

The Hunt for Steve Cohen ............................................................................23

A Battering Ram Becomes a Stonewall .............................................................24

The Thankless Task of Greece's Top Job-Cutter ...................................................26

He Said What? ..........................................................................................27

Discussion in Spain on Leaving the Euro; Euro Exit Manifest ...................................28

A Burmese Spring ......................................................................................30

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

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

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


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Things That Make You GoHmmm...In the early 1960s, a new planet was discovered in the outer reaches of the universe, and itturned out to be a strange place, populated by some weird and wonderful characters. Originally

the planet was a normal spheroid, but due to a peculiar set of events the planet is now cube-shaped. The planet was given the name Htrae.

Htrae is better known as Bizarro World.

There are differing opinions as to how the planet wascreated, but it is generally acknowledged that it wasfused together from stray meteors in order to createa home for the Bizarros a race of people created byBizarro #1 through the use of a duplicator ray.

The Bizarros are imperfect duplicates of humans,mostly (with the odd Kryptonian feature thrown infor good measure), and many of them, including theoriginal Bizarro himself (Bizarro #1), are actually

pretty close copies of Bizarro's arch-nemesis, Superman.

Everything about Bizarro World is backwards, and the planet functions under the Bizarro Code,which states:

"Us do opposite of all Earthly things! Us hate beauty! Us love ugliness! Is big crime to

make anything perfect on Bizarro World!"

All Bizarros have chalky-white skin, but other than that they resemble the human they wereduplicated from. They even share that person's memories and feelings; however, they lack theclarity of mind to be able to act as the original would, and they cannot function as citizens ofhuman society.

In "The Bizarro Jerry," the 137th episode of the long-running "show about nothing", Seinfeld, ourSuperman-obsessed comedian is confronted by "Kevin", his opposite in every respect, a productof Bizarro World, the place where everything is diametrically opposed to the natural order ofthings as we are familiar with it. The episode has become familiar to millions; however, nothingin either Superman comics or Seinfeldis quite as Bizarro as the nancial landscape in which we

nd ourselves today.

Well, almost nothing.

In one edition of Tales of the Bizarro World, the planet's mayor appoints Bizarro #1 toinvestigate a crime "... because you are stupider than the entire Bizarro police force puttogether". This is both intended and received as a great compliment.


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Ironically enough, in the very same edition there is a panel of the cartoon that shows a Bizarrobond salesman doing a roaring trade in Bizarro bonds:

In case you can't quite read the text, the exchangebetween the salesman and his extremely eager crowd of

buyers goes as follows:

The bond salesman holds abunch of bonds in his handsand implores the eager crowdto buy them, promisinglisteners that these particularbonds are guaranteedtolose money for anybody whopurchases them.

Naturally, this being Bizarro World, the response from the crowd is somewhat contrary to thatwhich would be expected on Earth:

HOWEVER ...

As farcical as Bizarro World is meant to be and as much as everythingthat happens in it is supposed to be the absolute antithesis of whatwould happen in the ordinary world in which we are all supposed tofunction, the very scene depicted in the panel is being acted out rightnow here in the "real world".

There are plenty of bonds for sale across the asset class that more or less guarantee losses toanyone foolish enough to buy them and hold them to maturity.

Let's take our friends in Napaj, for example.

Napaj has a debt-to-GDP ratio that dwarfs the rest of the world's, and this is absolutely nosecret to anybody. The country has been mired in deation for 20 years which is also nosecret to anybody and this past week I watched Kyle Bass once again lay out the awlesslogic of his case as to why Napaj's debt is about to suddenly matter to everyone and why thecountry is about to hit the wall in a big way.

Of course, Kyle's premise is based upon logic and perfectly reasoned mathematical argumentsthat do NOT play well in Bizarro World; but let's indulge his reasoning and see if, in a real-worldcontext, the Bank of Japan is, in actual fact, no better than the Bizarro bond salesman in thecomic book.

As Kyle points out, debt aside, Napaj's trade balance is a disaster and undergoing anythingbut a cyclical decline, as the rst chart on the next page clearly demonstrates. With the launchof Abenomics, the path Napaj is heading down leads to a place where the numbers don't addup: Bizarro World.


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-900

-600

-300

0

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600

900

1200

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JPY

Napaj: Trade Balance (Ybln)

1963 - 2012

Source: Bloomberg/Hayman Advisors

To be sure, the action generated in the initial throes of Abe's Wonder Plan has had the desiredeffect as the yen has weakened 30% since September of last year while the Nikkei 225 hasvirtually doubled, adding over 80% in the same time frame. BUT, behind the facade of jubilationthere are some EXTREMELY troubling signs in the Esenapaj Government Bond (JGB) market(which is far larger than the Nikkei) that seem to suggest that the theory held by Kyle Bass andseveral other Napaj watchers may be proven correct far sooner than many believe.

8,000

9,000

10,000

11,000

12,000

13,000

14,000

15,000

16,000

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85

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105

Sep 2012 Oct 2012 Nov 2012 Dec 2012 Jan 2013 Feb 2013 Mar 2013 Apr 2013 May 2013

Esenapaj Yen vs Nikkei 225September 2012-May 2013

Source: Bloomberg


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The JGB market is Ground Zero for the whole Napaj trade, and it is a place where the BizarroCode has been in full effect, though that effect is beginning to wane.

Whenever a central bank has announced a QE program since 2009, the market has immediatelyjumped at the chance of a free lunch and bought the bonds that the central bank itself would

soon be buying in order to sell them to the CB in question at a higher price. Simple. Effective.You could see it clearly in charts of the various Federal Reserve QE programs when 10-yr bondyields (inverted, shown in blue here) fell immediately before the commencement of the variouseasing programs, only to rise steadily once the greater fool Fed was in the market buying:

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1000

1500

2000

US 10-yr TreasuryS&P500 Index

5

4

3

2

1

QE1 QE2 QE3 QE4OPERATION

TWIST

The Real Eect of Quantitative Easing

2008 2009 2010 2011 2012 2013

Source: Bloomberg/TTMYGH

And the ECB's OMT and LTRO programs simply reinforced the phenomenon.

But then came April of 2013 and BoJ governor Kuroda's extraordinary promise:

(BBC): [Napaj's] central bank has surprised markets with the size of its latest stimulus

package, as it tries to spur growth and end years of falling prices.

The move was seen as a clear signal by the bank's new boss, Haruhiko Kuroda, that he

was willing to spend heavily to achieve an ination target of 2%.

The bank said it would increase its purchase of government bonds by 50 trillion yen

($520bn; 350bn) per year.

That is the equivalent of almost 10% of [Napaj's] annual gross domestic product.

The bank added that it would buy longer-term government bonds as well as riskier

assets such as exchange-traded funds and real estate trust funds.


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"The previous approach of incremental easing wasn't enough to pull Napaj out of

deation and achieve 2% ination in two years," Mr Kuroda said.

"This time, we took all necessary steps to achieve the target."

There was one other move by Kuroda that beggared belief, and even the Napaj Times("Yesterday's News Tomorrow") was onto it:

(Napaj Times): Tossed to the policy wayside, however, was the BOJ's "bank note

principle," which caps the amount of long-term bonds in the BOJ's possession to below

the outstanding balance of bank notes in circulation.

Introduced in 2001, the bank note principle basically required that the BOJ ensurethat the outstanding amount of long-term JGBs it effectively held be less than the

outstanding balance of bank notes issued.

"If a central bank that holds such a large amount of government bonds were to purchase

those bonds without making its fundamental principle of the purchases clear, increased

uncertainties would create a risk premium and lead to a rise in yields on long-term

government bonds," former BOJ Gov. Masaaki Shirakawa said in a speech in 2011.

But Kuroda said the BOJ would not be able to reach the ination target under that self-imposed rule, and thus the Policy Board agreed to temporarily suspend it.

With that limit out of the way, the BOJ will proceed to spend about 7 trillion a month

buying bonds, allowing its JGB holdings to eclipse the money supply.

Kuroda said he'd allow this monetary experiment to run until the ination target is met.

Effectively, Kuroda announced that, in order to generate the 2% ination he feels Napaj needsin order to nally get back on its feet again after two lost decades, it will be necessary tothrow out all policy that had previously been thought sound; and should he be successful, hewill, at a stroke, render those trillions in outstanding bonds a guaranteed losing investment.

Bizarro.

Doubling your monetary base in eighteen months and scrapping the only sensible limit in placeto stop the central bank running hog wild might be deemed a tad aggressive in the real world,but not in Napaj.

When the Esenapaj bond market reopened on April 4, the day after Kuroda's statement, normalBizarro behaviour was expected to resume, with market participants front-running the BoJ andbuying up JGBs hand over st in order to sell them into the guaranteed government bid at alater date.

But a funny thing happened as the bell rang to signal the start of trading.


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Instead of buyers appearing from every corner, looking for a free ride on the coattails of theEsenapaj government, the exact opposite happened: sellers swamped the market, causingtrading to be stopped several times as selling overwhelmed buying.

Later that day, rumours were rife in Tokyo that the BoJ, assuming their promise to buy copious

amounts of JGBs would be enough to bring the front-runners out in force, had stayed out of themarket until it was apparent that, unless they supported it, they would have a problem.

Source: Bloomberg

The red box shows the intraday movement of the JGB future in Tokyo the day after Kuroda's

announcement, but it's tough to get a real understanding of the severity of the gyrationswithout taking a step back and looking at the volatility over the months leading up to the move.Once we do that, it becomes more apparent that something untoward happened that day:

Source: Bloomberg


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As you can see, after 12 months of nice, controlled daily moves in the price of the JGB future,all hell broke loose on April 4th. In a single day, the future made both a new 12-month high anda new 12-month low.

That, dear reader, is called volatility.

As you can also see, after returning to normal briey in the days immediately after that bigmove, volatility has returned to JGBs with a vengeance, with the problem centred in the 5-yearJGB.

My friend Pawan Kalia, who has graced these pages before, has a better understanding of thecomplexities of the JGB market than just about anybody I know; and he is the guy I turn towhen I'm trying to gure out what's going on in the weeds. As always, he gave me some greatperspective on the move and highlighted an eerie similarity between the recent moves and aperiod in Esenapaj bond market history that most participants would rather forget:

The move since the 4th April BOJ shock has uncanny parallels with the price action inJune 2003:

a) Big-gure initial down move

b) 50% bounce

c) Consolidation for 3 weeks

d) Impulsive second-wave down move

Below is the sell-off in June 2003.

Source: Bloomberg/Pawan Kalia

Now, consider the price action of May 2013:

a) Big-gure initial down move


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b) 50% bounce

c) Consolidation for 3 weeks

d) Impulsive second-wave down move


Pawan then showed me a chart that should (given the quantum difference in the size of themarket between 2003 and now) give many pause for thought. Here is what the continuation ofthat 2003 move looked like:


Bouncing back to the present, after a few relatively peaceful weeks, volatility returned to JGBfutures this past week and on Thursday the Nikkei suffered what can only be called a slow-motion ash crash.


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Now, in fairness, the Nikkei has been pricing in the same news every day for months now asunderweight investors rushed to climb aboard the bandwagon, BUT the move on Thursday willhave reintroduced the notion that there are no sure things in the investment universe.

The press was quick to blame the sudden reversal and 9% intraday fall in the Nikkei on the

release of the Flash PMI gure from China, which showed that the country's manufacturing hadslowed from 50.4 to 49.6. In other words, it had slowed from a VERY slow crawl to a stop.

However, over in the JGB market, a far more important trigger was hit when Esenapaj 10-yrrates touched 1%.

Of course, traditionally, that would be a barrier that 10-year sovereign bonds would only everhit on the way DOWN. But not in Napaj. Not now.

That 1% level signies a TREBLING of yields since Kuroda's announcement of April 3rd, as youcan see from this chart. It was THAT which triggered the sudden plummet in the Nikkei as

investors got a sudden whiff of how the world works back on Earth and the reality of what risingEsenapaj bond yields mean in real terms.

Source: Bloomberg

The BoJ was forced to intervene to the tune of 2trln ($20bn) in order to try and regain control

of rates (which, of course, means trying to force them back down to Bizarro levels), but clearly,something has snapped here.

The real problem, of course, is the enormous amount of debt overhanging Napaj. Currently,debt-service costs take up 24% of GDP and should Esenapaj yields rise to just 2.2%, astaggering 80% of government revenue will be needed to pay the interest cost on the country'sdebt. However, the bond market will not wait to react until the numbers no longer work.


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The main argument against the explosion of the JGB has always been that a signicant amountof Esenapaj government debt is held domestically, and therefore the country will always beable to self-fund. Really? It's that simple?

Back to Kyle Bass:

First and foremost, we tend to hear that since 93.8% of Japan's debt is held internally,and since 95% of that 93.8% is held institutionally, Japan is much better off than thosecountries that nance most of their debt externally. The thesis further expands to saythat as long as Japan has a current account surplus, they will be able to 'self-nance'their scal decit.

We tend to nd that broad statements like this exhibit a colossal naivet. How canone make a statement like this without taking into account the amplitudes of the

scal decit and current account? The plain and simple fact is that these optimisticstatements have come to be taken as axiomatic through repetition and are patently

false as Japan stands today. We expect Japan's current account surplus to amount toless than 1% of GDP this year and to decline into decit next year, while the scaldecit is running at a sustained 10% of GDP. We didn't need to get out our calculators todetermine that the math doesn't work.

Math that doesn't work? I ALWAYS pay attention when I hear those words, and Kyle's thesis onNapaj's coming demise is a perfectly crafted trail of mathematical equations that simply don'tadd up.

These equations lead, inevitably, to Kyle's stark conclusion:

The bottom line is that Japan has reached a secular turning point in its trade balanceand current account, following decades of surpluses. The current dispute with China

has only served to accelerate the process. Investors can no longer make the blanket

assumption that a current account surplus will provide a funding source for scaldecits into perpetuity....

We believe that Japan is teetering on the precipice of nancial collapse, and anynumber of data points or events in the coming weeks and months could be the

proverbial tipping point. It could be as signicant as a negative structural currentaccount, a revocation of BoJ policy independence, or even political and economic

conict with regional neighbors or perhaps something as innocuous as ratings actions orBasel III regulations that force nancial institutions to reduce their hugely concentratedexposure to JGBs.

What we do know is that when it does break loose, 20 years of suppressed, spring-loaded interest rate volatility on the back of the largest peacetime accumulation of

sovereign debt will afford no time to readjust portfolios to get out of the way.


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Kyle's piece,"The Central Bankers' Potemkin Village", is an absolute must-read (you can nd ithere) for anyone interested in understanding the mathematical brick wall Napaj is about to runhas run into.

This week, Ambrose Evans-Pritchard of the UK Daily Telegraph explained why he thinks Kyle is

wrong in his assumptions. As much as I like Ambrose's work (though he and I certainly disagreevehemently on the benets of money printing), I think this time he is a long way off base:

(Daily Telegraph): I don't agree that it is game over for Abenomics.... Monetary policyshould take the strain, pursuing a nominal GDP target of 3pc and later 4pc to turn thevicious circle of the "denominator effect" (ie a rising debt load on a shrinking nominal

base) into a virtuous circle....

I refute [Richard Koo's] claims that QE was tried and failed in Japan. It was never tried.

The BoJ meddled on the margins with pinprick purchases of short-term debt, buying

from the banking system, and merely pushing up the monetary base. Of course it failed.Who cares about the monetary base. It is irrelevant....

True, the ructions in Japan over the last few days have been extraordinary. Governor

Kuroda was forced to reassure the nation on Friday that the BoJ has the instruments to

restore order to the bond markets.

Premier Shinzo Abe was very blunt in parliament, warning that "sharp increases in long-

term interest rates could have a grave impact on the economy and the government's

scal conditions. We expect the BOJ to respond appropriately," he said.

Mr Abe is not pleased, I would surmise, and quite understandably so since the BoJ seemsto have cocked up badly. My guess is that JGB market will settle down once they work

out how to execute the task.

I stick with my view that the BoJ has the means to crush all resistance, and should do

so.

Ambrose puts an awful lot of faith in a group of policy makers who have been universally awfulfor twenty years, at the very least. As Kyle so perfectly puts it:

Japan has never missed an opportunity to miss an opportunity.

I don't think they are about to start now.

Ultimately, mathematics and the bond market will prove to be far bigger and more intractablefoes than Abe and Kuroda recognize, and if push comes to shove and they are forced to peg theinterest rate curve, the yen will be obliterated.

Game on.

But it's not just Napaj that continues to look like it's operating under the Bizarro Code.
http://www.scribd.com/doc/113621307/Kyle-Basshttp://www.scribd.com/doc/113621307/Kyle-Bass


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In my recent presentation to the 66th Annual CFA Conference here in Singapore (see video linkon page 33), I picked out several mathematical equations that simply don't work: equities vs.fundamentals, the gold price vs. the price of gold, Chinese economic activity vs. the ChineseGDP number, and France vs. well ... logic.

But I had only 45 minutes in which to make my points, and so there were many things I had toomit, Napaj chief amongst them.

The decision to omit Napaj was based on the fact that, the day after I spoke, Kyle Bass was setto speak on the same subject, and there's no way I'm picking THAT ght. But Napaj aside, therewere a few other Bizarro situations I wanted to touch upon, and I'd like to run through fourof them quickly with you before we get to the meat of this week's Things That Make You GoHmmm...

In no particular order, they are:

1. The strength in the US homebuilders ETF vs the price of lumber

OK, so the US housing market has unquestionably strengthened from a very low level (see thecharts from the great Greg Weldon on page 30). But the price of lumber futures is suggestingthat this, like being long Esenapaj equities, is also not a one-way ticket.

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XHB ETF (rhs)

Lumber Future (lhs)

Homebuilders ETF (XHB) vs Lumber FutureMay 2012 - May 2013

May 2012 Nov 2012 May 2013

Source: Bloomberg

Perhaps lumber sees rising interest rates in our future, which would kill off any hopes of aprolonged renaissance in the housing market. Perhaps lumber prices will perform a 180turnand shoot back up to join the XHB.

Perhaps.


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2. High-yield credit vs. the S&P 500

High-yield credit swooned in February and has subsequently failed to recouple with the S&P500. This pattern of divergence would be worrying enough in a normally functioning world; butgiven similar set-ups as recently as both 2011 and 2012, it's yet another Bizarro disconnect to

which, perhaps, we really ought to be paying attention.

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Nov 2012 Dec 2012 Jan 2013 Feb 2013 Mar 2013 Apr 2013 May 2013

High Yield Credit (HYG) vs S&P500

November 2012 - May 2013

S&P500 (lhs)

HYG (rhs)

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95

100

Source: Bloomberg

Source: Zerohedge

3. The outlandish effects that comments by central bank policy makers have on markets

Last Wednesday, we saw Ben Bernanke give testimony before Congress and release the latestFOMC minutes.


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During Bernanke's testimony the Dow Jones traded up 155 points, as the Chairman's commentsseemed to suggest that the QE spigot would not be turned off anytime soon yet hisassessment of the state of the US "recovery" as well as the prospects for the job market wasanything but rosy.

Of course, in Bizarro World bad is good, and the paucity of the recovery meant only one thingto market watchers: more stimulus and the extension of the free ride they've been given sinceQE1 began.

Things soured, though, when the latest FOMC minutes suggested an early "tapering" of QE. TheBizarro Dow fell, naturally, closing down 80 points. The reason? This:

(FOMC minutes): A number of participants expressed willingness to adjust the ow ofpurchases downward as early as the June meeting if the economic information received

by that time showed evidence of sufciently strong and sustained growth; however,views differed about what evidence would be necessary and the likelihood of that

outcome.

One participant preferred to begin decreasing the rate of purchases immediately, while

another participant preferred to add more monetary accommodation at the current

meeting .... Most participants emphasized that it was important for the Committee to

be prepared to adjust the pace of its purchases up or down as needed.

What that piece of the transcript says in real-world terms is this:

Some people wanted to reduce buying of bonds sooner, and one person wanted to

reduce the buying immediately, but most of us want the latitude to be able to reduce or

increase purchases as the situation demands.

In short, we have no idea what we are doing and are not even close to consensus.

What it didn't say is this:

"The money-printing-led free lunch will continue forever."

Who knows WHAT these clowns mean; but I'm willing to go out on a limb and state, for therecord, that not only is "tapering" not going to happen anytime soon, but moreover, that thespeed with which QE is reintroduced after markets inevitably react poorly will make heads spin.

4. The curious disconnect between insider trades and the broader market

Every week, a list is published of insider buys and sells in listed companies, and parsing throughthis data is ALWAYS instructive. Insiders are just that: ofcers of the companies in question, whohave to le whenever they buy or sell their own company's stock. Obviously, this informationought to provide clear conrmation as to the direction of the stock market as a whole andindividual sectors within it. Does it? Well, with the S&P 500 making new highs seemingly everyday, the answer is, not so much.


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I have a friend in Hong Kong who follows this data religiously, and his observations are alwaysinteresting. This week was no exception. He pointed me to the following table, which shows theratio of sellers to buyers the higher the ratio, the more insiders are selling their own shares,and vice-versa.

Technology, consumer services, consumer durables, and transportation have all seen markedincreases in insider sales, but the media sector? Well, it seems to be unloved, to say the least.

Sector 2013 2012 2011

Technology 104.3 39.1 103.2

Healthcare 35.2 32.3 56.0

Consumer Services 94.2 29.0 41.3

Finance 29.0 20.6 12.9

Energy 12.5 10.4 62.9

Consumer Non-Durables 96.9 56.5 20.4

Industrial 41.0 29.7 39.5Basic Materials 48.8 33.9 66.3

Consumer Durables 114.7 33.3 39.6

Media 1821.7 75.0 147.1

Business Services 13.2 26.3 38.9

Utilities 23.7 20.7 5.7

Transportation 62.0 9.3 24.6

There are countless more of these disconnects (the strength of the euro vs. EU economic databeing a key one that will likely deserve a whole edition of Things That Make You Go Hmmm...

on its own shortly), which lead to a fundamental conclusion that is hard to deny:

Sdnob, seitiuqe, setar tseretni, and seicnerruc will all eventually leave Bizarro World and comecrashing back down to Earth (where they are known as bonds, equities, interest rates, andcurrencies); and when they do, they will likely do the opposite of what they're doing right now.


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It's just math.

*******

OK ... so after a long, travel-induced absence from your inboxes, I am back and raring to go.

This week we read how a tuba-playing MBA plays havoc with the Fed's job market gauge (who'dathought THAT would be easy to do?); Ambrose Evans-Pritchard (foolhardily?) backs the BoJ to"get it done" no matter what; a relentless US attorney draws ever closer to his high-prole prey;and in Hong Kong yet another gold-related scandal breaks, with the arrest of three men in ahotel room.

Peggy Noonan digs into the terrifying abuse of power by the IRS; we take a look at Greece'smost unpopular public servant; euro exit talk surfaces in Spain; and my great friend David Hayshares his erudition on the communications of Chairman Bernanke.

We also take a detailed look inside Burma (a place that we at Vulpes are doing a lot of workon more on that another day), courtesy of The Economist; we see some fascinating UShousing charts, courtesy of the fantastic Greg Weldon; and, with an eye on precious metals, weexamine all-in gold costs and look at some charts from Citi's Tom Fitzgerald that cast doubt onthe mantra that the bull market is over for the yellow metal.

What else? Well, we have some classic Nigel Farage as he takes the Eurocrats to task over theirhypocritical attitude to tax avoidance; we hear from the great Jim Grant on the weirdnessof markets and the puzzling undervaluation of gold and mining stocks; and if you have time,there's even a link to the presentation I gave to the 66th Annual CFA Conference here inSingapore last week, on mathematics and reality.

All in all, there's plenty to sink your teeth into.

It's good to be back.

Until Next Time.

*******

Tuba Player Seeking MBA Warps Fed Job Market Gauge

Tuba player Andrew Schwartz quit the Manhattan School of Music in 2011 when he sawopportunities shrinking and orchestras struggling. After a series of low-paid jobs such as sellingstocks by phone, he left the workforce in August to pursue a master's degree in businessadministration.

"The three letters M-B-A are going to be incredibly valuable to me," said Schwartz, 26, whoseundergraduate degree is in music. "I'm sure 99.9 percent of HR people throw my applications inthe garbage and the other 0.1 percent laugh at me having a music degree."


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Schwartz is among millions of Americans whose departure from the labor force since thestart of the last recession adds a layer of complexity to the Federal Reserve's effort to attackunemployment by linking monetary policy to the jobless rate.When people like Schwartz stoplooking for work, the government no longer counts them as unemployed, which lowers theofcial jobless rate.

That means the Fed will need to look at other gauges of labor-market strength because theunemployment rate may send misleading signals of improvement long before payrolls startshowing the substantial gains policy makers are seeking. Fed ofcials have pledged to keep themain interest rate near zero as long as unemployment remains above 6.5 percent.

"It complicates policy," said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. inNew York and a former Fed researcher in Washington. "The unemployment rate, as they'vepointed out, may be the best single number for judging the health of the labor market, but it'sstill imperfect, and those imperfections have grown because of the participation rate."

Fed Chairman Ben S. Bernanke may be questioned about progress on stimulating job growthwhen he testies tomorrow on the U.S. economic outlook before the Joint Economic Committeeof Congress. The central bank's Federal Open Market Committee will gather next on June 18-19in Washington...

The unemployment rate dropped to a four-year low of 7.5 percent in April, with the labor forceparticipation rate at 63.3 percent, the lowest level since May 1979, Labor Department datashow. The participation rate measures those with jobs, or looking for work, as a percentage ofthe civilian U.S. population aged 16 and older.

The number of so-called discouraged workers who have given up on nding work stood at835,000 in April, near the 861,000 average over the past year, Labor Department data show.Participation may remain depressed for years, San Francisco Fed researchers said last week.

Fed ofcials also say they must see substantial employment gains before they curb bond buying.Vice Chairman Janet Yellen has said the unemployment rate has limits as a policy guide andshould be supplemented by gauges such as payroll growth....

*** BLOOMBERG / LINK

The Bank of Napaj Must Crush All Resistance, And Will Do SoKudos to Kyle Bass at Hayman Advisers for warning that the Bank of Japan would lose controlof its 70 trillion bond buying blitz. The spike in the 10-year yield to 1pc on Thursday wascertainly shocking to behold.

His point is that the BoJ faces a "rational investor paradox". The authorities are trying to driveup the ination to 2pc and therefore to devalue Japanese government bonds (JGBs), so why onearth would you want to own them?
http://www.bloomberg.com/news/2013-05-21/tuba-player-seeking-mba-warps-fed-s-job-market-measure-economy.htmlhttp://www.bloomberg.com/news/2013-05-21/tuba-player-seeking-mba-warps-fed-s-job-market-measure-economy.html


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"If JGB investors begin to believe that Abenomics will be successful, they will rationally' sellJGBs to buy foreign bonds or equities," he told Bloomberg.

He says the scramble to sell has "overwhelmed" buying by the BoJ. Governor Kuroda will nowhave double down with a huge increase in the scale of QE.

The argument is similar to warnings by Nomura's Richard Koo, Japan's most famous economistand an arch-Keynesian. The two men reach the same conclusion coming from diametricallyopposed theoretical starting points.

As I reported last night, Mr Koo thinks the Abenomics plan of monetary reation is madness."Once ination concerns start to emerge the BoJ will be unable to restrain a rise in yields nomatter how many bonds it buys." This could lead a "loss of faith in the Japanese government"and the "beginning of the end" for Japan's economy.

Mr Koo said the BoJ faces a "time inconsistency problem", a variant of Mr Bass's paradox.

Markets react more quickly to events than the economy. "The Japanese authorities are trying togenerate ination rst and then hope for recovery, which means debt service costs will increasebefore tax revenues do."

This will worsen the debt trajectory, set to reach 245pc of GDP this year (IMF), roughly whereBritain ended the Napoleonic Wars. But then Britain produced half the world's manufacturedgoods in the early 19th century, so it may be tougher for Japan.

Mr Koo says "Long-term rates may rise before the real economy". If so lenders will respond tothese signals more quickly that borrowers, choking credit.

He says Kuroda has "altered the market structure of the last two decades" and undermined afragile equilibrium, inviting a speculative attack on the JGB market by foreign hedge funds.

So that then is the critique. I don't agree that it is game over for Abenomics. My view is thatthe Keynesian doctrines of endless scal stimulus without monetary support advocated by MrKoo over the years is the cause of Japan's desperate crisis (though he says the economy couldhave achieved escape velocity long ago if they had done more of it, which is not as absurd as itsounds).

Au contraire. Monetary policy should take the strain, pursuing a nominal GDP target of 3pcand later 4pc to turn the vicious circle of the "denominator effect" (ie a rising debt load on a

shrinking nominal base) into a virtuous circle.

This is what Takahashi Korekiyo achieved with such brilliance in the early 1930s, setting off aboom and falling debt ratios. Though he also forced the BoJ to nance scal spending too tokickstart recovery. I am not against that either if it works. In fact in it is a rather good idea (forJapan, not the UK obviously).

Mr Koo's argument that balance sheet recessions require radical action by governments iscorrect, but I refute his claims that QE was tried and failed in Japan. It was never tried.


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The BoJ meddled on the margins with pinprick purchases of short-term debt, buying from thebanking system, and merely pushing up the monetary base. Of course it failed. Who cares aboutthe monetary base. It is irrelevant....

*** THE TELEGRAPH / LINK

HKMEx Trio Had Millions Worth Of False Bank PapersThree mainland men charged in a scandal over the failed Hong Kong Mercantile Exchange(HKMEx) were found in their hotel rooms with false bank documents purporting to be worthhundreds of millions of dollars, a court heard yesterday.

Dai Linyi, 65; Li Shanrong, 49; and Lian Chunyan, 50, who were arrested on Tuesday, appearedin Kowloon City Court charged with "possessing false instruments with intent".

The men were detained after the Securities and Futures Commission found serious irregularitieswith the nances of the exchange chaired by executive councillor Barry Cheung Chun-yuen and handed the details of its inquiry to the police.

The court heard the documents included an acknowledgment letter, two letters of guaranteeand three proofs of funds allegedly issued by HSBC and Standard Chartered Bank. There werealso time deposits and at least one telegraphic transfer.

The acknowledgement letter, which was found among Dai's papers, was dated April 23 andallegedly issued by Standard Chartered in relation to a cheque for US$460 million (HK$3.57billion). He also had a letter of guarantee from the same bank undertaking to pay US$460

million to a Zhang Jisheng.

Li had a similar letter for the same amount that did not include a name.

Dai also had a proof of funds dated May 8 and allegedly issued by HSBC conrming that US$11million had been deposited into an account held by Lian. Both Li and Lian also held two othersuch "proofs" with the same descriptions.

In addition, Dai and Lian had two documents dated May 7 proving the existence of two separatedeposits of US$11 million each in another account held by Lian, the court heard.

Prosecutors did not say exactly how the three men might be linked to the exchange.

The court was told that Li, who has a sister living in Tai Po, runs a business in Dongguan. Lian,who came to Hong Kong on May 21, is an educator in Beijing.

Dai, whose background was not mentioned, also faced a charge of overstaying since his lastentry into Hong Kong on April 28.
http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100024696/the-bank-of-japan-must-crush-all-resistance-and-will-do-so/http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100024696/the-bank-of-japan-must-crush-all-resistance-and-will-do-so/


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Prosecutor Ira Lui Tsz-ming said police needed more time to study the documents. No pleaswere taken. Magistrate Clement Lee Hing-nin denied the trio bail and adjourned the case toJuly 19.

A fourth suspect, who was arrested on Wednesday, was released on police bail last night.

*** SOUTH CHINA MORNING POST / LINK

The Hunt for Steve CohenTwenty-ve years ago Wall Street, and much of America, was transxed by a sweeping set ofinsider-trading investigations centered on the greatest nancier of the age, junk-bond kingMichael Milken, of Drexel Burnham Lambert. Day after day, week after week, month aftermonth, stories of U.S. Attorney Rudolph Giuliani's relentless investigation dribbled out to the

press. One by one, Giuliani picked off Milken's minions, confronting them at their homes,handcufng them at their ofces, pulling them before secret grand juries, indicting a few,pressing for evidence that Milken had broken the law. It all took on an inexorable quality. Intheir hearts, most everyone knew that Milken was going down sooner or laterand he did,paying more than $1 billion in nes and spending 22 months in prison. He was banned for lifefrom the securities industry, and his rm was dismantled.

Twenty-ve years later it's all happening again. Once more a relentless U.S. attorney, this time44-year-old Preet Bharara, has seemingly targeted the billionaire investor Steve Cohen, founderof SAC Capital Advisors, the $14 billion hedge fund based in Stamford, Connecticut. One by one,Bharara has picked off onetime SAC traders and analysts, confronting them at their homes,

pulling them before grand juries, bringing criminal cases, and pressing them for evidence thatCohen has broken insider-trading laws. So far Cohen has not been charged with anything, butthere is the same sense that Bharara, like Giuliani before him, has too much invested in allthis to lose. "If Steve Cohen gets off," one hedge-fund manager observes, "he will be the O. J.Simpson of insider trading."

In almost every way, though, today's scandal surpasses the one that brought the Roaring 80sto an end. There have been more arrests, many more convictions; C.E.O.'s have fallen, livesand companies have been ruined, all in a campaign that has increasingly put one man in thegovernment's crosshairs: Steve Cohen, thought to be the most brilliant trader of his generation.

Simply reading the headlines this spring, one could be forgiven for being a bit confused. In mid-March, after years of scofng at every suggestion any of its traders might have done somethinguntoward, SAC agreed to pay, without admitting guilt, the largest ne in the history of theSecurities and Exchange Commission, a stunning $616 million, to settle charges of insidertrading in only two trades. Some on Wall Street called it a victory for Cohen, who paid apittancefor himto make a messy situation go away.
http://www.scmp.com/news/hong-kong/article/1245529/hkmex-trio-had-millions-worth-false-bank-papershttp://www.scmp.com/news/hong-kong/article/1245529/hkmex-trio-had-millions-worth-false-bank-papers


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Others were not so sanguine, observingcorrectlythat blood was nally in the water, that anS.E.C. ne did nothing to curtail the ongoing criminal investigation, which has already led toguilty pleas from and convictions of at least ve onetime SAC employees.

Cohen seems determined to ride it all out with sheer bravado. A week after the settlement,

news broke that he had paid the casino owner Steve Wynn an astounding $155 milliona recordsum for a U.S. collectorto buy Picasso's Le Rve (which Wynn had accidentally put his elbowthrough in 2006).

Days after that revelation Cohen paid $60 million for a 10,000-square-foot, seven-bedroommansion with ocean views, on Further Lane in East Hampton. Taken together, it all had a "Letthem eat cake" quality, as if Cohen were waving his billions in the government's face, daring ittake him on.

Their looming showdown draws on themes of money, privilege, and class that dene the era.Steve Cohen isn't just another hedge-fund billionaire; he is the hedge-fund billionaire. He

doesn't live in just another Greenwich, Connecticut, mansion; he lives in the largest of themall, complete with its own two-hole golf course and Jeff Koons's Balloon Dog sculpture adorningthe driveway. Inside, the walls are festooned with paintings from his fabled collection ofImpressionist and contemporary art, which includes Francis Bacon's Screaming Pope, hangingjust outside his bedroom. Doughy and clerk-like, Cohen is nevertheless the Gatsby of our age, amiddle-class kid from Long Island who caught the gambling bug eecing his high-school pals inall-night poker games. Today he tosses around his winnings in transparent attempts to join thesocial elite that's never quite accepted him and his 48-year-old Puerto Rican second wife, Alex,whom he met through a dating service....

*** VANITY FAIR / LINK

A Battering Ram Becomes a Stonewall"I don't know." "I don't remember." "I'm not familiar with that detail." "It's not my precise area.""I'm not familiar with that letter."

These are quotes from the Internal Revenue Service ofcials who testied this week before theHouse and Senate. That is the authentic sound of stonewalling, and from the kind of peoplewho run Washington in the modern agesmooth, highly credentialed and unaccountable.

They're surrounded by legal and employment protections, they know how to parse a carefulresponse, they know how to blur the essential point of a question in a blizzard of unconnectedfactoids. They came across as people arrogant enough to target Americans for abuse andharassment and think they'd get away with it.

So what did we learn the past week, and what are the essentials to keep in mind?
http://www.vanityfair.com/business/2013/06/steve-cohen-insider-trading-casehttp://www.vanityfair.com/business/2013/06/steve-cohen-insider-trading-case


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We learned the people who ran and run the IRS are not going to help Congress nd out whathappened in the IRS. We know we haven't gotten near the bottom of the political corruption ofthat agency. We do not know who ordered the targeting of conservative groups and individuals,or why, or exactly when it began. We don't know who executed the orders or directives. We

do not know the full scope or extent of the scandal. We don't know, for instance, how manyapplicants for tax-exempt status were abused.

We know the IRS commissioner wasn't telling the truth in March 2012, when he testied:"There's absolutely no targeting." We have learned that Lois Lerner lied when she claimed shehad spontaneously admitted the targeting in a Q-and-A at a Washington meeting.

It was part of a spin operation in which she'd planted the question with a friend. We know thetax-exempt bureau Ms. Lerner ran did not simply make mistakes because it was overwhelmedwith requeststhe targeting began before a surge in applications. And Ms. Lerner did not learnabout the targeting in 2012the IRS audit timeline shows she was briefed in June 2011. She said

the targeting was the work of rogue agents in the Cincinnati ofce. But the Washington Postspoke to an IRS worker there, who said: "Everything comes from the top."

We know that Lois Lerner this week announced she'd done nothing wrong, and then took theFifth.

And we know Jay Leno, grown interestingly fearless, said of the new IRS commissioner, "They'recalled 'acting commissioner' because you have to act like the scandal doesn't involve the WhiteHouse."

But the most important IRS story came not from the hearings but from Mike Huckabee's program

on Fox News Channel. He interviewed and told the story of Catherine Engelbrechta nicewoman, a citizen, an American. She and her husband live in Richmond, Texas. They have asmall manufacturing business. In the past few years she became interested in public policy andfounded two groups, King Street Patriots and True the Vote.

In July 2010 she sent applications to the IRS for tax-exempt status. What followed was not theharassment, intrusiveness and delay we're now used to hearing of. The U.S. government camedown on her with full force....

*** WALL STREET JOURNAL / LINK

The Thankless Task of Greece's Top Job-CutterAntonis Manitakis has the most thankless job in Greece. Tasked with slashing the grotesquelybloated public sector, he is hounded by troika ofcials, reviled by his countrymen and afraid ofcutting too deep.
http://online.wsj.com/article/SB10001424127887323475304578501581991103070.htmlhttp://online.wsj.com/article/SB10001424127887323475304578501581991103070.html


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Appearances are deceiving on Klafthmonos Square in downtown Athens. Three imposing bronzestatues, the "Monument to National Reconciliation," shimmer in the bright spring sunshine.But demonstrators at the base of the monument bring to mind the original purpose of thesquare, the name of which translates into "Lamentation Square." Until 1911, when the Greekconstitution guaranteed all civil servants jobs for life, government bureaucrats who had beenlet go after a change in government used to come to the square to publicly express theiroutrage.

In the current crisis, no one has a job for life anymore, not even in the public sector. Thegovernment plans to slash at least 4,000 jobs by the end of the year and an additional 11,000next year.

Without this assurance, the so-called "troika" comprising the EU, the International MonetaryFund and the European Central Bank would have refused to disburse the next tranche of aidmoney to Greece in the amount of 7.5 billion ($9.6 billion) by June.

Government agencies are expected to slash some 150,000 jobs by 2015, representing roughlyone-fth of Greece's enormous public sector. Kostas Tsikrikas, the head of the powerful unionrepresenting civil servants, is already threatening the government with a "ght to the bitterend."

His rage is directed primarily at Antonis Manitakis, 69. Last May, after efforts to form a newgovernment failed, Manitakis joined the transitional government of nonpartisan technocratsfor a few weeks. After new elections in June, the smallest coalition partner, the DemocraticLeft, nominated the professor and renowned constitutional expert to be the minister ofadministrative reform.

Now Manitakis is grappling with the Herculean task of reducing the size of the grotesquelyinated administrative apparatus. "I want to give my country honor and dignity once again," hesays. "I want to be able to tell my grandchildren one day that there are still dreams and valuesfor them."

But until then, the top ofcial in the civil service will have to get rid of thousands ofemployees, such as teachers on very small islands like Astypalea and Kastelorizo, where thereare 15 teachers for 18 students. "The Greek people are responsible for their fate, and theymust understand that only they can rectify problems like these," says the minister. But evenManitakis isn't quite condent enough to embark on large-scale layoffs yet.

Manitakis, a lawyer by training, is sitting in his ofce. He is a likeable elderly man in a graysuit, surrounded by dark, heavy furniture. He doesn't resemble the standard Greek politician.He hardly ever attends public events, preferring to keep a low prole, and he doesn't liketo talk to journalists. In fact, it took him 10 months after coming into ofce to give his rstinterview....

*** SPIEGEL ONLINE / LINK
http://www.spiegel.de/international/europe/top-job-cutter-in-greece-worries-about-going-too-far-a-901234.htmlhttp://www.spiegel.de/international/europe/top-job-cutter-in-greece-worries-about-going-too-far-a-901234.html


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He Said What?As hard as it is to believe now, with US stocks setting new highs on a daily basis, only fouryears and three months ago global nancial markets were seemingly headed for extinction.In February of 2009, one of Evergreen's most devout clients asked me if I was sticking by myJanuary prediction that the market would nish higher for the year. With stocks already down18%, and the trend decidedly negative, I would have jumped at the chance to change it. Yet, asI pointed out to him at the time, a forecast is a forecast.

Now, I'm in a similar prediction predicament. Only this time, it's due to my call for a roughlyat market this year as the S&P rips higher. If I could, I'd be dumb not to change that to a 15%,or even 30%, up-year forecast. Or would I?

In the February 15th EVA, I mentioned that if this market did continue to y it might startto resemble what we saw in 1987. Yes, I really am old enough to remember that yearin all

the gory details! In fact, I had been "in the business" for eight years when the October crashoccurred.

Back then, portfolio insurance and program trading were all the rage. The assumption was theyadded liquidity and made the market less volatile (hmmm, sounds a lot like the rationalizationsfor ash traders, armed with their lethal algorithms, these days).

For those too young to remember, 1987 was the fth year of an incredible bull streak. A marketthat already was up 171% from its 1982 bottom by the spring of 1987 proceeded to rise another21% over the course of the summer. Problems like rising interest rates and a weakening dollarwere blithely ignored. And then came October, with portfolio insurance and program trading at

the epicenter of the worst crash since 1929.

As that month taught us, and numerous other market wind shears have since, stocks have anasty tendency to go down much faster than they go up (latest case in point: Japan this week).Consequently, it may be a bit premature for me, or anyone else, to assume that the market willindeed nish up for the fth straight year and in double digits to boot.

It goes without saying, though, that I wish we weren't as defensively positioned this year aswe have been, at least on the stock side of our portfolios. Conversely, our income portfolioshave been extremely well situated, despite some hedges, to take advantage of another year ofinvestors desperately seeking yield. This is one reason, among many, that we have elected to be

more risk-averse with our growth holdings.

Unquestionably, the central banks are in command right now and they are feeling the market'slove (whatever happened to all the Fed conspiracy theorists and their bible, The Creature fromJekyll Island?). One of the more memorable observations I heard at the recent Mauldin/Altegrisconference was from Niall Ferguson talking about a conclave of central bankers he had justattended. He was appalled by how smug they all seemed. Call me paranoid, but I don't thinkhubris in high places is a good thing, especially when it involves the people who have the keysto the printing presses.


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The others who are strutting a bit right now are the ultra-Keynesian economists like PaulKrugman who believe their thesis of unlimited money creation has been vindicated. Excusezmoi, but I don't think this camp should start taking bows until we see how the markets and theworld's economies perform once the pseudo trillions are removed from the system.

Yet, the one person who above all should be feeling his oats right now seems to be having a fewsecond thoughts.

As noted in last week's EVA, Ben Bernanke, the magician-in-chief behind "large-scale assetpurchases" (i.e., using smoke and mirrors money to buy government securities), recently issueda warning about investors ignoring risks.

Could it be that Dr. Bernanke is starting to feel a bit like another doctor right about nowas inFrankenstein?

*** DAVID HAY / FULL COMMENTARY (EMAIL)

Discussion in Spain on Leaving the Euro; Euro Exit ManifestSome common sense discussion is taking place in Spain regarding the necessity of Spain exitingthe eurozone.

For example, please consider "Opposition to the euro breaks: rst manifesto to leave the singlecurrency," as translated from [El Condencial].

The political opposition that Spain remains part of the euro begins to crystallize.

And the tool to achieve that end-Spain output of the single currency is again signing

a manifest public that, for the moment, has already been signed by around 1,000

professionals convinced "the risks of deterioration and degradation that there are the

enormous social suffering caused by the persistence of adjustment policies, austerity

and privatization of the public ".

Among the signatories are former general coordinator of United Left (IU) Julio

Anguita or economists Juan Francisco Martn Seco and Pedro Montes, Manuel Monereo

addition, Manuel Muela and Carlos Martinez, president of Attac Spain, or exsindicalista

Agustin Moreno. Written Signatories to the start for a rst nding analysis: the level

of unemployment is "catastrophic," the "indebtedness of the Spanish economy to theoutside is unable to cope," and "the evolution of public accounts leads inexorably to the

"economic collapse of the state."

Specically, they say, more than six million unemployed, more than 2.3 billion euros ofgross liabilities from the outside and a public debt of almost a billion euros, growing

and already close to 100% of GDP, "are data dening an unmanageable mess, endangerdestroy coexistence and social rights. "

"Spain Must Have a Plan to Exit the Euro"
mailto:dhay%40evergreencapital.net?subject=Things%20That%20Make%20You%20Go%20Hmmm.....%20Referralhttp://translate.google.com/translate?sl=es&tl=en&js=n&prev=_t&hl=en&ie=UTF-8&eotf=1&u=http%3A%2F%2Fwww.elconfidencial.com%2Feconomia%2F2013%2F05%2F21%2Firrumpe-la-oposicion-al-euro-primer-manifiesto-para-que-espana-deje-la-moneda-unica--121329%2Fhttp://translate.google.com/translate?sl=es&tl=en&js=n&prev=_t&hl=en&ie=UTF-8&eotf=1&u=http%3A%2F%2Fwww.elconfidencial.com%2Feconomia%2F2013%2F05%2F21%2Firrumpe-la-oposicion-al-euro-primer-manifiesto-para-que-espana-deje-la-moneda-unica--121329%2Fhttp://translate.google.com/translate?sl=es&tl=en&js=n&prev=_t&hl=en&ie=UTF-8&eotf=1&u=http%3A%2F%2Fwww.elconfidencial.com%2Feconomia%2F2013%2F05%2F21%2Firrumpe-la-oposicion-al-euro-primer-manifiesto-para-que-espana-deje-la-moneda-unica--121329%2Fhttp://translate.google.com/translate?sl=es&tl=en&js=n&prev=_t&hl=en&ie=UTF-8&eotf=1&u=http%3A%2F%2Fwww.elconfidencial.com%2Feconomia%2F2013%2F05%2F21%2Firrumpe-la-oposicion-al-euro-primer-manifiesto-para-que-espana-deje-la-moneda-unica--121329%2Fmailto:dhay%40evergreencapital.net?subject=Things%20That%20Make%20You%20Go%20Hmmm.....%20Referral


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Also note an article on El Economista: "Jose Carlos Diez: 'Spain Must Have a Plan to Exit theEuro'":

Jose Carlos Diez, chief economist at Intermoney, feels Spain should not be the rstcountry to leave but "should have a plan to do it." This was pointed out in a meeting he

had with el Economista.

"Spain should never be forced out. We are a big country in Europe, and we must enforce

our political weight, seeking alliances to solve the crisis. But if Portugal or Italy decide

to leave the euro, we must have a plan to get out that day," he said, answering a

question from a reader. "I hope that there is intelligent life in Europe and that day may

never come," he added.

Euro Exit Manifest

The talk has started. That is the rst step. Inquiring minds may wish to read the Euro Exit

Manifest mentioned in the rst link.

*** MIKE SHEDLOCK / LINK

A Burmese springA walk around battered, ramshackle Yangon, Myanmar's biggest city and former capital, quicklymakes it clear how far the country has fallen behind the rest of Asia over the past half-century.In large part the place is but a ghostly reminder of former glories. Under British colonial rule,before independence in 1948, Rangoon (as it was then) was a thriving, cosmopolitan entrepot,the capital of Burma, one of the region's wealthiest countries. All that came to an abrupt endin 1962 after a junta of army ofcers, led by the brutal General Ne Win, seized power andlaunched the country on the quasi-Marxist "Burmese Way to Socialism". Private foreign-ownedbusinesses were nationalised, prompting the exodus of hundreds of thousands of people, manyof Indian origin. The country's tenuous attachment to democracy was broken. Myanmar, asBurma was later renamed by its ruling generals, retreated into itself. Comprehensive Westernsanctions hit home from the mid-1990s onwards, only slightly alleviated by an injection of Asianmoney.

Yangon, with its old cars and bookshops selling textbooks from the 1950s, attests to this

seclusion. The colonial-era banks, law courts and department stores, once as imposing as anyin Kolkata or Shanghai, have all but crumbled away. Except for the magnicent ShwedagonPagoda, lovingly regilded to welcome the crowds of pilgrims and tourists, most of the cityseems to have remained untouched for decades. Even youthful rebellion is stuck in a time-warp. Boys are still gamely attempting to out authority by dressing up as punk-rockers.
http://translate.google.com/translate?sl=es&tl=en&js=n&prev=_t&hl=en&ie=UTF-8&eotf=1&u=http%3A%2F%2Fwww.eleconomista.es%2Feconomia%2Fnoticias%2F4841804%2F05%2F13%2FJose-Carlos-Diez-Espana-debe-tener-un-plan-preparado-para-salirse-del-euro.htmlhttp://translate.google.com/translate?sl=es&tl=en&js=n&prev=_t&hl=en&ie=UTF-8&eotf=1&u=http%3A%2F%2Fwww.eleconomista.es%2Feconomia%2Fnoticias%2F4841804%2F05%2F13%2FJose-Carlos-Diez-Espana-debe-tener-un-plan-preparado-para-salirse-del-euro.htmlhttp://translate.google.com/translate?sl=es&tl=en&js=n&prev=_t&hl=en&ie=UTF-8&eotf=1&u=http%3A%2F%2Fwww.eleconomista.es%2Feconomia%2Fnoticias%2F4841804%2F05%2F13%2FJose-Carlos-Diez-Espana-debe-tener-un-plan-preparado-para-salirse-del-euro.htmlhttp://globaleconomicanalysis.blogspot.sg/2013/05/discussion-in-spain-on-leaving-euro.htmlhttp://globaleconomicanalysis.blogspot.sg/2013/05/discussion-in-spain-on-leaving-euro.htmlhttp://translate.google.com/translate?sl=es&tl=en&js=n&prev=_t&hl=en&ie=UTF-8&eotf=1&u=http%3A%2F%2Fwww.eleconomista.es%2Feconomia%2Fnoticias%2F4841804%2F05%2F13%2FJose-Carlos-Diez-Espana-debe-tener-un-plan-preparado-para-salirse-del-euro.htmlhttp://translate.google.com/translate?sl=es&tl=en&js=n&prev=_t&hl=en&ie=UTF-8&eotf=1&u=http%3A%2F%2Fwww.eleconomista.es%2Feconomia%2Fnoticias%2F4841804%2F05%2F13%2FJose-Carlos-Diez-Espana-debe-tener-un-plan-preparado-para-salirse-del-euro.html


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28 MAY 2013

But now the country has seen another about-turn, almost as abrupt as that in 1962. Over thepast two years dramatic reforms introduced by a new president, Thein Sein, prompted by thecountry's increasingly desperate economic straits, have started a rapid transition from secretiveisolation to an open democracy of sorts. The mere fact of such a change taking place hassurprised the world; its speed and breadth have caused widespread bewilderment.

Source: Economist

Even in careworn Yangon the signs are everywhere. The pavements are cluttered with tradersselling an array of newspapers, newly licensed and privately owned, carrying pictures of AungSan Suu Kyi, the leader of the National League for Democracy (NLD). Less than two years agothe image of the deant Nobel peace-prize laureate was banned; under a strict censorshipsystem her name could not even be mentioned in the press. Now all censorship before

publication has been lifted; any paper, such as the NLD's own newspaper D Wave, can apply topublish daily; and Miss Suu Kyi's photo festoons T-shirts, mugs and biros for sale on almost everystreet corner. People are still excited about being able to speak freely, even about politics,without constantly having to look over their shoulders. Some of those interviewed for thisspecial report had never before talked to a foreigner, let alone a foreign journalist.

With greater political freedom has come economic change. Almost all Western sanctions againstthe country have been lifted, and the country is swiftly reconnecting with the internationalnancial system. Visitors no longer have to wander around with so many wads of dirty old kyat,the local currency, in their pockets: the rst international ATM in Yangon has recently starteddisgorging fresh banknotes. Some outlets are now accepting credit cards. Real Western brands,

rather than pirated versions, are about to appear in a few shops. An inux of relatively wealthyforeigners and returned natives will need new ofces and apartments. Prime parts of Yangonare rapidly being attened to cater for the expected demand.


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28 MAY 2013

Myanmar's transformation is the most signicant event to have taken place in South-East Asiain the past decade, and this special report will argue that it will have important consequencesfor the rest of Asia as well. In the space of just a few years almost every aspect of life hasbeen touched by the reform programme. Not only was Miss Suu Kyi released from house arrestin November 2010, but the vast majority of the country's thousands of political prisoners havebeen freed. The NLD, harassed for decades and then declared illegal for refusing to participatein rigged elections in 2010, is legitimate once more. In April 2012 it won 43 out of 44 seats itcontested in by-elections, the country's rst free and fair polls since the 1950s: its MPs, led byMiss Suu Kyi, now sit in parliament....

*** THE ECONOMIST / LINK
http://www.economist.com/news/special-report/21578168-after-50-years-brutal-military-rule-myanmars-democratic-opening-has-been-swift-andhttp://www.economist.com/news/special-report/21578168-after-50-years-brutal-military-rule-myanmars-democratic-opening-has-been-swift-and


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28 MAY 2013

Charts That Make You GoHmmm...

My admiration for the work of Greg Weldon is well and truly on the record; andthis week he takes a fascinating look at the median price of a new home in the United States

(above), which has amazingly just hit a new all-time high, in comparison to the recovering butstill clearly sick overall housing market.

You can sign up for a free trial of Greg's magnicent work at www.weldononline.com.

Source: Greg Weldon
http://www.weldononline.com/http://www.weldononline.com/


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28 MAY 2013

Source: Citi / Jesse's Cae Americain

Tom Fitzpatrick of Citigroup has a point:

As can be seen from the chart [above], Gold has never stayed below that "stairway to

hell" for very long. Given that the debt limit number is going to continue higher, a re-

emergence of Gold strength looks inevitable.

A lot of "considered opinion" suggests that by the end of the present electoral term (the

end of 2016 when new presidential elections take place), that the US debt limit will beat around $22 trillion USD."
http://jessescrossroadscafe.blogspot.sg/2013/05/citis-tom-fitzpatrick-gold-and-us-debt.htmlhttp://jessescrossroadscafe.blogspot.sg/2013/05/citis-tom-fitzpatrick-gold-and-us-debt.html


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28 MAY 2013

Source: Visual Capitalist

Visual Capitalist takes a fascinating look at the cost of mining gold, including abreakdown of what makes up the all-in cash costs of gold producers.

(The Vulpes Testudo Fund holds a long position in Newmont Mining [NEM].)
http://www.visualcapitalist.com/what-is-the-cost-of-mining-goldhttp://www.visualcapitalist.com/what-is-the-cost-of-mining-gold


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28 MAY 2013

Words That Make You GoHmmm...

In the wake of his UKIP party'sincredible performance in the UK localelections, Nigel Farage points out to hisfriends in the European parliament that, whenit comes to vilifying companies for avoidingtax (not "EVADING" ... "AVOIDING"), they oughtto perhaps begin by looking a little closer tohome.

CLICK TO WATCH

Jim Grant is a regular in thesepages, and my admiration for him is well-documented. This week, in an excellentinterview, he brings the kind of common senseand well-communicated rationale for whichhe is famed to an analysis of, amongst otherthings, gold bullion and mining stocks.

CLICK TO LISTEN

Last week I was honoured to be askedto speak at the 66th Annual CFA Conferencehere in Singapore alongside many truly greatpresenters.

My presentation, "Do The Math", focusedon the disconnect between the nanciallandscape surrounding us and mathematical

reality.

CLICK TO WATCH
http://www.youtube.com/watch?v=BQryLd2MYaEhttp://kingworldnews.com/kingworldnews/Broadcast/Entries/2013/5/25_James_Grant_files/Jim%20Grant%205%3A25%3A2013.mp3http://www.youtube.com/watch?v=Osq1yxSFVG0http://www.youtube.com/watch?v=Osq1yxSFVG0http://kingworldnews.com/kingworldnews/Broadcast/Entries/2013/5/25_James_Grant_files/Jim%20Grant%205%3A25%3A2013.mp3http://www.youtube.com/watch?v=BQryLd2MYaE


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28 MAY 2013

and fnally...So ... allow me to set the scene.

Two English football teams, Brentford and Doncaster Rovers, were playing each other in thelast game of the season. The winner of this game would win promotion to the championship

and all the nancial rewards commensurate with playing in the higher league.

The score was tied deep into added time, when Brentford won a penalty kick.

Up stepped the colourfully named Marcello Trotter (on loan from my own team, Fulham),

who wrestled the ball from the Brentford captain and demanded to take the kick and,

presumably, be covered in the glory that would accompany the victory...

CLICK HERE TO WATCH

It's a funny old game, football...

Sorry Clive.

Hmmm...
http://www.youtube.com/watch?v=t4SK8PP-UP8http://www.youtube.com/watch?v=t4SK8PP-UP8


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28 MAY 2013

Grant Williams

Grant Williams is the portfolio manager of the VulpesPrecious Metals Fund and strategy advisor to VulpesInvestment Management in Singapore a hedge fundrunning over $280 million of largely partners' capitalacross multiple strategies.

The high level of capital committed by the Vulpespartners ensures the strongest possible alignmentbetween the rm and its investors.

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

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

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

*******

Follow me on Twitter: @TTMYGH

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

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

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

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

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

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

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


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Things that make you go hmmm... Grant Williams, May 28, 2013.

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