Baltic Dry Index. 750 -10
LIR Gold Target by 2019: $30,000. Revised due to QE programs.
“He who controls the past controls the future. He who controls
the present controls the past.”
David Cameron, with apologies to George Orwell. 1984.
China is approaching “the Lewis Point,” says the IMF, “This will have far-reaching implications for both China
and the rest of the world.” According to the Telegraph, “The Lewis Point, named after St
Lucia's Nobel economist Sir Arthur Lewis, is when the supply of workers dries
up and city wages soar. It is when labour turns the tables on capital, and
profits crash.” For more on that, scroll down to “IMF sees 140m jobs shortage in aging
China.” The Lewis Point arrives shortly after 2020, jus 7 years away. Tomorrow,
it seems, will not be like today which was largely like yesterday. If wars don’t
get us first, a giant inflation and unfunded entitlements get us roughly a
decade ahead. Stay long physical precious metals as hedge against an uncertain
future. But then again, I doubt that Europe in its present form can last out
this decade.
We open today with the new currency war, set
off by Japan last month. Though we haven’t seen the first major battle, still
being in the phony war phase, all that is about to change. A falling yen
threatens most export ships. In the self inflicted “age of austerity,” competitive
devaluations “beggar thy neighbour,” making all poorer. 2013 will be unusually
hostile.
Falling yen set to spark renewed currency wars
History shows currency disputes can escalate from rhetorical spats into disastrously counter-productive economic conflict.
---- For now, “currency wars” are a relatively arcane debate limited to foreign exchange specialists and diplomats. But this issue has already adversely affected hundreds of millions of people who consider themselves largely immune to the vicissitudes of international markets, not least in the UK. History shows, also, such currency disputes can escalate from rhetorical spats into disastrously counter-productive economic conflict.“Currency wars” have hit the headlines anew in recent weeks, given Japan’s attempts to force down the yen. Freshly installed prime minister, Shinzo Abe, determined to stimulate a moribund economy, has ordered Japan’s ultra-conservative central bank to be more expansionary.
The Bank of Japan has announced it will raise its inflation target to 2pc, while trying to reach that goal “at the earliest possible date” and phasing-in hefty government debt purchases. Governor Masaaki Shirikawa will also be replaced by a more compliant successor when he retires in April.
Japan has been treading economic water for over 20 years, ever since its almighty real estate bubble burst in the early 1990s. Still the world’s second-largest economy when the credit crunch began in late 2007, the country has since slipped back to third-place and counting, its GDP having contracted for six of the last eight quarters. Despite all that, Abe’s decision to take drastic measures has sparked a chorus of complaints.
The yen
spent 2012 oscillating around 80 to the dollar. Since then, it has fallen
rapidly and is now approaching 93 to the US currency. Most analysts expect a
further slide - not least as the central bank is now committed to aggressive
monetary measures and a higher inflation target.
This has
big implications for other Asian exporters, as a weaker yen makes Japanese
goods cheaper in foreign markets.
Since the
middle of last year, the South Korean won, for instance, has risen over 30pc
against the yen. That’s why politicians in Asia’s fourth-largest economy, which
competes with Japan in many sectors including autos and electronics, were last
week threatening measures to discourage capital from flowing into the won,
stopping it rising even more.
Germany,
also, is deeply concerned about the yen’s recent fall and the prospect of
further weakness. With an eye on his country’s all-important export sector,
Bundesbank president, Jens Weidmann, recently mauled Tokyo’s new affinity for
loose money, referring to “alarming infringements” and an “end to central bank
autonomy”.
The
danger is that semi-covert moves to depreciate a currency then become
aggressive, jingoistic devaluations. Such retaliatory “beggar-thy-neighbour”
policies sparked the explicit capital controls and sky-high trade barriers of
the early 1930s that, in turn, eviscerated global commerce and caused the Great
Depression.
---- Currency movements are caused, the economic textbooks tell us, not only by trade flows but, above all, by interest rate differentials. In a world of near-zero Western interest rates – negative, if adjusted for inflation – the usual rules don’t apply. Currency values are now overwhelmingly driven by the extent to which central banks print money.
This
on-going “ugly contest” among the so-called “advanced economies” is itself a
result of attempts by the Western political classes, via QE, to artificially
inflate asset prices, bail-out busted banks and suppress real bond yields,
while debasing and devaluing the size of the debts we owe the rest of the
world.
Yet this
disgraceful policy, while good for asset-rich Western elites, not least politically
connected bankers, is a disaster for middle-income savers, not least
pensioners, as the value of their home currency is destroyed. Oh, and now, as
some of us have long predicted, QE is in danger of causing currency conflicts
that could ultimately spark protectionism and all the economic damage that
entails.
Twin crises in Italy and Spain stalk markets as political unrest prevails
The escalating political crises in Italy and Spain are being watched with growing concern by bond investors, fearful that both countries could slide into paralysis and lose the crucial backing of the European Central Bank.
“Markets
have been extraordinarily complacent,” said sovereign debt strategist Nicholas
Spiro. “The prospects of a stable and reform-minded government in Italy are
very slim. We think a nasty surprise is coming.”
In Italy,
ex-premier Silvio Berlusconi has upset the political landscape just three weeks
before elections, surging back into contention with vows to rip up
“German-imposed” austerity policies and cancel a hated property tax.
His
Right-wing alliance has risen to 28pc in the polls, relishing a widening
scandal at Banca Monte dei Paschi that has embroiled the Italian left.
“Austerity
in countries already in crisis pushes them into a very dangerous recessionary
spiral. These policies have left 50m Europeans unemployed or short of work. We need
to get rough with Germany, otherwise reality will force a number of countries
to leave the euro,” he said.
Anti-euro
comedian Beppe Grillo has climbed to 18pc, though he may have gone a step too
far by inviting al-Qaeda to blow up Italy’s parliament. “We’ll give them the
co-ordinates,” he said. A hung parliament is now likely, with eurosceptics
between them controlling the senate.
---- A parallel crisis is under way in Spain where the slush fund scandal of Mariano Rajoy’s Partido Popular has inflicted serious damage on the government’s moral credibility.
Mr Rajoy
has denied allegations of kick-backs from construction firms, but has yet to
clarify leaked documents from a former party treasurer that appear
incriminating. “I have never received or shared out illegal payments. These
allegations are coming from people who have something to gain,” he said.
Polls
show that 60pc of his own supporters do not believe the official explanation. A
national petition drive calling for his resignation has already collected
almost 800,000 signatures. Socialist opposition leader Alfredo Pérez Rubalcaba
yesterday joined the chorus calling for Mr Rajoy’s head, saying the country had
become “ungovernable”.
El
Confidencial warned that democracy itself is under assault, with “every
institution of the state under suspicion”. The scandal further reduces hopes of
heading off Catalonia’s independence drive.
Staying with the modern serf state of Euroland, next comes re-education camps and a Ministry of Truth.
“The Ministry of Peace concerns itself with war, the Ministry of
Truth with lies, the Ministry of Love with torture and the Ministry of Plenty
with starvation. These contradictions are not accidental , nor do they result
from from ordinary hypocrisy: they are deliberate exercises in doublethink”
George Orwell. 1984.
EU to set up euro-election 'troll patrol' to tackle Eurosceptic surge
The European Parliament is to spend almost £2 million on press monitoring and trawling Eurosceptic debates on the internet for "trolls" with whom to debate in the run-up and during euro-elections next year amid fears that hostility to the EU is growing.
The Daily
Telegraph has seen confidential spending proposals and internal documents
planning an unprecedented propaganda blitz ahead of and during European
elections in June 2014.
Key to a
new strategy will be "public opinion monitoring tools" to
"identify at an early stage whether debates of political nature among
followers in social media and blogs have the potential to attract media and
citizens' interest".
Spending
on "qualitative media analysis" is to be increased by £1.7 million
and while most of the money is to be found in existing budgets an additional
£787,000 will be need to be raised next year despite calls for EU spending to
reflect national austerity.
"Particular
attention needs to be paid to the countries that have experienced a surge in
Euroscepticism," said a confidential document agreed last year.
---- Training for parliament officials begins later this month.
Paul
Nuttall, UKIP's deputy leader, has attacked the proposals, which he said,
violate the neutrality of the EU civil service by turning officials into a
"troll patrol", stalking the internet to make unwanted and
provocative political contributions in social media debates.
"Spending
over a million pounds for EU public servants to become Twitter trolls in office
hours is wasteful and truly ridiculous," he said.
"It
strikes me as bizarre that the EU administration is playing such an explicitly
political role with a brief to target Eurosceptics - that's code for parties
like Ukip, and this is hardly neutral."
Leveson: EU wants power to sack journalists
A European Union report has urged tight press regulation and demanded that Brussels officials are given control of national media supervisors with new powers to enforce fines or the sacking of journalists.
----A "high level" EU panel, that includes Latvia’s former president and a former German justice minister, was ordered by Neelie Kroes, European Commission vice-president, last year to report on "media freedom and pluralism". It has concluded that it is time to introduce new rules to rein in the press.“All EU countries should have independent media councils,” the report concluded.
“Media councils should have real enforcement powers, such as the imposition of fines, orders for printed or broadcast apologies, or removal of journalistic status.”
As well as setting up state regulators with draconian powers, the panel also recommended that the European Commission be placed in overall control in order to ensure that the new watchdogs do not breach EU laws.
“The national media councils should follow a set of European-wide standards and be monitored by the Commission to ensure that they comply with European values,” the report said.
----The report’s recommendations have sparked anger in Britain, a country that is often criticised by European officials for its media coverage of EU issues
A
spokesman for the Department for Culture, Media and Sport said: "We have
no intention of allowing Europe to regulate the British press. We have been
clear that, as set out in the Leveson report, we expect the British press
industry to implement tough, independent, self-regulation."
Douglas
Carswell, the Conservative MP for Clacton, attacked the report for making an
“extraordinary, and deeply disturbing proposal”.
“Having
EU officials overseeing our free press - and monitoring newspapers to ensure
they comply with "European values" - would be quite simply
intolerable,” he said.
“This is
the sort of mind-set that I would expect to find in Iran, not the West. This
kooky idea tells us little about the future of press regulation. It does
suggest that the European project is ultimately incompatible with the notion of
a free society.”
“We
know that no one ever seizes power with the intention of relinquishing it.”
IMF sees 140m jobs shortage in aging China as 'Lewis Point' hits
China’s vast reserve of cheap workers in the hinterland is vanishing at a vertiginous pace.
We can now discern more or less when the catch-up growth miracle will sputter out. Another seven years or so - enough to bouy global coal, crude, and copper prices for a while - but then it will all be over. China’s demographic dividend will be exhausted.Beijing revealed last week that the country’s working age population has already begun to shrink, sooner than expected. It will soon go into “precipitous decline”, according to the International Monetary Fund.
Japan hit this inflexion point fourteen years ago, but by then it was already rich, with $3 trillion of net savings overseas. China has hit the wall a quarter century earlier in its development path.
The ageing crisis is well-known. It is already six years since a Chinese demographer shocked Davos with a warning that his country might have to resort to mass suicide in the end, shoving pensioners onto the ice.
Less known is the parallel - and linked - labour drain in the countryside. A new IMF paper - “Chronicle of a Decline Foretold: Has China Reached the Lewis Turning Point?” - says the reserve army of peasants looking for work peaked in 2010 at around 150 million. The numbers are now collapsing.
The
surplus will disappear soon after 2020. A decade after that China will face a
labour shortage of almost 140m workers, surely the greatest jobs crunch ever
seen. “This will have far-reaching implications for both China and the rest of
the world,” said the IMF.
These
farm workers are the footloose migrants that pour into the cities from the
interior, the raw material of China’s manufacturing workshops They are carefully
regulated by the semi-feudal Hukuo system to keep their families tied to
villages at home, and to keep the lid on social revolt.
There is
little Beijing can do to head off the shock. The effects of low fertility rates
- and the one child policy - are already baked into the pie. It would take half
a century to turn around the demographic supertanker.
The Lewis
Point, named after St Lucia's Nobel economist Sir Arthur Lewis, is when the
supply of workers dries up and city wages soar. It is when labour turns the
tables on capital, and profits crash.
You could
argue that such a process already well under way, and is why Chinese equities
are trading at a third of their 2007 peak in real terms. Manufacturing pay has
risen 16pc a year over the last decade in the East Coast hubs of Shenzhen,
Beijing, Shanghai and Tianjin, though this slowed sharply in 2012.
Boston
Consulting Group says that “productivity-adjusted wages” were just 22pc of US
levels as recently as 2005. They will reach 43pc by 2015, or 61pc for the
American South.
More
At the Comex silver depositories Friday final figures were: Registered 37.18
Moz, Eligible 119.94 Moz, Total 157.12 Moz.
Crooks and
Scoundrels Corner
The bent, the seriously bent, and the totally
doubled over.
Today, the worker’s
paradise of Argentina. One is two, what’s
yours is mine:
“War is peace. Freedom is slavery. Ignorance is strength.”
Argentina, with apologies to George Orwell. 1984.
IMF hits Argentina with first-ever censure of a country
The International Monetary Fund has censured Argentina for failing to supply accurate economic data, the first time the global crisis lender has taken such an action against a member.
8:51PM GMT 01 Feb 2013
The IMF
Executive Board found that Argentina's efforts to meet its demands for better
GDP and inflation data have "not been sufficient. As a result, the Fund
has issued a declaration of censure against Argentina."
The
censure decision opened the way to Argentina possibly losing its voting rights
at the IMF, or even losing it membership, AFP reported.
But the
Executive Board put off that decision and gave Buenos Aires another eight
months to resolve the problem before it takes further action.
The
Argentine government has until September 29 to meet its requirements, and IMF
Managing Director Christine Lagarde will then have to report on the issue to
the board by November 13.
"The
Fund stands ready to continue its dialogue with the Argentine authorities to
improve the quality" of the official data, the board said in a statement.
---- In September, the IMF laid out a tough warning to Argentina that it would be punished for failing to meet, since 2011, its obligations to supply the same accurate economic data that all countries provide.
The
official Argentine statistics are sharply different from those private sector
economists issue.
For
instance, last month the government said that inflation in 2012 was 10.8pc,
while a group of private economists who collate their data put the rate at
25.6pc.
Buenos
Aires benefits from understating the data, because a large part of its
sovereign debt is indexed to inflation.
The IMF
and Argentina have a long history of troubled relations, with successive
governments blaming the Fund for domestic economic failures and the country's
deep troubles in international debt markets.
More
“What can you do, thought Winston, against the lunatic who is
more intelligent than yourself, who gives your arguments a fair hearing and
then simply persists in his lunacy?”
George Orwell. 1984.
The monthly Coppock Indicators finished January:
DJIA: +106 Up. NASDAQ: +126 Up. SP500: +140 Up. All three indexes are giving the same signal,
up.
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