Around the Globe 05.06.2013

The Oil and Gold Booms Are Over – Bloomberg.

GLD USO YTD 05.06.2013

Oil and gold are commodities in different groups.  Oil has a plethora of industrial uses, while gold is primarily a currency substitute.  Both have witnessed price increases throughout the past decade due to both higher speculation and demand.

The price of oil will continue decreasing as disappointing economic growth saps demand.  Stockpiles have been rising for several months, but the spot price has yet to reflect this change in market dynamics.  The only thing holding up the market for now is the usual Middle East intrigue.  This will not be enough in the long term.

Gold is a trickier market to analyze. When the price dropped in April, people read this as a buying opportunity, and there was a mad rush to buy physical gold.  There are two ways to view this.  Either a support level has been found, , or these are the suckers getting burnt as the dead duck bounces.

France Declares Austerity Over as Germany Offers Wiggle Room – Bloomberg.

French Government Spending

This article is a day late and a dollar short.  France actually abandoned austerity over a year ago.  Sarkozy was cutting the budget (red circle) until the polls suggested a new course of action (green circle).  He began increasing spending, and that policy was continued by his successor Hollande.  Government spending has now returned to its 2010 high.

Maintaining a higher level of government spending during a recession is a good idea, because it will give people time to adjust to harsh reforms meant to spur economic growth.  Continuing a high rate of spending just to maintain the status quo just leads to more debt in the long run without accomplishing anything.

Indonesia GDP Growth at Slowest in Over Two Years on Exports – Bloomberg.

Indonesia GDP Performance

China imports the lion’s share of Indonesia’s commodities output.  The effects of the Chinese slowdown are inexorably spreading throughout the world.  Indonesia’s currency has been weakening due to slack commodities demand, and this will fuel inflation, which is running at almost 6% annually.

Spanish Jobless Claims Dwindle –

Spain Employed People

The Wall Street Journal is hyping this one piece of news from Spain.  Jobless claims usually begin falling sometime during a downturn, because there is no left to fire. There is no good news in Spain.  Note the chart above.  Employment has fallen to 2002 levels, and there is no end in sight to the decline that began in 2008.

China to crack down on faked export deals –

Euro zone slump drags on, Chinese growth sags | Reuters.

Chinese Exports

Overreporting exports is not an insidious plot by the Chinese government to massage its growth numbers.  It is a byproduct of firms evading capital controls.

This is how the Chinese export scam works. Capital is restricted from entering the country, but there are no limits on payments for exports.  If a Chinese company wishes to repatriate capital, it merely inflates its invoices by the amount it needs to bring home.

So many firms are participating in the scheme that reported Chinese exports figures greatly exceed actual exports.  This makes Chinese GDP growth seem larger.

‘There is no food’: Post-revolutionary economic turmoil dashes hopes in Egypt – World News.

Egyptian Pound

These Arab revolutions have merely changed the group of people who are pillaging the state.  In Egypt, the status quo remains the same.  The government, especially the military, controls most of the economy, and we all know how that works out in the long run.  While Mubarak may be out of office, his economic system remains, so most Egyptians continue to live in poverty.

A poorly run economy and revolution have pushed down the Egyptian pound almost 25% since January of 2012.  The result is inflation making poor people even poorer.  Normally, a weaker currency would lead to higher exports and economic growth, but Egypt does not have an economy ready to take advantage of this.  The country does not export much, and its best hard currency earner, tourism, has been crippled by the revolution.

At this juncture, it is unclear whether or not the country will be able to enact the reforms necessary to spur economic growth.

3 Years Later: Learning to Live With Flash Crashes.

From CNN

From CNN

The reason why the flash crash is now forgotten is that no one can figure out what happened and how to fix it.  It seems that all of these computers use similar programs to buy and sell securities, so there is always a danger of all of the computers deciding to abandon the market at once.  This has actually happened several times in single securities over the last three years.

What will happen when we are hit with a real market correction? No one knows, but we will find out one day.

Corporations Find a Friend in the Supreme Court.

Supreme Court

What the elite do is distract the sheeple with social issues like gay marriage and abortion while the court eliminates their rights one at a time. The Supreme Court favors large institutions, particularly the government and corporations, over the rights of the people.  Even though a corporation cannot lose its dignity, it is accorded the same rights as a person due to a misguided Supreme Court decision from the 19th Century.

Wealth Effect Fuels 55% Surge in New NetJets Owners.

Corporate Jet

This is just another example of the effects of the Fed’s money printing.  The rich are doing great with high-end real estate,collectibles and asset prices setting records.  Workers continue to see decreasing wages while the rich fly around the world on rented jets.


2 thoughts on “Around the Globe 05.06.2013

    • It seems that there is a flash crash every single week in a different issue. The mechanics are complicated, but the explanation boils down to the machines all simultaneously leaving the market when the programs say so.

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