Wednesday, January 14, 2009
hot money fleeing china
exports), China's foreign exchange reserves are not even close to keeping pace.Readers may recall that a massive amount of money flowed into China, a good bit of it disguised (FDI was one of the suspect categories) because RMB appreciation looked to be a one-way trade. Given China's currency controls, there were limited options for playing that point of view from overseas, hence the funds influx.But now that China has quietly gone back to a hard peg to the dollar, the dreams of a quick profit have been dashed, and the hot money is making an exit. Per Brad Setser (part of a longer and useful post, hat tip reader Michael). The reserve requirement mention comes about because the PBoC requires banks to hold some of their reserves in dollars, which means that the true FX reserves are greater than the official reserves:
The trade surplus should have produced a $115 billion increase in China’s foreign assets. FDI inflows and interest income should combine to produce another $30-40 billion. The fall in the reserve requirement should have added another $50-55 billion (if not more) to China’s reserves. Sum it up and China’s reserves would have increased by about $200 billion in the absence of hot money flows. Instead they went up by about $50 billion. That implies that money is now flowing out of China as fast as it flowed in during the first part of 2008.And in December, the outflows were absolutely bruta....$70 billion plus in monthly hot only outflows … That’s huge. Annualized, it is well in excess of 10% of China’s GDP. Probably above 15% …
The trade surplus should have produced a $115 billion increase in China’s foreign assets. FDI inflows and interest income should combine to produce another $30-40 billion. The fall in the reserve requirement should have added another $50-55 billion (if not more) to China’s reserves. Sum it up and China’s reserves would have increased by about $200 billion in the absence of hot money flows. Instead they went up by about $50 billion. That implies that money is now flowing out of China as fast as it flowed in during the first part of 2008.And in December, the outflows were absolutely bruta....$70 billion plus in monthly hot only outflows … That’s huge. Annualized, it is well in excess of 10% of China’s GDP. Probably above 15% …
Asia-Europe Shipping Rates Drop to Zero
http://www.nakedcapitalism.com/2009/01/asia-europe-shipping-rates-drop-to-zero.html
This is no regular cycle slowdown, but a complete collapse in foreign demand," said Lindsay Coburn, ING's trade consultant....The World Bank caused shockwaves with a warning last month that global trade may decline this year for the first time since the Second World War. This appears increasingly certain with each new batch of data.
Mr de Trenck predicts Asian trade to the US will fall 7pc this year. To Europe he estimates a drop of 9pc – possibly 12pc. Trade flows grow 8pc in an average year.He said it was "illogical" for shippers to offer zero rates, but they do whatever they can to survive in a highly cyclical market.Offering slots for free is akin to an airline giving away spare seats for nothing in the hope of making something from meals and fees.
This is no regular cycle slowdown, but a complete collapse in foreign demand," said Lindsay Coburn, ING's trade consultant....The World Bank caused shockwaves with a warning last month that global trade may decline this year for the first time since the Second World War. This appears increasingly certain with each new batch of data.
Mr de Trenck predicts Asian trade to the US will fall 7pc this year. To Europe he estimates a drop of 9pc – possibly 12pc. Trade flows grow 8pc in an average year.He said it was "illogical" for shippers to offer zero rates, but they do whatever they can to survive in a highly cyclical market.Offering slots for free is akin to an airline giving away spare seats for nothing in the hope of making something from meals and fees.
美媒研究中国模式: 欧美羡慕中国的国家干预能力
http://www.6park.com/news/messages/10774.html金融海啸冲击全球，美英等国先后将银行业和汽车业国有化，但中国却能独善其身。西方国家过去对中国的国家干预能力嗤之以鼻，但在危机下却效法中国，证明了中国的做法是生存之道。最新一期的美国《新闻周刊》便刊登题为“中国何以运转乾坤”的专题文章，详述中国的“指令性资本主义经济”如何有效运转，使之成为当今的金融海啸下，唯一能录得显着增长的主要经济体 www.6park.com
文章称，中国之所以能于全球经济乱局中鹤立鸡群，是因为她是唯一打破经济学教科书常规的国家。中国并没有完全放任市场经济，政府会于适当时候插手市场，重点的行业仍由政府主导，而银行业的重要职位都由政府官员出任，他们会听从国家指示，选择合适的贷款和投资对象。 www.6park.com
事实上，中国经济没有像其它5大经济体一样迅速减速，其主要原因在于中国具备自由派经济学家通常嗤之以鼻的国家干预能力，如在金融业中，中国限制外商投资，也不全盘引进外国的创新而复杂的投资工具，终能避开这次严重的金融海啸。 www.6park.com
中国看来最能抵御这场最严重的全球衰退，其指令性资本主义为何能奏效，这个问题更具时代意义。经济学家一直对这个问题感兴趣，他们往往把国家功能看得一无是处，而市场是灵丹妙药，而如今欧美也在向国家干预靠拢。 www.6park.com
文章称，中国官员面对危机时，可以像西方政府一样采用传统的市场手段，但也会加入干预，是指令式资本主义的后盾。比如去年初楼市过热，中国下令银行缩减房贷，接着当住房销售下滑时，他们又推出刺激楼市措施。同时，他们也会发布在西方被视为不当“干预”的指令，比如早前当局要求国有企业通过在国内外收购新资产，“积极扩大”在经济中的作用。 www.6park.com
中国的国家干预曾被视为不成熟经济的坏习惯，现在却获西方国家奉为圭臬，视之为稳定的堡垒。里昂证券经济师罗斯曼说：“大部分的资本密集型行业由政府控制，我因此对中国的前景感到乐观。”美国摩根士丹利亚洲区主席罗奇表示：“在经济困难时期，中国的指令控制型体制的确比其它的市场体系更有效。”
文章称，中国之所以能于全球经济乱局中鹤立鸡群，是因为她是唯一打破经济学教科书常规的国家。中国并没有完全放任市场经济，政府会于适当时候插手市场，重点的行业仍由政府主导，而银行业的重要职位都由政府官员出任，他们会听从国家指示，选择合适的贷款和投资对象。 www.6park.com
事实上，中国经济没有像其它5大经济体一样迅速减速，其主要原因在于中国具备自由派经济学家通常嗤之以鼻的国家干预能力，如在金融业中，中国限制外商投资，也不全盘引进外国的创新而复杂的投资工具，终能避开这次严重的金融海啸。 www.6park.com
中国看来最能抵御这场最严重的全球衰退，其指令性资本主义为何能奏效，这个问题更具时代意义。经济学家一直对这个问题感兴趣，他们往往把国家功能看得一无是处，而市场是灵丹妙药，而如今欧美也在向国家干预靠拢。 www.6park.com
文章称，中国官员面对危机时，可以像西方政府一样采用传统的市场手段，但也会加入干预，是指令式资本主义的后盾。比如去年初楼市过热，中国下令银行缩减房贷，接着当住房销售下滑时，他们又推出刺激楼市措施。同时，他们也会发布在西方被视为不当“干预”的指令，比如早前当局要求国有企业通过在国内外收购新资产，“积极扩大”在经济中的作用。 www.6park.com
中国的国家干预曾被视为不成熟经济的坏习惯，现在却获西方国家奉为圭臬，视之为稳定的堡垒。里昂证券经济师罗斯曼说：“大部分的资本密集型行业由政府控制，我因此对中国的前景感到乐观。”美国摩根士丹利亚洲区主席罗奇表示：“在经济困难时期，中国的指令控制型体制的确比其它的市场体系更有效。”
German Growth Slumped in 2008 as Recession Set In (Update2)
http://www.bloomberg.com/apps/news?pid=20601068&sid=an4RvXneBiUs&refer=economy
Companies are scaling back production and cutting jobs as global economic expansion slows and demand for German exports wanes. Bundesbank President Axel Weber last week indicated the economy may contract more this year than the bank’s 0.8 percent forecast. A decline of more than 0.9 percent would be Germany’s worst performance since records began after World War II.
“There is just no sign of the economic decline bottoming out,” said Kenneth Broux, an economist at Lloyds TSB Group Plc. in London, who expects the German economy to shrink 2.1 percent this year. “The first and second quarter will be awful. If we are very lucky, we may see a slight stabilization in the third or the fourth quarter.”
The European Central Bank has cut its key interest rate by a total of 175 basis points to 2.5 percent since early October as Europe’s economic slump deepened. Investors bet it will lower borrowing costs again tomorrow by at least 50 points, Eonia forward contracts indicate, even as some policy makers signal they’d rather wait.
Companies are scaling back production and cutting jobs as global economic expansion slows and demand for German exports wanes. Bundesbank President Axel Weber last week indicated the economy may contract more this year than the bank’s 0.8 percent forecast. A decline of more than 0.9 percent would be Germany’s worst performance since records began after World War II.
“There is just no sign of the economic decline bottoming out,” said Kenneth Broux, an economist at Lloyds TSB Group Plc. in London, who expects the German economy to shrink 2.1 percent this year. “The first and second quarter will be awful. If we are very lucky, we may see a slight stabilization in the third or the fourth quarter.”
The European Central Bank has cut its key interest rate by a total of 175 basis points to 2.5 percent since early October as Europe’s economic slump deepened. Investors bet it will lower borrowing costs again tomorrow by at least 50 points, Eonia forward contracts indicate, even as some policy makers signal they’d rather wait.
Citi gives control of brokerage to Morgan Stanley
http://biz.yahoo.com/ap/090114/citigroup.html
The deal, which will give Citigroup $2.7 billion in badly needed cash as it gives up control of Smith Barney, comes as the company still struggles in the aftermath of the mortgage and credit crisis. There is speculation that CEO Vikram Pandit, who for months supported Citigroup as a "universal bank," will be taking further steps to simplify and streamline the company
"I think within 12 months, Citigroup no longer exists," said William Smith at Smith Asset Management, who owns Citigroup shares. He has been calling for a breakup of Citigroup for years, and believes the government will force that fate in piecemeal fashion over the coming year.
The idea behind the supermarket is that the average person can do all his saving, borrowing and investing with one company. Citigroup had it all, the retail and business banking operations, the investment banking business, the brokerage, even Travelers insurance. Whether that one company does it better than a number of specialized companies does, though, has been the big question facing shareholders since the deregulation of the banking industry in the 1990s. And Citi's announcement Tuesday further undermines the idea that one company can handle such diverse businesses at once
The deal, which will give Citigroup $2.7 billion in badly needed cash as it gives up control of Smith Barney, comes as the company still struggles in the aftermath of the mortgage and credit crisis. There is speculation that CEO Vikram Pandit, who for months supported Citigroup as a "universal bank," will be taking further steps to simplify and streamline the company
"I think within 12 months, Citigroup no longer exists," said William Smith at Smith Asset Management, who owns Citigroup shares. He has been calling for a breakup of Citigroup for years, and believes the government will force that fate in piecemeal fashion over the coming year.
The idea behind the supermarket is that the average person can do all his saving, borrowing and investing with one company. Citigroup had it all, the retail and business banking operations, the investment banking business, the brokerage, even Travelers insurance. Whether that one company does it better than a number of specialized companies does, though, has been the big question facing shareholders since the deregulation of the banking industry in the 1990s. And Citi's announcement Tuesday further undermines the idea that one company can handle such diverse businesses at once
Sunday, January 11, 2009
How to Spot the Bottom… Then What to Buy, Home Prices Crash, Has China Peaked? And More!
http://www.contrarianprofits.com/articles/how-to-spot-the-bottom%E2%80%A6-then-what-to-buy-home-prices-crash-has-china-peaked-and-more/10707
The entire financial world had placed a wild bet that house prices in the U.S. would go up indefinitely. The year 2008 will go down in history as the year that proved them wrong… and then all hell would break loose.
Rather than commit hari-kari… let’s do something unusual and try to think, umn, positive… it is the holidays, after all. How will we know when the bear market is bottoming? And what should we buy when it does?
“Normalized earnings for the S&P 500 could be $60-70,” Agora Financial’s managing editor, Chris Mayer, opined this morning, taking a shot at an answer.
In layman’s terms, that’s a possible low of 600-700 for the S&P 500… 30% lower than it is today.
“The S&P at 600 is entirely possible,” Mayer continues. “So we could have more room to go. But it doesn’t have to go there. Signals to watch — when earnings stop falling quarter to quarter. I actually think we’ll see a big rally early 2009 a la 1930, when the Dow was up 48% from its bottom by April. Big rally coming, and that will be your last chance to dump your weaker holdings.
If you are going to invest in stocks in 2009,” Mr. Mayer suggests, “stick with hard assets, management teams with proven track records, strong balance sheets and businesses with good disclosures (i.e., no black boxes or funny business). Ag-related stocks will have a good year, I think — fertilizer stocks, in particular. Oil stocks will come back, too, particularly oil field service stocks.
Natural gas stocks will do even better, particularly the low-cost producers.
“I think now is a good time to pick up India’s blue chips, if you can sit with them for a while. I like emerging markets still. This is a pause, and not the end, of the emerging market growth story. It’s much bigger than most people think. India has less exposure to exports than China, has a lot of savings, little debt, a very young population (half under the age of 25) and some leading companies dirt-cheap…
After briefly falling below 80 yesterday, the dollar index has stabilized around 80.6 today. The euro and pound are on the verge of parity for the first time ever. The pound, slammed by a large U.K. recession, housing crisis and lower-than-normal rates, has weakened to 98 pence per euro. Year to date, it’s down 25% versus the multination currency.
The approaching parity is reflected in the dollar exchange, as well. A euro today goes for $1.40… the pound a “mere” $1.45.
“I believe oil and gold are the places to start getting well positioned in for 2009,” writes a reader, “if one hasn’t already. Oil especially is being primed for a V-shaped recovery. If investors are paying attention, they understand that the unrealistically low price of oil is just that — unrealistic.
“Many oil and gas exploration and production projects have been shelved due to the financial crisis and falling price. Some major oil exporters have exhausted their reserves, Mexico being one. Oil exploration and production require oil prices to be over $100 to be profitable. OPEC drastically cut production levels, due to falling demand. Problems of shortages and spiking oil prices are looming.
“Gold is also primed for a spike as the bailouts and stimulus package get under way. Great way to make up for the losses in 2008 if you’re ready for the ravages that will come along with this!”
“I believe 2009,” writes a reader with his own year-end forecast, “is going to be the beginning of a ‘rich get richer’ story that will reach levels never previously even imagined. This is how I see it playing out. There are many solid companies that have more than sufficient cash to get through the upcoming tough times, but are trading at huge discounts to their historic value. At the moment, the real estate- and energy-related sectors seem to have more of these companies than some other industries, but they exist everywhere. As is often the case, Mr. Market has overreacted and taken down the good with the bad.
“I predict that once there is even a hint that the economy is starting to turn around, there will be a flood of leveraged buyouts whereby those with access to cash will be buying the best companies for a fraction of even their future one-three-year value. And the banks will rush in to provide the financing with the cash they got from the Fed and currently have sitting on the sidelines.
“Bottom line is that Joe the Plumber will find out about a year from now that the only companies still in his portfolio are the companies that the buyout companies did not want. For buyout firms like KKR and Carlyle, this is going to better than robbing a bank, since it is legal. I suggest you provide some guidance as to how to share in this upcoming M&A activity.
“Even a master list of companies that are beaten down but still are earning good money and have plenty of cash would be a start.”
The entire financial world had placed a wild bet that house prices in the U.S. would go up indefinitely. The year 2008 will go down in history as the year that proved them wrong… and then all hell would break loose.
Rather than commit hari-kari… let’s do something unusual and try to think, umn, positive… it is the holidays, after all. How will we know when the bear market is bottoming? And what should we buy when it does?
“Normalized earnings for the S&P 500 could be $60-70,” Agora Financial’s managing editor, Chris Mayer, opined this morning, taking a shot at an answer.
In layman’s terms, that’s a possible low of 600-700 for the S&P 500… 30% lower than it is today.
“The S&P at 600 is entirely possible,” Mayer continues. “So we could have more room to go. But it doesn’t have to go there. Signals to watch — when earnings stop falling quarter to quarter. I actually think we’ll see a big rally early 2009 a la 1930, when the Dow was up 48% from its bottom by April. Big rally coming, and that will be your last chance to dump your weaker holdings.
If you are going to invest in stocks in 2009,” Mr. Mayer suggests, “stick with hard assets, management teams with proven track records, strong balance sheets and businesses with good disclosures (i.e., no black boxes or funny business). Ag-related stocks will have a good year, I think — fertilizer stocks, in particular. Oil stocks will come back, too, particularly oil field service stocks.
Natural gas stocks will do even better, particularly the low-cost producers.
“I think now is a good time to pick up India’s blue chips, if you can sit with them for a while. I like emerging markets still. This is a pause, and not the end, of the emerging market growth story. It’s much bigger than most people think. India has less exposure to exports than China, has a lot of savings, little debt, a very young population (half under the age of 25) and some leading companies dirt-cheap…
After briefly falling below 80 yesterday, the dollar index has stabilized around 80.6 today. The euro and pound are on the verge of parity for the first time ever. The pound, slammed by a large U.K. recession, housing crisis and lower-than-normal rates, has weakened to 98 pence per euro. Year to date, it’s down 25% versus the multination currency.
The approaching parity is reflected in the dollar exchange, as well. A euro today goes for $1.40… the pound a “mere” $1.45.
“I believe oil and gold are the places to start getting well positioned in for 2009,” writes a reader, “if one hasn’t already. Oil especially is being primed for a V-shaped recovery. If investors are paying attention, they understand that the unrealistically low price of oil is just that — unrealistic.
“Many oil and gas exploration and production projects have been shelved due to the financial crisis and falling price. Some major oil exporters have exhausted their reserves, Mexico being one. Oil exploration and production require oil prices to be over $100 to be profitable. OPEC drastically cut production levels, due to falling demand. Problems of shortages and spiking oil prices are looming.
“Gold is also primed for a spike as the bailouts and stimulus package get under way. Great way to make up for the losses in 2008 if you’re ready for the ravages that will come along with this!”
“I believe 2009,” writes a reader with his own year-end forecast, “is going to be the beginning of a ‘rich get richer’ story that will reach levels never previously even imagined. This is how I see it playing out. There are many solid companies that have more than sufficient cash to get through the upcoming tough times, but are trading at huge discounts to their historic value. At the moment, the real estate- and energy-related sectors seem to have more of these companies than some other industries, but they exist everywhere. As is often the case, Mr. Market has overreacted and taken down the good with the bad.
“I predict that once there is even a hint that the economy is starting to turn around, there will be a flood of leveraged buyouts whereby those with access to cash will be buying the best companies for a fraction of even their future one-three-year value. And the banks will rush in to provide the financing with the cash they got from the Fed and currently have sitting on the sidelines.
“Bottom line is that Joe the Plumber will find out about a year from now that the only companies still in his portfolio are the companies that the buyout companies did not want. For buyout firms like KKR and Carlyle, this is going to better than robbing a bank, since it is legal. I suggest you provide some guidance as to how to share in this upcoming M&A activity.
“Even a master list of companies that are beaten down but still are earning good money and have plenty of cash would be a start.”
Chinese Central Bank to Test Program to Settle Trade in Yuan Rather Than Dollars
A UBS Investment Research report says that while it would be wrong to write off the U.S. dollar as the global reserve currency, its roughly 90-year iron grip on that position is loosening. “The use of the U.S. dollar as an international reserve currency is in decline,” said UBS economist Paul Donovan.
The market share of the dollar in international transactions is likely to decline over the coming months and years, but only persistent policy error - or considerable fiscal strain - is likely to cause the dollar to lose reserve currency status entirely.”The UBS report maintains that the gradual slide of the U.S. dollar is being driven not by the world's central banks, but by the private sector, as individual companies increasingly abandon the greenback as their international currency of choice.“The private sector's use of reserves is more important than official, central bank reserves – anything up to 20 times the significance, depending on interpretation,” Mr. Donovan said. “There is evidence that the move away from the dollar as a private-sector reserve currency has been accelerating since 2000.”...
According to Alibaba.com, the online company that matches Chinese suppliers with international buyers, the vast majority of their almost 700,000 Chinese suppliers no longer use dollars to settle non-US transactions in order to minimise foreign exchange risk.
So one could read the pending PBoC pilot of a yuan-based trade settlement system as a response to realities on the ground. But there have also been US reports of far more fundamental discontent with the dollar, per the New York Times in August:
He said the officials blamed the United States and believed the controversial assertions set forth in the book “Currency War,” a Chinese best seller published a year ago. The book suggests that the United States deliberately lured China into buying its securities knowing that they would later plunge in value.
And Reuters reported a more frontal attack in October in an article that appears likely to have been sanctioned:
The United States has plundered global wealth by exploiting the dollar's dominance, and the world urgently needs other currencies to take its place, a leading Chinese state newspaper said on Friday.The front-page commentary in the overseas edition of the People's Daily said that Asian and European countries should banish the U.S. dollar from their direct trade relations for a start, relying only on their own currencies...The People's Daily is the official newspaper of China's ruling Communist Party. The Chinese-language overseas edition is a small circulation offshoot of the main paper.Its pronouncements do not necessarily directly voice leadership views. But the commentary, as well as recent comments, amount to a growing chorus of Chinese disdain for Washington's economic policies and global financial dominance in the wake of the credit crisis.
China's central bank said yesterday that it plans to implement a pilot program that would settle overseas trade with the Chinese currency instead of the US dollar.
Meanwhile, exporters in the Guangxi Zhuang Autonomous Region and Yunnan Province in southwestern China will be allowed to use the yuan to settle trade payments with members of the Association of Southeast Asian Nations.
Those moves are expected to facilitate overseas trade, as Chinese exporters might face losses if they continue to be paid in US dollars, analysts said.The dollar's exchange rate has become more volatile since the global financial crisis began.The central bank said it will make the exchange rate of the yuan more flexible and keep it "basically stable on a reasonable, balanced level."There has been speculation that the yuan's appreciation will slow down, which would help Chinese exports maintain price advantages in overseas markets
The market share of the dollar in international transactions is likely to decline over the coming months and years, but only persistent policy error - or considerable fiscal strain - is likely to cause the dollar to lose reserve currency status entirely.”The UBS report maintains that the gradual slide of the U.S. dollar is being driven not by the world's central banks, but by the private sector, as individual companies increasingly abandon the greenback as their international currency of choice.“The private sector's use of reserves is more important than official, central bank reserves – anything up to 20 times the significance, depending on interpretation,” Mr. Donovan said. “There is evidence that the move away from the dollar as a private-sector reserve currency has been accelerating since 2000.”...
According to Alibaba.com, the online company that matches Chinese suppliers with international buyers, the vast majority of their almost 700,000 Chinese suppliers no longer use dollars to settle non-US transactions in order to minimise foreign exchange risk.
So one could read the pending PBoC pilot of a yuan-based trade settlement system as a response to realities on the ground. But there have also been US reports of far more fundamental discontent with the dollar, per the New York Times in August:
He said the officials blamed the United States and believed the controversial assertions set forth in the book “Currency War,” a Chinese best seller published a year ago. The book suggests that the United States deliberately lured China into buying its securities knowing that they would later plunge in value.
And Reuters reported a more frontal attack in October in an article that appears likely to have been sanctioned:
The United States has plundered global wealth by exploiting the dollar's dominance, and the world urgently needs other currencies to take its place, a leading Chinese state newspaper said on Friday.The front-page commentary in the overseas edition of the People's Daily said that Asian and European countries should banish the U.S. dollar from their direct trade relations for a start, relying only on their own currencies...The People's Daily is the official newspaper of China's ruling Communist Party. The Chinese-language overseas edition is a small circulation offshoot of the main paper.Its pronouncements do not necessarily directly voice leadership views. But the commentary, as well as recent comments, amount to a growing chorus of Chinese disdain for Washington's economic policies and global financial dominance in the wake of the credit crisis.
China's central bank said yesterday that it plans to implement a pilot program that would settle overseas trade with the Chinese currency instead of the US dollar.
Meanwhile, exporters in the Guangxi Zhuang Autonomous Region and Yunnan Province in southwestern China will be allowed to use the yuan to settle trade payments with members of the Association of Southeast Asian Nations.
Those moves are expected to facilitate overseas trade, as Chinese exporters might face losses if they continue to be paid in US dollars, analysts said.The dollar's exchange rate has become more volatile since the global financial crisis began.The central bank said it will make the exchange rate of the yuan more flexible and keep it "basically stable on a reasonable, balanced level."There has been speculation that the yuan's appreciation will slow down, which would help Chinese exports maintain price advantages in overseas markets
Tuesday, January 6, 2009
US will emerge as undisputed top dog in 2009
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/4123663/US-will-emerge-as-undisputed-top-dog-in-2009.html
Obama's America will shine. The country will reemerge as undisputed top dog, the only one with real demographic, scientific, and strategic depth. As first into the crisis, it will be the first to hit bottom. Those expecting the dollar to collapse will have to wait.
The damage to core Europe will take longer, but run deeper. Belgium will face a break-up scare. Markets will test highdebt states as they try to roll over bonds – €200bn (£191bn) for Italy and €40bn for Greece. Spain's corporate debts will turn bad.
Germany's economy will contract by 3pc as exports collapse, and the delayed effects of the strong euro and tight money feed through. Angela Merkel's (pictured below) Left-Right coalition will be haunted by its failure to tackle the crisis earlier. The neo-Marxist Linke party and the hard-Right will muscle in. The country will start to look ungovernable. This will at least divert attention from the Club Med mess, making a North-South split in the eurozone less likely. After sterling's sudden death, the euro will face slow death. The pair will refind their accustomed level.
Authoritarian regimes will fare badly. Those that depend on perma-boom to hold power will fray. Repression will escalate in China as an inflammatory cocktail of migrant workers and jobless graduates vent their anger in riots. Massive fiscal spending will buy time.
Analysts will be shocked by the ferocity of the downturn across Asia, where the strategy of export-led growth will be called into question. It will become clearer that Asia's boom has been a leveraged play on the West, and leverage works both ways. Some Pacific tigers will try to resist the denouement by holding down currencies. Such beggar-thy-neighbour policies will lead to tit for tat responses. The US and Europe will tire of holding the ring for free trade. The WTO will look ever more like the League of Nations.
By late 2009, the massive monetary and fiscal stimulus will feed through. Angst will start to switch from deflation back to the risk of incipient inflation. Equities, oil, and gold will rally. Bonds will falter, and then crash.
At that point it will become clear that reflation is just as dangerous as deflation in a world of debt. We will find that there is no way out. But that, perhaps, can wait until 2010.
Obama's America will shine. The country will reemerge as undisputed top dog, the only one with real demographic, scientific, and strategic depth. As first into the crisis, it will be the first to hit bottom. Those expecting the dollar to collapse will have to wait.
The damage to core Europe will take longer, but run deeper. Belgium will face a break-up scare. Markets will test highdebt states as they try to roll over bonds – €200bn (£191bn) for Italy and €40bn for Greece. Spain's corporate debts will turn bad.
Germany's economy will contract by 3pc as exports collapse, and the delayed effects of the strong euro and tight money feed through. Angela Merkel's (pictured below) Left-Right coalition will be haunted by its failure to tackle the crisis earlier. The neo-Marxist Linke party and the hard-Right will muscle in. The country will start to look ungovernable. This will at least divert attention from the Club Med mess, making a North-South split in the eurozone less likely. After sterling's sudden death, the euro will face slow death. The pair will refind their accustomed level.
Authoritarian regimes will fare badly. Those that depend on perma-boom to hold power will fray. Repression will escalate in China as an inflammatory cocktail of migrant workers and jobless graduates vent their anger in riots. Massive fiscal spending will buy time.
Analysts will be shocked by the ferocity of the downturn across Asia, where the strategy of export-led growth will be called into question. It will become clearer that Asia's boom has been a leveraged play on the West, and leverage works both ways. Some Pacific tigers will try to resist the denouement by holding down currencies. Such beggar-thy-neighbour policies will lead to tit for tat responses. The US and Europe will tire of holding the ring for free trade. The WTO will look ever more like the League of Nations.
By late 2009, the massive monetary and fiscal stimulus will feed through. Angst will start to switch from deflation back to the risk of incipient inflation. Equities, oil, and gold will rally. Bonds will falter, and then crash.
At that point it will become clear that reflation is just as dangerous as deflation in a world of debt. We will find that there is no way out. But that, perhaps, can wait until 2010.
Monday, January 5, 2009
Predictions 2009 Joseph Trevisani fxsol.com
Prediction is a dangerous game, particularly for currency analysts. But in honor of the year end we will dignify a few guesses about 2009 with the term long term analysis. This one time in the year we will ignore the honored analyst’s dictum: provide a price or a date but never both.The European Central Bank (ECB) has again succumbed to the seductive belief that the EMU economies live in a parallel universe. It is a universe where the United States and Japan can fall off the economic cliff but the Europeans can dance on the edge. Recent talk from the ECB governors has been all about inflation. The ECB refinance rate is at 2.5% while the American and Japanese rates are effectively zero and negative in real terms. The European governors are hoping that their economies will not collapse and that their rhetoric will forestall inflationary union wage settlements. But hope is not an economic policy and recession and deflation will dampen union wage demands without assistance from the ECB governors. There is no logical reason to believe that the EMU economies will not perform as badly or worse than their industrial counterparts around the world. If the US and Japan see the need for zero rates, how can the ECB board stop at 2.5%? Fact is they probably won’t. The ECB is not finished cutting rates no matter what Jurgen Stark may say. But by letting the market see their reluctance to lower rates further the governors risk setting up the same type of market reaction that we saw in July. Perhaps a much weaker euro is desired by the governors? It was the mid-July admission by ECB president Trichet that EMU economic growth would be much weaker than predicted that sparked the vast sell off in the euro and the yen crosses. Until mid-summer Trichet had been steadfast in maintaining that inflation was the problem and that the US financial crisis would stay on the western side of the Atlantic . Judging by the euro rate against the dollar in late June most currency traders must have believed him. By returning to their anti-inflation rhetoric are the ECB governors deliberately prepping the euro for a fall? Probably not. Inflation talk from the ECB boosts the euro so even if there were a surprise rate cut the currency will just have that much farther to fall. The unease of the ECB board members with an avowed rate cutting policy is of a piece with the bank’s charter and its stabilizing role in the EMU. But any recovery in the euro based on a rate disparity of 2.00% or more with US or Japanese rates is doomed to disappointment. Do the ECB governors think they can put a floor on European rates at 2.00%? Again probably not. But for the ECB there is no cost to keeping up inflation appearances. The only folks likely to be harmed are currency traders who, as in July, believed the governors’ words rather than economic facts and may have gone long the euro at year-end. Japan and the United States have embarked on rate and fiscal policies almost unprecedented in modern times. Nominal base rates in both countries are close to zero; real rates are negative. The American government and the incoming Obama administration are planning the largest fiscal stimulus package in history. This enormous increase in government spending is aimed not at the private sector but at government jobs, it is essentially a huge increase in government payrolls. These twin rate and fiscal policies are not quite unprecedented. They have been tried once before and they were largely a failure. In the early part of the decade the Bank of Japan kept interest rates at zero percent for more than five years. The Japanese government enacted stimulus package after stimulus package pumping billions of yen into the economy. But the economy refused to recover. Japan too had a banking crisis. Banks were unable to lend because of the vast burden of bad property loans leftover from an earlier property bubble. The problem with government spending is twofold: first it is limited in duration, and second it creates nothing. Jobs on the government payroll are jobs totally dependent on government largesse. Government appropriation means taxes or in this case borrowing. When the jobs program ends no firm has been established to continue employment. It is the private economy that creates sustainable expansion because only it creates firms and products that when successful provide permanent employment. No amount of government spending can compensate for a moribund private sector. Government jobs are essentially make work jobs, not that they might not perform needed tasks but when those tasks are done, unless government spending is to continue at the same rate the jobs are lost. Workers then have to repair to the private sector to find permanent employment. Government borrowing also crowds out private sector funding. Every penny of the one trillion or more dollars that the Obama administration will probably spend on economic stimulus will have to be borrowed from the market. Lenders will have a choice; give money to relatively risky private ventures at a premium rate or to the US government at a very low and safe rate. In the current environment many will choose to lend in safety to the federal government. The economic effect is that some or many private ventures will not get funded. The jobs that they might have created will never arrive. But despite these issues the United States is at least addressing its economic problems. The ECB and the national governments on the continent are not. The ECB in particular may sustain its inflation reputation but in the long run its credibility as a central bank will suffer far more from a prolonged recession. The trust so painstakingly assembled over the past decade as the custodian of European prosperity could be seriously damaged. And wither the ECB so the euro.And this brings us back to the predictions. The market will hear the ECB inflation rhetoric and then see the ECB rate cuts and likely traders will punish the euro for the deception. EMU economic recovery will be delayed by the very late start of the ECB in cutting rates and the paltry economic stimulus programs of the states; the European recession will keep the euro down. The euro will reach 1.2000 by mid-year and 1.1000 by year end. If this comes true please write, if not, please forebear
Fed has abandoned monetary policy, critic says
http://www.cnbc.com/id/28486593/for/cnbc/
The Fed's balance sheet has more than doubled in size to over $1.2 trillion in recent months as it has tried to shield the U.S. economy from the worst financial crisis since the Great Depression by supporting key credit markets.
This has included direct purchases of mortgage-backed bonds by the Fed and support for top-rated non-financial borrowers in the crucial commercial paper market, as well as hundreds of billions of dollars lent to banks on the basis of collateral
Taylor said the U.S. Congress has a legitimate right to demand a say in who the Fed lends money to. The outcome would be "radical reform" that would risk monetary policy independence, he said
"We are blurring the institutional arrangements a little," Bullard said. "I am concerned about independence. Fed independence is very important," he told reporters.
The Fed's balance sheet has more than doubled in size to over $1.2 trillion in recent months as it has tried to shield the U.S. economy from the worst financial crisis since the Great Depression by supporting key credit markets.
This has included direct purchases of mortgage-backed bonds by the Fed and support for top-rated non-financial borrowers in the crucial commercial paper market, as well as hundreds of billions of dollars lent to banks on the basis of collateral
Taylor said the U.S. Congress has a legitimate right to demand a say in who the Fed lends money to. The outcome would be "radical reform" that would risk monetary policy independence, he said
"We are blurring the institutional arrangements a little," Bullard said. "I am concerned about independence. Fed independence is very important," he told reporters.
Economy May Be Worse A Year From Now: Feldstein
http://www.cnbc.com/id/28470517
Feldstein said the current economic downturn is the worst since the end of World War II and mandates a different approach that even goes beyond the hundreds of billions the government already has poured into the system.
"I think we'll be lucky if by this time next year we see the economy having hit the bottom and starting up, and that's still going to leave us at a very low level of economic activity even if the turn has come at that pointGovernment will have to change the tax structure for capital gains and corporations while also exercising caution against inflation, added Feldstein, an economist at Harvard and president emeritus of the National Bureau of Economic Research.
American households have lost more than $10 trillion of net worth in the stock market and housing prices. They are cutting back on their spending...Where's the demand going to come from?"
"long-term structural changes" will solve the economy's many woes.
Asian Stocks Hit 2-Month High as Risk Returns
http://www.cnbc.com/id/28495790
Asian stocks hit a two-month high Monday, with investors betting the global economy will start to recover later this year by shedding some of their big holdings of safe-haven government bonds.
The Australian dollar
cnbc_comboQuoteMove('popup_AUD-TN_ID0EPC15839609');
[AUD-TN 0.7097 -0.0012 (-0.17%) ]
cnbc_quoteComponent_init_getData("AUD-TN","WSODQ_COMPONENT_AUD-TN_ID0EPC15839609","WSODQ","true","ID0EPC15839609","off","false","inLineQuote");
pushed to a three-month high against the U.S. dollar as investors embraced higher-yielding currencies, taking heart from calmer financial markets and expectations for big government stimulus spending packages in coming weeks to revive growth. The dollar edged up across the board, mainly getting a boost as the euro
cnbc_comboQuoteMove('popup_EUR-TN_ID0EOH15839609');
[EUR-TN 1.3683 -0.0236 (-1.7%) ]
cnbc_quoteComponent_init_getData("EUR-TN","WSODQ_COMPONENT_EUR-TN_ID0EOH15839609","WSODQ","true","ID0EOH15839609","off","false","inLineQuote");
stumbled. Traders said the single currency's surge in December was due more to factors such as investors repatriating funds before year-end and was likely overdone. Commodity prices generally firmed, with oil prices
cnbc_comboQuoteMove('popup_US@CL.1_ID0EOEAC15839609');
[US@CL.1 47.45 1.11 (+2.4%) ]
cnbc_quoteComponent_init_getData("US@CL.1","WSODQ_COMPONENT_US%40CL.1_ID0EOEAC15839609","WSODQ","true","ID0EOEAC15839609","off","false","inLineQuote");
climbing above $47 a barrel on increased tensions in the Middle East, Russia and Ukraine.
RELATED LINKS
Current DateTime: 02:31:46 05 Jan 2009LinksList Documentid: 28495804
Oil Rises Toward $47 on Gaza, Russia Gas Row
Dollar Hits 3-Week High vs Yen as Stocks Gain
Dow Tops 9,000 Amid New Year Optimism
Euro Shares Rise; Swiss Banks Gain
More Asia Pacific News
Japan's Nikkei 225 Average
cnbc_comboQuoteMove('popup_NIKKEI_ID0EJMAC15839609');
[NIKKEI 9043.12 183.5606 (+2.07%) ]
cnbc_quoteComponent_init_getData("NIKKEI","WSODQ_COMPONENT_NIKKEI_ID0EJMAC15839609","WSODQ","true","ID0EJMAC15839609","off","false","inLineQuote");
began 2009 on a strong note, closing 2.1 percent higher in a shortened session and hitting a two-month high on hopes this year will be better than last, the worst in the Nikkei's history. Honda Motor and other exporters climbed on a weaker yen
cnbc_comboQuoteMove('popup_JPY-TN_ID0ELBAE15839609');
[JPY-TN 93.01 1.19 (+1.3%) ]
cnbc_quoteComponent_init_getData("JPY-TN","WSODQ_COMPONENT_JPY-TN_ID0ELBAE15839609","WSODQ","true","ID0ELBAE15839609","off","false","inLineQuote");
. Resource-linked firms such as trading houses surged as oil jumped more than 3 percent, after an Iranian military commander reportedly called on Islamic countries to cut oil exports to supporters of Israel over Israel's ground offensive in the Gaza Strip to stop Hamas rocket attacks.
Seoul shares gained 1.4 percent with banks including KB Financial rallying on expectations of a rate cut, while auto makers advanced on strengthening views their earnings may not be as bad as feared.
Australian stocks finished down 0.7 percent as banks gave up early gains, precious metal miners fell on lower gold prices and investors sold offshore earners likely to be hurt by a stronger Australian dollar.
More From CNBC.com
Get After-the-Bell Dow 30 Quotes
Credit Spreads and Libor Data
Futures and Pre-Market Data
Currency Data
Hong Kong shares rose 3.5 percent, with China Mobile rising for a second day on hopes that Chinese telecom operators will soon be issued licences to offer third generation (3G) services. China's Lenovo Group climbed after the Chinese magazine Caijing said the world's No.4 personal computer maker was set to announce a major restructuring plan on Jan. 8 including changes of its top management. Aluminum Corp of China jumped 9.5 percent, tracking similar gains in its Shanghai listed scrip on hopes that it would benefit from the government's infrastructure building plans.
Singapore's Straits Times Index rose 5.2 percent. Shares of plantation firms such as Golden Agri and Wilmar International rose on higher palm oil prices. Benchmark palm oil prices in Malaysia rose 1.5 percent after crude oil climbed on worries over supplies after an Iranian military commander reportedly called for an oil boycott.
China's Shanghai Composite Index rose 3.3 percent, with industrial metal producers leading the gains on hopes they would benefit from the government's infrastructure building plans. Coal producers also outperformed, partly because of a surge in global oil prices due to tensions in the Middle East. Shenhua Energy gained.
© 2009 CNBC.com
Asian stocks hit a two-month high Monday, with investors betting the global economy will start to recover later this year by shedding some of their big holdings of safe-haven government bonds.
The Australian dollar
cnbc_comboQuoteMove('popup_AUD-TN_ID0EPC15839609');
[AUD-TN 0.7097 -0.0012 (-0.17%) ]
cnbc_quoteComponent_init_getData("AUD-TN","WSODQ_COMPONENT_AUD-TN_ID0EPC15839609","WSODQ","true","ID0EPC15839609","off","false","inLineQuote");
pushed to a three-month high against the U.S. dollar as investors embraced higher-yielding currencies, taking heart from calmer financial markets and expectations for big government stimulus spending packages in coming weeks to revive growth. The dollar edged up across the board, mainly getting a boost as the euro
cnbc_comboQuoteMove('popup_EUR-TN_ID0EOH15839609');
[EUR-TN 1.3683 -0.0236 (-1.7%) ]
cnbc_quoteComponent_init_getData("EUR-TN","WSODQ_COMPONENT_EUR-TN_ID0EOH15839609","WSODQ","true","ID0EOH15839609","off","false","inLineQuote");
stumbled. Traders said the single currency's surge in December was due more to factors such as investors repatriating funds before year-end and was likely overdone. Commodity prices generally firmed, with oil prices
cnbc_comboQuoteMove('popup_US@CL.1_ID0EOEAC15839609');
[US@CL.1 47.45 1.11 (+2.4%) ]
cnbc_quoteComponent_init_getData("US@CL.1","WSODQ_COMPONENT_US%40CL.1_ID0EOEAC15839609","WSODQ","true","ID0EOEAC15839609","off","false","inLineQuote");
climbing above $47 a barrel on increased tensions in the Middle East, Russia and Ukraine.
RELATED LINKS
Current DateTime: 02:31:46 05 Jan 2009LinksList Documentid: 28495804
Oil Rises Toward $47 on Gaza, Russia Gas Row
Dollar Hits 3-Week High vs Yen as Stocks Gain
Dow Tops 9,000 Amid New Year Optimism
Euro Shares Rise; Swiss Banks Gain
More Asia Pacific News
Japan's Nikkei 225 Average
cnbc_comboQuoteMove('popup_NIKKEI_ID0EJMAC15839609');
[NIKKEI 9043.12 183.5606 (+2.07%) ]
cnbc_quoteComponent_init_getData("NIKKEI","WSODQ_COMPONENT_NIKKEI_ID0EJMAC15839609","WSODQ","true","ID0EJMAC15839609","off","false","inLineQuote");
began 2009 on a strong note, closing 2.1 percent higher in a shortened session and hitting a two-month high on hopes this year will be better than last, the worst in the Nikkei's history. Honda Motor and other exporters climbed on a weaker yen
cnbc_comboQuoteMove('popup_JPY-TN_ID0ELBAE15839609');
[JPY-TN 93.01 1.19 (+1.3%) ]
cnbc_quoteComponent_init_getData("JPY-TN","WSODQ_COMPONENT_JPY-TN_ID0ELBAE15839609","WSODQ","true","ID0ELBAE15839609","off","false","inLineQuote");
. Resource-linked firms such as trading houses surged as oil jumped more than 3 percent, after an Iranian military commander reportedly called on Islamic countries to cut oil exports to supporters of Israel over Israel's ground offensive in the Gaza Strip to stop Hamas rocket attacks.
Seoul shares gained 1.4 percent with banks including KB Financial rallying on expectations of a rate cut, while auto makers advanced on strengthening views their earnings may not be as bad as feared.
Australian stocks finished down 0.7 percent as banks gave up early gains, precious metal miners fell on lower gold prices and investors sold offshore earners likely to be hurt by a stronger Australian dollar.
More From CNBC.com
Get After-the-Bell Dow 30 Quotes
Credit Spreads and Libor Data
Futures and Pre-Market Data
Currency Data
Hong Kong shares rose 3.5 percent, with China Mobile rising for a second day on hopes that Chinese telecom operators will soon be issued licences to offer third generation (3G) services. China's Lenovo Group climbed after the Chinese magazine Caijing said the world's No.4 personal computer maker was set to announce a major restructuring plan on Jan. 8 including changes of its top management. Aluminum Corp of China jumped 9.5 percent, tracking similar gains in its Shanghai listed scrip on hopes that it would benefit from the government's infrastructure building plans.
Singapore's Straits Times Index rose 5.2 percent. Shares of plantation firms such as Golden Agri and Wilmar International rose on higher palm oil prices. Benchmark palm oil prices in Malaysia rose 1.5 percent after crude oil climbed on worries over supplies after an Iranian military commander reportedly called for an oil boycott.
China's Shanghai Composite Index rose 3.3 percent, with industrial metal producers leading the gains on hopes they would benefit from the government's infrastructure building plans. Coal producers also outperformed, partly because of a surge in global oil prices due to tensions in the Middle East. Shenhua Energy gained.
© 2009 CNBC.com
Sunday, January 4, 2009
economic war
Are you saying we need to fight the crisis with inflation?
A Unfortunately, you have to create inflation to get rid of the debt. The only way to get housing to go up again is through inflation, by reducing the value of the mortgages. The only way to get the consumer back purchasing things is to get rid of their debts and that can only be done through inflation. I'm not somebody who believes in inflation. I think it's an awful thing, but there's no alternative. Does this mean you are not satisfied with the solutions tabled so far?
A Absolutely, I never underestimate the stupidity of mankind, which is based on greed and fear and what they do when they are afraid or too greedy. When the emotions rule, you can be sure it will lead to some form of stupidity of one form or another. The idea of saving GM [General Motors Corp.] is the dumbest thing in the world. Let it go bankrupt, let it go renegotiate its wages and put them on the comparable level paid by its competitors. What we need is common sense, logic, rationality, putting aside politics and fighting the common enemy. What worries me is the proroguing of Parliament and losing two months to tackle the problems. I've been trying to tell the politicians for Christ's sake, don't do something politically stupid. This is economic war!
A Unfortunately, you have to create inflation to get rid of the debt. The only way to get housing to go up again is through inflation, by reducing the value of the mortgages. The only way to get the consumer back purchasing things is to get rid of their debts and that can only be done through inflation. I'm not somebody who believes in inflation. I think it's an awful thing, but there's no alternative. Does this mean you are not satisfied with the solutions tabled so far?
A Absolutely, I never underestimate the stupidity of mankind, which is based on greed and fear and what they do when they are afraid or too greedy. When the emotions rule, you can be sure it will lead to some form of stupidity of one form or another. The idea of saving GM [General Motors Corp.] is the dumbest thing in the world. Let it go bankrupt, let it go renegotiate its wages and put them on the comparable level paid by its competitors. What we need is common sense, logic, rationality, putting aside politics and fighting the common enemy. What worries me is the proroguing of Parliament and losing two months to tackle the problems. I've been trying to tell the politicians for Christ's sake, don't do something politically stupid. This is economic war!
Friday, January 2, 2009
Stocks to Post Big Gains, Economy to Rebound: Pros
http://www.cnbc.com/id/28464602Stocks are expected to score double-digit gains in 2009, and the economy should show signs of a rebound by the third quarter, according to the majority of money managers, strategists and economists surveyed by CNBC in the final two weeks of the year.
The Fed funds rate, now effectively at zero, is expected to stay that way in 2009 by 18 percent of respondents. But the majority see it moving higher. Twenty-nine percent expect it to be at 0.25. Another 14 percent see it at 0.50 percent, and 18 percent expect it to be 1 percent. Just 15 percent expect it to be higher than 1 percent.
The Fed funds rate, now effectively at zero, is expected to stay that way in 2009 by 18 percent of respondents. But the majority see it moving higher. Twenty-nine percent expect it to be at 0.25. Another 14 percent see it at 0.50 percent, and 18 percent expect it to be 1 percent. Just 15 percent expect it to be higher than 1 percent.
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