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News. Comments. Chart hodgepodge.

 Is China Behind the Inflation Curve? We think they are and why we think commodities prices will start to roll over soon on that expectation.

China behind the curve was implicit in JR’s commentary yesterday regarding copper. Interesting that copper is turning over nicely today on a bit of conversion flow to that idea. We know that one day does not make a trend. And we realize many multinationals believe China will not have an inflation problem anytime soon, but the timing may be perfect, as a major copper bull wrote to us yesterday to disagree with our comments.

Copper Daily:

 US consumer price index came in below expectations today, as reported for the month of November — at 0.1% , below the 0.2% consensus.

Funny, we took some heat from a “gentleman” who told us our comments countering the hyperinflation view were nonsense, and the idea that banking reserves were not money was ridiculous. Others may agree with this. And others may agree that it is the central bank’s intention to force up inflation. We agree with that. But, three points here: 1) intentions are not reality; 2) the road to hell is paved with good intentions, and 3) the Japanese wanted to see a little inflation in the system too; they are still trying after about 20-years.

If we get any change in US growth expectations, as it seems we are, we would expect bond prices to fall and interest rates to rise in order to reflect that. That would be a good thing. It is not in and of itself anything to do with a “bond bubble” is our view. The rise in bond prices (lower yields) was based on rationale expectations (should there be such animals), i.e. lower growth, rising uncertainty, rising risk, demographics, and low inflation.

10-year Government Bond Yields: We shall keep up that hyperinflation watch, as soon as we get a break of that 22-year old down trend in rates. Never say never!

… speaking of interest rates, gold competes with interest rates. And though there are at least a billion or two reasons to buy gold don’t you know (and absolutely no reason to sell it because the US dollar is going to zero), so say the peddlers of miracle elixir, i.e. the major retail newsletter scare-monger houses. Well, if we assume for a moment the dollar doesn’t go to zero, and actually rallies in the New Year, it might just do so for the same reasons we can come up with as to why gold would take a dirt nap:

1) The US economy recovers better than expected; reducing systemic risk, and
2) Interest rates rise and the real economy starts to compete for funds …

Gold (black) versus 10-yr Note Futures (red) Daily: A big divergence developing! Stay tuned!

 Spain is put on debt watch by Moody’s for possible downgrade.

There wasn’t much reaction in the 10-yr bond spread between Spain and Germany, in fact the spread tightened today. Maybe it is because of a conversion flow on euro expectations as noted in Reuters this morning … Some euro “defense” comments …This dovetails on the growing theme that Germany wants the euro saved in its current form so it can continue to sell into its captive market and be assured a “relative” weak currency compared to the D-mark or a “Northern euro currency zone” that would be much stronger without its southern sisters:

German Chancellor Angela Merkel said no country in Europe would be left on its own, and reiterated that the euro was a strong currency that would be defended to the hilt.
"We know that the euro is our collective destiny, and Europe is out collective future," Merkel said in a speech to Germany’s lower house of parliament. "Nobody in Europe will be abandoned. Europe will succeed together."

European Commission President Jose Manuel Barroso urged leaders to act fast to reach a consensus, but Luxembourg voiced frustration at Germany and France who, as the motors of the EU economy, often dominate decision-making.

"I can only warn Germany and France against making a claim to power, which reflects a certain haughtiness and arrogance and disregards the European principle of solidarity," Luxembourg’s foreign minister, Jean Asselborn, told the newspaper Die Welt.
He said Paris and Berlin had a tendency to blow up problems ahead of EU summits, only to resolve them at the meetings.

Germany waits to get to the brink, with France playing role as foil, swooping in to squeeze more concessions and still not getting to the core of the problem—wealth creation amongst the periphery. Nice work if you can get it.

EURUSD Monthly: Red-line is 40-week MA.

 The number of Britons out of work rose for the first time in six months in the three months to October, surprising analysts and raising doubts about the economy’s resilience before big public spending cuts next year. The Office for National Statistics said the number of people without a job on the internationally comparable ILO measure rose by 35,000 to more than 2.5 million in the three months to October. That was the first increase since the three months to April and the biggest since the first quarter of the year. (Reuters)

Is austerity starting to bite? If so, can great quantitative easing from the Bank of England be far behind? Maybe! The pound is getting hit hard today. It’s fallen out of that up channel …


 Bank of Norway kept rates on hold, but signaled rates would likely be going higher by March 2011. (Reuters)

USDNOK Daily hitting some trend line support today …