Gold and the Punchbowl

I have just been listening to Ben Davies’ podcast (see also FT Alphaville here) from Hinde Capital about the funding issues of the Japanese government and the points he makes are important. I have used the methaphor of Japan as a bumblebee before and while I believe that the story on Japanese savings may just be a little more complicated than many believe I think Ben points his finger at two very important points. One is how Japan has difficulty with both deflation and potential inflation (higher yields) at the same time which not only puts the economy in a very tight spot, but also locks in Japan towards a balance between veering to far in either direction, a balance which can be difficult to strike. The second is that while Ben believes that Japan will ultimately pop, the central bank (and indeed Japan itself) will try to do everything it can before that happens. Especially the last point is very important. Coupled with the need for Japan to attempt to maintain a structural external surplus it brings me back to a point I have made before (and which I will continue to make again and again).

Aging societies are not, in the main, characterised by aggregate dissaving but rather by the fight against it.

Intrinsic Value of Fiat Currencies Under Siege by Gold

Earlier this evening, I was chatting up an ex-Morgan Stanley colleague who has been an independent professional advisor for futures and commodities trading over the past 10 years and is quite active in the gold and energy markets. I mentioned to him that I was doing a comparative correlation analysis of gold to some of the major G20 currencies and he had the following to say:

“It’s the intrinsic value of fiat currencies that is under siege. If we’re in a flotilla and all the boats are sinking does it really matter whose goes down first? At some point, that just becomes a footnote in history. Do I think we go away from the dollar altogether? No. But you do have to be looking at clients’ real WEALTH, not so much the nominal value of their accounts. How’d you like to have 10 million Hungarian pengõs right about now?…”

Asian Market Snapshot: Stocks Gain on Speculation Japan and U.S. Governments Will Support Growth

Asian markets traded higher after the BoJ expanded its JPY 20 trillion bank loan facility to JPY 30 billion as a strengthening yen threatens the recovery. (See RGE critical issue: Is Yen Intervention in the Offing?). Markets, however, pared back some of their gains as the size of the increase disappointed. 

The MSCI Asia Pacific Index rose 0.2% to 117 led by material producers, while the MSCI ASIA APEX 50 rose 0.9% to 740.

In Japan, stocks advanced as the central bank increased the size of its liquidity facility. The Nikkei 225 gained 1.8% to 9,149. Technology (up 2.64%) and industrials (up 1.94%) led the gains. Canon rose 2.4% while Honda gained 1.6%.

Asian Market Snapshot: Stocks Gained on Optimism About Corporate Earnings and Better than Expected U.S. Job Data

Asian markets opened lower but quickly pared back their losses to close up for the last day of the week amid optimism about corporate earnings and better than expected U.S. initial jobless claims. Yesterday after Asian markets closed, the U.S. labor department reported that jobless claims dropped more than expected. Initial claims dropped in the week ending August 21st to 473K from an upward revised number of 504K. The median economists’ estimate from the Bloomberg survey was 490K. (See RGE critical issue: U.S. Labor Market: Initial Unemployment Decline, But Still Elevated). 

The MSCI Asia Pacific Index rose 0.6% to 117, closing the week down 1.5% while the MSCI ASIA APEX 50 rose 0.1% to 733 to end the week down 2.1%.

Asian Market Snapshot: Most Stocks Rise on Cheap Valuation, Weaker Yen and Speculation Fed Will Act

In a choppy trading day Asian markets opened higher and traded lower in the first hours before paring back losses to close higher for the day.  Cheap valuation sparked the gains as investors speculated that prices have fallen excessively relative to earnings.

The MSCI Asia Pacific Index fell 1.4% to116 while the MSCI ASIA APEX 50 lost 0.8% to 733.

In Japan, stocks rose on a weaker yen and speculation that stocks were undervalued. The Nikkei 225 rose 0.7% to 8,906 led by exporters as the yen weakens. Yahoo Japan climbed 5.7% while Suzuki Motor rose 2.9%.

New Destinations for Zambian Copper?

Zambia’s economic performance is closely tied to the price of and demand for copper, which accounts for 70% of foreign exchange earnings and exports. This lack of export diversity in the economy leaves Zambia extremely vulnerable to global shocks since foreign investment is correlated to the copper price. While higher copper prices boosted the economy (and made Zambian T-bills a temporary wonder) during the 2007-08 commodity boom, the subsequent correction of commodity prices broke the country’s growth momentum, which was further trammeled by the global slowdown. A combination of industrial destocking, weak industrial production and a weak property sector exacerbated the shift in exports from advanced economies to EMs in general—and China in particular.  From 2007-09, Zambian exports to the EU fell by 41%, driven by a reduction in metal exports. Notably, exports to Zambia’s largest trading partners within the EU—the UK and the Netherlands—both declined. (The average annual export growth dropped 23% and 6%, respectively.)  Switzerland, Zambia’s main export destination, also significantly reduced its metal imports over the period.

Food Security: Export Controls Are Not the Cure for Grain Price Volatility, but the Cause

My last blog post listed some policies and institutions with which various small countries around the world have had success — innovations that might be worthy of emulation by others.  Of course there are plenty of other examples of policies and institutions that have been tried and that are to be avoided.    The area of agricultural policy is rife with them.   Many start with a confused invoking of the need for “food security.”The recent run-up in wheat prices is a good example.   Robert Paarlberg wrote an excellent column in the Financial Times recently, titled “How grain markets sow the spikes they fear.”   Grain producing countries point to the high volatility of prices on world markets and the need for food security when imposing taxes on exports of their own grain supplies, or outright bans, as Russia did in July.    The motive, of course, is to keep grain affordable for domestic consumers.  But the effect of such export controls is precisely to cause the price rise that is feared, because it removes some net supply from the world market.    (The same could be said when grain importing countries react to high prices by enacting price controls, because that adds some net demand to the world market.)   

Asian Market Snapshot: Most Stocks Fall Amid Speculation on U.S. Home Sales Report

Asian markets traded lower all throughout a choppy trading day as investors speculate on weaker U.S. home sales data due later today. Economists surveyed by Bloomberg expect home sales to fall to 4.65 million from 5.37 million in June. (See RGE Critical Issue: U.S. Housing Demand Languishes Following Tax Credit Expiration

The MSCI Asia Pacific Index fell 0.8% to 117 led by 225 the Nikkei.The MSCI ASIA APEX 50 lost 1.1% to 738.

Asian Market Snapshot: Stocks Fall over Concerns of Upcoming U.S. Data

Asian markets opened and traded lower all throughout the day as investors speculate on weaker U.S. data due later this week.

The MSCI Asia Pacific Index was unchanged at 118 as losses in auto and electronics shares offset gains in utilities. The MSCI ASIA APEX 50 lost 0.3% to 746.

In Japan, stocks declined as investors anticipate weak U.S. data this week and on comments made by Finance Minister Yoshihiko Nado who said that he hasn’t heard of any scheduled meeting between Prime Minister Naoto Kan and BoJ Governor Masaaki Shirakawa to discuss the rising yen. The Nikkei 225 lost 0.7 % to 9,117. Sharp declined 2.5% while Honda, with 84% overseas exposure, fell 0.5%.