Re: The pressure increases on the eurozone


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These types of articles have gotten respectable and are getting more strident by the hour.

I do think a banking crisis where the national government can’t or won’t write the check freezes the entire payments system, as no one will want to keep any funds in a eurozone bank, nor will they have anywhere to go other than actual cash.

Gold had been benefiting by all this, but looks to me like a major bubble that breaks when the eurozone resolves itself one way or another.

>   
>   On Mon, Feb 16, 2009 at 5:27 PM, wrote:
>   
>   Even the euro enthusiasts are now starting to contemplate the break-up
>   of the European Monetary Union, which basically would finish the euro.
>   This problem is becoming evident to more people in the euro zone, but
>   not reflected yet in policy:
>   

Narrow-minded leadership hurts Europe

by Wolfgang Münchau

Feb 15 (Financial Times) — “It is justifiable if a factory of Renault is built in India so that Renault cars may be sold to the Indians. But it is not justifiable if a factory … is built in the Czech Republic and its cars are sold in France” – Nicolas Sarkozy, president of France.

This is a troubling statement indeed. But instead of launching a tirade against Mr Sarkozy, I would like to make an observation that is perhaps not immediately evident: his statement is entirely consistent with the way the European Union has reacted to the financial crisis.

To see the link between crisis management and the rise in protectionism, look at the initial policy response to last September’s financial shockwaves. European leaders have woefully underestimated the crisis and possibly still do. The European economy is now heading towards a depression, with German gross domestic product falling at an annualised rate of almost 9 per cent. The early misjudgment of the crisis resulted in stimulus packages with two defects. They were initially too small but, more importantly, they were not co-ordinated. One important aspect of the economic meltdown is the presence of strong cross-country spillovers, both globally and inside the EU. The policy response failed to take account of these spillovers.

For the bank bail-out programmes, the EU managed to set a minimum level of competition rules, but these programmes, too, were national and not co-ordinated. So how does the combined effect of these two unco-ordinated responses lead to protectionism?

If stimulus money is dispersed at national level, governments naturally try to make sure that the money stays inside their countries. The prospect that consumers might spend the money on imported goods was one of the reasons why eurozone governments were reluctant to cut taxes. Because of EU competition rules, the same logic also applies to government purchases. Under those rules, governments had to open public projects to EU-wide tenders. If you play by the rules, keeping the cash in your country is not easy.

Governments have since relaxed those rules. In other words, if you want to make sure that these programmes function in their warped way, you have to dismantle the single market. The same logic applies to the bank rescue packages. If the European Commission tried to block each uncompetitive bank rescue, it would be blamed for causing a financial collapse. Governments have found a way to circumvent the EU, by breaking so many rules at once, that the Commission cannot even begin to react effectively.

Expect to see three effects with progressively destructive force. The first is that the stimulus is much less effective than it could otherwise have been. When everybody tries to gain a competitive advantage over each other, the effects usually cancel out.

Second, the stimulus and bank rescue packages harm the single European market directly. The French subsidies are more blatant, as is the protectionist rhetoric of its president. But everybody in Europe plays the same game. It is not as though the single market is the default position for European commerce. Much of the service sector is exempted. Europe lacks an effective pan-European retail infrastructure and retail banking system. Reversing this programme long before it is completed would be a mistake.

Third, and most destructive, the combined decision on stimulus and financial rescue packages poses an existential threat to monetary union. A blanket loan guarantee to every bank, as most governments have granted, in combination with indiscriminate capital injections and a reluctance to restructure, will mean the transformation of private into sovereign default risk – aggravated further by the economic downturn. Some insolvent banks are now owned by the state, while the bulk of damaged, not-yet-insolvent banks are lingering on, hoarding cash. This programme is a drain of resources with no resolution in sight.

I would now expect several eurozone countries with weak banking sectors to get into serious difficulties as the crisis continues. There is a risk of cascading sovereign defaults. If this was limited to countries of the size of Ireland or Greece, one could solve this problem through a bail-out. But solvency risk is not a problem confined to small countries. The banking sectors in Italy, Spain and Germany are increasingly vulnerable.

When European leaders meet for their anti-protectionism summit on March 1, they will produce warm words to reaffirm their commitment to the single market. I suspect they will continue to misdiagnose the crisis. Protectionism is not the root of the problem. The protectionism we are experiencing now is caused by co-ordination failure. It is neither sudden, nor surprising.

The right course would be to solve the underlying problem – to shift at least some of the stimulus spending to EU or eurozone level and, ideally, drop those toxic national schemes altogether and to adopt a joint strategy for the financial sector, at least for the 45 cross-border European banks. But this is not going to happen. It did not happen in October, and it is not going to happen now. As a result of the extraordinary narrow-mindedness of Europe’s political leadership, expect serious damage to the single market in general and the single market for financial services in particular. As for the eurozone, I always argued in the past that a break-up is in effect impossible. I am no longer so sure.


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Saudi production falls


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Saudi’s production falls as they work to regain control of price after the Great Masters Inventory Liquidation runs its course.

OPEC Oil Output Fell 1.5% in December, Survey Shows

by Diane Munro and Margot Habiby

Jan. 6 (Bloomberg) &#8212 Crude-oil production from the 13 OPEC members in December declined 475,000 barrels a day from November, the latest Bloomberg survey of producers, oil companies and industry analysts shows. Figures are in the thousands of barrels a day.

Opec Production
December 2008

Opec Country Dec Est. Nov. Output Monthly Change Nov. 1 Target Est. vs. Target Est. Cap. (@)
Algeria 1,330 1,360r -30 1,286 44 1,450
Angola 1,820 1,850 -30 1,801 19 2,000
Ecuador 500 500 0 493 7 500
Indonesia* 840 850 -10 900
Iran 3,850 3,820 30 3,618 232 4,100
Iraq* 2,345 2,320 25 2,500
Kuwait# 2,500 2,550 -50 2,399 101 2,650
Libya 1,690 1,710 -20 1,623 67 1,800
Nigeria 1,900 1,880 20 2,050 -150 2,500
Qatar 790 790 0 785 5 900
Saudi Arabia# 8,400 8,800r -400 8,477 -77 10,800
U.A.E 2,350 2,350 0 2,433 -83 2,800
Venezuela 2,320 2,330 -10 2,341 -21 2,500
Total OPEC-13 30,635 31,110r -475 35,400
Total OPEC-11* 27,450 27,940r -490 27,308 142 32,000

*Quotas effective Nov. 1, 2008. OPEC agreed at its Dec. 17 meeting in Algeria to cut its quota target by 2.463 million barrels a day from the previous level, to 24.845 million barrels daily from Jan. 1. The quota target excludes Iraq, which has no formal quota, and Indonesia which left OPEC at end-2008.

>   
>   On Thu, Jan 8, 2009 at 9:56 AM, David wrote:
>   
>   I honestly don’t like or trust a lot of the “World
>   Oil Demand” stats that many people look at.
>   I think perhaps the EIA/DOE figures compiled
>   below are most realistic, if not a bit lagged.
>   Seems to show steady decline in US/OECD,
>   rising China and flat/rising ME and rest. Wish
>   they had an India bucket to be frank, have
>   requested a few times already.
>   

Thanks, still looks like the world is reasonably close to the edge, and any pickup in world economic activity could be problematic.

Saudi Production (Dec)


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India doing OK?


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Yes, if they keep up that much criticized deficit spending.

And the new regional ’employer of last resort’ program helps as well.

Indian Economy to Grow About 7% This Fiscal Year

by Kartik Goyal

Jan 8 (Bloomberg) — India’s economy will grow about 7 percent in the 12 months ending March 31, Prime Minister Manmohan Singh said in Chennai today. “Despite the global economic downturn, the fundamentals of Indian economy continue to remain strong,” Singh said. “Much of India’s growth is internally driven and I expect we can maintain a strong pace of growth in the coming years.”


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Energy issues have not gone away yet


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It’s too early to say for sure the Mike Master’s sell off has run its course.

I looked at the announced OPEC supply cut as evidence they think it has.

Net supply issues remain and at least so far demand destruction has only meant a slowing growth of consumption.

Crude Oil Rises on Surge in Global Equities, Possible Fed Cut

By Alexander Kwiatkowski

Supply Declines

Global crude-oil output is falling faster than expected, leaving producers struggling to meet demand without extra investment, the Financial Times said, citing a draft of an International Energy Agency report.

Annual production is set to drop by 9.1 percent in the absence of additional investment, according to the draft of the agency’s World Energy Outlook obtained by the newspaper, the FT reported. Even with investment, output will slide by 6.4 percent a year, it said.

The shortfall will become more acute as prices fall and investment decisions are delayed, the newspaper said. The IEA forecasts that the rising consumption of China, India and other developing nations requires investments of $360 billion a year until 2030, it said.

OPEC Considers Meeting

The Organization of Petroleum Exporting Countries’ decision last week to trim production for the first time in almost two years failed to stop prices falling yesterday.

“If circumstances dictate we have another meeting, of course we will meet,” OPEC Secretary-General Abdalla el-Badri said at the Oil & Money conference in London. He said he expects a market response to last week’s output cut after about a week.

Shokri Ghanem, chairman of Libya’s National Oil Corp., echoed el-Badri’s comments, saying he’s watching the market to see whether it’s deteriorating or stabilizing.


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OPEC to cut output


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Saudis still price setters, this is just a smoke screen to disguise that. The great Mike Master’s sell off that also triggered the last leg of the financial crisis must have run it’s course in the crude markets. Price hikes may return, this time with no excess inventory and very weak world economies. If their motives are the destruction of the Great Satans and Putin is with them it’s going to get very, very ugly.

OPEC’s oil supply must be ‘significant’- Khelil

(Reuters)- OPEC oil producers will cut oil supplies when they meet next week in Vienna and “the reduction must be significant,” the group’s president, Chakib Khelil, was quoted as saying on Saturday.

“There will be a reduction of the output and the reduction must be significant to restore the balance between supply and demand,” Algerian state news agency APS quoted Khelil as telling reporters.

The Organization of the Petroleum Exporting Countries will hold an emergency meeting on Oct. 24 in Vienna to discuss the impact of economic weakness on oil markets.

“If the cut is 1.5 million barrels per day, then it will be 1.5 million barrels. If it is 2.0 million barrels per day, it will be 2.0 million barrels per day,” added Khelil, who is also Algeria’s energy and mining minister.

Saudis will just start raising their posted prices and let their quantity adjust. The fall in demand for their output won’t be all that much as prices rise, suggesting to an unsuspecting world OPEC didn’t cut as much as they proclaimed.

Earlier, Khelil was quoted in Saturday’s edition of Algerian daily El Watan as saying that OPEC saw oil prices bottoming at $70-$90 per barrel.

“Normally, OPEC has no price target. The market decides on prices. But people say that the bottom price, the bottom cost below which we can not step down, is between $70 and $90 per barrel,” El Watan quoted Khelil as telling reporters.

What they are really saying is the Saudis decide the price, and the markets then determine how much they want to buy at that price.

He cited cases of Canada and Brazil, where oil could not pumped if prices were to fall below $70 per barrel.

On Friday, Khelil told Algerian state radio a “decision will be taken to lower oil supply by some OPEC members so that the oil price will not be damaged.

“This decision will not be implemented immediately because there are contracts, but will probably be implemented 40 days after it (the decision) is taken.” He did not say which countries were likely to cut supplies.


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EU leaders to agree to relax stability rules


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This will only move them closer to brink of investors refusing to buy their debt.

EU leaders agree to relax Stability Pact rules (Roundup)

by Siegfried Mortkowitz

Paris – To help prop up their banking systems, European leaders meeting Saturday in Paris agreed to loosen the requirements of the European Union’s Stability and Growth Pact, which imposes rules on member states regarding their public spending.

French President Nicolas Sarkozy, German Chancellor Angela Merkel, British Prime Minister Gordon Brown and Italian Prime Minister Silvio Berlusconi also called for an international conference of the 14 largest industrial nations to ‘rebuild the international finance system,’ as Sarkozy phrased it.

Also attending the mini-summit of the EU’s four members of the G8 group of industrial nations were European Commission head Jose Manuel Barroso, European Central Bank (ECB) president Jean-Claude Trichet and the head of the Eurogroup, Luxembourg Prime Minister Jean-Claude Juncker.

The meeting was called by Sarkozy, currently president of the EU, to formulate a common European position to surmount the finance crisis.

A statement released after the talks said, ‘The application of the Stability and Growth Pact should also reflect the current exceptional circumstances.’

This was a victory for Sarkozy, whose closest advisor, Henry Guaino, earlier this week had declared: ‘Temporarily, (the Stability Pact) is not the priority of priorities. The priority is to save the world banking system and therefore save citizens’ savings.’

The criteria, set out in the Treaty of Maastricht, include a national budget deficit totalling less than 3 per cent of gross domestic product (GDP) and public debt not exceeding 60 per cent of GDP.

The leaders at the meeting also called for an international conference on the financial crisis that would include the G8 countries and large developing economies such as China, India, Brazil and South Africa.

‘We will work with all major economies to rebuild the international banking system,’ Berlusconi told journalists when asked about the purpose of the meeting of the so-called G14.

Sarkozy said the aim of the international conference would be to construct ‘the foundation of an entrepreneurial capitalism instead of a speculative capitalism. We want to build the beginning of a new financial world as they did in Bretton Woods.’

The 1944 international meeting in Bretton Woods established the rules for commercial and financial relations among the world’s major industrial states.

The EU leaders also agreed to work to change European accounting rules, increase regulation of credit rating agencies and hedge funds and alter the way executives are rewarded, in order to prevent the payment of ‘golden handshakes’ – that is, exorbitant severance payments – to executives who have created risk for their companies.

‘Executives who failed must be penalized,’ Sarkozy said.

The summit was preceded by a controversy over a proposal to create a 300-billion-euro (413-billion-dollar) fund to bail out struggling financial insitutions, similar to the plan passed by the US House of Representatives and signed into law by President George W Bush late Friday.

Reportedly supported by the Dutch and the French, the idea was summarily rejected by Germany and Britain, and was not on the summit’s agenda.

Sarkozy told journalists that the idea was not his.

‘I never assumed it, I never proposed it, I never imagined it,’ Sarkozy said.

Instead, in line with German and British wishes, each EU member state is to aid its troubled banks with its own funds, but after discussions with other countries, a reference to the unilateral decision by the Irish government to establish a 100-per-cent guarantee for depositors in the six largest Irish-owned banks.

The move, made without consultation with the European Commission, has already attracted investors away from British banks, and has put pressure on the Brown government government to match it.

Merkel said that the European Commission and the ECB would talk to the Irish about their move, which contravenes the EU’s state aid and competition requirements.

‘But my satisfaction about (this solution) is limited,’ the German chancellor said.

Decisions taken at Saturday’s mini-summit are to be further elaborated at Tuesday’s meeting of EU finance ministers and at the October 15-16 EU summit in Brussels.


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Bloomberg: Inflation weakening some currencies


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Interesting how reports of higher inflation have often meant stronger currencies in the short run due to higher anticipated rates from the CB.

Inflation, however, by definition means the currency buys less of most everything; therefore, inflation and a weakening currency are one and the same.

But it can take a long time for markets to discount this.

Emerging-Market Currency Rally Dies as Inflation Hits

by Lukanyo Mnyanda and Lester Pimentel

(Bloomberg) The five-year rally in emerging- market currencies is coming to an end as central banks from South Korea to Turkey struggle to contain inflation, say DWS Investments and Morgan Stanley.

The 26 developing-country currencies tracked by Bloomberg returned an average 0.86 percent in the past three months, down from 1.63 percent in the first quarter, 8.2 percent for all of 2007, and 30 percent annually since 2003. For the first time in seven years, investors are less bullish on emerging-market stocks than on U.S. equities, a Merrill Lynch & Co. survey showed last week.

Confidence in the Indian rupee is weakening after inflation accelerated at the fastest pace in 13 years, stoked by soaring food and energy prices. South Korea’s won will drop this year by the most since 2000, while Turkey’s lira will reverse its biggest gain since at least 1972, the median estimates of strategists surveyed by Bloomberg show.


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AP: Crippling effect of inflation in poor countries

Impossible – as long as wages are well anchored it’s not inflation…???!!!

Or at least not here?

Inflation surges to double-digit levels in 1 in 4 countries worldwide

by Rachel Beck

There is nowhere to hide from inflation.

Prices in one in four countries, many of them in emerging markets, are accelerating at a double-digit pace, which puts them at least two and a half times the 4 percent annual U.S. headline inflation rate, according to new research from Morgan Stanley.

That should be a wake up call for anyone counting on investments abroad to prop up their portfolios as U.S. stocks teeter on the edge of a bear market.

Sure, the “decoupling” strategy worked for investors in the recent past. Foreign holdings fared better because international economies were outperforming U.S. growth.

The U.S. economy has slowed to nearly a standstill in the last year because of the mounting inflation and the collapse in the housing and mortgage markets. Other industrialized countries have seen about a 2 percent average rate of growth while emerging economies have topped 7 percent.

That growth is now being threatened by inflation. And remember: In the developing world, a larger portion of household expenditures tends to go to the most inflationary items — food and fuel.

Food prices have jumped 39 percent from February 2007 to 2008, led by wheat, soybeans, corn and edible oils, according to the International Monetary Fund.

That hits residents of emerging markets much harder than those living in more advanced economies. People in countries like Vietnam, Russia, Egypt and India put at least 30 percent of their total spending toward food, well above the 6 percent allotment for U.S. households, according to U.S. Department of Agriculture.

That’s why Morgan Stanley economists Joachim Fels and Manoj Pradhan said they were “flabbergasted” by their findings that 50 countries had double-digit inflation rates. On that list were six of the 10 most populous countries in the world, including India, Indonesia, Pakistan, Bangladesh, Nigeria and Russia.

In total, those facing such pricing pressures accounted for 42 percent of the world population.

“In other words, close to three billion consumers are currently experiencing double-digit rates of price increases,” they wrote in a note to clients.

Soaring inflation is not easy to tame. Some countries, such as India where inflation is running at around 11 percent, may have no choice but to boost interest rates.

The Reserve Bank of India earlier this month announced an inter-meeting rate hike. It said in a statement accompanying the move that the “overriding priority for monetary policy is to eschew any further intensification of inflationary pressures and to firmly anchor inflation expectations.”

Others, however, will balk at tightening monetary policy because they don’t want their currencies to surge, which would then raise the price of their exports.

Many emerging-market economies also link their currencies to the dollar, and because of the U.S. Federal Reserve’s loose monetary policy stance right now — the central bank has aggressively cut interest rates in response to the credit crisis — that has helped feed inflationary pressures.

The longer inflation remains elevated, the more damage it will do to long-term economic growth.

“There is plenty of reason to worry about the continuation of the bull story for emerging markets, especially in those countries that have seen a sharp acceleration in inflation, are unable or unwilling to tighten policy sufficiently, and are commodity consumers rather than producers,” the Morgan Stanley economists wrote in their report.

But even as prices surge, earnings forecasts aren’t coming down in many global markets. That may give investors false hope that many countries will bypass the inflation storm.

For instance, in Asian countries outside Japan, earnings forecasts are still for 11.6 percent growth over the next 12 months and 15.1 percent growth in calendar year 2009, according to Barclays Capital.

Those estimates “are implicitly assuming that inflation will either miraculously disappear on its own accord or that central banks are not going to bother doing anything about it neither is particularly believable,” wrote Tim Bond, head of global asset allocation at Barclays.

Barclays is recommending that investors either avoid owning stocks in that region or that they short shares, meaning bet they will decline.

“Although the area is currently outperforming in terms of economic growth, the inflationary environment is not far short of disastrous,” Bond said.

Clearly, the inflation bogeyman is haunting all corners of the world.

Re: Kohn to ROW- You hike, not us (today’s speech)


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(an interoffice email)

On Thu, Jun 26, 2008 at 7:48 AM, Karim wrote:
>   
>   
>   

Global Economic Integration and Decoupling


Vice Chairman Donald L. Kohn
At the International Research Forum on Monetary Policy, Frankfurt, Germany
June 26, 2008

For the moment, higher headline rates of inflation have shown only a few tentative signs of embedding themselves in core inflation or in longer-term inflation expectations.

>   -talking about u.s. here
>   
>   
>   

However, policymakers around the world must monitor the situation carefully for signs that the increases in relative prices globally do not generate persistently higher inflation. Additionally, in those countries where strong commodity demands are associated with rapid growth in aggregate demand that outstrips potential supply, actions to contain inflation by restraining aggregate demand would contribute to global price stability.

>   -not describing/talking about u.s. here;
>   focusing on EM primarily.
>   
>   

right, gets back to bernankes testimony a while back that the falling dollar has been a good thing as it works to lower the trade gap via increasing US exports that sustain US demand. the old ‘beggar they neighbor’ policy from the 30’s.

unfortunately for us it’s actually a ‘beggar thyself’ policy on closer examination as most mainstream economists will attest. they all say you don’t ‘inflate your way to prosperity’ by weakening your currency. otherwise latin america and africa for example would be the most prosperous places in the world

seems they are still in the mercantalist mode where exports are good and imports bad, and this policy is making us look like a bananna republic at an increasing rate.

recall from previous emails the dollar decline has been triggered by paulson succeeding in keeping cb’s from buying $US, Bush keeping oil producing monetary authorities from accumulating $US, and Bernanke discouraging foreign portfolio managers from accumulating same.

(more later on how it’s actually not happening due to fed rate policy, but they think it is)

as suspected, the $US is most likely to take another major leg down as it adjusts to a level where the trade gap is in line with foreign desire to accumulate $US financial assets which is probably a lot lower than the current 55-60 billion per month.

the ‘cost push inflation’ is pouring in through the trade channel, and the fed is increasingly taking the heat from the mainstream (not me- i’m the only one who thinks inflation isn’t a function of rates the way they do) for its apparent weak $US/inflate your way out of debt approach.

furthermore, the mainstream (and the stock market) sees the low interest rate/weak dollar policy as taking away US domestic demand as higher price for food/fuel leave less domestic income for everything else, including debt service.

that is, they see the falling dollar hurting us domestic demand more than the low interest rates are helping it.

the reality is there’s foreign monopolist- the saudis (and maybe russians)- that’s milking us for all they can with price hikes, and keeping us alive buying our goods and service and thereby keeping US gdp muddling through.

the real standard of living for most working americans has dropped by perhaps 10% as they work, get paid enough to eat and drive to work, and the rest of their real output is exported.

and our policy makers, including bernanke and paulson who’ve ‘engineered it’ think this is all a good thing- they think imports are bad and exports good and we are paying the price in declining real terms of trade.

while in my book interest rates are not a factor, the mainstream thinks they are, and the response when the inflation gets bad enough will be higher interest rates. The ‘correct’ anti-inflation rate last August was 5.25 when the fed didn’t cut.

by Jan 08 it was probably at least 7% with headline moving through 3% to get a sufficient ‘real rate.’

today it’s probably moved up to 8%+ as cpi is forecast to go through 5% over the next few months and gdp muddles through around 1%.

the mainstream (not me) will say that by having a real rate that’s too low now the fed will need a rate that much higher down the road as inflation accelerates due to over accommodative fed policy.

by the time the cost push inflation works its way to core- probably over the two quarters- the fed will ‘suddenly’ feel itself way behind the inflation curve and recognize they made a horrible mistake and now the cost of bringing down inflation is far higher than it would have been early on- just like they’ve always said.

the mainstream knows this, and now sees a fed with its head in the sand regarding inflation. they also see this weak dollar policy as subversive as it undermines the currency and inflation accelerates.

i expect there will be a groundswell of mainstream economists calling for the replacement of bernanke, kohn and the entire fomc very soon.

ironically, in my book low rates have helped moderate inflation via cost channels and have helped moderate domestic demand via interest income channels.

rate hike will add to domestic demand as net interest income of the private sectors from higher government interest payments add to personal income and demand.

and rate hikes will add to the cost push inflation via higher interest costs for firms.

it’ all going down hill fast, with policy makers both going the wrong way on key issues as they have the fundamentals backwards.

the only near term ‘solutions’ are near term crude oil supply responses like 30 mph speed limits which isn’t even under consideration in any form, nor are any other crude supply responses. most other alternative energy sources don’t replace crude.

medium term supply responses include pluggable hybrids that only start being produced in late 2010.

longer term supply responses include nuclear which might come on line 15 years down the road.

a collapse in world demand is possible if china/india let up on their deficit spending and growth, but so far that doesn’t seem in the cards. all their ‘tightebning’ seems to be on the ‘monetary’ side which does nothing of consequence apart from further increase inflation.

so with no supply responses on the horizon expect the saudis to keep hiking prices, and keep spending the new revenues to keep world gdp muddling through, cb’s hiking interest rates that will bring results that will cause them to hike further, and continuously declining real terms of trade for oil importers.

what to do?

cds on germany- it’s one go all go over there, and germany is the least expensive insurance.

forward muni bmas over 80 with no interest rate hedge as markets should discount the obama lead and long move up with inflation.


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Competing for fuel


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Here’s what I see happening at the macro level:

The US, for all practical purposes, was able to successfully compete for the world’s fuel supply such that nearly everyone in the US could afford to drive.

Now other populations/regions of the world where almost no one could afford to drive are increasing their ‘wealth’ and competing with us for fuel.

In these nations, like China, India, Brazil, much like in the west, the majority of the ‘wealth’ flows to the top.

These people at the top are increasingly able to afford to outbid us for fuel as they bid up the price.

Our lowest income individuals get outbid first, and it works its way up from there as total world fuel output stagnates.

This process continues as their wealth increases and a larger number of their ‘rich’ outbid our ‘poor.’

A small percentage of their much larger populations gaining wealth means a larger percentage of our smaller population gets out bid.

And rising fuel prices/declining real terms of trade further foster this effect.

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