HEDGE FUNDS BET
CHINA IS A BUBBLE CLOSE TO BURSTING
(Telegraph, Louise
Armitstead)
· One London-based
hedge fund manager says “The data doesn’t add up. We think we’ve
experienced credit bubbles over the past few years but China is the
biggest. And yet the global economy is looking to China as not just
a crutch but a springboard out of the recession. It’s crazy.” Hugh
Henry, a former star at Odey Asset Management, has launched a distressed
China fund at Eclectica Asset Management & Mark Hart of Corriente
Advisors, the US hedge fund manager who made a bundle predicting both
the subprime- & Europe’s souvereign debt crises, has started a
fund based on the premise that, rather than being the “key engine
to global growth”, China is “an enormous tail-risk”.
· China is the global
price setter for oil, coal & base metals but a recent study by Fitch
concluded that a halving of its growth rate would prompt a 20% plunge
in global commodity prices. Al-Jazeera last year did a special on China’s
“ghost towns”, incl. Ordos Chi in Inner Mongolia that was built
for 1MM people but where hardly anybody lives. And according to
Corriente Advisors there is an excess of 3.3BN square metres of floor
space in China while nevertheless 200MM of new space is being built
each year, & property prices are so high as to be out of reach for
most people.
Under the best of
circumstances it would have been surprising if there hadn’t been some
dodgy loans made during a ballooning of bank lending such as occurred
in China in the past couple of years. And what will compound problems
is that the Chinese banks’ balance sheets have long been anything
but pristine & held lots of potentially problematic loans. Add onto
that wage increases well into the double digits, a demographic profile
in sight of a ‘tipping point’ & a leadership change in 2012,
and the hedge fund managers’ prognostication may well be proven
‘on the mark’ by, say, 2013. But it is worth remembering that in
investment past performance is not necessarily indicative of future
success.
CLIMATE CHANGE
WILL PUSH UP FOOD PRICES (Postmedia News, Mike de Souza)
· A study by the
US-based Universal Ecological Fund, a subsidiary of an Argentina-based
group of the same name, entitled The Food Gap, predicts that,
while climate change may increase Canadian grain production by as much
as one-tenth, overall it will have more negative than positive impacts,
and “As a consequence, the number of undernourished in the world would
inevitably increase” (by as much as 70% over the next decade as the
world population increases by < 15%). And FAO predicted in its latest
global food outlook report that in the next decade average grain prices
could rise by as much as 40%.
As it is, higher food
prices are already creating social unrest across the developing world
incl. Tunisia, Egypt, Jordan & Yemen (where food costs account for
a far greater share of the average household budget (especially for
the poor) than in First World.
U.S. DATA POINT
TO ACCELERATING RECOVERY (Bloomberg)
· The number of
Americans filing initial claims for unemployment benefits fell more
than expected in the week ended January 15th, by 37,000 to
404,000, the biggest decline in almost a year. The Index of Leading
Indicators in December rose for the sixth month in a row, also by more
than expected (1% rather than 0.6%), and the Indices of Coincident-
& Lagging Indicators also rose, albeit by smaller amounts. Sales
of previously-owned homes were higher than forecast, by 12% MoM to a
5.28MM annualized rate (although this was due to buyers seeking to lock
in the current low mortgage rates, although prices were down 1% YoY,
& the share of sales represented by foreclosures climbed).
Nevertheless, all
this doesn’t add up to the kind of
‘robust’ recovery needed to take a bite out of unemployment (&
boost government tax revenues)
CBO FORECAST FRIGHTENING
TO BOTH PARTIES (MSNSC, Tom Curry)
· On January 26th
it issued a report forecasting a budget deficit for the current fiscal
year (ending September 30th) of US$1.5TR, 9.8% of GDP, a
25% increase from of its August forecast. In nominal terms this would
be almost as large as the 2009 deficit, which in real terms had been
the highest in 65 years (i.e. the waning days of WW II). The
report supports both the case made by the Republicans who argue that
the deficit must be cut right now & that of President Obama who
says it makes no fiscal sense to repeal the health care law (because,
starting in 2014 it will be a net revenue generator).
· It used the term
“unsustainable” to describe the deficit & warned that higher
interest rates will cause debt service costs to “sky rocket” to
triple their current level by 2021. And in unusually stark language,
using the words “Greece” & “Ireland”, it spelled out a scary
scenario, saying that other countries’ experience shows the growing
debt “would increase the probability of a sudden fiscal crisis, during
which investors would lose confidence in the government’s ability
to manage its budget , and government ... would lose its ability to
borrow at affordable rates.” It also noted that, while the 40-year
average for tax revenues as a share of GDP had been 18%, 2011 will be
the third year in a row that it is in the 15% range (due to the large
number of Americans who aren’t working).
· It said the deficit
would shrink over time to 3.6% of GDP if Congress did three things which
both Republicans & Democrats so far have been loath to do (but that
if it didn’t in their absence it will average 6% between 2012 &
2021) :
Two years of back-to-back
US$1.5TR deficits mean that in two years the national debt increased
by over 25%. Be that as it may, this
does still not seem frightening enough to
have prodded Congress to quit doing
“business as usual”. Thus Treasury Secretary Timothy Geithner told
an audience at the Davos World Economic Forum that drastic spending
cuts are not,
& spending more money on “education, innovation and investment
is, “the responsible way forward” to cut the national
budget deficit (the problem with the latter approach is that the time
may have run out for it to be an option any longer).
UTAH SET TO MAKE
GUN AN OFFICIAL STATE SYMBOL (EJ, World Digest)
· The 75-seat Utah
House of Representatives on January 26th, after 20 minutes
of debate, voted 51-19 to pass a Republican-sponsored bill to make the
semi-automatic Browning M1911 handgun an official state emblem, along
with its flower & its bird. Standard issue for the US armed forces
until 1985, it was crafted by Utah native John Moses Browning (whom
the Browning Company refers to “the Father of Automatic Fire.”)
It will now go the
State Senate, in which the Republicans have a 22-7 majority, & then
for signature to (Republican) Governor Gary R. Herbert.
FOR AN AGING PLO
FIGHTER, ABBAS IS A TRAITOR (G&M, Scheherezade Faramarzi)
· Al-Jazeera recently
leaked documents about the concessions Abbas had offered Israel, but
that Israel had turned down, that, among others, included an acknowledgment
that a large scale implementation of the “right to return” was “illogical.
For 30 years, Mohammad Khalifa, a resident of the Shatila refugee
camp in Lebanon (the site of mass killings in 1982 by Christian militiamen
sponsored by Israel), was a PLO guerrilla fighter who put for all
those years put his trust in his Palestinian leaders but now he feels
betrayed by Abbas’ abandonment of his ‘right of return’.
Abbas was likely only
being realistic on the right of return issue. But the al-Jazeera documents
also show he had offered to surrender claims to parts of Jerusalem that
had been settled by the Israelis. And that’s where he is
really vulnerable on Arab Street. And the amount of
delusionary thinking among Israel’s right wingers can be gauged from
Avigdor Lieberman’s comment that (despite these concessions) the documents
released by al-Jazeera show that “there’s no way for Israel to reach
a comprehensive peace agreement with the Palestinian. (he is right of
course, but due to Israeli-, rather than Palestinian, intransigence.
HIGHER OIL PRICE
EMPOWERS IRAN, BLUNTS SANCTIONS (Reuters, Robin Pomeroy)
· US$100 oil, which
OPEC blames on Western speculators, has enabled the Iranian regime
to contain domestic discontent & take the sting out of sanctions
intended to put a squeeze on its domestic economy. While Washington
says they are working, Simon Henderson of the Gulf and Energy Program
at the Washington Institute says “A particular challenge for the United
States is that rising oil prices undermine its
policy on Iran”, citing US Department of Energy figures showing that
Iran’s oil revenues during the first eleven months of 2010 were US$64BN,
17% higher than in all of 2009. According to Lexington, Mass.-based
IHS Global Insight, with exports of over 2MM bbld. Iran needs an oil
price of just US$60-70 to balance its budget. And as the holder of the
rotating presidency of OPEC, Iran has done its best to talk up the price
of oil, saying the world can cope with oil at this level & that
there is no need to boost output (but is by no means alone in saying
so).
· Iran’s gasoline
imports have all but come to a standstill as government-set prices last
month rose seven-fold after President Ahmadinejad drove through what
none of his predecessors had dared to, namely to cut subsidies on food,
fuel & other necessities of life that had been costing the government
US$100BN/year, without precipitating the social unrest some analysts
had predicted. For according to Bill Farren-Price of Winchester, UK-based
Petroleum Policy Intelligence “International sanctions are ...
having the perverse result of allowing the government to push through
austerity measures on fuel and food subsidies that were simply unthinkable
in the last two decades.”
Much of Iran’s oil
ends up in China & India, both of whom have been conniving with
Iran to find ways to pay it for its oil without breaching the
restrictions on dealing with Iranian banks.
THOUSANDS OF JORDANIANS
PROTEST LIVING CONDITIONS (Reuters)
The day after Prime
Minister Samit al-Rifai, following a number of smaller protests
against rising food prices, had announced wage increases for civil servants
& the military, and pledged that, to cushion ordinary Jordanians
from the rising cost of living, there would be no new taxes this year
(thereby increasing the pressure on an already cash-strapped budget),
thousands of Islamists & activists marched through the centre of
Amman on January 21st calling for his resignation & protesting
against soaring food prices & eroding living conditions (which they
blame on corruption spawned by free market reforms). They want the government
to roll back austerity steps such as the higher taxes imposed to repair
the public finances that have been strained by the global financial
crisis. Among them were hundreds of members of Jordan’s Muslim
Brotherhood, the country’s largest opposition group, who chanted “O
people of Jordan, revolt against poverty and hunger” and “The government
must leave”.
Many Jordanians hold
successive governments responsible for the prolonged recession &
the rising public debt (that hit a record US$15BN this year in one of
the Arab world’s smaller economies most heavily dependent on foreign
aid).
NOBEL PRIZE WINNER
TO TAKE TO EGYPT’S STREETS (MSNBC.com)
· Protests against
Mubarak’s 30-year rule extended into a third day on Thursday (January
27th), with promises of even bigger demonstrations of Friday,
the Egyptian weekend. Interior Minister Habib al-Adli (whose resignation
the protesters are demanding) dismissed the demonstrators saying “Egypt’s
system is not marginal or frail. We are a big state, with an administration
with popular support ... our country is stable and not shaken by such
actions.”. On the other hand, Muhamed el-Baradei, former long-term
head of the UN’s nuclear watchdog agency & a Nobel Peace Prize
laureate, announced “I am going back to Cairo (from Vienna where
he has been living) and back on the streets because, really, there
is no choice.” He also said that many Egyptians would no longer tolerate
Mubarak’s government for even a transitional period, & dismissed
as “obviously bogus” claims that authoritarian regimes like Mubarak’s
are the only bulwark against Islamic extremism. Meanwhile, the
US, which views Mubarak as a vital ally critical to Middle East peace
has called for calm & urged him to make reforms to meet the protesters’
demands.
Hilary Clinton called
on the regime to meet the “legitimate needs” of the people. But
it seems to have no answers other than violence (which so far has failed
to scare off the demonstrators). While the latter are still a minority,
they have proven remarkably determined & their activities resonate
with many other Egyptians who have been hit by the rising food prices,
especially bread, a staple of poor people’s diets. Things at one point
got so tenuous that the regime found it necessary to
“categorically deny” that President Mubarak’s family had left
Egypt for points unknown (the problem with Clinton’s argument of course
is that throughout history in similar political upheavals after a certain
point concessions by the ruling clique merely whet the demonstrators
appetite for more. While Mubarak may be able to keep his head above
water in the short, it remains to be seen, & it is questionable,
whether the situation in Egypt is salvageable for his regime and that
his handing off the reins of power to his son will be as much a
‘done deal’ as expected only a few weeks ago.
THOUSANDS MARCH
IN YEMENTO DEMAND CHANGE (Reuters)
· Prompted by soaring
unemployment (and dwindling oil & water supplies), thousands of
protesters at Sanaa University shouted “The people want a change of
President.” One banner read “Enough playing around, enough corruption,
look at the gap between poverty and wealth” (one-half its 23MM people
live on less that US$2/day & one-third suffer from chronic hunger).
· President Ali
Abdullah Saleh, a key US ally in the war against a resurgent local branch
of al-Qaeda, has ruled this impoverished state for 30 years. In response
to recent events he has proposed constitutional amendments that would,
among others, impose presidential term limits, & has promised salary
increases for civil servants & the military.
Such promises made
under pressure in the face of public
demonstrations more often than not prove counter-productive by encouraging,
rather than mollifying, the demonstrators.
INDIA IN A STEW
OVER ONION SHORTAGE (G&M, Stepanie Nolen)
· The expected 6%
inflation rate has turned into 17%. Milk, a staple in much Indian cooking,
in December was up 18% MoM & 24% YoY. Fuel prices have risen 8%
in the last six months. And while vegetable prices are up significantly,
onion prices have doubled in the past year (& onions, along with
garlic & ginger, constitute the base of much Indian cuisine), sparking
street protests & creating tension with Pakistan. It all started
last fall when a fungus ruined the onion crop in Maharashtra state,
the nation’s onion belt. But neither the government’s agricultural
board (which was expecting a record crop) or the farmers picked up on
this soon enough; so last year’s
onion stocks were sold cheaply for export. But with no new crop, their
price skyrocketed, prompting protests at the village level & angry
tweets in this Twitter-crazy country. So the government decided
to import onions from Pakistan. But they were left to rot at the border,
with each side blaming the other, officials exchanging angry words,
& India in retribution halting the export of tomatoes to Pakistan
(which got the flow of onions going again).
Widespread popular
beliefs hold that onions have healing properties, cool the body during
the searing hot summers, & keep fungal infections away during the
muggy monsoon season.
AFRICA’S STOLEN
MEDICINE (G&M, Margaret Wente)
· On January 26th
in Geneva Prime Minister Stephen Harper predicted that the US$40BN UN
initiative on maternal care will create a “wave of hope” across
the developing world. No one doubts that this initiative is urgently
needed; for a woman’s lifetime risk of dying in pregnancy or during
childbirth is one in 16 in Nigeria, vs. one in 5,600 in Canada.
But if recent history is any indication, the maternal health initiative
is likely to give rise to yet another wave of fraud, theft, waste
& organized crime that will rob the very people it is designed to
help from the help they need so desperately.
It’s relevant in
this context that Germany has just cut off its financial support for
the Global Fund to Fight AIDS, Tuberculosis & Malaria because
of the rampant corruption in its administration.
RECORD MELT FROM
GREENLAND ICE SHEET IN 2010 (AF-P)
- A study published in the US-based
journal Environmental Research Letters reported Greenland’s
three kilometre-thick ice sheet had shed a record amount of melted snow,
twice the annual average over the previous three decades & surpassing
the record set in 2007. According to lead researcher Marco Tedesco,
Head of the Cryosphere Process Laboratory at the City College of New
York, the total run-off was 530 gigatonnes (billions of tonnes), vs
an average 274 during the period 1958-2009, & 285 from 1979-2009.
While researchers don’t agree on how fast the ice pack is melting,
they do agree that warmer temperatures are largely to blame for this
phenomenon : over the last 40 years temperatures in the Arctic have
risen, on average, 2x or 3x as fast as the global average, in Greenland
summer temperatures have been 3 C above average, and Greenland’ capital,
Nuuk, this year had the warmest spring & summer since records began
to be kept in 1873. The study also said that melting in some areas occurred
during as much as 50 more days than the average & that the area
in which melting is taking place is growing at a rate of 17,000 kilometres/year.
The nightmare scenario,
of course, is that, if Greenland’s ice sheet were to melt completely,
it could raise ocean water levels by
up to seven metres (23 feet), with dire consequences for many coastal
regions & major cities.