Why the IMF has no clue how to deal with the Spaniards and Italians


Warning: Undefined array key "width" in /home/u670369347/domains/davidmint.com/public_html/wp-includes/media.php on line 1710

Warning: Undefined array key "height" in /home/u670369347/domains/davidmint.com/public_html/wp-includes/media.php on line 1711

10/15/2013 Portland, Oregon – Pop in your mints…

As the world continues to bite its collective nails while it waits for the US Government to decide whether to punt the ball down the road another stretch or capitulate on its debt in what we have dubbed “The Ultimate Stimulus Measure,” the IMF is busy scolding the US Government and proposing hack solutions which completely miss the point.

Just try to tax usThe world that the IMF operates in exists only in theory, it is like the perfectly closed system where energy is a constant which is the the basis of many physics theories.  On one hand, the assumption of a closed system is the only way to test a hypothesis.  On the other, to assume that the closed system is a given in real world situations is folly in the physics profession.

While the physics professor recognizes the limitations of his theory in practice and makes the requisite adjustments, these limitations are all too often lost on the IMF and others in the economics profession.  The situation of the latter is dangerous, as for some bizarre reason their theories influence wide-ranging policy decisions which affect the lives of billions based on its closed system fantasy.

Such is the case with the recommendations made in its October 2013 World Economic and Financial Survey which is eerily titled “Taxing Times.”

Taxing Times IMF 10-2013

In the report, the IMF makes two data driven observations:  That the national debt load in certain Euro zone countries is excessive and that there is a certain level of net family wealth in these countries.

Fair enough, however, what happens next is disturbing, for it reveals both the closed system fallacy as well as the arrogance of those at the IMF.  The IMF takes the above two data points and arrives at the following conclusion:

A one time, 10% tax on net family wealth in certain heavily indebted countries would make the national debt loads once again “manageable.”

If you have yet to laugh, cry, or hurl at what we have just described, you may stop reading as you are unlikely to get what follows and reading it will be a waste of time you can otherwise spend watching CNBC or the teletubbies.  Please carry on.

If you are still with us, allow us to heap it on by adding that the IMF believes that this one time family wealth tax would help as it would simply reduce the national debt, specifically in Italy and Spain, who, true to form, have managed to avoid full-scale bailouts suffered by the Irish, Greeks, Portuguese, and Cypriots to this point and gamed the ECB into issuing bonds on their behalf.

This last point should give you, fellow taxpayer, all the information you need to understand why, as ludicrous as a family wealth tax sounds, it becomes even more ludicrous when one thinks that it can be imposed on Spaniard and Italians, who are hands down the world champions in tax avoidance.

The governments of Italy and Spain have managed to have the ECB foot the bill for their respective bailouts to this point.  However, the only reason they need a bailout in the first place is because their citizens are experts in tax avoidance (it is a genetic adaptation acquired during Roman times which has grown stronger and more agile over time, that is all you need to know.)

Now, the IMF, in its infinite wisdom, glances at the problem and a dim light bulb goes on!  If you just tax 10% of each family’s wealth, you can reduce the national debt to an acceptable level!  “Voila,” says Lagarde!  “C’est comment son fait!”

“The genius of the tax,” she continues “is that it is one time only, so it won’t have any effect on investment or savings preferences!  Its perfect, I tell you, perfect!!!!”

This is why she’s paid 300,000 pounds a year, of course, to put two and two together.  At this moment, Christina Lagarde has now transformed into Cruella DeVille, the villainess of Disney fame (a transformation that requires only a slight wardrobe adjustment and a little imagination.)

As word of the IMF’s latest ploy spreads, the few Spaniards who have not opened a Bitcoin wallet called up their grandchildren and asked them to do it for them.

(Wondering what a Bitcoin is?  Check out our reasonably priced e book on the subject here)

By the time any sort of 10% one time wealth tax hits the Spanish and Italian Peoples, there won’t be a peseta or lira, er, Euro to be found from the Pyrenees and Alps to the Mediterranean coast, where avoiding the looting hands of emperors has been a national pastime for over 2000 years.

Stay tuned and Trust Jesus!

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for October 15, 2013

Copper Price per Lb: $3.28
Oil Price per Barrel:  $101.38
Corn Price per Bushel:  $4.37
10 Yr US Treasury Bond:  2.70%
Mt Gox Bitcoin price in US:  $152.89
FED Target Rate:  0.09%  ON AUTOPILOT, THE FED IS DEAD!
Gold Price Per Ounce:  $1,277
MINT Perceived Target Rate*:  0.25%
Unemployment Rate:  7.3%
Inflation Rate (CPI):  0.1%
Dow Jones Industrial Average:  15,236
M1 Monetary Base:  $2,689,400,000,000
M2 Monetary Base:  $10,790,700,000,000

The Secret of Robert Parker’s Nose

10/14/2013 Portland, Oregon – Pop in your mints…

As the political fiasco en Washington continues, it is becoming clear that nearly any asset class that is not the US Dollar stands to benefit were the unthinkable to happen.  Here at The Mint, we have been investigating one of the more tasteful alternative investments:  Fine Wine.

Today, we continue by presenting to you a man whose nose literally moves the Market, Robert Parker.  Enjoy!

Tempranillo Photo credit: Mick StephensonROBERT PARKER “THE WARREN BUFFETT OF WINE”

Robert McDowell Parker Jr. is the world’s most influential wine critic. Born in Baltimore, Maryland (USA) on July 23rd, 1947, he continues to guide the fine wine industry with the tip of his nose, still going strong at the age of 66.

The Robert Parker Wine Rating System

The Robert Parker wine rating system (Parker Points) is a commonly used scoring system to rate fine wines. Although there are various, universally adopted rating methodologies, usually based on 20-point scales, Robert Parker’s 50-100 point scoring method has been very popular in the fine wine industry.

Robert M. Parker Jr. is undoubtedly the world’s most renowned wine critic. Since the late 70’s Robert Parker has been a prominent figure in the world of fine wine; his publication ‘The Wine Advocate’, an independent wine consumer guide, first published in 1979 draws a following of at least 50,000 subscribers to date.

Ever since the relatively new market of fine wine investment has taken off, wine connoisseurs, financial experts and investment brokers have been paying close attention to Robert Parker’s ‘million dollar nose’.

Robert Parker Jr. – the Million Dollar Nose due to the fact that Parker’s ratings have been known to significantly affect the value of wines and cause severe price fluctuations in the market, any investor in the fine wine industry should be well aware of Robert Parker’s opinions.

Robert Parker introduced his own wine rating system because he felt that critics often undervalued or overestimated a fine wine, mainly due to conflict of interest, for example the critic having a financial interest in the wine they are rating. Additionally, Parker felt that the commonly used 20-point system did not offer enough flexibility, and often resulted in unjustified, misaligned ratings. Therefore, Robert Parker’s 50-100 point quality scale (referred to as ‘Parker Points’) offers a widely accepted industry standard by which to gauge fine wine quality.

Robert Parker Wine Rating System

• 96 – 100

An extraordinary wine of profound and complex character displaying all the attributes expected of a classic wine of its variety. Wines of this calibre are worth a special effort to find, purchase, and consume.

• 90 – 95

An outstanding wine of exceptional complexity and character. In short, these are terrific wines.

• 80 – 89

A barely above average to very good wine displaying various degrees of finesse and flavour as well as character with no noticeable flaws.

• 70 – 79

An average wine with little distinction except that it is a soundly made. In essence, a straightforward, innocuous wine.

• 60 – 69

A below average wine containing noticeable deficiencies, such as excessive acidity and/or tannin, an absence of flavour, or possibly dirty aromas or flavours.

• 50 – 59

A wine deemed to be unacceptable.

Strange as it sounds, Mr. Parker’s nose can make or break a vintage in terms of market value.  He has risen to this status by breaking the mold in terms of rating Fine Wines.  What will be your great contribution to the world?  We encourage you to find and pursue it, for every calling, be in sniffing fine wines to pursuing monetary theory down uncharted paths, is a great contribution to the mosaic of life in which we move and breath.  Stay tuned for more information on Fine Wine Investing.  If you are interested in learning more about this asset class, please email us at the address below.

Stay tuned and Trust Jesus!

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for October 14, 2013

Copper Price per Lb: $3.27
Oil Price per Barrel:  $102.21
Corn Price per Bushel:  $4.37
10 Yr US Treasury Bond:  2.69%
Mt Gox Bitcoin price in US:  $146.24
FED Target Rate:  0.09%  ON AUTOPILOT, THE FED IS DEAD!
Gold Price Per Ounce:  $1,274
MINT Perceived Target Rate*:  0.25%
Unemployment Rate:  7.3%
Inflation Rate (CPI):  0.1%
Dow Jones Industrial Average:  15,301
M1 Monetary Base:  $2,689,400,000,000
M2 Monetary Base:  $10,790,700,000,000

 

The DC Budget/Debt Ceiling Drama is Reaching a Crescendo

10/7/2013 Portland, Oregon – Pop in your mints…

The current scenario in Congress which has managed to entangle the Federal Budget, the Debt Ceiling, and Obamacare in the same line of debate is quickly reaching a crescendo as the rhetoric in Washington has degenerated into personal attacks and accusations that the other side is unwilling to compromise.

We recently saw reports that a number of Congressmen reeked of alcohol as they exited the chambers the night the Government shut down.  Apparently the only thing worse than the pressure of public office is these days is having to face it sober.

As we’ve said before, this type of stalemate in terms of budget matters is absolutely normal and to be expected of technically bankrupt entities.  As the US Government is the largest bankrupt entity on the planet, it should come as no surprise that its dramas will dominate the airwaves until they appear to be resolved.

We have been here before, you can read our commentary back when all of this latest round of bickering began back in 2011:

US Debt Ceiling Vote to Ignite Armageddon in Bond Markets? Key Indicators all Point to Inflation

This time, as both sides appear to be playing a dangerous game of chicken, the dire warnings of what will happen should the government default appear to be reaching a deafening crescendo.  The Chinese and Japanese governments, both large holders of US Treasury paper, are both pressuring Washington for some sort of assurance on their “Investments.”

US Financial Executives, who find themselves in the shoes of the Chinese, albeit on a smaller scale, are also beginning to sweat.  In a recent survey on the perceived effects of the debt ceiling breach, the Association for Financial Professionals summarized their findings in this way:

“Financial executives see dire consequences to prolonged political theater in Washington and a potential U.S. government default, according to a survey released today by the Association for Financial Professionals (AFP).

On October 3-4, AFP surveyed financial executives in the corporate treasury and finance departments of a broad range of U.S. companies across many industries, receiving 964 responses. The survey found that in the near term, finance executives believe political wrangling in Washington will lead to reduced demand for goods and services and that a failure to raise the debt ceiling in time will result in reduced capital expenditures and reduced hiring or layoffs at many companies.

But the damage goes beyond just short-term consequences. Forty percent of organizations report that they are holding back on making growth-oriented investments in the U.S. because they are having difficulty evaluating U.S. investments, due to the recurring battles over budgets and debt limits.”

As for effects on short-term investment preferences, the report goes on to state:

“A default would make U.S. Treasury securities, an investment vehicle used in many companies’ short-term investment portfolios, far less attractive. The survey found that one-sixth of U.S. organizations currently holding U.S. Treasury securities would shift out most or all of those investments if the debt ceiling isn’t raised in time. Another 36 percent of organizations would hold onto their current holdings of Treasuries, but would not purchase these securities going forward.

Meanwhile, half of the respondents say that a government default would harm their organization’s access to, and raise their cost of, capital. An increase in the cost of bank credit and higher cost of debt financing were each cited as possible outcomes by 27 percent of financial professionals.”

Scary stuff, right?  A default would cause a nearly instantaneous shift in short-term investment preferences for almost anyone holding US Treasuries.  You can read the entire horror story in the report via the following link:  AFP Survey: The Federal Budget and Debt Limit.

Joe Weisenthal over at the Business Insider presents a Goldman Sachs chart which refutes the argument floated by some that the US Treasury could continue to pay interest on its debts once it hits the debt ceiling.

Treasury Payments

It appears that once Halloween passes and the Federal Employees and Social Security recipients come calling on November 1, the well will be dry.

The well has been dry for some time now, and while it makes for great theater, it is difficult to see why it is in the interest of the government and its direct dependents to let it play out.  If it does, it can only mean that a new monetary system will be imposed, for the Mushroom Shaped Dollar Debt Sponge will have been squeezed.

However, should the US default on its debt, we reiterate our position that it “matters not,” for while the US Government and its dependents will be in a world of hurt, there will be a flood of new money available to private enterprise.  For, contrary to popular belief, Federal spending acts as a damper on the Federal Reserve’s loose money policies, and a US default may represent the ultimate in monetary stimulus, if not true economic growth.

It would be a wild and rapid adjustment but, while the numbers of those who depend directly on the US Government have risen steeply in recent years, the increasingly interconnected US and global economies are exponentially larger and the US, sans its government, is in an extremely strong competitive position both demographically and geographically.

A default may be just what the country needs to shake itself free of its economic doldrums.

So relax and choose your Halloween costumes wisely this year, as it could be dangerous to step out as your favorite politician, if indeed you still have one.

Stay tuned and Trust Jesus!

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for October 7, 2013

Copper Price per Lb: $3.28
Oil Price per Barrel:  $103.03
Corn Price per Bushel:  $4.49
10 Yr US Treasury Bond:  2.63%
Mt Gox Bitcoin price in US:  $137.00
FED Target Rate:  0.08%  ON AUTOPILOT, THE FED IS DEAD!
Gold Price Per Ounce:  $1,322
MINT Perceived Target Rate*:  0.25%
Unemployment Rate:  7.3%
Inflation Rate (CPI):  0.1%
Dow Jones Industrial Average:  14,936
M1 Monetary Base:  $2,556,500,000,000
M2 Monetary Base:  $10,726,300,000,000

Observations on the Government Shutdown

10/3/2013 Portland, Oregon – Pop in your mints…

A mere 48 hours into the first shutdown of the Federal Government, life in the land of the free appears to be carrying on as normal for most non-Federal employees.  Even Federal employees, while technically not getting paid, at least have some measure of certainty that they will get their jobs back and will likely be paid for the time they missed, unlike many unemployed Americans.

Much of the MSM commentary to this point has centered on the current budget standoff being nothing more than a childish spat amongst Congressmen who possess an increasingly common blend of arrogance and ignorance that is almost a prerequisite for public office circa 2013.  For the MSM, anything other than business as usual is abnormal.  What this analysis fails to recognize is that what is truly abnormal is what passes as business as usual for the Federal Government.

The current shutdown of the Federal Government is revealing on a number of levels.  It is an exceptionally bold gambit being played by the faction of the Republican party that has brought the machinations of the Federal government to an unplanned halt.  Amongst the revelations that have surfaced are the following:

  1. The Federal government has somewhere on the order of 800,000 “non-essential” employees.  The President is the one who decides which classes of employees are essential and non-essential.  The President’s choices provide an interesting insight into his priorities.  The distinction between essential and non-essential functions should also inform future discussions about austerity.
  2. The President, in delaying the penalties for businesses with regards to the Affordable Care Act for a year, neglected to offer the same treatment for individuals.  While on the surface, this appeared to be an administrative move, the faction of Republicans who are blocking a clean continuing resolution have called the President out on this slight of the American Public.
  3. The Affordable Care Act provides for the addition of 16,000 IRS agents and zero doctors via direct funding provisions, a statistic that seems to defy logic and highlight the core function of the government as tax collector.  Any increase in the availability and quality of care is left to market forces guided by government policy, a scenario that has failed in the sense that it produces sub-optimal results in every sphere where it has been applied.
  4. Even if there was a clear administrative need to selectively apply the Affordable Care Act’s provisions, the act of selectively applying the laws provisions undermines the credibility of the law itself and in practice gives the President near dictatorial powers.  This is a matter of principle that is worth standing up for.  The fact that governance in America has degenerated this far and that it takes a budget or other fiscal crisis for it to rise to the surface is a national tragedy in and of itself.  Further, this matter of principle, equality before the law, may be the only appeal to reason that the Republican faction has for what is otherwise an indefensible position.  Either the Republicans themselves underestimate its importance or the MSM, in bickering about why certain satellites cannot be launched into space, has abandoned all appeals to reason in the discussion and this fine point of governance is lost on most observers.
  5. The American Economy will eventually be much better off were the Government to remain shut down once it is allowed to adjust to the new realities.  If the Fiscal crisis facing the government is as dire as advertised, it should be a no brainer for the government to discontinue any non-essential activities until such time that the nation’s finances improve to a point that they can afford to perform them.
  6. It is reported on a number of fronts that the shutdown will shrink GDP by x% (roughly 1.2% by one estimate) and that $60 billion per day is simply disappearing because the government is not spending it on the wages of non-essential employees.  This analysis falls into the classic fallacy of failing to see beyond what has disappeared to envision and recognize what will appear in its absence.  While a number of non-essential government tasks are not being performed, a window of opportunity exists for enterprising individuals to undertake tasks that society deems essential but were not possible because a heavily subsidized competitor, i.e. Uncle Sam, had claimed a monopoly on activity.  The reality is that the economy is likely to grow exponentially under current monetary policy, regardless of what the government does.

There are many more revelations that are bound to appear before the shutdown is resolved.  It will take cutting through the MSM’s shallow analysis to parse it out, but if one keeps their eyes open, they will see the underbelly of the amoeba laid bare, and it is not a pretty sight.

Stay tuned and Trust Jesus!

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for October 3, 2013

Copper Price per Lb: $3.27
Oil Price per Barrel: $104.35
Corn Price per Bushel: $4.41
10 Yr US Treasury Bond: 2.63%
Mt Gox Bitcoin price in US: $125.68
FED Target Rate: 0.08%
Gold Price Per Ounce: $1,318
MINT Perceived Target Rate*: 0.25%
Unemployment Rate: 7.3%
Inflation Rate (CPI): 0.1%
Dow Jones Industrial Average: 15,395
M1 Monetary Base: $2,470,500,000,000
M2 Monetary Base: $10,789,400,000,000

 

Why Cash Costs the U.S. Economy Real Money

10/2/2013 Portland, Oregon – Pop in your mints…

Why What We Use as Money Matters
Why What We Use as Money Matters

We recently came across an article by Diane Brady at Businessweek which touched on a theme that is near and dear to us here at The Mint:  The “cost” of money.

The reason that things like this interest us is that we believe the point of something acting as money (more accurately, the monetary premium) is that it has a cost.  Not only a cost, but a cost which, if allowed to be set by free market conditions, provides the perfect, tacit governance of the activities of humankind on this earth.

Brady’s article, as you can see, fell short of our high philosophical ideals and, instead of analyzing why cash has a cost, degenerated to the default position held by many that money should be free:

Why Cash Costs the US Economy Real Money 

Disappointing but not entirely unexpected from the Senior Editor of a financial publication.

The truest saying in all of economics is that there is no such thing as a free lunch.  There may be a lunch that costs you nothing but the time spent to approximate oneself to the plate and consume it, but rest assured that the cost of the ingredients and preparation of the lunch itself have been borne elsewhere.

The same dynamic is at work in the monetary realm.  Whether or not one needs to go to an ATM or simply swipe their credit card or tap their mobile phone is of consequence only to that person, but the cost of the production and exchange of money is being borne not by the economy, as Brady suggests, but by the earth itself, which is daily thrown further out of balance by the misguided actions of humankind.

This state of affairs will continue as long as we use debt as money.

Key Indicators for October 2, 2013

Copper Price per Lb: $3.24
Oil Price per Barrel: $101.55
Corn Price per Bushel: $4.39
10 Yr US Treasury Bond: 2.65%
Mt Gox Bitcoin price in US: $137.07
FED Target Rate: 0.06% ON AUTOPILOT, THE FED IS DEAD!
Gold Price Per Ounce: $1,288 THE GOLD RUSH IS STILL ON!
MINT Perceived Target Rate*: 0.25%
Unemployment Rate: 7.3%
Inflation Rate (CPI): 0.1%
Dow Jones Industrial Average: 15,192
M1 Monetary Base: $2,470,500,000,000 ANOTHER MARKED DROP
M2 Monetary Base: $10,789,400,000,000

 

 

Fine Wine Investing – Everything You Need to Know about Bordeaux

10/1/2013 Portland, Oregon – Pop in your mints….

Appellations, Banks, Gravel, and Clay all work together in the Southwestern region of France which has become legendary for its wine production:  Bordeaux

While the word Bordeaux may ring a bell, many of us would be hard pressed to hone in on specifics when it comes to selecting a fine wine investment from this or any other region for that matter.

Until now.

The following is a synopsis of the Bordeaux region and the fine wines that it produces.  Think of it as the Hitch Hiker’s Guide to the Galaxy of fine wines which fall under this prestigious umbrella.

THE BORDEAUX EFFECT AND THE VINTAGES SHE PRODUCES

Red Bordeaux (or “Claret” as the British have always known it) can be the epitome of fine wine. The best wines exhibit a wonderful complexity of aromas and flavours, great elegance and refinement and an ability to age gracefully – some for a hundred years.

Like all of France, quality wine production in Bordeaux is governed by a set of regulations known as “Appellation Contrôlée”, often abbreviated to “AC”. An AC covers a certain geographical district and governs production of wine within the district. The whole of the Bordeaux region is covered by a couple of catch-all, generic ACs: AC Bordeaux and AC Bordeaux Supérieur (the latter is higher in alcohol, but not necessarily better). An enormous quantity of inexpensive, “everyday” wine is made under these ACs. Though this is not the “great” Claret that all the fuss is about, it can provide very attractive, reliable drinking.

There are also many smaller, named areas, each entitled to its own AC: AC Fronsac, or AC Pomerol for example. These more specific ACs are usually superior to generic Bordeaux and have stricter regulations.

To the west of the river Gironde, the vineyards of the Médoc and Graves are based on gravelly soil and are planted mainly with Cabernet Sauvignon vines. To the east lie Pomerol and St-Emilion, two smaller areas of predominantly clay soil, planted with a higher proportion of Merlot. Hence we have “left bank” and “right bank” wines.

The wines from each area can have quite a different character because of the different soils and predominant grape variety. This also means that one is usually more successful than the other in any given year.

Bordeaux Grapes no matter where they are from, almost all red Bordeaux is blended wine: made from two or more grapes. Red wine grape varieties allowed in Bordeaux, in order of importance, are:

  • Cabernet Sauvignon,
  • Merlot
  • Cabernet Franc
  • Malbec
  • Petit Verdot

Bordeaux also produces considerable quantities of white wine. Grape varieties permitted are:

  • Sémillon
  • Sauvignon Blanc
  • Muscadelle.
Bordeaux Wine Regions
Map of Bordeaux Wine Regions created by Domenico-de-ga

Classic Bordeaux Regions – 

The Médoc

The Médoc is home to most of the great, classic Clarets. You will find wines labelled AC Médoc that are usually one step above basic Bordeaux, but the very best wines of the Médoc come from even more tightly defined ACs within the Médoc. The best of these individual ACs include:

  • AC Margaux,
  • AC St-Julien,
  • AC Pauillac
  • AC St-Estèphe.

This region is dominated by large wine-making estates, known as châteaux. Whilst many of these do indeed have a château as their HQ, others have nothing more than the vineyards and a collection of ordinary working buildings. Unlike many producers from other parts of the world, each château tends to produce only one “grand vin” which carries its name. Some of them also make a white wine, and many make a second wine, from vats not considered good enough for the “grand vin”.

Each of the top ACs of the Médoc has its own character:

  • Margaux is home to the most perfumed, elegant and “feminine” wines
  • Pauillac three 1ers Crus. Classic, powerful yet elegant wines
  • St-Julien the epitome of Claret: savoury, well-balanced and refined
  • St-Estèphe wines are structured, tannic, long-lasting, “masculine” wines.

In 1855 Médoc wines were classified. From the many thousands of wines produced in the area, just sixty were thought worthy of classification. These sixty were sorted into five ranks or, in French, “Crus” (meaning “growths”), i.e. “Premier Cru” (first growth), “Deuxième Cru” (second growth) and so on.

There are only five top ranking, Premier Cru wines:

  • Château Lafite-Rothschild
  • Château Latour
  • Château Margaux
  • Château Haut-Brion (actually in Graves)
  • Château Mouton-Rothschild.

All classed growth wines command very high prices, many of these, particularly the Premiers Crus, are bought by investors all across the world. To this day the classification remains more-or-less unchanged and many of the original classified châteaux are still producing some of the world’s greatest wines. Of course strong arguments could be made for promotions and relegations within the classification. A group of wines known as the “super seconds” are generally acknowledged to be Premiers Crus in all but name, and a few of the original châteaux have either gone or have lost their reputation. However, apart from some obvious anomalies, it is remarkable how the bulk of the classification holds up, even after 150 years.

The Médoc Crus Bourgeois

Just below these classed growth superstars of Bordeaux are a host of wines known as the “Crus Bourgeois”. Many fine wines can be found within this classification – some are worthy of classed growth status, yet are available at a fraction of the price. I have found properties such as Chasse-Spleen, Meyney, Coufran and d’Angludet to be consistently good. However, in 2006 a court case found that the classification of the Crus Bourgeois was illegal, and pending a restructuring which means wines will have to be independently assessed for inclusion each vintage, the whole classification was temporarily suspended.

Graves 

Graves lies to the south of the city of Bordeaux. This region produces both red and dry white wines on the very gravelly soils after which the region is named. The red wines tend to express a soft, earthy quality. Like the Médoc this region was also classified, but not until 1959. Only a couple of dozen châteaux are entitled to the words “Grand Cru” on their label. The best vineyard sites of the Graves are clustered in the North of the region. That is where almost all the Grands Crus are situated. In 1987, this area was given a brand new AC of its very own: Pessac-Léognan. Wines bearing these words on their label should be of higher quality than most Graves. The undoubted super-star of the area is Château Haut-Brion. As noted earlier, this property was actually declared a Premier Cru in the 1855 classification of the Médoc due to its exceptional quality. Uniquely, it is allowed to have both classifications on its label: Médoc Premier Cru and Graves Grand Cru. Its sister property, La Mission Haut-Brion, is also capable of the highest quality.

St-Emilion 

Although the area is quite large, the properties here tend to be much smaller and less grand, and the wines (exclusively red) are very different. The soil is clay and limestone rather than gravel, and the dominant grape variety is not Cabernet Sauvignon, but the softer Merlot and Cabernet Franc. The wines tend to be approachable at a younger age and to have a warm-blooded fruitiness. It is an area that requires a little bit of caution because of its classification system. St-Emilion wines are divided into 5 classifications. In ascending order, these are:

  • St-Emilion
  • St-Emilion Grand Cru
  • St-Emilion Grand Cru Classé
  • St-Emilion Premier Grand Cru Classé “B”
  • St-Emilion Premier Grand Cru Classé “A”.

Pomerol

Pomerol is by far the smallest of the great regions. It has 2 basic constituents that determine the character of its wines: the soil is thick, heavy clay and one grape variety dominates: Merlot. Pomerol wines are extremely soft, seductive and full of spice and vivid fruit. The production tends to be tiny in the area, so the wines are generally expensive. Indeed, Pomerol is home to some of the world’s most expensive wines such as Châteaux Pétrus and Le Pin, the latter producing little more than 500 cases each year. You will rarely see these wines in shops as they are snapped up years in advance of production. Look for more reasonably priced wines such as Petit-Village, Le Bon Pasteur and Clos René. The wines of Pomerol have never been classified.

Sauternes and Barsac

The Bordeaux area also produces world class white wines, though invariably in tiny quantities. The most famous of these are the sweet wines of Sauternes and Barsac, including the almost legendary Château d’Yquem. These luscious wines (also classified in 1855) are created by a particular and unpredictable fungus, called botrytis. Botrytis rots the grapes, leaving them high in sugar and glycerine which leads to their eventual silky, honeyed sweetness. The best dry white wines come from the Graves area. Though often of tremendous quality, these tend to be scarce and the famous names are very expensive.

The minor regions

From the inexpensive, soft, fruity and delicious wines of the Premières Côtes de Blaye in the north of the Bordeaux region, to the moderately-priced structured, tannic and impressive clarets of Fronsac or Lalande de Pomerol, the “lesser” red wines of Bordeaux are not to be despised. Whilst the finesse and breeding of the top classed growths might be missing, the red wines of the region are generally very reliable and well made.

The dry whites of the region, from areas like Entre-Deux-Mers or simple AC Bordeaux can produce refreshing, zippy, occasionally slightly tart wines for drinking young. Areas around Sauternes, like Sainte-Croix-du-Mont or Loupiac which lie just across the Gironde, also produce sweet, sometimes botrytis affected wines that can be very good and are moderately priced. Rosé is also produced in the Bordeaux region, often from the Cabernet Sauvignon. It can be delicious stuff with bright, supple fruit and refreshing acidity.

Indeed, the Bordeaux Region and its Appellations are the epicenter of Fine Wine investment.  A basic understanding of the region and the wines that are produced there, which we hope you have gained by reading the above information, is absolutely crucial for anyone who wishes to dabble in fine wine for investment purposes.

If you or any of your clients would like more information on fine wine investments, simply email us at: davidminteconomics@gmail.com with the word “WINE” in the subject line.

More to come on the Fine Wine Market.

Stay Fresh!

Obamacare Calculator and Deadline to Avoid Tax Penalties Approaching

As the threat of a Government shutdown looms, another important deadline, one with more individual implications, is looming.

While we do not pretend to understand the workings of the Affordable Care Act, we do understand that it will have a dramatic impact on both the health care industry and individual budgets, an impact that is difficult to calculate.

As a public service here at The Mint, we are embedding a calculator created by the Kaiser Family Foundation which will give individuals and families a general idea of how Obamacare will affect their premiums:


In any event, it is important to understand that, barring Congressional action to the contrary, anyone who does not have coverage in place before January 1, 2014, will pay a penalty on their tax return equal to $95 or 1% of their 2013 income, whichever is greater.  If you do not have coverage, this government website can help guide you:

https://www.healthcare.gov/index.html

But you must act fast as, according to Gary North, whom we must thank for providing this information, the above link will no longer be available after midnight tonight as the government run health insurance exchanges will go live.

Again, you must have a health plan in place before January 1, 2014 to avoid paying a penalty on your 2013 taxes.

Stay healthy and fresh!

Why the FED will Increase the Target Rate Before Tapering and the DC Budget/Debt Ceiling Paralysis Matters Not

9/27/2013 Portland, Oregon – Pop in your mints…

Autumn is upon us here in the Northwest.  As in most places, it is a refreshing return to the dance of life that we will live together over the next nine months under the requisite cover of rain and cloud.

If occurrences in nature can be trusted as future economic guidance, we are setting up for a phenomenal year in terms of production.  Salmon runs up the Columbia basin, which were once nearly extinguished altogether, are crushing all previous records this year, and word is that the Tuna catches in terms of quantity are staggering.  Corn yields further east in Minnesota are on pace to increase even on a decrease in acreage planted.

Even the Mushroom pickers are reporting a bumper crop.

Mushroom picking; illustration to III tome "Pan Tadeusz" circa 1860 by Franciszek Kostrzewski
Mushroom picking; illustration to III tome “Pan Tadeusz” circa 1860 by Franciszek Kostrzewski

Nature is doing its part to provide for us on any number of fronts, despite what Malthusian apologists and central planners may say, the only thing holding humankind back are the restrictions that it places upon itself.

Chief among these restrictions is the unnatural monopoly that exists with regards to the production of money and credit, which paradoxically are one in the same in the current “debt is money” scheme under which the entire financial world operates.  For the uninitiated, the monopoly that we speak of is that of the Central Banking institutions, which have been given unchecked authority to manipulate (notice our choice of terminology in place of the more quaint verb “setting” which is normally propagated) short (and now long term) interest rates as well as to determine what serves as legal tender.

Add to these monopolistic practices the ultimate authority to collect taxes and the extent of the monopoly which Central Banks have been granted becomes clear.

Given the existence of this monopoly, it is little wonder that those who make their living by working closely with money and debt, as we do, or those who hold a large amount of money and debt instruments examine the actions of the Central Banks with a great deal of anticipation and scrutiny.

The Central Banks are not to be watched because they have anything special or relevant to offer in the form of clairvoyance or enlightenment, rather, they are to be watched in the same way a pack of dogs must be watched when boarding an airplane, for their movements, while unproductive, tend to bother and in the worst of cases, cause harm to the rest of the passengers.

Against this backdrop, the captive watchers of the Federal Reserve were somewhat surprised this past Thursday that the Central Bank decided to delay their much anticipated “tapering” operation.  The decision to leave the current amount of money printing (Quantitative easing, that is) at current levels, which amount to roughly $115 Billion per month, was welcomed with a certain degree of shock by those who were certain that the program would be discontinued in light of the recent strength in the US economic data reports.

Entitlement: Why the FED will Raise the Target Rate Before Tapering

The decision did not surprise us, however, for the following reason.  The Quantitative easing program has essentially become an entitlement in the sense that it guarantees the credit system a buyer of last resort for the current level of mortgage backed and other securities which the FED purchases from their holders.  Were this program to be dialed back, it is clear which entities would be hurt by the action.  Entitlements of this sort are nearly impossible to take away once they are in place.

On the other hand, the other tool that the FED would theoretically use to signal it was responding to strong economic data by working to tighten credit (something that will not occur within the next three to five years, no matter what the FED does), is by manipulating short term interest rates via the SOMA and POMO.  They are more likely to test the waters by letting rates drift higher as this is an action that does not necessarily have direct consequences for certain market actors.  While some of the consequences are predictable, they are in the end indirect consequences, which give them less the feel of an entitlement, which is what the QE program has become.

In any event, by espousing a policy of giving “Forward Guidance,” which theoretically gives juice to existing policy actions by providing certainty to market participants as to how long certain policies will be in place, the FED is now, monthly, placed in the impossible position of showing the world how much its “word” is worth, as Forward Guidance only works if that guidance is actually reliable.

You see, contrary to what academics such as Michael Woodford, who is credited with originating the Forward Guidance principle, might say, the word of an organization and/or individual, like a debt instrument, can also be discounted based on the prevailing belief as to the extent to which the promises of the individual and/or organization can be trusted.

While the actions of the Federal Reserve, whatever they may be, are for some reason seen as immediately effective is beyond us.  In our models it is clear that any action taken by the FED with regards to interest rates does not significantly impact price and wage levels outside of the financial sphere for three to five years.  Nevertheless, the Federal Reserve actions are observed by algorithms which “think” differently than we do, and it is these algorithms which drive large scale equity trading circa 2013.

Fiscal Policy vs Price Levels:  Why the DC Budget/Debt Ceiling Paralysis Matter Not

Perhaps even more ineffective and innocuous to the economy in the short term than Federal Reserve action are the actions that are taken (or not taken) by the Federal Government.

The news is currently ablaze with the current scenario in Congress which has managed to entangle the Federal Budget, the Debt Ceiling, and Obamacare in the same line of debate.  This type of stalemate in terms of budget matters is absolutely normal and to be expected of technically bankrupt entities.

The past three years, which have seen at least two other debates around the debt ceiling as well as various sequesters, furloughs, disastrous tax and fiscal policy, and arguably a complete failure of any inkling of “Forward Guidance” out of the Federal Government, have taught the economic community one very important lesson:

Despite members of each party assuring the public that the outcome of these debates and any failure to act will destroy the economy, whether these debates are resolved or not is of little consequence.  The reason that they are inconsequential is that the major actors in the US economy, which are and always will be at least one step ahead of both politicians and central bankers, have already discounted the true impact and likelihood of government action by tacitly adjusting their activities to adapt to the inherent uncertainty.

So relax, the no matter what the FED or Congress do or fail to do, the risks remain firmly on the upside for at least three to five more years or the day that the current “debt is money” system fails, whatever comes first.

Stay tuned and Trust Jesus!

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for September 27, 2013

Copper Price per Lb: $3.29
Oil Price per Barrel:  $102.77
Corn Price per Bushel:  $4.54
10 Yr US Treasury Bond:  2.62%
Mt Gox Bitcoin price in US:  $140.00
FED Target Rate:  0.08%  ON AUTOPILOT, THE FED IS DEAD!
Gold Price Per Ounce:  $1,337
MINT Perceived Target Rate*:  0.25%

Investing in Fine Wines has Never been Easier

Fine wines have always commanded a premium on restaurant menus, but have you ever stopped to consider the other side of the trade on a romantic dining experience?

Tempranillo Photo credit: Mick Stephenson
Tempranillo Photo credit: Mick Stephenson

Fine Wine Investing

Today we begin a short series on investing in Fine Wine.  Fine Wines as an investment opportunity may sound like something that well heeled folks with large estates and walk in wine cellars are equipped to dabble in.  However, as with many things the rich do, they tend to do it because there is money in it.

The market for Fine Wines is remarkably stable and refreshingly uncorrelated with other asset classes, which is why the rich, apart from bragging rights, have no qualms about storing a portion of their nest egg in corked glass bottles.

Today, the stability and out sized price gains in the Fine Wine market are available to almost anyone willing to invest.  The best part is, you don’t even need to build a wine cellar or worry about your retirement account spilling in an unfortunate accident or being accidentally enjoyed at a candlelight dinner at home.  You can now invest in Fine Wines as you would any other asset class, via the internet.

You still own the wine, naturally, you just don’t need to deal with the hassle of transport and storage.  All you need is a minimum investment of 5,000 British pounds and a bit of information.

If you would like more information on this investment opportunity, which is available through one of our partners, simply email us at: davidminteconomics@gmail.com with the word “WINE” in the subject line.

For the moment, we present the following information as a brief overview of the market of Fine Wines.  While it should go without saying, we present the following information as a general overview and cannot and will not comment upon whether or not Fine Wines are appropriate for each individual’s investment situation, this is a decision that must be made by the individual.  However, if you or someone you know determines that Fine Wine investing is agreeable to their taste, we will gladly facilitate the transaction.

Enjoy!

WINE MARKET ORIGINS

From its origins as an exotic drink, wine has become a long standing commodity, with a lineage that dates back to the Greek empire and beginning of trade in 1600 BC. The ancient Greeks carried wine throughout the Mediterranean coast, with Europe leading the way in consumption, production and movement. A major transformation occurred when Napoleon III requested a classification of best Bordeaux wines in France in the year 1855. Following this, wines were classified on a recognised price-based ranking, leading to the grading of the world’s finest wines.

PRESENT DAY INVESTMENT AND MARKET PERFORMANCE

The traditional notion that wine investment is about buying two cases of young wine so that, after a period of maturation, you drink one case and sell the other to finance both may have a certain romantic appeal.

As an investment philosophy, though, it is heavily discounted by today’s serious investor. Investment is all about risk and good investment choices are made when the exposure to risk is clearly understood.

Fine wines has been one of the strongest areas for investment in recent years What may surprise many is that an investment in fine wine has consistently been a low risk investment opportunity compared to oil, the FTSE 100 and even gold. Combined with strong absolute performance and low correlation to other assets, that has led wine to find a home in many serious investment portfolios.

Those interested in accessing the fine wine market have more options available to them than ever before with a range of tax-efficient structures available. The timing looks opportune too: prices came off significantly in 2011, leaving the possibility of a substantial upturn in the medium term, and inflationary fears are enhancing the attractiveness of physical assets.

There is very little correlation between financial markets and fine wine prices. For example, whilst many stocks, shares and markets crashed during the financial crisis of 2008, most wines continued to significantly appreciate in value. Whilst wine prices are not always free of volatility, the market tends to be far more resilient than many traditional investments that investors go for. The reasoning behind this is actually very simple. Fine wine is a completely tangible asset, a luxury product in which supply is always exceeded by demand. As a particular vintage wine is consumed, more of that wine cannot be produced, so the wine appreciates in value.

Fine wines frequently outperform share indices, for example between May 2010 and May 2011, whilst the FTSE 100 appreciated by 15.6%, the fine wine index increased by a considerably higher 21.1%. The Live-Ex 100 Fine Wine Index is the industry’s main performance benchmark, and represents the price movement of the 100 most sought-after fine wines. The price index is calculated on a monthly basis, with the vast majority being Bordeaux wines. Over the last 25 years the very best wines have appreciated by 15-25% per annum, a staggering return on investment very difficult to find anywhere else without very high risks.

THE FINE WINE MARKET AND SUPPLY AND DEMAND

It is the underlying supply and demand characteristics of wine which make it attractive as an investment proposition. On the supply side, Bordeaux (considered by many to produce the only investment grade wine) is a finite geographical area in France with an essentially fixed number of wine producers (châteaux). The initial supply of wine is therefore finite, and over time can only fall as bottles of the wine are consumed.

Meanwhile demand tends to rise, for two reasons. First, the quality of the wine improves over time as it matures, making it more attractive to drink. Second, global demand continues to rise as new markets for the wine open up. In the last 25 years alone we have seen Japan, Russia, Korea and China ‘discover’ fine wine and consume it in large quantities, with countries such as India and South America yet to come ‘on stream.’

Intrigued?  More to come on this interesting and exciting opportunity.

Stay Fresh!

A Wealth of Marketing Knowledge

9/24/2013 Portland, Oregon – Pop in your mints…

Are you interested in successfully marketing a product or service?  Today we take a small deviation from monetary matters to provide our faithful readers with some advice on marketing.  The articles linked below are must reads for anyone positioning a product or trying to close a sale circa 2013.

The first article, by Peep Laja, founder of Markitekt, is on nine things to keep in mind when working to influence purchasing decisions.  Taken together, they will dispel any number of myths that you may be currently laboring under:

9 Things to Know About Influencing Purchasing Decisions

While influencing purchasing decisions is paramount, it is equally important to close the sale once one senses that the decision has been made.  But how can you close the sale when you are not present at that crucial moment?  Your packaging must do it for you!

Packaging:  The Last 10 Seconds of Marketing

Finally, an article that is near and dear to our hearts here at The Mint.  While advertising on Social Networks is necessary to get the ever shrinking attention span of consumers directed at your offering, what appears on Social Networks alone is hardly perceived as authoritative.

Independent blog reviews, on the other hand, give an air of authenticity to what is being said.  After all, reaching out to a well known blogger and having them review your offering takes a bit more time and effort than simply posting on Facebook:

Blogs Outrank Social Networks for Consumer Influence:  New Research

And there you have it, three articles that we hope will challenge and enrich your marketing experience as well as helping to focus your limited time and resources on things that matter to consumers.

Happy selling, Stay tuned, and Trust Jesus!

Stay Fresh!

David Mint

Key Indicators for September 24, 2013

Copper Price per Lb: $3.22
Oil Price per Barrel: $102.86
Corn Price per Bushel: $4.53 
10 Yr US Treasury Bond: 2.68%
Mt Gox Bitcoin price in US: $133.28
FED Target Rate: 0.09% ON AUTOPILOT, THE FED IS DEAD!
Gold Price Per Ounce: $1,311 
MINT Perceived Target Rate*: 0.25%
Unemployment Rate: 7.3%
Inflation Rate (CPI): 0.1%
Dow Jones Industrial Average: 15,395
M1 Monetary Base: $2,469,100,000,000 
M2 Monetary Base: $10,783,000,000,000

August and Everything After All Over Again

9/23/2013 Portland, Oregon – Pop in your mints…

Most persons in the financial industry, and likely beyond may recall that a mere five years ago, the Lehman Brother’s bankruptcy filing rocked the financial markets and served as the official notice that the blind 25 basis point hikes in the FED target rate that had passed as “monetary policy” during the go-go years of the early 2000’s were not exactly what the economy ordered.

In a matter of months, an entire industry that had been operating in a nearly infallible uptrend since the early 1970’s began to retool itself to cope with significant downside risk.

The Lehman event took place on September 15th and, while it did not exactly catch the US Treasury and the FED off guard, it did catch them without the resources or authority to do anything about it.  As Phillip Swagel details in this piece “Why Lehman Wasn’t Rescued,”:

“Lehman failed before TARP was passed or even proposed to the Congress. This meant that the Treasury Department had no legal authority to put government money into the firm or provide a guarantee for its obligations. This changed with the passage of the Emergency Economic Stabilization Bill on Oct. 3, 2008, which provided $700 billion in TARP financing to be used to purchase troubled assets (used in the end mostly to purchase preferred shares in banks).”

Swagel goes on to state that the cases of both Bear Stearns and AIG, whose subsequent bailouts caused Lehman stakeholders, amongst others, to cry foul, differed on one very significant count:

“To all eyes, the problem at Lehman was one of solvency while the issue in the other two cases was liquidity. The Fed’s actions on Bear and A.I.G. were thus appropriate in its role as a lender of last resort and the same with its caution at Lehman.”

And so began the cascade of minifailures which have become collectively known as the Financial Crisis of 2008, as liquidity was provided to the solvent while the insolvent went quickly into history’s dustbin.

At The Mint, we refer to this odd period of time as “August and Everything After,” with apologies to the Counting Crows.  It was a time when the industry threw in the towel, and the prevailing current became one of loss avoidance.

Today, just over 5 years later, we believe that we are at a similar inflection point with regards to tendencies in the financial markets, hence our tagline “August and Everything After All Over Again,” only this time, the tremendous risks in the financial system are not on the downside, where everyone is looking for them, they are on the upside, where few dare to tread.

The few who have tread confidently on the upside risks, despite the commonly held beliefs to the contrary, would have nearly tripled their money by doing something as mindless as going long the Dow circa March 2009, when it appeared the Dow companies themselves were to be swallowed up.

At this point in time, the upside risks are hidden from most.  While the stock market continues to churn out an impressive performance, a more significant trend has been playing out in plain sight:  Private investment activity is going through the roof.

While publicly traded equities get nearly all of the airtime, it is becoming clear that the advantages of being a publicly traded company are being outweighed by the regulatory burden and incredible scrutiny that public companies are under.  To sum up the plight of public companies circa 2013, they are easy targets.

The answer for many has been to “go private,” and go private they have, from Ford to Blackberry, companies that once basked in the public limelight have found that going private may be just what the doctor ordered.

To accentuate this trend, today is the day that a key provision of the JOBS act takes effect, allowing private companies and startups to solicit accredited investors publicly rather than needlessly lurking about in the shadows as they had done since the days of the Great Depression.

The Role of the Federal Reserve

The Federal Reserve, in direct violation of Natural Law
The Federal Reserve, in direct violation of Natural Law

FED observers watched in near disbelief last week as the US Central Bank declined to “Taper,” which means to scale back the amount of money that they simply print and hand to holders of US Treasuries and Mortgage Backed Securities, citing downside risks.

In observing the FED, we can confirm that the economy currently faces unimaginable upside risks, as they are paradoxically always the last to react to market realities which they have unwittiningly created.

The FED and their observers labor under a belief that is both accurate and woefully misguided all at once.  It is true that the Federal Reserve, in regulating short term interest rates and the base money supply, has nearly unchecked influence on the level of economic activity anywhere that dollars are used in exchange.  This is a simple reality of the insane “debt is money” monetary system that the world suffers under.  The primary issuer of the debt determines how much money there is.

They are wrong in thinking that the FED is clairvoyant in any sense of the word and can somehow time their interventions to achieve desired effects on the underlying economy.  In this sense, the FED is always the last to react as it has no idea what the true timing of the cause and effect of their policy decisions are.  While they have produced reams of academic work to prove their theories, in practice, it is nothing more than guesswork with the benefit of hindsight.

This is also why the FED will only “taper” when nobody cares whether or not they taper, i.e. when there is so much money flooding the system that the dangers are clearly on the side of hyperinflation.  Inflation, in their mind, is much easier to fight than the deflationary spiral the the Lehman event triggered five short years ago.

They are right in the sense that in a hyperinflationary environment, the monetary system simply needs less juice, where a deflationary environment threatens their stranglehold on the world’s monetary system.

To understand the depth of the incompetence of the FED and Central Bankers at large, one need only look to their latest hero, Michael Woodford.  Mr. Woodford wrote a book titled “Interest and Prices:  Foundations of a Theory of Monetary Policy” in which he deals with problems of zero bound rates and quantitative easing, ideas that were being toyed with back in 2003 when the book was published as mere theory.  Now, they are part of a Central Banker’s everyday life, and Woodford’s book is considered their bible.

The base of Woodford’s theory, which we have come to know as “foreword guidance,” is that when monetary policy is accommodating maximum liquidity and the system still lacks it, policy makers must resort to telling market participants what they will do, essentially tying their hands in the future, in order for liquidity to exceed its theoretical limits.  This is the only reason why Ben Bernanke now holds a press conference after FED policy meetings, so that this theory can be implemented.

Woodford’s theory of Foreword Guidance, like Quantitative easing, is further evidence that the current monetary system has failed.  It has failed in the sense that even unlimited amounts of debt masquerading as money cannot satiate the need for liquidity in global markets, which are so disconnected from actual physical conditions that it is impossible to tell which projects are a net benefit to humankind and which take humankind further down the path to fantasyland, where all play and no work promises a lot of pain and scarcity down the line.

The risk in the “After August” period is to the upside, and central bank notes will become irrelevant as the global economy goes into overdrive and a new monetary system will be tacitly agreed upon by all participants.

When the Central Bankers of the world look up from Woodford’s textbook, they may catch a glimpse as the Tsunami of liquidity washes their currencies away.

The FED has nearly doubled the base money since 2008, are re you ready for it to multiply?

Stay tuned and Trust Jesus!

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for September 23, 2013

Copper Price per Lb: $3.27
Oil Price per Barrel:  $103.40
Corn Price per Bushel:  $4.53
10 Yr US Treasury Bond:  2.71%
Mt Gox Bitcoin price in US:  $133.43
FED Target Rate:  0.09%  ON AUTOPILOT, THE FED IS DEAD!
Gold Price Per Ounce:  $1,322
MINT Perceived Target Rate*:  0.25%
Unemployment Rate:  7.3%
Inflation Rate (CPI):  0.1%
Dow Jones Industrial Average:  15,401
M1 Monetary Base:  $2,469,100,000,000
M2 Monetary Base:  $10,783,000,000,000

A Tale of Two Tech Companies

9/17/2013 Portland, Oregon – Pop in your mints…

“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair…”

Preamble of “Recalled to Life”, the First Installment of Charles Dickens’ 1859 novel, A Tale of Two Cities.

We’ve always liked this preamble. While the story that follows it is no slouch either, the preamble alone is worth the price of admission. In economic terms, these 60 words may be priceless, as they have played no small part in the over 200 million copies of A Tale of Two Cities that have been sold.

Today, it is our intent to become the next in a long line of writers to piggy back on Dickens’ famous preamble by way of framing our recent tablet purchase experience and extrapolating it into brief commentary on the short term fates of technology giants, a category that barely encompasses the importance of these two companies, Google and Microsoft

First, a bit of history in which we shall reveal our age.  Our first experiences with a computer came circa 1984 at the tender age of 10 when HP still had versions that relied on something of a small cassette tape to store and transport data.  These machines were quickly overcome by the likes of the Apple IIe.  Those were the days when green text on a screen was enough.

In our limited tech worldview, Apple was king until Microsoft’s Windows OS came onto our radar, followed by Word and Excel.  In retrospect, while Word Perfect and Lotus (or Quattro pro) were the word-processing and spreadsheet choices du jour, Microsoft seemed to have a knack for sitting back and getting things right, ceding the first strike advantage and using their earlier competitor’s as a prolonged market research experiment before introducing a superior solution.

While it is a slower strategy and sacrifices the opportunity to seize early adopters that become entrenched in their competitors ecosystems, it has worked in every arena where Microsoft has tried it.

Fast forward to today.  Microsoft was not even on the radar as the iPod/iPhone revolution again showed that Apple still retained its uncanny ability to be the first to market.  Apple parlayed this victory into again seizing the first strike advantage in the tablet space and sending a raft of innovations to market before their competitors could fully grasp what was occurring.

Yet as any well-trained general will tell you, having the first strike advantage and winning a war are two different things.

Roughly in November of last year, we observed that it was time to begin shorting Apple.  We were late to the call but nonetheless, it has played out.  At the time, all we could see were Apple’s shortcomings based on our purchase of an Android phone which to us seemed clearly superior and more economical than its Apple counterparts.

Over the summer, as if by accident, we stumbled upon yet another nail in Apple’s short-term coffin:  The Surface.

We attended the Microsoft store grand opening in Portland over the summer as an obligation.  However, once the hype was finished, we decided to take a stroll through to see what type of weak offering Microsoft was throwing money away at.  In our mind, Microsoft had thrown in the towel.

We walked out of the store with a Surface RT (the watered down version of Microsoft’s version of the iPad) and a completely different perspective.  The Surface did everything, and a bit more, that we had hoped the iPad would.

Microsoft had done it again, as it had in the ’80s and ’90s, while it stung to watch the masses flock to the mirage of iParadise, it bode its time and learned from the iPad’s weaknesses.

What is the iPad’s weakness?  In an attempt to generalize our thoughts on the matter, we will simply state that the iPad is for digital consumers while the Surface is for digital producers (such as ourselves).  In layman’s terms, if one needs to browse and respond to emails with text, the iPad is sufficient.  If one needs to elaborate documents, spreadsheets, and the like, the Surface is everything you had hoped the iPad would be.

The iPad is not a laptop, nor is the Surface, but the Surface is much closer.

While the Windows 8 OS still requires years of app development and a bit of training, it is a dream in the tablet environment once mastered.  It does all of the logical things that we had hoped the iPad would.  It allows you to easily toggle between open apps and, more importantly for those of us who grew up managing a Windows desktop, if sufficiently allows one to manage in this environment to feel at ease.

Beyond that, the Surface tablet keypad is superior and Skydrive (Microsoft’s response to the iCloud), is extremely intuitive and allows one to make simple edits on a browser if necessary.

Microsoft has once again shown that its strategy of biding time can pay big dividends.  While it has a long way to go to reach the penetration levels of Apple’s iEcosystem, Microsoft has quietly introduced a superior product in the tablet space, and while it is no longer time to short Apple, it may be time to once again go long Microsoft.

A final question must be addressed here.  Why has Microsoft chosen to offer a tablet when for years it offered simply software and relied on third-party hardware?

It is simple, and a fact that must not be overlooked when analyzing technology offerings.  The tablet (and smart phone), as the Internet browser once was, is now the main portal to the digital world.  Microsoft’s offering of the Surface is as important as its offering of Internet Explorer was, which is why the company is almost giving them away.

For with the Surface and Windows 8, Microsoft not only has Apple’s market share in its sights, but Google as well, and if things continue to progress along this path, Google will find that tablet producers will sidestep its gates at every opportunity.

And the time to short Google may indeed be nigh.

Stay tuned and Trust Jesus!

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for September 17, 2013

Copper Price per Lb: $3.20
Oil Price per Barrel:  $105.76
Corn Price per Bushel:  $4.56
10 Yr US Treasury Bond:  2.84%
Mt Gox Bitcoin price in US:  $139.25
FED Target Rate:  0.08%  ON AUTOPILOT, THE FED IS DEAD!
Gold Price Per Ounce:  $1,314
MINT Perceived Target Rate*:  0.25%
Unemployment Rate:  7.3%
Inflation Rate (CPI):  0.1%
Dow Jones Industrial Average:  15,529
M1 Monetary Base:  $2,672,600,000,000
M2 Monetary Base:  $10,742,100,000,000

The Ultimate Fall of All Nations

“For the day of Yahweh is near all the nations!  As you have done, it will be done to you. Your deeds will return upon your own head.  For as you have drunk on my holy mountain, so will all the nations drink continually. Yes, they will drink, swallow down, and will be as though they had not been.  But in Mount Zion, there will be those who escape, and it will be holy. The house of Jacob will possess their possessions.”

–  The Vision of Obadiah

Anyone who has taken time to read the Bible, specifically the Old Testament, has no doubt encountered text similar to that found in the first sentence in the above excerpt taken from the prophetic vision of Obadiah.

It refers to the fall of nations.  For years we were somewhat vexed as to what this would mean.  It is clear that history itself appears to be a constant rising and falling of nations as weaker or “evil” nations fall and stronger, more “just” nations take their place.  What would happen, then were all of the nations to fall at once?

What at first appeared vexing is now clear.  The nations, all nations, are mere constructs of men.  As we have described in this space, at best the nations may be seen as a response, albeit misguided, to humankind’s inherently anarchic surroundings.  Yet as human constructs, it is inevitable that the nations, rather than improving over time, are bent on self-destruction from their inception.

Indeed, this is the case today.  When nations appear to be getting stronger, this is a result of an increase in human cooperation fostered on a base of trust and free trade.  Over time, the nations unwittingly work to erode the base of trust and free trade that humans have formed.  Once the people realize this, they inevitably work to throw off the yoke of the nation, and begin to walk in the Kingdom of God.

Such is the rise and fall of nations, and if the vision of Obadiah and countless other biblical prophecies come to pass, the ultimate fall of all nations is a sure thing.

Was Removing the DEA the Catalyst for Bolivia and Latin America’s Economic Miracle?

9/11/2013 Portland, Oregon – Pop in your mints…

We recently returned from Bolivia, which, for the geographically challenged, is a relatively large country located in the heart of South America.  Our better half hails from this land that extends from the peaks of the Andes to the Amazon basin, and we have more than a passing interest in the goings on there.

What we observed in Bolivia this past trip can only be described as an economic boom.  While the economy has been on the uptick for a number of years, what we saw this year was well beyond an uptick.  During previous visits, we witnessed the construction of major roads along with an insane number of apartment complexes being constructed.  On this trip it was evident that the parks are now being maintained and the number of western style shopping malls and other spaces had greatly increased.

The homogenization of Bolivia, as we are fond of calling the phenomenon of globalization, is well underway.

Indeed, as one toggles the GDP of Bolivia on the embedded chart below, courtesy of tradingeconomics.com, the warp curve of economic growth that we have observed in our travels there, which began in 2005, just before Evo Morales (whose policies can only be described as Neo-Socialist) was elected, is confirmed by GDP figures.


Source: tradingeconomics.com

As we descended into Viru Viru, the interestingly named airport in Santa Cruz, we struck up a conversation with a young man who was working as a commercial diver in Oman.  In the course of the conversation, we remarked that Bolivia appeared to be in the midst of an economic boom.

When we asked our fellow weary traveller his opinion as to why the Bolivian economy had entered into its most recent growth spurt, he simply replied, “se fue la DEA.” Which means, the DEA is gone.

The DEA (US Drug Enforcement Administration, for those unfamiliar with the show Miami Vice) had occupied the rich agricultural land of the Chapare, which, while not ideal for growing coca leaves, enjoys a humid climate in which nearly anything will grow quickly, for nearly 33 years when Morales ordered them to leave during a diplomatic spat with the US in November of 2008.   It was a long-standing grudge that Morales, a coca farmer himself, had against the agency which he saw as an imperial force which harassed the simple farmers in the region that was his adopted home.

A quick glance at the GDP graph above seems to indicate that the DEA’s departure, which was completed in early February of 2009, appears to have been the catalyst that sent the Bolivian economy into overdrive.

Not only that, but when one overlays the Latin American GDP in the graph above, it is clear that not only Bolivia, but all of Latin America has experienced a similar GDP warp curve and attendant development in their infrastructure and consumer amenities.

While it may appear that a simple injection of drug money, which now flows somewhat unhindered into the country in search of the now abundant coca leaf (the raw material for cocaine and other illicit drugs) would account for this unprecedented growth, the phenomenon has coincided with another US policy that has paralleled the time frame in which Bolivia has been “DEA free*.”

Ben Bernanke’s printing press, which kicked into hyperdrive circa 2008 and has not stopped since.

While places like Hong Kong and China receive a great deal of attention for their respective currency pegs to the US Dollar, the Boliviano (the Bolivian national currency) is also pegged to the US Dollar in a similar 7:1 fashion.  As such, the Bolivian economy, which until recently has had a relatively low-level of consumer debt, has taken the dollars that Bernanke had intended to stimulate the US economy, and put them to work rather than throwing them down the black hole of their banking institutions.

So what is the ultimate catalyst for the explosive Bolivian and Latin American GDP growth over the past five years, the DEA leaving Bolivia or US Monetary policy?  Either way, it is clear that despite the Socialist bent of many Latin American countries, there is a flashing green light to invest in them as long as these two conditions persist, for they are like rocket fuel for these largely cash based economies with dollar pegs fixed to their national currencies.

“Viva mi Patria Bolivia…como la quiero yo!”

*Morales has deployed his own military to fulfill the role of the DEA in their absence, however it is evident that they are not as zealous in their persecution of the coca leaf as their American counterparts.

Key Indicators for September 11, 2013

Its Rosh Hashanah 5774, is your lamp lit?

Today marks the beginning of the Jewish high holiday Rosh Hashanah, a celebration of the new year, a celebration of the creation of the world.

We are convinced that the Messiah, Jesus, is returning. We are equally convinced that it has not been given to any man to know the exact time of his return.

What we do know is that we will know the season of his return. The interpretations which we have heard of Jesus’s declaration recorded in Matthew 24:36 generally center around the premise that some sort of series of great catastrophes will be unfolding and a series of signs will be in some stage of fulfillment, implying that these things will mark the season of Jesus’s return.

Here at The Mint, we subscribe to a much simpler and more profound understanding of this scripture, drawn from an understanding of the Jewish wedding ceremony. Jesus will arrive during the fall season in the Northern Hemisphere.

In fact, based on the timing of His death and resurrection, the Passover, we believe that His triumphant return will logically take place over Rosh Hashanah. The celebrated Feast of Trumpets.

Feast of trumpets by Aleksander Gierymski (1850–1901): Painting of Hasidic Jews performing tashlikh (ritual washing away of sins) on Rosh Hashanah, placed on the banks of the Vistula River in Warsaw.
Feast of trumpets by Aleksander Gierymski (1850–1901): Painting of Hasidic Jews performing tashlikh (ritual washing away of sins) on Rosh Hashanah, placed on the banks of the Vistula River in Warsaw.

Not necessarily this fall, mind you. For it is impossible to know for certain. If one were to attempt to pick a specific year, the logical choices would be one of the upcoming Jubilee years, 2018 (starting on Rosh Hashanah 2017 on the Gregorian calendar) or 2068, or the final year of the 6000 year Jewish Calendar, 2240.

Yet it could be tomorrow, or the next day, as Rosh Hashanah has the element of uncertainty as to precisely when the new moon occurs. This detail fits nicely with Jesus’s declaration that we would not know the day or time.

With all of the things that are happening in the world, many have begun to speculate that the end is nigh.

Clearly, the end is always nigh, and calamities such as the ones humanity is currently suffering have always taken place to some degree ever since mankind chose to disobey God and turn their back on their Creator.

Today, with billions of us on the planet, these calamities are multiplied to a staggering degree. The good news is that God’s grace and mercy are experienced in abundance as well, and this will overcome all suffering and calamity as He daily establishes His Kingdom within and amongst us.

Rosh Hashanah may be the most important and least observed/understood holiday for anyone who is not Jewish.  However, what occurs over the next nine days will set the tone for the coming year.  They occurances are of such magnitude that the Jewish title, the “days of awe,” may be the only appropriate descriptor.

The following is an excerpt from our teaching last year on the sixth sign performed by Jesus that is recorded in the Gospel of John, which took place during this season some 2000 years ago.

Sukkot and the days of awe

Under these circumstances, Jesus announced that He would not attend the upcoming Feast of Booths (Tabernacles), or Sukkot, the Jewish Festival which follows Yom Kippur, the day of atonement, which was the holiest day of the year. Jesus’ initial reluctance to attend the Feast, and ultimate decision to attend, has great significance, both for our understanding of the sixth sign and for Jesus’ future second coming.

As you may recall, Rosh Hashanah, the Jewish new year, marks a new beginning. The Jews believe that on this day the fate of each person for the upcoming year is written by YHWH in the Book of Life. The days (approximately 9) between Rosh Hashanah and Yom Kippur, known as the the days of awe, are spent in deep reflection, fasting, and prayer. It is a time of confession and repentance, it is a time of recognition that we are but dust, yet infinitely precious in YHWH’s sight.

The Jews believe that the fate which is written on Rosh Hashanah is then sealed by YHWH on Yom Kippur, at which point the Feast of Booths begins. It is our speculation that Jesus made the decision to ultimately attend the Feast of Booths to symbolically seal His fate. He would give His life for humanity on the upcoming Passover.

Yom Kippur is regarded as the Sabbath of Sabbaths, as such, it is only appropriate that the Jewish leaders who were looking for a reason to kill Him, would carefully observe Jesus in hopes of catching Him breaking their observance of the Sabbath.

As Rosh Hashanah begins, we hold fast to our faith, cleanse our minds and spirits, and resolve to love and forgive as God has loved and forgiven us. The Messiah is coming, the trumpet is about to sound!

Is your lamp lit?

Obama Punts Syria to Congress, will Congress Vote to Stimulate the Stock Market?

As we stated before, what is currently occurring in Syria has serious implications for all of humanity, and with the weight of the world on his shoulders. Obama has chosen to do what any self-respecting statesman, circa 2013, would do.  Mr. Obama has punted the question as to whether or not the United States should intervene via military action to the US Congress, who, it would appear, have been pulled away from their leisurely summer pursuits in an effort to inform themselves on the situation before they cast a vote on the matter.

What will they decide?  The world is holding its breath in anticipation of the outcome of this latest political charade.  For most thinking people, the answer is clear, the US should avoid a conflict that will not only trigger a series of inevitable side shows which are sure to include standoffs with China, Russia, and Iran, complete with Israeli sabre rattling in the background, but will most surely further bankrupt a government which has operated in the red without a budget, let alone a clear foreign policy, for five years running.

Fortunately for investors and unfortunately for the Syrian public and the world at large, the US Congress is not renowned for its thoughtfulness in such matters.  While the British MPs took the high road and have prohibited their fearless leader from committing to military intervention, we would expect the US Congress to reluctantly authorize the use of force holding up an ambiguous “moral obligation” as the ultimate reason they have chosen to reluctantly order a military intervention.

Moral arguments aside, war, like zero bound interest rates and quantitative easing, is good for stocks and moneylenders and bad for everybody else involved.  Should the US Congress authorize military intervention in Syria in their upcoming vote on the matter, we anticipate a short-term dip in equities, perhaps only a few days, which will present a tremendous buying opportunity.

The situation in Syria is lamentable and a blight on the basic humanity of us all.  It is also a powder keg that threatens to further destabilize, were it possible, the fragile Middle East.  Should the powder keg go off, equity values are likely to rise dramatically in the medium term against the backdrop of a widespread military conflict.

Unfortunately, price levels for everyday goods will rise even faster.  While we hope for a no vote, it would be wise to anticipate a yes vote and plan accordingly.

Key Indicators for September 2, 2013

Did Syria call Obama’s Bluff?

Did al Assad call Obama’s bluff or are the Syrian rebels trying to coax foreign intervention to tip the scales in their favor?  Either way, Barrack Obama finds himself in a lose/lose situation, and with Russia and China waiting in the wings, the stakes could not be higher.

What is currently occurring in Syria has serious implications for all of humanity.  As we do with all Geopolitical conflict, we turn to Stratfor for insight beyond the headlines.  What we find in the following report on the situation, written by George Friedman, is indeed disturbing.  Friedman’s report, Obama’s Bluff, is republished here with the permission of Stratfor and is a must read for anyone trying to understand what is at stake.

Obama’s Bluff

Images of multiple dead bodies emerged from Syria last week. It was asserted that poison gas killed the victims, who according to some numbered in the hundreds. Others claimed the photos were faked while others said the rebels were at fault. The dominant view, however, maintains that the al Assad regime carried out the attack.

The United States has so far avoided involvement in Syria’s civil war. This is not to say Washington has any love for the al Assad regime. Damascus’ close ties to Iran and Russia give the United States reason to be hostile toward Syria, and Washington participated in the campaign to force Syrian troops out of Lebanon. Still, the United States has learned to be concerned not just with unfriendly regimes, but also with what could follow such regimes. Afghanistan, Iraq and Libya have driven home the principle that deposing one regime means living with an imperfect successor. In those cases, changing the regime wound up rapidly entangling the United States in civil wars, the outcomes of which have not been worth the price. In the case of Syria, the insurgents are Sunni Muslims whose best-organized factions have ties to al Qaeda.

Still, as frequently happens, many in the United States and Europe are appalled at the horrors of the civil war, some of whom have called on the United States to do something. The United States has been reluctant to heed these calls. As mentioned, Washington does not have a direct interest in the outcome, since all possible outcomes are bad from its perspective. Moreover, the people who are most emphatic that something be done to stop the killings will be the first to condemn the United States when its starts killing people to stop the killings. People would die in any such intervention, since there are simply no clean ways to end a civil war.

Obama’s Red Lines

U.S. President Barack Obama therefore adopted an extremely cautious strategy. He said that the United States would not get directly involved in Syria unless the al Assad regime used chemical weapons, stating with a high degree of confidence that he would not have to intervene. After all, Syrian President Bashar al Assad has now survived two years of civil war, and he is far from defeated. The one thing that could defeat him is foreign intervention, particularly by the United States. It was therefore assumed he wouldn’t do the one thing Obama said would trigger U.S. action.

Al Assad is a ruthless man: He would not hesitate to use chemical weapons if he had to. He is also a very rational man: He would use chemical weapons only if that were his sole option. At the moment, it is difficult to see what desperate situation would have caused him to use chemical weapons and risk the worst. His opponents are equally ruthless, and we can imagine them using chemical weapons to force the United States to intervene and depose al Assad. But their ability to access chemical weapons is unclear, and if found out, the maneuver could cost them all Western support. It is possible that lower-ranking officers in al Assad’s military used chemical weapons without his knowledge and perhaps against his wishes. It is possible that the casualties were far less than claimed. And it is possible that some of the pictures were faked.

All of these things are possible, but we simply don’t know which is true. More important is that major governments, including the British and French, are claiming knowledge that al Assad carried out the attack. U.S. Secretary of State John Kerry made a speech Aug. 26 clearly building the case for a military response, and referring to the regime attack as “undeniable” and the U.S. assessment so far as “grounded in facts.” Al Assad meanwhile has agreed to allow U.N. inspectors to examine the evidence onsite. In the end, those who oppose al Assad will claim his supporters concealed his guilt, and the insurgents will say the same thing if they are blamed or if the inspectors determine there is no conclusive evidence of attacks.

The truth here has been politicized, and whoever claims to have found the truth, whatever it actually is, will be charged with lying. Nevertheless, the dominant emerging story is that al Assad carried out the attack, killing hundreds of men, women and children and crossing the red line Obama set with impunity. The U.S. president is backed into a corner.

The United States has chosen to take the matter to the United Nations. Obama will make an effort to show he is acting with U.N. support. But he knows he won’t get U.N. support. The Russians, allies of al Assad and opponents of U.N.-based military interventions, will veto any proposed intervention. The Chinese — who are not close to al Assad, but also oppose the U.N.-sanctioned interventions — will probably join them. Regardless of whether the charges against al Assad are true, the Russians will dispute them and veto any action. Going to the United Nations therefore only buys time. Interestingly, the United States declared on Sunday that it is too late for Syria to authorize inspections. Dismissing that possibility makes the United States look tough, and actually creates a situation where it has to be tough.

Consequences in Syria and Beyond

This is no longer simply about Syria. The United States has stated a condition that commits it to an intervention. If it does not act when there is a clear violation of the condition, Obama increases the chance of war with other countries like North Korea and Iran. One of the tools the United States can use to shape the behavior of countries like these without going to war is stating conditions that will cause intervention, allowing the other side to avoid crossing the line. If these countries come to believe that the United States is actually bluffing, then the possibility of miscalculation soars. Washington could issue a red line whose violation it could not tolerate, like a North Korean nuclear-armed missile, but the other side could decide this was just another Syria and cross that line. Washington would have to attack, an attack that might not have been necessary had it not had its Syria bluff called.

There are also the Russian and Iranian questions. Both have invested a great deal in supporting al Assad. They might both retaliate were someone to attack the Syrian regime. There are already rumors in Beirut that Iran has told Hezbollah to begin taking Americans hostage if the United States attacks Syria. Russia meanwhile has shown in the Snowden affair what Obama clearly regards as a hostile intent. If he strikes, he thus must prepare for Russian counters. If he doesn’t strike, he must assume the Russians and Iranians will read this as weakness.

Syria was not an issue that affected the U.S. national interest until Obama declared a red line. It escalated in importance at that point not because Syria is critical to the United States, but because the credibility of its stated limits are of vital importance. Obama’s problem is that the majority of the American people oppose military intervention, Congress is not fully behind an intervention and those now rooting the United States on are not bearing the bulk of the military burden — nor will they bear the criticism that will follow the inevitable civilian casualties, accidents and misdeeds that are part of war regardless of the purity of the intent.

The question therefore becomes what the United States and the new coalition of the willing will do if the red line has been crossed. The fantasy is that a series of airstrikes, destroying only chemical weapons, will be so perfectly executed that no one will be killed except those who deserve to die. But it is hard to distinguish a man’s soul from 10,000 feet. There will be deaths, and the United States will be blamed for them.

The military dimension is hard to define because the mission is unclear. Logically, the goal should be the destruction of the chemical weapons and their deployment systems. This is reasonable, but the problem is determining the locations where all of the chemicals are stored. I would assume that most are underground, which poses a huge intelligence problem. If we assume that perfect intelligence is available and that decision-makers trust this intelligence, hitting buried targets is quite difficult. There is talk of a clean cruise missile strike. But it is not clear whether these carry enough explosives to penetrate even minimally hardened targets. Aircraft carry more substantial munitions, and it is possible for strategic bombers to stand off and strike the targets.

Even so, battle damage assessments are hard. How do you know that you have destroyed the chemicals — that they were actually there and you destroyed the facility containing them? Moreover, there are lots of facilities and many will be close to civilian targets and many munitions will go astray. The attacks could prove deadlier than the chemicals did. And finally, attacking means al Assad loses all incentive to hold back on using chemical weapons. If he is paying the price of using them, he may as well use them. The gloves will come off on both sides as al Assad seeks to use his chemical weapons before they are destroyed.

A war on chemical weapons has a built-in insanity to it. The problem is not chemical weapons, which probably can’t be eradicated from the air. The problem under the definition of this war would be the existence of a regime that uses chemical weapons. It is hard to imagine how an attack on chemical weapons can avoid an attack on the regime — and regimes are not destroyed from the air. Doing so requires troops. Moreover, regimes that are destroyed must be replaced, and one cannot assume that the regime that succeeds al Assad will be grateful to those who deposed him. One must only recall the Shia in Iraq who celebrated Saddam’s fall and then armed to fight the Americans.

Arming the insurgents would keep an air campaign off the table, and so appears to be lower risk. The problem is that Obama has already said he would arm the rebels, so announcing this as his response would still allow al Assad to avoid the consequences of crossing the red line. Arming the rebels also increases the chances of empowering the jihadists in Syria.

When Obama proclaimed his red line on Syria and chemical weapons, he assumed the issue would not come up. He made a gesture to those in his administration who believe that the United States has a moral obligation to put an end to brutality. He also made a gesture to those who don’t want to go to war again. It was one of those smart moves that can blow up in a president’s face when it turns out his assumption was wrong. Whether al Assad did launch the attacks, whether the insurgents did, or whether someone faked them doesn’t matter. Unless Obama can get overwhelming, indisputable proof that al Assad did not — and that isn’t going to happen — Obama will either have to act on the red line principle or be shown to be one who bluffs. The incredible complexity of intervening in a civil war without becoming bogged down makes the process even more baffling.

Obama now faces the second time in his presidency when war was an option. The first was Libya. The tyrant is now dead, and what followed is not pretty. And Libya was easy compared to Syria. Now, the president must intervene to maintain his credibility. But there is no political support in the United States for intervention. He must take military action, but not one that would cause the United States to appear brutish. He must depose al Assad, but not replace him with his opponents. He never thought al Assad would be so reckless. Despite whether al Assad actually was, the consensus is that he was. That’s the hand the president has to play, so it’s hard to see how he avoids military action and retains credibility. It is also hard to see how he takes military action without a political revolt against him if it goes wrong, which it usually does.

You can read more updates on what is unfolding in Syria by following Stratfor at the links below:

Read more: Obama’s Bluff | Stratfor
Follow us: @stratfor on Twitter | Stratfor on Facebook

Fresh ideas on Economics, Monetary Theory, Politics, and Less Pressing but Equally Entertaining Matters for the English and Spanish speaking worlds