Gleanings II ~ 505 ~ Compliments of Nick Rost van Tonningen Posted by John on March 30, 2013

Quote of the week : “Preach the Gospel always and, if necessary, use words.” (St. Francis of Assisi, 1182 – 1226) – teach by example, a lesson bankers, politicians & other soi-disant ‘community leaders’ should take to heart.

The Cyprus bank crisis has been a long time in coming and the Europeans wasted nine months doing absolutely nothing about it. In 2010, & again in June 2011, stress tests on all European banks resulted in the Cypriot banks passing them with flying colours. But these tests were flawed : they tested only for disaster economic scenarios, not for disaster government bond scenarios. And when they did the latter, in December 2011, the two biggest Cypriot banks went from having had an E572MM capital surplus to suddenly having a E3.5BN capital deficiency. Given six months to address the problem & being unable to do so, the clock ran out in June of last yea. But during the ensuing nine months the European policy makers responsible sat on their hands, unable/unwilling to do anything constructive in a timely, measured, & rational manner, hoping for a miracle.

Literally at the eleventh hour, late Sunday night March 24th, a solution of sorts was worked out to keep Cyprus from officially going TU. It had the following main features :
• its second-largest bank, the Popular Bank of Cyprus (aka Laiki) will be broken up with its “good” bits rolled into the biggest bank, the Bank of Cyprus, & the rest into a “bad bank” that over time may enable uninsured depositors (those with deposits (100,000 Euros) to get back perhaps 60% of their money back;
• uninsured deposits in the Bank of Cyprus will be frozen until such time as it can be determined how much uninsured depositors must lose in its “bail-in”;
• Bank of Cyprus debt will be converted into equity;
• bondholders in Laiki will be wiped out & those in the Bank of Cyprus take a haircut; and
• despite its unhappiness about the treatment of Russian depositors, Moscow has agreed to restructure its 2011 loan to Cyprus.

This outcome is said to have the following meritorious features. It won’t require Parliamentary approval. It maintains the sanctity of small depositor protection. It restores the seniority of claims (by wiping out and/or administering haircuts to various classes of stakeholders). It avoids the need for formal capital controls (with withdrawal limits). And it ends Cyprus’ days as a dirty money haven.

On March 28th the Governor of the Cyprus’ central bank, Panicos Demetriades, told reporters losses on large deposits in the Bank of Cyprus, its largest bank, may run as high as 40%, & as high as 80% in the case of Laiki (with the recovery of even that taking years?).

In the week the fate of Cyprus did, & that of the Eurozone to many people seemed to, hang in the balance, it went all but unnoticed that the London branches of the Cyprus banks remained open, thereby enabling sophisticated large depositors not asleep at the switch to ‘take their money & run’.

One investment banker with a sense of humour described the EU’s response to the Cyprus crisis as the making of “Policy on the Hoof”. Other notable observations were that “Allowing Cyprus to get to this point shows epic incompetence on all sides” & (from a senior Cypriot official) that “Brussels is far away and Russia is a good friend” – the latter presumably explains why the Cypriot Prime Minister in the first go-around insisted on limiting the bail-in contribution from large (Russian) depositors to 10% at the price of screwing the small (local) depositors.

The basis for the EU approach to the Cypriot problem was summed up by Toomas Henrik Ilves, the President of tiny Estonia, when he said “You can talk about solidarity with the poor Greeks, and that’s hard enough; but solidarity with thugs and money launderers is a different matter.”

It’s a sign of nervousness among bank depositors across the Eurozone that the Portuguese government found it necessary to issue a statement ruling out the possibility of any “bail-in” by depositors in case of a future bank bailout in its country, despite declarations by the Dutch Minister of Finance, as Head of the Euro Group (of Finance Ministers) that the Cyprus “bail-in” would be the template for any future bank bail-outs.

Holland’s Finance Minister, Jerome Dijsselbloem, is not an economic illiterate; he has a degree in agricultural economics from the University of Wageningen & did graduate work in business economics at the University College Cork in Ireland. But in recent weeks he has made a number of dumbass statements that make him come across as having no clue whatsoever as to, or more likely as having a socialist’s deep contempt for how, markets operate. And of the lot, the one that ‘took the cake’ & could have a flamethrower effect on depositors’ attitudes was the following :
“Essentially why anyone keeps more than E100k in any EZ bank – indeed why deposit any amount in certain EZ banks as the value of the EZ bank deposit guarantee is worthless in a number of cases, as a number of the peripheral EZ countries cannot afford to pay up. I repeat, the EZ deposit “guarantee” is not a joint and several responsibility across the EZ; it is the responsibility of individual EZ countries.”

Leading politicians in Germany & Brussels, and Minister Dijsselbloem in his capacity of Head of the Euro Group, have ‘told’ Luxemborg & Malta, that also have outsized banking sectors (20x GDP for the former & 8x for the latter) to shrink them to closer to the EU average of 3½x. Both have rebuffed this; for their banks are the mainstay of their small populations’ economic wellbeing. And the argument advanced by Luxembourg to justify doing so is interesting : it’s that most of its banks are subsidiaries of foreign banks that, it says, are ‘well able to absorb any losses’ their Luxembourg branches may incur!

The size of these pigmy economies’ banking systems is but a marginal issue. A potentially much greater threat to Europe’s banking health is that even its most stalwart banks are, & have for some time been, chockablock with souvereign debt, not all of it of uncontestable quality. Thus, for instance, 80% of the US3TR balance sheet of Deutsche Bank, a pillar of the German economy, consists of souvereign debt. This is potentially problematic since under the Basle bank asset risk-weighting all souvereign debt is zero risk-weighted, regardless of rating (i.e. banks don’t have to set aside, & sterilize, capital against it as security against default). So, while it may have set aside enough capital against its non zero-weighted assets, overall Deutsche Bank’s leverage ratio is 31x (one not unlike that of major US investment banks in the pre-Lehman days).

The new UK financial stability regulator announced on March 28th that UK banks have a collective capital shortfall of £25BN that must be closed by yearend through restructuring and/or new capital injections (& has ruled this cannot be done by running down loan portfolios). And it also noted that, while the banks have overstated their capital by £50BN, half of that is by banks with more capital than they strictly need.

One market letter contained a fascinating table hereby reproduced in part :

Discr. Entitlement Net Total Total Surplus/
Spending Spending Interest* Spending Revs. Deficit
………………………………….. (billions of US dollars) ………………………………………….
1992 803 976 300 2,079 1,642 – 437
1996 739 1,091 334 2,164 2,915 – 149
2000 799 1,236 270 2,325 2,632 307
2004 1,066 1,474 191 2,731 2,240 – 491
2008 1,205 1,694 269 3,168 2,681 – 487
2012 1,289 2,053 220 3,563 2,435 – 1,128

* This is deceptive; for it nets out the interest paid on internally-held debt, such as that held by the Social Security Fund. This is just another way of making things look better today at tomorrow’s expense; on an all-inclusive basis interest on the US national debt during the twenty years ended September 30th, 2012 actually increased 23% to US$359BN.

Four things jump out from the above. Bill Clinton, after a shaky start in this first term, left the nation in relatively fair fiscal shape when he bowed out. Two, the disparate growth rates of discretionary- & entitlement spending : during these two decades the former grew by 60% (i.e. at a rate roughly commensurate with CPI) while the latter increased at nearly twice that rate (110%); so, whereas entitlement spending had accounted for 47% of total spending in 1992, it had risen to 58% twenty years later. Three, the accelerating growth rate of non-discretionary spending from the first- to the last four year period (from 11.8% to 21.1%). And fourthly, & most amazingly, but potentially most disconcertingly, that while the national debt almost tripled during this 20 year period, net interest payments declined by one-third (& even on an all-inclusive basis increased by just 23%).

In January the Case-Schiller 20-city Home Price Index was up 1.0% MoM & 8.1% YoY, slightly over the 7.9% expected. This was the strongest YoY increase since June 2006, in part due to the inventory of existing homes for sale being at a 13-year low. While the biggest gains were in the markets that had suffered most, incl. Phoenix (up 1.9% MoM) & Vegas (1.7%), house prices in these cities are still well below their 2007 highs (44.2% in Phoenix & 55.9% in Vegas). On the other new home sales were down 4.6% MoM to a 411,000 annualized rate (albeit up 12.3% YoY), and the March Conference Board Index of Consumer Confidence of 59.7 fell far short of the 67.5 expected in reaction to the sequester, higher payroll taxes & sharply higher gasoline prices.

According to the U.S. National Safety Council, Americans are 8x more likely to be shot by a police officer than by a terrorist (but terrorist killings are like airplane crashes while police killings are more like car crashes : in both cases the former are more likely to make the headlines nationwide because the casualties are so much more numerous – possibly because we have become inured to car crashes just a ‘fact of life’ & because there is something left to be buried & provide closure).

A month ago former US President Jimmy Carter was on Piers Morgan’s program on CNN. When the conversation turned to the movie Argo, he said that, having seen the movie, he wanted to ‘set the record straight’ on the Tehran escape escapade; for “ 90% of the idea & execution had been Canadian”, & the character played by Ben Affleck had been in Tehran for just 1½ days. This was in line with his telling an audience at Queen’s University last November that the movie had distorted what had really happened by giving all the credit to the CIA whereas in reality over 90% should have gone to Canada, incl. its government for doing what had never before been done before, & may well never be done again, namely to approve the issuance of its own false passports.

I watch Fareed Zakaria’s Sunday morning program on CNN fairly faithfully. Last Sunday he had Economics Nobel Laureate Paul Krugman as one of his guests. I didn’t have time to watch it all since I was going skiing (it turned out to be awesome spring skiing – cloudless blue sky & brilliant sunshine, and short lift lines, the only thing lacking was a foot of powder). But I heard enough to confirm my low opinion of him when he pontificated ‘if we expect to have a problem by 2030, why should we worry about it now?’

It has happened! The first ever derailment of a train carrying crude oil to market since to get around pipeline capacity out of Alberta, or rather the lack thereof, became an issue. On March 28th, a CP Rail train carrying crude to Chicago derailed in Minnesota. While only 14 of the 94 cars actually left the rails & only one (with a 600+ bbl, 26,00 gallon capacity) actually “bled out”, the event got lots of media exposure with the Keystone pipeline proponents trying to use it to point out the risk of rail transport & touting the purportedly greater safety of pipelining, & environmentalists seeking to turn the event to their advantage by using it to bolster their case against oilsands oil of any description.

The Center for Professional Excellence at York College of Pennsylvania conducts an annual survey of HR professionals’ experience with recruiting & hiring recent college graduates. Of the nearly 400 interviewed in its latest survey nearly 45% said that in the last five years their work ethic, & over one-third that their level of professionalism, had declined. Furthermore, they noted that young employees often are arrogant during job interviews & on the job, and that more of them arrive at the office with a sense of entitlement – elsewhere it was reported that one new college grad, when asked in a job interview if he was a team player, responded “Yes, when I am the captain.”

Adrian Dantley played on the 1976 US Olympic basketball team as well as for the Utah Jazz & the Detroit Pistons before spending time as a coach with the Denver Nuggets. He recently took a job as a school crossing guard, spending one hour a day helping children across the road, not because, he says, he needs the US$14,685.50 annual salary (for one hour a day?), but because of the healthcare benefits associated with it & because it gives him something to do with his time.

In Canada there is a great deal of concern that the country’s infrastructure is aging rapidly, giving rise to pressure by municipalities for more funding to correct that from senior levels of government. So in its recent Budget the Harper government earmarked $53.5BN over the next decade to infrastructure funding. And yet the supporting material for its Budget contained a chart showing that the average age of Canada’s infrastructure had declined in the past decade by two years to less than 15 years (& surely most properly-built infrastructure should last a lot longer than 15 years?).

To help close the gap between its bloated spending commitments & its double oil discount-challenged, low tax revenue stream, Alberta Premier Alison Redford’s government is cutting its budget allocation to institutes of higher learning by 7%, telling them they’d better get more efficient (giving rise, among others, in a case of pots calling kettles black to bleatings by the President of the UofA that the government should get its priorities straight. This prompted one local columnist to observe she is “likely running … in the right direction … (but) doesn’t seem to have a map.”

In Switzerland the rightwing People’s Party has collected the necessary 100,000+ signatures on a petition to mandate a referendum on storing all of the 1040 tons of gold in its foreign exchange reserves, some of which is currently stored abroad (much of its, it is suspected, with the New York Fed), on Swiss soil, with the slogan being “It is only safe if it is kept in Switzerland” (it would also require the central bank to hold a minimum 20% of them in gold, about twice the current rate). And according to Bloomberg, Argentinians are buying increasing amounts of gold to protect the buying power of their savings at a time that the (unofficial) domestic inflation rate is North of 25%, their currency expected to depreciate this year at a 10+% annual rate, & the cost of insuring five year Argentina bonds against default has soared to 3,321basis points (bps), i.e. 33.21% (when the President last July banned the sale of 99.99% pure gold, the only bank selling gold, Banco de la Ciudad de Buenos Aires, simply switched to selling 99.96% pure gold.

One side effect of Japan’s Abe government’s determination to drive inflation up, & in the process drive the external value of the Yen down, is that Japanese institutional investors have suddenly developed a real appetite for foreign equities. For this becomes a no-brainer : with the Yen headed down the greasy slide, they will get a decent return in Yen terms, even if the US stock market goes nowhere. This will contribute to the US stock market going further faster than it otherwise might have. And Prime Minister Abe c.s. won’t mind for the more foreign securities the investors buy, all other things equal the greater the supply of Yen will be, the further it will slide & the faster Japan’s inflation rate will head for its targeted 2%.

With all the foot dragging by the medical establishment on making the system more efficient & moderating the rate of growth of healthcare costs, it is interesting to note that, since Lasik eye surgery was first introduced two decades ago, its cost has dropped dramatically while the compensation paid to doctors doing cataract surgery, that now takes 20 minutes & has the patient go home after an hour, hasn’t changed much in real terms from when it was less routine & patients spent days supine in bed with sandbags on either side of his head to immobilize it.

GLEANINGS II – 505
Thursday March 28th, 2013

BRICS NATIONS BUILDING POLITICAL CLOUT (G&M, Geoffrey York)

• This week the South African city of Durban hosts the annual summit of the BRICS nations. It’s being hailed as a historic event, a geopolitical World Cup without Western participation. On his debut foreign tour there China President Xi Jinping bypassed the US & Europe, and flew to Durban via Moscow, Tanzania & Congo (Brazzaville). Originally an economic bloc, the group is evolving into a political entity with China as leader in a multipolar world in which the West is less dominant (thus Syria’s Bashar al-Assad asked them to intervene in Syria “to stop the violence”). And it is a powerful economic bloc with 45% of the world’s population, 17% of world trade &, in the past decade, half of its economic growth.
• Martyn Davies, an emerging markets investment adviser in Johannesburg puts the summit in a class with events like the fall of the Berlin Wall or the 2008 recession, telling a Johannesburg audience “The deck chairs are being rearranged … BRICS best represent this geo-economic new world.” South African diplomats say this is a step toward a “new equitable world order” & call it “a … force to counter international forums largely dominated by the developed world.” And South Africa’s Higher Education Minister Blade Nzimande told an academic forum earlier this month they had helped Africa to “escape the clutches of neo-colonial dependence on foreign aid”.
• But there are skeptics. Thus according to Nigeria’s central bank governor Lamido Sanusi, China is “a significant contributor to Africa’s de-industrialization and underdevelopment … (it) takes our primary goods and sells us manufactured goods. This was also the essence of colonialism”, an accusation Beijing immediately & hotly denied.

“The lady doth protest too much, methinks” (Hamlet Act III, Scene II). On the first day of the Summit they agreed to create a new development bank to compete with the World Bank (which, however, is likely more of a play to increase the pressure years-long pressure for reform of the World Bank & the IMF, incl. an end to the tradition that an American heads to the former & a European the latter, especially since they couldn’t agree on where it should be located & how it would be funded). But in far more significant geopolitical moves China & Russia announced a US$30BN currency swap to facilitate trading with each other without having to use US dollars & the group decided to create a US$100BN currency reserve facility to protect themselves from currency crises. Finally, & last but not least, one point in its March 27th 47-point communique declared that humanitarian groups should have “full and unimpeded access” to all needy Syrians, no mater where located; if adopted by the UNSC, this would clear the way for UN relief agencies to deliver aid to rebel-held regions of Syria without the approval and/or cooperation of the al-Assad regime (generally speaking, this was interpreted as a first step in China & Russia throwing it to the wolves).

BERNANKE DEFENDS EASY-MONEY POLICIES (WSJ, Victoria McGrane)

• In a speech prepared for delivery at the LSE (London School of Economics) on March 25th, he attacked the charge that his easy money policies are provoking a currency war, maintaining that they, & similar policies elsewhere, are solely designed to support domestic economic growth, and that they are “appropriately” pursued to boost economic recovery following the 2008 financial crisis. He not only maintained that these policies are not being pursued to depress currencies & give some countries a trade advantage over others but also argued that, rather than hurting other countries, the industrialized easy money policies actually helped global economic growth.

The proof of the pudding is always in the eating; in this case the proof is that after five years of such policies growth in the industrialized countries is still anemic , if not non-existent. Secondly, he cannot have it both ways, arguing first that these policies were designed to stimulate domestic economic growth & then, a little later that they helped the world economy as a whole. Thirdly, being a tenured economic theoretician rather than a hands-on financial market type, he may not be familiar with, or, worse still, if he had heard of it, had chosen to ignore, the market adage that in monetary policy “you cannot push on a string” (i.e. make people borrow money if they don’t want to) it. And finally, no matter how well-intended & theoretically sound his decisions may have been, he seems to have been sandbagged by the Law of Unintended Consequences.

DEBT, TAXES NO SOLUTION TO CASH CRUNCH (CP, Sue Bailey)

• For six of the last eight years the Canadian province of Newfoundland and Labrador had oil revenue-fueled surpluses. So government spending skyrocketed. But last spring’s budget was based on an average US$124 oil price while it has been more like US$109. The result has been a hole in its bottom line for this year of $1.6BN, & of up to $4BN in the next three. So the Throne Speech read out by Lt-Gov. Frank Fagan (in which Canadian governments outline their legislative priorities prior to a budget) contained language such as “There are only two ways to pay for that level of public spending – taxes and borrowing … We cannot borrow for our day-to-day spending and send the bill to our children down the line … We have to live within our means and continue to set clear and responsible priorities”

Now comes the hard part! One can only hope they’ll show the rest of us how it is, & can be, done.

TROUBLE IN THE EASTERN MEDITERRANEAN SEA (FA, Yuri Zhukov)

• In recent years the natural gas reserves in South (& East) China Sea(s) have caused territorial disputes that made headlines worldwide. But a similar development in the volatile Eastern Mediterranean region has yet to attract much media attention.
• The discovery of the Leviathan & Tamar gas fields by Houston-based Noble Energy has Israelis dreaming of liberation from their 40% dependence on Egyptian gas & becoming a gas exporter (to Europe). But Lebanon claims ownership of part of Leviathan field (& Gaza could conceivably do the same for part of Tamar?) & Hezbollah has threatened to attack any Israeli drilling platform in the 330 sq. mi. area claimed by both, prompting Israeli plans to buy four more warships. And while Cyprus signed a maritime border agreement with Israel in 2010 & has discovered a gas field of its own called Aphrodite, the Turkish Republic of North Cyprus wants in on the action & opposes Nicosia’ unilateral issuance of drilling permits. Turkey says Cyprus’ maritime border agreements with its neighbours are invalid, fears North Cyprus’ exclusion from the Aphrodite gas field bonanza (part of which might extend into waters claimed by Israel), considers Cyprus’ dreams of exporting gas to Europe a threat to its own vision of becoming the conduit for the movement of gas from the Caspian & Central Asia to Western Europe & has threatened to start exploration, & even drilling, in some of the disputed waters on behalf of Turkish North Cyprus. And while Syria & Egypt are currently pre-occupied with their domestic political situations, they too have dogs in this fight, & neither has any maritime border agreements in place. Syria in particular could become a problem if the Bashar al-Assad regime were replaced in Damascus by one more friendly to Turkey.
• Meanwhile, both Cyprus & Israel look upon Russia as a potential source of political & technological support in developing their offshore gas, the Russian Navy two months ago held its largest naval exercises in the Eastern Mediterranean in the almost quarter century since the end of the Cold War & may be looking to relocate its naval base to either Cyprus or Israel if it were to lose the one it has had for decades in Tartus, Syria.

Some Russian officials may also be aggrieved by their personal losses in Cypriot banks, Gasprom is casting covetous eyes on Cyprus’ gas reserves & the US cannot escape involvement for geopolitical reasons & because Noble Energy discovered & has a major stake in some of these gas reserves. All this creates more scope for friction in a region that already has a surfeit of it.

ISRAEL ON ALERT AFTER BORDER SKIRMISHES (G&M, Patrick Martin)

• It was one thing for the occasional Syrian artillery shell to stray across the 1974 border into the occupied Golan Heights. And there has been the occasional cross-border incident. But two attacks, on March 23rd & 24th, from the Syrian side of the border seem to have deliberately targeted Israeli patrols in the occupied Golan Heights. This prompted the local IDF commander, Maj–Gen. Yair Golan, to warn that “hundreds” of jihadists are now “every active” on the Syrian side of the border, & are planning cross border attacks. So Israel is building a security fence along the border & boosting its military presence in the region. In an interview published on March 25th in the Yisrael Hayom newspaper (now Israel’s largest circulation paper – because it is free? – which is funded by Las Vegas’ Sheldon Adelson who also backs Netanyahu & hugely backed Romney) Gen. Golan said such a fence will be built (on the other side of the border) “with Syrian interlocutors who have an interest in co-operating with us against other elements who threaten them too.” He compared this to the buffer zone Israel has maintained for 15 years in Southern Lebanon with help of the, largely Christian, South Lebanon Army militia (that shares Israel’s hatred of Hezbollah), which he referred to as “one of the most worthwhile security investments ever made by the State of Israel” (even though it didn’t prevent the 2006 Lebanon War, which dented the invincible reputation of the IDF when a few hundred Hezbollah fighters held off the entire IDF & forced its eventual withdrawal without having achieved its objectives).

The nightmare scenario for the IDF has to be a fight on two fronts, jihadists from the East in Syria in the Golan Heights & Hezbollah from the North in Lebanon in both Northern Israel & the Golan Heights, in guerilla-like war in which its overwhelming traditional military strength will do it little good, while at the same time having to keep a watchful eye on Hamas in Gaza.

NETANYAHU APOLOGIZES FOR GAZA FLOTILLA RAID (Bloomberg, Gwen Ackerman)

• His office said that, on March 22nd in a 20-minute phone call to Turkey’s Prime Minister, Recep Tayyip Erdogan, he had apologized for the death of nine Turkish citizens during a raid by Israeli commandos on a ‘peace flotilla’ headed for Gaza almost three years ago, expressing “Israel’s apology to the Turkish people for any mistakes that might have led to the loss of life or injury” during the incident. They also agreed to restore diplomatic ties by reinstating their ambassadors & to work on compensation (for the victims’ families) & on a non-liability accord to end the legal action started in Turkey against Israeli soldiers.
• While the Turkish-Israeli security alliance goes back decades it had already been under strain before the peace flotilla incident due to Prime Minister Erdogan’s repeated criticism of Israeli policies, especially after the 2008 Gaza War, and his having accused Israel of “state terrorism”, walked out on Israeli President Simon Peres at Davos in 2009 & publicly equated Zionism with fascism. While recently there have been signs of policy overlap in their regional interests on Syria & Iran, hurdles remain to a full restoration, if only because Erdogan’s anti-Israel stance has gone over well with the folks back home & across the region, where there is strong sympathy for the Palestinians; thus he was welcomed like a hero in Egypt & other Arab countries when he visited there after their revolutions.

This attempt at rapprochement was unexpected & supposedly engineered by Obama during his recent visit since, as he put it, “the time was right”. But he may have been unduly optimistic, if not outright naive, when he told a subsequent press conference with King Abdullah in Amman “This is just the beginning”. For, while the two countries’ interests may “overlap”, they may not do so sufficiently to bridge the chasm separating their basic national interests (& politics). And while it was easy to “talk the talk” at Obama’s behest, it remains to be seen to what extent Netanyahu (& Erdogan) will be willing to “walk the walk” now that Air Force One has left the region (unless Obama himself would also do so by remaining personally involved on an ongoing basis, something he has never in the past four plus years has shown much interest in doing).

OPPOSITION LEADER TAKES SYRIA’S PLACE AT ARAB LEAGUE SUMMIT (NYT,Hala Droubi)

• Earlier this month the Arab League’s foreign ministers recommended that Syria’s Arab League seat be granted to the Syrian opposition (in lieu of the Bahar al-Assad regime). And on March 26th at a an Arab League meeting in Doha, the host, Sheik Hamad bin Khalifa al-Thani, the Emir of Qatar (& a one-time friend of Bashar al-Assad), amidst applause from the group, formally invited the head of the opposition delegation, Moaz al-Khatib, to do just that, with the latter in his subsequent speech to the gathering saying “Syrian people alone should determine who rules their country” & requesting broader recognition, by, among others, the UN. And, as he took his seat, Mr. al-Khatib was accompanied by, among others, by Ghassan Hitto, the Kurdish naturalized US citizen recently elected the rebel coalition’s interim Prime Minister, as the opposition’s flag (green & black with four red stars) replaced the one of the current regime (which is red, white & black with two green stars).
• The al-Assad regime, quite understandably, was outraged with the pro-Assad Damascus newspaper Tishreen headlining : “Shame on you Arab brothers” & denouncing what it called “this theft that the sheikdom of Qatar and other collaborator, treacherous, backward Arab regimes have committed.”

This is a hugely symbolic move & the broadest of hints to non-Alawites still siding with al-Assad, and one unlikely to have been made unless the Arab League was dead sure he is doomed.

SUPPORT GROWS FOR NUCLEAR DEFENCE (G&M, Mark MacKinnon)

• South Koreans have long lived with the nuclear-armed Kim dynasty in the North, patiently waiting for international pressure to get Pyongyang to give up its WMDs. But their patience is wearing thin after three nuclear tests in seven years, improvements in Pyongyang’s rocket technology, the miniaturization of warheads, regular threats to turn Seoul into a “sea of fire”, &, most recently, the tearing up of the 1953 peace treaty. So now, since nothing else has worked, not aid, not negotiations, not the US military pressure, to stifle Pyongyang’s nuclear ambitions, over two-thirds of South Koreans believe the time has come for their country to have its own nuclear weapons program. Since the US is bound by treaty to protect South Korea from attack, & President Obama is pushing for the denuclearization in both Northeast Asia & the Middle East (??), it’s unlikely Washington would allow Seoul to have its own nuclear weapons’ program. Just the same South Korea’s new President Park Geun-hye has done nothing to squelch talk of a nuclear South Korea.

Might her silence also have to do something with Ms. Park’s perception that America’s treaty obligation doesn’t have the real same market value in the region it once had?

BANKIA FALLS FURTHER AFTER RECAPITALIZATION (Bloomberg)

• In July 2011 Spain’s fourth-largest bank, Bankia SA, did an IPO at E3.75/share that targeted its own customer base. Subsequently it needed the biggest ever European bank bailout. Last week in a further 15.5BN Euro recapitalization some of its lenders’ debt was converted into equity, subsequent to which its share price slumped 41% to 0.147 Euros.

While all the attention on Cyprus, a virtual economic zero with an outsized banking system, Spain keeps bleeding, But it has the fourth-largest economy in the Eurozone, Italy is a political shambles & M. Hollande is belatedly seeking to quit painting himself in a corner.