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Attention :Mr Bill

Discussions about the economic and financial ramifications of PEAK OIL
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Re: Attention :Mr Bill

Unread postby Scactha » Tue 19 Dec 2006, 07:49:33

$this->bbcode_second_pass_quote('Doly', '')$this->bbcode_second_pass_quote('Scactha', 'M')uch of his point can be boiled down to the fact that the dollar hegemony is entangling China with the US and the chinese is realising this.


I don't think the Chinese have just noticed their economy is entangled with the US. What they may have noticed only a few years ago is that this fact may be a bad thing.

Correct. It was bad wording.
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Re: Attention :Mr Bill

Unread postby MrBill » Tue 19 Dec 2006, 09:36:38

$this->bbcode_second_pass_quote('Scactha', '')$this->bbcode_second_pass_quote('Doly', '')$this->bbcode_second_pass_quote('Scactha', 'M')uch of his point can be boiled down to the fact that the dollar hegemony is entangling China with the US and the chinese is realising this.


I don't think the Chinese have just noticed their economy is entangled with the US. What they may have noticed only a few years ago is that this fact may be a bad thing.

Correct. It was bad wording.


Which in fact is incorrect as well. Due to long supply chains there are more than enough chances for China to in fact sell their exports denominated in remnimbi. Sure Americans may prefer to buy in US dollars, but there are sub-contractors and banks who would gladly act as middlemen to any foreign currency transactions.

The Chinese authorities only have a problem with too many foreign exchange reserves denominated in US dollars because they have been unwilling to repatriate those export earnings back into China in the form of yuan for fear of overheating the domestic economy while local capital markets are too small to absorb such surpluses.

It has squat to do with US dollar hegemony, which is just a lazyman's short-hand for saying because it is convenient to price stuff in dollars that there is some unwritten law that it has to be so.

Due to a cheap remnimbi against the euro, China's exports to the EU grew faster than their exports to the USA in 2006. Therefore, global imbalances are being shifted from America to Europe. If they denominated their exports in euros or yen it would have exactly the same net effect on trade and investment eventually. This is probably why the EU trade balance has gone negative in the past 12-mos. as US exports become more competitive and Asian goods make their way into the EU displacing eurozone domestic production. This has to be so if Asians are both large exporters of goods and are running current account surpluses, which is another way of saying exporting capital as well.
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Re: Attention :Mr Bill

Unread postby Scactha » Tue 19 Dec 2006, 19:59:08

Seems like a plausible analysis Mr Bill. I guess Doly and me both stand corrected ;) Lets say the entanglement is the unfortunate existence of the big and developed capital market in the US then? (I belive Soros considers the growth of that market the big reason for much of the current woes.)
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Re: Attention :Mr Bill

Unread postby MrBill » Wed 20 Dec 2006, 05:48:19

$this->bbcode_second_pass_quote('Scactha', 'S')eems like a plausible analysis Mr Bill. I guess Doly and me both stand corrected ;) Lets say the entanglement is the unfortunate existence of the big and developed capital market in the US then? (I belive Soros considers the growth of that market the big reason for much of the current woes.)




Well, quite contrary to popular belief, large, liquid capital markets that move savings around to fund investment are actually very healthy. Not only are we experiencing fewer emerging market blow-ups as well as meltdowns like the ERM crisis, but the financial contagion is becoming less, too. That is the good news.

The bad news is that this LACK of volatility and an explosion in derivatives, which are side bets on an underlying financial asset, mean that we may be setting ourselves up for a perfect storm?

Most financial models are built around VAR models that are like driving while looking through the rear view mirror. They estimate what losses would be given a certain amount of capital if interest rates rise by X-percent of a currency falls by Y-amount. They also allow offsetting risks by hedging or investing in non-correlated assets. However, as volatility has been falling, falling, falling, while currency markets are stable and interest rates are low this has meant that the VAR models are predicting more of the same going forward.

However, if you take the YEN carry-trade as an example it becomes clear that many assets are NOT non-correlated. Due to Japan's effective ZIRP banks and fund managers can borrow in JPY for next to nothing. They can then use that cheap financing to buy anything that creates a return. Not hard when the world economy is growing by 4-5% on average and 7-10% in parts of the developing world like Chindia.

So long as vols remain low and currencies are stable it is an easy trade. But the fact that all that funding is drawn from the same source means that it is more correlated than the models might suggest. It is vulnerable to events such as a strengthening yen, higher interest rates in Japan or sudden shocks like a fall in global stock markets or fund managers withdrawing money from commodity funds. If everyone heads for the exits at the sametime, it creates a liquidity crisis as there are not enough buyers of these assets for the number of sellers.

What George Soros and others have remarked, and perhaps they were interpreted out of context by many, with regards to derivatives is that a knife is a useful household tool, but it can also be used to cut yourself or someone else. Derivatives can be useful tools to lay-off risks and to hedge yourself against adverse price moves, but with leverage they can also be used to increase risk and therefore possible profits OR losses.

Where the two trends converge is that investors WANT double digit returns, which with low interest rates and stable currencies are hard to achieve, so in order to get that performance banks and fund managers have been using leverage and derivatives, plus low cost funding in the yen, euros, Swiss franc, (the US dollar when rates were lower) to make bets in emerging markets and other riskier asset classes where the chances of earning higher returns were better. If those returns disappoint in 2007, and some think the recent gains are unsustainable, then a net outflow from those riskier asset classes could turn into a cascade that would exacerbate those market's illiquidity.

A dollar crisis might also spark the same stampede out of US markets and dollar denominated assets. The risks are real and the market is rather too complacent if you look at current risk weighted spreads like historical vols or spreads on corporate bonds.
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Re: Attention :Mr Bill

Unread postby MrBill » Tue 17 Apr 2007, 05:28:25

A recent question from my colleague to me.

Q. Why is inflation in Japan so low? (f/c +0.1% in 2007)

My answer?

A. Hmm, good question?

I think part of the reason must lie in the fact that Japan imports energy, base metals, commodities and other inputs in US dollars that have been driven up in cost by US money supply growth, inflation and strong demand as well as competition from China.

However, it then turns around and sells finished products in euros or US dollars, so expensive imports, or imported inflation, is offset by its exports. The value-added is created in Japanese yen. So domestic price pressures are dictated by local supply & demand fundamentals and not by US dollar cost pressures.

My second thought is that once the value of real-estate in Tokyo at its zenith was worth more than all of California there is not much higher you can really go is there? I mean I think $400 for a game of golf or $100 for a glass of scotch is quite enough, so there was plenty of room for prices to fall from their peaks.

Here is another use for dollar receipts from Chinese exports. Again helping to ease imported inflation as imports of energy are eventually offset by exports in foreign currency. At least that is my idea. I have not read anything that supports or refutes me.

$this->bbcode_second_pass_quote('', 'C')hina's emergency oil stockpile
will cover the equivalent of 30 days of imports in the first
phase, a consultant with China Investment Association said.
The first of four stockpiles is about 10 million metric
tons to 12 million tons, Zhang Weiping, an energy consultant
with the association, which falls under the administration of
the National Development and Reform Commission, the country's
top planner, said.
China has started filling emergency oil storage tanks in
Zhenhai in Zhejiang Province, the government said in October.
The nation began constructing four oil stockpile bases in the
eastern coast in 2003.


Source: April 17 (Bloomberg)
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Re: Attention :Mr Bill

Unread postby Euric » Sun 22 Apr 2007, 11:12:13

$this->bbcode_second_pass_quote('', 'C')hina's emergency oil stockpile
will cover the equivalent of 30 days of imports in the first
phase, a consultant with China Investment Association said.
The first of four stockpiles is about 10 million metric
tons to 12 million tons, Zhang Weiping, an energy consultant
with the association, which falls under the administration of
the National Development and Reform Commission, the country's
top planner, said.
China has started filling emergency oil storage tanks in
Zhenhai in Zhejiang Province, the government said in October.
The nation began constructing four oil stockpile bases in the
eastern coast in 2003.

Source: April 17 (Bloomberg)



This article proves that not everybody buys or measures oil in barrels. The Chinese correctly measure it by mass, not volume. Thus they don't see their volume amount fluctuate when the temperature changes.

Maybe the Americans like to be cheated by choosing to use archaic measurements, but that doesn't mean everyone else wants to too.

In the article posted the SI unit megagram (= tonne = metric ton) is the unit used.
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Re: Attention :Mr Bill

Unread postby MrBill » Fri 08 Jun 2007, 09:16:58

$this->bbcode_second_pass_quote('Euric', '
')

This article proves that not everybody buys or measures oil in barrels. The Chinese correctly measure it by mass, not volume. Thus they don't see their volume amount fluctuate when the temperature changes.

Maybe the Americans like to be cheated by choosing to use archaic measurements, but that doesn't mean everyone else wants to too.

In the article posted the SI unit megagram (= tonne = metric ton) is the unit used.


Hmm, it looks like when the US dollar is cheap enough, at least some importers/exporters learn how to adjust to external market forces, even in measurements. I think Porter's Five Forces Model, although not perfect, explains how firms can and do adapt to external competitive threats and opportunities.

$this->bbcode_second_pass_quote('', 'T')he U.S. trade deficit narrowed by 6.2% in April to $58.5 billion as exports set a monthly record, the Commerce Department said Friday.

This was the biggest percentage improvement in the trade gap since last October.

Reflecting a growing global economy, exports increased 0.2% to a record $129.5 billion.

A big decline in consumer goods and autos and auto parts helped push down imports by 1.9% to $188.0 billion Economists expected the April trade deficit to narrow slightly to $63.5 billion, according to a survey conducted by MarketWatch. The deficit in March was revised down slightly to $62.4 billion from the initial estimate of $63.9 billion.

The figures are not adjusted for price changes. The report portends a boost to gross domestic product for the second quarter after the economy slowed to a crawl in the first quarter.

There is also a growing sense that the deficit is stabilizing this year after a decade of steady deterioration. The year-to-date deficit is down 6.7% to $235.3 billion. Last year, the deficit totaled a record $758.5 billion.
Source: [url=http://www.marketwatch.com/News/Story/Story.aspx?guid={6B7F5C78-8F0B-43C1-B77C-05681C14ED0F}&siteid=nbi]Record exports help narrow trade deficit sharply[/url]

Square plugs for round holes, if the price is right? ; - )
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Re: Attention :Mr Bill

Unread postby Gerben » Fri 08 Jun 2007, 14:55:47

$this->bbcode_second_pass_quote('MrBill', '')$this->bbcode_second_pass_quote('Euric', 'T')his article proves that not everybody buys or measures oil in barrels. The Chinese correctly measure it by mass, not volume. Thus they don't see their volume amount fluctuate when the temperature changes.

Maybe the Americans like to be cheated by choosing to use archaic measurements, but that doesn't mean everyone else wants to too.

In the article posted the SI unit megagram (= tonne = metric ton) is the unit used.


Hmm, it looks like when the US dollar is cheap enough, at least some importers/exporters learn how to adjust to external market forces, even in measurements.

In Belgium they use electronics to recalculate the volume sold to the volume it would have at 15 Celcius. If oil gets more expensive I asume more countries will follow this example.
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Re: Attention :Mr Bill

Unread postby MrBill » Mon 11 Jun 2007, 03:19:35

$this->bbcode_second_pass_quote('Gerben', '')$this->bbcode_second_pass_quote('MrBill', '')$this->bbcode_second_pass_quote('Euric', 'T')his article proves that not everybody buys or measures oil in barrels. The Chinese correctly measure it by mass, not volume. Thus they don't see their volume amount fluctuate when the temperature changes.

Maybe the Americans like to be cheated by choosing to use archaic measurements, but that doesn't mean everyone else wants to too.

In the article posted the SI unit megagram (= tonne = metric ton) is the unit used.


Hmm, it looks like when the US dollar is cheap enough, at least some importers/exporters learn how to adjust to external market forces, even in measurements.

In Belgium they use electronics to recalculate the volume sold to the volume it would have at 15 Celcius. If oil gets more expensive I asume more countries will follow this example.


Most commercial contracts are not leaps of faith. They spell out in detail which measurements are made and how. I would not expect a newspaper article to make this clear. For them a million gallons is close enough. But the for buyer and seller they need to mutually agree how that measurement is made. And in most physical delivery contracts there are tolerances for over and under delivery, and a price mechanism that adjusts for this tolerance.

I may buy 100 railcars of soyabeans with 3333 bushels (volumetric) per railcar, but it is the 'weight' of the railcar that is measured net and gross to arrive at its load. So if soyabeans weigh 60 pounds per bushel then each railcar should have approximately 200.000 lbs. net in it. 20 million pounds or 10.000 short tons. So if the contract calls for delivery of 10.000 tons +/-2% then I might get 99 or 101 railcars, or 100 railcars with between 9800 to 10.200 tons in them. The parties would then exchange futures to make up the difference between the delivered amount versus the contracted amount. No one is having anyone else over. And it is dead simple to convert 10.000 short tons into 9072 metric tonnes.

Before you ask, yes, the contract would also stipulate maximum moisture content of the soyabeans, which would also affect the net weight! ; - )
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