China Stocks Drop on Zhou Bubble Warning: World’s Biggest Mover (Bloomberg)
The Chinese stock market dropped 3.7% after central bank governor Zhou Xiaochuan warned of “irrational exuberance”. Just kidding. Maybe something got lost in translation, but it sounds like he just said that stocks may be overvalued and that the country may be forced to raise interest rates in order to reign things in. A number of stocks plunged by the maximum allowable on the news. But, c’mon people, it’s not like you didn’t know that Chinese officials have been skittish.
Report on Amaranth Collapse Is to Be Made Public (NYT)
A Senate subcommittee is set to release a report on the Amaranth crash. You know, typical government stuff — What happened? What went wrong? How can we avoid this in the future? Undoubtedly, the report will come alongside some prescriptive policy recommendations. It’s pretty unlikely that the Senate will have anything fresh to say that most people don’t already know, but even worse, they’ll probably miss the point. What would be interesting is if someone did a report about how such an enormous, highly-leveraged fund could collapse with such a small ripple. Why didn’t the collapse cause more of a panic? Why haven’t other funds and banks collapsed as a result of Amaranth’s collapse. Unfortunately, we can’t expect an answer to these questions.
Yen rebounds as profit-taking knocks carry trades (Reuters)
The Yen moved upward, as traders (allegedly) unwound positions based on the so-called carry trade. There are fears that the currency’s weakness and low interest rates are anomalous and unsustainable, and thus it’s only a matter of time before the fun is all over. It’s funny how long it can take for a certain arbitrage opportunity to disappear. Billions of dollars can be allocated just for the purpose of closing some interest rate gap, and yet it doesn’t happen. Even after everyone thinks it’s all over (like this March for example), it’s not over. As studies have shown, it’s the pervasive sentiment that an opportunity is over, which keeps the profits coming for those who seek to exploit it.
US apple growers brace for China rivals (AP)
Chinese apple farmers grow five times as many apples as their US counterparts, but at this point, there are no Chinese apples in the country. Ostensibly the country has to go through some safety review process before its apples can be sold here, but in the meantime it’s a nice trade barrier for the protection of US growers. Eventually, however, they will come, and US farmers will just have to deal. Here’s a recommendation: fix the goddamn red delicious. What was once a proud apple is now inedible. Yes it’s pretty, but that’s only because the skin is so tough and thick, much to the detriment of the eating experience. If you want to stave off the Chinese, bring back the delicious in the red delicious. Personally, as an apple fanatic, we’re looking forward to any new varietals that could hit American shores.
FOREX
European Stocks Drop on China Concern; BHP, Volvo Shares Fall (Bloomberg)
Apparently, stocks in Europe fell after Alan Greenspan voiced some concern about the Chinese stock market. Wait, what? Let’s repeat that again: Apparently, stocks in Europe fell after Alan Greenspan voiced some concern about the Chinese stock market. So this would mean that Greenspan still has the power to jawbone down markets (for a day at a time), though we probably didn’t need Greenspan to tell us that the Chinese stock market looks like a bubble a tad overheated. And so what if Europe declines for a day if it resumes its astounding upward ascent tomorrow? We wonder if all this lip exercise is a way for Greenspan to prove his value to potential consulting clients. After all, who wouldn’t hire him if he can just talk and get the markets to move the way he says they will? All that being said, while Europe supposedly heeded Greenspan’s warning, China didn’t seem to care at all.
Oil Industry Says Biofuel Push May Hurt at Pump (NYT)
One of the big conspiracy theories out there is that the oil companies intentionally don’t build refineries so that the price of gas stays inflated. That’s never sounded particularly legitimate to us though. Apparently, however, the government’s love for ethanol has got some oil companies worried enough to want to postpone plans for building new refineries. At first this sounds like a load of rubbish, and the conspiracy theorists may think that oil companies will look for any excuse not to build new refineries. But, this sounds legitimate to us. After all, if its the policy of the government to reduce fuel consumption by 20% over the next 10 yeas (which it is), why in the world would we need new refineries? That wouldn’t make any sense. On the other hand, if this is just bluster and posturing from the government, then maybe our politicians need to realize that words have meaning and consequences.
Congress Calls For New Measures Against China During Wu Visit (Bloomberg)
Not surprisingly, members of Congress are starting to talk protectionism once again, even as Chinese government officials come to the US to talk trade. What’s really irritating is when you read stuff about Congressman getting all upset because they don’t like the way the Yuan is valued, and you just know that they don’t have a clue about how currency markets work or what the implications of an artificially-low Yuan actually are. Instead, they probably just read some articles about it in the Times, or maybe got a call from a union leader and started repeating what they heard.
Lawmakers scramble to act on pump prices (Houston Chronicle)
Meanwhile, some good news for you motorists. We’re finally going to get some relief from high gas prices, since Congress has passed a new law that makes price gouging a federal offense. Awesome. Sure, some cynics might wonder how much price gouging really has to do with current high prices at the pump. But that’s the great thing about this. Because price gouging is a vague and nebulous concept that can be defined any which way, there’s a lot of leeway for politicians and attorneys to go after people if they don’t like the price that’s being charged. So there you have it, pencil in that roadtrip this summer. It’s on.
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FOREX
Hank Paulson in Washington: Not a Hurricane So Much As a (Willful) Drizzle
By Bess Levin
Hank Paulson is getting antsy. He’s been in DC for almost a year now and the old boy doesn’t have much to show for it. When Paulson left Goldman Sachs, he planned on using his Hammer-like deal-making skills to get stuff (Social Security, Doha global trade talks, China) done. But, according the Wall Street Journal, the same qualities that made Paulson an efficient higher up at Goldman, and allowed him to outs Jon Corzine from the company (while JSC was away with his family for Christmas in Colorado)–impatience, forcefulness, an insistence on interrupting people and monopolizing conversations–just make him a dick at the Treasury, and a frustrated one at that.
Does anyone know why you can’t get a Wii these days? There doesn’t seem to be any major production drama, yet many children remain chubby, dormant and with fully functioning elbows. The strange case of the missing Wii is taken by guest Freakonomics blogger Paul Kimmelman. Is this a deliberate maneuver on Nintendo’s part or even worse (gasp!) a conspiracy? Here’s a summary of the mystery puzzle muzzle, using the five issues Kimmelman raises:
1. Nintendo’s manufacturing lull is inexplicable. There are no known parts shortages. There hasn’t been a major production ramp by the first quarter of the console’s release, which is rare. It’s no secret that Nintendo is particularly coquettish about its hardware releases, and after two strikes with the strategy (N64 and GameCube), it finally paid off by creating buzz and a secondary market price spike with the Wii. Then again, perhaps vital Wii parts have been scattered across 8 distant lands, guarded by 8 fearsome creatures, overseen by 3 various forms of an evil presence, or large turtle.
2. Retailers like the hordes of kids dragging their parents to stores to check out Wii-vailability. This results in a lot of, “If we can’t get a Wii, we might as well get a box set of the Beastmaster trilogy,” purchases. In other words, Best Buy and Target are greasing the plumber’s palm.
More after the jump…
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FOREX
Bloomberg: Pay No Attention To The Crazy Old Man Asking For Spare Change. It’s Just Alan Greenspan
By Bess Levin
If there’s one thing you can say about Bloomberg’s Caroline Baum, it’s that she’s not afraid to take a hockey stick to the knees of an 81 year-old man. Yesterday it was crotchety old Carl Icahn, tomorrow is anyone’s guess. We’re going with an outpatient at Sloan-Kettering. Today’s recipient of Caro’s best (and mostly successful) attempt at a Tonya Harding is, as the head would imply, Alan Greenspan. Basically, her point is that he’s your crazy old grandfather/local homeless man who should’ve been put in a home/half-way house years ago, who won’t stop talking to himself and gesturing wildly, who you should just completely ignore. Let him talk ’til he’s blue in the face, you don’t have time for his inanity and self-involved bull shit. He’s basically a child but guess what? You’ve already got a baby and unlike Greenspan, he’s rarely wets the bed anymore, if ever.
All the criticism of Greenspan issuing forecasts that conflict with the Fed’s rosier outlook misses one key point. He can talk all he wants. You don’t have to listen.
After 18 years as a civil servant, where his maximum salary was $180,100 a year, the man is entitled to earn a living. That his chosen metier is the same as it was before he became Fed chairman — he was president of Townsend-Greenspan & Co., a consulting firm — isn’t surprising. He was not about to open Greenspan Plumbing & Heating Supply Co. at age 81. The problem is that you seem to care about what he says.
It’s surprising that folks care so much about Greenspan’s musings considering their less-than-pithy nature. Last week he told Reuters that the popular “carry trade,” wherein traders borrow Japanese yen at a low rate of interest to finance, or carry, higher-yielding assets, would turn “at some point.” His comment that shook the world two weeks ago was that a recession was possible by the end of the year. (Anything is possible.) What’s shocking is that anyone would pay for these insights.
Look, Greenspan can talk all he wants. He can ramble on about oil futures prices and the federal budget deficit and the burden retiring baby boomers will place on the U.S. economy in the next decade. You don’t have to listen. The press doesn’t have to tail him. Let him be.
Also? When he was still at the Fed? People totally talked about him behind his back.
Not that anyone expected him to go quietly into the night. Greenspan’s tenure at the Fed was devoted to the cult of his own personality. He nurtured his credibility at the expense of the institution’s. Even his biggest supporters inside the Fed criticize him (off the record, of course) for that.
But that’s probably because he was a total slut, and definitely had it coming. At least that’s what Heather told Stacey who told Leah who told Lara who told me who made me swear on my limited edition Brandon Walsh doll that I wouldn’t say anything. That’s right ladies–I took the oath of sideburns.
Greenspan Can Talk More. You Can Listen Less [Bloomberg]
As it turns out, Marx had history precisely backwards. Ownership of the means of production are increasingly heading away from the masses toward private pools of private capital. And now that includes the private capital of the clique that runs China:
China will create an agency to invest its immense reserves of foreign currency, now totaling more than $1 trillion, the country’s finance minister announced on Friday.
Skip to next paragraph
China’s finance minister, Jin Renqing, announcing a new agency Friday at the Great Hall of the People in Beijing.
The minister, Jin Renqing, offered no specifics about how much of China’s currency reserves would be under the agency’s control. But whatever the precise figure, analysts say that the agency is certain to begin life as one of the world’s biggest investment funds.
China to Open Fund to Invest Currency Reserves [New York Times]
Earlier this morning, we discussed the failure of dissertations on the yen-carry trade, namely the one in yesterday’s Journal, in that they failed to get Carney some ladies. Who knew that financial ennui wouldn’t turn people on? Apparently, not us. We remained upset about this for the remainder of the morning when, suddenly, like an Ass-Bestowing Fairy Godmother, The Street’s Daniel Harrison came along to save the day, with the most titillating yen carry trade article to date (though one might remember that in the land of the blind, the one-eyed man is king). He writes:
“The main problem in China is that their economy is overheating and posing serious concern to the authorities,” says a research note issued by J.M. Finn in London. “Speculation is rife, bank lending often irresponsible and it is estimated that 90,000 stock dealing accounts are opened daily. These are not everyday Western economic conditions. In addition, China is facing a colossal level of fixed-asset investment, nearly 50% of GDP in 2006.”
You can practically taste the STDs that resulted from the irresponsible decision to forgo prophylactics, can you not?
(Also: great headline, you old scallywag)
Probing the Carry Trade [thestreet.com]
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