2. Brian Blackstone at Real Time Economics reports that most analysts believe that the Federal Open Market Committee will reduce the federal funds rate by 50 basis points (0.5%) at its Tuesday-Wednesday meeting, bringing it down to 1%. The political will to reduce it even further allegedly exists. Also at Real Time Economics, Henry J. Pulizzi, Jeffrey McCracken and John D. Stoll report that White House Spokeswoman Dana Perino told journalists that the Administration has been "working 'as quickly as we possibly can' to release $25 billion in recently approved loans to the auto makers. But she declined to elaborate on other specifics steps that could be taken to help the ailing companies." Also, Jean-Claude Trichet told reporters in Madrid today that the ECB may cut interest rates again at its next meeting on November 6, as per Ben Sills and Gabi Thesing at Bloomberg. William Sim and Seyoon Kim, also of Bloomberg, report that the Bank of South Korea cut the benchmark lending rate 75 basis points (0.75%) to 4.25%.
"'More aggressive cuts are on the way,' said Lee Sang Jae, an economist at Hyundai Securities Co. in Seoul, who expects Korea's key rate will be slashed to around 3 percent by the first half of 2009. 'The government would need to expand tax cuts and increase fiscal spending to support the economy.'"Chris Bryant at the Financial Times reports that Peer Steinbrück, the German finance minister, told the media on Sunday that "The danger of a collapse is far from over. Any attempt to give the all clear would be wrong."
3. There are a slew of articles on the crisis spreading to the emerging market countries, including this one from Credit Writedowns. The upshot is that European banks invested much more than their American counterparts in the emerging markets. Often loans and investments made by European banks were made in dollars, which means that if you want to cash out, you cash out in dollars, putting more upward pressure on the dollar. Laura Cochrane and Fabio Alves at Bloomberg report that emerging market markets were hit hard this morning. Margaret Coker and Chip Cummins at the Wall Street Journal report on the financial crisis as it hits the Persian Gulf states, hitherto deemed immune from the credit crunch. Investors are liquefying their assets in the region.
See Yves Smith's analysis and links at naked capitalism here, here, and here.
4. Carlos Caminada, Shruti Singh and Jeff Wilson at Bloomberg report that analysts are predicting that the credit squeeze--as well as falling commodities prices--is likely to reduce global production of staple foods worldwide.
"Global production of wheat, the most-consumed food crop, may drop 4.4 percent next year, said Dan Basse, president of AgResource Co. in Chicago ....(h/t Gregor.us) In a related story, Javier Blas and Tim Johnston of the Financial Times report that Thai officials plan to barter rice for oil with Iran. The UNFAO believes that we should see more government-to-government deals like this going forward given the credit crunch and volatility in the commodities market.
Futures contracts on the Chicago Board of Trade show wheat will jump 16 percent by the end of 2009, corn will rise 15 percent and soybeans will gain 3 percent.
'The net effect of the financial crisis may end up being lower planting, lower production,' [Abdolreza] Abbassian [secretary of the of the Intergovernmental Group on Grains at the UN Food and Agriculture Organization] said. 'More people will go hungry.'
In Brazil, the world's third-biggest exporter of corn after the U.S. and Argentina, production may fall more than 20 percent because farmers can't get loans to buy fertilizer, said Enori Barbieri, a National Corn Producers Association vice president. The nation's coffee harvest, the world's largest, may drop 25 percent for the same reason, said Lucio Araujo, commercial director at farmer cooperative Cooxupe, located in Guaxupe.
Minnetonka, Minnesota-based Cargill and Decatur, Illinois-based Archer Daniels, the world's largest grain processors, are among the crop buyers to halt financing for growers in Brazil, said Eduardo Dahe, who represents the companies as president of the National Association of Fertilizer Distributors.
In Russia, loan rates for farmers have jumped by half in some cases to more than 20 percent in the past few months, Arkady Zlochevsky, president of the Russian Grain Union, said in an interview earlier this month.
The value of the collateral farmers use to secure loans -- crops and land -- is diminishing. Lenders are demanding more equity for farm loans used to run operations or acquire land and equipment.
'We need two to three times the amount of money we used to need with the same collateral,' said Bo Stone, 37, a seventh- generation farmer in Rowland, North Carolina. 'It means we have way more risk than we've ever had. This is a time where one bad crop year, with the amount of money and input tied up, could potentially cost you your equipment, land and livelihood.'"
5. Joshua Partlow at the Washington Post reports that President Luiz Inácio Lula da Silva's Party--the Workers' Party--lost the race for governor of the largest city in Brazil (and South America, for that matter), Sao Paulo. Sometimes it's bad to be king. That is, I'd expect a worldwide financial crisis to dim the hopes of incumbents everywhere.
6. Jeffrey Gettleman at the New York Times report that angry crowds in Congo are forming and throwing rocks at UN peacekeeping forces, apparently taking out frustration on them because they are unable to keep the peace as renegade general Laurent Nkunda's rebel forces advance Westwards. As far as I know, no one doubts that the constant warfare in the Congo is a humanitarian disaster, veering toward the genocidal. The problem is that there is no power sufficiently strong whose interests are threatened by it. It must be a pan-sub-Saharan-African solution, but who in the industrial world will pay for the inevitable political compromises (and thus human suffering) that would be required for a stable state to be incorporated? It's not an especially appetizing option, is it? If you don't have a dog in the fight, you aren't likely to want to force a settlement one way or another.
7. In a somewhat strange--to my eyes--development, I am seeing more and more suggestions as to what China should do to save the industrialized world from this financial crisis. The most recent is a piece by the editorial board of the New York Times. In a piece which I'm sure policymakers in Beijing were at pains to decipher, the Times suggested that Beijing's recent policy efforts were insufficient and misguided ... China should spend its cash reserves on converting from an export economy to an import economy! This follows on the suggestion by Brad Setser for Beijing to increase its purchases of Agency debt!--which, as the government has gone out of its way to publicize, are not backed by the full faith and credit of the US. And the other notion--almost wistful hope--that China should spend its cash on greening the energy infrastructure of Europe and the US! Being free with advice is considered by some to be an American trait, and I guess if you're a financial adviser, you advise those who happen to still have some cash. And maybe China's leaders are listening to the American punditocracy, who knows? But, were I Chinese, I would wait to see what happens to the dollar after this technical unwinding phase plays out before I would undertake something on that scale. In the meantime, Beijing appears to be using its cash in the traditional way overseas. The latest news is that it is working to provide a $1.5 million soft loan--ie, a loan with below market rates of interest--to Pakistan, after all.
8. Winnie Lee at Platts has a different read than the Bloomberg story of October 13 on what government statistics indicate in terms of crude imports, and thus demand. Ms. Lee reports that net crude imports for September were 14.45 million tonnes (3.53 mb/d), a 1.7% decline from imports of 15.25 million tonnes (3.59 mb/d) in August. Year-over-year net crude imports grew by 7.4% September. (On the 13th, Winnie Zhu and Wang Ying had suggested crude imports had surged 46% to 20 million tonnes in September.) China's apparent petroleum demand in September was 29.42 million tonnes (7.16 mb/d), 5.4% more than September 2007. However, demand growth numbers have been steadily been trending down, July saw 9.6% y-o-y growth and August saw 8.3% y-o-y growth as refiners draw down stocks built up to provide energy security for the Olympics.
9. Platts reports that Iran's OPEC governor Mohammad Ali Khatibi said on Sunday that OPEC is prepared to make further quota cuts in the December meeting, if the quota adjustment agreed to on Friday fail to stabilize the markets. Reuters reports that Qatari Prime Minister Sheikh Hamid bin Jasim told the media Monday that "The current prices are a bit low. We are talking about prices ranging from $70 to $90 which we think are fair for consumers and producers." Saudi Oil Minister Ali Naimi told reporters on Friday that the Khurais oil field will be operational--at 1.2 mb/d--in mid-2009. The field produces varieties of Arabian Light, a fairly high quality crude with between 33 and 36 API and with a sulfur content of 1.9% by weight.
10. Angela Moon at Reuters reported that SK Energy has dropped plans to build a refinery in China. SK had eyed the naphtha market in China given that the product is not as rigorously price-managed by the government as others. Evidently the losses seen by refiners in China over the last year caused SK to reconsider. (This is especially interesting because South Korea's energy security policy is to be a refining center. If you have more refining capacity than you need, and export the excess product, you are likely to have enough crude imports at any given time to weather a shortage. South Korea's policy has been copied in Singapore and is in the process of being instituted in India. Also, as Japanese refining capacity becomes more sophisticated and demand, due to an aging population structure, continues to decline, is also entering the market of product exports in Asia. Clearly the competition is stiff. Thus some, especially Saudi Arabia, some international oil companies, and, until now, South Korea decided that the best way to beat the competition is to actually produce "export" product inside the export destination country, ie China. That strategy might be especially difficult to pursue in a highly volatile international price environment while operating within the product prices market centrally managed by Beijing. Either way, the stakes involved are huge.)
11. Juan Cole has an analysis of some of the fighting in northwest Pakistan. He has some observations--and links--on the effectiveness of arming tribal levies against the Taliban in Pakistan and Pakistani armed forces proper efforts.
"Maulvi Faqir Muhammad and his Tehrik-i Taliban frontally attacked Pakistani military checkpoints and started a feud with the Pakistani army. The Tehrik-i Taliban has been blamed for the assassination of Benazir Bhutto last December, and it is said that as her widower, Asaf Ali Zardari, rose to the presidency, he pressured the military to destroy the movement, with which he now has a family feud."Very interesting.
12. Patrick Ugeh at Nigeria's This Day reports that two major Nigerian oil unions called off proposed strikes after the government retracted a statement saying it planned to privatize the Nigerian Gas Company and Pipeline and Product Marketing Company.