One Load Gone

One heavy load the market faces is the price of oil which, to my surprise, no longer helps people when it falls, perhaps because the US is now a swing producer. Back when I worked for the Senate Foreign Relations Committee, my boss, Sen. Clifford Case (R-NJ) said the only way we could get out of the clutches of OPEC is if we stopped importing oil. Now we really have cut back thanks to shale, alternative fuel, and cars consuming less gasoline.

OPEC is reportedly working on a deal to cut oil output between some of its members and non-members like Russia. The mere hint of this, reported by CNBC boosted the price of oil to over $32 per barrel. The Iraqis appear to be the intermediary between fellow-Shiites of Iran and fellow-Arabs of the Gulf and Saudi Arabia.

Crude oil rose 6.1% in Europe and, 5.8% here. That's one overhang on the markets gone, if this pans out.

The other one is China, more difficult. China is unlikely to listen to the message from the governor of the Japanese central bank. But with Shanghai stocks falling 6.4% and Shenzhen ones falling 7.1%, Haruhiko Kuroda has a point. He advised China that it might do better by re-imposing exchange controls.

The Beijing regime is in a quandary. China wants to become an international currency player, and got the renminbi recognized as a global currency by the International Monetary Fund. Yet its dire economic situation requires that the government keep interest rates low and exchange rates high without capital controls. This amounts to what economists call “an impossible trinity”. Monetary policy can only achieve two of the three goals at any time.

The main reason for the drop in China stocks was news from Bloomberg that the mainland recorded $1.94 bn of December exports to Hong Kong for every dollar of imports HK registered. Some $22.3 bn went missing out of $46 bn of shipments supposedly made to Hong Kong. This bleeding of Chinese reserves backed the opinion of George Soros that Chinese banks will fail and led to the market falls.

Soros said that China was “a root cause” of “a global bear market” on Bloomberg TV from Davos. He added that “the Chinese left it too long to address the changeover in the growth model that have to adapt from—investment- and export-led to domestic-led. “A hard landing is practically unavoidable.”

Back in 1992 Soros made his fortune by successfully betting that the Bank of England could not keep the pound sterling pegged to the precursor of the euro, by shorting the pound with every penny he could raise.

Soros was then rebutted on Bloomberg TV by analyst David Goldman who called Chinese bank stocks “very attractive” at 4x earnings.

Goldman is head of Americas for Hong Kong's ReOrient Group and predicted Mr Soros would hit “a hard landing”. One of our Asia hand readers who knows ReOrient sent me the tape in which Goldman quotes Uwe Henke von Parpart, ReOrient's head of research.

Both Goldman and von Parpart were part of the Lyndon LaRouche movement formerly run from right next door to this office. Both then wrote for AsiaTimes, a website, Goldman as “Spengler”.

Having met Soros I think he is less intellectual than he claims but very rich and smart over currency trading. Two decades ago at a Brooklyn dinner party, I sat on one side of him while Alexandra, the wife of Harvard professor Arthur M. Schlesinger jr, (he has since died) was showing up Soros's lack of knowledge of economic history. We two Radcliffe women rather overwhelmed the former student at London School of Economics.

Today Goldman and Parpart have a new ally as the People's Daily warned that “Soros's war on the renminbi and the Hong Kong dollar cannot possible succeed—about this there can be no doubt.” A couple of hours after attacking Soros, the head of China's statistics bureau, Wang Baoan, was arrested for corruption.