FT this morning: "Weak rouble and sanctions breath life into Russian industry"

Well, it looks like we've taught them a lesson they won't soon forget with the sanctions.

The Russian economy contracted 1.9% in Q1, which is less than expected and Renaissance Capital has improved its outlook for 2015 from -4.3% to -3.5%. This less-than-dire result comes from the increased domestic manufacturing and food production. The FT says,"some parts of Russia's food sector are booming" following food import bans against EU producers. Georges Barbey, Laxness head in Russian, said,"I see a renaissance of Russian industry, a renaissance we've been waiting for for a long time."

Chinese, Turkish and South Korean manufacturers are being pushed out of the market.

We, and the oil price decline, gave the lemons and they are making lemonade.

Middle-aged Chinese women corset gold demand in Q1

Global gold demand dropped 1% in Q1 2015 while supply was unchanged at 1,093 tons (725 mine, 367 recycled.) Demand would have been up had not middle-aged Chinese woman curtailed their jewelry purchases, according to the FT. Instead, the ladies have been opening brokerage accounts to speculate in stocks. Just under 8 million brokerage accounts were opened in the first quarter in China, up 433% from a year ago.

I wish I had known this would happen on December 31. The Shanghai Composite has risen 33% since then and gold is more or less flat.

Please email me in June in advance of the 3rd quarter trends.

Kosovo: Now that they are independent, they are leaving.

5% of the population left this winter alone. The FT reported on p2 this morning:

This reminds me of the case of Surinam. It decided to cut ties with the Netherlands in 1975. (It was already an autonomous republic and a consitutuent of the Kingdom of Netherlands, like Netherlands itself.) Then, before the date, 1/3rd of the total population decamped for Amsterdam.


Be careful what you wish for.

American industry's grisly opponent: the dollar

Interesting article in the Economist: "Uneasy Rider - The world's toughest motor-bike maker meets a grisly opponent, the dollar"

The article describes the damage being done to Harley Davidson by the strong dollar. It's not just currency translation losses (below) but also competitive behavior, The article notes that HD's European and Japanese competitors have launched a price war and are taking market share away from Harley.

I wonder if this comes up in the TPP discussions?

Americans spending more than $50k/year on drugs up 63% in 2014 to $52 billion

This is stunning. The total cost of perscription drugs for patients spending more than $50k/year increased 63% in 2014 to $52 billion.

Will drug costs bankrupt us before we stop paying them?

Extract from Reuters article:

Number of Americans using $100,000 in medicines triples -Express Scripts

May 13 More than a half-million U.S. patients had medication costs in excess of $50,000 in 2014, an increase of 63 percent from the prior year, as doctors prescribed more expensive specialty drugs for diseases such as cancer and hepatitis C, according to an Express Scripts report released on Wednesday.

Of the estimated 575,000 Americans who used at least $50,000 in prescription medicines last year, about 139,000 used at least $100,000 worth of medication, nearly triple the 47,000 who hit that mark in 2013, the report said.

The total cost to health plans for U.S. patients with prescription drug expenses in excess of $50,000 was $52 billion in 2014,Express Scripts said in its report: "Super Spending: Trends in High-Cost Medication Use."

Economists Dr. Copper and Dr. Zinc are bullish

An article in today's FT galvanized my attention. Zinc has hit a 3-year high of $2,415/ton and a production deficit is expected this year. Since zinc is widely-used in construction (galvanized rebar) and manufacturing, maybe this portents a stronger global economy. (If so, Zn may deserve a PhD. in economics, honoris causa.)

Meanwhile, Dr. Copper, which still pretty cheap at $2.964/lb, is approaching the $3/lb level and has been rising for four months.

Of course, investment in new Cu and Zn production has been weak for several years. Perhaps prices reflect supply weakness mostly.

Should we be more positive about the global economic outlook?

Will the ending of the Zero Interest Rate policy produce a credit crisis?

The lead story in today's FT says quotes the Glaxo's CEO as saying that easy money has led drug companies to make bad investments. "It's a little bit reminiscent of the early 2000s where every bit of new scientific news was good and would be permanent and would lead to great value creation." The article notes that a record $460 bn of pharma deals have occurred since the beginning of 2014.

I suppose that a lot of this spending has been debt financed. If the assets aren't good, then debt service will become increasingly onerous as interest rates rise. This is another reason for the Fed to keep interest rates below the rate of inflation indefinitely.

Meanwhile, the head of the European Securities and Markets Authority (ESMA), Steven Maijoor, said yesterday that "The very historically unusual monetary policy is raising risks for the non-banking sector." He said investors and companies were investing to an excessive degree in illiquid assets in a search for returns due to the overvaluation of liquid stocks and bonds.

Every day that ZIRP persist makes more severe the subsequent credit crisis, n'est-ce pas

Chinese oil imports are steadily trending upward. Global demand is not the source of price volatility.

We already knew that supply/demand imbalances in the oil market are caused almost entirely by supply deviating from trend. The fifteen year chart of Chinese oil imports in today's FT illustrates this. Not even the great recession seems to have made much difference.

In fact, world oil demand seems to grow 1% or 2% a year, year after year.  The only declines in world consumption in the past 25 years were in 2008 (-0.78%) and 2008 (-1.25%).  The Chinese slowdown, which is real and which heralds a new, lower growth trajectory, won't affect the oil price very much.

Supply is the source of price volatility, and supply depends on production costs (in North America) and politics (in Saudi Arabia and environs.)

Has America become a mall. If so, will it remain one?

A friend sent me an article sounding the alarm that 6,000 big retail stores in the US would be closed in the coming months. He wondered why. I replied as follows:

"The amazing thing is the fact that we have so much retail space in the first place. Why has retail space per capita tripled (about) since the 1980's? Why has my town of Hingham gone from one to three supermarkets, each twice as large as the original one, resulting in 6x as much space, since then while the population has remained flat? Why does the US have over 3x as much retail space/person (46.6 sq.ft.) as Canada (13.0)? (And now we have the Interest and the the goods go directly from the warehouse to the doorstep.

I look forward to the day when the excess malls become corn fields.

Per Capita Retail Space Comparison

US:             46.6 square feet
India:          2.0 square feet
Mexico:      1.5 square feet
UK:            23.0 square feet
Canada:      13.0 square feet
Australia:    6.5 square feet"

If you have any thoughts on this matter, let's meet at the mall and talk about it.

The ECB is now calling the shots worldwide

Manufacturing is heading down in Asia and heading up in the Eurozone. The US and UK remain positive.

Europe is China’s largest export market. It looks like the weak Euro is having the logical effect on China and surrounding Asia. One may surmise that the euro-effect will prevent anyone in the world from raising interest rates until inflation fears emerge.



-CHINA: PMI was 48.9 in April (preliminary; they may decide to change it later)

–SOUTH KOREA: PMI was 48.8 in April from 49.2 in March.

–INDONESIA: PMI was 46.7 vs. 46.4 in March.

-JAPAN: PMI was 49.9 in April

–INDIA: PMI was 51.3 vs. 52.1 in March.

–EUROZONE: Flash PMI was 52.0 vs. 51.9 for mid-April flash reading and vs. 52.2 end-March.

–GERMANY: PMI was 52.1 vs. 51.9 for mid-April flash reading and vs. 52.8 end-March.

–FRANCE: PMI 48.0 vs. 48.4 for mid-April flash reading and vs. 48.8 end-March.

–ITALY: PMI 53.8 vs. 53.5 expected and 53.3 in March.

–SPAIN: PMI 54.2 vs. 54.3 in March.

-UNITED STATES: PMI 54.1 in April.

-UNITED KINGDOM: PMI 51.9 in April