Further to my recent comments about the weak US dollar being the funding currency for risk-taking around the globe the past 8 months, today we see the flip-side of this trade as risk aversion roars back amid reports that Dubai World may be defaulting on its debt. The natural product of risk aversion today is U$ dollar up, risk assets down:
Dubai Sends Risk Aversion Soaring
Meanwhile chronic over-production continues to be a huge problem for China and the rest of the world. The massive government stimulus this year has only exacerbated the problem by insisting on greater and greater production and investment, despite much diminished demand. It will take a long time for stock-piles to work down both of raw goods and finished products. These issues were re-emphasized today in a study released by the European Union Chamber of Commerce in China:
“The crisis has throttled demand for exports from China at a time when even more investment, in the form of the Chinese government's massive stimulus package, is being pumped into building new plants and adding unnecessary capacity.
“As a result, the problem is actually getting worse in many industries,” the report said.
The State Council acknowledged in August that overcapacity was blighting many industries and that local governments were expanding capacity “blindly”.
The cabinet subsequently singled out iron and steel, cement, electrolytic aluminum, glass, coal chemical, polysilicon and wind power equipment as the worst offenders and announced steps to rein in their expansion.”
See Chinese Overcapacity is Worsening, EU Chamber Warns
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