As clear as black and white

Who said "God caused Hurricane Katrina to wipe out New Orleans because it had a gay pride parade the week before and was filled with sexual sin?" No, it wasn't Barack Obama's loose-talking black pastor, the Reverend Jeremiah Wright. It was John Hagee , the ultra-conservative white pastor from Texas. He also said this: "All Muslims are programmed to kill and we can thus never negotiate with any of them."

Republican presidential candidate John McCain actively sought and got the support of Mr Hagee whom he has praised and embraced. Here are the questions you need to ask yourselves: why did the American media and many Americans knee Mr Wright in the groin for his outrageous sermons but give Mr Hagee a free pass for his hate-mongering remarks? Why was so much poop flung at Mr Obama for his association with Mr Wright but none at Mr McCain for being pals with Mr Hagee? Why was Mr Obama forced to denounce Mr Wright but Mr McCain wasn't made to do the same with Mr Hagee?

Actually, the answers are easy. They're as clear as black and white.

SCMP, Michael Chugani
May 21, 2008

THE price of oil may soon hit $200 a barrel—or so, at any rate, believes Shokri Ghanem, Libya’s oil minister. A few years ago such a prediction would have seemed absurd. But the price has doubled in the past year and has risen by 40% this year alone. It touched yet another record, of over $135 a barrel (before dipping slightly) on Thursday 22nd May. So more spectacular increases seem all too plausible.

The immediate trigger for the latest jump seems to have been an unexpected fall in American oil inventories. But stocks, although falling, are not particularly low: in America, they are only slightly below the average of the past five years. Supplies of petrol and other refined fuels are actually a little above average. And since demand for oil and petrol are falling in America, lower stocks are not as much of a worry as they might normally be.

Mr Ghanem’s explanation for this curious state of affairs is to blame speculators, who are investing ever more enthusiastically in oil futures. Many others share his view. Joe Lieberman, an American senator, points out that the value of investment funds that aim to track the price of oil and other raw materials has risen from $13 billion to $260 billion over the past five years. He blames these “index speculators”, for a big part of the commodity-price increases. He and his colleagues in the Senate are so worried that they are contemplating measures to curb the traders’ exuberance.

Yet few bankers agree that speculation has much to do with price rises. For one thing, indexed funds do not actually buy any physical oil, since it is bulky and expensive to store. Instead they buy contracts for future delivery, a few months hence. When the delivery date approaches, they sell their contract to someone who actually needs the oil right away, and then invest the proceeds in more futures. So far from holding oil back from the market, they tend to be big sellers of oil for immediate delivery.

Thanks to Economist.com 26/5/08

Singapore feels inflation squeeze

INFLATION is now public enemy No. 1 in economic terms, as fast-rising prices replace slowing growth as the Government's main worry.

'We are facing risks on both sides, but the balance of risk has shifted towards inflation,' said Ministry of Trade and Industry (MTI) Second Permanent Secretary Ravi Menon at a press conference yesterday.

'We expect food and oil prices to remain elevated in the near term and to feed through into domestic prices,' he said.

The MTI released figures yesterday showing that the consumer price index (CPI) had reached a fresh 26-year high of 7.5 per cent last month. The CPI is a key inflation indicator.

The ministry also yesterday raised its inflation forecast for this year.

Its full-year forecast range for CPI inflation is now 5 per cent to 6 per cent, up from 4.5 per cent to 5.5 per cent. This is the second time it has revised its forecast since the start of the year.

Straits Times 24/5/08

Emerging Market inflation revisted

Back on one of my favourite hobby horses again today - global inflation. The graphic on the left is courtesy of Economist.com

It's really difficult to see what the medium long term implications of inflation in oil and other commodities are likely to be. Thei seems to be the end of a golden age. The future looks expensive, uncertain and more risky! Could we be looking at the embryo trigger points of more global conflict?

Oil over USD135 a barrel

Really entering uncharted territory here for the global economy. No one can say what the implications are with the current price level. Of course we have been here before with global fuel crisis and 'black gold' but it's been a long time now. It's difficult to assess the implications in the 21st Century context - some of the shifts in the power balance include:

• rapidly developing BRIC economies and influence
  
• power shifting from mainly (US) corporation owned oilfields to mainly sovereign state controlled oilfields - many of which are at best ambivalent to US interests
• instant global communications and the power of hedge funds and speculators
• genuine and powerful environmental concerns, pressure groups and lobbying
• general recent global decay/neglect in development of nuclear technologies post 3 mile island etc
  

What effect these disparate factors have on the global economy is unclear but what seems obvious at the moment is that oil prices will continue to trend upwards - whether a bubble is forming remains to be seen.

Olympian Quake Response

Interesting set of opinions in todays press. One drawing my attention compared and contrasted the response of China to their national disaster with that of USA to Hurricane Katrina. Premier Wen Jiabao was on a plane within hours - a sharp contrast to President Bush who dithered. Once on the scene Wen got his hands dirty. Now we can all suggest that there is an element of political cynacism in his actions but some credit and admiration is due.

"Compared with the rescue effort, the Olympic torch is an oversized cigarette lighter, a mere bauble. It is China's response to the earthquake that is truly Olumpian." Peter Gordon, The Standard 21/5/08

The Pain of Inflation

Great stuff as always from my hero's at Economist.com

Extracts below

"A number of countries with high levels of inflation have this year suffered alarming slides in the value of their currencies against the dollar or euro. Romania’s currency softened by nearly 10% against the euro in the first three months of this year. Over the same period the South African rand lost nearly 20% of its value against the dollar and the Turkish lira lost 14%, while Iceland’s krona suffered a spectacular 30% drop in value versus the euro between January and May. Inflation and large external financing needs were the common factors behind these declines. The US dollar’s decline against other major currencies, and the recent weakness of the British pound against the dollar and euro, are also down partly to inflation running well above official targets.

Until mid-2007, relatively high inflation was viewed by financial markets as a reason to buy a currency, on the basis that nominal interest rates would be correpsondingly high and might rise further. This may seem counterintuitive as high inflation erodes the buying power of the purchased currency, but it is the basis of the foreign exchange carry trade, which enjoyed a period of strong positive returns.This applied even to emerging markets with sizeable fiscal and current-account deficits.

From the second half of 2007, and particularly since the start of 2008, carry trades have become much less of a one-way bet. The perception that inflation was a problem that had been conquered by central banks, and thus was nothing to worry about, began to change. There were two reasons for this. First, the surge in commodity prices—in particular for food staples—pushed up consumer prices across the globe. The impact was particularly pronounced in emerging markets, where food takes up a relatively high proportion of the consumer basket. Second, in response to turmoil on global financial markets, central banks, led by the US Federal Reserve, loosened monetary policy through interest-rate cuts and liquidity injections. There is a perception that some central banks are now more concerned with GDP growth and the stabilisation of the financial sector. Their hard-earned credentials as inflation fighters are being brought into question." Economist.com 16th May 2008

Japan-Sino relations. Long memories and pain

Although there has been a thawing in relations between Japan and China since the replacement Junichiro (pleasant demeanor but hardly the worlds greatest statesman) don't believe for a minute that the WW2 rancour doesn't still exist. I would suggest far more deeply than in USA or Europe.

The following is a reply I was cc'd into for an invitation to a business sharing event between highly professional Hong Kong and Japanese businessmen yesterday. The names have been X'd out.

"Dear X. XXXX

Thank you. If possible, I try not to have any contact with the Japanese who have skinned / tortured millions of men and raped and blasted open countless of women during the second world war.

A farmer in the New Territories who witnessed head-cutting by the Japanese soldiers told me the heads rolling on the ground squeaked in the teeth because of the unspeakable pain - of course the victims couldn't speak any more.

Given the permanent presence of the extreme rightists in Japan, this country will certainly attempt to conquer other nations in the future when there is another chance, in one form or the other.

Hava a good day.

Regards,

X.X. Xxxxxx"

Growth springs eternal

Somehow growth is still racing along in my hometown - Hong Kong’s economic growth accelerated in the first quarter of this year as output expanded 1.8 per cent from the previous quarter, its fastest pace since the third quarter of last year and "buoyed by strong investment and resilient exports."

Consumption was also solid although it dipped slightly from the previous quarter.

From a year earlier, first-quarter growth picked up to 7.1 per cent, higher than expected and up from a revised 6.9 per cent in the fourth quarter of last year.

“So all cylinders are firing,” said Paul Tang, senior economist at Bank of East Asia “... But I think further down the road, we are expecting significantly slower growth in exports in view of what’s happening in the United States markets. Extracts courtesy of SCMP 16/5/08

Here comes the inflation wave - get yer board out!

The outlook for UK inflation has "deteriorated markedly", the Bank of England governor Mervyn King has said. "The nice decade is behind us" BBC

"There are a number of structural reasons, both on the demand and the supply side, to suggest that commodities prices and food prices will remain firm and there could be substantial spikes and upward prospects in the months ahead," said Olaf Unteroberdoerster, the International Monetary Fund's resident representative in Hong Kong. An imminent US recession has weighed on financial markets this year, but surging food prices have fed a boom in the commodities market that shows no signs of slowing down - South China Morning Post 15/5/08

The US is already in a recession, but the greatest concern for Asia is inflation rather than the impact of crumbling American consumer demand on the region's growth, they said. The recession started late last year and could well resemble the worst slump since the Great Depression of the 1930s, Mr David Rosenberg, the chief North American economist for Merrill Lynch, warned. - Straits Times 15/5/08

Here it comes kids - keep paddling

Tragedy in Sichuan

Our thoughts go out to those caught up in the disaster of the earthquake centered in Sichuan province. The rescue effort has been shown non-stop on the local channels with some harrowing scenes of successes and failures. The coverage has been very candid for China - quite unusual for a state media so often criticized for censorship (as noted in the New York Times here) and in stark contrast to scenes in Myanmar after the recent cyclone - a disaster of even greater proportions that will take some considerable time to play out. Time to be grateful for what we have, again.

Water-boarding here's the interview

Interview at the weekend, I really don't understand where O'Reilly's logic comes from - other than the fact that he's being contrary for the sake of it.

O'REILLY: Let's take War on Terror first. You're opposed to water-boarding, and I disagree with you on that. I think the president of the United States should have — just the president — should have the legal authority to order water-boarding in extraordinary circumstances.

Now, according to Tenet and to President Bush, used three times on Khalid Sheikh Mohammed, al-Nashiri, and Abu Zubaydah. All three times the men broke when they were water-boarded, and they gave out information, according to the Bush administration, that saved thousands of lives.

SEN. JOHN MCCAIN, GOP PRESIDENTIAL CANDIDATE: Well, first of all, the scenario you're talking about is a million to one. Second of all, well, you know when you're torturing anybody — we know that they'll give you things.

(CROSSTALK)

O'REILLY: These people gave up very good information.

MCCAIN: They gave up very bad information, too, according to some sources. But the point is: Do you want to abrogate the Geneva Conventions? In the next war that we're in, if you want an American tortured, a serviceman or -woman, by someone, a foreign country when we're in another war because we did it to the people in our captivity...

O'REILLY: These are terrorists, not soldiers though. They're not entitled to Geneva.

MCCAIN: Look, the Geneva Convention — yes, they are.

O'REILLY: No, they're not.

(CROSSTALK)

MCCAIN: The Geneva Conventions apply — in all due respect, I'll send you the information. Geneva applies to every person who is held in captivity by another country.

O'REILLY: Even criminals?

MCCAIN: Even criminals. And that — if they are in combat. And now there's a difference between uniformed combatants and non-uniformed combatants.

O'REILLY: You think 9/11 they were combatants, those people?

MCCAIN: I think that they were — I think we're in a war against radical Islamic extremism and I think that war is all over the globe. And I believe, as Colin Powell does, and these military officers who spent an entire career, that the Geneva Conventions call for…

O'REILLY: Apply to everybody.

MCCAIN: …a prohibition, a prohibition of inhumane, cruel and degrading treatment. And their concern is what happens to Americans in future wars if they are held captive.

O'REILLY: We're not fighting a nation now.

MCCAIN: We are fighting a conflict, and the Geneva Conventions have clear applications.

O'REILLY: We'll have a gentleman's disagreement on that one?

Fox Intervew Transcripts

OK, so yesterday I talked about the interview with Sen McCain with Mr O'Reilly on Fox the day before. Turns out the transcript of the second part isn't on the website. Mmm, shame as I was going to quote some parts of it for your enjoyment.

I've dropped the show an email to try and find when it will be released - let's watch this space.

I only watch Fox News if I don't feel angry enough

Just been watching McCain interviewed by O'Reilly. The first part of the interview is here The second part transcript isn't out yet and this is what I watched this morning.

I can't believe O'Reilly sticks to his support of water-boarding as an acceptable torture technique - he's really just playing to the audience and doesn't care about the long term issues of the welfare of US service personnel in future conflicts - The argument vis- If America tortures then it's ok for us to do so to.

It's a fairly similar argument to those about capital punishment. If America kills about 300 of it's own citizens every year then how can it take the moral high ground when China kills 3000 or more?.

Well that's my anger quotient topped up for the morning, thanks again Fox!

Understanding China

I really wish Americans would spend a little more time trying to do this. I've been disappointed (but hardly surprised) that the American presidential race has already descended to ritual name calling. China is a big place (about five times the population of the US) with a big history - they claim about 5,000 years but at least 4,000 years as a nation state is clearly sustainable.

It also has huge stability problems which mean that even if they wanted democracy - and a large number genuinely don't seem to - it is unlikely to be possible to implement without risking the destruction of the entire society. I read somewhere that there were 400,000 instances of civil uprising in China in 2005 alone. That's why their army is the world's largest employer.

Of course, now an increasing number want their own version of the American Dream (not just having a 'fridge as large as a car and car that drives like a fridge' which seems prevalent state-side these days) and this seems to be an unstoppable force that will propel China back to it's accustomed place as the most powerful nation on the planet and overcome the economic blip of the last 250 years or so.

Global Inflation - Haven't we been here before?

The last few weeks I've been thinking about inflation, particularly with respect global commodity prices.

Oil is obvious and does not need elaboration.

Grains and other foodstuffs less so depending on where one lives. I heard the other day that China has doubled meat consumption in the last five years. For every kilo of meat produced 7 kilos of grain are required for feed. China has gone from being a major grain exporter to a net importer - a trend that will continue. The economist.com produced an excellent graph of trends here.

Meanwhile Brazil, Indonesia and others are dumping food production for more profitable bio-fuel plantations - sure, we will save the world by starving more people.

There seem to be real parallels with previous global cycles. Housing price collapse in various countries driving central banks to lower interest rates whilst prices of staples are rising. Inflation always seems to be difficult to measure until after the event. It would seem that central banks may have underestimated the threat (again) and we will look back on 07 as the year we turned a corner from the last decade of unprecedented economic growth and stability to a period of fear uncertainty.

On a brighter note, there still seems to be plenty of liquidity around - although at the moment most of it is being pooled by a post credit crunch knee jerk from the major banks and finance houses.