Category Archives: Front Page

Its a warm winter here, but its a cold winter there…

Posted on by
Reply

Large parts of China are getting pounded by major snow storms. From BBC…

Severe winter weather is causing travel chaos in China as tens of millions of people try to return home for the country’s main holiday, Lunar New Year.

At least 170,000 people are stuck at the railway station in Guangzhou, in the southern Guangdong province, where most trains have been canceled.

Many thousands are stranded because of blocked roads, with some areas running out of salt to spread on icy surfaces.

More than 20 people have been killed since the severe weather began.

Part of the problem is simply that China is not equipped to handle snow in any form. If you watch this clip you will see people spreading salt from the back of trucks by hand. But main reason this heavy snow fall is such a crises has to do with China’s economic polices. As the the Financial Times explains….

An acute coal shortage left China suffering its worst power crisis in years as unseasonably large snowfalls saw hundreds of thousands stranded when they tried to travel to their families for the lunar new year holiday.

About half of China’s 31 provinces and regions have been hit by “brownouts”, or voltage reductions, caused by Beijing’s attempt to reimpose and tighten price controls on commodities including coal and oil.

Beijing is using old-fashioned price controls in an effort to stop food inflation, which has pushed the consumer price index to an 11-year high, from spreading to the rest of the economy.

Power companies insist the brownouts are the result solely of coal shortages. But executives admit privately the industry may have exacerbated the situation to drive home to Beijing the unfairness of price controls. Global prices of coal, China’s staple fuel, have surged, causing pressure for the rises to be passed on. Power industry margins have also been cut by higher freight costs.

China has about a trillion dollars invested in US bonds that they are taking heavy losses on, and yet they don’t have an energy infrastructure that is equal to their needs. If they allowed their currency to float against the dollar, they would not be having such a problem with inflation and energy would be cheaper for them.

Their loss is America’s gain, but how long can they continue like this?

Poem of the Week: 1/27/08 -2/2/08

Posted on by
Reply

This week’s essay of the week brought to mind A Refusal to Mourn the Death, by Fire, of a Child in London by Dylan Thomas. Most people see this poem as a heroic defiance of the Nazi regime. But I see the refusal to “murder the mankind of her going with a grave truth” to be the essence of why Europe is sick and dying.

In other words, the logic that seems to govern Europe is the logic that says “After the first death, there is no other” and consequently cannot bring itself to care about anything except the certainty that can be made in this life.

Essay of the Week: 1/27/08 -2/2/08

Posted on by
Reply

Five NATO generals (A German, a American, A Englishman, a Frenchman, and a Dutchman) got together and wrote out “Towards a Grand Strategy for an Uncertain World.” It made headlines mostly because of its advocacy of the necessity of being willing to launch a nuclear first strike.

But to my mind, the most striking thing about the document it the mismatch between what they fear and their proposed solutions. For example, how is an improved NATO going to deal with the problems posed by European demographic problems?

It seems to me the basic problems they are laying out are twofold. Those trends that will lead to reduced western military power (such as Europe’s demographic issues) and there are those trends that will lead to a more unstable world (such as increased competition for natural resources do to the rise of China and India). Given the scale of both of those trends, their solutions seem inadequate.

Their logic demands an entirely new world order.

Joke's on them. Or is it us?

Posted on by
Reply

So you all heard about this right? If you have’t you have been living under a rock. But seeing as we cater to all sorts (including those who live under rocks) I will give you the back story. From the Wall Street Journal…..

In one of the banking world’s most unsettling recent disclosures, France’s Société Générale SA said Mr. Kerviel had cost the bank €4.9 billion, equal to $7.2 billion, by making huge unauthorized trades that he hid for months by hacking into computers. The combined trading positions he built up over recent months, say people close to the situation, totaled some €50 billion, or $73 billion.

Okay, here is the joke (from Market Watch)….

The Federal Reserve was not aware that Societe Generale was unwinding trades in Europe on Monday that had been amassed by a rogue trader at the French bank, a Fed source said Thursday.

The bank’s scramble to get out of those trades is now presumed to be a factor behind the panic sell-offs that roiled overseas markets on Monday. And those sharp declines in Europe and Asia were cited by Fed watchers as a central concern that moved the Fed to engineer an unprecedented emergency rate cut only one week before their formal meeting.

In case this needs to be spelled out for you here is Felix Salmon to explain how one little trader at one little bank struck terror into the heart of the Fed……

Firstly, they decided to liquidate as quickly as possible, dumping the overwhelming proportion of their huge long position in one day. And secondly, the day they picked was Martin Luther King Day: a public holiday in the US, which meant that Chicago was closed.

As a result, futures traders across Europe had to scramble to find a huge amount of liquidity in a very short time, and prices predictably plunged.

As Macro Man puts it….

Macro Man also assumes that he’s not alone in scratching his head and thinking “what now?” Next week’s Fed meeting is set up to be an extraordinarily interesting one. It has emerged that despite the Banque de France knowing about SocGen’s travails over the weekend, the Fed had no clue when they hit the panic button on Tuesday.

Grep Ip seems to suggest that the SocGen revelation won’t impact the Fed’s decision next week, but come on! If, before the equity market meltdown, the Fed was planning on doing 50…..why should they cut any more next week, thereby at least doubling the amount of their originally intended easing?

Yet to the market, it’s not a question of whether the Fed eases, but by how much. The OIS market is currently pricing in 40 bps of easing. Of course, if the Fed doesn’t ease, markets could then puke, delivering the kind of price action that prompted the emergency cut in the first place. The problem with allowing the market to lead you, Mr. Bernanke, is that it inevitably leads you into an uncomfortable corner.

What seems evident is that volatility is set to remain pretty high. If the Fed doesn’t cut next week, equities should tank and bonds soar. If they do cut….well, let’s just say that the dollar will be (French) toast.

North Korea is reported to be near an impolsion

Posted on by
Reply

From Jane’s…..

Kim Jong-Il’s regime could collapse within six months, bringing chaos to North Korea, observers and intelligence sources in Asia have told Jane’s.

A joint United States report by the Center for Strategic and International Studies and the US Institute for Peace has also revealed that China has “contingency plans” in the event of North Korea’s implosion. The report, entitled ‘Keeping an Eye on an Unruly Neighbor’, said that China was prepared to “take the initiative” and had a military strategy for securing North Korea’s “loose nukes” should Kim Jong-Il’s rule fail.

Any apocalyptic scenario has to be taken with a grain of salt; in 1997 the Central Intelligence Agency predicted the collapse of North Korea within five years. However, there are reasons for the heightened levels of concern; in particular, the recent actions of Kim Jong-Il and other North Korean officials are being interpreted as signs that the regime is nearing its end.

Tellingly, the ‘Dear Leader’ is in the process of moving financial resources to ensure that his assets are portable should he have to go into exile, according to some sources.

H/T The Belmount Club. I hope it happens. Somtimes chaos is perferble to order.

I doubt that it will happen in the next 6 months. You have to make allowaces for China and South Korea intervening to prop North Korea up. But I think the odds are pretty close to 100% that it will happen in the next 6 years. The condtions in North Kora are so bad that if the regime does not collapse with in that time period, just about every one in the country will be dead by then anyway.

Enjoy your bananas while you can

Posted on by
Reply

This is a bit of history I never knew before…..

A wild scenario? Not when you consider that there’s already been one banana apocalypse. Until the early 1960s, American cereal bowls and ice cream dishes were filled with the Gros Michel, a banana that was larger and, by all accounts, tastier than the fruit we now eat. Like the Cavendish, the Gros Michel, or “Big Mike,” accounted for nearly all the sales of sweet bananas in the Americas and Europe. But starting in the early part of the last century, a fungus called Panama disease began infecting the Big Mike harvest. The malady, which attacks the leaves, is in the same category as Dutch Elm disease. It appeared first in Suriname, then plowed through the Car- ibbean, finally reaching Honduras in the 1920s. (The country was then the world’s largest banana producer; today it ranks third, behind Ecuador and Costa Rica.)

Growers adopted a frenzied strategy of shifting crops to unused land, maintaining the supply of bananas to the public but at great financial and environmental expense—the tactic destroyed millions of acres of rainforest. By 1960, the major importers were nearly bankrupt, and the future of the fruit was in jeopardy. (Some of the shortages during that time entered the fabric of popular culture; the 1923 musical hit “Yes! We Have No Bananas” is said to have been written after songwriters Frank Silver and Irving Cohn were denied in an attempt to purchase their favorite fruit by a syntactically colorful, out-of-stock neighborhood grocer.) U.S. banana executives were hesitant to recognize the crisis facing the Gros Michel, according to John Soluri, a history professor at Carnegie Mellon University and author of Banana Cultures, an upcoming book on the fruit. “Many of them waited until the last minute.”

Once a little-known species, the Cavendish was eventually accepted as Big Mike’s replacement after billions of dollars in infrastructure changes were made to accommodate different growing and ripening needs. Its advantage was its resistance to Panama disease. But in 1992, a new strain of the fungus—one that can affect the Cavendish—was discovered in Asia. Since then, Panama disease Race 4 has wiped out plantations in Indonesia, Malaysia, Australia and Taiwan, and it is now spreading through much of Southeast Asia. It has yet to hit Africa or Latin America, but most experts agree that it is coming. “Given today’s modes of travel, there’s almost no doubt that it will hit the major Cavendish crops,” says Randy Ploetz, the University of Florida plant pathologist who identified the first Sumatran samples of the fungus.

Also, see this. (h/t Marginal Revolution for both links)