Vietnam Stock Market Plunges on Monetary Tightening

If major ASEAN markets have been resilient (except for the past 2 days). Vietnam’s benchmark has been cratering.

Chart from Bloomberg

The Financial Times Blog notes

Stock markets rarely move in straight lines but nervous Vietnamese investors have done their best to buck that trend of late, with shares falling for nine sessions in a row amid worries about the economic outlook.

The benchmark VN Index closed down 3.6 per cent at 402.59 points on Tuesday.

Shares on the 11-year-old Ho Chi Minh Stock Exchange have now lost 16.7 per cent since May 11, as falls have precipitated a series of margin calls

Traders said investors were worried about inflation, which accelerated to 19.8 per cent year-on-year in May according to figures released on Tuesday, and the possible impact on businesses of high interest rates, part of the government’s plan to stabilise the fast-growing but shaky Vietnamese economy.

While media says that the likely cause has been about inflation, I think it is the opposite: a prospective tightening.

Given the way Vietnam’s government has been overspending…

Ballooning Budget deficit

surging Money supply

One can see why inflation has been surging.

Charts above from tradingeconomics.com (money supply, budget deficit and inflation)

And because the Vietnamese government wants to slough inflation, it has been raising rates and putting credit growth caps on the banking system especially on foreign banks.

From the Bloomberg,

The State Bank of Vietnam on May 17 boosted the repurchase rate to 15 percent from 14 percent, the second increase this month and its sixth this year to curb inflation, which is at 28- month high. The central bank has more than doubled the rate since early November as a widening trade deficit forced four currency devaluations in 15 months and threatened growth.

As a side note: The link between the Vietnam’s interest rates and currency devaluations isn’t from likely from trade deficits, but from government spending and expansionary credit.

And the ceiling on Vietnam’s government credit growth.

Reports the thanhniennews.com

The State Bank of Vietnam has banned foreign bank branches from setting credit growth targets of higher than 20 percent, persisting with a tight monetary policy to fight inflation.

According to a statement dated Friday, the central bank said most foreign branches in Vietnam have planned to keep credit growth below 20 percent and tried to cut back on lending to non-production sector. Some banks, however, have not moved to reduce their lending operations.

As a result, the central bank has ordered all foreign bank branches to control their lending, especially for real estate and stock market transactions. “The State Bank of Vietnam will not accept any plans by foreign financial institutions and bank branches to have credit expand by more than 20 percent this year,” the statement said.

Vietnam’s dramatic flattening of the yield curve doesn’t seem to manifest concerns of inflation (asianbondsonline.org), instead the yield curve could be signaling a slowdown in economic growth as consequence to policy based tightening.

Bottom line: stock markets are remarkably sensitive to the inflationary dynamics more than the conventional notion of ‘micro fundamentals’.

Scenarios of A Greece Default

Andrew Lilico writing in the UK’s Telegraph draws up a litany of possible scenarios of a Greece default.

He writes,

It is when, not if. Financial markets merely aren’t sure whether it’ll be tomorrow, a month’s time, a year’s time, or two years’ time (it won’t be longer than that). Given that the ECB has played the “final card” it employed to force a bailout upon the Irish – threatening to bankrupt the country’s banking sector – presumably we will now see either another Greek bailout or default within days.

What happens when Greece defaults. Here are a few things:

- Every bank in Greece will instantly go insolvent.

- The Greek government will nationalise every bank in Greece.

- The Greek government will forbid withdrawals from Greek banks.

- To prevent Greek depositors from rioting on the streets, Argentina-2002-style (when the Argentinian president had to flee by helicopter from the roof of the presidential palace to evade a mob of such depositors), the Greek government will declare a curfew, perhaps even general martial law.

- Greece will redenominate all its debts into “New Drachmas” or whatever it calls the new currency (this is a classic ploy of countries defaulting)

Read the rest here

I share Austrian economics Professor Dr. Antony Mueller’s opinion, that these exactly serve as main reasons why Greece would likely avoid a default.

It’s more than just economics as the Greek or PIIGS crisis would mostly account for politics.

As the Economist wrote last April (bold emphasis mine)

THE announcement on April 6th that Portugal will become the third euro-area country to receive a bail-out was not well received in Germany. As the largest euro-area country, it is contributing 20% or €52 billion ($75 billion) to the bail-out funds of the three profligate countries, mostly via the euro area's European Financial Stability Facility. This is dwarfed however, by Germany's banks' exposure to the three countries, which totals €230 billion. Only around 12% of this is sovereign or public debt, but a sovereign default could easily lead to a slew of domestic bank and corporate defaults too, to which the country is far more exposed. America is also footing a cool €14 billion via the IMF's contribution to the bail-out. But it too seems to have got good value for money—its banks have a total of €144 billion in exposure to the three countries.

And as earlier said, today’s monetary architecture makes for an intricate web of entwined cartel and patron-client relationships among central banks, governments and the banking system.

Unless we see a systemic crisis unravel, any resolution will likely be molded around these political relationships. Expect more inflationism to be used.

Financial Repression Drives The Bond Markets

Truth has to be repeated constantly, because Error also is being preached all the time, and not just by a few, but by the multitude. In the Press and Encyclopaedias, in Schools and Universities, everywhere Error holds sway, feeling happy and comfortable in the knowledge of having Majority on its side. -Goethe

One of the most bizarre ironies which can be observed from the mainstream is the selective use of market signals for analysis.

A conventional mantra is that because actions in the bond markets have been benign, therefore experts say that inflation risks have not been apparent. Others argue that actions in the bond markets signal deflation instead of inflation.

On the one hand, these mainstream experts and their acolytes don’t trust the markets. They see markets as inherently unstable thus always opine for some form of government intervention. They believe that through mathematical equations, governments can simply adjust economic conditions similar to a thermostat of an air conditioner.

On the other hand, in justifying the selective use of market prices for government intervention, they specifically see bond markets as conveying the actual state of affairs of the credit markets. In other words, they see the bond markets as being “efficiently” priced.

The Policy of Permanent Quasi Booms

It is pretty much naive to suggest that bond markets accurately represent price signals that exhibits the actual time preferential balance of savings and loans.

First of all bond markets operate under government’s guiding dogma meant to promote the permanence of quasi boom.

From John Maynard Keynes,

The right remedy for the trade cycle is not to be found in abolishing booms and thus keeping us permanently in a semi-slump; but in abolishing slumps and thus keeping us permanently in a quasi-boom.

Hence by actively intervening in the marketplace by forcing down interest rates implies that bond markets have already been significantly distorted which has led to serial boom bust cycles.

Further proof of the Fed’s Zero Bound interest rate policy from a Federal Reserve Paper authored by Ben Bernake, Vincent Reinhart and Brian Sack

Central banks usually implement monetary policy by setting the short-term nominal interest rate, such as the federal funds rate in the United States. However, the success over the years in reducing inflation and, consequently, the average level of nominal interest rates has increased the likelihood that the nominal policy interest rate may become constrained by the zero lower bound on interest rates. When that happens, a central bank can no longer stimulate aggregate demand by further interest-rate reductions and must rely instead on “non-standard” policy alternatives...

In this paper, we apply the tools of modern empirical finance to the recent experiences of the United States and Japan to provide evidence on the potential effectiveness of various nonstandard policies. Following Bernanke and Reinhart (2004), we group these policy alternatives into three classes: (1) using communications policies to shape public expectations about the future course of interest rates; (2) increasing the size of the central bank’s balance sheet, or “quantitative easing”; and (3) changing the composition of the central bank’s balance sheet through, for example, the targeted purchases of long-term bonds as a means of reducing the long-term interest rate. We describe how these policies might work and discuss relevant existing evidence.

This paper was done in 2004. Apparently the Bernanke led US Federal Reserve has put this study into action.

This means that aside from Zero bound interest rate policies; activist policymaking today includes the expansion of the balance sheet of the US Federal Reserve.

And this operating precept appears to have been exported to the US major trading partners.

Chart from Danske Bank

Financial Repression As A Driving Force

Second, seen from the distribution of ownership of Federal securities or US treasuries, 80% appear to be owned by governments.

The chart from Wikipedia shows of the expanding share of Federal Reserve and intragovernmental holdings, along with foreign governments which accounted for 28% in 2008. And this chart was prior to the activation of the Quantitative Easing programs.

Adding up the local and state government and state and local government (pensions) the share of government ownership rises above 80%.

The private sector (profit oriented segment) only holds a paltry (less than 20% share) in contrast to (politically motivated) governmental ownership.

In short, who or which entities will do the selling?

While it is true that like the stock markets, prices are set on the margins, there is another factor which attempts to protect treasury ownership from a panic: regulations on the banking system via the BASEL III accord.

According to this Bloomberg article, (bold emphasis mine)

Lenders have an added incentive to buy Treasuries after the Basel Committee on Banking Supervision proposed rules on Oct. 4 that banks increase available capital and improve their measurement and control lending risk.

Banks will have less than five years to comply with the so- called Basel III rules for minimum tier-1 capital ratios and until Jan. 1, 2019, to meet the capital buffer requirements. The Treasury Borrowing Advisory Committee forecast in February that banks may have as much as $1.6 trillion in demand for Treasuries in the next five years based on the evolving rules.

So new regulations will essentially force the private (banking) sectors to buy and own Federal securities, despite of the environment of higher commodity prices, which have been signaling inflation.

Thus the only marked threat of a potential selloff will likely emanate from politically motivated foreign governments.

The key question is what would motivate them to do so? A selloff would only devastate the value of their stash of US dollar reserve holdings.

And to reiterate, even if some foreign entities, like China seems reluctant to acquire US federal securities, the Fed appears to have an open checkbook—which may only be constrained by an explosion of inflation.

The chart from the Cleveland Federal Reserve shows the Fed as huge buyers of US long term treasury and Fed agency debt (yellow) and Mortgage backed Securities (brown)

Hence, anyone who argues from the standpoint of market prices without considering these variables either have been misdiagnosing real events or deluding themselves.

Yet all these constitute what Carmen Reinhart and Kenneth Rogoff calls as “Financial Repression” [This Time Is Different (p. 143)] (bold emphasis mine)

Under financial repression, banks are vehicles that allow governments to squeeze more indirect tax revenue from citizens by monopolizing the entire savings and payment system. Governments force local residents to save in banks by giving them few, if any, other options. They then stuff debt into the banks via reserve requirements and other devices. This allows the government to finance a part of its debt at a very low interest rate; financial repression thus constitutes a form of taxation. Citizens put money into banks because there are few other safe places for their savings. Governments, in turn, pass regulations and restrictions to force the banks to relend the money to fund public debt. Of course, in cases in which the banks are run by the government, the central government simply directs the banks to make loans on it.

Governments frequently can and do make the financial repression tax even larger by maintaining interest rate caps while creating inflation.

These are Harvard guys. But their observations square with the Austrian school’s position of the enmeshed clandestine relationship between central banks, the banking system and the government.

According to Murray N. Rothbard,

The Central Bank has always had two major roles: (1) to help finance the government's deficit; and (2) to cartelize the private commercial banks in the country, so as to help remove the two great market limits on their expansion of credit, on their propensity to counterfeit: a possible loss of confidence leading to bank runs; and the loss of reserves should any one bank expand its own credit. For cartels on the market, even if they are to each firm's advantage, are very difficult to sustain unless government enforces the cartel. In the area of fractional-reserve banking, the Central Bank can assist cartelization by removing or alleviating these two basic free-market limits on banks' inflationary expansion credit.

This means that bond markets almost everywhere operate under the same dynamics. That’s until they became unsustainable (such as in Greece).

Bottom line:

Bond markets reflect more on the effects of government policies rather than market price based distributions.

The bond markets have been so distorted by a myriad of deeply embedded government interventions such that they cannot be used as dependable standalone indicators in analyzing the marketplace or the economy.

Video: Was Robin Hood A Libertarian?

Last night I watched Ridley Scott’s magnificent ‘prequel’ version of Robin Hood (portrayed by Russell Crowe) at the HBO.

Here is the video of Robin Hood’s stirring speech on Freedom: “Liberty by Law”.

I noticed that classical liberalism seems to emerge as the du jour theme on some movies, e.g. Prince of Persia: The Sands of Time (2010) has tinges of anti-taxation (movie quotes here).

Are these movies conveying blossoming sentiments of the public?

More movies of this genre would certainly put awareness to classical liberalism/libertarianism.

Prudent Investing in the Phisix: Position for a Breakout of the 4,400 Threshold

"Investing without research is like playing stud poker and never looking at the cards."-Peter Lynch

Tidbits...

1. On the supposed day of rapture....

...Mushu[1] (in the movie Mulan) says it best: I Live!!!!!!

Any prophesy or predictions based on econometrics (yesterday’s prophetic rapture was mathematics applied to religious exegesis[2]) should always be viewed with deep suspicion.

Econometrics has always been a problem reduction: in a complex world, assumptions, interpretations and application of the models attempt to oversimplify the world’s functionality—whether it was about the attempts to predict Japan’s earthquake[3] or the 2008 crisis[4] or this time as a religious based prophesy, the common denominator has been the same: prediction failures.

2. Overheard at a clinic last Monday from a housewife who was seated in front of me, talking on a mobile phone: “Lepanto will reach 1 peso very soon!!!” [I say, housewife presumably because she was along with two children (who called her “mommy”) and a man (most likely husband).]

When housewives, students or maids babble on stock markets or on specific ‘hot’ issues we are cognizant that mania is at work[5].

ASEAN Bourses: Despite Interim Divergences, Upward Trend Remains Dominant

There have been some signs of interim divergences in the performances of the major ASEAN equity markets.

While the general trend remains in near unison, as seen from the Bloomberg chart on a year to date basis, short term trends appear to reveal signs of nonconformity.

All four major ASEAN bellwethers have drifting at milestone highs, albeit:

Thailand’s SET (red) has reached the 1997[6] level but still is about 33% away from the 1994 all time high of 1,600+. Lately the SET has been in a retracement phase.

Malaysia KLCI (green) has been on a record run[7] as seen from the long term. But the Malaysian benchmark of late, has been in an extended consolidation since the start of the year, has underperformed her peers and has remained slightly in the red going into half semester on a year to date basis.

Indonesia’s JCI (orange) still seems in a high octane drive with fresh record highs[8] repeatedly established as time goes by. The JCI appears to have tied Thailand’s SET in terms of year to date performance, both of whom has assumed the roles as market leaders among ASEAN and Asian contemporaries.

The Philippines Phisix (yellow) has likewise been on a roll as seen from the long term. But since a month ago, the local bellwether appears to be in consolidation while hovering near its resistance level.

Will the Phisix retrench over the near term to form a reverse head and shoulders pattern to generate the momentum required to leap past out of the 4,400 barrier?

Or will Phisix just go ahead and ram at the gates considering that the closing high is merely about 2.5% away?

So far ASEAN markets seem to have sidestepped the minor corrections seen in major equity markets last month[9].

And by way of how our contemporaries has been performing; encroaching on that 4,400 threshold seems imminent—outside any major shocks in the global markets.

Besides if gold continues to make a recovery, despite the constant interventions and seasonal factors, global equities should follow suit.

Gold has served as an important leading indicator of global equity markets.

The recent manipulated decline[10] of commodity prices which has also affected gold has likewise coincided with a downshift in the major world equity benchmarks (DJW), emerging markets (EEM) and even the FSEAX (Fidelity Southeast Asian Fund).

While the correlation may not be 100%, a rally in gold prices will likely filter into equity prices. This should augur well for ASEAN equities which includes the Phisix.

Gambling Versus Prudent Investing

Divergences also typify the week’s performances as reflected on the Philippine Stock Exchange.

Over the week, the Phisix has been slightly down, but the market breadth remains mixed as three out of five of the key sectors were up.

This time, the Financial sector has topped the field while the property sector also registered modest advances.

Meanwhile, the Mining index has also been on a midterm roll; the sizzling hot mines posted EIGHT consecutive weeks of winning streak, which took the second spot this week in terms of best sectoral performance.

We should expect some retrenchment or correction or consolidation as a natural response to ‘normtive’ trends on issues that has mainly buoyed the mining index. That’s unless one foolishly believes that such trends would persist in defiance of the laws of gravity.

Nevertheless, signs are that the long long long price dormant oil exploration firms have been generating some attention. This implies that the mining sector’s overall correction could be muted if a rotation from the current outperformers to peripheral underperformers does occur.

Remember chasing prices on mature trends means greater risk than potential returns. Chasing prices translates to impulsive gambling rather than to prudent investing.

To heed one of Warren Buffett’s basic precepts[11]:

For some reason, people take their cues from price action rather than from values. What doesn't work is when you start doing things that you don't understand or because they worked last week for somebody else. The dumbest reason in the world to buy a stock is because it's going up.

With a potential break of the 4,400 level in the Phisix, discretion dictates that we should position ourselves on issues that would make this a reality.

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[1] Disneyfriends.net, Pictures Mushu

[2] See Apocalypse Today: Divination Based on Econometrics, May 21, 2011

[3] See Science Models Fail To Predict Japan’s Earthquake, March 12, 2011

[4] See How Math Models Can Lead To Disaster, February 25, 2009

[5] See Phisix: Why I Expect A Rotation Out of The Mining Sector, May 15, 2011

[6] Bigcharts.com XX:THAISI Thailand SET index

[7] Financeyahoo.com FTSE Bursa Malaysia KLCI (^KLSE)

[8] Tradingeconomics.com Indonesia Stock Market Index

[9] See Global Equity Markets: Signs of Exhaustion; What US Outperformance Means May 17, 2011

[10] See War On Commodities: China Joins Fray, Global Commodity Politics Intensifies, May 14,2011

[11] beginner-investing-made-easy.com Quotes by Warren Buffett

A Bullish Financial Sector Equals A Bullish Phisix?

For the Phisix to breakout of the 4,400 level, this requires either leadership by the component heavyweights (of the Phisix basket) or general market buoyancy. Although I believe that both are related or that the causal linkage isn’t clear; in a bullmarket either the general market’s sanguine sentiment lifts component heavyweights or vice versa.

For starters, last week’s action in Financial sector seems to give us a clue:

One would note that major banking issues appear to recoil from their February-March troughs and have mostly been on an uptrend since.

Last week Banco De Oro [BDO-green] and Metrobank [MBT-red] spearheaded the Financial’s dazzling performance up 6.03% and 7.17%, respectively. BDO represents 4.12% of the Phisix weighting while MBT is 4.71% as of Friday’s close.

Also in the chart are Security Bank [SECB-blue], Bank of the Philippine Islands [BPI-black] and last week’s chart feature Philippine National Bank [PNB-orange], all three are also on a seeming uptrend but SECB has outperformed what appears to be a lagging BPI and PNB.

Nonetheless, BPI has the largest weight in the Financial sector index (28.69%), while SECB has 8.52% and PNB 3.98%.

All told, the 5 issues comprise 81% of the Financial sector index. I purposely omitted China Bank [CHIB] because of its lack of liquidity.

Anyway, SECB as of Friday’s close represents 1.88% of the Phisix basket while BPI is 6.33% as of Friday’s close.

The above only shows that 3 (BDO, MBT, SECB) out 5 seems on a steady ascent. The laggards BPI and PNB (while also on an uptrend but has been consolidating) may eventually follow.

Two, the actions of the Phisix (blue line) seems closely or strongly correlated with actions of the Financial sector (green line). The implication is that a continued upswing in the financial sector should translate to an ascendant Phisix.

Three, the financial sector is only marginally higher (.08%) on a year to date basis. The current uptick represents a recovery from an earlier decline rather than from a sustained advance. Only SECB has been considerably up by 9.74% y-t-d.

In short, the prospective actions in the financial sector suggest that the balance of risks seem tilted towards the upside than the downside.

This makes the financial sector a likely good place to position for an eventual Phisix breakout.

[Disclosure: I have no position in any of the abovementioned banks, but I am looking at the possibility to add one]

The Awakening of the Philippine Oil Exploration Sector?

I have noticed that shares of local oil exploration firms seem to have been attracting some attention.

The chart of Philodrill [OV] suggests of an accumulation phase, where so far have only resulted to modest price advances.

In the past, bouts of large scale accumulation have led to a huge price spikes for OV, as shown by the red circles and the upward price trend.

And this hasn’t been a phenomenon limited to OV. We seem to be seeing the same dynamics in the price-volume actions of Oriental Petroleum [OPM].

Lately there has been a spike in OPM’s volume yet its share price has yet to breakout. In the previous episode of volume surges, like OV, has coincided with price surges.

Though this volume accumulation pattern hasn’t been true for other firms engaged in oil exploration such as Basic Petroleum [BSC], Alcorn Gold [APM], Trans Asia [TA] or PetroEnegy [PERC].

I would suspect that signs of accumulation could be part of the upcoming drilling projects.

Currently there have been some oil drilling activities such as Duhat 1A (Visayas Basin) Service Contract 51 and the Gindara-1 (Northern Palawan) Service Contract 54B.

Duhat 1 is operated by Otto Energy, parent firm of NorAsian Energy Ltd., whose partners are Trans-Asia Oil and Energy Development Corp., Alcorn Gold Resources Corp. and PetroEnergy Resources Corp[1].

Meanwhile Gindara-1 is operated by Australia’s Nido Petroleum which owns 33 percent with partners Kairiki Energy Ltd. (formerly Yilgarn Petroleum), 22 percent and Shell Philippines Exploration B.V. (Spex), 45 percent[2].

In other words, OPM and OV by the above reports have not been included in the above projects.

So far those included in the current exploration projects has shown mixed results

Alcorn Gold Resources Corp [APM]

APM’s chart shows of a bullish cup and handle.

PetroEnergy Resources Corp

And so has PERC’s chart

Trans-Asia Oil

The distortion of Trans Asia Oil prices may have been the result of the recent 7:10 stock rights offering.

And finally...

Basic Energy Corporation [BSC]

BSC has not been a part of the recent consortium and has seen little price actions.

Bottom line:

Current activities in OV and OPM could be signaling a resurgence of interests on oil issues as it has been with APM and PERC.

This is going to be part of the inflation based rotational process which I have long been talking about.

Since no trend moves in a straight line and where price actions are always relative, eventually part of such money flows that has lifted other issues will spillover to non-performing or laggard issues.

The reason for such dynamic will always be rationalized. As for its causal relevance would signify more of happenstance. People are entranced by superficialities and by social conformity rather than theories based on logical rigor.

At the end of the day, this means that in bullmarkets almost all issues will be higher; this essentially represents a rising tide lifts all boats syndrome. While on bear markets almost every issue will decline.

It’s part of the process known as the boom-bust cycle.

[Disclosure: I have been a long term shareholder of OPM and PERC. And I plan to add more as the opportunities arise]

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[1] USnewslasvegas.com Otto starts Duhat-1 well drilling April 20, 2011

[2] Philstar.com Nido Petroleum set to drill Gindara prospect in May, March 22, 2011

Rapture Watch: We Live!!!!!

My reply to the prophesy of yesterday's supposed econometrics derived Rapture is best represented by the video below of Mushu, a Disney character of the Mulan fame (played by Eddie Murphy):

Video: Why Tax Increases Are Wrong (and Immoral)

Here is an eloquent video from Center for Freedom and Prosperity which shows why tax increases are baneful to an economy.

Note: these has universal application which means that the enumerated factors applies to the Philippines as well. (hat tip Dan Mitchell)


To add, taxation isn't just harmful, they are essentially immoral.

Ludwig von Mises (Human Action): [emphasis added]

It is important to remember that government interference always means either violent action or the threat of such action. The funds that a government spends for whatever purposes are levied by taxation. And taxes are paid because the taxpayers are afraid of offering resistance to the tax gatherers. They know that any disobedience or resistance is hopeless. As long as this is the state of affairs, the government is able to collect the money that it wants to spend. Government is in the last resort the employment of armed men, of policemen, gendarmes, soldiers, prison guards, and hangmen. The essential feature of government is the enforcement of its decrees by beating, killing, and imprisoning. Those who are asking for more government interference are asking ultimately for more compulsion and less freedom.

To draw attention to this fact does not imply any reflection upon government activities. In stark reality, peaceful social cooperation is impossible if no provision is made for violent prevention and suppression of antisocial action on the part of refractory individuals and groups of individuals. One must take exception to the often-repeated phrase that government is an evil, although a necessary and indispensable evil. What is required for the attainment of an end is a means, the cost to be expended for its successful realization. It is an arbitrary value judgment to describe it as an evil in the moral connotation of the term. However, in face of the modern tendencies toward a deification of government and state, it is good to remind ourselves that the old Romans were more realistic in symbolizing the state by a bundle of rods with an ax in the middle than are our contemporaries in ascribing to the state all the attributes of God.

Murray N. Rothbard (Tax Day):

The first great lesson to learn about taxation is that taxation is simply robbery. No more and no less. For what is "robbery"? Robbery is the taking of a man’s property by the use of violence or the threat thereof, and therefore without the victim’s consent. And yet what else is taxation?

Those who claim that taxation is, in some mystical sense, really "voluntary" should then have no qualms about getting rid of that vital feature of the law which says that failure to pay one’s taxes is criminal and subject to appropriate penalty. But does anyone seriously believe that if the payment of taxation were really made voluntary, say in the sense of contributing to the American Cancer Society, that any appreciable revenue would find itself into the coffers of government? Then why don’t we try it as an experiment for a few years, or a few decades, and find out?

But if taxation is robbery, then it follows as the night the day that those people who engage in, and live off, robbery are a gang of thieves. Hence the government is a group of thieves, and deserves, morally, aesthetically, and philosophically, to be treated exactly as a group of less socially respectable ruffians would be treated.

Apocalypse Today: Divination Based on Econometrics

Today we all meet our creator. That’s according to the predictions of a religious Christian sect.

Here’s the Huffington Post,

Circled dates dot a calendar on John Ramsey's refrigerator door. They show the busy life of a 25-year-old: dinner parties, birthdays, holidays. But only until May 21.

Every month after May has been crossed out. As has all of 2012.

Ramsey is one of thousands of followers of a loose-knit Christian fringe movement whose members are increasingly found on sidewalks, in parks and at transit hubs in major cities throughout the United States.

They recite passages of the Bible line-by-line and say they have decoded a message for humanity: The world is about to end.

"God says when you see the sword come upon the land, you blow the trumpet and you warn the people," says Ramsey, paraphrasing Ezekiel 33:3. "All I'm doing is telling what I know."

Ramsey and the movement's followers say that at 6 p.m. on Saturday, May 21, the ground will quake, graves will open and many of the dead will ascend to heaven. Two hundred million of the 'saved' -- dead or alive -- will float up. Those left behind will be doomed to live among blood, destruction and disease for five months before God annihilates the Earth on Oct. 21.

Now how did this sect come about with the prognosis of today’s supposed rapture?

Again the Huffington Post, (bold emphasis added)

Camping, a frail 89-year-old who speaks in a slow but sonorous voice for hours each day on his "Open Forum" call-in show, is convinced that he crunched the exact date of the Rapture through a complex set of equations.

For example, he says, certain numbers repeat in the Bible along with particular themes. The number five means "atonement." Ten means "completeness." Seventeen is "heaven."

"Christ hung on the cross April 1, 33 A.D.," he says. "Now go to April 1 of 2011 A.D., and that's 1,978 years."

If you multiply that number by 365.2422 -- the number of days in the solar calendar -- it equals 722,449. And if you add 51 (the number of days between April 1 and May 21) to that number, it equals 722,500.

Multiply five by ten by 17 to equal 850, and multiply 850 by 850 and the result is the same: 722,500.

Another article brings about the same math based predictions but with a little twist.

From the Daily Beast (bold highlights mine)

Robert Fitzpatrick brings some papers to explain to me how the May 21 date was discovered. It’s not an easy thing to understand. Harold Camping’s calculation includes numbers divined from the founding of the state of Israel in 1948; Jesus’ order to “flee into the mountains” in Matthew 24; and the jubilee year of 1994. From there Camping performs handsprings back and forth through biblical time before ending up, with a great flourish, on May 21, 2011. For Fitzpatrick, the calculation’s outlandishness confirms its rightness. “A genius could not understand this,” he says, “because God has to open your mind to allow you to understand this.”

Fitzpatrick took Camping’s math and laid it out in a self-published book called The Doomsday Code, a soup-to-nuts guide to the Rapture. That cost him a few thousand dollars. He poured the rest of his savings into signage. Fitzpatrick’s belief in the May 21 date has been buttressed by various “proofs.” For instance, it is Camping’s contention that God imbues numbers in the Bible with special meaning. Five means atonement; 10 means completeness; 17 means heaven. If you were to multiply atonement times completeness times heaven and then, for a reason that remains mysterious, multiply that sum by itself again:

(5 x 10 x 17) x (5 x 10 x 17)

You’d end up with 722,500. Fast-forwarding 722,500 days from the date of the crucifixion—at least, the date as divined by Camping—lands you on May 21, 2011, the date of the Rapture. QED.

Like any instruments, which can be use for good or bad or for advancement or retrogression, mathematics can be used for many other matters (in the user's interests), whether for politics, environment, social signalling or even for religion (as the above).

Maybe like global warming, these divine 'econometric' (application of statistical and mathematical techniques in solving problems) modelers may (likely) have gotten their assumptions, applications or computations all amiss.

That's unless what they have been using could be extraterrestial models.

Video: Markets Everywhere: Markets by the Railway

Here is a food market that operates on a railway track. It's the Mae Klong Market in Thailand. (hat tip Mark Perry)

End The IMF

The sexual molestation scandal has compelled the resignation of IMF’s Dominique Strauss Khan.

Now there are have been speculations on his replacement.

As of yesterday bookmakers have placed the odds on some possible replacement candidates.

This from the Economist

Here are some of the people viewed to be plausible contenders to replace Mr Strauss-Kahn, and the odds on their getting the top job according to William Hill, a British bookmaker. A win for a non-European would be a first for the IMF, as would the appointment of Christine Lagarde, who would be the first woman to head the organisation.

Meanwhile, the Wall Street Journal describes part of how IMF politics works.

From the WSJ

Because the U.S. and European nations together have always held a majority voting stake in the IMF, that unwritten convention has guided the leadership process for the past six decades. Any executive directors on the 24-member board — representing the IMF’s 187 governments — can propose candidates for consideration, generally based on guidance from their home countries. In turn, the board has used informal straw polls — rather than formal recorded votes — to gauge support for the candidates. (Though formal voting isn’t used, the distribution of voting shares helps determine who can garner enough support as a candidate.)

At times, though, the U.S. and Europe have been divided on their options. In 2000, for instance, the European Union formally backed German deputy finance minister Caio Koch-Weser to take the top post at the fund, replacing longtime IMF Managing Director Michel Camdessus of France. But the U.S. balked, leading the White House press secretary at the time to publicly oppose the choice. Many developing nations wanted then-Acting Managing Director Stanley Fischer, an American born in Zambia, to fill the job.

After a month of heated public debate, the IMF eventually settled on German national Horst Kohler, who was president of the European Bank for Reconstruction and Development.

The U.S. has been expected to take a back-seat role in choosing the next managing director, focusing instead on its traditional role of picking the IMF’s No. 2 official. The current No. 2, John Lipsky, is slated to leave his post in August. For now, though, U.S. officials have put that process on hold considering the rush to fill the top post.

Since the IMF’s founding, all 10 IMF managing directors have come from Europe. The managing director is typically a former finance minister or central bank governor from a Western European country.

So the IMF has been mostly been a US-Europe turf, where the US has allowed Europeans to take the helm since.

Yet some have floated that the Kahn episode could even be a frame up.

Writes Bob Wenzel,

I continue to believe that the most likely explanation for him coming out of the bathroom naked is that he was expecting someone.

If he did make a call to an escort service than I fully believe a government agency could have set DSK up. What's more, this is a major French hotel, which means it his highly likely that French government agents are floating around the hotel as guests and employees.

The reasons: perhaps because he “broke free from the party line” (may have offended some vested interest groups) with his current policies or perhaps it was about the upcoming national elections in France or a combination of both.

A French poll reveals that about 57% believes that Kahn had been a ‘victim of a plot’

This only shows how politicking could have played a nasty part in the sordid Kahn affair which also reveals on the operational procedures of the IMF—which seems indistinguishable from any national agencies which redistributes resources politically.

Also the US-European political hegemony of the multilateral institution translates to the channeling resources to uphold their political interest. And this is why Emerging Markets are unlikely to gain a leadership foothold in the near future. The division of spoils belong to the winners.

Besides, the fundamental role for IMF’s existence have been exhausted, where the agency’s operations has shifted from ‘monetary’ to ‘developmental’.

As Cato’s Doug Bandow writes, [hat tip Dan Mitchell] (bold highlights mine)

The IMF's founding purpose vanished when the system of fixed exchange rates collapsed in the early 1970s. But instead of closing up shop (no jobs for international bureaucrats in that!), the IMF switched to promoting development. That is, it became a welfare program for Third World governments (and, more recently, for Eastern Europe and even Greece).

So maybe it’s not time to seek a replacement. Maybe it’s time for the IMF to stop meddling in the affairs of nations.

Maybe it’s time for the IMF to stop propping up collectivist regimes, bailing out unsustainable systems and promoting interests of political operatives behind the scenes.

As Leland B. Yeager writes in Cato (Hat tip Don Boudreaux) [bold emphasis mine]

I am inclined to concur in points made by Ian V squez (1997) and Allan Meltzer (1995) about activities of the IMF (and similarly of the World Bank). These tend to support government domination of economies, despite ``conditionality'' purporting to do otherwise; and politicization of economies increases the scope for rent-seeking. Thrusting debt onto poor countries, putting them onto a debt treadmill, ill serves economic development. Funds for bailouts create moral hazard, tending to delay reforming crisis-prone policies (see The Economist 1997b). New issues of SDRs, which the IMF staff likes to propose, accomplish international transfers of wealth in a way that most legislators do not even understand. Self-important international bureaucracies have institutional incentives to invent new functions for themselves, to expand, and to keep client countries dependent on their aid.

Maybe it’s time to abolish the IMF.

LinkedIn Doubles on Listing Date, More Signs of Tech Bubble?

For me, the success of IPOs have mostly been sentiment based, where the direction of the general markets account for the success of specific issuance. In other words, bull markets prompt for fantastic returns which would draw in more issues to list. Hence ascending markets will lead to more IPOs.

Conversely, IPOs are usually nonevents during bear markets (the above chart I earlier posted here). Ergo, IPOs can function as indicators of the whereabouts of a bubble cycle.

I recently posted about signs of brewing bubble on internet stocks.

LinkedIn which has been already a hit in the secondary markets made a scintillating debut yesterday.

In the NYSE, LinkedIn prices more than doubled!

From the Marketwatch,

LinkedIn’s stock LNKD +108.58% soared at one point more than 140% to $108.25, before receding to $94.25 by the close of its first day of trading on the New York Stock Exchange.

Propelled by vigorous demand leading up to its initial public offering, LinkedIn’s IPO priced at $45 a share, at the top end of a recently raised range of $42 to $45 a share. Previously, the IPO pricing range had been $32 to $35 for shares in the professional-networking service.

Bespoke Invest notes of IPOs with best first day returns during this cycle.

LinkedIn topped two Chinese internet companies, Youku.com (video hosting service) and Qihoo 360 Technology (internet anti-virus and security products). Again the best returns have all been in the internet sectors.

This means listing of internet stocks have drawn in alot of speculative activities and will likely serve as precedent for more frenzies.

As Tech columnist Eric Savitz writing in Forbes writes, (emphasis added)

In other ways, the current situation looks nothing like the first Internet bubble. (For instance, there is no insane salary-inflating battle for journalists this time around. Sigh.) The most obvious difference is that until now, all of the action has been taking place in the venture capital market, or at least, in the newly emerging secondary market for venture investments. There have been just a handful of IPOs, aside from a flurry of Chinese Internet deals. But many of the key social networking players have been showing signs of inching toward the exits. Facebook hasn’t filed yet, and neither has Twitter, Zynga or Groupon. (Though Zynga and Yelp both threatened to abandon San Francisco unless the city exempted them from an onerous tax on employee stock options they could have otherwise faced going public while based in the city by the Bay.) Skype, after a year in registration, agreed to be acquired by Microsoft for $8.5 billion. Zillow has filed, though and so has Pandora. There’s still the makings here of a 1999-like IPO explosion...

The market’s hunger for LinkedIn shares is a demonstration of the kind of speculative fervor last seen in the recently popped bubble in the silver market. This isn’t really about what’s rational, it’s about dreams and imagination. The risks here are obvious; buying LinkedIn shares at 20, or 30 or 40x last year’s revenues is giant game of chicken that I would personally advise against. LinkedIn is not Pets.com; it is a real company, with impressive growth, and it operates in the black. But is the current valuation rational? I’m not convinced.

History may not repeat itself, as Mark Twain said, but they could rhyme.