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

Quoth The Maven, "Evermore"

maven

n.

A person who has special knowledge or experience; an expert.

Merriam-Webster Diconary

"The ideas of debtor and creditor as to what constitutes agood time never coincide."

P.G. Wodehouse, Love Among the Chickens

"A man without debts is a man without anything to live for. Debtis collateral for life. It provides you with obligations to others,gives you duty, gives you purpose: the purpose to protect thosepossessions which you would not otherwise have without yourdebt. Debt is the most responsible way to elevate your socialposition."

Bauvard, The Prince of Plungers

"'Nature is an expert in cost-beneft analysis,' shesays. 'Although she does her accounting a littledifferently. As for debts, she always collects in thelong run...'"

Margaret Atwood, Payback: Debt and the Shadow Side of Wealth

o learn more about Grant's new investment newsleer,

Bull's Eye Investor, Click here

THINGS THAT MAKE YOU GO

Hmmm...A walk around the fringes of nance

By Grant Williams

16 December

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

Samsung Shifts Plants from China to Protect Margins ...........................................23Jim Chanos, Bad News Bear, Urges Market Prudence ...........................................24

Japan GPIF Must Cut Bonds, Create Board, Ito Tells Lawmakers ..............................26

Swift Too Quick to Hail Yuan as a Major Currency in Trade Finance ..........................27

Welcome Back to the Eurozone Nightmare .......................................................28

Coal Industry Finds Itself at a Crossroads .........................................................30

World's Biggest Investor BlackRock Says US Rally Nearing Exhaustion ........................31

Nearly $1 Trillion Was Smuggled Out of Developing Countries in 2011 .......................33

Russia in Stagnation: Putin Speech Hints at Big Problems ......................................34

Why Do We Value Gold? ..............................................................................35

CHARTS THAT MAKE YOU GO HMMM... ................................................ 37

WORDS THAT MAKE YOU GO HMMM... ................................................. 40

AND FINALLY... .............................................................................41

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ThingsThat Make You GoHmmm...On January 29, 1845, the New York Evening Mirrorpublished a poem that would go on to be oneof the most celebrated narrative poems ever penned.

It depicted a tragic romantic's desperate descent intomadness over the loss of his love; and it made itsauthor, Edgar Allan Poe, one of the most feted poets ofhis time.

The poem was entitled "The Raven," and its star was anominous black bird that visits an unnamed narrator whois lamenting the loss of his true love, Lenore. (We'll getback to Bart Simpson dressed as the Raven later on.)

Today, the sad tale would be splashed on the coverof a million tabloid magazines with a title such as"Lenore Dumps Narrator," "I'll Never Find True Love

Again Narrator Spills on Tragic Split With Lenore,"or even "Kanye & Lenore It's Love! But Don't TellThe Narrator."But 1845 was the very epitome of "oldschool," and so the poor, bereft narrator's tale wasshared with the world through a complex rhyme andmetering scheme that was popularized by ElizabethBarrett Browning in her poem "Lady Geraldine's Courtship."

"POETRY NERD!"

Quiet at the back or I'll have you removed.

Now, as the narrator slips slowly, desperatelyinto the pit of insanity, he discovers that theraven, with the license aorded the poet, cantalk; and so he sets about asking the mysteriousbird for guidance in navigating his torment:

Then this ebony bird beguiling my sad

fancy into smiling,By the grave and stern decorum of thecountenance it wore,"Though thy head be shorn and shaven, thou," I said, "art sure no craven,Ghastly grim and ancient Raven wandering from the Nightly shore Tell me what thy lordly name is on the Night's Plutonian shore!"

Quoth the Raven "Nevermore."

To receive Grant Williams'Things That Make You Go Hmmm...

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Unfortunately for the narrator, the raven's vocabulary is limited to the single word nevermore,which, in a rare moment of clarity, the narrator reasons can only have been learned from anunhappy former owner:

Startled at the stillness broken by reply so aptly spoken,

"Doubtless," said I, "what it utters is its only stock and storeCaught from some unhappy master whom unmerciful DisasterFollowed fast and followed faster till his songs one burden bore Till the dirges of his Hope that melancholy burden bore

Of 'Never nevermore'."

It's at this point that the narrator demonstrates beyond any last vestige of remaining doubt thathe is, in fact, completely insane when, knowing full well that there is only one possible answerto any question he might pose his strange visitor, he pulls up a "cushioned seat" in front of thebird and proceeds to question him:

But the Raven still beguiling my sad fancy into smiling,Straight I wheeled a cushioned seat in front of bird, and bust and door;Then, upon the velvet sinking, I betook myself to linkingFancy unto fancy, thinking what this ominous bird of yore What this grim, ungainly, ghastly, gaunt, and ominous bird of yore

Meant in croaking "Nevermore."

So, with the vision rmly planted in your mind's eye of a man completely out of touch withreality, seeking wisdom from a mysterious talking bird knowing that there is only oneresponse, no matter the question Dear Reader, allow me to present to you a chart.

It is one I have used before, but its importance is enormous, and it will form the foundation ofthis week's discussion (alongside a few others that break it down into its constituent parts).

Ladies and gentlemen, I give you (drumroll please) total outstanding credit versus GDP in theUnited States from 1929 to 2012:

-10,000

0

10,000

20,000

30,000

40,000

50,000

60,000

1929 1939 1949 1959 1969 1979 1989 1999 2009 2012

All Sectors: Credit Market Instruments (liabilities)

United States: Total Credit Market Instruments vs GDP1929-2012

US Gross Domestic Product

Source: St. Louis Fed

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This one chart shows exactly WHY we are where we are, folks.

From the moment Richard Nixon toppled the US dollar from its golden foundation and usheredin the era of pure at money (oxymoron though that may be) on August 15, 1971, there hasbeen a ubiquitous and dangerous synonym for "growth": credit.

The world embarked upon a multi-decade credit-fueled binge and claimed the results asgrowth.

Fanciful.

Floated ever higher on a cushion of credit that has expanded exponentially, as you can see.(The expansion of true growth would have been largely linear though one can only speculateas to the trajectory of that GDP line had so much credit NOT been extended.) The world hascongratulated itself on its "outperformance," when the truth is that bills have been run uprelentlessly, with only the occasional hiccup along the way (each of which has manifested itself

as a violent reaction to the over-extension of cheap money.

Along the way, the cost of that cheap money has drifted consistently lower from its peak in1980 and the fallo was needed in order that we be able to keep squeezing juice from anincreasingly manky-looking lemon:

0

5

10

15

20

1979 1989 1999 2009 2013

US Fed Funds RateDecember 1979 - December 2013

Source: Bloomberg

But the Fed has decided that when life gives you lemons, you make Lemon-aid.

Of course, the problem comes when you reach the point where you are no longer charging forthat "cheap" money but rather giving it away or in the case of the interest paid on excessreserves held at the Fed, paying people to take it.

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Excess reserves held on deposit at the Federal Reserve currently total $2.4 trillion, which atan a rate of 0.25% per annum equates to $6,000,000,000 (that's $6 billion to you and me) ininterest payable to US banks.

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

1984 1989 1994 1999 2004 2009 2013

Excess Reserves On Deposit At The Federal Reserve

1984 - 2013

Source: St Louis Fed

Remember when that used to be real money? Seems such a long time ago, doesn't it? Now itdoesn't even cover the nes payable for market manipulation. In actual fact, it's almost twicethe amount requiredjust 15 years agoin order to save LTCM and stop the global nancial

system from melting down.

Deation? Not in the cost of bailouts there isn't.

Naturally, when you have no more room to juice one side of the equation, the other side suersaccordingly; and though it may not have happened yet, and though the geniuses in charge ofcoming up with the next great delaying tactic are still in the game, the end isn't very far away.

This issue of debt is one that just won't go away and it isn't just a modern phenomenon, ofcourse. In fact, as David Graeber pointed out in his wonderfully titled book Debt: The First5,000 Years,debt formed the very foundations of one of the world's rst and, to this day, most

august central banking institutions: the Bank of England:

In fact this is precisely the logic on which the Bank of England the rst successfulmodern central bank was originally founded. In 1694, a consortium of English bankersmade a loan of 1,200,000 to the king. In return they received a royal monopoly on theissuance of banknotes. What this meant in practice was they had the right to advanceIOUs for a portion of the money the king now owed them to any inhabitant of thekingdom willing to borrow from them, or willing to deposit their own money in the bank in eect, to circulate or "monetize" the newly created royal debt.

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This was a great deal for the bankers (they got to charge the king 8 percent annualinterest for the original loan and simultaneously charge interest on the same money tothe clients who borrowed it), but it only worked as long as the original loan remainedoutstanding. To this day, this loan has never been paid back. It cannot be. If it everwere, the entire monetary system of Great Britain would cease to exist.

You see? THAT'S the problem. Right there.

The debt that underpins the banking systems of the world can never be paid back. Period. If itwere, everything would collapse.

Just this week, a buddy of mine in Hong Kong who watches everything (and I mean everything)like a hawk sent me an email about some of the ner points of the latest Fed quarterly report,which was released this week.

In particular, he wanted to point out something that isn't exactly new news but that is perhaps

forgotten amidst the general hue and cry over QE: the solidity of the Fed's balance sheet.

The quarterly report contains a wealth of useful information. For instance, the maturitydistribution of all those treasuries that the Fed has been so graciously accumulating, to thetune of $45 billion a month:

Maturity Distribution of Treasury Securities

10 Years $535 billion

Avg. Weighted Life 5.9 years

Source: Federal Reserve

Or the MBS they've been splashing out $40 billion a month on:

Maturity Distribution for GSE MBS

5-10 Years $2.6 billion

>10 Years $1,340 billion

Avg. Weighted Life 3.3 years

Source: Federal Reserve

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But the best little nugget in this whole 32-page reportis the table that displays the assets,liabilities, and capital of the Federal Reserve System:

Source: Federal Reserve

Yes, the Fed has $55 billion of total capital and assets of $3.843 trillion, which means that theFederal Reserve is leveraged roughly 70x.

Remember that whole GFC thing a few years ago? No? Well, let me refresh your memory:

(Wikipedia): The nancial crisis of 20072008, also known as the Global Financial Crisisand 2008 nancial crisis, is considered by many economists the worst nancial crisissince the Great Depression of the 1930s. It resulted in the threat of total collapseof large nancial institutions, the bailout of banks by national governments, anddownturns in stock markets around the world. In many areas, the housing market also

suered, resulting in evictions, foreclosures and prolonged unemployment. The crisisplayed a signicant role in the failure of key businesses, declines in consumer wealthestimated in trillions of U.S. dollars, and a downturn in economic activity leading to the2008-2012 global recession and contributing to the European sovereign-debt crisis.

Ohhhhh... THAT GFC thing. It all seems soooooo 2008, doesn't it?

Anyway, Wikipedia goes on:

(Wikipedia): The U.S. Financial Crisis Inquiry Commission reported its ndings inJanuary 2011. It concluded that "the crisis was avoidable and was caused by: widespread

failures in nancial regulation, including the Federal Reserve's failure to stem thetide of toxic mortgages; dramatic breakdowns in corporate governance including toomany nancial rms acting recklessly and taking on too much risk; an explosive mix ofexcessive borrowing and risk by households and Wall Street that put the nancial systemon a collision course with crisis; key policy makers ill prepared for the crisis, lackinga full understanding of the nancial system they oversaw; and systemic breaches inaccountability and ethics at all levels."

(Emphasis well and truly mine)

http://www.federalreserve.gov/monetarypolicy/files/quarterly_balance_sheet_developments_report_201311.pdfhttp://www.federalreserve.gov/monetarypolicy/files/quarterly_balance_sheet_developments_report_201311.pdf

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Those nancial rms "acting recklessly and taking on too much risk" looked something like this:

10x

15x

20x

25x

30x

35x

40x

45x

50x

55x

Bear Stearns

Goldman Sachst

Merrill Lynch

Lehman Bros

Morgan Stanley

Federal Reserve (Q3 2013)

2003 2004 2005 2006 2007 2013

2013

Major US Financial Institutions

Leverage Ratios2003 - 2007

Sources: Wikipedia, company reports

What's that blue bar? Oh, the one on the right? Oh... well, that'sthe leverage of the FederalReserve today. Isn't it amazing the latitude that is available when you can conjure money out ofthin air?

But it wasn't just the banks that caused all the problems, according to the US Financial CrisisCommission. An "explosive mix of excessive borrowing and risk by households" was also toblame.

So, with everything seemingly hunky-dory now, that excessive borrowing must have been sortedout, no?

Not so fast.

The UK has recently seen the coalition government trumpeting what they call a "recovery,"except that, once again, a lot of the newfound "strength" in the once-moribund UK economycan be attributed you guessed it to our old friend household debt:

(BBC): Household debt in the UK has reached a record level, according to gures fromthe Bank of England.

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Individuals now owe a total of 1.43 trillion, including mortgage debt, slightly abovethe previous high.

The previous record was set in September 2008, just before the eects of the nancialcrisis and the recession began to bite.

Record household debt levels? Will we never learn?

Of course, the government had a handy way of looking at this development that made it allseem like... what's the phrase I'm looking for...?

Ah yes... thanks Jamie... a "tempest in a teapot":

(BBC): But the government said that relative tohousehold income, debt had actually fallen.

The rise may reect the willingness of

consumers to borrow more, as a recovery comesinto sight.

Sheesh...

Reality check, please, BBC:

(BBC): However, the gures may also show that families are having to borrow to dealwith the higher cost of living, and to pay household bills.

The precise amount of total household debt is 1,429,624,000,000. That compares withthe previous high of 1,429,595,000,000 ve years ago, a dierence of just 29m.

On average, that means each adult in the UK owes 28,489, including any home loans....

The news of the record debt level may increase concerns that the UK's recovery is basedon increased borrowing, rather than growth sustained by rising incomes.

Hmmm... but the trouble is that it's not just the UK which is going debt-crazy again. Elsewherewe see similar issues manifesting themselves. And it's happening in places you maybe wouldn'tthink of. Like Malaysia and Thailand, for example:

(The Star): Malaysia's rising household debts, while still manageable in this current

economic condition, would be "problematic" if the country's growth rate slows,according to Standard & Poor's.

A study by the World Bank identied Malaysia and Thailand as having the largesthousehold debts, as a share of gross domestic product (GDP), among Asia's developingeconomies.

Household debts in Malaysia have now exceeded 80% of GDP, prompting the governmentto introduce measures to curb credit growth.

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S&P last month cut its credit outlook for four Malaysian banks on concerns that risinghome prices and household debt are contributing to economic imbalances.

"Thailand and Malaysia economies are ne at this point in time," S&P nancial ratingservices' managing director and lead analytical manager Ritesh Maheshwari said

yesterday."But an unfavourable global economic event could aect Malaysia adversely, and this iswhy we have been highlighting in our reports that Thailand and Malaysia face risks," hesaid in a teleconference on Asia-Pacic's outlook for 2014.

And Canada:

1990 1994 1998 2002 2006 2010 2013

85

90

95

100

105

110

115

120

125

130

135

140

145

150

155

160

165

Canada: Household Debt To Personal Income1990 - 2013

Source: Bloomberg

(CTV News): Canadians' debt-to-income ratio has soared to 163 per cent, much higherthan previously believed, according to revised Statistics Canada gures.

The household debt level has increased 1.8 per cent in the second quarter, bringing it toa similar level seen in the United States before the housing bust and the 2008 nancial

crisis.Statistics Canada said the new gures are the result of a revised method used tomeasure household net worth, which is more in line with international accountingstandards. Non-prot institutions have been removed from the household category to

get a better representation of family nances.

While the latest gures are troubling, RBC Chief Economist Craig Wright says theyshouldn't necessarily trigger alarm bells.

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The Canadian household debt "doesn't strictly compare with the U.S.," he told CTV'sPower Play Monday.

About 70 per cent of household credit is mortgage-related, Wright said, but new datasuggests housing markets across Canada, except in Vancouver, are cooling o.

The Canadian Real Estate Association said Monday that sales of existing homes fell 15.1per cent in September from a year ago, although last month's numbers were slightlyhigher than in August.

"So as we move forward we hope (the debt) ratio will stabilize," Wright said.

Let's "hope" he's right.

How about those bastions of nancial probity, the Swedes?

(The Local): In an interview with the Bloomberg news agency, Martin Andersson, the

head of Sweden's Financial Supervisory Authority (Finansinspektionen), expressed hisconcern about Swedes' mounting debts.

"Swedish households today are among the most indebted in Europe, and we cannot havehousehold lending that spirals out of control," Andersson said....

Last year, Swedes' household debt hit a record 173 percent of disposable income, wellabove the 135 percent level during the height of Sweden's banking crisis in the early1990s.

According to Sweden's National Housing Board (Boverket), Sweden is already in the midst

of a housing bubble, with homes overvalued by around 20 percent.

As property prices have risen 25 percent since 2006, Andersson warned of a possible"downturn" in the Swedish housing market.

"House prices cannot just continue upwards in eternity," he told Bloomberg.

Iceland?

(WSJ): Iceland's government unveiled a 150 billion Icelandic kronur ($1.25 billion)household-debt relief program Saturday, with the plan calling for increased taxes on the

nancial-services industry to help fund mortgage write-downs for Icelanders equivalentto several thousand dollars per mortgage holder.

The program, unveiled by Prime Minister Sigmundur Dav Gunnlaugsson about sixmonths after taking oce, comes after a 2013 election where promises to addresshigh levels of household debt in the small island nation was a central issue. While theeconomy has rebounded following a nancial meltdown ve years ago, people stillstruggle to pay mortgages.

I could go on... in fact I will.

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Korea:

(The Star): The debt burden carried by South Korean households edged up this year asdebts grew at a brisker pace than incomes, a survey said on Tuesday, putting pressure on

policy-makers aiming to maintain a steady recovery in Asia's fourth-largest economy.

Total debt at South Korean households grew by an average 6.8% to 58.18 million won(US$55,000) as of March this year, of which 39.67 million won was in the form of

nancial debt, the survey by the central bank and two top local authorities found.

In comparison, annual disposable income rose by 4.9% in 2012, resulting in the ratio ofnancial debt to disposable income rising to 108.8% in this year's survey, from 106% in2012.

"Pressure on households has grown as South Koreans have increased their debt incomparison to the assets they carry, resulting in worse nancial soundness," said an

ocial at the Bank of Korea.

Russia:

(FT): Russia's central bank has warned that Russia's consumer lending sector threatensthe country's "nancial stability", the same day that it revoked the licence of MasterBank, a midsized retail lender.

Addressing the Russian Duma, central bank head Elvira Nabiullina reiterated the needfor setting a maximum interest rate level for consumer loans due to growing concerns ofa bubble in the sector.

"There are already visible elements of overheating," Ms Nabiullina said, noting the"exceptionally high level" of households' indebtedness, especially compared with real

growth in wages. "Consumer loans may not be so much the engine of growth as a threatto nancial stability."

In the rst nine months of the year, consumer lending rose 36 per cent, with non-performing loans now totalling 7.7 per cent, versus 5.9 per cent at the start of the year.The number of people with four consumer loans or more has close to doubled, signallinga deterioration in banks' credit portfolios.

You take my point?

I don't like to og a dead horse, but it's high time people took the time and the trouble to reallyunderstand what's going on here; and it's ALL about debt.

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Meanwhile, in the USA, the "recovery" seems to have miraculously coincided with guess what a slowing in the deleveraging cycle that began so dramatically in 2008:

(Quartz): During the third quarter of 2013, total US consumer debt outstanding rose$127 billion, to a total of $11.28 trillion. That's the largest quarter-on-quarter increase

since the rst quarter of 2008, when the nancial crisis was nothing but a glimmer inthe eye of the nancial markets.

Source: Quartz/FRB NY

Basically, this just shows that the mortgage market was really starting to get to workduring the third quarter. Mortgage debt rose by $56 billion during the quarter. Someof that might have had to do with a rush from people to lock in low mortgage rates,

amid signs that the Fed might scale back monetary easing that has pushed rates down.Student debt also continued its long-term march higher, increasing by $33 billion duringthe quarter. Auto loans crucial to another part of the American economy rose by$31 billion. Here's a look at the non-mortgage debt growth.

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Wasn't it debt that got us into the problems the US economy has faced in recent years?Well, yes. Too much debt especially home loans made by the banks to people withlittle reasonable chance of paying them o was central to causing the crisis.

But at the same time, restarting demand for borrowing remains the key to restarting

economic growth. The hard fact is that capitalism runs on debt. It's the fuel that makesthe whole system work. If you don't like it, you're more than welcome to go search foranother hegemonic economic paradigm to live under. Good luck.

Good luck indeed.

This xation with debt is ne BUT, if you wantto live in a society where everybody borrowsfrom everybody else and we all get fat, rich, and happy, there ARE a couple of trade-os thatyou have to sign up for.

The rst trade-o is that there WILLbe periodic points in time when the debt load gets too

heavy and people get nervous. Companies will go bankrupt, people will too it's the naturalorder of things.

The second is that, when those moments arrive, it is wholly unfair to punish those who decidednot to climb aboard the Debt Express and chose instead to save assiduously.

The Austrian economist Joseph Schumpeter called this part of the cycle "creative destruction" although he took his inspiration from a somewhat unusual source:

Modern bourgeois society, with its relations of production, of exchange and of property,a society that has conjured up such gigantic means of production and of exchange, is

like the sorcerer who is no longer able to control the powers of the nether world whomhe has called up by his spells....

It is enough to mention the commercial crises that by their periodical return put theexistence of the whole of bourgeois society on trial, each time more threateningly. Inthese crises, a great part not only of existing production, but also of previously created

productive forces, are periodically destroyed. In these crises, there breaks out anepidemic that, in all earlier epochs, would have seemed an absurdity the epidemic ofover-production.

Society suddenly nds itself put back into a state of momentary barbarism; it appears

as if a famine, a universal war of devastation, had cut o the supply of every meansof subsistence; industry and commerce seem to be destroyed; and why? Because thereis too much civilisation, too much means of subsistence, too much industry, too muchcommerce.

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The productive forces at the disposal of society no longer tend to further thedevelopment of the conditions of bourgeois property; on the contrary, they havebecome too powerful for these conditions.... And how does the bourgeoisie get overthese crises? On the one hand by enforced destruction of a mass of productive forces;on the other, by the conquest of new markets, and by the more thorough exploitation ofthe old ones. That is to say, by paving the way for more extensive and more destructivecrises, and by diminishing the means whereby crises are prevented.

Those are the words of none other than Karl Marx, and THESE:

Politics is the art of looking for trouble, nding it everywhere, diagnosing it incorrectly,and applying the wrong remedies.

... are the words of Groucho Marx.

Each had a point.

Now, as far as the rst trade-o goes, we have found a magical way to get around that part ofthe natural order: it's called "printing money."

And the second? Well, unfortunately those doomed savers are theonly ones who actually HAVE any real money with which to plugthe holes; so, at the risk of getting a little quote-happy, we mustresort to the logic of everybody's favourite Vulcan:

"The needs of the many outweigh the needs of the few."

Sorry, Spock, that may y on Vulcan but not down here on Earth.

If you want to live high on the hog, you have to accept thatwhen the bills come due, they must be paid. In 2008 those billscame due, but the payment of them would have caused so muchcreative destruction that the politicians (and central bankers)felt compelled to step in. They found the trouble, diagnosed itincorrectly, and then applied the wrong remedies.

2008 was two things:

1) The result of far too much debt

2) The nearest thing to a truly globalnancial calamity the world has ever seen.

However, since 2008 the debt level has been increasedmassively and shifted to the publicbalance sheet in order to x the problem. Now, with "recoveries" being hailed left and right,households are once again taking on new debt, which is seen as a sign of condence.

Has the old debt been expunged? No. Have governments taken on debts which they intend topay down as soon as the ship is righted? Of course not.

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16 December 2013

Take another look at this chart:

-10,000

0

10,000

20,000

30,000

40,000

50,000

60,000

1929 1939 1949 1959 1969 1979 1989 1999 2009 2012

All Sectors: Credit Market Instruments (liabilities)

United States: Total Credit Market Instruments vs GDP1929-2012

US Gross Domestic Product

2008 Global

Financial

Crisis

Source: St. Louis Fed

See that tiny downdraft I've circled?

That was what ALLLL the fuss was about, and THAT tiny reduction in credit aka "The GreatDeleveraging" was what caused all the pain.

Think this is going to get voluntarily xed in the way nature dictates any time soon?

Of course it isn't. It can't be.

Everything we get, outside of the free gifts of nature, must in some way be paid for.The world is full of so-called economists who in turn are full of schemes for gettingsomething for nothing. They tell us that the government can spend and spend withouttaxing at all; that it can continue to pile up debt without ever paying it o, because"we owe it to ourselves."

Henry Hazli, Economics in One Lesson: The Shortest & Surest Way to Understand Basic

Economics

What part of this does anybody have a hard time understanding?

And now we come to Christmas when balance sheets are forgotten and the splurge that everyWestern consumer knows is his birthright takes place regardless of personal nancial probity.

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Nowhere is this tendency more entrenched than the United Kingdom, as a recent article in TheGuardianpointed out:

(UK Guardian): There have been credible predictions of a 3.5% rise in 2013, andyuletide spending exceeding 40bn. Certainly, the seasonal noise suggests pathological

consumerism is back in full eect, with near riots on so-called Black Friday, internetshopping breaking records, and adverts adverts! being treated as news events."Britain's Christmas spending binge leaves US trailing" was a headline last week onBloomberg, which surely spoke volumes.

In some parts of the country, then, the giddiness sown by a hyped-up recovery and risinghouse prices up by an annual average of 7.7%, according to Halifax, with GeorgeOsborne's Help To Buy scheme having played its part is evidently doing its work.

Meanwhile, the grim state of far too much of the economy is unchanged: 21% ofemployees are paid less than the living wage, and part-time and temporary jobs run

rampant. The weekend brought news that, for the rst time, more than half the 13million Britons classied as being poor live in working households: a real watershedthat needs to be endlessly highlighted. Even for people higher up the income scale, liferemains pinched and anxious: petrol bought journey by journey; bills deferred; dreadwhen a replacement car has to be bought. The fact that the ongoing fall in real wageshas become a political cliche does not make it any less real: between 2010 and 2012,real earnings fell in every part of the UK by 7.5% in London, and a mind-boggling 8.1%in Yorkshire and the Humber.

So, what pays for the sticky chicken lollipops and iPads? People are raiding their savings,

which have lately undergone their biggest drop in 40 years, enough to prompt a formerDowning Street adviser to warn that such gures are "desperately worrying If youjust withdraw money and spend you are talking about a recipe for long-term economicdecline."

Desperately worrying, indeed but without this dynamic, George Osborne's "recovery" is deadin the water.

Looking into the composition of the debt in the UK becomes more and more frightening thedeeper you go:

(UK Guardian): And then there is debt. The Oce for Budget Responsibility says theratio of household debt to income is set to start increasing again, and at a faster ratethan it predicted in March. By 2015, household debt, including mortgages, is projectedto exceed 2tn. the critical point is how it is distributed. Last week, the ResolutionFoundation's ever-insightful Gavin Kelly had a piece in the Financial Times warning thata sixth of private debt is held by households that have less than 200 a month to coveranything more than basic essentials. Nearly a third of mortgage debt, he pointed out, isowed by people who have borrowed more than four times their annual income.

Ruh-roh!

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The author then hammers home his point about the great British consumer, but he nets a farbroader cross-section than he perhaps intended:

(UK Guardian): And a watershed moment will be reached when interest rates start to goup again.

Ahhhhh... yes. That.

Folks, rates WILL have to go up again. They cannot stay at zero forever. We all know that. Whenthey DO, because of all the additional debt that has been ladled atop the existing pile, thewhole thing will come tumbling down.

All of it.

There is simply no way out, I am afraid. But that is clearly a problem for another day. Rightnow, everything is ne, so we can all go on pretending it will continue that way.

Evermore.

So all that remains is for me to answer the one question I KNOW has been on your mind: whydid this week's Things That Make You Go Hmmm...open with a picture of Bart Simpson dressedas the raven?

The very rst Simpsons"Treehouse of Horror" episode, in 1990, contained a parody of The Ravenin which Homer played the poor mad narrator and Bart the brooding bird.

It was good enough for The Simpsons,so I gured I'd take my own stab at updating Poe's epicpoem. So now, if you'll indulge me in a little poetic license (not to mention there being not one

but four mysterious strangers in my oering), I give you, "The Maven" (abridged version):

Once upon a midnight dreary, while I pondered, weak andweary,Over many a quaint and curious volume of nancial loreWhile I nodded, nearly napping, suddenly there came atapping,As of some one gently rapping, rapping at my chamber door."'Tis some visiter," I muttered, "tapping at my chamber door

Only this and nothing more."

space

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Ah, distinctly I remember it was in the bleak December;And each separate dying ember wrought its ghost upon the oor.Eagerly I wished the morrow; for the world had sought to borrowFrom both friend and foe and neighbour borrow, borrow, borrow more

For the cheap and easy money which the bankers forth did pourShall be paid back nevermore.

space

Deep into that darkness peering, long I stood there wondering, fearing,Doubting, dreaming dreams no mortal ever dared to dream before;But the silence was unbroken, and the stillness gave no token,And the only word there spoken was the whispered words, "Some More?"This I whispered, and an echo murmured back the words, "Some More"

Merely this and nothing more.

space

Open here I ung the shutter, when, with many a irt and utter, In there stepped four stately Mavens from the Central Banks of yore;Not the least obeisance made they; not a minute stopped or stayed they;But, with air of lord or lady, stood inside my chamber door Standing by a mug from Dallas just inside my chamber door

Stood, and stared, and nothing more.

space

Then these tired-looking men beguiling my sad fancy into smiling,By the grave and stern decorum of the countenance they wore,"Though thy faces look unshaven, thou," I said, "art sure enslaven'd,Ghastly grim and ancient Mavens wandering from the Nightly shore

To free money ever after lest the markets pitch and yaw."Quoth the Mavens, "Evermore."

space

While I marvelled this ungainly bearded man explained so

plainly,Though his answer little meaning little relevancy bore;For he cannot help a-printing, brand new currencya-mintingEver yet was blessed with seeing nothing wrong in doingmoreMortgage bonds upon his balance sheet he'll place, thenmarkets jaw

With the promise "Evermore."

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space

Startled at the stillness broken by reply so aptly spoken,"Doubtless," said I, "what's it matter? Long as stocks they have a oorRising sharply, rising faster, never chance of some disaster

Until nally, at last the bubble bursts amidst a roarTill the dirges of his Hope that melancholy burden bore

Of 'Ever evermore.' "

space

But the Maven, still eyes glinting, more fresh money kept on printing,Straight I wheeled a cushioned seat in front of Ben, and locked the door;Then, upon the velvet thinking, I betook myself to linkingMoney unto money, thinking what this ominous man of moreWhat this grim, ungainly, ghastly, gaunt, and ominous man of more

Meant in croaking "Evermore."

space

Then, methought, the air grew denser, perfumed from anunseen censerSwung by Mario whose foot-falls tinkled on the tufted oor."Wretch," I cried, "thy words have spared thee troubledmarkets haven't dared theeThough the Bundesbank declared thee cannot simplyconjure more;

Stop, oh stop this printing money and accept the nalscore!"

Quoth the Maven, "Evermore."

space

"Prot!" said I, "on your buying? You'll be broken, battered, cryingWhether markets pause, or whether markets climb a little more,Rising fear amongst the masses, each and every player has hisLine which crossing will restore his sense of what has gone beforeWill he will they just rely on that of which you seemed so sure?

Quoth the Maven, "Evermore."

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space

"You there" said I, "standing muted what is there to do aboot it?"In a heavy accent quoth he that by God he was quitesure

That more money being printed and, new measures beinghintedAt would quell all fear of meltdown and the markets allwould soarWould this mean the printing presses would forever roar?

Quoth the Maven, "Evermore."

space

Lastly to the fore there strode a small and bookish man,Kuroda,

Who with glint of eye did warn that he was happy to exploreMeasures once thought so outrageous as to never mark thepagesIn the history of nance but those times were days of yoreDrastic printing was required, this was tantamount to war

Quoth the Maven, "Evermore."

space

And the Mavens, never blinking, only sitting, only thinkingBy the Cowboys mug from Dallas just inside my chamberdoor;Really do believe their action has created decent traction,And that freshly printed money can spew forth for evermore;But the truth about the ending shall be seen when markets, bending

Shall be lifted nevermore!

(My thanks to the wonderfully named "Virtues," who for a small fee drew the Simpsonscharacters for me. Should you wish to have your own then contact her HERE. Her work isexcellent, and she turned these around in 24 hours for me!)

*******OK... so let's get to it, shall we?

This week we hear how Samsung is protecting its margins and why that's not good news forChina; Jim Chanos is bearish (yeah, no sin of HIM throwing in the towel); Japan's GPIF thelargest pension fund in the world faces up to a stark reality; and the good folks at SWIFT mayhave jumped the gun with a landmark announcement.

http://fiverr.com/virtueshttp://fiverr.com/virtues

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The Eurozone nightmare is back, and Liam Halligan explains what that means; the world'slargest investor sounds the alarm (surely people will listen to THEM?); China's coal industryreaches a crossroads; and Vladimir Putin's recent speech suggests trouble in Mother Russia.

A trillion dollars goes missing from developing countries; Indians drive gold prices up to

unprecedented premiums; and we look at the complete history of Bitcoin.

David Stockman, the 1%ers, and even a Bloomberg reporter who seems to get the joke on gold('tis the season, I guess) round things out for another week.

All that remains is for me to wish all of you a Merry Christmas and a happy, healthy, andprosperous 2014. Thanks for your company this year. It's been a hell of a ride.

Until Next Time...

Samsung Shifts Plants From China to Protect MarginsSamsung Electronics Co. (005930) built the world's largest smartphone business by tappingChina's cheap and abundant workforce. Not for much longer: it's shifting output to Vietnamto secure even lower wages and defend prot margins as growth in sales of high-end handsetsslows.

By the time a new $2 billion plant reaches full production in 2015, China's communist neighborwill be making more than 40 percent of the phones that generate the majority of Samsung'soperating prot. The Suwon, South Korea-based company's second handset factory in Vietnam isdue to begin operations in February, according to a Nov. 22 statement on the local government'swebsite.

Samsung surged past Apple Inc. to the top of the mobile-phone industry by oering cutting-edge devices for more than $900 to basic models costing less than $150. With demand saggingin the most-protable top end and Chinese rivals driving prices lower, Samsung is joiningtechnology companies such as Nokia Oyj (NOK1V) and Intel Corp. (INTC) to be drawn toVietnamese wages that are about a third those in China.

"The trend of companies shifting to Vietnam from China will likely accelerate for at least two

to three years, largely because of China's higher labor costs," said Lee Jung Soon, who leads abusiness-incubation team of the Korea Trade-Investment Promotion Agency in Ho Chi Minh City."Vietnam is really aggressive in fostering industries now."

It seems to be working.

The government has approved $13.8 billion of new foreign projects this year through Nov. 20, a73 percent increase on a year earlier, according to the General Statistics Oce in Hanoi. SouthKorea led with $3.66 billion.

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China's $8.4 trillion economy, 59 times the size of Vietnam's, received $97 billion of foreigndirect investment although this was actually utilized in the rst 10 months, 6 percent upon a year earlier.

Intel, the world's largest chipmaker, opened a $1 billion assembly and testing plant in Ho Chi

Minh City in 2010. Nokia said its facility near Hanoi producing Asha smartphones and featurehandsets became fully operational in the third quarter. LG Electronics Inc. (066570), Samsung'ssmaller South Korean rival, is building a new 400,000 square meter complex to make TVs andappliances as part of a $1.5 billion investment plan.

"The country is politically stable and has a young, increasingly well-educated workforce," LGsaid in an e-mailed statement. "Like Korea, Vietnam understands what it takes to rebuild aneconomy after a devastating war."

Samsung's new plant is expected to make 120 million handsets a year by 2015, said two peoplefamiliar with the company's plans, who asked not to be identied because the matter is private.That would double the current output from the country and compares with the 400 millionglobal total Samsung shipped last year. In an e-mailed response to questions, the companydeclined to comment.

With about one-third of the global smartphone market, Samsung may eventually produce asmany as 80 percent of its handsets in Vietnam, said Lee Seung Woo, an analyst at IBK SecuritiesCo. in Seoul who has been tracking the company for more than a decade.

"The handset business is all about assembling well-sourced components," Lee said. "The mostimportant thing is manpower."...

***BLOOMBERG / LINK

Jim Chanos, bad news bear, urges market prudenceProminent short-seller Jim Chanos is probably one of the last true "bad news bears" you will ndon Wall Street these days, save for Jim Grant and Nouriel Roubini. Almost everywhere you turn,money managers still are bullish on U.S. equities going into 2014 even after the Standard &Poor's 500's 27 percent returns year-to-date and the Nasdaq is back to levels not seen since theheight of the dot-com bubble in 1999.

"We're back to a glass half-full environment as opposed to a glass half-empty environment,"Chanos told Reuters during a wide ranging hour-long discussion two weeks ago. "If you're thetypical investor, it's probably time to be a little bit more cautious."

Chanos, president and founder of Kynikos Associates, admittedly knows it has been a humblingyear for his cohort, with some short only funds even closing up shop.

http://www.bloomberg.com/news/2013-12-11/samsung-shifts-plants-from-china-to-protect-margins.htmlhttp://www.bloomberg.com/news/2013-12-11/samsung-shifts-plants-from-china-to-protect-margins.html

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But he told Reuters that the market is primed for short-sellers like him and as a result hasgone out to raise capital for his mission: "Markets mean-revert and performance mean-revertsand even alpha mean-reverts if at least my last 30 years are any indication. And the time tobe doing this is when you feel like the village idiot and not an evil genius, to paraphrase mycritics."

Chanos' bearish views are so well respected that the New York Federal Reserve has evenincluded him as one of the money managers on its investment advisory counsel. By his ownadmission, Chanos said he tends to be the one most skeptical on the markets.

Chanos knows bad news when he sees it as he is known as the man who almost single handedlyvindicated short sellers by revealing the ongoing fraud at Enron and WorldCom. And he soundedthe alarm bell early on struggling computer giant Hewlett Packard. Just last week, he sentshares of CGI Group Inc., the parent of CGI Federal, which is the main contractor behindthe U.S. government's glitch-plagued HealthCare.gov website, under selling pressure afterNewsweek revealed that Chanos had placed a major short position.

Chanos spoke about his other shorts including Caterpillar and yes, just in time for Christmas coal stocks at the Reuters Global Investment Outlook Summit and even shared some of hisobservations on the 1 percent and what they owe the rest of us.

On the U.S. stock market

Chanos: "A few years back, I felt the U.S. was the best house in a bad neighborhood for a clichhackneyed term and certainly there were better places that I think on a macro basis to be shortlike China. Our thinking is changed on that now. I think that the U.S. market is pretty fullydiscounting an awful lot of good news. While one can never be precise on markets and that'snot why my clients pay me, we're nding many more opportunities (on the short side) in the U.Smarkets than we found a few years ago.

The U.S. market at roughly 1,800 on the S&P is trading at 19 times earnings. I am alwayssort of befuddled because people use a much lower gure on thatwe went back and triple-checked trailing 12-month S&P 500 earnings and they are only $95. A lot of companies reportearnings before the bad stu and we're talking about GAAP earnings actually talking aboutreal accounting earnings they are only $95. So for you to believe that the market is only at14 times, 15 times next year's number, you have to make some pretty robust assumptions onearnings growth to get to $95 to that $120 or $125 gure."

Dj vu all over again...

***REUTERS / LINK

http://blogs.reuters.com/unstructuredfinance/2013/12/09/jim-chanos-bad-news-bear-urges-market-prudence/http://blogs.reuters.com/unstructuredfinance/2013/12/09/jim-chanos-bad-news-bear-urges-market-prudence/

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Japan GPIF Must Cut Bonds, Create Board, Ito Tells

LawmakersThe world's largest manager of retirement savings should reduce holdings of domestic bonds

and create a board of directors to replace the current governance structure, an expert paneltold Japan's ruling party.

The 124 trillion yen ($1.2 trillion) Government Pension Investment Fund should decreaseits allocation to Japanese government bonds and increase investments in other assets,Takatoshi Ito, chairman of a group advising lawmakers on pension allocations, said to a LiberalDemocratic Party committee today in Tokyo. A new board of directors should take charge ofdecision-making and the law governing the fund must be changed if GPIF is unable to overhaulits leadership itself, Ito said.

"GPIF needs to review its governance and portfolio at the same time," Ito told the LDP studygroup on economic revitalization and nance. "We must change who takes responsibility for thefund."

Ito was discussing a report submitted last month by his government-appointed advisory panelthat urged GPIF to review domestic bond holdings and look at investing more in overseas assets.The LDP needs to consider whether to table a bill to make the pension fund more independentof bureaucrats, amid pressure on GPIF to cover retirement payouts as the world's oldestpopulation ages.

"Lawmakers want to change GPIF so that it will adopt government policy and become a

vehicle to buy stocks and other risk assets," said Kyoya Okazawa, head of global equities andcommodity derivatives at BNP Paribas Securities (Japan) Ltd. "They think Abe's rating won't fallbelow 40 percent as long as stocks rise and the economy is strong."

A poll published by the Asahi newspaper on Dec. 7 showed Abe's support at 46 percent, downfrom 49 percent on Dec. 2.

GPIF should have about ve directors, compared to the one allowed by law now, Ito said. Thelaw needs to be changed to make this possible, he said. The Ministry of Health, Labor andWelfare, which currently oversees the fund, won't move fast to revise the legislation, so eortsare needed to ensure it happens, said Kozo Yamamoto, a lawmaker and member of the LDP

committee.

Ito said in an interview last week GPIF needs to cut local debt holdings now. The fund shouldpare domestic bonds immediately to 52 percent of assets, its lower limit, he said.

Adjustments can be made within the fund's current deviation limit, Teruyuki Katori, head ofpensions at the health ministry, said today. When questioned whether that means he agreeswith Ito's recommendation to sell within deviation limits, Katori said "yes," while adding hedoesn't want to give details on reallocation.

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GPIF President Takahiro Mitani said last week the fund must aim to keep assets as close to thetarget as possible....

***BLOOMBERG / LINK

Swift too quick to hail yuan as major currency in trade nanceThe yuan has surpassed the euro to become the second most commonly used currencyin global trade nance, after the US dollar. Yuan usage in trade nance grew to 8.66

per cent in October from 1.89 per cent in January last year, according to the Society forWorldwide Interbank Financial Telecommunication (Swift).

SCMP, December 4

Hip, hip, hurrah! And now, if we have done cheering, let's look a little more closely at thisremarkable statistic.

Swift has used a narrow denition. It has measured only the portion of global trade nancedby the traditional means of letter of credit, which interposes a bank between buyer and sellerto help guarantee payment and delivery. It is not surprising that Swift should use the narrowdenition. Swift is a bank international payment service. It is therefore primarily interestedin how banks prot from trade nance, which happens to be when trade is conducted throughletter of credit.

But an estimated 80 per cent of international trade is now conducted on open terms. Trade

partners who have long done business with each other increasingly don't see the need for abank intermediary. They decide to trust each other and not pay for this costly extra level ofsecurity.

China's foreign trade in yuan, however, is still dominated by letter of credit. Thus the only thingthat the Swift ranking of global trade indicates is that exporters and importers who settle theiraccounts in yuan do not have that same high level of trust in each other that is enjoyed by mostother traders. I can't see that yuan boosters have anything to crow about.

There is more. Along with the bar chart showing China's No2 position in letter of credit trade,Swift published another bar chart showing a ranking of currencies by value of worldwide

payments.

In this one, the yuan was No 12 with only a 0.84 per cent worldwide share, slightly behind theThai baht and a smidgen head ahead of the Norwegian krone. Norway has a population of vemillion, China of 1,360 million at latest count.

And China actually slipped a little in October with growth for all payments of 1.5 per centagainst a worldwide growth of 4.6 per cent.

http://www.businessweek.com/news/2013-12-11/japan-s-gpif-must-cut-bonds-change-governance-ito-tells-ldphttp://www.businessweek.com/news/2013-12-11/japan-s-gpif-must-cut-bonds-change-governance-ito-tells-ldp

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All of which is just another roundabout way of saying that the cheerleader squad for worldwideuse of the yuan is starting to go a little over the top these days with its unending chorus of"Rah, Rah, Renminbi".

Take chief cheerleader Anita Fung Yuen-mei, of HSBC, for instance. We had her in this

newspaper again the other day saying that yuan deposit growth in Hong Kong is so big, so huge,that it might put the squeeze on Hong Kong dollar liquidity. I haven't the space here to tell youwhy this is a theory from Never Never Land but will someone from the Hong Kong MonetaryAuthority please pull her in to tell her how the peg works. It seems she played truant fromHSBC training school the day that the lesson on origins of money was taught.

Here is a little factoid on why we have seen more settlement of trade accounts in yuan over thepast few years. The chart tells the story. The yuan has been pushed steadily stronger againstthe US dollar by the People's Bank of China.

This means that merchants in Hong Kong are quite happy to accept yuan for payment of goods

shipped to the mainland. They then have the means of speculating on further yuan strength. It'sa gift given them by PBOC policy.

Don't ask what might happen should the PBOC nally decide to call a halt to this policy. That'sgrim. Let's not go there.

***SOUTH CHINA MORNING POST / LINK

Welcome back to the eurozone nightmareThe eurozone has recently been o our news radar. We Britons have become smug of late givenour new-found growth, now that we're the most rapidly expanding economy in the Westernworld (almost).

We certainly have a sense that the "Continental" economies aren't doing as well as ours. Apartfrom those pesky Germans, of course, who are annoyingly good at making stu the rest of theworld wants to buy.

Yet, the fear of the euro as a tinderbox, which at any minute could spark nancial meltdown,seems to have gone. The euro as a ticking-time bomb, about to explode, causing another

Lehman-style Minsky moment on global markets all that has been dealt with, we think,sorted, solved?

I would like to tell you that's true. But I can't, because it isn't. The eurozone's deep structuralaws remain as ever they were.

This jerry-built monetary union, for all the fanfare, arrogance and "solidarity", is fundamentallyjust as vulnerable as it was in the summer of 2012, when, suddenly, everyone started worryingthat the single currency wasn't, as we'd always been told, "irreversible".

http://www.scmp.com/business/banking-finance/article/1373177/swift-too-quick-hail-yuan-major-currency-trade-financehttp://www.scmp.com/business/banking-finance/article/1373177/swift-too-quick-hail-yuan-major-currency-trade-finance

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Coal Industry Finds Itself at a CrossroadsTimes are getting rough for Wang Guangchun, a 10-year veteran sales manager of a state-ownedcoal operations. Last year, coal for the rst time stopped selling itself. This year it's becomingdownright dicult to move it.

"During the golden era of the past, clients came to nd me," Wang said. "Starting last year, wehad to go looking for them."

Wang is employed by a subordinate company of the Datong Coal Group in the northern provinceof Shanxi, which sits at the center of China's coal belt. His clients have primarily been inShanxi, Shandong and the Beijing-Tianjin-Hebei region, but recently those outside ShanxiProvince grow scarcer by the day.

"Many provinces and municipalities have issued policies for coal designated for electricity,which force power plants to use local coal," Wang said.

He added that the Beijing-Tianjin-Hebei region and Shandong, in the east, have also passedstrict policies limiting the usage of coal. "Competition for coal sales in those regions hasbecome extremely erce."

The strict polices Wang mentioned were triggered by smog problems rampant in cities acrossChina. This winter the government began implementing rigorous atmospheric pollutionprevention controls in the Beijing-Tianjin-Hebei region. Restrictions on the usage of coalcomprise a major component of the measures. Edicts from the State Council, the country'scabinet, and the Ministry of Environmental Protection demand that by 2017 the proportion ofcoal used to total energy consumption be reduced to 65 percent or less; the Beijing-Tianjin-

Hebei Region and surrounding areas are to reduce coal consumption by 93 million tons; andregions such as Beijing-Tianjin-Hebei, the Yangtze River Delta and the Pearl River Delta areincreasing the consumption of natural gas by 150 billion cubic meters a year.

Faced with sagging prices and a smaller market, coal companies have had no choice butto change their business line. More and more coal businesses are opting to expand intodownstream areas such as chemical rening. Meanwhile, the country's top planning agency, theNational Reform and Development Commission (NDRC), has greatly accelerated the approvalsprocess for new coal-to-chemical projects, ushering in a wave of applications for such projects.

As coal companies consider the transition to coal chemical industry, many in academic and

industry circles are expressing concern. Many have noted that this industry can indeed helpcompanies transform, but eciency problems and pollution are worrisome.

Over the past year, coal prices have dropped by over 20 percent, but in late September theprice rebounded, regaining most of the lost ground. Wang says this does not constitute a turningpoint for his industry. "This is merely a seasonal price ination caused by preparations forwinter heating. What about what comes after winter?"

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Beginning in June, Wang's company began operating at a loss, and its coal reserves swelled toover 100,000 tons by December.

His company is not alone. Data from the Shanxi statistics bureau show that from January toSeptember, the province's coal industry was operating at as high as 48 percent losses. The

industry's total losses came to 13.38 billion yuan, year-on-year growth of 79.3 percent. The coalindustry accounted for 40.7 percent of all industrial losses in the province over that period.

Data from Wind Information shows that in the third quarter, the entire coal industry's operatingrevenue marked a year-on-year drop of 3.54 percent, and a year-on-year prot drop of 8.13percent. The coal industry might be entering an era of low prots, say insiders.

The chairman of the Shandong Energy Group Co. Ltd., Bu Changsen said that as the economyenters a period of intense restructuring, new energy and non-conventional oil and gas willgradually pull the rug from under traditional fossil fuels. As the government pushes out policiesaimed at reduced emissions, energy savings, environmental protection and the reordering of

industries with excess production capacity, demand for coal will be suppressed, Bu said.

The director of the National Energy Administration's Coal Bureau, Fang Junshi, said that arecently issued Action Plan for the Prevention of Atmospheric Pollution will put new pressureson the development of the coal industry.

"Given that we make ample consideration for the usage of new energy, renewable energysources and natural gas, the proportion of coal to total energy consumption will decrease," saidFang....

***CAIXIN / LINK

World's biggest investor BlackRock says US rally nearing

exhaustionBlackRock, the world's biggest investor, has warned that central banks are poised to tightenmonetary policy in the Anglo-Saxon countries and China, advising clients to be ready to pull outof global stock markets at any sign of serious trouble.

"2014 is the year to squeeze more juice out of riskassets. But investors should be ready to discard thefruit when it starts running dry," said Ewen CameronWatt, chief strategist for the BlackRock InvestmentInstitute.

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The group said in its 2014 Investment Outlook that investors have "jumped on the momentumtrain, eectively betting yesterday's strategy will win again tomorrow", but vanishing liquiditycould leave them trapped if the mood changes. "Beware of trac jams: easy to get into, hardto get out of," it said.

BlackRock, which manages funds worth $4.1 trillion, said the global system is still in thedoldrums and far from achieving sustainable recovery. "The eurozone, Japan and emergingmarkets are all trying to export their way out of trouble. Who is going to buy all this stu? Themaths does not work. Not everybody's currency can fall at once," it said.

The report said Wall Street is not in a bubble yet but BlackRock's risk indicator measuring"enterprise value" against earnings, adjusted for volatility is almost as high as it was justbefore the dotcom bust. "The ratio of the two is the key. High valuations combined with lowvolatility can make for a lethal mix. This market gauge sounded the alarm well before theGreat Financial Crisis," it said.

It advises sticking to European and Japanese equities, with a contrarian bet on carefully chosenemerging markets through the medium of foreign multinationals. The wrong emerging marketsface the risk of "currencies in freefall, capital controls and expropriations".

BlackRock said there is a 20pc risk that world events could go badly wrong, either because theeurozone acts too late to head o deation or because of a chain reaction as the US FederalReserve starts to wind down stimulus in earnest.

"The banking system in the eurozone periphery isunder water, with a non-performing loan pile of 1.5trillion to 2 trillion. Germany and other core countriesare unlikely to pick up the tab. Eastern Europe couldbecome the epicentre of funding risk in 2014 due tobig renancings," it said. BlackRock said the eurozoneis "stuck in a monetary corset", failing to generatethe nominal GDP growth of 3pc to 5pc needed foreconomies to outgrow their debt burdens.

The European Central Bank has allowed passive tightening to occur as banks repay funds underthe ECB's long-term lending operations. The group says the ECB may have to start printingmoney, but the politics are toxic. "German opposition is a roadblock, unless the risk of deation

expands beyond Europe's southern tier," it said.

The risk in the US is that Fed tapering could cause the housing recovery to stall. The Fed haspurchased three times all net issuance of US mortgages so far in 2013....

***AMBROSE EVANSPRITCHARD / LINK

http://www.telegraph.co.uk/finance/economics/10507003/Worlds-biggest-investor-BlackRock-says-US-rally-nearing-exhaustion.htmlhttp://www.telegraph.co.uk/finance/economics/10507003/Worlds-biggest-investor-BlackRock-says-US-rally-nearing-exhaustion.html

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16 December 2013

Nearly $1 trillion was smuggled out of developing countries in

2011It's hard to build your country when the money keeps slipping away.

Foreign capital ight has been a problem for developing countries this year, but a biggerproblem might be the funds smuggled out by tax evaders, corrupt ocials and criminals$946.7billion in 2011, according to the latest estimates released today by a team of economists at thenon-prot Global Financial Integrity, an increase of more than 10% over the previous year. Forcomparison, total foreign aid to developing nations in 2011 was just $141 billion.

Russia topped the list, with $191.14 billion slipping out of its borders in 2011, followed by Chinawith $151.35 and India with $84.93 billion. Economists at GFI identied the money by sortingthrough aggregate balance-of-payments data and nding mismatches that show where tradersused creative invoicing to slip money out of the country the bulk of illicit ows or, about20% of the time, through shell companies and tax havens. The global recession didn't slow illicitnancial ows, which have grown faster than global GDP each year between 2002 and 2011.

The specic reasons to get money out of a country vary by context, but include secreting awaythe proceeds of corruption; tax evasion, corporate and individual; fear of political reprisal, anddrug and human tracking.

The nations most hamstrung by illicit ows are in Africa, where illicit ows are the equivalentof 5.7% of GDP; the average developing country lost 3.7% of GDP in 2011. That's a huge amountof money to lose that could otherwise be invested in private or public enterprise that mightimprove the lives of people living there. Instead, it winds up in tax havensincluding the UnitedStates and the United Kingdom. "This isn't really just a developing world problem it's facilitatedby developed country banks and tax havens," Brian Leblanc, one of the economists behind thestudy, told Quartz.

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16 December 2013

Putin called for a "broad social discussion" and for greater control of the administrationthrough "civil society," and, in a change, he vowed to "support the civil rights movements."Nevertheless, he did not make any self-critical remarks about his repressive approach to thenon-parliamentarian opposition in the past year including the disastrous verdict against theyoung women of Pussy Riot.

Putin's speech conrms what Moscow analyst Mikhail Delyagin warned about a decade ago,when he said the president could become a "hostage of bureaucracy." Putin's call, before theapplauding bureaucrats of the Kremlin's Georgievski Hall, to "nally" achieve a "technologicalbreakthrough" will likely be as ineective as his previous appeals.

In his last address to the nation, in Dec. 2012, Putin had clearly spelled out the dangers causedby bureaucrats who slow things down: Those who miss out on progress, Putin said, will become"outsiders" in a world of increased competition and will "inevitably lose their independence." It'sa warning he did not repeat this year, though circumstances remain the same....

***DER SPIEGEL / LINK

Why Do We Value Gold?Mankind's attitude to gold is bizarre. Chemically, it is uninteresting it barely reacts with anyother element. Yet, of all the 118 elements in the periodic table, gold is the one we humanshave always tended to choose to use as currency. Why?

Why not osmium or chromium, or helium, say or maybe seaborgium?

I'm not the rst to ask the question, but I like to think I'm asking it in one of the mostcompelling locations possible the extraordinary exhibition of pre-Columbian gold artefacts atthe British Museum?

That's where I meet Andrea Sella, a professor of chemistry at University College London, besidean exquisite breastplate of pure beaten gold.

He pulls out a copy of the periodic table.

"Some elements are pretty easy to dismiss," he tells me, gesturing to the right-hand side of thetable.

"Here you've got the noble gases and the halogens. A gas is never going to be much good as acurrency. It isn't really going to be practical to carry around little phials of gas is it?

"And then there's the fact that they are colourless. How on earth would you know what it is?"

The two liquid elements (at everyday temperature and pressure) mercury and bromine would be impractical too. Both are also poisonous not a good quality in something you plan touse as money. Similarly, we can cross out arsenic and several others.

http://www.spiegel.de/international/world/putin-speech-hints-at-big-problems-and-stagnation-in-russia-a-938761.htmlhttp://www.spiegel.de/international/world/putin-speech-hints-at-big-problems-and-stagnation-in-russia-a-938761.html

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16 December 2013

Sella now turns his attention to the left-hand side of the table.

"We can rule out most of the elements here as well," he says condently.

"The alkaline metals and earths are just too reactive. Many people will remember from school

dropping sodium or potassium into a dish of water. It zzes around and goes pop an explosivecurrency just isn't a good idea."

A similar argument applies to another whole class of elements, the radioactive ones: you don'twant your cash to give you cancer.

Out go thorium, uranium and plutonium, along with a whole bestiary of synthetically-createdelements rutherfordium, seaborgium, ununpentium, einsteinium which only ever existmomentarily as part of a lab experiment, before radioactively decomposing.

Then there's the group called "rare earths", most of which are actually less rare than gold.

Unfortunately, they are chemically hard to distinguish from each other, so you would neverknow what you had in your pocket.

This leaves us with the middle area of the periodic table, the "transition" and "post-transition"metals.

This group of 49 elements includes some familiar names iron, aluminium, copper, lead, silver.

But examine them in detail and you realise almost all have serious drawbacks.

We've got some very tough and durable elements on the left-hand side titanium and

zirconium, for example.The problem is they are very hard to smelt. You need to get your furnace up into the regionof 1,000C before you can begin to extract these metals from their ores. That kind of specialistequipment wasn't available to ancient man.

Aluminium is also hard to extract, and it's just too imsy for coinage. Most of the others in thegroup aren't stable they corrode if exposed to water or oxidise in the air.

Take iron. In theory it looks quite a good prospect for currency. It is attractive and polishes upto a lovely sheen. The problem is rust: unless you keep it completely dry it is liable to corrodeaway.

"A self-debasing currency is clearly not a good idea," says Sella.

We can rule out lead and copper on the same basis. Both are liable to corrosion. Societies havemade both into money but the currencies did not last, literally.

So, what's left?

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16 December 2013

Of the 118 elements we are now down to just eight contenders: platinum, palladium, rhodium,iridium, osmium and ruthenium, along with the old familiars, gold and silver....

***BBC / LINK

ChartsThat Make You GoHmmm...This denitive chart of the history of Bitcoin is a great reference.

Its past goes back farther than you might think. The questions is, how far forward will its futurego?

CLICK TO VIEW ENTIRE GRAPHIC

http://www.bbc.co.uk/news/magazine-25255957http://www.visualcapitalist.com/the-definitive-history-of-bitcoinhttp://www.visualcapitalist.com/the-definitive-history-of-bitcoinhttp://www.bbc.co.uk/news/magazine-25255957

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16 December 2013

www.Sharelynx.com

Another week, another chartfrom my buddy Nick Laird. This one puts the maddash for physical gold in India into stark relief.

A premium of almost 25% means that an ounce of gold in India will set you back about $1511.

Bear market, you say?

http://www.sharelynx.com/http://www.signalfinancialgroup.com/seasonal/SeasonalGC.phphttp://www.sharelynx.com/

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16 December 2013

Source: Economist

Welcome to ourDaily chart Advent calendar, a collection of the 24 most popularmaps, charts, data visualisations and interactive features published on our site over the last12 months. You'll nd one behind each door, with a new door available to open every day untilChristmas Eve, when our most popular infographic of 2013 will be revealed. There's also anentirely new graphic behind door number 25 a Christmas gift to all our readers who've beengood this year.

Season's greetings from everyone at The Economist.

***ECONOMIST / LINK

http://www.economist.com/content/2013-daily-chart-advent-calendarhttp://www.economist.com/content/2013-daily-chart-advent-calendar

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16 December 2013

WordsThat Make You GoHmmm...

Those pesky 1%-ers. CNBC trawledthrough a long CBO report this week so wewouldn't have to.

What they found throws up a few interestingquestions about just who is paying their "fairshare" and just how much that fair shareequates to.

It all revolves around "a nugget on page 13"...

CLICK TO WATCH

David Stockman isnot afraid to callthings as he sees them and neither is RickSantelli.

Put the two of them together and throw in afresh budget agreement to discuss, and youKNOW where this is gonna go.

Joke? Betrayal? Epic can-kicking? Hell yeah...

CLICK TO WATCH

OK, so oncein a while something weirdhappens. So in this clip a Bloomberg reporterseems to get the joke about the movement ofbullion around the world this year.

The anchors? Meh... not so much... but onestep at a time.

CLICK TO WATCH

http://www.cnbc.com/id/101264757http://www.cnbc.com/id/101265477http://www.bloomberg.com/video/what-s-happening-to-all-the-gold-d33u1c23SDqA0p0e~9_INw.htmlhttp://www.bloomberg.com/video/what-s-happening-to-all-the-gold-d33u1c23SDqA0p0e~9_INw.htmlhttp://www.cnbc.com/id/101265477http://www.cnbc.com/id/101264757

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16 December 2013

and fnally...As it's approaching Christmas, I thought it was time to give back; and so, in abreak from tradition on this page, I have two very special oers for you, my wonderful readers.

I recently bought two pairs of sandals as gifts for my daughters for Christmas, from a edglingSingapore company, and was so blown away by the quality of everything from the shoesthemselves to the packaging and the entire experience that I contacted the founder of thecompany, and she has kindly agreed to give readers of Things That Make You Go Hmmm...a 20%discount on any sandals ordered in December (along with free worldwide shipping).

The company is called George Blue, and the sandals are leather, handmade in Tuscany, Italy,and simply gorgeous.

If you are looking for a gift for any lady who loves shoes, I can say with complete condence

that she will absolutely love these sandals. Click HEREto visit the site, and enter the code "GB-TTMYGH" to enjoy the 20% discount.

(FYI: There is no nancial benet for me whatsoever if you buy a pair of these sandals they are just beautiful shoes and I thought readers would love them!)

http://www.georgeblue.com/http://www.georgeblue.com/http://www.georgeblue.com/http://www.georgeblue.com/

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16 December 2013

Grant Williams

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

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

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

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

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

*******

Follow me on Twitter: @TTMYGH

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

ASFA Annual Conference 2013': "Wizened In Oz"

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

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

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

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

reect the positioning of one or all of the Vulpes fundsthough I will not bemaking any specic recommendations in this publication.

http://www.vulpesinvest.com/https://twitter.com/ttmyghhttp://www.youtube.com/user/GWTTMYGHhttp://www.youtube.com/watch?v=Ab4yqaZ7GAUhttp://www.youtube.com/watch?v=Osq1yxSFVG0http://www.youtube.com/watch?v=wzzoBVK3fyEhttp://www.youtube.com/watch?v=b4zOAHoncF0http://www.youtube.com/watch?v=b4zOAHoncF0http://www.youtube.com/watch?v=wzzoBVK3fyEhttp://www.youtube.com/watch?v=Osq1yxSFVG0http://www.youtube.com/watch?v=Ab4yqaZ7GAUhttp://www.youtube.com/user/GWTTMYGHhttps://twitter.com/ttmyghhttp://www.vulpesinvest.com/

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