GOD Bless 2013

Wishing all the visitors of my Blog a very happy new year! Have a great year ahead.

Prayers

Ask and it will be given to you.
Seek and you will find.
Knock and the door will be opened to you.
Because those who ask, receive; those who seek, find; those who knock, shall have the door opened to them. –
Jesus of Nazareth, Mathew 7; 7-8

 Instead of a thousand words, better still there were only one, but one which brought Peace.
Instead of a thousand verses, better still there were only one, but one which showed the Beautiful.
Instead of a thousand chants, better still there were only one, but one which spread joy.
Dhammapada (attributed to the Buddha)
Outside, beyond what is right and what is wrong, there is a huge field.
We will meet there. –
Mevlana Jelaluddin Rumi (1207-73)
Oh Allah! I consult you because You know everything.
If what I am doing is good for me and for my religion, for my life now and after, may the task be easy and blessed.
If what I am doing now is bad for me and my religion, keep me away from that task. –
Prophet Mohammed
Let us go up to the mountain of the Lord so that we may walk with Him.
We will turn our swords into ploughs, and our spears into pruning tools.
May no nation raise their swords against one another, and may we never learn the art of war.
No one should fear their neighbour, for the Lord said so.
- Jewish Prayer for Peace

If there is to be peace in the world, there must be peace in the nations.
If there is to be peace in the nations, there must be peace in the cities.
If there is to be peace in the cities, there must be peace among neighbours.
If there is to be peace among neighbours, there must be peace at home.
If there is to be peace at the home, There must be peace in the heart. –
Lao Tzu, China (6th century BCE)

FDI a liberation by Venu

The BJP was taken completely by surprise when the Bahujan Samaj Party(BSP) chose to vote in favour of FDI in multi-brand retail in the Rajya Sabha within 24 hours of having abstained from voting in the Lok Sabha on the same issue. Assuming Mayawati would abstain from voting in the Rajya Sabha, BJP leader Arun Jaitley had declared UPA to be on very shaky ground on the eve of voting. But the BSP leader chose to pull the rug from under the main opposition’s feet. The BJP cried foul saying Mayawati had been coerced into voting in favour of the UPA because of some pending CBI cases against her. Indeed, that would be a very naïve reading of the BSP’s motivations. A more nuanced analysis of BSP’ actions suggests that it abstained from voting in the Lok Sabha after speaking against FDI in retail because it wanted to generally cash in on the prevailing fears and apprehensions among small businesses over the impact of foreign investment in this critical sector. Mayawati had earlier made a statement that she would consider endorsing FDI in multi-brand retail after seeing what impact it has on farmers.
Her vote in favour of the policy measure in the Rajya Sabha possibly represents what some prominent Dalit intellectuals have described as the “socially liberating potential of FDI in retail”. Some years ago, BSP member of Parliament Arif Mohammed Khan had told me that the BSP historically regarded the global multinational business culture as an antidote to the local caste system because global capital only valued economic surplus and had no social hegemonic agenda.
Another well known Dalit writer and intellectual, Chandrabhan Prasad, has argued that FDI in retail has tremendous socially-liberating potential. He said that while Mayawati’s stand is political, there is clearly a bigger and more significant social dimension to it from the Dalit perspective. Further, Chandrabhan Prasad welcomes the new culture spawned by economic globalisation because “unless culture breaks, caste cannot break”. Another prominent Dalit political thinker, professor Kancha Ilaiah, believes FDI is generally good for the economy as it will break the bania community’s hold over money circulation.
So the Dalit thinkers have a more socially and culturally driven view of global capital, in general, and FDI in multi-brand retail, in particular. For an average Dalit, the process of globalisation offers an escape from his/her current oppressive social condition to another world of cross-cultures where enough anonymity and economic independence is afforded. It is largely the narrow, often politically motivated, Hindu upper castes who seem preoccupied with the notion of the “Indian culture” getting polluted by the onslaught of globalisation. In its crudest manifestation, we see this phenomenon play out when certain bigoted groups attack MNC food outlets or threaten young people celebrating Valentines day.
So Mayawati’s stand on FDI in multi-brand retail has many layers to it. A recent survey conducted by the Dalit Indian Chambers of Commerce and Industry (DICCI) showed that Dalits have virtually zero presence among the established grain and vegetable mandi traders, generally referred to as Arhatiyas. The Arhatiyas are the most powerful lot of wholesale middlemen, who control the business of aggregating produce from millions of farmers which is brought to the Mandi. They also lend money to farmers at what someone described as “credit card rates”.The Arhatiyas are known largely to be supporters of the BJP. This is why some speakers dared the BJP in the Lok Sabha debate to come out openly and declare they are representing the interests of the Arhatiyas. The UPA’s contention is these Arhatiyas grab the bulk of the margins between the farmer and the consumer. The entry of the big retailer could provide competition to them and get the farmers and the end consumer a better deal. Of course, Arun Jaitley argues that the Arhatiya will be replaced by the representatives of the foreign retailer.
Jaitley’s political argument is that Indian society’s fragmented business arrangements at all levels provide livelihood to millions in a decentralised and autonomous manner. Any attempt by big foreign entities to homogenise this arrangement could create a monopoly of sorts. This fear may be exaggerated as there will continue to be multiple players at all levels. In Asian and Latin American societies, which are more akin to India, foreign retail brands have not got more than 20-25% market share in the retail business after decades in operation. In more homogenous Western economies, big retail chains have got over 85% of the market.
Another intellectual argument favouring a somewhat decentralised, even if inefficient, existence of our farm-to-retail chain says India’s petty bourgeoisie (a Marxian term for small trader, shopkeeper, etc) probably want to remain autonomous of the big global capitalist value chains run by the Walmarts and Tescos. A sense of being the master of one’s own business is probably valued far more than being subordinated to a global capitalist chain, based on new rules of the game. Well, this may be true for the well-heeled Arhatiya community, which is politically powerful and controls the mandis of India. It will seek to protect its autonomy.
But this would certainly not be true for millions of very small shopkeepers who are essentially suffering from disguised unemployment and would want to escape their current social and economic condition. The problem with the opposition argument is that it is trying to mix up two different categories altogether—the well-heeled and exploitative big trader as against the impoverished small, hole-in-a-wall shopkeeper. The social and economic profile of the participants in India’s vast retail trade is complex and varied. Besides, there is ample evidence that large sections of the petty bourgeoisie (trader and shopkeepers) may not be happy with their current existence. They would not mind if global capital inflows result in the creative destruction of existing arrangements. After all, many of our established industrialists who have reaped the benefits of globalisation were small shopkeepers/ traders at one time! The petty bourgeoisie has its own aspirations that go beyond their perceived sense of autonomy at present!

Differentiation Among Commodities Bullish For Gold Developers

A plausible theory is circulating that the commodity super cycle driven by China and India will be more "differentiated" among raw materials, depending on supply-demand balances. Citigroup's head of global commodities research, Edward L. Morse, believes the "super cycle" of commodity price gains is ending as China's economy moving toward slower growth and an increase in supplies. Morse thinks prices won't climb "sharply" higher even though quantitative easing from global central banks lifts gold bullion demand. The S&P's GSCI Spot Index of 24 raw materials, which has increased four fold since 2001, is up just shy of 1% this year evidenced by sluggish growth in global economies including China. Looking at the different commodities, one realizes Morse was not exactly bearish on the outlook for most.
(click to enlarge)
This mix will be more favorable for mine developers, who have been damaged by the non-precious metal part of the super-commodity cycle. Going a step further, I believe gold will start noticeably outperforming other input commodities. Gold may take off because of monetary considerations (flight to real money) at the same time economies significantly weaken because of bad faux-growth monetary policies. I think that's what's in store. This is also consistent with my thesis on a China and Japan bust. For those who may want to hedge on the energy side of the Morse equation, use uranium (CCJ, DNN and STHJF.PK), which is highly depressed.
Materials costs for everything from fuel to tires to steel and metal alloys are a major component of mine construction. Just as raw materials prices have soared, so have mine construction capex costs. If development projects can find a new sweet spot for some price relief on costs combined with higher prices for gold, the leverage could be considerable. Right now, new projects need to squeeze every dime to produce a decent return. Energy makes up about 25% of the cost of copper and gold production. That's why you are seeing projects like Chesapeake Gold's (CHK.V) Metates and NovaGold's  Donlin Creek may bring in natural gas pipelines.

In relation to porphyry deposits -- which the market now thinks are unlikely to be developed -- the 2008 median-grade of 422 porphyry was 0.44% copper, according to the U.S. Geological Survey database of worldwide porphyry deposits. Only two-thirds of these deposits contained gold, and their average gold grade was 0.21 g/t. Comparably, 0.44% Cu and 0.21 g Au are worth $45 currently and those would probably be top quartile (100 best in the world) deposits.
The big porphyry deposits that have gotten my attention have the following characteristics:
1. Good jurisdictions
2. Higher precious metal weighting versus base metals, with copper functioning as a credit to the main course
3. Extremely neglected valuations
The downside is that all large porphyry projects are expensive to construct; however, if the cost side improves relative to the output product, Katie bar the doors.
Seabridge's (SA) massive KSMs reserves show a value of $49: 0.55 grams per tonne of gold, 0.21% copper and 2.74 grams per tonne of silver. So there is evidence that KSM -- in addition to being one of the largest porphyry deposits ever found -- has above-average grades skewed toward gold.
The game changer at Deep Kerr: "DRILL HOLE K-12-21 INTERSECTS 473 METERS GRADING 0.90% COPPER AND 0.31 GPT GOLD." At Camp Zone: "A second hole, C-12-02, intersected 22.0 meters averaging 8.94 grams per tonne of gold and 41.6 grams per tonne of silver. This hole returned a 2 meter intercept of 66.7 grams of gold per tonne and 287 grams per tonne of silver. A third hole into this zone, C-12-03 drilled 900 meters to the northeast of C-12-02, returned 98.7 meters at an average gold grade of 2.11 grams per tonne. There is also a third target McQuillan that got a nice bulk deposit whiff from the only drill hole conducted: 68 m of 0.99 gm Au and 0.26% Cu.
These strong indications at Deep Kerr and Camp Zone have the potential of leveraging a very good project into one of the very best. This explains what SA is up to:

Seabridge Chairman and CEO Rudi Fronk noted that 'everything we have learned in the current program tells us that the core should be close to KSM's existing deposits at a reasonable depth. We are finding the markers that favor a discovery. Both positive and negative results have been helpful in narrowing the search. Although we are quite excited by the unanticipated discovery of the Camp Zone, we are committed to this search for the core zone. It may take more than one season to find the prize but this effort offers the potential to dramatically improve project economics.'

Exeter's (XRA) Caspiche is a little different in that it is primarily a gold porphyry: 0.48g Au 0.18 Cu 1.12 Ag, which average 0.81g Au or 23.53 million oz Au equivalent. In comparison, the nearby Cerro Casale Gold-Copper Deposit (considered one of the best out there) has reserves of 26.3 million ounces of gold at a grade of 0.50 grams per tonne ("g/t") and 5,782 million pounds of copper grading 0.22%. Yet Mr. Market values Caspiche at a insulting $50 million enterprise value.
Nova Gold's second property (up for sale), the prophyry Galore Creek, is strangely also considered an afterthought and has reserves of 5.45 million oz of 0.32 grams of AU, and 1.020 million oz and 8.9 billion of 0.5% CU and a very nice AG grade of 6 gm Ag (102 million oz) to boot. There is considerable exploration upside left.
In Chesapeake Gold's case, it has the silver and zinc credits that give this deposit some kick. Almost 20 million oz of gold is at 0.50 gm, but also has 9 million oz equivalent silver at 0.73 gm equivalent plus 0.16% zinc.

Bonds (Delay waale)

Few corporate bonds (mostly railroad issues), called income bonds, that contain a provision permitting the firm to omit or delay the payment of interest if the firm’s earnings are too low. They have been issued as part of bankruptcy reorganizations or to replace a preferred-stock offering of the issuer. A variant of this bond type, deferrable bonds (also called trust preferred and debt/equity hybrids), witnessed explosive growth in the 1990s. Deferrable bonds are deeply subordinated debt instruments that give the issuer the option to defer coupon payment up to five years in the event of financial distress.
Zero-coupon bonds have been issued by corporations and municipalities since the early 1980s. For example, Coca-Cola Enterprises has a zero-coupon bond outstanding due June 20, 2020 that was issued on May 9, 1995. But nor our Indian Government nor big govts of the world issue a zero bond with maturity over an year. Merrill Lynch was the first to do this with its creation of Treasury Investment Growth Receipts (TIGRs) in August 1982. The most popular zero-coupon Treasury securities today are those created by government dealer firms under the Treasury’s Separate Trading of Registered Interest and Principal Securities (STRIPS) Program.Governments and corporations also issue inflation-indexed bonds whose coupon payments are tied to an inflation index. These securities are designed to protect bondholders from the erosion of purchasing power of fixed nominal coupon payments due to inflation. For example, in January 1997, the U.S. Treasury auctioned a 10-year Treasury note whose semiannual coupon interest depends on the rate of inflation as measured by the Consumer Price Index for All Urban Consumers (i.e., CPI-U). The coupon payments are adjusted annually. These issues are referred to as “Treasury Inflation-Protection Securities” (TIPS). As of this writing, thereasury issues TIPS with 5-year, 10-year, and 20-year maturities. Some corporations followed the Treasury and issued inflation-indexed bonds of their own.
There are securities that have a coupon rate that increases over time. These securities are called step-up notes because the coupon rate “steps up’’ over time. For example, a six-year step-up note might have a coupon rate that is 5% for the first two years, 5.8% for the next two years, and 6% for the last two years. Alternatively, there are securities that have a coupon rate that can decrease over time but never increase. For example, in June 1998, the Tennessee Valley Authority issued 30-year 6.75% putable automatic rate reset securities (PARRS), also known as ratchet bonds. Beginning five years after issuance and annually thereafter, the bond’s coupon rate is automatically reset to either the current 30-year constant maturity Treasury yield plus 94 basis points or to 6.75%, whichever is lower. The coupon rate may decline if Treasury yields decline, but it will never increase. This bond also contains a contingent put option such that if the coupon rate is lowered, the bond is putable at par. Ratchet bonds were designed as substitutes for callable bonds.
In contrast to a coupon rate that is fixed for the bond’s entire life, the term floating-rate security or floater encompasses several different types of securities with one common feature: The coupon rate will vary over the instrument’s life. The coupon rate is reset at designated dates based on the value of some reference rate adjusted for a spread. For example, consider a floating-rate note issued in September 2003 by Columbus Bank & Trust that matured on March 15, 2005. The floater delivers cash flows quarterly and has a coupon formula equal to the threemonth LIBOR plus 12 points.
Typically, floaters have coupon rates that reset more than once a year (e.g., semiannually, quarterly, or monthly). Conversely, the term adjustable-rate or variable-rate security refers to those issues whose coupon rates reset not more frequently than annually.There are several features about floaters that deserve mention. First, a floater may have a restriction on the maximum (minimum) coupon rate that will be paid aty reset date called a cap (floor). Second, while the reference rate for most floaters is a benchmark interest rate or an interest rate index, a wide variety of reference rates appear in the coupon formulas. A floater’s coupon could be indexed to movements in foreign exchange rates, the price of a commodity (e.g., crude oil), movements in an equity index (e.g., the S&P 500), or movements in a bond index (e.g., the Merrillynch Corporate Bond Index). Third, while a floater’s coupon rate normally moves in the same direction as the reference rate moves, there are floaters whose coupon rate moves in the opposite direction from the reference rate. These securities are called inverse floaters or reverse floaters. As an example, consider an inverse floater issued by the Federal Home Loan Bank in April 1999. This issue matured in April 2002 and delivered quarterly coupon payments according to the following formula:
18% − 2.5 × (three-month LIBOR)
This inverse floater had a floor of 3% and a cap of 15.5%. Finally, range notes are
floaters whose coupon rate is equal to the reference rate (adjusted for a spread) as long as the reference rate is within a certain range on the reset date. If the reference rate is outside the range, the coupon rate is zero for that period.
One reason that debt financing is popular with corporations is that the interest payments are tax-deductible expenses. As a result, the true after-tax cost of debt to a profitable firm is usually much less than the stated coupon interest rate. The level of the coupon on any bond is typically close to the level of yields for issues of its class at the time the bond is first sold to the public. Some bonds are issued initially at a price substantially below par value (called original-issue discount bonds, or OIDs), and their coupon rate is deliberately set below the current market rate. However, firms usually try to set the coupon at a level that will make the market price close to par value. This goal can be accomplished by placing the coupon rate near the prevailing market rate.
To many investors, the coupon is simply the amount of interest they will receive each year. However, the coupon has another major impact on an investor’s experience with a bond. The coupon’s size influences the volatility of the bond’s price: The larger the coupon, the less the price will change in response to a change in market interest rates. Thus the coupon and the maturity have opposite effects on the price volatility of a bond.Participants in the bond market use several measures to describe the potential return from investing in a bond: current yield, yield-to-maturity, yield-to-call for a callable bond, and yield-to-put for a putable bond. A yield-to-worst is often quoted for bonds. This is the lowest yield of the following: yield-to-maturity, yields to all possible call dates, and yields to all put date.
Writing about bonds is always interesting but requires skill and knowledge in abundance, soon there be a continuation.

steal your heart

Life is like a shadow
It never stays in one place
I'm standing here anyway
However long it takes to steal your heart

Behaviourial finance

TO UNDERSTAND HOW economies work and how we can manage them and prosper, we must pay attention to the thought patterns that animate people’s ideas and feelings, their animal spirits. We will never really understand important economic events unless we confront the fact that their causes are largely mental in nature.
It is unfortunate that most economists and business writers apparently do not seem to appreciate this and thus often fall back on the most tortured and artificial interpretations of economic events. They assume that variations in individual feelings, impressions, and passions do not matter in the aggregate and that economic events are driven by inscrutable technical factors or erratic government action. In fact, as we shall discover, the origins of these events are quite familiar and are found in our own everyday thinking 
In the intervening years the world economy has moved in directions that can be understood only in terms of animal spirits. It has taken a rollercoaster ride. First there was the ascent. And then, about few years ago, the fall began. But oddly, unlike a trip at a normal amusement park, it was not until the economy began to fall that the passengers realized that they had embarked on a wild ride. And, abetted by this obliviousness, the management of this amusement park paid no heed to setting limits on how high the passengers should go. Nor did it provide for safety equipment to limit the speed, or the extent, of the subsequent fall.

Traditional economics teaches the benefits of free markets. This belief has taken hold not just in the bastions of capitalism, such as the United States and Great Britain, but throughout the world, even in countries with more established socialist traditions, such as China, India, and Russia. According to traditional economics, free market capitalism will be essentially perfect and stable. There is little, if any, need for government interference. On the contrary, the only risk of major depression today, or in the future, comes from government intervention.
This line of reasoning goes back to Adam Smith. The basis for the idea that the economy is essentially stable lies in a thought experiment which asks: What do free, perfect markets imply? The answer: If people rationally pursue their own economic interests in such markets, they will exhaust all mutually beneficial opportunities to produce goods and exchange with one another. Such exhaustion of opportunities for mutually beneficial trade results in full employment. Workers who are reasonable in their wage demands—those who will accept a wage that is less than what they add to production—will be employed. Why? If such a worker were unemployed, a mutually beneficial trade could be arranged. An employer could hire this worker at the wage she requires and still have some spare extra output for a larger profit. Of course some workers will be unemployed. But they will be unable to find work only because they are engaged in a temporary search for a job or because they insist on pay that is unreasonably high greater than what they add to production. Such unemployment is voluntary.

There is a sense in which this theory about the economy’s stability is remarkably successful. For example, it explains why most people who seek work are employed most of the time—even in the troughs of severe depressions. It may not explain, for example, why 25% of the U.S. labor force was unemployed in 1933 at the height of the Great Depression, but it does explain why, even then, 75% of the workers who sought jobs were employed. They were engaging in the mutually beneficial production and trade predicted by Adam Smith.

So, even at its worst, this theory deserves high marks—at least by the criterion of a schoolboy we once overheard at a restaurant. He was complaining about the C he had received on a spelling test—despite the fact that 70% of his answers were correct. Furthermore the theory does so well even in its worst prediction in two hundred years. Most of the time—as now, when the U.S. unemployment rate is still 6.7% (although rising)—it predicts remarkably accurately.

Consider yet again the Great Depression. Few people ask why employment was as high as 75% in 1933. Instead the common question is why 25% of the labor force wasunemployed. To our mind macroeconomics concerns departures from full employment. Failure to be at such full employment must then result from a departure from the classical model of Adam Smith.We do believe, like most of our colleagues, that Adam Smith was basically right regarding why so many people are employed. We are also willing to believe, with some qualifications, that he was essentially correct about the economic advantages of capitalism. But we think that his theory fails to describe why there is so much variation in the economy. It does not explain why the economy takes rollercoaster rides. And the takeaway message from Adam Smith—that there is little, or no, need for government intervention—is also unwarranted.

In contrast, John Maynard Keynes sought to explain departures from full employment, and he emphasized the importance of animal spirits. He stressed their fundamental role in businessmen’s calculations. “Our basis of knowledge for estimating the yield ten years hence of a railway, a copper mine, a textile factory, the goodwill of a patent medicine, an Atlantic liner, a building in the City of London amounts to little and sometimes to nothing,” he wrote. If people are so uncertain, how are decisions made? They “can only be taken as a result of animal spirits.” They are the result of “a spontaneous urge to action.” They are not, as rational economic theory would dictate, “the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities.”

In the original use of the term, in its ancient and medieval Latin form spiritus animalis, the word animalmeans “of the mind” or “animating.” It refers to a basic mental energy and life force. But in modern economicsanimal spirits has acquired a somewhat different meaning; it is now an economic term, referring to a restless and inconsistent element in the economy. It refers to our peculiar relationship with ambiguity or uncertainty. Sometimes we are paralyzed by it. Yet at other times it refreshes and energizes us, overcoming our fears and indecisions.

five different aspects of animal spirits and how they affect economic decisions—confidence, fairness, corruption and antisocial behavior, money illusion, and stories:

• The cornerstone of our theory is confidenceand the feedback mechanisms between it and the economy that amplify disturbances.
•  The setting of wages and prices depends largely on concerns about fairness.
• We acknowledge the temptation towardcorrupt and antisocial behavior and their role in the economy.
• Money illusion is another cornerstone of our theory. The public is confused by inflation or deflation and does not reason through its effects.
• Finally, our sense of reality, of who we are and what we are doing, is intertwined with the story of our lives and of the lives of  others. The aggregate of such stories is a national or international story, which itself plays an important role in the economy.

china's dream by Roach Turkisk Zaman

China's recent leadership transition was widely depicted as a triumph for conservative hard-liners and a setback for the cause of reform -- a characterization that has deepened the gloominess that pervades Western perceptions of China. In fact, nothing could be further from the truth.

Xi Jinping and Li Keqiang – the top two officials in China's new governing council (the Standing Committee of the Politburo) – are both well educated, well traveled, and sophisticated thinkers who bring a wealth of experience to the many challenges that China faces. As so-called Fifth Generation leaders, they continue the steady progress in competence that has marked each of China's leadership transitions since the emergence of Deng Xiaoping in the late 1970's.
While it is entirely premature to judge the style and direction that China's new leaders will take, three early hints are worth noting. First, Xi's assumption of power is more complete than was the case in earlier transitions. By immediately taking the reins of both the Chinese Communist Party (CCP) and the Central Military Commission, he has a greater opportunity to put his personal stamp on policy than his predecessors had at the start of their administrations.
Yes, China governs by a consensus of the Standing Committee. But Xi is well positioned to drive the thinking of a now-leaner decision-making body (downsized from nine members to seven). Moreover, he has long favored a market-friendly, scientific approach to economic development, which will be vital to China's future.
Second, Li Keqiang – the presumptive incoming premier – could be the big surprise in the new leadership team. Unlike the current premier, Wen Jiabao, who was third in the chain of command for the past ten years, Li has been elevated to number two, which suggests a greater potential for power-sharing between the CCP and the government at the top of China's new team.
With a Ph.D. in economics, Li, who, as Executive Vice Premier, headed the all-important “Central Committee Finance and Economy Leading Small Group,” is especially well equipped to deal with the long-awaited structural transformation of China's economy. Indeed, having overseen China 2030 – an extraordinary joint report recently produced by the World Bank and China's own high-level think tank, the Development Research Center – he has a deep understanding of the roadmap that China must embrace. His promotion could be a major step up from Wen, who emphasized rhetoric and strategy more than implementation.
Third, and contrary to prevailing wisdom in the West, Wang Qishan, one of China's savviest and most experienced senior officials, has not been relegated to obscurity in his new position overseeing “discipline” on the Standing Committee. Yes, Wang has invaluable experience in the financial sector, and it would have been logical for him to assume similar responsibilities on the new leadership team. But, as one of the top seven in the CCP hierarchy, he will still be able to weigh in on all important economic and financial matters, while assuming responsibility for tackling one of China's toughest problems – corruption. Having known Wang for more than 15 years, my sense is that he is very well suited to this vital task.
The other members of the new Standing Committee bring a broad array of experience and skills. That is especially true of Yu Zhengsheng and the two Zhangs, Dejiang and Gaoli, who come from senior roles in three of China's most powerful and dynamic urban centers – Shanghai, Chongqing, and Tianjin. Their deep knowledge of the key role played by urbanization in driving economic development will be critical to broadening the structural transformation that China now faces.
The West is not only overlooking the new Chinese leaders' enhanced skill set, but is also misjudging the current state of the country's economy, which, while far from perfect, is not crisis-torn and in desperate need of a quick fix. In fact, China is emerging in reasonably good shape from yet another global slump. This gives its new leaders leeway between now and the National People's Congress in March 2013 to focus on the development of implementation tactics for their strategic agenda.
None of this is to minimize China's enormous challenges. But strategy is not the problem; the pro-consumption 12th Five-Year Plan lays that out with great clarity. The new leadership must now shift the focus to commitment and implementation of that strategy – namely, through enactment of a new set of bold reforms, especially those related to the services sector, the social safety net, and state-owned enterprises. Xi's emphasis on the “top-level design” of reforms lends itself particularly well to this agenda, as does Li's intimate familiarity with the detailed blueprint provided by China 2030.
Western observers, focusing on recent public statements by Xi and Li, highlight a dearth of comments in favor of economic or political reforms. But the same could have been said of the early utterances of Deng, modern China's greatest reformer. As Ezra Vogel notes in Deng Xiaoping and the Transformation of China, Deng's first public statement after his political rehabilitation in 1976 was, “Marxism-Leninism and Mao Zedong Thought constitute the guiding ideology of the party.”
Those were not exactly enlightened words – especially in view of what was shortly to come. Yet Deng seized the moment at a critical juncture that is strikingly reminiscent of the one now faced by Xi and Li.
As is the case in any country's leadership transition, no one knows for certain whether China's incoming administration is up to the multiplicity of challenges that they face. Since the days of Deng, China has had an uncanny ability to rise to the occasion and meet its challenges head on. The new generation of leaders has the right skills and experience for the task. Western biases notwithstanding, we will know soon enough if they can translate strategy into action.

Macro graduate

Noah Smith has a depressing look at the reaction of some graduate students to the macro they are taught. He links this to the ‘war’ between freshwater and saltwater visions of macro, and any disconnect between what is taught and the real world is bound to be more acute with the former. Particularly today, courses that attach New Keynesian theory to the end of the programme - and in some cases (through accident or design) end up not teaching it at all - are just asking for trouble. Even in more normal times, isn’t it a good idea to give students some idea of what central banks think they are doing? - they might just want a job in one!

However,even if you put this ideological problem to one side, I think there is a difficulty for anyone teaching graduate macro, which is rather different from anything encountered teaching at the undergraduate level. At the masters level it is just logical to delay teaching New Keynesian economics until some way into the course. As is frequently said, New Keynesian theory is an elaboration of the RBC construct, so all that needs to be done first. To take the example of Oxford’s MPhil, we do the Ramsey model, RBC, OLG, growth theory, and the flex price open economy all before New Keynesian economics, and it makes sense to do it this way.

Now this would not be a problem if this other stuff was as obviously interesting and relevant as Keynesian economics is today. However I fear that it is often not presented as such. Take growth theory for example. Now in principle this is all about why some countries are rich and some poor, which should be attention grabbing. But if in practice it amounts to discussing whether the speed of catch up is consistent with the Solow model, it can appear rather irrelevant. With the Ramsey model, I suspect the question of whether the allocation is optimal was not quite what students really wanted to know when they started the course. And if you do not teach the RBC model as the way to explain the business cycle, there is not that much to get excited about.

The problem of lack of motivation is compounded by something that I think those teaching micro often fail to appreciate. Today graduate macro is intrinsically harder than micro. In terms of the techniques involved it is probably no more or less difficult, but what in my experience students find really hard is that everything we teach fits together. Yet until you have done everything it is difficult to understand why we choose to focus on some model features to discuss some issues, but on other aspects of the macroeconomy when talking about different issues. Motivation is useful when the subject is challenging.

Luckily I think recent events, and specifically the debates over how quickly to reduce government debt, have come to the rescue. how this year I was experimenting with starting the macro course with the two-period OLG model, instead of first developing the Ramsey model. This has a straightforward advantage, which is that students are familiar with the two-period consumption model from their undergraduate training, so we do not have to hit them with Hamiltonians quite so soon. However I think the main plus is that it allows us to focus on government debt and intergenerational equity right at the beginning of the course. There is an obvious interest among students in debt and intergenerational equity, but the crowding out effects of government debt on capital and therefore output in the simple two-period OLG model (with no wage income in the second period) are also dramatic. Almost certainly overstated as well, but better to start here than with a model where government debt does not matter at all!

We will see at the end of the year whether this turned out to be a good idea. Even if it is, I am still searching for the equivalent motivation when presenting the basic ideas behind flex price new open economy macro. What determines international competitiveness, its relationship to PPP, non-traded goods and home bias are all things students should know about, but I’m not sure it really grabs their attention. Any ideas will be gratefully received.

Our Fragile Intellect Gerald R. Crabtree

I would be willing to wager that if an average citizen from Athens of 1000 BC were to appear suddenly amongus, he or she would be among the brightest and most intellectually alive of our colleagues and companions. We
would be surprised by our time-visitor’s memory, broad range of ideas and clear-sighted view of important
issues. I would also guess that he or she would be among the most emotionally stable of our friends and
colleagues. I do not mean to imply something special about this time in history or the location, but would also
make this wager for the ancient inhabitants of Africa, Asia, India or the Americas of perhaps 2,000 to 6,000
years ago. I mean to say simply that we Homo sapiens may have changed as a species in the past several
thousand years and will use 3000 years to emphasize the potential rapidity of change and to provide a basis for
calculations, although dates between 2,000 and 6,000 years ago might suffice equally well. The argument that
I will make is that new developments in genetics, anthropology and neurobiology make a clear prediction about
our historical past as a species and our possible intellectual fate. The message is simple: our intellectual and
emotional abilities are genetically surprising fragile.
How many genes are required to carry out our everyday tasks, read a book, care for a loved one, conceive of a just law or compose a song? An accurate answer to these questions is critical to understanding our genetic fragility. The larger the number of genes required, the more susceptible we are as a species to random genetic
events that reduce our intellectual and emotional fitness. Recently the means to answering this question have
emerged from genetic studies and insights into the human genome. Several lines of evidence and classic as well  

as modern genetic studies have converged to indicate that the number of genes required for normal human
intelligence and abilities might be surprisingly large.
As biologists we commonly think in terms of traits controlled by single genes. Indeed, the one-gene oneprotein paradigm was a critical part of our education and the thought that one protein did one thing governed much of the thinking during the past 50 years. Hence, when I recently mentioned to a group of my colleagues that the average Greek of 1000 BC might be intellectually and emotionally superior to our average present day  colleagues they raised the objection that this was impossible because the most recent estimates of the frequency of random mutations in yeast is about 3.80 x 10-10 to 8.4 x 10-9 per-base-pair per generation1. Furthermore, the vast majority of these random mutations do not influence the function of a gene. Hence, if you imagine a small number of intelligence genes that control this trait, our abilities would not be affected during the course of 3000 years (100 to 150 generations). However, modern genetic studies in mammals are suggesting something very different than this simple analysis.
Perhaps the most effective way to estimate the number of genes in humans needed for full intellectual function
comes from studies of X-linked intellectual deficiency (XLID). Because there is but one X chromosome in
males, the affects of X chromosome mutations cannot be rescued or compensated by the second copy as for
other chromosomes. Present studies indicate that mutation of about 215 intellectual deficiency genes (ID
genes) on the X chromosome gives rise to XLID and/or emotional disability 2,3. Present estimates indicate that there are 818 human X chromosome protein-coding genes of a total of 19, 586 genes; taken from: (Vertebrate Gene Annotation version 35 [Vega v35; March 2009]; http://vega.sanger.ac.uk/index.html). Thus, this line of evidence indicates that about ¼ of genes on the human X chromosome are needed for full intellectual and emotional function. Of the 215 genes on the X chromosome that give rise to XLID when mutated 86 have been characterized and do not seem to be neomorphs (a gain of inappropriate function). If we derive our estimate from this group of characterized genes a more conservative estimate of about 10% of the genes on the X chromosome are necessary for normal intellectual and emotional function. Because mutation of any one of the genes gives rise to compromise, we can state that these genes do not operate as a robust network, but rather as links on a chain in which failure of any one of the links gives rise to deficiency. If the X chromosomal is not enriched for those required for intellectual development, there should be between 2,000 and 5,000 genes needed for intellectual and emotional function. The X chromosome does not appear to be enriched for ID genes as shown by the distribution of unmapped autosomal loci4. In addition, autosomal recessive mental retardation seems to be very heterogenous even within a genetically similar background indicating that it is due to mutations in many genes4,5. Many of these genes appear to function quite indirectly, such as Brm, one of two ATPase subunits of BAF chromatin regulatory complexes6. Although Brm would not normally be considered an intelligence gene or to contribute to the origins of abstract thought in humans, even minor point mutations give rise to mild to severe mental retardation in humans6. Brm and its homologue SWI2/Snf2 play critical roles in chromatin regulation in many species. A critical point is that a gene need not be human or brain specific in its function to be essential for our specific human intellectual abilities. A third estimate of the number of genes that function like links on a chain to support normal intellectual and emotional function can be made by assaying how frequently human genetic diseases in general have an intellectual deficiency component. This analysis is more difficult than it might seem but, a recent study of the OMIM database indicates that about ½ of  all human genetic diseases have a neurologic component7 frequently including some aspect of intellectual  deficiency. These figures are consistent with the rough estimate of 2,000 to 5,000 genes required for intellectual
and emotional function. With this estimate in hand we can revisit the calculations of how quickly our intellects
might change with a reduction in selection.
If the proper function of 2,000 to 5,000 genes are necessary for our intellectual ability, then in the simplest case the complex traits of emotional and intellectual fitness will drift with reduced selection at 2,000- to 5,000-times that of a trait specified by a single gene. Independent studies in humans using phenotypic methods have estimated that the germline suffers about one deleterious mutation per average protein-coding gene per 100,000 generations8-11. These are mostly point mutations that lead to compromise of gene function without totally inactivating it. Recently, direct sequencing of parents and their children have found about 35 to 50 new mutations per genome per generation8, or about 5,000 new mutations in the past 3000 years (120 generations).
Of these germ-line mutations only a small fraction (less than 1%) will be harmful and some vanishingly small
fraction will increase fitness. Thus direct sequencing as well as phenotypic analysis indicates that the germline
suffers at least one deleterious mutation per average protein-coding gene per 100,000 generations8-11. If indeed 2,000 to 5,000 genes are necessary for our intellectual and emotional stability then about one child in 20 to 50 should suffer a new mutation effecting intellectual function. Another way to state the same information is that every twenty to fifty generations we should sustain a deleterious mutation. Within 3000 years or about 120 generations we have all very likely sustained two or more mutations harmful to our intellectual or emotional stability.
A test of this estimated frequency of deleterious heterozygous mutations was recently published12. A survey of 185 human genomes contained on average about 100 heterozygous mutations predicted to produce a loss of function. Remarkably, about 20 of these were found to be homozygous. Often these mutations were in genes such as olfactory receptors that seem less important in humans and may be deteriorating due to lack of
selection. This estimate was made on the basis of exon sequences and hence would miss regulatory mutations that are much more difficult to predict. Hence, it represents an underestimate of the number of deleterious mutations in current human genomes derived from different human populations with different migration routes in the past 50,000 years. The number of mutations that lead to intellectual deficiency can be derived from examination of the frequency of mental retardation in the children of consanguineous marriages. If our genomes were free of such heterozygous mutations, there would be no tendency for mental retardation to occur in children of consanguineous marriages. Needless to say this is not the case. For reasons mentioned below the best estimates are derived from 1st degree consanguinity, for which there is relatively little information.
However, incidental reports indicate that 1st degree consanguinity (in which ¼ of the genome is reduced to
homozygosity) leads to mental retardation in about ¼ to ½ of off spring13 and lesser degrees of consanguinity to lower frequencies5. These figures are roughly consistent with the estimate of 2 or 3 deleterious heterozygous ID mutations per genome. However, heterozygous mutations (effecting only one copy) are generally not considered likely to produce a problem without reduction to homozygosity by consanguinity or random chance.
But new discoveries indicate that the human nervous system is uniquely susceptible to heterozygousity.
Recently Gage and colleagues have reported14 that Line 1 repetitive elements in humans transpose and appear to lead to gene inactivation in neurons. The somatic origin of these transpositions was demonstrated by direct sequencing of different brain regions by Faulkner and colleagues15, who found that other repetitive elements could also transpose and insert into or control critical neurodevelopmental genes. Indeed they have a strong tendency to insert into coding regions and these insertions lead to transcriptional interruption16. Thus, even if they insert into a long intron they can be damaging. Over 7000 L1 insertions were detected in three individuals.
The Line 1 insertions occur in neural stem cells and lead to clones of neurons with specific insertion sites. Gage and colleagues estimate that each neuron sustains about 80 Line 1 insertions, indicating that most neurons would have a number of genes whose activity could potentially be affected. These could be beneficial and lead to greater diversity, but this seems less likely based on the prior work of Boeke and colleagues16. Transposon inactivation would not be a problem if we were dealing with a single or small number of intelligence genes, rather than several thousand that could lose function in a specific brain region. By random L1 insertion heterozygosity is transformed to homozygous loss of function in a clone of neural stem cells and a focal defect in the brain. L1 insertions do not occur randomly, but rather target transcribed genes indicating that they have a high probability of inactivating a gene, and indeed insertion sites in ID genes have already been documented15.
Thus, if one were heterozygous for a gene involved in formulating speech, and this gene were lost in some of
the neural progenitors for the speech regions, one would expect a specific loss of speech function, even if this
gene were used for other essential embryonic processes (see below). Many neurons with deleterious insertions might be eliminated by their failure to form effective neural circuits, which could lower their impact on neural functions. One could argue that anything that occurs in Nature must be good for us, but this line of reasoning is quite incorrect. More species have become extinct by natural means than are presently present on our planet and internal parasites could be quite harmful. A practical implication of these studies is that identical twins will be non-identical genetically in neuronal subpopulations and hence the contribution of genetic factors will be underestimated in classic identical twin studies. It is also worth noting that the number of genes that could comprise intellectual function by this means would be much larger than that estimated by the analysis of the Xchromosome, because even embryonic lethal mutations could be inactivated by insertion of mobile elements such as Line 1 transposons. Another less obvious consequence is that that this route to homozygosity will make intellectual ability less heritable. The consequence is that selective pressure must be higher to maintain neurologic traits in general. This makes the job of maintaining the 2,000 to 5,000 genes in good working order even more difficult. The simple lesson is that as a species we are almost certainly more susceptible to heterozygous inactivation of ID genes than we had previously understood.
Another route to homozygous inactivation (removing or altering both gene copies) in individuals already
bearing a germline mutation in one allele of the estimated 2,000 to 5,000 genes required for intellectual fitness
is a feature of the nervous system that has recently come to light. For reasons that are unclear apparently
between 10 and 50% of human neurons are aneuploid, i.e. have chromosomal abnormalities that lead to breaks, losses and duplications of genetic material17. Again, it appears that aneuploidly might originate in neural stem cells18 and hence be clonal, thereby resulting in a focal loss of function in a specific region of the brain.
Furthermore, neurons with aneuploid genomes form genetically mosaic neural circuitries as part of the normal
organization of the mammalian brain19. Aneuploidy of chromosome 21 is of course the basis of Down
Syndrome, which is accompanied by a reduction in intellectual function and illustrates the effect of alterations
in gene copy number. Copy number variation appears to have a role in several neurologic diseases20 including autism21, which for uncertain reasons has become more common in recent years22. However, the apparent
recent increase in incidence of autism may simply be due to greater awareness of the condition and in any event would probably not be impacted by the rate of mutation accumulation within a 50-year period. The above two arguments suggest that focal loss of heterozygousity might be an underlying feature of neurologic diseases that would be difficult to detect by present day genome sequencing approaches designed to find the genes at fault in human disease. In order to detect focal loss of heterozygousity, neurons from many regions of the brain would need to be sampled and their DNA sequenced. Aneuoploidly and transposon insertion are non-germline routes to homozygous inactivation of a gene and are the reason that 1st degree consanguinity gives the best estimate of the frequency of heterozygous mutations in the human genome. As is the case with transposon inactivation of genes, clonal aneuoploidly would lead to misinterpretation of studies with identical twins causing one to underestimate the genetic contribution to intellectual or emotional traits. As with retrotransposon insertion, focal aneuploidly would also reduce heritability of neurologic traits, making them more difficult to maintain by selection.
A third and perhaps even more likely way that inactivation of one of the two copies of an ID gene could be
damaging is through compound heterozygosity. The calculations mentioned above and recent population
genome sequencing studies8 suggest that most of us are heterozygous for two or more of the 2,000-5,000 genes that appear to be required for intellectual function. This brings up the complex issue of cooperativity between the ID genes. Presently, there are not easy ways of defining gene pairs that lead to reduced function when one allele of both genes is defective. Heterozygous inactivation of two or more genes encoding proteins within the same biochemical pathway, genetic circuit or protein complex is known to produce reduced function. One recent example is that human intellectual deficiency is produce by mutation of at least six subunits of nBAF complexes6,23,24, which are large ATP-dependent chromatin remodeling complexes found in a specialized assembly in the nervous system25. It seems quite likely that compound heterozygousity of genes encoding subunits within these complexes would reduce intellectual fitness, and indeed this is the case for nBAF subunits24. In general, it is quite difficult to know if loss of one allele in, for example an enzyme removing a neurotoxic intermediate would exaggerate or lead to defects in an individual heterozygous for a gene required for dendritic morphogenesis. These considerations make human genetic studies designed to find the genes at fault in human cognitive disorders quite difficult, yet double- or compound-heterozygosity would almost certainly contribute to reduced function among the estimated 2,000 to 5,000 genes required for full intellectual and emotional function. One could argue that this group of genes operates as a robust network, however this can not be the case since the criteria used for selecting these genes is that inactivation of any one of the 2,000 to 5,000 leads to reduced function, demonstrating that they function like links on a chain rather than a robust, failsafe network. Reduced function due to double- or compound-heterozygousity may be expected to operate exponentially over time as deleterous heterozygous mutations accumulate in our genome at a linear rate.If we are losing emotional and intellectual traits, how did we get them in the first place? Needless to say this is one of the most important questions of modern anthropology and the subject of much investigation and debate.
I can only speculate, but it seems necessary and also just plain fun to step outside my comfort zone and
comment. One clear fact is that the expansion of the human frontal cortex and endocranial volume (Fig 1),
which is thought to have given humanity our capacity for abstract thought occurred about 50,000 and 500,000 years ago26 27 in our pre historic African ancestors. These ancestors did not have a written language and for most of their history probably did not have much of a verbal language26,28. They also did not have organized agriculture that permitted life at high density in cities and societies. Thus, the selective pressures that gave us our capacity for abstract thought and human mental characteristics operated among hunter-gathers living in dispersed bands, nothing like our present day high-density, supportive societies. It is also seems clear that both written and verbal language first appeared well after endocranial expansion (Fig 1) and hence could not have been a driving force to acheive our present brain size (blue area in Fig 1) about 50,000 years ago. Furthermore, it seems that our intellectual capacity has not changed very much in the last 50,000 years since our African ancestors began their migrations. How do we know this? Because the societies with different migration routes that experienced quite different environments seem to have near identical intellectual capacities. For example,written language was independently invented by the group with the longest migration path as hunter gathers:
the Indians of Middle and South American and also independently by the people with the one of the shortest
migration paths and the earliest cities: Sumerians, in what would now be Iraq. In addition, whether a migration group lived a high density city-life made possible by agriculture or as dispersed hunter gathers did not greatly influence their intellectual development. If we are to understand how 2,000 to 5,000 genes were optimized for abstract thought to produce our present abilities we almost certainly have to look to this period 50,000 to 500,000 years ago and to ancestors common to all humans on earth today. Yet somehow the selective pressures that allowed survival as dispersed hunter gatherers led to the evolution of a brain capable of writing symphonies and performing higher mathematics. Almost certainly our present day abilities are a collateral effect of being selected for more fundamental tasks. Because it seems
clear that we developed the ability for abstract thought by being selected for abstract thought, it must be that life as a dispersed hunter-gather was more intellectually demanding than we would commonly think. The fact
that the expansion of the frontal cortex and with it the capability for abstract thought was driven by evolution
forces that appear to have operated before the development of verbal or written language (Fig 1) might
seem an affront to people like myself that make our living by writing and speaking. We seem to be forced to
the conclusion that life as a hunter gather required at least as much abstract thought as operating successfully
in our present society. We know that most of our ancestors lived the dispersed hunter gather life until
about 5- to 10-thousand years ago, when the invention of agriculture lead to our high density societies, written language and to a life style something like what we have
today. Regardless of how we have lived since we began
our migrations: hunter-gather or cosmopolitan, we are
intellectually about the same. Surprisingly, it seems that
if one is a good architect, mathematician or banker, these
skills were an offshoot of the evolutionary perfection of
skills leading to our ancestor's survival as nonverbal,
dispersed hunter-gathers.
To understand the extremes of selection that must have
occurred when our ancestors went from using speed,
strength and agility to survive and began to survive by
using thought, we have to consider the difficulty of optimizing 2,000 to 5,000 genes. For the reasons mentioned
above it seems that retrotransposon insertion and aneuploidy of neurons substantially reduce heritability of
neuronal traits. Without going into the mathematics, when heritability of a trait is reduced, the selective
pressure required to maintain the trait is increased. In addition, one would need to sum the selective pressure
for each of the genes operating independently to produce the trait. Thus, extraordinary selective pressure was
necessary to optimize and maintain such a large group of intelligence genes. This optimization probably
occurred in a world where every individual was exposed to nature’s raw selective mechanisms on a daily basis.
In the transition to surviving by thinking most people (our non-ancestors) probably died simply due to errors of
judgment or a lack of an intuitive, non-verbal comprehension of things such as the aerodynamics and
gyroscopic stabilization of a spear while hunting a large dangerous animal.
Figure 1. Expansion of endocranial volume during the past 2.5 million years among Homo Sapiens ancestors. Modified from R.G. Klein (ref 24). Notethat language follows the expansion.
One might think that our modern abilities could not have originated from a time 50,000 to 500,000 years ago
and selection based on hunter-gather abilities. We think of the common hunter-gather abilities as crude and
unrefined and not intellectually challenging, how could our modern abilities be an offshoot of being selected in
this way? It seems that the field of artificial intelligence may be making a significant contribution to this
question. When this field was first born several decades ago, it promised household robots that would do all
our daily tasks: cook meals; take the dishes off the table, wash them and put them away; mow the lawn; fix that leaky rain gutter, repair a child’s toy and bring us freshly cooked croissants and coffee in the morning.
Needless to say we do not have these robots now and none of the readers of this piece will probably ever benefit from such a household robot. (Although one AI expert I consulted said computers might have this kind of computational power in 10 years). This is true even though such a robot would have the commercial value of the world’s automotive industry and hence there is immense impetus to design them. Paradoxically, things that we consider intellectual, such as playing chess, winning at Jeopardy, flying a jet plane or driving a car are fairly straightforward for a computer and do not require even a small fraction of the computational power required for common human actions. The point is that selection could easily have operated on common (but computationally complex) tasks, like building shelter, with the result of allowing us to do more computationally simple tasks, like playing chess. Indeed, mutation of any one of 2,000 to 5,000 genes prevents us from effectively doing these common everyday tasks and selection for the ability to perform them would tend to optimize the function of the entire group of genes. But, as mentioned above the selective pressure would have to be remarkable.
When might we have begun to loss these abilities? Most likely we started our slide with the invention of
agriculture, which enabled high density living in cites. Selective pressure was then turned to resistance to
diseases that naturally grow out of high density, urban living. A principal of genetics is that when one selects
highly for one trait (such as resistance to infectious disease) other traits are inadvertently selected against. It is
also quite likely that the need for intelligence was reduced as we began to live in supportive, high-density cities that made up for lapses of judgment or failure of comprehension. Community life would, I believe tend to reduce the selective pressure placed on every individual, every day of their life; indeed that's why I prefer to livein such a society.
Several considerations could mitigate the validity of the argument that intellectual and emotional fitness are
slowly decaying. The most significant is the assumption that modern society has reduced selective pressure for intellectual fitness. Even if one agrees with the assumption that selection for intellectual fitness has decreased,selective pressure for the genes required for intellectual and emotional function could originate from other sources. Probably the most significant is that genes used for intellectual development could be needed for early development or even fertility. Indeed, this is true of some of the genes required for diverse cellular functions where retardation or emotional compromise is found only with alleles that partially impair the function of the gene. An estimate of the frequency with which XLID genes are also required for other functions can be derived from the observation that about ½ of XLID patients have syndromes that suggest these genes are used in the development or function of other tissues or organs. However, these other syndromic features appear not to be lethal and many do not impair reproduction, hence, there would be little limit on the ability of these genes to be prevalent in the human population without selection. The estimate that 215 of 818 genes on the X chromosome are required for intellectual function accounts for the possible use of these genes in early development, because these estimates are derived from viable individuals. While multiple usage of genes could slow the rate of accumulation of mutations in intellectual fitness genes, if the estimate of the number of genes required is correct, and the rate of accumulation of deleterious mutations is correct and selection only slightly relaxed, then one would still conclude that nearly all of us are compromised compared to our ancient ancestors of Asia, Africa, Europe and the Americas of say 3,000 to 6,000 years ago.

Another common counter argument to the possibility that we are losing our intellectual fitness raised by my
colleagues is that we are under constant selection for our intellectual traits. Presumably, musical ability,
employment and emotional stability may all have mating advantages that would reduce the rate at which
mutations that affect these traits become fixed in our genome. This argument is clearly correct, but I fear does
not take into account the extreme selection that must operate to maintain traits dependent upon thousands of
genes in the face of relatively low heritability of the traits due to non-germline inactivation operating within the
group of genes. Needless to say a hunter gather that did not correctly conceive a solution to providing food or shelter probably died along with their progeny, while a modern Wall Street executive that made a similar
conceptual mistake would receive a substantial bonus.
Yet another, less compelling counter argument goes like this: Our generation has an intricate written language,
uses computers, drives cars, designs space crafts, and plays chess; which the ancients of several thousand years ago did not. Hence, we must be smarter than they were. This argument presumes that operating a computer or playing chess is more complex that building a house, farming, surviving in the jungle or washing the dishes and putting them away. However, as mentioned above our nervous system evolved until recently to do common, but computation complex task very well, hence none of our modern abilities are different than just a retrofit of modes of thought that we have been selected to do as hunter gathers until the very recent invention of fa rming.
Furthermore, the faults in this argument are easily revealed by the fact that an inexpensive hand-held computer can beat all but the best chess players in the world. In addition, relatively little computational power is needed for flying a plane or driving a car. In contrast, the computational complexity of many common practical tasks is revealed by the immense difficultly of building a computer that could direct a household robot to do whathumans do very well. Although obvious, the frequently drawn analogy between a computer and a brain is not  a very good one. Among other differences, our nervous system has far more computational units than any existing computer, operates in analogue mode(s) and is electrochemical in nature. Humans play chess and accomplish other tasks using different strategies than computers. Nevertheless, the difficulty of reproducing human tasks is one measure of how computationally complex a given task might be and what its intrinsic value might be. This is not to negate in anyway rare intellectual skills that are very valuable to society.
In addition to common house hold tasks another example of a very difficult computational problem that humans do very well is the game Foldit, in which players use their spatial intuition to predict protein structures29. Foldit has been described as resembling a Rubix cube with a thousand faces. Yet humans beat supercomputers at  this game much in the same way that we can take the dishes off the table, wash them and put them away better than a supercomputer. Almost certainly we are very good at Foldit, because the game uses spatial reasoning and skills that were perfected and selected for in our non-verbal, hunter-gather ancestors 50,000 to 500,000 year ago. In contrast humans are bad chess players, probably because our brains were not selected for this kind of game designed to perfect skills for organized warfare. Organized warfare, being a communal activity was not invented till after our brains had undergone nearly all evolutionary selection, at a time when it was too late to perfect chess-playing (or warfare) abilities. As a result we are rather poor warriors, but we are excellent at spatial reasoning critical to Foldit, building shelter and other common tasks. If we had survived for the past million years based on our chess-playing skills we would almost certainly play a master game in far less than one second. Indeed, the only way the game could be made challenging would be to have a 1000 pieces, that could each make a dozen or more different moves. In other words a chess board would look like a table full  dirty dishes that needed to be washed and put away: a truly massive intellectual exercise, which should not be diminished by the fact that many of us can do it. It seems too obvious to state, but the tautology applies: our brains are good at the things they have been selected to be good at. Many kinds of modern refined intellectual activity (that our children are judged by) may not necessarily require more innovation, synthesis and creativity than more ancient forms. Inventing a bow-and-arrow, which seems to have occurred once about 40,000 years ago was probably as complex an intellectual task as inventing language or coming up with the theory of relativity. Our intellectual abilities were highly selected at immense human expense to accomplish seemingly common tasks that require the perfected actions of 2,000 to 5,000 genes.
If the above argument is correct one would predict that individuals in undisturbed hunter gather societies wouldbe more intellectually capable than those of us in more modern, urban, distributive societies. Certainly, Jered Diamond, who has spent his career of 50 years among one of the few remaining such societies feels that this is the case, but also acknowledges the difficulty with testing the idea. Because, all remaining hunter gather
societies are restricted geographically, they have higher frequencies of reduction of heterozygous mutations to
homozygousity, which as mentioned above is a particular concern when large numbers of genes are at issue.
The hypothesis that genes critical to intellectual
function are decaying could be tested by a form of
genetic triangulation (Fig 2). The sequences of
genomes of many individuals whose last common
ancestors spanned the period from present day to
5,000 years ago should produce an estimate of the
rapidity of change and the level of selection
operating on these genomes at various timeintervals
during this 5,000-year period. Five
thousand years would probably be an adequate
interval since it would span the invention of
agriculture for several population groups, which
enabled high density living in cities and the shift
to selection for resistance to infection. To obtain
the required fineness and discrimination, many
genomes would need to be sequenced. If we
focus on the interval between 5,000 years ago and
present day, we would need 100 genome
sequences for a 50-year fineness map. Since each
generation produces 2,000-4,000 signature new
mutations these could guide the temporal
ordering. If the genes that control our intellectual
development act like links on a chain, only one
conservative mutation in any of 2,000 to 5,000 genes would diminish our intellectual abilities and also be
difficult to detect with certainty. Because mutations that control the evolution of specific characteristics have
often been found in regulatory rather than coding regions, full genome sequences would need to be determined.
In addition, many of the mutations would almost certainly produce weak alleles that might erode our abilities in
subtle ways. However, as a first pass an examination of the coding regions of XLID genes and those from the
OMIM data base having ID phenotypes as well as memory and learning genes from other organisms would be a
good place to begin and give estimates of the rate of emergence of alleles that might be deleterious in this large
set of genes. I would very happy to learn from this test that there is no substance to my argument.
If on the other hand such a study found accelerating rates of accumulation of deleterious alleles in the past
several thousand years then we would have to think about these issues more seriously. But we would not have to think too fast. One does not need to imagine a day when we might no longer be able to comprehend theproblem or the means to do anything about the slow decay in the genes underlying our intellectual fitness. Nor do we need to have visions of the world’s population docilely watching reruns on televisions that they can no longer understand or build. It is exceedingly unlikely that one hundred or two hundred years will make any difference at the rate of change that might be occurring. Remarkably, it seems that while our genomes are
Fig 2. Genetic triangulation to measure rate of change of ID
genes over the past 5000 years based on genome sequences of
present day individuals with last common ancestors separated
by specific times, Δt. (500 years in this case for illustration).
The bar at the top indicates the transition from hunter-gather
to a more high-density life style when selection based on
resistance to infection might begin to dominate.
fragile and built like a chain with many links, our society is robust almost entirely by virtue of education, which allows strengths to be rapidly distributed to all members. The sciences have come so far in the past hundred years that we can safely predict that the accelerating rate of knowledge accumulation within our intellectually
robust society will lead to the solution of this potentially very difficult problem by socially and morally
acceptable means.

FAber Marc Faber!!!!

Marc FABER
Many analyst says he is the most outspoken guy and he should not be taken seriously but he was there in Hong kong who is a asian resident now. But when you get  great presentations from the biggest players in gold and silver at the annual London Bullion Market Association conference.

"When the People's Bank speaks it pays to listen," as Tom Kendall of Credit Suisse put it in his conference summary.
"Especially when it talks about gold."

But the star of the show, at least by popular vote at Tuesday's close, was Swiss ex-pat and long-time Asian resident, Marc Faber (pictured).
If you know his work, you can guess his theme - what doom and gloom mean for the boom in gold. Starting, of course, with the unintended consequences of constant government meddling.

Follow up:

"Continuous interventions by governments with fiscal and monetary measures, instead of smoothing the business cycle, have actually led to greater instability. The short-term fixes of the New-Keynesians have had a very negative impact, particularly in the United States."

Faber's big beef is with US Federal Reserve chairman Ben Bernanke. But "numerous Fed members make Mr. Bernanke look like a hawk," he said.  Nor does it matter who is running the White House, because, thanks to welfare and military budgets, "spending is out of control, tax is low, and most spending is mandatory."
So Federal Reserve policy is inevitable, Faber went on, and while we haven't yet got the negative interest rates demanded by Fed member Janet Yellen, we have got negative real interest rates. The US and the West had sub-inflation interest rates in the 1970s too, and we got a boom in commodity prices then as well. But with exchange controls now missing from the developed world, "One important point," said Marc Faber:
"Ben Bernanke can drop as many Dollar bills as he likes into this room," he told the LBMA conference in Hong Kong,

"but what he doesn't know is what we will do with them. His helicopter drop will not lead to an even increase in all prices. Sometimes it will be commodities, sometimes precious metals, collectibles, wages or financial assets. [More importantly], the doors to this room are not locked. And so money flows out and has an impact elsewhere - not in this room."

That elsewhere has of course been emerging Asia, most notably China (see our video pick of the Top 5 Slides from LBMA 2012 on YouTube for more).  But back home, these negative interest rates are forcing people to speculate, to do something with the money, said Faber.
These rates are artificially low, well below the 200-year average.
That's doing horrible things to the United States' domestic savings and, therefore, capital investment. "You don't become rich by consuming.  You need capital formation," said Marc Faber.  Unlike investing in a factory to earn profits and repay your loan,  "Consumer credit is totally different. You spend it once, and you have merely advanced expenditure from the future."

So far, so typical for the doom-n-gloomster. Noting total US debt at 379% of GDP, "if we included the unfunded liabilities then this chart would jump to the fifth floor of this hotel!" said Faber, waving his red laser pointer at the ceiling. After the private sector "responded rationally" to the runaway credit growth of 20% by collapsing credit in 2007-2009, the US government stepped in to take over - and "Government credit is the most unproductive credit of all."
In short, the easy money and bail-outs which got us here - from the Fed's rescue of Goldman Sachs during the early '80s Tequila Crisis in Mexican debt, through LTCM in the late '90s and then the Tech Stock boom and bust - have had serious consequences. "Bubbles are a disaster from a social point of view," said Faber. Looking at his charts of the generational shift in wealth, it would take a Fed voting member to disagree.
"Only at the Federal Reserve they don't eat or drive!" exclaimed Faber as he turned on the central bank's inflation target, produced by "the Ministry of Truth, the Bureau of Labor Studies. It is a complete fraud." But even as the United States' persistently mistaken policies lead to the emerging powers side-stepping it ("We are in a new world. China's exports to commodity-producing countries - such as Australia and Brazil - are greater than its exports to the United States. Exports from South Korea to commodity-exporting countries are greater than its exports to the US and Europe combined!"), there will come a slowdown in commodity demand and leveling off in prices in time.
"I would rather be long precious metals than industrial commodities," said Marc Faber.
Which was of course what most people at the LBMA conference wanted to hear. Less welcome was his warning not to hold gold in the United States or even Switzerland. Because "if gold is owned by a minority, then in a crisis the government will take it away." But even Faber said that some of his 25% personal allocation to precious metals is still in his home country, rather than in Asia where he's lived for almost 30 years.
Once the deflationary collapse finally arrives (the impossible question is knowing when, said Faber), there will be great opportunities in real and productive assets. But until then, and as for the Gold Price ahead, "Gold is not anywhere close to a bubble stage," he concluded. And every time he thinks about selling to take profit?

"I keep in my toilet a picture of Mr. Bernanke. And every time I think about selling my gold, I look at it and I know better!"

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

MAP

I would like to appreciate all the visitors who take some time out of their busy life and read , my advice would be that all of you should also read the previous (earlier) posts , some of them are not technical neither mechanical if you read from the beginning  . The blog was not dedicated to Economics or finance initially coz when I started i was a graduating engineer ( interested in markets also)  and had a serious heartbreak (which is kind of obvious from some earlier posts )but gradually i became very keen in financial markets and invested a lot of time trying to understand and make sense, i will be learning all my life and each passing moment try to teach everyone a lot, its like osmosis (process of learning).
I would always try to bring in interesting relevant topics with my views and the all international thinkers , the contents will broadly be finance and economics but some time from here and there you will get a light topic.
And read the previous topics also for sure it would not be a waste of time. 

Luke johnson ride rich

One of the ways financiers make money is doing a “roll-up”: a series of horizontal acquisitions in a fragmented industry. Typically these are industrial sectors that are obscure, unloved and overlooked. I first saw this technique in action among various listed companies I researched as a stockbroking analyst in the 1980s. For example, a series of companies sprang up that consolidated funeral homes, including Kenyon Securities, Hodgson Holdings and Great Southern Group. They rationalised the use of hearses and crematoria, saved money on administration and marketing, and arbitraged the different earnings multiples between private and public companies. I have been involved as a principal in roll-ups in healthcare, recruitment, food distribution, financial and marketing services. All did well investors, which is fairly remarkable in itself. Of course, not every transaction worked – after all, between the various companies we probably executed more than 50 mergers. I haven’t performed a rigorous analysis, but I suspect at least one in eight deals destroyed rather than generated value. But there were decent returns overall. A roll-up should possess certain features if it is to succeed. First, the industry in question should not be consolidated; there must be plenty of small family-run companies to buy. The sector must not be so niche that monopoly concerns arise. Second, the businesses to be acquired should be available cheaply – ideally on profit multiples of three or four. Third, the buying vehicle should develop an effective formula for finding, negotiating and integrating acquisitions. Fourth, the acquirer must have the wherewithal to carry out the deals – cash and/or shares that vendors will accept. Finally, the enlarged group should be able to achieve savings and economies of scale, be it through buying, distribution or administration. There are plenty of pitfalls, because buying companies is a risky undertaking. One can simply pay too much, or rush deals and do insufficient due diligence. Other cases suffer from culture clashes, or earn-out structures that unravel badly. Frequently the purchased companies are not amalgamated, so the supposed advantages of the whole exercise are lost. And if the cash for acquisitions is borrowed and the acquired companies don’t deliver, the buyer can breach covenants with the bank and end up bust. I once made the mistake of buying into a roll-up that had gone wrong. It looked cheap. In fact it was a wasteland of debt, disgruntled ex-owners, litigation, subsidiaries that had not been integrated and vendors limbering up to compete with their old businesses. Unlike an organically grown business, it was a jumble of hastily assembled operations with little logic and even less direction or soul. Purely financial constructs like that rarely succeed: there needs to be an underlying coherence and rationale. The American master of roll-ups is probably the Floridian entrepreneur Wayne Huizenga. He co-founded Waste Management, Blockbuster Video and AutoNation. By targeting garbage collection, video rental and car retailing, he found three unglamorous industries with no dominant businesses. He was able to use highly rated quoted paper to absorb smaller rivals on lower multiples, thereby enhancing earnings. But he appears to have lost his magic touch: the shares of Swisher Hygiene, There have been fewer buy-and-build ventures in recent years. Many markets are now dominated by a handful of big organisations, with little opportunity to acquire family companies at fair prices. Many of the public companies using this strategy failed, so private equity firms have taken the lead. They initially back a “platform” company and then add bolt-on acquisitions. However, it is much harder to find immature sectors where the right improvements are to be found from merger sprees. Roll-ups work if there is a genuine operational formula that can be applied to the acquired companies, and duplicate overhead costs that can be eliminated. Accomplishing this requires expert leaders who focus on identifying the right partner companies, merging them properly, while resisting the temptation to get carried away.

 this article is by luke johnson FT
lukej@riskcapitalpartners.co.uk