First among equals - China, the US and the surveillance society

It is a great source of wonderment how some of the stark government controlled economic models can rival their established advanced market counterparts in terms of economic vibrancy...and function under onerous surveillance. Or should this conventional line be turned the other way around?

Each year since 1997, the US-based Electronic Privacy Information Center and the UK-based Privacy International have undertaken what has now become the most comprehensive survey of global privacy ever published. The latest 2007 global rankings extend the survey to 47 countries (from an original 37) and, for the first time, provide an opportunity to assess trends. The intention behind this project is two-fold. First, to recognize countries in which privacy protection and respect for privacy is nurtured. This is done in the hope that others can learn from their example. Second, to identify countries in which governments and privacy regulators have failed to create a healthy privacy environment. The aim is not to humiliate the worst ranking nations, but to demonstrate that it is possible to maintain a healthy respect for privacy within a secure and fully functional democracy.

The key findings are:

- The 2007 rankings indicate an overall worsening of privacy protection across the world, reflecting an increase in surveillance and a declining performance on privacy safeguards.
- Concern over immigration and border control dominated the world agenda in 2007. Countries have moved swiftly to implement database, identity and fingerprinting systems, often without regard to the privacy implications for their own citizens.
- The 2007 rankings show an increasing trend amongst governments to archive data on the geographic, communications and financial records of all their citizens and residents. This trend leads to the conclusion that all citizens, regardless of legal status, are under suspicion.
- The lowest ranking countries in the survey continue to be Malaysia, Russia and China. The highest-ranking countries in 2007 are Greece, Romania and Canada. The worst ranking EU country is the United Kingdom, which again fell into the "black" category along with Russia and Singapore. In terms of statutory protections and privacy enforcement, the US is the worst ranking country in the democratic world (the US Patriot Act - Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism - was signed into law on 26 October, 2001). Argentina scored higher than 18 of the 27 EU countries. Australia ranks higher than Slovakia but lower than South Africa and New Zealand.
- The privacy trends have been fueled by the emergence of a profitable surveillance industry (eg 安防科技(中国)有限公司- China Security & Surveillance Technology [CSR] NYSE listed Shenzhen based company)dominated by global IT companies and the creation of numerous international treaties that frequently operate outside judicial or democratic processes.

The potential for engagement of these developments is currently limited to a marginal response. The problem for civil society – or indeed anyone wishing to challenge surveillance - is not simply the sheer magnitude of the threat, but also its complexity and diversity.

As this article is not meant to stir a rip-roaring debate on the moral direction of human rights and privacy concerns, it is nevertheless intriguing how the human spirit can still consistently prevail and triumph within these government strictures across all cultures. Economic Man or as it really cuts to the core of the theories of 18th century thinkers such as Adam Smith and David Ricardo. In "The Wealth of Nations" Smith wrote: " It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest." In modern day terms, so the phrase "there is no such thing as a free lunch" was coined.

Watched or not watched, that is probably not the question.

Gold goes mainstream at Harrods

Today the upmarket London department store Harrods will sell gold bullion and coins over the counter for the first time in its history. It will be sold at the Harrods Bank branch on the lower ground floor of the Knightsbridge store. The owner, Mohamed Fayed, has teamed up with Produits Artistiques Métaux Précieux (PAMP), the Swiss refiner, to sell gold in the store. Mehdi Bakhordar, managing director of PAMP, said: "Harrods stock our full range and are now the only location in London where investors can purchase a 12.5kg gold bar 'off the shelf'."

This is a significant event. It is signalling the precious metal has gone into the retail mainstream and will be the talk of cocktail parties. In the UK, the allure of gold does not glitter as much as the attraction of real estate. Now a recognised brand name as entered the market and reached out to a new audience.

Wealthy investors are looking for an alternative asset class to diversify away from low interest rates and falling property and stock market portfolios over the last twelve months. In January 1980, the gold price hit a record US$800. When adjusted for inflation in US terms, it should be worth over US$2,300 today. If one takes all the gold that was ever mined since the history of mankind, it will just about fill two Olympic-sized swimming pools today. Yesterday, the gold price breached US$ 1,070 an ounce, another new record.

Asia investors will wonder what all the fuss is about. Today, government leaders in Beijing are using the media to encourage citizens to invest at least 5% of their savings into precious metals. Maybe, this issue will grace a magazine cover soon. More important, this is a another sign of a market top.

Dr Sam Vaknin, narcissism, Obama and the fate of the world economy

Who is Sam Vaknin? He hails from Israel and is a world authority on the study of narcissism. He has dedicated twelve years to the study of personality disorders in general and the Narcissistic Personality Disorder (NPD) in particular. He has authored nine books on this topic including the Barnes & Noble best-seller "Malignant Self-Love: Narcissism Revisited" and has numerous awards under his belt. Although a prominent psychologist, he is adamant he is not a certified mental health professional.

He has studied Adolph Hitler, Mao Zedong, Joseph Stalin, Kim Jong-il, David Koresh and Charles Manson. He has added Barack Obama to this list.

" I must confess I was impressed by Sen Barack Obama from the first time I saw him. At first I was excited to see a black candidate. He looked youthful, spoke well, appeared to be confident – a wholesome presidential package. I was put off soon not just because of his shallowness but also because there was an air of haughtiness in his demeanor that was unsettling. His posture and his body language were louder than his empty words. Obama’s speeches are unlike any political speech we have heard in American history. Never a politician in this land had such quasi “religious” impact on so many people. The fact that Obama is a total incognito with zero accomplishment makes this inexplicable infatuation alarming. Obama is not an ordinary man. He is not a genius. In fact he is quite ignorant on most important subjects. Barack Obama is a narcissist...
...All these men had a tremendous influence over their fanciers. They created a personality cult around themselves and with their blazing speeches elevated their admirers, filled their hearts with enthusiasm and instilled in their minds a new zest for life. They gave them hope. They promised them the moon, but alas, invariably they brought them to their doom. Charmed by the charisma of the pathological narcissist, people cheerfully do his bidding and delight to be at his service. He creates a cult of personality – focused on one thing alone and that is power..."

On Obama's autobiography...
" Obama’s election as the first black president of the Harvard Law Review led to a contract and advance to write a book about race relations. The University of Chicago Law School provided him a lot longer than expected and at the end it evolved into, guess what? His own autobiography! Instead of writing a scholarly paper focusing on race relations, for which he had been paid, Obama could not resist writing about his most sublime self. He entitled the book Dreams from My Father. Not surprisingly, Adolph Hitler also wrote his own autobiography when he was still nobody. So did Stalin. For a pathological narcissist no subject is as important as his own self. Why would he waste his precious time and genius writing about insignificant things when he can write about such an august being as himself? Narcissists are often callous and even ruthless as the norm, they lack conscience. This is evident from Obama’s lack of interest in his own brother who lives on only one dollar per month. A man who lives in luxury, who takes a private jet to vacation in Hawaii, and who has raised nearly half a billion dollars for his campaign (something unprecedented in history) has no interest in the plight of his own brother. Why? Because, his brother cannot be used to increase his power. A narcissist cares for no one but himself. […] What can be more dangerous than having a man bereft of conscience, a serial liar, holding an office of great power?

Many politicians are narcissists. They pose the usual threats to others. […] They are simply self serving and selfish and are prone to passing ill-advised laws.
Obama evidences symptoms of pathological narcissism, which is different from the run-of-the-mill narcissism of a Richard Nixon or a Bill Clinton for example. History shows plenty of evidence that pathological narcissists can be dangerous. "

Is Dr Vaknin being alarmist? Let us look at a sample of recent events that lend to or detract from his prognosis. Obama flew to Copenhagen on Airforce One to pitch for Chicago as a serious 2016 Olympic venue contender (and subsequently failed); summonsed General McChrystal, the top US commander in charge of Afghanistan away from a London meeting to an update on the tarmac before leaving Copenhagen; was awarded the 2009 Nobel Peace Prize (from 205 nominees) a week later on 9 October which he accepted humbly.

A fragile world economy which is tentatively stepping back from the abyss must learn to build trust in the policies from the "man of the moment" who must surely be a strong contender for Time's Person of the Year. Continue to watch Obamanomics with signature healthcare reforms legislation currently being debated in Congress; cap & trade plus new VAT (value added tax) proposals are now on the table as revenue raising measures. These are potentially added costs for the US consumer...and Asia export trade risks. Meanwhile world financial markets continue to cheerlead "green- shoots" countenancing no U-turns.

http://samvak.tripod.com/cv.html
http://samvak.tripod.com/obama.html

Official...this is what leaning over the US financial abyss looks like. Take a peek...

The word "trillion" used to be the preserve of an elite group of physicists working on the Large Hadron Collider (atom smasher) project at CERN in Swizerland. Even the hallowed bods at NASA did not need to cope with this number. Its mission frontier, Mars, was a mere 55 - 401 million km from Earth depending on where these planets were in their orbit around the sun. It's 2008 budget was earmarked for only US$17.3 billion. A billion we can visually relate to - one thousand million; the sum a Columbian Medellin drug lord can be worth if he is lucky enough to evade the US DEA (Drug Enforcement Agency).

The world was formally introduced (some would say saturation-bombed) to the "trillion" in October 2008. That was after Fannie Mae, Freddie Mac, Lehman Brothers and AIG collapsed in quick succession and new soundbites were quickly required for the US news networks after editorial staff found it too "lengthy" to utter the "thousands of billions" when tallying up the total losses and bailouts.

First, to understand the severity of this financial debacle, one can take a peek at the graphic below. It gives a perspective of the financial problems confronting the US today, measured in comprehensible billions. In proportion, the bigger the square the bigger the number.






A little known report from the goverment's Office of the Comptroller of Currency (OCC) is published each quarter on the total value of derivatives. This little needle in the digital haystack highlights:
- a US$ 203 trillion notional (face-value) derivatives' position in the US banking system. 97% of this is held by five US banks (JP Morgan Chase, Goldman Sachs, Bank of America, Citibank and Wells Fargo). HSBC North Americas is ranked number 6.
- Net Current Credit Exposure(NCCE) is US$555bn; this is the net amount owed to banks if all contracts were immediately liquidated today.
- Potential future exposure (PFE) is US$ 670bn; an estimate of what the current credit exposure (CCE) could be over time, based upon a supervisory formula in the agencies’ risk-based capital rules.
- Total Credit Exposure (TCE) of US$1.2tn (1,225 bn); the sum of NCCE and PFE.
Wasn't it in March that HSBC alerted worldwide markets to its £12.5bn (US$20bn) rights issue? Can the HSBC boardroom sleep soundly with US$3 trillion derivatives' on its books? Using a TCE/Notional-Value risk ratio of 0.62% calculated from the above figures, HSBC's exposure is approximately US$19.5bn, assumimg conditions do not worsen. Just blaming it on unpopular sub-prime mortgages is not the whole story.


http://www.occ.treas.gov/ftp/release/2009-114a.pdf


The OCC report does not get coverage in the major US news networks. GE owns CNBC and NBC. Time-Warner owns CNN. Disney owns ABC. Westinghouse owns CBS. News Corporation owns Fox Networks. It's in everyone's interests to both manage the news and the share price.

US media ownership list dated 2003 and still relevant:
http://la.indymedia.org/news/2003/04/47530.php


What follows below is an interview with Janet Tavakoli, one of the foremost experts on structured finance with over twenty years Wall Street experience. She has written a book "Dear Mr. Buffett: What An Investor Learns 1,269 Miles From Wall Street". She states the derivatives mess is not over and the meltdown risk is now even higher than in 2007. That was not a typo.





Imagine what NASA would do with a trillion dollars? We really could be on another planet. For HSBC stock earthlings...how they exit North America will be just as critical as beaming their Scotty CEO up to Hong Kong.

Gold price sets new record...but not in euro, rupee, yen yet

The gold price touched a new record high over US$1,045 today on the American commodity metals exchange (COMEX).

This was sparked off by news from the UK based Independent newspaper the Gulf Arab oil exporting nations were secretly planning with Russia, China, Japan and France to set crude oil pricing in a basket of currencies instead of the US$. This basket would include the euro, yen, yuan and gold. If the story is verified, this is a signal the US$ a worldwide reserve currency is on the brink of a permanent decline. China has already hinted in recent months to diversify away from buying US Treasuries.

This headline-grabbing gold rally must be viewed with caution. If one believes in purchasing- power-parity theory eg. the price of gold per ounce should be the same in all countries (after adjusting for exchange rates) otherwise, arbitrage will happen ie. a person buys the gold in the cheaper country and sells this at a higher price elsewhere. On this basis, the price of gold should have reached a record high too in the local currencies of other countries.

However, the charts below indicate this did not happen. Something is amiss. While gold is up in US$ and close to its highs in rupees (India is an active gold purchaser due to jewellry demand), prices are still about 10% down from their highs in both euro and yen currencies. This indicates the strength comes from a relatively weaker US$ instead of a spike in real demand. Further, it also suggests speculation in the COMEX futures markets (which trades in US$) is at very high levels and this excess can be pricked at anytime (witness crude oil's spectacular fall in summer of 2008 from record US$147 / barrel).

Gold's breakout will only prove sustainable and convincing if all these countries trigger new pricing highs in their respective currencies. That time is not far off...but it is not this week.

This US bank failure just triggered another huge shockwave to the fragile banking system

The torpedoed US banking system remains in intensive care with life-support from the Federal Reserve keeping it just out of danger, but recovery still remains elusive and a long way off.

For a while now, the government through the Federal Deposit Insurance Corporation (FDIC) has maintained a list of "problem" institutions to assess the extent of the risks in the banking system. The FDIC is the banking regulator that insures customer deposits, helps find buyers for failing banks and liquidates collapsed banks. It insures 8,195 institutions with assets of US$13 trillion and collects insurance premiums from every licensed bank to protect customers' deposits up to US$250k in the event a bank fails. It gets no funding from the government. Banks pay premiums to the FDIC determined by the number of customer deposit accounts they service.

On June 30, 416 banks with assets of US$299bn (compared with 90 at end of March 2008 with assets of US$26bn) were on the problem list. These have failed the FDIC's criteria for asset quality, liquidity and earnings. Up to the week ended 2 October, 95 banks have failed in 2009.

Last week, an alarm bell went off. Georgia Bank, Atlanta's second largest bank with assets of US$2bn collapsed. It was not on the list.

This has sent another huge tremor to the banking system and three key questions emerge from this episode:
- there must be a serious flaw with the FDIC methodology...why and how were Georgia Bank's assets so radioactive their value evaporated rapidly escaping FDIC scrutiny
- with mark-to-market accounting suspended since April, no transparency exists with determining the fair value of bank assets and is this the proof regulators have now lost their grip with understanding any bank balance sheets
- just how stressful were the government's fanfare "stress tests" for the big banks completed in May given the complexity of their assets

With a another strong typhoon brewing off the coast, just because one can feel the first effects of the wind and cannot see it, so this is no reason to disregard the intensity of the typhoon when it makes that landfall.

Today, the FDIC is technically bankrupt as it's DIF [Deposit Insurance Fund] balance has fallen from US$52.8bn in March 2008 to negative. It has proposed to borrow forward three years' deposit insurance from its member banks to raise US$45bn. Another massive potential hit to the banks' earnings! Alternatively, there is a credit line from the Treasury for US$100bn approved by Congress in May which it can tap as a last resort. This will leave the poor taxpayer on the hook again with another bailout.

The rise of the China military machine and the intra-Asia trade opportunity

Today marks the 60th birthday of the People's Republic of China. The 60 year cycle which has been documented since the time of the Shang Dynasty (17th - 11th century BC) is constructed from two cycles: the 10 heavenly stems (the five elements fire, earth, metal, water and wood) and the twelve earthly branches, or the 12-year cycle of animals referred to as the Chinese zodiac. Achieving 60 is to reach the age of wisdom having experienced every cycle.

In 1949, Chairman Mao stood at the Gates of Heavenly Peace and delivered a rousing speech to usher in a new era. Rag-a-tag columns of the PLA (People's Liberation Army) marched past with an assortment of bedraggled uniforms and tunics, pride undented, after crushing the Nationalists in a civil war who were forced to retreat to the island of Formosa (modern Taiwan). Only four years earlier, they were brothers-in-arms in the struggle to repel the mighty Japanese army.

Today, a Mao suited President Hu Jintao declared: "A socialist China that faces the future and the world is standing tall and firm in the East." It was an extravagant showcase that started with a miltary inspection and ended in the evening with more fireworks displays than the opening ceremony of the 2008 Olympics itself. The last such parades were in 1999 and 1984.



The modern PLA is 2.3 million strong. The National People's Congress set a 2009 military budget of Y480.7bn (US$70bn), an annual increase of 14.9%. The figure in 1978 was Y16.8bn (US$2bn). Beijing adds its military expenditure accounted for 1.4% of GDP which is lower than the US' 4.6%, Britain's 3% and India's 2.5%

The Chinese take their weapons "stuff" as seriously as Russia and North Korea. In contrast, Independence Day in Washington tends to be entertaining with marching bands and servicemen; the French roll out a few tanks and cavalry plus their Foreign Legion on Bastille Day; the British don't bother holding anything because it's been over a thousand years since they were last invaded, so they deploy the Household Cavalry parade for the Queen's birthday instead; such is the confidence these countries have in their standing on the world stage. Germany and Japan are too embarrassed to put on such shows.

The PLA showed off its DF-31A mobile nuclear intercontinental missile with a range of 11,000km capable of striking any big NATO city. Mid-air refuelling tankers and fighter jets conducted a fly-by. China has recently began projecting its power with a blue-water fleet which patrolled the Red Sea last year to defend vital sea lanes against pirates. Plans are afoot to build the first aircraft carrier.

The 21st century for Asian nations pivots around better defining porous land borders, containing separatism, securing raw resources and mutually defending critical supply routes like the Gulf of Aden, Straits of Hormuz and Straits of Malacca from piracy and terrorism. Neighbourly spats are becoming increasingly common in the South China Sea. China has already tangled and flexed its muscles with Vietnam, Malaysia and the Philippines over disputed areas with potential oil and gas deposits. It has embroiled itself with US and Japanese vessels in defining its sea borders. Another flashpoint is Tawang, the most militarised Buddhist enclave in the world that is on the Tibet-India border which remains a sensitive issue with India. “The India-China frontier has become more ‘hot’ than the India-Pakistan border,” said Brahma Chellaney, a professor of strategic studies at the Center for Policy Research, a research organization in New Delhi. He has advised the Indian government’s National Security Council.

India-China border

With the export trade to the US and Europe severely curtailed, the opportunity is there to seize the intra-Asia trade especially with rising middle-class populations in China and India, to absorb some of the excess capacity. India-China trade in 2008 totalled US$52bn. A 2008 pre-credit crisis report from the indepedent UK-based Drewry maritime consultants put the the intra-Asia trade as worth 28.3 million teu (20 foot containers equivalent units) in 2007 and forecast to reach 50.7 million teu by 2013. In 2010, UPS will open its dedicated intra-Asia air hub at Shenzhen International airport. Sabre-rattling and historic suspicions aside...the markets of China, Hong Kong, Japan, Korea and Taiwan currently account for more than half of UPS’s total intra-Asia volume. Just how delicate will China's "peaceful rise" be?