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Monthly Archives: April 2011

Jim Grant comments on Bernanke Fed

Jim has some sharp criticism on Ben Bernanke, and he thinks Fed’s QE3 is coming.

 

US dollar is being crushed

The Fed’s reluctance to change its super easy monetary policy put the US dollar into new low, not seen since early 2008.

Long term trend:

Bernanke’s first ever press conference

First ever press conference by a Fed Chairman. From CNBC:

Part 1

Part 2

Comments on Bernanke from some big market players – take note of Bill Gross’ view on inflation expectations.

US MNCs shifting jobs abroad

With the developed world expected to grow much slower than the developing world, and also due to increased globalization of US firms, during the past decade, big US firms have shifted more jobs abroad than the jobs they have created at home.

read the Journal article here.

Pecan love

An interesting piece on how China’s insatiable demand for the US pecan drives up its price.

Pecans are as all-American as anything can be. Washington and Jefferson grew them. They are the state nut of Arkansas, Alabama and Texas. The U.S. grows about two-thirds of the world’s pecans and chews most of them itself. For generations, pecan prices have fallen with bumper crops and soared with lousy ones. But lately, they’ve only been going up. A pound of pecans in the shell fetched $2.14 on average last year, according to the U.S Department of Agriculture, nearly double what they brought three years earlier.

The reason: The Chinese want our nuts. Five years ago, China bought hardly any pecans. In 2009, China bought one-quarter of the U.S. crop, and there’s no sign demand is abating.

 

 

 

 

 

 

The impact of China’s rebalancing

The impact of China’s rebalancing, and its implications on global interest rates, by Martin Feldstein. Marty seems to suggest that if China were to rebalance its economy successfully, debtor countries (especially the US) will face a much higher equilibrium interest rate than the past couple of decades.  I doubt this will happen very soon – rather it’s a slow process.

Money and Gold

According to Dr. Yardeni of Yardeni Research,

Gold is widely perceived to be a hedge against inflation. Actually, it is a hedge against reckless monetary and fiscal policies. One of the best measures of global monetary policy is non-gold international reserves held by central banks. The monthly data are compiled by the IMF. The price of gold seems to track the parabolic trajectory of the reserves data relatively well. Over the past decade, the price of gold has soared 470% from a low of $255.95 an ounce on April 2, 2001 to $1,459.10 this morning. Over this period through January, reserves held by central banks soared 376%, much faster than the 121% increase during the previous 10-year period, when the price of gold fell 28.4%.

(click to enlarge, graph courtesy of Dr. Yardeni)

 


 

 

 

China keeps piling up its foreign exchange reserves

With the announcement of China's GDP number in Q1, its foreign exchange reserves officially passed the $3 trillion mark – gigantic, unprecedented. And around 70% of the total is in US dollar.  Both numbers need to come down.

China is trying hard to internationalize its currency – Yuan. In the ongoing BRICS meeting in Sanya, Hainan, the heads of the five countries signed a new pact, according to WSJ,

As part of the effort to reduce reliance on the dollar, the state development banks of the five countries agreed to open credit lines in their national currencies to each other. The framework credit-line agreement was signed by Russia's Vnesheconombank, Brazil's Banco Nacional de Desenvolvimento Economico e Social, China Development Bank Corp., Eximbank of India, and the Development Bank of South Africa. However, details and regulations, as well as the projects eligible for such financing, are yet to be defined in the framework deal.

China Development Bank plans to issue about 10 billion yuan of loans in the Chinese currency this year to other Brics nations, mostly to fund oil and gas projects, Chairman Chen Yuan said at a news briefing. The state lender is in talks with Brazilian state-owned Petroleo Brasileiro SA, or Petrobras, regarding further loans for the oil company, Mr. Chen said.

China and Brazil reached a $10 billion oil-for-loan deal in 2009, under which Petrobras agreed to supply crude oil to China Petrochemical Corp. for 10 years in exchange for funding from China Development Bank.

Russia's Vnesheconombank is also in talks with China Development Bank to borrow at least $500 million of yuan for a currency swap between the two lenders, VEB's Chief Executive Vladimir Dmitriev said on the sidelines of the summit.

He added that the Brics countries are moving toward mutually trading each others' currencies, following Russia's launch of yuan trading in Moscow at the end of 2010.

Mundell comments on ECB rate increase

Bob Mundell.

Strong corporate earnings, why still sluggish growth?

The first-quarter earnings look to be another impressive one. The number of profit-warning announcements over the past three months is near a decade low. Analysts expect S&P 500 earnings to rise 12% from a year ago, and that may prove conservative.

So why isn’t the US economy accelerating?  According to WSJ analysis, most growth of corp. earnings came from overseas, as US companies take advantage of faster economic growth in emerging markets by investing abroad.

Let’s call this dark side of strong corporate earnings.

Growth may firm up later this year. But the relative weakness with each quarter raises a question: Why isn’t the U.S. economy accelerating, especially with the corporate sector in such good shape?

Perhaps because corporate earnings aren’t being driven by strength in the U.S., but to some degree by its weakness. Companies have shifted production and sourcing overseas to cut costs and to tap demand in faster expanding markets. Capital spending in emerging markets like China and India has more than doubled in the past decade, and surpassed developed markets last year for the first time, HSBC estimates.

That is fostering growth abroad but undercutting prospects in the U.S. The nation’s factors of production, such as factories and equipment, or capital stock, actually shrank in 2009 for the first time in postwar history. Business investment did rebound last year, but the 15% increase, which should have generated 380,000 jobs on average a month, created only 78,000, notes UniCredit economist Harm Bandholz. The rebound appears largely to have been maintenance-driven, and investment has leveled off since.

The shifting of investment overseas and erosion of the nation’s capital stock are no small matter. They imply a lower potential growth rate for the U.S. and higher structural unemployment. As that reality dawns, the corporate sector’s strength may start to lose its luster.