EU Sounds Alarm on Spain; Portugal to Request Extension on Bailout Loans; Momentum Seen Slipping in Madrid; Slovenia, France, Italy Also Raise Concern

Updated April 10, 2013, 2:00 p.m. ET

EU Sounds Alarm on Spain

Momentum Seen Slipping in Madrid; Slovenia, France, Italy Also Raise Concern

By MATINA STEVIS

BRUSSELS—Spain’s efforts to rein in spending and improve its economic performance are running out of steam despite much work yet to do, the European Commission warned Wednesday in a report that also singled out Slovenia as a potential trouble spot. “Spain should…maintain the reform momentum” to deal with “formidable challenges ahead,” Commissioner for Economic and Monetary Affairs Olli Rehn said after presenting an annual health check of the competitiveness of several countries in the European Union.

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In Japan, Politics Propels a Stock Market Rally

In Japan, Politics Propels a Stock Market Rally

By Nick Summers on April 11, 2013

“Let’s do it,” Yoshihiko Noda, Japan’s prime minister, said Nov. 14, during a political debate with his opponent Shinzo Abe. Noda meant that it was time to dissolve parliament and hold a new election. Investors heard it as the kickoff to a rally that hasn’t stopped, with the Nikkei 225 stock index gaining more than 50 percent and returning the market to levels not seen since before the 2008 financial crisis. The Nikkei’s best performer since Nov. 14, with a 194 percent gain through April 10, is Tokyo Tatemono, a real estate developer. Nomura (NMR), the $445 billion financial-services company, has advanced 146 percent.

Politics and prices are deeply entwined in the rally. Abe and his Liberal Democratic Party won a landslide victory in December on the strength of his “Abenomics” stimulus proposals, which aim to jolt Japan out of decades of lethargy. Even at a four-year high of just over 13,000, the Nikkei is worth only a third as much today as it was at the end of 1989, when Japanese corporations seemed poised to take over the globe. What felt like a permanent recession followed, with years of deflation and anemic growth. Read more of this post

Two Firms Amass Much of World’s Copper Supply

Updated April 11, 2013, 10:06 p.m. ET

Two Firms Amass Much of World’s Copper Supply

Commodities Traders Pay to Divert Shipments From Other Warehouses; Manufacturers Worry About Access

By MATT DAY

Two major commodities-trading firms have amassed much of the world’s copper supplies in their warehouses, partly by paying to divert shipments away from other storage hubs, traders and analysts say.

Red Alert: Some trading firms have stashed the world’s copper supply in warehouses in New Orleans, Antwerp and Johor. The moves have sparked worries about the possibility of delayed deliveries and higher costs for industrial consumers.

This concentration of copper supplies has sparked concerns among industrial consumers of the metal. Some manufacturers and builders say they are worried that those stockpiles of copper—which is used in goods including automobiles, circuit boards and plumbing fixtures—could prove tough to procure if demand were to pick up sharply or output from mines were disrupted.

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Mainland Chinese are the fastest growing tourist population in the world, spending $102 billion in 2012

April 11, 2013, 9:31 a.m. ET

China’s Travelers Bring Gifts Abroad

By WEI GU

Mainland Chinese are the fastest growing tourist population in the world, spending $102 billion in 2012. The WSJ’s Wei Gu tells Deborah Kan how spending patterns are changing as more Chinese travel abroad.

Bad air, a new strain of bird flu at home and easier visa rules in countries like Japan and the U.S. are adding to the incentives for Chinese to take an overseas holiday.

Those who do will join the millions of Chinese tourists already remaking the global travel industry.

Chinese travelers have become the world’s top source of tourist spending, according to the World Tourism Organization, with outlays of $102 billion in 2012. That flood seems likely to keep swelling. Less than 3% of China’s 1.4 billion people are passport holders, according to China’s Ministry of Public Security. By contrast, U.S. Travel Association figures show, 30% of Americans and 75% of Britons are.

As the Chinese numbers climb, there will be some surprising winners and losers. Read more of this post

Boom-Bust Vietnam Beats Emerging Stocks as State Considers Role

Boom-Bust Vietnam Beats Emerging Stocks as State Considers Role

Vietnam, the world’s most volatile stock market since 2009, is leading developing-nation gains this year as the Communist government slows inflation and considers easing its grip on the economy.

The benchmark VN Index (VNINDEX) posted more 20 percent swings than every major equity market in the past four years as policy makers grappled with consumer prices, currency devaluations and bad bank loans. Their efforts helped cut inflation to 6.6 percent in March from 23 percent in 2011 and produced the first annual trade surplus since 1992.

Now the government is preparing to remove bad debt from lenders, ease restrictions on foreign ownership of listed businesses and change the constitution to limit the “leading role” of state companies that comprise about a third of gross domestic product. The VN Index has climbed 22 percent in 2013, the most among equity gauges in 47 frontier and emerging markets. After adjusting for volatility, the measure had the 16th-biggest gain, data compiled by Bloomberg show. Read more of this post

Brazilian oil services provider Lupatech missed interest payments on $275 million of perpetual bonds two weeks after reporting annual losses doubled from a year earlier

Brazil’s Lupatech Misses Dollar Bond Payment After Loss Doubles

Brazilian oil services provider Lupatech SA (LUPA3) missed interest payments on $275 million of perpetual bonds two weeks after reporting annual losses doubled from a year earlier. Read more of this post

Bitcoin Trade Halted by Mt. Gox Exchange After Price collapsed by 46 percent to $123.40 from $230 in the past 24 hours

Bitcoin Trade Halted by Mt. Gox Exchange After Price Drop

Mt. Gox, a Tokyo-based exchange that handles bitcoin transactions, halted trading of the virtual currency to let the market “cool down” after a plunge in price.

The price of bitcoins collapsed by 46 percent to $123.40 from $230 in the past 24 hours, according to quotes on Mt. Gox’s website. In a statement, the company cited an increase in trade volume and not a cyber-attack, which has caused shutdowns in the past.

Bitcoin is a virtual currency that can be used to buy and sell a broad range of items — from cupcakes to electronics to illegal narcotics. Online exchanges across the world offer a market for bitcoins to be bought and sold against dollars, euros, yen and other currencies. Bitcoin has been subject to large swings in value in recent days.

“People started to panic, started to sell bitcoin in mass (panic sale) resulting in an increase of trade that ultimately froze the trade engine,” Mt. Gox said in the statement. Read more of this post

Meet the Bitcoin Millionaires; As of April 2, there were about 250 wallets with more than $1 million worth of Bitcoins

Meet the Bitcoin Millionaires

By Max Raskin on April 10, 2013

Many people have lost some data while reformatting a computer hard drive. Jered Kenna lost more than that. In 2010 he erased from his computer 800 Bitcoins that have been worth more than $200,000. Kenna isn’t upset: He has plenty more. He says he bought his first batch of virtual currency, 5,000 coins, at 20¢ each. On April 10, Bitcoins traded for as much as $258 each, according to Tradehill, a Bitcoin exchange in San Francisco, before plunging more than $100. Like other enthusiasts, Kenna shrugs off the volatility. While he won’t disclose his total holdings, he says, “I’m happy to be considered a member of the Bitcoin millionaires’ club.” Read more of this post

Tata’s Nano, the World’s Cheapest Car, Is Sputtering

Tata’s Nano, the World’s Cheapest Car, Is Sputtering

By Siddharth Philip on April 11, 2013

The old adage says a person can’t be too rich or too thin. Given Tata Motors’ (TTM) disappointing experience with the Nano, the $2,000 compact it introduced with great fanfare in 2008, it’s clear a car can be too cheap—at least for consumers who don’t want to be associated with a low-end ride. Ratan Tata, then chairman of parent Tata Group, made headlines a decade ago when he ordered up a “people’s car” that would appeal to Indian families who previously could only afford to travel by scooter. But Tata Motors has sold just 229,157 Nanos since deliveries began in 2009, and sales in March were off by 86 percent from a year earlier.

Tata Managing Director Karl Slym insists the company won’t kill the tiny, egg-shaped car. It will soon add improvements to breathe new life into the model, a move that would ultimately bring its price closer to those of rivals. The Nano’s marketing “didn’t jell with anybody,” Slym says. Scooter drivers weren’t attracted because others “don’t think I’m buying a car, they think I’m buying something between a two-wheeler and a car. Anyone who had a car didn’t want to buy it, because it was supposed to be a two-wheeler replacement.”

Slym points to the Pixel, a Nano-based concept vehicle Tata first showed in 2011, as an example of how the brand could evolve. The two-door hatchback takes the skeleton of the Nano and adds innovative doors that rotate up rather than open out, automatic transmission, and a diesel engine. Yet Haritha Saranga, an associate professor at the Indian Institute of Management in Bangalore, says in an e-mail that “just creating variations is not going to help increase sales. It is important to change the current image of Nano as a cheap car.” Read more of this post

Surge in Loans Puts Beijing in a Quandary; Stubborn Lending Spree Confronts Leaders With Choice of Cracking Down, and Risk Slowing Growth—or Face Crisis Later

Updated April 11, 2013, 3:33 p.m. ET

Surge in Loans Puts Beijing in a Quandary

Stubborn Lending Spree Confronts Leaders With Choice of Cracking Down, and Risk Slowing Growth—or Face Crisis Later

By BOB DAVIS and TOM ORLIK

BEIJING—A surge in lending that defied Beijing’s efforts to mop up liquidity presents China’s new leaders with the tough prospect of risking a budding growth revival by cracking down too hard to head off a bad-loan crisis.

China has been on a credit binge since the global financial crisis of 2008, initially a deliberate strategy by leaders to finance investment and support economic growth. But the growing level of debt—domestic debt has topped 200% of gross domestic product, by some estimates—has prompted concerns that China faces a banking bust in the coming years. To forestall that prospect, Chinese regulators have tried to get banks and other financial institutions to somewhat dial back credit.

So far, those efforts have failed. Data Thursday showed that bank loans rose sharply in March to 1.06 trillion yuan ($171 billion) from 620 billion yuan a month earlier. A broader measure of credit that includes bonds and nonbank lending—also called total social financing—hit 2.54 trillion yuan in March, up from 1.07 trillion yuan the month before and just shy of January’s record.

“This is a reflection of the fact that China now has a much more diverse credit system” than it once did, said Charlene Chu, a Fitch Ratings Inc. senior director. “In the past, the authorities could give guidance to banks and it would be quickly followed. Now there are many other financial institutions out there” that don’t necessarily follow informal directions of the regulators. Read more of this post

A global shakeup of share markets, flow of funds and indices looms with the opening up of China’s US$3 trillion mainland share market, one of the world’s last big investment frontiers

Published: Friday April 12, 2013 MYT 8:37:00 AM

A global shakeup of share markets, flow of funds and indices looms

LONDON: The opening up of China’s US$3 trillion mainland share market, one of the world’s last big investment frontiers, is setting the stage for a huge shake up of equity indices and global fund flows.

The A-shares of the giant stock markets of Shanghai and Shenzhen have long been no-go areas for international investors, who have been largely confined to the offshore, Hong Kong-listed H-shares that represent China in global equity indices.

These have taken most of the $50 billion or so that EPFR Global estimates has flowed to China equity funds since 1995.

That is about to change. Beijing is expanding its QFII and RQFII quotas, schemes that allow foreigners to buy local assets. Just under 200 foreign money managers now hold total quotas worth nearly $42 billion. Regulators signalled earlier this year that a 10-fold quota increase is on the cards. Read more of this post

The True Chinese Credit Bubble: 240% Of GDP And Soaring

The True Chinese Credit Bubble: 240% Of GDP And Soaring

Tyler Durden on 04/11/2013 15:54 -0400

Several months ago we pointed out something not fully grasped by the broader public: the Chinese corporate debt bubble is the largest of any developed and developing country, and at 151% of GDP (and rising rapidly) is the biggest in the world. What is better known is that corporate debt is just one part of the total debt picture, which also includes consumer loans, government debt and other “shadow debt” credit in the case of China. So how does China’s true debt picture as a percentage of debt look? As the chart below from Goldman shows, in 2013 the total credit outstanding in China is expected to rise to a whopping 240% of GDP, and continue rising from there at an ever faster pace. What is even more concerning is that in order to maintain its breakneck economic “growth” of ~8% per year, China has to continue injecting massive amounts of debt, the so called “credit impulse” or “flow” which according to assorted views, is what is the true driver of an economy, and where GDP growth is merely a reflection of how much credit is entering (or leaving) the system. The chart below shows that total Chinese social financing flow just hit a record for the month of March. Completing the picture is the estimated economic response to a surge in credit. As the last chart shows, in China the biggest benefit to a surge in flow is felt in the quarter immediately following the credit injection, as one would expect, with the effect tapering off and even going negative in future quarters, thus requiring even more debt creation to offset the adverse impacts of prior such injections. What should become obvious is that in order to maintain its unprecedented (if declining) growth rate, China has to inject ever greater amounts of credit into its economy, amounts which will push its total credit pile ever higher into the stratosphere, until one day it pulls a Europe and finds itself in a situation where there are no further encumberable assets (for secured loans), and where ever-deteriorating cash flows are no longer sufficient to satisfy the interest payments on unsecured debt, leading to what the Chinese government has been desperate to avoid: mass corporate defaults. At that point it will be up to the PBOC to do what the Fed, the ECB, the BOE and the BOJ have been doing: remove any pretense of money creation via the commercial bank complex (even if these are merely glorified government-controlled entities), and proceed to outright monetization of de novo created assets, thus flooding the system with as much money as is needed to preserve the illusion of growth. Naturally, with the Chinese stock market having proven itself to be a horrible inflation trap (and as a result the bulk of new levered money creation goes into real estate), the inflation explosion that would result would be epic. At that point the chart of the price of gold (in any currency) due to on the ground demand for capital preservation will make the Bitcoin chart pre-bubble pop, seem outright flat.

A Chinese government spokesman said he gave “incorrect” and “groundless” investment data sourced from the Internet, underscoring concern at the credibility of official numbers.

China Customs Official Apologizes for Incorrect Data

A Chinese government spokesman said he gave “incorrect” and “groundless” investment data sourced from the Internet at a briefing yesterday, underscoring concern at the credibility of official numbers.

Zheng Yuesheng, spokesman and head of the statistics department at the Beijing-based General Administration of Customs, said in a statement today that he “expresses deep apologies” for citing unconfirmed investment data from online sources he didn’t identify.

Zheng was referring to remarks he made at a customs administration press conference yesterday where he also acknowledged concerns that China’s export data may be overstated. During the briefing, held to discuss March and first-quarter trade figures, Zheng said the National Development and Reform Commission, the nation’s top economic planning agency, had approved about 7 trillion yuan of investment projects in the fourth quarter of 2012, including new roads, railroads and airports.

He gave the figure when discussing the improvement in first-quarter trade to illustrate the recovery in China’s economic growth.

“The information was sourced from relevant reports on the Internet, which were groundless and must be corrected,” Zheng said in a seven-line statement on the agency’s website. Read more of this post

Pentagon Says Nuclear Missile Is in Grasp for North Korea

April 11, 2013

Pentagon Says Nuclear Missile Is in Grasp for North Korea

By THOM SHANKER, DAVID E. SANGER and ERIC SCHMITT

WASHINGTON — A new assessment by the Pentagon’s intelligence arm has concluded for the first time, with “moderate confidence,” that North Korea has learned how to make a nuclear weapon small enough to be delivered by a ballistic missile.

The assessment by the Defense Intelligence Agency, which has been distributed to senior administration officials and members of Congress, cautions that the weapon’s “reliability will be low,” apparently a reference to the North’s difficulty in developing accurate missiles or, perhaps, to the huge technical challenges of designing a warhead that can survive the rigors of flight and detonate on a specific target.

The existence of the assessment was disclosed on Thursday by Representative Doug Lamborn, Republican of Colorado, three hours into a budget hearing of the House Armed Services Committee with Defense Secretary Chuck Hagel and the chairman of the Joint Chiefs of Staff, Gen. Martin E. Dempsey. General Dempsey declined to comment on the assessment because of classification issues. Read more of this post

How to Defeat North Korea

How to Defeat North Korea

Let’s start with the bad news: The North Korean problem has no simple or quick solution. The North’s weapons-grade plutonium and nuclear devices have already been manufactured, and are now safely hidden in underground facilities. China, and to a lesser degree Russia, remains unwilling to support a truly rigorous (read: efficient) sanctions regime. More narrow financial sanctions that target the money used to reward regime insiders with perks, like bottles of Hennessy cognac and Mercedes cars, won’t have much impact. Most of the North Korean elite believe that regime stability is a basic condition for their survival. No doubt, they would be willing to put up with locally produced liquor and used Toyotas if the alternative was being strung from the lampposts.

More international aid would be most welcome in Pyongyang, no doubt — but not enough for the regime to give up its nuclear program. Once the money was spent (and it would be spent quickly), a nonnuclear North Korea would be just another impoverished country, competing for attention with places such as Sudan and Zimbabwe. A U.S. security guarantee — another carrot held out by some in Washington — wouldn’t be any more enticing. North Koreans don’t believe in the value of foreigners’ promises, especially when such promises are made in democratic systems where leaders and policies change every few years. Read more of this post

Tepco Faces Decision to Dump Radioactive Water in Pacific Ocean

Tepco Faces Decision to Dump Radioactive Water in Pacific Ocean

Tokyo Electric Power Co. (9501)’s discovery of leaks in water storage pits at the wrecked Fukushima atomic station raises the risk the utility will be forced to dump radioactive water in the Pacific Ocean.

Leaks were found in three of seven pits in the past week, reducing the options for moving contaminated water from basements of reactor buildings. Water in the basements is from the months after the earthquake and tsunami disabled the plant two years ago, when disaster teams used hose pipes and pumps to try and cool the reactors.

While the company has since built a makeshift sealed cooling system, underground water is breaching basement walls at a rate of about 400 tons a day and becoming contaminated, according to Tepco’s estimate. With Japan’s rainy season approaching, contaminated water levels are likely to increase at the plant 220 kilometers (137 miles) northeast of Tokyo.

Reducing radiation levels in the water and pouring it into the sea is one of two options the utility has, said Kazuhiko Kudo, a research professor of nuclear engineering at Kyushu University. The other option is “to keep building above-ground storage tanks,” said Kudo. That’s a fight Tepco can’t win without stopping the underground water that’s pouring into the basements, Kudo said.

“It is like a well. No matter how much water you draw from a well, underground water keeps seeping into the well,” said Kudo, who also served on a safety advisory board for the Fukushima plant after the disaster for the now defunct Nuclear and Industrial Safety Agency. Read more of this post

Rahul Gandhi’s Bumbling, Befuddling `Beehive Speech’; He offered, according to a member of the audience, “no road map, no plan, no solution.”

A Gandhi’s Bumbling, Befuddling `Beehive Speech’

The young Indian politician Rahul Gandhi, whose bloodline includes three former prime ministers, is widely expected to be his party’s nominee for that post when elections are held in the first half of 2014. But even Gandhi’s supporters within his Congress Party were frequently bemused by a speech he made to more than 1,000 prominent members of the Indian business community last week.

At a meeting organized by the Confederation of Indian Industry, the 42-year-old Gandhi stood out among the elegant suits and saris of businessmen and women. He chose to wear the male Indian politician’s traditional garb of a simple white kurta-pajama. His words, however, were less distinctive. It was always going to be difficult to recover from a beginning as hokey as:

“There is a tendency to look at India as a country. In our everyday life we see India as a national structure. But if you go back slightly more than that, go back a hundred, two hundred years, you would find that India is energy, it is a force.”

Holding the stage for more than an hour, he presented a vision of the state of the nation and its future that was a grab bag of disjointed metaphors and rambling platitudes. (“Embracing the excluded is essential to the wealth of the nation. If we do not embrace them, we will all suffer.”) He offered, according to a member of the audience, “no road map, no plan, no solution.” Read more of this post

Alibaba’s Taobao Bans Live Poultry Trading on Bird Flu

Alibaba’s Taobao Bans Live Poultry Trading on Bird Flu

(Corrects that Alibaba hasn’t banned poultry trading.)

Alibaba Group Holding Ltd. and other Chinese e-commerce sites are taking steps to protect against the spread of bird flu as concerns rise the H7N9 variant that’s killed nine people could spur an epidemic.

Alibaba’s e-commerce platform Taobao Marketplace said it would shut down online trading of live poultry “under necessary circumstances” this week. Shanghai-based Tony’s Farm and Beijing-based www.tootoo.cn have halted the sales. Web retailer 360buy Jingdong Inc. will cut down on face-face meetings with suppliers, and stop offering pork and poultry at its employee cafeteria, Richard Liu, chief executive officer of Jingdong, said in a letter to employees last week.

The H7N9 cases may become an opportunity for e-commerce companies as fears of infection prompt more people to stay home and shop online. A 2003 outbreak of Severe Acute Respiratory Syndrome helped make e-commerce popular just as it was getting started, said Cao Lei, a director at Hangzhou-based China e- Business Research Center. Read more of this post

China’s New Leaders, New Credit Binge; China’s economy has new leaders, not yet new ways. A surge in lending and capital inflows in the first quarter may be a precursor for tightening down the road.

April 11, 2013, 3:13 a.m. ET

China’s New Leaders, New Credit Binge

By TOM ORLIK

China’s economy has new leaders, not yet new ways.

The first quarter brought a surge in credit creation. Total social finance, a measure that includes new loans as well as bond issuance and other forms of credit, increased 6.2 trillion yuan ($1 trillion)—a record high. China’s stash of foreign exchange came in at $3.44 trillion at the end of March—up $128.4 billion for the quarter after tepid increases in 2012.

It all looks like a throwback to China under its previous set of leaders. The People’s Bank of China is in the markets buying dollars, resulting in larger foreign-exchange reserves and more liquidity in the financial system. That should certainly allay fears about China’s growth. A 58% year-on-year increase in new finance will surely prop up an expansion in output above the government’s 7.5% target.

By extending the policies of previous Chinese leaders, though, Beijing exacerbates the risk of inflation and asset-price bubbles. Consumer price inflation for March came in at a moderate 2.1% year on year. But massive increases in credit can only add to the upward pressure on prices.

Equally worrying is the rapid rise in the ratio of credit to gross domestic product. That measure has moved from 120% in 2007 to about 180% at the end of 2012. On the current trajectory, it will end 2013 at 200%. Such a sharp shift raises concerns about the possible misallocation of credit on a grand scale, and a buildup of bad assets in the banking sector.

The central bank’s recent efforts to restrain credit growth have been limited to timid attempts to drain liquidity from the financial system. To head off problems down the road, much more aggressive moves will be required. A surge in lending and capital inflows in the first quarter may be a precursor for tightening down the road.