Heavy rains in the US
grain growing regions have prompted USDA to cut its estimate of the
US 2010 grain crop. China has doubled its grain imports of Canadian
wheat due to unfavourable weather in its main grain-growing areas. 12
Russian regions are having the worst drought in a decade. Vietnam, the
world’s second-largest rice exporter, is having weather-related issues.
In Saskatchewan, Canada’s main grain-producing province, millions
of hectares weren’t seeded last spring because the land was too wet
or, if seeded, the grain has since succumbed to drowning. And in Pakistan’s
Southern Punjab land that two years ago grew healthy grain crops now
is a dust bowl. After a couple of years of good global grain harvests
the availability of grain may become more problematic in the next year
(especially since there are now 30-40MM more mouths to feed & the
shift from a plant-based to a more meat-based diet continues unabated
in China & other countries). So in the last month or so, wheat futures
rocketed upward although they recently softened, possibly due to speculators
One environmental Neanderthal
recently advised the rest of us “To stay calm, the earth will heal
itself.” He is right, but only up to a point. Mother Earth has a significant
capacity of forgiving us our trespasses. But it is not infinite. She
needs time to do her work, a luxury she isn’t afforded as modern society
piles more abuse on her before she has been able to deal with the last
lot. Thus in a river, if one sewer empties human waste into it, ten,
fifty or whatever more miles downstream it will have ‘processed’
the organic material & restored the quality of the water to some
semblance of that upstream of the sewer. Obviously, if another sewer
dumped more human waste into it before it had finished processing the
last lot, cleansing itself would take longer, but might still be doable.
But a never-ending series of sewers spewing out waste will overwhelm
its ability to do so, and lead to system ‘overload’ & possible
shut-down. The human ‘footprint’ just keeps getting bigger, if only
because during my lifetime the global population has more than tripled
& its demands on the environment have grown disproportionately.
Canada already has a
looney system whereby those claiming refugee status, upon setting foot
on Canadian soil are eligible for welfare payments of up to $2,500/month
while Canadian seniors who have lived, worked & paid taxes here
for decades, if not all their adult life, can at best only receive $1,800
from various public pension- cum pension top-up programs. Now two Liberal
MPs from the Toronto region want to take that lunacy one step further;
for, they have tabled Bill C-428 which would make newcomers to Canada
eligible to receive OAS (Old Age Security) payments after only three
years here, rather than the current ten.
For years a significant
share of all immigration have been in the “family-reunification”
category, under which earlier arrivals with landed immigrant status
can ‘sponsor’ family members to move here provided they assume financial
responsibility for them. Many of these have been aging parents (who
add to the already growing strain on Canada’s taxpayer-funded medical
system from the aging Baby Boomer generation).This is nothing more &
nothing less than a grandstanding pitch for Canada’s ethnic vote in
the next election since the bill has little real chance of passage :
the MP driving this is the Member for Brampton, a Toronto bedroom community
with a big immigrant population for whom, if they had brought their
parents over, this would constitute a way of ‘downloading’ back
onto the taxpayer the financial responsibility for their elderly relatives
that they had assumed when sponsoring them.
There continue to be
press reports that Canada’s crime rate is declining. But since most
of the crimes the incidence of which is declining are committed by 16-30
year-olds, a shrinking age cohort, it would be interesting to see if
it is also down relative to the size of that cohort.
No. 370 - July 22nd,
SLAMS ARAB LEADERS (NBC News)
· In an audio on
Islamist websites oft used by al-Qaeda a voice sounding like bin-Laden’s
No. 2 said “These Arab Zionists with whom we live and exchange smiles
... are more dangerous than the Jewish Zionists ... Who surrounds our
people in Gaza? Is it not the leader of the Arab Zionists, Hosni Mubarrak?”
And it told Obama “Whether you admit it or not, the Muslims have defeated
you in Iraq, and Afghanistan, and they will defeat you - and the powers
that bought you - soon in Palestine, Somalia and the Islamic Maghreb.”
He has two reasons
for targeting Mubarrak. He wants to make it more difficult for him not
to let the cargo from the vessel Amathea be moved from the
Egyptian port where it docked to Gaza, thus
effectively breaking Israel’s blockade. And he is calling on his fellow
Egyptians to vote for the Islamic Brotherhood (of which he was a leading
member until his better judgment prompted him to leave the country
of his birth), or at least reject the Mubarrak slate, in
Egypt’s forthcoming election.
But his warning to Obama is an opinion, not a fact,
seemingly belied by the Taliban’s failure to disturb the recent high
level international gathering in Kabul to discuss Afghanistan’s future
(although the cynical view is that
it was counseled not to do so by Karzai in order not to blow his chances
to gain more control over aid flows & hence create more scope for
THE TYRANNY OF
CAPITAL MARKETS (G&M, George Athanassakos)
· Monetary &
fiscal authorities threw away most of their cards fighting the Lehman
Brothers’ bankruptcy-driven panic in September 2008. So there is now
little political or economic ammunition left for fiscal & monetary
policies to save the day if past measures prove insufficient to fuel
sustained growth. Normally recessions clean out the excesses of the
past. But not this time. Consumers are still heavily indebted. House
prices are still higher than warranted by fundamentals. Luxury cars
are still flying off show room floors. And the economy has become addicted
to low interest rates & liquidity infusions.
As the Ben Graham
Professor of Value Investing at the University of Western Ontario’s
Richard Ivey School of Business he
‘is talking his own book’. Still, there is validity in what he says.
And while the Bush Administration, especially its Treasury Secretary,
Hank Paulson, must take much of the blame for the jam the Obama Administration
finds itself in, it & the Paul Krugman’s of this world, are like
gamblers who, after losing once, keep doubling their bets in the hope
their luck will turn & see them regain their loss (but who more
often than not run out of money before that happens). Meanwhile a group
of eminent economists have come up with a fiscally-neutral idea
: terminate the Bush tax cuts for the upper income people & redistribute
the proceeds to the lower-end ones,
so as to boost consumption by US$100BN over two years. While this
would add < 0.5% a year to GDP, it may be enough to help change perceptions.
WHAT NOW, MR. BERNANKE?
(Reuters, Pedro Nicolaci da Costa)
· This week he will
deliver his semi-annual monetary policy message to Congress. As he does,
the key question will be is how much the US economy must weaken before
the Fed will take action. He must somehow convince his audience it isn’t
powerless in countering lower growth without casting doubt on the outlook.
According to Kevin Logan, Chief U.S. Economist at HSBC, “At the moment,
he and (Federal Open Market) committee are not prepared to do anything.
They feel they’ve used up most of their bullets... It will be a fine
line between not showing any panic ... (and) making clear they’re
watching this & will do what’s necessary.”
· The Fed’s options
include the following. Buy more mortgage-related assets - this
risks suggesting Fed angst about the recovery, while not helping the
housing market. Buy other assets from banks - doing so
only months after declaring its buying spree was over may affect its
credibility. Keep interest rates low - it has long said it expects
them to remain “exceptionally low” for an “extended period”.
Stop paying interest on the banks’ excess reserves - the rate
is only 0.25%. And open a new lending facility for non-banks
- a similar move during the 2007-2009 financial crisis was widely criticized.
· The minutes of
the last FOMC meeting revealed a growing rift between those worrying
about deflation & about what steps to take if the economy deteriorates
& those pushing to tighten financial conditions by launching asset
sales, with out in left field Kansas Fed Chief Thomas Hoenig
still pushing for an early rate boost to thwart inflationary threats.
The Fed will be more
cautious than ever; for if it got things
wrong, the consequences for the economy
& its reputation could be disastrous. In the event, he said
“We don’t think a double dip is a high probability event”, and
that, while the rate at which new jobs are being created
“is insufficient to reduce the unemployment rate materially” &
the US economic outlook is “unusually difficult to predict”, the
situation isn’t dire enough to warrant a shift in policy (generally
interpreted to mean the Fed still plans to start disgorging the US$2TR
in financial assets it took onto its balance sheet
when buyers disappeared during the meltdown).
U.S. HOUSING SECTOR
‘ANYTHING BUT PRETTY’ (G&M, Joanna Slater)
· With the end of
the tax credit program for first-time buyers, the industry is now “getting
a more organic view of the housing market ... a view that is anything
but pretty.” Supply is vast but demand moribund. Housing starts are
at an eight months’ low. An index of homebuilders’ confidence is
at its lowest level in over a year. Despite record, or near-record,
low mortgage rates buyers are sitting on their hands. Applications for
new home mortgages are a post-1996 low. Pending home sales are way down.
And overarching all this is a gargantuan overhang of unsold new homes
& millions of foreclosures.
While this alone won’t
bring on a (double-dip) recession, neither will it be of much help in
speeding up, or maintaining the current rate of, economic
THE NEW, IN-YOUR-FACE
ISRAEL LOBBY (NP, David Frum)
· The new
Emergency Committee for Israel is has launched a hard-hitting campaign
to defeat Rep. Joe Sestak (D.-Penn) for having co-signed a letter accusing
Israel of blockading Gaza & not signing a bipartisan letter of US
support for Israel. Its board consists of Fox News’ Bill Kristol,
Gary Bauer of the Christian Right & Rachel Adams, the wife of Bush
Administration official Elliott Abrams. It fears Obama has a Plan B
for after the election, to impose a Palestinian state on Israel, &
wants to spike his guns.
They are right to
be worried. Few things would do more to
undermine the jihadi appeal & to
boost his standing in the Muslim community abroad, & at home
among the growing Muslim voting blocks in
key Midwestern states, ahead of the 2012 Presidential election than
being seen to impose a solution on the Israelis (possibly the biggest
favour he could ever do them since they seem unable, or unwilling, to
extract themselves from the corner they have painted themselves into).
CARNEY FORGES OWN
PATH (G&M, Jeremy Torobin)
· On July 20th
the Bank of Canada raised its benchmark overnight rate to, an albeit
still low, 0.75%, the second increase in as many months. Canada has
regained nearly all the jobs lost during the recession, and he also
wants to head off inflationary pressures & encourage consumers to
pay down debt before borrowing costs get still higher.
The market expects
one more bump-up in September &
perhaps another in October. But contrary to the headline, he’s not
alone : Australia has been hiking rates for some time & other countries,
incl. China & India, have been
‘snugging’ their monetary policy stances. It’s just the traditional
country ‘engines of global recovery’ that remain in the doldrums
& therefore aren’t.
CHINA CASTS SHADOW
ON U.S.- S. KOREA EXERCISE (NYT)
· The US & South
Korea on July 20th announced plans for naval exercises on
both sides of the Korean Peninsula (to deter North Korea from acts of
aggression on it). Those scheduled for July 25th - 28th
will be in the Sea of Japan, East of the Peninsula, & will involve
the nuclear carrier USS George Washington, one of the largest war ships
in the world, another 20 surface vessels & submarines, and 100 aircraft.
Others at a later date will take place in the Yellow Sea, to the West
of the Peninsula, which is claimed by China as its exclusive military
operations zone, even though last October it was the site for another
naval exercise involving the George Washington & South Korean vessels.
its point, albeit weakly, China just completed its own exercises, entitled
Warfare 2010, in the Yellow Sea which, however, involved
only four rescue vessels & four helicopters.
But this can be expected to prompt Beijing to
redouble its efforts to build a ‘blue water navy’.
THE CHINA WE DON’T
SEE (WP, Robert Tulford)
· Beijing calls
any illegal event involving over 24 people a “mass incident”. According
its Public Security Ministry their number increased from 90,000 in 2006
to 120,000 in 2008 & to 59,000 in the First Quarter of 2009 (after
which it quit publishing the number).
There is no shortage
of potential ethnic-, religious-, social-
& economic flash points.
THREE GORGES AREA
FACES “BIGGEST CHALLENGE” (CD, Li Wenfang)
· Heavy rains upriver
in the Yangtse drainage basin (& elsewhere in Central China) have
caused flooding that has killed hundreds of people & made thousands
more homeless, & increased the inflow into its reservoir to as much
as 70,000 cubic metres per second.
The 600 foot-high
dam was supposedly designed to handle inflows of up to 100,000 cubic
metres per second (but even before it was finished, there were reports
of numerous cracks & other imperfections in it). Dams in China frequently
fail (six YTD, & if this baby ever did, it would cause the mother
of all man-made disasters. To put things in perspective, the flow of
water over Niagara Falls is 2,500 cubic meters per second, and at 70,000
cubic meters per second, a week’s or so inflow is roughly equivalent
to all water consumed in Canada, or in Britain, or in Germany in an
CHINA OUSTS U.S.
AS TOP ENERGY USER (DT)
· Although Beijing
denies it, according to the Paris-based IEA China in 2009 overtook the
US in total energy usage, with 2.25BN BOE (mostly from coal) vs. 2.17BN
(although Americans still use 5x as much energy per capita as their
Chinese counterparts). While earlier estimates forecast this would not
come to pass until later this decade, during the recession US energy
consumption stalled while China’s continued to grow.
The same phenomenon,
rapid growth in China while the US economy stagnates or limps along,
will also bring forward the day its
economy will surpass that of the US as the
WATER DISPUTE RAISES
(NYT, Hari Kumar)
· High in the Himalayas,
in the Indian-controlled part of Kashmir, a hydro dam is being built
in a remote valley, the first of many planned to help feed the Indian
economy’s escalating power demands. But across the border in Pakistan
fears are growing this will enable India to manipulate the water flows
from the mountain glaciers that are the mainstay of Pakistan’s farm
sector (which accounts for 25% of its economy & employs half of
its population, and features the world’s largest contiguous irrigation
· With their populations
growing rapidly, water is critical to both nations. The rivers that
traverse the Pakistani Punjab, the country’s most populous province
& the heart of its farm sector, are its lifeline. But in India Himalayan
hydro projects are seen as vital to alleviating the power shortages
that are crimping its economy’s growth. The dam is built pursuant
a 50 year-old treaty that divided the water flow in the Indus River
& its tributaries, 80% to Pakistan & 20% to India; so the latter
is entitled to use some of it for farming, drinking water & power
generation but not to unduly store it. Hence the issue is less if the
dam can be built but about the timely release of water.
Water will become
more of a bone of contention between nations than oil; for Man can survive
without oil (albeit less comfortably
so than with it) but not without water. Already elsewhere
the right to Nile water is becoming a contentious issue for its dozen
or so riparian nations, Israel & Jordan (and the Palestinians on
the West Bank) have competing claims on the water in the river Jordan,
and India itself has concerns about Chinese dam projects elsewhere in
WHATEVER THE RESULT,
STRESS TESTS RISK STIRRING NEW UNEASE (AP)
· The outcome of
the EU stress tests to gauge the state of affairs in Europe’s banking
system will be made public this week. While the vast majority of banks
tested will pass, some must fail if the exercise is to have any credibility
(even though that doesn’t necessarily mean they are bankrupt, just
that they are under-capitalized & must raise new capital from investors,
which may prove a tall order, or governments). The main focus is on
the Spanish savings banks (the “cajas”) that were hard hit by the
real estate crash & that account for 29 of the 91 banks tested.
While little is known about the methodology used by the London-based
Committee of European Banking Supervisors (CEBS), its “adverse economic
scenario” is known to assume the EU economy underperforming by 3%
the official forecast of 1% GDP growth this year, & 1.7% in 2011.
Stress testing against
average EU growth doesn’t seem to make much sense given the widely
disparate ways various country economies have been affected.
MINISTER : BURKAS
EMPOWER WOMEN (Daily Mail, James Slack)
· While 67% of British
voters want the wearing of full-face veils outlawed, Immigration Minister
Damien Green said a ban would be “un-British” & contrary to
the tradition of a “tolerant and mutually respectful society”, and
Environment Minister Caroline Spelman that women are “empowered”
by the freedom to cover their faces (a view apparently based on her
one visit to Afghanistan which “taught her it is part of their culture”).
In Britain, as in
many other places, many politicians are mixed up about what should be
their priorities The problem with his argument is that the idea of a
‘tolerant and mutually respectful society” is alien to those who
make, or pressure, their women to wear burkas,
& with hers that, while it may be
“part of their culture” in Afghanistan, that doesn’t make it part
of Britain’s culture.
IRELAND RATING (WSJ, Neil Shah)
· Despite observers
remaining upbeat about its government’s ability to put its finances
in order, & a recent cautiously optimistic IMF report on the Irish
economy that applauds its government’s deficit-cutting efforts, Moody’s
on July 19th cut its rating by one notch to Aa2 to bring
itself in line with S&P that had already cut its rating to AA over
a year ago.
The good news
is that it upgraded its outlook from
“negative” to “stable”, suggesting
it foresees no need for a further rating cut in the foreseeable future.
DEEPER CUTS (WSJ, Gordon Fairclough)
· On Saturday July
17th the IMF & EU walked away from talks with Hungary’s
government on the grounds it wasn’t doing enough to shrink its
budget deficit, while the latter claimed they were ignoring the risk
in excessive austerity measures. Economy Minister György Matolcsy said
“We’ve been through more than four years of austerity ... we told
our partners that further austerity packages were out of the question”
& confirmed the government will go ahead with a new tax on financial
institutions to raise one billion dollars in new revenues that the IMF
& EU believe will constrain economic growth.
A key domestic problem
is the plethora of Swiss Franc-denominated residential mortgages that,
with the forint having weakened from 148 to 213 to the Swiss Franc in
the past three years, have become painfully difficult, if not impossible,
to service for many home owners.
TUMBLE UNEXPECTEDLY IN BRAZIL (Reuters)
· This bolsters
the view the economy, that many worried was in danger of overheating,
may be slowing down from its booming First Quarter pace, thereby reducing
the likelihood the central bank will aggressively raise rates on July
also helps to explain Brazil’s equally unexpected decline in retail
sales in June.
STRAWS IN THE WIND
· The US banks’
claim of “weak loan demand” is due, among others, to the S&P
500 companies sitting on US$1.8TR in cash.
In Canada S&P/TSX
300 companies’ cash accounts for as much as
40%-60% of their assets
· In China the rate
of growth in power output is a pretty good ‘concurrent indicator’
: in June it slid to 11.4% from 18.9% in May.
rate of GDP growth is unlikely to dip to the 8% level that Being deems
a red flag for potential social unrest.
· Asian oil companies
have been moving into the Alberta oil sands. Now one, state-owned Korea
National Oil Corp. (KNOC), has hired a Korean construction firm to build
the $300MM first phase of the Black Oil oil sands property it has owned
since 2006 that will be managed by the Canadian oil company it bought
last December for $1.7BN.
Bringing in a foreign
contractor is one thing but foreign workers
a horse of a different colour.