Yuan

Recent problems in Asia ex-Japan appear solvable. But the time for reform is now if the region's to take the next leap forward in its economic development.

When it comes to the very simplest axiom on modern Keynesian economics, it seems one can't repeat it enough times: have leverage, have growth... don't have leverage, don't have growth.  That is the reason why in early summer, China tried to conduct a mini-taper of its own to streamling its monetary pipeline which had been so filled with bad and non-performing credit, that the PBOC effectively pulled the switch on new liquidity for over a month.  What happened almost immediately after, when rates on ultra short term funding soared to 20%+, nearly destroyed the domestic banking system and resulted in a major slowdown in the Chinese economy. "Luckily" for China, its close encounter with the taper was brief, if quite painful, and following a period of shock, the Chinese central bank had no choice but to resume injecting banks with their daily dose of monetary morphine all over again. This in turn, has brought us to square one: nothing in the local banking system has been fixed, and what's worse, while China has bought itself a few months respite, the dominant old problem of a collapsing credit impulse, as decribed before, in the country with the largest corporate credit bubble in the world, is about to come back with a bang in a few short months. In short: China just did what the US has boldly done so many times before - kicked the can.

There is a tradable approach to analyzing the fundamentals of supply and demand in the monetary metals markets. This article is a brief summary of the approach we take...

The number 10. From time immemorial it has been a fascination for people around the world, in every culture and in every civilization.

Concerns about inflation and weakening currencies are leading the Chinese middle classes and wealthy to again use gold jewellery, coins and bars as a hedge and store of value.

Store of wealth buyers in China today were paying a $18 per ounce premium or 1.3% premium over COMEX gold (see table below). In recent weeks they have been willing to pay as much $30 per ounce extra for gold. 

The Chinese people are concerned that the same massive inflation that is affecting India, Indonesia, Brazil and other emerging markets may eventually reach China. 

• Hedge Funds Cut Back on Fees (WSJ) as we predicted would happen in May
• Syria's Assad denies chemical weapons use; U.S. presses case for strike (Reuters)
• Unemployment Falling for Wrong Reason Creates Fed Predicament (BBG)
• U.S. tapped into networks of Google, Petrobras, others (Reuters)
• Chinese Zombies Emerging After Years of Solar Subsidies (BBG)
• Monte Paschi doubles planned capital hike to 2.5 billion euros (Reuters)
• Loan Size to Be Cut for Fannie, Freddie (WSJ)
• Japan Growth Revision Opens Door to Sales Tax Rise (FT)
• Inside the End of the U.S. Bid to Punish Lehman Executives (NYT)
• Financial Crisis: Lessons of the Rescue, A Drama in Five Acts (WSJ)
• Time Warner Joins IBM in Health Shift for Retirees (WSJ)
• Mideast Derails Key Issues in Congress (WSJ)

A dispassionate discussion of the weekend events and a look at the week ahead.  

Despite Mariano Rajoy's solemn promises that awarding the 2020 Olympics to Madrid would boost the Spanish GDP by 1.8% and lead to the creation of anywhere between 168,000 and a few hundred million new jobs (the latter number is a joke but since it comes from Rajoy, both are equally credible), the Olympic committee cut the Spanish contender before the final, which pitted Tokyo vs Istanbul. And when the final votes were tallied it was not even a contest: with 60 to 36 votes, the 2020 Olympics Games will be held in Tokyo: the city that was supposed to host the event in 1940 but due to the break out of World War II the event was delayed until 1964 (when it was almost cancelled again, permanently, following a modest escalation in nuclear deterrence between the US and USSR surrounding Cuba). Let's hope history does not rhyme.

There's a growing view that America's energy boom will result in a higher U.S. dollar in coming years. There are some key holes in the argument though.

• Summers Faces Key 'No' Votes if Picked for Fed (WSJ)
• NYT Editorial Board Says Summers Would Be Wrong Fed Choice (NYT)
• Russia says it's compiled 100-page report blaming Syrian rebels for a chemical weapons attack (McClatchy)
• China says Syria crisis can't be resolved with military strike (Reuters)
• G-20 Faces Growth Threats as Syria Adds to QE Exit Risks (Bloomberg)
• Apple Supplier Fire Spurs Biggest Chip Price Rise in 3 Years (BBG)
• U.S. Decided Not to Horse-Trade With Russia on Assad (WSJ)
• Financial Crisis: For Corporations and Investors, Debt Makes a Comeback (WSJ)
• Gorman Says Chance of Another Financial Crisis ‘Close to Zero’ (BBG) and in other news, "no risk of a Us downgrade" -  Tim Geithner
• A Biotech King, Dethroned (NYT)

Still believe that China's PMI is above 50 and suggesting a global growth expansion? Still believe in Santa and the Tooth Fairy? Well, none other than China's own National Bureau of Statistics has been forced to admit that at least one of its major provinces has dramatically overstated industrial output. As Sina reports, according to a NBS report, the government in China's Yunnan province had coerced local companies to report inflated industrial output value, resulting in artificially high economic figures. With government leadership promotions driven by the performance of economic numbers in each province, it should hardly be surprising but the scale of the fraud is remarkable. In 2012, one county in Yunnan province reported CNY6.34 billion in output while audits showed only CNY 2.82 billion and in the first half of 2013, Yunnan published CNY 2.75 billion in output while audits showed a mere CNY1.06 billion! The province was also found to have faked investment data.

• BOE Leaves Policy Unchanged as Carney’s Guidance Assessed (BBG)
• Surprise or not, U.S. strikes can still hurt Assad (Reuters)
• Samsung Gear: A Smartwatch in Search of a Purpose (BusinessWeek)
• 'Jumbo' Mortgage Rates Fall Below Traditional Ones  (WSJ)
• Capital Unease Again Bites Deutsche Bank  (WSJ)
• Technical snafus confuse charges for Obamacare plans (Reuters)
• JPMorgan subject of obstruction probe in energy case (Reuters)
• U.S. Car Sales Soar to Pre-Slump Level (WSJ) - i.e., to just when the market crashed
• BoJ lifts assessment of Japan’s economic health (FT)
• Dead Dog in Reservoir Helps Drive Venezuelans to Bottled Water (BBG)
• Russia Boosts Mediterranean Force as U.S. Mulls Syria Strike (BBG)

• Yes: Support Builds in Congress for U.S. Strike Against Syria (WSJ)
• No: Boehner backs Obama on Syria, but House leaning toward ‘no’ (The Hill)
• U.S. Congress fight over Syria pits establishment versus upstarts (Reuters)
• Wednesday humor: Japan’s Abe Says Fukushima Will Be Resolved Before 2020 Olympics (BBG)
• Bank of Japan to Consider Further Easing if Sales Tax Hike Goes Ahead (Reuters)
• S&P accuses U.S. Justice Department of filing $5 billion lawsuit against it in "retaliation" for the company's downgrade of America's debt in 2011 (WSJ)
• German Candidates Spar Over Records (WSJ)
• Emerging Nations Save $2.9 Trillion Reserves in Rout (BBG)
• Split Congress Mulls Denial of Military Force Request (BBG)
• Sharp Fall in Overseas Investment By Chinese Firms (WSJ)
• Jorge Lemann: He Is...the World's Most Interesting Billionaire (BusinessWeek)
• Why Amazon Is on a Warehouse Building Spree (BW)

• Mediterranean 'Ballistic Targets' Were Part of Israeli Test – Defense Ministry (RIA)
• Microsoft to Buy Nokia’s Devices Unit for $7.2 Billion (BBG)
• Long-Term Jobless Left Out of Recovery (WSJ)
• Swiss banks apologize for assisting tax cheats (Reuters)
• As Obama pushes to punish Syria, lawmakers fear deep U.S. involvement (Reuters)
• India Looking to Expand Rupee-Payment System (WSJ)
• Citigroup Dialing Back Its 'Alternative' Holdings (WSJ)
• Libya Seeks New Solutions to Oil Crisis (WSJ)
• Lenovo Chief Yang Shares Bonus With Workers a Second Year (BBG)

Peak gold has yet to be considered and analysed by the international financial and investment community but there is a risk that it has happened or will happen soon with a consequent impact on the gold mining industry and on gold prices in the 21st Century.