Craig Eisele on …..

March 6, 2012

The Last Time Romney Took Questions From an Audience Was January 13

Filed under: Uncategorized — Mr. Craig @ 4:34 pm

Mitt Romney Prefers to Give Mitt Romney All the Credit

There is accumulating evidence that Mitt Romney’s not much of a team player: He mocked advisers for thinking their work is “very, very important”; he has delegated the task of thanking staff and volunteers after primary victories to his wife; and his campaign fired his debate coach last week not because he did a bad job, but because he was getting too much credit for doing a good one. 

Just before the Florida primary, talking to Matt Lauer on the Today show, Romney mocked his advisers for thinking they had a lot to do with taking down Newt Gingrich. “I think you can expect advisers to think that the work of advisers is very, very important, but frankly, I think if you’re to go back and look at where the sentiment changed, it was with the debates,” Romney said, responding to a New York Times story about the campaign’s strategy. And even though Romney was widely seen as a changed, more aggressive man in those debates, and even though the major tangible change was a new debate coach, Romney wants sole credit for those performances, according to Politico. 

After the primary, there were headlines like “The Coach Who Revamped Romney’s Stage Presence,” and “Mitt Romney’s new debate coach may have been Florida primary game-changer.” They were about Brett O’Donnell, the former Liberty University debate coach and aide to Michelle Bachmann. O’Donnell started getting warnings that he was getting too much credit, Politico’s Jonathan Martin and Maggie Haberman report. Then last week, on a campaign conference call, “a clear message was delivered — Romney pulled himself back from the brink after South Carolina, and no one else did it for him,” Politico reports. O’Donnell was let go.

Maybe having zero tolerance for staffers celebrating in the end zone is understandable. But other decisions make it clear Romney doesn’t like saying “thanks.” Like that at post-election speeches, he has literally outsourced the act of saying “thanks” to his wife. Traditionally candidates thank their staff and volunteers for making their victory (or whatever) possible. (Here’s a transcript of Newt Gingrich, an egomaniac in his own right, giving lots of thanks in Florida.) But in Florida and Nevada, Ann Romney did all the thanking. Romney, whose speech was more likely to be carried on cable news channels, merely thanked the states’ residents.

Now, maybe Romney’s thinking he doesn’t need voters, either. He no longer does 55-minute town hall meetings, but instead favors 15-minute speeches with rope lines and Secret Service agents, The Washington Post‘s Philip Rucker reports. The last time Romney took questions from an audience was January 13.  In Florida a week ago, he did manage to say of the crowd, “Thanks, you guys. Wow!”

Ann Romney Is Talking Awkwardly About Money : ” I Don’t Feel Rich”

Filed under: Uncategorized — Mr. Craig @ 4:31 pm

Speaking on Fox News Monday, Ann Romney showed that her husband’s habit of making uncomfortable references to their wealth is rubbing off. Attempting to make the point that there are things more important than money, she instead uttered, “I don’t even consider myself wealthy, which is an interesting thing. It can be here today gone tomorrow.” During the same interview, speaking about the horseback riding therapy she uses to treat her multiple sclerosis, she said, according toBoston Globe reporter Michael Levenson, “Some people have lovers in every port; I have horses in every port.” Surely she doesn’t actually have a horse in every port (though she does have a very expensive collection of horses). But with a Cadillac in at least two ports, as her husband so helpfully pointed out last month, the comment, along with “I don’t even consider myself wealthy,” is bound to get a few raised eyebrows.

Meanwhile, at an event Monday, Romney introduced his wife as “a heavyweight champion”before immediately laughing and correcting himself. “I didn’t mean weight,” he said. “That didn’t come out right. She’s just a great fighter is what I mean.” Kind of an endearing gaffe, since Ann seemed to take it in stride, but still. Monday has been quite a day for Team Romney.

Poll: Santorum slightly ahead in Ohio before Super Tuesday

Filed under: Uncategorized — Mr. Craig @ 4:29 pm

The weekend before Super Tuesday, an NBC-Marist Ohio poll of registered voters shows Rick Santorum edging out Mitt Romney, but just barely.

The topline results:

  • 34% for Rick Santorum
  • 32% for Mitt Romney
  • 15% for Newt Gingrich
  • 13% for Ron Paul
  • 1% other
  • 6% are undecided

The poll, conducted February 29 – March 2 with 2,518 registered voters, has a margin of error of plus or minus 1.8 percentage points.

Gingrich Goes after Home State Voters

Filed under: Uncategorized — Mr. Craig @ 4:27 pm

Romney is ‘very good at deceiving voters,’

Gingrich in Brunswick, Ga. Mar. 2 (Evan Vucci/AP)

ATLANTA–Newt Gingrich intends to recapture the national spotlight on Super Tuesday with a first-place win in his home state of Georgia, strong finishes in Tennessee and Oklahoma, and delegate pickups in Idaho, Ohio and North Dakota.

“Twice in this process I’ve been the frontrunner in national polling,” Gingrich told George Stephanopoulos of ABC News on Sunday. “I think we have a chance to get back.”

But after a series of mostly third- and fourth-place finishes and the decision to virtually sit out last week’s high-profile contest in Michigan as well as Arizona, talk of Gingrich as a serious contender has waned. His Jan. 21 win in South Carolina’s winner-take-all primary has been mostly forgotten, and he is in third place in the delegate race.

Still, Gingrich and his team say they’re in for the long haul.

Gingrich is banking that strong support in his home state will hand him a delegate-rich win in Georgia, where 76 delegates are up for grabs–more than any other state on Super Tuesday. A loss in Georgia would spell the end of his campaign.

But Gingrich remains confident.

“I think I’ll win Georgia by a much, much bigger margin than Romney won Michigan,” Gingrich said Sunday.

“In southern Georgia people know what they’re hunting,” R.C. Hammond, a Gingrich spokesman, told Yahoo News, quoting a recent conversation. Romney has not made Georgia a priority–understandable given Gingrich’s home state connection–but he and wife Ann Romney hosted a pancake brunch in Snellville, Ga., on Sunday.

Gingrich sat out last week’s primaries in Michigan and Arizona to focus his resources on the South, a strategy outsiders say is expected as well as savvy. “Gingrich is smart to play to his traits and use what he has,” Ron Bonjean, a longtime Republican congressional leadership aide turned public affairs representative, told Yahoo News.

Gingrich’s campaign readily concedes that it remains at a financial disadvantage in the race. “It would be a much different race if [Romney] didn’t have this money,” Hammond said.

Still, Hammond argues the campaign’s lack of resources means they are being smarter about allocation. “We’re in a business of actually winning elections,” Hammond said. “Not punching an hour clock.” While you may not see Gingrich actively campaigning everywhere, Hammond said the campaign is advertising everywhere they want to be competitive.

Gingrich and his staff believe they can overcome Romney’s financial advantage by offering “big ideas”–such as Gingrich’s pledge to make $2.50 per gallon gas a reality–and by energizing conservative voters.

Hammond said Romney has become “very good at deceiving voters and keeping voters distracted from who he really is,” but he believes the race is headed to places where that’s no longer going to work.

Even though Romney has won five consecutive contests–which includes Saturday’s non-binding Washington caucuses–the Gingrich camp remains convinced the contest for the Republican nomination will stretch on for many months. “Americans are used to having their nominee picked by Super Tuesday,” Hammond said. “Not this time.”

Gingrich is talking up contests in Kansas (Mar. 10), Alabama and Mississippi (Mar. 13), a yet-to-be-finalized primary in the delegate-rich state of Texas, (which appears headed for an election in late May and where Gingrich can boast the support of Gov. Rick Perry), and California, which isn’t scheduled to vote until June 5.

Additionally, the Gingrich campaign is operating as if the candidate may still win delegates out of Florida and Arizona.

Gingrich placed second in Florida’s winner-take-all primary Jan. 31, where 50 delegates were at stake and third in Arizona’s winner-take-all primary, where 29 delegates were up for grabs. Gingrich has petitioned the Republican Party of Florida for failing to award delegates proportionally and Hammond says Arizona can expect a similar challenge. (Republican National Committee rules stipulate that any state holding a contest before April 1 must allocate proportionally.)

Unofficial counts of pledged delegates put Romney in first with 180, Rick Santorum in second with 90, Gingrich in third with 29 and Ron Paul in fourth with 23. A total of 1,144 delegates is needed to win the nomination.

Gingrich’s third-place spot in the delegate race is doing the candidate no favors. On Saturday, the co-chairman of Gingrich’s Tennessee campaign–state senator Stacey Campfield–announced his decision to switch allegiance to Santorum, whom he referred to as the conservative with the best chance of winning the presidency.

Despite Gingrich’s confident rhetoric, many question whether he has any shot at winning the requisite number of delegates even if he regains some momentum.

“His path to the presidency is very slim at this point,” Bonjean said.

Gingrich campaigned Monday in Tennessee, will appear in Georgia and Alabama Tuesday and has a full and detailed schedule planned through Mar. 10 in Alabama, Mississippi and Kansas.

The Fight for Blue Collar Workers in Ohio

Filed under: Uncategorized — Mr. Craig @ 4:24 pm

If Mitt Romney defeats Rick Santorum in the bellwether primary here on Tuesday, it will be in no small part because he managed to win over one of the most hotly contested and elusive segments of the electorate: white working-class voters.

 At a metal works in Canton and a welding factory in Youngstown, in mailboxes and on the radio, Mr. Romney’s intense focus on these Republican-leaning voters was in evidence on Monday as he made his closing appeal in Ohio — if not as an every man, then at least as a chief executive who knows how to generate blue-collar jobs and get factories running again.

“Other people in this race have debated about the economy, they’ve read about the economy, they’ve talked about it in subcommittee meetings, but I’ve actually been in it,” Mr. Romney told workers at a guardrail factory in Canton, where he walked among huge coils of steel. “I understand what it takes to get business successful, and to thrive.”

Introducing a new slogan — “more jobs, less debt, smaller government” — Mr. Romney’s factory visits were not just about the Ohio primary. They were part of a broader strategy, hatched at his Boston headquarters, to fight Mr. Santorum for both working-class voters and conservatives on what aides consider to be Mr. Romney’s turf, the economy, rather than on social issues.

And while Mr. Romney’s immediate goal is a strong showing in Ohio, one of 10 Super Tuesday states and a crucial test of whether Mr. Santorum can remain a credible challenger for the nomination, he is also seeking to prove he can maintain his party’s traditional advantage among working-class voters in a general election matchup with President Obama.

Mr. Santorum, who has mixed his faith-based appeal with a workingman’s sensibility born of his Pennsylvania coal and steel country roots, was not about to cede that ground.

At Dayton Christian School in Miamisburg on Monday, he urged a capacity crowd to vote for “a guy who grew up in a steel town in western Pennsylvania who no one gave any chance to be standing here in Ohio in March, because he went out and believed in free people” and in “building a stronger economy based on manufacturing.”

Noting that Mr. Romney’s far better-financed campaign had vastly outspent him in Ohio, he added: “Money’s not going to buy this election. The best ideas and believing in the American people is going to win this election.”

Mr. Santorum’s success with working-class voters in some states, notably Iowa and Michigan, has helped expose Mr. Romney’s potential vulnerabilities with them. Mr. Romney’s background as a wealthy private-equity manager and some of his off-the-cuff remarks — like his comment at Daytona two weekends ago that “I have some great friends who are Nascar team owners” — have only emphasized his challenge in connecting with blue-collar voters.

Advisers inside and outside Mr. Romney’s campaign headquarters had grown alarmed that such comments had opened him up to criticism that he was an elitist. But those concerns coincided with a recognition that a prolonged diversion into social conservative touchstones — abortion and contraception — had diverted the campaign from its core economic message, giving Mr. Santorum an opening.

The aides concluded that the only way for Mr. Romney to improve his performance among these critical voters was to spend less time talking about the modest upbringing of his father, who went on to become the governor of Michigan, and more time telling the stories of real workers he met at factories.

In the past few days, they staged events in more working-class settings like the campaign stops he made Monday.

The campaign carefully choreographed the stops, featuring images of Mr. Romney surrounded by heavy equipment and talking about galvanizing steel.

“This piece equipment behind you, you know what that does?” Mr. Romney asked, pointing to a big blue machine. “That shreds cars. In 12 seconds, you put a car in at one end, out the other end comes little pieces of metal and rubber and glass and whatever.”

Speaking at a rally here in Zanesville — a town in central Ohio with a median family income of $31,932 — Mr. Romney said the 2012 election revolved around “whether the stresses on families are going to be alleviated, where you’ve got a mom working the day shift and a dad working a night shift and the kids not sure who’s home when.”

Romney, whose net worth is estimated at more than $200 million, has consistently won high-income voters in primary states, according to exit polls.

Working-class voters have been less loyal to any one candidate, with Mr. Romney and Mr. Santorum — and at times Newt Gingrich, who is not competing strongly here — often fracturing their allegiance.

In that sense, they have emerged as a potential decisive swing vote, particularly in Ohio, where voters earning $30,000 to $100,000 a year constitute 67 percent of the Republican primary electorate, making them an essential group for each candidate.

They will be no less important in the general election, and Mr. Santorum has argued that his ability to connect in these manufacturing regions would make him a stronger opponent against Mr. Obama.

Mr. Romney’s aides have made clear that they are thinking about how to compete for the Rust Belt constituency against Mr. Obama, who had similar struggles with working-class Democrats during the 2008 primaries and caucuses but overcame them in the general election. He defeated Senator John McCain in Ohio, for instance.

But the many ups and downs of the nominating contest have kept Mr. Romney’s aides from focusing heavily on a potential general election, and on Monday their concerns were far more parochial. With polls showing a very tight race here, they were on tenterhooks, believing that they had enough momentum to beat back Mr. Santorum in Ohio’s popular vote but hardly certain.

Mr. Romney’s struggles to connect with individual rank-and-file voters have become clearer as the Republican primary season has continued, and his challenges were apparent in interviews on Monday.

“I’ve heard some people say that Mitt doesn’t know how to pump his own gas,” said Scott Williams, a dentist, who saw Mr. Romney speak in Zanesville. But, he added, “I find that offensive. Who of us wouldn’t want to be rich? But he didn’t just inherit all his money. He knows how to work.”

Patrick Sullivan went to the Santorum event at Dayton Christian School, a converted NCR Corporation training center that had been shuttered. He pointed to Mr. Romney’s background as a rich businessman as a reason he was supporting Mr. Santorum.

“Obama will absolutely label him the 1 percent, especially when they get into what he did at Bain,” said Mr. Sullivan.

Bain is the leveraged-buyout firm that Mr. Romney led and that his opponents, even on the Republican side, have portrayed as preying on struggling companies (portrayals that Mr. Romney has called unfair).

But in a sign that Republican voters may be moving reluctantly toward accepting Mr. Romney as the nominee, Mr. Sullivan said he would support him, if only out of antipathy for Mr. Obama.

“Look,” he said, “I’d vote for a dead dog instead of Obama.”

Beijing Fights Pollution and Reduces Coal Consumption

Filed under: Uncategorized — Mr. Craig @ 4:55 am

BEIJING, March 5 (UPI) — China’s capital city plans to reduce coal usage in an effort to reduce pollution.

Beijing has reduced its cap for annual coal consumption to 15 million tons by 2015, from an earlier reduction of 20 million tons for the same time period, Beijing’s development and reform commission announced Sunday, state-run news agency Xinhua reports.

In 2010, Beijing consumed 26.35 million tons of coal, accounting for 30 percent of the city’s total energy consumption. During the 1990s, coal accounted for more than 40 percent of Beijing’s energy consumption.

As for countrywide coal consumption, the China Electricity Council said in a report last week that it expects China’s power sector to consume more than 2.1 billion tons of coal this year, an increase of about 150 million tons year-on-year.

To help achieve Beijing’s new coal reduction target, four of the city’s major coal-burning power plants will be replaced with natural gas-running plants, said Zhao Lei, deputy director of the commission.

The commission also said it will replace all coal-fired equipment in its core areas by 2013.

The Beijing government has spent $1.9 billion over the last two years replacing coal-fired heating systems for 160,000 households. Residents who rely on electricity for winter heating are eligible for government subsidies.

An environmental expert, speaking to Xinhua on condition of anonymity, said he wasn’t optimistic about Beijing’s targets for coal reduction.

Making the switch to gas, he said, would require time and a huge investment to build more natural gas pipelines. Furthermore, it would be “extremely hard” to ban the 2.15 million small coal furnaces operating in the city, he said.

Environmentalists are also calling for regional cooperation in reducing Beijing’s air pollution. Neighboring Hebei province and Tianjin municipality, for example, consume 280 million and 47 million tons of coal a year, respectively, compared with Beijing’s 26 million tons.

“Beijing cannot ‘do it alone’ in the fight for cleaner air. Regional cooperation is indispensable,” said Wang Siyue, an atmospheric physicist with the Chinese Academy of Sciences.

A Beijing Bureau of Environmental Protection report last year said that pollution from the city’s neighboring regions is the largest contributor to the city’s PM2.5 reading, a scientific measure of fine particulate matter in the air, 2.5 micrometers or less in diameter.

Last month Beijing announced it would begin posting PM2.5 readings, as part of its measures to reduce air pollution. Previously the city had based its air quality information on readings of PM10, particulate matter at least 10 micrometers in diameter.

China Focuses on Domestic Consumption … Commodities See Little Change So far

Filed under: Uncategorized — Mr. Craig @ 4:45 am

The Chinese government is planning new policies to boost domestic consumption, especially of vehicles and appliances, in a bid to offset the effects of sagging export demand, the China Daily reported on Wednesday, quoting a government official.

With tax rebates on vehicles and domestic appliances either having expired or due to expire, the government is working on new measures, said Huang Hai, former assistant minister of commerce and a member of the economic and trade policy consulting committee linked to the Ministry of Commerce.

These may include subsidies for families living in affordable housing that buy electrical appliances and for consumers planning to change cars, the paper said.

The daily also quoted a Ministry of Commerce spokesman as saying that the ministry was considering new programs to expand consumption, with details to be announced next week.

Huang also said over 10 government agencies, including the Ministry of Commerce, the National Development and Reform Commission and the Ministry of Finance, are expected to cooperate and propose concrete plans to boost consumption at a meeting slated for April.

China’s exports have steadily fallen over the past few months on the back of economic woes in the European Union. Exports in November expanded 13.8 percent from a year ago, the most sluggish rate in more than two years.

Europe remains China’s single largest export market, but export growth to the continent slowed to just 5 percent in November from a year ago, the third straight month of single digit growth and the smallest expansion since February 2011.


Widely followed commodities trader Dennis Gartman on Monday said he wasn’t concerned about an official slowdown in China.

“I pay very little to what the Chinese have to say,” he said on “Fast Money.” “I think that Premier Wen speaking this morning to the People’s Congress had to low-ball his estimate for GDP going forward so that they can do better than that.”

Chinese Premier Wen Jiabao estimated GDP growth of 7.5 percent for 2012, a figure one economist called “symbolic.”

GDP growth in China is “probably far above 7½,” said the editor of The Gartman Letter. “I wouldn’t change my strategy on commodities one bit.”

India’s move to ban cotton exports came as a surprise — and raises some broader questions beyond cotton [CTCV1  92.23    4.00  (+4.53%)   ].

“I think what you are seeing, it’s playing out over in the grain markets. Look at what corn’s [  Loading…      ()   ]doing. It’s up almost 10 cents right now,” Gartman said. “What’s going on in cotton, in agricultural production across the board in India — that’s the question that it raises with me.”

In oil, Gartman thought both Brent [LCOCV1  Loading…      ()   ] and WTI [CLCV1 107.00    0.30  (+0.28%)   ] would trade lower from here.

“If there’s one trade to be done — but you have to be careful with it — the spread between nat gas [NGCV1  2.365    -0.119  (-4.79%)   ] and crude oil is going to narrow over time,” he said, adding that he was still thinking about putting on the trade but had not yet done so.

 “If you made me take a position in crude oil today, I’d probably sell it, but I wouldn’t sell it aggressively,” he said.

Stuart Frankel’s Steve Grasso said the price action in energy commodities will “probably be a blip.”

“The dangerous thing is: You want to be drawn into these nat gas equities, and I think that’s a mistake. It’s too early,” he said. “If I wanted to play nat gas, I’d buy the commodity itself.”

The Worst For China Is Yet To Come

Filed under: Uncategorized — Mr. Craig @ 4:31 am

Facing stiff global headwinds and a downturn in its property sector, China should cut taxes and slash banks’ reserve requirements this year to underpin growth, a senior government economist said on Thursday.

Joseph McNally | The Image Bank | Getty Images
Shanghai street scene

Fears of a hard landing in China may have abated somewhat after recent data underscored its domestic resilience, but downward risks lie ahead and growth could hit a trough in the second quarter, said Zhu Baoliang, chief economist at the State Information Centre, a top government think-tank.

“I believe the slowing trend in China’s economy has not changed,” Zhu, who helped prepare the annual policy-setting  economic work conference in December, told Reuters in an interview in his office in the western part of Beijing.

The central bank could cut banks’ reserve requirement ratio  (RRR) six times throughout 2012 — at 50 basis points each, that would release more than 2 trillion yuan ($317 billion) to spur bank lending, he said.

The next cut could come this month, Zhu added.

In an effort to shore up economic activity, the central bank cut the RRR in November for the first time in three years, and economists expect further RRR cuts of 200 basis points throughout the course of 2012, according to a Reuters poll.

But policymakers may not pull the trigger on benchmark interest rate cuts this year, since inflation remains higher than policymakers would like, and global liquidity could push commodity prices higher, Zhu said.

“They cannot relax (policy) too much. If they relax too much, inflation could pick up,” he said.

A surprising upturn in China’s factory activity in January fanned hopes the world’s second-biggest economy will avoid a hard landing.

That followed slightly stronger-than-expected gross domestic product growth of 8.9 percent in the fourth quarter of 2011.

Dangers Ahead

Zhu is pessimistic about the U.S. economic outlook, given weak consumer demand and believes Europe’s debt-ridden economy will only get worse in the coming months.

He also highlighted three major dangers in the Chinese economy: a downturn in the once-hot property market, risks from local government debt and underground lending activities.

“The main concern is about the property market,” he said.

China’s annual economic growth could slow to 8.5 percent in the first quarter and to around 8 percent in the second, when it may start bottoming out, according to Zhu’s forecast.

A Reuters poll predicted first-quarter growth of 8.2 percent and suggested that would be the low point for the year. However, full-year growth would still slow to 8.4 percent, the weakest in a decade, according to the outlook.

 Sources told Reuters last month that China has set a target of 7.5 percent for economic growth this year, while keeping annual inflation near 4 percent.

But Zhu believes the economy will ultimately grow about 8.5 percent in 2012, thanks to supportive policies.

“(Full-year) economic growth cannot be lower than 8 percent as the pressure on job creation is still big,” he said.

Economists typically view growth of 7 to 8 percent as the bare minimum needed to generate enough jobs to help China absorb the urban influx of rural migrants and maintain social stability.

The government may keep its property restrictions in place this year by targeting speculative demand, but pent-up demand for housing could forestall a sharp price drop, Zhu said.

Beijing has taken an array of measures to rein in the property market – including raising mortgage rates and minimum down payments – to ease public discontent with rocketing home prices, a process that has made it difficult for both home buyers and developers to get bank loans.

The government will have to push through some long-delayed structural reforms, including on taxes and income, to help boost consumption, but little headway is expected this year, he said. Still, he added, a long-anticipated widening of the yuan’s [CNY=  6.3066    0.0086  (+0.14%)   ]current 0.5 percent daily trading band may finally happen.

China’s Role As World’s growth Engine Coming to an End?

Filed under: Uncategorized — Mr. Craig @ 4:15 am

Investors are worried that China’s decade-long run as the world’s growth engine may be over— along with unprecedented demand for commodities and ultra-cheap labor and parts for manufacturers.

Stocks fell Monday partly on such fears, while traders dumped assets such as copper and shares of Caterpillar [CAT  110.09    -2.40  (-2.13%)   ].


Flag of the People's Republic of China
Kick Images | Photodisc | Getty Images
Flag of the People’s Republic of China

The reaction came after China cut its GDP target for this year to 7.5 percent, which would represent the slowest economic growth in eight years. That compares to an average growth rate of 11 percent over the last decade.

“The golden age of infrastructure investment is behind us now,” wrote Dong Tao, Credit Suisse chief economist for the Asia region, in a report that helped fuel the selling after Premier Wen Jiabao announced the lower growth forecast. “The golden age of the housing boom is behind us now” too, along with the boom in exports and tailwind from policy stimulus, said Tao.

The iShares FTSE/Xinhua China 25 ETF [FXI  39.17    -1.10  (-2.73%)   ], which has more than doubled over its eight-year existence, got slammed by almost 3 percent. But derivative plays off the China growth engine got hit as well, including the Materials SPDR ETF [XLB  36.69    -0.60  (-1.61%)   ] and the Energy SPDR ETF [XLE  74.26    -0.48  (-0.64%)   ].

In the last 10 years, Caterpillar’s stock has more than quadrupled on sales of earth movers and construction equipment to China. The Energy SPDR and Materials SPDR have climbed 170 percent and 60 percent respectively.


iShares FTSE China …


39.17     -1.10  (-2.73%%)



“The China building explosion was, and is, unsustainable and appears to be hitting a wall,” said Steve Cortes of Veracruz LLC. “The straw breaking the back of the breakneck Chinese expansion was Europe’s slowdown as the country is still dangerously dependent on exports.”

China consumes an amazing amount of the world commodities, representing 62 percent of the world’s market share in iron ore and 59 percent of the soybean market, according to Credit Suisse. It buys 29 percent of the world’s copper [HGCV1  3.8645    -0.0385  (-0.99%)   ],almost 30 percent of “container lifts,” and 11 percent of all oil, according to the research firm.

And at the same time, as spending on its own economic buildout peaks, its role as the so-called world’s factory is becoming more difficult to fulfill.

“China’s competitiveness has been weakened because of surging salaries among the migrant workers and continued appreciation of the RMB (Renminbi)  ,” said Tao in the Credit Suisse report.

Shares of technology companies were also among the hardest hit Monday on fears that their costs of manufacturing could go up. Shares of Apple [AAPL  533.16    -12.02  (-2.2%)   ], which makes its iPhones and iPads there, had one of their worst days of the young year.

Australia Facing Potentially Sever Recession

Filed under: Uncategorized — Mr. Craig @ 4:15 am

Recession is a risk in the slow lane of the two-speed economy.

Ten years ago, mining investment in Australia began rising sharply. By 2005-06 it had trebled in just five years. Over the next five years it doubled again. On current plans, it will double again in just two years to mid-2013.

It is being driven by what Treasury deputy secretary David Gruen calls ”a once-in-a-lifetime boom” in commodity prices and Australia’s terms of trade: the ratio of the prices of the things we sell overseas to the prices of the things we buy overseas. We all know the story, but even so, the numbers are staggering.

The terms of trade index has almost doubled, from 66.2 in June 2003 to 131.5 in September 2011. In other words, the same volume of exports today buys us twice as many imports as in 2003.

The Reserve Bank’s index of commodity prices in $US has shot up from 34.2 in June 2003 to 157.0, last August, before ebbing back to 142.0. That means that a typical tonne of coal or iron ore exports today earns its owners four times as much as in 2003.

And where commodity prices go, the $A follows. Between 1985 and 2005 it averaged 70 US cents. In the past year, it has averaged $US1.05. That’s made local production 50 per cent more expensive in $US, and imports 33 per cent cheaper in $A. So firms are shutting down and jobs are going overseas.

The scale of this shift is colossal. And it is a tribute to our policymakers, and the policy framework they inherited, that Australia has kept on the rails. Past resources booms always ended in tears, because inflation got out of control. This time the Reserve has focused on keeping inflation down and, apart from a flare-up in 2007-09, has succeeded.

There has been a price for this. The economy is growing more slowly; Australia’s average growth since 2004 has been 2.75 per cent, or just over 1 per cent per capita. We’re still stuck in third gear. Unemployment is back over 5 per cent, low in our terms, but well above the 2 and 3 per cent of success stories such as Singapore, Korea and Norway.

But there’s been a bigger cost that policymakers are reluctant to admit, or tackle. Australia has fractured into two economies.

The growth is overwhelmingly in minerals development, in Western Australia, Queensland and the Northern Territory. The south-eastern states – Victoria, New South Wales, South Australia, Tasmania and the ACT – are now going backwards on some indicators, growing slowly on others. Australia has been a two-speed economy since 2005, but now the two speeds are 100km/h on one side of the country, and 10km/h on the other.

Treasury anticipated this. In a recent speech, Gruen said its budget forecast of 4 per cent growth in 2011-12 assumed the non-mining economy would grow just 1 per cent. The first forecast was way out. Economic growth is now likely to be between 2.5 and 3 per cent, which implies the non-mining economy is virtually flat.

The pain is being felt where the non-mining economy is concentrated: in the south-east, where two-thirds of Australians live and work. The risk of recession in south-eastern Australia is now real. In the past year, that two-thirds of the country has seen falls in jobs, job vacancies, newspaper job ads, construction activity, home building approvals, retail sales volumes, and now, a sizeable drop in business investment plans. Growth is almost at a standstill. What should the government do? The word from Treasury and the Reserve is: do nothing. High mineral prices are here to stay, maybe for a decade, maybe for many decades.

That implies that the high dollar is also here to stay. It may not stay quite as high as it is now, but their message to business is: if you can’t find a way to compete with the dollar at something like parity (with the $US), you’d better find another life.

(To be fair, Treasury secretary Martin Parkinson told a Senate committee last month the best way to help manufacturers is to improve education, workplace relations, management skills and infrastructure. But all of them are things we want to do whether manufacturing is in boom or bust. For manufacturing, Treasury’s advice is: do nothing.)

If Treasury and the RBA are right in assuming that mineral prices and the dollar will stay high, then their advice makes sense. Australia’s car industry cannot compete globally with the dollar at parity. To try to keep it going would be expensive, and probably futile. Better to cut it off now and retrain its workers for jobs elsewhere.

But there are two problems. First, this advice is based on forecasts, not facts. Treasury and the RBA have not covered themselves in glory in recent forecasting; it’s a long time since either has got a call right. They’re human like the rest of us.

Chris Richardson of Deloitte Access Economics once called it ”a pure punt that China and India will keep growing faster than the world’s miners can keep digging deeper”. It is a gamble that the global supply of minerals will never catch up with the growth in demand. And that’s a big gamble.

If it’s right, then you save money you might have spent trying to salvage industries that are beyond saving. But if it’s wrong, the manufacturing firms you shut down will not come back. We would permanently lose economic capacity that we will need when mineral prices subside.

The second problem is that by doing nothing, you risk sending Melbourne, Sydney and two-thirds of Australia into recession or near-recession, so that the Pilbara and Bowen Basin can be developed at top speed. That is not just bad economics. It is bad politics.

Let me try a forecast: if that’s Labor’s policy, it will end 2013 back in opposition.

War With Iran Will Damage the Global Economy

Filed under: Uncategorized — Mr. Craig @ 3:59 am

THE threat of an Israeli attack on Iran’s nuclear facilities has pushed world oil prices up by 15 per cent in the past month and raised fears that the fissile geopolitics of the Middle East might once again spell global economic havoc.

Israel believes Iran’s nuclear program is approaching a point of no return beyond which it would be impossible to prevent it developing nuclear weapons.

US President Barack Obama is expected to press Israeli Prime Minister Benjamin Netanyahu to defer action in talks in Washington today, to give time for sanctions to have full effect.

Facing an election in November and enjoying the first rays of economic sunshine since the 2008 global financial crisis, Obama does not need a Middle East war and soaring oil prices.

However, there is a strong push in Israel for military action.

“If we do not stop Iran now, later on it will be impossible,” Deputy Foreign Minister Danny Ayalon says.

Israel, which is understood to have its own nuclear weapons, sees a nuclear-armed Iran as an existential threat.

Saudi Arabia has indicated it would seek nuclear capability if Iran achieved it, adding further uncertainty to the stability of the world’s richest oil region.

The next three months are the most likely time for an attack as Iranian skies are clearest during the northern spring.

Iran has declared it will close the Strait of Hormuz as a first point of retaliation for any Israeli raid.

The strait is the seaway through which the oil of Saudi Arabia, Iraq, Kuwait, Iran and the United Arab Emirates is shipped.

Giant oil tankers carrying 18 million barrels of oil every day travel down the 10km-wide outbound shipping channel. This represents a quarter of the world’s oil supply and 40 per cent of seaborne oil trade.

If Iran could block the strait, it would represent a greater disruption to the world’s supplies than those that followed the 1973 oil embargo after the Yom Kippur war, the 1978 Iranian revolution, the 1980 Iraq-Iran conflict or the 1990 Iraqi invasion of Kuwait.

The International Monetary Fund has warned that the world is ill-prepared for a new oil crisis. In a paper prepared for last weekend’s G20 finance ministers’ meeting in Mexico and released on Friday, the IMF said developed countries had run down their emergency stocks while spare capacity in the OPEC countries was no more than average.

“A halt of Iran’s exports to OECD economies without offset from other sources could trigger an initial oil price increase of around 20-30 per cent,” the fund said. “A sustained blockade of the Strait of Hormuz would lead to a much stronger and unprecedented disruption of global oil supply.”

The Australian government is expressing confidence that a crisis could be managed; however, the scale of the turmoil that would flow from a Hormuz Strait closure would far exceed the government’s contingency planning.

The shock from soaring oil prices would also undermine the emerging hopes for a global economic recovery, damaging consumer and business confidence and depressing the terms of trade for oil-importing nations.

Resources Minister Martin Ferguson told The Australian that any reduction of oil throughput in the Strait of Hormuz would inevitably affect global supply.

“The possible impact on Australia will depend on a range of factors, including the length of disruption.”

He said the national energy security assessment completed last year had established that the security of Australia’s supplies of liquid fuels was “robust, with resilience enabling the market to adjust to meet demand in the event of temporary global shocks”.

However, the Australian government is as politically exposed to a new oil crisis as is the Obama administration. Already, the rising oil price is feeding the Coalition’s argument that Australia can ill afford to be introducing carbon taxes.

It will put increasing pressure on the cost of living.

If rising prices turn into a full-blown oil crisis over the next few months, the case for abandoning the introduction of the July 1 start-up for the carbon tax would become overwhelming.

Australia is far more vulnerable to an oil crisis than the level of direct imports from the Middle East would suggest.

Australia’s oil refineries, which still supply 70 per cent of domestic petroleum products, depend on the Middle East for barely 15 per cent of their crude oil supplies.

Domestic oil wells, mostly in Bass Strait, supply 20 per cent, while the balance comes from more than 20 nations including Malaysia, Indonesia, Papua New Guinea, Nigeria and New Zealand.

However, Australia also imports 30 per cent of its refined petroleum products, mostly from Singapore, which depends on the Middle East for more than 80 per cent of its supplies.

The Australian government conducted a review of its energy security late last year. The consulting firm ACIL Tasman modelled a supply disruption in which Singapore’s refineries were out of action for 30 days, depriving the region of 1.4 million barrels a day of production.

This would be similar to the effects of Hurricanes Katrina and Rita, which knocked out Gulf of Mexico oil production and US oil refining in 2005.

One of the study’s authors, Alan Smart, says the shortfall pushed up prices but this was sufficient to close the gap, with demand falling and new supplies becoming available.

“When the price spiked, the market responded very quickly with the gap filled within six days.”

The study concluded that the same could be expected were Australia to lose access to Singapore supplies, with spare capacity elsewhere in Asia quickly brought onstream.

The study found that although prices would rise by 18 per cent, there would be no interruption to economic activity in Australia.

Smart cautions, however, that a localised or regional supply problem such as a refinery shutdown, may be very different from the results of a war in the Middle East.

Singapore analyst with the oil research company Wood Mackenzie Sushant Gupta says that scenarios for a closure of the strait show a major impact on oil supplies throughout the Asian region.

“There is a high dependency on Middle East crude, not just in Singapore, with some economies taking more than 90 per cent of their crude from there.”

Gupta says the spare capacity in the Asian refining industry would be of no use to Australia if the refineries could not get access to crude supplies.

Moreover, countries throughout the region would be principally concerned to secure their own domestic supplies. Countries such as South Korea, which import petroleum but export refined products would divert more of their output to their own market.

Exports from countries such as Malaysia and Indonesia could also fall, at least as a short-term response.

Gupta says that in the event of shortages, Australia would suffer from being at the greatest distance from the regional refineries.

“All the Asian countries will be competing for the same barrels of produce from Singapore. The premium on the products will increase and the countries closest physically to Singapore will have the advantage due to freight.”

Gupta said there would be no additional supplies coming forward to meet shortfalls from Singapore, so it would be up to the market, with a spike in prices, to reduce demand.

So, although Australia currently draws the bulk of its supplies from non-Middle East supplies, the reality is that it is self-sufficient for only 20 per cent of supplies, and the market’s ability to supply the rest would be tested by an extended blockade in the Gulf.

An immediate response would be the drawdown of emergency supplies kept by all nations that are members of the International Energy Agency.

The IEA was established among oil importing countries in the wake of the 1973 OPEC oil embargo and requires all members to keep a minimum of 90 days’ supplies.

In Australia’s case, the reserves are held by the major oil companies as part of their normal commercial operations. The steady slide in Australia’s domestic oil supply has meant that Australia’s reserves are falling short of the requirement, currently standing at 88 days.

ACIL-Tasman warns that the shortfall is likely to increase over coming years; however, it is not enough to make a meaningful difference to Australia’s ability to withstand a crisis.

Ferguson retains sweeping powers under the Liquid Fuels Emergency Act to order the oil companies to give priority to essential fuel users in the event that the nation were confronted with physical fuel shortages.

It is not certain that Iran would succeed in an effort to block the strait, despite the total width of the waterway narrowing to 40km.

Many tankers were sunk during the Iran-Iraq war in the early 1980s; however, shipping technology has greatly advanced since then.

Although modern ships ostensibly make a much larger target, carrying as much as two million barrels of oil each, they are divided into sealed compartments with double-hulls and are much harder to stop or sink, even than warships.

US analysis finds that an attack on one of these vessels by three anti-ship cruise missiles would have only a 12 per cent chance of stopping it.

The same research project found Iran would have to sow a minefield with more than 1000 advanced mines, a task that would take several months, to disrupt shipping, and that would succeed in disabling only half a dozen ships.

The head of the US joint chiefs of staff, General Martin Dempsey, has said Iran would have the capacity to block the strait, but only for a short period.

“We’ve invested in capabilities to ensure that if that happens, we can defeat that.”

The US Fifth Fleet, stationed on the other side of the Persian Gulf in Bahrain, including more than 20 ships including aircraft carriers, could overwhelm the sort of “small suicide boat” attacks which the US believes Iran is planning and provides a credible support to tanker fleet.

American oil researcher Amy Myers Jaffe says it would be difficult for Iran to stop the flow of oil from the Arabian Gulf for long, if at all.

What is beyond doubt, however, is that the moment Israeli aircraft start bombing Iran, the oil price will jump. It has already risen from about $US105 a barrel to $US125 since the start of the year.

The impact on Australia has been diluted by the strength of our currency, which means wholesale petrol prices have risen by only 5.5 per cent this year, but further rises are in prospect.

An analysis by Barclays Capital suggests the oil price would rise to $US150 to $US200 a barrel in the event of an attack; however, estimates are imprecise.

As well as the loss of supply, there would be additional demand from buyers seeking precautionary stocks.

Westpac’s head of international economics, Huw McKay says the world economy remains vulnerable to oil price spikes and adds this was shown in the first half of last year when the Arab Spring pushed oil prices higher.

“That put a spanner in the works for the United States economy at a time when it had finished calendar 2010 with a bit of an upswing. When it ran into the high oil prices and then the Japanese tsunami, the US had a very underwhelming first half year.”

Mr McKay says the situation is similar, with consumers beginning to show a revival in demand. “What the US consumer doesn’t need is a fuel tax hitting them.”

The jump in petrol prices both damages consumer spending and causes an exodus from US motor vehicle industry.

Higher oil prices will also damage the economies of Asia. In several Asian economies, including India and Indonesia, government subsidies to petrol means that rising fuel prices results in a loss of control over the budget.

Chinese think Tank: China Should Pull Mining Funds Out of Australia Because of US ties

Filed under: Uncategorized — Mr. Craig @ 3:30 am

Beijing’s threat to pull mining funds over our US ties

CHINA should exert direct economic pressure on Australia, including diverting mining investments to other countries, to discourage Canberra from seeking closer military ties with the US, a Chinese think tank has warned.

The think tank says Australia is psychologically divided about a rising China and is “wavering strategically” about the extent to which it should cosy up to the US because it fears Beijing’s growing military capability.

In a rare and critical analysis of Australia’s strategic posture published in the US Air Force’s influential Air & Space Power Journal, Liao Kai of China’s Knowfar Institute of Strategic and Defence Studies says Beijing should use a mixture of carrot and stick to encourage Australia not to take its military friendship with Washington too far.

“To some degree, Australians’ vigilance towards China is triggered by the latter’s aggressive procurement of resources from their county,” Mr Kai says. “By diverting its resources investments to more regions and countries, China could enjoy the twofold benefit of, one, mitigating the risk of relying too heavily on only a few sources of supply and, two, making nations like Australia understand that national interests are often reciprocal.

“Using all necessary economic and diplomatic means, China should try to persuade Australia to keep its military co-operation with the US within an appropriate scope.”

The analysis reflects growing concern in China that Australia is too eager to assist US attempts to curb Beijing’s growing strategic influence in the region, especially in the South China Sea.

It was written before the Chinese government on Sunday revealed another double-digit rise in defence spending with an 11.2 per cent increase to top $US100 billion ($93.4bn) this year, following a 12.7 per cent increase last year.

Mr Kai says China was unimpressed by the Gillard government’s decision in November to allow US marines to use Darwin as a permanent training base, and by joint exercises conducted in 2010 with Australian, US and Japanese forces in the South China Sea. “China is likely to interpret all of these developments as acts of assisting the US in tightening the ‘island chains’ (against China in the South China Sea),” he says.

Mr Kai says China was surprised by Australia’s apparent fear of its intentions. “Although China and Australia in no way pose direct threats to each other and have no conflicts of interest, somehow Australia considers China a potential threat to its national security.

“Economically, Australia is already interwoven with China, but at the psychological level its people are divided about their feelings towards the Chinese.”

Mr Kai says the cultural and political differences of the countries have widened in recent years with the jailing of Australian employees of mining company Rio Tinto, and with revelations from WikiLeaks that “former Australian premier Kevin Rudd apparently told US Secretary of State Hillary Clinton to ‘be prepared to use force against China’.”

The report noted that although Australia “has never clarified its stand in the possible US-China conflict, its decision to allow US marines a permanent training facility in Darwin indicated its sympathies lie primarily with the US. “(Australia) may choose to support both China and the US in jointly transforming the regional order, or it may decide to help the US remain the dominant power.”

China to Increase Defense Spending by 11.2 %

Filed under: Uncategorized — Mr. Craig @ 3:01 am

(BEIJING) — China said Sunday that it would boost its defense spending by 11.2 percent in 2012, the latest in a nearly two-decade string of double-digit increases.

Although the planned figure is less than last year’s 12.7 percent increase, China’s military leaders have said they are unhappy with recent moves by the Obama administration to increase the U.S. military presence in the Asia-Pacific region. Only twice since the early 1990s has the increase been less than double digits.

National People’s Congress spokesman, Li Zhaoxing, said China’s defense spending would increase by 11.2 percent over actual spending last year to hit 670.2 billion yuan ($106.4 billion) in 2012, an increase of about 67 billion yuan.

China’s official defense spending is the largest in the world after the United States, but actual spending, according to foreign defense experts, may be 50 percent higher, as China excludes outlays for its nuclear missile force and other programs.

Li, speaking at a news conference a day before the opening of the annual session of the congress, said China’s military spending was small as a percentage of gross domestic product compared to other countries, especially the United States.

“China is committed to the path of peaceful development and follows a national defense policy that is defensive in nature,” Li said. “You see, China has 1.3 billion people, a large territory and long coastline, but our defense spending is relatively low compared with other major countries.”

Last year’s military spending amounted to 1.28 percent of China’s economy, Li said. By contrast, the ratio stood at 4.8 percent for the U.S. in 2010, according to the World Bank.

The increase in defense spending is part of China’ long-term military modernization process, but also is partly spurred by Obama’s new emphasis on the Asia-Pacific, said Sarah McDowall, a senior analyst at IHS Jane’s, a London-based security consultancy.

“It is important to note that Beijing views itself as reacting to the increasingly assertive policies of other countries and has repeatedly said that it does not want to provoke military confrontation,” McDowall was quoted as saying in a news release.

Beijing has mounted a robust defense buildup for more than two decades that has transformed the military into a formidable regional force, increasingly able to project power far from China. While chiefly aimed at the U.S., the buildup is also jangling nerves among Asian rival India and neighbors Japan, Vietnam and the Philippines, which have maritime disputes with China.

Mindful of the unease the burgeoning military has created among its neighbors and the opportunity it has given the United States to raise its profile in the region, Li repeated several times that China’s intentions are peaceful and defensive.

“China’s limited military strength is aimed at safeguarding sovereignty, national security and territorial integrity and will not pose a threat to other countries,” he said.

With the huge outlays, the Chinese military’s armory include the home-built J-10 jet fighter, new nuclear submarines and modern surface vessels armed with supersonic anti-ship missiles. Last year, China began testing a new J-20 stealth fighter and launched sea trials of its first aircraft carrier, a refurbished hulk purchased from Ukraine. Cyber-warfare programs are also burgeoning.

While Beijing insists its military is defensive and is not a threat, defense analysts say the new capabilities are aimed at keeping foreign forces, especially the U.S., out of the seas and airspace around China. The South China Sea has become a new potential flash point, with Beijing’s more powerful navy and an assertive policy to defend contested claims to groups of islands, reefs and atolls, and the U.S. has declared its own interest in making sure sea lanes remain open.

Growing Chinese power and East Asia’s economic importance is driving neighboring countries to boost defense spending and has prompted the U.S. to redirect defense resources to the region. Washington’s moves to rotate new troops to Australia, shore up alliances with other traditional allies Japan and the Philippines while forging new military ties to Vietnam has heightened Beijing’s fears of encirclement.

Global Markets Show Concern Over China’s Lowered Growth

Filed under: Uncategorized — Mr. Craig @ 2:52 am

Worries over China’s economic growth weighed on markets Monday, but an indication that Greece was making headway in convincing private creditors to accept a crucial bond swap helped European stocks clamber off earlier lows.

Investors are increasingly fearful that China’s economy is coming off the boil. Over the past few years, a booming Chinese economy has helped shore up the global economy in the wake of a banking crisis, the deepest recession since World War II and rising concerns over the debt problems afflicting a number of countries that use the euro.

On Monday, China’s premier Wen Jiabao lowered the economy’s growth target to 7.5 percent from the 8 percent it has stood at for years as he outlined plans to boost domestic consumption and to maintain a “prudent” monetary policy.

Analysts said the forecast downgrade was in line with recent pronouncements and did not necessarily mean that China would not be growing by more than 8 percent anyway.

“Actual growth rates typically exceed official targets by a considerable margin, and this does not alter our forecast for 8.4 percent growth in 2012,” said Elsa Lignos, an analyst at RBC Capital Markets.

For much of the day, worries that Greece’s bond swap may not be going according to plan had kept sentiment in check.

However, some relief was provided when the Institute of International Finance, the group representing private creditors in talks with Greece, said a dozen banks, insurers and investment funds holding Greece’s bonds will participate in the swap. Greece needs a sizable majority of creditors accepting the bond swap or else it faces defaulting on its debts, which could trigger turmoil in financial markets.

The investors that have promised to participate in the plan include German insurer Allianz, French bank BNP Paribas, Germany’s Commerzbank and Deutsche Bank, as well as Greece’s Eurobank EFG and National Bank of Greece, the IIF said. The banking group did not say how much Greek debt these institutions hold.

Greece’s bondholders are being offered new bonds worth 53.5 percent in their face value, and which have a longer maturity and lower interest rate. The bond swap deal is one condition of Greece getting a second, euro130 billion ($173 billion) bailout from other eurozone countries and the International Monetary Fund.

Athens has passed into law so-called collective action clauses that would force holdouts to take the deal, but at least 66 percent of Greece’s bondholders have to agree to the deal in the first place.

The statement from the IIF prompted a modest improvement in market sentiment as did more upbeat U.S. economic data — the Institute for Supply Management said its index of non-manufacturing activity rose to 57.3, from January’s 56.8. The markets had been expecting a modest decline. Any reading above 50 indicates expansion.

In Europe, Germany’s DAX closed down 0.8 percent at 6,866.46 while the CAC-40 in France fell 0.4 percent to 3,487.54. The FTSE 100 index of leading British shares ended 0.6 percent lower at 5,874.82.

On Wall Street, the Dow Jones industrial average was down 0.5 percent at 12,915 while the broader Standard & Poor’s 500 index fell 0.6 percent to 1,361.

The rest of the week will see a high level of interest in the release of U.S. economic data culminating with Friday’s nonfarm payrolls figures, which often set the market tone for a week or two after their release.

Russian shares were among the only to rise in Europe on Monday, with the Micex edging up 0.3 percent, as investors took the election of Vladimir Putin as president as a sign of continuing stability. In the longer term, however, analysts say Putin will have to deliver on promises to modernize the economy, reduce corruption and address the grievances of a growing base of political opposition.

Wall Street was poised for a lower opening — Dow futures were 0.4 percent lower while the broader Standard & Poor’s 500 futures fell 0.5 percent.

As well as monitoring developments over Greece’s bond swap, investors will be keeping a close watch on a raft of U.S. economic data this week, culminating on Friday’s nonfarm payrolls figures.

A marked improvement in U.S. economic data, particularly related to jobs, have helped sentiment in the markets recover this year. The main U.S. stock indexes are trading at their highest levels since before the collapse of investment bank Lehman Brothers in 2008.

Earlier in Asia, Japan’s Nikkei 225 index fell 0.8 percent to 9,698.59 and South Korea’s Kospi dropped 0.9 percent to 2,016.06. Hong Kong’s Hang Seng lost 1.4 percent to 21,265.31. Mainland Chinese shares were mixed, with the Shanghai Composite Index closed down 0.6 percent to 2,445 and the smaller Shenzhen Composite Index marginally higher at 981.20.

Oil prices tracked equities lower — benchmark oil was down 60 cents to $106.10 per barrel in electronic trading on the New York Mercantile Exchange. Oil prices remain elevated though, partly because of tensions over Iran’s nuclear ambitions, and have become an increasing drag on stocks over the past couple of weeks.

Meanwhile World Markets showd Serious Concern: 

Chinese Premier Wen Jiabao sent tremors through global markets today as the world’s biggest economy set its least ambitious growth target for eight years.

Wen’s announcement to China’s People’s National Congress will see Beijing target annual growth of 7.5% in 2012, down from the 8% goal that has been in place since 2005. The scaling-back sent the FTSE 100 23.70 points lower to 5887.43, and hit prices of commodities such as copper and natural gas.

In reality, China’s growth target acts as an absolutely minimum floor for growth, with most analysts pencilling in an expansion of around 8% for its economy this year. But growth of 7.5% would represent the weakest growth in 20 years — potentially fuelling political discontent and posing a threat to the country’s autocratic leadership. Wen said “expanding consumer demand” is China’s first priority for 2012 as it attempts to wean itself off exports, heavy industry and huge infrastructure spending as the main drivers of growth. His declaration will be welcomed by deficit nations in the West frustrated by Beijing holding down the value of its currency to protect export markets.

But China also faces a year of political change as Wen and President Hu Jintao prepare to retire next year, raising doubts among some analysts over the extent of proposed reforms.

Macquarie Bank economist Paul Cavey said: “It seems very unlikely there will be huge progress on structural reforms given the political transition. The slower growth numbers just reflect the reality that growth is going to be slower because the rest of the world is going to be weaker.”

QE chances rise

A February wobble for the UK’s powerhouse services firms today raised the chances that the Bank of England’s rate-setters will print more cash to aid the recovery.

The sector — which accounts for around 75% of the economy — saw its slowest pace of growth since last November, according to the latest Chartered Institute of Purchasing & Supply/Markit activity index.

Firms are still confident, but are slashing prices and barely hiring.

“Pressure to discount and undercut the competition is acute,” Cips chief executive David Noble warned.

China Cuts Growth Target to 7.5% Which is an 8 Year Low

Filed under: Uncategorized — Mr. Craig @ 2:30 am

(Reuters) – Chinese Premier Wen Jiabao cut his nation’s 2012 growth target to an eight-year low of 7.5 percent and made boosting consumer demand the year’s first priority as Beijing looks to wean the economy off its reliance on external demand and foreign capital.

He lowered the target from a longstanding annual goal of 8 percent, a move investors anticipated so that Beijing has some economic leeway to rebalance the economy and defuse price pressures in the run up to a leadership change later this year.

Lower growth will allow Beijing to reform key price controls without causing an inflation spike, so monetary policy can stay broadly expansionary to ensure a steady flow of credit to the small and medium-sized firms the government wants to encourage.

“We aim to promote steady and robust economic development, keep prices stable, and guard against financial risks by keeping the total money and credit supply at an appropriate level, and taking a cautious and flexible approach,” Wen said in his annual work report to the National People’s Congress (NPC), China’s annual parliamentary session.

The premier named “expanding consumer demand” as his first priority for 2012, when the ruling Communist Party must also navigate a leadership handover that will send Wen and President Hu Jintao into retirement in 2013.

“We will improve policies that encourage consumption,” Wen told nearly 3,000 delegates of the Communist Party-controlled legislature, gathered under the harsh lights and high ceilings of the Great Hall of the People.

“We will vigorously adjust income distribution, increase the incomes of low- and middle-income groups, and enhance people’s ability to consume,” said Wen.

His annual state-of-the-nation report to parliament dwelled on the institutional and income barriers the government must break to build a more balanced economy that relies less on exports and shares more wealth with hundreds of millions of poor farmers and migrant workers who are reluctant to spend.

Wen and Hu have vowed to wean the economy off dependence on exports, smoke-stack industries and government-backed infrastructure, and promote balanced growth that will elevate the incomes and spending of farmers and workers.

Sources had earlier indicated to Reuters that the growth target would be cut to 7.5 percent. Growth of level would be the lowest since 1990.

In reality, the target acts more as a bar to get over. The 8 percent target set in the previous eight years was comfortably exceeded each year — including in the aftermath of the 2008/09 financial crisis.

“In recent years, the GDP target has obviously always been a minimum acceptable floor rather than a ceiling, so I think it is more likely that in the government’s heart of hearts, it is leaning on growth of a bit above 8 percent,” said Paul Cavey, an economist with Macquarie Bank in Hong Kong.

“It seems very unlikely there will be huge progress on structural reforms given the political transition,” added Cavey.

“The slower growth numbers just reflect the reality that growth is going to be slower because the rest of the world is going to be weaker.”


The highest-value part of China’s growth and around a quarter of its 800 million-strong workforce are dependent on volatile demand and capital from developed economies.

Shifting that balance is a key goal for Wen and Hu, both 69, as they near the end of a decade in power which has seen China become the world’s second-largest economy after the United States, contributing more to global growth than any other nation, while seeing a chasm widen between rich and poor.

The number of Chinese billionaires nearly doubled in 2011 to 146 from 2010, Forbes said.

Stability, steady growth and spreading wealth are core justifications for more than 60 years of one-party rule by the Communist Party, which will install a new cohort of leaders by the end of 2012.

Wen and Hu will officially step down as premier and president at the national parliament session early next year.

The last year in power for Wen and Hu has shuddered with anxieties about inflation, a feverish property market, local government debt, stubborn inequality and social strains from protesting villages to ethnic tensions in western regions.

The NPC is likely to bring into focus a deepening worry that Hu and Wen have squandered chances for reform because of fears of instability ahead of the leadership transition.

When they hand over power in late autumn, China could be headed for its slowest full-year of growth since Hu and Wen took office a decade ago. The economy ended 2011 with its slackest quarter of growth in 2-1/2-years at 8.9 percent as it felt the chill of the euro area debt crisis and a sluggish U.S. economy.

The outlook for the real economy remains cloudy, according to the latest surveys of China’s vast factory sector and the burgeoning services industries that are key to rebalancing growth and generating more stable domestic-driven demand.

A survey from HSBC of purchasing managers in China’s services industry showed the sector running at its fastest in four months, although it was well below its long-term trend.

A similar survey from the National Bureau of Statistics showed services activity running at its slowest pace in a year.

Meanwhile, surveys last week signaled that activity in big firms bounced back in February on strong new export orders while smaller companies lagged behind the rebound.

Credit is crucial to keeping the economy turning. Wen projected money supply growth of 14 percent while setting a 4 percent target for inflation for the year, in line with the target set in 2011.

He said the government would work to prevent a rebound in prices in 2012. Inflation remained stubbornly above official targets in every month of last year.

Wen also pledged to curb speculative demand in the property market, and said the yuan would be kept “basically stable” with strengthened two-way flexibility in the closely managed exchange rate.

He also said the government would defuse rising local government debt, regarded by many investors as the key risk to fiscal sustainability. Government figures show about 10.7 trillion yuan ($1.7 trillion) was owed by local governments at the end of 2010.

The fiscal deficit was targeted at 1.5 percent of GDP, up from the 1.1 percent of GDP in 2011. Spending on domestic security would increase 11.5 percent to $111 billion.

Critics, including prominent policy-advisers, have said the Chinese government can foster healthy long-term growth only by taking on bolder reforms to rein in state-owned conglomerates and other entrenched interests — reforms that ultimately spill into sensitive issues of curbing the party’s own powers.

Wen has stood out among China’s leaders as the most persistent advocate of measured political relaxation, and has cast himself as a passionate advocate for farmers struggling with economic insecurity and land lost to developers.

“We should care more deeply for rural migrant workers and provide more services to them,” he said. “We will place farmland under strict protection.”

($1=6.298 yuan)

Eurozone Services and Composite in Contraction. The European recession will be both long and deep.

Filed under: Uncategorized — Mr. Craig @ 2:00 am

The European recession will be both long and deep.

Eurozone Services and Composite PMI Back in Contraction; Italy, Spain, France at New Lows… mirrors Australia direction as well .

 Markit Eurozone Services and Composite PMIs show renewed contraction due to drop in services activity, making it extremely difficult to deny that Europe is in a recession. Let’s take a look at some numbers.
Markit Eurozone Composite PMI®

The Markit Eurozone PMI® Composite Output Index fell from 50.4 in January to 49.3 in February, dropping below the earlier flash estimate of 49.7. The final reading confirmed that business activity contracted in February, having briefly returned to growth in January following four months of decline at the end of last year.

Key points:

  • Final data confirm slide back into contraction, as drop in services activity offsets marginal rise in manufacturing output
  • Strong downturns still evident in Italy and Spain
  • Employment and prices charged fall as firms seek to cut costs and win new sales

Markit Eurozone Services PMI®

Service sector weakness poses new recession risk

Key points:

  • Service sector activity contracts for fifth time in six months
  • Ongoing fall in new business leads to job losses
  • Growth in Germany contrasts with steeper declines in Italy and Spain
  • Business confidence hits seven-month high

Of the four largest euro countries, only Germany showed expansion in February, and the rate of growth slowed from January’s seven-month high. The French service sector stagnated, ending a two-month period of mild expansion. Both Spain and Italy registered steep contractions, with the rates of decline gathering momentum in both cases.

Nations ranked by business activity (February)

  • Ireland 53.3 12-month high
  • Germany 52.8 2-month low
  • France 50.0 3-month low
  • Italy 44.1 4-month low
  • Spain 41.9 3-month low

Spanish service providers reported a further particularly steep drop in payroll numbers, and employment also fell sharply in Italy’s service sector. French headcounts rose only slightly, while services employment growth in Germany slowed to the weakest since June 2010.

Companies frequently sought to boost sales by cutting prices, and average prices charged for services fell for the fifth time in the past six months as a result. Price trends varied markedly by country, however, ranging from ongoing upward pressure in Germany to steep falls in Spain and, to a lesser extent, Italy. France registered a slight fall in prices charged for services, reflecting the stagnation of new business flows in February.

In contrast to the trend for charges levied by service providers, input prices in the sector rose for the twenty-seventh straight month, pushed up in many instances by higher fuel and energy prices.

Profit Squeeze

Note that prices received fell for the fifth month in six, but prices paid rose for the twenty-seventh straight month. 

Let’s take a look at the second biggest economy, France, to see what is coming up.

Markit France Services PMI®

French service sector output stagnates in February, despite rise in new business.

Key points:

  • Final Markit France Services Activity Index(1) at 50.0 (52.3 in January), 3-month low.
  • Final Markit France Composite Output Index(2) at 50.2 (51.2 in January), 2-month low.

Recent growth of French service sector output slowed to a halt in February, as activity levels stagnated. This was despite a marginal rise in new work intakes, with poor weather impeding output. Nonetheless, backlogs of work declined again, albeit only slightly. A mild increase in staffing levels was indicated. Future expectations strengthened markedly in February, albeit remaining below the long-run series trend. Meanwhile, strong competition led to a further reduction in output prices despite solid input cost inflation.

Spain is in an economic depression as are Greece and Portugal.  Italy is not in a depression but it is a basket case as shown by the business activity above. 

See that positive GDP in the France chart? Don’t expect it to last because it won’t. 

Moreover, austerity measures across the board coupled with a slowdown in Asia strongly indicate the vaunted German export machine is about to break down as well.

The European recession will be both long and deep.

Australia Services Index Plunges Shows Significant Contraction

Filed under: Uncategorized — Mr. Craig @ 1:45 am

Australia Services Index Plunges to Significant Contraction; Bleakest of Views From Retail Shops; Retail and Housing Bloodbath Coming Up

 Two more signs surfaced today that suggest Australia is headed for if not in recession.
Australia Services Index Plunges, Now in Contraction

Bloomberg reports Australian February Services Fall to Lowest in Almost a Year

Australia’s services industry declined in February to the lowest level in almost a year, driven by a drop in new orders as the gap between resources and other industries widens, a private survey showed.

The performance of services index sank to 46.7 last month from 51.9 in January, the weakest reading since March last year, Commonwealth Bank of Australia and the Australian Industry Group said in Sydney today. Fifty is the dividing line between expansion and contraction.

Today’s report, based on a poll of about 200 companies, is similar to the U.S. non-manufacturing ISM index.

Australia Service Index Components

  • Index sank to 46.7 from 51.9
  • Selling prices fell to 44.2 from 46.9
  • Employment measure slid to 47.5 from 51.2
  • Sales declined to 47.5 from 49.4
  • New orders plunged to 45.6 from 54.1
  • Wages indicator dipped to 57.7 from 57.8

This is nothing short of an absolute disaster. That wages have held up is not good news either. Think retailers or any other service industries will be hiring? If so, think again.

Bleakest of Views From Retail Shops

The Herald Sun comments on the Bleakest of views from the shopfronts.

THE Australian retail sector is in trouble like it’s never been before. Not even in the dark days of the 1990 recession.

That should have been made blindingly clear when Woolworths, our biggest and most successful retail group, unveiled on Thursday its first drop in profit in nearly 20 years.

Yes, Woolies is getting out of electronics because it stuffed up with Dick Smith.

This story is repeated, with varying degrees of intensity, across all retail.

The casualty list is long and growing. From women’s fashions – one of the mainstays of shopping – to housewares and home furnishings, to the big department stores.

Sales are struggling, profits are plunging, jobs are being slashed and names are disappearing from high streets and shopping centres.

The article concludes with complete economic drivel…

The numbers from the big listed retailers, such as Harvey Norman and David Jones, are ominous enough. We are not really seeing the havoc wreaked across small mum-and-dad retailing.

Lower interest rates would help, leaving more money in consumers’ pockets.

That’s why it’s not wise to rule out further rate cuts, just because of the continued boom in the resources sector.

The jobs and spending from the boom, at least, put some floor under retail. But for the foreseeable future it’s going to be good for shoppers.

Not so good for shopkeepers. Or the broader economy.

Retail and Housing Bloodbath Coming Up

There is so much misguided drivel in the article that I hardly know where to start.

Here is some nonsense about a shopper’s sweet spot: “For shoppers, it’s something of a sweet spot. They’ve never had it so good. The $100 you spend in a supermarket buys you about 5 per cent more in goods than it did a year ago.

Retail prices in Australia are absurd. A 5% reduction in prices is hardly a bargain. As for the notion mining will carry the economy, forget about it. Commodity prices are going to plunge, and besides, commodities are not a big driver of jobs anyway.

There is no “floor” under retail. The bottom is going to fall out, and unemployment is going to soar. In turn, rising unemployment will clobber Australia’s already deep-in-trouble housing sector.

As for small shops, they are completely doomed. Store owners with little leeway on wages will not get the income they need to pay taxes, interest, utilities, and rent.

Expect an across the board retail and housing bloodbath because one is coming.

More Bad News About China

Filed under: Uncategorized — Mr. Craig @ 1:00 am

World Bank Warns of Economic Crisis in China; Only 3% Growth for Decade Says Michael Pettis

 A World Bank report to be released next week warns of an economic crisis in China unless state-run firms are scaled back. The Wall Street Journal discusses the report in New Push for Reform in China 

An exclusive preview of an economic report on China, prepared by the World Bank and government insiders considered to have the ear of the nation’s leaders, offers a surprising prescription: China could face an economic crisis unless it implements deep reforms, including scaling back its vast state-owned enterprises and making them operate more like commercial firms.

“China 2030,” a report set to be released Monday by the bank and a Chinese government think tank, addresses some of China’s most politically sensitive economic issues, according to a half-dozen individuals involved in preparing and reviewing it.

The report warns that China’s growth is in danger of decelerating rapidly and without much warning. That is what has occurred with other highflying developing countries, such as Brazil and Mexico, once they reached a certain income level, a phenomenon that economists call the “middle-income trap.” A sharp slowdown could deepen problems in the Chinese banking sector and elsewhere, the report warns, and could prompt a crisis, according to those involved with the project.

It recommends that state-owned firms be overseen by asset-management firms, say those involved in the report. It also urges China to overhaul local government finances and promote competition and entrepreneurship.

China’s Difficult Transition From an Unsustainable Growth Model

Peak oil, a housing bubble, bad debts and over-reliance on investments with no genuine economic feasibility guarantee China’s current boom is not sustainable. China bulls are in for a ride awakening when various bubbles pop.

As for recommendations, the report  proposes a sharp increase in the dividends that state companies pay their owner (the government) in order to boost revenue and pay for new social programs.

Does China need to increase competition, break apart, and privatize the state-owned monopolies?
Or should China simply increase the dividends?

I vote for the former as does Michael Pettis at China Financial Markets.

Via email, Pettis says:

The report is good as far as it goes, but it doesn’t go far enough. Of course increasing SOE dividends to the government for use in social programs will transfer wealth from the state sector to the household sector, but if the total profitability of the SOE sector is less than one-fifth to one-eighth of the direct and indirect subsidies transferred from the household sector, as I have argued many times, then even 100% dividends is not enough to slow the transfer significantly, and remember the transfers have to be reversed, not merely slowed. This proposal falls in the better-than-nothing category, but just.

What we really need are much more dramatic transfers, for example wholesale selling of assets, with the money used either to clean up bad loans or delivered directly to households. According to the article, however, “neither the World Bank nor the DRC proposed privatizing the state-owned firms, figuring that was politically unacceptable.”

This is the problem. The best solution for China, economically, seems to be off limits because it will be politically difficult. In that case the second best solution, a gradual build-up of government debt as growth slows for many years, is the most likely outcome.

And how much will growth slow? The World Bank report apparently doesn’t say, but the consensus has been slowly moving down towards 5-6% annual growth over the next few years.

That’s better than the crazy numbers of 8-9% most analysts were predicting even two years ago (and some still are), but it is still too high. GDP growth rates will slow a lot more than that. I still maintain that average growth in this decade will barely break 3%. It will take, however, at least another two or three years before a number this low falls within the consensus range.

And by the way when it does, metal prices should fall sharply. Copper prices have done reasonably well in the past few months as Chinese buyers have restocked, as we suggested might happen to our clients last fall. With the recent easing we may see more strength in copper over the next month or so, but I have little doubt that within two or three years copper prices are going to be a whole lot lower than they are today. Chinese investment demand simply cannot hold up much longer.

Sad State of Political Acceptability 

The report makes feeble recommendations to ensure the proposals are “politically correct”. This is a bad practice for three reasons.

  1. You only damage your own credibility
  2. You presume perhaps incorrectly what is politically acceptable
  3. You plant false hope that incorrect solutions will work, when it’s clear they will not

It would be far better list the alternatives and the limitations of those alternatives, then provide an honest assessment rather than assume something cannot be done. Unfortunately, telling people what they want and expect to hear is the sad state of political pandering everywhere.

Did We really Have 3%Economic Growth in 4th Quarter 2011

Filed under: Uncategorized — Mr. Craig @ 12:45 am

Economy Grew 3.0% Annualized, Faster Than Expected in 4th Quarter; Or Did It?

 Reuters reports Economy grew faster than expected in fourth quarter

Gross domestic product expanded at a 3 percent annual rate, the quickest pace since the second quarter of 2010, the Commerce Department said on Wednesday in its second estimate.

The reading, which was up from the 2.8 percent pace the government reported last month and reflected modest upward revisions to almost all components of GDP, added to the recent run of fairly upbeat economic reports.

Consumer spending, which accounts for about 70 percent of U.S. economic activity, was raised to a 2.1 percent rate of increase from 2 percent. At the same time, growth of real disposable income was revised up to a 1.4 percent rate from 0.8 percent.

“Consumers are spending from rising income rather than digging into their savings to spend,” said Shulyatyeva.

Business investment in capital goods was lifted to a 2.8 percent pace from 1.7 percent, but still weak compared to the recent trend. Outlays on home building were firmer than previously estimated, while investment on nonresidential structures was modestly weak.

While a rebuilding of inventories added a hefty 1.88 percentage points to GDP in the last quarter, the increase was revised down to $54.3 billion from $56.0 billion.

“The large boost to GDP growth from stock building in the fourth quarter is unlikely to be repeated in first quarter but the household accounts provide a much more encouraging backdrop for consumer spending,” said Peter Newland, a senior economist at Barclays Capital.

Excluding inventories, the economy grew at a 1.1 percent rate, rather than the 0.8 percent initially reported. That was still a sharp step-down from the prior period’s 3.2 percent pace.

The report also showed exports were not as strong as previously thought, but imports are also not growing strongly, leaving a smaller trade gap that was less of a drag on growth.

It also showed still moderate inflation pressures, though a

price index for personal spending rose at a 1.2 percent rate instead of 0.7 percent.

GDP Price Indices  

The rise in income is nice but excluding the inventory correction, the rise in GDP was anemic.

Moreover, please note Excel Spreadsheet Table 4.–Price Indexes for Gross Domestic Product and Related Measures: Percent Change From Preceding Period in the BEA’s GDP Report. 

My friend BC Writes

Does anyone actually believe prices decelerated at a 70% quarterly annualized rate in Q4?

Had the trend rate of the deflator held from Q1-Q3, annualized real GDP for Q4 would be 1.3% instead of 3%, 1.2% yoy, and a slight contraction q-q for real final sales and barely 1% yoy (historically recessionary).

It would not surprise me were the NBER in 3 quarters or more to date a recession as having begun in Q1 ’12 after the economy stalled in Q4 ’11.

BTW, the Treasury withholding receipts from Jan. to Feb. indicate a contraction in employment, which fits with Gallup’s self-reported employment survey.

The Biggest problem with A LOW 2% Inflation Is Households Already Are Experiencing Higher

Filed under: Uncategorized — Mr. Craig @ 12:20 am

Huge Problem With Bernanke’s 2% Inflation Target Explained in Pictures

 Ben Bernanke wants prices to rise 2%. There are numerous problems with such a proposal, the first being increases in money supply sometimes lead to asset bubbles and not increases in prices of consumer goods.

Indeed the Fed completely ignored (if not encouraged) the housing bubble because home prices are not in the CPI. A housing bubble and a housing crash was the result.

The second major problem with inflation targeting is prices may go up, but wages may not necessarily follow. Indeed they haven’t. Let’s start with a graph of 2% price inflation over time.

Inflation Targeting at 2% a Year

click on any chart for sharper image

Real Disposable Personal Income

That chart nicely shows a slight parabolic pattern similar to the start of the first chart. However, that growth is a mirage based on population changes. Let’s factor out population increases.

Real Disposable Personal Income Per Capita

Real Disposable Personal Income Per Capita Detail

Income Gap Discussion

That “Income Gap” is not the only problem. One must also consider “skew”. As a result of Fed policies, there have been some income gains, but only at the top end.

“Per Capita”, by definition, averages out those gains.

In reality, a select few percent have done exceptionally well as a result of Bernanke’s tremendously misguided policies. Another few percent have simply done well, and another perhaps slightly larger group have barely kept up.

The bottom 80 percent or so have fallen much further behind than the per capita charts suggest.

Except for the banks, brokers and bondholders, and everyone else bailed out by the Fed, most have been clobbered by Fed policies.

Ironically, many of those bailed out have the unmitigated gall to whine about their plight. Please See Unbelievable Stress of Making “Only” $200,000 After Taxes for details.

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