Author: Vincent Fernando, CFA

Robert Hall, the Stanford economist who heads the U.S. National Bureau of Economic Research’s Business Cycle Dating Committee explains why it’s time for recovery-deniers to throw in the towel.

Jobs, one the last data points to react to a rebounding economy, are now clearly growing. That’s a huge sign:

Bloomberg:

“I would say ‘pretty clear’ is a good description” for whether the economic contraction has ended, he said.

Among the top indicators the group uses is payrolls, according to its Web site. The government revised the January and February job count up by a combined 62,000, putting the March gain at 224,000 after including the updated data.

“It’s great news that employment has finally stopped shrinking,” Hall, a Stanford University professor, said.

Today’s report showed the payroll count from the government’s survey of businesses and the employment numbers from a separate survey of households have both been heading higher, Hall said.

“That is looking better now,” he said. “I think the odds favor a continuing expansion in employment, but I don’t have great confidence.”

Read more here >

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• Shiller: 50-50 Chance For A Double Dip In Housing Market
• And Now Air Traffic Is Nearing Pre-Recession Levels
• Packed Containers Piling Up At Asian Ports Because There’s Too Much Demand From West

Nevada was hit pretty hard during the economic downturn as its property market and tourism industry was slammed.

So the state was toast right? Well, things were rough, with unemployment hitting 13% in January this year, but Nevada’s economy isn’t as simple as most of us might imagine.

The state produces a fair share of agricultural products, manufactured goods, and most notably… gold.

Nevada is America’s #1 gold producing state, accounting for 82% of national output, and if ranked as a nation is likely still the #4 producer in the world.

The result was that exports proved far more defensive during the downturn than most states

Las Vegas Sun:

“The reasons that Nevada was more resilient than other states in the export decrease was we are shipping to many of the countries who have rapidly growing economies,” Di Stefano said. “And we are exporting products that these countries need and cannot afford to cut back too much on their imports.”

Nevada had $5.67 billion in exports in 2009 compared with $6.11 billion in 2008. The state had $5.71 billion in exports in 2007.

In 2009, precious stones and metals totaled $3 billion. That was followed by ores, $509 million; electrical machinery, $479 million; toys and games (which includes slot machines) and sports equipment, $427 million; industrial machinery and computers, $337 million; optical, photo and medical equipment, $262 million; and aircraft and spacecraft parts, $103 million.

Switzerland was the No. 1 trading partner in 2009 with $2.8 billion in exports, primarily because of the gold shipments.

One has to admit it’s pretty convenient how a state leveraged to a rise in global-risk taking is at the same time hedged by massive amounts of local gold. It’s an interesting example of how even some of the hardest hit places in the U.S. had their bright sides, and that how as investors or entrepreneurs there are always opportunities if you challenge your assumptions.

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See Also:

• Here’s 20 Reasons To Be Wildly Optimistic About The Economy
• Goldman Already Knows That Tomorrow’s ISM Manufacturing Index Will Be Awesome
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Russia is in talks with Venezuela to rescue the nation from its energy crisis.

A) They will invest in develop oil assets, after many foreign majors have decided to stay away from new projects given they’ve been treated pretty badly by the Chavez government in the past. Ok.

B) They’ll invest in developing ‘defense capability’ and nuclear energy. Hmm.

Reuters:

Putin will discuss energy, agriculture and defense issues with Venezuela’s leftist President Hugo Chavez and later meet Bolivian President Evo Morales, both fierce critics of what they call U.S. “imperialism” in Latin America.

Chavez said Moscow and Caracas will strengthen security ties to “continue increasing Venezuela’s defense capability” and look at cooperating on nuclear energy.

“We are not going to build the atomic bomb but we will develop nuclear energy for peaceful purposes. We have to prepare for the post-petroleum era,” Chavez said at a cabinet meeting on Thursday evening.

Facing a national electricity crisis that has caused widespread power outages, Chavez’s government is turning to Iran and Russia for help to develop nuclear energy.

Read more here >

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It’s not just the U.S. and China that are experiencing record manufacturing activity growth. The entire world is rebounding hard, with JP Morgan’s Global Manufacturing PMI index hitting a 70-month high in March.

JP Morgan:

Growth of production and new orders regained most of the momentum lost in February, while global trade volumes rose at a survey- record pace. Output growth will remain strong in coming months, as the manufacturing boom enters a new phase in which companies raise output to align the rate of inventory accumulation with the growth of sales.”

In addition to U.S. and China strength, European activity picked up markedly. Meanwhile Japanese activity grew, but at the slowest rate since November.

The UK saw output rise at the steepest rate since July 1994. Production growth in the Eurozone accelerated sharply to its highest since June 2006, led by a survey-record increase in Germany. France, Italy, the Netherlands and Austria all reported faster increases, while Spain and Ireland reported expansions for the first times since last July and November respectively. The recession in Greek manufacturing deepened, with production falling at the steepest pace since April 2009.

(Via JP Morgan, Global Manufacturing PMI, 1 April 2010)

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• Chinese Manufacturing Growth Accelerates Even Further
• CHART OF THE DAY: How America Will Beat Back China With Its Killer Labor Force
• The Euro Is So Weak That Now The Words Of A Random Chinese Minister Can Crash it

Quant-leaning CXO advisory has done an interesting analysis of blogger sentiment data collected by Ticker Sense.

Ticker Sense conducts monthly polls of ‘the web’s most prominent investment bloggers,’ asking them what’s their view on the S&P 500 for the next 30 days.

Thing is, while everyone loves to berate Wall St. analysts for bad calls (ourselves included) it turns out that blogger sentiment is a pretty bad indicator for the market as well. Actually, it’s a reverse indicator:

CXO Advisory:

Based on 169 observations, the data indicate that bloggers in aggregate cannot predict the direction of the stock market. The Pearson correlation for the distribution is -0.16, and the R-squared statistic is 0.02. Blogger sentiment explains (in a contrarian direction) 2% of the variation in stock returns over the next month.

In summary, analysis of Ticker Sense Blogger Sentiment Poll results indicates that aggregate blogger sentiment is perhaps, like many sentiment indicators, somewhat contrarian with respect to future stock market behavior.

In fact, CXO also found that the blogosphere tends to base its forward market view simply on what just happened in the market. If the market is rising, it’s bullish. If it just fell, it’s bearish.

If bloggers as a group react to what just happened in the stock market, a best-fit line would run from the lower left to the upper right. Based on 185 poll-to-poll changes, there is some support for this hypothesis.

So if all else fails, just do the opposite of what the aggregate blogosphere is thinking. Ever notice how many bearish and negative bloggers surfaced and became popular after the crisis (Like, say Zero Hedge). The rise of ZH might have been a huge buy signal, and if ZH’s popularity ever dies out (we hope it doesn’t), then be very worried.

You can chase up CXO’s math via their site here.

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• Bloomberg’s Terrifying Warning About A Shanghai "Death Cross"
• Goldman: Look How Natural Gas Shares Just Follow Whatever The Latest Gas Price Says
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There’s this persistent belief that Europe can bluff the market by simply saying they have a plan to financially support Greece without making hard guarantees.

It’s not getting anywhere.

Even after the creation of an emergency facility backed by the IMF, Greek bond yields are rising, which means investors consider them more risky than before.

Bloomberg:

The yield on 10-year Greek government bonds has increased 25 basis points since EU leaders agreed to the aid blueprint on March 25, reaching a one-month high of 6.529 percent yesterday. The yield eased to 6.525 percent today, still more than double the rate on comparable German debt. Seven-year bonds sold by Greece on March 29 fell for a third day today.

…

The aid facility, a combination of IMF and EU bilateral loans, will only be triggered if Greece runs out of fund-raising options. Greek Prime Minister George Papandreou, who has to raise as much as 11.6 billion euros by the end of May, welcomed the plan last week as “very satisfying.”

Since then, the extra yield investors demand to hold Greek 10-year bonds instead of German equivalent has risen to 342 basis points, compared with 305 points on March 26. The yield on Greek two-year bonds rose to 5.17 percent today from 5.119 yesterday.

Keep in mind that Greek credit default swaps exploded after a weaker than expected Greek bond auction, as well. Markets are still on pins and needles when it comes to Greece’s creditworthiness, and haven’t been assuaged by Europe’s repeated wishy-washy bailout plans.

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See Also:

• Meet Greece’s Judge Dredd Of Finance Who Thinks He Can Defeat The Debt Burden
• Think Europe’s Financial Discipline Is A Joke? America’s Just Became Even Worse
• Markets Will Be Terrified Of Treasuries This Week

Back in January, Bill Gross described the U.K. debt situation as sitting on a pile of nitroglycerine.

The U.K. debt office was quick to retort that they were ‘very comfortable’ sitting on nitroglycerine and that in fact the U.K. would pull through just fine.

They argued that, unlike Greece, they have their own currency, the pound, which can act as a shock absorber by depreciating according to the U.K.’s situation.

Well now, just two months later, Bill Gross has done a 180 and come around to the U.K. debt office’s view:

Investment Week:

Pimco managing director Bill Gross, who in January said gilts were “resting on a bed of nitroglycerin”, now believes the UK is “decently positioned” to escape its debt crisis.

While the UK remains on Pimco’s ‘must avoid’ list, he says Britain has some advantages over Greece in the fight to avoid similar debt pressures.

Gross believes by having its own currency and proactive central bank, as well as improved demographics, the UK is in a far stronger position.

…

“For now though, ‘crisis’ does not describe their current predicament, yet that bed of nitroglycerine must be delicately handled.”

The U.K. isn’t out of the woods, but it’s looking far better to Mr. Gross than before.

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• Britain’s Ugly Capitalism Will Work
• French Austerity Leaders Bludgeoned By 400,000 Protesters
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Cambridge Energy Research Associates (IHS CERA) is questioning the feasibility of Iraq’s extremely ambitious oil production capacity expansion plans in a latest report.

Iraq is currently gunning to expand its oil production capacity to 12 million barrels per day from just 2.5 million now, in as little as seven years.

CERA believes that Iraq has massive production potential, but believes Iraq will be challenged to just increase oil production half as much as it intends.

The reason is that we’ve never seen such a rapid expansion successfully completed:

Rig Zone:

“But Iraq’s new expansion timetable would dwarf the most rapid buildups that we have recently seen in places such as Russia and Saudi Arabia,” said IHS CERA Senior Middle East Director, Bhushan Bahree. “The political, security, operational and infrastructure challenges in the country, along with a likely shortage of skilled personnel, are likely to hamper progress towards such an unprecedented achievement.”

…

“Iraq’s expansion timetable appears extraordinarily ambitious in comparison to the recently completed capacity increase in Saudi Arabia,” said Bahree. “Saudi Arabia has significant security and infrastructure advantages yet it took Saudi Arabia between four and five years to expand its net output capacity by some 2 million barrels per day. Iraq will certainly be challenged to match this pace, much less exceed it.”

IHS CERA thinks Iraq will only be able to expand oil production to 4.3 million barrels per day by 2015 and 6.5 million by 2020. They nevertheless stress that even this will be a significant change for the oil market, and OPEC in general (Iraq is currently not restricted by OPEC quotas). Just don’t think Iraq will hit 12 million barrels per day production any time soon. Thus Saudi Arabia will remain the undisputed oil production king for at least another decade.

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We pulled three nice charts from Goldman’s Global Economics Weekly. The theme is emerging markets domestic demand, and while Western world has famously been devouring emerging markets exports for quite some time now, the next few decades will be about emerging markets consuming a rapidly increasing share of the world’s products.

Already, despite all the hype to the contrary this has already been happening, whereby domestic demand growth has been faster in emerging markets than developed markets.

Goldman:

The story of emerging markets’ (EM) imports has significantly changed in the past decade. Since 2000, EM imports have grown by 17% on average, exceeding both world import growth (13%) and developed markets’ (DM) import growth (10%). In level terms too, EMs are making their mark by increasing their share of total world imports (currently 45%, compared to 30% in the late 1990s).

This means that emerging markets (EM) are likely to account for a larger portion of global imports than developed markets (DM), by 2020 as shown below. (The white bars)

Further out, emerging markets will account for a larger and larger share of world import. By 2050 they could account for over 70% of world imports. (The dark blue bars above). It seems like U.S. and European exports are the place to be, the wind will be behind their back for the next forty years.

(Via Goldman Sachs, Global Economics Weekly, 31 March 2010)

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In 2005, Carl Icahn forced himself and two others onto the board of Blockbuster (BBI). He was gunning to shake things up and create value. Yet this happened:

That chart just hurts, he must have lost an enormous sum of money. BBI has gone from $10 five years ago to 25 cents.

Now Mr. Icahn is cutting his losses and heading for the exits. The raid is over.

Market Folly:

Notorious shareholder activist Carl Icahn recently filed a Form 4 with the SEC regarding shares of Blockbuster (BBI). Icahn, through his various investment vehicles, recently dumped a ton of both Class A and Class B shares of Blockbuster. On March 25th he owned 19,905,190 shares and as of March 30th, he now owns only 4,358,223 shares. The majority of sales took place on March 29th and 30th at prices of $0.24 and $0.25 per share. In total, Icahn’s various entities sold 14,362,708 and the picture below depicts the breakdown of sales:

(See a larger graphic at Market Folly)

If anyone knows exactly what his performance was, feel free to email us. You can also read more about Carl Icahn’s horrible 2005 Blockbuster raid here.

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• El-Erian Speaks: Economy Will Slow Dramatically In The Second Half Of 2010
• Here Are The 7 Ways The Government Is Still Supporting House Prices — And When They’ll End
• Joe Biden: Jobs Coming Right Up!

Meet Greece’s new debt executioner, the man all of Europe is depending on.

You need to ‘clench your teeth and get down to business’, but “it’s doable, and that’s why I’m here. There is no room for emotion.”

It’s one man vs. 300 billion euros and an entire nation of entrenched special interests:

Der Spiegel:

It is the most thankless job that exists in Greece these days: Petros Christodoulou, the new head of the Public Debt Management Agency, in Athens, has been tasked with guiding his country out of debt. He has already charted his course on the 300 billion euro voyage and says “there’s no room for emotion.”

When Petros Christodoulou sits at his desk, his gaze inevitably falls on a relic of better days. To him, it must feel like a reminder of a laudable achievement gone wrong — and a warning. A neatly framed certificate perched on the windowsill across the room reads: “Best Government Borrower.” It was an award bestowed upon the Athens government in 2007 by the British financial newspaper EuroWeek.

Continue reading the in-depth article at Der Spiegel >

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See Also:

• Fitch: Portugal Is Bad, But It’s Not Greece
• Trichet Slams IMF Agreement, As Europe Can’t Decide Which Suicide Pill To Take
• And Now There’s Really REALLY A Greek Bailout

Both government and private measures of China’s manufacturing index indicate that Chinese manufacturing activity accelerated in March:

Market Watch:

HSBC’s survey, conducted in association with market research firm Markit, reported a Purchasing Manufacturing Index (PMI) reading that ranked as the third highest on a monthly basis in the survey’s six-year history, and the highest ever on a quarterly basis. The survey had been conducted in association with another Hong Kong-based investment bank before HSBC took it over last year.

…

HSBC’s China PMI rose to 57 during the month, up from 55.8 in February. The other PMI put out by the China Federation of Logistics and Purchasing indicated activity firmed to 55.1 in March from 52 in February.

Read more here >

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• Chinese Manufacturing Index Nosedives
• Did We Just Get The First Sign That The Surging Dollar Is Killing Job Growth?
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As far back as September 2009, there was a highly noticeable uptick in U.S. container shipping volume. Then in October, shipping observers spoke of rising freight rates being pushed by ship owners.

As rates rose, there then came a rumor that shipowners were beginning to pull substantial numbers of ships out of dry dock, due to a major pick up in container trade demand they were experiencing.

Shippers started to complain about a shortage of ships to carry their growing number of goods.

Two weeks later the rumor above was then confirmed, ships were indeed being put back into service in large numbers:

Fearnley Fonds, 16 Mar 2010:

According to AXS-Alphaliner, the idle fleet has been further reduced over the last two weeks, from 495 vessels of 1.24m TEU to 474 vessels of 1.22m TEU (9.3% of fleet capacity) currently. AXS-Alphaliner expects lower idle count going forward, as new services will be launched on the Asia – Europe trade (capacity on this route expected up 7%) and there is also a pickup in demand for smaller ships to service intra-regional trades.

Moreover, a major rebound wasn’t just seen for U.S.-Asia (Transpacific) trade. Asia to Europe was seeing strength as well, with higher volumes and most importantly higher rates:

And even now, despite the warnings ahead of time, containers are piling up at ports because trade growth jumped far quicker than the industry adjusted itself for.

Just be aware that there are still risks.

Maersk, for one, isn’t quite sold. They think the strength of the rebound can’t be sustained.

But really the risks mostly have to do with the industry expanding its shipping capacity too quickly in response to surging trade demand.

In terms of what this all means to the rest of us, the growth in trade demand is real and good news. Even if shipping companies end up getting too excited and bringing out too many ships, well ahead of further trade growth.

Because, it’s important to remember that a sharp drop-off in trade called the U.S. economic crisis back in 2007:

Myself, at Citi, June 2008:

Back in 3Q07, Asia-US container volume weakness was a decent indicator of hard times to come. We believe that the latest further deterioration in US and increasingly European data means that for container shipping, “We ain’t seen nothin’ yet”.

Latest data based on an aggregate of five major US west coast ports shows import volumes down 8% year to date for 4M08. 1Q08 PIERS compiled data for the US overall shows a similar trend with 6M trailing volume down 2.5%. Any way you slice it, the US demand slowdown is worsening.

Thus a sharp rebound in trade demand calls a recovery.

Get more like this: @vincefernando

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See Also:

• Packed Containers Piling Up At Asian Ports Because There’s Too Much Demand From West
• And Now Air Traffic Is Nearing Pre-Recession Levels
• Rumor Confirmed: Idle Ships Pouring Back Into Service In Response To The Global Rebound

Europe had three months of apparent labor market stabilization… but now unemployment has begun to get worse again.

Latest data shows that Eurozone unemployment in February hit its highest level in 11 years, rising to 10%. Wider European data deteriorated as well, hitting 9.6%.

Yet Germany could be bucking the trend, which if true would only further inflame European tensions:

WSJ:

More up-to-date figures released by Germany’s federal labor agency earlier Wednesday showed that the number of people registered as unemployed in the euro zone’s biggest economy dropped by 31,000 in March, defying expectations of a 10,000 increase.

…

However, economists also noted that the state of the German labor market, which has been shielded from the impact of the global credit crunch and ensuing recession by government measures, contrasts with several of the region’s peripheral countries.

Eurostat said 61,000 people joined unemployment queues across the euro zone in February, more than the 38,000 than were reported to have lost their jobs in the first month of the year. As a result, the total number of jobless people hit 15.7 million—more than the entire populations of Austria and Ireland combined. Some 1.8 million people lost their jobs across the currency bloc in the 12 months to February, Eurostat said.

The way in which Europe had stabilized, then deteriorated is peculiar. It makes you realize that trends can change quite quickly. Thus while U.S. unemployment declines have arguably stabilized, there’s no guarantee tha they couldn’t suddenly accelerate later this year.

Join the conversation about this story »

See Also:

• Morgan Stanley: Here Comes A Wave Of Developed Nation Credit Downgrades
• After The Crisis Will Come The U.S. Worker SHORTAGE
• Why The U.S. Export Boom Won’t Be Creating New Jobs Any Time Soon

Greece apparently has more faith in the dollar — falling — than in its own currency the euro.

The nation plans to issue over $70 billion of dollar-denominated bonds in order to fund itself.

Given that Greece will be at the same time paying off maturing euro-denominated debt, the nation will effectively be tilting its debt mix more into dollars and away from euros.

Which means they’ll increasing benefit from potential dollar weakness in the future.

Reuters:

Greece will issue a global U.S. dollar denominated bond in late April or early May, the head of the country’s debt agency (PDMA) said on Wednesday.

Greece, with total borrowing needs of 53.2 billion euros ($71.43 billion) this year, faces a refunding hump in April and May as it rolls over maturing bonds, T-bills and pay coupons coming due.

Rated A2 by Moody’s and BBB+ by Fitch and Standard & Poor’s, the overborrowed country has about 23 billion euros of debt maturing between now and the end of May.

 

Read more here >

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See Also:

• Are The Credit Markets Seriously Underestimating The Dangers Of A Greek Funding Crisis?
• You Should Be Absolutely Terrified By Europe’s War Against Speculators
• Greece Approaches The Final Showdown

Despite the fact that India’s economy looks like pure chaos in comparison to China, whereby the government barely has the right statistics to make proper policy decisions, in the long-run it’s probably the larger growth story.

Don’t underestimate the less-hyped BRIC, says Nouriel Roubini. all it needs is more investment capital to flourish:

Bloomberg:

“China has been a hare and India a tortoise but growth is accelerating in India,” Roubini said yesterday. “There is a massive need for both human and physical capital.”

…

India requires “physical capital in the form of infrastructure that can be provided by both by public and private investments or private-public partnerships,” Roubini said. The South Asian nation also needs to invest in human capital, innovation and land reform and “maintain social stability,” he said.

“China might be facing a greater challenge in maintaining its double-digit growth rate than India is facing in achieving a double-digit growth,” he said. Roubini favors the “more balanced economy of India” over China.

India’s economy could grow over 8% this year, which would be the fastest pace in two years, while China’s grew 10.7% in Q4 of 2010.

While it’s not the most likely scenario, it is feasible that Indian growth cold overtake China’s within the next few years should China slow and India maintain its current clip. So keep an eye on it.

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See Also:

• Goldman: If You Thought BRIC Growth Was Hot, Here’s Why You Haven’t Seen Anything Yet*
• Faber: India’s Middle Class Will Soon Be Larger Than America’s
• Goldman Makes A Late, Uninspired Entry Into ETFs

The next release of the Institute for Supply Management’s (ISM) manufacturing index is coming on April 1st. Barring an April Fool’s moment, it’s likely to be good.

That’s because Goldman essentially puts together their own index that is very similar to the ISM, and they get it out ahead of the ISM.

This Goldman index, the Goldman Sachs Analyst Index (GSAI) is soaring and just hit a six-year high, which means the upcoming ISM will probably be rising:

Here are some highlights about what Goldman had to say in regards to the GSAI spiking:

David Kelley at Goldman Sachs:

In March, the headline Goldman Sachs Analyst Index (GSAI) increased 7.5 points to a new six year high of 67.5, driven by large increases in four of the five components. Only the new orders index decreased significantly. (As a reminder, we construct the headline GSAI using the following weights: 30% for new orders, 25% for sales/shipments, 20% for employment, 15% for materials prices, and 10% for inventories. These weights parallel the ISM’s pre-2008 practice, substituting our materials prices index for their supplier deliveries index.)

The key activity indices – sales and orders – both remained high. The sales index improved further this month, continuing a general upward trend that has been evident for the past four months. Although the index of new orders fell, it has consistently been at high levels since August of 2009, suggesting ongoing growth in orders. On a softer note, a large increase in the inventories index narrowed the gap between orders and inventories. This gap is a useful leading indicator of demand for manufactured goods. Similar to other data on inventories, March’s reading of 44.5 suggests inventory levels are beginning to stabilize.

March’s employment reading returned to the levels seen in December/January after a setback in February, which now seems to be the result of bad weather. The index increased significantly by 18.3 points to 46.5. This increase reflects a “less bad” employment outlook, but with a reading below 50 still consistent with a soft labor market.

(Via Goldman Sachs, GSAI Reaches A Six-Year High In March, David Kelley, 31 March 2010)

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Southwest China is enduring a savagely long drought, forcing the government to resort to cloud-seeding measures Yet artificial rain has been slight, and not enough for the farmers who haven’t seen natural rain since October.

Now the drought’s damage is extending beyond agriculture and drinking water and beginning to erode power production capacity, just as happened in Venezuela recently due to long-term mismanagement.

Probe International:

Output from dams in Yunnan province is reported to have fallen by as much as 70 percent. In Guizhou province and the Guangxi Zhuang Autonomous Region, electricity output is in dire straits—with reports claiming generation has fallen by 90 percent.

Officials with the China Southern Power Grid, which controls power for five provinces and autonomous regions in Southwest China, say ensuring supply represents an “arduous task”.

A population roughly the size of France, and over twice that of Venezuela, has been affected by the calamity, which is said to be the worst drought in a century.

Worse yet, the list of cities listed as in crisis is expanding. Two cities, Liuzhou and Laibin, where water levels dropped 90% in some places, were just added to crisis list according to the Canadian Press.

The combination of food supply pressure, drinking water supply pressure, and now power supply pressure will present severe challenges for the affected local economies.

Hopefully, expected rainfall in the next two days will provide some relief.

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See Also:

• Forget About Chinese Bunk Data, India’s Central Bank Is ‘Flying Blind Most Of The Time’
• World Bank: Sorry, Chinese Statistics Are NOT Manipulated
• Asian Steelmakers Are So Desperate To Meet Booming Demand That They Just Gave Up Their 40-Year Ore Regime And Accepted 90% Price Hikes

Yesterday we mentioned how the World Gold Council was banging the drum on Chinese gold demand, even suggesting that China could exhaust its natural gold reserves in the ground in just six years.

Here’s a chart of Chinese domestic gold production (supply) vs. Chinese demand for gold, courtesy of China Daily. It shows how demand has outstripped domestic production for nearly two decades, and how gold demand has almost doubled over the last ten years.

The World Gold Council believes that Chinese demand could double again over the next decade and that, in a rush to expand domestic production, thinks China fully deplete its known gold mining reserves.

Join the conversation about this story »

See Also:

• Asian Steelmakers Are So Desperate To Meet Booming Demand That They Just Gave Up Their 40-Year Ore Regime And Accepted 90% Price Hikes
• China ‘Could Exhaust Its Gold Mining Reserves In Just Six Years’
• Citi: ETF Gold Holdings "Slipping", Demand Starts To Wane

OPEC member states’ compliance with production quota’s has fallen to a dismal 54%, something Secretary-General Abdalla El-Badri isn’t too happy with. At the same time, its traditional power structure with Saudi Arabia as undisputed production king is under attack by the rise of Iraqi oil production potential.

Now, to make matters even more uncertain for the cartel, the non-OPEC world is increasing its production relatively quickly as well.

According to OPEC’s latest March report, even though their production levels remain well below mid-2008 levels, total world supply is already back up there. (shown below)

Thus non-members are becoming more significant, Iraq wants to let loose production, and even many OPEC members aren’t even listening to the quotas from central command.

So while Abdalla El-Badri has said that $70 – 80 oil is the lowest price he thinks makes sense for further investment, hoping to set a floor, there might not be much he can actually do to defend it these days.

Get more like this: @vincefernando

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• Russia’s Lukoil Has Won Iraq’s ‘Crown Jewel’ Oil Field
• Stratfor: An Iraqi Oil Renaissance May Destroy OPEC
• Cash-Hungry Iraq Quadrupling Oil Production, OPEC Fears Price Collapse