Dear rss free blog,
With
the Chinese Bank Regulatory Commission putting a freeze on new bank
loans for the rest of Jan. and a new Boston tea party tossing a local
pol into the River Charles, it might not be a good idea to tell
readers about how various conspiracy theories don’t make sense.
Rather
than trying to run the world, China is deeply concerned that its Q4
growth last year topped 10.7% year over year. The look-back growth
rate, after revisions, was 8.7% for the entire year boosted by a 17%
rise in retail sales. That, you will recall, was exactly what the
doctor ordered with the lag in exports from the global crisis.
“It
will be nice to see an increase in the interest rate … in China
because credit growth in China has been excessive,” NYU Prof.
Nouriel Roubini, told Bloomberg reporters in Hong Kong.
Excess
is why Chinese authorities are concerned enough to try to force a 22%
crop in bank lending this year. Two official figures economists are
dubious about are worrying. Inflation (measured by the consumer price
index) formally hit 1.9% in 2009 but some observers (including
Roubini, who forecast the U.S. Housing bust) say the real level was
higher. Producer prices jumped 1.7%, another number greeted with
scepticism. By mid-summer, BNP‘s
Isaac Meng forecasts inflation will top 3%. That is scary.
Here’s
why. China needs to rein in spending on things other than “the real
economy”, like stocks, commodities, housing, and unneeded plant
capacity to stop the country overheating into a bubble. China’s
bureaucrats fear any shocks to the system’s stability: inflation,
lower exports, or a higher yuan. China’s leaders are not conspiring
to take over the world; they are terrified they will lose power in
Beijing.
Reader
LK gloated over the Mass. vote, writing: “I am
delighted – ecstatic – at the results. The people have drawn a
line in the sand: enough of the arrogance coming out of Washington’s
‘elite’ who have mocked the people of the U.S. They should have
listened to the people at the various Town Halls during the summer
instead of mocking them… sorry, but, the ‘tables have turned’. The
Dems are likely to lose a good proportion of the seats in the Fall
elections and they deserve to.”
Washington’s
program for a health care reform, I think, is hardly an expression of
arrogance, ‘elitism’, or mocking the people. The reform aims to give
the rest of the country access to doctors and hospitals comparable to
that now offered to Massachusetts voters under their Romney-Care
State plan and members of Congress and their staffers under the
Capitol Hill one.
Admittedly
it would have been better if another elite group’s privileges had
been chopped: ‘Cadillac’ health plans for some union workers and
retirees. But however badly, unions contribute money and phone banks
to Democrats and get their way in Washington backrooms.
My
own family is not unusual. With a re-start-up business I can’t offer
contributors health care benefits; I don’t even pay myself a salary.
Writers based abroad have coverage; but US based ones are “indpendent
contractors” and have to pay megabucks for health insurance. My
self-employed entrepreneur daughter ditto.
My
husband’s union, the New
York Times Newspaper
Guild, gutted his health program to save the paper. The Times may
mold opinion for a supposed left-wing East Coast liberal elite, but
it does not pay its staff elite salaries and benefits. That’s another
conspiracy myth. I’m old enough to get Medicare or I’d have moved
to London for health care coverage and you all could pick your own
investments.
Here’s
another illusion, shot down not by me, but buy Rusty Vanneman, CFA,
chief economist of Kobren
Insight Mgt and
Director of Research at E-trade.
He
is no Friedmanite:
“The
dollar appears fundamentally cheap. Using the Purchasing Power Parity
theorem, ‘that exchange rate between one currency and another is in
equilibrium when their domestic purchasing powers at that rate of
exchange are equivalent’, the dollar is cheap. At end Nov., the
dollar appeared to be over 20% undervalued relative to the euro, as
well as relative to 5 of the 6 currencies that comprise the dollar
index. Using PPP for currency valuations is controversial for
short-term forecasting. However, it seems to be a good starting point
for assessing value.
“What about debt? A high level of
debt is a legitimate concern, but the dollar doesn’t have to go to
hell in the near future either. Currency rates are the ratio of one
currency valued against the worth of another. Other countries have
high debt levels as well. While this argument may sound like a child
saying ‘all the other kids are doing it,’ we are not making the point
that high debt levels are good, but rather that the dollar is not
likely to lose its status as reserve currency [given] the debt/GDP
ratios among developed economies.
“Finally,
two arguments which could be filed under the ‘conspiracy theory’
heading. One is in favor of higher rates and one against. The first
is that foreign governments will stop buying US Treasuries and/or
dump their holdings of dollar-denominated assets en
masse. While we expect
foreign governments to look to diversify holdings in the future, it
will be a long-term process. As seen in the crisis of 2008, US
dollars are still the destination of ‘flight to safety’ money.
Additionally, were governments to dump their dollar denominated
assets, it would be detrimental to their holdings as well.
“The
second ‘conspiracy theory’ is that the Treasury has announced its
intention to extend the maturity of US debt. This would provide
significant political pressure to keep long-term rates low.
“One
of the most interesting contradictions in the market is how
remarkable the cash flows have been into fixed income securities, yet
to many investors, there seems to be a strong case for sharply rising
interest rates.
“The case for skyrocketing rates seems to
be all over the media, with some pundits touting that betting on
rising rates is the single best trade for 2010. With the US
Government running a massive deficit, the Treasury issuing record
amounts of debt, and the Federal Reserve’s balance sheet ballooning;
add in near-zero short–term rates and long-term rates at
multi-decade lows, where could interest rates go but sharply higher?
The main thrust to the argument for higher rates is that they will be
necessary to combat higher inflation fueled by the government
spending and the Fed’s printing of money.
“While we expect
interest rates to trend higher long-term, they don’t necessarily have
to skyrocket in 2010. There are factors weighing against inflation.
First, the deleveraging and unwinding of credit process we are
currently working through is inherently disinflationary.
Additionally, with unemployment in double digits there is no wage
pressure – a lead factor for inflation. Finally, there is massive
excess capacity in the economy; with capacity utilization at such low
levels, there is a lot of slack to be absorbed before inflation is
likely to take hold.
“Another factor that could keep rates
from skyrocketing is the Fed’s commitment to keep rates low.”
F inally,
from Tom McClellan of McClellan’s
Oscillator, who
successfully forecast the recent drop in both gold and stock markets,
a reasonable explanation of why the price of gold went up but the
amount held by the gold exchange-traded funds went down. There is no
conspiracy:
“Helping
to push gold down [is] a brief rally in the dollar.
“Meanwhile,
the selloff in gold prices since the Dec. 3 top led many investors to
start pulling money out of the gold market, despite all the gold coin
commercials. The total gold bullion held by the gold ETF has been
falling. The reason why it falls is that more people are selling
their shares in ETF than can be met at the gold-equivalent price by
buyers, and so the trust has to redeem gold bullion on the open
market to meet those ETF sales and maintain its price parity.
“This
happens all the time, and during the rally phase last autumn the
trust was growing, as more people got interested in owning gold on
the way up. Now, they are showing less of an interest in owning
gold.”
Tom
also points out that despite the urban myth, gold ingots cannot be
created or “salted” by plating tungsten because the slightly
lighter white metal would be on the outside of the cast ingot, not
hidden. The fraud is being discussed by gold bugs citing unnamed
Chinese experts who supposedly discovered it. Believe this at your
peril.(tom@mcoscillator.com)
Paid
subscribers will be told more about the last conspiracy theory (about
gold) below.
