Happy New Year: Horse Coins!

Brazil is ready for the World Cup

Is China's central bank aiming at becoming the world's largest holder of gold reserves? They are rapidly going in that direction.

China is importing large amounts of gold. Macquarie estimates that 1,800 tons went into China in 2013. This is hard to verify as China, unlike other countries, does not disclose gold import figures. !,800 would make China the world's top importer and would represent the bulk of annual mine production of 2,600 tons.

China's central bank has not reported its reserves since 2009, when they were 1,054 tons. Currently the US Fed has,or at least has title to, 8,000 tons, or about 30% of world central bank holdings. Given that the NY Fed, which holds, or at least has some sort of call on, 6,500 tons on behalf of other countries' central banks, is unable to return Germany's paltry 300 tons that were supposed to be on deposit there, one assumes that all the gold has been lent out, which is standard practice among central banks. But the fact that Germany cannot be repaid immediately indicates that the NY Fed is having trouble recovering its lent gold. The Fed lends gold to banks like JP Morgan, which then sells it. So one can assume JPM is short and having trouble covering, which would explain why this bank is the biggest taker of physical delivery on COMEX, although the numbers are not huge.

In this context, the gold price has so far held up fairly well despite massive ETF selling. (Of course, it depends on what one means by "fairly well.")

The basic question is what is the Chinese central bank up to? Rumors are that it wants to become the largest holder of gold reserves in the world. As of 2009, the Fed had 7,000 tons more. We don't know where the Chinese are now, however, but there are probably several thousand tons more to buy.

QE's big success: Renaissance of the junk bond market

There was a good article this morning in the FT, "Corporate bond sales set to beat 2012 after passing $3 trillion." The story inside the story is more specific, however: Junk bond issuance is at record levels and the ability to issue has depressed defaults to only 2.2% of outstanding bonds. It is estimated that issuance will be greater than $500 billion globally, over twice the 2006 level of $208 billion. ($56 billion in 2008)

QE has certainly encouraged some degree of imprudent lending in the public markets but how much is hard to say. Of course, the higher the future inflation rate the lower will be the default rate in these issues, and vice versa.

I have been asking myself why free money in the public markets has not sparked a boom. I suppose the answer is that the contraction of the banking system has offset the looseness in the public markets. This is an advantage for large companies and a disadvantage for small and medium ones, as the latter do not have access to the public markets.

Even those who don't expect to pay aren't buying

Through the end of October, 1.2 million have signed up through the exchanges, both federal and state. Of these, 800,000 are in Medicaid (or CHIPS), the free overage for those with incomes of up to 133% of the poverty level. (Income is your own earned income, not including rent subsidies, food stamps, and other welfare payments.) Understandably, people who don't have to pay are more enthusiastic than those who do, but even the non-payers are lukewarm. Bottom line: this service has been rejected by paying customers, at least so far.

There is something fundamentally wrong with our US health system, both pre- and post-Obamacare. I don't understand why health care costs so much here. I have lived in England, France and Singapore. In England and France the care is good and costs society half what it costs here, as a percent of GDP. In Singapore,where the health care is the best I have experienced, the cost is one-fifth the US costs. It's puzzling.

Here is the story in the New York Times:

http://www.nytimes.com/2013/12/16/opinion/medicaid-outpaces-private-plans.html?smid=pl-share

Welcome respite from global warming

Yesterday the Boston Globe had an article on the snowy owl problem. These arctic birds have come further south and in greater numbers than in any previous December in living memory due to extreme cold in the arctic. They are posing a problem for planes at airports and the NY airports have started shooting them, to the consternation of naturalists. (Trapping solutions are now being tried.)

While the plight of these birds is a cause for concern, it is reassuring that we seem to be having a break in global warming. Antarctica has just recorded the coldest temperatures on record as well as record ice growth. (see below) Likewise, in the arctic ice growth has reversed its declining trend and the extent of sea ice in the north is now at normal historical levels.

Mexico responds to crime wave

Today's FT Mexico City Notebook reports on an interesting private sector solution to Mexico's crime wave: funeral parlors in Ciudad Juarez are now open 24-hours a day.