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WSJ: Obama Rams Through "Climate Change" Taxes in his Budget
Budget Seeks Cuts in Greenhouse Gases
FEBRUARY 16, 2010, 4:37 P.M. ET.
WASHINGTON—President Barack Obama's 2011 budget calls for an array of regulations, subsidies and taxes aimed at cutting emissions of greenhouse gases, even as a sweeping climate bill sits on ice in the Senate
Mr. Obama's budget calls for $39 billion in tax increases on fossil-fuel producers over 10 years. It also includes an estimated $1.4 billion to help developing countries address the impacts of climate change, reduce deforestation and shift to low-carbon energy sources. And it proposes tripling federal support for nuclear energy, by adding $36 billion in new loan authority for an Energy Department program aimed at speeding the construction of new reactors.
On Tuesday, Mr. Obama sought to underscore his support for nuclear power by announcing that the Department of Energy had offered conditional commitments for $8.33 billion in loan guarantees for the construction and operation of two new nuclear reactors at a plant in Burke, Ga. Administration officials said it would be the first U.S. nuclear power plant to break ground in nearly three decades.
Mr. Obama's budget, unveiled earlier this month, would scale back tax breaks and other incentives for domestic production of oil, natural gas and coal. The moves are opposed by fossil-fuel producers.
The administration's budget cites a 2009 study by the Organization for Economic Cooperation and Development that said the world's 20 biggest economies could reduce global greenhouse-gas emissions 10% by phasing out fossil-fuel subsidies.
A White House spokesman says the administration hasn't totaled up the cost of all the proposals in the fiscal 2011 budget related to climate policy.
Mr. Obama has called on Congress to pass legislation that would require industries to pay for their emissions of heat-trapping gases linked to climate change. But Senate leaders have repeatedly pushed back their timetable for action, amid objections from many Republicans and some Democrats that such legislation would drive up energy costs and lead to job losses in fossil-fuel and manufacturing industries.
Environmental groups have largely applauded Mr. Obama's budget, though some have criticized his support for nuclear power, saying the growing cost of building reactors makes it unlikely that many new reactors will be constructed on time or within budgets.
Mr. Obama's budget proposal also contains what Republicans say is a setback for nuclear-power interests: a proposal to cut off funding for the proposed nuclear-waste repository at Yucca Mountain in Nevada. The move was backed by Senate Majority Leader Harry Reid (D., Nev.).
Republicans say killing Yucca Mountain leaves the U.S. without a clearly defined strategy for managing nuclear waste. The administration says the U.S. has time to find alternatives, and has appointed a blue-ribbon panel to identify options.
The climate pieces of the president's budget are controversial. For example, a proposal to fund the Environmental Protection Agency's regulation of carbon dioxide and the measures to step up taxes on fossil-fuel producers are drawing fire.
Opponents say EPA action to curb greenhouse gases would lead to job losses. The EPA relies on state and local agencies to administer air-quality permits, but some state regulators have said new EPA rules could overwhelm them with paperwork and delay construction projects.
A spokeswoman for the American Petroleum Institute, an industry group, said the administration's requested funding for EPA greenhouse-gas regulation would be "woefully inadequate for the states to implement any type" of greenhouse-gas regulatory program.
But William Becker, executive director of the National Association of Clean Air Agencies, says the group, which represents air-pollution control agencies across the U.S., supports Mr. Obama's request, saying it "reflects clearly the premium he and his administration place on clean air."
Oil and natural-gas producers say the president's tax proposals would discourage domestic production of energy and frustrate Mr. Obama's goals of creating jobs and reducing U.S. dependence on foreign oil. The administration disputes the industry's claims.
Lawmakers from coal states are challenging Mr. Obama's budget proposal, too. At a hearing earlier this month, Sen. Jay Rockefeller (D., W.Va.) warned that the administration's budget would discourage production of coal, the source of half the U.S. electricity supply and a significant source of jobs in Mr. Rockefeller's state.
"People are going to reduce their production because they feel, uh-oh, here comes the Obama administration, they're going to cut out coal," Mr. Rockefeller said.
Administration officials say Mr. Obama's budget offers support for the coal industry, such as roughly half a billion dollars to fund research and development of technology to capture and sequester carbon dioxide from coal-fired power plants. Mr. Obama's aides estimate that eliminating various tax breaks for coal production would generate $2.3 billion of additional revenue over the next 10 years, an amount that represents about 1% of annual domestic coal revenues.
"It's the policy of the administration to move as aggressively as we can towards a clean energy future, not only by investing in R&D into those clean energy sources, but also in cutting back on the subsidies that we currently provide…to fossil fuels," Mr. Obama's budget director, Peter Orszag, testified before Congress earlier this month.
Write to Stephen Power at stephen.power@wsj.com
http://online.wsj.com/article/SB10001424052748703562404575068032057759128.html?mod=WSJ_article_LatestHeadlines
COMMENTS:
Eric Nelson wrote:
.I guess Obama didn't get the memo:
Climate gate retraction:
http://www.dailymail.co.uk/news/article-1250872/Climategate-U-turn-Astonishment-scientist-centre-global-warming-email-row-admits-data-organised.html
The hacker who first brought out the emails should get a medal……
So why do we still need to hobble the economy in the middle of a recession with MORE regulation?
__________________________________________
john rogitz replied:
.You beat me to it.
Actually Barry no doubt got the memo, but why should it matter? The hysterics were never about climate change. They were about ginning up alarm to justify control by elite fiat. No different than any other apocalyptic religious movement since time immemorial.
This is why Barry is still clinging to it. Control by elite fiat. He doesn't want to rely on the climate change hoax, knowing that it has become a discredited global laughingstock, but until some new religion comes along he has no other option but to keep shouting "hallelujah".
__________________________________________
This eco-Marxist nonsense will last only as long as the Democrats' majority in Congress. After the elections cooler non-socialist heads will prevail.
The AGW debate is not now nor has it evern been about the climate. It has always been about power and control of an arrogant, condescending, power hungry, socialist elite over the means of production and the lives of individual citizens. The same is true of health care "reform". If the government controls your health care and youe energy then they own you. You will be reduced to indentured servitude.
WSJ: Small-Cap's Winning Streak at 5
By KRISTINA PETERSON
FEBRUARY 16, 2010, 6:09 P.M. ET
Small-capitalization stocks marched upward, as the dollar dropped and rising commodity prices boosted the energy sector.
Small-caps, considered riskier due to their higher volatility and lower cash reserves, didn't climb as steeply as their larger counterparts. Still, the two benchmark small-cap indexes are both up more than 5% over their five-day winning streak.
Tuesday, the Russell 2000 index of small-capitalization stocks gained 10.12 points, or 1.7%, to 620.84, its biggest gain since Jan. 19.
The Standard & Poor's SmallCap 600 index gained 4.92 points, or 1.5%, to 328.97, its highest close since Jan. 27.
Gains in small-caps were bound more closely to rising commodity prices and U.S. economic data. The energy sector soared as crude-oil prices shot above $77 a barrel.
While heartened by the brighter economic data, investors said the rise in small-cap materials and energy is part of a broader shift toward riskier sectors. Safer sectors, including health care, posted smaller gains Tuesday.
The increase in economic activity "has us moving more towards the riskier trades so that would benefit basic materials, energy and financial services," said Gerry Sparrow, president of Sparrow Capital Management. "It's sustainable," he said. "I think, politically, things have settled down in Washington and small businesses and small-cap companies feel as though there's more certainty than a year ago."
The small-cap telecommunications sector, comprising only five companies, jumped, led by Neutral Tandem, which connects callers from different wireless carriers. The company climbed $1.23, or 8.1%, to $16.41, despite missing earnings estimates by a penny. But Neutral Tandem projected 2010 revenue in line with analysts' expectations, announced a new ethernet-exchange service and plans to buy back $25 million in stock.
Small-cap energy stocks posted the biggest gains. Oil and gas explorer PetroQuest Energy rose 32 cents, or 6.1%, to 5.58. Stone Energy, an independent oil and natural-gas company, climbed 90 cents, or 5.6%, to 16.90. Both are traded on the New York Stock Exchange.
Health-care stocks lagged behind. Health-care provider MedCath dropped 32 cents, or 4.4%, to 7.02. Cambrex, which makes products to help develop small molecule therapeutics, slid 13 cents, or 3%, to 4.18, on the NYSE.
Clean-energy company Hoku Scientific declined nine cents, or 3.8%, to 2.26, after co-founder Dustin Shindo announced he will step down from the Honolulu company's helm at the end of March, citing personal reasons. Chief Operating Officer Scott Paul will replace Mr. Shindo on April 1, with Director Wei Xia assuming the chairman's post.
Rigel Pharmaceuticals slid 87 cents, or 9.2%, to 8.56, despite announcing a partnership agreement with large-cap U.K. pharmaceutical AstraZeneca. Analysts praised the agreement between South San Francisco, Calif., Rigel and AstraZeneca to develop a product to treat rheumatoid arthritis, but investors already may have priced the deal into the stock. AstraZeneca edged down one cent, or less than 1%, to 43.93, on the NYSE.
Spartan Motors climbed 28 cents, or 4.8%, to 6.15, after Spartan Motors Chassis, a unit of the Charlotte, Mich., company, received its largest order ever from China for 22 fire-truck chassis from the Beijing Fire Department. The chassis will be delivered in the second and third quarters.
The board of Zygo, which makes and distributes specialty optical instruments, unanimously rejected an unsolicited $169.4 million takeover offer from II-VI, an engineered materials and components manufacturer. Zygo said the Middlefield, Conn., company isn't for sale and that it is in the best interest of shareholders to allow its new chief executive, Chris Koliopoulos, to lead a stand-alone company. Zygo tumbled 99 cents, or 9.3%, to 9.61. II-VI rose 17 cents, or 0.6%, to 27.38.
Innospec gained 85 cents, or 8.9%, to 10.38, after reporting a narrowed loss in its fourth quarter. The U.K. maker of specialty-fuel additives and chemicals noted that fuel additives, its biggest segment, had a 10% rise in operating income.
Goldman Sachs took a gloomy look at casinos, predicting that high unemployment and a wave of new casinos is likely to weigh on gambling stocks. Penn National Gaming fell 40 cents, or 1.7%, to 22.94, after Goldman Sachs downgraded its rating on the Wyomissing, Pa., casino and racetrack operator to "conviction sell" from "neutral." Las Vegas regional casino operator Pinnacle Entertainment slid 33 cents, or 4.3%, to 7.27, on the NYSE, after being downgraded to "sell" from "neutral."
Mortgage insurer PMI Group slid nine cents, or 3.7%, to 2.32, on the NYSE, after its fourth-quarter loss widened as loss expenses outpaced a revenue gain. Although revenue rose by nearly a third, the Walnut Creek, Calif., company's losses and loss-adjustment expenses surged more, rising 38%.
Digital media-services provider DG FastChannel jumped 3.95, or 14%, to 33.10, after reporting fourth-quarter earnings that topped Street estimates. The Irving, Texas, company is confident in its position for 2010 and sees opportunities for revenue growth.
Write to Kristina Peterson at kristina.peterson@dowjones.com
http://online.wsj.com/article/SB10001424052748703798904575069833303099998.html?mod=WSJ_newsreel_markets
WSJ: Cracks in the BRICs?
FEBRUARY 16, 2010
By LIAM DENNING
As all else has crumbled, the BRICs have come through the crisis looking relatively solid. Yet clear differences have opened up among the fast-growing emerging-market quartet consisting of Brazil, Russia, India and China.
Two members under the spotlight are Brazil and China. Emerging markets fund manager Mark Mobius was quoted recently as saying the Latin American giant's economy was "more sustainable" than that of the Asian powerhouse, mainly due to Brazil's self-sufficiency in major commodities.
.Resource riches help, but hardly guarantee prosperity: Just ask that other BRIC, Russia. Indeed, Brazil's commodity exports represent a potential source of weakness near term. Beijing's efforts to tighten monetary policy likely will reduce Chinese demand for raw materials. Brazilian industries like energy and iron-ore production, which make up a disproportionate share of the stock market, would bear the brunt.
Exports, however, account for a relatively small proportion of Brazil's economy. Consumer spending is more important, accounting for about 60%, according to Credit Suisse.
In China, where per-capita gross domestic product is about two-thirds that of Brazil, consumption is just 35% of the economy. Exports, backed by heavy investment in industrial capacity, rule.
Lombard Street Research notes industrial production in China surged to 16% above its pre-crisis peak in the fourth quarter of 2009, supercharged by rampant bank lending. Core inflation remains suppressed by the imbalance of supply compared with consumption and a system of subsidies. But rampant lending has fueled real-estate bubbles, and socially sensitive items like food and energy remain subject to inflationary spikes.
Brazil faces higher inflation, with consumer prices up 4.6% year to year in January. Monetary tightening looks likely. However, industrial utilization rates still are low, according to Lombard Street. Meanwhile, Brazil's memory of hyperinflation in the early 1990s means real interest rates even now are high, at over 4%.
Such conservatism risks strangling recovery. But a silver lining is well-capitalized banks and structural restraints on credit. Loosening these would provide fuel to stoke the engine of consumer demand should it falter.
In order to do this safely, Brazil still needs to address the rigidities that stoke inflation, not least restrictive labor markets and inadequate infrastructure investment. If Brazil can address these capital allocation and regulatory issues, it can capitalize on its head start in developing a sustainable consumer economy, the critical challenge for all the BRICs.
In addition, Brazil enjoys more favorable demographics than China. If the latter hopes to transition to a broad consumer economy, it had better get a move on: China's fertility rate already is below the replacement rate for the population, and the prime 15-to-64-year-old age group will peak in 2015, according to World Bank projections. Brazil's is set to keep rising until 2045. Such resources trump anything lying beneath Brazilian soil.
Write to Liam Denning at liam.denning@wsj.com
http://online.wsj.com/article/SB10001424052748704431404575066953404064156.html?mod=WSJ_article_MoreIn
China: Hugh Hendry warns investors' infatution is misguided
Hugh Hendry wonders whether professional money managers' infatuation with China could prove unrewarding?
Published: 9:09AM GMT 12 Feb 2010
Comments 44 | Comment on this article
UK Telegraph
Hugh Hendry warns of investrs' infatuation with China Robert Prechter, the eminent American observer of social and economic trends, wryly contends that stock markets usually deceive those people who argue for outcomes based on seemingly logical causation.
Could our professional money managers' infatuation with China prove similarly unrewarding? China's economy is certainly on a tear; economic growth has averaged 9pc a year over the past 10 years, compared with a paltry 1.9pc for the British economy. Last year, despite the credit crunch, China posted a remarkable growth rate of 10.7pc against a British contraction of 3.2pc. This is impressive stuff.
The spell cast by a contemporary cult is undoubtedly hard to resist and some brave souls, willing no doubt to extrapolate present trends forward, are even proclaiming that China will usurp the United States as the world's largest economy. Goldman Sachs' chief global economist, Jim O'Neill, even taunts the naysayers, saying, "You either get it or you don't." Such is his conviction.
However, the composition of China's growth has undergone a potentially treacherous change: in the absence of expanding foreign demand for its exports, it has instead come to rely on a massive surge in domestic bank lending to fuel its growth rate.
Indeed, when measured relative to the size of its economy, the 27pc point jump in bank loans to GDP is unprecedented; at no point in history has a nation ever attempted such an incredible increase in state-directed bank lending.
What a turnaround: from an export juggernaut to a credit addict. Who would have thought it necessary back in 2001, the year everything all started to work out for China?
That was the year the Chinese gained entry into the World Trade Organisation. The ascension to the WTO also coincided with the American Federal Reserve's loose monetary policy response in the aftermath of the NASDAQ crash. Exports surged, especially to the US, and China's current account surplus increased from a modest 2pc of its economy to a monumental 11pc, all by 2007.
This appetite for cheap Chinese exports, which had at one point seemed insatiable, means that we in the West have come to owe our largest Asian trading partner quite a hefty sum of money. China has become the world's biggest creditor, after amassing nearly $2.3 trillion of foreign exchange claims on us. However, the spectre of a creditor nation running persistent trade surpluses has ominous historical portents. It has happened only twice before, with the US economy in the Twenties and with the Japanese economy in the Eighties.
Economics is a cruel master and in both of the previous examples a failure to allow exchange rates to adjust to the new reality created a large speculative pool of credit that, in turn, led to overvalued domestic assets and, eventually, an economic crisis. Never forget that in economics, first can become last.
The China bulls assure us that this time it is different. Yes, the banks are lending money at breakneck speed, but look at what they are doing with it! They suggest a new era reminiscent of Protestant Capitalism. They want us to believe the atheist Chinese are prepared to work harder and defer their gratification for longer.
Undoubtedly, China's state planners have favoured investment over consumption. High-speed rail networks, first-class infrastructure projects and the urban migration of 55 million people every year are common explanations for the ability of the nimble Chinese to overcome the frailties of this global economy. But can too much of a good thing be bad for you? The goal of economic policy, after all, is to maximise households' wellbeing and consumption. Unfortunately, unlike in most countries, China's share of consumption within its economy has fallen relentlessly, reaching 35pc of GDP in 2008. Something isn't right.
The ancient ethical system of Confucius is silent on the subject of modernisation. There is no proverb counselling that "wise men not invest in over-capacity". Perhaps there should be: in China, investment spending has tripled since 2001 and the consequences are staggering. A country that represents just 7pc of global GDP is now responsible for 30pc of global aluminum consumption, 47pc of global steel consumption and 40pc of global copper consumption. The overriding problem is that the Chinese model leads to a deflationary spiral that is perpetual in nature. Domestic consumption never grows fast enough to absorb the supply, prompting the planners to commit to ever-higher levels of investment. Over-capacity inevitably plagues many sectors of the economy and Chinese profitability is already low.
Remember, it is one thing to create economic growth, but it is another thing to truly create wealth. If I commit to building a new commercial property in Shanghai I will undoubtedly contribute to GDP growth. However, if I have no tenants and the city already has a vacancy rate of 20pc, then I am probably destroying wealth.
Adam Smith taught us that real wealth comes not from piles of gold or their modern-day equivalent, the foreign exchange reserves amassed from a profitless succession of current account surpluses.
Rather, Smith suggests that real wealth is founded on the skills and productivity of a country's citizens. This is the central concern regarding the sustainability of the Asian economic model. Power without profit can prove ephemeral. This is an axiom the Japanese are all too familiar with. We cannot say we have not been warned.
http://www.telegraph.co.uk/finance/personalfinance/7219178/China-Hugh-Hendry-warns-investors-infatution-is-misguided.html
Comments: 44
China's problem is the same as Japan's circa 1990: a rapidly aging population. China's working age population peaks in 5 years. The iron law of demographic transition will bring the China story to an unpleasant end.
adam
on February 15, 2010
at 09:43 PM
Report this commentInteresting article - seems Mr Henry is not the only manager expressing concern: the New York Time ran an article a few weeks ago on James Chanos (who apparently built a fortune by predicting the collapse of Enron and other companies whose stories were too good to be true).
Apparently (if what the NYT reports is true) Chanos thinks that speculative inflows of capital could cause China huge problems and that the countries growth figures may be suspect.
Cynic
on February 15, 2010
at 07:00 PM
Report this commentSpot-on Mattias. I remember him on CNBC Europe banging the table for Potash stocks, they went on to crash. He missed the equity rally last year and is now a government bond fanatic. He has a big name due to ????
Bad Dreams & Stress.
on February 15, 2010
at 05:24 PM
Report this commentSpot-on Mattias. I remember him on CNBC Europe banging the table for Potash stocks, they went on to crash. He missed the equity rally last year and is now a government bond fanatic. He has a big name due to ????
Bad Dreams & Stress.
on February 15, 2010
at 05:23 PM
Report this commentSpot-on Mattias. I remember him on CNBC Europe banging the table for Potash stocks, they went on to crash. He missed the equity rally last year and is now a government bond fanatic. He has a big name due to ????
Bad Dreams & Stress.
on February 15, 2010
at 05:23 PM
Report this commentIn the summer of 2008 Hugh Hendry was a potash loving commodity super cycle bull. In the autumn he changed his mind and became a deflationary Prechter wannabe.
I think he's great fun and interesting, and he's probably a great money manager, but his forcast record is not that impressive.
I think his problem is that he always wants to be the contrarian. Everybody wants to be a contrarian today, but it's easy to forget that most contrarian calls turn out be wrong. It's just that we remember the good contrarian calls som much better.
Mattias
on February 15, 2010
at 10:34 AM
Report this commentOne thing I worry about China is that now they are a very wealthy nation and have built up massive military strength, if they ever face an economic collapse, how will the CCP react? They are becoming ever expansionist in their mindset. Will the neighbouring countries have to fear? What about Tibet - will they crush any possible desire for Tibetans for an autonomous land?
China is highly unorthodox and equally volatile.
Anton
on February 15, 2010
at 06:14 AM
Report this commentThere are numerous problems in China and there is no doubt the bubble will burst in the next few years. The heavy reliance on exports of cheap manufactured goods and being the factory to the world will come to haunt them.
China has to ensure it always keeps up with trends because the products they supply to the world will see a drop in demand as newer products replace the existing ones with better technology. Can their factories adapt and mass-produce these high-tech goods like they do cheap electrical goods and the like.
Its an economy that is manipulated by the CCP with so much government intervention with not much free-market practices. And these type of economies have never done very well in the long run because of the huge inefficiencies that plague it.
Anton
on February 15, 2010
at 06:14 AM
Report this commentWhy is everyone quacking on about property prices in select Chinese urban centres? This isnt the issue. At all.
The answer to why anyone would buy equities in Chinese companies is, do they expect earnings growth? Whether that earnings growth is stimulated by Govt. intervention (ie what we saw in Western stock markets March 2009 to present) or rising consumption or increased export growth is irrelevant. Its all about the earnings and whether they'll grow or not. And anyone who looks at the S Curve for Chinese growth and compares it with Japans in the 50's and Taiwan and Korea in the 70's and 80's and doesnt think Chinese companies will expand their earnings is a fool.
China is currently the worlds second largest economy. It's stock market capitalisation is currently the 9th largest. That is an anolomy which will correct when Chinas stock market becomes the second largest. And it will.
GC
on February 14, 2010
at 09:02 PM
Report this commentChina has never been investor friendly.May be the antagonistic properties may have come down off late.
However the curbs and civil rights restrictions make business difficult for any organisation from west.
Any product or brand will be easily out priced by the china manufacturers.
Comparatively India has been found to be a more compatible and safe place for investment. After China India is the fastest growing economy, and a politically and geographically stable place for investment.
The english speaking workforce are an asset for any investor.
Shyam
www.twitter.com/shyam17
Shyamsunder Panchavati
on February 14, 2010
at 07:27 PM
Report this comment"The goal of economic policy, after all, is to maximise households' wellbeing and consumption." Err...no it isn't. That is like saying that a company's first reponsability is towards its shareholders. Just doesn't work.The chinese for the moment seem to be more intent on getting the country to function and households be damned if necessary. The economic policy you mention seems to have gone down like a fart in a spacesuit in the UK yet the Chinese are supposed to follow suit??? Something isn't right...
Jez
on February 14, 2010
at 05:46 PM
Report this commentFor anyone looking at investing in Chinese equities the issue is not just whether China's impressive GDP growth can continue. Even if it does for a some time yet there have been many studies from around the world showing little correlation between GDP and equity price behaviour. Consider that more businesses being set up can increase GDP but lead to less profit per company ie making existing equities less attractive. Alternatively, additional or simply higher taxes might be levied on companies reducing their net profit and hence ability to pay dividends. Since Chinese equities currently have relatively modest yield they are assuming high dividend growth to come. Hence that's making a oneway bet on the China's export markets being able to absorb all the new output from its investment boom. Seems to me the US & Europe will be lucky just to flatline over the next few years.
Regarding people's criticism of Hugh Hendry, i have an interest in his hedge fund and so always listen to his views. Yes, he can come across as a bit theatrical and sometimes arrogant but those foibles/traits don't detract from the soundness of his views. Unlike many he does give them fairly unambiguously in public and acknowwledges when he's been wrong - far better than many other in the financial industry who either withold their predictions or give them with enough wriggle room to always claim to be right afterwards whatever happens.
For anyone interested, a link to one of his walkabouts in Shanghai is http://www.youtube.com/watch?v=ektMQGbW3wk
Luke Knight
on February 14, 2010
at 04:38 PM
Report this comment@ Trevor Corning
when you adopt an English name to post your Chinese Government sponsored (50 Cent) postings - you need to do at least a spell check. Remember- criticism of a Government is not a bad thing, it is essential to its future success and prosperity. 50 cent posters and their ilk are deeply unpatriotic.
Puppet hunter
on February 14, 2010
at 01:45 PM
Report this commentAs an earlier posted link says - we do not want the UK govt to run businesses so why should we accept the Chinese can do any better? Especially when it is a govt without any need to achieve consensus from the electorate. Growth fuelled by cheap exploitable labour only has a limited lifespan. A nice cleansing correction is only natural - would be somewhat foolish not to plan for it.
Tiger
on February 14, 2010
at 01:36 PM
Report this commentI would always take what a hedge fund manager has to say in public about a country or a company with a huge pound of salt; they have a terrible reputation of talking their books in desperate attempts to salvage their losing bets; and if any one here has viewed his posting on Youtube on Shangahi property on one of his rare trips to the far east, probably would agree he paid local "news agents" the way the NYT or WSJ pay such agents for human rights stories. How else could he know which new development are vacant on his occasional trips to the far east? One certainly has take note of the huge amount of speculation in asian real estate, but nothing compares to UK, Australian or Spanish prices skyrocketing of the past decade. Sure we all hope a competitor does badly, but it is unmistable for frequent travellers to the far east that Adam Smith's principles are adhered to in far larger extent than the socialize debt, privatise wealth formula of a UK with totally disfunctional manufacturing sector, a soon-to-fail Europe and the champion of socialist states, the US of Zimbawe.
Trevor Corning
on February 14, 2010
at 01:21 PM
Report this commentThe Chinese are good, really good. They are better than anyone else in the world at blocking the internet, at censorship, at national repression of human rights, holding millions in gaol for political discension, at building cities and malls which are unoccupied and even better than the British and Americans at massaging economic data and calling it growth. they even excel in stupidity by investing most of their nation's saving in American paper which means that America could bankrupt them through devaluation and massive inflation which ofcourse is planned. If anyone wants to believe the statistics of these evil morons then good luck. I do not. Roger
Roger Levinson
on February 14, 2010
at 01:12 PM
Report this commentDaliankid
on February 14, 2010
at 08:49 AM
"everything is made to look good on the outside, but once you look inside, it is hollow.."
sounds uncannily like the UK
wasted
on February 14, 2010
at 12:57 PM
Report this commentRichard Branston - I'm not sure we have done business in the same China. Your views on the honesty and integrity and ease of doing business with the Chinese does not reflect mine nor 95% of the expats I have known over my almost 15 years in China.
Steve
on February 14, 2010
at 11:48 AM
Report this commentI spent 9 years living in north China. Every employee in our company got loans from the banks to buy houses they could not afford. Once the jobs stop, they will be literally millions and millions of bad loans. I guarantee it. In China, everything is made to look good on the outside, but once you look inside, it is hollow. Everything from the grand openings of businesses, to the construction techniques. I would get out now. It may grow another 5-10%, but you need to lock in those gains
Daliankid
on February 14, 2010
at 08:49 AM
Report this commentToo much talk of property here which is not the main driver in China. It is a gamble and the Chinese love a gamble with the risks involved which they fully understand.
What is fundamental is the work ethic of the Chinese which is being rewarded slowly.
When I first traded in China 25 years ago the infrastructure was terrible and risks of running any production high and quality in the main low.
Workers moved from the countryside,and still do in state organised moves of course, and lived in dormitories miles away from anywhere but they had paid living and food and sent as much home to the country as possible.
Nowadays many workers have transport, modest maybe like an electric moped, and live in apartments which they pay for although dorms are still available free. However they have improved their lifestyle and spend money on all those western style things like mobile phones but in the main made in China. Nothing wrong with that.
Production quality has improved and it is rare indeed to find the old sweat shops of old. Thing is though that one can choose the quality of production as factories are set up to reflect that in pricing and that is the trick in the area, choose the factory to fit your requirements carefully and control inspection yourself.
Find a problem on getting a new product into production? No problem - the tooling guys for example will work all night on the mods necessary to be up and running next day. This is a fantastic work situation which over the years has produced great products for me, all designed in the UK but production engineered in China.
In amongst this I have made many long lasting friendships with Chinese people who I trust and they trust me. It is not just based in the next order as happens so often with westerners not prepared to make the good relationships they would consider normal in the West.
So China may have ups and downs but I continue to back them and they me and we are having a good old time getting new stuff out which the markets want.
Kung Hei Fat Choi!
Richard Branston
on February 14, 2010
at 08:49 AM
Report this commentThe debt growth in China says it all. China was already growing fast, asset prices were bubbly and not that corrected last year,so this new burst of debt cannot be healthy. Maybe the recent harshness of the regime is a sign of nervousness?
slrachmont
on February 14, 2010
at 06:46 AM
Report this commentThe problems of overcapacity and excessive credit creation are well documented. There will surely be some kind of banking crisis within the next five years as many of these loans turns sour. But that does not make China a ponzi scheme, or mean that the progress there is not real. Even after the Wall Street crash and the depression, the US went on to become the dominant superpower in the second half of the century. Japan's bust happened at a different stage of the country's development. If you want to talk about wealth creation, the fact is that per-capita income and standard of living have remained very high in Japan since the crash.
China's asset markets probably are too hot at the moment. A bigger bubble may be in the process of inflating. But on a longer view, China is developing and it's economy will get bigger. It is following the same trajectory as Taiwan, South Korea and the other Asian tigers, only on a much, much bigger scale.
matthew
on February 14, 2010
at 06:46 AM
Report this commentI live in Beijing, have done for a decade. I made quite a bit of money on real estate but exited early last year. Got the timing 'wrong' as could have made another 20%. However - no regrets. You only have to walk the streets of this city and especially other secondary and tertiary cities to see the enormous inefficiencies in investment to realise that a sharp adjustment down will come.
"Build and they shall come" is a favourite remark of ours when we see the latest white elephant standing unused and decaying.
Loans creates fabulous headline grabbing wealth for a few, some paper wealth for many but precious little substance to the masses. When you look at China be careful to separate 'real wealth' creation from asset price rises. A trip to the bureau that taxes house sales is an absolute eye opener on where much of the money comes from. Or drive around huge multi-lane roads in large soulless high rise new towns with enough cars to justify a single road and not enough people for a village.
My non-professional assessment is that there will be a dramatic crash once people who have brought property on speculation realise that eventually some one has to live in it and pay the rent.
Bermused
on February 14, 2010
at 06:37 AM
Report this commentoldasiahand,
I have no idea whether Hugh Hendry has spent much time in China. I suspect that some people who have spent time in China lately are so dazzled by the astonishing scale of building they have seen that their critical faculties are impaired.
You know, if I had been out of the United States for fifteen years and someone showed me the immense McMansion subdivisions, I would probably think the country had become much wealthier in my absence.
Psittakos
on February 14, 2010
at 06:15 AM
Report this commentGood article. Almost time to sell China, sell metals, and sell Australia.
No ... wait. China is sure to use economic collapse as an excuse for war on Taiwan. They've had plenty of time to prepare for that. War will restimulate their economy, just as a junkie turns to stronger drugs. And a war footing will help stave off the social upheaval that the government fears most of all.
R Hughes
on February 14, 2010
at 06:14 AM
Report this commentLike oldasiahand, I too have spent decades in the region - Taiwan, Hong Kong & Macau - and concur with him on the 'reality' of the progress made by China and other states in this part of the world. No romanticism here, just eye-witness experience. The reality of modern China has come about because of the genuine work ethic of its people and dare I say The System (label it any way you like), a system that enables economic policy by the 'nimble Chines'to be enacted with the turn of the political tap. On/off, easy as that. By comparison, the West resembles an ocean going liner taking three miles to change economic direction. The biggest concern China has is that its central and western regions are denied a piece of the cake. The cadres are therefore adamant that growth continue to a minimum of 8%p.a., which is where they see potential social flashpoint territory. Greece is a sideshow? Greece is now.
Anotheroldasiahand
on February 14, 2010
at 06:11 AM
Report this commentWhat is Hugh really warning about? He is warning of a secondary correction which is long overdue in China.
All growth stories need to have corrections to get rid of the excess. All western nations went through periodic periods of this.
Nothing fundamental in that. Make no mistake, China will modernise - simply because the government wants it to. But dont expect a western modern economy. Its gunna be a Chinese one, so if you dont know how to invest in that environment - u better leave.
Tom
on February 14, 2010
at 06:10 AM
Report this commentTo:
oldasiahand
on February 12, 2010
at 10:04 PM
To make a statement such as this "To quote Robert Prechter as this articles does, is to quote an all time loser in the financial markets" is a clear indication that you are delusional.
LT
on February 13, 2010
at 12:20 PM
Report this comment@oldasiahand,
Not sure what you mean by the transformation being "real." When you spend more than 50% of GDP on fixed infrastructure investment and banks lend money on quota at zero percent interest through fixed fee loan brokers, I suppose the effects of radically loose, centrally managed monetary policy look pretty "real." Things get built, people get pay checks, and everything "looks" like a real, functioning economy. This, particularly, when the government controls the flow of information and money in equal measure and, in self-serving fashion, fans the flames of resurgent nationalism so that any mention domestically that something is not right with the China miracle is shouted down (or completely censored out) as anti-Chinese. Bhah! You are a panda hugger, plain and simple. All that is necessary to know that you are wrong is to look at the facts rather than the romantic delusions of an "old China hand."
Ortiz
on February 13, 2010
at 06:25 AM
Report this commentThe Chinese overcapacity bubble will soon bust.
- South China Mall, the second-largest shopping mall in the world (second only to Dubai Mall), opened in 2005. It has 1,500 store capacity, 7.1 million square feet, and 99% of its space is empty.
- The city Ordos was built in Inner Mongolia for 1 million residents on spec. Ordos is a ghost town; it is empty.
The Chinese government lies:
http://tinyurl.com/yaxlqm9
Barry
on February 13, 2010
at 06:19 AM
Report this commentChina does not have the ability to absorb the capital inflows that the US did for many years as the consumer of last resort. Already they are turning off the spigot because off inflationary pressures.
When people realize this, and look at a world of over capacity, we will fall into a new and deeper crisis. Greece is just a sideshow.
purple
on February 13, 2010
at 06:07 AM
Report this commentChina's overcapacity is scary for a world which is looking for it to be our new engine of growth.
1931
on February 12, 2010
at 11:31 PM
Report this commentIt is easy to fall in love with the China story and it is almost as easy to ridicule it as Hugh Hendry does here. To quote Robert Prechter as this articles does, is to quote an all time loser in the financial markets. in fact I wonder if Hendry has ever been to China and, if so, for how long. I have been living in and studying Asia for 40 years. I have seen the transitions there and they are real.
The truth is that the transition in China is real and the progress is real. It does not mean there will not be big problems ahead.I'm sure there are. Some will be internally created and others created by a frightened west that fears losing its two century dominance of the global economy.
China is not just any emerging economy such as Brazil. It is a reemerging superpower reclaiming its historic seat at the top table. When Marco polo went to China seven centuries ago china and india amounted to 70 percent of the global economy. in 1950 they were about 10 percent and today perhaps 20 percent. China is on its way to becoming 20-25 percent of the global economy in 15-25 years. the journey will not be smooth or certain but it has momentum. it is more akin to the opening up of Americanin the 1800s than it is to the implosion of Japan after 1990.
oldasiahand
on February 12, 2010
at 10:04 PM
Report this commentSA-Stimulus for infrastructure for which the majority of a population cannot use because their income is so low, looks good, but, of course, is largely useless at this stage.
Peter K-The markets for gov't debt is precisely what stands in the way of a gov't destroying its citizenry via inflation. If you think 'speculators' in gov't debt are evil, then you sadly do not understand the function nor role of markets.
China is clearly running a bubble economy. If the infusion of credit isn't a sign of a terminal credit bubble phase, then I don't know what is. It will end badly and likely soon.
Sonny
on February 12, 2010
at 09:51 PM
Report this commentI agree totally with the Chinese article.Something is not right.The west have not suddenly started buying again,yet the chinese economy powers ahead-it must be on borrowed money.Look where that got us!
Dr Joe
on February 12, 2010
at 08:58 PM
Report this commentHugh,
Your performance on Newsnight was superb. People just don't get it that hedge fund managers know what is about to happen and put their money where their mouth is without having to mislead unlike bankers and polititians.
I would like to see more of you and your views on TV since it is about time people knew the truth of how bad the polititians they voted for have messed up, and of what is to come.
George
on February 12, 2010
at 08:39 PM
Report this commentHugh,
Your performance on Newsnight was superb. People just don't get it that hedge fund managers know what is about to happen and put their money where their mouth is without having to mislead unlike bankers and polititians.
I would like to see more of you and your views on TV since it is about time people knew the truth of how bad the polititians they voted for have messed up, and of what is to come.
George
on February 12, 2010
at 08:39 PM
Report this commentAlthough anti-capitalists and socialists are no doubt breathless over the Chinese "miracle" of central planning and would love to see it spread to every corner of the planet, the story that I have heard more than once is that Chinese peasants have been getting loans and buying commodities such as physical copper and storing it on a speculative basis. I view this as the equivalent of getting your market tips from the shoeshine boy.... time to leave!
Whether you like Hendry or not, view him as an arrogant smug jerk or not is really irrelevant. He is most likely correct; has any other economy anywhere else ever posted those type of growth rates? I didn't think so.
TR
on February 12, 2010
at 08:18 PM
Report this comment9% growth every quarter for almost 10 years? Chinese corruption is unparalled. Their books will make Enron look like a well-run and profitable enterprise. And just for the heck of it, throw in 1billion uneducated peasants into the equation.
Chairman Mao
on February 12, 2010
at 07:08 PM
Report this commentThey are going under.
GEOFFREY
on February 12, 2010
at 06:23 PM
Report this commentThis is why Chinese leaders want to change their policy. They know it, but it is too late too little. They are afraid of unrest. They have to keep massive lending until....
GEOFFREY
on February 12, 2010
at 05:50 PM
Report this commentEverywhere has overcapacity. Hugh appears to be a China expert now or he is just speculating. But he has sufficiently demonstrated his ego/arrogance. Only he knows and only he is correct. And he is recommending to buy US Treasury?
Mr. Hugh can show your real trading activities for your career? Let us see how good you are.
SS
on February 12, 2010
at 04:39 PM
Report this commentIf I am not mistaken this article is by the utterley obnoxious man who appeared recently on Newsnight. If ever the hedge-fund industry (I use the term loosely) could find a more typecast individual to live up to its villanous reputation. I would certainly treat almost anything this man puts into the public domain with extreeme caution given he presumably wants to point the herd in one direction before heading the opposite way.
Peter Kinnaird
on February 12, 2010
at 01:30 PM
Report this commentThe state planners used much of the increase in lending to bypass the budgetary process in funding stimulus projects. The surge in lending should be seen as classic stimulus. Much of the money goes towards infrastructure improvements that are much needed.
FT: The US will continue to lose market share
By Byron R. Wien
Published: February 16 2010 13:03 | Last updated: February 16 2010 13:26
The debate about the current recovery centres on whether a secular change is taking place in the United States economy. If it is not, then we should all be optimistic because peak-to-trough declines in real GDP of 4 per cent are usually followed by gains of 6-8 per cent. But the consensus view is that growth will be sluggish (2-3 per cent) and few jobs will be created.
There will be revenue growth to be sure. The weak dollar has clearly helped exports and the 90 per cent of the working population with jobs are spending again, now that their house prices have stabilised and the stock market has come back from its lows of last March. The unemployment rate remains stubbornly near 10 per cent, however, and operating rates for American manufacturers are at 70 per cent, so there isn’t much of an incentive for capital spending beyond technology.
EDITOR’S CHOICE
The long road ahead - Feb-10.Long view: Baby boomers lead bear market - Feb-12.Tony Jackson: China – sweet spot or sour lesson? - Feb-14..Moreover, the working week is staying around 33 hours, so even those who are working aren’t getting their pre-recession paychecks. To get the goods out the door and provide the services demanded by customers, companies are hiring temporary workers in record numbers to maintain maximum flexibility. They are worried that a health care bill, if one passes, will add onerously to the cost of full-time employees and they don’t want to be hit with more termination pay if the economy suffers a double-dip.
The result of this is that productivity is soaring. The reading of better than 8 per cent growth is the highest in decades. Rather than applaud the efficiency of the American worker one should wonder if the numbers are too good. Are workers being driven to the point of exhaustion? There’s no sign that anyone’s complaining. Wage rates are barely increasing. Most of us with jobs are glad to have them and aren’t willing to make any waves.
How much longer can this go on? Not much longer in my opinion. The unemployment rate usually starts moving lower about nine months after the economy troughs and that happened in the second quarter of 2009, so we could see jobs created as soon as the February report, which will come out on March 5. I also believe real GDP will be stronger than the consensus expects, as inventories continue to be built and the remaining part of the government’s stimulus programme flows through the economy.
Longer term I doubt that the United States or Europe will grow faster than 3 per cent anytime in the next five years, while the developing world will grow in excess of 5 per cent. The result of this is that the mature industrial economies are losing about a percentage point a year in share of world GDP to the emerging markets and they are losing a similar amount in share of world stock market capitalisation.
The biggest problem the United States is facing is the productivity of capital. After the end of the second world war it took less than two dollars of investment by government, corporations and individuals to produce one dollar of GDP growth. The productivity of capital continued to be impressive until 1980, when Europe had recovered and Japan was producing automobiles and consumer electronics products that found wide acceptance in world markets. In the single decade of the 1980s, the productivity of capital declined from less than two dollars of investment to produce a dollar of growth to about three. If you assign a 30 per cent gross margin to that revenue growth, the return on investment declined from 15 per cent to 10 per cent.
That level of return proved to be satisfactory, but in the first decade of this century capital productivity declined seriously in the United States. Because of profligate spending on over-priced housing and other assets that declined seriously and deficit spending by the government, by the end of the decade it took six dollars of capital to produce a dollar of growth. The return on that would only be 5 per cent and few would put money at risk for that reward.
When you look abroad to assess our competitive position, the results are not encouraging. It is hard to put together comparable information, but, based on the data I could gather, Europe was still getting a dollar of growth for two dollars of investment and China was getting at least a dollar of growth for each dollar of investment.
If the US is to stop losing ground against other mature and developing economies, it is going to have to put money to work more effectively. We are still the leaders in technology and scientific research and we must continue to take advantage of the commercial possibilities of innovation. If we don’t reverse the current trends, growth in America beyond this year will be disappointing and our standard of living will decline.
Byron R. Wien is senior managing director at Blackstone Advisory Partners
.Copyright The Financial Times Limited 2010. You may share using our article tools
http://www.ft.com/cms/s/0/20ed5672-1aec-11df-88fa-00144feab49a.html
>>EEM Feb $40 Calls +122.22% ($.20c)
http://i48.tinypic.com/rjp28n.png
NYP: Global 'Warming' meltdown - Climate 'consensus' cracks up
Last Updated: 11:59 AM, February 16, 2010
Posted: 12:58 AM, February 16, 2010
Climate alarmists conjured a world where nothing was certain but death, taxes and catastrophic global warming. They used this presumed scientific certainty as a bludgeon against the skeptics they deemed "deniers" -- a word meant to have the noxious whiff of Holocaust denial.
All in the cause of hustling the world into a grand carbon-rationing scheme. Any questions about the evidence for the cataclysmic projections, any concerns about the costs and benefits were trumped by that fearsome scientific "consensus," which had "settled" the important questions.
A funny thing happened to this "consensus" on the way to its inevitable triumph, though: Its propagators have been forced to admit fallibility.
For the cause of genuine science, this is a small step forward; for the cause of climate alarmism, it's a giant leap backward. The rush to "save the planet" can't accommodate any doubt, or it loses the panicked momentum necessary for a retooling of modern economic life.
Phil Jones is the director of the Climate Research Unit at the University of East Anglia, a key "consensus" institution that has recently been caught up in an e-mail scandal revealing a mind-set of global-warming advocacy rather than dispassionate inquiry.
Asked by the BBC what it means when scientists say "the debate on climate change is over," the keeper of the flame sounded chastened. "I don't believe the vast majority of climate scientists think this," Jones said. "This is not my view. There is still much that needs to be undertaken to reduce uncertainties, not just for the future, but for the . . . past as well."
Jones discussed the highly contentious "medieval warming period." If global temperatures were warmer than today back in 800-1300 AD -- about 1,000 years before Henry Ford's assembly lines began spitting out cars -- it suggests that natural factors have a large hand in climate change, a concession that climate alarmists are loath to make.
Jones said we don't know if the warming in this period was global in extent since paleoclimatic records are sketchy. If it was, and if temperatures were higher than now, "then obviously the late 20th century warmth would not be unprecedented."
Jones also noted that there's been no statistically significant warming since 1995, although the cooling since 2002 hasn't been statistically significant, either.
All of this is like a cardinal of the Catholic Church saying the evidence for apostolic succession is still open to debate.
The other main organ of the climate "consensus" is the UN's Intergovernmental Panel on Climate Change. It won the Nobel Peace Prize for its 2007 report -- which turns out to have been so riddled with errors it could have been researched on Wikipedia.
It said Himalayan glaciers would melt by 2035, warned that global warming could reduce crop yields in Africa by 50 percent by 2020, and linked warming to the increased economic cost of natural disasters -- all nonsense.
These aren't random errors. As former head of the IPCC, the British scientist Robert Watson notes, "The mistakes all appear to have gone in the direction of making it seem like climate change is more serious by overstating the impact."
Too many creators and guardians of the "consensus" desperately wanted to believe in it. As self-proclaimed defenders of science, they should have brushed up on their Enlightenment. "Doubt is not a pleasant mental state," said Voltaire, "but certainty is a ridiculous one."
The latest revelations don't disprove the warming of the 20th century or mean that carbon emissions played no role. But by highlighting the uncertainty of the paleoclimatic data and the models on which alarmism has been built, they constitute a shattering blow to the case for radical, immediate action.
In The Boston Globe, MIT climate scientist Kerry Emanuel marshals a new argument for fighting warming: "We do not have the luxury of waiting for scientific certainty, which will never come." Really? That's not what we were told even a few months ago -- before climate alarmism acknowledged doubt.
Read more: http://www.nypost.com/p/news/opinion/opedcolumnists/warming_meltdown_iD1hypJAstOrvovafbIbGK#ixzz0firk8tw9
Re Titlos: Beatings continue for GS. Off-sheet swaps have been at issue for many scandals: Orange County, Enron, and now Greece. Is GS a bad-boy for enabling this disaster? Pusher just selling his product to a willing client? Let's see where this goes...
lolol, thanks for reminding me
LOL...Harvey liked that, of course
BL: Currency Trading Is Place to Make Your Fortune: Matthew Lynn
Commentary by Matthew Lynn
Feb. 16 (Bloomberg) -- This columnist is usually reluctant to respond to requests for career advice that occasionally find their way into my e-mail box.
Yet from time to time, there is a move so obvious for anyone finishing college or university this year, or contemplating their next step up the career ladder, that it is worth pointing out.
And right now it is this:
Forget hedge funds, walk away from private equity and tell the derivatives boys they can dump their baffling mathematical formulas in the dustbin under the desk.
Instead, become a currency trader. They are set to become the new kings of the financial markets.
The sovereign-debt crisis, the demise of the dollar and the creation of new reserve currencies all mean that the great financial reputations and fortunes will be made in foreign exchange in the coming few years.
In any decade, one sector of the financial markets is usually dominant. There is one corner of the financial universe where so much new stuff is happening, and it is of such importance to the rest of the world, that it is far easier for a young, ambitious person to make their mark than anywhere else.
In the 1980s, it was mergers-and-acquisitions deals.
In the 1990s, it was the venture capitalist who backed technology companies, and the bankers who arranged initial public offerings for dot-com companies on the stock market.
New Masters
In the 2000s, it was hedge funds, along with the derivatives traders that supplied them with products.
But in the 2010s, it will be currency trading.
There are already plenty of signs that the foreign-exchange markets are hotter than a sunny day on Venus.
Deutsche Bank AG reported last month that its currency- trading platform for retail investors had a 40 percent increase in customer numbers in 2009. Ordinary investors clearly see exchange trading as an area of the market they want to be in.
In London, which is the global currency-trading hub, strong growth is also evident. According to a Bank of England study, daily trading volumes rose 13 percent to $1.43 trillion in October compared with April last year. In the U.S., foreign- exchange trading volumes rose 28 percent to $675 billion a day in the six months ended in October, according to a Federal Reserve-affiliated study. Those are impressive numbers. The volume of London trading isn’t quite back to pre-credit crunch levels, but it is getting close.
Debt Crisis
There are several good reasons for expecting currency trading to be the focus for financial markets this decade.
First, the sovereign-debt crisis. Governments took on huge debt to combat the financial meltdown. That didn’t really fix the problem. It just shifted it from one place to another. Now there are doubts about whether nations can service their obligations. The only way the markets can discipline governments, or pass a verdict on their performance, is via the currency markets. However the crisis eventually works out, it is the foreign-exchange markets that will be in the driver’s seat.
Second, the dollar is in long-term decline. Regardless of how well the U.S. recovers, the rise of new economies such as China, Brazil and India means America won’t be the dominant force in the world that it once was. The result? The dollar’s special status is coming to an end. That may be a good thing after some intense volatility as the world adjusts. Again, it is currency traders who will be in control of that transition.
Store of Value
Third, the advent of new reserve currencies. With the dollar on the way down, the world will need something as a reliable store of value. There are plenty of candidates: It might be gold, an International Monetary Fund-sponsored basket of currencies, or a new world currency. Who knows, it could be something nobody has thought of yet. Ultimately it will be foreign-exchange traders who decide what works and what doesn’t.
You can add into the mix some low-probability, yet high- impact, events. Perhaps Germany will get fed up bailing out Greece and Portugal and leave the euro. Maybe the Chinese will decide to make the yuan the world’s dominant currency. Neither scenario is especially likely, but they would create shockwaves through the markets for years.
There are usually two conditions for one sector of the financial markets to be dominant: There must be lots of innovation, and lots of volatility.
Right now, currency trading ticks both boxes.
That’s why if you work in the markets, figuring out clever ways of swapping euros into yen, and dollars into pounds would be the best thing you could do. It will be the fastest way to make your fortune.
(Matthew Lynn is a Bloomberg News columnist. The opinions expressed are his own.)
Click on “Send Comment” in the sidebar display to send a letter to the editor.
To contact the writer of this column: Matthew Lynn in London at matthewlynn@bloomberg.net
Last Updated: February 15, 2010 19:00 EST
BL: Bond Vigilantes May Begin to Plague Obama
Caving to Congress Creeps Into Market Views on Obama (Update1)
By Rich Miller and Mike Dorning
Feb. 16 (Bloomberg) -- President Barack Obama may be heading for a clash with the bond vigilantes who plagued Bill Clinton, the last Democratic president.
Edward Yardeni, the economist who coined the term almost 27 years ago, says these institutional investors must come out of hiding and push Obama and Congress into confronting budget deficits that the administration estimates will total $4.3 trillion during the next five years.
“Politicians don’t make hard choices unless they’re forced to,” said Yardeni, president of Yardeni Investments, a consulting firm in Great Neck, New York. “What we really need are the bond vigilantes to push up yields” by paring purchases of Treasury securities. “That would threaten economic growth and put pressure on the politicians to act.”
There are signs the vigilantes are starting to stir. The cost of insuring U.S. bonds from default for five years using credit default swaps rose as high as 62.1 basis points on Feb. 8 before slipping back to 53.6 basis points on Feb. 12, according to CMA DataVision prices. The cost was 43.8 basis points on Feb. 1, when Obama presented a 10-year budget plan with cumulative deficits of $8.5 trillion.
The yield on the Treasury’s 10-year note rose to 3.69 percent on Feb. 12 from 3.57 on Feb. 5 after the government auctioned a record $81 billion of three- and 10-year notes and 30-year bonds last week.
Higher Yields
“At some point, people are going to look at the finances of the U.S.,” Niall Ferguson, history professor at Harvard University in Cambridge, Massachusetts, and author of “The Ascent of Money,” said in a Feb. 5 interview on Bloomberg Television. “Then you will see a decline in growth” as investors push up bond yields.
Former Federal Reserve Governor Laurence H. Meyer warned of the risk of an eventual “fiscal catastrophe” if Congress fails to rein in the deficit, with interest rates shooting higher and the dollar collapsing.
“Investors, especially those with longer horizons, might want to protect themselves or at least monitor the markets for early signs of angst,” Meyer, who is now vice chairman of St. Louis-based Macroeconomic Advisers, wrote in a Feb. 10 report co-authored with economist Antulio Bomfim.
The bond-market vigilantes had their heyday in the late 1980s and the early 1990s when they succeeded in forcing President George H.W. Bush and then Clinton into adopting politically unpopular tax increases and spending cuts to close the budget deficit.
Reversing a Rally
A return of that posse now might push bond yields up, as investors worried about mounting debt sell Treasuries, reversing a rally. Treasuries have returned 1.36 percent this year, compared with a decline of 3.7 percent in 2009.
Some institutions are already positioning themselves for higher yields and lower prices later this year as the market strains under what Morgan Stanley & Co. of New York estimates will be a record $2.4 trillion of government debt issued in 2010.
Investors underweighting Treasuries in their portfolios include Joe Balestrino, fixed-income strategist at Pittsburgh- based Federated Investors Inc., which manages some $318 billion, and Mitchell Stapley, fixed-income officer at Grand Rapids, Mich.-based Fifth Third Asset Management, which oversees $13 billion.
It’s “a no brainer” to sell short Treasuries, Nassim Nicholas Taleb, a principal at Universa Investments LP in Santa Monica, California, and author of the book “The Black Swan,” told a conference in Moscow on Feb. 4. “Every single human being should have that trade.”
Record Deficit
Lawrence H. Summers, director of Obama’s National Economic Council, defended the administration’s efforts to rein in a budget deficit the White House estimates will hit a record $1.6 trillion in the year ending Sept. 30.
“The president’s concrete actions are showing the way,” Summers said in a Feb. 9 interview with Bloomberg Television, pointing to Obama’s proposal for a three-year freeze on discretionary spending outside of defense and homeland security.
Some lawmakers are already chafing at the proposal. At a Senate Budget Committee meeting on Feb. 4, Senator Bill Nelson, a Florida Democrat, said the administration’s planned reductions in spending by the National Aeronautics and Space Administration “have got to be changed.” Washington Democrat Patty Murray questioned cuts to the budget of the Army Corps of Engineers, and Oregon Democrat Jeff Merkley said he was concerned about funding for housing programs for the elderly.
Spending Freeze
The spending freeze may not have much impact as it covers only a small portion of the budget, Balestrino said. By the administration’s reckoning, it would save $249 billion over 10 years that otherwise would have been spent.
The freeze will come in the wake of a planned $116 billion increase in such spending this year, driven partly by the stimulus program Obama worked out with Congress at the start of his administration in 2009.
“The problem was that right from the get-go, the president handed control of everything to Congress,” said John Ryding, chief economist at RDQ Economics in New York. “So what did you get? You got a package that had massive increases in government spending in 2010 and 2011 when the recession was in 2009.”
Even with the spending freeze -- and a proposed $970 billion tax increase during the next decade on Americans making more than $200,000 -- the administration still projects a deficit of $752 billion in 2015, equivalent to 3.9 percent of gross domestic product.
Government Debt
That’s above the 3 percent mark that White House budget director Peter Orszag has said is necessary to stop the rise in government debt as a proportion of GDP.
The White House is counting on a bipartisan presidential commission to come up with ways to close the gap. Obama, in an interview with Bloomberg BusinessWeek on Feb. 9, said the panel he will set up needs to consider all options for reducing the deficit, including tax increases and cuts in spending on entitlement programs such as Social Security and Medicare.
The administration decided to establish the group on its own after the Senate blocked a measure to form a congressional panel whose recommendations would have been guaranteed a vote by lawmakers. Opponents complained the plan would result in higher taxes and spending cuts and Congress wouldn’t have a chance to amend the panel’s recommendations. Under a presidentially appointed commission, Congress could ignore any panel recommendations.
Seeking Assurances
House Republican leader John Boehner has sought assurances from the White House that the makeup of the Obama commission will be bipartisan and not predisposed to tax increases. The Ohio Republican is still considering whether to appoint members from his party to the panel, he said after a Feb. 9 meeting with the president.
The bond-market vigilantes have been largely quiescent in the face of the mounting deficits because they’ve been anesthetized by the Fed’s zero interest rate, Yardeni said, adding that the policy has encouraged investors to buy longer- dated, higher-yielding Treasury securities.
Other developments have helped depress Treasury yields, including safe-haven buying by investors worried that Greece may default on its debt; diminished demand for credit from U.S. consumers and companies still shellshocked from the recession, leaving more money available for the government to borrow; and purchases by China and other foreign investors.
Higher Interest Rates
Some of that may change as the year progresses. Fed Vice Chairman Donald Kohn warned financial institutions on Jan. 29 that they should be alert to the possibility of higher interest rates as the economic recovery progresses. Traders in the federal-funds futures market in Chicago put the odds of a rate increase by September at close to 50 percent.
The continued revival is also likely to bring increased loan demand from the private sector, Balestrino said. The U.S. economy expanded at a 5.7 percent annual rate in the fourth quarter, the fastest pace in six years, after rising 2.2 percent in the third quarter.
Consumer credit fell $1.7 billion in December, the smallest decline since a gain in January 2009, as consumers took out car loans, Fed figures show. Credit dropped a record $21.8 billion in November.
On the international front, concerns about a debt default by Greece ebbed last week after European Union leaders pledged to take “determined and coordinated action” if needed to contain the crisis. The cost of insuring Greek bonds from default using credit default swaps fell to 354.9 basis points Feb. 12 from 425.6 on Feb. 8.
China Cuts Holdings
China, the second-biggest foreign owner of Treasuries, cut its holdings for the second straight month in December, reducing them by $34.2 billion to $755.4 billion, the lowest level since February 2009, according to a U.S. Treasury Department report today.
“China may reduce purchases of U.S. Treasuries because there has been no sign the dollar’s long-term trend of weakness will change,” Liu Yuhui, an economist at the Chinese Academy of Social Sciences, said Jan. 20. “But it won’t likely make a big adjustment to its existing holdings,” added Liu, director of the Center for Chinese Economic Evaluation in Beijing at the academy, a government-backed research body.
An index that measures the dollar’s strength against six other major currencies has fallen 7.2 percent in the past year.
The U.S. currency “is going to be weaker,” agreed Mark MacQueen, partner and portfolio manager at Austin, Texas-based Sage Advisory Services, which oversees $8.5 trillion.
‘Pressure Valve’
“The dollar is the pressure valve,” he said, referring to the strategy he thinks the U.S. will pursue in handling its debt. “If I owe a trillion dollars, why not pay it back with 50 cents?” A weaker dollar will lead to higher inflation in the future, reducing the real value of the debt, as it pushes up import prices. It will also depress bond prices, McQueen said.
That makes purchases of Treasury-Inflation Protection Securities attractive in the longer term, said Third Asset Management’s Stapley. TIPS have gained 0.36 percent this year; they rose 10 percent in 2009.
What happens to the U.S. budget deficit will ultimately be decided by bond investors, said David Rosenberg, chief economist at Toronto, Canada-based Gluskin Sheff & Associates.
“It’s Mr. Bond that is going to be the final arbiter,” said Rosenberg, the former chief North American economist at New York-based Merrill Lynch & Co., the broker bought by Bank of America Corp. “Right now bond yields are really stuck in a range. So it’s not a problem today. But it doesn’t mean it’s not going to be a problem six or 12 or 24 months from now. We are really headed into uncharted territory” with deficits and debt.
To contact the reporter on this story: Rich Miller in Washington rmiller28@bloomberg.net
Last Updated: February 16, 2010 11:05 EST
BL: Obama says carbon tax necessary to 'force' investment into alternative energy.
(that part was in his speech, but oddly enough not in the article below)
Obama Says Expanding Nuclear Power Will Add Jobs (Update1)
By Roger Runningen and Daniel Whitten
Feb. 16 (Bloomberg) -- President Barack Obama said expanding U.S. nuclear power production will add jobs and help with the goal of relying more on clean energy sources.
In announcing government approval of an $8.3 billion loan guarantee to help Southern Co. build a nuclear power plant in Georgia, Obama said the U.S. “can’t keep on being mired in the same old debates” over nuclear power because energy production affects the nation’s economy and security,
“Whether it is nuclear energy, or solar or wind energy, if we fail to invest in these technologies today, we’ll be importing them tomorrow,” the president said in a speech in Lanham, Maryland, a Washington suburb.
Obama, appearing at the International Brotherhood of Electrical Workers Local 26 headquarters, used a speech on energy, jobs and government investments to kick off a week-long White House effort to focus on economic concerns of voters, which will be a top issue in November’s congressional elections.
The administration this week is marking one year since passage of stimulus legislation that was aimed at bolstering the economy and reducing the jobless rate, which stood at 9.7 percent last month. White House chief economist Christina Romer says the jobless rate is likely to hover around 10 percent, on average, this year.
Construction Jobs
Obama said building the Georgia plant will create thousands of “well-paying, permanent jobs in the years to come.” The loan guarantee comes from an existing Energy Department program and isn’t part of the stimulus.
No new nuclear plants have been licensed since the 1979 nuclear accident at Three Mile Island in Pennsylvania. Obama used the occasion to call on Congress to pass energy legislation that would increase production of fossil fuels while also encouraging development of wind, solar and other renewable energy sources.
While nuclear energy has “serious drawbacks,” including finding a means of safely storing waste, Obama called it a “necessary step” toward U.S. energy independence.
As part of the White House effort to highlight initiatives to create jobs, Vice President Joe Biden is in job-strapped Saginaw, Michigan, today, touring small businesses, a job training facility and a solar project funded by stimulus funds. Members of Obama’s Cabinet will fan out to more than 35 communities across the country this week.
Stimulus Critics
Republican lawmakers have been critical of the stimulus, saying it hasn’t created as many jobs as promised and the spending has contributed to the deficit, which is forecast to hit a record $1.6 trillion this year.
Public and private forecasters ranging from the Council of Economic Advisors to Moody’s Economy and IHS Global now say the Recovery Act is responsible for about 2 million jobs nationwide, administration spokeswoman Amy Brundage said.
Obama has said energy development, education and cutting health-care costs are three central elements of his plan to put the U.S. economy on firmer footing.
Southern Co., owner of utilities in Georgia, Alabama, Florida and Mississippi, will get the federal loan guarantee to build two nuclear reactors in Georgia, the first support awarded under a five-year-old law. The project will generate about 3,000 jobs, said Carol Browner, White House energy coordinator.
The Department of Energy has authority to dole out $18.5 billion in loan guarantees, and the administration put Atlanta- based Southern at the top of a short list that also includes Constellation Energy Group Inc., NRG Energy Inc. and Scana Corp.
Obama has proposed tripling the loan guarantee to $54.4 billion.
To contact the reporters on this story: Daniel Whitten in Washington at dwhitten2@bloomberg.net; Roger Runningen in Washington at rrunningen@bloomberg.net.
Last Updated: February 16, 2010 11:59 EST
>>One big downside of a yuan re-evaluation is big jump in the price of oil, as their stronger currency is now more able to chase the same limited supply of fuel out there
Everyone howling for the yuan to rise, well be careful what we wish for. Law of unexpected consequences in full effect, and the chinese are fighting for the same small pool of valuable commodities
yikes!
LOL Langy! Well congratulations, and let us know which brokerage you're registered at
Should we send you long dated calls, or leaps as a gift?
(DIG/DUG/USO): Crude Oil Surges Most in Four Months as Dollar Declines Against the Euro
By Mark Shenk
Feb. 16 (Bloomberg) -- Crude oil rose the most in more than four months as the dollar declined against the euro, bolstering the appeal of commodities as an alternative investment.
Oil climbed as much as 4.3 percent as the euro rebounded from the lowest level against the dollar in nine months yesterday. European finance ministers turned up the pressure on Greece to put its public finances in order and refused to say how they would make good on a promise to rescue the nation if it can’t contain its debt.
“Commodities are moving as a group today,” said Phil Flynn, vice president of research at PFGBest in Chicago. “We’re looking at the usual suspects, the dollar and the euro. The markets are optimistic today that Europe will be able to bolster Greece and some other debt-ridden countries that use the euro.”
Crude oil for March delivery rose $3, or 4.1 percent, to $77.13 a barrel at 11:19 a.m. on the New York Mercantile Exchange. Futures touched $77.28, the highest since Feb. 3. Prices have more than doubled from a year earlier. It was the biggest percentage gain since Sept. 30.
There was no floor trading in New York yesterday because of the Presidents Day holiday. Yesterday’s electronic trades and today’s session will count toward today’s settlement.
The dollar traded at $1.3725 per euro, down 0.9 percent from $1.3598 yesterday. The common currency has weakened 4.2 percent against the greenback since the start of the year, partly because of concern over the euro zone’s stability in the face of large debts among member nations.
Finance ministers from the 16 nations that use the common currency told Greek authorities to prepare more deficit measures by March 16, in case the government fails to show sufficient progress reining in the region’s largest budget deficit.
The Reuters/Jefferies CRB Index of 19 commodities gained 2.4 percent to 274.47.
New York Manufacturing
Commodities and equities also climbed after manufacturing in the New York region grew at the fastest pace in four months as companies boosted payrolls in anticipation of accelerating orders and sales. The Federal Reserve Bank of New York’s general economic index rose to 24.9 this month, higher than anticipated, from 15.9 in January.
“The manufacturing numbers suggest that people will be restocking, which is always good for commodities,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts.
Japanese gross domestic product rose at an annual 4.6 percent pace in the three months ended Dec. 31 after failing to expand in the previous quarter, the country’s Cabinet Office said yesterday. Japan is the third biggest oil consumer after the U.S. and China.
Brent crude for April delivery increased $3.43, or 4.7 percent, to $75.94 a barrel on the London-based ICE Futures Europe exchange. Futures reached $76, the highest since Feb. 3.
To contact the reporters on this story: Mark Shenk in New York at mshenk1@bloomberg.net
Last Updated: February 16, 2010 11:29 EST
>>ZH has some very interesting, really well thought out arguments which don't always pan out as badly as he proposes, but always worth reading
SO doing well too, we need a nuclear stocks watch list
>>Great calls! RIGL, APWR, SQNM ATMs, congrats
UKT: Volcker Rule looks more like hype than future law
The much-hyped Volcker Rule proposal is failing fast in the US Congress
By James Pethokoukis
Published: 2:07PM GMT 15 Feb 2010
Paul Volcker probably isn't that surprised. The former Federal Reserve chairman joked he was "just a photo op", even after President Barack Obama's public embrace of his proposal to limit bank proprietary trading. The problem is that legislators are no longer interested in sweeping reform.
Any reform plan has to get through the US Senate Banking Committee.
Now that the mood of crisis has passed, Wall Street campaign contributions and Republican intransigence are paramount there.
That means the new negotiating tag-team - Democrat Chris Dodd, the chairman, and Republican freshman Bob Corker - is not going to agree on anything radical. Corker says the Volcker Rule will not be a "major topic" for discussion, and that is probably OK with much of the committee.
Increasingly, the Volcker Rule looks more like a stunt than a viable solution. Though Volcker had been pushing it for months, the White House endorsement came as surprise to both the Banking Committee and banking industry. That is a poor way to introduce serious legislation in Washington.
Lame-duck Dodd sees reform as his legacy, so he wants a bill passed by early summer. His view: The Volcker Rule is a sudden and unwelcome complication.
Cynics always saw the Obama endorsement as no more than a populist, knee-jerk response to the Democrat's loss of a Massachusetts US Senate seat. Even some advocates of the Volcker Rule admitted the plan didn't directly address the regulatory failures that contributed to America's financial meltdown.
Even the administration did not seem really keen. The plan was introduced in January with great fanfare by Obama -- Volcker standing prominently at his side. But Senate Democrats say the White House is actually spending its political capital on the creation of a new consumer finance regulator.
The occasional rhetorical gesture may suggest otherwise, but the Obama administration has scant interest in more extreme measures to limit the size of the banking sector or its activities. If Volcker harboured any small doubts about that, he shouldn't any more.
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/7243459/Volcker-Rule-looks-more-like-hype-than-future-law.html
>>BL: China SELLER of US Treasuries for 2nd month:
International Demand for U.S. Financial Assets Slows Amid Sales by China
By Vincent Del Giudice
Feb. 16 (Bloomberg) -- International demand for long-term U.S. financial assets grew in December at a slower pace than a month earlier, as China sold U.S. government securities, a U.S. Treasury Department report showed.
Net buying of long-term equities, notes and bonds totaled $63.3 billion for the month, compared with net purchases of $126.4 billion in November, the Treasury said in Washington. Including short-term securities such as bills and stock swaps, foreigners purchased a net $60.9 billion in December, compared with net buying of $30.7 billion the previous month.
China cut its holdings of U.S. government debt in December to the lowest level since February 2009 and Japan was a net buyer for the six month in the past seven. As the financial crisis eased, some central banks that poured money into Treasuries have been investing reserves elsewhere, economists said.
“Clearly the Chinese are looking elsewhere at the margin for investments,” said Dan Greenhaus, chief economic strategist at Miller Tabak & Co. LLC in New York. “Central banks in general have been scaling back their exposure to Treasuries, no doubt related to a reversal of the flight-to-quality trade from late 2008 and early 2009 while also reducing their exposure to bills.”
China was a seller of U.S. Treasuries for a second straight month, with sales in December totaling a net $34.2 billion, the report showed. Japan replaced China as the top foreign holder of U.S. government debt, after net purchases of $11.5 billion raised its total to $768.8 billion. China’s holdings totaled $755.4 billion.
Bill Selling
China’s holdings of Treasury bills fell by $38.8 billion in December, a 36 percent drop in its holdings of U.S. government securities with maturities of a year or less. Foreign official investors, a group that includes mostly central banks, posted the largest net sales of bills since June 2005.
Economists surveyed by Bloomberg News ahead of today’s survey projected long-term U.S. financial assets would show a net increase of $35.4 billion in December. Estimates ranged from $15 billion to $68.2 billion, according to the seven forecasts compiled in the survey.
The Standard & Poor’s 500 Index rose 1.8 percent in December and the Dollar Index, a gauge of its strength against six other major currencies, jumped 4 percent. U.S. Treasuries lost 2.64 percent in the final month of 2009, according to an index compiled by Bank of America Corp.’s Merrill Lynch unit.
Agencies, Stocks
The Treasury’s reporting on long-term securities captures international purchases of government notes and bonds, stocks, corporate debt and securities issued by U.S. agencies such as Fannie Mae and Freddie Mac, which buy home mortgages.
Foreign purchases of Treasury notes and bonds rose to a net $69.9 billion in December compared with purchases of $117.9 billion in November.
Foreign demand for U.S. agency debt from companies such as Fannie Mae and Freddie Mac registered net buying of $49 million in December after buying of $5.9 billion.
Net foreign purchases of equities were $20.1 billion in December after net purchases of $9.7 billion in November. Investors sold a net $7.9 billion in U.S. corporate debt in December, the seventh straight month of net sales.
To contact the reporters on this story: Vincent Del Giudice in Washington at Or vdelgiudice@bloomberg.net
Last Updated: February 16, 2010 09:53 EST