China

In what can only be described as a stunning deterioration in foreign relations between the world's two superpowers, following Friday's release by the US State Department of the annual report on human rights, which expressed sharp criticism of the human rights records of China, North Korea, Cuba and Belarus, among others, China decided it has had enough. Less than 48 hours later, it has lashed back at the US with a report that is making headlines at every government controlled, and otherwise, media in mainland China, which makes a mockery of the US double standard when it comes to human rights, and exposes US "hypocrisy" which China (rightly many would claim) asserts is merely a pretext for continued US attempts at world "hegemony". As Xinhua reports on its front page, "The Human Rights Record of the United States in 2010 was
released by the Information Office of China's State Council, or
cabinet, in response to the Country Reports on Human Rights Practices
for 2010 issued by the U.S. Department of State on April. The U.S. reports are "full of distortions and
accusations of the human rights situation in more than 190 countries and
regions including China. However, the United States turned a blind eye
to its own terrible human rights situation and seldom mentioned it,"
China's report said." The war of words hits a new all time record: "The United States has taken human rights as "a political instrument to defame other nations' image and seek its own strategic interests," the report said. While illustrating a dismal record of the United States on its own human rights, China's report said the United States could not be justified to pose as the world's "human rights justice." "However, it released the Country Reports on Human Rights Practices year after year to accuse and blame other countries for their human rights practices," the report said. These moves fully expose the United States' hypocrisy by exercising double standards on human rights and its malicious design to pursue hegemony under the pretext of human rights, it said. The report advised the U.S. government to "take concrete actions to improve its own human rights conditions, check and rectify its acts in the human rights field, and stop the hegemonistic deeds of using human rights issues to interfere in other countries' internal affairs." While that last sentence may not be an explicit warning for the US to shut the hell up and focus on its own dirty laundry, or else, it sure does sound like one.

The ongoing total decimation of the dollar is sending everything that still has value through the roof. Case in point: WTI which just passed $111 for the first time since 2008. And with Brent waiting with open arms at $125 it is only a matter of time before gas prices in the US will make the teleprompter advise anyone who doesn't have Discount Window access to trade in their inline 4 for the "Wealth Effect." In the meantime, a centrally planned China was just forced to hike gas prices for only the second time in 2011 (lucky them): "April 7, China, Asia’s largest oil consumer, raised retail prices of gasoline and diesel for the second time this year, starting Thursday, as international crude oil prices continue rising, China Business News reported on Thursday. The benchmark retail price for gasoline will rise by RMB 500 a metric ton on April 7 and that for diesel will increase by RMB 400, the National Development and Reform Commission (NDRC), said on Wednesday. According to several energy information institutions, the retail price of 90# gasoline will rise by 5.63% to RMB 9,380 per tonne, and that of 0# diesel will gain 4.9% to RMB 8,530 per tonne, the paper said." Bottom line - pretty soon the entire WTI curve will be in backwardation.

One hour ago the PBOC announced the most recent Chinese rate hike, second in 2011, and fourth since October 2010, in the country's ongoing fight with excess-liquidity driven (both courtesy of the Fed and the PBoC itself) inflation, which has been running near a 28-month high of 5.1% hit in November. Benchmark one-year deposit rates will be lifted by 25 basis points to 3.25 percent, while one-year lending rates will be raised by 25 basis points to 6.31 percent, the People's Bank of China said in a statement on its website. The hike will be effective beginning Wednesday, April 6.

Starting to get doubts about QE3? Don't tell that to the official Chinese rating agency Dagong, who in traditional uber-pragmatic fashion, has the following summary observation on US monetary policy, and any imaginary changes thereto: "The second round quantitative easing policy ongoing in the United States can not change its weak domestic demand in the short term. In fact, it can only lower the interest rate of US Treasuries so as to maintain stable interest rate in the capital market in the long term, playing the indirect role of clearing some obstacles for a stable recovery. However, the plan of purchasing 600 billion US dollar Treasury bonds can not realize its predicted goal; and therefore, the United States will hardly change its predetermined monetary policy in 2011." What does this mean for China and the rest of the world: "The continuous implementation of such unconventional monetary policy in the United States will lead to the escalation of world credit war and inflict greater losses for related parties in the world credit system." Any questions?

Asian demand is especially strong in the increasingly important China. The Chinese strong cultural affinity and love affair with gold (primarily due to a distrust of Chinese paper money) shows no signs of abating. Indeed, it may be accelerating as was seen in the recent figures from the Shanghai Gold Exchange and customs in China and now reports (including from CNTV – the national TV station of the People's Republic of China) of shortages of raw gold or unrefined gold. China, now the largest producer of gold in the world is seeing its gold mines struggle to cater for surging Chinese demand. The raw gold trade has been growing by up to 30% per annum and demand has leapt in recent months leading to a developing raw gold shortage in China. The industry in China expects only 27,000 tonnes of raw gold can be delivered this year. That is way below the estimated demand of 50,000 tonnes. A potential supply shortage of 23,000 tonnes of gold is a large amount of gold in the small gold bullion market which is tiny versus equity, bond and derivative markets. It is infinitesimal when compared to the $4,000 billion a day traded in currency markets.

Radiation damage control now shifts over to the granddaddy of all free media China, where Xinhua has just reported a "tiny amount of radioactive material in the air over the nation's southeastern coastal areas" has been detected. But not to worry: just like in Japan and everywhere else in the world, this radiation is of the special "Ann Coulter" variety which actually boosts one's natural healthy glow and facilitates a prompt chromosome doubling courtesy of supposedly uber-benign mutation, and after all: more is better, so surely 92 chromosomes is much better than just 46 diploid pairs: "Xinhua quoted China's Nuclear Emergency Coordination Commission as saying that the radioactive level detected does not affect human health and no preventive measures are necessary." And courtesy of EX-SKF, we now learn that TEPCO is once again doing all it can to massage disclosure and delay the release of potentially unpalatable data, after the Asahi Shinbun only recently announced that the Pressure vessels in reactors 1, 2 and 3 may have holes confirming everybody's worst fears of full blown release of radioactive particles in the environment.

Another day, another imminent perpetual trading halt of a Chinese reverse merger or some other imported domestically listed scam. Today's target (which is not new to adverse research reports - recall that Upton Sinclar Research recently present a comparable fraud case recently), per Alfred Little research, is Chinese company China Integrated Energy (CBEH), which Alfred Little spares little kinds word for: "China Integrated Energy, Inc. (NASDAQ: CBEH) is a complete hoax, according to a detailed investigation by the International Financial Research & Analysis Group (“IFRA”) commissioned by one of its hedge fund clients." Considering all the other words previously lashed out at CBEH, this may be one of the less scathing reports we have seen out there. That said, there is little to look forward to for stockholders per this report, as Alfred Little concludes "CBEH shareholders will almost certainly ecover nothing."

The People’s Bank of China are very positive on gold in their just released annual Financial Markets Report. They remain concerned about risks posed to fiat currencies such as the dollar and euro, about asset price bubbles internationally and the risk competitive currency devaluations poses to fiat currencies. The report is much more positive than last year when they appeared to talk down gold’s prospects somewhat. Skeptics suggested that this was in order to allow them to continue accumulating gold without the price running away from them. The Chinese central bank said that inflation risks in economies internationally will support demand for gold, with prices for the precious metal likely to continue to make record highs. While the risks of falling gold prices shouldn’t be ignored, political conflict is likely to support higher gold prices. Inflation risks mean demand for gold will remain strong and investment demand from a 'value preservation' angle will be very strong supporting gold at higher levels. It said it is considering allowing more foreign financial institutions and companies to participate in China's interbank bond market, beyond international development agencies, and it is studying gradually opening the country's gold and futures markets to overseas yuan holders.

While Zero Hedge readers have long known about the eerie phenomenon known as China's ghost cities (and ghost malls), Australia's SBS' Dateline has done a terrific documentary on the topic of "64 million empty apartments in China." As each passing day brings more confirmation that not only is China's real estate market one massive bubble, but it is also, as expected, completely hollow, both literally and metaphorically. The full brief clip is a must watch for all those who wonder how central planning manages to hit its goal-seeked and manipulated GDP number each and every quarter .We are surprised that in keeping with the Japanese earthquake economic miracle, China has not destroyed the vacant city yet only to rebuild it immediately.

Central banks and sovereign wealth funds with massive exposure to the dollar, such as the Russians and Chinese, are not going to shout from the roof tops their intentions to diversify into gold and silver bullion as this would lead to a surge in bullion prices and an even greater depreciation of their dollar holdings. China imported 245.6 metric tons of silver in February. The figure is close to the 260.6 metric tons imported in February 2010 and suggests that the Chinese are more than willing to buy silver at over $30 per ounce. It also suggests that the record Chinese imports of 3,475,394 kilos seen in 2010 (a massive four fold increase from 2009) may be again attained in 2011. News that Iran and other nations with large dollar currency reserves have greatly increased their gold reserves (see News) will not come as a surprise to our readers. It stands to reason that they would given the degree of exposure which most creditor nations have to the U.S. dollar. It also stands to reason as some of them do not have cordial relations with Washington and may be reluctant to fund the U.S. continuing imprudent fiscal policies.

Excuse My Continued Lack of Surprise...

Another day, another alleged Chinese fraud emerges. Considering the track record of the Zero Hedge predicted cottage industry at exposing frauds such as RINO, CCME and CAGC, all of which are likely now halted in perpetuity, (much to the chagrin of their corrupt, idiot sellside analysts) here is the latest candidate for very careful diligence: China Integrated Energy (NASDAQ:CBEH), previously mentioned here when we discussed the clients of potentially compromised auditor Sherb. From the Sinclair Upton Research thesis: "In this report, we present irrefutable evidence that China Integrated Energy (NASDAQ: CBEH) is 1) transferring company funds to management insiders through fraudulent sham acquisitions and 2) fabricating its SEC financial statements. CBEH has transferred at least $35 million dollars of company cash by making acquisitions of shell companies owned by Gao Bo, who is the firstborn son of the CBEH’s CEO, Gao Xincheng. Given that the company has made over $134 million dollars in acquisitions and lease “prepayments”, our research has uncovered only a small fraction of the total amount being stolen from shareholders. There is also strong evidence that the financial results of all three segments of the company, refined products distribution, biodiesel, and gas stations, are overstated or even fictitious. The true value of CBEH is likely to be no more than $0.76/share, equal to the $37 million raised in recent secondary offerings, if the cash has not already been funneled out to related parties under the guise of even more acquisitions, gas station leases, and capital expenditures."

Just out from Reuters with some very overdue damage control.

• EU Energy Commissioner did not say a catastrophe was going to happen, he just expressed his fear - spokesman

The question is whether it is too late to backtrack now? The genie is fully out of the bottle...

The Fed is being disingenuous in claiming it is blameless for global inflation: the Fed's zero-interest rate policy and quantitative easing are both unleashing "hot money" that is seeking higher returns anywhere they can be found in the global economy. In a larger sense, the Fed is attempting to repeal the business cycle. In the normal course of capitalism, low rates and easy credit lead to increased borrowing, which leads to rising consumption and investment in production to feed that increased consumption. This leads to higher profits, which feed more investment and debt. At some point, the cycle hits a brick wall: borrowers can't afford to pay more interest, so debt stops rising, and consumption and demand slump as borrowing levels off. In the rush to mint profits, production capacity exceeds demand, and as a result prices and profits both fall. As the boom progressed, investors sought out riskier, more marginal investments. As new debt and demand fall, then these riskier investments lose money and are either shuttered or sold for a loss. As profits decline, workers are laid off and commercial borrowers find their income streams aren't sufficient to meet their obligations. The credit cycle turns from expansion to contraction, as marginal borrowers go bankrupt and insolvent businesses and loans are liquidated or written down. This purging of bad debt, speculative excess and misallocated resources sets the foundation for another cycle of renewed growth. But the Fed has attempted to repeal the credit cycle.