Sunday, April 17, 2011
Ah, The Plans, The Plans!!!
I don't know how practical all this is. Right now the major problem is all the contaminated water. TEPCO has blocked most the outflow into the sea, with the result that the contaminated water is building up in the site and leaking into the low infrastructure. The volume of the water is extreme; all nuclear sites reprocess contaminated water, but this water is getting more contaminated and to build and operate safely a system to both contain and reprocess this volume of water this highly contaminated appears to be a challenge.
One of their three month goals is to patch the No 2 reactor with cement to seal the breach. This would imply that they think they know where the breach is.
I have my own thoughts as to what they can feasibly do. I've spent a lot of time looking at the better photographs now released of all the buildings. I'll keep those thoughts to myself because I am so ill-qualified to have these thoughts and there is so much hysteria out there. But I suspect this plan as stated will not work; I think they are missing an intermediate step.
Nonetheless, the Japanese have won the battle for Tokyo and are now fighting the battle of Fukushima and the mid east coast fisheries. It is quite an achievement given the constant quakes.
TEPCO has come under a lot of criticism, but they are in fact addressing their crisis with some success. Bankers and fiscal decision-makers around the world look a heck of a lot worse than TEPCO IMO.
In China, they just raised their bank reserve ratio again. 20.5%. To which I can only reply "Really?" I have some questions in my mind about this! There are practical limitations here; there is plenty of money outside the banking sector that can be rediverted into loans, not to mention outside funding. The Chinese are experiencing very strong and accelerating inflation. Q1 Chinese stat summary:
5. Consumer Prices Continued to Rise while Producer Prices for Industrial Products Increased Rapidly. In the first quarter of this year, the consumer prices went up by 5.0 percent year-on-year. The price rose by 4.9 percent in cities and 5.5 percent in rural areas. Grouped by commodity categories, the prices for food rose by 11.0 percent; prices for tobacco, liquor and articles grew up by 2.0 percent; clothing up by 0.3 percent; household facilities, articles and maintenance services up by 1.6 percent; health care and personal articles up by 3.1 percent; transportation and communication down by 0.1 percent; recreation, education, culture articles and services up by 0.6 percent; and housing went up by 6.5 percent. In March, the consumer prices went up by 5.4 percent year-on-year, or down by 0.2 percent month-on-month. In the first quarter of this year, the producer prices for industrial products went up by 7.1 percent year-on-year. In March, it rose by 7.3 percent year-on-year, or 0.6 percent month-on-month. In the first quarter, the purchasers’ prices for industrial products went up by 10.2 percent year-on-year. In March, it grew by 10.5 percent year-on-year, or 1.0 percent month-on-month.17.5 trillion yuan dumped into an economy will do that. They are not near to the end of the wage-price spiral:
7. Urban and Rural Residents’ Income Increased Steadily with Higher Growth for Rural Residents than that for Urban Residents. In the first quarter of this year, the per capita total income of urban household was 6,472 yuan. Of this total, the per capita disposable income of urban population was 5,963 yuan, a year-on-year growth of 12.3 percent, or a real growth of 7.1 percent after deducting price factors. Of the per capita total income of urban household, the year-on-year growth of wage income was 10.2 percent; transferred income 8.5 percent; net income from operation 32.6 percent; and 23.6 percent from property income. The per capita cash income of rural population was 2,187 yuan, up by 20.6 percent year-on-year, or 14.3 percent growth in real term. Of this total, the growth of wage income was 18.9 percent; household operating income 21.4 percent; property income 13.3 percent; and 27.9 percent from transferred income.The plan to shift growth from urban areas to rural areas really worked, and the leading edge of property investment shifted out of the urban areas. This was helped by raising wages; the additional economic activity also has raised wages. China reports that final sales of petroleum products grew by 37.6% in the first quarter.
If you take these stats straight up, the total picture is that of a population with increasing incomes trying to offset inflation by buying harder assets in preference to non-necessary consumables. It's hard to see moderation.
In Europe, we have the Kabuki dance of debt getting more and more entertaining. Because Greece is so small, its debt does not really matter. Everyone is free to posture over it. Germany is willing to threaten restructuring and other countries are stoutly insisting that the Greek debt will be repaid. Pricing shows that no one actually believes this, because it is incredible. Greece says it is going to sell public assets to raise money to repay the debt. Because Greece has run its public enterprises as welfare organizations, those companies do not have impressive balance sheets. I would not want a piece of that action; if you cut salaries and benefits of workers, you are going to have violent riots on your hands. It's sort of like trying to actually go in and run a Russian company; foreign executives placed into those companies who tried to actually run things tended to show up dead.
In the meantime, Ireland's credit rating was cut again, Portugal's credit rating was cut in the first week of April, and everyone agrees never, never to say the word "Italy". Moody's also cut Spain's credit rating in early March, although Spain remains at the A level. As was the case with Ireland, Spain does not have a public debt problem, but a banking crisis. As was the case with Ireland, if a large bailout of banks is required, this could well become a public debt or cash flow problem. Moody's does not think the Spanish bank problem is contained; Spanish banking authorities claim it is. Spain did a stress test on their banks; the result was that aside from the casas, the foreign banks were the primary ones determined to be capital short.
The spreading of all this containment is not good for Europe as a whole, and once the containment diffuses out a little more, many European banks could potentially be drawn in.
Italy is still struggling along trying to bring down its deficit. Italy does have a public debt problem, but its banks are for now pretty healthy. However 2011 growth forecasts are being revised down, so the deficit this year should be at least 4%, and the real growth rate should be around 1%. Italy needs inflation.
Germany is hysterical about inflation. Germany is seeing inflation. Earlier in the year, Bundesbank was counting on a slowing of the inflation rate in the last half. It is unlikely to happen as hoped. Germany's economy is doing very well indeed, but consumer price inflation (2.3% as of February) is mostly confined to food and fuel prices. Internal German calculations of inflation were still at 2.1%.
Nothing in Germany favors an internal wage-price spiral. Destatis has wonderful German data (see their business cycle monitor). Here's a snapshot of their German population pyramid:
The angst is a little worse than shown here; the "guest worker" population of Germany has a higher birth rate than the native population. This would not be so much of a problem except that this segment tends to be less educated and less prosperous. Don't expect German housing values to rocket up!
It can be confidently expected that the German population will continue to view inflation as the plague. If you do not understand why, Mark can explain it to you. Even in the early 80s, which were not a good time in the US, many restaurant chains depended on their older regulars for a good percentage of profits. They were bread and butter customers.
If you now look at the business cycle monitor linked above, it will be obvious why the retail numbers are so below production trend.