Chinese debt has risen by 200% in the last 5 years

The RBA, unexpectedly, kept interest rates on hold at 4.25%. The decision was even more surprising, given the accompanying statement – namely a weaker Europe, slowing China etc, etc, though (in defence of their decision) they highlighted the better US economic data and high commodity prices. Personally, I believe this is merely a pause before further easing, quite possibly as early as next month. The surprise decision resulted in Australian equity markets declining, though the A$ rose above US$1.08. Still believe its crazy. Fortunately, I did not act on my view to short the A$, but it’s getting to be one of my top prospective plays in the near future – hopefully the A$ will rise to closer to US$1.10;

Japan’s Coincident Composite Index (which reflects current conditions) rose by +2.9 points to 93.2 in December (forecast was for a rise of +2.4 points). The CCI dropped by -1.1 points in November. The leading Composite Index (reflecting expectations 3 months ahead) rose by +0.6 points to 94.3 MoM. Better numbers and Japanese authorities are talking of a turnaround. Hmmmm;

The Chinese Ministry of Industry reports that industrial output is expected to decline this Q. Output is expected to rise by +11.0% this year, below last years +13.9%.

Whilst analysts still write about China’s financial strength, the IMF warns that China has already pushed debt levels (which have increased by 200% in 5 years – a larger rise than in the US during the sub prime crisis) above safe levels. The IMF is proposing that the Chinese authorities introduce stimulus measures.

Just 1 piece of anecdotal evidence – some 3 years ago, when I first started to question the validity of the Chinese “economic miracle”, I received numerous comments from Chinese “experts” telling me that I was NUTS. At present, I get few, if any, such comments. Just saying;

The Indian Government has reduced its forecast for the year to March this year to +6.9%, sharply down from the +8.4% recorded last year – the lowest growth since 2009. The RBI is expected to reduce interest rates further, though inflation at +7.47% in December remains high;

Russian inflation declined to +4.2% last month, well below December’s +6.1%, reports the Federal Statistical Service (“FSS”) – by the way, the FSS is controlled by the Russian Ministry of Economy. Presidential elections are due in a few months.

A very clued up friend of mine, based in Moscow, advises me that I should treat comments by Mr Gideon Rachman’s of the FT re Russia with a pinch of salt – apparently Mr Rachman’s views does not reflect the actual situation in Russia. Let me say, my friend is particularly well plugged in and, as a result, I take his views seriously;

The British retail consortium reported that UK January retail sales (for shops open for at least 1 year) declined by -0.3%. Times are tough, but other recent economic data has been positive;

EPFR reports that inflows into EM has risen significantly since the start of the year – by +US$3.5bn for the week ended 1st February and a total of US$11.5bn since the beginning of the year. Fund flows into EM bonds rose by US$1.2bn last week, the highest since March last year. EM’s have been the star performers in 2012 – too much, too soon in my humble opinion – still believe they may well be a shorting opportunity shortly;

Euro seems to have picked up on hopes of a resolution re Greece – currently US$1.3145. Well, I suppose the Euro will recover if the Greek’s agree to the Euro Zone demands, but I for one, am not buying into it – indeed, look to raise my short (against the US$).

Glencore is paying a 15% premium to buy out the rest of Xstrata – does not seem to be too generous. Call me a cynic, but I’ve always believed you invest in the company where the main guy(s) own shares – wow, that’s Glencore – up nearly 2.0%, though Xstrata is down over 2.0%. I would guess that Xstrata shareholders are likely to object to the proposed terms.

European markets flat – I must admit, I’d thought that they would be higher. US futures indicate a flat open, but way, way too early. Brent still around US$115.50.

Was preparing this for tomorrow, but too much alredy so I thought I’d send it out.

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