No major stories this New Year’s weekend. Dilma Rousseff was sworn in as the new president of Brazil and spoke to the need to continue the policies of LULA. She said her influence will be on battling inflation but the markets will watch her cabinet’s actions as she has also voiced concern about the rapid appreciation of the REAL, as the Brazilian currency has appreciated 39 percent during the last two years. The strong REAL has begun to hamper the Brazilian equity markets as it was up a mere 1.25 percent in a year that global commodities were the star performer. Brazilian debt markets are anticipating rates to rise this year so our eyes will be on the Brazilian central bank and watching to see how aggressive it is in stemming inflationary pressures.
Besides Dilma, the other news was more rhetoric from the Chinese leadership about curbing inflation. As I wrote last week, based on the use of the TAYLOR RULE, China’s anti-inflationary moves are a mere “paper tiger.” President Sarkozy and Chancellor Merkel both delivered New Year’s speeches citing the significance of the EURO for everything positive that has taken place in EUROLAND. Sarkozy answered those who opine on the FRENCH leaving the EURO as being MAD. Merkel also stressed the importance of the EURO to current German success. So 2011 begins with continued EUROPEAN dysfunction. The politicians can cheer but with a massive amount of financing coming this month we will see if the markets follow.
There were two stories from last week that got little coverage. The first was the beginning of the Russian oil pipeline from Taishet, Siberia to Daqing in northeast China. This is a $26 billion project that results in further diversification of Russian energy away from Europe. This is the first Russian pipeline to China as all previous oil shipments were by ship and rail. China is in dire need of natural resources and its leadership is building the necessary infrastructure to ensure that it has access to all available supplies. The Russians are also taking advantage of Chinese needs and raising the needed CAPITAL to further its energy development. This week, Russia announced that its oil production reached post-Soviet highs and is now the world’s largest producer.
Juxtapose the China/Russia story with the news out of the U.S. that Hillary Clinton planned to delay the TRANSCANADA PIPELINE that will deliver tar sands produced oil to the U.S. midwest upon completion. The Keystone XL pipeline has met resistance from environmentalists and Congressional Democrats–Henry Waxman called the Canadian-produced OIL the “dirtiest source of transportation fuel currently available.”
For those who complain about the tar sands-produced oil, Secretary Clinton aptly noted, “We’re either going to be dependent on dirty oil from the Gulf or dirty oil from Canada.” This is a State Department issue because the pipeline crosses an international boundary but the State Department is under intense lobbying from environmentalists. This will be a good test of which way the Obama administration proceeds as the pipeline project will produce many jobs and certainly a more secure and stable source of energy. The policy makers must also remember that Canada has Pacific Port Facilities that can provide the Chinese Petroleum Companies an easily accessible source of petroleum. From a foreign poliy and economic viewpoint, the TransCanadian Pipeline is a no brainer, except when it comes to CONGRESS.