From Yonhap:
South Korea's current account surplus hit a seven-month low in August as export growth slowed down amid heightened global economic uncertainty, the central bank said Thursday.
The current account surplus reached US$401.3 million in August, down from a revised $3.77 billion the previous month, according to the Bank of Korea (BOK). The current account is the broadest measure of cross-border trade.
http://english.yonhapnews.co.kr/news/2011/09/29/0200000000AEN20110929002100320.HTML
From Yonhap:
A majority of South Korean companies expect their exports to decline in the fourth quarter mainly due to a slowdown in leading economies, a poll showed Thursday.
The export business survey index (EBSI) came in at 89.8 for the October-December period, down 18.2 from the current quarter, according to the poll of 1,024 companies by the Korea International Trade Association (KITA).
http://english.yonhapnews.co.kr/news/2011/09/29/0200000000AEN20110929005700320.HTML
Update:
From Yonhap:
South Korea's industrial output shrank for the second straight month in August amid growing uncertainties surrounding global market situations, a government report showed Friday.
According to the report by Statistics Korea, production in the mining and manufacturing industries fell 1.9 percent last month from July, following the previous month's 0.3 percent contraction.
http://english.yonhapnews.co.kr/news/2011/09/30/0200000000AEN20110930001500320.HTML
Thursday, September 29, 2011
Tuesday, September 27, 2011
Ron Paul Interviewed by Jon Stewart
From The Daily Show:
Ron Paul's biggest concern is personal liberty, which only small government can provide.
http://www.thedailyshow.com/watch/tue-september-29-2009/ron-paul
Ron Paul's biggest concern is personal liberty, which only small government can provide.
http://www.thedailyshow.com/watch/tue-september-29-2009/ron-paul
A Trader Interviewed on BBC: “The Collapse Is Coming…GS Rules the World”
From Zero Hedge:
In an interview on BBC News this morning that left the hosts gob-smacked (google it... it is the BBC after all), Alessio Rastani outlines in a mere three-and-a-half-minutes what we all know and most ignore. While the whole interview is worth watching, the money shot for us was "This economic crisis is like a cancer, if you just wait and wait hoping it is going to go away, just like a cancer it is going to grow and it will be too late!". While he dreams of recessions, sees Goldman ruling the world, and urges people to prepare, it is hard to disagree with much (or actually anything) of what he says and obviously interventions and machinations means we will have days like this (in Silver for instance), there is only one endgame here and we hope there is less hopeful euphoria (and more preparedness) as we pull back the curtain further and further.
While we do not know who this trader is, one thing we can be 100% certain of is that he will never appear on CNBC.
http://www.zerohedge.com/news/bbc-speechless-trader-tells-truth-collapse-comingand-goldman-rules-world
Update:
From Zero Hedge:
BBC Releases Official Statement On Alessio "The Trader" Rastani: He Is Perfectly Legit And The Interview Was Not A Hoax
http://www.zerohedge.com/news/bbc-releases-official-statement-alessio-trader-rastani-he-perfectly-legit-and-interview-was-not
In an interview on BBC News this morning that left the hosts gob-smacked (google it... it is the BBC after all), Alessio Rastani outlines in a mere three-and-a-half-minutes what we all know and most ignore. While the whole interview is worth watching, the money shot for us was "This economic crisis is like a cancer, if you just wait and wait hoping it is going to go away, just like a cancer it is going to grow and it will be too late!". While he dreams of recessions, sees Goldman ruling the world, and urges people to prepare, it is hard to disagree with much (or actually anything) of what he says and obviously interventions and machinations means we will have days like this (in Silver for instance), there is only one endgame here and we hope there is less hopeful euphoria (and more preparedness) as we pull back the curtain further and further.
While we do not know who this trader is, one thing we can be 100% certain of is that he will never appear on CNBC.
http://www.zerohedge.com/news/bbc-speechless-trader-tells-truth-collapse-comingand-goldman-rules-world
Update:
From Zero Hedge:
BBC Releases Official Statement On Alessio "The Trader" Rastani: He Is Perfectly Legit And The Interview Was Not A Hoax
http://www.zerohedge.com/news/bbc-releases-official-statement-alessio-trader-rastani-he-perfectly-legit-and-interview-was-not
Monday, September 26, 2011
Signs of China Deleveraging
Several reports indicate that China bubbles have started to deleverage.
From Macau Daily Times:
Deposits are flowing out of China’s major state-owned banks as high inflation and low interest rates prompt savers to seek better returns in the private lending market, Chinese state media said yesterday.
Outstanding deposits at the four biggest banks – Industrial & Commercial Bank of China, China Construction Bank, Bank of China and Agricultural Bank of China – fell 420 billion yuan (USD 65.7 billion) in the first 15 days of this month, the China Securities Journal said, citing unnamed sources.
Much of the funds likely flowed into the private lending market, which offers borrowing rates around 10 times higher than the official deposit rates and has become increasingly popular as authorities tighten restrictions on bank lending, the report said.
Inflation has been hovering above six percent for months, nearly double the official benchmark one-year deposit rate of 3.5 percent, meaning savers have been losing money by parking their cash in the country’s banks.
The sharp fall in deposits has severely restricted the amount of money banks can lend, the report said, making it even more difficult for privately owned small and medium-sized companies to borrow.
Smaller businesses have already been hit hard by government efforts to rein in inflation, which include forcing banks to set aside more money in reserve and hiking interest rates five times since October last year.
The booming private financing market has fuelled concerns over the potential for an explosion in defaults, which could hurt the country’s financial system and social stability, a commentary in the Shanghai Securities News said.
“Once companies fail to pay pack their loans due to the heavy pressure of high interest rates, large portions of private funds will be totally lost,” said Yi Xianrong, a researcher at the Chinese Academy of Social Sciences, a government think tank.
http://www.macaudailytimes.com.mo/china/29799-Major-banks-losing-deposits-report.html
From Shanghai Daily:
The east China city of Wenzhou is battling its own subprime crisis after seven local business owners fled recently, leaving thousands of employees in a state of shock and enormous unpaid loans in hundreds of millions of yuan.
Most of the runaway bosses who have disappeared since September 12 are in the manufacturing industry, according to today's National Business Daily. Each of them had borrowed hundreds of millions of yuan from banks and private creditors.
Subprime lending in Wenzhou, the cradle of China's private economy, has been booming since the country tightened its money supply late last year to curb soaring inflation. State-owned banks are ordered to stick to a mandatory loan-to-deposit ratio and are reluctant to offer loans to small firms like those in Wenzhou over default risks.
The closed door to bank borrowing has forced some business owners to turn to private lenders, mostly illegal, despite the higher costs of their loans.
But when their business failed to perform as expected and it became obvious that the bankrupt business owners would not be able to pay their debts, some decided to flee.
http://www.shanghaidaily.com/article/?id=483329
From Macau Daily Times:
Deposits are flowing out of China’s major state-owned banks as high inflation and low interest rates prompt savers to seek better returns in the private lending market, Chinese state media said yesterday.
Outstanding deposits at the four biggest banks – Industrial & Commercial Bank of China, China Construction Bank, Bank of China and Agricultural Bank of China – fell 420 billion yuan (USD 65.7 billion) in the first 15 days of this month, the China Securities Journal said, citing unnamed sources.
Much of the funds likely flowed into the private lending market, which offers borrowing rates around 10 times higher than the official deposit rates and has become increasingly popular as authorities tighten restrictions on bank lending, the report said.
Inflation has been hovering above six percent for months, nearly double the official benchmark one-year deposit rate of 3.5 percent, meaning savers have been losing money by parking their cash in the country’s banks.
The sharp fall in deposits has severely restricted the amount of money banks can lend, the report said, making it even more difficult for privately owned small and medium-sized companies to borrow.
Smaller businesses have already been hit hard by government efforts to rein in inflation, which include forcing banks to set aside more money in reserve and hiking interest rates five times since October last year.
The booming private financing market has fuelled concerns over the potential for an explosion in defaults, which could hurt the country’s financial system and social stability, a commentary in the Shanghai Securities News said.
“Once companies fail to pay pack their loans due to the heavy pressure of high interest rates, large portions of private funds will be totally lost,” said Yi Xianrong, a researcher at the Chinese Academy of Social Sciences, a government think tank.
http://www.macaudailytimes.com.mo/china/29799-Major-banks-losing-deposits-report.html
From Shanghai Daily:
The east China city of Wenzhou is battling its own subprime crisis after seven local business owners fled recently, leaving thousands of employees in a state of shock and enormous unpaid loans in hundreds of millions of yuan.
Most of the runaway bosses who have disappeared since September 12 are in the manufacturing industry, according to today's National Business Daily. Each of them had borrowed hundreds of millions of yuan from banks and private creditors.
Subprime lending in Wenzhou, the cradle of China's private economy, has been booming since the country tightened its money supply late last year to curb soaring inflation. State-owned banks are ordered to stick to a mandatory loan-to-deposit ratio and are reluctant to offer loans to small firms like those in Wenzhou over default risks.
The closed door to bank borrowing has forced some business owners to turn to private lenders, mostly illegal, despite the higher costs of their loans.
But when their business failed to perform as expected and it became obvious that the bankrupt business owners would not be able to pay their debts, some decided to flee.
http://www.shanghaidaily.com/article/?id=483329
Sunday, September 25, 2011
Korea’s Sovereign Debt Index Worsening
From Yonhap:
The cost of insuring South Korea's sovereign debt against default surpassed that of France, data showed Sunday, reflecting growing concerns over the local financial market's volatility.
The spread on credit default swaps (CDS) for South Korea reached 202 basis points as of Friday, compared with 197 basis points for France, according to industry data.
The reading marked a wider gap than on Thursday, when the figure first surpassed France's sovereign debt risk by 3 basis points.
The spread on CDS reflects the cost of hedging credit risks on corporate or sovereign debt. A basis point is 0.01 percentage points.
Market watchers said the rise mirrors waning confidence in South Korean government bond credit, given the fact that the country's CDS spread has on average stayed 20 to 30 basis points lower than that of France.
The fact that the figure soared higher than France's even after the eurozone country underwent credit rating cuts of two major lenders, Credit Agricole SA and Societe Generale SA, highlights the rapid rise in South Korea's default risk, they said.
http://english.yonhapnews.co.kr/business/2011/09/25/65/0503000000AEN20110925000500320F.HTML
The cost of insuring South Korea's sovereign debt against default surpassed that of France, data showed Sunday, reflecting growing concerns over the local financial market's volatility.
The spread on credit default swaps (CDS) for South Korea reached 202 basis points as of Friday, compared with 197 basis points for France, according to industry data.
The reading marked a wider gap than on Thursday, when the figure first surpassed France's sovereign debt risk by 3 basis points.
The spread on CDS reflects the cost of hedging credit risks on corporate or sovereign debt. A basis point is 0.01 percentage points.
Market watchers said the rise mirrors waning confidence in South Korean government bond credit, given the fact that the country's CDS spread has on average stayed 20 to 30 basis points lower than that of France.
The fact that the figure soared higher than France's even after the eurozone country underwent credit rating cuts of two major lenders, Credit Agricole SA and Societe Generale SA, highlights the rapid rise in South Korea's default risk, they said.
http://english.yonhapnews.co.kr/business/2011/09/25/65/0503000000AEN20110925000500320F.HTML
“Do not envy the deceitful, or choose any of their ways, for the devious are an abomination, but the upright see his face. The Lord’s curse is on the fortunes of the wicked, but he blesses the homes of the righteous. Towards the proud he will be scornful, but the humble will find his favor. The wise inherit glory, but fools find greater shame and disgrace.”
Proverbs 3: 31-35
Proverbs 3: 31-35
Friday, September 23, 2011
What Korea Could Do in the Midst of the Global Depresson
One of the most read posts on this blog is “What Korea shouldn’t (could) have done since the 1997 financial crisis”.
Following up on that, I have discussed how things have worked and what has gone wrong in hopes that Korea continues to sustain and prosper in terms of the good of the Korean economy as a whole and its productive/innovative capacity.
In short, instead of rebuilding and reforming the broken system which caused the 1997 financial crisis, Korea has engaged in its own version of extend and pretend. Among others, Korea’s easy money policy, while this is not limited to Korea, has fuelled the misallocation of capital at the expense of productive investment.
Korea has to face the deleveraging mess. That is a reality.
Things move in cycles. Most nations go through the long-term cycle of economic prosperity and downfall; they rise to a peak, and then descend into a trough. Aside from the fact that Korea is not immune to the Global Depression which we are in, one has to probe whether Korea is heading into the down phase of the cycle.
What Korea should/could then do to revive and sustain the real economy in particular and the social fabric as a whole?
-Protect and rebuild the productive assets. This is the only way out.
-Restore the manufacturing jobs by keeping the jobs Korea has and creating new jobs in new productive industries.
Manufacturing and productive capacity has been the driver for jobs. Without the median wage improving, the Korean economy won’t enjoy sustainable recovery. Korea’s manufacturing jobs have been shifted to China and other Asian nations due to several factors such as the U.S. dollar policy and wage arbitrage. Korea has been engineering the mechanism for piling on debt to make up the difference through the asset and credit bubbles. Those compounded by the slump in Western demand have led to the mess Korea is facing.
-Allocate capital constructively and sustainably in productive sectors, not in unproductive and speculative sectors.
-Reorganize the banks and recognize all the bad loans.
-Given that trade surplus would decrease and asset bubbles would pop in not so distant future, pursue a conservative fiscal policy.
-Recognize the flaws in the export-led growth model and the mercantilist approach.
-Provide incentives and appropriate infrastructure to foster entrepreneurship and grow SMEs since they are the engine of hiring; Reduce the cost structure for small business and remove the impediments to starting new businesses and hiring workers.
This requires the government to stop offering any favors including tax breaks to chaebols and picking winners.
-Reestablish social culture in which hardwork and dedication are pursued to gain security and reward. Leaders in the political, business and academic classes may have to abandon a “me first” attitude.
-Beware the geopolitical dynamics.
Following up on that, I have discussed how things have worked and what has gone wrong in hopes that Korea continues to sustain and prosper in terms of the good of the Korean economy as a whole and its productive/innovative capacity.
In short, instead of rebuilding and reforming the broken system which caused the 1997 financial crisis, Korea has engaged in its own version of extend and pretend. Among others, Korea’s easy money policy, while this is not limited to Korea, has fuelled the misallocation of capital at the expense of productive investment.
Korea has to face the deleveraging mess. That is a reality.
Things move in cycles. Most nations go through the long-term cycle of economic prosperity and downfall; they rise to a peak, and then descend into a trough. Aside from the fact that Korea is not immune to the Global Depression which we are in, one has to probe whether Korea is heading into the down phase of the cycle.
What Korea should/could then do to revive and sustain the real economy in particular and the social fabric as a whole?
-Protect and rebuild the productive assets. This is the only way out.
-Restore the manufacturing jobs by keeping the jobs Korea has and creating new jobs in new productive industries.
Manufacturing and productive capacity has been the driver for jobs. Without the median wage improving, the Korean economy won’t enjoy sustainable recovery. Korea’s manufacturing jobs have been shifted to China and other Asian nations due to several factors such as the U.S. dollar policy and wage arbitrage. Korea has been engineering the mechanism for piling on debt to make up the difference through the asset and credit bubbles. Those compounded by the slump in Western demand have led to the mess Korea is facing.
-Allocate capital constructively and sustainably in productive sectors, not in unproductive and speculative sectors.
-Reorganize the banks and recognize all the bad loans.
-Given that trade surplus would decrease and asset bubbles would pop in not so distant future, pursue a conservative fiscal policy.
-Recognize the flaws in the export-led growth model and the mercantilist approach.
-Provide incentives and appropriate infrastructure to foster entrepreneurship and grow SMEs since they are the engine of hiring; Reduce the cost structure for small business and remove the impediments to starting new businesses and hiring workers.
This requires the government to stop offering any favors including tax breaks to chaebols and picking winners.
-Reestablish social culture in which hardwork and dedication are pursued to gain security and reward. Leaders in the political, business and academic classes may have to abandon a “me first” attitude.
-Beware the geopolitical dynamics.
Wednesday, September 21, 2011
Fed Announced Operation Twist
The U.S. Fed announced Operation Twist, buying $400 billion USTs in the 6 to 30 year range to pull down rates. In other words, the Fed continues to export inflation to Asian countries.
From Zero Hedge:
Complete Fed Statement breakdown:
• FED SEES `SIGNIFICANT DOWNSIDE RISKS' TO ECONOMIC OUTLOOK
• FED TO BUY TREASURIES WITH 6-YEAR TO 30-YEAR REMAINING MATURITY
• FED LEAVES FEDERAL FUNDS RATE TARGET AT ZERO TO 0.25 PERCENT
• FED SAYS PROGRAM PUTS `DOWNWARD PRESSURE' ON LONG-TERM RATES
• FED TO SELL TREASURIES WITH 3-YEAR OR LESS REMAINING MATURITY
• PLOSSER, FISHER, KOCHERLAKOTA DISSENT FROM FOMC DECISION
• FED REPEATS `EXCEPTIONALLY LOW' RATES THROUGH AT LEAST MID-2013
• FED TO BUY $400B OF LONG-TERM DEBT, SELL $400B SHORT-TERM DEBT
• FED EXTENDS AVERAGE MATURITIES OF SECURITIES HOLDINGS
• FED TO REINVEST MATURING HOUSING ASSETS IN HOUSING DEBT
• FED SAYS INFLATION `APPEARS TO HAVE MODERATED'
• FED SEES `CONTINUING WEAKNESS' IN LABOR MARKET
• FED PURCHASES TO BE DISTRIBUTED ACROSS FIVE SECTORS
• FED SAYS 32% OF DEBT PURCHASES MATURE FROM 6- TO 8-YEARS
• FED SAYS 32% OF DEBT PURCHASES MATURE FROM 8- TO 10-YEARS
• FED SAYS 4% OF DEBT PURCHASES MATURE FROM 10- TO 20-YEARS
In other words: $400 billion in POMOs over the next 8 months or so, with the monthly at about $50 billion. Also MBS repurchases for a token amount. No LSAP as most expected, and no IOER rate cut. Goldman once again about half of what it expected.
http://www.zerohedge.com/news/operation-twist-here-fed-buy-400-bilion-usts-6-30-year-maturity-roll-maturities-mbs
From Zero Hedge:
Complete Fed Statement breakdown:
• FED SEES `SIGNIFICANT DOWNSIDE RISKS' TO ECONOMIC OUTLOOK
• FED TO BUY TREASURIES WITH 6-YEAR TO 30-YEAR REMAINING MATURITY
• FED LEAVES FEDERAL FUNDS RATE TARGET AT ZERO TO 0.25 PERCENT
• FED SAYS PROGRAM PUTS `DOWNWARD PRESSURE' ON LONG-TERM RATES
• FED TO SELL TREASURIES WITH 3-YEAR OR LESS REMAINING MATURITY
• PLOSSER, FISHER, KOCHERLAKOTA DISSENT FROM FOMC DECISION
• FED REPEATS `EXCEPTIONALLY LOW' RATES THROUGH AT LEAST MID-2013
• FED TO BUY $400B OF LONG-TERM DEBT, SELL $400B SHORT-TERM DEBT
• FED EXTENDS AVERAGE MATURITIES OF SECURITIES HOLDINGS
• FED TO REINVEST MATURING HOUSING ASSETS IN HOUSING DEBT
• FED SAYS INFLATION `APPEARS TO HAVE MODERATED'
• FED SEES `CONTINUING WEAKNESS' IN LABOR MARKET
• FED PURCHASES TO BE DISTRIBUTED ACROSS FIVE SECTORS
• FED SAYS 32% OF DEBT PURCHASES MATURE FROM 6- TO 8-YEARS
• FED SAYS 32% OF DEBT PURCHASES MATURE FROM 8- TO 10-YEARS
• FED SAYS 4% OF DEBT PURCHASES MATURE FROM 10- TO 20-YEARS
In other words: $400 billion in POMOs over the next 8 months or so, with the monthly at about $50 billion. Also MBS repurchases for a token amount. No LSAP as most expected, and no IOER rate cut. Goldman once again about half of what it expected.
http://www.zerohedge.com/news/operation-twist-here-fed-buy-400-bilion-usts-6-30-year-maturity-roll-maturities-mbs
Tuesday, September 20, 2011
Jim Chanos: China Not Being Able to Bailout the World
One has to understand where China is heading in relation with the U.S. and Europe in the large context. Sure it has plenty of potential problems and has maintained a peculiar relationship with the U.S., as noted many times here. In the meantime, the U.S. situation seems to be messier for now. It seems that both the U.S. and China have learned how to be mutually dependent, which may last longer than one would image. Yet, it has to end at some point. Further, one has to understand where Korea stands in the middle of a global shift.
From Bloomgberg Excerpt:
The Chinese government’s balance sheet directly does not have a lot of debt . The state-owned enterprises of the local governments and all the other ancillary borrowing vehicles have lots of debt and its growing at a very fast rate. The assumption is that the state stands behind all this debt. We see that the debt in China, implicitly backed by the Chinese government, probably has gone from about 100% of GDP to about 200% of GDP recently. Those are numbers that are staggering. Those are European kind of numbers if not worse.
I think that will be the surprise going into this year, and into 2012 – that it is not so strong. The property market is hitting the wall right now and things are decelerating. The CEO of Komatsu said last week that he is having trouble getting paid for his excavator sales in China. Developers are being squeezed. They’re turning to the black market for lending, this shadow banking system that is growing by leaps and bounds like everything in China.
Regulators over there are really trying to get their hands around the problem. In the meantime, local governments have every incentive to just keep the game going. So they will continue with these projects, continuing to borrow as the central government tries to rein it in.
A lot of people are assuming that half of all new loans in China are going to go bad. In fact, the Chinese government even said that last year relating to the local governments. If we assume that China will grow total credit this year between 30% to 40% of GDP, and half of that debt will go bad, that is 15% to 20%. Say the recoveries on that are 50%. That means that China, on an after write off basis, may not be growing at all. It may be having to simply write off some of this stuff in the future so its 9% growth may be zero.
http://www.bloomberg.com/news/2011-09-20/kynikos-s-jim-chanos-discusses-european-debt-crisis.html
From Bloomgberg Excerpt:
The Chinese government’s balance sheet directly does not have a lot of debt . The state-owned enterprises of the local governments and all the other ancillary borrowing vehicles have lots of debt and its growing at a very fast rate. The assumption is that the state stands behind all this debt. We see that the debt in China, implicitly backed by the Chinese government, probably has gone from about 100% of GDP to about 200% of GDP recently. Those are numbers that are staggering. Those are European kind of numbers if not worse.
I think that will be the surprise going into this year, and into 2012 – that it is not so strong. The property market is hitting the wall right now and things are decelerating. The CEO of Komatsu said last week that he is having trouble getting paid for his excavator sales in China. Developers are being squeezed. They’re turning to the black market for lending, this shadow banking system that is growing by leaps and bounds like everything in China.
Regulators over there are really trying to get their hands around the problem. In the meantime, local governments have every incentive to just keep the game going. So they will continue with these projects, continuing to borrow as the central government tries to rein it in.
A lot of people are assuming that half of all new loans in China are going to go bad. In fact, the Chinese government even said that last year relating to the local governments. If we assume that China will grow total credit this year between 30% to 40% of GDP, and half of that debt will go bad, that is 15% to 20%. Say the recoveries on that are 50%. That means that China, on an after write off basis, may not be growing at all. It may be having to simply write off some of this stuff in the future so its 9% growth may be zero.
http://www.bloomberg.com/news/2011-09-20/kynikos-s-jim-chanos-discusses-european-debt-crisis.html
Monday, September 19, 2011
Corporate Bank Run Started: Siemens Pulls €500 Million from a French Bank, Redeposits Directly with ECB
From Zero Hedge:
In a shocking representation of just how bad things are in Europe, the FT reports that major European industrial concern Siemens, pulled €500 million form a large French bank, which is not BNP and leaves just [SocGenCredit Agricole] and deposited the money straight to the ECB. The implications of this are quite stunning, as it means that even European companies now refuse to work directly with their own banks, and somehow the ECB has become a direct lender/cash holder of only resort to private non-financial institutions! As Bloomberg reports further on the FT story, in total, Siemens has deposited between 4 billion euros and 6 billion euros, mostly through one-week deposits, with the ECB, FT says, cites the person.
http://www.zerohedge.com/news/shocker-siemens-pulls-%E2%82%AC500-million-french-bank-redeposits-direct-ecb
In a shocking representation of just how bad things are in Europe, the FT reports that major European industrial concern Siemens, pulled €500 million form a large French bank, which is not BNP and leaves just [SocGenCredit Agricole] and deposited the money straight to the ECB. The implications of this are quite stunning, as it means that even European companies now refuse to work directly with their own banks, and somehow the ECB has become a direct lender/cash holder of only resort to private non-financial institutions! As Bloomberg reports further on the FT story, in total, Siemens has deposited between 4 billion euros and 6 billion euros, mostly through one-week deposits, with the ECB, FT says, cites the person.
http://www.zerohedge.com/news/shocker-siemens-pulls-%E2%82%AC500-million-french-bank-redeposits-direct-ecb
Sunday, September 18, 2011
Korea’s Seven Savings Banks Suspended on Sunday
From Yonhap:
South Korea's financial regulators on Sunday suspended business operations of seven savings banks, including major players Jeil and Tomato whose asset values exceed 3 trillion won (US$2.7 billion), as part of its efforts to overhaul the ailing sector.
South Korea has been grappling with salvaging the troubled sector as savings banks have been suffering from deteriorating asset quality due to soured construction loans.
Business operations at the seven players -- Jeil Savings Bank, Jeil 2 Savings Bank, Prime Mutual Savings Bank, Daeyeong Savings Bank, Ace Mutual Savings Bank, Parangsae Savings Bank and Tomato Savings Bank -- were suspended for six months starting at noon on Sunday, according to the financial regulators. Trading of the listed savings banks' shares will be halted starting Monday.
http://english.yonhapnews.co.kr/business/2011/09/18/46/0503000000AEN20110918004200320F.HTML
South Korea's financial regulators on Sunday suspended business operations of seven savings banks, including major players Jeil and Tomato whose asset values exceed 3 trillion won (US$2.7 billion), as part of its efforts to overhaul the ailing sector.
South Korea has been grappling with salvaging the troubled sector as savings banks have been suffering from deteriorating asset quality due to soured construction loans.
Business operations at the seven players -- Jeil Savings Bank, Jeil 2 Savings Bank, Prime Mutual Savings Bank, Daeyeong Savings Bank, Ace Mutual Savings Bank, Parangsae Savings Bank and Tomato Savings Bank -- were suspended for six months starting at noon on Sunday, according to the financial regulators. Trading of the listed savings banks' shares will be halted starting Monday.
http://english.yonhapnews.co.kr/business/2011/09/18/46/0503000000AEN20110918004200320F.HTML
Friday, September 16, 2011
Brandon Smith: Is China Ready to Pull the Plug?
From Alt-Market:
There are two mainstream market assumptions that, in my mind, prevail over all others. The continuing function of the Dow, the sustained flow of capital into and out of the banking sector, and the full force spending of the federal government are ALL entirely dependent on the lifespan of these dual illusions; one, that the U.S. Dollar is a legitimate safe haven investment and will remain so indefinitely, and two, that China, like many other developing nations, will continue to prop up the strength of the dollar indefinitely because it is “in their best interest”. In the dimly lit bowels of Wall Street such ideas are so entrenched and pervasive, to question their validity is almost sacrilegious. Only after the recent S&P downgrade of America’s AAA credit rating did the impossible become thinkable to some MSM analysts, though a considerable portion of the day-trading herd continue to roll onward, while the time bomb strapped to the ass end of their financial house is ticking away.
China, being the second largest holder of U.S. debt next to the Fed, and the number one holder of dollars within their forex reserves, has always been the key to gauging the progression of the global economic collapse now in progress. If you want to know what’s going to happen tomorrow, watch what China does today.
China is well equipped to produce technological goods without U.S. help, and if Japan is inducted into ASEAN (as I believe they soon will be), they will be even more capable.
America will NOT be able to revert back to an industrial based economy before a dollar collapse escalates to fruition. It took decades to dismantle U.S. industry and ship it overseas. Reeducating a 70% service based society to function in an industrial system, not to mention resurrecting the factory infrastructure necessary to support the nation, would likely take decades to accomplish.
If the U.S. deliberately defaults on debt to China, the global reputation of the dollar would implode, and its world reserve status would be irrevocably lost. We won’t be teaching anyone a “lesson” then.
Yes, China currently manipulates its currency down, but then again, so does the U.S. though quantitative easing. Both sides are dirty. Taking sides in this farce is pure stupidity...
Now that all that has been cleared up (again), the primary point becomes rather direct; the reason it is difficult to predict an exact time frame for an American collapse is because all the pieces are in place to trigger an event right now! There are, of course, stress points within the system that set a time limit, even on global banks and China, but a full spectrum catastrophe is not only a concern for some distant future. Every element needed for the so called “perfect storm” is ever present and ready to ignite at a moments notice. The destructive potential coming from China alone is undeniable.
Everyday that the spark is subdued should be treated as a gift, an extra 24 hours of education and preparation. This is how close we are to the edge. It is not for us to be alarmed, but to be ready, and ever aware.
http://www.alt-market.com/articles/266-is-china-ready-to-pull-the-plug
There are two mainstream market assumptions that, in my mind, prevail over all others. The continuing function of the Dow, the sustained flow of capital into and out of the banking sector, and the full force spending of the federal government are ALL entirely dependent on the lifespan of these dual illusions; one, that the U.S. Dollar is a legitimate safe haven investment and will remain so indefinitely, and two, that China, like many other developing nations, will continue to prop up the strength of the dollar indefinitely because it is “in their best interest”. In the dimly lit bowels of Wall Street such ideas are so entrenched and pervasive, to question their validity is almost sacrilegious. Only after the recent S&P downgrade of America’s AAA credit rating did the impossible become thinkable to some MSM analysts, though a considerable portion of the day-trading herd continue to roll onward, while the time bomb strapped to the ass end of their financial house is ticking away.
China, being the second largest holder of U.S. debt next to the Fed, and the number one holder of dollars within their forex reserves, has always been the key to gauging the progression of the global economic collapse now in progress. If you want to know what’s going to happen tomorrow, watch what China does today.
China is well equipped to produce technological goods without U.S. help, and if Japan is inducted into ASEAN (as I believe they soon will be), they will be even more capable.
America will NOT be able to revert back to an industrial based economy before a dollar collapse escalates to fruition. It took decades to dismantle U.S. industry and ship it overseas. Reeducating a 70% service based society to function in an industrial system, not to mention resurrecting the factory infrastructure necessary to support the nation, would likely take decades to accomplish.
If the U.S. deliberately defaults on debt to China, the global reputation of the dollar would implode, and its world reserve status would be irrevocably lost. We won’t be teaching anyone a “lesson” then.
Yes, China currently manipulates its currency down, but then again, so does the U.S. though quantitative easing. Both sides are dirty. Taking sides in this farce is pure stupidity...
Now that all that has been cleared up (again), the primary point becomes rather direct; the reason it is difficult to predict an exact time frame for an American collapse is because all the pieces are in place to trigger an event right now! There are, of course, stress points within the system that set a time limit, even on global banks and China, but a full spectrum catastrophe is not only a concern for some distant future. Every element needed for the so called “perfect storm” is ever present and ready to ignite at a moments notice. The destructive potential coming from China alone is undeniable.
Everyday that the spark is subdued should be treated as a gift, an extra 24 hours of education and preparation. This is how close we are to the edge. It is not for us to be alarmed, but to be ready, and ever aware.
http://www.alt-market.com/articles/266-is-china-ready-to-pull-the-plug
David Rosenberg: A Modern Day Depression
David Rosenberg explains why the U.S. is in a depression, not a recession
From his latest letter posted on Zero Hedge:
We just came off the weakest recovery on record despite the massive amounts of stimulus that the U.S. government has delivered in so many ways. That the yield on the 10-year U.S. Treasury note is down to 2% already speaks volumes because the last time we were at these levels was back in December 2008 when the downturn was already 12 months old. A period like the one we have endured over the past six months when bank shares are down 30% and the 10- year note yield is down 130 basis points has never in the past foreshadowed anything very good coming down the pike. If market rates are at Japanese levels, or at 1930s levels, then it's time to start calling this for what it is: A modern day depression.
Look, that entire period from 1929-1941 saw several quarters of huge bungee-jump style GDP growth and countless tradable rallies in the stock market.
But that misses the point.
The point being that a depression, put simply, is a very long period of economic malaise and when the economy fails to respond in any meaningful or lasting way to government stimulus programs. A series of rolling recessions and modest recoveries over a multi-year period of general economic stagnation as the excesses from the prior asset and credit bubble are completely wrung out of the system. In baseball parlance, we are in the third inning of this current debt deleveraging ball game.
You know you're in a depression when interest rates go to zero and there is no revival in credit-sensitive spending.
The economy is in a depression when the banks are sitting on nearly $2 trillion of cash and yet there is no lending going onto the private sector. It's otherwise known as a 'liquidity trap'.
Depressions usually are caused by a bursting of an asset bubble and a contraction in credit, whereas plain-vanilla recessions are typically caused by inflation and excessive manufacturing inventories. You tell me which fits the bill today.
When almost half of the ranks of the unemployed have been looking for a job fruitlessly for at least six months, you know you are in something much deeper than a garden-variety recession. True, we can't see the soup lines; the soup lines are in the mail — 99 weeks of unemployment cheques for over 10 million jobless Americans. Don't be lulled into the view that we are into anything remotely close to a normal economic cycle.
Basically, in a depression, secular changes take place. Attitudes towards debt, discretionary spending and homeownership are altered for many years, or at least until the scars from the traumatic experience with defaults and delinquencies fade away. That is why we saw existing home sales slide to 15- year lows and new home sales to record lows despite the fact that mortgage rates have tumbled to their lowest levels in modern history. There is no economic model that would tell you that declining mortgage rates should lead to lower home sales.
More fundamentally, in a recession, the economy is revived by government stimulus. In depressions, the economy is sustained by government stimulus. There is a very big difference between these two states.
In a recession, everything would be back to a new high nearly three years after the initial contraction in the economy. This time around, everything from organic personal income to employment to real GDP to home prices to corporate earnings to outstanding bank credit are still all below, to varying degrees, the levels prevailing in December 2007.
Let's be clear: After all the monetary, fiscal and bailout stimulus, the economy should be roaring ahead, as would be the case if the economy were coming out of a normal garden-variety recession. The fact that there has been no sustained response to all these efforts by the government to turn things around is testament to the view that this is not actually a traditional recession at all, but something closely resembling a depression. That, my friends, is exactly what the bond market is signaling, with Treasury yields rapidly approaching Japanese levels. Just because the stock market embarked on a stimulus-led speculative two-year rally, which ended abruptly in April 2011— does not change that fact.
For all the chatter about whether the recession that started in December 2007 ended in mid-2009, here is what you should know about the historical record. The 1930s depression was not marked by declining quarterly GDP data every single quarter. In fact, the technical recessionary aspect to the initial period following the asset and credit shock goes from the third quarter of 1929 to the first quarter of 1933.
I can understand how emotional the debate can get over whether or not we have actually just stumbled along some post-recession recovery path or whether or not this is actually a depression in the sense of a downward trend in economic activity merely punctuated with noise that is influenced by recurring rounds of government intervention. The reality is that the Fed cut the funds rate to zero, as was the case in Japan, to little avail. Then the Fed tripled the size of its balance sheet— again with little sustained impetus to a broken financial system. Government deficits of nearly 10% relative to GDP, or double what FDR ever ran during the 1930s, have obviously fallen flat in terms of providing any lasting impact to the economy.
This is going to sound like a broken record but it took a decade of parabolic credit growth to get the U.S. economy into this deleveraging mess and there is clearly no painless "quick fix" towards bringing household debt into historical realignment with the level of assets and income to support the prevailing level of liabilities. We are talking about $5 trillion of excess debt that has to be extinguished either by paying it down or by walking away from it (or having it socialized). Look, we can understand the need to be optimistic, but it is essential that we recognize the type of market and economic backdrop we are in.
The markets are telling us something valuable when (after a period of unprecedented government bailouts, incursions and stimulus programs) the yield on the 5-year note is south of 1% and the 10-year is down to 2%. Instead of contemplating over how attractively priced equities must be in this environment, market strategists and commentators would bring a lot more to the table if they tried to decipher what the macro message is from this price action in the Treasury market. Conducting stock market valuation analysis based on unrealistic consensus earnings assumptions does nobody any good, especially when these estimates are in the process of being cut, and at a time when the Treasury market is telling us we are the precipice of another recession.
If the Treasury market is correct in its implicit assumption of a renewed contraction in the economy, then we could well be talking about corporate earnings being closer to $75 in 2011 as opposed to the current consensus view of over $110. In other words, we may wake up to find out a year from now that whoever was buying the market today under an illusion of a forward multiple of 10x was actually buying the market with a 15x multiple.
How's that for a reality check?
This augers for capital preservation, defensive orientation in the equity market and a focus on income-yielding securities; something we've been advocating for some time.
http://www.zerohedge.com/news/david-rosenberg-its-time-start-calling-what-it-modern-day-depression
From his latest letter posted on Zero Hedge:
We just came off the weakest recovery on record despite the massive amounts of stimulus that the U.S. government has delivered in so many ways. That the yield on the 10-year U.S. Treasury note is down to 2% already speaks volumes because the last time we were at these levels was back in December 2008 when the downturn was already 12 months old. A period like the one we have endured over the past six months when bank shares are down 30% and the 10- year note yield is down 130 basis points has never in the past foreshadowed anything very good coming down the pike. If market rates are at Japanese levels, or at 1930s levels, then it's time to start calling this for what it is: A modern day depression.
Look, that entire period from 1929-1941 saw several quarters of huge bungee-jump style GDP growth and countless tradable rallies in the stock market.
But that misses the point.
The point being that a depression, put simply, is a very long period of economic malaise and when the economy fails to respond in any meaningful or lasting way to government stimulus programs. A series of rolling recessions and modest recoveries over a multi-year period of general economic stagnation as the excesses from the prior asset and credit bubble are completely wrung out of the system. In baseball parlance, we are in the third inning of this current debt deleveraging ball game.
You know you're in a depression when interest rates go to zero and there is no revival in credit-sensitive spending.
The economy is in a depression when the banks are sitting on nearly $2 trillion of cash and yet there is no lending going onto the private sector. It's otherwise known as a 'liquidity trap'.
Depressions usually are caused by a bursting of an asset bubble and a contraction in credit, whereas plain-vanilla recessions are typically caused by inflation and excessive manufacturing inventories. You tell me which fits the bill today.
When almost half of the ranks of the unemployed have been looking for a job fruitlessly for at least six months, you know you are in something much deeper than a garden-variety recession. True, we can't see the soup lines; the soup lines are in the mail — 99 weeks of unemployment cheques for over 10 million jobless Americans. Don't be lulled into the view that we are into anything remotely close to a normal economic cycle.
Basically, in a depression, secular changes take place. Attitudes towards debt, discretionary spending and homeownership are altered for many years, or at least until the scars from the traumatic experience with defaults and delinquencies fade away. That is why we saw existing home sales slide to 15- year lows and new home sales to record lows despite the fact that mortgage rates have tumbled to their lowest levels in modern history. There is no economic model that would tell you that declining mortgage rates should lead to lower home sales.
More fundamentally, in a recession, the economy is revived by government stimulus. In depressions, the economy is sustained by government stimulus. There is a very big difference between these two states.
In a recession, everything would be back to a new high nearly three years after the initial contraction in the economy. This time around, everything from organic personal income to employment to real GDP to home prices to corporate earnings to outstanding bank credit are still all below, to varying degrees, the levels prevailing in December 2007.
Let's be clear: After all the monetary, fiscal and bailout stimulus, the economy should be roaring ahead, as would be the case if the economy were coming out of a normal garden-variety recession. The fact that there has been no sustained response to all these efforts by the government to turn things around is testament to the view that this is not actually a traditional recession at all, but something closely resembling a depression. That, my friends, is exactly what the bond market is signaling, with Treasury yields rapidly approaching Japanese levels. Just because the stock market embarked on a stimulus-led speculative two-year rally, which ended abruptly in April 2011— does not change that fact.
For all the chatter about whether the recession that started in December 2007 ended in mid-2009, here is what you should know about the historical record. The 1930s depression was not marked by declining quarterly GDP data every single quarter. In fact, the technical recessionary aspect to the initial period following the asset and credit shock goes from the third quarter of 1929 to the first quarter of 1933.
I can understand how emotional the debate can get over whether or not we have actually just stumbled along some post-recession recovery path or whether or not this is actually a depression in the sense of a downward trend in economic activity merely punctuated with noise that is influenced by recurring rounds of government intervention. The reality is that the Fed cut the funds rate to zero, as was the case in Japan, to little avail. Then the Fed tripled the size of its balance sheet— again with little sustained impetus to a broken financial system. Government deficits of nearly 10% relative to GDP, or double what FDR ever ran during the 1930s, have obviously fallen flat in terms of providing any lasting impact to the economy.
This is going to sound like a broken record but it took a decade of parabolic credit growth to get the U.S. economy into this deleveraging mess and there is clearly no painless "quick fix" towards bringing household debt into historical realignment with the level of assets and income to support the prevailing level of liabilities. We are talking about $5 trillion of excess debt that has to be extinguished either by paying it down or by walking away from it (or having it socialized). Look, we can understand the need to be optimistic, but it is essential that we recognize the type of market and economic backdrop we are in.
The markets are telling us something valuable when (after a period of unprecedented government bailouts, incursions and stimulus programs) the yield on the 5-year note is south of 1% and the 10-year is down to 2%. Instead of contemplating over how attractively priced equities must be in this environment, market strategists and commentators would bring a lot more to the table if they tried to decipher what the macro message is from this price action in the Treasury market. Conducting stock market valuation analysis based on unrealistic consensus earnings assumptions does nobody any good, especially when these estimates are in the process of being cut, and at a time when the Treasury market is telling us we are the precipice of another recession.
If the Treasury market is correct in its implicit assumption of a renewed contraction in the economy, then we could well be talking about corporate earnings being closer to $75 in 2011 as opposed to the current consensus view of over $110. In other words, we may wake up to find out a year from now that whoever was buying the market today under an illusion of a forward multiple of 10x was actually buying the market with a 15x multiple.
How's that for a reality check?
This augers for capital preservation, defensive orientation in the equity market and a focus on income-yielding securities; something we've been advocating for some time.
http://www.zerohedge.com/news/david-rosenberg-its-time-start-calling-what-it-modern-day-depression
Wednesday, September 14, 2011
P&G’s Growth Strategy Changed Due To Dwindling Middle Class
From WSJ:
For generations, Procter & Gamble Co.'s growth strategy was focused on developing household staples for the vast American middle class.
A shrinking middle class has forced Procter and Gamble to adjust the way it markets its household products -- to higher and lower income levels than the traditional middle-class levels, WSJ's Ellen Byron reports on the AM Hub. AP Photo/Steve Helber
Now, P&G executives say many of its former middle-market shoppers are trading down to lower-priced goods—widening the pools of have and have-not consumers at the expense of the middle.
That's forced P&G, which estimates it has at least one product in 98% of American households, to fundamentally change the way it develops and sells its goods. For the first time in 38 years, for example, the company launched a new dish soap in the U.S. at a bargain price.
"It's required us to think differently about our product portfolio and how to please the high-end and lower-end markets," says Melanie Healey, group president of P&G's North America business. "That's frankly where a lot of the growth is happening."
In the wake of the worst recession in 50 years, there's little doubt that the American middle class—the 40% of households with annual incomes between $50,000 and $140,000 a year—is in distress. Even before the recession, incomes of American middle-class families weren't keeping up with inflation, especially with the rising costs of what are considered the essential ingredients of middle-class life—college education, health care and housing. In 2009, the income of the median family, the one smack in the middle of the middle, was lower, adjusted for inflation, than in 1998, the Census Bureau says.
The slumping stock market and collapse in housing prices have also hit middle-class Americans. At the end of March, Americans had $6.1 trillion in equity in their houses—the value of the house minus mortgages—half the 2006 level, according to the Federal Reserve. Economist Edward Wolff of New York University estimates that the net worth—household assets minus debts—of the middle fifth of American households grew by 2.4% a year between 2001 and 2007 and plunged by 26.2% in the following two years.
P&G isn't the only company adjusting its business. A wide swath of American companies is convinced that the consumer market is bifurcating into high and low ends and eroding in the middle. They have begun to alter the way they research, develop and market their products.
http://online.wsj.com/article/SB10001424053111904836104576558861943984924.html
For generations, Procter & Gamble Co.'s growth strategy was focused on developing household staples for the vast American middle class.
A shrinking middle class has forced Procter and Gamble to adjust the way it markets its household products -- to higher and lower income levels than the traditional middle-class levels, WSJ's Ellen Byron reports on the AM Hub. AP Photo/Steve Helber
Now, P&G executives say many of its former middle-market shoppers are trading down to lower-priced goods—widening the pools of have and have-not consumers at the expense of the middle.
That's forced P&G, which estimates it has at least one product in 98% of American households, to fundamentally change the way it develops and sells its goods. For the first time in 38 years, for example, the company launched a new dish soap in the U.S. at a bargain price.
"It's required us to think differently about our product portfolio and how to please the high-end and lower-end markets," says Melanie Healey, group president of P&G's North America business. "That's frankly where a lot of the growth is happening."
In the wake of the worst recession in 50 years, there's little doubt that the American middle class—the 40% of households with annual incomes between $50,000 and $140,000 a year—is in distress. Even before the recession, incomes of American middle-class families weren't keeping up with inflation, especially with the rising costs of what are considered the essential ingredients of middle-class life—college education, health care and housing. In 2009, the income of the median family, the one smack in the middle of the middle, was lower, adjusted for inflation, than in 1998, the Census Bureau says.
The slumping stock market and collapse in housing prices have also hit middle-class Americans. At the end of March, Americans had $6.1 trillion in equity in their houses—the value of the house minus mortgages—half the 2006 level, according to the Federal Reserve. Economist Edward Wolff of New York University estimates that the net worth—household assets minus debts—of the middle fifth of American households grew by 2.4% a year between 2001 and 2007 and plunged by 26.2% in the following two years.
P&G isn't the only company adjusting its business. A wide swath of American companies is convinced that the consumer market is bifurcating into high and low ends and eroding in the middle. They have begun to alter the way they research, develop and market their products.
http://online.wsj.com/article/SB10001424053111904836104576558861943984924.html
Chinese Premier Dampening Speculation on European Bailout; China Willing To Buy Debt Of Crisis Nations; Who Is Bailing Out China?
From Bloomberg:
Japanese stocks dropped after Premier Wen Jiabao said indebted economies must “put their own houses in order,” damping speculation China would rescue Europe from a crisis that has sent global financial markets plunging.
The Nikkei 225 (NKY) Stock Average slipped 1.1 percent to 8,518.57 at the 3 p.m. close in Tokyo, reversing earlier gains of as much as 0.6 percent after Wen’s comments today at the World Economic Forum in the Chinese city of Dalian. The broader Topix slid 1.1 percent to 741.69.
“He put to rest any speculation China will buy more European debt,” said Naoki Fujiwara, who helps oversee $6 billion at Shinkin Asset Management Co. in Tokyo. “Still nobody thought that the bond purchases would be enough to solve the crisis, anyway. There won’t be resolution unless Europe addresses its debts in a fundamental way.”
http://www.bloomberg.com/news/2011-09-14/nikkei-225-advances-as-european-debt-concern-eases-energy-companies-rise.html
From Bloomberg:
China is willing to buy bonds from nations involved in the sovereign debt crisis, National Development and Reform Commission Vice Chairman Zhang Xiaoqiang said in an interview with the media in Dalian yesterday.
“Countries must first put their own houses in order,” Wen said. “Developed countries must take responsible fiscal and monetary policies. What is most important now is to prevent the further spread of the sovereign debt crisis in Europe.”
http://www.bloomberg.com/news/2011-09-14/china-willing-to-buy-bonds-from-sovereign-debt-crisis-nations-zhang-says.html
From Market Watch:
China’s real-estate market may face an escalating credit crisis, with industry data for August providing clues that big developers are running short of cash, according to Credit Suisse analysts.
The unfolding situation heralds a perfect storm for China’s home-building industry, and China’s deteriorating credit backdrop should be viewed by investors with alarm, the Credit Suisse analysts said.
http://www.marketwatch.com/story/china-developers-short-of-cash-analyst-2011-09-14?siteid=rss&rss=1
Japanese stocks dropped after Premier Wen Jiabao said indebted economies must “put their own houses in order,” damping speculation China would rescue Europe from a crisis that has sent global financial markets plunging.
The Nikkei 225 (NKY) Stock Average slipped 1.1 percent to 8,518.57 at the 3 p.m. close in Tokyo, reversing earlier gains of as much as 0.6 percent after Wen’s comments today at the World Economic Forum in the Chinese city of Dalian. The broader Topix slid 1.1 percent to 741.69.
“He put to rest any speculation China will buy more European debt,” said Naoki Fujiwara, who helps oversee $6 billion at Shinkin Asset Management Co. in Tokyo. “Still nobody thought that the bond purchases would be enough to solve the crisis, anyway. There won’t be resolution unless Europe addresses its debts in a fundamental way.”
http://www.bloomberg.com/news/2011-09-14/nikkei-225-advances-as-european-debt-concern-eases-energy-companies-rise.html
From Bloomberg:
China is willing to buy bonds from nations involved in the sovereign debt crisis, National Development and Reform Commission Vice Chairman Zhang Xiaoqiang said in an interview with the media in Dalian yesterday.
“Countries must first put their own houses in order,” Wen said. “Developed countries must take responsible fiscal and monetary policies. What is most important now is to prevent the further spread of the sovereign debt crisis in Europe.”
http://www.bloomberg.com/news/2011-09-14/china-willing-to-buy-bonds-from-sovereign-debt-crisis-nations-zhang-says.html
From Market Watch:
China’s real-estate market may face an escalating credit crisis, with industry data for August providing clues that big developers are running short of cash, according to Credit Suisse analysts.
The unfolding situation heralds a perfect storm for China’s home-building industry, and China’s deteriorating credit backdrop should be viewed by investors with alarm, the Credit Suisse analysts said.
http://www.marketwatch.com/story/china-developers-short-of-cash-analyst-2011-09-14?siteid=rss&rss=1
Tuesday, September 13, 2011
Tiger’s Julian Robertson: Europe in a State of Financial Collapse; Jefferies Describes the Endgame: Europe Is Finished
From Zero Hedge:
In a moment of clarity, Tiger's Julian Robertson educates the money-honey on just how bad things are. Robertson started by trumpeting how bad macro is everywhere, moved on to Europe being in a 'state of financial collapse', likes shorting weak European currencies (Hungarian Forint) and warns of the possibility of a rapid rise in interest rates in the US. He is positive on NOK, thinks Canada is a 'very well run country', is a buyer of US large cap tech (citing GOOG and AAPL specifically), and sees Visa/Mastercard growing at 20%+ per year for some time.
http://www.zerohedge.com/news/tigers-robertson-europe-state-financial-collapse
From CNBC:
When asked if he was concerned over Europe's debt situation and the struggling US economy, Robertson told Bartiromo "our political leadership is doing nothing to really help us get out of this current situation. Worldwide, Europe is just in a state of financial collapse." Bartiromo asked if he was expecting a default in Greece and Robertson replied, "Oh, yes." But default expectations do not stop there. Robertson believes there are real concerns for Portugal, even Italy as well.
http://www.cnbc.com/id/44506729
From Zero Hedge:
The most scathing report describing in exquisite detail the coming financial apocalypse in Europe comes not from some fringe blogger or soundbite striving politician, but from perpetual bulge bracket wannabe, Jefferies and specifically its chief market strategist David Zervos. "The bottom line is that it looks like a Lehman like event is about to be unleashed on Europe WITHOUT an effective TARP like structure fully in place. Now maybe, just maybe, they can do what the US did and build one on the fly - wiping out a few institutions and then using an expanded EFSF/Eurobond structure to prevent systemic collapse. But politically that is increasingly feeling like a long shot. Rather it looks like we will get 17 TARPs - one for each country. That is going to require a US style socialization of each banking system - with many WAMUs, Wachovias, AIGs and IndyMacs along the way. The road map for Europe is still 2008 in the US, with the end game a country by country socialization of their commercial banks. The fact is that the Germans are NOT going to pay for pan European structure to recap French and Italian banks - even though it is probably a more cost effective solution for both the German banks and taxpayers....Expect a massive policy response in Europe and a move towards financial market nationlaization that will make the US experience look like a walk in the park. " Must read for anyone who wants a glimpse of the endgame. Oh, good luck China. You'll need it.
http://www.zerohedge.com/news/jefferies-describes-endgame-europe-finished
In a moment of clarity, Tiger's Julian Robertson educates the money-honey on just how bad things are. Robertson started by trumpeting how bad macro is everywhere, moved on to Europe being in a 'state of financial collapse', likes shorting weak European currencies (Hungarian Forint) and warns of the possibility of a rapid rise in interest rates in the US. He is positive on NOK, thinks Canada is a 'very well run country', is a buyer of US large cap tech (citing GOOG and AAPL specifically), and sees Visa/Mastercard growing at 20%+ per year for some time.
http://www.zerohedge.com/news/tigers-robertson-europe-state-financial-collapse
From CNBC:
When asked if he was concerned over Europe's debt situation and the struggling US economy, Robertson told Bartiromo "our political leadership is doing nothing to really help us get out of this current situation. Worldwide, Europe is just in a state of financial collapse." Bartiromo asked if he was expecting a default in Greece and Robertson replied, "Oh, yes." But default expectations do not stop there. Robertson believes there are real concerns for Portugal, even Italy as well.
http://www.cnbc.com/id/44506729
From Zero Hedge:
The most scathing report describing in exquisite detail the coming financial apocalypse in Europe comes not from some fringe blogger or soundbite striving politician, but from perpetual bulge bracket wannabe, Jefferies and specifically its chief market strategist David Zervos. "The bottom line is that it looks like a Lehman like event is about to be unleashed on Europe WITHOUT an effective TARP like structure fully in place. Now maybe, just maybe, they can do what the US did and build one on the fly - wiping out a few institutions and then using an expanded EFSF/Eurobond structure to prevent systemic collapse. But politically that is increasingly feeling like a long shot. Rather it looks like we will get 17 TARPs - one for each country. That is going to require a US style socialization of each banking system - with many WAMUs, Wachovias, AIGs and IndyMacs along the way. The road map for Europe is still 2008 in the US, with the end game a country by country socialization of their commercial banks. The fact is that the Germans are NOT going to pay for pan European structure to recap French and Italian banks - even though it is probably a more cost effective solution for both the German banks and taxpayers....Expect a massive policy response in Europe and a move towards financial market nationlaization that will make the US experience look like a walk in the park. " Must read for anyone who wants a glimpse of the endgame. Oh, good luck China. You'll need it.
http://www.zerohedge.com/news/jefferies-describes-endgame-europe-finished
The U.S. Median Male Income In Decline; Poverty Rate Highest Since 1993
Asian mercantilist countries have built themselves up on Western demands. Now that model is not holding up. The median wage decline in the U.S. is having repercussions in them.
From Zero Hedge:
While the fact that a record number of Americans are living in poverty should not surprise anyone at this point, what should surprise many is that according to Table P-5 of the Census report of (Lack of) Income, the median male is now worse on a gross, inflation adjusted basis, than he was in... 1968! While back then, the median income of male workers was $32,844, it has since risen declined to $32,137 as of 2010. And there is your lesson in inflation 101 (which we assume is driven by the CPI, which likely means that the actual inflation adjusted income decline is far worse than what is even reported). The only winner: women, whose median inflation adjusted income over the same period has increased by 188%. That said, it is still at 65% of what the median male makes.
http://www.zerohedge.com/news/median-male-worker-makes-less-now-43-years-ago
From WSJ:
The income of the typical American family—long the envy of much of the world—has dropped for the third year in a row and is now roughly where it was in 1996 when adjusted for inflation.
The income of a household considered to be at the statistical middle fell 2.3% to an inflation-adjusted $49,445 in 2010, which is 7.1% below its 1999 peak, the Census Bureau said.
Earnings of the typical man who works full-time year round fell, and are lower—adjusted for inflation—than in 1978. Earnings for women, meanwhile, are a relative bright spot: Median incomes have been rising in recent years and rose again last year, though women still make 77 cents for every dollar earned by comparably employed men.
The fraction of Americans living in poverty clicked up to 15.1% of the population, and 22% of children are now living below the poverty line, the biggest percentage since 1993.
http://online.wsj.com/article/SB10001424053111904265504576568543968213896.html?mod=WSJ_hp_LEFTTopStories
From Zero Hedge:
While the fact that a record number of Americans are living in poverty should not surprise anyone at this point, what should surprise many is that according to Table P-5 of the Census report of (Lack of) Income, the median male is now worse on a gross, inflation adjusted basis, than he was in... 1968! While back then, the median income of male workers was $32,844, it has since risen declined to $32,137 as of 2010. And there is your lesson in inflation 101 (which we assume is driven by the CPI, which likely means that the actual inflation adjusted income decline is far worse than what is even reported). The only winner: women, whose median inflation adjusted income over the same period has increased by 188%. That said, it is still at 65% of what the median male makes.
http://www.zerohedge.com/news/median-male-worker-makes-less-now-43-years-ago
From WSJ:
The income of the typical American family—long the envy of much of the world—has dropped for the third year in a row and is now roughly where it was in 1996 when adjusted for inflation.
The income of a household considered to be at the statistical middle fell 2.3% to an inflation-adjusted $49,445 in 2010, which is 7.1% below its 1999 peak, the Census Bureau said.
Earnings of the typical man who works full-time year round fell, and are lower—adjusted for inflation—than in 1978. Earnings for women, meanwhile, are a relative bright spot: Median incomes have been rising in recent years and rose again last year, though women still make 77 cents for every dollar earned by comparably employed men.
The fraction of Americans living in poverty clicked up to 15.1% of the population, and 22% of children are now living below the poverty line, the biggest percentage since 1993.
http://online.wsj.com/article/SB10001424053111904265504576568543968213896.html?mod=WSJ_hp_LEFTTopStories
Monday, September 12, 2011
Thursday, September 8, 2011
Japan’s Machinery Orders Collapse 8.2%; Japan Ready to Take Bold Action on Currency
Japan’s central bank’s interventions have been ineffective, yet they are ready for it again.
From Reuters:
Japan's core machinery orders tumbled in July at twice the pace economists' had expected in a sign that companies are delaying investment due to worries about a strong yen, slackening global growth and slow progress in reconstruction from the March earthquake.
The current account surplus fell more in the year to July than the median estimate as exports weakened, highlighting concerns that a strong yen and a stuttering global economy could hamper Japan's recovery from the post-quake slump.
The disappointing data could place some pressure on the government and the Bank of Japan, which highlighted risks to growth after leaving monetary policy on hold on Wednesday, to ensure that the yen doesn't strengthen further.
The yen has been attracting safe-haven demand from investors unsettled by Europe's sovereign debt crisis and signs of U.S. economic slowdown even as Japan struggles with its own debt burden and its new government faces a long battle to gain consensus over how to fund reconstruction from the March 11 earthquake and tsunami.
Core machinery orders fell 8.2 percent in July from the previous month due to declines in orders from manufacturers and service sector firms, Cabinet Office data showed on Thursday. That compared with a median market forecast for a 4.1 percent decline and follows a 7.7 percent rise in June.
Japan is on guard against further yen appreciation after intervening in currency markets last month when its currency approached a record high versus the dollar.
Japan's economy probably shrank at a faster annualized pace in the second quarter than the government's initial estimate as corporate spending fell at a quicker rate due to the strong yen and a slowdown in the global economy, a Reuters poll showed before the release of the data on Friday. ($1 = 77.325 Japanese Yen)
http://www.reuters.com/article/2011/09/08/us-japan-economy-idUSTRE78705E20110908
From Bloomberg:
Japanese Finance Minister Jun Azumi said he will tell his Group of Seven counterparts that his country remains prepared to take “bold” action in currency markets when necessary. He spoke to reporters today in Marseille, France.
http://www.bloomberg.com/news/2011-09-08/azumi-says-he-will-tell-g-7-japan-ready-to-take-bold-action-on-currency.html
From Reuters:
Japan's core machinery orders tumbled in July at twice the pace economists' had expected in a sign that companies are delaying investment due to worries about a strong yen, slackening global growth and slow progress in reconstruction from the March earthquake.
The current account surplus fell more in the year to July than the median estimate as exports weakened, highlighting concerns that a strong yen and a stuttering global economy could hamper Japan's recovery from the post-quake slump.
The disappointing data could place some pressure on the government and the Bank of Japan, which highlighted risks to growth after leaving monetary policy on hold on Wednesday, to ensure that the yen doesn't strengthen further.
The yen has been attracting safe-haven demand from investors unsettled by Europe's sovereign debt crisis and signs of U.S. economic slowdown even as Japan struggles with its own debt burden and its new government faces a long battle to gain consensus over how to fund reconstruction from the March 11 earthquake and tsunami.
Core machinery orders fell 8.2 percent in July from the previous month due to declines in orders from manufacturers and service sector firms, Cabinet Office data showed on Thursday. That compared with a median market forecast for a 4.1 percent decline and follows a 7.7 percent rise in June.
Japan is on guard against further yen appreciation after intervening in currency markets last month when its currency approached a record high versus the dollar.
Japan's economy probably shrank at a faster annualized pace in the second quarter than the government's initial estimate as corporate spending fell at a quicker rate due to the strong yen and a slowdown in the global economy, a Reuters poll showed before the release of the data on Friday. ($1 = 77.325 Japanese Yen)
http://www.reuters.com/article/2011/09/08/us-japan-economy-idUSTRE78705E20110908
From Bloomberg:
Japanese Finance Minister Jun Azumi said he will tell his Group of Seven counterparts that his country remains prepared to take “bold” action in currency markets when necessary. He spoke to reporters today in Marseille, France.
http://www.bloomberg.com/news/2011-09-08/azumi-says-he-will-tell-g-7-japan-ready-to-take-bold-action-on-currency.html
Wednesday, September 7, 2011
The Chart Showing QE3 Failed Before It Even Started
From Zero Hedge
While it is all too clear that a year from today, right about the time QE4 is gearing up for deployment, QE3 will have had absolutely no impact on the economy (in the upside case; the downside case would imply millions in job losses primarily in the financial sector courtesy of record low 2s10s and even lower Net Interest Margins, aka Carry Trades), just as QE2 ended up doing nothing not only for the US economy but for the stock market as well, what is somewhat disturbing is that the only primary purpose of Operation Twist, namely the lowering of 10 Year bond yields in order to make consumers "weathier" through cheaper refis, has already failed. Presenting Evidence A: 10 Year Treasury Yields (inverted axis where lower yields are plotted higher) and the MBA Refi Index, which today dropped by 6.3%, the third week in a row, sending the Refi index to 3169.4 from 3915.5 in the beginning of August. As the chart makes all too obvious, the correlation between the two series has been as close to 1 as possible... at least until talk of QE3 via Operation Twist not only picked up but was made virtual fact through Wall Street's wholehearted acceptance of more monetary easing. What has happened recently is a substantial break between dropping yields and increasing refinancings. It thus begs the question: if an ever flatter 2s10s curve, the explicit objective of Op Twist which has gotten priced in in the past several weeks, has no impact on the housing market currently languishing in a historic depression, then just why is the Fed focusing on lowering long bond yields even more?
And while one can attempt to attribute this drop to "transitory" factors such as hurricanes and summer vacations, the reality is that every single time the Fed commences another monetary easing episode, mortgage refi rates plunge, in the process undoing everything that the Fed tries to accomplish by forcing mortgage-holders to refinance into a cheaper loan.
This also means that the only other reason for QE is and continues to be the funneling of zero cost money to banks via excess reserves which can then be used for all sorts of asset levitating fungible purposes. It also has some unpleasant side-effects: such as sending gas to $5/gallon (for consumers) and gold to over $2000 (for central bankers).
And while none of this is likely to change any of the course that the Fed will embark on after its next FOMC meeting, the population at least deserves to know just why it is being fleeced over and over.
And tangentially, the most dramatic confirmation of just how much of a failure not only monetary but fiscal stimulus have been (and will be) is the following snapshot of major headlines on Gallup's economy page.
http://www.zerohedge.com/news/chart-shows-qe3-failed-it-even-started
While it is all too clear that a year from today, right about the time QE4 is gearing up for deployment, QE3 will have had absolutely no impact on the economy (in the upside case; the downside case would imply millions in job losses primarily in the financial sector courtesy of record low 2s10s and even lower Net Interest Margins, aka Carry Trades), just as QE2 ended up doing nothing not only for the US economy but for the stock market as well, what is somewhat disturbing is that the only primary purpose of Operation Twist, namely the lowering of 10 Year bond yields in order to make consumers "weathier" through cheaper refis, has already failed. Presenting Evidence A: 10 Year Treasury Yields (inverted axis where lower yields are plotted higher) and the MBA Refi Index, which today dropped by 6.3%, the third week in a row, sending the Refi index to 3169.4 from 3915.5 in the beginning of August. As the chart makes all too obvious, the correlation between the two series has been as close to 1 as possible... at least until talk of QE3 via Operation Twist not only picked up but was made virtual fact through Wall Street's wholehearted acceptance of more monetary easing. What has happened recently is a substantial break between dropping yields and increasing refinancings. It thus begs the question: if an ever flatter 2s10s curve, the explicit objective of Op Twist which has gotten priced in in the past several weeks, has no impact on the housing market currently languishing in a historic depression, then just why is the Fed focusing on lowering long bond yields even more?
And while one can attempt to attribute this drop to "transitory" factors such as hurricanes and summer vacations, the reality is that every single time the Fed commences another monetary easing episode, mortgage refi rates plunge, in the process undoing everything that the Fed tries to accomplish by forcing mortgage-holders to refinance into a cheaper loan.
This also means that the only other reason for QE is and continues to be the funneling of zero cost money to banks via excess reserves which can then be used for all sorts of asset levitating fungible purposes. It also has some unpleasant side-effects: such as sending gas to $5/gallon (for consumers) and gold to over $2000 (for central bankers).
And while none of this is likely to change any of the course that the Fed will embark on after its next FOMC meeting, the population at least deserves to know just why it is being fleeced over and over.
And tangentially, the most dramatic confirmation of just how much of a failure not only monetary but fiscal stimulus have been (and will be) is the following snapshot of major headlines on Gallup's economy page.
http://www.zerohedge.com/news/chart-shows-qe3-failed-it-even-started
Tuesday, September 6, 2011
US Dollar Very Long Term Chart
From Jesse's Cafe:
Please bear in mind that the DX dollar index will become increasingly irrelevant because of its outdated structure, heavily weighted to the euro yen and the pound, to the exclusion of the emerging currencies and the precious metals.
The shorter term chart has been rallying largely on euro weakness. We might see another eurodollar short squeeze if things continue to deteriorate in the European banking system.
A stronger dollar is something that the wealthy and the financial sector may enjoy, to the detriment of the rest of the country and any hopes of economic recovery. However the realities of things make a stronger dollar problematic.
So the next best thing is to slowly devalue the dollar by printing money and selectively distributing it, with tax benefits, to the most powerful and fortunate members of society.
In a 'free market' for currencies the dollar would have been much lower by now because of the persistent trade deficit, and the enormous dollar balances held by some of her trading partners.
The financial engineers favor a slow decline so as not to disclocate any of the major banking concerns. The currency discussions between China and the US are political theater for their respective peoples and the currency tourists, i.e. the small speculators who provide a snack for the wolves.
http://jessescrossroadscafe.blogspot.com/2011/09/us-dollar-very-long-term-chart.html
Please bear in mind that the DX dollar index will become increasingly irrelevant because of its outdated structure, heavily weighted to the euro yen and the pound, to the exclusion of the emerging currencies and the precious metals.
The shorter term chart has been rallying largely on euro weakness. We might see another eurodollar short squeeze if things continue to deteriorate in the European banking system.
A stronger dollar is something that the wealthy and the financial sector may enjoy, to the detriment of the rest of the country and any hopes of economic recovery. However the realities of things make a stronger dollar problematic.
So the next best thing is to slowly devalue the dollar by printing money and selectively distributing it, with tax benefits, to the most powerful and fortunate members of society.
In a 'free market' for currencies the dollar would have been much lower by now because of the persistent trade deficit, and the enormous dollar balances held by some of her trading partners.
The financial engineers favor a slow decline so as not to disclocate any of the major banking concerns. The currency discussions between China and the US are political theater for their respective peoples and the currency tourists, i.e. the small speculators who provide a snack for the wolves.
http://jessescrossroadscafe.blogspot.com/2011/09/us-dollar-very-long-term-chart.html
Italy Crisis Mounting: Hike VAT As Strikes Spread
From Reuters:
Italy's government pledged on Tuesday to hike value added tax and introduce a constitutional balanced budget amendment as hundreds of thousands of people went on strike against an already widely criticized plan.
As market pressure on Italian bonds intensified, Prime Minister Silvio Berlusconi's center-right government yielded to demands to strengthen measures intended to balance the budget by 2013.
The 20 percent VAT bracket will be raised by one percentage point to 21 percent and a special 3 percent levy will be imposed on incomes of over 500,000 euros, a statement from Berlusconi's office said.
It also said ministers would approve the introduction into the constitution of a "golden rule" on balanced budgets and transfer provincial government functions to the regions in a move to simplify local administrations.
Other changes would delay retirement for women employed in the private sector from 2014.
A confidence vote will be called which should see the package passed in Senate on Wednesday, offering some reassurance ahead of Thursday's meeting of the European Central Bank governing council which has been pushing Rome for action.
As the government scrambled with the last minute changes to the package, protestors held rallies in around 100 towns and cities as part of a strike against the cuts called by Italy's largest union, the CGIL.
Protests in Italy have not matched the "indignados" demonstrations in Spain or the mass rallies in Syntagma Square in Athens but Tuesday's strike brought out simmering anger at the burdens imposed on ordinary Italians by more than a decade of economic stagnation.
Italy's strengthened measures came after a stark warning from President Giorgio Napolitano who said on Monday that markets had sent an "alarming signal" of the need for urgent action to restore faith in public finances.
http://www.reuters.com/article/2011/09/06/us-italy-austerity-protests-idUSTRE7852CG20110906
Italy's government pledged on Tuesday to hike value added tax and introduce a constitutional balanced budget amendment as hundreds of thousands of people went on strike against an already widely criticized plan.
As market pressure on Italian bonds intensified, Prime Minister Silvio Berlusconi's center-right government yielded to demands to strengthen measures intended to balance the budget by 2013.
The 20 percent VAT bracket will be raised by one percentage point to 21 percent and a special 3 percent levy will be imposed on incomes of over 500,000 euros, a statement from Berlusconi's office said.
It also said ministers would approve the introduction into the constitution of a "golden rule" on balanced budgets and transfer provincial government functions to the regions in a move to simplify local administrations.
Other changes would delay retirement for women employed in the private sector from 2014.
A confidence vote will be called which should see the package passed in Senate on Wednesday, offering some reassurance ahead of Thursday's meeting of the European Central Bank governing council which has been pushing Rome for action.
As the government scrambled with the last minute changes to the package, protestors held rallies in around 100 towns and cities as part of a strike against the cuts called by Italy's largest union, the CGIL.
Protests in Italy have not matched the "indignados" demonstrations in Spain or the mass rallies in Syntagma Square in Athens but Tuesday's strike brought out simmering anger at the burdens imposed on ordinary Italians by more than a decade of economic stagnation.
Italy's strengthened measures came after a stark warning from President Giorgio Napolitano who said on Monday that markets had sent an "alarming signal" of the need for urgent action to restore faith in public finances.
http://www.reuters.com/article/2011/09/06/us-italy-austerity-protests-idUSTRE7852CG20110906
Monday, September 5, 2011
UBS: The Consequences of EURO Break-Up
From Zero Hedge:
Any time a major bank releases a report saying a given course of action is too costly, too prohibitive, too blonde, or simply too impossible, it is nearly guaranteed that that is precisely the course of action about to be undertaken. Which is why all non-euro skeptics are advised to shield their eyes and look away from the just released report by UBS (of surging 3 Month USD Libor rate fame) titled "Euro Break Up - The Consequences."
UBS conveniently sets up the straw man as follows: "Under the current structure and with the current membership, the Euro does not work. Either the current structure will have to change, or the current membership will have to change." So far so good. Yet where it gets scary is when UBS quantifies the actual opportunity cost to one or more countries leaving the Euro. Notably Germany. "Were a stronger country such as Germany to leave the Euro, the consequences would include corporate default, recapitalisation of the banking system and collapse of international trade. If Germany were to leave, we believe the cost to be around EUR6,000 to EUR8,000 for every German adult and child in the first year, and a range of EUR3,500 to EUR4,500 per person per year thereafter. That is the equivalent of 20% to 25% of GDP in the first year. " It also would mean the end of UBS, but we digress.
Where it gets even more scary is when UBS, like many other banks to come, succumbs to the Mutual Assured Destruction trope made so popular by ole' Hank Paulson : "The economic cost is, in many ways, the least of the concerns investors should have about a break-up. Fragmentation of the Euro would incur political costs. Europe’s “soft power” influence internationally would cease (as the concept of “Europe” as an integrated polity becomes meaningless).
It is also worth observing that almost no modern fiat currency monetary unions have broken up without some form of authoritarian or military government, or civil war." So you see: save the euro for the children, so we can avoid all out war (and UBS can continue to exist). The scariest thing, however, by far, is that for this report to have been issued, it means that Germany is now actively considering dumping the euro.
http://www.zerohedge.com/news/bring-out-your-dead-ubs-quantifies-costs-euro-break-warns-collapse-banking-system-and-civil-war
Any time a major bank releases a report saying a given course of action is too costly, too prohibitive, too blonde, or simply too impossible, it is nearly guaranteed that that is precisely the course of action about to be undertaken. Which is why all non-euro skeptics are advised to shield their eyes and look away from the just released report by UBS (of surging 3 Month USD Libor rate fame) titled "Euro Break Up - The Consequences."
UBS conveniently sets up the straw man as follows: "Under the current structure and with the current membership, the Euro does not work. Either the current structure will have to change, or the current membership will have to change." So far so good. Yet where it gets scary is when UBS quantifies the actual opportunity cost to one or more countries leaving the Euro. Notably Germany. "Were a stronger country such as Germany to leave the Euro, the consequences would include corporate default, recapitalisation of the banking system and collapse of international trade. If Germany were to leave, we believe the cost to be around EUR6,000 to EUR8,000 for every German adult and child in the first year, and a range of EUR3,500 to EUR4,500 per person per year thereafter. That is the equivalent of 20% to 25% of GDP in the first year. " It also would mean the end of UBS, but we digress.
Where it gets even more scary is when UBS, like many other banks to come, succumbs to the Mutual Assured Destruction trope made so popular by ole' Hank Paulson : "The economic cost is, in many ways, the least of the concerns investors should have about a break-up. Fragmentation of the Euro would incur political costs. Europe’s “soft power” influence internationally would cease (as the concept of “Europe” as an integrated polity becomes meaningless).
It is also worth observing that almost no modern fiat currency monetary unions have broken up without some form of authoritarian or military government, or civil war." So you see: save the euro for the children, so we can avoid all out war (and UBS can continue to exist). The scariest thing, however, by far, is that for this report to have been issued, it means that Germany is now actively considering dumping the euro.
http://www.zerohedge.com/news/bring-out-your-dead-ubs-quantifies-costs-euro-break-warns-collapse-banking-system-and-civil-war
Thursday, September 1, 2011
Asia Exports Stall
We saw this coming. Some Korean media outlets have been reporting recently about the rise in the consumer price index, the increased delinquency rate and deteriorating trade balance.
As Asian mercantilist countries’ exports dwindle, the property bubble would pop sooner or later. We also know that demands in both the U.S. and Europe is shrinking, so Asia’s exports won’t be recovering anytime soon.
From Reuters:
Factory activity worldwide stalled last month as new orders tumbled, heightening fears that the global economy may be heading for another recession and driving stock markets lower.
Surveys of company purchasing managers showed manufacturing contracted in the euro zone for the first time in almost two years in August, echoing earlier data from South Korea and Taiwan where new export orders fell sharply.
China's new export orders index dropped to 48.3 from July's 50.4 and Beijing pinned the blame at least partly on the debt crises in advanced economies. The National Bureau of Statistics said the export sector was "facing challenges."
Taiwan saw a sharp decrease in new export orders, particularly from Europe, while in South Korea the sub-index fell to a seasonally adjusted 48.86 from 52.13 , coming below the neutral point for the first time since October last year.
http://www.reuters.com/article/2011/09/01/us-global-economy-idUSTRE77Q1XT20110901
As Asian mercantilist countries’ exports dwindle, the property bubble would pop sooner or later. We also know that demands in both the U.S. and Europe is shrinking, so Asia’s exports won’t be recovering anytime soon.
From Reuters:
Factory activity worldwide stalled last month as new orders tumbled, heightening fears that the global economy may be heading for another recession and driving stock markets lower.
Surveys of company purchasing managers showed manufacturing contracted in the euro zone for the first time in almost two years in August, echoing earlier data from South Korea and Taiwan where new export orders fell sharply.
China's new export orders index dropped to 48.3 from July's 50.4 and Beijing pinned the blame at least partly on the debt crises in advanced economies. The National Bureau of Statistics said the export sector was "facing challenges."
Taiwan saw a sharp decrease in new export orders, particularly from Europe, while in South Korea the sub-index fell to a seasonally adjusted 48.86 from 52.13 , coming below the neutral point for the first time since October last year.
http://www.reuters.com/article/2011/09/01/us-global-economy-idUSTRE77Q1XT20110901
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