Author: ColinTwiggs

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The rise of tyranny

From Andrew Sullivan in NYMag:

…..In Eric Hoffer’s classic 1951 tract, The True Believer, he sketches the dynamics of a genuine mass movement. He was thinking of the upheavals in Europe in the first half of the century, but the book remains sobering, especially now. Hoffer’s core insight was to locate the source of all truly mass movements in a collective sense of acute frustration. Not despair, or revolt, or resignation — but frustration simmering with rage. Mass movements, he notes (as did Tocqueville centuries before him), rarely arise when oppression or misery is at its worst (say, 2009); they tend to appear when the worst is behind us but the future seems not so much better (say, 2016). It is when a recovery finally gathers speed and some improvement is tangible but not yet widespread that the anger begins to rise. After the suffering of recession or unemployment, and despite hard work with stagnant or dwindling pay, the future stretches ahead with relief just out of reach. When those who helped create the last recession face no consequences but renewed fabulous wealth, the anger reaches a crescendo…..

Sullivan argues that Donald Trump is riding this populist backlash to the White House. I believe that the same populist forces are behind the BREXIT vote. This is a major threat to stability of the Western world over the next decade.

Source: America Has Never Been So Ripe for Tyranny — NYMag

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WWI: The biggest mistake in modern history | Niall Ferguson

Niall Ferguson argues that Britain’s decision to intervene in 1914 turned the conflict between Germany and Russia from a continental war into a global war.

https://youtu.be/bT81WwCix4M

Ferguson argues that the consequences of that decision by Britain in 1914 lasted 75 years, until collapse of the Soviet Union in 1989. With the benefit of hindsight, and the resurgence of Russia, I would say we still live with those consequences today.

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Gold surges as BREXIT looms

It looks like the LEAVE vote has it, with a lead of more than 900,000 so far.

BREXIT

Gold bugs seem to think so, with the spot price blasting through resistance at $1300/ounce. Retracement that respects the new support level would confirm a target of $1550*.

Gold

* Target calculation: 1300 + ( 1300 – 1050 ) = 1550

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Gold: Should I BREXIT?

Odds of a BREXIT are drifting at the bookmakers, with REMAIN a firm 1 to 4 favorite. Fears of a BREXIT have been driving demand for gold and a REMAIN vote is likely to spur a sell-off.

Gold

* Target calculation: 1300 + ( 1300 – 1050 ) = 1550

Breakout above resistance at $1300/ounce turned into a bull trap with a sharp retreat to support at $1250/$1260. A REMAIN vote on June 23rd would test support at $1250 and possibly $1200. But the up-trend remains intact if support at $1200 holds.

Political uncertainty is unlikely to fade before the November US election. And economic uncertainty, fueled by Chinese instability, is likely to last a lot longer.

USDCNY

Capital outflows from China continue, with USDCNY running into resistance at 6.60. This is a sign that PBOC sale of foreign reserves has resumed, weakening the Dollar and boosting demand for Gold.

Gold’s up-trend is likely to continue. And breakout above $1300 would offer a long-term target of $1550/ounce*.

Disclosure: Our Australian managed portfolios are invested in gold stocks.

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Odds Are U.K. Will Stay In E.U. | NPR

Peter Kenyon at NPR:

Britain’s bookies say the smart money is on Remain.

“At the moment, Remain is the odds-on favorite at 1 to 4, so that equates to about a 76 percent chance of the U.K. voting to remain in the EU,” says Jessica Bridge, spokeswoman for Ladbrokes, one of the U.K.’s larger betting firms.

The Leave side, meanwhile, “is drifting like a barge,” she says, with the odds 3 to 1 against.

Source: Britain’s Bookies: Odds Are U.K. Will Stay In E.U. : Parallels : NPR

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Rebalancing, wealth transfers, and the growth of Chinese debt | Michael Pettis

Michael Pettis summarizes China’s debt dilemna:

This, I think, is really the key point. There is no way Beijing can address the debt without a sharp drop in GDP growth, but as unwilling as Beijing may be to see much lower growth, it doesn’t have any other option. It must choose either much lower but manageable growth today or a chaotic decline in growth tomorrow.

…..History suggests that developing countries that have experienced growth “miracles” tend to develop risky financial systems and unstable national balance sheets. The longer the miracle, the greater the tendency. That’s because in periods of rapid growth, riskier institutions do well. Soon balance sheets across the economy incorporate similar types of risk.

….Over time, this means the entire financial system is built around the same set of optimistic expectations. But when growth slows, balance sheets that did well during expansionary phases will now systematically fall short of expectations, and their disappointing performance will further reinforce the economic deceleration. This is when it suddenly becomes costlier to refinance the gap, and the practice of mismatching assets and liabilities causes debt, not profits, to rise.

Xi Jinping doesn’t have the short-term focus of most developed economies, where leaders are primarily concerned with the next election, but even he has failed to grasp the nettle. Cutting GDP growth may fuel greater political instability but this is a price China has to pay.

Source: Rebalancing, wealth transfers, and the growth of Chinese debt | Michael Pettis’ CHINA FINANCIAL MARKETS

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IEX Group Gains Approval for Stock Exchange | The New York Times

By NATHANIEL POPPER:

America is getting a new stock exchange from the most prominent critics of high-frequency trading.

After months of delays and a brutal lobbying battle that divided Wall Street, the IEX Group won approval on Friday from the Securities and Exchange Commission to become the nation’s 13th official stock exchange.IEX is run by the people at the center of the Michael Lewis book, “Flash Boys: A Wall Street Revolt,” which profiles the early efforts of the IEX team to create a trading exchange that would be somewhat shielded from high-frequency traders.

Other exchanges and trading firms had urged the S.E.C. to reject the IEX application to become an exchange.

Opponents of IEX, including the other stock exchanges, have argued that the structure of the new exchange will add unnecessary new complexities into an already complex stock market, and potentially end up hurting small investors.

…..The most novel and controversial feature of the IEX exchange is a so-called speed bump that would slow down trading slightly to throw off traders that rely only on speed.

The speed bump slows trades down by only 350 microseconds — or millionths of a second — but that is an eternity in a stock exchange universe in which computers can buy and sell stocks in nanoseconds — or billionths of a second.

The Nasdaq, and other existing exchanges, have said that the IEX’s speed bump will violate rules mandating that exchanges make their prices available to all parties at the same time.

Judging from the barrage of objections from other exchanges, they see IEX as a threat. Not as a threat to small investors as they so eloquently argued in their submissions — and whose interests they have ignored for years — but a threat to the billions of dollars in fees they receive from high-frequency traders for privileged co-location and access to stock exchange data feeds. Why would any investor want to trade on an exchange that encourages HFT when there is another exchange that offers a level playing field?

Source: IEX Group Gains Approval for Stock Exchange – The New York Times

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