Arthur Siegel Farmhands drinking beer, Jackson, Michigan Fall 1941
It’s a fun day in finance so far today. Eurozone growth is not going anywhere, but there’s no lack of positive anticipations for the future. Is there ever? Q1 GDP in the Netherlands actually shrank to the tune of -1.4%, but they have a great explanation for that. It’s because of – drumroll, wait for it – … the mild winter! The weather can be used to explain anything and everything these days. Where the US economy was hurt by a harsh winter, the Dutch went down because their winter wasn’t harsh enough.
The reasoning in the burbs of Amsterdam is that both exports and domestic use of natural gas was, what’s that word, tepid, and at face value that sounds sort of acceptable perhaps, but why didn’t the US economy get a boost then from additional heating costs, instead of being hurt by them – or so they say -. And if Americans didn’t go out to buy cars and homes because of the cold, wouldn’t the Dutch have done just more of that in their mild winter?
The Bank of Japan yesterday was good too: it warned against an El Niño this year cooling the weather, which allegedly will cut spending. Japan Q1 GDP was up by 1.5% yoy, but there’s not much faith left in the rising sun: the Nikkei lost 0.75% (-12% for the year) on the good news (like the Dutch markets are up on their bad news), and NLI senior economist Taro Saito was quoted as saying: “We expect the economy will contract at an annualised rate of around -5% for April-June” He did add it might grow back a bit later in the year, but still. Ouch.
Reuters has a piece about how the Japanese working poor are getting hurt by Abenomics, and that’s no wonder since it’s based on ye olde trickle down theme, and I don’t swallow for a second that Abe doesn’t know what that means. He wants consumers to spend just because they believe Abenomics will work, not because it actually does, but he knows Japanese don’t think like that. Meanwhile, his banks – for the umptieth time in the past 20 years – just got a desperately needed credit buffer. A job well done. Wonder what the BOJ will come with when that El Niño never materializes and the economy still keep on crumbling.
In line with my article yesterday on the developing disaster that is the Chinese economy, David Stockman does one better, and says China’s not even an economy, just a “monumental building aberration”. Now we’re talking. “China is a grotesque economic aberration that bears no relationship to prior economic history or any conventional economic models ..” Even TIME Magazine joins the fray now: “You know a property market is in trouble when developers stage long-jump contests to attract buyers.”
China’s one of the main reasons – Russia’s the other – why Steen Jakobsen at Saxo Bank foresees a major slowdown in Germany. And if you combine that with the disappointing eurozone Q1 numbers, held above zero only by Germany, then what do you see? Well, one thing is that in a week, the 3-day European Parliament elections start, and there’s a fair possibility that anti-EU parties get such a big chunk of the votes, there will have to be serious discussions about what the European people want, not just the ‘Europe is good, more Europe is better’ “visionaries”.
And if you ask the people, there’ll be very few who want more Europe. They just have no other way, except in Italy with Beppe Grillo’s 5-star movement, to express that than through voting for fringe parties with often questionable ideas. The entire ‘normal’ political spectrum, from left to right, all have the same basic message: Europe is good for you, more Europe is more good. Which is a strange way to run a democratic system, and down the line a dead end one.
And of course nobody’s surprised anymore that bad news causes a stock market to rise, and good news leads to falls. That lack of surprise is just one of many signs that we don’t have markets anymore, that they no linger exist other than in name. And that can seem merely semantics, but let’s have that conversation. Stock markets are places where someone who has done work, who has added value to something through his labor, after providing for his own food and shelter can invest what’s left over in shares of a company that does the exact same thing: add value to something through work. In a company’s books and ledgers, an investor can see if the company’s doing well. If so, he gets some dividend, if not, he may lose some of his investment, sell the stock, and invest elsewhere.
Of course there may be people who inherit the money they invest, but by and large the model stands. Except that it doesn’t look at all like what are called the markets today. Where for instance the S&P can set records despite a still severely limping US economy. Where 40% of trade goes through HFT desks. Where stimulus freebies prop up everything, and nobody says anything as long as they too can feed on that trough. Where a company’s shares may have nothing to do with its performance when it comes to added value in its products, and often indeed does not.
It’s the Tulip bubble redux, and we all know how that went, but nobody says a thing as long as there’s a buck to be made. That this buck will have to come from the working poor, who get hit everywhere in the same fashion as Japan’s working poor are through Abenomics, nary a moral objection is heard about that. A buck in the hand today is worth more than a functioning economy down the line. Or so people seem to think.
If you say that you can’t solve a debt based problem with more debt, other than perhaps at low debt levels -which we certainly don’t have -, most will understand and agree. If you say that’s exactly what is being done right now all over the world, most will neither understand nor agree. There’s a belief in magic factor that plays a role in that, but there’s also the ‘buck in the hand today’ one. A belief that somehow this will end well trumps our logic, and that allows us to give way to greed over common sense, over the notion of leaving behind a better, let alone just simply functioning, world for our children. By the time we hand it over to them, there’ll be nothing left but zombie markets ruled by zombie banks reigning supreme over a zombie economy in a pool of miserable desperation. We’re laying the foundations for that today.
The euro-area recovery failed to gather momentum last quarter, as France unexpectedly stalled and economies from Italy to the Netherlands shrank. Growth of just 0.2% for the currency bloc, half as much as economists had forecast, adds pressure on the European Central Bank to deliver stimulus measures next month in its battle against weak inflation and anemic output. While German expansion doubled to 0.8%, that wasn’t enough to offset renewed weakness across the region, including a 0.7% drop in Portugal. ECB President Mario Draghi primed investors last week for further stimulus in June, saying the 24-member Governing Council is “comfortable with acting” next month.
With the euro area’s recovery from a record-long recession still fragile, officials are battling to revive price growth, with the inflation rate at less than half the ECB’s target. “The recovery is still more or less in train in most countries, but the headline number is disappointing and the horror show was the Dutch number,” said Richard Barwell, an economist at Royal Bank of Scotland Group Plc in London. “We think the ECB is going to act in June, and we think it will be a package of measures.” Dutch GDP fell 1.4% in the first quarter, the sharpest contraction in the euro area, Eurostat said today. The Italian and Finnish economies shrank 0.1% and 0.4%, respectively. … the euro zone continues to struggle with the legacy of the debt crisis. The unemployment rate was 11.8% for a fourth month in March, near the all-time high of 12% last year. The annual inflation rate was 0.7% in April, Eurostat said today in a separate report.
Even in the euro-zone powerhouse, Germany, there are signs of a potential slowdown in the second quarter. The ZEW Center for European Economic Research in Mannheim, which aims to predict economic developments six months in advance, said this week its index of investor expectations slid for a fifth month in May to the lowest since January 2013. The Bundesbank has warned that while the economy shows an upward trend, growth will slow “noticeably” in the three months through June. The euro-area recovery is “proceeding at a slow pace and it still remains fairly modest,” Draghi said last week in Brussels after the ECB left its benchmark rate at 0.25% and its deposit rate at zero. “There is consensus about being dissatisfied with the projected path of inflation.”
Germany was once again the main driver of modest growth in the euro zone as the economies of Italy and the Netherlands contracted, while France’s stagnated. The currency area’s continued reliance on its powerhouse underlines the fragility of its recovery, which began in the second quarter of last year but has struggled to gain momentum. The euro zone’s two core economies were on widely divergent trajectories at the start of 2014, with Germany’s economy surging head as French economic growth ground to a halt.
Adding to a very mixed picture for the euro zone’s largest members, the Netherlands experienced a sharp economic contraction in the first quarter, although that may be transitory and largely due to a very mild winter across Europe. The Netherlands is one of the largest gas-producing countries in Europe and harsh winter weather usually provides a boost to its export-oriented economy. Figures released earlier recorded a pickup in growth in Spain. But for members of the European Central Bank’s governing council, the weakness and narrowness of economic growth in the first quarter will likely underline the need for further stimulus as they prepare for their next meeting in early June.
The ECB’s vice president said Thursday that it is open to further monetary easing to prevent the euro zone from stagnating under an extended period of low inflation. “We are determined to act swiftly if required and don’t rule out further monetary policy easing,” Vitor Constancio said in a speech in Berlin. The contrast in economic performance with Germany will add to already growing pressure on French President François Hollande. After increasing taxes sharply in the first 18 months of his presidency, the Socialist leader changed his approach in January, pledging to slash spending instead and cut taxes for business in a bid to get them to invest and recruit. Germany’s statistics agency Thursday said that in the three months to March, gross domestic product was 0.8% up on the last three months of 2013. That was the most rapid expansion since the first quarter of 2011, and double the rate of growth recorded in the final quarter of last year.
The one thing which to me is being ignored by the market is the coming slow-down in Germany. The market can of course go up in times of weaker growth, but my big “thing” is that no one believes Germany economically is slowing despite very negative macro changes in the last twelve months:
• The China rebalancing will cost Germany export volume.
• Germany has the most expensive energy policy in Europe – a drive away from atomic power dependency to a less obvious dependency on Russian gas.
• The Ukraine crisis impacts Germany. According to the Federation of German Wholesale, Foreign Trade and Services (BGA) about 6.200 German companies are doing business in Russia.
• The coming Chinese devaluation of the Yuan will significantly lift Chinese import prices.
I had to write a monthly OP-ED for Swiss Financial newspaper and as I sat down to verify my long held opinion that Germany would slow-down in Q4 I was surprised to find Germany already seeing relative dramatic slow-down signs:
I have constantly argued for this slow-down being logic based on Germany’s Asia dependency on export volume growth but with poor policy responses from Germany on energy and a neglected understanding of the Russian exposure the market is in for very negative surprise on growth as we leave 2014. More than 6.200 German companies are involved in Russia – The Economist claims more than 300.000 jobs depends on Russia export. Russia is Germany’s 11th biggest export market & its 7th biggest import market. Germany now imports more than 70% of its energy of which more than 25% comes from Russia. Merkel has created a risky energy policy which makes her impotent in international dealings. Europe and Germany must soon own up to the fact that we are energy deficient. We run major short position in energy. That should be the main topic for the next EU Council Minister meetings, but instead they are going to celebrate the crisis is finally over…. The King is dead – long live the King.
The stock markets are booming, the economy is booming, and the main stream media is booming with stories about both. Yet, as IceCap Asset Management’s Keith Dicker warns, if one looked closely between all of this booming, one would find that everything isn’t quite booming after all. For starters, the latest Wall Street Journal/NBC poll reported 54% of respondents would vote to replace EVERY member of the American congress if the ballot option was available. Let’s think about that for a moment – the majority of people in the most democratic country in the world would boot out every single elected official in Washington. This isn’t exactly a booming vote of confidence. The same poll also reported that 66% believe the American economy is on the wrong track and 65% said their representative didn’t deserve another term in Washington. But, the economy and the stock market are booming.
Shifting our attention to Europe, the big media and governments are also reporting that the stock market is booming and the economy is also booming once again – just as the governments hoped (there’s that word again) it would. Yet, if the stock market and the economy are booming why do we see: • UK considering leaving the European Union, • Scotland voting to leave the UK, • Catalonia voting to leave Spain, • Venice voting to leave Italy, • Greece not being allowed a vote on leaving the Eurozone. From our perspective, the only thing booming in Europe are separatist movements – no one wants to stay, except of course those who have a vested interest in the status quo. We are very confident that it is only a matter of when – not if, the Eurozone breaks and the breaking will be caused by either a planned election or a grass roots social movement to force change.
Small caps. Pay attention.
This is how bear markets begin.Two months ago, I pointed out that the U.S. stock market had topped out and was going through a churning process. Since that observation, the Dow Jones Industrial Average has risen a bit higher but the Nasdaq and Russell 2000 indexes have dropped below their 50-day and 100-day moving averages. It’s only a matter of time before the Dow follows. Bear markets start with a whimper or a bang. When it starts with a bang, the first clue will be a major break in the market that no one can correctly explain. That will eventually be followed by a correction (or crash), and everyone will know that something bad has happened. The indexes will fall by double digits, investors will panic, and stocks get slaughtered.
Investors will be told to stay calm and not sell — but they will when the financial pain gets too great. They are also told that the market always comes back (although not all stocks will). Anxiety turns to fear as the market plunges. After a correction or crash, investors look for scapegoats while commentators ask, “Who could have known?” (Hint: Those willing to act on the clues and indicators were out of the market well before the most damage was done.) But when a bear market starts with a whimper, it confuses nearly everyone. A meandering, volatile market is frustrating. At first, bulls are hopeful that the market will keep going up, but eventually, the market tops out and retreats.
I call this “death by a thousand pullbacks.” Instead of new highs, the market will make a series of short-lived but painful pullbacks. At first, the buy-on-the-dip investors will enter the market with new orders. As the bear market continues, the buy-on-the-dip strategy will stop working (along with most other long strategies). Typically, a market making new highs is a healthy sign. In a looming bear market, new highs on lower volume is a red flag. That’s happening now. Also, leading technology stocks have gotten smashed, replaced by new leaders. After these new leaders fail there will be nowhere to hide.
The thing to understand about China is that it is not just another booming EM economy that is momentarily struggling to cool-down its excesses in fixed asset investment and make a transition to some kind of more “normal “consumer-based economy. That comforting notion represents an odd-confluence of propaganda from the comrades in Beijing and hopium from Wall Street stock peddlers. In fact, China is a grotesque economic aberration that bears no relationship to prior economic history or any conventional economic models – not even to the export-mercantilism model originally developed by Japan, and which has now proven itself wholly unsustainable.
Instead, China is a nation that has gone mad building,speculating and borrowing on the back of a credit bubble so monumental (and dangerously unstable) that its implications are resolutely ignored by observers deluded by the notion that China embodies a unique economic model called “red capitalism”. But when a nation’s debt outstanding explodes from $1 trillion to $25 trillion in 14 years, that’s not capitalism, even if its red. What it represents is monetary madness driven by the state.
Chen Li, the lender’s chief China equity strategist, estimates companies in the nation’s CSI 300 Index will post a 3% drop in earnings this year, versus consensus forecasts for a 14% gain. As analysts downgrade projections to account for a weak property market and depreciating yuan, China’s biggest non-bank stocks may extend this year’s drop to 20%, Chen says. The Shanghai-based strategist sees parallels with 2012, when the nation’s slowing economy spurred analysts to reduce profit estimates and the CSI 300 index fell more than 20% from its May high through the December low. The gauge has retreated 6.8% so far this year amid concern that a housing slump will add risks to an economy that analysts already predict will grow at the slowest pace in 24 years.
“It will be a down year for stocks,” Chen said in a May 13 interview at the Swiss bank’s office in Shanghai. “Property will be the biggest risk.” Chen predicted China’s stocks would tumble in 2011, when the CSI 300 plunged 25%. He forecast a 20% rally in December 2012. While the gauge subsequently advanced more than 25% in two months, it erased most of those gains by mid-year. Chinese President Xi Jinping said last week that the nation needs to adapt to a “new normal” in the pace of economic growth. New building construction fell 22% in the first four months of the year, while home sales slid 18% in April. Data on industrial output, retail sales and investment for April released this week all trailed analysts’ estimates.
At daggers drawn over a set of disputed islands – not to mention leadership in Asia – China and Japan are finding they have at least one thing in common: Spin seems to have become the central plank of their reform plans. President Xi Jinping isn’t attacking China’s problems with “three arrows,” of course, as Prime Minister Shinzo Abe is in Tokyo. Transforming the Chinese economy from an investment- and export-addicted mess into a balanced, innovative machine requires much more than that. But in both countries, leaders have been spending much more time talking about their revival plans than implementing them. Markets are noticing: An index of Chinese stocks JPMorgan Chase says should benefit most from reforms sank 10% this year through yesterday.
Investors have many reasons to be gloomy. After years of growth, property prices are starting to tank. Even those who believe the government is serious about reform worry that the necessary changes will prove a drag on growth. Punters are coming to grips with the magnitude of the task that Xi and Premier Li Keqiang are facing. I think markets are also sensing an Abenomics dynamic in Beijing, where Xi and Li are talking lots of about epochal changes and offering very few specifics. Contrast this to sentiment last November, as the Communist Party was unveiling its biggest policy changes since the 1990s. Investment banks from Goldman Sachs to Citigroup competed to put out the most bullish buy ratings on mainland shares.
A similar excitement greeted Abe’s return to office last year. Yet as I’ve pointed out before, we’re nearly 17 months into Abe’s tenure, and only one of his three “arrows” has hit its target — the monetary one. The second, fiscal pump-priming, has barely been launched, if the impossibly slow pace of rebuilding efforts in the earthquake-ravaged Tohoku region is any guide. The third, deregulation, is still in Abe’s quiver. The whole point of the three-arrow metaphor, which dates back to the time of the samurai, is that all of them are needed if they are to succeed: One arrow alone can be bent; three together can’t be. That’s why the Nikkei is down 12% this year, while just about every major stock market is in the green.
How is China, which as we explained yesterday just completed a very bearish “head-and-mutated-shoulders” formation in its “gloomy” housing market and where the entire economy is threatened with imploding into a hollow house of cards (built in one of the Chinese ghost cities no less) because according to SocGen “the aggregate exposure of China s financial system to the property market is likely to be as much as 80% of GDP”, dealing with the threat of a housing market, and thus economic, and thus global depression? Here’s how. From Global Times:
East China’s Fujian Province has eased curbs on home purchases amid a cooling pro≠perty market, China Business Journal (CBJ) reported Monday, ≠citing industry insiders. Fuzhou, capital of Fujian Province, saw its home sales in terms of floor areas more than halved as the average home price more than doubled over the past five years, stock information portal aastocks.com reported on Monday. This news came after media reports of massive home price discounts in cities like Hangzhou of East China’s Zhejiang Province and Changzhou of East China’s Jiangsu Province.
Since March, 20 property developers in Guangzhou have been offering “zero down-≠payments” to attract buyers, in addition to large discounts and tax refund, the National Business Daily reported Monday.
In other words, “please take this home: it’s free.” What can possibly go wrong?
You know a property market is in trouble when developers stage long-jump contests to attract buyers. That’s what happened earlier this month in the eastern city of Nanjing. Looking to sell apartments in a new residential complex, a local newspaper reported that agents from the developer, Rongsheng Group, lined up potential customers behind a queue and asked them to leap forward. Those who jumped the farthest got the biggest rebates — up to $1,600. Chinese newspapers these days are riddled with such tales of desperation. On May 9 in the central Chinese city of Changsha, pretty girls were enlisted to hand out 50,000 tea eggs to lure people into a housing fair. Developers in Shenzhen and Fuzhou are offering to sell apartments with no down payment. In Hangzhou in April, two real estate agents competing for buyers got into such a vicious fistfight that the police had to intervene.
Are we witnessing the end of China’s great property boom? For years now, some analysts have warned China was in the midst of a gargantuan property bubble, ready to burst at any moment, with dire consequences. But Chinese real estate defied the naysayers and continued to soar. Both developers and customers, bypassing restrictions imposed by policymakers to constrain the industry, continued to build, invest and propel prices higher. Now, though, the inevitable reckoning may have finally arrived. Massive oversupply combined with a tightening of credit orchestrated by the government appears to be crushing the market. Government statistics show that the amount of unsold commercial and residential property hit an all-time record in March. “We are convinced that the property sector has passed a turning point and that there is a rising risk of a sharp correction,” analysts at investment bank Nomura commented in a May report.
Falling apartment prices spell bad news for China’s economy. Real estate is one of the main drivers of China’s growth, with property investment accounting for 16% of GDP by Nomura’s calculations. A downturn could dash hopes for a recovery of the world’s second largest economy, already suffering through its worst slowdown in more than a decade, and the impact would be felt across the world. Real estate investment in China affects global prices of commodities like iron ore, so a slowdown can send shockwaves from Australia to Brazil. Falling property prices could also subvert the wealth of the Chinese middle class, dampening consumption of everything from cars to coffee. That could hurt companies like General Motors, McDonald’s and Starbucks.
It’s not just China or Japan.
Can Asia overcome its addiction to debt? That is the question across the region as economies slow and borrowing costs rise. After more than a decade of often blistering growth, many fear that Asia’s golden era may be drawing to a close. When George Magnus, the economist, penned his report “Is Asia’s miracle over?” in 2012, the feedback was sceptical. Many presumed the financial crisis was little more than a bump for the world’s most dynamic region, and the rebound would prove lasting. But now, with exports still weak, quantitative easing in the west being unwound, and domestic economies laden with debt, the idea that the Asian boom has already peaked is rapidly going mainstream.
Asia’s economic miracle, with China at its heart, has been a driving force for the region and the rest of the world. It has halved the proportion of people living on less than $2 a day over the past decade. Average incomes have doubled in South Korea, Malaysia and Thailand, and risen more than fivefold in China and Indonesia, according to the Asian Development Bank. Since China joined the World Trade Organisation in 2002, emerging Asia’s share of global gross domestic product has risen from 11% to 21%, says the IMF. The contribution to growth has been far greater. Even during the financial crisis, Asia powered ahead on the back of China’s mammoth stimulus package and record low borrowing costs as central banks across the world slashed rates.
Those measures boosted demand for Asian exports but, more importantly, helped companies and consumers fuel domestic growth with cheap credit. While much has been written about China’s debt addiction, the experience is far from unique within Asia. Credit levels have risen sharply since 2008 in Hong Kong, Singapore, Thailand and Malaysia, while already high levels of household debt in South Korea and Taiwan have tracked even higher. During times of accelerating growth, that might not be a cause for concern. But now much of Asia is faltering. Credit intensity – the amount of borrowing needed to generate a unit of output – has surged, while productivity growth has tumbled. The debt train appears to be fast running out of track just as the world prepares for higher interest rates.
When it comes to the topic of the marginal utility of debt, or how much GDP does a dollar of debt buy (an example of which can be seen here), most people are aware that the developed world is facing ruin: with debt across the west already at record, nosebleed levels, and with GDP growth slowing down (due to capital misallocation, thank you Fed, demographic and productivity reasons), it is only a matter of time before it doesn’t matter how many trillions in debt a given treasury will issue (and a given central bank will monetize) – the credit impulse will simply not translate into incremental economic growth.
But did those same people also know that Asia is almost as bad if not worse as the west when it comes to the marginal utility of debt, or as the FT calls, it credit intensity. Here, in three simple charts, is a visual summary of Asia’s debt trap:
Asian economies have experienced a surge in credit intensity a measure of the borrowing required to generate a unit of growth
Rising consumer and corporate debt some infrastructure and construction-related has helped growth at a time of weak exports
The low cost of credit has helped growth, delaying structural reforms in countries including China, India and Indonesia
The average person believes the stock market is run on free market principles, with willing buyers and sellers paying and receiving the most efficient price with regards to their transactions. The American people have put their trust in gargantuan bureaucratic government agencies, funded with their tax dollars, to protect their interests and fight for their rights in the financial marketplace. They innocently believe a private bank – The Federal Reserve – owned and controlled by the Too Big To Trust Wall Street Mega-Banks, is actually enforcing regulations and looking out for the best interest of the small investor. They evidently haven’t been paying attention for the last fourteen years, as the Federal Reserve has purposefully created bubble after bubble with ridiculously low interest rates, money printing on an epic scale, encouraging complete deregulation of banks, inciting speculation, and ignoring criminal behavior by their Wall Street owners.
After reading Lewis’ exposes about these Wall Street scumbags, you realize Scorsese’s seemingly over the top portrayal of these people in Wolves of Wall Street is accurate. Nothing has changed since Lewis worked at Salomon Brothers in the 1980’s. The people inhabiting that culture are unscrupulous, greedy, obtuse, ignorant, and intent upon preying on the weaknesses of their “clients”, who they hold in contempt. They are the wolves and you are sheep. The comforting picture of a stock broker representing your interests on a small commission basis has been replaced by stock exchanges colluding with Wall Street banks, hedge funds and high frequency traders to fleece mom and pop out of hundreds of billions on an annual basis using their super-fast computers located within the stock exchanges. The people who know the truth have no interest in drawing the new picture because their massive paychecks depend upon not drawing the picture.
You can tell how accurate a portrayal is by the reaction of those being portrayed. Flash Boys and the subsequent interview of Lewis by 60 Minutes resulted in a broad based assault by Wall Street bankers, HFT dirt bags, corrupt stock exchange CEOs, SEC lackeys, Federal Reserve Chairwomen, bought off politicians, faux financial journalists, sellouts like Buffett, and of course the mouthpieces of Wall Street on CNBC. The oligarchs benefitting immensely from the HFT scams, Dark Pool schemes, and Stock Exchange pay to play swindles, attempted to ambush the good guys (Brad Katsuyama and Michael Lewis) on CNBC, the captured media pawn of the Wall Street ruling elite.
As China’s going down?!
China and Russia are set to cement their energy alliance next week with an expected agreement to build a natural gas pipeline between the two nations that would secure a huge new market for the world’s largest energy producer and provide a guaranteed energy supply for China’s growing economy as both nations face confrontations with the West. The deal, which the two countries negotiated over the last decade, is expected to be signed when Russian President Vladimir Putin visits Beijing next week. The deal between Russia’s Gazprom and China’s state-owned energy giant CNPC was confirmed by sources in the Russian energy sector, according to a note from the Eurasia Group, a consultancy.
Current geopolitical conditions resulting from Russia’s ongoing crisis in Ukraine appear to have aligned the two super powers in such a manner favorable to finally concluding the deal. “As the Ukraine crisis threatens Russian access to Western credit in the short term, while likely eroding Russia’s European gas market share over the next decade, Moscow is keen to secure a major new gas export market in Asia, as well as to demonstrate to the West that it has energy consumer options,” the Eurasia note said.
Bank of Japan officials are concerned that cooler-than-normal weather triggered by El Nino this summer will curb spending and weigh on an economic rebound after a sales-tax increase, according to people familiar with the matter. The officials are watching out for potential weakening in consumer spending and sentiment that could add to risks facing the economy from weak exports and developments in Ukraine, according to the people, who asked not to be named because the discussions were private. With an export recovery that could be gradual, the effects of El Nino require close monitoring, the people said.
The Japan Meteorological Agency this week forecast a 70% chance El Nino will occur, the highest since its last occurrence in 2009, bringing lower temperatures that could continue through autumn. Dai-ichi Life Research Institute economist Toshihiro Nagahama sees a risk that cooler weather could reduce growth by as much as 0.9 percentage point in the third quarter. “We can’t rule out the potential that the El Nino this summer causes unexpected damage to Japan’s economy,” Nagahama said. “This could affect the decision to raise the sales tax from October next year as the growth rate in July-September is critical for that judgment.”
“We expect the economy will contract at an annualised rate of around 5% for April-June”. ‘Nuff said.
Japan’s economy grew in the January-March quarter at the fastest pace in more than two years as consumers rushed to spend before an increase in the sales tax and business investment rose in a sign of confidence in the prospects for future growth. The 5.9% annualised expansion in the first quarter handily beat the average expectation of 4.2% growth in a Reuters poll of economists. It was the fastest expansion since the 10.8% annualised growth in the third quarter of 2011, when the country was recovering from a earthquake and nuclear disaster.
Capital expenditure rose at the fastest pace in more than two years, suggesting the economy could quickly recover from an expected slowdown in consumer spending after the tax increase, as business investment tends to spur job creation and result in higher salaries. “We expect the economy will contract at an annualised rate of around 5% for April-June but will likely grow around the 2% level for July-September,” said Taro Saito, senior economist at the NLI Research Institute.
At 16%, Japan’s relative poverty rate – the share of the population living on less than half of the national median income – is already the sixth-worst among the 34 OECD countries, just ahead of the United States. Child poverty in working, single-parent households like Saito’s is by far the worst at over 50%, making Japan the only country where having a job does not reduce the poverty rate for that group. As Prime Minister Shinzo Abe charges ahead with his “Abenomics” policies to revive economic growth, things look set to get harder, not better, for Japan’s down-and-out.
Having ramped up spending on public works and business incentives, the government has also moved to shore up its finances, cutting welfare benefits last summer and last month raising the national sales tax to 8% from 5%. The regressive tax puts the biggest burden on the poor and another increase to 10% is planned for October 2015. Team Abe’s success in reversing 15 years of price declines that have hurt business confidence and investment also squeezes the poor, who cannot count on bonuses or financial profits to offset rising living costs.
The government says it plans more aid for welfare recipients, largely through job training. That, however, is little consolation because even those with jobs often live under the poverty line. The government does not officially define the “working poor”, but the number of part-time, temporary and other non-regular workers who typically make less than half the average pay has jumped 70% from 1997 to 19.7 million today – 38% of the labour force. “The Abe administration’s stance is more about fixing things, including poverty, with a trickle-down effect from overall economic growth,” said Takashi Oshio, a professor at Hitotsubashi University specialising in social security. “There’s little political capital spent on issues like alleviating child poverty. It doesn’t garner votes.”
Former Italian prime minister Silvio Berlusconi repeated accusations on Wednesday that he had been forced out of office at the height of the euro zone crisis in 2011 as the result of a plot by European Union officials. Berlusconi’s comments followed the publication of a book by former U.S. treasury secretary Timothy Geithner which suggested that the U.S. government had been asked to help force Berlusconi to resign as the crisis escalated in late 2011. “At one point that fall, a few European officials approached us with a scheme to try to force Italian Prime Minister Silvio Berlusconi out of power; they wanted us to refuse to support IMF loans to Italy until he was gone,” Geithner wrote in his book, “Stress Test: Reflections on Financial Crises”, extracts from which appeared in the Italian press this week.
“We told the President about this surprising invitation, but as helpful as it would have been to have better leadership in Europe, we couldn’t get involved in a scheme like that,” he wrote. “‘We can’t have his blood on our hands,’ I said.” Berlusconi resigned in November 2011 after months of tension on financial markets led to fears that investors could refuse to buy Italian bonds, sending the euro zone’s third-largest economy into default and breaking the single currency apart. The 77-year-old media tycoon, currently serving a community service sentence after being convicted of tax fraud last year, said the book showed there had been a “clear violation of democratic rules and an attack on the sovereignty of our country”. “The plot is an extremely serious piece of news which confirms what I’ve been saying for some time,” he told Rai state television in an interview.
A new study suggests that the intensity of tropical cyclones is shifting poleward. According to the study, the latitude at which tropical cyclones reach their greatest intensity is gradually shifting from the tropics toward the poles at rates of about 33 to 39 miles per decade. The new study was led by Jim Kossin, a National Oceanic and Atmospheric Administration (NOAA) National Climatic Data Center scientist stationed at the University of Wisconsin-Madison’s Cooperative Institute for Meteorological Satellite Studies. The research documents a poleward migration of storm intensity in both the Northern and Southern Hemispheres through an analysis of 30 years of global historical tropical cyclone data.
The term “tropical cyclone” describes a broad category of storms that includes hurricanes and typhoons, large and damaging storms that draw their energy from warm ocean waters. The findings are important, Kossin said, because they suggest that some areas, including densely populated coastal cities, could experience changes in risk due to large storms and associated floods and storm surges. Regions closer to the equator, he noted, could experience a reduced risk, and places more distant from the equator could experience an increased risk. The trend observed by Kossin and his colleagues is particularly important given the devastating loss of life and property that can follow in the wake of a tropical cyclone. The study is published in the journal Nature.
That and fracking.
Excessive groundwater pumping for irrigation in California’s agricultural belt can stress the San Andreas Fault, potentially increasing the risk of future small earthquakes, a new study suggests. GPS readings found parts of the San Joaquin Valley floor have been sinking for decades through groundwater depletion while the surrounding mountains are being uplifted. This motion produces slight stress changes on the San Andreas and neighboring faults. “The magnitude of these stress changes is exceedingly small compared to the stresses relieved during a large earthquake,” lead researcher Colin Amos, a geologist at Western Washington University, said in an email.
The study suggests that human activities “can cause significant unclamping of the nearby San Andreas Fault system” through flexing of the Earth’s crust and upper mantle, Paul Lundgren of the NASA Jet Propulsion Laboratory wrote in an accompanying editorial. Lundgren had no role in the research. In the past century, the amount of groundwater lost in the Central Valley through pumping and crop irrigation is equal to the volume of Lake Tahoe. The ongoing drought is expected to exacerbate the problem as communities tap groundwater faster than it can be replenished. As the valley subsides, this change in load causes the Sierra Nevada and Coast ranges to slowly rise.
Main Monsanto factory.
Agriculture workers and various environmental advocacy groups in Argentina are protesting the use of pesticides produced by biotech giant Monsanto as they seek to halt work on the company’s new chemical plant in Malvinas Argentina. Residents, along with workers who regularly come into contact with Monsanto’s products, are calling for the suspension of the use of the company’s pesticides, claiming they cause adverse health effects. The protest comes amid mounting scientific evidence that the liberal and often unregulated use of Monsanto’s chemicals are linked to growing instances of various cancers and birth defects.
The collection of groups protesting construction of the new plant in Argentina’s province of Cordoba have halted progress for months now, while they seek a permanent injunction based on health and environmental concerns. “Here we have the aberration that on one side of the fence is the fumigation (use of pesticides) and on the other side of the fence is the town, or the local school, which is subjected to aerial spraying. Teachers have to come outside and shelter their students indoors because these toxic chemicals are raining down,” said Antonio Riestra, a member of the Unidad Popular party, which has joined the cause.
Beyond halting work on the new plant, activists hope to gain support from the local and national government to eject Monsanto out of Argentina. That goal seems remote, though, considering the proliferation of Monsanto pesticides along with the company’s genetically modified crops. Within the last few decades, Argentina has transformed itself into the world’s third-largest soy producer, almost all of which is genetically-modified seed. The crop is now the country’s most important export.