Back on 25th March, I wrote in regard to the Geithner toxic asset PPIP scheme that:br /emspan style=”font-family:georgia;”‘The key issue isn’t investor appetite, but bank reluctance to face up to the true market value of their portfolios; less than 20% is currently marked to market, the rest at par or marked to model. Will they really sell into auctions that will explicitly confirm the inadequacy of their capital positions and undermine the credibility of their internal risk models?’/span/embr /Well, now we have our answer; they won’t. Astonishingly, the Treasury is quietly shelving the PPIP scheme, hoping that $100bn of equity issuance (including the imminent Citi deal) and the boost to earnings from a steep yield curve and economic recovery will somehow be sufficient to bolster bank balance sheets.br /br /That looks quite unbelievably reckless to me, and pretty much guarantees another solvency crisis sooner rather than later. Of the ten …

While most assets tied to US economic recovery have soared in recent weeks on increased optimism fuelled by better incoming data, US natural gas remains firmly in the doldrums at sub $4, down from nearly $14 last Summer. Yet it has the potential to soar over the next 12-18 mths on even a muted rebound in industrial activity given the collapse in drilling rig numbers to under 800, a level not seen since 2003, as shown in the chart below. Oil supplies 40% of total US energy consumption, with coal and gas supplying 25% each (although coal supplies 50% of electricity generation). By 2020, more than 33% of the country’s electricity could be generated through burning natural gas. The reasons are simple: power plants that burn natural gas cost less and are far easier to build than nuclear power plants, are greener that coal and oil and don’t have the …

div align=”justify”Although the current focus is on rising unemployment, demographic trends across the developed world (and indeed China) will create a historic shrinkage in new labor force entrants over the next decade. There will be far fewer teenagers entering the workforce, which with declining workforce participation rates in many countries (notably the US) and in the absence of mass immigration, has the potential to cause serious shortages and rising wages across many industries. emstrongThe forecast shortage is about 18m workers in the US by 2020, based on the 17-59 age cohort in the population and constant participation rates/strong/em. The chart below from the GAO indicates the dramatic decline in trend labor force growth about to hit us, with clearly negative implications for trend GDP growth and productivity. Although the span class=”blsp-spelling-corrected” id=”SPELLING_ERROR_1″offshoring/span trend across some service industries like IT support and accounting may alleviate this to some extent, many labor …

div align=”justify”We’re familiar with the concept of strategic oil reserves but a strategic reserve of rubbish? Actually, the huge pile of unwanted recyclable materials like glass and cardboard now piling up in warehouses around the world will only get bigger, but the Chinese government is aggressively stimulating the global scrap metal industry with a focused bailout plan of its own. A few weeks ago, China’s State Reserve Bureau announced that, in an effort to stimulate the collapsing non-ferrous metals sector (ie aluminium, copper, lead, zinc and tin) it would emstrongfund the acquisition of a large non-ferrous metal stockpile/strong/em. Soon after, Yunnan Province (home to a large non-ferrous industry) announced its own strategic reserve to include 300,000 tons of aluminum, 100,000 tons of tin, 300,000 tons of zinc, 150,000 tons of lead, and 150,000 tons of copper. In the wake of the economic crisis, and the collapse in China’s export manufacturing …

div align=”justify”Longstanding readers will knowstrong /strongthatstrong I have been a consistent bear of Japan/strong, which is the first developed economy to pass the demographic tipping point into secular decline. Last April, when the economic and investment consensus was overwhelmingly bullish, I wrote in a href=”http://deadcatsbouncing.blogspot.com/2008/04/japan-land-of-setting-sun.html”span style=”color:#cc0000;”Japan:/span span style=”color:#cc0000;”Land of the Setting Sun/span /athat em’Much of Japan’s recent export growth has been generated by China’s appetite for advanced engineering from machine tools to construction machinery (China is now Japan’s biggest export market). I suspect China’s growth rate will fall to mid single digits by year end; Japanese exporters will be among the biggest losers.’/embr //divdiv align=”justify”In fact strongthe stunning reversal in China’s growth simply exacerbates the underlying cultural and demographic factors that have prolonged Japan’s long growth slump/strong. However, never since the Japanese economy peaked in 1990 has the outlook been quite this grim. The Nikkei index is back to where …