Haunting's economics blog

[haunting]

** from WSJ: net lingo, some are new to moi... also other reference sites to make you more learned are:

http://netlingo.com/
http://dtxtr.com/
http://www.urbandictionary.com/

Say What?

A sampling of some popular shorthand texting terms.

* UG2BK . . . . . . . You got to be kidding
* GBTW. . . . . . . . Get back to work
* NMP . . . . . . . . . Not my problem
* PIR . . . . . . . . . . Parent in room
* GFTD. . . . . . . . . Gone for the day
* FYEO. . . . . . . . . For your eyes only
* BI5 . . . . . . . . . . Back in five minutes
* DEGT . . . . . . . . Don’t even go there
* BIL . . . . . Boss is listening
* PAW. . . . Parents are watching
* 99 . . . . . . Parents are no longer watching
* PCM . . . . Please call me
* IMS. . . . . I am sorry
* TOY. . . . . Thinking of you
* KUTGW. . Keep up the good work
* CID . . . . . Consider it done
* FWIW. . . For what it’s worth
* HAND . . . Have a nice day
* IAT . . . . . I am tired
* NRN . . . . No response necessary
* 4COL. . . . For crying out loud
* WRUD. . . What are you doing
* LMIRL. . . Let’s meet in real life
* ^5 . . . . . . High five

 

[haunting]

A fifth of European Union will be Muslim by 2050

** this is food for thought for those who care...

By 2050, the southern part of the USA would have a Hispanic population that is large enough to change the political scene in states such as Texas. The conservative Hispanic Catholic Christians will be major political change agent to the outcome of their Presidential election. There is every chance that one of them will be made the President of the USA... now that will really piss some conservative Republicans off.

More importantly, the probability of seeing the USA breaking apart, not unlike what has happened to the USSR, will be increased at least many folds. If and when that happens, what will the world look like?

My conjectures...

1) EU will become very unstable because of this large underclass muslim population, I won't be surprised at all if it breaks apart like the USA. Based on the current birth rate among the muslims and if they were to maintain that growth, by 2100, they will become the most productive group of people in EU, that is, based on the assumption that younger people are more productive economically.

BY 2100, an Islamic Europe? Wish I can live that long to see that! (as an observer and nothing else, jic)

2) The USA... still remember the red and blue states? Well, the north will be the Blue whilst the South will be the Red. There is every chance that California will breakaway from both the Red and the Blue... and I won't rule out the possibility that California will merge with Mexico to form a new country - Mexifornia? Or Calixco? Luv this!

3) India and China will dominate the world commerce and there is every chance they will play the roles of the USA and USSR back in the cold war period. Their reign won't last though because of the rise of Islam, especially in Central Asia. This will likely see the Western part of China breaking away from the Chinese Republic. Likewise the northern part of India will probably suffer the same fate.

4) Australia? What can I say? Let's be nice to each other...

 

[haunting]

FNArena Rudi's view...

There are many misgivings and false truths about financial markets. One of these is that investors should "buy low and sell high". Wrong. If you try to buy low in this type of market you risk ending up with a loser stock, while all the rest is running away from you. The correct mindset, and I am borrowing this from US trader Dennis Gartman (publisher of The Gartman Letter), is to "buy high and sell higher".

** iI would take Rudi's view as a good contrarian signal for market sentiment...

Attached are three charts - one of XJO, just to show where one should "buy low sell high" and where one should "buy high sell higher" and where one should be sweeping your profit off the table before others help themselves to it... but as usual, don't take my words for it, do your own analysis.

I am expecting the market to pull back, esp from stock fundamental angle: a) many stocks are reaching very inflated level that is "inducive" for profit taking; b) the weakening economic fundamental moving into the next two quarters; c) the overseas (read USA) market influence on ASX, esp when their market fundamentals are much weaker than ASX's; d) China's impending plan to constrict lending to control bubbly assets; e) large number of stocks are due for ex-divi soon, that will apply pressure on the index value; f) the basis of the current rally - the XMJ sector is showing weakening momentum; and the XXJ sector is showing a highly overbought state and is susceptible to profit taking, once the major leaders have gone ex-divi... this time, it's a fight between liquidity+market sentiment vs stock+economic fundamentals - my bet is on the latter.

 

[haunting]

Taliban Now Winning

** as an invading force, no matter how many soldiers are sent by Nato, they will not win. As far as I can see, it's a Vietnam rehash. The outcome is almost certain - Nato will raise the white flag and withdraw eventually, it's just a matter of time and it's a matter on how - to save face.

According to the great Chinese strategist, Sun Tze, to win a war, a general would need three "things" to be on his side: Weather/climate, terrain, people - local people's cooperation and his soldiers' morale, believing they are fighting a just and fair war and it is winnable...

Right now, Nato doesn't have any of the three elements on their side - there's no way they can win! Can't see how and with what? For what?

 

[haunting]

Westfield Said to Get $1.4 Billion for Loan After Courting Asia

** expected something like this to happen, and mark my words, this little trickle will turn into a torrent once the rest of the cash starved companies in ASX become aware of this "mountain" of cash awaiting them...

Will they care if some of these cash come from a SWF? Hohoho! (sorry, I am just too cynical to buy into this BS of SWF and state owned corporations will rob us clean...)

Let me put it simply - if the Aussie firms are still acting "precious", just watch what the Canadian, the Latin Americans and the Africans would do next, and mind you, by the time the whole stampede is over, don't feel bad if there is none left for the Aussies...

Hard to believe? Just note how much WDC is willing to pay -

The loan will cost 240 basis points more than Libor, compared with 35 basis points over Libor it is paying for the existing loan, one of the people familiar with the matter said today. A basis point is 0.01 percentage point.

In a forward start loan, lenders to an existing credit agreement commit to provide financing to replace loans as they mature for increased fees...Westfield is seeking to extend the credit line, which matures in January 2011, by 18 months...

** is Frank Lowy crazy or just plain smart? I would go for the latter... and my bet is by 2011, those who are trying to borrow anything greater than 1 billion by then will have to beg (if he can find someone who is willing to lend); if not, will have to pay a much higher price than what Frank is paying now.

And mind you, by then, many of the mines that are not for sale and are out of bound to the Chinese now will be begging for the Chinese to take them over... if the Chinese decides to cool down their economy by more than 2 quarters! There won't be a boom without the Chinese stimulus and there won't be a boom in commodity if the Chinese are convinced this country doesn't really want their investment.

How important are they really? Well, there's a report saying China's IO import went gangbuster in June, Volume up 5% at all time high (I think), spot price at a premium... but is there any one really paying attention?

Who are the real benefactors of this IO boom? Is BHP laughing all the way to the bank? Is Rio rejoicing?

Dunno, but we can wait. If they don't tell us this time, they will, in the next one...

 

[haunting]

Umbrella up against liquidity downpour

CHINESE policymakers are tightening the credit taps to avoid banking problems, asset bubbles and inflation, amid the first signs of deceleration in China's resurgent economy.

Data yesterday showed a sharp decline in new bank lending in July while growth in industrial production was slower than expected and investment decelerated from its breakneck pace.

China's flood of liquidity - bank lending rose 201 per cent in the first half of the year from a year earlier, to 7.4 trillion yuan - has generated strong imports, which have helped sustain regional economies including Australia, South Korea and Singapore...

** here's one signal people should take notice, next we want to know what's the flow on effect to the Aussie miners' bottom line...

 

[haunting]

REERs and current accounts see USD undervalued vs EUR and JPY
Historically, currency interventions by the G3 countries – US, Europe and Japan –
have followed one key pattern: they were aimed at correcting major misalignments
in real effective exchange rates (REERs). Put simply, intervention supported the
weakest (or fastest depreciating) G3 currency in real trade-weighted terms.
If the G3 mount a concerted intervention today, it would be to support the dollar.
On a REER basis, the USD is undervalued against both EUR and JPY. This is inconsistent
with the improvement in the US current account deficit, and the deterioration in
the current account of Eurozone and Japan.

• The current account deficit in the Eurozone has deteriorated to levels not seen
since 2000. That’s where similarities end. Back then, confidence in the EUR was
so poor that it required concerted G3 interventions to support the single currency.
Today, Eurozone is facing the reverse problem – the EUR is extremely strong on
REER basis. The EZ current account deficit continued to deteriorate into 2009. In the first
five months of this year, the shortfall totalled Eur64.7bn, more than two-thirds
the Eur93.8bn deficit reported for the whole of 2008. The full-year deficit for
2008 was worse than the Eur91.0bn gap seen in 2000.

• Japan reported, for the first time since 1980, a trade deficit for three straight
quarters from 3Q08 to 1Q09. Without the traditional support from trade surpluses,
the JPY should have depreciated sharply. Instead, the JPY appreciated because
of the global crisis forcing JPY-funded carry trades to unwind. Although the
trade deficit reversed back into a surplus in 2Q09, it remains to be seen if they
could return to the high levels seen before the global crisis.

• The US trade deficit, which accounts for more than 90% of its current account
deficit, has narrowed to levels not seen since 2001. This suggests scope for more
recovery in the USD.

** one possible reason why EUR is holding well at this level is the market belief that the Chinese are shifting part of their investment from US$ to EUR as a form of diversification.

The favorite currency for carry trade is the Australian dollar (AUD). Before this
crisis, the AUD’s bounce from its bottom has traditionally followed a modest
appreciation path. The rise we have seen this year is abnormally strong. Based
on its close of 0.8370 on August 7th, AUD/USD is some 17-25% above the 0.67-
0.71 range seen in past rebound cycles.

 

[MRC & Co]

Add in US now has positive interest rate differentials out of all 3.

 

[haunting]

Google is trialling its new search engine HERE - it's a Speedy Gonzales alright. Great if you are in a hurry...

 

[haunting]

Krudd, a great leader?

** find this amusing... truly great leaders are willing to do the necessary, the unpopular with foresight and vision. So far, I don't see any...

Comparing with Hawke and Keating, I think it's an insult to both of them and their achievements.

 

[haunting]

China's Australian blind spot - by Robert Gottlibsen

Let's hope the Australian business community is starting to comprehend the far reaching implications of HSBC's latest research, which shows that the chart of the value of the Australian dollar is a mirror image of Chinese electricity production. As I explained yesterday, that means the Chinese can invest in Australia and Australians in China without a currency risk...

** AUD is a commodity currency and commodities = China... it's only natural to see the direct relationship established somewhat. But beyond direct commodity supply-demand, there's a more speculative relationship, as in JPYAUD carry trades... take a look at the attached chart and see how closely the currency pair is tracking the Shanghai index.

My suspicion at this point is simply this - in time to come, with the Chinese' conscious and deliberate effort to divest their exposure in the US$ by shifting their investment into other fixed assets such as commodities, real properties, etc... at some point, the US$ grip in the global economy will loosen resulting in further depreciation in the US$, partly due to excessive supply of the US$ due to QE and partly due to a drop in demand with the Chinese shifting their investment into non US$ based assets.

At that point the US would have no choice but to depreciate their currency (like Zimbabwe did) to reduce the runaway inflation. (The current short "termish" deflationary pressure would not stop the inflation genie if the Feds were to fail in reining in their QE by the end of this year. jmv)

When that happens, I would expect the AUD to jump in sync with the RMB... once again proving to everyone what a lucky country Australia is!

But before we reach that stage, can someone please tell Krudd and his gang to stop screwing around with the Chinese please?

 

[haunting]

Dollar rally may be Shanghaied

 

[haunting]

Check them out: here.

 

[haunting]

This report seems to support some of the views expressed earlier...

“The question is not whether the dollar will weaken over time, but how it will weaken,” said El-Erian, a former deputy director of the International Monetary Fund whose firm runs the world’s largest bond fund. “The real risk is that you will get a disorderly decline.”
...
While the U.S. economy is picking up, the recovery is being driven by inventory rebuilding and Obama’s record $787 billion fiscal stimulus, Olivier Blanchard, chief IMF economist, suggested in a paper released by the Washington-based lender on Aug. 18. Neither will last, he added.

That means exports “must increase” for a sustained U.S. recovery to take place, he said. To help achieve that, “some coordination across countries is likely to be as crucial during the next few years as it was during the most intense part of the crisis.”

Derail Recovery

Without that coordination, there’s a danger of a disorderly dollar fall that would destabilize financial markets and could derail the recovery, he said.

The dollar has lost 12 percent since March 5 against an index comprising the euro, yen and four other major currencies.
...
Major Risk

The Bank of Canada is already wrestling with what to do about gyrations in the currency market. Governor Mark Carney said July 23 that the stronger Canadian dollar was a major risk to economic growth.
...
Monetary-policy makers worldwide may stay in sync if forecasts of an economic recovery prove stillborn and central banks hold off on tightening credit. Economists surveyed by Bloomberg put one-in-five odds on the possibility the U.S. will relapse into a so-called double-dip recession in the next 12 months.

David Kotok, chairman of Vineland, New Jersey-based Cumberland Advisors Inc., sees a risk of increased instability in foreign-exchange markets once policy makers start to sop up the money they have pumped into the global financial system.

“If central bankers act without coordination, they may find their currencies hammered or upwardly valued as markets react strongly or viciously” to interest-rate differentials, said Kotok, whose firm manages more than $1.2 billion. “Foreign-currency volatility will quickly cause adjustment in interest rates in the government-bond markets of the world.”

** if the US$ were to drop lower from the current level, I would take that to mean the "cooperation among the central banks" to keep a "stable" US$ for the common good of recovery has broken down. Also the recent issuance of TIPS, as pointed out in this report, would serve as an early indication and warning on a devaluing US$ in a longer time frame.

 

[haunting]

Aussie Options Turn Bearish as Rate-Rise Odds Drop

** worth a read and remember this - a herd is formed when there're enough people believing and sharing the same information, like a snow ball rolling downhill, it will gather momentum and mass...

“China since the start of this month has indicated that government-backed projects will probably be fewer than in the first half and that the robust lending numbers are showing signs of slowing,” said Philip Wee, senior currency economist at DBS Group Holdings Ltd., Southeast Asia’s biggest regional bank, in a Bloomberg Television interview. “The market needs a stable U.S. and a growing China to take risk.”

New York-based Citigroup recommended selling the Aussie against Japan’s currency on Aug. 19 on expectations it would slide toward 70 yen. The exchange rate ended last week at 78.79 yen.

“We’ve probably built in so much positive news that the risk of disappointment is high,” said Henrik Pedersen, the London-based chief investment officer at Pareto Investment Management Ltd., which oversees $41 billion. “We’ll buy some protection through options. There’s some risk of a reversal.”

** one who lives by the sword shall die by the sword... the AUD shall swim and sink with the Chinese market I reckon. Next is to watch if the US$ is still retaining its safe haven status within the investing communities. At this point, the chart and short term trend is going against the above market expectations.

 

[haunting]

Questions raised over Goldman research policy

Goldman Sachs Group Inc. regularly provides its top clients with stock-trading tips that differ from the firm's published research reports, The Wall Street Journal reported on Monday.

The WSJ report...

Goldman's Trading Tips Reward Its Biggest Clients

The firm asked important clients for suggestions. One idea that took hold was giving certain customers and traders more access to stock tips.

The idea was controversial with some Goldman research staffers. "I am not sure we should be giving recommendations that go against our research," ...

** I am willing to bet there's not much difference in "them" practices over here. These bastards are real blood suckers if you don't mind my language!

 

[haunting]

Here is a good comment by DBS on currencies...

Stock markets are unable to shake off worries that they may have run up too much
too quickly during this recovery from crisis. In China, investors fret that the
government may need to rein in robust lending and introduce measures to address
potential problem loans at banks. In the major economies such as the US and
Eurozone, investors are not convinced that the recovery is sustainable as long as it is
dependent on government spending. Herein lies the underlying fear that exit
strategies by central banks could lead to double-dip recessions. It did not help that
the Bank of Israel became the first major central bank to raise its key lending rate by
25bps to 0.75% yesterday. As long as these fears persist, the USD and JPY will find
support from investors seeking them as safe haven. That said, many exchange rates
have been trapped in 200-300 point ranges ever since the Shanghai Composite
Index peaked in early August. A breakout is unlikely to come anytime soon unless
investors decide to overcome the above worries and move equities higher, or let
stock markets correct markedly lower on profit-taking.

** one way to gauge if these worries are real, one can keep an eye on the volatility of the equity market plus the currency pair movement such as JPY/AUD... my bet is they will both be volatile for a while until these worries/uncertainties are resolved. If the outcome is negative, expect a plunge from the current level.

 

[haunting]

Dollar Will Continue to Decline, Yuan May Gain, Strategists Say

“I look at the euro and I say the worries about the deficit and U.S. debt are mirrored in Europe,” Patterson said. “The euro doesn’t have the same reserve currency support that the dollar has. For a short-term trade, it’s fine. For a long- term diversification tool, I’d stay away from it.”
...

“Asia is at a tipping point where you’ll see a transition from export-led growth to domestic-demand growth,” Standard Chartered’s Henderson said. “We’ve already seen the first stage with a huge focus on domestic demand, a huge focus on consumption. The next stage is surely a move away from a cheap currency policy toward stronger trade-weighted currency appreciation in order to dampen consumer cots.”

 

[haunting]

As Budget Deficit Grows, So Do Doubts on Dollar

Now, though, major investors like Berkshire Hathaway Inc. Chairman Warren Buffett and bond investment firm Pimco fear the government's fiscal and monetary stimulus programs could end up fueling inflation in coming years and hammering the dollar. Higher inflation eats up the returns of bond investments that provide a fixed interest income, making them less attractive to investors. Less demand for U.S. bonds could mean a weaker dollar.

Mr. Buffett, for example, worries that U.S. policy makers will fail to move decisively to curtail the nation's ballooning net debt, expected by some to rise to more than 75% of annual economic output by 2013. Instead, policy makers might tolerate higher inflation, which makes existing debts more manageable but would hurt the U.S.'s creditors, including China and Japan. In this scenario, investors would demand much higher interest when lending to the U.S. government, raising its borrowing costs and making further budget deficits harder to finance at a time when an aging population will sharply boost the costs of social security and government-sponsored health care.

** to arrest the fear of inflation, the US govt increases their issuance of TIPS, just so the Chinese can stop worrying about the inflation ginny. This shows how desperate the US needs the foreign buying of their "useless" US$.

** in a different tangent, just in case you don't notice this - the US equity market rally, whilst many believe is due to the recovery from recession, but if you were to dig deeper you would have noted this - it was driven inversely by the depreciating US$. In other words, as and when the US$ drop in value, the US$ based assets are becoming cheaper and are attracting more foreign buyers. The cheaper the US$ the higher the US equity index would move. But if you were to discount the index by the corresponding depreciation rates (or if you can work out the real value of the US$), the index would be looking flat line...

Alternatively, if the US$ were to rebound strongly from the current level, and if this observation holds, then, you should see the US equity taking a tumble. However, a qualification has to be made here - short "termish", this "theory" may not be obvious, just like "trend" and "pattern", you need time and a fair amount of data to confirm this observation.

(As usual, I could be wrong, so caveat emptor here)

 

[haunting]

America's mortgage meltdown

The sharp fall in house prices that followed dramatically reduced household wealth, leading to lower consumer spending and a fall in gross domestic product. By now, wealth in the form of owner-occupied housing is down about 30 per cent, equivalent to a loss of more than $US6 trillion ($A7.2 trillion) of household wealth.

The fall in house prices also led to a sharp rise in mortgage defaults and foreclosures, increasing the supply of houses on the market and causing further price falls. As a result, a third of all American home owners with mortgages are already ''underwater'' - their mortgage debt exceeding the value of the house. For a sixth of the homes, the debt is 20 per cent higher than the price of the house.

In addition, high loan-to-value ratios in the US combine with household financial problems to increase the number of defaults and foreclosures. More specifically, rising unemployment means more people cannot afford their monthly mortgage payments.

Unlike most other countries, US has a "no recourse" residential mortgages system. If an owner stops making payments, the creditor can take the property but not other assets or part of wages. Even in states where creditors have the legal authority to take other assets or wages, personal bankruptcy laws are so restrictive they don't bother to try.

Although it is tempting to think of this as a problem affecting only the US, nothing could be further from the truth. When home owners default, banks lose money, and uncertainty about the extent of future defaults undermines confidence in banks' capital, making it harder for them to raise funds and causing them to reduce lending to conserve their resources.

As a result, the recession has been deeper and longer and the weakness of the US economy will lower US import demand. And, if house prices continue to fall, so will the value of mortgage-backed securities held by the world's financial institutions, affecting the supply of credit far beyond the US.

Recent data suggests the fall in house prices may be coming to an end. The rate of decline of US house prices fell in the three months to May, and the figures for May show essentially no decline. If the trend continues, it will prevent further erosion of household wealth and strengthen the banks' capital positions.

But the data, while encouraging, may be the result of temporary factors. Mortgage interest rates fell below 5 per cent in March and April, but have risen significantly since. Moreover, government subsidies to first-time home buyers may have released pent-up demand. And the banks' voluntary moratorium on foreclosures may have kept supply off the market.

All of this may have caused a temporary rise in house prices. In short, we will have to wait for the house prices data for June and July to know whether there has been a permanent turnaround.

The recent rise in existing home sales in the US may also be misleading, since many are foreclosures. Indeed, property that has been foreclosed, or is on the verge of foreclosure, now accounts for nearly a third of all existing home sales. Foreclosed property is generally sold at auction, guaranteeing a buyer but driving down prices. Significantly, foreclosures rose 7 per cent month on month in June, and a whopping 32 per cent compared with June last year...

** and here's a follow up report...

July Home Sales and Goods Orders Jump...

Home sales increased 9.6 percent in July, the most in four years, to a 433,000 annual pace, figures from the Commerce Department showed today in Washington. Another report from the department indicated bookings for durable goods climbed 4.9 percent, also exceeding forecasts and the most since July 2007...

** draw your own conclusion! I would take a wait and see attitude in this one because home sales volume increases doesn't mean there's a consistent house price recovery over there. More will be revealed in due time I reckon.