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Gyver & Gufn

When you have eliminated the impossible,
whatever remains, however improbable, must be
the truth.
Sir Arthur Conan Doyle, The Sign of Four
We all want to believe in impossible things, I suppose, to
persuade ourselves that miracles can happen.
Paul Auster, The Book of Illusions
He possessed the logic of all good intentions and a knowledge of
all the tricks of his trade, and yet he never succeeded at anything,
because he believed too much in the impossible. Surprising? Why
so? He was forever in the act of conceiving it!
Charles Baudelaire
She shook her head and whispered, No. No! That cant be true.
Impossible!
You think things have to be possible? Things have to be true!
Philip Pullman, The Subtle Knife
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THINGS THAT MAKE YOU GO
Hmmm...
A walk around the fringes of fnance
By Grant Williams
28 April 2014
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28 april 2014
Contents
THINGS THAT MAKE YOU GO HMMM... ....................................................3
Suspicion Grows That China Is Exporting Defation Worldwide ................................19
BRICS Countries to Set Up Their Own IMF .........................................................21
FBI Uncovers Al-Qaeda Plot to Just Sit Back and Enjoy Collapse of United States ..........22
The Downfall of Rome: Can a New Mayor Stop the Citys Decline? ............................23
One in Ten U.S. Bridges in Urgent Need of Repair ................................................25
GPIF Shakes Up Committee with Three Abe Panel Members ....................................26
Tier 1 Chinese Cities Begin Property Discounting .................................................28
Thomas Piketty Is a Rock-Star Economist Can He Re-Write the American Dream? .......30
What If China Has a Fukushima? ....................................................................31
CHARTS THAT MAKE YOU GO HMMM... ..................................................33
WORDS THAT MAKE YOU GO HMMM... ...................................................36
AND FINALLY... .............................................................................37
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Things That Make You Go Hmmm...
This weeks TTMYGH revolves around Macs. The frst is a man-turned-verb who was capable of
extricating himself from seemingly hopeless situations, armed with an array of tools seemingly
singularly unsuited to the purpose; and the second is an ingenious, though ultimately futile,
plot device which has been used by everyone from Welles to Hitchcock to Tarantino.
Though at frst blush its hard to see a link between
the two, in todays world there are Angus MacGyvers
everywhere, beetling away with duct tape and Swiss
army knives, trying to extricate themselves from
completely hopeless situations; and if they are to
succeed before the credits roll, they must rely upon
one very important thing: the suspension of disbelief
by their audience.
Thats where the other Mac comes in.
Man frst.
Angus MacGyver was a troubleshooter. He worked for
the fctional Phoenix Foundation as a secret agent and
also for the US government in the (also fctional) Department of External Services.
Educated as a scientist and possessing an encyclopedic knowledge of the physical sciences,
MacGyver had been a bomb disposal technician during the Vietnam War and possessed a
distinctly pacifst outlook on life he hated guns.
Also, his luck could scarcely be described as merely good.
Somehow, over the course of seven seasons, MacGyver managed to get himself into some 139
impossible-to-get-out-of situations each of which he managed to navigate successfully by
using conventional items in a distinctly unconventional way.
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By way of illustration, in the pilot episode alone, MacGyver managed to do the following:
Rig a machine gun with a cord, string, stick, and matches so that when the string burned
through, the machine gun fell and was triggered by the stick and began fring (while still
being held by the cord).
Plug a sulfuric acid leak with chocolate. MacGyver stated that chocolate contains sucrose
and glucose. The acid reacted with the sugars to form elemental carbon and a thick
gummy residue. (NB this was subsequently proven to work, as demonstrated on the show
Mythbusters.)
Make a rocket thruster by hitting a fare gun with a rock, launching MacGyver and a
man he rescued off of a mountain, whereupon he opened a parachute and made a clean
getaway.
Create a bomb to open a door using a gelatin cold capsule containing sodium metal,
which he placed in a glass jar flled with water. When the gelatin dissolved, the sodium
reacted violently with the water and caused an explosion which blew a hole in the wall.
Impressive stuff. Its no wonder he ended up becoming a verb. But to witness perhaps his
greatest-ever escape, afford yourself two minutes to watch THIS little stunt to see how
MacGyver escaped from his own coffn.
I couldnt help but think of MacGyver this past week
as I sat chatting with a colleague about the situation
Japan now fnds itself in.
I wont recap the details of the straitjacket into
which the Japanese have been strapped for the past
two decades enough ink has been spilled on that
subject already, including in a recent Things That
Make You Go Hmmm... entitled Avenomics but
my conversation this week stemmed from the following statement, made by me to myself,
as I leaned back in my chair after reading an article about proposed changes to the GPIF
(Government Pension Investment Fund), Japans public pension fund:
Japan really is totally f*****.
What led me to that well-thought-out and eruditely expressed conclusion? Read on.
In case you are not familiar with the GPIF, it is the largest pool of government-controlled
investment capital on the planet outstripping even the infamous Arab sovereign wealth funds.
The GPIF controls 128.6 trillion, or $1.25 trillion, and to say the organization is somewhat risk-
averse is akin to calling the Kardashian family somewhat shameless.
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The GPIF holds almost 70% of its assets in bonds and the vast majority of them are of the
local variety. The reason for this? Well that would be because the GPIF is (and has always
been) run by bureaucrats from the Ministry of Health, Labour & Welfare, as opposed to, say,
investment professionals.
But thats probably no bad thing, because no investment professional worth his salt would
have bought so many JGBs; so if GPIF didnt buy them, THAT would be a big problem for the
Japanese government AND the BoJ.
Short-Term Assets Int'l Bonds
Int'l Stocks Domestic Stocks Domestic Bonds
Japan GPIF Allocations
as at June 2013
Source: GPIF
How did that allocation to domestic bonds do last year? Well, as it turns out, not so great:
Q1 2013 Q2 2013 Q3 2013 Q4 2013 Total 2013
Domestic Bonds -1.48 1.18 0.18 - -0.14
Domestic Stocks 9.70 6.07 9.19 - 27.05
Intl Bonds 4.01 1.64 8.16 - 14.34
Intl Stocks 6.14 7.13 16.23 - 32.17
Source: GPIF
Fortunately, over the last twelve years the GPIF has managed to meet its targets by growing
at an annualized rate of 1.54%.
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Thankfully for the GPIF, despite their largest allocation throwing off negative returns, the BoJs
actions in weakening the yen boosted the Nikkei, and the central-bank-inspired strength in
equities and bonds elsewhere in the world helped GPIFs performance to pass the smell test for
2013.
Now, when it comes to bureaucracy, Japan is in a league all of its own. My frst up-close
experience of this came in 1989 when I went to get a drivers license after moving to Tokyo.
Anybody who has attempted to complete that fairly straightforward objective in Japan knows
that it requires the best part of a day traipsing upstairs and down between several counters,
getting the same piece of paper stamped by numerous people in a very specifc order. Several
visits are required to the same person but only in the correct order.
Maybe this process has changed 25 years on, maybe it
hasnt. Im willing to bet on the latter.
Anyway, amongst themselves, foreigners in Japan have
a saying which strikes at the very heart of this little
bureaucratic problem:
Everything makes sense once you realize Japan is a
communist country.
Aki Wakabayashis book Komuin no Ijona Sekai (The
Bizarre World Of The Public Servant) sprang from her 10 years working at a Labour Ministry
research institute and lifted the lid on some of the peccadilloes of Japans civil service.
Wakabayashi told of being scolded for saving
her department 200 million, as her effort
put that amount in jeopardy for the following
years budget allocation; of senior managers
taking female subordinates on frst-class, round-
the-world trips to study labour conditions in
other countries; and of the mad dash by all
departments to spend unused budget before
year-end the collective result of which saw
monthly total expenditures by government
agencies jump from 3 trillion in February to 18 trillion in March.
The facts unearthed by Wakabayashi are remarkable:
(Japan Times): The national average annual income of a local government employee
was 7 million in 2006, compared to the 4.35 million national average for all
company employees and the 6.16 million averaged by workers at large companies.
Their generosity to even their lowest-level employees may explain why so many local
governments are effectively insolvent: Drivers for the Kobe municipal bus system are
paid an average of almost 9 million (taxi drivers, by comparison, earn about 3.9
million).
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School crossing guards in Tokyos Nerima Ward earned 8 million in 2006. (Such
generosity to comparatively low-skilled workers may explain why in the summer of 2007
it was discovered that almost 1,000 Osaka city government employees had lied about
having college, i.e., they had, but did not put it on their resumes because it might have
disqualifed them from such jobs!) Furthermore, unlike private sector companies, public
employees get their bonuses whether the economy is good or bad or, in the case of the
Social Insurance Agency, even after they lose the pension records of 50 million people
(2008 year-end bonuses for most public employees were about the same as 2007, global
economic crisis notwithstanding).
In addition to their generous salary and bonuses, public servants get a wealth of extra
allowances and benefts. Mothers working for the government can take up to three
years maternity leave (compared to up to one year in the private sector, if you are
lucky). Some government workers may also get bonuses when their children reach
the age of majority, extra pay for staying single or not getting promoted, or travel
allowances just for going across town. Perhaps the most shocking example Wakabayashi
offers is the extra pay given to the workers at Hello Work (Japans unemployment
agency) to compensate them for the stress of dealing with the unemployed.
Japans bureaucracy is extreme but hardly unique, so I wont dwell on its absurdities; but these
examples at least give us some background for understanding the GPIF.
The decision-making chart of the organization is a masterclass in Japanese process. Where
else would you have specifc departments responsible for demands for improvements and
deliberations?
Source: GPIF
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Back in November 2013, a seven-member panel led by a Tokyo University professor Takatoshi Ito
and convened by PM Shinzo Abe published its fnal recommendations for the future of the GPIF,
and those fndings set the behemoth on a course into far more turbulent waters:
(Pensions & Investments): The panels Nov. 20 fnal report said the GPIFs 60% allocation
to ultra-low-yielding Japanese government bonds defensible in the defationary
environment of the past decade should not be maintained in the infationary one Mr.
Abe has promised as a centerpiece of his quest to revive Japans economy.
The seven-member panel ... urged the GPIF and other big public funds in Japan to
diversify into real estate investment trusts, real estate, infrastructure, venture capital,
private equity and commodities, while shifting more assets to active strategies from
passive and adopting a more dynamic approach to asset allocation.
Governance of those public funds, with combined assets of roughly $2 trillion, should be
strengthened by making them more independent of the ministries that oversee them.
Now, its extremely hard to fault the logic underpinning the recommendations made by Itos
panel though naturally, with this being Japan...
Some observers noting that previous calls for reform had come to naught urged
caution.
The recommendations make sense, but the challenges of revamping investments at a
fund controlling such a large chunk of Japanese retirement savings will be considerable,
warned Alex Sato, president and CEO of Tokyo-based Invesco (IVZ) Asset Management
(Japan) Ltd.
To put the size of the GPIF into perspective, should the decision be made to allocate a mere 5%
of its assets to a particular asset class, that would require the deployment of $60 billion.
The redeployment of those holdings of JGBs is likely to cause future problems, but that didnt
concern one of the GPIF panel members, Masaaki Kanno, an economist at JP Morgan in Tokyo,
who, after the fndings were published, made a couple of predictions:
(P&I): In a Nov. 20 research note, Mr. Kanno predicted the GPIF would be permitted
enough fexibility to allow allocations to yen bonds to drop to 50% by the summer of
2014.
The Bank of Japans recent policy initiative to food the market with liquidity,
meanwhile, could set the stage for a seamless transfer of that huge amount of Japanese
government bonds, Mr. Kanno said.
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28 april 2014
Eventually, Japanese government bonds should drop to between 30% and 40% of the
GPIFs portfolio higher than the 20% to 30% range typical of leading public pension
funds abroad to account for Japans rapidly aging demographic profle, Mr. Kanno said.
Meanwhile, another 30 trillion ($300 billion), or a quarter of the funds assets, should
eventually shift into risk assets, according to the J.P. Morgan report.
The BoJ certainly does have a policy initiative to food the market with liquidity, but that
policy initiative is the continuation and expansion of a policy that has been in operation for 20+
years namely, the purchasing of the governments own debt with freshly printed yen.
In 2001 the Japanese termed it ryteki kiny kanwa, but today everybody knows it as
quantitative easing.
In a paper which analyzed Japans initial experimentation with QE, published in February
2001, Hiroshi Fujiki, Kunio Okina, and Shigenori Shiratsuka (all three senior BoJ economists)
suggested that once a zero interest rate had been reached, if the situation still appeared dire,
MacGyvering an alternate solution might not be the greatest idea in the world:
(Monetary Policy under Zero Interest Rate: Viewpoints of Central Bank Economists):
[F]urther monetary easing beyond the zero interest rate policy, most typifed by the
outright purchase of long-term government bonds, should be viewed as a bet which
we would only be forced to explore in the event the Japanese economy stands on the
brink of serious defation. Considering the uncertainty and risks surrounding these
unconventional measures, it is quite inappropriate to introduce them merely on an
experimental basis. Of course, this does not mean that further monetary easing may not
be warranted in any circumstances, nor that other easing measures not covered in this
paper are infeasible...
0
4,000
8,000
12,000
16,000
Bank Of Japan Outright JGB Purchases
1996 - 2014
1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

1
0

b
i
l
l
i
o
n
Source: Bloomberg
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28 april 2014
What the hell did those guys know, anyway?
Indeed. As if looking into some sort of crystal ball, Messrs. Fujiki, Okina, and Shiratsuka
continued:
With regard to monetary policy in Japan, there seems to be some oversimplifed idea
that the adoption of infation targeting would be a panacea for current economic
diffculties. This should remind central bankers, who must make policy decisions on a
real-time basis amid drastic structural transformation, of the unfruitful traditional
rule versus discretion debate in terms of monetary policy implementation.
Perhaps Abe and Kuroda prefer watching reruns of Friends to perusing BoJ policy
recommendations?
The subsequent expansion of the BoJs QE policy can be seen clearly in the chart on the
previous page. It highlights beautifully the problem with heading down the treacherous QE trail:
ever-increasing amounts of money must be printed to keep the wheels turning.
Once you start, to stop is not a decision that is made by you, but rather it eventually gets made
for you. In the meantime, your balance sheet just swells and swells. The BoJs has increased
almost fve-fold since 1997 and is up 80% since the beginning of 2012:
0
50000
100000
150000
200000
250000
1997 1999 2001 2003 2005 2007 2009 2011 2013 2014
Source: Bloomberg
Bank Of Japan Balance Sheet
1997 - 2014
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... and, if youre Japan, your monetary base goes vertical:
0
20
40
60
80
100
120
140
160
180
200
220

t
r
i
l
l
i
o
n
1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Source: Bloomberg
Japan Monetary Base
1996 - 2014
Thats three very similar charts, but the next one looks nothing like the preceding ones:
116
118
120
122
124
126
128
130
1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 2020
IMF Japan Total Population (millions)
1980 - 2019e
IMF
Estimate
We Are
HERE
Source: Bloomberg
And therein, as The Bard (who celebrated his 450th birthday this week) almost once said, lies
the rub.
Japans population is actually declining fast. And under the crush of that breaking statistical
wave, everything gets harder for Japan.
Japans population pyramid looks more like a top-heavy baking dish. There are already more
over-65s than under-24s; but it is estimated that by 2060 Japans population will have fallen
from 128 million to 87 million, and roughly half of those remaining will be over 65.
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Male Female
5 5 4 4 3 3 2 2 1 1 0 0
Age Group Population (in millions) Population (in millions)
100+
95 - 99
90 - 94
85 - 89
80 - 84
75 - 79
70 - 74
65 - 69
60 - 64
55 - 59
50 - 54
45 - 49
40 - 44
35 - 39
30 - 34
25 - 29
20 - 24
15 - 19
10 - 14
5 - 9
0 - 4
Japan Population Pyramid
2013
Source: CIA World Factbook
The ONLY answer for Japan is immigration lots of it but that, I am afraid, is a total non-
starter for the insular Japanese. The depopulation problem already loomed on the horizon
like a distant oil tanker in 1989 when I lived in Tokyo. What has changed since then is that the
tanker has now docked.
In 2003, it was estimated by the UN that Japan would need 17 million new immigrants by 2050
to avert a collapse of the very pension system were examining this week. Those immigrants
would amount to 18% of the population in a country where immigrants currently amount to...
wait for it... 1%.
It gets worse.
Of that 1%, most are second- or third-generation Koreans and Chinese, descendants of people
brought to Japan from former colonies.
As of October 1, 2013, there were all of 1.59 million
foreigners in Japan, and that is after net immigration
ROSE for the frst time in 5 years, with 37,000 new
immigrants taking a bit of the sting out of the 253,000
decrease in Japanese citizens in 2013.
So... Japans fate is set. In coming years the ageing
population will be drawing down its pension funds at
an ever-increasing pace, even as the largest pension
fund in the world is being forced by the government
into allocating more of those funds to riskier assets
in order to try to stimulate growth in the moribund
economy.
2002 2004 2006 2008 2010 2012 13
100
50
0
-50
-100
Global
Financial
Crisis
Kansai
Earthquake
Net Change In Japans Foreign Population
(thousands of people) 2002 - 2013
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Meanwhile, the Bank of Japan is embarking on an experiment in monetary prestidigitation the
likes of which has never before been seen; and in order for it to be successful they will need
the GPIF to not only not SELL JGBs but to BUY MORE of them.
In addition, Shinzo Abe is promising the Japanese (and every holder of JGBs, which are yielding
a paltry handful of basis points) that he will generate 2% infation, thus rendering their JGB
holdings completely useless.
The whole thing is madness madness built on the promise of the delivery of a dream.
Already the BoJ is buying up to 85% of some JGB issuances, and an estimated 91% of Japanese
bonds are held domestically. What do you think happens when the GPIF turns from buyer to
seller?
Uh-huh. The BoJ will have its work cut out to maintain order.
How tenuous is the BoJs grip on their bond market?
Well, last month the BoJ announced that it would be buying just 170 bn of long-term bonds
instead of the 180 bn the market expected. The result?
(FT): Traders explanations for a sudden surge in yields at about 10:15 am in Tokyo
ranged from a fat fnger trade in JGB futures which saw prices for June delivery
drop one whole point from 144.80 to 143.80 to a simple sell-off exacerbated by
algorithmic trading.
But there was no doubt about the trigger: a 10:10 am announcement from the central
bank that it was looking to buy Y170bn of long-term bonds, rather than the Y180bn the
market had expected.
I think the BoJ has induced some form of unwarranted volatility, which is not being
taken kindly by the market, said Shogo Fujita, chief Japan bond strategist at Bank of
America Merrill Lynch in Tokyo. With rates near zero the only thing the BoJ can do is to
contain volatility, and today theyre doing a very poor job.
Mark my words, this is going to end VERY badly. Very badly indeed.
PAGING MR. KYLE BASS! MR. BASS TO THE FRONT DESK, PLEASE:
(Beacon Reports): KYLE BASS: That plan, one of the three arrows in Abes growth
strategy (called Abenomics), has the BOJ buying just over 60 trillion of new bonds
each year for the next two years. It effectively doubles Japans monetary base.
Considering the likely fscal defcit for this year and next is running about 50 trillion
each year, or close to 11% of GDP, I think the BOJ can only buy another 10 or 12 trillion
of JGBs. I dont think that cushion is going to be enough to monetize the entire fscal
defcit if they are going to be the buyer of last resort.
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The key question is, will the BOJ be able to hang on to rates? I think they can in the
near-term and I think they cant in the medium to long-term. If investors holding JGBs
actually believe that Abenomics will work, then it creates a problem the Rational
Investor Paradox where investors rationally sell some of their JGBs because they are
being told to expect negative real rates of return if the administration achieves its 2%
CPI target.
Whether that means they sell some or all of them is up to the individual sellers. One
bank sold more than 20% of its JGB ownership in the frst quarter. If 5% of owners sell,
thats another 50 trillion. The reason youre seeing so much bond market volatility,
even though the BOJ is actively trying to keep a lid on rates, is that the BOJ is being
overwhelmed by selling despite its large purchase program.
Bravo, Kyle.
Kyle brings up the topic of Abenomics and Abes fabled three arrows, which supposedly, once
fred, would magically fx all Japans woes.
The frst arrow, massive monetary easing, has been launched; and, depending on how you
measure these things, it has either been a magnifcent success or has put the fnal nail in
Japans coffn. Optically, it has done what was intended (weaken the yen, pump up the Nikkei,
and pull JGB yields even lower), so the Japanese government is counting that one in the win
column. Me? I think, once hindsight can take a look at Japan properly, Abes QE will be seen as
an arrow shot right through the faintly beating heart of the country, fnally killing it. But well
have to wait and see.
The second arrow is the targeted 10.3 trillion ($116 billion) of fscal support that includes
investment in ageing infrastructure and tax breaks to encourage R&D, the hiring of new
employees, the raising of wages, and the buying of capital equipment. That arrow too has been
fred, and the jury is once again decidedly out on whether any long-term success will result.
That leaves Abes third arrow.
Before we get to that one, a little story of how the
policy got its name.
In 16th-century Japan, according to legend, a daimyo
(feudal lord) named Motonari Mri told each of his
three sons to break an arrow in half. Each of them
duly did as their father bade them. Mri then told his
sons to tie three arrows together in a bundle and try to
break all three at once.
None of them were successful.
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Do you see what Abe and his advisors were doing here? Isnt it brilliant? Such a wonderful
allegory. Who wouldnt buy into that idea? Well, the Japanese certainly did (up to a point); and
foreign investors, guaranteed a sinking yen and a rising Nikkei, also came to the party though
one cant help but think they have a taxi waiting outside and wont be sticking around for the
slow dancing.
But theres still that damned third arrow.
That is the one that involves real, structural change; and Im sorry to have to be the one to
mention it, but the Japanese dont do real structural change.
This brings me to our other Mac for today.
Abes third arrow is little more than an ingenious device designed to keep the watching world
focused on something that will ultimately prove irrelevant to the plot.
In movie parlance, its a MacGuffn:
(Wikipedia): [A] MacGuffn is a plot device in the form of some goal, desired object,
or other motivator that the protagonist pursues, often with little or no narrative
explanation. The specifc nature of a MacGuffn is typically unimportant to the overall
plot. The most common type of MacGuffn is an object, place or person; other types
include money, victory, glory, survival, power, love, or other things unexplained.
The MacGuffn technique is common in flms, especially thrillers. Usually the MacGuffn
is the central focus of the flm in the frst act, and thereafter declines in importance.
It may re-appear at the climax of the story, but sometimes is actually forgotten by the
end of the story.
Sound familiar?
Think of Abes third arrow as Citizen Kanes sled or
Pulp Fictions briefcase a plot point that initially
assumes tremendous importance but fades into
irrelevance by the end of the movie.
Abe has done a masterful job at getting the world to
buy into his reform program, but the world was only
too ready to do so after two decades of false dawns in
Japan.
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The Japanese public were ready for their country to cast off the shackles of defation
(although, to a population ageing as fast as the Japanese are, a little defation is a wonderful
thing), and investors around the world were happy to believe that this was fnally going to be
the time when buying the Nikkei would lead to outperformance (providing your currency was
hedged, of course). FX traders just wanted a central bank-backed trade to put on.
But as with all central bank-inspired moves, the reality here is not all about reform and
structural change, but rather about a group of investors simply front-running the BoJs largesse.
The investment community will play ball until the moment juuuuuuust before the crashing
realization dawns that Abe cant fre his third arrow and then theyll say thank you for the
free ride and exit stage left.
Preliminary committee fndings which suggested that radical overhaul of Japanese employment
law, healthcare, and agricultural policy be part of the third arrow were watered down, and a
vague compromise was wafted in front of the world with the promise of so much more to
follow.
In an interview with CNNs Fareed Zakaria earlier this year, Abe explained the true signifcance
of the third arrow:
What is important about the third arrow, structural reform, is to convince those who
resist the steps I am taking and to make them realize that what I have been doing is
correct, and by so doing, to engage in structural reform.
Read that again.
Yes folks, the important part of structural reform in Japan is to convince people that Abe is
correct. If he can convince them he is right, they will have engaged in structural reform.
Confused?
You should be.
This is how Japan works or doesnt.
Immigration reform has been widely recognized as the
only answer to Japans crippling demographic problem
for well over three decades. Nothing has been done
about it.
How about the Wage Surprise increasing wages
on a national basis hailed by Abe as the key to
lifting Japan out of the doldrums, and a key feature of
Abenomics?
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(Bloomberg, March 4, 2014): Japans salaries increased for the frst time in almost two
years in January as companies boosted pay for part-timers, aiding Prime Minister Shinzo
Abes effort to end 15 years of defation.
Base pay excluding bonuses and overtime rose 0.1 percent from a year earlier, the frst
gain in 22 months, the labor ministry said in Tokyo today.
Yep, a 0.1% increase in base pay. However...
Overall pay fell 0.2 percent, the frst drop in three months.
Doh!
Subsequently, Japans wages have seen modest increases, with base pay increases hitting 16-
year highs. Good, I hear you cry. Well yes, only, that 16-year high equates to a 2.39% rise
not QUITE enough to make up for the 3% consumption tax increase which kicked in on April 1.
If Keynesian loon former BoE policymaker Adam Posen is to have his way, those wages had
better start spiraling up fast:
(WSJ): The goal of Abenomics, Mr. Posen said, is not to make Japan richer or improve its
fscal position. Rather, its to establish a strong base from which Japan can help remake
the Asian order in coming years a nice way of saying that the ultimate purpose is to
enable Japan and its neighbors not to be dominated by China.
Theres a window of about a decade to remake Japans economy toward that goal, Mr.
Posen said, but over that time it needs to average economic growth of about 1.75% a
year and raise its consumption tax to 20%.
Markets will eventually tire of Abes continual promises that more is coming, so he desperately
needs to somehow break the entrenched defationary attitude in Japan.
(WSJ): In a survey of 1,000 consumers on March 29-30 by broadcaster Fuji News
Network, 69% said they had not made any special purchases ahead of the sales tax rise,
and 77.4% said they didnt feel an economic recovery was under way.
Good luck with that attitude problem, Shinzo.
This week we got a look at how Abe is faring with one of his promises, that of guaranteed 2%
infation.
Core CPI (excluding food and energy) rose 1.3% in March unchanged from the previous month
and lower than analyst forecasts.
Of course, that was taken as a sign that further easing by the BoJ would be forthcoming...
And round and round it goes... until it stops.
The briefcase in Pulp Fiction ONLY works because we DONT fnd out what is in it.
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Abes third arrow can be loaded into the bow, but it cant be fred once and for all, because if
it IS fred, the game is up. There will still be continual promises of more to come, and markets
may buy into that for a while; but, like all central bank-induced boom times, Abenomics has
a shelf life, and that is nearing an end.
The changes at the GPIF are potentially disastrous, and
Kurodas BoJ and Abes government are desperately
trying to MacGyver their way out of an impossible
situation, armed only with hollow promises and faith,
when what they really need is duct tape and a Swiss
army knife.
When asked by Franois Truffaut in a 1966 interview
how he would describe a MacGuffn, Alfred Hitchcock
illustrated it perfectly with this story:
It might be a Scottish name, taken from a
story about two men on a train. One man says,
Whats that package up there in the baggage
rack? And the other answers, Oh, thats
a MacGuffn. The frst one asks, Whats a
MacGuffn? Well, the other man says, its
an apparatus for trapping lions in the Scottish
Highlands. The frst man says, But there are
no lions in the Scottish Highlands, and the
other one answers, Well then, thats no MacGuffn! So you see that a MacGuffn is
actually nothing at all.
Abenomics is a plan by which to change Japanese behaviour; but as anyone who has spent any
time in that wonderful, perplexing country will tell you, the Japanese do NOT change their
behaviour even when facing a demographic disaster.
Sorry, but Abenomics is actually nothing at all.
*******
Right then, after that little lot, its time to get to the rest of this weeks Things That
Make You Go Hmmm..., and we kick things off with suspicions surrounding a Chinese export of a
slightly different kind than those we are used to. From there we head to Rome to fnd a mighty
city in decay; to the US, where an astonishing one in ten bridges is in need of repair; and to
France to read about the man of the moment, Thomas Piketty.
The BRICS are on the verge of making a big move of their own; and heading back to China, we
ask the question What if China has a Fukushima? and fnd a property market swiftly falling to
earth.
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The article that kicked off this weeks TTMYGH can be found on page 26, and Ive thrown in an
irresistible story from The Onion for good measure. See if you can guess which one it is.
Charts? Well, food infation, crop and water stress, and Chinese gold consumption take care of
those, which leaves only the interviews; and this week we have a couple of crackers, beginning
with my friend Bill Kaye from Hong Kong.
After Bill we get to hear from the brilliant Pippa Malmgren, and theres even room for yours
truly to squeeze his ugly mug in at the bottom of the page.
Until Next Time...
*******
Suspicion grows that China is exporting defation worldwide
by driving down yuan
The Chinese Yuan weakened yet again this morning, punching through the key line of 6.25
against the dollar. It is almost back to where it was two years ago. This is the biggest story in
the global currency markets.
Yuan devaluation has reached 3.1pc this year. The longer this goes on, the harder it is to accept
Beijings story that it is one-off measure to teach speculators a lesson and curb hot money
infows.
The US Treasury clearly suspects that the Chinese authorities have reverted to their
mercantilist tricks, driving down the exchange rate to keep struggling exporters afoat. Offcials
briefed journalists in Washington two weeks ago in very belligerent language.
The Treasurys currency report this month accused China of trying to impede the market by
boosting foreign reserves by $510bn last year to $3.8 trillion excessive by any measure.
It gave a strong hint that China is disguising its reserve accumulation. You dont have to dig
hard. Simon Derrick from BNY Mellon said a recent buying spree of US Treasuries and agency
debt by Belgium of all places looks like a Chinese front.
Holdings by entities in Belgium have jumped to $341bn from $169bn last August. This would
appear to explain how Chinas FX reserves have kept rising to $3.95 trillion even as its custody
holdings in the US itself have been falling. If so, China is playing dirty pool.
Hans Redeker from Morgan Stanley says China seems to have adopted a beggar thy neighbour
policy to counter the slowdown at home and soak up excess manufacturing capacity.
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Albert Edwards from Societe Generale said in a note today that China is sliding inexorably
towards defation. Factory gate prices have been falling for 25 months in a row.
The GDP defator which proved a much better gauge of trouble at the onset of Japans Lost
Decade than consumer prices has plummeted from 1.4pc to 0.4 over the last year.
This means that Chinas nominal GDP growth has dropped to just 7.4pc and is nearing the
levels of the post-Lehman trough. This is the indicator that matters for the solvency of Chinas
heavily-indebted companies.
Mr Edwards said the next shoe to drop in world the economy (leaving aside the Donbass) is a
systematic attempt by China to export its defation to any other sucker willing to accept it by
driving down the yuan.
Those countries that have failed to build adequate defences by keeping infation safely above
1pc could face a nasty shock when this happens. The eurozone looks like the sucker of last
resort. A Chinese defationary tide would push Southern Europe over the edge.
Perhaps that is why the ECBs Mario Draghi sounded ever more alarmed today in his efforts to
talk down the euro today.
I take no view on how far China intends to go with this. It may reverse course any time. I
merely pass on SocGens view for readers to think about.
Nor have I made up my mind whether the yuan is correctly valued. Diana Choyleva from
Lombard Street Research says it is 15pc to 25pc overvalued as a result of surging wages and
poor productivity growth....
*** AMBROSE EVANS-PRITCHARD / LINK
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BRICS countries to set up their own IMF
The BRICS countries (Brazil, Russia, India, China and South Africa) have made signifcant
progress in setting up structures that would serve as an alternative to the International
Monetary Fund and the World Bank, which are dominated by the U.S. and the EU. A currency
reserve pool, as a replacement for the IMF, and a BRICS development bank, as a replacement
for the World Bank, will begin operating as soon as in 2015, Russian Ambassador at Large Vadim
Lukov has said.
Brazil has already drafted a charter for the BRICS Development Bank, while Russia is drawing up
intergovernmental agreements on setting the bank up, he added.
In addition, the BRICS countries have already agreed on the amount of authorized capital
for the new institutions: $100 billion each. Talks are under way on the distribution of the
initial capital of $50 billion between the partners and on the location for the headquarters
of the bank. Each of the BRICS countries has expressed a considerable interest in having the
headquarters on its territory, Lukov said.
It is expected that contributions to the currency reserve pool will be as follows: China, $41
billion; Brazil, India, and Russia, $18 billion each; and South Africa, $5 billion. The amount of
the contributions refects the size of the countries economies.
Russia to launch domestic alternative to Visa and Mastercard Russia to launch domestic
alternative to Visa and Mastercard
By way of comparison, the IMF reserves, which are set by the Special Drawing Rights (SDR),
currently stand at 238.4 billion euros, or $369.52 billion dollars. In terms of amounts, the BRICS
currency reserve pool is, of course, inferior to the IMF. However, $100 billion should be quite
suffcient for fve countries, whereas the IMF comprises 188 countries which may require
fnancial assistance at any time.
The BRICS countries are setting up a Development Bank as an alternative to the World Bank
in order to grant loans for projects that are benefcial not for the U.S. or the EU, but for
developing countries.
The purpose of the bank is to primarily fnance external rather than internal projects. The
founding countries believe that they are quite capable of developing their own projects
themselves. For instance, Russia has a National Wealth Fund for this purpose.
Loans from the Development Bank will be aimed not so much at the BRICS countries as for
investment in infrastructure projects in other countries, say, in Africa, says Ilya Prilepsky, a
member of the Economic Expert Group. For example, it would be in BRICS interest to give a
loan to an African country for a hydropower development program, where BRICS countries could
supply their equipment or act as the main contractor.
If the loan is provided by the IMF, the equipment will be supplied by western countries that
control its operations.
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The creation of the BRICS Development Bank has a political signifcance too, since it allows its
member states to promote their interests abroad. It is a political move that can highlight the
strengthening positions of countries whose opinion is frequently ignored by their developed
American and European colleagues. The stronger this union and its positions on the world arena
are, the easier it will be for its members to protect their own interests, points out Natalya
Samoilova, head of research at the investment company Golden Hills-Kapital AM.
Having said that, the creation of alternative associations by no means indicates that the
BRICS countries will necessarily quit the World Bank or the IMF, at least not initially, says Ilya
Prilepsky.
In addition, the BRICS currency reserve pool is a form of insurance, a cushion of sorts, in the
event a BRICS country faces fnancial problems or a budget defcit. In Soviet times it would have
been called a mutual beneft society, says Nikita Kulikov, deputy director of the consulting
company HEADS. Some countries in the pool will act as a safety net for the other countries in
the pool....
*** RBTH / LINK
FBI Uncovers Al-Qaeda Plot to Just Sit Back and Enjoy
Collapse of United States
Putting the nation on alert against what it has described as a highly credible terrorist threat,
the FBI announced today that it has uncovered a plot by members of al-Qaeda to sit back and
enjoy themselves while the United States collapses of its own accord.
Multiple intelligence agencies confrmed that the militant Islamist organization and its
numerous affliates intend to carry out a massive, coordinated plan to stand aside and watch
Americas increasingly rapid decline, with terrorist operatives across the globe reportedly
mobilizing to take it easy, relax, and savor the spectacle as it unfolds.
We have intercepted electronic communication indicating that al-Qaeda members are
actively plotting to stay out of the way while America as we know it gradually crumbles under
the weight of its own self-inficted debt and disrepair, FBI Deputy Director Mark F. Giuliano
told the assembled press corps. If this plan succeeds, it will leave behind a nation with a
completely dysfunctional economy, collapsing infrastructure, and a catastrophic health crisis
afficting millions across the nation. We want to emphasize that this danger is very real.
And unfortunately, based on information we have from intelligence assets on the ground, this
plot is already well under way, he added.
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A recently declassifed CIA report confrmed that all known al-Qaeda-affliated organizations
from Pakistan to Yemen, and from Somalia to Algeria have been instructed to kick back and
enjoy the show as the United States federal government, energy grid, and industrial sector are
rendered impotent by internal dissent, decay, and mismanagement. According to statements
made by top-level informants and corroborated by leading Western terrorism experts, if seen
through to its conclusion, al-Qaedas current plot could wreak far more damage than the events
of 9/11.
In the past year, money transfers to al-Qaeda cells around the world have reportedly been
accompanied by instructions to use the funds to outft safe houses with the proper equipment
to receive American cable news broadcasts and view top U.S. news websites, allowing terrorists
to fully relish each detail of the impending demise of the last global superpower.
Additionally, FBI offcials made public an internal al-Qaeda video today in which the terrorist
organizations leader Ayman al-Zawahiri chillingly exhorts his followers to take a load off and
unwind in the name of jihad, and really cherish the victory over their enemy.
Praise Allah, for soon every American city shall be plagued with disaster and hardship, al-
Zawahiri said in the video, which includes several minutes of footage of young, masked al-
Qaeda militants casually sipping beverages as they thumb through the latest issues of Time
and U.S. News and World Report. The infdels have brought this pain and destruction upon
themselves through their arrogance and callousness. Soon, the United States will watch in
horror as its bridges crumble, its desperate citizens suffer in want of medicine and paying
employment, and its once vast riches are reduced to naught. The righteous warriors among our
ranks must now unite, get comfortable, and look on from afar at the calamity unfolding in the
West.
We vow that we will not cease sitting around and laughing it up until America is reduced to
rubble, he continued....
*** THE ONION / LINK
The Downfall of Rome: Can a New Mayor Stop the Citys
Decline?
The Leonardo Express rumbles from Romes airport right to the city center. After 32 minutes, it
arrives at its fnal destination, Termini, the citys central station. An ad in a pedestrian tunnel
at the station reads, Roma Termini a Place to Live. Some have taken the message quite
literally.
Its 11:10 p.m. Stranded people from around the world are wrapped up in their sleeping bags as
they lay in front of the exit on the north side of the station. On some nights, up to a hundred
homeless huddle together like freezing people in front of a fre. Many of those who sleep here
are African refugees.
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During the daytime, Roma from Romania represent the majority in and around the station. Left
largely unchecked by the local authorities, they aggresively try to squeeze money out of foreign
tourists.
A comment by one British tourist recently got posted on the Facebook page of Ignazio Marino,
who became the citys mayor in June. The tourist said she had never before experienced a
more wretched hive of scum and villainy than when she arrived in Rome by train. For safety
reasons, she wrote, it is advisable to spend as little time as possible at Termini.
Marino takes criticism seriously, but also in a sporting manner. As he sits at his desk in Romes
Palace of the Senate on Capitoline Hill, a building once remodeled by Michelangelo, he exudes
the aura of a man at peace with himself. Two months ago, he was still cursing his opponents
who, he says, wanted to let the Eternal City go up in fames just as Emperor Nero did. At
the time, Marino made clear that he wasnt prepared to play the role of the capital citys
liquidator-in-chief.
What had happened? Rome was on the verge of bankruptcy and the mayor said the only way to
possibly rescue the city would be for the national government to jump in with emergency aid to
the tune of 600 million ($829 million) within 24 hours. Marino got his wish and the city didnt
go up in fames. Standing beneath a photo that shows him in an intimate embrace with Pope
Francis, the mayor now says he wants to move forward. After all, he adds, spotlights from
around the world will be shining on Rome on April 27, and 2 billion people will be watching on
their televisions.
On Sunday, the two most popular popes of the 20th century John XXIII and John Paul II are
to be canonized on St. Peters Square by Pope Francis. Catholic pilgrims from around the world
plan to attend, and hotels in the capital city are almost entirely booked out.
For at a short time at least, Romans will be able to dream of living in a truly European city,
because the metro, for once, will fnally operate at night to help accommodate the expected
3 million visitors, the local citizens advocacy group Residents of the Historical Center notes
caustically.
The old Roman establishment feel they are being ignored by politicians and that they have been
forced to look on powerlessly as one fast food restaurant or bed and breakfast after the other
has replaced the last remaining artisan shops in the heart of the city.
More than 12 million tourists visited Rome last year, and this despite the fact that the city once
known as Caput mundi, or the capital of the ancient world, has since lost much of its splendor.
That, at least, is what many residents say.
Novelist Mauro Evangelisti warns visitors, like the pilgrims who are about to descend upon
his city, that they must brace themselves for an old airport, crooked cab drivers, swindlers,
pickpockets and streets full of potholes like in Havana. In an open letter published prior to the
last municipal election, 21 Roman intellectuals lamented what they saw as signs of the citys
downfall and cultural gloom.
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Meanwhile, Carlo Verdone, one of the leading actors in the movie that took this years honor for
Best Foreign Picture at the Oscars, The Great Beauty, even goes so far as to describe his city
as a true to scale likeness of a totally failed country.
Matteo Renzi, Italys new prime minister, is now calling for radical reforms. Since it narrowly
averted insolvency at the end of February, the capital city has, to a certain extent, been under
the yoke of the national government and the mayor has been ordered to undertake draconian
austerity measures. This is the last remaining opportunity for turning the city around, Renzis
state secretary for the economy recently said. Rome, he said, should become a shining example
for the rest of Italy to follow.
But where to begin? Upon their arrival, the frst thing some pilgrims to Rome will see is a fve-
and-a-half-meter (18 foot) tall bronze statue of Pope John Paul II. In what appears to have
been wise foresight, the former leader of the Catholic Church has his back turned to the station
forecourt, which is littered with drug addicts syringes and grocery store shopping carts that
homeless people have flled to the brim.
A wiry, bald-headed man walks right through the turmoil on a recent morning and says, The
frst thing that needs to be done is for the city to reconquer its public spaces. There is not
a single street left in the entire city where you have the feeling youre in Europe I mean,
where everything works as it should....
*** DER SPIEGEL / LINK
One in ten U.S. bridges in urgent need of repair
More than 63,000 bridges across the United States are in urgent need of repair, with most of the
aging, structurally compromised structures part of the interstate highway system, an analysis of
recent federal data has found.
The report, released on Thursday by the American Road and Transportation Builders Association,
warned that the dangerous bridges are used some 250 million times a day by trucks, school
buses, passenger cars and other vehicles.
The group, which represents the U.S. transportation construction market, analyzed recent U.S.
Department of Transportation data for its study.
Pennsylvania led the list of structurally defcient bridges, with 5,218, followed by Iowa,
Oklahoma, Missouri and California.
Nevada, Delaware, Utah, Alaska and Hawaii had the least.
Overall, there are more than 607,000 bridges in the United States, according to the DOTs
Federal Highway Administration, and most are more than 40 years old.
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The Transportation Department routinely inspects bridges and rates them on a scale of zero to
nine. Bridges receiving a grade of four or below are considered structurally defcient, and now
account for more than 10 percent of all bridges.
States rely heavily on federal funds to pay for road and bridge projects but could face funding
shortfalls by late August as the federal Highway Trust Fund draws closer to insolvency without
congressional action.
The fund, bankrolled by an 18.4 cents-a-gallon tax on gasoline and 24.4 cents-a-gallon tax on
diesel, is expected to run out of money by 2015 as fuel use in America stagnates.
Letting the Highway Trust Fund go insolvent would have a devastating impact on bridge
repairs, said Alison Premo Black, chief economist at ARTBA.
A temporary measure that provided funding for road and bridge projects for two years is set to
expire in September, and the transportation industry has urged Congress to act quickly to keep
the funds fowing.
The bridge problem sits squarely on the backs of our elected offcials, Black said. The state
transportation departments cant just wave a magic wand and make the problem go away.
The American Society of Civil Engineers, which separately produces a report card on U.S.
infrastructure every four years, gave it an overall D, or poor, grade. Bridges received a C+
grade for mediocre.
The U.S. needs to invest $20.5 billion annually to clear the bridge repair backlog, up from the
current $12.8 billion spent annually, the ACSE has said.
The civil engineers group estimates that the U.S. will need to invest $3.6 trillion by 2020 to
keep its transportation infrastructure in a good state of repair.
*** REUTERS / LINK
GPIF Shakes Up Committee With Three Abe Panel Members
Japans government pension fund overhauled its investment committee, adding three members
of a state panel that urged it to cut bonds, as the balance of power shifts at the worlds biggest
manager of retirement savings.
Yasuhiro Yonezawa, who sat on the group handpicked by Prime Minister Shinzo Abe that
recommended a strategy and governance revamp at Japans 128.6 trillion yen ($1.25 trillion)
Government Pension Investment Fund, will join the committee, the health ministry said.
Yonezawa, 63, is expected to be named head, according to media reports. Sadayuki Horie and
Isao Sugaya were also appointed, with only two of 10 previous members remaining and the
committees size reduced to eight.
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Several stages are needed to change GPIFs governance structure, and the frst is to change
its investment committee members, Takatoshi Ito, who headed the advisory group, said in
an interview on April 17. Our panel advised that the investment committee should hold more
power, as the fund currently has no board of directors.
The appointments suggest the ministry is heeding the directives of Itos group amid mounting
pressure on GPIF to cut reliance on domestic bonds as pension payouts swell and Abe and the
Bank of Japan seeks to spur price gains. GPIF has already implemented several of the panels
recommendations, including readying to diversify into areas such as infrastructure, adopting
benchmarks like the JPX-Nikkei Index 400 for domestic stocks and preparing to hire in-house
investment experts at market rates.
The health ministry appoints the members of the committee, which monitors the
implementation of GPIFs policies and advises the president.
Yonezawa, a professor at Waseda Universitys Graduate School of Finance, is also on a
21-member advisory group helping the ministry of health conduct a fve-yearly review of public
pensions due this year, which may lead to a change in asset allocations. He sits on a 10-member
ministry committee that set GPIFs new return target of 1.7 percent plus the rate of wage
growth last month and said the fund no longer needs a domestic-bond focus.
Im convinced that he will work in line with our panels report to enhance GPIFs investment
and strengthen its risk management and governance, said Masaaki Kanno, chief Japan
economist at JPMorgan Chase & Co., who was also a member of Itos group.
Yonezawa is expected be named chairman of the investment committee, according to reports
by the Nikkei newspaper and Kyodo News on April 19.
Horie is a senior researcher at Nomura Research Institute Ltd. and previously worked for
Nomura Asset Management Co. Sugaya, 61, is managing director at the Japan Trade Union
Confederation, known as Rengo.
Two women have been appointed: Junko Shimizu, a professor of international fnance at
Gakushuin University in Tokyo, and Yoko Takeda, chief economist at Mitsubishi Research
Institute Inc. Also joining the group is Setsuya Sato, a professor in the English communications
department at Toyo University who also served as a fnancial adviser to the World Bank and
public policy director at UBS AG.
The remaining two are Hiromichi Oono, a board member at Ajinomoto Co. and Kimikazu Noumi,
president and chief executive offcer at Innovation Network Corporation of Japan.
Itos panel recommended in November that legislation be enacted to give GPIF independence
from the health ministry, which has ultimate responsibility for the fund. As a transitional
measure until the law is passed, multiple members of the investment committee should be
hired full-time, according to the panel. The health ministrys statement made no mention of
full-time offcials.
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A system where GPIFs head has sole decision-making power and responsibility may fail to
function adequately, Itos panel said in its report in November. Takahiro Mitani, the funds
president, currently has sole authority.
GPIF and the health ministry should quickly and steadily enact necessary policies following
the recommendations by Itos panel, according to a cabinet decision on Dec. 24.
The cabinet is the driver of change for GPIF, Ito told Bloomberg News. The cabinet is going
to keep pushing....
*** BLOOMBERG / LINK
Tier 1 Chinese cities begin property discounting
Two weeks ago the price fell 200,000 yuan, 6 hours ago the price fell 100,000 yuan,
Yesterday, the sites of real estate companies show homes in the east, south and west Third
Ring large area, about thirty percent of listings are marked with The green arrow indicates the
listings with price cuts have almost quadrupled since the period before Spring Festival. Such
a situation from two weeks since the beginning of April, the city is currently at this largest
second-hand housing sales real estate agent are starting to tell homeowners who ask for high
listing prices, no. Every home exceeding the average price for the area is being persuaded
one by one to cut their asking price, otherwise they will be removed from the website, off the
shelf.
Reporter survey found that many hot spots in the district, real estate agencies have taken as
much as 40% of the properties off the market, resulting in an eyeful of lower prices online.
Meanwhile, statistics from Love My Home (and other agencies show that in April, Beijing
region through its stores traded second-hand housing transactions , the average transaction
price of 31,265 yuan / square meter, with a full month of March compared to the average
trading price fall about 4%.
My agent told me to drop the price by 100,000 yuan because no one has looked at it over a
week. Put yourself in public last week, Ms. Liu lowered her second-ring road second-hand
asking price, still no one came to see it. From the beginning of the month, she has cut her 80
square meters two-bedroom apartment by nearly 20,000 yuan.
Liu is not only one, the reporter in the chain of home listings online Yuanjianmingyuan district
saw, more than 90 sets listed online listings, nearly 30 percent of listings are marked with green
price sign ranging from a few (a few 10,000s), to as many as 200 to 300,000 yuan. Statistics
show that all of these homeowners lowered the price in the last two weeks.
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Through our efforts, the district where many homeowners have recently lowered the listing
price, and are basically starting with cuts of 50,000 yuan. Doing so mainly to prevent the
new sellers from comparing to the online listings high offer, thereby pushing overall pricess.
Realtor Wu said for new listings, the owners will make reference to similar sized residential
listings with price quotes given. For example, Yuanxianmingyuan less than 52,000 yuan average
residential price, but individual owners if quoted 55,000 yuan, the new majority owners will
refer to this listing higher offer, and then increase the average housing price.
A South Third Ring Road, East Third Ring Road real estate broker, said that after consultation
with the homeowner, they reduced second-hand housing signifcantly more in April, accounting
for almost 30% of the total valid listings. In contrast, those who insist on asking high prices have
become invalid listings.
Reporter survey found that, after half a month of busy introducing broker, the city used
some hot area of online listings leaving only 50-60% of the peak listings. In other words, the
remaining approximately 40% for whatever reason havent adjusted their price are temporarily
off the market. Yesterday agents at several real estate brokers said persuading the old and
new homeowners to lower their price has become their main job, in the task of discouraging
listings, stands at about 50% of the online total listings.
For example Xishanfenglin 1-4 there was about 90 listings, after removing the high prices
homes, there are about 40 to 50 listings now. Xishanfenglin district real estate agent Chen
said. Similar Xishanfenglin phenomenon of mass removed expensive listings in the rings are
very common. However, although online shows decreased listings, but in fact, the proportion
of listings ready to deal has greatly improved. Late last year, if a customer came to look at
homes, we have the key for several, if a customer comes now, if he wants to see 10 homes a
day, no problem. He said.
After some adjustments, the agencys online listings actually increased rather than decrease,
but also with brokers hard to stay exclusive listings are not unrelated.
Call me last weekend intermediary brokers have seven or eight people, half of which
advised me to check with the stores exclusive quick sales contract. Pang said the public, in
accordance with the brokers recommendation, if the homeowner with the agency signed an
exclusive quick sale contract, which is equivalent to bind listings from this agency does not
allow homeowners and then selling through other intermediaries, and intermediaries mouth
so-called quick sale is its commitment within three months the house is sold, the seller will
otherwise receive compensation of 1,000 yuan. According to sellers reports, signed with the
agency if the exclusive quick sale contract, which would not have strict restrictions on listing
price, the equivalent of all the parties agreed to make some concessions....
*** MACROBUSINESS / LINK
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Thomas Piketty is a rock-star economist can he re-write the
American dream?
When the movie is made about the fall of Western capitalism, Thomas Piketty will be played by
Colin Firth. Piketty, whom the Financial Times called a rock-star economist, isnt a household
name but he should be, and he has a better shot than any other economist. He is the author
and researcher behind a 700-page economic manifesto, titled Capital in the 21st Century, that
details the path of income inequality over several hundred years.
This sublime nerdishness is, somehow, a huge hit. It is now No 1 on Amazons bestseller list and
sold out in many bookstores. When Piketty spoke on a panel this month at New Yorks CUNY with
three other economists two of them Nobel-prize winners, Joseph Stiglitz and Paul Krugman
the Frenchman was the headliner. The event was so packed that the organizers had to create
three overfow rooms. Weeks after the release of Capital, intellectuals are still salivating, even
calling Piketty the new de Tocqueville.
This is quite a burst of stardom for a man who, despite his understated Gallic charm, is very
much the bearer of bad news. Pikettys sublimely nerdy book, packed with graphs, statistics
and history, is all evidence for an immensely depressing theory: that the meritocracy of
capitalism is a big, fat lie.
Pikettys research, which is immaculate, reaches back hundreds of years to establish a simple
thesis: the American dream and more broadly, the egalitarian promise of Western-style
capitalism does not, and maybe cannot, deliver on its promises. That, he writes, is because
economic growth will always be smaller than the profts from any money that is invested.
Economic growth is what we all beneft from, but profts from invested money accrue only to
the rich.
The consequences of this are clear: those who have family fortunes are the winners, and
everyone else doesnt have much of a shot of being wealthy unless they marry into or inherit
money. Its Jane Austen all over again, and weve just fooled ourselves that the complicated
fnancial system has changed a thing.
This is a deep point. Many American households, if they are lucky, will grow their wealth at
the same rate as the economy. But, because the wealthy are growing their fortunes at a much
faster rate, no one else can ever catch up.
Lets repeat that: no one else can ever catch up.
This is where Piketty adds more nuance: its not just inequality of wealth and income that
were struggling with, but inequality of opportunity. Thats of far more concern. In essence,
he is saying, were lying to ourselves if we believe that hard work will lead to wealth. Mainly,
wealth reliably leads to wealth. Everything else is chancy. The middle class is playing the
economic lottery to improve their lot in life, while the wealthy have a sure thing.
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This is clearly fraught and to some, like the New York Times columnist David Brooks, it sounds
like class war (he calls it angry progressivism). Pikettys purpose is not to point out that
inequality exists, or that its growing both of which have been established ad nauseum by
everyone from President Obama to Pope Francis. Pikettys point is that we are actually doomed
to inequality.
Its hard to argue with this, really Pikettys research is too good, too sprawling, too complete.
Its as good as fact. It codifes what many suspected. Pikettys point is accepted wisdom in most
of Europe, where, in France and Germany, the morality of capitalism is regularly questioned.
But there remains a lot of controversy anyway. Why? Because Piketty wants to change the lever
on income inequality by putting a tax on wealth not on income, which is the stuff of the
middle class, but on fortunes themselves, on the money that is invested and reinvested and
compounded and grown....
*** THE GUARDIAN / LINK
What If China Has a Fukushima?
China has never suffered a Three Mile Island-like nuclear power plant accident, much less a
Chernobyl meltdown or a Fukushima disaster.
But now that the government under Premier Li Keqiang has put the country on a fast-track for
nuclear power development, with dozens of new reactors scheduled to launch by 2020, the
insurance industry is focusing attention on the diffcult question what if?
Chinas insurers have been taking a cue from the National Peoples Congress, the nations top
legislature. A special panel under the NPCs Environmental and Resources Protection Committee
was recently ordered to draft a nuclear safety law, the nations frst, with a built-in framework
for power plant accident compensation.
NPC Standing Committee Vice Chairman Shen Yueyue said in February the law has reached the
legislative agenda.
Zuo Huiqiang, general manager of the Chinese Nuclear Insurance Pool, expects the law to be
enacted within two years. The 15-year-old CNIP is a collaborative effort of 25 Chinese insurance
companies including China Reinsurance Group, Peoples Insurance Company of China and Ping An
Insurance Co.
During the early period for nuclear power development, Zuo said, coming up with plans for
what to do if something goes wrong is the responsible thing to do.
Certainly, theres plenty of work to be done in the insurance arena to make sure Chinas has a
compensation response plan in place before an accident occurs. For example, liability caps for
Chinas nuclear accident insurance policies are now the lowest in the world.
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Under a 2007 State Council directive spelling out nuclear accident compensation plans, any
of Chinas 19 nuclear power plant operators such as China Guangdong Nuclear Power Holding
Co.(CGN), operator of the Daya Bay Nuclear complex in the southern province of Guangdong,
and China National Nuclear Corp. (CNNC), which runs the Qinshan nuclear power plant in the
eastern province of Zhejiang, must have insurance that covers fnancial losses and injuries up
to 300 million yuan. If a legitimate compensation claim exceeds that maximum liability, the
central government will provide up to 800 million yuan extra to cover the costs.
Liabilities of 300 million yuan or less are to be assumed by nuclear operators, and the
government is responsible for the next 800 million, Zuo said. Even though theres no clear
wording for anything over 1.1 billion yuan, the public nature of nuclear accidents almost
defnitely means that the government will bear the burden.
Thus, the 2007 directive in effect is a form of government policy support for the nations
nuclear plant operators. But because of the nations liability caps, the level of support is
relatively modest compared to whats in place in other countries that use the atom to generate
electricity.
Chinas limited liability insurance system stands in sharp contrast to the unlimited liability
coverage that protects the public in Germany, Switzerland, Japan, Belgium, Russia and the
United States.
All other countries with nuclear power around the world, including Britain and Spain, have a
limited liability system like Chinas.
The Chinese insurance pools direct underwriting capacity is a respectable US$ 898 million,
behind only Japan, Britain and Switzerland. In terms of compensation caps, Belgium has the
highest at US$ 1.5 billion, followed by Japan and Switzerland at US$ 1.2 billion each.
In China, a lot more money would be needed to cover damage in the event of a major
catastrophe.
If theres ever a problem, this liability limit will certainly be too low, said Liu Yubo, CNIPs
deputy general manager....
*** CAIXIN / LINK
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Charts That Make You Go Hmmm...
Source: WRI
As discussed previously, the World Resources Institute have an amazing website,
with this tremendous interactive graphic which shows the state of water-use stress for various
crops around the world.
The level of stress conditions really should be a warning to us all.
*** WORLD RESOURCES INSTITUTE / LINK
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Source: World Gold Council
Chinas fascination with gold shows no signs of slowing down despite what you
might read in the mainstream press.
Before buying into the stories about Chinese demand stagnating, try to get an understanding
of the levels at which that stagnation is supposedly taking place.
You might be surprised.
The World Gold Council can help...
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Its likely youve noticed some creeping up of food prices while digging for extra
dollars at your local supermarket checkout counter. According to the latest Bureau of Labor
Statistics report, the average retail costs of such staples as fsh, poultry, and eggs have climbed
by double digits over the last twelve months, and items like beef have skyrocketed.
Beef is now at its highest price in almost three decades at $5.30 per pound up more than 25
cents since January. With punishing droughts and rising global demand, its unclear if and when
prices will begin to fall. It may be time to make some adjustments to our eating habits or at
least a few changes to our summer grilling plans.
*** NBC / LINK
Source: NBC
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Words That Make You Go Hmmm...
On the right is Lars Schall. On the left,
my friend Bill Kaye.
In this fascinating interview, Lars and Bill
discuss gold price suppression and the fawed
policies of the worlds central banks.
Bills understanding of the gold market is
second to none, so if you have an interest in
the yellow metal, youll want to watch this...
CLICK TO WATCH
Pippa Malmgren is a rare visitor
to the pages of Things That Make You Go
Hmmm..., but whenever she stops by she
brings with her incredible insights, extensive
experience, and an ability to cut through and
communicate.
This week, in an excellent interview with Eric
King, Pippa focuses on Ukraine and the root
causes of the escalating tensions across the
globe. As always, her analysis is brilliant.
Precious metals markets, government
expropriation, and criminal investigations in
the fnance industry theres something for
everyone here...
CLICK TO LISTEN
This guy is looking OLD... not only that,
but hes talking about gold again.
If you want to hear what he has to say about
gold as an unsurance policy, you can click
on the link below to watch, or HERE to listen
in on a recent chat with Eric King...
CLICK TO WATCH
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28 april 2014
and fnally...
Take a cute girl, two adorable sleeping dogs, throw in a BOSS RC-300 and a BOSS FS-6
Switch Pedal, turn on a video camera and watch some magic happen...
When youre done with this, youll want to check out some of Kawehis other videos which are
also amazing. So talented...
Thanks East Dog!
CLICK HERE TO WATCH VIDEO
Hmmm...
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28 april 2014
Grant Williams
Grant Williams is the portfolio manager of the Vulpes
Precious Metals Fund and strategy advisor to Vulpes
Investment Management in Singapore a hedge fund
running over $280 million of largely partners capital
across multiple strategies.
The high level of capital committed by the Vulpes
partners ensures the strongest possible alignment
between the frm and its investors.
Grant has 28 years of experience in fnance on the
Asian, Australian, European and US markets and
has held senior positions at several international
investment houses.
Grant has been writing Things That Make You Go Hmmm... since 2009.
For more information on Vulpes, please visit www.vulpesinvest.com.
*******
Follow me on Twitter: @TTMYGH
YouTube Video Channel: http://www.youtube.com/user/GWTTMYGH
ASFA Annual Conference 2013: Wizened In Oz
66th Annual CFA Conference, Singapore 2013 Presentation: Do The Math
Mines & Money, Hong Kong 2013 Presentation: Risk: Its Not Just A Board Game
Fall 2012 Presentation: Extraordinary Popular Delusions & the Madness of Markets
As a result of my role at Vulpes Investment Management, it falls upon
me to disclose that, from time to time, the views I express and/or the
commentary I write in the pages of Things That Make You Go Hmmm... may
refect the positioning of one or all of the Vulpes fundsthough I will not be
making any specifc recommendations in this publication.
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THINGS THAT MAKE YOU GO
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28 april 2014
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