The War on Terror Begins Anew

Bogdan Aurescu, José García-Margallo y Marfil

 Paris terror attack 
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BUCHAREST/MADRID – The terrorist attacks across Paris on the night of November 13, which left at least 120 dead, are a tragic reminder of the ubiquity of modern terrorism. This year alone, violent extremists have murdered innocent people in the name of religion or politics in France, Tunisia, Kenya, Israel, Nigeria, and, of course, in Syria and Iraq – just to name a few countries. Like the black plague in medieval Europe, terrorism is stalking the modern world, and eradicating it has become a global imperative.
 
The international community has long been concerned about the threat posed by terrorism.
Countries have enacted security legislation and created special intelligence and police units to stop perpetrators and discourage or prevent attacks, and have complemented these efforts by entering into international and regional treaties and bilateral agreements.
 
And yet, despite numerous attempts to create one, there is no global legal body leading the fight against terrorism. It is time for that to change.
 
The effort to combat terrorism at the international level goes back nearly 90 years. In 1926, Romania – the first country to introduce the crime of terrorism into its criminal code – asked the League of Nations to “consider drafting a convention to render terrorism universally punishable.”
 
But it was not until 1934 that the assassination of King Alexander I of Yugoslavia and French Foreign Minister Louis Barthou prompted the League of Nations to make the first attempt to create international judicial mechanisms to confront terrorism. A group of experts drafted the Convention on the Prevention and Punishment of Terrorism and the Convention for the Creation of an International Criminal Court. Both conventions were signed by 24 governments and ratified by one, but the outbreak of World War II ensured that neither ever entered into force.
 
To date, 19 “sectorial” conventions on terrorism have been signed, covering terrorist bombings, nuclear terrorism, the financing of terrorism, acts against air and maritime security, and acts against internationally protected persons. But a global legal mechanism to combat terrorism in all its forms has remained out of reach.
 
Every attempt to create one has foundered on important disagreements among countries, most notably about how to define terrorism and whether it includes acts committed by armed forces and freedom fighters. Most recently, an effort to place terrorism under the jurisdiction of the International Criminal Court (ICC) was dropped due to the lack of a universally accepted definition and the additional workload that such cases would mean.
 
As terrorist attacks become increasingly common, an international body to counter them has never been more important. In February, Romania proposed the establishment of an International Court Against Terrorism (ICT) and, together with Spain, has launched a joint consultation process that we hope will lead to its eventual creation. Such a court would be empowered to prosecute any act of terrorism perpetrated after its creation, offering desperately needed assistance to countries with weak legal systems and providing a strong deterrent to would-be terrorists.
 
The ICT would have complementary jurisdiction to both national courts and the ICC, intervening only when domestic bodies were unable or unwilling to try a terrorism case or when the crimes committed were outside the ICC’s jurisdiction. It would have a prosecutor and a reasonable number of judges, nominated with a view to balanced representation of the world’s principal legal systems and geographical regions, and to gender equity. It would also benefit from the creation of a multinational police or security force able to act should a government be unable or unwilling to cooperate in securing evidence against the accused.
 
The court’s creation would require an international treaty or a binding act of the United Nations to ensure its universal jurisdiction. Most likely, it would be adopted through a binding resolution of the UN Security Council, with the establishment of the International Criminal Tribunals for Yugoslavia and Rwanda and the Special Tribunal for Lebanon serving as precedents.
 
To be sure, the creation of such a court would face difficulties, the most important of which remains the lack of consensus on what constitutes the crime of terrorism. We propose adopting a “common-denominator approach.” In addition to encompassing the acts agreed upon in existing sectorial conventions, the ICT’s jurisdiction would be based on customary international law, taking into consideration intent (was the act intended to spread fear or coerce authorities), as well as the crime’s gravity and international character.
 
Establishing the ICT and imbuing it with legitimacy will require the support of civil society, academia, and the general public. Obtaining this support will not be easy, particularly at a time when policymakers face so many other economic and strategic challenges. But we believe that a powerful legal instrument in the global fight against terrorism would quickly prove indispensable – easily justifying the effort devoted to its creation.
 


Gold: On The Edge Of A Steep Cliff
             


- It's not just gold - metals look ugly. 
       
- Abject price failure. 
       
- How low can it go? 
       
- Cheap money will create a golden opportunity. 
       
- An event will move gold - The Fed or The Unknown.
       
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Unless you are long the sugar or orange juice markets these days, commodity bulls are having a very rough time. The dollar started moving higher again in the middle of October, and that has been bad news for raw material prices. Right now, gold is sitting on the edge of a cliff. Other precious metal prices have failed miserably over recent weeks.

It's not just gold - metals and commodities look ugly

Silver declined from $16.37 per ounce on October 15 to close last Friday at $14.23. It is down by $2.14, or just over 13% in one month. Platinum has imploded. On October 16, it was at $1026.80 per ounce. Last Friday, "rich man's gold" closed at $861.40 per ounce. The session's lows were just below at $860.50. A decline of over 16% resulted in a drop to the lowest level since December 2008.

Palladium fell from $724.95 on October 9 to close Friday at $540. The decline of 25.5% brings palladium within a stone's throw of the August 26 lows of $519.20 per ounce.

Precious metals did not move in a vacuum. Crude oil closed last Friday at $40.74 per barrel on the active-month December NYMEX futures contract. This is the lowest level since late August and less than $2 above contract lows, which were the lowest levels since 2008.

Copper fell to a new multi-year low at $2.1510 per pound on Friday, and closed last week only 1.1 penny higher. Grains moved to new lows on the week, and the list of losers included even more raw material markets. Gold has held up pretty well in the face of a strong dollar and falling commodity prices; it is still above $1000 per ounce. The question is, can it possibly stay here given ubiquitous weakness and new multi-year lows sweeping across almost every commodity market?

Abject price failure

Gold did make a new contract low by 70 cents on the December COMEX futures contract as it traded down to $1073 per ounce last Thursday. It came very close to a new multi-year low, but avoided that level for now.

(click to enlarge)


The continuous contract lows during the week of July 20 were at $1072.30 - just 70 cents below last week's lows. Gold bounced from its lows on November 12 and closed the week at $1083.40 per ounce. The weekly chart clearly highlights the fact that momentum in gold continues to be bearish and the yellow metal now sits on the edge of a cliff.

Gold began the fourth and final quarter of 2015 with a rally that took it up to $1191.70.

(click to enlarge)


As the daily chart illustrates, the rally just turned out to be yet another lower high in the four-year bear market in gold. Every single rally in gold since 2011 has resulted in abject failure and a lower low, and another one is coming soon.

How low can it go?

Given the moves in other commodity markets and the dollar, gold has held up well. However, I do not believe this will continue. While it displays an oversold condition on daily charts, the metal cannot ignore what is going on all around it. Other hard assets are dropping like flies; it is only a matter of time until gold joins the rout.

Given the historical mean level of inter-commodity spreads against silver and platinum, gold remains much too expensive at over $1000 per ounce. The long-term average of the silver-gold ratio at 55:1 implies a gold price of $782.65 per ounce. This ratio closed Friday at 76.13:1. The long-term mean level of the platinum-gold spread at a $200 premium for platinum over gold implies a gold price of $661.40 per ounce. This spread closed with gold trading at a premium of $222 to platinum last Friday.

The metal can go much lower from its current price. I believe that a price below $1000 is a no-brainer at this point. I further believe that gold needs to test the 1980 highs of $875 per ounce on a technical basis.

(click to enlarge)


The slow stochastic, a momentum indicator, on the yearly gold chart is negative, and the 1980 highs is certainly a target for support for the yellow metal.

Cheap money will create a golden opportunity

On a global basis, interest rates remain at historically low levels. A low interest rate environment generally is a positive for gold and other commodity prices. However, the dollar's strength has dominated the action in raw material prices. Low interest rates are a response to weak economic conditions around the globe. Central banks have artificially lowered rates to stimulate economies.

They have also employed other tools, like quantitative easing and purchases of all types of debt, to provide stimulus.

In the future, these moves and artificially low rates will come at a price. Cheap money chasing goods and services is bound to cause inflationary pressures around the globe. Inflation has been gold's best friend throughout history. Add to that exponential rates of population growth, and you have a situation where the world will find more people chasing finite goods with lots of cheap currency. It is a scary prospect.

While gold will likely drop to a new lower low and will trade in the triple digits, history tells us that it will once again become an attractive investment at lower levels. I am looking to buy the metal at prices below $900 per ounce. Gold will drop below average production cost levels, and declining production will strengthen its fundamentals and future prospects.

An event will move gold - The Fed or The Unknown

As I write this article on late Friday, November 13, news of the latest terrorist attack in France is trickling through the airwaves in the background. The attack is the latest reminder - not that we need one - that the world is a terribly dangerous place these days. At least two suicide attacks and one bombing near a stadium where France and Germany were playing a soccer match were responsible for the deaths of scores of innocent people. These types of events send fear and shock throughout the civilized world. In recent years, we have seen many of these types of attacks, although the latest one in Paris appears to be particularly heinous. In each case, gold has not attracted buying; it has not been a "flight to safety" asset around the world.

However, the attack in Europe is likely to result even worse economic conditions, as weak economies there must pay the expensive bills of protecting their citizenry from a faceless and anonymous enemy that is hard to identify before it is too late. It is also likely to drive more of a wedge between refugees from the Middle East and traditional citizens of European countries.

Recession or deflationary pressures are likely to continue to grip Europe.

What is most likely to move gold next is an interest rate rise in the United States. The Fed appears to be ready to ignite the "liftoff" of rates at their December meeting, as promised all year long. This will provide further support for the already bullish U.S. dollar, and could be the final straw for gold. I expect gold to move aggressively lower. Any rally like the one we saw at the beginning of October will attract selling and run out of steam. Gold is ready to fall off the end of the cliff on which it now sits. That fall is likely to come sooner rather than later.


Brazilian institutions have responded well to political crisis

Lee Alston

Country’s economy looks bad but some things have turned out better than expected, writes Lee Alston

 Demonstrators attend a protest against Brazil's President Dilma Rousseff, part of nationwide protests calling for her impeachment, at Paulista Avenue in Sao Paulo's financial centre, Brazil, August 16, 2015©Reuters Anger: protests in São Paulo against the Brazilian government in the wake of the country’s corruption scandal

 
Bullish on Brazil — really? The Brazilian currency has fallen more than 30 per cent in a year. Interest rates are at 15 per cent, 9 percentage points of which are gobbled up by inflation. Unemployment is climbing. The economy is shrinking. And if that were not enough, Brazil is also suffering its biggest-ever corruption scandal.

Petrobras, the state-owned energy company, admitted to losses of R$6bn ($1.6bn); the federal police puts the figure far higher. The affair has weakened an already indecisive president. Since her re-election last year, Dilma Rousseff has lost control of her government coalition and of much of her own Workers’ party. Her approval rating has sunk to 8 per cent — lower even than the 9 per cent rating of former president Fernando Collor de Mello just before he left office under duress in 1992. Ms Rousseff may yet face a similar fate; in a move that could presage impeachment, the federal budget watchdog , the TCU, rejected the government’s 2014 accounts.

Brazil’s condition does look bad. Yet some things have turned out better than expected. The government has made a credible move to stabilise markets, appointing as finance minister Joaquim Levy — a no-nonsense fiscal conservative. His aim is to return Brazil to policies that support social inclusion without imperilling public finances. Rumours abound that Henrique Meirelles, former head of the central bank and equally opposed to inflation, may replace Mr Levy. Mr Meirelles may be more effective because he has former president Luiz Inácio Lula da Silva’s blessing. No matter how much Ms Rousseff, her party or their coalition dislike the idea of a painful fiscal adjustment, the view that this is the only way to go has prevailed.

True, there have been mass street protests. But all manifestations of dissatisfaction have taken place within institutional and constitutional rules. Any suggestion of coups, military takeovers or violence is more or less universally rejected. Just three decades since the dictatorship ended, democracy is the only game in town. That is a considerable achievement.

Best of all has been the response to the crisis by those in charge of holding the government to account, especially the judiciary, public attorneys, the TCU and the federal police. They have investigated, prosecuted and even imprisoned previously untouchable business leaders and politicians involved in corruption. The old Brazilian dictum that most investigations and prosecutions “end in pizza” — a convivial feast that gave the lie to a supposedly adversarial trial system — has not applied.

What next though? Here are three plausible scenarios. First, stagnation or “muddling through”. Lacking clear leadership from either the president or congress, Brazil could suffer three years of drift until the next election. This would be painful, leading to rising unemployment and high inflation. Second, a populist leader could emerge and win the election in 2018, promising much but delivering little. In some ways, it would mark a return to the economic volatility and hyperinflation of the 1980s.

Finally, Congress could force Ms Rousseff out of office (or she might resign first, just as Mr de Mello did). That might hasten the return to fiscally sound but socially inclusive policies.

Brazil has been here before. In December 1992 Itamar Franco assumed the presidency after Mr Collor’s impeachment. He quickly turned the economy over to Fernando Henrique Cardoso, finance minister, and his team of advisers, who tamed inflation. Two terms of institutional deepening under the presidency of Mr Cardoso paved the way for Mr Lula, who stayed the course of fiscal and social inclusion, enabling Brazil to enjoy two decades of economic prosperity and political development.

In Brazil, the perennial country of the future, history really can repeat itself.

 
The writer is the Ostrom professor at Indiana University and a research associate at the National Bureau of Economic Research


How Do People Destroy Their Capital?

By: Keith Weiner


I have written previously about the interest rate, which is falling under the planning of the Federal Reserve. The flip side of falling interest rates is the rising price of bonds. Bonds are in an endless, ferocious bull market. Why do I call it ferocious? Perhaps voracious is a better word, as it is gobbling up capital like the Cookie Monster jamming tollhouses into his maw. There are several mechanisms by which this occurs, let's look at one here.


Artificially low interest makes it necessary to seek other ways to make money. Deprived of a decent yield, people are encouraged (pushed, really) to go speculating. And so the juice in bonds spills over into other markets. When rates fall, people find other assets more attractive. As they adjust their portfolios and go questing for yield, they buy equities and real estate.

Dirt cheap credit is also the fuel for rising asset prices. People can use leverage to buy assets, and further enhance their gains.

And it's wonderful fun. A bull market, especially one that is believed to be infinite -- if not Fed-guaranteed -- seemingly provides free money. All you have to do is buy something, wait, and sell it. You can get your capital back plus something extra.

Many people spend most of this extra. This is their gain, their income. Their brokers, advisers, and other professionals also make their income off of it.

However, there's a contradiction. Common sense tells us that it should be impossible to consume without first producing something. How can this be possible? How can an entire sector of economy get away with it?

It can't. There is no Santa Claus. Something else is happening, something insidious.

The falling-rate-driven bull market is a process of conversion of someone's wealth into your income.

Let's look at how this works. Suppose Jennifer buys a condominium for a million bucks. If she pays cash, this is a large chunk of her life savings or inheritance. If she borrows to buy it, then she's disbursing someone else's savings. That saver has no idea what is being done with his savings. He probably thinks it's safe in the bank.

Jen forks over this cash to the seller, David. Dave recovers his original cost to buy the asset, say six hundred grand. The rest, say four hundred, is profit. He goes out and uses much of the profit to buy a Ferrari, drink a 1983 Bordeaux, and dine on beluga caviar. Dave is driving, drinking, and eating Jen's life savings.

What was Jennifer thinking? Why did she place so much of her wealth into his hands of David, who will only consume a large part of it?

Simple. Jen sees the bull market, and expects it to continue. She is hoping that after a while, she will sell at a profit. That is, she relies on the next guy to come along and give over an even larger chunk of wealth to her, so she can consume it. Maybe Ferraris aren't her thing, but she fancies a cruise around the world, a diamond necklace, and she will enjoy some caviar too.

Charles Ponzi is now infamous for having promoted a scheme, where people who buy in later are enabling the earlier participants to cash out with profits. Such schemes can't go on forever, because they are cannibalizing the participants. They do not generate real profits by increasing production. There are mere transfers, converting the wealth of some into the income of others.

Ponzi had nothing on the Fed, with its endless bond bull market, speculation, and capital destruction.

Don't blame Jennifer or David. Blame the Fed and its perverse game.