Advisor Economic Survey
take a moment to participate in the first KWR Advisor Economic
Survey. To register your views on the questions below,
please click on the following link. This should take no
more than about 5 minutes of your time. Results will be
published in the next edition.
answer the following questions:
1) How do you believe the Chinese economy will perform
over remainder of year? (Please rate on a scale of 1-10,
1 indicating extreme
slowdown and 10 indicating 10 extreme growth)
2) How do you believe the U.S. economy will perform over
remainder of year? (Please rate on a scale of
1-10, 1 indicating extreme
slowdown and 10 indicating 10 extreme growth)
3) How do you believe the Japanese economy will perform over
remainder of year? (Please rate on a scale of 1-10, 1 indicating
extreme slowdown and 10 indicating 10 extreme growth)
4) Do you think government policymakers and investors should
be more concerned with deflation or inflation? (Please rate
on a scale of 1-10, 1 indicating strong concern about deflation
and 10 indicating strong concern about inflation)
5) Are their any economic issues that you think may have
a major positive or negative impact on global
financial markets that
you think are not being adequately recognized today?
Markets – Is the Paradigm Changing?
Scott B. MacDonald
The backdrop to the U.S. stock and corporate
bond markets is currently defined by relatively good
fundamentals. The earnings season is generally positive,
ratings trends are allowing for more upgrades than
downgrades, economic data is supportive that growth
will continue, and new issuance in both debt and equity
remains limited. Yet, change is in the air – there
is a growing likelihood that interest rates are going
up in 2004. In the short-term this is likely to be
bad for markets as there is a degree of uncertainty
as to what higher rates will mean. The passage to a
higher interest rate regime will clearly bring more
spread volatility for bonds and make the Dow trend
sideways, probably with a negative bias. And casting
a long shadow over this less-than-settled environment
is the impact of China – which has already shown
some signs that its dynamic growth has begun to stall.
First, the good news. About a half of the S&P 500
companies have reported earnings and almost three quarters
of them beat consensus expectations. Mind you, comparisons
to last year make this quarter look very strong. Companies
such as Boeing, Ford, General Motors, JP Morgan Chase
and Wyeth easily beat expectations. Accounting upsets
as occurred with Nortel are the exception, not the rule.
What shines through the current earnings season is that
stronger economic growth is being translated into higher
revenues and profits. Companies are also beginning to
show greater pricing traction – something that
has been missing for the last two years. This was evident
in earnings from pulp and paper companies such as Abitibi
This newfound pricing traction also represents the beginnings
of new inflationary pressures. Added with higher commodity
prices, such as oil, natural gas and various metals,
the case could be made that inflationary pressures are
already starting to build. Fed Chairman Alan Greenspan
stated before the U.S. Congress that deflation was no
longer an issue and that: “The federal funds rate
must rise at some point to prevent pressures on price
inflation from eventually emerging.” This implies
that at some point the Fed will raise rates. This also
implies a healthier economy, which is able to sustain
a higher cost of money. Considering that U.S. real GDP
growth is likely to be 4% for 2004, the inflation story
is gaining ground within policy circles. The period of
low rates and cheap money is over. The next move will
be to raise rates. This is a logical progression.
higher interest rates may be a positive development over the
long-term, the initial period of change can have a negative
impact on markets. Concerns over a change in direction on the
interest rate front have already rippled through REITs (with
analyst calling April’s sell-off in REIT equity names “carnage”)
and Emerging Markets (with Brazilian bonds being particularly
hard hit). In 1994, rate increases caused a much higher degree
of spread volatility. Consequently, we acknowledge that credit
fundamentals are better, but that the short-term looks choppy
as the market digests the implications of higher rates.
It is important to clarify two things about the looming change
in the U.S. interest rate regime. First, any increase in interest
rates is likely to be gradual – with one, possibly two
actions in 2004. Second, the place where the Fed now has rates
is at the lowest level since 1958. Even with an increase of
25 or 50 bps in 2004 (possibly in August), the environment
is still low on a historical basis. The Fed must be careful
in raising interest rates for the very simple reason that by
moving too quickly, it can choke off growth.
And there are
reasons for caution - consumer demand and housing are set to
decline. In contrast to Corporate America, the U.S. consumer
has not reduced debt. Continued spending has come from the
positive impact of tax cuts and lower interest rates. Now,
the impact of the tax cuts is diminishing and interest rates
are expected to go up. At the same time, higher interest rates
are casting a shadow over the housing market. The days of cheap
money are coming to an end. What all of this means is that
economic growth and employment generation will, in part, be
balanced by slower consumer demand and housing. The Fed can
begin the next phase of monetary policy with a view to keep
inflation under control, though much will depend on job creation.
It should be added that without job creation, the scenario
could become dire.
Look for interest rates to go up in 2004, but at a gradual
pace, which could still be marked by considerable volatility
as the market over-reacts. At some point, good earnings and
economic growth will eventually trump interest rates. It is
the passage from low rates to higher rates that remains the
challenge. Until then, our advice is to reduce exposure and
sell into any rallies.
While interest rates have emerged as a dominant theme for U.S.
corporate and stock markets, the worry about China is not far
behind. In recent years massive amounts of foreign direct investment
have poured into the country and portfolio investors have not
been far behind. First quarter growth was a sizzling 9.7%,
by far the fastest of any major economy. After two decades
of sweeping industrialization, China’s economy has outstripped
many domestic resources and led to a massive surge in commodity
imports. The concern about China is that the economic miracle
has the potential to rapidly deteriorate into an economic nightmare,
which will ripple outward through the rest of Asia and the
global economy in the form of an international commodity bust.
Reality is likely to be a little more boring – China’s
growth will slow, not crater; international commodities will
see less demand from China, but the market is not likely to
see a brutal price collapse (though the fate of individual
companies will vary).
China’s role in the global economy has changed drastically
over the past 20 years. GDP growth has been at an average pace
of 9% and the country is witnessing the expansion of a new
middle class that is beginning to buy imported consumer goods.
At the same time, China’s share of world trade has risen
from less than one percent to almost 6%. Consequently, China
is now one of the largest economies in the world and Asia’s
second biggest behind Japan. It is also the world’s fourth
largest trading nation.
China’s growth spurt is not without problems. Much of
its banking system lacks a professional credit culture, is
politicized and carries a substantial bad loan burden. Transportation
bottlenecks undermine efficient industrial development and
raises costs. The country’s fast growth is rapidly outstripping
natural resources such as oil, natural gas, iron and copper.
China used to have enough oil for its own needs; and the Asian
giant’s major oil companies are now competing for critical
energy sources throughout Asia, the Middle East and Africa.
Local governments have built up large debts, but there is little
transparency about the extent of the problem. In addition,
the country faces shortages of water, while there has been
considerable environmental damage.
The Chinese government is concerned that the pace of growth
must be slowed to a more manageable 6-7% range. The danger
is that government efforts to slow the economy overshoot, causing
a severe downturn in growth and imports. The ripple effects
would be considerable, especially if growth falls under 5%,
opening the door to social turmoil as rising expectations are
not met. Instead of a government-guided soft landing for the
Chinese economy, the situation could be one of a hard landing,
with multiple negative consequences for the global economy.
A major economic crash in China would not only pull the rest
of Asia down, it would ripple into the U.S. corporate bond
market – at least that is what many investors are worried
Although we have concerns over China, we do not think that
it will collapse. What is most likely is that the government
will increasingly apply pressure on the banks to limit further
credit. Raising interest rates is a likely policy action. At
the same time, a more concerted effort will be made to sell
off bad loans into the market and clean up the major four government-owned
banks. This implies that China will have to provide greater
transparency and disclosure, which is likely to make many investors
more cautious about buying local assets (as well they should
be). Although the authorities are tightening credit in 2004,
the slowdown in real GDP growth is likely to be more evident
in 2005. We see China going through a “recessionary period”,
with GDP growth slowing to the 6-8% range and industrial expansion
cooling from 20% levels to levels closer to 10%. China’s
slower pace of growth will have a negative impact on global
commodity markets, but it will not be massively disruptive
(due in part to still rising levels of demand from India) – a
pause in what is likely to be a multi-year commodities bull
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Case for Higher Oil Prices
Bill Powers, Editor, Canadian Energy Viewpoint
I was in Calgary last year visiting several oil and
gas companies, the CEO of one of Canada’s best
run junior oil and gas companies looked across the
conference table and said something that stuck in my
mind: “Get ready for $50 oil!” Such a bold
prediction, made when nearly every Wall Street and
Bay Street analyst was lowering his 2004 oil price
prediction, underscores the massive divide in opinion
on the future price of oil.
There is a growing belief among the geologists who study
world oil supply that world oil production is soon headed
into an irreversible decline. The geologist who has most
eloquently laid out the argument for higher oil prices is
Dr. Colin J. Campbell. Dr. Campbell, author of the book “The
Coming Oil Crisis,” holds a doctorate from Oxford University
and spent decades working as an international exploration
geologist for major oil companies. After a long career in
the oil industry, Dr. Campbell worked for Petroconsultants,
based in Geneva, Switzerland. At Petroconsultants, he was
instrumental in assembling what has become widely recognized
as the world’s leading hydrocarbon database. Dr. Campbell
is now a Trustee of the Oil Depletion Analysis Centre ("ODAC"),
a charitable organization in London that is dedicated to
researching the date and impact of the peak and decline of
world oil production due to resource constraints, and raising
awareness of the serious consequences.
I found Dr. Campbell’s thesis on the future of world
oil production in a speech he gave to a German university
in 2000 entitled “Peak Oil: A Turning Point for Mankind”.
(To watch a replay of this speech go to the following URL:
http://www.globalpublicmedia.com/SECTIONS/ENERGY/oil.depletion.php and click on the RealVideo presentation. The beginning of
the lecture might be a little blurry.) Below is a summary
of his findings.
Dr. Campbell believes worldwide production of conventional
oil will head into permanent and irreversible decline in
the 2005 to 2010 timeframe.
term “conventional oil” is used to refer
to oil that is produced from conventional reservoirs and
does not include oil from tar sands, polar areas, deepwater
areas or oil from coal or shale. Conventional oil accounts
for 95% of all oil produced today and will remain the determining
factor in world production for the foreseeable future.
According to Dr. Campbell, world oil discovery peaked in
and has declined steadily since. We are now to a point
where we produce four barrels for every one we discover.
this is an unsustainable situation since long-term discovery
and production must mirror each other to some degree.
Dr. Campbell is also far from sanguine about the current
state of world oil reserves. He provides significant evidence
that oil reserves are being grossly overstated by OPEC.
Dr. Campbell notes that the two most used estimates of
oil reserves, which are prepared by the Oil and Gas Journal
and the BP Statistical Review, are flawed. Both publications
rely on reserve estimates provided to them by governments
and industry and make no effort to verify accuracy. The
below table (data from the Oil and Gas Journal) supports
view that OPEC’s reserve figures are not based on
any reliable estimate of total recoverable reserves. Notice
several countries report the same reserve figures for several
consecutive years. Constant reserves figures are very unlikely
considering that production and discovery would have to
match each other exactly.
OPEC Reserves (In Billion Barrels)
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contends that OPEC reserve estimates are politically
is an excellent example of what is wrong with the way OPEC
countries report reserves. The country reported a gradual
decline in its reserve base from 1980 to 1984. This should
be expected from a mature producing country. However, in
1985 the country reported a 50% increase in reserves with
no corresponding discovery. The Kuwaiti government increased
its reserve estimate due to the implementation of an OPEC
production quota system that set country production levels
based on country reserves. Kuwait was not alone in increasing
its reserve estimates for political reasons. In 1988, Abu
Dubai, Dubai, Iran and Iraq all significantly increased
their reported reserves for political reasons. Even
Saudi Arabia reported a massive increase in reserve estimates
in 1990 for similar reasons.
While OPEC has consistently overstated their reserves,
Campbell contends that industry has understated its reserves.
pressure on companies to understate reserves by the analyst
community has created a gross misunderstanding of how much
oil is actually being discovered. Campbell argues that
most company estimates create the illusion of growing reserves
when in fact; previously discovered oil is merely being
into the proven category for reporting purposes.
[Note: At least one major oil company is not understating
reserves. Royal Dutch/Shell (NYSE:RD) reported a whopper
of a reserve write down in January. The company reported
that its reserves were overstated by an incredible 20%.
The company contends that it acted “in good faith” when
preparing its reserve estimates. Such a large write down
has attracted the attention of SEC Commissioner Roel
Campos, who is considering launching an investigation
into the matter].
According to Dr. Campbell, we are likely to face a sea
change in the world’s oil production capacity. Campbell maintains
that peak production comes close to the midpoint of depletion.
According to Dr. Campbell’s estimate of the world’s
oil endowment, we are right at the halfway mark.
How might this crisis unfold? Dr. Campbell makes it clear
that the crisis will not look anything like the oil price
shocks of the 1970’s. Instead, Campbell refers to those
politically motivated disruptions in supply as merely “tremors” compared
to the “earthquake” that is about to hit
the oil consuming world. The first phase of the crisis,
has already arrived, will bring about price shocks. In
the nearly three years since Dr. Campbell made this prediction,
the world has witnessed several rounds of high oil prices.
However, the onset of chronic shortages will begin around
2010 when the Middle East will be required to supply
of total worldwide oil production. More importantly,
it is at this time the Middle East will have reached
midpoint and will head into decline also.
Clearly the scenario laid out by Dr. Campbell is not a
pretty one. However in every crisis lies opportunity. Astute
should recognize the implications of declining worldwide
oil production and adjust their portfolios accordingly.
Japan – The
Gods of Credit Are Smiling?
Japan – Another
Election on the Horizon
Scott B. MacDonald
some of the glow may be coming off of China’s “economic
miracle”, Japan is looking better. The Nikkei is
up for the year, the banks are slowly beginning to lend
again and reduce bad loans, and exports are robust. Equally
important, the fundamental credit story for corporate Japan
is finally improving. In the first three months of 2004,
Standard & Poor’s raised its ratings on seven
Japanese corporations and financial institutions and lowered
four, continuing the trend from 2003, the first year in
which upgrades exceeded downgrades since 1990. Equally
significant, the number of upward outlook revisions was
28, compared with only one downward revision. S&P even
changed the outlook on its sovereign rating (AA) for Japan
from negative to stable.
S&P was not alone in indicating improving credit quality
for Japan. In early April Moody’s raised Japan’s
sovereign ratings from Aa1 to Aaa, due to improving economic
conditions as well as a rise in foreign exchange reserves
to $770 billion. Later in April Moody’s placed four
major Japanese banks on review for possible upgrades. Fitch
also released a Special Report on Japanese banks, in which
it applauded the improving credit quality of the sector.
Moody’s, Standard & Poor’s and Fitch share
a view that Japan is probably on the right track economically.
The key word here is “probably”. The three
agencies fully recognize that the banking sector is making
headway in reducing nonperforming and troubled loans and
that the Koizumi reforms are even trickling down into local
government. Yet, they also recognize that problems remain – ranging
from weak public finances, export dependence and a yet
to fully restructure domestic sector.
April 19 investors were made to remember that despite the
improving creditworthiness of the Japanese corporate
world, problems are not far from the surface. It was revealed
in the press that UFJ, the country’s fourth largest
bank, was told by the Financial Services Agency that it
needed to set aside an extra Y300 billion (($2.8 billion)
to cover bad loans. This news promptly resulted in a major
sell-off of bank and financial stocks on the Nikkei and
raised fears that other institutions could have similar
problems. The problems at UFJ were followed by the decision
of DaimlerChrysler Corp. not to proceed with a bailout
plan of $6.5 billion for Mitsubishi Motor Corps, Japan’s
only non-profitable major automaker. The events at UFJ
and Mitsubishi Motor underscore that tough challenges still
We believe that the Japanese corporate world is making
progress. At the same time, the passage to self-sustainable
economic growth cannot be taken for granted. Significant
parts of the economy continue to have substantial problems
and are still dragging their feet over making any meaningful
changes. Consequently, we have a positive outlook for the
short-term, but remain cautious about the medium term.
It is easy to forget in good times, that further reforms
are still needed. Without those reforms, the good times
will not continue – an important message for both
the government and the private sector.
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Scott B. MacDonald
July Japan will go the polls to re-elect half of the
242 seats in the upper house of the Diet. We do not
expect any major changes. Although the Democratic Party
of Japan (DPJ) is seeking to capture more seats than
the LDP (which now holds 50 seats), Koizumi remains
a skillful player in the political game. The DPJ’s
battle plan is to convince the public that Prime Minister
Koizumi’s economic reforms have failed and that
the sending of Self Defense Force troops to Iraq is
a mistake. Although the success of Koizumi’s
reforms is indeed questionable, the Japanese economy
is on the upswing and Nikkei is trading well above
the lows of recent years. Unemployment is down to 5%
from a high of 5.5%. In addition, Koizumi’s attention
to raising Japan’s standing in international
affairs has been one of the more significant areas
The decision to send troops to Iraq was a well-calculated
decision on the part of Koizumi. On one hand it signaled
to the rest of the world that Japan was ready and willing
to assume a more active international role. On the other
hand, Tokyo’s engagement in Iraq had a payoff with
the United States, which Japan wants to be fully engaged
in regard to North Korea. After all, it was North Korea that
fired a test missile over the Home Islands in 1998. It was
a North Korean spy ship that exchanged gunfire with and was
sunk by Japanese patrol boats in 2001 (inside Japanese waters)
and it was the regime of Kim Il-jong that acknowledged that
North Korea had in the past kidnapped Japanese citizens.
North Korea is Japan’s most immediate security concern.
Considering the need to keep North Korea engaged, Tokyo wants
to make certain that Washington maintains the pressure on
Kim’s government to eventually disarm its nuclear weapons
Tokyo also needs to keep Washington involved in East Asia
as an important balancing power to China. China and Japan
are already competing for scarce energy resources around
the world and in the future this is likely to extend to markets.
There are also disputes over various pieces of real estate
in the waters intersecting the two countries.
However, the sending of troops and other personnel to Iraq
is not without risks. The taking of five Japanese nationals
as hostages heightened public worries about their country’s
Middle Eastern involvement.
Although Koizumi refused to deal with the hostage takers
(who released their prisoners), the Middle Eastern exposure
has also opened Japan to the possibility of terrorist attacks.
There is a danger that Japan’s upcoming July election
could attract a similar attack as occurred in Madrid, with
the strategic objective of punishing the LDP-led coalition
government for its support of the United States in Iraq.
A major terrorist incident in Japan would also hurt Koizumi
in the one area where he has been very successful – foreign
affairs. For al-Qaeda hitting hard against the LDP in July
could bring big dividends. Japan’s next lower house
election is not set until 2007. A major loss in the upper
house election could force an earlier electoral contest.
In such an environment, Koizumi could be forced to retreat
from his Iraq policy (due to considerable opposition within
his own party) or be forced to resign due to a loss of public
confidence. In addition, the DJP has already stated that
it would withdraw Japanese troops from Iraq. Short of a major
terrorist attack, Koizumi’s major opposition, the DJP,
should be manageable. The situation will decidedly test the
Prime Minister’s skills.
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A Stable Credit in an Unstable Time
From an investor’s point of view, Mexico has made tremendous economic
and political strides in recent years. Economic growth has surged, in part
because Mexico has benefited from its membership in the North American Free
Trade Agreement. Mexico’s crippling debt load of the 1980s and early
1990s has been reduced substantially. Employment is at an all time high with
unemployment at only a 3.1% level in September. Inflation has been contained
at approximately 4.9% year-on-year. Education levels are slowly improving.
And President Fox was elected in the freest vote in Mexico’s modern history.
As a consequence of this improvement, Mexico’s interest rate spreads
have narrowed throughout 2002, unlike several other Latin American sovereign
credits. Furthermore, the credit rating agencies rate Mexico at investment
grade levels (Baa2 with “Moody’s” and “BBB-“ with
Standard & Poor’s). As of December 2002, only Chile is higher rated
in the entire Latin American region. As its credit fundamentals have improved,
Mexico has become an investor darling, and has issued well-received debt throughout
this past years. We expect the sovereign, Pemex, Telmex, Cemex and other Mexican
issuers to return to the marketplace in 2003.
There are problems along the way of course. Mexico’s economic future,
more than ever before in its history, is intimately tied to the United States.
As the US economy slows at year-end, so has Mexico’s such that earlier
growth economists’ forecasts for the year have been recently reduced
from 1.7% GDP growth to 1.2% GDP growth. This deceleration, not surprisingly,
is directly related to a decline in export-oriented industrial production.
Ironically, one of the consequences of the improvement in recent years is that
Mexico is now having trouble competing with certain lower wage sites. Most
notably, there have been several media stories recently noting how Mexican
industry and jobs in selected low-tech industries are leaving for lower wage
China. We think that this is a natural development in a rapidly modernizing
economy however. Mexican industry will have to adapt to worker demands for
higher wages and improved benefits, but there will be an economic cost to this
as well as lower wage countries compete effectively.
It is also worth noting that the structural reform agenda of the Fox Administration
is hindered by a tense relationship between the executive branch and the PRI,
the main opposition party. Structural reforms in the areas of electricity,
labor and education are needed to improve competitiveness and to promote economic
In the next month, investors should pay attention to the political wrangling
associated with the next federal Budget. We think that the Budget, when it
is finally passed by year-end, will include fiscally prudent provisions. Although
President Fox’s administration is assuming a 3.0 % growth rate in Mexico
in 2003, it is also proposing a modest 1.9 % real increase in expenditures.
Overall revenues are expected to outpace expenditures slightly. Also, projected
oil revenues, which are critical to the Mexican economy, are based on a $17.00
per barrel price for the Mexican oil basket. This is almost $5 below the estimated
average for 2002. Currently, the Mexican oil mix is hovering near the $20 level.
Unless prices collapse, which is unlikely given the uncertainty surrounding
a potential war in Iraq, it is difficult to imagine hat the average oil price
in 2003 will be substantially below the budget assumption.
Further, we think that the 2003 Budget will include a provision whereby the
deficit target will be increased to 0.65% from 0.5%. This slight increase should
not be alarming to investors. Away from the budget, investors will also be
focused on electricity reform negotiations. If these discussions go well in
the next few months, this will send a very positive sign to the financial community.
In short, we expect that Mexico will continue to grow at a steady pace while
maintaining fiscally prudent policies. President Fox will have to expend political
capital to pass much needed structural reforms, but we think that he will be
able to do so. The 2003 Budget assumptions are conservative and achievable.
At a time of economic and political uncertainty in much of Latin America, Mexico
stands out as a positive model.
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Scott B. MacDonald
China – Energy
Thirst Leads to Iranian Deal: China last thursday said it
has signed a multibillion dollar deal with Iran to import
liquefied natural gas from Iran. The plan calls for Beijing-based
Zhuhai Zhenrong Corp. to buy 2.5 million metric tons of LNG
a year from Iran starting in 2008. The volume will then be
increased to 5 million tons annually, with the agreement
to last for 25 years, Zhenrong said. The agreement follows
the recent renewal of a term contract, which allows Tianbao
(Hong Kong) Energy Co., a Zhenrong unit, to buy 80,000 tons/month
of straight-run fuel oil from National Iranian Oil Co. from
next month to March 2005. Zhenrong also plans to expand its
business into Iran's upstream sector, and is expected soon
to finalize terms for the development of three oil fields
in Iran, the company said. Zhenrong, a spinoff of China's
weapon manufacturer, China North Industries Corp, or Norinco,
was established in 1994, with the task of importing crude
from Iran. It is now China's sole Iranian crude buyer.
Norinco is among Chinese companies that are actively seeking more
opportunities to buy oil and gas reserves outside China. Chinese
state-owned energy companies are investing abroad heavily, in response
to the government's call to build up overseas assets of hydrocarbons
to ensure security of supplies, bridge a widening energy deficit
and fuel the country's runaway economy. Iran is currently under
U.S. trade sanctions and the Washington administration actively
discourages foreign companies from entering Iran's energy business.
The fact that Zhenrong was previously part of Norinco could provoke
some speculation about China-Iran arms sales.
The U.S. State Department announced in May 2003 the imposition
of sanctions against Norinco for supplying specialty steel used
in an Iranian missile program. The sanctions included a ban on
exports of defense articles and services to Norinco, a ban on U.S.
government procurement of Norinco products, and a two-year ban
on U.S. imports of Norinco products. Norinco, and the Chinese government,
rejected the allegation, saying that it was completely unjustified
and groundless. China's largest oil refinery, Sinopec Corp. (SNP),
is also active in Iran's oil and gas business, despite U.S. opposition.
Zhenrong imported 12.4 million tons of crude oil from Iran last
year, accounting for 14% of China's total crude imports. Most of
Zhenrong's Iranian crude imports are processed in Sinopec refineries.
Kong: Hong Kong's unemployment rate fell slightly
to 7.2 percent in the three months ending February on
job prospects in the restaurant and finance sectors,
officials said Thursday. Economists had expected the
jobless rate to be 7.1 percent for the period until Feb.
29, compared to 7.3 percent in the November-January period.
Unemployment declined across a wide variety of business
sectors, including financing, insurance, restaurants,
communications and recreational services, the government
said. It said total employment grew by 9,500, to 3.25
million during the period. Hong Kong is continuing its
recovery from the severe acute respiratory syndrome crisis,
which devastated the economy by keeping tourists away,
pushing joblessness to a record 8.7 percent in May-July
Indonesia – the
Cost of Illegal Logging: There are always trade offs between activities
in the legal and black market economies. In Indonesia a heavy price
is being paid for illegal logging, as legally established firms
are suffering. Around 70 per cent or 322 of 460 companies operating
in the upstream sector of the timber processing industry in the
country have collapsed over the past few years mainly as a result
of rampant illegal logging. There are many factors but illegal
logging was the main culprit causing the bankruptcy of the companies
said Agung Nugraha, deputy secretary of the Indonesian association
of forestry companies (APKI). Rampant illegal logging a caused
big shortage in the supply of log raw material for the country's
plywood, sawn timber and pulp factories, Nugraha said. He said
the industries need around 20 million cubic meters of logs a year
and supply from natural forests is much less than 10 million m3.
He said illegal logging has caused damage to 43 million hectares
of natural forests in the country reducing the country's tropical
forests from 153 million hectares to 98 million hectares over the
Malaysia – The
March 29th Elections: On March 29th, Malaysia voters
went to the polls to elect a new government. As was the
case over the last several decades, the ruling multi-ethnic
coalition, the Barison Nasional or BN, won handily, reasserting
the dominant role of the United Malays National Organization
(UMNO) within the majority Malay community. The BN captured
198 of the 210 (90%) seats in the federal parliament
or 64.4% of all votes cast (up from 56.6% in 1999 and
just below the 65% it scored in 1995). This was decidedly
good news for the standing Prime Minister Abdullah Badawi,
who had earlier assumed the leadership role from longstanding
Prime Minister Mohammad Mahathir. Despite considerable
speculation as the strength of the Islamic issue in swaying
voters to opt to non-BN parties, Badawi marked his first
outing as national leader with a sweeping victory, which
should provide him the opportunity to further put his
own personal stamp on the direction of the country.
Pakistan – Foreign
Exchange Down: Pakistan's foreign exchange reserves slipped
slightly to $12.560 billion in the week to March 13,
down $5 million from the previous week, the State Bank
of Pakistan said on Thursday. The central bank gave no
reason for the fall, but bankers said the slide was mainly
due to quarter-end repayments of foreign debt. The central
bank said its direct holdings were $10.764 billion and
those of commercial banks were $1.796 billion. The central
bank changed the method it uses to calculate foreign
reserves in 2002. It now monitors the total liquid foreign
reserves, including previously undisclosed foreign exchange
deposits by banks.
Philippines – Less
Money in Reserve: The Philippines' gross international
reserves are expected to fall to $15 billion at the
end of this year from $16.9 billion as of end 2003,
the central bank said on Thursday. The central bank
uses the reserves to intervene "from time to time" to
support the weak peso, but "we will not use up
our gross international reserves to defend an unrealistic
FX rate", Governor Rafael Buenaventura told Reuters
on Wednesday. The international reserves comprise the
foreign currency holdings of the central bank, including
gold and International Monetary Fund special drawing
Turkey – A
Little Less Change in the Pocket: Turkey's central
bank foreign currency reserves fell $946 million to
$31.853 billion in the week ending on March 12. Gold
reserves were unchanged at 1.558 billion. Turkey's
total gross reserves on February 27, the latest available
data, were $47.126 billion, of which $12.187 billion
was with private institutions, including commercial
banks. The central bank held the rest.
Travel – Something
to Do In London:
The Braham Museum of Tea and Coffee
Scott B. MacDonald
anyone with a sense of history and an interest
in good cup of tea or coffee while
place to go is the Bramah Museum of Tea and Coffee.
Located on 40 Southwark Street, Bankside (London
SE1 1UN phone: 020 7403 5650), this compact museum
provides a comprehensive view of the world of
coffee and tea, brought to life in a walk-through
of ceramics, metal and graphic arts. The tearoom
serves traditional afternoon teas and coffees.
And if you are lucky, you might well meet Mr.
Edward Braham, the museum’s founder and tea industry
Mr Braham himself is well worth the visit. Among
his relations are Joseph Braham, the 18th century
engineer who made tea
caddies as a boy in the 1760s and Sir Joseph Banks who
suggested the feasibility of growing tea in North
East India in 1788.
The modern Mr. Braham started work on a tea plantation
in Africa in 1950. From that point he was hooked
on tea, working
in London as a tea taster. He also gained experience working
with Chinese teas. It was this early exposure to tea in
different cultures, and the complexity of its
production and marketing
that gave Mr. Braham the idea to one day the tell the story
of tea in a specialized museum. This became a reality in
1992 when he opened the museum’s doors at Butler’s
Wharf by Tower Bridge. He subsequently moved the museum to
its current location, which is a growing tourist destination
due to the presence of the Tate Modern Art Museum and the
The tea part of the museum covers the older history of
tea from 1600-1950, which encompasses the East India Company,
the London Tea Gardens, ceramics, smuggling, tea auctions,
the Boston Tea Party, opium trading, clipper ships, tea
in India and Ceylon and English afternoon tea. The coffee
part of the museum covers coffee growing, how it spread
around the world and how it is harvested and processed.
Considering the hurly-burly of today’s commodity trading,
the Braham Museum of Tea and Coffee is a very worthwhile
opportunity to it all into a historical perspective and
enjoy a good hot cup of tea or coffee.
pictures and updates of our recent Japan Small Company
Investment Conference, click above
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