The Debts of the Lenders: Yen To Resume Carry Trade Status in 2010

If I had to make a bet (and I am), I would say that the Federal Reserve will raise interest rates sometime in 2010 despite macro-economic slack in jobs and capital lending. The beneficiary of such changes would be the founders of the carry trade, the deflationary demagogues of Asia, the Japanese.

There’s at least an 88 percent chance the U.S. will raise rates in 2010, up from 78 percent on Nov. 24, futures on the CME Group show. Prices indicate a 46 percent likelihood of an increase by June, up from 30 percent on Nov. 30. By contrast, overnight interest-rate swaps traders see no chance that the BOJ will increase its benchmark next year, Bloomberg data show.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aIf0OWDzVKMM&pos=7

Another beneficiary of interest rate uncertainty will be interest rate futures and options on futures powerhouse, CME Group, whose exchange business suffered from quantitative easing this year. A Federal Reserve committed to low interest rates left the trading environment in a monogamous, one way trading environment. With few parties willing to take the other side of the bet, the exchange suffered from lower volume. If the US economy's outlook begins to improve (however skeptical observers may be of the statistics), then policy makers will be pressured to tighten. Moreover, massive budget deficits are attracting the attention of the bond vigilantes who have been quietly sharpening their proverbial knives in expectation of treasury sell-offs from higher supply concerns. This renewed interest in interest rate speculation may prop the firm's fortunes up again.

The Debts of the Lenders: Chinese Minstry Denies Inflation is Occurring Even As M2 Rises 29%

If that were the case, then why is the government increasing purchases of food stocks (the most volatile component of inflation - especially for emerging market nations). In other news, the Fairy Godmother is leaving coins under children's pillows.

China NDRC: Money- Supply Growth Unlikely To Stoke Inflation

The recent rapid growth in money supply is unlikely to stoke inflation despite a rise in agricultural-product prices, the National Development and Reform Commission, the country’s economy planning agency, said Monday.

“In a situation where overall demand is insufficient, particularly one where there is relatively severe excess capacity in some industries, the possibility that a fast increase in money supply would by itself lead to inflation in the real economy is rather small,” the commission said in a
statement.

At the end of November, M2 money supply was up 29.7% from the level a year earlier. Domestic grain and edible-oil prices are unlikely to fluctuate much as government has sufficient reserves, it said. “The government has decided ...to continue to increase the minimum purchase
price for rice and grain in 2010,” the commission said as it vowed to keep buying soybean and corn next year.

The commission also said soybean imports will reach a record high in December, but didn’t provide a detailed forecast. It isn’t necessary to adjust domestic oil-products prices, it said, as the 22-day moving average of a basket of international crude prices is up only 1.85%.

Source CME News For Tomorrow

The Debts of the Spenders: ISM Report Predicts US Growth in 2010

All jokes aside as to what the US manufacturing sector does produce, the nation's supply chain executives see positive growth for 2010. There are some interesting charts in here. I encourage readers to pour over the data.

http://www.ism.ws/about/MediaRoom/NewsReleaseDetail.cfm?ItemNumber=19911

The Debts of the Spenders: Bond Vigilantes Place Bets on Eurozone

It is a universal truth that nearly everyone enjoys the benefits of government spending but balks when the bill arrives. Here is a spotlight on 2 of the Eurozone PIIGS (Portugal, Italy, Ireland, Greece, and Spain) the group containing the fiscally weakest EU members.

Despite harsh spending cuts Irish bond yields are creeping higher. The situation in Greece however, continues to worsen.

The Irish government announced draconian spending cuts of 6 billion Euros in order to stave off a debt crisis in the worst modern-day downturn in the nation’s history. Even so, Irish government bond yields have been rising relative to German government bond yields, the benchmark for the Eurozone. Over the past five years the spread had averaged about 40bps. Now it is 170bps. But, the Irish seem to be making the necessary cuts forced on them by lower tax receipts and currency union.

The Greek government, on the other hand, is not taking the same tack. Witness comments by the country’s Premier as reported in the Telegraph by Ambrose Evans-Pritchard:

Salaried workers will not pay for this situation: we will not proceed with wage freezes or cuts. We did not come to power to tear down the social state.

http://www.creditwritedowns.com/2009/12/greece-risks-financial-armageddon-while-ireland-makes-cuts.html

The Debts of the Spenders: The Top 10 Countries Most Likely To Default

No surprises here for those following current events. You might be surprised by the inclusion of others.

http://www.businessinsider.com/the-worlds-greatest-sovereign-risks-2009-12

The Debts of the Lenders: Chinese Consumers Increase Spending

While the Western consumer - particularly in the USA and the UK - continues to save, his/her Chinese counterpart has increased spending. Of course a lot of this spending is fueled by a government debt bubble. Unlike their American, British, or EU counterparts, Chinese banks are being FORCED to lend by their government (one of the hallmarks of an authoritarian, semi-command and control economy is that officials can have their wishes implemented almost immediately).

The other interesting part of the equation which the article does not address is the potential for a US export boom. As the dollar continues to depreciate from fundamental factors like immense budget deficits and a lack of political will to control spending, US exports become more competitive in the global economy. But the shift from a manufacturing to a service based economy means immense financial and personal turmoil for the unprepared. The much vaunted service economy conceived by Ivory Tower academics has actually resulted in the stratification of society into the haves and have nots.

The Chinese market is “on full tilt — booming is an understatement these days,” said John Bonnell, the director of Asia vehicle forecasting at J.D. Power & Associates.

China is pulling ahead at this particular moment partly because Americans, debt-laden and worried about their jobs, are pulling back. After decades of gorging on consumption, Americans are saving. And the Chinese, whom economists thought were addicted to saving, are spending more.

Among China’s 1.3 billion people, rising incomes are finally making large numbers of Chinese prosperous enough to make big-ticket purchases.

http://www.nytimes.com/2009/12/10/business/economy/10consume.html?_r=2&ref=business

The Debts of the Lenders: Japan's Actions Do Not Match Words On Latest Stimulus Plans

Japan recently unveiled its 4th stimulus plan since 2008 thus placing it in the dubious ranks of the world's most indebted nation. Japanese politicians have publicly fretted about the need to reign in spending and reduce the amount of bond issuance in 2010. However, bond traders are unconvinced and have pushed up short interest in JGB's (Japanese government bonds) up to their highest levels ever.

Watch this video:

http://www.youtube.com/watch?v=nf0uBXXQubM