SYSTEMIC RISK: ECONOMIC STATISTICS

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A CONSTANT GLOBAL SEARCH FOR CLUES!

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INTRODUCTION:

Oil price above $100 (almost touched $150)? Worrisome! The systemic risk from this varible seemed almost unbearable to the international financial markets and most importantly regarding the painful effects on the world population (the poorest living on 1 dóllar a day and more than 2,000 million striving to have enough to eat everyday) from the food inflation buble at least in part as a consequence from the oil market demand (ethanol production, remember?)

Those were the headlines only a few months ago. How the circumstances change so rapidly! Now all the talk is stemming not from food or oil inflation but from the falling prices in the middle of a slumping of world consumption and production markets and with them the unemployment and deflation risks which could have the possible outcome of an economic depression!

Either way the poor will be in a desperate situation where the common denominator is striving for their very lives!

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TRULY REMARKABLE WORLD STATISTICS (Weekly Global Crisis Update; March 02, 2009):

GROSS DOMESTIC PRODUCT: We can clearly see a slower growth trend in developed countries. Growth Rates are falling dramatically everywhere Asia, Pacific, Europe, Middle-East, Africa, America. 2009 forecasts are pessimistic and getting worse by the day! Just now the IMF & the World Bank have just recognized the possibility of the 1st global contraction since WWII this year (2009) and let's remember that a positive growth rate of 3.5% was already considered a recession by world standards oscillataing between 4% and 5.5% in the years to 2007. Japan -12.7%, Singapore - 16.4%, South Korea -20.8%, Thailand -22-2%, México -10.3% (Change on previous quarter, annualised)

INDUSTRIAL PRODUCTION: Falling dramatically everywhere (many are already below the -10 point mark). A generalised world massacre with output rates falling from positive numbers, many above the 10 points level to the present negative ones below the 10 points. Outstanding are Spain -23.6%, Hungary -23.3%, Sweden -20.3%, Russia -16.0%, Singapore -29.1%, South Korea -25.6%, Taiwan -43.1%, Thailand -213%, Brazil -14.5%.

CONSUMER PRICES: According to the oil prices fall and a slowing growth trend in developed countries, we can see less inflation. Developing countries probably will follow the same path a little later on. ----Deflation and Depression are always a possibility though!----Heading toward zero in some advanced nations.Inflation is not a global problem anymore. Deflation anytime soon? Taiwan, Thailand at risk (negative numbers) and China just had its 1st fall in consumer prices in 6 years!..Gulp? The United States and Japan got nil (zero) inflation in January. We'll see more of this in the near future.

UNEMPLOYMENT RATE: Unemployment has increased in the US (now above 8% from 4.5 % only a few months ago) and UK, but we will see the same path followed by the other rich and developing countries. Many countries are just starting to feel the ripples of the falling world activity (Spain is already in great pain with a jobless rate of 14.4% ). Expect Germany's recent years' successs to reverse in the next months. South Africa with a 21.9%, Belgium 11.1%, Poland, China, Turkey, Russia, Colombia, Germany, France, Hungary, Indonesia have seen their respective rates shot up!

COMMODITY PRICES: Most have slumped (by a media of almost 50% in a year-period, though much more from their record hights of a few months ago). Gold has been the exception on greater demand as safe-haven status.

TRADE BALANCE: Exports as well as imports have fallen as the world economy slows down. China's exports slumped by more than 25.7% in February.

CURRENT ACCOUNT: High oil prices affected until recently most countries (exporters and importers). It will probably affect them in the opposite way once the recent dramatic fall is registered. The United States, S. Africa, Australia and Britain continue to have the greatest current account deficits in this table.On the specifics of each country, this is and will be a definite factor to cause currency crises. Watch the deficits carefully.

FOREIGN EXCHANGE: Most of the world currencies have lately depreciated as money has looked for refuge in the US Dollar. Many of these however have overshoot as risks factors feed speculation on a greater devalution. (After the Icelandic crown, the rouble or the Korean won for example) A notable exception is the yen (and the manipulated Chinese yuan) that has appreciated on returning speculative capital after global volatility and risk have increased.

BUDGET BALANCE: Regarding Budget Balances, we can forecast a global deterioration as growth slows and government tax incomes fall and governments expenditures rise:Expect to find bigger deficits in the coming months as most of the countries increase spending to soften their slowing economies. Oil rich and well-managed Norway being the exception, we'll see most of the emerging and advanced countries to get budget deficits of more than 3% this year (2009) with the United States 11% of GDP, United Kingdom 11%, Russia 6%, India 6%, Malaysia 5%, Pakistan 5%, Singapore 4%, Taiwan 5%, Thailand 4.%, South Korea 4%,Japan 5%, Venezuela 5%, Egypt 7%, Israel 5%, Saudi Arabia 8%, South Africa 4%, Greece 5%, Spain 7%, Germany 4%, Euro-Area 4.6%, France 5%, breaking many records (well beyond the taboo level of 3%). Even China with a 4% budget deficit...... Scandal!...

INTEREST RATES: Heading down to zero in the case of advanced nations' benchmark interest rates, especially in the Euro-Area, United kingdom, Japan and the United States. However, risk factors and some inflation pressures make higher interest rates in Asian, South American and Central and Eastern Europe, Africa, and the middle east (Israel exception) emerging markets well above the 5% mark. Main-street lending rates will continue to be extremely high on risk and a lack of willingness from banks to lend.

STOCK MARKETS: Before the last 2 weeks crack leveles everywhere. Most indexes had fallen near or around the 50% level in over a year. Now the losses hold at around the 10 to 15% (MSCI) World-all. Emerging Markets -4% to -6%; Richnations at minus 12 to 20%

HEDGE FUNDS: Since the beginning of this year they have recovered somewhat. Before they were Awful, awful awful. Not thought of as investment haven anymore (from falling world stock prices for example)

MONEY SUPPLY: Not an interesting factor anymore (in terms of measuring inflation risk). Maybe later on it will become important as some countries try to inflate their economies out of deflation.

FOREIGN RESERVES: To continue to be very big, though not as usuful as thought to be to avoid speculative attacks. (The rouble a case in point)

RETAIL SALES: Falling everywhere as prelude of the sinking GDPs.

PRODUCER PRICES: Falling dramatically. Deflation avoidable?

WAGES/EARNINGS: Expect falling incomes for individuals as well as for firms in the months ahead as an effect of sinking retail sales and rising unemployment rates.

EXCHANGE RATES (Trade Weighted): Competitive devaluations war coming up any time soon? Let's hope not!. Almost all currencies have devalued in the past year with respect to the dollar (yen, yuan exceptions). Lately though the dollar has lost some of its value with respect to euro for example.

BONDS:

World Bonds -5%, EMBI +1%

VOLATILITY (VIX):

Range 40% to 45%

CREDIT DEFAULT SWAPS (BASIS POINTS):

Europe: (ITRAXX) - 10.8 (In US dollars); North America (CDX) + 15%

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