The Debts of the Lenders: China Inflating BRIC Bubble Again

Excellent article from the Professor who quotes a variety of senior Chinese cadres on the economy. For more background, skip to the bottom and view an older story I wrote at the beginning of the month, "Chinese Power Struggle" :

There seems to be a serious debate among Chinese policymakers over the stimulus package.

The debate lists, on one side, people centered on the PBoC, the CBRC and the National Bureau of Statistics, who are worried that the stimulus may be exacerbating Chinese imbalances.

On the other side are people in the State Council, the Ministry of Commerce and in the provincial and municipal leadership who are more worried that any half-heartedness will lead to a significant rise in unemployment.

Source:

http://mpettis.com/2009/07/

more-public-worrying-about-the-chinese-stimulus/

The key take away here is that China continues to be worried about preserving one-party rule. As an authoritarian regime whose legitimacy is increasingly being questioned (not least because the "Communist" moniker is widely derided) by both internal and external sources, political leaders are keen to co-opt opposition or crush them if necessary.

Recent events in Xinjiang SAR (Special Administrative Region) and Tibet point to growing unrest among ethnic and religious minorities. But a far larger problem is the potential domestic revolt among the huge floating pool of migrant workers. Historically, Chinese revolts have been triggered by peasants that overthrew the old emperor before installing a new dynasty.

China must also balance its future energy needs w/public diplomacy by continuing to acquire reliable sources in Central Asia, Siberia, Africa, and the Middle East. Once confined to a regional zone, Beijing is increasingly flexing its muscles against US spheres of influence. And its most powerful tool of diplomacy is not its nuclear arsenal but control over US finances in the bond markets.

Background:

http://debtsofanation.blogspot.com/2009/07/
debts-of-lenders-chinese-power-struggle.html

The Debts of the Spenders: Bernanke Floods Congress W/Lengthy Mortgage Proposal

Bernanke is targeting yield spread premiums and closed end mortgages. Most of these proposals actually look consumer friendly - a rare surprise from an organization dedicated to supporting its Wall Street constituency.



Source: http://www.financial-planning.com/news/
fed-sweeping-mortgage-plan-2663369-1.html

The Debts of the Spenders: Unemployment Gap Between Blacks and Whites Widens

An alarming statistic that shows green shoots are not really growing.

While unemployment rose steadily for white New Yorkers from the first quarter of 2008 through the first three months of this year, the number of unemployed blacks in the city rose four times as fast, according to a report to be released on Monday by the city comptroller’s office. By the end of March, there were about 80,000 more unemployed blacks than whites, according to the report, even though there are roughly 1.5 million more whites than blacks here.

Across the nation, the surge in unemployment has cut across all demographic lines, and the gap between blacks and whites has risen, but at a much slower rate than in New York.

Economists said they were not certain why so many more blacks were losing their jobs in New York, especially when a large share of the layoffs in the city have been in fields where they are not well represented, like finance and professional services. But in those sectors, the economists suggested that blacks may have had less seniority when layoffs occurred. And black workers hold an outsize share of the jobs in retailing and other service industries that have been shrinking as consumers curtail their spending.

“African-Americans have been hit disproportionately hard,” said Frank Braconi, the chief economist in the comptroller’s office. “The usual pattern is that the unemployment rate among African-Americans tends to be about twice as high as for non-Hispanic whites, but the gap has widened substantially in the city during the past year.”

Historically, the unemployment rate for blacks has always been higher than for whites. But since the start of the recession, in December 2007, the overall rate has risen by 4.6 percentage points — driving the black unemployment rate as high as 15 percent in April. The jobless figures among blacks became enough of a national issue that at a White House news conference last month, President Obama was asked what he could do to “stop the bloodletting in the black unemployment rate.”

http://www.nytimes.com/2009/07/13/
nyregion/13unemployment.html

Additionally, read this article:

In some U.S. states, nearly half of the job seekers who have stopped looking for work have done so because they simply don't believe they'll find anything. Indeed, the number of discouraged workers nationwide has more than doubled in the past year. This trend won't be reflected in the widely publicized unemployment rate, as discouraged workers aren't included among the unemployed. Still, in states as diverse as Mississippi, South Dakota, and New York, the span of this often invisible slice of workers signals a population losing its hope.

Between the third quarter of last year and the second quarter of this year, Mississippi averaged the highest percentage of discouraged job seekers among its marginally attached--nearly 50 percent, compared with 32.6 percent nationwide. South Dakota ranked second after Mississippi, with 48.5 percent of marginally attached workers classified as discouraged. Florida, Michigan, Connecticut, West Virginia, and New York followed in ranking for the highest rates of discouragement.

Source:

http:/finance.yahoo.com/news/States-Where-the-Unemployed-
usnews-3479448580.html?x=0

The Debts of the Spenders: Karachi Stock Exchange Recovery

*Credit Dying_Bear.

Wow, this rally is really something. I had thought that the BRIC emerging market recovery was something special but the Karachi Stock Exchange (KSE), based in Pakistan also experienced a nice rise. Keep in mind that we are speaking of a country that is widely rumored to shelter Osama bin Laden and run by a military junta which is routinely involved in large scale engagements with insurgents.

So, what is behind Karachi's rise? Is it a return to the mean? Or are Western policymaker's actions starting to have an effect?

*Disclosure - I continue to be short Pakistani politicians and long the possibility of an India-Pakistan WW3.

The Debts of the World: El Nino Outlook Late July 2009

My take on this story is not so much on Australia but the weather effect on the other side of the Pacific - particularly in South America. Argentine soybeans and wheat have already been negatively affected by poor weather and inept government planning. But El Nino has to develop soon since as the year progresses, this will have less of an effect (remember Argentina is on the OTHER SIDE of the hemisphere so the seasons are reversed).

Meanwhile, in the US grains continue to have a favorable outlook which dampens bullish prospects. I posted earlier about trend funds being net short grains like wheat and corn. My outlook still remains bullish longer term as an unusually cool summer can give rise to early frost.

But to be fair, this cool weather has given rise to government bureau predictions of ripe growing conditions for crops as hot weather tends to dry the plants. Also, the deflationary outlook continues to hover over the global economy and this can dampen demand for agricultural products because of a stronger dollar (e.g. increased risk aversion).

Australian Bureau: El Nino Developing In Pacific

Ocean conditions in the Pacific Basin suggest an El Nino event continues to develop, and should these conditions persist as predicted into spring, 2009 will be considered an El Nino year, the Australian government’s Bureau of Meteorology reported Wednesday.

Pacific Ocean surface temperatures, which drive El Nino events, currently exceed El Nino thresholds and are around 1 degree Celsius above average, while cloud patterns and rainfall along the equator are becoming consistent with a developing El Nino, it said in a regular review of climate indicators.

A large amount of the sub-surface water of the tropical Pacific is also warmer than the long-term average, particularly in the east, which is also consistent with an El Nino, the bureau reported.

“All international climate models predict the tropical Pacific to continue to warm and to be above El Nino thresholds throughout most of the second half of 2009,” the bureau reported.

“As all models surveyed agree El Nino conditions will persist, and as historically the southern winter is a time of good model predictability, the probability of El Nino conditions remaining through 2009 is high,” it added.

El Nino usually refers to the extensive warming of the central and eastern Pacific and cooling in the western Pacific. It generally leads to a major shift in weather patterns across the Pacific and in Australia and is usually but not always - associated with below-average rainfall in eastern and southern Australia, potentially withering winter crops such as wheat and barley.

But the bureau warned some current indicators run contrary to the “normal” development of an El Nino, which is usually associated with sustained strong negative values for the Bureau’s Southern Oscillation Index. The SOI has risen in recent weeks and is now strongly positive, standing at +12 in the 30 days ended July 20, up from a monthly value in June of -2 and up from - 12 at times in May and June, the bureau reported.

Source CME News For Tomorrow

The Debts of the Spenders: Corn Wars - Index Funds vs Black Box Traders

Earlier this year, the index funds were advancing based on heightened inflation fears. They have not changed their tune. But now, the short term traders like quants are winning.

CBOT Corn Spec Funds Go Net Short, Market Eyes More Selling

Speculative funds last week moved net short in Chicago Board of Trade corn futures for the first time since April, and analysts and traders differ on whether funds will extend their short positions much further.

A short position is held by a trader who agrees to deliver a commodity at a future date. Holders of short positions are expecting prices will drop. Friday’s supplemental commitment of traders report from the Commodity Futures Trading Commission showed that the “trend-following” funds were net short 4,738 contracts as of July 14. Those funds had reduced their long positions by 11,848 contracts and increased their short positions by 11,606 contracts during the preceding week.

It was the first time since the week ended April 28 that the speculative funds had been net short.

Analysts say the liquidation was prompted by a long stretch of favorable crop weather, which is fueling expectations of a high-yielding crop. Also, the U.S. Department of Agriculture said June 30 that farmers would plant 87 million acres this year, the second-highest U.S. total.

Another factor, said Jeff Hainline, director of Advance Trading, is concern about the potential for the CFTC to limit speculation in the markets. A Senate subcommittee recently issued a report examining excessive speculation in the wheat market, and the CFTC has announced plans to enact speculative position limits in the energy market.

A lot of the speculative, or trend-following funds are “black box” traders that simply trade based on the recent trend, said Rich Feltes, vice president and director of research for MF Global.

Index funds, meanwhile, have continued to add to their net long position, noted Arlan Suderman, analyst for Farm Futures. The mostly long-only funds added 8,267 contracts to their long positions and added 4,800 contracts to their short positions, putting them net long 313,242 contracts, the CFTC said.

Suderman said the index funds were increasing their net long position “based on these long-term inflationary perceptions.” Traders and analysts differ on whether the speculative funds, having gone net short, will further extend their short position.

The market’s movement will depend on whether funds continue to liquidate, they said. Feltes said the funds typically “get long a lot more than they get short. “I would say that the selling that has been in the market from the liquidation of the trend-following funds, except for soybeans, is likely going to ease or abate in the weeks ahead,” Feltes said.

But that doesn’t mean prices won’t remain under pressure, he said. The market has yet to feel the weight of selling by the U.S. farmer, “who still holds over 2 billion bushels of old crop corn and is frozen in the headlights in this waterfall formation in corn.”

Source: CME News For Tomorrow

The Debts of the Spenders: Cash Crunch Hits Philadelphia

Pennsylvania is not commonly thought of as an indebted state, nor Philadelphia prone to fiscal excess - at least, not to the extent of sister cities in California, Nevada, Florida, and Michigan.

Only a few weeks after Independece Day celebrations, the nation's first capitol announced it would be unable to meet future fiscal obligations.

Philadelphia Mayor Michael Nutter on Friday blamed the drastic move on the failure of the Pennsylvania legislature to act on his request for authorization to raise the city sales tax and change the formula for the city's contribution to its employee pension plan. Mr. Nutter said these items are necessary to help close a projected city budget deficit of $1.4 billion over the next five years.

The city will delay spending on anything other than payroll, debt service and emergencies, until passage in Harrisburg of a state budget and laws related to the sales-tax and pension proposals. Philadelphia's sales tax would increase by one percentage point to 8% for five years under the proposal.

"These steps come amid a growing cash crisis which must be addressed immediately," Mr. Nutter said at a news conference. He has attributed the city's budget shortfall to broader economic weakness, which has eroded tax revenue, coupled with rising city pension obligations. Similar forces have pinched state and local governments throughout the country.

There were signs Friday afternoon that state lawmakers were moving on the budget and the city's tax and pension proposals.

http://online.wsj.com/article/
SB124785789416759389.html