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Things that make you go

"SPECTRE always delivers what itpromises. Our entire organizationsurvives upon the keeping of thosepromises..."– Ernst Stavro Blofeld, From Russia With Love

Vol.02 Issue 22 | 08 November 2015

SPECTRE

"This organization does not

tolerate failure"– Ernst Stavro Blofeld, You Only Live Twice

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THINGS THAT MAKE YOU GO HMMM...

SPECTRE

The Special Executive for Counter-Intelligence, Terrorism,Revenge and Extortion is an organization which despite itsmenacing name, has spawned nothing but wonderment and joy

in the minds of multiple generations of spy novel fans all around

the world.

I know. I was (and unashamedly remain) one of them.

Ian Fleming’s James Bond novels gripped espionage fans in the 1950s, but itwasn’t until 1962 and the appearance on movie screens of Sean Connery, an unknown

Scottish actor who first brought the role of James Bond to life, that the whole world fell in love with

Fleming’s gentleman spy.

Beginning with 1963’s From Russia With Love and continuing with Thunderball in 1965, You Only

Live Twice in 1967, On Her Majesty’s Secret Service two years later and Diamonds Are Forever in

1971, though the various threats to the world took the form of distinctly different dastardly plots, each

designed to secure world domination, one single, shady organization, from which this week’s Things

That Make You Go Hmmm... (and, I should probably add, the latest James Bond movie) takes its title,

was behind them all.

SPECTRE was a commercial, very much for-profit enterprise led by Ernst Stavro Blofeld and run like

a multi-national company. The ‘board’ was populated by 21 people—18 of whom were responsible

for the handling of the company’s day-to-day affairs. Those 18 people were drawn, in groups of

three, from six of the world’s most nefarious organizations; the Gestapo, SMERSH (Spetsyalnye

MEtody Razoblacheniya SHpyonov, a fictional Soviet counter-intelligence agency whose name, when

translated, is: Special Methods of Spy Detection), ex-Yugoslavian dictator, Josip Tito’s Secret Police,

the Mafia, the Franco-Italian Unione Corse (subject of the movie The French Connection) and a

Turkish heroin smuggling syndicate.

In short, not the sort of people you’d choose to do business with.

Fleming fails to document which of SPECTRE’s various criminal factions was responsible for the

HR department or for procuring all those single-colour jumpsuits that the organization’s employees

seemed to always be forced to wear, but he did at least identify the super-secretive organization’s

mailing address (Paris, 136 Boulevard Haussmann).

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What ‘world domination’ actually looked like was never properly documented in Fleming’s books.

Presumably it would involve endless paperwork but the perks would doubtless be myriad; a reserved

parking space outside the office, a private bathroom, catered lunches and, one would expect, a

corporate credit card with no spending limit.

Until a few years ago, the closest thing the world had ever seen to Blofeld and SPECTRE was Sepp

Blatter’s FIFA, but, since 2008, a new organization has risen from the ashes of the Global Financial

Crisis—an organization which has been far more successful in securing a level of power that

constitutes some form of world domination than Blofeld managed in an entire series of novels.

Ladies and gentlemen, I give you SPECTRE - The Special Executive for Continually Trying to

Resuscitate the Economy.

This shady organization operates in plain sight but wholly above the law and, though

the international flavour of its executive board is consistent with Fleming’s criminal

franchise, the public face of SPECTRE shifts regularly.

In short, not the sort of people you’d choose to do business with.

Back in 2008, in the midst of a crisis of global proportions,

Ernst Stavro Paulson and the enigmatic Dr. Yes brought

SPECTRE out of the shadows and into the collective

conscious of the world. They did so by seemingly

offering a cunning solution to the fears that

gripped mankind in the wake of the GFC—free money!

Since then, an ever-widening group of SPECTRE luminaries has worked

tirelessly to increase their grip on the world and to achieve their stated aim of world domination

resuscitating the global economy.

With Paulson & Dr. Yes now seemingly retired (presumably, the SPECTRE pension plan is both

defined benefit and, at the very top levels, extremely generous), it has fallen to the organization’s #3,

Emilio Dragho to take the reins—aided and abetted by the fearsome Rosie Outlook—and

their lieutenants stationed in places as far-flung as London and Tokyo.

But can the modern-day SPECTRE achieve their aims or will they,

like Fleming’s villainous cadre be foiled—not by 007, but rather a

global economy that simply refuses to bend to their will and get off

its knees?

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It’s true, they’re already further

down the bumpy road to world

domination than Blofeld ever

traveled, but the rubber is

starting to meet the road and the

time is fast-approaching when

SPECTRE’s plans may need to

include a stolen nuke or two.

As of the end of 2014, the world’s

major economies were in various

states of decay relative to both

their historical levels and where

SPECTRE needs them to be ifthey are to declare victory.

Two economies dwarfed the next

12 largest nations and, of course,

those two countries were the US

and China.

By the time we reach 2030,

forecasts around the rankings of

the largest economies on Earth

will have changed little (even

though they will all, naturally, be

larger).

China, India and Brazil are the

big movers with India predicted

to leapfrog both Japan and

Germany as well as the UK,

France, Italy and Brazil in order totake its place as the world’s third-

largest economy, while the size of

Indonesia’s economy is expected

to more than double in the next 15 years.

Clearly, for global growth to perform as forecast, the BRICs are once again going to be expected to do

a lot of the heavy-lifting.

0

5

10

15

20

S K

A u s t r a

l i a

C a n

a d a

R u s s i a

I n d i a

I t a l y

B r a z i l

F r a n c

e U K

G e r m a n

y

J a p

a n

C h i

n a U S

A

World’s Largest Economies - 2014(Nominal GDP - $ tln)

Source: Bloomberg

United StatesChinaIndia

JapanGermany

BrazilUK

FranceCanada

RussiaItaly

MexicoIndonesia

Australia

South KoreaSpain

TurkeySaudi Arabia

NigeriaNetherlands

World’s Largest Economies in 2030

GDP in 2015 Projected growth in GDP by 2030

$24.8

$22.2 trillion

$6.6 trillion

$6.4 trillion

$4.5 trillion

$4.0 trillion

$3.6 trillion

$3.3 trillion

$2.6 trillion

$2.4 trillion

$2.3 trillion

$2.3 trillion

$2.1 trillion

$1.9 trillion

$1.9 trillion

$1.8 trillion

$1.6 trillion

$1.3 trillion

$1.0 trillion

$1.0 trillion

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If, however, we look a little deeper at growth rates in key countries, we get a far better understanding

of the problem facing SPECTRE and, despite the soothing tones emanating from the organization’s

various regional headquarters, for them to achieve their aims, they are going to have to overcome

forces far more powerful than a martini-

drinking, tuxedo-wearing, gun-toting ladies’

man.

Let’s begin with the United States of America—

the biggest economy on earth by some

distance. Clearly, if the global economy is

going to thrive, it cannot carry a passenger as

big as the United States the way it managed to

carry the second-biggest economy on earth,

Japan, for the best part of two decades.

The reason? That was then, this is now and

the stagnation of Japan happened to coincide

with the boom times in China, India and the

rest of the BRICS (as well as other emerging

markets).

Take a look at the OECD’s long-term forecast

for the US economy (chart, right).

As you can clearly see, the group of

economists representing the 34 countries

that make up the OECD believe that this year

is essentially as good as it’s going to get for

the USA as the growth rate slips gently and

steadily lower for the next ohhhhhh.....45 years

(give or take).

Now, the trajectory of the actual prints we have

seen prior to the guesstimate phase period

where forecasts are substituted for concrete

data suggests that perhaps we should prepare for something other than the OECD’s planned gradual

demise, but clearly, even if their trend forecast is correct (with broad fluctuations around that line) the

problem presented to the world is a fairly sizeable one.

(Incidentally, if you fancy taking a walk from SPECTRE’s top secret HQ to that of the OECD, it’ll take

you about an hour and is really quite a nice stroll through the streets of Paris.)

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Where was I? Oh yes, US GDP growth.

The average YoY growth for the US over the last 50 years has been 2.97% which is a pretty decent

clip. Over the last 25 years, it has fallen to 2.43%.

Now, call me old-fashioned, but even I can see the

trends in these two charts and, given that OECD

baseline scenario doesn’t have US GDP growth

as low as 2.43% until 2025, I am quite happy toposit the idea that, as with most forecasts around

US GDP by academic economists or, worse,

government-related entities, a certain rose-tinted

hue can be seen.

Worse still is this chart (right), which demonstrates

better than perhaps any other, the triumph of hope

over experience at the real SPECTRE HQ, the

Marriner S. Eccles Building:

Sorry folks. That’s not even close (though it does

seem that, given March 2014’s forecast, realization

may be finally starting to dawn). What is does do, though, is give a sense of just how skewed the

narrative coming out of the Fed is forced to be.

The talk is (and predictions are) of strengthening growth. The actions (typified by excuse after excuse

to keep rates at zero) suggest something else and that something else spells trouble for the world.

Source: Bloomberg

US GDP (YoY %)1965 - 2015

965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2014

Sou

US GDP (YoY%)1990 - 2015

-3

-2

-1

0

1

2

3

4

5

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

4.5

4.0

3.5

3.0

2.5

2.0

1.5

2010 2011 2012 2013 2014 2015 2016

Jun 2010

Jun 2011

Jun 2012

Actual GDP Growth

Jun 2013

Mar 2014

US GDP Growth: Fed Model vs Actual GDP2010 - 2014

Source: US Federal R

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The idea of ‘GDP growth’ being the best yardstick by which the strength of economies is measured

has come under increasing scrutiny in recent years. The main charge against it its use is that it fails to

capture many exchanges, actions and transactions which are all part of the ‘economy’ and so the final

number is not representative of the true expansion (or contraction) of a county’s economic well-being.

The OECD themselves summed the problem up thus in their 2004-2005 OECD Observer (when

growth, as measured by GDP, was just dandy):

(OECD): If ever there was a controversial icon from the statistics world, GDP is it. It

measures income, but not equality, it measures growth, but not destruction, and it

ignores values like social cohesion and the environment. Yet, governments, businesses

and probably most people swear by it. According to François Lequiller*, head of national

accounts at the OECD, part of the problem is that perhaps we expect too much from this

trusty, though misunderstood, indicator... If by growth you mean the expansion of output

of goods and services, then GDP or preferably real GDP – which measures growth withoutthe effects of inflation – is perfectly satisfactory. It has been built for this purpose...

The point, though, is that, for all its obvious faults—faults highlighted by none other than Simon

Kuznets, the man widely acknowledged to have ‘invented’ GDP as far back as 1934—GDP provides a

consistent means of comparison between countries, regions and, crucially, time periods.

However, rather than focusing exclusively on ‘growth’, there are a great many ways of measuring

economic ‘health’ and those benchmarks are perhaps a better indication as to what lies ahead.

In the US, for example, the ground level data have been fairly poor.

Manufacturing ISM is barely above recession levels and, while non-manufacturing has been strong in

recent months, the divergence between them is a worrying sign given their tight historical correlation.

Source: Bloomberg

48

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2

Nov 09 Nov 10 Nov 11 Nov 12 Nov 13 Nov 14 Nov 15

US ISM: Manufacturing vs Non-manufacturing2009 - 2015

DIVERGENCE

S

33

38

43

48

53

58

63

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2009 2011 20132008 2010 2012

US ISM: Manufacturing Vs Non-manufacturing1997 - 2015

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As ZeroHedge reported this week, real economic output is also falling:

(ZeroHedge): ...[real economic

output] is released by the BLS every

quarter, as a product of productivity,hours worked, and compensation and

then applying a deflator adjustment.

This is perhaps an even more accurate

indication of the true state of the US

domestic economy considering all the

complaints by the Fed over the state

of the global economy and eliminates

the “noise” from trade which has beendepressing GDP for quarters.

Unfortunately, what the real output data reveals is not pretty. Rising by 2.3% Y/Y in Q3, this

was not only down substantially from 3.4% in Q3 and 3.5% in Q1, but this was the weakest

increase since Q1 2014

But it’s beneath the surface where the real disconnects between perception and reality lie and there is

nobody better at not only identifying such misalignments, but putting them in the perspective they so

desperately need than the brilliant Stephanie Pomboy of MacroMavens who this week has very kindly

allowed me to share a few short excerpts from a recent piece she published with the wonderful title“The Jerk Store Called...” (Seinfeld fans will recognize the reference instantly, but for those among

you who have yet to discover the delights of Jerry & friends, Stephanie kindly provided a link to help

you keep up).

(Incidentally, any institutional readers who don’t already subscribe to Stephanie’s magnificent

work should rectify that immediately (or sooner) by clicking here and finding out more ).

Amidst the various problems Stephanie sees within the ‘plumbing’ of the US economy, she reserves

elevated opprobrium for the inventory overhang about which few analysts are even talking:

(Stephanie Pomboy): ...With tightening credit conditions now quashing all the QE-induced

financial engineering, the distraction from dreadful pricing power is disappearing fast.

As it does, the inventory story I’ve been regaling you with for a YEAR will finally come in

to focus. If history is any guide, it won’t be pretty. The last four inventory cycles saw profit

growth go from rising +18% y/y on average at the inventory peak, to contracting -5%y/y at

its lows. Gulp!

http://www.macromavens.com/https://www.youtube.com/watch?v=oApBlWipc2Ahttp://www.macromavens.com/http://www.macromavens.com/https://www.youtube.com/watch?v=oApBlWipc2Ahttp://www.macromavens.com/

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Here again, things look bad before

we even get started. As you can

see above, both the BEA and S&P

measures put profit growth at zero

through the 2nd quarter. If estimates

for the 3q (now being reported)

are correct, earnings will post

their second consecutive quarterly

decline. So, the profit recession will

be underway BEFORE the inventory

unwind begins. Yikes!

The fact that only a handful of bright people

recognize something as being wicked mostassuredly does not prevent it from this way

coming.

Stephanie continues:

...If the history shown [chart, right] is

any guide, the de-stocking cycle will

depress growth for many quarters to

come—putting the Fed farther from its

forecasts and its beloved targets.

Here’s another scary thought: Imagine

what nominal GDP would look like

had it NOT been for this insane

inventory boom?? Oh. Right. No need

to imagine! We’ll find out once the

inventory cycle ends.

The average of the last four inventory

cycles saw nominal growth get cut

exactly in half, from an average of 7.9%

at the inventory peak, to 3.9% at the trough. A repeat today would take nominal growth to

just 1.8%. Suddenly 2.1% on the 10-year doesn’t look so shabby, does it?!

But it was Stephanie’s final chart which had me breathing into a brown paper bag like a dowager

having an attack of the vapours. Pray silence for the inventory-to-sales ratio:

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Any questions?

Good, because that chart goes back

50 years.

Let’s move on. There’s a lot more to

cover.

The combination of an impressively

crowded calendar of Fed governors’

speaking engagements this week,

and Friday’s absurd shocking

borderline ridiculous strong non-farm

payrolls number has put a December

rate hike very much back on the

cards and the futures market is now

implying a 70% probability for a

25bp increase - the first in almost a

decade. The problem, however (and

it is one we have discussed often in

these pages) is that, based on the

internal state of the US economy

(as well as that of the wider world

across both the sea and the shining

sea), the Fed being forced into hiking

rates even 25bp may be the last thing

anybody needs right now.

My good friend Simon Hunt, a

confirmed naysayer about the optical

strength of the US economy also

weighed in this week in an email to

me in which he pointed out a few ofthe data points which suggest all is

not well with the biggest dog in the park:

(Simon Hunt): US Real Household Income was released in September and shows how

household income has fallen in recent years with only the top 1% experiencing growth in

income and wealth. In fact the data shows that 60% of the workforce had a real income

that averaged $32,300 in 2014 with 40% having an average income of only $21400.

Source: Bloomberg

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov

Fed Funds Futures: Implied Chance of 25bp HikeAt December 16th 2015 FOMC Meeting

http://www.shss.com/http://www.shss.com/

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These official income figures hardly suggest that real retail sales are rising let alone

matching the official data. In fact every

quintile including the top 5% has

experienced a reduction in real household

income since their peaks in either 1999 or

2006; the bottom quintile’s income fell by

17%, the fourth by 11%, the middle by 7%,

the second by 3% and the top quintile by

2%...

Challenger Gray reports that in the third

quarter large US-based corporations

announced a total of 205,759 lay-offs, the

worst quarter since third quarter 2009. Sofar this year these lay-offs totaled 493,431,

an increase of 36% over 2014.

Then, just as I was ready to move a little farther down the list of those economies supposed to do the

heavy-lifting in the next couple of decades, up popped Fred Hickey with a few more observations of

his own as to the real health of the US:

(High Tech Strategist): Durable Goods orders (reported last week) were down a worse-

than-expected 1.2% in September and for the first nine months of the year are 4.6%

lower compared to the same period in 2014...with the exception of autos, retail spending

has been soft, Auto sales have been strong for the same reason housing sales were in

the mid-2000s—lenders have

basically abandoned lending

standards...looking forward, the

New York Fed’s latest Survey of

Consumer Expectations shows

that Americans’ spending plans

over the next year are sharply

deteriorating...The long-in-the-

tooth, substandard ‘recovery’ is

showing signs of rolling over, ed by

declines in industrial production,

exports and a weakening

consumer...

Sou

-80

-70

-60

-50

-40

-30

-20

-10

0

10

20

30

40

50

Q3 2012 Q3 2013 Q3 2014 Q3 2

Challenger Gray Job Cut Announcements (YoY %)Q3 2012 - Q3 2015

Source: NY Fed Survey of Consumer Expectations/B

5.0%

4.5%

4.0%

3.5%

3.0%

6/13 8/13 10/13 12/13 2/14 4/14 6/14 8/14 10/14 12/14 2/15 4/15 6/15

Median Expected Change in Household Spending (next 12 Jun 2013 - Aug 2015

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Interestingly, both Fred and Simon included a quote from a recent conference call in their summaries

which I had also identified as worthy of inclusion in this week’s Things That Make You Go Hmmm.... It

was this one, from Daniel Florness, the CEO of Fastenal:

“The industrial environment is in a recession—I don’t care what anybody says becausenobody knows the market better than we do. You know, we touch 250,000 active customers

a month...”

Apparently, 44% of Fastenal’s top 100 customers have reduced spending in the last year. 32 of them

had cut spending by more than 10% and 17 of them had cut expenditure by 25% or more. As Florness

said, “That’s a sign of a recessionary environment”.

We could go on trying to unravel the mysteries of the US economy for several more pages, but,

instead, let’s take a quick tour around some of the other economies which are supposed to be driving

global growth going forward an see how they’re doing.

Firstly, China.

The opacity around Chinese data

is legendary, but some recent

releases cast doubt on how much

slack the Middle Kingdom can be

expected to pick up.

Firstly, like the US, it is seeinga bifurcated economy with the

services sector doing far better

than its traditional manufacturing

base. This speaks to a degree

of success in the country’s

much-touted transition towards

a services-based economy,

HOWEVER, as you can see from

the chart, the trajectory of bothsectors is hardly the stuff of victory

laps and Mission Accomplished banners.

Secondly, the widely-watched Li Keqiang Index (so-called as it represents the former Premier’s

preference for tracking changes in bank lending, rail freight, and electricity consumption to measure

the strength of the Chinese economy as opposed to GDP figures—which he believed were, according

to a Wikileaks cable, “man-made”) hardly paints a picture of robust health:

Source: Blo

38

43

48

53

58

63

China Manufacturing vs Non-manufacturing PMI2007 - 2015

2007 2008 2009 2010 2011 2012 2013 2014

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Meanwhile, my great friend Raoul Pal recently put together

a little snapshot of the health of China’s economy and...well

let’s just say it’s not great:

Source: Bloomberg

0

5

10

15

20

25

30

2007 2008 2009 2010 2012 20142011 2013 2015

China: Li Keqiang Index(Bank Lending, Rail Freight & Electricity Consumption)

2007 - 2015

Economic Statistic D

China Export Trade -8.8%

China Import Trade -17.6%

China Imports From Australia -27.3%

Industrial Output Crude Steel -3%

Cement Output -3.2%

Industrial Output Electricity -3.1%

Manufacturing PMI

Services PMI

Railway Freight Volume -17.34%

Total Electricity Consumption -0.20%

CPI +1.6%

PPI -5.9%

Hot Rolled Steel Price Index -35.5%

Fixed Asset Investment +10.

Retail Sales +10.9

Shanghai Composite Index -30% since

*43 consecutive months of

**average. +23% between 200

***slowest in 1

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Elsewhere, China’s container freight numbers are

at their lows...:

...and a whiff of desperation hangs over Chinese

interest rate policy as the PBoC tries the standard

SPECTRE operating procedure of explaining why

things are so great....while simultaneously cutting

both interest rates and reserve requirements as

fast as they can...:

Meanwhile, the plight of the steel market

exemplifies both the bind China finds itself

in as well as the knock-on effects of today’s

interconnected global economy as the negative

consequences find their way into someone else’s

backyard in very short order.

Anytime the largest producer (and consumer) of

a commodity rapidly expands exports against a

backdrop of steadily falling prices, the marginal

producer is going to have something to say aboutit. Come in India. We can hear you:

(Bloomberg): ArcelorMittal is taking the

latest knock from record Chinese steel

exports hurting producers across the

globe.

Source: Bloom

2000

4000

6000

8000

10000

12000

2009 2010 2011 2012 2013 2014

Chinese Steel Exports vs Composite Steel Price Index2009 - 2015

Source: Bl

16

17

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China: RRR & 1-Year Lending Rate2010 - 2015

2010 2011 2012 2013 2014 2015

Source: Bloomberg

40

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2010 2011 2012 2013 2014 2015

China Containerized Freight Index2010 - 2015

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The world’s biggest steelmaker on Friday cut its full-year profit target and suspended its

dividend, putting the blame on the flood of cheap steel from China’s loss-making mills.

The market is being overwhelmed with material coming from the nation’s state-owned and

state-supported producers, a collection of industry associations said Thursday.

“It is obvious that we are operating in a very challenging market,” Chief Financial Officer

Aditya Mittal said on a call with reporters. “This is essentially the result of very low export

prices out of China that are impacting prices worldwide.”

The steel industry has been roiled by the slowest economic growth in two decades in

China, the biggest consumer. The flood of cheap exports from the nation has drawn

complaints from Europe and the U.S. that the shipments are unfair.

Bloomberg Intelligence estimates Chinese steel shipments overseas will exceed 100

million metric tons this year, more than the combined output of Europe’s top four

producing countries.

...which is how the malaise spreads to India—the country forecast to be the #3 economy in the world

by 2030.

And, while India has plenty of positive tailwinds, the problems the country will face if both the US and

China slow will be impossible to counteract.

Japan, the #4 economy in 2030? Well if you’re a regular reader, you’ll know how risible Abenomics

is and, rather than go through it all again, let’s just pick a couple of bullets from the most recentdata release which happens to be a survey on household wealth published by the BoJ. The survey

highlights a scenario familiar to anybody paying attention to SPECTRE operations:

(Bloomberg): Signs of inequality in Japan are increasing as people living on their own fall

further behind and wealthier households accumulate more assets, according to surveys

released Thursday by the Bank of Japan.

The ratio of single-member households with no financial assets climbed to almost

48 percent in 2015, the highest level since 2007, from about 39 percent a year earlier,

according to an annual survey by the central bank. At the same time, households with two

or more people who held assets such as stocks and bonds saw these rise to a record high

18.2 million yen ($149,597), a separate BOJ report showed

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While the percentage of single households with no financial assets surged, it barely

budged among households with more than two people, going to 30.9 percent from

30.4 percent last year. The median of financial assets among one-person households

dropped to 200,000 yen from 750,000 last year, according to the BOJ data... Low-income

households are feeling the effects of last year’s sales-tax hike and limited wages gains

while more well off Japanese are benefiting from the swelling value of their investment

portfolios.

“Inequality seems to be widening,” said Hiroshi Hanada, head of economic research

at Sumitomo Mitsui Trust Bank Ltd. “A sales-tax hike and price increases last year hit

households hard. Abe hasn’t succeeded to bring benefits to most ordinary people.”

Ahhhh.... SPECTRE.... maybe that whole idea of achieving world domination by concentrating power

in the hands of a few of your sympathizers wasn’t so far-fetched after all.

Moving down the list of the biggest economies in 2030, we get to Germany at number 5:

(WSJ): A slump in German

industry hit economic growth in

the third quarter, as businesses

were feeling the pinch from weak

demand from China and other key

developing economies.

Friday’s release of surprisingly

weak German industrial output

data prompted many economists

to lower their growth forecasts for

the eurozone’s powerhouse. But

lackluster German manufacturing

is also putting a big question

mark over the region’s growth

projections for the third quarter,

economists cautioned.

“Gross domestic product numbers will probably come in surprisingly weak compared

to what we and others expected back in summer,” said Andreas Rees, UniCredit’s chief

German economist in Frankfurt.

China causes problems for Germany which, in turn, damages the rest of the EU... contagion is a

perilous thing.

Sou

-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Germany: Industrial Production (MoM %)2009 - 2015

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Next in the rankings is current problem

child, Brazil, an export-driven country

mired in a deep recession, its currency

under siege from a surging dollar and the

hole in its budget growing larger and more

mysterious by the week:

(FT): Every week that passes

in recession-hit Brazil seems

to bring a new, bigger estimate

for the size of the hole in the

government’s finances.

The latest came last week fromHugo Leal, a lawmaker from

congress’s fiscal commission who

is overseeing a bill covering the

government’s 2015 budget.

Earlier this month he said he would amend the bill to allow for a 2015 primary fiscal deficit

— the budget balance before interest rates — of R$119.9bn (US$32bn), more than double

that of the government’s most recent official estimate.

As government debt grows so does the burden of servicing it, eating up the budget in acountry that has among the highest interest rates in the world, with the central bank’s

benchmark lending rate running at 14.25 per cent.

“It is going to be like [playing] Pac-Man,” said Angel Gurría, the secretary-general of the

Organisation for Economic Cooperation and Development, during a recent visit to Brazil.

“You run like crazy simply to stay where you are.”

The deterioration in Brazil’s public finances follows the onset of what is expected to be

the country’s worst recession since the 1930s, with the economy on track to contract 3 per

cent this year and 1 per cent in 2016.

Much of that is down to a slowdown in China which has weakened demand for Brazil’s

commodities exports and lessened tax revenues. To counter this, the government of

President Dilma Rousseff, during her first four-year term that ended in 2014, implemented a

series of stimulus measures consisting of price controls and tax breaks for industry.

See any common themes in there? Yes, it’s our old friend the ‘slowdown in China’ once again.

Source:

-4

-2

0

2

4

6

8

10

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2

Brazil: Change in GDP (Y0Y %)1996 - 2015

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Gross public debt is rising fast—from 58.9% of GDP at the end of 2014 to 66% in September of this

year—and, with interest rates where they are, Brazil’s debt service costs already eat up almost 10% of

the country’s GDP.

OECD Secretary General, Angel Gurría was succinct in his summation of the problems facing Brazil:

“The arithmetic is brutal”.

Indeed.

Right behind Brazil lies the UK—a country where

one of SPECTRE’s most high-profile members

operates—a man known simply as ‘Jaws’.

The UK has, to many observers, navigated the

crisis of the last few years magnificently with

plaudits for the Conservative government’s

‘austerity’ program being thrown about like

rice at a wedding, but despite a supposedly

robust economy, decent employment growth

and a ‘healthy’ manufacturing sector (UK

manufacturing PMI jumped to 55.5 in October

(versus expectations of 51.3)—its strongest

performance in 16 months), something is amiss.

The PSBR continues to trend higher, gross

government debt likewise—and at a far steeper

rate than it ever did pre-austerity and, somewhat

mysteriously, the management of expectations

around the first interest rate hike are being

managed to an extraordinary degree:

(UK Daily Telegraph As

policymakers voted 8-1in favour of leaving

rates unchanged,

Mark Carney, the Governor of the Bank of England, said Britain’s strong

domestic performance was set against “foreign weakness”, particularly in

emerging economies, which remained vulnerable to higher US interest

rates and subdued commodity prices.

UK Government Gross Debt1980 - 2015

0

500

1000

1500

2000

1980 1985 1990 1995 2000 2005 2010

The Age o

Fauxsterit

Source

-40

-35

-30

-25

-20

-15

-10

-5

0

5

10

15

20

25

Fauxsterity: UK Public Sector Borrowing Requirement (PS2009 - 2015

2009 2010 2011 2012 2013 2014

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The Bank’s quarterly Inflation Report showed the domestic economy was expected to

remain “resilient”, with real income growth this year forecast to be the strongest since the

financial crisis. Investment intentions also remained robust, policymakers noted.

However, the Bank trimmed its UK and global growth forecasts and said the renewed fallin commodity prices and the impact of sterling’s strength was likely to keep inflation, as

measured by the consumer prices index (CPI), below 1pc until the fourth quarter of 2016,

which is well below the Bank’s 2pc target...

...Carney says that there has been an “implied move out” in the date when interest rates will

start to rise in the UK.

“The second thing that has changed since August is our outlook for global growth,

particularly for emerging markets.

“We used this last three months to look at the medium term outlook for emerging markets

... [slower growth is] a notable drag [for the UK], almost exclusively because of emerging

markets.”

The old ‘emerging market weakness’ ploy, eh?

James Knightly of ING was just one commentator who was confounded by the disconnect between

word and deed:

This clear dovish shift in the BoE’s thinking seems a little odd in an environment wherethe growth numbers are looking pretty good and where service sector inflation is pushing

higher (currently 2.5%YoY).

Furthermore, next week’s labour report is expected to post another decent jobs gain and

wage growth figure...

‘Odd’. Yes. Odd.

Against the backdrop of trying to adjust market expectations of a first rate hike into alignment with the

BoE’s preferences, Carney threw in one more curious little nugget at his press conference; something

no strong economy should be without—the idea of potentially negative rates:

“If we ever needed to, we could cut interest rates again”

A familiar coordinated refrain from SPECTRE operatives of late as you can see:

(Reuters): The Federal Reserve would consider pushing interest rates below zero if the U.S.

economy took a serious turn for the worse, Fed Chair Janet Yellen said on Wednesday.

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“Potentially anything - including negative interest rates - would be on the table. But we

would have to study carefully how they would work here in the U.S. context,” Yellen told a

House of Representatives committee.

This would happen if the economy were to “deteriorate in a significant way,” she said,adding that she believed negative rates “would have some at least modest favorable effect

on banks’ incentives to lend.”

Whilst desperately trying to bolster confidence in their own domestic economies, fear over

‘lower global growth’ percolates every official communication from SPECTRE operatives

around the world.

Strong economy + negative interest rates = SPECTREVISION.

There are clear discrepancies between the story SPECTRE are trying to sell to the public and thedata they are seeing coming down the pipe but because of the actions they have taken over the last

decade or so, they find themselves in the unenviable

position of requiring absolute faith in their abilities to be

maintained otherwise their plans for the global economy

will be foiled.

We could carry on down the list of the world’s projected

top economies for 2030 to number 8, but that would

merely take us to France, the socialist basketcase

European powerhouse whose unemployment rate won’t

fall below 10% and whose budget deficit is forecast to

miss EU targets this year, next year and again in 2017

(and this after a fresh two-year ‘respite’ period being

granted by Brussels). In 9th spot we find Canada,

another resource-dependent nation with the added

bonus of a housing bubble and whose citizens owe

$1.67 in debt for every dollar of income they generate

and, at number 10, there is Russia who.... oh for

goodness sake...there just isn’t time.

The bottom line is this: No matter which way you cut it,

SPECTRE’s attempts to resuscitate the global economy

(even if they are trying to do it on a localized basis) are

becoming increasingly more desperate and increasingly

more likely to end in failure of some sort—likely ‘total’.

Sou

7

8

9

10

11

France: Unemploment Rate2000 - 2015

2000 2001 2002 2003 2004 2005 2006 2008 2010 2012 2013 2007 2009 2011

Source: Statistics Can

98

108

118

128

138

148

158

168

1995 2000 2005 2010

Canada: Household Debt to Income1995 - 2015

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Recessions are NEEDED in so many countries that have binged on debt for decades on end that the

denouement of this sorry episode is all but baked in the cake—but that will never deter SPECTRE as

long as they can maintain belief in their capabilities. In order to stave off those recessions, the money

spigots are wide open, negative rates are very much on the table and fresh rounds of stimulus will be

applied as and when necessary.

Willem Buiter and Nouriel Roubini have recently joined the chorus of respected economists issuing

warnings of the rising chance of a global recession but one man who has drunk so much of the Kool-

Aid he’s virtually turned blue is Ambrose Evans-Pritchard and, while his thesis is based on his firm

embrace of Keynesian claptrap economics, it’s worth hearing him out (you’ll find the full article on

page 25):

(UK Daily Telegraph): The eurozone is no longer hurtling into a 1930s deflationary vortex. A

trifecta of cheap money, cheap oil and a cheap euro have entirely changed the landscape,and now the European Central Bank seems curiously determined to push stimulus yet

further by doubling down on QE. Central banks are strange animals, pro-cyclical by nature.

The monetary results are already clear. The narrow M1 measure of cash and checking

accounts - watched as an early warning indicator of short-term spending - rose at an

explosive pace of 11.7pc in September. Lending is at last picking up.

For those who dismiss monetarism as akin to voodoo or soothsaying, the story is much the

same on the Keynesian front. Passive fiscal loosening is under way in all three economic

blocs.

The drastic fiscal squeeze that aborted the eurozone recovery four years ago and nearly

destroyed monetary union is nothing more than a bitter memory. Italy, Spain and France

are taking matters into their own hands, and Brussels has lost faith in its own theories of

expansionary fiscal contractions. Berenberg Bank says EMU fiscal policy is neutral in 2015

and 2016.

No matter what, SPECTRE cannot possibly be successful if they face a combination of weak

developed economies and weakening emerging economies. Their plans will end in smoking ruins

like so many others of similar nature as realization dawns on the citizens of the world they wish todominate that what they say doesn’t tally with their actions.

As the main quote on the cover of this week’s Things That Make You Go Hmmm... so perfectly

conveys, the real world SPECTRE (just like its fictional counterpart in Ian Fleming ‘s novels) finds

itself in an environment where its very existence depends upon the keeping of certain promises.

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Those promises seem to somehow

simultaneously include imminent

rate hikes and the possibility of

negative rates if needed and all

it is going to take is the world to

wake up to the idea that maybe,

just maybe, those two notions are

incompatible and SPECTRE is

bound to break one promise or the

other—perhaps both.

Should those promises be broken,

as Blofeld himself said, the

organization’s entire survival is in jeopardy and THAT prospect should

be enough to scare the Living

Daylights out of you.

Beforewe get to what’s in store for you in the pages ahead, my sincere thanks this week to so

many friends and peers for allowing me to use their brilliant material to help flesh out (and vastly

improve) my own thoughts. To Raoul, Simon, Fred, Stephanie (not just for the data and charts, but for

turning me on to the world of ‘pre-idea funding’—seriously! See p.29) and Rich—thank you!

This week, Ambrose Evans-Pritchard kicks things off with a rather bold wager regarding the possibility

of a global recession (I have a great deal of respect for Ambrose’s thinking, but, if you’re reading this

Ambrose, I hope you like the taste of felt), before Lord Turner (to use the words of a friend of mine

who sent me this particular story) ‘goes off the reservation.

We hear why the 2016 US Presidential race may be the most important election of our lifetime, howChinese companies are getting creative and cashing in and how the Portuguese Communist Party is

about to upset the European apple cart.

Myanmar goes to the polls and change is afoot (as well as plenty of political chicanery), the German

government’s role in the VW scandal comes under the spotlight, the new Chief Economist at the

IMF demonstrates without doubt that he is the right man for the job and, as promised there is that

introduction to ‘pre-idea’ funding. Market top, anybody?

Source: Bl

-5

-4

-3

-2

-1

0

1

2

3

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1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 201

World GDP (YoY%)1996 - 2015

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Jeremy Warner frets about cracks in the American Dream, Rich Ross has a point to make about the

2-year Treasury, the appalling job of communicating their intentions being done by the FOMC is laid

bare in a single chart and the damage VW’s problems have caused to its supply chain partners make

for uncomfortable reading.

Lastly, we have a superb interview with the always-brilliant Jim Grant, we witness David Stockman’s

capacity for patience under inane questioning and we go back in time to 1981 and a speech given

by Ronald Reagan which is an absolute must-watch to see a) how times change, b) what an honest

politician used to look like and c) how yesterday’s ideas about what is “literally beyond our human

comprehension” can become commonplace in just a few decades (thanks Dom!).

Finally, strap yourselves in for an absolutely amazing video shot in the skies over Dubai.

That’s all from me for now, but before I leave you, a brief piece of housekeeping:

I will be taking a week off from publishing during the week before Thanksgiving as I will be traveling to

San Francisco and then London to speak at the Silver Summit and Mines & Money so I’ll see you all

back here on December 6th.

UNTIL NEXT TIME...

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I’LL EAT MY HAT IF WE ARE ANYWHERE NEAR A GLOBALRECESSION: AMBROSE EVANSPRITCHARD

The damp kindling wood of global economic recovery is poised to catch fire.For the first time in half a decade of stagnation, government policy has turned expansionary

in the US, China and the eurozone at the same time. Fiscal austerity is largely over. The combined

money supply is surging.

Such optimistic claims are perhaps hazardous, given record debt ratios in most areas of the world and

given that we are six-and-a-half years into an aging economic cycle that might normally be rolling over

at this stage. It certainly feels lonely.

Citigroup’s Willem Buiter has issued a global recession alert. Professor Nouriel Roubini from New York

University joined him this week, warning that the odds of a fresh slump have doubled to 30pc.

Mr Roubini’s gloom is unsettling for me. We saw the world in almost exactly the same way in the lead-

up to the Lehman crisis, when it seemed obvious to both of us that sharply rising interest rates would

prick the US housing bubble and the EMU credit bubble.

This time I dissent. Years of fiscal retrenchment and balance sheet deleveraging have prevented the

current global economic recovery from gathering speed, and have therefore stretched the potential

lifespan of the cycle.

The torrid pace of worldwide money growth over recent months is simply not compatible with an

imminent crisis.

A combined gauge of the global money supply put together by Gabriel Stein at Oxford Economics

shows that the “broad” M3 measure grew by 8.1pc in

August, and by almost as much in real terms. This is

the fastest rate in 25 years, excluding the final blow-off

phase of the Lehman boom.

The index has since fallen back slightly as the US

settles down but the pattern is clear. It bears no relation

to the monetary implosion in early to mid-2008 before

the collapse of Fannie Mae and Freddie Mac, the twin

mortgage giants that in turn brought down the banking

system.

http://www.telegraph.co.uk/finance/economics/11973507/Ill-eat-my-hat-if-we-are-any-where-near-a-global-recession.htmlhttp://www.telegraph.co.uk/finance/economics/11973507/Ill-eat-my-hat-if-we-are-any-where-near-a-global-recession.htmlhttp://www.telegraph.co.uk/finance/economics/11973507/Ill-eat-my-hat-if-we-are-any-where-near-a-global-recession.htmlhttp://www.telegraph.co.uk/finance/economics/11973507/Ill-eat-my-hat-if-we-are-any-where-near-a-global-recession.htmlhttp://www.telegraph.co.uk/finance/economics/11973507/Ill-eat-my-hat-if-we-are-any-where-near-a-global-recession.html

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It is, of course, possible that money signals have lost their meaning in our brave new world of zero

rates and secular stagnation, but the current pace of growth would typically imply a flurry of economic

activity over the following year or so.

“It is a very benign picture for the world. We should see above trend growth over the next year,” saidTim Congdon from International Monetary Research.

Mr Congdon said the expansion of broad money in China has accelerated to an annual pace of

18.9pc over the past three months, thanks in part to equity purchases by the central bank (PBOC),

a shot of adrenaline straight to the heart - otherwise known as quantitative easing with Chinese

characteristics.

The eurozone is no longer hurtling into a 1930s deflationary vortex. A trifecta of cheap money, cheap

oil and a cheap euro have entirely changed the landscape, and now the European Central Bank

seems curiously determined to push stimulus yet further by doubling down on QE. Central banks are

strange animals, pro-cyclical by nature.

The monetary results are already clear. The narrow M1 measure of cash and checking accounts -

watched as an early warning indicator of short-term spending - rose at an explosive pace of 11.7pc in

September. Lending is at last picking up.

For those who dismiss monetarism as akin to voodoo or soothsaying, the story is much the same on

the Keynesian front. Passive fiscal loosening is under way in all three economic blocs...

With no incumbent on the ballot, the 2016 election will present a stark choice between a

Democratic Party moving to President Obama’s left and a Republican alternative that’s veered

sharply rightward. Although the views of the American public have remained relatively stable over the

past 60 years, the ideological polarization of Democratic and Republican politicians has increased

steadily for decades. “The chasm between the two parties is the greatest it’s ever been,” says Neera

Tanden, president of the Center for American Progress, a liberal Washington think tank.

What divides candidates in both parties isn’t just their solutions to policy problems; they disagree

about what the problems are. In debate after debate, the most hotly contested issues differ almost

entirely depending on which party is doing the talking. The Democrats focus on climate change, police

brutality against black Americans, and the need to raise the minimum wage, whereas Republicans

emphasize immigration restrictions, religious liberty, and their desire to unwind Obama’s major

achievements, including the Dodd-Frank financial reforms and the Affordable Care Act.

WHY 2016 MAY BE THE MOST IMPORTANT ELECTIONOF OUR LIFETIME: BLOOMBERG

http://www.bloomberg.com/news/articles/2015-11-05/why-2016-may-be-the-most-important-election-of-our-lifetimehttp://www.bloomberg.com/news/articles/2015-11-05/why-2016-may-be-the-most-important-election-of-our-lifetimehttp://www.bloomberg.com/news/articles/2015-11-05/why-2016-may-be-the-most-important-election-of-our-lifetimehttp://www.bloomberg.com/news/articles/2015-11-05/why-2016-may-be-the-most-important-election-of-our-lifetimehttp://www.bloomberg.com/news/articles/2015-11-05/why-2016-may-be-the-most-important-election-of-our-lifetime

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Even within Democratic and Republican spheres, the discussion has shifted significantly. Consider

gun control, an issue Democrats assiduously avoided for a decade, after party strategists concluded

it cost Al Gore the 2000 election. No longer. “I’ve been told by some to quit talking about this, to quit

shouting about this,” Democratic front-runner Hillary Clinton declared about her push for stricter gun

laws at an Oct. 15 rally in San Antonio, after attacking her chief rival, Bernie Sanders, for his tepid

support of gun control. “I will not be silenced. We will not be silenced. We must continue to speak out.”

In almost every area of domestic policy, Democrats and Republicans would point the country toward

radically different futures. The centerpiece of Obama’s energy initiative, the Environmental Protection

Agency’s Clean Power Plan, would restrict emissions from power plants. Republican-led states are

challenging it in court. If it’s struck down, the next president will rewrite the rules. Every Democratic

candidate shares Obama’s commitment to halting climate change. Most Republican hopefuls reject

the science that explains rising global temperatures and have vowed to scrap controls on greenhouse

gas emissions. “I will stop the EPA’s Clean Power Plan,” Marco Rubio said while introducing his energypolicy on Sept. 2.

Or take health care. Any Democratic president will preserve the Affordable Care Act. “Whoever the

Republican nominee is, you can bet that repeal of the ACA will be a part of the platform,” says Larry

Levitt of the nonprofit Kaiser Family Foundation, which studies health care. “It’s Republicans who want

to upend the status quo on health care, leaving the parties very far apart.” A full repeal may not be

politically feasible, because the law covers 17 million people, and even some Republican governors

have embraced the federally funded expansion of Medicaid, Obamacare’s main vehicle for extending

care to the poor. Short of repeal, a hostile president might push to weaken insurance marketregulations, cut subsidies for the working class, and cap Medicaid spending.

The widest gap between the parties may be how they would reshape the Supreme Court, which may

have the final word over many of these policy questions. By next November, four of the nine justices

will be 78 or older, including the court’s most frequent swing voter, Anthony Kennedy. Obama’s

successor may have the chance to replace all four. If so, a Republican president could give the court a

7 to 2 conservative majority; a Democrat could create a 6 to 3 liberal advantage. “There’s the potential

for a generational change in the direction of the court,” says Ed Whelan, president of the Ethics

and Public Policy Center, a conservative think tank. “We may be looking at a two- or three-decade

entrenchment of a liberal or conservative court.”

The inclusive, post-partisan vision that animated Obama’s candidacy in 2008 has long been dead.

This, at least, is among the dwindling areas of bipartisan agreement. Asked at the Oct. 13 Democratic

debate to name the enemy she’s proudest of, a beaming Clinton replied, “The Republicans.” No one

can doubt the feeling is mutual...

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The 2008 financial crash was a self-inflicted, avoidable economic catastrophe. It wasn’tthe result of war or political turmoil, or the consequence of competition from emergingeconomies. It didn’t derive from underlying tensions over income distribution or from profligate

government spending.

No, the origins of this crisis lay in the dealing rooms of London and New York banks and shadow

banks -- part of a global financial system whose enormous personal rewards had been justified by the

supposed economic benefits of financial innovation and increased financial activity.

Too Big to Fail Many people are legitimately angry that few bankers have been punished. Some wereincompetent, others dishonest. Yet they were not a fundamental driver of the crisis any more than the

misbehavior of individual financiers in 1920s America caused the Great Depression.

Post-crisis regulatory reforms also miss the mark. Much focus has been placed on making sure

that taxpayers never again have to bail out “too big to fail” banks. That’s certainly important, but

government bailout costs were small change compared with the total harm the financial crisis caused.

The Federal Reserve has sold all its capital injections into banks at a profit, and made a positive

return on its provision of liquidity to the financial system. Across the advanced economies, bailout and

support costs will be, at most, 3 percent of gross domestic product.

The full economic cost is far bigger. Advanced economies’ public debt on average increased by 34

percent of GDP between 2007 and 2014. More important, national incomes and living standards in

many countries are 10 percent or more below where they could have been, and are likely to remain

there in perpetuity.

Such losses could happen again, and neither bankers threatened by prison nor a no-bailout regime

will guarantee a more stable financial system. A fixation on these issues threatens to divert us from

the underlying causes of financial instability.

The fundamental problem is that modern financial systems inevitably create debt in excessive

quantities. The debt they create doesn’t finance new capital investment but the purchase of existing

assets, and above all real estate. Debt drives booms and financial busts. And it is a debt overhang

from the last boom that explains why recovery from the 2007–2008 crisis has been so anemic.

THE DEVIL’S IN THE DEBT: ADAIR TURNER

http://www.bloombergview.com/articles/2015-11-06/inequality-and-excessive-debt-cause-financial-crisis?utm_campaign=trueAnthem:+Trending+Content&utm_content=563cc7f604d3011993383095&utm_medium=trueAnthem&utm_source=twitterhttp://www.bloombergview.com/articles/2015-11-06/inequality-and-excessive-debt-cause-financial-crisis?utm_campaign=trueAnthem:+Trending+Content&utm_content=563cc7f604d3011993383095&utm_medium=trueAnthem&utm_source=twitterhttp://www.bloombergview.com/articles/2015-11-06/inequality-and-excessive-debt-cause-financial-crisis?utm_campaign=trueAnthem:+Trending+Content&utm_content=563cc7f604d3011993383095&utm_medium=trueAnthem&utm_source=twitter

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Debt creation is a form of economic pollution. Heating a house or fueling a car is necessary, yet the

carbon emissions are harmful to the climate. Lending a family money to buy a house is socially useful,

but too much mortgage debt can make the economy unstable.

Debt pollution, like environmental pollution, must be constrained by public policies that go beyondcurrent regulatory reforms. We must focus on the most important causes of the 2008 crisis and

recession. Those lay in the specific nature of debt contracts, and in the ability of banks and shadow

banks to create credit and money.

Throughout history, religious and moral philosophers have been wary of debt contracts. But

economists convincingly argued that debt contracts play a crucial role in capitalist growth. Debt

that delivered a predefined return made it possible to mobilize savings and capital investment for

19th century railways and 20th century manufacturing plants. These developments might not have

happened if investment had to take a more risky equity form.

But debt contracts also have adverse consequences: They’re likely to be created in excessive

quantities. And the more debt an economy assumes, the less stable that economy will be. The

dangers of excessive debt creation are magnified by the existence of banks and the predominance

of certain kinds of lending. Almost any economics or finance textbook will describe how banks take

money from savers and lend it to borrowers, allocating money among investment options.

This is dangerously fictitious because banks don’t lend out existing money. They create credit, money

and purchasing power that didn’t previously exist. And the vast majority of bank lending in advanced

economies doesn’t support new business investment but funds either increased consumption or thepurchase of existing assets, in particular real estate.

As a result, unless tightly constrained by public policy, banks make economies unstable. Newly

created credit and money increase purchasing power. But if the most desirable land in urban areas is

in scarce supply, the result is not new investment but asset price increases, which induces yet more

credit demand and yet more credit supply...

Alejandro Vicente Grabovetsky wants to build a software program that checks theveracity of online news items. The 30-year-old with a PhD in neuroscience from CambridgeUniversity plans to set his “media-truth-detector” loose on what he calls Russian propaganda, mostly

against his native Ukraine. He has three problems though: he’s not exactly sure how it’s going to work,

he doesn’t have any money to develop it, and he’s got no team to work with.

NO TEAM? NO IDEA? NO PROBLEM! THIS VC WILL FUND

YOUR STARTUP ANYWAY: WSJ

http://blogs.wsj.com/digits/2015/06/12/no-team-no-idea-no-problem-this-vc-will-fund-your-startup-anyway/http://blogs.wsj.com/digits/2015/06/12/no-team-no-idea-no-problem-this-vc-will-fund-your-startup-anyway/http://blogs.wsj.com/digits/2015/06/12/no-team-no-idea-no-problem-this-vc-will-fund-your-startup-anyway/http://blogs.wsj.com/digits/2015/06/12/no-team-no-idea-no-problem-this-vc-will-fund-your-startup-anyway/http://blogs.wsj.com/digits/2015/06/12/no-team-no-idea-no-problem-this-vc-will-fund-your-startup-anyway/

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Also, he’s not sure the technology “is there yet.”

Enter Entrepreneur First, a venture capital firm that says it invests in people “pre-idea, pre-team,”

which this week let Grabovetsky pitch his idea to see if he can get it off the ground.

Many wannabe entrepreneurs in EF’s program are pre-selected while still at university, where EF has

close contacts with professors to spot the students with the best academic records, science projects,

internships or publications. Two academics even hold equity in the company. “We spent a lot of time

on campuses,” said Zoe Jervier, a member of EF’s recruiting team, said.

As money pours into equity and venture capital firms, “pre-acceleration” programs are flourishing for

those interested in entrepreneurship but who don’t know where to start. It’s a risky, long-term bet on

untested entrepreneurs with no real product or business plan.

“We are probably the most risk-seeking investors in the world,” said Matt Clifford, EF’s co-founder.

Despite the seemingly wide-open “pre-team, pre-idea” pitch, EF has a tough selection process: 10%

of applicants are accepted after multiple rounds of interviews and even a logics and computing test.

EF gives startups access to funding, investors, connections and commercial support. Its “members”

receive a £3,500 stipend for three months, an amount that is “small enough to deter those who are

attracted by money, but big enough to live on in London,” Mr. Clifford said. They are encouraged to

find co-founders and if they can show a product that gets positive reviews after the first tests, they are

incorporated as a company and given £10,000 for an 8%-equity stake.

This is standard for each company, and there’s no negotiating terms.

EF says it has 100 entrepreneurs in its program, up from 33 people when it started in 2012.

Despite the risk-–30% of the entrepreneurs EF funds drop out without ever creating a company

–Clifford said he has no difficulty finding investors for his venture firm. Next week, EF plans to

announce it has raised new funding of “many millions.” He would not disclose who the funders are.

Five sponsors, including Microsoft +0.99%, the City of London Corporation and KPMG, cover 10% of

EF’s costs in cash and services. In return, they get a chance to poach EF “students” and their ideas

before anyone else.

“We’ll see if EF is a success in ten years,” said Toby Coppel, an investor and co-founder of London-

based Mosaic Ventures, a $140 million fund. “The startups themselves can take 5-10 years to

mature into big hits,” he added. In the interim, “they recruit the top computer science and engineering

graduates, which are a key ingredient to any new disruptive startup.”

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Entrepreneur First is not the only program that recruits entrepreneurs “talent only.” Silicon Valley-

based Founder Institute also accepts applicants without a team or a project. This March, it launched a

4-month program in London. It costs wannabe entrepreneurs almost £1,000 and a 3.5% equity stake

to participate.

Among the 32 who joined, two-thirds have already quit. “It is really hard to evaluate early stage

startups on their idea,” the Institute’s co-founder Jonathan Greechan said.

After 3 years, 70 people have graduated from EF’s program, including Emily Brooke, the founder of

Blaze, a bike laser projection light for cyclists. Brooke expects to generate more than £1 million in

revenue this year. Before meeting Mr. Clifford, she had “never heard of a start-up,” she said.

Two policy banks recently injected hundreds of billions of yuan into several publicly listedcompanies after raising the money through a government bond scheme.Some analysts are calling these cash-for-equity injections, worth upwards of 400 billion yuan

combined, a new and creative form of government stimulus set against the backdrop of China’s

weakening economy.

And while the injections targeted companies, sources who spoke with Caixin about the so-called

“special construction bonds” scheme say some money is being channeled to pay off some of the more

than 15 trillion yuan owed by local governments around the country.

Policy banks raised the funds they used to buy equity by issuing and selling bonds to state-run Postal

Savings Bank of China, sources who asked not to be identified said.

Each company receiving an injection had applied for and won approval for financial support from the

National Development and Reform Commission (NDRC), the government’s leading economic planner

The criteria used to pick winners was not made public, although sources said most recipients were

expected to use their funds for building-related projects.

The NDRC designed the scheme, which sees the Ministry of Finance provide cash and that

companies get policy bank support – or the local governments that control the companies – ultimately

bear all debt responsibilities.

As of October 27, four companies listed on the Shanghai or Shenzhen stock exchanges had

acknowledged receiving equity investments from CDB Development Fund, an arm of the

government’s China Development Bank (CDB), which is based in the capital.

COMPANIES CASH IN THROUGH CREATIVE

BOND SCHEME: CAIXIN

http://english.caixin.com/2015-11-05/100870447.htmlhttp://english.caixin.com/2015-11-05/100870447.htmlhttp://english.caixin.com/2015-11-05/100870447.htmlhttp://english.caixin.com/2015-11-05/100870447.htmlhttp://english.caixin.com/2015-11-05/100870447.html

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These included auto parts manufacturer Wanxiang Qianchao Co., motor and electrical equipment

manufacturer Wolong Electric Group Co., and a maker of water treatment machinery called Chengdu

Xiongrong Environment Co.

Separately, the construction materials supplier Yatai Group said in September that it had receivedfinancial backing from the Agricultural Construction Fund, a unit of the policy lender Agricultural

Development Bank of China (ADB).

Stock market investors reacted to the news by buying shares in companies targeted by the policy

banks, driving stock prices higher.

People close to the situation said the bond program tapped by the policy banks was approved in

August by the NDRC. The scheme calls for bond sale proceeds to be invested only in approved

companies.

Bond terms range from 10 to 20 years. Interest rates have not been disclosed, although one source

said the money was being made available at a 90 percent discount to market rates.

Bonds worth some 400 billion yuan were issued by the end of October, one of the sources said, and

an extra 200 billion yuan worth was expected to be issued this year.

Special construction bonds are being rolled out at a time of concern over China’s economic slowdown

The source said the NDRC’s long-range plan calls for policy banks to help support the economy by

issuing up to 1.5 trillion yuan worth of bonds through 2018. Also on the drawing board is a plan to

expand the program beyond Postal Savings so that more banks could buy the bonds.

In addition, the NDRC was expected to start reviewing more applicants in late October, a CDB official

said. The amount expected to be raised through the next round of bond issues “is larger than expected

due to concerns that the (economy) may be falling too quickly,” said the official.

Companies that have already announced cash-for-equity deals said their policy lenders will have no

influence over their operations, and that all funds will be repaid. Nevertheless, one source said, all

projects to be funded through the injections must “follow market rules” and provide a return for the

policy banks.

Some firms receiving money through the bond scheme are paying nominal amounts of interest.

Annual rates are as low as 1.2 percent, one source said. But a regional NDRC official said most

projects are expected to generate returns of 3 percent to 5 percent over 10 to 20 years.

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Some targeted projects are tied to China’s effort to expand trade and business abroad through the

government’s New Silk Road initiative. Others are designed to support transportation, construction

and industrial upgrading projects in regions targeted by the government for growth, including the

Beijing-Tianjin-Hebei Province area and along the Yangtze River.

“The purpose of the policy is to boost growth,” said the source.

Some funds will go toward the financing platforms run by local governments around China to improve

their capital conditions,” said the general manager of a platform in the eastern province of Jiangsu.

“Since local governments are seeing their fiscal revenues decline, many platforms are suffering from

capital shortages.”

The financing platforms are the major carriers of local government debt, which was estimated at 15.4

trillion yuan nationwide in 2014. Many experts think this estimate vastly understates the debt load...

Thousands waited for hours under a blazing sun on the football field in Taungup, a smaltown near the Bay of Bengal in Rakhine state in Myanmar’s west. Most wore the red T-shirtsof the National League for Democracy (NLD) and waved flags emblazoned with the party’s star-and-

peacock symbol (pictured). One teenager carried a rose, intending to present it “to my leader, to my

president”. When Aung San Suu Kyi’s four-wheel drive bumped into view, the crowd chanted “MaaSuu!”—Mother Suu.

On the face of it, the campaigning across Myanmar ahead of a general election on November

8th might seem nothing exceptional. Yet the scene in Taungup would have been unthinkable five

years ago—not least because the NLD was banned, Miss Suu Kyi was under house arrest and a

downtrodden people were under the army’s boot. Today Miss Suu Kyi sits in parliament. Her NLD is

set to reap the most votes in the election. To many in the West, it looks like a happy end to Myanmar’s

long and dark journey. In fact, the election is but one stepping stone to an uncertain future. Many

questions remain unanswered, including whether the Burmese can pull themselves out of poverty and

when ethnic conflicts that have raged for decades will end.

The most immediate question is how much power Myanmar’s armed forces, who have been in charge

since 1962, are willing to cede. The army wrote Myanmar’s constitution, which a sham referendum put

into effect in 2008. Two years later a few generals traded in their uniforms for longyis and set up the

Union Solidarity and Development Party (USDP). Together with the quarter of seats reserved by the

constitution for the army, it has a comfortable parliamentary majority.

CHANGE IN THE AIR: ECONOMIST

http://www.economist.com/news/asia/21677255-first-proper-election-generation-stepping-stone-uncertain-future-changehttp://www.economist.com/news/asia/21677255-first-proper-election-generation-stepping-stone-uncertain-future-changehttp://www.economist.com/news/asia/21677255-first-proper-election-generation-stepping-stone-uncertain-future-change

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Unlike in 1990, when the army ignored the election result, at least the outcome of this one appears

likely to be respected. But the soldiers are taking no chances. However well or badly the USDP does

in the election, the army’s 25% bloc will remain in place. The opening that Myanmar has witnessed

over the past five years is astonishing in comparison with what went before. But it is taking place on

the army’s terms.

The election is not entirely fair. Voter lists are inaccurate and ripe for abuse. In some violent areas

voting will not take place at all. Meanwhile, perhaps 1m Muslim Rohingyas in a largely Buddhist

country have been deemed stateless—non-persons ineligible to vote at all (see map). Three years

ago Taungup was at the centre of communal mayhem that quickly flared into a pogrom carried out by

Buddhist Rakhines against the Rohingya population. Tens of thousands of Rohingyas fled abroad on

rickety vessels.

But Miss Suu Kyi, a Nobel peace-prize winner, is turning a blind eye to some of the election’sblemishes, believing the process still marks a big step forward. Her visit to Rakhine was not a gesture

of sympathy with the Rohingyas. She has been shamefully silent on the topic. Muslims make up only

4% of Myanmar’s population, but being accused of supporting them is a fast way to lose Buddhist

votes.

That matters to Miss Suu Kyi. She shows a steely determination to help her party win. Wirathu,

a vitriolic Buddhist monk, and members of a pressure group calling itself the Association for the

Protection of Race and Religion, better known as Ma Ba Tha, have been campaigning against the

NLD in rural areas. They accuse the NLD of being pro-Muslim. Miss Suu Kyi says she deplores such

chauvinism. But the NLD has no Muslim candidates. In Rakhine, Muslim shopkeepers complain that

Buddhists boycott their shops and bus stations refuse them tickets. Yet on the campaign trail Miss Suu

Kyi offers only bromides.

In by-elections in 2012 the NLD won 43 out of 44 seats. This time it could win two-thirds of the 75%

of seats that are up for grabs, which it would need for a parliamentary majority. But a landslide is not

guaranteed. Despite Miss Suu Kyi’s popularity, and however hard it is to meet anyone who claims to

be a USDP supporter in the big cities, the army-backed party is a well-financed machine able to get

out the vote. Meanwhile, over 90 other parties, many ethnic-based ones, are also fielding candidates.

Not all support the NLD.

The parties have their eye on who will succeed President Thein Sein, a former general. His successor

will be elected by the new parliament when it convenes early next year. Legislators will choose from

among three candidates—one each nominated by the upper house, the lower house and the army.

The two losers automatically become vice-presidents, while the winner selects the cabinet...

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Is it RIP for the American dream, the founding ideal of the richest nation on earth? Reports ofits death have been doing the rounds for decades, but have generally proved much exaggeratedDespite setbacks, America’s capacity to inspire, innovate and grow has always eventually bounced

back. Now along comes the latest winner of the Nobel Prize for economics, the British-born Angus

Deaton, with some hard evidence of very serious deterioration, if not outright death.

With his wife, Anne Case, Deaton has crunched the numbers on

mortality and morbidity in the US and found that among middle-

aged, white, non-Hispanics, things are not going at all well. Unlike

virtually every other advanced economy, where rates of death and

ill-health in this particular cohort have been falling steeply, in the

US there has been virtually no progress for 25 years. Worse, the

rate has picked up sharply since the turn of the century, and is

now far and away the worst among rich, industrialised economies.

The chief causes of this reversal are alcohol, drugs and suicide, a

quite shocking finding that looks worryingly indicative of a broken

and divided society. It’s not quite Russia, which has virtually

Third World rates of mortality among middle-aged men, but it isgetting there. For a large number of non-college-educated white

Americans, hope and aspiration has given way to despair and

addiction.

There is nothing new about disillusionment with the American dream, which has an extensive literary

tradition, from Scott Fitzgerald’s Great Gatsby to Arthur Miller’s Willie Loman. In Death of a Salesman,

Loman’s eventual suicide – prompted by a growing sense of failure and lack of self-worth – is eerily

predictive of today’s epidemic of self-harm.

America still takes great pride in its reputation as an equal opportunities country, where determinationself-reliance and hard work are all that’s required to succeed. This may always have been something

of a myth, but to the extent that it ever was true, it has rarely looked under greater threat.

What has gone wrong? The higher death rate identified by Professor Deaton cannot be entirely

blamed on the destructive consequences of the financial crisis; it long pre-dates it, and in any case

mortality rates have continued to decline in most European countries, which if anything suffered an

even deeper slump.

CRACKS ARE SHOWING IN THE AMERICAN DREAM JEREMY WARNER

http://www.telegraph.co.uk/finance/economics/11978454/Cracks-are-showing-in-the-American-Dream.htmlhttp://www.telegraph.co.uk/finance/economics/11978454/Cracks-are-showing-in-the-American-Dream.htmlhttp://www.telegraph.co.uk/finance/economics/11978454/Cracks-are-showing-in-the-American-Dream.htmlhttp://www.telegraph.co.uk/finance/economics/11978454/Cracks-are-showing-in-the-American-Dream.html

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There may be some oddities in the American situation, for instance in the propensity of US doctors

to prescribe much higher dosages of opiates and other painkillers than their European counterparts.

But in the round it is hard to resist the conclusion that these higher mortality rates are mainly about

growing economic insecurity.

Globalisation has undermined many traditional sources of once secure blue-collar, and even white-

collar, work, making many forms of employment much more precarious. High school drop-outs have

particularly depressing wage and career prospects. Earnings and opportunity have continued to grow

strongly for the educated and well-trained. But the great hinterland of unskilled – well they’ve gone

nowhere...

This week wasn’t just a bad one for the Volkswagen concern. The German government isalso happy that it’s over. Berlin had painstakingly developed a damage control strategy inan effort to prevent the VW scandal from damaging the reputation of German industry as a whole.

Top advisors to Foreign Minister Frank-Walter Steinmeier had even written a confidential letter to

German diplomats around the world, providing guidelines for how they should go about defending “the

Germany brand.” “The emissions scandal should be presented as a singular occurrence,” they wrote.

“External communication” should focus “to the extent possible on preventing VW and the ‘Made in

Germany’ brand from being connected.”

But then Monday arrived and the announcement by the Environmental Protection Agency in the

United States that “VW has once again failed its obligation to comply with the law that protects clean

air for all Americans.” In addition to the 11 million diesel vehicles whose emissions values were

manipulated, additional models are also thought to have been outfitted with illegal software to cheat

on emissions compliance tests, including the popular SUV Cayenne. That vehicle is manufactured by

Porsche, the company that VW’s new CEO, Matthias Müller, used to lead before being hired to replace

Martin Winterkorn, who was ousted when the VW scandal first broke.

Then Tuesday arrived, and along with it the admission from Müller that VW had deceived even moreof its customers. The fuel consumption claims for more than 800,000 vehicles were manipulated, with

the specified average mileage not even achievable in testing, much less in real-world conditions. The

new scandal affects models carrying the company’s own environmental seal-of-excellence known

as BlueMotion, a label reserved for “the most fuel efficient cars of their class,” as the company itself

claims.

THE GERMAN GOVERNMENT’S ROLE IN THE VWSCANDAL: DER SPIEGEL

http://www.spiegel.de/international/business/vw-scandal-exposes-deep-complicity-of-government-a-1061615.htmlhttp://www.spiegel.de/international/business/vw-scandal-exposes-deep-complicity-of-government-a-1061615.htmlhttp://www.spiegel.de/international/business/vw-scandal-exposes-deep-complicity-of-government-a-1061615.htmlhttp://www.spiegel.de/international/business/vw-scandal-exposes-deep-complicity-of-government-a-1061615.htmlhttp://www.spiegel.de/international/business/vw-scandal-exposes-deep-complicity-of-government-a-1061615.html

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It has now become clear that such claims are a fraudulent lie. And it shows that this scandal may

continue to broaden before VW manages to get it under control.

Thus far, the �

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