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REMINDER: All investment, economics, and finance related material now appears at the new IaconoResearch.com. For the time being at least, this has become a personal blog covering a variety of mostly unrelated topics.

The High Price of Failure in North Korea

On March 18, 2010, in Currencies, WTF?, by Tim

The Guardian reports that there’s more than just career risk when you fail at monetary reform in North Korea – you could lose your life, as Pak Nam-gi apparently just did.

North Korea has executed a senior official blamed for currency reforms that damaged the already ailing economy and potentially affected the succession, a news agency in South Korea reported today.

Pak Nam-gi was killed by firing squad last week, said Yonhap, citing multiple sources. The Workers party chief for planning and the economy had not been seen in public since January.

The 77-year-old was put to death as “a son of a bourgeois conspiring to infiltrate the ranks of revolutionaries to destroy the national economy”, the agency said.

But it reported that many North Koreans did not believe the explanation, citing one source who said: “The mood is the leadership has made Pak Nam-gi a scapegoat.”

If you’re not familiar with the story, you might be interested to know that North Korea introduced a new local currency a while back that could be exchanged for the old currency at 1-to-100 in an attempt to control inflation and drive out foreign currencies that were thriving on a very active black market.

Like most such attempts, this move did not produce the desired results – prices soared, hoarding increased, people starved – and, in the process, it wiped out the meager savings of many citizens while benefiting state workers who were paid in the new currency.

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The Mysterious CPI Shelter Component

On March 18, 2010, in Economy, by Tim

Well, it looks like whatever it was that was going on last month within the shelter category of the Labor Department’s consumer price data is now back to normal in this month’s report. As shown below, after considering the respective component weightings, the total seems to make sense in February (in green) versus the oddity that was January (in red).

Recall that, about a month ago in A math problem at the Labor Department? this question of addition was raised after the -0.5 percent decline in shelter costs caused the widely publicized first negative reading on month-to-month core inflation in many, many years.
IMAGE What looks to be an obvious error was attributed to seasonal adjustment. That is, after the weightings (in blue) are adjusted for seasonal factors they somehow allow the lodging away from home component to greatly impact the shelter total.

All else being equal, you’d have to increase the lodging away from home weighting by a factor of ten to get the overall shelter total as reported in January. Do that many more people travel in January than during other months of the year?

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Zero Inflation in February

On March 18, 2010, in Economy, by Tim

The Labor Department reported zero inflation for the month of February as rising prices for medical care and education were offset by sharply lower costs for energy and apparel. This comes after a 0.2 percent increase in January and marks the eleventh straight month that the price index did not drop after a series of steep declines beginning in late-2008.
IMAGE On a year-over-year basis, the overall consumer price index was up 2.2 percent following an annual gain of 2.7 percent the month before, however, we may not have seen the last of rising annual inflation as recently higher gasoline prices are not reflected in the most recent data.

(more…)

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Complaining About Inflation in China

On March 16, 2010, in Asia, by Tim

While it’s sometimes hard to believe any of the economic data coming from the Chinese government, the recent reports on consumer prices might be a little more suspect than other data given that complaints about inflation are rising sharply.

The Telegraph reports on the unease that the 2009 credit creation binge and rapid money supply growth are producing here in 2010 as consumers notice prices rising around them.

A record number of Chinese have complained that inflation is at an “unacceptable” level, as the Communist party warned that its very future depends on tackling rising prices.

In its latest quarterly survey, the People’s Bank of China (PBOC), the country’s central bank, said that 51pc of respondents were unhappy about inflation, the highest proportion since the survey began in 1999.

In February, China’s consumer prices rose by 2.7pc year-on-year, up from a 1.5pc rise in January. The government has set a 3pc target for inflation this year, but some analysts have said the true inflation rate is already far higher, after an enormous increase in money supply last year.

In February, Chinese broad money rose by 25.5pc, well ahead of the government’s 17pc target for the year.

In developing economies like China, food prices have a much bigger weight in the inflation statistics than here in the West and, apparently, that’s becoming a problem as was seen back in 2007-2008. What’s surprising to hear today is that complaints are higher than they were back then. Recall that there were price controls and hoarding in a number of countries for such staples as rice and, now, price controls for pork in China are set to begin anew.

A year or so removed from the worst economic crisis since the Great Depression, it looks like China is going to blaze the trail into the uncharted territory that will likely dominate much of this decade – rising inflation due to money creation on a scale that the world has never seen.

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Rising Inflation and House Prices in China

On March 11, 2010, in Asia, Economy, Housing, by Tim

China Daily reports that consumer prices rose to a 16-month high in February, up 2.7 percent from a year ago, while producer prices are now rising at a 5.4 percent annual rate. This follows reports yesterday that, despite recent efforts to cool their housing market, property values saw year-over-year gains of 10.7 percent last month.
IMAGE Food prices rose more than six percent from year ago levels and, while some economists say inflation will cool in the months ahead due to more favorable annual comparison, it should be clear that some of the recent $1+ trillion in government sponsored credit creation is now starting to show up in the prices of things other than housing and copper.

It doesn’t look as though this is helping the housing market cool off:

Facing ever-rising housing prices in China, only 18 percent of mothers told a recent survey they were willing to let their daughters marry men who only rent their homes.

Apparently, in a country where the male-to-female ratio is already higher than normal due to the “one child policy”, men are at a distinct disadvantage with their potential mother-in-law if they are not already, or soon-to-be, homeowners.

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Dr. Doom and Deputy Doom at CNBC.com

On March 10, 2010, in Economy, by Tim

CNBC has two stories out this morning that should scare the bejeebers out of investors, but, the ongoing rally seems indefatigable as of late. Dr. Doom notes in this report that the odds of a double-dip recession were 20 percent before the recent spate of negative economic data.

Poor economic data in the US coupled with Europe’s debt crisis are contributing to an increase of the risk of the US economy going through a double-dip recession, Nouriel Roubini, who predicted the 2007 financial crisis, wrote in a research paper.
…
The Roubini Global Economics benchmark scenario puts the risk of a double dip at 20 percent, while a slow, protracted, U-shaped recovery is given the highest probability of 60 percent.

But since the end of February new macroeconomic data from the US have come out and “they have been almost uniformly poor, if not outright awful,” Roubini wrote.

Consumer confidence has “tanked”, new home sales are “collapsing,” existing home sales are also falling sharply, as is construction activity, while initial jobless claims remain “stubbornly high” above the 400,000 mark, he said.

Roubini was unimpressed by the 5.9 percent growth rate for the economy in the fourth quarter as it was largely an inventory rebuilding surge and it came at a time when the maximum impact of the government stimulus was being felt.

(more…)

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