A consensus is emerging
that Asia, & not the US, the EU or Japan, will be the locomotive
to pull the world economy out of this recession (& that the US on
this occasion may well be the caboose rather than the locomotive?).
So the recent news out of Asia was encouraging : in China the official
PMI (Purchasing Managers’ Index) was up to 54.3 in September, from
54.0 in August, despite Beijing’s effort to reduce the availability
of credit to some sectors of the economy, and some components of the
index were up quite strongly (export orders were up 1.2 to 53.3).
And the same held true elsewhere in Asia : in India & Taiwan the
PMI was up 1.8 to 55.0 & 2.4 to 57.5 respectively, and Korean exports
were up 13.0%.
For anyone old enough
to remember news ‘movie reels’ of parades by the reborn German army
in the mid-Thirties, or having seen subsequent documentaries thereof,
the military parade in Beijing to commemorate the 60th anniversary
of the People’s Republic brought back memories. For it involved similar
massive numbers of soldiers marching twenty or so abreast, and moving
their arms & legs in immaculate unison, like automatons. It must
have taken endless hours of drill on China’s parade squares by these
soldiers to achieve such perfect synchronization.
Amidst all the hullabaloo
about the price of gold hitting new highs, we’d do well to remember
this is largely, if not totally, a function of the weakness of the US
No. 333 - October
‘TOO BIG TO FAIL’
STATUS SEEN DISTORTING MARKETS (G&M, Kevin Carmichael)
∙ Canada’s Finance
Minister & bank regulator say singling out the world’s biggest
banks for special regulatory treatment will distort the market; for
it will them a competitive edge due to the implicit government guarantee
it entails (like Fanny Mae & Freddie Mac?).
but inadequately thought-through policy decisions often run into the
brick wall called the “Law of Unintended Consequences”.
CANADIAN AN ECONOMIC
‘PROPHET’ (CanWest, Peter O’Neil)
∙ Bill White worked
for four years at the Bank of England & 22 years at the Bank of
Canada before joining the Basle-based Bank of International Settlements
in 1995 as Senior Economic Adviser. For the next 13 years, until he
retired in 2008, the BIS Annual Reports voiced growing alarm about the
many imbalances in the system & the inadequacy of the regulatory
framework to contain the drive in the financial community to maximize
returns regardless of risk. But is warnings weren’t heeded by the
central bankers who meet monthly at the BIS, above all Alan Greenspan
& Ben Bernanke. Now, he says, central bankers better get ready to
start raising interest rates ‘forcefully’.
In economic forecasting
& investment being right in the past
is no guarantee of being right in the future;
still, the views of anyone willing to disagree with Alan Greenspan when
he had near god-like status in the financial community, & was proven
right, are likely worth paying attention to.
FED CHIEF WARNS
GREENBACK’S GLOBAL STATUS AT RISK (G&M, Barrie McKenna)
∙ He warned the
House Banking Committee on October 1st that the US doesn’t
have an unalienable right to be the custodian of the world’s reserve
currency & that it must manage its economic affairs with care, among
others by reining in its US$1.6TR deficit. This followed a comment by
World Bank President Robert Zoellick, a former top Bush aide, that the
ascent of China & India is reshaping the global economic order “before
our eyes” & that the US shouldn’t take the dollar’s reserve
currency status for granted, and a report by the IMF that the dollar’s
share of global reserves in the Second Quarter had fallen to its lowest
level in 14 years, to 62.8% from 65% in the First Quarter.
The latter development,
however, is largely, if not wholly, due to the lower value of the dollar.
‘UNREALISTIC EXPECTATIONS’ (CNNMoney, Jennifer Liberto)
∙ A report released
October 5th by Neil Barofsky, the Special Inspector General
of the Troubled Assets Relief Program (TARP) says federal officials
weren’t entirely honest about the health of the first nine firms that
got the initial US$125BN & had created “unrealistic expectations”
when they said this money would enable them to lend more.
And he warned
“Statements that are less than ... forthright ... may ultimately
undermine the public’s understanding and support ... damage the government’s
credibility and have ...unintended consequences that actually hamper
the government’s ability to respond to crises.”
PROBE FOCUSES ON
BEHAVIOUR OF FED IN LEHMAN CASE (WSJ, Jeffrey McCracken)
∙ A court-appointed
examiner investigating the Lehman collapse has been exploring if the
Fed improperly cut in front of other creditors in the US$613BN bankruptcy.
Many creditors have
been infuriated by the Fed promptly getting its US$46BN
back while they are still in the dark as to how much they may get back,
AUTO SALES TUMBLE
AFTER RUSH FROM ‘CLUNKERS’
∙ September sales
were < 746,000, down 41% MoM, despite automakers’ incentives averaging
US$2,557, vs. US$83 in August.
While GM & Ford
say the clunkers letdown should pass, October is usually a slow month
for new vehicle sales & shoppers remain tight-fisted.
SALES IMPROVE BUT ARE STILL WEAK (AP)
a division of MasterCard Advisors, reported that the sale of luxury
goods ex. jewelry rose 3.4% but remained below their four year-earlier
level, and that sales of electronics & appliances and jewelry were
up 5% & 1.2% YoY respectively.
These seemingly encouraging
increases were all from disastrous year-earlier levels.
GROWS FOR THE FIRST TIME IN A YEAR (AP)
∙ In September the
ISM’s Service Sector Index, which tracks over 80% of all US economic
activity, grew for the first time in 13 months, hitting 50.9, up from
48.4 in August. But employment in the sector slipped in September, for
the 20th time in the past 21 months.
it broke through the 50.0 ‘tipping point’
between growth & contraction
INVENTORIES DROP (G&M)
∙ In August they
declined for the 12th month in a row while sales at the wholesale
level jumped, for the fifth month running, by the largest amount (1%)
in 14 months.
Sooner or later this
process has to end and wholesalers will have to start
“restocking”, at which point wholesale inventories will turn from
being a ‘boat anchor’ for, to a positive influence on, economic
growth. But the key question remains : will that create jobs, and how
many how fast?
JOBLESS LOSE LIFELINE
AS SENATE STALLS (CNNMoney, Tami Luhby)
∙ Last month the
House passed a bill extending the period of eligibility for unemployment
benefits by 13 weeks for those living in high unemployment states. But
so far the Senate has failed to follow through as (Democrat)
senators squabble how to extend the period of eligibility in a way that
will benefit most people in their state.
Meanwhile, the eligibility
of 400,000 people ran out in September & that of an estimated 280,000
more will do so this month. In many respects
the debate about by how much to extend the period of
eligibility is neither here nor there; for no one seriously believes
that the employment picture will improve so much in whatever number
of weeks is added to the period of eligibility as to enable those whose
eligibility has run out to find a job. And what then?
HEALTH BILL FATE
STILL IN DOUBT (AP)
∙ The Senate Finance
Committee at 2:00 a.m. on October 2nd finished a draft bill
designed to appeal to moderates that was expected to move out of the
Committee this week. It would clear a path to health insurance for millions
of currently uninsured, and be funded in part by lowering Medicare &
Medicaid payments to healthcare providers and in part by new taxes &
fees on the insurance companies & the well-to-do that are already
meeting resistance. It would also prohibit insurers from turning away
those in poor health. But it doesn’t include the ‘public option’
included in the draft bill passed by the Senate Health, Education, Labor
and Pensions Committee. And while there may not be enough support in
the Senate for a public option, the reverse is true in the House : any
bill that doesn’t include it will all but inevitably stall there.
While the Democrats
notionally have the votes in both Houses
to pass any healthcare reform bill, the two wings of the party are at
loggerheads as to what should, & should not, be in it.
RATING JUMPS (AP)
∙ For the first
time since January 20th it rose, from 50% in September to
56%, as the country’s mood starts to brighten & people start to
feel better about his handling of the economy & his proposed healthcare
overhaul. While support for the war in Afghanistan is waning, it ranks
only seventh among people’s priorities. Among Democrats 88% approve
of him and, while only 18% of Republicans do, that’s well up from
September’s 12%. And 53% of independent voters now support him (vs.
44% in September) while only 37% do not, down from 53% last month.
While the healthcare
kerfuffle seems to have died down somewhat, the outlook for the economy
may be darkening as the once vocal proponents of a V-shaped recovery
have fallen silent.
FATAH, HAMAS CLOSE
TO RECONCILIATION (Jerusalem Post, Khaled Abu Toameh)
∙ Fatah & Hamas
have accepted in principle Egypt’s proposal for elections to be held
under Arab & Western supervision in the first half of 2010. With
Fatah favouring proportional- & Hamas district- representation,
it proposes that 75% of the candidates be elected on a ‘list’- (i.e.
proportional) & 25% on a district- (i.e. ‘first-past-the-post)
There is no reason,
of course, to expect the losers not to cry foul.
GOLDSTONE ... SO
FAR (Jerusalem Post)
∙ He would apply
fanciful notions of international legality to stymie Israel from protecting
its people while they aren’t applied to the fighting in Afghanistan
and weren’t to Roosevelt & Churchill when they fought fascist
fanaticism. He wouldn’t allow quarantining enemy territory, embargoing
Iran to block it from fielding an atom bomb, imprisoning captured terrorists,
using sophisticated weapons against a less well-armed terror infrastructure
& bringing non-lethal pressure on non-military targets such as flour
factories, sewage treatment plants or roads. And he expects us
to pay reparations to Hamas for defending ourselves. As to him giving
Hamas hell, all he said was that attacks against Israeli civilians “would
constitute war crimes and may amount to crimes against humanity.”
Hamas has warned that
unless Mahmoud Abbas quits supporting
the US initiative to shelve the Goldstone report until at least next
March it may not sign the ‘unity deal’ in Cairo on October 26th
(which likely would suit Netanyahu c.s. just fine). So he has distanced
himself from it.
IRAQ BARS CHINA’S
SINOPEC FROM SECOND OIL ROUND (Reuters)
∙ The al-Maliki
government is upset about it buying Addax Petroleum Corp. which is pumping
oil from Kurdestan’s Taq Taq field without reference to Baghdad.
A foolhardy move?
SACKED AT NEW SAUDI UNIVERSITY (AF-P)
∙ On October 5th
King Abdullah fired Sheik Sa’ad al-Shethry from the Council of Senior
Ulema, the country’s religious policy-making body, after he criticized
on TV the coed nature of the new US$7BN King Abdullah University of
Science and Technology which the King hopes will advance his nation’s
status in the international scientific community.
The King is in his
mid-80's. One of these days he will die. And then what?
“TO BAN FULL VEILS” (BBCNews)
∙ Sheik Mohamed
Tantari is Dean of al-Azbar University & Egypt’s highest cleric.
On a visit to a girls’ school, was surprised at one girl’s attire,
asked her to remove her niqab (full veil) & lectured her that wearing
it had no connection to her religion or to the Koran. He later announced
he would issue a religious edict against its wear (& has done
More & more Egyptian
women are wearing it, suggestive of a trend towards Islamic radicalism.
REBOUND GATHERS STRENGTH (FT, Ralph Atkins)
For Germany at least
a V-shaped recovery may be in the cards.
OUTPUT TOPS 10 MILLION B/D (Reuters)
∙ After the state-controlled
industry leader Rosneft’s massive Vankor field in the Arctic came
on stream, Russia in September for the first time ever produced over
This makes it the
world’s largest producer by a 25% margin over Saudi Arabia (which
is labouring under OPEC-imposed output constraints intended to prop
up the price of oil). It will be interesting to see what will happen
to the price of oil in the next few weeks; for the premium over the
spot price that speculators are prepared to pay for oil for future delivery
has shrunk to the point where keeping it in storage for future delivery
is no longer profitable. So some of this oil is going to hit the spot
market with, potentially, a depressing price effect.
CONSERVATIVES IN GREECE (AP)
∙ Voters were angered
by the faltering economy & a host of government scandals, and attracted
by promises of, among others, above inflation rate salary raises for
public servants. The new Prime Minister is US-born & will be a third-generation
He has since announced
a 100-day 3BN Euro spending spree despite Greece having been downgraded
early this year to A- due to its inability to get the deficit under
control (it may hit 8% this year, a multiple of the EU’s 3%
“cap”) & the fact that its national debt
is about to surpass 100% of GDP, and is
second in the EU only to Italy. This is reminiscent of the
attitude displayed by Mitterand in France upon coming to power
in the 80's when he too worked on the premise that economic realities
didn’t apply to Socialists.
IN 100' YEARS RAVAGE SOUTHERN INDIA (Reuters)
∙ Heavy rains caused
rivers to top or breach their banks, affecting the lives of 5MM people
& causing 2½ MM to lose their homes, and inundating millions of
acres of farm land.
This won’t help
the world food situation & raise further havoc with global sugar
BILLIONS IN AID
NEVER REACHED PAKISTAN ARMY (AP)
∙ Two Pakistan army
generals claim just US$500MM of the US$6.6BN in US aid to the army from
2002 to 2008 went to the military, the rest being diverted by
President Musharraf, who also was army chief of staff, to other uses.
So the army “got peanuts” & had to fund the War on Terror out
of its own budget. This revelation came after Congress approved tripling
aid to Pakistan to US$1.5BN/year for five years
& after a Pentagon spokesman conceded “We don’t have a
mechanism for tracking the money after we have given it to them”.
In recent weeks Pakistan
rejected as “incomplete” hundreds visa requests for the US
military & civilian personnel that was to implement the expanded
aid program. And the bill passed by Congress has become controversial
in Pakistan since it is purported to involve a humiliating violation
of Pakistan’s sovereignty by making the aid conditional on Pakistan
continuing to help fight “terrorists”
& requiring its cooperation in dismantling nuclear supplier networks
& supplying “relevant information from or direct access to Pakistani
nationals associated with such networks.”
TO GO AFTER TALIBAN STRONGHOLD (NYT, Ismail Khan)
∙ The military says
that after months of planning & studying past campaigns it is now
poised for a big push into South Waziristan, “the epicentre” of
the Taliban in Pakistan.
In past operations
the army got bogged down there & ended up negotiating agreements
with the insurgents that basically gave them
free reign. But the military thinks this time it will succeed, given
its success in regaining control of other insurgent strongholds, incl.
the Swat Valley.
BANK RAISES RATES (Reuters)
∙ On October 6th
it raised its key rate by 25 bps to 3.25%. For it deems the worst danger
to the economy over, enabling it to throttle back stimulus, & warned
of more increases to come as its economy benefits from a sound banking
system & China’s demand for commodities.
It is experiencing
considerable inflationary pressure, fueled by low unemployment.
AN IMF LENDER (AF-P)
∙ In a move illustrating
its changing status in the world, it bought US$10BN in IMF bonds.
Its Finance Minister
told reporters “We have gone from being debtors to creditors.”
(just seven years ago Brazil had to
borrow US$30.4BN from the IMF’s, its largest loan ever, to forestall
a massive default).