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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: LLCF who wrote (50474)	5/3/2006 11:21:43 AM
From: mishedlo	Respond to of 116555

Baby steps to a common Asian currency By Shehla Raza Hasan KOLKATA - The concept of an Asian Currency Unit (ACU) was resurrected last month by the Asian Development Bank (ADB) and will be considered again at the bank's annual meeting early this month in Hyderabad, India. After that it could be launched as early as the end of June. The unit was born as a concept almost 10 years ago, prior to the Asian currency meltdown. It is a notional unit of exchange based on a "basket" or weighted average of currencies used in the 10 member states of the Association of Southeast Asian Nations plus South Korea, China and Japan (ASEAN plus 3). It was primarily mooted to help develop regional bond markets and promote monetary cooperation among Asian economies. This # idea, contemplated on and off over the years, got a big boost last month, and the ADB seemed definitely committed. The launch was held up by the need to settle some divisive views and political anxieties: Inclusion of the currencies of Taiwan, Hong Kong, Australia and New Zealand, an idea strongly contested by China and the ASEAN states. # Exclusion of India in the first round of talks. It is important for India to be part of the initial negotiations so that it reflects the interests of Indian business. It is believed that Singapore, a strong ally of India, is pushing for its inclusion in the first stage of talks, which will develop the concept of the unit. # Need for consensus relating to the weighting and components of the ACU based on countries' share of nominal gross domestic product (GDP) as well as trade volume, the level of capital flows or convertibility of their currencies. Some of the long-term issues that need attention are: Hegemony of stronger states. Smaller Southeast Asian states allegedly feel threatened by China's growing economic power and Japan's isolationist economic policy. They also question whether the currencies of Australia and New Zealand should be included with India in the second round. It is argued that it was impossible to replicate the euro experience because Europe had sorted out the question of hegemony long before the question of a single currency was mooted. Substantial diversity in Asian economies. Critics also point out that the concept of Asia has been defined only by its geography. There is a substantial gap in the growth and development of countries within this region. Cambodia and Laos have a substantial chunk of population below the poverty line. The euro experience - a good learning process. The architects of the ACU are making efforts to point out that they are not trying to make the ACU the Asian equivalent of the euro. The unit would merely be an indicator of exchange rates, with no exchange-market interventions. There is also talk of changing the name to "Asian currency index" to set it apart from the European Currency Unit, which was the precursor of the euro. The primary purpose of the ACU would be to facilitate the development of an Asian multi-currency bond market, strengthening of capital markets to make them resistant to external shocks. The ACU would reflect how the region's currencies as a whole move against the dollar and the euro and how each currency in the ACU moves against the average level of participating currencies. The evolution of the euro could at best be a good learning process. The ideal preconditions that existed in Europe prior to the introduction of the euro, but either don't exist in Asia or are only emerging, were pointed out by Roberto F De Ocampo, former Philippine finance secretary: # High trade interdependencies. # Common acceptance of basic political and social values (democracy, a market economy with a strong welfare state). # Fairly even economic development and comparable living standards. # Strong commitment to solidarity. The past few years have witnessed higher trade interdependencies in East Asia than ever before. Reportedly, this is happening at a much faster rate than Europe ever experienced. Trade volume among the ASEAN plus 3 countries has swelled, with trade between China and ASEAN poised to reach US$200 billion before 2010. Trade between India and China increased more than 12 times over the past five years. Financial analysts point out that it will not be long before ASEAN plus 3 set up a mechanism for exchange-rate stability, not necessarily for safeguarding financial stability in Asia but purely for self-interest. Japan is a proactive member of the club, as Tokyo is not too comfortable with China's emergence and the fact that the yen may be overshadowed by the yuan. It has shed its isolationist tendencies for this reason. It is therefore understood that several steps need to be taken toward creation of a unified currency structure in Asia. Certain absolutely necessary requirements are information exchange and policy dialogue on surveillance, initiation of a central reserve pool for financing the liquidity needs of member countries, and cooperation in developing suitable mechanisms for regulation and supervision. Nevertheless, this initial step toward a single common currency needs to be preceded by a common single market. The benefits of an eventual single currency are numerous. It will increase market transparency by making prices more easily comparable. Cross-border transactions will also become more attractive as market operators will no longer be exposed to exchange-rate risks, and costs associated with currency conversion will be eliminated. The single market will become one of the main pillars of economic and monetary integration. However, any expectations of a common Asian currency in a holistic sense is a long way off. This trend, which began in East Asia, will have to be popularized in the more difficult terrains of South and Central Asia. The toughest challenge will perhaps come when it is time for West Asia to be part of the system. atimes.com

To: LLCF who wrote (50474)	5/3/2006 11:22:54 AM
From: mishedlo	Read Replies (1) \| Respond to of 116555

Australia Unexpectedly Raises Key Rate Quarter Point bloomberg.com May 3 (Bloomberg) -- Australia's central bank unexpectedly raised its benchmark interest rate a quarter percentage point to the highest in more than five years to stem inflation. The nation's currency climbed. Reserve Bank of Australia Governor Ian Macfarlane and his board today increased the overnight cash rate target for the first time in 14 months to 5.75 percent. Seventeen of 21 economists surveyed by Bloomberg News had forecast no change. Macfarlane joins central bankers in the U.S., China, Europe and Southeast Asia in raising interest rates this year as global economic growth accelerates, pushing commodity prices to records. Australia's benchmark borrowing costs, now the highest since February 2001, could stall a rebound in Asia-Pacific's fifth-largest economy, which grew at its slowest in pace in four years in 2005. ``Today's decision will slow the recovery we've been seeing in retail sales and housing,'' said Shane Oliver, chief economist at AMP Capital Markets in Sydney. ``It will be a knock on the head for both.'' Australia's currency rose to a seven-month high against the U.S. dollar. It has climbed 7.4 percent in the past month, the largest gain of any currency against the U.S. dollar. The Australian dollar bought 76.86 U.S. cents at 4:39 p.m. in Sydney from 76.12 cents before the decision was announced. The yield on the 6.25 percent bond maturing April 2015 gained 2 basis points to 5.78 percent. A basis point is 0.01 percentage point. Inflation Risks ``The board judged that inflationary risks had increased sufficiently to warrant an increase,'' Macfarlane, who will retire in September after 10 years leading the bank, said in a statement. He said the underlying inflation rate of 2.75 percent in the first quarter had reached levels he wasn't expecting until the second half. Australia's consumer price index, the government's main measure of inflation, rose 0.9 percent in the first quarter for an annual inflation rate of 3 percent. It gained 0.5 percent in the fourth quarter. Australian Treasurer Peter Costello joined retailers and property developers in saying the rate increase could damp a recovery in consumer spending and housing. ``It was a line-ball call taken by the bank,'' Costello told reporters in Canberra. ``We are probably at the peak of the inflationary cycle.'' `Economy Killer' Shares in Woolworths Ltd., Australia's largest grocery store chain, closed 30 cents, or 1.6 percent, lower at A$18.40 today in Sydney. Shares in National Australia Bank Ltd., Australia's largest lender, dropped 13 cents, or 0.4 percent, to A$37.24. The benchmark ASX/S&P 200 Index gained 0.4 points, or 0.01 percent, to 5273. Today's rate increase will add about A$40 ($30) a month to repayments on an average mortgage of about A$250,000, according to the Housing Industry Association. ``A rate rise will be a killer on the economy,'' Andrew Boyes, chief financial officer at retailer Adidem Group Ltd., said in Melbourne. ``Higher petrol prices are really starting to bite demand, which is already pretty lackluster.'' Gasoline costs surged to a record A$1.34 a liter at the end of April as global oil prices rose. That equates to $3.90 a gallon. Home-building approvals may decline by 3 percent this year because of the decision, said Brendan Crotty, chief executive officer of Australand Property Group, the nation's fourth-biggest real estate developer. ``Any further increase would be very damaging to the economy,'' Crotty said. Lending Surges Macfarlane said a surge in lending this year showed ``households and businesses have continued to find it attractive to borrow at prevailing interest rates.'' Lending to businesses jumped 17.3 percent from a year earlier in March, the fastest pace since September 1989, the central bank said last week. Loans to consumers to buy houses gained 13 percent. ``The aim of this rise is to cause consumers to stop spending and borrowing and it will work in that direction,'' said Stephen Koukoulas, chief Asia-Pacific strategist at TD Securities Ltd. in Sydney. Australia's central bank joins others around the world in raising rates to curb inflation. The Fed has increased borrowing costs 15 times since June 2004 to a seven-year high of 4.75 percent. The European Central Bank increased its benchmark rate by a quarter point in March to 2.5 percent. It meets tomorrow and is expected to keep the rate unchanged. China last week raised its lending rate for the first time since October 2004. Canada raised its key rate in April for a sixth consecutive meeting to 4 percent. Central banks in Thailand and Malaysia have also raised rates this year. Yield Gap The gap in the yield between Australian two-year government bonds and similar-dated U.S. Treasury notes reached 80 basis points today, the widest in three months, from 73 basis points yesterday. The gap was 75 points at 4:38 p.m. in Sydney. Federal Reserve Chairman Ben Bernanke said last week he may stop raising rates after every Fed meeting. Macfarlane is concerned wages growth will stoke inflation. Unemployment in Australia reached a 29-year-low 5 percent in March. Wages increased 4.2 percent in the fourth quarter from a year earlier. ``Wages growth, though not accelerating further recently, is higher than it was a year ago, and businesses are continuing to report that suitable labor is scarce,'' Macfarlane said. Economic expansion in the nation's major trading partners may fuel faster growth in Australia, Macfarlane said. China's economy expanded 10.2 percent in the first quarter from a year earlier. Australia supplies 43 percent of China's iron ore and more than 40 percent of its coal. Export Outlook The U.S. economy grew 3.5 percent in the first quarter from a year earlier. The economy of Japan, Australia's largest export market, expanded 4 percent in the fourth quarter from a year ago. The above-average global economic growth ``suggests a strengthening in the outlook for Australia's export earnings, with consequent expansionary effects on incomes and spending,'' Macfarlane said. Retail sales rose 0.7 percent in February, twice as much as economists expected, and housing finance jumped 1.1 percent. Consumer confidence was at a seven-month high in April. The economy grew 2.5 percent last year, the slowest pace since 2001.

To: LLCF who wrote (50474)	5/3/2006 12:12:15 PM
From: mishedlo	Read Replies (1) \| Respond to of 116555

Richard Russell on gold 321gold.com May 1, 2006 -- "How are we to pay for this future burden of healthcare and social security expenses? Aside from contractual legislative changes to both areas (which are surely just around the corner), the way a reserve currency nation gets out from under the burden of excessive liabilities is to inflate, devalue and tax." This is an excerpt from the current piece by Bill Gross on the PIMCO site. The Gross piece is a hair-curler and is a must-read for every one of my subscribers. Gross is managing director of the largest bond-management organization in the world. Gross' final advice in this article is a shocker. Here it is -- "Need I say more than to sell U.S. assets and buy Asian ones denominated in their local currencies; or if necessary to hire a global asset manager with sufficient flexibility and proper foresight to thrive in an increasing difficult investment environment?" Russell Comment -- Strange that Gross didn't mention gold (maybe it's too hot to handle for a bond guy). Note that Gross is not talking about an overnight situation or an overnight solution for investors -- he's talking about a situation that may take years to play out. The idea of selling US assets and buying Asian assets denominated in local Asian currencies is so foreign to US investors that I don't know if US investors are even capable of mentally taking in Gross's advice. In the past I've said the same thing but in a different language. I've said that over time the US standard of living must fall, and the Asian standard of living must rise. We're seeing that now but it's hidden in a subtle way. The value of the US dollar is falling, gas prices are rising, taxes in the US are rising (mostly local taxes so far), and the price of housing and food is rising along with energy. This means the Americans will have LESS money to spend on other items that they want, meaning in turn that the standard of living in the US is just beginning to decline. For those who are reluctant to buy Asian securities, I advise buying gold. The yellow metal is the only totally international currency, wanted by citizens and governments the world over. Since gold has been rising against all paper currencies, it's only a matter of time before an increasing number of knowledgeable people move to swap their central bank created fiat paper for real money. The march to gold is only beginning.

To: LLCF who wrote (50474)	5/3/2006 12:14:00 PM
From: mishedlo	Read Replies (1) \| Respond to of 116555

A glut of SUVs nytimes.com Last month, big S.U.V.'s and pickup trucks were among the vehicles that had the sharpest sales drops. The Ford Explorer was down 42 percent compared with April 2005. Sales of the Jeep Grand Cherokee declined 41 percent. Sales of Ford's top-selling F-Series pickup fell about 9 percent last month, as did sales of the Nissan Titan. The Chevrolet Colorado pickup was down almost 30 percent. Gas prices aside, the decrease in sales of big S.U.V.'s may signal a realignment of the entire S.U.V. segment. Analysts said that with more auto companies building S.U.V.'s of all sizes and consumer tastes shifting toward smaller vehicles, the heyday of the big truck is over. "I think all truck-based S.U.V.'s are on a downward path," George Pipas, Ford's chief sales analyst, said Tuesday. Noting the unabated decline of Ford's large S.U.V.'s, he said, "It's pretty eye-popping." Since 2004, when the number of light truck sales, which include pickup trucks and S.U.V.'s, peaked at 55.7 percent of vehicle sales in the United States, the American love affair with large vehicles has cooled. Last year, light truck sales fell to 54.9 percent of the market, according to Autodata. For the first three months of this year, light truck sales were down even more, to 53.8 percent. That complicates the fortunes of G.M. and Ford. Both companies have begun sweeping overhaul plans, which will eliminate a combined 60,000 jobs and close all or part of more than two dozen factories in North America.