Sunday, November 29, 2009

The pragmatic swiss...

...Fire a warning shot. Interesting clash of rights.
I doubt middle east investors will care about this, but
It does set interesting precedent for an increasingly
Skittish Europe.

Could we see a return to second order motivation
(Religious rather than economic) for conflict?

Alexander G. Higgins, Associated Press Writer – 12 mins ago

GENEVA – Swiss voters overwhelmingly approved a constitutional ban on
minarets on Sunday, barring construction of the iconic mosque towers
in a surprise vote that put Switzerland at the forefront of a European
backlash against a growing Muslim population.

Thursday, November 26, 2009


Reverberations across the world. When the tide rolls out, apparantly you find out who has built sand castles in the ocean.

Expect capital flows to stampede back into more stable jurisdictions.

“Dubai is the most indicative of the huge global liquidity boom and now in the aftermath there will be further defaults to come in emerging markets and globally,” said Nick Chamie, head of emerging-market research at Toronto-based RBC Capital Markets.

Stocks, bonds and currencies fell across developing countries. The MSCI Emerging Markets Index of stocks dropped 1.1 percent, led by declines in China and Russia. South Africa’s rand weakened 1.3 percent against the dollar and the Turkish lira slumped 1.1 percent. Hungary’s forint lost 1.2 percent per euro. Credit-default swaps on Russia increased to 206.5 basis points from 192.

Wednesday, November 25, 2009

The barbarous relic... making big gains.

During these times, participants begin to discount risks and become myopic. Gold can only go up, you see? Inflation, global instability, future taxation, production costs, storer of value, etc., etc.

The tectonic battle between sovereign state and Gold fanatics continues, or so it may seem.

This is a bubble. Production is up, and supply will surely cure demand at these prices. We will also see some fraud going forward as there are far too many financial instruments and derivatives claiming to own physical gold "somewhere" (and likely thinking that only in the case of gotterdamurung will people demand the underlying!)


The domino theory applies to economic malaise as well...and Vietnam has certainly been a pilot fish for East Asia in the past.

Vietnam devalues currency by more than 5%

By Tim Johnston in Bangkok

Published: November 25 2009 08:18 | Last updated: November 25 2009 13:06

Vietnam devalued its currency by 5.4 per cent against the dollar on Wednesday and raised interest rates by a full percentage point in an effort to cut inflation and end weeks of damaging uncertainty which has seen ever increasing pressure on the currency.

For weeks, the government had insisted that it would not give in to the pressure: “Vietnam will not devalue our currency,” Nguyen Minh Triet, president, told a seminar in Singapore last week. “We will take cautious steps on our monetary policy.”

Tuesday, November 24, 2009

The Paper Dragon's banks...

...require capital infusions?

Readers here are not surprised. Simply substitute "unprecedented lending" with "giving it away to Communist Party members" and we step closer to reality.

China’s five largest banks submitted plans to regulators for raising money after unprecedented lending eroded their capital, according to four people with knowledge of the matter.

Saturday, November 21, 2009

An interesting take on Marxism

No exploitation here at all. Its disingenuous to refer
A model of governance as communist when its a plotocracy.
Of course, we in the US cannot talk too much given the
Kakistocracy we call our government. (I am exaggerating
of course but only just).

As I have said multiple times, economic deterioration,
In this case classic Fisherian debt deflation, causes
fissures with accepted models of governance and here we
Have another example of a regime using th Khyber pass
Approach to problem solving.

Vice Premier Zhang Dejiang is heading to the site of the accident, and
Chinese President Hu Jintao and Premier Wen Jiabao have given
instructions about the rescue work, a sign of official concern about
the latest in a long string of disasters.

Friday, November 20, 2009

Benevolent China...

If there were no commodities in Africa, the Paper Dragon would not be so munificent. These statements and positions by China are becoming increasingly hebephrenic. The Africans have some experience in this area...the benevolent shepherd developing the flock (in order to fleece them for eternity)

Africa's development is an essential part of achieving global development, and as the sincere and dependable friend of Africa, China deeply feels the difficulties and challenges faced by Africa," Mr Wen said.

"China's support for Africa's development is real and solid and, in the future, no matter what turbulence the world undergoes, our friendship with the people of Africa will not change."

The fact we hold nearly a Trillion $ of U.S assets...

...Has nothing to do with our desire to keep our export
Driven economy on really, it does not...we
Really mean it. This truly is hilarity. They are
Bluffing and I sense a disturbance in the force.

(Bloomberg) -- China is passive on the value of the U.S.
dollar as the level doesn’t affect the nation’s economy,
central bank Governor Zhou Xiaochuan said

Thursday, November 19, 2009

The men of Newport Beach...

...Finally it seems everyone is prepared to face the
Prospect that the incredibly high and consistent GDP figures
Coming from China may be ephemeral. Again, why would China,
Or rather the Chinese communist party, choose to hold so
Much in dollar denominated assets? A liquid investment
With no need for physical storage and no specific
Domicile required?
Yes, I am serious...think what that can buy should China
Fall into some categorically objectively necessitative
(To poke fun at communist jargon) revolt?

Great Idea!

Emerging markets issuing bonds in foreign currencies. We have seen this before many, many, times and it typically does not end well.

This, given the myth of "decoupling" (although I reserve the right to admit there may be a "recoupling"), and this may well be another example of selling at the top.

Nov. 19 (Bloomberg) -- From Angola to Belarus, emerging-
market governments are planning first-time debt offerings to
take advantage of the biggest bond rally in at least 11 years.
Investec Asset Management Ltd., Aberdeen Asset Management
and Threadneedle Asset Management Ltd. say they may buy some of
the $4 billion of debt Angola plans to sell, as well as proposed
dollar bonds from Belarus. Vietnam aims to raise $1 billion in
its first offering of foreign-currency securities in four years,
Deputy Prime Minister Nguyen Sinh Hung said yesterday. Iran,
under three sets of United Nations Security Council sanctions,
targets a 1 billion euro ($1.5 billion) sale by December.
Developing-nation government bonds are trading near the
lowest yields on record, at an average of 6.49 percent, after
the biggest 12-month decline since JPMorgan Chase & Co. began
tracking the data in 1998. Sales rose 70 percent to a record
$554 billion this year as central banks cut interest rates to
pull the world out of the worst recession since World War II.
Debuts are planned by governments without credit ratings or
dependent on international bailouts.
"It's because of the wall of money that comes from
extremely accommodative monetary policy globally," said Edwin
Gutierrez, an emerging-market money manager who invests $5
billion in assets for Aberdeen in London. "There is just
absolutely loads of liquidity out there still trying to find a
home for that money."

Wednesday, November 18, 2009

China as America's "Banker"

This myth should not be allowed to propagate. Unfortunately, by definition, simple messages are the most likely to flourish and reach the greatest proportion of the populace. We humans have mastered compartmentalization and categorization.

A friend sent me the following nonsense:
Why would the Chinese be so interested in our deficit? Well, for all intents and purposes, China is the official banker of the United States government. China is the number one foreign holder of U.S. Treasury securities.
And, as the Times reports, “like any banker, they wanted evidence that the United States had a plan to pay them back.”
Somehow, I doubt the President had any such evidence to give them in Beijing this week.
The Chinese are nothing if not clever. One investment banker told me that they had converted all of their debt from 30-year maturity to one year. The hard questions they are asking right now are about how much the health care bill will raise the deficit. And make no mistake, if the Chinese decide not to continue financing our debt, the dollar could drop through the floor. America could have a huge financial crisis.
Isn’t it ironic that the communist Chinese are more concerned about the cost of socialized medicine than the President and the Congress? That the Chinese communists are more concerned about the U.S. government printing money like it’s going out of style than we are?
If that isn’t a wake-up call to the politicians, the media, and to the American public, I don’t know what it’s going to take.

to which I replied:

I completely disagree with the assumptions of this article, although I tend to agree with its conclusion (that Health Care "reform" should never be passed)

First, some theory:

China cannot, will not, "call in" the "debt" of the U.S. If they did so, it would require an immediate and massive appreciation of theYuan vs. the U.S. dollar, effectively destroying the Chinese economy as its export-driven model shrinks to zero.

China is not "the bank" of the U.S. All of the paper they own is denominated in U.S. dollars. We don't NEED to "get" any money from anyone. Their holding reflect their DESIRE to hold safe assets in a safe jurisdiction. The important point is not this histrionic talk of China being able to destroy the U.S. economically, rather, its WHY ARE THEY CHOOSING TO HOLD SO MUCH OF THEIR WEALTH IN ASSETS DENOMINATED IN DOLLARS. My view on this is that their banking system is insolvent, and should the rest of their economy implode, it would require massive bail-outs by the IMF and other multi-lateral organizations. They are not saving for a rainy day. They know the rainy day is coming and are preparing accordingly.

Now, some facts:

China did not convert all their duration from long to short term.

The major foreign holders of U.S. securities can be found here. You will note that Japan holds nearly as much as China, but no-one talks incessently about how they are our "bankers".

I also note here that China has certainly not lost its appetite for U.S. dollar denominated securities. They bought 12.5 Billion of LONG TERM securities (duration 10+ years) against 4 Billion in Short-term securities ( >1year duration) in SEPTEMBER ALONE. Does this sound like they have now "converted" all their debt?

Now, I don't discount the possibility they have entered into derivative contracts to sythetically convert their bond duration to one year, but this is HIGHLY, HIGHLY, unlikely as only 1-2 banks in the world could handle such a transaction, and we would have seen U.S. long-term yields move substantially as that bank would have to hedge their own risk. Instead, the 30 year sits implacably below 3.5%.

Far more likely that the "banker" this guy spoke with did not know what he was talking about.

Saturday, November 14, 2009

Top down...

...Economic policy is simply ineffective.

A recent paper by the New York fed provides a glimpse of
how the current administration views the viability of tax
Cuts as a primary fiscal response. This is unfortunate.

It is unfortunate that the Fed is part in parcel of the
Eunuch class.

Monday, November 09, 2009

Protectionist Leanings

No declarations of trade war yet (imported Chinese tires and pipes notwithstanding), but the tenor and tone of commentary concerning trade is becoming more ominous. This new meme collides nicely with the "official statistics are political instruments" one in this article.

American workers lose their jobs when carburetors they once made are imported instead. The federal data notices the decline in employment but fails to revalue the carburetors or even pinpoint that they are foreign-made. Because it seems as if $100 carburetors are being produced but fewer workers are needed to do so, productivity falsely rises — in the national statistics.

Wednesday, November 04, 2009

Buy and hold

Interesting article regarding China's developmental packages to emerging markets, and their motivations for same.

I look at this differently. They are forced to pay (ostensibly) higher prices because they lack the ability to provide security for their investments. Relying on incumbent governments to guarantee security on large capital project assets in jurisdictions where expropriation is seen as a national pastime is an extremely risky strategy.

So perhaps there is something more insidious occurring. I am carefully watching the political strings attached to these investments and whether or not the Chinese wish to export their political model in addition to their goods...especially if China seeks to emulate its own model for suppressing non party members.

Tuesday, November 03, 2009


Readers here will note my continued interest in Africa, particular sub-Saharan Africa, and its potential for growth and overplus investment returns.

Beyond the myriad reasons (some history of western law, English or Franco speaking populations, a re-newed interest in its geopolitical importance, new technologies that will mitigate epidemic and disease risk, to name just a few) for my interest, there remains one most critical:

In a world where new definitions of sovereignty are coming to fore (read: democracy as a model for governance is no longer thought of as the "only" legitimate way to obtain order among large populaces) and escalating aggression among countries for resources, the regions where the least amount of order exists offer the most premium when controlled. Risk and return.

China is attempting to accomplish this via investment (and bribes...let us not be naive). They will most likely fail. Readers here will recall that I have always maintained that without security, there are no markets*. There is only one nation that can plausibly and credibly provide instant security to large swathes of terra firma. That would of course be the U.S.

So, I will be posting summations regarding each of the sub-Saharan countries in the coming weeks. I expect a large amount of focus to be given to this region in the next few years. A semi-permanent residence for U.S. forces continues appears inevitable. The U.S. African Command was not set up merely to observe. This will inform us immediately as to U.S. intentions to check the expansion of the "illegitimates", and in what area it will emphasize. The obvious location is along the Ivory Coast and Nigeria.

*I realize this is somewhat of a chicken/egg problem, as "national interests" are a euphemism for economic interests. The point here is that in the present manifestation of globalization, without all of its powers of scale, there must be security guarantees for markets to enjoy that level of scalability.