Nick Rost van Tonningen ~ Gleanings II ~ 510 Posted by John on May 3, 2013

Nick Rost van Tonningen ~ Gleanings II ~ 510

Quote of the week : “(Fed) officials are frustrated that their monetary policy is being forced to play a role that most economists and Fed officials say could be more easily and effectively performed by fiscal policy” – Binyamin Appelbaum in an April 29^th NYT article entitled As jobs lag Fed is viewed as unlikely to do more (while not an entirely novel complaint, never in modern history have monetary policy makers been made to do so much, & fiscal policy makers done so little).

The CBC, Canada’s government-owned national broadcaster, recently ran a TV program entitled The Monarchs of Money. While it portrayed central bankers as the ’Masters of the Universe’  the above quote suggests, likely more correctly, that they too are part of the flotsam & jetsam on today’s ocean of Western political torpitude. And while it accuses them of having “declared war on savers”’, it can be argued with equal, if not more, justification they are just the fall guys & it’s the do-nothing politicians who are the real culprits. But it makes some interesting observations along the way. It compares the financial markets’ addiction to cheap money to that to crack cocaine. It says ‘the entire world is now in a bubble’. It suggests ‘moving very quickly when this turns’ (fool’s paradise advice; for there won’t be enough exits). It shows Mark Carney as saying “I am not sure we are having a party right now” (true for the hoi polloi, but not for overpaid bankers & their ilk). It raises the issue the US$250 per capita the Fed is spending each month on QE would have had a far greater pump-priming effect if distributed directly to Americans (rather than indirectly through  financial institutions). And it ends with an exhortation to “Trust Us”, the parting shot of a con artist.

Fareed Zakaria made an interesting point last Sunday : much has been made by vested interests of the past decade’s drop in the global poverty rate. But take China out & little has changed; for the countries with the highest poverty rates also tend to have the highest birth rates. He also noted something many Americans don’t know : over half the US$100 bills in existence are in circulation outside North America (many of themy as the proceeds, or in pursuit, of illegal activities?).

The Chinese media are starting to portray the current situation in the gold market as a contest between “Wall Street & middle-aged Chinese ladies”, while this ‘sells well’ with, & ‘strokes the feathers of, their domestic audience, it conveniently overlooks the role played by ‘middle-aged Indian ladies’, the central banks, first & foremost their own, and retail investors everywhere. Still, there is increasingly so an element of truth in such portrayal (& it predicts the outcome since, unless they can be panicked, the “ladies “ are “keepers”, & Wall Streeters “traders”. And while on the subject of China, their growing shortage of migrant labourers has driven their average wage up 12.1% YoY. And it came as an unpleasant surprise this year when many didn’t return from their annual trip home for New Year’s. Two factors are at work. Working conditions are such as to convince growing numbers of migrant workers it just ain’t worth it. And this has been reinforced by the growing employment opportunities closer to home as Beijing’s spread-the-wealth policies are starting to bear fruit & as the cost of labour in the traditional Eastern industrialized zone has risen so much that companies have started to shift their operations to hitherto underdeveloped areas where wage levels are still much lower (in other words, rather than having workers come to where the work is, they have started taking the work to where the workers are).

In February the S&P/Schiller Index of Property Values in 20 US cities was up 9.3% YoY (largely due to a lack of supply); so it was not surprising that in March the Conference Board’s Consumer Confidence Index was up 6.2 points to 68.1 while a small decline had been expected. On the other hand, the Census Bureau reported home ownership in the First Quarter hit 65%, an 18-year low, and construction spending, after rising 1.5% MoM in February, declined by 1.7% MoM in March (well below the forecast a 0.7% increase) – this was largely due to a 4.1% plunge in public sector spending (due to sequestration?).  And in the car market, while Ford sales were up 18%, and GM’s  & Chrysler’s 11% each, total new car sales, at their 14.9MM annualized rate, fell well short of the expected 15.2MM (which suggests the forecasters had been way, way optimistic).

A McKinsey study of various scenarios of continued sluggish US economic growth found that its relative advantage over China in defense spending would decline from 5.4x in 2011 to between 3.2x & 1.6x by 2022. And a Rand Corp. review of US-China naval rivalry noted that US carriers are  vulnerable & that the US should depend more on subs, drones & smaller ‘strike platforms’ (while China, in a seeming “pecker-stretching exercise”, wants to build more, & bigger, carriers).

Apple has been criticized for “sitting on” US$145BN cash. So with its share price sagging it announced on April 23^rd a more than doubling, to US$100BN, of its “shareholder capital return plan” by increasing its dividend, & its share buyback program. But it has a problem; for only about US$45BN of the US$145BN is readily available to it in the US (it would have to pay 26% tax if it brought it home). So it must now find US$60+BN in usable cash to fund this plan. The effort to do so started this week when it came to the market with a US$17BN, six-tranche bond offering with varying maturities, the biggest-ever non-bank corporate bond deal, most of it at attractive fixed rate terms, but incl. one 30-year tranche that risk-averse investors ought to avoid like the plague (but likely won’t) – this will increase the leverage in its balance sheet & leave it less well able to deal with any future misfortunes such as are more common in its industry than in, say, the utilities sector.

Earlier this week a five year-old boy in Kentucky accidentally shot his 2 year-old sister in the head, killing her. That’s not news; for it happens regularly when irresponsible parents leave guns & ammo where kids can find it. But what was unusual was the weapon he used, a 22-calibre “Cricket” that he had received as a birthday gift a year earlier. This is a type of gun of gun manufactured by  Milton, Penn.-based Keystone Sporting Arms especially for, & targeting, the ‘child market’. It started operations about two decades ago with four employees & today has 70, and at last report was selling these weapons at a 60,000 annual clip. And the local coroner seemed to sluff the event off with “Accidents happen with guns. They thought the gun was … unloaded, and it wasn’t.” 

Last week Rita MacNeil, an icon of Canadian country & folk music, died at age 68. Her cause of death was given as  “complications following surgery”. But her family claims it was an infection she picked up in hospital that killed her. The hospital authorities deny this but claim they cannot release details for privacy law reasons, which, along with the fact no autopsy was conducted, undermines their credibility. One must wonder about the common sense of applying privacy laws to dead people (which in this case presumably could have been overridden with the family’s consent, as likely would have been forthcoming – hospital-acquired, & often drug-resistant, infections are the scourge of North American hospitals. They are becoming places to get sick, not better, as each year hospital-sourced infections are said to kill 250,000 people in the US & 12,000 in Canada. 

The two people alleged to have plotted the derailment of a New York-Toronto passenger train on the Canadian side of the border were an odd couple (their arrest apparently ignored a US request for a delay to give its security people time to look for possible co-conspirators on their side of the border). One was a biotech Ph.D. candidate, in Canada only three or so years on a student visa, & a citizen of Tunisia, a country that has produced few, if any, terrorists. But the other was a horse of a different colour. Of Palestinian descent, his family came to Canada in 1993 from Germany on false passports to claim refugee status when he was a teenager. Their refugee claims were rejected in 1998 but, while they were allowed to stay since they were stateless, he was ordered deported because of his, mostly petty-, criminal record. But it took the authorities six years to find & apprehend him, only then to see him released on $3,000 bail & subsequently acquire permanent resident status – his argument is he is stateless & has no country he can be deported to (although the Wall Street Journal claims he had traveled several times to the UAE on a Jordanian passport). In such cases the country of first residence after leaving one‘s country of origin, in this case Germany, is supposed to be responsible for those no longer deemed desirable in the country they went to next. Anyway, the Palestinians gaining UN nationhood status in September 2011 ought to solve his stateless status (in an ironically reverse application of the “right-of-return’?).

Interestingly enough, the two were “fingered” by someone in the Muslim community. This is said to be the outcome of years of effort by the RCMP to build trust among its members (many of whom came from countries in which the police often is ‘the enemy’). And pursuant to that policy, on April 22^nd the Mounties invited 20 or so Muslim community leaders, liberals as well as conservatives, to their Toronto headquarters to thank them for having helped to create an atmosphere in which their followers felt justified sharing their suspicions with the authorities.

Prime Minister Harper told a news conference on April 25^th there’s nothing wrong, & it’s well within the rules of the House of Commons, for his party to use taxpayers’ money to pay for an ‘attack ad’-style, bulk-mail campaign against newly-elected Liberal Party leader Justin Trudeau (which stresses his “lack of experience”, this coming from someone who never held a real job in his life) – taxpayers may see things differently &, if this is really ‘well within the rules of the House, it may be time those rules were changed – the Harper government is increasingly becoming a “L’état c’est Moi”-type of an affair (a la the ‘Sun King”, Louis XIV’s belief that he & the state were one & the same).

The chickens could be about to come to roost from Mr. Harper’s mindlessly blind support for the Jewish state, with Foreign Minister John Baird’s recent unwarranted visit to Justice Minister Tsipi Livni in her East Jerusalem office possibly being the drop that made the pail run over. For Canada has since 1947 been host in Montreal to ICAO, the UN Specialized Agency administering the global aviation industry. But Qatar (with whom John Baird supposedly just settled a nasty squabble over landing rights at Toronto’s Lester B. Pearson International Airport) wants it relocated to the Middle East & is campaigning hard to have such a move approved at an international meeting next fall.  

Sic transit gloria! Forever & a day Ontario was the pearl in the Canadian economy’s oyster shell. But no more : last year was the tenth year in succession that its economic growth rate was below the national average. But its political leaders sadly ignored the writing on the wall; so now it has become in fiscal terms, even more sadly but totally predictably, like California in the US & like the figure in Nebuchadnezzar’s dream  that had a head of gold, a breast & arms of silver, a belly & thighs of bronze, legs of iron but feet of iron & clay (Daniel 2 :31)    

On April 23^rd eight Chinese marine surveillance vessels entered the 12-mile territorial zone of the Diaoyu/Senkaku islands, while as many as 40 Chinese planes, most of them jet fighters, flew around outside its air space. Meanwhile in another territorial dispute, with the Phillippines, Foreign Ministry spokesman Hua Chunying trotted out what Beijing thinks is an argument based on international law that concludes the Philippines’ request for international arbitration to settle its territorial dispute with China is “manifestly unfounded”. And finally, in a third territorial dispute, with Vietnam over the Paracel Islands, Beijing upped the ante by having a ship sail there on April 28^th to take tourists to visit them – wonder why Beijng didn’t make it “Four of a Kind” by including some provocative action in the Spratly Islands (off the North Borneo coast). Sooner or later, Washington will have to ‘get the finger out’ & act on its pivot strategy, or disastrously “lose face”. But , if & when it does, China would see itself doing so (which could have unpredictable consequences).

In March household spending in Japan was up 5.2% YoY, a nine-year high & almost triple the 1.8% expected, suggesting that, at least in the short run, Abenomics are working.

Australia will start investing 5% of its FX reserves in Chinese bonds after earlier agreeing with Beijing to conduct their trade in their own currencies – while politically & economically common sensical, given China’s importance as a market for its (resource) exports, it nevertheless constitutes another (minor) nail in the coffin of the reserve currency role of the US dollar, & another (small) step in advancing Beijing’s plans for a yuan-based Asian currency trading bloc.

The Swiss National Bank, in its First Quarter report showed that it had increased the equity portion of the country’s FX reserves from 12% to 15% (i.e. from SF52BN to SF67BN) & that it still held SF78BN in short-term paper that could be invested in more equities.

Slovenia came one step closer to being Europe’s next bailout candidate when it had to “delay” a planned bond issue after Moody’s cut its rating two notches to Baa2, i.e. to ‘junk’ status (for some inexplicable reason both S&P and Fitch still have A- ratings on it).

As of April 27^th, after more than two months of political dilly-dallying, Italy got a real-, rather than  “caretaker”-, government. It’s a “Grand Coalition” of the centre-left Democratic Party [that is providing the Prime Minister, Enrico Letta, who, however, is not (yet?) officially its leader], the right-of-centre  People of Freedom Party of Sylvio Berlusconi & the centrist Civic Choice group of former technocrat Prime Minister Mario Monti (thereby leaving Beppo Grillo’s 5-Star movement, which has most seats in the Lower House, out in the cold, albeit by his own choice). So far it survived  votes of confidence/non-confidence in both Houses of Parliament on April 29^th & 30^th. The new Prime Minister has pledged to reverse austerity, and focus on jobs & growth, was scheduled to meet with the Eurozone’s Austerity Czar, Chancellor Merkel on the 30^th, & has vowed reforms that will bring results in 18 months or “take the consequences” (as he is almost 100% guaranteed to have to do).

Elsewhere Germany’s Finance Minister, Walter Schaeble, proposed a “Spanish Investment Plan”, a bilateral program under which Germany will channel investment money  into job-creating private sector projects (much of it to be directed at small business) in Spain. According to him, this could be a ‘model for other countries’. After this became public knowledge, Chancellor Merkel was quoted as saying “You have to react to economic developments … We’re not stupid.” – whether successful or not, its most significant aspect is that it seeks to bypass the EC bureaucracy.

Fifteen parties (vs. seven in the last one) competed in Iceland’s April 27^th election for seats in its unicameral 63-seat parliament. It sent the left-of-centre coalition that had run the country for the last four years packing & handed the reins of power back to the two centre-right parties that presided over the creation of the mess the country found itself in a few years ago (one down-to-earth tourist guide comment was “people have short memories”). Since both are of a Euro-sceptic bent, Iceland’s application for EU membership will thus likely be put in limbo, if not out & out hidden in the closet. Another interesting aspect was that the smallest of the six parties to get seats (three, with 5.1% of the vote) was the Pirate Party which advocates civil rights, transparency, privacy, freedom of expression & direct democracy (with one of the three seats held by a Wikileaks volunteer). 

Europe is turning trash, even dangerous trash, into a valuable commodity. For it is burning it to heat homes. It has a problem : its waste incinerating plants have the capacity to burn 700MM tonnes of the stuff (& more such plants are under construction) but Europeans generate only a fraction of that amount. So it may have to start importing the stuff – in Oslo, where about half the city is heated thusly, a plant near its new Opera House is said to be its architectural equal, if not superior.

New York City has a population of 8MM & a “footprint” of 784 sq.kms. (& Manhattan a population of 1.6MM & a 50 sq. kms. footprint), whereas Edmonton, with a population one-tenth that of New York, has a footprint of 684 sq. kms., i.e 87% of New York’s. This “urban spawl” is costly; across North America the number is remarkable similar : for every $100 in incremental tax revenue a suburban development generates for a city’s coffers, it costs it $135, more or less, to provide the necessary municipal services. No businessmen in his right mind would for a moment entertain such an insane business model; but this is tax-funded public-, not bottom line-driven private-, enterprise. All this urban sprawl is developer-driven & involves the subsidization by home owners in older areas of those in the ‘burbs’, & a transfer of wealth from taxpayers’ into developers’ pockets. Small wonder that in Calgary, where there has been talk at the city council level to encourage “infilling’ at the expense of horizontal expansion, one developer was caught bragging to a group of confreres in a surreptitiously-made video that he had raised one hundred thousand dollars each from ten other developers for a $1.1MM war chest to defeat, in next fall’s municipal elections, sitting and/or aspiring councillors with the audacity to propose to rob them of their “rice bowl”.

Suburban development blossomed in the post-WW II era. But times have changed. Then cars were the be-all-and-end-all, gasoline cheap & the population young, and houses were built mainly by small developers who always used the same subcontractors, with everyone doing quality work & using quality materials, and making a decent living. But today cars don’t have the same status they once did, gasoline is expensive & the population aging (& often less interested in having a lawn to cut in summer or snow to shovel in winter), and large developers use contractors who bid low, use the cheapest possible materials & cut corners wherever they can. And although racial profiling is politically incorrect, it seems that the lion’s share of home owners in these new, badly-built, a million-miles-from-nowhere suburbs are new Canadians so overwhelmed by the trees of the good life that they cannot see the forest is changing profoundly (I travel a lot on public transport & have also noticed a disproportionate share of those in subway stations using elevators, not stairs, & electric door openers, rather than opening doors manually, are new Canadians, often young ones).             

GLEANINGS II – 510

Thursday May 2^nd, 2013

EVERYTHING IS RIGGED (Rolling Stone, Matt Taibbi)

-In the LIBOR scandal a dozen plus “too-big-to-fail” banks colluded to manipulate the benchmark underlying the pricing of  the US$500+TR derivatives market. Some banks paid huge fines (Barclays US$450MM, the UK government-controlled Royal Bank of Scotland US$615MM & UBS US$1.5BN, but no one went to jail & the money went into government, not the victims’-, pockets. It now has an evil twin. For London-based, LSE-listed ICAP plc, the world’s largest broker of interest rate swaps, is being investigated as to whether its brokers may have been in cahoots with the same ‘too-big-to-fail’ banks to manipulate the ISDAfix rate, the pricing benchmark for the US$379TR  interest rate swap market. If so, it would be a case of manipulation-on-manipulation, since the LIBOR rate also affects the pricing of interest rate swaps (sort of first conspiring to fix the price of peanuts & then of  peanut butter). And two regulators, the CFTC (Commodity Futures Trading Commission) in the US & the Madrid-based IOSc (International Organization of Securities Commissions) are looking into the possible manipulation of gold- & silver-, markets, on the grounds that, if some  markets are proven rigged, others may be rigged as well.

-Meanwhile in a US a landmark class action suit charges against the banks for LIBOR rigging was dismissed when the judge bought the banks’ argument that losing money was the investors’ own fault for believing the banks were in competition with each other : ”it (i.e. fixing the LIBOR rate) was a cooperative venture … never meant to be competitive.” And prior to that US Attorney-General Eric Holder had argued it’s dangerous to prosecute offending banks; for they’re so big making arrests could lead to “collateral consequences” for the economy, and his former Assistant Attorney-General, & Head of its Criminal Division, Larry Breuer that “our goal here is not to destroy a major financial institution.”

This sanctions, if not outright encourages, “moral hazard”. And it misunderstands the role of individuals in institutions; personnel turnover is a fact of life, even at the highest levels, with usually little effect on them. Sending the odd senior banker to jail would enhance, not erode, confidence in the system (Matt Taibbi has for some time been spotlighting the dark recesses of the banking system & come up with stuff the industry would have preferred leaving “sub rosa”.  

THERE WILL BE HAIRCUTS (PIMCO Investment Outlook, William H. Gross)

-In recent decades the definition of money has expanded to include other asset classes that are readily converted into cash, incl., during the housing bubble, homes that became ATMs in all but name (but now have returned to being just places to live). But the government debt part of the credit expansion cannot ever be reduced as a % of GDP other than by what has become known as “Haircuts”, which will come in one of more of the following forms : 

-Negative interest rates (“Trimming the bangs”) – they merely deprive savers of the ability to keep up with the increased cost of living;

-Inflation/currency devaluation (“the Don Draper” – neatly all around; named after the fictional character in the TV series “Mad Men) – examples thereof are  the Weimar Republic experience in Germany in the 20’s & modern day Zimbabwe (where the local currency was so completely  destroyed it now uses the US dollar);

-Capital controls (“the Uncle Sam cut” – i.e. a neatly trimmed beard) – as countries act to keep money out (Brazil) or in (Cyprus) – here he reminds readers of the April 5^th, 1933 Presidential Order that made Americans turn in their gold; and

-Outright default (the “Dobbins cut”, named after the gun manufacturer that issued a five-year bond in the 20’s that was cashable in either dollars or machine guns) – the ultimate Marine Corps “buzz cut”, nothing left anywhere. 

-His bottom line : central bankers & policy makers are making like barbers, cutting the value of your investments, using negative interest rates, inflation, currency devaluation & capital controls as their scissors. So get out of you investments as the year progresses.

Coincidentally, on April 30^th, Leon Black, CEO of Apollo Global Management LLC (APO), with AUM of US$113+BN, during a  panel discussion at the Annual Conference of the Santa Monica-based Milken Institute (“a venue for thought leaders”), said “We’re selling everything that’s not nailed down”. Two other panelists shared this view : Scott Sperling, Co-President of Thomas H. Lee Partners Inc. LP said “It has become difficult to find transactions priced at levels we’d like”) & Jonathan Sokoloff, Managing Partner at Leonard Green & Partners LP that “it’s time to take a pause”. (founded in 1990, APO IPO’d & was listed on the NYSE in 2011; in the past year its shares appreciated 110%, but still only trade at a P/E of 8x & yield 7.8%).

2/3 OF AMERICA TO LOSE EVERYTHING BECAUSE OF THIS CRISIS (Money Morning)

-Peter Schiff, CEO of Westport, Conn.-based Euro-Pacific Capital, told Fox Business “I think we are heading into a worse crisis than we had in 2007 …You’re going to have a collapse in the dollar … a huge spike in interest rates …and our whole economy … built on a foundation of cheap money, … is going to topple” Furthermore, that the economic recovery is “phony”, that the Federal debt & the Fed’s endless money printing are cancers destroying America, that the Fed has no credible QE “exit strategy”, & that ‘massive’ tax increases, and program- & entitlement cuts are coming.

Fox has an anti-Administration bias & Schiff has been perennially bearish on the US economy & the US dollar, and bullish on commodities, and foreign economies & currencies. Nevertheless, only fools are blind to the fact that serious storm clouds are gathering on the US economic/financial horizon. And while the April 20^th Barrons’ issue featured a cartoon of a bull on a pogo stick proclaiming “Dow 16,000″, such front page pictures have historically been counter-indicators.

NATIONAL SECURITY AGENCY TASKED WITH TARGETING ADVERSARIES’COMPUTERS FOR ATTACK SINCE EARLY 1997 (National Security Archive, Jeffrey T. Richelson)

-One of the 98 recently declassified documents the Archive is posting today (April 26^th) on US cyber activities reveals that, in early 1997, the NSA was mandated to develop ways to attack hostile computer networks as part of the growing field of Information Warfare (IW). More specifically, it was ordered to “disrupt, deny, degrade or destroy” information in target computers or networks, or “the computers  and networks themselves.”

This makes US complaints about China’s cyber activities sound hollow, & makes one wonder why such a document was ever declassified. It also confirms what had long been suspected, that the US had at least been complicit in the Stuxnet worm that damaged Iran’s centrifuges in June 2010.

A BET AGAINST THE BIG CANADIAN BANKS (G&M, Martin Mittelstaedt

-Last week Hyphen Partners LP, a small San Francisco-based hedge fund, said it had bet 95% of its assets that the Canada’s housing market is headed for the crapper, & the big Canadian banks with it. And this week, Albert Friedberg, founder of the Toronto-based Friedberg Mercantile Group Ltd. & a leading currency & commodity expert in Canada, said he has shorted the banks as insurance against worsening global financial conditions. He thinks Canada & Australia face “an incipient housing bust of major proportions”, & that Canadian banks’ shares are overvalued (as they seem to be vis a vis US & European ones)

-He’s nervous about what lies ahead & of two minds how the global economy will evolve. On the one hand, he sees a muddling through with lacklustre growth, low inflation & rising asset price inflation, & “large official interventions  to keep repeated mini-crises from … exposing us to systemic risk … (which) is highly unlikely to go on for more than two years.” But what really worries him is the “nightmare scenario” in which the business collapse in Southern Europe spreads, leading to “generalized country defaults & nationalization of major banks (wiping out shareholders, debt holders & large depositors alike) or, alternatively, asset inflation that runs out of control”, prompting tighter monetary policy & higher interest rates that threaten “fiscal blowouts” of highly indebted governments. So he has positioned himself to do OK in the ‘muddle-through scenario’ & make money in the disaster one by being long gold and short Canadian banks & US technology stocks, as well as Brazil, India, Australia, Russia & Britain.

Given his positioning, he seems to attach a higher probability to the latter than the former.

U.S. REGULATOR FLAGS PROBLEMS AT CANADIAN DRUG MAKER (G&M, Carly Weeks)

-Last August & October, US FDA inspectors  visited the Richmond Hill & Toronto plants of Apotex, Canada’s largest generic drug manufacturer, & gave them a failing grade. In a follow-up letter last February it warned its inspectors had found “repeated deficiencies” in quality-control systems, that the Company didn’t adequately detect, or control, microbial growth that could compromise drug safety & that it had kept a batch of drugs on the market despite another batch made on the same filling line having failed a sterility test, and that an export ban might be imposed on products originating with those plants. This is the second time the Company has attracted the (negative) attention of the US authorities : in 2009 the FDA imposed an import ban on its products after its inspectors found major deficiencies in its manufacturing practices. Be that as it may, Health Canada says it isn’t concerned about these warnings, even though its inspectors haven’t inspected the two facilities since 2011.

-Recently Apotex & Health Canada were also criticized for their handling of the recall of birth control pills, manufactured in Spain but distributed in Canada by Apotex, that had an extra week of sugar pills in a package of the Alysena brand (thereby dramatically increasing the risk of unwanted pregnancies). For while this problem was identified on April 3^rd, Health Canada didn’t issue an ‘urgent’ public warning until five days later.

This may be the result of the Harper government’s policy of slimming down government operations, no matter what the short-term risks & long-term consequences. And the five-day delay in issuing an ‘urgent’ warning may have been due to the need, before a warning could be issued, to get approval from the Allmighty PMO (Prime Minister’s Office), which, before ‘going public’, would first need to conduct a political risk analysis & develop talking points. Most hoi polloi would likely agree with a Canadian leading drug safety expert who opined “we should not have to depend on Americans to find out what’s going on in plants in Canada”.

ISRAELIS WELCOME REVISED ARAB PEACE PLAN (G&M, Patrick Martin)

-A high level Arab League delegation gave US Secretary of State Kerry a revised version of its 2002 plan for a comprehensive peace (under which the entire Arab world would  have normalized relations with Israel in exchange for its withdrawal from all territories captured in the 1967 War). But since Israel had rejected that proposal because it envisaged vacating all of those lands, the latest proposal proposes negotiating the boundaries on the basis of Israel keeping some West Bank lands & the Palestinians getting Israeli lands of similar size & quality in exchange. While Netanyahu has yet to formally voice his views, comments he made on May 1^st to senior Israeli Foreign Ministry officials in his capacity as Foreign Minister were deemed encouraging; for he said “The purpose of the future agreement with the Palestinians is to prevent the eventuality of a bi-national state and to guarantee stability and security … It’s not about a Palestinian state … It’s about a Jewish state.”  

One can hope for the best. While Netanyahu’s words suggest he’s becoming more realistic, he has been known to say one thing & then do something entirely different. And, if he is to move on this, he will have to rebuild his coalition (& move it more to the left),  if only because Naftali Bennett, the US-born leader of the Jewish Home Party, has made it quite clear he doesn’t mind  negotiations, provided they go nowhere. And the Israeli government would have to abandon its traditional position that any terrorist act during negotiations would be just cause for breaking them off.

ADVOCATE OF DIALOGUE WITH WEST WANTS TO BE IRAN’S PRESIDENT

(Postmedia News, Jonathan Manthorpe)

-Hassan Rouhani, age 65, has announced his candidacy for Iran’s Presidential election next June. A well-respected cleric, he has been at the centre of things ever since the 1979 “Islamic Revolution” but also has a doctorate in law from Glasgow’s Caledonian University & believes in science research & education. An outspoken critic of President Ahmadinejad, who, he says, has ruined the economy & mishandled the IAEA nuclear program negotiations, and whose  “careless, uncalculated and unstudied remarks and slogans have imposed many costs on the country”, while “My government will be one of prudence and hope …  (and) about saving the economy, reviving ethics and interaction with the world.”

-While its top negotiator with the IAEA in 2003-2005, he got the regime to suspend  uranium enrichment to build confidence with IAEA officials since, while it was legal under international nuclear development rules, they were suspicious of Iran’s claims its sole purpose was to produce fuel for power stations. But when Ahmadinejad became President in 2005 he terminated that suspension & accused Rouhani of “submission to Western states”, leading to a sharp decline in relations with the West & more & more sanctions as its nuclear program seemed increasingly geared to making weapons grade material.

-While likely able to pass the initial hurdle any candidate for senior office in Iran faces, the vetting by the Supreme Leader & the Guardians’ Council of their religious & ethical probity, his success at the ballot box may be limited by voters perceiving him as cold & distant. And while Khameni likely would prefer a more conservative candidate, given the upheaval after Ahmedinejad’s rigged 2009 re-election, he may just decide to let the voters decide.

One thing Rouhani has going for him is that Khameni trusts him, even though he publicly supported the mass protests following Ahmedinajad’s re-election in 2009 (which with the benefit of hindsight even Khameni may now see as having been a mistake). Since 2009 the Revolutionary Guards have all but become “a state within a state” & Khameni may wish to see them cut down to size a bit. And due to the sanctions & to mismanagement, the domestic economy is in such bad shape it could threaten the regime’s survival. But Netanyahu wouldn’t relish a Rouhani Presidency; for he needs an external enemy to keep his voters, & his coalition, in line, and a Rouhani Presidency would play into the hands, of those in Washington preferring a negotiated-, over a military-, solution.      

GAO SAYS CIC DOESN’T GET EQUAL TREATMENT (Bloomberg, Kasia Klimasinska)

-Gao Xiqing heads the China Investment Corp (CIC), with US$482BN AUM the world’s fifth-largest souvereign wealth fund. After meeting with officials in Washington, he told a conference there his company in the US “is singled out as a different investor … We thought we were friends … All of a sudden, you’ve got people slapping you in the face and telling you, OK, we don’t like you.” And he said that  when he gets questions, as often the case, if China will follow American regulators in tightening control of markets, his answer is “Our government has always been that way … since about 3,000 years ago. We always controlled, we always distrusted the market … it’s like a little boy, it needs to be disciplined. Now for regulators here to do it that way, of course it’s a challenge for them.”  And he believes  the new government, & the economy, are heading “in a much better direction”, and expects the former to reverse “the trend of major state enterprises becoming stronger”.

North American banks could do with a little four year-old’s disciplining.

CHINA SAYS U.S. SHOULD WATCH JAPANESE NATIONALISM (Reuters)

-On May 1^st the Foreign Ministry issued a statement quoting Cui Tiankai, its Ambassador in Washington, as saying “What kind of message does this (i.e. the recent voyage of ten boats carrying Japanese nationalists into the Diaoyu/ Senkaku island waters & the Japanese lawmakers’ annual pilgrimage to the Yasukuni Shrine) send to the international community? … All these kinds of (clearly provocative) acts have attracted a lot of attention from international public opinion and I believe the US cannot not know about this …The US side should stay alert against the recent provocative acts taken by the Japanese political leaders … We hope that other parties do not lift up rocks from the Japanese, and we hope even more that these rocks don’t end up falling on their own feet.”

This was Beijing’s response to the US Chief of Joint Staffs telling his PLA counterparts during his visit to China, & Defense Secretary Chuck Hagel  publicly declaring, that the US opposes any unilateral or coercive action that seeks to undermine Japan’s administrative control over the islands. Obviously, Beijing believes the best defense is an offense & subscribes to the Goebbels’ doctrine that a big lie repeated often & loudly enough will over time gain a modicum of truth.  Meanwhile, Beijing  cranked up its territorial dispute with the Phillippines over the Scarborough Shoal (which is 124 miles of the latter’s shore & more than 4x that distance from China’s) up a notch by unilaterally imposing a 15-mile restricted fishing zone around it, and that with India, on the eve of Premier Li Keqiang’s visit to that country, by making moves that suggest it intends to support indefinitely the presence of a platoon-strength detachment 19 kms inside Indian Kashmir.

IRISH PRESIDENT URGES ECB REFORM OR RISK SOVCIAL UPHEAVAL (FT, Jamie Smyth)

-Michael Higgins warned on May 1^st the EU must drop its “hegemonic” economic model &  reform the ECB or risk social upheaval & a loss of popular legitimacy.

He is the (rotating) EC President for six months’ ending June 30^th.  He made the same pitch to the European Parliament on April 17^th when he also told it “Europe needs new ideas instead of blindly following solutions that are proving inadequate”. All this targets Germany, with its “hegemonic grip” on EU economic & financial decision-making, & the independent ECB’s Bundesbank-driven pre-occupation with inflation, which it seeks to break by ending its independence & bringing it under political control, thereby ‘ensuring’ it will pay more attention to growth, & less to inflation.