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  • SYDNEY, Feb 11 (Reuters) – Australian employment surged past all forecasts for a fifth straight month in January while the jobless rate surprised by diving to an 11-month low, reigniting talk that interest rates would have to go up as early as March.

    The Australian dollar jumped a full U.S. cent and bill futures sank as the market bet the Reserve Bank of Australia (RBA) would be jolted out its current caution and lift rates to 4.0 percent on March 2.

    "An exceptionally strong number. It confirms unemployment has peaked and is starting to decline at a fairly rapid pace," said Commonwealth Bank chief economist Michael Blythe.

    "It’s now better than a 50-50 proposition that rates will go up in March and at the very least, these numbers say that the pause we’ve seen on the rates front will be short. We’ve stuck with our 5 percent call for the end of the year."

  • China’s Burgeoning Local Debt Means Debt, Banking System Risk Understated (Naked Capitalism)
  • EU Leaders Meet to Hammer Out Greek Aid Package Before Summit in Brussels (Bloomberg)


“To obtain an independent estimate, I collected data from thousands of sources, including regulatory filings, bond-rating reports and press releases of government-bank cooperative agreements. I estimate local investment entities’ borrowing between 2004 and the end of 2009 totals some $1.6 trillion. The data are far from perfect because borrowing by low-level government entities and lending by small banks are difficult to track. Nonetheless, my evidence suggests that the scale of the problem is much larger than previous government estimates. At $1.6 trillion, the size of local debt is roughly one-third of China’s 2009 GDP and 70% of its foreign-exchange reserves.”

                             Victor Shih

FX Trading – Recovery: Best get on with it already …

Jack laid out several items yesterday pointing to potential for a double-dip into recession land, for the US and abroad.

Sure, there are plenty of people out there that agree with Jack; I’m one of them … and apparently Marc Faber is too! (Gee, I’m pretty funny sometimes.)

But there are also those who think the recovery is set in stone, done deal – we’re going to make it out of this just fine.

Feb. 11 (Bloomberg) — U.S. unemployment peaked in October and will retreat through 2011 as the economy strengthens, according to economists surveyed by Bloomberg News.

The world’s largest economy will grow 3 percent this year and next, more than anticipated a month ago, according to the median estimate of 62 economists polled this month.

To that I say, “Get on with it already.”

Something Jack didn’t point out yesterday:

Small US banks are in trouble due to bad loans arising from their delving into the commercial real estate market. A Congressional Oversight Panel that’s looking into TARP says that small banks and institutions could get smoked by a mass of loan failures tied to commercial property.

Though they say resurgence in the economy could help mitigate the risk to small banks’ stability. Basically, job growth and corporate spending would alleviate the pressure on the entities struggling to make payments on their loans.

Ok, recovery: we’re waiting.

And then there’s China. Yes, China, of course.

We know from the Chinese government’s response — boosting rates on short-term bonds and hiking reserve requirements — that the amount of lending that took place in January was nearly out of control.

Proponents of the Chinese growth story argue that China’s advantage is that they are aware of all the risks to growth and will thus be able to avoid them.

Well, if so, then they might have to get a little tighter on the lending situation. As Wen Xiu and Fang Huilei of Century Weekly write:

The ratio of the M2 money supply to gross domestic product, a major indicator of the national economy’s reliance on monetary policy and credit issuance, continues to move upward, and has reached the rarely seen level of 160 percent.

"This means China’s use of credit to drive the economy has reached a maximum, and continuing the policy could be counterproductive. The excessive accumulation of credit risk will inevitably result in non-performing loans in the future," a senior official at a state-owned commercial bank said.

But then again, maybe they realize they can’t get tougher at this time. Sticky situation it is for China.

The bright minds over at Morgan Stanley have tried to compare the current situation with that of pre-2004 and pre-2007 when China had to resort to tightening as a way to stem an overheating economy.

The big difference, as they point out, between those two instances and now, is that the current economic situation is much less stable. Meaning: any tightening measures could prove counterproductive if external demand (among some other items) does not return by any meaningful degree.

But again, if global demand strengthens then it would alleviate the pressure for China to keep stoking growth via excessive lending measures.

Ok recovery: China is waiting.

Consumer confidence in the US and China has bounced back rather sharply. (China: blue line; US: black line.)

US and China Consumer Confidence

That’s somewhat odd, seeing that the unemployment situation has not made significant improvements.

Perhaps it’s the stock market that’s had everyone searching for that silver lining. Let’s just hope we find it before the vulnerabilities become realities and the stock market (think repository of collateral) takes a dive.