Monday, 17 January 2011

China v Washington.

Baltic Dry Index. 1439 +01

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

The Chinese government is said to be looking to prepare at least 10 mn car parking spots for electric vehicles by 2020 in a new comprehensive policy due to be announced soon, a top executive at a local automaker said on Thursday.

Who will win this week’s main event in Washington? Will China’s Mr. Hu buckle and cave in to US demands to revalue the yuan? Will President Obama be forced to issue a statement in support of a stable dollar policy? Not the “strong dollar” policy of Treasury Secretary Geithner, which actually is a weak devaluing dollar, currency war, policy, now generating trade war strains all around the planet. The omens aren’t good, with President Hu already commenting unfavorably on the role of the dollar in today’s Journal. Stay long precious metals. Today we take a look at China.

"It is the greenback which is unstable, and not the bullion."

Dr. Franz Pick

JANUARY 17, 2011

Hu Highlights Need for U.S.-China Cooperation, Questions Dollar

BEIJING—Chinese President Hu Jintao emphasized the need for cooperation with the U.S. in areas from new energy to space ahead of his visit to Washington this week, but he called the present U.S. dollar-dominated currency system a "product of the past" and highlighted moves to turn the yuan into a global currency.

We both stand to gain from a sound China-U.S. relationship, and lose from confrontation," Mr. Hu said in written answers to questions from The Wall Street Journal and the Washington Post.

Mr. Hu acknowledged "some differences and sensitive issues between us," but his tone was generally compromising, and he avoided specific mention of some of the controversial issues that have dogged relations with the U.S. over the past year or so—including U.S. arms sales to Taiwan that led to a freeze in military relations between the world's sole superpower and its rising Asian rival.

On the economic front, Mr. Hu played down one of the main U.S. arguments for why China should appreciate its currency—that it will help China tame inflation. That is likely to disappoint Washington, which accuses China of unfairly boosting its exports by undervaluing the yuan, making its products cheaper overseas. The topic is expected to be high on U.S. President Barack Obama's agenda when he meets Mr. Hu at the White House on Wednesday.

Mr. Hu also offered a veiled criticism of efforts by the U.S. Federal Reserve to stimulate growth through huge bond purchases to keep down long-term interest rates, a strategy that China has loudly complained about in the past as fueling inflation in emerging economies, including its own. He said that U.S. monetary policy "has a major impact on global liquidity and capital flows and therefore, the liquidity of the U.S. dollar should be kept at a reasonable and stable level."


Next, the NY Times questions whether Mr Hu is in office but not really in charge in China. If so, very little will be accomplished in this week’s meeting in Washington.

China Leader’s Limits Come Into Focus as U.S. Visit Nears

By DAVID E. SANGER and MICHAEL WINES Published: January 16, 2011

BEIJING — With President Hu Jintao at the helm, China has become a $5 trillion industrial colossus, a growing military force, and, it sometimes appears, a model of authoritarian decisiveness, navigating out of the global financial crisis and sealing its position as the world’s fastest rising power.

But as Mr. Hu prepares to visit Washington this week in an attempt to defuse tensions with the United States, Obama administration officials are grappling with what they describe as a more complex reality. China is far wealthier and more influential, but Mr. Hu also may be the weakest leader of the Communist era. He is less able to project authority than his predecessors were — and perhaps less able to keep relations between the world’s two largest economies from becoming more adversarial.

Mr. Hu’s strange encounter with Defense Secretary Robert M. Gates here last week — in which he was apparently unaware that his own air force had just test-flown China’s first stealth fighter — was only the latest case suggesting that he has been boxed in or circumvented by rival power centers.

American officials have spent years urging Mr. Hu to revalue China’s currency, rein in North Korea, ease up on dissidents and crack down on the copying of American technology, and they have felt at times that Mr. Hu agreed to address their concerns. But those problems have festered, and after first wondering if the Chinese leader was simply deflecting them or deceiving them, President Obama’s top advisers have concluded that Mr. Hu is often at the mercy of a diffuse ruling party in which generals, ministers and big corporate interests have more clout, and less deference, than they did in the days of Mao or Deng Xiaoping, who commanded basically unquestioned authority.

China’s military has sometimes pursued an independent approach to foreign policy. So have many of China’s biggest state-owned companies, sometimes to the United States’ detriment. The result is that relations between the world’s largest superpower and its fastest-rising one are at one of their lowest point in years, battered by confrontations that took Mr. Obama by surprise — and, on occasion, Mr. Hu as well.


Below, some make the reverse bet on China.

Hedge funds bet China is a bubble close to bursting

The world is looking to China as a springboard out of recession - but some hedge funds are betting the country's credit and growth levels cannot be sustained.

By Louise Armitstead 8:30AM GMT 16 Jan 2011

For his first-ever speech as Britain’s new Minister of Trade & Industry last week, Lord Green faced a formidable audience of 400 Chinese and British business delegates.

The former chairman of HSBC declared that China’s economic growth figures over the past five years represented an “extraordinary historic event”.

Green didn’t need to go over Britain’s experience during the same period for most to agree that plugging into China’s blistering growth - predicted by the IMF to be 10.5pc this year - was of “vital importance” to the UK.

But even as he spoke a hedge fund manager in Mayfair was poring over spreadsheets of sovereign and corporate credit default swaps, interest rate and foreign exchange options with one aim: to “get short on China”.

The manager, who wanted to remain anonymous, said: “The Chinese delegation has said all week that there will be double-digit growth for years to come and the Brits have lapped it up. But the data doesn’t add up. We think we’ve experienced credit bubbles over the past few years, but China is the biggest. And yet the global economy is looking to China as not just a crutch but a springboard out of the recession. It’s crazy.”

He is not alone. Hugh Hendry, a former star of Odey Asset Management, has launched a distressed China fund at Eclectica Asset Management.

He follows Mark Hart of Corriente Advisors, the American hedge fund manager who made millions of dollars predicting both the subprime crisis and the European sovereign debt crisis, who started a fund based on the belief that rather than being the “key engine for global growth”, China is an “enormous tail-risk”.

There have been academics and analysts who have argued about the dangers of China’s economy overheating for some time. But for many, the fact that hedge funds, particularly those with track records on previous crises, are launching specific funds is the sign that the bubble is close to bursting.


We end with China seeking friends and influence in Europe. The Greek and Portuguese lifestyle might yet be saved from a Germanic hard work, tax paying fate.

Jan. 17, 2011, 12:01 a.m. EST

The motives behind China’s euro purchases

Commentary: Beijing factors in power politics, economic self-interest

By David Marsh, MarketWatch

LONDON (MarketWatch) — China and Japan are turning into the euro’s best friends. Beijing is conducting a charm campaign over purchases of government bonds from the hard-up southern states of Greece, Portugal and Spain. Relatively small amounts, of course — but good public relations. For its part, Japan, the second largest owner of foreign exchange reserves after China, says it wants to acquire more than 20% of planned bond issues of the European bail-out fund as a means of boosting market confidence.

This is all part of a natural desire to maintain diversified stocks of currencies by the world’s biggest dollar holders. Especially in the case of Japan, which has built up its non-dollar stocks on a more regular basis than the Chinese over the years, technical and financial reasons have been the decisive factor behind the declaration in favor of European bonds.

The Beijing leadership is pursuing a more diverse mix of objectives. Behind its bond-market buying for peripheral euro states lies a goodly portion of political power play.

First, China wants to show the Europeans and Americans who’s boss on the currency scene when things get rough. China certainly has no plans — at least not now — to establish hegemony over the financial markets. But at a time when the Chinese face continued American pressure on revaluing the renminbi, a gentle reminder of who’s king of the currency castle cannot come amiss.

China is guided, too, by pure self-interest in its international trade relations. The European Union is now China’s most important trading partner. Given the likelihood of further upward pressure on its own currency, Beijing wants to do everything to oppose a further fall in the euro  and avoid negative consequences on its own exports.

The rivalry with America extends, too, to hearts and minds. China wants to win respect, if not affection, by demonstrating how it can work in partnership to support economic reforms in other parts of the world. A bid to show themselves more interested in promoting stability than the Americans may win the Chinese significant plus-points over the longer term.


"Those entrapped by the herd instinct are drowned in the deluges of history. But there are always the few who observe, reason, and take precautions, and thus escape the flood. For these few gold has been the asset of last resort."

Antony C. Sutton

At the Comex silver depositories Friday, final figures were: Registered 45.23 Moz, Eligible 59.18 Moz, Total 104.41 Moz.


Crooks and Scoundrels Corner.

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

No crooks today, just an update on China’s push into battery (powered) electric vehicles, BEVs. Like EVs or not, if the world’s largest car market goes electric, the west’s car makers have the choice of joining them or excluding themselves from China’s market.

China readies 10 mn EV parking spots by 2020: Autoshow

Published on Fri, Jan 14, 2011

The Chinese government is said to be looking to prepare at least 10 mn car parking spots for electric vehicles by 2020 in a new comprehensive policy due to be announced soon, a top executive at a local automaker said on Thursday.

China relies on foreign oil for more than half of its oil consumption and is looking to promote alternative fuel vehicles in the world's biggest auto market, whose growth topped 30% last year to 18 mn units.

"The government is working on a plan -- and I think it will be announced very, very soon -- and is basically calling for having, in 10 years, electric car parks of 10 mn (units) or above," Wang Dazong, president of Beijing Automotive Industry Holding Co (BAIC), told an industry conference on the sidelines of the Detroit auto show.

Another industry executive said Beijing is expected to focus its efforts most on pure electric vehicles, as opposed to gasoline-electric hybrids or hydrogen fuel-cell vehicles.

Automakers from BAIC to Volkswagen AG , General Motors Co and China's Geely are all looking to tap what looks set to become a huge market for battery-powered electric vehicles, with some global automakers already announcing a timeline for producing them locally in China.

China's Minister of Science and Technology was quoted by state-owned Xinhua news agency in October as saying the country's production of electric vehicles could reach 1 mn units by 2020, when many expect a total new-vehicle market of 40 mn.

-----To support the electrification of cars, China is also looking to cut back on coal, the cheapest but dirtiest fossil fuel. It has already launched a major drive into hydropower and, to a lesser extent, wind, gas and nuclear power to supplement the coal sector, which provides about 70% of China's electricity.

The government is due to unveil a new alternative energy plan within months to raise its targets for power generating capacity from such sources by 2020. China is planning to invest up to USD 1.5 trillion over five years in seven strategic industries, sources have said.

Beijing had come under criticism from the auto industry late last year for crafting a policy draft that would have required foreign automakers to produce at least one of the three core, high-tech components of electric vehicles in order to qualify for incentives in China.

Wang said that requirement has since been dropped from the policy outline given its controversial nature.

"Now, if a company wants to produce and sell electric cars in China, they are free," the other industry executive said.

"With the exception only of the period of the gold standard, practically all governments of history have used their exclusive power to issue money to defraud and plunder the people."

F.A. von Hayek

The monthly Coppock Indicators finished December:

DJIA: +171 Down 7. NASDAQ: +238 Down 9. SP500: +165 Down 2.

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. December is the seventh down month, but the downward momentum has virtually stopped. I would put on (purchased) synthetic double options here for a breakout in either direction. Professional traders would adopt much more risky granted option strategies.

No comments:

Post a Comment