Daily Sources 11/20

1. Brian Blackstone at Real Time Economics reports that the Labor Department released job claims data which shows there was another jump in claims for the week ended Nov. 15.

"In quarterly forecasts released Wednesday, the Federal Reserve said the central tendency of officials’ unemployment rate forecasts for the end of 2009 was 7.1% to 7.6%, though individual forecasts went as high as 8%."

Henry J. Pulizzi, also of Real Time Economics, reports that Dana Perino, White House Spokesman, has signaled that the Administration backs the extension of unemployment benefits, "Because of the tight job market, the President believes it would be appropriate to further extend unemployment benefits, and he would sign the legislation now pending in Congress."

2. The Economic Times reports that the European Commission is planning a €130 billion (~ $164.2 billion) stimulus plan according to a spokeswoman for the German economic ministry. That would equate to about 1% of GDP for each member state. (For Germany that means something along the lines of €25 billion.)

3. Maya Jackson Randall at Dow Jones reports that the minutes of the October 28-29 Federal Open Market Committee meeting demonstrate that they stand ready to cut the Federal Funds Rate further, should that prove necessary. The minutes also reveal that most Committee members expected the economy to contract in the second half of 2008 and the first half of 2009. In a related story, Jason Clenfield at Bloomberg reports that JP Morgan economist Jason Clenfield advised clients that he expected the Fed to cut the Federal Funds Rate by 50 basis points (0.5%) in each of the next two FOMC policy meetings on December 16 and January 28 to 0%. Paul Krugman argued the same on November 7. Neither, however, feel that that would mean that the Fed had emptied its economic tool kit. Arnold Kling at EconLog argues that zero isn't even necessarily the lower bound for interest rates, and that you might have negative interest rates. He is speaking theoretically, but it does make a kind of sense--in a deflationary environment, you could pay interest to be in dollars and make a return.

4. Sahar Ahmed at Reuters reports that Pakistan and the IMF have agreed upon terms for a $7.6 billion emergency loan to the country. "The interest rate on the credit facility would vary between 3.51 and 4.51 percent with changes according to market conditions, and would be payable between fiscal 2011/12 and 2015/16." Delphine Strauss at the Financial Times reports that Turkey is close to an agreement for a loan from the IMF in the region of $20-40 billion.

5. John Acher and Wojciech Moskwa at Reuters report that Norways Sovereign Wealth Fund has increased its holdings of European stocks from 0.77% of total European securities to 1.25% and on the lookout for purchases worldwide. The Norwegian finance ministry has given the fund permission to invest up to 5% of its assets in real estate. The fund's Executive Director, Yngve Slyngstad, says they have about $20 billion waiting to invest in real estate, but that they are not sure if they will enter the market in the first or second half of 2009.

6. Luke Pachymuthu at Reuters reports that Koch and Shell are renting oil tankers for use as storage.

"Koch has booked Very Large Crude Carrier (VLCC) the Dubai Titan, with capacity to hold over two million barrels, for storage in the U.S. Gulf Coast, ship brokers said on Thursday.

Koch has already taken two other VLCCs for storage in the U.S. Gulf, they said.
...
Oil major Royal Dutch Shell has booked a second supertanker to be used for storage, shipbrokers said on Thursday."

Although the container shipping market seems to have collapsed, anecdotal evidence suggests that oil tankers are still fetching profitable rates of around 70 world scale. That suggests to me that either land based storage is becoming scarce or that financing for floating storage is somehow easier to secure.

Either way, the contango in oil is so steep, that floating storage is a profitable proposition even though demand for oil tankers is fairly steady. (Yesterday, the differential between front month and the Dec '09 contract was $10.21/b or 19% of the front month price. The differential between front month and the Dec '16 contract was $32.86/b, or 61% of the front month price.)

Jamie Dale reports that Black Sea and Middle east shipping rates have doubled on piracy concerns. The Baltic Dry Index shows a very small uptick.



Alaric Nightingale and John Martens at Bloomberg report that with the announcement--telegraphed yesterday--today that Maersk will stop sailing ships through the Suez, and Euronav NV, TMT Co. Ltd., BW Shipping Managers Pte, and Frontline Ltd. are reviewing doing so themselves. Odfjell SE is the other shipping company that has official abandoned the Suez route. Combined the companies control 117 supertankers, 2.7 days of global demand or 229.5 million barrels of oil. Tony Gray at Lloyd's List reports that "Senior figures in the maritime industry are calling for a co-ordinated approach to dealing with the crisis in the shipping industry." That is, some are calling for the creation of a cartel to artificially take shipping supply off the markets and thus shore up price.

7. Gary Kasparov has an editorial in the Wall Street Journal saying that Obama has the chance to start fresh with Russia, and that he should do so by labeling Putin a dictator from the start.

8. Del Quentin Wilber at the Washington Post reports that US District Judge Richard J. Leon has ordered the release of five Algerian detainees held at Guantanamo. Leon was a Bush appointee. He took the extraordinary step of urging the government not to appeal, saying that 7 years was long enough for these people to face uncertainty in terms of their fate.

9. Juan Cole at informed comment has a long post on al-Qaeda leader Ayman al-Zawahiri's long anti-Obama video released onto the internet Tuesday. He spends a long time pointing out the inaccuracies in Zawahiri's characterizations of the facts which is just odd. The main thing to be learned, it seems to me, from the video is how weak al-Qaeda's--and in the Middle East generally--understanding of the West is. There is little point in debating the facts with the leadership of al-Qaeda--for them nothing is as it appears. This is not just true of radical groups, but also of leadership in important nations like Iran. The Bush Administration has only lent more credibility to this perspective over the last eight years, of course.

10. Henry Meyer and Lyubov Pronina at Bloomberg report that Vladimir Putin has pledged to a conference of the United Russia party--which he leads--to do everything in his power to prevent the financial collapse of the country. He announced measures to increase welfare payments and cut corporate taxes and promised to defend the ruble. He said, "We'll do everything we can to prevent a repeat in our country of the problems of past years, the collapse of past years."

11. Eric Watkins at the Oil & Gas Journal reports that the Indonesian government has ordered oil firms to keep funds for energy projects in domestic banks. Companies that do not do so will not be allowed to participate in the cost recovery scheme for the various projects.

"Djoko Harsono, BPMigas deputy for finance, said, 'This policy aims to help boost rupiah value against the dollar. We want contractors in energy projects to put all their US dollar funds in local banks, especially state-owned banks.'"

12. In another interesting article by Eric Watkins, Saudi Arabia announced that it has canceled its contract for the Manifa field with Snamprogetti, which would potentially have added 900 kb/d in capacity by 2011. The project to add the capacity is now under review.

13. Eric Watkins at the Oil & Gas Journal report that CNPC and Costa Rica's Recope are considering plans to build a 200 kb/d capacity refinery in that country. "As part of the Moin development, Recope announced plans in February to expand its storage capacity by 550,000 bbl to 3.95 million bbl by 2011."

Daily Sources 9/12

1. The Financial Times published a series of articles yesterday--including an editorial--on China's evident willingness to use its foreign exchange holdings to further political ends. Jamil Anderlini reported that China's State Administration of Foreign Exchange (SAFE) purchased $150 million in Costa Rican government bonds in January in return for Costa Rica essentially de-recognizing Taiwan as a sovereign nation. The deal was originally arrived at in an agreement signed on June 2007, which stipulated the switch in Chinese recognition in return for the purchase of $300 million in Costa Rican bonds and a $130 million grant. Evidently, this information came to light because La Nacion, Costa Rica's largest newspaper, won last Friday a court case which resulted in a judge ordering the government to make the information public.

In a companion piece, Jamil Anderlini noted that while the establishment of the China Investment Corporation (CIC) in September 2007 caused much consternation worldwide, SAFE, through a Hong Kong subsidiary, was quietly establishing stakes of less than 1% in corporations worldwide. It took stakes in companies as diverse as: BP, Total, BHP Billiton, Rio Tinto, Unilever, Tesco, British Gas, Cadbury, Royal Bank of Scotland and Barclays Bank. The Financial Times has helpfully provided a list of SAFE investment in British corporations here.

The FT also editorialized that sovereign wealth funds should be more transparent about their aims and that China should allow the renminbi to appreciate further against the dollar. Brad Setser at Follow the Money has used the imbroglio to announce the publication of a 60 page or so (of actual text) report on Sovereign Wealth and Sovereign Power: the Strategic Consequences of American Indebtedness. I have yet to read the tome, but it will likely be influential.

On one key level, my response to this is "I'm shocked! Just shocked!" Perhaps it is worrying that China is willing to use its foreign exchange reserves to meet foreign policy goals, but I suspect the only difference between that and the de rigeur behavior of economic powerhouses worldwide is that it was a direct, as opposed to an indirect effort. China and Taiwan have been playing this game for years now and it is hardly surprising to me, at least, that China would use any financial asset they have at their disposal to legitimize their claim to Taiwan. (Though I do feel sympathy for Taipei.)

I would also note though the text of the FT's editorial is fairly calm, the series and the headlines are fairly obviously designed to elicit worry and upset nationalists--which is pretty annoying to see from the FT, though I suppose it is arguably meant as an object lesson. Obviously, the financial world wants to encourage "unregulated" access to Chinese assets and a freely floating renminbi. Though some--in Wall Street anyways--view FDI into China and free exchange as unambiguous in its benefits and ends, it seems hard to argue this to Beijing when its overseas investments are regularly responded to as if they were efforts at colonization. The distinctions seem awful fine.

In any case, we will see how the West responds to CIC possibly being a part of the consortium riding to the rescue of Lehman, as per Henny Sender, Francesco Guerrera and Peter Thal Larsen in the Financial Times today. Barclays, beneficiary of SAFE funds, is also a potential suitor. Also related: a paper published today at Vox arguing that the renminbi is not significantly misaligned.

2. China Daily announces that China may cut its dollar holdings. (h/t Jesse's Cafe Americain.)

3. Naked Capitalism notes that both Japan and China have posted declining growth. In order to protect export to the US, China will have to purchase dollars. Also, per Real Time Economics, US consumer spending dropped 0.3% in August, leading many to conclude that that engine of American and international economic growth will remain dormant at least through 2009, which may mean that China needs to buy a lot of dollars.

4. David Barboza at the New York Times writes that corporations in China are under intense pressure from the government to allow their workers to unionize.

5. Saul Hudson at Reuters has an analysis of potential future, given the recall today of Venezuela's Ambassador to the US, and the expulsion of the US Ambassador to Venezuela.

6. Jeremy McDermott at the Telegraph reports that Evo Morales has expelled the US Ambassador to Bolivia.

7. Aleya Begum at Upstream Online writes that Colombia has pledged, despite all the contretemps with Venezuela, to maintain flows of gas to Venezuela through pipeline opened this January at reduced rates.

8. Simon Romero at the New York Times has more on this story, with the US expelling the Venezuelan Ambassador and declaring that the top two intelligence officials in Caracas were involved in FARC operations in Colombia. Sanctions are being considered, I believe.

9. Hurricane Ike appears to have nudged a little north, satellite courtesy the NOAA:



It is a category 2 now. A bunch of refineries have shut down in response. As a result, the cash market is heading north, while the futures market is heading south, as per The Barrel at Platts. Expect higher prices at the pump.