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Posts Tagged ‘oil dollar’

Of Mice and Men – 2015 Gold Outlook

USA, EU traderelationships with oil producers. The European hands-on, micro-management issue of trade balance seems to be delivering? Some may question, what it is delivering, though.

USA, EU trade relationships with oil producers. The European hands-on, micro-management issue of trade balance seems to be delivering? Some may question, what it is delivering, though.

Of mice and men

While the US dollar is weakening, by design, Greece, Ireland, Portugal and Spain are being bankrupted by a deliberately overvalued Euro.

In such a scenario, China believes that it has a winning hand. Even though, the Chinese exports juggernaut has been slowed by a yuan, trading at 17 year-highs. March 2011 reports indicate

an unexpected $7.3 billion trade deficit, the biggest in seven years. The nation’s (China’s) exports rose at the slowest pace since November 2009.

The US is betting that a weak dollar will reignite economic growth – much like what happened after the Japanese Yen strengthened due to Plaza Accord (1985).

For Europe, the grand prix is to replace the dollar as the currency of international trade – especially oil trade. Euro as a international trade-currency-of-choice, will give the Euro region access to more than 1 trillion euros in zero-cost floating balances.

China is expecting the yuan to play a similar role. Such are plans made by mice and men.

Monsieur Murphy says

What can go wrong with these plans? Plenty.

The eternal enemy of currency manipulation – gold. As a million bureaucrats work on the mechanics of their plans,

Increasingly, everyone is a victim - except the powerful 0.5% elite that rules the world. Break their power. Buy gold. (Cartoonist - Ted Rall; courtesy - http://charlesgoyette.com). Click for larger image.

Increasingly, everyone is a victim - except the powerful 0.5% elite that rules the world. Break their power. Buy gold. (Cartoonist - Ted Rall; courtesy - http://charlesgoyette.com). Click for larger image.

Sales of gold coins are on track for the best month in a year amid the worst commodities rout since 2008, a sign that bullion’s longest bull market in nine decades has further to run, if history is a guide.

The U.S. Mint sold 85,000 ounces of American Eagle coins since May 1 as the Standard & Poor’s GSCI Index of 24 raw materials fell 9.9 percent. The last time sales reached that level, bullion rose 21 percent in the next year. Gold will advance 17 percent to a record $1,750 an ounce by Dec. 31 and keep gaining in 2012, the median estimate in a Bloomberg survey of 31 analysts, traders and investors shows.

UBS AG, Switzerland’s biggest bank, had its second-best day this year for physical sales on May 9, according to a report the following day. The bank’s sales to India, the world’s top bullion consumer, are more than 10 percent higher than in 2010. (via Gold Coins Show Bull Market Unbowed in Commodities Decline – Bloomberg).

You take free advice …?

While George Soros talks of gold being the ultimate bubble, his companies are quietly buying gold.

Back in late January, as the world’s important people rubbed elbows in Davos, billionaire investor George Soros had some rather definitive thoughts to offer on gold, which he called “the ultimate asset bubble,” according to reports.

However, he neglected to mention that his hedge fund had been buying.

Another report points out that the liquidation (by people like Soros) of investments in public investment vehicles may be replaced by private investments.

In this game of musical chairs, when the music stops, everyone who does not own gold is out. (Cartoon by David Horsey; Courtesy - http://politicalhumor.about.com). Click for larger image.

In this game of musical chairs, when the music stops, everyone who does not own gold is out. (Cartoon by David Horsey; Courtesy - http://politicalhumor.about.com). Click for larger image.

The new filings from funds “may show that big names exited ETPs and this news may cause prices to slip in the very short term,” said Bayram Dincer, an analyst at LGT Capital Management in Pfaeffikon, Switzerland. Some funds switched to holding gold directly so they wouldn’t have to announce it publicly, he said.

Is gold a bubble?

A rather disbelieving journalist writes of the situation in the West

Gold is in a bubble. Anyone will tell you that. They’ve been saying it since gold was about, oh, $500 an ounce. But it’s a funny kind of a bubble. It’s the only one I’ve encountered where so few people seem to own the asset in question.

During the dot-com bubble, you met lots of people with tech stocks. Taxi drivers told you what dot-coms they owned. During the housing bubble you met normal, ordinary people who were trading up to expensive homes using adjustable-rate mortgages, buying new condos off plan to flip, and cashing out their fictional “equity” through a refinance mortgage.

But who actually owns gold? I keep hearing about the gold bubble, but every time I ask people if they own any themselves, they say, “no, no, of course not, it’s a bubble.”

Some bubble.

Central banks around the world are printing more dollars, euros, pounds and yen. Gold may simply be a less awful currency than all the others. Banks can’t print any more of it, so its price should probably rise while other currencies fall.

For this year, the question in India seems to be, “Will gold cross Rs.25000, by 2011 Diwali?”

The shadow of oil

Middle East Politics (from Coming apart, coming together By Edward R. Kantowicz; Page 165; courtesy - books.google.com). Click to go to source.

Middle East Politics (from Coming apart, coming together By Edward R. Kantowicz; Page 165; courtesy - books.google.com). Click to go to source.

Is the USA like Britain was a hundred years ago? (Caroon courtesy - mpg50.com.). Click for larger image.

Is Pax Americana like Britain was a hundred years ago? (Cartoon courtesy - mpg50.com.). Click for larger image.

Fat and lazy

Between 1875-1935, Britain was dependent on India for gunpowder, on USA and Iran for  oil, on Malaya and India for rubber. British economy had grown fat and uncompetitive – unlike Italian, German and Japanese economies.

Even though Britain won WWII, their economy was a lost cause. Though Germany, Italy and Japan were losers, with their economy in shambles, they could make a brilliant recovery and vastly out-compete Britain.

The story of Middle East oil is similar for USA and West. The Welfare State, built on a diet of cheap oil, easy dollars,  is now too expensive for the West to sustain. The above book extract gives an excellent snapshot of the oil industry in the 20th century.

And the shadow of oil on the 21st century.

Pakistan – Blackmail as State Policy

March 6, 2011 1 comment

How American puppets in Middle-East have kept their people backwards ? (Image courtesy - venturacountystar.com). Click for larger image.

United States is being subjected to an old-fashioned protection racket by Pakistan: pay up or things could go bad for you. Those making money out of extortion and blackmail always come back for more. It’s a measure of the US’s waning global strength that it seems to have no option other than to keep paying.US is paying for Pak protection racket | By SHAUN GREGORY |

Pakistan’s DNA

Jinnah held the entire sub-continent to ransom. After 200 conflicts in 150 years, as the British with their backs to the wall, were walking away, Jinnah became a spoiler. The hour of triumph turned into moment of tragedy. A country born out of this blackmail, has now formalized blackmail as State Policy.

The Arctic’s strategic value for Russia

November 3, 2010 2 comments
In this Aug. 24, 2009 picture provided by the U.S. Coast Guard, the U.S. Coast Guard Cutter Healy breaks ice ahead of the Canadian Coast Guard Ship Louis S. St-Laurent in the Arctic Ocean. The two ships are taking part in a multi-year, multi-agency Arctic survey that will help define the Arctic continental shelf. Photo: AP; Courtesy-thehindu.com.

In this Aug. 24, 2009 picture provided by the U.S. Coast Guard, the U.S. Coast Guard Cutter Healy breaks ice ahead of the Canadian Coast Guard Ship Louis S. St-Laurent in the Arctic Ocean. The two ships are taking part in a multi-year, multi-agency Arctic survey that will help define the Arctic continental shelf. Photo: AP; Courtesy-thehindu.com.

NATO, for the first time, officially claimed a role in the Arctic, when Secretary-General Jaap de Hoop Scheffer told member-states to sort out their differences within the alliance so that it could move on to set up “military activity in the region.”

“Clearly, the High North is a region that is of strategic interest to the Alliance,” he said at a NATO seminar in Reykjavik, Iceland, in January 2009.

Can the West see beyond oil in the next 50 years. Not unless, they are led by their nose. (Cartoonist-Matt Wuerker; Date-25-6-2008; Courtesy-cartonistgroup.com; Copyright-Matt Wuerker).

Can the West see beyond oil in the next 50 years. Not unless, they are led by their nose. (Cartoonist-Matt Wuerker; Date-25-6-2008; Courtesy-cartonistgroup.com; Copyright-Matt Wuerker). Click for larger image.

Since then, NATO has held several major war games focussing on the Arctic region. In March this year, 14,000 NATO troops took part in the “Cold Response 2010” military exercise held in Norway under a patently provocative legend: the alliance came to the defence of a fictitious small democratic state, Midland, whose oilfield is claimed by a big undemocratic state, Nordland. In August, Canada hosted its largest yet drill in the Arctic, Operation Nanook 2010, in which the U.S. and Denmark took part for the first time.

Russia registered its firm opposition to the NATO foray, with President Dmitry Medvedev saying the region would be best without NATO. “Russia is keeping a close eye on this activity,” he said in September. “The Arctic can manage fine without NATO.” The western media portrayed the NATO build-up in the region as a reaction to Russia’s “aggressive” assertiveness, citing the resumption of Arctic Ocean patrols by Russian warships and long-range bombers and the planting of a Russian flag in the North Pole seabed three years ago.

It is conveniently forgotten that the U.S. Navy and Air Force have not stopped Arctic patrolling for a single day since the end of the Cold War. Russia, on the other hand, drastically scaled back its presence in the region after the break-up of the Soviet Union. It cut most of its Northern Fleet warships, dismantled air defences along its Arctic coast and saw its other military infrastructure in the region fall into decay.

(Cartoonist-Chip Bok; Date-23-6-2008; Courtesy-cartonistgroup.com; Image subject to copyright). Click for larger image.

(Cartoonist-Chip Bok; Date-23-6-2008; Courtesy-cartonistgroup.com; Image subject to copyright). Click for larger image.

The Arctic has enormous strategic value for Russia. Its nuclear submarine fleet is based in the Kola Peninsula. Russia’s land territory beyond the Arctic Circle is almost the size of India — 3.1 million sq km. It accounts for 80 per cent of the country’s natural gas production, 60 per cent of oil, and the bulk of rare and precious metals. By 2030, Russia’s Arctic shelf, which measures 4 million sq km, is expected to yield 30 million tonnes of oil and 130 billion cubic metres of gas. If Russia’s claim for a 350-mile EEZ is granted, it will add another 1.2 million sq km to its possessions.

A strategy paper Mr. Medvedev signed in 2008 said the polar region would become Russia’s “main strategic resource base” by 2020. Russia has devised a multivector strategy to achieve this goal. First, it works to restore its military capability in the region to ward off potential threats. Russia is building a new class of nuclear submarines, Borei (Northern Wind) that will be armed with a new long-range missile, Bulava. Navy Chief Admiral Vladimir Vysotsky said recently he had also drawn up a plan to deploy warships in Russia’s Arctic ports to protect polar sea routes. (via The Arctic’s strategic value for Russia By Vladimir Radyuhin.)

Thin ice …

Some sixteen months ago, 2ndlook speculated that West’s redemption may come from oil – from the Arctic. With receding Arctic ice-caps, the West may find itself sitting on large oil reserves. Production from these discoveries may take 10-25 years – climate permitting.

West on the drip - needs Arctic oil. (Cartoon title- Arctic Oil; Cartoon By - Monte Wolverton, Copyright-Monte Wolverton; Date - 3/20/2005 12.00.00 AM). Click for larger image.

West on the drip - needs Arctic oil. (Cartoon title- Arctic Oil; Cartoon By - Monte Wolverton, Copyright-Monte Wolverton; Date - 3/20/2005 12.00.00 AM). Click for larger image.

A big if.

Climate change, I don’t believe in. How long will these weather patterns persist? The West is skating on thin ice – but then what can they do. Slavery is not an option – not for another 50-100 years at least. Dig mother earth, is the second and only option they have believed in.

For the last 3000 years at least.

‘Honest’ Broker – United States Foreign Policy!

October 2, 2010 2 comments
The Buddhist Jataka that travelled to Victorian England!

The Buddhist Jataka that travelled to Victorian England!

India and Honest Brokers

There is this Buddhist Jataka story which we have all heard.

Two cats go to a monkey for help in dividing some eatable equally. End result – the monkey gets everything. The cats, nothing. ‘Honest’ brokers are the monkey which leaves nothing for the cats.

Hillary Clinton assured a nervous gathering of Foreign Policy analysts that the world is counting on the USA today as it has in the past. When old adversaries need an honest broker or fundamental freedoms need a champion, people turn to us. When the earth shakes or rivers overflow their banks, when pandemics rage or simmering tensions burst into violence, the world looks to us. (via Remarks on United States Foreign Policy).

In real life

What is left of Pakistan after US finished with brokering Pakistan’s future? After the West carved up the Ottoman Empire, and divided the Turkish possessions among their puppets, what is left of the Middle East? With oil, Big Oil, oil politics, oil-dollar, oil prices at stake, can the US be a honest broker.

Tell that to the birds.

With oil at stake, how 'honest' a broker can the US be? (Cartoon by Pat Oliphant). Click for larger image.).

With oil at stake, how 'honest' a broker can the US be? (Cartoon by Pat Oliphant). Click for larger image.

Can there be a ‘honest’ broker?

This idea that there cannot be ‘honest’ brokers, made Buddhism so popular all over the world. Not pretty statues and musical chants. In the last 200 years, भारत-तंत्र Bharat-tantra has gone into regression. But, in this period, the world has also learnt more about the limitations of the Desert Bloc ideology.

People get ready!

Boozed British journalism cant see straight

September 12, 2010 Leave a comment
Why compare Japan with Latam and Zimbabwe? Why not with USA, China and Germany which is more like in Japanese class! (Cartoonist - Clay Bennett,  from Clay Bennett's Editorial Cartoons; courtesy - cartoonistgroup.com.). Click for larger image.

Why compare Japan with Lat-Am and Zimbabwe? Why not with USA, China and Germany which is more like in Japanese class! (Cartoonist - Clay Bennett, from Clay Bennett's Editorial Cartoons; courtesy - cartoonistgroup.com.). Click for larger image.

An Indian problem

Now one of the problems of India, having English as an important language, is the amount of swill, garbage and propaganda that we are subjected to.

In spite of being less than anybody, British media can be pretty biased.

One example was a post by Ian Campbell on Japan’s economic problems. He says,

Japan has … has the worst debt to GDP ratio among major economies … But the interest yield on Japanese government bonds is … not much more than 1 per cent, so the debt is not yet so problematic – and might not seem an obstacle to still more spending. … In just five years, even assuming the economy grows, debt might climb to 230 per cent of GDP …  the hideously large debt would finally drive the fiscal deficit far higher and become intolerable.

Japan’s only route then would be drastic fiscal reform or, more probably, huge resort to the printing press, as Latin America did in the old days and Zimbabwe in more recent times. (via Nokia’s billion-dollar man).

British media needs to talk less about other economies - and look at problems in their own backyard. (Cartoon By Brian Adcock, The Scotland - 1/20/2008 12.00.00 AM Cartoon courtesy - politicalcartoons.com; ©Copyright 2008  Brian Adcock - All Rights Reserved.). Click for larger image

British media needs to talk less about other economies - and look at problems in their own backyard. (Cartoon By Brian Adcock, The Scotland - 1/20/2008 12.00.00 AM Cartoon courtesy - politicalcartoons.com; ©Copyright 2008 Brian Adcock - All Rights Reserved.). Click for larger image

Sad Brits …

Campbell, a British journalist, compares Japan with Latin American and African Governments who have printed a lot of money.

But surely he knows that Western Governments – under the leadership of Ben Bernanke printed much more than Africa and Lat-Am could and did! Why is Campbell not talking of British, European and American printing presses?

Is there a racial smell and smear somewhere? Did I hear him say ‘These irresponsible Blacks, Latinas, Browns, Yellows …’

Japan’s problems

Now Japan’s problems are minor – because they have solid, well run, high tech companies, whose products are in demand all over the world.

Off their peaks, these Japanese firms still have  mean clout in business world. Japanese interest rates being so low will not change Governmental economics by much. So, why compare Japan with Latin America or Zimbabwe?

Of course, you cannot compare Japan to Spain – where prostitution is a national industry.  Or Ireland, or Greece, which have lived on handouts for the last 100 years.

Maybe you should look at British debt my dear sir!

Wishful thinking?

Is it wishful thinking Mr.Campbell? Balanced your judgment is not. Or is it just plain malarkey? Methinks, it is ‘White’ noise!

Ian Campbell, who has “recently returned to the UK, where he is writing a book on rural Mexico.” could utilize his time much better writing about rural Britain, which depends on huge subsidies from a nation groaning under 500% Gross-National-Debt (GND-that is Govt.+Corporate+household).

Now British GND (no hindi puns intended) is a much-more-hideous. Than Japanese at 500%. We both know that British exports  are going nowhere!

Is it not time to focus on Britain itself? Japan will do very well, without your attention. (Cartoonist Jeff Danziger; courtesy - cartoonistgroup.com.).

Cartoon Text - "Austerity? But late squire ... she has been dead these fifty years." 2ndlook says - Is it not time to focus on Britain itself? Japan will do very well, without British attention. (Cartoonist Jeff Danziger; courtesy - cartoonistgroup.com.).

Let us look at British economy

First the biggest sector of British corporate sector is about digging, extracting and selling natural resources.

A historical legacy – with little value-addition. Royal Dutch Shell, BP, North Sea Oil, XStrata, Anglo American, Rio Tinto Group,  BHP Billiton, BG Group, National Grid, Scottish and Southern Energy, Centrica. That is 10 of the top 30 British companies. These companies mostly have their assets abroad – and if push comes to shove, you know these companies will go where their bread is buttered.

The second leg on which British industry stands today is cracked leg of banking and insurance – HSBC, HBOS, RBS, Lloyd’s TSB, Barclays, Standard Chartered, Aviva and Prudential. The British part of the business of these 8 financial firms is in mess. The international business is subsidizing the British business. How long do you think this will last?

The third wobbly leg is pharmaceuticals made up of two companies. Glaxo-Smithkline-and Astra Zeneca. Both are in doldrums due to competition from generic Indian companies – and may look good to beery British journalists boozed in a pub. Now these are the three legs of British economy. We know that three legged stools are always prone to topple over.

That was lesson No.1 for you Campbell.

Is this how British journalism lifts its spirits? (By Paresh Nath, The Khaleej Times, UAE - 5/19/2010 12.00.00 AM)

Is this how British journalism lifts its spirits? (By Paresh Nath, The Khaleej Times, UAE - 5/19/2010 12.00.00 AM)

Lallu has a few things to say here

Lesson No.2 is what our colourful former Railway Minister said, “इस हमाम में सब नंगे हैं” (meaning “everyone in this bathhouse is naked”).

No offense to colour black, but then black pots must not call yellow kettles names.

It is plain bad journalism!

Is China talking down its economy?

June 6, 2010 1 comment

Blind spots

In the last few years, the Chinese economy and administration has changed – unannounced and in a very subtle way. There is an interesting openness and candour, which are new elements in the China-mix.

Instead of the usual three themes of real-estate bubble theory, the mega infrastructure projects and the impending dollar-yuan revaluation, this post will look at four other elements. These  four elements are usually ignored in most China analysis – which this post will address.

The US recruited Europe, Japan, Asian Tigers - and now China in this manner for the last 60 years.

The US recruited Europe, Japan, Asian Tigers - and now China in this manner for the last 60 years.

China opens up

In March 2010, China appointed three economic advisors to ‘help’ the People’s Bank Of China. Drawn from academic backgrounds, the names of the advisors were leaked to the press.

Zhou Qiren, Xia Bin and Li Daokui will replace Fan Gang, formerly the sole academic member of the committee, the People’s Bank of China said in a statement on its Web site today, citing decisions by the State Council, the top cabinet. Zhou and Li have spent much of their careers in teaching and academic study, while Xia has worked as a researcher at government agencies.

Li Daokui has been a forthright and hawkish tone in flagging China’s problems! What gives. The way it seems, these economists are talking down the yuan! An orderly devaluation of the yuan and a negotiated recapitalization awaits Chinese banks.

For the first time ever, China is talking down their economy! (© Copyright 2010  Dave Granlund - All Rights Reserved).

For the first time ever, China is talking down their economy! (© Copyright 2010 Dave Granlund - All Rights Reserved).

“The housing market problem in China is actually much, much more fundamental, much bigger than the housing market problem in the US and UK before your financial crisis,” he said in an interview. “It is more than [just] a bubble problem.”He was speaking ahead of Monday’s announcement by the State Council that it had approved a plan to reform real estate taxes, the clearest indication yet that the government will for the first time impose an annual tax on some residential housing in order to rein in rising prices. The news sent shares in China down 2.4 percent. (via China Property Risk Is Worse Than in US – CNBC).

Euro-slide Effect

EU is the largest market for Chinese exports.The change in the Euro-yuan equation in the last 6 months has made Chinese exports to the EU more expensive. This will still not take US pressure off yuan revaluation – and anyway there was no much pressure from EU for a Euro-yuan reset!

Graph courtesy - The New York Times

Graph courtesy - The New York Times

Chinese leaders reached a consensus in early April to break the renminbi’s peg to the dollar. That ended a dispute that had spilled into public view in March when Commerce Ministry officials warned in speeches and interviews in Beijing and Washington about the dangers of any change in the renminbi’s value. The ministry halted those warnings immediately after the consensus was reached, and Chen Deming, the commerce minister, even reversed himself publicly by saying that China’s trade deficit in March was nothing to worry about.

Trade finance out of China

A few quarters ago, China’s trade froze due to lack of trade credit. Chinese banks were unable to get intra-bank limits – and in turn were unable to fund letters of credit for Chinese exporters.

A hiccup in the Chinese realty markets could freeze wheels in China – freezing trade wheels in Asia. As reported earlier in April 2009,

China’s exports rose 7.6% in March from February, after six straight months of contraction. “While exports growth is likely to remain weak in the coming months,” Goldman Sachs economists Yu Song and Helen Qiao commented about China, “we believe the worst sequential slowdown probably is behind us now.”

Some of the revival is due to the greater availability of trade finance, which had dried up as banks clamped down on lending in late 2008, hamstringing global trade.

The Shanghai Composite

In 2010, even as global markets recovered or stabilized, the Chinese Shanghai Composite Index is in bad shape.

In the rankings of the world’s worst-performing stock markets this year, nations drowning in debt feature heavily. Greece is number one, closely followed by Slovakia, Cyprus and Spain. But then, in fifth place, there is China.

Shanghai’s decline – the index is down 16 per cent since January – has caught many investors by surprise, since China is widely seen as a beacon of growth in a world that is still reeling from the financial crisis.

Having fallen to a eight-month low on Thursday, the Shanghai Composite is this year’s worst performing index in Asia.

This may no longer be an issue!

This may no longer be an issue!

Is the Chinese catastrophe overstated

Mass media usually ends-up following, herd-like, some high-profile ‘opinion makers.’

The China Bubble theory has been pushed by people like Jim Chanos, who cut his teeth by predicting Enron and Tyco. In January this year, he made a widely reported prediction that China is “Dubai times 1000″ and is likely to burst any time soon. Chanos’ Biblical imagery and descriptions about China’s, “Treadmill to Hell’ gives the game away. Marc Faber is another boom-and-doom theorist, who has predicted a China bust up! Another economic commentator, Hugh Hendry, in a similar vein, says,

“They suggest a new era reminiscent of Protestant Capitalism. They want us to believe the atheist Chinese are prepared to work harder and defer their gratification for longer.”

These commentators are seemingly painting this economic scenario with theocratic hues! A modern version of the medieval crusades?

Andy Xie, an ex-Morgan Stanley /World Bank expert on China, earned his spurs, with closer to reality, secular reports on bust-and-doom scenarios in China.

The logic of China-busters is very well refuted by those who who are closer to China market and economy – unlike some American Sinologists, who talk to other Sinologists, whose ‘unquestioned’ expertise is based on other Sinologists’ opinion.

The Chinese economic ‘bubble’ may yet burst. But, methinks, the causes, effects and intensity will be, well …

Different!

Some other China posts by 2ndlook

End of the Asian premium on oil?

Citibank has been saved 3 times in 30 years!

Citibank has been saved 3 times in 30 years!

Resource-scarce economies, such as China, India, Japan and South Korea, have long been heavily dependent on oil from the Middle East, giving producers there the upper hand in pricing. The surcharge, known as the “Asian premium,” has averaged about $1.20 a barrel since 1988.

Now, the tables are turning, handing an advantage to the region’s fast-growing countries in the form of relatively less expensive energy.

In March, Saudi Arabia, the world’s largest oil exporter, sold its Arab Light crude to Asia for $6.37 less per barrel than it charged European buyers … Kuwait and Iraq also followed suit … though official statistics aren’t yet available.

The latest flip in prices has led many analysts to conclude that fundamental changes in the global oil trade will soon eliminate the Asian premium for good, eliminating a drag on the region’s economy. In 2008, for example, Asian customers bought about 14 million barrels of oil a day from the Middle East, according to BP Statistical Review of World Energy. The premium averaged $8.08 a barrel that year, amounting to about $41 billion. (via Economic Clout Earns Asia an Oil Discount – WSJ.com).

Economic miracles

Going down the drain!

Going down the drain!

One by one, each Asian country has been able to pull itself out colonial cess-pit that seemed bottomless at one point of time. Barring a few like Pakistan, Bangladesh, Afghanistan, some Central Asian republics, Asia is truly on its way out of the 20th century misery.

There are two economic miracles. One we have seen.

It is a miracle that Asia has been able to come out of its poverty pit, where it found itself in the 20th century – especially after WW2.

The greater miracle will be when Europe and Middle East find a way to rebuild their economic model – without the Asian premium!

And that is the miracle we may not see!

The dangerous case of the Chinese stumper

The dollar and euro need to be devalued by 25%-50% which means yuan must appreciate another 20%-35% from it record high (update on 26th August, 2011)

Let us call this the Chinese Stumper! (Hambone by Mike Flanagan; Cartoon courtesy - Business Standard; from issue dated 19th May 2010; Copyright - Graphic Syndication, England).

Let us call this the Chinese Stumper! (Hambone by Mike Flanagan; Cartoon courtesy - Business Standard; from issue dated 19th May 2010; Copyright - Graphic Syndication, England).

Siamese’ triplets

The Great Recession is like a case of conjoined triplets.

One is the USA – who has used their Bretton Woods licence to print dollars and flood the world market with excess liquidity. The US has also used their ‘dollar power’ to gain loyalty by favouring their allies, satellites and client states with low exchange rates that boost exports. Europe, Japan, Asian Tigers, (and now) China have all been favored with a ‘beneficial’ exchange rate in the past. At an ‘appropriate’ time, this ‘benefit’ was taken away. The US gained by ‘recruiting’ low-cost labour of these economies.

The US 'out-thunk' the Euro-zone on the Euro-currency strategy!

The US 'out-thunk' the Euro-zone on the Euro-currency strategy!

US imports, were underwritten by an increasing volume of IOUs, denominated in depreciating dollars. By paying for imports with IOU notes, the US could subsidize their high-cost exports, to these ‘semi-captive’ markets.

With dollar IOUs and dollar liquidity, US funded hi-tech R&D, overseas acquisitions (of companies, raw materials, allies), commercialize new technologies and standards (internet, software) space and defense, et al. Last forty-year estimates, show that US obtained funding equal to one full year’s US GDP. At nil cost!

All this due to the US dollar’s reserve currency status!

Can Europe be far behind

The Euro unwinds!

The Euro unwinds!

Post-Plaza Accord, Europe decided to get into ‘reserve-currency’ game, with the launch of the Euro currency in Jan 2002. As an incentive to TT-Note holders, the ECB ‘allowed’ the Euro to appreciate – vis-à-vis the dollar. This gave windfall gains to countries holding Euro as a reserve currency.

From dollar parity in 2002, the EU appreciated by more than 60%. After the introduction of Euro, in the first six years, Euro-bond holders hit a gusher. Anyone who held Euro bonds from January 2002 upto Decemeber 2007, would have made some 80% return during this six years. A return of 15% per annum. Close to junk bond returns.

After the ECB took the bait, the US played a waiting game. After running with the overvaluation bait, for 8 years, the Euro- fish is now tired. It is not able to break free of the over-valuation hook. The US is now reeling in the fish.

With a ‘strong’ currency, the option for Euro-zone is massive and painful deflation. Wages, pensions, prices, welfare state benefits will need to come down – and drastically. Do they have the steel or the hunger to do this. Used to a gold-plated Welfare State, Euro-zone does not have the moral resolve to go on a cold turkey diet of frugality.

500 years ago, a poor and marginal Europe could take the risk – and inflict genocide, slaughter, war, crime on a hapless world. Today’s geriatric Europe, effete and crumbling, cannot repeat their run of ‘success’, confronted as it is, by a militarily prepared Asia. Modern Europe’s problem is compounded by the lack of availability of victims.

Which brings us to China.

Change in US Govt securities by China - which has ranged between 30%-60% of total reserves. (Image source and courtesy - http://usa.chinadaily.com.cn). Click for larger image.

Change in US Govt securities by China - which has ranged between 30%-60% of total reserves. (Image source and courtesy - http://usa.chinadaily.com.cn). Click for larger image.

Doing business with bankrupt customers

China’s currency reserves of some US$2.5 trillion, (Update – US$ 3.2 trillion August 2011) in rapidly depreciating Euros and dollars with manufacturing overcapacity, exports-growth economic model is building into a complicated pressure head. Waiting to blow up. Already under US pressure for a yuan revaluation, add complications like

  1. Empty building blocks combined with inflated real-estate prices
  2. Bloated banks loan ledgers with ballooning bad debts
  3. Low entrepreneurial levels with foreign ownership of Chinese businesses
  4. Aging population with a dominant public sector
  5. Increasing foreign exchange reserves of depreciating currencies

and the Chinese Growth story begins to sputter.

As for the Rest of the world

The real challenge for the rest of the world, will be, one, wealth protection. Easily done. Buy gold.

Two, how do we let events unfold – safely. Insulating ourselves from the cycle of calamity, catastrophe, chaos, confrontation, confusion, crises – and then finally a crash.

A cycle that a 86-year young, mentally active, Gujju stock-broker, in Mumbai, shivering with Parkinson’s, explained to me, a few days ago.

India, US and China consider joint strategic crude oil response – Money Matters – livemint.com

Big Oil is way to big to be managed by a few meetings in Seoul ... But

Big Oil is way too big to be managed by a few meetings in Seoul ... But

To protect themselves against disruptions in crude oil supplies, India, Japan, China, South Korea and the US will meet in June in Seoul to work on a joint response mechanism based on their combined strategic crude oil reserves. The five nations together account for 44% of global demand.Strategic crude oil reserves are a country’s answer to counter short-term supply disruptions. They are state-funded and meant to tackle emergency situations. (via India, US and China consider joint strategic crude oil response – Money Matters – livemint.com).

So quietly

A rather sudden development – and not widely reported, at that. Much trawling over the internet could not find any other reports on this meeting – except this one report in Livemint, linked above. It appears that this meeting in Seoul, is a follow-on meeting to the one that China proposed and hosted in 2006.

Energy security has long been an issue with China – which seems to have influenced its foreign policy strongly. Korea has long  been working on energy security with Middle East producers. India has worked on some oil storage plans with foreign investments.

Considering the low-output since the China confab, nearly four years ago, in the short run, there is little scope for any tangible outcome from the Seoul conclave. Developments if any, will only be long-term in nature – and will need significant co-ordination in oil exploration, shipping, storage, and transportation. But what it does, is establish an Asian forum for Asia’s big economies to coördinate policy.

Not a bad idea at all.

Korea-India

Oil prices and uncertainty could derail economies

Oil prices and uncertainty could derail economies

This meeting has quite some background. With the changing power equations in Asia, Korea finds itself in a difficult situation. For historical reasons, they cannot see themselves being very close to Japan (bad memories of Japanese occupation) or China (China’s support for North Korea, hegemonic designs of China, etc.).

On the other hand, the Korean experience in India has been positive. Korean brands like Hyundai, Samsung and LG have done exceedingly well in India, Unlike Chinese brands, Korean products have been received warmly by Indians. Indian prowess in design, R&D, software, also complement Korean manufacturing, global scales and plans. Korea and India have signed a Comprehensive Economic Partnership Agreement (CEPA) in August, 2009.

In India, Korea is seen as a rare, non-threatening, non-exploitative industrial-economy player.

USA-Europe-Asia

It was at Copenhagen, that for the first time, Europe realized that they no longer have the inside track with the USA. At least Obama’s administration. The ‘special relationship’ that swells the British chest has been under some strain – for some time now. The US engagement with Asia makes some sense – as it is Asia which has extended nearly US$3-4 trillion in credit, growth opportunities to the US. Europe increasingly seems more like a liability – and a truculent competitor.

The US presumably knows which side of their bread is buttered.

China-India

Post-Copenhagen, a grateful China has been effusive towards India – at least temporarily. The Chinese press did a roundel for 60 years of India-China diplomatic relationship. With this we have a round-up of the entire scenario. The sentiment and motivation are thick enough to cut with even a blunt knife.

This time around.

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