Wednesday 4 August 2010

America & China.

Baltic Dry Index. 1964 -13

LIR Gold Target by 2019: $3,000.

In June, real estate prices in 70 large Chinese cities declined over the previous month for the first time in almost one-and-a-half years -- by 0.4 percent for new construction and 0.1 percent for existing structures.

Der Spiegel.

This morning we focus on the big two of our increasingly dysfunctional fiat currency world. Command political decisions made in Beijing and Washington now drive our far from capitalist global economy. If you are on the right side of our new command economy, or are a too big to fail bankster, happiness. If you are on the wrong side of our new command economy, or are an expendable political football like BP, disaster. Stay long precious metals. Like the old failed economy of the murderous gangster Soviet Union, our new version of a command economy will fail too. Below, despite trillion dollar deficits as far as the eye can see, the US economy is stumbling again.

It is a far, far better thing to have a firm anchor in nonsense than to put out on the troubled seas of thought.

J. K. Galbraith.

Consumer Spending Stagnates in June

By CHRISTINE HAUSER Published: August 3, 2010

Consumer spending and personal incomes were flat in June, according to government statistics released on Tuesday, the latest indication that the economy would continue to struggle in the second half of the year.

The Department of Commerce figures showed that consumers were still trying to save money while also paring their debts. They represent the freshest evidence of a weak economic recovery plagued by unemployment, a sickly housing market and uncertain consumer confidence. Personal income was steady in June, compared with a slight 0.3 percent rise in May, the Commerce Department figures, which were seasonally adjusted, showed on Tuesday.

It was the lowest level in 2010 and the first time in nearly a year that personal incomes have not risen compared with previous months.

Disposable personal income, or income after taxes and expenditures, was also flat, compared with slight increases in May.

With a slowdown in income and spending, the figures also showed that consumers are putting away more cash. Personal savings as a percentage of disposable personal income was 6.4 percent in June, compared with 6.3 percent in May. It was about 5.8 percent at the beginning of 2010 and slightly more than 2 percent before the recession began.

“It reinforces the general idea that consumers are busy deleveraging and saving money,” said Dan Greenhaus, the chief economic strategist for Miller Tabak & Company.

The report shows that consumers are pulling back amid a number of discouraging factors, said Chris G. Christopher, Jr., IHS Global Insight’s senior principal United States economist.

“Consumers are feeling the pinch due to high and persistent unemployment rates, stock market volatility, a poor housing market, declining household net worth, and political gridlock,” he said in a research note.

http://www.nytimes.com/2010/08/04/business/economy/04econ.html?_r=1&hpw

GM, Ford July Sales Trail Estimates as Consumers Shun Purchases

Aug. 3 (Bloomberg) -- General Motors Co. and Ford Motor Co. reported U.S. sales in July that trailed analysts’ estimates as customers concerned about the economy avoided large purchases.

GM’s sales rose 1.5 percent, including an adjustment for the number of selling days in July. The largest U.S. automaker was expected to report a 10 percent increase on that basis, the average estimate of five analysts surveyed by Bloomberg. Ford’s adjusted sales fell 0.7 percent, trailing analysts’ estimates for a 10 percent gain. Its total sales climbed 3.1 percent.

“We’re not really seeing anything explosive right now,” Jeff Schuster, executive director of forecasting at J.D. Power & Associates in Troy, Michigan, said today in a telephone interview before the figures were released. “Any progressive growth, even if it is slow and steady, in light of the environment that we are in, is definitely positive,” he added.

Industrywide sales were expected to reach the highest level of 2010 with an expected annualized selling rate in July of 11.9 million vehicles, the average estimate of eight analysts. That would be 5.3 percent higher than last year’s 11.3 million pace and the best month since August, when the U.S. government’s “Cash for Clunkers” incentive program inflated sales.

GM’s deliveries climbed to 199,692 from 189,443 a year earlier, the Detroit-based company said today in a statement. Total sales of Chevrolet vehicles gained 12 percent from a year earlier to 139,916 vehicles and GMC deliveries increased 27 percent to 27,798, the company said. Cadillac and Buick more than doubled.

The results show GM’s turnaround efforts may be slowing after last year’s bankruptcy. Sales of GM’s Hummer, Pontiac, Saab and Saturn brands, which were closed or sold, fell to 260 vehicles from 29,365 in July of last year.

June Decline

Industrywide deliveries dropped to an 11.1 million pace in June, feeding concerns that the auto recovery was stalling. Discounts and incentives, while higher than last year, were reduced 1.3 percent from June to an average of $2,831 per vehicle, according to TrueCar.com in Santa Monica, California.

Ford’s total deliveries rose to 170,411 from 165,279 a year earlier, the Dearborn, Michigan-based company said today in a statement. Sales of Ford-brand vehicles rose 8.1 percent, while Lincoln deliveries dropped 16 percent and Mercury declined 31 percent.

http://noir.bloomberg.com/apps/news?pid=20601087&sid=aPm.CQBfu44M&pos=3

Up next, the China Panda growls. Actually all year long, Uncle Sam has been poking the Panda in the eye with a sharp stick and the Panda has been quite restrained in its growling. I suspect that this is all about to change in H2 10. Both countries have massive and growing problems that are coming to a head, plus in the land of Uncle Sam, an unpopular President and Democratic Party, are increasingly desperate to avoid electoral defeat in November. Rightly or wrongly in the past, Presidents have used foreign policy as a way of rallying the nation. Are we heading for an October surprise?

Treasuries Lack Safety, Liquidity for China, Yu Says

Aug. 3 (Bloomberg) -- U.S. Treasuries fail to provide safety or liquidity when it comes to managing China’s $2.45 trillion foreign-exchange reserves, said Yu Yongding, a former central bank adviser.

“I do not think U.S. Treasuries are safe in the medium-and long-run,” Yu, a member of the state-backed Chinese Academy of Social Sciences, wrote yesterday in an e-mailed response to questions. China is unable to sell the securities in a “big way” and a “scary trajectory” of budget deficits and a growing supply of U.S. dollars put their value at risk, he said.

The State Administration of Foreign Exchange, which manages the nation’s reserves, said last month that U.S. government debt has the benefits of “relatively good” safety, liquidity, low trading costs and market capacity. China’s holdings of Treasuries, the largest outside of the U.S., totaled $867.7 billion at the end of May, down from $900.2 billion in April and a record $939.9 billion in July 2009.

-----“China has to depend more on demand and supply in the foreign exchange market for the determination of the yuan exchange rate,” Yu wrote. “Only God knows how much value that China has stored in the U.S. government securities will be left in the future when China needs to run down its reserves.”

The cost of pegging the Chinese currency to the dollar is “intolerably high” and threatens the welfare of Chinese people, Zhang Ming, deputy chief of the International Finance Research Office at the Chinese Academy of Social Sciences, wrote today on the website of China Finance 40 Forum.

“The U.S. government has strong incentives to reduce its real burden of debt through inflation and dollar devaluation,” he said. “Whichever way it is, the yuan-recorded market value of Treasuries will fall, causing huge capital losses to China’s central bank.”

http://noir.bloomberg.com/apps/news?pid=20601087&sid=aHEPmPSy75ag&pos=4

In positive China news, Geely now owns Volvo, though the price Ford got was quietly reduced by half a billion. Still what’s half a billion on today’s flexible accounting balance sheets. The next Lehman is sound until suddenly it isn’t.

Geely Completes Volvo Takeover

The Chinese automaker has yet to release plans surrounding Volvo's operations in China

Chinese auto manufacturer Zhejiang Geely Holding Group Co. announced on August 2 that it had completed the acquisition of the Volvo car brand from Ford Motor Co.

Geely said it had paid US$ 1.3 billion in cash and issued a US$ 200 million note in London to complete the transaction. The price is lower than the initial proposal price of US$ 1.8 billion when Geely signed the agreement with Ford in March due to the adjustments based on pension obligations and working capital, said the Chinese company.

Geely said funding for the deal came from the group and both Chinese and international investors.

According to Geely, Volkswagen's former US CEO Stefan Jacoby was named as the new president and chief executive of Volvo, while Volvo's former CEO Stephen Odell will move on to run Ford of Europe.

Geely's Chairman Li Shufu and Vice President Sheng Hui became members in Volvo's ten-member board.

Geely has stated that both Volvo's headquarters in Sweden and production facility in Belgium will remain unchanged. The Chinese automaker has said it will encourage independence in Volvo's business operations.

The company hasn't released its personnel and production plans for Volvo's China operations. A source close to Geely told Caixin that the location of Volvo's China plant will be decided by Volvo's management team.

http://english.caing.com/2010-08-03/100166547.html

In other China news, just how bad is the property glut in China? Perhaps 200 million suggests Rupert Murdoch’s MarketWatch. We end for today with the highly respected China analyst Andy Xie tackling China’s massive real estate bubble. Another unintended consequence of a world on fiat currency. But now China’s banks are cutting ban loans at Beijing’s direction. Stay long precious metals. We are all now at risk from capricious decisions in Beijing and Washington.

Fear empty flats in China's property bubble

Commentary: Even worse than price bubble is quantity bubble of vacant flats

Aug. 3, 2010, 8:30 p.m. EDT

BEIJING (Caixin Online) -- How many flats in China are sitting empty? The media recently floated a story -- denied by power companies -- that 64.5 million urban electricity meters registered zero consumption over a recent, six-month period. That led to a theory that China has enough empty apartments to house 200 million people.

Statistical transparency is lacking in this area, so the truth about empty apartments remains under wraps. Publishing accurate data should be of the highest priority, since the size of the nation's unused apartment stock is perhaps the most important measure of the extent and seriousness of China's property-market bubble. Indeed, it's a grave concern for policy making, since unpublished data may indicate not only a price bubble but a quantity bubble burdening the market.

----- What especially distinguishes China's property bubble, however, is an unprecedented amount of living space. This huge stock of empty flats equals the nation's quantity bubble.

Quantity bubbles are less common than price bubbles, and they don't last as long. Rising supply usually exerts downward pressure on prices, although an influx of money can hold up prices even when supply is rising.

A price bubble can damage an economy in three ways. First, it usually leads to a banking crisis. As the market trades at ever-higher prices, buyers borrow more against the same property. Banks that maintain the same lending cushion with, say, a 30% down-payment rule suffer losses when prices fall below that level. A banking system in crisis cannot lend normally, and the economy suffers collateral damage due to dysfunctional banking.

Second, the wealth effect leads to excessive consumption during a bubble. The payback weakens an economy for several years.

And third, bubble-induced demand distorts the supply side. When inflated industries go down with a bubble burst, it takes time for other industries to rise in an economy in their place.

A quantity bubble is sometimes a construction bubble, and it fizzles out when a building cycle turns over, crashing prices as soon as new supply becomes available. This is what happened to a commercial property bubble in the United States in the late 1980s, triggering a bank crisis when it burst and prompting the Federal Reserve to maintain a loose monetary policy that helped the banking system heal.

Quantity and price bubbles may grow together. Southeast Asia, for example, experienced a quantity-cum-price bubble that lasted several years in the 1990s. As regional currencies were pegged to the dollar, loose monetary conditions were imported from the United States, fueling a property bubble. Due to few restrictions on urban development, rising prices led to massive increases in supply. Liquidity inflow fueled speculative demand. But when U.S. monetary policy tightened, the market crashed and triggered the Asian Financial Crisis.

The latest experience in the U.S. market was mainly based on a price bubble, although some cities such as Las Vegas and Miami saw quantity bubbles as well. The U.S. government quickly recapitalized its banking system, limiting the direct effect of the banking crisis on the economy. Current weakness can be explained mainly by the wealth effect and employment losses in bubble-inflated industries.

When Taiwan experienced a price-cum-quantity bubble in the late 1980s, analysts determined the number of empty flats by obtaining electricity meter data from the power supplier, leading many to conclude that about 15% of all flats were empty. Today, some analysts are trying the same tactic in China. But Taiwan's housing conditions are less complex. Getting to the core of China's data requires more calculating.

Housing types, for example, must be considered. China's urban housing stock is mainly split between old, public housing built for company or government employees, and some 60 million units of private housing built over the past 10 years. Property developers are now building about 20 million private flats, and local government-owned land banks may be good for another 20 million to 30 million.

About 1 billion square meters worth of public housing (or about 14 million, 70-square-meter units) have been torn down, leaving about 9 billion square meters of this type of living space nationwide.

More.

http://www.marketwatch.com/story/chinas-overhang-of-empty-apartments-2010-08-03

China's 'Big Four' lend 243 billion yuan in July

Pace of lending decreases compared to previous months of this year

BEIJING (Caixin Online) -- China's four biggest banks lent a total of 243 billion yuan ($35.9 billion) in July, according to official data released Monday.

---- Statistics about new credit issued by China's banks in July will be released soon. In July 2009, China's financial institutions issued 355.9 billion yuan of new loans.

http://www.marketwatch.com/story/chinas-top-banks-ease-their-lending-in-july-2010-08-02

"The great merit of gold is precisely that it is scarce; that its quantity is limited by nature; that it is costly to discover, to mine, and to process; and that it cannot be created by political fiat or caprice."

Henry Hazlitt

At the Comex silver depositories Tuesday, final figures were: Registered 51.33 Moz, Eligible 58.91 Moz, Total 110.24 Moz.

+++++

Crooks and Scoundrels Corner.

The bent, the seriously bent, and the totally doubled over.

No crooks today, just a report in the NY Times. Now that the US media feeding frenzy over the oil disaster in the Gulf of Mexico has abated somewhat, saner heads are asking where is all the missing oil. Two months ago, US media was fear mongering that BP’s oil was heading into the Atlantic readying to pollute beaches from Miami all the way to Britain by way of the gulf stream. The reality seems to be greatly different. Hyping the event no doubt boosted US media advertising profits, but it does make US media a poor source for informed news.

A newspaper is a device for making the ignorant more ignorant and the crazy crazier.

H. L. Mencken

U.S. Finds Most Oil From Spill Poses Little Additional Risk

By JUSTIN GILLIS Published: August 4, 2010

WASHINGTON — The government is expected to announce on Wednesday that three-quarters of the oil from the Deepwater Horizon leak has already evaporated, dispersed, been captured or otherwise eliminated — and that much of the rest is so diluted that it does not seem to pose much additional risk of harm.

A government report finds that about 26 percent of the oil released from BP’s runaway well is still in the water or onshore in a form that could, in principle, cause new problems. But most is light sheen at the ocean surface or in a dispersed form below the surface, and federal scientists believe that it is breaking down rapidly in both places.

More.

http://www.nytimes.com/2010/08/04/science/earth/04oil.html?_r=1&hp

"When I use a word," Humpty Dumpty said in rather a scornful tone, "it means just what I choose it to mean -- neither more nor less."

Lewis Carroll.

The monthly Coppock Indicators finished July:

DJIA: +264 Down. NASDAQ: +427 Down. SP500: +275 Down.

The bull market (or bear market rally) that commenced on Nasdaq on 30/4/09 at 1717 has ended. (30/5/09 SP 500 at 919, 30/5/09 DJIA 8500.) While the indicators can flip flop at market turns, this action is rare on the slow monthly indicators. July seems to have confirmed June’s reversal and end of the bull market.

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