Archive - May 2, 2011

Submitted by Kurt Brouwer of Fundmastery

China’s economy: #1 or #126?

There have been plenty of reports that China’s economy is overtaking
the U.S. economy and that it may soon outstrip the U.S..  As an example,
in a recent piece, my MarketWatch.com colleague Brett Arends, reported
on a study by the International Monetary Fund on the size of China’s
economy.  The IMF study suggested that by one economic measure China’s
economy would look almost as big as the U.S. economy in a few years.  Of
course, that set off my innate skepticism so I did a little digging.  
In this post, my goal is to cover two questions:

• How big is China’s economy compared to ours?
• And, is it really going to surpass our economy in size any time soon

Minutes ago, the Pentagon released a 5 page powerpoint presentation showing exclusive details of the Abbottabad compound where bin Laden was supposedly killed (and where the PCR test to confirm he was in fact "he", took about 1/20th the time it usually takes in leading US Universities). And even as the Pentagon collects kudos from the population for spending hundreds of millions and taking ten years to eliminate a person who is now largely irrelevant tactically (if not symbolically), Fars News out of Iran proposes an alternative explanation of everything that happened on Sunday night: "The West was fully satisfied with bin Laden's performance during the past years and today… it was obliged to kill him to prevent possible leakage of the priceless intelligence that he had," member of the parliament's National Security and Foreign Policy Commission Javad Jahangirzadeh told FNA on Monday. Surely not something that the US public would want to hear...

It is amazing is it not, that with all of our amazing advances in technology, we stilll live in the age of "impossible to ever get the truth" otherwise known as, it is the truth "trust us."

What’s truly staggering about the weekend losses in Silver is that it had already retracted most of them by Monday AM. Indeed, if you were not up Sunday night looking at the futures, you would have thought Silver was just opening sharply lower (about 5%) completely unaware that the precious metal was down some 16% over the weekend. What does this tell us? That unless we get a MAJOR Crisis in the near-future, the US Dollar will collapse and inflation hedges will explode even higher.

Iranian PressTV reports that Israeli jet fighters have reportedly conducted drills at a military base in Iraq in order to strike targets inside Iran. While the Pentagon has so far denied this development which could easily send oil to $200, we are more curious what Israel has to say, or do in response to such allegations.

The helicopter carrying Navy SEALs malfunctioned as it approached Osama bin Laden’s compound at about 3:30 p.m. ET Sunday, stalling as it hovered. The pilot set it down gently inside the walls, then couldn’t get it going again. It was a heart-stopping moment for President Barack Obama, who had been monitoring the raid in the White House Situation Room since 1 p.m., surrounded by members of his war cabinet. “Obviously, everyone was thinking about Black Hawk Down and Desert One,” a senior administration official recalled. The SEALs disembarked. “The assault team went ahead and raided the compound, even though they didn’t know if they would have a ride home,” an official said. The special forces put bombs on the crippled chopper and blew it up, then lifted off in a reinforcement craft just before 4:15 p.m., capping an astounding 40 minutes that gave the United States a tectonic victory in the 10-year war on terror touched off by 9/11. The sick chopper turned out to be a tiny wrinkle in an astounding military and intelligence triumph. Bin Laden was shot in the face by the SEALs during a firefight after resisting capture. He was buried at sea less than 12 hours later. He was 54.

After some patriotic sentiment modestly pushed the dollar to just above humiliation levels, the DXY is right back to lowest level since July 2008. We still have about 150 pips to go until the all time low of 71.3521 from April 22, 2008 is taken out. After that, the CNY better be ready to take over as reserve currency cause it will get ugly.

The April ISM is out, and while it confirms last week's declining Chicago PMI data and the fact that the Japanese contraction has not even remotely impacted US businesses yet (and it will), the recent weakness predicted by various Fed diffusion indices is being confirmed. The ISM came at 60.4, a decline from 61.2 in March, primarily a a result of a fall in Production (-5.2), New Orders (-1.6) Supplier Deliveries (2.9) and Imports (-1.0). All of these metrics will drop far more once the Japanese contraction is truly appreciated. On the other hand, inventory restocking is still working its artificial growth miracles, rising by 6.2 to 53.6. Yet the most important metric as always remains the Price Paid, which after rising once again from 85.0 to 85.5, above expectations, is at the highest since July 2008. Then again, by now our thesis of (more than) transitory inflation can be appreciate by everyone.

Over two years since their introduction and somehow the debate is still rages-on, fueled by ignorance of the facts...

And so once again rumors of silver's demise appear largely exaggerated: after plunging 15% last night, getting all the top callers to once again proclaim victory after having been wrong for the good part of about one decade, silver has since retraced a key Fib level and has now recovered over two thirds of the drop. At this rate, at least a few more margin hikes will be desperately needed today to throw all available speed bumps in the path of the unstoppable metal. In the meantime as expected last night's forced plunge was a gift for anyone who bought at $42 and has made over 10% already. Elsewhere, crude is approaching $115, after hitting $110 overnight. So much for the bin Laden inverse rally in commodities.

Who says there is nothing of value on Twitter. Anyone who was following Sohaib Athar's tweet yesterday would have a front row seat into a historic move that caused futures to surge, and various commodities to plunge (even if only temporarily). From the WaPo: "According to his Twitter stream @reallyvirtual, Sohaib Athar moved from Lahore, Pakistan to the resort town of Abbottabad to take a break from the rat race. It seems he didn’t move far enough. On Sunday, Athar found himself smack in the center of one of the year’s biggest news events. A 33-year-old IT consultant, Athar was on Twitter when the sound of a helicopter flying overhead drove him to write a series of frustrated notes. Over the next few hours, he compiled rumors and observations about an event that would soon have the world riveted: Athar tweeted the secret operation that killed Osama bin Laden. “I am just a Tweeter, a guy awake at the time of the crash,” he wrote after the world noticed he had a front seat to history and inundated him with questions and messages. Here’s the story from Athar’s point of view:

From MSNBC.com: "Jonathan Woods writes: Many images from the compound reported to be the hideout of Osama bin Laden have surfaced. In addition to images of the compound, photos of portions of a helicopter have also been made available to us."

And now, it is time for "happy nation" to be reintroduced to "police nation." From ABC.net: "Taliban leaders are warning of revenge attacks against the Pakistani government and foreign targets. "Now Pakistani rulers, president Zardari and the army will be our first targets. America will be our second target," Ehsanullah Ehsan, a spokesman for Tehrik-e-Taliban Pakistan (TTP), or Taliban Movement of Pakistan, said from an undisclosed location. Across the border in Afghanistan, president Hamid Karzai said bin Laden had paid the price for his actions. Mr Karzai said the killing showed that the Afghan insurgency was being led from training bases outside the country. He urged the Taliban to lay down their weapons and stop fighting. News of the killing of the Al Qaeda leader is still filtering across Afghanistan, where millions of people are illiterate or don't have access to radio and television. But many civilians are not expecting a reprieve from the violence across the country. The Taliban began its spring offensive yesterday, with a series of attacks, including a deadly blast by a 12 year old suicide bomber."

• Bin Laden is Dead, Obama Says (NYT)
• Bin Laden Killing Brings Anger, Relief in Arab World (Reuters)
• Senate ‘Gang’ Hashes Out Deficit Plan (WSJ)
• Canada Vote Sees Interesting Turn (WSJ)
• ECB Changes May Spell Faster Tightening as Draghi Eyes Top Job (Bloomberg)
• Japan Passes Emergency Budget (WSJ)
• Tripoli Embassies Attacked After Air Strike (FT)
• Europe Manufacturing Growth Accelerates More Than Estimated (Bloomberg)
• Syria Arrests Hundreds, Shells Deraa Into Submission (Reuters)
• South Korean Inflation Slows (WSJ)