Iron Ore Prices Collapse Into Bear Market On China Credit Concerns

Iron Ore prices have dropped 25% since the end of last year, sending the key steel-making component into a bear market after slumping by over 9% overnight – its biggest daily drop on record. We warned last week this was likely to happen on the heels of Copper prices fell on monetary financing fears as we explained here how Iron Ore replaced copper as the collateral pool for new loans (following China’s clampdown on cash-for-copper deals last year) and stockpiles hit record highs. What is further hurting the Iron ore prices are concerns over China’s new anti-pollution reforms which are set to close thousands of furnaces.

 

Iron Ore Stockpiles are at record highs…

 

The logic is simple: no stockpiles means end demand by steelmakers is brisk and there is no inventory build up which in turns keep Australia, Brazil and other emerging markets happy. Alternatively, large stockpiles indicates something is very wrong with final demand, and hence, the overall economy.

 

As we warned last week…

 

 

 

And what happened… Iron Ore prices are collapsing as the new monetary metal is delevered…

 

leading to lower collateral values and a rapid tightening of credit conditions which is simply a vicious circle for China’s subprime borrowers (the massively over-supplied and under-demanded steel industry being front and center)


    



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Ukraine Military Conducts Training Drill, To Test “Combat Readiness”

Just out from the Ukraining defense ministry:

  • UKRAINE ARMED FORCES CONDUCT TRAINING DRILL: DEFENSE MINISTRY
  • UKRAINE DEFENSE DRILL AIMED AT TESTING `COMBAT READINESS’: MIN

It may not be an abrupt ICBM launch, but it certainly increases the odds of some unintentional, or fully intentional, provocation between the Ukrainian and Russian militaries which as we have been following over the weekend, are amassing in very disturbing numbers in Crimea and, soon, east Ukraine.

For those who missed our coverage over the past few days, here are some of the clips foreshadowing this “drill” announcement. The first clip below captured the 80th Airborne Regiment out of Lviv moving out, direction mainland, preparing to repel foreign attack.

 

The next video shows what are allegedly Buk SAM batteries deployed in the Donetsk region, a city in Eastern Ukraine which in the past week has swayed between Ukraine and Russian authority.

 

The clip below shows the 95th Airborne brigade also moving out of their barracks in Zhytomyr in western Ukraine, heading East, with an impressive deployment of trucks and APCs.

 

2S19 “Msta-S” 152mm Howitzers on the move to Crimea.

 

Finally, 20 T-64 tanks preparing to depart in Bila Tserkva, a city in central Ukraine:


    



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Jacob Sullum on the Helpless Anger of U.N. Drug Warriors

The International Narcotics Control Board insists
that all countries conform to its reading of anti-drug treaties,
regardless of what their own laws say. Jacob Sullum writes that the
escalation of the INCB’s zero-tolerance scolding may signal a
worldwide re-evaluation of the never-ending, always failing war on
drugs.

View this article.

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Poll: 59 Percent of Americans Support Sanctions on Russia, Are Not Keen on Military Response to Ukraine Crisis

According to the
CNN/ORC International
survey released today almost 60 percent
of Americans support the U.S. and its allies using sanctions
against Russia in order to pressure Moscow into removing forces
from Crimea. The poll also found that more Americans approve than
disapprove of how President Obama has been handling the ongoing
crisis in Crimea by 48 percent to 43 percent.

Although most Americans do support sanctions on Russia in
response to the situation in Crimea the use of sanctions is opposed
by 55 percent of Americans under the age of 35. CNN Polling
Director Keating Holland believes that young Americans’ comparative
hesitancy regarding sanctions on Russia may have something to do
with the fact that they don’t have the memories of the Cold War
that older Americans do. From CNN:

More than six in 10 older Americans support sanctions, but 55%
of Americans under the age of 35 oppose them,” said CNN Polling
Director Keating Holland. “It’s possible that generation gap is due
to older Americans’ memories of the Soviet Union as the chief
threat to the U.S.; many younger Americans may have no memory at
all of the Cold War and most of those under the age of 25 were not
even born when the Soviet Union collapsed.”

While almost 59 percent of Americans do support the U.S. and its
allies imposing sanctions on Russia slightly over half oppose
sending economic aid to Ukraine, and over 75 percent are against
sending military supplies to Ukraine.

When it comes to possible military responses to the Ukraine
crisis Americans are overwhelmingly opposed, with only 12 percent
of respondents saying they would support having American troops on
the ground in Ukraine and 17 percent saying they would support U.S.
airstrikes on Russia forces in Ukraine.

This is not the first time during Obama’s presidency that
polling has shown that Americans oppose military responses to
international crises.

Shortly after the chemical attack in Syria last summer
Reuters/Ipsos poll found that
only 9 percent
 of Americans favored a U.S. military
response.

Earlier today Reason.com published an
article
by Steve Chapman on the futility of sanction on
Russia.

More from Reason.com on Ukraine here.

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The 99 Cent Non-Recovery: McDonalds US Sales Post Longest Negative Streak In Over A Decade

Moments ago McDonalds reported its latest monthly comp store sales numbers. Printing at -1.4% for the US, this was a nearly double miss to expectations of a 0.6% decline, and was the 4th consecutive monthly drop in annual sales – the longest such stretch in the past decade and likely longer. Looking at this data, there are two observations: i) Americans, courtesy of record obesity rates, are finally getting serious about their health, and have shunned the infamous 99 cent deep fried meals or ii) courtesy of the Fed’s “Fed’s recovery”, the average American can no longer even afford sub-$1 deep fast food.

There is a third option: that it snowed… In fact it snowed so much, everywhere, and the weather was so harsh around the world, that global store sales declined by 0.3%, far below the modest 0.1% drop expected. Yup. Must have been the snow.


    



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A.M. Links: Malaysia Flight Vanishes Without Trace, Rand Paul Wins CPAC Straw Poll, Family Hospitalized After Eating LSD-Tainted Meat

  • and the lsd is where?Malaysia Flight MH370 went missing en route to
    Beijing over the weekend. Two of the passengers were reportedly on
    stolen EU passports, and police in
    Malaysia
    say they’ve identified one of those passengers. No
    trace of the plane has been found yet.
  • Rand Paul won the presidential straw poll at
    CPAC
    for the second year in a row.
  • The army’s top sexual assault prosecutor was suspended after
    being accused by one of his attorneys of sexually assaulting her at
    a sexual assault conference in
    Alexandria, Va
    .
  • 73 students were arrested and four officers were injured while
    cops tried to break up pre-St. Patrick’s Day’s festivities at the

    University of Massachusetts at Amherst
    .
  • A family in Florida was hospitalized after eating meat from

    Wal-Mart
    that was apparently laced with LSD.
  • A magnitude 6.9 earthquake hit off the coast of
    California
    , but no tsunami is expected.
  • George Zimmerman signed autographs at the
    Orlando Gun Show
    , whose original venue cancelled, citing
    community pressure about the planned Zimmerman appearance.

Follow Reason and Reason 24/7 on
Twitter, and like us on Facebook. You
can also get the top stories mailed to you–sign up
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The Death of the Constitutional Militia and the Rise of the Military-Police State

From Instapundit Glenn Reynolds’
USA Today column
, which looks at the role the militia
played during the American founding:

In 1912, when the federal government tried to send militia
units into Mexico, the militias balked, noting that the
Constitution allowed them to be called out only to repel invasion,
suppress insurrection, or enforce the law — not to invade other
countries. Surprisingly, perhaps, Attorney General George
Wickersham agreed, leading to a change in the law that produced the
modern-day National Guard, a force that is not so limited. Since
then, America has been far more active abroad.

But this departure from the system the Framers set up has
encouraged more intrusive law enforcement at home, and more
military action abroad. So I’ll ask you: If a well-regulated
militia is necessary to the security of a free state, then are we
insecure? Or unfree? Or both?


Read the whole thing.

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Key Events In The Coming Week

This week brings a slew of central bank meetings: At the forefront will be the BOJ meeting on Tuesday where no changes to monetary policy are expected. However, we will be watching the commentary closely for hints to further monetary easing in the coming months. Goldman, and others, still expect the BOJ to provide additional stimulus in the second quarter of this year as the impact of the consumption tax hike on the economy becomes visible – it is that expectation that sent the USDJPY above 100 in late 2013 and any disappointment by the BOJ will certainly have an adverse impact on the all important Yen carry pair.

In terms of the key data to watch this week, the themes of recent weeks remain the same: US activity data, with retail sales and the U. Michigan Consumer sentiment survey the main releases, European inflation trends (French and German HCPI data on Thursday and Friday, respectively), and finally external balances in EM. Within that group, the latest data points for trade and current account balances in India, Turkey and South Africa will receive the most attention.

Monday, March 10

  • Japan Current Account Balance (Jan): Consensus -¥1411.8B, previous -¥638.6B
  • Japan Economy Watcher Survey (Feb): Consensus 54.1, previous 54.7
  • Israel MPC minutes
  • Canada Housing Starts (Feb): Consensus 190k saar, previous 180.1k
  • Also interesting: France/Italy/Turkey IP, Israel GDP, Norway CPI

Tuesday, March 11

  • Japan BOJ meeting: We and consensus expect no change to current policy measures.
  • US Wholesale Trade (Jan): Consensus +0.5%, previous +0.3%
  • Italy GDP (Q4, Final): Consensus +0.1% qoq, previous +0.1%
  • Israel Current Account Balance (4Q): Previous US$363mn
  • Also Interesting: UK/Brazil IP, Ukraine GDP, Hungary Consumer Prices

Wednesday, March 12

  • US Federal Budget Balance (Feb): Consensus -$206bn, previous -$10.4bn
  • UK Trade Balance (Jan): Consensus -£2200, previous –£1.0bn
  • Japan Consumer Confidence (Feb): Consensus 40, previous 40.5
  • Spain HCPI (Feb, final): Consensus flat yoy, previous flat
  • Euro Area IP (Jan): Consensus +0.5% mom, previous -0.7%
  • Turkey Current Account Balance (Jan): Consensus -US$5.3bn, previous -US$8.3bn
  • South Africa Current Account Balance (4Q): Consensus -ZAR192.7, previous -ZAR232.7bn
  • Brazil IPCA Inflation (Feb): Consensus +0.65% mom, previous +0.55%
  • Also Interesting: India CPI, Hungary Trade Balance, Australia Housing Finance

Thursday, March 13

  • US Retail Sales (Feb): Consensus +0.2%, previous -0.4%
  • US Retail Sales ex autos (Feb): Consensus +0.2%, previous flat
  • US Retail Sales ex autos, bldg materials, gas (Feb): Consensus +0.3%, previous -0.3%
  • US Business Inventories (Jan): Consensus +0.4%, previous +0.5%
  • China IP (Feb): Consensus +9.5%, previous +9.7%
  • China Fixed Asset Investment (Feb): Consensus +19.4%, previous +19.6%
  • Australia Unemployment Rate (Feb): Consensus 6.0%, previous 6.0%
  • Australia Employment Report (Feb): Cconsensus +15k, previous -3.7k
  • UK RICS Housing Market Survey (Feb): Consensus 52%, previous 53%
  • France HCPI (Feb): Consensus +1.0% yoy, previous +0.8%
  • Italy HCPI (Feb, final): Consensus +0.5% yoy, previous +0.5%
  • Sweden Unemployment Rate (Feb): Consensus 8.4%, previous 8.6%
  • Also Interesting: Spain/China/Brazil retail sales, Colombia MPC minutes, Russia Trade Balance, Mexico IP, US initial jobless claims

Friday, March 14

  • US PPI (Jan): Consensus +0.2%, previous +0.2%
  • US Core PPI (Jan): Consensus +0.1%, previous +0.2%
  • US U. Michigan Consumer Sentiment Survey (Mar): Consensus 82.0, previous 81.6
  • Germany HCPI (Feb, final): Consensus +1.0% yoy, previous +1.0%
  • Russia MPC meeting: We and consensus expect no change in interest rates following the CBR board’s decision to hike its policy rate by 150bps in an unscheduled meeting on the morning of March 3.
  • India Wholesale Price Index (Feb): Consensus +4.9% yoy, previous +5.1%

The same, charted via BofA:

Source: Goldman, BofA


    

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China’s Pollution Problem (In 1 Stunning Chart)

The disgusting images of face-mask-wearing Chinese going about their daily business in minimal visibility and lung-busting conditions are strewen across the interwebs. However, even fake sun-rises pale into significance when the full dismal reality of China's pollution problem is put in context. Perhaps the following chart is why China's latest round of reforms appear to 'declare war on pollution'.

 

h/t @conradhackett

 

And it seems that has finally tipped the Chinese over the edge to do something about it… (via Charles Kennedy via OilPrice.com)

On March 5th China’s Premier Li Keqiang declared war on pollution, outlining significant steps the Chinese government will take to improve air quality. China has suffered from truly epic smog over the last two winters, choking its cities’ inhabitants and cutting off visibility. The pollutants in the air have surpassed hazardous levels, at times jumping beyond the index that measures particulate matter.

 

"We will resolutely declare war against pollution as we declared war against poverty," Li Keqiang told the legislature, according to Reuters. The central government’s top concern has always been social stability, and the Premier’s announcement that China will take some drastic measures to improve the environment indicates that the government is beginning to worry that air pollution may spark unrest around the country.

 

Among the measures the government will take, Li said the government’s focus will be on reducing particulate matter (PM 2.5 and PM 10). The government will shut down 50,000 small coal-fired furnaces in 2014, and overhaul power plants in high intensity industries. China will also reduce steel production by 27 million tonnes in 2014 – equivalent to the total output of Italy. Also, the government will look at reforming energy pricing in an effort to pave the way to greater use of renewable energy and nuclear power. The government also hopes to remove six million high-emissions vehicles from the nation’s roads.

 

The speech comes after an announcement last month by the powerful National Development and Reform Commission (NRDC) that the government will spend $330 billion to reduce water pollution. Much of China’s agricultural land and rivers are contaminated with heavy metals.

 

Over the last several decades, China has succeeded in lifting hundreds of millions out of poverty, often described as the greatest achievement in poverty reduction in human history. China hopes to continue to grow, but now with a greater pro-environmental focus.

Of course this all sounds great until growth is affected – or a coal plant is shutdown causing contagious defaults across the shadow banking system… at which time we will see just how committed the Chinese government really is…

Here, as we explained previously, are the coal-mining-industry-based trust products…

We believe that coal mine trusts are the most likely to default over the coming months because 1) coal price has dropped sharply in recent quarters; 2) most of the issuers are private enterprises; and 3) they tend to be from provinces whose governments rely heavily on resources related income, e.g., Shanxi and Inner Mongolia.


    



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Join Reason & IHS for a Book Launch Party with NYT Bestselling Author Anne Fortier Weds., 3/12!

Anne FortierReason and IHS would like to invite you to a book
launch event on Wednesday, March 12th featuring IHS alum
and former IHS staff member, Anne Fortier’s new
novel, The
Lost Sisterhood
.

New York Times bestselling author of JULIET, Anne Fortier, will talk about
her new book, The Lost Sisterhood, a mesmerizing
novel about a young scholar who risks her reputation–and her
life–on a thrilling journey to prove that the legendary warrior
women known as the Amazons actually existed (read more
at www.annefortier.com).

Join us following the launch event, for an after–party at
Reason’s DC office where Anne will discuss literature and liberty
with friends and supporters.

  • Date: Wednesday, March 12 
  • Time: 7:00pm – Book Launch and Signing Event;
    8:30pm – After-party celebration at Reason 
  • Location: Books-A-Million in Dupont
    Circle
    11 Dupont Cir NW, Washington, DC; Reason DC HQ
    1747 Connecticut Ave NW (5 minute walk north on Connecticut
    Ave.)

Please register
online
for this event or email Katie Vernuccio at kvernuccio@ihs.gmu.edu.

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