Saturday, 20 November 2010

Weekend Update – November 20 2010

“The U.N. is a place where governments opposed to free speech demand to be heard.”

Mad Magazine.

Baltic Dry Index. 2155 -158

LIR Gold Target by 2019: $30,000. Revised.

This weekend, China tightens by raising the bank reserve requirement in a move to rein in domestic inflation, plus the PBPC intends to sterilise any inflow of dollars from the Fed’s second round of quantitative easing. A sure sign that the Fed’s QE policy has no control over where all the newly created dollars go, and sadly a sign that America’s new stimulation policy is very likely just stimulating overseas economies rather than Uncle Sam’s. Below that, the EU is gearing up to help European firms in the hunt for ever scarcer natural resources. The scramble for commodities, lead by rare earth and oxides is heating up, as the great commodities super cycle seems to be back in a new up leg. One caution though, the Baltic Dry Index has fallen almost by half since the end of May. That measure implies a very sluggish start to 2011, and with it a pause in the commodity super cycle? That might depend on whether China’s tightening has any bite in the quarter ahead.

"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

Nov. 19, 2010, 7:56 a.m. EST

China lifts banks’ reserve requirements 0.5%

HONG KONG (MarketWatch) — The People’s Bank of China announced late Friday it will raise the reserve requirement ratio for banks by 0.5%, as the nation steps up efforts to combat inflationary pressures.

The move marks the third such liquidity-draining hike since September.

The hike, effective Nov 29., will bring the reserve requirement among China’s four largest state-owned banks to 18.5%.

For smaller banks, the requirement will be between 16% to 16.5%

The move was designed for “enhancing liquidity management and moderately regulating credit supply,” the PBOC said, according to a report by the state-run Xinhua news agency.

The move will drain about 350 billion yuan ($52.7 billion) from the financial system, according to data by Bank of America Merrill Lynch.

It had been widely expected that China would unveil some form of policy tightening this weekend, with economists saying hikes to interest and lending rates were likely in the cards as China grapples to contain inflation

---- Ahead of its reserve requirement increase in October, PBOC Governor Zhou Xiaochuan said China was building a holding pool that would contain monetary inflows from an expected second round of quantitative easing by the Federal Reserve, a policy later confirmed by the Fed in what’s become known as “QE2.”

Friday’s announcement by the PBOC came after the close of markets and coincided with a live address by Federal Reserve Chairman Ben Bernanke to a conference in Frankfurt, where he attacked Beijing’s policy of keeping its currency undervalued, without directly naming China.

The latest action from China follows October inflation data that showed consumer-price-index gains of 4.4% from a year earlier, the fast pace of gains in 25 months

Scrambling for Raw Materials

EU Plans Measures to Tackle Resource Crunch


European companies are facing serious shortages of vital raw materials. China is holding back the export of rare earths, which are needed for high-tech products. A new EU strategy paper, which has been obtained by SPIEGEL ONLINE, seeks to address the resource crunch. But critics say it does not go far enough.

Metal, wood or fuels are the source of our prosperity -- but the supply of some of these is faltering. Geologists have long warned that certain natural resources are becoming scarce and that they are not being extracted in sufficient quantities. As a result, businesses face the threat of serious shortfalls in production. Some German companies are already facing problems relating to the supply of rare earths, which are used in high-tech appliances. "A supply crisis has begun," says geologist Harald Elsner of Germany's Federal Institution for Geological Sciences and Raw Materials (BGR).

To ensure that the supply of raw metals continues uninterrupted, European Union experts have spent years working on a new strategy. In two weeks' time, Antonio Tajani, the European commissioner for industry and entrepreneurship, will present the paper -- titled the "Raw Materials Initiative" -- to the European Parliament.

The draft EU strategy for raw materials, which SPIEGEL ONLINE has obtained, includes the following measures:

§ Industrial and household waste contains a vast treasure trove of metals. For example, UN experts have reported that 41 mobile telephones contain the same amount of gold as a ton of gold ore. "A large part of the EU's yearly production of almost 20 million tonnes of waste electrical and electronic equipment and end-of-life vehicles, is not recycled," the EU strategy paper says. These so-called "urban mines" should therefore be tapped by recycling metals. "Germany must assist to ensure that these resources do not disappear because of the illegal exporting of electronic scrap," says Reinhard Bütikofer, rapporteur for raw materials in the European Parliament, where he is also vice chair of the Greens/European Free Alliance group. According to the EU strategy paper, "precise and workable inspection standards" will be developed.

§ The EU will support companies who work in extracting raw materials with loans and guarantees.

§ European geologists will "help developing countries increase their geological knowledge." Additionally co-operation between geologists inside the European Union needs to be improved, in order to gain a better understanding of Europe's own mineral resources.

§ A €17-million ($23-million) EU project known as ProMine, which started last year and which seeks alternatives for imports of metals and minerals to Europe as well as to encourage and aid the extractive industry, will have funding "made available for projects on advanced underground technologies for intelligent mining, on substitution of critical raw materials such as rare earths and platinum group metals, and on coordination of activities in member states." The paper estimates that Europe possesses unexploited mineral resources worth around €100 billion ($135 billion). Using new technology like a satellite-based mineral resources database and a detailed 4D computer modeling system, the real value of the EU's mineral resources will be assessed. In the case of large deposits, environmental protection organizations must also be brought into the planning process, the strategy paper says. Although each EU nation's autonomy would be respected, extraction efforts must be better monitored, it notes.

§ The EU wants to access most of its raw materials from outside its own borders and plans to do so through the development of new trade agreements. To overcome dependence on existing suppliers, the EU wants to strengthen its relationships with third countries, especially in the case of "primary raw materials." It also wants to use what the strategy paper calls a "dispute settlement mechanism" to combat trade barriers.

"Forthcoming negotiations" with suppliers of raw materials from South America, India and Canada will proceed, and dialogue with other suppliers, such as China, Mongolia, Russia, Kazakhstan, Belarus or Azerbaijan should also continue, the paper says.


"The world urgently needs to create a diversified currency and financial system and fair and just financial order that is not dependent on the United States."

Shi Jianxun. China People’s Daily. September 16, 2008

Cautious old me, I think it’s time to scale back on risk and leverage, as the great vampire squids get ready to position themselves for next month’s end of quarter and end of year.


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