china confidential
Thursday, December 11, 2008
Global Slowdown Hits China
The global economic slowdown continues to take a toll on Asia. New data from China show growth is slowing, while the South Korean central bank has made an unprecedented interest rate cut. And things are not likely to improve next year.
China's government revenue slumped more than 3 percent in November--another sign of the weakening economy.
The Chinese Ministry of Finance said Thursday that tax cuts, intended to stimulate spending and slumping demand, caused the fall in tax revenue. It was the third straight monthly contraction.
The government also said last month's inflation rate sank to 2.4 percent, the lowest in nearly two years.
Weak Demand for Consumer Goods
Although consumers might welcome slower price increases, the decline indicates weakening demand for consumer goods and commodities.
In Seoul, the Bank of Korea slashed its benchmark seven-day repurchase rate by a record 1 percentage point, to 3 percent. The cut was the fourth in two months and puts the rate at a historic low.
Also on Thursday, the Asian Development Bank cut its forecast for regional growth. It said Asia's developing economies are likely to average 6.9 percent growth, this year, and 5.8 percent, next year. The non-profit development lender earlier had expected growth of 7.5 percent this year and slightly more than 7 percent in 2009.
The ADB said the problem is the rapid contraction in the American and European markets cutting demand for Asian exports.
India's growth is forecast to slow to about 6.5 percent next year, well below the 9 percent expansion, last year.
Although those growth rates might draw envy from many countries in recession, Indian and Chinese leaders worry about being able to generate jobs for millions of unemployed workers.
Thursday's flurry of bad news pushed some Asian stock markets lower. Shanghai's main index was off more than 2 percent. But the benchmark indexes in Tokyo and Seoul managed to close up by about three-quarters of a point.
China Fears Rural Unrest Over Soy Imports
China is facing calls to raise import tariffs on soybeans after a state buying plan backfired in its largest soy growing area, prompting officials from Beijing to rush to the countryside to try to calm tempers.
The dispute is pitting Chinese farmers and soy plants in the north against coastal rivals, including state-run agri-giant COFCO and foreign firms such as Wilmar International Ltd (WLIL.SI: Quote, Profile, Research, Stock Buzz), Bunge Ltd (BG.N: Quote, Profile, Research, Stock Buzz) and Cargill [CARG.UL], which supply the world's top soybean-importing country.
China's government is trying to help farmers by buying up soybeans and other crops, but the government's price is higher than the international market, encouraging imports in coastal areas and forcing soy crushers in inland provinces to stop work.
Major crushers in inland Heilongjiang province, the largest soy producing area, have called on the government to restrict imports by charging higher tariffs or an anti-dumping tax so they can compete with plants in coastal areas, which rely on cheap imports at this time of year, from the United States.
China's top planning body, the National Development and Reform Commission, called a meeting in Beijing earlier this week to consult major crushers, fearing a risk of rural unrest.
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EDITOR'S NOTE: In the United States, Dow Jones reports soybean prices may be well-supported in the next few days on continuing Chinese imports.
According to Tim Hannagan, a U.S.-based analyst with Alaron Commodities, the demand for U.S. soybean is continuing to build up and is higher compared with a year ago.
The U.S. is the only country exporting soybeans at present, with the South American crops likely to come into the market in late January.
But analysts said no sustained rally in corn or soybeans is possible unless crude oil recovers, and that doesn't seem to be on the horizon.Descending into the Future: Is Gold Backwardation a Sign of Coming Hyperinflation?
Foreign Confidential....
For the first time in history, paper gold is in a state of backwardationinstead of contango, according to Antal E. Fekete, a professor of mathematics and proponent of the gold standard. The price of gold for distant delivery in the future is lower than for immediate delivery.
Fekete has published an in-depth "Red Alert" analysis of the phenomenon. An excerpt appears below.Gold going to permanent backwardation means that gold is no longer for sale at any price, whether it is quoted in dollars, yens, euros, or Swiss francs. The situation is exactly the same as it has been for years: gold is not for sale at any price quoted in Zimbabwe currency, however high the quote is. To put it differently, all offers to sell gold are being withdrawn, whether it concerns newly mined gold, scrap gold, bullion gold or coined gold. I dubbed this event that has cast its long shadow forward for many a year, the last contango in Washington ― contango being the name for the condition opposite to backwardation (namely, that of a positive basis), and Washington being the city where the Paper-mill of the Potomac, the Federal Reserve Board, is located. This is a tongue-in-cheek way of saying that the jig in Washington is up. The music has stopped on the players of ‘musical chairs’. Those who have no gold in hand are out of luck. They won’t get it now through the regular channels. If they want it, they will have to go to the black market.
I founded Gold Standard University Live (GSUL) two years ago and dedicated it to research of monetary issues that are pointedly ignored by universities, government think-tanks, and the financial press, centered around the question of long-term viability of the regime of irredeemable currency. Historical experiments with that type of currency were many but all of them, without
exception, have ended in ignominious failure accompanied with great economic pain, unless the experiment was called off in good time and the authorities returned to monetary rectitude, that is, to a metallic monetary standard. It is also worth pointing out that the present experiment is unique in that all countries of the world indulge in it. Not one country is on a metallic monetary standard, under which the Treasury and the Central Bank are subject to the same contract law as ordinary citizens. They cannot issue irredeemable promises to pay and keep them in monetary circulation through a conspiracy known as check-kiting. Not one country will be spared from the fire and brimstone that once rained on the cities of Sodom and Gomorrah as a punishment of God for immoral behavior.
In all previous episodes there were some countries around that did not listen to the siren song and stayed on the gold standard. They could give a helping hand to the deviant ones, thus limiting economic pain. Today there are no such
countries. If you want to be saved, you must be prepared to save yourself. You cannot understand the process whereby a fiat money system self-destructs without understanding the gold and silver basis. The Quantity Theory of Money does not provide an explanation, because deflation may well precede hyperinflation, as it appears to be the case right now.
Click here to read the entire--truly terrifying--essay, and here for an up-to-the-minute update.Wednesday, December 10, 2008
Volatile Oil Trading: Big Moves that Measure Risk
Implied volatility for January crude oil, the major factor in determining options prices, rose to the highest in more than 22 years yesterday in a sign that traders anticipate more big moves in oil futures.
Implied volatility, a gauge of price swings in oil for future delivery that indicates how much traders are willing to pay to bet on the amount, rose to 114.41, the highest since at least 1986, according to data released today by the New York Mercantile Exchange.
“Even though prices have fallen dramatically, we’re still seeing daily ranges that are $3, $4, $5 a barrel, which is not that different from the daily ranges we were seeing at $130 a barrel,” said Tim Evans, an energy analyst with Citi Futures Perspective in New York. “Of course, now as a percentage of the price, that’s a bigger swing.”
Crude oil for January delivery rose $1.45, or 3.4 percent, to $43.52 a barrel at the 2:53 p.m. close of Nymex floor trading. Oil prices have tumbled 70 percent since reaching a record $147.27 on July 11.
Futures rose as high as $46.17 a barrel today after Russia indicated it may join OPEC efforts to bolster prices. Energy Minister Sergei Shmatko said Russia will announce proposals to cut output by Dec. 17, when the Organization of Petroleum Exporting Countries meets, Interfax said.
February futures rose $1.36, or 3.1 percent, to $46.02 a barrel. Implied volatility for less-heavily traded February oil was 96.62 yesterday, also a 22-year high for the second-most active trading month. January oil options expire Dec. 16.
In electronic trading of Nymex oil options, January $48 calls, bets that oil will rise above that level, and January $42 puts, bets that it will fall below that level, were the most active today.
Click here to continue.Israeli Likud, Leading in Polls, Moves to the Right
Foreign Confidential....
With Israel's elections just two months away, the party that is slated to win is moving further to the right.
The trend is expected to have serious implications for the Jewish state's relations with the United States.
Israel's relatively right-wing Likud party has chosen top hawks to lead its list of parliamentary candidates for the February 10 elections. Polls show that the Likud has the best chance to form the next Israeli government.
The party is headed by opposition leader and former Prime Minister Benjamin Netanyahu (pictured above with U.S. President-elect Barack Obama).
"Today we have chosen a new leadership for Israel," Netanyahu told supporters. He said it is the best list of candidates any party could offer the country.
Oppose Palestinian State
The Likud list includes outspoken supporters of Jewish settlement expansion in the West Bank and opponents of a Palestinian state.
Benny Begin, the son the late Prime Minister Menachem Begin, who was a Likud founder, is number five on the list. He opposes further territorial concessions to the Palestinians.
"All these far-reaching concessions would lead nowhere," Begin said. "We are on a dead-end street, there is no possibility whatsoever of reaching a peace agreement with our neighbors in the foreseeable future."
U.S.-sponsored peace talks between Israel and the Palestinians are based on the formula of trading land for peace. With that in mind, the Israeli center and left denounced the Likud list is a disaster for the peace process.
"This is an ultra-rightist and extremist list," said Zehava Galon of the left-wing Meretz party. She told Israel Radio that a Likud government would "torpedo" any chance for a peace agreement.
Thursday, 11 December 2008
Niu Shuping reports from Beijing:
Bloomberg's Margot Habiby reports:
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