2011-02-26

Euro bulls increase

Speculative euro longs are at their highest point in more than a year. As for silver, the big week wasn't met with an increase in speculative longs. The data is from Tuesday, but the big spike in silver started at the end of the previous week. If there wasn't a large increase in bullish bets at of Tuesday, there likely aren't as of today. The short-term RSI indicator is showing silver near overbought levels, but not at an extreme, which comports with the COTS data.

2011-02-25

Here comes the inflation?

Inflation Is Here, and It Is Going to Get Worse
Based on past massive monetary pumping and using the time lag of 36 months, we can suggest that the growth momentum of the full CPI and the CPI less food and energy is likely to visibly strengthen in the months ahead. We forecast that the yearly rate of growth of the CPI could rise to 2.4 percent by September before jumping to 4.4 percent by December. Year on year, the rate of growth of the CPI less food and energy is forecast to climb to 1.5 percent by September before climbing to 2.7 percent in December. The message from our monetary analysis that there is a growing risk of acceleration in price inflation in the months ahead.

2011-02-24

U.S. economy is fried according to Goldman

I don't know what other conclusion can be reached if $61 billion in cuts will hammer GDP growth.

Goldman Sees Danger in US Budget Cuts
The Republican plan to slash government spending by $61bn in 2011 could reduce US economic growth by 1.5 to 2 percentage points in the second and third quarters of the year, a Goldman Sachs economist has warned.

Truly global markets: K-Pop edition

This is a great video discussing the rise of Korean pop music. Jump to the 10 minute mark, the part on Korea goes for more than 15 minutes. Some highlights: almost everyone speaks English at the Korean music companies (a complete reversal from the 1990s); music is a means not an end, songs sell for as little as $0.05; there's no Korean radio scene, music jumps straight to a global audience via the Internet; English K-pop websites generate more traffic than Korean websites.

Korea doesn't have good demographics, but consider the youth bulge in Asia versus the flat populations in the West. Also, the shift in economic power from West to East. The segment also discusses the rise of the Korean movie industry, which has been putting out Hollywood quality movies for a decade. That's in terms of technical sophistication, they have also created some unique movies that put Hollywood to shame.

2011-02-22

Migrant workers don't return after Spring Fesitval

Migrant Workers Stay Home, Stinging Employers
A longtime attraction for migrants is a relatively high wage level in eastern regions, which can be about 20 percent above those in central and western provinces. But more recently the wage differential has become less attractive, since eastern living costs have risen and are higher than elsewhere.
In addition, workers have become increasingly unwilling to leave hometowns, children and other relatives for dormitories and assembly lines far away.

Chinese Academy of Social Sciences scholar Cai Fang also notes that the nation's labor force is growing more slowly than the demand for goods in rapidly growing China.

Cai said China's working age population is nearing its peak and predicted that it will stop growing after 2015. That's when the nation's so-called demographic dividend will disappear.

Gong Sen, a researcher at the State Council Development Research Center's Social Development Office, agreed the nation's labor supply has turned a corner. What had been a seemingly unlimited supply is now falling, and employers can expect more worker shortages.

But some experts have challenged the forecasts of permanent shortages for the labor pool. Zhang Libin, labor market office director at the Ministry of Human Resources and Social Security, argues that the overall worker supply is still increasing in China, and that current shortages are merely structural, tied to a changing labor force.

Companies in general are contending with a shortage of younger migrant workers, who are more mobile than ever and more likely to shop around for better offers, which leads to high turnover rates, Zhang said. On the other hand, she said, fewer jobs are available for older migrant workers, and university graduates have trouble finding suitable work.
As I showed in the post Labor costs soar in China, the population of entry-level workers is in decline. The total labor force is still growing, but entry-level factory workers are fewer. Mix in all the other factors and it is a powerful force that will push wages higher in the coming years.

Sidewalk rage story has legs

Study: ‘Sidewalk Rage’ Plagues New York City Streets

The sidewalk rage story in the Wall Street Journal isn't a one-off event, New York's CBS affiliate has picked up the story.

2011-02-21

Understanding China's market

When a free market takes hold, the market that emerges will be an expression of that native culture and religion. This goes for strange ice cream and potato chip flavors to entire business models. Here are three news stories I read today that illustrate this well.

Microsoft likens China market to 'Wild West
Zhang said many areas of business on the mainland were "unclear" making it hard for overseas companies to adapt to the market. "This lack of clarity exists in many aspects, from the competitive model and capricious customers to China's policies and regulations," he said.

Zhang compared market conditions on the mainland to "the Wild West". He said there were no rules as long as companies achieved the ultimate goal: making a profit.

He said he believed it would take a long time for overseas companies to acclimatise. "Now many companies have noticed the problem but it will take years to conquer the maladjustment," he said.

Despite this, he said China was Microsoft's most important market apart from the US. "China is our significant strategic centre. It is not just a market centre - we are not here just to sell."
Microsoft gets it. Best Buy didn't.

Best Buy to Close China Stores
The Richfield, Minn., retailer announced Monday evening that it was shuttering its nine Best Buy branded locations in China, which have struggled to perform as well as similar big-box stores in the U.S., and was also exiting the Turkey market, where it recently began retail operations.

Instead Best Buy said it would focus on growing in China under another retail format called Five Star that has proven more successful; it disclosed plans to open 40 to 50 additional Five Star stores in 2012.
The imported business model failed, but the organic one survives.

Finally, here's a market in branded eggs.

Egg revolution hatching down on the farm
One Sichuan egg farm claims its hens are raised in bigger cages so that they can get more exercise and produce better quality eggs, while a Shanghai firm says its hens are given only vegetarian food and their eggs can be eaten raw, thanks to certain technology introduced from Japan.

Although the prices of these eggs are usually twice that of ordinary eggs, the sales gimmicks they use are often effective in attracting health-conscious buyers.

"I only buy branded eggs," said Zhang Fengxia, a Beijing mother of a two-year-old girl. She is a loyal customer of "tu eggs" or, literally, "earth eggs", whose producers say their hens are raised cage-free and fed worms.

"I know it's hard to verify whether what the producers say is true or not," Zhang said. "But I generally believe something with a brand rather than those coming from somewhere unknown."

2011-02-20

Negative mood manifesting around the globe

The above is from the recent front page of the Drudge Report.

To some extent the headlines and news media are hyping events. The Middle East is truly revolutionary, but events in China and Wisconsin are far more pedestrian. However, it's clear that there's a global phenomena in the manifestation of negative social mood that is self-reinforcing.

In Italy, Prime Minister Silvio Berlusconi is under a cloud of scandal. He is always under a cloud of scandal, but now it is turning serious as he faces charges for abuse of power and paying for sex with an underage hooker. This is in Europe, which mocked America's seriousness during the Clinton scandal, but now they are enraged. In part, this may be politics,since Berlusconi is "right" and Clinton "left," but the fact remains that the public is turning on its leader.

This has implications for the protests in the Muslim world because Italy has close relationships with some North African countries such as Libya. Pressed to engage the Libyan leader, Berlusconi has taken a hands off approach for now.
Berlusconi won't 'disturb' Gaddafi amid bloodshed

In Germany, the public rejected Angela Merkel's ruling coalition, an event that is being widely interpreted as a rejection of EU bailout policies. This is reflected in the results. Merkel's center-right party was defeated by the center-left adopting even more right-wing policies, while a left party underperformed and a right party outperformed.
Merkel’s party trounced in Hamburg poll
Ms Merkel’s liberal Free Democrat coalition partners in Berlin did better than expected in the Hamburg poll. Exit polls showed that they were on course to obtain around 6.5 percent of the vote, a result which would enable to enter the city parliament.

The environmentalist Greens had hoped to secure around 15 percent of the Hamburg vote and share power with the Social Democrats. However exit polls suggested that they would pick up just under 12 percent.

Mr Scholz defeated his unpopular conservative opponent Christoph Ahlhaus by advocating rightwing pro- business policies which some critics argued were “more conservative” than the conservatives. “We have been given the support of a large number of voters and we must ensure that we meet our pledges,” Mr Scholz declared last night.


And of course, in South Korea, the bank runs continue
S.Korea bank runs prompt more suspensions

Workers line up to join Foxconn

So much for worries about stressful work conditions.
Shenzhen Daily: Thousands of job seekers at Foxconn

"I have heard they've raised wages here, you can get up to 3,600 yuan per month, compared to other companies the pay is much higher," a job applicant from Hunan said.

Goldman Sachs derivatives fraud

A big headline in the Chinese news this weekend is Goldman Sachs derivatives fraud causing loses for domestic Chinese state-owned companies. Shenzhen Economic Daily has the story:。 The Google translation is terrible in some places, it cannot even translate 忽悠, which means to dupe or to con.

The translation isn't critical to see that the firm remains a target of populist anger. A popular book in China is the "Goldman Sachs Conspiracy" and rising commodity prices only remind people of the speculators.

高盛涉嫌欺诈国内企业真相 忽悠是企业巨亏主因
Appear in the derivatives market from the first fuel huge losses to the large number of central enterprises, the local state-owned enterprises, private enterprises and individual investors (rich) cheated, many domestic enterprises to the risk of a vivid lesson. Industry experts say, Goldman Sachs and other international financial institutions, the behavior of derivatives fraud never stops, new cases have surfaced recently, the complex financial derivatives approach is still not

Today, this newspaper through the analysis of some domestic enterprises recruit the typical case, let more people know the truth of Chinese enterprises been fooled, so that domestic enterprises so as not to make the same mistake.


  CIC Securities Zhang Xiaodong, general manager of financial derivatives:

  Goldman 忽悠 main reason is the huge loss of domestic enterprises

  Investment securities and financial derivatives in managing director Zhang Xiaodong, when interviewed yesterday, said that in 2008, a large number of central enterprises, the local state-owned enterprises, private enterprises and individual investors (rich) in equities, foreign exchange, commodities have suffered huge losses on . Loss of large and covers the breadth and victims is unprecedented. However, the loss of the causes, processes and issues to deal with the outbreak was dense fog, while the enterprise with Goldman Sachs led to huge losses on the gambling, while the global financial tsunami has caused business losses. What is the truth in the end? Goldman Sachs and other international financial institutions suspected of fraud by selling toxic financial derivatives, is the leading domestic enterprises, the main reason for the huge losses.

  Zhang Xiaodong long been concerned about the development trend of financial derivatives, Goldman Sachs and other international financial institutions will be the complex derivatives contracts, through careful analysis and classified, using simple, non-professional language vividly demonstrated. He said the trap a lot of financial derivatives, ordinary people and even professionals to understand derivatives contracts, is not a very easy thing.

  Zhang Xiaodong introduction, Goldman Sachs and other international financial institutions to complex derivatives contracts are a distinctive feature, is to participate in the investment income is limited and unlimited risk, limited exposure to international investment banks for the benefit of very impressive. And through the sweetness of your lost little goers: the first contract is generally still profitable, the second extension of the contract or you become addicted.

  Zhang Xiaodong said, why do so many businesses and individuals in the move? Large central enterprises in the move, may not be responsible for business leaders, but also as private enterprises and the rich in the move? This shows that this is not a simple question of responsibility. Current financial regulatory system is imperfect, the lack of financial derivatives professionals, enterprises and individuals do not have the ability to Goldman Sachs and other international financial institutions are again succeeded in the important reasons. "Most business-to-price valuation of derivatives contracts, transactions, knowledge is almost zero."

  Zhang Xiaodong introduced so far, no one stood up prosecution of multinational financial institutions such as Goldman Sachs, for several reasons: lack of professional ability to reason, reason unknown sources of wealth, a slavish comprador mentality reasons.

  Zhang Xiaodong, that Goldman Sachs and other international financial institutions sell to the domestic enterprises of toxic financial derivatives, in addition to alleged commercial fraud, but behind it is organized and premeditated killing. Speed connection is definitely not as easy to imagine the outside world, while the Goldman Sachs people just clever use of common speed connection mentality, designed for domestic state-owned enterprises actually looks like an agreement on the financial trap of gambling contract. Many enterprises and international financial institutions such as Goldman proud, so that after the move was not easy to quit.

  Zhang Xiaodong, pointed out that currently, Goldman Sachs involved in any one market, PE (private equity) market, commodities market, the domestic stock market, bond market, almost every shot has a lot of money income, and many dozens of times IPO projects and even profit hundreds of times. For this situation is certainly not normal, this highly respected in China and Goldman Sachs are not unrelated.

  Zhang Xiaodong, when a large number of Chinese companies under the gun down at Goldman Sachs, when Goldman Sachs, the U.S. Government to prosecute, when subjected to heavy fines, Goldman Sachs fame in China is growing even bigger. Goldman Sachs to see a book on the market, you can find the status of Goldman Sachs in China, how "high", how great the image of Goldman Sachs. Executives from the financial sector to the common shareholders, from government officials to ordinary citizens, all worship at the feet of Goldman Sachs.

  Zhang Xiaodong said, in November 2008, the SASAC emergency brake on the central rate derivatives trading, derivatives trading was suspended. But this is only an expedient measure. As a large-scale production enterprises, the future could not get involved in hedging and hedge risk.

  Zhang Xiaodong said that a business can not be unworthy of any, to accelerate the development of Chinese financial institutions to develop derivatives professionals, development of financial derivatives. Those who need to hedge the business, financial institutions may engage consultants to do derivatives, to draw lessons from the failure of derivatives to enhance this area of expertise and professional competence. Goldman Sachs and other international financial institutions expect conscience, not to sell the idea of toxic financial derivatives, may never be wishful fantasy.

  Zhang Xiaodong said, Goldman Sachs and other international financial institutions, derivatives, fraud never stops, new cases have surfaced recently, is which specific domestic companies cheated now disclosed. He said the complexity of derivatives contracts there are many ways of fraud, and the patterns and techniques are constantly refurbished. How to let more people know the Chinese enterprises by the "fraudulent" the truth, how to avoid making the same mistakes, how to strengthen China's financial institutions and Chinese enterprises in the financial derivatives market on the ability, is indeed an urgent task. Only through improved ability to distinguish in this respect, be possible to avoid the hit.

  Shenzhen Nanshan Power and Goldman Sachs contract

  Not for gambling but die

  December 2008, Shenzhen Nanshan Power with a wholly-owned subsidiary of Goldman Sachs, "Jie run company," derivatives of oil dramatically early termination of the agreement. Although the follow-up may also have a legal dispute, but after being to avoid the loss of millions of dollars per month.

  March 12, 2008, Shennan electricity and Jie Yun and 165,723,968,102.11 165,723,967,102.11 signed a contract confirmation number.

  After the scandal, the media and some experts criticized the Shenzhen Nanshan Power hedging transactions are not, but gambling, said the two agreements on the gambling agreement. Investment securities and financial derivatives in the Managing Director Zhang Xiaodong, that power with high Shengjie Run Shennan exchange contracts entered into are not gambling, but to die. Because oil prices, Shenzhen Nanshan nothing; while oil prices fell, Nanshan Power will be huge loss.

  Zhang Xiaodong, a detailed analysis of these two agreements, to explain why this is not gambling but rather die.

  Shenzhen Nanshan Power and total signed two agreements with Goldman Sachs. The first agreement is very simple, that is if oil prices above 62 dollars, Nanshan Power profits, on the contrary, Goldman Sachs profit. Of Shenzhen Nanshan Power, the most profitable no more than 300 million dollars; for Goldman, earnings of up to tens of millions of dollars.

  Second agreement is completely different. The agreement provides Goldman Sachs the right to December 30, 2008 to decide whether activation of the first agreement with an option similar to the other swap. The options exchange swap with the first surface substantially similar options, but in fact completely different, mainly in several ways.

  First, the option for a first swap agreement, Shenzhen Nanshan is the active participation; while the second agreement that the options exchange, Shenzhen Nanshan Power is passive, no choice. Goldman Sachs according to market price fluctuations, and choose whether to activate the second option in the swap agreement.

  Second, the first agreement, the Nanshan Power likely to get the maximum profit of $ 3,000,000, while in the second agreement, the Shenzhen Nanshan no profit possible.

  Third, the first agreement, the maximum loss of electricity Shennan 400 million; while in the second agreement, the price of oil by the end of 33 U.S. dollars in 2008 to design, Shennan loss of power will be up to a month $ 12,000,000, the largest loss of up to $ 260,000,000. Even if oil prices over 66 U.S. dollars, the maximum monthly profit of Shenzhen Nanshan only 34 million, or 18 months, the maximum possible profit of more than 600 million U.S. dollars only.

  Goldman Sachs, the most from these two contracts, thanks to $ 3,000,000, up to make hundreds of millions of dollars, and has full control of risk; of Shenzhen Nanshan Power, the maximum profit of $ 3,000,000, the largest loss of hundreds of millions of dollars, risk without any controls. Therefore, the Shenzhen Nanshan agreement with Goldman Sachs is not a gamble agreement.

  Goldman Sachs through the first 300 million dollars contract bait to lure into the Shenzhen Nanshan a big trap.

  On the surface, the second agreement between the two sides of the gambling December 31, 2008 after the price of oil above or below the $ 64.5, but the point is that the activation of the agreement the right hands at Goldman Sachs, and Goldman Sachs activation The agreement is premised on oil prices in the end of December 2008 is far below the $ 64.5. If then the price of oil much higher than $ 64.5, Goldman does not activate the contract.

  The second contract is actually an option on the option, known as compound options (Compound Option). This option pricing is usually more complicated, not any one non-financial companies have pricing power for such products, according to Zhang Xiaodong terms, this compound options worth up to tens of millions of dollars. The Shenzhen Nanshan Power was handed over to the options given to Goldman Sachs.

  Goldman Sachs with the hunting of Shenzhen Nanshan Power CAO robbed and killed in 2005 used very similar way, all through the compound option, the use of the complexity of the product and pricing advantages, access to huge gains.

  Shenzhen Nanshan Power Deputy General Manager violin yesterday in an interview that the company and a wholly owned subsidiary of Goldman Sachs run company disputes Jie, all the companies subject to periodic reports and company announcements. If new circumstances will be the first time the company disclosed.

  Journalists access to Shenzhen Nanshan disclosure of relevant content is the latest 2009 annual report, annual disclosure of the contents of the two contracts. Report said that in April 2008 to 10-month period, based on the above two certificates, Jie run companies pay to the company 210 million dollars.

  Shenzhen Nanshan Power said that although the two sides to terminate the transaction confirmations and different reasons, but confirmation of this fact and transactions have been terminated no differences. Transaction termination, Jie Yun trading company sent a letter to require the Company to terminate compensation for the loss, while a separate letter expressed the hope that a commercial settlement of disputes. Not accept the company write back Jie run company's claim for damages, while a separate letter agreed to peace talks. After several rounds of consultations between the two sides and negotiations, no consensus. November 27, 2009, the Company Security Council received a letter of international law firm, letters to the matters described above, and require the company to compensate the company total $ 79,962,943.00 Jie Yun losses and ended November 27, 2009 $ 3,736,958.66 in interest. Companies in the January 25, 2010 reply letter will not be accepted Jie run company's claim for damages. Management to determine if the negotiation fails, do not rule out the two sides to resolve disputes through judicial means possible.

  Shenzhen Nanshan Power Board considers that the two certificates and transaction parties to the transaction has been terminated; the progress of this matter, there are many uncertainties at this stage not possible to resolve future methods and the results estimated.

  How to fall into the CAO

  Goldman Sachs extension options trap

  For the Chinese companies involved in financial derivatives market, China Aviation Oil (Singapore) Ltd has the benchmark significance.

  In 2004, China Aviation Oil (Singapore) in oil derivatives trading losses of about 5.5 billion U.S. dollars.

  Death in the "extended option"

  It is reported that China Aviation Oil (Singapore) was started in 2001 trading in oil derivatives, in addition to hedging, the company also launched its own trading activities.

  And Goldman Sachs in Singapore, Jie Yun trading company, the China Aviation Oil (Singapore) from the beginning doomed to failure.

  Goldman Sachs and General Aviation Oil (Singapore) derivatives contracts can be summarized as follows: Goldman Sachs to sell at low prices first, China Aviation Oil (Singapore) a product, so that China Aviation Oil (Singapore) must make money, but profits cap. At the same time, Goldman Sachs gave you since China Aviation Oil (Singapore) such a positive opportunity to make money, and that China Aviation Oil (Singapore) also give something back to Goldman Sachs, the China Aviation Oil (Singapore) agreed
(Source: Shenzhen Daily)

2011-02-18

Silver bulls, silver bulls...


The data ends on February 15, before the run-up in price on Thursday and Friday.

There goes silver, will gold follow?

Zero Hedge had the chart of silver backwardation up yesterday. It's popping today for reasons specific to the silver market, but this is not as isolated as it seems, since it may have to do with physical supply constraints in the trading market. King World News has been all over this story.

A long-term chart of the gold/silver ratio shows that silver is nearing its high point for the past couple of decades (the gold/silver ratio is near a low point). I have no guess as to whether it will break into a new range or not. However, I expect gold prices will head higher and therefore, silver can still move up even if it loses relative ground to gold.

Japan imploding and no one is watching

Mish has some coverage on Japan today in Japan's Social Security Panel Wants to Double Sales Taxes; Tax Cut Independents Win Local Elections in Landslide; Japan's Debt Trap Has No Escape

He links to an article about election results that speaks to the social mood in Japan.

ANALYSIS: Japan's two-party system is collapsing
Landslide victories for independent candidates in local elections in central Japan earlier this month shocked the nation's two major parties and revived public doubt about the nascent two-party system.

'It is the beginning of the collapse of the two-party system,' Minoru Morita, a veteran political analyst, said.

The independents, Hideaki Omura, and the Nagoya Mayor Takashi Kawamura, who campaigned for tax cuts, defeated candidates endorsed by the big parties in the Aichi gubernatorial election and the mayoral race.

Omura, who was ousted from the opposition Liberal Democratic Party (LDP), and Kawamura, a former Democratic Party of Japan (DPJ) member, took advantage of the public's frustration with the two parties, analysts said.

'Those who support Ichiro Ozawa also voted for Omura and Kawamura as the DPJ has been divided over infighting,' Morita said, referring to the scandal-tainted former DPJ leader, one of Japan's most influential political figures.

'Many Japanese have been repulsed and furious over the DPJ as they voted for the party [in 2009] expecting that it could bring about major changes to the nation's politics,' Morita said.
The LDP pretty much ran Japan as a one-party country for most of the post-war era, until the DPJ knocked them out less than two years ago. However, the nascent two-party system, as the article describes it, is already breaking down into multi-party democracy—at least for now.

I don't know the particulars of the Japanese electoral system, but it appears they have proportional representation, which means the one-party system was cultural. In the U.S., a multi-party election (such as in 1860) results in a minority candidate winning the seat. Therefore, even if multi-party elections took place, the system would collapse back towards two parties. In Japan, cultural inertia could push the country back towards one or two parties, but there is no structural push.

Social mood is going to turn very negative in Japan. They are broke and there are no bailouts coming. Nikkei versus gold hit a new low in November. An interesting factoid I saw recently was that gold has not reached a new nominal high in yen. In 1980, when gold hit $875 an ounce, the exchange rate from $ to ¥ was about 230. Gold was about 200,000 yen per ounce then, today it is 115,000 yen. If gold enters a clear bull market, it will be at highs in every single currency around the world. Japan will get there via rapid devaluation of the yen.

2011-02-17

Chinese housing policy gets crazy

The unintended consequences of this policy will be many. Already, one consequence is increased anger expressed on the Internet.
Internet outrage over Beijing property rules
Beijing's new policy requiring non-residents to have paid city taxes for five years before they can buy a home in the capital has sparked angry criticism on the internet.

The rule, announced on Wednesday, comes on the heels of a call by the State Council to cool the overheated property market and is the toughest measure yet.

But it is being criticised on the internet for being unfair, even by those who claim not to be Beijing residents. Non-residents are believed to account for 50 to 60 per cent of the capital's transactions, according to property agents.

"This is city protectionism," a chat-room contributor from Hebei said. "Why should non-Beijing residents be required to pay tax for five years before they can buy a home? Outrage!"

His complaint was supported by a contributor from Tianjin.

Another contributor said: "After five years, home prices will increase to a level that they cannot afford."

One complainant said: "This is not aimed at curbing property [prices]. It is aimed to elbow out non-Beijingers."
There has been a lot of anger about housing lately. This policy comes on the heels of a change to housing statistics, which the public suspects is designed to hide property inflation.

China Scraps Property Data, Clouding View

Yuan reform continues part XVII

China to Launch Yuan Option Trading

It doesn't allow for yuan trading, but it does allow businesses that deal in foreign currency to hedge their risk. It also means the government can allow the yuan to appreciate more quickly, if it wants.

China is also easing back on export rebates.
China Seeks New Normal for Export Tax Rebates
Exports alone were worth US$ 1.57 trillion. And export tax rebates rose to record 732.7 billion yuan – an amount that exceeded the government's nationwide spending on health care or subsidized housing.

Now, as demand for China's exported goods rises again, export tax rebates for at least some products are likely to be reduced by the government. The rollbacks began last year for a few items. And the move would reverse the trend of friendlier rebate policies enacted two years ago to help exporters after the outbreak of the global financial crisis.
Tax rebates were increased for thousands of exported products during the financial crisis.

The groundwork for a new tax policy was laid with recent media reports that said the government has been considering cutting tax rebate rates.
China still provides a lot of aid to exporters, but a falling tax and rising yuan will hurt the sector. This, again, is all with an eye towards supporting the domestic economy.

Austerity is messy

Madison schools, others closed amid call for demonstrations
Wis. lawmakers flee state to block anti-union bill
Wis. Gov. Walker calls Democrat boycott a 'stunt'

Expect more protests such as this, all around the country, in the coming years. The current reforms are nowhere near as drastic as what will follow if the economy doesn't pick up. Declining social mood will also encourage increased confrontation between various groups.

Sidewalk rage

Get Out of My Way, You Jerk!
For the cool-headed, sidewalk rage may seem incomprehensible. After all, it seems simple enough to just go around the slow individual. Why then are some people, even those who greet other obstacles with equanimity, so infuriated by unhurried fellow pedestrians?

How one interprets the situation is key, researchers say. Ragers tend to have a strong sense of how other people should behave. Their code: Slower people keep to the right. Step aside to take a picture. And the left side of an escalator should be, of course, kept free for anyone wanting to walk up.

"A lot of us have 'shoulds' in our head," says Dr. Deffenbacher. Ragers tend to think people should do things their way, and get angry because the slow walkers are breaking the rules of civility. It's unclear exactly why some people harbor such beliefs, Dr. Deffenbacher says. Such ways of thinking are generally learned from family, friends or the media, he adds.
I wonder how an international city such as New York differs in this regard. There are a lot of different ideas about personal space, public space, etc. interacting at once. In China, I don't think anyone gets sidewalk rage. Although there are a lot of slow walkers who will block the entire sidewalk, it's also ok to bump people as you pass. Unless you're moving fast and deliver a healthy blow to a bystander, you won't hear a peep.

2011-02-16

Third Great Depression, Japan is sunk

我们离“全球第三次大萧条”还有多么近
The first was in the 1930s, the second just past, and the third is not far off. For Americans, this may actually sound more like a repeat of the first Great Depression. The first part of the Great Depression ended in 1932-33 with a massive dose of inflation following the nationalization of gold and the devaluation of the dollar. However, this inflation was nipped in the bud in 1937, and along with an insane amount of government intervention that put Hoover's tinkering to shame, causes the depression withing the Depression.

A similar scenario is unfolding today. The U.S. central bank floods the world with liquidity, setting off inflation and booms in developing markets. Central banks are already starting to counter the loose policy of 2008-2010, but this time they are pushing against their own policies plus the Federal Reserve and to some extent, the ECB, which is bailing out several countries. As Liu Junluo says in this latest blog, central banks are a flawed system. I would take it a step further and say that if central banks are making policy, they are making policy mistakes. Based on current conditions, the mistakes will be very large this time, at least as large as in 2006-2008.

Monetary policy takes time. Andy Xie is looking for 2012 crisis, maybe he is also early. In the near term, watch Japan. That is the most dangerous country right now due to a deterioration in the savings rate. Goldman Sachs predicts that the savings rate of Japan will turn negative this year. That's important because it means that foreigners will become the marginal buyers of Japanese government bonds. Now, if you are a foreigner, you're first going to look to the U.S. and Europe, where rates are higher and debt levels are lower. Adding to the mix, the emerging markets are hiking rates and tightening monetary policy, reducing the pool of funds available for Japanese government bonds (JGBs). All of which signals higher interest rates.
Higher interest rates are bad news for Japan.
Up until now, Japan’s government has been able to “cover the minimum payment” by borrowing from reserves in its Government Pension Investment Fund and selling its debt to Japan’s life insurance companies. But as seniors, which now number nearly one in four, start drawing down those assets, those avenues will be closed to further purchases of bonds issued by the state. In fact, they will soon become net sellers of their existing holdings in order to support the new pensioners, and then, “who will buy?”

Japan’s government revenues of $1.6 trillion annually fall short of its expenses of $2 trillion, creating an annual deficit of $400 billion. Kyle Bass, who runs Hayman Advisors, estimates that debt service eats up $244 billion every year. He calculates that if investors demand just an additional two percentage points in interest, that would double that debt service. Bass concludes that “the Japanese have created the circumstances for the greatest financial failure in world history.”
Japanese interest rates could easily rise 2%, it would bring their yields to roughly the level of U.S. bonds right now.

Credit markets in the U.S. actually seem to be picking up steam at the moment, which means this all may be a year or two, or more, away. I'm watching Japan for the possible spoiler though.

我们离“全球第三次大萧条”还有多么近

2011-02-14

Bear mood cometh?

Here's a comment from the Socionomics Institute website:
“Gender-bending is a classic trend that appears during times of bear markets, and shaving one's eyebrows is a way to blur gender boundaries on the cheap,” says EWI's Brian Whitmer, who writes about the trend in the August issue of The European Financial Forecast.

He points out that a recent cover of Italian Vogue magazine features the shaved head and brow of model Kristen McMenamy, who pioneered the no-brow look two recessions ago in a "grunge" photo shoot for U.S. Vogue in 1992. Whitmer predicts more permanent attempts at androgyny as financial markets continue down to the larger bottom predicted by EWI.

In contrast, EWI says that bull markets emphasize super-feminine and super-masculine roles with heroes and heroines who fit conventional gender roles.
And here's the latest fashion headline:

Feminine twist on classic menswear at Fashion Week
In every fairytale there's a princess and a hero. Unless she comes to her own rescue.

Luxe textures, sheer fabrics and fitted shapes offering feminine twists on traditional men's suiting are all over the runways at New York Fashion Week. It's strength combined with confidence, boy style, by Day 5 of fall previews.
Prabal Gurung has his share of frilly princesses. But, as in the case of his muse for the season, Miss Havisham of Dickens fame, the knights don't always show up.

"Her story is a lot about men," said Gurung from the front row of his mentor Carolina Herrera's show Monday.
Other designers mixed princess beauty and the strength of menswear.

Tommy Hilfiger sent classic tailoring and pinstripes down the catwalk. Donna Karan's DKNY turned traditional men's jackets into capes. Brian Wolk and Claude Morais looked to the history of menswear to please a Ruffian woman's search for "unkempt elegance" via a white silk blouse with black bow tie and tailed jacket.
Lady looks like a dude.

The culture that is China

Students who scored the highest on the college entrance exams are appearing in ads for underwear. Photos and short video at the link, all in Chinese.
荒唐!高考状元竟成内裤代言人

The Perils of Diversity

A review of The Perils of Diversity contains this paragraph, which aptly sums up the political shift underway in Europe.
Besides the multiculturalist and the assimilationist, there’s a third position that isn’t often invited to the immigration debate: the skeptical realist. On the rare occasions when they are mentioned in polite society, immigration skeptics are dismissed as “extremists”.

Rationally, assimilationists should notice that their demonization of realists doesn’t make their own position more of political winner. When the debate is artificially restricted to multiculturalists v. assimilationists, the latter are demonized as the right-wingers. But, somehow, they don’t get the message.

In contrast, when German immigration skeptic Thilo Sarrazin elbowed his way into the public arena in Europe last year by publishing his million-selling book Germany Abolishes Itself, he was quickly fired and was castigated by everybody who is anybody. But, by establishing a new right wing in the immigration debate, Sarrazin moved assimilationism into the new centrism.

Following Sarrazin’s well-researched bombshell, first Angela Merkel of Germany, then David Cameron of Britain, and now Nicolas Sarkozy of France, have all denounced multiculturalism as a failure. They’ve come down in the new middle on the side of assimilation.

2011-02-12

The temperament of the whole country is changing

Here's an article covering social mood in China, specifically business and entrepreneurs. It's an interview with Zhang Weiying. He talks about opposition to economic reform becoming grassroots. He talks about the need for crisis, or crisis mentality, to push reform. Now people are satisfied and want to spread the benefits, but he things maybe that can be an impetus for reform. This link takes you to the Google Translation of the article: 张维迎:整个国家的气质在发生变化_评论频道

In the opening paragraph the reporter relays his discussion of Ludwig Von Mises. (Google Translation follows)
Zhang Weiying casually talked about the Ludwig von Mises. Austrian School economists in the academic career of the late master of ratification later in a seemingly awkward position. When he arrived in the U.S. in 1940, nearly 60-year-old Mises even difficult to find a teaching post in the United States, as opposed to, any one from Europe's third-disciples of Marxism, can not so difficult to be accepted by the U.S. academic community. Even then he was funded by a foundation has been a professor at New York University post, he has been serving the university as their own, a second-rate scholars. "Mises's theory there are in marginalized for decades. But from the market and he began to accept the concept of freedom since, he has insisted, has always insisted to his death. You know in the second half of his academic life period, he has always been very marginalized. But he believes his logic. "


Here's an article by Zhang Weiying titled "Bury Keynesianism."

Here's some info on Zhang Weiyang from the "Hayek in China" blog. The I, Pencil Institute and Weiying Zhang

Foreign currency trading takes off in China

Watch out housewives of Japan. Chinese are muscling into the trading of foreign currencies, aided by the massive money printing carried out by the central banks of the world.

Scalpers and the spread, an atypical story of currency speculation

The article is in Chinese. An interesting story about one man who used to exchange dollars for RMB on the black market, when the rate was higher. Go back to the bank, exchange RMB for dollars, rinse and repeat.

Some of what's going on is the natural progression of capital markets, and some is due to inflation, such as the tour guide in Beijing who quit to trade currencies.

China's war on inflation

战通胀
加息和上调存款准备金率针对的都是增量资金,而巨额存量资金的肆意流动,随时挑逗任何一个领域出现突发性价格暴涨。

即使到现在,菜农李福华仍很怀念去年那段短暂的幸福时光。因为游资涌入,去年辣椒价格最高时竟被炒到6元/斤。虽然大部分利润让批发商、游资炒作者赚走了,但菜农能把辣椒最高卖到2元多一斤已经很知足了。辣椒的成本达到0.6元/斤即可保本,李福华因辣椒被热炒而受益。

但李福华的高兴没有持续多久,他发现,辣椒的种植成本比原来大大提高。他给记者算了一笔账,化肥从2200元/吨涨至3200元/吨,农药支出增加了约20%-30%,薄膜价格也从去年1.5元/平方米涨到了2元/平方米,而雇佣劳力以前一天只要100元,现在是120元一天。

更让李福华感叹的是,没有只涨不跌的行市。2010年11月下旬,辣椒在短短十天内,就从1.2元/斤跌至0.6元/斤,足足降了一半。去年辣椒价格最低时甚至只有0.1元/斤,无论是菜农还是批发商都亏得血本无归。

除了辣椒,在那段时间,游资还把大蒜、玉石、绿豆、生姜、花椒、茄子、苦瓜、香菇、红酒……这些品种都轮番炒作一遍,之后资金匍匐下来,开始寻找新的方向。

每年,房地产都是重金囤积之地。

央行 《2010年金融机构贷款投向统计报告》披露,2010年金融机构房地产人民币贷款新增2.02万亿元,占全部人民币新增贷款7.95万亿元的25.4%,比例超过了2009年。

1月26日,继去年两次房地产调控政策之后,新一轮房地产调控开始实施,“新国八条”提出了限购、地方政府确定房价目标、二套房首付提至六成等措施。随后,重庆、上海两市同时宣布启动房地产税改革试点工作,为本轮房地产调控再加重磅。

“伴随着政策效果不断显现,预计年内全国房地产价格下降超过5%,上海重庆等主要城市房价下降超过10%。”瑞穗证券大中华区首席经济学家沈建光说,而王虎表示,一些大城市周边可能会下跌15%。

在对房地产悲观预期下,买房人开始犹豫,一名之前在万科工作7年、最近刚加入国泰君安的一名研究员本来打算买房子,最近他表示将购房计划推迟到下半年。

这不是个体行为,更多的短期资金在窠臼不出。根据央行第四季度货币政策报告,全年新增住户存款中活期占比为56%,四个季度的活期存款占比分别为42%、51%、55%和135%;非金融企业全年活期存款占比为55%,存款活期化趋势十分明显。

“流动性像一个怪胎,出现了结构性差异。”潘向东指出,“2011年四季度以来国内宽松的货币投放,若缺乏一个有效市场进行稀释,必然会在商品和一些资产领域发酵,去年资金在小品种市场炒过,今年可能就奔向钢铁、铜、锡这些大宗商品市场。”

他担心,由于物价上行的成因复杂,因此通过单一的强有力的货币收缩短期内很难达到抑制通胀的效果,相反却对经济的抑制作用较为明显,特别是对民营经济的抑制将更为显著。

The above passage details the hot money flowing around inside China. The best sentence is one that translates as: Besides chilis, during that time, the hot money also flowing into garlic, jade, green beans, ginger, pepper, eggplant, bitter gourd, mushrooms, red wine... one after the other they all had their turn, after awhile the capital crawls away and starts looking for a new destination.

Earlier in the article, it says a lot of prices are up 20-30% in the past year, with chemical fertilizers up about 50%.

Youth for Western Civilization

I have no idea the size of this group or their impact, but pay attention to the first minute or two. I think it's a great summary of where the American culture is right now and why multiculturalism will come under fierce assault.

2011-02-11

Egypt's future is China's weather

Two good articles by Spengler over at AsiaTimes. The first shows the increasing volatility in wheat prices. In a nutshell, wealthier Asians now have inelastic food demand, similar to Westerners. Prices rise, but they do not need to cut back on their consumption. That is bad news for poor Arabs, where food is still 50% of the CPI. The risk isn't in higher prices per se, but the massive price spikes we saw in 2008 and 2010, which lead to people going hungry. He fleshes this argument out in Chinese weather on Tahrir Square, where he discusses China's drought and the possibility that China will need to import millions of tons wheat this year. If that happens, the price could rise dramatically and make 2010 pale in comparison.

I think the drought in China is being under covered by the media. The Chinese press avoids negative stories, but there's been a fair amount of coverage of the drought in the media. I don't get the sense that the Western media is covering it as closely though. While traveling during the Spring Festival holiday, I crossed a bridge above a huge river. The river bed was completely dry. My hunch is that China's grain demand will be surprisingly high this year.

China closes policy gaps as inflation battle heats up

China's central bank has been hiking reserve ratios on the big banks to slow lending. In January, we saw the fruits of this policy, as small and medium banks lent 70% of the $1.1 trillion total loans for the month. That explains why the central bank hiked reserve requirements on some small and medium banks this week. Chinese municipalities are also stepping up the fight against home prices. The number of Chinese cities restricting home purchases is set to double.

Silver bulls return in force

Maybe the stories of silver backwardation and physical shortages are getting out.

2011-02-10

The slow death of multiculturalism

The arguments against multiculturalism have been brewing for decades, with sporadic victories for critics. For the first time, however, there's a distinct trend building. Thilo Sarrazin kicked it off last year with the book "Germany Abolishes Itself," a critique of the government's immigration policies and lack of Muslim integration. He had been criticized before for making similar statements in public, but this time his book became a bestseller and found many areas of support. Interestingly, he is a member of the SPD, the opposition party to the currently ruling CDU-CSU, but Angela Merkel, CDU Chancellor, essentially agreed with Sarrazin when she said multiculturalism has failed.

Now French President Sarkozy is joining in: Multiculturalism has failed, says French president
"My answer is clearly yes, it is a failure," he said in a television interview when asked about the policy which advocates that host societies welcome and foster distinct cultural and religious immigrant groups.

"Of course we must all respect differences, but we do not want... a society where communities coexist side by side
.
"If you come to France, you accept to melt into a single community, which is the national community, and if you do not want to accept that, you cannot be welcome in France," the right-wing president said.

"The French national community cannot accept a change in its lifestyle, equality between men and women... freedom for little girls to go to school," he said.

"We have been too concerned about the identity of the person who was arriving and not enough about the identity of the country that was receiving him," Sarkozy said in the TFI channel show.
As the article notes, this also follows recent comments by British Prime Minister Cameron on the failure of multiculturalism.

The Sarkozy comments I put in bold above illustrate the peak and decline in social mood. At the peak in social mood, Western societies were extremely open, to the point where normally secular societies that limit religious activities on state property were making exceptions for Muslims. One of the best examples was the Minnesota schools that were installing foot washing basins for Muslim students.

Social mood is in decline now and societies are starting to turn inward and focus on their own culture. What has passed thus far are common sense observations about failed policies. Outside of the periodic attacks and harsh policies directed at gypsies, the political changes are just rhetoric. Policy will follow in the years to come, with increasingly strict measures against criminal immigrants, then classes of immigrants, and finally restrictions, deportations, and outright bans on immigration.

PBOC to track M3

The U.S. Federal Reserve stopped tracking M3 in 2006, the PBOC is about to start tracking it in 2011.

Central Bank Moves to Track M3
The People's Bank of China, the central bank, has drafted a plan to track all money market funds, China Securities Journal reported on February 10.

Funds raised through trusts, share offerings, corporate bonds, foreign direct investment, foreign debt and other channels are included in the plan, which is seeking opinions from other government agencies, according the paper.

Policymakers hope that the tracking of M3 or even MZM will help address problems like inflation.

Here comes the deflation in the U.S.

White House to Cut Energy Assistance for the Poor
President Obama’s proposed 2012 budget will cut several billion dollars from the government’s energy assistance fund for poor people, officials briefed on the subject told National Journal.

It's the biggest domestic spending cut disclosed so far, and one that will likely generate the most heat from the president's traditional political allies. Such complaints might satisfy the White House, which has a vested interest in convincing Americans that it is serious about budget discipline.
GOP cuts deep as right revolts
More than any single event in the new Congress, the standoff captured what’s become a rhetorical nightmare for GOP leaders — having pledged to cut $100 billion from spending this year but then single-mindedly targeting just one narrow segment of the budget covering domestic programs and foreign aid.

The whole intellectual framework for the $100 billion pledge was based on rolling back these same programs to the 2008 appropriations levels set in the last year of the Bush administration. Two bites were always expected to be needed, and the $40 billion in reductions represents a major down payment. But that 2008 marker is largely ignored now in the devotion to $100 billion, a number that has taken on a currency of its own and seems to defy any effort by the leadership to rationalize a lesser figure.

Republican freshmen, having just returned from their recent recess at home, complained at the morning meeting of being embarrassed now after telling their constituents that the $100 billion target would be met.

“The first rule of politics is when you are explaining, you are losing,” Rep. Jeff Flake (R-Ariz.) told POLITICO. And as a new member of the Appropriations Committee, Flake had warned the leadership Tuesday that $40 billion would not be enough. “After we spent a significant portion of the conference trying to explain why it really is closer to $100 billion than it is, we’ve lost.”
The federal government is the borrower of last resort, pumping credit into the American economy while the private sector deleverages. As spending in Washington comes down, so will the artificial boost to the economy.

2011-02-09

Labor costs soar in China

Since around 2008, factories in south China are finding that many workers never come back after the Spring Festival. This year was no different, even though employers have sweetened the pot.

Migrant workers turn screw on bosses
"They are the king," said Pauline Ngan Po-ling, deputy chairwoman of Mainland Headwear Holdings. "They want this and that. If their wishes are not granted, you could be in great trouble."

About 30 migrant workers climbed on to the roof of the group's factory in Shenzhen last month and threatened to jump off collectively if they were not allowed to go home five days early for the holiday.

A frustrated Ngan gave in to their demand but withheld their pay cheques until the end of this month so they would return to work.

"I had no choice but to let them go. What if they had jumped? We will know if they will come back or not today or tomorrow."

Mainland Headwear - which saw three out of four migrant workers at its Shenzhen factory heading home for the holidays - offered to raise the monthly pay of its labourers by up to 8 per cent this month after an average pay rise of 34 per cent last year.

Even with such increases, the factory is short of 1,000 workers.
Even without inflation, Chinese labor costs would be rising due to a declining supply of entry-level workers. Inflation adds volatility to the mix and can unleash massive inflation in only a short period of time, expect Chinese wages to become a major topic in the coming months. It will probably be explained as Chinese workers demanding higher wages for rising food and housing costs, but housing costs have been out of control for years and did not lead to rapid wage inflation. Similarly, food costs are up, but they've spiked before. What we're seeing is a drop in labor supply that is real and this gives workers far more powerful bargaining positions.

On a broader level, the policy goal of property tax reform and minimum wage increases are linked. These are not separate policies, but a combined effort to bend the income distribution. Property taxes are hitting the wealthiest Chinese, bending their incomes down, while minimum wages are bending the poorest up. Another goal of the property tax is to generate revenue and allow the government to reform the tax structure. The aim is to create a large middle class that can power the domestic economy and in the end, demographics will help achieve this goal. Those focused on the aging of China and the dependency ratio are looking in the wrong place. Although it is difficult for only children to bear the responsibility for their parents, China is not a welfare state and the elderly don't vote. The big change is in labor supply; wage inflation will be the big trend this decade.

Beijing land prices exceed U.S. GDP

According to one calculation.
130万亿元人民币"卖掉"京地 能换美国一年GDP
010年,首都北京的土地市场在制造了一个又一个地王之后,其土地总收入也史无前例地达到1641亿元人民币,高居中国第一,而成交的土地面积为2061万平方米。以此计算,北京市土地的平均价格为近8000元/平方米。而北京市的国土面积为16410.54平方公里,即164.1亿平方米。

  假如能将北京市土地全部变卖,即将这两个数据相乘,可以得出当前北京土地总市值已经高达130万亿元人民币。

  而据学者估算,2010年美国GDP总量预计为14.5万亿美元,折合成人民币为95万亿元,这意味着用北京的地价,“买下美国”可谓绰绰有余。

  另据世联地产数据, 2010年上海土地收入接近1500亿元人民币,其成交土地面积为近1400万平方米,其平均地价高达10700元/平方米,如果以该数据与其国土面积6340.5平方公里相乘,可发现当前上海市土地总市值高达68亿元人民币。

  而在2009年全球GDP排名中,美国以14.26万亿美元位居第一,中国位居第二,日本以 4.844万亿美元居第三,其后分别是德国 3.818 万亿美元、法国 2.978万亿美元、英国2.787万亿美元。据此折算,除中国之外,2009年全球GDP前五名美国、日本、德国、法国、英国的GDP总量为28.7万亿美元,折合成人民币为189万亿元。而当前仅京沪两地的土地市场之和则高达199万亿元,很显然,卖掉京沪两地的土地,就可以“买下”当前世界上最发达的五个国家。

  “从一定角度而言,这个有些惊人的数据确实真实反映了中国房产泡沫的危机程度。”张冬峰表示。

In 2010, the capital of the land market in Beijing has created one after another to the king after the total land revenue topped 164.1 billion yuan, ranking the first and the sale of the land area of 20,610,000 square meters. By this calculation, the average price of land in Beijing for nearly 8,000 yuan / square meter. And Beijing is 16,410.54 square kilometers land area, that is 16.41 billion square meters.

  If able to sell all the land in Beijing, will multiply the two data can be drawn from the current market value of Beijing's total land has been as high as 130 trillion yuan.

  And have calculated that the total projected 2010 U.S. GDP was 14.5 trillion U.S. dollars, converted into RMB 95 trillion, which means that land use in Beijing, "buy American" can be more than enough.

  According to the World Union Properties Data, 2010, Shanghai land revenue nearly 1,500 billion yuan, the turnover of the land area of nearly 1,400 square meters, the average premium of up to 10,700 yuan / square meter, if the data relative to its land area of 6340.5 square kilometers multiplication, can be found in the current market value of Shanghai's total land up to 68 billion yuan.

  In 2009 global GDP rankings, the United States $ 14,260,000,000,000 in the first place, China was second with 4.844 trillion U.S. dollars in Japan in third place, followed by Germany $ 3,818,000,000,000, respectively, France 2978000000000 U.S., United Kingdom $ 2,787,000,000,000. Accordingly conversion, excluding China, global GDP in 2009 the top five U.S., Japan, Germany, France, the United Kingdom the total GDP was 28.7 trillion U.S. dollars, converted into RMB 18.9 trillion yuan. Only Beijing and Shanghai and the current market and the land is as high as 199 trillion yuan, it is clear that both Beijing and Shanghai to sell the land, you can "buy" the current five of the world's most developed countries.

  "From a certain perspective, this data does some amazing true reflection of the extent of the crisis in the Chinese real estate bubble." Zhang Dongfeng said.
That is a Google translation. Here's a summarized English article from Taiwan.

Value of Beijing Land Surpasses US GDP

Religious violence in Indonesia

Pop star in jail, now burning churches.
Muslim mob burns, ransacks churches in Indonesia
Two days after a Muslim lynch mob killed three members of a minority Islamic sect, crowds of furious Muslims set two churches alight as they rampaged in anger over the prison sentence imposed on defendant Antonius Bawengan, 58.

A court in the Central Java town had earlier sentenced the man to five years in jail, the maximum allowable, for distributing leaflets insulting Islam.

But this only enraged the crowd, who said the sentence was too lenient, police said.

"Today was the climax of the trial... The mob shouted that he should receive the death sentence or be handed over to the public," Central Java province police spokesman Djihartono told AFP.