Asia | timiacono.com - Part 3

Wither Russia? Oo-Yeh!

John McCain’s quip that Russia is “a gas station masquerading as a country” appears to be more true every day as a failed attempt to prop up the ruble with a rate hike from 10.5 percent to 17 percent is now seen by FOREX markets as sign of desperation rather than strength, leading to more selling of the ruble as the oil price continues to move lower.

This Washington Post story put the two side-by-side as shown below (does anyone care about Ukraine anymore?) as they detailed how doomed the Russian economy is.

According to this Moscow Times report, the Russian people may already be adapting to the new currency realities – as they did in the 1990s – via the reintroduction of:

the u.e. — which stands for the Russian words “uslovnaya yedinitsa,” or “conditional unit” and is pronounced “oo-yeh”

This is a currency unit pegged to the dollar aimed at keeping retailers from having to replace price tags on a daily (if not hourly) basis. About the only thing that seems certain at this point is that this will probably get worse before it gets better.

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The Japanese are Turning Japanese

In case you hadn’t heard about Japan’s horrific third quarter GDP numbers, the chart below via this BBC report should aid in understanding why the financial world is again baffled by the failure of central bank largess to impact the real economy in the desired fashion.

Analysts were expecting a growth rate of +2 percent and what they got was -2 percent, surprisingly fitting the widely accepted definition of a recession (two consecutive quarters of contraction). This sort of thing seems to happen a lot in Japan.

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Russia Continues to Buy Gold

While their total is likely dwarfed by what goes unreported in China, the Russian central bank was, by far, the biggest buyer of gold during the third quarter as shown below in the World Gold Council’s latest report on Gold Demand Trends.

I suppose if I were Vladimir Putin here in 2014, I’d be trading in U.S. dollars for gold too, particularly given the developments in Ukraine so far this year and after the metal’s price has fallen to such low levels in recent weeks.

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The Rise of China, the Decline of Japan

From this item the other day at the Wall Street Journal’s Real Time Economics blog comes the graphic below from a recent IMF study that shows how the rest of Asia has become increasingly dependent upon China, rather than Japan, for exports.

In cases such as Australia and New Zealand, the change is profound.

Of course, since some of these are large percent changes from a small base such as in the Philippines, the data can be a bit misleading, however when countries like Taiwan reduce their exports to Japan by two-thirds while quadrupling their exports to China, that’s huge.

It’s no wonder that China feels the need to flex its muscles from time to time and you can’t help but wonder how things will work out in Japan over the long run, given their dramatic rise, fall, and then stagnation over the last four or five decades.

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All the Gold in China

This chart depicting the dramatic rise in China gold demand from Sharelynx appears to be making the rounds this morning and it really is stunning. Note that the 2013 demand total of nearly 1,600 tonnes shown below is considerably higher than the World Gold Council figure, but also considerably lower than some of the more bullish estimates.

Granted, most U.S. investors could care less about this sort of thing, that is, so long as share prices for such companies as Tesla and Facebook continue to rise.

But, others around the world have noticed the sharp increase in gold demand from the Middle Kingdom and the possible (actually, pretty likely) future impact on prices, the latest example being China ‘has more gold than official figures show’ in today’s Telegraph.

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