From Zero Hedge:
Yesterday we had the first case study of what happens in a hyperinflation, when we noted that the local central bank had just hiked interest rates from 22% to 27%. Net result for the economy? Zero. Today is case study #2 where we learn what happens to an imploding economy which happens to be surrounded by friendly neighbors who just happen to find themselves in a massive arbitrage courtesy of a currency that is losing multiples of its value on a monthly if not daily basis. Per Bloomberg: "Belarus’s supermarkets are running out of meat as Russians take advantage of a currency crisis that a devaluation and the world’s highest borrowing costs have failed to stem. “All meat has gone to Russia,” Alexander Andreyevich, an 82-year-old former tractor-plant worker, said Aug. 25 in Minsk, the capital. “My relatives near the Russian border called me a few days ago and said the shops are empty."..."Private stall owners simply go and buy meat from state- owned vendors and sell it a couple of steps away for a hefty profit,"Deputy Agriculture and Food Minister Vasily Pavlovsky told reporters in Minsk Aug. 24. The government banned individuals in June from taking basic consumer goods such as home appliances, food and gasoline out of the country. Russians, buoyed by the removal of border checkpoints July 1 as part of a customs union, have circumvented the restrictions." Funny- if the locals had preserved their purchasing power by holding their money in gold, they would not find themselves in a position where those who still have a stable fiat exchange rate (for the time being) can literally steal products from under their noses for a paltry sum as sellers scramble to converts products into some currency before it is devalued even more tomorrow.
http://www.zerohedge.com/news/belarus-hyperinflation-update-food-runs-out-friendly-foreigners-take-advantage-favorable-exchan
Wednesday, August 31, 2011
Sunday, August 28, 2011
Economics Professor Robert Gordon: Significant Job Losses Due To Management Cutting Pie To Maintain Share Prices and the Double Hangover
From VoxEU:
The US is missing millions of jobs. This column argues that the total is 10.4 million. It claims that 3 million of these can be traced to the weakened bargaining position of labour and the growing assertiveness of management in slashing costs to maintain share prices. Moreover, this employment gap is not shrinking because of the ‘double hangover’ effect—an excess housing supply and besieged consumers unwilling to spend.
http://www.voxeu.org/index.php?q=node/6896
The US is missing millions of jobs. This column argues that the total is 10.4 million. It claims that 3 million of these can be traced to the weakened bargaining position of labour and the growing assertiveness of management in slashing costs to maintain share prices. Moreover, this employment gap is not shrinking because of the ‘double hangover’ effect—an excess housing supply and besieged consumers unwilling to spend.
http://www.voxeu.org/index.php?q=node/6896
Noam Chomsky: Causes and Consequences of American Decline
From Al-Akhbar:
In the 2011 summer issue of the journal of the American Academy of Political Science, we read that it is “a common theme” that the United States, which “only a few years ago was hailed to stride the world as a colossus with unparalleled power and unmatched appeal – is in decline, ominously facing the prospect of its final decay.” It is indeed a common theme, widely believed, and with some reason. But an appraisal of US foreign policy and influence abroad and the strength of its domestic economy and political institutions at home suggests that a number of qualifications are in order. To begin with, the decline has in fact been proceeding since the high point of US power shortly after World War II, and the remarkable rhetoric of the several years of triumphalism in the 1990s was mostly self-delusion. Furthermore, the commonly drawn corollary – that power will shift to China and India – is highly dubious. They are poor countries with severe internal problems. The world is surely becoming more diverse, but despite America’s decline, in the foreseeable future there is no competitor for global hegemonic power.
http://english.al-akhbar.com/content/american-decline-causes-and-consequences
In the 2011 summer issue of the journal of the American Academy of Political Science, we read that it is “a common theme” that the United States, which “only a few years ago was hailed to stride the world as a colossus with unparalleled power and unmatched appeal – is in decline, ominously facing the prospect of its final decay.” It is indeed a common theme, widely believed, and with some reason. But an appraisal of US foreign policy and influence abroad and the strength of its domestic economy and political institutions at home suggests that a number of qualifications are in order. To begin with, the decline has in fact been proceeding since the high point of US power shortly after World War II, and the remarkable rhetoric of the several years of triumphalism in the 1990s was mostly self-delusion. Furthermore, the commonly drawn corollary – that power will shift to China and India – is highly dubious. They are poor countries with severe internal problems. The world is surely becoming more diverse, but despite America’s decline, in the foreseeable future there is no competitor for global hegemonic power.
http://english.al-akhbar.com/content/american-decline-causes-and-consequences
One Key Difference between 2008 and 2011
From Zero Hedge:
there is one key difference between 2008 and 2011. Bill Buckler, in the latest edition of his Privateer, demonstrates what it is...
There were two financial assets which boomed in late 2008. One was Treasury debt, the other was the US Dollar. While Gold and everything else was falling out of bed, the trade-weighted US Dollar index - the USDX - soared 21 percent from 73 to 88.2 between early August and late November 2008.
Compare that to what is happening now. Treasuries are soaring but the US Dollar is, at best, flat. And Gold in terms of EVERY major paper currency has gone ballistic. This time, things do look different.
http://www.zerohedge.com/news/it-may-be-2008-all-over-again-there-one-key-difference
there is one key difference between 2008 and 2011. Bill Buckler, in the latest edition of his Privateer, demonstrates what it is...
There were two financial assets which boomed in late 2008. One was Treasury debt, the other was the US Dollar. While Gold and everything else was falling out of bed, the trade-weighted US Dollar index - the USDX - soared 21 percent from 73 to 88.2 between early August and late November 2008.
Compare that to what is happening now. Treasuries are soaring but the US Dollar is, at best, flat. And Gold in terms of EVERY major paper currency has gone ballistic. This time, things do look different.
http://www.zerohedge.com/news/it-may-be-2008-all-over-again-there-one-key-difference
Saturday, August 27, 2011
The Heart of the Matter: What Caused the Mess in the U.S.
We understand why the U.S economy is doomed and what has caused this. The following post over the Big Picture explains it well with some data points. Those who have visited my blog from Korea would know the implications of the declining U.S. economy: For instance, why Korea’s export engine is in trouble and Chaebol-centered economic growth model won’t be working.
From the Big Picture:
Some of the factors that have landed us in the mess we’re in have been building for decades, and there’s ample evidence on which to draw to demonstrate that fact. In looking at a few of these issues, I’ll draw on some charts I’ve presented both here and elsewhere before. A couple are replicated from this outstanding study in January’s Monthly Labor Review (MLR).
Let’s begin by referencing a recent piece by Stephen Roach that accurately assesses what’s really wrong with our current economy, summed up in one number:
The number is 0.2%. It is the average annualized growth of US consumer spending over the past 14 quarters – calculated in inflation-adjusted terms from the first quarter of 2008 to the second quarter of 2011. Never before in the post-World War II era have American consumers been so weak for so long. This one number encapsulates much of what is wrong today in the US – and in the global economy.
While Labor Share has recently plummeted to all-time lows since record keeping began, Median Household Income has stagnated for the past 12 years. In the last recession (2001), incomes had only begun to decline. I’m sure back then no one contemplated the possibility that the decline would last (certainly not for a decade), credit was still widely available and, as we know now, being freely tapped (see the PCE chart above for evidence of how normal consumer spending remained during that period). One decade later, Labor Share has collapsed, incomes have gone nowhere, and credit availability — to say nothing of consumers’ attitudes toward it — has all but vanished except for the most creditworthy.
We are now squarely face-to-face with the consequences of the decades long gutting of the middle class that was the backbone of our economy for so long. Without taking some solid, clearly-defined steps, the middle class will undoubtedly move from an endangered species to extinction. The tipping point may already have been passed and, even if it hasn’t, I’m still not optimistic there’s any interest in D.C. to make the requisite policy changes.
http://www.ritholtz.com/blog/2011/08/the-heart-of-the-matter/
From the Big Picture:
Some of the factors that have landed us in the mess we’re in have been building for decades, and there’s ample evidence on which to draw to demonstrate that fact. In looking at a few of these issues, I’ll draw on some charts I’ve presented both here and elsewhere before. A couple are replicated from this outstanding study in January’s Monthly Labor Review (MLR).
Let’s begin by referencing a recent piece by Stephen Roach that accurately assesses what’s really wrong with our current economy, summed up in one number:
The number is 0.2%. It is the average annualized growth of US consumer spending over the past 14 quarters – calculated in inflation-adjusted terms from the first quarter of 2008 to the second quarter of 2011. Never before in the post-World War II era have American consumers been so weak for so long. This one number encapsulates much of what is wrong today in the US – and in the global economy.
While Labor Share has recently plummeted to all-time lows since record keeping began, Median Household Income has stagnated for the past 12 years. In the last recession (2001), incomes had only begun to decline. I’m sure back then no one contemplated the possibility that the decline would last (certainly not for a decade), credit was still widely available and, as we know now, being freely tapped (see the PCE chart above for evidence of how normal consumer spending remained during that period). One decade later, Labor Share has collapsed, incomes have gone nowhere, and credit availability — to say nothing of consumers’ attitudes toward it — has all but vanished except for the most creditworthy.
We are now squarely face-to-face with the consequences of the decades long gutting of the middle class that was the backbone of our economy for so long. Without taking some solid, clearly-defined steps, the middle class will undoubtedly move from an endangered species to extinction. The tipping point may already have been passed and, even if it hasn’t, I’m still not optimistic there’s any interest in D.C. to make the requisite policy changes.
http://www.ritholtz.com/blog/2011/08/the-heart-of-the-matter/
Wednesday, August 24, 2011
Steve Jobs Resigns As Apple CEO; Apple Is the Most Widely Held “Smart Money’ Stock
From Reuters:
Silicon Valley legend Steve Jobs on Wednesday resigned as chief executive of Apple Inc in a stunning move that ended his 14-year reign at the technology giant he co-founded in a garage.
http://www.reuters.com/article/2011/08/24/us-apple-idUSTRE77N82K20110824
From Zero Hedge:
As the following update from Goldman's David Kostin demonstrates, after dropping to third place with 173 hedge funds owning AAPL (behind Microsoft at 181 and Citigroup at 178) as of March 31, the company that Steve Jobs built was back at the very top of hedge fund holdings with 181 hedge funds holding on to AAPL. The question is what will they do tomorrow and will the first game theory defection bring an end to the fairytale story?
http://www.zerohedge.com/news/181-hedge-fund-holders-apple-most-widely-held-smart-money-stock
Silicon Valley legend Steve Jobs on Wednesday resigned as chief executive of Apple Inc in a stunning move that ended his 14-year reign at the technology giant he co-founded in a garage.
http://www.reuters.com/article/2011/08/24/us-apple-idUSTRE77N82K20110824
From Zero Hedge:
As the following update from Goldman's David Kostin demonstrates, after dropping to third place with 173 hedge funds owning AAPL (behind Microsoft at 181 and Citigroup at 178) as of March 31, the company that Steve Jobs built was back at the very top of hedge fund holdings with 181 hedge funds holding on to AAPL. The question is what will they do tomorrow and will the first game theory defection bring an end to the fairytale story?
http://www.zerohedge.com/news/181-hedge-fund-holders-apple-most-widely-held-smart-money-stock
Tuesday, August 23, 2011
Chinese Banking System: “These Things Aren’t Banks”
I have come across political science professor, Victor Shih‘s interviews before and have been meaning to do a post on it, which I haven’t.
Although Chinese banks are different from Korean banks, there are some similarities in terms of their roles in economic and political contexts. Further, one would find the similarities between the Chinese and the U.S. banking systems.
From Naked Capitalism:
This is a terrific discussion of Chinese banking by two experts who do not mince words, Carl Walter of JP Morgan and Victor Shih of Northwestern University. Both have a great sense of history and go to some length to portray how economic and monetary arrangements for these “banks” differ from what most of us would assume. The discussion includes periodic crises and the creative means used to rescue banks, the unusually high level of financial assets for an emerging economy, the sustainability of growth, and the role of banks in the political system.
http://www.nakedcapitalism.com/2011/08/chinese-banks-these-things-arent-banks.html
Although Chinese banks are different from Korean banks, there are some similarities in terms of their roles in economic and political contexts. Further, one would find the similarities between the Chinese and the U.S. banking systems.
From Naked Capitalism:
This is a terrific discussion of Chinese banking by two experts who do not mince words, Carl Walter of JP Morgan and Victor Shih of Northwestern University. Both have a great sense of history and go to some length to portray how economic and monetary arrangements for these “banks” differ from what most of us would assume. The discussion includes periodic crises and the creative means used to rescue banks, the unusually high level of financial assets for an emerging economy, the sustainability of growth, and the role of banks in the political system.
http://www.nakedcapitalism.com/2011/08/chinese-banks-these-things-arent-banks.html
Thursday, August 18, 2011
Interview with Charles Hugh Smith: Why Local Enterprise Is the Solution
From Chris Martenson:
A growing number of individuals believe our economic and societal status quo is defined by unsustainable addiction to cheap oil and ever increasing debt. With that viewpoint, it's hard not to see a hard takedown of our national standard of living in the future. Even harder to answer is: what do you do about it?
Charles Hugh Smith, proprietor of the esteemed weblog OfTwoMinds.com, sees the path to future prosperity in removing capital from the Wall Street machine and investing it into local enterprise within the community in which you live.
"Enterprise is completely possible in an era of declining resource consumption. In other words, just because we have to use less, doesn’t mean that there is no opportunity for investing in enterprise. I think enterprise and investing in fact, are the solution. And if we withdraw our money from Wall Street and put it to use in our own communities, to the benefit of our own income streams, then I think that things happen."
"We have to solve our own problems. The savior state and these institutions are not going to reform themselves and they are not reformable in any way that is meaningful. And so, I think what we’re talking about is taking your capital, which is your human capital, your skills and your experience; your social capital, the people you know and trust that you’ve created in life; and your financial capital and investing them in local solutions. Things that people need, like energy and food and shelter and a low energy lifestyle."
"There is opportunity for technological innovation in greatly increasing the efficiency of our appliances and the rest of our lifestyle, as well as tremendous technological improvements in productions and so on. But there’s also what we might call social and behavioral innovations, which the United States is really poor in recognizing. The simplest way to cut your energy is to live close to the things that you need to get to. And if you have your own enterprise, then we might benefit on a household and a social scale of just living close to your job. So being dependent on corporate America and a job a hundred miles away - that’s a really fragile, vulnerable lifestyle. So if you can relocalize your income streams and your enterprises and live close to work and school, you’re already tremendously more resilient and have a much more sustainable household regardless of what happens."
http://www.chrismartenson.com/blog/charles-hugh-smith-why-local-enterprise-solution/61547
A growing number of individuals believe our economic and societal status quo is defined by unsustainable addiction to cheap oil and ever increasing debt. With that viewpoint, it's hard not to see a hard takedown of our national standard of living in the future. Even harder to answer is: what do you do about it?
Charles Hugh Smith, proprietor of the esteemed weblog OfTwoMinds.com, sees the path to future prosperity in removing capital from the Wall Street machine and investing it into local enterprise within the community in which you live.
"Enterprise is completely possible in an era of declining resource consumption. In other words, just because we have to use less, doesn’t mean that there is no opportunity for investing in enterprise. I think enterprise and investing in fact, are the solution. And if we withdraw our money from Wall Street and put it to use in our own communities, to the benefit of our own income streams, then I think that things happen."
"We have to solve our own problems. The savior state and these institutions are not going to reform themselves and they are not reformable in any way that is meaningful. And so, I think what we’re talking about is taking your capital, which is your human capital, your skills and your experience; your social capital, the people you know and trust that you’ve created in life; and your financial capital and investing them in local solutions. Things that people need, like energy and food and shelter and a low energy lifestyle."
"There is opportunity for technological innovation in greatly increasing the efficiency of our appliances and the rest of our lifestyle, as well as tremendous technological improvements in productions and so on. But there’s also what we might call social and behavioral innovations, which the United States is really poor in recognizing. The simplest way to cut your energy is to live close to the things that you need to get to. And if you have your own enterprise, then we might benefit on a household and a social scale of just living close to your job. So being dependent on corporate America and a job a hundred miles away - that’s a really fragile, vulnerable lifestyle. So if you can relocalize your income streams and your enterprises and live close to work and school, you’re already tremendously more resilient and have a much more sustainable household regardless of what happens."
http://www.chrismartenson.com/blog/charles-hugh-smith-why-local-enterprise-solution/61547
Tuesday, August 16, 2011
Is 2011 a Repeat of 2008?
The crisis in Europe seems to be more imminent than in the U.S. The world economy is so interconnected that one country in Europe failing may trigger a massive financial crisis in Europe and then in the U.S.
Gonzalo Lira explains why 2011 is about to become a bigger version of the 2008 crisis.
From his blog:
The structural causes that led to the Global Financial Crisis of 2008 are identical to the structural causes that are leading us to another systemic financial crisis in 2011.
The only difference is the kind of debt at the core of the looming crisis: Mortgage-backed securities in 2008, as opposed to European sovereign debt in 2011.
And of course, the debt hole in 2011 is bigger than in 2008—a lot bigger.
That’s why I am confident in predicting we are about to have another Global Financial Crisis—I’m calling it The Sequel: Same movie, same players, same story. Only this time around—like all good sequels—the financial crisis we are about to experience is going to be bigger, longer, and uncut by bailouts.
By the way, that is the key difference between 2008 and 2011: We’re not going to have a Hollywood Ending this time around. The governments of Europe and the United States, as well as their respective central banks, do not have any weapons to fight off this 2011 financial crisis, as they did in 2008, for the simple reason that they used them all up—they’re out of bullets, both monetarily and politically.
http://gonzalolira.blogspot.com/2011/08/sequel-how-2011-is-repeat-of-2008only.html
Gonzalo Lira explains why 2011 is about to become a bigger version of the 2008 crisis.
From his blog:
The structural causes that led to the Global Financial Crisis of 2008 are identical to the structural causes that are leading us to another systemic financial crisis in 2011.
The only difference is the kind of debt at the core of the looming crisis: Mortgage-backed securities in 2008, as opposed to European sovereign debt in 2011.
And of course, the debt hole in 2011 is bigger than in 2008—a lot bigger.
That’s why I am confident in predicting we are about to have another Global Financial Crisis—I’m calling it The Sequel: Same movie, same players, same story. Only this time around—like all good sequels—the financial crisis we are about to experience is going to be bigger, longer, and uncut by bailouts.
By the way, that is the key difference between 2008 and 2011: We’re not going to have a Hollywood Ending this time around. The governments of Europe and the United States, as well as their respective central banks, do not have any weapons to fight off this 2011 financial crisis, as they did in 2008, for the simple reason that they used them all up—they’re out of bullets, both monetarily and politically.
http://gonzalolira.blogspot.com/2011/08/sequel-how-2011-is-repeat-of-2008only.html
Monday, August 15, 2011
Record Dump of U.S. Treasuries in June
From Zero Hedge:
There was little to smile about in today's Treasury International Capital data for June (as always 2 months delayed). As usual the press release was chock full of irrelevant gross level data, so here is the bottom line. The good news: despite all the posturing China, continued to buy Treasurys, with its total increaseing from $1160 billion to $1165.5 billion. The bad news: China was more or less the only one buying, as total LT Treasury activity saw a net sale of $4.5 billion in June: the first net sale of US paper since May 2009, and only the third time we have seen a net sale of US paper since the start of the Second Great Depression (the third time being, paradoxically, just after the bankruptcy of Lehman, see chart below). The bad news gets downright ugly when digging into the foreign transactions. As is well known, total foreign purchases (or sales as the case may be) consist of central bank transactions, as well as those by non-monetary authorities, i.e., retail and institutionals. And here is where we get today's record: at $18.3 billion in total non-central bank sales, this was the biggest one month sale of US Treasurys in history! Luckily, in keeping with the maintenance of the optics of the global ponzi, this was buffered by central bank purchases of $13.8 billion. With everyone needing someone else to buy their debt we wonder just how much longer, everyone will be able to buy everyone else's debt, even as sales are bound to increase month after month. And the last really ugly news (for ponzi'ists): while China may be posturing, Russia is doing anything but: its holdings have plunged to a fresh multi-year low after Putin gave the green light to dump another $5 billion in US paper, bringing Russia's total to just $110 billion, a 38% drop from the $176 billion in October.
http://www.zerohedge.com/news/safe-haven-record-dump-us-treasurys-non-central-bank-foreigners-june
There was little to smile about in today's Treasury International Capital data for June (as always 2 months delayed). As usual the press release was chock full of irrelevant gross level data, so here is the bottom line. The good news: despite all the posturing China, continued to buy Treasurys, with its total increaseing from $1160 billion to $1165.5 billion. The bad news: China was more or less the only one buying, as total LT Treasury activity saw a net sale of $4.5 billion in June: the first net sale of US paper since May 2009, and only the third time we have seen a net sale of US paper since the start of the Second Great Depression (the third time being, paradoxically, just after the bankruptcy of Lehman, see chart below). The bad news gets downright ugly when digging into the foreign transactions. As is well known, total foreign purchases (or sales as the case may be) consist of central bank transactions, as well as those by non-monetary authorities, i.e., retail and institutionals. And here is where we get today's record: at $18.3 billion in total non-central bank sales, this was the biggest one month sale of US Treasurys in history! Luckily, in keeping with the maintenance of the optics of the global ponzi, this was buffered by central bank purchases of $13.8 billion. With everyone needing someone else to buy their debt we wonder just how much longer, everyone will be able to buy everyone else's debt, even as sales are bound to increase month after month. And the last really ugly news (for ponzi'ists): while China may be posturing, Russia is doing anything but: its holdings have plunged to a fresh multi-year low after Putin gave the green light to dump another $5 billion in US paper, bringing Russia's total to just $110 billion, a 38% drop from the $176 billion in October.
http://www.zerohedge.com/news/safe-haven-record-dump-us-treasurys-non-central-bank-foreigners-june
Sunday, August 14, 2011
Political Science Professor Tom Ferguson: Massive Job Programs Are the Only Way Out
From the Real News:
Only a 1930s New Deal style jobs program can deal with the crisis.
http://therealnews.com/t2/index.php?option=com_content&task=view&id=31&Itemid=74&jumival=7144
Only a 1930s New Deal style jobs program can deal with the crisis.
http://therealnews.com/t2/index.php?option=com_content&task=view&id=31&Itemid=74&jumival=7144
Friday, August 12, 2011
Are Those Permanently Rising Corporate Profits Set to Fall?
From Of Two Minds:
The entire "story" of the Bull market is stocks rests on one reed: permanently rising corporate profits. Too bad those profits are set to fall. Like everything else about the "recovery," the "rising corporate profits" story is founded on financial flim-flam, starting with the boost provided by a sinking dollar.
To truly grasp the monumental scope of this smoke-and-mirrors game of "profits" rising from currency arbitrage, we have to recall that most of the big U.S. global corporations earn between 50% and 65% of their profits overseas. Since the dollar has weakened about 30% in the Fed's free-money campaign (quantitative easing), then we can guesstimate that fully 15% of all profits from global corporations is phantom: if half their profits are earned overseas, and the dollar declined 30%, then their overseas profits rose by 30%. Since that is half of all profit, then that 30% rise boosts total profits by 15%.
Corporate America has squeezed vast profits from slashing costs and the weak dollar, but it's reached the point where no more big profits can be reaped from those factors. If revenue slips, so will profits.
The easy money's been made from slashing costs and dollar arbitrage; all four supports of corporate profits are at risk. With these props gone, how are corporate profits going to keep rising? If the "rising corporate profits" story dissipates, so does the Bull market.
http://www.oftwominds.com/blogaug11/corp-profits-doomed-8-11.html
The entire "story" of the Bull market is stocks rests on one reed: permanently rising corporate profits. Too bad those profits are set to fall. Like everything else about the "recovery," the "rising corporate profits" story is founded on financial flim-flam, starting with the boost provided by a sinking dollar.
To truly grasp the monumental scope of this smoke-and-mirrors game of "profits" rising from currency arbitrage, we have to recall that most of the big U.S. global corporations earn between 50% and 65% of their profits overseas. Since the dollar has weakened about 30% in the Fed's free-money campaign (quantitative easing), then we can guesstimate that fully 15% of all profits from global corporations is phantom: if half their profits are earned overseas, and the dollar declined 30%, then their overseas profits rose by 30%. Since that is half of all profit, then that 30% rise boosts total profits by 15%.
Corporate America has squeezed vast profits from slashing costs and the weak dollar, but it's reached the point where no more big profits can be reaped from those factors. If revenue slips, so will profits.
The easy money's been made from slashing costs and dollar arbitrage; all four supports of corporate profits are at risk. With these props gone, how are corporate profits going to keep rising? If the "rising corporate profits" story dissipates, so does the Bull market.
http://www.oftwominds.com/blogaug11/corp-profits-doomed-8-11.html
Paradoxically, the U.S.' Ongoing Exporting of Inflation Would Restore Its Labor Force?
The regular readers would know what this article is about. Again, cycles seem to turn relentlessly.
From Reuters:
For years, low prices on China-sourced goods helped dampen inflation in the United States. Now China's efforts to boost domestic consumer spending, reducing reliance on exports, are leading to higher costs for multinationals that manufacture goods there.
Eventually, China could export its inflation.
Conglomerates ranging from Emerson Electric (EMR.N) to Honeywell International (HON.N) feel pressure on margins from double-digit wage increases in China. So have toymaker Mattel (MAT.O), fast-food chain Yum! Brands (YUM.N) and computer maker Dell (DELL.O), analysts and investors say.
They have plenty of options besides raising prices, such as embracing automation or moving to China's less-developed interior. Some companies relegate China costs to the category of minor headache; others point to long-term benefits from richer Chinese consumers. But the topic has became a talking point during the earnings season now winding down.
"Input cost increases have been a steady headwind to margins for some time now," Fairchild Semiconductor International (FCS.N) Chief Financial Officer Mark Frey said last month.
"Metals and energy pricing, forex and China wage inflation are more difficult to forecast.
China this year adopted a five-year plan that calls for 7 percent growth in per-capita income, ahead of earlier targets, and fresh investment in research and development, to boost domestic consumption and modernize its economy.
Manufacturing wages are a fraction of those in the United States but are narrowing the gap, both fueling and responding to China's inflation, now at three-year highs. Between 1978 and 2009, wages jumped almost 13 percent a year, six times the pace of U.S. wage rises, according to BernsteinResearch.
Since 2006, that growth has accelerated.
By 2015, wages around Shanghai, adjusted for productivity, will be 61 percent of those in low-cost U.S. states like Alabama, according to the Boston Consulting Group (BCG). Transport and other considerations further shrink that gap.
"Wages are getting large enough that you start to feel the difference," said Hal Sirkin, a BCG senior partner, who said U.S. companies are looking at alternative manufacturing sites. "One of the answers is to start moving back to the U.S."
The next few years will bring a wave of reinvestment by U.S. multinational manufacturers in their home base, as rising wages and a strong yuan currency make China a less attractive production center, BCG predicts. Its July BCG paper names 14 companies rethinking where they produce goods, including NCR (NCR.N), Ford (F.N), Flextronics (FLEX.O), Ashland (ASH.N), and Jarden's (JAH.N) Coleman unit.
Where China once had ample labor, and supply was well balanced with demand, that equilibrium has broken down, BCG argues. The change does not mean shutting Chinese factories and firing workers; it means selectively scaling back future expansion or investment. China's size will ensure it remains a major global player.
China's well-developed infrastructure is an advantage over other countries such as the Philippines, Indonesia and Vietnam. And any short-term hit to margins has to be balanced against the long-term opportunity in a richer China. For many producers, costs such as oil and metals are a bigger headache than the soaring cost of labor.
Ultimately, the success of that drive to shore up China's consumer base may determine how U.S. companies perceive the risks and rewards of operating in China.
http://www.reuters.com/article/2011/08/12/us-usa-manufacturing-china-idUSTRE77B2IV20110812
From Reuters:
For years, low prices on China-sourced goods helped dampen inflation in the United States. Now China's efforts to boost domestic consumer spending, reducing reliance on exports, are leading to higher costs for multinationals that manufacture goods there.
Eventually, China could export its inflation.
Conglomerates ranging from Emerson Electric (EMR.N) to Honeywell International (HON.N) feel pressure on margins from double-digit wage increases in China. So have toymaker Mattel (MAT.O), fast-food chain Yum! Brands (YUM.N) and computer maker Dell (DELL.O), analysts and investors say.
They have plenty of options besides raising prices, such as embracing automation or moving to China's less-developed interior. Some companies relegate China costs to the category of minor headache; others point to long-term benefits from richer Chinese consumers. But the topic has became a talking point during the earnings season now winding down.
"Input cost increases have been a steady headwind to margins for some time now," Fairchild Semiconductor International (FCS.N) Chief Financial Officer Mark Frey said last month.
"Metals and energy pricing, forex and China wage inflation are more difficult to forecast.
China this year adopted a five-year plan that calls for 7 percent growth in per-capita income, ahead of earlier targets, and fresh investment in research and development, to boost domestic consumption and modernize its economy.
Manufacturing wages are a fraction of those in the United States but are narrowing the gap, both fueling and responding to China's inflation, now at three-year highs. Between 1978 and 2009, wages jumped almost 13 percent a year, six times the pace of U.S. wage rises, according to BernsteinResearch.
Since 2006, that growth has accelerated.
By 2015, wages around Shanghai, adjusted for productivity, will be 61 percent of those in low-cost U.S. states like Alabama, according to the Boston Consulting Group (BCG). Transport and other considerations further shrink that gap.
"Wages are getting large enough that you start to feel the difference," said Hal Sirkin, a BCG senior partner, who said U.S. companies are looking at alternative manufacturing sites. "One of the answers is to start moving back to the U.S."
The next few years will bring a wave of reinvestment by U.S. multinational manufacturers in their home base, as rising wages and a strong yuan currency make China a less attractive production center, BCG predicts. Its July BCG paper names 14 companies rethinking where they produce goods, including NCR (NCR.N), Ford (F.N), Flextronics (FLEX.O), Ashland (ASH.N), and Jarden's (JAH.N) Coleman unit.
Where China once had ample labor, and supply was well balanced with demand, that equilibrium has broken down, BCG argues. The change does not mean shutting Chinese factories and firing workers; it means selectively scaling back future expansion or investment. China's size will ensure it remains a major global player.
China's well-developed infrastructure is an advantage over other countries such as the Philippines, Indonesia and Vietnam. And any short-term hit to margins has to be balanced against the long-term opportunity in a richer China. For many producers, costs such as oil and metals are a bigger headache than the soaring cost of labor.
Ultimately, the success of that drive to shore up China's consumer base may determine how U.S. companies perceive the risks and rewards of operating in China.
http://www.reuters.com/article/2011/08/12/us-usa-manufacturing-china-idUSTRE77B2IV20110812
Asian Banks Reviewing Credit to French Lenders
From Reuters:
One bank in Asia has cut credit lines to major French lenders while five other banks in Asia are reviewing trades and counterparty risk as worries about the exposure of French banks to peripheral euro zone debt mounts, banking sources told Reuters on Thursday.
Rumors on Wednesday that France was to lose its AAA rating, later denied by ratings agencies, helped trigger the biggest widening in the European credit default swap index since the credit crunch in 2008.
That sudden rise in risk perception, combined with sharp share price falls in French banks, prompted some banks in Asia to speed up reviews of counterparty risk and look at whether they should cut exposure to European lenders, sources at each of the six banks in Asia said.
http://www.reuters.com/article/2011/08/11/us-crisis-asia-exposure-idUSTRE77A1Q620110811?feedType=RSS&feedName=businessNews&dlvrit=56943
One bank in Asia has cut credit lines to major French lenders while five other banks in Asia are reviewing trades and counterparty risk as worries about the exposure of French banks to peripheral euro zone debt mounts, banking sources told Reuters on Thursday.
Rumors on Wednesday that France was to lose its AAA rating, later denied by ratings agencies, helped trigger the biggest widening in the European credit default swap index since the credit crunch in 2008.
That sudden rise in risk perception, combined with sharp share price falls in French banks, prompted some banks in Asia to speed up reviews of counterparty risk and look at whether they should cut exposure to European lenders, sources at each of the six banks in Asia said.
http://www.reuters.com/article/2011/08/11/us-crisis-asia-exposure-idUSTRE77A1Q620110811?feedType=RSS&feedName=businessNews&dlvrit=56943
Tuesday, August 9, 2011
UBS’ Andy Lees: Why the U.S. Economy Is Doomed
Andy Lees’ latest letter to clients
From Zero Hedge
"With all the mess going on at the moment, I thought it was worth while stepping back a little and trying to look at the bigger picture."
So begins Andy Lees' latest must read letter to clients whch explains succinctly virtually the entire story of where we were, how we got to where are now, how the current trajectory is unsustainable, why due to decades of capital misallocation anything that the Fed does now is essentially irrelevant, why our untenable debt pile does nothing but perpetuate an unsustainable ponzi scheme which will result in an unseen explosion in the true cost of capital: gold, and why the bond market will eventually, and inevitably, force an epic repricing in the cost of non-gold capital absent the arrival of the deux ex machina of real, actionable innovation that the Fed, and all global central planners, keep hoping for. Because the longer we keep plugging away with that worthless substitute, financial innovation, which is anything but, the greater the final collapse.
Andy's conclusion: "Until the debt is cleared and capital starts to be properly allocated, economic growth per unit of additional debt will continue to sour. Until we get some real breakthrough technology, requiring large amounts of capital to both innovate and then roll out, we have no chance of supporting the economy."
Too bad than that this absolutely spot on observation reflect precisely the opposite of what the Fed is pursuing. Which is why, all else equal, and it will be unless the Fed is finally eliminated from existence, America, and the entire western way of life, is doomed...
http://www.zerohedge.com/news/must-read-ubs-andy-lees-why-us-economy-doomed-if-nothing-changes
From Zero Hedge
"With all the mess going on at the moment, I thought it was worth while stepping back a little and trying to look at the bigger picture."
So begins Andy Lees' latest must read letter to clients whch explains succinctly virtually the entire story of where we were, how we got to where are now, how the current trajectory is unsustainable, why due to decades of capital misallocation anything that the Fed does now is essentially irrelevant, why our untenable debt pile does nothing but perpetuate an unsustainable ponzi scheme which will result in an unseen explosion in the true cost of capital: gold, and why the bond market will eventually, and inevitably, force an epic repricing in the cost of non-gold capital absent the arrival of the deux ex machina of real, actionable innovation that the Fed, and all global central planners, keep hoping for. Because the longer we keep plugging away with that worthless substitute, financial innovation, which is anything but, the greater the final collapse.
Andy's conclusion: "Until the debt is cleared and capital starts to be properly allocated, economic growth per unit of additional debt will continue to sour. Until we get some real breakthrough technology, requiring large amounts of capital to both innovate and then roll out, we have no chance of supporting the economy."
Too bad than that this absolutely spot on observation reflect precisely the opposite of what the Fed is pursuing. Which is why, all else equal, and it will be unless the Fed is finally eliminated from existence, America, and the entire western way of life, is doomed...
http://www.zerohedge.com/news/must-read-ubs-andy-lees-why-us-economy-doomed-if-nothing-changes
China National Development and Reform Commission: QE3 Likelihood Appears High
Market reactions and events across the globe (e.g., worldwide stock markets tanking, Europe fiasco, and riots in the U.K.) last week and this week mustn't have come as much surprise to the regular readers. . We saw this coming.
The U.S. QEs haven’t worked and another round of QE wouldn’t work.
Market forces would triumph eventually.
From Zero Hedge:
Just in case there was any concern which way China is leaning ahead of today's meeting, here is the missing clue:
• China's NDRC official says likelihood of US QE3 appears highs
• China's NDRC official says US QE3 will push up commodity prices and will intensify hot money flows
• China's NDRC official says QE3 will threaten Chinese price stability
Of course, China is quite adept at saying one thing and meaning another. And with inflation there continuing to surge, and no chance of a loose monetary policy any time soon, China will be very delighted to see the Fed to another round of easing. After all by the time, exported inflation hits China it will be at least 3-6 months down the line, by which point China should have its inflation problem under control.
http://www.zerohedge.com/news/china-national-development-and-reform-commission-joins-party-says-qe3-likelihood-appears-high
The U.S. QEs haven’t worked and another round of QE wouldn’t work.
Market forces would triumph eventually.
From Zero Hedge:
Just in case there was any concern which way China is leaning ahead of today's meeting, here is the missing clue:
• China's NDRC official says likelihood of US QE3 appears highs
• China's NDRC official says US QE3 will push up commodity prices and will intensify hot money flows
• China's NDRC official says QE3 will threaten Chinese price stability
Of course, China is quite adept at saying one thing and meaning another. And with inflation there continuing to surge, and no chance of a loose monetary policy any time soon, China will be very delighted to see the Fed to another round of easing. After all by the time, exported inflation hits China it will be at least 3-6 months down the line, by which point China should have its inflation problem under control.
http://www.zerohedge.com/news/china-national-development-and-reform-commission-joins-party-says-qe3-likelihood-appears-high
The U.S. Following Japan’s Path to Low Interest Rates; Worst Demand for Japanese Bonds
From Bloomberg:
The Federal Reserve pledged for the first time to keep its benchmark interest rate at a record low at least through mid-2013 in a bid to revive the flagging recovery after a worldwide stock rout.
The Federal Open Market Committee discussed a range of policy tools to bolster the economy and said it is “prepared to employ these tools as appropriate,” it said in a statement today in Washington. Three members of the FOMC dissented, preferring to maintain the pledge to keep rates low for an “extended period.”
The Fed offered a dimmer view of the economy than it did in the last statement in late June. “Economic growth so far this year has been considerably slower than the committee had expected,” it said. The Fed also said it expects a “somewhat slower pace of recovery over coming quarters,” adding that “downside risks to the economic outlook have increased.”
The Fed left its target for the federal funds rate in a range of zero to 0.25 percent, where it’s been since December 2008. It said it will maintain its policy of reinvesting maturing securities without saying for how long.
http://www.bloomberg.com/news/2011-08-09/fed-to-keep-rates-at-record-lows-at-least-through-mid-2013.html
From Bloomberg:
The worst demand on record for 40- year Japanese bonds sold yesterday signals growing concern about Japan’s ability to service the world’s biggest debt pile and the risk of holding long-term securities while markets are volatile.
The 400 billion yen ($5.2 billion) sale drew bids valued at 2.03 times the amount on offer, the weakest since the Ministry of Finance began selling the securities in 2007.
The yield on the 2.2 percent bond maturing in March 2051 jumped 15 basis points to 2.335 percent as of 5:07 p.m. in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker.
Japan’s Ministry of Finance said that every 1 percentage- point increase in 10-year yields above 2 percent would add 1 trillion yen in debt-servicing costs to a projection of 22.9 trillion yen for the fiscal year starting April 2012. The nation’s total debt may reach 219 percent of gross domestic product next year, according to the Organization for Economic Cooperation and Development.
http://www.bloomberg.com/news/2011-08-09/worst-40-year-bond-sale-shows-cash-king-as-investors-flinch-japan-credit.html
The Federal Reserve pledged for the first time to keep its benchmark interest rate at a record low at least through mid-2013 in a bid to revive the flagging recovery after a worldwide stock rout.
The Federal Open Market Committee discussed a range of policy tools to bolster the economy and said it is “prepared to employ these tools as appropriate,” it said in a statement today in Washington. Three members of the FOMC dissented, preferring to maintain the pledge to keep rates low for an “extended period.”
The Fed offered a dimmer view of the economy than it did in the last statement in late June. “Economic growth so far this year has been considerably slower than the committee had expected,” it said. The Fed also said it expects a “somewhat slower pace of recovery over coming quarters,” adding that “downside risks to the economic outlook have increased.”
The Fed left its target for the federal funds rate in a range of zero to 0.25 percent, where it’s been since December 2008. It said it will maintain its policy of reinvesting maturing securities without saying for how long.
http://www.bloomberg.com/news/2011-08-09/fed-to-keep-rates-at-record-lows-at-least-through-mid-2013.html
From Bloomberg:
The worst demand on record for 40- year Japanese bonds sold yesterday signals growing concern about Japan’s ability to service the world’s biggest debt pile and the risk of holding long-term securities while markets are volatile.
The 400 billion yen ($5.2 billion) sale drew bids valued at 2.03 times the amount on offer, the weakest since the Ministry of Finance began selling the securities in 2007.
The yield on the 2.2 percent bond maturing in March 2051 jumped 15 basis points to 2.335 percent as of 5:07 p.m. in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker.
Japan’s Ministry of Finance said that every 1 percentage- point increase in 10-year yields above 2 percent would add 1 trillion yen in debt-servicing costs to a projection of 22.9 trillion yen for the fiscal year starting April 2012. The nation’s total debt may reach 219 percent of gross domestic product next year, according to the Organization for Economic Cooperation and Development.
http://www.bloomberg.com/news/2011-08-09/worst-40-year-bond-sale-shows-cash-king-as-investors-flinch-japan-credit.html
Charles Hugh Smith: Global Grand Policy Failure
As noted more than a few occasions, governments around the globe could have chosen not to do it. In this context, they can’t just blame global forces for their policy failure.
From Of Two Minds:
"We are all Keynesians now," indeed. Keynesian policies have pushed the global economy into a financial black hole.
What we are experiencing is Grand Policy Failure on a global scale, a failure best understood by examining liquidity traps and the Keynesian plummet into Financial Black Holes.
All three Keynesian policies have been tried, and all three have failed completely. The massive "shovel-ready" fiscal stimulus caused a minor blip up in activity, but it did not spark any regeneration of borrowing and spending. All it did was enable further deleveraging as consumers and businesses struggled to pay down their crushing debt loads.
As for devaluing the currency, the Fed's policies devalued the U.S. dollar 32% from the early 2000s, and 17% from 2008. Rather than spark a boom of spending and investment, this massive devaluation sparked a dramatic loss of purchasing power which households experience as high inflation.
No nation ever prospered in the long-term by devaluing its currency. Devaluation is just another Keynesian "quick fix." Borrowing 40% of Federal spending didn't "fix" what's wrong with the economy? Then borrow 50%. That devaluation wasn't enough? Then takes the dollar down another 10%. These are the policies of debt-junkies, not legitimate long-term growth based on capital formation and productive investment.
http://www.oftwominds.com/blogaug11/liquidity-trap-8-11.html
From Of Two Minds:
"We are all Keynesians now," indeed. Keynesian policies have pushed the global economy into a financial black hole.
What we are experiencing is Grand Policy Failure on a global scale, a failure best understood by examining liquidity traps and the Keynesian plummet into Financial Black Holes.
All three Keynesian policies have been tried, and all three have failed completely. The massive "shovel-ready" fiscal stimulus caused a minor blip up in activity, but it did not spark any regeneration of borrowing and spending. All it did was enable further deleveraging as consumers and businesses struggled to pay down their crushing debt loads.
As for devaluing the currency, the Fed's policies devalued the U.S. dollar 32% from the early 2000s, and 17% from 2008. Rather than spark a boom of spending and investment, this massive devaluation sparked a dramatic loss of purchasing power which households experience as high inflation.
No nation ever prospered in the long-term by devaluing its currency. Devaluation is just another Keynesian "quick fix." Borrowing 40% of Federal spending didn't "fix" what's wrong with the economy? Then borrow 50%. That devaluation wasn't enough? Then takes the dollar down another 10%. These are the policies of debt-junkies, not legitimate long-term growth based on capital formation and productive investment.
http://www.oftwominds.com/blogaug11/liquidity-trap-8-11.html
Monday, August 8, 2011
Japan Rice Futures Surge 40% on Fukushima Radiation Concern
From Bloomberg:
The exchange listed rice contracts today for the first time since the start of World War II to boost flagging volumes and profit. The resumption comes as fallout from the Fukushima Dai- Ichi power plant may spread after it was found cattle had been fed cesium-tainted rice straw.
“People are very concerned that rice supplies may be smaller on fear of radiation contamination,” Nobuyuki Chino, chairman of the exchange’s rice futures trading committee, told reporters in Tokyo. “This was reflected in the prices,” said Chino, who is also president of Tokyo-based grain company Continental Rice Corp.
Commercial stockpiles of rice, a Japanese staple, may drop to the lowest level in four years in 2012, after the March earthquake and nuclear disaster curbed production, possibly spurring the government to release its reserves, according to the agriculture ministry.
Faced with criticism from consumer groups and opposition party politicians that lax government control has endangered food safety, the ministry has tightened rice screening before the harvest begins in eastern Japan.
The government ordered Fukushima and 13 nearby prefectures to test rice samples before the harvest. Authorities will ban shipments from areas where they find grains containing cesium exceeding 500 becquerels a kilogram. Rice production in Fukushima and neighboring Ibaraki, Miyagi and Iwate prefectures amounted to 1.56 million metric tons last year, out of the country’s total of 8.5 million tons.
http://www.bloomberg.com/news/2011-08-08/rice-in-tokyo-gains-after-seven-decade-halt.html
The exchange listed rice contracts today for the first time since the start of World War II to boost flagging volumes and profit. The resumption comes as fallout from the Fukushima Dai- Ichi power plant may spread after it was found cattle had been fed cesium-tainted rice straw.
“People are very concerned that rice supplies may be smaller on fear of radiation contamination,” Nobuyuki Chino, chairman of the exchange’s rice futures trading committee, told reporters in Tokyo. “This was reflected in the prices,” said Chino, who is also president of Tokyo-based grain company Continental Rice Corp.
Commercial stockpiles of rice, a Japanese staple, may drop to the lowest level in four years in 2012, after the March earthquake and nuclear disaster curbed production, possibly spurring the government to release its reserves, according to the agriculture ministry.
Faced with criticism from consumer groups and opposition party politicians that lax government control has endangered food safety, the ministry has tightened rice screening before the harvest begins in eastern Japan.
The government ordered Fukushima and 13 nearby prefectures to test rice samples before the harvest. Authorities will ban shipments from areas where they find grains containing cesium exceeding 500 becquerels a kilogram. Rice production in Fukushima and neighboring Ibaraki, Miyagi and Iwate prefectures amounted to 1.56 million metric tons last year, out of the country’s total of 8.5 million tons.
http://www.bloomberg.com/news/2011-08-08/rice-in-tokyo-gains-after-seven-decade-halt.html
Thursday, August 4, 2011
How To Restore Productive Capacity and Spur Innovation in Korea
Many of the regular readers around the globe visiting my blog know the current state of the global economy and where it is going. With biflation, global forces gaming the system and incompetent governments in the picture, many may feel that there isn’t much we can do until there is a significant reset. And yet, many of us also feel that we ought to continue to educate people as much as possible and keep a society we belong to from falling further, not just for the sake of ourselves, but for the sake of future generations. After all, life is a gift from God.
One of the main themes of this blog is that productive capacity and innovation are the wealth of a nation. I have stressed why they are the backbone of a nation’s well-being both in economic and social sense. I have discussed how Korea has built its productive capacity and innovation competence in the course of industrialization and why they are facing enormous challenge. As pointed out, Korea’s manufacturing base has dwindled since the 1997 financial crisis due to several reasons. In the midst of global economic slowdown with bubbles unwinding, what are the urgent things Korea needs to do to restore its productive capacity and spur innovation?
-Don’t pick winners and losers in manufacturing sectors and emerging industries; let market forces decide. This practice has done more harm than good in the long-term. For example, it has stifled real competition, failing to allow new entrant with new ideas to enter the market and compete.
-Create social culture where job creation, not personal wealth is revered
-Provide the necessary skill sets to future entrepreneurs. This may include upgrading Korea’s engineering schools and revamp much of the current educational system of Korea
-Create an entrepreneurial ecosystem.
-Stop losing manufacturing jobs overseas; prevent offshoring jobs and industries.
-Stop providing subsidies, tax breaks, and regulations unfairly favorable to chaebols and set up regulation that create a level playing field to compete instead; Ban chaebols’ unfair practices
-Develop the tax structure and other incentives to attract foreign manufacturing operation.
-Prioritize spending in productive assets and oversee the national R&D funding; stop paying for non-productive stuff
-Prevent the further financialization of the Korean economy
-Move toward a more self-sustaining economy
One of the main themes of this blog is that productive capacity and innovation are the wealth of a nation. I have stressed why they are the backbone of a nation’s well-being both in economic and social sense. I have discussed how Korea has built its productive capacity and innovation competence in the course of industrialization and why they are facing enormous challenge. As pointed out, Korea’s manufacturing base has dwindled since the 1997 financial crisis due to several reasons. In the midst of global economic slowdown with bubbles unwinding, what are the urgent things Korea needs to do to restore its productive capacity and spur innovation?
-Don’t pick winners and losers in manufacturing sectors and emerging industries; let market forces decide. This practice has done more harm than good in the long-term. For example, it has stifled real competition, failing to allow new entrant with new ideas to enter the market and compete.
-Create social culture where job creation, not personal wealth is revered
-Provide the necessary skill sets to future entrepreneurs. This may include upgrading Korea’s engineering schools and revamp much of the current educational system of Korea
-Create an entrepreneurial ecosystem.
-Stop losing manufacturing jobs overseas; prevent offshoring jobs and industries.
-Stop providing subsidies, tax breaks, and regulations unfairly favorable to chaebols and set up regulation that create a level playing field to compete instead; Ban chaebols’ unfair practices
-Develop the tax structure and other incentives to attract foreign manufacturing operation.
-Prioritize spending in productive assets and oversee the national R&D funding; stop paying for non-productive stuff
-Prevent the further financialization of the Korean economy
-Move toward a more self-sustaining economy
Currency Wars Entering New Stage; Korean Government Reviewing All Possibilities On Curbing Capital Inflows; U.S.-Japan Currency Warfare
For the mercantilist countries like Korea and Japan, the currency issue is a matter of sovereignty.
From Bloomberg:
Japan sold yen today, causing the currency to weaken more than 4 percent against the dollar after rising 5 percent last month.
“We seem to be entering a new stage of the currency wars where it’s not just the emerging markets that are responding to broad dollar weakness,” said Callum Henderson, global head of currency research at Standard Chartered Plc in Singapore, who has written books on currency markets. “Expect much more intervention in the future and further acrimony in terms of how the U.S. dollar is doing.”
Brazil’s Mantega said Nov. 30 that his nation’s currency was trading at a reasonable level as Europe’s worsening debt crisis brought a “temporary truce” to a global currency war. Since then, the real has gained about 10 percent against the dollar, and Mantega said last month that the so-called war was still on.
South Korea’s government is reviewing “all possibilities” on curbing capital inflows, Finance Minister Bahk Jae Wan told reporters in Seoul today, adding that he’s “closely monitoring” the situation, while declining to comment on the impact of Japan’s intervention.
The Philippines is prepared to impose controls to cap volatility in the peso after its currency rose to a three-year high this week, central bank Governor Amando Tetangco said in an e-mail late yesterday. The bank “will not go against the fundamental currency trend but will not hesitate to use tools, including imposing prudential limits on certain transactions of banks,” he said.
http://www.bloomberg.com/news/2011-08-04/currency-wars-enter-new-stage-as-chances-of-fed-asset-purchases-escalate.html
From Zero Hedge:
According to Credit Suisse, this is just the beginning of Transpacific central banking warfare. Per Dow Jones: "The Japanese Ministry of Finance's JPY-selling operation Thursday may be the first in a series of interventions over the coming weeks to curb further rises in the unit, and may have come Thursday in part as the Swiss National Bank's move Wednesday to weaken its own currency made it easier for Japan also to step in, says Koji Fukaya, director of fixed income and global foreign exchange research at Credit Suisse. "This may be the start of a number of actions, depending on the yen moves in the weeks ahead," Fukaya says.
http://www.zerohedge.com/news/more-2011-us-japan-open-currency-warfare-just-beginning
From Bloomberg:
Japan sold yen today, causing the currency to weaken more than 4 percent against the dollar after rising 5 percent last month.
“We seem to be entering a new stage of the currency wars where it’s not just the emerging markets that are responding to broad dollar weakness,” said Callum Henderson, global head of currency research at Standard Chartered Plc in Singapore, who has written books on currency markets. “Expect much more intervention in the future and further acrimony in terms of how the U.S. dollar is doing.”
Brazil’s Mantega said Nov. 30 that his nation’s currency was trading at a reasonable level as Europe’s worsening debt crisis brought a “temporary truce” to a global currency war. Since then, the real has gained about 10 percent against the dollar, and Mantega said last month that the so-called war was still on.
South Korea’s government is reviewing “all possibilities” on curbing capital inflows, Finance Minister Bahk Jae Wan told reporters in Seoul today, adding that he’s “closely monitoring” the situation, while declining to comment on the impact of Japan’s intervention.
The Philippines is prepared to impose controls to cap volatility in the peso after its currency rose to a three-year high this week, central bank Governor Amando Tetangco said in an e-mail late yesterday. The bank “will not go against the fundamental currency trend but will not hesitate to use tools, including imposing prudential limits on certain transactions of banks,” he said.
http://www.bloomberg.com/news/2011-08-04/currency-wars-enter-new-stage-as-chances-of-fed-asset-purchases-escalate.html
From Zero Hedge:
According to Credit Suisse, this is just the beginning of Transpacific central banking warfare. Per Dow Jones: "The Japanese Ministry of Finance's JPY-selling operation Thursday may be the first in a series of interventions over the coming weeks to curb further rises in the unit, and may have come Thursday in part as the Swiss National Bank's move Wednesday to weaken its own currency made it easier for Japan also to step in, says Koji Fukaya, director of fixed income and global foreign exchange research at Credit Suisse. "This may be the start of a number of actions, depending on the yen moves in the weeks ahead," Fukaya says.
http://www.zerohedge.com/news/more-2011-us-japan-open-currency-warfare-just-beginning
Wednesday, August 3, 2011
Fukushima Radiation Highest Ever, Exceeding Capacity of Measuring Device
From Washington’s blog:
Things are - literally - heating up again at Fukushima:
• Tepco Says Highest Radiation Yet Is Detected at Fukushima Dai-Ichi
• 10+ sieverts per hour means there is direct exposure to fuel rods or spent fuel ponds: Australia’s former top radiation official
• Tepco: Ultra-high radiation levels may be from melted fuel that leaked out of containment vessel
• Paper: TEPCO needs to check if high radiation doses are “spreading elsewhere” — Two more spots appear to be above 10 sieverts per hour, but no plans to actually take measurements
• New indoor radiation dose record at Fukushima ... May be higher as it exceeded capacity of measuring device
• New York Times: Fatal Radiation Level Found at Fukushima — “Exceeded” 10 sieverts per hour, measuring device was maxed out
• Experts: Melt-through scenario means even higher radiation readings to come — Likely many more reports of deadly radiation in future
• Tokyo U. nuke expert: Radioactive substances may have “poured” into pipe during explosion — Levels could also be extremely high outside Reactors No. 3 and 4
• Asahi: Latest detection of such high radiation levels is evidence that radioactive material spewed from Fukushima at much higher levels than previously believed
http://www.washingtonsblog.com/2011/08/fukushima-radiation-highest-ever.html
Things are - literally - heating up again at Fukushima:
• Tepco Says Highest Radiation Yet Is Detected at Fukushima Dai-Ichi
• 10+ sieverts per hour means there is direct exposure to fuel rods or spent fuel ponds: Australia’s former top radiation official
• Tepco: Ultra-high radiation levels may be from melted fuel that leaked out of containment vessel
• Paper: TEPCO needs to check if high radiation doses are “spreading elsewhere” — Two more spots appear to be above 10 sieverts per hour, but no plans to actually take measurements
• New indoor radiation dose record at Fukushima ... May be higher as it exceeded capacity of measuring device
• New York Times: Fatal Radiation Level Found at Fukushima — “Exceeded” 10 sieverts per hour, measuring device was maxed out
• Experts: Melt-through scenario means even higher radiation readings to come — Likely many more reports of deadly radiation in future
• Tokyo U. nuke expert: Radioactive substances may have “poured” into pipe during explosion — Levels could also be extremely high outside Reactors No. 3 and 4
• Asahi: Latest detection of such high radiation levels is evidence that radioactive material spewed from Fukushima at much higher levels than previously believed
http://www.washingtonsblog.com/2011/08/fukushima-radiation-highest-ever.html
Tuesday, August 2, 2011
BOK Raises Gold Reserves: Up 17 Fold
One may want to pay attention to the fact that the BOE is holding gold for the BOK.
From Gold Core:
Further confirmation in the continuing stealth accumulation of bullion by central banks came overnight with confirmation that South Korea's central bank bought 25 tonnes of gold over the past two months. The gold is worth $1.24 billion and resulted in a 17 fold increase in their gold reserves.
South Korea is the world’s seventh-biggest foreign-exchange reserve holder and 64% of its reserves are in U.S. dollars. The bank said that it also holds euros and other assets and the move was about achieving diversification.
The BOK’s reserves, stored in London in the vaults of the Bank of England, increased 25 tonnes to 39.4 tonnes (from 14.4 tonnes) but remain meager when compared to the size of their foreign exchange reserves.
"As a real safe asset, gold helps us to cope effectively with changes in international financial market," said Jaehyun Joo of the Bank of Korea.
"We expect that gold would serve as a safety net for official foreign reserve and enhance the stability of the Bank Of Korea's foreign reserve management," Mr Joo added.
Mr Joo’s comments reflect the mindset of people and central bankers in Asia who realize gold’s store of value importance and are increasingly concerned about the euro, the dollar and the global financial and monetary system.
http://www.goldcore.com/goldcore_blog/sharp-increase-central-bank-gold-reserves-%E2%80%93-south-korea-17-fold-thailand-155-2-months
From Gold Core:
Further confirmation in the continuing stealth accumulation of bullion by central banks came overnight with confirmation that South Korea's central bank bought 25 tonnes of gold over the past two months. The gold is worth $1.24 billion and resulted in a 17 fold increase in their gold reserves.
South Korea is the world’s seventh-biggest foreign-exchange reserve holder and 64% of its reserves are in U.S. dollars. The bank said that it also holds euros and other assets and the move was about achieving diversification.
The BOK’s reserves, stored in London in the vaults of the Bank of England, increased 25 tonnes to 39.4 tonnes (from 14.4 tonnes) but remain meager when compared to the size of their foreign exchange reserves.
"As a real safe asset, gold helps us to cope effectively with changes in international financial market," said Jaehyun Joo of the Bank of Korea.
"We expect that gold would serve as a safety net for official foreign reserve and enhance the stability of the Bank Of Korea's foreign reserve management," Mr Joo added.
Mr Joo’s comments reflect the mindset of people and central bankers in Asia who realize gold’s store of value importance and are increasingly concerned about the euro, the dollar and the global financial and monetary system.
http://www.goldcore.com/goldcore_blog/sharp-increase-central-bank-gold-reserves-%E2%80%93-south-korea-17-fold-thailand-155-2-months
Monday, August 1, 2011
Global Manufacturing Stalls
From Reuters:
Factories in Asia and Europe expanded in July at the weakest rate since major industrial powers were struggling through the 2009 recession, adding to concerns over world growth.
While stock markets rose on signs of a last minute solution that would avoid a U.S. debt default, manufacturing purchasing managers indexes (PMIs) provided the latest evidence of a slowing global economy.
The euro zone manufacturing PMI, which gauges the activities of thousands of businesses, fell to 50.4 in July from 52.0 in June -- its worst showing since September 2009 and barely above the 50 mark dividing growth and contraction.
Perhaps more worryingly, China's official government PMI dropped to 50.7 from 50.9 in June, its weakest in more than two years, while the HSBC PMI fell below the 50 mark for the first time in a year -- to 49.3 in July from 51.6.
China was the main engine of growth as the developed world sank into recession after the 2008 financial crisis and signs of a slowdown there would worsen the global outlook at a time when both the U.S. and European economies are struggling with debt crises.
http://ca.reuters.com/article/businessNews/idCATRE7701V220110801
Factories in Asia and Europe expanded in July at the weakest rate since major industrial powers were struggling through the 2009 recession, adding to concerns over world growth.
While stock markets rose on signs of a last minute solution that would avoid a U.S. debt default, manufacturing purchasing managers indexes (PMIs) provided the latest evidence of a slowing global economy.
The euro zone manufacturing PMI, which gauges the activities of thousands of businesses, fell to 50.4 in July from 52.0 in June -- its worst showing since September 2009 and barely above the 50 mark dividing growth and contraction.
Perhaps more worryingly, China's official government PMI dropped to 50.7 from 50.9 in June, its weakest in more than two years, while the HSBC PMI fell below the 50 mark for the first time in a year -- to 49.3 in July from 51.6.
China was the main engine of growth as the developed world sank into recession after the 2008 financial crisis and signs of a slowdown there would worsen the global outlook at a time when both the U.S. and European economies are struggling with debt crises.
http://ca.reuters.com/article/businessNews/idCATRE7701V220110801
“Time To Take Stock”
From MacroBusiness:
Exactly how did we get into this mess with the capital markets? A situation where the global stock of derivatives is over $US600 trillion, which is about twice the capital stock of the world. A situation where high frequency trading is over two thirds of the transactions on the NYSE and about the same in the stock markets of the UK and Europe. Likewise they are over half the action in foreign exchange markets and they are rapidly becoming dominant in the futures market. Andrew Haldane from the Bank of England is arguing against allowing high frequency trading — algorithms chasing algorithms chasing algorithms — from being allowed to proliferate pointing at volatility as the problem:
Haldane noted that relative to gross domestic product, the equity market capitalisation of the US, Europe and Asia had not grown since 2000, suggesting that “the contribution of equity markets to economic growth … has been static”:
http://www.macrobusiness.com.au/2011/07/time-to-take-stock/
Exactly how did we get into this mess with the capital markets? A situation where the global stock of derivatives is over $US600 trillion, which is about twice the capital stock of the world. A situation where high frequency trading is over two thirds of the transactions on the NYSE and about the same in the stock markets of the UK and Europe. Likewise they are over half the action in foreign exchange markets and they are rapidly becoming dominant in the futures market. Andrew Haldane from the Bank of England is arguing against allowing high frequency trading — algorithms chasing algorithms chasing algorithms — from being allowed to proliferate pointing at volatility as the problem:
Haldane noted that relative to gross domestic product, the equity market capitalisation of the US, Europe and Asia had not grown since 2000, suggesting that “the contribution of equity markets to economic growth … has been static”:
http://www.macrobusiness.com.au/2011/07/time-to-take-stock/
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