China Sea Squabble Continues

by Patrick Watson on November 29, 2013

Last week, China declared an “Air Defense Identification Zone” over portions of the East China Sea. The zone includes some small islands claimed by both China and Japan.

China demands civilian aircraft entering the area identify themselves or face interception. On November 25 the U.S. announced two Guam-based B-52 bombers had flown through the area unchallenged. 

China, Senkaku, Diaoyu, commercial airlies

The dueling flights are quickly adding up to an international air traffic jam. From the Washington Post:

China announced last week that all aircraft entering the zone — a maritime area between China, Taiwan, South Korea and Japan — must notify Chinese authorities beforehand and that it would take unspecified defensive measures against those that don’t comply. Neighboring countries and the U.S. have said they will not honor the new zone — believed aimed at claiming disputed territory — and have said it unnecessarily raises tensions.

The Ministry of Defense said the Chinese fighter jets identified and monitored the two U.S. reconnaissance aircraft and a mix of 10 Japanese early warning, reconnaissance and fighter planes during their flights through the zone early Friday.

“China’s air force has faithfully carried out its mission and tasks, with China’s navy, since it was tasked with patrolling the East China Sea air defense identification zone. It monitored throughout the entire flights, made timely identification and ascertained the types,” ministry spokesman Col. Shen Jinke said in a statement on its website.

Question: Why did China pick this particular argument at this particular time? Control over the islands – and possible energy deposits – has been a sore spot between Japan and China for some time. I do not see how stirring the pot in this way advances Beijing’s goals.

If anything, repeated intrusions into the area by U.S., Japanese and other aircraft simply expose China’s relative military weakness. The area in question includes numerous well-travelled air corridors. Japanese airlines, apparently under pressure from their own government, are ignoring Chinese demands so far.

This may all be meaningless diplomatic posturing, but it is not risk-free. There is always the possibility of another Hainan Island or KAL 007 incident. A genuine accident could spiral into a more serious confrontation with economic and political repercussions. China’s leadership knows this. So what is going on?

The best explanation I can imagine is that China wants to test U.S. and Japanese solidarity. Both sides are likely testing each other’s intelligence capabilities as well. China claims it tracked the U.S. and Japanese aircraft entering the zone. Did they? We don’t know.

Vice President Joe Biden is visiting China, Japan and South Korea next week. Maybe China’s mystery move is related somehow. I sense something bigger is happening. Stay tuned.


How to Talk Politics on Thanksgiving

by Patrick Watson on November 27, 2013

I suspect the “traditional” family Thanksgiving dinner is probably less common than most people think. Nevertheless, holidays often bring encounters with distant relatives.

Inevitably someone will bring up politics. How do you handle it? Conor Friedersdorf has an excellent tip list.

“For a political exchange with loved ones, what’s needed isn’t a preemptive understanding of your interlocutor’s views, it’s a conversational approach that combines humility, tact, and respect.

“Let’s arbitrarily divide this up into 10 rules:

  1. Be open to the possibility that you’re wrong. Seriously.
  2. Approach the conversation with the purpose of better understanding one another’s views, not proving to your relative that you are right and they are wrong.
  3. Before you focus on any point of disagreement, ask questions of your interlocutor to figure out why they think the way they do about the subject at hand.
  4. Emphasize points of agreement, if there are any.
  5. Give them room to agree with your arguments without having to concede that their arguments are stupid, or feeling as if they’ve lost the exchange and you’ve won.
  6. Rather than harping on a particular flaw in their preferred policy, ask questions that force them to confront it. ‘I agree, killing all the sharks would make it safer for surfers. But what about the creatures that sharks eat? How would you make sure their populations don’t explode? Seriously, how would you handle that?’
  7. Don’t bother trying to score debating points, especially when you both know that’s all they are.
  8. Remember that they know stuff that you don’t, just as you know stuff that they don’t.
  9. Remember that lots of intelligent, good-hearted people share their position, and lots of dense jerks share your position, because that’s true of almost every position.
  10. Listen more than you talk.

“Following those guidelines is much more difficult than doing prep by listening to the cable news network that your interlocutor watches—and much more effective. When you treat others as you want to be treated, they’re more open to your ideas.”

Read the whole article. It is worth the time.

Friedersdorf leaves out one important point. What if your relatives don’t read his list?

I suggest (silently) reminding yourself why you are with this person on this day. You must have some kind of connection. Even if it is only that you breath the same air and occupy the same planet, there are always reasons to be grateful. That’s what the day is all about.

Happy Thanksgiving!



Shanghai: Before and After (Photos)

by Dawn Pennington on November 26, 2013


Shanghai’s 26-year mega-city transformation captured


The Gold Fix is in

by Dawn Pennington on November 26, 2013

Our colleague and options trading master Geoff Garbacz just sent this over:

“Each trading day five banks meet in London to set the price of gold. This practice has been going on since 1919. During the call which can take up to an hour, the banks can trade around the call. Can you say insider trading?”

Each trading day five banks meet in London to set the price of gold. This practice has been going on since 1919. During the call which can take up to an hour, the banks can trade around the call. Can you say insider trading?

The Fix is In


That Day in Dallas

by Patrick Watson on November 22, 2013

Today everyone over age 50 is remembering where they were when John F. Kennedy died. I was in Dallas that day. I don’t remember much because I was in my mother’s womb that day.

My parents were not JFK fans, nor were they enemies. They were non-political folks who worked, took care of their kids, went to church and tried to get along. Some of this month’s TV retrospectives portray Dallas as a right-wing fever swamp filled with would-be assassins. Kennedy himself is said to have joked about it that morning. Maybe there were such people, but I never saw them.

In 1980, I was a high school intern at the Dallas County District Attorney’s Office. It was not glamorous or exciting. I filed papers and ran documents to and from the office to the court rooms. My boss, Henry Wade, was the same DA who would have prosecuted Jack Ruby for killing Lee Harvey Oswald.

Seeing Mr. Wade on old video this week brought back a memory. I had read some JFK assassination conspiracy books. Living in Dallas, I had heard many stories from people who saw some of the events. Now I was there, working right across the street from Dealey Plaza and the Texas Schoolbook Depository. I decided I would solve the case.

One day on my lunch hour, I went out to investigate the crime scene. I jaywalked across the street to look up at that sixth floor window, explored the grassy knoll, and peeked through the wood fence where some thought a second shooter had waited.

Sadly, I didn’t see anything new, just a normal city street. I would not have guessed something world-changing happened there. Oswald had an excellent firing position. The only thing I didn’t get was why he waited so long. JFK was in his sights long before he pulled the trigger.

Maybe others were involved. I don’t know who to blame. I know who not to blame: the people of Dallas. Lee Harvey Oswald wasn’t a Republican or a right-wing fanatic. He was a communist who hated JFK for attacking Cuba. He had probably been mentally ill since childhood and he lived in Irving, not Dallas.

The old TV reports show another Dallas that doesn’t fit the stereotype. The people who lined the parade route weren’t all white. They waved happily at their president, their vice president, and their governor. They didn’t have guns and they didn’t try to kill anyone. A few wackos held protest signs, but it was downright peaceful compared to what presidents face today.

After the shooting, the videos show thousands of Dallas residents grief-struck and angry. We see local authorities working to catch the killer and help the victims. We see Fr. Oscar Huber, who had the misfortune of being the Catholic priest closest to Parkland Hospital that day.

I suppose priests grow accustomed to giving the last sacrament. JFK’s soul was like any other and his last earthly moments were in Dallas. On behalf of my city, I’m sorry they weren’t happier ones.

I hope JFK is at peace. Dallas is a different city now but some still carry the shame of that day.

Forgive yourself, Dallas. It isn’t your fault, and you did all you could.


Next stop: Gold $1,200?

by Brad Hoppmann on November 22, 2013

If gold is in a bubble, it deflated a little more yesterday. Spot gold futures ended at $1,242, the lowest point since July.

Gold bulls face multiple challenges right now:

• Traders are once again convinced the Fed will end the QE3 program soon and that inflation is no longer a threat.

• Yesterday the U.S. Consumer Price Index came out unexpectedly lower. Today’s Producer Price Index shows the same trend in wholesale prices.

• A new report from Goldman Sachs projects bullion will drop to $1,050 by the end of next year.

Our own Dan Hassey reviewed the gold trends this week. In “Looking into the Golden Future,” Dan said:

Since mid-2013, gold has stayed in a trading range. The range is roughly between $1,250 and $1,425.

Currently gold is near the lower boundary of this trading range. If the $1,250 support fails, the next support will be at the $1,200 area.

The $1,250 support did indeed fail today. Dan says $1,200 should be the next stop.

Dan also sees much stronger long-term support around $1,150. Gold mining turns unprofitable below that area, so miners would soon reduce production.

Dan and Goldman Sachs may both be right. Gold’s complex bottoming process could take time, and a trip down to $1,050 is possible. Compared to Bitcoin’s volatility, the trading action in gold could seem downright calm right now.

Here is a reader with some thoughts about my latest Federal Reserve story and gold.

Reader Robert S. says: “The cheapest place to dig for gold is the New York Stock Exchange.

“The likely intent of the Tuesday preface and Wednesday meeting minutes was to induce gold prices to sag and stocks not to sag as badly. Why?

“Because several of the largest gold miners are highly leveraged and vulnerable to foreclosure or forced conversion of debt to equity at terms highly favorable to their creditors.

“Goldman Sachs rates gold at $1,050 per ounce, as loan collateral. [Since Goldman] also forecasts a bottom below that level in 2014 but is still lending at $1,050, they do not expect the bottom to last very long. If they expected gold to stay below $1,000, they’d not accept it as collateral at $1,050.”

Thanks, Robert. I haven’t looked into your information but it sounds mostly plausible. Having worked at an options brokerage, I’ll add one point.

Firms like Goldman Sachs ($GS) don’t necessarily follow their own advice. Other business units may not believe the analysts who issued the $1,050 forecast.

This kind of thing happens all the time. The big banks give their traders a lot of discretion on individual trades. That’s why they are so vulnerable to huge losses when a trader goes rogue.

What do you think? Does the Fed want to push gold prices down? Could Goldman be betting against itself?

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Many months ago my publisher Brad Hoppmann started talking with Uncommon Wisdom Daily readers about the impending Bitcoin bubble.

And with this digital currency soaring above 900 and sinking below 500 in the same day, if that isn’t a “bubbly” asset, then I don’t know what is!

Interestingly, China has become a big market for the crypto-currency, and it’s not surprising, really. Consider this, from the folks:

“Bitcoin has been exploding in price over the last month. It has also been internationalizing, especially in Asia. 31% of all exchanges between BTC and government-backed currencies now take place in China, in CNY. The world’s largest single bitcoin exchange is now, based in Shanghai. Although still smaller than all the USD exchanges combined, BTC China offers the highest prices for bitcoins, and its customer base is growing fast.

“There are several reasons that this makes sense. First, the Renminbi is not generally available for foreigners to hold. So for those outside China, holding bitcoins in a BTC China account allows them to get exposure to the CNY. And for those inside China, Bitcoin makes it possible (and even easy!) to use their CNY to purchase goods and services abroad, over the internet or when traveling, and allows them to get exposure to USD, EUR, and other foreign currencies.”

The Bitcoin Explosion

They say this bodes well for Bitcoin. I continue to distrust it. After all, if I had $10,000 in Bitcoins, could I use them to pay my rent or pick up a new iPad or buy a gold bar? Maybe … but not without a whole lot of headaches I don’t have time for.

I’ll wait for that bubble to burst, because I think it’s coming, and then maybe I’ll get in on this imaginary currency. Or save my pennies for something I can touch, like a gold coin!


A surprising new driver of gold sales in Asia

by Dawn Pennington on November 21, 2013

Middle-aged Chinese women, called “Aunties,” are looking to take back the country’s title as top gold buyer from India.

This Bloomberg piece quotes a woman who spent nearly half a year’s salary on a gold necklace:

“I don’t know anything about the stock market and I don’t have enough money to buy property, so I figured gold is the safest choice,” she said. “I can put it on when I go back home to show everyone that I’m doing well.”

Get the full story here:

Gold No Slam-Dunk Sell in China as Aunties Buy Bullion

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Sometimes it feels like people will do anything to get people to click on a headline. At least, that’s the only reason I can come up with to write an article like “Baby Boomers Could Cause Market Crash.”

Obviously I clicked on it. I dare you not to!

The article cites a new Vanguard report that says:

“Just as the Boomers’ retirement savings helped drive up equity returns in the 1990s, the concern is that withdrawals from their IRAs and their 401(k)s will cause a steady drain on stocks in the near future. After all, money invested by Baby Boomers added up to almost 47% of all equity assets counted in a 2010 survey by the Federal Reserve System.”

While, yes, this is true, the Baby Boomers are also probably the last generation to enjoy Social Security and other so-called entitlements (that they worked to earn).

My generation (Gen X) is probably not going to have the system we’ve spent our lives paying into. So how we invest now is going to determine which brand of cat food we’ll be dining on. (Personally I’d hope for Nutro over 9 Lives.)

We will be the ones cashing out of our IRAs because that’s all we’ve got as we take on lower-paying, less-stress jobs in the golden years that we probably won’t make it to because we’re exhausting our minds and bodies, working multiple jobs and longer hours to support our kids AND parents.

Baby boomers aren’t going to kill the system. If anything, in exchange for supporting them, they’re giving us a perpetually liquid market.

  • They are the ones demanding yields higher than the paltry 1%-2% that is still considered aspirational in the U.S. markets.
  • They are the ones starting the migration to foreign stocks that pay better dividends.
  • They are the ones using option strategies to generate a “double dividend” on dividend-paying stocks.
  • They are the ones teaching us that you can determine how much money you make every month … and how to live off of it.

If my generation doesn’t do the same, then we can talk about collapsing the markets!


China to let the yuan rise

by Dawn Pennington on November 21, 2013

In the past China, kept its currency low to make sure it was the go-to low-cost manufacturer for the world. Now, China is not going to intervene in foreign exchange markets and will let its currency float to higher levels.

Full story:

PBOC Says No Longer in China’s Interest to Increase Reserves