Daily Sources 3/26

1. Eurointelligence reports that the Netherlands CPB Institute yesterday published January's data for global trade, which shows that global trade is down 20% from October. "FT Deutschland quotes a CPB staffer as saying this is faster than during the Great Depression (the estimates there range from 25-35% during 1929 and 1932)."

2. Lucy Hornby at Reuters reports that China estimates that the number of migrant workers that are now unemployed has risen to 23 million since the lunar year holiday in January. (h/t Yves Smith at naked capitalism.)

3. Upstream online.com reports that Liu Qi, deputy head of China's National Energy Administration, told an industry forum that

"Appropriately obtaining global resources is our inevitable choice and legal right...Winning foreign resources is even more important than stepping up domestic production."

Liu told the conference that China will offer oil companies tax and other policy incentives to continue exploring for purchases and concessions abroad. Meanwhile, Lydia Polgreen at the New York Times reports that analysts see Chinese decision makers becoming more conservative about their African investment decisions:

"'We have seen in the recent past Chinese companies wade into countries nobody else would,' said Philippe de Pontet, an analyst at ... a private research firm. 'That may be changing.'"

Meanwhile, Franz Wild and Helene Fouquet at Bloomberg report that Aveda, accompanying French President Nicolas Sarkozy on a two day business junket to central and western Africa, signed a joint venture uranium exploration agreement with the Democratic Republic of Congo.



4. Rebecca Christie at Bloomberg reports that Treasury Secretary Timothy Geithner told a forum hosted by the Council on Foreign Relations yesterday that the recent proposal to replace the dollar as a reserve currency by China is

"designed to increase the use of the IMF’s special drawing rights. And we’re actually quite open to that."

"The dollar slid as much as 1.3% against the euro within 10 minutes of news accounts of Geithner’s remarks. It recouped much of the loss about 15 minutes later, when Geithner then predicted no change in the US currency’s role."

Meanwhile, Eurointelligence reports that Dominique Strauss-Kahn, the head of the IMF, told a parliamentary finance committee in Paris that

"it is absolutely legitimate to discuss the possibility of a new international currency. This is not a new question but the current crisis renews the interest in this question. He also said that he does not consider that the dollar ceases to be an international reserve currency. Even the Chinese don’t think that."

Meanwhile, Mriganka Jaipuriyar at Platts reports that the chief economist of the Paris-based IEA, Fatih Birol, said that the organization is working very closely with Beijing to improve the flow of data, but that there is a long way to go.

"'Both on the IEA's side and the Chinese side, there are strong efforts to harmonize how we collect and analyze the statistics. I should say there are some improvements in that area but we are not yet at a level we would like to see,' Birol told Platts in an interview Thursday.

'We are at the beginning of a very long journey and it would be too premature to say that we have the information we need to make our analysis,' he added.

The IEA is pursuing similar talks with India and hopes to be able to better analyze the situation in these countries and their implication for the rest of the world, Birol said."

Platts reports that OPEC oil exports excluding Ecuador and Angola in the four weeks to April 11 are to fall to 22.23 million b/d, down by 770 kb/d from the previous four week period.

5. Thom Shanker at the New York Times reports that an annual Pentagon study released yesterday--"Military Power of the People’s Republic of China 2009"--argues that China is seeking weapons and technology which counter traditional American advantages. This seems natural enough to me, but China's Foreign Ministry was sufficiently disturbed to have its spokesman say "This report issued by the US side continues to play up the fallacy of China’s military threat." At his regular news briefing in Beijing the spokesman "suggested that the Pentagon stop issuing the annual report to avoid 'further damage to the two sides’ military relations.'" The report can be found here.

6. Wall Street Journal Asia has an editorial piece which points out that the EU and South Korea just signed a free trade agreement on Tuesday.

"Details haven't been released yet, but it's expected to be a comprehensive accord that will reduce or eliminate most tariffs on goods and liberalize European investment in Korea's tightly regulated service sector. Both sides are aiming to iron out the final details at next week's Group of 20 summit in London."

7. Veit Medick at Der Spiegel interviewed Martin Schulz, chairman of the Socialist group in European Parliament and head of foreign policy at the German Social Democratic Party's federal executive committee, about the consequences and causes of the fall of Prime Minister Mirek Topolánek's government in the Czech Republic while he was president of the EU. Key excerpts:

"Schulz: Topolánek was one of George W. Bush's closest allies when it came to the missile-defense system in eastern Europe. Now he uses the platform of the European Parliament to campaign against Bush's successor. He can do that in Prague, but not in the EU.

SPIEGEL ONLINE: Is the Lisbon Treaty now in danger?

Schulz: We'll see. The fact is, the two legislators who caused the collapse of his government were opponents of the treaty. That's not an encouraging sign."

SPIEGEL ONLINE: This fall, the Irish also plan to vote on the Lisbon Treaty. If the Czechs reject the treaty, would the Irish vote still be relevant?

Schulz: If the Czechs reject the treaty, we're going to be in a serious crisis. We might as well then bury the treaty. We'd then be thrown back to the Treaty of Nice, which was passed by 15 member states. But those same 15 governments, not to speak of the new member states, are unsatisfied with the old arrangements. That's why there was supposed to be a constitution. When that failed, we tried to include the essence of the reforms in the Lisbon Treaty. If that also fails, it would be a fiasco.

Worth reading in full. Meanwhile, Reuters reports that Irish GDP fell at an annual rate of 7.5% in the fourth quarter. "GDP fell 2.3% for the whole of 2008, data from the Central Statistics Office showed on Thursday."

8. Der Spiegel reports that in a speech calling for the reform of NATO, German Chancellor Angela Merkel said today:

"It is also in Germany's interest that dialogue between the new US administration and Russia gains momentum again. ... NATO wants Russia as a good partner ... We have not been rivals for 20 years now. The time of the Cold War is irrevocably over."

9. Doris Leblond at the Oil & Gas Journal put the kibosh on the notion, reported in the Russian press, that Moscow had been left out of discussions on how to pay for the modernization and increased transparency of the Ukrainian gas pipeline system. In fact, "Russian Energy Minister Sergei Schmatko and an important delegation was present." This was in addition to representatives from the EU, Canada, the US, World Bank, European Investment Bank, and European Bank for Reconstruction and Development. Meanwhile, RIA Novosti reports that the Russian Ambassador to Ukraine, Viktor Chernomyrdin, told the press that the deal struck Tuesday to modernize the system "looks as if a deaf man and a blind man sat at a table and signed the paper without even understanding what they had signed."

10. Johan Carlstrom at Bloomberg reported that the Norges Bank cut the benchmark interest rate by 0.5% to 2% yesterday.

"'The decline in activity in the Norwegian economy will be more pronounced than previously assumed,' Deputy Governor Jan. F. Qvigstad said in the statement. The bank may cut the rate as low as 1% 'in the course of the autumn.'"

11. Edward Hugh at Fistful of Euros notes that Serbia and the IMF have agreed to a €3 billion, 27 month, stabilization program.

12. Reuters reports that UK retail sales fell by 1.9% in February from January. "The annual rate of growth fell to 0.4%, its weakest since September 1995, the Office for National Statistics said."

13. The Associated Press reports that Ali Larijani, the Iranian Speaker of the Parliament and former nuclear negotiating point man, told the media yesterday that in Najaf that Iran's problems with the US are not a "sentimental issue" soluble with "a blessing and congratulations." "Larijani says the differences stem from 30 years of hostility, including Saddam Hussein's 1980 invasion of Iran which he said was 'instigated by America.'" For the record, it is my understanding that Saddam Hussein's 1980 invasion of Iran was not instigated by the Carter Administration, but never mind.

14. The AFP reports that Turkish President Abdullah Gul in Iraq promised his hosts that the water allocation from the Tigris and the Euphrates would be doubled this year. Juan Cole surmises that this is likely in return for a crackdown by Baghdad on Kurdish Workers Party guerrillas hiding in the mountains in Iraq just outside the Turkish border.

15. Fausta Wertz at The Compass notes that today Hugo Chávez had the military presence increased at the La Fría and San Antonio airports, saying

"we have begun the reversal process over everything that meant the dismemberment of national unity, the territory, and sovereignty, because prior governments fractured the country into pieces."

(Both airports are found in the state of Táchira, a small region on the border of Colombia.)



Chávez also ordered the creation of a new state company to manage the ports which will be required by law to "work under socialist guidelines and seek the development of the regions in which their respective seaports and airports operate." As Wertz notes, after the opposition won several major municipalities and regions in the November elections, Chávez has moved to strip them of control of the various ports, and with it valuable tariff revenues.

16. Juan Forero at the Washington Post reports that in January, Ecuador enacted a number of provisions to try and reduce the number of imports coming into the country.

"'What is the objective? To dampen demand for imported good and to increase consumption of domestic goods,' said Diego Borja, minister of economic policy. 'It was a difficult measure, but necessary and indispensable. We know that there are costs to getting out of a crisis.'

Borja said that because Ecuador's currency is the U.S. dollar, the country has been particularly exposed as imports rose in relation to exports. Unable to print money, or devalue to help Ecuadoran companies that export, the government decided to levy tariffs that reach 35%, decrease import volume as much as 35% and implement a range of surcharges. In all, 627 products fall under the new measures, including furniture, cellphones, electronic parts, shoes, alcohol and food products such as cookies and pastas. The government said the restrictions would reduce imports this year by nearly $1.5 billion compared with 2008.

Without the restrictions, officials here say, Ecuador could run out of money -- leading to economic collapse and political instability. 'We depend on dollars,' Borja said. 'If we don't have a revenue of dollars, then we have a very, very big problem.'"

In December Ecuador defaulted on its debt--see Daily Sources 12/15 #1--and then had its social security system purchase $1.2 billion in new sovereign debt--see Daily Sources 12/29 #14. The CIA estimates that Ecuadoran GDP was $107 billion in 2008 and that government expenditures (which were less than revenues) were about $17.79 billion.)

17. Ronald Buchanan at Platts writes that Mexican oil export revenues in February fell 56.4% year on year on $1.66 billion, according to a report by the National Statistics Institute, or Inegi, released yesterday. WTI on NYMEX averaged $95.35/b in February 2008 versus $39.26/b in February 2009, which at a 58.8% decline is consistent with a 56.4% decline. According to the EIA, Mexican sales of Isthmus crude--a medium sour crude with an APIº33.3 and 1.492 sulfur wt/%--averaged about $89.48/b in February 2008 and $39.22/b in February 2009. Sales of Maya crude--a heavy very sour crude with an APIº22.2 and 3.3 sulfur wt/%--averaged about $78.35/b in February 2008 and $37.17/b in February 2009. But in November, the Associated Press reported that the Mexican Treasury Secretary announced that the country had spent $1.5 billion to buy put options to sell 330 million barrels of Mexican crude--or about a third of its total 2008 output--at $70/b. Even considering the decline in total output, how does this add up?

18. Mary Beth Sheridan at the Washington Post reports that in a speech in Mexico Secretary Clinton said of the anti-narcotics effort:

"Clearly what we've been doing has not worked ... . Our insatiable demand for illegal drugs fuels the drug trade. Our inability to prevent weapons from being illegally smuggled across the border to arm these criminals causes the deaths of police, of soldiers and civilians.'"

19. Derek Sands at Platts reports that Scott Borgerson, a fellow for ocean governance at the Council of Foreign Relations told the House Committee on Foreign Relations that:

"It would be a mistake to assume that all these flashpoints [of new resource opportunities opening up due to melting ice in the Arctic] will remain sleeping dogs. The combination of new shipping routes, trillions of dollars in possible oil and gas resources and a poorly defined picture of state ownership make for a toxic brew."

Sands elaborates:

"US ratification of one mechanism to deal with Arctic resource issues--the UN Law of the Sea Treaty -- has been blocked by a small group of senators because of sovereignty concerns. That refusal could contribute to the US missing out on some of the Arctic's resources, according to the witnesses.

Other Arctic countries have ratified the treaty, and former President Bill Clinton signed it, but it still awaits Senate ratification.

Among other things, the treaty sets up a mechanism for countries to arbitrate disagreements over claims to undersea territory."

20. Bob Willis at Bloomberg reports that initial unemployment benefits applications grew by 8,000 in the week ended March 14 to 652,000, per the Labor Department release today. The total number of people receiving unemployment benefits jumped by 122,000 from the week prior to 5.56 million.

21. Shobhana Chandra at Bloomberg reports that the Commerce Department further revised its initial estimate of fourth quarter GDP to a 6.3% annual rate of contraction (from 3.8% and then 6.2% rates of decline).

"For all of 2008, the economy grew 1.1%, the same as previously estimated, as exports and government tax rebates in the first six months helped offset the slump in consumer spending that followed.

Consumer spending, which accounts for about 70 percent of the economy, fell at a 4.3% pace last quarter, marking the first back-to-back decreases in excess of 3% since record-keeping began in 1947.

Retailers are doing better so far this year. Sales fell less than forecast in February and January’s 1.8% gain was the biggest in three years, Commerce reported earlier this month."

Brian Blackstone at Real Time Economics notes that GDI--Gross Domestic Income, another measure of national economic activity--fell in the fourth quarter by 7.5% from 4Q2007.

"GDP is consumption driven: consumer spending, investment, government spending and the like. GDI is income based, meaning things like income and corporate profits. In theory, the two should line up — but not always. In the case of the fourth quarter, a severe slide in corporate profits was likely the root of the discrepancy. Employee compensation, the other main GDI component, held up much better."

22. Barry Ritholtz at the Big Picture takes aim at the news yesterday that new home sales increased by 4.7% in February from January, noting, to start with, that on an annual basis new home sales fell by 41% in February.

"Note that the month over month data at 4.7%--plus or minus 18.3%--is statistically insignificant. (i.e., meaningless). The reported data does not inform us if sales improved month-over-month or not. It is a range, from down -13.6% to plus 23%. Since 'zero' is part of that range, we can draw no conclusion. As the Census Department itself notes, “the change is not statistically significant; that is, it is uncertain whether there was an increase or decrease.”

The data does however, tell us that the year-over-year sales fell 41.1% plus or minus 7.9% gives us a range of -49% to -33.2%. The entire range is negative, therefore we can conclude sales fell year-over-year."

The Census Bureau noted that the seasonally adjusted estimate of new houses for sale indicates a 12.2 month supply at February sales rates.

23. Brian K. Sullivan at Bloomberg reports that the flooding in North Dakota is forecast to exceed 112 year records and thus may well significantly delay the planting of the spring wheat crop.

"Republican Governor John Hoeven declared a flood emergency across the state, while the federal government declared the state a major disaster area and said a public health emergency exists there. Rain and snow blanketed the area this week, covering ground already saturated by snow and rain earlier in the season."

The US is a major global supplier of wheat.

24. Keith Johnson at Environmental Capital posts the very useful observation that water consumption is a key issue--and perhaps the key issue--in evaluating the relative value of various forms of power generation.

"The water issue affects all kinds of power generation—coal, natural gas, and nuclear power; the nuclear industry’s water appetite in particular has become a flashpoint for criticism. The US Geological Survey figures power plants are the second-biggest users of water in the US, behind agriculture."

25. In an interesting side-note, it appears that the online musings of Paul Krugman have struck a nerve in Germany, whose press has taken note of Krugman's disrespectful tone and whose Finance Minister Peer Steinbrück has sent Krugman an invitation to visit him in Berlin to discuss their differences of opinion mano a mano.