October 5, 2015

The great maul of China's partners

Posted in Sunday Business Post · 47 comments ·
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When you look around at the world economy, one thing strikes you: America is on its own in terms of having a growing economy. There simply has not been a period in recent history where global growth rates are so divergent. Europe is still gripped by austerity, Japan hasn’t been right for a generation and the Chinese economy is facing a rapid post-boom contraction. Elsewhere, the big commodity-based emerging markets like Brazil, South Africa and Russia are simply derivatives of China, as their wealth is largely a function of China’s demand for their raw materials.

In this article, I will focus mainly on events in China – or at least in countries affected by China.

The first major issue is that the emerging markets, all those countries that were doing fantastically well because of China’s demand for commodities, are faltering. China doesn’t want their stuff anymore and their wealth is based on the Chinese bidding up the price of commodities, which allows dollars to gush into their coffers. Now that this flow of cash has stopped, they are in trouble.

The second issue is the impact of these divergent growth trajectories on currencies. The dollar has been gaining steadily because the Federal Reserve is on the cusp of raising rates and, even though the trajectory of rates is not going to be significantly upwards, the other major countries are pushing their interest rates downwards. All this is driving the dollar upwards and driving the price of commodities downwards, contributing to the financing problems of the large emerging markets.

Falling commodity prices are not merely the result of technical or exchange rate issues. There is a massive overhang of capacity in the world. Since 2008, the Chinese have been investing in almost everything. All these huge machines, factories, buildings, roads and infrastructure have been built and are now idle. This means that if you want to make anything – you can still make it in China. Imagine a large multinational that operates globally and has a factory in China. Where do you think it is going to make stuff if the demand for that stuff increases? Why in China of course!

Multinational companies operate a global supply chain so until all this excess capacity in China is used up, there will be deflationary pressures everywhere.

This has a massive impact on countries, like Australia, which depend on commodities for much of their wealth. When the price of what you produce falls, it means you have to sell much more of this stuff to buy the other stuff you don’t have and want to have. This is called your “terms of trade” in economics. In recent months this has been turning against Australia.

Of course, Australia is important to Ireland because so many of our young people are there.

For the past few years Australia has been China’s quarry. The resource boom that underpinned Australia’s impressive economic performance is now winding down. Sharp falls in the prices of bulk commodities because of the fall-off in Chinese demand – and to a lesser extent agricultural products – have resulted in a rapid reversal in the country’s terms of trade from a remarkable 140-year high. As a result, the growth rates of household incomes, corporate profits and public sector revenues have all moderated; mining investment spending has fallen. The overall share of plant and equipment outlays as a share of GDP has slumped from a peak above 18 per cent of GDP in 2012 to around 15 per cent of GDP today, and it looks set to drop further.

The only thing that is keeping Australia motoring is a massive credit/housing/lending binge reminiscent of Ireland ten years ago. As we know, this can go on for as long as the banks keep lending, thus inflating the bubble further but at some stage it stops and heads into reverse.

However, the real issue in Asia, Australia aside, is currency related. The dollar links China to the US.

For years the Chinese have linked the Yuan to the dollar. As the dollar rose in recent months, it dragged the Chinese currency upwards. This has made the problems in China worse because they can’t export their way out anymore because the country is losing competitiveness, not least because the currency is going the wrong way.

I fully expect that the Chinese will respond to economic decline and financial market carnage with massive credit creation, exactly as it did in 1989 (Tiananmen), 1997 (Asian flu) and 2008 (subprime/Lehman). The Politburo and the Communist Party cannot allow growth to slip again because economic growth is all they have.

Years ago the Communist Party slogan in China shifted from equality for all to prosperity for all, or at least most, so economic growth is essential for the party to remain in power.

As a result of this, like the Fed in 2008, or the ECB in 2014, the Chinese central bank will become the “lender of last resort” and will print money. This will drive the Chinese currency down and is likely to prompt “me too” devaluations all over Asia from Thailand to Malaysia and ultimately to Japan – China’s biggest trading partner in the region.

This will all drive the US currency up further and will have the impact of making US investments outside of the US cheaper. After all, if your cost base is in euro and you book your profits in dollars, a strong dollar means it makes sense to put more of your business abroad.

And this is where we come in.

Ireland is an unusual country because, although we are notionally European, we actually do best when the US is strong and the eurozone is weak. This is because of the huge amount of US investment here. We look hyper competitive to corporate America when the dollar is strong and we look expensive when the euro is strong.

As a result, the turmoil in Asia and China may actually prompt more investment into Ireland because we look cheap to Americans. Sometimes luck comes your way and it could just be our good fortune that problems somewhere very far away precipitate a positive outcome for us.

It’s the bounce of the ball. Sometimes the ball bounces unexpectedly and you lose and sometimes it just bounces right up into your hands and you are over for the try.

Don’t ask too many questions, just take it!


  1. Sharp falls in the prices of bulk commodities because of the fall-off in Chinese demand – and to a lesser extent agricultural products…

    I thought a boom in agricultural products amid emerging markets changing their tastes towards eating more meat would be great for Ireland…which it it…

  2. michaelcoughlan

    Hi David,

    I really liked the way you ended the article;

    “Don’t ask too many questions, just take it!”

    because it is a very pragmatic and workable response to the reality of how Ireland functions also expertly highlighted.

    If China increases all this credit/debt just like the US etc. surely there must be some negative consequences to all this extra debt in the system?

    regards,

    Michael.

  3. douglaskastle

    It was interesting though last week when PayPal said that they were finding it hard to get accommodation for me staff. Buried in the text some where was the sentiment that if it gets too hard to find an affordable place to live they won’t be able to get the talent/expertise they need and they may have to move onto other countries when it isn’t as much of a problem.

    To be fair this could be a short term problem, easily solved(I know I’m an optimist) . However just because the dollar strengthens and we start to look more competitive, things start to get messier when they try to get boots on the ground.

  4. Daithi7

    Hmmmmm. …..
    ‘America is on its own in terms of having a growing economy. There simply has not been a period in recent history where global growth rates are so divergent. Europe is still gripped by austerity, Japan hasn’t been right for a generation and the Chinese economy is facing a rapid post-boom contraction….’

    Last time I checked, Isn’t the China gdp growth rate just reverting back from the hyper aggressive rates of recent years of circa 10% to more sustainable levels of say 5-6% p.a. that sounds like growth to me!?

    In fact in Ireland we’ve just had that level of growth for one year after a huge, prolonged, financial crash& depression and we’re already hearing about housing shortage crises, lack of qualified Labour, property bubbles, blah, blah, blah!?!

  5. Grzegorz Kolodziej

    Fine article. This and the previous article indicate that David has raised the bar substantially (maybe because the weather is colder – I find it easier to concentrate too).

    “The only thing that is keeping Australia motoring is a massive credit/housing/lending binge reminiscent of Ireland ten years ago. As we know, this can go on for as long as the banks keep lending, thus inflating the bubble further but at some stage it stops and heads into reverse.”

    Well there you go. By the way, the last sentence sounds like “The General Theory of Employment, Interest and Money” was temporarily misplaced somewhere in your home library and Ludwig von Mises’s “Human Action” inherited the sacred place on your what I imagine to be a very stylish bedside lamp.

    “As a result, the turmoil in Asia and China may actually prompt more investment into Ireland because we look cheap to Americans” – this deserves a really thorough discussion and not only from me. This is Ireland’s be or not to be.

    I am not talking only about being cheap – though I have been a decades long advocate of the view that the cost of living (fueled by cheap credit and lack of domestic competition, with ultra strong competition withing in the environment of big corporations) is Ireland’s main obstacle in doing business, even more important than its public transport.

    I am talking about the whole question of Ireland being a mid-Atlantic rather than European culture.
    I am sure that David is familiar with the classical heartland theory of Halford Mackinder and the Rimland theory of Spykeman, as both theories are well known in colleges from Moscow to Boston.

    https://www.youtube.com/watch?v=swaoGFAjDb0

    David’s reasoning seems to be based on the Rimland theory and it’s an approached which definitely should be looked at extremely closely and especially by anyone who aspires to be a politician in Ireland.

    I never said that I disagree with the Spykeman, but I have always been saying we should also consider alternative approaches, such as the alliance with China.

    Now I have discovered that I am not the only one (in the Atlantic sphere) and that there is an academic in Australia who openly advocates that:

    https://www.foreignaffairs.com/reviews/capsule-review/china-choice-why-america-should-share-power

    There is one passage in it which I think warrants a response:

    “The dollar has been gaining steadily because the Federal Reserve is on the cusp of raising rates and, even though the trajectory of rates is not going to be significantly upwards, the other major countries are pushing their interest rates downwards. All this is driving the dollar upwards and driving the price of commodities downwards, contributing to the financing problems of the large emerging markets.”

    To that I can only quote what I wrote in July:

    “there were question (I was referring to a press conference after Mrs. Yellen’s statement regarding the interest rates – G.K.) to Mrs. Yellen about raising rates and to one of them questions she answered that we are going to go very slowly and if it’s causing pain, we are going to go back. All of it makes me quite iffy on her raising rates substantially”

    “we see the labour participation rates in the US lowest since 1977 and David who believes the unemployment figures are real…”

    “To summarize it, I read Yellen’s statement as an attempt to gorgonize us into believing that the US economy is so great that they can afford raising the rates or talking about it.
    By the way, the sales in the US have dropped Also, FED hopes 2015 will see 3pc growth which would lay foundation for raising interest rates, but for the target to meet after 1pc in the first half they would need something like 5pc in the second half and that ain’t gonna happen. The Small Business optimism index dropped. The US bar and restaurant sales fell by 0.2pc IN JUNE!”

    Today I am even more iffy on Mrs. Yellen raising the interest rates than I was back then.

    What makes you believe, David, that she will raise the rates if she did not raise them in September, than the markets expected her to raise it in October – and that does not look likely now – and now all talk on Wall Street is about raising rates in December?

    Do you believe everything Mrs. Yellen says? I think QE4 is way more likely than raising rates this year or next year – the election year.

    And what if the financial markets have already calculated the interest rates going up – which will probably not happen anyway, so they might have got it wrong like they had done so many times in the past, i.e. with dotcom bubble and the housing bubble – and the price of the dollar already reflects that?

    I think that what we are dealing with is not as much the strong dollar as the weak Chinese currency, manipulated by the Chinese central bank (and the stock market crash they experienced) plus weak euro, partly due to the ECB QE program of doubling the money supply, which I have also covered in one of my posts.

    One of the independent small TV stations in Poland conducted a half an hour long interview with a Syrian, who has been living in Poland for the last 16 years and he is a respected member of the small town community of Kalisz (the oldest town in Poland, mentioned by Ptolemy), where he is known for his voluntary work. I decided to summarise some things he said because, first of all, most of his family are still in Syria, so he probably has a better insight at the nature of the Syrian tragedy than me or anyone else from us secondly, he presented a coherent point of view which is, in some details, refreshing. These are his theses:

    1. The events in Syria are part of an international game between the US and Russia (that’s obvious for every reader), but also between Turkey and Iran (I think that we often forget that amidst the main players there are some minor players like the aforementioned or – which he did not mention – Saudi Arabia and Israel; both countries playing destabilising role in the Middle East: how strong would ISIS be know if the US had listened to Israel and attacked Iran – a country opposed to Muslim extremism? – along with Saudi Arabia – a country which supports Muslim extremism; these countries, however, taken together, have perhaps more clout than we think).

    2. Polish counterintelligence should use assimilated Syrians living in Poland to help sieve the refugees from those who pass off as refugees. I wonder if any such thing takes places in Ireland. We have a small group of assimilated Bosnians and considering that according to the EU itself a considerable part of the asylum seekers are from the most corrupted country in Europe – Albania (but you would never hear that on RTE), who would be better to detect them than one or two Bosnians living in Ireland for 20 years?

    3. Every refugee accepted by Poland should agree on certain conditions – that’s the Syrian, not me. First and foremost they should understand that Poland is not a Muslim country (the interviewed Syrian is actually a Muslim himself) and that they cannot demand any Muslim laws being introduced or obeyed by the locals. He gave an example of someone visiting someone’s house as a guest and being treated with tea and not only saying that he drinks coffee and not tea, but demanding that from now on everyone in the house should only drink coffee.

    4. He claims that initially the anti-Assad opposition had been genuine and it had consisted mainly of young and frustrated people, but this grass-root movement turned vile when the US and the Arab states started arming those people and sending their own men.

    5. The terrorism of the Islamic states is – according to the Syrian – not even aimed at non-Muslims specifically, but it is actually aimed at everyone who disagrees with them, regardless of their religion. Their long term goal is to remove the buffer zone between Islamic terrorism and Europe. In that confrontation terrorist will win because we in Europe want to live and are determined to give away everything as long as we live peacefully whereas they are so brainwashed that they are willing to die for their beliefs, so immediately they gain an enormous psychological advantage. He gives a specific example: Europe’s police system is so weak that when Kurds staged a protest against ISIS in Germany, ISIS launched a brutal attack at peaceful Kurdish manifestation and the German police not only was not able to protect the Kurds, but took ISIS side (because ISIS people were brutal and in large amounts while the Kurds were few and not that aggressive)

    6. Here I am throwing a fly into David’s ointment regarding guns control – David, banning gun ownership in Europe does not mean that there will be less guns or gun related crime (did you check the US statistics in specific states before and after imposing a ban on guns or lifting it?), but it means that the only non-army and non-police gun owners will be mafia and the Islamic fifth column. Hitler would not have had it so easy with the Jews if he had not confiscated their guns as one of the first things he did. Andreas Breivik would not have it easy if there was someone with a gun on that island. By supporting ban on gun ownership you ensure that the events known from the US colleges – by the way places where guns are not allowed – will be a daily occurrence in Muslim-run Europe. You might end not being allowed to flung an Irish flag, like in Sweden – in Sweden schools are not allowed to display Swedish flags because it has a cross. Go to Switzerland and find out that most people have machine guns in their homes. Incidentally, the fake Syrians are not shouting “Switzerland, we want Switzerland” on TV. I am suspending a judgment how that should be in Ireland because at the moment Ireland is arguably the best location in Europe to rescue hide from the Muslim invasion, thanks to its natural sea barrier, low social welfare payments for single men – the likes of that “refugees” from the video I posted saying that they do not want to stay in Denmark because Sweden pays them twice as much “salaries” and thanks to the fact that the Taiseaoch Enda Kenny was wise enough to only take 600 of them, which is f..k all really compared to Poland, which Germany forced to take 7pc of the European total – and they ordered Poland to place them as far from the German border as possible (but why if Germany wants peace and Islam is a religion of peace?); a Polish canteen worker in the poorest region of Poland on 300 euro a months feeding a fat asylum seeker from Albania on multiple of that – oh, the inhabitant of the so called Poland C – the poorest regions on the eastern border – are going to love it – already 30,000 people marched in Warsaw shouting “fuck Islam”; maybe that’s why the Gruppenfuehrer Martin Schulz said it has to be done by force).

    7. Asked what Europe should do to help the Syrians he said that European organisations should go and help people in Syria rather than letting in the fifth column in Europe – an expression which he actually used. He gives an example of some of his own family members who are fighting ISIS in Syria and who have no means of living and whom no one from Europe is helping – because they chose to stay in Syria (the interview was conducted before Mr. Putin’s intervention, but like I said, I am not sure yet if Mr. Putin will fight ISIS or only the moderate opposition). He said that main help should be channelled into those who face the enemy and not those who escaped.

    8. He said that Europe should be exerting pressure on Turkey as it was Turkey which used the refugees as the bargaining card in order to: a) extort financial help from Europe (which he succeeded – Mrs. Merkel caved in – I am getting really disappointed in Mrs. Merkel because my hitherto opinion on Mrs. Merkel was that although most of what she does is good for Germany and France and bad for the rest of Europe, she was however the only EU prime minister who has balls bar Victor Orban; but now I can see that this situation is bigger than her and that what she did with inviting to Germany 800,000 and then refusing some of them entry is bad for Germany too (potential for the social unrest, but I wonder how will that affect the relentless German exporting machine – will it derail or will it strengthen it because they will order them to work for one euro per hour – they already consider moving from money payments for the asylum seekers into food handouts, which, had they done it in first place, probably no more than 1pc of them would have arrived to Germany – and I am very conservative in my estimate as 0pc want to stay in Hungary which offered them food, drink and clothing) like in that video link I posted for Michael Coughlan?) and that Mrs. Merkel showed weakness I did not expect from this iron lady, unless she had a hidden agenda of actually increasing the popularity of the neo-Nazis in Germany, which is hard to imagine, considering – as known from the court proceedings – that the German Office for the Protection of the Constitution has over 130 informants in the neo-Nazi parties – most in Bavaria, Hessen and Lower Saxony, including in leadership positions) and b) in order to let Europe know that should Europe help the Kurds – and he said that the Kurdish militias are the only one which were successful in fighting ISIS – then Turkey will flood Europe with terrorists.

    9. The interviewed Syrian became slightly irritated when the Polish interviewer asked him whether we should not be more tolerant after all and said that if the imam who escaped from Jordan because there was a death penalty on him for promulgating jihad and now lives in the UK on social welfare, where he spreads jihad, then this is not a tolerance but stupidity. He said that jihad symbols should be banned by law in all European countries the same as spreading Nazism and communism is banned in the Polish constitution and that every person displaying jihad symbols should be immediately arrested.

    10. Asked about how he views the future of Europe he said that Europe will become more and more radical because aggression leads to more aggression and that he fears that after the radical Muslims proved they can force Europe to close the Schengen zone, Europe may not survive their next attempt. Asked whether Islam is a religion of peace or war he said that it is both and it really depends how it is interpreted and that’s why Europe should support those who fight the radicals in Arab states.

    • Deco

      Thanks Greg. You are a legend.

      By the way, if VW collapse then Merkel’s stunt will have failed.

      I am in agreement with the UK government on this one. There is a definite terrorist threat involved. Therefore there should be no risks taken.

      I am dismayed with respect to EK. He eagerness to doff the cap to Merkel, is endangering our relationship with the UK.

      Our relationship with the UK, is more important than any other external relationship. Yes, even more important than our relationship with the US. And it contains far more trust and mutual respect than our relationship with the EU.

      We can trust the UK. However, with the current government, the UK really can no longer trust us. I think that this is a tragedy.

  6. michaelcoughlan

    Hi David,

    This is a verbatim paste from moneyweek trader today. Someone somewhere is looking at what’s happening and getting it wrong;

    “Friday’s US economic reports were simply horrendous. Not only was the latest September jobs increase well under ‘normal’ (missing consensus by a whopping 27%), but worker participation rates were at a new multi-year low of 62.4%. Wages, salaries and work-week hours were down, but to add insult to injury, factory orders (at minus 1.7%) came in well under expectations as well.

    So the stock market, faced with these less than encouraging data points, did what it does best – it rallied in the face of terrible economic news! Yes folks, the Alice in Wonderland stock market lives on – but I believe it is on its last legs. That is a story for another email.

    Today I want to cover the gold market, which rallied hard following the reports. The MSM were quick to ascribe the almost $30 daily rally to these negative reports; they imply the Fed will not be in any hurry to mandate the first minuscule 0.25% increase in overnight rates in many years.

    Of course, for the Fed-watchers, this would be a U-turn from Yellen’s recent pronouncements that a rate increase is very likely before year-end. But hold on – maybe she did not specify which year-end, and was in fact correct! She could have meant 2025 for all we know”

    best regards,

    Michael.

  7. This article went down like a lead balloon – I had to double check that I was ‘subscribed’.

    Is everyone on holiday?

    • Gone sailing a couple of days.
      I can’t be assed to rebut the us growing economy junk all over again.

      As for the currency competitive devaluations, they will continue until we inflate to infinity and the system crashes and we have the great reset.

      Showers tomorrow so now I have a nice breakfast and take the light breezes back home today.

      As the world turns…. ..

      • michaelcoughlan

        Hi Tony,

        Got a lovely crop of onions and spuds this year. Have eggs all year. Have beautiful compost from my wormery system. Own well and bio treatment system and own firewood.

        I too am sick shit of being told how great things are for the US. I feel the world is in the same bind it was in 1938/39.

        Enjoy the sailing.

        Michael.

  8. Deco

    Whilst there are indeed differences in how things get done in Europe and North America, the prosperous regions in all the contained countries are heavily reliant on heavy borrowing. In many cases continually increasing borrowing. Lifestyle borrowing sometimes.

    This is the lifestyle aspiration model taking over economics in the Western world today. It is along the lines of borrow, spend and then repay. And the borrowing is often for psychological reasons. We have gone so far as to be a culture that is believing in advertising and lifestyle above all else.

    In the terminology of that outfit that is so beguiled, the IMF – there seems to be a systemic structural problem. Sure there is dynamism but there is also debt.

    Australia is definitely in this category. And the article clearly indicates this. Other Western countries hitting a high water mark in this regard are the Scandinavian countries, Canada and New Zealand. It is what George Bush Senior called Voodoo economics. What the Financial Times lambasted with the line (roughly) “Britons cannot build wealth buying and selling houses to one another” during the Lawson boom.

    I think that we are running out of borrowing capacity without a reset coming. But don’t worry. China has every intention of subsidizing our lifestyle with loads of cheap toys, and by driving down the production costs of the manufactured products needed for the western lifestyle. So as to cushion the blow.

  9. Deco

    An interesting insight with respect to China is the Kynikos Fund Short Sell advocate Jim Chanos.

    And it all sounds a bit Sean Quinn. Sean Quinn was a great man at making money. But as an investor, he blew it.

    China is investing internally in China. And certain investments are first rate. The train infrastructure and power supply infrastructure systems for example. There is now a train from Beijing to Hong Kong. At Nanjing, you can get off to connect to Shanghai. The metro systems are highly efficient and have China one the move. The internal efficiency that exists with China is improving all of the time.

    But the real estate boom, tells another story. Mal-investment abounds.

    Even within business, mal investment is common, due to the different concept of labour economics.

    China is pushing forward with Education and is gaining ground continually compared to the West. This is going to make a massive difference in the next twenty years.

    China’s problem in the next five years, is the scale of the mal investment in real estate over the past five years. In addition there is a continual seepage of capital gains out of China to locations like Vancouver and Australia. This is going to cause serious problems in the Chinese financial system.

    However, the part of the economy that competes / supplies the global economy is preparing itself to bring more money into China.

  10. Behind the scenes there is a meltdown.

    “Something occurred in the banking system in September that required a massive reverse repo operation in order to force the largest ever Treasury collateral injection into the repo market. Ordinarily the Fed might engage in routine reverse repos as a means of managing the Fed funds rate. However, as you can see from the graph below, there have been sudden spikes up in the amount of reverse repos that tend to correspond the some kind of crisis – the obvious one being the de facto collapse of the financial system in 2008:

    http://investmentresearchdynamics.com/wp-content/uploads/2015/10/REPO1.png

    REPO1
    You can also see from this graph that the size of the “spike” occurrences in reverse repo operations has significantly increased since 2014 relative to the spike up in 2008. In fact, the latest two-week spike is by far the largest reverse repo operation on record.

    Besides using repos to manage term banking reserves in order to target the Fed funds rate, reverse repos put Treasury collateral on to bank balance sheets. We know that in 2008 there was a derivatives counter-party default melt-down. This required the Fed to “inject” Treasury collateral into the banking system which could be used as margin collateral by banks or hedge funds/financial firms holding losing derivatives positions OR to “patch up” counter-party defaults (see AIG/Goldman).

    What’s eerie about the pattern in the graph above is that since 2014, the “spike” occurrences have occurred more frequently and are much larger in size than the one in 2008. This would suggest that whatever is imploding behind the scenes is far worse than what occurred in 2008.

    What’s even more interesting is that the spike-up in reverse repos occurred at the same time – September 16 – that the stock market embarked on an 8-day cliff dive, with the S&P 500 falling 6% in that time period. You’ll note that this is around the same time that a crash in Glencore stock and bonds began. It has been suggested by analysts that a default on Glencore credit derivatives either by Glencore or by financial entities using derivatives to bet against that event would be analogous to the “Lehman moment” that triggered the 2008 collapse.

    The blame on the general stock market plunge was cast on the Fed’s inability to raise interest rates. However that seems to be nothing more than a clever cover story for something much more catastrophic which began to develop out sight in the general liquidity functions of the global banking system.

    Without a doubt, the graphs above are telling us that something “broke” in the banking system which necessitated the biggest injection of Treasury collateral in history into the global banking system by the Fed.”

    http://investmentresearchdynamics.com/a-liquidity-crisis-hit-the-banking-in-september/

      • Hi Michael

        Interesting to read about. IPO usually arew reserved to sophisticated investors and normally there is a quick run up on the share value where many take a quick profit and are gone. Then euphoria evaporates and the shares settle n a trading range.

        I was interested to see O’Brien has already squeezed over a Billion in dividends out of the company over the last three years and now wants to go public and use 500,million for expansion.

        People smell a rat here I think. BUT I am not too familiar with these things.

        The company made a net loss last year!!

        “In the year to the end of March 2015, Digicel made a net loss of $157.6 million on revenues of $2.8 billion.
        The plan put to investors would have involved Mr O’Brien relinquishing about 40 per cent of the equity of Digicel but he would have retained 94 per cent control of the company through special voting shares.
        Mr O’Brien has received about $1.1 billion in dividends from Digicel in the past three years.

    • And the IMF

      IMF optimistic on China: Reuters cited an IMF report that reiterated its view that authorities have the capacity to manage their economic slowdown but needs to communicate policy more effectively.

  11. SHARPS PIXLEY…
    Is sentiment picking up at last for gold as price hits $1150?

    Gold Price Jan 1 2015
    Current gold price % Change ytd
    US Dollar $1199-$1150 -4%
    Japanese yen JPY143224-JPY137610 -4%
    GB £ £ 776-£ 752 -3%
    Swiss franc CHF1172-CHF1144 -2%
    Chinese yuan CNY7335-CNY7262 -1%
    Indian rupee INR74687-INR74730 0%
    Euro € 991-€ 1015 +2%
    Russian ruble RUB72360-RUB74192 +3%
    Canadian dollar CA$1400-CA$1501 +7%
    Australian dollar AU$1469-AU$1602 +9%
    South African rand ZAR13661-ZAR15644 +15%

    What the table shows is that even in those countries where the gold price has fallen year to date, the falls have been small in percentage terms – in general less than the domestic equity markets have dropped, while in some nations – notably Canada, Australia and South Africa, the price rise has been very significant, so in general gold has been performing its safe haven role pretty well.

  12. Grzegorz Kolodziej

    Two links, two different authors, two different perspectives, representing different interests, yet airing similar opinions on China:

    http://janelanaweb.com/trends/the-greatest-winner-of-the-2014-geopolitical-crisis-in-eastern-europe-has-been-china-constantin-gurdgiev/

    http://www.forbes.com/sites/stratfor/2014/09/22/the-long-game-in-eastern-europe/

    I can only add that China was ousted out of Ukraine (their chernozem deal and aspirations to take over modern engine factories and routes via Crimea) and this went completely unnoticed in the Western media.

    About the US economy I have no longer strength and time to analyse it.
    I can only repeat after Tony:

    “As for the currency competitive devaluations, they will continue until we inflate to infinity and the system crashes and we have the great reset”

    I mean for anyone who is familiar with the Austrian School boost and bust business cycle theory and does not believe in Keynesian perpetuum mobile this is so obvious that sometimes I feel embarrassed I bring it up as if I was saying something new and as if Mises and Hayek had not demonstrated it before WWII…

    So I am not going to bother analysing Mrs. Yellen’s statements anymore. If someone believes what she says and believes the official unemployment figures and keeps repeating them, what’s the point of bringing up the labour participation rate figures?

    It looks like the two sides – the Keyenesians (David) and the Austrians (me) have entrench themselves in defensive positions and we are running in circles in our discussions :-(

    I can therefore only repeat my old post on lending:

    “Secondly, when lending stopped it had more bearing on Ireland than most other countries.
    Thirdly, we see the repetition of the effects of market manipulation in form of money going to fungi properties in Dublin rather to jobs, wages and innovation (and let them not fool you with the employment figures – the only meaningful employment statistics is the labour participation rate (the number of persons in the labour force as a percentage of the working age population) and measured as Q4, that has fallen in 2014 to 59.8%, down 0.3 percentage points from 60.1% in Q4 2013 and it is full 490 bps below the historical maximum (RTE does not include emigration and early retirements) and the labour participation rate in the US is now lowest since 1977).

    Because of the near zero interest rates it is cheaper for companies to borrow money to buy back their own stocks to in order to push stock prices higher (because the earnings that companies would make would be divided into less shares because more shares would be own by the company) than to invest money in hiring people and paying them better.

    In the 60s US 40% of companies borrowings and earnings used to go into investment. Now it is only 10% – the rest goes mostly to shareholders payouts which nearly doubled since the 1980s as a share of corporate assets.

    Greenspan’s easy-money policy coincided with the upswing in the housing boom. Other example of market distortion (in the US) was the Community Reinvestment Act (CRA) strengthened in 1995 and used to pressure banks and thrifts that enjoyed deposit insurance into lending in all neighborhoods, including low-income, the so called NINJA (no income, no job, no assets) black districts (that’s not me being racist, just stating the fact).”

    Bearing that in mind, the most relevant question is the one Michael Coughlan has just asked in the post above:

    “If China increases all this credit/debt just like the US etc. surely there must be some negative consequences to all this extra debt in the system?”

    Without answering that question I think that brilliant, enjoyable, erudite and often containing brilliant diagnoses writing of our David will have the elephant luriking in the room of his sparkling imagination – an elephant which obstructs the exit from that room in which we are all with him, should there be any exit.

    Take his Atlantic theory. It’s a successful interpretation of the classical rimland theory of Nicholas Spikman. In one sentence, there are mainland empires and regional powers (Russia, China, India, Germany, France) and sea empires and local powers (US, UK, Australia).

    We are the Atlantic race (I mean, I am an Eastern European, but I will probably end my days here, so count me in) and therefore we should stick to the Rimland. That means sticking with the US/UK/Australia.
    Therefore we should rejoice when the mainland, or precisely its eurozone part, does shit and the rimland does well.

    Very well, pretty neat.

    Pray, tell us, Mr. McWilliams, what if the debt bubble burst and both the Rimland and the eurozone do shit while China introduces the gold standard and most wealth moves to China?
    Where does it leave Ireland? Relying on the kindness of strangers?

    You wisely propose use the Irish position to help the US multinationals to escape the tax regime in the US, but you supported Mr. Obama – who wants to close it and was saying so before the first term.

    You rightly point out that German politics are not beneficial to peripheral countries like Ireland, but you are soft on Russia (do not get me wrong, I am probably now more anti-Ukrainian than anti-Russian and I think Mr. Putin conducts quite rational politics – but that’s not the point), which is driving towards the unholy alliance with Germany – which will ensure the total German domination in Europe, including the energy monopoly (today its the Poles which subsidise the German customers paying the highest gas prices in Europe thanks to initiatives like Nordstream – but it might be Ireland tomorrow).

    You say we should stick with the Brits. I say that we should stick with the Brits (furthermore, the new Polish President and the future Polish government will be saying the same). But if we are to stick with the Brits, than Britain is the main opponent of the Russian-German alliance.

    So any Irish politician or commentator should reason what countries in Europe might form a coalition with Britain. And you say that the new-old division in Europe is Eastern Europe v Western Europe over the refugee crisis because there is hardly any black people in Eastern Europe (true) and they are not used to them (true)? – btw, where the houses with refugees and synagogues are set on fire – in Eastern Europe or in Germany and France?

    And last but not least. You said we should start the discussion on guns. So I did. What’s your response?
    What’s safer for the Irish people – me being allowed to have an air-gun and pepper spray like I had in Poland or me being helpless, armless, and waiting for what some ISIS fighter to behead us or to do to some of us what those cowardly subhumans have done to that assimilated Russian gentle giant in Tralee, whose parents are hard working and who attended his primary school in Ireland?

    • Gurdgiev ignores NATO (US) military aggression in Ukraine by moving missiles to the Russian border.
      The essay was written in 2014 and he did not foresee the Russian Syrian advance. Who did?
      Since the time of writing the Rouble exchange rate has recovered and the RCB interest rate is reduced from 17% to 11%.

      http://www.global-rates.com/images/charts/gr-cb-chart-12-1007.jpg

      • Grzegorz Kolodziej

        “Gurdgiev ignores NATO (US) military aggression in Ukraine by moving missiles to the Russian border.” – it’s a myth often repeated on this side repeated after Dr. Paul Craig Roberts. Dr. Roberts is one of my favourite commentators, whom I like to listen before sleep and whose resume and knowledge give him a good position to view things from a wider perspective.
        However, sometimes he errs terribly in details.

        NATO was planning to so (G.W.Bush), but they did not eventually (Obama’s reset).
        Russia, for a change, moved 2,000 tactical nuclear missiles to the NATO border, changed its nuclear deterrent doctrine and it has been conducting military exercises simulating nuclear attack on Poland every six months more or less (NATO is not conducting any such exercises).

        Both the US and Russia broke some international agreements.

        I feel compelled to come up with some disclaimer, because every time I write this someone comes up with US interventions and puppet governments.

        One things does not exclude another.
        It’s naive to think that one side is the empire of evil and the other the empire of goodness.

        Of course US has been carrying out more interventions and meddling in other countries affairs – it follows from the Rimland doctrine, transformed later on by Zbigniew Brzezinski.

        The US has been doing it pretty much since the 90s, R. Reagan for example has embarked on neoconservatism initially, but then started removing neo-cons from his office.

        By the way, if we talk about destabilisation, I see Saudi Arabia and Israel now as the most destabilising forces in the Middle East, with Turkey a close second – facilitating the refugees invasion on Europe.

        Israel was by the way trying to get Poland involved in an attack on Iran, crying a blue murder that an attack on them is imminent (Polish F-16s flew over the Negev desert – I hope that the new government we will elect in October will have Polish and not Israeli interest as a priority, though I doubt it, because they will be pro-US – but that’s still better than selling 90pc of media to the Germans and exempting their supermarkets from any taxes).

        I was saying on Polish websites at the time that if we risk terror attacks for defending Israel, we’d better get something in return from them, because so far the f..g yanks would not even abolish visas for the Poles and they sell us obsolete equipment (they said they would off-set it by starting part of the production of F-16 in Poland, but they did not keep their word).

        If Mr. Putin fights ISIS, he will have my sincere support, but the reports from the front are mixed.
        He might just content himself with fighting the anti-Assad opposition, though in fairness, he cannot do a bigger mess than the US did – as the Polish columnist Rafal Ziemkiewicz wrote in his column,

        “Something is afoot in the Middle East – America, which for several years has been fucking up everything she touched in the world, is being forced from the region by Russia; a reversal of alliances between the major Arab countries is in the air, the crisis of immigration makes the Turkish State – neglected by Europe for decades by the EU – a country which EU has to woe – all of this will inevitably affect the European politics.”

        http://www.morningstaronline.co.uk/a-806e-Ukraine-the-untold-story#.VhZYcGvzjcs

        http://www.dailykos.com/story/2014/03/19/1285897/-German-Neo-Nazis-Forge-Ties-With-Ukrainian-Svoboda#

        And – I will like to remind it again – the German state has 130 agents in German neo-Nazi parties…

    • Forbes has it fairly covered but it is also written Sept 2014. Surprising what happens in a year!!

    • Any Russian invested in gold or silver over the last two years would have seen their international buying power maintained as the Rouble sank. Gold and silver up by over 40% in roubles. That included the state of Russia itself as Russia increases gold reserves.

      https://www.google.ca/search?q=russian+ruble+price+graph+in+gold+for+2+years&espv=2&biw=1242&bih=585&tbm=isch&tbo=u&source=univ&sa=X&ved=0CCgQsARqFQoTCOOYwfqWscgCFck4iAodHOICTA&dpr=1.1

    • “Pray, tell us, Mr. McWilliams, what if the debt bubble burst and both the Rimland and the eurozone do shit while China introduces the gold standard and most wealth moves to China?”

      Good question. Long unanswered here on an economic blog!

      “I mean for anyone who is familiar with the Austrian School boost and bust business cycle theory and does not believe in Keynesian perpetuum mobile this is so obvious that sometimes I feel embarrassed I bring it up as if I was saying something new and as if Mises and Hayek had not demonstrated it before WWII…”

      Mises does not follow theory. His are observation of data. Empirical data that is indisputable except by those whose heads are full of propaganda. That is, it is pure commonsense deduction.

  13. Grzegorz Kolodziej

    Hugh White’s concept of shared power between US-China or WWIII in our lifetime? Which one will come into fruition?

    http://blogs.ft.com/photo-diary/2015/10/china-warships-dock-in-poland/

    http://www.wsj.com/articles/chinese-navy-ships-off-alaska-passed-through-u-s-territorial-waters-1441350488

    What position will Russia take if Mr. Putin’s gambit in Syria pays off?
    China’s junior partner, US junior partner or the German-Russian hegemony in the heartland (with the UK possibly leaving the EU)?

    I’d like to remind that there will be a meeting (China and all Eastern Europe) hosted by President Andrzej Duda. China will try to use Poland as its hub in the Heartland (Mackinder – who controls Eastern Europe controls the heartland and who controls the heartland controls the world). What will Russia do? Was that what Mr. Schulz meant?

    http://forum.interpals.net/forum/interpals/news-events-politics/2678249-martin-schulz-threatens-using-force-against-eastern-europe

  14. The world’s silliest empire. Dmitri Orlov gets it all about right. The perfidious nature and deceit of the US government and their fascist apparatchiks.

    http://cluborlov.blogspot.ca/

  15. “The dollar has been gaining steadily because the Federal Reserve is on the cusp of raising rates and….”

    This is pure MOPE. Management of Perception Economics. For 6 years the FED has promised/threatened to raise interest rates. For six years The FED knows that it cannot be done while the US is in reality in a protracted recession/depression.

    Why will it be any different now. The stats are as manipulated as everything else resulting in no reliable information.

    TThis point of view and the information supporting it has been presented on this blog for several years but has been steadfastly ignored by Mr McWilliams. It is neither agreed or rebutted; just ignored. But it is not going away and it begins to have those making statements suggesting the economic recovery look as silly as Dmitri Orlov suggests. No credibility left at all.

    Remember the Green Shoots of long ago as the recovery theme? They are long since withered and died.

  16. “So I think it is important, Eric, that your readers understand that the world economy is in deep trouble because additional debt can no longer support growth. This point has long been forecast by those who believe in the Austrian School of economics. The massive new quantities that have been created since the global financial crisis have done nothing more than keep the system afloat and ensure an even worse ending.” … John Embry in a KWN interview

  17. The IMF calculates that there is around $1.5 trillion in embedded leverage in U.S. bond funds through derivatives, which could unwind dramatically if the Fed’s normalization process provokes liquidity shocks. IMF Derivatives Warning possted at Lemetropolecafe.com

  18. https://www.bullionstar.com/blogs/koos-jansen/german-central-bank-publishes-gold-bar-list/

    German gold in New York appears to not be available. As has been speculated most of the gold held by the US as a custodian has been leased , sold or in other ways encumbered. They follow the rules of the banking system. Any deposit is immediately the property of the bank to do with as they wish. The depositor is simply an unsecured creditor.

    Most of the Western gold is likely already gone to Eastern vaults never to be seen again.

    http://www.gold-eagle.com/new-bullion-contracts-rolling-out-shanghai-hong-kong-and-singapore

  19. Over the past few years, gold and silver prices have been irrationally oversold. The spot market prices for both commodities aren’t telling the true story behind the demand and supply equation of the metals. As it becomes clearer and clearer, the Federal Reserve is limited in raising interest rates because the economy is so soft…that some form of QE4 may even be in the cards…gold and silver prices could rise sharply from their current levels.

    http://www.profitconfidential.com/gold/gold-and-silver-why-2009-like-price-surge-is-ahead/

    Another who disagrees with a US recovery.

    • michaelcoughlan

      Hi Tony,

      Gold and silver will continue to drop until the fed cant print more money. If QE 4 comes in the markets will rally and pm will slide. I have checked the trading charts Tony and they indicate down.

      Michael.

      • There is no free market , Michael and so trading charts tell the lie of total manipulation.

        The manipulation relies on having sufficient bullion available for delivery. Aided and abetted by the paper derivatives the prices are driven down for political reasons and the support of the fiat money system.

        Physical demand is continually increasing and will overwhelm the paper market. That time approaches and according to some may even have already started that process.

        You have the cart before the horse in regard to increasing the amount of paper money being bad for the PM prices. As we have agreed the expansion of the money supply is the definition of inflation. This drives the value of the currency down. All nation states are doing this. Or at least all central bankers are. It is call competitive devaluations in a race to the bottom.

        The only thing to have in these circumstances are solid assets. That includes the precious metals. The PM prices are supported whether it is a deflationary or inflationary environment.

        As the PM’s prices are artificially repressed, as soon as the physical demand causes a breakout, there will be an explosion in the prices regardless of the QE. Additional QE will add to the pressure.

        5,000 dollars for gold is minimal and 150 for silver in the shorter term and 10 times that in the next 5-10 years. The only reason the FED will not print more money is because the system is bust. In that case the PM price is infinity.

        There will be corrections but the trend is up in Canada and the Euro zone for the last 2 years and will continue.

  20. If weakening conditions prevent the Fed from pulling the rate hike trigger by December, can we really expect it to do it in the election year of 2016? With the economy already on thin ice, a rising rate environment may likely push the economy into recession if it somehow isn’t already there. This will play directly into the hands of the Republicans who will be able to hammer the outgoing Obama Administration’s economic legacy, thereby handing the election to the GOP. Does anyone really expect the left-leaning Federal Reserve led by Janet Yellen to do that? Given that, we may not see a rate increase until 2017, even if conditions improve, which is a dubious proposition. Predictably, Goldman Sachs’ chief economist Jan Hatzius came out with a statement today predicting the first move may not come until 2017. Look for many other influential economists to follow suit. – Peter Schiff

  21. http://blog.milesfranklin.com/peak-manipulation

    “” That said, he’s said plenty of intelligent things to back up his contention. In other words, he’s no dummy about the economy. He knows it’s collapsing – which fortunately, is good for his business. “”

    • cont..
      “” Thus, all that remains are a handful of dying “hedge bombs” – who chronically underperform the market due to their lack of understanding that it is not a “stock pickers market”; but instead, one in which the PPT spends every minute of the day buying stock futures; thus, causing equity indices to rise, irrespective of the massive weakness of so many individual stocks.”

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