Graphic: World’s Military Conscription

According to the Economist,

THIS month Germany suspended military conscription and its civilian counterpart, community service. After 50 years and the service of 8.4m young men, Germany is set to shrink the Bundeswehr from 220,000 to a maximum of 185,000 troops. But conscription still remains part of the constitution and available in the case of an emergency. Similarly in America, while "the draft" ended in 1973, laws require men to register with the Selective Service System within 30 days of their 18th birthday. This provides a deep pool of manpower in the event of a national emergency. Where compulsory military service is enforced in Europe it ranges from 260 days (in Switzerland), to 26 months (in Cyprus). As the map below shows, conscription is most popular in Asia and Africa.

Here’s the Libertarian take on military conscription. The following quotes with bold emphasis mine:

From Professor Bryan Caplan

Slavery is involuntary servitude; conscription is involuntary military servitude; therefore not only is conscription slavery; it's a particularly heinous form of slavery that often ends in maiming and death.

From Congressman Ron Paul

Ronald Reagan said it best: "The most fundamental objection to draft registration is moral." He understood that conscription assumes our nation's young people belong to the state. Yet America was founded on the opposite principle, that the state exists to serve the individual. The notion of involuntary servitude, in whatever form, is simply incompatible with a free society.

In short, military conscription is a conventional form of slavery. Perhaps Germany’s move could set the trend for more individual liberation and freedom worldwide.

Some Independence Day Passages

From 30^th US President Calvin Coolidge (who incidentally was born on the 4^th of July) (Heritage Foundation) (Emphasis added)

If all men are created equal, that is final. If they are endowed with inalienable rights, that is final. If governments derive their just powers from the consent of the governed, that is final. No advance, no progress can be made beyond these propositions.

Anthony Gregory on why popular knowledge of history about Independence Day has been a sham. (Emphasis added)

In the first five U.S. presidencies, we see the American empire, albeit in embryonic form, begin its centuries-long crusade of aggressive expansion and centralization of power in the capital. George Washington cracked down on the libertarian Whiskey Rebellion, created a national bank, and put Alexander Hamilton, a centralizing statist, in charge of the Treasury. John Adams blatantly violated the First Amendment as much as any president since with his notorious Alien and Sedition Acts. Thomas Jefferson deployed the Marines on an ultimately failed mission in the Barbary war, attempted to suspend habeas corpus and create a department of education, imposed a brutal embargo on English goods that decimated the economy and destroyed privacy rights, and conducted the Louisiana Purchase in bold defiance of the Constitution. James Madison invaded Canada in his war with England, a war in which martial law was enforced in New Orleans and a judge was jailed merely for issuing a writ of habeas corpus on behalf of a newspaper editor whose only crime was criticizing the war. Under James Monroe, the U.S. invaded Spanish Florida and adopted a doctrine whereby the U.S. would essentially claim prerogative over the whole of the Western Hemisphere, a colonial pretension whose bloody legacy continues to this day. This could all be blamed on the Constitution rather than the American Revolution itself, but it was the war that brought the "Founding Fathers" to power and allowed them to consolidate authority and take over the nation.

July Fourth celebrations did not become tacky or hypocritical only recently. The day was always a dubious cause of commemoration. The word "holiday" – holy day – clearly has a religious connotation. It is a day set aside for sacred observation. Those who regard Independence Day revisionism as profane should ask themselves which religion is sacrosanct to them. The Fourth of July is ultimately a celebration of the American nation-state’s birthday. It is a ritual in the U.S. civic religion. This is why it has been a militarist tradition since 1777, when the occasion was marked in Philadelphia with 13-gun salutes and imagery of the battle flag everywhere. The greeting card holidays might seem unworthy of mention alongside Christmas, Hanukkah and Easter. But Independence Day, even more than the politically correct and secular days celebrated every year, resembles an actual incidence of blasphemy.

There is a heroic side to the American Revolution, and surely no U.S. war since has been nearly as just in its cause. But the political shenanigans that led to war, the war itself, and its aftermath all deserve more criticism. Sadly enough, those who support the federal government’s domestic ambitions and foreign occupations while waving the flag on Independence Day are only as hypocritical as the colonists who tarred and feathered their antiwar countrymen in the name of liberty, the soldiers who invaded Canada in the name of anti-imperialism, the rebels who destroyed privately owned tea in the name of property rights, the Founders who waged a war against tyranny only to create a regime as formidable as King George’s, or the Father of our Country who started an unnecessary and tragic world war and then led a revolution in refusal to pay the bills for it.

Professor Gary North on why he doesn’t celebrate Independence Day... (Emphasis added)

The Continental Congress declared independence on July 2, 1776. Some members signed the Declaration on July 4. The public in general believed the leaders at the Continental Congress. They did not understand what they were about to give up. They could not see what price in blood and treasure and debt they would soon pay. And they did not foresee the tax burden in the new nation after 1783.

In an article on taxation in that era, Rabushka gets to the point.

“historians have written that taxes in the new American nation rose and remained considerably higher, perhaps three times higher, than they were under British rule. More money was required for national defense than previously needed to defend the frontier from Indians and the French, and the new nation faced other expenses.”

So, as a result of the American Revolution, the tax burden tripled.

The debt burden soared as soon as the Revolution began. Monetary inflation wiped out the currency system. Price controls in 1777 produced the debacle of Valley Forge...

That the largest signature on the Declaration of Independence was signed by the richest smuggler in North America was no coincidence. He was hopping mad. Parliament in 1773 had cut the tax on tea imported by the British East India Company, so the cost of British tea went lower than the smugglers' cost on non-British tea. This had cost Hancock a pretty penny. The Tea Party had stopped the unloading of the tea by throwing privately owned tea off a privately owned ship – a ship in competition with Hancock's ships. The Boston Tea Party was in fact a well-organized protest against lower prices stemming from lower taxes.

So, once again, I shall not celebrate the fourth of July.

Finally, along with the US, this week China also commemorates the 90^th anniversary of the founding of the Chinese Communist Party.

However, Cato’s David Boaz sees the light on how China’s path towards economic freedom may possibly influence her political institutions.

From Prof Boaz (Emphasis added)

China of course followed a different vision. Take the speech of Mao Zedong on July 1, 1949, as his Communist armies neared victory. The speech was titled, “On the People’s Democratic Dictatorship.” Instead of life, liberty, and the pursuit of happiness, it spoke of “the extinction of classes, state power and parties,” of “a socialist and communist society,” of the nationalization of private enterprise and the socialization of agriculture, of a “great and splendid socialist state” in Russia, and especially of “a powerful state apparatus” in the hands of a “people’s democratic dictatorship.”

Tragically, unbelievably, this vision appealed not only to many Chinese but even to Americans and Europeans, some of them prominent. But from the beginning it went terribly wrong, as really should have been predicted. Communism created desperate poverty in China. The “Great Leap Forward” led to mass starvation. The Cultural Revolution unleashed “an extended paroxysm of revolutionary madness” in which “tens of millions of innocent victims were persecuted, professionally ruined, mentally deranged, physically maimed and even killed.” Estimates of the number of unnatural deaths during Mao’s tenure range from 15 million to 80 million. This is so monstrous that we can’t really comprehend it. What inspired many American and European leftists was that Mao really seemed to believe in the communist vision. And the attempt to actually implement communism leads to disaster and death.

When Mao died in 1976, China changed rapidly. His old comrade Deng Xiaoping, a victim of the Cultural Revolution, had learned something from the 30 years of calamity. He began to implement policies he called “socialism with Chinese characteristics,” which looked a lot like freer markets — decollectivization and the “responsibility system” in agriculture, privatization of enterprises, international trade, liberalization of residency requirements.

The changes in China over the past generation are the greatest story in the world—more than a billion people brought from totalitarianism to a largely capitalist economic system that is eroding the continuing authoritarianism of the political system. On its 90th birthday, the CCP still rules China with an iron fist. There is no open political opposition, and no independent judges or media...

The CCP remains in control. But it struggles to protect its people from acquiring information, routinely battling with Google, Star TV, and other media. Howard French notes that “the country now has 165,000 registered lawyers, a five-fold increase since 1990, and average people have hired them to press for enforcement of rights inscribed in the Chinese Constitution.” People get used to making their own decisions in many areas of life and wonder why they are restricted in other ways. I am hopeful that the 100th anniversary of the CCP in 2021 will be of interest mainly to historians of China’s past and that the Chinese people will by then enjoy life, liberty, and the pursuit of happiness under a government that derives its powers from the consent of the governed.

I may be late, as I am writing from sickbed but nonetheless...

“Happy Freedom Day!”

I Just Can’t Get Enough: Philippine Phisix Emits Intensely Bullish Signals

And when it rains

You`re shining down for me

I just can`t get enough

I just can`t get enough

Just like a rainbow

You know you set me free

I just can`t get enough

I just can`t get enough

-I Just Can’t Get Enough, Depeche Mode

Last week I pointed out that signs of market divergences in the global markets and a seeming convergence of many local indicators pointed to a possible sustained momentum for a rally.

I wrote[1]

All these factors, particularly chart formation, rallying peso, improving market breadth, bullish local investors, appears to have converged to signify possibly as a significant tailwind in favor of the bulls.

With lady luck seemingly smiling at me, events have proven this short term observation to be stunningly accurate.

The Phisix (black candle) makes an all important watershed with a rousing breakout (light blue circle) from the massive 8-month reverse and shoulder formation (orange arcs).

In Bullmarkets, Everyone is a Genius

Before I proceed, I’d like to make additional comments on what I think will be forthcoming mindset that will dominate the equity markets as the bullmarket flourishes.

Bullmarkets create the impression of infallibility, smugness, invincibility and expansive risk appetite. That’s because erroneous or defective reasoning, beliefs and or strategies will be validated by prices actions regardless of the soundness of the imputed causal relationship. In short, luck determines most of successes.

Yet most will get immersed with self-attribution bias[2], particularly self-serving bias[3], where people attribute successful outcomes to their own skill, but blame unsuccessful outcomes on bad luck.

In convention, many will argue that ‘fundamentals’ will reflect on price actions. Others will argue that chart trends will serve as the critical factors in establishing fundamentals.

Both these groups essentially argue from the perspective of historical determinism, where past performances have been assumed to determine future outcomes.

Black Swan author Nassim Nicolas Taleb exposes the shortcomings of such presumptions; Mr. Taleb writes[4], (emphasis added)

When you look at the past, the past will always be deterministic, since only one single observation took place. Our mind will interpret most events not with the preceding ones in mind, but the following ones. Imagine taking a test knowing the answer. While we know history flows forward, it is difficult to realize that we envision it backwards.

Their fundamental mistake is to overestimate causality and oversimplify market’s actions as easily explainable from superficial perspectives.

Further, these groups will also fall captive to the reflexivity theory where expectations and outcomes would play a critical self-reinforcing feedback mechanism

The aspect where I agree with Mr. George Soros[5] is this theory, (bold emphasis mine)

The structure of events that have no thinking participants is simple: one fact follows another ending in an unending casual chain. The presence of thinking participants complicates the structure of events enormously: the participants thinking affects the course of action and the course of action affects the participants thinking. To make matters worst, participants influence and affect each other. If the participants’ thinking bore some determinate relationship to the facts there would be no problem: the scientific observer could ignore the participants’ thinking and focus on the facts. But the relationship cannot be accurately determined for the simple reason that the participants’ thinking does not relate to facts; it relates to events in which they participate, and these events become facts only after the participants’ thinking has made its impact on them. Thus the causal chain does not lead directly from fact to fact, but from fact to perception and from perception to fact with all kinds of additional connections between participants that are not reflected fully in the facts.

In short, hardly anyone understands that such reflexive feedback loop process, which functions as the psychological backbone or stepping stones for boom bust cycles, are shaped by actions of policymakers whose political goal has been to sustain perpetual quasi booms.

As the great Austrian economist, Ludwig von Mises writes[6], (bold highlights added)

Nothing harmed the cause of liberalism more than the almost regular return of feverish booms and of the dramatic breakdown of bull markets followed by lingering slumps. Public opinion has become convinced that such happenings are inevitable in the unhampered market economy. People did not conceive that what they lamented was the necessary outcome of policies directed toward a lowering of the rate of interest by means of credit expansion. They stubbornly kept to these policies and tried in vain to fight their undesired consequences by more and more government interference

The effect of inflationism is to distort economic or business calculations. This will further cause massive misallocation of capital or an inducement to excessive speculations which subsequently gets manifested on the marketplace, including the stock markets via a boom bust cycle.

Bottom line: Bull market geniuses will fall short of the recognition and comprehension of the true drivers of the marketplace. They would continue to latch on cognitive biases backed by technical gobbledygook (‘macro-micro fundamentals’, political-economic ideology, mechanical charting) to argue for their cases. When the bubble pops all these arguments evaporates.

‘I Told You So’ Moment on Divergences

This leads us back to the significant chart breakout by the Phisix above.

An important reminder is that while charts are representative of past actions of the market, patterns alone do not suggest of the reliability of statistical precision of repetitive occurrences for reasons cited above, such as analytics tenuously derived from historical determinism.

That’s why charts must work in consonance with other indicators. Importantly, charts must be grounded on theory as basis for such prognosis. In short, charts should only play the role of guidepost in measuring theory. It would serve as a grave mistake to interpret charts as the foundation for theory.

Friday’s upside pop (green circle) beyond the reverse head and shoulders resistance levels may have signaled the second wind or the next significant upside leg which may bring the Phisix to the 4,900-5000 level (this implies returns of 12-15%) to the yearend.

Of course, returns will vary according to the actions of specific issues but the returns of the Phisix would essentially reflect on the average of the returns from the 30 elite issues included in the local basket bellwether.

Unfortunately, the Philippine Stock Exchange does not have an Exchange Traded Fund (ETF) listed locally that may reflect on the actions of the Phisix. Nevertheless for residence abroad, the first Philippine Exchange Traded Fund, the iShares MSCI Philippines Investable Market Index Fund (EPHE) has been listed since September of last year[7] One can take advantage of the possible Phisix rally through the EPHE.

The breakout of the Phisix appears to be validated by the actions of the Philippine Peso (red candle) where the USD-Peso chart echoed on an equally sharp downside move (green circle) for the US dollar. The Peso closed at 43.175 on Friday for a .6% gain over the week.

One would note that while the Phisix exudes a bullish backdrop, the Peso’s chart has exhibits what chartists call as a “whipsaw” or a chart pattern failure or in stockcharts.com’s definition “when a buy or sell signal is reversed in a short time”[8]

Early this month, the US dollar broke to the upside against the Peso, but this breakout was essentially expunged by this week’s rally in the Peso (light blue circle).

This should be a good example how charts can’t be used as a standalone metric.

The tight Peso-Phisix correlation suggest that for the time being, the Phisix appears to lead the price actions of the Peso, as I previously noted[9]

currency traders must take heed of the activities in the PSE as part of their studies from which to derive their predictions

Again this has been premised mostly on the favorable relative demand for Peso assets, aside from the lesser inflationary path by the Peso based on the supply side.

This Phisix-Peso correlation appears as being bolstered by a spike in Foreign buying which turned positive this week (red circle).

Net foreign buying accounted for 44.46% of this week’s peso volume traded at the Philippine Stock Exchange.

Divergent external policies are likely to continue to drive foreign funds into local shores.

Market Internals Swings To Positive Zone

As an idiom goes, ‘The proof of the pudding is in the eating’.

All sectors posted gains this week with Industrials and Financials taking the leadership from the mining sector (see graphic above).

Even from the midterm basis, All sectors have been on an uptrend (Financials, Industrials and Holdings-left column; Property, Services and Mining and Oil-right column) despite the recent corrections.

What Friday’s sprightly activities did was to magnify on these gains.

Said differently, while Friday’s rally may have hallmarked a significant and symbolical turnaround, in reality, most of the sectors have already been on an upside creep way before Friday, most notably coming from the troughs in mid June.

Further, this interim rally seems to reinforce the medium term trend dynamics.

“I just can’t get enough” is a song by new wave band called Depeche Mode during the early 1980s. To borrow from Depeche Mode, I just can’t seem to get enough to further show how markets have been validating our expectations.

The advance-decline ratio (left window) has oscillated to favor of the bulls, while issues traded daily has turned to the upside backed by a seeming double bottom (red) and an interim ascendant trend.

A rising Phisix will induce more trades that will be reflected on volume expansion. That’s how reflexivity theory incentivizes people: As prices go higher more people will start chasing prices and higher prices will be read as improvements on economic and corporate output which will further lead to rationalizing of price chasing dynamics, hence, the feedback loop.

Also, an ascendant Phisix will tilt the balance of ‘frequency’ of the advance-decline differentials mostly to the positive or advancing side. So the advance decline chart would show denser on the positive column where advancing issues dominate.

From Divergence to Convergence

The current divergent phenomenon should not be misread as decoupling. We may see another series of re-convergence in global stock markets.

The US S&P 500 (SPX), Europe’s Dow Jones EURO STOXX 50 (STOX5E), Asia’s Dow Jones Asia/Pacific Index (P1DOW) and the Emerging Markets’ (MSEMF) MSCI Emerging Markets Free Index (EOD) have all bounced strongly from last week (green arrows).

With global equity markets on a heady upside explosion following the ratification of the Greece austerity vote which paves way for the Greece Bailout 2.0 (estimated at 85 billion Euros[10]), we should expect the previously divergent international signals to transition towards re-convergence.

Global markets are being flushed with liquidity once more. This time the flow will not only be coming from the Greece bailout 2.0, but likewise from the proposed bailout by Japan of the embattled nuclear industry, which would signify as an indirect bailout of her Banking industry which has massive loan exposure on the former[11].

The wave of bailouts appears as being intensified by increasing expectations for the reinstitution of asset purchases or Quantitative Easing by the Bank of England[12] (BoE)[13]. Guess who would be next?

Again the serial bailouts, divergent monetary policies by developed and emerging markets, negative real interest rates (here and abroad) and artificially low interest rates represent as key contributors to the prospective extension of the bullish momentum.

Of course, momentum won’t go straight forward, there will be interim or intermediate corrections. Yet these corrections should be seen as windows of opportunities to position.

---

[1] See Phisix: Divergences Point to a Bullish Momentum, June 26, 2011

[2] self-attribution-bias.behaviouralfinance.net, Self Attribution bias

[3] Wikipedia.org Self-serving bias

[4] Taleb Nassim Nicolas Fooled by Randomness, The Hidden Role of Chance in Life and in the Markets Random House 2005, p.56

[5] Soros George The Alchemy of Finance, John Wiley and Sons, p. 318

[6] Mises, Ludwig von, Free Banking and Contract Law, Chapter 17 Human Action, Mises.org

[7] Rowland Ron iShares Gives U.S. Investors Their First Philippines ETF, October 1, 2010, Seeking Alpha

[8] Stockcharts.com Glossary - W

[9] See ASEAN’s Equity Divergence, Foreign Fund Flows and Politically Driven Markets, June 5, 2011

[10] Bloomberg.com Euro Area Backs Greek Aid, Looks to New Bailout, July 03, 2011

[11] See Japan Mulls More Bailouts for the Nuclear Industry (and Mega Banks) June 28, 2011

[12] Express.co.uk SOFT PATCH CLOUDS OUTLOOK, July 3, 2011

[13] Bloomberg.com BIS Says Central Banks Need to Start Increasing Rates to Contain Inflation, June 27, 2011

Greece Crisis: Does Fiscal Austerity Mean a Deflationary Policy?

The same principle leads to the conclusion, that the encouragement of mere consumption is no benefit to commerce; for the difficulty lies in supplying the means, not in stimulating the desire of consumption; and we have seen that production alone, furnishes those means. Thus, it is the aim of good government to stimulate production, of bad government to encourage consumption.-Say, Jean-Baptiste

For some it is held the current actions by Eurozone government represent as “deflationary policies”.

Such notion has been premised from the economic ideology which sees the economy as driven by aggregate demand.

Demand side economics see spending as the ultimate driver of any economy. Where private spending has been reckoned as insufficient or inadequate, government has been prescribed to takeover the spending process or through “socialization of investment”; otherwise the lack of spending, which supposedly impairs the aggregate demand, would result to people hoarding money, an outcome which this camp morbidly dread most: deflation.

This is why this camp argues for the “euthanasia of the rentier” which is to keep interest rates at perpetually low levels (if only they can abolish interest rates!).

Also, because spending is seen as the only driver of the economy, it doesn’t matter if spending is financed by unsustainable debt loads or by money printing “parting with liquidity”[1]. For them, spending is spending period.

This is an example of what I would call as analysis blinded by the Nirvana fallacy or “the logical error of comparing actual things with unrealistic, idealized alternatives. It can also refer to the tendency to assume that there is a perfect solution to a particular problem[2]” where mathematical models based on aggregate assumptions have substituted for real life activities. Statistical aggregates assume that people think and act homogeneously.

This also serves as another example where this mainstream economic pedagogy leads to a lack of common sense and self-discipline[3] because this camp basically advocates that people should borrow and spend to prosperity even when reality says that this would be impossible (see Jean Baptiste Say quote above).

How true has deflation been the problem of the PIIGS or the crisis affected nations of peripheral Europe?

At present, NONE of the PIIGS has shown DEFLATION as an economic condition as exhibited by the charts from tradingeconomics.com.

Instead, PIIGS have shown symptoms of mild stagflation (high unemployment and high inflation).

Of the five, only Ireland encountered consumer price deflation for over a year in 2009-2010.

Others like Spain and Portugal experienced very limited bouts of deflation in 2009.

Thus, little of what the demand side economics have feared has ever been true since the 2008 Lehman crisis began to unravel.

Theoretically, fiscal austerity means transferring of non-productive resources to productive resources.

Yet because of the dependency/entitlement culture which had been inbred from too much of “socialized investment”, as in the case of Greece, Greeks have taken to the streets[4]

As Takis Michas, staff writer for the Greek national daily, Eleftherotypia in a Cato Forum accounting for the seeds of the crisis[5]

The largest part of public expenditure was directed, not to public works or infrastructure, but to the wages of public service workers and civil servants.

The grounds for the rent-seeking struggles of the future were thus firmly laid.

As resources are freed for productive use, deflation then should be seen as positive because the productive private sector should be able to use these freed resources to produce goods and services, which would fuel a genuine recovery. With more output than than the growth of supply of money this is known “growth deflation” similar to the dynamics of falling prices of mobile phones, appliances and computers.

And that’s why a major part of Greece’s crisis ‘austerity plan’ resolution has been to undertake mass privatization[6].

However theoretical isn’t actual.

The unfolding Greece crisis isn’t being resolved entirely to free resources for productive means, instead the bailouts have been intended to use these resources to protect the banking system from a collapse[7]. Resources are merely being transferred from government welfare programs to the politically privileged banking sector.

Thus, the Greece bailout has been and will continue to be financed by European Central Bank’s inflationism.

Since the end of 2009, just as the Greece Debt Crisis surfaced[8], ECB’s M3 annual growth rate continues to climb, as shown by the chart from Bloomberg[9] (upper window). Such rate of increase in the money supply has shadowed the growth rate of the Euro’s inflation (chart from trading economics.com[10]).

For as long as the ECB and EU governments will continue to finance these serial bailouts by inflationism, then we should see more inflation and not deflation.

At the end of day, false economics leads to misdiagnosis and wrong predictions/conclusions.

---

[1] what-when-how.com SOCIALIZATION OF INVESTMENT

[2] Wikipedia.org Nirvana Fallacy

[3] See Financial Success is a Function of Common Sense and Self Discipline June 23, 2011

[4] See The Anatomy of False Economics as Revealed by the Greece Crisis, June 28,2011

[5] Michas Takis , Policy Forum: A Greek Tragedy, Cato Policy Report Cato.org, July/August 2011

[6] ca.reuters.com Greek sovereignty to be massively limited: Juncker, July 3, 2011

[7] See Greece Crisis: The Lehman Moment Hobgoblin, June 19, 2011

[8] News.bbc.co.uk Greece timeline June 16, 2011

[9] Bloomberg.com ECB M3 Annual Growth Rate SA (ECMAM3YY:IND)

[10] Tradingeconomics.com Euro Area Inflation Rate

More Signs of Demolition Job against IMF’s Dominique Strauss Kahn

The sexual assault case against former IMF chief Dominique Strauss-Kahn has reportedly been in a near collapse.

From the Wall Street Journal,

The sexual-assault case against former International Monetary Fund leader Dominique Strauss-Kahn appeared to be weakening Thursday as prosecutors and his defense team prepared to raise questions about the credibility of the maid who accused him, people close to the case said.

Problems with the prosecution's main witness are expected to be made public at a last-minute court hearing scheduled for Friday morning before State Supreme Court Justice Michael Obus. Defense lawyers are likely to ask the judge to end house arrest and electronic monitoring, two restrictive conditions of Mr. Strauss-Kahn's bail.

"There will be serious issues raised by the district attorney's office and us concerning the credibility of the complaining witness," said Benjamin Brafman, a lawyer for Mr. Strauss-Kahn.

Mr. Strauss-Kahn, 62 years old, has pleaded not guilty to charges of sexually assaulting the maid in his suite May 14 at the Sofitel hotel in Manhattan…

Prosecutors aren't expected to immediately ask for dismissal of the charges against Mr. Strauss-Kahn, who faces a seven-count indictment, people familiar with the matter said.

Prosecutors are expected to reveal in court that the maid told them she had been the victim of a gang rape in her home country of Guinea, and later admitted that she had made the story up, a person familiar with the matter said.

The revelations about the witness also involve her interaction with a man jailed on drug charges with whom she was taped in a telephone call, one person familiar with the situation said. Prosecutors and defense lawyers met Thursday to discuss the issues.

DSK has reportedly been released on recognizance and seem on path to absolution.

The unfolding events manifest even more signs of a demolition job.

Could it be because DSK had questioned about the disappearance of gold reserves in the US, or his anti-US dollar stance where he has called for an alternative currency or because DSK argued for a default of Greece?

Obviously it has been about politics, where powerful vested interest groups wanted him out and knew exactly how to exploit DSK’s vulnerabilities.

As earlier said the DSK episode epitomizes how frictions in politics are dealt with—guiltism, covetism, envyism angerism and villainism—which leads to conflicts and consequently demolition jobs, if not, outright violence.

Videographics: China's Growing Exposure on Europe

I have been saying that China's foreign policy approach to the Spratly's dispute have not been consistent with her actions as seen through most of the world. That's why I harbor suspicions that there could be other ulterior motive behind China's seeming militant stance.

In Europe, China's has ostensibly been increasing her exposure in terms of outward investments by Chinese companies, property acquisition by Chinese residents and even in support of the Euro from China's government as this year's episode of the Greece crisis culminated. I dealt with this earlier here.

See all these developments from the incredible videographics from the Economist below:

Quote of the Day: The Morality of Classical Liberalism

...has been best encapsulated by this noteworthy excerpt from Professor Don Boudreaux, who writes a splendid book review of James Buchanan’s “Why I, Too, Am Not a Conservative: The Normative Vision of Classical Liberalism” (bold emphasis mine, italics original)

The modern "liberal" fancies himself to be enlightened and caring because he seeks to use government to improve the lives of others even when this involves forcing others to act differently than they freely choose to act. Although the true conservative's motives for constraining others' actions might (or might not!) differ from those of the modern "liberal," at root both conservatives and modern "liberals" disdain and distrust ordinary men and women. True liberals do not.

One result is that true liberals willingly allow peaceful adults do whatever they please. This willingness grows not from the liberal's lack of concern for his fellow man, but from his respect for his fellow man - from the true-liberal's mature recognition that his fellow man is, like himself, an adult with his own unique history, needs, and dreams. And when we treat others as adults, we accord them not only the freedom to pursue whatever peaceful paths they choose, but we also recognize them to be responsible.

Graphics: Emerging Market Bubble Watch

The Economist has a nice interactive graph which tries to measure “economic overheating” in 27 emerging market economies.

That’s actually euphemism for bubble watch.

For a crispier view pls proceed to the Economist website.

Notes the Economist, (bold highlights mine)

Countries are first graded according to the risk of overheating suggested by each indicator (2=high risk, 1=moderate, 0=low). For example, if the growth in excess credit is more than 5% it scores 2 points, 0-5% 1 point, and below 0% nil. The scores from each indicator are then summed and turned into an overall index; 100 means that an economy is red-hot on all six measures.

There are seven hot spots where a majority of the indicators are flashing red: Argentina, Brazil, Hong Kong, India, Indonesia, Turkey and Vietnam. In particular, the growth in credit is sizzling in all seven. Argentina is the only economy where all six indicators are on red, but Brazil and India are not far behind. China, often the focus of overheating concerns, is well down the rankings in the middle of the amber zone, partly thanks to more aggressive monetary tightening. Russia, Mexico and South Africa are in the green zone, suggesting little risk of overheating.

This just goes to demonstrate how credit signifies as the sine qua non fuel of a bubble.

Nevertheless, aside from the indicators presented in the graphic, there are property prices, yield curve, leverage in the banking sector, off balance sheet exposures, sentiment indicators and the national stock market bellwether.

Argentina, among the rest as shown by the above chart from stockcharts.com, evinces formative signs of euphoria since 2009.

Meanwhile, Vietnam’s equity market continues to drift in the negative return territory as the country struggles to contain unwieldy domestic inflation by working to drain liquidity in the system

All the rest have had positive gains but seems unlikely a manifestation of a maturing bubble in progress.

Of course, bubbles can happen in other parts of the economy as in the real estate sector such that this would not necessarily get manifested on stock prices.

That’s why it would pay to look deeper.

Quote of the Day: Libertarianism is an Ethical System

Fantastic stuff from Anthony Gregory,

libertarianism is an ethical system whose discovery tends to compel its adherents to fight – and not mostly for themselves, but for the freedom of their fellow man, for perfect strangers.

Read more on why the Left dreads libertarianism, from Mr. Anthony Gregory here

How Global Stock Markets Reacted to the Greece Crisis Resolution

One of my favorite website, Bespoke Invest, has a nice rundown on the performances of 78 world equity benchmarks this week highlighted by the Greece vote on crisis resolution measures.

As expected, most of the benefits accrued to markets that had been most sensitive to the risks of a Euro crisis contagion.

The Philippines have seemingly been indifferent (but not today where the Phisix rose 1.4% to breakout from the massive reverse and shoulder pattern)

But what I find interesting is this comment.

From Bespoke (including chart) [bold emphasis mine]

Looking at year-to-date performance, Bangladesh is down the most with a decline of 26.21%, followed by Peru at -19.20%. Other countries that have really struggled so far in 2011 include Finland, Oman, Malta, Kuwait, Kenya, Vietnam and Brazil. With so much attention being paid to the problems in Greece, you would think that its stock market would be getting absolutely crushed this year, but it's currently down just 9.54%. This obviously isn't a positive number, but it's at least better than ten other countries on the list.

This is true.

I’ve seen many people soooo fixated by the Greece crisis such that they almost see the end of the world take place. This I argued successfully against.

In behavioral science this known as the focusing effect, where people transfix their attention to one event at the expense of the rest.

Black Swan author Nassim Taleb calls this tunneling or “uncertainty of the deluded”

People who tunnel on sources of uncertainty by producing precise sources like the great uncertainty principle or similar, less consequential, matters to real life, worrying about subatomic particles while forgetting that we can’t predict tomorrow’s crises.

Such focusing effect/tunneling vision seems so elaborate on people whom are plagued by political and or economic creeds or those who see the world rigidly in the prism of their (self-righteous) designs and who interprets evolving events that gives much weight on the short term or present oriented actions.

And this is why obsession or getting married to a view/theme can lead to blindspots that can be very fatal.

Aside from the global rally in equities, the Euro-Gold correlations, both have substantially been rallying, have once reaffirmed its relational harmony in defiance of the world according to these ideologues.

President Aquino’s First Term Speech: Everything to get Applause

President Aquino's speech on his first year in office, as excerpted by the Inquirer,

“Before, there was resignation, dejection and apathy,” the President told reporters.

“If you remember at the time, you were writing about the people’s apathy and numbness, as if they did not expect anything from their government. They were blasé to scandals that were being unearthed,” he said.

“Now, more people are expectant that their lives are changing for the better,” Mr. Aquino said.

He said growing demands for change from the people were a good thing.

And these are the cited accomplishments of the administration

Again from the same article,

These include the 21,800 families of policemen and soldiers who will have decent homes before the year ends, the 2 million poor families set to benefit from the conditional cash transfer program and the 240,000 farmers who will benefit from 2,000-kilometer farm-to-market roads finished in just one year, Mr. Aquino said.

“Isn’t it clear that there is change?” he said.

He said that because of reforms in the government financial system, the government was able to save funds more than the amounts allocated by the General Appropriations Act to implement programs, the President said.

These include providing P12 billion for the “Pantawid Pasada” for transport workers affected by high oil prices, he said.

“Housing, rice, security, salaries, roads, Pantawid Pasada and other lifeguards for the people drowning from poverty. These are the changes that we are reaping now,” he said.

It’s another vindication for me as economic reality has been unmasking all the illusions of deliverance from our over dependency on political distribution as a way to success.

Also, this justifies why I have not and will not exercise the so-called the rights to suffrage which only buttresses this perpetual charade.

People hardly realize that there are only TWO ways to attain people’s needs: this is by production (economic means) or by plunder (political means--forcibly taking other’s resources through political mandates) [Franz Oppenheimer].

The political route is a non-market process of distributing resources ‘legally’ expropriated from society. The choices made by political leaders are premised according to their biases, ambitions, interests, value preferences, ideology, networks, comfort zones, cultural, educational or religious orientation and other personal attributes.

Remember, political leaders are not gods but humans. So they suffer from the same frailties as anyone else. Most importantly they suffer from the knowledge problem.

The only difference is that they are backed by the power of organized violence through the state.

And since all economies are highly complex and dynamic, political distributions means taking or assuming choices for the benefit of a few groups from among the widely diversified and competing sectors.

Because various interests groups will jockey for such privilege, the societal interactions by these competing groups would translate to the employment of patronage, horse trading, shady deals, bribery and many other morally unscrupulous actions.

Politics is a zero sum game. Thus, the actions of these competing groups along with the respective political entities involved will be predicated on or revolve around attaining political goals by guiltism, covetism, envyism angerism and villainism (to borrow from libertarian Robert Ringer) which always leads to “resignation, dejection and apathy” and most importantly to perennial conflict.

So it never changes.

Yet it is naive, seemingly insensitive and supercilious to suggest that there has been "growing demands for change", as if Filipinos have been chronic dolts and have been blindly satisfied with the status quo despite their dire condtions.

The reason people act is to fulfill their uneasiness, thus, always strive for change.

The apparent passivity of the Philippine populace to political misconducts is NOT because of the lack of desire for change, but because most appear to have succumbed to the frustrations of the failed glamorized heroism of the state. Repeated government failures have jaded the Filipino’s vim.

And it is because of too much expectations founded from the grave misunderstanding on the role and limits of the state that has signified as the country’s main blight or the nation's Achilles Heels'.

Importantly, such delusions extends to the elitist academia (which serves as the recruitment pool for bureaucrats and private sector patrons of political actions) and well into the business sector, whom all look for patronage, anti-competition, and doleout as virtuous and a necessary condition for economic development.

If there have been any changes during the first year of President Aquino’s term these accounts for changes on the beneficiaries of redistribution.

Essentially, President Aquino has been no different from the actions of the predecessors, which is what I have been saying even prior to the last elections.

Yet most of the incumbent’s reported accomplishments have been designed as “feel good” noble intended redistribution programs (“Pantawid Pasada” or cash transfers to farmers) and to cosset groups that assures their hold on to power (policemen and soldiers).

This reminds me of the great H.L. Mencken’s description of former US President T.R. Roosevelt, whom Professor Don Boudreaux quotes from A Mencken Chrestomathy

What ailed him was the fact that his lust for glory, when it came to a struggle, was always vastly more powerful than his lust for the eternal verities. Tempted sufficiently, he would sacrifice anything and everything to get applause.

As a general rule, political self-interests signify as the most important priority for political actors. Apparently, President Aquino has not been an exception.

North Korea: Education for All Except under the Threat of Revolt

In North Korea, threats of a "Jasmine revolution" or "Arab Spring" may have prompted the government to suspend classes for 10 months.

From Telegraph,

Reports in South Korea indicated that the government in Pyongyang on Monday ordered all universities to cancel classes until April of next year. The only exemptions are for students who will be graduating in the next few months and foreign students.

The reports suggested that the students will be put to work on construction projects in major cities while there are also indications that repair work may be needed in agricultural regions that were affected by a major typhoon recently.

Analysts in Japan claim there may be other reasons behind the decision to disperse the students across the country.

"One reason is that there is a possibility of demonstrations at university campuses," said Toshimitsu Shigemura, a professor at Tokyo's Waseda University and author of a number of books on the North Korean leadership.

"The leadership has seen the 'Jasmine Revolution' in Africa and it is very frightened that the same thing could happen in North Korea," he said. "They fear it could start in the universities."

Education for all? Only if it serves the interests of the powers that be.