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It would appear the fecal matter is starting to come into contact with the rotating object in China. Worrying headlines are beginning to mount on the back of real economic events (an actual default and a collapse in exports):
- *COPPER IN SHANGHAI FALLS BY 5% DAILY LIMIT TO 46,670 YUAN A TON
- *CHINA YUAN WEAKENS 0.46% TO 6.1564 VS U.S. DOLLAR
- *YUAN DROPS MOST SINCE 2008
Aside from that Iron ore prices are crumbling, Asian stocks are dropping, Chinese corporate bond prices aee falling at their fastest pace in almost 4 months, and all this as 7-day repo drops to one-year lows (as banks hoard liquidity).
Item #1: The forced unwind of massive rehypothecated copper lots related to concerns over shadow-banking defaults sparked by the fact that Chaori was allowed to actually default...
Pushing Shanghai copper limit down...
Item #2: Iron Ore prices collapsing for similar reasons (as borrowers rotated to Steel and by-products for collateral on their shadow bank lending facilities)...
Item #3: Corporate bond prices are dropping at their fastest in 4 months...
Item #4: Repo rates are at near-record lows as banks hoard liquidity...
Item #5: USDCNY is tumbling as PBOC efforts to unwind the massvley one-sided carry trade appear to be getting out of control...
Item #6: AsiaPac stocks are down by their most in almost 6 weeks...
Item #7: Even US equity futures are unhappy (with JPY carry having caught up and now dumping again)...
Bonus Item: Copper-to-Gold ratios are collapsing...
Over the past three years there has been endless debate over whether the Fukushima radioactive fallout is hitting the US west coast, or if, as the media spin would have it, it is largely isolated, and best to just take their word for it for the simple reason that no federal agency currently samples Pacific Coast seawater for radiation. The answer may finally be in sight, and it is not a pleasant one: USA Today reports that "very low levels of radiation from the Fukushima nuclear disaster likely will reach ocean waters along the U.S. West Coast next month, scientists are reporting. Current models predict that the radiation will be at extremely low levels that won't harm humans or the environment, said Ken Buesseler, a chemical oceanographer at the Woods Hole Oceanographic Institution who presented research on the issue last week.
Hopefully these "models" are better at forecasting than the Fed's (which are operated by three supercomputers), and the definition of "minimum" hasn't undergone the same material revisions as did "maximum" in the context of the maximum permitted radiation dose falling on Tepco workers in the days when Japan desperately was lying every day about the magnitude of the radioactive disaster. Obviously, it is one thing to make up predictions for the sake of avoiding a panic, it is something entirely different to have empirical data: "I'm not trying to be alarmist," Buesseler said. "We can make predictions, we can do models. But unless you have results, how will we know it's safe?"
As if Buesseler doesn't know that any actual data that reveals alarming results will be seasonally adjusted, and then all excess radiation will be blamed on the "harsh winter weather."
Mockery of economists and other idiots aside, here are the facts on the prevailing models:
There are three competing models of the Fukushima radiation plume, differing in amount and timing. But all predict that the plume will reach the West Coast this summer, and the most commonly cited one estimates an April arrival, Buesseler said.
A report presented last week at a conference of the American Geophysical Union's Ocean Sciences Section showed that some Cesium 134 has already has arrived in Canada, in the Gulf of Alaska area.
Cesium 134 serves as a fingerprint for Fukushima, Buesseler said.
"The models show it will reach north of Seattle first, then move down the coast," Buesseler said.
The good news:
By the time it gets here, the material will be so diluted as to be almost negligible, the models predict. Radiation also decays. Cesium 134, for example, has a half-life of two years, meaning it will have half its original intensity after that period.
Or rather, make that the spin: after all as the paper notes, West Coast states are winding down their tsunami debris response efforts. "Oregon's coastline is seeing less debris from the tsunami this winter than in the past two years, Oregon State Parks spokesman Chris Havel said. If that doesn't change, officials likely will disband a task force that was mobilized to deal with the debris. Last year, Washington suspended its marine debris reporting hotline."
One can be certain that no amount of reality, or radioactivity, will be allowed to spoil the budgeted plans that involve a return to normalcy even as the Fukushima power plant is nowhere near contained today, than it was the day after the historic catastrophe from March 2011.
And in case that is not yet clear, here is exhibit A: a Reuters report on Fukushima children that assigns increasingly abnormal pathologies not on the fallout from the Fukushima explosion but, get this, on their staying indoors!
Some of the smallest children in Koriyama, a short drive from the crippled Fukushima nuclear plant, barely know what it's like to play outside -- fear of radiation has kept them in doors for much of their short lives. Though the strict safety limits for outdoor activity set after multiple meltdowns at the Fukushima Dai-ichi nuclear plant in 2011 have now been eased, parental worries and ingrained habit mean many children still stay inside.
And the impact is now starting to show, with children experiencing falling strength, lack of coordination, some cannot even ride a bicycle, and emotional issues like shorter tempers, officials and educators say.
"There are children who are very fearful. They ask before they eat anything, 'does this have radiation in it?' and we have to tell them it's okay to eat," said Mitsuhiro Hiraguri, director of the Emporium Kindergarten in Koriyama, some 55 km (35 miles) west of the Fukushima nuclear plant. "But some really, really want to play outside. They say they want to play in the sandbox and make mud pies. We have to tell them no, I'm sorry. Play in the sandbox inside instead."
You see, the falling strength, the lack of coordination, and the behavioral changes three years after the explosion, are all due to children not being allowed to play in Fukushima's spilling over radioactive cooling water, where as of a month ago, record amounts of Cesium were recorded. Nothing to do at all with slightly "abnormal" levels of alpha, beta and gamma radiation in the air.
"Compared to before the disaster, you can certainly see a fall in the results of physical strength and ability tests - things like grip strength, running and throwing balls," said Toshiaki Yabe, an official with the Koriyama city government.
Hiraguri said that stress was showing up in an increase of scuffles, arguments and even sudden nosebleeds among the children, as well as more subtle effects.
"There's a lot more children who aren't all that alert in their response to things. They aren't motivated to do anything," he said.
Yes: the nosebleeds and the lack of alertness too are not due to the radiation, but all entirely due to being kept away from it. We suppose the proper advice here is: to avoid sudden nosebleeds, short tempers, and falling strength, let you children run like the wind, if possible into the Third reactor's cooling tanks.
One really can't make this pathetic, deadly BS up.
So keeping in the theme of this lunacy, and coming soon to a Orwellian banana dictatorship near you: the poor will be taxed more, because it is their fault they did not invest the money they don't have, in Glorious Bernank's attempt to make everything better for everyone. Remember: the Chairsatan was just paid in one hour more than in one full year at the Fed to reveal that "his natural inclination would be to try to help the average person."
Everyone Agrees that Ukraine Sniper Attacks Were a False Flag … They Only Argue About WHO's the Culprit
We pointed out Wednesday that the Estonian foreign minister claims that the new Ukrainian coalition deployed snipers to discredit the former government of Ukraine.
We documented Thursday that snipers are a common form of false flag terrorism.
Interestingly, while the new Ukranian coalition denies that it deployed snipers, it is now accusing someone else – Russia – of deploying the snipers as a false flag event to create chaos.
AP reports today:
One of the biggest mysteries hanging over the protest mayhem that drove Ukraine’s president from power: Who was behind the snipers who sowed death and terror in Kiev?
That riddle has become the latest flashpoint of feuding over Ukraine — with the nation’s fledgling government and the Kremlin giving starkly different interpretations of events that could either undermine or bolster the legitimacy of the new rulers.
Ukrainian authorities are investigating the Feb. 18-20 bloodbath, and they have shifted their focus from ousted President Viktor Yanukovych’s government to Vladimir Putin’s Russia — pursuing the theory that the Kremlin was intent on sowing mayhem as a pretext for military incursion. Russia suggests that the snipers were organized by opposition leaders trying to whip up local and international outrage against the government.
The government’s new health minister — a doctor who helped oversee medical treatment for casualties during the protests — told The Associated Press that the similarity of bullet wounds suffered by opposition victims and police indicates the shooters were trying to stoke tensions on both sides and spark even greater violence, with the goal of toppling Yanukovych.
“I think it wasn’t just a part of the old regime that (plotted the provocation), but it was also the work of Russian special forces who served and maintained the ideology of the (old) regime,” Health Minister Oleh Musiy said.
On Tuesday, Interior Minister Arsen Avakov signaled that investigators may be turning their attention away from Ukrainian responsibility.
“I can say only one thing: the key factor in this uprising, that spilled blood in Kiev and that turned the country upside down and shocked it, was a third force,” Avakov was quoted as saying by Interfax. “And this force was not Ukrainian.”
Musiy, who spent more than two months organizing medical units on Maidan, said that on Feb. 20 roughly 40 civilians and protesters were brought with fatal bullet wounds to the makeshift hospital set up near the square. But he said medics also treated three police officers whose wounds were identical.
Forensic evidence, in particular the similarity of the bullet wounds, led him and others to conclude that snipers were targeting both sides of the standoff at Maidan — and that the shootings were intended to generate a wave of revulsion so strong that it would topple Yanukovych and also justify a Russian invasion.
Since Russia supported Yanukovych, it makes no sense that the people who ordered the sniper attacks would want to topple Yanukovych and launch a Russian invasion. Specifically, they would either want to overthrow the Russia-friendly Yanukovych or launch a Russian invasion to support a Russia-friendly Ukrainian government.
In any event, AP continues:
Russia has used the uncertainty surrounding the bloodshed to discredit Ukraine’s current government. During a news conference Tuesday, Putin addressed the issue in response to a reporter’s question, suggesting that the snipers in fact “may have been provocateurs from opposition parties.”
A former top security official with Ukraine’s main security agency, the SBU, waded into the confusion, in an interview published Thursday with the respected newspaper Dzerkalo Tizhnya. Hennady Moskal, who was deputy head of the agency, told the newspaper that snipers from the Interior Ministry and SBU were responsible for the shootings, not foreign agents.
“In addition to this, snipers received orders to shoot not only protesters, but also police forces. This was all done in order to escalate the conflict, in order to justify the police operation to clear Maidan,” he was quoted as saying.
In other words, everyone agrees that the snipers were false flag terrorists sewing chaos and confusion … they only disagree about who the responsible party is.
In related news ...Americans Overwhelmingly Oppose US Intervention in Ukraine, Syria, Iran … Or Anywhere Else
Polls show that Americans are overwhelmingly opposed to U.S. military involvement in:
- Or anywhere else
Indeed, a poll from Pew in December found that a majority of Americans – more than ever before in Pew’s 50-year history of polling this question – think the U.S. “should mind its own business internationally and let other countries get along as best they can on their own.”
We’re sick of war …
(And we’ve been so for years.)
"It's the weather" That's all Abe has left to pretend that 'recovery' is right around the corner. Japan just printed its worst current account deficit on record and its worst GDP growth since Abenomics was unveiled - both missing by the proverbial garden mile and both confirming that all is not well in Asia. As for the perpetual hope of a J-curve (or miracle hockey-stick reversal)? There won't be one! As Patrick Barron noted, "monetary debasement does not result in an economic recovery, because no nation can force another to pay for its recovery."
Worst current account deficit ever - and a chart that shows absolutely no hope of a turn anytime soon...
and the worst GDP growth since Abenomics was unveiled and 2nd quarter missed in a row...
Perhaps I can shed some light on Japanese Prime Minister Abe’s missing J-curve; i.e., why Japan’s trade deficit seems to be increasing rather than decreasing after massive monetary intervention to reduce the purchasing power of the yen. Monetary debasement does NOT result in an economic recovery, because no nation can force another to pay for its recovery.
Monetary debasement transfers wealth within an economy by subsidizing exports at the expense of the entire economy, but this effect is delayed as the new money works it way from first receivers of the new money to later receivers. The BOJ gives more yen to buyers using dollars, euros, and other currencies, as the article states, but this is nothing more than a gift to foreigners that is funneled through exporters. Because exporters are the first receivers of the new money, they buy resources at existing prices and make large profits. As most have noted, exporters have seen a surge in their share prices, but this is exactly what one should expect when government taxes all to give to the few.
Eventually the monetary debasement raises all costs and this initial benefit to exporters vanishes. Then the country is left with a depleted capital base and a higher price level. What a great policy!
The good news is that Japan does know how to rebuild its economy. It did it the old-fashioned way seventy years ago–hard work and savings.
And the latest joke from Asian trading floors: "when asked what he thought of the recovery, Shinzo Abe responded "Depends!""
The result of all this total and utter disaster for the Japanese economy - a melt-up in JPY crosses (i.e. JPY weakness with USDJPY back over 103) supporting US equity futures into the green... because what do you do when Chinese credit markets are collapsing, the Japanese economy is imploding, and the fate of Germany (and therefore Europe's) economy lies with Russia... you BTFATH...
A week ago, when the idea of sanctions against Russia was first officially announced, we made a statement, which was obviously in jest yet which, as so often happens, was so rooted in reality:
U.S. CONSIDERING SANCTIONS ON RUSSIAN BANKS, OFFICIAL SAYS. So short London/NYC real estate you say?
— zerohedge (@zerohedge) March 2, 2014
How is this an indication of reality? Well, for one, as we reported previously, the one country that has the most to lose from Russian sanctions, Germany, and specifically its industrial superlobby has already said "Nein" to any truly crippling trade blockade of Moscow would backfire on Germany's own economy and bottom line.
But what about London? Here, the NYT explains why, once again, it was all about the money, and why were right even when we were being humorous:
The White House has imposed visa restrictions on some Russian officials, and President Obama has issued an executive order enabling further sanctions. But Britain has already undermined any unified action by putting profit first.
It boils down to this: Britain is ready to betray the United States to protect the City of London’s hold on dirty Russian money. And forget about Ukraine.
At this point, in standing with the ideological framework of the host media outlet, the author takes a detour into naive idealism - a world in which it is not money that talks, but a declining global superpower, whose hypocrisy has been exposed time and again, and where extinct words like "mission" and "moral" are used with reckless abandon:
Britain, open for business, no longer has a “mission.” Any moralizing remnant of the British Empire is gone; it has turned back to the pirate England of Sir Walter Raleigh. Britain’s ruling class has decayed to the point where its first priority is protecting its cut of Russian money — even as Russian armored personnel carriers rumble around the streets of Sevastopol. But the establishment understands that, in the 21st century, what matters are banks, not tanks.
The Russians also understand this. They know that London is a center of Russian corruption, that their loot plunges into Britain’s empire of tax havens — from Gibraltar to Jersey, from the Cayman Islands to the British Virgin Islands — on which the sun never sets.
British residency is up for sale. “Investor visas” can be purchased, starting at £1 million ($1.6 million). London lawyers in the Commercial Court now get 60 percent of their work from Russian and Eastern European clients. More than 50 Russia-based companies swell the trade at London’s Stock Exchange. The planning regulations have been scrapped, and along the Thames, up go spires of steel and glass for the hedge-funding class.
Britain’s bright young things now become consultants, art dealers, private banker and hedge funders. Or, to put it another way, the oligarchs’ valets.
Russia’s president, Vladimir V. Putin, gets it: you pay them, you own them. Mr. Putin was absolutely certain that Britain’s managers — shuttling through the revolving door between cabinet posts and financial boards — would never give up their fees and commissions from the oligarchs’ billions. He was right.
So, let us get this straight? It is great when the Russian oligrachs "invest" their stolen money in luxury London real estate, the FTSE100, and various other inflating assets which are mistaken for an improvement in the broader "economy", but when the alarm clock of realpolitick rings, it was all bad?
What we are more stunned by is that while London has at least figured out the quid pro quo, the US, and its leader, so far seem completely incapable of doing so. Perhaps someone should explain to Obama that with the Fed tapering, the only incremental buyer of high end real estate are precisely the oligarchs from Russia, whom he will soon alienate, as well as those from China, which also may decide it is too risky to park "hot money" in New York triplexes, and instead once again, like in 2011, park it all in gold and other precious metals.
But going back to the NYT article, the author does make the following accurate observation: "This is Britain’s growth business today: laundering oligarchs’ dirty billions, laundering their dirty reputations."
His conclusion, too, is spot on:
The Shard encapsulates the new hierarchy of the city. On the top floors, “ultra high net worth individuals” entertain escorts in luxury apartments. By day, on floors below, investment bankers trade incomprehensible derivatives.
Come nightfall, the elevators are full of African cleaners, paid next to nothing and treated as nonexistent. The acres of glass windows are scrubbed by Polish laborers, who sleep four to a room in bedsit slums. And near the Shard are the immigrants from Lithuania and Romania, who broke their backs on construction sites, but are now destitute and whiling away their hours along the banks of the Thames.
The Shard is London, a symbol of a city where oligarchs are celebrated and migrants are exploited but that pretends to be a multicultural utopia. Here, in their capital city, the English are no longer calling the shots. They are hirelings.
Still think Putin is ready to "blink"?
Submitted by Jeff Clark via Casey Research,
Now that it appears clear the bottom is in for gold, it’s time to stop fretting about how low prices will drop and how long the correction will last - and start looking at how high they’ll go and when they’ll get there.
When viewing the gold market from a historical perspective, one thing that’s clear is that the junior mining stocks tend to fluctuate between extreme boom and bust cycles. As a group, they’ll double in price, then crash by 75%... then double or triple or even quadruple again, only to crash 90%. Boom, bust, repeat.
Given that we just completed a major bust cycle - and not just any bust cycle, but one of the harshest on record, according to many veteran insiders - the setup for a major rally in gold stocks is right in front of us.
This may sound sensationalistic, but based on past historical patterns and where we think gold prices are headed, the odds are high that, on average, gold producers will trade in the $200 per share range before the next cycle is over. With most of them currently trading between $20 and $40, the returns could be stupendous. And the percentage returns of the typical junior will be greater by an order of magnitude, providing life-changing gains to smart investors.
What you’re about to see are historical returns of both producers and juniors during three separate boom cycles. These are factual returns; they are not hypothetical. And if you accept the fact that this market moves in cycles, you know it’s about to happen again.
Gold had a spectacular climb in 1979-1980, and gold stocks in general gave a staggering performance at that time—many of them becoming 10-baggers (1,000% gains and more). While this is a well-known fact, few researchers have bothered to identify exact returns from specific companies during this era.
Digging up hard data from before the mid-1980s, especially for the junior explorers, is difficult because the information wasn’t computerized at the time. So I sent my nephew Grant to the library to view the Wall Street Journal on microfiche. We also include information we’ve had from Scott Hunter of Haywood Securities; Larry Page, then-president of the Manex Resource Group; and the dusty archives at the Northern Miner.
Note: This means our tables, while accurate, are not at all comprehensive.
Let’s get started…The Quintessential Bull Market: 1979-1980
The granddaddy of gold bull cycles occurred during the 1970s, culminating in an unabashed mania in 1979 and 1980. Gold peaked at $850 an ounce on January 21, 1980, a rise of 276% from the beginning of 1979. (Yes, the price of gold on the last trading day of 1978 was a mere $226 an ounce.)
Here’s a sampling of gold producer stock prices from this era. What you’ll notice in addition to the amazing returns is that gold stocks didn’t peak until nine months after gold did.Returns of Producers in 1979-1980 Mania Company Price on
12/29/1978 Sept. 1980
Peak Return Campbell Lake Mines $28.25 $94.75 235.4% Dome Mines $78.25 $154.00 96.8% Hecla Mining $5.12 $53.00 935.2% Homestake Mining $30.00 $107.50 258.3% Newmont Mining $21.50 $60.62 182.0% Dickinson Mines $6.88 $27.50 299.7% Sigma Mines $36.00 $57.00 58.3% Giant Yellowknife Mines $11.13 $39.00 250.4% AVERAGE 289.5%
Today, GDX is selling for $26.05 (as of February 26, 2014); if it mimicked the average 289.5% return, the price would reach $101.46.
Keep in mind, though, that our data measures the exact top of each company’s price. Most investors, of course, don’t sell at the very peak. If we were to able to grab, say, 80% of the climb, that’s still a return of 231.6%.
Here’s a sampling of how some successful junior gold stocks performed in the same period, along with the month each of them peaked.Returns of Juniors in 1979-1980 Mania Company Price on
of Peak Return Carolin Mines $3.10 $57.00 Oct. 80 1,738.7% Mosquito Creek Gold $0.70 $7.50 Oct. 80 971.4% Northair Mines $3.00 $10.00 Oct. 80 233.3% Silver Standard $0.58 $2.51 Mar. 80 332.8% Lincoln Resources $0.78 $20.00 Oct. 80 2,464.1% Lornex $15.00 $85.00 Oct. 80 466.7% Imperial Metals $0.36 $1.95 Mar. 80 441.7% Anglo-Bomarc Mines $1.80 $6.85 Oct. 80 280.6% Avino Mines 0.33 5.5 Dec. 80 1,566.7% Copper Lake $0.08 $10.50 Sep. 80 13,025.0% David Minerals $1.15 $21.00 Oct. 80 1,726.1% Eagle River Mines $0.19 $6.80 Dec. 80 3,478.9% Meston Lake Resources $0.80 $10.50 Oct. 80 1,212.5% Silverado Mines $0.26 $10.63 Oct. 80 3,988.5% Wharf Resources $0.33 $9.50 Nov. 80 2,778.8% AVERAGE 2,313.7%
If you had bought a reasonably diversified portfolio of top-performing gold juniors prior to 1979, your initial investment could have grown 23 times in just two years. If you had managed to grab 80% of that move, your gains would still have been over 1,850%.
This means a junior priced at $0.50 today that captured the average gain from this boom would sell for $12 at the top, or $9.75 at 80%. If you own ten juniors, imagine just one of them matching Copper Lake’s better than 100-bagger performance.
Here’s what returns of this magnitude could mean to you. Let’s say your portfolio includes $10,000 in gold juniors that yield spectacular gains such as the above. If the next boom cycle matches the 1979-1980 pattern, your portfolio could be worth $241,370 at its peak… or about $195,000 if you exit at 80% of the top prices.
Note that this does require that you sell to realize your profits. If you don’t take the money and run at some point, you may end up with little more than tears to fill an empty beer mug. In the subsequent bust cycle, many junior gold stocks, including some in the above list, dried up and blew away. Investors who held on to the bitter end not only saw all their gains evaporate, but lost their entire investments.
You have to play the cycle.
Returns from that era have been written about before, so I can hear some investors saying, “Yeah, but that only happened once.”
Au contraire. Read on…The Hemlo Rally of 1981-1983
Many investors don’t know that there have been several bull cycles in gold and gold stocks since the 1979-1980 period.
Ironically, gold was flat during the two years of the Hemlo rally. But something else ignited a bull market. Discovery. Here’s how it happened…
Back in the day, most exploration was done by teams from the major producers. But because of lagging gold prices and the resulting need to cut overhead, they began to slash their exploration budgets, unleashing a swarm of experienced geologists armed with the knowledge of high-potential mineral targets they’d explored while working for the majors. Many formed their own companies and went after these targets.
This led to a series of spectacular discoveries, the first of which occurred in mid-1982, when Golden Sceptre and Goliath Gold discovered the Golden Giant deposit in the Hemlo area of eastern Canada. Gold prices rallied that summer, setting off a mini bull market that lasted until the following May. The public got involved, and as you can see, the results were impressive for such a short period of time.Returns of Producers Related to Hemlo Rally of 1981-1983 Company 1981
of High Return Agnico-Eagle $9.50 $21.00 Aug. 83 121.1% Sigma $14.13 $24.50 Jan. 83 73.4% Campbell Red Lake $16.63 $41.25 May 83 148.0% Sullivan $3.85 $6.00 Mar. 84 55.8% Teck Corp Class B $17.00 $21.88 Jun. 81 28.7% Noranda $33.75 $36.38 Jun. 81 7.8% AVERAGE 72.5%
Gold producers, on average, returned over 70% on investors’ money during this period. While these aren’t the same spectacular gains from just a few years earlier, keep in mind they occurred over only about 12 months’ time. This would be akin to a $20 gold stock soaring to $34.50 by this time next year, just because it’s located in a significant discovery area.
Once again, it was the juniors that brought the dazzling returns.Returns of Juniors Related to Hemlo Rally of 1981-1983 Company 1981
of High Return Corona Resources $1.10 $61.00 May 83 5,445.5% Golden Sceptre $0.40 $31.00 May 83 7,650.0% Goliath Gold $0.45 $32.00 Mar 83 7,011.1% Bel-Air Resources $0.81 $1.60 Jan. 83 97.5% Interlake Development $2.10 $6.40 Mar. 83 204.8% AVERAGE 4,081.8%
The average return for these junior gold stocks that had a direct interest in the Hemlo area exceeded a whopping 4,000%.
This is especially impressive when you realize that it occurred without the gold stock industry as a whole participating. This tells us that a big discovery can lead to enormous gains, even if the industry as a whole is flat.
In other words, we have historical precedence that humongous returns are possible without a mania, by owning stocks with direct exposure to a discovery area. There are numerous examples of this in the past ten years, as any longtime reader of the International Speculator can attest.
By May 1983, roughly a year after it started, gold prices started back down again, spelling the end of that cycle—another reminder that one must sell to realize a profit.The Roaring ’90s
By the time the ’90s rolled around, many junior exploration companies had acquired the “intellectual capital” they needed from the majors. Another series of gold discoveries in the mid-1990s set off one of the most stunning bull markets in the current generation.
Companies with big discoveries included Diamet, Diamond Fields, and Arequipa. This was also the time of the famous Bre-X scandal, a company that appeared to have made a stupendous discovery, but that was later found to have been “salting” its drill data (cheating).
By the summer of ’96, these discoveries had sparked another bull cycle, and companies with little more than a few drill holes were selling for $20 a share.
The table below, which includes some of the better-known names of the day, is worth the proverbial thousand words. The average producer more than tripled investors’ money during this period. Once again, these gains occurred in a relatively short period of time, in this case inside of two years.Returns of Producers in Mid-1990s Bull Market Company Pre-Bull
Market Price Price
of High Return Kinross Gold $5.00 $14.62 Feb. 96 192.4% American Barrick $28.13 $44.25 Feb. 96 57.3% Placer Dome $26.50 $41.37 Feb. 96 56.1% Newmont $47.26 $82.46 Feb. 96 74.5% Manhattan $1.50 $13.00 Nov. 96 766.7% Cambior $10.00 $22.35 Jun. 96 123.5% AVERAGE 211.7%
Here’s how some of the juniors performed. And if you’re the kind of investor with the courage to buy low and the discipline to sell during a frenzy, it can be worth a million dollars. Hold on to your hat.
Returns of Juniors in Mid-1990s Bull Market Company Pre-Bull
Market Price Price
of High Return Cartaway $0.10 $26.14 May 96 26,040.0% Golden Star $6.00 $27.50 Oct. 96 358.3% Samex Mining $1.00 $7.20 May 96 620.0% Pacific Amber $0.21 $9.40 Aug. 96 4,376.2% Conquistador $0.50 $9.87 Mar. 96 1,874.0% Corriente $1.00 $19.50 Mar. 97 1,850.0% Valerie Gold $1.50 $28.90 May 96 1,826.7% Arequipa $0.60 $34.75 May 96 5,691.7% Bema Gold $2.00 $12.75 Aug. 96 537.5% Farallon $0.80 $20.25 May 96 2,431.3% Arizona Star $0.50 $15.95 Aug. 96 3,090.0% Cream Minerals $0.30 $9.45 May 96 3,050.0% Francisco Gold $1.00 $34.50 Mar. 97 3,350.0% Mansfield $0.70 $10.50 Aug. 96 1,400.0% Oliver Gold $0.40 $6.80 Oct. 96 1,600.0% AVERAGE 3,873.0%
Many analysts refer to the 1970s bull market as the granddaddy of them all—and to a certain extent it was—but you’ll notice that the average return of these stocks during the late ’90s bull exceeds what the juniors did in the 1979-1980 boom.
This is akin to that $0.50 junior stock today reaching $19.86… or $16, if you snag 80% of the move. A $10,000 portfolio with similar returns would grow to over $397,000 (or over $319,000 on 80%).Gold Stocks and Depression
Those of you in the deflation camp may dismiss all this because you’re convinced the Great Deflation is ahead. Fair enough. But you’d be wrong to assume gold stocks can’t do well in that environment.
Take a look at the returns of the two largest producers in the US and Canada, respectively, during the Great Depression of the 1930s, a period that saw significant price deflation.Returns of Producers
During the Great Depression Company 1929
Gain Homestake Mining $65 $373 474% Dome Mines $6 $39.50 558%
During a period of soup lines, crashing stock markets, and a fixed gold price, large gold producers handed investors five and six times their money in four years. If deflation “wins,” we still think gold equity investors can, too.
How to Capitalize on This Cycle
History shows that precious metals stocks move in cycles. We’ve now completed a major bust cycle and, we believe, are on the cusp of a tremendous boom. The only way to make the kind of money outlined above is to buy before the boom is in full swing. That’s now. For most readers, this is literally a once-in-a-lifetime opportunity.
As you can see above, there can be great variation among the returns of the companies. That’s why, even if you believe we’re destined for an “all-boats-rise” scenario, you still want to own the better companies.
My colleague Louis James, Casey’s chief metals and mining investment strategist, has identified the nine junior mining stocks that are most likely to become 10-baggers this year in their special report, the 10-Bagger List for 2014. Read more here.
In recent months the Fed (and ECB for that matter) has taken up the mythical charm offensive of "forward guidance" as a way to assure markets that punchbowls will remain free and available for as long as it takes. At the same time, the Bank of England has been shown up (and lost credibility) over its threshold-ignorance, the Fed has also now started to hit the wall on any 'quantitative'-based forward-guidance communications policy, proposed Fed vice-Chair Stan Fischer is skeptical: "you can't expect the Fed to spell out what it's going to do... because it doesn't know;" and finally Bob Rubin slammed the Fed, saying "their forecast models don't work.. and forward guidance [has no validity] as it is impossible to know what is going to happen in 6 months." So today's BIS report on the the fallacy of forward guidance and risks to central bank reputation (and the following 4 charts) suggest faith in central banker omnipotence may be fading.
Central bank reputation
Forward guidance exposes central banks to various reputation risks. If the public fails to fully understand the conditionality of the guidance and the uncertainty surrounding it, the reputation and credibility of the central bank may be at risk if the guidance is revised frequently and substantially. This is particularly relevant in the case of calendar-based forward guidance, in which deviations in the preannounced timetable may be perceived as reneging on a commitment even if conditions change unexpectedly.
And while state-contingent forward guidance helps to address the risk of an appearance of reneging, it raises others. For example, the announcement of unemployment-based thresholds could be seen as signalling a fundamental shift in monetary strategies and goals. And, as history has shown, the perception that central banks have elevated the role of real variables in monetary policy frameworks can adversely affect a central bank’s credibility for price stability. A widespread perception of this could also create policy uncertainty about what central banks are truly aiming at, which would be counterproductive in the current post-crisis environment. Further, central banks may ex post be seen as having seriously misjudged the outlook, especially if such misjudgments are not widely shared with other forecasters.
So here are 4 central banks that have long provided forward guidance and their actual results...
"Nailed it?" or not at all?
Stan Fischer sums it up:"we don’t know what we’ll be doing a year from now. It’s a mistake to try and get too precise," and that "you can’t expect the Fed to spell out what it’s going to do... because it doesn’t know."
So why do so many still "believe"? Take another look at those 4 charts above? Hardly inspires confidence in Central Bankers' ability to know anything, let alone provide "forward guidance" as to their policy action path...
(Originally published at Slope of Hope)- Well, my fellow Slope-a-Dopes, as you know, I’m not even supposed to be here. Alas, the ominous geopolitical developments unfolding before our very eyes have the idiot insanely infatuated. The Savant must once again sound off, as he simply can't help himself when his cerebrum is suddenly spinning a spontaneous scene of super sensational surrealism.
Like many on da Slope, as well as those who used to be with us, I clearly have a very hard time reconciling a U.S. stock market making new all-time-highs almost daily, especially in the face of what most economists consider to be a weak domestic economy with negligible growth prospects. Moreover, when you layover the thoroughly stalled and certainly weaker overall global economic picture, it’s even harder to rationalize. Finally, throw into the mix the gravity of threatening geopolitical tensions between the U.S. and Russia, the two nations with the largest stockpiles of tactical nuclear weapons on earth, and the market actually welcomes it. Something majorly does not add up, well, to this Idiot anyways.
I know, I know, I know the economy is not the stock market. What are you some kind of an idiot BDI! But, let’s be honest with each other, the listed companies on the exchanges that make up the market in aggregate, do in fact represent the country's economic condition at large. Therefore, if the overall economy has poor growth prospects, it surely stands to reason that the equity values which intrinsically measure the future earnings of those companies, should in point of fact reflect that future weakness. Yet, we continue to achieve new highs almost daily? Some will tell you that it’s not so much the underlying value of the companies that is driving the market to new highs, but rather the Fed QE policy, printing ever free flowing funds which relentlessly increase financial asset values as the currency is consistently devalued, causing higher and higher prices. Well, if that were truly the case, wouldn't rabid inflation be upon us in a general way, and thus reflected in all things cash buys? The debased money still seems to be holding its value against certain other goods? Not to mention that CPI is only around a 1% (rolls eyes). Still others will tell you that it’s the astounding technology advances of our times driving the productivity gains which are behind these sensational stock valuations. This I can buy into somewhat for several market sectors, at least where increased margins are concerned, but not across the board. Moreover, during the past several quarters overall revenues have slowed, which has clearly been reflected in softer earnings growth for the majority of companies. Yet remarkably, the market continues making new highs, seeing nothing but clear skies above and continued smooth sailing ahead. Call me a stubborn Savant, but this idiot remains increasingly skeptical. I mean really, all time highs with little to no median income growth and nearly 60 million Americans permanently on food stamps. What gives?
If one dares to make the unfathomable hair-brained assumption that the market is quite possibly not reflecting and perhaps even blatantly misrepresenting economic reality, what can really be going on here? What's really driving the ballistic buying binge? I realize that the momos and trendos among us don’t give a damn, as they continue to rake in coin via a market seemingly tailor made to reward their systematic approach to trading, almost as if it were specifically designed to entice and encourage their fabulous feeding frenzy. Who's-your-daddy, that seems reason enough to satisfy them. The quizzical BDI, on the other hand, requires real rational answers to feel grounded in humanity, otherwise he is driven mad in search of meaning. What is really behind this seemingly illegitimate, and laughably ludicrous levitation? Well, your suspicious Savant has an entirely spectacular answer for you all, which may well identify what is really operating behind the scenes. Brace yourselves, if it's even remotely accurate, it is truly terrifying.Behold BDI's bold brash belief or bogus bloviated buffoonery:
Most of us will acknowledge that an International Banking Cabal is in full control of the major Central Banks which orchestrate the current monetary order that the globe's financial system runs on. Moreover, you would have been living under a rock to have not noticed that, ever since the financial crisis of 2008, the political authorities leading the developed Nation's of the world's are now willfully subservient to their respective central banks which in turn take their marching orders form the TBTF multinational banks which own them. The cabal's overriding self serving interests are paramount to us all apparently. Yet, this avaricious international banking cartel has no allegiance other then unto itself.
Astonishingly, even the once revered ideal of national sovereignty itself has seemingly had its wings effectively clipped by this elite banking class. Perhaps the most obvious example of the abject subjugation, is the European Union, with its ECB imposed EURO hand cuffs firmly casting an iron grip around previously magnificent autonomous nations such as Italy and Spain, rendering them to a sad sorry state of subordinate EU foot stools. How thoroughly we have permitted the self seeking interests of those privileged few closest to the powerful money levers control our collective destiny. I dare say, many of you here seem to have acquiesced, and now actually welcome the money pushers. Beware my friends, as the pusher soon owns the junkie!
BDI genuinely believes that there may well exist self appointed elites running the deep state, acting as digital demigod's directing our deferential dependency and deliberate dollar's demise, nefariously orchestrating a bold and grand master program to complete the outright capture of our entire monetary existence. It's the Savant's contention, that all of this supposed tumult on the ground in Ukraine, is none other than globalist inspired destabilization of the world's sovereign Nation states designed to open the door for an IMF backed SDR new world monetary order, with the intent of establishing total financial hegemony over the world and all its natural resources, including those that are human.
These depraved puppet masters already have the European nation states right where they want them via their EU/ECB headlock strangle hold. They have rendered China entirely dependent on a debt driven export / low wage economic growth model, as they have done with all the BRICS. They have destabilized MENA to disembowel OPEC. The next two chess pieces to fall will first be the once mighty Russian queen, followed by the indisputable king USA. The last move is to undermine the United States' Petro dollar reserve currency supremacy. This final checkmate will be achieved by initiating a disastrous energy war. They require a raging resource war to destabilize the USD. The current covert NGO manufactured and fomented riots in Kiev's Maiden square, pitting Ukraine against Russia, is simply another carefully crafted conflict. They tried with Iraq and failed, they tried with Iran and failed, they tried with Libya and failed, they tried with Syria and failed, now they are desperately trying with Ukraine. The American people could quite possibly fall for this last scheme. The MSM has certainly been working overtime to paint that Putinator prick as a dreadfully dangerous despot intent on world domination. The well publicized and most timely defection of RT network news anchor woman Liz Wahl, surely was induced by deep state operatives so as to sway reluctant U.S. public opinion towards war. Pay attention America, the international bankers want war, same as it ever was.
The following piece written by Brandon Smith provides provocative historical evidence of the int'l banks' lust for war:With the exception of a few revolutions, most wars are instigated and controlled by financial elites, manipulating governments on both sides of the game to produce a preconceived result. The rise of National Socialism in Germany, for instance, was largely funded by corporate entities based in the U.S., including Rockefeller giant Standard Oil, JPMorgan and even IBM, which built the collating machines specifically used to organize Nazi extermination camps, the same machines IBM representatives serviced on site at places like Auschwitz. As a public figure, Adolf Hitler was considered a joke by most people in German society, until, of course, the Nazi Party received incredible levels of corporate investment. This aid was most evident in what came to be known as the Keppler Fund created through the Keppler Circle, a group of interests with contacts largely based in the U.S. George W. Bush’s grandfather, Prescott Bush, used his position as director of the New York-based Union Banking Corporation to launder money for the Third Reich throughout the war. After being exposed and charged for trading with the enemy, the case against Bush magically disappeared in a puff of smoke, and the Bush family went on to become one of the most powerful political forces in America. Without the aid of international conglomerates and banks, the Third Reich would have never risen to power. The rise of communism in Russia through the Bolshevik Revolution was no different. As outlined in Professor Antony Sutton’s book Wall Street And The Bolshevik Revolution with vast detail and irrefutable supporting evidence, it was globalist financiers that created the social petri dish in which the communist takeover flourished. The same financiers that aided the Nazis... The two sides, National Socialism and communism, were essentially identical despotic governmental structures conjured by the same group of elites. These two sides, these two fraudulent ideologies, were then pitted against each other in an engineered conflict that we now call World War II, resulting in an estimated 48 million casualties globally and the ultimate formation of the United Nations, a precursor to world government. Every major international crisis for the past century or more has ended with an even greater consolidation of world power into the hands of the few, and this is no accident.
The same cunning crafty cabal has synthetically pumped the U.S. Stock and Bond markets to precariously unstable new all time highs, under very dubious circumstances. Could this have been orchestrated to create the most horrific horrendous havoc possible once the plug is pulled on all USD denominated financial assets? The devastating simultaneous detonation of both the U.S. debt and equity markets ultra bubbles would decimate the USD and what was left of the public's faith in the U.S. financial markets. This is how the Idiot Savant suspects it will all go down. Once the globalist successfully provoke a major resource war, the oil market will shoot straight through the roof, interest rates will spike, and a US stock market crash of epic proportion will ensue. After the dreadfully disastrous devastating dollar fall out, the entire world will be on its knees begging and pleading for a NWO with an IMF/BIS/WBG sponsored global SDR currency regime to reset the globe's malicious monetary mayhem meltdown mess. The Banksters will have us eating out of their filthy hands. The masterful maniacal mission mercilessly accomplished.
Sitting and staring out of the hotel window
Got a tip they're gonna kick the door in again
Like to get some sleep before I travel
But if you got a warrant I guess you're gonna come in
Busted down on Bourbon Street
Set up like a bowling pin
Knocked down, it gets to wearing thin
They just won't let you be
BDI from the 47th with electrodes taped to his boobs, wishing he were high as a kite. Although, the last thing this EP needs is a further altered state of mind blowing inspiration.
Prem Watsa's 9 Observations Why There Is A "Monstrous Real Estate Bubble In China Which Could Burst Anytime"
Excerpted from Prem Watsa's Fairfax Financial Holdings investor letter,
There is a monstrous real estate and construction bubble in China, which could burst anytime. It almost did in 2011 but China increased its credit growth significantly since then.
In the last few years we have discussed the huge real estate bubble in China. In case you continue to be a skeptic, here are a few observations from Anne Stevenson Yang, an American who has been in China for over 20 years and is the founder of JCapital Research in Beijing:
1. China added 5.9 billion square metres of commercial buildings between 2008 and 2012 – the equivalent of more than 50 Manhattans – in just five years!
2. In 2012, China completed about 2 billion square metres of residential floor space – approximately 20 million units. For perspective, the U.S. at its peak built 2 million homes in a year.
3. At the end of 2013, China had about 6.6 billion square metres of new residential space under construction, around 60 million units.
4. Yinchuan, a city of 1.2 million people including the suburbs, has 30 million square metres of available apartments – roughly 300,000 units that could house 900,000 people. This is in addition to the delivered but unoccupied units. The city of Guiyang, capital of Guizhou Province, has roughly 5.5 million extra units for a city of 5 million.
5. In almost every city Anne has visited, pretty much the whole existing housing stock has been replicated and is empty.
6. Home ownership rates in China are estimated to be over 100% versus 65% in the U.S. Many cities report ownership over 200%. Tangshan, near Beijing, is one.
7. This real estate boom could only be financed through unrestrained credit growth. Since 2009, the Chinese banks have grown by the equivalent of the entire U.S. banking system or 15% of world GDP.
8. The real estate bubble has resulted in companies extensively borrowing and investing in real estate or lending on real estate in the shadow banking system. This is exactly what happened in Japan in the late 1980s.
9. And one observation of our own: Since 2009, the easing by the Federal Reserve combined with the explosive growth in China, backed by higher interest rates, has resulted in huge inflows (‘‘hot money’’) into China. The near unanimous view that the renminbi would strengthen has resulted in a massive carry trade where speculators have borrowed at low rates across the world and invested in China, almost always backed by real estate. The shadow banking system in China – i.e., assets not on the books of the major Chinese banks – is estimated by Bank of America Merrill Lynch to be approximately $4.7 trillion or 51% of Chinese GDP. Oddly enough, prior to the credit crisis, the U.S. had $4.5 trillion in asset-backed securities outstanding or approximately 31% of U.S. GDP. You know what happened then. When the flows reverse in China, watch out!
These observations remind me again of the following quote from Michael Lewis' essay in Vanity Fair, "When Irish Eyes are Crying", which I wrote to you about in our 2010 Annual Report: "Real estate bubbles never end with soft landings. A bubble is inflated by nothing firmer than expectations. The moment people cease to believe that house prices will rise forever, they will notice what a terrible long term investment real estate has become and flee the market, and the market will crash." Amen!
As they say, it is better to be wrong, wrong, wrong and then right than the other way around!
For those of you who believe a picture is worth a thousand words, please watch the recent BBC documentary "How China Fooled the World".
Brief clip here
Finally, in our 2007 Annual Report, we quoted Hyman Minsky, the father of the Financial Instability Hypothesis, who said that history shows that ‘‘stability causes instability’’. Prolonged periods of prosperity lead to leveraged financial structures that cause instability. This quote was in relation to the U.S. in 2007. It applies in spades to China in 2013!
Any credit event in China will have very significant ramifications for the world economy, as China is the world’s second largest economy and consumes 40% to 50% of most commodities from iron ore to copper.
What does the typical Westerner think of when asked about Ukraine?
Submitted by Nick Cunningham via OilPrice.com,
The Russian occupation of Crimea has raised concerns about the European Union’s dependence on its eastern neighbor for natural gas. The EU gets about 34% of its natural gas imports from Russia, a large portion of which transits Ukraine through a web of pipelines. For Eastern Europe, that dependence is much greater. In the brutally cold winter of 2009 Russia cut off gas supplies to Europe allegedly over a pricing dispute with Ukraine. However, it was also a lesson to Western Europe on its dependence on Russia for energy.
Russia has a track record of using its natural gas supplies as a political weapon. The latest incursion into Ukraine has no doubt revived worries among European policymakers that saw what happened back in 2009. Thankfully, Vladimir Putin eased tensions on March 4, indicating that he wasn’t seeking a military conflict. This allowed natural gas prices to fall back a bit after spiking by 10% the day before.
But how vulnerable is Europe to the political machinations of the Kremlin? It appears that this time around the EU is in better shape. A mild winter and stagnant demand have left Europe with higher levels of inventory than in past years. According to a spokeswoman at the European Commission, the EU has 40 billion cubic meters of natural gas on hand in storage, which accounts for 10% of annual demand for the entire European Union. Those figures vary by country (Czech Republic and Slovakia have 90 days of supplies; Hungary two months; Austria six months), but as a bloc, the EU has 20% greater supplies at its disposal than it did last year.
And it’s not just seasonal patterns that have put the EU in a better spot. Europe has been reducing its reliance on Russian gas for a while now – in 2003 the EU imported 45% of its natural gas from Russia. It’s now down to around one-third.
Europe has been the beneficiary of the shale gas boom in the United States, even though the U.S. hasn’t even really begun to export LNG. The surge in domestic production allowed LNG from other parts of the world – Qatar, for example – to be rerouted to Europe. (Several U.S. members of Congress have tried to exploit the Ukrainian crisis, arguing for the Obama administration to issue a blanket approval for LNG exports in order to isolate Russia. Over the short-term, that is nonsense – it will take years to build the terminals, so issuing licenses for exports won’t do anything to help out Europe. Over the longer-term, that may be a different story). Europe has also undergone a big effort at implementing greater energy efficiency and renewable energy. Moreover, the U.S. has exported more coal to the EU in recent years, which competes with high priced natural gas there.
Thus Europe is more secure than many believe. Moreover, the EU and Russia are so interdependent that it is unlikely Russia will proactively cut off gas supplies to Europe. In fact, Russia is arguably more dependent on the EU than the other way around. Europe has other options. Russia, on the other hand, is heavily dependent on oil and gas, which account for half of the country’s total budget revenues. For Putin, cutting off gas exports to Europe would be akin to him cutting off his nose to spite his face.
“It would be highly counterproductive for Russian interests at a time when Europe is considering how to respond to Russian actions in Crimea, to take steps that would have a major and negative direct impact on Europe,” said Laurent Ruseckas, a senior associate at IHS CERA, as reported by Politico.
The economic damage of energy supply disruptions cuts both ways. Putin likes to play the role of bully, but Russia is not exactly in a strong position in terms of using energy as a political weapon. Whether or not the Ukraine crisis deepens, it is unlikely that Moscow would intentionally turn off the taps for any prolonged period of time.
The only thing that is unclear about the following clip released by the Ukraine's Border Guard supposedly capturing Russians "digging in" on a key route linking Crimea to the rest of the Ukraine, is what is funnier: that the Russian soldier is "painting" the drone with a laser flashlight, or that according to the Ukrainians said action was evidence the drone was being "shot at" by Russian soldiers.
As a follow up, here is another video made by a Ukrainian drone showing the distribution of Russian forces on the peninsula.
Submitted by StreetCry via the MarkStCyr.com blog,
There probably isn’t an over used phrase thrown across the media landscape than, “It’s different this time.”
One can’t look at the financial markets, the political stage, and more without shaking ones head. Nothing seems to make sense. Yet if one wants to lazily answer, “It’s different this time.” Things become crystal clear.
Water now seems to run uphill. The definition of words no longer mean what they once did. (we’re still marveling on what is – is) Free society means the loss of only a few freedoms per year, as opposed to everything at once. Work is a bad thing however, if someone else goes to work and pay for your things – then that’s good. You can keep your plan if you like your plan – but if we don’t like it – well – you can’t. The Federal Reserve would never monetize the debt – however if you’re a preferred dealer in the QE (quantitative easing) program – they’ll do it for you. I could go on but for brevity’s sake, I’ll stop there. I believe you get the drift.
These precarious times leave many scratching their heads. It has been (and continues to be) extremely difficult to rationalize exactly what one personally, or business and investing wise should, or should not be doing.
When everything one has both learned through experience or looked back through history for clues now seems irrelevant, or worse – indifferent. It truly makes one question one’s sanity as you wrestle daily with the over whelming feeling that you just may be – the only sane person in the asylum. And that is not a comforting resolution to one’s conclusions. For it begs the rebuttal: Then who’s truly the crazy one?
I was asked the other day why I continue to make arguments for caution where some people at times are having a field day with the equivalent of kicking me in the shins as the financial markets rise higher, and higher, to ever higher heights? It’s a good question and I thought I’d extrapolate more on what or why I’m seeing blatant warning signs others can’t or, refuse to.
Let me express why my observations cause this with the following line: When everyone is on the band wagon – except the band. You had better take notice.
First, let me give some background as to why I have standing to make such arguments.
In addition to my business acumen, I cut my teeth and actually traded my own money (not some form of 401K account – a true margin account) in the futures markets and more both before, during, and after the financial market meltdown of 2009. A period where; if you momentarily dared to turn away from your screens to just shred a document, your positions could be up six figures (as in making money) or down the same. (as in lost)
So turbulent and crazy this period of time was, many had to shake their heads to snap out of their contemplations of; “Hmmmm?” after seeing a Depends® commercial roll across the TV. And every single one almost to a person of the so-called “smart crowd” paraded across the financial media landscape not only didn’t see it coming – they were patently dumb struck on why it was happening, and what one should do about it. (People think these commercials are placed because of age demographics. After 2009, I started to question that argument. It now seemed to speak to a far greater group. But I digress.)
During that time, I have traded with open positions when the markets has been “Lock limit down.” For those not familiar with the term it basically means the markets are halted or shut down as to try to stop the panic.
I have been in situations (and know of many other veteran traders) where positions were unable to be closed as to stop the bleeding – as one watched the account balances disappear, or worse – go negative. Not to mention the frustration when the inability to get hold of brokers to alter or close positions when platforms freeze, while account balances swing wildly out of control.
There are people who’ll line up to tell me about how they currently have this or that hedged. How X will take care of Y and so forth. All sounds good, the rationale appears sound, but experience will tell you, a backup plan for the markets is insufficient and foolhardy at best. You need a backup plan – to your backup plan – with an additional backup plan. Along with the ability and faith you can execute it in a panic situation. Period. And that’s just for starters.
You haven’t truly traded volatile markets till you’ve stood and stared doe-eyed watching the money in your account as it spirals downward out of control with seemingly no way to stop it. There are ways, but very few know, never mind could execute in the moment. I would venture to say based on people I’ve spoken or listened to, 4 out of 5 are ill-equipped for any real shock to the markets. Especially at where they are currently. However it’s exactly this crowd that is the most vocal using the guise of “The Fed’s got their back.” as if bad things now can’t happen. So why worry? Because – (you guessed it) “It’s different this time.”
I know and try to relate first hand stories of veteran market traders worth millions wiped out in near moments and far, far more. (Never-mind by their own hand or trades just ask a victim of the MF Global™ scandal) Yet, it continually falls on deaf ears as one talks to people who just believe the markets are, “ducky.”
Many (if not most) either just started handling their self-directed 401K accounts (which is the way to do it in my opinion) over the last few years. To them the tone and tenor of anything market related falls into the category of, “Everything of the past is old news.” “The Fed’s got their back,” and more. I’m usually left to myself just shaking my head.
Personally, I have read more books on technical analysis, market psychology, option studies, probability studies, volatility strategies by all the best known authors, along with even more brilliant yet, less heralded ones. I have put money to work via investment advisers, as well as real-time trading strategy/execution services. Yet, if I question someones thinking or thoughts on the markets? I get a look like, “Yeah sure. What do you know. Can’t you see? It’s different this time!” And once again, the conversation just about ends there.
I’m begging to feel that in some strange way they may have a point. But – it’s for all the wrong reasons. And here’s why…
A few things (although very big) have changed over the past 5 years since the great market collapse. These are in no specific order of importance.
First: The advent of government involvement within the financial markets is unprecedented in its history. It can not be understated the influx of Trillions of dollars via the Federal Reserves QE programs, and the levered effects that influence has brought to bear. We don’t have a shred of true market forces that warrant such levels. (Please save the emails. You’ll do better with CNBC® than me.)
Who cares if war, or anything else pops up on the horizon which not that long ago (say before QE?) at the very least would cause the markets to take at the very least – a defensive position. (Remember Greece?) Nope, not in the least.
As one nation after another with its cities on fire, citizens battling in the streets, cries of defaulting on sovereign debt, export/import disruptions, and more. Since the intervention of the QE programs; as long as the spigot remains open – the world and its crises are mere footnotes.
Just look at what is taking place today in the Ukraine. Quite possibly the greatest global uncertainty wrench into the gears of the world at large. Russia puts boots on the ground, test fires an ICBM to heighten threats. North Korea test fires more missiles during this same period. At the same time our largest holder of debt and largest trading partner China publicly sides with Russia’s invasion calculations, not to mention their newest economic figures have been awful (and they are notorious in fudging them as to make them better than they truly are) and the markets reaction? Not only higher, but Investor Intelligence™ surveys show that traders are the least caring of a market hiccup in over 15 years!
That’s the equivalent of more unicorn and rainbow thinkers in the market today than the dot-com bubble! Absolutely mind-boggling in my view.
Back all this into an algo-filled, machine dominated, high frequency trading environment and you can make the rational argument that the once ,”free” financial markets. Are now truly different this time.
For if the machines only care about the numbers – will act on those numbers – and you only supply the numbers the way the machines care about. Well, you do in theory have control, right?
Well yes but (and it’s a very big but) till you don’t. Then what?
And that’s where my arguments still fall. Again, far too many whether they be entrepreneurs, traders, business executives, and more are not calculating, “what ifs?” That is a recipe for disaster in my view.
To show how far we’ve come from reality all one needs to do is to look at how or what the media will or will not cover. Remember, Black Monday? That was back in 1989 when the markets crashed. Over, and over, and over this was reported on anniversary after anniversary. Now? For all intents and purposes, it passes quieter than two ships passing in the night.
I bring this point to the forefront for the sole purpose of pointing out there was an anniversary this week. It was the 5th anniversary of the financial markets collapse. The worst since the era that brought about The Great Depression. And if I didn’t bring it to your attention now, many of you probably didn’t even know it. The near mention of this event had more in line with the Harry Potter character of “You know who” as in “He that shall not be named.” The 2009 financial collapse now seems to be of the same ilk.
Again, as to push the point I made earlier on things that leave people scratching their heads. Black Monday (a far less eventful matter as compared with the final declines of 2009) was headlined, spoke of, theorized, along with a great whaling and the gnashing of teeth – every anniversary. And what about this one? The silence was deafening.
Here’s the rub – we all know the unemployment #’s are worthless. We know they’re currently manipulated to the point of absurdity. We know that GDP (gross domestic product) trade deficits, and much, much more are now running inline with as much controversy as to their validity as those we get from the Chinese government. Accounting standards and the reporting of earnings are once again venturing on comedic.
(As in an a company lost money according to general accounting, but based on Non-general? The place is rolling in dough!”)
Fact or fiction seems to no longer matter anymore. It’s now blatantly obvious: spin a tale no matter how large for if it sticks – it’s now considered fact. And if they don’t believe the first lie – just readjust or recalculate the formulations to provide something they will believe. It’s becoming near maddening.
So I guess it truly is, “different this time.”
Just what happens when it’s realized that puddle on the floor isn’t from unicorn tears but from someone who didn’t see a Depends commercial is now anyone’s guess.
Deja vu all over again...
Investors can't bail fast enough on emerging markets at the moment. And rightly so, given the potential for further problems as I highlighted in last week's post, Emerging Market Banking Crises Are Next. But the indiscriminate sell-off of emerging markets also opens up some potential opportunities. Asia Confidential thinks South Korea stands out as one such opportunity.
South Korea isn't really an emerging market though. It's a US$1.1 trillion economy, the 15th largest in the world. With populations above 50 million, the economy ranks 7th globally. Nonetheless, those in charge of indices such as MSCI still classify South Korea as an emerging market. Which should make you question the entire notion of "emerging markets", as I do.
That aside, South Korea has tremendous long-term prospects. It's an open economy with a robust democracy. It's a world-class manufacturer which has every chance of becoming the next Germany. It has a highly educated and hard working labor force. Unlike its former coloniser, Japan, it's shown the ability to adapt and reinvent itself. And importantly, the prospect of reunification with North Korea in the not-too distant future would prove a tremendous boon for the South and drive an unprecedented investment boom.
The short-term outlook is bright too. Unlike many other emerging markets, South Korea runs a current account surplus and therefore isn't vulnerable to capital outflows from QE tapering. It also never had the credit boom that other Asian countries experienced. Significantly, it's highly exposed, via exports, to economic recoveries in the US and Europe (the latter being more dubious than the former).
To top it off, South Korea is the cheapest country in Asia with a 2014 price to earnings ratio (PER) of just 8.8x. There are a number of world-class companies in South Korea trading at just 6x earnings. Bargains in plain sight, you might say.
Emerging market, really?
To get a sense of the long-term opportunity, it's important to understand a brief bit of history. South Korea tends to get lost in the headlines of much larger neighbours, China and Japan. Only the threat of North Korean conflict or music poking fun at rich people (Gangnam style) occasionally breaks this trend. But the success story of South Korea is on par with its neighbours.
As many of you would know, South Korea was brutally occupied by Japan from 1910-1945. Post-World War Two, it was split into North and South Korea by the US and Soviet Union. The Cold War was the central driver to the Korean War soon after. The 1953 armistice signed at the conclusion of the war split the peninsula along a demilitarised zone. Technically, South and North Korea are still at war. Some 2 million troops patrol the demilitarised zone, making it the most heavily-guarded border in the world.
Fast forward to 1961 and the rise of Park Ching-hee to the leadership. Chung-hee is known for being the most important ruler in South Korea's history.
When he came to power, South Korea's GDP per capita was just US$72. Needless to say, a very poor country. Chung-hee drove South Korea into the modern age with often brutal efficiency. He did this through export-led industrialisation and oversaw the creation of the now-famous conglomerates known as chaebol. Along with Hong Kong, Singapore and Taiwan, South Korea became known as one of the four "Asian Tiger" economies.
During the 1970s though, economic growth slowed as the investment-led model ran out of steam. And resentment grew towards Chung-hee's authoritarian rule. The President was subsequently assassinated in 1979.
South Korea recovered and, along with many other Asian countries, experienced rapid growth in the early-to-mid 1990s. When exploding foreign debts led to the collapse of Asian currencies, South Korea had to go to the IMF for a record US$58 billion bail-out package. This was humiliating to a proud nation.
South Korea handled the Asian crisis in a very different way to other countries, however. People in countries elsewhere moved their money to the Cayman Islands for protection. In contrast, South Koreans banded together, determined to pay off the debts. People queued up for hours to donate jewelry to the cause.
Unlike a number of other Asian countries, South Korea also let companies fail instead of bailing them out. Some 40% of the biggest companies were allowed to go under. This included multinationals such as Daewoo. Staggeringly, the IMF debt was repaid by 2001 and South Korea's economy was back on track.
South Korea's adaptability under dire circumstances stands in stark contrast to others. Its once colonial master, Japan, hasn't shown the same attributes since 1990. And Taiwan, another former Japan colony, has also failed to remake itself post the crisis.
From 1998, the chaebol brought in professional managers to oversee operations, while the founding families retained control over strategic decisions. They moved fast to build plants in China to give them a low-cast labor advantage. They outspent rivals on research and development. And they weren't afraid to expand abroad and take on the big boys.
Hyundai is a case in point. It first entered the North American car market in 1986. Funnily enough, its cars initially met with some success as Americans mistook them for Honda cars (they had similar logos). Post that, Hyundai's cars became a bit of a joke, known for poor design and numerous quality issues.
Instead of retreating though, Hyundai doubled down. In 1998, it offered a ten-year warranty, more than twice its competitors. The move was laughed at by many. By it proved a game-changer for the company and the industry.
In 2005, Hyundai opened its first American plant in Alabama. US competitors dismissed the move, given the enormous problems they were having with high-cost union labor forces in Detroit at the time. The difference was that Hyundai didn't have these same labor issues. And the plant has now become one of the most efficient in the US.
Turn to today and Hyundai is one of the world's top-5 car companies. Though it's certainly not the only South Korean company to have proved itself on the world stage.
South Korea does resemble some other emerging markets in one respect: it relies extensively on an export-led economic model. Exports account for 56% of GDP. And chaebols account for 82% of GDP.
It's obvious that the country needs to become less reliant on exports and look to the next drivers of economic growth. Those drivers are likely to come from the still undeveloped services sector.
South Korea's leaders realise the urgency of the task. Recently, President Park Guen-hye (daughter of Park Chung-hee) outlined her so-called 474 plan: 4% economic growth, 70% employment rate and average per-capita income of US$40,000.
Simply put, the plan involves the following:
- Shift tax benefits from chaebol manufacturers to start-ups
- Rein in state-owned enterprises
- Provide support to venture capital
- Cut back on regulations in a variety of sectors including health and education to promote competition
- Incentivise employers to hire more young people and women
This isn't the first time that South Korea has tried to reduce its reliance on exports. In the early 2000s, it granted tax breaks to credit card users in order to spur domestic spending. Predictably, consumers got carried away and delinquencies on credit cards reached 30%. Companies had to be bailed out and economic growth stalled by 2003.
Corporate deleveraging and government restrictions on business borrowing since the 1997 crisis have also encourage bank lending to households. That borrowing has mostly found its way into real estate. Consequently, household debt has grown about 2x GDP since the crisis. And household debt in South Korea is now around 150% of household disposable incomes.
The risks from this debt are limited though. More than 70% of the debt is owed by the top two quintiles by income, which have twice as many assets as debt. Also, South Korea has imposed strict 40% loan-to-value ratios on property purchases. Finally, the central bank has forced some lenders to write off 40% of the value of personal loans, reducing the risks of a consumer debt bust.
However, the challenges of rebalancing the economy and finding new sources of growth remain. Given its track record of adaptability, Asia Confidential is confident that South Korea can reinvent itself again.
2014 economic outlook
So what about the short-term outlook for the economy? Here, the prospects seem reasonable.
Unlike many emerging markets, South Korea consistently runs current account surpluses and therefore isn't susceptible to capital outflows from QE tapering. It also hasn't had a credit boom over the past 3-4 years and thus isn't vulnerable to a hangover on this front.
Prospects for growth look ok too. South Korea's still large dependence on exports may play in its favour as the country is geared to any recovery in the US and EU. While on paper the US and EU only account for 20% of Korean exports, the number is actually much larger as these are the ultimate destinations for the bulk of Korean exports to emerging markets.
South Korean exports to the US and EU bottomed in 2012 and have steadily improved. Bank of America Merrill Lynch forecasts 8% growth in exports to the US and EU in 2014.
South Korea is highly correlated to US growth. Every 100 basis point change in US GDP growth impacts South Korean GDP growth by 80 basis points.
In addition, deflationary fears in South Korea appear misguided. Inflation is likely to return to the 2% level this year after bottoming at 1.3% last year. Signs of rising inflation can be seen in core inflation, which rose almost 3% quarter-on-quarter, in seasonally-adjusted terms, over the last several months. Any rate hikes though aren't likely until the end of the year, at the earliest.
Lastly, the housing market is showing signs of life after five years in the doldrums. Transaction volumes and prices improved in the second half of last year. Volumes could reach 80,000 units/month in the first half, the third-highest level since 2008. That said, high household debt should limit the extent of the property recovery.
In sum, the near-term outlook isn't outstanding. But it's better than most.
The long-term prospects for South Korea look brighter, for three reasons:
- Its already world-class companies are likely to move aggressively up value chains to find new niches to dominate. South Korea is well known for its cars and electronics. It's also found success in less sexy industries such as shipbuilding too. The top three global shipbuilders are from South Korea. I not only expect continued gains in these type of industries, but new ones too. A highly educated workforce, high investment in R&D and a proven ability to compete and adapt should ensure this.
- The aim to boost service industries should pay dividends and provide the next leg of growth for South Korea. Skeptics will point to South Korean historical failures on this front. But it's increasingly clear that South Korea realises the risks of the country being left behind if it doesn't rebalance the economy.
- The real potential kicker is North Korea. Yes, North Korea is exceedingly poor but it has a disciplined population of 24 million and immense natural resources. Put this together with South Korea's capital pool and management capability and you have an irresistible combination. It would likely produce an investment bonanza of unprecedented proportions. South Korea is already preparing for unification by keeping its debt low to absorb the huge costs in rebuilding the North. Note also, the President is pushing for unification, recently saying:
"Unification will allow the Korean economy to take a fresh leap forward and inject great vitality and energy. People would even sing "We dream of unification in our dreams"".
If I'm right about the bright long-term prospects for South Korea, the so-called "Korean discount" should fade. For the uninitiated, markets continue to impose a discount on the valuation of South Korean stocks given the often murky operating structures and financials of the large companies.
This view is somewhat outdated given the substantial improvements in business structures and accounting over the past decade. Further improvements should eventually see the discount disappear, providing further upside to Korean stocks.
Valuations stack up
Price is ultimately what matters with any investment. And on this front, South Korea looks attractive. It's the cheapest market in Asia, trading at just 8.8x this year's earnings, a 24% discount to Asia ex-Japan's 11.6x PER. Consensus forecasts 13% earnings growth in 2014, versus 12% for the Asian region.
If you dig a little more, there are some exceedingly cheap valuations for world-class companies. For instance, Kia Motors is trading at 5.9x 2014 PER. Samsung Electronics is also priced at just 6.9x earnings.
Some of the domestically-focused large caps are also priced at levels not seen in other markets. For instance, KB Financial, a consumer bank, trades at a 40% discount to tangible book value (net asset value, in other words). Yes, return on equity at KB Financial is a low 6% but if this improves from abnormally depressed levels, then the discount to book value should diminish too.
No investment is without risks and these risks need to weighed against the potential rewards. I see three key risks for South Korean stocks:
- Any recovery stalls in developed markets. The US recovery is painfully slow, but it's better than elsewhere. Particularly the EU, where deflationary risks remain. If economies in these regions lurch downward again, South Korea would be disproportionately impacted.
- The yen is also a big risk. Regular readers will know that I foresee a much lower yen in the medium term given the Abe government's insane money printing policies. Given a lower yen, Japanese exporters are expected to provide much stiffer competition to their South Korean counterparts going forward.
- The obvious long-term risk is North Korea. A messy and violent reunification with the South would seriously dent future economic prospects.
In my view, the first and second risks are already partially if not fully factored into South Korean valuations. If these things don't eventuate, or not to the extent envisaged, then the upside for stocks is pretty clear.
AC Speed Read
- South Korea stands out as a buying opportunity amid the indiscriminate emerging markets sell-off.
- The country's short-term economic prospects are positive given its sound financial position reduces risks from QE tapering. Also, its export-led economy has significant exposure to the US recovery.
- Long-term, South Korea manufacturing prowess could turn it into the next Germany. There's also the prospect of reunification with North Korea, which would prove an investment boon to the South.
- Valuations are cheap as well, with South Korea trading on just 8.8x 2014 earnings. World-class companies such as Kia are priced at just 6x earnings.
- Potential risks include a slowdown in developed market economies and a lower yen making Japanese exporters more competitive vis-a-vis their South Korean counterparts.
This post was originally published at Asia Confidential:
Submitted by Mark Thornton via the Ludwig von Mises Institute,
President Barack Obama has recently released his budget in which he calls for an “end of austerity.” This is an amazing statement from a president whose government has spent the highest percentage of GDP in history and added more to the national debt than all past presidents combined. What must he mean by austerity?
There are demonstrations around the world over austerity on an almost daily basis. It is condemned as an evil poison for tough economic times while others tout it as the elixir for economic depressions.
The president’s rejection of austerity represents the Keynesian view which completely rejects austerity in favor of the “borrow and spend” — increase aggregate demand — approach to recession. What he really is rejecting is the infinitesimal cutbacks in the rate of spending increases and the political roadblocks to new spending programs.
While the 2009-2012 budgets have been relatively flat, they are still more than 15 percent higher than in 2008 and 75 percent higher than in the previous decade. This four year leap in spending was financed with a $5 trillion increase in the national debt. No austerity here!
The type of austerity that gets the most worldwide press attention on a daily basis is that promoted by economists at the International Monetary Fund. This “austerian” approach involves cutbacks in government services and tax increases on the beleaguered public in order to, at all costs, repay the government’s corrupt creditors. This pro-bankster approach is what generates a massive amount of media attention and sometimes violent demonstrations.
Austrian School economists reject both the Keynesian stimulus approach and the IMF-style high-tax, pro-bankster approach as counterproductive. Although “Austrians” are often lumped in with “Austerians,” Austrian School economists support real austerity. Real austerity involves cutting government budgets by reducing salaries, employee benefits, and retirement benefits. It also involves selling government assets and even repudiating government debt. Instead of increasing taxes, the Austrian approach advocates decreasing taxes.
Despite all the hoopla in countries like Greece, there is no real austerity except in the countries of Eastern Europe. For example, Latvia is Europe’s most austere country and also one of the fastest growing economies. Estonia implemented an austerity policy that depended largely on cuts in government salaries. In contrast there simply is no significant austerity in most of Western Europe or the U.S. As Professor Philipp Bagus explains, “the problem of Europe (and the United States) is not too much but too little austerity — or its complete absence.”
Real austerity for individuals means living a highly restricted lifestyle. The best example is the monk who lives on a subsistence-level diet, wears simple clothing, possesses a few basic pieces of furniture, and uses only necessary utensils. His days consist of long hours of work and prayer with no leisure activities and he may not even enjoy indoor heating or plumbing.
Austerity applied to whole countries, is not necessarily so harsh or ascetic. It simply means that the government has to live within its means.
If government were to adopt a thoroughgoing “Libertarian Monk” lifestyle, then the national government would be cut back to only national defense without standing armies and nuclear weapons. The national debt would be wholly repudiated. This would involve certain short-run hardships, although much greater long-run prosperity.
In contrast, the typical austerity policy is not severe. Government employees would be given cuts in wages, benefits, and retirement benefits necessary to balance the budget. The biggest cuts would fall on politicians, appointees, and senior bureaucrats. Given that such cutbacks occur when most everyone is facing cutbacks and hardships and given that government employees are typically very well compensated, it is not unreasonable to expect them to bear most of the burden of an austerity policy.
One particularly promising area for cutbacks is government regulation. Regulation is a burden on taxpayers, discourages entrepreneurship, and makes us less safe. One recent empirical study found that regulation was extremely costly and that “eliminating the job of a single regulator grows the American economy by $6.2 million and nearly 100 private sector jobs annually.”
Real austerity actually works best with tax cuts. To help austerity create growth it needs to be understood that certain taxes are highly discouraging to production. Tax cuts on investment and capital in contrast stimulate economic activity and production.
IMF-inspired tax increases make no sense. In hard times, government policies should be guided by the idea of increasing production, not of making production more burdensome via higher taxes. In much the same way, our ascetic monk does not force his duties and burdens on ordinary citizens.
President Obama has also suggested higher taxes (again) this time such as the removal of “tax breaks” for the retired rich. This would be the first step toward robbing our IRAs. Some have even suggested that “austerity” should involve extending existing taxes onto charities and nonprofits. Others have suggested taking away the tax-exempted status of charities and non-profits, which is nothing but a backdoor tax increase. These are some of the dumbest suggestions, especially in economic crises and are not real austerity.
Austerity does not mean, for example, budget cuts that would eliminate garbage collection or shutting down the fire department while leaving the military, education, and the spy state untouched. This is just a form of extortion that does not solve the problem. It only reveals the true nature and intent of those who work in government.
The Keynesian stimulus approach does not work. The IMF-inspired austerian approach also does not work. Only real austerity works. This means cutting government employee incomes, benefits, and retirement benefits. This alone would encourage them to run a tighter ship in the future. Eliminating regulators and regulations, cutting taxes, and selling government assets would all aid in the recovery process.
President Obama and Congress should get busy doing what is best for the economy and the American public instead of enriching themselves and those who feed at the public trough.
Between China's dismal trade deficit data (desperately defended by several sell-side strategists proclaiming it's just lunar new year 'noise' - aside from the fact that all the same strategists 'knew' the dates and still missed by 6 standard deviations) and the esclalations in Ukraine, it appears 'confidence' is a little shaken in the status quo. JPY has opened notably stronger dragging Yen carry trades lower and implying notable losses on the open for stock futures...
"I do not believe that Crimea will slip out of Russia's hands," former Defense Secretary Robert Gates told Fox News this morning adding that there is little chance Ukraine will be able to get back control. When asked in this brief clip "You think Crimea's gone?" Gates responded clearly, "I do." Gates then goes on to explain why Obama's foreign policy didn't "embolden" Putin and perhaps more importantly defends Obama's "taking the weekend off in the middle of a crisis" golf trip...
Just in case the world did not have enough potential geopolitical flashpoints and near-crises, here comes old faithful - the simmering nationalist rivalry between China and Japan, which may have been pushed to the backburner in light of the grand return of Cold War 2.0, but is neither forgotten nor resolved. In fact, recent developments which have seen Japan fully back the US strategy in Ukraine while China has voiced its support for Russia, will probably only enflame the direct tension between the two Asian superpowers. Moments ago we got the latest manifestation of precisely this when Japan scrambled military jets on Sunday to counter three Chinese military planes that flew near Japanese airspace, defence officials said.
One Y-8 information gathering plane and two H-6 bombers flew over the East China Sea, travelling in international airspace between southern Japanese islands and went to the Pacific Ocean before returning towards China on the same route on Sunday morning, according to a spokesman at the Joint Staff of the Ministry of Defence.
“They flow above public seas, and there was no violation of our airspace,” he said, declining to release more details about the incident.
Japan and China are locked in a bitter territorial row over islands in the East China Sea administered by Japan as the Senkaku Islands, but which China calls the Diaoyu Islands.
Chinese government ships and planes have been seen off the disputed islands numerous times since Japan nationalised them in September 2012, sometimes within the 12 nautical-mile territorial zone.
And then there was the curious case of Libya which threatened on Saturday to bomb a North Korean-flagged tanker if it tried to ship oil from a rebel-controlled port, in a major escalation of a standoff over the country's petroleum wealth. Because obviously the Mediterranean is far too boring with Greece and Italy now fixed.