en We're Not All Gordon Gecko - Dan Loeb Defends 'The Activist' Investor <p><em>Excerpted from Third Point LLC&#39;s letter to investors,</em></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>Lately, <strong><em>a varied chorus of powerful union bosses, politicians and candidates, an asset management company executive, and a few ivory tower types have asserted that activism is short term in nature, engaged in by &ldquo;hit and run&rdquo;&nbsp; investors who care only about making a quick buck while leaving a company and its employees in ruins. </em></strong></p> <p>&nbsp;</p> <p>They assert that activists blackmail their targets to choke off long-term growth initiatives like research and development in favor of financial gimmicks that artificially and temporarily inflate share prices.</p> </blockquote> <p><strong>It might surprise people to hear that we agree completely that the sort of activism they describe is abominable.&nbsp; </strong>Luckily, it does not really exist, and certainly not at Third Point.</p> <p><strong>Activists today are very different from corporate raiders of the &lsquo;80&rsquo;s (about whom these criticisms might have been leveled fairly).&nbsp;</strong> Our activist investments, which we consider to be those in which we seek to use our minority shareholding to obtain board seats, have been some of our most complex and have been held for well over the one year threshold identified as offensive by the critics.&nbsp; In almost every example &ndash; from Ligand to Yahoo to Sotheby&rsquo;s &ndash; our influence has contributed meaningfully to the sustainability and growth of the companies in question.&nbsp; In each of the three investments above, for example, we brought in all-star CEOs and gave them extensive runway to implement ambitious turnaround plans that would take years to come to fruition.&nbsp; A strong CEO with a coherent operating plan can create value for shareholders along the way as their plans are implemented.&nbsp; Our investors have benefitted from our ability to install visionary leaders like John Higgins, Marissa Mayer, and Tad Smith.&nbsp;</p> <p><span style="text-decoration: underline;"><strong>Not every politician is a critic.&nbsp; </strong></span>As you may recall, the case we made for good governance, and implicitly activism, in Japan two years ago was later adopted by Prime Minister Abe and his policy makers to successfully encourage economic momentum and wage growth.&nbsp; His approach has been a success, as better corporate governance principles have led companies like Fanuc to adopt more shareholder friendly approaches and led to increased foreign investments in individual Japanese companies and the overall market.&nbsp;</p> <p><strong>We believe that activism serves an important function not only for our investors, but also for capital markets and society in general.&nbsp; </strong>The success of America&rsquo;s large and robust capital markets &ndash; the greatest in the world &ndash; rests on a framework based on principles of democracy like freedom of speech, transparency, and rule of law.&nbsp; The reason that companies (with the exception of a few in the tech space) are able to raise capital so smoothly is because investors understand that a governance structure known as a board is in place to hold management accountable, be responsible for management&rsquo;s fair compensation, and oversee important capital and strategic decisions.&nbsp;<strong> The fact that shareholders have the right to vote for or sometimes remove directors is critical to the ecosystem of the capital markets.&nbsp;&nbsp; </strong></p> <p>We are proud of the returns we have generated from being engaged, constructive, and sometimes &ldquo;activist&rdquo; investors, and even more so that our activities have led to more efficient organizations that are better able to compete, grow, and innovate.&nbsp;<span style="text-decoration: underline;"><strong> We hope the critics will educate themselves about how activists contribute to the American economy.&nbsp;</strong></span> Regardless, we believe the environment for constructive engagement with management teams is one of our more exciting areas of opportunity today and look forward to further successes in this strategy.</p> <p>*&nbsp; *&nbsp; *</p> <p>Thanks to our long and successful track record, we have a particular advantage in the area of shareholder activism.&nbsp; We are confident that opportunities will continue to exist to bring our owner&rsquo;s perspective on capital allocation, profitability, and strategy to corporations.<strong><em>We will also continue to serve as an agent of change in extreme cases, when corporate boards are unable to make necessary management changes due to incompetence or unwillingness to take action.&nbsp; </em></strong></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="288" height="250" alt="" src="" /> </div> </div> </div> Capital Markets Foreign Investments Japan Third Point Transparency Sun, 02 Aug 2015 16:20:00 +0000 Tyler Durden 510957 at CEO Hikes Minimum Wage To $70K, Capitalist Tragicomedy Ensues <p>Meet 31-year-old Dan Price. </p> <p>Dan is the CEO of Seattle-based credit card payments processing firm Gravity Payments, and three months ago, he did a funny thing.&nbsp;</p> <p>After talking with a friend who confessed to having difficulties making student loan payments and rent each month on an annual salary of $40,000, Dan decided to set a $70,000 per year pay floor at Gravity. </p> <p>Dan was not, <a href="">The New York Times says</a>, looking to insert himself into "the current political clamor over low wages or the growing gap between rich and poor." All he wanted to do was improve the lives of the 120 or so people who worked for him and after reviewing some literature on the subject, he decided that $70,000 was the level at which workers start to experience "an enormous difference in [their] emotional well-being."</p> <p><img src="" width="450" height="276" /></p> <p>Predictably, the initial response to the new policy was quite positive. Here’s <a href="">The Times</a>:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><em>Talk show hosts lined up to interview Mr. Price. Job seekers by the thousands sent in résumés. He was called a "thought leader." Harvard business professors flew out to conduct a case study. <strong>Third graders wrote him thank-you notes. Single women wanted to date him.</strong></em></p> <p>&nbsp;</p> <p><em><strong><img src="" width="450" height="280" /><br /></strong></em></p> </blockquote> <p>But even as Dan adjusted to life as a rebel hero and basked in his newfound popularity among third graders and single women, he quickly learned that whether he liked it or not, <strong>he had waded waist deep into the minimum wage debate and he would soon discover a few very hard lessons about the unintended consequences of hiking the pay floor.&nbsp;</strong></p> <p>First, some employees felt it wasn’t fair to indiscriminately give everyone a raise. That is, some felt Gravity should at least pay lip service to the notion that there's a connection between higher pay and performance and because the new pay plan didn't seem to acknowledge that link, the company lost some workers.</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><em><strong>Two of Mr. Price’s most valued employees quit, spurred in part by their view that it was unfair to double the pay of some new hires while the longest-serving staff members got small or no raises. </strong>Some friends and associates in Seattle’s close-knit entrepreneurial network were also piqued that Mr. Price’s action made them look stingy in front of their own employees.</em></p> <p>&nbsp;</p> <p><em>Maisey McMaster was also one of the believers. Now 26, she joined the company five years ago and worked her way up to financial manager, putting in long hours that left little time for her husband and extended family. "There’s a special culture," where people "work hard and play hard," she said. "I love everyone there."</em></p> <p>&nbsp;</p> <p><em>She helped calculate whether the firm could afford to gradually raise everyone’s salary to $70,000 over a three-year period, and was initially swept up in the excitement. But the more she thought about it, the more the details gnawed at her.</em></p> <p>&nbsp;</p> <p><em><strong>"He gave raises to people who have the least skills and are the least equipped to do the job, and the ones who were taking on the most didn’t get much of a bump," </strong>she said. To her, a fairer proposal would have been to give smaller increases with the opportunity to earn a future raise with more experience.</em></p> <p>&nbsp;</p> <p><em>A couple of days after the announcement, she decided to talk to Mr. Price.</em></p> <p>&nbsp;</p> <p><em><img src="" width="450" height="305" /><br /></em></p> <p>&nbsp;</p> <p><em>"He treated me as if I was being selfish and only thinking about myself," she said. "That really hurt me. I was talking about not only me, but about everyone in my position."</em></p> <p>&nbsp;</p> <p><em>Already approaching burnout from the relentless pace, she decided to quit.</em></p> </blockquote> <p>Next, Gravity began to lose some of its long-standing customers and while the across-the-board pay raise won the company more than enough new business to make up the difference, the new accounts won’t be immediately accretive and in the meantime, Gravity has had to hire more people to service the new accounts and thanks to the new salary floor, all of those new employees will eventually have to be paid $70,000.</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><em>A few customers, dismayed by what they viewed as a political statement, withdrew their business. Others, anticipating a fee increase — despite repeated assurances to the contrary — also left. While dozens of new clients, inspired by Mr. Price’s announcement, were signing up, those accounts will not start paying off for at least another year. <strong>To handle the flood, he has already had to hire a dozen additional employees — now at a significantly higher cost </strong>— and is struggling to figure out whether more are needed without knowing for certain how long the bonanza will last.</em></p> </blockquote> <p>Dan’s benevolence is also costing him friends in the business community where some say Gravity’s new pay floor will embolden minimum wage workers in their quest for higher pay.&nbsp;</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><em>Brian Canlis, a co-owner of his family-named restaurant, is also a client. He said he was fond of Mr. Price, but was more discomfited by his actions.&nbsp;</em></p> <p>&nbsp;</p> <p><strong><em>Mr. Canlis is already worried about how to deal with Seattle’s new minimum wage, which rose to $11 an hour in April and is scheduled to reach $15 an hour for small businesses within five years.</em></strong></p> <p>&nbsp;</p> <p><em>The pay raise at Gravity, Mr. Canlis told Mr. Price, "makes it harder for the rest of us."</em></p> </blockquote> <p>Finally, Dan is now being sued by his older brother and as it turns out, Maisey McMaster had not included a "<em>provision for legal fees in case my brother sues us</em>" line item in the new budget, which means that ultimately, Gravity may have a hard time staying in business.</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><em>Less than two weeks after the announcement, Mr. Price’s older brother and Gravity co-founder, Lucas Price, citing longstanding differences, filed a lawsuit that potentially threatened the company’s very existence. <strong>With legal bills quickly mounting and most of his own paycheck and last year’s $2.2 million in profits plowed into the salary increases, Dan Price said, "We don’t have a margin of error to pay those legal fees."</strong></em></p> <p>&nbsp;</p> <p><em>Lucas Price owns about 30 percent of their company, although he has not actively been involved in day-to-day operations for several years. There had been tensions between the two long before the new pay plan, and Lucas is demanding that Dan buy him out for an unspecified amount, plus damages.</em></p> </blockquote> <p>* &nbsp;* &nbsp;*</p> <p>To be sure, there are number of lessons here and indeed, the Gravity story touches on several topics we've discussed at length over the last several months. </p> <p>There's no question that surviving in America is becoming more difficult by the year for an alarmingly large subset of the population and part of the problem is anemic wage growth for 83% of the workforce. In fact, just last week the Department of Labor said the employment cost index notched a meager 0.2% increase in Q2 - <strong>that's the smallest quarterly gain since record keeping began in 1982.&nbsp;</strong></p> <p><strong><a href=""><img src="" width="600" height="316" /></a><br /></strong></p> <p>Despite claims that this miserable data point was anomalous, this ECI print clearly suggests that for all the publicity around the minimum wage debate, and despite (or maybe even because of) the growing pressure on employers to raise the pay floor, wage growth is virtually non existent. Thus, across-the-board pay raises seem to be suffering from the QE paradox that's now <a href="">playing out in Sweden</a> - that is, the more you do it, the less effective it is and at a certain point, it even begins to undermine itself. &nbsp;</p> <p>Meanwhile, e<span style="font-size: 1em; line-height: 1.3em;">asy access to credit has led to an explosion of student loan debt and yet that debt has created a preponderence of degreed job seekers. In other words, college degrees are now so common as to reduce their value for prospective employers which has had the unfortunate effect of <a href="">transforming</a> many college educated, would-be professionals into waiters and bartenders.&nbsp;</span></p> <p><span style="font-size: 1em; line-height: 1.3em;"><a href=""><img src="" width="486" height="398" /></a><br /></span></p> <p>Needless to say, paying off $35,000 in student debt is tough when you're relying on tips to make ends meet and it's made all the more difficult by the fact that rents are soaring. With lenders still stinging from the collapse of the housing bubble, underwriting standards are still relatively tight (for homes anyway) which means, to quote WSJ, households are <a href="">being squeezed</a> "between rents they can't afford and homes they can't qualify for."</p> <p>Meanwhile, the gap between the rich and the poor is widening materially on the back of Fed policy that, while ostensibly designed to rescue Main Street via the elusive "wealth effect", serves only to further enrich the wealthy by inflating the value of the assets most likely to be concentrated in the hands of those who were already rich in the first place.&nbsp;</p> <p>Whether Dan Price realized it or not, his move to raise the pay floor at Gravity was destined to be seen as an emphatic reaction to each of these economic realities. But as we saw last week with WalMart, addressing the rise of class segregation and the disappearance of the American Middle Class by resorting to across-the-board pay raises comes with a long list of unintended consquences and as Tony Hsieh learned when he attempted to <a href="">transition Zappos</a> to a "bossless" corporate culture, predicting how employees will respond to what seem like unequivocally worker-friendly policies is quite difficult.&nbsp;</p> <p>So while we wish Gravity the best of luck with the new pay structure, we fear that if anything, Dan Price's experience will serve as a cautionary tale to employers who may now think twice before embarking on one man crusades to address the nation's social and economic maladies and ultimately, if the company's very existence continues to be threatened by the fallout from the wage hike, Gravity's employees may soon find that the new pay floor is, like everything else in the world, subject to the law of... well, gravity.&nbsp;</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="450" height="276" alt="" src="" /> </div> </div> </div> Housing Bubble Main Street New York Times Sun, 02 Aug 2015 15:45:53 +0000 Tyler Durden 510959 at China's 1929 Moment <p><a href=""><em>Submitted by Alasdair Macleod via</em></a>,</p> <p><em><strong>Anyone with a nose for markets will tell you that the Chinese government&#39;s attempt to rescue the country&#39;s stock markets from collapse is far from succeeding.</strong></em></p> <p>Bubbles collapse, period; and government interventions don&#39;t stop them. Furthermore, we are beginning to see a crack widen in the foundations of China&#39;s capital markets that could end up undermining the whole economy.</p> <p><strong>Since the government owns the banking system, some of the knock-on effects will doubtless be concealed. </strong>A consequence for China is that domestic financial instability could threaten her current plans for the international development of her currency. Here the timing couldn&#39;t be worse, because in a few months the IMF is due to announce its decision about the inclusion of the renminbi in the SDR. The odds were in favour of China succeeding in this quest, on the basis that China was deemed to have fulfilled the necessary conditions, and the IMF itself has been supportive.</p> <p><strong>A 1929-style collapse in China&#39;s stock markets would change this delicate balance. </strong>In mainstream macroeconomic theory, the only way China can resolve her excessive financial imbalances is to devalue the renminbi against other SDR currencies, hardly a good start for a new member. The IMF, probably egged on by the Americans, could be forced to defer its decision again, reviewing it in 2020.</p> <p><strong>This would be a bad outcome, given China has set her sights on joining the IMF&#39;s top table. </strong>There can be little doubt that the recent announcement increasing her gold reserves by only 600 tonnes was made in the context of her desire for the currency to be included in the SDR. If she is rejected, China could swing the emphasis more firmly towards gold, which she owns and mines in abundance.</p> <p><u><strong>If Plan A fails, it is time for Plan B. </strong></u>It is almost certain China has substantial undeclared holdings of physical bullion. The enabling regulations for China&#39;s gold accumulation programme go back to 1983, and the State will have acquired the bulk of its bullion before it permitted its own citizens to buy from 2002 onwards. <em><strong>Western analysts seem generally unaware that the bulk of China&#39;s acquisition of gold was in the late twentieth century, the last time the west was dishoarding huge quantities of bullion into a prolonged bear market, and she had massive capital inflows followed by trade surpluses to offset.</strong></em> This was the basis for my speculation last October that Government holdings could have grown to 20,000 tonnes by 2002, which explains why public ownership was then permitted.</p> <p><u><strong>The Chinese government almost certainly views gold as the ultimate money. </strong></u>The time is approaching for Plan B when a higher gold price would serve her interests better than membership of the SDR. It would reduce China&#39;s debt levels expressed in the ultimate money, without currency intervention. And it would also boost the personal wealth of her people. In short, it would be popular with ordinary people, at a time when the authorities&#39; credibility is threatened by internal financial developments.</p> <p><em><u><strong>It must be tempting. The effect on western capital markets, having been drained of physical bullion and left with uncovered gold liabilities, could be very interesting. After all, the Chinese curse was for us to live in interesting times.</strong></u></em></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="307" height="229" alt="" src="" /> </div> </div> </div> B+ Bear Market Capital Markets China Renminbi Sun, 02 Aug 2015 15:00:00 +0000 Tyler Durden 510956 at Are We Being Forced Into A "Second American Civil War"… If So, Who Will Win? <p><em>Submitted by Mac Slavo of <a href=""></a></em></p> <p><strong>Are We Being Forced Into a “Second American Civil War”… If So, Who Will Win?</strong></p> <p><img src="" width="502" height="252" /></p> <p>A culture war has been stirred up.</p> <p>Divisions are along predictable lines: racism, police abuse, controversial social issues, and plenty of left vs. right, demographics and regional baggage to clash over as well.</p> <p>And by all accounts, differences and distinctions between people have been intensifying, not blurring and fading away.According to the <em>Washington Post</em>, many Americans have been relocating themselves in <a href="" target="_blank">one of the 11 distinct areas of the country</a> to live with like minded people.</p> <p>The best way to keep us from fighting the real enemy is to keep us fighting amongst ourselves.</p> <p>But could the culture war ever turn into a real war?</p> <p>Some people actually think so, and it seems the military has been planning for the scenario, too. The potential for economic and societal breakdown is real.</p> <p>As Infowars previously reported:</p> <blockquote><p><strong>The U.S. military agrees that the chance of a break down in the system is real:</strong></p> <p>&nbsp;</p> <p>A new report from the U.S. Army War College [<a href="" target="_blank">here is the report</a>] discusses the use of American troops to quell civil unrest brought about by a worsening economic crisis.</p> <p>&nbsp;</p> <p>The report from the War College’s Strategic Studies Institute warns that the U.S. military must prepare for a “violent, strategic dislocation inside the United States” that could be provoked by “unforeseen economic collapse” or “loss of functioning political and legal order.” [The report also warns of a possible “rapid dissolution of public order in all or significant parts of the US.”]</p> </blockquote> <p>Former Governor Rick Perry made a lot of noise about succession in Texas. A Russian scholar even <strong><a href="" target="_blank">predicted the break up of the United States</a></strong> into six parts (with the bankers secretly in control of the pieces, and the grander North American Union:</p> <blockquote><p>He also cited the “vulnerable political setup”, “lack of unified national laws”, and “divisions among the elite, which have become clear in these crisis conditions.”</p> <p>&nbsp;</p> <p>He predicted that the U.S. will break up into six parts – the Pacific coast, with its growing Chinese population; the South, with its Hispanics; Texas, where independence movements are on the rise; the Atlantic coast, with its distinct and separate mentality; five of the poorer central states with their large Native American populations; and the northern states, where the influence from Canada is strong.</p> </blockquote> <p>Here’s part of the long answer that one former Marine, <a href="" target="_blank">Jon Davis</a>, gave to the question, “If every state of the USA declared war against each other, which would win?.”</p> <blockquote><p><strong>These are the accounts of the Second American Civil War, also known as the Wars of Reunification and the American Warring States Period.</strong></p> <p>&nbsp;</p> <p>After the breakup many wondered which states would come out in control of the power void created by the dissolution of the United States. There were many with little chance against several of the larger more powerful states. <strong>The states in possession of a large population, predisposition for military bases and a population open to the idea of warfare fared the best. In the long term we would look to states with self-sufficiency and long term military capabilities.</strong></p> <p>&nbsp;</p> <p>Here are the states that held the greatest strategic value from day one. They have the ability to be self-sufficient, economic strength, military strength, the will to fight and the population to support a powerful war machine.</p> <p>&nbsp;</p> <p>California<br /> Texas<br /> New York</p> <p>&nbsp;</p> <p>Others that have many of the qualities that gave them an advantage are also listed.</p> <p>&nbsp;</p> <p>Washington<br /> Colorado<br /> Illinois<br /> Virginia<br /> Florida<br /> Georgia</p> </blockquote> <p>His full answer includes sample journals from the nearly 3,000 day war he envisions (which is now being optioned by Hollywood). To make a long story short, California, Texas and New York become the power bases for the 2nd American Civil War, and each carves out an empire from the mainland of allied or subjugated states, which add to the balance of resources.</p> <p>Here is <a href="" target="_blank"><strong>Davis’ final map and full account</strong></a>:</p> <p><a href=""><img src="" width="485" height="364" /></a></p> <p style="text-align: left;">The attempts to reunify the former nation are shaky at best.</p> <p style="text-align: left;">Things may not be as simply as carefully divided states, but there are already many layers of conflict throughout society, and some of it has already turned to violence, riots and bloodshed.</p> <p style="text-align: left;">Unfortunately, it can happen here. But will it?</p> <p style="text-align: left;">How much farther will things go? And will any notice the hidden hand behind those events?</p> <p style="text-align: left;">Who are the real controllers, and who stands to gain from a new civil war?</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="485" height="364" alt="" src="" /> </div> </div> </div> Demographics Florida Illinois Sun, 02 Aug 2015 14:36:19 +0000 Tyler Durden 510953 at Varoufakis: "In 1967 There Were The Tanks And In 2015 There Were The Banks" <p>It was back on <a href="">January 31 of this year</a>, long before the "game theoretical" approach of Greek negotiations with the Eurogroup and ECB in particular and the Troika, and now Quadriga in general was revealed, that we first forecast with absolute accuracy just what the middle, and end game, of the Greek negotiation with Europe (and vice versa) will be:</p> <blockquote><p>... today the ECB's Erikki Liikanen, tired of pleasantries and dealing with what to Europe is a completely incomprehensible and illogical stance, one which is essentially a massive defection by Greece in the European "prisoner's dilemma", and which while leading to a Greek financial collapse and Grexit - <strong>both prerequisites to a subsequent Greek economic recovery unburdened by the shackles of the Euro </strong>- would also unleash a European depression, came out and directly threatened Greece that it now has 1 month until the end of February to reach a deal with the Troika, <strong>or else the ECB would cut off lending to Greek banks, in the process destroying the otherwise insolvent Greek banking sector.</strong></p> <p>&nbsp;</p> <p>And since only the ECB backstop has prevented a banking sector panic, the ECB is essentially betting the house, and the sanctity of the Eurozone (because after a Grexit all bets are off which peripheral leaves next) that the threat, and soon reality<strong>, of a bank run will finally force Varoufakis and Tsipras to sit at the negotiating table with the understanding that not they but the Troika has all the leverage.</strong></p> </blockquote> <p>Six months later, with the ECB using the Greek bank run nuclear option, the Syriza government did indeed undestand that the Troika "has all the leverage." andtToday, Yanis Varoufakis - who is now embroiled in a national scandal which may see him charged with treason for daring to contemplate and implement a Plan B which saw the return of Greece to the Drachma, presented the full transcript of his interview with El Pais conducted last week, in which he put in his own words just what this battle of leverage which we first laid out in January, would be:</p> <blockquote><p>Think of it as a ‘demonstration effect': this is what will happen to you if you don’t fully submit to the Troika. What happened in Greece was definitely a coup. The asphyxiation of the Government through the liquidity squeeze, a series of denials of any serious debt restructuring… What was astonishing is that we kept coming to them with proposals which they refused seriously to discuss, they were insisting that we do not make them public and, at the same time, they leaked that we had no proposals. Any independent observer watching this would agree that they were never interested in a mutually beneficial agreement. <strong>By imposing the liquidity squeeze, they forced the economy to shrink so as to blame it on us</strong>… We had constantly to make payments to the IMF which where scheduled along with disbursements which never came through. So they kept doing this, delaying any agreement, until we run out of liquidity. Then they gave us an ultimatum under the further threat of bank closure<span style="text-decoration: underline;"><strong>. This was nothing but a coup</strong>. <strong>In 1967 there were the tanks and in 2015 there were the banks</strong>. </span>But the result is the <strong>same in the sense of having overthrown the Government or having forced it to overthrow itself.</strong></p> </blockquote> <p>Spot on.</p> <p><img src="" width="370" height="225" /><img src="" width="358" height="225" /></p> <p>* * *</p> <p><em>Here is the full, unedited transcript of the Varoufakis interview with Claudi Perez <a href="">from the former finance minister's blog</a></em><a href=""></a>:</p> <p>Claudi&nbsp;Pérez, of El Pais, inteviewed me in our Athens apartment last week. <a href="" target="_blank">Here</a> is the article that emerged recently in El Pais. The complete, unedited, transcript (in English) follows:</p> <p><a href=""><img src=";h=371" alt="Screen Shot 2015-08-02 at 15.08.00" width="584" height="247" class="aligncenter wp-image-9686 size-large" /></a></p> <p><span id="more-9685">&nbsp;</span></p> <p><span style="color: #800000;">Why do all the interviews of you I have read begin with a question about how are you if it is clear, as I see, that you are really ok?</span></p> <p>I suspect journalists assume that I am somehow downhearted now that I am not in the ministry. But I didn’t enter politics as a career. I entered politics to try to change things. There is a price to pay if one tries to change things.</p> <p><span style="color: #800000;">What is the price?</span></p> <p>The disdain of the establishment. The deep feelings of loathing by the vested interests one must dislodge to make a difference. They felt threatened. If you enter politics with an uncompromising position, you cop it.</p> <p><span style="color: #800000;">&nbsp;You say that you have to change things. In these 6 months, do you have the feeling that you did?</span></p> <p>Absolutely. Why are you here? You are here because something changed. There was a government that was elected to negotiate hard on the basis of a line of argument that wasn’t considered acceptable in the eurozone. At the same time, history necessitated it. So you have an unstoppable force striking an immovable object. The immovable logic is the irrationality of the Eurogroup and the unstoppable force is history. The result is a great deal of heat and noise… Hopefully there will be some light too.</p> <p><span style="color: #800000;">I was reading your book, about your daughter… And then I was doing some numbers. The bailout will finish in 2018. Then the supervision will be there until Greece pays back the majority of its loans: the average maturity is 32 years. So the ex troika, now quadriga, and the men in black, will be here in Athens till your grandchildren will be adults. How do you deal with this?</span></p> <p>Let’s not call them the ex troika anymore. It’s the troika again. We gave them the chance to become “the institutions”, to legitimize them. But they insisted in behaving like the illegitimate troika of the past five years.</p> <p><span style="color: #800000;">Didn’t you kill the troika?</span></p> <p>Well, we got rid of them here in Athens. Now they are back: the troika is back. They could have acted as legitimate institutions. But they seem to have a clear preference to act as the troika of lenders. It’s their choice.</p> <p><span style="color: #800000;">But they’ll be here until 2050, when your grandchildren will be adults.</span></p> <p>No, they won’t.&nbsp;Because this agreement doesn’t have a future. It is continuing the extending and pretending charade: extending the crisis with new unsustainable loans, and pretending that this solves the problem… It can’t go on forever. You can fool the people and the markets for a short period of time, but in the end you can’t fool them for fifty years. Either Europe changes, and this process is replaced by something more democratic, and durable, manageable, humanistic. Or&nbsp;Europe will no longer exist as a Monetary Union.</p> <p><span style="color: #800000;">What do you expect for the next 6 months? We expect a 3rd bailout agreement in mid-August.</span></p> <p>This is a program designed to fail. And so it will fail. It’s not easy for an architect to build a solid building, but it’s easy for him or her to construct a building that will collapse. Anyone can do it. It was planned to fail, because, let’s face it: Wolfgang Schauble is not interested in an agreement that works. He categorically stated that he wanted to redesign the eurozone and part of that redesign is that Greece should be thrown out of the eurozone. I think that he is completely mistaken but nevertheless this is his plan and he is a very powerful player. One of the great fallacies at the moment is to present the deal imposed on our government on 12th July as an alternative to Schauble’s plan. I see things differently: This deal is a part of the Schauble plan. Of course, this is not the conventional wisdom.</p> <p><span style="color: #800000;">So do you expect a Grexit?</span></p> <p>I hope not. But what I expect is a lot of noise, as I said: delays, failure to meet unreachable targets, more recession, political dead ends. And then things will come to head and Europe will have to decide whether to go ahead with Schauble’s plan or not.</p> <p><span style="color: #800000;">But which is your central scenario? Is Schauble condemning Greece to go out?</span></p> <p>You can see that there is a plan being implemented and which is in progress. Today we have read that Schauble wants to sideline the Commission and to create something like a Budget commissioner who oversees the ‘rules’ that strike down national budgets, even if a country is not under a program. In other words: to turn every country into a program country! One of the great successes of Spain in the middle of the crisis was that you avoided a full MoU (and only had a limited one stemming from the bank recapitalization program). Schauble’s plan is to put the troika everywhere, in Madrid too, but especially in… Paris!</p> <p><span style="color: #800000;">So Paris is the final game.</span></p> <p>Paris is the larger prize. It’s the final destination of the troika. Grexit is used to create the fear necessary to force Paris, Rome and Madrid to acquiesce.</p> <p><span style="color: #800000;">Is it to sacrifice Greece for saving Europe?</span></p> <p>Think of it as a ‘demonstration effect': this is what will happen to you if you don’t fully submit to the Troika. What happened in Greece was definitely a coup. The asphyxiation of the Government through the liquidity squeeze, a series of denials of any serious debt restructuring… What was astonishing is that we kept coming to them with proposals which they refused seriously to discuss, they were insisting that we do not make them public and, at the same time, they leaked that we had no proposals. Any independent observer watching this would agree that they were never interested in a mutually beneficial agreement. By imposing the liquidity squeeze, they forced the economy to shrink so as to blame it on us… We had constantly to make payments to the IMF which where scheduled along with disbursements which never came through. So they kept doing this, delaying any agreement, until we run out of liquidity. Then they gave us an ultimatum under the further threat of bank closure. This was nothing but a coup. In 1967 there were the tanks and in 2015 there were the banks. But the result is the same in the sense of having overthrown the Government or having forced it to overthrow itself.</p> <p><span style="color: #800000;">And for Europe as a whole?</span></p> <p>Nobody can be free even if one person is a slave. That is Hegel’s well known master-slave paradox. Europe has to pay serious attention to it. Spain cannot prosper, or be free, or sovereign or democratic if its prosperity hinges on another member state being denied growth, prosperity or democracy.&nbsp;&nbsp;<img src=";h=536" alt="Screen Shot 2015-08-02 at 15.10.07" width="584" height="357" class="aligncenter wp-image-9687 size-large" /></p> <p><span style="color: #800000;">Rajoy has said that if Spaniards vote for parties like Podemos, we will be like Greece in the coming months.</span></p> <p>I remind you that Mitt Romney’s Presidential campaign in 2012 was run also on the basis of that ‘if Obama wins, the US will become like Greece’. So Greece has become a football on the feet of politicians of the right who try to scare their population. This is the great utility of Greece for the Grexit policy of Dr Schauble.</p> <p><span style="color: #800000;">Do you think that Podemos could have damaged Greece because the fear of the political contagion?</span></p> <p>I would never say that Podemos is a problem for us. Even if Podemos didn’t exist, the forces of regression in Europe would have used fear because, let’s face it: whenever a province of an empire rebels, the emperor and his minions feel obliged to make an example of those who make a dash for liberty. Maybe Podemos intensified this process but, in reality, we had no alternative: we had an economy caught in a large deflation spiral, no credit even for profitable businesses, no investment except for some speculation.</p> <p><span style="color: #800000;">The previous government was adopting increasing degrees of authoritarianism, shutting down the state’s own radio and television stations. This self-defeating austerity drive, which leads to further losses in income, further debt in order to keep fueling this beast of austerity, can only be kept going by curtailing democracy. So what alternative did we have?</span></p> <p>The Greeks voted for us not because they didn’t know we would be treated in a hostile way, but because they had had enough. Whatever happens in Spain, in France, in the Baltics, in Portugal, we had a duty to our people to say: We believe in Europe and we’re going to say to Europeans that we owe them money, we want to repay, but we cannot repay from incomes that keep shrinking. “If you keep squeezing us in this inhuman, irrational manner, you will lose your money and we will lose our country.”</p> <p>Now, there comes a time when you simply need to say and do what is&nbsp;right, and if Europe as a whole chooses to punish us for it, because it is not ready to accept the truth, then we have no alternative but to say to them: “We are doing our best and we hope you find it in yourselves to do your best too!”</p> <p><span style="color: #800000;">I think that is a uncontroversial: your ideas about austerity and debt relief, everybody says you are right.</span></p> <p>If you were talking to me in January it would not have been so. The only reason why now this is not controversial anymore is because we struggled for six months. For those who say to me we failed, these six months were in vain, I say “No we did not fail”. Now we have a debate in Europe which it’s not just about Greece, it’s about the continent. A debate we would have not had otherwise. A debate which is worth Greece’s, our continent’s, weight in gold.</p> <p><span style="color: #800000;">But politics is about results. You called the first and second bailout like the Versailles Treaty. How would you define the third?</span></p> <p>The Eurozone began life in 2000. It was badly designed and we realized that, or we should have realized that, in 2008 when Lehman Brothers collapsed. From 2009-2010 we have been in complete denial as official Europe has been doing precisely the wrong thing. This is a European phenomenon, it is an Europe-wide problem. Little Greece, 2% of Eurozone’s GDP, elected a government that raised issues crucial for all of Europe.&nbsp; After 6 months of struggles we had a major setback, we lost the battle. But we won the war of changing the debate. And this is a result!</p> <p><span style="color: #800000;">The debate is the result?</span></p> <p>Certainly! I cannot quantify this result for you. I cannot tell you how many billons it is worth. But some things are not measured in terms of prices but in terms of their value.</p> <p><span style="color: #800000;">You had a plan B, with a parallel currency, but Tsipras didn’t want to press the button, to summarize the story.</span></p> <p>He is the prime minister, it was his call. My job, as his financial minister, was to provide the best tools I could and it was his decision whether he chose to use them or not. That is what matters. There were good arguments to utilize these tools and there were arguments for not pressing the button.</p> <p><span style="color: #800000;">When you closed the banks, did you think at that moment that you must press the button?</span></p> <p>I clearly thought that we should have reacted in kind when the Eurogroup closed the Greek banks and I have stated this for the record. But this is what collective decision making is all about. It means you have an inner cabinet that decides. I tabled my recommendation but I was in a minority. I respected the decision of the majority and acted according to it, as a team player ought to. This is how democracy and governments work and I fully accept it.</p> <p><span style="color: #800000;">But can this plan B still being implemented?</span></p> <p>Let’s separate two things. There was a Plan B, which, in fact, we called Plan X, in contrast to the ECB’s 2012 Plan Z, as reported in the Financial Times some time ago. Plan X was a contingency plan for responding to aggressive acts by the ECB, the Eurogroup and so on. Then there was a quite separate design for a new payments system using the tax office’s interface. This system, as I explained in a recent article in the Financial Times, is something that should have been implemented anyway. I think Spain might benefit from implementing it to, or Italy for example. Countries lacking a central bank can potentially benefit from this efficient way of creating more liquidity, and more effectively dealing with multilateral extinguishment of arrears between the state and its citizens, but also among citizens.</p> <p>So, let’s keep these two ‘plans’ separate. The payment system could, and should, be implemented tomorrow. Plan X is now, I think, part of history because it was intended as a response to aggressive acts that would have as their objective to make us surrender during the negotiations. Now that we have surrendered, it has become part of economic history.</p> <p><span style="color: #800000;">Tsipras said in the parliament before the vote, after the referendum, that there was no alternative to the packages, but I think with this plan you are saying to the people that there is an alternative to the package.</span></p> <p>My political thinking, from a very young age, was shaped by a principled, intellectual opposition to TINA – to the neoliberal logic that There Is No Alternative. This opposition shaped me from the time I lived in Britain under Margaret Thatcher who launched TINA. My political thinking was always directed at countering… TINA. I even concocted an alternative, saying that I believe not in TINA but in TATIANA: That Astonishingly There Is AN Alternative! So I would never accept the view that there was no alternative. I would accept that a prime minister, considering all the alternatives, opts for the least bad alternative. We can have a debate on whether his was the least bad, or optimal, alternative. But the proposition that there exists no alternative is constitutionally alien to every fibre of my body and mind.</p> <p><span style="color: #800000;">Let me ask you about your rhetoric: mafia, criminals…</span></p> <p>I never used the word Mafia</p> <p><span style="color: #800000;">Terrorism, fiscal waterboarding…</span></p> <p>Fiscal waterboarding: I am very proud of this term. It is a precise, an accurate description of what has been happening for years now. What is waterboarding? You take a subject, you push his head in the water until he suffocates but, at some point, before death comes you stop. You pull the head out just in time, before asphyxiation is complete, you allow the subject to take a few deep breaths, and then you push the head again in the water. You repeat until he… confesses. Fiscal waterboarding, on the other hand, is obviously not physical, it’s fiscal. But the idea is the same and it is exactly what happened to successive Greek governments since 2010. Instead of air, Greek governments nursing unsustainable debts were starved of liquidity. Facing payments to their creditors, or meeting its obligations, they were denied liquidity till the very last moment just before formal bankruptcy, until they ‘confessed’’; until they signed on agreements they knew to add new impetus on the real economy’s crisis. At that moment, the troika would provide enough liquidity, like they did now with the 7 billion the Greek government received in order to repay the… ECB and the IMF. Just like waterboarding, this liquidity, or ‘oxygen’, is calculated to be barely enough to keep the ‘subject’ going, without defaulting formally, but never more than that. And so the torture continues with the effect that the government remains completely under the troika’s control. This is how fiscal waterboarding functions and I cannot imagine a better and more accurate term to describe what has been going on.</p> <p>On my use of the word ‘terror’, take the case of the referendum. On the 25th&nbsp;of June we were presented with a comprehensive proposal by the troika. We studied it with an open mind and concluded that it was a non-viable proposal. If we signed it, we would have definitely failed within 4-5 months and then Dr. Schäuble would say “See, you accepted conditions you could not fulfill”. The Greek government cannot afford to do this anymore. We need to reclaim our credibility by only signing agreements we can fulfill. So I said to my colleagues in the Eurogroup, on the 27th, that our team convened and decided that we could not accept this proposal, because it wouldn’t work. But at the same time, we are Europeanists and we don’t have a mandate, nor the will or interest, to clash with Europe. So we decided to put their proposal to the Greek people to decide.</p> <p>And what did the Eurogroup do? It refused us an extension of a few weeks in order to hold this referendum in peace and instead they closed down our banks. Closing down the banks of a monetized economy is the worst form of monetary terrorism. It instills fear in people. Imagine if in Spain tomorrow morning the banks didn’t open because of a Eurogroup decision with which to force your government to agree to something untenable. Spaniards would be caught up in a vortex of monetary terror. What is terrorism? Terrorism is to pursue a political agenda through the spread of generalized fear. That is what they did. Meanwhile the Greek systemic media were terrorizing people to think that, if they voted No in the referendum, Armageddon would come. This was also a fear-based campaign. And this is what I said. Maybe people in Brussels don’t like it to hear the truth. If they refrained&nbsp;from trying to scare the Greek, then I would have refrained from using this term.</p> <p><span style="color: #800000;">My point is the rhetoric calling criminals to IMF, as Tsipras did, is not good for the results of the negotiation. And with this rhetoric it is difficult.</span></p> <p>He didn’t call the IMF criminal. Let’s be precise. He talked about a criminally negligent program that imposed upon Greeks a monumental crisis, including a humanitarian emergency. Which is exactly what the Greek ‘programs’ fo 2010 and 2012 were. But let me add an important point here: We did not turn up the ‘sharpness’ of our rhetoric (e.g. Tsipras’ remark) until late June. From 25th&nbsp;of January until late June we had been negotiating in good faith while the troika was not. We had been exceptionally mild and polite, in the face of incredible hostility and denigration. We went into each Eurogroup meeting with good proposals, suggesting to them that we should all agree on two or three major reforms immediately (e.g. tax evasion and corruption, a new tax authority independent of politics but also of the oligarchy). They rejected our overtures and they threatened us with cessation of the negotiations if we dared make our proposals public, while they were leaking at the same time to the Financial Times that we had no proposals. They insisted on a denigrating, endless round of ‘technical’ discussions while asphyxiating our economy. They behaved abominably while we continued to respond with solid arguments and in a highly civilized fashion.</p> <p>And we sat there and took it, month after month. We never stopped compromising. By late June, our Prime Minister had met them 9/10ths of the way. And what did they do? They backtracked even from their own positions, insisting on 25th June, for example, that VAT on hotels should rise to 23%! This was an act of aggression. At that point we decided, very reasonably, to tell the truth, to talk about their program’s criminal negligence, to allude to their fiscal waterboarding. At some point the truth needs to be told. Europeans are losing trust in the EU because of their wall of lies and propaganda which presents itself in the form of nuanced terminology, when in reality what is happening is a complete violation of the basic rules of logic, of the EU Treaties, of polite behaviour and of democracy.</p> <p><span style="color: #800000;">But then why did Tsipras accept it?</span></p> <p>You should interview him if you wish to put questions to him. It is not right that I should answer on anyone else’s behalf, especially my Prime Minister.</p> <p><span style="color: #800000;">In the Eurogroup, some ministers portrayed you like difficult to predict, luxurious way of life, many photos… What do you think when you hear this type of portrait?</span></p> <p>It is not true. Nobody said anything like that in the Eurogroup. They may very well have said such things outside the Eurogroup, I would neither know nor care. Everybody, in the end, gets judged by the quality of their public narratives. I will leave you and your readers to pass judgment on their demeanour. We all need to be judged by our voters, by the people of Europe. In my case, I have a clear conscience. After the third Eurogroup I posted on my website my interventions in all three meetings. Read them and tell me if I was unpredictable, impolite, whatever. In my estimation, my interventions were clear, economically beyond reproach, and constructive. Readers can read them and judge.</p> <p><span style="color: #800000;">Do people understand your pictures on Paris Match for example? Do you think that people that have voted Syriza, which is a left party, understand this type of pictures?</span></p> <p>Well, you want to walk around with me on the streets of Athens and see what people say to me about all this? Our people are not bothered by any of this, even though I said it clearly that the Paris Match aesthetic was terrible and I regret accepting to do the photoshoot. You may not believe me but, when I accepted, I didn’t know what Paris Match was – it is not the kind of press I ever knew much about. I asked to see the article’s text before agreeing to do the photoshoot. The text was fine and so I made the mistake to agree to the photoshoot. I rushed home for it and only had 15 minutes to spare. Danae, my wife, told me it felt like a bad idea but I was already committed and so I decided to do it quickly, rushing from one ‘set’ to the next before leaving for a meeting with the Prime Minister. It was my mistake to have accepted it and I have apologized for it. But all this talk about Paris Match and its photoshoot had one purpose: to ensure that my message, especially the rational criticisms of Europe’s ways, gets drowned in ugly pictures and toxic noise.</p> <p><span style="color: #800000;">What are you going to do about your political career?</span></p> <p>Politics should not be a career. I am a member of the Parliament and extremely honored by the trust vested in me by voters. My commitment to them when I entered politics last January was that I will stand my ground and fight along their side for democracy and prosperity in Greece but also throughout Eyrope. I’m here for the course, I´m not going anywhere.</p> <p><span style="color: #800000;">You are an academic, a professor and author of really good books like the Minotaur. Did you like the politics, what you saw in Brussels?</span></p> <p>I certainly didn’t like what I saw in Brussels and I don’t think any European would like it if they had the chance to see it for themselves. But this is what we have, that is the EU we have, and we have to fix it. The worst enemy of democracy is citizens who say this is a terrible system but I’m not prepared to do anything to change it.</p> <p><span style="color: #800000;">Why don’t you have allies in the Eurogroup? I mean, nor France, nor Italy, Spain, Ireland… Countries that at the beginning, with Syriza, had positive thinkings and at the end there were 18 against 1.</span></p> <p>What you have to understand is that this 18-1 balance in the Eurogroup is an illusion. The 18 are divided very significantly in three groups. The very tiny, tiny minority who believe in austerity. The largest group of countries don’t believe in austerity but imposed austerity on their own people. And then there is another group of countries that neither believe in austerity nor practise it – e.g. France. But they fear that if they support us openly then austerity and the troika will come their way.</p> <p><span style="color: #800000;">What is your relationship with Schäuble, de Guindos and maybe Dijsselbloem?</span></p> <p>No relationship could have existed with Dijsselbloem. This is not just because he is so intellectually lightweight but, primarily, because he is untrustworthy. For example, he chose to lie to me in my first Eurogroup about procedure. It is one thing to disagree with the Eurogroup President. It is quite another thing to have him lie to you about gravely important procedures. On the other hand, Schäuble and de Guindos are two colleagues that I very much enjoy talking to, at a personal level. Our conversations were often tough but they were also interesting exchanges. As an academic, there is nothing more interesting than interesting exchanges. Our disagreements were serious but, at personal level, there was mutual respect and a useful exchange of ideas was had. The problem is that when you put all these people together in the Eurogroup, because of the catastrophically bad institutional design of the Eurogroup, you end up with governance failure that damages Europe. So, in a different context, institutional framework, I am sure that with colleagues like de Guindos and Schäuble our working relationship would have ended up producing tastier fruits.</p> <p><span style="color: #800000;">Coming back to the question about Spain. What are the lessons of Greece for Spain? The Spanish government has said that if people vote for Podemos, problems will come and Spain will become Greece after a few months.</span></p> <p>I think that the people of Spain need to look at the economic and social situation in Spain and base the judgment on what their society needs, independently of what is happening in Greece, France… The danger of becoming Greece is always there and will materialize if you keep repeating the same mistakes that were imposed on Greece. Punishing one proud nation in order to put fear in another is not what Europe should be about. It is not the Europe we signed up for, not the Europe that González had signed for or Papandreou, or Giscard d’Estaing, or Helmut Schmidt etc. We need to recover the sense of being Europeans and finding ways of recreating the dream of shared prosperity with democracy. The idea that fear and loathing are going to be the creators of the new Europe is an idea that is going to lead us headlong to a postmodern 1930s. I believe that the people of Spain and of Greece know exactly what the 1930s did to them.</p> <p><span style="color: #800000;">You said once that the legacy of Thatcher was financialization, malls and Tony Blair. And I ask you, what is the legacy of Merkel, of her leadership?</span></p> <p>Europe is in the process of turning from a realm of shared prosperity, which is how we imagined it, into an iron cage for our peoples. I hope that Mrs Merkel decides that this is not a legacy she wants to leave behind.</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="496" height="302" alt="" src="" /> </div> </div> </div> B+ Bank Run Corruption Creditors ETC Eurozone Fail France Greece Italy Lehman Lehman Brothers Lie to Me Portugal Reality Recession recovery Sun, 02 Aug 2015 14:10:24 +0000 Tyler Durden 510955 at Shaping the Investment Climate and the Dollar Trade <p>There are two events this week that will shape the investment climate potentially for the rest of the year. &nbsp;The first is the Bank of England meeting. The following day is the US employment report. &nbsp;</p> <p>&nbsp;</p> <p>Both events take on added significance. &nbsp;The Bank of England enters a new era. &nbsp;The Monetary Policy Committee meets as usual, but shortly after it, the minutes will be published, and this will contain the vote itself. &nbsp;There will no longer be a couple week delay. It will be interesting to see if other central banks, including the Federal Reserve and Bank of Japan adopt a similar approach over the medium term.&nbsp;</p> <p>&nbsp;</p> <p>It took the European Central Bank more than a decade to see the wisdom of providing some record. &nbsp;It may be too much to expect it to make it nearly immediately available.&nbsp;</p> <p>&nbsp;</p> <p>Also, the BOE will release its Quarterly Inflation Report at roughly the same time. &nbsp;This report has become an integral part of assessing the policy stance. &nbsp; &nbsp;From giving little information at the time of the MPC meeting, the BOE is going to deluge the market with information. &nbsp;It will dominate August 6 but on what should investors focus?</p> <p>&nbsp;</p> <p>Two considerations will ultimately generate the underlying signal for investors. &nbsp;The first is the vote itself. &nbsp;Many observers expect three MPC members to dissent: &nbsp;Weale, McCafferty, and Miles. &nbsp;If any more dissent, sterling's reaction is likely to be more pronounced, and the impact on UK rates may be dramatic. &nbsp;It would drive home what has been a tail-risk, namely a November rate hike. &nbsp;On the other hand, this is Miles' last meeting. &nbsp;His vote might be dismissed by investors, as his successor, Gertjan Vlieghe, has wisely not shared his views. &nbsp;</p> <p>&nbsp;</p> <p>The second consideration is the quarterly inflation forecast of inflation on a two-year time horizon. &nbsp;If it is on the inflation target (2.0%), it will reaffirm market expectations for a hike in late Q1 15 or early Q2. &nbsp; Above the inflation target would be seen as a signal of an earlier lift-off. &nbsp; In this context, the BOE may not just lift the upside, but it may downplay the downside risks, now that the Greek drama is somewhat less urgent. &nbsp;</p> <p>&nbsp;</p> <p>The monthly US jobs data is the most important of the high-frequency reports. &nbsp;The July report that will be released on August is exceptionally important. &nbsp;It follows the FOMC statement that called job growth "solid," and appeared to lower the bar for a hike by modifying the continued improvement in the labor market with the word "some." &nbsp;Provided that the US economy continued to generate a net of 200k+ jobs in July that qualification would have been met. &nbsp;</p> <p>&nbsp;</p> <p>The other reason the employment report has added significance is that a robust report would help neutralize the effect of the record low rise in Employment Cost Index reported on July 31. &nbsp; Most of the volatility in the report is coming from commissions and bonuses. &nbsp;Excluding those with incentive pay, the employment cost index was 2.0% in both Q1 and Q2. &nbsp;&nbsp;</p> <p>&nbsp;</p> <p>We suspect the investors and observers misunderstand how wage growth fits into the FOMC's reaction function or its policy-making equation. &nbsp;Simply, if crudely put, wage growth would be a helpful confirmation of the absorption of labor market slack, but it is not a necessary precondition for a rate hike. &nbsp;</p> <p>&nbsp;</p> <p>Yellen is plain spoken, and she could not have spoken more plain: &nbsp;"I have argued that a pick-up in neither wages nor price inflation is indispensable for me to achieve reasonable confidence" that inflation will reach the Fed's target in the medium term. &nbsp;</p> <p>&nbsp;</p> <p>Underlying Yellen's (and appears most economists') views is the acceptance of the Phillips Curve, which illustrates the historic trade-off between unemployment and inflation. Of all people, Alan Greenspan questioned this relationship, and part of the reason, he had kept interest rates low was that inflation had remained lower than the unemployment rate would have suggested. &nbsp;However, on this side of the Great Financial Crisis, the Phillips Curve has come back into fashion. &nbsp;</p> <p>&nbsp;</p> <p>To be sure, the employment report is not simply about nonfarm payrolls, where it may be most helpful to think about the consensus as a range around 210k. &nbsp;The unemployment rate itself (U-3) was rounded up to 5.3% in June. &nbsp;A small improvement could see it rounded down to 5.2%, which is the upper-end of the Fed's range of what qualifies as full employment. &nbsp;An acceleration in average hourly earnings growth would be helpful, but like we noted about the ECI, it is not necessary for the Fed to hike rates.&nbsp;</p> <p>&nbsp;</p> <p>There are three other US economic reports that we will be watching. &nbsp;First are US auto sales. &nbsp;A third consecutive month of more than 17.0 mln annual unit pace is expected to be reported. &nbsp;The six-month average is at its highest level in a decade. &nbsp;Second, the June trade and construction spending will shape expectations for revisions of Q2 GDP. &nbsp;Third, the senior loan officer report is a helpful read on lending conditions. &nbsp;</p> <p>&nbsp;</p> <p>II</p> <p>&nbsp;</p> <p>In addition to these two drivers, there are several additional events, which, while of less significance for the macro-investment climate, may still be important.&nbsp;</p> <p>&nbsp;</p> <p>Both the Reserve Bank of Australia and the Bank of Japan meet. &nbsp;Neither is expected to change policy. &nbsp;If there were to be a surprise, it would more likely come from the RBA rather than the BOJ. &nbsp;BOJ's Kuroda is gently guiding investors (and other policy makers) to accept a narrower measure of inflation, which would be more similar to the US core rate, which excludes food and energy. &nbsp;It is using such a measure that Kuroda can say that price developments are in a constructive direction, and why he continues to play down the need for more stimulus. &nbsp;</p> <p>&nbsp;</p> <p>The unexpected weakness in Japanese households overall spending (-2.0% vs. expectations of a gain of a similar magnitude) underscores the risk that the world's third-largest economy contracted in Q2. &nbsp;Japan's labor market is also near full employment, but earnings are not reflecting it. &nbsp;Cash earnings are expected to have risen by 0.9% year-over-year in June. &nbsp;It would be the highest of the year, but it's still subdued. &nbsp;Arguably, more importantly, real (adjusted for inflation) cash wages have not been above zero since April 2013. &nbsp;</p> <p>&nbsp;</p> <p>Canada reports the June trade balance. &nbsp;It has been consistently in deficit since last October. &nbsp;A CAD2.8 bln shortfall is the consensus forecast. &nbsp;A larger than expected shortfall would weigh on sentiment as it would been seen as a sign that raises the likelihood of a negative GDP print in June. At the end of last week, Canada surprised investors by reporting that the economy contracted in May.</p> <p>&nbsp;</p> <p>At the end of the week, Canada, like the US, reports its July employment data. &nbsp;The unemployment rate is expected to be unchanged. &nbsp; Canada is expected to have grown 9.8k jobs after losing 6.4k in June. &nbsp;The impact on the Canadian dollar may be obscured by the simultaneous release of the US jobs data. &nbsp;Short-term traders tend to put more emphasis on the headline, but the mix of full-time and part-time jobs is even more important. &nbsp;</p> <p>&nbsp;</p> <p>In June, full-time jobs jumped 64.8k. &nbsp;This would be as if the US reported a 650k increase in nonfarm payrolls. Some correction should not be surprising. &nbsp;The market appears to be pricing around a 50% chance of another rate cut, which would be the third of the year. &nbsp;A disappointing jobs report would weigh on the Canadian dollar, and there is scope for further decline of short-term interest rates.</p> <p>&nbsp;</p> <p>The eurozone is expected to report a decline in June retail sales. &nbsp;A 0.2% decline would offset in full the May increase. &nbsp;Several countries report industrial production figures. &nbsp;Of the two regional laggards, French data has been improving, even if unevenly while it is still not clear that the Italian economy is gaining much traction. &nbsp;</p> <p>&nbsp;</p> <p>Italy's industrial output is expected to have given back 1/3-1/2 of the 0.9% rise posted in May. It would be the second decline in three months. &nbsp;The year-over-year pace will be at least halved from 3.0% pace reported in May. &nbsp; The July PMIs will likely show the softening at the end of Q2 has carried over into Q3. &nbsp;</p> <p>&nbsp;</p> <p>The Greek stock market re-opens on Monday, but will remain highly restricted for domestic investors, and the capital controls are still in place. &nbsp;During the first three sessions, trading will be halted if shares fall 7%. &nbsp; There were such circuit-breakers before but they were triggered by a 10% decline. &nbsp; There is some concern that the restrictions make it easier to sell than to buy for domestic investors. &nbsp;</p> <p>&nbsp;</p> <p>The ETFs that a linked to the Greek stock market have traded in the weeks that the Athens Stock Exchange has been closed. &nbsp;The main ones have fallen by 20%-25% since the domestic market was shut. &nbsp; The exchange's platform for trading Greek bonds will re-open as well. &nbsp;There has been reports of foreign asset manager small purchases. &nbsp;In anticipation that the ECB will buy Greek bonds under QE has spurred at least one bank to recommend buying some first. &nbsp;</p> <p>&nbsp;</p> <p>The press coverages of the negotiations weaken hope that an agreement can be struck in time for Greece to service this month's debt. &nbsp;Another bridge loan may prove necessary if an agreement is not reached in the next fortnight. &nbsp;</p> <p>&nbsp;</p> <p>This would increase the amount of funds Greece would need in the initial disbursement. &nbsp; It needs 7.1 bln euros to repay the first bridge loan, 3.2 bln euros for the ECB bond payment, it needs another couple of billion euros for other debt servicing, including a small payment to the IMF. &nbsp;It also needs funds to begin recapitalizing the banks. &nbsp;&nbsp;</p> <p>&nbsp;</p> <p>The failure of the ECB to grant more ELA borrowings last week reflected the absence of a fresh request from the Greek central bank. &nbsp;There have been anecdotal reports of the deposits stabilizing and a quick increase in tourism receipts. &nbsp;</p> <p>&nbsp;</p> <p>III</p> <p>&nbsp;</p> <p>Although the Reserve Bank of Australia is not expected change policy, the economic data due out in the coming days, including retail sales, trade, and employment, will likely support expectations for another rate cut before the end of the year. &nbsp;The RBA statement and the monetary policy statement a couple days later can be expected to show that the decline in the Australian dollar thus far is still not sufficient for the central bank. &nbsp;</p> <p>&nbsp;</p> <p>New Zealand will report employment figures as well, but more important for short-term investors may be the dairy auction on August 4 and Fonterra, the milk coop meeting on August 7. &nbsp;Investors will focus on the payout to farmers and the anticipated reduction in supply. &nbsp;</p> <p>&nbsp;</p> <p>The Trans-Pacific Partnership negotiations failed to conclude at the end of last week. &nbsp;One of the sticking issues is New Zealand's insistence on the free milk trade, which is being resisted by several countries, including the US. &nbsp;</p> <p>&nbsp;</p> <p>Two other issues remain stumbling blocks. &nbsp;Freer auto trade can be agreed to by the US and Japan, but as Japan sources product in Thailand, which is not included in the TPP talks, Canada and Mexico (the latter accounts for 40% of the auto jobs in North America) are objecting. &nbsp;The other remaining issue is the length of patent protection for new pharmaceuticals. &nbsp;The US alone is insisting on a decade &nbsp; &nbsp;Other countries are divided. &nbsp; &nbsp;Australia has five years, for example, and Chile has none.&nbsp;</p> <p>&nbsp;</p> <p>Lastly, there are several important readings on China's economy that will be released in the coming days. &nbsp;We note that the official manufacturing PMI was reported on August 1 at 50.1 down from 50.2 in June. &nbsp;The Bloomberg consensus was for 50.1. &nbsp;The government's PMI tends to focus more on the large state-owned enterprises rather than the smaller private companies, as does the private PMI. &nbsp;&nbsp;</p> <p>&nbsp;</p> <p>China reports its July trade balance. &nbsp;Exports growth has been in a clear slowing trend for five years. &nbsp;The June year-over-year increase (2.8%) snapped a three-month streak that saw exports contract. &nbsp;It was only the second month of the year that saw export growth increase. Exports in July are expected to be unchanged year-over-year. &nbsp;</p> <p>&nbsp;</p> <p>Imports are expected to continue contracting. &nbsp;They fell 6.1% year-over-year in June and are expected to have fallen 7% in July. &nbsp;While part of this may reflect a slowing of the Chinese domestic demand, it partly reflects the decline in prices. &nbsp;The role of prices will be highlighted by another decline in producer prices. &nbsp;The July PPI is expected to have fallen 5%, a little faster than June (-4.8%) and the largest fall since 2009. &nbsp; Nevertheless, we should not forget that global trade flows have not picked up post-crisis as much as world growth. &nbsp;</p> <p>&nbsp;</p> <p>China reports consumer prices for July as well. &nbsp;The pace of increase is expected to remain broadly stable around in the 1.2%-1.6% range that it has been in for the past year, with one brief exception in January. &nbsp; &nbsp;</p> <p>&nbsp;</p> <p>The on-shore yuan remains rock steady, and this can only fan speculation of the PBOC's hand at work. &nbsp;In contrast, CNH, the offshore yuan has weakened, and the gap between the two is the largest in nearly six months. &nbsp;Although the IMF has opined that the yuan is no longer undervalued, it has argued that China needs to allow market forces to have a greater role. &nbsp;There is much speculation that the PBOC will soon expand the acceptable yuan-dollar daily range. &nbsp;</p> <p>&nbsp;</p> <p>We are not convinced this is imminent. &nbsp;The current 2% band (around the daily fix) is not being explored. &nbsp;A wider band that is not used would highlight the official role during the period in which the IMF is reviewing the SDR composition. &nbsp;Also, a wider band risks currency depreciation. Some fear the opposition to include the yuan in the SDR would seize upon currency weakness to push their objections. &nbsp;</p> <p>&nbsp;</p> <p>All eyes remain on the Chinese stock market, though as we have noted foreign investors have a small stake in the A-share market. &nbsp;They use the H-share market in Hong Kong, and to a lesser extent Taiwan, as well as the ADR market in the US. &nbsp;The 200-day moving average comes in near 3554, near the bottom of the speculated lower end of the officially sanctioned range of 3500. &nbsp;The top end of the range is thought to be 4500. &nbsp;Since the low was recorded on July 9, the Shanghai Composite had traded up to almost 4200, which is near the halfway point (4275) of the decline. &nbsp;</p> <p>&nbsp;</p> <div class="field field-type-filefield field-field-image-blog"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_blog" width="786" height="1000" alt="" src="" /> </div> </div> </div> Alan Greenspan Australia Australian Dollar Auto Sales Bank of England Bank of Japan BOE Bond Canadian Dollar Central Banks China Consumer Prices European Central Bank Eurozone Federal Reserve Greece Hong Kong Japan Mexico Monetary Policy Monetary Policy Statement New Zealand None Trade Balance Unemployment Volatility Yuan Sun, 02 Aug 2015 13:59:41 +0000 Marc To Market 510954 at Why Did Greece Get 'Bitch-Slapped', While Ukraine Got Some 'Good-Loving' From Europe? <p><a href=""><img src="" alt="Ukraine Flag" width="599" height="421" style="display: block; margin-left: auto; margin-right: auto;" class="aligncenter size-full wp-image-12015" /></a></p> <p>George Orwell once wrote in ‘Animal Farm’ ‘all animals are equal, but some animals are more equal than others’. This famous sentence is now valid more than ever before as surprisingly, the IMF will continue to cut Greece out of potential funding, whilst it’s embracing Ukraine by offering that country billions of dollars in hard cash as support.</p> <p>In a surprising statement, the IMF confirmed it has currently <a href="" target="_blank">no intention</a> to continue to back Greece by making more cash available for the country. Citing the high debt levels and the poor level of implementing the much needed changes and reforms, the IMF says Greece currently does not meet the criteria required by the IMF to step in and provide more financial assistance. As you might remember, the IMF has pulled the plug on providing Greece more cash to help the country out until it will be able to re-finance its existing debt on the private markets.</p> <p>As the IMF has now conveniently ‘leaked’ a ‘strictly confidential’ document stating it doesn’t even want to consider to extend a new debt package to Greece, two conclusions can be drawn. First of all, it’s now unlikely the IMF will be part of the next financing round for the country, and this results in the second conclusion; the European Union will now be on its own. All future help will have to come from either the member states or the European Central Bank (which would need to see its mission statement updated before being able to do so).</p> <p><a href=""><img src="" alt="Ukraine IMF GDP" width="599" height="274" style="display: block; margin-left: auto; margin-right: auto;" class="aligncenter size-full wp-image-12014" /></a></p> <p>Source:</p> <p>But then the IMF made another eyebrow-raising decision. Whilst it was slapping Greece on the wrist, it was praising the Ukrainian government for its reforms despite the fact the GDP dropped by 28% in just one year time, pushing the debt to GDP ratio to an all-time high of almost 72%.</p> <p>Okay, that’s still lower than Greece, but you can’t possibly believe that Ukraine is doing so much better than Greece! Even the credit scores are indicating the opposite; whereas Greece has a CCC+ credit score from S&amp;P, Ukraine’s score is just CC, three steps lower than Greece indicating a default is imminent.</p> <p>The sentiment and used language by Lagarde, the head of the IMF, is also completely different from the language used to describe Greece. According to the IMF, Ukraine’s situation is<a href="" target="_blank"> ‘incredibly encouraging’</a> which is quite a surprise considering the oil and gas prices are trading at multi-year lows and the iron ore price is also trading at just $50/dmt.</p> <p>As in excess of <a href="" target="_blank">50% of Ukraine’s economy</a> consists of both mining-related activities and the production and transportation of oil and gas, it’s very difficult to share Lagarde’s optimism about the country’s potential to rectify the current situation.</p> <p>Or to update George Orwell’s phrase. All countries are equal, but some countries seem to be more equal than others.</p> <p><strong><a href="" target="_blank">&gt;&gt;&gt; Want To Know Where Gold Is Headed? Check Out Our Latest Gold Report!</a></strong></p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong>Secular Investor</strong> offers a fresh look at investing. We analyze long lasting cycles, coupled with a collection of strategic investments and concrete tips for different types of assets. The methods and strategies are transformed into the <a href=""><strong>Gold &amp; Silver Report</strong></a> and the <a href=""><strong>Commodity Report</strong></a>.</p> </blockquote> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>Follow us on Facebook <strong><a href="">@SecularInvestor</a> [NEW] </strong>and Twitter <a href=""><strong>@SecularInvest</strong></a></p> </blockquote> <div class="field field-type-filefield field-field-image-blog"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_blog" width="599" height="421" alt="" src="" /> </div> </div> </div> default European Central Bank European Union George Orwell Greece Twitter Twitter Ukraine Sun, 02 Aug 2015 11:20:46 +0000 Secular Investor 510952 at Venezuela Increasingly Looks Like A War Zone <p>Over the years, we have repeatedly poked fun at the transformation of Venezuela into a "socialist utopia" - an economy in a state of terminal collapse, where the destruction of the currency (one <a href="">black market Bolivar </a>is now worth 107 times less than the official currency's exchange rate) and the resulting hyperinflation is only matched be barren wasteland that local stores have transformed into now that conventional supply chains are irreparably broken. </p> <p>Just this past Wednesday <a href="">we showed a clip </a>of what is currently taking place inside Venezuela supermarkets, noting that "the hyperinflationary collapse in Venezuela is reaching its terminal phase. With inflation soaring at least 65%, murder rates the 2nd highest in the world, and chronic food (and toilet paper shortages), the following disturbing clip shows what is rapidly becoming major social unrest in the Maduro's socialist paradise... and perhaps more importantly, Venezuela shows us what the end game for every fiat money system looks like (and perhaps Janet and her colleagues should remember that)."</p> <p> <iframe src="" width="560" height="420" frameborder="0"></iframe></p> <p>&nbsp;</p> <p>Unfortunately, while mocking socialist paradises everywhere is a recurring theme especially once they have completely run out of other people's money to burn through, what always follows next is far less amusing - complete social collapse, with riots, civil war and deaths not far behind. </p> <p>That is precisely what the video shown below has captured. In the clip, a demonstration against Venezuela's poor transportation services quickly turned violent. End result: one person dead from a gunshot wound, more than 80 arrested and four shops looted on the Manuel Piar Avenue in San Felix. </p> <p>What is most distrubing is how comparable to an open war zone what was once a vibrant, rich and beautiful Latin American country has become. </p> <p>This is just the beginning: with the ongoing collapse of the economy, the resultant acts of social violence will only deteriorate and claim more innocent lives, until the "socialist utopia" ends as it always does: with the arrival of a military coup or a full blown civil war.</p> <p><iframe src="" width="560" height="315" frameborder="0"></iframe></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="702" height="552" alt="" src="" /> </div> </div> </div> Hyperinflation Sun, 02 Aug 2015 01:43:34 +0000 Tyler Durden 510944 at American (Predatory) Capitalism Explained In 130 Seconds <p>Now, more than ever, with Greece and Ukraine front and center, understanding how corporations take control of countries, and how capitalism drives the expansion of the Military Industrial Complex is crucial: <strong><em>"we have created a mutant form of predatory capitalism which has created an extremely unstable, unsustainable, unjust and very very dangerous world."</em></strong></p> <p>&nbsp;</p> <p><iframe src="" width="560" height="315" frameborder="0"></iframe></p> <p><a href=""><em>Source:</em></a></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="672" height="572" alt="" src="" /> </div> </div> </div> Greece Ukraine Sun, 02 Aug 2015 01:00:00 +0000 Tyler Durden 510932 at Chinese Company Replaces Humans With Robots, Production Skyrockets, Mistakes Disappear <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><em>"I believe that anyone who has a job and works full time, they should be able to pay the things that sustain life: food, shelter and clothing. I can't even do that."</em></p> </blockquote> <p>That rather depressing quote is from 61-year old Rebecca Cornick. She’s a grandmother and a 9-year Wendy’s veteran who spoke to <a href="">CBS News</a>. Rebecca makes $9 an hour and her plight is representative of fast food workers across the country who are campaigning for higher pay.&nbsp;</p> <p>The fast food worker pay debate is part of a larger discussion as "states and cities across the country [wrestle] with the idea of raising the minimum wage," CBS <a href="">notes</a>, adding that "right now, 29 states have minimums above the federal $7.25 an hour [and] four cities, including Los Angeles, have doubled their minimum to $15."</p> <p>Proponents of raising the pay floor argue that it’s simply not possible to live on minimum wage and indeed, there’s <a href="">plenty of evidence</a> to suggest that they’re right. Opponents say forcing employers to pay more will simply mean that companies will fire people or stop hiring and indeed, as <a href="">we highlighted on Friday</a>, it looks as though WalMart’s move to implement an across-the-board pay raise for its low-paid workers may have contributed to a decision to layoff around 1,000 people at its home office in Bentonville.&nbsp;</p> <p>"The reality is that most business are not going to pay $15 dollars an hour and keep their doors open," one Burger King franchisee told CBS. "It just won't happen. The economics don't work in this industry. There is a limit to what you're going to pay for a hamburger."&nbsp;</p> <p>Yes, there’s only so much people will pay for a hamburger which is why Ronald McDonald has made an executive decision to hire more efficient employees at some locations:</p> <p><img src="" width="514" height="334" /></p> <p>With all of that in mind, consider the following from TechRepublic who tells the story of Changying Precision Technology Company, which has replaced almost all of its human employees with robots to <a href="">great success</a>:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong><em>In Dongguan City, located in the central Guangdong province of China, a technology company has set up a factory run almost exclusively by robots, and the results are fascinating.</em></strong></p> <p>&nbsp;</p> <p><em>The Changying Precision Technology Company factory in Dongguan has automated production lines that use robotic arms to produce parts for cell phones.&nbsp;</em></p> <p>&nbsp;</p> <p><em>The factory also has automated machining equipment, autonomous transport trucks, and other automated equipment in the warehouse.</em></p> <p>&nbsp;</p> <p><em>There are still people working at the factory, though. Three workers check and monitor each production line and there are other employees who monitor a computer control system.<strong> Previously, there were 650 employees at the factory. With the new robots, there's now only 60. Luo Weiqiang, general manager of the company, told the People's Daily that the number of employees could drop to 20 in the future.</strong></em></p> <p>&nbsp;</p> <p><em>The robots have produced almost three times as many pieces as were produced before. According to the People's Daily, <strong>production per person has increased from 8,000 pieces to 21,000 pieces. That's a 162.5% increase.</strong></em></p> <p>&nbsp;</p> <p><em>The increased production rate hasn't come at the cost of quality either.<strong> In fact, quality has improved. Before the robots, the product defect rate was 25%, now it is below 5%</strong>.</em></p> </blockquote> <p>So to anyone planning on picketing the local McDonald’s in an attempt to secure a 70% wage hike, be careful, because this "guy" is ready to work, doesn’t need breaks, and never makes a mistake:</p> <p><img src="" width="402" height="424" /></p> <p>Let’s just hope he doesn’t become self aware.</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="402" height="240" alt="" src="" /> </div> </div> </div> China Reality Sun, 02 Aug 2015 00:30:54 +0000 Tyler Durden 510899 at