India

Since the 1980s, the U.S. Has Secretly Helped Japan Build Up Its Nuclear Weapons Program ... Pretending It Was "Nuclear Energy" and "Space Exploration" ...

Chinese gold demand remains very strong as seen in the importation of 40 metric tonnes or nearly 40,000 kilos of gold bullion from Hong Kong alone in February. Hong Kong’s gold exports to China in February were nearly 13 times higher than the 3,115 kilograms in the same month last year, the data shows.  Shipments were 72,617 kilograms in the first two months, compared with 10,564 kilograms a year ago or nearly a seven fold increase from the record levels seen last year. China’s appetite for gold remains strong and Chinese demand alone is likely to put a floor under the gold market.

While luckily not as powerful as last year's Japanese earthquake, which in turn led to a catastrophic tsunami, this morning Indonesia has been battered by a series of magnitude 8+ quakes and aftershocks in the Banda Aceh and Sumatra regions of the country. Also unlike last year, the nature of the quake made it less likely a tsunami was generated because the earth moved horizontally, rather than vertically, and therefore had not displaced large volumes of water, Bruce Presgrave of the United States Geological Survey told the BBC. The geological map and update from the USGS below summarizes all the action we have seen to date.

Those hoping for a quick and painless resolution to the Iranian question may have just seen their hopes dashed, following the breaking news from Iranian Press TV, according to which not only is Iran not seeking to appease its Western counterparts, but is, in fact escalating. From Press TV: "Tehran has cut oil supply to Spain after stopping crude export to Greece as part of its countersanctions, unnamed sources confirmed on Tuesday. Tehran also mulls cutting oil supply to Germany and Italy." "Countersactions" - lovely: another Swiss watch plan by the insolvent developed world. Said otherwise, one can hardly threaten to do something to a country, which is already doing so voluntarily, in the process hurting Europe's already crippled economies even more by removing the cheapest source of energy for both. Which however begs the question: just how much more Iranian crude are China and India importing despite promises to the contrary, and open warnings from the US not to do so?

• With a 2 Year delay, both FT and WSJ start covering the shadow banking system. For our ongoing coverage for the past 2.5 years see here.
• Trouble in shipping turns ocean into scrapheap (Telegraph)
• First-Quarter Home Prices Down 20.7% in Capital (China Daily)
• Bernanke Says Banks Need Bigger Capital Buffer (Reuters)
• Monti’s Overhaul Can’t Stop Pain From Spain: Euro Credit (Bloomberg)
• Spain Confronts Crisis Threat as Rajoy Seeks Deficit Cuts (Bloomberg)
• Japan’s Noda Announces Anti-Deflation Talks as BOJ Sets Policy (Bloomberg)
• White House makes case for Buffett Rule (CNN)
• Cameron to Make Historic Myanmar Trip (FT)
• 'Time for Closer Ties' With India (China Daily)

A month ago, after causing a spike in cotton prices following the imposition of an export ban, India promptly overturned said surprising move following a surge in protest from not only various trade local groups, but more importantly China, whose already razor thin margins would become negative if input costs soared even further. The whole process lasted about 72 hours from beginning to end. Days after, desperate to fund ongoing budget shortfalls, the government shifted its attention to price controls in a market it knew China would absolutely not mind to having the price kept artificially low - gold. What happened then was an announcement by the government to impose to levy an excise duty on unbranded jewelry. The response was swift - a countrywide strike among India's jewellers who all went dark, crippling demand from one of the traditionally strongest gold markets in the world. And all this happening at a time when the wedding season is at its peak, with Akshaya Tritiya, one of the biggest gold buying festivals later in the month, making the period crucial for jewellers. As of hours ago, the Indian finance ministry has caved, and while it took three days to end the cotton export ban, it took three weeks to end the excise duty proposal, India's Finance Minister Pranab Mukherjee said that the government would consider scrapping a budget proposal to levy an excise duty on unbranded jewellery. The result will be three weeks of pent up demand for precious metals being unleashed suddenly, likely pushing spot gold far higher, to where it would be had this latest artificial price control never been established.

"The age of cheap oil is over," agrees Andrew Chung, partner at Khosla Ventures, arguably the most knowledgeable venture capital firm spearheading next-generation energy projects. While perhaps more optimistic than Chris on the odds that the world can transition off fossil energy sources without experiencing some duration of lower overall energy output, Andrew is clear to point out that large and near-term capital investments are essential for such a smooth transition. The size and scale of the investments necessary to evolve and replace our existing (and increasingly outdated) power infrastructure are enormous, and too big for private companies alone to address the issue on an acceptable timeline. And as of now, the U.S. is decidedly NOT treating the matter with the urgency it deserves. Of the total U.S. budget, the Department of Energy receives only 8%; and only 0.1% of the total budget is directed to the alternative technologies we hope will one day replace our fossil-based sources. By contrast, China alone is dedicating $800 billion over the next ten years to help support the development and commercialization of alternative technologies and cleantech. In the coming decades, the efficient and effective use of energy is going to be a real determinant between winners and loser across the global landscape. Affordable, sustainable energy will increasingly determine the prosperity of world powers -- and America is at a growing relative disadvantage until it starts talking honestly with itself about the un-sustainability of its current energy policies and prioritizing its resources (both monetary and human) accordingly.

While the idea of a futuristic tale of the resurgence of Greece and how Germany shot itself in the foot could well be the work of the horror-writer, HSBC's Chief Economist Stephen King opines on what could well be with a moral for those who want Athens out of the Euro. "The idea that Greece can leave and that the rest of the eurozone will then live happily ever after – a view that is quickly becoming the conventional wisdom – is surely wrong. Departure might eventually be an answer to Greece's difficulties but it only asks questions of everybody else." And the fantastic journey King lays out is rooted in a sad reality that he sums up thusly: "Germany's gamble had failed. In the attempt to punish Greece, it had ended up with an impossible choice: creating a fiscal union or huge currency upheaval. Berlin had taken aim at Greece but shot itself in the foot."

While most of the time, it seems, investing in Emerging (or Growth) market countries is entirely focused on just that - the growth - with little thought given to the lower probability but high impact event of a growth shock. Goldman uses a variety of economic and corporate factors to compile a Growth Vulnerability Score including excess credit growth, high levels of short-term and/or external debt, and current account deficits. Comparing growth expectations to this growth shock score indicates the BRICs are now in very different places from a valuation perspective. Brazil remains 'fair' while India looks notably 'expensive' leaving China and Russia 'cheap'. It seems, in Goldman's opinion that markets are discounting large growth risks too much for China and Russia (and not enough for India). Finally, for all the Europeans, Turkey is richest of all, with a significant growth shock potential that is notably underpriced. Goldman's China-is-cheap perspective disagrees with Nouriel Roubini's well-below-consensus view of an initially soft landing leading to a hard landing for China as 2013 approaches as he notes the pain that commodity exporters feel in 2012 is only a taste of the bleeding yet to come in 2013.

The Deepwater Horizon incident demonstrated that most of the oil left is deep offshore or in other locations difficult to reach. Moreover, to obtain the oil remaining in currently producing reservoirs requires additional equipment and technology that comes at a higher price in both capital and energy. In this regard, the physical limitations on producing ever-increasing quantities of oil are highlighted, as well as the possibility of the peak of production occurring this decade. The economics of oil supply and demand are also briefly discussed, showing why the available supply is basically fixed in the short to medium term. Also, an alarm bell for economic recessions is raised when energy takes a disproportionate amount of total consumer expenditures. In this context, risk mitigation practices in government and business are called for. As for the former, early education of the citizenry about the risk of economic contraction is a prudent policy to minimize potential future social discord. As for the latter, all business operations should be examined with the aim of building in resilience and preparing for a scenario in which capital and energy are much more expensive than in the business-as-usual one.

Dr. Constantin Gurdgiev, a non Executive member of the GoldCore Investment Committee, has again analysed the data of US Mint coin sales in  Q1 2012 and has looked at the data in their important historical context going back to 1987.  He finds that the data regarding gold coin sales in Q1 2012 confirms that there is “no hysteria and no bubble here”.  Dr Gurdgiev finds that while volume of sales in Q1 2012 fell from the quite high levels seen Q1 2009, 2010 and 2011, demand was much stronger than “in the pre-crisis average for 2000-2007.” Also of note is the fact that despite the worst financial and economic crisis the modern world has ever seen being experienced since 2008 demand has remained below the record levels seen in the aftermath of the Asian debt crisis and unfounded Y2K concerns.  Interestingly, Dr Gurdgiev finds that the historic data (since 1987) shows that the "gold price has virtually nothing to do with demand for US Mint coins - in terms of volume of gold sold via coins." He finds that the demand for gold coins has little to do with the price in general and that “something other than price movements drives demand for coins”.

European cash equities are trading in the red heading towards the US session, with particular underperformance in the periphery as financials continue to remain the biggest laggard. The EU session so far has consisted of downbeat commentary in regards to both Ireland and Portugal. An EU/ECB report noted that, Portuguese debt is now predicted to peak at 115% of GDP in 2013 and that contraction in 2012 is likely more pronounced than thought. Elsewhere, the Irish Fiscal panel said Ireland may need extra budget cuts to reach its 2012 target and 2012 growth has weakened. In terms of economic releases the UK observed a stronger than expected reading on its Construction PMI hitting a 21-month high, which saw some brief strength in GBP.

European cash equities are seen mixed as the market heads into the US session, with the DAX index the only bourse to trade higher at the midpoint of the European session. European markets were seeing some gains following the open after the weekend release of better than expected Chinese manufacturing data, however the main price action of the day occurred after some European press reports that the Bundesbank had stopped accepting sovereign bonds as collateral from Portugal, Ireland and Greece garnered attention, however the Bundesbank were quick to deny reports and state that it continues to accept all Eurozone sovereign bonds. Following the denial, participants witnessed a slight bounceback, but failed to push most markets into the green.  Data releases from Europe so far have been varied, with outperformance seen in the UK Manufacturing PMI, beating expectations and recording its highest reading since May of 2011. However, the French manufacturing PMI came in below expectations, weighing on the CAC index as the session progresses. A further release from the Eurozone has shown February unemployment coming in alongside expectations recording a slight increase from January to 10.8%.

On Thursday morning, President Hu Jintao of China, President Dmitry Medvedev of Russia , President Dilma Rousseff of Brazil, President Jacob Zuma of South Africa and Prime Minister Manmohan Singh of India shook hands at the start of the one day meeting in New Delhi. Top of the agenda was the creation of the grouping's first institution, a so-called "BRICS Bank" that would fund development projects and infrastructure in developing nations. Less noticed and commented upon is the aspirations of the BRIC nations to become less dependent on the global reserve currency, the dollar and to position their own currencies as internationally traded currencies. The leaders of BRIC nations and other emerging market nations have adopted the idea of conducting trade between the five nations in their own currencies. Two agreements, signed among the development banks of Brazil, Russia, India, China and South Africa, say that local currency loans will be made available for trade between these countries. The five fast growing nations participating in local currency trade will allow participants to diversify their foreign exchange reserves, hedging against the growing risk of a euro or dollar crisis. The BRICS want to have easy convertibility of currency to make it easier to use the real, ruble, rupee, renminbi and rand amongst themselves without having to always use the US dollar. Higher intra-Brics trade, conducted in their own currencies would shield their economies from economic dislocations in the west. Left unsaid so far is the possibility that one of the BRICs or the BRICs in unison might peg the value of their respective currencies to the ultimate store of value and money - gold.

• Mixed signals from China's factories in March (Reuters)
• EU wants G20 to boost IMF funds after Eurogroup move (Reuters)
• Euro Leaders Seek Global Help After Firewall Boosted (Bloomberg)
• Euro-Region Unemployment Surges to Highest in More Than 14 Years (Bloomberg)
• Big banks prepare to pay back LTRO loans (FT) ... don't hold your breath
• Coty Inc. Proposes to Acquire Avon Products, Inc. for $23.25 Per Share in Cash (PRnewswire)
• Spain Record Home Price Drop Seen With Bank Pressure (Bloomberg)
• Firm dropped by Visa says under 1.5 million card numbers stolen (Reuters)
• Japan Tankan Stagnates With Yen Seen as Threat (Bloomberg)
• Fed to buy $44 billion Treasuries in April, sell $43 billion (Reuters)