A comprehensive collection of scholarly, personal, and editorial articles relating to the growth and development of economic / political ties between China and South America-- with a focus on commodity rich countries in South America and commodity/energy markets.
Mercopress published a story yesterday detailing the general outlook the big investments banks, analysts hold in regard to Argentina's economy.
The consensus among Merrill Lynch, Barclay's and Credit Suisse is not pretty. All three firms are recommending their clients get rid of their assets in Argentine pesos, estimating that sooner or later the Argentina Central Bank will have to yield in the dispute over the US dollar in the local money market.
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According to a survey from Bloomberg, a majority of analysts believe the US dollar will be costing 3.20 Argentine pesos at the end of the year from its current 3.05.But the main fear of analysts is a continuation of the current economic policies which could lead to a crisis “comparable to that of 2001/02”, when the Argentine economy melted, unless there is a massive correction of economic indexes (such as retail inflation), elimination of subsidies (mainly energy and transport) and increase in public utilities rates, among other issues to address.
Apologies if entries this weekend where a bit "lacking." I was traveling and simply had little access to computers.
Following up to this mornings post, in which I discussed in brief the tremendous untapped agricultural capacity of South America, emphasizing Brazil and Argentina, I present the other side of the story via this video from Reuters.
Bolivia, South America's poorest country used to feed over half a million people using UN donations. Those same donations, in the wake of rising fuel costs, can feed a mere 200,000 today, leaving many with empty stomachs as the video above describes.
The question remains... Yes, no one doubts the "richness" of Latin America, but how do you translate natural resources or un-tapped agriculture potential into sustainable development? Second, how do these countries keep their resources from being exploited by multi-nationals or corrupt and greedy locals?
Most Latino's learn in school and as they grow up their countries are richly endowed with resources, giving their countries the potential to emerge from poverty and develop their countries. Sadly, this has not been the case for any Latin American country, perhaps Chile being a unique example once again.
Chile did succeed to a certain degree in this, putting much of their copper wealth towards sustainable economic development goals. The Chilenean economy emerged significantly more competitive and efficient compared to its neighbors in South America.
Let us not forget the high-cost and much suffering on the parts of some people who lived through the Pinochet dictatorship and the reforms of the "Chicago boys."
Bolivia, itself, in the past 15-20 years has developed its own agricultural capacities in the low lands of the country. I learn new things about Bolivia everyday, society is quite fragmented between the mestizo population (and European descended), and the indigenous community. Despite social and racial problems, a countries people, endowed wit vast resources as Bolivia should not be going hungry.
Bolivia is a unique country in South America, the good man Erneste "Che" Guevara called it the "heart of the America's," and that it is. I hope to see the country with my own two eyes one day before I pass further judgment, but no less, regional methods or a more cohesive internal movement should be put in place to at least alleviate malnutrition and hunger in Latin America.
The continent is poor, but always prided itself as being a poor continent which at least "did not go hungry." This age old myth (yes... myth), is now also on the verge of disappearing as food prices around the world continue to rise.
Decompressing all the data and news developments in this world can be difficult. Despite a focus on China and South America, it is difficult with the increasing interconnectivity of this world to ignore many international developments... which now influence, sometimes quite significantly... China and Latin America.
In general, this week ended with energy and oil prices heading downward and major stock markets around the world responded in kind with rallies of their own. Sadly this will all be short lived in my opinion. The scope of the global market is generally very unstable at the moment.
As the article,Gold, Silver Rebound on Investor Demand for Inflation Hedgefrom Bloomberg LP investors and money mangers around the world don't think this rally is sustainable, as more have moved back into gold and silver markets to protect themselves from further inflation, the low dollar and rising fuel and energy costs--just as the majority of the western/industrialized world enters summer and turns on their air conditioning.
The lower fuel/energy prices we saw at the end of the week, the thereafter rally in airline stocks and other fuel intensive industries in the stock markets is nice, but in my opinion a general sign of investor speculation and ignorance, whom are desperate to make a quick buck $$$ in the wake of declining asset classes. Second thanks to comments by Saudi Arabian Oil Minister, Ali al-Naimi who stated "record prices are unjustified," (see full story - Crude Oil Falls as Naimi Says Record Prices are 'Unjustified' on bloomberg.com)Fuel prices will continue to inch up, my prediction is by September my rough estimate is it will peak at around 155-160 a barrel despite the efforts of international producers. Supply simply will not be able to keep up with demand, and despite rising prices, people will keep demanding. I know I'll be filling my car up in about a day or two, and putting the AC on while I drive.
"The world economy continues to face uncertainty and downside risks persist," the officials of the G-8 said in a statement they released after the meeting in Osaka. It is clear, we're not through the worst of this global downturn. Other statements from the meeting of the global elite so to speak include:
"The G-8 is turning up the volume in terms of its inflation concern," said Claudio Piron, a currency strategist from JP Morgan Chase". "
"Elevated commodity prices, especially of oil and food, pose a serious challenge."
It's nice to know the leaders of the world are at least talking, but it seemed more talk and arguing was done than actual planning of actions to be taken. Oil output, weak dollar, inflation, etc where debated... sadly, while people go hungry around the world. So I'll use this opportunity to mention to all the readers out there, who like to exhaust their "downtime" on the internet, PLEASE do so by playing the vocab game at FreeRice.com and your efforts and vocabulary improvements can also go towards feeding people (see previous post on FreeRice.com if you want my take on it).
While all this looms in the background, China, which many back in 2006 already was on the brink of emerging as the new global center of economic activity has had a tough year not only because of the poor condition of the global economy, but because of touchy international relations and bad press from the "Free Tibet Protests" and people disrupting their Olympic torch relay... in addition, China's has had a tough year with good old mother nature-- the planets toughest and sometimes very cranky mother you can't exactly fight or argue with (like most mothers hehe).
Adding to the 8.0 earthquake, the aftershocks, the land slides, draining lakes created by the quakes, preventing dams from bursting and flooding 100,000 + people towns/cities, helping minimize the spread of disease among 100,000's of quake victims and displaced people around the country... Might I remind everyone that China also dealt with a devastating snow storm that practically froze southern China. This is something that rarely happens, it would be like witnessing the South East of the US (Florida, Alabama, Mississippi, etc) freeze. Southern China, which represents the center of economic activity was disrupted in the middle of the Chinese Lunar New Year, when people in China tend to move a lot of money around and invigorate the economy... this year that did not happen, if anything the country is still paying for it. Now as you can see below in video footage and report provided by Reuters.com, China must now also deal with flooding across 12 provinces. These 12 provinces, include both Sichuan province which suffered the earthquake, and also many of the regions most affected by the snow storms earlier this year. Images have been provided by Xinhua, China's premier news agency. See Video here -- (embed feature keeps putting wrong video on site)
Time will tell if China and the global economy as a whole will see some recovery this summer. The Olympics will as usual bring speculation, price rises in Beijing, and some short-term help to the economy. However, with the natural disasters this year, and the potential political issues that may arise during the games and the looming issue of Tibet-- China is going to have a rough rest of 2008, as will the rest of the world.
South America from a very general macro economic perspective seems poised to ride this downturn out. Commodity prices will continue to help their economies grow, even if they grow at a slower pace compared to the recent boom years (2003-2007), considering Latin America's history and second when the international investors and analysts around the world compare their current growth with other regions in 2008, they will see South America coming out on top.
However, problems are developing in Venezuela and Argentina in particular, where inflation as it does in other areas is picking up. None the less, unlike central bankers in the more fiscally more responsible countries as of recent; Chile, Peru, Brazil and Colombia; Argentina and Venezuela are not acting as they should.
Central bankers and finance ministers in Venezuela and Argentina lack independence are very biased towards supporting spending and keeping price controls in check with the government objectives. In Chile, Peru, Brazil and Colombia, even when influenced by the central government, bankers and finance ministers have exercised incredible restraint and shown great ability to at least manage inflation. For these countries this is a great accomplishment, for these countries that have had a history of being unable to combat inflation and experience's with long periods of hyper-inflation. For this region dangers remain in the form of the commodity bubble bursting from too much speculation--which I personally don't think will happen. The bubble may "burst," but it will be far from the dotcom crash of the late 90's.
I decided to mix a bit of humanitarianism spirit and food aid along with the afternoon analysis today which today, concentrates on rising food prices.
Basic staples of nourishment (food), ranging from wheat, rice, corn, soy to chicken and beef are on the rise around the world. Commodity prices are in a bull market, few can argue that. Combining the factors of rising demand for everything from food, energy and base metals in emerging markets AND sky rocketing energy prices resulting from a variety of factors such as overall economic uncertainty, instability in the Middle East, and supply disruptions in the North Sea or Nigeria, have simply established an environment in which natural resources have proportionately speaking, become scarcer than ever before while demand and necessity for them remains strong.
Many will feel the affects of rising prices and inflation, in particular, the poor of the world. The global poor in large rely on basic staples like rice for a large portion of their diets. In terms of energy, most developing countries, unless they have substantial price controls in place, already pay higher prices per barrel of petrol than Americans in the US. A rise in the cost of gas for a taxi driver in Lima, Peru or in Cape Town, South Africa of 10-15% will be much far more painful for a Peruvian or South African than it is for American's filling their tanks this summer.
In an effort to help the poor of the developing world Poverty.com, has launched a sister website www.freerice.com where people can play a very addicting vocabulary game, where you simply choose the definition of a word displayed on the screen, if you choose correctly, the financial backers and advertisers of the site will donate rice to poor countries in exchange for your time. Defined on freerice.com as follows
1. Provide English vocabulary to everyone for free. 2. Help end world hunger by providing rice to hungry people for free.
This is made possible by the sponsors who advertise on this site.
Whether you are CEO of a large corporation or a street child in a poor country, improving your vocabulary can improve your life. It is a great investment in yourself.
Perhaps even greater is the investment your donated rice makes in hungry human beings, enabling them to function and be productive. Somewhere in the world, a person is eating rice that you helped provide. Thank you.
The site in my opinion exploits the short attention span of the millions of people who spend way too many hours in front of a computer screen and are constantly searching for ways to distract themselves (myself included hehe).
Food prices have been on the rise in practically every corner of the world. Whether you’re a mother/father shopping for a family of 6 in the United States, and more importantly if you’re a mother/father providing for a family of 6 in the “global south,” which includes most the developing countries of the world.
Jimmy Rogers Commodity Index (RICI), was created in the 90’s to track the growth of commodity prices by Jim Rogers and has since become one of most well respected benchmarks / index for observing and tracking commodity price movements. It’s also a great index for investors who have used it as a means to identify investments in the commodity market. Growing (YTD) in 2008 by 25.86% while the S&P 500 Composite index is down -8.75% this year, the Nasdaq down -9.35%, the Dow Jones Comp down -8.47% (data gathered and accessed on June 13, 2008 from http://www.rogersrawmaterials.com/).
The Rogers Raw Materials Page describes the composition of the index in greater detail. Below is copy a excerpt of how the index is compiled, provided to give readers a general idea “Rogers International Commodity Index® (RICI)® is based on monthly closing prices of a fixed-weight portfolio of the nearby futures and forwards contract month of international commodity markets. The selection and weighting of the portfolio is reviewed annually and weights assigned in the December preceding the start of a new year.”
This index is a great measure of rising costs. By rising costs, I mean the rising price of practically all goods in the global economy. The global economy is now beginning to show signs; or rather finally express signs that inflation is a potential threat to global growth and needs to be handled with care to ensure continued growth. Sadly, central bankers and countries around the world do not work together all too well yet, multi-lateral organizations lack the influence to organize a global effort—so countries around the world are raising interest rates in order to re-enforce their currencies strength, institutional investors are buying energy and gold to hedge their investments against the possibility of inflation, and even the US, EU, and UK have expressed signs there will be little possibility of further rate cuts, leaning instead towards increasing interest rates.
Although in economic theory this should do the trick, the problem is more complicated than many are capable of realizing. Yes… easy money for years has contributed to inflation, but more than anything it’s the fact capacity for production is no longer what it was when you consider the growth of countries such as China and India.
Food related commodities included on the Rogers index and their respective weights: Wheat (7%), corn (4.75%), Live Cattle (2%), Coffee (2%), Rice (0.5%), soybean oil (2%), lean hogs (1%), Sugar (2%), azuki beans (0.25%), Canola (0.67%) Orange Juice (0.66%), soybean meal (0.75%), and barley (0.27%). Personally I feel the only under-represented staple would be rice which deserves far more weight within the index considering how many billions of people in the world eat it on a daily basis. Together food related commodities comprise 21.72% of the index. Energy, metals and wood related commodities comprise the rest.
The world is in a correction phase in which consumers, producers and governments are going to have to adjust and adapt to a new global environment—where wasteful consumption is no longer an option. People must adjust to higher prices as other people in emerging markets demand the same things people in wealthier societies have enjoyed for quite some time.
Reflecting in brief upon my own dissertation on China’s growing interest in South America, observe China’s rising demand for soy and meat, only 2 of the commodities mentioned above and only 1 of the major developing markets in the world. Yes many argue China proportionately holds the most influence as the fastest growing and biggest emerging market, China is by no means the only large growing market.
Captivated observer and active participant in the growing exchange between countries in the Americas and East Asia.
Exhilarated by the process of identifying and growing local and international business opportunities.
Committed towards expanding my reality and nurturing a network of like-minded individuals and organizations from across the globe. Including but never limited to -- entrepreneurs, creative talent, educators, students, innovators, investors and new media journalists.
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