![[Most Recent Quotes from www.kitco.com]](http://www.kitconet.com/charts/metals/base/copper-d.gif)
|
Every example from the past 40 years occurred withing a bond bull market. Maybe this time is different. Maybe things aren't different, but can go on longer. Maybe.
A property market rebound has been seen in Beijing as home sales in China's capital jumped to 25,602 units in June, 10.5 percent more than in May and 50.6 percent more than June 2011, new figures have indicated.
The trading volume of new homes in Beijing rose 14.1 percent month-on-month to more than 11,983 units in June, according to data released by the municipal commission of housing and urban-rural development on Sunday.
The average new housing price in Beijing in June was 20,678 yuan ($3271.8) per square meter, a 2.1 percent increase from the previous month, according to data from 5i5j Real Estate, a major housing agent in China.
Lower prices from developers and banks' reduction of interest rates prompted the rebound, according to Hu Jinghui, vice-president of 5i5j Real Estate.
The government's tightening policies have meant housing stock remains high. It is not necessary for home buyers to purchase in haste or make speculations, he added.
According to a survey of property developers and real-estate firms, the average price of housing in 100 major Chinese cities rose in June from the previous month, after nine straight months of decline. The survey follows other signs that the Chinese market has bottomed out, including a pick up in real-estate investment in May and a far shallower decline in property sales during that month compared with April.Assuming the economy isn't going to slow and do the job of lowering prices, will government restrictions work? The Chinese government looks smart because when an economy is growing strongly, it is relatively easy to redirect demand into other sectors of the economy. However, if things start going poorly, the wheels come off. A failure to stop rising home prices will be a signal that the real estate market cannot be stopped, that the government cannot control the economy and that homes remain a good inflation hedge. This could reignite the housing bubble.
The city of Guangzhou, a booming center of Chinese industry and economy, the capital of the administrative region of Guangdong, and China’s third largest city with 12.7-million inhabitants is imposing strict limits to the number of cars that can be purchased. According to autnews.gasgoo.com, local authorities will be limiting car purchases to 120,000 per year, which equates to just 10,000 per month.
China's policy allowing car-buyers to enjoy both a purchasing tax cut and old-for-new trade-in subsidies, which took effect on Jan. 1, was generating good results with increasing applications and subsidy handouts, the Ministry of Commerce said Saturday.
Every party ends sooner or later, and I see two scenarios for the next bust. First, every trader is borrowing dollars to buy something else. Most traders on Wall Street are Americans, British or Australians. They know the United States well. The Fed is keeping interest rates at zero, and the U.S. government is supporting a weak dollar to boost U.S. exports. You don't need to be a genius to know that the U.S. government is helping you borrow dollars for speculating in something else.The boom-bust cycle, in a nut shell.
But these traders don't know much about other countries, particularly emerging economies. They go there once or twice a year, chaperoned by U.S. investment banks eager to sell something. They want to think everything other than the U.S. dollar will appreciate; Wall Street banks tell them so. Since there are so many of these traders, their predictions are self-fulfilling in the short-term. For example, since the Australian dollar has appreciated by 35 percent from the bottom, they now feel very smart while sitting on massive paper profits.
When a trade like this one becomes too crowded, a small shock is enough to trigger a hurricane. There must be massive leverage in many positions, but one just never knows where. When something happens, all these traders will run like mad for the exit, and that could lead to another crisis.
Surging oil prices could be another party crasher. This could trigger a surge in inflation expectation and crash the bond market. The resulting high bond yields might force central banks to raise interest rates to cool inflation fear. Another major downturn in asset prices would reignite fear over the balance sheets of major global financial institutions, resulting in more chaos.
Twice in recent years, oil prices surged into triple-digit territory, wreaking havoc on financial markets and the global economy. In 2006, surging oil prices toppled the U.S. property market, debunking the story that property prices never fall -- a premise upon which subprime lending was based. Oil prices fell sharply amid the subprime crisis period while the market feared collapse in demand. The Fed came to the rescue and, in summer 2007, began cutting interest rates aggressively in the name of combating the recessionary impact of the subprime crisis. Oil prices surged afterward on optimism that the Fed would rescue the economy and oil demand. It worked to offset the Fed's stimulus, accelerated the economic decline, and pulled the rug out from under the derivatives bubble. The ensuing fear of falling demand again caused oil prices to collapse.
Oil is a perfect ingredient for a bubble: Oil supplies cannot respond to a price surge quickly. It takes a long time to expand production capacity, and oil demand cannot decrease quickly due to lifestyle stickiness and production modes. Low-price sensitivities on both demand and supply sides make it an ideal product for bubble-making. When liquidity is cheap and easily obtained, oil speculators can pop up anywhere.
Oil speculators are no longer restricted to secretive hedge funds. Average Joes can buy exchange traded funds (ETFs) that let them own oil or anything else. Why not? Central banks have made clear their intentions to keep money supplies as high as possible, debasing the value of paper money to help debtors. It seems no good deed is unpunished in this world. If you speculate big, governments will offer a bailout when your bets go wrong and cut interest rates and guarantee your debts, allowing bigger bets. People who live within their means and save some for a rainy day see dreams shattered. Central banks can't wait to break their nest eggs.
It is better to be a speculator in this world. The powers that be are with you. Maybe everyone should be a hedge fund; ETFs give you this opportunity. As the masses are incentivized to avoid paper money while buying hard assets, the price of oil could surge to triple-digit territory again. Oil bubbles are easy to come and quick to go because the oxygen needed for its existence disappears after it kills other bubbles.
A word of caution for all would-be speculators: You'll want to run for your life as soon as the bond market takes a big fall. And the case for a double dip in 2010 is already strong. Inventory restocking and fiscal stimuli are behind the current economic recovery, and when these run out of steam next year, the odds are quite low that western consumers will take over. High unemployment rates will keep incomes too weak to support spending. And consumers are unlikely to borrow and spend again.
Many analysts argue that, as long as unemployment rates are high, more stimuli should be applied. As I have argued before, a supply-demand mismatch rather than demand weakness per se is the main reason for high unemployment. More stimuli would only trigger inflation and financial instability.
Stagflation in the 1970s discredited a generation of central bankers. They thought they could trade a bit more inflation for a lot more economic growth. Today's crisis will discredit a generation of central bankers who ignore asset inflation by sometimes trading asset inflation for a bit of economic growth. Those who play with fire often get burned, even when the arsonists don't.
5. Will it Work?The scenario described is the one I see playing out, as of now. My opinion could change, and I won't remain stubborn in the face of a market moving against me, but I expect another major deflationary period and then, when the dust is settled, the Fed's policies will lead to much higher inflation, but by that time no one will believe it is possible.
Federal Reserve Chairman Ben Bernanke has been even more explicit than Fisher, who was writing more than 70 years ago, in the types of policies he believes the Federal Reserve should pursue in attempting to reflate and, it is hoped, avoid a deflationary depression.
Unless we're intent on debating specific monetary transmission mechanisms and the intricacies of trying to force feed more credit into the system, we can leave the actual mechanics to the armchair central bankers. What's important from our standpoint is one thing: Will it work?
Looking at the market through the lens of complex systems theory, the problem is actually one of time. On short-term time scales, the Fed and Treasury think they are rock stars, "The Committee to Save the World"... indeed. But on longer-term time scales we know they have simply made the problem worse. The question, then, becomes: How much longer?
Going back to Fisher's Debt-Deflation Theory, the dollar is the real canary in the coalmine because during aggressive debt deflation the value of the dollar "swells," to use Fisher's term. And I suppose that's what keeps me up at night. When I look at the dollar with long-term DeMark indicator studies applied, they're pointing to a high probability of multi-scale alignment by the first quarter of 2010 and a major bottom for the US dollar. Currently, there's a weekly TD Buy Setup that has been perfected, so the next four weeks for the US dollar look higher, after which we need one more move lower, preferably below 72.509, for a major bottom.
If the dollar does bottom, then it will become quite clear that reflation attempts have failed, and then we face the heart of the debt deflation where the swelling of the dollar competes simultaneously with debt destruction and where debt levels increase in dollar terms faster than they can be paid down.
Make no mistake, debt-deflation will conclude with an inevitable sharp rise in inflation as monetary policies designed to battle deflation remain in place even as excessive debt is eventually destroyed, but the outlook for the dollar says that isn't today's business. Be careful which scenario you're preparing for because those who anticipate inflation before the debt-deflation has fully run its course will find themselves digging out of a deep and painful hole.
If I have this right, we’re waiting for the Fed to do or say something to help us decide whether we should hoard cash (because we expect the dollar to buy more tomorrow if prices are falling) or buy and hoard hard goods (if we expect inflation to diminish the dollar’s purchasing power).Baum's main point is that the Fed creates inflation. Period. Full stop. The public cannot create inflation because the public doesn't control the money supply. (There are some who believe money creation by the Fed backfills the credit creation by private firms, which widens this debate, but I'll ignore that for now because the Fed can always refuse to print money.)
The Fed, in turn, is waiting for us to do something so it can decide what to do: either raise the volume on its anti- inflation rhetoric with talk of exit strategies and price stability; or talk softly to allay fears of premature rate increases to keep market rates from rising.
This is hard enough for your average MBA graduate on Wall Street to understand. And the Fed expects the average Joe on the auto-assembly or unemployment line to have a well-formulated view of inflation expectations?
It’s not that people aren’t rational; they are. It’s that they lack perfect information.
Monday night, Finance Minister Guido Mantega announced a 2% tax on foreign portfolio investments into fixed-income and equities accounts.These efforts will fail because the central banks cannot control the market, no matter what they believe. The real story is that for all the inevitability of a weaker dollar, there is a lot of dollar support. What are the chances of a miscalculation?
Mr. Mantega stated frankly that the purpose of the move was to support the U.S. dollar against the surging Brazilian currency, the real. A strong real, he said, was "threatening local companies."
That threat comes partly from cheap imports, which soak up market share among Brazilian consumers, and partly from exports made less competitive by a strong local currency.
The failure of Lehman meant that barring extraordinary measures, Merrill Lynch, Morgan Stanley and Goldman Sachs would have failed as the credit market realized that if the government were willing to permit failures, then the cost of financing such institutions needed to be re-priced so as to invalidate their business models.
I believe there is a real possibility that the collapse of any of the major currencies could have a similar domino effect on re-assessing the credit risk of the other fiat currencies run by countries with structural deficits and large, unfunded commitments to aging populations.
The mainly south-east Asian countries have been spurred to defend the competitiveness of their currencies by China’s decision to in effect re-peg the renminbi to the dollar since July last year.
Simon Derrick, at Bank of New York Mellon in London, said: “Other Asian central banks outside China are naturally looking to aggressively defend their competitive edge against undesirable currency strength as the dollar weakens.”
What is critical to recognize is that both California and the U.S., as well as numerous global lookalikes such as the U.K., Spain, and Eastern European invalids, are in a poor position to compete in a global economy where capitalism is morphing from its decades-long emphasis on finance and levered risk taking to a more conservative, regulated, production-oriented system advantaged by countries focusing on thrift and deferred gratification. The term “capitalism” itself speaks to “capital” – the accumulation of it and the eventual efficient employment of it – for growth in profits and real wages alike.Wages are driven by capital accumulation. The welfare-warfare state excels at capital depletion.
What California once had and is losing rapidly is its “capital”: unquestionably in its ongoing double-digit billion dollar deficits, but also in its crown jewel educational system that led to Silicon Valley miracles such as Hewlett Packard, Apple, Google, and countless other new age innovators. In addition, its human capital is beginning to exit as more people move out of the state than in. While the United States as a whole has yet to suffer that emigration indignity, the same cannot be said for foreign-born and U.S.-educated scientists and engineers who now choose to return to their homelands to seek opportunity. Lady Liberty’s extended hand offering sanctuary to other nations’ “tired, poor and huddled masses” may be limited to just that. The invigorated wind up elsewhere.
Credit card debt on which payments are delayed by six months or longer totalled 5.8 billion yuan at the end of June, up 131.3 percent year-on-year and up 16.2 percent from the end of March, the People's Bank of China said in a Sept. 16 statement. Credit card payments are closely watched during weak economies for signs of distress among consumers. At the end of June, about one Chinese out of eight owned a credit card, the statement said.Elsewhere:
In Shanghai, sales in the second week of September fell 10 percent week-on-week, while supply rose 84 percent, according to property consultants Centaline China.“金九”落空 一线城市住房成交量继续下滑
In Guangzhou, sales dropped 30 percent in the second week of September, while supply grew by 73 percent, Centaline said.
另据中原住宅监测系统数据显示，9月第二周，全国一线城市成交量环比继续下滑，广州、上海两地分别下降了三成和一成。同时，上海、深圳、广州三个城市商品住房存量环比均微幅上涨。其中上海、广州新增商品住房供应面积分别比上周增加了73%和84%。
Do rising U.S. Treasury yields and a steepening yield curve suggest an economic recovery is more certain, meaning less need for safe haven government bonds and a healthy demand for credit? If so, there might be less need for the Fed to expand the money supply by buying more U.S. Treasuries.Quantitative easing is the reason people are worried about a U.S. dollar collapse. Stepping up quantitative easing will not solve the problem, it will exacerbate it. All QE can achieve is the lowering of interest rates. On the issue of central banks such as China reducing long-term bond purchases, in my post Crowding Out has arrived, I linked to the Brad Sester post that shows this is exactly the case.
Or does the steepening yield curve mean investors are worried about the deterioration in the U.S. fiscal outlook, or the potential for a collapse in the U.S. dollar as the Fed floods the world with newly minted currency as part of its quantitative easing program. This might be an argument to augment to step up asset purchases.
Another possibility is that China, the largest foreign holder of U.S. Treasury debt, has decided to refocus its portfolio by leaning more heavily on shorter-term maturities.
Fed officials see several possible explanations for the rise in yields. One is the outlook for the economy is improving and investors are selling government debt used as a hedge against mortgage securities.That confirms what Reuters reported about the Fed believing their asset purchases may not be sufficient. The article also goes on to mention central bank purchases, mentioning China specifically:
Another is the supply of Treasuries for sale exceeds the Fed’s so-called quantitative easing program. After cutting its target interest rate for overnight loans between banks to almost zero, the central bank pledged to buy as much as $300 billion of Treasuries and $1.25 trillion of bonds backed by mortgages to cap borrowing costs.
China increased its holdings by 3.2 percent, the most since November, buying Treasuries with its reserves to control the level of the yuan. The currency, which was pegged at about 8 to the dollar until July 2005, has traded between 6.8 and 6.9 since last June. It closed May 29 at 6.8291 to the dollar.China can cease purchasing Treasuries as soon as they decide to allow the yuan to appreciate. The article goes on to discuss "bond vigilantes", sovereign credit ratings, and Fed policy, and then this:
“To some extent they have to buy Treasuries because they want to support their currency peg,” said Carl Lantz, an interest-rate strategist in New York at Credit Suisse Securities USA LLC. The firm is also a primary dealer.
Indirect bidders, a group that includes foreign central banks, purchased 54.4 percent of the $40 billion in two-year notes sold May 26, the biggest percentage since November 2006, according to the Treasury. They bought 44.2 percent of the $35 billion five-year notes auctioned May 27, compared with an average of 32.4 percent at the previous 10 sales. The scooped up 33 percent of the $26 billion of seven-year notes offered on May 28, matching the average of the other three sales this year.Central banks purchased a larger percentage of bonds on the day rates tumbled. The simplest explanation is that outside of central banks, there isn't much private demand for government paper, the old argument for crowding out, considering the action in mortgage markets. Please see Mish Shedlock's post,"Mortgage Market Locks Up". Mish also covered the Federal Reserve's failure on Wednesday in a post titled: Treasuries Massacred; Yield Curve Steepest On Record
“The idea that we have lost sponsorship at the auctions seems farfetched,” said Ian Lyngen, an interest-rate strategist in Greenwich, Connecticut at RBS Securities Inc., another primary dealer.
Check out his post, which includes the following quote from Fil Zucchi, "As I publicly asked before, if Mr. Fed can't rig the price of an asset by buying it with printed money, why should anyone else buy it?" The chart above indicates few have found an answer to that question.
Over the last 12 months of data (data through the end of April, May data will be out soon), the US issued $735 billion of notes, bonds and TIPs.* In calendar 2008, the increase in supply of longer-term Treasuries was about $400b – a large sum, but easily within the realm of historical experience.It's a situation that will only grow worse in the coming months and years. ProsShares Ultra Short Barclays 20+ Year Treasury (TBT) is one of the few ways to profit from the trend.
Yet even as the supply of notes has increased, central bank for longer-term Treasuries for their reserves has fallen. Central bank demand for longer-term Treasuries – on a rolling 12m basis – has been trending down since August 2008.
The Obama administration needs to raise $2 trillion this year to cover the fiscal stimulus plan and the bank bail-outs. It has to fund $900bn by September.This is really getting hyped after the decline in the U.S. dollar last week. There's the potential for fireworks this week, in either direction. A successful sale could reverse the dollar's slide.
"The dynamic is just getting overwhelming," said RBC Capital Markets.
The US Treasury is selling $40bn of two-year notes on Tuesday, $35bn of five-year bonds on Wednesday, and $25bn of seven-year debt on Thursday. While the US has not yet suffered the indignity of a failed auction – unlike Britain and Germany – traders are watching closely to see what share is being purchased by US government itself in pure "monetisation" of the deficit.
Richard Fisher, president of the Dallas Federal Reserve Bank, said: "Senior officials of the Chinese government grilled me about whether or not we are going to monetise the actions of our legislature."Later in the article, Fisher discusses the massive "deficit" facing U.S. taxpayers if entitlement spending is not brought under control.
"I must have been asked about that a hundred times in China. I was asked at every single meeting about our purchases of Treasuries. That seemed to be the principal preoccupation of those that were invested with their surpluses mostly in the United States," he told the Wall Street Journal.
The central government will provide 29.5 percent of its 4 trillion yuan stimulus package, with the remainder to be drawn from local governments and private companies, said a government statement on May 21.国家发改委公示“4万亿”资金来源
国家发改委公告称，“4万亿”投资中，新增中央投资资金1.18万亿元，占总投资的29.5%。主要来源于中央预算内投资、中央政府性基金、中央财政其他公共投资、中央财政灾后恢复重建基金四个方面。Interesting that a lot of the spending will come from the local level and private companies. This suggests the spending should be more productive than in the U.S., where local governments are willing to spend federal money on any project, regardless of whether it is a good use of the money.
此外，来自其他方面的投资2.82万亿元，占“4万亿”项目总投资的70.5%，主要来源于地方财政预算、中央财政代发地方政府债券、政策性贷款、企业（公司）债券和中期票据、银行贷款、吸引民间投资等。
Ordered by Congress to "buy American" when spending money from the $787 billion stimulus package, the town of Peru, Ind., stunned its Canadian supplier by rejecting sewage pumps made outside of Toronto. After a Navy official spotted Canadian pipe fittings in a construction project at Camp Pendleton, Calif., they were hauled out of the ground and replaced with American versions. In recent weeks, other Canadian manufacturers doing business with U.S. state and local governments say they have been besieged with requests to sign affidavits pledging that they will only supply materials made in the USA.If Americans are willing to do this to Canadians, they're willing to do it to any nation. Even their own:
Outrage spread in Canada, with the Toronto Star last week bemoaning "a plague of protectionist measures in the U.S." and Canadian companies openly fretting about having to shift jobs to the United States to meet made-in-the-USA requirements. This week, the Canadians fired back. A number of Ontario towns, with a collective population of nearly 500,000, retaliated with measures effectively barring U.S. companies from their municipal contracts -- the first shot in a larger campaign that could shut U.S. companies out of billions of dollars worth of Canadian projects.
The new buy American provisions, the company said, are being so broadly interpreted that Duferco Farrell is on the verge of shutting down. Part of an increasingly global supply chain that seeks efficiencies by spreading production among multiple nations, it manufactures coils at its Pennsylvania plant using imported steel slabs that are generally not sold commercially in the United States. The partially foreign production process means the company's coils do not fit the current definition of made in the USA -- a designation that the stimulus law requires for thousands of public works projects across the nation.Hope and change my friend, hope and change. Have hope, and keep the change!
In recent weeks, its largest client -- a steel pipemaker located one mile down the road -- notified Duferco Farrell that it would be canceling orders. Instead, the client is buying from companies with 100 percent U.S. production to meet the new stimulus regulations. Duferco has had to furlough 80 percent of its workforce.
"You need to tell me how inhibiting business between two companies located one mile apart is going to save American jobs," said Bob Miller, Duferco Farrell's executive vice president. "I've got 600 United Steel Workers out there who are going to lose their jobs because of this. And you tell me this is good for America?"
1-4月,城镇固定资产投资37082亿元,同比增长30.5%。其中,国有及国有控股完成投资16055亿元,增长39.3%;房地产开发完成投资7290亿元,增长4.9%。
Petition is up and you can comment here: https...
