Monday, February 2, 2009

Daily Sources 2/2

1. Kevin Hamlin and William Sim at Bloomberg report that South Korean exports fell by 32.8% from a year earlier in January, according to the the Ministry of Knowledge Economy. CLSA Asia-Pacific Markets said that their "Chinese purchasing managers’ index rose to a seasonally adjusted 42.2 from 41.2 in December." Anything below a 50 indicates contraction.
"Japan’s factory output slumped by a record in December from November, the government said last week, and Australia’s manufacturing contracted for an eighth month in January, a report showed today. Australia faces a 'collapse in government revenues,' according to Prime Minister Kevin Rudd, as the global and domestic economies slow."
The Economist reported:
"In the fourth quarter of 2008, real GDP fell by an annualized rate of 21% in South Korea and 17% in Singapore, leaving output in both countries 3-4% lower than a year earlier. Singapore’s government has admitted the economy may contract by as much as 5% this year, its deepest recession since independence in 1965."
The piece goes on to say,
"Asia’s richer giant, Japan, has yet to report its GDP figures, but exports fell by 35% in the 12 months to December. In the same period, Taiwan’s dropped by 42% and industrial production was down by a stunning 32%, worse than the biggest annual fall in America during the Depression."
And includes the following illustration:

The Financial Times carries a summary of an interview it had with Chinese Premier Wen Jiabao, where he indicated that China was unlikely to use significant amounts of its reserves to shore up the IMF and that Beijing might rethink its investment strategy once this crisis is over. He also rejected the notion that its appetite for treasuries is at all responsible for the current mess:
"'It is completely confusing right and wrong when some countries that have been overspending then blame those that lend them money for their spending,' he argues. Mr Wen points to a famous proverb in China about Zhu Ba Jie, a fictitious character in the 16th-century Chinese fable, Journey to the West , who always blames others who try to help him. 'When I shared this view at Davos with the world business leaders, they all agreed with me on that,' he says."
Things have become interesting when the leader of a nominally Communist country ends up defending creditors versus debtors. Well worth reading in full. Meanwhile, Eswar Prasad, a professor at Cornell, borrows from the Iranian diplomacy meme to suggest that the US and China need a grand bargain at The Economists' Forum. Prasad suggests the two countries need to coordinate efforts to stimulate domestic demand, Beijing must allow the Renminbi to float more freely while the US tackles new debt, and, finally, the US should actively promote a larger role for China in international lending institutions. It seems that Mr. Web effectively put the kibosh on the last two suggestions, though perhaps that should be seen as the opening negotiating position.

2. Eurointelligence reports that President Sarkozy has called for a euro zone summit to discuss fiscal stabilization plans and tactics for combating speculative attacks on member states. Apparently Sarkozy is dissatisfied with the Czech presidency of the EU's less aggressive approach to the financial crisis, and this particular call would have been spurred on by a recent conversation with Barack Obama which led Sarkozy to believe the crisis is even worse than he thought. Sarkozy proposed that the summit take place in Berlin on February 22 where European leaders were to meet ahead of the G 20 meeting, which suggests to me an effort to set the agenda of that meeting more than anything.

3. Joellen Perry at the Wall Street Journal on January 31 reported that the European Commission and European Central Bank are jointly drawing up guidelines for European governments which are considering setting up "bad banks." The institutions hope to prevent one-upmanship competition between member states should bad banks be resorted to.
"The ECB is also working on guidelines for governments that hope to offer insurance against the toxic assets that remain on banks’ books. One key question: how to price the toxic assets."
4. Platts reports that Belarus has agreed to pay about $200-205/thousand cubic meters (tcm) of natural gas from Russia in the first quarter of 2009. (That is about $32.86-33.68/b on a Btu basis.) Evidently, the price is tied to average cost of crude on some futures market by some means, as the price Belarus is expected to pay beyond the first quarter is $148-150/tcm ($4.19-$4.24/MMBtu, roughly $24.32-24.65/b on a Btu basis.)

5. Edward Hugh at Fistful of Dollars reports that Russia's foreign currency reserves no longer cover foreign debt, while the ruble continues to crash, and unemployment soars. Hugh thinks that the most pertinent cause of the recent difficulties is Moscow's soft stance on inflation.

6. Fred Pals at Bloomberg reports that Nobuo Tanaka, IEA executive director, told the journalist in an interview, "It is likely that a downwards revision happens. The global economic growth projections are very pessimistic." Tanaka specifically said that the IEA would factor in the new IMF global growth forecast. (see Daily Sources 1/28 #4)

7. Tom Fowler at the Houston Chronicle reports that as many as seven natural gas liquefaction export terminals are expected to commission in 2009, expanding global capacity by 20%. LNG imports are expected to grow by 30% to 456 billion cubic feet this year. Sounds huge, but the current LNG imports of 300 billion cubic feet a year account for just 3% of the US market--significant, but not huge. The new export terminals will help to make the market for natural gas global, but it will still remain regional for some time going forward. As the economies of the world are shrinking, the fuel will be in less demand, however, pushing down the price of the marginal cubic foot, as it were. Wood MacKenzie wrote in an analysis:
"We don’t believe Asia and Europe will be in a position to absorb this new production, and the US is the only market that can take it, that has a large amount of storage."
Perhaps, but Japan had been facing reduced volumes from Indonesia and an increasingly uncertain relationship with that source of supply might, even with a shrinking GDP, present a market opportunity.

8. Felicia Loo and Luke Pachymuthu at Reuters reports that Saudi Aramco has agreed to purchase 3 million barrels of gas oil (diesel)--0.5% sulfur--from Itochu Corp from March through December. Aramco has avoided term contracts for products of late as the country has several refineries under construction which should eventually meet domestic demand. The shut down of the 120 kb/d Riyadh refinery from February through March may have contributed to the decision to strike the deal.

9. Alissa J. Rubin at the New York Times reports that al-Maliki's Dawa Party and several "secular" parties are thought to have made gains in Saturday's provincial elections in Iraq, according to preliminary data. The Dawa Party appears to have done especially well in Baghdad and Basra (the only littoral province of Iraq, with a great deal of its oil and gas reserves.)
"The turnout appeared to reflect confusion over voting procedures as well as voter apathy. There were complaints across the country from Iraqis who had tried to vote but were unable to do so. Most were prevented either because a strict curfew prevented them from reaching their polling center or because their names were not on the center’s voter roll when they got there.

Part of the problem was caused by the large number of internally displaced Iraqis who no longer live in the province where they are registered to vote. About one million Iraqis were displaced as a result of sectarian and ethnic fighting over the past five years, and while some have returned the majority are living outside their home province."
10. Mary Anastasia O'Grady has an analysis of Chavez's most recent attempt to change the Venezuelan Constitution to allow him to run again to be President. The referendum is to take place on February 15th and Chavistas appear to be using violence to intimidate people organizing around a no vote. But Chavez's fiscal policies seem likely to worsen an already difficult budgetary situation.
"Venezuela imports most everything it consumes. The bill is paid with the foreign exchange earned through oil exports. But prices for Venezuelan crude are now below $40 per barrel, and the central bank has recently been asked to hand over $12 billion to a government development fund. The bank's international reserve position is now just below $30 billion--if government figures can be believed.

The bank's position is not in crisis yet, but the rate at which reserves are shrinking is worrisome. If it continues, Venezuela could have trouble paying for its food. Mr. Chávez also has used the bank as his own political slush fund. His "democratic" survival depends heavily on largess for the poor masses and palm-greasing for not-so-poor political backers."
Ms. O'Grady's analysis needs to be taken with a grain of salt, but she is one of the few in the US press, at least, who actually closely follows the issue. Lester Pimentel at Bloomberg reports that the average differential between the yield of Venezuelan 10 year dollar denominated sovereign debt and US 10 year treasuries has risen from 14.74% to 17.4% since Chavez took office ten years ago.

11. Barry Ritholtz at the Big Picture points out that the GDP figure announced last week of -3.8% was artificially goosed by a build in inventory, deflation, and TARP--which apparently was a major factor in the Bureau of Economic Analysis' final GDP estimation for Q4. "Change in capital transfers" were recorded as net $271 billion from Q3 to Q4 due to TARP, about 8-10% of GDP for the period. Worth a look.

12. Timothy R. Homan at Bloomberg reports that US consumer spending in December fell by 1%. Consumer spending fell by 0.8% in November. "Today’s report also showed incomes fell 0.2% in December, the third straight decline, after a 0.4% decrease the prior month." Menzie Chinn at Econbrowser points out that if consumption is falling because the propensity to spend disposable income is falling, then direct purchases of goods and services by the government would have a larger effect, dollar for dollar, than tax cuts. She also posts a useful graph of consumer spending from the late 1960s:

Worth a look.

13. The Oil & Gas Journal reports that the US rig count is down ~2.8% or 43 working rigs from the week earlier on Sunday, at ",472 rotary rigs working this week."
"That's the lowest US rig count since the week ended Jan. 20, 2006, when exactly the same number of rotary rigs were working and drilling activity was on the rise. A year ago at this time there were 1,763 rigs making hole."
Financial analysts expect utilization rates to continue to shrink drastically.


Anonymous said...

That the several States composing the United States of America, are not united on the principle of unlimited submission to their General Government; but that, by a compact under the style and title of a Constitution for the United States, and of amendments thereto, they constituted a General Government for special purposes, -- delegated to that government certain definite powers, reserving, each State to itself, the residuary mass of right to their own self-government; and that whensoever the General Government assumes undelegated powers, its acts are unauthoritative, void, and of no force

That the Constitution of the United States, having delegated to Congress a power to punish treason, counterfeiting the securities and current coin of the United States, piracies, and felonies committed on the high seas, and offences against the law of nations, slavery, and no other crimes whatsoever; and it being true as a general principle, and one of the amendments to the Constitution having also declared, that “the powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people,” therefore all acts of Congress which assume to create, define, or punish crimes, other than those so enumerated in the Constitution are altogether void, and of no force; and that the power to create, define, and punish such other crimes is reserved, and, of right, appertains solely and exclusively to the respective States, each within its own territory;

That any Act by the Congress of the United States, Executive Order of the President of the United States of America or Judicial Order by the Judicatories of the United States of America which assumes a power not delegated to the government of United States of America by the Constitution for the United States of America and which serves to diminish the liberty of the any of the several States or their citizens shall constitute a nullification of the Constitution for the United States of America by the government of the United States of America. Acts which would cause such a nullification include, but are not limited to:

I. Establishing martial law or a state of emergency within one of the States comprising the United States of America without the consent of the legislature of that State.

II. Requiring involuntary servitude, or governmental service other than a draft during a declared war, or pursuant to, or as an alternative to, incarceration after due process of law.

III. Requiring involuntary servitude or governmental service of persons under the age of 18 other than pursuant to, or as an alternative to, incarceration after due process of law.

IV. Surrendering any power delegated or not delegated to any corporation or foreign government.

V. Any act regarding religion; further limitations on freedom of political speech; or further limitations on freedom of the press.

VI. Further infringements on the right to keep and bear arms including prohibitions of type or quantity of arms or ammunition; and

That should any such act of Congress become law or Executive Order or Judicial Order be put into force, all powers previously delegated to the United States of America by the Constitution for the United States shall revert to the several States individually. Any future government of the United States of America shall require ratification of three quarters of the States seeking to form a government of the United States of America and shall not be binding upon any State not seeking to form such a government; and

That copies of this resolution be transmitted by the house clerk to the President of the United States, each member of the United States Congress, and the presiding officers of each State’s legislature.

In the Year of Our Lord Two Thousand Nine
A RESOLUTION affirming States’ rights based on Jeffersonian principles.

clarisse said...

I read this too:
"WA Calling For State Sovereignty
State of Washington 61st Legislature 2009 Regular Session"

Difficult to understand what's going on from here.
Any comment, FB ? or is it just a kind of flash in the pan? Thanks.

freude bud said...

Hmm ... well it sure is interesting.

This is slightly different from the bill presented to the NH House, because the Washington State legislative instrument would be, if passed, a petition as opposed to a resolution which is what is being considered in the New Hampshire Assembly, ie a bill that would go into law.

The right of petition is a First Amendment right in the US Constitution. It is not given much note these days, generally, though historically it has had a very important role. For example, the abolitionist movement in the US was radicalized after 1835 when the House agreed to simply not consider any petitions to abolish slavery.

(Many northerners--mostly from more radical Protestant congregations--were constantly sending in petitions to abolish slavery. It was taking a lot of time out of the business of the House to consider the petitions, so a compromise was reached by which all such petitions would be automatically put aside. This triggered the wrath of John Quincy Adams, who had formerly been President and at that time Congressman representing his district from Massachusetts, who began a campaign to force the House to address the petitions--even if to deny them--as it was a Constitutional right. His efforts did not go anywhere for over a decade, but over time he slowly built a coalition to hear the petitions, and eventually the Gag Rule was overturned. But most importantly, over time the news that the rights of Northerners under the Constitution were being violated to protect the sentiments of Southerners who wished to continue their practice of slavery angered, and radicalized, the Northern population, turning many into serious abolitionists.)

So the power of petition isn't much more than a right to be heard ... it doesn't necessarily translate into other action. A resolution is law.

All of the sponsors of this bill are also members of the Republican party.

(Lincoln, of course, is the President who emancipates the slaves. It is also argued that he strengthened the Federal Government at the expense of the Tenth Amendment, which is what both of these bills refer to. The Tenth Amendment reserves to the states all the rights not given to the Federal Government.)

So, that said, I do not think that these bills are likely to be passed. (I am not that familiar with the local politics of either of these states ... but I still doubt it.)

But it looks like it is probably being coordinated by the US Republican Party. They are in a process of reinventing themselves after Bush. I suspect they want to publicize the nature of state rights and become identified with them more in the general public's mind, especially given that now there is more and more anger with Washington DC. They are probably trying to exploit the provincial divisions of the country--which are many--as part of a move to try and catapult themselves to power (in DC ironically) as people become more and more unhappy with the economic fall out of the financial crisis.

Just my quick take. Thanks for pointing out the item, Clarisse ... it is very interesting.

Cheers -- FB

clarisse said...

Thanks FB,
I'm now wondering, after your answer, if this campaign "could be" (with all conditionality) seen as quite similar to what we can see in Europe: a rise of nationalism and use of regional points of view in politics?

T. Greer said...

I would be careful there FB. The national GOP is in the midst of a crisis at the meoment, divided between the theocons and libertarian wings of the party. (The hawks being discredited, of course.) I imagine (particularly seeing as this is coming from New Hampshire, a libertarian hub) that what you have here is local groups trying to influence the national party's direction- not vice versa.

freude bud said...

Well, I see what you're saying, TG, and do point out that the GOP is in disarray.

What Clarisse linked to, however, was an memorial introduced in Washington State as opposed to NH, which makes me suspect that an effort is being coordinated somewhere, probably by some group in DC.

In DC the libertarians--like say at CATO--are in general retreat, given the economic situation, but I could see that wing looking to grab leadership of the national party via regional efforts such as these.

It could be a completely decentralized effort, I don't know. I am basing my guess on the fact that state reps and senators tend to be more beholden to the national party than the national reps and sens are, ironically enough, because they are often selected and funded by the national party. Thus their decisions are often, well, decided by the national GOP.