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.
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.
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,
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 …?
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.
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.”
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?”
- Gold Coins Show Bull Market Unbowed in Commodities Decline (businessweek.com)
- Soros Sells Most of Gold ETP Holdings During First Quarter (businessweek.com)
- A closer look at George Soros’ big quarter of selling gold (financialpost.com)
- Why is George Soros selling gold, but John Paulson not? (theglobeandmail.com)
- China Is Now Top Gold Bug (online.wsj.com)
- Gold Investment Demand in China (lonerangersilver.wordpress.com)
- Chinese set new standard in buying gold (ft.com)
- Gold grand prix – The Chinese challenge (quicktake.wordpress.com)
- Shanghai Planning Gold Exchange-Traded Funds as Demand Jumps (businessweek.com)
- Oil, gold back in demand (news.theage.com.au)
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.
- Onward, American Soldiers! Another million await death. (quicktake.wordpress.com)
- Out with the old? (bbc.co.uk)
- UK economy trailing (thesun.co.uk)
- Skidding Oil Prices: A Blip or a Trend? (green.blogs.nytimes.com)
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)
Can Europe be far behind
Doing business with bankrupt customers
- Empty building blocks combined with inflated real-estate prices
- Bloated banks loan ledgers with ballooning bad debts
- Low entrepreneurial levels with foreign ownership of Chinese businesses
- Aging population with a dominant public sector
- Increasing foreign exchange reserves of depreciating currencies
As for the Rest of the world
- ‘Black Death’ of eurozone crisis will hit exports – China (telegraph.co.uk)
- Any euro zone solution requires pain: Stiglitz (theglobeandmail.com)
- German Leaders Reiterate Opposition to Euro Bonds (nytimes.com)
There are two types of European state visitors in the United States capital. One seeks to underscore his or her closeness to Washington. The other likes to emphasize how independent Europe really is. But French President Nicolas Sarkozy, who is visiting American Senators and US President Barack Obama, would like to be both at the same time.
Sarkozy also wants to remind the Americans that, as a European, he can defy them. In a speech given in New York on Monday, the Frenchman repeated his demand for better regulation of the global economy. “We can no longer accept a capitalist system without rules or order,” Sarkozy said. “The world economic regulations cannot go on as they are,” Sarkozy said. “A system in which the most money is earned through speculating instead of producing, I don’t want to live in such a system.”
Of course, Sarkozy needs to score points back at home, too. Only last weekend, he was punished in regional elections in France. In an interview, Sarkozy’s own father advised his son not to run for re-election. Given his electoral setback, it makes sense for Sarkozy to bang the drum for French and European interests in Washington. Obama, on the other hand, is feeling reinvigorated following the passage of his healthcare reform through Congress and the new arms treaty with Moscow.
When the US president traveled to Paris last year, he preferred to dine with his wife Michelle rather than Sarkozy. “The hoped-for partnership never materialized,” the French daily Le Figaro wrote. Sarkozy hasn’t forgiven his American colleague for it, either. He has complained to those close to him that Obama is ill-prepared to govern, noting that he didn’t even hold a cabinet-level position before taking office.
The Americans are disappointed that, even after the ratification of the Lisbon Treaty — which was meant to give the European Union’s common foreign policy more clout — the individual European countries are continuing to pursue their own interests abroad. The question, former senior US diplomat and current Harvard professor Nicholas Burnsin an interview with the New York Times, is whether Europe can “develop a collective European idea of global power? They talk about it a lot, but they don’t do it.” The Washington Post has even criticized Obama for this, noting that in contrast to his predecessors, he hasn’t established close ties to a single European leader.
John Podesta, the leader of Obama’s transition team that helped prepare the newly elected president for the White House in 2009, told SPIEGEL: “His style is certainly different from George W. Bush who wanted to be liked and really developed deep personal relationships.””But if you have the wrong foreign policy and good personal relations, you end up with bad results,” he added. “And if you have the right foreign policy, a strong team to implement it, and thinner personal relations, you’re more likely to have very good results.”(via L’Americain in Washington: Sarkozy Searches for Friendship with Obama that Has Eluded Him – SPIEGEL ONLINE – News – International).
Between Europe and racism
While 2ndlook was analyzing the new calculus between USA and Europe, a worried European press (for instance, Der Spiegel) was looking at Franco-American relations through a German prism.
For Europe, the experience of dealing with Obama has been different – and difficult. Europeans would like to pretend that Obama’s race does not make a difference – but it took Berlusconi to spell out the European ‘superiority’! That probably rankles with Obama.
Franco-American relations – a perspective
In the 1960s, the USA was bleeding gold. Most of the world was buying gold at an artificially low price US$35 – under the Bretton Woods Agreement. USA was printing dollars and dumping it in world markets. Calls for devaluation of the dollar price was resisted by the US, as that “would reward the speculators and be a special windfall for two gold producing countries that have few friends in the Congress, namely Russia (which usually sells at least $400 of gold a year) and South Africa (which sells about $1 billion).”
The French team of Charles de Gaulle and his economic advisor, Jacques Rueff did some quick maths. It was clear this मेला mela (a ‘fun-fair’) would not last long. Based on huge dollar outflows from the US, the French decided to call the bluff. The French started redeeming gold for their dollar earnings – and for this ‘perfidy’ the US had not forgiven France.
The French, unhappy with a “monetary system of gold, dollars and pounds” redeemed their dollar holdings (1958 onwards), sent the French navy (in 1965) to take delivery of gold from USA and bring it to Banque de France. The French raised gold reserves and dumped dollars. Time magazine called this “an open assault on the monetary power of a friendly nation” – dutifully, echoing American Government’s feeling. Banque De France finally, by 1968, increased its gold reserve to 92% (as a percentage of total foreign currency /monetary reserves). This was much like the pre-WW2 French methodology devaluation, new peg, of old debt for new gold routine got the US hackles up.
Many decades have passed since these redemptions by France. The new French President, Sarkozy believes it is now possible to renew US-French relations.
If wishes were horses!
It was at Copenhagen, that for the first time, Europe realized that they no longer have the inside track with the USA. At least, in 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 some 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.
With Government debt level ranging between 2%-20%, Russia is in a league of its own. No other major government in the world has such low-levels of debt.
- Putin Seeks Russian Presidency, Eyes Job Swap With Medvedev (businessweek.com)
- Fears Vladimir Putin will turn Russia into outright dictatorship (telegraph.co.uk)
- Finance Minister Will Quit Russian Government (nytimes.com)
- Russian bonds riding a wave of success (rt.com)
- Russia Yield Advantage Shrinks to 10-Month Low Amid Bond Sales (businessweek.com)