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Politcally correct scribe

“This is not a default, but the measure which we consider expedient”

11 июн 2011 в 00:00:00 Просмотров: 2333

Русская версия

Good afternoon. Socialist Party of Portugal failed miserably in the elections – now center-right will govern: Social Democrats are difficult to attribute to this sector of politics – but the euro-socialism is now so strong that the political spectrum is strongly shifted to the left. Japan is seeking a replacement for Prime Minister Kan – Democratic Party activists see the current Minister of Finance Yoshihiko Noda as a successor. Gaddafi’s money, as it turned out, was lost not only by Goldman Sachs, but also by Societe Generale – here, however, the loss was “only” 72% of the sum. Vegetable scandal is gaining strength – cucumbers were rehabilitated, soybeans are accused, but this is just another iteration; Spanish farmers have suffered losses of €300 million, and demand compensation from the EU. Onishchenko, Russia’s chief medic, at the same time has withdrawn European berries from sale – in response, the leader of homosexuals Alekseev wrote in a blog: “I eat only European vegetables! And don’t even think! And I advise you the same: if Onishchenko is against, then you should eat them”. Corruption fighters' numbers have grown: yoga guru Swami Ramdev Baba has accused the government of India in the passion for bribery and perpetrated a protest on the square; police broke up a rally for humanitarian reasons – saying that the yogi, God forbid, could began a hunger strike, which would have caused damage to his precious health; in the name of humanism 30 people were dead. And in Azerbaijan, the authorities of Khirdalan secretly removed the monument of Mubarak from the Park of friendship with Egypt – irrelevant politician was replaced by a politically correct statue of the ancient Egyptian scribe.


Illustration: Artem Popov, ITinvest


Who will prevail - an elephant or a whale?

Monetary markets. The Bank of Korea raised the rate by 0.25%; central banks of Australia, the New Zealand, Britain and the eurozone have left the parameters of monetary policy unchanged – with the New Zealanders threatening of tightening, and the ECB President Trichet using the keyword phrase “high alert”, promising the rate increase next month. US Fed chief Bernanke pledged to maintain soft monetary policy, but haven’t hinted of a new wave of emission – and expressed confidence that the surge in inflation and slowing of the economy are temporary incidents. Meanwhile, there is a political struggle around the Fed: the Republicans accused a board candidate Peter Diamond, professor at MIT and a Nobel Laureate, of incompetence – in response he withdrew his candidacy and told ??everything he thinks about his critics. Agencies did not doze: Moody's has threatened the British rating, and Fitch joined him in warning the United States. Bad are the issues with leading US banks (Bank of America, Citigroup, J.P.Morgan Chase, Wells Fargo, etc) who entangled in their own mortgages – investigation has revealed such abuses that they will have to pay fines and compensation for about $20 billion. And in China, as was expected, reckless spending in combating the crisis bear its fruits – regional budgets formed giant holes that had to be quickly patched up by the central authorities: the latter already threw in $463 billion – in GDP terms, that is one and a half times more than the US TARP rescue package.

 “Trinity” (EU/ECB/IMF) has finally examined Greece – the final report is gloomy. The Athens authorities have stated that they were expressed distrust, and the loan will be delayed; bosses of the EU estimate that Greece needs a new infusion of €120 billion. Plan is being developed for refinancing the debt – Head of the ECB Trichet supported the idea, saying: “This is not a default, but the measure which we consider expedient”; German Finance Minister Schäuble is also sympathetic – but he warned that extending the maturity of Greek bonds will have to be for a minimum of 7 years. As always, the Germans are torn apart – Economic Advisor to Government Lars Feld said that this is not enough and the default of Athens is inevitable. According to the Bank for International Settlements, banks in Germany and France had $22.7 and $15.0 billion of Greek governmental bonds (at nominal price) on their balances, and including non-governmental ones - $40.0 and $56.7 billion; hence, the price issue is not so small. However, the market is already clear on the issue – credit default swaps of Greece, Ireland and Portugal have reached record highs: for example, insurance of the Greek papers worth more than 15% per annum, the other two countries are at the levels around 7%. EU leaders have now got down to Spain, abusing her authorities of over-optimistic views on economic growth, on the basis of which an unrealistic budget was approved; the government was proposed to pay attention to regional authorities – and for good reason: as soon as (after the elections) they gained access to real data, People's Party said that the region of Castilla - La Mancha is bankrupt. How many wonderful discoveries!..

Currency markets illustrated Leo Kassil: ”If a whale will suddenly attack an elephant? Who will prevail?” Bernanke was collapsing dollar as he could, and Trichet did the same with euro; resulting in an exchange rate flying back and forth. The Japanese currency rise in price above ¥80 yen per $ - it had barely happened when a representative of the Tokyo government Edano appeared in public and mischievously remarked: “We note with a great interest the currency market” – everyone were afraid of intervention and the yen seized to grow. The Chinese are, too, knocking the dollar down – realizing that in this case the yuan will also decline against euro and yen. At the same time, senior economist at Goldman Sachs, Jim O'Neill, in an interview with Spanish newspaper El Economista expressed confidence that, given the problems of the periphery of the eurozone, euro is clearly overvalued. In general, currency wars continue – as you might have expected.

Stock markets. The leading indexes of Wall Street toppled for six consecutive working days, so that the Dow went down to 12,000 points. In general, the mood is cheerless: economic indicators are bad, and the emission is in its final stage – however, nothing very dramatic happens. Japan’s Nikkei index has fallen off because of the earthquake, but then recouped half of the fall – and stuck exactly in the middle range between the peak and the bottom of the period after the cataclysm.


Source: SmartTrade

Commodity markets. There was a meeting of OPEC, where the idea was to increase oil production quotas – but 6 countries opposed, and no decision has been taken: the markets will be watched for another 3 months. Saudi minister al-Naimi described the summit as “one of the worst in history” of the cartel - and it is understandable: his country already increased the production for 200 thousand barrels per day in May and was going to add another 200-300 thousand in June – and now such an unexpected reprimand. Coupled with the reduction of inventories in the United States, the results of the OPEC meeting have cheered the oil – Brent is already at $120 per barrel. Industrial and precious metals sluggishly ranged with a minimum tendency to grow – with the exception of wild palladium that has jumped again. The UN food price index just pulled a little from the record peak in May – but in general products are still expensive; taking into account bad weather in the USA and Europe the hope now is mainly for a good harvest in Russia and Ukraine – God grant. And in the meanwhile, grains, legumes, forage and vegetable oil have sluggishly varied – except for corn, which broke the spring peak, which, incidentally, was already above the maximum of 2008. Meat is also having a sly attempt to get more expensive, while milk and fruits stand still on the recently reached tops, with no desire for a correction. Sugar and cocoa grown and cotton fell down; coffee and timber as a whole remained at previous levels.


Source: Barchart.com


Collapse of profits

Asia and Oceania. Japan’s GDP fell by 0.9% in the first quarter after declining by 0.8% three months earlier; government spending added 0.2%, private spending, exports and inventories contributed the negative. In April, leading indicators continued to fall (-3.7% after -3.9% in March), but activity in services has recouped part of the March decline. Current account balance is in surplus – albeit three times less than a year ago: exports are -12.7% against April 2010, and imports at +12.3%; in the first 20 days of May, the trade balance went into deficit. Bank credit fell in May, but weaker than previously – after the earthquake, demand for loans has grown up; consumer sentiment improved slightly. In Australia, construction dipped by 6.3% in January-March versus October-December, but in April the dynamics of mortgage has improved markedly; however, industry activity index in May, although got better, was deeply in the zone of recession - and in the neighbouring New Zealand prices for real estate are compressing signalling of weakness in demand. Labour market of Australia has slumped: the number of vacancy announcements fell by 6.5% in May against April, while the number of full-time jobs is declining for 2 months in a row – to understand the scale of the fall, we note that this is the same if as in the United States 1.2 million people lost their jobs in a couple of months. China’s trade surplus rose in May compared to April, but fell versus May 2010 1.5-fold: exports gained 19.4% y/y, imports - 28.4%. China launches “money for jalopies” program: everyone who wants to exchange an old car for a new one will get $2800 from the budget – the immediate cause for that was 14% collapse in car sales in May.

Europe. Eurozone’s GDP in January-March rose by 0.8%; private expenditure – by 0.3%, government’s – by 0.8%; net exports added 0.1% to the economy. GDP of Greece had a preliminary estimate of +0.8%, but the refinement dropped it to +0.2%; for the year, the economy shrank by 5.5%. In April, industrial production was upsetting: the Greeks fell by 11.0% y/y, the Spaniards – by 1.6%; the leaders of the EU have a plus here, but shrinking – in March, the reduction was observed in the Netherlands (-0.3% after -2.2% in March), France (-0.3% after -1.1%) and Germany (-0.6%, but here after +1.2%); in Britain there was a collapse of 1.7% - the worst since August 2009. German industrial orders rose by 2.8% after falling for 2.7% in March – in general for 2 months against January-February, there was a decline by 0.4% (-0.5% in internal orders, and -0.4% in external), while capital goods shrunk by 1.2%. According to the Bank of France, business sentiment fell in the country in May to 8-month low – the widespread weakening of activity has been noted. France’s trade deficit rose in April, and the surplus of Germany fell – exports fell sharply; the Britain’s deficit narrowed slightly. April’s producer prices of the eurozone swelled by 6.7% y/y, and of Britain - by 5.3%. Unemployment grew in Greece and fell in Switzerland, the number of job in Britain is ever less – but those who have second jobs are now more numerous (1.1 million, +9% y/y and a maximum since 2002). In April, retail sales in the eurozone rose by the same 0.9% which was lost in March – a reaction to a late Easter of this year; in Britain, the same cause led to a surge in April, but May returned all to a sorry state. Report on the state treasury of France in January-April is charming: revenues rose, costs have fallen – but the deficit for some reason has increased!

America. “Beige Book” of the Fed states slowing down of the economy’s growth – people are unhappy with inflation, although the business can not entirely shift the growth of incoming price onto the buyers; labour market is barely alive, the construction sector is more likely dead. In Canada, this sector rides: building permits in April collapsed by 21.1% after take-off by 16.8% in March; the number of developments rebounded slightly in May after declining in April, but remained clearly below the figure a year earlier. Canada’s balance of trade is in deficit in April; the US negative figure decreased due to falling imports from Japan after the earthquake. Consumer credit swollen in the USA in April due to car and student loans, but the credit cards is again in the red. Wholesale inventories rose, sales dropped, and the consumption of diesel fuel falls each month. The labour market is weak: the number of vacancies has decreased (1.6 times lower than the pre-crisis level); employment trends from the Conference Board are deteriorating; statisticians write that poor May report was not due to weather or Japan, and that the deterioration has spread to all industries; applications for unemployment benefits are fairly numerous and the total number of recipients is highest since the beginning of the year. All this undermines the already weak demand – though the official figures do not speak about it: inflation is understated, so it seems like incomes are not so bad – but if you eliminate the hedonic indexes, the median household income drops to the numbers of years 1986/96; major price manipulation are performed with the consumer basket – if they were removed (coming back to the methodology if 1990), income will be at the level of 1963! And a quarter below the peak of 1999 – this failure was masked by the credit boom, and the government infusions are helping now (increasing incomes by 10-12%): the inevitable elimination of these factors will fully uncover the grim reality described above.


Source: U.S. Census Bureau, John Williams, the author’s estimates 

Russia. Consumer prices rose in May by 0.5% m/m and 9.6% y/y, including cereals and legumes – by 87.6%, sunflower oil – by 34.8%, fruits and vegetables – by 27.7%. Utilities are 13.3% more expensive than in May 2010 – however, personally for us they in May increased in price by 31-46%, so the reliability of Rosstat’s statistics are plagued by vague doubts. Annual growth of monetary base at June 1 shrank to 6.0% - lowest level since December 2009; but the World Bank calls for further monetary tightening to combat inflation: monetarism is a diagnosis. Madame Arbidol prepares pension reform: the minimum length of service will increase (impacting women who took decree leave – the more children, the lower the pension), payments will not be indexed according to inflation, while the government will be able to arbitrarily cut them for the sake of reducing the burden on the treasury. Russian Railways have a mega-plan – they want to create a magnet train by 2030, which will travel at a speed of 1000 km/h. Seeds of curly parsley, alongside saltbush and sweet-flag, are threatened to be declared a drug – and those who grow these plants will have to prove that they aren’t camels. Putin has visited the Sochi construction team that welcomed him singing “I was waiting for you so long, Vova” and “Putin is going to Pikalyovo” – and explained why we need the Olympics: “There should be a joyful anticipation of a holiday – it invigorates the people”. And in the meanwhile, his EdRo invigorates his All-Russia Popular Front: activists of the latter break into the party offices, demanding space and money – EdRo functionaries foul in response; in general, the political process is at full speed in Russia – even if, um ... a special one.

Have a nice week!

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