Tuesday, August 14, 2012 – Go Figure

Go Figure
– by Sinclair Noe

DOW + 2 = 13,172
SPX – 0.18 = 1403
NAS – 5 = 3016
10 YR YLD +.07 = 1.73%
OIL +.60 = 95.30
GOLD – 10.90 = 1600.00
SILV un = 27.93
PLAT + 12.00 = 1403.00

I have always been fascinated with Pi; not the apple or blueberry pie (although that’s good), rather Pi, the ratio of a circle’s circumference to its diameter. Pi is considered a transcendental number; you can’t square the circle. It is an irrational number which cannot be expressed as a ratio of two integers. The number is 3.141, but that’s just the beginning. It is a number that cannot be fully expressed. People have tried. Mathematicians have used computers to extend the decimal out to 10 trillion digits, and then they give up; the decimal representation never ends and it never repeats; the number appears random but there has never been proof of the randomness. As best we know, Pi is infinite, and yet the definition of Pi relates to the circle, which is a closed loop. There are links to Pi in music and in the pyramids and in scripture and most likely in all sorts of things we haven’t yet begun to understand.

Go figure.

The US Census Bureau population clock hit 314,159,265; which is 100 million times Pi. Beyond the obvious conclusion that there are more births than deaths, I don’t know what it means. Maybe the world is more inscrutable; maybe it has always been so.  The next time you’re feeling really smart, try to figure out Pi. 

The British bank Standard Chartered has agreed to pay a $340 million in fines to the New York state regulator which had accused it of scheming with Iran to hide about $250 billion dollars worth of transactions from the US authorities, at a time of sanctions against Iran. 

A week ago, the Department of Financial Services said that Standard Chartered had left the US financial system “vulnerable to terrorists, weapons dealers, drug kingpins and corrupt regimes, and deprived law enforcement investigators of crucial information used to track all manner of criminal activity”. The regulator threatened to revoke Standard Chartered’s banking charter in New York. A hearing was scheduled for tomorrow. The deal was reached earlier today. The New York regulator effectively stepped in front of federal regulators and insured that New York state got some money. The federal regulators will probably get more down the road.

Standard Charted said it strongly rejects and contests the New York regulators’ portrayal of its transactions with Iranian banks. So, I guess I was wrong. There was no crime. That whole money laundering thing, just forget it. It was nothing, really. SCB has a get out of jail card; it was there in their hip pocket the whole time, right next to their wallet. Go figure. 

Europe’s economy is in a depression and that is making it harder for other economies around the world to recover and policymakers from all round the world are urging more decisive action, particularly from the European Central Bank. Eurostat, the European Union‘s statistics agency, reports the economies of both the eurozone and the wider 27-country EU shrank by a quarterly rate of 0.2 percent in the second quarter of the year. In the first quarter, output for both regions was flat. A recession is officially defined as two straight quarters of falling output. It is worse than just a recession, this is contraction. The downward spiral has begun. 

The euro-zone is struggling with sky-high debt levels and record unemployment of 11.2 percent. Compared with the year before, the euro-zone’s economy is 0.4 percent smaller.

Europe’s largest economy, Germany,  grew by a quarterly rate of 0.3 percent in the second quarter. Though down on the 0.5 percent recorded in the first quarter, the advance was a little more than expected; estimates called for 0.2 percent growth.

Germany currently benefits from strong demand for its products, but German exporters are finding it increasingly difficult to tap international markets.  The other 16 countries that use the euro are Germany’s biggest export market and six of them are toast. The US is the prettiest horse in the glue factory but our growth in the second quarter down compared to the previous three months at 0.4 percent.

Slower economic growth is also making it harder for governments and central banks to control the debt crisis in Europe. Shrinking economies make it more difficult to get the public finances into shape. Lower output cuts tax revenues while forcing up the cost of social benefits. The big picture is that the economic growth required to bring the region’s debt crisis to an end is still nowhere in sight. Turns out the austerity programs imposed on the periphery countries made things worse instead of better. Go figure. 

Wrangling over the right way to resolve the crisis has accomplished primarily one thing: it has fueled fears of a collapse of the euro. Banks, investors and companies are bracing themselves for the possibility that the euro will break up — and are thus increasing the likelihood that precisely this will happen. There is increasing anxiety, particularly because politicians and the technocrats have not managed to solve the problems. Despite all their efforts, the situation in Greece appears hopeless. Spain is in trouble and, to make matters worse, Germany’s Constitutional Court will decide in September whether the European Stability Mechanism (ESM) is even compatible with the German constitution.

According to the ECB, cross-border lending among euro-zone banks is steadily declining, especially since the summer of 2011. In June, these interbank transactions reached their lowest level since the outbreak of the financial crisis in 2007.  In addition to scaling back their loans to companies and financial institutions in other European countries, banks are even severing connections to their own subsidiaries abroad. Germany’s Commerzbank and Deutsche Bank apparently prefer to see their branches in Spain and Italy tap into ECB funds, rather than finance them themselves. At the same time, these banks are parking excess capital reserves at the central bank. They are preparing themselves for the eventuality that southern European countries will reintroduce their national currencies and drastically devalue them. Even the watchdogs don’t like to see banks take cross-border risks, although in an absurd way this runs contrary to the concept of the monetary union. You know things are bad when banks won’t do business with themselves. Go figure. 

Meanwhile, US retail sales rose in July by the largest amount in five months, with more spending on autos, furniture and clothing.  The Commerce Department says retail sales rose 0.8 percent in July from June. The increased followed three months of declines, including a 0.7 percent drop in sales in June.
Retail sales totaled a seasonally adjusted $403 billion in July, up 21 percent from the low hit in March 2009.

All major categories showed increases.  Auto purchases rose 0.8 percent. Excluding autos, retail sales also increased 0.8 percent. Consumers paid more for gas in July than June, although that had little impact on the data. Retail sales excluding gasoline station sales were up 0.8 percent, the same as the overall increase. The retail sales report is the government’s first look each month at consumer spending, which accounts for 70% of economic activity. Overall, consumer spending on goods and services grew only 1.5 percent in the April-June quarter, the slowest pace in a year. Americans are also saving more. The savings rate — the percentage of after-tax income that consumers don’t spend — rose to 4.4 percent in June, the highest in a year. The more we spend the more we save; apparently that TV commercial was telling the truth; go figure.

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