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	<title>Yellow Brick Road</title>
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	<link>http://yellowroad.wallstreetexaminer.com/blogs</link>
	<description>Andy Bebut</description>
	<lastBuildDate>Sun, 20 Mar 2011 14:33:47 +0000</lastBuildDate>
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		<title>Fukushima and China</title>
		<link>http://yellowroad.wallstreetexaminer.com/blogs/?p=356</link>
		<comments>http://yellowroad.wallstreetexaminer.com/blogs/?p=356#comments</comments>
		<pubDate>Sun, 20 Mar 2011 14:33:47 +0000</pubDate>
		<dc:creator>Andy Bebut</dc:creator>
				<category><![CDATA[Economics]]></category>
		<category><![CDATA[Politics]]></category>

		<guid isPermaLink="false">http://yellowroad.wallstreetexaminer.com/blogs/?p=356</guid>
		<description><![CDATA[In the western world the consciousness of the catastrophic effect of any tragedy similar to Fukushima usually fades fast. A few months, half a year is usually all it takes. However this time is different&#8211; those famous 4 words. Or maybe not? The 100-something years old tradition of the West in the Far East was always to bet on Japan against China, which obviously makes sense. If the balance of power is to be preserved, the small island country is easier to control than the unbound giant. The West helped to crush the Boxer uprising and allowed Japan to occupy parts of civil war ravaged China. Perhaps that support went too far, as the quick strengthening of Japan in the Indochina lands vacated by France forced the West to start the economic war against Japan. Facing inevitable collapse the Japanese empire chose to attack Pearl Harbor. In that respect, while not the case, both Pearl Harbor and Hiroshima are seen by some as revenge attacks. Regardless, after the war the old policy was restored &#8211; always side with Japan against China. And now this balance of power is in great danger. Rising expenses and inefficiencies are making many Japanese exports [...]]]></description>
		<wfw:commentRss>http://yellowroad.wallstreetexaminer.com/blogs/?feed=rss2&#038;p=356</wfw:commentRss>
		<slash:comments>5</slash:comments>
		</item>
		<item>
		<title>Cathartic monetary disorder, Part V &#8211; Non-stop Growth</title>
		<link>http://yellowroad.wallstreetexaminer.com/blogs/?p=347</link>
		<comments>http://yellowroad.wallstreetexaminer.com/blogs/?p=347#comments</comments>
		<pubDate>Wed, 17 Nov 2010 04:11:07 +0000</pubDate>
		<dc:creator>Andy Bebut</dc:creator>
				<category><![CDATA[China]]></category>
		<category><![CDATA[Economics]]></category>
		<category><![CDATA[Finance]]></category>
		<category><![CDATA[Real Estate]]></category>

		<guid isPermaLink="false">http://yellowroad.wallstreetexaminer.com/blogs/?p=347</guid>
		<description><![CDATA[Previously was discussed that Chinese economy depends mostly on real estate and infrastructure development for its 10% GDP growth, while the export cannot growth that fast. The real estate shows all signs of a major bubble, however more research is needed to confirm that. So China has to grow its domestic consumption? Ideally yes. Let&#8217;s check the trend first. Private consumption was 55%/1980, 40%/2004, 36.4%/2006 &#8211; however it also reflects the growth of unregistered shadow economy. The real consumption is higher than numbers show but the trend is done. Reverting the trend is different than accelerating the existing trend. It means changing the economic model and I doubt it&#8217;s possible anytime soon as most goods China is exporting are simply too expensive for the domestic market. There is a political aspect in growing the domestic consumption. The cross-border money flow is under government control and all exporters are under tight control of the communist party and provide the political support in exchange of letting the business done. For any internally oriented producer the communist dictatorship is an obstacle, the sales are more profitable when population is free, confident and prosperous. Most of goods made in China are consumed by people [...]]]></description>
		<wfw:commentRss>http://yellowroad.wallstreetexaminer.com/blogs/?feed=rss2&#038;p=347</wfw:commentRss>
		<slash:comments>4</slash:comments>
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		<item>
		<title>Cathartic monetary disorder, Part IV &#8211; Is That A Trap?</title>
		<link>http://yellowroad.wallstreetexaminer.com/blogs/?p=345</link>
		<comments>http://yellowroad.wallstreetexaminer.com/blogs/?p=345#comments</comments>
		<pubDate>Sat, 13 Nov 2010 20:18:16 +0000</pubDate>
		<dc:creator>Andy Bebut</dc:creator>
				<category><![CDATA[China]]></category>
		<category><![CDATA[Economics]]></category>
		<category><![CDATA[Finance]]></category>
		<category><![CDATA[Real Estate]]></category>

		<guid isPermaLink="false">http://yellowroad.wallstreetexaminer.com/blogs/?p=345</guid>
		<description><![CDATA[In the previous part I discussed the balance sheet of the People Bank of China. Relative to GDP, PBC book is about 4x times bigger than Federal Reserve, with most of the assets in dollars and most of the liabilities in Yuan. In Spring 2010 one of the Bloomberg guests estimated that it sufficient for the Yuan to appreciate by 3% to make PBC insolvent. Since then Yuan appreciated by over 2.5%. Any further appreciation of Yuan requires the government bailout of the insolvent central bank, which will take the 1% of GDP hit for every 2% of Yuan appreciation. Is that a trap? The huge producing sector in China requires fixed costs to be maintained even if production falls. Cutting payroll is not a political option. There is no safety net. The hospital patient will be disconnected from oxygen if he cannot pay immediately. Agricultural lands are destroyed and cannot be reclaimed even if useless factories are shut down. Production cannot stop even if it means selling it abroad below cost. The bill is paid by capital inflows seeking for yield, usually managed by those who risk someone&#8217;s else money. China cannot grow indefinitely at a 10% rate by [...]]]></description>
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		<slash:comments>1</slash:comments>
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		<item>
		<title>Cathartic monetary disorder, Part III</title>
		<link>http://yellowroad.wallstreetexaminer.com/blogs/?p=340</link>
		<comments>http://yellowroad.wallstreetexaminer.com/blogs/?p=340#comments</comments>
		<pubDate>Thu, 04 Nov 2010 02:03:23 +0000</pubDate>
		<dc:creator>Andy Bebut</dc:creator>
				<category><![CDATA[China]]></category>
		<category><![CDATA[Economics]]></category>
		<category><![CDATA[Finance]]></category>

		<guid isPermaLink="false">http://yellowroad.wallstreetexaminer.com/blogs/?p=340</guid>
		<description><![CDATA[In the part 2 I was discussing the dollar peg. Today the topic is the dollar sterilization. How does sterilization work? In order to avoid excessive inflation Chinese dollar asset purchases must be sterilized. It is done by increasing bank reserve requirements and issuing special Yuan-denominated bonds with interest close to the interest of US Treasuries. This rate is far below the market rate. Mish is reporting that a woman who invested her savings into a loan shark fund is paid a 30% rate by property speculators . Banks that are being stuffed with those low-yielding bonds feel over-protected and are willing to take excessive risk elsewhere. Here are some numbers to illustrate sterilization. As of October, the PBOC was selling 1y Yuan denominated bonds at 2.09% while purchasing identical maturity Treasuries at 0.21%. Obviously it cannot work indefinitely. The sterilization is bloating the People’s Bank of China’s balance sheet. As reported here it is already at 68% of GDP, several times over what is typical for a western CB. All the assets are in foreign currencies while liabilities are in underpriced yuan. One guest at Bloomberg caclulated that it was sufficient for the yuan to appreciate just by 3% [...]]]></description>
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		<slash:comments>1</slash:comments>
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		<item>
		<title>Cathartic monetary disorder, part II</title>
		<link>http://yellowroad.wallstreetexaminer.com/blogs/?p=337</link>
		<comments>http://yellowroad.wallstreetexaminer.com/blogs/?p=337#comments</comments>
		<pubDate>Tue, 02 Nov 2010 00:18:57 +0000</pubDate>
		<dc:creator>Andy Bebut</dc:creator>
				<category><![CDATA[China]]></category>
		<category><![CDATA[Economics]]></category>
		<category><![CDATA[Finance]]></category>
		<category><![CDATA[Interest rates]]></category>

		<guid isPermaLink="false">http://yellowroad.wallstreetexaminer.com/blogs/?p=337</guid>
		<description><![CDATA[In part 1 of this article I wrote that I believe in strong monetary cooperation between all three reserve currency stakeholders:  the USA, Europe and Japan. As Japan is suffering the most from deflation it got carte blanche from other two to engage in massive debasement of its currency. Once Japan is done the next will be the Fed with its QE2. Now what about non-reserve currencies? The biggest is China, which in my understanding doesn&#8217;t have money at all. They have a money substitute called Yuan (the name comes from the Mongol Hubhilai empire that invented paper money). The Yuan is pegged to dollar and the proceeds from dollar purchases are sterilized. Sterilization means that the People’s Bank of China is printing Yuan-denominated bonds and forcing domestic banks to buy them. Why forcing? Because PBC cannot pay much higher interest than US Treasuries are yielding, which is well below inflation. How does the dollar peg work? Essentially, any currency is pegged to something. It would be nice to be able to peg to a basket of other currencies but unfortunately it&#8217;s impossible because clever hedge funds will arbitrage it to insolvency. For the same reason, it is impossible to [...]]]></description>
		<wfw:commentRss>http://yellowroad.wallstreetexaminer.com/blogs/?feed=rss2&#038;p=337</wfw:commentRss>
		<slash:comments>1</slash:comments>
		</item>
		<item>
		<title>Cathartic monetary disorder, part I</title>
		<link>http://yellowroad.wallstreetexaminer.com/blogs/?p=331</link>
		<comments>http://yellowroad.wallstreetexaminer.com/blogs/?p=331#comments</comments>
		<pubDate>Thu, 07 Oct 2010 01:39:09 +0000</pubDate>
		<dc:creator>Andy Bebut</dc:creator>
				<category><![CDATA[Economics]]></category>
		<category><![CDATA[Finance]]></category>
		<category><![CDATA[Politics]]></category>
		<category><![CDATA[World]]></category>

		<guid isPermaLink="false">http://yellowroad.wallstreetexaminer.com/blogs/?p=331</guid>
		<description><![CDATA[Nobody knows what will happen. The discrepancies of economic predictions are at a record high. From deflation to hyperinflation, from the Euro getting destroyed to the dollar death cross, from idiotic &#8220;new normal&#8221; to idiotic Ken Fisher. But please note that while concrete economic criteria like unemployment, the inventory cycle, budget deficit, and GDP growth are more or less certain, at least for a few quarters, everything related to money seems totally unclear. There is something about money. In the distant past, when they used precious metals as the media of exchange, there was no credit-based money and while they had not much growth and technical progress, all was clear. When they invented money in modern form as a claim against bank assets, the most abstract economic substance, all became very much complicated. Money was introduced in Europe by Templar Knights and was abandoned when de Molay was burned. Slowly introduced again just a few centuries ago, debt-based money triggered capitalist expansion. The reason is simple- fiat money creates artificial demand for debt and allows much better price stability because the amount of money automatically expands and contracts in line with economic growth. The trouble started for debt-based money just when [...]]]></description>
		<wfw:commentRss>http://yellowroad.wallstreetexaminer.com/blogs/?feed=rss2&#038;p=331</wfw:commentRss>
		<slash:comments>9</slash:comments>
		</item>
		<item>
		<title>Austerity and Prosperity</title>
		<link>http://yellowroad.wallstreetexaminer.com/blogs/?p=320</link>
		<comments>http://yellowroad.wallstreetexaminer.com/blogs/?p=320#comments</comments>
		<pubDate>Thu, 15 Jul 2010 22:02:38 +0000</pubDate>
		<dc:creator>Andy Bebut</dc:creator>
				<category><![CDATA[Economics]]></category>
		<category><![CDATA[Finance]]></category>
		<category><![CDATA[Politics]]></category>
		<category><![CDATA[Real Estate]]></category>

		<guid isPermaLink="false">http://yellowroad.wallstreetexaminer.com/blogs/?p=320</guid>
		<description><![CDATA[The question being asked again and again to almost every guest on Bloomberg radio in the past few weeks is: should we turn toward fiscal prudence or should we stimulate the economy no matter how large the deficit will be? The answers split, though it&#8217;s hard to estimate exactly at which proportion. To us ordinary bloggers, this question is more familiar from the posts like: &#8220;Krugman&#8217;s Insanity, And The Hard Mathematical Truth&#8221; or &#8220;Laffer Loses His Mind&#8220;. As the danger that two famous economists had lost their mind on this problem troubled me I decided to check if my brain is still operational and dig a little bit myself. The key to this discussion is the assumption that there is a right way to fix the economy while the opposite decision will lead into disaster. And my goal is to check this premise. Why the austerity is necessary Prudence is always good. Any family running a 10% budget deficit is doomed, so why not the government? We have the Japanese example where 20 years of fiscal stimulus produced a government debt of 200% of GDP and now it seems the options they have are far worse than 10 years ago. They had a long program [...]]]></description>
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		<slash:comments>5</slash:comments>
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		<item>
		<title>Government Policy Adjustments for Kondratieff Winter</title>
		<link>http://yellowroad.wallstreetexaminer.com/blogs/?p=314</link>
		<comments>http://yellowroad.wallstreetexaminer.com/blogs/?p=314#comments</comments>
		<pubDate>Sun, 18 Apr 2010 13:10:34 +0000</pubDate>
		<dc:creator>Andy Bebut</dc:creator>
				<category><![CDATA[Economics]]></category>
		<category><![CDATA[Finance]]></category>
		<category><![CDATA[Kondratieff wave]]></category>
		<category><![CDATA[Oil and Gas]]></category>

		<guid isPermaLink="false">http://yellowroad.wallstreetexaminer.com/blogs/?p=314</guid>
		<description><![CDATA[I don&#8217;t want to repeat Dylan Ratigan&#8217;s description of the financial sector as  a &#8220;con job&#8221;,  or something I wrote, as a  &#8220;financial ring&#8220;.  Instead, I want to describe the warfare that Obama is undertaking with the financial sector in terms of the extra-long cycle, the Kondratieff Wave. It&#8217;s all very simple. During Kondratieff Autumn the money supply is created by the financial sector using the fractional reserve system and monetization of debt. Rising asset prices, derivatives, and financial engineering completely privatize money printing and thus the government and central bank are released from the necessity to print money for real. This allows the economy to post exceptional growth rates combined with very low inflation. This also helps the financial sector to post over-sized returns, but in harmony with the society. People do not mind when Wall Street makes a killing when unemployment is under 5% and every recession is short and shallow. Even though the financial sector&#8217;s share in the overall economy&#8217;s profits is growing into absurd proportions, to about 40%,  the people do not mind. But please the financial sector itself is not producing any goods. The economy&#8217;s underlying strength is created by firms like Intel, Exxon Mobile, Pfizer, Caterpillar, [...]]]></description>
		<wfw:commentRss>http://yellowroad.wallstreetexaminer.com/blogs/?feed=rss2&#038;p=314</wfw:commentRss>
		<slash:comments>3</slash:comments>
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		<item>
		<title>Greece: too much information</title>
		<link>http://yellowroad.wallstreetexaminer.com/blogs/?p=310</link>
		<comments>http://yellowroad.wallstreetexaminer.com/blogs/?p=310#comments</comments>
		<pubDate>Sun, 11 Apr 2010 02:16:00 +0000</pubDate>
		<dc:creator>Andy Bebut</dc:creator>
				<category><![CDATA[Economics]]></category>
		<category><![CDATA[Finance]]></category>
		<category><![CDATA[Interest rates]]></category>

		<guid isPermaLink="false">http://yellowroad.wallstreetexaminer.com/blogs/?p=310</guid>
		<description><![CDATA[Greece is virtually falling apart but nobody&#8217;s watching. Today I&#8217;ve spent 15 minutes listening the Jim Cramer show, (which was quite an accomplishment). He did not mention Greece in the first 15 minutes (he later answered to my tweet and claimed that he mentioned Greece twice). And other media is covering Greece but it doesn&#8217;t make to top ratings and front pages anymore. What happened? Maybe the public is simply tired and do not want to read about Greece anymore. Maybe the shorts were well prepared last time and pushed the media to bring more attention. This time it came out of blue and nobody pre-shorted. But whatever it is, since January there were tens of thousands of article about Greece and the informational market is simply saturated, there is almost nothing more to say. Except that it&#8217;s getting much worse. What I want to say here is to throw out everything that is not important and summarize what the Greek situation is just in few words. Where the danger is coming from? Some financial institutions, which names are unknown to me, played the dangerous game. The purchased the 4%-5% (back then) yielding greek bonds on leverage and used them as [...]]]></description>
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		<slash:comments>3</slash:comments>
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		<item>
		<title>2010 Predictions: Word of the Year</title>
		<link>http://yellowroad.wallstreetexaminer.com/blogs/?p=300</link>
		<comments>http://yellowroad.wallstreetexaminer.com/blogs/?p=300#comments</comments>
		<pubDate>Thu, 18 Feb 2010 20:23:49 +0000</pubDate>
		<dc:creator>Andy Bebut</dc:creator>
				<category><![CDATA[Economics]]></category>
		<category><![CDATA[Investing]]></category>
		<category><![CDATA[World]]></category>

		<guid isPermaLink="false">http://yellowroad.wallstreetexaminer.com/blogs/?p=300</guid>
		<description><![CDATA[Please don&#8217;t take this prediction too seriously but I think the &#8220;Phrase of the Year&#8221; will be something like&#8211;  &#8220;&#8230; is struggling to hedge its exposure&#8221; and hence the &#8220;Word of the Year&#8221; will be something like &#8220;hedging&#8221;.  Of course it will be #1 only in the case the word &#8220;meltdown&#8221; does not beat it out. Credit default swaps were invented to hedge risk while maintaining most of the profit, which is against the laws of arithmetic.  Someone has to have symmetrically lower profit for more risk.  When I&#8217;m struggling to see this as a big picture it comes to me something like: Old McDonald decided to hedge his farm and purchased the protection from the horse.  The horse decided that it had too much exposure to the farm it knows well from inside and hedged with the cow.  The cow hedged its exposure by purchasing some CDS that the dog Bingo was selling, who then shorted the cat&#8217;s enterprise to hedge his farm exposure.  The cat was already holding some puts against the mouse, so it felt fine.  The mouse decided to purchase huge amounts of physical cheese to get through the recession and, well, the cheese stood alone. Back in 2008 everybody hedged [...]]]></description>
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