Nationalism

Attracting some attention in Russian media today is proposed legislation by State Duma lawmaker Mikhail Degtyaryov of Vladimir Zhirinovsky's controversial Liberal Democratic Party and former candidate for mayor of Moscow (where he got 2.86% of the vote), who seeks to ban dollar deposits and transactions at Russian banks warning that the U.S. dollar is on the brink of collapse. As Moscow Times reports, "Mikhail Degtyaryov said the dollar will collapse in 2017 if U.S. national debt continues to grow at the current rate, and he cautioned that countries with a high dependence on the currency would suffer an economic disaster... In light of this, the fact that confidence in the dollar is growing among Russian citizens is extremely dangerous," he said in an explanatory note attached to the bill, according to Interfax. But before anyone scrambles to convert all their dollars into crisp rubles, keep in mind this is the same candidate who previously proposed banning gay and bisexual men from donating blood, paid days off for menstruating women, and has said he believes Russia will lead the world in vanquishing the Antichrist.

Every now and then, it is good to refresh knowledge of what is truly important in life. So it’s time to post “The Greatest Speech Ever” by Charlie Chaplin. Charlie Chaplin was known as the greatest silent actor ever. The most powerful excerpts from his speech, still very relevant today, in my opinion, are below:

An inept Indian government is attempting to use the age old tactic of scapegoating in order to deflect attention away from its widespread policy failures. In the case of India, the target is gold. It’s a logical target for any crony Indian bureaucrat or Central Banker to go after. Wealth confiscation is a tried and true method historically used by corrupt elites to stay in power, and there is plenty of gold floating around the subcontinent. Easy pickings... or so they thought. It appears some of the temples are now drawing a line in the sand, and are in fact refusing to provide details about their holdings...

• U.S., Russia to push for new Syria peace talks (Reuters)
• Elite Syrian Unit Scatters Chemical Arms Stockpile (WSJ)
• Obama to nominate Summers as Fed chief: Nikkei (Reuters)
• Boehner Wants Joint Talks on Debt, Budget (WSJ)
• House Republicans go for broke in fiscal battles (Reuters)
• Pimco, BlackRock Together Received More Than a Quarter of Verizon's $49 Billion Bond Deal (WSJ)
• Insane financial system lives post-Lehman (Gillian Tett)
• JPM to add $2.5 billion to its litigation reserves in the second half of the year (WSJ)
• Goldman’s Zurich offices visited over working-hours complaint (FT)

Yesterday I thought that Barack Obama was probably the worst President in the entire history of the USA given his record on unemployment and Gross Domestic Product since he has been in office. But, then again, on second thoughts...

No one can predict accurately at what point slower growth will start producing political turmoil on a scale that’s unprecedented in the China that Deng made, what the magic number is, or even whether there’s an iron connection between economic and political crises. Yet the increase in capital flight from China and soaring applications for American and European residential visas by well-heeled Chinese suggest that the elite is hedging its bets. Some may be overstating things, but the rebalancing camp is too sanguine.This much is certain: China’s leaders are in uncharted waters, and because of the diminishing utility of the established formula for rapid growth their maps may be of questionable value.

With the bloodiest weekend since the ouster of Mubarak, it seems the supposed coup-less people's revolution appears to be edging ever closer to civil war. Egypt lies at the heart of the Arab revolution, even if the original spark occurred in Tunisia. But Egypt – with its strategic location, stable borders, large population, and ancient history – has been the principal power of the Arab world for centuries, defining the movement of history there like no other. This implies that the overthrow of Egypt’s democratically elected president, Mohamed Morsi, will have much broader repercussions. Europe's bloody revolutions of the 19th century changed the status quo forever and while the Arab world might not be so deeply affected, the near future there will certainly be neither peaceful nor stable.

Facts are treasonous and dangerous in an empire of lies, fraud and propaganda. It is maddening to watch the country spiral downward, driven to ruin by a psychotic predator class, while the plebs choose to remain willfully ignorant of reality and distracted by their lust for cheap Chinese crap and addicted to the cult of techno-narcissism. We are a country running on heaping doses of cognitive dissonance and normalcy bias, an irrational belief in our national exceptionalism, an absurd trust in the same banking class that destroyed the finances of the country, and a delusionary belief that with just another trillion dollars of debt we’ll be back on the exponential growth track. The American empire has been built on a foundation of cheap easily accessible oil, cheap easily accessible credit, the most powerful military machine in human history, and the purposeful transformation of citizens into consumers through the use of relentless media propaganda and a persistent decades long dumbing down of the masses through the government education system. This national insanity is not a new phenomenon. Friedrich Nietzsche observed the same spectacle in the 19th century: “In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule.”

For the first time, France's Front National party (described by some as 1930s Social Nationalism) is running level with the two governing parties in post-war France - the Socialists and the Gaullistes. With all around 21%, the Front is rapidly gaining support as its leader, Marine Le-Pen exclaims, "Europe is just a great bluff. One side there is the immense power of sovereign peoples, and on the other side are a few technocrats." As The Telegraph reports, following a massive victory securing 46% of the vote in a recent by-election, her anti-euro sentiment is clearly gathering attention. "The euro ceases to exist the moment that France leaves, and that is our incredible strength. What are they going to do, send in tanks?"

Russia, Greece, Turkey, Kazakhstan and Azerbaijan expanded their gold reserves for a seventh straight month in April, buying bullion to diversify foreign exchange reserves due to concerns about the dollar and the euro. Russia’s steady increase in its gold reserves saw its holdings, the seventh-largest by country, climb another 8.4 metric tons to 990 tons, taking gains this year to 3.4% after expanding by 8.5% in 2012, International Monetary Fund data show.  Kazakhstan’s reserves grew 2.6 tons to 125.5 tons, taking the increase to 8.9% this year after a 41% expansion in 2012, data on the website showed. Turkey’s holdings rose 18.2 tons to 427.1 tons in April, increasing for a 10th month as it accepted gold in its reserve requirements from commercial banks.  Belarus’s holdings expanded for a seventh month as did Azerbaijan’s. Interestingly, Greece’s gold holdings climbed for a fourth month, according to the IMF data.   This could be a sign of rising economic nationalism in Greece or that the Greek central bank realises that if Greece leaves the euro and is forced back onto the drachma that gold reserves will offer a modicum of protection. Only a modicum, because Greece’s gold reserves remain miniscule especially considering the scale of their debts. 

Sparked by the police shooting of a machete-wielding 69 year-old man, traditionally calm-and-collected Sweden is suffering amid its third night of riots. It seems underlying tensions from high youth unemployment and rising nationalism against the nation's large immigrant population have been catalyzed by this seemingly unrelated event. As the Daily Mail notes, immigrant ghettos have been created where unemployment is high and there are few opportunities for residents with left-leaning commenters adding that the riots represented a 'gigantic failure' of government policies, which had underpinned the rise of ghettos in the suburbs - "We have failed to give many of the people in the suburbs a hope for the future." An anti-immigrant party, the Sweden Democrats, has risen to third in polls ahead of a general election due next year, reflecting unease about immigrants among many voters. What is driving this tension? After decades of practicing the 'Swedish model' of generous welfare benefits, the country has been reducing the role of the state since the 1990s, spurring the fastest growth in inequality of any advanced OECD economy. Given Sweden's 24.7% youth unemployment, we wonder just what will happen to the 60% of unemployed youths in Greece and Spain when school lets out this summer?

The fundamentals of the platinum and palladium markets are beginning to receive market attention and not before time. The positive supply demand dynamics are leading to increased investment demand as seen in the ETF data and Chinese demand rising again due to both industrial and jewellery demand.

In chapter 8 of David Stockman's new book The Great Deformation, the power-that-be-turned-anti-establishment-reality-seeker explains his perspective on the myths of the New Deal Recovery: "The new deal was a political gong show, not a golden era of enlightened economic policy. It shattered the foundation of sound money and inaugurated a régime of capricious fiscal and regulatory activism that inexorably fueled the growth of state power and the crony capitalism which thrives on it. But it did not end the Great Depression or save capitalism from the alleged shortcomings which led to the crash. In fact, the New Deal introduced a severe dose of economic nationalism and autarky at a time when the only hope for speedy recovery was a reopening of world trade and reestablishment of a stable international monetary régime.... in reality, the notion that the New Deal had pioneered a road map to recovery by means of countercyclical fiscal policy is mostly a postwar academic legend."

An overview of this week's drivers.

While Kyle Bass notably remarks that pinpointing the end of a 70-year debt super-cycle is naive, the combination of the resurgence of nationalism (impacting trade with China) and the dreadful impact of the earthquake/tsunami (drastically changing Japan's supply chain) has secularly shifted Japan's trade balance for the worst at a time when the current account is already negative. "They are all in denial," Bass notes as the government has failed to deal with its problems over the last 20 years. Simply put, Japan needs a Schumpeterian 'creative destruction' moment instead of the constant rolling of debts and expanding of government balance sheets to paper over the cracks. The 'moment' feels like it is now, he notes, expanding that "JPY could hit 200," as they lose control; following two decades of volatility-smoothing, the chance of a disorderly collapse are high. Critically, he fears, "the social fabric of Japan will tear," as with one-third of the nations at retirement age, the fallout from the policies of Abe-Kuroda could cause them to "lose 30-50% of their life savings." What is perhaps even more concerning, he adds, "you are starting to see the central banks not trust each other." At a certain point in time, "nationalist interest takes over the global [G7] kumbaya," and that is occurring now. "The insidious nature of a runaway inflation is that it bankrupts the middle class... leading to social unrest globally."