Business – Economics – News

It is quite funny that the moderate people in Egypt revolt against a dictatorial regime for more rights and freedom and now the new government is already trying to pass laws to stop protests and free speech.  This law will not stand up to the scrutiny of the Egyptian people.  The most important element of any free society is the right to be displeased with their government and the ability to express that displeasure along with equal access to the ballot box to express that even more directly.

This law is even written so unspecific that almost any type of protest could be deemed to affect business of traffic.  That gives the government basically a blank check to crackdown on any protests.   We they better put forth some really just laws or we will see the people take to the streets again and put others in power that will give them a democratic structure of government.  We should look at all of the revolts & revolutions in all these countries as positive so long as they remain peaceful.

The shortest path to peace and stability in that region is for moderate people to stand up and demand fair and just governments and collectively they will marginalize the extreme elements in their society.   Whatever blow-back we get from this will be well worth it in the long run.   As Americans, we have a duty to support this type of organic democracy and regain our moral authority.   By supporting the will of the people, we are winning the “hearts & minds” of the people and they will be very likely to work with us on our strategic goals because we respected their wishes.

The Egyptian cabinet approved yesterday a decree-law that criminalises strikes, protests, demonstrations and sit-ins that interrupt private or state owned businesses or affect the economy in any way.

The decree-law also assigns severe punishment to those who call for or incite action, with the maximum sentence one year in prison and fines of up to half a million pounds.

The new law, which still needs to be approved by the Supreme Council of the Armed Forces, will be in force as long as the emergency law is still in force. Egypt has been in a state of emergency since the assassination of former president Anwar Sadat in 1981.

Since former president Hosni Mubarak stepped down on 11 February, Egypt has witnessed escalating nationwide labour strikes and political protests. Amongst those protesting have been university students, political activists, railway workers, doctors, pharmacists, lawyers, journalists, pensioners and the police force.

Analysis: This law will not make it into the books.  You can’t have a real revolution and have one of your first acts in government is to clamp down on free speech.

This is interesting timing on my last article about China producing over 90% of the world’s rare earth minerals and because of a territory dispute, the stoppage of exports of these minerals and metals to Japan.  Now it has been turned up a notch with China stopping the exports of rare earth metals to the United States as well.

From reports given, this turn in Chinese policy is due to the current trade disputes that revolve around claims of an artificially low Yuan (Chinese Currency) that makes their export very competitive compared to native U.S. manufacturers that have a much higher operational costs due to material pricing, wage requirements and taxes.   The second claim is of the Chinese “dumping” certain products on the U.S. market such as steel and tires.

These are quite strong-arm tactics by the Chinese and they are exerting some real pressure on the federal government and Defense Department because these elements are crucial to a number of our military technologies.  In this link you will see a 38-page GAO report (Click Here) that addresses these issues.  There conclusion is that the U.S. is 7-15 years out from getting full scale mining and processing of these elements if we started tomorrow.

A nasty trade dispute appears to have prompted Chinese customs officials to block shipments of rare earth minerals to the U.S.

The move underscores a deepening U.S. vulnerability because of its dependence upon China for tech-crucial rare earth minerals (also known as rare earth elements). Small but significant amounts of the minerals go into creating everything from PCs and cellphones to wind turbines and hybrid cars, as well as U.S. military technologies such as missile guidance systems.

This latest news came from three rare earth industry officials cited by the New York Times. The officials spoke on the condition of anonymity for fear of backlash from China.

China currently controls about 97 percent of rare earth production, and has the only facilities capable of processing rare earth minerals after they have been mined. Rare earth minerals are not exactly rare, but the mining and refining processes can be costly and time-consuming.

Official Chinese plans have called for China to reduce rare earth mineral exports to meet its own rising industrial demands. That already indicated to many industry experts that countries such as the U.S. would have to find alternate supplies soon.

Analysis: If this does not get resolved peaceful, this has all the makings of a real war through direct confrontation or proxy.  When you start hampering a military in there ability to use the available tools, strategist will start feeling backed into a corner and once that happens, many options come back on the table which include force.  A scary prospect when your dealing with nuclear superpowers.

This is a growing issue that keeps on coming up and no one seems to have a solution.   China in the 800 pound gorilla when it comes to rare earth metals.  If you don’t know what they are, here is a link to a definition (click here).  They basically are rare occurring elements that have become very essential in electronics, especially in generators, solar cells, cell phones, hybrid cars and satellites.

If the world is truly going to transition from an oil based economy to a renewable energy economy, we are going to need to produce many renewable energy pieces of equipment to produce the gigawatts if power we use in the U.S. alone.   To do this we need these elements to make them.  China currently produces 90% of the entire world’s output and they are aggressively going out and locking down access to supplies outside of China.  This is going to become of great strategic importance as oil becomes more difficult to find large new discoveries.

I am not sure if the U.S. Government has made a strategic decision to start making in-roads on securing our access as well.   I am quite sure they are aware of this.  We can see what happened in Japan after the fishing boat accident and how quickly after China stopped exports of those metals to Japan they had to start an all out program to increasing their recycling of products that contain these elements to meet the increasing demand.   We could be in the same situation if we have a falling out with China over issues like political rights or currency disagreements.  If we can not solve them diplomatically, then war is the usually remedy and that is not a good thought when your dealing with a nuclear-armed state and rising superpower.

China is the world’s biggest producer of rare earth metals, vital for the auto and electronics industries.

But concerns over global supplies have increased in recent months, after tensions rose between China and top consumer Japan, over imports.

“There are more than 200 rare earth projects outside of China,” David O’Brock, chief executive at the privately-owned AS Silmet told Reuters. “There are a lot of very optimistic projects out there — which may never be realized.

“If the Chinese leave the quotas at what they are today, I would guarantee that prices will at least double for next year.”

China accounts for more than 90 percent of the world’s total production of rare earth, mining around 120,000 tonnes in 2008.

Analysis: We will see increased use of proxies to gain access to these elements to try and not sir up a frenzy to get access to rare earth metals.  We could see covert actions if needed to get access as oil prices rise and fuels get more precious for transportation.

A SEC (Securities & Exchange Commission)  investigation is a start for looking into these practices that are happening on the major stock exchanges along with the “dark pools” that are handling more transaction off-exchange.  The commission is going to look to see if these techniques helped the May 6th stock market crash.

The more we learn about these practices, the more it seems like our venerable capitalist institution called the “stock market” is resembling a casino or a group of carnival games where they are rigged in favor of the house and not the actual participates.

The Securities and Exchange Commission is looking into certain types of stock trade orders that could be distorting share prices and trading volume, according to The Wall Street Journal.

The SEC is investigating the practice called “quote stuffing” where exceptionally large numbers of orders to buy or sell stocks are placed and canceled almost immediately, the Journal said citing anonymous sources. It is also reviewing another practice known as “sub-penny pricing,” where orders are priced in increments smaller than a penny, but are far from the price at which the stock is trading.

Quote stuffing and sub-penny pricing have become more prevalent as high-frequency computer trading has become the dominant part of the stock market in recent years, the Journal said.

Analysis: Is this what we are going to let pass for financial innovation?  A bunch of high frequency quote stuffers that are basically doing what they can to fix prices in their favor?

New York Times  posted an not so great news article about the Securities Exchange Commission is not going to pursue charges against the ratings company Moody’s on their credit worthiness on financial derivative assets.  This sets incorrect precedent for future misrepresentations.  SEC stated jurisdictional issues in why they could not go ahead with charges.

It really says a lot about our financial regulations and enforcement portion of our federal government (SEC) doesn’t think it has jurisdiction over regulating the companies that gives credit ratings on our financial companies and instruments.  It is obvious that many of these instruments were mis-valued and that companies were shopping their instruments around for the best treatment.

We don’t have to stretch too far to know that maybe some of these companies knew they were mis-valued and that would be fraud.  Here is the precedent we are setting, we need to find some real backbone to go and do what needs to be done even if it causes pain and exposes real facts and ugly truths.

The Securities and Exchange Commission said Tuesday that it had declined to charge Moody’s Investors Service for violating securities laws by failing to comply with its own procedures for rating complex derivative securities in 2007, Edward Wyatt reports in The New York Times.

The decision followed an S.E.C. investigation, and the commission used the opportunity to warn all of the national credit rating agencies that it would use new powers under the Dodd-Frank banking law to take action against similar conduct, even if it occurred outside the United States, as the Moody’s case did.

The S.E.C. said it had declined to pursue a fraud enforcement action in the case because of jurisdictional issues. The securities in question originated in and were rated and sold in Europe, the S.E.C. said.

Analysis: This continuation of not placing blame and trying to sweep this huge fraud committed on the American & global population is going to have us lose confidence in the financial system and it will end in a complete crash and social upheaval.  We need to take out the garbage.

I see why having a coordinated response from a economic zone is key when so many nations sharing a single currency (Euro). It does water down any effectiveness on decisive action during any financial crisis when a single and important nation takes a abrupt stance on its own accord on such short notice.  With that said, read below:

What troubles me is this unified stance against Germany’s decision to ban naked shorting of various financial instruments.  Shorting in general, even though it is frowned upon in the mainstream press and as counter-productive, serves a very important purpose in our financial markets.   If you are allow people to “go long” (bet on price appreciation) then you have to also allow someone to take the  other side of the bet as well for a price decline.

The process of shorting is simple, you borrow a financial instrument at a certain price and getting the proceeds (money) from that trade right then with the promise to replace the same instrument at a future date.  You make your profit if it declines in price so you can purchase the same amount for less.   Conversely, if it rises in price then you would take a loss.

The problem with allowing naked shorting, is that instead of actually borrowing the asset, you just create it from thin air and then go short.  This gives a negative bias when looking at different options on how to invest or speculate in a asset class.   This serves no good purpose in our markets, period.   Normal shorting has a nice benefit that when you cover your short (closing the transaction by repurchasing the asset), you actually increase the price because of the buying produced by the short selling.   When you are naked selling, these are more likely than not, just entries on some market makers books and they just close out the transaction and dispose of the artificially financial asset or if they are then they just committing fraud by introducing a asset that didn’t actually exist normally.

A European Commission document said EU states have created problems by reacting very differently to market fluctuations in eurozone government bonds — such as Germany’s move to ban while other nations did nothing. It says different attitudes limit the effectiveness of any move.

Instead, it suggests that any ban should be coordinated with a new European markets authority, due to be set up by the end of this year, which could hold talks with all national supervisors in the EU.

It also proposes that the ban could exempt market makers and shares whose main markets are outside Europe — which could allow European investors to continue trading on U.S. markets.

It also wants traders to give regulators more information on the short positions they hold — which would allow supervisors to decide if a large build-up of financial bets could cause a risk to the entire market. Large positions could be made public, it says.

The EU is asking whether regulators should seek information on significant net short positions in EU government bonds to monitor whether they are “creating disorderly markets or systemic risks or are being used for abusive purposes.”

Analysis: These types of actions call into question what the real goal of our markets are.  Naked short selling obviously serves no purpose in a fair and transparent market.   Very questionable that so many experts came out against this action by Germany when it was a very sound course of action.   Using the reduction of liquidity argument against fake financial instruments is a straw-man defense and does not have a sound foundation in the large scheme of things.  If you want to short and take the risk in that bet, just do it the old fashion and honest way.