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Tuesday, February 08, 2011

China Thunks Harder

I just went through that entire US treasury yield curve post having conveyed startlingly little information.

I'd like to go back to it, but I have a cold and fever. My upright time is limited.

However one thing no one should be ignoring is that the Chinese yield curve is inverted, and China's attempt to raise interest rates to cut inflation is not going to unkink it. It is very much more difficult to work with Chinese data than with US data, because the debt markets in China are still "young" with gaps in supply.

One quick look at PPI has got to tell you why China is raising rates. To get an annualized increase (the period is only 15 days) multiply by 20 (leaving yourself a considerable uncertainty margin). A forty percent price increase in steel is not sustainable. The erratic nature of the increases over the last few months and the cycling doesn't look healthy at all. It is also worth noting that the government is trying to control coal prices, with the result of imposing rolling power outages earlier this winter.

The fun thing is that if you google Chinese coal prices outages, you get a selection of current articles as well as a selection of articles from 2008. The economic laws of pricing, demand and shortages are about as fixed as physical laws. The rains in Australia have caused some flooding of coal mines; I do not know what the effect will be on the global price of coal. Chinese monthly stats. Consumer expectations tell their own tale. Chinese stats, main page.

Last year I noted that I expected China's bubble to be blowing up by the end of 2010, and it certainly seems to be. The inversion began last year and is accelerating.

India is flattening. Singapore appears to be right on the cusp? of a trend shift, but not a negative trend shift, I think. It's basically oil and food prices that should bend the curve down. There is an awful lot of money floating around in Asia.



Comments:
MOM,

"There is an awful lot of money floating around in Asia."

Other than our $10 trillion cumulative trade deficit (adjusted for inflation), I'm at a loss to describe why there would be an awful lot of money floating around in Asia.

It's good to see that you are staying grounded. I won't need to send you one of these, lol.

Pessimist's Drinkware

"Specifically engineered by the chronically cynical pessimists of Despair Laboratories™, this crystal-clear mug will help all who drink from it to Stay Grounded™ by forever reminding them to see when the glass is half-empty."

In my opinion, the glass is SO half-empty right now.
 
Here's hoping to have you back in full health soon!
 
I disagree, Mark. The cup runneth over, but nobody really wants to take so much as a sip of what's in it, let alone drain it to the dregs ...

My verification word was "reamo". Sometimes it's eerie how appropriate those words are ...
 
"reamo". I find it vividly apposite.

I've been reading the Fed dance.. Lacker, Lockhart and Fisher.

I'd be a lot happier if I hadn't updated my disposable income chart and figured where people would be come March. There is underlying damage here that won't be evident for a bit.

It's a long winter for a lot of cold people.

Mark - It is not as if the Chinese government didn't line up the dump trucks. The size of their stimulus far exceeded ours.

The one year deposit rate is around 3 now, but that's still well under inflation.
 
MBA's average rate on 30 yr mortgages jumped to 5.13.

Needless to say, refis aren't doing too well. Hmmm. Falling demand, higher rates....

I'm sure this has NOTHING to do with inflation expectations, just as Treasury yields couldn't possibly.

We'll have to wait a few days to see how this settles out, but the 3 yr started February at 1.04, and rose to 1.40 yesterday!

It's a lot easier to get inflation in the system than get it out.
 
MOM,

I think the rise in treasury yields has a lot to do with the stock market's performance.

The S&P 500 is up 25% in the last 6 months. The bears capitulated?

TIP vs. S&P 500

Bernanke wanted people to embrace risk. Mission accomplished.

I do not see this as a permanent condition though, unless one thinks 25% stock market gains every 6 months is.

30-year TIPS auction announced tomorrow. Many have been scared away. I'm not. Looking forward to it.
 
Who Struck John,

"The cup runneth over, but nobody really wants to take so much as a sip of what's in it, let alone drain it to the dregs ..."

So we can keep the glass full if we fill it with bilge waste? ;)
 
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