Daily Sources 8/9

1. SOUTHEAST ASIA BUYING WEAPONS AT BREAKNECK RATE

Jon Ponfret at the Washington Post reports that a recent publication by the Stockholm International Peace Research Institute shows that concerns over China's rise has pushed countries in Southeast Asia to almost double their weapons purchases from 2005 to 2009.

"The buying spree is set to continue, with reports that Vietnam has agreed to pay $2.4 billion for six Russian Kilo-class submarines and a dozen Su-30MKK jet fighters equipped for maritime warfare. This is in addition to Australia's stated commitment to buy or build nine more submarines and bolster its air force with 100 U.S.-built F-35s. Malaysia has also paid more than $1 billion for two diesel submarines from France, and Indonesia has recently announced that it, too, will acquire new submarines."

2. CHINA TO CLOSE 2,000 ENERGY INEFFICIENT FACTORIES

Keith Bradsher at the New York Times reports that China will close 2,087 steel mills, cement works and other energy-intensive factories by September 30 in order to try and increase its energy efficiency.

3. CHINA MAKES NO PUBLIC COMMENT ON SEIZURE OF ITS FISHERMEN

Brian Spegele at China Real Time reports that China has still made no public statement regarding the seizure of three fishermen by North Korea, allegedly for fishing in the North Korean exclusive economic zone.

4. HUGO CHAVEZ TO MEET NEW COLOMBIAN PRESIDENT TO TRY AND DAMP DOWN TENSIONS

Christopher Toothaker at the Associated Press reports that Hugo Chavez will meet the new Colombian president--Juan Manuel Santos--will meet in Colombia to discuss how to reduce tensions between the two countries.

5. PRESIDENT MEDVEDEV ARRIVES IN ABKHAZIA ON SUNDAY

CNN reports that Russian President Medvedev arrived Sunday in Abkhazia where he will meet with his counterpart, Sergey Bagapsh.

6. FORMER PRESIDENT OF MEXICO FOX CALLS FOR THE LEGALIZATION OF DRUGS

Jonathan J. Levin and Jens Erik Gould at Bloomberg report that the former President of Mexico, Vicente Fox, has called on the country to legalize drugs as a way of tamping down drug cartel violence.

8. COMPANIES ARE SEEKING LICENSES TO BUILD 22 NEW REACTORS

Chuck McCutcheon at the Christian Science Monitor reports that companies in the US are seeking licenses from the US Nuclear Regulatory Commission to build and operate 22 new reactors. A Gallup poll in March found that 62% of Americans now favor nuclear power.

9. US INCOMES FELL BY 1.8% IN 2009

Phil Izzo at Real Time Economics reports that US incomes fell by an average of 1.8% in 2009. The article includes a sortable chart of income growth by city.

10. KRUGMAN NOTES THAT CRITICAL INFRASTRUCTURE IN THE US IS BEING ALLOWED TO FALL INTO DISREPAIR

Paul Krugman at the New York Times reports that localities are letting their roads go to gravel, turning off the lights, and pushing through big cutbacks in education funding while the rest of the world is in the process of building up their infrastructure. A good read.

Daily Sources 8/5

1. THE ECB AND BANK OF ENGLAND MAINTAIN THEIR BENCHMARK INTEREST RATES

Gabi Thesing at Bloomberg reports that the European Central Bank left its benchmark rate at 1% today--the sixteenth month the rate has been at 1%.

"Separately, the Bank of England left its main rate at 0.5% and kept its bond-stimulus plan at 200 billion pounds ($318 billion)."

2. EVANS PRITCHARD ARGUES THE SPIKE IN WHEAT PRICES IS LIKELY TO GO DOWN; RUSSIA BANS EXPORT OF WHEAT FOR THE REST OF THE YEAR

Ambrose Evans Pritchard at the UK Telegraph says that the current problems with wheat are not the same as the problems which caused the 2008 wheat price spike. Global wheat stocks are much higher, the cost of oil is down, and there are likely to be bumper harvests in the US and elsewhere. In the meantime, Andrew E. Kramer and Jack Healy at the New York Times report that Russia announced today that it would ban grain exports through the rest of the year.

"In announcing the ban, which is in force from Aug. 15 to Dec. 31, Prime Minister Vladimir V. Putin said that Russia had sufficient stockpiles of grain but that blocking exports was an appropriate response to the worst drought in decades.

'We need to prevent a rise in domestic food prices, we need to preserve the number of cattle and build up reserves for the next year,' he said during a televised cabinet meeting, according to The Associated Press. 'As the saying goes: reserves don’t make your pocket heavy.'"

3. PEMEX REDUCES ACTIVITIES IN NORTHERN MEXICO DUE TO DRUG VIOLENCE

Upstream online reports that Pemex, the Mexican state oil company, has scaled back drilling and maintenance in the north's Burgos basin due to the deteriorating security situation there because of the ongoing drug violence in the region.

4. CHINA ADDED THE MOST WIND POWER IN 2009, SURPASSING THE US

Austin Carr in Fast Company reports that China overtook the US in 2009 in terms of added wind power capacity. Cumulatively, the US still has more wind power, but if this trend continues not for long.



5. RELIANCE TAKES THIRD STAKE IN MARCELLUS SHALE GAS

Rakteem Katakey at Bloomberg reports that Reliance Industries of India has agreed to pay $392 million for a 60% stake in acreages in the Marcellus shale-gas areas of central and northeast Pennsylvania held by Carrizo Oil & Gas Inc. This is the third US shale gas acquisition Reliance has made this year.

6. VIOLENCE IN DARFUR ON THE RISE

Neil MacFarquhar at the New York Times reports that violence in Sudan's Darfur region is on the rise again as the referendum on independence in southern Sudan approaches.

7. INITIAL JOBLESS CLAIMS CLIMB TO 479,000

Bob Willis at Bloomberg reports that "Initial jobless claims climbed by 19,000 to 479,000 in the week ended July 31, the most since April."

8. RETAIL SALES IN JULY WERE FLAT YEAR-OVER-YEAR

MasterCard's SpendingPulse reports that overall July sales were flat year over year.

"Michael McNamara, Vice President, Research and Analysis for SpendingPulse, observes 'Overall, retail sales continued to tread water, following the pattern set with June's sales when consumers demonstrated a reluctance to make larger purchases, and instead, traded down. Particularly, we are noticing some weakness in industry sectors that rely on higher priced ticket items such as furniture and discretionary areas such as luxury and jewelry. We are also seeing this pattern echoed in the restaurant business, where we have seen consumers shift from full-service restaurants and particularly fine dining, to limited-service and quick-service outlets.'"

Daily Sources 8/4

August is surely a slow news month.

EUROPEAN HOME PRICES HAVE MUCH ROOM TO CORRECT

Barry Ritholtz at the Big Picture hosts a graph of developed nations' home prices.



As you can see there is plenty of room left for correction in the European housing markets.

CHINA TO HAVE 500 MILLION BARRELS OF PETROLEUM PRODUCTS STORAGE BY 2015

David Winning at the Wall Street Journal reports that Chinese petroleum product storage tanks are set to grow by 500 million barrels by 2015. In addition, China is adding 338 million barrels to the existing 102 million barrel strategic petroleum reserve. Filling these tanks will put upward pressure on the price of oil. Building the tanks will also dampen the dreams of other countries with spare storage capacity, South Korea and Singapore, to sell into the Chinese market.

CHINA'S CAR SALES NOW FAR SURPASS US'S

Alex Taylor III at Fortune Magazine reports that China is expected to sell 15.6 automobiles in 2010, a 20% rise from the year before. Auto sales in the US are expected to reach 11.6 million units this year.

CHINESE BANKING REGULATOR ASKS BANKS TO PERFORM STRESS TESTS TO SEE WHAT WOULD HAPPEN WITH 60% REDUCTION IN HOUSING PRICES; NEW STUDY SHOWS THAT SMALLER CITIES NOT FACING SIMILAR HOUSING PRICING PROBLEMS IN CHINA

Bloomberg reports that China's banking regulator last month asked its banks to perform stress tests to see what would happen if housing prices declined.

"Banks were instructed to include worst-case scenarios of prices dropping 50 percent to 60 percent in cities where they have risen excessively."

Meanwhile, Aaron Back at China Real Time reports that Standard Chartered has conducted a survey of "Tier 2 and 3" cities and found that they are not suffering from deep corrections.

"'The Tier 2 and Tier 3 cities have not seen much of a correction in land or apartment prices. Moreover, developers’ sentiment about sales volumes seems pretty good, and they do not appear to be postponing construction,' Standard Chartered said in a report on Tuesday. 'This is important, since if sales and construction activity holds up in most Tier 2 and Tier 3 cities, then the economy will not tank, and the State Council will not be forced to loosen real-estate or monetary policy.'"

PALESTINIAN PRESIDENTIAL ADVISER SAYS PEACE MAY CREATE 20% ECONOMIC GROWTH IN PALESTINE

Jonathan Ferziger at Bloomberg reports that a key adviser to the Palestinian president said that the Palestinian economy may grow by as much as 20% if there is peace with Israel.

EIA REPORTS 2.8 MILLION BARREL CRUDE DRAW DOWN IN STOCKS

The EIA reported today that for the week ended July 30 crude oil stocks drew down by 2.8 million barrels to 358 million barrels. Crude oil stocks are well above the five year historical average. Gasoline stocks grew by 0.7 million barrels and distillate stocks grew by 2.2 million barrels. Refining capacity utilization grew to 91.2%. For the week ended August 2nd, national gasoline prices fell by 1.4 cents to 273.5 cents.

Daily Sources 8/3

NETHERLANDS TO LEAVE NATO

Robert H. Reid at the Washington Post reports that the Netherlands became the first NATO country to withdraw its troops from Afghanistan this Sunday.

"Canada has announced that it will withdraw its 2,700 troops in 2011, and Polish President Bronislaw Komorowski has promised to pull out his country's 2,600 troops the year after."

EURO ZONE MANUFACTURING PMI WAS 56.7 IN JULY

Prieur du Plessis at Investment Postcards from Cape Town reports that

"The Euro Zone Manufacturing PMI of 56.7% for July released by Markit yesterday was even better than the earlier flash estimate of 56.5% − a number that surprised on the upside. Despite all the gloom and doom about the prospects for the euro zone, growth of both manufacturing production and new orders accelerated to the fastest growth since April while employment rose at its fastest rate in 26 months."

For a table of PMIs and their trends, click on the link.

CHINA'S US DOLLAR HOLDINGS NOT OUR PROBLEM

Yves Smith at naked capitalism pours cold water on the notion that Chinese holdings of large amounts of US dollar reserves is somehow the US's problem.

KUWAIT COMFORTABLE WITH $75 - $85 /B OIL

Bloomberg reports that Kuwait is comfortable with oil prices in between $75 and $85/b.

"'We are satisfied with the range of $75 to $85,' Sheikh Ahmad Al Abdullah Al Sabah said in Moscow on Tuesday. 'We don’t anticipate any cuts but we do encourage other OPEC countries to be more compliant.'"

MANUFACTURING PMIs FOR EMERGING ECONOMIES POINT TO GROWTH SLOWING

Prieur du Plessis at Investment Postcards from Cape Town notes that "the Markit Manufacturing PMIs for emerging economies generally point to growth slowing in the manufacturing industries in the respective countries." For a table of PMIs and their trends, click on the link.

TREASURY SECRETARY SAYS THE RECOVERY IS WITH US

Treasury Secretary Timothy Geithner has an op-ed at the New York Times entitled Welcome to the Recovery. My guess is that its more than a tad premature, but it's worth reading.

CONSUMER SPENDING STAGNATED IN JUNE

Timothy R. Homan at Bloomberg reports that consumer spending stagnated in June, with purchases unchanged after a revised downward increase of 0.1% in May. The savings rate increased to 6.4%.

PENDING HOME SALES FELL BY 2.6% IN JUNE

Peter Boockvar at the Big Picture reports that "[a]fter dropping a whopping 30% m/o/m in May after the expiration of the tax credit, Pending Home Sales unexpectedly fell by 2.6% in June vs a forecasted rise of 4%."

WORLD BANK PAPER CONCLUDES THAT BIOFUELS NOT THE CAUSE OF GRAIN PRICE SPIKE OF 2006-2008; WORST DROUGHT IN 50 YEARS IN RUSSIA DRIVING UP GRAIN PRICES AGAIN

Renewable Energy World.com reports that a new white paper from the World Bank concludes that biofuels were not responsible for the spike in grain prices from 2006 - 2008. Although the report concludes that ethanol was a factor, it points to a number of other factors that caused the price spike, including energy prices, speculation in the futures market, and poor weather conditions in certain areaas. Meanwhile, Maria Kolesnikova at Bloomberg reports that Russia is facing the worst drought in fifty years is threatening the winter grain sowing plans.

"Wheat jumped to a 22-month high in Chicago trading yesterday, extending a 38 percent advance in July that was the biggest since 1973."

Daily Sources 8/2

The China Car Times reports that"China now has 65,000km of highways across the nation, making it the second largest highway network in the world after the United States." According to the state's 2020 plan, China should have 100,000km of highways by then, about the same as what we have in the US. This should provide a tremendous economic boost over time as well as security dividends in China where it will be easier to deploy troops from one place to another.

CHINESE PMI FALLS TO 51.2

Peter Boockvar at the Big Picture reports that China's state Purchasing Managers' Index fell to 51.2. (Numbers above 50 indicate expansion; below 50 indicates contraction.)

GUANGZHOU AND HONG KONG ANTI-MANDARIN PROTESTS

Carmen Ng at China Real Time reports that there has been a second protest in Guangzhou and Hong Kong regarding the plan to change some prime time TV programming from Cantonese to Mandarin speaking. The first took place July 25th.

JAPANESE JULY PMI FELL SLIGHTLY TO 52.8

Prieur du Plessis at Investment Postcards from Cape Town reports that Japanese Purchasing Managers' Index fell slightly to 52.8. (Numbers above 50 indicate expansion; below 50 indicates contraction.)



GERMAN ELECTRICITY AND NATURAL GAS DEMAND UP 8% IN 1H

Andreas Franke at Platts reports that natural gas and electric power demand in Germany grew by 8% in the first half of the year over the same period one year ago.

"Based on its latest estimates, electricity consumption was up by 4.6% at 274 billion KWh, while the use of natural gas was 14% higher than in the first half of 2009, the BDEW said in the statement.

According to the BDEW, the main reason for the demand increase is the positive development of industrial production in Germany, which accounts for 40-45% of energy demand, while the demand for gas was also boosted by the long winter."

Demand has still not recovered to pre-crisis levels, however.

SPAIN TO CUT SUBSIDIES TO PHOTOVOLTAIC POWER PLANTS BY 45%

Victor Mallet at the Financial Times reports that Spain's industry ministry has announced the subsidized electricity prices paid to photovoltaic power plants by up to 45%. Worth reading in full.

AFTER NUCLEAR DEALS, SOUTH KOREA AND UAE AGREE TO COOPERATE IN OIL AND GAS EXPLORATION AS WELL AS STOCKPILING OIL IN SOUTH KOREA


Shinhye Kang and Ayesha Daya at Bloomberg report that after having secured a deal to build the UAE nuclear power plants South Korea and the Emirates have agreed to cooperate on oil and gas exploration and for the stockpiling of oil in South Korea. Part of Seoul's energy security program has to do with oil stockpiling by various producers in South Korea to take advantage of quick changes in the Asian oil market. South Korea gets to draw down on those stockpiles in case of an emergency disruption in oil supply. The UAE is a major entrepot for stockpiling oil in the Middle East.

DELINQUENCIES GROW IN COMMERCIAL REAL ESTATE MARKET

Yves Smith at naked capitalism reports that the commercial real estate sector is feeling pain:

"• All deals seasoned at least a year have a total unpaid balance of $767.76 billion, with $60.45 billion delinquent – a 7.87% rate (up from only 5.28% six months prior).
• When agency CMBS deals are removed from the equation, deals seasoned at least a year have a total unpaid balance of $736.75 billion, with $60.39 billion delinquent – a 8.2% rate (up from only 5.46% six months prior).
• Conduit and fusion deals seasoned at least a year have a total unpaid balance of $655.41 billion, with $54.69 billion delinquent – a 8.35% rate (up from only 5.33% six months prior)."

JULY PMI DOWN TO 55.5

Shobhana Chandra at Bloomberg reports that US manufacturing grew at a slightly slower rate in July than June. The Institute for Supply Management's Purchasing Managers' Index fell to 55.5 from 56.2 in June. (Readings above 50 indicate growth; readings below 50 indicate contraction.)

BEN BERNANKE SAYS CONSUMER SPENDING TO PICK UP IN COMING MONTHS

Scott Lanman and Steve Matthews at Bloomberg report that Fed chief Ben Bernanke said in a speech today that consumer spending was likely to pick up in coming months.

HARLESS ARGUES THAT STRUCTURAL UNEMPLOYMENT NOT A PROBLEM

Andy Harless at Employement, Interest and Money argues that we are not seeing new structural unemployment, but rather cyclical unemployment. Worth reading in full.

MAXINE UDALL REPORTS THAT ROADS ARE BEING ALLOWED TO REVERT TO GRAVEL

Maxine Udall reports that in the US highways are being allowed to turn back to gravel. This should have significant detriments going forward, including that the amount of gas to travel from one place to another on gravel roads is higher than on paved roads. A must read.