Japan's Future

This past quarter Japan's economy grew at an annualized pace of 5.5%. That is over double the U.S.' 2.2%. A large part of the higher than anticipated growth is said to be due to a strong increase in capital spending. Tech companies such as Tokyo Electron Ltd. and Canon Inc., are planning to build new factories this year. This will result in continued high numbers of GDP growth. Also, consumer spending has been strong as well.

So what does this all mean for the global economy? Well, a group of Japanese economists have set a desired goal for short term lending rates at 2%. That's 4x the current .50%. Let's talk about some of the politics of this whole thing. The most recent GDP growth statistic that came out was 5.5%. Inflation was a measly .1%. Side note: Last year the central bank of Japan (BoJ), took a page out of Clinton's book and their official CPI slid .50%. There inflation is definitely low, but not .1% low. After the Asian Crisis, deflation is still fresh on the minds of the Japanese. Higher short term interest rates means lower inflation and a stronger Yen. Their GDP numbers cry for an interest rate hike, while their CPI says no way.

For Japan to be economically respectable at all, they have to have higher interest rates. But, I promise you that the main worry, more important than the above mentioned, is the Yen carry trade. Higher interest rates will result in a ton of liquidity being ripped from the market. I mean, you saw what happened after the 25 point hike from .25% to .5%. So the same folks who decided to tamper with the Japanese CPI in order to prevent an interest rate hike, are very worried about the next 6 months in the Japanese economy. This will be very interesting to watch, but there is at least 1 or 2 rate hikes to be expected by the BoJ this year. Stay tuned, because right now this is the biggest story in global economics.

Baby Steps

China has announced that it is in the process of setting up a government controlled agency to manage its $1.07 trillion USD of forex reserves. Lou Jiwei flat out said that the majority of their reserves are in USD denominated assets, and they are losing money on the investments as the Yuan gains in value. In other words, they don't want USDs any more. As they use these USDs to buy other assets, the value of the dollar will begin to decline sharply. They have stated that some of their investments will go to overseas technology companies, oil fields, and mining companies. I wrote about these speculations a long time ago. I believe the post was titled, "If You Don't Believe me, Believe China." Once again, China is making investments in uranium, precious metals, base metals, and oil. I will look to add my holdings in Chinese mining companies, because I believe that as they increase their forex holdings of gold, they will get as much as they can domestically. The initial amount that the new investment fund will handle is $200 billion USDs worth.

China holds roughly 70% of its reserves in USD and in 2006, they experienced a $3.4 billion USD loss in exchange rates. With the Federal Reserve reaching for the trigger on interest rate cuts, their losses on exchange rates will be much more significant if they continue to hold USD. Can we say "snowball effect." You betchya. That's "you bet" in the native tounge of Minnesotans if you didn't know. By the way it's a wonderful 40+ degrees here in Minneapolis today. You gotta love it.

More Than...Less Than...

Well I guess if I'm going to do the "More Than...Less Than..." I have to report both sides of the story. For the first time in a long time it looks like the "economists" were overly pessimistic. I'm shocked. A Bloomberg head line reads:

"Jobless rates in U.S. unexpectedly drops; countering slowdown speculations."

The jobless rate fell 4.5%, approaching a 5-year low. The study also showed that average weekly earnings rose, and even the trade deficit even narrowed. I'm not taking this one in stride though, I think something is up here. I found some numbers for this statistic and it shows there was a 39,000 increase in government jobs while private jobs only increased by 58,000. That is the lowest increase in private employment since October 2005. Manufacturing actually cut jobs by 14,000. The study also showed that 190,000 people have left the labor force, which helps explain the drop in unemployment. If I had to guess, I would bet that the monetary base, or money supply, has got the printing presses running on overdrive. I do make a personal guarantee: The longer that the Feds/Politicians, try and keep this economic mess "looking good," the worse this whole thing will be when it breaks down...much worse.

Let's look at the trade deficit for a second. It 3.8% from $61.5 billion to $59.1 billion. That's a monthly statistic, which means that our trade deficit falls short $197 million short EVERY DAY. That speaks for itself.

This whole thing smells fishy to me, and let me tell you why. I watch CNBC's "Closing Bell," and "Kudlow & Company" every day. Larry Kudlow is the single most economically optimistic person I have ever seen. The guy has never once acknowledged that anything is wrong in the economy. He remains amazingly bullish on the stock market and expects GDP growth to return above 3% anytime now. What I'm getting at, is that even Larry freckin Kudlow expected an ugly number to come from this report. Like I said, the whole thing smells fishy to me but I have to look into it further and I will give an updated report on the situation.

I know this post is really all over the place but I would like to talk about one more thing. It's looking more and more likely that the Feds will be cutting interest rates AT LEAST once in 2007. Now all of the Phd. economists working at the Federal Reserve know the implications this will have on the USD. They will wait until the very last minute to do cut rates. I believe that they are firmly setting the table to be able to do this and here's why:

Inflation is out there and running wild. It may not seem like anything crazy in the CPI, but wait another year or so. It's there and it can only be contained for so long. Two days ago, Bernanke spoke at Stanford University. Try not to laugh, but he said that the CPI OVERSTATED true inflation levels. Yeah, right, whatever you say Mr. Chairman. Anyways, he has to convince the public that inflation is not a dire problem in order to justify a rate cut. So you can see how he's setting the pins up to knock them right back down.

Like I said, expect a rate cut this summer, probably late summer, and another cut towards the end of the calendar year in 2007. When this happens the dollar will decline and gold will rise. Both actions will be sharp.

More Than...Less Than...

"U.S. retail February sales trail estimates on weather."

It was a cold February, but what this really says is that consumer spending is declining. The statistic his an 11 month low which makes me actually believe that the weather might have had to do something with the statistic. Knowing this, they still over estimated the amount of sales. Once again this will not bode well for GDP growth as retail sales and consumer spending continue to decline.

Despite the news, the market is up triple digits this mourning. I wouldn't be surprised if they gave it all back tomorrow when the unemployment numbers come out.

More Than...Less Than...

A Bloomberg head line states, "U.S. added 57,000 jobs in January, fewer than estimated, ADP survey says."

I'm sure you, the reader, like myself, wonder what the number 57,000 really means. Well, it's the lowest number since July 2003. It is also less than half the amount of the 121,000 jobs created in January.

The survey said that companies were putting off hiring new workers in preparation for an economic slow down. The largest declines were seen in residential housing and manufacturing. Data continues to come out showing the decline in the strength of the labor sector. I believe this Friday's unemployment statistic will be significant displaying further weakness in the labor market.

A decrease in new jobs will effect consumer spending. Consumer spending and the war efforts are the two items keeping GDP growth positive. A weakening in labor statistics will carry weight in the consumer markets which make up 70% of GDP.

Denison Mines Update

Denison Mines Corp., has signed an agreement with Pathfinder Mines Corp., a subsidiary of AREVA, to aquire 5 uranium deposits in the Arizona Strip for $5.5 million USD and a 1% royalty.

The historical resource estimates at the Pathfinder deposits total 1.3 million tons of an average grade .28% U3O8, containing an estimated 1.3 million pounds of U3O8 according to Denison.

The deposits are reasonably close to Denison's White Mesa Mill near its Arizona Strip mines. This should really step up production in this area. Consolidation continues and I love Denison and SXR as time goes on.

More Than...Less Than...

I know I just started this series, and I don't want to beat it to death, but it's a big day for the miscalculations of key economic data.

"New orders at U.S. factories tumbled by a greater-than-expected 5.6%."

That is the biggest decline in over 6 years. The Commerce Department said some of the drop was due to less orders for airplanes.

"Pending sales of existing U.S. homes fell a sharper-than-expected 4.1% in January." That's a surprise...yeah right.

Side note: It seems that a combination of rather disturbing economic data combined with continued talks of recession by Greenspan have not affected the market as it is up somewhere between 80-90 points as I am writing this post.