Money Supply still contracting

The government may have stopped producing the M3 data, but several sources have done a fine job reproducing the broadest money supply data

Commodity carry-Roll trade generates alpha

Finding Buried Alpha With the Commodity Carry Trade

Commodity roll yields are usually discussed in the context of optimising the risk and return of long only commodity indices, or explaining why commodity indices have lagged spot performance but the “commodity carry trade” can be a huge engine of alternative beta in its own right, and one that eclipses both long only commodity returns and other risk premiums. The strategy could hardly be simpler, which is why it should be dubbed alternative or exotic beta that is passively replicable as opposed to alpha that’s not – and the ease of execution leaves plenty of time for 3 hour long French lunches.

IEA's view on key oil demand & supply issues over next few decades

Forecast says oil sands to play increasingly important role as crude prices to keep climbing for two decades

China's voracious appetite for fuel will push up oil prices substantially over the next two decades and will ensure that unconventional oil, notably Canada's oil sands, will play an increasingly important role in the global energy mix, the International Energy Agency said its flagship World Energy Outlook report.
The report, published Tuesday, said crude oil prices will reach $113 (U.S.) a barrel (in 2009 dollars) in 2035, up from an average of $60 last year.

ECONOMICS - Peripheral Euro bond action beginning to look ugly

AOK - excellent if slightly snippy post that notes some worrying trends for Ireland & other peripheral euro economies, as the run on their bonds seems to be shaping up while the German support is carefully but obviously limited ..

iPIGS + CBs = GSEs Redux

Thursday, November 04, 2010

That's QE behind us and if yesterday was Xmas eve then today feels like Christmas afternoon, with the parents on the sofa having eaten too much QE and sold even MORE dollars. But the ADHD market kids having unwrapped their pressies, broken most, lost the rest and will be looking for something else to play with. TMM have been waiting for Europe to fill the role for some time.

Feedback loop between home price declines & "walk-away" foreclosures

AOK - An interesting thesis and well-documented chain of casuation & feedback. The critical parameters are of course the delta and time-frame of incremental "walk-aways" to home price declines. And thsoe parameters in turn probably have feedback effects to the strength of the loca ljob market. The less income potential in the area, the less likely I am to feel good about buying a house and therefore home demand is weaker; and the less perceived income potential the more likley I am to consider wlaking away form my under-water mortgage and upping roots. All suggesting that we'll see an acceleration of differences between various US housing markets.

Understanding the Housing 'Walk Away' Threat and Measuring Its Risk

by: Michael James McDonald November 23, 2010  

The “strategic default” or “walk away” is the final hurdle housing must get over. It only exists in certain areas and regions but it is potentially very dangerous. It can trigger self-sustaining price declines that carry forward and destroy building projects, investor profits and bank earnings. Builders, bankers and investors must all know how to quantify this risk.
This article presents a conceptual approach to doing this.

Chinese forest products demand & prices higher

 China’s Hunger for Wood Raw Material Pushes Timber Prices Upward

by: Hakan Ekstrom November 23, 2010

"Continued increases in demand for wood raw-material from sawmills, plywood plants and pulp mills in China has pushed domestic log prices upward and many Chinese companies are increasingly exploring the opportunities of importing more logs and wood chips to supplement the domestic fiber sources.
The tight log supply has resulted in higher prices for domestically sourced logs this year. Chinese fir sawlogs prices were almost 17 percent higher in the 2Q/10 as compared to the same quarter in 2009, according to the Wood Resource Quarterly (WRQ). Eucalyptus logs, mainly used by the pulp industry, have also become more expensive the past 12 months, reaching new record-highs.
The continued high costs of locally sourced logs has resulted in higher volumes being imported so far this year.

Employment cycle chart for post-war recessions

AOK -  I've seen this graphic around a few places, it is probably the single most powerful image that scales the depth of this economic downturn and the associated issues. Some comments on today's jobs report follow:

05 Nov 2010 10:41 am

Ryan Avent is cheered by the October employment report:
I think the most plausible explanation is that private-sector employment had begun a decent recovery earlier this year, then lost steam because of the European debt crisis, the BP oil spill, and the fading contribution of fiscal stimulus. Those restraints have begun to lift. Data on factory orders, retail sales and car sales suggest a modest rebound began in the last few months. Indeed, retail employment rose 28,000 in October. The odds favour a continuation of decent job growth, though not as briskly as in October. And hazards remain. Bank credit continues to contract, although more slowly than earlier this year. Political gridlock could trigger a premature shift to fiscal tightening. But for now, optimists should celebrate, and Mr. Obama can rue the injustice of the economic data calendar.




Felix Salmon says that the report continues "the same story we’ve been seeing for a while: good news for the employed, bad news for the unemployed":
Overall, the private sector has now added more than a million new jobs over the past year — a good start, in the wake of the 8 million job losses we saw over the course of the recession. And 400,000 of those new jobs have come in the past three months. For people with jobs, wages and hours are rising, too. Over the past 12 months, average hourly earnings are up 1.7%, while average hours worked are up 1.8%, resulting in a rise in average weekly earnings from $753.20 to $779.64. That’s a raise of $1,375 per year — pretty healthy, given the state of the economy and the large number of people out of work.
But government employment is down, and the extra hiring simply isn’t making any kind of a dent on the unemployment figures. 

Krugman is still dour:

At this rate we’ll return to full employment around 2030 or so."

 

Financial Advisor Sentiment - Highest since July 2007

Financial Adviser Sentiment: Highest Since July 2007 by Babak
This week the Investors Intelligence survey of newsletter editors is 46.7% bullish. That is the highest level of bullishness since May 2010. Another sentiment measure, much less known is the Rydex SGI Advisor Confidence Index (ACI).

Rare Earths - a detailed look forward

The Post-China Price: What Beijing's Green Revolution Means for Rest of Us  by Sean Daly

"Living in a liquidity-driven economy for the past decade, US pundits can be excused for seeing yet another mania in “rare earths” miner start-ups like Molycorp (MCP), Ucore Rare Minerals (UURAF.PK), and Rare Element Resources (REE), all of which now sport rich valuations and skeletal operations. But when you really look deeply into the historical pricing circumstances of the rare earth elements (REE) industry, you don’t see a bubble. You see the exact opposite.

On the Value of High Yield

AOK - Read through for a great graph on high yield spreads, note signifcant & fast compression from earlier in the crisis.

China tight on Farmland

China Running Out of Farmland: What This Means for U.S. Stocks
by: Greyson S. Colvin October 27, 2010

As the Chinese growth engine continues to propel forward, the government is faced with the dilemma: How do we feed our growing and developing population? China’s middle class is expected to double over the next 10 years and will demand a higher protein diet. China has roughly 20% of the world’s population although only 7% of the world’s arable land.

Goldman follows through on test 50-yr bond issuance to take in $1.3B

Submitted by Tyler Durden

"As we noted yesterday, Goldman was in the market for a 50 year bond at a token amount of $250 million. We speculated this was merely a test to gauge market interest in the space.

Commercial real estate split into three different markets ...

More on the 'Trifurcated' Commercial Real Estate Market by Brad Case

"I commented on a post last week about commercial property values that Moody’s had reported a “trifurcated” market in which the values of “trophy” properties are already going up while the values of properties from distressed sellers are continuing to sink. David Geltner, a professor at MIT’s Center for Real Estate, fleshed out this interesting market situation in a separate commentary published on the Moody’s web site.

Glut in shipping market likely to continue

AOK - Seems unlikely this will be contributing to inflation soon. On the other hand, over at least the medium terms the low elasticity of supply is likely to make oil shipping charges & availability another contributor to oil price & economic volatility ... Supertankers Face Two-Year Losing Streak as Frontline Shuns Oil By Alaric Nightingale Oct. 25 (Bloomberg) -- Supertanker owners are facing the longest stretch of unprofitable rates in 17 years as the supply of new vessels increases nine times faster than demand for oil. Shipping companies are making $3,155 a day for a single voyage, 90 percent below the $30,900 Frontline Ltd., the biggest operator, says it needs to break even.

Global Nuclear Power Industry - A Current Overview

AOK - Carbon emissions concerns, galloping emerging market demand for electricity and worries about the stability of future petrocarbon supplies are driving a resurgence of interest & investment in nuclear power

Syria re-establishing itself as a power-broker

 AOK - a quick history of the roots of the three-way alliance and an analysis of how Syria has re-positioned itself to once again be a critical player in Middle Eastern affairs.

Syria, Hezbollah and Iran: An Alliance in Flux

By Reva Bhalla, October 14, 2010 | 0916 GMT
Iranian President Mahmoud Ahmadinejad arrived in Beirut on Oct. 13 for his first official visit to Lebanon since becoming president in 2005. He is reportedly returning to the country after a stint there in the 1980s as a young Islamic Revolutionary Guard Corps (IRGC) officer tasked with training Hezbollah in Lebanon’s Bekaa Valley. A great deal of controversy is surrounding his return. Rumors are spreading of Sunni militants attempting to mar the visit by provoking Iran’s allies in Hezbollah into a fight (already the car of a pro-Hezbollah imam who has been defending Ahmadinejad has been blown up), while elaborate security preparations are being made for Ahmadinejad to visit Lebanon’s heavily militarized border with Israel.
Rather than getting caught up in the drama surrounding the Iranian president’s visit, we want to take the opportunity provided by all the media coverage to probe into a deeper topic, one that has been occupying the minds of Iranian, Syrian and Hezbollah officials for some time. This topic is the durability of the Iran-Hezbollah-Syria alliance, which STRATFOR believes has been under great stress in recent months. More precisely, the question is: What are Syria’s current intentions toward Hezbollah?

Well I'm not buying any U.S. bank stocks soon ...

AOK - A well-written piece pulling a lot of the current bank & mortgage issues together.

An update on asymmetric information and corporate governance in bank bailouts

Edward Harrison | October 21, 2010 2:00 pm |

---

"Last June I wrote a post on the topic of corporate governance that pointed to one of only two outcomes as the likely result of the bank bailouts. Outcome number one was bank prudence and low credit growth in the face of uncertainty. Outcome number two was a reckless heads I win, tails you lose mentality that permeated the 1980s  leading to the S&L crisis. To date, we have mostly seen outcome number one, which (if you can believe it) is the thing you would like to see.  But this necessarily means slow growth until the uncertainty about earnings and litigation passes.
Let me take this opportunity to update you on my thinking in the wake of the foreclosure crisis.
Regulatory forbearance means under-performance or excessive risk

Bill Dahmer - Thoughts from a Warm Island: Mexico and other Emerging Markets

Mexico has not really been on my radar, so it is good to read something about it.  Anecdotally, I have one friend who is Mexican who recently moved from Austin back to Mexico.  She seems to love it.  No poverty where she is.  At least not in the photos she posts on FB.  My step-brother on the other hand is a Drill Push and has been working down in Mexico for a number of years now.  He thinks it is the biggest SNAFU going.  So the truth is probably somewhere in between. 

Bill Dahmer - Thoughts from a Warm Island: China and The Markets

By Bill Dahmer

China is very effective at using organizations like the WTO and IMF to its own advantage against the west, while effectively keeping foreign competition out of China with tariff and non-tariff barriers to trade as well as with bureaucratic measures.  I know lots of foreign companies make stuff in China, but very few actually make any money in China.  The Chinese have simply not allowed that to happen.  It is almost a political-trade policy crafted after studying Japan's export-driven trade policy combined with France's masterful manipulation of EU political institutions for its own narrow, national self-interest.  You have to admire China Inc. on some level that they are able to out-compete us using the western institutions that we created like the WTO, IMF and even the UN. 

PLEASE READ THIS - Decriminalization Works - it's been tested

AOK- This is an incredibly important point to get out to North Americans - the "War on Drugs" is not even close to being won; with not only insane amounts of money, time, resources & political rhetoric being wasted but also so many lives being warped and ruined - of users, enforcement personnel, victims of the criminal gangs, their families and countless others. Just saying. It's time to change things.

Hot Potato Money - moving global financial imbalances around

Scary IPOs Are Price We Will Pay for Zero Rates: William Pesek Oct. 18 (Bloomberg) -- Prasarn Trairatvorakul struggled for balance as the ferry taking him across a Bangkok river pitched in choppy waters. “It’s a bit like the world economy these days,” the Bank of Thailand governor deadpanned as he plopped down next to me on a ferry deck chair. “Very hard to control.” Prasarn would certainly know. Thailand may offer the best example of a curious phenomenon: how the Federal Reserve’s ultralow interest rates are benefiting Asia more than America. Excess central-bank liquidity explains the disconnect. Asia is getting loads of it, U.S. assets are getting little.

Did Estonia slide in to the Euro with some deft footwork?

AOK - The following article highlights a recent sharp jump in Estonia's inflation rate ,which had previously declined enough to make Estonia an easy candidate to be confirmed for Euro adoption in May 2009, when other Euro members in the periphery were shaking faith. But maybe there was some quite well-timed tax & subsidy changes implemented in this small economy to make it all look good …

Canada's Debt Reduction is not an applicable model for the US today

AOK - A quick article with two great graphics; basically the message to the US and other countries looking to the Canadian mid-90's debt reduction for guidance is: has to be at the right time and with space for monetary policy offsets, neither of which applies to the developed country situations today.

Where the foreclosure process mess may be headed - #1 of no doubt many

AOK - This is rapidly revealing itself to be another major "intricacies of the financial system interconnectedness" issue - the end impacts are less dramatic than no doubt many would wish (no Virginia your mortgage debt did not just go away) but the rippling impacts on investment funds owning now-unsecured MBA paper originated by now-bankrupt entities will drag on and out and create a huge bloody mess for expensive lawyers to sort out. And there really doesn't at this time seem to be any quick fix, not even from the government, at least not for non-conforming (e.g. non-GSE) pools. I'll try to restrain my enthusiasm and only blog up notable plot turns in this opera-quality saga ...

China's largest denomination is 100 yuan ($15) ...

AOK - A quick and (to me) fascinating account of some of the results and reasons for China's largest currency bill being less than $20-equivalent. If we did that here in North America we'd have more muggings, but then of course we don't consider robbery a capital offense. Hey, that's got to have some deterrent effect.  

Ugly Feedback Cycles- Are Europe's Solvency II insurer regs driving bond yield lower?

AOK - I always find these issues intriguing - where well-minded constraints are introduced into a dynamic system in an attempt to achieve a straight-line first-order effect, but end up going horribly wrong in the reality of a multi-player environment with response lags and feedback issues. Let's stay tuned to see how this one evolves ...

UNESCO declares Mexican cuisine - Intangible Cultural Heritage of Humanity

AOK - The first? Before France? Nobody likes a Romany-expelling bigot ('coz they're dark & mysterious & proud and tell fortunes and all that. The Romany, not the bigot, although thinking about it some more ...)  and you end up getting it jammed back in all kinds of ways, like having jalapenos beat foie gras to the "heritage" cup ...

A trio of articles on Asia's debt markets

AOK - Bill, I think you're totally spot on to get on top of this issue; Asia's capital markets are evolving rapidly and capturing an opportunity to draw in global investment allocation for both credit diversification and off the relative strong economic growth stories. The larger longer-term opportunity is for bond issuance into the deep East Asian saving pools, although that will require the development of effective intermediaries to deliver investment services to the middle classes. Don't think the Asian banks will like this much though, they love having monstrous deposit pools to deploy into corporate loans that can be leveraged into lucrative relationships. Too bad ... 

Mexico issues $1bn 100-year USD bond into strong demand

AOK - amazing sign of the appetite, nay hunger, for yield and for   developing economy exposures; Brazil's so damn sexy these days I bet they could have done $10bn at sub 6%. Watch for Colombia, Chile or Peru to take up the challenge, they are all darlings these days too.

 

GS Energy Weekly: Crude oil prices advance as US inventories decline

AOK - a quick note from GS

Update on Russia - VTB Capital relays Finance Ministers comments

AOK - This is a quick and useful read for a glimpse of the Russian government's current desired storyline - I'm seeing several other news & blog items out there that IMHO hint at an interest by Putin (oh please, we all know he's the only one who really counts) to try to improve international, and particularly investor/corporate, interest and get inflows going. Less sabre-rattling, more "forums", more directed press regarding economic opportunity and stability. But all a bit ham-handed, if you'll excuse my cynical eye, a bit like the old (and as far as the Japan incident goes, new again?) Chinese attempts to direct foreign commentary and opinions. Maybe the Russian regime is looking at the "New Normal" and discovering some looming issues? 

Anyways, read on ,and perhaps Bill will favour us with some more snippets .. 

Another Record Week for Intermodal Rail Traffic

by Mark J. Perry on 30 Sep 2010

The Association of American Railroads (AAR) today reported that U.S. railroads saw the highest weekly intermodal volume for 2010 and highest container count on record for the second consecutive week.

High Speed Rail doesn't make sense for North America

We Can't Afford the Luxury of High-speed Rail by Randal O'Toole, in USA Today on October 1, 2010. This past Tuesday, Amtrak proposed to spend more than $100 billion increasing the top speeds of trains in its Boston-to-Washington corridor from 150 to 220 miles per hour. In August, Secretary of Transportation Ray LaHood estimated that President Obama's proposal to extend high-speed rail to other parts of the country will cost at least $500 billion. No one knows where this money will come from, but President Obama argues that we need to spend it because high-speed rail will have a "transformative effect" on the American economy. In fact, all it will do is drag the economy down.

Complexity kills, at least if you're Mayan

by Clay Shirky

---

The Collapse of Complex Business Models
I gave a talk last year to a group of TV executives gathered for an annual conference. From the Q&A after, it was clear that for them, the question wasn't whether the internet was going to alter their business, but about the mode and tempo of that alteration. Against that background, though, they were worried about a much more practical matter: When, they asked, would online video generate enough money to cover their current costs?
That kind of question comes up a lot. It's a tough one to answer, not just because the answer is unlikely to make anybody happy, but because the premise is more important than the question itself.
There are two essential bits of background here. The first is that most TV is made by for-profit companies, and there are two ways to generate a profit: raise revenues above expenses, or cut expenses below revenues. The other is that, for many media business, that second option is unreachable.
Here's why.

* * *

In 1988, Joseph Tainter wrote a chilling book called The Collapse of Complex Societies. Tainter looked at several societies that gradually arrived at a level of remarkable sophistication then suddenly collapsed: the Romans, the Lowlands Maya, the inhabitants of Chaco canyon.

Greek Bonds & Petrobras - Shell games?

China Becomes Lender Of Last Resort To Failing Greece
Submitted by Tyler Durden on 10/02/2010 13:07 -0500

Here is how you kill two birds with one stone, all the while confirming that Europe has been about a step away from a full collapse. Greece, which like Ireland, has been unable to peddle its bonds to anyone now that Bunds spreads are back to all time record levels, has just seen the last white knight of the Keynesian system come to its rescue: China. As Bloomberg reports, the European lender of last resort is no longer the ECB: "China has already bought and holds its Greek bonds,” Wen said in joint comments with Papandreou today, which were carried live on state-run ET-1 television. “It commits, very positively, to buy new bonds to be issued by Greece." Yet herein lies the rub: in exchange for the Chinese last-ditch rescue financing, which by the way is so transparent that everybody, except maybe for the Norwegian wealth fund will see right through it, Greece, in what is an almost identical replica of the Petrobras shell game, will use the money to turn around and buy Chinese ships.

Great graphic breaking down U.S. Fiscal Deficit problem

from theincidentaleconomist.com

If you're looking for two different perspectives on the House Republicans' "Pledge to America," to be officially unveiled later today, see Ezra Klein and Avik Roy. For a concise summary of what's in it on health care and how it relates to current law, see Igor Volsky. I want to focus on just one thing, and it isn't really about the Pledge, though it relates to something Avik wrote in reaction to it.

Importantly, the Pledge says almost nothing about the biggest and most difficult questions in health policy: Medicare and Medicaid reform. It criticizes PPACA's "massive Medicare cuts" without offering an alternative solution for putting the program on stable long-term footing.

If there is one thing I would love for all Americans to have in mind when evaluating politicians' pronouncements about what we have done or should do with respect to government health spending it is this graph of projected federal revenue and spending as a percent of GDP, from the CBO:

A long but comprehensive analysis of the Australian Housing Market - oh yes, another bubble ..

by: Leith van Onselen September 27, 2010

There is currently a widespread debate in Australia and abroad over whether Australia is experiencing an unsustainable housing bubble, or asset inflation based upon sound fundamentals.

Recent analysis by the Economist, the IMF, Demographia, Morgan Stanley, and Jeremy Grantham of GMO argue that Australian house prices are severely overvalued and due for correction.

On the other hand, Australia’s banks, the property industry, and industry 'experts' claim that Australia’s housing market is different to other countries and underpinned by sound fundamentals, including a strong economy, high population growth and housing shortages, as well as a robust banking system.

So which camp is right? Is Australia’s housing market a debt-fuelled time bomb underpinned by ‘Ponzi finance’ that requires the ‘greater fool’ and ever-increasing levels of debt to perpetuate it? Or are current valuations justified? Let’s examine the data.

PIMCO lays out why the "New Normal" isn't going to work so well for pension funds ...

by William H. Gross  October 2010

Stan Druckenmiller is Leaving

• The New Normal has a new set of rules. What once pumped asset prices and favored the production of paper, as opposed to things, is now in retrograde.
• The hard cold reality from Stan Druckenmiller’s “old normal” is that prosperity and over-consumption was driven by asset inflation that in turn was leverage and interest rate correlated.
• Investors are faced with 2.5% yielding bonds and stocks staring straight into new normal real growth rates of 2% or less. There is no 8% there for pension funds. There are no stocks for the long run at 12% returns.

So the hedgies are in retreat and, in some cases, on the run. Ken Griffin at Citadel is considering cutting fees, and Stan Druckenmiller at Duquesne/ex-Soros is packing his bags for the golf course. Frustrated at his inability to replicate the accustomed 30% annualized returns that his business model and expertise produced over the past several decades, Stan is throwing in the towel.

Rare earths & China - a quick background

Forwarded by:  William Dahmer

The apparent pressure tactics in the delays of Chinese shipments of “rare earth” minerals to Japan last week have highlighted the need to develop alternative source of materials that have become increasingly important.
The restrictions on supply occurred after Japanese officials detained the captain of a Chinese fishing vessel in disputed waters. The fishing captain has now been released, and the kerfuffle is over, but the implications remain.

European Financial Stability Facility - financing structure & risks

By Satyajit Das

In the first half of 2010, angst about European sovereign debt receded and market volatility eased. In the second half of 2010, concerns about Greece, Ireland, Spain and Portugal returned to dominate headlines.
Greece passed its initial inspections on its restructuring plan from the supervising “Troika” (made up of the European Central Bank (”ECB”), European Union (”EU”) and International Monetary Fund (”IMF”)). In truth, there was no choice, as money had to be made available to enable Greece to continue to function.

Short blog w/ great graphic on sources of U.S. Fiscal Deficit

from theincidentaleconomist.com

If you’re looking for two different perspectives on the House Republicans’ “Pledge to America,” to be officially unveiled later today, see Ezra Klein and Avik Roy. For a concise summary of what’s in it on health care and how it relates to current law, see Igor Volsky. I want to focus on just one thing, and it isn’t really about the Pledge, though it relates to something Avik wrote in reaction to it.

Importantly, the Pledge says almost nothing about the biggest and most difficult questions in health policy: Medicare and Medicaid reform. It criticizes PPACA’s “massive Medicare cuts” without offering an alternative solution for putting the program on stable long-term footing.

If there is one thing I would love for all Americans to have in mind when evaluating politicians’ pronouncements about what we have done or should do with respect to government health spending it is this graph of projected federal revenue and spending as a percent of GDP, from the CBO:

Financial Crisis Recovery - Japan vs. USA - has great Balance of Payments graphic

from Blog: Gonzalo Lira
Japan went through an equities and real estate boom during the 1980’s—a boom that was really a bubble. And like all bubbles, it eventually burst in 1990.
Since then, Japan has been lost. Equities have never again reached the heights of 1990, nor have real estate prices. The Japanese government has spent a fabulous amount of money for domestic stimulus, creating the most modern infrastructure on earth—yet it hasn’t helped at all. GDP has been anemic, as the population slowly begins to shrink. Japan is in full-on deflation—in every sense of the word.
Now that the United States has had its own real-estate bubble pricked, a lot of smart people have been selling the idea that the U.S. will experience what Japan has experienced: Persistently sluggish growth. Continued fiscal deficits, carried out by the Federal government in order to prop up aggregate demand by way of various stimulus programs. Slow and painful working out of the debt overhang. All of this happening within a deflationary environment, whereby the dollar—just like the yen in Japan—accrues value, as full-throttle deflation sets in.
In other words, this camp believes America is set to begin its own version of Japan’s Lost Decades. This camp falls for what I call the “Japan Is Us” fallacy—and they are wrong.

Jade - another indicator of liquidity preference?

By: Patrick Chovanec

 

The New York Times had an intriguing story yesterday on the skyrocketing price of jade in China. According to the article, the demand for jade among China’s newly rich “appears to have reached a frenzy in the past year or two.” The price of the finest jade has increased tenfold over the past decade, to $3000 an ounce, making it far more valuable than gold.

10 Bold (& intelligent) Predictions for the Next 12 Months

By David Sterman
Even as you continually assess current events for any impact on your portfolio, you also need to spend time thinking about what events may be on the horizon. And although none of us has a crystal ball, it's important to try to anticipate the direction of economics, sector activity, politics and virtually any other issues that may affect the investment environment.
The list below contains possible scenarios for the next 12 months that could impact your portfolio in a meaningful way.

China: Outlook for Inflation and Interest Rates

  by: China Analytics September 20, 2010  

The slight increase to China’s consumer price index (CPI) August has raised speculation that the PBOC may increase interest rates in the near future. We do not think that this is likely, as controls on credit aggregates appear to be having the intended effect of slowing growth to new investment.

A Change of Course in Cuba and Venezuela?

By George Friedman and Reva Bhalla
Strange statements are coming out of Cuba these days. Fidel Castro, in the course of a five-hour interview in late August, reportedly told Jeffrey Goldberg of The Atlantic and Julia Sweig of the Council on Foreign Relations that “the Cuban model doesn’t even work for us anymore.”

Shipping rates & volumes - Dark Clouds on the Horizon for Baltic Dry Index?

by Prieur du Plessis September 15, 2010

Investors in mature-market equities, commodity prices, emerging markets and commodity-related currencies cheered the August PMIs released earlier this month as they came in better than expected, especially those of China. At the same time the Baltic Dry Index, seen as an important indicator of global trade, surged.

The Cruel Realities of Electric Vehicle Range

By John Petersen
An English proverb teaches us to hope for the best but plan for the worst. With the imminent introduction of a variety of plug-in vehicles that will begin hitting showroom floors in the next few months, the phobia du jour is range anxiety, an entirely rational terror that an EV will get you to your destination in eco-chic style but only get you home with the help of a tow-truck.

Thermal Coal as U.S. Export Industry

James DeLong September 15, 2010

[Part I of this series, The Precarious Crown of King Coal examined the attack on the use of coal in the U.S. by an alliance of environmentalists and the natural gas industry, and expressed concern that coal, domestically, is likely to be a flat or declining industry. This part suggests that coal might recoup its fortunes by becoming an export industry.]

Income Distribution across OECD countries

The Distribution of Income in OECD CountriesRichard Green: While Arrow showed the impossibility of a well defined ordering of social preferences... ...we tend to act as if there is one anyway. That is, we place a lot of focus on GDP per capita when evaluating economic success. By this measure, the US is, of course, successful. By a slightly different measure from the OECD (go to page 37), average disposable income per household, the US ranks second after Luxembourg among the nations measured. Luxembourg has about the same population of Long Beach, so it is hard to worry too much about it.

3 Senior Spokesmen on Japan's ongoing malaise

Takeaway From Japan’s 20-Year Malaise: The Danger of Delusional Thinking

by: Darrel Whitten September 13, 2010

The Sunday, September 12 edition of the Japanese language Nihon Keizai Shimbun (Japan Economic Journal) carried three views of people who were major players in Japan’s two lost decades.
The first was Yasushi Mieno, former Bank of Japan governor between December 1989 and 1994, who was credited with pricking Japan’s excess credit bubble and continued to have a strong influence on the Bank of Japan for many years afterward. The second was Kaoru Yosano, an ex-LDP veteran who is now the co-head of the LDP spin-off party “Tachi Agare Nippon,” a party sometimes described as party of “grumpy old men.” Mr. Osano was involved in the liquidation of the Senjyu, the specialist housing loan companies that were the first shot across the bow in Japan’s financial crisis. He also was an original member of the Structural Financial Reform Committee. He has also served as the chairman of the LDP’s policy research council, the tax research council, the economic and fiscal advisory committee, LDP chief cabinet secretary and as and economic and financial minister as well as treasury minister. The third is Heizo Takenaka, the ex-private sector economist who became the Junichiro Koizumi Cabinet’s financial minister and financial reform point man between 2002 and 2006.

Basel III ain't all that

This is Basel III??

Arriving at the rush, with extra impetus doubtless imparted by the recent and ongoing Eurobanking panic, we have the Basel III capital and liquidity reforms (there’s a one pager, a full press release and, oh, not wholly unexpectedly, a somewhat anticlimactic phase-in timetable). In fact, the liquidity reforms here are just timetable entries – the relatively demanding funding ratio proposals from December last year got shunted into a siding, back in July.
So, errm, for the moment, what we have are just some capital ratios, actually. Enough to get DB moving: they are raising another EUR10Bn, at the front of the queue. So I suppose the Germans are once again first to put their beach towels on the prime sunbathing spots.

Shockingly, research finds hedge funds mismarking positions to their favour

 … although giving credit where credit is due, they are doing so intelligently - rarely, only a little and only when they aren't likely to get caught. The gory details are here …

Why Some Hedge Funds Appear to Be Fudging Valuations

by: Christopher Holt September 13, 2010

Unlike mutual funds, the reporting requirements of hedge funds, particularly offshore hedge funds, mean that managers often have a significant amount of discretion with regard to valuing their portfolios. So do some hedge fund managers take advantage of this and fudge returns? Researchers have uncovered several clues that suggest they do. Regular readers will recall this study, for example, showing that there is an odd lack of slightly-negative returns in the performance history of hedge funds. It’s almost as if managers exercised some “flexibility” in valuing their portfolios in order to nudge their returns above zero. For those managers, the benefits of not having a minus sign in front of their return outweighs the costs.
But what is the mechanism that leads to this anomaly and others like it? Do managers just goose the returns they report to databases and clients or it is more complicated? A new study explores how exactly “misreporting” occurs.

Why the yen has been strengthening

The Yen Conundrum by: Marc Chandler September 10, 2010

Seventy years ago next month, Winston Churchill described Soviet foreign policy as a “riddle wrapped in a mystery inside an enigma.” That now may be apropos of the Japanese yen.

Japan is a country that appears to be literally in decline. The population has begun shrinking, as has the work force. It has been almost 21 years since the Japanese stock market peaked. The overnight rate has been close to zero for the better part of 15 years. Deflation continues to grip the economy, which is plagued with slow growth. In fact, despite the 1.5% expansion reported in the April-June quarter, in nominal terms, that is when unadjusted for prices the Japanese economy contracted by 0.6%. The lost decade has turned into two.

China is still a renegade nation and not likely to change that soon

Auerback: China is Still a Renegade Nation

By Marshall Auerback, a portfolio strategist and Roosevelt Institute fellow
A few years ago, Chris Dialynas and I wrote a piece which introduced the concept of “renegade economics”. It was derived from a Frank D. Graham’s 1943 essay titled, “Fundamentals of International Monetary Policy.” Graham, a Princeton University economist, wrote: “In international affairs we must therefore strive to reconcile the liberty of the individual, the sovereignty of states, and the welfare of the international community.” He understood that poorly crafted economic policies and rules in a global economy would lead to great imbalances that threaten stability and freedom. His analysis and insights applied to the two world wars of the last century as well as to the Great Depression.
But Graham’s insights, we noted in the article, were still relevant, notably in regard to China. Graham maintained that a poorly regulated fixed-exchange rate regime is inherently unstable. He argued that countries would cheat by setting their currency at rates that promote national agendas, ignoring the instability imposed upon the global economy. They become “renegade nations” in effect practicing “renegade economics.”
The nation which best reflects this description today is China.