Archive - Mar 23, 2014

Having discussed the links between economic growth and energy resource constraints, and with the current geo-political fireworks as much about energy (costs, supply, and demand) as they are human rights, it would appear the following chart may well become the most-important indicator of future tensions...

HSBC's Flash China Manufacturing PMI printed at 48.1 (against a hope-strewn 48.7 bounce expectation). This is the lowest in 8 months and among the lowest prints since Lehman. Even the usually silver-lining-seeing HSBC Chief economist had little positive to add, "weakness is broad-based with domestic demand softening further." Early strength in CNY, stocks, and copper is eroding fast.

Curious how China imported a record amount of physical gold in 2013 without in the process sending the price of gold to new record highs? Here is the answer...

KEYBOARD WARNING...

People around the world were astounded by Vladimir Putin’s rapid decision to annex Crimea in response to the latter’s referendum to secede from Ukraine and join Russia, which Kiev and the West view as illegal. The decision also drew worldwide criticism and vehement condemnation by the West and Ukraine, and triggered a second wave of economic sanctions from the United States, and soon afterwards Europe. Relations between Russia and the West are at their chilliest since the end of the Cold War. So why has Putin risked Russia’s economic welfare and political space to swallow Crimea, push Ukraine out, and alienate the entire Western world? Is Putin “in another world” as German Chancellor Angela Merkel claimed he is?

This is the multi trillion-dollar question. 

While it appears no one has a perfect bracket left after this weekend's upsets in the NCAA Basketball, we suspect most are still perfect on the other March Madness bracket predictions...

The war drums are booming and those among us susceptible to the blood lust beat are beginning to rouse.

Since the early twentieth century, Saudi Arabia has enjoyed a close relationship with the United States. From the development of the Saudi oil fields,to the First Gulf War, this relationship has been an uneasy cooperation—each side received something out of the alliance while nervously watching the other.  So recently we have the first open break between the two powers culminating in the Saudi’s refusing a seat on the U.N Security Council due to anger with U.S. Middle Eastern policies. It is foolish for America to offend and promote distrust with another ally in a long list of broken long-standing relationships.  These include Poland, United Kingdom, Israel, Egypt, etc.  One wonders whether the results of American diplomacy  stems from extreme incompetence or is evidence of a much darker agenda.

Like Bush Saying “You’re Either With Us or Against Us”

Following China's unwillingness to vote against Russia at the UN and yesterday's news that China will sue Ukraine for $3bn loan repayment, it seems Russia is returning the favor. Speaking at the Chinese Economic Development Forum, ITAR-TASS reports, the Chief Economist of Russia's largest bank stated that "China's Yuan may become the third reserve currency in the in the future."

"I'm here to fight for my children's future," exclaims one father as Spaniards rallied in Madrid against poverty and EU-imposed austerity. As Reuters reports, the largely peaceful protest later marred by violent clashes in which police fired rubber bullets. The so-called "Dignity Marches" brought hundreds of thousands to the capital with banners making it clear what their feelings about record 26% unemployment were - "Bread, jobs and housing for everyone" and "Corruption and robbery, Spain's trademark." One protester summed up the people's views of the government, "I'm sick of this system they call democracy... I want things to change."

Inspired by Scotland's hopes for independence and hot on the heels of Crime'a 95% preference for accession to Russia, 89% of the citizens of Venice voted for their own sovereign state in a ‘referendum’ on independence from Italy. As The Daily Mail reports, the proposed ‘Repubblica Veneta’ includes the five million inhabitants of the Veneto region and has been largely driven by the wealthy 'who are tired of supporting the poor and crime-ridden south' (Venice pays EUR71bn in taxes and receives only EUR21bn in services and investment). The ballot appointed a committee of ten who immediately declared independence from Italy. Venice may now start withholding taxes from Rome. Wonder why the US, Europe, and Japan have not announced the referendum "illegal" and announced sanctions yet?

Having complained for years of China's electronic espiohange, it is perhaps only fitting that, thanks to documents provided by Edward Snowden, the NY Times reports, the NSA pried its way into the servers in Huawei’s sealed headquarters in Shenzhen (Huawei connects a third of the world’s population). The NSA monitored communications of the company’s top executives in an operation called "ShotGiant" looking for links between Huawei and the People's liberation Army. Furthermore, the NSA documents confirm, “we want to make sure that we know how to exploit these products,” it added, to “gain access to networks of interest” around the world. We await the repurcussions...

Apparently China did not get the memo that the Fed's apologists are furiously scrambling to packpedal on Yellen's "6 month" guidance in virtually all media outlets. The is the only way to explain why Vice Minister of Finance Zhu Guangyao said overnight that "the U.S. Federal Reserve will begin boosting interest rates within six months after exiting “unconventional” monetary policy, and that will have a “significant impact” on the U.S. and world economy, as Market News International reported earlier. Zhu told China Development Forum this weekend “we believe a the Fed meeting this October, the exit of their quantiative easing will complete." In other words while the spin for public and algo consumption is that the Fed will continue placating those long the stock market until everyone's price target on the S&P 500 is hit and everyone can comfortably sell into an ever-present bid, China is already looking for the exits. But while the end of QE appears a given, at least until the market realizes there is no handover to an economy that is a moribund as it has ever been in the past five years, and the Fed has no choice but to  untaper and return with an "even more QE" vengeance (it certainly won't be the first time - just recall the "end" of QE1, QE2, Op Twist, etc), a bigger question surrounds whether China, already sliding in credit contraction and suffering a plunging stock market with its housing sector also on the edge of a bubble bust, is about to take over from the Fed and proceed with its own stimulus program. The answer is no.