Government Waste

by Pivotfarm

Waste is a many splendid thing that in all circumstances we attempt to reduce and get rid of, shunning it like a pariah. Well, perhaps almost all circumstances. There are times when waste is just the by-word for government these days. But, are we all equal in the quantity of waste that is generated in our countries’ governments?

China

Let’s take a look at China which seems to be the place that is cracking down on waste more than most (if we are to believe their figures). The Central Commission for Discipline Inspection (CCDI) stated that there was a fall of 53% of state money spent on meetings, money for official overseas trips was also cut by 39% and there was a 10% reduction in vehicle purchases between 2012 and 2013.

Xinhua, the official news agency of the People’s Republic of China stated that the anti-corruption chief Wang Qishan (March 15th) wishes to have a “Sword of Damocles” hanging over the heads of officials in the government to keep them from wasting public money. Perhaps allegorical and perhaps a moral anecdote, but the Sword is usually seen to be an illusion to imminent and impending, ever-present peril at the court of a tyrant.

Qishan stated that his fight against corruption was taking him to investigating the Ministry of Science and Technology, Fudan University, China National Cereals, Oils and Foodstuffs Corporation and Xinjiang Production and Construction Corps. He would also be looking closely at regional governments such as Beijing City.

The Central Commission for Discipline Inspection under the leadership of President Xi Jinping has been publically espousing the benefits of fighting tooth and nail to break with corruption, shoring up the governments mandate to rule. However, moving away from decades of suspicion, wasteful use of taxpayers’ money and outlandish extravagancies are hard things to inspect and even harder to discipline.

But, we could clearly do with a great deal more of that discipline and a great hefty blow of inspection (independent, of course) in the USA these days, however.

USA

Remember back when the Republicans and the Democrats were wasting our money flogging out the question as to whether or not they should vote the budget despite not having any money? Remember all those people that got told to stay at home and got laid off because Washington couldn’t find the greenbacks for them?

Well, the guys in Washington were certainly able to agree on continuing voting the budget for that Super Twiggy Squirrel advert that was running in Spain and trumpeting the healthy benefits of walnuts grown in California. The Department of Agriculture was spending $200 million a year on that promotion and $3 million went into the adverts. The Republicans and the Democrats voted 322 (only 98 against) for keeping that advert running while the Federal workers got sent home and told to eat humble pie (some of which incidentally were paid $4, 000 per month for doing nothing at all).

Here are some prime examples:

• The Department of Defense continued spending $432 million on the construction of aircraft that will never be put in the air. They have been financing the building of the C-27J Spartan since 2007. Despite having been told that the Air Force considered that this aircraft could not offer superior capabilities during airlift missions and that it could not match the already existent C-130. Since 2012, Congress has been informed that funding of production should stop. It hasn’t. Waste.
• The Department of Defense has thought up the wonderful idea of destroying $7 billion-worth of military equipment and vehicles that are in the Middle East as it pulls out and it feels that it’s too expensive to ship home. Waste.
• $60.4 million that was voted to be spent on Hurricane-Sandy victims should have gone to helping them rebuild things. Instead New York and New Jersey (state-level officials) spent that money on tourist ads. Waste. 
• Children are being taught about the effects of global warming by NASA ($390, 000) through a kids’ show (Green Ninja) via YouTube. Waste.
• Facebook gets a tax rebate (yes it doesn’t pay any tax and gets a refund from the state) worth $295 million. Waste. 
• NASA is searching for signs of intelligent life in space still ($3 million), while we can’t even find a trace of it in Washington itself. Waste.

Boondoggle Bungles by Washington that’s all they are. The examples of waste by Washington lead us to question every day what the government is actually doing with our money.

Governments don’t tend to ever cut back on wasteful spending. They reduce the level of services available to citizens and they attempt (perhaps outwardly) to continue providing that same service. That means that the federal workers just have to do more with less. But, it doesn’t ever limit the scope of the government. It rarely reduces the possibility of getting access to money that is embezzled, diverted or exploited by those that are in positions of authority.

The true question that comes to mind however is whether or not the government is a waste or just completely wasted when it thinks up he reasons why it should spend out hard earned tax-payers’ money on frivolous, questionable things. Baked, folded, call it what you will. But, governments when wasting must always be belligerent when it comes to justifying why they spent that money. Always remember that attack is the best form of defense; we all know that.

What a waste, government!

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Russian and Ukrainian Financial Markets

by Pater Tenebrarum

A Quick Overview

Below are the latest charts of the Ukrainian hryvnia, the Russian ruble, the stock markets of both countries and the default probabilities indicated by CDS spreads (standard recovery assumption of 40%).

Noteworthy is that stock markets in both countries have initially declined sharply on Friday, only to recover in late trading. As of Monday's open, Ukrainian stocks were roughly unchanged, while Russian stocks were strengthening in spite of the threat of further EU sanctions (which are likely to be toothless in the bigger scheme of things anyway). Both the ruble and the hryvnia have been weak lately. The hryvnia has initially strengthened on the outlook for IMF funding, but has since given back some of that recovery. The ruble continues its recent downtrend, but the momentum has probably been slowed by the recent repo rate hike (+150 bp to 7%). The ruble currency area is about to increase, as it will shortly include the Crimea.

Default probabilities on the sovereign debt of both countries keep rising as CDS spreads continue to be bid up.

Currencies:

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Hryvnia ($/UAH), daily – weakening once more – click to enlarge.

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A long term chart of the hryvnia showing the moves since the 2008 crisis. The currency has never properly recovered from the crisis-induces weakness. One could say it is lurching from crisis to crisis … - click to enlarge.

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The Russian ruble ($/RUB), daily – still in a downtrend, but the momentum seems to be weakening in light of the recent rate hike – click to enlarge.

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A long term chart of the ruble, covering the same time span as the LT hryvnia chart. The ruble recovered after the 2008 crisis, but similar to other EM currencies has been in a downtrend since 2011. The recent lows exceed the 2008 lows – click to enlarge.

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Stock Markets:

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The Ukrainian UAX index, daily. The initial post revolution euphoria has given way to a pullback, but Ukrainian stocks are so depressed (especially in foreign currency terms) that they are probably a buy no matter what happens … - click to enlarge.

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A weekly chart of the UAX provides perspective. Note that the 2012 intra-week bear market low has not been undercut since – click to enlarge.

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Russia's RTX index, daily. This may well be the cheapest stock market in the world right now (trailing P/E less than 5). On Friday, an initial large sell-off has been reversed by the close. After half an hour of trading, Russian stocks were up by 1% on Monday – click to enlarge.

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The RTX weekly – the index has fallen below lateral support on the weekly chart, but the decline from the 2011 high so far has a corrective look – click to enlarge.

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Credit Markets:

Credit markets in both countries have been under pressure. CDS spreads on Ukrainian debt are almost at a new all time high, and those on Russia have been rising sharply as well. Below are charts of the respective annual default probabilities reflected by 5-year CDS spreads,  based on the standard 40% recovery assumption.

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Default probability, Ukraine – almost back at previous highs – click to enlarge.

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Russian default probability is of course far lower, but has been rising sharply since the crisis took a turn for the worse – click to enlarge.

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Lastly, here is a chart of Russia's 10 year government bond yield, which has been rising sharply as well:

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Russia, 10 year government bond yield, daily. Quite  a big move since mid-November. Note that this yield reached nearly 16% at the peak of the 2008 financial crisis – click to enlarge.

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Conclusion:

All of it looks cheap, but there is of course a residual risk. Said risk consists mainly of the possibility that unrest in the Eastern Ukraine continues to flare up and that Russia begins to interfere there as well in order to 'help'. Somehow we cannot imagine Putin has designs on the Eastern Ukraine, not least as the Ukraine is a kind of financial black hole.

The Crimea is a special case, mainly due to the Sevastopol port. Incidentally, it is also a popular vacation destination, something that probably cannot be said of Donetsk. So this residual political risk is probably small, but it is not zero.

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Hedge funds most bullish on ags in three years

by Agrimoney.com

Hedge funds turned their most bullish on agricultural commodities for three years, as they flocked to bet on higher grain prices amid the mounting tensions over Ukraine, and raised the stakes on the sugar rally too.

Managed money, a proxy for speculators, raised its net long position in futures and options in the top 13 US-traded agricultural commodities, by more than 133,000 contracts in the week to last Tuesday, according to data from the Commodity Futures Trading Commission (CFTC) regulator.

The increase took the net long in these commodities, from cotton to cattle, above 1.0m contracts for the first time since March 2011.

And the gain was fuelled by a dash to bet on higher grain prices amid concerns over the Ukraine, a major exporter of corn and wheat, besides fears over US weather, deemed too dry in many areas for winter wheat emerging from dormancy, and too cold to enable speedy corn germination.

'Significant structural changes'

In Chicago corn, hedge funds raised their net long position by more than 51,000 contracts to 209,561 lots, the highest since December 2012, when the hangover from the drought-hit US harvest was still supporting prices.

Managed money has now lifted its net long position in corn by more than 175,000 contracts in a month, the second-biggest for any four-week period, behind only that seen in July 2010 when Russian drought sent grain prices soaring.

In Chicago wheat, hedge funds turned net long for the first time since October, fuelling the rally which has sent prices to the four-month highs.

The CFTC report "drives home the significant structural changes taking place in the wheat market", Jonathan Watters at Benson Quinn Commodities said.

Besides the rise in bullish bets in Chicago, "longs are flexing their muscles in the hard wheat contracts as well", extending their net long in Kansas City-traded hard red winter wheat to a four-month high of nearly 33,000 contracts.

The net long position in Minneapolis-traded hard red spring wheat (not included in Agrimoney.com's 13 top US-traded agricultural commodities) "is managed money's largest long since late 2011", Mr Watters said.

'Bears get a little more comfort'

Hedge funds raised their net long position in New York-traded raw sugar futures and options too, by more than 35,000 contracts nearly to 100,000 lots – a marked turnaround to the net short position they held until late February.

The sharp recovery in sentiment on sugar prices has been spurred by dryness in Brazil, the top sugar producing and exporting country, prompting a series of downgrades to expectations for the cane harvest in the Centre South region, responsible for some 90% of the country's output.

However, the latest spurt in the net long position appears to have been a poor bet for hedge funds so far, with prices standing on Monday at 17.17 cents a pound in early deals, down 7% from a March 6 high.

Indeed, the extent of the net long position "and considering where we are in terms of price will give the bear jobbers a little more comfort", said Tom Kujawa, co-head of the softs department at Sucden Financial.

Large net long positions often provoke thoughts of waning bullish pressure, in raising questions over the appetite for more such holdings.

Quest for hogs

Hedge funds extended their net long in futures and options in New York arabica coffee too, for which Brazil drought has also raised crop fears, although, with an increase of some 5,700 contracts, the pace of the net long increase remains relatively sedate.

Still, at 33,581 lots, the net long in arabica coffee futures and options is the highest since May 2011.

In the livestock sector, speculators raised their net long in Chicago lean hogs to a four-month high of 72,351 contracts amid continued concerns over the impact of porcine epidemic diahorrea virus (PEDv) on expectations for an expansion in the US hog herd this year.

These long bets, speculators have shown hedge funds immediate profits, with hog futures setting a series of record highs last week.

"The rate of weekly increases in PEDv cases is the accelerator," US Commodities said, noting that "the cases have accelerated since the fourth quarter.

"Pullbacks [in prices] have been few, showing that sellers have hit the sidelines. The momentum of the market has had little regard for the overbought technicals."

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Best & Worst over the past 90 days about to reverse trend?

by Chris Kimble

CLICK ON CHART TO ENLARGE

When looking back over the past 90 days, Coffee sticks out as the clear upside winner, gaining 72%. On the flip side, Copper has had a rough 90 days, as its lost 11% of its value.

The rally in Coffee has a few investors excited, as 79% are bullish. Copper's decline isn't too exciting at this time, only 34% are bullish at this time.

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The Second Chinese Corporate Default: Real Estate Developer With CNY3.5 Billion In Debt Collapses

by Tyler Durden

A few days ago, copper prices and the Chinese stock market were roiled by speculation that another - the second in a row - Chinese bond default may be imminent, in the shape of Baoding Tianwei Baobian Electric (TBE) a maker of electrical equipment and solar panels, whose bonds and stock were suspended from trading a week ago after reporting massive losses. A few days later, TBE "promised" not to default when its next interest payment is due in July (although how the insolvent company can see that far into the future is just a little confusing). And yet the market shrugged and contrary to its recent idiotic euphoria to surge on even the tiniest of non-horrible news, barely saw a rise. Today we may know the reason: overnight Bloomberg reports that second Chinese corporate bond default may be imminent after the collapse and arrest of the largest shareholder of closely held Chinese real estate developer Zhejiang Xingrun Real Estate Co, which just happens to be saddled with 3.5 billion yuan ($566.6 million) of debt.

Debt which absent a bailout, which at this point is very improbable, will not be repaid.

From Bloomberg:

Zhejiang Xingrun Real Estate Co. doesn’t have enough cash to repay creditors that include more than 15 banks, with China Construction Bank Corp. (939) holding more than 1 billion yuan of its debt, according to the officials, who asked not to be named because they weren’t authorized to discuss the matter. The company’s majority shareholder and his son, its legal representative, have been detained and face charges of illegal fundraising, the officials said.

What is curious about this particular potential default is that it touches not only on the massive leverage in the Chinese system, but on the one real bubble in China (since nobody there seems to care about the Shanghai Composite): housing.

The collapse of the company, in the eastern town of Fenghua, adds to concern of strains in China’s real estate sector. The property market in smaller Chinese cities faces “true risks of a sharp correction” due to oversupply and investors may have underestimated the risk, Nomura Holdings Inc. economists said in a March 14 report.

Two calls to the chairman’s office and financial department at Zhejiang Xingrun weren’t answered today. A woman who answered the phone at the Fenghua government’s news office who declined to give her name confirmed the company cannot pay its debt. A Beijing-based press officer at CCB said the bank asked for more information from its local branch about the report and hasn’t heard back.

So going back to the collapse, Bloomberg adds that the failure of the company was reported earlier today by the Chinese-language National Business Daily, which cited an unidentified government official for the news. The report blamed the failure on mismanagement and high costs of private lending, according to the newspaper.

“We think the default of the developer will alert the banks on escalating risk from developers amid the liquidity tightening,” said Johnson Hu, a Hong Kong-based property analyst at CIMB-GK Securities Research. “We maintain our view that banks may revisit loan policy on property and may take stricter stance on property development loans, particularly for small developers.”

It is also about to get worse: "Property shares slid to a 16-month low in February after Industrial Bank Co. suspended mezzanine financing for developers, adding to concerns that smaller developers may default on their borrowings amid the government’s property curbs and an economic slowdown."

And just like that, quite suddenly, the tide is flowing out and all those swimming naked will be revealed. What happens next? Precisely what we said would happen a week ago, when we explained the imminent plight of Chinese corporate where things such as this are about to be revealed...

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El Nino wouldn't be all negative for crop production

by Agrimoney.com

El Nino wouldn't be all negative for crop production

The El Nino viewed as an increasing probability is not all bad for agricultural commodity production said, and should be "welcome" to corn and soybean growers besides being a threat to the likes of Australian grain farmers.

Meteorologists have this month raised the chance of the weather pattern developing later this year, with Japan's weather bureau putting the probability at greater than 50%, and the US Climate Prediction Center estimating at 52% the chance of a Pacific trigger developing late this summer or early autumn.

An El Nino is linked to warm Pacific water temperatures, besides to differences in air pressure flagged in particular between Tahiti and Darwin in northern Australia.

The Australian Bureau of Meteorology last week termed the formation of El Nino triggers as "likely", noting that westerly winds over the far western Pacific the strongest since the at least 2009, when the weather pattern last developed.,

'Negative for production'

But the coming of an El Nino would not be all bad news for farmers.

Certainly, the weather pattern is linked to dryness in eastern Australia, depressing grain yields.

"El Nino is often, but not always, associated with below-normal rainfall during the second half of the year across large parts of southern and inland eastern Australia," the Australian Bureau of Meteorology said, noting that it tends to bring unusually hot weather to southern Australia too.

El Nino is already being blamed for dryness which is depressing palm oil production in Indonesia and Malaysia below levels that might be expected in a seasonally low period, and is viewed as a negative for cocoa output too.

By bringing dryness to West Africa, the weather pattern is blamed for typically reducing yields in the world's main production area, and also tends to cause excessive rains in western South America, and in particular in Ecuador, a major cocoa-growing country.

"For cocoa, the impact [of El Nino] tends to be negative for production," soft commodities analyst Judith Ganes-Chase said.

India factor

However, for coffee "there are mixed results", Ms Ganes-Chase said, adding that for sugar "production is surprisingly not as impacted as one would expect".

Indeed, London-based broker Marex Spectron said that El Nino "only really has a disastrous effect on sugar production if it causes the Indian monsoon to fail, and there is no sign of that".

Although Indian sugar production plunged by more than 10m tonnes in 2009-10, during the last El Nino, that was "mainly" due to a turn away from cane by farmers amid a high level of payment arrears from mills.

"Anyway, water levels in India are 30% higher than one year ago, due to last year's above-average monsoon and subsequent rains," Marex said.

'Means very good rains'

In South America, corn, soybean and cotton producer SLC Agricola downplayed the threat to Brazilian crop production, saying that an El Nino, "normally" means "very good production" in the country.

It "means very good rains in the south" of the country, with limited negative impact elsewhere, Aurelio Pavinato, the SLC Agricola chief executive, told investors.

"During the El Ninos, in the north-eastern region, normally the rainfall is normal, is okay."

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