Icbccss&p500usd Discussion Threads

[energyi] 29/4/2004 07:00

McB,
I have that article already, see 2 posts above

[mcbeanburger] 29/4/2004 06:15

China short - who would have guessed!

LME copper inches up in Asia on China short-covering
Thursday April 29, 1:22 am ET

* London Metal Exchange copper inched higher in Asia on Thursday, helped by Chinese short-covering after falling sharply in London on China demand worries.
* At 0442 GMT, the three-month LME copper contract (MCU3) was quoted at $2,584/$2,594 per tonne, after diving $151 to $2,580 a tonne at the kerb close on Wednesday in London. The metal bottomed in London at $2,570, its lowest since February 11.

more...

[energyi] 29/4/2004 06:10

GOLD IS A "CHINA PLAY"... or has been, at least

Compare: The China Fund vs. Newmont

[mcbeanburger] 28/4/2004 17:28

China Comments Can't Crush Commodities

By James J. Cramer
RealMoney Columnist
4/28/2004 12:29 PM EDT
Click here for more stories by James J. Cramer
Commodities BULLISH
China's comments aren't enough to stop commodity demand.
That takes excess supply and higher rates.
Cyclicals have these giant moves up and giant pullbacks.

Giving up on the commodities because of China? Sure, be my guest. The problem is demand; it doesn't get tamped by jawboning and it doesn't get clobbered by Chinese officials saying, "Hey, we want to cut back."

Demand gets cut back when rates go so high that no one wants to stockpile copper and aluminum and there isn't much demand anymore.

That's nowhere near where we are.

These companies generate a gigantic amount of cash. They are levered to a lot more than just China. They finally are in the sweet spot. They are not going to leave the sweet spot until rates move substantially higher.

I know that those who are buying stocks like Alcoa (AA:NYSE - commentary - research) or Phelps Dodge (PD:NYSE - commentary - research) are saying, "Wait a second, this pain is just too great," but the way cyclical stocks move is pretty simple: They have giant moves up and giant pullbacks.

Non-cyclical buyers are used to seeing giant pullbacks only when secular growth companies "blow up." That's not how cyclicals work. Cyclicals go up huge in anticipation of good numbers and they keep going up until enough supply of the commodity has come on to wipe out demand and rates are much higher.

We have neither condition right now.

So step up to the plate and join me.

[mcbeanburger] 28/4/2004 17:26

my thoughts as well.

To:orkrious who wrote (12767)
From: russwinter Wednesday, Apr 28, 2004 12:58 PM
Respond to of 12771


Very good, astute remarks coming from James Cramer.

There is obviously a concerted effort from China (and the US) to try and get the big specs out at bargain prices[commodities], thus temporarily depressing prices. That way they don't have to take real measures. Instead they just paint some lip stick on whatever pig they call monetary policy.

[mcbeanburger] 28/4/2004 16:23

too early to say that it is bursting, the Chinese are acting and we have yet to see the results (internally). certainly from our perspective the China bubble as a play is bursting.

stagflation the result?

[energyi] 28/4/2004 16:14

China BUBBLE is bursting...

[energyi] 27/4/2004 10:52

CHINA'S IMPACT ON INFLATION

From: Jim Willie CB Monday, Apr 26, 2004 11:01 PM
Respond to of 12679

Fed still regards inflation as commodity without location
this is their micro-error
they believe all inflation works to cancel out deflation
truly mindless and wholly incorrect
to a tragic degree
they have no concept of monetary inflation's deflationary impact
either long-term or immediately (like with new debts added)

costs are seeing inflation
wages are not
pricing power is still not there
China will give us pricing power when they enforce it
soon

I remember the mid-1990's and the car mfg price struggles
when the Asians raised prices on their cars, instead of enjoying a price advantage, US car makers pushed prices up

the same thing will happen on the opposite side
China will raise prices of their vast exports to USA
that will allow US mfrs operating domestically to raise prices
but only accordingly, as per China hikes

/ jim

[mcbeanburger] 26/4/2004 15:04

China Hits the Brake, but Maybe Too Softly
By KEITH BRADSHER
NYTimes
Published: April 25, 2004
ONG KONG

LISTEN to the recent talk from senior Chinese officials and look at a few of their actions, and it may seem at first that Beijing is finally acting decisively to rein in a galloping economy.

The People's Bank of China, the country's central bank, has raised reserve requirements for banks twice in the last five weeks. The central bankers and officials from the powerful State Development and Reform Commission have said that investment in apartment buildings, factories and other fixed assets - up 43 percent in the first quarter from a year earlier - is excessive and must be brought under control.

On the surface, even the money supply in China appears to be growing a little less swiftly these days. China's broad M2 measure of money supply rose 18.9 percent in March from a year earlier, a steep ascent but not quite as fast as last summer, when it was soaring at an annual pace of 21 percent.

Yet, has government policy really changed that much? Independent economists say the changes to date represent only small steps.

"The measures the government has initiated so far seem fairly limited, and it really depends on what other policies come into place" over the next several months, said Wang Xiaolu, the deputy director of the National Economic Research Institute in Beijing.

The main increase in reserve requirements, covering all banks, was announced on April 12 but will require banks to hold only an extra $13.3 billion in reserves, giving them that much less money to lend. An earlier increase, on March 24, covers banks with weak bank balance sheets and is expected to have a much smaller effect on reserves.

The biggest banks in China already hold more reserves than government regulations require, further muting the effect of the new rules.

By comparison, however, economists estimate a net flow of $10 billion to $15 billion into China each month, from foreign direct investment and speculation alike. The People's Bank of China pegs the value of China's currency, known as the yuan or renminbi, to the dollar, so it must convert the incoming foreign exchange into local currency, feeding an increase in the money supply.

China has an official policy of sterilizing this inflow - that is, selling Chinese treasury bills and notes to the banks to take back out of circulation the renminbi that it pumps into the system to buy incoming dollars. The reality, though, is that the People's Bank of China has struggled for the last year to sell enough bills even to pay off other bills that are maturing, much less soak up any of the incoming investment.

The scale of the increase in the money supply is now being debated. The People's Bank of China began seeking public comment last December on whether a broader measure of money supply, M3, might be needed in addition to the M2.

Liang Hong, a Goldman Sachs economist here, questioned in a report last Tuesday whether M2 was really the right barometer of the money supply in China or of the country's inflationary pressures.

One problem is that M2 in China excludes some of the fastest-growing financial assets. These include insurance-company deposits at banks and money managed by securities firms. Both categories have grown more than 80 percent annually in recent years. Repurchase agreements in the interbank market and commercial guaranteed bills are also excluded from M2 but are growing quickly.

Ms. Liang did not try to estimate what she believed to be the true rate of growth in the money supply, saying that too little data was available. More optimistic than many economists these days, she predicted that China's economy would maintain a "solid growth path."

But she also contended that China should look to interest rate increases and currency appreciation to control inflation, instead of continuing to set money supply targets, an approach that went out of favor in Western countries by the late 1980's.

"A major risk to our view is that continued policy inaction in effectively tightening monetary conditions will lead the government to resort to more aggressive tightening measures down the road, resulting in a harder landing of the economy than would otherwise be the case," she wrote.

PERHAPS most troubling, however, is evidence that any monetary policy may be losing some effectiveness. The businesses responsible for China's soaring investment can increasingly raise cash without going to banks, and investment spending is now rising twice as fast as bank lending.

Where is the money coming from? Joan Zheng, an economist at J. P. Morgan here, calculates that makers of steel and other commodities are earning huge profits from high prices and reinvesting the money.

Local governments are investing the proceeds from land sales, which are increasingly valuable in a soaring property market.

"Just relying on monetary policy is not enough," Ms. Zheng said. "You need taxation policy and government pressure."

[mcbeanburger] 26/4/2004 14:09

China: Perception vs. Reality
Andy Xie (from Tokyo)



...
Resource Bulls

The resource sector companies presented to investors a picture of supply shortages that will last. The critical call is that China's current trend is not cyclical but sustainable. Even though the resource sector is investing aggressively to expand capacity, China's demand would grow equally fast or faster and, hence, the current exalted prices for minerals would last.

The call on China's demand, however, is not credible to me. China's investment demand is growing three times as fast as the trend. If the current trend lasts for two more years, China's fixed investment would rise above 50% of GDP. Such a high level of investment in a major economy is unprecedented globally. In my view, the super strong Chinese demand for minerals is likely to end in the coming months.

I am bullish about resources over the long run. I believe that 2-3% real price appreciation in resources over the next two decades is likely due to China's demand. But, the dramatic increase in the prices of mineral resources by 50 or 100% reflects China's investment bubble rather than the normal appreciation with China's industrialization.

...

[snowflake34] 23/4/2004 16:17

Here's the latest from Morgan Stanley:

Global: The Wise Men of China

Stephen Roach (from Shanghai)


Once again, the world is hunkering down for the worst from China. Fears of a hard landing abound as the authorities attempt to cope with a seemingly explosive boom. In my view, those fears are overblown. Since the Asian crisis of 1997-98, China’s macro managers have defied the naysayers repeatedly. I suspect that a similar outcome is in the offing, as China once again succeeds in avoiding the pitfalls of the dreaded boom-bust syndrome.

Back in China for the second time in a month, I took advantage of the occasion to spend time with some old friends — seasoned veterans of the nation’s remarkable journey over the past several decades. They were on the inside of many of China’s more difficult moments over that period — from the Cultural Revolution and Tiananmen Square to the Asian crisis and SARS. They had seen it all. But several of them had also been on the firing line in 1993-94 — the last time an overheated Chinese economy flirted with the boom-bust cycle that most believe is once again at hand. In drawing inferences about what now lies ahead for the Chinese economy, they urged me to consider both the differences and similarities between the current situation and the circumstances of a decade ago. A synopsis of our discussions follows.

There are three key similarities between these two cyclical inflection points: First and foremost, there were major investment booms on both occasions. Annualized growth in investment in fixed assets peaked out at around 60% in 1993; in the first two months of 2004, the rate exceeded 50%. Moreover, in one important respect, the consequences of a Chinese investment boom are more serious today than was the case a decade ago: The investment share of GDP hit a record 43% in 2003, well in excess of the 34% share in 1994. Second, there was a leadership change in China on both occasions; Jiang Zemin became president in 1993, and the reins of power were passed to Hu Jintao in 2003. China has a long history of interplay between political and economic cycles, often using economic vigor as a foil to mask any frictions in a leadership change. Just as policies were predisposed toward accommodating the political cycle a decade ago, a similar bias could well be in evidence today. Third, liquidity creation went to excess in both periods, as measured by growth in the money supply as well as bank lending.

Notwithstanding these similarities, I was struck far more by the differences as seen through the eyes of China’s wise men. First, the overheating of a decade ago involved excesses of both investment and private consumption; today’s overheating is almost exclusively an investment boom — the consumption share of Chinese GDP fell to a record low of 54% in 2003. Second, while the investment boom of a decade ago was entirely state sponsored, this time it reflects the excesses of both public and private spending. Senior officials are inclined to believe that the current impetus is far more private — driven both by domestic enterprises as well as by foreign direct investment. To the extent that market-driven private spending is tied more explicitly to perceived returns than is the case for public investment, today’s excesses should be more benign. Third, while inflation picked up in both periods, the 22% annualized surge in 1994 dwarfs the 3% pace currently evident. Fourth, the fiscal situation was far more worrisome a decade ago than is the case today; back then, government revenues were basically stagnant, whereas today they are expanding at close to a 33% annual rate. Fifth, there has been a significant change in the culture of Chinese bank lending; ten years ago, there was literally no discipline to credit allocation, whereas today the focus on banking reform and the related cleanup of nonperforming bank loans has elevated the importance of credit quality considerations.

But the biggest difference of all between the China of today and the nation ten years ago is its character. The Chinese economy of 2004 is bigger, stronger, and far more experienced than it was in 1993-94 — far more capable of withstanding the stresses and strains of macro imbalances. China’s share of world GDP has basically doubled — rising from 2.1% in 1994 to 3.9% in 2003 (at market exchange rates). Its per capita income has pierced the US$1,000 threshold, long viewed as a critical milestone on the road to economic development. China’s exports have nearly quadrupled from US$120 billion in 1994 to $438 billion in 2003. Nor is China’s trade a one-way street. Its imports surged 40% in 2003, and China’s trade balance tipped into deficit in early 2004; its resulting demand for foreign-made components and products has turned China into an engine of growth for its major trading partners — not just in Asia (i.e., Japan, Korea, and Taiwan) but also in the United States and Europe (i.e., Germany). And China’s reservoir of official foreign exchange reserves has ballooned from $108 billion in early 1997 (the earliest data point) to $440 billion in March 2004.

But the wise men of China also urged me to give its macro managers credit for experience — that intangible characteristic of policy judgment that comes from coping with a history of macro management challenges. China is not your basic inexperienced, uninitiated developing country that suddenly finds itself on the Big Stage for the first time. Time and again, but especially over the past seven years, China has weathered tough learning experiences. It distinguished itself during the Asian crisis of 1997-98 — not only by resisting the pan-regional contagion of currency devaluation but by keeping the growth momentum of its real economy largely intact. A few years later, when the world entered a synchronous recession in 2001, an externally dependent Chinese economy barely flinched. “ProactiveR21; fiscal policy measures were adroitly deployed to cushion the downward pressures from external demand.

I remain confident that China will pull it off again — bringing its large and rapidly growing economy in for a soft landing over the next couple of years. Unlike their counterparts in most major economies of the world, Chinese policy makers are frank and transparent when they see a problem of macro management that must be addressed. Notwithstanding the intense debate over China raging in many quarters of the world, I can assure you that inside of China, there is no such debate. From the Premier, to the State Council (the Chinese cabinet), to the central bank, there is unanimous agreement that forceful action needs to be taken to bring China’s lending-driven, investment-led, overheated economy under control. The People’s Bank of China has, in fact, tightened monetary three times in the past seven months in an effort to do just that. Like all central banks, it is mindful of the lags and will probably pause to assess whether the medicine is working. But if there is no slowdown in the months immediately ahead, I have little doubt that further tightening measures will be implemented. And I am equally confident that Chinese policy makers will keep acting until the economy flinches (see my March 24 Global Economic Forum dispatch, “China — Determined to Slow”).

Ironically, the legacy of a centrally controlled economy can have its benefits. This is one of those rare instances. The Chinese government has put out a marker with its downwardly revised 7% GDP growth target for 2004. With the official data revealing a 9.7% annualized surge in the first quarter of the year, the task becomes all the more formidable. But Chinese policy makers are well-practiced at the art of achieving targets and avoiding economic instability. As the economy evolves into more of a market-based system, it may well get tougher for the authorities to steer the big ship with great precision. But that’s not the case just yet. While China has taken enormous strides on the road to reform and transition, the government is still very much in charge.

The wise men of China have no doubt that the current leadership has learned the lessons of macro management well. They lived through China’s soft landing a decade ago, and are convinced that the authorities are perfectly capable of pulling it off again. I couldn’t agree more. If my personal experience over the past several years tells me one thing, it’s not to underestimate the capacity of modern China to rise to the occasion. My bet is on another soft landing later this year and well into 2005.

[snowflake34] 23/4/2004 16:00

To float or not to float?
By James Kynge in Beijing
Published: April 22 2004 21:59 | Last Updated: April 22 2004 21:59


Before the Asian financial crisis China hoped to make its currency, the renminbi, fully convertible by 2000. But when Asian neighbours with open economies were ravaged by an exodus of international capital, Beijing dropped the plans to loosen its controls on capital flows.

Six years later, Beijing is ready once more to push ahead with one of its riskiest and yet crucial financial reforms. The renminbi is already convertible for trade purposes but the capital account - which relates to portfolio investments - remains largely closed.

"Opening the capital account is a double-edged sword that needs to be treated with care and executed smoothly," said Guo Shuqing, administrator of the State Administration of Foreign Exchange. "Nevertheless, opening the capital account is an essential stage in a country's development and a problem that must be faced to integrate with the world economy."

Mr Guo said in an interview that if reforms went smoothly, China's currency could be "basically" convertible in around five or six years. He defined the word basically as meaning that some 70 per cent of the 43 categories in the capital account would be liberalised but added the capital account would never be totally free.

The goal of pursuing currency convertibility was to be accompanied - according to an undisclosed timetable - by introduction of greater flexibility in China's exchange rate system, abandoning the current currency peg to the US dollar and gradually allowing the renminbi greater freedom to float. A clear five-part plan had now been formulated to prepare for such changes, Mr Guo said. The aim was to release market forces, so that currency authorities can form a clear picture of the interplay of demand and supply for the renminbi against foreign currencies.

The first leg of the plan is to lift progressively curbs on Chinese companies' direct investments abroad, a move likely to boost demand for US dollars and other currencies and further the government's policy of encouraging outward investment.

The second item in the plan is to reduce limits on individuals taking foreign currency abroad, another step set to boost demand for the dollar. Mr Guo said that, as part of this initiative, Chinese who had emigrated were to be permitted to move their assets to their adoptive country.

The third initiative would be granting greater freedoms to multinationals in moving their funds into and out of China, including liberalising restrictions on the repatriation of earnings. Research was also being carried out on whether to permit large Chinese companies to use funds at home and overseas.

The fourth was to launch a scheme called Qualified Domestic Institutional Investor (QDII) under which selected Chinese financial institutions are to be allowed to invest in overseas capital markets. The first example of this may be moves by the State Social Security Fund to invest in the Hong Kong market.

Finally, international financial institutions are to be selected to issue bonds within China. Mr Guo said accord had been reached in principle with the Asian Development Bank, the International Finance Corporation, the World Bank and a Japanese development bank to launch bonds in China. In another example of China's resolve to promote convertibility, individuals in Hong Kong were permitted to change Hong Kong dollars - a freely convertible currency - into renminbi within certain limits.

Some officials have worried that this reform would make it harder for Beijing to control capital flows, but Mr Guo said the experiment had been quite successful so far, bringing formerly illicit exchange activities into the open where they can be regulated.

Nevertheless, Beijing remains deeply concerned about the financial risks associated with capital account liberalisation. For this reason, Mr Guo set out several principles to help manage risk because "the damage inflicted by the sudden reversal of short-term capital flows can be huge".

One principle was that the rate of investment, relative to gross domestic product, should not remain above the rate of savings, even in a country such as China where savings rates are high. Another was that supervision of capital flows should start with strict supervision of the inflows of capital.

Both of these principles are lessons from the Asian crisis, which was caused to a significant extent by virtually unrestricted inflows of foreign capital into stock markets throughout south-east Asia, which then fled after investors took fright at the high current account deficits that many countries were running.

[snowflake34] 23/4/2004 15:59

China eyes European and Asian bonds
By James Kynge in Beijing
Published: April 22 2004 21:59 | Last Updated: April 22 2004 21:59


China, the second-largest buyer of US Treasury bonds after Japan, is diversifying the portfolio of investments in its foreign currency reserves to include more European and Asian bonds amid market concerns over US dollar weakness.

Guo Shuqing, administrator of the State Administration of Foreign Exchange, told the Financial Times that Beijing had recently bought more European, including Italian, government bonds and was considering making similar purchases in Asian markets.

"As China's foreign exchange reserves grow continuously, we are actively studying opening up new areas of investment in order to spread risk and increase returns," said Mr Guo, who is also a deputy governor of the People's Bank of China, the central bank.

He added that while US dollar-denominated investments would continue to form the lion's share of China's foreign currency reserves, the diversification was driven partly by considerations of currency strength and capital market conditions in various foreign markets.

"In our foreign exchange reserve structure, the US dollar forms the main part, the euro an important position and also includes the Japanese yen, UK pound, Canadian dollar and Australian dollar," he said.

China's purchases of US Treasuries have become a key source of finance for the ballooning US budget deficit. Analysts said that if Chinese buying was to falter or significantly slow, it could apply considerable upward pressure on US interest rates.

Aside from the trend towards diversification, some officials have said that the growth rate of the reserves may start to slow, thereby compromising China's ability to keep financing the US deficit.

Wang Mengkui, director of the development research centre of the State Council (China's cabinet), said it was possible that China might post a trade deficit for the whole of 2004, following three consecutive monthly deficits in the first quarter. Mr Guo said it was difficult to predict trade flows but added that any surplus this year was likely to be smaller than in 2003.

Capital inflows, another important driver behind the rapid accumulation of Chinese currency reserves, might also start to moderate, Mr Guo said.

In the first three months of this year, such capital inflows averaged around $12bn (E10bn, £6.7bn) a month but this month were on track to total some $11bn.

"I hope this can fall to $10bn," he said. Much of this capital inflow represents Chinese or overseas Chinese money returning to the mainland to take advantage of the boom in economic growth. Much of it has been invested in physical projects such as real estate.

[dhedra] 23/4/2004 08:00

Just found an article on the BBC website about taking the Chinese Driving Test, this is one of the questions in the written exam!! .....eh :-/


"If you come across a road accident victim, whose intestines are lying on the road, should you pick them up and push them back in?"