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Week Ended July 21 2013

 DR. PETER G. KINESA'S 
INTERNATIONAL INSIGHTS

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The Marc Faber Blog: Somewhere down the line we will have a Massive Wealth Destruction

Just a short post noting that Marc's 50% prediction is in line with what we suggest is a possible valuation adjustment in our July 17th comments on Paul Krugman's Blog - Prophecies of Maestrodamus.

Not a hard one to figure out as it is really just "present value mathematics" whereby if long 30 year bond rates double, then their market value dips by 50%. Very straightforward mathematics that no amount of economic theory nor policy measures can override as it is simply a hard conceptual constraint. Mathematics cannot be persuaded, legislated nor negotiated with - and that should come as no surprise to anyone.

Down the line, looks to be a scary turbulent road ahead. 

We will post more comments from this blog later on.

PLATINUM WEALTH PARTNERS

July 21, 2013

What waits down the line?

By every account, all negotiations with mathematics have resulted in a win-lose situation. Some things are just absolute.

Dr Peter G Kinesa

July 21, 2013  

Bloomberg BusinessWeek - The Social Media Bubble is Quietly Deflating

Just a few months back, you may recall, along with Jim Rogers, we raised concerns about Facebook and generally the whole social media industry, referring to it as a generational fad and having difficulty seeing how a sustainable business model could be developed. Moreover, whether such tools or derivatives could find useful and profitable transitions into business markets. Guess what? Looks like the markets are tuning into Mr Rogers and ourselves as VC (Venture Capital) funding has plummeted to 2% this past quarter.

As one insider notes; what a business - "thinking about how to make people click ads"  And that pretty well sums up the industry's "Critical Success Factor" and how you build any sort of Sustainable Competitive Advantage around it, remains a puzzle.

Anyway we still believe that the big ticket, high margin objects just simply requires good ole face to face contact -  a little of that human touch!

INVESTORS INSIGHTS - February 18, 2013  

JIM ROGERS - Facebook is not an Investment, it's a Waste of TIME  

PLATINUM WEALTH PARTNERS

July 20, 2013

Not a Happy Camper

Comparing the social media frenzy to the dot-com bubble may not be such a good analogy, albeit in both cases you can observe that common sense gave way to a strange fear of missed opportunity combined with unrealistic expectations. The other common ground was that object business measures, standards and principles no longer applied . Market history repeated again.

And for some strange reason this won't be the last time. Humans? Go Figure?

Dr Peter G Kinesa

July 20, 2013  

Bloomberg - Spanish 10-Year Bonds Decline as Italian Yield Rises to 4.48%

In light of our market alert, regarding Portugal's Bonds, earlier this week, along with the growing concern for adverse circumstances in Europe, even more focus is now being given to European Bond Markets. Market activity in these markets may now have greater bearing on the global financial system than US treasuries. No kidding?

Similar to Japan, bond values and rates in the US appear to be hand-cuffed at low levels for some time. Moreover, enjoying the reserve currency status allows the US to gather the loose liquidity in the global system and harbour its flight and fright capital, thereby easing any upward rate pressures. Plus, an interest rate increase state-side would be absolutely devastating to the US economy at this juncture - and just pour gas on a stumbling economy's fires. 

Underlying the European bond markets are chronic diseases that  show no signs of abating - in fact there is growing evidence to the contrary. Like Japan and Middle East countries, Europe suffers from a physical economic overcapacity issue that cannot be resolved by abstructionist economic measures. Limited and declining physical economic inputs can only lead to one result - declining economic outputs. All of which is made worse as populations grow and per capita output consumption ratios thusly sink even further. Bad "Real" News!

Particularly after Cyprus, we are seeing signs of desperate central bankers pulling out devious last stops to cure the terminal economic cancer. The markets in Greece, Spain, Italy, Ireland and Portugal are at the greatest risk of crashing global bond prices. They are "bonded" by a common concern with a staggering rippling potential affecting markets with traumatic head to toe  effects. 

Our main message here - this one ain't over yet; 'cause, "it ain't over, 'til its over"  

PLATINUM WEALTH PARTNERS

July 19, 2013

A Bonding Crisis - the future is yet to come...

While the rest of the world may think that the FED is the driver behind global rates, largely because of the US reserve currency status and its trading volumes - we are not so certain, and believe as Grandma use to say "the devil is in the details - at Lehman Bros?" And so when all hell breaks loose; something small and overlooked is often perpetrating the angst.

Of course, then there was Yogi's wisdom - a great "Bondplayer" too  

Dr. Peter G Kinesa

July 19, 2013

The New York Times 

The Prophecies of Maestrodamus

Paul Krugman

Comments:

"I know one thing; that I know nothing" Hmm. I think we could all learn from one of Socrates’ last thoughts - but you never know!

Still we could attribute much of our current mess to too many who believe they know - then later we find that even simple notions were somehow forgotten. Or a fog had set in. (- R. S. McNamara).

Despite what may be economic headlines today, Greenspan's legacy may be his contribution to our current low interest rate trap - that has lasted for much too long. Getting out of it could trigger a massive deflation of financial assets - causing an unprecedented ASSET VALUE WRITE-DOWN. Evaporating years of value in moments.

A mere 2% rise in rates, for example, could deflate financial assets by as much as 50% - wiping out the equity boxes of financial intermediaries and banks , while creating massive unfunded pension and insurance fund liabilities on the basis of marked to market accounting calculations. =ing HUGE liquidity CRUNCH.

Moreover, the total value of US federal debt could grow substantively with a mathematical pen stroke, which has little to do with deficits or economic theory and activity. And I don’t even want think about what could happen if rates should revert to levels over their historic mean; it would be devastating.

So it seems that the Maestro knew how get us into this trap, but did not know how to get us out of it - but then again "who knows?" And as far as we know, he's still on first...

INVESTORS' INSIGHTS

Juky 17, 2013

I don't know?

ALJAZEERA - (English) Worldwide PC sales keep sliding

Lenovo (China) Top PC Maker???

Bad news for everyone, except China as they take the leadership position in another market that has long been dominated by American makers for decades. Who do we blame this on? Management? Tablets? Consumers? Or China's low cost producer strategy for an industry where products are becoming commoditized, as it really does not take that much to do the reverse engineering. Again China is following a "national business strategy" much like Japan did from the 60's onwards in automotive and consumer electronics.

But the real issue is what good is the WTO? How does it ensure that everyone is on an equal playing field when labour, environmental, and health standards are barbaric is contrast to North America. Add to all that a fixed currency to the US dollar and this game becomes a one horse race.

But who loses big time? North American and European union and salaried workers. In fact, in America the real hourly wage, according to St Louis, FED statistics have not risen much since 1982! So, where are the unions???

Beyond all this meaning more doom and gloom for the ordinary American worker, here 's list of PC makers facing tougher times as this saturated market begins to consolidate. Smaller players will be forced to merge or simply fade away into the sunset - while margins face continued presures from commoditization.

TOP Five PC Makers
  41% (est) Market Share

Lenova
Hewlett Packard
Dell
Acer
Asus

INVESTORS' INSIGHTS

First Financial Insights

July 16, 2013 

Those were the days - "in our home towns... and they ain't coming back"

- Bruce Springstein

ACTS OF GOD...Climate Graphs

These graphs at the very least are disturbing - at worst, they paint a dismal picture of the prospects for the human condition and related species in the years ahead. Can we say that they reflect a direct relationship to our industrialization, pollution, unbridled growth policies and overpopulation of the planet in the last 250 year? No we don't believe that the evidence can distinguish between acts of man or God. The planet does go through swings in climate as evidenced by geological and other forms of scientific evidence - so we may argue that this is just the normal cycles of nature playing havoc with the grand designs of human policy and activity. 

On the other hand, there are just too many correlations that lead one to believe that nature is not just acting on its own accord. We probably have something to do with the trends. Trends that need to be counter acted in some way, before it's too late, regardless of weather (sic) they result from acts of man or God or both. In any case, it will require the acts of man to stabilize or reverse these trends, otherwise the circumstances of the planet will not support the life forms of its current inhabitants. 

We fear however, that the line to buy the inconvenient truths will remain short, as it fights with the inertia of years of economic growth, devolpment and a supporting cast of fairy tales. So be it!

Dr Peter G Kinesa
July 20, 2013

MAN, GOD, or ...

The Jim Rogers Blog : Central Mystic Bankers Sell Holdings - GOLD Prices make a nice, firm bottom when mystics start selling

The Jim Rogers Blog : Central Mystic Bankers  Sell Holdings - GOLD Prices will make a nice, firm bottom when the mystics start selling their gold out of despair

Who are the Mystics, JIM? Why are they selling? The first answer is Central Bankers; starting in developing countries, second in marginally developed countries; and lastly, all the rest. And they all have plans to unload their holdings on whomever will step up to the plate, while the gold party still commands peak prices. Central Bankers are like everyone else; wanting to keep their jobs. Big market wins do little for their meal ticket, but if they get caught on the short end, they might as well  start heading for the cottage. Permanently! Or much worse in some cases. Hee, hee...

Central Bankers are dumping  to balance out debt or pay for fiscal austerity measures and shortfalls with no end in sight. Politicians almost everywhere are desperate to save their hides, stem social unrest and avoid having their nations fall into the hands of revolutionaries. More countries are sure to be selling gold reserves in the future, as they too face austerities, caused by ever dwindling national resources, and yet more mouths to feed. Our finite planet is tightening the noose. Meanwhile, buyers are waking up, to the fact, that gold is a terrible investment, currency proxy or insurance device, as demonstrated by the past 30 years market performance.

Should Mystics overwhelm the market with sales (either directly or through collateral monetization)  - NO ONE; not even Jim, can then predict or fathom how low gold's price could go - even $50 an ounce is possible. We must never forget that we are dealing with a social phenomena, and not a scientific phenomena subject to object deterministic rules and observation. Therefore, anything is possible. Anything - and that goes both ways in this commodity's market.


Dr Peter G Kinesa
July 6, 2013

MONEY, GOLD, MARKETS AND MYSTICS' PHENOMENA

Sign in Egypt protest: “Wake up America, Obama backs a fascist regime in Egypt.” (Picture) | AgainstCronyCapitalism.org

Sign in Egypt protest: “Wake up America, Obama backs a fascist regime in Egypt.” (Picture) | AgainstCronyCapitalism.org

LANGUAGE TRANSLATION:

 "Feed them meat and potatoes"

What never ceases to amaze us is how everyone thinks this is all about ideology - what label would you like me to wear? Unless my belly is comfy; whatever politics, theology or economics you preach, you will not convince me or anyone else for that matter. Then once it is full. you have the opportunity to tell everyone why your way is the best way, and how it can and will be done forever. Then it becomes hard to fight the eternal benefits you promise with ideology through the narratives of science or logic. Who wants to give up a shot at eternity? So, almost everyone hedges their bets and buys into a label. Such is a simple view of life, from introspective nutshells -

Back to Egypt. Here again we can see that the real issue is "meat and potatoes." Seems as if they don't have enough to feed their ever expanding masses; they thus are prepared to follow anyone with a here-and-now solution, then worry about a bunch of tomorrows at some other convenient time. That makes sense.

Unfortunately, Egypt is on the growing list of Nauru Paradigm Countries, whereby the populations have overshot the delivery capacities of their physical economies - leading to shortages of just about everything needed to survive. Sadly, the WTO, IMF, World Bank, EU and leading economists and politicians have placed all of their bets on the abstractionist's economic models and are thereby insanely stoking the flames. When will they ever wake up?

So add Egypt to our coveted list of countries facing the final stages of the Nauru Paradigm, a nation that will now play out the Animal Farm parody for years to come, as long as incoming revolutionary leaders subscribe to outdated neo-classical economic theories - (Stories?) - they are guaranteed short careers in a shrinking world.



Dr Peter G Kinesa
July 5, 2013 

Egypt or Nauru: More Animal Farms?

FIRST FINANCIAL INSIGHTS: INVESTORS' INSIGHTS - NEWS ALERT - "Russia Rebuffs...

FIRST FINANCIAL INSIGHTS: INVESTORS' INSIGHTS - NEWS ALERT - "Russia Rebuffs...:

INVESTORS’ INSIGHTS   “NEWS ALERT ” Russia Rebuffs Cyprus Bailout Click Above for today's Globe and Mail Article   This...

Everyone should be scrambling now. The banks in Cyprus will no doubt face a major deposit run when they open, making it almost impossible to put any sort of figure on what amount is needed to save the day. The problem here apparently stems back to write-offs of Greek Bonds resulting in losses and under capitalization. So here is the first sign that the inter-connected bank borrowings in the EU could end up snow balling.

Bond markets as well as depositors should be concerned as this will no doubt put further pressure on interest rates across the EU, and perhaps even globally. Similar to the 2008 meltdown, one bad security leads to another, then that bad apple rots the whole barrel because of the complex inter-connected financial borrowings.

We are keeping an eye on the ball here - just too many unknowns.

Dr Peter G Kinesa
March 22, 2013

One bad apple

Nouriel Roubini Blog: Cyprus: Capital Controls & Deposit Freeze Is The Only way...:

Nouriel Roubini Blog: Cyprus: Capital Controls & Deposit Freeze Is The O...: 
"Capital controls & Argentine-stlye deposit freeze (Corralito/Corralon) unavoidable in Cyprus given lack of a bail in deal. Only wa...

Sorry Nouriel, but what should have happened and didn't, was that the EU and ECB should have stepped up to the plate and fixed this situation long before it reached front and centre on the global stage. Imagine if the FED decided not to bail out Nevada; for example, because of suspected nefarious activities. The Union and Central Banking functions would fall apart.

Cyprus is less than .2% of the EU's  GDP, yet they let this economic scratch turn into a flesh eating disease, that exposes the EU and ECB as "name only" institutions without functional substance. Where were the oversights in the first place? 

This is just bad management on all fronts, from start to finish. The cost could ultimately be the sinking of this whole European experiment forever. Which is startting to look like the most sensible solution to the situation with each passing crisis. 

Time to bite the bullet.


Dr Peter G Kinesa
March 21, 2013

Pick ONE!

Marc Faber Blog: Cyprus (RISK?): No large impact on Emerging Markets

Marc Faber Blog: Cyprus (RISK?) : No large impact on Emerging Markets

Wrong! Wrong! Wrong! Cyprus will have huge impact on Emerging Markets and we can analyze and determine why from two points of view. 

Emerging Markets is a sexy term crafted by promoters, mutual funds, banks, and money managers to basically dress up high risk sovereign situations. " Lipstick on a Pig Markets" would not have the same marketing or sales flair to it, so a more sanitized semantics is useful. 

But what are we dealing with really? Generally speaking, third world economies where the business, legal and ethical practises are not that well-established or developed. Moreover, the risk of political power changes is high and thereby the rules of the game. And not all countries are the same; the risks of change extremism is further heightened by theological and cultural beliefs. In short, the rules are more likely to change at any moment in these countries' economies.

The defining of financial risks has a checkered past, in fact, the definitions often result from events or fancy theory. They do not have the same certitudes of scientific discovery or observation. Systemic risk is a product of the debatable "efficient market hypothesis", while settlement and counter-party risks were discovered when related events created serious turmoil in the markets. Counter-party risk was not a major concern until the experiences of the 2008 meltdown came home to roost. You could say that it didn't exist until these events occurred - it was an Unknown, Unknown.

With the Cyprus deposit tax (theft) proposal another such "Unknown, Unknown Risk " is now known and self-evident  -  Cyprus Risk. What is Cyprus Risk? It is basically the possibility that a sovereign nation will confiscate the assets of savers or investors arbitrarily without notice or due process of law. This risk applies not just to deposits, but all types of financial assets; including, reality, stocks, gold, bonds and insurance instruments. It is a risk that must now be imputed into the ambiguities of risk management algorithms.

Emerging markets, because there is a greater likelihood of game-changing rules, should now be expected to pay a higher premium on capital to compensate for this additional risk. This premium may also be calculated into capital costs of EU countries. The premium will, hence, add restrictions to liquidity flows and raise earnings expectations of investors and savers. Both will act to depress the value of assets, such as stocks, bonds and real property in these higher risk markets. 

It is still too early to tell what exact economic outcomes will be of Cyprus Risk, but bringing this heretofore, unknown, unknown risk out from under the covers cannot be a positive discovery for neither Emerging Markets nor the EU.   

Dr Peter G Kinesa
March 20, 2013

Cyprus Risk

"Folks Are You Ignoring Me?" 

       

FIRST FINANCIAL INSIGHTS: INVESTORS" INSIGHTS - "NEWS ALERT MARKET WARNING'...

FIRST FINANCIAL INSIGHTS: INVESTORS" INSIGHTS - "NEWS ALERT MARKET WARNING'...:

INVESTORS’ INSIGHTS “NEWS ALERT MARKET WARNING” Cyprus Rejects Deposit Tax Click Above for today's Wall Street Journal Article ...

Thank God! They came to their senses at the last moment. However, the idea of even pushing the button that could have caused a nuclear financial collapse is disturbing. Who will invest or save money in Cyprus ever again? How will their Banks retain current deposits? What will be the implications on EU bond markets  and banks? There is little doubt many reconsiderations are underway relative to the EU - and there will be an impact on capital flows and borrowing costs. A price will be paid at the worst of possible times.

Yet we need to look beyond the "Cyprus Crisis" and underscore the bigger issues here. First, how many more EU nations could possibly consider these most desperate financial tactics. Let's count them; Spain, Italy, Portugal, Greece,and Ireland could be readily added to the pool, bringing the total to six. In percentage terms that calculates to over 35% of the EU. So far! Trending has not been good and the fact that these countries do not have their own currencies and thus monetary policy control is not helping matters. \

Yep, they cannot pull the FED's famous "invisible deposit tax trick" and debase their currencies by printing more money.  People don't notice it and rarely turn to social unrest when it is applied. People don't understand it and some probably even believe that it is a good thing. So governments will continue to use this quieter confiscation of wealth because the direct tax approach makes the theft so much more obvious and really gets people upset.

For a moment let's turn back to what the real problem is here - Neo-Classical Economic Theory, or better described as the positive-sum abstract game. Whereas, what these countries are truly confronting is the physical algebra and negative-sum game of Meta-Economics;  meaning their populations have over shot the resource capacities of their geographic jurisdictions. Moreover, with each passing day the matter is made worse as more people are added while resources dwindle. So when we ignore all the typical abstracts and concepts of economists, it is really easy to see what the problem is here. With fewer inputs per capita - you produce fewer outputs - that cannot be increased by imaginary economic devices of any sort.

What is also clear, is the direction that each of these nations is heading, particularly if they continue to adhere to the Wizard of Oz's positive-sum economic theories. They are returning to a post-industrial society that will not be able to sustain the same numbers and outputs as in the past. That is, if social and political upheavals do not interrupt a smooth transition. Historic probabilities suggest the transition will not be so smooth.

So again keeping an eye on events is essential. What is interesting to note, is that many of the high profile trouble spots are island nations; Cyprus, Iceland and Ireland, that became Banking Center (Abstract) Economies when their underlying real physical economies overshot the populations they could support. So arguably are Japan and the UK. So were Nauru and Easter Island; of course, largely minus comptemporary banking and economists' abstracts. 

Sort of makes you wonder if there is a pattern here?

Dr Peter G Kinesa
March 19, 2013  

The Fate of Island Nations

  

FIRST FINANCIAL INSIGHTS: INVESTORS' INSIGHTS - "MARKET WARNING" - Cyprus ...

FIRST FINANCIAL INSIGHTS: INVESTORS' INSIGHTS - "MARKET WARNING" - Cyprus ...: 

INVESTORS’ INSIGHTS “MARKET WARNING” What if your bank shut down, then gave 10% of your (and everyone’s) money to the government?...

There is no doubt that this policy action; which appears to have been carried out under EU and/or ECB, guidance could be disastrous, if remedial measures are not taken immediately. The seizure of deposits undermines the integrity of the whole banking system causing unneeded fears that can exacerbate an already sensitive situation.  Those responsible - should be fired. (What the heck were they thinking?)

Consequently, investors, depositors and institutions face a new unprecedented form of risk, that if not contained,puts all forms of international dealings in jeopardy. This  "Market Warning" is fully justified; everyone will need to be extra careful in the days ahead.

Dr Peter G Kinesa
March 17, 2013  

Cyprus Banking Bonanza