Chinese aluminum output fell 3% from peaks in December as China's steel output fell 10% in December from its September peaks.  

 

 Much Chinese economic data suggests overheated growth, explaining policymakers’ fears in raising the reserve lending rate to 16% from 15.5% and cutting targeted bank loans for 2010 by 25%.  December single month exports rose 18% towards pre-recession levels, while 2009 full year exports fell 16%.  Bank loans offered in January’s first three weeks were near 25% of the 2009 full year total, suggesting a risk of wider credit bubble.  Further, China's provinces, manufacturers and banks do not always follow guidelines as one-fourth of electric power plants are built without any air pollution equipment at all let alone scrubbers.  November auto output was up 101%, air conditions up 58%, laptops 64%, integrated circuits 42%, mobile phones 46% and electric motors were up 7%.   These trends suggest continued copper or other metals demand gains.

 

The dollar has strengthened markedly against the euro, but the euro’s problems are very specific and a failure or dissolution of a currency would be very bullish for gold, in our opinion.  The C$ decline stems from crude oil falling to $72.89, and Australia’s currency fell with fears of China tightening.

 

It is unclear whether any U.S. dollar trend has been established versus the yen, rand or the various other resource currencies such as Chile, Peru, Colombia or Mexico.  To date resource exporting nation economies, treasuries and banking systems are relatively stronger, and resource currencies appreciated as world expectations shifted to greater global economic growth. 

 

 Much evidence supports a “slow growth” global recovery thesis for 2010.  While not a “double dip” nor “W” scenario, “slow growth” appears less than either commodities markets or the stock market expected.

 

Faithfully,

 

John C. Tumazos