You are here
Ambrose Evans-Pritchard: America no longer needs Chinese money, for now
By Ambrose Evans-Pritchard
The Telegraph, London
Monday, August 23, 2010
http://www.telegraph.co.uk/finance/comment/7958823/America-no-longer-nee...
As the Sino-American showdown in the South China and Yellow seas escalates into the gravest superpower clash since the Cold War, the United States cannot wisely rely on China to help fund its budget deficit for any longer.
The cacophony of voices in Beijing questioning or mocking the credit-worthiness of the US is now deafening, from premier Wen Jiabao on down. The results are in any case manifest: US Treasury data show that China has cut its holdings of Treasury debt by roughly $100 billion (L65 billion) over the past year to $844 billion.
ZeroHedge reports that net purchases by the big three of China, Japan, and the UK (Mid-East petro-dollars) have been sliding for two years. In August they bought the least amount of US debt this year.
... Dispatch continues below ...
Prophecy to Become Coal Producer This Year
with 1.5 Billion Tonnes of Resource
Prophecy Resource Corp. (TSX.V: PCY) announced on May 11 that it has entered into a mine services agreement with Leighton Asia Ltd. to begin coal production this year. Production will begin with a 250,000-tonne starter pit as planned in August, with production advancing to 2 million tonnes per year in 2011. Prophecy is fully funded to production and its management team includes John Morganti, Arnold Armstrong, and Rob McEwen.
For Prophecy's complete press release about its production plans, please visit:
http://www.prophecyresource.com/news_2010_may11.php
China is finding other ways to recycle its trade surplus and hold down its currency, buying record amounts of Japanese, Korean, Thai, and no doubt Latin American bonds. "Diversification should be the basic principle," said Yu Yongding, an ex-adviser to the Chinese central bank.
Beijing is buying gold on the dips, or doing so quietly through purchases of scrap ores, or by deals with miners such as Coeur d'Alene in Alaska.
It is building strategic reserves of oil and coal, and probably industrial metals. State entities are buying up natural gas reserves in Africa and Central Asia, or oil sands in Canada, or timber in Guyana. Where this expansion runs into political barriers, they are funding projects -- such as a $10 billion loan to Petrobras for the deep-water oil off Brazil. Where all else fails, they are buying equities. All of this recyles China's reserve surplus away from US debt.
So it is a good thing that US citizens have stepped into the breach, investing a record $185 billion into bonds funds this year (ICI data). JP Morgan describes this as "extraordinary prejudice," evidence of irrational fear.
Or perhaps JP Morgan has an extraordinary prejudice against bonds, arguably the shrewdest asset in a world where fiscal stimulus is being withdrawn before the rest of the economy has reached "escape velocity." The inventory cycle is ebbing, manufacturing has tipped over, the workforce is still shrinking, and the economy is sliding into a deflationary rut. Above all, bond appetite reflects what David Rosenberg at Gluskin Sheff calls the new frugality. Americans are saving again. Surplus nations are in for a nasty shock if they hope to feed off US demand as if nothing had changed.
Yet bond yields have fallen to nose-bleed levels. Ten-year rates are at an all-time low of 2.27 in Germany, and back to 0.92 percent in Japan's deflation laboratory. They have slid to 2.6 percent in the US.
When yields plumbed these depths over the winter of 2008-2009, latecomers burned their fingers badly. Ten-year Treasury yields doubled in five months as the effects of zero Fed rates, quantitative easing, and $2 trillion of fiscal stimulus worldwide halted the downward spiral.
This time yields may stay low for longer. Fiscal and interest rate ammo has been exhausted, though not quantitative easing. I have little doubt that central banks can lift the West out of debt deflation if needed with genuine QE -- not Ben Bernanke's Black Box "creditism" or Japan's fringe dabbling. Whether they have the nerve or the ideological willingness to do so is another matter.
Does that mean bond yields must keep falling to unimaginable lows, as they have in Japan for twenty years? Perhaps, but Japan is sui generis (captive bond market, vast foreign assets, demographic atrophy), and the world has moved on.
As Moody's said this week, the Great Recession has made sovereign debt suspect. "The burden of proof now falls on governments." Events have "fast-forwarded history," ripping away the 20-year cushion we counted on before the "adverse debt dynamics" of our aging crisis hits home.
Two epochal forces are colliding in the global bond market: core deflation is gathering force but the West is losing sovereign credibility just as fast.
Arch-bear Albert Edwards at Societe Generale advises clients to prepare for a violent policy swing from one extreme to the other. First we deflate into the abyss: Then we inflate hard rates to get out again. At some point the "euthanasia of the rentier" will wear off. Misjudge the sequence at your peril.
* * *
Join GATA here:
Toronto Resource Investment Conference
Saturday-Sunday, September 25-26, 2010
Metro Toronto Convention Center, Toronto, Ontario, Canada
http://www.cambridgeconferences.com/index.php/toronto-resource-investmen...
The Silver Summit
Thursday-Friday, October 21-22, 2010
Davenport Hotel, Spokane, Washington
http://www.silversummit.com/
New Orleans Investment Conference
Wednesday-Saturday, October 27-30, 2010
Hilton New Orleans Riverside Hotel
http://www.neworleansconference.com/redirect.php?page=index.html&source_...
* * *
Support GATA by purchasing a colorful GATA T-shirt:
Or a colorful poster of GATA's full-page ad in The Wall Street Journal on January 31, 2009:
http://gata.org/node/wallstreetjournal
Or a video disc of GATA's 2005 Gold Rush 21 conference in the Yukon:
* * *
Help keep GATA going
GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at:
To contribute to GATA, please visit:
http://www.gata.org/node/16
Sona Resources Expects Positive Cash Flow from Blackdome,
Plans Aggressive Exploration of Elizabeth Gold Property
On May 18, 2010, Sona Resources Corp. (TSXV: SYS, Frankfurt: QS7) announced the release of a preliminary economic assessment for gold production at its flagship Blackdome and Elizabeth properties in British Columbia.
Sona Executive Chairman Nick Ferris says: "We view this as a baseline scenario for gold production. The project is highly sensitive to the price of gold. A conservative valuation of gold at $1,093 per ounce would result in a pre-tax cash flow of $54 million. The assessment indicates that underground mining at the two sites would recover 183,600 ounces of gold and 62,500 ounces of silver. Permitting and infrastructure are already in place for processing ore at the Blackdome mill, with a 200-tonne per day throughput over an eight-year mine life. Our near-term goal is to continue aggressive exploration at Elizabeth and develop a million-plus-ounce gold resource, commencing production in 2013."
For complete information on Sona Resources Corp. please visit: www.SonaResources.com
