China’s boom #1: GDP is up 11.9% in the March quarter, compared with 10.7% in the final quarter of 2009 and 8.7% for 2009 as a whole. The figure was leaked to newsagencies this morning before the official release. Likewise the 2.4% rise in inflation in March, which is down on the 2.7% rate in February and under market estimates from western economists. Retail sales rose 17.9% in the year to March and industrial production jumped 19.6% in the first quarter (which is easy to understand given the first quarter of last year was very sluggish). Producer prices were up 5.2% in the first quarter.
China’s boom #2: Property prices in 70 Chinese cities jumped by a record 11.7%, according to the National Bureau of Statistics. The figure was released on the website of a newspaper published by the National Bureau of Statistics. The data goes back to 2005. The March year-on-year growth rate is 1 percentage point higher than that February’s 10.7% and came as lending fell and the government tightened lending criteria and changed taxes on home purchases. Of major cities, prices of new homes in Haikou, capital city of Hainan Province, jumped the most with a surge of 64.8% year on year last month. Prices of existing homes in the major cities advanced 9.5% year on year in March, the statement said.
More gloom on Greece: Figures out this week show that Greece’s financial position is much worse than thought. The government January forecast of a 1% contraction could be 2%, but some private forecasts say it could be higher. Preliminary first-quarter figures on the budget show net revenue up by an encouraging 9.7%, but short of the targeted 11.9%. And the cost of financing the country’s debt mountain rose 14.5% instead of the planned 5.1%. Time for quite a few ouzos Stavros and a Bex and a long lie down. And overnight the market yield on Greece’s 10-year debt rose back to more than 7%.
Air Macquarie: Macquarie Bank has always had ambitions to be an airline. The bank has had a slowly growing portfolio of leased jet liners, now it has got a very big fleet with the news that it has paid AIG’s International Lease Finance Corp $2 billion for a bunch of planes, mainly Boeing 737 Next Generation and Airbus A320s of varying types. The right to buy six of the 53 planes will be transferred Macquarie AirFinance Ltd, a global aircraft leasing company part-owned by Macquarie. The bank said the planes comprise “young, modern aircraft on lease to 35 airlines in 27 countries”. That’s mostly “low cost” airlines. Macquarie’s existing aircraft leasing business has nine planes owned by Macquarie Asset Leasing Trust and a 37.5% in Macquarie AirFinance, which owns or manages 124 jet aircraft, according to the statement. Air Macquarie is still No.2 to the US-listed subsidiary of Babcock and Brown (believe it or not) called B&B Air, which has 62 aircraft with more than 30 airlines.
Good credit: South Korea is evidence of what can be achieved with a lot of hard work. Overnight South Korea’s credit ratings were raised to A1 from A2 by Moody’s Investors Service, which based the upgrade on accelerating economic growth and a “relatively small” deficit. Ah, lowish debt and spending. South Koreans are well known for their thrift, but it was only 12 years or so ago that the country was a basket case after the Asian crisis. Even in 2008 there were fears the country could relieve the wrenching implosion of 1997-98 as the country’s currency and economy were hit by the credit crunch and then the collapse in exports worldwide. But it didn’t and Moody’s said in its statement: “The change has been prompted by Korea’s demonstration of an exceptional level of economic resilience to the global crisis, while containing the government’s budget deficit.” Sounds easy, but it hasn’t been achieved without a lot of pain and effort.
Poor Morgan Stanley: According to media reports, Morgan Stanley, one of the Masters of The Universe as we knew it, has a rather large embarrassment on its hands. Its reputation as an international property master has been exposed as a crock. According to reports in the Wall Street Journal and on Bloomberg, Morgan Stanley expects to lose $US5.4 billion, or 61%, of its $US8.8 billion global fund from 2007. Some of that is in Australia where it it paid almost $US4 billion for Investa in May 2007, four months before the credit crunch hit. It has had big losses in the US. The Michael Lewis book The Big Short reveals details on how Morgan Stanley was pushed to the brink by losses incurred by a gun trader called Howie Hubler. He lost $US9 billion in an ignorant play in subprime mortgages and their related derivatives. James Gorman, a Melburnian, is now running Morgan Stanley. Good luck.
Gold bugs: Gold bugs again are besotted with talk of an unknown New York-based seller attempting to manipulate the price of the metal. The most paranoid think there’s some mysterious force directing this selling, with the US Fed blamed and other central banks as well (and even worse among the more racist of gold bugs). Perhaps they should tear themselves away from their charts and screens and take a gander at the latest gold survey from GFMS, the respected London-based gold analysts. It’s the 44th edition of the report and it has some very unpleasant news for the bugs. Reality in the shape of demand will start intruding, driving prices lower.
Golden high … then ? GFMS said in its 2010 survey that gold is near its decade-long bull run even though short-term prospects are still rosy. “We’re certainly in the end-game now, although that could still take a year or more to play out. But after that, it’s difficult to see how we can avoid a hefty drop in prices if we want to boost jewellery and trim scrap to bring the overall market back into equilibrium,” according to GFMS chairman Philip Klapwijk. He says before then gold will hit a high more than $US1300 an ounce in the next 6-12 months. Gold was trading about $US1160 an ounce overnight after hitting a record $US12276 last December.
Golden reality: The reality is quite brutal. GFMS says gold and its buggie supporters can’t depend on investment demand keeping prices higher in the medium or longer term. Klapwijk says investor inflows would need to be maintained near their current record levels to take up the slack from lower jewellery demand. And while continuing worries over the strength of the global recovery may sustain investor demand in the near term, Klapwijk believes it is unlikely to be maintained in an environment of rising interest rates. “This is a market that has moved out of kilter with its underlying fundamentals … we’re certainly in the end-game now, although that could still take a year or more to play out..” The credit crunch proved that markets that defy reality end up crashing hard.
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