Much of China's allure for investors is centered around its ability to
"get things done" that somehow languishes in the West. One clear example of this
is the array of shining public works that have been constructed across the
nation, including a large number of opera houses.

As appealing as the exterior of these edifices may be (depending on one's
architectural taste) their cultural success is apparently open to question, as
can be seen in the attached discussion led by Bloomberg's opera critic.

Any questions as to why India introduced a 4% levy on gold imports this month
were answered by the publication of last quarter's Current Account data. This
showed a record quarterly deficit of $19.62 bln, and although it was in line
with consensus estimates ($20 bln), the Q3 data was revised sharply lower from
$16.89 bln to $18.39 bln. Seasonal factors normally cause an improvement from
Q3 to Q4 and so the fact that a record deficit was recorded last quarter was
significant, as is the -$9.65 bln of deterioration over the last 12 months (red
line on lower chart).

Dominating the shortfall is a Goods deficit of -$47.7 bln, far wider than the
-$31.4 bln recorded in Q4 2010. The RBI notes that this was partly caused by a
spike in the cost of oil imports from last year but also a surge in gold and
silver imports (although further breakdown is not given).

It should be noted that Q4 saw very weak flows into Indian bond and equity
markets (the latter were -$300 mln), and that the strong flows of Q1 2012,
combined with more benign seasonal factors will lead to a sharp improvement in
this data for Q1 2012. This will not change the fact that India's trade
position is now a potential cause for destabilization, particularly should the
performance of local financial assets start to deteriorate in the face of tight
local monetary policy.

Compounding this risk is the overall weakness of the INR, which made a new all
time low against the USD in late 2011. Although its YTD performance may look
impressive (up 4.30%), its 12 month return is -12.90%, making it the second
worst major EM currency against the USD over this time period.

Our view remains that India may have the worst overall risk profile for foreign
investors of any large emerging market at the current time. - indiacaq42012.gif

The German Unemployment Rate fell to a new post-reunification low of 6.70% in
March, underlining the fact that absolutely no collateral damage from last
year's crisis was wrought on the domestic German economy. As can be seen on the
attached chart, the unemployment rate has been falling by a steady rate of
between 0.5% and 0.75% per annum for the last 2 years and there is no sign that
this is about to reverse.

Our prediction remains that last year's radical monetary easing should lead to
an acceleration of German economic activity which will be welcome in the short
to medium term but comes with the long term danger of a significant overheating
in Europe's largest economy. - germanunemployment.gif

As Q1 2012 draws to a close most readers will be aware that the NDX index has
enjoyed a spirited rally. Thus far the index is up 22.14% YTD, making this the
best quarter for the index since Q4 1999, outstripping the pace of gains since
the start of the 2009 bull market when the index was under half its current
value. Gold on the other hand has had a mediocre quarter, its 7% gain being
outstripped by the vast majority of equity markets and keeping the metal almost
13% below its all time high of $1921.

What may come as a shock is what this does to the relative performance of the
NDX and gold since the start of "the new central banking orthodoxy" in late
2008. Attached is a chart which shows the combined balance sheets of the ECB
(ex gold) and the FRB. We have converted the ECB's balance sheet to USD for the
sake of consistency. The two balance sheets have risen from a total of $2665
bln in September 2008 to $6282 bln today.

Over this 42 month period Gold has been seen as the macro hedge of choice, and
its price has doubled from around $800 to over $1600. Certainly during the
crisis this led to a sharp out-performance versus the NDX index, but since the
first few weeks of October 2008 the NDX has managed to keep pace with gold,
with the exception of the summer of 2011 when gold soared higher in response to
the Eurocrisis. The abatement of that crisis allowed has the NDX to recover its
relative position.

From our point of view this validates our long held position that the public
equities of well managed corporations are much more likely to help investors
"monetize" central banking largess than a non-productive metal that sits in a
vault. Indeed we would have seen the same result if we had used the S&P Retail
index (RELX) instead of the NDX index. Corporations are actually in a position
to use loose monetary policy to their advantage, while gold is simply a
reflection of the price investors are willing to pay for it. Furthermore,
although the NDX is clearly overbought there is no evidence that exposure to
it has been jammed into every global portfolio as a "must hold" asset. Our view
remains that the public equities of well positioned corporations are a better
way to combat the risks of monetary laxness than gold going forwards. -
ndxgold.gif

Interview focuses on the US housing market and the fact that the SPX Total Return
index has approached a new all time high.

http://www.bloomberg.com/video/89047693/

Brazil's Private Sector Loan data would appear to show that a significant
deceleration in credit growth is underway, although the issue is clouded by the
fact that Carnival fell in February, which will have pulled the data lower.
Total Private Sector Loan growth stalled, rising 0.05% for the month, after
falling in January by -0.28%. This marks the slowest start to the year since
January and February 2009 when credit fell by -1.25% over 2 months. 3 years ago
total Private Sector credit stood at 768 bln BRL, compared to 1141 bln BRL
today.

In terms of the various sub-sectors, Housing Credit (red) continues to be the
only area of strong growth, rising 2.34% to 210.6 bln BRL. Even so, this is a
much slower pace of growth of 12 months ago and is the smallest percentage
monthly increase since November 2009. Personal credit grew a mere 0.3% while
industrial credit was flat.

Meanwhile, the percentage of Personal Loans 90+ days late stalled at 7.60%.
Although this is to be welcomed it is not unusual for a delinquency cycle to
pause or even reverse for a month or tow. Furthermore loans less than 90 days
late rose to 6.60% from 6.40%, suggesting that pressure continues to build at
the level of credit performance. - D-BRCDDEFT_Index.gif - D-BZLNPTOT_Index.gif
-

The attached article questions the inevitable advance of China at the US's
expense and quotes from the Marketfield Fund annual report.

http://www.thedaily.com/page/2012/03/26/032612-opinions-column-declinism-butterw
orth-1-2/

We commented last week on the undesirable combination of:

(1) Leveraged ETF risk
and
(2) Volatility product risk

that exist in the ill-fated Credit Suisse ETN. This story has played out every
bit as badly has we feared over the last few days. Unfortunately we doubt that
the correct lessons will be learned this time around. We maintain that implied
volatility is simply indicator of the market mood and NOT an "asset class". The
fact that a myriad of instruments have been created and that many of them have
become highly liquid, large cap issues, does not make them any more suitable as
a holding in the average portfolio. In most cases listed put options are a far
more effective way to hedge, as is the simple decision to cut back on aggregate
exposure.

The fetish of volatility trading will eventually be discredited, but not before
it has caused a great deal of angst in the investing public.

The February US Pending Home Sales report produced a decent set of data that
has the advantage of looking forwards into the key spring selling season. The
headline index dropped from 97 to 96.5 (2001 = 100), which again is the result
of a large seasonal swing as winter abates rather than a true deterioration in
activity levels. This is shown by the trailing 12 month ma moving higher to
91.6 which (ignoring the tax credit distortions in 2009/10) is the best reading
since February 2008, and the 12 month RoC of +7.82%.

The NSA data amplifies this underlying improvement. February's reading of 90 is
the best February reading since 2007, when the true severity of the mortgage
crisis was about to become apparent. The 12 month RoC of +13.92% is a strong
reading which suggests that the current late winter/early spring season has got
off to a robust start, at least in the existing home market. -
M-USPHTOTL_Index.gif - M-USPHNSA_Index.gif -

It is easy to forget that the Federal Reserve Board and the more exclusive FOMC
that actually sets monetary policy are made up of a large number of individuals
with very different philosophies underpinning their opinions. An excellent
example of this disparity can be seen in the two very different speeches given
this morning by FRB Chairman Bernanke at the National Association for Business
Economics and by FRB Philadelphia president Plosser to the Global Society of
Fellows of the Global Interdependence Center in Paris (links to both speeches
can be found below).

Bernanke's speech acts as a reminder that at heart he remains a well meaning
policy wonk. Given an audience of professional economists he indulges in a
detailed academic discussion of the oddities of the recent labor cycle,
outlining the disparities from the recent experience with the standard labor
economics dictats such as Okun's Law (a supposed hard relationship between GDP
and unemployment) and the Beveridge Curve. His conclusions, which were
immediately accorded headline status, were that the employment recovery remains
fragile and that FRB policy accommodation would be required to remain in place:

February New Home Sales data showed sales at 313K vs. estimates of 325K and
January sales of 318K (revised lower from 321K). As with existing homes this
represents a small increase in actual sales (which were 25K for February alone
compared to 22K in January), which was canceled out by a smaller seasonal
adjustment. In any case both the headline and NSA data remain just below the
trailing 36 month ma, and therefore have yet to signal a breakout in sales
activity, which is moderately disappointing.

Nevertheless, at this point in the cycle it is important to distinguish between
the actual commentary coming out of public and private homebuilders (to the
extent the latter are accessible) and the big-picture official data which is
subject to revision and survey error. We are certainly not dealing with a
strong New Home Sales market at the present time but the pertinent question is
whether we are witnessing the beginnings of a recovery. The comments coming out
of the industry suggest something has meaningfully changed this winter and we
expect the data to follow suit before too long. We doubt whether the Existing
Home market can continue to recover without dragging New Home sales along with
it given that volume of the latter now run at only 7.70% of Existing home sales
(see chart).

Meanwhile inventory remained at 150K, the same record low level as January,
indicating that any uptick in activity should lead to local shortages of new
homes. Again this tallies with some evidence of price firming at individual
communities in recent weeks. - D-HSMNTOT_Index.gif - D-NHSLTOT_Index.gif -
newexistinghomesales.gif

Evidence is mounting that the domestic German economy is starting to accelerate
and this is before the massive monetary stimulation of the LTRO has had time to
have had its full effect on local activity.

Attached is a chart of the German Residential Construction index, which tracks
reported orders from a survey sample of the 7000 construction firms with 20
workers or more. As can be seen the January 2012 data shows a rise of 8.20%
from December and the index has risen from a level of 96.3 as recently as
September. The January reading is the highest since November 2002 and even if
we allow for the fact that some construction orders may have been held back
during the acute phase of the crisis and then rushed forwards in January, there
is an unmistakable shape of improvement on the trailing 12 month ma. This has
reached 111.8, the best reading since early 2004.

As the attached chart shows, after the post reunification construction boom
peaked in 1994 German construction contracted violently though 2002 and then
ground along the bottom. A further dip took place in 2008/9, while 2010 saw a
recovery back to the old low-point. 2011 suggests that a 17 year decline may
finally have run its course and this can only be aided by the largesse of the
ECB's monetary policy. - M-GRCOPRBU.gif -

The Indian Rupee cross rate (INR) rose to 51.2175 this morning and although it
remains below the record 54.305 rate seen last December, it has now risen
sharply from the February low of 48.609 or the level of 45 that the currency
was at a year ago. Despite several months of weak performance, the INR remains
one of the most widely recommended global currencies and has also continued to
benefit from massive foreign inflows into India equities and bonds.

The attached chart shows the INR cross (which has been inverted so that the
line declines as the currency weakens) together with a measure of cumulative
equity (red) and bond (blue) foreign inflows. The flow data starts at zero in
2000 and does not reset at the start of each year. So far 2012 has seen $8.88
bln of equity flows and $4.7 bln of bond flows. Equity flows reached a new
record on Tuesday (the last date for data), while bond flows peaked on February
29th (indicating the importance of month end allocation in emerging market
fixed income). The fact that the currency can still weaken in the face of these
flows shows how weak its underlying foundations are.

There are signs that the Indian authorities are starting to worry about this
issue, with the measures taken against gold imports (see our daily notes) being
the most significant steps taken so far. We remain concerned that any weakness
in the Indian equity market will cause a reversal of equity flows and compound
the weakness of the INR, magnifying losses for foreign investors. -
inrwithflows.gif

An interesting story that highlights the second restriction on gold introduced
in India over the last few days. The article describes a move to limit loans
backed by gold jewellery to a 60% LTV and additional restrictions placed upon
Non-bank finance companies who have more than 50% of their entire loan book in
gold based loans. In such cases a reserve requirement of 12% will be required
after April 2014, (compared to the recently lowered reserve requirement of
4.75% for Indian banks).

The extent of gold-backed finance within the Indian economy may come as a
surprise to some readers, but we have argued for many months that ever since
India and China became the top two markets for physical gold, tracking
liquidity conditions in these two economies would become ever-more important.
The reduction of gold's utility as loan collateral can be expected to further
dampen Indian demand, as well as constraining available financing for those who
have come to rely upon gold-based loans.

The February 2012 Existing Home Sales report continues the recent string of
reports that suggest that the US home market turned a significant corner in
2011. Although overall sales, at 4.59mm, were just below consensus of 4.61mm,
the January data was revised up from 4.57mm to 4.63mm, making this report a
modest beat overall. If this seems unexciting it should be remembered that the
February report gets far less seasonal help than January's and this shows that
the uptick in activity seen in recent months was more than a statistical quirk
of the data (as proved to be the case a year ago).

Looking at single family homes data, sales were 4.06mm homes, almost exactly the
same as in January. As can be seen on the attached chart, this takes sales well
above its trailing 60 month ma, which we have been using as a reasonable
signal of recovery. We would expect to see some further improvement over
the course of 2012 and believe that an annual pace of around 4.5mm homes
should be achievable. Overall inventory rose to 2.11mm units as realtors placed
mothballed homes on the market, but this is still 470K less homes than in
February 2011.

Condo sales were also flat at 530K, and here inventory grew considerably from
253K to 322K. However, it should be understood that condo inventory is much
more seasonal than the data for single family homes and as the attached chart
demonstrates, has still fallen by over 24% in the last 12 months.

Underpinning the existing home market is the remarkable affordability of US
housing, both in absolute terms and compared to the cost of renting. Indeed, as
the attached article describes, it is now cheaper to buy than rent in 97 out of
100 municipalities measured by Trulia.com.

http://www.bloomberg.com/news/2012-03-21/new-york-city-s-queens-now-cheaper-for-
buying-homes-than-renting.html

Even though we believe that US interest rates will move somewhat higher in 2012
we do not believe that they will move far enough to significantly shift the
balance of affordability, meaning that the odds of a decent recovery in the US
existing and new home sales market are reasonably high. - D-EHSLSL_Index.gif -
M-ECSLHAFS_Index.gif

The MBA Refinance index fell sharply this week to 3603, a drop of -9.26% from
last week and the lowest reading since January 6th. This suggests that the
current refinance boom is starting to lose momentum as the pool of eligible
households becomes depleted. Note that the recent spike in yields will have
only partly taken effect during this time period. Based on prior cycles, having
fallen below the key 4000 level, refinance activity can now be expected to
continue to moderate sharply. Tellingly the current 30 year mortgage yield
(using bankrate.com data) is still about 20 bp below its trough during the
prior refinancing boom (see chart). If the mortgage rate were to push back up
to this level (red shaded area on chart) we would expect to see refinance
appetite collapse since there would no longer be much of an incentive for
most homebuilders to refinance.

This in turn would imply significantly less buying appetite for US treasuries
from holders of MBS going forwards, which should make it easier for yields to
rise. At a certain point a sharp collapse in refinance activity (somewhere
between 2500 -2750 on the MBA index) would actually create forced sellers of US
treasuries out of MBS holders. We have seen this cycle play out numerous times
over the last 15 years with large moves in US interest rates exaggerated by MBS
duration hedging in both directions. The only difference this time around is
the vast sums that were directed towards treasuries and other high quality
fixed income instruments that are trading at very tight spreads (emerging
market sovereign are a clear example) over the last few months. We therefore
continue to believe that interest rate risk is currently a significantly
greater danger to the average portfolio than at any time in recent history. -
D-MBAVREFI_Index.gif - D-ILM3NAVG_Index.gif -

A very interesting article that highlights the problems that can occur when
arcane instruments (such as VIX futures) are combined with leverage in a liquid
structured product.

We have always argued that the infatuation with volatility as an "asset class"
is one of the great miscomprehensions of modern investing, and this latest
debacle only hardens our belief. Implied volatility is a useful guide to
investor sentiment (which is why we follow the VXO in our weekly research), but
this does not make it a suitable trading vehicle, particularly given the
restrictions of European expiration that have been placed on the underlying
futures themselves. Combining this with leverage is simply asking for trouble
and we would simply advise readers to steer well clear of this sort of exotica.

February US Housing Start and Permit data confirmed the improvement seen in the
January data and while this may seem to be unexciting, it should be remembered
that the January data receives a much greater boost from seasonal adjustments
than the February report, meaning that a genuine uptick in activity has taken
place at the start of the spring selling season.

Overall Housing Starts were estimated to have been 698K, while January data was
nudged 7K higher to 706K, matching consensus. As can be seen on the attached
chart, February data was skewed towards multi-family starts, which hit 241K.
The trailing 6 month ma for multi-family starts is now 212K, compared to the
low point of 84K in December 2009, while a "normal" level of activity would be
in the 300-400K range. Single Family starts slipped to 457K, a drop of 50K or
9.86%. Although this may seem alarming this data is very volatile from month to
month and this drop is very much affected by the seasonal adjustments.

We also very much prefer Building Permit data to Housing Starts since
historically it has given rather less "false signals" (we suspect this has
something to do with differences in the surveying methods for the two metrics).
This showed overall permits rising to 717K, the highest level since October
2008 and a 34% increase over the last 12 months. Although multi-family permits
have been the main force behind the breakout, the single family permit data
reached 472K in February, up 22K (4.89%) from the January level and the best
reading since the ephemeral boost from the housing tax credit. This data is now
23.5% higher than the very depressed level of one year ago and really does
suggest that some pick-up in activity is taking place in the single family
industry.

Clearly at this point in the cycle the housing industry is all about sales,
with builders very hesitant to anticipate a genuine and sustained improvement
in demand. Nevertheless with new home inventories at an all time low, the lag
between improved sales and a pick up in construction can be expected to be very
short this time around. - D-NHSPSTOT_Index.gif - M-NHSPA1_Index.gif -
M-NHSPATOT_Index.gif -

Although the NAHB Homebuilder broke its recent run of positive surprises in
March, the overall reading of 28 (unchanged and missing consensus of 29) still
establishes that a marked improvement in activity has taken place since the
start of the year. Moreover, the Future Sales index (red on multi-chart) rose 2
points to 36, its best reading since June 2007, which suggests that although
Foot Traffic (green) may have been constant at 22, the seriousness of those
viewing the properties has improved slightly.

Overall the data still supports the notion that a recovery in the New Home
market has begun. No doubt this recovery will have some bumps along the way,
but over a number of months it should establish some rapid headway, much in the
same way that the New Car market did from its very depressed state the start of
2010. - narbsurveymar12.gif - nahballindexesmar12.gif

Most of the articles this morning dealing with Chinese real estate describe a
modest slowdown of prices in a growing number of cities (45 out of 70 according
to the February official data). However, we have always argued that
transactional volume is a much more important metric to follow when attempting
to judge the health of a real estate market, since this tends to lead changes
in price trend by a number of months or even quarters.

In China's case fairly limited official data is produced regarding real estate sales,
but that which is produced shows a marked deterioration in the number of
transactions in recent months (strictly speaking the data tracks square meters
of real estate rather than the number of units). Note that China does not issue
data for January for real estate sales but instead includes the first 2 months of the
year in its February data.

The February data shows that Total buildings sold through February have an area
that is -20.9% less than 2011, Residential building sales have dropped by -16%
while Land sales were virtually flat at -0.5%. Residential development on the
other hand continued to increase rapidly with total area growing by 32.8%. This
lag between a collapse in sales and a reduction in development is a traditional
pattern for a real estate market that has peaked. Development projects are
typically several months in the planning and once started tend to lurch towards
completion provided the funding remains in place, which is why markets tend to
be dramatically over-built by the time sales bottom out.

If sales in China continue to decline we would expect to see new projects
mothballed as raw land and new land sales dry up completely. This would be the
stage at which China's real estate issues starts to cause major concern amongst
global observers. It still may not come to this but the signs are certainly in
place that China's real estate market is following a downward path we have seen
several times before in other countries. - D-CHRESORY_Index.gif -
D-CHRESORY_Index1.gif -

Today's release of Brazil's February CAGED job creation index supports our
contention that the local economy is starting to decelerate appreciably. Total
jobs added for February were 150.6K, well below expectations of 190K and a drop
of 130K from the February 2011 total (note that a large part of this drop is
caused by the change in the timing of Carnival).

Our concern is not simply the February data itself, which will need to be
judged in concert with the March data in order to unwind the seasonal
distortion, but rather the fact that the longer term trend shows an appreciable
deceleration. The trailing 12 month ma is now 116K, the lowest since January
2010, and is down from 181.5K in February 2011. Employment is always a lagging
and slow moving indicator in an economic cycle, but once it makes the turn it
tends to have great momentum behind its move. The CAGED is still at a healthy
level of employment growth but it cannot absorb much more deterioration without
sending out a warning signal. - braxilcagedjobcreationfeb2012.gif

We commented a couple of weeks ago on the shift in China towards directly
canvassing companies for economic data and suggested that this could
significantly increase Chinese data-volatility going forwards. The attached
article suggests that the Government is determined to push through with this
measure and that it has already uncovered the sort of data-massaging that any
intelligent viewer of Chinese statistics understood must be taking place
somewhere in the process.

Although we would welcome anything that increases the accuracy and transparency
of Chinese data we would caution that global markets rather liked things how
they were under the old statistical regime, and there is a danger that an
increase in the volatility of data so that it becomes similar of that of other
large emerging markets could create some turmoil around economic releases.

Link to this morning's Bloomberg Radio interview. MP3 is attached for
non-bloomberg users.

+------------------------------------------------------------------------------+

Marketfield’s Shaoul Sees ‘Real Bull Market’ in U.S. (Audio)
2012-03-16 12:59:49.624 GMT

March 16 (Bloomberg) -- Michael Shaoul, chairman of
Marketfield Asset Management, says the U.S. equity market "is
where you want to be." Shaoul talks with Bloomberg's Ken Prewitt
and Tom Keene on Bloomberg Radio's "Bloomberg Surveillance."

(Source: Bloomberg)


This is a Bloomberg podcast. To download, watch or listen
to this report now, click {1 <GO>}. For additional Bloomberg
podcasts, see {BPOD <GO>}. -- Bloomberg News +1-212-617-7855
(John Tucker/Lysak)

Running time 10:36





-0- Mar/16/2012 12:59 GMT
- s54619c6.mp3

The US 10 year treasury yield completed its breakout above the 200 day ma in
the manner we expected and we should now see yields move up to test resistance
at the 2.40% level. The 30 year bond has already seen its yield move up to test
the equivalent resistance at 3.50%, but so far this level has repelled two
attempts to surpass it. Obviously a breakout by the 30 year bond through this
resistance would make it more likely that the 10 year note would follow suit.

Meanwhile we note that the UK 10 year gilt has followed the US treasury with
its own yield breaking just above its 200 day ma this morning at 2.44%. The
gilt was a massive beneficiary of Eurozone flight capital in the second half of
2011 and it makes sense that it would start to come under pressure around the
completion of the Greek debt debacle. Although our primary attention remains
the US treasury market we would stress that any breakout by US yeilds is likely
to be matched by other sovereign markets whose yields collapsed in 2011, which
include many developed and emerging market issues. Given the lopsided nature of
allocations and the sensitivity of bond prices to moves off ultra-low yields,
interest rate risk is a considerable risk to the average global portfolio at
the current time. - D-USGG10_Index.gif - D-GUKG10_Index.gif -

Soaring retail demand for gold has made India the largest global market for
physical gold. As the attached article outlines the Indian government has
started to focus on the trade balance implications of this demand and address
it with import taxes. With gold already under some pressure from rising US
interest rates this hike in the Indian import tax is ill-timed for gold's
supporters.

An interesting story that serves to confirm our sense that investor attention
towards emerging markets has gone beyond the healthy stage of an investment
cycle. Although turnover itself does not tell you anything about the commitment
of capital investment cycles typically peak with a surge in volume and (with
futures markets) open interest.

The Reserve Bank of India (RBI) chose to keep the REPO cut off yield at 8.50%
at this morning's monthly meeting and made no change to the Cash Reserve Ratio
which was surprisingly reduced to 4.75% last week. As we commented back then
the Reserve Requirement was hardly the problem to begin with, while interest
rates are starting to severely squeeze the availability of cash for financing.
This can be seen in the extensive use of the RBI's REPO facility by Indian
banks in recent weeks and although this has reduced somewhat from the record
sums borrowed a couple of weeks ago the size of borrowings from the RBI remain
abnormally high at 1347 bln INR.

In the face of this cash squeeze it is unsurprising that money market rates
have moved significantly higher in recent weeks. The 3 month interbank rate is
now 11.17%, 267 bp above the RBI REPO yield, and about 150bp higher than it was
in October when the 8.50% rate was introduced. Recent days have seen a spike in
shorter term borrowings with the 1 month rate identical to 3 months and the 14
day yield rising to 10.28%. With the RBI choosing to ignore these pressures at
the current time the risks are building within the Indian financial system to a
far greater degree than is appreciated by most investors at the current time. -
D-RBICRR_Index.gif - D-NSERO3M_Index.gif -

One of the interesting side-shows to yesterday's surge by the SPX index to a
new 4 year high was the fact that the DXY index managed to make forward
progress during this session. This is the latest piece of evidence to suggest
that the USD's long held inverse correlation with the local equity market is
starting to breakdown. Clearly the USD still maintains "safe haven" status and
can be expected to be bought during periods of global turbulence (when the SPX
index can be expected to decline), but for the first time in several years a
strong rally in global risk assets has not led to obvious reflexive dumping of
the greenback. Indeed the DXY index is currently just above its closing level
for 2011 depite the SPX being up 11% for 2012.

This can also be seen on the attached long term chart showing the 50 week
correlation between the DXY and SPX indexes. The correlation between these two
indexes is now a statistically insignificant -0.05, but the trend suggests that
we will see a moderate positive correlation later in 2012. This is very
different from the very strong negative correlations that were in place in the
vigorous "risk rallies" of 2009 and 2010.

To the extent that the USD can hold its own or even make modest positive
progress during periods of appreciation the likelihood of medium to longer term
gains by the USD will be significantly increased. - D-DXY_Index.gif - dxyspx.gif

After ignoring very strong US economic data and a powerful stock market rally
for several weeks, there is finally some signs of life at the long end of the
treasury yield curve. The 30 Year Treasury yield reached 3.35% this morning,
while the 10 year yield reached 2.20%. In both cases this is the highest yield
since October 31st and today's move has tested technical resistance at the 200
day ma for the first time since it was crossed last summer.

Interestingly even before the recent spike in yields there were signs that the
current refinance boom was starting to ebb. This week's MBA refinance index fell
just below the key 4000 level at 3971, and this reflects activity at mortgage
rates approximately 20bp below today's level. If resistance at the 200 day is
overcome we could then start to see the sort of feedback loop from duration
hedging that has followed the completion of prior refinance booms taking yields
sharply higher (to remind readers, the need to hedge duration risk means that
large amounts of refinance activity encourage holders of MBS to purchase
treasuries. A slowing of refinance activity removes this demand and at a
certain point a collapse of refinance activity means that MBS holders become
net sellers of treasuries).

Our view remains that the long end of the curve is at least 100 bp lower than
it should be given the balance of economic news, even allowing for the fact
that the FOMC has signalled no intention to raise the FDTR prior to late 2014.
- D-MBAVREFI_Index.gif - D-USGG30_Index.gif -

The FOMC's release (see link below)

http://www.federalreserve.gov/newsevents/press/monetary/20120313a.htm )

makes it clear that the committee has no intention of being swayed by the
recent strong acceleration of US economic data. Today's statement does pay lip
service to lower unemployment but notes that it "remains elevated". Household
expenditure is noted to "have continued to advance" but this scarcely describes
retail sales at a record pace and growing by over 6% per annum. Similarly
"strains in global financial markets have eased" but we are assured that "they
continue to pose significant downside risk to economic outlook" (although it
should be remembered that the economy did not obviously suffer when they
remained elevated for several months in 2011). We suspect that the FRB is aware
that seasonality errors have caused economic data to subside in both of the
last two springtimes and early summers and does not want to be caught out
should the same swing take place in 2012.

This means that the expectation of no rate hike until late 2014 remains intact
for the time-being, and this is reflected in the attached chart of expected
LIBOR rates through 2015 as priced in today's market (live data post FOMC), 6
and 12 months ago. It should be understood that the state of the US economy
today, and particularly that of employment, is significantly better than it was
expected to be 12 months ago. Normally this would be reflected in a shift by
the LIBOR curve to reflect higher rates being charged sooner. This time the
expected rate for December 2012 has fallen from 1.73% to 0.55% while that of
March 2014 has declined from 3.00% to 0.86%.

This is a highly abnormal state of affairs that is unlikely to remain in place
through mid 2014. Either the economic progress will stall or the FRB will be
forced to declare the emergency to have been terminated ahead of schedule.
Should the latter occur rarely would good news have been so damaging to the
average global portfolio. - liborcurvemar132012.gif

January's official estimation of Advance Retail Sales caused some brief concern
when it was issued, causing us to point out yet again that this data is
volatile from month to month and needs to be considered over a longer period to
be of any use (it also comes out a couple of weeks later than ACTUAL sales
reported by real store chains making one wonder why anyone bothers about this
data at all).

February's release goes some way to addressing any lingering concerns with a
strong 1.1% increase in sales augmented by a revision of January's data up to
0.6% from 0.4%. This takes the overall index up to a new all time high of
407.8, over 7.5% above the peak level reached in the prior economic cycle.
Overall sales have risen by 6.5% over the last 12 months, a very solid pace of
increase that compares favorably with sales growth for much of the 2003-7
growth cycle. In fact if one looks at the growth of sales over the last couple
of years, it looks close to that of the late 1990's boom (see YoY chart),
underlining the fact that the current economic cycle is very different from the
narrow real estate boom of the early 2000's. - retailsales.gif -
retailsalesyoy.gif

The March ZEW survey of German Economic Confidence shows a continued sharp
improvement in perceptions of both the German and wider EU economy. Although
the "Current Situation" index slipped slightly to 37.6 from last month's 40.3
this is still a healthy reading and was more than made up for by a very sharp
improvement in the "Expectations" index, which tracks how the population feels
about the economy 6 months down the road. This rose from 5.4 to 22.3 and is now
back to its level in July 2010 at the very early stages of the Euro-debt crisis
(the index was as high as 53 in April 2010). The index has recovered 76.1
points over the last 3 months (roughly the period since the LTRO was launched)
which is the largest 3 month change since the data starts in 1992.

Interestingly Germans now also feel better about the prospects for the wider EU
economy. The Expectations index for the entire EU rose to 11.0, the best
reading since May 2011 (when the acute phase of the Euro-crisis commenced).
Expectations have improved 65.10 points since December which is also a record
although this data only starts in 2000. German's still feel significantly
better about their local economy than the wider EU (and are probably correct in
this assumption) with the spread between the two expectations currently an
abnormally wide 11.30 points, down from a record 13.50 points last month. All
of this supports our notion that the German domestic economy is poised for a
period of surprisingly robust growth over the coming months. -
zewexpectationsmarch2012.gif - zewchange.gif

One of our assumptions has been that emerging market central banks will attempt
to address risks of an overall slowdown in domestic economies with wide
focused policy tools (such as interest rates and reserve requirements) while
using narrower "macro-prudential" measures to keep things tight in portions of
their economies.

Nowhere is this unfortunate policy mix more in evidence than Brazil, where the
political administration has been clamoring for lower interest rates and an
interventionist policy in currency markets. The Bank of Brazil (which it should
be remembered is politically independent) responded last week by slashing the
benchmark SELIC rate and followed this up today by a decision to extend the 6%
IOF tax of foreign loans and bonds issued by local companies to maturities of
up to 5 years from the prior 3 year limit (this was only introduced on March
1st, poor to which the limit was 2 years). This 6% tax significantly reduces
the attraction of local Brazilian credit to foreign investors, while the
multiple moves signals an intent to discourage any stubbornness with regards to
further inflows.

As can be seen on the attached chart the BRL has dropped from 1.717 on February
29th to 1.825 today, a fall of 5.8%. We would expect to see the currency
stabilize above 1.80 and potentially make a move back towards the 1.90 level.
One level to watch is 1.867, which was the closing price for 2011, above this
level the BRL would be hurting bond and equity investments on a YTD basis. The
danger is that any period of weakness in local equity and fixed income markets
will now see a further decline in the currency cross, much in the same way that
foreign investors were punished in August and September of 2011. -
D-BRL_Curncy.gif -

With the long running Greek saga completing the current chapter (like all
compelling dramas we would not rule out the potential for a sequel), it is
interesting to note that overall financial stress levels in the US, as measured
by the Bloomberg US Financial Conditions Index (BFCIUS index) returned to
positive territory on Friday and have remained there this morning. As we
pointed during the height of the crisis, US Financial Conditions never crossed
the 2 standard deviation level (the European equivalent fell below -5 standard
deviations and is still just below -2), signalling that the US was a reluctant
participant in the messy events taking place in Europe. The rapid recovery to
normal conditions further underlines the accuracy of this remark. -
W-BFCIUS_Index.gif - D-BFCIUS_Index.gif

For many quarters our main complaint regarding Chinese economic data was that
it was too regular to be credible. Thus far in 2012 this has ceased to be true,
with a far greater deviance from consensus being reported in multiple data
sets. February's trade report was no exception from this trend, with a massive
monthly deficit of -$25.97 bln being reported for this month, a record deficit
by a significant margin (see chart). Note that over a longer period China
remains very much a net exporter, with the 12 month trailing ma still at $12.88
bln event after this release, but February's data does take some explaining.

Although many of the stories we read over the weekend suggested that the
deficit was driven by weak exports, this is not really backed up by the
sub-index data, which showed total Exports were still up an impressive 18.4%
YoY. Instead the deficit was driven by Imports, where the data rose by a
massive 39.6% from last February. No doubt in part this can be ascribed yet
again to the Lunar New Year falling entirely in January. As can be seen on the
attached seasonal chart, Total Trade (imports plus exports) combined to $260 bln
in February, by some distance a record for this particular month which is
normally the quietest month of the year (5 year average Total Trade is just
over $160 bln). The abnormally early New Year served to depress January Total
Trade and to push February's significantly higher, with imports in particular
being subjected to this holiday swing.

We therefore would not draw too many conclusions until March's relatively clean
data is reported next month, although we are intrigued at the increasing
volatility of Chinese data inasmuch as it speaks of a change in attitude for
the local authorities. This could now be described as saying "may you live with
interesting data" and time will tell if this is a blessing or curse for global
markets. - chinatotaltrade.gif - chinatradebalance.gif

As the current act of the long running Greek saga draws to a close it is
interesting to note that a significant improvement in Euro-area liquidity has
allowed a substantial repayment of the FRB's emergency provision of liquidity
via the CBLS.

As can be seen on the attached chart, the cost of swapping from € to USD for 3
months (black line) has fallen from almost 160 bp in late November to 63 bp
this morning. We would view a fall below 60 bp as a return to "normal" and a
fall below 40 as "healthy", but it should be recognized that the direction and
speed of the drop suggests that this is just a matter of time. USD 3 month
LIBOR (red) remains quite elevated at 47 bp, but this is really a reflection of
high rates still being charged by a limited number of large French banks (remember
LIBOR is a modified average), while most lenders have seen very sharp drops in
their cost of borrowing (see chart for a selection of reported borrow rates).

All of this improvement allowed the ECB to repay $36.382 bln last week,
following small repayments totaling $1.309 over the prior 2 weeks. This takes
the CBLS down to $71,386 and we would expect it to be run down rapidly in the
coming weeks. However, although the CBLS may lie dormant for a while, this may
not be the last we see of this facility. Having been brought into play with
useful effect in both 2008 and 2011, we would expect it to play a key role in
stabilizing emerging market currencies should the sort of disruption we view as
possible take place some time in the coming months. - frbcbls.gif -
3monthlibor.gif

Note follows retail break-out yesterday. - sg2012030937271.gif

We have commented several times in recent days about a growing cash crunch in
India and the RBI responded last night with a surprise cut of the Reserve
Requirement to 4.75% from 5.5%. This takes the Reserve Requirement down to its
lowest level since late 2004. Although this measure will be welcomed by India's
banks, who had become very reliant on liquidity provided by the RBI's REPO
operation in recent weeks (see lower chart) it should be recognized that India
(unlike China) has not primarily relied upon the Reserve Requirement to tighten
local liquidity. Indeed prior to this cut, the requirement was no higher than
it had been in January 2007 and far below the 9.00% level reached in late 2008.

The RBI has instead been far more focused on the price of liquidity, raising
the REPO cut-off yield (red line on chart) from 3.25% to 7.5% over the last 2
years. It therefore seems likely that it is this yield policy that is causing
much of the monetary tightness, and the RBI has been very reticent to change
in this stance while inflation remains a stubborn threat to the local economy. -
D-RBICRR_Index.gif -

The February Non-Farm Payroll report further underlined the extent to which US
employment statistics have improved in recent months. Overall Payroll growth
was estimated at 227K, beating consensus of 210K. In addition the January data
was revised 41K higher to 284K, making it the strongest single month since
January 2006 and December's release was revised 20K higher to 223K. Private
Sector Payroll was estimated to have grown by 233K (225K consensus) with
January revised up 28K to 285K and December +14K to 234K.

The effect of this release was to take the trailing 12 month ma of Private
Sector payroll up to 187.25K, equivalent to the level reached in August 2005
and September 1993. We have also included a chart which shows the Overall level
of Private Sector Payrolls. As can be seen this is now growing by just over 2%
per annum, close to the peak growth rate seen in the 2003-7 cycle. We would
note, however, that the prior cycle had a growth rate almost twice as fast,
peaking just below 4% in early 1995. We would therefore argue that coming off a
very depressed level there is scope for payroll gains to actually accelerate
from the current pace, although we would caution that even the best recoveries
will still have some "data-panics" along the way. - D-NFP_P_Index.gif -
nfppch.gif

China released its full batch of economic and monetary data last night and
taken together it paints a clear picture of a decelerating economy with (at
least for China) tight monetary conditions that went beyond market expectations.

CPI growth was 3.2% YoY, significantly below the 3.4% expected, we could
quibble about how "real" this drop in CPI is (the same is true for the entire
batch of statistics) but we do believe that by allowing published CPI to fall
the government is opening the door to some sort of monetary easing.

The necessity of this can be seen in the collapse of M1 growth, although this
bounced slightly from January's collapse, the size of the bounce was far less
than one would have expected given that January's data was depressed by the
Lunar New Year. M1 through February grew by a tiny 4.3% YoY, far less than
overall economic activity and unlike January this data can be expected to
reflect the true underlying trend. Similarly new loan issuance at 710 bln CNY
did not benefit from much of a lunar bounce, meaning that the first 2 months of
the year had considerably less loan issuance than expected at 1448 bln CNY.
This compares with 1577 bln CNY in 2011 and 2093 bln CNY in 2010.

The effect of all of this can finally be seen in official data for overall
economic activity in Industrial Production, Fixed Assets and Retail Sales which
finally have been allowed to decline. This data has only be released showing
the end of February YoY% change (no data for January has been published) but at
least this nets out the effect of the Lunar New Year. Industrial Production
growth fell to 11.4% (13.9% in December 2011 and 12.3% consensus), Fixed Assets
21.5% (23.8% in December and 20.5% consensus) and Retail Sales 14.7% (17.1% in
December and 17.6% consensus).

The latter is perhaps the most interesting piece of data since it is the one
that is likely to be picked up by foreign retail chains selling into China. We
also note that Chinese automobile sales for January and February actually fell
by 4.4% according to the China Association of Automobile Manufacturers,
somewhat worse than expectations of a 3% drop from 2011's torrid pace. We
remain convinced that regardless of any future easing by the PBOC demand
destruction in China is a growing macro risk for investors. -
D-CNMSM1_Index.gif - D-CNRSACMY_Index.gif - D-CNCPIYOY_Index.gif

Turkey became the latest emerging market country to report disappointing
Industrial Production data with the seasonally adjusted index falling -3.06%
for the month to 126.60. This takes the 12 month RoC into negative territory at
-1.17%. As ever with volatile data such as this we are more concerned about
trend than any one month's report, and the 12 month ma (red) shows a clear
deceleration in Industrial Production has taken place in recent months. Indeed
January's data has caused this indicator to roll over from its December 2011
peak, suggesting that Turkey's industrial cycle is coming under increasing
pressure. - M-TUIOSA_Index.gif -

The Brazilian central bank in a split decision voted to cut the benchmark SELIC
rate by 75bp to 9.75%. Although this is a larger cut than the 50bp consensus,
weak GDP and Industrial Production data was released in the last few days and
the market had started to price in the possibility of a deeper cut, making this
a little less of a surprise. It is, however, a statement of intent, signalling
a willingness to take interest rates significantly lower. Political pressure to
do so was ratcheted up this week when President Rousseff used the colorful term
of a "monetary tsunami" (one can only be thankful that she was visiting Germany
and not Japan at the time) being unleashed on manufacturers by the ECB and FRB.

Although the market will welcome this move in the short term, it will do little
to reverse the deterioration in Brazil's fundamentals. Local credit is issued
at such massive spreads to the SELIC that consumer delinquency can be expected
to continue to climb, while the slippage in manufacturing activity has more to
do with the uncompetitiveness of Brazilian industry than interest rates. We
therefore expect to see further weak data and a deterioration in corporate
profitability going forwards. This should result in further aggressive rate
cuts by the central bank.

This is very reminiscent of the state of affairs in the US at the end of the
1980's boom, which was followed by a deep recession and mini-financial crisis
in the Savings and Loan industry, together with the implosion of the nascent
High Yield marketplace. In response to these pressures the FDTR was slashed
from 9.75% in May 1989 to 3% in September 1992, a rate that seemed remarkably
low at the time. We doubt that the SELIC will get this low, but we do believe
that the 2008 low of 8.75% will be exceeded by some margin in the coming
months. - M-BZSTSETA_Index.gif - M-FDTR_Index.gif -

A very interesting article that again reflects (and expands on) an argument we
made several months ago. The primary ramifications of the Euro-crisis are
political rather than economic, with Germany's emergence as the dominant power
on Continental Europe a game changing event.

Outstanding US Consumer Credit grew again in January by substantially more than
expectations. Total credit outstanding grew by $17.78 bln (0.71%), well above
consensus estimates of $10.00 bln. December's very strong data was revised
lower from $19.31 bln to $16.27.bln but the net effect is to increase
outstanding credit by over $14 bln over the last 2 months. Total credit
outstanding has now reached $2512.26, an increase of $103.3 bln (4.28%) over
the last 12 months and the highest total since May 2009.

Once more non-revolving credit was the standout contributor, reflecting
continued strong demand for automobiles. This category grew by $20.7 bln
(1.22%) to $1,711 bln, a new record and has now grown by $97 bln over the last
12 months. Revolving credit fell -$2.90 bln (0.36%) in January but this is
actually a relatively small decline following the traditional holiday driven
December binge. This means that the annual increase in revolving credit grew to
$6 bln (0.8%). We would expect to see considerably more growth in this segment
of credit in the months ahead and note that the total is still over $170 bln
less than the all time high of $972 bln reached in September 2008. It would
seem clear that the process of consumer de-leveraging has decisively reversed.
- revolvingconscredjan12.gif - consumercreditjan12.gif

Brazil's Industrial Production data continues to disappoint with the January
release showing a drop of 2.06% in the seasonally adjusted data (consensus
-0.8%), and December's gain trimmed down to 0.5% from the original reading on
0.9%. This takes the 12 month RoC down to -3.23% and the seasonally adjusted index
back down to its level of December 2009, meaning that Brazil has had no growth in
production over the last 2 years.

One significant factor behind this deterioration is the production of local
automobiles, where demand has stalled and imports have risen. This has had the
effect of taking vehicle production down 8.99% for the 12 months through February
2012 (note this data is one month ahead of the Industrial Production data). Our view
remains that Brazil has made an unhealthy transition from industrially led
economic growth to one fueled by domestic credit creation, and that the bulk
of international investors remain oblivious to this transition. -
M-BZVPLIGH.gif - M-BZIPTLSA_Index.gif -

The ADP Payroll report for February almost exactly matched expectations coming
in at 216K versus 215K consensus. January's data was revised slightly higher to
173K from 170K. This takes the trailing 12 month ma up to 159.9K, which is
where this metric sat at the end of Q3 2004 (by which time the FRB was already
in the middle of its monetary tightening cycle).

One thing to note is that today's release is a good example of strong data now
exactly matching expectations, which ironically will serve to pull measures
such as the Citigroup Economic Surprise Index (CESIUSD) back down to a neutral
level (the index is currently at 47.50). As we argued a couple of weeks ago, a
decline of the CESIUSD in response to expansionary reports that meet or
slightly miss expectations in the middle of an expansionary cycle is a very
different kettle of fish to the sort of early recovery declines we witnessed in
the summer of 2010 and 2011. Even an individual ADP report of 150K or 125K
would still represent data consistent with a steadily improving employment
environment.

Attention will now shift towards tomorrow's Initial Claim data (consensus 351K)
and Friday's Non-Farm Payroll report (consensus 210K Total and 225K Private
Sector). - adppayrolldata.gif

While China has driven the Asia-related headlines this week, perhaps the most
interesting battle between flows and local liquidity is taking place within
India at present. As we noted last week, with the RBI keeping policy tight over
several months local financial liquidity has deteriorated substantially. This
can be seen in the attached chart showing the 3 month NSE Interbank Borrow
rate, which reached a post 2008 high of 10.78% this morning, well above the
benchmark Reverse REPO yield of 7.50%. This is a good example of how the same
level of monetary policy can actually create different real liquidity
conditions over a period of months and most of the evidence suggests that the
RBI really needs to ease substantially to avoid doing real damage to the local
economy.

Investor flows for 2012 have largely ignored this issue and during February a
total of $7.3 bln of foreign investment entered Indian bond and equity markets,
a pace only slightly lower than the record of $8 bln in September 2010. For
equities alone YTD flows are now $7.3 bln (see chart), but have slowed
substantially over the last couple of weeks. The effect of flows slowing can be
seen on both the local equity market and the INR. The SENSEX index peaked at
18,253 on February 22nd, at which point it was up over 19% for 2012. Since then
it has fallen approximately 6% to 17,173. The INR gained from 53.06 at the end
of 2011 to 48.6 on February 6th. Recent days have seen a sudden weakening in
the currency taking it back above 50 for the first time since late January. We
remain unconvinced by India's powerful "risk rally" and maintain the cautious
stance that served us well in 2011.

The turn of the month means that we can update one of our favorite gauges,
namely the number of mentions of "China" and "soft landing" in individual news
stories over the course of a month as monitored by Bloomberg ©. As the attached
chart shows, this reached an all time high of 264 in February 2012, comfortably
surpassing the peak of 203 in November 2011. It should be noted that this data
cuts off just before the decision to reduce China's 2012 growth target to 7.5%.
Regular readers will recall that a surge in the use of the term "soft landing"
has historically been an excellent predictor of something much more unpleasant
developing, and that the peak in the use of the term often comes around
important turning points for asset markets. We would therefore view the
attached chart as a warning sign that things could be about to get
substantially more tricky in trades connected to China, which clearly extends
to much of the emerging market and commodity complexes. - chinasoftlanding.gif

This morning's release from the ECB shows the effect of the second tranche of
LTRO financing on the overall ECB Balance sheet. Excluding gold holdings this
rose by €330,561 bln to a new record of €2,599.71, an increase of €1.027 trln
over the last 52 weeks. This is by some margin the largest YoY increase in the
size of the ECB's balance sheet.

Last week's increase was essentially the balance between an increase of €447
bln in the LTRO and a decrease of -€137 bln in the "Main Refinancing
Operations". We presume this reflects some selective switching of facilities by
ECB borrowers, attracted by the very generous provisions of the LTRO. This does
of course mean that the overall impact of the LTRO is somewhat less than the
initial report suggested, but the overall increase of ECB liquidity in recent
months is so dramatic that this is unlikely to matter.

Meanwhile, the FRB has kept its balance sheet unchanged in terms of size
(although the duration of its treasury holdings has been extended). The YoY
increase of the FRB balance sheet has now dropped to $389 bln and will continue
to moderate in the coming weeks. We are not concerned by this trend since
aggregate liquidity in the US financial system is already sufficient to allow
stable and steady private sector credit growth, and this has been reflected in
recent credit data in both the consumer and corporate sector. -
frbecbmar62012.gif

We note that China's official economic growth target for 2012 was pared to 7.5%
last night. This strikes us as a much more interesting development from a
symbolic standpoint than an economic one. We have never found "large
statistics" such as GDP to be helpful in understanding the opportunities and
risks present in markets and in China's case this limitation is magnified
significantly by the politicized nature of all official statistics.

What this change in policy does do is provide a catalyst for refocusing global
investors attention. 10 days ago we suggested that it is about time that a new
"dominant discourse" starts to take hold in the media and market commentary and
one of the obvious candidates for a "downside discourse" is that of a Chinese
slowdown. Should a slowdown occur we would expect to see it evidenced in real
transactional data far sooner than official economic data. Real estate sales
are one important source of insight (particularly once the distortion of the
Chinese New Year is wrung out of the statistics), with land sales leading those
of finished apartments. We would also pay attention to automobile sales which
tend to be very good real time cyclical indicators. January Sales (see attached
chart) were -24% below those of January 2011 but this is partly due to a very
high sales of a year ago and an earlier New Year. February's data should be
released in the next week or so and will make interesting reading.

As to the monetary policy conducted by the PBOC this seems likely to ease
moderately at the level or reserve requirem1ents but to remain tight for
politically sensitive portions of the economy. Restrictions of real estate
lending look set to remain in place and could actually be augmented in
combination with a loosening of reserve requirements. This strikes us as a
dangerous policy mix from the perspective of investors, but it should be
understood that this is not the paramount concern of the PBOC. -
chinacarsales.gif