Monday, April 13, 2009

Daily Sources 4/13

Trying a different way of organizing the daily sources ... all thoughts welcome.


Ambrose Evans-Pritchard notes that Ireland's finance minister, Brian Lenihan, recently remarked that consumer prices were set to fall by 4% this year, indicating that the country is facing a serious bout of deflation.
"This is torture for a debtors' economy. You can survive deflation; you can survive debt; but Irving Fisher taught us in his 1933 treatise 'Debt Deflation causes of Great Depressions' that the two together will eat you alive."
Pritchard argues that the European Central Bank is serving the interests of Germany above those of Europe by continuing to pursue an anti-inflationary monetary regime, noting that both France and Spain are beginning to "tip" into deflation.
"If the ECB continues to serve as the instrument of German tastes, keeping German inflation near zero, then Club Med and Ireland must necessarily deflate into Hell with all their debts. Unless Germany accepts inflation of 4%, 5% or 6% for a while, the only way the South can claw back lost competitiveness is through outright wage cuts, and that is not a macro-economic option for debtors. Is anybody facing up to this core reality in euroland?"
(h/t Yves Smith at naked capitalism.) Worth reading in full.(1) Meanwhile, the Japanese government announced today that wholesale prices fell by 2.2% in March from a year earlier.
"The latest figures follow a revised 1.6% fall in the year to February. It was the third month in a row of annual declines.

Analysts say it is inevitable that changes in consumer prices will soon turn negative after flat annual figures for the years to January and to February.

Overall final goods prices, which track prices of final products charged to businesses, fell 2.6% in March from a year earlier. Domestic final goods prices fell 1.7%."(2)
In the meantime, Japan's METI is planning to introduce strategic storage of refined products for the first time this year.
"Japan first began considering stockpiling refined products in April 2006, after Hurricane Katrina wrought major destruction on the US Gulf producing and refining facilities in August 2005, and global oil consumers concluded what they needed to relieve supply shortages immediately was oil products rather than crude.

METI's priority products for emergency stockpiling are gasoline, gasoil, kerosene, and A-fuel oil (a blend of gasoil and fuel oil in a 90:10 ratio)."(3)
Given the relatively low price of crude just now, and the huge addition of refining capacity over the course of 2008 and slated for 2009, the upward pressure on products prices caused by meeting stocks requirements is not likely to be too severe. John Kingston echoes much of the industry's view when he writes that the recent addition of the 580 kb/d capacity refinery at Jamnagar, India, and throughout the Asia Pacific is making refinery closures more likely.
"The consensus? Refining capacity in Japan is at risk, given the weak economy there and an aging, shrinking population with a demand for petroleum that is destined to keep dropping (and without a tradition of being a significant exporter of products)." (4)
Indeed, this comes on top of the news that the IEA expects Asian crude supply additions to come to 218 kb/d this year in the midst of declining demand globally.(5) Kingston notes that Reliance, the Jamnagar refinery's owner, is not only aiming for the Asian market, but also expects to sell into the US. "About a month ago, Platts' Esa Ramasamy reported that Reliance USA, a subsidiary of Reliance Industries, has taken taken 1.3 million barrels of clean product storage in the New York harbor area.
"We concluded a deal with Hess to take storage at the Port Reading and First Reserve terminals," a Reliance source told Platts. The Port Reading terminal is located in Port Reading, New Jersey, and the First Reserve terminal is in Perth Amboy, New Jersey.

The acquisition of storage at the Port Reading and First Reserve terminals will enable Reliance to participate in the New York Harbor barge and Buckeye gasoline and diesel markets. "Now Reliance can be expected to be a supplier of heating oil to the US Northeast too," said a New York Harbor trader at the time."

Rebecca Wilder notes that Canada is in a much stronger position to pursue stimulus spending than much of the OECD given a much better balance sheet. Her chart of Canada's debt to GDP ratio:

"2009 will be in sharp contrast to the recent past. Deficit spending of federal and provincial governments is expected to total $57 billion CAD--3.7% of GDP or the biggest ever--on stabilization spending and the stimulus bill. However, compared to other governments, whose economies are in worse shape, the Canada's prudent attention to finances puts it in a better position to respond to the economic downturn." (6)

China's State Council will reportedly meet on April 15 to discuss an additional stimulus plan.
"On [April 11], Premier Wen Jiabao, said in an interview with state media that China will 'closely' monitor changes in the domestic and world economy and 'hammer out' new response plans when needed."(7)
The government will issue guidelines and use further fiscal and taxation measures in order to boost consumption. Real Time Economics hosts a translation of a selection of the People's Bank of China's recent Monetary Policy Committee's press release indicating that bank liquidity in the country is ample:
"To cope with the serious impact of the international financial crisis, and promote stable and rapid economic development, China adjusted its macroeconomic policy orientation in a timely manner, and adopted a series of measures to expand domestic demand and promote economic growth. At present, the measures taken have obtained some initial results and there have been some positive signs. Liquidity in the banking system is ample, money and credit are growing rapidly, and the financial system is running smoothly."
The markets have reportedly responded enthusiastically to the news, but central bank adviser Fan Gang was quoted in the media today as saying that "My basic judgment is, the recession in the global economy will last at least three or four years."(8) Brad Setser produces a graph showing that Chinese foreign asset reserves growth has basically come to a halt:

He comments:
"But there is some evidence that the pace of the 'hot' outflows has started to slow. Indeed, the evidence showing a turn here--assuming the data on the state banks’ doesn’t have any surprises--is better than the evidence showing a turnaround in trade flows. The non-deliverable forward market is no longer pricing in a depreciation of China’s currency, and in the past, changes in the NDF market have corresponded reasonable well with hot money flows.

I consequently wouldn’t be totally surprised if the pace of China’s reserve growth started to pick up again over the next couple of quarters. The fall in reserve growth over the past two quarters has corresponded to rise in capital outflows — not with a sustained fall in China’s trade surplus.

But even if reserve growth picks up a bit, China’s government will likely buy fewer US assets than it did in 2008. Some of those assets though were in a sense bought with 'borrowed' money-—the hot inflow. This adjustment though isn’t a bad thing; we all should want China to buy more of the world’s goods and fewer of the world’s bonds."(9)
A CNPC official yesterday said that China may agree this week to take a $10 billion minority holding in Kazakhstan's AO Mangistaumunaigas from state-run KazMunaiGaz National Co. when Kazakh President Nursultan Nazarbayev is in Beijing on April 15. (10)

China's customs office announced Friday that its March oil imports had declined 5.5% to 16.34 million metric tonnes of crude (~3.84 million b/d) from 17.3 million mt in March 2008.
"Despite falling from a year ago, the March crude import volume represented a 39.3% rebound from the 11.73 million mt imported in February, which was the lowest in 26 months.

Refined product imports crept up 2.2% from a year ago to 3.2 million mt in March, according to the preliminary customs data, released on April 10. However, the figure was lower than the 3.38 million mt of products imported in February.

Chinese crude exports in March totaled 470,000 mt, 17.5% higher than a year ago. But the figure paled in comparison with the 610,000 mt of crude exported in February."(11)

Meanwhile, the Indian delegation at the just finished UN conference in Bonn indicated that New Delhi is unlikely to agree to binding carbon emissions cuts:
"'If the question is whether India will take on binding emission reduction commitments, the answer is no. It is morally wrong for us to agree to reduce when 40 percent of Indians do not have access to electricity,' said a member of the Indian delegation to the recently concluded UN conference in Bonn, Germany, which is a prelude to a Copenhagen summit in December on climate change. 'Of course, everybody wants to go solar, but costs are very, very high.'"(12)

The "Red Shirts" protests in Thailand have spread with at least three clashes with security forces in Bangkok and major highways shut down in the provinces just outside the city.(13) The government has announced a state of emergency, and the armed forces have said that they will take every measure to restore order.
"'We will not use weapons unless it is necessary to defend ourselves,' said Gen. Songkitti Jaggabatara, the supreme commander of Thailand’s armed forces. 'We will not use them excessively.'"(14)
(Both of the linked stories include slides of the clash with the military.) The ASEAN summit scheduled to be held in Bangkok this week has been canceled as a result of the protests.


Israeli Prime Minister Benjamin Netanyahu said on Sunday that he would start peace talks with Palestine, after taking a phone call from Palestinian President Mahmoud Abbas on Sunday made to extend Passover greetings. "The two had a 'friendly and warm' conversation, according to a statement from Netanyahu's office."(15)


The Mexican Congress's Chamber of Deputies is scheduled to begin debating the decriminalization of marijuana consumption today.
"The forum will bring together experts from around the government and private sector. The forum is being called mainly because of the belief of many experts in Mexico that the prohibitionist policies have not produced the desired effects."
The post also provides the most recent news on the recent killings in Mexico in the fight between the military and the drug cartels. There were at least eight "narco executions" in Chihuahua last week. Worth reading.(16)


The Obama Administration is reportedly set to announce that it is lifting travel restrictions for Cuban Americans who want to travel to Cuba.
"The decision does not lift the trade embargo on communist Cuba but eases the prohibitions that have restricted Cuban Americans from visiting their relatives and has limited what they can send back home."(17)

The wind power industry association released a report stating that the US is ahead of schedule to generate 20% of its electricity from wind power by 2020. Texas is at the head of the class, having installed almost 2,700 megawatts of wind power in 2008. Only two countries installed more wind power last year than the lone star state. "In fact, if Texas were a country—an idea never entirely out of fashion in the Lone Star state—it would rank 6th in the world in wind power capacity."(18)

1. "Ireland is ECB's sacrifical lamb to satisfy German inflation demands," Ambrose Evans-Pritchard, UK Telegraph, 12 April 2009.
2. "Falling Prices in Japan Feed Deflation Fears," Reuters, Sunday, 12 April 2009.
3. "Japan set to introduce oil products in strategic stocks: sources," Takeo Kumagai, Platts, Monday, 13 April 2009.
4. "New refineries in the US? More likely, a closure," John Kingston, The Barrel, 9 April 2009.
5. "Asia to see bumper oil harvest," Reuters, Monday, 13 April 2009.
6. "Canada: a relatively strong fiscal position," Rebecca Wilder, News N Economics, Monday, April 13, 2009.
7. "China Mulls New Stimulus to Boost Consumption, Bolster Recovery," Paul Panckhurst, Bloomberg News, Monday, 13 April 2009.
8. "China economy won't bottom out soon adviser," Aileen Wang and Edmund Klamann, Reuters, Monday, 13 April 2009.
9. "China’s reserves are still growing, but at a slower pace than before," Brad Setser, Follow the Money, Monday, 13 April 2009.
10. "China, Kazakhstan May Sign $10 Billion Accord for Oil," Eugene Tang and Chen Shiyin, Bloomberg News, Saturday, 11 April 2009.
11. "China Mar crude imports down on year but rebound from Feb," Vandana Hari, Platts, Monday, 13 April 2009.
12. "India Rejects Calls For Emission Cuts; Officials Say Growth Will Be Compromised," Rama Lakshmi, Washington Post, Monday, 13 April 2009.
13. "Anti-Government Protests Spread Throughout Thailand," Tim Johnston, Washington Post, Monday, 13 April 2009.
14. "Thai Army Chief Vows to End ‘Chaos’ as Protests Widen," Seth Mydans and Thomas Fuller, New York Times, Monday, 13 April 2009.
15. "First contact between Netanyahu, Abbas," Egypt News, 12 April 2009.
16. "Mexico: Drug Armies vs. Calderon's Army," Paul Talley, The Compass, Saturday, April 12, 2009.
17. "Obama to Lift Cuba Travel Restrictions," Michael D. Shear, 44 The Obama Presidency, 13 April 2009.
18. "Wind Power: Everything’s Bigger in Texas," Keith Johnson, Environmental Capital, Monday, April 13, 2009.


Anonymous said...


Anonymous said...

I have no idea why the ECB has made the inevitable as painful and prolonged as possible.

While I had to hold my nose during the bailout I was at least glad that the decisions and actions were decisive.

Your post about Iceland last night is a reminder that poor policy and inadequate responses still leave risk of contagion.