Category: International Commerce

WTO Says Environmental Tarriffs Legal

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Much in the same way that they allow for the VAT to be charged at the border, a tariff to reflect the cost of carbon regulations would be legal:

Countries implementing cap-and-trade systems for greenhouse gases may be able to use border taxes to protect domestic industries, after the World Trade Organisation gave a cautious nod to such measures.

It’s basic common sense, though they do note that it cannot be, “a means of arbitrary or unjustifiable discrimination or a disguised restriction on international trade”.

Economics Update

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It’s a day for mixed economic news, with credit card defaults rise hitting a record in May, which obviously bodes ill for consumer spending

On less personal metrics, Los Angeles and Long Beach port traffic was up over April, though it was still down year over year, and housing starts and housing permits jumped though much of this activity may simply be builders trying to beat the $8000 first time home buyer tax credit before it expires at the end of November.

Additionally, it looks like the financial markets are moving toward some instability, as the VIX, an index of market volatility, has moved above 30, which indicates a bumpy ride, and possibly a correction, in the markets.

Inflation is muted on both sides of the Atlantic, with last with wholesale prices inflation hitting only 0.2% in May, and inflation in the Euro Zone posting a 0% rate.

Meanwhile, continued comments by Russia about moving to an alternative reserve currency to the dollar pushed the dollar down, and that, along with the housing numbers, drove crude oil up for most of the day, though it settled down $0.15/bbl, basically treading water.

[late update]

US industrial output fell 1.1% in May, and the capacity utilization rate fell to 68.3%, the lowest number since records started being kept in 1967.

Economics Update

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We had the latest jobless report come out, and it’s another mixed bag, with the initial claims falling by 24K to 601,000, and the 4 week moving average fell to 621,750, but continuing claims rose again to another record, 6.82 million.

We also have mixed news on retail sales, with a ½% increase month over month, but a 10.8% decrease year over year, and a lot of the increase was driven by more expensive retail gasoline, which, by the way, was up again today, to $2.632/gal.

And real estate is not looking good, with foreclosures hitting the 3rd highest on record, and
mortgage rates rising sharply, to nearly 6%.

Additionally we have, despite the recent stock rally, Americans’ wealth falling $1.3 so far in 2009.

Additionally, international trade is still in the doldrums, with China’s exports in may down 26.4% year over year.

On the brighter side, Treasury yields fell, indicating that the upward pressure on interest rates may be abating.

In any case, it looks like oil will continue heading up, a prices closing at $72.68/bbl, though it was above $73 earlier in the day, largely on the IEA’s upwardly revised estimates of world demand.

In currency, the dollar fells on what were seen to be positive jobs and sales data, which reduced safe-haven demand.

Economics Update

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From Wingnut Economist Arthur Laffer and the contemptible Wall Street Journal OP/ED page, but there has been a huge growth in the money supply under “Helicopter” Ben Bernanke.

Well, we are seeing some more signs of increasing rates, with the 10-year Treasury hitting 4%, the highest level since October of last year.

It could mean that fewer investors are fleeing to the safety of treasuries, or it could mean that the monetary expansion is finally hitting interest rates (see pic).

My money is on the former, but that doesn’t stop rising mortgage rates from pushing down the volume of home loan applications.

In international trade, the US trade deficit rose, not because of additional imports, but because of fewer exports. International trade remains at rather low levels.

We have some good news from the Federal Reserve, in a 2nd derivative kind of way, with their so-called Beige Book showing that the pace of the decline is slacking off somewhat.

We also have some good news from the UK, with UK industrial output rising for the first time since February of last year, up 0.3%, though it is still down 12.3% year over year.

Gordon Brown’s aggressive approach to the downturn may be showing some fruit.

We actually had a lot of action in the currency market today, with both Russia and Brazil making large buys of IMF bonds, so as to diversify away from US Treasuries.

For Russia, that may just be grandstanding, but for Brazil, it’s a significant move.

In any case, it drove the dollar down for most of the day, though it finished up at the end of trading.

In energy, oil rose on falling stockpiles, and wholesale gasoline futures rose about $2/gal for the first time since October.

Malaysia and China Move to End Dollar Trade

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The two nations are considering conducting their trade in yuan and ringgit, as opposed to using the US dollar as a medium.

Basically, with both the Treasury and the Federal Reserve shoveling cash out the door into that black hole which is the shadow banking system, people are beginning to wonder if there might be a better vehicle to conduct trade with than the dollar, which they expect to depreciate.

A Battle Obama Needs To Lose

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And hopefully, he already might have lost.

There was every indication of a knock down drag out fight inside the Democratic party over the Panama free trade agreement, dealing with the fact that it did nothing about Panamanian money laundering or labor and environmental protections.

Well, after over 50 Dem Representatives sent a letter on this matter, Obama agreed to hold back on submitting the Panama free trade deal until there is a “framework” for protecting labor and the environment.

One of the unspoken consensuses in Washington, DC is that a bad free trade deal is better than no free trade deal, because free trade, raises living standards, spreads democracy, prevents rain on picnics, and keeps your daughter from dating the guy with the studs and tattoos.

I don’t believe that this pause is real. It is merely a ploy to get the votes he needs to pass the deal(s), which also include Columbia and Korea.

When you look at the people around him, like Austan Goolsbee, it’s pretty clear that these folks are free trade (except when it comes to IP) fanatics, and they keep coming back until they either win, or are slapped down firmly.

Economics Update

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The US trade deficit rose in March, to 27.6 billion, on falling exports and the recent increases in oil prices.

Imports fell by $1.6 billion, but exports fell by $3 billion.

We will not be, as the Japanese did, exporting our way out of this trade deficit.

This is one reason why the American Express/CFO Research Services survey has 59% of CFOs seeing more layoffs.

Of course, the fact that nationwide, US home prices fell the most on record, 14% year over year, and the only markets where home sales are rising are where vultures are sweeping in to buy cheap foreclosure properties.

On the bright side, the National Federation of Independent Business’ monthly index of small business sentiment was up for the first time in 4 months.

It appears, however, that credit card company Advanta is not so optimistic. The company, which specializes in credit cards for small businesses, is shutting down its lending operations on June 10, after uncollectible debt exceeded 20%.

They are not shutting down, they are just shutting down all their credit lines, and just taking payments, which is awfully close to shutting down, so the credit cards just become so much plastic.

The deficit is not looking good either, with tax receipts so low that the federal government ran its first April deficit since 1983.

In energy, oil was up today, briefly breaking $60/bbl for the first time since November, before settling at $58.85/bbl.

This, along with banking changes and interest rate increases, is why the ruble is on a tear right now, and the US dollar fell to a 4 month low on comments by a number of experts that the recession is bottoming….Yeah….sure…

Gee, This is Credible

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The BJP is saying that if the US rescinds a tax break used to outsource workers that they will remove India from the nuclear deal with the US, and buy their civilian reactors from the French.

Note that the tax break subsidizes shipping jobs from America to India, but then again, as the spectacle of appropriations bills and the agriculture bill show, everyone wants their subsidy.

Of course, the French don’t subsidize outsourcing software and support to India, and the number of Francophones is relatively small in India, so the couldn’t move much business there if they tried.

Additionally, the BJP, the Hindu Nationalist (or as I like to call them, Fascist) Party is not the party in power, that’s the Congress Party, though there is a campaign ongoing.

It’s electioneering, and means nothing, though if I were Barack Obama, I would call their bluff.

It would not even effect the nuclear industry for the next few years, as lead times are very long for such projects.*

*Full disclosure, I did work for a brief time in the nuclear industry last year, on plant shutdown and cleanup of waste.

Economics Update

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Not unexpected, but the budget deficit jumped 10% because taxes have fallen to a 14 year low.

Like I said, the solution here is inflation to wipe out bad debts, and the deficits are going to do that sooner rather than later, because we’re not going to see a this resolve itself in the US, or overseas in the near future, as evidence by the cratering confidence numbers globally.

With Chinese exports falling sharply, 25.7% year over year, and the rest of the world seeing similar numbers, they are in no position to drive a recovery either.

Consumers are vanishing worldwide, and there is no sign of a recovery in the US, particularly in real estate, where S&P is warning of downgrades of, “9,430 classes from 1,077 U.S. first-lien Alt-A RMBS transactions issued in 2005, 2006, and 2007”, and builder loans threatening to take down banks that weren’t playing with funky financial instruments.

On the brighter side, it looks like the SEC might reinstitute the ‘Uptick Rule’ on short selling.

I’d like to see aggressive prosecution of market manipulation techniques like “naked” short selling too, but I am not holding my breath.

If Wall Street were investigated by Patrick Fitzgerald, I’m pretty sure that you would see tens of thousands of prosecutions.

In energy, the week economy has driven oil down.

Also, it appears that there are more stupid people than I thought, because the dollar fell as people left its safe haven, it appears that this was largely a result of Pandit’s delusional memo saying that Citi is going to rake in the bucks this quarter.

The Tanker Competion is Back

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Yes, the 767-A330 competion rebid advanced, as the Joint Requirement Oversight Council is reviewing the new requirements for the recompete.

This is going to be a long and expensive process, and the A330 is superior (more flexible, longer range, carries more fuel, and the tanker is flying now), and Murtha’s suggestion for a dual buy to forestall another challenge is ruinously expensive over the life of the program.

Won’t be pretty.

Economics Update

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Scary Pix Courtesy of Barron’s Econoday

So the unemployment rate jumped ½% in February, from 7.6% to 8.1%. and 651,000 jobs were lost.

Additionally, U6, the broadest measure of un and under employment is at 14.8%, and note that U6 is the statistic closest to the 20+% unemployment rates recorded in the great depression.
….
Delightful.

If that weren’t bad enough, 20% of all mortgaged properties are under water, and something around 1 in 9 mortgages are either in foreclosure or delinquent, so any turn around in residential real estate is are greatly exaggerated.

It also looks like the FDIC is asking Congress to lend it $500 billion, because its insurance fund is depleted.

We do have Baltic Dry Index, a measure of the demand for cargo shipping, one piece of good news, in that the just hit its highest level this year, which indicates more international trade.

Meanwhile, the jump in unemployment has driven the dollar down, and oil up.

European Aerospace Aggressively Pursuing Indian LCA Program

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With its indigenous Kaveri engine repeatedly delayed, India is looking to foreign engines to power light combat aircraft (LCA), the Tejas, and Eurojet is pitching its EJ200 as a competitor to the GE F414, and they are promising some, “special sauce”, thrust vectoring.

Unspoken in this bid to power the diminutive delta is the concerns that the Indian government has regarding ITAR restrictions which could hamstring sales to other nations.

This is also what is driving India’s interest in procuring an AESA radar from EADS for an upgraded version of the fighter.

Economics Update

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The budget deficit is exploding, with the annual total now looking to be around $1 trillion:

The excess of spending over revenue in January rose to $83.8 billion, compared with a $17.8 billion surplus in the same month a year earlier. Spending gained 30.6 percent, while revenue dropped 11.4 percent. Corporate tax revenue in the past four months is down 44.3 percent from a year earlier

, and if we weren’t at risk of entering a deflationary spiral, I’d be concerned about inflation.

Speaking of deflationary spirals, the trade deficit hit a 6 year low, not because we are exporting more, but because no one is buying anything.

No one is borrowing to finance, or refinance their homes either, with U.S. mortgage applications falling to an 8-year low.

Overseas, we have the Bank of England predicting that inflation in the UK will be ½% two years from now. Me, I’m expecting deflation, and the stagnant GDP that goes along with it.

The UK economy is even more heavily underwater, than that of the US, so it’s likely to get even worst there.

Further east we have the Russian bond market completely seizing up.

In energy and currency, we have oil down on reports of diminishing demand, and the dollar up on reports that the conference committee has cut a stimulus deal. (More on that later)

Economics Update

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Scary Picture of the Day:
Industrial Output Cliff Diving

The U.S. trade deficit fell by 28.7% in November, not because we are exporting more, but because consumption is falling so quickly. This is why you don’t see decoupling in the world economies (see chart pr0n)

While we are on the topic of international capital flows, it appears that Standard and Poor’s is threatening to downgrade the debt of Spain and Portugal because of increasing deficits.

Of course, and I am not a deficit hawk right not, it does beg the question about what to do with the US government shortfall, as it was $485.2 billion in the first quarter of fiscal year 2009 (October 1, 2008 – December 31, 2008), which is more than the deficit for all of FY 2008.

When is S&P going to warn us, and when is S&P going to be prosecuted for its recent fraud on the public? After the meltdown of various instruments that S&P saw fit to declare AAA, one wonders why. I would not employ any of the major ratings agencies as pastry chefs.

We have some good news though, the TED spread fell to 98 basis points (0.98%), dropping below 1% for the first time since August 15.

The TED spread is the difference between 3 month treasuries and 3 month interbank loans, and the spread goes up as uncertainty about getting your money back goes up.

BTW, homes won’t be turning around any time soon, Beazer Homes is reporting a 53.2% drop in home sales Q4 2007 to Q4 2008.

So with all of this uncertainty, people are pulling money out of palces like Spain and Portugal and putting it in the US, which drove the dollar up today.

Oilrose too, largely on promises of large production cuts by the House of Saud.

Well, This is One Way to Get Out of Debt

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It appears that the Ecuadorian debt audit commission has found serious and pervasive irregularities in the debts that it owes.

This is not surprising, foreign debt to third world nations is typically geared toward maximizing the shafting of the recipient countries, and not the niceties of western accounting:

Ecuador’s debt audit commission said it uncovered “illegality and illegitimacy” in the country’s foreign obligations, findings that may give President Rafael Correa the legal basis he’s sought to halt bond payments.

The commission said in a 172-page report that the global bonds due in 2012 and 2030 “show serious signs of illegality,” including issuance without proper government authorization. Correa, who last week withheld a $30 million interest payment on the 2012 bonds while he awaited the audit, said today that the country’s bonds due in 2015 also are marred by irregularities. He called the audit results “truly disastrous” and “conclusive.”

It appears that they are looking at filing criminal charges.

It’s likely true that the audit committee’s review is accurate. The question is whether the western banking interests can get him to knuckle under, and if not, what happens when other 3rd world nations follow Ecuador’s example look at their debt deals closely.

Future 3rd World Nations

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First, we have the now neutered Celtic Tiger, Ireland, which is one of the biggest economies of Europe, with:

  • Farmers unable to sell produce because of collapsing prices.
  • Potential public strikes in the public services.
  • Bank of Ireland shares cheaper than toilet paper.
  • Rumors that their ATM system will be shutting down.

Meanwhile, the Irish government is in the midst working out the finer points of an enormous bank rescue plan, and Irish lenders are now requiring 20% down for mortgages.

You know, if you had done that last one 3-5 years ago, you would not be up the creek now.

In the mean time, Iceland just got a $10.2 billion bailout loan from the IMF, Scandinavian countries, and the UK.

The money goes primarily to the Icelandic deposit guarantee agency, their version of the IMF, so most of the money is going right back to foreigners from the countries who made the loan, but the Iclandic people will be left with the debt, by my calculations about $34 thousand for every man, woman and child on the island.

Welcome to the third world.

And while we’re at it, scroll down on this article, and note that Turkey is going to get screwed again by world financial markets, even though they paid off their debts a few years back, and have been doing everything right.

The lesson here is that if you play by the WTO rules of international trade, you will never be allowed to come out of debt and control your own destiny.

Erdogan’s Is Right

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It appears that Turkish Prime Minister Recep Tayyip Erdogan is at loggerheads with his business community over whether to go to the IMF for aid.

Erdogan does not want to deal with the IMF, and the moneyed elites do:

“We will not cast our tomorrows into darkness by bowing to IMF demands in such a time of crisis,” Erdogan said on Oct. 26, accusing the IMF of seeking to “squeeze Turkey’s throat” by curbing needed spending programs.

That is a pretty good definition of what the IMF does, at least what it does to non-white countries. You can be sure that the strictures on recents IMF loans to Ukraine, Hungary and Iceland would be far less punitive than anything that Turkey would get, even though, by all standards, Turkey has cleaned up its act over the past few years, culminating in paying off the IMF in 2005.

What is going on here is what Naomi Kline outlines in The Shock Doctrine. Times are bad, so Turkey must return to economic policies that are in reality colonialism with a polite veneer.

One need only look at Malaysia in the Asian financial crisis, which did better because it refused IMF money and directives:

Malaysia stood out as a country that refused IMF assistance and advice. Instead of further opening its economy, Malaysia imposed capital controls, in an effort to eliminate speculative trading in its currency. While the IMF mocked this approach when adopted, the Fund later admitted that it succeeded. Malaysia generally suffered less severe economic problems than the other countries embroiled in the Asian financial crisis.

The long term solution is to tax or otherwise restrict foreign denominated loans because they always result in a crisis in which foreign powers dictate the shape of a local society.

Boeing Uses Labor Agreement as Cover to Trim Outsourcing

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So, we now see that Boeing will move more engineering and manufacturing in house after the debacle with its long-delayed 787:

Boeing has expected too much from major outsourcing partners and will take much detailed design work and some major production back in-house to avoid in future the troubles that have plagued its long-delayed 787 programme.

I think that some of the upper management will now say that they had to, because of the labor deal they cut with the IAM, as opposed to admitting that farming that much out to future competitors so as to reduce the initial investment, did not work, and transferred core competencies to the “partners”.

I think that the employment guarantees in the contract were a relief to management, because they had to bring this stuff back in, but admitting failure in an honest way would have meant some high level firings.

Also, toward the bottom, it appears that the SPEEA is feeling its oats with Boeing too, though I don’t expect a strike from them, they are engineers, who tend to be Randroid by nature.

Then again, I did not predict the last time, when they did go on strike, so YMMV.