Finance / the Economy

• State Led Corruption in Russia

  The highly publicized cases of Sergei Magnitsky -- a 37-year-old lawyer who died in pretrial detention in November 2009 after exposing a multimillion-dollar fraud against the Russian taxpayer -- and Mikhail Khodorkovsky, the jailed business magnate who was sentenced at the end of 2010 to remain in prison through 2017, have again put the international spotlight on corruption in the Russian state. By the time of his death, the ailing Magnitsky had been complaining for weeks that he was being denied adequate medical treatment for acute stomach pain. The subsequent inquiry into his demise represented a serious miscarriage of justice.…

• Japanese Reconstruction Investment Opportunities

  As destructive as the Japanese tsunami has been, it may have left some investment pearls in its wake. It has suddenly made available some of the country’s best of breed, world beating companies available at throw away prices. But this is going to be an investment for longer term money, not a trade, as some patience may be required for a payday. There is no doubt that the economy has suffered a body blow. I believe that quarterly GDP growth has swung from a 2% to a -3% rate, a flip of 5%. Electricity shortages are the biggest problem, followed…

• How US Job Losses Will End

  I am not in the habit of regularly lifting data out of the Wall Street Journal, but even a blind squirrel occasionally finds an acorn. I was tempted by the comparative Asian wage data they published, which I just have to get into my data base. Textile workers earn $2.99 an hour in India (PIN), $1.84 in China (FXI), and $0.49 in Vietnam (VNM). This is an 18 fold increase in labor costs from ten cents an hour since Chinese industrialization launched in 1978. This compares to the $8 an hour our much abused illegals get at sweat shops in…

• Criticism of US Dollar Hegemony Getting Louder

  The performance of the US dollar constitutes a central determining factor for the development of the oil price. The criticism of the US dollar hegemony is getting louder on a daily basis. The Chinese rating agency Dagong Global Credit has recently downgraded the rating of the United States to AA. According to Dagong the quantitative easing has sustainably eroded the legitimacy of the US dollar as global reserve currency . The agency saw the USA as lacking in willingness to pay off its debt and accused it of being ignorant vis-à-vis its creditors. The following graph illustrates the fact that…

• Too Early to Estimate Economic Cost of Japanese Earthquake

  As Japan reels from the human catastrophe of the earthquake and tsunami that struck on Friday, the insurance industry said it is too early to estimate the economic losses. On Friday, Japan was struck by a massive earthquake, which triggered a devastating tsunami. Prime Minister Naoto Kan said that the country is facing its worst disaster since World War II and more than 10,000 are feared dead. On the first day of trading after the earthquake and tsunami, the Nikkei 225 closed at 9,620.49, a 6.18% drop. The Bank of Japan injected ¥15 trillion ($184 billion) into the money markets…

• Rampant Wage Inflation Strikes China

  I rely on hundreds of “moles” around the world whose job it is to watch a single, but important indicator for the world economy. One of them checks for me the want ads in the manufacturing mega city of Shensen, China, and what he told me last week was alarming. Wage demands by Chinese workers have been skyrocketing this year. The biggest increases have been at the low end of the spectrum, where migrant workers from the provinces are earning up to 40% more than a year ago. Wage settlements of 20% or more for trained workers are common. One…

• A Chinese "Black Swan"

  According to an old saying on the stock exchange, “if the USA sneezes, the rest of the world catches a cold”. But in the meantime it would seem as if this had become true for China. We remain critical vis-à-vis the unlimited China optimism that seems to be the current consensus. The Chinese economy has grown by almost 10% per year in the past ten years. According to Bloomberg, the consensus expects real growth of 7.7% p.a. for the next 20 years, which we regard as drastically over-optimistic. The extrapolation of historical growth rates is dangerous, as a look through…

• Money and Reserves

  I wanted to offer some clarification on stories about all the money that the Federal Reserve is supposedly printing. It depends, I guess, on your definition of "money." And your definition of "printing." When people talk about "printing money," your first thought might be that they're referring to green pieces of paper with pictures of dead presidents on them. The graph below plots the growth rate for currency in circulation over the last decade. I've calculated the growth rate over 2-year rather than 1-year intervals to smooth a little the impact of the abrupt downturn in money growth in 2008.…

• The Global Economy: What Next?

  4XP foresees much on the financial front of 2011. The previous financial year really did witness a lot of ground-breaking events from the global economy. Oil prices rose from right under the eyes of traders, and currently threatens a global recession if they rise further past $100 a barrel. And what about the euro? The single currency seemed so promising and immune to the global economic crisis that we witnessed in recent years. This all came to a climax with the Greek and Irish debt crises in late 2010. The US Federal Reserve under Ben Bernanke has to top this…

• Reading the Nonfarm Payroll Tea Leaves

  Lifetime followers of the monthly nonfarm payroll report were more than a little amused by the Friday numbers, which could not have been more contradictory, conflicting, and confusing. The headline figure showed a gain of a paltry 36,000, yet the unemployment rate plunged 0.6% to 9.0%, one of the sharpest drops on record. In fact, the unemployment rate has fallen nearly 1% in two months, one of the sharpest drops on record. Sifting through the tea leaves, these numbers reveal far more than meets the eye. Here are the high points: *The unemployment rate dropped sharply because people are giving…