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“Been in this game one-hundred years, but I see new ways to lose ’em I never knew existed before.”
Casey Stengel

Commentary & Analysis
Two part missive: Dollar zoom and cheers for Cameron …

Asian Screech–Dollar Zoom?
I find it interesting how complacent many still are regarding Asia, China in particular. But I guess if one vests so much time and effort to wave a convincing story, it is difficult to be objective (guilty as charged). But the slowdown in Asia is palpable, and soon it could turn into an all-out run thanks to falling dollar liquidity, thanks to the Eurozone banking crisis, and thanks to the Chinese housing bubble …

Emerging Market Index Weekly:

Two key points, first from EconoMonitor (Patrick Chovanec) and Reuters (Breakingviews) [my emphasis]:

  1. EconoMonitor: “The first signs of a downturn emerged in August, when China’s top 10 property developers reported unsold inventories totalling RMB 318 billion (US$ 50 billion), up 46% from the previous year. Highly leveraged, with debt to asset ratios approaching 65%, developers were coming under increasing pressure to liquidate those inventories for cash. The fire sale began in October, with several Shanghai developers slashing sale prices on new apartments by 25% or more. The discounts sparked angry (and sometimes violent) protests from investors who had previously bought the same units at full price, demanding refunds.

    “…According to a central government study, local governments in China depend on land sales for approximately 40% of their revenues. The all-purpose answer, whenever doubts are raised about the ability of local governments to repay the loans or bonds that funded various stimulus projects, is that they can always sell more land. But when developers stop building, because they are too busy desperately trying to liquidate their existing inventories, they stop buying land.”

  2. “It’s not known yet how much Western banks are pulling out of the region. As recently as June 30, their credit into Asia — outside Japan — was still rising, to a record $1.45 trillion. But Japan’s troubled banks cut a quarter of their credit to Southeast Asia between mid-1995 and the start of the Asian financial crisis in mid-1997. It has yet to recover. If European banks did pull out in the same proportion, it would carve roughly $390 billion out of the credit landscape.
  3. “European lenders only account for 2.3 percent of loans to non-banks in emerging Asia, according to the BIS. But they are big lenders to Asian banks. Led by Spain’s BBVA BBVA.MC, and France’s BNP Paribas BNPP.PA, Credit Agricole CAGR.PA and Societe Generale SOGN.PA, they account for 32 percent of Asia’s syndicated lending, according to Citigroup, and 40 percent of syndicated trade finance. Europe thus accounts for 61 percent of foreign loans to non-Japanese Asia, most of it in short, one- to two-year loans.

    “The reason is that at least two-thirds of global trade and investment is still conducted in dollars. European banks were raising cheap dollars in the U.S. Aside from HSBC and Standard Chartered, most Asian banks don’t. What they lack in dollar deposits they have to borrow from Western banks. So while their total loan-to-deposit ratios may suggest they can take up their slack, their dollar loans exceed dollar deposits many times over, exposing them to currency fluctuations.”

Can you say: “Risk bid” and “rising demand for good old US dollars? Those of you who actually believe in dollar “Apocalypse” are likely choking on that one! 
Zoom-zoom! US Dollar Index Weekly-you’ve seen it here before!


Three Cheers for David Cameron!

Thank you to Mr. Tony Barber of the Financial Times for some morning chuckles. In his article today, “Summit was a disaster for British diplomacy,” he slams UK Prime Minister David Cameron, blaming him for a “defeat.” And if only those career hacks in the “Foreign Office,” had handled the delicate negotiations with the EU, all would be good. What a joke!

Three comments:

  1. What are all the “costs” the UK will suffer by not being part of the new and improved fiscal pact (the euro was going down in flames anyway–at least now there is some urgency)? Mr. Barber, feel free to define something the UK will lose other than your access to EU sots at summits and the maniacal meanderings of Merkozy?
  2. David Cameron showed that he had some muster given he was outnumbered 26-1; most other pols would have strapped on their diapers and gone along for the ride. My only complaint is that he didn’t call for referendum to pull the UK out of the EU altogether–I am in agreement with Nigel Farage as usual):
  3. For some years I [Nigel Farage] have felt like the most unpopular Englishman inside the EU institutions. Now I have competition. David Cameron cut a very lonely figure in the grim Justus Sipsius building in Brussels. He vetoed a new EU Treaty that was designed to save the Euro and will try to present himself as a strong leader in the UK.

    His objection to the Treaty had nothing to do with the Eurozone itself or the new, proposed draconian measures on failing member states. This is a pity as he could have used the opportunity to explain that democracy, both in the UK and in Europe, was something that we passionately care about.

    He should have warned them that abolishing national democracy and vesting new powers in EU bureaucrats (under German direction, of course) was disgraceful. That an apology needs to be issued to Greece and Italy for the removal of their democratically elected governments and the appointment of puppet premiers. If peoples are deprived of their rights they will resort to other means, civil disorder in Greece being an example of this. The EU project is now in danger of creating the very extreme nationalism that it was supposed to stop.

    On the economics Cameron could have taken a lead by saying the Euro project is beyond rescue. Terrifying the peoples of the EU with talk of dire consequences of Euro-breakdown is only keeping the weak countries trapped inside an economic prison and making an even bigger ultimate breakdown more likely.

    Better to face up to the truth, and admit that certain countries need to leave the Euro. It is true that the implications of this are serious for many banks, as they hold €1.5 trillion of toxic loans between them. Yet it is going to happen anyway. As the example of Iceland shows, getting the bad news out of the way does, at least, give some hope for the future.

    Sadly Mr. Cameron said none of these things and did not object to the Treaty in principle. Under massive political and commercial pressure he tried to win some safeguards for our financial services industry, but President Sarkozy told him where to go.

  4. I thought conventional wisdom said when you are riding on a rat-infested sinking ship it’s smart to jump off as soon as you can. You would disagree with that Mr. Barber?

    This from Mr. Barber’s paper (also this morning) front page–read this with caution, it is just “shocking” I tell you, “SHOCKING.”

    Franco-German hopes for a sweeping new treaty to bind more closely the region’s economies came under strain yesterday as European Union leaders warned of difficulties pushing a far-reaching pact through their parliaments.

Oh gee, no one saw that one coming–did they Mr. Barber?

Euro under $1.30 and sinking fast; man the lifeboats. Looks like the Finnish and Dutch contingent already have their boats half-way down the side of the badly listing ship. Hmm…..