The Dollar is Going Up

Monetary Metals — Tue, 21 May 2013 07:10:55 +0000

Let’s take a look at a few graphs of the dollar, from Feb 1, 2013 through Friday May 17, 2013. Yes, I said graphs of the dollar. I’ve priced the dollar in gold first (of course), then silver, the euro, and even the yen. The pattern is obvious. The dollar is going up.

I did not show copper, lumber, or wheat though they show the same trend. These commodities are not money, of course.

My point is simple. It’s not gold that is going anywhere. In past articles, I’ve used the analogy of measuring a steel ruler using rubber bands. Using the dollar to measure gold is like that. In this article I show that it’s not just gold, but silver, other currencies, and commodities. The dollar is rising now matter how we measure it.

The question not to ask is: “how are they manipulating gold?” The question is: “why is the dollar rising?”

To answer that, we first have to understand why the dollar had been going down. Most would say that it’s because the Fed has been “printing” and increasing the quantity of dollars. If that is so, then why would the dollar ever rise, as it has before (e.g. in the 1980’s), and as it is doing now? The Fed cannot and does not “un-print” dollars. This stock explanation is not satisfactory.

In one word, the answer is: arbitrage.

Let’s take a step back and look at the Treasury bond. The government pays for net expenses above tax revenues by borrowing. To borrow money, the Department of the Treasury sells bonds. This is an important aspect of our current form of government, as voters have demanded far more government expenditures than they are willing or able to pay for via taxes. In this aspect, the Treasury bond is a tool of fiscal policy, or spending, and cash flow to pay for it.

There is another aspect to the Treasury bond. It is the key asset of our monetary system. It is the asset on the Fed’s balance sheet (increasingly, post 2008, there are also mortgage bonds) to back its liabilities. The liability of the Fed is the Federal Reserve Note, commonly called the dollar. The Treasury bond is also a significant backing for the liabilities of commercial banks, pension funds, annuities, and insurance funds. Finally, the Treasury bond is used as collateral to enable borrowing.

The monetary system today is entirely based on credit, and the Treasury bond is the base of it. The peculiar characteristic, one could even say the shabby little secret, is that the Treasury bond is payable in dollars but the dollar is the liability of the Fed which is backed by the asset of the Fed which is … the Treasury bond. It’s circular and self-referential.

People often use the shorthand of saying that the Fed is “printing” dollars. It is actually borrowing them into existence and lending them. It is true that there is no actual lender. The Fed has sole discretion to create these dollars, unlike any normal bank, that must persuade a saver to deposit his capital in the bank. The Fed’s expansion of credit involves no saver. The Fed’s credit is counterfeit.[1]

The dollars appear ex nihilo at the Fed, and they use them to buy an asset, basically a bond, or to otherwise lend. Thus the Fed creates both a liability and an asset in this process. If the value of its assets should ever fall significantly, the market will not accept the Fed’s liability—the dollar—at face value. When gold owners refuse to bid on the dollar, the dollar will collapse.

Let’s get back to arbitrage. If a bank borrows money from the Fed, they will use it to buy an asset or lend it to a third party who will. This is an arbitrage. The short leg is the loan from the Fed, and the long leg is the asset purchased. As with all arbitrages, it will act as a force to pull the two values towards one another. Market price is always pulled down by the short leg, and pushed up by the long leg.

In the case of all borrowing from the Fed, the short leg is the dollar itself. I define arbitrage as the act of straddling a spread in the markets.[2] The arbitrager is often trying to profit from the interest rate spread directly, as in borrowing from the Fed at the discount rate and buying a Treasury bond that offers a higher yield.

Another strategy is to try to profit from a change in the spread, as in borrowing dollars to buy gold. In this case, if the dollar price falls, this will be a profitable trade. This is a weaker arbitrage than buying a bond, as gold does not have a yield.

As I noted above, the very act of arbitrage pulls down the price of the short leg and in the case of borrowing from the Fed the short leg is always the dollar. Whether a bank borrows dollars, to buy Euros and from there to buy Greek government bonds; whether it lends to a hedge fund to buy gold; or whether it lends to a consumer to buy a home, the dollar is pulled down. On the other side of the trade, these assets are pushed up.

This, rather than the rising quantity of dollars, explains the falling value of the dollar. And now, recently, the dollar has been rising. The logical explanation is that these trades are being unwound, either voluntarily or under duress. My definition of deflation is a forcible contraction of credit. It is not the shrinking number of dollars (if the number is even shrinking). It is the closing of innumerable positions, by the opposite arbitrage. Previously it was sell dollar / buy asset. Now it is buy dollar / sell asset.

Gold is the most liquid asset. Its bid-ask spread does not widen much when large quantities are sold on the bid or bought at the offer. In contrast, the bid in other assets can drop precipitously in times of crisis. They are hardest to liquidate precisely at the time when one must sell. In some extreme cases, the bid can be withdrawn altogether. Though the spread does not widen in gold, heavy selling does push down the bid on gold. Market makers will then pull down the offer to maintain a consistent spread.

Being the most liquid, gold is the most sensitive. It is the first asset, the “go to” asset to sell when a balance sheet is under stress. Gold therefore has the least lag in response to a change in the monetary system. Compare to real estate, where due diligence alone could take weeks or months. Additional inertia comes from how properties are valued: by looking at recent comparable deals. Real estate would not be the first asset that a bank or fund would want to sell, due to several factors including long closing time, wide bid-ask spread, and high costs to sell such as sales commissions and attorneys. In real estate, there are no market makers. The offer can remain high even with the bid plunging, as the typical holder of real estate is not willing to sell at a loss and holds out for a number that covers all costs and fees and allows an exit at a profit.

Equities are usually liquid, closer to gold than to real estate in this regard. However, for the past few years, there have been many flash crashes. In a flash crash, the bid drops to $0.01 for a brief moment, and typically at least one market sell order is filled far below the “normal” price for the stock. These flash crashes prove that there are serious problems, that there are structural cracks beneath the surface.

An important principle to keep in mind is that in times of stress or crisis, it is always the bid and never the offer that is withdrawn. While there have been a few flash smashes (an amusing term) it is not a coincidence that these are vastly outnumbered by the flash crashes. This is because stress and crisis always come with a need for liquidity to pay debts that cannot be rolled over, margin calls, or to be flexible and agile. In bad times, people prefer to own a more marketable asset compared to one that is less marketable. They especially prefer to own the asset that is the unit of account for their balance sheet.

By definition, there is no risk to holding dollars if your balance sheet is denominated in dollars, and your liabilities are in dollars. This is the reason for the so-called “flight to safety” for the “risk-off asset”. You are not making, nor losing, money when you hold dollars. On gold denominated books, holding dollars is quite risky, of course.

Going back to the falling dollar, as the interest rate falls the discount factor used for an enterprise’s future earnings also falls. The same $1 in earnings in 2023 is worth more at a discount of 3% annually vs. 6% ($0.74 vs. $0.56). The result is rising stock prices.

In addition, the “animal spirits” of John Maynard Keynes have been set loose. Most people hold the false theory about the quantity of money and its impact on the price of everything, and it is quite popular to believe that this means stock prices can only rise. Proponents of this theory should look at Japan. In any case, deprived of other means of obtaining a yield (i.e. in the bond market), they must do something. People know the dollar is falling, though they attempt to measure it by looking at the rate by which consumer prices, measured in dollars, rise. They should be looking at the rate at which the dollar, measured in gold, is falling.

Right now, everyone is on the same side of the trade: long equities. This is dangerous because when it reverses, the market may not find a bid for quite a distance down. In a normal market, it is the short sellers who make the bid. By the indications I can see, those who have attempted to short this market have capitulated by now.

In Part II (free registration required), we consider why stocks are rising in this depressed economy, and look at the abyss we are now rapidly approaching.

[1] My definition of inflation is an expansion of counterfeit credit, discussed in this paper: http://keithweinereconomics.com/2012/01/06/inflation-an-expansion-of-counterfeit-credit/

[2] I define and discuss in my dissertation: A Free Market for Goods, Services, and Money

Oil Market Manipulation Reaches Absurd Levels

EconMatters — Tue, 21 May 2013 05:49:11 +0000

By EconMatters

Markets & Manipulation: A long History

Most markets these days are manipulated to some extent, and this is nothing new if we look back through the history of financial markets. But there are some strange things happening right now in the oil market worth mentioning.

Brent-WTI Spread/Scam

Another scam in the Oil market is the Brent-WTI spread this has been one of the biggest scams over the years in the Oil market. Just to provide some data to the absurdity which is this much hyped about nonsensical spread Cushing Oklahoma has 49.7 million barrels in storage, it had 45.1 million barrels in storage a year ago. Cushing had 50 million barrels in storage at the start of the year. Moreover, in June Cushing will be adding additional supplies to storage due to current pipeline capacity going offline. So for all this talk about pipelines finally unlocking all the glut of oil supplies from the Cushing hub, and this being the reason for the impressive reduction in the Brent-WTI spread it is just a bunch of nonsense.

Cushing Oklahoma Supply Glut

So there is basically more oil trapped in Cushing Oklahoma then there has ever been when the spread was 25! So regardless if the spread is 25 or 8 it has very little to do with supplies residing in Cushing Oklahoma that is quite evident. Now there are a bunch of factors contributing to the nuances of the spread which I will not go into detail here but the takeaway is just to point out the absurdity which is the false and misleading rhetoric that encompasses this spread and Cushing Inventory levels.

400 Million Barrels & Climbing

While we are talking about inventory levels it is funny that WTI sits at $97 a barrel when the entire year we have had basically 3 minuscule draws in inventory supplies which stand at a record breaking 395 Million Barrels in storage. So the Dow keeps hitting new highs every week, and the US keeps setting new modern records for Oil in storage each week.

Weak Demand in an Artificial Economy

But it is not just the supply issues in an obviously oversupplied oil market with the US domestic production being the biggest culprit. The demand side of the equation has been equally bearish for the fundamentals with China`s actual economy slowing over the past 2 years, Europe being stuck in a perpetual recession, and the US being a mature market with higher fuel standards and a stagnant economy that requires $85 Billion of stimulus each month to keep from cratering. The demand side had been very underwhelming from the products side of the equation. For example, Gasoline supplies in the northeast are 10% higher than normal for this time of year.

Strong Dollar Bearish for Dollar Denominated Commodities

Finally the strong dollar is supposed to be bearish for commodities and oil, and with the US Dollar Index hovering around 84 and threatening to strengthen from these levels it is a wonder that the Oil market has barely noticed this strange occurrence in Dollar strength, unlike the Gold and Silver Markets.

Fundamentals: Are we talking about the Fundamentals Again?

The takeaway is that none of the actual fundamentals ever matter in the Oil markets. When you have a house style advantage that would make any Las Vegas Casino envious the fundamentals play little part in a manipulated Oil market. It is all about protecting the huge supply chain that is the oil market and everybody`s livelihood. When in doubt follow the money trail, and money is the biggest reason oil prices are where they are currently despite the bearish fundamentals of the commodity. Oil prices wouldn`t be at these levels if the powerful manipulators of the commodity were not making a whole lot of money as a result.

Oil Analysts Clueless

So the next time some Oil analyst tells you some hard studied reason why Oil prices are up it is all nonsense. Oil prices are up or down depending upon what the powerful players want oil to do, one week it can be at $86, the next $97, or $77, it is all about the money to these players, and they will do whatever it takes to make the money. And if it means being very creative with their methods then so be it, it is not like this is a regulated market!

Guest Post: The Coming Collapse Of The Petrodollar System

Tyler Durden — Tue, 21 May 2013 02:48:56 +0000

Authored by Andrew McKillop,

PETRODOLLAR WAR

The theory of Petrodollar Warfare can be attributed to US analyst and author William R Clarke, and his 2005 book of that title which interpreted the US-UK decision to invade Iraq in 2003. He called this an "oil currency war", but the concept of the petrodollar system and petrodollar recyling dates back to the eve of the first Oil Shock in 1973-1974. The role of the petrodollar system as a driving force of US foreign policy is explained by analysts and historians as basic to maintaining the dollar's status as the world's dominant reserve currency - and the currency in which oil is priced.

The term "petrodollar warfare" as used by William R. Clark says that major international war, legal or not, was seen as justified to protect the petrodollar system. Over and above the loss of human life, the combined costs of the Afghan and Iraq wars for the US are controversial like the interpretation of these wars as "oil wars", but analysts like Joseph Stiglitz and Linda Bilmes put the total combined war cost at above $4 trillion. This can be compared with - and totally dwarfs - the annual cost of US oil imports, which are now sharply declining on a year-in year-out basis as domestic shale oil output ramps up, and US oil demand stagnates.

Clarke's theory, like the explanation of the role and power of the "petrodollar system" depends on two basic drivers. Most major developed countries rely on oil imports, which are purchased using dollars, so they are forced to hold large stockpiles of dollars in order to continue importing oil. In turn this also creates consistent demand for dollars, and prevents the dollar from losing its relative international monetary value, regardless of what happens to the US economy.

Variants of the Petrodollar War concept include the role of oil currency conflicts and rivalry, notably concerning US relations with Iran, Venezuela and Russia, and possibly with Europe concerning the gradual replacement of US dollars with the euro, for oil transactions. More important, the entire petromoney system and the potential for Petrodollar War hinges on global oil import demand and the oil price. Both of these have to hold up. When or if they do not, foreign oil importer nations who formerly found it beneficial to hold dollars to pay for oil, would have to find some other (unexplained) reason for huge holdings of dollars, when their oil imports decline and-or oil prices also decline.

The "currency war" variant of the petrodollar system theory, holding that a shift to notably euros or gold for oil payments would undermine the system, is unrealistic when given any serious analysis, because all world moneys are interchangeable or convertible, and gold is priced in US dollars.

THE THREE PHASES OF THE SYSTEM

These are easy to define.

1974-1986 The first phase. The 1972 start of "petrodollar recycling" initiated by Nixon and Kissinger just before the fivefold rise in oil prices of 1973-74, set the process of US-Saudi Arabian cooperation for the near-exclusive benefit of these two players. The US dollar was "backstopped" by the transfer of Saudi liquidities to the US Federal Reserve system banks, especially the Federal Reserve Bank of New York. A small number of other chosen central banks, especially the Bank of England, and the central banks of Germany, France, Italy and Japan also benefitted.

1986-1999 The second phase. This also featured US and Saudi control, but under Clinton's two mandates the focus radically changed to the controlled deflation or reduction of both oil prices and the world value of the US dollar. While the US continued to benefit from "petrodollar recycling", Saudi Arabia was the major loser, undoubtedly changing its perceptions of the system's utility to KSA.

2000-2013 The third and last phase. This period featured a major longterm rise in oil prices and the entry not in force, but progressively of the euro currency into the now enlarged "petromoney recycling" process. Euros now cover about 25% of global oil transactions, for an annual value of around €700 billion, with about the same amount of back-to-back additional lquidities. The massive growth of QE and central bank "easing", from 2008, has heavily reduced the role of "petromoney recycling".

Among the major changes of the petromoney system during these 3 phases, the first phase set the basic political concept among US deciders that "petrodollar recycling" could at one and the same time enable the US to run huge trade and budget deficits, low or very low interest rates, and prevent the collapse of the dollar's value due to the forced need of all world buyers of oil to hold US dollars to make purchases of oil. By the second phase, this underlying concept shaded to including non-oil assets as the focus of value manipulation, controlled inflation and controlled deflation of value. In the third phase, massive increases of the oil price to 2008 played a major role in enabling the continued depreciation of the dollar's world value as US sovereign debt also massively increased, but since 2008 and the start of central bank QE the need for, and role of the petrodollar system have heavily contracted.

THE SYSTEM IS NOW MENACED

Estimates of the exact size and role of petrodollars and petroeuros in the international money system, finance system, and economic system are varied. Many analysts however say the minimum role of the petrodollar system is to create, back-to-back, liquidities at least equivalent to the transaction value of the world oil trade, which for crude and products is about $3.4 trillion-a-year. Combined, the approximate minimum total $6.8 trillion annual value of oil trade plus the petromoney system is about 10% of world annual GNP, equivalent to about 45% of US annual GDP. This may appear as still large and important but has to be compared with, for example, the exposure of national private banks only in Europe in relation to national GDPs, which is often 300% - 400%.

Only QE can "plaster over" these liabilities.

Petromoney recycling is still treated by "the elites" as a critical prop to monetary system integrity, and explains why the USA is far from the only country depending on the system holding up. All oil producers, even smaller-sized, are beneficiaries the same way as all major developed nations' central banks, but the US is still the prime beneficiary. However, the basic supports for the system's operation - continuing high oil demand, high oil prices, and oil priced in dollars - have all weakened or are threatened, today. In particular when global oil demand declines or stagnates, and when oil prices decline, the dollars that will no longer be needed for global purchases of oil will return in massive amounts back to their country of origin, the USA. The consequences can only be dramatic, and threaten the start of a process completely unlike the Clinton-era controlled devaluation of the dollar's value along with the decline of oil prices consented by Saudi Arabia.

The now-menaced "petrodollar system" is also weakened because of worldwide change in the perception of oil and oil energy. From the dawn of the petroleum age to its accelerating twilight, today, geopolitical strategies concocted by developed nations featured the maintenance of secured access to world oil supplies. This was believed to be a win-win strategy for developed nation policy makers, and especially for US policy makers. From the 1970s and the first Oil Shock of 1973-1974, the only "morph' in this policy and strategy was to substitute expensive oil, for cheap oil.

For the USA's ability to run deficits and the petrodollar system, much higher oil prices were a major gain, not a loss, and this is almost surely still the perception of the Obama administration today.

In its first phase and last phase, the economic and political incentives for ensuring national access to oil supplies, and the existence of the petrodollar system as a monetary and finance tool - unrelated to the economy - worked better with higher oil prices. Today however, with the major and massive changes of oil resource availability revealed by the shale energy revolution, rising global oil production capabilities, stagnating oil demand, and rising renewable energy supplies in all major developed countries, and the constantly declining role of oil in the economy, the Petrodollar System's days are surely numbered, like the notion that $100-oil prices are "normal".

The impact of this will be massive.

Russia Adds Two More Warships To Mediterranean Task Force Near Syria

Tyler Durden — Tue, 21 May 2013 02:12:55 +0000

A few days when reporting that the Russian Pacific fleet had crossed the Suez canal for the first time in decades in order to form a Mediterranean task force parked in Cyprus for obvious symbolic reasons (in close proximity to Syria and the Israel-parked Kearsarge), some observed that while the submarine support was adequate, the actual warship fleet designated to support any potential escalation in Syria would be largely insufficient. Perhaps the Russian Navy heard these complaints, and several hours ago RIA reported that two extra warships from the Russian Black Sea fleet had joined the Mediterranean task force, citing Capt. First Rank Vyacheslav Trukhachyov, has said. None of these recent deployment should come as a surprise: in March Russian Defense Minister Sergei Shoigu said a permanent naval task force in the Mediterranean was needed to defend Russia’s interests in the region. Read Syria, Cyrpus (where the task force will be on anchor indefinitely), and, of course, any and all western offensive involving Iran. And slowly but surely said task force is nearing completion.

"During a planned rotation, large landing ships Nikolai Filchenkov and Azov from Russia’s Black Sea Fleet have started performing their tasks in the Mediterranean,” Trukhachyov said.

The two ships in question:

the Azov:

and the Filchenkov:

The two ships will be added to a fleet that is becoming increasingly imposing in both numbers and capability: the task force currently includes vessels from the Pacific, Northern, Baltic and Black Sea fleets: the Admiral Panteleyev and Severomorsk destroyers, the Yaroslav Mudry frigate, the Peresvet and Admiral Nevelskoi amphibious warfare ships, the Fotiy Krylov, Altai and SB-921 salvage/rescue tugs, the PM-138 repair ship, the Pechenga, Lena and Dubna tankers. The task force may be enlarged to include nuclear submarines.

Admiral Vladimir Komoyedov, head of the parliamentary defense committee, previously told RIA Novosti that the Mediterranean task force should be comprised of 10 warships and support vessels as part of several tactical groups tasked with attack, antisubmarine warfare and minesweeping.

In other words, check to you America, we are ready.

And speaking of checking, just a month earlier it was the US that was deploying its own naval support in the area with the LHD-3 Kearsarge crossing the Suez canal, and now on anchor in Israel. Here is a 60 second timelapse video of what it looks like when a US naval ship cross the Suez Canal, direction escalation.

Bitcoin – The Tyranny Test

Tyler Durden — Tue, 21 May 2013 01:40:05 +0000

Via Paul Rosenberg of Free-Man's Perspective blog (via Jim Quinn's Burning Platform blog),

An increasing number of people have complained about governments and central banks in recent years, even using the word “tyranny” to describe them. They are, of course, called names in the establishment press: conspiracy theorists, mainly.

Calling someone a name, however, does not erase their argument (at least not among rational people) and both the governments and the big banks stand accused.

Up till now, however, these accusations were never accepted by the general public. The average guy really didn’t want to hear about the evils of government money. After all, that was the only thing he had ever used to buy food, clothes, gasoline, cars, and so on. He didn’t want to acknowledge the accusations because he feared what might happen to him without his usual money.

Now, however, we have a brand new currency (called Bitcoin) available to us: something radically different. This gives us a new way to directly address the subject of monetary tyranny, providing a clear test for the governments and money masters of the world:

If they are truly NOT tyrannical, they will leave this new currency alone.

If they ARE tyrannical, they will attack the new currency because it eats into their scam.

In other words, Bitcoin is a test for “the powers that be.” The way they deal with this new method of exchange will reveal their true nature.

If they ignore Bitcoin, they refute the charges of tyranny. If they attack it, they verify those charges.

After all, what honest reason could there be to attack an inherently peaceful tool for transferring value?

Prospective Reasons

Reasons to attack Bitcoin have recently appeared in the “public square.” Here are the three most popular ones, each followed with some analysis:

It can be used for money laundering.

Of course it can be used for money laundering — ANY currency can be used for money laundering. Currencies are neutral — that is their purpose! Currencies are valuable precisely because they can be exchanged for anything else — that’s why we use them!

Moreover, dollars and Euros and Pounds are used for money laundering every day. Consider the recent money laundering crimes of HSBC and Wachovia/Wells Fargo. These banks laundered hundreds of billions of dollars for violent drug cartels. And consider that this amount of laundered money is several hundred times the value of every Bitcoin in existence.

No one from either bank went to jail. Neither bank was shut down. Neither bank suffered more than a minor fine. So, how much of a concern can money laundering really be to governments and banks? Clearly not much.

But, since they accuse Bitcoin of being used for bad things, let’s be clear about the situation:

Every mafioso uses government money.

Every drug smuggler uses government money.

Every terrorist uses government money.

Every pornographer uses government money.

Every criminal of every type uses government money.

They also use the telephone system and the mail and banks and a wide variety of government services. But government money is good and Bitcoin is bad?

The argument fails.

It could destabilize the current system.

A tiny, new currency is a threat to the long-established king of the hill? Comparing Bitcoin to dollars, Euros and Yen is like comparing an ant to a dinosaur. This is a threat?

Please understand also that no one is forcing anyone to use Bitcoin. If you don’t think it’s a great idea, you don’t have to use it. If its price movements (relative to dollars) bother you, you don’t have to use it. How is that destabilizing to the current system? It is entirely separate.

And what of the current system? It was falling apart on its own before the Bitcoin program was ever written. And I could go on at length on the insane levels of government debt, hundreds of trillions in derivatives, rehypothecation, and innocent people being forced to bail-out failed banks.

The current system has massive problems, but none of them can be blamed on Bitcoin.

This argument fails also.

Bitcoin provides no customer protection.

Well, no, it doesn’t. Bitcoin is a currency, not a legal system.

What is implied by this argument is that the government banking system does protect customers. That is an outright lie. People are ripped-off via the banking system every day. And more than that, consider what happened just a month ago in Cyprus: Thousands of innocent people were ripped-off BY the banking system — purposely — all at once and without recourse. This argument is, really, an insult to one’s intelligence.

And I should add something else: If Bitcoin is used properly, the crime of identity theft (a big problem with government money) vanishes – there is no identity available to be stolen.

So, again, the argument fails. Only those people who believe anything a government says will buy it.

In the End

In the end, it is said, we judge ourselves. Bitcoin has now put governments and banks in the position of judging themselves. They will write their own verdicts.

It should be interesting to watch.

WTF Chart Of The Day: "It's All About The Earnings"

Tyler Durden — Tue, 21 May 2013 01:10:19 +0000

"Earnings are the mother's milk of the stock market," is the oft-repeated anthem of a million marching lemmings; parroting the same phrase come hell or high-water in the dismal hope that they can gather moar assets-under-management, garner moar fees, and make moar TV appearances. However, as the chart below shows, we suspect perhaps given the reality of earnings expectations that the new normal mantra for stocks-for-the-long-term should be - "Central Bank liquidity is the PCP of the stock market."

it would appear the 'mother's milk' is souring...

(h/t @Not_Jim_Cramer)

and furthermore, since September 2011 earnings have been stagnant - when a multitude of indicators (macro and market) began to decouple from stocks,

- driven almost 100% by buybacks...

(h/t @RonnieSpence)

The Bigger Story Behind the AP Spying Scandal

George Washington — Tue, 21 May 2013 00:25:47 +0000

Attack on the Press

You know that the Department of Justice tapped scores of phone lines at the Associated Press.

You might have heard that the Attorney General of the United States isn’t sure how often reporters’ records are seized.

You might have learned that the Department of Justice is prosecuting a whistleblower regarding North Korea … as well as the chief Washington correspondent for Fox News who reported on what the whistleblower told him. As the Washington Post notes:

[Department of Justice investigators] used security badge access records to track the reporter’s comings and goings from the State Department, according to a newly obtained court affidavit. They traced the timing of his calls with a State Department security adviser suspected of sharing the classified report. They obtained a search warrant for the reporter’s personal e-mails.

You might have read that the Department of Justice Inspector General published a new report today saying that former U.S. Attorney for Arizona Dennis Burke leaked a document intended to smear Operation Fast and Furious scandal whistleblower John Dodson, concluding:

We believe this misconduct to be particularly egregious because of Burke’s apparent effort to undermine the credibility of Dodson’s significant public disclosures about the failures in Operation Fast and Furious. We further believe that the seriousness of Burke’s actions are aggravated by the fact that they were taken within days after he told Deputy Attorney General Cole that he took responsibility for his office’s earlier unauthorized disclosure of a document to The New York Times, and after Cole put him on notice that such disclosures should not occur. Burke also knew at the time of his disclosure of the Dodson memorandum that he was under investigation by OPR for his conduct in connection with the earlier disclosure to The New York Times. As a high-level Department official, Burke knew his obligations to abide by Department policies and his duty to follow the instructions of the Deputy Attorney General, who was Burke’s immediate supervisor.

And you may even have caught ABC News' report today that an armed minder trailed reporters ... preventing them from being able to talk to whistleblowers:

As we traveled the public hallways of the building – watched over by security cameras – an armed uniformed police officer with the Federal Protective Service followed us. We were looking for a particular office—of someone who would not want to be seen talking to reporters--but chose to bypass it because of our official babysitter.

Asked why we were being escorted in a public building, the officer identified himself as Insp. Mike Finkelstein and said he was only trying to make sure that the newsmen were not a "nuisance." He brushed aside further questions. The cop said a supervisor would call to explain.

One of the reporters wanted to know if the act of following the journalists was an effort intended to scare off any federal employee who might have considered speaking to the press. That's sure what it looked like; and, even if that wasn't the goal, it was the effect.

As of Friday night, no supervisor had called back.

After ABC News phoned and e-mailed the spokespeople in Washington repeatedly for more than 24 hours, a low-level staffer with Homeland Security finally responded. "After review by a supervisor, it was determined that the inspector acted according to proper security procedures and that no improper conduct occurred," the spokesman said.

But there have been many similar scandals over the last couple of years. For example:

The Pentagon recently smeared USA Today reporters because they investigated illegal Pentagon propaganda

Reporters covering the Occupy protests were targeted for arrest

The Bush White House worked hard to smear CIA officers, bloggers and anyone else who criticized the Iraq war

After Pulitzer Prize winning journalist Chris Hedges, journalist Naomi Wolf, Pentagon Papers whistleblower Daniel Ellsberg and others sued the government to enjoin the NDAA’s allowance of the indefinite detention of Americans – the judge asked the government attorneys 5 times whether journalists like Hedges could be indefinitely detained simply for interviewing and then writing about bad guys. The government refused to promise that journalists like Hedges won’t be thrown in a dungeon for the rest of their lives without any right to talk to a judge

An al-Jazeera journalist – in no way connected to any terrorist group – was held at Guantánamo for six years … so the U.S. could find out about the Arabic news network. And see this

Indeed, reporters who even speak with whistleblowers may be treated as terrorists. And see this

In an effort to protect Bank of America from the threatened Wikileaks expose of the bank’s wrongdoing, the Department of Justice told Bank of America to a hire a specific hardball-playing law firm to assemble a team to take down WikiLeaks (and see this).

Wikileaks’ head Julian Assange could face the death penalty for his heinous crime of leaking whistleblower information which make those in power uncomfortable … i.e. being a reporter.

But – whatever you think of Wikileaks – that was the canary in the coal mine in terms of going after reporters. Specifically, former attorney general Mukasey said the U.S. should prosecute Assange because it’s “easier” than prosecuting the New York Times.

Subsequently, Congress considered a bill which would make even mainstream reporters liable for publishing leaked information.

Journalist and former constitutional lawyer Glenn Greenwald notes today:

The Washington Post’s Karen Tumulty [says that "The alternative to 'conspiring' with leakers to get information: Just writing what the government tells you."]

That, of course, is precisely the point of the unprecedented Obama war on whistleblowers and press freedoms: to ensure that the only information the public can get is information that the Obama administration wants it to have. That’s why Obama’s one-side games with secrecy – we’ll prolifically leak when it glorifies the president and severely punish all other kinds – is designed to construct the classic propaganda model. And it’s good to see journalists finally speaking out in genuine outrage and concern about all of this.

***

Here’s an amazing and revealing fact: after Richard Nixon lost the right to exercise prior restraint over the New York Times’ publication of the Pentagon Papers, he was desperate to punish and prosecute the responsible NYT reporter, Neil Sheehan. Thus, recounted the NYT’s lawyer at the time, James Goodale, Nixon concocted a theory:

“Nixon convened a grand jury to indict the New York Times and its reporter, Neil Sheehan, for conspiracy to commit espionage . . . .The government’s ‘conspiracy’ theory centered around how Sheehan got the Pentagon Papers in the first place. While Daniel Ellsberg had his own copy stored in his apartment in Cambridge, the government believed Ellsberg had given part of the papers to anti-war activists. It apparently theorized further that the activists had talked to Sheehan about publication in the Times, all of which it believed amounted to a conspiracy to violate the Espionage Act.”

As Goodale notes, this is exactly “the same charge Obama’s Justice Department is investigating Assange under today,” and it’s now exactly the same theory used to formally brand Fox’s James Rosen as a criminal in court.

Indeed, this is not a partisan issue. Bush was worse than Nixon on unlawful spying and harassment of reporters … but so is Obama.

Whistleblower Witch Hunt

But Obama has gone after whistleblowers more viciously than Bush, Nixon, or any president in history. Indeed, the Obama administration has prosecuted more whistleblowers than all other presidents combined.

And the government goes out of its way to smear whistleblowers and harass honest analysts.

Even high-level government employees are in danger. For example, after the head of the NSA’s spying program – William Binney – disclosed the fact that the U.S. was spying on everyone in the U.S. and storing the data forever, and that the U.S. was quickly becoming a totalitarian state, the Feds tried to scare him into shutting up:

[Numerous] FBI officers held a gun to Binney’s head as he stepped naked from the shower. He watched with his wife and youngest son as the FBI ransacked their home. Later Binney was separated from the rest of his family, and FBI officials pressured him to implicate one of the other complainants in criminal activity. During the raid, Binney attempted to report to FBI officials the crimes he had witnessed at NSA, in particular the NSA’s violation of the constitutional rights of all Americans. However, the FBI wasn’t interested in these disclosures. Instead, FBI officials seized Binney’s private computer, which to this day has not been returned despite the fact that he has not been charged with a crime.

Other NSA whistleblowers have also been subjected to armed raids and criminal prosecution.

After high-level CIA officer John Kiriakou blew the whistle on illegal CIA torture, the government prosecuted him for espionage.

Even the head of the CIA was targeted with extra-constitutional spying and driven out of office.

The Most Gagged Person in the History of the United States

One example of the extreme gagging of whistleblowers is former FBI translator Sibel Edmonds.

The ACLU described Edmonds as:

The most gagged person in the history of the United States of America.

Edmonds has been deemed credible by the Department of Justice’s Inspector General, several senators (free subscription required), and a coalition of prominent conservative and liberal groups.

Edmonds’ allegations have been confirmed by numerous Pentagon, MI6 and FBI officials, including 18-year FBI counter-intelligence expert John Cole.

Famed Pentagon Papers whistleblower Daniel Ellsberg says that Edmonds possesses information “far more explosive than the Pentagon Papers”.

Ellsberg also said that the government has ordered the media not to cover 9/11:

Ellsberg seemed hardly surprised that today’s American mainstream broadcast media has so far failed to take [former FBI translator and 9/11 whistleblower Sibel] Edmonds up on her offer, despite the blockbuster nature of her allegations [which Ellsberg calls "far more explosive than the Pentagon Papers"].

As Edmonds has also alluded, Ellsberg pointed to the New York Times, who “sat on the NSA spying story for over a year” when they “could have put it out before the 2004 election, which might have changed the outcome.”

“There will be phone calls going out to the media saying ‘don’t even think of touching it, you will be prosecuted for violating national security,’” he told us.

* * *

“I am confident that there is conversation inside the Government as to ‘How do we deal with Sibel?’” contends Ellsberg. “The first line of defense is to ensure that she doesn’t get into the media. I think any outlet that thought of using her materials would go to to the government and they would be told ‘don’t touch this . . . .‘”

Indeed, the mainstream British newspaper the Sunday Times started publishing a series of articles exposing the scandal which Edmonds had uncovered. But U.S. State Department pressure killed the series.

What are Edmonds’ allegations … that the media is too cowardly to report … that the most famous whistleblower in history calls “more explosive than the Pentagon Papers”?

Among other things, Edmonds says that the U.S. government worked with Bin Laden and his top lieutenant 3 months after 9/11 … as part of an ongoing operation of launching war under false pretenses.

Now that would be a big story if true, wouldn’t it?

The mainstream media is finally awakening to the fact we are flirting with tyranny … and is finally starting to push back.

The best defense is a strong offense, and it is use it or lose it time for the Constitution and Bill of Rights.

The press should shake of its sleepiness and start talking to the whistleblowers (like Edmonds) it’s been ignoring for years … to find out what the government is working so hard to hide.

Apple Meets The "Fairness Doctrine", Is Set To Pay A Whole Lot More In Taxes

Tyler Durden — Tue, 21 May 2013 00:23:35 +0000

Last September, when we exposed the heretofore unknown entity actively managing Apple's $100 billion+ in offshore held cash (and thus untaxed in the US), we made the following "bold" prediction: "with the topic of finding effective tax loopholes which are perfectly legal, yet which apparently are unfair, serving as the basis of the entire presidential race to date, what Apple can be absolutely certain of is that once the farce culminating on November 6 is over, the government's eye will finally turn to minimizing "externalities" among such companies which have been able to pass through corporate tax savings to end consumers by abiding within the legal system that countless other muppet congressmen, senators and presidents have developed over the ages. Because while AAPL may have built the iPhone, very soon it will be only fair that it share its profits acquired over the years, and thus its cash balance...with the general public." Or in other words, in September we predicted the Apple "tax witchhunt" would take place shortly after Obama won his reelection. Today, it has officially begun.

For those confused, Congress has just announced it is shocked, SHOCKED to learn it has over the past several decades passed legislation making tax shelter loopholes - such as those used by AAPL, GOOG and every other multinational company - perfectly legal, and which will now be turned against those very companies in a kangaroo court of law, seeking nothing more or less than to extract all those pounds of flesh that the government so generously let slip between its fingers for so many years. Which is expected: when the entire world is broke, the government has no choice but to call in every favor accumulated over the years, because all is fair in, well, the fairness doctrine and in a world about to unleash global trade, and tax, war.

Of course, we have covered the background of this topic extensively in the past knowing quite well what direction the wealth redistributor-in-chief was heading. From Apple And Taxes:

As we have shown in the past, perhaps the one thing Tim Cook's company has loathed more than anything in the past, is to pay taxes, which is why it has some of the most convoluted legal tax shelters imaginable. Indeed, in the current quarter, according to the company's cash flow statement, a tiny $2.4 billion was paid in cash taxes. Putting this number in perspective, the company had an operating profit of $12.4 billion.

Or, cumulatively, since December 2008, AAPL has generated a grand total of $149 billion in operating profit, while paying just $21 billion in total taxes.

Which brings us to today. From Bloomberg:

Apple Inc. (AAPL) has created a web of offshore entities to avoid paying billions of dollars in U.S. taxes, including three foreign subsidiaries the company says have no home country for tax purposes, congressional investigators say.

The world’s most valuable technology company has $102 billion in offshore accounts and shifted billions in profits out of the U.S. into affiliates based in Ireland where it negotiated a tax rate of less than 2 percent, according to a report by the Senate Permanent Subcommittee on Investigations.

The offshore entities of the Cupertino, California-based company have paid little or no tax in recent years, the probe found.

One Apple affiliate -- Apple Operations International -- generated net income of $30 billion between 2009 and 2012, and declined to declare a tax residence, filed no corporate tax return and payed no income taxes to any nation, the report said. AOI is Apple’s principal offshore holding company.

“Apple wasn’t satisfied with shifting its profits to a low-tax offshore tax haven,” Democratic Senator Carl Levin of Michigan, the chairman of the panel, said at a news conference. “Apple sought the Holy Grail of tax avoidance. It has created offshore entities holding tens of billions of dollars, while claiming to be tax resident nowhere.

Of course, in AAPL's defense, what it has done is not illegal at all, and is in perfect compliance with both US and international laws. But that would mean Congress would have to read the laws it has passed over the ages: something which everyone knows never happens. One also knows that Congress is unparalleled when it comes to the hypocrisy of accusing others for following the rules it itself has enacted.

In prepared testimony to Congress posted on its website today, Apple defended its practices, saying it paid $6 billion in U.S. taxes last year and is one of the largest taxpayers in the country.

Apple’s cash is largely held in U.S. banks in U.S. dollar-denominated assets, segregated into a portion that can be used for domestic operations and a portion that can be used only for international investments, the company said. The company doesn’t use foreign subsidiaries or gimmicks to avoid U.S. taxes, said the testimony.

The company also said the Irish subsidiaries, which are cost-sharing arrangements, have helped to fund Apple’s research and development activities and taken on risks, leading to bigger profits and higher-paying jobs in the U.S.

None of this matters, however, in the abovementioned kangaroo court, in which...

Lawmakers in both parties are seeking a bipartisan agreement on how to tax income that U.S.-based corporations earn outside the country. Democrats and Republicans on the panel say Apple’s tax maneuverings, while not illegal, will help frame the debate about how to make the corporate tax system more fair.

Senator John McCain of Arizona, the panel’s top Republican, said he and Levin are seeking to craft a bipartisan proposal that would end some of the tax benefits, although the timing of an agreement isn’t clear. He said both parties in Congress should seek to address the matter, even if it isn’t in the context of a broad rewrite of the tax code.

“When you see egregious behavior like this, why wait?” McCain said.

And there it is again: "all in the name of fairness."

What is left unsaid is that Apple is merely the first Guniea pig in what is sure to be a long trail of wealth "redistribution" of evil companies (to benefit the Federal and State governments) who have used every legal loophole affored to them by the US tax code, in order to pad the government's soaring spending habits, and to assist in making it even bigger.

Sadly, for AAPL, and for many others like it, this means that the excess profits they generate are now known, in financial parliance, as "negative externalities" and Fair Uncle Sam is coming for his fair share.

Sadder for AAPL, and all those like it, it means that the company is now truly a utility in the eyes of the government, and one can stick a fork in any hopes that the growth company created by Steve Jobs ever has a chance of coming back.

The Arctic: The Final Energy Frontier

Tyler Durden — Tue, 21 May 2013 00:18:07 +0000

Via Stratfor's Chart of the Day,

The Arctic is expected to become more important in the coming decades as climate change makes natural resources and transport routes more accessible. Satellite data collected since 1979 shows that both the thickness of the ice in the Arctic and range of sea ice have decreased substantially, especially during the summer months. According to the United States' National Snow and Ice Data Center, the amount of Arctic ice (usually at a minimum during September) was 3.61 million square kilometers (1.39 million square miles) in September 2012 -- close to 49 percent lower than the average amount of ice seen between 1979 and 2000.

The melting of the ice facilitates natural resource exploration in the high north. U.S. Geological Survey estimates from 2008 suggest that 13 percent of the world's undiscovered oil and 30 percent of undiscovered natural gas reserves are located in the Arctic Circle.

Reflecting the growing interest in the region, the Arctic Council granted six new countries (China, India, Italy, Japan, South Korea and Singapore) observer status during a May 15 ministerial meeting in Kiruna, Sweden. By admitting more observers, the Arctic Council -- an organization that promotes cooperation among countries with interests in the Arctic -- will likely become more important as a forum for discussions on Arctic issues. However, this does not necessarily mean it will be able to establish itself as a central decision-making body regarding Arctic matters.

Guest Post: Another Episode In The History Of Failed Manipulations

Tyler Durden — Mon, 20 May 2013 23:40:39 +0000

Submitted by Martin Sibileau of A View from the Trenches blog,

“…The Argentine government jawboned the foreign exchange market more efficiently than Draghi did with the gold market upon the insinuation that Cyprus would sell its gold…”

I am back from a brief trip to Argentina’s Patagonia, where I could confirm first-hand the irreversible damage caused by interventionist policies: Widespread poverty, abandoned infrastructure, scarcity of consumer goods, unseen unemployment and criminality, etc. I could also see for myself the madness of hedging against inflation with the purchase of new cars. The streets of any forgotten small town in Patagonia are filled with brand new 4×4 vehicles that would be the envy of many in North America.

While visiting too, the Argentine government made a new move to suppress the price of the physical US dollar. In previous articles (here and here), I made the case that the broken US dollar market in Argentina would provide insights into what we may eventually expect from the gold market, if it broke in the same fashion. However, I had underestimated the magnitude of the USD physical market. Zerohedge brought attention to this point a few days ago (here).

Overview

In August of 2011, Argentina’s government slowly began to implement a series of actions destined to curtail the right of citizens to access US dollars (foreign exchange in general). The goal was and is to force savings into pesos, as pesos are after the taxable asset in a country that cannot access capital markets and fully monetizes its deficits.

From that moment onward physical US dollars started to trade at a premium. Last week, with the paper US dollar value at 5.11 pesos, that premium was over 100%. Physical US dollars, i.e. dollars outside the system, reached a bid/ask of 10.30/10.45 pesos. The chart below should help visualize this dynamic (source: Reuters/La Nación)

The latest move: Tax moratorium to repatriate capital

With a 100% premium over the “official” price of the US dollar, on May 7th, the federal government announced a moratorium for off-shore capital (see here, in Spanish). A simple reading of this measure would reveal a government encouraging capital inflows to an investments-starving nation. The moratorium, after all, is for capital directed to the real estate and energy sectors. The real intention behind it is, however, to narrow the gap between the official and black market price of the US dollar, via manipulation of the “official” price, as I will show further below. At the official price, of course, one finds no sellers.

The moratorium is a tax pardon, no questions asked, for all Argentines who decide to bring onshore their undeclared US dollars deposited offshore. Although it is not clear yet whether the declared funds can be freely disposed of, the government seeks that they be applied to the purchase 2016 4% bonds issued by the federal government or USD certificates, issued by the central bank. These USD denominated certificates (see image below, source: La Nacion) are to be used to clear transactions in the real estate sector, are fully endorsable and have no maturity. In other words, the government wants to further segment the US dollar market.

I can’t help speculating that years into the future, one would see a developed country implementing a similar measure to repatriate undeclared gold.

How it works

The tax moratorium is a simple transaction. Let’s forget about the USD certificates issued by the central bank that pay no interest and assume that the public will accept them like US dollars. We are talking about a public that already holds 1 every 15 US dollar bills in the world. My view is that these will not prosper, because I doubt that anyone selling real estate would be willing to take them at face value.

We are left with the 4% coupon bonds issued by the federal government, maturing in 2016, which are bought by offshore depositors. The figure below shows the accounting:

Final Observations

By now it should be clear that if the Argentine government had only wanted to attract offshore capital to fund investments, there would have been no need to have the Government Issue interest paying certificates.

It is also obvious that for this policy to be successful, offshore depositors must believe that declared, taxable, interest paying USD certificates are better than holding US dollars off-shore. But if these certificates are to be liquid, the discount in the secondary market should be lower than 12% approximately, in the absence of counterparty risk (4% x 3 years). And with the Federal Government of Argentina as the issuer, there is no doubt that counterparty risk is real and present. Preliminarily the government expects $4 billion to be declared.

One would find this measure laughable, as it is absolutely evident that one is better off holding undeclared funds offshore than facing scrutiny to earn a 4% interest on a certificate issued by the government of a country that defaulted on its debt and has no access to the capital markets. Yet, in this new normal world we live in, with the announcement, the price of the US dollar fell to 8.87 pesos, which represents a considerable 13.9% drop. To put the reaction in perspective, the Argentine government jawboned the foreign exchange market more efficiently than Draghi did with the gold market upon the insinuation that Cyprus would sell its gold.

It is also a known fact that financial repression in Argentina is a publicly disclosed policy, and some may attribute the drop to the same. But I cannot deny that the reaction surprised me. If the measure is successful, would the success indicate that monies currently offshore are perceived to be in far greater danger than in a country where they can be laundered into the energy sector? To finance a company that was confiscated in 2012 to the Spanish crown?

Regardless of the initial drop (the closing price on Friday May 17^th was 8.95 pesos, while the official price was 5.25 pesos), one wonders if the Argentine government can sustainably manipulate the price of the US dollar, assuming the certificates are accepted in the market, and if there are lessons to be learned here.

Without changing the terms of the tax moratorium, Argentina’s government could replicate the tactics of the gold cartel to suppress the price of the US dollar. The way to achieve this is by expanding the credit multiplier, as shown below:

The figure above shows that with the US Dollars repatriated and in the balance sheet of the Federal Government (assets), it could be possible, assuming that the certificates are accepted, to generate a credit pyramid in the system. If the certificates are accepted in deposit by banks (step 2 above), these can use them to expand their USD loan base (just like bullion banks use the gold ETFs to expand their gold loans).

This scheme would suppress the price of the US dollar (just like gold loans suppress the price of gold), in a country where depositors have not lost their deposits to their banks (i.e. in a country where people trust their banks). But we all know this is not the case with Argentina. However, I can imagine that the 4% coupon of the certificates will not carved in stone. Would a 20% interest on USD certificates encourage certificate holders to leave them in deposit? It did in 2001, and with Argentina’s holdouts still alive and fighting, this alternative scheme would allow the government to source US dollars and keep kicking the can until the next election.

Nevertheless, with an ever increasing fiscal deficit, it would take an equally growing amount of leverage (on the bonds) to keep the party going. But remember: This whole intellectual exercise is based on the assumption that the bonds trade in the secondary market and that one can only produce a tax moratorium every few years….

If the “bancos” had to offer a high interest rate to use the bonds as collateral (say, above 20% or most likely above the actual inflation rate), the Banco Central (i.e. not the Federal Government that issues the 4% bonds) would feel tempted to directly subsidize the banks, while earning a laughable amount, from its US dollar bills. This subsidy would be required to maintain a positive net interest margin, because I doubt that the bancos would be able to make any significant USD loans at such rates. There is a precedent to this in the Cuenta de Regulación Monetaria, established in 1977.

We can now see that the sustainability of the manipulation in a segmented/broken foreign exchange market causes a negative carry, which would create a quasi-fiscal deficit in Argentina (i.e. the deficit of the Banco Central), fully opening the gates to hyperinflation. I have made the point in earlier letters (here) that the same could be conceived to happen with the manipulation in the price of gold. This latest example from Argentina serves therefore as another experiment in the history of failed manipulations.

One last comment: Because the scheme is so visibly unsustainable, the temporary drop in the price of US dollar bills (i.e. physical US dollars) will attract a higher demand of said US dollar bills, forcing the leverage provided by the certificates to grow exponentially. In the week of the announcement, USD deposits fell another 96 million. This is the same behaviour seen in physical gold.

What makes the gold market of 2013 different?

As gold is a commodity, there is no counterparty risk: Either the gold is or isn’t where it is supposed to be. This makes the gold market less flexible than, say the foreign exchange market just described above. Why? There cannot be an interest rate in gold paper that will keep investors in the Ponzi scheme, just like there is one for US dollar bonds in Argentina.

For instance, if a gold ETF (or any commodity ETF for this purpose) offered a coupon, it would raise all kinds of suspicions, unless we are in a system where gold is allowed to compete with legal tender, in which case too, there would not be a need for gold ETFs. This means that in order to keep its price suppressed, the gold market requires outright fraud. It also means that the only way that such fraud can be resolved is with plain and swift confiscation, because once revealed, no interest rate will clear the market.

If it is correct, as reported, that 1 out of every 15 US dollar bills is held by an Argentine, it is easy to see why the retail US dollar investor in Argentina managed to break the market and keep the official manipulation at bay. This is not the case with the global gold market today, but it was certainly not the case in Argentina of the ‘70s either, when the decline of its economy began to show itself as evident.