Buy the Ruble!

In our last tidbits edition we said the following in connection with Russia's conservative central bank:

“Back in 1998, Jim Rogers would regularly appear as a guest on CNBC's 'squawk box'; when asked about his best investment idea for the year he kept repeating “sell the ruble”. He was right, it was one of the best investment ideas of that fateful year.

Depending on whom Putin appoints, it could well be that it is time for a different slogan: buy the ruble.”

Believe it or not, only a day later we came across this interview with Jim Rogers. Apart from recommending that people should hold on to their gold and silver and invest in agriculture (his old stand-by), he also replied to the question which currency he would recommend to buy, if he were to pick only one. His answer: “Buy the Ruble!

That's what's known as 'synchronicity' – it probably is a really good omen for the ruble.




Legendary investor Jim Rogers: hang on to your gold and buy the ruble!

(Photo via:



Euro-land Idiots Have Forgotten Their Own History

We have spilled a lot of ink on denouncing the eurocracy's introduction of a 'Tobin Tax' in these pages, as it is one of the most inane proposals yet to gush forth in recent years from this gaggle of deluded socialists.

Now we learn that the so-called 'euro-dollar' bond market is a direct result of the US introducing a similar tax in the 1960s! Money fled from the US and went to the shores of Europe, where it was better treated at the time. Incidentally, it is the 50th anniversary of this 'euro bond' market. You really couldn't make this up if you tried.

Bloomberg reports (remarks in square brackets are ours):

“Half a century after a U.S. tax on bond purchases spawned the $3.7 trillion-a-year Eurobond market, Europe’s plan to impose a levy on financial transactions risks triggering a similar flight.

Against the objections of nations including the U.K. and Luxembourg, European Union finance ministers agreed Jan. 22 that interested member states may design a broad-based tax that would cover trades in stocks, bonds, derivatives and other securities. The EU estimates the proposal would allow France, Germany and nine other countries to raise as much as $47 billion a year.

“What’ll happen is what has always happened,” said Jim Kean, founder of investment advisory firm Bayesic Asset Management Ltd. in London, who started as a bond trader in 1986, a year before Margaret Thatcher’s “Big Bang” deregulation of the U.K. ushered in liberalized financial markets. “If you can transact without transaction costs, you will. There’ll be a market in Singapore or somewhere else.”

Europe’s plans have been dubbed a Tobin tax after U.S. economist James Tobin, who in 1972 suggested taking a cut of foreign-exchange trades to limit currency speculation. History is littered with government attempts to extract revenue from financial transactions, not all of which were successful and most of which had unintended consequences. [make that 'none of them were successful', ed.]

The Eurobond market, now the largest forum for corporate fixed-income transactions, came into being after President John F. Kennedy imposed a so-called interest-equalization tax in 1963 to make investing in foreign securities less alluring to U.S. investors and ease a balance of payments deficit.

Italy’s Autostrade per l’Italia SpA issued the first Eurobond in July 1963, a $15 million issue managed by S.G. Warburg, according to “The Eurobond Diaries,” a market history published in 1994. The U.S. move drove bond trading to London, where an unregulated market arose. So-called Belgian dentists, shorthand for wealthy entrepreneurs whose customers paid in cash, bought corporate debt and rode the “coupon train” to Luxembourg to collect interest, according to Mint Partners Ltd. bond broker Bill Blain, who joined Morgan Stanley in 1985.

“It was all driven by tax,” he said. “Who would have thought Europe would be so stupid as to actually do this now?”


(emphasis added)

It is not 'Europe' that is so stupid to actually do this now, it is Europe's political and bureaucratic class, which appears to believe, a la French president Hollande, that it can 'order nature around' (this trenchant assessment of the French socialist throwback is courtesy of Fred Sheehan). They will learn the lesson all over again now, but at great cost to the continent's citizens, financial markets  and entrepreneurs.


SEC Decides to Subsidize Market Makers

We have reported on this before in “Fractional Customer Fleecing”, but apparently the SEC now really wants to go back to quoting prices in fractions in small cap stocks. It is not even denied that this is done so that market makers can fleece the investing public. The thin reed on which the argument is based is that this will allegedly 'improve liquidity' in small cap stocks. Yeah, sure. The market makers themselves of course have 'studies' that are proving their case.

According to Bloomberg:

“The Jumpstart Our Business Startups Act, signed into law by President Barack Obama last April, authorized the SEC to increase the tick size to as much as 10 cents from 1 cent for emerging-growth companies, or those with annual revenue of less than $1 billion. A July study by SEC staff members said that while rule making wasn’t immediately necessary, discussions with market participants could generate ideas for a pilot study.

Market makers and dealers need more economic incentives to bring smaller companies public, provide bids and offers and publish stock research, according to David Weild, New York-based chairman and chief executive officer of Weild & Co. and head of capital markets at Grant Thornton LLP. About 150 to 350 IPOs each raised less than $25 million a year from 1991 to 1997, according to data compiled by Grant Thornton. Fewer than 50 did so annually on average starting in 2000, the data show.


(emphasis added)

Business start-ups cannot be successfully 'jumpstarted' by the State; as an aside, the administration's record with regard to subsidizing specific businesses (see Solyndra) is so far appalling.  The only thing the  'study' by Weild & Co. actually shows is that there has been a secular bear market since 2000. The fact that people trade less in highly speculative stocks has nada to do with bid-ask spreads being 'too small'.

Bloomberg further (remarks in square brackets are ours)

“Revenue fell more than 50 percent for NYSE specialists and 70 percent for Nasdaq market makers from 2000 to 2004, a Government Accountability Office report found in 2005. Regulatory changes, the increase in electronic trading and a 18 percent drop in the Standard & Poor’s 500 Index over those five years cut the number of specialists and market makers almost in half, to about 260 from almost 500, the GAO said. [aha!, ed.]


“If you’re a retail client, you’d be concerned that your cost to execute would go up,” said Conroy, speaking on behalf of Fidelity’s mutual fund and institutional business. “We would be wary of market-structure changes that increase execution costs for the vast majority of investors, be they retail or mutual funds. We would also be wary of disrupting what is overall not perfect, but a highly efficient market structure.” Smaller companies tend to be difficult to trade because of the number of shares publicly available and their concentration of ownership, Conroy said. [you bet! ed.]


“Blaming pennies for problems in the markets is going after the wrong culprit,” Ricker, who participated in 1997 Congressional hearings about decimal increments, said in a phone interview. “Expanding tick sizes would decrease the intensity of competition in the market. A bigger spread would put more money in the pockets of high-frequency shops.” [aha! again, ed.]

The securities industry should test 0.5-cent increments for active stocks to see whether the current spread is too wide, he said. Narrowing the difference between the bid and offer would save money for investors in the biggest stocks, he said. [best idea so far, ed.]

It should be obvious from the above who wants this and why. Investors are to be fleeced so that market makers and high-frequency traders can make more money – that is the only reason for this inane proposal. It would be a giant step backward – and you can be sure that they will manipulate the 'test', as nothing would be easier.


Argentine Fascists Are Getting Desperate

Taking a page from the playbook of Roman emperor Diocletian, the Argentine government has now decided that the best way to 'fight the inflation' that its own money printing has let loose is to introduce price controls. Recall here that Argentina has an 'official' inflation rate of just above 10% and is threatening economists who say otherwise with a $100,000 fine and even jail time. In reality, consumer prices rise at about a 30% annual clip – Argentina is not yet in a hyperinflation environment, but it sure remains on the cusp of one. Its Yale-educated central bank governor Mercedes Marco Del Pont last year proclaimed that 'money printing does not cause inflation'. She seems to be a soul-mate of Adair Turner.

So what is going to happen once price controls are introduced? Mish suggests a big black market will develop, with which we agree. Primarily though there will be shortages of important goods (as has happened in Venezuela due to similar heavy-handed economic mismanagement). Expect Argentina's supermarket shelves to empty out shortly.

“Argentina announced a two-month price freeze on supermarket products Monday in an effort to break spiraling inflation.

The price freeze applies to every product in all of the nation's largest supermarkets — a group including Walmart, Carrefour, Coto, Jumbo, Disco and other large chains. The companies' trade group, representing 70 percent of the Argentine market, reached the accord with Commerce Secretary Guillermo Moreno, the government's news agency Telam reported. The commerce ministry wants consumers to keep receipts and complain to a hotline about any price hikes they see before April 1.

Polls show Argentines worry most about inflation, which private economists estimate could reach 30 percent this year. The government says it's trying to hold the next union wage hikes to 20 percent, a figure that suggests how little anyone believes the official index that pegs annual inflation at just 10 percent.

The government announced the price freeze on the first business day after the International Monetary Fund formally censured Argentina for putting out inaccurate economic data. The IMF has given Argentina until September to bring its statistics up to international standards, or face expulsion from the world body in November.”


(emphasis added)

Here is why the 'trade group' of the big companies 'agreed' to this inanity: they first of all hope that all their smaller competition will be killed off, which will indeed happen. Thereafter they will be free to hike prices to their heart's content. This is typical for a fascist system: big business is in cahoots with government. However, there was undoubtedly – the perhaps unspoken – threat that anyone resisting would face a revocation of their license. As 'agreements' go, this one has definitely happened under a certain degree of duress. After all, Argentina's government has already demonstrated that it is willing to expropriate those it doesn't like (we are referring to the shameful YPF-Repsol nationalization).




Argentina's central bank governor Mercedes Marco Del Pont: money printing is not the cause of 'inflation'. In a way she's right: money printing is inflation. What it creates are rising prices.

(Photo via




The 'Atlantic Wire' recently reported on a leaked document that shows how the Obama administration decides on when to assassinate US citizens with drones – without any due process of course. This fact alone shows that the US constitution is a dead letter. Americans now live quite officially under a fascist regime as well. No redress has so far been offered by the courts on any of the most egregious measures and laws imposed in the course of the so-called 'war on terror', which should surprise precisely no-one, as this would amount to the government 'controlling'  itself. In light of this fact, the 'division of powers' that allegedly guarantees citizens' god-given rights in a democracy seems nothing but an elaborate hoax.

Human rights advocates were floored on Monday night when NBC News published the details of an alarming Justice Department memo detailing the protocol for sending drones after United States citizens. It's not as if they hadn't suspected that the Obama administration's top secret drone attack protocol contained some unsavory details. They just didn't expect them to be so frightfully broad. The scoop by Michael Isikoff is actually startling not for the details but rather for the lack of details. It's very vague about a decision-making process that puts American lives on the line. Put simply, the government believes that a lethal drone attack against an American citizen is justified if the targets are a) "senior operational leaders" of al-Qaeda or b) "an associated force."

One of those two qualifiers is infinitely more worrisome than the other. Going after leaders of al Qaeda makes sense. That's what the War on Terror is all about, right? Breaking down networks of violent terrorists and keeping Americans safe. If an American happens to be caught up with al Qaeda, someone like Anwar al-Awlaki, then well… they shouldn't be surprised if they're getting chased by drones. At least that's what we've been told so far. How and why these attacks are carried out by drones is also detailed in the memo, but we'll get back to that in a second.


But what does "an associated force" mean? It seems like the guy who sells the terrorists bomb supplies would probably qualify, but what about the unknowing neighbor or the hired hand? Can we just kill them too in good conscience? Quite unfortunately, the government isn't exactly sure. The memo suggests that anyone who "present[s] an 'imminent' threat of violent attack against the United States" qualifies for assassination "a lawful killing in self defense," but that "does not require the United States to have clear evidence that a specific attack on U.S. persons and interests will take place in the immediate future." In other words, an "informed, high-level" official can order the killing of any American citizen that was "recently" involved in threatening "activities." As Isikoff points out, the memo fails to define both of those terms.


"This is a chilling document," said Jameel Jaffer, deputy legal director of the American Civil Liberties Union. "Basically, it argues that the government has the right to carry out the extrajudicial killing of an American citizen. … It recognizes some limits on the authority it sets out, but the limits are elastic and vaguely defined, and it's easy to see how they could be manipulated." We've already seen some of this vague authority in action. A couple of years ago, The New York Times provided some insight into how subjective the process of deciding when to kill and when not to kill American citizens based on a top secret memo that justified the killing of al-Awlaki. That document as well as this latest leak from the Justice Department essentially says that a lethal attack, likely by a drone, is the method of choice whenever a capture mission would put other American lives on the line. Again, the documents are very vague about where to draw the line.”


(emphasis added)

We would add to the above that the entire 'drone war' is as counterproductive as it is inhumane. Hundreds of perfectly innocent people have been killed, so we don't quite see why one should worry exclusively about American lives being put on the line (although the realization that US citizens have no rights either in this war may help with creating some political pressure). Numerous new widows and orphans in the regions concerned are potential future terrorists now, and when the inevitable 'blow-back' comes it will be used to justify a further abridgment of the liberty of the citizenry and moreover will likely be used as the justification for even more senseless wars.

Note here that we are not saying that a nation should not defend itself against terrorists – the fundamentalist Islamists are medieval nutjobs who know absolutely no mercy themselves and are helping to drag the societies they live in back to the 12th century to the great detriment of their fellow citizens. We have certainly no love whatsoever for the purveyors of terrorism; they are simply barbarians in our view. However, one cannot hope to successfully thwart terrorists by producing more of them, by basically acting as Al Qaeda's recruitment agency. Moreover, be eradicating liberty and due process at home, one only plays into their hands. Osama bin Laden (or the actor who impersonated him in recent years…) must be laughing at us from the grave.

We also maintain that the entire security apparatus and body of laws that was in force prior to 9-11 and the introduction of the PATRIOT Act and all the other repressive legislation that has been spawned in its wake, was entirely sufficient to deal with terrorism. There is nothing that can be gained by wiretapping every single citizen without a court order or by sending out drones to drop bombs on remote villages in Waziristan. We know from the history of the 9-11 atrocity – whereby it should be noted that the 'official story' remains full of hitherto unexplained holes – that the authorities could have stopped the perpetrators in time, if only certain layers of the security apparatus had taken the admonishments of their agents in the field seriously. One cannot eradicate such incompetence by throwing more money at it or by enacting draconian repressive laws.


Italy: Berlusconi's Star Ascendant

We have talked about Italy and the comeback of Silvio Berlusconi in some detail yesterday. However, an update is already necessary. It appears that support for Berlusconi has in the meantime increased further. The reason? He promises voters to reduce their onerous tax burden. In fact, if we were an Italian citizen, we too would think that this would be an excellent reason to vote for the man. Unfortunately he didn't promise any spending cuts in the same breath, but ultimately he would probably be forced to enact them anyway. Euro-skeptic Beppe Grillo also saw his fortunes improve further.

Bloomberg reports:

“Former Italian Prime Minister Silvio Berlusconi narrowed the gap in polls with frontrunner Pier Luigi Bersani even further after his tax rebate promise, three weeks before the country’s parliamentary elections. The gap between the center-left bloc, led by the Democratic Party leader, and Berlusconi’s coalition has narrowed by 1.2 percentage points to 6.1 points, according to an IPR poll for RAI3 released yesterday.

Bersani’s bloc is losing ground amid a media blitz by Berlusconi and a derivatives scandal at lender Banca Monte dei Paschi di Siena SpA, which traditionally has strong links with the Democratic Party. The 76-year billionaire is seeking to build on his gains in polls and on Feb. 3 added to his promise of abolishing an unpopular property tax known as IMU, pledging to also reimburse the amount paid last year.

Berlusconi, the most successful politician of his generation, has stepped up his anti-austerity rhetoric against Germany and the euro as Italians are mired in their fourth recession since 2001 and faced with a 13-year high unemployment rate. The signing of Mario Balotelli to his AC Milan soccer club also helped Berlusconi, who is appealing a tax fraud conviction he received in October, according to SWG Institute last week.

Support for Berlusconi’s coalition, which includes his People of Liberty party, has risen by 0.5 percentage points to 28.6 percent according to IPR. The poll had a margin of error of 3.2 percentage points. Fifty-four percent of surveyed Italians said the rebate of the property tax wasn’t credible, while 40 percent said it was feasible, the IPR poll showed.”


Support for Prime Minister Monti’s coalition of centrist parties fell by 0.9 to 13.3 percent, according to the SWG poll, while the IPR poll showed a 0.8 percent decline to 14 percent. Comedian Beppe Grillo’s anti-austerity movement is gaining ground. The Five Star Movement’s support rose by 1 percentage points to 14.5 percent, according to EMG, while IPR showed Grillo advanced 0.9 percent to 15.5 percent, replacing Monti’s coalition as third-largest bloc.”


(emphasis added)

A coalition between the comedian Beppe Grillo and the unsurpassed political jester Silvio Berlusconi would without a doubt enhance the entertainment value of Italian politics immeasurably compared to what was seen under the drab austerity technocrat Mario Monti. The bond market may not like it much though. However, the Italian bond market is mispriced anyway. It does not properly reflect the risks at the moment, as it has been buoyed by nothing but the ECB's promise to print more money if push comes to shove.



10-yr. Italy

Italy's 10 year government bond yield – still low, but recently rising strongly. Via BigCharts – click for better resolution.




Uncle Silvio gives us his best Cheshire cat grin: look who's coming back!

(Photo via AFP)



Shooting the Messenger

Credit rating agencies are being taught the lesson that telling the truth about sovereign credits can really be dangerous to their health. After the bizarre prosecution of credit rating agencies in Italy, and the absurd decision by the EU to muzzle them by 'allowing' unsolicited ratings to be published only three days a year at previously designated points in time (a clear violation of the right to free speech), the SEC is lately following in the footsteps of the eurocrats by punishing all the credit rating agencies that have downgraded the sovereign credit rating of the US. Of course, officially the SEC is going after them for  entirely unrelated infractions, but the timing of these investigations is extremely suspicious, to say the least.

First there was the already well-known case of Egan Jones, the only ratings agency that does not get paid by issuers but by investors, which removes the conflict of interest that plagues the 'big three' (Moody's, S&P and Fitch). It turns actually out that the impression one got from official statements and press reports regarding the infraction Egan Jones was charged with was entirely misleading.

“But there is a curious history to the Egan-Jones matter, one that raises the issue of government retaliation.

The SEC started its probe after Egan-Jones was first to downgrade the U.S. debt, subsequently downgrading the U.S. debt three times in total. An SEC official notes that a public document Egan-Jones filed in court indicates the agency’s enforcement division had informed Egan-Jones that it had opened an informal inquiry in February 2010, and that “a "formal order of investigation" was issued on July 30, 2010,” a year ahead of the downgrade.

Egan-Jones officials tell FOX Business that “a full year went by before the SEC filed a Wells notice” indicating an enforcement action was likely coming, which came after Egan-Jones had downgraded the U.S. in July 2011.

Egan-Jones is a privately owned, 20-person firm based in Haverford, Pa., and is one of the few rating agencies that does not get paid by issuers to rate securities, instead it gets paid by investors.


According to the SEC’s order, the company had not issued any ABS or government issuer ratings “that were made available through the Internet or any other readily accessible means.”

Egan-Jones’ lawyer has already told FOX Business that the SEC has indicated to Egan-Jones that the firm actually did rate all of the securities at issue, but that the problem was the firm did not widely publicize its ratings.

“There’s nothing in this complaint that suggests or alleges that any rating was without integrity or was not accurate or was not predictive,” Egan’s lawyer has said.


(emphasis added)

The official reports on the SEC investigation always seemed to imply that Egan Jones actually did not produce any of the ratings concerned. However, not only did it produce them, they were unerringly accurate to boot! It just didn't put them prominently enough on the intertubes it seems!

Now the government is going after S&P, for the ostensibly well justified reason that it deceived investors with its ratings of mortgage backed securities during the housing boom (we have often pointed out that these allegedly 'sophisticated' investors only have themselves to blame for their gullibility and their laziness in researching their investments). Once again, this happens over four years after the alleged deed and seems timing-wise connected with S&Ps decision to downgrade the credit rating of the US government.

As Roger Kimball notes in “How Do You Spell Retaliation?” (h/t Instapundit):



Consider the news, which was reported just yesterday by the Wall Street Journal, that the Justice Department is suing the rating company Standard & Poor’s “in retaliation for the S&P’s temerity in downgrading U.S. sovereign debt for the first time in history in 2011.”

Oops! That was the unexpurgated version. The announced reason the Department of Justice is going after the company is because “the firm ignored its own standards to rate mortgage bonds that imploded in the financial crisis and cost investors billions.”

What do you think? Companies like S&P and Moody’s look at a variety of factors to try to determine the creditworthiness of a company or a country. Their assessments are festooned with warnings and cautions, just like those “past performance is no guarantee of future returns” slogans you see pasted at the bottom of every mutual fund you’ve ever plunked a dime into. Investors certainly did “lose billions” in the financial crisis. But whose fault was that?

The hyenas, in the shape of various states’ attorneys general and other entities unhappy about the fact that they lost money investing in some of the most exotic and risky financial instruments ever devised by the mind of man, are gathering around the tasty carcass of these companies. But no one forced anyone into making these investments. Credit ratings are not predictions, they’re educated guesses about the future based on the past. Often — usually, in fact — the future looks a lot like the past. Sometimes it doesn’t.

Partly, I think, the move against S&P (the other rating agencies are also in the government’s crosshairs) is a an example of the time-honored practice of scapegoating. People are looking for someone to blame and the rating agencies seem like low-hanging fruit: “Hey, they told me this might be a great (though risky) investment, and I lost money! Whom can I blame?”

But I suspect this is not only about scapegoating. I suspect it is also about retaliation. We are living with the most fiscally incontinent administration in U.S. history, perhaps in world history. Both S&P and Moody’s took note of this incontinence and broadcast the news by downgrading U.S. debt in 2011. The result? A $1 billion lawsuit against S&P. Merely post hoc? Or do you discern a teensy bit of propter hoc there as well? I do.


(emphasis added)

We think Mr. Kimball's suspicions about the true cause behind the S&P suit are probably well founded.  After all, the great mortgage credit fraud of the 2000ds hasn't really been a top priority of the administration hitherto. This is not too surprising, as many politicians would end up implicated if anything came to trial – after all, it was their policies that egged on the creation of the mortgage credit bubble, in concert with the Fed's monetary pumping. The S&P case probably won't go to trial either. There will be a very costly 'settlement', a warning shot to S&P and other credit rating agencies not to dare issuing another downgrade of US treasury debt in view of the approaching budget battle.




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You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.


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