The Debts of the Spenders: Congress Eyes (Higher) Gas Tax to Close Budget Deficit

Can blood be squeezed out of stones? When one can only spend their way out of a deficit new means of raising cash must be found. Pundits predict that the US Congress is planning to hit an already overstretched consumer with gas taxes. Of course, given the US government's rate of spending, closing the budget deficit has about the same likelihood of reverting to Glass Steagall or overturning NAFTA.

Transportation chief Ray LaHood predicted the federal government's gas tax of 18.4 cents per gallon would not be enough to offset the nearly $500-million gap between how much revenue is available and how much money the department hopes to receive next year.

That dilemma, he said, would present Congress with two choices: Cut some programs or consider increasing fees, including the federal gas tax -- an idea LaHood discussed, but did not explicitly endorse, during Monday's conference.

http://thehill.com/blogs/blog-briefing-room/news/69815-lahood-gas-tax-one-way-to-pay-for-transportation-budget

The Debts of the Lenders: Asian Emerging Markets Face Food Inflation from Rice Rally

US Rice futures are up 25% in recent months.


Emerging Asia’s Growth Outlook May Get Clipped On Rice Rally

By and large, emerging Asia investors aren’t paying much attention to the rising price of rice. Perhaps they should start. Rice prices have recently surged, nearing the record highs of 2008 as India appears set to become a net importer for the first time in more than 20 years on the
weakest monsoon season in 37 years. The government expects its summer-sown rice output to fall 18%.

The Philippines, one of the largest global rice importers, has also suffered production shortages this year that could increase the country’s demand. On Thursday, prices prompted the Philippines to raise its budget by 21%. Meanwhile, rice futures traded in the U.S. have
increased by about 25% in recent months.

The director general of the International Rice Research Institute Global, Robert Zeigler, underlined the concerns last week in announcing a campaign to raise $300 million over the next
five years to finance research for increasing rice output.

If the cost of rice, the food mainstay of most of Asia, continues to rise relative to other goods and services, the impact on growth in emerging-market Asia, which is expected to lead the world next year, could be crimped. Higher prices would give people less disposable income, and could effect political and social stability.

Food security has become as a major socio-political issue in Asia in recent years due to demand-supply imbalances—a problem expected to grow with increasing populations and potential
climate change.

And rice is not alone. Prices of other food stuffs including sugar, cocoa, tea and Chinese garlic, have been gaining, too.

“Asia’s current recovery is still driven to a large extent by domestic demand and especially household spending,” according to a research report by Frederic Neumann, senior Asia economist at HSBC in Hong Kong. “But, rising food (read: rice) prices could conceivably put such a consumption recovery at risk.”

Aggregate consumption, after all, stalled in 2008 when rice prices soared. Neumann found that the weight of rice on consumer prices even exceeds the impact of energy in some Asian markets.
But a concurrent rise in energy prices could increase the growth impact from rice prices.
Several economists and money managers aren’t yet concerned.

“A rise in rice prices might make me mark down expectations in growth,” said Carl Weinberg, chief economist at High Frequency Economics. “For the moment, that’s not high on my list.”
Simona Mocuta, a senior economist for Asia at Global Insight in Lexington, Mass, added, “By and large, we don’t see the same type of inflationary pressures that we saw in the early part of 2008.”

Source CME News For Tomorrow

The Debts of the World: Will High Grade Corporates Eventually Supplant Government Bonds?

Will high grade corporates eventually supplant government bonds?

The once unthinkable state of affairs - that ultra safe government debt commands a lower yield than private capital - might soon be reversed. Deteriorating fiscal conditions in the UK, USA, and other countries (primarily the Eurozone but feel free to throw in other culprits) might lead to a reversal of fortune for governments.

In particular, I have been looking at the Gilt market for UK government debt. It is possible that the authorities may be forced into a corner over the next year when the BOE's bond purchase program ends in January 2010.

However, the government has a potential ace up their sleeve - the imposition of higher regulatory capital among bank balance sheets. The FSA and its sister agencies in the US and the Eurozone have been contemplating lower leverage ratios among insurance companies, banks, and other private sector financial entities. They have hinted that the "safest" form of capital in terms of liquidity are government bonds as opposed to commercial paper. The sudden demand for government paper could flatten yield curves.

The Debts of the Spenders: GS Upgrades the Grains

Disclosure: No position in the grains as of now. But I am a bull longer term. GS' recent statement on agricultural prices gives rise to concern though b/c one always wonders if their client services and trading divisions are aligned.

Goldman Sachs Sees Big Upside In Corn Prices In 2010

Corn has the most upside potential of the agricultural commodities in 2010, investment bank Goldman Sachs said Thursday. U.S. use of corn for ethanol is a major factor in the market’s bullish outlook, the bank said in a commodities note.

Low stocks and higher energy prices “suggest material upside” to corn prices, said Goldman.
The bank forecasts Chicago Board of Trade corn futures prices to rise to $4.75 a bushel by the end of 2010 and average prices of $5 a bushel in 2011.

In other grain markets price forecasts, the bank is more neutral. The large 2009-10 world wheat crop and “comfortable” stock levels, combined with minimal demand growth, indicate the wheat market will be well supplied in the coming year, said the bank.

Goldman increased its 12-month Chicago wheat price forecast to $6 a bushel from $5.50 a bushel, with the bullish outlook for corn providing spillover strength. “The potential for corn prices to exceed our expectations would also present upside risk to wheat prices, as feed substitution between wheat and corn has historically kept the wheat/corn ratio within a relatively limited range,” Goldman said.

The 12-month forecast for Chicago soybean futures was revised up to $11 a bushel from $10 a bushel due to growth in demand from emerging economies.

Source CME News For Tomorrow

The Debts of the World: Panama Canal to Replace Long Beach?

Interesting. Long Beach, California is THE entry point into the US for the majority of imported goods - particularly those from China and Japan. However, merchants have long been frustrated by the eternally squabbling Longshoremen's Union that represents dock workers. A little secret - these tradesmen already have some of the highest paid, blue collar jobs in the country (well over 6 figures) but they still want more!

Instead, recent developments in the Colon Free Trade Zone in Panama have re-opened the possibility of an alternate channel into the continental US that links the Far East w/burgeoning ports in Miami and along the Louisiana/Texas coastline.

Moreover, an improved channel spells faster turn around time for the most dynamic trade of all - the Latin America/China trade route that sends raw materials and food supplies to the factory cities and workers lining the East China sea.

http://logisticstoday.com/global_markets/shippers-panama-canal-alternative-west-coast-ports-1103/

The Debts of the World: US Cargo Volume Gives Retail Bulls Hope

I was bullish on a rebound on world trade earlier this fall. Spot freight rates are up and so is container volume according to two industry data sources.

Bulls have hope according to two industry sources that see higher container volume and spot freight rate increases:

http://www.nrf.com/modules.php?name=News&op=viewlive&sp_id=837

http://www.businesswire.com/portal/site/home/permalink/?ndmViewId=news_view&newsId=20091123006101&newsLang=en

The Debts of the Lenders: Japan Embarks on Another Round of Quantitative Easing

Dumb and dumber (US and Japan) compete for carry trade flows. Now, the BOJ, pioneers of quantitative easing, have taken a lesson from Bailout Bernanke by accepting "a wide range of collateral" in exchange for ultra cheap money. Nikkei bulls and export starved manufacturers have gotten the green light to go up another few hundred points on the stock index.

But, in the process, each country is debasing their currency and accruing billions (trillions, gazillions, who knows any more?) in debt for future generations to pay off.


TOKYO (Dow Jones)--Japan's central bank unveiled a surprise monetary easing effort Tuesday that could inject up to $115.7 billion into an economy facing deflation and a soaring currency, but it failed to impress financial markets or economists eager for bolder action.

The Bank of Japan's move, which followed increasing political pressure from Japan's new government, underscores the pessimism surrounding the Japanese economy. Japan has posted two straight quarters of economic growth and seen a resurgence in demand for its exports. But declining consumer prices and the yen's strength against the dollar have raised concerns that Japan could slip back into recession.

At an emergency meeting Tuesday, the BOJ adopted a new lending program to provide 10 trillion yen worth of funds for three months at a rock-bottom rate of 0.1%, taking in exchange a wide range of collateral from government bonds to deeds on loans. But the bank stopped short of lowering its key policy rates, also at a low 0.1%.

Source: DJ Newswire