Posts of February 2015

Escaping Decay: Japan Inc's Overseas Shopping Spree

♠ Posted by Emmanuel in Currencies,Japan at 2/27/2015 01:30:00 AM

People used to fear Japan not so long ago, but now we have another situation.

There is perhaps no better indication of limited prospects for Japan going forward than its firms investing everywhere but Japan. It is not exactly cheap to make foreign acquisitions at this point in time with the yen at a weak level, but then again, things may get worse as the government tries even harder to pump-prime the local economy. Caught between weak domestic demand and better prospects outside of Japan, many have opted to go abroad despite the rising costs of doing so:

With shrinking prospects at home and the threat of further yen weakness, Japanese companies are rushing to buy overseas and seem willing to pay top dollar, as shown by Japan Post's $5 billion bid for Australia's Toll Holdings (TOL.AX).

Over the long term, Japan's demographics give a bleak prognosis for domestic demand; the population has been falling for a decade and is projected to drop from 127 million to 87 million by 2060, 40 percent of whom will be over 65.

But bankers and analysts say a more immediate impetus to the dash for overseas growth is the fear, in an era of deflationary pressure and huge monetary stimulus from Japan's central bank, that the weak yen will fall still further, making overseas targets more expensive if buyers don't strike now.

All of which demonstrates the counterweight to Prime Minister Shinzo Abe's efforts to kickstart the stagnant economy after decades of deflation and insipid growth.
The value of outbound Japanese acquisitions so far in 2015 is already at $27 billion, nearly half of the $56 billion total for all of last year, Thomson Reuters data show. By contrast, the value of domestic deals has more than halved since 2011, last year hitting a 16-year low of $36 billion [my emphasis].

Actually, the unintended effect of all the easy money being unleashed by the Bank of Japan is for firms to spend not at home but abroad:

After two years of stimulus from the central bank to boost inflation, consumption and investment, Japanese companies, excluding financials, have amassed record holdings of cash, reaching 233 trillion yen ($1.96 trillion), or 24 percent of their total assets.

Some of that money is now being put to use in overseas acquisitions. "This trend is set to continue," said Kengo Nishiyama, senior strategist at Nomura Securities.

Remember back in the 1980s when the widespread fear was that Japan was going to buy up the West? Sure the Japanese are again investing large sums of money abroad, but now they are doing so not because of overconfidence in Japan's future prospects but a lack of confidence. Things change, my dear, as flights out of Japan are becoming more crowded than those coming in.

Nuclear Option: UK Says Kick Russia Out of SWIFT

♠ Posted by Emmanuel in Europe,Russia,Trade at 2/26/2015 01:30:00 AM

To be cut off from SWIFT is to be cut off from international finance.

Here we go again: a few months ago I wrote about Western powers having designs on kicking Russia out of the Society for Worldwide Interbank Financial Telecommunication system or SWIFT. Since it handles most of the international transfers for trade, investment, and simply moving money around, SWIFT is a must-have for conducting commerce in the modern world. Yes, Russia has actually forecast a scenario wherein it would be kicked out of SWIFT due to its various shenanigans in Ukraine (see the link above). However, coming up with a financial transfer system of its own is not exactly viable at present since an interbank system of one nation doesn't quite cut it for obvious reasons.

Citing the perceived effectiveness of bringing Iran back in line after cutting it off from SWIFT, the British are now mulling the EU doing the same to recalcitrant Russia since SWIFT is based in Brussels, Belgium:

Excluding Russia from the SWIFT banking system should be an option in lieu of sanctions if a truce in Ukraine is not respected, British Prime Minister David Cameron said. Russia last month said it would retaliate strongly if it were to be cut off from SWIFT, the international financial industry's secure messaging system that facilitates transactions.

Speaking to a parliament committee on Tuesday, Prime Minister David Cameron vowed that Britain would push for tougher sanctions against Moscow if a tattered truce between pro-Russian rebels and Ukrainian forces falls apart. "I would hope that the European Union collectively would respond very robustly with new sanctions, including so-called 'tier three' sanctions, really hitting the economy of Russia," Cameron said.

British PM Cameron's argument is that if Russia wants to behave like a rogue state, then it might as well not participate in the global financial system (an estimated 90% or more of Russian banks' international transactions are coursed through SWIFT):

"But were that not possible then, of course, we should look at other avenues as well -- obviously looking at the SWIFT banking issues is a big decision but there is a logic for it."

"If Russia is going to leave the rules-based system of the 21st century, then they have to start thinking about whether it's going to be in the 21st century system when it comes to investment, when it comes to banking, when it comes to clearinghouses."

It is, of course, easy for the UK's leader to suggest this course of action since it does not rely much on Russia for natural gas supplies. Unfortunately for him, the real Europeans--those on the mainland using the euro currency--are quite reliant on Russia for gas supplies. The UK relies on Russia for less than ten percent of its gas needs; Belgium, for instance, relies on Russia for over 40%. With 30% or so of total EU gas consumption met by Gazprom alone, Russia has a fairly big gun whose trigger it can pull on the EU if push comes to shove. You don't have to be a genius to figure out that Russia will wield the gas weapon for leverage over this matter.

Bottom line? I would be surprised if the EU even considers cutting Russia out of the Belgium-based SWIFT since it would probably mean being cut off from Russian gas supplies in turn. Unless relations deteriorate to such an extreme extent, that is.

Big Casket & US Protectionism vs. PRC-Made Coffins

♠ Posted by Emmanuel in China,Trade at 2/25/2015 01:30:00 AM

Caskets--where China has made limited inroads into the US market.

Make what you will of this rather morbid feature, but among the few things that are still Made in America purchased with regularity Stateside are caskets. Unfortunately, this phenomenon is not really down to the inferiority of China-made caskets or to the superiority of US-made ones but to the frustration of commerce by entrenched US firms. Apparently, the funeral industry is one of the few where pseudo-nationalistic arguments still hold water somehow:

By importing from China, [Las Vegas-based entrepreneur Jim] Malamas has followed a well-worn outsourcing playbook that’s upended markets for American-made goods from electronics to bedroom furniture. Working with four factories outside Shanghai, he imports 40-foot containers holding 64 caskets apiece and sells them to funeral homes and regional distributors for a fraction of the price. There is plenty of potential: In the U.S., caskets are a $1.6 billion business.

[But] Chinese casket imports haven’t gone as planned—for Malamas or anyone else. His revenue has stumbled. Where almost every other American manufacturer has failed to keep Chinese exports at bay, the casket industry has succeeded. Through aggressive litigation against importers, xenophobic admonitions to consumers, and good old-fashioned palm-greasing of funeral directors, Big Casket has made sure that 9 out of 10 Americans go into the ground in boxes made in the USA.

“The funeral industry has had a goddamn easy ride for the last 150 years,” says Joshua Slocum, the co-author of Final Rights: Reclaiming the American Way of Death and executive director of the Funeral Consumers Alliance, a Vermont nonprofit. “Why aren’t as many caskets imported as Chinese dishware? It defies all known rules of supply and demand.”

The Big Three of US-made coffins--Hillenbrand, Matthews and Aurora AKA "Big Casket"--have done their dardnest to frustrate the entry of China-made coffins:

To keep business, Big Three reps visit homes, meet families, and buy steak dinners. Funeral directors are often induced to sign nondisclosure agreements in exchange for discounts and goodies, such as the installation of casket showrooms.

Some funeral directors feel a patriotic duty to stick with the Big Three, analysts say. The industry still supports more than 3,300 U.S. workers, according to IBISWorld, an Australian market-research company. But protectionist instincts have their limits. Isard of Foresight Cos. tells the story of a funeral home client in North Carolina. A community built on manufacturing hardwood furniture, the area had itself been devastated by Chinese imports and was struggling with a 12 percent unemployment rate. Isard’s client began carrying Chinese caskets, displaying them on the left of its showroom, with American models on the right. The former were a third to half the price. After six months, 70 percent of families were choosing imported. “When given the choice, it’s just a box with a quilt,” Isard says.

Efforts to put Jim Malamas have included (bogus) mounting legal cases against him:

When Malamas entered the market, Big Casket moved quickly to defend its turf. In 2006 a Matthews subsidiary filed suit, alleging that ACE and its Chinese supplier were copying its designs. Matthews also sent letters to funeral homes and distributors, threatening to sue if they continued to buy from Malamas.

As the litigation dragged on, early customers bailed. Malamas had $2 million in legal fees. A judge almost detained him in Texas. Malamas says financial worries led his wife to divorce him.

“It was a nonsense lawsuit,” says Isard, who’s interviewed Malamas on his podcast at FuneralRadio.com. “But it slowed him down. The Big Three made their money back on legal fees many times over,” he says, by keeping in the fold funeral home clients who might have switched to Chinese caskets.

Apparently, the playing field is not yet level in all manufacturing industries in 2015.

Ruble & Exodus from Russia of the Stans' Migrants

♠ Posted by Emmanuel in Migration,Russia at 2/24/2015 01:30:00 AM

Only in Moscow is Tajikistan so far away.

Here's another one of those interesting side stories to Russia's ongoing economies woes. In the past, workers--both documented and undocumented--used to flock there from the Central Asian republics or the "Stans" in search of work. You should be familiar with these: Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan. The factors which drove this migration are also well-known: they used to be part of the USSR after all, wages in Russia were comparatively higher, and employment opportunities back home were fewer. However, a new AFP article implies that workers from the Stans are fleeing Russia as the combined weight of Western sanctions, diminished energy prices, higher inflation and the loss of work opportunities for migrant workers are keeping them home in greater numbers:

"Almost 30 percent of the workers who left to spend New Year's as usual with their families in Uzbekistan or Tajikistan have not come back," said the head of a street cleaning company, who asked not to be named. The deputy governor of Saint Petersburg, Igor Albin, said recently that the city had lost half the migrant workers who do this type of manual labour.

Migrants from the ex-Soviet states in Central Asia used to flock to Russia to work as street sweepers, gypsy cab drivers or restaurant cleaners. Even the low wages seemed better than conditions back home. But many are returning to their countries as the Russian economy is choked by crippling Western sanctions over the Ukraine crisis and plunging oil prices. That has caused the ruble to lose half its value against the dollar, hitting migrants' paychecks hard.

It is not only economics but also politics keeping away more Stan residents away as migration officials have become stricter with migrant workers. (I would attribute this to natives becoming more hostile to migrants when they themselves cannot find jobs at home):

Almost three million people from Tajikistan, Kyrgyzstan and Uzbekistan live legally in Russia, while many more are there below the radar of the authorities. They are mostly unskilled workers who are paid off the books. The money they send to their families back home accounts for up to half their countries' gross domestic product. Galloping inflation in Russia is also eating into how much Central Asian workers can send home, and once the weaker rubles are converted into local currency their remittances are now worth much less.

She said that out of the current average monthly wage of 30,000 rubles ($460), migrant workers are no longer able to send more than $200 home each month. "It's not worth living a very harsh life in Saint Petersburg for such a meagre sum."

Russia has also increased the burden of red tape and fees, recently introducing a compulsory test on Russian language and history as well as new permits from the migration service.

Tajik authorities concur that the numbers of those leaving from Russia are declining, too:

In Tajikistan, the poorest ex-Soviet country, the authorities confirmed that many migrant workers have returned from Russia. An immigration service official, Anvar Boboyev, told AFP that the number of Tajiks now leaving to work in Russia is half that of the same period last year. In January 2014, more than 60,000 Tajiks travelled to Russia, while last month it was only around 30,000, he said.

The Tajik government has vowed to create 200,000 jobs this year but experts say it will be far too little to meet the demands of returning migrants. Between 700,000 and one million Tajiks are thought to work in Russia.

Ultimately, that's probably setting the lower bound to how much migration from the Stans will slow: as bad as things are in Russia, they may be worse in the various Stans.

How the Ruble Became This Month's Best Currency

♠ Posted by Emmanuel in Currencies,Russia at 2/23/2015 01:30:00 AM

The ruble rises again (somehow).

So much for the BRICs jibba-jabba: Russia has been downgraded back to junk status by Moody's, from the last investment-grade rating (Baa3) to the highest non-investment-investment grade rating (Ba1). This has prompted accusations of sinister machinations by the West [surprise!] from Russian authorities. However, it may indeed surprise you to know that, despite the downgrade, the ruble has actually been the best-performing currency of February 2015. How did this surprising performance happen? Also, is it for real? The answer is that the Russian government has asked the "help" of commodity-exporting firms to buoy the ruble by immediately changing foreign exchange earnings--dollars, euros, etc.--into the local currency:

Russian exporters are piling up rubles after President Vladimir Putin’s government asked their help in supporting the currency last year. OAO GMK Norilsk Nickel, Russia’s largest miner, and steelmaker PAO Severstal are among exporters converting more of their dollars and euros into local currency, according to company filings and people with knowledge of the situation. It’s a policy encouraged by the government to help stabilize the ruble after its 47 percent plunge last year.

As the currency crashed, Putin called on Russian companies to coordinate foreign exchange deals with the central bank. That some of the country’s largest businesses appear to be complying shows the growing influence of the state over the economy as Russia contends with lower oil prices, currency devaluation and sanctions. Russia’s central bank said it monitors currency sales by companies, though sets no targets for transactions.

Ah, gentle persuasion from today's Russian government, i.e., they do not really have a choice lest they be ostracized by Putin and Co. With most of the current set of raw material-exporting oligarchs being Putin-friendly characters to begin with since they would have been long gone Khodorkovsky-style if not, there was not much persuasion needed. Rather, what's eyebrow-raising is that this artifice seems to be working so far:

“The serious work with exporters was important in December and the beginning of January when the currency market was very narrow and the volatility was high,” the bank’s press service said on Thursday in response to questions from Bloomberg. “Now the market is recovering and is not that dependent on the exporter revenue sales.”

The ruble has been the world’s best-performing emerging market currency this month, gaining 12 percent versus the U.S. dollar [my emphasis]. “Export revenue sales, which increased since the end of last year, give significant support to ruble and they are also one of the major reasons for the ruble’s plunge slowing down,” [said] Anton Tabakh, a director at RusRating, a Russian credit-rating firm.

Norilsk, controlled by billionaire Vladimir Potanin, sold foreign currency for about 30 billion rubles ($483 million) in cash since the end of December, after the government encouraged companies to switch export earnings into local currency, two people with the knowledge of situation said, asking not to be named because the information isn’t public.

To be sure, it's partly due to oil prices not dropping any further from the $50/bbl handle and the Ukraine crisis being tamped down somewhat. That said, "Russian ruble, February 2015's best-performing currency" takes some time getting used to.

China's Financial Liberalization, Post-Shanghai FTZ Edition

♠ Posted by Emmanuel in China at 2/20/2015 01:30:00 AM

Shanghai FTZ: More than vaporware, actually.

Earlier on, I doubted the utility of the Shanghai Free Trade Zone (FTZ) as a viable endeavor given its emphasis on financial services instead of traditional goods processing. Liberalization of financial services for MNCs has long been a sticking point for them operating in China. While controlling "hot money" has been an official priority, it has also resulted in limitations for MNCs in funding PRC-based operations. That is, it is not so easy to borrow, lend, and otherwise use capital for day to day operations in a faraway land.

As it turns out, the Shanghai FTZ may turn out to be quite useful to multinationals. This is according to a firm that should know a thing or two about challenges faced by MNCs operating in the PRC--JP Morgan. It is quite sanguine about the prospects for MNCs in facilitating financial operations that were previously harder to conduct in China as Shanghai FTZ's more liberal regime is being spread China-wide:

The existing Shanghai FTZ rules have since brought China significantly closer to regions such as the United States and Europe in terms of ease of cross-border liquidity management. The extension of the RMB cross-border liquidity management rules to nationwide, now further close remaining gaps. The new rules largely permit MNCs to conduct RMB cross-border sweeping from anywhere in China, though there are some eligibility and operational criteria of which to be aware. Day-to-day operations of RMB cross-border sweeping under the nationwide rules must comply with a number of requirements, which include:

Minimum prior year annual revenues of RMB 5 billion and RMB 1 billion, respectively, for both onshore and offshore participants

A quota on borrowing by onshore entities from offshore counterparts (there is no quota limit for lending from onshore to offshore)

Some additional restrictions (over and above those already applicable to the Shanghai FTZ scheme) on what offshore borrowing may not be used for, including investments in derivatives and use for wealth management products or entrustment loans to non-participants

Both onshore and offshore participants must have been in operation for more than three years

While these requirements may preclude some MNCs from participating in the nationwide scheme, the limitations for many larger entities are not seen as major obstacles. For instance, one of the perennial issues for MNCs that established operations in China was that once they became profitable, they faced a challenge in repatriating retained earnings. Therefore, the inbound quota is likely to be seen as much less of an obstacle than the opportunity of no quota for outbound flows.

I believe that the Shanghai FTZ is another example of China's small-scale experimentation with liberalization. Insofar as the Shanghai FTZ experiment was judged a success by metrics PRC officials hold--don't ask me what they are, exactly--loosened restrictions are now being implemented PRC-wide. In the process, the PRC will more and more resemble other countries where capital flows more or less freely. This development is certainly in line with the PRC's wishes to make the yuan an international currency. That is, you cannot establish your currency as a medium of exchange when there are several restrictions to using it onshore and offshore as required by trading necessities.

Crap Financial Journalism and the Daily Telegraph

♠ Posted by Emmanuel in Nonsense at 2/19/2015 01:30:00 AM

Three-breasted aliens do program trading! (But even Rita Skeeter will shut up if you pay her enough.)

Regular readers will note that I am actually discriminating about the news outlets I feature despite the wide range of topics on offer. For instance, I will never, ever knowingly excerpt from the Business Insider founded by pump-and-dump specialist Henry Blodget. Call me radical, but the platform of a barred securities trader may not be the best source of information about business. I am not fond of its brand of hucksterism. Another whipping boy around these parts is the British Daily Telegraph for similar reasons With its sensationalist headlines regularly forecasting the end of the commerce as we know it, I have justly labeled it as yellow financial journalism. Its grasp of finance is pretty poor, too.

However, all is not always economic doom and gloom with the Daily Telegraph. Just as with Blodget, conflicts of interest are rife at the Daily Telegraph. Recent revelations by its former chief political commentator Peter Oborne reveal that this fearless publication may pull punches--for major advertisers, that is. You see, British bank HSBC has confessed to helping clients dodge taxes. In the modern world of banking, that's unexceptional. What's more newsworthy, though, is that the Daily Telegraph did its best to bury the HSBC tax-dodging story in its pages. So much for journalistic integrity. From the Beeb:

The chief political commentator of the Daily Telegraph has resigned from the paper, accusing it of a "form of fraud on its readers" for its coverage of HSBC and its Swiss tax-dodging scandal. Peter Oborne claimed the paper did not give due prominence to the HSBC story because of commercial interests. Newspapers had a "constitutional duty" to tell readers the truth, he said.

An analysis by the Beeb's David Sillito indicates the political economy of modern newspapers. As their readerships decline--whether folks read less or obtain news from other outlets--the source of newspaper revenues is tilting away from readerships and more towards advertisers. There is, as a result, more pressure to cater to the latter's concerns as opposed to some hoary notion of the public's right to know:

Amongst responses from journalists and news executives it's described as "eye-popping", "stunning", "explosive" and from professor Jay Rosen at New York University "one of the most important things a journalist has written about journalism lately". The Daily Telegraph is accused of a "sinister" betrayal of its readers.

Stories about HSBC, Tesco and China are said to be placed or sidelined for commercial reasons. But this is not just a parting swipe at an employer by a disgruntled member of staff, it's an explosion of anger about an issue that is worrying journalists across the industry. Newspapers are in a state of crisis. The Telegraph has seen its print sales drop by around half over the last 10 years.

Peter Oborne's own account reveals the level of editorial tampering at this newspaper:

This was the pivotal moment. From the start of 2013 onwards stories critical of HSBC were discouraged. HSBC suspended its advertising with the Telegraph. Its account, I have been told by an extremely well informed insider, was extremely valuable. HSBC, as one former Telegraph executive told me, is “the advertiser you literally cannot afford to offend”. HSBC today refused to comment when I asked whether the bank's decision to stop advertising with the Telegraph was connected in any way with the paper's investigation into the Jersey accounts.

Winning back the HSBC advertising account became an urgent priority. It was eventually restored after approximately 12 months. Executives say that Murdoch MacLennan was determined not to allow any criticism of the international bank. “He would express concern about headlines even on minor stories,” says one former Telegraph journalist. “Anything that mentioned money-laundering was just banned, even though the bank was on a final warning from the US authorities. This interference was happening on an industrial scale.

The sensationalism is also explained well: its financial news is, in effect, the economic equivalent of hoaxes about three-breasted women. It's tabloid fare masquerading as news designed to draw the attention of the ignorant and impressionable:

Stories seemed no longer judged by their importance, accuracy or appeal to those who actually bought the paper. The more important measure appeared to be the number of online visits. On 22 September Telegraph online ran a story about a woman with three breasts. One despairing executive told me that it was known this was false even before the story was published. I have no doubt it was published in order to generate online traffic, at which it may have succeeded. I am not saying that online traffic is unimportant, but over the long term, however, such episodes inflict incalculable damage on the reputation of the paper.

To make a long story short, the Daily Telegraph is crap. Regular stories--those about poor sods not lucky enough to be major advertisers--are subject to tabloid-style sensationalism. Meanwhile, advertisers are above such treatment. Why the heck would you waste your time and money on this garbage? PT Barnum would be proud, but I do not subject my readers to such drivel. If you want a side helping of science fiction and fantasy, though, you know where to get your financial news.

Death of 9-5 Office Work: Fantasy or Reality?

♠ Posted by Emmanuel in Labor at 2/18/2015 01:30:00 AM

The end of the office era will not be missed as the butt of endless jokes.

As someone who does not particular enjoy adhering to 9-to-5 white collar office work--as the saying goes, few will say "I wish I had spent more time at the office" on their deathbeds--I have watched changing patterns of employment with some fascination. The United States having invented the wretched thing, we are now watching how work patterns change there. In an environment characterized by greater job insecurity, white collar work is now changing not only because employers cannot guarantee employment for years on end but also because people are increasingly fed up with office culture. In other words, the supply of and demand for monotonous office slaving are both on the wane:

For much of the past century, the Era of Big Work — the 40-hour workweek and its employer-provided benefits — were the foundation of our economy. That was then. Now, independent work is the new normal. Freelancers, independent contractors and temp workers are on their way to making up the majority of the U.S. labor force. They number 42 million, or one-third of all workers in the nation. That figure is expected to rise to 40% — some 60 million people — by the end of the decade.

A number of factors both economic and cultural are causing the independent workforce to swell. Technological advances and globalization have greatly contributed to the erosion of traditional work arrangements. The private sector's need for speed and adaptability is increasingly incompatible with maintaining a large, full-time workforce. And of course, the Great Recession has put to rest the notion that there is such a thing as a stable full-time job.

It's true that many have been forced into this brave new world of freelance work by external factors. But many are getting into it by choice because independent work aligns with a paradigm shift in values that is happening both at work and in the marketplace.

The overall argument is that lifestyle changes are driving employment pattern changes. If you are not an avid consumerist, then there is no need to work so much to mindlessly buy tons of junk like Americans of previous generations:

Some argue that millennials don't buy big-ticket items because they can't afford them — for instance, the number of cars purchased by the 18-to-34 demographic fell almost 30% between 2007 and 2011. But that's only one factor in a much larger equation.

In reality, millennials tend to value experiences more than things. Their consumption habits are driven less by what kind of job they have and more by their pursuit of ever-evolving technology, brands that align with their ideals and sustainable and social purpose purchasing.

From what we buy to how we work — and why we do either — the American economy is undergoing a change every bit as epic as the shift a century ago from an agrarian society to an industrial one. When workers left the farm for the factory, there were, undoubtedly, plenty who mourned the loss of the old way of life, while others eagerly looked to the next era with vision and enthusiasm. The same is true today.

To be sure, it's trickier to find employment freelancing and working independently. Sure you set your own work hours and thus can schedule your life accordingly. However, this may instead translate to lower and irregular pay contrary to the largely positive account given above by head of the US-based Freelancers Union who would of course offer such a spin on their activities.

However, the soul-crushing nature of pencil-pushing is compounded by the health-destroying nature of spending hours and hours sitting behind a computer. This was well-recognized at the inception of office work; however, it's only now that the full health consequences are being documented. It is probably no wonder that the US became a byword for obesity during a time when office work became the norm instead of "manly" labors:

The solution, then as now, was straightforward: exercise throughout the day. [19th century office work critic Dr. Dudley] Sargent went on to invent a series of exercise machines that, save for some antiquated features and materials, wouldn't be out of place in a CrossFit facility today. And for office workers unable to pop down to a gym for a workout, Sargent and his followers had more prosaic advice: Stand, don’t sit.

All this advice is getting a second life, and with good reason. The remedy, if not the diagnosis of potential health risks, remains valid, even if the medical reasoning has changed. Simply put, sitting motionless for long stretches of time is bad for the body and the mind.

But our renewed concern for the ill effects of sitting probably reflects our collective disquiet with the changing nature of work in this country. Not so long ago, many Americans labored at physically demanding jobs in the nation’s factories, mills and mines. But these have largely disappeared, increasingly replaced by rows upon rows of people sitting hunched over a computer screen.

Rest assured that I do not spend hours on end behind a computer screen even if my tasks as an academic are still largely of this nature. It's just that I have more leeway when choosing when to work writing academic articles....or blog posts for that matter. All the same, the death of the office cannot come soon enough when reality shows based on it will be quaint reminders of a curious period in human history.

Why Cheap Oil Won't Stop Solar Power

♠ Posted by Emmanuel in Energy at 2/17/2015 01:30:00 AM

Mainly, solar power is becoming really cheap relative to other sources.

I almost forgot about this one: many environmentally-conscious folks have become increasingly concerned that low oil prices may slow or even reverse the movement towards renewable sources of power--especially solar. Why change when gas has halved in price or more in less than a year? However, the reality is that the current phenomenon of cheap oil is actually a non-event in the inexorable march towards solar power. To this end, Bloomberg identifies seven reasons as to why this is so:

The Sun Doesn't Compete With Oil - Oil is for cars; renewables are for electricity. The two don’t really compete. Oil is just too expensive to power the grid, even with prices well below $50 a barrel.
Electricity Prices Are Still Going Up - The real threat to renewables isn’t cheap oil; it’s cheap electricity. In the U.S., abundant natural gas has made power production exceedingly inexpensive. So why are electricity bills still going up? Fuel isn’t the only component of the electricity bill. Consumers also pay to get the electricity from power plant to home. In recent years, those costs have soared. Annual investments in the grid increased fourfold since 1980, to $27 billion in 2010, according to a report by Deutsche Bank analyst Vishal Shah. That’s driving bills higher and making rooftop solar attractive. [That is, power distribution instead of power generation costs are driving up power delivered via the grid.]
Solar Prices Are Still Going Down - You may have seen this chart [above] before. It’s the most important chart. It shows the reason solar will soon dominate: It’s a technology, not a fuel. As time passes, the efficiency of solar power increases and prices fall. Michael Park, an analyst at Sanford C. Bernstein, has a term for the staggering price relationship between solar and fossil fuels: the Terrordome. Case in point: Oil-rich Dubai just tripled its solar target for the year 2030, to 15 percent of the country’s total power capacity. Dubai’s government-owned utility this week awarded a $330 million contract for a solar plant that will sell some of the cheapest electricity in the world.
Sales of Plug-Ins Are Doing Just Fine, Actually - Conventional wisdom says cheap oil is an existential threat to electric vehicles. It’s been true in the past, notably when Congress retreated from funding EV research in the 1980s as oil prices tanked. Things are different now, and global sales of plug-ins rose by about a third last year, according to BNEF.
Pump Prices Haven't Dropped as Much as Oil Prices - They haven't changed at all in Malaysia, Indonesia, and Thailand. There are a couple of interesting reasons why savings at the pump haven't kept pace with falling oil prices. First, a number of countries, including India and Indonesia, have used the price drop as cover to cut gasoline subsidies that were weighing down their budgets. Second, countries that include China have pocketed the savings from cheaper oil by increasing gasoline taxes to make up the difference[...]Fossil-fuel subsidies outpace renewable-energy subsidies by a factor of 6 to 1. Reducing the subsidy gap is one of the cheapest ways to increase fuel efficiency and speed up the switch to cleaner energy. Expect similar moves as the rising toll of climate change pushes governments to take action.
Oil Prices Won’t Stay This Low Forever - The history of oil prices follows a golden rule: What goes down must come up. Goldman Sachs identified almost $1 trillion in investments in future oil projects that are no longer profitable with oil under $70 a barrel. American drillers are idling rigs faster than they have since 1991. Eventually, supply will shrink and prices will rise again.
Global Investment in Clean Energy Keeps Flowing - The biggest question for renewables and the oil plunge is: How much does perception shape reality? Shares of solar and wind companies have been pulled down with oil prices. Will this artificial drag bleed into direct investments in energy projects? Not likely. There are too many forces pulling in the opposite direction. Global investment in clean energy increased 16 percent last year, to $310 billion, according to data compiled by BNEF. The U.S. and China, the world's biggest emitters, reached a historic deal in November to rein in greenhouse gases.

Related to the third point, global overproduction of solar panels should also drive their prices down further and improve the power bang for your buck

The Sartorial Bankruptcy of Greece's Socialist Leaders

♠ Posted by Emmanuel in Credit Crisis,Europe at 2/16/2015 01:30:00 AM

"Tsipras, you dress as crappily as you 'govern'"

Ah, the tieless Greek leaders. Aside from their unreasonable demands--how can Greece stay afloat rehiring several thousands of laid off government workers basically pushing paper and not much more--the Syriza party flunkies also strike me as sartorially inept. The problem is that these flunkies are neither here nor there with their outfitting choices. If they really wanted to convey an air of rebellion against the EU establishment, then they wouldn't bother to wear business suits with dress pants and jackets. How defiant does not wearing a tie make you, after all? If I really wanted to show Western Europeans my retro-Communist leanings, why I'd show up at EU gatherings wearing an ushanka like Carlos the Jackal. Or a Nehru jacket with a bolo tie and clown shoes. Anyway...

What Greek voters might not have expected was the first big reaction to Tsipras's maverick streak would be all about his sartorial choices. As soon as the 40-year-old was sworn in as prime minister, people began asking one question over and over again. Where is his tie?

It didn't go unnoticed. When Martin Schulz, head of the European parliament, met with the Greek leader last week, reporters saw him apparently making a comment on the lack of tie to Tsipras. According to the Associated Press, French finance minister Michel Sapin also made some kind of similar gesture when he met the new Greek leader.

Their excuse is that they are no part of the "political class" (whatever that means):

There's no codified protocol for attire during meetings like these: European leaders are simply more used to seeing their peers wearing ties. But given that the entire Greek government can be seen without ties at points, it looks as if the ministers are trying to convey a deliberate political message.

So what lies behind the new Greek political classes rejection of ties? At first, Tsipras told reporters that he may never wear a tie, a comment that played into finance minister Yanis Varoufakis's idea that Greece's new leaders were "reluctant" politicians who simply want to fix Greece's problems: They were average guys, not of the political class.

This is of course nonsense. Just as you wouldn't show up at a formal wedding wearing bermuda shorts and a tank top, you must look the part when meeting with Eurocrats. Not wearing a tie is a sign of flippancy, and even more so when the persons you're talking to are your creditors to the tune of hundreds of billions of euros. The halfway step of wearing business suits without ties doesn't cut it at all--you might as well show up in ponchos and Megadeth T-shirts.

Finance Minister Varoufakis looks even more ridiculous.

Tspiras (and company): you think it's "cool" not to wear a tie, but really, you end up looking like a bunch of dorks way out of your league. The promise to wear a tie when Greece's situation is resolved is hilarious: given the extent of its problems, it will take more than a generation to sort out its situation. Being unfit to be in the EU--economically or sartorially--is the Greek meta-narrative since the country got into the EMU under false pretenses to begin with.

Did IMF Austerity Worsen W African Ebola Outbreaks?

♠ Posted by Emmanuel in Africa,Health,IMF at 2/13/2015 12:59:00 AM

Poor IMF: among the many ills supposedly attributable to its activities worldwide, chalk its historical emphasis on "structural adjustment" for weakening West African health care systems to the extent that the onset of Ebola crises in Guinea, Liberia and Sierra Leone hit them with full force. Yes, the IMF has since pledged additional emergency lending to these affected countries, but the seeds of failure to confront epidemics meaningfully were supposedly sown long ago. We begin with the current situation of IMF response:

As the spreading Ebola emergency took center stage in Washington, the World Bank and International Monetary Fund (IMF) have pledged $530 million to help Guinea, Liberia, and Sierra Leone. And in October 2014, at a special session with African leaders on Ebola during the IMF/World Bank annual meetings in Washington DC, IMF Managing Director Christine Lagarde said that in addition to the aid, the IMF would depart from its notorious budget austerity, and actually allow the hard-hit west African nations to increase their budget deficits: “We don’t normally say this!” she emphasized. To which the Guinean president, Alpha Conde, responded, “I’m extremely pleased to hear the IMF Managing Director [say]… that we can increase our deficit, which is quite a change from the usual narrative.”

This supposedly departs from typical IMF pressures that have weakened health care systems in developing countries:

if you really want to understand why several West African countries have been so ill-equipped to tackle the latest outbreak of the Ebola virus, then you also need to look at the “usual narrative” of IMF fiscal and monetary policy restraint. That’s because it is a major reason for the dilapidated public health systems that have proven to be such a vulnerability during the crisis.

Many experts note that the conspicuous unpreparedness of countries like Guinea, Liberia, and Sierra Leone is a direct consequence of years of insufficient public investment in the underlying public health infrastructure. “We know how to prevent diseases like this, if we can get the basic level of the healthcare systems up to speed,” said Columbia Business School Professor Amit Khandelwal. Critics point out that this lack of investment can be traced directly back to sparse spending on public goods dictated by IMF loan conditions and policy advice, which invariably entail adherence to its strict definition of “macroeconomic stability.”

While austerity may not be directly at fault, it may have exacerbated the situations in these countries:

So the harmful effects of IMF policies on health systems are not direct; it’s not as if the IMF comes in and directly tells a country to spend less on public health. Instead it’s a two-step process: first the IMF policy targets constrain overall national spending levels, and this then limits the spending available for long-term public investment, including for the health infrastructure. Consequently, chronic and sustained underinvestment in public health infrastructure has become the norm in many countries, year after year, over the last few decades...

None of this is to say that the IMF is solely responsible for the Ebola outbreak. Of course, the wars in Sierra Leone and Liberia, corruption, ineptitude, and a host of other specific political, cultural, and socioeconomic factors have all contributed to the current state of the public health systems in West Africa. But if the international community is serious about addressing chronic under-investment in the public health systems in these countries, it will also have to revise the obvious shortcomings of IMF fiscal and monetary policies.

I do not have problems with the general notion that IMF policies have indirectly discouraged the development of West African health care systems via austerity policies. That said, I am not entirely sure that their systems would have been significantly better able to meet the Ebola challenge had the IMF not had a fashion for austerity for so long. It's a counterfactual that's hard to support insofar as there are (fortunately) no counterexamples where IMF non-involvement led to better preparedness in health among other countries affected.

A $465B Fight: On PRC Purging US IT Firms

♠ Posted by Emmanuel in China,Trade at 2/10/2015 01:30:00 AM

Bye-bye, Big Blue...in China?

I've posted about China's efforts to encourage government agencies and state-owned enterprises to "buy Chinese" instead of American or European electronics brands. This is especially true in the financial services sector which, in China at least, is dominated by state banks. With things ramping up in 2015 with new regulations, American firms are crying foul and are asking for support from their government:

U.S. business groups are seeking immediate action from the Obama administration to reverse “troubling” Chinese security requirements they say will block foreign software, servers and computing equipment from the country.

If fully implemented, the policies threaten the ability of U.S. companies to participate in China’s $465 billion market for information technology products, 17 business groups wrote in a Feb. 4 letter to U.S. Secretary of State John Kerry and other government officials. The appeal by the U.S. Chamber of Commerce, National Foreign Trade Council and U.S. Information Technology Office followed similar correspondence last week to Chinese President Xi Jinping’s cyberspace security panel.

“These business groups see the writing on the wall,” Mark Natkin, managing director of Marbridge Consulting, said by phone Friday in Beijing. “They have realized this is not a quick campaign that’s going to blow over. It’s going to impact their business here over the long term.”

It is nothing less than an e-Xtermination of US hardware and software purchases by those entities the PRC has control over. Meanwhile, the purge continues apace:

Chinese regulators summoned bank officials for a meeting last month to stress the need to carry out a nationwide directive to cut China’s reliance on foreign technology, people familiar with the matter said. That directive was a follow-up to a broad national strategy, reported by Bloomberg News in December, to purge most foreign technology from banks, state-owned enterprises and the military by 2020. Rules and regulations for screening information technology products would take effect this year, Peng Bo, deputy director of the Cyberspace Administration of China, said Jan. 21.

To me it's just tit-for-tat. Discriminatory actions against Chinese electronics manufacturers are very common Stateside. Witness the red herring of Huawei and to some extent ZTE being branded as extensions of the People's Army despite no evidence whatsoever that they place spying devices in their telecommunications hardware. Actually, it's the other way around: Chinese firms spying on the US government remains an unproven accusation, but the NSA spying on Huawei is proven:

But even as the United States made a public case about the dangers of buying from Huawei, classified documents show that the National Security Agency was creating its own back doors — directly into Huawei’s networks.

The agency pried its way into the servers in Huawei’s sealed headquarters in Shenzhen, China’s industrial heart, according to N.S.A. documents provided by the former contractor Edward J. Snowden. It obtained information about the workings of the giant routers and complex digital switches that Huawei boasts connect a third of the world’s population, and monitored communications of the company’s top executives.

One of the goals of the operation, code-named “Shotgiant,” was to find any links between Huawei and the People’s Liberation Army, one 2010 document made clear. But the plans went further: to exploit Huawei’s technology so that when the company sold equipment to other countries — including both allies and nations that avoid buying American products — the N.S.A. could roam through their computer and telephone networks to conduct surveillance and, if ordered by the president, offensive cyberoperations.

So while I regret the discriminatory actions against American technology firms operating in China, the US government's actions do help justify what the Chinese are doing. Not only are Chinese firms being discriminated against in selling equipment Stateside, but the Snowden revelations certainly have a "pot calling the kettle black" aspect to them. Despite China being a party to the WTO's Information Technology Agreement, it concerns tariff reductions to zero, not non-tariff barriers like what the Chinese are applying to foreign electronics.

Setting the Stage for US, PRC Declaring Currency War

♠ Posted by Emmanuel in China,Currencies at 2/09/2015 01:30:00 AM

I'd rather not witness the firepower of this fully armed and operational battle station.

As competitive devaluation continues apace in the world economy via "accomodative" policies, the world's two largest economies--the US and China--appear fed up with being those left holding the bag via relatively stronger currencies. The US, after all, is supposedly doing better than most and the dollar is strengthening accordingly while China only allows for limited currency movements in a ±2% daily band. Well, surprise, surprise: these two are readying new salvos in the currency war as the EU and Japan headline efforts by so many developed and developing countries to ease monetary policy.

[1] It will be interesting to follow the US at the upcoming G-20 gathering in Turkey. For, American multinationals that derive a large share of revenues abroad are complaining about how the strong dollar is negatively affecting earnings. Witness weaker-than-expected Q4 2014 results from a number of American MNCs:

When officials from the Group of 20 nations gather in Turkey next week, the worsening currency wars will likely be a source of friction. The biggest question is whether the United States will finally get sick of being a casualty in the ongoing skirmishes...

Not surprisingly, U.S. exporters are squealing. Procter and Gamble, the world's biggest consumer products maker, last week blamed a 31 percent drop in second-quarter profits on what it called the "unprecedented" pressure in the foreign exchange market. "Virtually every currency in the world devalued versus the U.S. dollar," complained Chief Executive Officer A.G. Lafley...

Tony Sagami at investment advisory firm Mauldin Economics has argued that the members of the Standard & Poor's 500 index rely on overseas sales for 46 percent of their revenue and almost half of their profits. Companies from Pfizer to McDonalds to DuPont to Microsoft are already bemoaning the damage done to their earnings

Current US Treasury Secretary Jack Lew--a phantom so far in global economic governance--may not be a stranger to us any longer if he makes the case for "retaliatory" action against those currency evildo--I mean, trade partners:

U.S. Treasury Secretary Jack Lew said this week he's ready to retaliate if he sees other countries pursuing currency policies he deems unfair. But sympathy for the U.S. may be in short supply. Raghuram Rajan, India's central bank chief, said this week that with the Fed looking increasingly like the only central bank with any appetite for raising rates this year, the U.S. "will have to accept some appreciation of the dollar simply because it's the first one out of the box."

[2] Not willing to be the only country left behind in the competitive devaluation sweepstakes, China is readying a widening of the yuan's trading band, and commentators believe that it is to facilitate moves to the downside:

At the same time, something else is afoot in Beijing could have even greater global impact. The central bank is cooking up measures to widen the band in which its currency trades. People’s Bank of China officials say it's about limiting volatility as capital zooms in and out of the economy. Let's call it what it really is: the first step toward yuan depreciation and currency war.

China entering the currency war may accelerate competitive depreciation in the Asia-Pacific:

Any significant drop in the yuan would prompt Japan to unleash another quantitative-easing blitz. The same goes for South Korea, whose exports are already hurting. Singapore might feel compelled to expand upon last week's move to weaken its dollar. Before long, officials in Bangkok, Hanoi, Jakarta, Manila, Taipei and even Latin America might act to protect their economies' competitiveness.

If everyone depreciates, doesn't it negate benefits from beggar-thy-neighbor since everyone ends up in the same relative position? In any event, things are bound to get more exciting once the biggest players make their way into the arena of currency combat. Appropriately enough, recall the conversation between Alice (what currency warriors expect) and the Red Queen (systemic effects of everyone devaluing):

"Well, in our country," said Alice, still panting a little, "you'd generally get to somewhere else—if you run very fast for a long time, as we've been doing."

"A slow sort of country!" said the Queen. "Now, here, you see, it takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!"

US Trade Deficit with China Hit All-Time High in 2014

♠ Posted by Emmanuel in China at 2/07/2015 01:30:00 AM

The US trade roach motel: goods come in, but few go out.

The global financial crisis was attributed to imbalances of the global economy coming undone. In particular, China was too export dependent with limited domestic demand as the income share of capital relative to labor went more and more in the former's favor. Meanwhile, the United States was consuming too much and exporting too little. Fast-forward six or seven years or so later and we have a world economy in which, er, the US still doesn't export all that much as its purchases of manufactures have hit all-time highs. Based on the latest data, full-year figures should show not only imports biting into US GDP but also the absence of any sort of rebalancing. Let's begin with the GDP-killing imports:

Michael Feroli, chief U.S. economist at JPMorgan Chase, wrote in a client note that he's now estimating that gross domestic product expanded at an annual pace of only 2 percent in the last three months of 2014. Feroli called that figure "a little dispiriting," considering that the economy was being boosted at the time by lower oil prices. (The government's first estimate of annualized GDP growth in the fourth quarter was 2.6 percent...)

The gap between imports and exports was $46.6 billion in December, up from $39.8 billion in November. A deteriorating trade picture subtracted 1 percentage point from the government's first estimate of fourth-quarter growth. But with the new data, the subtraction is likely to be even bigger, economists said.

And here is the US being even more dependent on imports from China than ever, which conversely shows how China is still counting a lot on foreign demand:

The details of today's reports were depressing to people trumpeting a U.S. manufacturing renaissance. Alan Tonelson, who blogs on trade and economic issues at RealityChek, calculates that the U.S. ran a record trade deficit with China for 2014 as a whole ($343 billion, up nearly 8 percent from the previous record in 2013) and a record deficit in manufactured goods with the world as a whole ($734 billion, up 13 percent from the 2013 record).

So much for the global rebalancing fantasy. Don't be surprised to see an aftershock of the global financial crisis in the medium term since, alas, nothing has fundamentally changed.

2/8 UPDATE: China's trade surplus hit an all-time high in the month of January as a slight decline in exports was accompanied by a large decline in imports (especially commodities). As I said, so much for global rebalancing.

Welcome Back the Bad Old Brazil

♠ Posted by Emmanuel in Latin America at 2/06/2015 01:30:00 AM

In the end, we make our own hell.

It wasn't supposed to be this way: Brazil hosting the 2014 World Cup and the 2016 Olympics to boot was meant to signal its arrival on the world stage. After years of epitomizing the image of Latin American backwardness--slow growth, high corruption, soaring inflation and a plunging currency--these marquee sporting events were meant to showcase the "new" Brazil: a dynamic young economy powering ahead as one of the BRICs.

Unfortunately, things have taken the wrong turn as Brazil flirts with recession time and again, corruption has driven its largest company Petrobras into the gutter together with the many firms dependent on it, and a dive-bombing real has sent inflation improbably high even as the world at large seems to have entered a deflationary situation. With a drought making things worse, all the fates are aligned against Brazil. Consider Petrobras as the very picture of the broken Brazilian dream:

Today the company epitomizes everything that is wrong with a Brazilian economy that has been sputtering for the better part of four years: It’s mired in a corruption scandal that cost the CEO her job this week; it has failed to meet growth targets year after year; and it’s saddling investors with spectacular losses. Once worth $310 billion at its peak in 2008, a valuation that made it the world’s fifth-largest company, Petroleo Brasileiro SA is today worth just $48 billion.

While Brazil’s decline on the international stage has been playing out since the commodities-driven economic boom first began to fizzle in 2011, the corruption case at Petrobras deepens the growing sense of crisis in the South American country. The government is posting record budget deficits after a collapse in prices for the soy, oil and iron that the nation exports; Sao Paulo is running out of water amid the biggest drought in decades; and the real dropped the most among major currencies in the past six months.

Fittingly enough, the epitaph for the boom-boom, go-go years comes from no one other than the guy who coined the BRICs term himself, Jim O'Neill:

“Brazil seemed great during close to 10 years of rising commodity prices and a very positive terms of trade,” Jim O’Neill, the former Goldman Sachs Group Inc. chief economist who coined the BRIC acronym and who is now a columnist for Bloomberg View, said in an interview from London. “It disguised lots of underlying problems and of course it made policy makers lazy and allowed bad behavioral habits to go on, as this Petrobras story epitomizes.”

It wasn’t supposed to go like this. In the halcyon days, the country was awarded rights to host the 2014 World Cup soccer tournament and the 2016 summer Olympics, events that officials sought to use to highlight Brazil’s arrival as a global power. The nation was in the midst of the kind of economic expansion it hadn’t seen in decades, posting growth of more than 5 percent in three out of four years.

The knock-on effects of Petrobras being mired in scandal cannot be underestimated:

In addition to the political headache for Ms. Rousseff, the scandal is weighing heavily on Brazil’s economy. Petrobras isn’t just Brazil’s largest company, it is the single-biggest motor of infrastructure spending, accounting for around 10% of the nation’s total capital investment annually. An aggressive expansion of its deep water oil production in recent years has generated billions in spending on drilling platforms, pipelines, refineries, transport vessels and other projects. That in turn has created hundreds of thousands of jobs for Brazilians up and down the supply chain.

It's kind of sad to think that Brazil was little better than a Russia or Venezuela strutting its stuff while commodity prices were elevated. Some may have thought they would stay at such high levels or head even higher buoyed by ever-soaring global demand for commodities led by the Chinese, but no. There remain economic cycles, and Brazil apparently doesn't have a Plan B involving other non-commodity sectors. I guess that old chestnut the "resource curse" still deserves attention.

Friends, Comrades: the Venezuela-ization of Greece

♠ Posted by Emmanuel in Credit Crisis,Europe at 2/05/2015 01:30:00 AM

They do [bank] run run, they do run run.

Recalling the statement that Argentina was becoming Venezuela and Venezuela was becoming Zimbabwe, here's my international spin: Greece too is becoming Venezuela, while Argentina is becoming North Korea. Like the Kirchners' Argentina or the Chavistas in Venezuela, the new socialism in Greece is taking its toll. But before we get to that, here's your daily dose of Venezuelan conspiracy theory lunacy. It shows the severity of the situation there when the source is the left-leaning Think Progress that ice cream parlors and crossword puzzles are now being tarred as American conspiracies to overthrow the government:

As Venezuela’s economy has flailed, government officials have cast blame on ice cream shops and crossword puzzles for what they allege is a conspiracy to topple the administration by crippling the economy. Venezuelan President Nicolas Maduro said on Sunday that the owners of a chain of pharmacies were “conspiring” to “annoy the Venezuelan people” by artificially creating long lines at their registers. The did cut back employees, but that may well have more to do with a shrinking economy than a conspiracy to irritate their customers.

Last month, the country’s tourism minister refuted the claim that the closure of a shop that sold more than 800 flavors of ice cream could be blamed on a lack of milk. “It’s false,” he said, adding that the owner staged the closure with the media “as part of the low-intensity war against the present government.” Crossword puzzles have also earned conspiratorial glances from the government. In March, Venezuela’s information minister said that puzzles in a regional paper were used to encrypt messages to stoke revolt against the government.

Not to be outdone, the new Greek government is making plenty of outre statements itself. Witness its scary finance minister, a self-styled "libertarian Marxist." For some reason unfathomable to them, the international community is spooked by the neo-Communist stylings of Syriza. They're supposedly ruling out asking for Russian aid, but Chinese aid may be on. In the meantime, Greeks are taking all their euros out of the banks in fear of sequestration. That is, the newly-installed Communists may freeze all accounts or even turn euros into the new drachma or whatever currency they will have after leaving the EMU.

So, regular folks are coming up with all sorts of creative places to shove wads of cash where the socialists (hopefully) will not find them as withdrawals continue apace:

Georgios Karavelas drives a taxi in Athens and for the past month has been a silent witness to what ordinary Greeks are doing with their cash. One passenger, he said, told someone on his mobile phone that he’d withdrawn 25,000 euros from the bank, taken it home, worked loose a tile in the bathroom and stashed the money there. Another took the cash to his village and buried it in the garden. Yet another fashioned a small safe box in the air-conditioning unit on his balcony. “I can’t fault these people,” said Karavelas, 37. “They were obviously people who had worked hard for their money, with families and jobs, not oligarchs.”

Withdrawals from Greek banks may have exceeded 15 billion euros ($17.2 billion) in the run-up to the elections that catapulted Alexis Tsipras and his anti-austerity Syriza party to power, including at least 11 billion euros in January, according to four bankers citing preliminary data. Tensions between the new government, which won on a platform of debt relief, and Greece’s creditors, including Germany, may keep up the pressure.

“Talks with the creditors is going to be a protracted process so you can’t rule out more pressure on deposits,” said Wolfango Piccoli, managing director at Teneo Intelligence in London. “There is plenty of uncertainty and that can make depositors nervous again.”
Greece’s bailout program ends on Feb. 28 and failure to come to an agreement with the troika of lenders from the European Commission, International Monetary Fund and European Central Bank could leave the country without funding to repay billions of euros in debt due in the coming months. Germany is prepared to wait until April or May, when Greece hits a cash crunch to strengthen its bargaining position, a person familiar with the matter said.

The smart money's already left the Greek banks, which are teetering on the edge of solvency as a result of a "bank marathon," not a bank run:

“The story of the Greek deposits is not one of a bank run but a bank marathon,” said Andreas Koutras, a partner at In Touch Capital Markets Ltd. in London. “The smart money is long gone and there are few accounts with more than 100,000 [euros]. The true barometer of fear is the amount of hard cash that is withdrawn, not how much is transferred outside Greece. This has gone up the past two months...”

In Dec. 2009, the outstanding balance of deposits in banks was 237.5 billion euros, compared with 160.3 billion euros at the end of 2014, the latest figure from the central bank. The figure plummeted to 150.6 billion euros at the end of June 2012 on fears Greece would leave the euro. In May and June that year, 15 billion euros in deposits fled the country’s banks, central bank data shows.

From Caracas to Athens, I believe these folks have forgotten the reasons the Iron Curtain collapsed in the first place: socialism sounds great on paper, but in practice it's rather horrid and brings out the worst in people. Apparently, this phenomenon may need to be re-learned every quarter century or so. I am not necessarily a fan of the EU ministers, but I think the new Greek leadership has a very weak bargaining chip in threatening to leave the EMU since the German powers-that-be have decided this may be a legitimate course of action at this point. It would save them from sinking further money into a seemingly lost cause. Besides, the wrath of Greece's citizenry would be upon Syriza for taking such a drastic course of action. After all, so many people wouldn't be hoarding euros unless they had value and worse could come like the return of the drachma.

Stay tuned.

UPDATE: The cash spigot, AKA Emergency Liquidity Assistance--ELA in which Greek sovereigns could be exchanged for euros at a relatively low cost by local banks--has been turned off. While the European powers-that-be are showing who's boss, it raises the chances for an extreme Greek reaction like leaving the EMU.

On Beijing Hosting 2022 Winter Olympics [Cough]

♠ Posted by Emmanuel in China,Sports at 2/04/2015 09:59:00 AM

If Beijing hosts the 2022 Winter Olympics, we'll have fat guys in Speedos instead.

One of the things global warming makes me ponder is the fate of the Winter Olympics. In a world where the average temperature keeps rising, there may come a time when "winter" is the stuff of history books. Modeling future climate change, only 6 out the previous Winter Olympics venues will qualify as "climate reliable" near the end of the century. Vancouver was the warmest of all time, with Sochi not that far behind.

Now we have another contender for these, er, "Temperate Olympics": Beijing. This is not a typo--the host of the 2008 Summer Olympics is (after Stockholm, Sweden dropped out of the running) bidding to become the first city to host both events. Although the weather may not cooperate given the whimsies of global warming phenomena and smog remains a persistent problem, Beijing is otherwise well-suited to host the 2022 Winter Olympics: the Chinese love putting on these marquee events, few dare protest about the cost of putting on these games in an authoritarian regime, and the facilities and experience hosting these things remain from 2008:

At first glance, Beijing's quest to host the 2022 Winter Olympics may sound, well, a bit quixotic. After all, the city's skies are notoriously smoggy, its main proposed ski venue is a five-hour drive northwest of the city center, and the mountains there receive, bid organizers acknowledge, about 8 inches of snow annually.

But over the last year, Beijing's competition — once seen as formidable — has melted away. Cost concerns and faltering public support prompted pullbacks by Oslo; Stockholm; Munich, Germany; and Krakow, Poland. The Ukrainian city of Lviv also had to bow out amid the military, political and economic crises in that country.

Supposed reforms have come too late for this authoritarian's showcase as it's China versus Kazakhstan:

"Very few people in the IOC, and in the wider sports community, see the choice between Almaty and Beijing as particularly desirable on any count," said John J. MacAloon, a University of Chicago anthropologist and historian who has studied the Olympics extensively.

The IOC last month adopted a package of reforms aimed at reducing costs for host cities and making the process more flexible while requiring greater protections for human rights, labor and the environment. That's attracted a wealth of interest in bidding for the 2024 Summer Games, but "unfortunately the reforms were not passed quickly enough to produce a wider field for 2022," MacAloon said. "So the IOC is stuck."

My bet is that the Kazakhs will not go all-in on seeking to host this event since they are, like Russia, currently being hammered by declining oil prices. So, as much as I would have liked the Almaty Games to come through, the smart money is definitely on Beijing at the moment. The China Daily is certainly not letting up on the PR push:

Beijing’s enthusiasm for winter activities is soaring as the mercury plummets, industry insiders agree. China’s 2022 Winter Olympics bid has added fuel to the fire. But it is far from the only reason residents are discovering new ways in which ice is nice. Wukesong Ice World Sports Land was over capacity when it opened Asia’s largest skating rink in early December. Lines snaked outside the arena — which includes an outdoor rink that will be the city’s only outside rink open during the summer, thanks to Dutch technology — during the free-admission period.

On the first day tickets were sold in early December, about 2,600 people visited the arena, which has a 900-skater capacity. “We expected a lot of people,” says Dong Xiaoyuan, media marketing supervisor at Beijing Wukesong Arena Management. “But far more came than we’d imagined.”

Since we've had to truck in snow the past two "Winter Olympics," I don't really see why we shouldn't have the 2042 Dubai Winter Olympics. To paraphrase Dick Cheney, that Winter Olympic hosts don't have snow doesn't matter when we have the technology to manufacture it ahead of time.

Old man winter, we hardly knew ye.

Sunk-Cost Fallacy: MNCs in Venezuelan Socialist Hell

♠ Posted by Emmanuel in Latin America,MNCs at 2/03/2015 01:30:00 AM

Exciting foreign [currency] escapades await MNCs in Venezuela.

When it comes to all things dealing with "Venezuela" and "business," the correct advice since Hugo Chavez gained power was to hit the road. Get on the A320 and never look back. Apparently, some folks did not heed this commonsense advice for a country in the process of Zimbabwe-fication. While energy companies at least had the excuse of having potentially bountiful sources for energy reserves in sticking around, there were not any country-specific resources many others had.

These include all sorts of US-based consumer goods manufacturers who have persisted in staying in Venezuela. Having substantial plant, property and equipment, they could not readily see beyond the "sunk-cost fallacy" or "Concorde effect" which goes like this: Even if Venezuela turns into an even worse socialist hellhole day after day, we have invested so much money over the years here that we must persist in operating in this `@#$>;!? socialist hellhole." The end result is that the value of the assets of MNCs in Venezuela have to be significantly written down in value to account for the massive depreciation of the local currency.

Earlier on I discussed the incomprehensible Venezuelan foreign exchange system which had four tiers at the time. The trouble is that most American firms have not fully accounted for their foreign exchange losses yet:

At least 40 major U.S. companies have substantial exposure to Venezuela’s deepening economic crisis, and could collectively be forced to take billions of dollars of write downs, a Reuters analysis shows. The companies, all members of the S and P 500 and including some of the biggest names in Corporate America such as autos giant General Motors and drug maker Merck & Co Inc, together carry at least $11 billion of monetary assets in the Venezuelan currency, the bolivar, on their books.

The official rate is at 6.3 bolivars to the dollar and there are two other rates in the government system – known as SICAD 1 and SICAD 2 – at about 12 and 50. The black market rate, though, was at about 190 bolivars to the dollar on Sunday, according to the website dolartoday.com. The problem is that the dollar value of the assets as disclosed in many of the companies' accounts is based on either the rates at 6.3 or 12 and only a limited number of transactions are allowed at those rates. The assets would be worth a lot fewer dollars at the 50 rate in the government system and the dollar value would almost be wiped out at the black market rate.

Needless to say, the Venezuelan socialist government would rather die before giving Yanqui capitalists a dollar per 6.3 bolivars if they decide to flee Venezuela at this late a date. How do you practice mark-to-market accounting for Venezuelan operations? This is at least as intriguing as the notion of stabilizing the country formerly known as Ukraine using emergency IMF lending while it is being torn apart by civil war. The one most accurate is the black market rate of (gulp) 190 to the dollar, but that probably won't satisfy any accounting conventions. The end result is that MNCs cannot accurately reflect their foreign exchange losses just yet. That said, their losses even at 12 or 50 bolivars to the dollar are already substantial:

Diaper and tissue maker Kimberly-Clark Corp recently announced a charge of $462 million for its Venezuelan business, leading to a fourth-quarter loss for the company, after it concluded that the appropriate exchange rate was the SICAD 2 exchange rate at 50 rather than the 6.3 it had previously used.

Using the stronger exchange rates is unrealistic because of how hard it is to repatriate profits earned in Venezuela back to the United States at any rate, let alone those rates, securities analysts say. Citigroup Inc (C.N) says it has not been able to buy U.S. dollars from the Venezuelan government since 2008...

Ford Motor Co (F.N) and oil services company Schlumberger NV (SLB.N) took big-ticket hits to their quarterly profits because of their Venezuelan operations. Ford took a fourth-quarter charge of $800 million and Schlumberger $472 million. A Ford spokeswoman said that it still values its Venezuela assets at about 12 bolivars per US dollar. But for Ford, the currency system and other conditions are so tough in the South American country that it has made an accounting change that will allow it to ring fence its Venezuela business so that it doesn’t have a direct impact on the company’s operating results.

Schlumberger, which previously used the 6.3 rate, said it is now using the SICAD 2 rate of 50 as it "best represents the economics of Schlumberger’s business activity in Venezuela." Another S&P 500 company to switch to the 50 rate from 6.3 in recent weeks was industrial gases producer Praxair Inc (PX.N), which took a fourth-quarter charge of $131 million as a result. It also said the switch will hurt its revenue and earnings in 2015

These firms should have taken Carole King's advice a long, long time ago. Something has indeed died inside of Venezuela. It's called sanity.