Finance

• China's Bubble of Rapid Economic Expansion Could Soon Burst

  China's problems are piling up, just when the celestial kingdom is attempting an orderly handover of power. Since China's wild grab for commodities over the past 2 years has been a powerful driver of global energy markets, it will be interesting to watch global commodities markets as the China bubble begins to deflate. In economics, "cycles are forever." But China's insular government and its massive population are unfamiliar with economic concepts such as "what goes up, must come down." Watch and learn.  Chinese stocks are flashing warning signs. The Shanghai index has fallen 30pc since May. It is off 60pc…

• Iraq: An Army of Soldiers to be Replaced by an Army of Businessmen

  After nearly nine years, all US Forces are mandated to withdraw from Iraqi territory by 31 December 2011 under the terms of a bilateral agreement signed in 2008. Now the job facing the war-torn country is to re-build its economy. On Tuesday, prime minister Nouri al-Maliki gave a presentation to more than 400 executives representing a wide range of industries including petroleum, engineering and construction, commercial aviation, architecture, maritime cargo and financial services; the leaders of American commerce and industry, to proclaim Iraq’s “limitless” opportunities “open for business” to American investors. He said that, "It is not now the generals…

• What Does China's Reduction in Oil Imports and Trade Suggest?

  Several articles have come out recently drawing on November oil imports, trade and electricity data to suggest China is slowing rapidly and potentially heading for a hard landing. The FT reported this week that Chinese export and import growth both decelerated in November, suggesting Beijing could soon halt appreciation of the renminbi as a result. A move added some credence by comments made by the former vice-prime minister, Zeng Peiyan, and a senior delegation of Chinese business leaders to a New York gathering of hedge funds and bankers seen as a preemptive strike. The Chinese message was stark, according to…

• China’s Economy Threatened by Water Shortages

  Companies in China that use water efficiently will be better positioned to profit in an economy increasingly at risk from water stress and new water regulations, according to analysis by HSBC. Nine of China’s 31 provinces suffer from extreme water scarcity and 11 are very water inefficient, the bank says in its China’s rising climate risk report. The economies of 14 provinces could be at risk from water stress, because they rely heavily on manufacturing industries, it said. Government has recognised this and has responded with a target in its 12th five-year plan (2011-15) to cut by 30% the water…

• Rough Seas Ahead for Brazil's Booming Economy

  Brazil has fared better than most over the last year or two. True, the country does have a problem with inflation, which has proved stubbornly hard to contain, and a strong currency has caused severe problems for Brazil’s exporters. Yet the country has low unemployment (part of the reason they have strong wage inflation), robust growth, and a trade surplus of $20.3 billion in 2010. All is not quite as solid as it seems though, according to an FT article. Except for the export revenues of one company, that surplus would have been a deficit. Not that Vale’s exports are…

• The Stock Market's Dream Scenario

  I’m sitting here with a mountain of technical analysis reports that are causing my desk to buckle this morning, all shouting “breakout”, “buy”, and “uptrend”. So I’m wondering, “is there a scenario out there where these might actually come to pass?” At this point I thought it might be useful to engage in what Albert Einstein called “thought experiments” and come up with a New Theory of Everything. In any case, you have probably all figured out that I am a frustrated novelist. As my old friend and former mentor, Sherlock Holmes, used to say, “Eliminate the obvious, and consider…

• Get Ready to Short the Euro Again

  The financial markets exploded to the upside overnight with news of Europe’s triple resolution of their sovereign debt crisis. As I predicted in my letter only yesterday, the move has caught traders by surprise, enabling markets to break out to the upside from the recent ranges, and give this fall rally longer legs than most expect. As I write this piece, the (SPX) futures have popped to 1275, a new high for this move. Ten year Treasury yields have ratcheted back up to 2.26%, and the dollar is in full flight against a basket of currencies. Here are the details…

• 2012 and the Coming Financial Crises

  It looks to me as though 2012 is likely to be a truly awful financial year, with several crises converging: 1. Either very high oil prices or recession,2. The US governmental debt limit crisis,3. The Euro crisis,4. The Chinese debt problem,5. Debt deleveraging in the US and elsewhere,6. Further MENA (Middle East/North Africa) political problems, and7. Conflict between need for greater resources and pollution issues. It seems to me that we may be reaching “Limits to Growth,” as foretold in the book by the same name in 1972. The book modeled the consequences of a rapidly growing world population and finite resource supplies. A wide range of…

• European Debt Crisis: Is This the Beginning of the End?

  Almost exactly two years since the onset of the Greek debt crisis, the European Commission has set out to create a comprehensive strategy to rein in the crisis and return to a viable path of economic prosperity. The deadline: Sunday, October 23. With fiscal instability and credit contagion continuing to rock markets internationally, the world’s leading economies emphasized the need for immediate action at the recent G20 meeting. The group of finance ministers and central bankers pressured Europe on Saturday to “decisively address the current challenges,” and complete a plan before this weekend to resolve the sovereign debt crisis. Japanese…

• The 65 Year Debt Bubble and a New Financial System

  When I write about high oil prices having an adverse impact on the economy, quite a few readers respond by saying, “No, most (or all) of the problem is a debt bubble.” They seem to think that poor underwriting of mortgages a few years ago allowed a debt bubble. Once this bubble is past, or some similar bubble, our problems will be over. I decided to see when the debt bubble really started. The answer surprised me–it appears that we have been building a debt bubble since at least 1945 (Figure 1 – based on Federal Reserve data).Figure 1. US…