The alternative Big Mac Indicator

From The Economist:

THE size of your pay packet may be important, but so is its purchasing power. Helpfully, a UBS report published this week offers a handy guide to how long it takes a worker on the average net wage to earn the price of a Big Mac in 73 cities. Fast-food junkies are best off in Chicago, Toronto and Tokyo, where it takes a mere 12 minutes at work to afford a Big Mac. By contrast, employees must toil for over two hours to earn enough for a burger fix in Mexico City, Jakarta and Nairobi.

Sphere: Related Content

Inspiration

What we see:

• Building products company James Hardie jumps 23% to hit a new high.
• Coffee plunges 9% since August 11.
• Target touches 10-month high... The retailer jumped 8% yesterday after beating expectations.

and deflation in Germany and Canada...
o yes, China lost 4.3% ... again Sphere: Related Content

You want inflation? Here you have it...

A paper was published by Steve Hanke and Alex Kwok calculating last year’s hyperinflation in Zimbabwe. This is what they found:

Sphere: Related Content

Iron ore

Spot iron ore prices are fast approaching $100 a tonne, well above the levels at which miners and steelmakers in Japan, South Korea and Europe have struck supply deals, as demand outside China recovers.
The surge in spot prices has spurred several banks to forecast that benchmark - annually negotiated - prices will rise next year, reversing their previous expectations of a fall in prices. "The market is going up, up and up," said one London-based iron ore broker.
Spot ore prices in China rose this week to $93 a tonne - including freight - and industry observers said the market could hit a year high above $100 a tonne in the near term. The surge is a remarkable rebound from April's low of $58 a tonne.

The producers of ore are Vale do Brazil, Rio Tinto and BHP Billiton.

Now is this the effect of restocking or of a pick-up of demand?
China announced that in June 49.42 million tonnes of steel were produced – an all-time monthly high. We hope this figure is reliable.

The current spot price is almost 15 per cent above the level at which annual benchmark deals have been struck between global miners and big steelmakers outside China. Those agreements cut benchmark prices for the 2009-10 year by about 33 per cent from the 2008-09 level.
Chinese steelmakers and miners remain deadlocked about a benchmark deal for 2009-10.

Sphere: Related Content

Real -i- ty

The Hong Kong research house par excellence Gavekal is attributing the rise in yields as the key factor of the weakness of the S&P500 yesterday.
Rising rates are a sign that markets are normalizing after the sell-off of hedge funds last year and the subsequent fall out.
But if fixed income investors are wrong over the coming months and the economy is not recovering with inflation remaining absent, bonds could rally again.
For the moment the only inflation we note, are the prices of soccer players. These are not for Real, it seems. I am always curious which bank is giving here the line of credit.

Sphere: Related Content

Asset inflation - the bull is out

It’s all about speculating with the tax payer money for the moment. The Fed is still thinking about an exit strategy, while it’s the first thing (financial) firefighters should be concerned off. A Firefighter's first rule of survival is “know your way out”. The same can be said of financial firefighting. Though it has no intention of exiting soon, the Federal Reserve is planning its path out from the extraordinary measures it has taken to free credit markets and boost demand.
Ok: buy stocks, buy commodities, sell Treasuries, buy high yield debt and buy gold. Crucial in all this will be the dollar.
If the buck strengthens, look out for a reversal.

Sphere: Related Content

Is the UK a test-case for the US?

From the Financial Times

The S&P decision to downgrade its outlook for British sovereign debt from “stable” to “negative” should be a wake-up call for the US Congress and administration. The federal debt was equivalent to 41 per cent of GDP at the end of 2008; the Congressional Budget Office projects it will increase to 82 per cent of GDP in 10 years. With no change in policy, it could hit 100 per cent of GDP in just another five years. “A government debt burden of that [100 per cent] level, if sustained, would in S&P view be incompatible with a triple A rating,” as the risk rating agency stated last week.To understand the size of the risk, take a look at the numbers that S&P considers. The deficit in 2019 is expected by the CBO to be $1,200bn (€859bn, £754bn). Income tax revenues are expected to be about $2,000bn that year, so a permanent 60 per cent across-the-board tax increase would be required to balance the budget. Clearly this will not and should not happen. So how else can debt service payments be brought down as a share of GDP? Inflation will do it. But how much? To bring the debt-to-GDP ratio down to the same level as at the end of 2008 would take a doubling of prices."

Are we going to inflation?
Not yet.

The TIP ETF is barely moving.

Sphere: Related Content

Mortgage rates in the US are going higher. They are up to 5.20% from 4.70%. Will this hurt the refinancings? Or even more: the entire home industry?
Difficult to say.
Only thing: all rates are climbing.
Why didn’t Bernanke address this last week during the FOMC meeting?
Or is het confident that rates will come down again?
The 10-year US benchmark yield rose Friday to its highest point of 2009.

Is this a sign that inflation is already coming?
Is this the V-shaped recovery?

Or just sector rotation
Elsewhere we see the DBA has taken off since the last FED meeting. This ETF is wheat, soybeans, corn and sugar.

Sphere: Related Content

Big in Japan

The Japanese government launched a record stimulus package totaling 56.8 trillion Yen. Or 56.000.000.000.000. This amount represents 11.2% of the Japanese GDP. The three centerpieces of the direct stimulus part are:
- measures to boost consumer electronics/automobile replacement

- a gift tax cut aimed at stimulating housing investment
- public works projects
Now, we wonder: this money is coming out of nowhere and is injected in the economy. As long as there is no velocity of money in Japan (gone since the early nineties) this kind of action will not cause inflation. But at the same time you have to put it somewhere on your balance.
When will this liability be gone?
2509?

This world is experimenting with paper currencies on a scale never seen before.

Sphere: Related Content

Happy faces

The G20 gathering is over. Happy faces everywhere. Yes, London has still a great nightlife. Especially for VIPs.
Another handout of 1000 bln USD is promised. 750 bln USD goes to the IMF. Hey, they are back in business now. The Americanization of this world can restart.

As usual this kind of meetings produces nothing but promises and is always short on commitments.

Time to go for a pint in the pub... There is a lot to discuss. Before the singing is starting on the beautiful eve in spring

Sphere: Related Content

Them good old boys were drinkin' whiskey and rye...

During the Russian hyperinflation in the early 1990s vodka was the primary item of barter.
Although we first have to wade through a period of disinflation, I am looking forward to some hyperinflation. The only reason is that I cannot wait to start to barter the best whiskey of this planet.

In the mean time we learned from the Wall street Journal that the Tokyo Stock Exchange immediately suspended trading of CapCom bonds after a 3 trillion Yen order was placed. Unfortunately the entire outstanding issue is only 15 billion Yen.
Seems to a government – any government – placing an x trln USD market bid order these days for bank x which has only y bln USD outstanding anymore.

After AIG it’s now Merrill’s turn to cough up another unforeseen 500 million USD. Hey, TARP will pay anyway. Ok, AIG takes Washington hostage for another 60 bln USD. As there is Detroit, Bank of America and Citigroup.

After the Lehman-trauma nobody wants another debacle.

Tant pis for the future generations.

Don’t worry: we make this world a better place for them.

Sphere: Related Content