Looking back at 2007
Milestones reached in 2007
The pound traded through two for the first time since September 1992. Its November highs – 2.11 — hadn’t been seen since the early 80s.
The Loonie breaks the buck – and stays there through the end of the year.
China adds over $250b to its reserves in half a year
Russia adds over $150b to its reserves in a year – and rapidly approaches half a trillion in reserves. Not bad for a country than ran out of cash in 1998, when its reserves were less than its debts to the IMF (data in SDR).
China adds $400b to its reserves for the year — barring a $100b check to the CIC in December. Reserves were up $389b through October – even with a $40b increase in the foreign currency balance sheet of the state banks in the first ten months of the year and the transfer of around $27b to the CIC in September and October.
Saudi real interest rates turn negative, joining most of the rest of the Gulf.
The world’s central banks add over $1,000b to their reserves. The final data isn’t yet out, but this one is as much in the bag as the New England Patriot’s perfect regular season.
Milestones almost reached
$100 for a barrel of oil. That had to wait until the second day of 2008.
$100b in reserve growth for India. With a week to go, reserves are up $95.47b ($93.75b excluding gold). But to be honest, a lot of that increase reflects the increase in the dollar value of India’s large holdings of euros and pounds. On a flow basis, India is only at around $85b for the year …
$100b in reserve growth for Brazil. Brazil looks to be topping out at about $95b for the year. Not bad for a country that started the year with $86b in the bank.
$1.5 trillion in Chinese reserves (only a bit over a year after reaching a trillion). The only thing that kept China from reaching this milestone in 2007 is the (likely) transfer of around $100b to the CIC in December.
Hidden milestones
GCC countries combine to add over $100b to their central bank reserves (and non-reserve central bank assets)*
A record number of private jet flights from New York to the Gulf …
*likely, but we don’t yet know because the UAE hasn’t released reserves data for q3, let alone q4 … and we don’t yet have data from SAMA for November and December.
US Economic Slowdown hits Singapore’s Economy
http://www.bloomberg.com/apps/news?pid=20601080&refer=asia&sid=a966tG6OHWGo
Jan. 2 (Bloomberg) — Singapore’s economy unexpectedly contracted for the first time in 4 1/2 years as factory output slowed, suggesting Asia’s export-dependent markets may face increased risks from weaker global growth.
Gross domestic product shrank an annualized 3.2 percent last quarter after adjusting for inflation, from a revised 4.4 percent expansion in the previous three-month period, the trade ministry said today. Economists had expected a 3.1 percent gain.
Singapore is first in Asia this year to report fourth- quarter figures, giving analysts an insight into how turmoil in global markets and the subprime-mortgage crisis in the U.S., the region’s biggest export destination, may affect Asian economic expansion. South Korea and Taiwan have already warned easing demand for semiconductors, mobile phones and computers portends weaker growth in 2008.
When you look back at 2007, the GDP and GNI PER CAPITA amounts for about 15 countries passed those for the USA. Imagine that- Netherlands, Sweeden, Austria and several others now have higher Gross National Income PER CAPITA than the USA.
What an achievement for the Bush Administration- take the USA from #1 down to #15, and at the same time burden the USA with high debts and deficits. And, those other countires have national health care systems.
The numbers come from the UN, WTO, IMF tables for 2006. The numbers are converted to $US at the current (2007-12-31) exchange rates rather than at the average exchange rate in 2006.
If anyone is interested, I would be glad to send an Excel spreadsheet.
Stepehen
England’s “Housing Bubble” Economy also hitting the Brick Wall
http://news.independent.co.uk/uk/this_britain/article3300968.ece
Debt experts are predicting a record number of personal insolvencies this year as excessive Christmas shopping, rising mortgage payments and soaring food and fuel costs force thousands of people over the financial edge and into bankruptcy.
More than nine million individuals in Britain are now believed to be struggling to pay credit card bills and mortgages, with the average owed by problem debtors hitting £30,000.
In alarming figures to be released tomorrow, the accountancy firm Grant Thornton predicts the total number of personal insolvencies will jump to at least 120,000 this year, almost triple the equivalent figure in 2004, when just under 47,000 people went bankrupt.
The latest figures indicate that 23 per cent of people - 9.5 million adults - were finding their current level of debt “unmanageable”. Although the Bank of England cut the base rate of interest last month, an estimated 1.4 million people will still have to pay more for their home loans when their fixed-rate deals come to an end this year, costing an extra £150 to £250 a month.
Tomorrow, Grant Thornton will forecast that 10,000 individuals will hit the financial wall each month in 2008, with 28,000 individuals sliding into insolvency in the first quarter. As many as one third of bankruptcies in the first three months of the year will be caused by “excessive Christmas spending”.
Good summary, but it ignores key variables from the physical world that very likely will become more and more important as time passes. So I’ll offer a few of them.
For crude oil, the 2007 milestone could best be described as “the third straight year of practically stagnant supply in the face of higher demand (and prices).”
This comes from both EIA data at http://www.eia.doe.gov/emeu/steo/pub/contents.html (table 3a) and IEA data at http://omrpublic.iea.org/currentissues/full.pdf .
World oil production
year 2005 2006 2007 2008
EIA 84.6 84.6 84.9 87.4 (wishful thinking?)
IEA 84.6 85.4 85.5
World oil consumption
year 2005 2006 2007 2008
EIA 83.6 84.7 85.8 87.2
IEA 83.9 84.7 85.7 87.8
Clearly 2008 will be “interesting times” in the Chinese sense for the oil market, since, for both the EIA and the IEA, projected 2008 global demand will be 2.3 Mpbd higher than 2007 global supply. So, either world oil production experiences a “surge” in 2008 (do you feel lucky?), or a good recession is allowed to take place in the OECD, or the oil price will surge deep into the triple digits in 2008 (and not only in dollars).
For food, the 2007 milestone is best described by the FAO in their November 2007 Food Outlook at http://www.fao.org/docrep/010/ah876e/ah876e00.htm
“The FAO food price index … in September 2007 … stood at 172 points, representing a year-on-year jump in value of roughly 37 percent. The surge in prices has been led primarily by dairy and grains, but prices of other commodities, with the exception of sugar, have also increased significantly.
… What distinguishes the current state of agricultural markets is rather the concurrence of the hike in world prices of, not just a selected few, but of nearly all, major food and feed commodities. As has become evident in recent months, high international prices for food crops such as grains continue to ripple through the food value/supply chain, contributing to a rise in retail prices of such basic foods as bread or pasta, meat and milk. Rarely has the world felt such a widespread and commonly shared concern about food price inflation, a fear which is fuelling debates about the future direction of agricultural commodity prices in importing as well as exporting countries, be they rich or poor.”
And the linked Market summaries page (…/ah876e01.htm) adds, for cereals:
“For most cereals, supplies are much tighter than in recent years while demand is rising for food as well as feed and industrial use. Stocks, which were already low at the start of the season, are likely to remain equally low because global cereal production may only be sufficient to meet expected world utilization. International prices of cereal have risen, fuelling domestic food price inflation in many parts of the world. Trade is expected to contract because of high and volatile prices, coupled with soaring freight rates.”
Therefore, price action for wheat, rice and soybeans as well as the evolution of global cereal stocks look like important milestones to include.
Particularly since, from the latest FAO communique at http://www.fao.org/newsroom/en/news/2007/1000733/index.html
“FAO is urging governments and the international community to implement immediate measures in support of poor countries hit hard by dramatic food price increases. Currently 37 countries worldwide are facing food crises due to conflict and disasters. In addition, food security is being adversely affected by unprecedented price hikes for basic food, driven by historically low food stocks, droughts and floods linked to climate change, high oil prices and growing demand for bio-fuels. High international cereal prices have already sparked food riots in several countries. “
real think — thanks
the oil production numbers are interesting, and i should have mentioned the rise in food prices.
Brad, actually the two issues are (and will be more and more) linked through biofuels. Knowing human nature, I’m fairly pessimistic about how things will evolve. I’ve detailed my view on Nouriel’s blog, post http://www.rgemonitor.com/blog/roubini/233543/ , entry “RealThink on 2007-12-20 08:50:54″.
Thus, just as the realistic prospects for fuel prices render further suburban and exurban construction unwise, so do the realistic prospects for food prices to further population growth. Unfortunately, this topic is the “third rail” of world politics, as commented in http://resourceinsights.blogspot.com/2007/12/third-rail-of-world-politics.html . (BTW, I’m not Kurt Cobb and I am strongly pro-life.) Along this line, I’d say that your employment for the CFR would probably turn even your mentioning of this topic into food for conspiracy theorists.
Underpinning my views in previous posts, here comes this Financial Times news item:
http://www.ft.com/cms/s/0/71243198-ba26-11dc-abcb-0000779fd2ac.html
Grains lifted to highs as oil surges
By Chris Flood in London
Published: January 3 2008 18:25 | Last updated: January 3 2008 18:25
Agricultural commodities rose to multi-year highs Thursday following crude oil’s surge to $100 a barrel as traders anticipated higher demand from the expanding global biofuels industry.
In Chicago, wheat jumped 16 cents to $9.31 a bushel, 59 cents below its all-time high, while soyabeans rose to $12.38, a fresh 34-year high, and corn traded within touching distance of its recent 11-year high.
In Paris, rapeseed prices rose to record levels, up 1.5 per cent to €444.75 a tonne, while Malaysian palm oil futures also hit a record $961 a tonne Thursday.
As grains and oil seeds are key feedstuffs for biofuels, the oil price rise has exerted a huge push on agricultural commodities, which enjoyed their best returns for almost 30 years in 2007. The S&P GSCI agricultural commodities index returned 31 per cent last year, its best performance since 1981.
Support is also coming from population growth and demand for animal feed.
“This combination of food, feed and fuel demand for crops has created an upward shift in the trend demand growth for agriculture products,” said Jeffrey Currie, head of commodities research at Goldman Sachs.
He said global biofuel demand could increase from 10bn gallons a year in 2005 to 25bn gallons annually by 2010, an annualised growth rate of 20 per cent.
Extreme weather events and drought have hit harvests and exporting countries, such as Russia and Ukraine, have imposed export tariffs to ensure their domestic supply base remains secure. Key consuming countries, such as India and Egypt, have been scrambling to secure supplies, ensuring that overseas demand for US wheat and corn is running at near-record levels.
As a result of supply disappointments and rising demand, stocks have fallen to historic lows in many agricultural markets, leaving prices very susceptible to upward price shocks.
Many analysts believe the rally for agricultural commodities is only just beginning.
“In inflation-adjusted terms, prices for agricultural commodities today are still significantly below their real highs, so their valuations remain very attractive,” said Michael Lewis, head of commodities research at Deutsche Bank. “We believe the rally for agricultural prices is still only in its infancy.”