The French sale will help Moscow to begin modernizing its aging armed forces at a time when its own military industry is not capable of meeting world standards for advanced weaponry, diplomats and defense analysts said.

France snubs U.S., will sell ship to Russia – Washington Times

Dr. Guo and his team have been working on creating technology that may enable the Air Force to create an additional kind of metal. The black metal they created absorbs all radiation that shines upon it. With the creation of the black metal, the researchers opened up a whole new horizon for various applications in creating an entirely new class of material.

Lasers Creates New Forms of Metal and Enhances Aircraft Performance

Iran has begun making ‘advanced’ unmanned drones capable of carrying out ‘assaults with high precision’.

Iran to make ‘advanced’ attack drones – Telegraph

The Pentagon’s release of the Ballistic Missile Defense Review confirmed that North Korea could be able to deploy a nuclear-tipped ballistic missile capable of striking the United States within the next decade.

The Washington Times reports that the review expressed serious concern over North Korea’s two underground tests and its attempt to develop a long-range missile.

The Increasing Ballistic Missile Threat | The Foundry: Conservative Policy News.

“Tan thinks one of the reasons behind this case is that he was leading an investigation into the poorly built schools after the earthquake, which would have embarrassed the local government in Chengdu,” Pu said.

Critics allege that shoddy construction, enabled by corruption, caused several schools to collapse while buildings nearby remained intact – a politically sensitive theory that the government has tried to quash, fearing it could undermine the admiration and goodwill it earned after its massive rescue effort.

China sentences quake activist to 5 years’ jail – washingtonpost.com

Pressure is building in the West for new international sanctions against Iran, following its announcement that it will step up uranium enrichment.

BBC News – West pushes for ’strong sanctions’ against Iran

Ali Akbar Salehi, head of Iran’s Atomic Energy Organization, announced that Tehran had informed the United Nations’ nuclear watchdog that it intended to launch construction of 10 new nuclear-fuel plants in the Persian calendar year starting March 2010 and begin producing 20%-enriched uranium to provide fuel for a Tehran medical reactor.

Iran says it will build 10 nuclear plants, beef up military – latimes.com

by Simon Hunt

This will be a shortened version of our usual monthly economic reports, since we have posted several short notes on the economic and financial markets.

This year is likely to be a year of surprises. Global economic growth will disappoint. The intrusion of governments into all matters financial, economic and even personal is a cause for uncertainty associated with policy risks; and markets hate uncertainty. It is these policy risks which could have the biggest impact on the potential global recovery in the economy and financial markets.

2010 should also be the year when many countries from the USA to the UK to China will experience the first moves towards policy tightening and the gradual withdrawal of financial and monetary stimulus. Moves by China to begin tightening monetary policy, even though they are only tinkering with the problem of excess liquidity, are a leading indicator to world markets of this changing environment. The consequences of this tightening are not yet visible, but could well become far reaching.

One outcome of China’s fiscal and monetary largesse has been growing consumer inflation, whether fully seen in official data or not. What has been experienced on the ground by exporting companies, as we have been warning for several months, has been an increase in wages because of a shortage of skilled workers. Many never returned to their factories after last year’s CNY. One factory reports (to a friend) that they are short of 17% of their normal labour force and this sort of rate is probably indicative across many coastal exporting companies.

The impact has been twofold: production has been hit and wages have had to be increased. Yesterday, Jiangsu province raised its monthly minimum wage by 13% to RMB960 (US$140). Wages for skilled labour are rising far more. This move by the province is an official recognition of what companies have been experiencing for many months.

The plight of exporting companies has consequences, too, for the RMB. China is under pressure to revalue its currency. Exporters are suffering from severe margin pressures. They are experiencing rising wages, rising raw material prices and increases in electricity and water rates etc. At the same time, credit for many of these companies remains exceptionally tight, so much so, that exporters are asking their foreign customers to open LCS, not at point of shipment, but at point of order placement.

There are a number of consequences resulting from the inflation of costs being experience by exporters. First, there will be the political result. Beijing will resist foreign pressure to revalue its currency – the earliest would be the second half of this year. Second, exporters will be raising their prices after the CNY, on average by around 10%, but for some goods substantially more. Third, buyers of Chinese goods knew well in advance that prices would be rising; they knew too that freight rates were being raised; so they have probably bunched orders up before prices rose. This dynamic together with the modest inventory replenishment being seen in the USA (though not yet evident in west coast US ports) and elsewhere has been the reason for higher level of Chinese and other Asian export business.

There is also another dynamic at work here. Across many manufacturing sectors in Asia business has been boosted by the need to replenish inventory within the supplier chain. This had been rundown to almost zero levels for balance sheet reasons in 2008’s 4th quarter and last year’s first quarter. This round of inventory replenishment has about now run its course. What lies behind this development will determine the course of the global economy in the first half of this year. From what we hear, the news will not be encouraging.

read more…..

YOU know we’re in trouble when we’re told that the economic problems in Greece, Portugal and Spain, the most indebted countries in the euro zone, are likely to remain safely contained in those nations.

After all, we heard the same nonsense in 2007 from United States financial leaders talking about the subprime mortgage mess. Both Ben S. Bernanke, the chairman of the Federal Reserve Board, and Henry M. Paulson Jr., then the Treasury secretary, rolled out to reassure concerned investors that troubles in mortgage land wouldn’t permeate the rest of the economy.

Fair Game – A Financial Crisis That Just Keeps Moving – NYTimes.com

In the article below we learn what happens when a system is prevented from collapsing. When the U.S. financial system is prevented from collapsing in 1997, we got the tech market collapse of 2000-2002. When the Fed did everything to mitigate the collapse of the tech market, then we got the housing bust of 2007-2009. When the housing bust turned into the global financial crisis, the government did everything it could to mitigate the collapse, then we got the new financial crisis in 2011-2012?

In studying how systems collapse, scientists have discovered a few things:

1. The state of a system before the collapse is important, but the trigger of the collapse is not important.

2. Systems move from a stable state to an unstable state all on their own because of system feedback.

3. The frequency of system collapse is a function of the Power Law and size of collapse.

4. Preventing a system for collapsing when it is ready to do so puts the system on the expressway to a much bigger collapse, even super-critical collapse.

Matt

The Greatest Money War of All Time

by Martin D. Weiss, Ph.D. 02-08-10

We are caught in the grips of a great war!

It is not a traditional land or sea war with tanks and battleships.

Nor is it an anti-terrorist, guerilla war for hearts and minds.

Rather, it is war of a third kind — pitting government bureaucrats against millions of investors … and causing massive collateral damage to innocent Americans.

Battle by battle, this great war has been escalated — each time with bigger guns deployed by Washington, each time with deadlier attacks striking Wall Street or Main Street …

Battle #1 began in Thailand in 1997 when global investors suddenly ran from its currency, dumped its stocks and abandoned its real estate.

Within weeks, the contagion spread to neighboring countries; within months, the fallout forced Russia to default on its sovereign debts.

Long Term Capital Management, a major player in the high-risk derivatives market, went under. Wall Street was on the verge of an unprecedented meltdown. The Dow plunged.

But the U.S. Federal Reserve responded swiftly, opening the money spigots full throttle and temporarily putting out the fires.

Soon, the pundits came out of hiding. They said the crisis was over. They swore up and down that the Fed had won the war.

However, any appearance of victory was deceptive in the extreme. All the Fed had really accomplished was to win a single battle, postpone the inevitable collapse, and in the process, help create another, far larger problem: the Tech Bubble of 1998-1999.

Investors, flush with cheap cash, rushed headlong into worthless IPOs. Harebrained business models prevailed. The Nasdaq DOUBLED in just one year.

Battle #2 began when the Tech Bubble turned into the Tech Wreck of 2000-2002.

Investors dumped their grossly overvalued dot-com stocks. Within weeks, the contagion of selling spread to other technology companies; within months, it spilled over into the entire economy.

According to the above data compiled by the Fed, before it was over, U.S. households had suffered …

• Losses of $3.6 trillion in stocks
• Losses of $997 billion losses in mutual funds, plus
• Losses of $1.9 trillion in life insurance and pension fund reserves

Total Tech Wreck losses: $6.6 trillion. (For the proof, click here.)

This time, the Fed responded with even bigger guns: To avert an all-out deflation, Chairman Alan Greenspan not only dropped interest rates to their lowest level since World War II, but he kept them at those extraordinary low levels for the longest period since the Great Depression.

He pumped cheap money into the economy like never before. He virtually banished the fear of risk. And, as a direct result, tens of trillions in borrowed dollars rushed into the U.S. housing market.

Again, the pundits swore the worst of the crisis had passed. Again, the government claimed it had scored a victory. Again, they were dead wrong.

Battle #3 was the monster born from the ashes of Battle #2:
The Fed’s response to the Tech Wreck created the Housing Bubble, which, in turn, spawned the Housing Bust.

And alas, the losses resulting from the Housing Bust of 2007-2009 were 2.4 times greater than the losses from the Tech Wreck of 2000-2002.

According to recently released Fed data, even excluding the early real estate losses of 2007, the Housing Bust caused U.S. households …

• Losses of $6.0 trillion in real estate
• Losses of $4.4 trillion in stocks
• Losses of $1.5 trillion in mutual funds, and
• Losses of $3.6 trillion in life insurance and pension fund reserves

Total Housing Bust losses: $15.5 trillion. (For the proof, click here.)

Combined losses suffered during the Tech Wreck and the Housing Bust: $22.1 trillion.

Yet now, under a new administration, the bailout brigades are up to their old tricks.

For a third time, they’ve retaliated with easy-money fire hoses, this time driving short-term interest rates to practically ZERO.

For a third time, they’ve deployed bigger guns. This time, with bailouts and stimulus that add up to 30 percent of GDP — TEN times more than the average of all prior postwar recessions.

And again, they’ve had the audacity to declare “victory” … to say that the “crisis is over” … and proclaim that the “recovery is sustainable.”

Inevitable result: Another gigantic bubble, another bust, and another round of devastating losses — this time in sovereign government debt (e.g., Treasury bonds).

This is why the collapses of sovereign debt markets in Greece, Spain, and Portugal are so alarming. (See “The Next Contagion.”)

And this is why the Obama budget — including an astonishing $1.6 trillion deficit in the current fiscal year — is so dangerous.

My recommendations are unchanged:

Avoid all long-term bonds, whether issued by federal governments, private corporations, or municipalities.

Approach all stock investments with great CAUTION — tight stop losses, plenty of cash, and solid hedges.

Above all, do not fall for this new deception. Keep your money safe. Make sure you’re not engulfed in the next round of collateral damage.

Good luck and God bless!

Martin

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Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Nilus Mattive, Claus Vogt, Ron Rowland, Michael Larson and Bryan Rich. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates
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