Monday 10 December 2012

China To America: Grow Up!



Baltic Dry Index. 966  -24

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

There can be few fields of human endeavour in which history counts for so little as in the world of finance. Past experience, to the extent that it is part of memory at all, is dismissed as the primitive refuge of those who do not have the insight to appreciate the incredible wonders of the present.

J. K. Galbraith

Today we take a look at China and Japan, as China’s new regime settles into power and Japan looks set to vote in a new nationalist government on Sunday. But first this warning from the central bankster’s bank, The Bank for International Settlements. In its latest quarterly report, in the ever so polite nuanced language of central banksterism, the BIS thinks that ZIRP and all this Quantitative Easing monetisation, has set off a new credit bubble fuelling asset prices that will end badly. Yet more reason to stay long physical precious metals.

"Why a four-year-old child could understand this report. Run out and find me a four-year-old child. I can't make head nor tail out of it."

Timothy Geithner, with apologies to Groucho Marx.

World risks fresh credit bubble, Switzerland's BIS warns

Asset prices across the world have risen to heady levels not seen since the credit boom five years ago and may be losing touch with economic reality yet again, the Bank for International Settlements has warned.

“Some asset prices appeared highly valued in a historical context relative to indicators of their riskiness,” said the bank in its quarterly report.

Yields on morgtage bonds have fallen to the lowest level ever recorded. Spreads on corporate debt have narrowed to the wafer thin margins of 2007, even though default rates are currently three times higher than they were then for junk bonds and twice as high for investment-grade companies.

The venerable Swiss-based institution – almost alone in warning of a global debt crisis in the build-up to the Great Recession – said it is rare for markets to gather steam at a time when the major forecasters are turning gloomy.

The International Monetary Fund and the OECD have downgraded their outlooks for 2012 and 2013, with sharp cuts for much of Europe as well as for Brazil, China, and India.

“Unusually, equity and fixed income gains coincided with a weakening of the global economic outlook. In the past, falling growth forecasts have usually been associated with rising expected default rates and higher bond yields,” it said.

The anomaly is doubly strange given the spate of profit warnings by companies on both sides of the Atlantic. The BIS said earnings expectations on Wall Street have dropped “particularly sharply” with an “unusually high proportion” of companies downgrading forecasts, yet equity prices have risen
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Now back to Asia and China and Japan. “Grow up,” says China’s new regime to America’s warring political parties, you have no right to frequently disturb the world. They also replied to the USA’s “blank Cheque” to Japan over the disputed Diaoyu Islands, for more on that scroll down to Crooks Corner.

In the United States, though power corrupts, the expectation of power paralyzes.

J. K. Galbraith.

US has no right to frequently disturb the world

(People's Daily Online) 16:46, December 06, 2012

The U.S. Republican and Democratic parties have not made any substantive progress in the first round of fiscal cliff talks, arousing worries that the country may fall off the fiscal cliff.

The stalled budget talks reflect significant differences between the two parties’ governance styles.

Objectively speaking, U.S. politicians should know clearly that a “self-inflicted” recession will greatly weaken the country’s hard and soft power when its economic recovery remains sluggish; the European debt crisis is unresolved; and the world economy is still plagued by uncertainty.

Although the United States is unlikely to really fall off the fiscal cliff, it has frequently disturbed the globalized world due to domestic political infighting, which reflects the problems concerning the U.S. political system and its lack of responsibility as a major power.

Due to the conflict of realistic interests and ideological polarization, both parties will not make concessions to each other until the last minute. This political game that U.S. Congress members are good at playing has brought great uncertainty to global markets and U.S. companies.

---- Regrettably, the United States has been frequently struck with “political paralysis” due to its political characteristics.

The two parties tend to take conflicting stances on major issues, so many reforms concerning the country’s future have been stalled. The fiscal cliff has exposed the plight facing the U.S. political system.

The United States is the world’s largest economy and a primary global reserve currency issuer. U.S. policymakers have a duty to minimize the negative spillover effects of the country’s economic woes, which requires them to get rid of the influence of partisan interests when making economic policies.

The United States, which is used to asking other countries to shoulder responsibilities, should act as a responsible major power on issues concerning the future of the world economy.
http://english.peopledaily.com.cn/90777/8049173.html

In other China news, China’s exports unexpectedly and urban unemployment jumped, while inflation rebounded in November from October’s 33 month low. But food price inflation jumped 3% yoy, led by vegetables which soared 11.3% yoy. China probably has good reason for a public attention diverting foreign escapade, and a new right wing, nationalist Japanese government shows all the signs of wanting to fulfil that role.

China Trade Slowdown Shows Xi Must Fuel Consumption: Economy

By Bloomberg News - Dec 10, 2012 4:57 AM GMT
China’s exports rose less than forecast in November, underscoring the need to accelerate a shift toward domestic demand as the nation confronts a jobless rate newly estimated at almost double the official figure.

Overseas shipments increased 2.9 percent from a year earlier and imports were unchanged, the customs administration said today in Beijing, contrasting with industrial production and retail sales figures yesterday that exceeded estimates. Urban unemployment exceeded 8 percent this year, a central bank- backed research center said yesterday in Beijing.

The Communist Party’s new leadership, headed by Xi Jinping, needs to reduce China’s reliance on exports and investment spending to sustain expansion in the world’s second-biggest economy. Xi, who last week retraced a 1992 tour by Deng Xiaoping that spurred economic opening, faces a wealth gap that is now 50 percent higher than a risk level for social unrest, according to a household survey by the research center.

“The extremely weak exports performance laid bare the fragility of the recovery, which is mainly driven by infrastructure investment,” said Ren Xianfang, a Beijing-based analyst with IHS Global Insight.
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Food prices push China's inflation up to 2% in Nov.

By Wang Yanlin (Shanghai Daily) 10:05, December 10, 2012

CHINA'S Consumer Price Index, a main gauge of inflation, rose 2 percent in November, up from the previous month's 1.7 percent, the National Bureau of Statistics said yesterday.

October's figure was a 33-month low and last month's increase was the first acceleration since August.

"The November growth rate was largely attributable to a surge in food costs," said Wang Jun, an expert with the China Center for International Economic Exchanges.

Food prices, which account for nearly a third of the total basket, rose 3 percent in November from a year earlier, pushing the index up 0.95 percentage points.

Vegetable prices jumped 11.3 percent year on year in November as cold weather disrupted supplies, pushing the CPI up 0.27 percentage points. Prices for aquatic products gained 4.9 percent from one year earlier.

----Liu Ligang, chief economist for China at Australia & New Zealand Banking Group Ltd, said there should be no immediate inflation concerns.

"China's inflation has been kept at a relatively low level this year, and the negative producer prices show the pressure remains high for Chinese manufacturers to de-stock inventory. Thus the future inflationary risks should not be exaggerated," Liu said.


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In Japan it’s more of the same decade’s long stagnation, with yet more calls to repeat the same old failed remedies. Japan also is in need of a foreign escapade.

Insanity: doing the same thing over and over again and expecting different results.

Albert Einstein.

Japan Sinks Into Recession as Abe Calls for More Stimulus

By Keiko Ujikane - Dec 10, 2012 6:00 AM GMT
Japan’s economy sank into recession in the second and third quarters, fueling opposition leader Shinzo Abe’s calls for more stimulus and highlighting the risk that weak growth will derail a planned sales-tax rise.

Gross domestic product shrank an annualized 3.5 percent in the three months through September, the Cabinet Office’s second estimate showed in Tokyo today, matching a preliminary reading. The government revised the previous quarter to a 0.1 percent contraction, meeting the textbook definition of a recession.

Abe, whose Liberal Democratic Party is leading in polls to win elections on Dec. 16, has called for more fiscal stimulus and “unlimited” monetary easing, and has said that economic conditions next year will determine whether the sales tax rise goes ahead. Banks including Citigroup Inc. forecast another contraction this quarter as exports fall and domestic demand stays weak.
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The conspicuously wealthy turn up urging the character building values of the privation of the poor.

J. K. Galbraith.

At the Comex silver depositories Friday final figures were: Registered 40.40 Moz, Eligible 106.14 Moz, Total 146.54 Moz.  


Crooks and Scoundrels Corner
The bent, the seriously bent, and the totally doubled over. 

Last week the US Senate passed the National Defense Authorization Act for Fiscal Year 2013 and inserted a clause specifying that Article V of the Japan-US Security Treaty was applicable to Japan’s administration of the disputed Diaoyu/Senkaku Islands in the East China Sea. Later the House is expected to pass it also, and it will go on to President Obama to sign it into law. In effect the USA is giving Japan a “blank cheque” on the issue, promising to militarily back up Japan if Japan needs to use force. We can only hope that it works out better than Germany’s blank cheque to Austria in July 1914, which Austria used to precipitate World War One. Japan votes on Sunday in a general election, widely expected to bring in a hard right nationalist government.

Below the People’s Daily provides China’s first English language response. Stay long precious metals, I suspect that future responses will be far less restrained.

War remains the decisive human failure.

J. K. Galbraith.

Why US meddles in Diaoyu Islands issue?

(People's Daily Online) 08:03, December 06, 2012

Recently, the U.S. Senate has appended to National Defense Authorization Act for Fiscal Year 2013 the additional clause which specifies that the Article V of Japan-US Security Treaty is applicable to the Diaoyu Islands issue. It is rare an additional clause on territorial disputes between other countries is attached to National Defense Authorization Act. If the Act finally passes in the U.S. House of Representatives, it means the United States will take intervention measures or even directly deploy armed forces once China and Japan clash over the Diaoyu Islands issue.

Japanese right-wing forces have cast shadows on the Diaoyu Islands issue. Why does the United States meddle in the issue at this moment?

Originally, the U.S. public attitude toward the Diaoyu Islands is not to take side on its sovereignty. However, the Japan-US Security Treaty can be applied to the whole region of the Diaoyu Islands since Japan exercises jurisdiction over them. Obviously, the new move of the U.S. Senate does not aim to strike up the same old tune.

First, it is the requirement of U.S. foreign policies. Facing the economic downturn and the complex international situation, the United States runs short of ways to deal with too many problems. Some allies begin to doubt U.S. responsibilities, obligations and abilities. Therefore, it is imperative for the United States to establish authority and trust among its allies.

Japan is U.S. largest ally in Asia Pacific. U.S. emphasis on its responsibility of protecting Japan does not only pacify Japan but also relieve other countries in Asia Pacific which intend to rely on the United States, which is conducive to its "rebalancing" strategy in Asia Pacific.

Second, the United States intends to exert its influence on Japan's political situation. The general election has kicked off in Japan and the aggressive policy of Noda government on the Diaoyu Islands issue has been resolutely countered by China, which discourages the Japanese government and public. In order to back up Japan, the United States raises the additional clause.

Seen from the U.S. traditional strategy, the disputes between China and Japan in Asia Pacific serve interests of the United States. And the easiest way of intensifying China-Japan tensions is to incite Japanese right-wingers to stir up troubles on the surface. This U.S. move will undoubtedly increase the Japanese right-wing forces’ chance to win the election.

Third, the United States focuses on the future of China-U.S. relations. Both China and the United States have just undergone change of top leadership, resulting in new situation for bilateral relations. By taking a high-profile stand on the Diaoyu Islands issue, the United States attempts to seek more room for maneuver in future China-U.S. game. However, this result of zero-sum mentality, which is purely based on interests of its own, is unlikely to end up successfully.

The Diaoyu Islands are China's inherent territory and China will resolutely safeguard its maritime rights and interests. Stable development of China-U.S .relations is conductive to peace and stability of Asia Pacific while the U.S. short-sighted and biased policies are not helpful for bilateral relations and regional stable development.

"There is no means of avoiding the final collapse of a boom brought about by credit (debt) expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit (debt) expansion, or later as a final and total catastrophe of the currency system involved."

Ludwig von Mises

The monthly Coppock Indicators finished November:
DJIA: +103 Up. NASDAQ: +123 Up. SP500: +125 Up.  Time is running out for the Santa Clause rally, unless there is a fiscal cliff agreement.

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