Daily briefing for Thursday, January 5, 2012

Daily briefing for Thursday, January 5, 2012; Chinese get ready to pump; Fed opens up; Pimco loses

5th Jan 12, 8:40am by David Chaston

Bond vigilante #1 takes a hit
The world's largest bond fund had US$1.4 billion in outflows in December, according to fund analytics firm Morningstar. The fund, operated by Bill Gross, the boss of Pimco, suffered total redemptions of $5 billion in 2011, a year in which the fund underperformed benchmarks after betting heavily against U.S. Treasuries, which rallied on the year. Gross updates his view of the 'new normal' here.

Opening the Fed
The US Federal Reserve will begin this month to publish the predictions of its senior officials about their own decisions, hoping to increase its influence over economic activity by guiding investor expectations. It also will summarise when they expect to start raising short-term rates, which they have held near zero since late 2008. And it will describe their plans for the Fed’s investment portfolio.

Chinese pump being primed
The Chinese government is planning new policies to boost domestic consumption, especially of vehicles and appliances, in a bid to offset the effects of sagging export demand, the China Daily reported on Wednesday, quoting a government official. Aussie stocks jump.

Real wealth
"The real measure of your wealth is how much you'd be worth if you lost all your money."
Author unknown

more below ...

		8 am		--- 52 week --
		Today	Yesterday	high	low
		--------	--------	---------	---------
FX rates	NZ$1=US$	0.7872	0.7895	0.8822	0.7174
	NZ$1=AU$	0.7609	0.7617	0.8085	0.7276

Gold	in US$/oz	1,618	1,604	1,895	1,319
	in NZ$	2,055	2,031	2,314	1,705

Copper	in US$/t	7,661	7,554	10,147	6,785
	in NZ$	9,732	9,568	13,507	8,299

Crude oil	in US$/bl	102.99	102.90	118.70	89.69
	in NZ$	130.83	130.34	149.14	117.26

US Treasuries	30 yr bond	2.89%	2.89%	4.73%	2.88%

Dow	DJIA 30	12,413	12,428	12,919	10,402

Ever heard of Rick Santorum?
David Brooks looks at the influence of "working class values" in the US primary selections - from the 'deeply creepy' to 'Catholic social teaching'. Are there alternatives to "Harvard Law versus Harvard Law"?

Chinese house prices stall for fourth month
Average housing prices in 100 major cities in China fell in December compared with November, marking the fourth consecutive sequential decline, China Real Estate Index System said Wednesday. The data provider said a survey of property developers and real-estate agencies showed the average home price in December was 8,809 yuan (NZ$1,802) a square meter, down from 8,832 yuan (NZ$1,802) in November.

The Baltic Dry Index
You hear a lot about this marker as a proxy for the health of international trade - especially when it is low. Here is its track for 2011, and where it starts in 2012. Seems to suggest things have substantially improved since mid-2011, no?

iPad more important than passport
A Canadian man who realised he forgot his passport as he approached the US border found a new way to gain entry - his iPad.

Curious people wanting to find out stuff
'Outrageous ideas about what might be possible' - the fusion cuisine of science. Why American innovation is still dynamic, and likely to be for a long time yet. You should really watch this video interview.

No chart with that title exists.

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41 Comments

by Wolly | 5th Jan 12, 9:38am 1325709487

Say "bye bye" to Sarkozy..... http://www.bloomberg.com/news/2012-01-04/french-consumer-spending-falls-on-joblessness-euro-debt-crisis.html

or will he retain his job on the back of helping Barry O flatten Iran!

by OMG | 5th Jan 12, 9:54pm 1325753658

Met a French fellow a couple of days ago - has a PhD in IT systems - got laid off in France. Told me all his friends have lost their jobs and that Europe was (as we know) a total mess. He had just finished a one month probation period at a new job here in HK and literally had to work almost around the clock. He impressed his employer so much that they now ask him to work 9 to 5, they gave him a 5 year contract and put him up in a top hotel for a month until he found better accommodation. He had been living in a virtual cupboard as he had little money. This guy has grit.

by Gummy Bear Hero | 5th Jan 12, 10:45am 1325713502

Where's Hickey ? ..... shit-a-brick it's boring around here , when the only prognosticator available to make fun of is that excitement machine , Wild Bill Gross .

....... poor old Grossy & Mohammed . Bernard dutifully reported their every 2011 utterance here at interest.co.nz ...... and they got it wrong .. hopelessly so . ..... $US 5 billion leaving their funds is not a ringing endorsement of their skill as bond managers and fortune tellers .

And we have Grossy's latest prediction , for a 2-5 % return on equity in the 2012 year ..... we're all ears , buddy !

Gummy says the DJI is gonna end the year above 15 000 points ! ........ if you're gonna make a dick of yourself , do it big & flamboyant ...... right , Bernard ......

by powerdownkiwi | 5th Jan 12, 10:58am 1325714299

He could just make a dick of himself by presuming that the Dow is related to the real world which it sooner or later needs to underpin it's assumptions.

But he's smarter than that.

by Gummy Bear Hero | 5th Jan 12, 11:09am 1325714945

You're totally wrong about that .

by powerdownkiwi | 5th Jan 12, 5:53pm 1325739231

GBH - well researched, good presentation, excellent references, and a good bibliography.

Me, I prefer a little more in the way of reasoning:

http://www.energybulletin.net/stories/2012-01-04/nuclear-options

It's one of a series. Interesting reading. From a physics Prof.

by Gummy Bear Hero | 5th Jan 12, 9:04pm 1325750684

Still think you're totally wrong about that .

by steven | 5th Jan 12, 10:31pm 1325755864

Point is it isnt PDK.....its who he reads....

So the choice is GBH who supposedly "thinks" or PDK whos backed up by the maths, engineering, science, data, and logic....

I will go with PDK.

regards

by powerdownkiwi | 5th Jan 12, 10:57pm 1325757456

steven - we must have a beer one of these days.

It's been a fascinating time, being here. I joined because I figured that what is happening, would happen. I looked at the finance sages, and to a person (with the then exception of Daly) they didn't get it.

Trying to figure who locally would 'get it' first, I spotted Bernard H, and figured that his intelligence and his independence, made him the most likely.

So far, he's gone close, but no epithany.

What I had bargained for, was a few GBH's and Wally's. Folk who are what they are.

What I handn't, was the paid hacks, their spin, and the narrowness/selfishness they exhibit. Hard to imagine how they live with themselves, and how they can look their kids in the eye.

Still - it's going to be an interesting year. I wouldn't be in any position but my own, at this point, yet just like Chris Martenson, I get the feeling that I'm late. Clearly, if I'm late, 99% of NZ haven't cleared the first hurdle, and are going to be in trouble.

May you live in interesting times....

by Gummy Bear Hero | 6th Jan 12, 11:03am 1325801013

Both of you are totally wrong about that .

by Plutocracy | 6th Jan 12, 11:09am 1325801380

Soothsayer are ye?

I agree that nobody really knows whats going to happen. However, I'm inclined to agree with the people who present and look at the problems in terms of science. Looking at the numbers it's hard to argue with the math, and until one of the much revered 'techno' fixes transpire I don't quite share your overt optimism. Reality bites.

In saying that, it doesn't hurt to remember that life ain't bad and to make the most of it rather then dwell on doom scenarios, we're pretty lucky to live in a country like NZ and we should make the most of it :-)

by Gummy Bear Hero | 6th Jan 12, 12:11pm 1325805077

You're not totally wrong about that .

by John Kelly | 6th Jan 12, 11:10am 1325801417

I have a feeling I may be totally wrong about it too.

Cheers

by Gummy Bear Hero | 6th Jan 12, 11:27am 1325802462

No , you're wrong about that , because you're right , actually .

by goNZ | 6th Jan 12, 12:10pm 1325805050

The whole lot of you are right about being left behind the morphing into 2 billion population stage right after peak oil and Darwins old fossils, EXCEPT PDK. He is NEVER wrong AND is right out in front of us !

by Gummy Bear Hero | 6th Jan 12, 12:12pm 1325805134

You're right about that .

by skudiv | 5th Jan 12, 11:51am 1325717511

Well if the Dow was related to the real world, we would be no better of today then we were in 1999. Thats in notional terms, in real terms we would be quite a bit worse off.

by mandalay | 5th Jan 12, 12:42pm 1325720540

GBH.... dji to 15000? I will hold you to that one!

by Gummy Bear Hero | 5th Jan 12, 3:19pm 1325729973

Yup , a 25 % rise for the year ........

....... if you're gonna make a total tit of yourself do it big , all guns blazing , with some pizzazz .

Thanks Bernard , you taught me well !

by mandalay | 5th Jan 12, 5:01pm 1325736066

I get where you are coming from mate... but in BH's defence, he was the only person who predicted gold would get up toward 2k, when everyone else was predicting a crash at 1200. I also guess he didn't take in to account the stupidity of people paying insane prices for shitboxes, that will leave a mill-stone of brimstone around their necks for the rest of their lives. How do you predict a collective stupity factor?

by skudiv | 5th Jan 12, 5:27pm 1325737663

I cannot calculate human madness - Albert Einstein (lost stg 20k on the south seas shipping bubble.)

by scarfie | 5th Jan 12, 6:22pm 1325740947

Not enough intelligence to go around but unfortunately plenty of stupidity and greed. Unfortunately the former is no defence to the later.

by skudiv | 5th Jan 12, 6:34pm 1325741680

Made me chuckle. Sadly what is taught in schools fails to equip people with the knowlege to make smart financial descisions. (I've been re-reading Kiyosaki, baisic stuff)

Which is better capital gains or cashflow?

by Gummy Bear Hero | 6th Jan 12, 11:11am 1325801513

Robert Kiyosaki made the smart financial decision to achieve his cashflow from authoring books and running seminars based upon smart financial decisions .

by Wolly | 5th Jan 12, 2:08pm 1325725720

It is interesting is it not that the crowd who scream for the Nato et al forces including Kiwi to be removed from Afghanistan.......are so quiet right now...not a peep from them...not a complaint....no demands for enquiries....no sitins or demos....even rent a mob have shut up shop.....

"Child bride's torture renews Afghan rights worries"

http://www.nzherald.co.nz/world/news/article.cfm?c_id=2&objectid=10776875

Next time any of them emerge from under their rocks...shove this report in their face.

by powerdownkiwi | 5th Jan 12, 5:25pm 1325737509

Wolly - Nato (aren't Nato for a start, but the US) aeren't in Afghanistan for humanitarian reasons. Have a wee look at it on the map, take a look at China, and understand energy supplies, constraints, competition and demands.

Remember, this is the ultimate resource, without which nothing effectively happens.

http://www.globalresearch.ca/articles/COHAAA112A.html

by skudiv | 5th Jan 12, 5:31pm 1325737862

All wars are fought over resources. Even my kids fight over toys.

http://www.zerohedge.com/article/us-discovers-nearly-1-trillion-mineral-deposits-afghanistan

And there are those who wonder why the US has spent countless dollars and thousands of dead soldiers protecting a few desolate mountain passes in Afghanistan. And no, it turns out it is not just the opium trade. The NYT reports that "The United States has discovered nearly $1 trillion in untapped mineral deposits in Afghanistan, far beyond any previously known reserves and enough to fundamentally alter the Afghan economy and perhaps the Afghan war itself, according to senior American government officials." The article continues, "The previously unknown deposits — including huge veins of iron, copper, cobalt, gold and critical industrial metals like lithium — are so big and include so many minerals that are essential to modern industry that Afghanistan could eventually be transformed into one of the most important mining centers in the world, the United States officials believe." Ah yes - "previously unknown." Yet the punchline of the piece : "The vast scale of Afghanistan’s mineral wealth was discovered by a small team of Pentagon officials and American geologists." Because $1 trillion worth of minerals just lie there waiting to be discovered almost 10 years after the initial incursion.

by OMG | 5th Jan 12, 11:44pm 1325760249

Ironic isn't it - the Chinese are heading straight for the oil in Afghanistan.

http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/8979038/China-begins-scramble-for-Afghanistans-oil-reserves.html

by steven | 6th Jan 12, 8:33am 1325792039

"87 million barrels."

1 day of world consumption....now if you thought for a moment,

a) Why announce such a minor piece of work?

b) Why go after such a small field in such a wayout and inhospitible place?

regards

by OMG | 6th Jan 12, 2:22pm 1325812959

Eyesight problems?

Crucially, the deal gives China a leading foothold in its quest to tender for drilling rights at the country’s larger oil and other hydrocarbon reserves located elsewhere in the country.

Recent estimates by the US Geological Survey suggest northern Afghanistan, especially in the northeast Afghan-Tajikistan Basin, holds up to 1.8 billion barrels of oil.

by jh | 5th Jan 12, 5:23pm 1325737406

The Chinese government is planning new policies to boost domestic consumption, especially of vehicles and appliances,

....

but the oil analysts at Goldman Sachs think we're very close to reaching our maximum oil pumping capacity again after a few years of looseness caused by the recession. Via Jared Bernstein, Goldman's chart is on the right. So what does it mean when oil demand starts to bump up against supply? This:

High prices, as bad as they are for an economy addicted to cheap oil, aren't the worst prospect facing us. The real problem is spare capacity....Twenty years ago, OPEC had spare production capacity of about 15 million bpd. A decade ago that had dropped to 5.5 million bpd. [Today], spare capacity has dropped almost to zero.

....In other words, it's likely that we're now in a permanent state of near zero spare capacity, which in turn will lead to an increasingly unstable world. As we enter an era in which even Saudi Arabia has no spare capacity to smooth out supply disruptions elsewhere in the world, any blip in supply, whether from political unrest, terrorism, or merely unforeseen natural events, will cause prices to carom wildly. A world with $100 per barrel oil is bad enough, but a world in which a single pipeline meltdown could cause prices to skyrocket to $300 per barrel for a few months and then back down is far worse.

http://motherjones.com/kevin-drum/2012/01/goldman-sachs-bearish-oil

by skudiv | 5th Jan 12, 5:35pm 1325738132

If I have learnt anything last year (and thats a big IF), it's Goldman Sachs LIES. Every IPO they have been involved in, has popped. Every trade they have advised, has gone in the opposite direction. I take this with a grain of salt.

by goldenfox | 5th Jan 12, 6:32pm 1325741531

This should drive Oil this year -http://www.guardian.co.uk/world/2012/jan/04/eu-iran-oil-embargo-ban?newsfeed=true

Oh 2012 it's going to be a volatile ride!!

Shame they can't open up the Southern Basis - but I guess a couple of Banks Peninsula shakes and it will be all over the Canterbury coast, enough to keep BP away...

by skudiv | 5th Jan 12, 6:50pm 1325742648

As the article states, the EZ is the second largest market for Iran, after China, a whopping 17%. Iran can just export it ALL to China, or Russia, India, Pakistan, with the added benfit of not having to use USD. these sanctions actually sound good for Iran.

These guys controll the price of oil.

How big are the biggest trading houses? Put it this way: two of them, Vitol and Trafigura, sold a combined 8.1 million barrels a day of oil last year. That's equal to the combined oil exports of Saudi Arabia and Venezuela.

They form an exclusive group, whose loosely regulated members are often based in such tax havens as Switzerland. Together, they are worth over a trillion dollars in annual revenue and control more than half the world's freely traded commodities. The top five piled up $629 billion in revenues last year, just below the global top five financial companies and more than the combined sales of leading players in tech or telecoms. Many amass speculative positions worth billions in raw goods, or hoard commodities in warehouses and super-tankers during periods of tight supply.

http://af.reuters.com/article/nigeriaNews/idAFL3E7LL2GB20111021?pageNumber=1&virtualBrandChannel=0

by OMG | 5th Jan 12, 11:47pm 1325760438

I'm hearing rumours in recent days of a Ghawar sized field in Antarctica extending into NZ's territorial waters. Can find nothing concrete on the web though.

Even if it could be tapped it would take years, a fortune and rightly face a lot of opposition.

by jh | 6th Jan 12, 7:52am 1325789548

The NZ economic zone is greater than its' continental shelf.

http://www.linz.govt.nz/hydro/projects-programmes/continental-shelf/undersea-image

You don't find oils and gas under ocean basalt as it is the product of a volcanic mid ocean ridge.

by steven | 6th Jan 12, 8:53am 1325793190

OMG, consider,

a) Ghawar produces 4 to 5mbpd under ideal conditions, ie its just below the ground.....though a little tricky now its very mature....thats 5% of annual consumption....

b) To get a field of that size into full production would take 8 to 10 years....a steer on how long alaska took would be interesting.

c) Super tankers through ice? not sure on that....a tanker cant turn.....even if its only icebergs its a problem.

d) The probable good news is IF there is a ghawar out there its whats known as a super-king field....if thats the case it will very likely not be alone......there will almost certinly be a series of smaller but significant fields.....it would be another Saudi/Iraq/Iran

e) The bad news is we need one of there every 3 to 4 years to keep up with declining output and demadn for more....there are only 2 poles......so best guess 8 years of increase but you have to wait 8 years from today....

f) There will be no real opposition......it will be drill or starve / face anarchy....if its there it will be drilled IMHO.

An old piece...

http://www.smh.com.au/news/world/all-eyes-on-the-last-wilderness/2006/0…

by steven | 6th Jan 12, 8:40am 1325792410

They have yet to find anything worth drilling for maybe?

Also the rigs float, so earchquakes are not such a risk.....tsunami, yes....

Irans outputs 4 mbpd.....twice libya......1/2 saudi's output...

There was an inteteresting scenario exercise held by the US some years back, I think they took 4% of oil off the market, the result was a 4x increase in price to $160USD a barrel....

2012 volitile.....

yes indeed.

regards

by jh | 6th Jan 12, 7:43am 1325789039

ExxonMobil and Todd Energy have bailed out of drilling for oil and gas in the Great South Basin, south of the South Island.

Todd and ExxonMobil's joint venture today surrendered their interest in permit PEP 50117, blaming "high technical risk", the remote location and tough conditions facing deep sea drillers.

http://www.odt.co.nz/news/business/131044/exxonmobil-scuttles-great-south-basin-drilling-plan

high technical risk = too hard basket.

by jh | 6th Jan 12, 8:13am 1325790833

Hey! But don't you worry about a thing: the price rockets and technos invent an alternative to the bottled energy! Or such is the beleif system underlying the group on Nationals right wing.

http://www.juliansimon.org/writings/Ultimate_Resource/

http://www.economicthinking.org/environment/index.html

by goNZ | 6th Jan 12, 9:50am 1325796622

Since the Think Big days of building energy infrastructure to help NZ become more independent of overseas supply, successive govts have had a lukewarm or hostile attitude to extraction of our natural resources. Sustainable milling of Rimu being banned on the Westcoast and large royalties imposed on oil finds, and draconian restrictions on open cast mining come to mind as examples where govt has been intimidated by activists. Tiny steps to open some conservation land to mining 2 years ago met with hysteria.It takes years to organise specialised rigs to come out to NZ so even the small change in attitude from govt recently wont show up in the books for ages. Taranaki and Westport area are pretty busy at present on the exploration front but IMHO , PM Key has only got 2 years to ramp up initiatives before the other clowns derail progress.Sadly, with our prevailing Iwi and Green,socialist influences I doubt that we will ever follow the Oz pathway of commonsense use of resources , so unemployment will stay high, kiwis will continue to smile and wave goodbye as they depart to Oz,and we will carry on hoping that tourism sector wages of $13.50 per hour will save us - yeah right, going by the RWC financial non-event. What people seem blithely unaware of is that some other powerful nations would love to have access to our plentiful resources and are building military capacity to acheive just that.The left wing Oz labour govt is doing something about it by staying in ANZUS and getting Marines based in Darwin.By comparison we are taking hundreds of military personnel out of uniform,capping defence spending , and although having one of the largest coastlines in the world, nil air attack ability and 2 old ocean going frigates!