Wednesday, 13 April 2011

China – Another Warning.

Baltic Dry Index. 1342 -17

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

“What me worry?”

Mad Magazine.

We open today with China and a warning from veteran China commentator Andy Xie. China is heading for the rocks of stagflation and instability, and needs to raise its key interest rate by 3% or more. Stay long precious metals, for they will do no such thing. Our world seems to be entering an era of turmoil and uncertainty. In Europe, contrived austerity programs threaten governments from Ireland to Greece. The big 4 governments of Europe all get weaker with each passing month. In the Middle East, the old order is collapsing but no one has much of an idea of what will replace it. In America, a jobless “recovery” exists but for only as long as the Fed keeps monetizing it, due to end at the latest in June. Now come yet another warning on China. We have made the mistake of living in interesting times.

"Let's make sure that there is certainty during uncertain times in our economy."

President George W. Bush

April 13, 2011, 1:38 a.m. EDT

China monetary-policy tools fooling no one

Commentary: Economy heading toward stagflation, instability

By Andy Xie

BEIJING ( Caixin Online ) — The central government has embarked on a monetary tightening program to slow the nation’s growth rate and fight inflation, using credit rationing as its main tool.

It’s a policy that’s compounding the nation’s inefficient allocation of capital. It’s also contributing to slower growth potential in China at a time when the nation’s inflation rate is surging. Nominal gross domestic product in China has been increasing at a 20% rate, and much of that is tied to inflation.

Inflation expectations have been rising even as policy makers raise interest rates: The People’s Bank of China in early April raised the interest rate 25 basis points. It was the fourth rate hike in the current tightening cycle.

But the aggregate increase for interest rates has been small. A 25-basis-point rate hike hardly makes a dent in what’s actually a negative interest rate for the real economy.

Indeed, at this point, China’s monetary-policy makers are too far behind the curve. Inflation is entering crisis territory, as consumer prices for many products and services rise at double-digit rates. Signs of panic have appeared along with hoarding which, when it spreads, could trigger a social crisis.

Yet something else is happening. By shifting capital to inefficient users against the backdrop of negative real interest rates, China’s economy is being pushed toward stagflation. Meanwhile, the public is afraid that the government wants to inflate away the value of their money.

What’s prevented a full-blown crisis so far is a belief that the yuan will appreciate. If not for this assumption, capital flight from China would be rampant.

To change course, policy tightening must shift away from credit rationing and toward market mechanisms. Moreover, the interest rate must be lifted out of the negative column: It should be raised at least three percentage points to allay public fears. These changes are needed as soon as possible.


April 12, 2011, 7:56 p.m. EDT

Fitch warns of possible China debt downgrade

SYDNEY (MarketWatch) -- Fitch Ratings said late Tuesday that it has downgraded the outlook on China's long-term local-currency issuer default rating to negative from stable. The country's long-term local currency IDR was affirmed by Fitch at AA-. Other ratings were also affirmed. "The negative outlook reflects concern over the scale of sovereign contingent liabilities and risk to macro-financial stability arising from the very rapid pace of bank lending in recent years, especially against the backdrop of rising real estate valuations and inflation," said Andrew Colquhoun, head of Fitch's Asia-Pacific Sovereigns group. "Fitch expects some sovereign support for the banking system will be required," he said

China’s Carrier Poses Mostly Symbolic Threat, U.S. Admiral Says

By Viola Gienger and Tony Capaccio - Apr 12, 2011

China’s reconstruction of a Soviet- era aircraft carrier, while not a concern to the U.S., is raising alarms in the region as a symbol of the Asian nation’s military expansion, U.S. Navy Admiral Robert Willard said.

China’s state news agency, Xinhua, posted photos of the carrier, the Varyag, on a website last week, according to the New York Times. In a photo caption, Xinhua cited the military analysis magazine Kanwa Asian Defense Review in Canada as saying the ship will set sail this year, the Times reported. The timeline tracks with an estimate made two years ago by the U.S. Office of Naval Intelligence.

Willard, the top U.S. military commander in the Asia- Pacific region, said he is “not concerned” by the project. The carrier sat pier-side for years as China considered making it a tourist attraction before the reconstruction began, Willard said.

---- Chinese leaders have talked for decades of plans to acquire what they call “aircraft mother ships” as part of their military modernization. Such a fleet would expand China’s power in the region and enhance its influence in territorial disputes with Japan, South Korea, Vietnam and the Philippines.

The U.S. expects that China, the world’s second-biggest economy, will try to build its own carrier at some point, Willard said in the interview.

“This is a significant choice that they’re making to develop an aircraft carrier capability,” said Willard, 60, whose command is based in Hawaii and covers 36 nations and about half the earth’s surface. “This is their first refit of a boat to give them the very beginning of that, so we’ll watch over it with interest.”

The refurbished aircraft carrier may serve as a test-and- evaluation platform. There must be “a long period of training and development and eventual exercising preceding any operational capability,” Willard told the committee.


Back in Fukushima Japan, everyone wants in on the multi decade cleanup gravy train. What do you do with 60,000 tonnes of radioactive water? It’s going into the sea at some point is my guess.

Hitachi, GE Submit Plan to Dismantle Fukushima Nuclear Plant

By Mariko Yasu and Maki Shiraki - Apr 13, 2011

Hitachi Ltd. (6501) and General Electric Co. (GE) submitted a plan to dismantle the crippled Fukushima Dai- Ichi plant they helped build as Japanese engineers battle to contain the worst nuclear crisis since Chernobyl.

The proposal, which also involves Exelon Corp. (EXC) and Bechtel Corp., was submitted April 8, said Yuichi Izumisawa, a Tokyo- based spokesman at Hitachi, Japan’s second-largest maker of nuclear reactors. He declined to specify details of the plan.

The Hitachi-led proposal will vie against plans from groups led by Toshiba Corp. (6502) and Areva SA (CEI) as Tokyo Electric Power Co. begins preparing to clean up a nuclear disaster that’s led to the evacuation of hundreds of thousands of inhabitants. Decommissioning the reactors may take three decades and cost more than 1 trillion yen ($12 billion) to complete, engineers and analysts say.

---- Toshiba’s group, which includes Babcock & Wilcox Co. (BWC) and Shaw Group Inc. (SHAW), submitted a plan on April 4 that would take 10 years or more to complete, spokesman Keisuke Ohmori said last week. Toshiba’s Westinghouse Electric Co., Babcock & Wilcox and Shaw were involved in the decommissioning of the Three Mile Island plant, he said. Toshiba, Japan’s largest maker of nuclear reactors, also helped build the Fukushima reactors.

Areva, the world’s biggest maker of nuclear reactors, plans to submit a proposal, Jacques Besnainou, chief executive of the Paris-based company’s U.S. subsidiary, said this week.

Hitachi’s U.S. partners were also involved in the cleanup work at Three Mile Island and the 1986 Chernobyl incident, the company said yesterday.

At Pennsylvania’s Three Mile Island in 1979, one reactor partially melted in the worst U.S. accident, taking $973 million to repair and almost 12 years to clean up, according to a report on the World Nuclear Association’s website. More than 1,000 workers were involved in designing and conducting the cleanup operation, the report said.

After yesterday’s article on the US military’s persecution of an as yet unconvicted alleged source of WikiLeaks military cables, we end for today with the American military at its best. Below the NY Times covers how the USAF reopened Sendai Airport in less than a month.

U.S. Airmen Quietly Reopen Wrecked Airport in Japan

By MARTIN FACKLER Published: April 13, 2011

NATORI, Japan — Last month, when a team of United States Air Force Special Forces reached the damaged Sendai Airport, just a mile from the coast, they found a devastated landscape of uprooted buildings, smashed vehicles and bodies of the dead.

Using skills honed in war-torn nations like Iraq, the airmen had within hours cleared part of a runway for use by United States military aircraft. Over the next four weeks, they worked to restore Sendai Airport, where the huge tsunami had flooded the runway and threatened to engulf the sleek glass terminal.

On Wednesday, the airport in Sendai, one of northern Japan’s largest cities, nearly 200 miles northeast of Tokyo, reopened to commercial flights for the first time since the earthquake and tsunami struck on March 11. But when the airport resumes civilian operations, the two dozen members of the Air Force unit, the 353rd Special Operations Group, will not be on hand to celebrate. Nor will some 260 Marines and soldiers who also joined the cleanup.

They will have already packed up and gone. Their absence reflects the balance the United States military has tried to strike in Japan, where it has undertaken one its largest relief operations, while also being careful not to be seen as taking a role that might upstage its hosts.

---- This is not to say that the United States military has shied from trumpeting its sweeping aid operation, involving 18,000 personnel and 20 ships, including the nuclear-powered aircraft carrier Ronald Reagan. The Pentagon has dubbed it Operation Tomodachi, Japanese for “friend,” reflecting its goal of fostering goodwill in a nation that hosts some 50,000 American military personnel.

But this is a proud country that can grow touchy over the presence of the United States, which occupied Japan after World War II and helped configure its reborn military as a nonaggressive force limited to national security and self-defense. So American commanders have been careful to stress that they are in a supporting role, even in places like Sendai, where they were instrumental in fixing the airport.

“We are used to doing this in third-world countries, where we have to come in and do it all,” said Col. James L. Rubino, commander of a Marine Corps logistics unit camped in tents on a Sendai Airport parking lot last week. “Here, we make sure the Japanese government and Self-Defense Force have the lead.”

Colonel Rubino said that in a less-developed nation like Haiti or Indonesia, thousands of Marines would have been sent in with trucks, heavy equipment, their own engineers and medical staff. Here, he said, the Americans limited themselves to a skeleton crew of 260 Marines and soldiers, who used two dozen trucks and construction vehicles to clear the airport and unload relief supplies.

“There are concerns about us upstaging the Japanese Self-Defense Forces,” Colonel Rubino said.

---- Within minutes of the 9.0 magnitude earthquake on March 11, some 1,400 passengers and workers in the terminal suddenly found themselves surrounded by black, churning waves that crumpled parked aircraft like paper toys.

The people were rescued, but the airport seemed a near-total loss — until Col. Robert P. Toth, commander of the 353rd Special Operations Group, based in Okinawa, heard of the airport’s destruction. His unit specializes in turning ruined landing strips and patches of empty desert into forward supply bases for American aircraft, but usually in war-torn countries, like Iraq, Somalia and Afghanistan.

“It was clear that opening Sendai airport was the No. 1 priority, but everyone had written it off,” Colonel Toth said. He approached his superiors with a plan to turn it into a hub for American relief.


"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

At the Comex silver depositories Tuesday, final figures were: Registered 41.04 Moz, Eligible 62.25 Moz, Total 103.39 Moz.


Crooks and Scoundrels Corner.

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

This morning, banksters wives and girlfriends. Matt Taibbi again, and the Fed’s crony “capitalism” with the US taxpayer (again) picking up the bill. Keep paying taxes from hard earned money, because in America at least, it’s needed to fund the lifestyle of the bankster’s WAGs.

"Well, fancy giving money to the Government! Might as well have put it down the drain."


The Real Housewives of Wall Street

Why is the Federal Reserve forking over $220 million in bailout money to the wives of two Morgan Stanley bigwigs?

By Matt Taibbi April 12, 2011 9:55 AM ET

----This whole setup — in which millionaires and billionaires gambled on mountains of dangerous securities, with taxpayers providing the stake and assuming almost all of the risk — is the reason that it's insanely premature for Wall Street to claim that the bailouts have actually made money for the government. We simply can't make that determination until the final bill comes in on all the dicey securities we financed during the bailout feeding frenzy.

In the case of Waterfall TALF Opportunity, here's what we know: The company was founded in June 2009 with $14.87 million of investment capital, money that likely came from Christy Mack and Susan Karches. The two Wall Street wives then used the $220 million they got from the Fed to buy up a bunch of securities, including a large pool of commercial mortgages managed by Credit Suisse, a company John Mack once headed. Those securities were valued at $253.6 million, though the Fed refuses to explain how it arrived at that estimate. And here's the kicker: Of the $220 million the two wives got from the Fed, roughly $150 million had not been paid back as of last fall — meaning that you and I are still on the hook for most of whatever the Wall Street spouses bought on their government-funded shopping spree.

The public has no way of knowing how much Christy Mack and Susan Karches earned on these transactions, because the Fed has repeatedly declined to provide any information about how it priced the individual securities bought as part of programs like TALF. In the Waterfall deal, for instance, we know the Fed pledged some $14 million against a block of securities called "Credit Suisse Commercial Mortgage Trust Series 2007-C2" — but that data is meaningless without knowing how many units were bought. It's like saying the Fed gave Waterfall $14 million to buy cars. Did Waterfall pay $5,000 per car, or $500,000? We have no idea. "There's no way of validating or invalidating the Fed's process in TALF without this pricing information," says Gary Aguirre, a former SEC official who was fired years ago after he tried to interview John Mack in an insider-trading case.

In early April, in an attempt to learn exactly how much Mack and Karches made on the TALF deals, Sen. Chuck Grassley of Iowa wrote a letter to Waterfall asking 21 detailed questions about the transactions. In addition, Sen. Sanders has personally asked Fed chief Bernanke to provide more complete information on the TALF loans given not only to Christy Mack but to gazillionaires like former Miami Dolphins owner H. Wayne Huizenga and hedge-fund shark John Paulson. But Bernanke bluntly refused to provide the information — and the Fed has similarly stonewalled other oversight agencies, including the General Accounting Office and TARP's special inspector general.


The market, like the Lord, helps those who help themselves. But, unlike the Lord, the market does not forgive those who know not what they do.

Warren Buffett. (But the Fed does.)

The monthly Coppock Indicators finished March:

DJIA: +160 UP 06. NASDAQ: +216 Down 01. SP500: +163 UP 6.

The Dow and SP 500 have reversed albeit by tiny margins, while the NASDAQ barely moved down. The Fed’s rigging of the indicators seems to have worked. Note: like all indicators, they were devised for normal markets not markets where the central bank is flooding the economy with new cash. In current conditions where risk is suspended by too big to fail, I doubt any indicators are showing more that where the Fed’s new cash is flowing in our world of casino capitalism.

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