BRIC+ News & comments

[Billy T]

In late 2010, “state-run Sinochem Group acquired a 40% stake in Statoil's Peregrino {Brazilian} offshore oil field for $3.07 billion.” In 2008 “Statoil had paid $1.8 billion to Anadarko Petroleum for stakes in heavy-oil and deep-water projects in Brazil and the Gulf of Mexico, including the 50% interest it didn't already hold in the Brazilian Peregrino project.” However, this purchase required additional contingency payment {expected to be about 300 million in 2008} at end of 2011 based on the price of oil (and other factors, mainly how productive the Peregrino field was proving to be) On 29 Dec11, “Anadarko Petroleum received a $419 million contingency payment from Statoil Brasil Oleo & Gas Ltda. related to the 2008 sale of Anadarko's stake in the Peregrino oilfield offshore Brazil.”
Quoted text {with Billy T insert like this} from: http://news.morningstar.com/all/Vie...J/201112291225DOWJONESDJONLINE000367_univ.xml

Billy T’s summary of these deals:
China bought 40% of Brazil's "Peregrino" oil field from Stat Oil for 3.07 Billion more than 1 year ago implies field, so value then was 3.07/0.4 = $7.675 Billion.

After two years the contingency payment was 419/300 greater than expected. Thus field has annual value increase by factor 1.1818 as (1.1818)^2 = 419/300.

Thus current value of field is 1.1818x7.675 = 9.07 billion. Stat Oil owns 60% of it (Value = 5.442B) plus some other fields in Gulf of Mexico included in the 1.8 billion 2008 buy. Conservatively, Stat Oil has fields worth now 6 billion and paid only1.8+0.419 – 3.07 = -0.851 Billion for them.

I.e. State oil has been PAID 851 million dollars to take ownership of 6 billion dollars in assets!
No wonder the Norwegians are called the “Blue-Eyed Arabs.”
Stat Oil is economically beating the Chinese in their own game as both tie up oil fields for decades of oil off the Brazilian, Nigerian and Angolian Coast plus Stat Oil is tying up extreme weather (ice resistant, etc.) drill rigs to give Russia competition is the rich Arctic fields. I’m glad I own shares in STO’s ADRs.

PS I think Brazil's "Peregrino" oil field is actually worth about 9x2=18 billion dollars as Brazil's PetroBras normally keeps either half or 50% royal on extracted oil. (Or at least 50 billion if Iran does close the St. of Hormuz. See last part of post 500 or at least its photos.)

 

[Billy T]

“China is now largest export market for Japan, South Korea, the Southeast Asian region, Brazil and South Africa. China is also the second-largest export market for the EU, and the third-largest market for the US. China’s 2011 imports should come in at about USD1.7 trillion, healthy growth from the USD1 trillion booked in 2009 and the USD244 billion in 2001.” From today’s Email from: www.InvestingDaily.com.

Billy T comment: This is a global side effect of CCP’s plan to switch more of its production to its domestic market by giving the population double digit annual REAL salary growth. I.e. The Chinese are able to buy more imported goods too. Especially the rich Chinese, who now drink French wines, and wear top of the line western clothes, travel to Europe to buy artworks etc.

 

[Michael]

“China is now largest export market for Japan, South Korea, the Southeast Asian region, Brazil and South Africa. China is also the second-largest export market for the EU, and the third-largest market for the US. China’s 2011 imports should come in at about USD1.7 trillion, healthy growth from the USD1 trillion booked in 2009 and the USD244 billion in 2001.” From today’s Email from: www.InvestingDaily.com.

Billy T comment: This is a global side effect of CCP’s plan to switch more of its production to its domestic market by giving the population double digit annual REAL salary growth. I.e. The Chinese are able to buy more imported goods too. Especially the rich Chinese, who now drink French wines, and wear top of the line western clothes, travel to Europe to buy artworks etc.

I posted a thread showing that the US minimum wage is lower NOW than in 1968. My question is this: Is this inevitable within the current monetary system? I mean, suppose politicians didn't use the Fed like their own personal never ending piggy bank, would it be possible to have REAL salary growth year on year indefinitely? What would be a good growth rate above and beyond any inflation?

 

[Billy T]

... (1)would it be possible to have REAL salary growth year on year indefinitely? (2)What would be a good growth rate above and beyond any inflation?

On (1) not for ever. What salary really is, is the right to enjoy part of the wealth produced or extracted from the earth. Thus, the number of people sharing this wealth can decrease with each effectively getting a higher salary, even if the production of wealth remains static.

Some societies are producing people more rapidly than wealth so effective salaries are going down. This is probably true now of the US, but of course the distribution of the wealth produced is also making real salaries lower for many as the already rich claim an ever greater fraction of the wealth.

Notice that the US index of inflation (CPI) does not reflect some of the major costs of the poor, but these more rapidly increasing cost items are only a minor part of what the rich spend their resources on. I.e. CPIr (effective CPI for the rich) is lower than CPTp - just putting food on the table is becoming increasingly harder for the poor.

Summary: It is not very meaningful to speak of only "REAL salary growth year on year" without consideration of both population growth and wealth distribution changes also.

On (2) When all factors are considered, I would suggest that CPIp and the income of the poor, Ip, should have the goal that CPIp / Ip be a constant or occasionally, when technology makes more efficient production possible, be slightly decreasing ratio. Unfortunately, CPIp / Ip is currently an annually increasing ratio in the US and this does not even consider the increasing debt burden on the poor, who collect very little interest paid on government bonds. I.e. the poor and their children will suffer even more as they lack the means to protect themselves from the ravages of declining dollar value.

 

[Billy T]

"... One goal for the next five years is to improve China’s Long March rockets, the workhorses that launch its satellites. The Long March-5, in particular, is intended to be able to lift 25 tonnes into low Earth orbit. (Perhaps significantly, this is 600kg more than America’s space shuttles could manage.*)

Another part of the plan is to upgrade the country’s satellite networks. A series of high-resolution Earth-observation satellites is to be launched over the next five years, and by 2020 the Beidou global-positioning and navigation system, a set of 35 satellites equivalent to America’s Global Positioning System, should be in place. That will provide a boost to the command and control capabilities of China’s armed forces. {BT notes: It is already operational but with limited continuous coverage of the earth. About a dozen satellites, as I recall. -Interestingly, but not too surprisingly, they serve China and the South China Sea best. China did not want to depend on the US's GPS and wanted the higher than public accuracy "precise time triangulation" systems can achieve.}

Progress was also promised on Tiangong-1, China’s newly launched space station. ..." {BT notes: about 5 or 6 months ago they demonstrated ability to "dock" (join two large space craft together in orbit) under fully automatic control.}

From: http://www.economist.com/node/21542379

* This "a little bit bigger and better" is typical of the Chinese. Brazil had the world's largest hydro-electric power plant (and still does by some measures) for three decades but China designed the Three Gorges unit to be slightly bigger and better than it by most measures. Brazil must now be content with having the world's 2nd & 3d largest hydro plants and geting more than 80% of all its electric power form these no CO2, No radiation, renewable sources!.

 

[quadraphonics]

"... One goal for the next five years is to improve China’s Long March rockets, the workhorses that launch its satellites. The Long March-5, in particular, is intended to be able to lift 25 tonnes into low Earth orbit. (Perhaps significantly, this is 600kg more than America’s space shuttles could manage.*)

But it is still substantially less than the larger Delta rocket systems that America already uses for such things. As stated on the Wikipedia page:

The Long March 5 will have the second largest "carrying capacity factor" of any rocket after Boeing's Delta IV Heavy.​

You do understand that the space shuttle was for manned missions, and that the USA has continued to develop and fly big, unmanned rockets the entire time right?

Not that the capacities in question aren't all dwarfed by the massive Saturn rocket systems the USA flew back in the late 1960's/early 1970's. Or the proposed Ares systems that have been designed more recently.

* This "a little bit bigger and better" is typical of the Chinese.

Except that, in this case, they are setting out to build the second-biggest/best rocket.

 

[quadraphonics]

What salary really is, is the right to enjoy part of the wealth produced or extracted from the earth.

No, that's silly. There are many other places that wealth comes from, other than "from the earth," and many of them scale reasonably well with population.

Notice that the US index of inflation (CPI) does not reflect some of the major costs of the poor, but these more rapidly increasing cost items are only a minor part of what the rich spend their resources on.

? Like what?

 

[Billy T]

No, that's silly. There are many other places that wealth comes from, other than "from the earth," and many of them scale reasonably well with population.

I said "produced " as well a "extracted from the earth."* What other forms of wealth is created to be divided up for consumption? I also think that "produced wealth" is not closely linked to population, as least not in the more advanced societies - more closely related to capital invested in productive machines, infrastructure, etc. Even that which is purely produced by mental efforts is not much related to population size - one Bill Gates or Steve Jobs etc. serves for any size nation (or even the whole world) - in fact they tend to make it impossible for competitors to prosper.

? Like what?

like food mainly. The rich spend much lower fraction of their income on food than the poor do.

* I sort of think that the generations that are using up the cheap energy and high grade ores etc. are obligated to leave some lasting items of value to future generations. A thought I expressed more fully here: http://www.sciforums.com/showpost.php?p=2888367&postcount=72

 

[quadraphonics]

like food mainly. The rich spend much lower fraction of their income on food than the poor do.

The CPI used in the USA includes food, and energy. It also excludes very poor and very wealthy people with non-representative purchasing patterns.

You are probably thinking of the Core CPI, which is a less-volatile measure used in setting monetary policy. But the standard CPI-U (for urban residents, there's another one for rural people) which is quoted in the newspapers includes all the normal things somebody would buy in its "basket," including food, energy, etc. I think the main category that gets missed is financial services related to savings and investment, as this is not considered as "consumption" spending.

 

[Billy T]

... You are probably thinking of the Core CPI, which is a less-volatile measure used in setting monetary policy. ...

yes I was, but was confused as then with including food and energy most of my "CPI comments" apply to "core CPI" but it is still true that the poor & lower middle class do spend higher fraction of their income on food than the rich do.

Thanks for the correction. I am still somewhat confused as wiki says that social security is adjusted by CPI, but a few months ago when SS sent me a notice about the amount I would receive in 2012, SS said there would be no increase from last year. How can that be when food prices in the CPI have gone up?

 

[quadraphonics]

I am still somewhat confused as wiki says that social security is adjusted by CPI, but a few months ago when SS sent me a notice about the amount I would receive in 2012, SS said there would be no increase from last year. How can that be when food prices in the CPI have gone up?

? My understanding is that there is a 3.6% COLA in Social Security for 2012? Can you double-check this?

There were no COLAs in 2009, 2010 or 2011, though. This was due to two factors: CPI was low, and the COLA is computed by comparing the current CPI to what it was the last time a COLA occurred (which is not necessarily every year). Although there was some inflation in 2011, it was still insufficient to catch up with what the CPI was back in 2008 (previous COLA year) and so there was no COLA that year. It has to be done this way because there is no provision for a negative COLA. So in years where deflation occurs, SS recipients get a free boost up until inflation resumes and eats away all of the difference.

 

[Billy T]

? My understanding is that there is a 3.6% COLA in Social Security for 2012? Can you double-check this?. ...

You are completely correct. I must have been remembering the prior three years when there was no increase. The SS's letter for 2012, sent 23 Nov 2011, also tells that "because of your income, your Medicare Part B deduction will be increased." (not an exact quote has I have re-filed the letter already) Net effect was I saw little change in payment. I would need to go back into 2011 bank's records to see exactly what it was.

 

[Billy T]

"... The Chinese CPI (Consumer Price Index) rose by +4.1% on a year-over-year basis in December. This was slightly ahead of the consensus estimate for a reading of +4.0% but below November’s annualized reading of +4.2%.

China’s PPI (Producer Price Index) grew by +1.7% over the past year, which was below the consensus expectation for a rate of +1.8% and last month’s reading of +2.7%

Analysts suggest that the trend of falling inflation numbers, along with recent weak import/export data may pave the way for monetary easing going forward. ..."

From: http://www.stateofthemarkets.com/re.../1/0/a44391fadc2dc521cd7ddc3fd279395dd5f4e6ba

Billy T comment: Must be nice to have such full employment that there is a labor shortage with real salaries increasing 10% or more annually, huge reserves for economic management or buying up critical supplies in long term (30 years even) future delivery contracts, and inflation under control despite the labor shortages.

 

[Billy T]

China, world's largest seller (and builder, I think as relative few are imported now) is making cars faster than roads.
The longest traffic jam in the world was recorded in China. Its length is 260 kilometers. Here small section of it is (if I could get link sent me in an Email to work):
>

Here is copy of link in the Email which worked there, but not here:
[cid:image019.jpg@01CCB988.7F650740]<http://pics.livejournal.com/neferjournal/pic/000zxcy7/g21>

Can any "geek" post photo for me?

Non-Geeks click here:
http://pics.livejournal.com/neferjournal/pic/000zxcy7/g21
To see 19 traffic lane "parking lot" full of cars 260 km long!

 

[Billy T]

As I predicted years ago, Brazil is making steady progress towards becoming an "economic colony" of China. -I.e. a supplier of low value added goods (agricultural products, energy and ores mainly) while a buyer of Chinese high value added goods (cars and electrons mainly but even simple iron goods, like hammers and other tools - ironically the iron in them probably came from Brazilian iron ore!).

Note that Brazil has a net trade surplus with China in chart below but exports very few factory products while importing many. Note also Chinese/Brazilian trade has grown 17 fold in only 9 years! - That is a 50% year-on-year increase every year for 9 years. Little wonder China passed the US as Brazil's main trading partner a couple of years ago.

From article here: http://www.economist.com/node/21542780 14Jan12 issue

Note to Australia & Canada - Your day as an "economic colony" of Asia, especially China, is coming soon.

 

[Billy T]

"... Chinese firms conducted 207 mergers and acquisitions (M&A) overseas in 2011, a record high and up 10 percent from 2010, international accounting firm PricewaterhouseCoopers (PwC) said in a recent report.

The total value of those overseas M&A transactions rose 12 percent year-on-year to 42.9 billion U.S. dollars in 2011, PwC said. Of the transactions, 16 were worth more than 1 billion U.S. dollars, up from 12 in 2010 and including 14 deals in the natural resources and energy sectors, the report said. ..."

From: http://english.peopledaily.com.cn/90778/7705226.html

" 14 {billion + dollars each} deals in the natural resources and energy sectors " Probably for decades of supply, paid up front as is China's common pattern. More "trading dollars for real assets."

 

[Billy T]

“…China has achieved remarkable progresses in the financial realm since reform and opening-up was initiated in 1978, and its foreign reserves, central bank assets and domestic savings all rank first in the world. … The country's central bank assets were 28.6 trillion yuan ($4.73 trillion) by the end of October, much higher than the $2.85 trillion held by the US Federal Reserve, $2.73 trillion by the European Central Bank and $1.8 trillion by the Bank of Japan. …

China should try to shift its investment preference from the government debt of developed countries to their stocks and shares in a bid to boost the wealth-remaking capabilities of its reserve assets and to facilitate the development and expansion of its real economy overseas.
The author is an economist with the State Information Center. …”

From: http://usa.chinadaily.com.cn/opinion/2012-01/13/content_14436353.htm

 

[Michael]

Chinese imports 'sinking' Brazil's fishing sector

Speaking of economic colonization, China recently surpassed the United States as Brazil's largest trading partner, forming an economic partnership that leaders from both Beijing and Brasilia like to boast about.

 

[Billy T]

“… The IMF is looking to increase its lending firepower by $500 billion {to add to its current 385 B} before the upcoming G-20 finance ministers meeting in Mexico City, which is scheduled for February 25-26. … The IMF is pushing China, Brazil, Russia, India, Japan and oil-exporting nations to be the big contributors. It reportedly wants an agreement to be reached at the G20 finance ministers and central bankers. …”
From: http://www.stateofthemarkets.com/re.../1/0/0dceb8386720f227ca113f54bb0321cd3adcd367

Billy T comment: That half a trillion request is more Thin Air Money if the BRICs don’t give it. Brazil has net of 350 billion in reserves and China has ten times that, but both, especially China will want more than promises of interest. Brazil would like permanent seat on the UN’s Security Council which the IMF can only push for.* China wants and will get the RMB made part of the UN “special drawing rights” – one more step in RMB’s move to central bank reserve currency status.

---------
* However most of the opposition comes from European nations with their hands out effectively to Brazil.

 

[Billy T]

“… In 2010, the World Bank agreed $11.4bn worth of loans to some 36 African countries. China also agreed a host of loans to African governments. One of them, a loan facility to Ghana, reportedly is worth almost $13bn alone. …

World Bank v China's Export Import Bank*
• Cameroon: WB $30m; China $743m
• Rep. Congo: WB $25.5m; China $75.8m
• Ghana: WB $313m; China $9.87bn
• Nigeria: WB $890m; China $900m
• Zambia: World Bank $95m; China $315m
(*data for Exim Bank are for specific reported loans; total amount of Chinese lending likely to be significantly higher)**

{Chinese loans} include the vast hydro power dam being constructed in the Coca River in Ecuador. …”
Coca River Falls photo & above text from: http://www.bbc.co.uk/news/business-16092634

Billy T notes: When the loan is in dollars, it reduces Dollars in China’s reserves, at least for years and for ever if, as is often the case, the repayment is in oil, minerals, food stocks, etc. as was the case of the 10 billion lent to Brazil’s PetroBras at least three years ago. (The Chinese will get 100,000 Barrels of oil per day, on average, for 20 years.)

When the loan is in RMB, little if any of the money leaves China. Instead the country or company getting the loan uses it to buy, for example in the Coco River project: steel, concrete, hydro-electric turbines and generators, transformers etc. from Chinese makers – part of why China’s export to Africa are up 14% in last few years and why China's exports are still growing even as those to US & EU shrink.

Effectively China has displaced the World Bank & IMF as the main lender to the undeveloped world and part of its “repayment” is also political support. The IMF has a current total to lend of $385 billion, but needs $500 billion more, just to help keep Greece from default.

Guess who the IMF and EU leaders are begging to help supply most of that sum. If China does, I bet part of the deal is the RMB becomes a component of the SDR.

** The ~13 billion loan to Ghana, mentioned in the BBC's text is obviously not included in the 9.87 billion of the ExIm Bank's table, which as the BBC notes is only SOME specific loans - the Chinese total is much higher than the table reflects, but even just the tabulated loans are huge compared to what the World Bank is able to do. China is where the money (and the future) is. an effect of this fact is:

"... China is luring more foreign job seekers as its economy shines amid the global slowdown. ... Nearly 600,000 expats live in China, according to the latest census in 2010. Before that, the nationwide census did not cover foreign workers. ..."More at: http://usa.chinadaily.com.cn/china/2012-01/21/content_14486215.htm