Don’t Mess With Transport

From the Halls of Montezuma
To the Shores of Tripoli;

Thus opens the battle hymn of the United States Marines. The Halls of Montezuma sound Mexican — and so they were, so it’s not surprising that the marines saw action there. But what about ‘the shores of Tripoli’? Whether the Tripoli being referred to is the one in Lebanon or the one in Libya, it’s rather a long way from home for our intrepid warriors.

Nevertheless, the historical record is clear: the shores of Tripoli, in what we now call Libya, were visited by the marines in 1805, long before the Mexican-American War brought them to the Halls of Montezuma — in fact, not long after the US came into being. They were there as part of the First Barbary War, launched in 1801 by President Thomas Jefferson — and the enemies then were the Barbary Pirates, operating out of the Barbary States — Morocco, Algeria, Tunis and Tripolitania (now eastern Libya). These naughty people — any association with the term ‘barbarians’ is clearly politically incorrect and therefore wrong — engaged in raids on American ships, in which they captured both booty and prisoners and then ransomed them back to the US at exorbitant prices.

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Trade Data for June and First Half 2014

Bottom line: Jerusalem, we have a problem. The trade data for June were unsatisfactory, but what is far worse is that they represent another link in a steadily deteriorating trend. This review will focus on the data for the first half of the year, which present a coherent — and distinctly negative — picture.

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Consumer Price Index and Inflation Data for June and January-June 2014

Bottom line: The Consumer Price Index (CPI) rose by 0.3% in June, slightly above the consensus expectation. However, the primary factor in this rise was a jump in clothing prices — a seasonal development and hence transient. The underlying trend is toward ever-lower rates of inflation and, excluding housing prices, the Israeli economy is already experiencing deflation (see graph).

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Even ‘They’ Are Warning You

Most people don’t think — many no longer can, even if they try, because their capacity for independent thought has been systematically eroded by prolonged over-exposure to the media. Every successive technological leap, from radio to TV to the internet to social media, has led to a parallel increase in the ease and intensity with which the brains of the masses have been addled and rendered dysfunctional.

Such thinking as is done by the media-shepherded sheeple is in line with the pattern drilled in to them: How can I be ‘better’ — better-off, better-looking, better-regarded, etc. — and how can my life be made easier, more convenient and hence more successful (in the eyes of other sheeple). Unpleasant or negative things are systematically strained from the canned infotainment served up via every available channel. There remains a vague awareness that these negative phenomena exist, but every effort is made to train sheeple not to think about them — and the best way to ensure that outcome is by training them not to think at all.

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Budget Data for June and Year-To-Date

Bottom line: The budget data for June showed a deterioration, for the first time this year. The problem is concentrated on the revenue side and may be a temporary phenomenon, but the latest numbers raise warning flags as to the viability of the fiscal strength that has characterised 2014 to date. The data for the next month or two will need to be scrutinized, but the security situation is certain to have a dampening effect on economic activity and hence on tax receipts in July.

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The Voice of Sanity

In the hierarchy of the financial world, there are banks and central banks. The latter are tasked — along with directing the monetary policy of their country — with supervising the former and acting as ‘lender of last resort’ in the event that a specific banking institution gets into severe trouble. Furthermore, in the post-crisis world, central banks have been tasked with a new role, “macro-supervision”. As the term implies, this involves supervising not merely individual entities, but the entire system — the “macro” — so that a systemic crisis like that of 2008 does not recur.

That’s the theory. In practice, the world’s key central banks — the Fed, the ECB, the Bank of Japan, the PBOC (People’s Bank of China) and the Bank of England — have spent the six years since the crisis conducting an unprecedented, hitherto unimaginable, monetary policy. Interest rates have been held at or near zero — last month the ECB went still further, to NIRP, or negative interest rate policy — and systematic intervention in the bond markets has become the norm. On the other hand, reform of the banking systems, to make them less prone to potentially disastrous behavior, has been fitful and partial.

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Revised GDP Estimates for Q1 2014

Bottom line: The second estimate of GDP growth in the first quarter of 2014 was revised sharply upwards, to an annualized rate of 2.7%, from 2.1% initially. Every component of GDP, except investments, was revised higher, most of them significantly. The conclusion arising from the first estimate, namely that the economy is undergoing a sharp slowdown, has been shown to have been premature.

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Rehypothecation

Frankly, I don’t expect many readers to be familiar with the term above, let alone to know what it means. So let’s begin by turning to the fount of all knowledge in our age — Wikipedia. Here we learn that “hypothecation is the practice where (usually through a letter of hypothecation) a borrower pledges collateral to secure a debt or a borrower, as a condition precedent to a loan, or has a third party (usually an affiliate) pledge collateral for the borrower. The borrower retains ownership of the collateral, but the creditor has the right to seize possession if the borrower defaults. A common example occurs when a consumer enters into a mortgage agreement, in which the consumer’s house becomes collateral until the mortgage loan is paid off”.

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Budget Data for May and Year-To-Date

Bottom line: The positive trend in the budget continued through May. The key numbers showed further improvements and the only sources of concern were “second derivatives” — meaning the rate of change of the main trend. This is slowing, so that the chances of the fiscal situation improving further are low — but with five months of 2014 gone, and barring negative shocks, this year’s budget deficit should be significantly below target. The focus now moves to the 2015 budget, which the government will shortly begin debating.

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More Disconnect

The latest meeting of the Federal Reserve Bank’s Open Market Committee (FOMC) — which determines the monetary policy of the United States and fixes short-term interest rates — ended on Wednesday afternoon (EST). The decisions announced were exactly in line with what had been expected — primarily, another reduction in the Fed’s program of bond-buying, in line with a process that began late last year. Nevertheless, financial markets were very pleased with the outcome: prices of stocks and bonds rose, first in the US and subsequently in most global markets.

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