ciao saggezza
questa è roba esclusiva
AURUM REPORTS
Andrew Hubert Willmann
Editor
- Third Quarter of 2009 -
H
oott Summeerr ooff Coonvveerrggiingg Sttoorrmss
In This Issue:
They Could Be Just Weeds...
BRIC: State of Triumph?
Global Capital Markets:
The Other Shoe - Retest of March 09 Lows?
US Dollar vs. Gold: Precarious Standoff
Not Only for BQ Intellectuals: Keeping the Flame Alive
Just What Was Said
H
HI IINNDDSSI IIGGHHTT I IISS 2200- --2200. .. PPEERRSSPPEECCTTI IIVVEE I IISS EEVVEERRYYTTHHI IINNGG. ..
© Analitica-Aurum Partners S.A. 2009
Contents of this Report are subject to the terms of a Disclaimer text of which appears at the end of the Report.
AUR UM RE PORT S
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T
THEEYY COULLD BEE JJUSSTT WEEEEDSS......
A
bewildering series of economic events over the past 12 months has put a
large question mark over the global economy. Many have interpreted the
recent stock market rally as a sign of recovery: the so-called “green shoots”
concept. But this optimism ignores four looming problems, all centered in
the United States, that threaten a new round of pain this year. The four
problems are:
the diluted balance sheet of the U.S. Federal Reserve;
Obama’s deficit binge;
the growing wave of “Option-ARM” mortgage resets in U.S.
real estate;
the California state budget crisis.
We need to watch how these issues develop over the summer to know
whether a recovery later this year will be at all possible, because those
green shoots could be just weeds.
In Washington at a meeting of the Federal Open Markets Committee, one
can hope that the first of these four problems - the Fed’s balance sheet -
will be addressed when Fed Chairman Ben Bernanke appears before a
Congressional committee. Buried in the seemingly arcane balance sheet
numbers is a ticking monetary time bomb.
The total U.S. money supply is the product of two variables: the monetary
base times the velocity of circulation. The expansion of the monetary base
must be matched to the growth of real economic production, so as not to
debase the currency. Historically, but with few notable exceptions, annual
increases are kept to a few percentage points. But from last August to the
present, as the Fed scrambled to finance a massive bailout of the banking
system, it more than doubled the U.S. monetary base, increasing it from
$870-billion to about $2-trillion.
This has not led to inflation, however, because the money is not circulating,
as yet. Banks are merely leaving it on deposit at the Fed. This too is
unusual. The U.S. banking sector, despite its size, normally keeps very little
on reserve at the Fed over and above what the law requires. From 1959 to
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2008, excess reserves at any one time ranged from a few hundred million
to about $2-billion. But since last August, excess reserves have soared to
$844- billion. One analyst recently likened this to a giant pile of kindling
threatening an inflationary bonfire.
But in this case the kindling is soaking wet. Normally, the release of new
money into the banking system gets multiplied because of the way
fractional reserve banking works. The so-called money multiplier has
always been above 1.5 or so, meaning that every dollar of new money from
the Fed expanded the money supply by at least $1.50. But in December
2008, something unprecedented happened: The multiplier collapsed to
0.91. New liquidity is causing the money supply to shrink, not grow. During
the “
green shoots” April stock market rally, the money multiplier actually fell
further, hitting 0.862, its lowest level ever. Banks are hoarding money,
perhaps afraid for their own solvency, or that of the households and firms to
which they would otherwise lend.
BALANCE OF TERROR
There are now two great financial forces precariously balanced, exerting
equal and opposite pressure on the U.S. economy. The expansion of the
monetary base has created an inflationary risk. But the collapse of
consumer wealth has shrunk investment and lending, creating a
deflationary vacuum. No recovery, no inflation. But if a recovery starts, all
those excess reserves will flood the banking system, setting off inflation.
At this point the ability of the Fed to manage the
money supply becomes critical. The Fed injects
or withdraws money from the base by buying or
selling assets. To ensure its ability to do so, it is
only authorized to hold liquid, risk-free securities
such as Treasury Bills. But last year, the Fed
bailed out crumbling U.S. banks by swapping its
T-bill holdings for assets the banks were unable
to sell. This helped bank stocks to recover and
kicked off the stock market rally. But it left the Fed
with a balance sheet full of trash.
As of December 2007, the Fed owned $800-billion in T-bills, and another
$50-billion equally split between repos (overnight loans guaranteed against
AUR UM RE PORT S
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T-bill collateral), and currency swaps with other central banks. As of today,
the Fed lists about $2-trillion in assets, but only $640-billion are Treasury
securities. Over $1-trillion is a mix of stocks and bonds nobody else was
willing to hold, much of it listed at book value rather than market value. For
instance, $455-billion is in mortgage-backed securities from failed lenders
Fannie Mae and Freddie Mac. $100-billion is loans to troubled insurance
giant AIG as well as other financial basket cases. The list goes on.
What is this stuff actually worth? Fed officials have long insisted that the
assets are rock solid, but those assurances may soon be tested. U.S.
Congressmen Ron Paul and Alan Grayson now have 237 cosponsors for
HR 1207, a bill to audit the Federal Reserve balance sheet. Any such audit
will likely reveal that the Fed lacks the assets to cover the U.S. monetary
base.
This matters because, if a recovery gets going, the Fed must quickly draw
the monetary base down from $2-trillion to about $900-billion, otherwise
inflation could cut the value of U.S. dollars in half. If the
Fed can’t get face value for its holdings, it will fail to
draw the necessary amounts of currency out of
circulation, and U.S. currency will be debased.
Ironically, the Fed is safe as long as the credit system
remains frozen. But then again the economy cannot
recover. The Fed seems to be hoping for a miracle of
timing. If the economy starts to grow, the assets it is
holding might appreciate quickly enough to be sold at their face value
before inflation breaks out. But if they gain in value only after bank excess
reserves start hitting the market, the U.S. will face an inflationary crisis
comparable or possibly lot worse than in the 1970s.
OBA-OBA’S FOLLIES
The second problem looming over the U.S. economy is the Obama
administration’s massive deficit. The Congressional Budget Office predicts
that U.S. government spending will jump from $3-trillion to $4-trillion this
year, even as revenues fall to $2.2-trillion. Nearly half of U.S. government
spending is now borrowed money, and the deficit will hit 13% of GDP this
year. In order to raise all this money, the U.S. Treasury is holding a series
of record-breaking note auctions this summer. This week alone the
To avoid interest
rate hikes, the
Fed needs the
stock market to
go down, not up
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Treasury must sell over $160-billion in notes with maturities ranging from
three months to seven years, and there are many more such auctions to
follow. We will learn over the next few weeks how high interest rates will
have to go to sell all those notes.
As with the perilous Fed balance sheet, Obama’s deficit plan creates a
problem that worsens if a recovery begins to appear. Growth in the stock
market increases the competition for investor funds. The only way the
Treasury can sell all those bills is to offer sufficiently high interest rates to
compete with equities. As the interest rates on Treasury bills rise, money
will flow out of the equity market, depressing stock prices. Rising interest
rates will be avoided only if the stock market drops over the next few
months and people look for low-return government bonds as a safe haven.
But if the stock market remains attractive to investors, interest rates will
have to rise to meet Obama’s borrowing needs. And that will impair the
ability of homeowners to cope with the next wave of mortgage refinancing.
CALIFORNIA, HERE WE COME... SUBPRIME ROUND II BLUES
Let’s call the problem SP II. So-called “
Option-ARM” mortgages gave
borrowers an interval during which they paid no equity, and less than the
full interest, with the unpaid amount accumulating on the principal. When
the reset date hits, borrowers must start making full payments, with
payment increases often reaching 50% or more.
These mortgages were popular at the height of the property bubble, with
75% of them written in four states: California, Florida, Arizona and Nevada.
Many borrowers expected that house prices would just keep rising, so
when the reset date approached they could simply sell
the house, pay off the mortgage and pocket the
difference.
But housing prices in places like California have
collapsed. Homeowners are now facing payment hikes
on houses worth far less than the loan principle.
According to a recent Credit Suisse analysis, by fall
2011, the volume of Option-ARM resets will have risen
from $2-billion per month to $25-billion per month,
dwarfing the size of the subprime wave. And according
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to data from T2 Partners, 30% of Option-ARM mortgages are already 60
days or more in arrears. A new wave of defaults could bring a new wave of
bank failures.
The best hope is that continuing low interest rates will help many Option-
ARM resets go through without default. But this is where the threat of rising
interest rates due to the U.S. deficit begins to matter. Recently, the US
Treasury conducted an auction of $35-billion in five-year bonds, with a plan
to auction $26-billion in seven-year bonds the next day. The market reacted
by dumping longer-term bonds, sending mortgage rates from 5% to 6.5% in
one day. While this spike tapered off over the next few weeks, it sent an
early signal that large-scale government borrowing will raise long-term
mortgage rates. In California, foreclosures and Notice-of-Trustee sales are
already back to levels observed during last year’s subprime crisis, and the
trend is up, not down.
ARNIE, THE SUPERMAN?..
This brings us to the fourth harbinger of trouble ahead: the California state
budget. California is one of the world’s top ten economies and accounts for
10% of the U.S. economy. Its state budget is about $125-billion, and the
deficit is about $25-billion. By law, California must balance its budget each
year, and the fiscal year ends June 30. Back in February, the Democratcontrolled
legislature could not agree with Republican
Governor Arnold
Schwarzenegger on spending cuts, but it did agree to put a series of tax
increases and borrowing schemes before the voters in a referendum. On
May 19, all were defeated. California Treasurer appealed to Washington for
access to bank bailout funds, but he was turned down. He has since
warned that the state only has enough cash to meet payrolls until mid-July.
California matters greatly, because of its sheer size in the U.S. and
international economy, and because 49 other governors are watching to
see how Washington reacts to its budget crisis. Data released in mid-June
by the Nelson Rockefeller Institute of Government showed state-level
income tax revenues from January to May were down 26% across the
country. Regardless of whether Washington is able to scrounge up some
assistance, state governments are contemplating layoffs, program cuts, tax
hikes, facility closures and other such measures, all of which will cut into
U.S. employment and consumer spending in the third quarter.
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HOT SUMMER
Over the summer, we will learn how these four issues play out. In the
meantime, policymakers should realize that this recession is not a simple
business cycle, it is more akin to the aftermath of a giant earthquake.
Borrowing or printing money to paper over the damage is not the answer.
Among the key lessons overlooked by Washington, is the burning need to
start the slow process of rebuilding private-sector wealth through
entrepreneurship and profitable enterprise as the answer to the deepening
crisis.
And yet, the United States is putting forward daily examples of what not to
do. It is borrowing heavily to prop up money-losing industries like wind
energy and automobiles. Alternative energy boondoggles destroy more
jobs than they create, and they are unsustainable without taxpayer
subsidies.
Obviously, government efforts should focus on personal income
assistance, not subsidies to businesses. The financial collapse leaves
retirees especially vulnerable, as pension funds have fallen deeply into
deficit, and newly retired individuals suddenly find themselves with far less
capital than they expected. Instead of “
stimulus”
spending on hastily conceived construction projects,
funds should be used on an as-needed basis to help
elderly persons whose investment income collapsed
through no fault of their own, but who can no longer
work to make up the losses.
Government should also resist the one-size-fits-all
notion that all public spending is expansionary.
Today’s problem is wealth destruction, and deficits cut into future wealth.
Cutting non-essential spending will help keep borrowing needs to a
minimum, thereby keeping us on track for lower personal and corporate
taxes.
As we move into the summer, four economic storms are converging, and it
will take an extraordinary miracle of timing to avoid all of them breaking
together.
By Ross McKitrick
Policymakers
must realize that
borrowing or
printing money is
not the answer
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Ross McKitrick is a Canadian economist specializing in environmental
economics and policy analysis. McKitrick gained his doctorate in
economics in 1996 from the University of British Columbia, and in the
same year was appointed Assistant Professor in the Department of
Economics at the University of Guelph, Ontario. He has been Associate
Professor since 2001 and Senior Fellow of the Fraser Institute, a Canadian
free-market public policy think tank since 2002
In 2002 McKitrick co-wrote a book Taken By Storm with Christopher
Essex. It was a runner-up to the Donner Prize of that year as the Best
Canadian Book on Public Policy. He has since published research on
palaeoclimate reconstruction, including co-authoring of "Hockey Sticks,
Principal Components and Spurious Significance" with Stephen McIntyre.
He continues to publish research in economics, usually in the area of
environmental policy.
The above essay was originally published in the Financial Post.
Reprinted with permission, subject to editorial changes by Aurum Reports.
- end of feature -
BR
IIC:: SSTTATTEE OFF TTRIIUMPPH??
The inaugural summit of BRICs - Brazil, Russia, India, China - came and
went in Yekaterinburg with more rhetoric than substance. Although
Russia’s president, Dmitry Medvedev, called it “
the epicentre of world
politics”, this disparate quartet signally failed to rival the Group of Eight
industrial countries as a forum for economic discussion.
But that should be no surprise. To realise how disparate they are, consider
that Russia and Brazil are big commodity exporters, whereas China is a big
commodity importer; China is a proponent of the Doha trade round, India a
sceptic; India and China vie for influence in the Indian Ocean, Russia and
China compete in Central Asia.
Instead, the really striking thing is that four countries first lumped together
as a group by the chief economist of Goldman Sachs chose to convene at
all, and in such a high-profile way. And that when they met, they discussed
topics such as reforming the IMF; their demand for more say in global
AUR UM RE PORT S
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policy-making; and, in the case of China, Brazil and Russia, a plan to
switch some of their foreign-currency reserves out of dollars and into IMF
bonds.
All this reflects growing self-confidence. The largest emerging markets are
recovering fast and starting to think the recession may mark another
milestone in a worldwide shift of economic power away from the West.
Estimates for their national incomes in the first quarter were better than
expected. In the year to the end of March GDP rose by around 6% in China
and India. The two accounted for no less than half the world’s increase in
wireless-technology subscriptions in that period. In Brazil GDP fell slightly
in the first quarter but it is growing faster than the Latin American average
and most economists think growth will return to its pre-crisis level as early
as next year. In contrast, output in most large industrial economies is still
falling. The exception in the BRICs is the host: dragged down by plunging
oil prices last year, Russia’s economy shrank by 9.5% in the first quarter,
the worst performance in the G20 after Japan.
The fortunes of the others mark a sharp rebound since the turn of the year.
Then, it seemed, the largest emerging markets faced being overwhelmed
along with everyone else. Chinese exports in January were 18% lower than
they had been a year earlier. Industrial growth fell by two-thirds in
November and December. And around 20m migrant workers were wending
their way back to their villages, jobless after the collapse of construction
and export booms in coastal cities. The notion of “
decoupling” - that
emerging markets were no longer mere moons revolving around planet
West - suffered a severe setback.
So what should one make of the turnaround?
Might there be something to decoupling after
all? Why are the BRICs recovering? And
what are the implications for the rest of the
world?
Decoupling means not simply that emerging
markets tend to grow faster than rich
industrial ones, although that is certainly true; it also implies that to some
extent the two groups dance to different tunes, with emerging markets
growing or shrinking autonomously, not just under the influence of rich
ones. A study last year by Ayhan Kose of the IMF, Christopher Otrok of the
AUR UM RE PORT S
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University of Virginia and Eswar Prasad of Cornell University gave some
support to this idea.
One would expect less decoupling as a result of globalisation. The cycles
of output, consumption and investment should become more closely
aligned in countries engaged in world trade. Yet when the authors looked at
these indicators, they found something different. The cycles of output,
consumption and investment did indeed become more closely aligned in
rich countries. And the same thing happened in emerging markets. But
when the authors compared the two groups, they found they were
diverging. The business cycles of America and Europe converged. The
business cycles of India and China converged, but the business cycles of
rich and emerging markets had decoupled.
When this study came out in mid-2008 the worldwide crash seemed to
render it instantly obsolete. Yet the sheer size of the meltdown may
temporarily have swamped deeper trends that are now reasserting
themselves as the initial shock recedes. In 2000 developing countries
accounted for 37% of world output (at purchasing power parities). Last year
their share rose to 45%. The share of the BRICs leapt from 16% to 22%, a
sharp rise in such a short period. Almost 60% of all the increase in world
output that occurred in 2000-08 happened in developing countries; half of it
took place in BRICs alone
(see chart).
If this pattern of growth
were resuming, it would
be good news: nearly half
the world economy would
be bouncing back. And
there are one or two signs
that the benefits of growth
in BRICs are being felt farther afield. Anecdotal evidence suggests “
southsouth”
trade and investment by richer emerging markets in poorer ones
continued to rise even as global capital and trade flows fell. One example
of this is the “land grab” in which China and Gulf countries are buying
millions of acres of farmland in Africa and South-East Asia. China overtook
America to become Brazil’s largest export market in March and April; it is
also now the largest exporter to India. China is using its $2 trillion of foreign
reserves to invest in other emerging markets: for example, putting $10
billion into Petrobras, Brazil’s state-run oil company.
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China’s appetite for raw materials to fuel resurgent growth probably
explains the 36% rise in industrial raw-material prices since the start of this
year, benefiting exporters of things like copper - though how long this will
last is an open question. If it comes from the boom in Chinese investment
spending, then the boom could continue. If China is merely filling its stores
temporarily after a period of destocking, then prices could fall again.
But the resilience of China, India and Brazil cannot offset the dire state of
the rest of the world economy. While the three giants recover, developing
countries as a whole are mired in recession. The giants seem to be
decoupling not only from the West but from many of their smaller emerging
brethren, too.
A series of reports confirms how badly things are going there. A review of
ten poor countries by the Overseas Development Institute, a think-tank in
London, concludes that they were worse hit than anyone expected, with
sharp declines in remittances, employment and revenues and widespread
balance-of-payments problems. As the study’s author, Dirk Willem te
Velde, points out, the differences are often striking. In some countries -
Indonesia, Kenya, Bangladesh - foreign direct investment has held up
reasonably well; others - Ghana, Nigeria and Zambia - are facing sharp
declines. Cambodian textile exports have been hit harder than Bangladeshi
ones. But because import demand, capital flows and the need for foreign
workers declined precipitously in the West, almost all developing countries
are suffering.
At the moment, then, recovery in the BRICs is coinciding with recession in
the developing world as a whole. If this does not point to any change in
global economic conditions, what does it reflect?
Partly, that the BRICs depend less on exports than do many emerging
markets. In Brazil and India exports are less than 15% of GDP. China, too,
exports less than many people think. Though exports were 34% of GDP in
2008, these included “processing exports” - goods imported into China,
processed and exported without much value having been added. All three
were thus less affected by the slowdown in world trade than most.
The BRICs were cautious in liberalising their financial systems, so have
been less affected than, say, eastern Europe, by the West’s financial heart
attack. And their recoveries have been boosted by governments which
have dramatically loosened monetary policy and increased government
AUR UM RE PORT S
Page 12 of 26
spending. But many other countries are relatively closed to trade and
finance. Smaller ones like Chile and Taiwan have had a large fiscal
stimulus. But few have done so well. Something more is needed to explain
the recovery of the giants. A plausible explanation is size.
Size matters when world trade is falling because large economies have
millions of domestic consumers to turn to when foreign markets fail. China
is the best example. Small economies need trade to specialise, but the
pressure of selling into a big domestic market helps companies in large
economies remain competitive even without a lot of competition from
imports. Big economies also tend to be diversified. India, for example,
exports not just garments and cheap electronics - characteristic of many
countries with similar levels of income per head - but ships, petrochemicals,
steel and business services. Being diversified means little when markets all
fail at once. But it is a big advantage when recovery begins since you are
more likely to be in a business in which demand is rising.
Size and variety may also help the economic stimulus programmes of
China, India and Brazil. In general, one of the commonest problems of
government reflation is that the benefits leak out beyond your borders
because the programme sucks in imports. Giant economies do not face this
problem so acutely because even when trade has been liberalised, imports
naturally tend to be a lower share of GDP.
The other challenge is to ensure that government stimulus programmes are
broadly based. This could be more difficult in small economies which
specialise in relatively fewer sectors. A handful of big companies may be
able to use political clout to grab the benefits of spending for themselves. In
principle, giant countries such as India or China have more companies
competing to manipulate the government for a share of the spoils. That is
speculation, but the fact is that the stimulus programmes in the big
emerging markets have been, mostly, large and effective.
China’s stimulus package was the earliest and best-known example of
fiscal shock and awe. But it is only part of the story. The government is
using the state-owned banks to pump out loans at astonishing rates.
According to Josh Felman, of the IMF’s Asia research department, state
banks and others issued 5.5 trillion yuan ($800 billion) of new loans in the
first quarter - more than in the whole of 2008. This is producing a spending
splurge on steroids. Excluding SUVs, almost as many cars are being sold
in China as in America. In 2006 Americans bought twice as many.
AUR UM RE PORT S
Page 13 of 26
Brazil and India are following suit, albeit more modestly. Brazil reduced
reserve requirements and gave banks and its deposit-insurance fund
incentives to buy up the loan portfolios of smaller banks. These measures
injected 135 billion reais ($69 billion) into the domestic credit markets,
according to Otaviano Canuto of the World Bank. Domestic credit rose
sharply between September 2008 and January 2009 and consumer
confidence is rebounding.
The source of India’s resilience, argues Mr Subramanian, was “
goldilocks
globalisation”: neither too dependent on foreign capital, like eastern
Europe, nor too reliant on foreign customers, like parts of East Asia.
Foreign capital dried up in the crisis, so India
relied on domestic savings, which amounted to
almost 38% of GDP in the year to March 2008.
Companies thus turned for loans to India’s
unfashionable state banks, which hold almost
70% of bank assets, rather than borrowing
overseas or raising money on the stockmarket.
India’s growth was also shored up by
government outlays, such as a generous pay
raise for state employees, the cancellation of
small farmers’ debts, and the expansion of its rural-workfare scheme.
Announced before the crisis struck, this spending was fortuitous. It left the
public finances deep in the red, even as it helped the government to a
decisive election victory. So far, this political triumph has boosted
confidence in India more than the budget deficit has dampened it.
STATE OF TRIUMPH?
The question is whether such splurges are efficient and how long can they
last. Consider China’s investment. According to the IMF, in early 2008 all
the contribution of investment to growth came from non-state-owned
enterprises, mostly the private sector; since December 2008, more than
half has come from state-owned enterprises. Something similar is
happening in Brazil. Between last September and this January, credit from
foreign-owned and domestic private banks rose by 3%; credit from public
banks rose by 14%. The beneficiaries seem to be large firms, where loans
are growing four times as quickly as at small ones.
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Page 14 of 26
It is not clear how far, in the long run, BRICs will be affected by a big rise in
the size of the government and large state-owned firms. But that rise is
probably inevitable. China and, to a lesser extent, Brazil and India,
benefited hugely from America’s appetite for imports in 2000-08. That
appetite has fallen and is likely to remain low for years, as American
consumers adjust their spending and savings habits. The rise may also be
difficult to reverse. The experience of the West has been that the public
sector expands relentlessly until it reaches between 40% and 50% of GDP.
But if BRICs cannot export their way out of recession, the expansion of
government is the main alternative to the slump being endured in those
other big capital exporters, Germany and Japan. It is part of the price China
and others are paying to clamber out of recession before everyone else.
The above essay was originally published in June 2009 issue of the The
Economist. Reprinted with permission, subject to editorial changes by
Aurum Reports.
- end of feature -
G
LLOBALL CAPPIITTALL MARKEETTSS::
T
THEE OTTHEER SSHOEE --
REETTEESSTT OFF MARCH 0099 LLOWSS??
After the spectacular rally of March-through-May 09 period, we have
entered, as projected earlier, a corrective period, which will likely
predominate the second half of the year, possibly reaching the low-point in
late October-November period.
How severe correction? A 50% retracement of the recent advance of ±
40% in many indices is a minimal objective. A re-testing of early March 09
is also a strong possibility. Only upon completion of this intermediate
decline we shall have sufficient data to project possible emergence of a
new long-term trend. The graphs prepared by Yelton Fiscal, Inc. illustrate
this point (see the next following pages).
AUR UM RE PORT S
Page 15 of 26
The obvious technical weakness of the markets is complemented by new
geopolitical developments of great importance. Recent Iranian elections
(discussed in the
Aurum Report 2Q09, “The Other Crisis: Persian Pride
and Pakistan Precipice”) created the greatest leadership crisis in the
history of current Iranian theocracy. Over 2 mln voters protested in mass
demonstrations the fraudulent outcome of the obviously rigged results. A
yet, this impromptu protest, reflecting growing social turbulence, remained
leaderless and chaotic before, ultimately, fizzling-out. And this means, of
course, continuation of a political status quo of Iran’s efforts for nuclear
armament in the region - an unacceptable situation for both, Israel and pro-
Western Arab countries. The six-month futile US efforts to “engage” Iran
diplomatically by the Obama Administration are also fizzling-out. As a
result, US Vice-President, Joseph Biden, in a recent media interview has
openly declared that “USA has no right to interfere with Israel’s efforts
to protect itself from Iranian nuclear adventurism.”
Well, if this is not an open endorsement of an upcoming Middle East
conflicts? Accordingly, we should brace-up for another of the “convergent
storms” this Summer by a significant realignment of investment portfolio:
AURUM MODEL PORTFOLIO
(prices as of July
8, 2009)
Percent Asset Class Level
70% Money market assets in USA Dollar 100
10% Short Position in Dow Jones 30 ETF 8
.394
10% Long Position in crude oil ETF 6
0.73
10% Long Position in gold ETF
909.20
Page 16 of 26
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U
SS DOLLLLAR VVSS GOLLD::
P
PREECARIIOUSS SSTTANDOFFFF
Page 19 of 26
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Page 20 of 26
N
NOOTT OONNLLYY FFOORR TTHHEE BBQQ I IINNTTEELLLLEECCTTUUAALLSS; ;;
K
EEEEPPIING TTHEE FFLLAMEE ALLIIVVEE
Welcome to summer! Time for manly men to fire up the grill and broil some
giant slabs of meat for family and friends.
In my house, as in most, we have special implements for this. We have an
enormous charcoal barbecue that my husband imported from Georgia. He
can make it super-hot (up to 750 F, if you must know), so that the steak is
seared and rare and juicy, just like at Ruth's Chris. He has a set of giant
tongs, and a long fork that looks like a spear, and a fake leather case to
carry them around in. (He also has my hair dryer, in case the coals need an
extra blast of air.)
He does not have a funny apron that says “
I'm the chef,” which is good,
because most of the time I'm the chef. No matter how good his intentions, I
do almost all the regular cooking.
Why are men the keepers of the flame? What's so primal about a hunk of
roasting meat? And why does the aroma of sizzling steak on the outdoor
grill invariably summon up ancestral memories of cavemen dragging home
a mastodon rib for dinner? Whenever I see my husband wielding that giant
fork, I think: Him, Fred! Me, Wilma!
I found the answers in “Catching Fire”, a revelatory new book by Harvard
anthropologist Richard Wrangham. His argument will turn your notion of
evolution and fire and cooking on its head. Cooking wasn't just something
we clever humans discovered once we developed our big brains. It was
cooking that made our big brains possible in the first place.
Consider our cousins, the apes. They spend an enormous amount of their
lives eating and chewing. If you're living off leaves and nuts and fruit, you
need an awful lot of it to get enough calories.
Protein is a much denser form of energy, which is the reason why meateating
gave our ancestors an evolutionary edge. Obtaining protein is also
what turned men into hunters and women into gatherers, a form of
AUR UM RE PORT S
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specialization that explains why most men are still unable to notice tiny little
details such as dust and dirty socks on the floor. (Or so they claim.)
But meat-eating alone is not the essential difference between humans and
other primates. Raw meat is awfully hard to digest. The real evolutionary
breakthrough was cooking - no doubt discovered when bits of food fell into
the fire and tasted good. Cooked food is far easier to chew and digest. It
means you don't need to spend half your life eating and chewing. Cooking
also kills bacteria and neutralizes natural toxins, making food safer.
Pre-humans who adapted to cooked foods reaped spectacular evolutionary
rewards. They had more free time. They didn't need big jaws, molars or
guts any more. By cooking their food, they freed up their energy to develop
big brains instead.
They also developed a further division of labour. The women did the
cooking, while the men used their new free time to talk politics, think big
thoughts, or just sit around and do nothing. This pattern holds true in nearly
every human culture ever known, up to and
mostly including our own - even in cultures
where women are equal in all other ways.
Richard Wrangham explains: Unlike other apes,
we store and share our food. But for that to
work, we needed a social system to protect it.
Thus the evolution of the pair bond, now known
as marriage. He describes the origins of
marriage as “
a kind of protection racket in which the woman is required to
feed a man because of the threat of having her food taken by other men.”
In his view, the fundamental bond of marriage isn't for sex and procreation.
It's cooking. In some cultures, married women are allowed to sleep with
other men. But they are never, never, never allowed to cook for another
man.
This is rather unromantic, to be sure, but it's probably not far off the mark.
All around the world, women who spend a hard day's work grinding flour
and toting water (or working the checkout counter) are still expected to
have a hot meal ready when the big lug comes home. Women have been
stuck with the second shift for at least a million years.
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In primitive cultures, there is only one occasion when men cook. They cook
on big feast days, when they can impress their friends and neighbours with
their bounty and their hunting prowess.
Prof. Wrangham doesn't say who does washing the dishes, but I think I
know.
But if women need men to protect their food supply, men need women just
as much. In traditional societies, no man can be a real man until he has a
wife to cook for him. “
There's this huge distinction in most cultures between
the status of men as bachelors or married men It's only when the man is
married that he gains status and he gains it because he can do two things:
He can go off during the day to do manly things - to hunt or raid the
neighbouring group or check on girlfriends in neighbouring camps or sit
around chatting and politicking - and still count on the evening meal. And
the second thing: When another man invites him for a meal, he can
reciprocate. And until he can reciprocate, he's not part of the community of
equals.”
In other words, your grandma was right. The real way to a man's heart is
through his stomach.
Being cultural animals, of course, we are not completely bound by
evolutionary custom. Now that cooking has become a ruthlessly
competitive business, with lucrative opportunities for fame, TV series, and
multimillion-dollar franchises, it's not surprising that the world of celebrity
chefs is almost entirely dominated by men.
And now that women bring home half the mastodon, we have plenty of
leverage to negotiate a different deal. I know lots of wives these days
whose husbands do almost all the cooking. I don't happen to be one of
them. But hey Barbecue season is here. My husband's steak is delicious.
The rest of the time, there's always Pusateri's.
By Margaret Wente
The above essay was originally published in the Globe & Mail.
Reprinted with permission, subject to editorial changes by Aurum Reports.
- end of feature -
AUR UM RE PORT S
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J
JUSSTT WHATT WASS SSAIID......
-
- PPRREESSCCI IIEENNTT MMAARRKKEETTSS’ ’’ I IINNSSI IIGGHHTTSS RREEVVI IISSI IITTEEDD - --
AURUM REPORT 3Q2007
(Special Report)
“
Cost of Common Sense: Lessons of 1987 and 1997?
Geopolitical and Cyclical Perspective”
(Publication August 13, 2007)
o
This Time Is Different
o
US Sub-Prime Blues
o
Asia’s Boom; Broken China?
o
USA: Nefarious Power
o
Emerging Markets; Still Emerging or Soon… Submerging?
o
Commodities: Down to Earth… Again?
Current Comment
Bear Market of the Generation
began in earnest in October 2007
and has lasted till…
All sectors
singled out in the Report have recorded, losses
averaging 54% from June 2007 peaks in respective indices
AURUM REPORT 4Q2007
“
Running to Stand Still”
(Publication November 3, 2007)
GECF: Global Gas Cartel In-The-Making
“Steadily and stealthily, a natural gas cartel is emerging, which will, in
due course, result in limited supply and higher prices (...)”
Price of Natural Gas
November 03, 2007.............................................................. $7.60 BTU
May 20, 2008...................................................................... $11.58 BTU
Price Gain.................................................................................. 52.3%*
* further advance to new cyclical highs
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Oil: Beginning of a New Cycle
“(...) bull market in energy is very much alive after an 18-month long
corrective phase in the price of crude and natural gas. Over the longer
term, (...) dramatically higher prices in a handful of years.”
Price of Brent Crude
November 03, 2007......................................................................$ 82/b
May 20, 2008...............................................................................$128/b
Price Gain.................................................................................. 56.0%*
* further advance to new cyclical highs
China’s Economic Schizophrenia: Un-desultory Affair
“(...) it is unprecedented in modern economic history for the world’s richest
nations to be so reliant on a developing economy for its own growth. China’s
outlook could be bright indeed, but... also much could go wrong. (...) Regardless,
cyclically, a short-term stock market bubble suggests a painful wake-up...”
(…cyklicznie, krotkoterminowa banka rynku sugeruje bolesne przebudzenie…)
Chinese Shanghai/Shenzhen 100 index
November 03, 2007.......................................................................6.124
January 20, 2009...........................................................................2.022
Price Loss .................................................................................... 67%*
AURUM REPORT 1Q2008
“
Agriculture and Water; Crisis and Opportunity”
(Publication February 5, 2008)
After Seven Biblical Fat Years...
“There are about 20-40 public companies worldwide which will likely
be chief beneficiaries of these developments...”
Companies’ data as of cumulative price base
February 5, 2008 ............................................................................$100
May 20, 2008..................................................................................$122
Average Price Gain .................................................................. 22.0%*
* further advances before succumbing to much anticipated - by us -
cyclical downturn in commodities likely to persist at least through
third quarter of 2009
AUR UM RE PORT S
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AURUM REPORT 1Q2009
“2009:
Perception & Opportunity; Onward and Upward”
(Publication January 2, 2009)
o
2009: Call Us a Super-Bull, But...
o
Price of Ignorance: Overlooking Long Trends and Cycles - Interview
With Self
o
Bonds - the Next Bubble
Facto-Comment
Stocks:
After few tumultuous weeks in January/February period, Dow
Jones 30 reached a level of ± 6.500 in early March 2009, rising to a
current level (July 1, 2009): ± 8,500, a gain of 30.7%.
Bonds:
Between January and June 2009, yield on 10-year US
Treasuries rose from 2.2% to 3.8%, a reverse - price loss of 72%.
- end of feature -
ACKNOWLEDGEMENT
The Editor acknowledges the reproduction of cyclical graphs of energy sector
provided by
Yelton Fiscal, Inc. In addition to energy sector, Yelton provides
cyclical analysis of over 50 major global markets in equities, commodities,
currencies and interest rates. Back-testing results on request. Please reply to:
.
Third Quarter 2009 ANDREW HUBERT WILLMANN
(data as of July 7, 2009)
Editor
Aurum Reports are published quarterly by Analitica-Aurum Partners, S.A.
e-mail:
[email protected].
Andrew Hubert Willmann is managing partner of
Analitica-Aurum Partners, S.A. and editor of Aurum Reports,
e-mail:
[email protected].
H
HI IINNDDSSI IIGGHHTT I IISS 2200- --2200. .. PPEERRSSPPEECCTTI IIVVEE I IISS EEVVEERRYYTTHHI IINNGG. ..
AUR UM RE PORT S
Page 26 of 26
ACKNOWLEDGMENTS
The Editor gratefully acknowledges materials and data from the following sources:
- Barron's Financial Weekly
- Bloomberg
- Marketiming
- Financial Post
- Financial Times
- Forbes
- Foreign Affairs Monthly
- The Notley Information Service
- Reuters
- The Economist
- The Globe and Mail
- The New York Times
- The Wall Street Journal
- US News and World Report
- Stockcharts
- Institutional Investor Magazine
Illustrations by Jerzy Kolacz
DISCLAIMER AND EDITORS NOTE
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and technical/cyclic analysis and the conclusion represent the opinion of the Publisher. Past
performance does not imply or guarantee profitable results in the future. Before making specific
investments, further investigation is recommended. Although the information contained in this
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