Daily Sources 6/8

1. ELECTIONS FOR THE EUROPEAN PARLIAMENT END IN VICTORY FOR THE CENTER-RIGHT, LOW TURN OUT HELPS FRINGE RIGHT

Eurointelligence reports that the results of the European Parliament elections basically resulted in a win for the center-right, though it was marred by low participation.

"Overall, the winners are the center-right--and Jose Manuel Barroso, who with this vote will almost certainly stay on as president of the European Commission. Europe’s most successful national leader, in electoral terms, was Silvio Berlusconi, who managed to shrug off, or perhaps even benefit, from a string of scandals. He took 36% of the vote."

Eurointelligence provides the share of votes via this illustration:



However, Eurointelligence notes that voter participation was down to 43%, and has steadily fallen from 62% in 1979, which may lead to some questioning the body's legitimacy. Low participation also seems to have helped the fringe right. As Der Spiegel reports:

"Far-right and right-wing populist parties also did well in the election. In the Netherlands, the anti-Islam Freedom Party of the filmmaker Geert Wilders won around 17% of the vote, making it the second strongest party. The right-wing populist party True Finns won around 14 percent of the vote in Finland, up from just 0.5% in 2004. In Denmark, the right-wing populist DVP increased its share of the vote from 6.8% in 2004 to around 15 percent. Italy's right-wing populist Northern League won around 10% of the vote, giving it 8 seats, while in the UK the far-right British National Party won four seats."

It would seem that there will not be enough political support for Turkish membership in the EU any time soon. Worth reading in full.

2. GERMAN INDUSTRIAL ORDERS FLAT IN APRIL FROM MARCH, MÜNCHAU ARGUES THAT EXPORT LED ECONOMIES WILL NOT BE ABLE TO EXPORT OUT OF RECESSION, E.C.B. FISCAL POLICY MAY EXACERBATE THE PROBLEM

Ralph Atkins at the Financial Times reports that German industrial orders were flat in April from March, and the economic ministry revised upwards the growth in orders seen in March over February to 3.6% from its earlier estimate of 3.3%.

"The economics ministry noted that comparing April and March with the previous two months, industrial orders were up by 2%--the first such increase since December 2007."

Wolfgang Münchau at the Financial Times argues that export-led economies will not be able to rely on their export sectors to pull themselves out of the current economic crisis. Key excerpt:

"Global current account surpluses and deficits add up to zero. So if everybody is saving more, who will be dissaving? It will have to be the corporate sector in the countries with large net exports. So if the US, the UK and Spain are heading for a more balanced current account in the future, so will the surplus countries.

The current account balance can also be expressed as the sum of the trade balance, net earnings on foreign assets, and unilateral financial transfers. In several countries, including the US and Germany, the gap between exports and imports serves as a good proxy for the current account. A fall in the trade deficit in the US, UK and Spain implies a fall in the combined trade surplus elsewhere. And as some of the shifts in the US and the UK are likely to be structural, this will have long-term effects on others. In particular, it means the export model on which Germany, China and Japan rely, could suffer a cardiac arrest."

Münchau notes that the Merkel Administration's apparent decision to allow the euro to appreciate versus the dollar (and other currencies) could exacerbate the situation for Germany. A must read.

3. NORTH KOREA CONVICTS JOURNALISTS IN BID TO GET DIRECT TALKS WITH THE U.S.

Blaine Harden at the Washington Post reports that North Korea's Pyongyang Central Court this weekend sentenced two US journalists to 12 years of "reform through labor."

"'Now that they are sentenced, we can think and talk about making arrangements for their release,' said Han Seung-soo, a former South Korean foreign minister. 'It is ironic but with the sentencing we now have something more tangible to negotiate about.'"

Essentially it appears that the expert view is that Pyongyang expects the US to send a high-level envoy, the verdict being a way to force as direct bilateral negotiations as possible. Henry Kissinger has an op ed at the Washington Post in which he argues that North Korean nuclear non-proliferation is an especially apt issue for the "Great Powers" to cooperate on, given that it borders China, Russia, and is a neighbor of Japan. Key excerpt:

"Too much of the commentary on the current crisis has concerned the deus ex machina of Chinese pressures on North Korea and complaints that Beijing has not implemented its full arsenal of possibilities. For China, the issue is not so much a negotiating position as concern about its consequences. If the Pyongyang regime is destabilized, the future of Northeast Asia would then have to be settled by deeply concerned parties amid a fast-moving crisis. They need to know the American attitude and clarify their own for that contingency. A sensitive, thoughtful dialogue with China, rather than peremptory demands, is essential.

The outcome of such a dialogue is difficult to predict, but it cannot be managed unless America clarifies its own purposes to itself. A new argument in favor of acquiescence in North Korea's nuclear program contends that Pyongyang's conduct is really a cry for assistance against Chinese domination and thus deserves support rather than opprobrium. But turning North Korea into a ward of the United States is neither feasible nor acceptable to the countries whose support is imperative for a solution of the nuclear issue.

Furthermore, some public statements imply the United States will try to deal with specific North Korean threats rather than eliminate the capability to carry them out. They leave open with what determination Washington will pursue the elimination of the existing stockpile of North Korean nuclear weapons and fissionable materials. It is not possible to undertake both courses simultaneously."

Well worth reading in full.

4. PAKISTANI POSSE FORMS TO TAKE ON TALIBAN MOSQUE BOMBERS, MUSHARRAF SAYS THE U.S. DOES NOT UNDERSTAND THE EXTENT TO WHICH PAKISTAN'S SECESSIONIST FORCES ARE DUE TO SITUATION IN AFGHANISTAN

Riaz Khan at the Associated Press reports that as many 1,600 tribesmen have joined a citizen's militia in the Upper Dir district and are retaliating against the Taliban following the group's recent bombing of mosques.

"'The lashkar [aka citizen's militia] has destroyed 25 homes of Taliban commanders and their fighters in various villages,' [Khaista] Rehman [a local police chief] told The Associated Press by phone. 'The Taliban had set up their offices in those villages but the local residents and the lashkar have attacked them, and we hope the lashkar will succeed.'"

Meanwhile, Susanne Koelbl and Britta Sandberg at Der Spiegel conducted an interview with former Pakistani President Pervez Musharraf in which he suggests that the US doesn't understand the extent to which Pakistan's centrifugal inertia is driven by the situation in Afghanistan. Key excerpt:

"SPIEGEL: Are you disappointed by Obama?

Musharraf: No, he is aiming at the right things. He is showing intentions of improving the dialogue with the Muslim world, which is good. He is right when he says that more forces must be deployed in Afghanistan. There is an intention of increasing funding for Pakistan, which is also good. But he also has to understand the reality in Pakistan and I am not sure he does.

SPIEGEL: And how is the situation?

Musharraf: One of the realities is that the Indian intelligence service RAW is interfering in our country. For example in Balochistan, our largest province bordering Iran and Afghanistan. One of the most brutal insurgents against our forces, Brahamdagh Bugti ...

SPIEGEL: ... the grandson of Nawab Bugti, a tribal leader who was killed three years ago in a battle with the Pakistani army ...

Musharraf: ... he is sitting in Kabul, protected by the Afghan government and provided with weapons and money by the Indian intelligence agency RAW. He has his own training camps and sends his fighters to Balochistan where they terrorize people and damage the civil infrastructure. RAW is also interfering in the Swat Valley, I know that. Where do all these Taliban fighters in Swat get their arms and money from? From Afghanistan. The Indian consulates in Jalalabad and Kandahar only exist to be a thorn in the side of Pakistan."

Well worth reading in full. Meanwhile, also in Der Spiegel, German intelligence agencies have warned that al-Qaeda plans to launch attacks on Germans abroad, and perhaps in Germany itself, around German elections on September 27 in retaliation for Berlin's participation in the NATO mission in Afghanistan.

5. CITY OF PARIS MAKES DALAI LAMA AN HONORARY CITIZEN IN FACE OF SARKOZY'S EFFORTS TO RECONCILE WITH BEIJING, REPORTS OF TOTAL LOSING SOUTH PARS PHASE 11 PREMATURE

The BBC reports that the Dalai Lama has been made an honorary citizen of Paris.

"China on Monday called the Paris honor to the Dalai Lama a 'grave interference' in Sino-French ties."

In the beginning of April, the Chinese Foreign Ministry's website published a joint statement by Paris and Beijing intended to resolve tension over the perceived support for the Tibetian independence movement in advance of a meeting between Chinese President Hu Jintao and French President Nicolas Sarkozy on the margins of the G20 summit in London--see Daily Sources 4/1 #5. That meeting appeared to yield results when on April 9, Beijing announced it would send a purchasing junket to France--see Daily Sources 4/9 #2. And a bit later in the month, it looked as if the thaw was well under way when it was reported that France intended to invite Chinese President Hu Jintao to Paris for an official state visit--see Daily Sources 4/22 #3. (h/t Joshua Keating at FP's Passport Morning Brief.) Kate McKenzie at FT Energy Source notes that earlier stories reporting that Total had lost its role in Iran's South Pars phase 11 natural gas project to CNPC were premature, with the French oil and gas company reporting that it is still in negotiations. (For the original story of the switch, see Daily Sources 6/3 #10.)

6. CHINESE MAY POWER GENERATION DATA FOR MAY DOWN 4% Y.O.Y., STILL DOESN'T JIBE WITH G.D.P. DATA, INDONESIAN COAL EXPORT CONTRACTS TO CHINA FOR 2009 ALREADY EXCEED THOSE OF 2008

China Stakes reports that the according to figures from the Chinese State Grid, power generation in the last 11 days of May fell by 5.7% year over year,

"higher than the decline in the second 10 days of May, mainly because working days in the last 11 days of May this year are lower than that in the previous year, as the Dragon Boat Festival occurred at the end of May."

Zhao Guobao, vice director of the National Development and Reform Commission and director of the National Energy Administration, said that power generation fell by about 4% altogether in May, year over year.

"Zhao Bingren [ex-chairman of China Electricity Regulatory Commission] said statistics reported by some local governments representing drastic economic growth might not be true. 'I visited two provinces, and think their statistics are not true. They can never make up two important figures: power consumption and transportation.'"

In the middle of May, the IEA's global energy report cast doubt on China's official GDP numbers, saying that they did not match up with the drop in oil and electricity consumption--see Daily Sources 5/14 #2. In late May, the China Electricity Council, or association, reacted to the criticism by ceasing to publish its data on electricity consumption--see Daily Sources 5/29 #3. Meanwhile, Frontier Markets reports that PT Adaro Energy, Indonesia’s second-largest coal company, has already contracted for more coal sales to China in 2009 from 2008, or 3.5 million tons in 2009–up from roughly 2 million tons last year.

"Australian coal prices on the globalCOAL Newcastle index, a benchmark for Asia, ended Friday at $74.31/ton, while port coal prices at China’s top coal port Qinhuangdao remain around $92 a ton. 'As long as there is a difference between domestic and import prices, China will still be buying coal from overseas,' commented Apimuk Taifayongvichit, chief marketing and logistics planner at PT Indo Tambangraya Megah, the Indonesian unit of Thai Banpu ...."

Indonesia is the second largest exporter of coal globally.

7. CHINA CONSTRUCTION BANK HEAD SUGGESTS U.S. SHOULD SELL YUAN DENOMINATED BONDS IN HONG KONG AND SHANGHAI MARKETS

Martin Howell at Reuters reports that in an interview with Guo Shuqing, the chairman of state-owned China Construction Bank, he suggested that the US government and the World Bank should consider selling yuan-denominated bonds in the Hong Kong and Shanghai markets.

"Guo said it was in American interests to see the yuan, also known as the renminbi, become a currency that is traded across the globe. He said that is largely because of the symbiotic relationship between US purchases of Chinese goods and China's purchases of US assets with the proceeds."

He said that developing the Chinese debt markets would help US companies and international financial institutions fund investments in China--tapping into the Chinese savings, I take it.

"He said that foreign currency risk, particularly the risk that the yuan would continue to appreciate against the US dollar as it has in recent years, could be hedged."

And make folks in DC much more leary of a floating renmimbi. (In May the Japanese opposition platform included the notion of continuing to purchase US debt, but in yen-denominated bonds, so called "samurai bonds."--see Daily Sources 5/14 #1.)

8. SOUTH KOREAN MAY EXPORTS DOWN 28% Y.O.Y.

Brad Setser at Follow the Money reports that South Korea's May export data has exports down 28% year over year. He plots a graph for us:



He notes that exports fell a bit from their April levels, but I think that he puts a little undue emphasis on that, as April is 3.2% shorter than May. As the Reuters article he links notes:

"Exports value per working day--a measure that analysts and government officials use to assess the monthly change in exports--rose slightly to $1.28 billion in May from $1.27 billion in April."

Meaning perhaps the data doesn't exactly provide evidence of a "green shoot," though it may well be a sign that the export situation has bottomed. Setser goes on to note:

"Taiwan also reports its data quickly. Year over year, its exports are still down more than Korea’s (31% v 28%). But May’s exports were a bit higher than April’s exports. That at least hints at a recovery."

Well worth reading in full, as usual.

9. B.R.I.C.S ADD $60 BILLION IN FOREIGN RESERVES IN MAY

Shanthy Nambiar and Lilian Karunungan at Bloomberg report that the BRIC countries added $60 billion in foreign reserves in May in order to protect their export sectors.

"The BRICs are buying dollars at the fastest pace since before credit markets froze in September, protecting exports even as leaders of the biggest emerging markets consider alternatives to the US currency.

... Brazil bought the most dollars in a year, India’s reserves gained the most since January 2008 and Russia added the most foreign exchange since July."

10. IRAQ SAYS IF TURKEY DOESN'T RELEASE MORE WATER IT FACES AN ENVIRONMENTAL AND HUMANITARIAN CATASTROPHE

Aseel Kami at Reuters reports that Iraq's Water Resources Minister Abdul Latif Rasheed on Sunday called on Turkey to increase the flow of water in the Euphrates by 500 cubic meters a second.

"'We are passing through an emergency and the country is threatened with an environmental and humanitarian catastrophe,' said Karim al-Yaqubi, a member of a parliamentary committee that oversees water issues.

He said water purification plants in parts of the country like the province of Diwaniya, southeast of Baghdad, could not pump in water because it was too muddy.

Yaqubi said Turkey had briefly increased the river flow to serve its hydroelectric operations, but had then closed the sluice gates."

The AFP in May reported that experts were predicting an "agricultural disaster" in Iraq if Turkey continues to withhold water from the Tigris and Euphrates--see Daily Sources 5/21 #6.



Turkish President Abdullah Gul promised in March to double the flow of water allocated to Iraq during his visit to Baghdad--see Daily Sources 3/26 #14. It has been suggested that the promise was made in return for a crackdown on Kurdish guerrillas operating out of northern Iraq. On Saturday, farmers and fisherman protested in Najaf, calling on the government to demand the release of more waters from neighboring countries. (h/t Ben Lando at Iraq Oil Report.)

11. OBAMA ADMINISTRATION BACKS NUCLEAR FUEL BANK IDEA

Bryan Bender at the Boston Globe reports that the Obama Administration has thrown its support behind an international nuclear fuel bank, controlled by the IAEA. In his speech in Cairo last week, Obama expressed support for the right guaranteed by the Nuclear Non-Proliferation Treaty whereby every signatory has the right to develop a peaceful nuclear power program, saying "any nation--including Iran--should have the right to access peaceful nuclear power."

"Russia and Kazakhstan have offered to house an agency-supervised fuel bank, while Germany has called for the creation of a multinational enrichment company under the auspices of the IAEA."

(h/t Leanon at the Oil Drum's Drumbeat.)

12. 'MARCH 14' BLOC PREVAILS IN LEBANESE ELECTIONS

Nadim Ladki at Reuters reports that the Lebanese elections this weekend yielded a surprise victory for the anti-Syrian coalition.

"Results declared by Interior Minister Ziad Baroud showed Saad al-Hariri's pro-Western bloc had won 71 of parliament's 128 seats, against 57 for an opposition alliance that groups Shi'ite factions Hezbollah and Amal with Christian leader Michel Aoun.

Hariri's total includes three independents who ran on his lists in Sunday's election, which many had predicted would produce a slim victory for Hezbollah and its partners.

The vote was a blow to Syria and Iran, which support Hezbollah, and welcome news for the United States, Saudi Arabia and Egypt, which back the 'March 14' bloc, named after the date of a huge rally against Syria's military presence in 2005.

The United States had no immediate comment, but France, another backer of the bloc, praised the 'smooth functioning' of the election, which went off in mostly peaceful style."

13. CANADIAN OIL SANDS PRODUCTION COULD GROW TO 3.3 MB/D BY 2025

Platts reported on Friday that the Canadian Association of Petroleum Producers said that Canadian oil sands production could grow by 175% to reach 3.3 mb/d by 2025.

"If growth is confined to projects already operating or under construction, the oil sands will add only 800,000 b/d to the 2008 output of 1.2 mb/d, the report said.

By rolling in conventional and Atlantic Canada offshore volumes, CAPP projects that current total Canadian crude production could, under the minimum outlook, rise from 2.7 mb/d in 2008 to 3 mb/d in the 2015-2020 period, then slip to 2.8 mb/d.

Applying the 'growth case' scenario, the total volumes would reach 3.3 mb/d in 2015, 4 mb/d in 2020 and 4.2 mb/d in 2025."

14. AMERICAN TRUCKERS ASSOCIATION SEES DECLINE IN VOLUMES OF 2.2% YOY IN APRIL, MIRRORS RAIL DATA, I.E., DEMAND FOR DIESEL IS WEAK

Barry Ritholtz at the Big Picture reports that the American Truckers Association Tonnage Index declined a seasonally adjusted 2.2% in April, better than the 4.5% fall seen in March, but still down. Ritholtz quotes the chief economist of the association, Bob Costello, as saying:

"'While most key economic indictors are decreasing at a slower rate, the year-over-year contractions in truck tonnage accelerated because businesses are right-sizing their inventories, which means fewer truck shipments,' Costello said. 'The absolute dollar value of inventories has fallen, but sales have decreased as much or more, which means that inventories are still too high for the current level of sales. Until this correction is complete, freight will be tough for motor carriers.'"

Ritholtz notes that the Association of American Railroads' US rail carload traffic reports are mirroring the trucker results, unsurprisingly, showing a 24.7% year over year decline in May. Atlantic Systems Inc. plots the decline in volume for all North America for the week ended May 30:



Given that much of freight rail is powered by diesel, and most trucks burn it as well, you can see why US commercial distillate stocks are building at rates way above the historical norm:



15. CONSUMER CREDIT IS CONTRACTING FOR THE FIRST TIME EVER

Rebecca Wilder at News N Economics notes that consumer credit is "doing something that it hasn't done in a long, long time (ever)....retrenching."



Ms. Wilder notes:

"Consumers are actively paying down debt because they 'want to' (i.e., demand side), but likewise, they are being forced to as credit card companies slash credit limits."

Worth a look.

16. SOLAR POWER PLANTS WILL COMPETE WITH AG AND CITIES FOR WATER IN THE AMERICAN WEST

Robert Glennon has an opinion piece at the Washington Post which notes that the current technology for large scale solar power plants consumes large amounts of water.

"[M]ost large solar power projects use a system called concentrating solar power, or CSP, that heats a fluid that boils water to turn a turbine. CSP, just like any thermal power plant, produces waste heat as a byproduct. In most cases, cooling towers release the heat to the atmosphere through evaporation, a process that uses gobs of water. In fact, CSP uses four times as much water as a natural gas plant and twice as much as a coal or nuclear plant."

He notes that the water for these plants will have to come from other customers, especially in the American West.

"Over the last year, Arizona Public Service Company, the state's largest electric utility, has partnered with solar power companies to build two large-scale CSP projects on private land. The land, more than six square miles, has been used to grow alfalfa and cotton. These wet-cooled plants will use less water than the farms are already using.

This reallocation of water--from farming to power generation--offers a lesson for the country as a whole. As the United States confronts inevitable water shortages, we need to insist that power companies, developers and others who need water offset the impact of their new uses by persuading existing water customers to use less."

Last week, the Central Valley Business Times reported that three Congressman from California's Central Valley have written a letter to the House Natural Resources Committee saying that water shortages are being exacerbated by Federal decisions:

"They say the San Joaquin Valley and southern California face 'crippling job losses and economic disaster' because of federal decisions involving both the Delta smelt, a minnow-like fish that lives only in the Sacramento-San Joaquin Delta, and a proposal to curtail further water deliveries to California farms and cities to save salmon, steelhead, green sturgeon, and killer whales.

'Very little has been done to help California’s San Joaquin water-starved communities in the last few months,' the congressmen with in their letter to US Rep. Nick Rahall, the chairman of the committee, and US Rep. Doc Hastings, the senior Republican on the panel."

Orange County has reportedly fallen into a "severe drought," just as Summer begins. Connie Lewis at the San Diego Business Journal reports that:

"According to the San Diego County Water Authority, the amount of water it receives from the Metropolitan Water District of Southern California will be reduced by 13% starting July 1.

The county imports 71% of its supply from Metropolitan."

(h/t for these last two items to Aquafornia.)