Good afternoon. We congratulate our readers with the New Year and Christmas!
The holidays were rich in events. In Dushanbe, a mob heated up by the mullahs stabbed a young man, dressed up as Santa Claus, with the screams “You're heathen!” - Russia has great allies, isn’t she? Not far behind is the North Korea – its government announced that the Christmas lights in border South Korean towns are “acts of propaganda” (of what?), which could have “unpredictable consequences”. And the Albanians are just simple: prominent expert on people-gutting Thaci, who is also Prime Minister of Kosovo, congratulated the Catholics with... Easter – well, what can you expect from a savage? Lots of fun had an unknown previously drunken girl from Tampa, Florida – at full speed she crashed into a policeman on a horse, with the latter finding itself in the passenger seat of a car: the car was trashed – which cannot be said about the other participants of the incident. And while East and West go mad, sovereign democracy marches from one victory to another: in the Caucasus, an unidentified two-meter hairy creature was caught and being checked if it’s a snow man – scoffs have already proposed to rename the distinguished republic into Ingush-Yeti.
Illustration: Artem Popov
Late December brought a record high temperatures to the European part of Russia – and powerful hurricanes to Europe; and an earthquake happened in the Eastern Siberian Republic of Tuva – fortunately, the major impact happened in a scarcely-populated area. This cannot be said about the communication satellite “Meridian” – it didn’t get into space, but broke into pieces, the largest of which fell in the Novosibirsk region onto the roof of a private house, located on the... Cosmonauts Street. Politics was dozing in the holidays – only the untamed clown Chavez was raging: first, he blamed his cancer on “the US biological weapons” and then declared the elections in Russia the embodiment of honesty and greeted EdRo with a spectacular victory which has ruined the devious plans of cursed America. Meanwhile, while the best friend of sovereign democracy is cheering, the Bolivarian Socialism shows new wonders to the world – as of 2011, Venezuela became the world’s leader in the number of homicides: 67 cases for 100 thousand people – 3.5 times greater than before the advent of Chavez. US Republicans hold primaries where there have been three leaders – rich Mormon Romney, stern Baptist Santorum and ultraliberal Paul: the first promises to create jobs, the second wants to bomb Iran, and the third calls to disband the Fed – most likely to win is nevertheless Romney, but his chances against Obama seem to be very dull.
Monetary markets. Of the prominent central banks, only the Israeli has met – it left rates on the spot after two consecutive declines. Minutes of the Fed have been generally dovey – but the dissidents also increased the expression of discontent with a too loose monetary policy; desire for greater openness has prompted the Fed to include into their economic forecasts of the next meeting (on January 24-25) possible future changes in interest rates – in order for markets to prepare ahead for future changes. Activity of the agencies was predictably modest: Fitch cut the ratings of Egypt and Hungary, and S&P – of the Bermudas; that's all. Russia did give Cyprus the credit of €2.5 billion (over 10% of the island’s GDP) – which is logical; all Russian oligarchy works through thence offshore banks – including people especially close to the Kremlin. The markets were first trading optimistic – but quickly realized that nothing had changed and went back to the old tactics: yields of German and British treasuries fell to new record lows – however, the first placements were good even for the distressed countries, because euro-banks today have plenty of liquidity.
But the forecasts for the year cautious: the USA should repay bonds and pay the coupons for $1.2433 trillion, the eurozone – €757.3 billion, and Japan - ¥105.4 trillion. In sum, that is around $3.6 trillion – and then there is still the current budget deficit, so the emission of new securities in 2012 by these countries only is estimated at $6.0-6.5 trillion: where will they find buyers for this abyss? Apparently, the new wave of central banks’ emission has no alternative. The recent action of the ECB fits well in that direction – by the way, it has increased the central bank's balance to a record €2.73 trillion. Coupled with the continuing purchases of the euro-periphery treasuries that had finished off the ECB chief economist Stark who resigned in protest – demonstration of disloyalty deserves punishment, which has followed immediately: Stark was replaced by the Belgian Pret – despite the protests of Germany, which was already pushed previously with the appointment of Draghi as the head of the ECB. The banks are not doing brilliant: there are rumours about the problems of the Germans, who may need assistance; Bank of America is going to increase the sale of its assets (in the last 2 years it has already got rid of $50 billion-worth of them) in order to replenish the capital, which is insufficient to meet the new (more stringent) rules.
Currency markets have twitched – particularly active was the Iranian real crippled by the international sanctions: exchange rate of the Persian currency fell last month by 1.7 times. Euro dipped to 1.27 – but the mighty weight of euro-shorts (net short position is close to the record) threatens to produce a sharp bounce up at any time; the greatest tendency to growth was showed by the yen – to the bemusement of the Japanese authorities. The US Treasury published a semi-annual report on currency manipulation in the world – China is forgiven, but scolded; Japan got it too – but her superiors made it clear that they are not shaken by the accusations of “unilateral” interventions. China and Japan will go for bilateral trade, bypassing the dollar – the Chinese at the same time voiced their thoughts about the bucks, saying that the world has no reserve assets other than gold. Swiss National Bank report showed that the result of mega-intervention, which launched up the franc, was the tripling of the monetary base – and the investigation has found something else: wife of the SNB head Hildebrand actively played on FOREX – and (this is, of course, a pure coincidence!) earned $75 thousand dollars of net profit on the intervention conducted by her husband; sanctions, however, did not follow – she guessed herself, they say, and husband was silent as a guerrilla! Meanwhile, dollar-franc at the annual Japanese candles chart showed up a rain with a giant lower shadow – considering that it happened at the lower levels of long-term decline (and the rate falls from mid 19 century), the figure is rather remarkable, threatening if not with a reversal, but a fair correction at least; so the great attention should be expected for the 2012 candle.
Stock markets. The leading markets were not particularly pleased by the results of 2011 - the S&P-500 index also drew an annual rain candle! However, that is not so interesting, because it took place not at the very top – however the dynamics of the new year is still very important. Corporate news of the year’s end are dismal: US retailer Sears complains of weak demand, wants to close 120 Kmart stores and borrow money for current needs – in response, stocks fell by half; Sony is selling its share (50%) in a joint venture with Samsung in production of liquid crystal displays – the company has an urgent need for cash to cover huge losses from TV production. Report season for the fourth quarter kicks off next week – there is a suspicion that it will be much less positive than the previous few.
Commodity markets. Oil soared due to another escalation with Iran – particularly strong growth was showed by Brent (+6% in 3 days); natural gas in the US continues to become cheaper. Metals fell and rebounded – for example, gold got to $1520 per ounce and bounced up by $100 odd. Grains and pulses, as well as feeder and vegetable oil were mainly growing – except for oats, nailed to the recent lows. Milk and beef are at the tops – which is not the case with pork. Sugar and timber rebounded from the lows – as well as cotton, which rose in price especially sharp; fruits are back to the top – while coffee and cocoa are set to remain bleak.
Asia and Oceania. The situation in the Japanese economy is deteriorating again – that was stated by 76.6% of the country’s firms’ managers. Industrial production fell in November by 2.6%, more than recouping the October figure (+2.2%) and going into the negative annual dynamics (-4.0%); production of cars has returned to the previous levels – but economic activity has improved slightly in December. The construction sector is growing due to the rehabilitation works after the earthquake – but deflation has returned: consumer prices fell in November by 0.5% y/y, and by 1.1%without fuel and food. Salaries, too, fall down, as do the total revenues (-1.2% y/y) and spending of households (-1.3%); retail sales fell by 2.1% m/m and 2.3% y/y - and only the employment just recouped decline of the previous 4 months. Chinese Premier Wen Jiabao promises a “difficult quarter” - an active economic slowdown is probable. And in the meanwhile business activity in the manufacturing sector is stagnating, while showing a modest growth in the service sector; house prices fall for 4 months in a row; trade surplus in 2011 has amounted only to 2% of GDP against 3.1% in 2010. And the bloated debt (especially of the local governments) forces the authorities to cut deficit of the central treasury – in 2011 it has reached 900 billion yuan in December and 800 billion is estimated for 2012. Australia's economy emerged from recession into stagnation in December; Singapore's GDP fell in October-December by 1.2 % q/q; industrial output slows down in South Korea while inflation accelerates. In general, the situation on the continent leaves much to be desired.
Europe. Eurozone industrial orders rose in October by 1.8% after the crash by 7.8% in September – even taking into account the official inflation the annual dynamics is in the red; German orders fell in November by 4.8% m/m and 4.3% y/y. The economy of the eurozone is in recession; the British production stagnates, but there is growth in the service sector and construction; slightly better is Switzerland, but the leading indicators are falling; Norway has plunged into recession, and business confidence is falling in Italy. In Switzerland, deflation increases; the eurozone producer prices rose in November by 5.3% y/y against 5.5% in October; consumer prices in December added 2.8% instead of 3.0% in November; inflation in Italy is on the peak (+3.7% y/y); annual growth of M3 money supply falls aggressively. In Britain, the M4 aggregate is declining steadily, while the net credit is at the bottom since summer – people only take mortgage to refinance previous low-interest loans; first home buyers are at the lowest levels since 1974 - and yet since then the population has been growing; home prices are stagnating. French consumers are gloomy: unemployment is growing at 1.0-1.5% per month – stimulation program is coming; unemployment also swells in Italy – but it has taken a pause in Spain; in Germany, employment is growing – but to blame the warmest December since 1881 which deferred seasonal layoffs in the construction sector. In Greece, the retail sector fell by 10.8% y/y, in Spain – by 7.2% and in the eurozone – by 2.5%; Germany has two consecutive monthly declines; French consumer spending shrank by 2.1% y/y; Italy had the worst Christmas sales in 10 years – and that is despite the distortion of prices, elimination of which will draw a picture of collapse across Europe: for example, real per capita sales in Germany are minimal since February 1970!
Source: Eurostat, independent evaluation
America. ECRI leading indicators promise noticeable deterioration in the US economy in the near future. Meanwhile, industrial orders jumped in November by 1.8% thanks to the transport sector (+14.7%) – without it there would only be +0.3%; adjusted for inflation, annual increase of per capita orders is 0.9%. Indexes of business activity of the district FRBs show stagnation – Richmond and Dallas have improved, Dallas and Kansas City have deteriorated; PMI of Chicago swells due car sector – car sells rose in October-December by 8.1% q/q, apparently making a good contribution to the GDP. National indicators from ISM grew slightly - only the growth of inventories is alarming. Improvement is also in Canada – but deterioration in Mexico, although the expansion is still alive. Housing prices drop in the USA; construction costs have grown up – but the rate is usually being adjusted downwards later; pending sales of secondary housing are swelling – foreclosures have activated. The consumer mood from the Conference Board improved sharply in December; data showed by Bloomberg in the beginning of the year showed an initial deterioration, but then returned to their original positions. The same pattern with unemployment benefits – an increase and then a decrease; review of Challenger showed cuts of both layoffs and hiring; employment index of Monster fell; ADP study showed a surge of employment in December – partly because of the methodology at the end of the year. The official Labor report was written by the local Churov: in November there were exactly +100 thousand jobs, in December +200 thousand, and in October it was +100 thousand; reduction of unemployment was obtained by deleting 200 thousand people from the workforce a month. The same Canadian report is bad – the November fall in employment has not been recouped, unemployment is rising. Christmas sales have not pleased – and then buyers rushed to the stores, improving the situation; but let’s wait for the official retail statistics.
Source: U.S. Census Bureau, the independent evaluation
Russia. The economy in November was not joyful – according to the Ministry of Economic Development, investments and manufacturing industry fell by 0.1% against October, construction – by 0.6%, agriculture – by 4.1%, real wages – by 3.0%; as we thought, the officialdom showed a GDP growth of 5.4% y/y – about 2% higher than the reality. Rosstat showed December figures for consumer prices at +0.4% m/m and +6.1% per year; detailed layout of GDP for the third quarter shows the key role of inventories build-up and fatal “statistical discrepancy” in the resulting growth. It is interesting whether the Bank of Russia would deal with the credit bubble – annual increase of personal rouble loans (as a whole, and for mortgage) has reached 35%. Officials have estimated capital outflow for 2011 at $80-85 billion – given the particularities of the political moment, the beginning of the year is unlikely to please. The authorities limited to Putin's scolding of energy companies’ managers – the latter resigned in unison. Onishchenko congratulated Russians with the holidays – advising to avoid contact with bird droppings and not to engage in throwing donuts. But the authorities need other advice: in the last month, the Germans and the Americans began to investigate corruption-laundering activities of First Deputy Prime Minister Shuvalov’s and former minister (Putin's long-time friend) Reiman’s offshore companies – this would not improve the mood of the authorities before the election. As does the mood of society: according to the Levada Center, Putin's rating (difference of approval and disapproval percentage) reached in December a minimum since August-September 1999 – one can still continue see the bony hand of the State Department in this, but then the elections would be a confuse.
Source: Levada Center
Profaning of the Kremlin is in the full swing – Altai Communists wrote a fairy tale where an Old Witch (United Russia) steals votes from the Snow Maiden, enchanted her with the name of wood goblin Churov, the keeper of the Immortal Putin’s egg: by the way, a nice image – given the current Putin’s exterior. The authorities do not feel the change: permutation of beds in a brothel happened again (Zhukov-Naryshkin there, Surkov-Ivanov-Volodin here); Medvedev gave another innovation – offering the regions to have different taxes; commander of the Strategic Missile Forces Karakayev ridiculed the European ABM saying that “The American anti-missile missile will not reach our missile”; the Chechen leader Kadyrov covers up another robber – “he is not a bandit, but a son of a professor”; TV channels wait for a call from above to know whether they should show the opposition rally – business as usual. However, the opposition saves the situation: positions of authorities have been strengthened by the calls of restless crank Gorbachev for Putin's resignation, coupled with the public mess of moth-eaten liberal leaders; the newly-born frondeur Kudrin has become abstract artist – wrote a picture "Chess" in a day and sold it for €100 thousand, and so on. Looking at this, Putin is placid – and is going to give population a “therapy”; and for he has now clearly been disappointed with the Orthodox Church, his spiritual search led him to show the identity of Christianity and “The moral code of the builder of communism”, and at the same time to the worship of the Dragon, which “will bring luck, wellbeing and prosperity to every Russian family”. Well, we know that the pagan dragon would be killed by the St. George – and who does not know that can look at the Russian coat of arms. In the meantime we congratulate you with the Happy New Year! And with the New Old Reptile.
Have a nice week!
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