Latest report from FAO on food prices, for those reading news beyond Mr Papp and the politics behind today’s “great” news on Greece, which by the way has some close to 20 billion USD in debt payments by August. But that is ok, Greece is getting 12 Billion from the Troica. Somebody has not done the Maths accordingly.
Meanwhile we present FAO’s latest report on Food prices.
Commodity prices rose sharply again in August 2010 as crop production shortfalls in key producing regions and low stocks reduced available supplies, and resurging economic growth in developing and emerging economies underpinned demand. A period of high volatility in agricultural commodity markets has entered its fifth successive year. High and volatile commodity prices and their implications for food insecurity are clearly among the important issues facing governments today. This was well reflected in the discussions at the G20 Summit in Seoul in November, 2010, and in the proposals for action being developed for consideration at its June 2011 meeting of Agriculture Ministers in Paris.
This Outlook is cautiously optimistic that commodity prices will fall from their 2010-11 levels, as markets respond to these higher prices and the opportunities for increased profitability that they afford. Harvests this year are critical, but restoring market balances may take some time. Until stocks can be rebuilt, risks of further upside price volatility remain high. This Outlook maintains the view expressed in recent editions that agricultural commodity prices in real terms are likely to remain on a higher plateau during the next ten years compared to the previous decade. Prolonged periods of high prices could make the achievement of global food security goals more difficult, putting poor consumers at a higher risk of malnutrition.
Higher commodity prices are a positive signal to a sector that has been experiencing declining prices expressed in real terms for many decades and are likely to stimulate the investments in improved productivity and increased output needed to meet the rising demands for food. However, supply response is conditioned by the relative cost of inputs while the incentives provided by higher international prices are not always passed through to producers due to high transactions costs or domestic policy interventions. In some key producing regions, exchange rate appreciation has also affected competitiveness of their agricultural sectors, limiting production responses (see Figure 1).
There are signs that production costs are rising and productivity growth is slowing. Energy related costs have risen significantly, as have feed costs. Resource pressures, in particular those related to water and land, are also increasing. Land available for agriculture in many traditional supply areas is increasingly constrained and production must expand into less developed areas and into marginal lands with lower fertility and higher risk of adverse weather events. Substantial further investments in productivity enhancement are needed to ensure the sector can meet the rising demands of the future.
Market is loosing steam once again. Despite the “great” news of Greece rescued, we are trading lower after the initial up moves earlier today. Don’t forget we have expiration trading today. Below we see both SPX and Nasdaq are sitting on supports. Nasdaq is trading below it’s 200 day moving average though. Let’s see if we can get a bounce, or some nasty legs down are to follow.
Michael Hudson: Free Money Creation to Bail Out Financial Speculators, but not Social Security or Medicare-Must read article
Financial crashes were well understood for a hundred years after they became a normal financial phenomenon in the mid-19th century. Much like the buildup of plaque deposits in human veins and arteries, an accumulation of debt gained momentum exponentially until the economy crashed, wiping out bad debts – along with savings on the other side of the balance sheet. Physical property remained intact, although much was transferred from debtors to creditors. But clearing away the debt overhead from the economy’s circulatory system freed it to resume its upswing. That was the positive role of crashes: They minimized the cost of debt service, bringing prices and income back in line with actual “real” costs of production. Debt claims were replaced by equity ownership. Housing prices were lower – and more affordable, being brought back in line with their actual rental value. Goods and services no longer had to incorporate the debt charges that the financial upswing had built into the system.
Financial crashes came suddenly. They often were triggered by a crop failure causing farmers to default, or “the autumnal drain” drew down bank liquidity when funds were needed to move the crops. Crashes often also revealed large financial fraud and “excesses.”
This was not really a “cycle.” It was a scallop-shaped a ratchet pattern: an ascending curve, ending in a vertical plunge. But popular terminology called it a cycle because the pattern was similar again and again, every eleven years or so. When loans by banks and debt claims by other creditors could not be paid, they were wiped out in a convulsion of bankruptcy.
Gradually, as the financial system became more “elastic,” each business recovery started from a larger debt overhead relative to output. The United States emerged from World War II relatively debt free. Downturns occurred, crashes wiped out debts and savings, but each recovery since 1945 has taken place with a higher debt overhead. Bank loans and bonds have replaced stocks, as more stocks have been retired in leveraged buyouts (LBOs) and buyback plans (to keep stock prices high and thus give more munificent rewards to managers via the stock options they give themselves) than are being issued to raise new equity capital.
But after the stock market’s dot.com crash of 2000 and the Federal Reserve flooding the U.S. economy with credit after 9/11, 2001, there was so much “free spending money” that many economists believed that the era of scientific money management had arrived and the financial cycle had ended. Growth could occur smoothly – with no over-optimism as to debt, no inability to pay, no proliferation of over-valuation or fraud. This was the era in which Alan Greenspan was applauded as Maestro for ostensibly creating a risk-free environment by removing government regulators from the financial oversight agencies.
What has made the post-2008 crash most remarkable is not merely the delusion that the way to get rich is by debt leverage (unless you are a banker, that is). Most unique is the crash’s aftermath. This time around the bad debts have not been wiped off the books. There have indeed been the usual bankruptcies – but the bad lenders and speculators are being saved from loss by the government intervening to issue Treasury bonds to pay them off out of future tax revenues or new money creation. The Obama Administration’s Wall Street managers have kept the debt overhead in place – toxic mortgage debt, junk bonds, and most seriously, the novel web of collateralized debt obligations (CDO), credit default swaps (almost monopolized by A.I.G.) and kindred financial derivatives of a basically mathematical character that have developed in the 1990s and early 2000s.
These computerized casino cross-bets among the world’s leading financial institutions are the largest problem. Instead of this network of reciprocal claims being let go, they have been taken onto the government’s own balance sheet. This has occurred not only in the United States but even more disastrously in Ireland, shifting the obligation to pay – on what were basically gambles rather than loans – from the financial institutions that had lost on these bets (or simply held fraudulently inflated loans) onto the government (“taxpayers”). The government took over the mortgage lending guarantors Fannie Mae and Freddie Mac (privatizing the profits, “socializing” the losses) for $5.3 trillion – almost as much as the entire national debt. The Treasury lent $700 billion under the Troubled Asset Relief Plan (TARP) to Wall Street’s largest banks and brokerage houses. The latter re-incorporated themselves as “banks” to get Federal Reserve handouts and access to the Fed’s $2 trillion in “cash for trash” swaps crediting Wall Street with Fed deposits for otherwise “illiquid” loans and securities (the euphemism for toxic, fraudulent or otherwise insolvent and unmarketable debt instruments) – at “cost” based on full mark-to-model fictitious valuations.
Altogether, the post-2008 crash saw some $13 trillion in such obligations transferred onto the government’s balance sheet from high finance, euphemized as “the private sector” as if it were the core economy itself, rather than its calcifying shell. Instead of losing on their bad bets, bad loans, toxic mortgages and outright fraudulent claims, the financial institutions cleaned up, at public expense. They collected enough to create a new century’s power elite to lord it over “taxpayers” in industry, agriculture and commerce who will be charged to pay off this debt.
If there was a silver lining to all this, it has been to demonstrate that if the Treasury and Federal Reserve can create $13 trillion of public obligations – money – electronically on computer keyboards, there really is no Social Security problem at all, no Medicare shortfall, no inability of the American government to rebuild the nation’s infrastructure. The bailout of Wall Street showed how central banks can create money, as Modern Money Theory (MMT) explains. But rather than explaining how this phenomenon worked, the bailout was rammed through Congress under emergency conditions. Bankers threatened economic Armageddon if the government did not create the credit to save them from taking losses.
So we learned during the Lehman crisis, there can be a run on the money markets, and we end up with breaking the Buck. Could the situation in Greece impose the same problems as we saw during the Lehman crisis? Will Fed open up the discount window to the banks exposed to Greece?
Some of the safest, plain-vanilla investment accounts in the U.S. could be challenged if Greece defaults on its sovereign debt.
Forty-four percent of mutual fund assets in the U.S. are invested in the short-term debt of European banks, according to a report from Fitch.
A separate report from Moody’s noted that 55 percent of those holdings are in the commercial paper of French banks, such as Societe Generale, BNP Paribas [BNP-FR 51.34 0.23 (+0.45%) ] and Credit Agricole. French banks are some of biggest creditors to Greece, with over $53 billion in outstanding loans to the Greek government and private sector.
While fund managers have had plenty of warning of the potential of a default in Greece, many would likely still be caught off guard. Many fund managers assume that a bailout will prevent a default by Greece.
The bankruptcy of Lehman Brothers similarly caught money-market fund managers off guard, famously causing the Reserve Fund to “break the buck.”
The debt of these French banks is still very highly rated and Moody’s says the risk of default on the short-term debt is very low. But the high ratings assume that the probability of a default by Greece is very low.
If Greece defaults, it is possible that the market value of the commercial paper of French banks could plummet and the ratings could be downgraded. Money-market funds would likely refuse to fund new issuances of the short term debt, creating a liquidity problem for the French banks.
Other European banks would likely face pressure as investors tried to measure their exposure to Greece and those over-exposed to Greece.
One thing that may help money-market funds weather the Greece storm better than the Lehman hurricane is that they now have an implicit US government backing. While no longer directly insured by the FDIC, many believe that in a crisis the government would once again step in to insure the accounts, just as it did in 2008. (netnet)
For the ones remembering Fukushima. The”problem” is not fixed, yet. Beside rabbit without ears born, the consequences could end up much bigger than anybody seems to think possible. Al Jazeera reports on the biggest industrial tragedy in history;
“Fukushima is the biggest industrial catastrophe in the history of mankind,” Arnold Gundersen, a former nuclear industry senior vice president, told Al Jazeera.
Japan’s 9.0 earthquake on March 11 caused a massive tsunami that crippled the cooling systems at the Tokyo Electric Power Company’s (TEPCO) nuclear plant in Fukushima, Japan. It also led to hydrogen explosions and reactor meltdowns that forced evacuations of those living within a 20km radius of the plant.
Gundersen, a licensed reactor operator with 39 years of nuclear power engineering experience, managing and coordinating projects at 70 nuclear power plants around the US, says the Fukushima nuclear plant likely has more exposed reactor cores than commonly believed.
“Fukushima has three nuclear reactors exposed and four fuel cores exposed,” he said, “You probably have the equivalent of 20 nuclear reactor cores because of the fuel cores, and they are all in desperate need of being cooled, and there is no means to cool them effectively.”
TEPCO has been spraying water on several of the reactors and fuel cores, but this has led to even greater problems, such as radiation being emitted into the air in steam and evaporated sea water – as well as generating hundreds of thousands of tons of highly radioactive sea water that has to be disposed of.
“The problem is how to keep it cool,” says Gundersen. “They are pouring in water and the question is what are they going to do with the waste that comes out of that system, because it is going to contain plutonium and uranium. Where do you put the water?”
Even though the plant is now shut down, fission products such as uranium continue to generate heat, and therefore require cooling.
“The fuels are now a molten blob at the bottom of the reactor,” Gundersen added. “TEPCO announced they had a melt through. A melt down is when the fuel collapses to the bottom of the reactor, and a melt through means it has melted through some layers. That blob is incredibly radioactive, and now you have water on top of it. The water picks up enormous amounts of radiation, so you add more water and you are generating hundreds of thousands of tons of highly radioactive water.”
Independent scientists have been monitoring the locations of radioactive “hot spots” around Japan, and their findings are disconcerting.
“We have 20 nuclear cores exposed, the fuel pools have several cores each, that is 20 times the potential to be released than Chernobyl,” said Gundersen. “The data I’m seeing shows that we are finding hot spots further away than we had from Chernobyl, and the amount of radiation in many of them was the amount that caused areas to be declared no-man’s-land for Chernobyl. We are seeing square kilometres being found 60 to 70 kilometres away from the reactor. You can’t clean all this up. We still have radioactive wild boar in Germany, 30 years after Chernobyl.”
Welcome to risk on risk off risk on yoyo market. With the big Expiration today, we sure will have some great moves. Fasten the seat belts and enjoy the war of Algos. All assets move several percent, on zero volumes. Let’s see if Merkel and Sarkozy will kill some of the traders holding short strikes expirying today.
Remember the Q ratio from Econ 101?
The formula for the Q ratio:
Well we hear how cheap stocks are fundamentally, expressed by all these experts. Below the Q ratio, but on the other hand, this time is different. We have new hot stocks like Pandora, LinkedIn, Groupon, all solid business ideas that will generate tons of revenues. Welcome to Irrational Exuberance 2.0.
Chart, D Short
Below our virgin launch of the morning brief of important news while you were sleeping. Courtesey to our virtual trader.
US investor Bill Ackman is considering launching an initial public offering of a new fund to raise as much as $3bn in permanent capital for investments, reports the FT. The activist investor, whose hedge fund Pershing Square has $10bn under management, http://ftalphaville.ft.com/thecut/2011/06/17/597361/ackman-eyes-fund-ipo-to-raise-3bn/
Fears of contagion from political and market turmoil in Greece sent Spanish borrowing costs to 11-year highs, in spite of a new deal between the EU and IMF that reduced the chance of an imminent default in Athens. http://ftalphaville.ft.com/thecut/2011/06/17/597251/greenspan-warns-on-greek-default/
Asian stock markets were mixed in choppy trade Friday, as sentiment remained jittery due to continued concerns over Greek debt woes, but Australian shares climbed as analysts said the market has become cheap. Japan’s Nikkei Stock Average rose 0.1%, Australia’s S&P/ASX 200 added 0.9%, South Korea’s Kospi Composite gained 0.3% and New Zealand’s NZX-50 fell 0.1%. Dow Jones Industrial Average futures were up 28 points in screen trade. http://online.wsj.com/article/SB10001424052702304186404576390413112422114.html?mod=WSJASIA_hpp_LEFTTopWhatNews
British officials are waging an increasingly aggressive fight to impose banking regulations as they see fit, even if they go further than rules elsewhere in the European Union. British officials have publicly lashed out at European policy makers who are pushing proposals that would limit the U.K.’s ability to go beyond other countries when it comes to bank capital and liquidity requirements. http://online.wsj.com/article/SB10001424052702304186404576389800730574180.html?mod=WSJEurope_hpp_MIDDLETopStories
The Basel Committee on Banking Supervision is considering extra capital requirements of as much as 3.5 percentage points that the largest banks may face if they grow bigger, according to two people familiar with the talks. The so-called surcharge would take the form of a boost to capital the banks must hold and would apply to financial institutions whose collapse would harm the global economy. A list of such banks hasn’t been disclosed. http://www.bloomberg.com/news/2011-06-16/basel-is-said-to-consider-3-5-percentage-point-fee-to-curb-growth-of-banks.html
India’s central bank signaled it may slow the most aggressive monetary tightening among Asia’s major economies as risks to global growth threaten to undermine consumer demand. “While the Reserve Bank needs to continue with its anti- inflationary stance, the extent of policy action needs to balance the adverse movements in inflation with recent global developments and their likely impact on the domestic growth trajectory,” the central bank said yesterday after it raised the repurchase rate to 7.50 percent from 7.25 percent. http://www.bloomberg.com/news/2011-06-16/india-signals-slower-pace-of-interest-rate-rises-on-global-economic-risks.html
The index of U.S. leading indicators probably rebounded in May after declining for the first time in almost a year, a sign economic growth may pick up by the end of 2011, economists forecast a report will show today. The Conference Board’s gauge of the outlook for the next three to six months rose 0.3 percent after a 0.3 percent decline in April, according to the median estimate of 51 forecasts in a Bloomberg News survey. Another report may show consumer confidence was little changed this month. http://www.bloomberg.com/news/2011-06-17/leading-economic-indicators-in-u-s-probably-increased-in-sign-of-rebound.html
USAtoday.com Capital One Financial Corp. (COF), until now best known for its credit cards, is poised to become a major force in online banking. The McLean, Va.-based company said Thursday that it will buy ING’s U.S. online banking unit for $9 billion in a cash and stock deal.Under the terms of the deal, Netherlands-based ING Groep will receive $6.2 billion in cash and $2.8 billion in the form of Capital One shares. That will make ING the largest single shareholder in Capital One after the deal closes. ING will also have the right to be represented by a member of Capital One’s board of directors. http://www.usatoday.com/money/industries/banking/2011-06-16-capital-one-ing-direct_n.htm
BBC.co.uk The US current account deficit rose 6.3% to $119.3bn (£74bn) in the first three months of the year, the Commerce Department has said. Strong exports of cars, computers and machinery were offset by imports, particularly of more expensive oil. The deficit for the quarter represented 3.2% of US gross domestic product, up from 3% in the fourth quarter of 2010. Separately, the number of new homes built in April rose 3.5%, but house building remained subdued. http://www.bbc.co.uk/news/business-13793962
Telegraph.co.uk Stock and bond markets lurched on Thursday amid fears that the Greek sovereign debt crisis was about to unleash a “Lehman-like” shock on the global financial system. Traders feared that the political chaos and riots across Greece would cause a default, which in turn would trigger a tsunami through the financial system – as the collapse of Lehman Brothers did in 2008. http://www.telegraph.co.uk/finance/financialcrisis/8580951/Greek-debt-crisis-is-Europes-Lehman-moment.html
Xinhuanet.com A total of 23 percent of foreign investment in China went into the real estate sector last year, the country’s foreign exchange regulator said on Thursday. The ratio of foreign investment in the property sector remained well above 10 percent over the past 10 years, with such investment growing rapidly since 2006, said the State Administration of Foreign Exchange (SAFE) in its 2010 annual report. http://news.xinhuanet.com/english2010/china/2011-06/16/c_13934260.htm
Hong Kong’s exports volume fell 4.3 percent in April from a year ago, while the imports volume decreased 0.3 percent from a year earlier, the city’s statistics department said Thursday. The exports volume of the first four months this year rose 11.6 percent, and the volume of imports increased 9.3 percent, according to the department. http://news.xinhuanet.com/english2010/china/2011-06/16/c_13934063.htm
Thehindu.com The moderation will turn into a firm decline over the coming months. Food inflation eased marginally to 8.96 per cent for the week ended June 4 from 9.01 per cent in the previous week owing to cheaper pulses and vegetables amid expectations that following a good monsoon, the moderation will turn into a firm decline over the coming months. Airing this optimism, Prime Minister’s Economic Advisory Council (PMEAC) Chairman C. Rangarajan said: “Since the monsoon is expected to be normal, one can expect the food inflation to come down in the coming months.” http://www.thehindu.com/business/Economy/article2109337.ece
Themoscowtimes.com India and Russia plan to boost trade to $20 billion per year by 2015, Indian Commerce and Industry Minister Anand Sharma said during a round table at the economic forum in St. Petersburg on Thursday. The Russian and Indian economies are worth $1 trillion combined, Sharma said. The countries are stepping up trade relations and have formed six working groups to map out further areas of cooperation, he said. Machinery and equipment accounts for more than half of Russian exports to India, and oil and gas just 5 percent, Deputy Prime Minister Sergei Ivanov said. http://www.themoscowtimes.com/business/article/indian-russian-trade-to-reach-20bln-by-2015/438983.html
Academics discuss QE. Is QE doing any good, or is it merely helping the rich get their assets higher? With Austerity having created basically nothing than helping the banks and people still living in a high unemployment world, QE has delivered nothing more, than high equity prices. Does Fed own the market, or does the market own Fed? What would happen if the market went below SPX 1000? The biggest winner of QE is Greenwich and Manhattan, from where hedge funds can borrow at zero rates, while peoples saving generate also zero rates. Watching Fed ramping up the stock market, the average Joe has been forced into buying overvalued stocks. Let’s watch this play out.