The Big Picture

---

• Are the Wars in the Middle East and North Africa Really About Oil?
• 10 Monday PM Reads
• The Unemployment Surprise
• Mrs Merkel expected to receive a warm !!! welcome in Athens tomorrow
• Our Typical, Mediocre Post Credit Crisis Recovery…
• Another European coffee talk
• 10 Monday AM Reads
• Revisiting the Greenspan Legacy (circa 2008)
• A look inside the Space Shuttle Atlantis
• China Telecom Giant Huawei A Spy?

Are the Wars in the Middle East and North Africa Really About Oil? Posted: 08 Oct 2012 10:30 PM PDT The Wars in the Middle East and North Africa Are NOT Just About Oil … They're Also About GAS The Iraq war was really about oil, according to Alan Greenspan, John McCain, George W. Bush, Sarah Palin, a high-level National Security Council officer and others. Dick Cheney made Iraqi's oil fields a national security priority before 9/11. The Sunday Herald reported: Five months before September 11, the US advocated using force against Iraq … to secure control of its oil. The Afghanistan war was planned before 9/11 (see this and this).   According to French intelligence officers, the U.S. wanted to run an oil pipeline through Afghanistan to transport Central Asian oil more easily and cheaply. And so the U.S. told the Taliban shortly before 9/11 that they would either get "a carpet of gold or a carpet of bombs", the former if they greenlighted the pipeline, the second if they didn't. See this, this and this. Congressman Ed Markey said: Well, we're in Libya because of oil. Senator Graham agreed. And the U.S. and UK overthrew the democratically-elected leader of Iran because he announced that he would nationalize the oil industry in that country. It's a War for GAS But it's about gas as much as oil … As key war architect John Bolton said last year: The critical oil and natural gas producing region that we fought so many wars to try and protect our economy from the adverse impact of losing that supply or having it available only at very high prices. For example, the pipeline which the U.S. wanted to run through Afghanistan prior to 9/11 was to transport gas as much as oil. John C.K. Daly notes: The proposed $7.6 billion, 1,040 mile-long TAPI [Turkmenistan-Afghanistan-Pakistan-India ... admittedly a mouthful, but you'll be hearing a lot about it in the coming months] natural gas pipeline has a long regional history, having first been proposed even before the Taliban captured Kabul, as in 1995 Turkmenistan and Pakistan initialed a memorandum of understanding. TAPI, with a carrying capacity of 33 billion cubic meters of Turkmen natural gas a year, was projected to run from Turkmenistan's Dauletabad gas field across Afghanistan and Pakistan and terminate at the northwestern Indian town of Fazilka. TAPI would have required the assent of the Taliban, and two years after the MoU was signed the Central Asia Gas Pipeline Ltd. consortium, led by U.S. company Unocal, flew a Taliban delegation to Unocal headquarters in Houston, where the Taliban signed off on the project. The Taliban visit to the U.S. has been confirmed by the mainstream media.  Indeed, here is a picture of the Taliban delegation visiting Unocal's Houston headquarters in 2007: U.S. companies such as Unocal (lead on the proposed pipeline) and Enron (and see this), with full U.S. government support, continued to woo the Taliban right up until 2001 in an attempt to sweet-talk them into green-lighting the pipeline. For example, two French authors with extensive experience in intelligence analysis (one of them a former French secret service agent) – claim: Until August [2001], the US government saw the Taliban regime "as a source of stability in Central Asia that would enable the construction of an oil pipeline across Central Asia" from the rich oilfields in Turkmenistan, Uzbekistan, and Kazakhstan, through Afghanistan and Pakistan, to the Indian Ocean. Until now, says the book, "the oil and gas reserves of Central Asia have been controlled by Russia. The Bush government wanted to change all that." Pepe Escobar notes: Under newly elected president George W Bush… Unocal snuck back into the game and, as early as January 2001, was cozying up to the Taliban yet again, this time supported by a star-studded governmental cast of characters, including undersecretary of state Richard Armitage, himself a former Unocal lobbyist. *** Negotiations eventually broke down because of those pesky transit fees the Taliban demanded. Beware the Empire's fury. At a Group of Eight summit meeting in Genoa in July 2001, Western diplomats indicated that the Bush administration had decided to take the Taliban down before year's end. (Pakistani diplomats in Islamabad would later confirm this to me.) The attacks of September 11, 2001 just slightly accelerated the schedule. Soon after the start of the Afghan war, Karzai became president (while Le Monde reported that Karzai was a Unocal consultant, it is possible that it was a mix-up with the Unocal consultant and neocon who got Karzai  elected, Zalmay Khalilzad).  In any event, a mere year later, a U.S.-friendly Afghani regime signed onto TAPI. India just formally signed on to Tapi. This ended the long-proposed competitor: an Iran-Pakistan-India (IPI) pipeline. Competing Pipe Dreams Virtually all of the current global geopolitical tension is based upon whose vision of the "New Silk Road" will control. But before we can understand the competing visions, we have to actually see the maps: And here are the competing pipelines backed by the U.S. and by Iran, before India sided with the U.S.: With maps in hand, we can now discuss the great geopolitical battle raging between the U.S. and its allies, on the one hand, and Russia, China and Iran, on the other hand. Iran and Pakistan are still discussing a pipeline without India, and Russia backs the proposal as well. Indeed, the "Great Game" being played right now by the world powers largely boils down to the United States and Russia fighting for control over Eurasian oil and gas resources: Russia and the USA have been in a state of competition in this region, ever since the former Soviet Union split up, and Russia is adamant on keeping the Americans out of its Central Asian backyard. Russia aims to increase European gas dominance on its resources whereas the US wants the European Union (EU) to diversify its energy supply, primarily away from Russian dominance. There are already around three major Russian pipelines that are supplying energy to Europe and Russia has planned two new pipelines. The rising power China is also getting into this Great Game: The third "big player" in this New Great Game is China, soon to be the world's biggest energy consumer, which is already importing gas from Turkmenistan via Kazakhstan and Uzbekistan to its Xinjiang province — known as the Central Asia-China Pipeline — which may tilt the balance towards Asia. Pepe Escobar calls it the opening of the 21st century Silk Road in 2009 when this pipeline became operational.  China's need for energy is projected to increase by 150 per cent which explains why it has signed probably the largest number of deals not just with the Central Asian republics but also with the heavily sanctioned Iran and even Afghanistan. China has planned around five west-east gas pipelines, within China, of which one is operational (domestically from Xinjiang to Shanghai) and others are under construction and will be connected to Central Asian gas reserves. China is also pushing for an alternative to TAPI: an Turkmenistan-Afghan-China pipeline. Iran is also a player in its own right: Another important country is Iran. Iran sits on the second largest gas reserves in the world and has over 93 billion barrels of proven oil reserves with a total of 4.17 million barrels per day in 2009. To the dislike of the United States, Iran is a very active player. The Turkmenistan-Iran gas pipeline, constructed in 1997, was the first new pipeline going out from Central Asia. Furthermore, Iran signed a $120 billion gas exploration deal, often termed the "deal of the century" with China. This gas deal signed in 2004 entails the annual export of approximately 10 million tons of Iranian liquefied natural gas (LNG) to China for 25 years. It also gives China's state oil company the right to participate in such projects as exploration and drilling for petrochemical and gas industries in Iran. Iran also plans to sell its gas to Europe through its Persian Gas pipeline which can become a rival to the US Nabucco pipeline. More importantly, it is also the key party in the proposed Iran-Pakistan (IP) pipeline, also formerly known as the "peace pipeline." Under this pipeline plan, first proposed in 1995, Iran will sell gas from its mega South Pars fields to Pakistan and India. China's support for Iran is largely explained by oil and gas: Referring to China, Escobar states "most important of all, 'isolated' Iran happens to be a supreme matter of national security for China, which has already rejected the latest Washington sanctions without a blink" and that "China may be the true winner from Washington's new sanctions, because it is likely to get its oil and gas at a lower price, as the Iranians grow ever more dependent on the China market." China has also shown interest in the construction of IP on the Pakistani side and further expanding it to China. This means that starting at Gwadar, Beijing plans to build another pipeline, crossing Balochistan and then following the Karakoram Highway northwards all the way to Xinjiang, China's Far West. China is also most likely to get the construction contract for this pipeline. As stated above, Chinese firms are part of the consortium awarded the contract for the financial consultancy for the project. Closer participation in the Asian energy projects would also help China increase its influence in the region for its objective of creating the "string of pearls" across the region — which has often scared India as an encirclement strategy by the Chinese government. Why Syria? You might ask why there is so much focus on Syria right now. Well, Syria is an integral part of the proposed 1,200km Arab Gas Pipeline: Here are some additional graphics courtesy of Adam Curry: So yes, regime change was planned against Syria (as well as Iraq, Libya, Lebanon, Somalia, Sudan and Iran) 20 years ago. And yes, attacking Syria weakens its close allies Iran and Russia … and indirectly China. But Syria's central role in the Arab gas pipeline is also a key to why it is now being targeted. Just as the Taliban was scheduled for removal after they demanded too much in return for the Unocal pipeline, Syria's Assad is being targeted because he is not a reliable "player". Specifically, Turkey, Israel and their ally the U.S. want an assured flow of gas through Syria, and don't want a Syrian regime which is not unquestionably loyal to those 3 countries to stand in the way of the pipeline … or which demands too big a cut of the profits. Pepe Escobar sums up what is driving current global geopolitics and war: What you're really talking about is what's happening on the immense energy battlefield that extends from Iran to the Pacific Ocean. It's there that the liquid war for the control of Eurasia takes place. Yep, it all comes down to black gold and "blue gold" (natural gas), hydrocarbon wealth beyond compare, and so it's time to trek back to that ever-flowing wonderland – Pipelineistan. Postscript: It's not just the Neocons who have planned this strategy. Jimmy Carter's National Security Adviser helped to map out the battle plan for Eurasian petroleum resources over a decade ago, and Obama is clearly continuing the same agenda. Some would say that the wars are also be about forcing the world into dollars and private central banking, but that's a separate story. Post to Facebook 6 6 6 6 6 6 6 6 6 Post to Twitter 1 1 1 1 1 1 1 1 1 Add to Reddit Post to Delicious 1 1 1 1 1 1 1 1 1 Post to StumbleUpon Add to Google Bookmarks Add to LinkedIn Send via Gmail Send via E-mail program Print with PrintFriendly Post to Blogger Send via Buzzster! Add to MySpace Add to NewsVine Post to Slashdot Add to Squidoo Add to Technorati Favorites Post to Digg Add to Bebo Add to Evernote Add to FriendFeed Post to Google+ Add to Plaxo Pulse

10 Monday PM Reads Posted: 08 Oct 2012 01:30 PM PDT My afternoon train reading: • Investors Appear Deaf to Earnings Alarms (WSJ) but see Trouble Not as Close as It Appears (WSJ) • FINRA: Conflict of Interest? Moi? (WSJ) • Investors' Biggest Mistake: Excessive Caution (Systematic Relative Strenth) • Kass: In Defense of Short Selling (The Street) • Earnings Growth Disappears as Spending Cuts Hit Limit (Bloomberg) see also Dividends: U.S. Continuing Descent Toward Recession (Political Calculations) • Business Hiring Calms Concerns About U.S. Fiscal Cliff (Bloomberg) • How Much Is Your Customer's Time Worth? (Kellogg Insight) • Do you identify as intelligent? (The Last Word On Nothing) • Do We Need Subsidies for Solar and Wind Power? (WSJ) • Conserve Your Willpower: It Runs Out (Wired) What are you reading?   Bullish Sign for Stocks? Leverage Is Up Source: MarketBeat

The Unemployment Surprise Posted: 08 Oct 2012 12:55 PM PDT The Unemployment Surprise By John Mauldin October 8, 2012       You Know You Were Surprised The Eat, Drink, and Get Sick Sector The Really Important Employment Numbers Portland, Chicago, Atlanta, and South America     The unemployment number surprisingly dropped to 7.8% last Friday, and the shoot-from-the-hip crowd came out in force. To say that the jobs report was met with skepticism would be a serious understatement. The response that got the most immediate airplay was ex-GE CEO Jack Welch (who knows a few things about making a number say what you want it to say) tweeting, “Unbelievable job numbers … these Chicago guys will do anything … can’t debate so change numbers.” Not be left out, Fox Business quoted Ed Butowsky of Chapwood Capital Investment: “‘No way in the world these numbers are accurate,’ he said. ‘Somebody needs to do an investigation…. Investigate these numbers.’” Such a significant drop in the unemployment rate does not seem, at least on the surface, to be consistent with the slowing economy. It certainly wasn’t what most Republicans were expecting one month prior to the elections, and the partisan reaction from my fellow Republicans was sadly predictable. So, since an investigation has been called for, this week we will do just that: we will investigate the numbers. What we will find is that the falling unemployment number was perfectly consistent with a slowing economy, if you look at the details. That seemingly contradictory conclusion gives rise to a question, gentle reader, that will take more than one paragraph to answer. It will make for some interesting reading, I think. Let me start by acknowledging that one of the most dangerous things one can do in the writing business is try to separate a man from his pet conspiracy theories. But this is one conspiracy that needs to be thoroughly debunked, as the reaction to it is an example of the coarsening of our American culture. If some bit of data does not dovetail with our favorite meme, our immediate reaction is to shoot the messenger rather than examine the facts as presented. With that proviso, let’s jump right in. You Know You Were Surprised Like anybody else who is paying attention to the current economic situation, I was surprised when the headlines said that unemployment had dropped to 7.8%. A drop of that magnitude does not seem to be historically consistent with an economy growing less than 2%, with job growth – at least as measured by the Establishment Survey – barely keeping up with population growth, or with tax receipts that were relatively flat for the last month. My immediate reaction was “Show me the data.” There was clearly going to be something interesting lurking down among the details. And there was. Before we wade into the data, though, I want to analyze the reaction. What if someone said, “The military is manipulating the data from Iraq and Afghanistan in order to help the election of the current administration,” (whether Republican or Democrat)? The appropriate response to such a statement would be to suggest that such a characterization was demeaning to the professionalism and integrity of our military professionals. I think it is doubtful that a statement like that would get much airplay or gain much credence in the public discourse. The military is a well-respected institution in the United States. Yet we seemingly dismiss quite easily the professionalism of the employees of the Bureau of Labor Statistics when their data doesn’t fit our perceptions of reality. Let’s look at what they do. First and foremost, they collect data. In regards to employment data, they do two surveys. The first is the Establishment Survey, which polls 400,000 companies about the number of employees they have, whether they are full-time and part-time, and other details (along with income data). Then there is the Household Survey, which asks 60,000 households each month how many people live in the household and who is working, again distinguishing between full-time and part-time. If the job is part-time, they try to determine whether the part-time work is voluntary or whether it is for economic reasons, such as poor business conditions or because the person could only find part-time work. If a person does not have a job, they try to determine whether they have looked for a job within the past month or the past year. The data they compile is surprisingly detailed. Want to know the unemployment rate in your city or metropolitan area? It’s likely to be found in the BLS data. The problem with conspiracy theories is that there have to be people involved. In order to manipulate data within the BLS, you would have to get a surprisingly large number of people to cooperate. The fact is that many of these people have been with the BLS for many years and started working there during many different administrations, so presumably, they have different political affiliations, making it very unlikely that everyone would have cooperated in a conspiracy to cook the books this past month. Someone would have blown the whistle. It would be a career-ending move to try to manipulate the data, not to mention that I’m sure there are many laws against such manipulation. The BLS process is rather straightforward. The data is collected and the numbers are crunched according to a very transparent formula. And then the results are published. The Establishment Survey is what is known as contributory. By that we mean that this data feeds into other statistics we use in the government and business. It is considered to be accurate data. But note that it is constantly being revised as new and better data comes in. The monthly numbers we see first are the result of a survey, and that survey is as accurate as they can make it. But then actual data comes in the form of contact reports from state authorities and other sources, and the numbers are adjusted. Only a few of us data wonks pay much attention to the revisions. The Household Survey is not, to my knowledge, contributory. The only major number we really get from it is the employment rate. As we will see in a few paragraphs, this survey is quite “noisy” from one month to the next, although over a period of about a year it conforms rather well to the Establishment Survey. The following chart, courtesy of The Big Picture, shows a rather tight correlation between the two surveys. “Separately, and almost certainly unknown to Mr. Welch, the BLS issues a technical document every month that address the trends in both surveys. That document can be found here and contains the following chart:     “Among the objectives of the monthly analysis is to produce an Adjusted Household Survey (seen above). BLS: “This [Adjusted Household Survey] is a research series created from household survey employment to be more similar in concept and definition to payroll survey employment. Household survey employment is adjusted by subtracting agriculture and related employment, nonagricultural self employed, unpaid family workers, private household workers, and workers absent without pay from their jobs, and then adding nonagricultural wage and salary multiple jobholders. The effects of population control revisions also have been smoothed out in the historical data in this series. “But you knew that, right, Jack [Welch]? The Adjusted Household Survey shows that 1.836MM jobs have been created over the past 12 months. The Payroll Survey? 1.806MM. The difference between the two over the course of a year? A paltry 30,000. While there may occasionally be wide month-to-month swings (and the Household Survey is known to be the more volatile of the two), the two series generally track fairly closely over time, which is how data should generally be observed.” (The Big Picture) In past letters, when commenting on the employment situation, I have noted that there are times when the Household Survey seriously underestimates the number of jobs, as compared to the Establishment Survey. This month the disparity is in the other direction. That is a function of the methodology of the survey. I’m sure that if BLS spent more money it could survey more households and get a more accurate picture, but I doubt it would be worth the money. In summary, the fine people at the BLS do their best to collect the data is accurately as possible and make it available as quickly as possible. The formulas by which they interpret the data are well-known. To suggest otherwise demonstrates a lack of understanding of the process and essentially defames the people involved. If you don’t like what the data says, don’t shoot the messenger. This is not a recent problem. In 2003-04 Democrats were constantly deriding the positive statistics coming out of the BLS. Dr. Austan Goolsbee, Obama’s ex-chief economic advisor, accused the government of “cooking the books” on the unemployment number in a New York Times article in late 2003 entitled “The Index of Missing Economic Indicators; The Unemployment Myth.” I actually agreed (and still do) with his analysis, just not his partisan rhetoric and conclusion, but that’s a story for another letter. (http://www.nytimes.com/2003/11/30/opinion/the-index-of-missing-economic-indicators-the-unemployment-myth.html – hat tip Bill King) Now, with that out of the way, it is totally fair game to question the basis for the interpretation of the data. The way the government derives the unemployment numbers has changed significantly over the last 30 years. No surprise, then, that whatever administration is involved, the new equations for determining unemployment result in a lower unemployment rate than they would have if the 1980s methodology were still in place. You are not counted as unemployed if you have not looked for a job for the last four weeks, by the current BLS methodology. That policy is very clear, and to my knowledge the policy was the same during the Bush administration. I find that methodology rather bizarre. There are many people who have not looked for a job in the last four weeks; but if you asked, I bet just about every one of them would consider themselves unemployed. They would take a job if they could find one. That, to me, should be the definition of unemployed. And if you use the raw data, you can come up with that number on your own. Or you can create whatever definition of unemployment you want. (There are literally hundreds of BLS data series. Want to know how Vietnam vets are doing? Hispanic women under 25? Married Asian males over 55? Unemployment just in your state or city? It’s there somewhere if you care to look. I am constantly amazed at the granularity of the data.) John Williams of ShadowStats calculates his own unemployment and CPI numbers based on the older methodology (from the early ’80s); and, no surprise, it shows unemployment to be much higher than the government says. The Gallup organization would like us to measure the payroll-to-population ratio. If you’re not disabled and you’re receiving unemployment or welfare benefits I think you should be counted as unemployed. Now we can come to the question of how we can have a drop in unemployment that is consistent with a very slowly growing economy. Bill King noted that employment taxes actually fell in September, then asked, how can 873,000 jobs have been generated, according to the Household Survey? Median Real Disposable Income is up only 0.2% annually over the past few years, against the postwar average of 2.9%. The increase in average hourly earnings hasn’t kept pace with the rate of inflation, which means that workers are losing ground. Dr. Lacy Hunt estimates that about 1.5% of GDP growth in the first quarter was from manufacturing. Manufacturing jobs have been flat for the last two quarters. For the last three years, while we were averaging between 120,000-160,000 new jobs a month that paid between $20,000-40,000, we were losing anywhere from 20,000-60,000 jobs a month that paid more than $70,000. A detailed study of job status earlier this year by the Center for Labor Market Studies at Northeastern University found that more than 53% of college graduates under 25 were underemployed last year – working in jobs unequal to their college or postgraduate attainment. All of this is to say there is a reason why we don’t feel that unemployment dropped by 6% last month: we’re not seeing a brighter jobs outlook reflected in our paychecks. The Eat, Drink, and Get Sick Sector The Establishment Survey found only 114,000 new jobs. (Philippa Dunne of the Liscio Report noted wryly, “Our old friend the eat, drink, and get sick sector (bars and restaurants plus health care) accounted for 52% of total job gains.” There were significant revisions to the prior two months, but almost all of those jobs were in government (education-related) jobs. This bump in government jobs is part of a pattern and not a conspiracy of politicians to make things look better. As noted above, the unemployment rate is taken from the volatile Household Survey. This month it shows 873,000 jobs created. 582,000 of those jobs were part-time for economic reasons. That means people wanted more work but could only get part-time jobs. 7.25% of all part-time jobs were created just last month! The BLS also gives us something called the U-6 unemployment rate, which is the total unemployed plus all marginally attached workers employed part-time for economic reasons. Right now the U6 unemployment rate is 14.7%, which is exactly where it was one month ago. The chart below is for the last year, and you can easily see that there’s been no change in the last month.     That means the entire drop in the headline unemployment rate is from the increase in part-time workers. That such significant numbers of people can only find part-time work is not a sign of a strong and growing economy. It is however completely consistent with a flat, lackluster economy. If the next 0.3% drop in the unemployment rate is again due to a gain in the number of part-time workers, I don’t think anybody will be talking about how strong the US economy is. And it makes sense, at least to me, that the number of part-timers rises in September. There is something in the American experience that says September is the time to go back to work. It comes from our public school system, which traditionally had the school year beginning in September. You can see this phenomenon when you look at the non-seasonally adjusted numbers for part-time workers. They show a big drop-off in summer and a correspondingly big increase in the fall. Look at how volatile the annual numbers have been for the last 10 years. And we can show the same thing for the last 60 years. (This is one of the reasons why we look at seasonally adjusted numbers rather than the volatile raw data.) People graduating from college, for instance, might spend the summer looking for a job, but when September rolls around they take what they can get, even if it is a part-time job.   The Really Important Employment Numbers   Look at the next few charts. What they show is the devastation from the last recession. There is a reason that people call it the Great Recession. “We’ve now regained close to half – 48% – of the jobs lost between December 2007 and February 2010 (the low in employment, eight months after the recession’s formal end). It’s still going to take about 40 months at current rates of job growth to regain all the losses, but it’s worth acknowledging the progress that’s been made. (The Liscio Report) Note that we regain all the losses only if there is not a recession in the next 40 months. If there is a recession, recovery will take even longer as we once again lose more jobs. Now, we’re back only to roughly where we were at the beginning of 2009, when Obama took office.     The labor-force participation rate is now below where it was in 1980. This statistic has been in decline for 12 years, and precipitously so since the beginning of 2008.   Even more distressing is the civilian employment-to-population ratio. While it might only take us another four years or more to get back to the number of jobs that we had in 2007, the population is growing each and every year; so it is going to take us even longer to get anywhere close to the ’07 employment-to-population ratio. Five years? Seven years? Ten years?     The unemployment rate is a function of the number of people looking for work and/or participating in the labor force. The drop of 2.5% in the participation rate masks the severity of the unemployment rate. Do we really think that, since 2007, 2.5% of the population has decided they don’t want a job? We are employing almost 5% fewer people as a percentage of our population than we were at the beginning of 2008. That means our real unemployment-to-population level is well over 12%. So we’re not even close to where we were in 1999, during the last year of the Clinton administration. And that doesn’t take into account the 50% of college graduates who are underemployed. A significant part of the problem is simply the fact that we are trying to recover from a deleveraging recession. The data suggests that such recoveries may take 10 years. For Japan it is more than 20 years, and counting. The solution, of course, is to once again grow the economy over 3% per year for a decade, as we did for the 60 years following the Great Depression and for almost the last two centuries, up till the beginning of the new millennium. This is something we have not done for 12 years, averaging much less than 2%. Analysts are now estimating that corporate earnings were down for the last quarter. Yet it is the private sector that we need to both create jobs and to generate additional income that will enable us to afford the level of government that we want. Increasing oil and gas production will help, of course, especially if we can turn natural gas into chemicals made in the US for export. But we will need whole new industries, just as computers created such growth in the ’80s and ’90s. And of course we must rein in the size of government and our deficit. But those are topics we’ll return to in another letter (and book!). Portland, Chicago, Atlanta, and South America I fly some 60-80 times a year. I have to say I was rather surprised to hear Al Gore suggest that it was perhaps the altitude of Denver that was responsible for Obama’s off night. I can remember landing in Denver and speaking two hours later and being just fine. Then again, I have flown into cities at sea level and been flat as a pancake. I don’t think it happens often, and I’m not sure of the reasons, but sometimes I am just not as sharp as usual on the podium. It happens to the best of speakers. Obama still has two debates to go. I know style counts, but I would like to think that most Americans were listening to the discussion of the issues. We’re not voting for class president. The decisions that the next president makes will affect us profoundly. I leave Wednesday morning to go to Portland to speak for Common Sense Investments, and they have invited me to stay the next day and go pheasant hunting. I will get to be with my good friend and hedge fund manager Kyle Bass, whose insights I greatly admire. The next week I will be in Chicago, once again speaking for Common Sense Investments, and then move on to Atlanta to speak at Hedge Funds Care. Then it’s home for a week before I ship off to South America at the end of the month (Sao Paulo, Montevideo, and Buenos Aires). To help do our part in creating job growth, Mauldin Economics is looking for a high-quality marketing copywriter to assist us with writing assignments related to our letters. Rather than send a resumé, I’d like to encourage experienced candidates to submit a short sample (250-500 words max) of their writing, along with their contact information.  The team will review your work and, if we are interested, we’ll contact you. Candidates should have an understanding of finance, economics, and direct marketing, and ample respect for my readers. In other words, fraudsters and hypers need not apply. You can contact us at Talent@MauldinEconomics.com. This coming weekend I really do want to get down to Houston for my 40th Rice University class reunion. It also coincides with Rice’s centennial year, so there will be lots of interesting things going on, as well as many old friends to reconnect with. I turned 63 last week, and as I was graduating from Rice, that age sounded rather ancient. Now I feel like I am just hitting my stride, albeit with a few more aches and pains in the joints than 40 years ago. It really is time to hit the send button. I had to go to Houston yesterday (Sunday), so I got started rather late on my first day of writing this letter on what was supposed to be Sunday afternoon. Oh well, the best laid plans and all that. Have a great week, and thanks for your comments and suggestions. I do read them. Your looking forward to the next 40 analyst, John Mauldin subscribers@mauldineconomics.com

Mrs Merkel expected to receive a warm !!! welcome in Athens tomorrow Posted: 08 Oct 2012 09:53 AM PDT Chinese services PMI rose to 54.3 in September, from 52 in August, according to HSBC/Markit. The official services PMI data came in at 53.7, lower than August’s 56.3. The HSBC data suggested that new orders rose at the fastest pace in 4 months, with employment rising. However, input price inflation also increased. Bloomberg reports that the services sector accounts for 43% of the Chinese economy, as opposed to 90% in the US, which the Chinese authorities want to raise to 47% by 2015, according to the Xinhua news agency; The World Bank has reduced E Asian growth to +7.2% this year ( down from +7.6% in May), from +8.3% in 2011 – still too optimistic. The IMF is likely to reduce its growth forecast at its annual meeting in Tokyo tomorrow. Reports of industrial strife at Foxconn’s plants in China. A number of businesses are thinking of relocating their operations out of China – the country is no longer the lowest cost producer. Chinese home prices are rising, albeit marginally, though for 3/4 months. However, inventory in the Tier 1 cities seem to be reducing and local governments are benefiting from increasing sales of land; Japanese auto sales in China are collapsing, following the dispute over certain islands in the South China seas. Korean manufacturers have gained materially – Hyundai’s sales rose by +9.5% Y/Y. Nissan’s sales, on the other hand, collapsed by 35% in September, as did Mazda’s; It looks as if Iran’s currency, the Rial is collapsing, with inflation soaring in the country. The sanctions are really having an impact. Cant see the Iranian economy improving, though Iran has significant forex and Gold reserves (US$70bn usable and 900 tons of gold), which will forestall an imminent collapse. The urban population, where most of the opponents to the current regime are based, are suffering, though the rural populations (supporters of the current regime) receive subsidies and are unaffected, at least for now. However, the effect of the sanctions may well stay possible military action by Israel, at least for a while; The Bundesbank has taken a swipe at the IMF, stating that the fund should not overstep its responsibility by suggesting proposals to deal with the economic challenges. I don’t think Mrs Lagarde will pay any attention;   The Euro Group finance ministers meet today. Still no solution on Greece, though Mrs Merkel is flying to Athens. Its clear that Mrs Merkel wants to help out Greece (certainly ahead of general elections in Germany in autumn next year), whilst her Finance Minister remains sceptical. I suppose Mrs Merkel does not want to explain to the Bundestag/a number within her own coalition, as to why funds provided by EZ countries needs to be restructured ie are unrecoverable. Having said that the risks continue to rise. Will Greece agree and then stick to its commitments – if you believe that, well……The opposition party (Syriza) is proposing that Greece default etc and is waiting in the wings. This situation will not hold, as the EU/Germany believe. Mrs Merkel will find it difficult, if not impossible, to provide further assistance for Greece, which they will need. Indeed, Mr Kauder, head of Mrs Merkel’s CDU has stated that there will be no Parliamentary majority for further aid to Greece. Finland and Holland will not play ball either. Going to be interesting. Still no deal on Spain either. PM Rajoy wants to wait for the impending regional elections at least and Germany wants all countries who need a bail out to be dealt at the same time, to avoid further problems with her Parliament. Mr Schaeuble stated that Spain does not need a bail out programme – really !!!!!!; Credit Suisse reports that there has been a sharp fall in Spanish Target 2 libailities in September. The ECB’s OMT seems to be having a positive impact, with material capital inflows into Spain last month – the 1st time that’s happened for a very long while. In addition, a number of funds are believed to have been buying Spanish, Italian and Portuguese debt, in particular. This is, indeed, good news if it continues; EZ sentix investor confidence index came in at -22.2 in October, better than -23.2 in September, though weaker than the -20.8, forecast by Reuters; The head of the ESM Mr Regling reports that the fund is up and running with a capacity of E200bn at present – the eventual size is expected to increase to E500bn, though likely more as the ESM leverages itself. He also talked about first loss guarantees – seems that they are looking at “guaranteeing” the return of principal of applicable EZ peripheral debt; German August industry output declined by -0.5% in August M/M (+1.2% in July), though better than the forecast of -0.6%. Y/Y, production declined by -1.2%. The current forecasts for Germany remains somewhat optimistic and further downgrades are likely. The German economy minister reported that factory orders declined by -1.3%, though exports rose by +2.4% in August, the 2nd consecutive monthly rise, well above the -0.6% decline expected. The German economy is likely to stagnate, at best, for the 2nd half of the year; A crisis between the UK, in particular, and the rest of the EU looks as if it will escalate. The British PM has threatened to veto the proposed increases. The EU is looking to increase its budget – well the price of caviar and Champagne gas gone up after all !!!. The EU is isolated given the politics in the EU. A 2 tier system is likely, with those in the Euro contributing more, whilst those outside, such as the UK, less. Given domestic politics and increasing EU scepticism in the UK, Mr Cameron cannot agree to a higher budget; The UK’s Office for Budget responsibility (“OBR”) looks as if it will advise the UK government that it will need to plug quite a large gap in public finances – some Sterling 15bn. As a result, the current austerity measures will need to be in place till 2018. Whoops – not going to go down well. (Source FT); The initiative by the Chinese telecoms equipment manufacturer, Huawei, for US authorities to review their business looks as if its backfired. The US House Committee on Intelligence stated that risks associated with Huawei and a smaller company ZTE “could undermine core US national security interests”. A definite whoops; President Hugo Chavez won the Presidential election in Venezuela – no great surprise, but he remains President for 6 more years – oh dear. However, Mr Chavez is ill and had to undertake extensive surgery recently. His opponent took only 45% of the vote. Polls prior to the elections, suggested that his opponent, Mr Capriles was neck and neck with Chavez. Whatever, the Venezuelan economy is tanking and change will happen, sooner rather than later; Outlook Gloomy day today as Asian markets turned lower on a weaker economic outlook and European markets sold off on recurring concerns with the EZ peripheral debt crisis. US markets are weaker. The Euro is weaker at US$1.2984. Gold is trading at US$1775, with oil at US$111.62, off as well, though still far too high. Negative news around. No real impetus to buy the markets. Complacency remains, with the VIX at 15.31, though nearly 100bps up from Fridays close. I just don’t believe that the current calm in the EZ will hold – yes winter is coming which suggests fewer demonstrations, but by next spring…..There are some positive aspects in the EZ it must be said – the current a/c’s of countries such as Greece and Spain are improving dramatically, though mainly due to lower demand. However, their debt positions remain unsustainable. Playing for time is the name of the game, though without some growth, this policy looks as if it is past its sell by date. However, with the major Central banks pumping liquidity into the system and ready to act further if necessary, its difficult to short. Much better to play the currencies – still don’t like the A$, Rand and Euro. Continue to watch (even more closely) the Yen. A very good friend of mine, Vicky Pryce, who was one of the chief economists for the UK government, amongst numerous other achievements, has written a book on the Greek crisis. The title is “Greekonomics The Euro crisis and why politicians don’t get it”. Vicky and I, it must be said, do not necessarily agree on Greece (we normally agree on most issues), but she makes compelling arguments to support her case. In addition, I nearly always read the views of people who differ from mine – far better in my view. Its a great read and I certainly would recommend it highly. Still in New York – will be her for another week at least. The US remains the best dirty shirt around, as Mr Gross of PIMCO puts it. Personally, I believe that the US, assuming the fiscal cliff issues are dealt with, is doing (much?) better than people think. The residential housing market remains the key. Kiron Sarkar 8th October 2012

Our Typical, Mediocre Post Credit Crisis Recovery… Posted: 08 Oct 2012 08:30 AM PDT Source: CNN Money   It is the silly political season, and while each side levels accusations at each other, neither wants to admit the simple truth: Both political parties helped to create the credit crisis (In Bailout Nation, I put it about 55/45). The Obama administration underestimated the depth of the recession, and failed to respond appropriately. Instead, he put two wholly unqualified people into senior positions: Tim Geithner, who failed upwards from the President of the NY Fed to become Treasury Secretary; And Lawrence Summers, who failed upwards, well, for most of his career. When he was Treasury Secretary, he helped pass the ruinous Commodity Futures Modernization Act of 2000, and helped to repeal Glass Steagall. Both were proteges of Robert Rubin. On the other side, of the political aisle, the Romney camp wants to blow up every negative data point into the world’s worst recovery. (Its not a typical recovery, and even by that standard its not the worst ever). What we have is a typical post-credit crisis recovery. Sub-par GDP, mediocre jobs recovery. As the monthly payroll chart at top shows, things have gotten better — just at a pace that is far less rapid than we prefer. Unless we are willing to pull out all of the stops — huge overseas tax free repatriation plus a massive Keynesian spending surge, we should expect more of the same.

Another European coffee talk Posted: 08 Oct 2012 07:56 AM PDT Ahead of another European Finance Minister coffee talk today, eyes are on the pressure the Spanish government will likely get to stop playing games on the day the Europeans are supposed to roll out their new bailout toy, the ESM. It supposedly has amazing powers of suspending reality for periods of time. Greece will be the other story as it seems they will get further leeway from their sugar daddies who will never get paid back all of what’s owed to them but for now will pretend to. German IP in Aug fell .5%, a touch better than estimates of a decline of .6%. Exports in Aug were unexpectedly higher by 2.4% m/o/m vs the estimated drop of .6%. After a vacation last week, the Shanghai index traded lower by .5% notwithstanding a rise in the HSBC private company weighted PMI services index to 54.3 from 52, a 4 month high. While the state company PMI last week fell sharply, at 53.7 is now more in line with HSBC.

10 Monday AM Reads Posted: 08 Oct 2012 07:00 AM PDT My reads to start off the week: • Investors seem more bewildered than blind to risks, trapped between paltry yields on safer assets and bets on a somewhat frothy stock market (WSJ) • Investors Funneling Cash Into ETFs at Fastest Pace In Three Years (Baron’s) see also Will Halloween come early this year? (Market Watch) • Felix: The problem with high frequency trading (Reuters) • Cheapest Chinese Stocks Since '97 Not Enough to Signal Rally (Bloomberg) • Will QE3 Cause Serious Inflation? Not With Economic Prospects So Dismal. (Slate) • Don't call it money printing, rubiks cube edition (Alphaville) • America’s duopoly of money in politics and manipulation of public opinion (The Guardian) • Debates Fail to Decide Elections Amid Myth of Kennedy-Nixon (Bloomberg) • You’re an Idiot. Statistically Speaking. (Motley Fool) • The Who’s Pete Townshend, a reluctant rock star (CBS News) What are you reading? > Silicon Valley’s Stock Funk Source: WSJ

Revisiting the Greenspan Legacy (circa 2008) Posted: 08 Oct 2012 05:30 AM PDT One-Two Punch: Who Did More Damage to the US Economy, Greenspan or Rubin?     Four years ago today, Peter Goodman of the NYT published this article about former Fed Chair Alan Greenspan, titled Taking Hard New Look at a Greenspan Legacy. After listing folks like Warren Buffett and George Soros and Felix Rohatyn who thought derivatives were far too dangerous to allow unfettered trading, one man took the other side of the deregulatory argument — Alan Greenspan: “One prominent financial figure, however, has long thought otherwise. And his views held the greatest sway in debates about the regulation and use of derivatives — exotic contracts that promised to protect investors from losses, thereby stimulating riskier practices that led to the financial crisis. For more than a decade, the former Federal Reserv Chairman Alan Greenspan has fiercely objected whenever derivatives have come under scrutiny in Congress or on Wall Street. "What we have found over the years in the marketplace is that derivatives have been an extraordinarily useful vehicle to transfer risk from those who shouldn't be taking it to those who are willing to and are capable of doing so," Mr. Greenspan told the Senate Banking Committee in 2003. "We think it would be a mistake" to more deeply regulate the contracts, he added. Today, with the world caught in an economic tempest that Mr. Greenspan recently described as "the type of wrenching financial crisis that comes along only once in a century," his faith in derivatives remains unshaken.” (emphasis added) The whole article is worth reading. It reflects the early days of the unraveling of the Maestro’s reputation, whose fall from grace accelerated as the crisis wound on. Today, it lay in ruins, where it deserves to be. Few men have wrought more economic damage in the misguided pursuit of a bad economic idea then former Fed Chief Alan Greenspan. No, as it turns out, neither Banks nor Markets can regulate themselves . . .     Source: Taking Hard New Look at a Greenspan Legacy PETER S. GOODMAN NYT October 8, 2008 http://www.nytimes.com/2008/10/09/business/economy/09greenspan.html

A look inside the Space Shuttle Atlantis Posted: 08 Oct 2012 05:00 AM PDT

China Telecom Giant Huawei A Spy? Posted: 08 Oct 2012 04:00 AM PDT Chinese telecom giant’s pursuit of building the next generation of digital networks in the U.S. prompts outcry in Washington. Steve Kroft reports. Huawei probed for security, espionage risk October 7, 2012 4:33 PM Huawei probed for security, espionage risk

You are subscribed to email updates from The Big Picture To stop receiving these emails, you may unsubscribe now.	Email delivery powered by Google
Google Inc., 20 West Kinzie, Chicago IL USA 60610

.