domingo, octubre 02, 2016




Globalization for Everyone

Hernando de Soto
. Newsart for Globalization for Everyone

LIMA – Nowadays, globalization’s opponents seem increasingly to be drowning out its defenders. If they get their way, the post-World War II international order – which aimed, often successfully, to advance peace and prosperity through exchange and connection – could well collapse. Can globalization be saved?
At first glance, the outlook appears grim. Every aspect of globalization – free trade, free movement of capital, and international migration – is under attack. Leading the charge are antagonistic forces – from populist political parties to separatist groups to terrorist organizations – whose actions tend to focus more on what they oppose than on what they support.
In Russia and Asia, anti-Western groups are at the forefront of the campaign against globalization. In Europe, populist parties have tended to emphasize their aversion to European integration, with those on the right often also condemning immigration, while the left denounces rising economic inequality.
In Latin America, the enemy seems to be foreign interference of any kind. In Africa, tribal separatists oppose anyone standing in the way of independence. And in the Middle East, the Islamic State (ISIS) virulently rejects modernity – and targets societies that embrace it.
Despite their differences, these groups have one thing in common: a deep hostility toward international structures and interconnectedness (though, of course, a murderous group like ISIS is in a different category from, say, European populists). They do not care that the international order they want to tear down enabled the rapid post-1945 economic growth that liberated billions of developing-country citizens from poverty. All they see are massive, unbending institutions and intolerable inequalities in wealth and income, and they blame globalization.
There is some truth to these arguments. The world is a very unequal place, and inequality within societies has widened considerably in recent decades. But this is not because of international trade or movements of people; after all, cross-border trade and migration have been happening for thousands of years.
The anti-globalization movements’ proposed solution – closing national borders to trade, people, or anything else – thus makes little sense. In fact, such an approach would hurt virtually everyone, not just the wealthy elites who have benefited most from globalized markets.
So what is fueling inequality? To answer that question, we must consider what about globalization is generating returns for the wealthy.
A central aspect of globalization is the careful documentation of the knowledge and legal tools needed to combine the property rights of seemingly useless single assets (electronic parts, legal rights to production, and so on) into complex wholes (an iPhone), and appropriate the surplus value they generate. Clear and accessible ledgers that faithfully describe not only who controls what and where, but also the rules governing potential combinations – of, say, collateral, components, producers, entrepreneurs, and legal and property rights – are vital for the system to function.
The problem is that five billion people around the world are not documented in national ledgers in anything approaching an organized manner. Instead, their entrepreneurial talents and legal rights to assets are recorded in hundreds of scattered records and rules systems throughout their countries, making them internationally inaccessible.
Under these conditions, it is impossible for the majority of humanity to participate effectively in their national economies, much less the global one. Without any means of participating in the process of producing high-value combinations, people have no chance of seizing some of the surplus value created.
So it is a lack of consolidated, documented knowledge – not free trade – that is fueling inequality worldwide. But addressing this problem will not be easy. Just determining how many people are left out took my organization, the Institute for Liberty and Democracy (ILD), two decades of fieldwork, conducted by more than 1,000 researchers in some 20 countries.
The main problem is legal lag. The lawyers and corporate elites who draft and enact the legislation and regulations that govern globalization are disconnected from those who are supposed to implement the policies at the local level. In other words, the legal chain is missing a few crucial links.
Experience in Japan, the United States, and Europe shows that a straightforward legal approach to ensuring equal rights and opportunities can take a century or more. But there is a faster way: treating the missing links as a break not in a legal chain, but in a knowledge chain.
We at the ILD know something about knowledge chains. We spent 15 years adding millions of people to the globalized legal system, by bringing the knowledge contained in marginal ledgers into the legal mainstream – all without the help of computers. But we do not have decades more to spend on this process; we need to bring in billions more people, and fast. That will require automation.
Last year, ILD began, with pro bono support from Silicon Valley firms, to determine whether information technology, and specifically blockchain (the transparent, secure, and decentralized online ledger that underpins Bitcoin), could enable more of the world’s population to get in on globalization. The answer is a resounding yes.
By translating the language of the legal chain into a digital language – an achievement that required us to develop a set of 21 typologies – we have created a system that could locate and capture any ledger in the world and make it public. Moreover, we have been able to compress into 34 binary indicators the questions that computers have to ask captured ledgers to determine which provisions should be inserted in blockchain smart contracts between globalized firms and non-globalized collectives.
Information technology has democratized so many elements of our lives. By democratizing the law, perhaps it can save globalization – and the international order.

Germany Again

The results of state elections in Berlin may be another indicator of an economic downturn.

By George Friedman

My apologies for constantly returning to Germany but for the moment it is the pivot of the world. Germany is the fourth largest economy in the world, the largest economy in Europe, the lender of last resort and the foundation of European stability. If Germany weakens or destabilizes, Europe destabilizes, and it is not too extreme to say that if Europe destabilizes, the world can as well. I am confident in saying I am not making too much of a small thing. In Sunday’s state election in Berlin, the Social Democratic Party (SPD) got 21.6 percent of the vote. Chancellor Angela Merkel’s Christian Democratic Union (CDU) got 17.6 percent. A party called Die Linke (or The Left) got 15.6 percent and the Greens got 15.2 percent, while the liberal Free Democrats garnered 6.7 percent. The anti-immigration party Alternative for Germany (AfD) won 14.2 percent.

The difference between AfD and the party that got the highest percentage of the vote was just 7.4 percent. Three other parties were jammed between these two. In other words, the electorate in the Berlin region is completely fragmented. Put another way, the mainstream SPD and CDU together got a little over a third of the vote. The rest went to anti-establishment parties, with the two left-wing parties, Die Linke and the Greens, getting over 30 percent combined and the anti-immigration party getting just under 15 percent.

Berlin does not represent all of Germany, but it is the capital. Therefore, the fact that
the mainstream parties were together repudiated by the majority of voters is significant. In Berlin at least, the German political system has shattered. Even a coalition of the SPD and CDU wouldn’t be enough to rule. Adding the Greens (a sort of establishment party) wouldn’t give them a majority either.

Alternative for Germany Party
Frauke Petry and Jörg Meuthen, co-heads of the Alternative for Germany (AfD) party, arrive with AfD Berlin candidate Georg Pazderski to speak to the media the day after Berlin state elections on Sept. 19, 2016 in Berlin, Germany. Sean Gallup/Getty Images


If the Berlin results are replicated on a national level, Germany is going to become ungovernable. This assumes that Berlin is a leading indicator of party support, that in a national election the establishment parties wouldn’t get more votes to avoid this outcome, and that Germany’s political and economic conditions won’t improve. Having said all that, this result, taken at face value, indicates that the European foundation, Germany, is moving toward a major political crisis that will resonate.

The migration issue is obviously a major factor, but in the end, the economy is even more important. The Bundesbank announced yesterday that the German economy could slow down in the third quarter. Given that it has hardly been screaming along to this point, and that Germany needs to increase its growth, the news from Bundesbank is troubling. The ongoing challenges facing Deutsche Bank are also concerning. It is now facing significant fines in the United States, totaling about $14 billion. This should not be a staggering amount for one of the largest banks in the world, but questions have been raised about the impact of paying such fines on the bank’s capital base. This gives us a sense of the underlying weakness of Deutsche Bank and therefore of the German and European banking system.

Meanwhile, a Financial Times story pointed out that U.S. imports have declined. We expected this. The U.S. economy is also not performing at its best, but in addition, many of the items that had been imported are becoming cheaper to produce in the United States. There are structural changes under way in the global economy. And somewhere out there a cyclical recession is lurking.

The Financial Times article focused on the impact this will have in China. In our view, the major impact will be on Germany. Germany derives almost
50 percent of its GDP from exports. As Europe has weakened, Germany has shifted its export focus to the United States and, to a lesser extent, China. If the United States is cutting Chinese imports, then German exports to China will likely contract. But far more important, if the U.S. is cutting imports from Germany, Germany’s economy will be affected rapidly and we think dramatically. The Germans are addicted to exports and therefore utterly at the mercy of their external customers. Their last major customer with a healthy economy is the United States. If the United States cuts purchases, the German economy will be hit hard because Germany can’t increase domestic consumption enough to compensate.

Finally, the Bank for International Settlements (BIS) issued a report asserting that the international financial system is showing instability. The BIS is one of the more reliable analytical sources, as it is genuinely not beholden to anyone. The BIS was the first to note the crisis in the Japanese system and other significant events. So when it speaks, we listen, and it is now saying that the international system is unstable, not least because of European banking weakness. The instability does not seem to be cataclysmic, but given that Germany is at the heart of the earthquake, even a moderate shaking will bring it down.

All of this is known to ordinary Germans probably better than it is to the financial community. The ordinary German will feel the tremors early on. The financial community has a motivation to live in denial (as investors think, “let’s close that one last huge deal”) and the financial markets do not feel the tremors the same way an ordinary person does. For the markets, the slowdown in the economy is a statistic. For the ordinary worker, it could threaten his job, mortgage and so on. In many ways, he is more sensitive to economic shifts than the banks.

When you consider the fact that the results of the Berlin election look like someone smashed a plate on the floor – with support for the various parties fragmenting into pieces – it is clear that something is being felt on the ground. The strength of the left-wing parties is not that they are pro-migration. That doesn’t help them much, if at all. Their strength comes from their
anti-austerity stance. Voters believe that anti-austerity parties know the current situation can’t continue. They also believe that, at the very least, these parties can’t be worse than the mainstream ones.

In my view, there is a growing sense in Germany that the German system is failing. It has not yet dawned on most that excessive exports are a sign of weakness and not strength because it makes a country dependent on external customers. But the tremors are now being felt by the finest financial analysts in the world: ordinary people who work for a living and need their paychecks to survive. The political base of modern Germany is crumbling, and as in Britain with Brexit, it will be dismissed as the work of the irresponsible proles.

How to Profit When Citigroup's $56 Trillion "Casino" Catches Fire

By Michael E. Lewitt, Global Credit Strategist, Money Morning

Editor's Note: Michael's presentation tonight at 8 p.m. is going to show you the huge profits to be had in "punishing" Wall Street for its greed and stupidity. But before tonight's main event, he wanted to show you exactly how lucrative this can be. His readers made 277% and 148% on the same day swatting Deutsche Bank on the nose, and he's looking at a similar setup on this American bank.

Here's Michael…

They say even a busted clock is right twice a day: The International Monetary Fund recently called Deutsche Bank AG the "world's riskiest financial institution."

Deutsche Bank (NYSE: DB) stock is barely off 30-year lows, and it spent a great deal of this late summer frantically unloading some of its multibillion-dollar derivatives book. It's too late for Deutsche Bank, but that hasn't stopped it from trying.

Another troubled Eurozone bank, Credit Suisse Group AG (NYSE ADR: CS), has been doing the same with its derivatives.

But if you thought these bad banks would have any trouble unloading their toxic "weapons of financial mass destruction," you'd be wrong.

In a breathtakingly stupid move, one American bank has been on a derivatives shopping spree, eagerly buying up these insanely risky instruments just as fast as Deutsche Bank and Credit Suisse can sell them.

Like a kind of Mayflower, full to bursting with toxic stupidity and risk, these ticking time bombs are heading across the Atlantic.

And that means there's another huge opportunity waiting for you…

What Citigroup Failed to Learn in 2008

Citigroup Inc. (NYSE: C) already nearly destroyed itself with derivatives during the 2008 crisis, requiring the biggest taxpayer bailout in history in order to stay afloat.

Strangely, it didn't learn its lesson the first time its stock fell below $1.

As rival banks see the writing on the wall and scramble to get rid of their derivatives, Citi is now cheerfully snapping up billions of dollars' worth.

Several weeks ago, Credit Suisse prudently sold $380 billion of derivatives to Citi, thereby reducing its own leverage exposure by $5 billion. Last year, Deutsche Bank palmed off $250 billion of credit default swaps on (guess who?) Citi, and is in talks to get rid of even more.

The result is that Citi now holds the most derivatives of any of its U.S. rivals. That's a staggering total exposure of nearly $56 trillion, according to the OCC's latest report, shown here:

If only this were some sort of massive, momentary lapse of institutional sanity. Bizarrely, this is a strategy that Citi has been pursuing for some time.

Three years ago, the bank separated its derivatives and cash traders and created dedicated derivatives teams – including a "risk optimization" team led by Vikram Prasad, who explains, "You can't have every trader obsessing over every capital measure. By giving that responsibility to a dedicated team, we're using our resources in a more efficient way."


While acknowledging derivatives are so risky as to require a large stable of dedicated handlers, Citi continues amassing and championing them. "We consider single-name CDSs to be an integral part of our overall credit business," says Brian Archer, Citi's New York head of global credit trading. "A large number of our biggest clients still want to trade the product and use it to move risk. We have the appropriate resources in place to service that demand."

In other words, Citi is playing with dynamite – and it's proud of it.

Never, Ever Play with Derivatives Dynamite

There are numerous reasons why Citigroup's derivatives stockpile is likely to blow up in its face. I've detailed many of them in investor opportunity briefings, here and here.

In fact, our current $650 trillion derivatives market is a nightmare scenario waiting to happen.
First problem: the size. It's 36 times the size of the U.S. GDP and over eight times larger than the world GDP – the entire global output of the entire world in a year.

While credit default swaps (the type of derivative that played a huge role in the financial crisis) shrank significantly in size since the financial crisis, they remain large enough to constitute a potential time bomb inside the financial system that could blow up any time.

Second problem: the interconnectedness. Every derivative contract involves two parties that agree to make certain payments to each other. But if one party is unable or unwilling to live up to its agreement and make those payments, the other party is left holding the bag and nursing a big loss.

In a crisis, this can leave a volume of broken contracts that will overwhelm these institutions and render them instantly insolvent.

That's what happened in 2008.

American International Group Inc. (NYSE: AIG) almost blew up because it wrote too many derivatives contracts on collateralized bond obligations that held billions of dollars of subprime mortgages. AIG couldn't meet its obligations, leaving thousands of counterparties around the world at risk of loss.

This is why the U.S. government had to step in and bail out AIG (and Citigroup, which seems to have forgotten this part of its history) – to save those other counterparties from massive losses that would have destroyed the financial system.

Today's level of derivatives in an increasingly unstable and volatile financial system isn't sustainable.

Derivatives are opaque, difficult‐to‐price instruments from which Wall Street earns large profits.

Wall Street is not a public utility – it is a profit-seeking engine whose primary purpose is to generate money for itself.

The more complex and opaque the instrument, the easier it is for Wall Street to fool investors (even supposedly "smart money" investors like hedge funds and large institutions) and mark up these instruments to earn outsized profits from selling and trading them.

Wall Street's limitless greed and disregard for risk has created a complex monster that it simply doesn't understand. It can't control this monster for much longer.

Citigroup certainly won't be able to.

How to Profit When Citigroup Goes Bust

The global financial system remains grotesquely overleveraged and unprepared for another crisis. Banks like Deutsche Bank and Citigroup are at the epicenter of this weakness.

Members who are following along have already made 277% or more on my Deutsche Bank trade – and you still have a chance to profit. I think the embattled, derivative-ridden monster is headed down to $5, and you can get my latest put recommendations here.

When the next market dislocation arrives, as it inevitably will, these derivatives will again earn their reputation as "weapons of mass financial destruction." If counterparties are unwilling or unable to perform, all bets will be off.

The definition of insanity is doing the same thing over and over and expecting a different result. The first time Citigroup tangled with the derivatives monster during the 2008 crisis, its stock plunged to a low of $0.97.

In the grip of some bottomless stupidity I can't fathom, it's expecting a different result this time around.

We should not.

So, in order to profit when (not if) this stock collapses, I recommend some long-dated puts.

In Men, Depression is Different

Symptoms—and help—are unlike what women experience

By Elizabeth Bernstein

Men become depressed much less often than women do, according to statistics. But that may be because many men resist talking about their feelings and avoid seeking help. Illustration: Stephen Savage for The Wall Street Journal        

I am worried about a friend. He’s stopped responding reliably to texts and calls from his friends and seems irritable and edgy when we do see him. He complains of insomnia, no energy and lack of motivation. Ask him how he’s doing and he says, “I’m not myself.” “I’m drowning.”

He’s depressed. I don’t know how to help him.

Statistics show that men become depressed much less often than women do. In 2014, 4.8% of men aged 18 or older in the U.S. had at least one major depressive episode in the past year, compared with 8.2% of women in the same age group, according to the National Survey on Drug Use and Health conducted by the Substance Abuse and Mental Health Services Administration.

But experts worry that these figures don’t tell the whole story. Men are much less likely than women to report feeling depressed or to seek treatment for depression.

Psychiatrists and health care professionals define major depressive disorder as five or more of the following symptoms present for two weeks: depressed mood most of the day, irritability, decreased interest or pleasure in most activities, significant change in weight or appetite, change in sleep, change in psychomotor activity such as either agitation or sluggishness, fatigue or loss of energy, feelings of guilt or worthlessness, changes in concentration and recurrent thoughts of death.

Women often internalize depression—focusing on the emotional symptoms, such as worthlessness or self-blame, experts say. Men externalize it, concentrating on the physical ones.

Men typically don’t get weepy or say they feel sad. They feel numb and complain of insomnia, stress or loss of energy. Often, they become irritable and angry.

Some men aren’t in touch with their feelings. But the larger problem is that men have been conditioned not to talk about them. “There is that sense that they should be in control of their emotions and that being depressed can be viewed as a sign of weakness,” says Jeffrey Borenstein, a psychiatrist and president of the Brain and Behavior Research Foundation in New York. Men are expected to handle problems on their own, he says.

This sense of weakness can make depression worse for men, therapists say. “For women, depression is a signal for getting help, that something needs to be addressed in a fundamental way,” says Nando Pelusi, a clinical psychologist in New York. “For men, it’s a signal that they are a failure and are submitting to defeat.”

That sense of defeat is why depressed men typically withdraw and isolate, says Donald Malone, a psychiatrist and chairman of psychiatry and psychology at the Cleveland Clinic.

And this can wreak havoc on a man’s relationships, as loved ones, especially spouses, can feel hurt and rejected. Research shows that marital problems can cause depression in both men and women. But one classic study, published in 1997 in the journal Psychological Science, showed that while for women the marital problems often come first, for men depression comes first and then causes the marital problems. “The male response to depression is to push away, which can lead a partner to feel helpless and alone,” says Wendy Troxel, a psychologist and senior behavioral and social scientist at the Rand Corp., in Pittsburgh.

How can you help a man who is struggling from depression?

Normalize the situation.

Insist that this isn't his fault and he isn't alone. “Look up men and depression on the internet—you will be amazed at what you see,” says Michael Addis, professor of psychology at Clark University, in Worcester, Mass., and director of the Research Group on Men’s Well-being. Many accomplished men have suffered from depression, including Abraham Lincoln, Winston Churchill, Buzz Aldrin and Bruce Springsteen.

If you’ve suffered from depression open up about your struggle. Explain that depression is treatable and it is important to get help, just as you would with any other illness.

Speak carefully.

Don’t be critical. He’s already beating himself up emotionally. And don’t express worry or concern. This suggests you don’t think he can handle the situation on his own.

“Be sensitive to the way his depression feels profoundly humiliating to him,” says Joshua Coleman, a psychologist and senior fellow at the Council on Contemporary Families, a nonprofit organization based at the University of Texas at Austin that distributes research about American families.

Therapists say the word “we” can be very powerful: “We are in this together.” “We will find a treatment that works.”

Ditch the “D” word.

Research shows that men can be defensive about the word depression, and that those who are the most traditionally masculine resist it the most. In a 2013 study in the journal Psychology of Men & Masculinity, men who said they weren't depressed admitted to having some symptoms, such as anxiety.

Did he mention he had insomnia? No energy? Encourage him to seek help for the symptom he is describing. Seeing a primary-care physician is a good start.

Ask about suicide.

Men are about four times as likely as women to die from a suicide attempt, even though women attempt suicide more often. They use more lethal means.

Don’t be shy about asking a man if he has thoughts of hurting himself. Experts also recommend asking if he has a gun and offering to hang on to it until he feels better. “It’s like holding on to a friend’s car keys when he’s drunk,” says Rand’s Dr. Troxel.

Suggest a therapy that focuses on behavior changes.

Many men don’t want to talk. And they believe a therapist is going to tell them what they already believe: “You are a loser.”

There are several types of psychotherapy that have been shown to successfully treat depression and that focus on changing one’s behavior. These include Cognitive Behavioral Therapy, which helps a person change his thoughts, and Behavioral Activation, which helps him become more engaged in his day-to-day life. These may be more comfortable to many men.

Encourage him to do what he does well.

Activities a man excels at can produce a sense of mastery and satisfaction, says Dr. Troxel. If they are physical activities, they will produce endorphins. If they are social activities, they will give him a boost of the feel-good hormone, oxytocin.

Men also typically gain a sense of accomplishment from getting tasks done. But depression can make even a simple chore feel overwhelming. Dr. Troxel recommends breaking projects into smaller pieces to make them more achievable and to foster an immediate sense of accomplishment

Express your limits.

It is important to realize that you don’t need to be on the receiving side of a depressed man’s anger or blame—or be the only one showing up for the relationship. If you are reaching your limit, say that clearly. “I care about you. I am there for you. But I need you to get help.”

If your husband is depressed and you feel helpless, consider getting therapy for yourself. Therapy can also help you understand what is happening, and how you can better help.

Don’t give up.

Be persistent, even if he is pushing you away. “People do get better with treatment,” says Dr. Borenstein.