More on Iran’s Hyperinflation, Venezuela Next?

Professor Steve Hanke has more on the developing hyperinflation in Iran. 

From Prof. Hanke’s 10 facts on Iran’s hyperinflation (Cato Institute) [bold original] 

1. Iran is experiencing an implied monthly inflation rate of 69.6%. For comparison, in the month before the sanctions took effect (June 2010), the monthly inflation rate was 0.698%. 

2.. Iran is experiencing an implied annual inflation rate of 196%. For comparison, in June 2010, the annual (year-over-year) inflation rate was 8.25%. 

3. The current monthly inflation rate implies a price-doubling time of 39.8 days. For certain goods, such as chicken, prices may be doubling at an even faster rate. 

4. The current inflation rate implies an equivalent daily inflation rate of 1.78%. Compare that to the United States, whose annual inflation rate is 1.69%. 

5. Since hyperinflation broke out, Iran’s estimated Hanke Misery Index score has skyrocketed from 106 (September 10^th) to 231 (October 2^nd).   See the accompanying chart.

6. Iran is the first country in the Middle East to experience hyperinflation.  It is the seventh Muslim country to experience hyperinflation. 

7. Iran’s Hyperinflation is the third hyperinflation episode of the 21^st century.  The first was Zimbabwe, in 2008. The second was North Korea, whose episode lasted from 2009-11. 

8. Since the sanctions first took effect, in July 2010, the rial has depreciated by 71.4%. In July 2010, the black-market IRR/USD rate was very close to the official rate of 10,000 IRR/USD. The last reported black-market exchange rate was 35,000 IRR/USD (October 2^nd). 

9. At the current monthly inflation rate, Iran’s hyperinflation ranks as the 48^th worst case of hyperinflation in history. Iran currently comes in just behind Armenia, which experienced a peak monthly inflation rate of 73.1%, in January 1992. 

10. The Iranian Rial is now the least-valued currency in the world (in nominal terms). In September 2012, the rial passed the Vietnamese dong, which currently has an exchange rate of 20,845 VND/USD.

To add, as I have repeatedly been saying—symptoms of hyperinflation have likewise been manifested or ventilated on the stock market. 

The public’s reaction to the destruction of a currency’s purchasing power has been to seek refuge through securities backed by real assets. 

Traditional financial metrics in a hyperinflation ravaged economy has hardly been a concern because “cash” is under fire. When half of what has been used for transactions or when the conditions of the domestic medium of exchange is being questioned by the markets, then this represents a dysfunctional economy. We don't use conventional measures on an abnormal situation.

Thus, under a hyperinflationary environment, hedges or the stampede for safety or preservation of savings against a run on the domestic currency prompts for what would look like a stock market boom 

The same dynamic seems apparent in Iran. The one year chart of Iran’s bellwether the TEDPIX at the Tehran’s Stock Exchange reveals of a 3-month spike as Iran segues into a hyperinflation mode. 

Over 5 years the TEDPIX has risen nearly twofold even as real GDP growth in constant dollars exhibits a stagnation.

Iran’s GDP at constant prices (Index Mundi). 

So monetary inflation brings about a parallel universe: rising stocks, stagnating economy.

And another important point: Iran’s experience shows that the emergence of hyperinflation has not been gradual but precipitate. Price inflations as manifestations of monetary disorder always appear suddenly and unexpectedly. 

People who vastly underestimate the current dynamics of price inflation, as a result of concerted inflationism by global central banks, may likely be surprised by price inflation’s impetuous appearance.

I believe that similar symptoms are being exhibited in Venezuela.

Yesterday, the Venezuela’s Caracas benchmark, the IBVC, zoomed by an eye popping 7.98%!! This adds to the amazing weekly gain of 30.98%, and for a year to date return of a whopping 244.78!!! (see chart above from Bloomberg)

Some suggests that this week’s Venezuelan presidential elections have been breathing life into the markets. 

Yet a huge 67% jump in the incumbent’s the socialist populist Hugo Chavez spending in August may have been instrumental in driving the frenzied boom in Venezuela’s stock markets.

This September Bloomberg article gives us a clue, 

Chavez’s August spending surge is swelling the budget deficit that will compel him to devalue the currency after the vote to bolster revenue from oil exports and shore up government finances, according to Barclays Plc and Bank of America Corp., which said in a report yesterday that spending grew 41 percent on an inflation-adjusted basis…

“The market is pricing in an imminent currency devaluation in 2013 regardless of who wins,” said Carlos Fuenmayor, the Miami-based chief executive officer of BancTrust & Co., an investment advisory firm

So Mr. Hanke may want to train his eyes on Venezuela, a likely candidate for the next Iran.

Quote of the Day: True Privatization

As Sheldon Richman explains, what American politicians pass off as “privatization” is usually merely government contracting. Government outsourcing now permeates the military establishment, schools, social service agencies, prisons, and even regulatory enforcement. Hiring private contractors, as Richman points out, does not shrink the size of government or the scope of government services; if anything, it expands it by allowing the government to do ever more. The “privatization” that is merely government outsourcing creates incentives for private firms to lobby for the expansion of the relevant government services—besides the private prison operators lobbying for longer sentences and more criminalization, other entrepreneurs lobby for the state to start new social service programs that the contractors expect to run, and so on. Such contracting has the additional insidious result of skewing tangential markets in the private sector, because the large firms that get lucrative government contracts can then underprice (and eventually eliminate) their competitors in other markets, using the taxpayer dollars they receive as leverage rather than competing fairly.

Worse, outsourcing often is a bad deal for the taxpayers—one-quarter of federal contracts have no competitive bidding (thus, no competitive pricing), and many firms that lock in a government contract can later raise the price dramatically, knowing that the agency involved cannot easily switch to another contractor. The government is certainly less efficient than the private sector; but less efficient still is the government hiring the private sector to do the government’s job. True privatization is the government withdrawing from a field and leaving it entirely to the private sector. 

(italics original, bold mine)

This superb insight is from South Texas College Professor of Law Dru Stevenson at the Cato Unbound on the discussion about Privatization.

Government outsourcing or pseudo privatization, e.g. Public Private Partnerships, leads to the gaming of the system that leads to the the feedback mechanism of the expansionist state and crony capitalism.

Has the CIA Sponsored Some of the Pirates and Terror Groups in Somalia?

US foreign or imperial policies “spawn” their own “monsters” which they eventually end up fighting against.

They never seem to learn from their experience with Al Qaeda, or perhaps these have been part of the undercover scheme to promote foreign interventions and wars abroad in the interests of neoconservative politics and of the Wall Street backed military industrial complex.

From the Business Insider,

An attempt by CIA-connected trainers to create a sophisticated counter-piracy force in Somalia turned into hundreds of half-trained and well-armed Somali mercenaries being left to their own devices in the desert, Mark Mazzetti and Eric Schmitt of The New York Times report.

The Puntland Maritime Police Force, trained by dozens of South African mercenaries from sometime in 2010 to June 2012, was run by a Dubai-based company called Sterling Corporate Services that seems to be connected to the CIA.

The Times reports that in July a United Nations investigative group uncovered that the force shared some facilities with the Puntland Intelligence Service, a spy organization that answers to the president of the semi-autonomous Somali region of Puntland and has been trained by the CIA for more than a decade.

Michael Shanklin, a former C.I.A. station chief in Mogadishu, was reportedly hired to work his contacts both in Washington and East Africa to build support for the force while Erik Prince, the founder of the private security firm Blackwater, made several trips to the Puntland camp to oversee the training of the counter-piracy force.

It is important to emphasize that the “private company” has not only been backed by the CIA, the UAE government had considerable involvement in them. According to the New York Times “millions of dollars in secret payments by the United Arab Emirates”. So the private sector contractor is in reality a crony or a politically connected firm operating on stealth political goals.

In addition, the unintended consequences of interventionism have not merely been that these abandoned highly trained and armed groups have been left to their devices, but rather, as the NYT points out they may have joined up with “the pirates or Qaeda-linked militants or to sell themselves to the highest bidder in Somalia’s clan wars — yet another dangerous element in the Somali mix”. So in essence, the CIA trained possible and or potential, if not current, members of future pirates and terror groups.

The above signifies as further evidence that the perpetual foreign interventions, which ironically fostered her pirate industry has, contrary to mainstream expectations, induced the vicious cycle of violence in “stateless” Somalia.

However, Somalia isn’t “stateless” anymore. Repeated foreign interventions has finally resulted to the installation of a new Western backed government for the first time in four decades. As for the longevity of this US sponsored government, this remains to be seen.

Charles Goyette: Are the Central Bank Vaults Empty of Gold?

Do Western Central bankers hold anymore gold in their bank vaults as they claim they have?

Charles Goyette at the lewrockwell.com elaborates on the queries posed by Eric Sprott’s piece "Do Western Central Banks Have Any Gold Left???"

New mine supply of gold this year is estimated to be just under 2,700 tons. But gold demand, growing rapidly over the last 12 years, amounts to an additional 2,268 tons of new gold demand a year today that didn’t exist in 2000.

That number was derived from the buying of just five sources: non-western central banks (Russia, Turkey, Kazakhstan, Ukraine and the Philippines), the mints of the U.S. and Canada, ETFs, and Chinese and Indian consumption.

This increase in gold demand seems to actually understate the matter, since it doesn’t include huge private investment purchases of physical gold from around the world. For example, Sprott cites China’s Hong Kong gold imports, expected to reach 785 tons this year, as just one additional source of net investment that sees real total demand exceeding new mine supply.

But the private investment demand amounts to much more than the Hong Kong gold imports he cites.

Other substantial purchases of physical bullion include those by hedge funds and other institutions (the University of Texas endowment fund alone purchased and took delivery of $1 billion of physical gold in 2011), as well as purchases by Russian plutocrats and Persian Gulf petrocrats.

The bull market in gold has, after all, been a global event.

In short, Sprott concludes there is a big discrepancy between real physical gold demand (own any gold bars yourself? If so, they don’t show up in the demand numbers!) and the purported supply.

Where Is All the Gold Coming from?

Who is selling the gold that fills the gap between supply and fast-growing demand? Who is releasing physical gold to the market without it being reported, Sprott asks? 

"There is only one possible candidate: the Western central banks. It may very well be that a large portion of physical gold currently flowing to new buyers is actually coming from the Western central banks themselves. They are the only holders of physical gold who are capable of supplying gold in a quantity and manner that cannot be readily tracked …

"Under current reporting guidelines, therefore, central banks are permitted to continue carrying the entry of physical gold on their balance sheet even if they’ve swapped it or lent it out entirely. You can see this in the way Western central banks refer to their gold reserves.

"The UK government, for example, refers to its gold allocation as, ‘Gold (including gold swapped or on loan).’ That’s the verbatim phrase they use in their official statement.

"Same goes for the U.S. Treasury and the ECB, which report their gold holdings as ‘Gold (including gold deposits and, if appropriate, gold swapped)’ and ‘Gold (including gold deposits and gold swapped),’ respectively.

"Unfortunately, that’s as far as their description goes, as each institution does not break down what percentage of their stated gold reserves are held in physical, versus what percentage has been loaned out or swapped for something else.

"The fact that they do not differentiate between the two is astounding." 

Loans? Swaps? Repurchase agreements? A house of cards by any other name would topple as fast.

It is impossible to know exactly what shenanigans are afoot at the Federal Reserve. Have the gold reserves held by the Fed, the property of the American people, been loaned out? Have the banksters and other Fed cronies borrowed U.S. gold, sold it to China, and left an IOU in the Fed’s vaults?

In an age rich with banking and other institutional, credit, and counterparty failures and frauds, such transactions are anything but prudent. Especially since whatever gold the Fed holds is not its property.

In a one-time partial audit that the Federal Reserve resisted mightily, the Government Accounting Office found that from Dec. 1, 2007, through July 21, 2010, the Federal Reserve provided more than $16 trillion – a sum equal to America’s entire visible national debt – in secret loans to some of the world’s most politically powerful banks and companies.

Among the major recipients of the windfall were Citigroup, Morgan Stanley, Merrill Lynch, Bank of America, Bear Stearns and Goldman Sachs. But the beneficiaries weren’t just American financial institutions.

Central Banker to the World?

At one point (in October 2008), 70% of Fed loans were to foreign banks. Foreign recipients of the windfall included powerful European banks: Barclays, Royal Bank of Scotland, Deutsche Bank, UBS, Credit Suisse and others.

Among the disclosures the Fed was forced to make is that it extended 73 separate loans for an aggregate $35 billion to Arab Bank Corp., owned in substantial part by the Central Bank of Libya.

The Fed is a hot bed of cronyism: The discount window, bond purchasing, its primary dealer system and pricing structure, currency and gold swaps and repurchase agreements, Open Market Committee operations, and so on.

The light of a full and thorough audit is likely to find all kinds of cronies lurking in these dark corners of the Fed.

And with the new, third round of quantitative easing under way, it may not be long before the money-printing game collapses entirely. At that point the calamity will compound if Americans turn to the vaults where the gold was purported to be, and find that the gold has long since been loaned out or otherwise cleaned out.

Markets eventually reveal any attempts to manipulate any scarce goods most especially gold. 

All these, if true, will eventually be ventilated on the marketplace.

Senkaku Dispute Controversy: News versus On the Ground Observation

Writes analyst Sherwood Zhang of Matthews Asia Funds (bold highlights mine)

It’s no wonder some pundits began calculating the potential economic impact that strained China-Japan relations may have on Japanese firms. But during my recent week-long visit in Shanghai, my on-the-ground observations following the protests left me feeling as if the concerns might be overstated. An executive of a Japanese restaurant chain operator told me that physical damage to the firm’s stores during the protest was actually quite limited compared to the impact that followed anti-Japan protests in 2005, which were sparked by controversies surrounding a shrine for Japan’s war dead. I also visited a popular Japanese retail store where customers were picking through the season’s new arrivals with no obvious concern for politics. In this globalized economy, boycotting Japanese business interests is no small feat as so many firms are intertwined. One Taiwanese leasing company I met with, which provides much-needed funding for small businesses in China, actually counts a Japanese financial institution as a strategic shareholder. These types of partnerships and joint ventures exist in nearly every sector in China, spanning food and beverage to auto manufacturing.

At the end of my trip, I noticed one last bit of encouragement—a wedding ceremony held at my Shanghai hotel. Seeing the photograph of a happy union between a Japanese bride and her Chinese groom on a television monitor in the hotel lobby gave me some hope for greater harmony between the people of China and Japan.

I have been pointing out that the Senkaku-Scarborough controversial disputes have been about concealed national political agenda and how the Chinese government has had a hand in agitating nationalist uproar, for reasons other than history and oil-gas-natural resources than as cover to or as distraction of the current economic woes, to suppress dissent and as pretext to inflate the system.

The world of politics is a world of smoke and mirrors.

Electronic Errors Caused a Flash Crash In India’s Stock Markets

Electronic malfunction caused a flash crash in India’s stock market yesterday.

From Bloomberg,

The plunge and rebound in Indian stocks that pushed the S&P CNX Nifty (NIFTY) Index down 16 percent over eight seconds underscored concern about financial markets.

Trading in the Nifty and some companies stopped yesterday in Mumbai for 15 minutes after the 50-stock gauge tumbled as much as 16 percent. A brokerage that mishandled trades for an institutional client was to blame, according to the National Stock Exchange of India.

Regulators around the world are probing market structure and electronic trading after a series of malfunctions. In May 2010, high-frequency orders worsened the so-called flash crash, which briefly wiped $862 billion from U.S. stocks. The Nasdaq Stock Market in May this year was overwhelmed by order cancellations and trade confirmations were delayed in the public debut of Facebook Inc. (FB), 2012’s largest initial public offering.

“Everyone is very sensitive to these electronic errors,” Adam Mattessich, head of international trading at Cantor Fitzgerald LP, said by phone in New York. “It’s the kind of thing that could be nothing or it could become a financial calamity.”

Orders entered by Emkay Global Financial Services Ltd. (EMKAY) that led to trades valued at 6.5 billion rupees ($126 million) caused the drop, NSE spokeswoman Divya Malik Lahiri said from New Delhi.

Circuit breaker limits enforced by the NSE get activated “after existing orders are executed,” Ravi Varanasi, head of business development at the exchange in Mumbai, said by phone. “We are investigating the reason behind the wrong orders and how checks and balances at the member’s end failed.”

Admittedly flash crashes from electronic errors can be a source of anxiety.

Intraday performance of the NIFTY

But as the above shows, markets eventually smooth out any anomalies.

Despite the intraday flash crash, India NIFTY was down only .7% yesterday and posted 1.9% gain over the week. From the start of the year the NIFY is up 24.28% as of Friday.

All charts from Bloomberg

Bottom line: Bugs happen. Politicization of the electronic flash crash isn’t required and won’t guarantee perfection. At worst, it may work to the contrary.

Imploding Solar Energy Bubble Even in China

Government sponsored renewable “green” energy (predicated on climate change) has been imploding, not only in the US (e.g. Solyndra scandal) and Europe but in China as well.

From the New York Times (bold highlights)

China in recent years established global dominance in renewable energy, its solar panel and wind turbine factories forcing many foreign rivals out of business and its policy makers hailed by environmentalists around the world as visionaries.

But now China’s strategy is in disarray. Though worldwide demand for solar panels and wind turbines has grown rapidly over the last five years, China’s manufacturing capacity has soared even faster, creating enormous oversupply and a ferocious price war.

The result is a looming financial disaster, not only for manufacturers but for state-owned banks that financed factories with approximately $18 billion in low-rate loans and for municipal and provincial governments that provided loan guarantees and sold manufacturers valuable land at deeply discounted prices. 

China’s biggest solar panel makers are suffering losses of up to $1 for every $3 of sales this year, as panel prices have fallen by three-fourths since 2008. Even though the cost of solar power has fallen, it still remains triple the price of coal-generated power in China, requiring substantial subsidies through a tax imposed on industrial users of electricity to cover the higher cost of renewable energy.

The outcome has left even the architects of China’s renewable energy strategy feeling frustrated and eager to see many businesses shut down, so the most efficient companies may be salvageable financially.

$18 billion and counting of China’s taxpayers money now in jeopardy.

As always, eventually economic reality expressed through the markets upend governments’ grand delusions, more from the same article:

Chinese companies have struggled even though a dozen solar companies in the United States and another dozen in Europe have gone bankrupt or closed factories since the start of last year. The bankruptcies and closures have done little to ease the global glut and price war because China by itself represents more than two-thirds of the world’s capacity.

To reduce capacity, foreign rivals have clamored for China to subsidize the purchase of more solar panels at home, instead of having Chinese companies rely so heavily on exports. But the government here is worried about the cost of doing so, because the price of solar power remains far higher than for coal-generated power.

The average cost of electricity from solar panels in China works out to 19 cents per kilowatt-hour, said Mr. Li. That is three times the cost of coal-fired power. But it is a marked improvement from 63 cents per kilowatt-hour for solar power four years ago.

China’s official goal is to install 10 gigawatts of solar panels a year by 2015, using 20-year contracts to guarantee payment for electricity purchased from them. If costs stay where they are now, the subsidies would be $50 billion over 20 years for every 10 gigawatts of solar power installed, based on figures supplied by Mr. Li.

Even if solar power costs fall by a third, as the government hopes, he said, “it’s big money.”

China’s government’s goal may or may not be attained, but one thing is for sure: costs are not benefits. China’s force feeding of solar energy will come at a great costs to her taxpayers and to the development of other possible alternatives, most prominently shale gas.

Alternatively, the explosive global growth of free market based Shale gas will add to the economic and financial woes of the solar and other government sponsored renewable industry.

Jack Welch Echoes Mark Twain on US Jobs Data: Lies, Damned Lies and Statistics

Statistics can be massaged with the furtive intent to promote political agenda of the incumbent.

Jack Welch formerly the CEO of General Electric stirred up the hornet’s nest when his ‘conspiracy theory’ tweet on the latest US jobs data went viral.

From Bloomberg,

A good conspiracy theory is irrefutable. A bad one usually collapses when confronted by reality.

The claim by some supporters of Republican challenger Mitt Romney that President Barack Obama’s Chicago-based campaign doctored September’s unemployment figures for political gain fall into the second category, according to members of both parties who have served in the government’s economic data system.

Jack Welch, the former chief executive officer of General Electric Co. (GE), touched off an Internet-based frenzy yesterday when he suggested on Twitter that Obama’s team lowered the country’s unemployment rate to 7.8 percent to give the president a boost. “Unbelievable jobs numbers. . . these Chicago guys will do anything. . . can’t debate so change numbers,” he wrote.

The charge then was picked up by Arizona Senator John McCain and Florida Representative Allen West, both Republicans.

Welch’s message was re-sent via Twitter 3,832 times, meaning each of those people re-broadcasted it to their groups of followers, in the first 10 hours. Rebuttals posted by journalists on Twitter, including Keith Olbermann and Politico’s Roger Simon, were re-tweeted at least 300 times combined. Representative West’s message of support was re-tweeted 592 times.

As caveat, popularity doesn’t necessarily translate to the truth. In most occasion it has been the opposite.

(from Bob Wenzel)

But it has been noteworthy that the tepid growth of the recent job data has not been broad based (see above) and which comes amidst declining labor participation rate…

This likewise reflects on the slowest job growth recovery since 1948…

(both charts from Doug Short)

Yet soaring claims on food stamps and disability benefits

(from Zero Hedge)

…could be an instrumental, if not a principal, dynamic which has contributed to the declining trend of labor participants, as previously discussed here, aside from the Baby Boomers.

As the Zero Hedge rightly observes: 

Finally, and putting it all into perspective, since December 2007, or the start of the Great Depression ver 2.0, the number of jobs lost is 4.5 million, while those added to foodstamps and disability rolls, has increased by a unprecedented 21 million. Oh and about $7 or $8 trillion in debt. Who's counting really. 

Jack Welch’s tweet essentially resonates on Mark Twain’s famous quotation on the condemnation of statistics:

There are three kinds of lies: lies, damned lies and statistics.

Markets in Everything: Speculating on Airfare, Beer for Space Travelers

How about this: When buying your airfare; get a discount if speculate right on fuel prices or pay more if you’re wrong.

From Business Opportunities Weblog Network

AllegiantAir wants it’s customers to be able to gamble on fuel prices. They’ve written a letter to the Department of Transportation asking for permission to allow their customers to be able to choose between a traditional fixed-price ticket and a discounted, variable-price one. If the price of jet fuel falls by the departure date, customers with a variable ticket would get some cash back. If the price climbs, they would pay more, up to a pre-disclosed cap.

Or how about specialized beer for astronauts and for space travelers?

From another Business Opportunities Weblog Network article

It’s too late for Oktoberfest, but the world’s first space beer will soon be available, if tests by Astronauts4Hire prove it has the right stuff.

The beer, produced as a joint venture between Saber Astronautics Australia and the 4-Pines Brewing Company, is a recipe designed for easy drinking in both in microgravity and on Earth. It is intended to meet anticipated demand from the nascent space tourism market.

Yes space tourism will be accessible to the paying public very soon.

A Looming Tax Revolt? Protesting French Entrepreneurs Goes Viral

Because government holds the badges and guns, they haughtily presume of the complete subjugation of their subjects. They fail to realize that as humans, their constituents will respond to policies based on the latter’s self-interests—which could mean either life or death.

In France, the class warfare policies of President Francois Hollande has compelled entrepreneurs to bond together to demonstrate or protest on the highly repressive tax regime being rammed down their throats. 

The French entrepreneur’s grievances has gone viral (above logo is from their Facebook page) 

From Bloomberg,

French entrepreneurs have a new mascot -- the pigeon.

Using the bird’s role in French slang as the “sucker,” owners of startups have formed a group dubbed “Les Pigeons” to show that President Francois Hollande’s new taxes make them the fall guys for France’s economic woes. They are protesting the almost doubling of the tax rate on capital gains generated from selling a business in Hollande’s budget for 2013.

The group has gathered more than 34,000 supporters in less than six days on Facebook Inc.’s social network and spurred more than 3,600 posts under the “#geonpi” tag on Twitter, with the founders of Iliad SA (ILD), Vente-Privee and Meetic SA (MEET) throwing in their voices of support.

“The government thinks France’s entrepreneurs are pigeons,” the movement’s initiators wrote on a dedicated Facebook page. “Anti-economic policies are crushing the entrepreneurial spirit and exposing France to a big risk.”

Entrepreneurs have for months called on France’s government to avoid slapping them with more taxes, saying it will dry up interest in creating new companies or drive startups away.

Socialist President Hollande, seeking to appease his base in his first annual budget last week, raised taxes on the rich and big companies and included a minimum of spending cuts to reduce the deficit. The government introduced a 75 percent tax for income above 1 million euros ($1.29 million).

Class warfare policies foster social divisions. This means that if the French government will remain recalcitrant in the pursuit of harsh socialist redistributionist policies, untoward consequences or the risks of capital flight,  tax revolt and or civil unrest rises. 

Moreover, by assailing the productive tax paying class, French fiscal position will likely worsen thus the likelihood of bringing down the entire euro project with it.

So instead of attaining “social justice”, class warfare policies will only lead to greater risks of intensifying the current crisis, a violent outcome and social instability.

Again politicians and their sycophants never learn.

Quote of the Day: How Fed Policies Distort the Law of Compounded Interest

Because growth is a natural phenomenon, the human race, in general, and any man, in particular, can take advantage of natural law by putting off consumption today and investing in the future. This is the force behind compound interest. A seed of corn not eaten but planted will multiply into a thousand seeds at the future harvest; an acorn nurtured and planted can produce a mighty oak; an olive grove cultivated now may take 40 years to mature but it will take care of future generations. Thus, the moral of the story is always the same: Save today, invest for the future, and reap fabulous rewards. If you can invest at 7.2% for ten years, your wealth will double!

The mathematics of finance should be incredibly simple and elegant to watch in motion but they're not, thanks to the efforts of the Federal Reserve.

Einstein came to America during a time of great turmoil in Germany and Europe. Germany was turning into a National Socialist Party with a dictator and command economy. In a command economy, interest can be fixed by the government at zero or even negative, and savings accounts can be stolen and used to fund the wishes of the state. The river of investment that runs forward creating capital can be forced by state-created inflation to run in reverse, destroying capital. In other words, seed corn rots if it's not eaten, and investment dries up because saving is for suckers.

Ah, welcome to 2012 America. The Fed has decreed interest rates at zero for four years, and promised to keep them there for at least another two. The Fed is still printing money out of thin air as well as buying long term treasuries. By locking the yield of the 10-year Treasury at 1.6%, it's well below the rate at which staples like food, energy, utilities, transportation, education, and health care, are rising in cost.

Today, and as far as the eye can see, real inflation is well above interest rates. Instead of savers being rewarded they are being taxed, mugged, and systematically destroyed by continued low interest rates with no return on capital as the Fed tries to get people to spend and not save to stimulate the economy. Where capitalism in our country as Einstein knew it used to flourish, we're now a land dedicated to eating its seed corn, and encouraging people not to waste their time planting acorns for the future.

Is it any surprise that pension funds that assume they will earn an 8% return are all headed to insolvency? It is now a simple mathematical fact that with spending encouraged and savings taxed and given a negative return, only the superrich can set aside sufficient resources to take care of themselves as they age. The average American is destined to be a ward of the state.

Einstein understood physics and natural law. He knew that if interest rates are set at zero and well below the rate of inflation, capitalism would die. Trying to run an economy without real interest rates is like trying to run the universe without gravity. It doesn't work.

(emphasis mine)

This is from Richard Benson at 321Gold.com (hat tip LewRockwell.com).

In the mind of the political agents and their zealot followers, their edicts, statutes and regulations are superior to, and have the power to control, manage and regulate the laws of demand and supply to their whims. 

Graphic of the Day: Unelected Dictators

Below are the four unelected “Lords of the Rings” whom has wielded more power than the elected counterparts.

And speaking of currency, market manipulators and insider trading…

From Zero Hedge/Goldman Sachs

Food Crisis Watch: World Food Prices at 6 month High

For the mainstream’s view of the world, price inflation has hardly been a concern.

Yet in reality, price inflation appears to be seeping into the global economy mostly channeled through the commodity spectrum (one must add health, education costs among the other contributors).

A particular cause of concern has been rising international food prices which according to the FAO is at a 6 month high.

chart from FAO

From Businessweek/Bloomberg 

World food prices rose in September to the highest in six months as dairy and meat producers passed on higher feed costs to consumers, the United Nations’ Food & Agriculture Organization said.

An index of 55 food items tracked by the FAO rose to 215.8 points from a restated 212.8 points in August, the Rome-based agency reported on its website today. Dairy costs jumped the most in more than two years.

Livestock breeders and dairy farmers are passing on the higher cost of feed, after grain prices jumped in June and July, according to Abdolreza Abbassian, an economist at the FAO in the Italian capital. Higher prices don’t mean a food crisis is imminent, he said today by phone.

“Despite a very difficult market, the fundamentals that suggest a food crisis are just not there,” Abbassian said. “Market sentiment is now accepting high prices more as a rule than as an exception.”

Surging food crisis has been associated with social strife, particularly as one of the major trigger to the recent Arab Spring revolts. (chart from Sovereign Man)

While changes in weather patterns have proven to be a catalyst, many other policies such as tariffs, subsidies (agri and bioethanol) and others plays a role in exacerbating the supply side situation.

Importantly, massive inflationism by global central banks has been a key contributor to the demand side.

A continued ascent in food prices will amplify the risks of stagflation especially pronounced for emerging markets.

This is one very important dynamic to keep an eye on.

Have some steak today before they become pricey.

Japan’s First Shale Gas Discovery

I made my case that Shale gas will be the energy of the future which means this will become an international phenomenon (see here, here, and here)

I have also pointed out that Argentina and China have began to access Shale as with Israel’s recent major discovery.

This time it is Japan’s turn.

Japan’s baptism with Shale gas from Japan Times, (bold emphasis mine)

Japan Petroleum Exploration Co. has succeeded in extracting shale oil from the Ayukawa oil and gas field in Akita Prefecture, a first for Japan, company officials said Wednesday.

Japan is trying to diversify its energy sources and develop untapped resources following the Fukushima nuclear disaster.

Japan Petroleum, known as JAPEX, succeeded in obtaining crude oil by pumping hydrochloric acid into a shale rock layer about 1,800 meters deep to remove limestone that clogs cracks in the rocks, the officials said. It started drilling Monday.

Shale oil was confirmed after the extracted liquid substance was put into a centrifugal separator.

Interest in developing shale oil, or oil contained in deep underground shale rocks, has been growing globally, with a sharp increase in commercial production of shale oil and gas in the U.S

JAPEX said it will analyze the ingredients of the crude oil while preparing to dig a new oil well next business year, which starts April 1, and proceed with the drilling process.

The company estimates shale oil deposits at some 5 million barrels for the Ayukawa and neighboring oil and gas fields. For all of Akita, shale oil reserves are projected at 100 million barrels, worth nearly 10 percent of Japan's annual oil consumption.

This again gives evidence that geopolitical frictions from territorial disputes has hardly been about oil, gas or natural resources or about history. These are excuses. 

Territorial controversies are essentially about political smoke and mirrors

As I recently wrote,

War has always been used as opportunities to exploit society (through financial repression) and suppress internal political opposition in order to advance the interests of the ruling political class whose interest are interlinked with the politically favored banking class, the welfare and the warfare class.

The shale gas boom will ultimately expose such political charlatanism.

As a side note, beneficiaries of fossil fuels see Shale gas as a considerable competitive threat so they launch propaganda offensive against it through, for instance, the latest movie by Matt Damon "The Promised Land" has been financed by the United Arab Emirates

Notes the Heritage Fondation 

While left-leaning Hollywood often targets supposed environmental evildoers, Promised Landwas also produced “in association with” Image Media Abu Dhabi, a subsidiary of Abu Dhabi Media, according to the preview’s list of credits. A spokesperson with DDA Public Relations, which runs PR for Participant Media, the company that developed the film fund backingPromised Land, confirmed that AD Media is a financier. The company is wholly owned by the government of the UAE.

Expect more false evangelism from detractors of Shale gas and of the laissez faire capitalism from which Shale gas has been a product of.

Quote of the Day: The Perils of Unlimited Democracy

Of course there is something very wrong with unlimited democracies. There is simply no justification for the majority of the population in a country imposing its will on everyone. The idea is completely misguided. Why on earth should a great number of people have the authority to force a small number to obey them? There is no argument anywhere in the history of political philosophy and theory that would make out the case for this? If it were a valid point, it would imply that a large number of thugs somehow have the right to subdue other people to serve them. The famous example of the lynch mob that hangs an accused person make the point without difficulty. Expanding the will of vicious people doesn’t make it virtuous. And even if what the larger group wants is actually virtuous, forcing it on others is still not justified since they would have to make the free choice to be virtuous. Human virtue must be a matter of free choice. Only in self-defense may force be applied to others!

The election process in so called democratic countries is anything but justified or moral. Even when it hides behind the term “we” as it tries to do in too many instances--just listen to politicians anywhere around the globe and notice how often they pretend to be speaking for and acting in behalf of everyone--the will of the majority simply has no moral authority, none! Anyone who can dodge it successfully is perfectly justified to do so!

This is from Philosophy Professor Tibor R. Machan at weblogbahamas.com

Investing Lessons: Sir John Templeton’s 16 Rules For Investment Success

Precious investing lessons from the legendary investor Sir John Templeton's 16 Rules for Investing Success

1. Invest for maximum total real return 

2. Invest — Don’t trade or speculate 

3. Remain flexible and open minded about types of investment 

4. Buy Low 

5. When buying stocks, search for bargains among quality stocks. 

6. Buy value, not market trends or the economic outlook 

7. Diversify. In stocks and bonds, as in much else, there is safety in numbers 

8. Do your homework or hire wise experts to help you 

9. Aggressively monitor your investments 

10. Don’t Panic 

11. Learn from your mistakes 

12. Begin with a Prayer 

13. Outperforming the market is a difficult task 

14. An investor who has all the answers doesn’t even understand all the questions 

15. There’s no free lunch 

16. Do not be fearful or negative too often 

Sir Templeton gives an explanation for each

1. Invest for maximum total real return 

This means the return on invested dollars after taxes and after inflation. This is the only rational objective for most long-term investors. Any investment strategy that fails to recognize the insidious effect of taxes and inflation fails to recognize the true nature of the investment environment and thus is severely handicapped. It is vital that you protect purchasing power. One of the biggest mistakes people make is putting too much money into fixed-income securities. Today’s dollar buys only what 35 cents bought in the mid 1970s, what 21 cents bought in 1960, and what 15 cents bought after World War II. U.S. consumer prices have risen every one of the last 38 years. If inflation averages 4%, it will reduce the buying power of a $100,000 portfolio to $68,000 in just 10 years. In other words, to maintain the same buying power, that portfolio would have to grow to $147,000— a 47% gain simply to remain even over a decade. And this doesn’t even count taxes

For the rest, read them at FranklinTempleton.com

My comment:  

Most of John Templeton's investing tips signify as common sense and self-discipline which should be used by any "serious" investors. I say serious because some people dip their hands on the markets for other reasons than just profits, e.g. ego trip, social desirability bias and etc...

However when dealing with "quality, value, bargain, buy low" these ultimately depends on the operating environment, which in the past had been "conventional". 

Today, we are in unprecedented and uncharted territory when it comes to inflationism and interventionism that has massively distorted and obscured price signals of the marketplace.

In other words, conventional rules may not apply under the current setting which means go back to rule number 3--remain flexible and open minded.

Laissez Faire Capitalism: Private Jet Gets Bigger, Faster and Cheaper

Ah, the beauty of laissez faire capitalism as revealed by the Private Jet industry.

First, the financial bubble bust which affected the private jet industry, forced the sector to undergo painful adjustments through the market clearing process. 

From CNBC: (bold highlights mine)

The private jet industry is gaining altitude again after its death spiral during the recession. But jet makers, brokers and fractional companies say it will be years before the industry reaches its pre-crisis peak – if it does at all.

Used jets are still selling for half of their 2008 prices, while inventory remains high and jet use remains well below peak levels, as companies and the super-wealthy pare back their flights. As the industry rapidly reinvents itself to adapt to the shifting demand, the price of flying private is falling to record lows.

“It’s been a brutal downturn for this industry, followed by dashed expectations for recovery,” said Richard Aboulafia, analyst at the Teal Group, the aviation-research firm based in Fairfax, Va. “But the features are in place for a recovery and I think we’re already starting to see some slow and steady progress.”

This year, there have been a total of 172 new jets sold in North America – a drop of more than 70 percent from the 658 new jets sold during the same period in 2008, according to JETNET, the Utica, N.Y.-based jet research firm. The volume of used planes sold is about on pace with 2008 and 2009, yet prices for used planes are still down by a third or more from their 2008 peaks.

Price signals has then led to the re-coordination or the reallocation of resources towards areas preferred by the consumers.

Moreover, competition has prompted producers to tailor fit their products to the demand of consumers leading to lower prices, faster, bigger and more efficient planes.

Again from the same CNBC report…

The weak demand and prices has led to a radical restructuring in the private jet business, forcing all segments of the industry to conform to the new realities of flying private.

For jet makers, the future is about emerging markets like China, India, Brazil and the Middle East. Jet manufacturers are ramping up their sales staffs and expanding offices and support teams around the world to capture business from companies and the newly rich in these regions.

The jet makers are also launching products better suited to the new market. The top end of the market – with the biggest, fastest, most expensive planes – has been the most resilient…

In the mid-range and lower end of the market, aircraft builders are aiming for faster, more efficient planes…

For fractional and charter and companies, the new game is providing lower prices, better service and more flexible offerings. The industry has seen a large rotation among jet owners and short-term customers, as those private fliers who used to own planes outright now opt for lower-priced fractional shares or charters.

The surplus of jets in the market has led to a boom in the sales of seats or shares on individual flights. JetSuite, the California-based charter company, is now offering last-minute deals for $499. Travelers this week could charter one of JetSuite's Phenom jets – which seat four people  – from Los Angeles to Las Vegas or from Washington to Boston. The $499 price was valid as long as the customers registered through Facebook.

Many other charter companies are offering larger jet charters for $5,000 or less per flight.

Given this trend to relentlessly satisfy the consumers, one cannot discount that even the middle class, one day, may be able to access private jets.

This invaluable lesson from Joseph A Schumpeter’s classic Capitalism Socialism and Democracy (Google Books preview).

There are no doubt some things available to the modern workman that Louis XIV himself would have been delighted to have—modern dentistry for instance. On the whole, however, a budget on that level had little that really mattered to gain from capitalist achievement. Even speed of traveling may be assumed to have been a minor consideration for so very dignified a gentleman. Electric lighting is no great boon to anyone who has enough money to buy a sufficient number of candles and to pay servants to attend them. It is the cheap cloth, the cheap cotton and rayon fabric, boots, motorcars and so on that are the typical achievements of capitalist production, and not as rule improvements that would mean much to the rich man.  Queen Elizabeth owned silk stockings. The capitalist achievement does not typically consist in providing more silk stockings for queens but in bringing them within reach of factory girls in return for steadily decreasing amounts of effort.

Unfortunately, for governments despite their army of bureaucrats and academic supporters, they all fail to comprehend on such fundamental a lesson.

Laissez faire capitalism or economic freedom is the key solution to the world’s economic woes.