Non-Manufacturing ISM beats consensus, but once again behind the headlines, prices paid jumped from 69.5 to 72.1, the highest since Q3 2008.
Inflation
The UN said that food prices have risen for the 7th consecutive month. They are up 3.4% in December which is the highest rate increase since the U.N. has been tracking food prices in 1990. Remember, Tunisia kicked off Regime change ousting Ben Ali, but food riots where happening long before Tunisia's government fell after Mohamed Bouazizi sets fire to himself in the central Tunisian town of Sidi Bouzid, protesting at the confiscation by police of his fruit and vegetable cart, sparking violent protests. He later died.
Recent commodity prices (including today) hit all time highs in some case. Sugar hit a 30 year high sugar which has caused ICE to look at emergency position limits. Cotton just hit 150 year highs! Of course this puts enormous pressure on margins from clothing manufacturers to retailers. Copper is at a record high at $10,000/ton.
We've seen Kuwait subsidize food for it's citizens plus throw in $3500 for each citizen-this in one of the wealthiest countries in the world.
China which is very susceptible to civil unrest has subsidized vegetable supplies for key northern cities.
The IMF says Asian economies may be overheating and may need to raise rates as they have been seeing growth of roughly 8.5% vs 2.5 in developed countries. As I've mentioned, it's likely that China's PBoC will hike rates again this month. This is all part and parcel of the "Fed Effect" as its #1 export to emerging markets and nations in earlier stages of development has been INFLATION. These countries will continue to take action against hot money flows caused in part by Fed policies. This is why I am not bullish on emerging markets.
While we are on China, I've warned and it's pretty well known there are a host of shell corporations that trade on the market that are essentially nothing, there's no business behind them. The latest company to be suspected is CAGC.
In Bernanke's speech today to the National Press Club, one of the first questions was about Fed transparency. The next was about the Fed's role in exporting inflation to countries around the world. He blew it off with some lame excuse about Egyptian food trading in Egyptian dollars-you'd think he could see the bigger picture or at least know that we are aware of it. The answer was an insult to our own common sense.
In the E.U. there may be a rift between Germany and France regarding the European Financial Stability Fund per Bloomberg. Merkel is so far the only party which has refused to endorse the outright monetization power of the EFSF. Will see shortly as thy meet tomorrow. Jean-Claude Trichet has been talking tough hinting at the specter of raising rates; he is now seeking to halt pay increases as inflation surges to 2.4% in January the highest in 2 years. This is about unions in the E.U. particularly in Germany where import price inflation is the fastest in 29 years. ECB kept rates at 1% despite the hawkish (bluff) tone from Trichet leading up to the decision.
Looking at global events, we have seen or are seeing riots/protests in Yemen, Jordan, Palestine, Pakistan (which is a very scary prospect),Saudi Arabia, Albania, the Sudan and tomorrow and Saturday we get Syria's version "A Day of Rage". Interestingly, Syria recognized this very early as they shut down their internet last week. Jordan's King has dismantled his cabinet and is trying to put together a new one. It's unlikely this will appease protesters as protests go viral throughout the middle east. Even in Palestine, protests have forced the Prime Minister to promise elections as early as next week. Saleh from Yemen, trying to appease protesters has said he will not stand for re-election, this has not appeased protesters.
In Egypt-
As you know, violence is escalating. There has been light arms machine gun fire, the military has fired warning shots and moved tanks to try to separate the pro-Mubarak camp from the protesters. The pro-Mubarak protesters surrounded the other side yesterday and lobbed Molotov cocktails from a nearby bridge. It's been shown that pro-Mubarak protesters include the police and internal security forces as their confiscated ID's have been shown to TV cameras.
The prime minister said he was surprised that supporters of President Mubarak showed up at the square and said the government would investigate whether they arrived spontaneously or were sent. Yesterday I made my argument that this was most likely a regime created event-meaning Mubarak and the military as the military took virtually no action. Please read past analysis to understand the reasons why.
Vice President Omar Suleiman ordered the release of all jailed demonstrators who have not committed criminal acts. There's obviously political pressure being brought to bare. The US, which supported Mubarak last week, the vice president, Joe Biden saying "Mubarak is not a dictator" and should not step down-is now putting pressure for Mubarak to leave power now.
In the U.S.
Republicans seek to halt the raise of the debt ceiling. This will immediately end Fed manipulation. In addition, Ron Paul will hold his first hearing on the Fed, he is the author of the book, "End the Fed" lets wish him well.
Just finishing listening to the Fed's Chairman take questions, I still ask, "Is he smoking Crack?"
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