Zhao Danyang, Stock Manipulator?

According to NYT, bloggers in China are "feasting" on the exploits of Mr. Zhao Danyang. He is being viewed as just this side of a pump and dump stock market operator.

Mr. Zhao is the Chinese money manager who bid $2.1 million to have lunch with Warren Buffett. He had that lunch in late June. To the lunch he brought along annual reports of a Chinese supermarket firm, WuMart. Since word on this was reported in the press, the stock is 25 percent higher and the value of Mr. Zhao’s stock holdings in WuMart have climbed.

Writes NYT:

Bloggers in China are now feasting on Mr. Zhao, who runs several investment funds in Hong Kong, pointing out how he cleverly turned what looked like an expensive $2.1 million lunch date into a short-term gain of $14 million.

“Zhao Danyang is very smart at manipulating the media,” a blogger named Lao Pi said earlier this week. “He made his own stock go up dramatically

This is absurd.

The day after Mr. Zhao's meeting with Buffett, I met with Mr. Zhao in New York. He clearly reveres Buffett. During the lunch Buffett apparently spent considerable time discussing his philosophy on charity and why he is leaving most of his money to the Bill & Melinda Gates Foundation. If I had not turned the conversation to the stock market and investments, Mr. Zhao would have been content during our conversation to simply discuss Buffett's charity philosophy.

In fact, it wasn't until the end of our meeting that I asked Mr. Zhao about specific Chinese stocks. Mr. Zhao had no idea at one point I was going to end the interview, thus if his intention was to promote Wamut, he would have brought it up long before I asked him about specific stocks.

The impression I got of Mr. Zhao was that he is a very humble man who clearly has Buffett's buy and hold philosophy at the core of his own investment beliefs. He's the real thing and as far from a pump and dump operator as you can get. (A pump and dump operator once gave me a ride from Seattle, Washington to Vancouver British Colombia. He talked non-stop for hours about some ludicrous stock.If the U.S. really wants to torture Gitmo prisoners, they should put a pump and dump stock promoter in the prisoners jail cell for a couple of hours. )The Chinese blogging community is way off base on this one. Mr. Zhao is a very sincere money manager with a long term vision.

Goldman Sachs Penetrates National Review

It's really amazing where you find Goldmanites. Writes Peter Brimelow:

Dusty Rhodes, the former Goldman Sachs executive whom [William F. Buckley], with his snobbish weakness for the wealthy, installed in a vague (probably power-balancing) role at [National Review].

Maybe that's how WFB learned this habit. Brimelow again:

The fascinating news that the ageing William F. Buckley, beset by bladder problems, developed the habit of opening the door of his moving limousine and urinating into passing traffic—revealed by his son, Christopher Buckley in Losing Mum and Pup, his unsparing memoir of his just-deceased parents’ final year—is almost laughably symbolic.

What's Really Wrong With the Left

The markets are closed, and there will also be no economic numbers for a couple of days. It's a good time to wander over to Taki's Magazine. There sits Tom Woods' reply, to a smart alec post by Wonkette that attempts a drive by shooting of Michelle Bachmann, Ron Paul, Woods and Austrian economics (though Wonkette forgot to roll the windows down).

Woods takes the opening provided by Wonkette and uses it as an object lesson in understanding what's really wrong with the left.

The Curious Sarah Palin Resignation...

...has some speculating that an iceberg is about to hit Palin.

This wouldn't be a surprise to Bill Anderson, one of the best observers of current day events there is. In October last year, he wrote:

Even though the Democrats have been pretty successful in helping to run up Sarah Palin’s negative ratings, nonetheless the Obama camp is afraid that she will be a political force in the future. I believe that the Obama Department of Justice will launch one criminal investigation after another of Palin and her husband, and do everything in its power to tie up her term of office in Alaska.

The Bush administration hardly was above politically-motivated prosecutions, and I guarantee you that an Obama administration will be even worse in that department. Look for Palin to be a constant target.

The WaPo Access Scandal Is All About How You Spin the Program

The Washington Post is taking a lot of heat for its planned exclusive "salon" at the home of WaPo publisher Katharine Weymouth, where for as much as $250,000, the Post offered lobbyists and association executives off-the-record access to "those powerful few" — Obama administration officials, members of Congress, and even the paper’s own reporters and editors.

But this kind of stuff goes on in D.C regularly.

In March, I attended WSJ's Future of Finance Initiative conference,where Treasury Secretary Timothy Geithner, spoke on the record. Attendees, sans the press, were even bussed over to the White House for a private meeting with Larry Summers. Among those that jumped on the bus, were David Rubenstein, Robert Rubin, George Soros, Arthur Levitt and Roger Altman.

If WaPo made a faux pas, it was on being too upfront about it being a meeting of insiders. These meetings are usually couched as being for the "good of the country", or the "good of the future of the world", rarely is it openly stated, as WaPo did in its marketing literature, that it's about gaining "non-confrontational access."

WaPo probably just lost touch with the fact that the folks out in the hinterlands can still get shocked when they here this stuff can go on.

Russia's Imploding Banks?

Ambrose Evans-Pritchard is viewing a recent Fitch rating comment about Russia in the most negative light.

Fitch says that banks will need to raise $60 billion in fresh capital if the “pessimistic scenario” unfolds. True.Bad loans could reach 40%, although analysts are flying blind since bank disclosure “does not always capture all asset quality problems.”

But a $60billion raise shouldn't be that difficult. Russia has been quite willing to follow the U.S. model of intervening in the banking sector. Thus, $60 billion becomes a modest figure set against Russia’s $400 billion foreign reserves.

Further, as if to prove they will mimic U.S. rescue madness, Russia is drawing up plans to recapitalise banks by swapping state debt for preference shares. Other than copying U.S. nuttiness, this last move does nothing.

Bottom line: Russia can prop up its banks on a short-term basis. On a long-term basis, Russia needs higher oil and metals prices to keep its economy together, as long as it maintains its present interventionist structure.

A Buffett Biographer as Rock Star

Alice Schroeder recently toured China to promote her Warren Buffett biography, Snowball. It wasn't like a U.S book tour, she writes:

The rock-star treatment I received on my recent book tour in China makes sense only if viewed through the lens the Chinese apply to American culture: Its importance is relative to whether it can make you rich.

Which is why Warren Buffett is no mere Oracle in China; he is the “GOD OF STOCKS” (usually translated this way, in uppercase). Buffett is probably the most popular American in China other than President Barack Obama.

The Chinese don’t give a hoot about Obama’s politics; his appeal is his power, through which he, like Buffett, can make you rich. Faith in Obama’s ability to create wealth on a personal level is so strong that one Chinese author has even capitalized on it in a book: “Get Rich With Barack Obama’s Change We Can Believe In Principle.”

It is just as strange that Buffett, the man of patient capital accumulation, has been so fetishized in China, the land of instant everything. The tour gave me a window into the attitude of Chinese investors. It resembled no book tour imaginable in the U.S., consisting of marathon two-plus-hour press conferences and six-hour “forums” (a speech of at least 60 minutes, followed by a panel, then audience questions and answers followed by a book signing and a banquet) in Beijing, Nanjing, Shenzhen, and Shanghai.

Steven Perkins Perks Up Oil Market

A spike in oil prices to their highest level this year on Tuesday was caused by a rogue broker, Steven Perkins, who placed a massive bet in the Brent oil market, triggering almost $10m (€7m) of losses for his company, PVM Oil Associates.

Prices rose in one hour from $71 to $73.5, the highest level for the year, according to FT. In total, futures contracts for more than 16m barrels of oil changed hands in that hour – equivalent to double the daily production of Saudi Arabia, the world’s largest oil producer, and far more than the traditional 500,000 barrels for that time of the day

California Begins Printing IOUs

The printing presses at 2 p.m. Pacific Time began to roll out the first of nearly 29,000 IOUs totaling more than $53 million, most of the first IOU's are destined for residents around the state still awaiting income-tax returns.

Some banks have agreed to honor the paper, including Bank of America and Wells Fargo, which will do so until July 10.

"We are reluctant to take this step, but are doing so to help our customers who are not at fault and with the expectation that the Legislature and governor will complete the budget within days," Lisa Stevens, a Wells Fargo executive in California, said in a statement.

Some smaller banks have not made a decision on accepting the IOUs, according to LaTi.

Only in the NBA

New York Knicks basketball player Eddie Curry has earned $34 million since 2005. Yet, this week, Bayview Loan Servicing filed a foreclosure notice with Curry re his house. According to the filing, Curry is behind on $217,502 in payments on a $3.7 million mortgage.

Last fall, Curry asked the Knicks for an advance on his salary. He wanted an $8 million advance, they gave him $2 million.

Not surprisingly, he is suing his former money manager.

Bottom line: We need not fear Curry as an up and coming oligarch.

As a Knicks fan, I hope that this finally causes Curry to finally get his butt in gear and start playing like he really needs to get a contract renewal.

Federal Reserve Issues Warning On California IOU's

The California State Controller's Office has announced that it may issue registered warrants, or IOUs, for some payments as early as today.

The Federal Reserve has issued a warning that states in part:

These warrants will not be subject to the normal, federal check-hold limits and therefore could be subject to extended holds.

The Fed goes on:

The State of California will likely return unpaid any registered warrants that it receives before the payment date. Therefore, depositors of these warrants may be subject to returned-deposit fees if their banks attempt to collect these warrants before they are payable. In addition, if customers rely on these funds to make other payments, they may be subject to overdraft or bounced-check fees if the warrants are returned

.

The Pope as Economist

Pope Benedict XVI’s first social encyclical will be published next week Tuesday. Word is it will be heavy on economics.

Caritas in Veritate (Love in Truth) has been delayed over a year, according to Edward Pentin, because the Pope wasn't happy with the contents. Pentin writes:

Economics, by his own admission, isn’t his strongest field, even though his writings on the subject before he was elected Pope show more than a competent grasp of the subject. He therefore wanted to be sure he and his consultors were going to write something scholarly and accurate.

It appears that Goldman Sachs probably has the Pope snowed. Writes Pentin:

The Pope will highlight that globalization is not an evil in itself, but it cannot be left to self-regulation, according to leaked excerpts reported in the Italian newspaper Corriere della Sera. He will suggest an international agreement to lead the process of globalization, an authority that should be regulated by law and one that should stick coherently to the principles of subsidiarity and solidarity

The only people I have seen in a position to influence the writing of international agreements for globalization are those that have Goldman connections. Heaven, and I mean this sincerely, help us.

The Confusion About "Savings"

Bob Murphy sent me the following email, in reference to my post below on savings:

date: Thu, Jul 2, 2009 at 11:30 AM

subject:you're lucky

I was going to criticize your post on savings, but Firefox won't let me....Something like, "If I put $10 a week into a jar on my dresser, you're saying that's not saving?"

My answer to Murphy is that as a professional economist to call that "savings" is misleading. I get what a layman means by that, but a professional economist should never be so loose with such an important word.

Here's my case:

There are key words surrounding the science of economics that are imprecise. For example, the word, "inflation." To the general public it will mean rising prices. To some economists, it means an increase in money supply.

The best way to deal with this specific problem is to refer to "price inflation" when we are talking about increasing prices, and "monetary inflation" when we are referring to an increasing money supply.

This semantic clarity is an important aid in understanding what is going on in the economy. For example, one will see economists who refer to the period before the stock market crash of 1929 as a non-inflationary period, what they really mean is that there was no price inflation. There was a great deal of monetary inflation. By making clear the two separate concepts one can see what could and could not be a cause of the stock market crash and Great Depression.

Clearly, price inflation could not have caused the crash and Depression, since there wasn't any. Monetary inflation is a different story. The Fed was pumping money out and stopped just before the stock market crash, making Austrian Business Cycle Theory an attractive explanation for the crash and Depression.

But, for those, who merely talk about "inflation" without clarifying the kind of inflation, they are making it difficult to understand the true factors in play.

Another imprecise word in the field of economics is "savings". At times it is used to mean money put in a bank, which is then loaned out by a bank, At other times it is used to mean money simply held, say, in the form of cash. There are two specific and very different economic functions with these two forms of "savings," and it is as dangerous to confuse them as it is to confuse price inflation and monetary inflation by simply referring to inflation.

The confusion with the word "savings" thus means that the professional economist should never use this word the way the general public does. In the same manner that the professional economist should shy away from using the word "inflation" when he means "price inflation". He may know what the public means when they refer to "inflation", but to keep confusion out of deep theoretical thought, he shouldn't use the phrase, and, indeed, he should take every opportunity to explain to the lay person the difference.

Thus, while I know what Murphy means when he calls putting money into a jar "savings," I would never use the term that way. To me putting money into a jar, a wallet or under the bed is exhibiting a "demand for cash". It is not out in the market bidding up for goods, in any fashion.

Now, money put into a savings bank, is to me savings. That is, there is no money in the bank after I deposit it there. The money is loaned out to others, who presumably are borrowing the money to bid for goods and services.

Thus, there is great confusion if you call money put in a jar savings (money which is just sitting there) and, at the same time, call money which is put in a bank the same thing.(Where it is, decidedly not sitting there, but out bidding for good and services).

Thus, when the Commerce Department comes out with a report that savings are skyrocketing during a recessionary period, I know that what we are getting is some very muddled thinking about what is really going on.

The immediate gut reaction by many commentators is that this is a good thing, since savings afterall grows (another bad term) the economy. And indeed, in my sense of the word, where money is put into a bank and it is loaned out, particularly to the capital goods sector, it is indeed a step in the direction of advancing the economy.

However, if the "savings" is simply an increase in demand for cash that is not finding its way to the capital goods sector (I am not dealing with consumer loans here just to make my key point clearer) then it is not bidding up anything. In one sense, it has neutral impact on the advancement of an overall economy. In another sense, if the public in general has an increased demand for cash, it will cause a deflationary period (nothing wrong with this either) to adjust to the higher level of cash people want to hold relative to overall prices.

If we refer to both these separate economic phenomena as "savings", we will hopelessly confuse ourselves and the general public. They act on the economy in two very different ways. That's why I prefer to call the holding of cash, the "demand for cash." Since that's what it is.

And money put in a savings bank (commercial bank etc.), "savings."

Now some may try to argue that money put in a jar may be put there until enough is accumulated to be put into a savings bank. This really doesn't change any of the dynamics at all. Money put in a jar is still a demand for cash. In this particular case, since the demand for cash can be for any reason, it can be a demand for cash to eventually turn it into savings at a bank. Remember the cash in the jar is cash sitting there, once it hits the bank, it doesn't sit there any more, it is loaned out, bidding for goods and services, that's when it becomes savings, in my book.

You can certainly go about using a term in any sense you want, but for the preciseness by which an economist should use terms in his own field, using the terms "demand for cash" and "savings" in very precise ways, will eliminate a lot of confusion (and bad theory) in the long run.

(Note: When I refer to the demand for cash, I am also referring not only to cash, but checking account money, and for banks, excess reserves. This all gets even more complex in the world of fractional reserve banking, and I am not going to attempt to explain all the nuances in a blog post. Suffice to say that none of it would change the basic concept of the key difference in the "demand for cash" and "savings". )

The Real Goal of the SEC

If anyone thinks the Securities and Exchange Commission's goal is investor protection, they should read this WaPo article by Zachary Goldfarb.

The goal of the SEC is the same as that of all government agencies:

1. To protect their turf

2. Expand their turf

SEC investigator Genevievette Walker-Lightfoot clearly had Bernie Madoff in her sights. She knew something was up, outlined her suspicions and what steps should be taken next in examining Madoff. But, at the same time, the SEC was having a turf war with Eliot Spitzer over who would supervise certain mutual fund infractions. Rather than allowing her to pursue the clear problems she uncovered in her initial investigation of Madoof, she was transferred to the mutual fund sector.

Also of interest, it can be inferred from the WaPo report that Madoff's capture of the SEC may have been in play:

Walker-Lightfoot's supervisors on the case were Mark Donohue, then a branch chief in her department, and his boss, Eric Swanson, an assistant director of the department, said two people familiar with the investigation. Swanson later married Madoff's niece, and their relationship is now under review by the agency's inspector general, who is examining the SEC's handling of the Madoff case...Madoff boasted at a business roundtable discussion about his close relationship with SEC regulators, saying "my niece just married one"...

After Walker-Lightfoot's inquiry concluded, the Madoff investigation was transferred to the SEC's New York office, and the documents collected by the Washington office were shipped there. The Office of Compliance Inspections and Examinations in Washington was too busy working on mutual funds and other cases deemed to be of higher priority, according to agency officials.

A New York team ...found no evidence of fraud. Madoff received a private deficiency letter from the agency, warning him to improve certain practices.

Carbon Emissions Trading Seminar

The seminar I mentioned in an earlier post, about Carbon Emissions Trading, is online.

Regular EPJ commenter "No Axe" has linked to it in a comment:

http://eurexchange1.emea.acrobat.com/p41395981

and calls it a decent primer.

The Convoluted Calculation of Savings

The Commerce Department has released the latest savings numbers. They show that savings have jumped to 6.9% of income. I suspect that part (if not most) of this increase is really a greater demand by individuals and corporations (and banks) to hold cash, rather than an increase in savings. But, it doesn't appear that Commerce computers understand "increased demand to hold cash," som it is being recorded as an increase in savings.

NyPo's Crudele touches on this point in his column today.

Although he doesn't use the term "increased demand to hold cash."--which means money that is really not out in the economy bidding up consumer or capital goods, you can get a good sense from Crudele's column how the Commerce computers have gone wacky:

...how can the Commerce Department claim that the personal savings rate for
Americans jumped to 6.9 percent in May? ...

Here's the answer. After Washington claimed the savings rate hit 5 percent in January, I made a call to the Commerce Department.

I thought the figure was astounding since there is a recession and the 5 percent figure was the most money Americans had put into savings in 13 years.

First, an expert on the savings rate at Commerce warned me that these figures are the very first estimates and are the ones most subject to revisions. He said that people shouldn't take these preliminary numbers very seriously. But there was something even more intriguing. What seemed to be happening, this source explained, was a convoluted calculation of savings.

Here's how the thinking went: The US Treasury was receiving much less income tax revenue, which of course was understandable because we are in a bad recession. But the Commerce Department's computers were probably interpreting this, he said, to mean that Americans had more money in their pockets.

Since the computers believed people still had the money (because Treasury didn't have it) and since they are not spending that money, it must mean Americans are saving more.

I know it's stupid logic. The more reasonable explanation, of course, is that the money isn't going to the Treasury because people simply aren't earning as much.

Under this scenario, a penny not earned is a penny that can't be saved. So relax if you aren't saving 6.9 percent of your pay. Neither is anyone else

Crudele's explanation is almost there. But, the key point is that the money hasn't disappeared. The Commerce person that told Crudele that the computers are thinking Americans "have more money in their pockets" is actually mis-speaking. Money "in your pocket" is not savings, it is a demand for cash, likewise excess bank reserves (which have gone through the roof) that are held by banks are also funds that are a demand to hold cash. Neither is "savings" in the technical sense of money out in the economy bidding up capital goods. It's sitting, not bidding up anything. This is not "savings", but money held "as a demand to hold cash". Commerce computers just don't get it.

Moody's Cuts Ireland's Credit Rating

Moody's cut Ireland's government bond ratings to Aa1, down from Aaa previously, and said the outlook was negative, leaving the door open for further cuts.

Last month, Standard & Poor's rating on Ireland for the second time this year, dropping the rating to AA from AA+ and said the outlook remains negative. Fitch Ratings downgraded Ireland's credit rating.

Ireland's deficit will soar to 10.8 percent of gross domestic product, more than three times the European Union limit, according to the government. Finance Minister Brian Lenihan said in April the government would also take on 90 billion euros ($124 billion) of property loans from the country’s lenders in a bailout effort to stave off their collapse..

Geithner Logic

There's a fascinating Kate Kelly story at WSJ detailing the infighting that went on before William Dudley was finally named president of the New York Fed.

Treasury Secretary Geithner appears to have been Dudley's top sponsor. During the selection process, Geithner knocked down Rodgin Cohen, who specialized in banking law at Sullivan & Cromwell LLC, as a strong candidate for the job, arguing, according to a Kelly source, that Cohen, who has represented investment banks and banks in private legal matters, could be considered too close to the Wall Street establishment.

Geithner's choice Dudley was, of course far from connected with Wall Street, he was just formerly with Goldman Sachs.

ECB Leaves Rates Unchanged at 1%

No surprise here.

The ECB remains a key player in the global inflation racket, and they can create a lot on new money at an ECB interest rate of 1%.

Since October, the ECB has cut its main interest rate by 325 basis points to the lowest ever. And, it has massively expanded its money printing operations by providing "liquidity" to the banking system.

Last week alone, the ECB pumped in €442.2billion in one-year loans – the largest amount it had ever injected in a signal operation.

All Eyes On Geithner

Citigroup's announcement that it has boosted interest rates on up to 15 million U.S. credit-card accounts has some focused on Treasury Secretary Geithner. How interventionist will the Obama Administration become, given they own a one-third stake in Citi? Will they force a roll back of the rate hike, especially since it appears that the hike was instituted now, in part, ahead of the kick in of portions of the recently passed Credit Card Accountability, Responsibility, and Disclosure Act. The Act takes effect in full in February 2010, but a few key provisions kick in at the start of August.

Will Geithner become the Czar of Credit Card Interest Rates? Only time will tell.

Los Angeles Sales Tax Hits 9.75%

A new half-cent sales tax in Los Angeles County goes into effect today, raising the county's rate to 9.75%. But the measure passed by voters in November might generate about $1.8 billion less than originally estimated becasue of the economic downturn.

What other tax will they raise to make up the shortfall?

An International Replacement for Treasury Notes Is Born

Another major step in the demise of the dollar as the world's reserve currency has just taken place.

The Executive Board of the International Monetary Fund (IMF)has approved a framework today for the issuance of notes to member countries and their central banks. The notes will not be denominated in dollars, but in SDR's and are clearly an alternative to Treasury notes for central banks and others cleared to trade in the notes.

Under the framework, members may sign agreements to purchase IMF notes up to a limit set by the member. Several members have already expressed their interest in buying IMF paper, with China signaling its intention to invest up to US$50 billion, and Brazil and Russia up to US$10 billion each.

The IMF would issue notes at times when loan disbursements are made to members receiving financial assistance from the IMF. Once purchased by member governments, or their central banks, the notes would be tradable within the official sector, which includes all IMF members, their central banks, and 15 multilateral institutions—those which are designated holders of Special Drawing Rights.

The principal of the notes will be denominated in SDR, the Fund’s unit of account, which is a currency basket composed of the U.S. dollar, Euro, Japanese Yen, and Pound sterling. Interest payments will be made quarterly, at the official SDR interest rate, which is a weighted average of 3-month interest rates in these currencies.

The notes have a maximum maturity of five years, which is consistent with the maximum maturity of IMF lending under Stand-By Arrangements and Flexible Credit Line arrangements. Commitments under such IMF lending arrangements have increased to more than SDR 100 billion (about US$150 billion) in the past year, as the Fund has responded flexibly to members’ financing needs during the global crisis.

“This framework for issuing the IMF notes marks a significant step forward in our continuing drive to make sure the IMF can respond effectively to member countries’ needs in these challenging and uncertain times,” the Managing Director Dominique Strauss-Kahn underscored.

Special thanks to Hans Palmstierna.

Richard Feynman's Designated Impostor

The Richard Feynman YouTube video that I recently posted created quite a few emails and also quite a few links to the post, so it's time to pass along a Richard Feynman story that is most likely not yet out there in the general public.

I have this hobby of trying to guess what influences have worked on people to make them the people they are today. With practice, you can become amazingly accurate at this.

One evening, a few years back, I was at the rooftop bar at the Standard Hotel in downtown Los Angeles. As I sipped my gin and tonic, I noticed a quite attractive woman talking to two men. As I watched her, it struck me, by the way she was carrying herself and her stance, that she was comfortable around men. I thought to myself, she must have a very strong male influence in her life. As I continued to watch her, I noticed that, while she was comfortable with men, there wasn't the kind of chumminess in the way she conducted herself that would occur, if say, she was the one girl in a family of five boys. It was a different kind of comfortableness. I guessed at that point the influence was probably her father.

It was time for me to move in. I worked my way into the conversation and soon managed to get the other two guys to leave so that I was now one on one with her. As we talked, I noticed that she absorbed and processed information around her in vacuum cleaner like suction. I never witnessed a mind like hers before. She wasn't in any sense a nerd, but vacuum like is the only way to describe how she absorbed information and seemed to process it instantly.

With the earlier observation that her father was probably a very strong influence, I decided to take a shot. I said to her, "I'm guessing your father is a heavy duty scientist or something." At first, she was clearly taken aback by my comment, but then told me that her father was a physicist at Caltech.

I remarked, "Oh that's where, Richard Feynman taught." She told me that her father had been a colleague of Feynman's and that he had a passing resemblance to Feynman. She said that Feynman really got tired of all the reporters that wanted to interview him and that her father often gave the interviews as Feynman, especially to foreign press. This was before 300 channel television, the Internet and YouTube, so a foreign reporter, if he knew what Feynman looked like at all, probably had seen only one photo of him. So through out the rest of the world there are print, radio and television interviews with "Feynman" which were really done by Feynman's designated impostor, a Caltech colleague.

On The Sidewalk Kids

It's a warm day here in Washington D.C. which means the sidewalk climatologists are out in force. The sidewalk claimatologists are easy to spot. They work in pairs, carry clipboards and smile as though they are excited to see you. They usually are about college age and have one other distinct charecteristic that they are unaware of. They are totally clueless about the climate and environment. But, they are out to get you to sign up, support and donate money to "save the planet."

I tested a bunch today, and the result confirms that there is a crisis. It is not about climate, but about the decline in independent thinking. As Butler Shaffer notes:

... humans “must think in order to survive,” but...we have recently been “outsourcing” this function to others. Such a practice now prevails on university campuses, and helps to explain why academia is a source of so little original and meaningful thinking. Don’t wonder about what anything means: the“experts” whose jobs are dependent upon advancing the agendas of the political establishment will explain it all to you!

These kids have outsourced so much thinking that they really have no idea why they are on the sidewalk.

The big deal with these kids is, of course, carbon in the atmosphere, so I asked three of them what percentage of the atmosphere was comprised of carbon. Two refused to answer. The third, a very brave girl, told me 70%. The answer is under 1%.

I then asked them if they knew fog engulfed San Francisco in the summer months. They all seemed to have some passing awareness of this. I asked them what caused the fog to form, which is sort of like a low lying cloud. None knew. (The city is bordered on three sides by water, from the Pacific Ocean and the San Francisco Bay. Meanwhile, the temperatures of surrounding desert valleys cook in the summer months. The heat produced by inland temperatures, combined with the cool water of the Bay and Pacific Ocean, and the winds coming in from the water, turn San Francisco into fog city.)

So I tried to put this in perspective for them. I said, "Okay, I know someone has told you that the carbon in the atmosphere causes cloud cover to form and this causes the greenhouse effect." They all eagerly jumped at this point. I continued, "But you have no idea what percentage of the atmosphere is carbon, you don't even know what causes fog in San Francisco, which is a lot easier to understand and less controversial and complex than what is going on in the atmosphere, so I am supposed to buy your theory on this complex phenomena when you don't even know or understand basic stuff?"

I switched gears. I said, "Okay, suppose there is global warming, so what? I like warm weather?" One apparently didn't get the connection between warm weather and global warming. He kept on insisting this was "about global warming and not warmer weather."

The well trained ones came back with, "global warming will cause the sea level to rise and coastal flooding." My reply was," In most of North America and Europe, the coastlines are occupied by the rich, some with second or third homes. So is this some kind of bailout the rich program, to save their summer houses?" No replies.

I then tried to clue them in. I said, "You know, you are really just working to advance the programs of some really rich guys." I said,"I take it you are in favor of energy from windmills?" Again eager agreement. I asked, "Do you know, who Boone Pickens is?" None knew. I told them, "He's a Texas billionaire who is a real riverboat gambler type who has made and lost more money than you will ever see. He's getting older now, so he has figured out a new angle, government subsidies. Your windmill promotion is really about helping him keep his billions this time. A subsidy is really a bailout in advance. He knows he can't make money off his windmills on the free market, but he wants to build them, lose money and get the government to pick up the tabs on his losses with a nice profit for him." I then ask, "So do you know how much money he is going to make off of the windmill subsidy that you are promoting out here?" They say, "No." I reply, "Of course you don't because while he has a fancy web site, is organizing a 'new energy army in every district,' has all kinds of TV commercials going on and appears on Larry King, he talks about lots of things, but he never talks about how much he is going to make."

Finally, I say, "You don't really know why you are out here, do you?" They all admit that they "need to look into the subject some more." Most of them won't, but every once and awhile one will. It's time to start getting these sidewalk kids to think.

Start asking them basic questions, when you see them.

Bank Bailout Power Moves

Government bailouts mean the power to direct taxpayer money for personal gain can just be a phone call away. WaPo provides a current day case study:

Sen. Daniel K. Inouye's staff contacted federal regulators last fall to ask about the bailout application of an ailing Hawaii bank that he had helped to establish and where he has invested the bulk of his personal wealth.

The bank, Central Pacific Financial, was an unlikely candidate for a program designed by the Treasury Department to bolster healthy banks. The firm's losses were depleting its capital reserves. Its primary regulator, the Federal Deposit Insurance Corp., already had decided that it didn't meet the criteria for receiving a favorable recommendation and had forwarded the application to a council that reviewed marginal cases, according to agency documents.

Two weeks after the inquiry from Inouye's office, Central Pacific announced that the Treasury would inject $135 million

Is a Sound Economist a Possibility in the Forseeable Future for the Senate?

Lew Rockwell writes:

The latest poll shows “political unknown” (though actual man of substance) Peter Schiff almost tied with long-term, corrupt senator and hollow man Chris Dodd. And the poll does not take into account the national fundraising ability of Schiff among smaller donors, and his national volunteer-attracting capability. Dodd is supported only by rich people on the federal dole, and paid campaign workers.

Does Janet Yellen Want Be Ben Bernake's Replacement?

It sure sounds like it.

I have been following the speeches of the San Francisco Fed president for years, never before has she come out so in favor of printing money.

Bloomberg reports:

Federal Reserve Bank of San Francisco President Janet Yellen said the prospect that policy makers will leave the benchmark U.S. interest rate near zero for the next several years is “not outside the realm of possibility.”

Given the recession’s severity, “we should want to do more. If we were not at zero, we would be lowering the funds rate.”

Nevertheless, the threat of another financial shock, such as one from falling commercial real-estate prices, is “high on my worry list.”

Responding to audience questions after her speech, Yellen said... The Fed “won’t hesitate” to withdraw the record stimulus it has put in place, when necessary, Yellen said. “If anything, I’m more concerned that we will be tempted to tighten policy too soon, thereby aborting recovery.”

Sure sounds to me like she is signalling Obama that she has no problem printing money.

htNoAxe

Nassim Nicholas Taleb Fires Back

The Nassim Nicholas Taleb controversy won't stop and is being picked up by more and more news outlets. The latest news in the controversy is a response from Taleb that he attempted to correct the error about billions in profit, and charging his "enemies" as being "very, very stupid."

He posts an amplified yellow "sticky note" on the GQ story he features at his site, it now reads:

Note that NUMBERS are wrong. This is not a business/finance, but a philosophy article written by Will Self. So read the article for its ideas. Janet Tavakoli used the errors as a platform for her (failed) smear campaign.

I have very, very stupid enemies. The correspondence with GQ reporting errors was (before publication) was send (sic) to Felix Salmon.

The emails he refers to are reproduced below:

From: nassim nicholas taleb
Date: December 17, 2008 7:40:55 AM EST
To: Will Self
Subject:Re: From Will Self
Hello there (from Los Angeles airport). Thanks a million. I cannot interfere with the content, only to correct some minor facts.There are some potential problems with the numbers like the 20 billion, half a billion, etc. that may lead to confusion.
Also I am trying to add my middle name whenever possible to avoid confusing the byline.
I will read again on plane and send clarifications about the numbers.
Ciao.
BTW it was great seeing you.


From:nassim nicholas taleb
Date: December 17, 2008 6:13:44 PM EST
To:Will Self
Re: From Will Self
Here is what I found.

1- “when they went to the wall we made $20 billion for our clients, half a billion for the Black Swan fund.
“when they went to the wall we made almost half a billion for the Black Swan funds.”

2- “Mean variants” “mean-variance”

I will give it a second reading.
Thanks again.
Ciao,
Nassim

It is interesting to note that Taleb also requested that his middle name, Nicholas, be used in the article by GQ and that was not corrected either.

Here's what appears to have gone down. As you can note, Taleb's first email to Will Self is very cautious, and almost leaglistic. It is a sign of someone who does not want to get in trouble with legal authorities, by the second email it is clear he is attempting to correct errors that Self has in the article.

Self obviously didn't correct anything. An article done is done, I guess.

Tavakoli reads the article and the uncorrected $20 billion in profits number jumps out at her. As I have pointed out before, she is a numbers person. She publicly highlights the problem, when she doesn't receive a response from Taleb. What else is she supposed to do?

Why wouldn't Taleb respond to an inquiry from Tavakoli, a professional finance person and writer? Who knows? Perhaps Taleb will explain at some point.

In any case, Taleb's lack of response did look suspicious. In truth, it turns out that Taleb was probably protecting Will Self, who did write a passable profile of Taleb (Failed billion dollar errors excepted!). This would also explain Taleb's early nebulous defense of how the $20 billion remained in the story. Finally, the heat got too intense for Taleb and he threw Will Self under the bus.

There is no "smear campaign", Tavakoli followed a decent lead and Taleb was playing cat and mouse so that he wouldn't hurt the man who said so many nice things about him.

Bottom line. Taleb acted as though he is very needy, needs people to say very nice things about him, and very, very stupidly attempted to protect the man who said a few passable nice things about him.

There is a lesson here about dealing with Janet Tavakoli, also. Don't be very,very stupid and not answer her questions when she contacts you about numbers. She will eventually smoke the truth out of you. Just ask Nassim Nicholas Taleb.

UPDATE: In reviewing Tavakoli's columns on Taleb, I note that Taleb did respond to her email. She wrote:

I checked with Nassim Taleb regarding the $20 billion in gains and asked if he were misquoted. He responded via email: "The quote is inaccurate. THe [sic] 20 billion might correspond to the face value of positions." This response is both vague and different in character from the mythical $20 billion in gains inaccurately quoted in GQ’s article.

The point remains that the response as Tavakoli states is vague, as though it is a bother for Taleb to have to respond to Tavakoli. Taleb could have nipped the entire controversy in the bud, by simply writing, "I noticed the error in a draft copy that was sent to Will Self and emailed him a correction. Why it was corrected is not clear to me." Again, the only explanation for the cat and mouse game seems to be to protect Will Self.

Ludwig von Mises On the Formation of the Mont Pelerin Society

I recently came across a copy of a private paper written by Ludwig von Mises in 1946, and titled, Observations On Professor Hayek's Plan. "The Plan" was the formation of what has become the Mont Pelerin Society. The paper is archived at Grove City College.

The paper is only 3 and 1/2 pages long, but contains many interesting nuggets.

First, I have seen more than once the statement that Murray Rothbard advanced Misesian theory by pointing out that only governments can create monopolies. Not to take anything away from the genius that Rothbard was, but Mises wrote this paper in 1946, and it is there in black and white, Mises comes pretty close to saying the same thing. He writes in the paper "Not the unhampered market, but the governments foster monopolization."

It is also obvious in the paper that Mises is very concerned about bringing into Hayek's proposed organization those who are willing to compromise with the "foes of liberty." Mises calls them, "frightened intellectuals."

He further writes (Mises emphasis): "The practical politician must take into account the voters' reaction to his program if he wants to succeed in the short run. He must compromise. But the intellectual pioneer of a better world is not restricted by the concerns of Realpolitik. His program must be a sound program that triumphs in the long run. "

Mises sees that bringing in compromisers is a problem with Hayek's plan. Mises writes (Mises emphasis):

The weak point in Professor Hayek's plan is that it relies upon the cooperation of many men who are known for their endorsement of interventionism. It is necessary to clarify this before the meeting starts. As I understand the plan, it is not the task of this meeting to discuss anew whether or not a government decree or a union dictate has the power to raise the standard of living of the masses. If somebody wants to discuss these problems, there is no need for him to make a pilgrimage to Mont Pelerin. He can find in his neighborhood ample opportunity to do so.

Clearly, Mises saw trouble. Thus, when Mises stormed out at one point during part of the founding meeting of the Mont Pelerin Society in 1947, saying: “You’re all a bunch of socialists,” this action can be seen in better perspective.

It wasn't a spur of the moment action of a hot head, as is sometimes implied. It was the response of a careful thinking scholar who was concerned that the organization would fall under the influence of "frightened intellectuals."

It turns out Mises fears were well justified, see DiLorenzo and Kinsella.

NOTE: I originally obtained a copy of Mises' paper with the help of Bob Murphy, who I understand contacted Jeff Herbener for help, I have since discovered that the paper is now online here (pdf).

On the Decline in Consumer Confidence

The Conference Board Consumer Confidence Index, which had improved considerably in May, retreated in June. The Index now stands at 49.3 (1985=100), down from 54.8 in May. The Present Situation Index decreased to 24.8 from 29.7. The Expectations Index declined to 65.5 from 71.5 in May.

The Consumer Confidence Survey is based on a representative sample of 5,000 U.S. households. It is considered a leading indicator. I see it more as a late leader or an early concurrent, mostly because I don't buy the Keynesian theory behind it as a leading indicator, and see it more as reflecting current conditions. That said, the current dramatic drop leads one to ask what is going on in the economy that there has been such a swing in household views on the economy? If Bernanke was still pumping money at double digit rates, I would blow this dip off as possibly one month of statistical noise. However, with Fed tightening, I am leaning toward considering it as more significant and signalling that Bernanke's recent money growth slowdown is having an impact in the hinterland.

This suggests more negative shocks. in the not too distant future, across the economy.

Beating Up On Krugman

It turns out that Greg Mankiw's punch out of Paul Krugman was just the start of a major tag team match. Bob Murphy comes in with a body slam charging Krugman with being a big bluffer. Murphy then tags Bryan Caplan, Scott Sumner and then David R. Henderson, who have a go at Krugman. Finally fans in the stands are throwing chairs at Krugman, i.e., Presto Pundit's posts in Murphy's comment section shouldn't be ignored, either.

Soros, One Step Behind

Billionaire investor George Soros today predicted a "stop-go" economy for the United States, saying fears of inflation will drive up interest rates and choke off growth.

"As markets revive, fear of inflation will drive up interest rates, which will choke off recovery," he said at a breakfast hosted by WSJ.

This says two things about Soros. He is just pretty much a trend watcher and he doesn't watch money supply.

Although a lot of indicators continue to signal an upturn in the economy, this is the result of earlier Fed money printing. For the last three months the aggressive money printing has stopped, so rather than stop and go, right now, we are headed for a stall, and, if Bernanke persists with slow money printing, a second crash. The price inflation fears will subside (except at the consumer level.)

Welcome to...

...the person who searched for "Maria Bartiromo barefoot" and found EPJ.

Free Carbon Trading Seminar Today

Patsystems, which provides tailored solutions, built from modular components, to enhance derivatives trading performance and trade processing, will clearly get into the carbon trading gold rush.

They and Eurex will host a one-hour webinar explaining how you can also. The seminar will feature Jim Kharouf, editor for the Environmental Markets Newsletter. Kharouf will provide a comprehensive presentation on the current events in the U.S. carbon market and answer emissions questions. You'll also learn about the Eurex carbon emissions futures contracts.

Details are here.

A Debt for Nature Swap?

I am not making this up. But, after you look past the smoke, it's just the US government paying banks money instead of foreign governments that originally took on the debt.

Here are the details.

The Treasury has just announced that the United States and Indonesia, together with two environmental NGOs, Conservation International and Yayasan Keanekaragaman Hayati Indonesia have signed agreements for the largest debt-for-nature swap under the Tropical Forest Conservation Act (TFCA) since its passage in 1998. The agreements will reduce Indonesia’s debt payments to the United States by nearly $30 million over the next eight years. In return, the Government of Indonesia has committed these funds to support grants to protect and restore the country’s tropical forests.

According to the Treasury, the Indonesia agreement marks the 15th TFCA deal, following agreements with Bangladesh, Belize, Botswana, Colombia, Costa Rica, El Salvador, Guatemala, Jamaica, Panama (two agreements), Paraguay, Peru (two agreements) and the Philippines.

An Economist's Divorce Clause

When the economist Robert Lucas divorced in 1988, his ex-wife, Rita Lucas, had a clause placed in their divorce settlement that stipulated she would receive half of any Nobel Prize money won by Lucas during the next seven years. When Lucas did win the Nobel Prize in 1995, she was awarded half of the prize money

Dangerous Malinvestment in China

An Austrian sounding analysis of the current state of the economy in China, from Edward Harrison:

Late last year, I predicted that China, as a major exporter to the West, would feel a huge impact from the meltdown in the global economy, taking it’s growth rate down to 2% (See Top ten predictions for the 2009 global economy). Forgetting about the fact that data are highly suspect in China, I see that prediction as very unlikely to come true due to huge fiscal stimulus in China. The Chinese government is very much wedded to it’s 8% growth target and will do whatever it takes to come close to
that target – including flooding the domestic banks with a wall of money to lend.

However, preventing a downturn with easy money is a dangerous way to reflate the economy. The likely malinvestment will be large...

Harrison then points out, in a fashion similar to my own comment yesterday, that this bubble can go on for quite an extended period of time, but make no mistake, it is a money induced bubble.

Did the $20 Billion Bogus Profit Number Come from Taleb Himself?

That appears to be what Henry Blodget, CEO & Editor-in-Chief of The Business Insider, is implying. In the comment section of Joe Weisenthal's post, Blodget writes:

Henry Blodget said:
Jun. 29, 6:24 PM
He initially said he was misquoted. GQ is standing by its story. The fact that he is now merely saying that "the numbers are wrong" suggests that he wasn't misquoted.

Joe Weisenthal Covers the Alleged Taleb Smear Campaign (Sort Of)

The amazing Weisenthal is at it again. He reports on a note Nassim Taleb has posted on a copy of GQ UK article that Taleb has at his site. He writes:

Nassim Taleb has posted a copy (.pdf)of that infamous GQ UK article in which he's quoted as saying he made $20 billion for his clients. On the front he includes a big, yellow warning saying that someone is taking this alleged misquote as the basis for a smear campaign against him!

Ah, great job Joe, except for one minor thing. Wouldn't it help to post who is supposedly smearing Taleb and the details behind the smear? It's busy over there at Clusterstock Joe, so we'll help you out.

The Taleb warning came about after Janet Tavakoli questioned the $20 billion in profits claim in the GQ article, here and here.

Now, Taleb is making a BIG mistake in charging that Tavakoli is trying to smear him. Tavakoli is always all about the numbers. Take a look at the books she has written. She just saw some numbers out of whack and questioned them. In a way, what's going on is that Taleb is experiencing what might be called a black swan event. A very smart, very tenacious woman has noticed him. If Taleb was smart, he would have just corrected the numbers in his note or pulled the GQ article. Now everyone is going to be checking out this alleged smear campaign. And, he now, for sure, has Tavakoli really watching every move he makes.

Obama's Money Girl Raising Profile

Penny Pritzker, of Hyatt Hotel money and an early backer of Barack Obama, appears to be raising her profile.

Yesterday, she spoke at the National Finance Committee dinner in Washington, DC. and she is now scheduled to speak at the 19th annual National Investment Center for the Seniors Housing & Care Industry that will take place in September in Chicago.

It makes sense to keep an eye on what she has to say, given her close proximity to the President.

Battle of the Interventionists

Paul Krugman and Greg Mankiw are at it, again. I guess this means Bill Anderson can take a much deserved day of rest.

Krugman writes that Greg Mankiw and George Will are "either remarkably ignorant or simply disingenuous."

Mankiw responds:

On the issue of tone, I again think I understand Paul's point of view. He likely believes that civility is overrated.

All the gory details are here.

Coming to a Revolution Near You

Deep packet inspection.

The Arctic is Warming..

According to the Associated Press, "the Arctic Ocean is warming up, icebergs are growing scarcer and in some places the seals are finding the waters too hot."

NYT has concluded that "the Arctic appears to be warming up." and "Alpine glaciers are in full retreat."

NYT also reported "a radical change in climatic conditions and hitherto unheard of warmth" in Greenland.

The problem with these scare reports is that they were all made in the 1920's and 30's.

For the full story on global warming madness see this David Deming commentary.

"The Current Good Fortune of General Electric"

With a little help from a team of executives and outside attorneys, including Rodgin Cohen, chairman of the New York law firm Sullivan & Cromwell, GE is cashing in big time on the "bank rescue". Cohen has his fingers in nearly every bank rescue deal around.

Recently, the apparently power hungry Cohen was being vetted for a top Treasury position, until it became obvious that he had a better shot at making it to Treasury if he had represented Bernie Madoff and Charles Manson, and got them both probation, instead of working on deals such as:

Wells Fargo-Wachovia, PNC-National City, Toronto Dominion-Commerce, Bank of New York-Mellon Financial, Regions-AmSouth, Wachovia-Golden West, Wachovia-SouthTrust, Chase-Bank One, First Union-Wachovia, U.S. Bancorp-Firstar,Wells Fargo-Norwest, Wells Fargo-First Interstate, Chemical-Chase, First Union-First Fidelity, Key-Society, NationsBank-C&S, and Bank of New York-Irving as well as numerous other acquisitions. In cross-border and non-U.S. transactions, he was engaged in Banco Santander-Sovereign, Mitsubishi UFG-Morgan Stanley, Barclays-Lehman, Mitsubishi UFG-UnionBanCal, Standard Chartered-American Express Bank, Goldman Sachs-Sumitomo, Allianz-Dresdner, UBS-PaineWebber, Credit Suisse-DLJ, Société Générale-Paribas, Dexia-FSA, Mitsubishi-Bank of Tokyo, Credit Suisse-First Boston, Royal Bank of Canada-Bank of Montreal, and acquisitions or divestitures by Barclays Bank, National Westminster, Midland Bank, Lloyds Bank, Bank of Ireland and Istituto Bancario San Paolo di Torino. He has also worked on a number of major cross-industry and private equity acquisitions, including JPMorgan Chase-Bear Stearns, Merrill Lynch-BlackRock, J.C. Flowers-Sallie Mae, Mellon-Dreyfus and NationsBank-Montgomery, as well as acquisitions in the insurance industry, including Anthem-WellPoint and Manulife-Hancock...

He has also participated in the resolution of most major bank failures, including Washington Mutual, Continental, First City, Southeast, Franklin National and Bank of New England and, at the recommendation of the Federal Reserve, the Ohio thrift crisis.

Cohen also worked on regulatory, law enforcement and internal investigations of financial institutions for matters involving ABN AMRO, Bank of Montreal, Banco Popular, Bank of New York, Fifth Third, First Horizon, IDB, KeyCorp, Mellon, Mitsubishi UFG, Royal Bank of Canada, Standard Chartered, Sun Trust, Wachovia and Wells Fargo.

In short, he delivers when you need to get inside the government. And, boy, does he deliver. Reports, Propublica:

GE has joined major banks collectively saving billions of dollars by raising money for their operations at lower interest rates. Public records show that GE Capital, the company's massive financing arm, has issued nearly a quarter of the $340 billion in debt backed by the program, which is known as the Temporary Liqudity Guarantee Program [2], or TLGP. The government's actions have been "powerful and helpful [3]" to the company, GE chief executive Jeffrey Immelt acknowledged in December

The New Tyler Cowen-Alex Tabarrok Economics Textbook

I just received a review copy of the new Cowen, Tabarrok economics text, i.e., the macro edition, Modern Principles: Macroeconomics.

I haven't read the entire book, yet. However, I note: Part 3 is about "Business Fluctuations". There are four separate chapters in this section. I did not notice even one mention of Austrian Business Cycle theory, Hayek or Mises. There is no index in the review copy, so it's possible I missed a reference but very, very unlikely. Cowen and Tabarrok have dropped ABCT, Hayek and Mises into a memory hole.

According to Cowen and Tabarrok, it seems the Great Depression had nothing to do with the money printing of the 1920's, but simply developed out of the blue in 1929 as a result of an unexplained "great fall in aggregate demand". They don't mention the slowdown in money growth in early 1929 at all. (There is a mention of the 1931 Fed money contraction).

The text appears Keynesian to the core. Cowen, who was once considered by some the next Hayek, should know better

Does Ben Bernanke Have a Diabolical Plan to Help Treasury Finance $2 Trillion?

Federal Reserve Board Chairman Ben Bernanke is the most difficult Fed chairman that I have ever followed. Not only is he difficult to read, but he seems to change policy in mid-stream. He also has a penchant to invent new "tools", when the basic tools of controlling money supply, the Fed Funds rate, the discount rate and the reserve requirement, can pretty much handle any money policy that you can think of. .

Now, I'm wondering if the too clever by half Bernanke may have a diabolical plot to finance the record $2 trillion debt the Treasury is starting to raise. While China and pretty much everyone else are watching to see how much money the Fed is going to print to absorb the record debt, maybe Bernanke is going to fake out everyone and go in the opposite direction.

In the summer of '08, he nearly crashed the entire economy when he stopped printing money. A byproduct of the crisis he created was a flight to quality, i.e., Treasury securities. Is he now working toward another September panic that will frighten everyone into a flight to quality, i.e., Treasury securities, that will provide the opportunity for the Treasury to unload $2 trillion in debt? Is this what is going on with the new slowdown in money supply growth?

China's Brewing Bubble

China's banks are veering out of control. The half-reformed economy of the People's Republic cannot absorb the one trillion dollars blitz of new lending issued since December, writes Ambrose Evans-Pritchard.

His commentary is based on analysis out of Fitch, the rating agency.

Fitch's "macro-prudential risk" indicator for China threatens to jump from category 1 (safe) to category 3 (Iceland, et al).


Writes Pritchard:

Fitch traces the 2009 bubble to the central bank's decision to cut interest on reserves to 0.72pc. Bankers responded to this "margin squeeze" by ramping up the volume of lending instead. Over half the new debt is short-term. Roll-over risk is rocketing. China's monetary stimulus since November is arguably more extreme than the post-Lehman printing of the US Federal Reserve, though less obvious to the untrained eye.

The regime is so hellbent on meeting its growth target of 8pc that it has given banks an implicit guarantee for what Fitch calls a "massive lending spree".

China's M2 annualized money supply growth was 25.7% in May and 26.0% in April, according to the People's Bank of China. This is obviously very extreme money growth. It, however, does not mean a crash is just around the corner. A regime can keep money growth high for an extended periods of time, especially in an economy where productivity is climbing rapidly, but eventually the price inflation kicks in and slowed money growth creates the crash period.

Russia Closing All Casinos, 400,000 To Be Laid Off

No wonder Jim Rogers says Russia is too unpredictable to invest in.

The government is shutting down every last legal casino and slot-machine parlor across the land, under an antivice plan promoted by Vladimir Putin, reports NYT.

Putin's plan, writes NYT, was announced during a spy scandal between Russia and its neighbor Georgia, and the timing suggested that Putin was in part seeking to wound the Georgian diaspora, which is said to have an influential role in the industry in Russia.

Hayek and Feynman on Different Types of Thinking

Do we all think in the same manner?

Highly unlikely.

I just came across this fascinating discussion by the famous physicist Richard Feynman on his discovery that people may think in different manners:




This brought to my mind the essay by F.A Hayek,Two Types of Minds.

Hayek and Feynman are not both discussing the exact same thing, but it is fascinating that both of them seemed to recognize that others thought about things in different manners. Their two observations seem to dovetail, there's probably a lot to expand on and explore here.

A Comeback for Paul Volcker?

Bloomberg's Yalman Onaran has a long profile of Paul Volcker out. It includes this perhaps telling anecdote:

The topic of conversation in the second-story Family Dining Room on a warm evening in April: President Barack Obama’s economic policies.

Obama sat at the head of the table, administration insiders arrayed along one side to his right. To his left, facing a French marble fireplace, were some of his harshest critics: Nobel laureates Joseph Stiglitz and Paul Krugman and Harvard University professor Kenneth Rogoff.

One chair on the insiders’ side was empty, according to attendees. It was reserved for Paul Volcker, the 81-year-old former Federal Reserve chairman who was an adviser to Obama during the campaign and now heads the President’s Economic Recovery Advisory Board, or PERAB. He was stuck at the White House gate, trying to convince guards that he was expected for dinner. His plane from New York had been delayed by a storm, and his security clearance to enter the building that day had expired. .. While he doesn’t have a full-time job, isn’t paid for his advice and lives in New York, the 6-foot-7-inch (2.01-meter) Volcker is hard to ignore.

Volcker...eventually made his way to the dinner table the evening of April 27...

There's always been two sides to Volcker, inflation fighter, but also Rockefeller operative.

Indeed, Onaran's profile contains an endorsement of Volcker by none other than David Rockefeller:

“He was brilliant, eminently logical, and steadfastly devoted to his work,” says David Rockefeller, 94, who hired the Princeton graduate to work as an economist at Chase Manhattan Bank in 1957 after a stint in the research department of the New York Fed.

Onran, also, details Volcker's revolving door career between government work and Rockefeller work, if there is a difference:

Volcker, who also received a master’s degree in political economy and government from Harvard University in Cambridge, Massachusetts, left Chase to become the director of financial analysis at the Treasury Department in 1962. He rose to deputy undersecretary the following year during the administration of Lyndon Johnson, returned to Chase in 1965 and, when Richard Nixon became president, rejoined Treasury as undersecretary for international monetary affairs.

Onran then goes on to suggest that Volcker is experiencing somewhat of a comeback in the Obama White House. Given what is coming out of the mouths of other Obama advisers, Volcker is probably a lesser evil. He, for example, knows that it is nutty to put so much new control in the hands of the Federal Reserve, as is part of Obama's recent regulatory reform proposal. Writes Ornan:

“Do we want to make the Federal Reserve the chief regulator too?” Volcker asked during a Bloomberg TV interview on April 29. “Maybe that’s going a little too far.”

Curiously, though, while I saw Volcker often being critical, on record, of Alan Greenspan's monetary policies, I have seen nothing on record by Volcker about Ben Bernanke's roller coaster money printing operations--even though it has been reported that Volcker has said that he believes Bernanke will be a only a one term Fed chairman.

The Further Greening of Goldman Sachs

The Wall Street elite are ready for Tax and Trade. I'm talking really ready, as in, it is their show. Rachel Morris in Mother Jones' Washington bureau explains:

If the Waxman-Markey climate bill is signed into law, it will generate, almost as an afterthought, a new market for carbon derivatives. That market will be vast, complicated, and dauntingly difficult to monitor....Cap and trade would create what Commodity Futures Trading commissioner Bart Chilton anticipates as a $2 trillion market, "the biggest of any [commodities] derivatives product in the next five years." That derivatives market will be based on two main instruments. First, there are the carbon allowance permits that form the nuts and bolts of any cap-and-trade scheme. Under cap and trade, the government would issue permits that allow companies to emit a certain amount of greenhouse gases. Companies that emit too much can buy allowances from companies that produce less than their limit. Then there are carbon offsets, which allow companies to emit greenhouse gases in excess of a federally mandated cap if they invest in a project that cuts emissions somewhere else—usually in developing countries. Polluters can pay Brazilian villagers to not cut down trees, for instance, or Filipino farmers to trap methane in pig manure.

In addition to trading the allowances and offsets themselves, participants in carbon markets can also deal in their derivatives—such as futures contracts to deliver a certain number of allowances at an agreed price and time. These instruments will be traded not only by polluters that need to buy credits to comply with environmental regulations, but also by financial services firms. In fact, a study (PDF) by Duke University's Nicholas Institute for Environmental Policy Solutions anticipates that if the United States passes a cap-and-trade law, the derivatives trade will probably exceed the market for the allowances themselves. "We are on the verge of creating a new trillion-dollar market in financial assets that will be securitized, derivatized, and speculated by Wall Street like the mortgage-backed securities market," says Robert Shapiro, a former undersecretary of commerce in the Clinton administration and a cofounder of the US Climate Task Force.

Banks like JPMorgan Chase, Morgan Stanley, and Goldman Sachs already have active carbon trading desks that deal in instruments connected to Europe's cap-and-trade system and voluntary markets here. But business will explode if a cap-and-trade system becomes law. So it's no surprise that the financial industry has taken an intense interest in the fine print of the Waxman-Markey bill. According to data compiled by the Center for Public Integrity, the financial services industry has 130 lobbyists working on climate issues, compared to almost none in 2003. They represent companies like Goldman Sachs, JPMorgan Chase, and AIG (before it was shamed into temporarily halting its lobbying activities last fall). The industry "wants lawmakers to create a brand-new revenue stream for its bottom line, and cap and trade would do it," says Tyson Slocum of Public Citizen, who is a member of a Commodity Futures Trading Commission (CFTC) advisory committee considering how carbon trading should be regulated.

Bottom line: It's as if tree huggers convinced government that tree hugging be required by every man, woman and child, and thus a market for trees to hug developed with very complex rules as to the rights to hug a tree, and Goldman Sachs helped develop the complex rules and then started trading in those rights based on the comples rules only they understand.

In other words, Goldman Sachs has totally co-opted the green movement for lots of green of a very different kind.