Market Talk

Here’s a link to the latest quarterly musings of Jeremy Grantham, always informative, thought-provoking and entertaining. Titled “Time to Wake Up: Days of Abundant Resources and Falling Prices Are Over Forever,” here’s a nice little taste:

Now no one, in round numbers, wants to buy into the implication that we must rescale our collective growth ambitions. I was once invited to a monthly discussion held by a very diverse, very smart group, at which it slowly dawned on my jet-lagged brain that I was expected to contribute. So finally, in desperation, I gave my first-ever “running out of everything” harangue (off topic as usual). Not one solitary soul agreed. What they did agree on was that the human mind is – unlike resources – infinite and, consequently, the intellectual cavalry would always ride to the rescue. I was too tired to argue that the infinite brains present in Mayan civilization after Mayan civilization could not stop them from imploding as weather (mainly) moved against them. Many other civilizations, despite being armed with the same brains as we have, bit the dust or just faded away after the misuse of their resources. This faith in the human brain is just human exceptionalism and is not justified either by our past disasters, the accumulated damage we have done to the planet, or the frozen-in-the-headlights response we are showing right now in the face of the distant locomotive quite rapidly approaching and, thoughtfully enough, whistling loudly.

Now, as opposed to Yardeni’s sunny view, here’s another take, from the University of Maryland’s Peter Morici, who’s in what seems to be a very small camp of people looking at everything going on in the world, and actually finding it disturbing.

Crises in the Middle East and Japan threaten to thrust the U.S. and global economies into a second recession.

Since the economic recovery began in July 2009, GDP growth has averaged only 2.8 percent, a pace insufficient to bring unemployment down to acceptable levels. And that rate of growth leaves the economy too vulnerable to the slightest hiccup and a deceleration into recession.

Prior to the turmoil in the Middle East, economists were forecasting 3.5 percent growth for 2011, but the surge in oil prices to $110 a barrel and gasoline to $3.62 a gallon will likely shave half a point—perhaps more—from that rosy outlook.

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I hope that in the long run, the Jasmine Revolution sweeping North Africa will be a good thing for the world. Much depends upon who comes to power post-revolution, of course, (anybody remember Napoleon?), but any movement that is about getting rid of autocratic, dictatorial tin-pot despots ought to be a good thing in the long run.

Keep in mind that the people of North Africa and the Middle East don’t have a history with democracy. This isn’t to say that they can’t embrace democracy, but it takes time. Democracy blossomed in the United States, but it didn’t come full grown on July 4, 1776.

The movement toward self-government had been festering in Europe for more than a hundred years during the Enlightenment. That’s why we were all forced to read Locke and Hobbes in school (do they still even teach Locke and Hobbes?)

The modern Arabian states didn’t exist until the end of World War I and the fall of the Ottoman Empire (don’t worry, this isn’t a college thesis; I’ll be brief.) After that was a period of colonialism that lasted until the ’50s. Then you had popular revolts that threw off the colonials, and replaced them with the despots. There has not been a democratic movement to build upon. It’s possible, and hopeful, that we’re seeing it now. After all, ideas that took a hundred years to filter through a society back in the day move much faster in our electronic world.

It will be interesting to see how the developed world reacts. There is only one thing politicians respect: power (although respect for the ultimate source of their own power, the consent of the governed, seems to elude them.) You saw it in the Panic of 2008. The politicians stepped in not to save the system, but to save the powerful within that system.

Because there are still an awful lot of despots out there. Some of them we still shake hands with. Some of them run the world’s second largest economy, know what I’m saying?

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Boy, you just cannot keep a good market down.

Did somebody say something about the Chinese being worried about the revolt in Egypt?

From the AP, via Yahoo, a story about how the Chinese government is restricting Internet access to anything related to Egypt, and boiling out from what news they do report on it any aspect of it being a popular revolt against an autocratic leader. Wonder why.

From the AP:

The recent uprisings in Egypt and Tunisia are no doubt giving pause to many authoritarian regimes around the world, but nowhere else appears to be as determined to control the message as China.

Chinese censors have blocked the ability to search the term “Egypt” on microblogging sites, and user comments that draw parallels to China have been deleted from Internet forums. The People’s Daily, the flagship newspaper of the Communist Party, carried only a short report Thursday saying Egyptian President Hosni Mubarak would not stand for re-election.

While there is little chance the protests could spark demonstrations in China, the extent to which the long-ruling Communist Party is censoring the story underscores how wary it is of any potential source of unrest that might threaten its hold on power.

No doubt, this is fairly typical for the Communist Party. Why else have a state-run media, if not to control the message? But I find it telling nonetheless.

So, let’s spin this out, just the way the boys in the Defense Department play war games. At the rate it’s going, the Jasmine Revolution will sweep past Iraq and Iran in a few weeks, then cross Pakistan and Afghanistan in early March. From there it’s just a hop and a skip through Kashmir…and into western China.

Let’s call it April when the Muslim Uighurs and Han Chinese start fighting in Xinjiang – again.

Oh that’ll be right around when the Fed has to start telegraphing its intentions about QE2; will it let the program run out, or expand it into a QE3, just to keep things nice and stable.

But don’t worry. It’ll never happen, our little scenario. We’re just playing games here.

The latest word is that the protesters out on the Egyptian streets are now being met by pro-Mubarak protesters, with the situation getting more violent and confrontational. ABC News reported that protesters are actually breaking up curbs in order to get rocks for the fight.

Hard to know from my perch here what to make of all this, but one thing was clear yesterday, and that is that the protesters completely dismissed Mubarak’s concession that he wouldn’t run for another term in September. Well, two things were clear, that and the fact that the stock market, and increasing the oil market, too, do not care what’s happening over there. Maybe this latest devolution will change their minds.

Stocks are essentially flat so far today. It’ll be interesting to see what happens, because on the one hand, you have the Fed continuously pumping money (indirectly, of course) into the stock market, and on the other hand, you have a revolt that is turning violent and spreading across the most volatile region on the planet – one that happens to have a major influence on the oil market. And the entire world runs on oil.

Here’s one thought I’ll throw out there. Haven’t seen this reported or talked about anywhere, but think about this: popular revolt is spreading across the Mideast, right? Autocratic leaders, poor living conditions, wildly rising food prices. Little opportunity to build a decent life. Is that situation confined to Egypt? The Mideast?

Think leaders in China are even a bit worried? They ought to be. Wildfires don’t respect lines on a map, know what I mean?

Interesting; that’s an understatement.

Rather than try and analyze what is at the moment utter chaos, I’ll just pass along some key links for you to mull over:

- Clashes break out in Cairo’s Tahrir Square. (Al Jazeera)

- Mohamed ElBaradei says Mubarak’s concession was “an act of deception.” (Wall Street Journal)

- Even Kudlow’s wondering if QE2 has something to do with all this. (National Review) (h/t Fritz)

- If food prices are the trigger, the turmoil may spread. (Wall Street Journal)

- The blogger at 3Arabawy has been publishing a stream of photos and Twitter updates on the Egyptian revolt.

The Journal’s Simon Constable corralled NYU’s Nouriel Roubini ahead of Davos and the two discussed the state of American workers, the prospects for China’s economy, fiscal austerity, and the need for G20 nations to work together rather than just talk about working together.

I’ll be blunt: I expect China to come unglued one day. I’ll be honest, too: I’ve been expecting this for at least four years.

I’m not a hedge-fund manager, I’m a reporter, so I don’t put my theories into investment vehicles. But some hedge-fund managers are thinking the same thing I am, and they are putting those ideas into investment vehicles. I missed this story in last week’s Telegraph about hedge funds setting up China-fail funds, (h/t, Big Picture) but it’s something to keep an eye on.

There have been academics and analysts who have argued about the dangers of China’s economy overheating for some time. But for many, the fact that hedge funds, particularly those with track records on previous crises, are launching specific funds is the sign that the bubble is close to bursting.

One academic said: “Economists have contrarian views all the time. But these hedge funds have their shirts on the line and do their analysis carefully. The flurry of ‘distress China’ funds is a sign to sit up.”

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Your zen koan of the day is this: if beef brisket costs more in Hangzhou than in Boston, whose central bank is full of bull?

I bring this pool of reflection your way after reading this food-for-thought piece (no pun intended) from The Wall Street’s China Real Time Report blog (h/t, Zero Hedge.)

The post relates the results of a study by Wang Pei, a blogger with the Beijing-based business news magazine Caixin, who teamed up with a friend in Boston to informally try and determine which city, Hangzhou or Boston, had a higher cost of living.

Wang Pei teamed up with a friend in Boston and set out on the streets with identical grocery lists, including 19 food items and two types of gasoline. The mission, to answer the question: “How expensive is China?”

While not exactly a scientific study, Wang admits, the exercise reveals that a surprising 10 of the food items, including green beans and bananas, were more expensive in China. In Hangzhou, a scenic coastal city near Shanghai, the price of beef brisket per 1.1 pound, or 500 grams, and the cost of a dozen eggs were both double the prices found in Boston. A liter of milk, meanwhile, was nearly triple.

Hangzhou’s premium gasoline was also 23% more expensive, and the overall price of the entire basket of goods purchased there was 8% higher.

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Lot to discuss today in a very short amount of time: China, earnings, jobless claims, home sales and S&P 1300. All that in three minutes, it must be the Markets Hub.