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Things That Make You Go Hmmm...

Myanmar Shadow

September 9, 2014

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Myanmar Shadow

“There is a special charm to journeys undertaken before daybreak in hot lands: the air is soft and cool and the coming of dawn reveals a landscape fresh from the night dew.”




“For me ‘revolution’ simply means a radical change.”





“I always tried to explain that democracy is not perfect. But it gives you the chance to create your destiny.”

“Your best work involves timing. If someone wrote the best hip hop song of all time in the Middle Ages, he had bad timing.”


THINGS THAT MAKE YOU GO HMMM... ....................................................3

Fractures in Arab Gulf Alliance a Greater Threat to Oil Security Than Islamic State .......21

Forget Orwell and Huxley — Dave Eggers Has Seen the Future ................................23

Hong Kong Activists Vow to Take Over Financial Centre in Election Protest .................24

ECB’s Mario Draghi Set to Deploy New Measures as Eurozone Recovery Flatlines ...........26

France Asks for More ECB Action to Weaken Overvalued Euro .................................27

“Yes” or “No”? A Divided Scotland Confronts Independence Vote .............................28

The Criminalisation of American Business .........................................................30

China’s Property Slump Leads to Record Loans to Builders .....................................32

Zhou Yongkang Used Start in Oil Industry to Rise to Public Security Czar ....................33

CHARTS THAT MAKE YOU GO HMMM... ..................................................35

WORDS THAT MAKE YOU GO HMMM... ...................................................38

AND FINALLY... .............................................................................39

Things That Make You Go Hmmm...

Before we kick things off this week, I want to give you a quick update on Real Vision Television in response to a ton of emails I have received on the subject.

(If you missed my recent piece on Real Vision (Vision Quest, TTMYGH, July 7, 2014) you can read it by clicking on the link.)

Real Vision will launch on September 8th, and if you have already signed up and registered your interest, you will soon be receiving an invitation to become one of our Founder Members. The opening will be staggered to ensure that the site is robust, so don’t panic if you aren’t among the first to receive your invite. We will be rolling the red carpet out as fast as we can whilst ensuring that the heavy traffic doesn’t crash the website.

So far, we have been overwhelmed with the level of interest — not only that which we have received from potential subscribers but, equally importantly, the interest and support we have been shown from within the financial industry itself.

The sheer quality of the people who have come forward and are eager to contribute has been nothing short of phenomenal, and their contributions have already translated into some incredible content. Not only that, but we have a schedule of upcoming interviews and presentations that we feel will really demonstrate the power of our simple idea: giving smart people an unfiltered platform in order to bring truth back to finance.

If you haven’t signed up to register your interest in Real Vision, it’s not too late to do so, but the window is closing fast. Click HERE to express your interest (you’ll find a box at the bottom of the page, which you click to register).

(By registering, you are not undertaking any obligation whatsoever — merely giving yourself a free option on becoming one of our prestigious Founder Members.)

I hope that I see your name on the Real Vision list soon and that you’ll be joining our revolution in the way financial insight is presented, shared, and discussed.


And now, back to our regularly scheduled programming...

I have something different for you this week, folks.


Some time ago I wrote a piece on Myanmar, in response to which I received a landslide of emails during the weeks after its publication. At the time, I promised to write further about this amazing country; but, as is so often the case, time has intervened and taken me in ever-different directions.

However, this week a chance meeting with an old friend during a truly epic Singapore rainstorm brought Myanmar firmly back to the front of my mind; and so, after a long overdue catch-up with that friend, I find myself once again marveling at what is happening in the country that represents perhaps the last true frontier market in Asia.

In my original piece I laid out a little of the history of Myanmar; and so it may make sense to refresh old memories and enlighten the many new readers amongst you with an excerpt from the earlier piece, which will lay the foundation for some truly eye-popping statistics from a place which offers golden opportunities for investment over the medium to long term:

(Things That Make You Go Hmmm... August 2012): The names of such places as Rangoon, Mandalay, and Irrawaddy evoke memories of a bygone era when the once-mighty British Empire included many far-flung outposts that inspired not only adventure but poetry.

One such outpost was Burma, a country of tremendous strategic importance that was conquered by the British after a series of Anglo-Burmese Wars between 1824 and 1885.

With the fall of Mandalay in 1886, Burma’s last monarch, King Thibaw Min, abdicated, setting the stage for a little under 60 years of British rule, during which time the city of Rangoon was anointed the country’s capital and grew into an thriving port along the trade routes between Calcutta and Singapore.


Many of those years were fraught with unrest as cultures clashed and seemingly insignificant differences, such as the refusal of the British to break with their own tradition and remove their shoes when entering pagodas, were enough to cause severe rioting and the loss of many lives; but the quid pro quo was that Burma became the most-developed and wealthiest country in Southeast Asia under British colonial rule.

In April 1937, Burma became a separately administered colony of Great Britain and Ba Maw was installed as the country’s first prime minister. Amazingly enough, Ba was a very outspoken opponent of British rule in Burma (begging the question of how that little fact escaped those in Britain conducting the vetting process); and, after strongly opposing Burmese participation in WWII, he resigned from the legislative assembly in 1940 and was arrested for sedition.

It was at this time that an exiled Burmese activist with a family pedigree of resistance (his great uncle had fought against the British annexation of Burma in 1886) named Aung San formed the Burma Independence Army from his base (located, curiously enough, in Japan), and these displaced Burmese took up arms against the Allies.



Burma would be decimated by WWII as it became a major battleground due to its geographical significance and the richness of its resources. Though many Burmese initially fought on the side of the invading Japanese army, the vast majority switched allegiance by 1945; and it was in the aftermath of the war that Aung San negotiated the Panglong Agreement, which guaranteed the country’s independence and firmly established him as the father of modern Burma.

Aung San was tragically assassinated by political rivals six months before his dream of an independent Burma was finally realised; but despite this setback, on January 4, 1948, Burma finally became an independent republic with Sao Shwe Thaik as its first president and U Nu as its first prime minister.

The next 14 years were relatively stable and reasonably peaceful after the turmoil that had gone before. It was during this time that Burma’s U Thant became Secretary General of the United Nations (a position he would hold for ten years), taking with him to New York a young woman named Aung San Suu Kyi, daughter of Aung San, as an administrative assistant. This young woman was later to win the Nobel Peace Prize in 1991 and play an enormous role in shaping the country — but that is a story half-written, to which we shall return shortly.

In March of 1962, however, darkness descended upon Burma when a military coup d’état, led by General Ne Win, overthrew the government, plunging the country into decades of violent misrule by an oppressive junta. In 1974, a new constitution of the Socialist Republic of the Union of Burma was adopted, which instituted a one-party socialist system. The good news? It led to the resignation of the military rulers. The bad news? They continued to rule anyway, through the Burma Socialist Programme Party (BSPP), and virtually destroyed the country, turning it into one of the most impoverished nations in the world through their rule based on the toxic combination of Soviet-style central planning and superstitious beliefs. I know, I know... how could a system that combined two such brilliant ideas possibly go wrong?

Periodic protests during this period were swiftly and brutally suppressed; but on the 8th of August, 1988 (in perhaps something of a harbinger for those currently attempting to “fix” Europe — pay attention mesdames et messieurs), a bizarre piece of economic mismanagement was undertaken by Ne Win that would finally lead to his downfall and the installation of a new military regime. He abruptly and foolishly decided to demonetize large-denomination kyat bills — a move that instantly affected Burma’s middle class, turning many of them into paupers overnight and sparking what became known as the “8888 Uprising” (8th of the 8th ‘88). The bloody protests that sprang up across the country were eventually quelled after yet another military coup in September by the State Law and Order Restoration Council (SLORC), which imposed even more draconian conditions upon the poor citizens of Burma than those they had endured under Ne Win.


But amidst the turmoil it was the formation, in September 1988, of the National League for Democracy (NLD) under the leadership of that young lady who had left her home for New York a decade earlier, Aung San Suu Kyi, that was to mark this period of upheaval as a crucial turning point for Burma, as it turned away from socialism and inched towards a more democratic structure. Inched being very much the operative word.

The following year, the SLORC officially changed the country’s English name to The Union of Myanmar; and, in a move that would make them the laughing stock of repressive regimes everywhere, they promised that in 1990 they would hold free elections for the first time in 30 years.

Now, call me old-fashioned, but if I’m handicapping a free election between a brutal military junta and a democratic party of the people, I am concerned with only one variable: is the election truly “free”? If it is (and I think it’s safe to say that such regimes have a fairly spotty record when it comes to such things), then I’ll happily take the points and back the democrats. Of course, such elections are never truly free (no, Mr. Putin, they are NOT. We’ve discussed this before. I’m busy; leave me alone), and so the smart money always goes on the ruling party.

But a funny thing happened on the way to the ballot boxes as each of the ruling generals assumed that one of the others was going to fix the result; and, amazingly, the NLD won an astonishing 80% of the seats.



Normally that might be a problem for a regime, but not in Myanmar.

The military junta simply refused to step down, then quietly set about repressing the populist NLD, imprisoning many of its leaders and placing Aung San Suu Kyi under house arrest, where she remained for 16 of the next 21 years.

The SLORC changed their name to the State Peace and Development Council (SPDC) in 1997, but the old switcheroo failed to fool anybody. Nevertheless, the junta remained in power until 2007 under the leadership of General Than Shwe, whose claims to fame include being ranked No. 4 on Parade magazine’s 2009 “World’s Worst Dictators” list and placing an impressive No. 2 on Listverse’s Top Ten Worst Living Dictators list (seriously). Shwe was described thus by the Democratic Voice of Burma:

(Democratic Voice of Burma): He tends to be seen as being sullen, humorless and rather withdrawn, a hardliner, skilled manipulator and an opponent of the democratization of Burma.

According to his eHarmony profile he also liked long walks, 1940s film noir, and labradoodles.

But I digress.

There must be something about the heat of August in Myanmar, because nineteen years after the 8888 Uprising, the situation boiled over once again in August of 2007; and, amazingly enough, it was not just the repressive brutality of the regime, it was once again economic missteps that finally brought about an angry revolt amongst the people of Myanmar (pay attention, Brussels... pay attention).

In the wake of what became known as the “Saffron Revolution,” a constitutional referendum was held in May 2008, which promised a “discipline-flourishing democracy” and bestowed yet another name change upon the Union of Myanmar, which would henceforth be known as the Republic of the Union of Myanmar (evoking Monty Python’s Judean Popular People’s Front). But perhaps most importantly, the referendum set the stage for a full and free general election in 2010 (the first to be held in Myanmar in 20 years), which, despite being decried as fraudulent by many Western nations in the wake of a resounding win for the military ruling party, looks to have potentially been the beginning of real reform after so many false dawns.

After the 2010 election, Myanmar’s aging military rulers began a series of reforms towards a more liberal democracy and a mixed economy. Their motives were likely selfish as, after years in absolute power, they were wealthy beyond imagination, with offspring who wanted to travel the world (which was prohibited by EU, US and Swiss sanctions), and they had most likely decided that an orderly, self-determined transition into quiet retirement was infinitely preferable to the alternative.

Whatever the reasons, the generals matter little, since, if you talk to citizens of Myanmar now, the feeling is very much that the reforms are both real and irreversible; and the success of the NLD in by-elections held on 1st April of this year [2012 — I know, right?] was a graphic illustration of this profound change, as Aung San Suu Kyi’s party swept 43 of the 45 constituency seats available, and she herself took a seat in the Pyithu Hluttaw (lower house) of the Burmese parliament, representing the constituency of Kawhmu.

Such events had been inconceivable only months earlier, but with the visit of Hillary Clinton to Myanmar in December 2011 (the first visit by a US Secretary of State in 50 years), the imminent lifting of sanctions and Myanmar’s election to the chair of ASEAN in 2014, progress is proving swift and sweeping. Myanmar’s prospects haven’t looked this good in a generation.

So... there you had it, back in late autumn, 2012. Since then, things have been moving at an incredibly rapid pace, as the friend I bumped into in the deluge this week explained to me over a beer.


Billy Selig has done his time in finance. Over the last twenty-plus years, he has worked at the NY Fed and for a bunch of brokerage houses in the US and across Asia; and during that time he has always shown a willingness to go places others feared to tread. It was that pioneering spirit which led to his announcing to a group of friends in Singapore back in late 2011 that he was going to Yangon. Not for a visit — no. That’s not Billy’s style at all. He was moving there lock, stock, and barrel to try to chase down the opportunities that had captivated him after he had ventured to Myanmar to see what was going on.

Billy set up New Crossroads Asia, a boutique research and financial advisory house that quickly became an invaluable source of intelligence for foreigners looking to gain access to and knowledge of a country that had been off the world’s investment radar for 50+ years.

(In the interests of full and fair disclosure, Vulpes Investment Management was so impressed with the work Billy and his team were doing in Myanmar that the company bought a 25% stake in NCRA. This article is most definitely NOT, however, an infomercial!!)

As Billy and I chatted, I asked him about the progress being made in Myanmar:

There has been a significant amount of change both politically and economically since I arrived; however, in some instances things have now hit a speed-bump as we await some crucial by-elections which will take place in November or December and are the precursor to a general election scheduled for December 2015.

(It was here that I interrupted in order to make the point that, in the Myanmar of old, a general election was just that — a day when a whole bunch of generals got “elected” — but Billy just soldiered on...)

Those elections offer the chance to prove once and for all that there is no going back on the proposed reforms, so foreign direct investment is waiting on the sidelines in order to ascertain whether or not the new administration will carry the democratic reforms of late forward and more importantly support a pro-business environment.

I asked Billy about the major changes he’d seen over the last few years and whether there was any specific development that stood out above the rest:

When I first arrived in Myanmar, it quickly became apparent to me that the main hurdle to overcome if Myanmar was to move forward from an economic perspective was the severe lack of capital and the need for multilateral oversight and lending. Since the country had been in isolation for over 50 years, it not only lacked the capital needed to pay for reconstruction, but the infrastructure and the soft resources to manage it were also nonexistent.

My point was that, until the market developed a solid mechanism through which investment could find much-needed credit and the necessary distribution and collection channels, there wouldn’t be much change. Until the World Bank and IMF and other multilaterals entered the market, we would not see much economic development.

Now, in August 2014, we in the business community in Myanmar are very excited to see the IMF, IFC, World Bank, and other multilaterals engaging in project development and financing.

This is an absolutely crucial step.

Billy is right. You only have to look at some of the numbers to get a sense of the true scale of the investment opportunity in Myanmar.

Take the energy sector, for example.

Myanmar has huge coal reserves, significant natural gas deposits and access to hydro-power — which already supplies roughly 70% of the country’s power needs. The potential, however, is extraordinary.

With four major rivers running through the country (the Ayeyarwaddy, Chindwin, Thanlwin and Sittaung, for those of you boning up for an appearance on Jeopardy), Myanmar’s hydropower potential exceeds 100,000 MW. Currently, less than 5% of that capacity has been developed.

Only 26% of Myanmar’s 55.7 million inhabitants have access to electricity, with only 9% of the inhabitants of the country’s spectacular countryside finding themselves with power. In the capital, Yangon, only 63% have electricity, whilst in Naypyidaw (the country’s administrative capital — think Canberra to Australians) the number drops to a mere 52%. How does Myanmar compare to the rest of Asia? Take a look:


However, investment in the power sector is by far the largest segment of FDI in Myanmar. As of the end of June 2014, roughly $13 billion had been invested in the power sector by foreign entities, with an additional $6 billion having been approved. Anybody want to take a guess at the single largest source of those FDI funds? You — the guy at the back.




Hydropower, however, unlike solitaire (at least according to Andy Williams), definitely isn’t the only game in town.

Myanmar has 20 trillion cubic feet of proven (that’s proven) gas reserves, and estimated reserves are four times that. Estimates put the country’s oil reserves at 3.2 billion barrels. Domestic demand for crude is on the order of 60,000 barrels per day, and the country uses roughly 590 million cubic feet of natural gas per day. However, as a result of underinvestment in the infrastructure necessary to harness domestic supplies and the fact that previous governments sold gas to both China and Thailand to raise revenues whilst international sanctions were in place, only 33% of crude demand and 41% of natural gas demand is met from Myanmar’s own fields.

In recent years, discoveries of significant energy reserves offshore have changed the profile of Myanmar’s energy production significantly, as the graphs below demonstrate clearly.


And, with 20 of the 30 large (and bountiful) offshore blocks which were put up for auction in 2013 being awarded earlier this year to the likes of Chevron, ConocoPhillips, Statoil, Shell Oil, and Total (along with each of their domestic partners, of course), investment into the energy sector is set to ramp up significantly.

But the power sector isn’t the only place you’ll find numbers that will make your eyes water. No sir.

Take the automobile sector for example — a place where the possibilities for further market penetration are enough to make every major manufacturer wake up feeling giddy.

There are roughly 150,000 km of roads in Myanmar, only 35,000 km of which are actually paved (there are only 4,000 “roads” in all of Myanmar), and this translates into a startlingly low number of automobiles present in a country of 55.7 million people.

There are a total of 331,000 passenger cars in Myanmar — a penetration rate of just 0.6% — and 90% of those cars are manufactured by the Japanese giants. The government has stated that it wants this ratio of 6 cars per 1,000 citizens to double (though they didn’t give a time frame). With the average age of a car in Myanmar being 8.5 years, the opportunity for selling replacement parts alone is enough to give any hard-baked entrepreneur the vapours.


We could dig deeper into the automobile sector, but that would cut down on the time we have for other areas where the growth in Myanmar is just plain staggering — areas like, oh... tourism, for example.

Myanmar, a breathtaking, unspoilt country of glorious natural beauty, has the lowest number of tourists of any ASEAN country with the exception of another breathtaking, unspoilt country of glorious natural beauty, Brunei.

In 2012, 589,000 tourists visited Myanmar from overseas (compared to total border crossings of roughly 1.3 million). In comparison to Thailand’s 26 million tourists in 2013, that number is tiny, and it gives you an idea of the potential for increase. Those 589,000 people, however, marked the continuation of a startling change in trajectory of the chart marking tourists entering the country (below). Industry sources suggest that total border crossings reached a staggering 2,000,000 in 2013.

Also worth noting are the demographics of Myanmar’s rapidly expanding tourist class.


The decline in percentage terms of tourists from poorer countries such as India, Thailand, and China has been offset by more affluent visitors from overseas — to the extent that tourists by flight now represent almost 60% of Myanmar’s visitors. And those tourists spend money. Lots of it.

The average tourist to Myanmar now spends $800 during their 7-8 day stay. This average has been steady over the last five years and compares extremely favourably to neighbouring competitors for the tourist dollar:


Although Myanmar had the lowest number of tourists visiting any ASEAN country in 2010 (311,000), it also had the fastest rate of growth the following year (27%); and the government has established a tourism master plan, the aim of which is to increase tourist visitors to 7.49 million (I guess they’re not big on rounding up) and earn US$10 billion in revenue by 2020, and to help the sector reach a target of 2.3 million employees by 2030 (when it will be bringing in US$14.1 billion in revenue).

Last, but by no means least (certainly for Things That Make You Go Hmmm..., as I suspect you’ll be hearing more about Myanmar in due course), we’ll take a look at the engine of the country’s growth, agriculture.

The agriculture industry accounts for 31% of Myanmar’s GDP (estimated at US$53 billion in 2012) and employs a hefty 56.4% of the working-age population (and a fair few of those not yet old enough to officially join the work force). However, those estimates are based on a labour force survey conducted in 1990; and in the interim, as sanctions, economic isolation, and a lack of investment have bitten hard, some estimates have put the number of people forced into working in the agricultural sector as high as 66%.

It’s hardly rewarding work, though, with farm workers in Myanmar earning less than half of what their peers do in Bangladesh and Cambodia — not two of the world’s highest-paying jurisdictions:


There are multiple reasons for the discrepancies between labour utilization and contribution to GDP. The sector suffers from low investment — both from overseas and domestic parties — and the entire industry is in dire need of mechanization, modernized warehousing, improved distribution, and logistics facilities, as well as better packaging and branding.


Rice is the dominant crop in Myanmar, with almost 20 million acres (7.8 million hectares, if you prefer) devoted to its cultivation; and in 2013 a 57-year-old record was broken when the country exported a record 1.3 million tonnes of rice (mostly to — you guessed it — China). It’s amazing what years of isolation can do in terms of giving you a chance to set new benchmarks.

However, despite the record amount of rice exported in 2013, it realised only 27% of Myanmar’s US$2 billion in total agricultural export earnings. Like I said, the sector needs a LOT of work.

The second challenge facing the industry is the extreme paucity of credit available to farmers (and the high rates which have historically been charged for access to that credit — if it can be found). In a report published earlier this year, the World Bank laid bare the problems in this area with a case study:

(World Bank): Among the government institutions supporting the agriculture sector, the Myanmar Agriculture Development Bank (MADB) plays an important role. MADB was established in June 1953 by the Government of Myanmar to support the development of agriculture, livestock, and rural enterprises in Myanmar. MADB is currently the largest financial institution serving the rural areas and financing agriculture activities. At the end of 2012, MADB served 1.87 million customers, mostly farmers, and had a network of 206 branches (which accounted for 23 percent of all banks’ branches in Myanmar). Since its creation, MADB has played an important economic and social role by providing loans to a large segment of low-income households engaged in agricultural activities.

Despite the existing limitations in its information technology (IT), infrastructure, and operations platform, every year MADB disburses a large volume of short-term loans to farmers both during the monsoon and the winter agricultural seasons.

Moreover, despite the inherent risks of the agriculture activities and lack of financial instruments to mitigate risks in its loan portfolio, MADB has historically had a strong track-record in loan recovery thanks to the various mechanisms it has put in place with local authorities to exert pressure on delinquent borrowers.

So far, so good. But... (there’s ALWAYS a “but”):

Notwithstanding its past success, MADB is in need of a profound reform to ensure that the institution is able to contribute to the modernization of the agriculture sector in a meaningful manner. Currently, MADB faces various weaknesses, such as the following:

    lack of diversification of the loan portfolio (the portfolio is heavily concentrated on rice farmers)

    limited range of financial products to serve the financing needs of all participants in the agriculture value chains

    risk management — limited capacity to monitor, control and mitigate credit risks
    unsustainable funding model — high dependence on subsidized government funding through the state-owned Myanmar Economic Bank (MEB)

    inadequate financial regulation and supervision

    weak corporate governance and limited operational autonomy of MADB’s senior management

    rudimentary IT infrastructure and operations platform

In recent years those historically high interest rates have plummeted, and that has put the biggest source of funding to farmers on life support:

(World Bank): MADB depends on MEB funding. To deal with the drastic decline in the interest margin and avoid the bankruptcy of MADB, the government has mandated the MEB, the largest state-owned commercial bank in Myanmar and one with very high liquidity, to provide subsidized funding to MADB. Thus, the MEB places a wholesale deposit with MADB at the rate of 4.0 percent so that MADB can lend at 8.5 percent which is far below market rate (market interest rate for loans in Myanmar is 12.0 to 13.0 percent) and thus could achieve an interest margin of 4.5 percent.

The subsidized funding provided by the government through MEB has allowed MADB to remain afloat and continue its business expansion, but the bank’s interest margin is simply awful (excuse the arbitrary time scale on the X axis... this is how Myanmar rolls):


The Myanmar government is trying to shift from the heavy reliance on agriculture towards construction, financial services, and energy (amongst others) — with double-digit growth forecast for all three sectors in 2014; but that doesn’t mean the agriculture sector is dead or dying — far from it. An upsurge in productivity and new technology has the potential to make the country’s farming industry more dynamic and more profitable than ever before.


So that’s a look at just some of the raw potential waiting to be unleashed in Myanmar, but time doesn’t allow us the luxury this week of being able to dig into the property market or construction (two areas which are, naturally, on fire). Nor can we take a look at the burgeoning retail sector, but we will revisit Myanmar in a later edition of Things That Make You Go Hmmm... and complete the picture we’ve begun to paint.

As Billy and I sheltered from the rain last week and chatted about all the amazing things happening in Myanmar, I was taking copious notes; but one thing Billy said that I jotted down stood out to me when I read my scribblings later that evening. It was this:

Myanmar may well be a frontier market based on the true definition of frontier markets, but it is SO much more than that. Myanmar is, in fact, a re-emerging Burma as it once was: the world’s largest producer of rice, the crown jewel of Asia, and a resource-rich land that was, thanks to the British influence, a true beacon of free trade.

Just imagine where Myanmar could be in, say, ten years’ time, should she get this right and return to her glory days.

I couldn’t have put it better myself.

Just imagine.


OK ... so time for a little housekeeping.

I will be traveling extensively throughout September — beginning in Sydney and then moving on to San Francisco, Seattle, Dallas, and then San Antonio (where I will be presenting at the Casey Summit along with an amazing line-up of speakers including Jim Rickards, Mike “Mish” Shedlock, Charles Biderman, Lacy Hunt, my great friend David Tice and, of course, Doug Casey. You can find out more about the event by clicking HERE).

From San Antonio I’ll be heading to Toronto for the Cambridge House Canadian Investor Conference on September 25-26 and then, finally, home again, just in time for October.

The upshot of all this is I’m not exactly sure when I’ll be back in your inboxes next — but return I shall.

I’m working really hard on some exciting new developments around Things That Make You Go Hmmm... which I’ll be in a position to share with you all in a few weeks; but, in the meantime, sit back and enjoy this week’s cornucopia of stories, kicking off with something that’s difficult to imagine right now: a bigger threat in the Middle East than ISIS.

What else do I have for you? Well, how about George Orwell and Dave Eggers? Got ’em both. The increasing tide of activism in Hong Kong? Check. The desperation of the ECB as deflation takes hold? You bet. I’ve even got a look at the upcoming independence vote in Scotland through German eyes. Yeah. German eyes.

Elsewhere, the French are asking for a soupçon less austerity and a euro that is juuuust a touch weaker, s’il vous plaît; the US authorities are busy criminalizing business; and in China the property slump is having knock-on effects, while the journey from oil worker to power broker of a former police chief caught up in the graft probe makes for fascinating reading.

The charts this week are courtesy of Nick Laird (who finds something trading at a 75-year low); Visual Capitalist, who show just how much work the US Bureau of Engraving and Printing does in creating money out of thin air for the Fed (hint: it’s NOT just pushing a button); and PBS, who do another piece of sterling public service by reminding us who paid what — and why.

The videos section features the afore-mentioned David Tice with a warning on markets; a fabulous interview with one of my personal favourites, Dr. Pippa Malmgren, in which she takes us inside the fascinating world of geopolitics and reveals the kind of conversations that take place around inflation at the very top table; and lastly, courtesy of ZeroHedge, a wonderful interview with a former mob boss who gives a little insight into Wall Street AND some investment advice. The kind you can’t refuse.

Until Next Time...


Fractures in Arab Gulf alliance a greater threat to oil security than Islamic State

In 1981 six Arab monarchies, which today control about a fifth of the world’s oil supply, formed the Gulf Co-operation Council (GCC).

As the war between Iraq and Iran intensified, the Sunni Arab sheikhdoms of the Gulf peninsula — Saudi Arabia, Oman, United Arab Emirates (UAE), Kuwait, Bahrain and Qatar — originally came together in theory to form a Middle Eastern version of the European Union. Although the group has no formal political charter like the EU, it still provides the only official forum where all six leaders of these oil-rich countries can sit down together to debate and agree on mutually beneficial policies in the region.

But the rise of Islamic extremism across the Middle East, America’s growing willingness to deal with Iran and lingering leadership succession issues amongst member states are now unpicking the ties that have bound the GCC together in a tectonic shift that could have profound implications for the security of the world’s largest oil fields.

Formed in the shadow of war, its initial purpose was to help guarantee security mainly from larger Pan-Arab nationalist despots such as Saddam Hussein and the threat posed by the Shiite Mullahs in Tehran. But after the US invasion of Iraq in 2003 its focus became increasingly economic. Initiatives such as interconnecting electricity networks across the GCC, regional transportation projects including a railway and the possibility of a formal currency union took hold.

Often criticised as being just a powerless club of oil-rich benign dictators, the GCC has arguably done more than any other institution to guarantee political and economic stability over the last 35 years in the region once dominated by warring bedouin tribes. However, the populist forces unleashed by the Arab Spring uprisings of 2010 and the rise of extremists under the banner of either the Muslim Brotherhood in Egypt, or the Islamic State of Iraq and the Levant (Isil) now threaten to tear it apart.

Tensions between Saudi Arabia, the UAE and Qatar were understood to have again come to head this weekend with an emergency meeting of foreign ministers in the Red Sea city of Jeddah described by the Saudi newspaper Asharq Al-Awsat as being “critical”. Riyadh and Abu Dhabi have accused authorities in Doha of supporting terror related groups such as the Muslim Brotherhood and meddling in the internal affairs of other GCC states.

The meetings could eventually lead to Qatar — the world’s biggest shipper of liquified natural gas — being ejected from the GCC. They also come at an awkward moment in the group’s history when a number of its leading ruling dynasties are in transition.

“People in the region say the GCC is effectively over as an organisation,” said Christopher Davidson, a reader in Middle East politics at Durham University. “Cracks are now appearing in the half-century old client state system in the region.”

In Oman — where rumours over the health of the country’s childless leader Sultan Qaboos have brought decision making to a halt in recent months and caused growing speculation over the succession — the country has slowly moved closer to Iran. Bilateral talks between Muscat and Tehran over a number of energy deals have deviated from the GCC’s naturally hawkish line on Iran. Meanwhile in Iraq, Isil is reported to be earning $2m (£1.2m) per day from oil fields it has already captured.

However, a bigger danger than Isil to the security of the world’s largest oilfields in the Gulf is arguably a wider breakdown of political co-operation across the region. Despite these dangerous risks, oil prices are under downward pressure with Brent crude suffering its biggest falls in more than a year to trade close to $100 per barrel.

“We’ve got the barbarians at the gates of the world’s largest oil fields and the price of crude has hardly moved, which tells me this instability has been factored in,” said Davidson....

*** UK Daily Telegraph / link

Forget Orwell and Huxley — Dave Eggers has seen the future

Fifteen months have passed since Edward Snowden began to explain to us how our networked world works. During that time there has been much outrage, shock, horror, etc expressed by the media and the tech industry. So far, so predictable. What is much more puzzling is how relatively relaxed the general public appears to be about all this. In Britain, for example, opinion polling suggests that nearly two thirds of the population think that the kind of surveillance revealed by Snowden is basically OK.

To some extent, the level of public complacency/concern is culturally determined. Citizens of Germany, for example, appear to be significantly more concerned about the Snowden revelations — and were so even before it was discovered that the NSA was bugging Angela Merkel’s mobile phone. Germany was the European country where Google’s Streetview project ran into most opposition, for example. But German wariness about comprehensive surveillance is easy to understand: after all, half of the country lived for decades under the Stasi’s comprehensive analogue surveillance. Germans know all about being watched.

The relative complacency of the British, on the other hand, is also culturally determined. GCHQ emerged from Bletchley Park, and in the popular mind may still surf the slipstream of Enigma glory. The halo effect of the James Bond movies may also have something to do with it, which is odd given that until comparatively recently the senior ranks of 007’s employer harboured a nest of Soviet spies. When the Regulation of Investigatory Powers Act (Ripa) — the statute which ostensibly “legalises” everything that GCHQ & co do in cyberspace — was going through parliament in 1999, those of us who campaigned against it were astonished to find that no more than a handful of MPs were interested.

After all, their constituents weren’t writing about it and they were happy to accept the home secretary’s assurances that he was simply updating phone-tapping regulations for the digital age. This legislative indolence is a shocking case study of what complacent ignorance can do to a democracy, and we are now living with the consequences of it.

It’s tempting for tech-savvy folks to resort to elitist explanations for the general public’s lack of concern. The general tenor of this tech critique goes something like this: the poor schmucks don’t know the first thing about this stuff; otherwise they wouldn’t be signing up for “free” services that read their email and exploit their personal data; nor would they be storing their files — unencrypted — in the cloud, or enabling location services on their smartphones. And so on. And if they weren’t schmucks, why would they fall for the official mantra that “if you have nothing to hide, then you have nothing to fear”?

Given that we live in a democracy, contempt for the electorate seems an unwise approach to persuasion. Those of us who worry about this stuff need to think differently. In particular, we need to get to the root of the problem — which is that people find it hard to imagine where current technological, political and economic trends could be taking us. To put it bluntly, we are heading for a society that is comprehensively surveilled. And I mean comprehensively: if you think it’s bad now then just wait until the “internet of things” bandwagon really rolls.

The problem we have, therefore, is one of imaginative failure. If people could really conceive what it would be like to live in such a society, then perhaps they would be more concerned about what is happening now. But most of us don’t have imaginations that are up to the task. Fortunately, though, there are people among us who do. We call them novelists.

In a previous era, the most prophetic evocations of where we were headed were produced by two Old Etonian novelists — George Orwell and Aldous Huxley. Orwell thought we would be destroyed by the things we fear, particularly comprehensive surveillance. Huxley conjectured that we would be destroyed by the things that delight us. As it happens, we’ve wound up with both. NSA/GCHQ are doing the Orwellian stuff, while Google, Facebook, Apple, Yahoo, Microsoft, Skype et al are taking care of the Huxleyan side of things.

But now we need an updated imaginative visualisation of what lies further ahead. Step forward Dave Eggers, whose novel The Circle is a vivid account of what happens when a digital naif enters the force field of an organisation that is a mash-up of Google and Facebook. As a novel it has some flaws but as a picture of a possible future it is utterly, utterly brilliant. Put it on your Xmas list now.

*** uk guardian / link

Hong Kong activists vow to take over financial centre in election protest

Pro-democracy activists in Hong Kong have vowed to take over the city’s financial heart in a civil disobedience campaign, after China ruled out allowing its residents to freely choose their next leader.

Beijing has long promised that the chief executive of the region would be elected by universal suffrage from 2017, prompting Occupy Central and pan-democrat lawmakers to battle for substantial electoral reforms.

But Beijing made it clear on Sunday it would control the nominating process, and the framework endorsed by the standing committee of the National People’s Congress is particularly tough. It will allow only two or three candidates and require them to gain the backing of at least half the members of a nominating committee stacked with Beijing loyalists. That effectively rules out a democrat from standing.

Li Fei, the deputy secretary general of the NPC standing committee, told journalists that opening up nominations would create a “chaotic society” and that the chief executive needed to “love the country and love the party”.

He added: “These rights come from laws, they don’t come from the sky.… Many Hong Kong people have wasted a lot of time discussing things that are not appropriate and aren’t discussing things that are appropriate.”

The Democratic party’s founding chairman, Martin Lee, poured scorn on the idea that the two or three candidates would offer voters a meaningful choice, asking those at a Sunday night pro-democracy rally: “W’s the difference between a rotten orange, rotten apple and a rotten banana? We want genuine universal suffrage, not democracy with Chinese characteristics.”

Benny Tai, one of the leaders of the Occupy Central with Peace and Love movement, told the crowd of thousands that the city was entering an “era of civil disobedience”.

The movement said in a statement: “We are very sorry to say that today all chances of dialogue have been exhausted and the occupation of Central will definitely happen.” It will be preceded by other actions, such as a mass boycott of classes by students. Hong Kong enjoys considerably more freedoms than the mainland under the “one country two systems” framework established on the handover of the former British colony in 1997.

But Xi Jinping has tightened the party’s grip on the mainland, with lawyers, activists and journalists under increased pressure since he came to power, and activists in Hong Kong fear their liberties will be eroded.

The decision passed by the standing committee of the National People’s Congress, China’s mostly rubber-stamp legislature, said: “Since the long-term prosperity and stability of Hong Kong and the sovereignty, security and development interests of the country are at stake, there is a need to proceed in a prudent and steady manner.”

This weekend, state media quoted an unnamed Chinese foreign ministry official warning that some in Hong Kong were “colluding with foreign forces to cause trouble for the government”, adding that their goal “was to turn the city into a bridgehead for subversion and infiltration against the country”.

Pan-democrats have vowed to block the reforms in the legislative council vote required to pass them. If the changes fall, the electoral system will continue as present — with a committee of 1,200 people, selected by the region’s generally pro-Beijing elites, picking the next chief executive.

Emily Lau, LegCo member and chairwoman of the Democratic party, said: “I am not disappointed, because I never had much expectation. I’m infuriated and very, very unhappy. Beijing has reneged on its promise.

“I guess they do not trust the Hong Kong people. The struggle will go on.”

David Zweig, of the Hong Kong University of Science and Technology, said: “This leadership is tough, as we have seen for a long time. They are not making any concessions on this.”

He noted that the government needed four or five LegCo members from the pan-democrat camp to switch for the decision to be adopted. The stakes are even higher because if universal suffrage is not introduced for the election of the chief executive, it will not be introduced for the subsequent election of LegCo members.

“If it falls there is no reform at all. That is their leverage — it is take it or leave it … It is progress in the eyes of the majority of people in Hong Kong. [But] would they have wanted more? Absolutely,” he said.

He added that, on the pro-democracy side, “I don’t think people will pack up and go away, even with the videos of troop carriers going down the streets of Hong Kong.”...

*** uk guardian / link

ECB set to deploy new measures as eurozone recovery flatlines

The latest World Economic Outlook released by the IMF on Wednesday was a bit of a sobering document. Given that the IMF has been delivering pretty sober assessments for more than four years now, it’s not that surprising.

Since February 2013 inflation has been below the ECB’s target. In the year to August, prices grew at 0.3pc, the slowest pace in five years.


Recent data point to an ongoing lack of demand in the currency bloc. Unemployment remains stubbornly high, at 11.5pc in July, while the region failed to produce any growth in the second quarter of this year.

If policymakers fail to revive inflation, euro area states will likely suffer, as a low inflation environment increases the burden of government debt payments.

The market has been forecasting inflation below target for a five-year period since February 2012, and over the next 10 years since April last year.


The ECB has attempted to justify its inaction with one indicator of future inflation, relying heavily on long-term market forecasts of inflation for five to 10 years away.

But on Aug 15, the gauge dropped below the ECB’s target of just below 2pc, as faith in the central bank’s ability to maintain price growth faltered.

Mr Draghi was no longer able to say that inflation expectations were “well anchored”, leading him to deliver a potentially tide-turning speech at a conference in Jackson Hole, Wyoming.

His promise that the ECB would “use all the available instruments needed” to achieve its target of price stability cheered investors.

Mr Draghi is expected to strike a dovish tone — preferring more stimulatory policy — at Thursday’s meeting. A weaker form of QE — less potent than that used in the US and UK — seems likely.

The ECB has hired BlackRock, the world’s largest asset manager, to consult on such a programme, and Mr Draghi said at Jackson Hole that preparations were “moving fast forward”.

If such a scheme is not unveiled this week, then one in December seems likely. Economists at RBS suggested one would be unveiled by March and JP Morgan said there is a 30pc chance of the ECB launching full-blown QE before the year is over, rising to 50pc by the end of 2015.

*** UK Daily Telegraph / link

France Asks for More ECB Action to Weaken Overvalued Euro

French Prime Minister Manuel Valls called for more action from the European Central Bank to lower the value of the euro, amid concerns the 18-nation region might be headed toward deflation.

“The monetary policy has started to change,” Valls said today in a speech made at the Socialist Party’s summer school in La Rochelle, France. While he called the ECB’s package of measures taken in June a “strong signal,” he also said that “one will have to go even further.”

Valls’s comments come after ECB President Mario Draghi, who’ll meet French President Francois Hollande tomorrow in Paris, signaled this month that declining inflation (ECCPEST) expectations are pushing the central bank toward introducing quantitative easing. Policy makers will gather in Frankfurt on Sept. 4 for their monetary-policy meeting.

Draghi also suggested it would be “helpful” if EU governments with room to ease fiscal policy did so, prompting German leaders to sharpen their tone. Governments in France and Italy, the second and third-biggest euro-area economies, chafe at German Chancellor Angela Merkel’s insistence on debt reduction even as Europe’s debt crisis wanes.

Inflation in the currency bloc slowed to 0.3 percent in August from a year earlier, the lowest since 2009, compared with an ECB target for price growth of just under 2 percent. Draghi has said that the ECB stands ready to embark on unconventional measures such as broad-based asset purchases to avoid a deflationary spiral of falling prices and households postponing their spending plans.

Speaking on Aug. 22 at the Federal Reserve Bank of Kansas City’s annual economic symposium in Jackson Hole, Wyoming, Draghi said he’ll use “all the available instruments needed to ensure price stability” and ECB officials are “ready to adjust the policy stance further.”

In that speech, Draghi also called for complementary action on a European level and “a large public investment program.” German Finance Minister Wolfgang Schaeuble said in Berlin today deficit-fueled growth leads to economic decline, signaling discord with Italy and France as euro-area seeks to spur growth.

The countries in the region that pursued austerity policies in return for sovereign bailouts are “doing much better than all the others in Europe,” Schaeuble said. “That’s how it is with medicine: sometimes it tastes bitter for a while. But if it helps, that’s good.”

Merkel called Draghi to ask if the ECB had changed course on austerity, Der Spiegel reported, without saying where it got the information.

The magazine’s assertion that Merkel “demanded answers” from Draghi “in no way corresponds to the facts,” Merkel spokesman Steffen Seibert said in a text message.

The debate about further ECB stimulus to help jumpstart the euro-area economy has gathered momentum three months after Draghi introduced a range of measures including a negative deposit rate and targeted long-term loans for banks...

The ECB “is ready to offer additional liquidity to the banks, on condition that the banks increase their credit to the real economy,” ECB Executive Board member Benoit Coeure wrote in an essay in Greek newspaper Ta Nea yesterday.

*** bloomberg / LINK

“Yes” or “No”? A Divided Scotland Confronts Independence Vote

Liam Stevenson was never the type to become particularly passionate about politics. A tank truck driver in Scotland, he spent most of his free time with his wife Helen and daughter Melissa in their small house in Cumbernauld, northeast of Glasgow. Every now and then, he would join his friends for a few pints.

But a couple of months ago, he experienced a transformation not unlike that of Franz Kafka’s character Gregor Samsa, who became a new creature overnight. Stevenson became a political activist.

He guides his Volkswagen Golf past working class housing cowering in the shadows of gigantic residential towers. Cumbernauld was created after the war and has since become a Scottish dystopia. It is a place that remains stuck somewhere between the 1950s and 1980s. In the cold jargon of the welfare bureaucracy, the housing projects are known as “schemes” and look just as soulless as the word sounds. Stevenson spent his childhood here. He waves at a man on the way by. “That’s Paul. He stabbed his son in the face. No idea why.”


Stevenson wants people to see the city through his eyes so they can understand his confidence. After all, the day that could change everything is rapidly approaching. On Sept. 18, more than 4 million Scots are to vote on whether they want to become independent from the United Kingdom.

Like many of his compatriots, Stevenson dreams of independence. He hopes that it will ring in a new era of prosperity, driven by oil and natural gas. An independent Scotland would be freer, richer and more equitable, Stevenson says. Cumbernauld, too, would flourish.

The process currently underway on the British archipelago is a unique one. Free of violence, amid an atmosphere of amicability, a referendum is to be held that could result in the end of a 307-year-old union with the United Kingdom. The Scottish move toward independence is also reflective of the ongoing erosion of the European nation-state. After years of crisis, many people no longer identify with their countries, preferring instead to be part of smaller, more manageable regions. Separatists across Europe are pushing for independence, including the Catalonians in Spain, the Flemish in Belgium and the South Tyroleans in Italy. But only in Scotland is a nationally recognized referendum in the works.

The plan to hold the vote was born in 2011 after the Scottish National Party (SNP) emerged victorious in parliamentary elections there. In March 2013, the date of the referendum was set for this September. This year, various factions and groups belonging to the “yes” campaign have been fighting hard for Scottish secession. Foremost among them is Alex Salmond, SNP party boss and Scottish leader as first minister of Scotland. But the three largest parties in Great Britain, the Conservatives, Labour and the Liberal Democrats, are largely opposed to Scottish independence and are working against secession under the motto “Better Together.”

Currently, surveys indicate that a majority of Scots will likely vote to remain part of the UK, with between 45 percent and 55 percent in favor of staying. No survey has yet projected a victory for the “yes” camp. But many voters remain undecided, making it difficult for pollsters to make reliable prognostications. Campaigners, meanwhile, have zeroed in on those who have not yet made up their mind.

Liam Stevenson is talking into his mobile phone as he walks into his kitchen. He has organized a panel discussion on the independence referendum for this evening, to be held in a small Cumbernauld theater. He wanted to have representatives from both camps there, but the unionists declined to send anybody. Now, a PR consultant, a health worker and a member of the Scottish Socialist Party are going to speak in support of independence. Stevenson is euphoric. He has never before spoken in front of so many people and has also never organized a political event. “It gives me a huge boost,” he says....

*** der spiegel / link

The criminalisation of American business

Who runs the world’s most lucrative shakedown operation? The Sicilian mafia? The People’s Liberation Army in China? The kleptocracy in the Kremlin? If you are a big business, all these are less grasping than America’s regulatory system. The formula is simple: find a large company that may (or may not) have done something wrong; threaten its managers with commercial ruin, preferably with criminal charges; force them to use their shareholders’ money to pay an enormous fine to drop the charges in a secret settlement (so nobody can check the details). Then repeat with another large company.

The amounts are mind-boggling. So far this year, Bank of America, JPMorgan Chase, Citigroup, Goldman Sachs and other banks have coughed up close to $50 billion for supposedly misleading investors in mortgage-backed bonds. BNP Paribas is paying $9 billion over breaches of American sanctions against Sudan and Iran. Credit Suisse, UBS, Barclays and others have settled for billions more, over various accusations. And that is just the financial institutions. Add BP’s $13 billion in settlements since the Deepwater Horizon oil spill, Toyota’s $1.2 billion settlement over alleged faults in some cars, and many more.

In many cases, the companies deserved some form of punishment: BNP Paribas disgustingly abetted genocide, American banks fleeced customers with toxic investments and BP despoiled the Gulf of Mexico. But justice should not be based on extortion behind closed doors. The increasing criminalisation of corporate behaviour in America is bad for the rule of law and for capitalism (see article).

Until just over a century ago, the idea that a company could be a criminal was alien to American law. The prevailing assumption was, as Edward Thurlow, an 18th-century Lord Chancellor of England, had put it, that corporations had neither bodies to be punished nor souls to be condemned, and thus were incapable of being “guilty”. But a case against a railway in 1909, for disobeying price controls, established the principle that companies were responsible for their employees’ actions, and America now has several hundred thousand rules that carry some form of criminal penalty. Meanwhile, ever since the 1960s, civil “class-action suits” have taught managers the wisdom of seeking rapid, discreet settlements to avoid long, expensive and embarrassing trials.

The drawbacks of America’s civil tort system are well known. What is new is the way that regulators and prosecutors are in effect conducting closed-door trials. For all the talk of public-spiritedness, the agencies that pocket the fines have become profit centres: Rhode Island’s bureaucrats have been on a spending spree courtesy of a $500m payout by Google, while New York’s governor and attorney-general have squabbled over a $613m settlement from JPMorgan. And their power far exceeds that of trial lawyers. Not only are regulators in effect judge and jury as well as plaintiff in the cases they bring; they can also use the threat of the criminal law.

Financial firms rarely survive being indicted on criminal charges. Few want to go the way of Drexel Burnham Lambert or E.F. Hutton. For their managers, the threat of personal criminal charges is career-ending ruin. Unsurprisingly, it is easier to empty their shareholders’ wallets. To anyone who asks, “Surely these big firms wouldn’t pay out if they knew they were innocent?”, the answer is: oddly enough, they might.

Perhaps the most destructive part of it all is the secrecy and opacity. The public never finds out the full facts of the case, nor discovers which specific people—with souls and bodies—were to blame. Since the cases never go to court, precedent is not established, so it is unclear what exactly is illegal. That enables future shakedowns, but hurts the rule of law and imposes enormous costs. Nor is it clear how the regulatory booty is being carved up.

Andrew Cuomo, the governor of New York, who is up for re-election, reportedly intervened to increase the state coffers’ share of BNP’s settlement by $1 billion, threatening to wield his powers to withdraw the French bank’s licence to operate on Wall Street. Why a state government should get any share at all of a French firm’s fine for defying the federal government’s foreign policy is not clear....

*** economist / LINK

China’s Property Slump Leads to Record Loans to Builders

Cash-strapped Chinese developers are borrowing a record amount in the offshore loan market this year, adding to the highest debt loads since 2005.

Homebuilders in the world’s second-largest economy got $5.9 billion from foreign banks, up 39 percent from the same period last year, according to data compiled by Bloomberg. Builder debt has soared to 128 percent of equity, the highest since 2005, according to a Bloomberg Intelligence gauge of 84 companies. New home prices fell in July in almost all cities the government tracks and developers are missing sales targets.

“Higher leverage on the balance sheet will give developers a higher financial burden,” said Agnes Wong, credit strategist at Nomura Holdings Inc. in Hong Kong. “That means that if presales are not going as quick as they expect it can translate into trouble more easily than before.”

Premier Li Keqiang is allowing builders to expand financing channels in a bid to stem the slowdown in an economy that derived 16 percent of its growth from property development last year, according to the World Bank. Sino-Ocean Land Holdings Ltd., whose free cash flow in 2013 dropped to a third of the previous year, led the borrowing with an $800 million loan.

China’s home sales fell 10.5 percent in the first seven months of the year compared to the same period in 2013 to 3 trillion yuan ($488 billion), Moody’s Investors Service said in an Aug. 29 report. New construction declined 20 percent across the country, according to an Aug. 7 report from Fitch Ratings.

Central China Real Estate Ltd., Poly Property Group Co. and Yuexiu Property Co. Ltd. were among companies taking loans offshore this year.

Pressure on real estate companies was underscored by the collapse in March of Zhejiang Xingrun Real Estate Co. Developers including China Vanke Co., the nation’s biggest, and Greentown China Holdings Ltd., the largest in the eastern province of Zhejiang, have cut prices since then to boost sales.

The slump comes as economic growth is set to cool to 7.4 percent this year, the slowest in more than two decades, according to the median estimate of economists surveyed by Bloomberg. The Purchasing Managers’ Index, a gauge of manufacturing, fell to 51.1 for August from 51.7 in July, data today showed. The yuan has fallen 1.4 percent against the dollar this year, making it the worst-performing major Asian currency.

Standard & Poor’s has reduced ratings for six Chinese property companies and increased them for two this year. That compares with two upgrades and two downgrades in 2013, according to Bloomberg-compiled data.

The three-year facility by the Beijing-based Sino-Ocean Land, whose projects include the Ocean Landscape residential development in the capital, pays a fixed 3.1 percent coupon. That compares with the 4.5 percent yield on the company’s 2019 dollar bonds, according to prices compiled by Bloomberg....

*** bloomberg / link

Zhou Yongkang Used Start in Oil Industry to Rise to Public Security Czar

Zhou Yongkang, a former member of the Politburo Standing Committee, the Communist Party’s supreme decision-making body, has been the highest ranking party cadre to be a target of a corruption investigation.

The party’s graft fighters announced the investigation into Zhou on July 29, after having rounded up a number of his allies in Sichuan Province and China National Petroleum Corp., where he used to work.

The 31 years Zhou spent in the oil industry paved the way for his ascendance to the Politburo. They also meant a lot to him personally.

He left Liaoning for Beijing in 1985 to become vice minister at the old Ministry of Petroleum Industry. In 1988, the ministry was dissolved and most of its assets were used to form China National Petroleum and Natural Gas Corp., the predecessor of China National Petroleum Corp. (CNPC). Zhou was appointed deputy general manager of the new company.

From 1989 to 1990, Zhou was party secretary and commander of the Tarim Oil Exploration Campaign, a project to exploit oil reserves in the desert of southern Xinjiang. Concurrently, he held the posts of party secretary and director general of Shengli Petroleum Administration, a Sinopec subsidiary, and party secretary of Dongying, a city in Shandong Province near the Shengli oilfield. During those two years, Zhou frequently traveled between Tarim, Dongying and Beijing.

In the preface he wrote for a book on the Tarim Oil Exploration Campaign authored by Wang Tao, the oil company’s then general manager, Zhou said the campaign established an oil company management model with Chinese characteristics, featuring modern corporate governance mechanisms such as a bidding-and-tendering system for projects development.

The book says that in May 1989, upon receiving tip-offs about violations of internal financial regulations at the Tarim exploration team, Zhou immediately sent auditors to investigate the problem and punished the perpetrators. The results were published to serve as a warning to all employees in the firm.

It also recalls that Zhou was trapped in Tarim’s inhospitable Taklimakan Desert once when his helicopter could not take off in a sandstorm.

As of 1993, the oil company had found six oil fields in Tarim with known reserves of 280 million tons and built facilities with an annual production capacity of 1.6 million tons.

During his tenure at the Shengli oilfield, Zhou made the acquaintance of Jiang Jiemin, who became his close ally and would eventually make it to the top of CNPC.

In December 1996, Zhou took over the positions of the retiring Wang, becoming the oil company’s general manager and secretary of its Leading Party Members’ Group. In January 1997, Jiang Zemin and Li Peng, then China’s premier, met with the firm’s top leaders, including Zhou, in Beijing’s Great Hall of the People. Zhou became a member of the party’s Central Committee later that year.

“Zhou is aggressive and assertive in the sense that he always makes his own judgment after hearing people’s opinions and sticks to his decisions no matter what others say,” a source with the oil company’s exploration force said. “Objectively speaking, he is very well suited to be a leader.”

Zhou has been behind several of the firm’s biggest achievements, including beginning to accept foreign investment in domestic oil exploration and submitting winning bids for oil projects in foreign countries. It was also during his reign that the firm started to restructure its share ownership and prepare to go public.

On March 10, 1998, the ninth National People’s Congress passed a plan to reform the structure of the State Council, China’s cabinet, which included forming the Ministry of Land and Resources (MLR) by merging four existing departments. Zhou was appointed to head the new ministry.

It was not an easy job to integrate the four departments, but Zhou handled it gracefully — in part because he immediately ordered the construction of more spacious homes for MLR’s engineers, a decision that made him popular among the workers.

Zhou spent less than two years at the MLR and was transferred to Sichuan as secretary of its party committee in December 1999.

In Sichuan, Zhou prioritized the development of information technology and promoted the modernization of agriculture, taking advantage of the central government’s support for development of the country’s western region. Sichuan’s GDP went from 401 billion yuan in 2000 to 487.5 billion yuan in 2002, posting annual growth rates of 9.0, 9.2, and 10.6 percent.

“Zhou is very vigorous and resolute. He marked a sharp break from Sichuan’s old bureaucracy style,” an official familiar with Zhou’s tenure said.

“In the past, Sichuan was little more than a big agricultural province, and things moved slowly. Zhou’s arrival brought some new ideas.”...

*** caixin / link

Charts That Make You Go Hmmm...


Source: WRI

Bank of America’s latest settlement was a doozy; but in case you’ve lost track with all those big “punishments” flying around, it may be time for what ’80s band Aztec Camera once called P-E-R-S-P-E-C-T-I-V-E (it’s no mystery)...

*** PBS / link

Gold Versus The Debt Ceiling


Nick Laird, aka the Guru of Gold, the Wonder from Down Under, and Chartagnan (OK, OK.. so I made all those up myself) has another fascinating plot for us this week.

Over to you, “Chartagnan” (I’m sticking with this one, Nick):

The longest running gold index — the BGMI — recently hit new lows vs gold. This index covers the major US Gold Stocks.

Current stocks are ABX, ASA, FCX, GG, KCG, NEM, SSRI.

This means that the major gold stocks have never been cheaper in 75 years.

Caveat Emptor

You can (and definitely SHOULD) check out Nick’s fantastic chart work by visiting:

Wanna know HOW the US Bureau of Engraving & Printing prints all that funny money?

*** visual capitalist / link


Words That Make You Go Hmmm...



My great friend David Tice has been in this position before — a couple of times.

Worried about the possibility of a significant correction on the order of 30-60% and derided for those views by the mainstream.

The last time? 2007. The time before that? 1999.

Pay attention to one of the smartest investors I’ve ever met...


Pippa Malmgren is back.

Hearing someone who has been so deep inside the US government’s financial mechanism talk about how governments need to inflate to default on their citizens should make listeners realize a few things about the conversations that go on at the highest levels.

Once again, a truly fascinating interview with a truly fascinating woman — one that takes us inside the geopolitical machinations which are shaping a new world right in front of our eyes.




Well THIS is a first!

CNBC interviews former mob boss Michael Franzese, and the result is absolute dynamite!

“I did a lot of things at times with people on Wall Street... a lot of guys are shady, and they did shady things with me, and I don’t trust them.”


Michael’s #1 investment pick? Watch and find out. You may be surprised...


and finally...


By now, it’s hard to believe there’s anybody left who has avoided coming across the ubiquitous Ice Bucket Challenge. However, along with all the successful attempts at performing what — at face value — is a fairly straightforward task, there are the inevitable fails.

To those unable to pour a bucket of cold water over your heads — I salute you:





Grant Williams

Grant Williams is the portfolio and strategy advisor to Vulpes Investment Management in Singapore — a hedge fund running over $280 million of largely partners’ capital across multiple strategies.

The high level of capital committed by the Vulpes partners ensures the strongest possible alignment between the firm and its investors.

Grant has 28 years of experience in finance on the Asian, Australian, European, and US markets and has held senior positions at several international investment houses.

Grant has been writing Things That Make You Go Hmmm... since 2009.

For more information on Vulpes, please visit


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A walk around the fringes of finance


By Grant Williams

09 September 2014


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gary legon 40861

Sep. 10, 5:11 a.m.

I wonder if you have personally been there because I found your friends opinions way off the mark and not representative of the reality on the ground. First, the country has been and still is basically owned by Chinese oligarchs and the generals. No coincidence as China was the only major country who never signed on to the snactions on Myanmar. Whatever investment goes to the country will not get very far past those who already sold the country out.  This once rich country has been raped and pillaged beyond comprehension.  Over 50% of the Teak is gone (to China), the minerals looted, rubber oil and gas taken over and run for the powerful who control it. The pollution is staggering as is the overall poverty. I sympathize with “the Lady” but she can not turn the clock back.  Only when she or her party has some control politically (soon to be decided) will any investment make sense. An election has been promised but Suu Ky (short version) can not become President (it’s in what passes for the constitution) so it will be about her party. I was told that if the military does not allow her party to take control there will be violence, as the ordinary people of Myanmar are fed up, again.  You can put lipstick on this but it doesn’t make it look any better.