Tuesday March 25, 2008

Singapore CPI inflation rate at 6.5% in Feb 2008, holds near 25-year record

bloomberg.com, businesstimes.com.sg, channelnewsasia.com :

Singapore's inflation in February [2008] held near the highest since 1982. The consumer price index [CPI] jumped 6.5% from a year earlier, after gaining 6.6% in January, the Department of Statistics said today [24 Mar 2008]. This prompted the Ministry of Trade and Industry to issue a second statement in two months saying that underlying inflation remains stable.

The Monetary Authority of Singapore expects inflation this year to gain at more than double 2007's pace. Singapore's central bank expects inflation to average between 4.5-5.5% in 2008, after gaining 2.1% last year. The central bank, which has sought a "gradual and modest" strengthening in the currency since April 2004, said in October it would allow a "slightly" faster appreciation in the Singapore dollar. The Singapore dollar has gained 3.4% this year.

Food prices, which make up 23% of the index, rose 6.7% in February from a year ago, following January's 5.8% increase. Rising prices of daily food essentials have prompted the government to roll out a campaign which included newspaper and television advertisements to encourage consumers to switch to cheaper frozen meats from fresh ones. Transport and communication costs, the second-biggest component at 22% of the consumer price index, climbed 7.6% in February from a year earlier. Oil prices breached $110 a barrel this month, increasing fuel and transport costs for consumers. The Singapore government doesn't subsidize pump prices, leading petrol companies to pass on the rising gasoline and diesel costs to car owners. Housing costs, the third-largest component of the price index, climbed 8.8% from a year ago. The increase came as the government raised property valuations for public housing at the beginning of the year.

- So, it looks like Singapore's 25-year record-high inflation remains with us still. Read the last paragraph above again and note how food inflation has accelerated. Okay, read the whole paragraph in its entirety again, and notice how, out of the supposedly three largest components of the CPI, food has gone up 6.7%, transport has gone up 7.6%, and housing has gone up 8.8%, and yet the overall CPI figure is stated as going up only 6.5%? Something funny is going on here. You know what Mark Twain said about statistics? "There are three kinds of lies: lies, damned lies and statistics." The news outlets can quote the official CPI figures all they want. I'm not exactly buying it.

I prefer to use the Austrian definition of inflation - the rate of growth of the money supply versus the rate of growth of available goods and services in the economy. The Keynesian folks will howl at this one but here goes : my proxies for money supply and economic growth are the M3 and GDP growth rates, hence the M3-to-GDP differential is my preferred indicator for the real inflation rate. The Singapore M3 money supply growth rate averaged about 20.6% in 2007 and the Singapore GDP growth rate was 7.5% in 2007, hence M3 - GDP = 13.1%. This feels a lot more "real" as an inflation figure, given that the prices of things have been going up at 20-30%, especially towards the latter part of 2007 when inflation started to really take off.

Finally, there is one more thing that rings alarm bells for me. Some of the contrarian investors amongst my audience may notice that the part about "underlying inflation being stable" sounds quite a bit like what the Americans have been saying about their "core inflation rate being stable". More Mark Twain for you.

See also :

1. Singapore CPI inflation hits 6.6% in Jan 2008 - a new 25-year record high
2. Singapore economy stuck in mud : inflation rising, M3 falling, GDP crashing - the stagflation formula
3. Hyper-inflation : early warning signs

(2008-03-25 23:33:09 SGT) [Biz] Permalink

Wall Street firms cut 34000 jobs, most since 2001 dotcom bust

bloomberg.com :

Wall Street banks hit by mortgage losses and writedowns have cut more than 34,000 jobs in the past nine months, the most since the dot-com boom fizzled in 2001. Securities firms started eliminating positions in mortgage departments as early as last July, when rising delinquencies on home loans to borrowers with poor credit histories led to a decline in the prices of bonds tied to the loans. So far, Citigroup has eliminated 1.7% of its workforce, while Lehman has chopped 18%. Morgan Stanley has cut 6.2%, and Merrill has eliminated 4.5%.

The collapse of the subprime mortgage market last year and the ensuing credit contraction have saddled the world's largest financial institutions with at least $200 billion of writedowns and losses. Bear Stearns, once the fifth-biggest U.S. securities firm, became the emblem of panic on Wall Street when it was forced to submit to an emergency takeover backed by the Federal Reserve as clients and lenders deserted the company. More bank losses are likely, according to analysts. "This crisis is much worse than 2001 and we don't know how long it's going to last," said Jo Bennett, a partner at executive search firm Battalia Winston International in New York. Job cuts "could be more than 100,000 in a few years."

Compared with the fallout after public markets slammed shut on speculative Internet companies in 2001, more high-level Wall Street executives are losing jobs in the current crisis, according to Gustavo Dolfino, president of New York-based executive search firm Whiterock Group. When the dot-com boom ended, the people who lost jobs were predominantly rank and file, he said. After the Internet bubble burst, 39,800 jobs were eliminated during the same period; the number climbed to 90,000 in the next two years, according to the Securities Industry and Financial Markets Association.

- Layoffs, retrenchments, downsizing, whatever you want to call it. Chop a thousand jobs here, chop a thousand jobs there. The numbers are adding up pretty quickly. The body count is rising. Note what I said earlier about finding jobs in the finance industry. Major banks and financial institutions are writing down tens of billions of dollars seemingly every other day, their assets are shrinking, the remnant values of these assets are highly suspect, and some people are still hankering after those handsome bonuses that were handed out in a bygone era? Come on. Try some other sector.

See also :

1. Citigroup loses almost $10B, writes off $18B, receives $12.5B, slashes dividend and cuts 21,200 jobs
2. Citigroup to cut 20000 jobs and slash dividend : WSJ

(2008-03-25 22:25:41 SGT) [Biz] Permalink

Michelin new car tyre prices to be indexed against oil

channelnewsasia.com :

Michelin, one of the world's leading tyre makers, on Friday [21 Mar 2008] hiked prices and said that from now its charges for auto manufacturers would be indexed against the cost of oil. "From April 1, the price of (Michelin) tyres will be adjusted each time the price of a barrel of Brent (North Sea) oil moves by five dollars (3.24 euros)," a company spokesman said.

"This framework, which can evolve, will apply to tyres for cars and vans sold to vehicle manufacturers and not in the retail sector," he said. "About 60 per cent of the cost of making a tyre for cars or vans arises from products made from oil," Michelin said. "The recent spectacular rise in the price of (oil) therefore has an impact on the cost of Michelin tyres."

- That is called passing costs on to consumers, and that is the business-savvy thing to do. There isn't much of an alternative, really. Manufacturers can absorb the rising costs and eventually go under, or embark on cost-cutting measures, which many of them have done, and I suspect some of them are already starting to reach the limits of things they can cut back on.

See also :

1. Gold and oil soar as inflation fears grow
2. Oil hits $111.00 high, breaking records 7 trading days in a row
3. Hyper-inflation : early warning signs

(2008-03-25 16:14:36 SGT) [Energy] Permalink

Nestle warns biofuel boom threatens food supplies

channelnewsasia.com :

Growing use of such crops as wheat and corn to make biofuels is putting world food supplies in peril, the head of Nestle, the world's biggest food and beverage company, warned on Sunday [23 Mar 2008]. "If as predicted we look to use biofuels to satisfy 20% of the growing demand for oil products, there will be nothing left to eat," chairman and chief executive Peter Brabeck-Letmathe said. "To grant enormous subsidies for biofuel production is morally unacceptable and irresponsible."

While the competition is driving up the price of maize, soya and wheat, land for cultivation is becoming rare and water sources are also under threat, Brabeck said. His remarks echoed concerns raised by the United Nations' independent expert on the right to food, Jean Ziegler. Speaking at the UN General Assembly last year, Ziegler called for a five-year moratorium on all initiatives to develop biofuels in order to avert what he said might be "horrible" food shortages.

- Business leaders of major corporations are starting to come out and speak about the threat of biofuels to the global food supply. We've had Shell talk about this earlier on and now it's Nestle. Recently, William Doyle, the CEO of Potash Corporation, a $47 billion fertilizer and feed products company said : "If you had any major upset where you didn't have a crop in a major growing agricultural region this year, I believe you'd see famine." The point being, the food supply chain is so tight that we've had 17 years of record-breaking harvests every single year and yet the supply is only barely keeping up to demand. This has led to record low inventory levels. There is no margin of error in the entire system, and biofuels such as ethanol are only making it worse. If there is any major disruption of any kind, there will be shortages and famine right away.

See also :

1. Higher food prices to continue: World Bank
2. Why food costs more
3. Starving the people to feed the cars
4. Shell : Biofuels from food crops "morally inappropriate"

(2008-03-25 15:12:55 SGT) [Biz] Permalink Comments [1]

Higher food prices to continue: World Bank

businesstimes.com.sg :

A global surge in food and fuel prices has become a serious problem for developing countries and the problems are likely to persist for years, a senior World Bank official said on Thursday [20 Mar 2008]. "It has reached a critical stage where you do have food riots in a dozen countries or some related disturbance," Danny Leipziger, the World Bank's vice president for poverty reduction and economic management, said. While some benefit from higher revenue on export of commodities, the problem of surging food and fuel prices is widespread enough to have affected about 30 to 40 developing countries adversely, he said.

Global prices for food and fuel have risen sharply and even accelerated in 2008, while food inflation between January 2007 and 2008 has seen increases ranging from 10 to 34 per cent. Behind the surge are high energy and fertiliser prices, increased use of food and crops for bio-fuels, higher per capita income in developing economies like China and India, and record low world stocks of grain.

"In the initial stages of a problem like this, in the first three to four months, countries can rely on fiscal means and their reserves. As it persists, I think they have to look for longer-term solutions," Mr Leipziger added. The International Monetary Fund (IMF) has recommended targeted measures to protect the poorest from higher prices through feeding programs and cash transfers, and urged governments to avoid un-targeted subsidies. Food and fuel prices have a significant impact on people in poor countries because food represents a larger share of what poorer consumers buy, new IMF research said. It has urged countries to avoid measures that distort markets including price controls, which could cause food shortages.

- Higher food prices are already starting to have a progressively larger impact on poorer countries. Even consumers in the wealthier economies are starting to feel the pinch. See part 2 of my guide to beating inflation for some ideas on fighting food price inflation.

See also :

1. Soaring rice prices hurting Asia's neediest nations
2. PM Lee : Singapore government will help mitigate food cost inflation
3. NTUC chief urges Singaporeans to be prepared to live with higher fuel, food prices
4. Why food costs more
5. World grain stocks fall to 57 days of consumption

(2008-03-25 14:49:05 SGT) [Biz] Permalink

Gold, oil, commodities plummet after "less than expected" Fed rate cut

bloomberg.com :

Gold plunged the most since June 2006, leading a decline in commodity prices, including soybeans, wheat, cocoa and crude oil, on speculation the slump in the dollar will end as the Federal Reserve eases the pace of interest-rate reductions. The Fed had cut the overnight-lending rate 75 basis points to 2.25% in a bid to avert a U.S. recession. Analysts had forecast a bigger cut to 2%, an expectation that helped spur commodities to record highs as investors sought a hedge against inflation by stocking up on raw materials. "This is a knee-jerk reaction to the fact that the Fed only lowered by 75 basis points," said Michael Pento, a senior market strategist at Delta Global Advisors.

The U.S. Dollar Index, down 5.9% this year, rose 0.8%, the biggest gain in almost six weeks. The yen and franc also rose against major currencies on speculation investors were exiting carry-trade purchases of commodities that were financed with cheap loans from Japan and Switzerland. "It's so much about leverage," said John McCarthy, director of currency trading at ING Financial Markets LLC in New York. Traders "shorted the yen and franc to buy commodities."

While the Fed said yesterday [18 Mar 2008] it expects a "leveling-out" of commodity prices, some investors are betting inflation will accelerate because of lower borrowing costs. "Inflation will go through the roof," investor Jim Rogers, who predicted the start of the commodities rally in 1999, said in an interview on Bloomberg Television.

- This development would have been hilarious if it didn't involve real money. Oh, the Fed does a rate cut of "only" 3/4-point, less than the full 1 percent cut that people were expecting, commodities of all kinds have a massive sell-off, and Ben "Helicopter" Bernanke is seen as some sort of hero on Wall Street for "taking care" of the inflation problem once and for all by "deflating the commodity bubble".

Please. They might as well have hung out a "Gold On Sale At 10% Discount" banner. I promptly logged in and bought for both myself and my investment fund a few ounces worth of the Gold ETF, GLD. I did say that gold support levels were $1000, $950, $900, $850, and $800, didn't I? Support levels are for buying, and buy we did. After the Good Friday weekend, as I write this, oil is back up over $101, and gold is back up over $920.

You can look at it this way. It's like the Titanic was three-quarters flooded and many of the people on board started saying, "it's not sunk yet, please stay", and they continued dancing, and the music continued playing. Well, the dollar is the Titanic. Get the hell out.

See also :

1. Fed cuts interest rate by another 3/4 of a point
2. Gold hits $1000 an ounce for the first time in history
3. Gold and oil soar as inflation fears grow

(2008-03-25 01:12:35 SGT) [Biz] Permalink

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