Will Turkey Weather the Middle East Storm?

Kemal Derviş

17 August 2013

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ISTANBULA cycle of terrible violence has taken over much of the Middle East. Its center has shifted from Iraq (where sectarian strife has recently escalated again) to Syria, but it encompasses Egypt, Yemen, Libya, and Tunisia as well. Farther east, Afghanistan is suffering its second decade of violent conflict, while Pakistan seems to be chronically on the brink of war, civil war, or social breakdown.
The most worrisome underlying threat is the increase in fighting between Sunni and Shia Muslims. Likewise, pious conservatives and liberal and leftist secular youth, who joined forces in Cairo and Tunis in 2010-2011 to challenge the dictators, have now turned on each other: witness the Egyptian security forces’ appalling massacres of Islamist demonstrators in Cairo recently, following a military coup carried out with liberals’ support. The region’s people are sliding into enemy camps, deepening their societies’ wounds in the process.
I have often argued that Turkey should not intervene in the internal affairs of its neighbors or adopt a Middle East-centered policy. Both government and opposition should remain steadfastly focused on Europe, despite the obstacles that the European Union has placed in Turkey’s way during membership negotiations.
But Turkey cannot be indifferent to the tragedy engulfing its southern neighbors. The Arab world’s pain is acutely felt, owing to Turkey’s historical, religious, and emotional bonds with these countries. Moreover, economic ties and sheer proximity mean that Turkey’s prosperity depends, to some degree at least, on that of the Middle East.
In recent years, there was hope that Turkey could help by serving as a model of a successful economy and well-functioning democracy; but recent events have raised doubts. In fact, Turkey must overcome four sources of internal tension if it is to continue to thrive economically, consolidate its democracy, and act as a compelling example to others.
The first and most serious source of tension stems from the need to recognize Kurdish identity as a fully legitimate part of the Turkish Republic. Those who wish to express a Kurdish identity, as well as all other citizens, must be confident that, while all remain committed to national unity, Turkey is a country in which diversity can thrive.
Second, there is an underlying historical tension between the large Sunni majority and the Alevi-Bektashi minority, loosely linked to Shia Islam.
Third, there is the difference between those who adhere to the tradition of political Islam and those who uphold the strict secularism that came with the republic. Often this socialdivideintersects with the Sunni-Alevi cleavage, as the Alevis have increasingly aligned themselves with the political left.
Finally, there is a growing perception of partisanship within the public administration. Building independent, non-partisan regulatory bodies was one of the key pillars of the 2001-2002 reform program. But these reforms have been rolled back recently, with independent regulatory authorities again coming under the control of government ministries (though it seems that the central bank has retained much of its autonomy). As the perception of non-partisanship in public administration has diminished, proximity to those in power has become another source of tension.
Turkey benefits from republican reflexes and values that have been built over decades, as well as from humanist wisdom anchored in centuries of history. Yet, given the regional context, Turkey’s internal tensions now represent a serious threat.
All sides must manage these tensions with great care and caution. Respect for diversity and individual freedom, and concern for generating growth and jobs in an atmosphere of social peace, must be guiding principles.

Healing the wounds to which all sides have at times contributed, and practicing forgiveness, should be the order of the day. A spiral of frustration and antagonism must not be allowed to develop.
Turkey must look carefully at the catastrophe unfolding around it in the Middle East. Humanitarian help is necessary, and Turkey is providing it generously, in ways that should serve as an example for Western countries. But Turkey’s political leaders, opinion shapers, and citizens must also recognize that the only protection against a similar disaster at home is a vibrant democracy, a fully professional public administration, and a tolerant society embodying pride and affection for the country’s diversity.
Others will not protect Turkey; some may even promote strife within its borders (historical examples of such tactics abound). Turkey alone can protect itself, and only by upholding truly democratic behavior at home and pursuing an external policy that promotes peace and democracy but does not take sides in the region’s ongoing battles, particularly between Sunni and Shia.
Fortunately, there is hope. The Gezi Park demonstrators who in June protested peacefully against the use of excessive police force by simply standing still also protested peacefully, years ago, against the ban on the headscarf then in effect in Turkey’s universities. This kind of concern for the rights of all is a hallmark of Turkey’s young generation.
Similarly, when the outgoing governor of Van sent a farewell message last month to the largely Kurdish-speaking people in his southeastern province, he delivered it in Kurdish – and received warm wishes in return.
A large majority of Turkey’s citizens share such generosity of spirit. That is why, despite serious difficulties, Turkey has a good chance of overcoming its internal tensions and becoming the example that its Middle East neighbors (and perhaps a few of its European neighbors as well) so desperately need.
Kemal Derviş, former Minister of Economic Affairs of Turkey and former Administrator for the United Nations Development Program (UNDP), is Vice President of the Brookings Institution.

August 15, 2013 5:00 pm
Will banks be safer if the London whale gets harpooned?
The JPMorgan Chase indictments risk inducing a false sense of security, writes Mark Roe
An image of the JPMorgan Chase building in New York, USA©EPA
And so the drama moves on to a courtroom. Two prime traders in JPMorgan Chase’s London whalemisadventure have been indicted.
Side plots may unfold, perhaps via extradition proceedings. But here is the big question: will the indictments lead to better, stronger financial markets? Well, yes and no.
Recall the problem: JPMorgan’s London trading desk made trades that would be profitable if the post-crisis American economy remained weak. As the economy improved, the traders sought to reverse the investments, but could not, ultimately losing the bank and its shareholders $6bn.

The indictments are not for the loss, but for deliberately misstating the size of the loss to higher-ups at the bank. That, in turn, led to misstated financial statements to the public and the bank’s regulators. Whether higher-ups pushed for lower reported losses remains to be seen.
Misleading the regulators is serious: if the losses threatened the bank itself, the regulators would have needed to know early so they could act. True, JPMorgan is well capitalised so a $6bn loss was painful but not life-threatening; and, the indictment says, the deception was sized in hundreds of millions of dollars.
But regulators still want to be alerted, to see if other big institutions were making similar bets. The financial crisis hit in 2008 because too many made similar (bad) bets on the American housing market’s ability to support its massive levels of poor-quality mortgage securities. An early warning system will not work if financiers hide problems.
Indeed, not a small part of the financial reform embedded in the Dodd-Frank Act, passed in response to the financial crisis, is to relay reliable information to regulators fast enough for them to assess how to handle an emerging problem. If financial executives hide problems, hoping that they will disappear, they undermine regulators’ ability to head off economic risks. Regulators should take the deception seriously.

The financial debacles of the past half-dozen years have led to few criminal actions. The typical denouement in an American financial scandal, however, is jailing: Ivan Boesky in the insider trading scandals; Michael Milken on junk bonds; Jeffrey Skilling and others in the Enron scandal.
Were prosecutors searching for malefactors to jail and, unable to find indictable offences in the transactions, did they instead indict the traders for failure to disclose accurately? Prosecutors have long acted similarly, with Al Capone’s jailing perhaps the most famous: the mobster, readers may recall, was indicted for tax fraud because the authorities lacked evidence to convict him for the way he made his money. But JPMorgan’s underlying trades were not illegal.

These risky trades are a normal part of the financial landscape. Indicting the JPMorgan traders for the failure to disclose was not a way at getting at activity that was at base illegal, because it was not. This type of risk to the financial system would persist and would have been legal, even if the traders had reported their losses accurately.

Thus, dramatic as these indictments may become, they do not strike close to the heart of our financial problems, because a $6bn trading loss at the best-managed big US bank tells us that banks do not yet have their risk-management house in order. Corporate structures at the big banks are unwieldy and prone to problems: they are sprawling businesses, often with limited synergies. The loss might have sunk another systemically important, but weaker bank.

Much needs to be done to make financial markets safe. So the whale indictments may – perverselyhold us back from where we should be: with strong capital requirements in place for big financial companies, incentivising them to use less debt overall and less of the overnight money market in particular, reducing the size of the riskiest businesses that can take whale-type risks, and making it possible for big financial organisations to fail without taking the overall economy with them.

The indictments run the risk of giving some lawmakers and the public a breather: “we nailed them”, some may think, “so we can relax”. The danger is that the indictments fulfil the public’s urge for a satisfying conclusion – and relieve lawmakers from pressure to build a sounder financial system.

The writer is a professor of law at Harvard University
Copyright The Financial Times Limited 2013.

Physical Gold Demand Surges 53% In Q2, Total Supply Down 6% - Price Falls 35%

Published in Market Update Precious Metals

on 15 August 2013

By Mark O’Byrne

Today’s AM fix was USD 1,339.50, EUR 1,008.05 and GBP 859.37 per ounce.  

Yesterday’s AM fix was USD 1,323.25, EUR 999.06 and GBP 855.53 per ounce.

Gold rose $13.30 or 1% yesterday, closing at $1,335.50/oz. Silver climbed $0.39 or 1.82%, closing at $21.84. Platinum edged up .2% or $3.24 to $1,500.74/oz, while palladium gained 16 cents to $736.66/oz.

Gold is ticking higher today after it hit a three week high yesterday. Silver climbed another 1%, its highest price in a month as the largest silver backed ETF, iShares Silver Trust, reached a four month high. Platinum hit its highest price in over two months and palladium also climbed

Gold prices in India have risen this week, extending gains past their highest level in four months, due to the import duty hike and rupee weakness. India’s consumption of gold rose to 310 tonnes in the second quarter ended June, highest in the last 10 years, despite government curbs to restrict imports to rein in the burgeoning current account deficit. Contrary to expectations that gold imports may fall, India's appetite for bullion may pick-up later in the year due to seasonal demand. Analysts say this could increase further illegal gold supply into India.

The SPDR Gold  ETF saw another day of inflows yesterday, this coupled with last Friday's inflows hitting their most since June 10th added bullish sentiment as did the increased geopolitical risk in Egypt which appears headed for a civil war with implications for the already troubled region. Gold bullion gained as data showed that global physical demand remains very robust. 

The latest World Gold Council Gold Demand Trends report, which covers the period April-June 2013, confirms again how recent falls in the gold price were due to speculators selling paper gold rather than a decline in actual demand for physical gold.

It highlights, once again, that the price falls have generated significant increases in demand, most notably from store of wealth, jewelrybullion coin and bar buyers in Turkey, Dubai and the Middle East, Vietnam, India, China and the rest of Asia.

Meanwhile speculators, primarily banks and hedge funds, exited their positions in the gold ETFs and futures markets. This led to liquidations of just 402 tonnes of ETF gold worth only $18.3 billion.

Support & Resistance Chart - (GoldCore)

To put this number into perspective, demand from India and China alone in Q2 was 310 tonnes and 276 tonnes or 586 tonnes combined. This demand alone vastly outnumbers the ETF outflows. Yet prices fell from $1,598.75/oz (closing price on March 29) to a low of $1,180.50/oz (closing price on June 28) - a very significant fall of 35%.

Monday, April 15 alone saw massive $20 billion paper gold sell orders on the COMEX trigger stop loss selling and unfounded panic in the gold market.

Reports suggest that a futures sell order worth $6 billion, equal to 4 million ounces or 124.4 tonnes of gold, by a large investment bank sent prices plummeting. The futures market then saw a further wave of selling of contracts worth some $15 billion, equivalent to 10 million ounces of selling or 300 tonnes, in just 35 minutes.

According to the report:

Globally, jewellery demand was up 37% in Q2 2013 to 576 tonnes (t) from 421t in the same quarter last year, reaching its highest level since Q3 2008. 

In China, demand was up 54% compared to a year ago; while in India demand increased by 51%. 
There were also significant increases in demand for gold jewellery in other parts of the world: the Middle East region was up by 33%, and in Turkey demand grew by 38%.

Bar and coin investment grew by 78% globally compared to the same quarter last year, topping 500 tonnes in a quarter for the first timeIn China, demand for gold bars and coins surged 157% compared with the same quarter last year, while in India it jumped 116% to a record 122t. Taking jewellery demand and bar and coin investment together, global consumer demand totalled 1,083t in the quarter, 53% higher than a year ago.

For the tenth consecutive quarter, central banks were net buyers of gold, purchasing 71t, which reinforces the trend that began in Q1 2011.  

Demand in the technology sector was stable once again, totalling 104t, a rise of 1% on last year.
Meanwhile gold held in gold-backed ETFs, which in 2012 accounted for just 6% of the world’s gold demand, fell by just over 400t, driven by hedge funds and other speculative investors continuing to exit their positions.  This was predominantly in the U.S.

Overall, demand for gold in Q2 2013 was 856t, down 12% on a year ago.

On the supply side, recycling fell 21% in the quarter while mine production was 4% higher than a year ago, at 732t. In total, supply was 6% lower than a year ago.

All available data shows very strong supply and demand fundamentals and yet a huge, historic 35% price fall in the quarter. This lends credence to the allegations of market manipulation put forward by the Gold Anti Trust Action Committee, whistleblower Andrew Maguire, Max Keiser, Zero Hedge and many others in the blogosphere.