GOLDEN SALE HERALDS
AN ECONOMIC FORCE (G&M, Andy Hoffman)
∙ India is the world’s
largest importer of gold due to its citizens’ love of gold jewellery.
Buying 200 tonnes (US$6.7BN worth) from the IMF illustrates her economic
ascendancy. This raised the gold portion of its official reserves
by 60% to 558 tonnes & drove the price of gold to US$1,088.50 as
investors speculated other Asian central banks may follow suit.
The IMF is selling
gold to monetize its unrealized capital gains & have more money
to lend. While European central banks hold up to 70% of their
reserves in gold, most Asian central banks have < 10%. Canada’s
are tiny due to a policy decision years ago to sell gold at
prices a fraction of the current one because it would be
“more profitable” to hold interest-bearing US$ securities.
IEA TO SLASH OUTLOOK
FOR LONG-TERM OIL DEMAND (WSJ, Spencer Swartz)
∙ Its Outlook document,
due November 10th is expected to have it bucking the common
wisdom that crude demand will grow briskly in the post-recession era
(in the belief countries with help from new energy efficiency standards
will keep a tight rein on consumption.
The IEA has not had
a stellar forecasting record, & this is a developed country-centric
view. During the recession oil consumption continued to rise in many
developing countries where vehicle fleets are growing rapidly &
first time car owners flaunt their new status by driving everywhere.
EASY MONEY TRUMPS
INFLATION FEARS AT FED ((G&M, Barrie McKenna)
∙ In voting unanimously,
on November 4th, not to change interest rates Ben Bernanke
& his colleagues on the FOMC ignored fears of inflation & asset
bubbles on the grounds that “With substantial resource slack likely
to continue to dampen cost pressures and with longer-term inflation
expectations stable ... inflation will remain subdued for some time.”
While traditional
domestic cost-push inflation may not be an issue, higher food &
energy prices & a lower US dollar may be. One can only hope they
will not be proven wrong.
GEITHNER : DEFICIT
REDUCTION HAS TO WAIT (CCNMoney)
∙ In an interview
taped on October 31st on NBC’s “Meet the Press” he
said that economic growth & job creation remain the administration’s
top priorities, despite a federal deficit that is “too high”, and
that bringing down the deficit will have to wait until the economy recovers.
Assuming, of course,
that the market & its creditors will have the necessary patience.
TYCOON SEES REAL
ESTATE CRASH (EJ, Business Browser)
∙ Billionaire Wilbur
L. Ross Jr. is one of nine money managers helping the government to
remove toxic assets from bank balance sheets. On October 30th
he said the US is on the threshold of a “huge crash in commercial
real estate” since “All of the components of real estate value are
going in the wrong direction simultaneously ... Occupancy rates are
going down. Rent rates are going down and the capitalization rate is
going up.”
His is only the latest
of many such predictions. But he may be better positioned than most
to make it. According to another observer
“The big whoosh you’re hearing is
the air rushing out of a commercial real estate bubble.”
ANOTHER RECESSION
IN THE WINGS? (EJ, Business Digest)
∙ George Soros told
an audience in Budapest on October 30th that the global economy’s
recovery may “run out of steam” & another recession may follow
in 2010 or 2011.
The US maybe; the
rest of the world ... less likely.
STARBUCKS SEES
INCREASE IN SPENDING, VISITS (AP)
∙ During the three
months ended September 30th more people visited, & spent
more in, its coffee shops. Nevertheless, its gross revenues were down
4% YoY to US$2.42BN (due to it closing hundreds of under-performing
outlets)..
This is a more reliable
‘green shoot’ than most :for
high-priced coffee is a discretionary spending item.
CONSUMER SPENDING
TUMBLES, INCOMES FLAT (AP)
∙ Following the
end of the Cash for Clunkers program, consumer spending plunged in September
by the largest amount in nine months. It dropped by 0.5%, erasing August’s
0.2% gain. Meanwhile, wages & salaries were down 0.2%,
YoY wages & salaries
were up just 1½%, the smallest annual increase since 1982.
CONSTRUCTION SPENDING
RISES IN SEPTEMBER (AP)
∙ In September construction
spending was up 0.8% MoM, well above the 0.3% expected (but this was
after August’s performance was revised from the original positive
0.8% to a negative 0.1%). The 3.9% rise in residential construction
was the biggest since July 2003 (but in absolute terms the level of
residential construction is still down 27% YoY).
But there are concerns
that this level of activity was inflated by builders starting projects
to qualify for the first-time home buyers’
US$8,000 tax credit that is still slated to expire on November 30th.
PACE OF JOB LOSSES
SLOWS (CNNMoney)
∙ According to Automatic
Data Processing (ADP), a payroll processing firm, private sector employers
cut 203,000 jobs in October, the seventh month in a row of lower job
losses. And corporate job cut announcements declined for the third month
in a row.
Joel Prakken of Macroeconomic
Advisers, expects still more job losses to take the
unemployment rate to over 10% sometime in the next year & 5% not
to return until possibly as late as 2014.
UNEMPLOYMENT CLAIMS
SLIDE (CNNMoney)
∙ In the week ended
October 31st 512,000 new claims were filed, 20,000 fewer
than the week before & 10,000 less than expected. During the week
before 5,749,000 people were drawing unemployment benefits, down 68,000
from the week before that. Much of this decline, however, is due to
people running out of eligibility (now at a 7,000 daily rate).
On November 4th,
after two months of dithering, the Senate passed a bill extending eligibility
by up to 20 weeks that now must be reconciled with an earlier House
bill calling for 13 weeks.
U.S. FACTORY ORDERS
(EJ, Business Browser)
∙ Orders placed
with US factories rose in September for the fifth time in six months,
by a higher-than-expected 0.9% MoM.
This is attributed
to the US$2+BN in global economic stimulus & need to replenish inventories.
SERVICE SECTOR
GROWS FOR 2ND STRAIGHT MONTH
(AP)
∙ The ISM’s Service
Sector Activity Index dipped in October to 50.6 from 50.9 (vs. 51.5
forecast), the second month in a row it was above the 50.0 ‘breakpoint’
for growth. Better still, the New Order Index rose to 55.6, from 54.2
in September
But there continue
to be widespread concerns about the robustness of the recovery.
NBA TICKET PRICES
TRIPPED BY THE RECESSION (Reuters)
∙ The average price
for a ticket to an NBA game fell for the first time in eight years,
by 2.8% to US$48.90. None of the other three major sports leagues in
North America showed a price decline in 2009 (although NHL ticket prices
were up by only a razor-thin 0.1%).
Might this have something
to do with the fact that a higher proportion of basketball fans
are black?
GM
BOARD DECIDES NOT TO SELL OPEL (AP)
∙ It announced on
November 3rd that it had decided to keep & restructure
its European Opel unit, rather than sell 55% thereof to the Russian-backed
Magna consortium, since doing so would be more cost-effective and since
both European business conditions & GM’s health had improved since
it first put the division up for sale earlier this year.
The Board revisited
its decision to sell Opel to Magna in part because of questions raised
by the EU about its choice having been influenced by German political
pressure. It came as a surprise since it had been taken for granted
the deal would go ahead. Putin was apoplectic since it scotched his
attempt to gain a major foothold in Europe’s car manufacturing sector,
& Angela Merkel was put off (she had promoted the Magna deal in
the face of a great deal of opposition). Since GM is its largest customer,
Magna just ‘made nice’. And while UK & Polish workers were OK
with this development (“we know them and we understand their culture
- and they know us”), German Opel workers, fearful of job losses &
plant closings, responded with rallyes & wildcat strikes.
BUDGET OFFICER
WARNS OF HARDER TIMES AHEAD (G&M, Steven Chase)
∙ The independent
Parliamentary watchdog has been warning for months that Ottawa is sliding
into a structural deficit that will require tax hikes and/or spending
cuts to eliminate. When the government denied this & maintains it
will be close to a balanced budget by March 2014, he went public on
November 2nd saying that, while by then Canada’s economy
will again be operating at full potential, Ottawa will still have a
$18.9BN structural deficit.
His office was created
by the Harper government following the
2006 election to provide analysis to both Houses of Parliament on the
state of Canada’s financial & economic situation. But he has proven
too independent-minded for the Prime Minister who has tried to rein
him in by keeping him on a short string financially. So now he has called
the Prime Minister’s bluff by recommending that, unless he gets the
budget he feels is needed to do the job, the office should be shut down.
CLINTON : ISRAELI
CONCESSIONS ‘UNPRECEDENTED’ (AP)
∙ Speaking at a
joint press conference with Prime Minister Netanyahu on October 31st,
after she had met earlier with Defence Minister Ehud Barak & her
Israeli counterpart, Avigdor Lieberman, she said, in a seemingly a significant
departure from her previous statements that had demanded a total Israeli
settlement freeze without exception, that “What the prime minister
has offered in specifics on restraints on a policy of settlements ...
is unprecedented.” She also agreed with a statement by Netanyahu that
never in the past had the Palestinians demanded a settlement freeze
as a condition for sitting down with Israel.
She didn’t mention
what those unprecedented concessions entailed (apparently they involved
an offer to restrain but not halt settlement expansion - if so it was
nothing new, nor unprecedented). It must have been the jet lag.
CLINTON TRIES TO
CALM ARAB FEARS OVER U.S. POLICY ON SETTLEMENTS
(G&M, Patrick
Martin)
∙ Following an uproar
among Palestinians & Arabs generally about her remarks about US
policy towards Israeli settlement construction, she read a statement
in Marrakesh, Morocco on November 2nd that said “As the
President has said on many occasions, the United States does not accept
the legitimacy of continued Israeli settlements” but did subsequently
conceded on al-Jazeera TV that “Perhaps those of us who work with
[Mr. Obama] and for him could have been clearer in communicating that
that is his policy.”
This is known as
“locking the barn door after the horse has bolted.”
PALESTINIANS ISSUE
STATEHOOD WARNING (BBCNews)
∙ According to Saeb
Erekat, the Palestinian chief peace negotiator, if Israel continues
to expand Jewish settlements in the West Bank, a “moment of truth”
may arrive for Mahmoud Abbas to “tell the truth”, i.e. that a two-state
solution “is no longer an option” (even if Israel rejects a one-state
solution as a demographic time bomb since it would make the Jews a minority
in the country), in which case Abbas may not stand for re-election.
This is a
‘shot across the bow’ of the Americans following Hilary Clinton’s
recent inopportune comments after meeting with Netanyahu, & of the
Israelis, on whom it will be wasted since they prefer overplaying a
weak hand. The two-state concept is becoming an
‘old men’s solution’ as more & more younger Palestinians favour
‘one state from the Jordan River to the Mediterranean’. And remember
that in the lead-up to the last election a well-respected Israeli analyst
already warned ‘a vote for Netanyahu is a vote for a one-state solution.”
Since then Abbas has set January 24th as the
date for both Presidential & Parliamentary elections and, according
to his officials, is “insisting”
he won’t be a candidate in the former (although they are trying to
get him to change his mind)
IRAQ REACHES OIL-FIELD
DEAL WITH ENI GROUP (AP)
∙ Iraq’s Oil Minister
has signed a 20 year deal, yet to be approved by Cabinet, with
an ENI-led consortium, that includes Occidental Petroleum & Korea
Gas Corp., to develop the 4.1BN bbl Zubair oil field & boost its
output from 200,000 bbld to 1.1BN bbld within seven years. ENI will
receive US$2.00 for every barrel of crude produced, well down from the
US$4.80 it had bid in last June’s auction. While the latter had resulted
in just one successful bid for the eight fields on offer (from BP &
China National Petroleum Corp. for the 17.8BN Rumailia field, after
it slashed its bid from US$3.99 to US$2.00) because ‘the terms were
insufficiently attractive’, three other consortia are now competing
to develop the 8.6BN West Qurna Stage 1 field on Iraq’s terms (which
was since won by an Exxon/Shell consortium).
The Iraqis obviously
could teach the Alberta government a thing or two about dealing with
oil companies.
GERMAN AUTO SALES
SURGE (AF-P)
∙ In October they
were up 24% YoY, and YTD they are up 26%..
This was despite its
Cash for Clunkers-equivalency program having ended on August 31st.
RUSSIA CUTS GAS
DEAL WITH CHINA (AP)
∙ One of the many
trade & military agreements signed during a state visit to Beijing
by Prime Minister Putin was one between Gazprom & the China National
Petroleum Corp. for the supply of 2.4TRCF of natural gas annually, said
to be similar to the oil-for-loans deal earlier this year whereby the
cash-strapped Russian energy companies get the funding they need to
develop their in-the-ground reserves (Gazprom CEO Alexei Miller said
that sourcing the gas from West Siberian fields could be put in place
“very quickly” because Gazprom has ready-to-tap fields, & the
necessary infrastructure, in place there while sourcing it from eastern
Siberia & the Sakhalin peninsula would require more time).
Another way for Beijing
to convert its US dollars into things more useful & more
likely to retain their value.
GUINEA, CHINA SIGN
HUGE MINING DEAL (AP)
∙ Guinea is the
world’s largest producer of bauxite and also produces gold & diamonds.
In the half century since independence (when the French stripped
the country from anything removable because it had chosen not to join
the French Franc ‘bloc’‘), it has been ruled by only two people
(at least until Capt. Moussa “Dadis” Camara seized power a year
ago) under whom all the benefits of its mineral wealth were syphoned
off to benefit the privileged few. It has now signed a US$7BN mining
agreement with an unnamed Chinese company that according to Mines Minister
Mahmoud Thiam “will be a strategic partner in all of the country’s
mining projects.”; if so this puts Beijing in direct competition with
US-owned Guinea Bauxite Company & Russia’s RUSAL (that is engaged
in a legal tussle with the government as to who owns its mines there).
This is basically
a US$7BN option on all its future mineral output; if so, it will prove
a much better deal for the Chinese than for the locals.
INDIA’S BITTER
HARVEST (Reuters, Mukesh Gupta)
∙ Its summer harvest
will be down at least 10% after both devastating floods & the driest
monsoon since 1972, necessitating massive imports of sugar and, for
the first time, rice.
This won’t help the global food-,
& food price-, outlook.
