Still waiting for the Koreans to show up ... worst credit contraction in 50yrs ... housing "stabilised"? ... a cold winter beckons ...

The Korean financial regulator said the Korean Development Bank should take a "cautious" approach to buying banks abroad. "We welcome any efforts led by the private sector to go global, but it may not be proper for state-owned financial institutions to lead the role and take on excessive burdens" since the difference between the public and private sector in Korea is blurry at best, this looks like an excuse not to get involved to me.

I'd always thought "credit crunch" was just an overused euphemism for recession. Maybe there's a good reason for that though - total US bank credit, which is nearly always expanding, contracted in the second quarter by -3.7% the steepest drop in credit expansion in the last 50 years. I can't see how the financial sector recovers (i.e. no longer needs to raise capital) until the US housing market recovers. Yesterday's existing home sales showed a stabilisation of sorts, rising 3.1% from July. Unfortunatley, home inventory rose to a new record high of 4.7m homes. That's 11.2 months supply. Prices have a bit more "adjusting" to do yet, which will ensure plenty more banking insolvencies. BKX down >3% yesterday, dragging the SPX to a 2% fall.

The dollar weakend on the financials news and "fears that the Fannie and Freddie might need bailing out by the Treasury" (as if there was an alternative outcome) but is pretty much where it started right now. Oil prices got a slight boose yesterday from the $ action, and from tropical storm Gustav. BBG reports that the Russian Duma's recognition of the break away Georgian regions was important too, though I doubt it actually was. The consensus seems to be that Medvedev is unlikely to do the same though because, as things stand he has a bargaining chip of sorts. But is it as strong as everyone thinks it is? What has actually changed, or would be changed by official recognition? The Europeans still need their gas, the American's still need their help with Iran.

Anyway, the chairman of Indonesia's oil and gas regulator said Indonesian output (which has declined by 40% in the last 12 years, is set to fall by 14% by 2015. "The output fall is a natural decline because 90 percent of Indonesian fields are mature ones". At the country's 29 active fields, which account for 70 percent of overall output, "the average annual decline rate is 16 percent."

Agriculture was relatively strong yesterday, trying to rally but being snuffed out by lacklustre oil. Reports of rain in Australia pulled wheat lower, but corn and beans were higher on reports of dry conditions in the Midwest worsening crop condition. Farmer's almanac also predicted an unseasonally cold winter. They're quite an interesting crowd and claim their forecasts, which use sunspots, lunar cycles and are widely ridiculed by the establised weather forecasters who think nothing of the silliness of using complex statistical models, have 80-85% accuracy. I have a lots of sympathy for the effect of solar activity on temperatures and annecdotally old folk indicators of cold winters, such as fog density in August are pointing in the same direction. So I'll be trading the grains from the long side from here. The late plantings due to floodings in the US this year make the crops more vulnerable to an early frost.

Meanwhile, the Chinese look set to increase tazes on urea exports from 135% to 185% (!!) to ensure domestic supplies for farmers. Urea prices are holding firm above $800/tonne despite annecdotal reports that fewer farmers can afford to pay the high prices. Probably because in 2007, China was the largest urea exporter but is now tightening that supply ... sounds a familiar story, albeit with slightly different mechanics from the usual scarcity induced supply reductions we've seen with oil, coal and will soon see with the grains themselves.