Daily Sources 7/16

1. CHINESE MONEY SUPPLY GROWTH 28.5% YOY IN JUNE, CHINA PUBLISHES DATA CLAIMING 7.9% GDP GROWTH, REVISITS "MADE IN CHINA" CAMPAIGN

Yesterday, Macro Man called out Prime Minister of China, Wen Jiabao, for having spurred China's M2 growth to 28.5% year over year, asked whether he deserves the moniker "Helicopter Wen" more than Ben does. He asks:

"Unfortunately, in an act reminiscent of Gordon Brown Stalin, the early 90's data has been wiped from the historical record. A cynic might suggest that this is because China's leadership doesn't want to remind people that one upon a time, money growth was this high and it didn't end well. Judge for yourselves."

Today, the National Statistics Bureau published new figures showing that Chinese GDP growth was 7.9% in the second quarter from the year previous, up from the growth of 6.1% in the first quarter, per Terence Poon and Andrew Batson at the Wall Street Journal.

"Also Thursday, the finance and economic committee of the National People's Congress, China's legislature, warned that the government must prevent the "extraordinary growth" of credit that could lead to inflation risks and problems for the financial system. It said China should strengthen credit checks and prevent a rebound in bad loans. The committee includes influential members but doesn't have a role in setting economic policy.

The People's Bank of China has already started to take some measures to fine-tune the rapid flow of credit. On Thursday, the central bank used its weekly sale of three-month bills to continue to guide money-market interest rates higher for the third straight week."

The Economist notes:

"In the year to June fixed investment surged by 35%, car sales rose by 48%, and purchases of homes by more than 80%. After falling last year, home prices are now rising briskly in some big cities, and share prices have soared by 80% from their November low. Domestic spending has been spurred partly by the government’s stimulus package, but probably even more important was the scrapping of restrictions on bank lending late last year. In June new lending was more than four times larger than a year earlier."

The Economist notes that the importance of property to domestic demand means it is unlikely that Beijing will clamp down too hard on the lending. In the meantime, Carlos Tejada at the China Journal reports that China is revisiting plans to launch a "Made in China" campaign.

2. WORLD BANK WARNS OF DEFLATION ON EXCESS INDUSTRIAL PRODUCTION

Ambrose Evans-Pritchard at the UK Telegraph reports that the chief economist at the World Bank, Justin Lin, in Cape Town recently warned that excess industrial capacity will cause a deflationary spiral unless it is addressed.

"Mr Lin said capacity use had fallen to 72% in Germany, 69% in the US, 65% in Japan, and as low as 50% in some developing countries, mostly touching lows not seen in modern times."

Lin suggests that competitive devaluation will have little productive effect in this environment, saying:

"No country can count on currency depreciation and exports as a way out of recession. Unless we deal with excess capacity, it will wreak havoc on all countries. There is urgent need for global, co-ordinated fiscal stimulus."

(h/t Yves Smith at naked capitalism.)

3. UK SETS GOAL OF 40% RENEWABLE SOURCE FOR ELECTRICITY GENERATION BY 2020

Selina Williams at the Wall Street Journal reports that the UK has set as its goal sourcing 40% of its electricity generation from low carbon energy sources by 2020, with fully 30% to come from wind power, wave and tidal energy and other renewables. The other 10% is to be from coal-powered plants with carbon capture technology and nuclear. (As of 2006, per the IEA, nuclear power generation accounted for 18.6% of total electricity supply in the UK. Coal accounted for 37.5%. All renewables accounted for 6.1%.)

"'Renewables, nuclear, clean fossil fuels, as this plan sets out, are the trinity of low carbon and the future of energy in Britain,' [Energy and Climate Change Secretary Ed] Miliband said yesterdat. 'All of them should be part of our future energy mix.'

The government wants the power sector to be almost completely free of carbon emissions by 2050 as it strives to meet a commitment to cut overall emissions by 80% by 2050. The UK has already cut its emissions by 21% since 1990."

4. TURKEY INCREASES FUEL AND RESTAURANT TAXES, REDUCES BENCHMARK INTEREST RATE TO 8.25%

Delphine Strauss at the Financial Times reports that Ankara yesterday announced that it would raise taxes on petroleum products and restaurants with immediate effect. The new taxes will add roughly 8% to prices at the pump and between 8 and 18% at high end hotels and restaurants.

"'The government is speeding up its efforts to tighten fiscal policy,' said Yakin Cebeci, economist at JPMorgan, estimating the measures could improve budget performance by 0.8% of GDP within 12 months.

Stimulus packages and a spending splurge before local elections in the spring have led to a rapidly widening budget deficit. Figures published on Wednesday by the finance ministry showed a deficit of 23.2bn lira ($15.2bn) in the first half of the year, compared with a surplus of 1.9bn lira in the same period of 2008."

Effective tax collection has been a point of dispute at the IMF in terms of approving a new financing package for Ankara. Meanwhile, Steve Bryant at Bloomberg reports that the Turkish central bank today cut its benchmark interest rate by half a point to 8.25%, it's ninth consecutive monthly cut, indicating that further cuts may be in the works.

"The inflation rate reached a 39-year low of 5.2% in May, before rising to 5.7% last month, a pick-up the central bank says will prove temporary. The bank’s target for this year is 7.5% and its most recent survey of economists and businessmen forecast a year-end rate of 6%.

'Inflation will remain at low levels for a long time,' the bank said in today’s statement."

"Industrial output fell 17.4% in May, extending a decline that drove a record 13.8% contraction in gross domestic product in the first three months of the year."

5. PRESIDENT OF ABKHAZIA SPEAKS OF RELATIONSHIP WITH RUSSIAN RAILWAYS JUST AFTER EBRD LOAN

In light of the EBRD's recent decision to make a $500 investment in Russian Railways, the following portion of a Der Spiegel interview of the President of Abkhazia, Sergei Bagapsh, might be of some interest:

"SPIEGEL ONLINE: There are Russian military bases in Abkhazia, Russian troops guard your external borders, and your currency is the ruble. And, then, you want the Russians to manage your railways for 10 years. Is it possible that you're getting just a little too dependent on Russia?

Bagapsch: We are dealing with the Russian railways because we have to modernize our own. We would be equally pleased to deal with the German railways if they were interested. In any case, there are no completely independent nations in this world. Liechtenstein is dependent on Switzerland, Luxembourg on France. We are all dependent on one another. Georgia is dependent on America; we are on Russia."

6. LOCKHEED MARTIN INDIA CEO STEPS DOWN AMIDST ESPIONAGE SCANDAL, WILL US, AUSTRALIA, INDIA AND JAPAN JOINTLY OPERATE AIR CRAFT CARRIERS IN RESPONSE TO CHINESE CONSTRUCTION OF 6?, INDIA SELECTS 2 SITES FOR US COS TO BUILD NUCLEAR POWER PLANTS

Ajai Shukla at the Business Standard reported on Monday that

"Ambassador Douglas A Hartwick, Lockheed Martin India’s CEO, who was spearheading the world’s largest defense manufacturer’s campaign to sell India the F-16 IN medium fighter aircraft, was withdrawn from India in an unusual hurry."

According to Indian Defense Ministry sources, Hartwick was removed as CEO of Indian operations after the company was discovered to be in possession of classified information regarding defense purchases. Meanwhile, Manu Sood at 8ak recently interviewed US historian Jason Verdugo on the possibility of the Quadrilateral Initiative (or Quad) countries (the US, Australia, India, and Japan) jointly operating the recently decommissioned US aircraft carrier--the USS Kitty Hawk--on the recent news that China has been secretly constructing six aircraft carriers. (I am indebted to Galrahn at Informed Comment for both of these items.) Meanwhile, Amol Sharma at the Wall Street Journal reports that India has selected two sites on which US companies could build nuclear power plants, which will be announced when Secretary Clinton arrives in the country next week.

"The two countries may also use Mrs. Clinton's trip to announce completion of an agreement for the US to track sales of defense equipment and ensure it is used for its stated intent, according to people familiar with the matter. That 'end-use monitoring' agreement will be crucial, experts say, as US companies compete for major contracts such as India's plans to purchase 126 fighter jets at an estimated cost of $11 billion.

A spokesman for India's Ministry of External Affairs said that some agreements will 'naturally' be finalized between the US and India during Mrs. Clinton's trip but declined to elaborate."

7. INDIA AND PAKISTAN AGREE TO INTELLIGENCE SHARING ON BACK OF AL QAEDA CALL FOR GENERAL REVOLT AGAINST ISLAMABAD

Rama Lakshmi at the Washington Post reports that the prime ministers of India and Pakistan met for two hours on the sidelines of a Non-Aligned Movement meeting in Cairo after which released a joint statement in which they agreed to share "real-time, credible and actionable" information on terrorist activities.

"[T]he text of the jointly agreed statement on Thursday said that 'action on terror should not be linked to the composite dialogue process and these should not be bracketed' and that 'terrorism is the main threat to both countries.'"

The statement follows the call by Al-Zawahiri, a key figure in al-Qaeda, for cooperation in its attacks on Pakistani interests, suggesting that the current government is actually in the employ of the US Ambassador. Juan Cole at Informed Comment posts the entire text per the Open Source Center's translation--note that it includes the nationalist refrain that "the West" seeks to break the country up:

"In Pakistan in particular, the Crusade aims at eradicating the growing jihadi nucleus in order to break up this nuclear-capable country, and transform it into tiny fragments, loyal to and dependent on the neo-Crusaders."

This seems increasingly desperate to me and that this particular band of extremists have worn out their welcome in Pakistan.

8. IRAN'S 12 YR CHIEF OF ATOMIC ENERGY ORGANIZATION--FORMERLY 12 YRS AS OIL MINISTER--LINKED TO MOUSAVI STEPS DOWN

BBC News reports that Gholam Reza Aghazadeh, the head of Iran's Atomic Energy Organization, has resigned.

"Mr Aghazadeh is a veteran official who served in the 1980s as a deputy to Mir Hossein Mousavi--the defeated candidate in Iran's disputed presidential elections last month.

In 1985 he began a 12-year stint as oil minister, staying in the post during the presidency of Ali Akbar Hashemi Rafsanjani.

He then moved to his job at the head of the atomic agency in 1997 under the reformist former president, Mohammad Khatami.

He continued in the post when Mr Ahmadinejad was first elected in 2005."

9. IRAQ'S OIL EXPORTS UP ON INCREASED NORTHERN PRODUCTION (STILL SIGNIFICANTLY BELOW PRE WAR PRODUCTION)

Faleh al-Khayat at Platts reports that Iraq's total oil exports rose by 19 kb/d in June to 1.925 mb/d.

"Exports from northern fields rose to 528 kb/d in June, a post-war record and 7 kb/d higher than May exports.

The ministry did not say if the figure for the north included exports from the Tawke and Taq Taq fields in Iraqi Kurdistan, which began exporting crude oil on June 1."

"Production from southern oil fields rose slightly to 1.794 mb/d from 1.759 mb/d in May.

Although this increase is a continuation of the recent improvement in production from the south, the rate achieved is still 161 kb/d below the 1.955 mb/d produced in July last year.

The steep decline in production from southern fields since last July lies behind recent escalation in criticism of oil minister Hussein al-Shahristani and led to his summons by parliament to answer questions about oil policy."

10. VIOLENT CLASH BETWEEN STATE GOVT BACKERS AND NATIONAL GUARD IN TOWN EAST OF CARACAS

Christopher Toothaker at the Associated Press reported yesterday that hundreds locals in a small town east of Caracas by the name of Curiepe reacted to the National Guard seizing a police station controlled by an elected figure from the opposition by massing outside it and hurling rocks, bottles and Molotov cocktails at the troops.

"The conflict began shortly before dawn when about 40 soldiers from the National Guard tossed tear gas canisters at the police post, forced officers to leave and took over the building, said Elisio Guzman, director of the Miranda state police. He contended the troops were following orders from the mayor."

"As the conflict wound down later Wednesday, Adriana D'Elia, a Miranda state government representative, said state authorities agreed to move their police to another building after meeting with the municipality's pro-Chávez mayor, Liliana Gonzalez."

11. FORECLOSURES UP 15% YOY IN 1H 2009, INITIAL UNEMPLOYMENT INSURANCE CLAIMS AT HALF MILLION

Barry Ritholtz at the Big Picture links to RealtyTrac's country-wide county foreclosure map, noting that

"1,905,723 foreclosure filings were reported on 1,528,364 US properties in the first six months of 2009, a 9% increase in total properties from the previous six months and a nearly 15% increase in total properties from the first six months of 2008."

Meanwhile, Reuters reports that initial jobless claims for state unemployment were a seasonally-adjusted 522,000 in the week ended July 11, 47,000 fewer than what was seen in the previous week, per the Labor Department.

"Continued claims of people still on jobless aid after an initial week of benefits fell to 6.273 million in the week ending July 4, the latest for which data is available.

It was the lowest reading since April and the largest one-week decline on record. Analysts had forecast continued claims would decline to 6.85 million."

12. US OIL IMPORTS DOWN 7.6% IN 1H 2009 YOY, JET FUEL IMPORTS HALVED

Robert DiNardo at Platts reports that US imports of crude oil and petroleum products fell in the first half of 2009 by 7.6% from the first half of 2008 to 12.048 mb/d, per the American Petroleum Institute's monthly statistical review.

"Crude oil imports in June were down by 12.2% at 8.754 mb/d from 9.974 mb/d in June 2008. For the January-June period, crude imports were down by 6.2% at 9.191 mb/d versus 9.801 mb/d in the prior period, according to API's estimate.

Product imports in June were also mostly lower. For instance, imports of gasoline fell by 27.5% from a year earlier to 981 kb/d from 1.353 mb/d."

Jet fuel imports collapsed, falling 57% to 39 kb/d in June from 91 kb/d in June 2008.

Daily Sources 6/16

1. IRAN PROTESTS CONTINUE, AHMADINEJAD LEAVES FOR EKATERINBURG, RUSSIA

Protests are continuing. The most interesting data point to me is that President Ahmadinejad either felt the situation secure enough or irrelevant enough to leave the country to observe the goings on at the Shanghai Cooperation Organization's summit today in Ekaterinburg, Russia, per Vladimir Isachenkov at the Associated Press. Will try and put up another post on the ongoing situation a bit later today.

2. MOODY'S DOWNGRADES THE FINANCIAL STRENGTH RATINGS OF 30 SPANISH BANKS, INCLUDING SANTANDER

Izabella Kaminska at FT Alphaville reports that Moody's downgraded the senior unsecured debt and deposit ratings of 25 Spanish banks today, 18 by one notch and seven institutions by two notches.

"At the same time, Moody’s downgraded the Bank Financial Strength Ratings of 30 banks. Among these banks, the rating agency downgraded the dated subordinated debt of 17 institutions, the junior subordinated debt of eight institutions, and the preference shares of 14 banks.

'The rising pressure that many Spanish banks face from a sharp deterioration of their asset quality is reflected in their stand-alone financial strength ratings, a third of which now fall at a “D-” level or lower,' said Maria Cabanyes, a Senior Vice President at Moody’s. 'However, the moderate downgrade of these banks’ senior ratings reflects our expectation that government support would be forthcoming for these institutions should such support become necessary.'"

3. CHINA PROMISES $10 BILLION IN LOANS TO MEMBER STATES OF SCO TO HELP THEM WEATHER ECONOMIC CRISIS, MEDVEDEV CALLS UPON SCO MEMBERS TO SETTLE BILATERAL TRADE IN DOMESTIC CURRENCIES


Lyubov Pronina and Lucian Kim at Bloomberg report that Chinese President Hu Jintao offered to lend $10 billion to member states of the Shanghai Cooperation Organization [SCO] so they might better weather the financial crisis. Jintao made the offer at the regional organization's summit in Yekaterinberg, Russia, today. The other members of the SCO are Kazakhstan, Kyrgyzstan, Tajikistan, Uzbekistan, and Russia.

"Russian President Dmitry Medvedev is hosting back-to-back summits of developing economies in Yekaterinburg, in the Ural Mountains that divide Europe and Asia, as he seeks to lessen the world economy’s dependence on the US dollar. Medvedev and Hu will hold talks later today with Indian Prime Minister Manmohan Singh and Brazilian President Luiz Inacio Lula da Silva in the first summit of so-called BRIC nations.

Hu called for greater coordination among Shanghai members on monetary policy, including regular meetings of finance ministers."

Medvedev reportedly encouraged China and the other SCO members today to conduct bilateral trade in their domestic currencies as opposed to the dollar. He further said,

"There can be no successful global currency system if the financial instruments that are used are denominated in only one currency. Today this is the case and the currency is the dollar."

4. RUSSIA VETOES CONTINUATION OF UN PEACEKEEPING MISSION IN ABKHAZIA, GEORGIA

John Heilprin at the Associated Press reports that Russia has exercised its veto power at the UN Security Council in order to put an end to the 16 year old UN mission to Georgian breakaway region Abkhazia.

"'It is understandable,' Russia's Foreign Ministry said in a statement Monday, 'that in the new political and legal conditions most of the names and terms previously used in the old documents are inapplicable.'"

What the ministry means is that now Abkhazia is recognized by Moscow as a new state, altogether independent of Georgia. Clearly the move will hurt Saakashvili's political chances, the government is currently bedeviled by constant popular opposition protests.

5. INDIAN PM AND PAKISTANI PRESIDENT MEET IN EKATERINBURG

Vladimir Isachenkov at the Associated Press reports that Indian Prime Minister Manmohan Singh met with Pakistani President Asif Ali Zardari met for talks behind closed doors in Yekaterinberg today for the first time since the Mumbai terror attacks of last year.

"'My mandate is to tell you that Pakistani territory should not be used for terrorism against India,' Indian and Russian news agencies quoted Singh as saying after shaking hands with Pakistani President Asif Ali Zardari ahead of their meeting."

Both India and Pakistan have observer status in the SCO.

6. SAMA CUTS REVERSE REPURCHASE RATE BY 0.25% TO 0.25%

The Associated Press reports that the Saudi Arabian central bank, the Saudi Arabian Monetary Authority, or SAMA, has cut its reverse repurchase rate by 0.25% to 0.25%. It is the second reduction made by the fiscal authorities this year.

6. MICRO-POWER IN BANGLADESH MAY HAVE BENEFITS SIMILAR TO MICRO-FINANCE

Shafiq Alam at AFP has an anecdotal account of how Bangladeshis, frustrated by the governments perennial inability to make good on promises to bring the people electricity, have begun installing solar power panels on their homes if they can afford it. One tailor, for example, can now sew well into the night, and has reportedly doubled his income. So, much like micro-finance, micro-power could have the potential to radically transform the lives of many in the developing world.

7. ANALYSTS THINK MEXICO MAY NOT HEDGE OIL FURTHER ... SOVEREIGN MAY HAVE HAD CONSIDERABLE SHARE OF OPEN INTEREST ON NYMEX

Andres R. Martinez and Carlos Manuel Rodriguez at Bloomberg report that some analysts think that Mexico might not hedge the price of oil going forward. The interesting data point, to me, was that Mexico spent $1.5 billion to buy the option to sell crude oil at $70/b. Apparently it has hedged a total of 330 million barrels for the whole of 2009. That is 330,000 contracts on NYMEX, or over 12.7% of total open interest on both futures and options for light sweet crude for the week ended June 9, as per the commitment of traders report.

8. ABERDEEN ASSET MGMT SAYS CORREA PLAYED MARKET FOR FOOLS

Lester Pimentel at Bloomberg reports that Edwin Gutierrez at Aberdeen Asset Management Plc recently said the Ecuadorian President

"'played the market for fools' by defaulting on $3.2 billion of debt six months ago and then repurchasing the bonds at less than 40 cents on the dollar."

"'Ecuador won,' Edwin Gutierrez, who manages $5 billion at Aberdeen and sold his Ecuador holdings before the default, said in a telephone interview from London. Correa’s government 'played the market for fools. Remind me never to play poker with that guy,' he said.

Correa, a 46-year-old economist who counts Venezuelan President Hugo Chavez as one of his closest allies, halted payments on the bonds because he said they were issued illegally. He called the bondholders 'true monsters who won’t hesitate to crush the country' when he announced the default on Dec. 12 and said in a national radio address the next day that he wanted to force them to accept a 'big discount.'"

Ecuador stopped making payments on its sovereign debt on December 12 and later in that month pressured its social security system to purchase $1.2 billion in new bonds--see Daily Sources 12/29 #14. Ecuador currently uses the US dollar as its currency.

9. HOUSING STARTS AND PERMITS DOWN 45.2% IN MAY FROM YEAR PREVIOUS, UP 17.2% FROM APRIL

Barry Ritholtz at the Big Picture reports that housing starts and permits increased in the month of May from April with Starts at 17.2% (±14.4%) and Permits at 4.0% (±1.7%)--ie, both above the statistical margin of error. However, "The stunning news was the 45.2% (±5.8%) collapse below the May 2008 rate. That is simply an unbelievable free fall."

Daily Sources 6/2

1. EUROZONE UNEMPLOYMENT ENDS UP STILL BEING HIGHER THAN U.S. UNEMPLOYMENT, CLIMBING TO 9.2% IN APRIL

Ralph Atkins at the Financial Times reports that unemployment in the eurozone grew to a seasonally-adjusted rate of 9.2% in April, 0.3% more than the number for the US. In May many analysts had expected the unemployment rate in the eurozone to fall below the rate in the US for the first time--see Daily Sources 5/22 #9.

"The impact of lengthening jobless queues on demand in coming months is a main reason why economists expect the eurzone’s economic recovery to remain weak for a protracted. 'The eurozone recession may be past its peak, but for the labor market the worst is yet to come,' said Martin van Vliet at ING in Brussels.
...
European policymakers will also be alarmed by the rise in youth unemployment. In April, some 18.5% of the labour forced aged under 25 were without a job--up from 14.7% a year before."

2. AGREEMENT BETWEEN SPANISH RULING SOCIALISTS AND CONSERVATIVES TO REIN IN "UNIVERSAL JURISDICTION" CASES

Helene Zuber at Der Spiegel reports that the ruling Socialists in Spain have an agreement with conservatives in order to rein in the Audencia National--or National Court--of Spain which has been the court to which human rights plaintiffs could file cases under the principle of "universal jurisdiction." The agreement basically requires that there be some tie to Spain in order for the court to claim jurisdiction:

"The accused will have to be arrested in Spain, a victim will have to be a Spaniard, or there will have to be some other decisive connection to Spain before the court will be allowed to proceed. There will also have to be proof that no other national court system has taken up a given case."

The move clearly comes from international pressure, especially after Baltasar Garzón went ahead with plans to investigate six advisers to President George W. Bush for human rights violations that took place in Guantanamo Bay. In April Spanish prosecutors formally recommended that Baltasar Garzón--famous for his case against the former dictator of Chile, Augusto Pinochet--should not oversee any investigation into the six--see Daily Sources 4/17 #3. But pressure is also coming from Israel and China.

"Beijing has brusquely rejected a petition by [Spanish Justice Santiago] Pedraz to interrogate [ministers accused of [a "systematic attack on the people of Tibet] at home. The Madrid justice would be arrested immediately if he traveled to China, the government threatened. The Chinese foreign ministry warned the Spanish government--which is interested in good trade relations--not to meddle in China's internal affairs or to support the Tibetan separatists."

The Spanish senior judiciary is also reportedly uncomfortable with the potential consequences of asserting universal jurisdiction:

"'We cannot become the world's judicial gendarme,' said Carlos Divar, chief justice of the Spanish Supreme Court and chairman of an internal watchdog body that oversees Spanish courts. 'Who are we to pass judgment in foreign countries when we have so much to deal with at home?' said the man who until recently was president of the Audiencia Nacional and disapprovingly witnessed his judges' ardor for pursuing foreign cases. His successor, Angel Juanes, also wants to see more consideration for 'national interests' in the court's behavior."

Well worth reading in full.

3. POLAND SIGNS N.G. SUPPLY DEAL WITH GAZPROM, MAY SIGN DEAL THROUGH 2022

Patryk Wasilewski at Reuters reports that Polish gas delivery monopoly PGNiG concluded a deal with Gazprom for natural gas today after which supply was fully restored.

"Poland uses around 13-14 billion cubic metres of gas annually and imports about two-thirds of it from Russia.

Now that the short-term deal is signed, the government will press for a quick intergovernmental agreement with Russia, a necessary prerequisite to secure natural gas deliveries past 2009 when the PGNiG's deal with RosUkrEnergo runs out.

Poland may even agree to sign a deal with Russia until 2022, about eight years past the planned completion of the government's largest energy diversification project--the liquefied natural gas terminal, the economy minister said.

'It is easier to deal with a small surplus than shortage. From that point of view I don't see extension of the deal until 2022 as a problem,' Waldemar Pawlak told a press conference."

4. CHINA TO OPEN ANTI-DUMPING INVESTIGATION INTO RUSSIAN AND U.S. STEEL COMPANIES; STUDENTS LAUGH AT SECY GEITHNER'S ASSERTION THAT THEIR ASSETS ARE SAFE, BUT BEIJING REITERATES THAT U.S. AND CHINA NEED TO COOPERATE TO DEAL WITH CRISIS

Kris Maher at the Wall Street Journal reports that the Chinese Ministry of Commerce on Monday said that it was opening an anti-dumping investigation into US and Russian steelmakers to see if they "sold a specialized type of flat-rolled steel used in electrical transformers below market value." The ministry was also beginning an investigation into US state and federal subsidies of the industry. The case follows an April case filed in the US by steelmakers and United Steelworkers alleging Chinese dumping into the US market of types of tubular and steel pipe used in oil drilling.

"[S]ome analysts said they believe the move by the Chinese government is an effort to sway the US Trade Commission in deciding the April case. 'This is political,' said Michelle Applebaum of Steel Market Intelligence in Chicago. Ms. Appelbaum also said she believes the filing was timed to Mr. Geithner's visit to Beijing. 'I think the timing is very heavily influenced by Geithner being there.'"

Meanwhile, in addressing a student question after his speech at Peking University, Secretary Geithner said, "Chinese assets are very safe," per Glenn Somerville at Reuters. The student audience reportedly broke into loud laughter at the assurance.

"But later in the day, Chinese Vice Premier Wang Qishan said it was important for the two nations to show the world they are working together through their joint economic dialogue.

'We must through our dialogue send a clear signal that China and the US are engaged in practical cooperation to address the crisis,' Wang told Geithner, according to the Chinese Foreign Ministry's website (www.mfa.gov.cn).

'This is important for boosting confidence and encouraging global financial stability and economic revival,' said Wang."

The statement more or less mirrors the key message of Geithner's speech--see Daily Sources 6/1 #1.

5. U.S. TO SELL BUNKER BOMBS TO SOUTH KOREA, KIM JONG IL NAMES THIRD SON SUCCESSOR

Malcolm Moore at the UK Telegraph reports that an unnamed South Korean military official told the media that the US had agreed to sell bunker buster bombs to Seoul for delivery between 2010-4.

"The laser-guided GBU-28 bombs were first used in 1990 during the Gulf War to destroy underground command centers in Iraq.

The 19-ft-long, 5,000lb bombs can penetrate over 20ft of concrete and 100ft of earth and could be used to target North Korea's intricate system of military bunkers and a series of munitions tunnels along the border."

(h/t Joshua Keating at FP Passport's Morning Brief.) In the meantime, Blaine Harden at the Washington Post reports that the dictator of North Korea, Kim Jong Il, has chosen his third son, Kim Jong Un, as his successor.

"If Kim Jong Un does become the new leader--and there are analysts who doubt the decision is final--this second consecutive father-to-son handoff would be unique among nations that call themselves communist. There was no indication, however, that Kim Jong Il would be handing over power any time soon."

Some analysts have tied the recent behavior by Pyongyang to the question of succession there, given reports that Kim Jong Il is not well. The transition of power is often pointed to by political scientists as a structural weakness in autocratic systems.

6. SARKOZY TO MEET WITH IRANIAN FOREIGN MINISTER TOMORROW IN PARIS, THE U.S.D.O.S. O.K.S CONSULATE AND EMBASSY INVITATIONS TO IRANIAN GOV'T REPS FOR 4TH OF JULY CELEBRATIONS

Emmanuel Jarry at Reuters reports that French President Nicolas Sarkozy will meet with Iran's foreign minister Manouchehr Mottaki on Wednesday in Paris.

"Bilateral encounters at such a senior level between Iran and one of the countries involved in the nuclear issue are highly unusual. It will be the first time Sarkozy has met a top Iranian minister since he took office in 2007."

Meanwhile, Mark Landler at the New York Times reported yesterday that the State Department Friday sent out a cable to its consulates and embassies notifying them that they may invite representatives of the government of Iran to their fourth of July celebrations. Though some might dismiss the move as merely symbolic, a public reminder that the US has an anti-colonial past (and much of American engagement in the Middle East has been historically anti-colonial) is sly, in my opinion, given the ideological framework behind the Islamic Republic of Iran--see Law and Revolution in Iran.

7. SYRIAN KURDS SEE IRAQI KURDISH REGION AS SAFE HAVEN DESTINATION

Karlos Zurutuza at the Iraq Oil Report reported yesterday that Iraq's Kurdish region is becoming a destination for Syrian Kurds denied full citizenship rights by Damascus.

"Since 1962 Syria has classified Kurds as ‘Syrian Kurds’, ‘foreign Kurds’ and ‘concealed Kurds,’ only granting ‘Syrian Kurds’ full domestic rights and Syrian nationality. The remainder, who number an estimated 200,000, are registered as foreigners and live without domestic citizenship rights."

The relative security provided by the Kurdish Regional Authority inside Iraq's Kurdish region has made it into a refugee destination for Arab Sunnis and Shias as well Kurds from other parts of Iraq as well as other neighboring countries, including Turkey and Iran.

8. FORMER SAUDI INTELLIGENCE CHIEF SAYS KILL OSAMA BIN LADEN, DECLARE VICTORY, AND "GET THE HELL OUT" OF AFGHANISTAN, OFFERS TO HOST TALKS; OPEC SAYS PRICES NOT DRIVEN BY FUNDAMENTALS

Jeff Stein at Spy Talk reported yesterday that former Saudi intelligence chief, Prince Turki al-Faisal, said in an interview with the columnist that the US should kill Osama bin-Laden and then "get the hell out" of Afghanistan.

"Turki, who was also Saudi ambassador to the United States from 2005 to April 2009, likened al Qaeda to a 'cult' and its leader to a 'hydra head with venomous snakes.'

To destroy the cult, he said, 'you have to cut off the head.'

'After that,' he advised, 'declare victory...then get the hell out of Afghanistan.'"

Turki said that no one would be able to get all the jihadis, but that it was important to take out bin-Laden, who has become iconic. In an interview with NPR noted by Stein, Turki dismissed the issue of creating a martyr:

"So if he is eliminated there will be no more something to look up to. And the issue of a martyr, that some people say is there, is less attractive than having someone living and doing things and surviving the efforts to eliminate him."

Turki said that Afghanistan could not be fixed by NATO and US forces. He also indicated that Riyadh would be happy to host peace talks between the Karzai government and the Taliban, but would not mediate between them. Well worth reading in full. Meanwhile, Kate Dourian at Platts reports that OPEC's chief economist, Hassan Qabazard, said at the World National Oil Companies Congress in Abu Dhabi:

"Prices are being affected more by non-fundamentals rather than by fundamentals. ... I think personally prices for the fundamentals that we see today are quite high and that is due to the inflow of investment funds into the market ... we see much more long positions by investors now in the market who are expecting a higher price."

Qabazard indicated that he thought stocks of oil would be unloaded as the contango narrows and that prices may fall, as they "are going up too fast."

9. LAHORE HIGH COURT RULES INSUFFICIENT EVIDENCE TO HOLD SUSPECTED MUMBAI TERROR MASTERMIND

Griff Witte and Rama Lakshmi at the Washington Post report that the Lahore High Court ruled today that there was insufficient evidence to continue the house arrest of Hafiz Sayeed, founder of Lashkar-i-Taiba, and who is suspected of being a mastermind behind the Mumbai terror attack.

"In India, officials expressed deep displeasure.

'We are unhappy that Pakistan does not show the degree of seriousness and commitment that it should to bring to justice perpetrators of the Mumbai terror attack,' Indian home minister P. Chidambaram told reporters in New Delhi."

Government prosecutors said that they would appeal the court's decision.

10. CHINA OFFERS $3 MILLION IN HUMANITARIAN AID FOR DARFUR REGION

The AFP reports that China's special envoy to Darfur, Liu Guijin, met with Sudan's President, Omar al-Bashir, and pledged $3 million in humanitarian aid to the region. Mr. Liu was in Khartoum to talk with al-Bashir at the start of a new round of talks with the Justice and Equality Movement (JEM)--the main Islamist rebel group in Darfur. The AFP reported in late May that the US special envoy to Sudan, Scott Gration, in Qatar met with Mr. Liu in the first ever meeting of the Darfor envoys of the permanent members of the UN Security Council, and said of the meeting that it was very "positive"--see Daily Sources 5/28 #1.

11. CANADIAN OIL SANDS PROJECTS MAY COME BACK ON LINE WITH RETURNS AVAILABLE AT $60/B

Scott Haggett at Reuters reports that Andrew Potter of UBS Securities has released a report which suggests that many Canadian oil sands projects mothballed due to high labor and material costs in combination with low oil prices may now be re-started on falling labor and material costs.

"More than C$90 billion ($83 billion) worth of oil sands projects were delayed, deferred or canceled after prices plunged, freeing up a squeezed skilled-labor pool, boosting productivity and increasing the availability of contractors.

'Developers are likely to see vastly improved labor productivity and lower labor costs as fewer workers are required to execute long-term oil sands growth,' Potter wrote in his report."

Potter estimates that many projects now require $60/b oil to be profitable, versus estimates last year ranging from $80-100/b.

12. MEXICAN REMITTANCES FROM THE U.S. DECLINE BY 18.7% IN APRIL YOY

Elisabeth Malkin at the New York Times reports that remittances by Mexican workers in the US home have fallen by nearly 18.7% in April from a year previous to $1.8 billion, according to the Bank of Mexico. Remittances have been Mexico's second largest sources of foreign exchange, with oil being the largest. They are roughly equivalent to foreign direct investment with tourism taking the fourth spot.

13. PENDING HOME SALES INCREASE 6.7% MOM, 3.2% YOY

The Associated Press reports that the National Association of Realtors released its index of home sales which show a 6.7% increase in pending sales in April from March, and a 3.2% increase from the year previous.

"The big jump probably reflects the impact of a new $8,000 tax credit for first-time homebuyers that was included in the economic stimulus bill signed by President Obama in February. Since buyers need to finish their purchases by Nov. 30 to claim the credit, 'we expect greater activity in the months ahead,' Lawrence Yun, the Realtors’ chief economist, said in a statement."

14. FORD'S CAR SALES UP 20% IN MAY FROM APRIL, DOWN 24% YOY

Nick Bunkley at the New York Times reports that Ford's sales in May were up 20% from April, and down 24% from the year previous.

"Ford is the only Detroit automaker that has not entered bankruptcy, after General Motors filed for Chapter 11 protection on Monday and Chrysler did so a month ago. They and other automakers were scheduled to report their May sales figures later Tuesday.

Through April, auto sales in the United States were down 37% this year, as the economic recession deters many consumers from buying a new car or truck."

Daily Sources 4/15

1. GERMAN BLOG SUGGESTS THAT GERMAN Q1 GDP MAY HAVE DECLINED BY AS MUCH AS 11.5% AND THE DEBATE ON WHAT NEXT AT THE ECB APPEARS TO HEAT UP

Eurointelligence reports that Herdentrief extrapolated from recent data that German GDP may have fallen by an annual rate of 11.5%.

"This estimate is based on the available data for January and February, and the data for employment and inflation for February, which he explains in a very detailed calcuation. Q2 will start with a huge inventory overhang. The recession, he concludes, is on the verge of turning into a depression."

Joellen Perry at Real Time Economics reports that ECB governors appear to be at odds with each other over whether or not to cut interest rates below 1% (they are currently at 1.25%) as well as whether to engage in "quantitative easing."

"ECB heavyweight Axel Weber, who heads Germany’s central bank, launched the latest broadside Wednesday, saying in a speech that he’s 'critical' of lowering the bank’s key rate below 1%. And as ECB policy makers debate new unconventional steps that could be unveiled at their next rate-setting meeting May 7, Mr. Weber said, 'direct interventions in capital markets should take a backseat.'"

2. CHINESE REFINERS TO RUN MORE CRUDE ON SIGNS OF ECONOMIC RECOVERY AS OPEC CUTS DEMAND FORECAST AND RUSSIAN PRODUCTION FALLS

A Platts survey showed that Sinopec plans to run 3% more crude in April from March while PetroChina plans to run 4% more crude in April from March.

"PetroChina's Jinzhou refinery in northeast China's Liaoning province also restarted a 270,000 b/d CDU early April after having shut the unit in December 2008 due to negative profit margins."

In the meantime, foreign investment in China fell 9.4% in March from a year earlier--sharply, but a much slower rate of decline than had been seen in earlier months. Aaron Back and Victoria Ruan at the Wall Street Journal report that the slowing decline prompted the Ministry of Commerce spokesman Yao Jian to call the March data a sign of economic recovery.That said, the numbers, given a sixth straight month in FDI declines, were grim:

"For the full first quarter, China attracted $21.78 billion in direct foreign investment, down 21% from a year earlier, the Ministry of Commerce said.

Foreign investment fell 16% in February from a year earlier and declined 26% for the first two months of this year."

Conversely, Brad Setser at Follow the Money notes that:

"What is clear is that the slowdown in China’s reserve growth has started to translate--as expected--into a slowdown in China’s direct purchases of US assets."

In the meantime, OPEC today cut its forecast for global oil consumption to 84.18 mb/d in 2009, meaning that it expects oil consumption to decline by 1.37 mb/d from its estimate of 2008 consumption, as per Platts.

"With the downward changes to demand estimates outweighing the revisions to the non-OPEC supply forecast, OPEC also reduced the estimated 'call' on its own crude in 2009 to 28.74 million b/d, down from a previous figure of 29.07 million b/d."

As Russian crude exports to the US increase, RIA Novosti reports that overall crude production is down 1.3% year on year for the first quarter and up 0.5% in March from March 2008. And Nick Tattersall at Reuters reports that the situation in Nigeria is heating up as MEND has indicated it will join youth protests, having abducted two British oil workers, and having warned that it would not take responsibility for the safety of Shell employees. MEND emailed a statement to reporters saying:

"We wish to warn that should any MEND camps be attacked, the entire Niger Delta region will become a theatre of another civil war. The same position will be taken if the military carries out any punitive invasion on the impoverished communities that protested against Shell."

MEND attacks cut Nigerian supply to the market last year by as much as 1 mb/d, contributing substantially to the run up in prices.

3. MEDVEDEV GIVES INTERVIEW WITH CRITICAL PRESS, AHMADINEJAD A CONCILIATORY SPEECH--IS TRIANGULATION BEARING FRUIT?

David Nowak and Jim Heintz at the Associated Press report that President Medvedev had his first interview in a Russian print publication known for its criticisms of the Kremlin. The reporters conclude that Medvedev is beginning to establish his independence from Putin and a more open approach:

"Although Medvedev's interview with Novaya Gazeta did not break new ground, it was symbolic. The newspaper has consistently challenged the Kremlin on matters including human rights, freedom of speech and Russia's alleged backsliding on democracy."

The reporters note that Putin never gave an interview to the publication. Though it is far too soon to tell, I think it is fair to say that Russian and US interests are more similar than many US analysts are prepared to admit. I think this is particularly true of Iran--a historical competitor with Russia in the Caspian--and as Medvedev's publicly expressed concern regarding Tehran's satellite launches indicated fairly well--see Daily Sources 3/18 #2.

In the meantime, Associated Press writer Ali Akbar Dareini reports that in a speech in Kerman, President Ahmadinejad said:

"The Iranian nation is a generous nation. It may forget the past and start a new era, but any country speaking on the basis of selfishness will get the same response the Iranian nation gave to Mr. Bush."

Nazila Fathi at the New York Times reports that he also said:

"[The Americans] have said they want to resolve issues through diplomatic channels and we say that this is excellent. ... Our people favor logic, dialogue and constructive cooperation based on respect, justice and rights of nations."

In the speech, Ahmadinejad indicated that Iran was in the process of preparing new proposals "on ways to secure global peace and justice" and the settlement of "settlement of international crises," which is inferred to mean a resolution to the dispute with the West over Iran's nuclear program.

This comes on top of an arrest of a US journalist, her trial for espionage, a planned satellite launch, and accusations leveled against the Dutch for cyber attempts to instigate a color revolution. The Leader of the Revolution [LOTR] is the final arbiter of Iranian foreign policy, not Ahmadinejad, but I suspect that they are feeling a bit squeezed just now.

4. THE COMPELLING INFRASTRUCTURAL ARGUMENT FOR INDIA IS LAW

The judge presiding over the trial of the lone surviving Mumbai terrorist has dismissed the lawyer appointed to handle his case because she had earlier met with a victim of the terror attack to discuss handling the potentially plaintiff's case. Rhys Blakely at the London Times reports that the judge indicated that the trial would resume once a new lawyer had been appointed, "I don't want to appoint a junior or raw lawyer for him." A key feature of the rule of law--as far as I'm concerned--is that it will present the best defense possible for a suspect even in those instances where the general public wants a summary execution, or worse.

"The Indian judicial system has been grappling with the question of Mr Kasab's defence for several months, in the light of the refusal by several lawyers to represent him."

I imagine that the defendants in the Boston Massacre were hard pressed to find representation as well--and only a man of John Adam's stature could take the case. Of course, in the present case it is clear that the suspect is guilty, having been caught on video. Still, the insistence upon as fair a trial as possible under these circumstances represents an infrastructural advantage that India has in its neighborhood.

5. THE US CRITICIZES SWAT DEAL--THE SWAT TALIBANIS SAY THEY WILL NOT GIVE UP ARMS

The Associated Press reports that White House Spokesman Robert Gives criticized the Swat sharia legislation signed into law yesterday, saying:

"The administration believes solutions involving security in Pakistan don't include less democracy and less human rights. The signing of that [deal] . . . goes against both of those principles."

In the meantime, a Swat Taliban spokesman said that the organization would not give up their guns in apparent contradiction to the terms of the Swat deal, according to Kamran Haider at Reuters:

"'Sharia doesn't permit us to lay down arms,' Muslim Khan said by telephone. 'If a government, either in Pakistan or Afghanistan, continues anti-Muslim policies, it's out of the question that Taliban lay down their arms.'"

The details of the Swat negotiating terms have not been made public, but Islamabad officials have told the media that laying down arms was part of the deal. Although human rights and democracy are best, it is hard to understand the US critique insofar as it provides no means by which to enforce the adoption of democracy of human rights. If the politically active people of Swat cannot enforce a desire for such ends, or democratically-speaking, they prefer sharia, there is little that Islamabad can do outside of try and find a compromise or wage full-scale war on its own people. You can lead a horse to water ... well, first you have to actually lead the horse to water.

6. PROMINENT SAUDI NEWSPAPER BANNED IN IRAQ

Al-Hayat, a well-respected Saudi newspaper which also happens to be consulted often by oil analysts to try and determine what Riyadh's stance at OPEC will be, has been targeted for closure in Baghdad by the Iraqi government. Maj. Gen. Qassim Atta, a top military spokesman in Baghdad, announced yesterday that he was filing a lawsuit to shut down the paper's office in Baghdad as well as the satellite signal of Al Sharqiya, a local television station which is critical of the government. Marc Lynch at the Abu Aardvark's Middle East Blog comments:

"That's not a good sign. Reminds me of the bad old days of 2004-2005 when the Iraqi government and MNF-I were routinely attacking the Arab media for fueling the insurgency and the offices of al-Jazeera and other satellite television stations were shuttered. You would think that they would have learned from the experience of banning al-Jazeera, which didn't prevent it from covering Iraqi politics but did reduce the access that officials had to its airtime."

7. THE THAI GOVERNMENT REVOKES THE PASSPORT OF FMR PM THAKSIN

Michael Casey at the Associated Press reports that the Thai government has revoked the passport of former Prime Minister Thaksin Shinawatra.

"'If we believe the person who holds the passport is doing anything that could undermine the security of the nation, then we have the right to revoke the passport,' Foreign Ministry spokesman Tharit Charungvat said. The document was revoked Sunday, he said. The government has already revoked his diplomatic passport."

I think that perhaps the military is now officially anti-Red Shirt, though it's hard to tell from my remove.

8. SHIPPING DATA MIXED

Calculated Risk reports today that the Port of Los Angeles throughput for March is up slightly from February:

"Inbound traffic was 6% below last March and 35% above last month. Outbound traffic was 9.8% below March 2008, and 25% above February."

Calculated Risk notes that the impact of the Chinese New Year may skew the data. I would add that February is 10% shorter than March and thus daily volume numbers are more telling. In the meantime, the Port of Rotterdam released its first quarter throughput numbers, reporting that "94 million tonnes of goods were handled, 10.8% down on the same period of 2008." By weight, container throughput fell by 18% to 22 million tonnes; by TEUs the decline was 16%, to 2.3 million TEUs. Iron ore imports fell by 50% on the collapse in demand for steel.

Rebecca Wilder examines the available import data on a US$-basis, and plots the following chart:



Her post, part of a weekly series looking at the global data, is well-worth reading.

Daily Sources 2/12

1. Rebecca Wilder reports that the US Census Bureau's release today shows that world demand for US exports is shrinking dramatically, and includes a graph demonstrating the decline in the top 12 US export markets:

"This chart illustrates monthly goods (not including services) shipped to the US' top twelve export markets spanning Jan 2000 to December 2008. The obvious export plunge is underway across the US primary export markets. The top six export markets by share are Canada (20% in December), Mexico (11.3%), and China (5.4%), Japan (5.06%), the UK (4.3%), while next six biggest export markets by share are France (2.03% in December), Singapore (2.31%), Belgium (2.35%), Brazil (2.36%), the Netherlands (2.84%), Republic of Korea (2.92%), and Germany (4.25%)."

Worth a look.

2. Salman Masood at the New York Times reports that Rehman Malik, the senior security official in Pakistan's Interior Ministry, gave a televised news briefing today in which he said, "Part of the conspiracy was done in Pakistan ... and I want to assure our nation, I want to assure the international community, that we mean business." Malik indicated that six new suspects had been arrested, including "the main operator," presumably meaning the mastermind or logistical coordinator.

3. David Morgan at Reuters reports that the US is moving military "assets," including naval vessels, into areas near North Korea. This is apparently in response to Pyongyang's possible decision to test-fire another of it missiles. (h/t Galrahn at Information Dissemination.) Meanwhile, State Department acting spokesman Robert Wood in the daily press briefing yesterday seemed to suggest that deliberations over how best to negotiate with Pyongyang regarding the situation would take place via the Six Party framework meeting hosted in Moscow Thursday-Friday next week:

"MR. WOOD: I’d have to refer you to the Russians because they are chair of this Six-Party working group on – I think it’s peace and security in North Asia. But I believe it’s supposed to take place February 19 and 20, but I – we’ll be sending a team.

QUESTION: Do you know who is going to represent the U.S.?

MR. WOOD: Let me see if I’ve got anything on this. Looks like we’re sending Deputy Assistant Secretary of State Alex Arvizu, who will lead – it’s an interagency delegation. And that’s all I have.

QUESTION: And what’s on the agenda?

MR. WOOD: Well, again, I’ll refer you to the Russian Government. But again, it has to do with the Six-Party framework."

The Six Parties are the United States, South Korea, China, Japan, Russia and North Korea.

4. Marlise Simons and Neil MacFarquhar at the New York Times report that the International Criminal Court has issued a warrant for the arrest of the president of Sudan--Omar Hassan al-Bashir. This is the first time the court has ordered the arrest of a sitting head of state. The question, of course, is who, exactly, will carry out the arrest? Although the move will likely be greeted by many as a step forward for justice for the people of southern Sudan being genocided by the Janjaweed, I have to wonder about the efficacy of such a move. Clearly, al-Bashir will remain a welcome visitor to, for example, Beijing. Efforts to negotiate a working long term peace agreement between the fighting parties in Sudan will likely be complicated. That said, apparently a majority of UN Security Council members (who could order the court to suspend its proceedings) think al-Bashir is such a disingenuous interlocutor that there is little point in pursuing a negotiated solution to the ongoing conflict.

5. Jose de Cordoba at the Wall Street Journal reports that a panel of former presidents of Mexico--Ernesto Zedillo, Colombia--César Gaviria, and Brazil--Fernando Henrique Cardos--released a study which argues that the US "drug war" is pushing Latin and South American societies to the breaking point.

"The report warned that the US-style antidrug strategy was putting the region's fragile democratic institutions at risk and corrupting 'judicial systems, governments, the political system and especially the police forces.'

The report comes as drug violence is engulfing Mexico, which has become the key transit point for cocaine traffic to the US."

The panel made a series of recommendations including the decriminalization of marijuana. Obviously the second great Prohibition has been an abject failure and in effect exports instability globally. What the report does not appear to address are the constituents who benefit so hugely from the current drug policy, including, for example, the prison industry just as much as criminal cartels. Politically, ending the drug war would be a very, very big job.

6. Juan Forero at the Washington Post reports that Chávez supporters have destroyed the offices of municipal and regional offices the opposition won in recent elections, as part of an effort to thwart, apparently, their exercise of the authority of those offices. This news comes as Chávez's referendum which would allow him to run for president indefinitely is scheduled to come for a vote again this Sunday.

"In November's elections, for the first time since Chávez took power, opposition candidates scored wins in populous, economically key states and cities. In the days that followed, they began to pay the price.

In the western border state of Tachira, the government-controlled assembly refused to swear in the governor-elect, César Pérez Vivas, for two months. He has since taken office but still does not have control of the police. In Miranda state, the new governor, Henrique Capriles Radonski, saw oversight of hospitals transferred to the state.

No one, though, has faced as many obstacles as [newly elected Mayor of Greater Caracas Antonio] Ledezma, who oversees a $1.2 billion budget and four large municipal districts. Among the frustrated officials is Ángel Rangel, who oversees civil protection operations in Caracas. He said he and his staff found city vehicles, paperwork and computer files missing. And then they were ousted from their offices.

'They destroyed the building, all the contents inside. They destroyed the previous information for the last four years,' he said."

Chris Hawley at USA Today reports that goods are becoming sparse in Caracas markets--probably not due, as Hawley suggests, to a reduction in oil revenues, but perhaps as political punishment for choosing the wrong candidate.

7. Platts reports that Petrobras issued a statement today saying that it would spend $47.8 billion by 2013 on downstream projects as part of its five year plan's budget of $174.7 billion. The plan calls for the construction of six new refineries plus upgrades. The statement also said that its $1.5 10 year bond issue completed yesterday was three times oversubscribed. "The notes, which have a yield of 8.125%, were distributed to over 230 investors."

8. Muklis Ali at Reuters reports that the President of Indonesia, Susilo Bambang Yudhoyono, urged today the national oil company, Pertamina, to build refineries to cut imports of petroleum products. There have been many reports of various national and international oil firms partnering with Pertamina to build refineries, including Iran, China, and--most recently in the news--Royal Dutch Shell via an Indonesian offer made to the Dutch Prime Minister during a visit to Jakarta.

9. Bob Willis at Bloomberg reports that retails sales went up 1% in the month of January.

Daily Sources 2/11

1. Kevin Hamlin at Bloomberg reports that Chinese exports fell by an annualized rate of 17.5% in January while imports fell 43.1% as per the customs office.

"'It’s a very eye-catching trade surplus [of $39.1 billion] and people will ask how it can be so high at a time that everybody else’s economy is suffering,' said Dariusz Kowalczyk, chief investment strategist at SJS Markets Ltd in Hong Kong. 'What’s happening here is really dramatic, underscoring plunging global demand.'"

Brad Setser at Follow the Money notes that historically the correlation between Korean, Japanese, and Taiwanese exports to China and Chinese exports to the rest of the world have been tight. Given that the correlation continues, Setser and CFR colleague Paul Swartz drew up a graph demonstrating that the future looks bleak:



Setser concludes:

"In some sense, it is hard to imagine a worse combination. China’s export are falling, making China understandably reluctant to allow its currency to appreciate. But China’s trade surplus is also rising … certainly in nominal terms and quite possibly in real terms. … At a time when the world is short demand, China seems to be subtracting from global demand not adding to it."

Meanwhile, Yves Smith at Naked Capitalism speculated yesterday that the recent email response by former adviser to the People's Bank of China Yu Yongding to Bloomberg reporter questions that suggests the US should guarantee Beijing's holdings of US sovereign debt represents the government view.Yves comments:

"What is weird is this particular threat is empty. Stop buying Treasuries? Great! The dollar will tank (which is what the Fed should want, the 40% depreciation of the dollar in 1934 played a major role in reviving the US economy) which would hurt China export competitiveness (Stephen Roach, a Morgan Stanley economist who now heads their Asian operations, contends that China needs to devalue its currency. It thus needs to buy even more dollar assets to effect that).

Or this may simply be an effort to blow smoke. 'We want assurances you won't weaken the dollar because it will hurt our FX reserves.' That is one way of dismissing Tim Geither's demand that China quit manipulating its currency, and the result would be that the dollar would fall relative to the yuan.

So this broadside seems either to be a retort to US demands ('you want us to let the yuan rise? Not unless you improve the quality of the guarantees on the paper we hold') or part of a long-term effort to move towards a new currency regime (China resents the way the US has abused its reserve currency standing, and also wants a fixed price currency regime, seeing that as producing more stability, which in turn is more conducive to trade)."

Although Smith's characterization of a non-government official response to an emailed query by a wire reporter as a "demand" seems, well, a tad wound up, I think that at this moment in time there are likely more than a few governments who suspect that Beijing's putative notion of fixed currency regimes would indeed ensure more stability and thus better encourage trade.



As you can see from the graph above, many governments with currencies clearly tied to the fate of oil printed prodigious amounts in order to prevent appreciation and, so I infer, inflation. The reserves so acquired have not been enough to really halt the reverse slide, however. (This is not true of some of the currencies in the Middle East--for example the Saudi riyal--though their foreign exchange reserves must be coming under pressure, even given a shallower market. The situation appears to have been aggravated in Russia by the recipients of government largess using said largess to short the ruble.)

2. Daniel Pimlott and Peter Garnham at the Financial Times report that Bank of England governor Mervyn King said the bank will probably begin quantitative easing next month as the UK economy is in deep recession.

"He was speaking as the Bank unveiled its latest inflation report that suggested inflation will fall to 0.5% and may remain well below the Bank’s 2% target for much of 2010 and 2011."

Quantitative easing is defined a creating money with which to purchase assets. The Bank of England expects the economy to contract throughout 2009, hitting a low of -4% in the second quarter.

3. Bruno Waterfield at the UK Telegraph reports that the paper has been given access to a confidential European Commission document which was discussed by EU finance ministers yesterday warned that estimates of asset writedowns by European banks are large relative to GDP of EU member states.

"In line with the risk, and the weak performance of some EU economies compared to others, investors are demanding increasingly higher interest to lend to countries such as Italy instead of Germany. Ministers and officials fear that the process could lead to vicious spiral that threatens to tear both the euro and the EU apart."

(h/t Jesse's Café Américain.)

4. Christopher E. Smith at the Oil & Gas Journal reports that the Wintershall Chairman, Reinier Zwitserloot, told the CERA conference in Houston yesterday that the likelihood of completing the Nord Stream natural gas pipeline was 100%.

"The Nabucco pipeline could be built, Zwitserloot allowed, but the only realistic supply source is Iran. Gas from Turkmenistan is not crossing the Caspian, he said. It will go instead either to Russia or Iran. Azerbaijani supplies could reach Europe, but that is by no means certain; 'so, your choices for gas from the region are either Iraq or Iran,' Zwitserloot said.

Additional gas from Russia will have to be part of the path forward and will require additional infrastructure. 'The Yamal system is full, full, full,' said Zwitserloot. 'The system through the Ukraine is in very bad condition even without the political problems and will require large investments just to keep capacity from shrinking year by year.' Nord Stream should therefore be seen not as an alternative or bypass route but as a needed additional path for energy supplies to reach Europe, he said."

BASF oil and gas division Wintershall has a 20% stake in Nord Stream, Gazprom holds 51%, E.On Ruhrgas 20%, and NV Nederlandse Gasunie 9%.

5. Upstream Online reports that the Canadian statistics office today posted the country's first trade deficit in 33 years.

"Exports to the US--which takes around 75% of all Canada's exports--dropped by 10%.

'With the real deficit widening as well, Canada's trade sector remains a drag on economic growth,' said Derek Holt and Karen Cordes of Scotia Capital Research.

Finance Minister Jim Flaherty said the deficit was partly due to past strength of the Canadian dollar, but that recent weakness in the currency should help the situation.

'It has a lot to do with the currency,' he told reporters. 'The dollar has adjusted. It will make a difference going forward.'"

6. Garth Theunissen and Paul Okolo at Bloomberg report that interbank currency trading has halted in Nigeria after the central bank there mandated that all foreign exchanges banks are unable to sell within five days of its acquisition must be handed over to the central bank. The central bank also prohibited the banks from buying or selling currencies for more than a 1% price differential from which it auctions dollars to commercial lenders.

"Foreign exchange 'shall be for the use of customers and shall not be used for inter-bank transactions,' the central bank said in a statement on its Web site. It also prohibited banks from buying and selling foreign currency at levels diverging by more than one percent from the rate it auctions dollars to commercial lenders.

'They’ve effectively banned their interbank currency trading market,' Hugman said in a telephone interview. 'This places significant restrictions on the interbank foreign-exchange market.'"

In early December the Nigerian central bank limited sales of US dollars to $100 million from the sales being seen at that time of $800 million (see Daily Sources 12/4 #10.)

7. John Kingston at the Barrel reports that at the CERA meeting in Houston this week, analyst James Placke described the upcoming Iraqi bidding round as "very, very, onerous"--"The Iraqis set the targets, they control the operations and the companies pay the bills." Another CERA analyst, Andy Barrett, thought that 2009 Iraqi production would average around 1.9 mb/d, as against Placke's forecast of 2.3-2.4 mb/d and Platt's estimate of 2.3 mb/d.

8. Walter Pincus at the Washington Post reports that on Monday the Krygyz Parliament decided to delay voting on President Kurmanbek Bakiyev's decision to shut the Manas base until Russia provides the $450 million in aid and loans Moscow promised in a recent meeting.

9. Salman Masood at the New York Times writes that a Pakistani government report was leaked to local television networks allowed that at least 5 of the 10 gunmen in the Mumbai attacks were from Pakistan.

"But officials here have rejected India’s assertions that the assault was conceived and planned inside Pakistan. According to the television networks, the government report says that investigators have concluded that the attacks were planned in a European country and Dubai over the Internet, and that the planners used Bangladesh for logistical support."

My read is that Islamabad is working to prepare its constituents for closer cooperation with the US and India on this matter.

10. Judy Dempsey at the New York Times reports that Jaap de Hoop Scheffer--the secretary general of NATO--said today that the organization will follow international law as it pursues its new strategy of bombing poppy processing plants in order to deny the Taliban those revenues.

11. John Fund at the Wall Street Journal reports that the outgoing CIA director, Michael Hayden, has told the journalist that Mexico represents the second-largest security threat to the US after al-Qaeda. The Western world--and especially the US--exports instability by targeting supply and not consumption. The other solution is to legalize the offending drugs and regulate their production--unlikely, given the political complications, and a longer road to cutting off the export of political instability, given that the illicit drugs would remain illicit elsewhere.

12. Ethan Bronner and Isabel Kershner at the New York Times report that the election results in Israel basically indicate a draw, with some increase in leverage for the far right. Kadima (left) took the most seats so far with 28. The Likud (right) took 27. Far-right Yisrael Beitenu took 15 seats. Labor (left) took 13. The Arabs took 9. Both Kadima and Likud had indicated that they wanted to include Labor in any governing coalition, but the rise of Yisrael Beitenu suggests a sense of embattled-ness in Israel--a further radicalization.

13. Grant Smith at Bloomberg reports that the IEA today cut its forecast for 2009 oil demand by 570 kb/d to 84.7 mb/d, down 1 mb/d from 85.68 mb/d in 2008. Platts reports that the IEA expects Chinese demand growth to slow to 0.7% in 2009, forecasting demand of 7.92 mb/d in 2009 over 7.86 mb/d in 2008.

14. Shobhana Chandra at Bloomberg reports that US exports in December fell 6%, while imports fell 5.5%. The trade deficit fell 4% to $39.9 billion from November, a smaller change than most economists had expected.

15. The EIA reported today that crude stocks built by 4.7 million barrels in the week ended February 6 to 350.8 million barrels. A Bloomberg survey had analysts expecting a build of 2.75 million barrels. Though well above the historical five year average, the stocks number is still below the numbers seen in July 2007:



Gasoline stocks, however, fell by 2.6 million barrels versus Wall Street expectations of a 500 kb build. Gasoline stocks are now at about the middle of the historical range. Distillate stocks fell by 1 million barrels. Though mixed, the data, taken in isolation, should put downward pressure on prices.

Daily Sources 2/10

1. Tony Barber at the Financial Times reports that relations between EU member states are fraying given the latest bid for comparative advantage by one of its own--France's 6 billion aid package to its car industry. Mirek Topolanek, Czech prime minister and current president of the EU, reportedly said:

"If the member states continue to prefer an individualistic and protectionist approach, and if they choose to continue breaking the stability and growth pact rules, then there is a big danger of watering down the whole project."

Sarkozy had also called on French car makers to shut manufacturing plants in Eastern Europe and step up production at home. Worth reading in full. Eurointelligence reports that Le Monde has an article on Franco-German maneuvering at the Munich conference:

"... Merkel and Sarkozy met to discuss the crisis, and agreed, with Topolanek, to hold a crisis summit at the end of the month. The German apparently believe that the worst of the crisis will not come until the autumn (which is when they hold federal elections!), while the French are relatively more optimistic, believing that the crisis will end in the summer. Mr Sarkozy still favours a euro area head of government meeting, which Merkel strictly rejects. She does not want to come under pressure to authorise fiscal transfers as she heads into an election campaign. The article also says that Paris believes that the recession will be followed by a strong recovery with an upsurge in inflation, and that Paris wants the ECB to tolerate that increase in inflation, which is not acceptable for Germany."

2. Lukanyo Mnyanda at Bloomberg reports that French industrial production fell by 1.8% in December from November. In Italy, industrial production fell by 2.5% in December from November.

3. Alan Cowell at the New York Times reports that president Sarkozy of France made an unannounced visit to Baghdad today, as part of a trip to the Middle East which includes Oman, Bahrain and Kuwait.

"'We say to French companies that the time has come to return to Iraq,' Mr. Sarkozy told a news conference, according to Reuters."

4. Thomas Erdbrink at the Washington Post reports that Iranian president Mahmoud Ahmadinejad told a crowd celebrating the revolution's 30 year anniversary that

"The new US government has announced that it wants to create change and follow the path of talks. ... These talks should be held in a fair atmosphere in which there is mutual respect."

("Mutual respect" is a motif of Iranian rhetoric vis a vis the US, right up there with "Death to America.") That said, the language suggests that Tehran is open to the notion of direct talks, which is obviously in the interests of both nations. Erdbrink quotes Mohammad Marandi, head of the North American studies department at the University of Tehran, as saying,

"Iran can help the US in Iraq, Afghanistan. Pakistan is unraveling, Iran also wants security and stability in those nations. The fact that they now work separately makes it impossible to get things done."

The implication is that Iran is already trying to help stabilize the situation in both of its neighbors, but the lack of coordination and mutual suspicion is an unbridgeable complication. Though the Iranians publicly suggest that the US can gain more from them than the reverse, clearly serious instability in two neighboring countries is a much more pressing concern for Tehran than Washington, DC. The direct exposure to the mercy of events as they unfold in one is about to be seriously limited. So time is likely tight in the Iranian calculation, given a strong inclination by the current administration to unwind our military engagement in the region as quickly as possible. That said, as I have pointed out in a long analysis in April (Law and Revolution in Iran), the government's raison d'etre is that it represents a rebellion against colonial influences, for which you can read the US. Or, in the words of Ayatollah Ahmad Jannati, head of the Guardian Council:

"If pro-American tendencies come to power in Iran we have to say goodbye to everything. After all, anti-Americanism is among the main features of our Islamic state."

The Guardian Council is an assembly of twelve clerics and jurists appointed by the Supreme Leader who have the power to vet laws and election candidates.

5. Shimon Peres, the president of Israel, has an opinion piece in the Washington Post which rejects a single state solution, establishing that a two state solution is the only politically acceptable outcome for Israel. Peres argues that it is not only the only feasible solution, but also "within reach."

"The one-state solution has enough intrinsic flaws to render it no solution at all. From Israel's perspective, it is not possible for the Jewish people to accept an arrangement that signifies the end of the existence of a Jewish state. From the Palestinians' perspective, they should not be denied the opportunity to take their national destiny into their own hands."

Peres refers to Gaddafi's op ed in the Post on January 22 advocating a single state solution, or Isratine (see Daily Sources 1/22 #7), and, although he rejects the solution proffered, does welcome Gaddafi's premise that the Jews deserve a homeland. Worth reading in full.

6. Rama Lakshmi and Shaiq Hussain at the Washington Post report that the Pakistani cabinet's defense committee yesterday registered the Mumbai attacks as a crime with the police, but released a statement saying that, "without substantial evidence from India it will be exceedingly difficult to complete the investigation and proceed with the case." The defense committee also signaled that Islamabad has rejected New Delhi's demand that the suspects be extradited to India.

7. Bettina Wassener at the New York Times reports that Temasek Holdings, Singapore's sovereign wealth fund, announced today that the total value of its investment portfolio fell by 31%, or about $39 billion, between March and November last year. "Temasek’s portfolio was worth 127 billion Singapore dollars, or $85 billion, at the end of November."

8. Allan Cullison at the Wall Street Journal yesterday reported that the IMF is likely to suspend payments to Ukraine as Kiev is failing to meet the terms of the agreement.

"Faced with a cash shortage, Kiev is passing the hat around to global powers. Talks were held in Moscow last week over a $5 billion loan to help plug Ukraine's budget deficit.

Ukraine Prime Minister Yulia Tymoshenko said her government also sent letters to the US, European Union, China and Japan, and that 'Russia is ready to help with the credit agreement's signing.'

President Viktor Yushchenko criticized the talks with Moscow. 'It's a dangerous policy and poses a threat to Ukraine's national interests,' he said."

9. Steven Bodzin at Bloomberg reports that US refiner NuStar Energy LP told the media that PdVSA has canceled shipments of 1.2 million barrels of Boscan crude to its Texas refinery in February and March so as to comply with OPEC imposed supply cuts.

"Venezuela said it has cut daily output by 364,000 barrels since September to 3.01 million barrels, putting it in full compliance with the OPEC cuts. Bloomberg estimates that Venezuela reduced output by 210,000 barrels a day in the period to 2.15 million barrels. "

Boscan is an extremely heavy and sour crude with an APIº10.1 (just APIº0.1 lighter than water) and 5.4% sulfur by weight requiring very complicated refineries to produce profitable cuts of more expensive petroleum products.

10. Mark Shenk at Bloomberg reports that the EIA reduced its forecast of global oil demand to 84.7 mb/d for 2009, down 1.17 mb/d from projected global demand for 2008.

11. The University of Maryland's Program on International Policy Attitudes released the findings of a survey of perceptions of countries worldwide on February 5.

"Public opinion in Russia relative to public opinion in Europe and the US seems to be polarizing. Americans and Europeans have both grown more negative toward Russia, and Russians have become more negative toward the US, the EU, and less positive toward Germany and the UK (but not France). Russia's military action against Georgia and increasing limitations on civil rights may be affecting American and European attitudes, and US and European criticism of Russia may be affecting Russian attitudes. [Note that the polling was done before Russia's cut-off of natural gas supplies to Ukraine and parts of Europe.]

To some extent this polarizing trend seems to be appearing in relations between China and the West as well. Europeans have become more negative toward China, while the Chinese have become more negative toward the US (negative views have risen from 46% to 58%), the EU (16% to 28%), and France (positive views dropped from 64% to 44%--perhaps in reaction to French demonstrations regarding the Tibet issue).

However, Chinese views of the UK have grown more positive (rising from 56% to 67%), as have views of Germany (58% to 65%). And Americans have not grown more negative toward China, with negative views essentially unchanged at 52 per cent.

The US for the first time since 2005 has surpassed Russia in positive ratings (an average of 40% for the US as compared to 30% for Russia), but their negative ratings are similar as are the number of countries giving them predominantly positive or negative ratings."

Long, but well worth reading.

12. William Branigin and Michael D. Shear at the Washington Post report that the US Senate passed a $819 billion economic stimulus bill. $819 billion is 5.7% of 2008 GDP (of $14.264 trillion.) The vote was 61 to 37, with GOP Senators Susan Collins (ME), Olympia Snow (ME), and Arlen Specter (PA) joining with Democrats and Independents to pass the measure. Meanwhile, Edmund L. Andrews and Stephen Labaton at the New York Time report on Secretary Geithner's outline of a new plan to marshal as much as $2 trillion in public, Federal Reserve, and private funds in defense of the financial sector's stability.

13. Rebecca Wilder at News N Economics reports that spreads on non-financial commercial paper are returning to normal.

"The spread is returning to normal levels, indicating that investor confidence is returning - at least in nonfinancial paper. This is a good thing, especially since the Fed has unwound 22% of its holding of commercial paper since 1/14/09, when it held $334.6 billion of the commercial paper market."

14. Joe Carroll at Bloomberg has a useful article on why charter rates for deepwater drilling rigs have not been particularly hit by the financial crisis or the current glut of crude. The upshot is that it is punitively expensive to simply cancel an ongoing charter and it will take some time for contracts already in place to unwind.

"All of Transocean’s most-sophisticated rigs are booked until at least mid 2010, with some committed through November 2016. The company had a $41.1 billion backlog of orders as of Sept. 30."

Anadarko indicated that it could make a 10% profit on deepwater fields when oil is at $30/b.