US GDP Shrinks, But Stocks Near All-Time Highs?

♠ Posted by Emmanuel at 1/31/2013 11:14:00 AM

The partisan wuss Krugman and his various acolytes have long argued that the United States is "doing better" than Europe for the main reason that, instead of starting processes of fiscal consolidation, the Americans have the fiscal and monetary spigots wide open. On the other hand, there are those of us who believe the US is embarking on a path to ruin. Instead of moving away from debt-fuelled, import-driven domestic consumption, it is indulging in it. Even more ridiculously, they are cheering gains in home prices. Lots of borrowing, importing and spending beyond their means; throw in rising home prices and it's akin to rehash of 2007.

Do you buy this analogy? Consider too that stock indices are nearing record highs--Dow Jones Industrial Average, Standard & Poor's--take your pick. If it makes Krugman shut the hell up for a while--he yaks far too much anyway--the shrinking US economy belies the false optimism that it has turned the corner during the Bushbama years. What a joke. Actually, Krugman, Europe and the US are both contracting. The only difference is that the Europeans are making structural adjustments that should pay dividends in the future instead of taking on trillions more in debt in the (delusional) hope that they will return to trend growth of 3% or better. Dear Rick Santelli: the US is not Europe now; it's rather worse for not even bothering to address necessary structural adjustments. Contraction plus massive debt versus contraction plus deficit control; I'll take the latter, thank you. Keep dreaming, white boys. 

The US jokeonomy aside--I think those wets are getting what they deserve and should be hit much harder besides--the more interesting question is that of rich equity valuations at a time when America is in the toilet of history. There are a number of hypotheses you can advance:

1. the market is delusional; another stock market crash nears a la 2007 after the Dow hit record highs;
2. double-down US ZIRP/helicopter dropping/money-for-nothing is inflating an even larger speculative bubble in stocks than in 2007/2008;
3. listed companies derive an increasingly larger share of revenues and income from abroad half a decade later, so it matters less if another Americollapse is around the corner;
4. profits are still increasing their share of national income in relation to wages.

My intuition is that its a combination of these things. Irrational exuberance means that stocks are likely to approach or even break record highs prior to a "correction": think of the dot-com bubble or the housing bubble. This time around, there may not be so much of a bubble in a particular sector but more of an evenly spread giddiness. If you think that through, it's worse since the distance to fall is even larger in a range of sectors instead of being concentrated in one. Plus, having trillion dollar deficits annually and rock-bottom interest rates, there is no more room left for "pump-priming" lest the US contemplate $2 trillion dollar annual deficits (not unimaginable anymore) and negative interest rates (it would be fun to try anyway).

OTOH, I believe that American multinationals have seen the writing on the wall: only a USA#1 cheerleader would consider the US a growth opportunity (don't make me laugh) and have since moved to take advantage of opportunities elsewhere. Even at home, consider that an ever-larger share of national income is going to profits instead of wages for any number of reasons alike the diminishing power of organized labour and the willingness of American wage slaves to accept less remuneration at a time when jobs are scare and tenuous.

*     *     *
In the past, Americans have accepted greater inequality in the belief that they too had the opportunity to "make it big." In this day and age, of course, this is simply a joke that enhances the comic stylings of Obama who believes that America's best days are ahead of it. Are there really Americans idiotic enough to buy into that happy talk?

New flash from the clash: When you elect all hat, no cattle sorts like Obama to bring more of what he's already brought alike massive deficits and no sustainable economic advancement, you forfeit the future. Is what's good for Apple good for America? I think not. The only question for me is whether ballooning stocks have real momentum going or are even bubblier than they were five or six years ago. I resolutely refuse to hold US Treasuries, but I have not entirely ruled out American stocks and commercial papers.

America is finished (duh), but American firms may not be in the same sense that there are still any number of British industrial giants despite Great Britain having relinquished any claims to preponderance in the global political economy a long, long time ago.

Read More

Obvious? IMF & Another Egyptian Regime Change

♠ Posted by Emmanuel in IMF,Middle East at 1/29/2013 03:20:00 PM

The facts of the matter are as follows:

(a) The IMF wanted Egypt to achieve "broad-based domestic and international support" for reform prior to lending $4.8 billion or so to the country in a statement dated 20 November 2012;

(b) Since then, the Islamic fundamentalist regime of Muhammad Morsi has instead made things worse in terms of securing domestic cooperation by ramrodding a largely Muslim Brotherhood-designed constitution near year-end 2012;

(c) Fearful that implementing austerity measures alike the removal energy subsidies would further inflame the passions of an already restless and growing opposition, Morsi delayed seeking the disbursement of a tranche of the $4.8 billion stand-by agreement;

(e) This delay will likely require the renegotiation of terms of the earlier staff-level agreement:

Egypt must now renegotiate some terms of the accord, and economists say the IMF board's approval is not a certainty - especially if there is any sign of government wavering over implementing what are likely to be unpopular conditions. Confronted by lethal street violence after Mursi awarded himself sweeping powers in November, the president postponed planned tax increases seen as part of a package of austerity measures needed to secure the IMF loan.

While any specific terms are yet to be made public, any IMF demands to cut spending or remove price subsidies will be hard to sell to an already fractious population ahead of parliamentary elections, more than two years after Hosni Mubarak was ousted in 2011 after 30 years in power.

(f) In the meantime, Egypt's economic situation worsens as the "peace and order situation" deteriorates;

(g) Having run out of Middle Eastern benefactors to tide it over with loans until the IMF finally lends Egypt money and its effective seal of approval, economic pressure to oust Morsi becomes extreme;

(h) At the moment, the IMF is twiddling its thumbs and asking the government to somehow convince the electorate about Egypt's need for its loans;

I think the endgame here is obvious if the IMF doesn't come in soon: Egypt runs out of money for day-to-day government operations and to pay for imports shortly thereafter. Although the IMF will never, ever say so outright, given that no less than regime survival is at stake with the stand-by agreement, its dilly-dallying ultimately means only one thing: The IMFs overlords alike the United States may likely be playing at another regime change given Morsi's utter inability to gain consensus among disparate groups. 

Is it a game of throw the bums out, silence of the IMF style? Say what you will of Mubarak, but he toed the line for a long, long time. If the United States calculates that Mursi is unwilling or unable to do so, well, you might as well get rid of him at the current time--vide the current impasse which seems to be by design. He is not a particularly "useful idiot" as the saying goes. Already certain sources speak of delaying the loan by several months; given the dire situation Egypt finds itself in, who would bet against another regime change by then as the IMF's benefactors take their chances with another faction?

However, government sources close to the negotiations process said IMF has indicated a desire to postpone making any decisions on the loan until after parliamentary elections, which are slated to take place at some point within three to four months.

So much death, destruction and disorder for what particular end? As I said before, don't the white people wish they had Mubarak back right about now? Otherwise, they'll have the next joker (please).

Read More

Fleeing Egypt? Buy Caribbean Dual Citizenship

♠ Posted by Emmanuel in Caribbean,Middle East at 1/27/2013 02:26:00 PM

Mur-dah! Today, let's look at the utterly fascinating intersection of e-commerce, nationality for sale, and the turn for the worse in any number of Middle East countries. I saw the banner advertisement above while visiting Ahram Online that pretty much sums up the mood in Egypt and that outstanding exercise in democracy called the "Arab Spring" (hip-hip-hooray for freedom!) Apparently, real Egyptians do not share the white man's misguided euphoria over regime changes that were supposed to help usher in Western-style political institutions.They just keep piling into the streets and killing each other with abandon. Instead of a democracy emerging from a plurality of voices expressing their discontent that led to Mubarak's downfall, they perhaps inevitably succumbed to the rule of the best-organized and -disciplined faction aside from the military in the Muslim Brotherhood. That is the first component of this post.

The next component in this story is the ever-changing quest of small Caribbean nations for gimmicks--I mean--"additional sources of state revenue." Their small size and remote location means that their viable sources of revenue tend to look the same. To wit:

1. tourism
2. tax havens (paradis fiscaux)
3. offshore gambling sites
4. flags of convenience
5. nationality for sale

I think these are self-explanatory; let me go through the first four: Beach-loving Westerners have in the past been attracted to these destinations' more pristine waters since they do not lie in more polluted shipping lanes. As more cruise ships dock, the fees pile. For a long time, they have also offered themselves as headquarters for dummy corporations created for the purpose of avoiding taxes in industrialized nations (or laundering money for the more cynical). Given their limited population but access to the Internet, many also sought to host online gaming operations. Lastly, they have also offered to domicile international vessels to skirt maritime regulations or to save on various costs alike certification and so forth.

The global financial crisis has caused difficulties for pursuing (1)-(4): Fun-in-the-sun loving Westerners obviously do not have as much disposable income at a time when countries like Spain have unemployment rates north of 25%. So much for those Caribbean cruises. Meanwhile, as deficits spiral into eternity for any number of industrialized countries, organizations like the OECD have tightened the screws further on tax havens. While results are mixed, there is little doubt that it's no longer as easy to hide income as it was before. As for offshore gambling sites, the United States has not allowed those to ply their trade in this largest of all markets since 2006--see the case of Antigua. Finally, the trade in licensing vessels from elsewhere with flags of convenience is usually dependent on the health of global trade. (There is also an ongoing crackdown of sorts on FOC.) Suffice to say, it's not so healthy nowadays.

So, (1)-(4) have been rather negatively affected as sources of income for tiny island nations. These are indeed sour times. However, the ad above struck me as a possible way to make the best of a bad situation as various places on earth go to heck and beyond: Here, of course, the argument is to secure financial and personal security lest the Muslim Brotherhood go the way of the Ayatollah Khomeini (or even just Ferdinand Marcos). Another website selling citizenships to St. Kitts touts the following benefits if you invest in a home there costing at least $400,000:

• Visa free travel to all EU schengen countries including Switzerland, Canada, UK and Ireland
• No residence or minimum stay requirements
• Tax free – no income or wealth tax.
• Lifetime citizenship
• Easy second passport and citizenship for your family members.
• Extra Privacy in small peaceful country.
• Dual citizenship benefits.
• Choice of Real estate investment.
• No Personal visit required

The last is their italicization, not mine. It's most definitely a sordid business, but who am I to say what tiny island nations can and cannot do? Certainly they have their own set of challenges. While the lengths they have gone to generate revenue may appear...iffy to some, what are the alternatives in a world where international rules of the game are set by far larger nations? As the saying goes, try walking in their shoes.

Read More

Antigua & Online Gaming: Fighting the US Bullies

♠ Posted by Emmanuel in Trade at 1/26/2013 12:59:00 PM

The United States likes to throw its weight around the international political economy; that much is obvious. Given the sheer girth of its residents, this is not something to be easily ignored. However, like all bullies, the United States can be put in its place if you stand up and fight for a principle. Don't relent: bloody them up, and they'll soon be crying home to the land of apple pie and Guantanamo Ghraib. The North Vietnamese famously sent the Yanks home for supporting the exceedingly corrupt South Vietnamese leadership. Why should it have taken 58,220 dead Americans to figure out that this was primarily a conflict for Vietnamese independence as opposed to another chip to fall in "domino theory"? A regrettable fact remains that an inordinate number of African-Americans died due to the white man's delusion--as Muhammad Ali said, "No Viet Cong ever called me nig**r." Thankfully, a majority of more pragmatic Americans are not ideologues; they are more interested in commerce. By 1995 despite all that history, the Yanks normalized relations with the folks who had justifiably run them out of where they did not belong since--surprise!--Vietnam was becoming economically dynamic due to its policy of doi moi of opening up to the rest of the world.

This long-winded introduction brings me to another instance of global injustice being perpetuated by the Americans. The long-running case (DS 285) of the twin-island nation of Antigua and Barbuda (Antigua) against the United States over online gambling services was well underway before I started blogging in 2007 [1, 2]. In broad strokes, the United States implemented restrictions that hindered offshore gambling services from plying their trade Stateside. In 2003, Antigua took the United States to the World Trade Organization dispute settlement mechanism (DSM) over these restrictions and won its case. However, instead of complying with the WTO ruling, the US appealed and lost in 2005. Worse still, in 2006 its lawmakers passed the "Unlawful Internet Gambling Enforcement Act" (UIGEA) which prohibited offshore gambling services from the US altogether. Antigua once again sued the US at the WTO for non-compliance and won in 2007. However, in the almost six years since then, the United States has failed to meet its WTO commitments to allow online gambling.

What remedies can Antigua resort to? Since 2007, it has effectively had the right to inflict cross-retaliation on the United States over its non-compliance. That is, it obviously cannot retaliate in the same industry since the US does not offer gambling services to Antigua--least of all in an amount equivalent equal to the economic damages caused by the United States' non-compliance with international trade law. (The WTO authorized $21 million annually.) It is generally believed that the US arrived at side deals not made public to prevent Antigua from hitting the US where it hurts most: seeking redress by trespassing on America's beloved intellectual property. (Joe Falchetti has a good summary of the still-ongoing UIGEA saga.) Some things have changed in the US legal sphere, but UIGEA remains active in prohibiting offshore gambling firms alike those headquartered in the Antigua from operating Stateside.

However, I suppose you can only take so much US bullying: Reuters now reports that Antigua is going to notify the WTO that it will cross-retaliate by flouting US copyrights:

The tiny Caribbean nation of Antigua and Barbuda will tell the World Trade Organization on Monday that it intends to use trade sanctions against the United States, which it could enforce by allowing movie downloads without protecting U.S. copyright...Antigua won the right to hit back with trade sanctions and - with little hope of persuading Washington by threatening to block U.S. imports to the nation of 70,000 - it was given permission to use intellectual property instead. 

"American intellectual property rights holders are fighting piracy across the globe. They hate the theft of their intellectual property rights and they spend enormous sums trying to prevent it," Mark Mendel, a lawyer representing Antigua in the case, told Reuters. He declined to say exactly how Antigua might act, but said it could include copyrights, patents or trademarks.

The possibilities are endless for justifiably kicking the Yanks in the balls...of commerce; think for instance of a "WTO legal" torrent site. I relish the thought of...wait for it..."Antiguanoid":

A website that allowed users to download U.S. software or movies without paying anything to the copyright holders was one possibility, as was selling Manchester United T-shirts - the soccer club is owned by the American Glazer family. "If, when, how it's going to happen, people will just have to wait to find out." Although the WTO awarded Antigua the right to impose only $21 million in annual sanctions, Mendel said the size of the award was not an obstacle.

If Antigua were to begin a state-sponsored website to download Hollywood movies and U.S.-made computer software, it could still inflict a lot of damage on U.S. rights holders. "When you think about it, $21 million could be all accomplished in one go or in 50 million goes. The dollar figure is not important," he said. Asked if a site charging one cent per download would be a way to accomplish Antigua's aims, he said: "That is an intellectual possibility..." 

Could there even be a "domino theory" of more poor countries getting back at the big, bad US of A this way? Antigua's lawyer (American) Mark Mendel thinks so:

The United States should be worried about other WTO members following Antigua and using the same tactic to get their way in trade disputes, Mendel said. "If they aren't worried enough about Antigua they should be worried about someone else coming along. If we do something inventive that could pose a lot of problems for intellectual property holders, if we create that precedent, the consequences could be enormous," he said.

"With Antigua, it's $21 million. Maybe with China it's going to be $21 billion," said Mendel. "One of the messages we want to get across is that the WTO was sold to smaller countries as a level playing field and a way for them to expand the reach of commerce, subject to a set of rules that apply to everybody. I think more than anything else this case is about fairness. The WTO is supposed to be fair."

Whether in geopolitics or trade, Americans like to abuse their power and tell you it's fair. I think it's high time the rest of the world stood up to this bullying and roughed up Mickey Mouse and his buddies real good. Even while blatantly cheating at world trade through shenanigans like these, the US economy is on the ropes and it will not take much to do significant harm--which it fully deserves in this case anyway

1/28 UPDATE: Just to show you how the US tries to take advantage of other nations in trade, the USTR is offering Antigua a lousy $10 million one-off settlement (without presumably allowing onling gaming as is the Caribbean nation's due) when the WTO said Antigua is entitled to $21 million annually for as long as the United States does not allow Antigua to offer online gambling Stateside. Again, why should anyone have to put up with this AmeriCrap after being bamboozled for years and years into not applying these sanctions? 

Antigua & Barbuda is unwilling to consider any monetary settlement below US $21 million annually to end the gaming dispute with the US, according to Finance Minister Harold Lovell. Lovell said a one off US $10 million settlement, which was once put on the table by the US to end the gaming dispute between the two countries, was far off the mark.

“At one time there was a figure of US $10 million that was mentioned by the US and there was a possibility, there probably would have been the possibility of getting US $10 million but here we have an award for US $21 million annually,” said Lovell.

As the Gilbert & Sullivan ditty goes, let the punishment fit the crime--hit America with $21 million worth of cross-retaliation--and make it hurt real, real bad by hitting them real hard. Intellectual property is certainly a good target to aim for. Remember, these are the same folks who hounded a 26-year-old Internet activist to his death via suicide. If you allow them to get away with such a--holic behaviour, the Yankee trade jerks will be more than happy to oblige, so you might as well aim for a knockout blow after having abused you year in and year out for nearly a decade.

Read More

Globalization's Victims: Filipino Workers in Algeria

♠ Posted by Emmanuel in Energy,Middle East,Southeast Asia at 1/25/2013 11:25:00 AM

The Philippines is famously a country of migration with an estimated one-tenth of its population of ninety million working overseas. I am of the belief that there is nothing wrong with that. After all, the UN Declaration of Human Rights Article 13 (2) states: "Everyone has the right to leave any country, including his own, and to return to his country." On the other hand, it is also true that Filipinos overseas often engage in archetypal "3-D" jobs that are difficult, dangerous or dirty. As it turns out, Filipino workers plying their trades in the Middle East are plentiful. Observe the regularity with which Filipino seafarers are held hostage when ship hijackings occur off the coast of Somalia.

For a long time, Filipino gas field workers were thought to have among the cushier jobs in the Middle East. Working in these fields run and maintained by major local and international firms, they had access to many amenities unavailable in local communities including much-appreciated 24-hour air-conditioning in desert climates. However, the recent attack in Algeria punctured the notion of these oil fields being gated communities of the world economy. Perhaps inevitably given their ubiquity in the region, eight Filipino workers died in the assault by Islamic militants:

The Department of Foreign Affairs said that another Filipino has been confirmed killed in last week’s siege by Islamic militants of a remote natural gas plant in Algeria, bringing to eight the total number of Filipino fatalities...

The Philippine government has said 12 other Filipino workers survived the 72-hour hostage drama in the north African desert. Dozens of foreigners were killed during a four-day standoff that ended in a bloody showdown with Algerian commandos on Saturday, with reports of summary executions. 

The question for the Philippine government is what responsibility it has towards its migrants as an active promoter of overseas employment. That is, while Filipinos are certainly free to work overseas at their own discretion, the government's responsibility may be heightened by implication through its active involvement in the process. Unfortunately, its reactions are thus more reactive than proactive given obvious limitations:

Thirty-four Filipinos working at the Algerian gas field where dozens of foreigners are feared dead in a hostage incident have been flown out of the country, a Philippine government spokesman said yesterday...

Manila is still trying to determine how many Filipinos were in the gas plant, a task that was complicated by the many foreign companies and contractors operating in the area, [Foreign Undersecretary Raul Hernandez] said. He estimated that there were about 3,400 Filipinos working in Algeria.

Make no mistake: ideological conflicts between Western powers and their fundamentalist Islamic opponents waged all over the world often result in "collateral damage" among migrant workers.

Read More

The Japan That Can't Export? Its 2012 Trade Deficit

♠ Posted by Emmanuel in Japan at 1/24/2013 10:52:00 AM

Japan used to epitomize the Asian Exporting Nation, feared around the world for its superior-quality and in-demand products. Those glory days, however, are rapidly receding like the hairline of HRH Prince William the Bald. Most recently, the news was that Japan had a "record" trade deficit in 2013. It actually isn't as dire as the headline sounds since Japan's postwar deficits haven't been remotely American-sized to begin with. Against that scale, a $78B annual trade deficit isn't all that large. But, by Japanese standards, it may be alarming nonetheless as headwinds in generating and sustaining an economic recovery.

Importantly, these are headwinds that won't be going away any time soon as the WSJ describes:

1. Territorial conflicts with China over a bunch of lousy, largely uninhabitable rocks hurting sales of Japanese-branded products in the PRC;
2. Increased imports of energy after shutting down virtually all of its nuclear reactors in the wake of Fukushima;
3. Continued economic malaise in Western consumer markets;
4. A still historically strong yen despite its recent weakening to around 90 yen to the dollar.

To be sure, it is possible that the territorial spat will blow over in a few months. I have also posted about the incumbent LDP being keen on reviving nuclear power plants where possible and building new ones to assuage safety concerns if not. I think the West has seen its better days, but there are other places where Japan may export called...wait for it..."emerging markets". Given the policy of unlimited easing Japan will soon unveil, I think the yen is set to decline as well.

Larger worries, though, concern the niggling fear that Japan's Asian coolness factor has long since been eclipsed by South Korea. Nobody really wants Hitachi and Panasonic TVs anymore; they would rather have Samsungs and LGs. Ditto for the gadget-making prowess of Sony which hasn't had a portable device hit in ages. Last I checked, Western automakers were living in fear of Korean and not Japanese auto imports, too. In soft power terms, the Koreans have improbably taken up the mantle as well via the K-Wave. In other words, all the factors identified above do matter, but ultimately it's Japan's inability to innovate that's causing the most damage to it export prospects.

Heck, maybe they'll even welcome--heaven forbid--migrants injecting fresh new commercial ideas and new consumers into a society that has become moribund in addition to homogeneous.

Read More

"Hurry Up and Die": Japan & the Cost of Eldercare

♠ Posted by Emmanuel in Health,Japan at 1/23/2013 01:24:00 PM

Former Japanese PM and current Finance Minister Taro Aso has a novel way of dealing with Japan's increasing health care tab that may not resonate so well with their (obviously aging) electorate:

"Heaven forbid if you are forced to live on when you want to die. I would wake up feeling increasingly bad knowing that [treatment] was all being paid for by the government," he said during a meeting of the national council on social security reforms. "The problem won't be solved unless you let them hurry up and die."

Although the phrasing may be very politically incorrect, Japan's tab for caring for the elderly is pronounced and will become only more so given its demographic profile:

To compound the insult, he referred to elderly patients who are no longer able to feed themselves as "tube people". The health and welfare ministry, he added, was "well aware that it costs several tens of millions of yen" a month to treat a single patient in the final stages of life.

Cost aside, caring for the elderly is a major challenge for Japan's stretched social services. According to a report this week, the number of households receiving welfare, which include family members aged 65 or over, stood at more than 678,000, or about 40% of the total. The country is also tackling a rise in the number of people who die alone, most of whom are elderly. In 2010, 4.6 million elderly people lived alone, and the number who died at home soared 61% between 2003 and 2010, from 1,364 to 2,194, according to the bureau of social welfare and public health in Tokyo.

Inarticulacy aside, I think Aso is on to a number of worthwhile points of debate here: First, what he really is addressing that The Guardian and the rest fail to latch on to is the question of prolonging a person's life when they can no longer continue to function in a meaningful way as "tube people." Especially with so many Japanese elders living alone, who makes the decision to (sorry--this may be my Taro Aso moment for the day) pull the plug? Or, can family members veto the decisions of public physicians to do so? Second, the Asian version of the "greedy seniors" argument is more contentious insofar as we are still obligated to care for them instead of, say, following the rather abhorrent American-style habit of putting Mom and Dad out to pasture in some old folks' home. They raised you--and you put them in an "assisted care" facility in return. Such gratitude. That is, do strained national and household finances erode such values? Third, and this is often overlooked, Japan's fiscal woes are inextricably tied to the longevity of seniors. While advances in health care are well and good, there are fiscal implications for people living longer who no longer contribute economically on the public purse.

There are no easy answers, but fumbling for them is probably better than ignoring these questions altogether like certain North Americans who specialize in hiding their heads in the sand.

Read More

Markets, Not China, Will Determine RMB Adoption

♠ Posted by Emmanuel in China,Currencies at 1/22/2013 08:12:00 AM

I think this is a point we often forget when discussing "China's rise": while its government can tinker with several important factors that will affect RMB adoption alike its convertibility, its interest rate and even its pace of appreciation, markets will ultimately determine the pace at which the rest of the world climbs aboard the yuan bandwagon alike, say, Indonesia and Nigeria. There is an interesting article in the FT by Mike Rees of StanChart that presents a much-needed viewpoint from one of the world's largest commercial banks on this matter. Compared to that of, say, economists or political scientists, they are not interested so much in using econometric models to extrapolate the currency's potential for widespread adoption but rather in its adoption by more and more market participants at the present time.

First, you need to consider the volume of trade denominated in it among freely transacting buyers and sellers in commodities trade:

The exponential growth of the renminbi as a trading currency – and of the offshore renminbi market – continues to stun observers. Three years in, despite global headwinds, and the scarcity of arbitrage opportunities as onshore and offshore rates have converged, renminbi redenomination shows no sign of faltering. Trade in renminbi in 2012 is on track for $425bn, up almost 30 per cent on 2011.

Second, also consider the relaxation of foreign investment quotas and what they mean for the currency:

Deregulation, too, is picking up pace. This year, China quadrupled to Rmb270bn the quota under which eligible institutions invest in China’s stock market. And last month, the first foreign bank was granted approval for a renminbi denominated cross-border loan quota on behalf of a multinational client. The quota arrangement is a major step forward, as corporates can use it to move previously trapped onshore renminbi cash to offshore treasury centres where it can be managed alongside other currencies.

In case you're wondering, the "foreign bank" in question is StanChart (again from China Daily). Aside from improving loan flexibility, this facility also increases the offshore utilization of RMB accumulated onshore:

The scheme has transformed the lending of renminbi between companies from one based on a traditional entrustment loan (with banks as intermediary agents) to one where two parties sign lending agreements directly, agree interest rates and manage the loan drawdown themselves.

Anthony Lin, managing director and head of Transaction Banking at Standard Chartered Bank (China) said renminbi cross-border lending brings huge flexibility of corporate treasury management, allowing them to negotiate lending frequency and rate according to their actual needs. He said it also enables corporations to transfer onshore renminbi surplus to their global cash pools for central deployment and use, hence to improve their global treasury efficiency.

Think of MNCs creating currency stashes to be deployed whenever there is a need to do so. In the past this could not be so easily done, but emerging facilities alike this one are cropping up for pooling in treasury centres that are obviously abroad. Ultimately, the RMB will be more widely adopted if market participants demand yuan for more variegated purposes and not actions solely on the part of the Chinese government.

Read More

Britannia Forever: UK to Jilt EU for Commonwealth?

♠ Posted by Emmanuel in Europe at 1/19/2013 04:16:00 PM

The classic split within the British Conservative Party is reappearing with a vengeance: On one hand you have those wishing to leave the European Union altogether or severely dilute Britain's misplaced fealty to those supposedly usurping the last vestiges of the UK's sovereignty--AKA those faceless and unaccountable bureaucrats in Brussels. On the other hand you have Tories who emphasize the economic links to the continent; after all, the EU remains by far the largest trading partner for the UK. There are innumerable articles and op-eds from the Financial Times [1, 2, 3, 4] weighing the pros and cons of Britain leaving the EU. This being a business newspaper, though, you will not be surprised to note that the majority of them favour staying for commercial and trade reasons.

To this, however, the Tory Eurosceptics have a ready-made argument which goes like this: So the EU is the UK's biggest trading partner. But, the EU is a spent force which contracted in 2012 and may barely grow in 2013. Besides, sundering the UK from the EU may not be such a big loss since there's a ready-made alternative for the former in the Commonwealth. There you have fast-growing economies alike India and faster-growing industrialized nations such as resource-rich Australia, New Zealand and Canada.

Form the Christian Science Monitor:

Nostalgia for the glory days of empire lingers stubbornly in many corners of British political society, with some radical young Conservatives arguing that the EU is holding Britain back from focusing on transatlantic ties but also on emerging markets, including many in the Commonwealth. Those markets include many in Asia, including Australia and New Zealand. (Eurosceptic Foreign Minister William) Hague said today that “UK exports to the Asia-Pacific region are up 15 percent compared to the previous year, and last year for the first time in decades we exported more outside the European Union than to it, including topping £10 billion in our exports to Australia. Asia today is an engine of global growth, and we are determined to be part of that.”

Those familiar with British economic history though will note that resuscitating Rule Britannia Lite through trade ties is not a new idea:

But while efforts toward building up ties with the Commonwealth are music to the ears of many British Conservatives, most observers at home depict such a move as more of comfort blanket. “The old empire-commonwealth dream is really just that,” says Anne Deighton, Professor of European International Politics at the University of Oxford. “It has long roots among British Conservatives, roots that go back to the 1950s, but it was not viable then, and is not now.”

But alas, the direction and proportion of UK trade doesn't make sense with the "Commonwealth first" idea:

And hopes that the Commonwealth could be a substitute for European markets are at odds with the economic reality, according to Philip Murphy, director of the Institute of Commonwealth Studies at the University of London “If you look at the figures it just doesn't add up. Britain does more than 40 percent of its trade with the EU, and less than 10 with the Commonwealth,” he says. “It’s also not feasible, without actually leaving the EU, for Britain to devise any kind of free trade agreement. Not only Britain would have to leave but there would also have to be an exit by Malta and Cyprus, who are also EU members and members of the Commonwealth.”

It's not only far-fetched to think that the Commonwealth will become the trading hub for the UK--for instance, why would it need more of ANZ resources than China--but the premise for leaving the EU is also questionable. That is, why should we believe that the EU whose members are making a lot of the tough but necessary choices now alike rightsizing their budgets and rationalizing their future commitments alike pensions and health care will forever be mired in economic stagnation? While the future of any number of developing Commonwealth members may feature significantly higher growth potential than those in the EU, it does not follow that the likes of India are a better fit with the UK either in terms of trade complementarity or geographic accessibility.

File this idea under: "Neocolonial Fantasy" (which apparently never sets).

Read More

Victors and Vanquished: Korean Cars in Europe

♠ Posted by Emmanuel in Europe,South Korea at 1/17/2013 02:57:00 PM

Seeing what Japanese carmakers did to the United States automobile industry during the Eighties, the Europeans have always been wary of the same story repeating itself in their part of the world. However, the remarkable thing for many years is that while Japanese brands have made inroads into the European auto market, they have never been dangerous enough to existentially threaten the likes of France's Peugeot and Renault or Italy's Fiat among others. In the aftermath of the global financial crisis, car sales have indeed fallen--but have hit European and Japanese makes alike

However, as of late Korean cars have quickly gained market share in a way that Europeans once feared the Japanese would. Keenly priced and well-built, Korea Inc. has made a reasonably lucrative living selling cars in a stagnant-to-declining car market. Make no mistake: it is not a happy sales scene in Europe for those selling four-wheeled vehicles for private use. Plant closures all over the continent have occurred or are imminent on the continent as the realization that massive overcapacity finally hits both carmakers and nations hosting their factories alike.

But all is not gloom. I had forgotten to post this earlier, but the French among others are complaining about the particular threat Korean cars pose--especially with a South Korea-EU FTA already in effect. The French petitioned the EU for surveillance to be implemented late last year that could lead to the reimposition of duties by invoking safeguard mechanisms. Euractiv describes the (failed) effort:

The French government said it "regrets" the European Commission's decision to turn down a request by France to monitor South Korea car imports, after a bilateral trade deal entered into force in July 2011. France had in August called on the Commission to require South Korea to give advance notice of planned car exports to the European Union. Since a free trade agreement (FTA) entered force in July 2011 a surge of auto shipments to the EU from South Korea has taken place.

Korean car imports into the EU rose by 41% in the year to the end of June 2012. During the same period, the increase in France was 24%, Eurostat data show. In July, France's biggest carmaker, PSA Peugeot Citroën, announced plans to close a plant near Paris and cut 8,000 jobs. French carmakers are in general losing market share and struggling due to rising competition from, among other producers, Korea's Hyundai and Kia. The surveillance France sought would have meant authorities could have demanded a document to accompany products scheduled for export to the EU.

The EU shot down the French claim to exceptional circumstances:

On Monday, the Commission sent a letter to France explaining that the French request was based on a provision requiring them to show that imports were concentrated in one or several EU member states and this condition had not been met. "While it is true that the car sector in the EU, and in particular in France, is going through a difficult period, this cannot be attributed to the entry into force of the EU-Korea FTA," EU Trade spokesman John Clancy said, cited by the Reuters news agency.

Is it simply another application of time-tested French dirigisme? It could be, but the difference now is a clear existential threat to the likes of Citroen-Peugeot and Renault as proud French flag-bearers. While it's tempting to blame the Koreans, I simply think they are selling products more in touch with the times. During times like these, the value proposition is foremost in the minds of buyers, and no amount of "Buy French" campaigns will change matters just as "Buy American" has repeatedly fallen under deaf ears Stateside.

The Koreans have obviously outmanoeuvred any number of European carmakers, but to their credit they have also outdone the Japanese in inking an FTA. Ever so retrograde, European carmakers still fear Japanese cars flooding Europe if a Japan-EU FTA is signed [!] Get real. As the saying goes, the early bird gets the worm--and the Koreans got there well ahead of the queue since the Japanese are merely attempting to catch up after many, many years of relatively humdrum sales in Europe.

Read More

Trash for Treasure: CenBanks Swapping $ for RMB

♠ Posted by Emmanuel in Currencies at 1/15/2013 07:58:00 AM

The old saying goes "one man's trash may be another man's treasure." To be sure, there are any number of countries around the world that would welcome even dollar foreign exchange reserve assets. Think of Egypt. The happy-sad fact though is that, in part because of international currency war being waged by the United States, several developing nations now have more than adequate reserve holdings going by traditional metrics such as number of months' cover for imports or short-term liabilities (sovereign debt and suchlike maturing within a year). If the latter is the case, you may have a problem of holding excessive dastardly dollar-denominated detritus whose ultimate direction is known to all--downhill from here, baby. This situation calls for a move away from the dollar.

What sort of portfolio diversification in terms of currency holdings is desirable, though? The Euro is remarkably resilient despite the woes of its certain member countries largely due to the ECB's inherent fear of inflation inherited from the Bundesbank. It has, in other words, an appreciating bias especially compared to the dollar. Japanese yen meanwhile yield next to nothing even in this day and age of near-universal zero-interest rate policy among industrialized economies. The pound is nowhere near the value it used to be prior to the financial crisis, and the Swiss franc is not quite as readily traded as some of the currencies mentioned above.

Increasingly, then, the Chinese renminbi is finding favour since its rates of return for yuan-denominated instruments are rather different .There is also the practical matter of the yuan being more convenient not only as a store of value but as a medium of exchange as more and more global trade is being conducted in this currency:

[T]here is little argument about the direction of travel..."The way central banks look at calculating reserves is based on trade balances, so as trade with China grows, they will want to hold more and more renminbi."

Gary Smith of BNP Paribas estimates that the emergence of the yuan as a legitimate reserve asset will nt be long in coming as bandwagoning effect takes hold: "My estimate of central bank holdings (of yuan now) is 0.5 percent or perhaps even less. My estimate of where we're going to is over 10 percent over the next 3 or 4 years," he said, adding that the uncertainty was timing, not percentage...

BNP Paribas' Smith bases his forecasts on discussions with central banks he wished to keep confidential, steps taken by China to facilitate foreign central banks' yuan investments and on the fact that private sector payments in renminbi are growing fast. "A lot of central banks hold some renminbi now, all of them in very very small amounts. Every single one will hold more at the end of the year than they do today," he said. This, he said, will in turn push central banks to hold more of the currency. 

Lastly, LDCs are themselves clamouring for more RMB. I am sure it's flattering to China that others want more of what it has tried to keep to itself before. Actually, the lifting of limits on foreign investment schemes already underway may help facilitate (non-official) accumulation of RMB assets:

Countries including Indonesia have publicly announced that they are buying bonds on China's interbank market. Nigeria has also said it wants to make the yuan a reserve currency. Sovereign wealth funds and central banks have also noted Beijing's decision just before year-end to remove a $1 billion limit for them to buy Chinese assets through its Qualified Institutional Investor Programme.

So far, the only officially sanctioned accumulation of yuan for reserve purposes was that by Japan right before Sino-Japanese relations went awry over a bunch of rocks in the sea. Yet "We want yuan!"is increasingly the new battle cry for central bankers from Jakarta to Lagos.

I sure don't see anyone clamouring for more dollars. There is a moral to the story somewhere in here. 

Read More

How Broke is Greece? It Drops Volleyball Tourneys

♠ Posted by Emmanuel in Europe,Sports at 1/14/2013 07:21:00 AM

Blues legend Buddy Guy has a song entitled "Too Broke to Spend the Night" from his comeback album Damn Right I've Got the Blues. I think Greek officialdom may be singing a similar tune right about now in sporting terms. In 2004 it famously hosted--rather unprofitably, too--the world's foremost gathering of international sporting competition, the Summer Olympics in Athens. That was in its heyday of spending like tomorrow and hiding massive budget deficits to cheat its way into the Eurozone. Heady times they were including their improbable 2004 UEFA Euro championship victory, but they were built on unsustainable finances.

If Buddy Guy were to pen a song about Greece's sporting endeavours now, it would be, er, "Too Broke to Participate in European Volleyball." When you are made to justify every line item of expenditure, does sending athletes to complete abroad only within Europe become a frivolous expense?

Cash-strapped Greece will not compete in volleyball's annual European League this year due to the "prohibitive costs" of taking part. Greece's men's and women's volleyball teams have competed in the tournament since its inception in 2004 but due to financial difficulties as the economic crisis continues to hit Greek sport hard, the [Greek volleyball authority] EOPE have opted to skip this year's edition.

"EOPE's new management committee met today and decided to confirm the initial plan of the previous committee put together in early December by opting not to take our national teams to the European League tournament," an EOPE spokesman told Reuters. "The costs of participating are prohibitive to say the least for us due to the current financial climate.."

I suppose it's losing the little things that you once took for granted that hurt the most when you are in dire financial straits. For a nation that's been showered an astronomical EUR 240 billion in bailout money, they cannot even find EUR 300,000 to send their players to compete elsewhere in the continent.

According to media reports, taking part would have cost about 300,000 euros, including travel expenses. The European League, which is organised by the European Volleyball Confederation and will take place in July, was set up to improve the competitiveness of national teams and promote the sport around the continent.

It may be trivial in the larger scheme of things, but it certainly must hurt. Call it social exclusion among EU nations. On the bright side, there's always Eurovision.

Read More

End of an Outsourcing Era: 787 Nightmareliner

♠ Posted by Emmanuel in Supply Chain,Travel at 1/12/2013 02:26:00 PM

There is a justifiably very well-cited article in the Review of International Political Economy by Gary Gereffi, John Humphrey and Timothy Sturgeon concerning "The Governance of Global Value Chains." (I think it's required reading for anyone with an interest in the field; simple as that.) Here, the authors discuss different sorts of arrangements possible in global value chains which range between the two extremes of hierarchy (you make everything yourself), and market (you exchange for everything and make virtually nothing yourself). Table 1 on p. 87 is very helpful in summarizing these different ideal types:

Again, anyone with a familiarity with the global commodity chain, global value chain or supply chain literatures--they're basically similar IMHO--should know there is no one "best" arrangement for everyone. See, for instance, the so-called "reshoring" movement. As with most things, "it depends" on such things as the need to maintain proprietary information in-house and the transaction costs of dealing with far-flung suppliers. In the latter respect, the 787 set new standards for a modular type of arrangement in the terminology of Gereffi et al. First, aviation contracting is obviously of high complexity unlike, say, garments manufacture. Among other things, you have fly-by-wire avionics systems, fuel-efficient jet engines...and water-efficient toilets [?!] Second, the conceit of Boeing at the time of the 787's conception was that it could do what it thought it did best--design airplanes--and then simply leave subcontractors to fill in the smaller details since the ability to codify transactions in airplane assembly was also high. Third, Boeing obviously thought that the supply base was high enough in skill to outsource the required engineering work.

Earlier on, students of business practice including yours truly were enamoured with what Boeing was going to do. Remember, this was at the height of the outsourcing craze--again different from offshoring since having things made by others does not necessarily mean they were made outside of the US of A (30% of the 787 was supposedly made abroad):

Boeing's new manufacturing template has captured the imagination of the aerospace industry. Recently officials from Airbus told analysts that the company will up its outsourcing to become more competitive. "For any company that wants to be successful in aerospace manufacturing, Boeing's new strategy is the way forward," says Aboulafia. "Which is ultimately good news for small business."

With the benefit of hindsight, more than half a decade later we realize that Boeing's vision was shambolic and that many of us were similarly deluded into thinking this was "the future." Drawing from Gereffi et al. once again, the assumptions were wrong. First, the complexity of the transactions was indeed high--so high that Boeing and its contractors suffered from the "Humpty Dumpty effect" wherein the plane could not be put together as intended despite the best minds in aviation working together since they were only doing so after the fact. Hence the many delays this plane suffered prior to its delivery. Second, Boeing vastly overestimated its ability to state what needed to be done by the others. Once more, the fit of various subcomponents from different suppliers with each other left much to be desired. Third, it is fair to say that Boeing had too much confidence in these suppliers to come up with designs compatible with the 787. Whereas it would once provide detailed blueprints, it assumed with the 787 that the suppliers would have enough engineering expertise to ensure their delivered products would be compatible with everything else.

Of course, Boeing is not without fault. There is probably nothing wrong with attempting to revolutionize passenger jet manufacture. That's part of the innovation process. Instead, the fault lies in simultaneously introducing a radical new production process and a novel airplane design. It may have been more feasible if Boeing either (a) followed the template of previous jets alike the 777 in contracting but moved to more subcontracting as the plane rolled out smoothly or (b) tested much more subcontracting of previous designs alike the 737/747/777 before attempting to do the same with a wholly new design. One step at a time, as they say.

Alas, we now know what's happened. The 900+ subcontractors have caused no small amount of problems for Boeing in delaying the rollout of this plane. Now we also get word that the American aviation regulator is looking into the safety of this design so many years after it first rolled off the assembly line. For an airplane manufacturer, I suppose that's nearly the equivalent of a drug recall due to fatalities in the field in terms of embarrassment short of grounding the fleet. To be sure, the customer list of Boeing for the 787 remains long since it is an outstanding design in terms of fuel efficiency, range and carrying capacity for a model in its class. That said, Boeing may not be able to fulfil its order book given further delays that may occur as various authorities look into its business.

Fearless (but predictable) prediction: Boeing will soon move back to a more relational arrangement based on more processual coordination and iterative testing of fewer subcontracted components. If it worked with the 777 and previous models, I guess why mess with a good thing in the name of specious or probably non-existent savings?

As the saying goes, if you want something done right, you might as well do it yourself.

1/17 UPDATE: Me and my big mouth. Now Japan Airlines and ANA have grounded their fleet of Boeing 787s. Sometimes you hate being prescient.

1/18 UPDATE: Now almost all 787s in commercial operation are grounded. It's getting even worse for Boeing...

Read More

Odd Arne Westad on Frosty China-Japan Relations

♠ Posted by Emmanuel in China,Japan at 1/10/2013 12:10:00 PM

LSE IDEAS is such a hive of activity nowadays I don't even manage to keep up with what the boss is up to. (Of course he isn't "odd"; it's a Norwegian name!) A few weeks ago I featured his well-received book about China's history of reaching out to the rest of the world since 1750. Fluent in Mandarin, he now has a take on Sino-Japanese relations in the New York Times that is quite critical of Chinese officialdom. (It even reached the "most-read" list a few days ago.) I mainly think this quarrel is a commercial disaster; he goes deeper into the historical tensions that remain unresolved. Given that we've been hosting Chinese Foreign Ministry officials via Chevening scholarship programmes for a few years now, I am still surprised how forthright he is while I would have been...more circumspect about doing so. I suppose academic integrity still counts for something in the highly commercialized world of higher education, and perhaps you don't build a reputation mincing words. There's a lesson in there somewhere.

And yes, Asians should all just get along.

PS: IPE@UNC will probably gloat that he completed his PhD in history at the storied UNC-Chapel Hill.

Read More

Nuke to Thrill: Rekindling Japan's Fission Passion

♠ Posted by Emmanuel in Energy,Japan at 1/08/2013 08:20:00 AM

The taste of love is sweet 
When hearts like ours meet 
I fell for you like a child  
Oh, but the fire went wild...

[The chart above is from Nuclear Tourist.] The return to the status quo ante of Liberal Democratic Party (LDP) leadership in Japan unsurprisingly means the comeback of any number of policies the nation has become accustomed to: healthy agricultural subsidies to key rural constituencies; budgetary and monetary largesse; and, for today's topic, a return to nuclear power. While the incidences at Fukushima power plant illustrated the hazards of operating nuclear plants in the earthquake-prone Pacific Ring of Fire to the rest of the world, bear in mind that there were no direct casualties as a result despite various projections of future fatalities due to radiation exposure. Still, the previous Democratic Party of Japan (DPJ) leadership bowed to public pressure in closing down any number of reactors in the wake of Fukushima. Alike several industrialized economies, Japan had taken to nuclear power in the aftermath of the 1973 and 1979 oil crises, and it took something drastic to shake its belief.

Speaking of a return to old habits that die hard, however, Japanese movers and shakers have experienced discomfort over the implications of doing away with fission. After a string of monthly trade deficits in the wake of the devastating Tohoku earthquake, mercantilist sentiment naturally awoke. What's more, the economic implications of a deficit-running Japan already overburdened with massive debt were difficult to contemplate. It was only natural that the traditionalists would return to what "worked" before once the LDP gained electoral victory. Here is commentary immediately after they won:

Japan's plans to phase out nuclear power and boost reliance on renewable energy are likely to be reversed with the victory of the Liberal Democratic Party (LDP) in parliamentary elections. In voting on Sunday, LDP captured control of the legislature's lower, more powerful house from the Democratic Party of Japan. The Democratic Party, in office since 2009, had set a goal of phasing out nuclear power during the 2030s as part of a new energy policy developed in response to the March 2011 Fukushima Daiichi Nuclear Power Plant disaster. All but two of Japan's 50 nuclear reactors are now idled because of public worries about seismic resistance.

More recently, we too note that the LDP is set to pull off the ol' bait and switch of promising to curb its enthusiasm for nukes. You will not be surprised to note that the LDP is also quite close to the nuclear industry...

In its statement outlining its election pledges, the LDP conceded that its pro-nuclear energy policy had been flawed and apologised for causing the Fukushima nuclear accident. The LDP, which had talked in the past about raising Japan’s dependence on nuclear energy from nearly 30 per cent to as much as 50 per cent, pledged during the elections “to establish a social and economic structure that does not need to depend on nuclear power...”

But “since the Abe administration was formed, their rhetoric on nuclear power has changed quite rapidly”, says Koichi Nakano, professor of political science at Sophia University in Tokyo. “It now looks like the LDP feels it is their duty to promote nuclear energy,” Mr Nakano says...

Given the LDP’s close ties to the nuclear industry and its history of promoting nuclear power, the Abe administration cannot afford to have the public realise that Japan can get along just fine without nuclear power, Mr Nakano says. “I think that is what they are most afraid of,” he adds.

Opinion polls indicate that a majority of the public have a negative opinion of nuclear power. Smart money says the LDP will not champion nuclear power so overtly, but that it will nonetheless roll back the DPJ's ambitions to wean the nation off fission. On the menu, then, are the construction of newer and purportedly safer designs. Not only do they assuage public discomfort to an extent, but they also generate new infrastructure spending that obviously will benefit traditional nuclear industry allies:

Shinzo Abe, who took over as prime minister last month, has given a clear indication that the government is looking to build new nuclear power plants...“The new nuclear power plants we will build will be completely different from the Fukushima Daiichi nuclear power plant which caused the accident, and those that were built 40 years ago,” Mr Abe said in a television appearance this week.

“We are likely to build new nuclear power plants on winning the public’s understanding,” he said. Mr Abe’s comments came after Toshimitsu Motegi, his economy, trade and industry minister, said he would re-evaluate the previous administration’s ban on building new nuclear reactors.

Don't be surprised either if they begin reactivating nuclear plants if they can get away with causing a public uproar. Time, after all, is on the LDP's side: public opposition tends to wane after the triggering event--Fukushima--recedes further and further into the past.

Read More

TorrentWorld: How LED TV Makers Co-Opt Piracy

♠ Posted by Emmanuel in Entertainment,South Korea,Underground Economy at 1/06/2013 08:40:00 AM

Pssst...is that a 720p or a 1080p? Here's one last story whose implications run in the billions and billions that involves home entertainment as we come to the end of the holiday season. (Oh, the sacrifices I have to endure alike watching a digitally enhanced Mariah Carey moping around in a Santa outfit with Justin Bieber.) Call it fortuitous timing, but our old Sony CRT TV finally conked out prior to start of the holiday season. Gone. Kaput. Off to the see the Great Mother Cathode Ray Tube in the Sky. As its replacement, we bought a brand spanking new LG 42LS5700 for a low, low price. Its feature set blows anything twice the price from three years ago out of the water--resolution enhancement, 120 Hz, Internet TV with Flash player...you name it, Lucky-Goldstar has it.

Much to the chagrin of the software industry, piracy has become more difficult to control with the advent of torrents as invented by Bram Cohen. Back in the day when pirated physical media still played a large role, it was much easier to single out shady fly-by-night types who had machines that spewed copies by the thousands in unmarked warehouses in city centres. With the advent of torrents, it has become much more difficult to prosecute everyday people, AKA normal consumers like you and me. Industry associations are made to look especially bad by injudiciously suing teens in ill health and many others besides.

Fortunately for the almighty consumer, the hardware industry does not have similar objections to pirated TV series and films as I've found out after buying the LG. Why are prices going down rapidly to our benefit? It's because global shipments are already in decline. To no one's surprise, the world's most dominant players in this space are LG nee Lucky-Goldstar and Samsung. The competition is cutthroat, and they're supposedly the only two who make money selling LED TVs. For all their consumer appeal, let's just say LG and Samsung are not exactly the most scrupulous of operators, having bilked consumers via price fixing for years and years and being cited for doing so by various authorities.

With many watchdogs now monitoring their price fixing propensities, we are fortunate in that prices are tumbling and features are increasing as they seek to maintain a competitive advantage. One of the things I've found out--from intellectual curiosity about the workings of smart TVs, of course ;-)--is that the latest generation of units pretty much play whichever format you throw at them--WMA, MPEG, WMV-HD, MKV. Name your (perhaps less-than-legit) source and the TV will play it. While it isn't as foolproof playing these kinds of sources as the incomparable (and free) VLC, let's be realistic here. With three USB ports to mess around with, you can go knock yourself out with a lifetime's worth of high-quality video entertainment sources without paying a single cent for software. H.264 compression is your friend with video quality that outshines DVD (720p outdoes it) or nearly equals Blu Ray (1080p) standard as long as you can sacrifice some audio quality.

As you may have guessed, co-option of video piracy is no accident; LG has been demoing their TVs' abilities to play pirated movies for a number of years now. As I said, they're in the hardware business, not the software business. So, if their customers want to mess around with XviD and DivX, who's to tell them not to? While Korea's entertainment industry is burgeoning, let's just say that the K-Wave has yet to take over the world. Moreover, their software industry and its association have not exactly reached a scale substantial enough to take their piracy concerns to the likes of industrial giants LG and Samsung. (BTW, there is a K-Wave paid channel on my Smart TV which I obviously haven't tried yet.)

Real trouble over conflict of interest is for TV makers with substantial entertainment production holdings. I am of course referring to poor old Sony which long ago lost its TV street cred to the Korean duo. The loss of its brand equity to the likes of Apple in audio and LG/Samsung in video is well-documented, but I think that an underinvestigated consideration is that Sony has software interests in both audio (Sony Music Entertainment was formerly Columbia Records plus Bertelsmann) and video (Sony Pictures Entertainment was formerly Columbia/Tri-Star Pictures) software. Sony's longstanding love of proprietary formats aside, it has been slow to cotton up to playing newer formats favoured by software pirates to their (financial and market share) loss. While Sony has begrudgingly introduced TVs that play file formats Korean makes have no trouble with, let's just say playback issues are still plentiful.

As longtime buyers of LGs and Samsungs, I guess it's just desserts that we now have more features to play with given how long they've been manipulating flat screen prices. Bastards.

Read More

Falklands Referendum is Farce (But I Support UK)

♠ Posted by Emmanuel in Latin America at 1/04/2013 07:46:00 AM

Oh, when will we ever be done with the firebrand red-haired woman from Argentina, Missus Kirchner?  Never will I more clearly support a blatantly specious argument for "democracy"*--make that *****--than here. At midyear 2012, the UK government announced plans to hold a Falklands referendum to determine its allegiances once and for all--whether to the UK or Argentina. Coming thirty years after the Falklands War stemming from Argentina's invasion of the islands, let's just say it raises sensitive issues in Latin America concerning colonialism, imperialism and the rest of it. I was particularly struck by how David Cameron framed the issue as giving a voice to the inhabitants of the Falklands:

In a strongly worded statement, David Cameron said that Buenos Aires wants to put the islanders' choice of sovereignty in doubt "by shouting down the islanders' ability to speak for themselves and punishing them for exercising their own free choice. That's why it's absolutely right that the islanders have today set out how they intend to make their voices heard once more. And Britain will be resolute in supporting that choice."

What a stirring call for democracy; wave the Union Jack high! Alas, there's more to it than that. Over the many decades the UK has exercised dominion over the Falklands, it has naturally had discretion in choosing who gets to stay there. To make a Chinese analogy, it's like repopulating Xinjiang province with Han Chinese to lessen the proportion of Uighurs and claiming the "residents" approve of the resettlement and authority of Beijing.The FCO confirms as much:

The majority of the population of the Falkland Islands are British by birth or descent. Indeed, many can trace their family origins in the Islands back to the early nineteenth century.  The last census (in 2006) recorded 2,478 Falkland Islanders.  In addition to these, the census also recorded a significant minority of resident Chileans and St Helenians. Most of the remaining population comprises people from the UK mainland and third countries working under contract at either the Mount Pleasant Airfield, or in certain government positions that require specialist skills. 

In other words, they've gotten rid of the (potentially) traitorous Argentinians over time. In a recent open letter addressed to fellow G-20 head of state David Cameron, Argentinian President Cristina Fernandez cites a "population implantation process" while citing the United Nations' wishes for a negotiated solution. Once more that's all well and good, but her memory of history is selective. General Galtieri tried to forcibly take over the islands in 1982 to no avail--the sort of manoeuvre that seemingly contradicts the spirit of negotiation she mentions the UN with. Way back when even the US President Ronald Reagan remonstrated against Thatcher's show of neo-colonialism, but to no avail.

Bottom line: Cameron's referendum is a farce since they kicked out Argentinian sympathizers from these islands long ago. There is no chance the Falkland island residents will vote for being part of Argentina. Does this mean Argentina has a better claim to these islands? Again, no--the Latin Americans tried to take them by force and lost, negating Fernandez's stated wishes to bring about a peaceful resolution. Had they not invaded, the Argentinians would have a more legitimate claim to being the aggrieved party today, but that's not how things panned out thirty years ago. Certainly, it still influences how people view this territorial conflict. Fernandez may think it's a neat distraction from Argentina's dubious economic situation, but quite frankly it's an issue where Argentina lost the moral high ground a long time ago--30 years back, to be precise.

Read More

PC Gone Mad: Women Drivers' Car Insurance in EU

♠ Posted by Emmanuel in Europe,Gender Equality at 1/04/2013 06:15:00 AM

Contrary to hoary stereotypes about "women drivers," the truth is that they are safer drivers--at least in the EU. So much so that women have been charged commensurately lower premiums in EU nations for years. However, in a dubious case of political correctness, the EU has issued a directive against discriminating against charging premiums differentially based on gender. End result? From December 21, 2012 onwards, profit-minded insurance companies have by and large chosen not to bring down male insurance premiums to those for females, but to bring up female premiums up to those for males. The UK Mirror writes:

Next month Brussels delivers an unwanted early Christmas present to women drivers – a nasty hike in car insurance premiums. Under a new European law known as the EU Gender ­Directive, insurers will no ­longer be able to calculate how much a driver pays for their insurance based on their sex. It means that from December 21 women, who are statistically much safer drivers and therefore enjoy lower premiums than men, will see insurance rates rise.

And the amount could be by as much as £300, according to comparison website Gocompare.com. For younger women drivers who have just passed their test, the hike could be in the ­thousands. As a result, many women may end up being forced off the road. According to research by uSwitch.com, 13 per cent of 1,219 women questioned said they would no ­longer be able to afford insurance if their ­premiums rose, while one in 10 said they would be forced to sell their cars.

You call this progress? While I am certainly no Eurosceptic, sometimes the EU is simply misguided in attempting to be politically correct. If women are less prone to fender benders, there is no reason to charge them premiums equivalent to their more reckless male peers.

Read More

Racism and Turkey's EU Bid, Episode VLXVII

♠ Posted by Emmanuel in Europe at 1/03/2013 07:49:00 AM

In the days of my youth, I was told what it means to be a man
Now I've reached that age, I've tried to do all those things the best I can
No matter how I try, I find my way into the same old jam 

Good times, bad times, Turkey's had its share alike Led Zeppelin. When it comes to its prospects for joining the single market, though, its been mostly bad times. Unbeknownst to many, there are still several nations wishing to join the EU despite its economic crises on the periphery. After all, one doesn't have to be in the European Monetary Union (EMU) to be in the EU. What's more, it will probably be much harder to fake macroeconomic data from now on to get into the EMU. Famously among the current aspirants to EU-hood are two steps forward (surrendering war criminals), one step back (rolling back central bank independence) Serbia and the ever-nettlesome Turkey [1, 2].

A considerable amount of the opposition in the recent years has stemmed from French and German leaders' disdain for Turkish EU membership. Turkish negotiatior Egemen Bagis was rightly appalled by the half-baked offer of a "privileged partnership" as opposed to full-fledged membership. Still, even half of the Merkozy Franco-German Islamophobic heart of the EU--adieu, Sarko--is still enough to frustrate an honest appraisal of Turkey's efforts to comply with the pitifully few accession chapters open to it.

Alike Led Zeppelin, no matter how Turkey tries to meet stipulations in the accession chapters open to it, the EU pooh-poohs its efforts. Hence Mr. Bagis' latest complaint--to paraphrase a certain leader no longer on the world stage--about the hard bigotry of no expectations:

Turkey began accession talks in 2005 but the process has ground to a halt due to an intractable dispute over Cyprus, the divided island state which Turkey does not recognize, and opposition from core EU members France and Germany..."

We observed that this year's Turkey Progress Report was overshadowed by more subjective, biased, unwarranted and bigoted attitudes," Turkey's EU Affairs Minister Egemen Bagis said in a statement accompanying Turkey's own 270-page report. Bagis said it was unacceptable that the European Commission report released in October had ignored Turkey's "courageous" reforms over the last year and that this undermined the EU's trustworthiness in the eyes of the Turkish public.

The minister previously voiced his disappointment with the report in October, saying it failed to be objective, ignored the expansion of rights for religious minorities and had criticized the judiciary too sweepingly [...] Ankara has completed only one of the 35 policy "chapters" every candidate must conclude to join the EU. All but 13 of those chapters are blocked by France, Cyprus and the European Commission. Talks have also been blocked by the Commission which says Turkey does not yet meet required standards on human rights, freedom of speech and religion.

The EU is every bit as fond of human rights jibba-jabba as the United States, but thankfully does not condone drone strikes or Guantanamo Ghraibing among other things. That said, it is a favourite cudgel which it wields against Turkey despite it becoming more progressive--especially in the economic realm with its bond yields falling below those of Greece, Portugal, or even Romania.

Despite its fondness for asking Turkey to allow more religious tolerance, however, the core irony is that EU leaders do not welcome it because it is obviously predominantly Islamic. That is, Turkey would do wonders for making the EU indeed more religiously diverse. Yet, the "othering" in academic-speak of Turkey continues: it should not be part of the EU because they are not predominantly Christian is the classic Islamophobe's line of reasoning. My objection here is that religion--Christianity in particular--is becoming an irrelevancy in the lives of Europeans.

Still, hope springs anew in 2013. With French President Francois Hollande set to visit Ankara soon, there is a distinct possibility that he will unblock a number of chapters to accession designated by his predecessor...

The progress report prepared by Turkey, released on the website of its EU Affairs Ministry, cited the passage of reforms in the areas of the judiciary, education and workers rights as examples of progress over the year. Bagis told Reuters in Dublin earlier this month Turkey was hopeful France will unblock talks over EU membership on at least two policy chapters in the coming months ahead of a visit by President Francois Hollande. While Hollande has stopped short of endorsing Turkey's EU candidacy, he has said it should be judged on political and economic criteria - a contrast to his predecessor Nicolas Sarkozy's position that Turkey did not form part of Europe.

I am fairly certain that most impartial observers would attribute stalled Turkish accession more to EU member intransigence than to Turkey's lack of progress in meeting the very few accession chapters available to it. Like the man said, the EU tends to harp on individual (outlier) cases while overlooking the broad-based advances Turkey has made. Even the matter of Cyprus is not insoluble if the EU really willed itself to resolve that matter among others.

To me, there never was a question of whether Turkey is in "Europe"--an artificial geographic construct like any other. It's a pity that several of those who think otherwise are the EU's movers and shakers.

Read More

Gangnam Fail: A White Guy on K-Wave's Success

♠ Posted by Emmanuel in Americana,Entertainment,Marketing,South Korea at 1/01/2013 09:24:00 AM

I am verily annoyed by an FT op-ed by neoconservative stalwart Christopher Caldwell that so happens to be the most-read article in the opinion section at the moment, so please indulge me in starting off the year with a critique. (This remains a blog, after all.) I do not need to reiterate how Americans are among if not the most insular of people, profoundly unconcerned with the rest of the world. Caldwell's best-known work is a me-too "Eurabia" book peddling apocalyptic scenarios about the forthcoming takeover of Europe by Muslim migrants. It is curious how most of the authors of such books tend to be American; the implicit fear is that Europe is but a step on Islam's global takeover with the US next in line.

After unconvincingly "enlightening" us on Islamic culture's presence in Europe, Caldwell now turns his  attention to the phenomenon of Psy as a spearhead of the Korean Wave of creative industries. Displaying characteristic American insularity of the white-as-snow variety, he is rather late to the game alike his compatriots. In the rest of the world, K-Pop has been a phenomenon over a decade old which stretches from music to TV series to movies. (Lest you think I exaggerate about his cultural blinders, he even mistook Justin Beiber as an American in the op-ed prior to numerous readers pointing this out; see the correction at the bottom of the article.) Interestingly, the FT which he writes for gets this point right via Lex:

President Barack Obama has talked about it. Madonna and Ai Weiwei, among many others, have danced to it. That would be the K-wave, or the overseas export of Korean culture. This was the year that rapper Psy made the world aware, Gangnam style, of a long-running Asian phenomenon [my emphasis]. According to a survey, those who like K-Pop were more disposed to try other Korean products. It is no surprise then that Seoul convened a panel this year to see how to keep surfing the wave.

Last I checked, the Asia-conquering "Winter Sonata" telenovela began production in 2002. Moreover, I recall pirated DVDs being hawked in Los Angeles' Chinatown shortly thereafter of this and other Korean series that had become popular throughout Asia before torrents dealt away with having to mess around with disks.

However, the most profound and insightful misunderstanding from Caldwell that instead demonstrates the white man's blindness is his attribution of the success of American cultural products to its economic might. By the same token, we should see the emergence of more global cultural artifacts like Psy (or at least in America that are evident to white people) as the US becomes mired in economic stagnation:

What the US has is not a national genius but wealth, prestige and glamour. The world is always curious about how wealthy, prestigious and glamorous people dance, fight and fall in love. If this is correct, then the American misjudgment of what other people are really buying from them is going to turn out to be a costly mistake. Obviously, the producers and venture capitalists who drive the entertainment industry will happily turn their focus towards any country that can produce blockbusters...

Should the US reputation for mismanagement, profligacy and trillion-dollar government deficits continue to grow, non-US corporate executives will at some point ask why they are paying an architect to design a conference room like those in Manhattan. Why not get one like they have in Pudong? By the same token, why not ask how people are dressing in Gangnam rather than in South Beach? Culture follows wealth, prestige and glamour. As the US share of these declines, the world’s viewers may come to prefer Sleepless in Seoul to Sleepless in Seattle.

If wealth determines pop culture success, how would Caldwell explain the following:

• As he himself understands, "Gangnam Style" does not laud the lifestyles of the rich and famous in South Korea but is rather a critique of self-important residents in one of its tonier locales;
• Rap music (without which "Gangnam Style" would not have emerged) as a critique of inequality and racism in a supposedly egalitarian, equal opportunity society;
• Reggae music emerging from the country of, er, Jamaica--not exactly high on wealth, prestige or glamour but rather poverty, crime and homicide;
• Rhythm and blues, jazz, soul, and other African-American genres receiving massive international success instead of, say, square dances and barbershop quartets;
• For an Anglo idiom, how about punk which sneers at Caldwell-esque notions of whitebread well-being.

In other words, ascribing the success of cultural products to keeping up with the lifestyles of the rich and famous is dubious. If we followed the simplistic Caldwell recipe for the success of cultural exports, why is the world's richest nation in per capita terms, Qatar, not a powerhouse in music and movies? If he were enrolled in a cultural studies course and presented this inept argument, Caldwell would get an "F" straight away.

To me, there are many more things that help determine pop culture success--including deft marketing. In reality, much K-Wave is alike its American equivalent in being superficially attractive but ultimately vapid. Interestingly, this line of criticism often emanates from Koreans themselves. Of course good-looking people singing and dancing tend to catch the eye more. What the Koreans have done which many of their Asian peers have not really achieved is to imbue entertainment products with high production values--choreography, cinematography, costumes, lighting and so forth that approach the best global standards. That they happen to be (mostly) in Korean language doesn't necessarily mean that Korean culture is ascendant, but again that they are able to combine high production values to messages Asians can relate to which Westerners occasionally get, Oppa Gangnam Style. Ever bothered to read its lyrics translated into English? We're not exactly dealing with KRS-One here. It's mostly commerce; that's all.

I tired long ago of people living in their whitebread world trying to explain everything else in Amerocentric terms whether in IPE or elsewhere. That's part of why this blog exists--to present an informed (non-white) counterargument. Caldwell is clearly among the worst offenders.

Read More