Daily Reading – Tuesday, February 22, 2011

FT Energy Source Blog: Revolutions could rob Opec of its ability to manipulate supply

Libya might go out of the market for a while. Algeria is a potential trouble spot. If we add Yemen and Egypt, troubled countries produce about 4m b/d. If that supply is disrupted, the other Opec countries cannot in my opinion compensate for that.

FT Energy Source Blog: If Libya revolts, Saudi Arabia could be next

The key assumption as far as Libya was concerned was that with high oil revenues and a small population, Gaddafi was safe. If trouble started, he could always bribe people into remaining quiet – as he appears to have done recently, reportedly increasing wages and loans on offer to Libyans.

But it seems now that people want more than just financial security and the stability that comes with high oil revenues: they want freedom. And if they want that in Libya, which has a GDP-per-capita of around $12,000, why shouldn’t they want the same in Saudi Arabia, whose income per head is only slightly higher at $14,000 a year?

FT BeyondBRICs: Libya’s threat to oil supplies

His defiance suggests an increasingly violent conflict and continuing swings in the oil price. As Libya’s anguish reverberates around the world, one consequence is the threat to the country’s output of 1.8m barrels of oil per day. Which countries are most exposed?

FT Alphaville: Michael Pettis on China’s very own zaiteku

So the point Pettis is making is that things like overinvestment, excess liquidity, credit expansion, off-balance sheet activities, and zaiteku can all conflate to generate huge growth — but also very big risks. This is what the PBoC is trying to manage.

FT Alphaville: China bears and creative shorting

Japan is not only paying for the consequences of China’s cheap-renminbi policy with its persistently high yen and pressures on its exporters.

It is also providing a neat back-channel for renowned China bears, Jim Chanos and Hugh Hendry, to short China in their own, highly distinctive ways.

Macro Man: Flatulent dictators and the Fed

On that basis, TMM have to conclude that the market is overpricing the probability of rate hikes (see chart below – 3mL forwards – purple, Fed Fund forwards – red, spot OIS – blue line), and that the front-end looks ripe for a purchase…

The Slope Of Hope: Heigh Ho, Channel!

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