In general, this week ended with energy and oil prices heading downward and major stock markets around the world responded in kind with rallies of their own. Sadly this will all be short lived in my opinion. The scope of the global market is generally very unstable at the moment.
As the article, Gold, Silver Rebound on Investor Demand for Inflation Hedge from Bloomberg LP investors and money mangers around the world don't think this rally is sustainable, as more have moved back into gold and silver markets to protect themselves from further inflation, the low dollar and rising fuel and energy costs--just as the majority of the western/industrialized world enters summer and turns on their air conditioning.
The lower fuel/energy prices we saw at the end of the week, the thereafter rally in airline stocks and other fuel intensive industries in the stock markets is nice, but in my opinion a general sign of investor speculation and ignorance, whom are desperate to make a quick buck $$$ in the wake of declining asset classes. Second thanks to comments by Saudi Arabian Oil Minister, Ali al-Naimi who stated "record prices are unjustified," (see full story - Crude Oil Falls as Naimi Says Record Prices are 'Unjustified' on bloomberg.com) Fuel prices will continue to inch up, my prediction is by September my rough estimate is it will peak at around 155-160 a barrel despite the efforts of international producers. Supply simply will not be able to keep up with demand, and despite rising prices, people will keep demanding. I know I'll be filling my car up in about a day or two, and putting the AC on while I drive.
Moving onto food, things are looking bad. Also summed up quite well in Bloomberg.com's Corn Rises to Record as U.S. Floods Curb Output; Soybeans Gain. The threat of rising oil, food and commodity prices in general has been given attention by leaders of the G-8 countries as they meet in Osaka to discuss the potential ramifications of inflation in food staples consumed by the majority of the world, and also possible ways to address the shortage and deliver relief to poor countries.
"The world economy continues to face uncertainty and downside risks persist," the officials of the G-8 said in a statement they released after the meeting in Osaka. It is clear, we're not through the worst of this global downturn. Other statements from the meeting of the global elite so to speak include:
"The G-8 is turning up the volume in terms of its inflation concern," said Claudio Piron, a currency strategist from JP Morgan Chase". "
"Elevated commodity prices, especially of oil and food, pose a serious challenge."
It's nice to know the leaders of the world are at least talking, but it seemed more talk and arguing was done than actual planning of actions to be taken. Oil output, weak dollar, inflation, etc where debated... sadly, while people go hungry around the world. So I'll use this opportunity to mention to all the readers out there, who like to exhaust their "downtime" on the internet, PLEASE do so by playing the vocab game at FreeRice.com and your efforts and vocabulary improvements can also go towards feeding people (see previous post on FreeRice.com if you want my take on it).
While all this looms in the background, China, which many back in 2006 already was on the brink of emerging as the new global center of economic activity has had a tough year not only because of the poor condition of the global economy, but because of touchy international relations and bad press from the "Free Tibet Protests" and people disrupting their Olympic torch relay... in addition, China's has had a tough year with good old mother nature-- the planets toughest and sometimes very cranky mother you can't exactly fight or argue with (like most mothers hehe).
Adding to the 8.0 earthquake, the aftershocks, the land slides, draining lakes created by the quakes, preventing dams from bursting and flooding 100,000 + people towns/cities, helping minimize the spread of disease among 100,000's of quake victims and displaced people around the country... Might I remind everyone that China also dealt with a devastating snow storm that practically froze southern China. This is something that rarely happens, it would be like witnessing the South East of the US (Florida, Alabama, Mississippi, etc) freeze. Southern China, which represents the center of economic activity was disrupted in the middle of the Chinese Lunar New Year, when people in China tend to move a lot of money around and invigorate the economy... this year that did not happen, if anything the country is still paying for it.
Now as you can see below in video footage and report provided by Reuters.com, China must now also deal with flooding across 12 provinces. These 12 provinces, include both Sichuan province which suffered the earthquake, and also many of the regions most affected by the snow storms earlier this year. Images have been provided by Xinhua, China's premier news agency.
See Video here -- (embed feature keeps putting wrong video on site)
Time will tell if China and the global economy as a whole will see some recovery this summer. The Olympics will as usual bring speculation, price rises in Beijing, and some short-term help to the economy. However, with the natural disasters this year, and the potential political issues that may arise during the games and the looming issue of Tibet-- China is going to have a rough rest of 2008, as will the rest of the world.
South America from a very general macro economic perspective seems poised to ride this downturn out. Commodity prices will continue to help their economies grow, even if they grow at a slower pace compared to the recent boom years (2003-2007), considering Latin America's history and second when the international investors and analysts around the world compare their current growth with other regions in 2008, they will see South America coming out on top.
However, problems are developing in Venezuela and Argentina in particular, where inflation as it does in other areas is picking up. None the less, unlike central bankers in the more fiscally more responsible countries as of recent; Chile, Peru, Brazil and Colombia; Argentina and Venezuela are not acting as they should.
Central bankers and finance ministers in Venezuela and Argentina lack independence are very biased towards supporting spending and keeping price controls in check with the government objectives. In Chile, Peru, Brazil and Colombia, even when influenced by the central government, bankers and finance ministers have exercised incredible restraint and shown great ability to at least manage inflation. For these countries this is a great accomplishment, for these countries that have had a history of being unable to combat inflation and experience's with long periods of hyper-inflation. For this region dangers remain in the form of the commodity bubble bursting from too much speculation--which I personally don't think will happen. The bubble may "burst," but it will be far from the dotcom crash of the late 90's.