Mish's Global Economic Trend Analysis |
| Posted: 12 Jan 2015 06:45 PM PST China's iron ore inventories have plunged like a rock as has the price of iron ore itself. Bloomberg reports Iron Ore Holdings at China's Ports Drop Below 100 Million Tons. Iron ore inventories at ports in China fell below 100 million metric tons for the first time since February as the holdings in the world's largest buyer dropped for a seventh week to post the longest run of declines in two years.Iron Ore Down 50% Last Year The Australian Business Review reports Iron Ore Price Reverse Gathers Pace, With New 2 percent Decline At the end of the latest offshore session, benchmark iron ore for immediate delivery to the port of Tianjin in China was trading at $US68.50 a tonne, down 1.9 per cent from its previous close of $US69.80 a tonne, and just 4 per cent above the five-and-a-half-year low of $US65.70 reached just prior to Christmas.Yuan Observation The plunge in iron ore (base metals in general) brings up an interesting observation. Just a few years back, hyperinflationists thought it would have been wise for China to dump its US dollar reserves for virtually anything, but especially iron, copper, and oil. I took the other side of the debate. Flashback November 19, 2012: How Sustainable are China's Copper, Cotton, Steel Imports? What About Chinese Purchases of Canadian and Australian Real Estate? Fresh Thinking on Balance of Payments Pro-Cyclical Stupidity Not only were the hyperinflationists wrong about the Us dollar (and still are), but they were moonshot wrong in regards to what China should be doing. A few of us, notably Michael Pettis at China Financial Markets, predicted the collapse in base metals for exactly the right reason: That China's growth was poised to slow faster than most thought. And it has. And China's growth will slow still more, faster than most expect. For China to blow its reserves on metals and oil at the peak of the market would have been pro-cyclical stupidity, but that is precisely what hyperinflationists recommended. Somehow, hyperinflationists thought that China could keep building ghost malls where no one shops, railroads that no one uses, and entire ghost cities where no one lives, in perpetuity. It's now obvious, China can't. Indeed, the entire global economy is slowing faster than most realize. The US and Germany most assuredly will not be immune. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
| Zugzwang! Spanish Radical Left Party Podemos Surges Into Lead Posted: 12 Jan 2015 11:40 AM PST Podemos, a Spanish far-left populist party led by Pablo Iglesias is once again in the lead the polls.  Chart from El Pais. Elections are scheduled for November of 2015. The surge of Posemos adds another contagion wrinkle to the German bluff that Greece does not matter. Actually Greece very much matters, but Spain would be a bombshell. Recall that Podemos "Economic Manifesto" Calls for Debt Restructuring, Spain to Abandon the "Euro Trap". "Spaniards should be aware that it is physically impossible that they can pursue policies that meet the national interest, within the euro as it is designed. The euro was conceived as a real trap, but nowhere is it written that people have to accept it ." said Iglesias. Also consider Incredible Populist Positions in Podemos' "Economic Manifesto". Fringe Political Parties Finally, here is a snip from Biggest Bubble: Central Bank Credibility; Cautionary Tale of Global Gloom from Down Under, written earlier today. I believe two of the alleged fringe parties are going to win the next election.The Troika and Germany have their hands full here if they cannot stop these movements. But the only way to stop these movements is debt relief to Greece, Spain, Portugal and budget concessions to Italy and France. Zugzwang The appropriate term for this situation is Zugzwang. In chess parlance, it means that it's a player's turn to move, but whatever move he makes will result in loss of position, perhaps even the game. Here is a position of "extreme mutual zugzwang";  Whoever moves loses the game. It's fitting the term originated in German chess literature in 1858 since it's Germany's "no-win" move to stop contagion from Syriza and Podemos. Unlike chess, Germany can elect to do nothing. Yet, if Germany elects to do nothing, there's a strong chance Greece would then be forced to exit the euro. So chancellor Merkel, it's your move. What's it going to be? Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
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