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Japan fiddles while the economy burns?
Nero fiddled while Rome burnt, but then he used the opportunity to rebuild Rome.
Given that the strong Yen must be putting severe pressure on many Japanese businesses and given there may not be much of an export demand rebound next year as the global liquidity-driven rally meets the problem of high unemployment in the West, could it be that the new Japanese administration want a higher Yen in order to finally purge the excesses in the economy through a deflationary liquidation? Taken with this policy action, the fact that corporate borrowings are around 180% of GDP and bank assets are around 200% of GDP, these two policies may wipe out many of the domestic banks which I understand have not been forced to recapitalise recently. So is the government's plan that from the ashes a new Japan can emerge?
The only small snag to this plan, if it is what the new government has in mind, is that the worsening domestic economy will further put pressure on the government’s ability to fund itself given a debt burden of around 200% of GDP. This combined with the aging demographic and a falling savings rate may at some point may cause a confidence crisis in the Yen.
What ever happens in Japan, an economy with 450% debt to GDP which is internally funded through massive wealth imbalances and a weak and highly leveraged corporate sector is an inherently unstable economy and its far from clear that Japan has put the fires out yet.
Disclosure: Disclosure: No positions
Disclosure: Disclosure: No positions
What are the commercials telling us about the copper price?
Considering the last few years’ worth of prices and positioning a few salient points can be made:
So in summary there are clearly two camps. The investors that are buying are apparently doing so on an allocation view that there is an inventory restocking cycle coming in 2010 in the G7 as growth rebounds or that going long on commodities is a good short US Dollar play.
On the other hand the commercials are selling copper futures ostensibly with the view that the current prices more than compensate them if there is a Lazarus-style recovery in the G7 next year, whilst the current inventory level will hang over the market and likely depress prices if there is a muddle-though scenario, while a double dip outcome will likely represent another record pay day.
So the question is which camp is right? Is it the archetypal Wisconsin pension fund manager who is buying copper on an 'allocation view' or as part of a V-shaped recovery play or is it the traders working for the large global mining companies who are trying to sell their copper to actual industrial users every day?
Disclosure: No positions
Rebellions in Yemen threaten a regional stand off
So without wanting to reiterate easily researchable facts President Saleh of Yemen faces a number of challenges:
- A collapse in oil revenues
- A dysfunctional economy affected by Qat-drug addiction, high unemployment and a lack of water resources
- An increasingly violent secessionist movement in the south east which has a socialist philosophy
- At least 3000 Al Qaida members to the east of San'a which have some degree of links to the government's security services
- A northern rebellion by Shia tribes called the Al-Houthis
Although to some degree these problems have been contained for years a number of new elements have entered the fray.The influx of Al-Qaida from Iraq and Afghanistan brings a renewed vigour to the hard core Islamist movement in Yemen which had previously been contained by Saleh's Islamist government. Since the influx they have already tried to assassinate a Saudi prince and there is evidence of border incursions into Saudi Arabia.
Yemen and Saudi Arabia are accusing Iran of supporting the Al-Houti's with weapons and advisers. After initial heavy losses the Yemeni security forces are apparently being supported by Saudi airpower and weapons.
This week there is evidence that Iran has responded to Saudi Arabia's attempt at a naval blockade of the military supply routes from Eritrea to the rebels in Yemen. Iran sends warships to Yemen while also accusing the Saudies of state terrorism in Yemen.
Interestingly we also learn that an Iranian laptop with secret nuclear files on it disappeared this week, presumably not by accident.
All in, tensions are rising and Iran has a lot to gain from the destabilisation of Yemen and the region at large at a time when the US would struggle to respond.
By supporting the Houthi rebellion, Iran has caused President Saleh to let his attention move away from combating Al Qaida in Yemen which may ultimately compromise his security forces and which ultimately could compromise the security forces of Saudi Arabia.
Disclosure: No positions