just cleared from e-mail tray
From: J
Sent: Thu, May 26, 2011 6:47:04 AM
Subject: Re: Comments - Week of May 23
a, the author got "so not only can the world expect hyperdeflation followed by hyperinflation, but may as well plug in a little hyperwar in the excel model for good measure" wrong, it should be "diaperdeflation followed by hyperinflation, or the other way around, or worst of all, both ways"
in all cases am not certain what the asset allocation countermeasures should be, except to try for a blending and recalibrate as necessary as the events develop.
we have a preview right now as belarus is experiencing its moment in the media zerohedge.com
Welcome To Hyperinflation Hell: Following Currency Devaluation, Belarus Economy Implodes, Sets Blueprint For Developed World Future
Submitted by Tyler Durden on 05/25/2011 17:22 -0400
Credit Crisis Creditors Danske Bank Greece Gross Domestic ProductHyperinflation International Monetary Fund Kazakhstan Meltdown Purchasing PowerUnemployment World Bank
"A ‘91-style meltdown is almost inevitable." So says Alexei Moiseev, chief economist at VTB Capital, the investment-banking arm of Russia’s second-largest lender, discussing the imminent economic catastrophe that is sure to engulf Belarus following the surprise devaluation of the country's currency by over 50%, which we announced on Monday. "Unless Belarus heeds Russia’s call for mass privatization of state assets, it is headed for “hyperinflation, massive un- and under-employment, and a shutdown of production" Moiseev concludes. Ah: "privatization" as Greece is about to learn, the lovely word that describes a fire sale of assets to one's creditors, courtesy of a "globalized" new world order. Ironically, this is precisely the warning that will be lobbed at each country in the developed world, as the global race to devalue currencies, first against each other on a relative basis, and ultimately against hard currencies, or on an absolute basis, as the world realizes that there simply is not enough cash flow to cover the interest payments on a debt load, in both the public and private sectors, that continues to rise at an astronomic rate, even as the world prepares to exit from the latest transitory, centrally-planned bounce in the Great Financial Crisis-cum-Depression that started in earnest in 2007 and has been progressing ever since. Ultimately, Belarus will succumb to hyperinflation, as will each and every other government seeking to devalue its currency (hint: all of them): "Unless Belarus heeds Russia’s call for mass privatization of state assets, it is headed for “hyperinflation, massive un- and under-employment, and a shutdown of production,” VTB’s Moiseev said. The ruble will slide to 10,000 per dollar, he added." Of course, this is the primary side effect of attempting to avoid formal bankruptcy through currency devaluation. And all those who continue to believe deflation is an outcome that will be allowed by the Fed, need to look just to the former Soviet satellite to see what lies in store for everyone currently doing all in their power to devalue their currency.
First look at the Belarus Ruble chart below: this is what always happens to every country that resolutely continues to live outside its means. Always.
And here are some additional observations from Bloomberg on the country that everyone in the media continues to ignore, yet which will very soon be the model for virtually everyone else engaging in central planning warfare.
The Belarusian central bank let the managed ruble weaken by 36 percent versus the dollar on May 24 as demand for dollars and euros from importers and households threatened to derail an economy already laboring under a current-account deficit equal to 16 percent of gross domestic product. Russia and other former Soviet partners last week agreed to give Belarus a $3 billion loan and urged President Aleksandr Lukashenko’s government to sell $7.5 billion of assets to replenish the state’s coffers.
Finance ministers from former Soviet nations agreed in Minsk on May 19 to give Belarus up to $3.5 billion over three years, with the first $800 million payment expected in the week after a separate meeting on June 4, Russian Finance Minister Alexei Kudrin said in Moscow yesterday.
The Nationalnyi Bank Respubliki Belarus set its official dollar-ruble rate at 4,931 for today’s trading, from 3,155 on May 23, according to its web site. Trading of foreign currency between companies, banks and individuals needs to stay within a 2 percent range of the daily rate, the regulator said May 23, when it announced the devaluation and reintroduced restrictions lifted on the interbank market on April 19 and for households on May 11.
Devaluing the currency will only worsen the situation for Belarus, VTB’s Moiseev said.
“The main problem is that the economy produces goods which consist of little else than a combination of imported spare parts,” he said. “So devaluation only makes things worse.”
Belarus’s economy effectively collapsed in 1991 as the disintegration of the Soviet Union eliminated natural markets for the country’s exports of farm machinery, textiles and agricultural products.
The catalyst for the country's imploding economy: socialism and price controls. Sound familiar?
Lukashenko reintroduced controls on prices and the currency and re-nationalized some companies and infrastructure after coming to power in July, 1994, on a platform of “market socialism.” The nation’s economy returned to growth in 1996, according to World Bank data.
At the Minsk Refrigerator Plant Co. shop in the capital today, about 20 people queued in drizzling rain to use their rubles to buy fridges. While the shop didn’t open on the day of the devaluation, most of the models in the store already had ‘Sold Out’ stickers on their doors.
“I came on Saturday and it was a nightmare, the store was stormed by people who wanted to spend their rubles because of rumors about the devaluation,” said Nikolay, a 74-year-old pensioner who declined to provide his last name. His entire savings of 6 million rubles now buy one fridge compared with three before the devaluation, he said.
The people are not happy...
The devaluation lifted the local price of automobile fuels as much as 24 percent, according to Belneftekhim, an industry group for the country’s oil sector. Last night, about 50 people protested the price increase in the car park of a Minsk hypermarket.
“I can’t describe how I feel without using obscenities, this is all our government’s fault,” said Sergey, a 32-year old attending the protest who works for a computer importer. “The whole world tells them, guys, you have economic problems, you should do something, and all they did was live off getting more and more loans.”
Who can blame the country if it devolves into civil war: as a result of Monday's decision the average salary was "1.6 million rubles in April, according to the government statistician. Converted into dollars, it fell to $325 after the May 24 devaluation, from $507 a day earlier, using central bank exchange rates."
Naturally, the IMF wuz here:
Both the IMF and the EBRD have blamed Lukashenko’s spending before last year’s presidential election for much of the economy’s woes. Lending was increased by 38 percent last year and public-sector salaries rose by about 50 percent, the Washington-based IMF said in a March 9 report.
Belarus got a $3.5 billion bailout loan from the IMF during the global credit crisis and the country has more than $2 billion of ruble and dollar debt outstanding. Foreign-currency reserves hit a 1 1/2-year low in March.
“The ruble is probably still too strong, but devaluation hurts the average consumer through imported inflation and deteriorating purchasing power,” Sanna Kurronen, an economist in Helsinki at Danske Bank A/S, said by e-mail yesterday. “There is really no easy way out of this economic distress and the only way is to do a major reform in the country.”
Here comes hyperinflation...
The price of children’s diapers has “gone completely insane” in Minsk, said Natalia, a 24-year-old mother also queuing outside the refrigerator store. “I used to buy a pack for 69,000 rubles, now they cost 140,000,” or almost half the 343,260-ruble monthly child benefit paid by the government, she said.
“We have become paupers,” said Tatiana, a 70-year-old woman in the line who also declined to give her last name. “We have been squeezed into a corner by this devaluation.”
Belarus’s dollar debt has been buoyed by news of the Russian loan, with the yield on the government’s debt due 2015 dropping four basis points to 9.881 percent by 6:35 p.m. in Minsk, the lowest since March 14. Dollar-denominated notes due 2018 yielded 10.38 percent, down six basis points.
The country has raised its refinancing rate twice since April 20 to 14 percent, the highest in Europe. The central bank also stopped selling foreign currency out of its reserves in March and will continue to stay out of currency markets, spokesman Anatoly Drozdov said by phone in Minsk yesterday.
...And following that, complete socio-economic collapse
Unless Belarus heeds Russia’s call for mass privatization of state assets, it is headed for “hyperinflation, massive un- and under-employment, and a shutdown of production,” VTB’s Moiseev said. The ruble will slide to 10,000 per dollar, he added.
Unemployment was 0.7 percent in December, according to government data. Inflation accelerated to 14 percent in March, the fastest since April 2009 and more than neighboring Russia’s 9.6 percent in April. Imports into Belarus exceeded exports by $7.3 billion at the end of 2009, according to the latest annual data available.
Russian media are creating a “flurry” of speculation about the nation’s asset sales so they can “make good at our expense,” Lukashenko said today in Astana, the capital of Kazakhstan, according to comments reported by state news agency Belta. “But we will not throw anything to anybody for nothing.”
Note the parallels to Greece, which would follow the same fate if it were to make the choice of returning to the drachma.
Alas, there is nothing left to add: this is the future, and it is coming to a developed country near you.
From: A
Sent: Wed, May 25, 2011 11:11:10 PM
Subject: RE: Comments - Week of May 23
Albert Edwards Revisits The S&P 400, Still Sees Deflation To Hyperinflation
We knew it was only a matter of time before Albert Edwards would follow up to Russell Napier's call for S&P 400 with his own rejoinder. Sure enough, the SocGen strategist (who previously called for an S&P target in the same neighborhood) has just released the following: "Let me re-emphasise our 400 S&P forecast with sub-2% US bond yields" in which he says: "Amid the equity market enjoying yet another Fed induced mega-rally, many commentators have been left grasping (gasping?) for explanations for the continued low level of global bond yields despite the ruination of the public sector balance sheet. Most have latched onto QE2 as the explanation and hence expect a sharp rise in yields from June onwards as the Fed’s buying programme ends. We expect new lows in bond yields." The reason for that per Edwards, is an imminent bout of deflation, which is precisely what the Fed is hoping to create, in order to get the green light for the Jim Grant defined "QE 3 - QE N". Edwards, naturally recognizes this too: "Despite fully acknowledging the ruination of the government balance sheets as years of excess private sector debt are transferred to the public sector, we still expect to suffer another deflationary bust that will take government bond yields to new lows BEFORE government profligacy and the Fed's printing presses take us back to both double-digit inflation and bond yields. For now, we remain heavily overweight government bonds." In other words, just as we have been claiming for a long time courtesy of the Fed's so predictable Pavlovian reaction to always print more in response to deflation, enjoy 2% bond yields... just before they hit 20%.
More from Edwards:
Many think I am mad. But I am not the only commentator expecting a deflationary bust - the sort of bust that will take the S&P down to 400 from the current 1300. I recently watched John Authers of the FT Lex and Long View columns interview Russell Napier, formally of CSLA and a leading stockmarket historian. Russell's views are as interesting as ever and well worth 11 minutes of watching time. His views are similar to mine, although he articulates his thoughts far more clearly than I - Long View: Historian sees S&P fall to 400 - ft.com 16 May.
Where I diverge slightly from Russell is that the world he describes sounds pretty recessionary to me. Clearly the S&P falling to 400 destroys household balance sheets and consumption anew. And EM liquidity tightening could causes hard landings. In China , for example, a recent calculation showed FX intervention accounted for around one half of the country's runaway money supply which has helped propel the boom). My own view would be that despite the cessation of the EMs need to buy US Treasury debt as they curtail liquidity, weak economic fundamentals will drive US Treasury yields still lower in the near term. The printing presses being turned off will hit risk assets hard and that should boost Treasuries. So in my world, 400 on the S&P goes hand-in-hand with lower, not higher US bond yields. Ultimately I would concur that there is also going to be “The Great Reset” on US yields as well, but that will come after a frenzied orgy of balance sheet debauchment (both Fed and Federal) which will make events over the last three years look like an afternoon tea-party with the Vestal Virgins.
The chart below shows that not only is the Fed no longer (and never really) providing price stability but that volatility, contrary to the Fed's active involvement in the Russell 2000 is alive and well... in inflation/deflation expectations.
Yet there is a contrarian read to even near-term deflationary expectations. Exhibit A: China , whose long-imported inflation will have no choice but to come back and bite the US in the butt soon enough for a last push inflationary surge before all hell breaks loose.
But despite the cyclical slowdown in the US reducing inflation expectations, China 's inflation problems should not be ignored. To the extent that the Fed's QE1&2 is driving Chinese CPI inflation upwards (and the CPI measure severely understates wider Chinese inflation with the GDP deflator running closer to 10% yoy), it is coming back into the US via higher US import prices of Chinese goods which is in turn impacting core inflation (see charts below).
Albert's conclusion:
We expect a global deflationary bust to reverse the clear inflationary pressures building from monetary debauchment around the world - more so EM than developed. If as last year we see a severe economic slowdown unfolding around the turn in the year, this could rekindle geopolitical tensions as the US is currently suffering a record seasonally adjusted (Datastream measure) trade deficit with China, disguised for the moment by favourable seasonal effects (see charts below). But from June onwards record reported deficits will increase trade tension sharply, especially if as last year we get US growth spluttering badly as QE draws to a close.
Great: so not only can the world expect hyperdeflation followed by hyperinflation, but may as well plug in a little hyperwar in the excel model for good measure.
From: J
Sent: 25 May 2011 10:10
Subject: Re: Comments - Week of May 23
At beijing airport, mission accomplished early, about to have a layer of skin taken off of feet per some new service offering, before the traditional reflexology treatment.
Re housing, cannot see how 'recovery' can help much, for recovery of housing uptake cannot revive the vicious housing / derivative / financial economy regime, unless one can fool the same fools twice.
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