Hong Kong Phooey: Rebel Yell vs Tycoon Pushback

Armagideon time has come to the capital of capitalism--Hong Kong.

[NOTE: Younger readers who don't get the post title's cartoon reference, head here.] Protester vs. cop action seems to be a growth area in Hong Kong and Singapore, capitalist shrines which normally care more about making money than about corny things like Western-style "freedom." But alas, order has been upended as the PRC has--surprise!--provided a rather conservative interpretation of "one country, two systems" that keeps the Communist Party's say in vetting Hong Kong's leader intact. I could have seen this coming as early as, oh, 1984. (RIP, Baroness Thatcher.)

It is here where we most clearly see authoritarianism in action. First, the so-called disorder:

Police used pepper spray and protesters threw plastic bottles in Hong Kong late Friday, as pro-democracy demonstrators stormed a public square attached to the government’s headquarters. More than a dozen people, mainly students, were arrested.

At about 10:30 p.m. local time, several students managed to scale the three-meter high barricades around Hong Kong’s “Civic Square,” a time-honored focal point of peaceful protest in the Chinese Special Administrative region, but which had been shuttered since July. Some 50 people then rushed in but were quickly surrounded by police [see picture above]. Around half this number remained at lunchtime on Saturday, but were quickly running out of supplies.

I kind of feel sorry for these students in their youthful naivete. Didn't their folks tell them about what happens to pro-democracy protesters going against Beijing? Expecting electoral freedom was a delusion to begin with despite the charade. OTOH, the Chinese leadership hasn't exactly made the situation better by adopting the hardline. Just to show you how out of touch they are, they did not consult with students or protest leaders to understand their grievances. Instead, they convened a High Council composed of pro-Beijing billionaires (who have undoubtedly profited handsomely from toeing the Party line):

As trouble brews in Hong Kong, who’s Beijing going to call? The billionaires. With political tension in the southern Chinese financial hub at its highest in years, China’s leaders summoned dozens of the city’s tycoons earlier this week for talks...

“I see most of my old friends,” Xi said with a light chuckle as he sat down for the meeting with 70 of Hong Kong’s richest and most powerful people. Seated next to him in the Great Hall of the People was billionaire businessman Li Ka-shing, Asia’s wealthiest person, who Xi greeted with a hearty double-handed handshake. Between them was Tung Chee-hwa, son of a shipping magnate who China anointed as Hong Kong’s first leader after taking back control of the former British colony in 1997. Other Hong Kong billionaires with interests in property, media, banking and finance and casinos filled out the ranks.

Therein lies the rub: the tycoons are being told to pacify restless Hong Kong natives or face both a worsening law and order situation in the city as well as less favorable treatment in the mainland:

Discontent, especially among the young, is fuelled by a widening wealth gap that many blame on the billionaires, a large number of whom made their fortunes in property development and also sit on a panel that selects Hong Kong’s leader. Once revered for their business acumen, they’re now reviled for cozy ties with the government, which tightly controls the supply of land for development, making home ownership unaffordable for many.

Monday’s meeting was the first time that such a big delegation has travelled to the Chinese capital since 2003. That year, a similar group made the journey after more than half a million took to the streets to protest a deeply unpopular plan to introduce anti-subversion legislation.

All I can say is, if Communist Party leaders are serious about quelling disorder in Hong Kong over the medium- to long-term, they won't likely accomplish this task just talking to those who've sworn fealty to Beijing already. After 1989, the Communist Party actually made strides understanding the demands of young people who sought economic security just as much if not more than political discretion.  Party operatives need to do the same in Hong Kong since it is a preview of China's future in a number of respects.  

Wasted Money: Delegation of Governors Make Surprise Trip to Afghanistan

Ways to waste money in Afghanistan are endless. Here's another case in point: Cuomo Makes Surprise Trip to Afghanistan.

Gov. Andrew M. Cuomo of New York arrived in Afghanistan on Saturday as part of a delegation of governors and Defense Department officials to visit troops and receive briefings on counterterrorism and security issues, the governor’s office said.

Also among the group were Gov. Bill Haslam of Tennessee, Gov. Jay Nixon of Missouri and Gov. Brian Sandoval of Nevada.

This is the second trip abroad for Mr. Cuomo in recent weeks. He traveled to Israel in August in what his office called an effort to show support for the country in its conflict with Hamas.

Are Missouri and Tennessee prime terrorist targets? Even if any of those states are terrorist targets, is there anything any of the governors can learn in Afghanistan that they cannot learn right here?

Of course not.

This is a political grandstanding stunt for all involved.

In the grand scheme of things, this trip wastes a trivial amount compared to the trillions of dollars we have already wasted.

Curiously, the boondoggle does have one useful aspect: It highlights the massive over-inflated egos of the three of them. Then again, we probably did not need to waste money to figure that out.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Taliban Storm Afghanistan, Beheadings Galore

Having spent well over $3 trillion dollars in Iraq and Afghanistan what do we have to show for it?

1. Shias aligned with Iran rule Baghdad
2. ISIS took over parts of Iraq
3. ISIS threatens to take over Syria
4. The average Pakistani hates the US for drone policy
5. Taliban threatens to take over Afghanistan

Taliban Storm Afghanistan

Please consider Taliban Storm Afghan District Southwest of Capital, 100 Killed

Hundreds of Taliban fighters have stormed a strategic district in an Afghan province southwest of the capital and are on the verge of capturing it after killing dozens of people and beheading some in days of fighting, officials said on Friday.

The Ghazni provincial government has lost contact with police in the province's western district of Ajrestan, said Asadullah Safi, deputy police chief of the area. An army unit reported that fighting was raging late on Friday afternoon, another provincial official said.

"If there is no urgent help from the central government, the district will collapse," Safi said earlier.

No longer pinned down by U.S. air cover, Taliban fighters are attacking Afghan military posts in large numbers with the aim of taking and holding ground.

The attack by an estimated 700 Taliban fighters began about five days ago and early reports were that more than 100 people had been killed, including 15 who were beheaded by the militants, said provincial deputy governor Ahmadullah Ahmadi.

"Without international support it will be hard to provide security ... The example of Ajrestan district shows that without international commitment of troops, it will be difficult to handle the Taliban."

War on Multiple Fronts

Every instance of US meddling has made matters worse. Tens of thousands of innocent civilians are dead and the economy of Iraq is destroyed.

Our policy is now so tangled we are bombing our friends and protecting those we seek to depose.

Can it get still more convoluted? Of course it can. Just add Israel, Pakistan, or Russia to the mix.

Perpetual war on multiple fronts simultaneously is the warmonger's ultimate wet dream. "Success" is nearly at hand.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

PIMCO About to Fire Gross for "Erratic Behavior"; Janus Picks up Gross, Shares Jump 40%

Global macro news this is not, but here's an interesting story.

Bond Guru and PIMCO co-founder Bill Gross Was Going to Be Fired for ‘Erratic Behavior,’ Says CNBC.

Barron's reports Gross Leaves Pimco for Janus; Knew He Was Being Shown the Door.

CNBC’s Andrew Ross Sorkin said on air, the fund world was experiencing “shock and surprise” at Gross’s move, which was highly unexpected to most.

Dow Jones is running headlines that “Gross’s move pre-empted his dismissal,” citing an unnamed source.

Sorkin’s colleagues Jim Cramer and David Faber joked on the channel about how Gross will be giving up the trillions of fixed income investments he controlled at Pimco Total Return for a mere $12 billion or so invested by Janus in fixed income.

Sorkin reported that one factor may have been that Janus’s CEO, Richard Weil, used to be COO of Pimco, and that he left on a not-so-happy note from Pimco, which may mean there’s something personal for him in luring away Gross.

Gross is quoted as saying “I look forward to returning my full focus to the fixed income markets and investing, giving up many of the complexities that go with managing a large, complicated organization.”

Janus Intraday



Shares of Janus (JNS) soared from 11 to as high as 15.58 on the announcement. That's a 41.68% move. How much of that gain holds remains to be seen. Janus is currently up about 31.50%.

Anyone pick up any cheap options yesterday?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com 

Predicting the Nobel

Science Watch offers their choices.

Grossly Distorted Procedures: Mish Proposal to Raise GDP Calculation

Here's the question of the day: Does GDP stand for Gross Domestic Product or Grossly Distorted Procedures?

One of the reasons I ask is the latest push by countries to include prostitution and drugs sales in GDP calculations.

• Italy: Cocaine Sales to Boost Italian GDP in Boon for Budget.
• USA: The Fiscal Times reports How Hookers and Drug Dealers Could Boost US GDP.
• Spain: economists estimate that prostitution, illegal drugs, and adjustments will increase GDP since 2010 by 2.42%. That's cumulative, not additive. Methodological changes, such as counting weapons as an "investment" represents 1.55 percentage points of the change.
• France: Here's a shocker ... France says No Sex, Please, We’re French. In short, France will not include sex or illegal drugs in its measure of GDP.
• UK, Ireland, Italy: The WSJ mentions the UK, Ireland, Italy, and even the United Nations in its report Sex, Drugs and GDP: the Challenge of Measuring the Shadow Economy.

From the preceding link, the WSJ reports ...

The U.K. could add as much as $9 billion to the value of its GDP by including prostitution and about $7.4 billion by adding illegal drugs, by one estimate, enough to boost the size of its economy by 0.7%. Not to be outdone, Italy will include smuggling as well as drugs and prostitution.

Other nations in Europe are also poised to fall in line with a European Union call to standardize and broaden GDPs. The EU is following a "best practices" directive laid out in 2008 by the United Nations.

Best Practices Directive

The "best practices" push is on to count sex, except in France (where perhaps it would send GDP soaring to unbelievable heights).

Yet, no one counts people raising their own vegetables, a genuine product.

Teen Sex

As long as we are counting prostitution, why not count consensual sex? What about sex between husbands and wives? What about teen sex?

Isn't the product the same? Are we counting products and services or not?

If husbands did not get sex from their wives, wouldn't some of them pay to get sex elsewhere?

Is or isn't sex a service?

Some might argue that prostitution is a service because it's paid for, but teenage sex is not a service because it isn't paid for.

OK, but that leads to a discussion on imputations.

Imputations

The average person has heard of GDP. The average person has not heard of the imputations that go into calculating GDP.

Q: What are GDP imputations?
A: They are an assumed value of goods and services that trade at no price.

The biggest example of imputed GDP is the alleged value derived from living in your own home.

The government figures that if you did not own your own home, you would pay someone rent. It adds the presumed amount of rent you would pay to rent your home from yourself to GDP.

Another US GDP imputation is the "value" of "free" checking accounts. Government assumes that since you do not pay for your free checking account GDP is underestimated by the value of the "free" account.

Never mind that banks take your checking account deposit, lend it out overnight, earn interest on it, and your money really isn't there at all.

Government imputes a value on the practice.

Imputation Totals

Inquiring minds may be wondering how much imputations add to US GDP. The following figures are from 2013. They calculate these things in arrears to allow for any needed GDP smoothing.

• GDP: $16.7681 trillion.
• Imputations: $2.6935 trillion
• GDP Minus Imputations: $14.0746

Imputation Contribution to GDP = $2.6935 / $16.7681 = 16.06% 

Here are a few specifics.

Owner-occupied housing



The imputed valued of people renting houses from themselves is $1.21 trillion.

Imputed Interest



If I loan you $100 and you pay me back a month later and I don't report it, that's a no-no. Perhaps the government also factors in credit card purchases paid off each month on which no interest is paid.

However, it's calculated, the total in this category is $932 billion.

The Fed provides numerous Imputation Charts including imputed interest paid to the rest of the world, imputed health and life insurance, and imputed personal savings.

Mish Proposal

As long as we are imputing the above, why not impute the value of free sex, mowing your own lawn, and scratching someone's back?

Seriously, if I scratch your back and you scratch mine, why doesn't that add to GDP just as prostitution, free checking accounts, and paid massages add to GDP?

Think how much we can raise GDP calculations if we just get each other to scratch each other's backs 15 minutes a day! Add in some extra sex and drugs and the economy will be booming in short order.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com 

Next Stop ¥120: Pol Eco of Weak Japanese Yen

Albert Edwards of SocGen, ever on the lookout for trouble in the world economy, is pointing us in the direction of a weakening yen. What's so bad about improving the competitiveness of Japan, a country that's been mired in a quarter of a decade-long slump? As with other international political economy matters, you need to understand the effects of Japan's devaluation alongside other countries in the region and, indeed, the rest of the world. Being Albert Edwards, he's foreseeing (surprise!) dire consequences for the world economy:

1. China’s economy will see a further rise in its already strong real exchange rate, especially if other Asian currencies get pulled down with the sliding yen. That will hurt China’s economy, which, judging by data from August, shows it’s on the wane again. And a strengthening renminbi will also worsen deflationary pressures.
2. A weak yen spells trouble for the west as a wave of deflation will wash in from the rapidly devaluing east, reversing a decade-long trend. Given that profits growth is so anemic in the west, monetary tightening via strengthening exchange rates could be enough to “send U.S. and European profits into outright decline and subsequently their economies into recession.” (Edwards isn’t the first analyst to warn about what a stronger dollar will do to corporate earnings).

China is stuck between a rock and a hard place. It is no longer the lowest-cost production site as the likes of Bangladesh and even Laos muscle in on that front. On the other hand, it cannot begin devaluing the renminbi anew to maintain competitive parity with Japan lest it draw further ire from protectionist Americans and Europeans who are quick to criticize "competitive devaluation" and hit China with all sorts of retaliatory measures.

Edwards' forecasts for Europe are more intriguing, actually. Devaluation emanating from the Asia-Pacific will further hurt measures in the West to escape its grasp. What's more, a stronger greenback will negatively impact earnings when reported in dollar terms. Add weak profit growth in home (read: developed) markets to strong exchange rates and it adds up to potential trouble.

Interesting stuff. In particular, the chart above which shows how then yen breaking the 15-year trendline opens up a decline to the longer-term 25-30 year trendline is worrisome as it might be the trigger for an Edwards-esque scenario. Next stop 120 yen to the dollar? You'd be naive to rule it out.