UK Financial trouble looming: councils face financial collapse – report
Categories: News Flash World Economy, Tags: UK financial collaps
Categotry Archives: News Flash World Economy
The Saudi oil war against Russia and Iran
Categories: News Flash World Economy
This is an interesting article by Pepe Escobar about Saudi Arabia taking Oil prices, attacking Russia, Iran……and the US.
The House of Saudi cannot do this alone, a small country like Saudi Arabia cannot upset all the World’s major powers and not expect retaliation. No, the Money Power is behind this.
According to Escobar the main target is Russia, which is wholly dependent on Oil. Low Oil prices will sink Russia back into depression, there is little doubt about that.
However, this is about the Petrodollar: the Money Power has been keeping Oil at ridiculous price levels for almost a decade now, partly to keep the Petro Dollar going for a little while longer.
Now, with Russia accepting Ruble and Yuan for Oil and Saudi Arabia considering similar steps, the Petro Dollar is in mortal danger. Lowering Oil prices is a sure route to quick decapitation.
A perfect storm is coming, we’ve been anticipating it endlessly, but it seems close now.
http://rt.com/op-edge/196148-saudiarabia-oil-russia-economic-confrontation/
Seems Correction Is Overdue. However…
Categories: News Flash World Economy, Tags: correction, growth, household, unemployment
There is not going to be much of a change in the unemployment rate over the next six months. This assumption is supported by the last quarter’s 4.0% annualized GDP growth rate which was extraordinarily strong.
We’ve seen six straight months of 200,000+ jobs created in the economy and unemployment, which is currently at 6.2%, is likely to fall to 5.9% by the end of 2014. If the economy continues to grow at its current rate, the unemployment rate should then decline to 5.6% by the end of 2015.
Over the past three years, there were several factors potentially holding U.S economic growth back. Let’s take a look at where these major risks currently stand:
| No Longer a Risk | Somewhat of a Risk | Still a Risk |
| Home Prices – Housing prices are growing as home equity increases are feeding consumption. | Home Construction – New home construction is not nearly as strong as it needs to be. Should pick up though as housing prices spur building. | Poor Business Confidence – Companies are still sitting on record cash levels. Potentially, this is good for stock prices, but may signal a lack of investment opportunities. |
| Employment – Jobs numbers are strong. More jobs, more consumption. Look for small-cap retailers to do well. | Ongoing Reduction in Household Debt – Levels are not as bad as before, but not as good as they should be. | Tight Credit – With the exception of certain goods like autos, credit is not as loose as it needs to be for consumers to increase spending. |
| Budget Deficit Improvement – It’s down from $1.3 trillion in 2011 to $640 billion last year, and projected to fall below $600 billion this year. Lower budget deficit means greater long-term GDP growth with less debt overhang. | Europe – The problems in the Eurozone are still present but not as bad as they have been. Portugal, Italy, Greece & Spain (PIGs) are doing much better. | Middle-East and Oil Prices – As bombs begin to drop again in Iraq, oil prices are going to have to rise |
| Russian Tensions with the E.U. and U.S. – The market rallied Friday on the belief that Russia is de-escalating the Ukrainian crisis. |
What the table above basically shows is that the issues people thought could potentially start a recession seem not to be materializing. Three major risks have transitioned from the “still-a-risk” column to the “no-longer-a-risk” column.
What’s more, the following factors are helping fuel greater growth for the U.S.: Population growth, increased household formation, wealth accumulation, rising real incomes, invention & innovation, oil-sands boom, entrepreneurship, U.S. competitiveness, easing financial conditions, shrinking credit spreads and rising equity prices.
Crash Warning – near sight!
Categories: News Flash - Market Movements, News Flash World Economy, Tags: bonds, commodities, foerx, near crash
I feel it’s time to give you an advance warning of a market crash on the near horizon.
Bonds:
Long-term bonds first began plunging this year in Japan. Then, the crash spread to the U.S. and abroad.
And just this past week or so, it began to accelerate in a big way. In fact, the price of U.S. Treasuries have sunk so rapidly that 5-year notes suffered their worst one-day percentage drop in recorded history, as their yields surged.
Meanwhile, bonds of emerging market countries have plunged across the board. And even the bond market of cash-rich China saw chaos this week.
And today, bonds of every shape and color — including municipal bonds, mortgage bonds, corporate bonds and U.S. government agency bonds — are taking still another beating.
In a long time I have been telling this, that what we’ve seen so far could be just the opening act in a global drama of historic dimensions.
Reason: Central banks may be forced to wind down what has been the most reckless money-printing-bond-buying scheme of all time.
Moreover, even if central banks continue printing money like crazy, the law of diminishing returns has already begun to strike, says Mike: The more bonds that central banks buy up, the less they get for their money in terms of lowering bond yields.
Commodities:
Gold has just plunged by the most in two years. Silver, palladium, platinum and most commodities have also been smacked down. We’re now very close to a major bottom in gold, probably in the $1,100-$1,200 per-ounce area, setting the stage for the next phase in gold’s bull market to $5,000 and beyond.
Stocks:
The sequence of events we’re witnessing today is uncannily similar to that of 1987: Japanese bonds crashed in April of that year. Then the crash spread to U.S. mortgage bonds, and next to U.S. Treasuries and bonds globally.
Five months later, U.S. bank stocks fell off a cliff. And in the following month, the Dow suffered its worst one-day crash in history.
Will this pattern repeat itself in 2013-2014? If so, how long will the time lag be this time? Will the stock market decline be just a sharp correction followed by a new upswing as in 1987? Or will it mark the beginning of a new long-term bear market?
I think in a very short term we will see what is the scenario to count on. Stay tuned and be careful out there.
Have a safe trading
Erik
The Crisis Is Not Financial But Evolutionary
Categories: News Flash World Economy, Tags: crisis, economical meltdown
In the News (from Stratfor): “The global financial crisis of 2008 has slowly yielded to a global unemployment crisis. This unemployment crisis will, fairly quickly, give way to a political crisis. The crisis involves all three of the major pillars of the global system – Europe, China and the United States. The level of intensity differs, the political response differs and the relationship to the financial crisis differs. But there is a common element, which is that unemployment is increasingly replacing finance as the central problem of the financial system. …
“Consider the geography of unemployment. Only four countries in Europe are at or below 6 percent unemployment: the geographically contiguous countries of Germany, Austria, the Netherlands and Luxembourg. The immediate periphery has much higher unemployment: Denmark at 7.4 percent, the United Kingdom at 7.7 percent, France at 10.6 percent and Poland at 10.6 percent. In the far periphery, Italy is at 11.7 percent, Lithuania is at 13.3 percent, Ireland is at 14.7 percent, Portugal is at 17.6 percent, Spain is at 26.2 percent and Greece is at 27 percent. …
“A rule I use is that for each person unemployed, three others are affected, whether spouses, children or whomever. That means that when you hit 25 percent unemployment virtually everyone is affected. At 11 percent unemployment about 44 percent are affected.
“It is important to understand the consequences of this kind of unemployment. There is the long-term unemployment of the underclass. This wave of unemployment has hit middle and upper-middle class workers. … Poverty is hard enough to manage, but when it is also linked to loss of status, the pain is compounded and a politically potent power arises. …
“Fascism had its roots in Europe in massive economic failures in which the financial elites failed to recognize the political consequences of unemployment. They laughed at parties led by men who had been vagabonds selling postcards on the street and promising economic miracles if only those responsible for the misery of the country were purged. Men and women, plunged from the comfortable life of the petite bourgeoisie, did not laugh, but responded eagerly to that hope. The result was governments who enclosed their economies from the world and managed their performance through directive and manipulation.
“This is what happened after World War I. It did not happen after World War II because Europe was occupied. But when we look at the unemployment rates today, the differentials between regions, the fact that there is no promise of improvement and that the middle class is being hurled into the ranks of the dispossessed, we can see the patterns forming.”
Read on…
the-crisis-is-not-financial-but-evolutionary
Stocks are tumbling around the world !!!!
Categories: News Flash World Economy, Tags: economical meltdown, forex, investment, investment opportunity
U.S. stocks are now getting hammered. Commodities are imploding. Bank stocks are falling worldwide, and some markets in Europe are at multi-year … and even MULTI -DECADE lows!
What’s most surprising about the breakdown of Europe is not how swiftly it’s happening, but how complacently US investors and others are responding …
This is what happens when you only
paper over a problem, rather than cure it!
How can this be happening? Didn’t central bankers print trillions of yen, euros, pounds, and dollars in the past couple of years to prevent and “cure” these problems? Weren’t we told repeatedly by both European and U.S. policymakers that the problems in the debt markets were contained?
Yeah, we were.
But hopefully, you’ve learned your lesson from the U.S. mortgage debacle. Some policymakers will outright lie to keep you from selling stocks, bonds, or otherwise taking steps to protect yourself from the fallout of a serious debt crisis. Others are just woefully ignorant of the severity of the underlying problems.
Think I’m off base?
Then look at what former U.S. Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke did during the subprime meltdown! They gave speech after speech saying the problem was “contained” and that it wouldn’t have a major impact on the U.S. economy. But you don’t need me to tell you those predictions weren’t just off by a small degree.
They were 100% dead wrong!!
Now we’re getting the same song and dance from Europe. The ESM. EFSF. LTRO. We’ve been told that all of these whiz-bang money printing and bailout programs would prevent a crisis, and that the crisis itself really isn’t that bad.
But try telling that to a Greek investor, who has now lost every single penny of gains he racked up in the last TWENTY YEARS! Here’s the chart of the Athens Stock Exchange General Index. You can see it’s trading around 610, a level last seen in November 1992.
It’s not just the Greek exchange getting hammered though. Spain’s main index is now at its lowest level since March 2009, while markets across Europe are slumping fast.
This just goes to show that when you paper over a crisis, rather than try to solve it directly, you might be able to gain a week, a month, or even a quarter or two of calm. But ultimately, your efforts will prove futile if you don’t get rid of the underlying problems!
Until next time, good trading
Erik
If you thought the debt crisis in Europe was over, think again.
Categories: News Flash World Economy, Tags: central bank, credit crunch, crisis, hot money, hyper inflation
Now the main stream media start again focusing on the eurozone with its hidden problems, as I wrote you earlier on my Blog.
———–
The nearly three-year old crisis appears to be entering a new phase as the respite in global financial markets, which came after the European Central Bank flooded the banking system with cash, has faded.
The focus has once again shifted to politics, long a source of agita for investors, with elections in several key nations set to change the balance of power in the eurozone.
As the economy slides toward recession, there is renewed debate over the wisdom of austerity, which Germany has made a priority, versus policies aimed at boosting growth.
This debate could decide the outcome of elections in France, Greece and now possibly the Netherlands. It could also determine the fate of Portugal, Spain and Italy, which are all struggling to regain credibility in the bond market.
“The emergence of these new coalitions will make crisis management more acrimonious,” wrote Eurasia Group analysts in a note.
Europe: ‘Dark clouds on the horizon’
While policy makers have taken steps to contain the crisis, many of the longer term problems have yet to be resolved.
Meanwhile, the uncertain political and economic outlook is making investors nervous, putting pressure on the ECB to do even more to stabilize the financial markets.
Here are a few things to keep an eye on in the weeks ahead.
Merkozy’s days are numbered
In France, socialist candidate Francois Hollande narrowly defeated incumbent Nicolas Sarkozy in the first round of the nation’s presidential elections last weekend.
Hollande is favored to win the final round of voting on May 6, although the race could be tighter than expected.
France and Germany have been the main players in the response to the crisis to date, so much so that Sarkozy and German Chancellor Angela Merkel have become known as “Merkozy.”
The Merkozy doctrine, such as it is, has been to demand austerity measures from eurozone nations that have requested bailouts from the EU and International Monetary Fund.
The two leaders have also been pushing for more political and economic “integration” as the main proponents of the “fiscal compact” that euro area leaders signed late last year.
5 things to know about the French election – CNN
Hollande, however, has suggested that he would renegotiate the fiscal compact before recommending that France ratify the proposed budget rules and penalties.
He has also called for more growth-oriented policies, suggesting that Hollande could have a complicated relationship with Merkel, who favors spending cuts.
Budget fight breaks Netherlands government
Meanwhile, the Netherlands has emerged as another source of political uncertainty after an impasse over budget cuts caused the nation’s prime minister to resign.
Prime Minister Mark Rutte resigned after far-right party leader Geert Wilders withdrew his support for cuts needed to meet EU budget rules.
It was not immediately clear what will happen next, but Wilders and other Dutch politicians have reportedly called for elections as soon as possible.
The political turmoil raised worries that the Netherlands, one of the few AAA-rated eurozone nations, could have its credit rating downgraded.
Greece is still in bad shape
Amid a shrinking economy and deepening austerity, Greek voters are scheduled to elect a new government on May 6.
Greece has been run by a caretaker government since Prime Minister George Papandreou resigned late last year, under pressure from France and Germany.
Lucas Papademos, the interim prime minister, orchestrated the largest sovereign debt default in history and secured a second €130 billion bailout program during his six months in office.
To qualify for the bailout, Greece was required to enact a raft of austerity measures and agree to a program of structural reforms that will be overseen by the IMF for the next few years.
Greece has already endured years of austerity, which many economists say has worsened the nation’s recession. In addition, Greece’s debt load will still be very high and may require further restructuring even if it completes the reforms under its bailout program.
This suggests that Greece will either be forced out or will decide to abandon the euro currency union later this year, according to Capital Economics.
Domino effect: Portugal, Spain and Italy
After Greece, investors see Portugal as the most likely candidate for another bailout.
Portugal’s borrowing costs shot higher earlier this year amid fears the nation could seek to restructure its debts. Investors were also rattled after Standard & Poor’s downgraded Lisbon’s credit rating to junk in January.
In its most recent review, the IMF said that Portugal was “broadly on track” with the €78 billion bailout program the nation tapped nearly a year ago.
While the Portuguese economy is comparatively small, the nation’s woes have highlighted the challenges facing larger eurozone economies, such as Spain and Italy.
Spain recently disclosed that its 2011 budget deficit was much larger than expected and warned that the government may not meet its fiscal targets for 2012.
Prime Minister Mariano Rajoy, in power since December, has proposed a €27 billion austerity program. But the Spanish economy, which is suffering from high unemployment and problems in the banking sector tied to the real estate market, has slipped back into recession.
While the authorities say Spain can avoid a bailout, yields on Spanish bonds have risen sharply recently as investors fear the nation will require some sort of external support.
Investors are also worried about Italy, the eurozone’s third-largest economy, despite progress made by Prime Minister Mario Monti on labor and other market reforms.
The concern is that if Spain needs to be bailed out, there will not be enough money left over to support Italy in the event that Monti’s reforms fall short.
Monti, who was appointed after Silvio Berlusconi stepped down late last year, has also been pushing back against austerity and emphasizing the need to stimulate growth as Italy’s economy has stagnated for years.
ECB’s options are limited
The ECB stepped up its efforts to prevent a credit crisis late last year when it offered European banks unlimited access to cheap, long-term loans.
In two separate operations, the ECB pumped over €1 trillion into the banking system.
ECB president Mario Draghi has said the goal was to help banks struggling to fund themselves amid concerns about exposure to sovereign debt. But the flood of liquidity also appeared to help drive down borrowing costs for troubled eurozone governments.
As yields move back into the danger zone, investors are again looking to the ECB to save the day.
Investors to ECB: 1 trillion euros is not enough
There is speculation that the ECB could resume limited purchases of government debt under its controversial securities market program.
Some analysts have also suggested that the ECB could move to full-blown quantitative easing, a strategy used by the Federal Reserve, to help boost the economy.
However, such steps would violate the ECB’s mandate, which is to maintain price stability, and the bank has already stepped way out of its comfort zone. In addition, intervening in the bond market raises thorny questions of “moral hazard.”
Instead, Draghi has stressed that governments must push ahead with fiscal consolidation and reforms to increase economic competitiveness.
Compiled source from: Ben Rooney – CNNmoney
History seems to repeat endless again – Housing Prices Again !!
Categories: News Flash World Economy, Tags: credit crunch, Housing price
In late 2009, just a few months before the 2010 spring selling season for homes got underway, the Philadelphia Housing Sector Index (HGX) started to move. The benchmark index of housing and construction-related stocks surged from around 90.55 in November to 132.53 in late April — a gain of 46 percent.
Investors and pundits hailed it as proof positive that the housing market was finally on the mend … that blue skies and rainbows were here to stay! But what happened next? The index flopped and chopped around for a while … then fell off the table. Ultimate loss through October for anyone who bought the hype? 39 percent!
In late 2010, just a few months before the 2011 spring selling season, it happened again! The HGX rallied from 94 in late November to 121 in late February — a rise of 29 percent.
So did THAT signal a lasting turn for the housing market’s fortunes? Er … no! The index imploded 34 percent shortly thereafter.
And wouldn’t you know it? Investors are at it again!
They’ve been buying housing stocks, construction stocks, home improvement retailers, cabinet and faucet makers, paint companies, and more like they’re going out of style!
Stocks like Valspar (VAL), Sherwin-Williams (SHW), Stanley Black & Decker (SWK), A.O. Smith (AOS), Masco (MAS), Home Depot (HD) are putting even high-momentum Internet companies to shame with their recent gains!
Me? I can’t shake the feeling it’s déjà vu all over again — and that the 2012 version of this annual rite is going to end badly too!
What the latest housing figures do —
and DON’T — show
Why is there so much optimism about these stocks and the housing market in general? I don’t know if it’s the fact it’s 80 degrees in Chicago and New York City. I don’t know if it’s just the innate optimism that prevails on Wall Street, or the happy talk from housing company executives.
But whatever it is, it sure doesn’t seem justified to me. We have undoubtedly seen some improvement from the depths of the 2007-2009 recession. Home sales, home construction activity, and builder optimism have taken a modest turn for the better.
But even with that slight improvement, housing starts remain a whopping 69 percent below their bubble peak! A key measure of home builder optimism is still down 61 percent. Existing home sales? They’re off 37 percent. Home prices? Down 34 percent … STILL!
More recently, we’ve seen mortgage rates shoot higher along with Treasury yields. That couldn’t come at a worse time, considering we’re entering the heart of the home selling season. Is that why the National Association of Home Builders confidence index just registered 28 in March, instead of rising to 30 as expected? Hmmm.
And what about housing starts? They slumped slightly to 698,000 in February instead of rising as expected. Moreover, single-family starts plunged 9.9 percent — the biggest drop in a year!
“Look out below” time for housing sector?
Sure looks like it to me!
Long story short: It’s been a heck of a rally in the housing and construction sector. Some sector stocks are trading at all-time highs. Not 52-week highs, mind you. Highs they didn’t even hit during the peak of the bubble — when home prices were rising at double-digit rates and construction activity was running at the fastest rate in U.S. history!
Does that make sense to you? Because it sure doesn’t to me!
In fact, I believe the combination of that strong rally … the recent rise in interest rates … and the potential for activity to slow going forward will prove toxic to investors. If you own these stocks and have enjoyed the rally, I urge you to sell now.
I would also take gains off the table in other stock market sectors. If the recent housing strength fades, the economy will likely cool, and I don’t believe the broad market is prepared for that.
Until next time and good trading,
Erik
The Japanese – China similarity Is the (hot) money already running out from China ?
Categories: News Flash World Economy, Tags: China, hot money, Japan, real estate boom
“If you do not change direction, you may end up where you are heading.” — Lao Tzu
Most everyone thinks they know where China is headed — that is, toward world domination thanks to having the most-vibrant large economy in the world.
Of course, whenever we project from the recent past, we usually end up disappointed. And for many, their expectations for China will be no exception.
There are many obstacles along the way before China rules the economic world, and one of them is what we have dubbed “The Japanese Parallel.” This would be a game-changer, one with major implications for all global asset markets, especially currencies.
The credit crunch that happened circa 2008 took a big bite out of the U.S. consumer and has drained a lot of dollar credit out of the global system. In the aftermath, the Chinese government stepped up in a big way — replacing U.S. consumer demand with direct stimulus, to the tune of approximately half the size of the country’s GDP, in an effort to keep the music playing.
The song should be a familiar one because, interestingly, we saw a similar scenario play out before in the global economy. China’s future is on a seemingly eerie parallel with Japan’s global macroeconomic history.
The Parallel in Play
During the 1980s, it appeared Japan — as the “Creditor Superpower” — was going to gobble up the world with its powerful export machine and massive current account surpluses rolling in.
Then a little thing called the U.S. stock market crash in 1987 changed the game.
Dollar credit flowed from the global system, triggering an improvement in the U.S. current account balance (see the top-left gold box in the chart below) that was followed by a U.S. recession. This came as the Japanese yen was appreciating in value, thanks to the G-7 Plaza Accord to pressure the yen higher because of all those Japanese exports.
Source: Black Swan Capital
Here’s a brief history on what happened to Japan:
- Japan’s very hot stock market broke in 1989.
- Then its extremely overpriced real-estate bubble started its collapse. (Remember when the Imperial Palace in Tokyo was worth more than the entire state of California?)
- Japanese authorities did all they could in the form of stimulus to try to keep air in the bubble. They …
- Pumped more money into the stock and property markets in order to revive the wealth effect for domestic consumers.
- Subsidized export companies to keep exports flowing (but the world’s major consumer — the U.S. economy — was entering recession and therefore wasn’t there to buy).
- Lowered interest rates to zero.
- Continued massive fiscal stimulus by building infrastructure across the country.
But, it didn’t work.
The massive dislocations were caused by the artificial channeling of credit within the Japanese economy in order to focus almost entirely on building a global export machine.
In turn, these dislocations created the malinvestment that has taken years to work off, precisely because the Japanese economy was so imbalanced when it came to production versus consumption.
Attempts to change this model were scant at best; instead, they kept morbid companies alive and forced consumers to save money, thanks to artificially low interest rates.
7 Reasons Why the China Story
Might Not Have a Happy Ending
Fast-forward to China today … and you can witness the parallels …
Instead of the U.S. stock market crash being the triggering event, we have the credit crunch in its place — arguably a much-bigger and more-powerful global event.
Secondly, global leverage — i.e., debt in the system — was massively larger in 2007 than it was in 1987. (In other words, the world was hooked on massive dollar-based credit spewed out by the trillions of dollars in derivatives production.)
Mr. U.S. consumer has pulled in his horns much more quickly and to a greater degree than he did back in 1987. This takes much more global demand for goods out of the market — demand that China was and still is so highly addicted to.
And interestingly, now we also have the Chinese currency starting to rise in value, albeit at a much-slower pace than the Japanese yen did in the 1980s.
So what has China done to overcome this sea change in the global economy that’s evidenced by the improvement in the U.S. current account? The country has done many of the same things Japan has done, and we are seeing a replay of events to a degree.
Here’s where those parallels really come into play:
1) China’s very hot stock market topped out in October 2007 and is now 59 percent off its old high. (That is a major drag on the so-called “wealth effect.”) The Chinese government owns or controls most of the stocks on its exchange and, yet, it has been unable to keep them pumped up.
2) China’s real estate prices have started falling and the “bubbly conditions” are becoming quite apparent to all. But now, with tightening credit in China, the bubble is in jeopardy. As a recent Financial Times article reported:
“The number of property transactions in China’s largest cities has fallen to dangerously low levels, according to regulatory documents obtained by the Financial Times.
“According to the documents, the China Banking Regulatory Commission earlier this year ordered domestic banks to weigh the impact of a 30% decline in housing transactions in ‘stress tests’ aimed at determining the health of the Chinese financial system.”
3) China’s real estate market, especially on the commercial side, is extremely overbuilt. A massive amount of speculative credit has poured in that could come rushing out; already there are signs that the hot money is running from China.
Interesting point here: Despite Western pressure on China’s currency policy, country leaders have made it clear there will not be any type of one-time ramp-up revaluations; this adds to the momentum of hot money (that had poured into China) to leave.
Part of that hot money was specifically positioned in real assets to benefit from such a large one-off revaluation.
4) The country pumped more money into the stock and property markets in order to revive the wealth effect for domestic consumers. It hasn’t worked, just as it didn’t in Japan.
And just as Japan found out, there is no fallback to local demand if international demand disappears for their exports. This is already in play.
5) They subsidized export companies to keep exports flowing. (But the world’s major consumer is taking the goods to the degree that it did before the credit crunch.)
China has managed to push some of the pain of domestic adjustment off its trade partners thus far. But if the U.S. consumer does not materialize, trade frictions will grow for China — not just in the West, but also from its Asian-bloc competitors. This is already in play as well.
6) China’s interest rates are not at zero, but they are extremely low for a country supposedly growing as fast as it has. This low interest rate policy is similar to what Japan did. This leads to forced savings and smothers local consumer demand at a time when domestic consumption is most needed.
7) They continued massive fiscal stimulus by building infrastructure across the country. China’s infrastructure development is legendary. It has led to extreme overcapacity across many sectors.
If global demand is not there to take the final goods all this capacity can produce, then much of that capital will be wasted (i.e., malinvestment). This is what happens when a government determines investment policy instead of letting the market do its job.
Officially, China sports quite a low debt-to-GDP ratio. But if you consider that Chinese banks are effectively government conduits, some have estimated debt-to-GDP in China is somewhere between 70 percent and 80 percent.
Could China Get Hit
Harder Than Japan?
The credit crunch is the market’s way of starting to rebalance a very imbalanced global world that has at the heart of it:
- A flawed world reserve currency system;
- Inordinate demand and depth of capital markets concentrated in one place (i.e., the United States); and
- A beggar-thy-neighbor — by which the country attempts to help itself by using measures that negatively impact other countries — export policy (Asia), leading to massively suppressed relative currency values.
This potential global macro replay shows that policymakers have either learned little, or are unwilling to do the heavy lifting, when it comes to real global monetary reform.
If the Chinese economy plays out like Japan’s did when its credit bubble burst, the implications for the global economy would be dire, as we are still in the midst of massive private deleveraging. This is already overwhelming the public debt being poured into the system, and it has created the nasty byproduct of shaky sovereign credits across all Western nations.
So, we continue to watch as China ticks off the historical markets that crushed Japan’s growth and economic leadership. And we hope that the part about history repeating in another form is wrong. Otherwise, it could be even uglier this time around.
Good trading
Erik
Ps. Source: Jack Cook – Senior Currency investor and market analyst
Merkel Rejects Euro Bonds Again After Auction
Categories: News Flash World Economy
Dear Investor and guest,
Even if you’re not interested in investments or finance … and no matter where in the world you may live, this news will in fact change your life, one way or the other. It marks the end of government bailouts and the beginning of a new Great Depression – not only in Europe but also in America …Read below…
— O —
German Chancellor Angela Merkel again ruled out joint euro-area borrowing and an expanded role for the European Central Bank in fighting the debt crisis.
Euro bonds are “not needed and not appropriate,” Merkel said today at a press conference with Italian Prime Minister Mario Monti and French President Nicolas Sarkozy in Strasbourg, France. She said euro bonds would “level the difference” in euro-region interest rates. “It would be a completely wrong signal to ignore those diverging interest rates because they’re an indicator of where work still needs to be done.”
Merkel, the leader of Europe’s biggest economy, has so far backed a focus on debt reduction and closer economic coordination, calling for a revision of European Union treaties, a move that threatens to bog down in a multiyear negotiation, as core euro economies risk succumbing to the contagion that began in Greece in 2009.
German analysts, newspaper editorials and opposition politicians stepped up calls for Merkel to shift from an incremental approach after the government sold a fraction of the bonds it auctioned yesterday.
“As the crisis deepens with yesterday’s bond auction, the veil has been torn off Merkel’s policy of muddling through,” Sebastian Dullien, a senior fellow at the European Council on Foreign Relations in Berlin, said in a telephone interview. “It’s only got us closer to the end-game, either the breakup of the euro or euro bonds. The strategy has failed.”
Losing ‘Sex-Appeal’
“The flop shows that bunds are losing their sex-appeal as an extremely secure investment,” Germany’s Handelsblatt business newspaper said in a commentary today. “This shows the crisis has reached the entire euro-zone core. France, Finland, the Netherlands and Austria have to pay more interest for their bonds than just a few months ago.”
German bunds fell a second day. The 10-year bund yield rose as much as 12 basis points, or 0.12 percentage point, to 2.26 percent, the highest since Oct. 28, and was at 2.19 percent at 12:55 p.m. London time. Bids at yesterday’s auction of 10-year securities amounted to 3.889 billion euros ($5.2 billion), out of a maximum target for the sale of 6 billion euros.
Handelsblatt said the shortfall was a “wake-up call” for Merkel’s government, which opposes both issuing bonds for the entire 17-member euro region and allowing the ECB to buy unlimited amounts of euro-nation bonds.
Germany Rejects
The German government stood by its rejection of any common bonds for the euro bloc following a report in Bild newspaper that Merkel’s coalition is concerned it may have to agree to euro bonds under certain conditions. The newspaper didn’t say where it got the information.
“We say ‘no’ to euro bonds,” Economy Minister Philipp Roesler, who is also vice chancellor, said today in parliament in Berlin. “A transfer union would be wrong because it would mean German taxpayers pick up the costs. Euro bonds are wrong because they would mean a rise in interest rates for Germany.”
That contrasted with Handelsblatt’s view. “The ECB remains the only investor that can keep down the interest rates of bonds from euro states in the short-term,” Handelsblatt said. “In the long-term, there’s no getting around the necessity of creating fiscal union with at least partial euro bonds.”
The Frankfurter Allgemeine Zeitung newspaper said that while the low demand for German bunds was “no reason to panic” it shows that “around 2 percent interest for investors in these uncertain times is simply not enough.”
‘Moment of Truth’
“Pressure is growing on Merkel,” said Die Welt newspaper. “Up until now she managed to steer the nation through the crisis so that the people didn’t really notice the turbulence.”
Merkel now faces a “moment of truth” in the crisis as her opposition to ECB bond purchases and euro bonds “is being challenged,” Die Welt said.
German opposition parties ratcheted up calls for euro bonds. Frank-Walter Steinmeier, parliamentary leader of the Social Democratic Party in parliament, said on Nov. 21 that his party wants euro bonds as part of a solution to the crisis.
“A model using euro bonds that links European bonds to a reform program is the better alternative,” Juergen Trittin, a co-leader of the opposition Greens party, said in an N24 television interview today.
In Paris, the French government underlined calls for giving the ECB a bigger role in fighting the crisis.
“What’s not working is confidence and that’s what we must restore,” French Foreign Minister Alain Juppe said today in an interview on France Inter radio. “I hope that reflection will move forward that the ECB should have an essential role to restore confidence.”
Have a Good & Safe Trading
Erik
Main Input Source: Bloomberg, Tony Czuczka