Macro Links Nov 21st – Merkel in Doubt
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MACRO LINKS TABLE OF CONTENTS (Click or Scroll Down)
- MERKEL COALITION TALKS COLLAPSE
- ATT TIME WARNER DEAL
- MUGABE SACKED
- JANET YELLEN RESIGNS
- SEXUAL HARASSMENT, AL FRANKEN, CHARLIE ROSE
- RUSSIA PROBE
- BITCOIN BOOM, CRYPTOCURRENCY
- GOP TAX PLAN
- UBER-VOLVO DEAL
- FCC NET NEUTRALITY ROLLBACK
- RATES, LIQUIDITY, SYSTEMIC RISK, BALANCE SHEETS
- MACRO OP-EDS, INSIGHT, EVENTS AND TRENDS
- CENTRAL BANKS & MONETARY POLICY
- POSITIONING, INFLECTION, MARKET CALLS
- COLOR, EARNINGS, SENTIMENT, VALUATIONS
- DEALS, MERGERS, IPOs, LBOs, RESTRUCTURINGS
- FOREX, CRYPTOCURRENCY, EXCHANGE IMPACTS
- REAL ESTATE, HOUSING, REITS, COMMERCIAL
- HEDGE FUNDS, PRIVATE EQUITY, MONEY MGMT
- ENERGY CRUDE OIL, OIL SANDS, SHALE
- ENERGY RENEWABLES, NUCLEAR
- BREXIT, SCOXIT, LONDON, UK ECONOMY
- DACA, TRAVEL BAN, IMMIGRATION, WALL
- GEOPOLITICS, CRIME, TERRORISM
- TRUMP WORLD
- RETAIL APPAREL, SPECIALTY, DINING, BIG BOX
- MEDIA, CABLE, SPORTS, ENTERTAINMENT
- AUTOS, ELECTRIC, SELF-DRIVING
- AEROSPACE, MILITARY & DEFENSE
MERKEL COALITION TALKS COLLAPSE
Germany moved a step closer to a snap election after Chancellor Angela Merkel’s efforts to form a government with smaller parties fell apart and the Social Democrats refused to step into the breach.
Europe’s biggest economy and pre-eminent political power was plunged into deep political uncertainty late Sunday night after the collapse of exploratory talks involving Merkel’s Christian Democrats and their Bavarian sister party, the Christian Social Union, plus the liberal Free Democrats and the Greens.
Just days ago, Angela Merkel seemed a shoo-in for another term as leader of Europe’s most powerful country. Now, with the breakdown of talks on forming a coalition government, Germany is rudderless and the chancellor is facing perhaps the worst political crisis of her career.
Suddenly the veteran chancellor — already weakened by her party’s worst election result since 1949 — seemed at risk of failing in the basic duty of providing a stable government for her 83m compatriots.
“I believe that the post-Merkel era has begun,” said Alexander Mitsch, leader of the Values Union, a conservative pressure group within the CDU. “Not only did she preside over that election debacle, she has also failed to form a government.”
German Chancellor Angela Merkel said she’d rather face new elections than govern without a majority, betting that voters won’t blame her after four-party talks on forming a coalition collapsed.
Chancellor Angela Merkel said she would prefer a new election to ruling with a minority after talks on forming a three-way coalition failed overnight, but Germany’s president told parties they owed it to voters to try to form a government.
At a time when the European Union is facing a host of pressing problems, from Brexit negotiations with Britain, to the rise of right-wing populism, to separatism in Spain’s Catalonia region, the possibility of political instability in a normally reliable Germany sent tremors through the Continent.
The collapse of talks reflected the deep reluctance of Ms. Merkel’s conservative bloc and prospective coalition partners — the ecologist-minded Greens and pro-business Free Democrats — to compromise over key positions. The Free Democrats quit the talks late Sunday, citing what they called an atmosphere of insincerity and mistrust.
“There is no coalition of the willing to form a government,” said Thomas Kleine-Brockhoff, director of the Berlin office of the German Marshall Fund. “This is uncharted territory since 1949. We’re facing a protracted period of political immobility. Not only is this not going to go away soon, there is no clear path out.”
ATT TIME WARNER DEAL
“It may be one of the most important antitrust battles of modern times,” said Gene Kimmelman, a former federal antitrust official and president of Public Knowledge, a consumer advocacy group.
There is also political risk for the Justice Department. Some Democrats have expressed concern that antitrust officials could be seeking to block the deal because the Trump administration has been highly critical of CNN, which is owned by Time Warner – a charge that the department and the White House have denied.
By challenging the deal, the Justice Department is taking an approach to antitrust issues that is starkly different from the Obama administration’s. In 2011, for instance, the department approved a similar deal — Comcast’s acquisition of NBCUniversal — after imposing numerous conditions on the transaction.
“This throws a great deal of uncertainty on anyone contemplating M&A,” Randall Stephenson told reporters shortly after the DoJ filed a lawsuit challenging the deal. The suit “stretches antitrust law beyond the breaking point”, he said.
If the matter goes to court, AT&T will surely press for a decision before April 22, the date before which the two companies can walk away without penalty, said Jonathan Chaplin, an analyst with New Street Research. “AT&T is certainly willing to fight this.”
The legal challenge — the first major antitrust enforcement action to be brought by the Trump administration — dealt a blow to a tie-up that appeared to be sailing toward approval as recently as a month ago. That was before Delrahim was appointed to his post.
Zimbabwe’s ruling party has sacked Robert Mugabe as its leader, as pressure intensifies for him to step down as president. Zanu-PF has also given Mr Mugabe, 93, until 10:00 GMT on Monday to resign as president, or face impeachment.
Robert Mugabe is in talks with Emmerson Mnangagwa, the vice-president whose sacking triggered the military takeover of Zimbabwe, about a “road map” to resolve the country’s crisis, the armed forces chief said.
China said on Monday that reports that Zimbabwe’s military gave Beijing advance warning about the army’s takeover were part of efforts to undermine its image and “drive a wedge” between the Asian power and Africa.
JANET YELLEN RESIGNS
Federal Reserve Chairwoman Janet Yellen said she would resign as a member of the Fed’s board of governors once her successor as chairman has been sworn in.
The decision means Mr Trump will have four vacancies on the Fed’s seven-person board to fill, one of which is the position of vice-chair, which was vacated by Stanley Fischer in October.
It means the Fed faces an extraordinary period of change at its highest ranks at a time when difficult policy decisions lie ahead. Among the questions facing Mr Powell, who faces a Senate confirmation hearing next week, is how to balance weak inflation against the lowest unemployment since the start of the century and increasingly effervescent financial markets.
Yellen’s departure will mean the loss of decades of institutional knowledge. She has been part of the central bank’s leadership since 1994, with a break from 1997 to 1999, when she served as chair of the Council of Economic Advisers under former President Bill Clinton.
She served on the central bank’s board from 1994 to 1997, as San Francisco Fed president from 2004 to 2010, as vice chair of the board from 2010 to 2014, and as chair since then. She also worked as a staff economist at the Fed in the 1970s.
SEXUAL HARASSMENT, AL FRANKEN, CHARLIE ROSE
A woman says Sen. Al Franken inappropriately touched her in 2010, telling CNN that he grabbed her buttocks while taking a photo at the Minnesota State Fair.
But the senator, who is spending the holidays in D.C., has no plans to step down, according to multiple Democrats.
Some progressive groups are demanding his resignation after a second woman accuses the Democratic senator of sexual misconduct.
As PBS scrubs him from a David Letterman tribute, and after his drubbing from ‘SNL,’ there is no let-up for Al Franken in the fallout from his sexual misconduct scandal.
Eight women have told The Washington Post that longtime television host Charlie Rose made unwanted sexual advances toward them, including lewd phone calls, walking around naked in their presence, or groping their breasts, buttocks or genital areas.
Charlie Rose is the latest public figure to be felled by sexual misconduct allegations, with PBS halting distribution of his nightly interview show and CBS News suspending him Monday following a Washington Post report with the accusations of eight women.
Allegations by women who worked with Mr. Rose over a dozen years led CBS to suspend him from its morning program and PBS to stop distributing his interview show.
Jurvetson was asked to leave because DFJ caught him lying about what it considered serious allegations, a source said.
Several women told Vox about their experiences with the star reporter, and the Times has suspended him pending an investigation.
Twenty-First Century Fox Inc has reached a $90 million settlement of shareholder claims arising from the sexual harassment scandal at its Fox News Channel, which cost the jobs of longtime news chief Roger Ailes and anchor Bill O’Reilly.
President Donald Trump’s lawyer says the criminal investigation into possible collusion with Russia in last year’s election could be over by December, but Special Counsel Robert Mueller’s probe is expected to continue well into next year, according to a U.S. official.
Mueller continues to gather evidence and pursue investigative leads, as shown by steps like a subpoena he sent to more than a dozen Trump campaign operatives in October, according to the official with knowledge of the investigation, who requested anonymity to speak about sensitive matters.
“I don’t think there’s any reason to believe this is almost over,” Randall Eliason, a former federal prosecutor who now teaches law at George Washington University, told the Post. “Based not just on what we’ve seen but also what we know about white-collar investigations generally, this seems to me like it is just getting started.”
CBS News has confirmed that Donald Trump Jr. met with Alexander Torshin – a man with close ties to the Kremlin — at an NRA event in May 2016. Torshin had been trying to set up a meeting with then-candidate Donald Trump but ended up being introduced to Mr. Trump’s son.
The Trump campaign has stopped paying legal bills for Donald Trump Jr. and is setting up a legal defense fund to cover the costs for him and other campaign staffers related to investigations into Russian election meddling, said a person familiar with the matter.
A former Fox News employee said the network blocked her from going to Moscow to investigate President Donald Trump’s links with Russia, one of several claims of news bias at 21st Century Fox Inc. made by former and current workers opposing its takeover of Sky Plc.
BITCOIN BOOM, CRYPTOCURRENCY
Wendy McElroy is ready for most doomsday scenarios: a one-year supply of nonperishable food is stacked in a cellar at her farm in rural Ontario. Her blueprint for survival also depends upon working internet: part of her money, assuming she needs some after civilization collapses, is in bitcoin.
The prospect of blockchain technology remaking financial services just moved a step closer to reality after banks including Goldman Sachs Group Inc. and JPMorgan Chase & Co. completed a successful six-month test in the $2.8 trillion equity swaps market.
Blockchain software has captivated Wall Street because it could vastly reduce the cost of back-office operations and speed up trade clearing and settlement times. Banks have to set aside capital while they wait for transactions to be settled, so billions of dollars could be freed up for other uses if trade times go down to minutes from days or even weeks.
“Japan is on the forefront of cryptocurrency and fintech innovations, and banks are following the Financial Services Agency,” Kayamori said. “So from that we address all of our global customers from Japan.”
One of Asia’s largest banks has labeled bitcoin a “Ponzi scheme” riddled with hidden costs, joining a number of banks worldwide which have expressed several concerns over the cryptocurrency.
Speaking to CNBC on the sidelines of the ongoing Singapore Fintech Festival, group chief information officer and head of group technology and operations at DBS Mr David Gledhill said: “We see bitcoin as a bit of a ponzi scheme.” He noted that bitcoin transactions are not only costly and that “all the fees are hidden through crypto-mechanisms” as he flatly laid out the bank’s stance.
GOP TAX PLAN
Given its slender majority in the Senate, which it controls 52-48, the Republican party will need almost all of its lawmakers in the chamber to swing behind its proposed tax reforms for the legislation to go through. The coming weeks will be critical in determining whether the following key senators back the legislation.
Senator Ron Johnson — the first GOP senator to voice opposition to the current tax plan — said he’s encouraged that Republican leaders have been discussing his concerns that pass-through businesses would be treated unfairly.
Sen. Susan Collins on Sunday recited a list of concerns she had with the Republican tax bill barreling through the Senate, raising pressure on the party’s leadership to slow its progress and make changes to secure passage.
The Trump administration is banking on the Federal Reserve not to squelch any bump in economic growth from the Republican tax plan. If Congress passes tax cut legislation in the coming weeks, Fed policy makers may lift their rate projections for 2018 to four at their next meeting on Dec. 12-13, said Vincent Reinhart, chief economist at Standish Mellon Asset Management Co. and a former Fed official.
No one knows what the future of self-driving cars will look like, or how long it will take to get there. But every major player in the field is striking partnerships to be ready for the day when autonomous vehicles finally become mainstream.
That includes Uber, which on Monday announced a new deal with Volvo. Under the agreement, Uber plans to purchase as many as 24,000 self-driving Volvos once the technology is production-ready, putting the vehicles into its extensive ride-hailing network.
Uber is now steering into the skid of asset ownership by ordering tens of thousands of cars years in advance of potential demand. The company’s decision is a helpful reminder that even as a small number of investors have valued Uber at roughly $68 billion, they and the public still don’t know whether a future Uber will make money by continuing to be a middleman for drivers and riders and for other categories including restaurant orders.
In one respect, the news isn’t surprising. Uber and Volvo have already been working together for some time. Uber has been testing out prototype Volvo vehicles in Arizona and Pennsylvania for more than a year (albeit with a driver positioned behind the wheel, just in case). On the other hand, the timing does feel unusual—even if only for its reminder of the company’s desperate need to push forward in the self-driving car battle, all other issues aside.
FCC NET NEUTRALITY ROLLBACK
U.S. Federal Communications Commission Chairman Ajit Pai will propose vacating Obama-era net neutrality rules, according to a person briefed on the development that will hand a victory to broadband providers such as AT&T Inc. and Comcast Corp. that oppose the regulations.
The FCC’s plan for net neutrality is a familiar one in the Trump administration: Repeal, but don’t replace.
Federal regulators this week are expected to unveil their plans for reversing Obama-era rules that require internet-service providers to treat all web traffic equally, a move that could fundamentally reshape the internet economy and consumers’ online experience.
The changes, expected to be adopted at the Federal Communications Commission meeting in mid-December, would open the door to a wide range of new opportunities for internet providers, such as forming alliances with content firms to serve up their webpages or video at higher speeds and quality than those without such deals.
RATES, LIQUIDITY, SYSTEMIC RISK, BALANCE SHEETS
Over the past 13 years, assets in Chinese AMPs have swelled from almost nothing to $15 trillion in large part due to one key assumption: that investors would be made whole no matter what happened to the products’ underlying assets. Authorities are now moving to quash that belief amid concern that rampant moral hazard is distorting market prices and making the financial system vulnerable to crises. Yuan’s enduring faith in implicit guarantees suggests the government’s task won’t be easy.
It may ultimately require an AMP blowup for Chinese regulators to convince investors that they’re serious about the new rules, which are set to take effect in mid-2019. But a major product failure is risky: In a worst-case scenario, it could spark a destabilizing stampede out of AMPs, which have become a key source of funding for banks and other financial institutions. It’s not clear that’s a chance Beijing is willing to take, despite last week’s rhetoric.
“It’s very hard,” said David Loevinger, a former China specialist at the U.S. Treasury Department who now works as an analyst at TCW Group Inc. in Los Angeles. “You have to show people that there are no longer guarantees. The only way to show it is to force investors to take losses. They have to see it to believe it.”
Billionaire distressed debt investor David Martínez urged Venezuela’s struggling government to default on its bonds days before the country’s surprise announcement to restructure its obligations.
Mr. Martínez, who made his fortune buying cheap defaulted debt and selling it after the restructuring, met in Caracas with the country’s Vice President Tareck El Aissami and other members of the economic cabinet in late October, according to Venezuelan officials with direct knowledge of the matter.
The government sought Mr. Martínez’s advice as it was running out of money and overdue bond payments were piling up. Days after the meeting, President Nicolás Maduro went on state television to say he wanted to restructure the country’s debt. He appointed Mr. El Aissami, who the U.S. sanctioned for alleged drug trafficking, to lead negotiations. Mr. El Aissami denies the allegations.
Buybacks have not only fallen out of style on Wall Street. They are quickly becoming faux pas. Shares of companies that have bought back more than the average amount of their outstanding shares in the past year are trailing the overall market by the biggest margin in a decade. And the dip in investors’ enthusiasm for buybacks seems to be growing lately. The PowerShares Buyback Achievers ETF, which holds U.S. companies that have repurchased at least 5 percent of their shares in the past year, has dropped 2.5 percent in the past month. The S&P 500 Index in the same period is up slightly.
The decline in investor interest in buybacks is due in part to a drop in repurchases themselves. So it may not be a surprise that the boost these stocks are getting is falling as well. Buybacks are on pace to drop 21 percent this year to their lowest level since 2012. Vincent Deluard, a strategist at broker-dealer INTL FCStone Financial, says that the drop in buybacks was the result of what he says has been a bond bubble and ever falling interest rates. A lot of buybacks were funded with bond offerings. Now that rates have started to creep up a bit, fewer companies are repurchasing their shares.
After a recent dip, the pool of sovereign and corporate bonds trading with a yield below zero is back near $11tn, according to data from Bloomberg Barclays Indices. The $10.9tn figure includes notes and bonds in the benchmark global aggregate index as well as Bloomberg Barclays’ US, euro, UK and Japanese short-Treasury indices at the end of October.
This may well mark a top as the European Central Bank slows its pace of bond buying as the global economy shows signs of accelerating. For bond investors the big question remains: How long can inflation pressures remain moribund as labour markets tighten and economies gain altitude.
MACRO OP-EDS, INSIGHT, EVENTS AND TRENDS
Leonardo da Vinci has special cachet. What is striking about the Christie’s soiree in New York last week was not so much the $450m paid for his rediscovered Salvator Mundi but the prices fetched by everyone else.
Buyers forked out $46m for vermilion spirals from the Bacchus series by Cy Twombly, executed 12 years ago with a paint-drenched brush on a pole. Soothing sands called Saffron by Mark Rothko fetched $32m. The week’s haul at Christie’s and Sotheby’s topped $1.5bn, with Asian buyers snapping up Monets. Fernand Leger’s abstract Contrastes de Formes fetched $62m.
It screams late-cycle liquidity, recalling Japan’s impressionist fever in the late Eighties before the Nikkei collapsed and the bottom fell out of the art market.
There are, it seems to me, two supremely important things to acknowledge about current low volatility. The first is that the Vix provided no early warning of the great financial crisis. In other words it is a lagging indicator and simply a reflection of investor sentiment. Its readings sat comfortably alongside pre-crisis talk among economists and central bankers about “the great moderation”. Extreme complacency was apparent in both cases.
The second point concerns the so-called volatility paradox, or the fact that low volatility leads investors and traders to do things that make the financial system more fragile and vulnerable to crisis. We know this is happening for a variety of reasons, starting with the all-pervasive search for yield. In a world where almost everything looks expensive investors take on increased risk to acquire a given income stream, often from assets at which they looked askance earlier in the bull market.
What makes the search for yield different this time is that it can be more complex and opaque than in the past. Yield-enhancing strategies include selling deep out-of-the-money put options where the strike price is below the current price. Investors pocket the premium on selling such options in the hope that the underlying assets will not fall below the strike price. It is hard for financial watchdogs to ascertain how much of this is going on.
The current political crisis in Germany has global implications. If, as now seems distinctly possible, the end of the Merkel era is within sight, Europe will be in a new and dangerous situation.
The EU-optimists in Brussels and Paris will hope that a new German leader might inject some dynamism into the European project, ditching the cautious, incremental approach that Ms Merkel has displayed over the euro.
But, in fact, the opposite is more likely to happen. The current tenor of German politics suggests that a new chancellor in Berlin is far less likely than Ms Merkel to take bold risks for Europe. The spoilers in the current coalition negotiations are the Free Democrats, who are strongly opposed to visionary ideas for deeper European fiscal integration.
For that reason, the collapse of the coalition talks in Berlin is bad news for Mr Macron. In a recent speech on Europe at the Sorbonne, the French president laid out a series of ambitious ideas for the EU, including the creation of a European finance ministry, EU-wide taxes and a joint military force for overseas interventions. Yet for these ideas to have any chance of adoption, France needs a positive response from Germany. The failure to form a new German government means the response will now be indefinitely delayed, and will be more likely to be negative when it finally comes.
The implications outside the country are potentially as great as they are inside it. Germany has become a pillar of the postwar liberal order, a role that has become all the more central since the election of Donald Trump in the US last year, and Britain’s retreat from the global stage in the wake of Brexit.
A weakened centre in Berlin augurs badly. German politics have been pitched into a prolonged period of uncertainty. The future of the chancellor is also in doubt. For reformers in France and Germany who foresaw a rejuvenated alliance between Berlin and Paris in the wake of Emmanuel Macron’s election in France, providing fresh momentum towards greater eurozone integration, that is ominous. For members of the UK government, who hoped — probably unrealistically — that Ms Merkel would help to bang European heads together to secure a compromise Brexit deal, it may also be cause for anxiety.
The British government has two options. Either revoke the decision to leave the single market and the customs unions, the course of action I recommend though I doubt it will happen. Or accept the only deal the EU will offer: a standard trade agreement, with a few add-ons here and there, similar to the one that the EU recently concluded with Canada.
And no, there will be no such thing as single market access for financial services. And yes, there will be a hard border between Northern Ireland and the Republic. It will be the external border of the EU and the customs union.
Grave choices have to be made, but not many. People find it more comfortable to cling to delusions than to discuss the realities of a post-Brexit UK. Leaving the EU has more than just commercial implications: it renders the business model that the UK has pursued since the 1980s obsolete.
It is too late to hope that the City of London, by many measures the world’s leading financial centre and an economic engine for both the UK and Europe, could emerge unscathed from Brexit. The City, which generates tens of billions of pounds each year in tax revenues, will suffer relative both to its competitors and to how it would have performed without Brexit and probably in absolute terms as well. Harm is now unavoidable. The UK is suffering from heightened risk and the vagaries of its politics since the Brexit vote, including the unexpected outcome of this year’s election, have reinforced that perception. There is no status quo scenario: even if the UK was somehow to remain in the European Union after all, that would be disruptive too.
GDP growth is not the same as economic growth. Consider two factories that cost the same to build and operate. If the first factory produces useful goods, and the second produces unwanted ones that pile up as inventory, only the first boosts the underlying economy. Both factories, however, will increase GDP in exactly the same way.
Most economies, however, have two mechanisms that force GDP data to conform to underlying economic performance. First, hard budget constraints, which set spending limits, drive companies that systematically waste investment out of business before they can substantially distort the economy.
Second, there is a market-pricing factor in GDP accounting that when bad debts caused by wasted investment are written down, the value-added component of GDP and the overall level of reported growth are reduced.
In China, however, neither mechanism works. Bad debt is not written down and the government is not subject to hard budget constraints. It is the government sector that is mainly responsible for the investment misallocation that characterises so much recent Chinese growth.
The implications are obvious, even if most economists have been surprisingly reluctant to acknowledge them. Anyone who believes there has been a significant amount of wasted investment in China must accept that reported GDP growth overstates the real increase in wealth by the failure to recognise the associated bad debt. Were it correctly written down, by some estimates GDP growth would fall below 3 per cent.
Historical precedents suggest the potential magnitude of this overstatement. Japan’s economy in the 1980s, for example, had distortions that resemble those of China today. Although not nearly as extreme, Japan too suffered from a very low consumption share of GDP and an overreliance on investment that, by the 1980s, had veered into substantial misallocation.
The centralisation of power around Xi Jinping at the apex of a strengthened party — a substitute for the institutionalisation of rules, constraint and consensus — means there will be more dogma than debate in policymaking.
To oppose the president will be to oppose the party. Binary outcomes mean that, when something goes wrong, market risks will be higher and blame will lie firmly at Xi’s feet. Investors always worry about politics but concerns are greater in the absence of sound institutions.
Xi Jinping’s China will probably be the antithesis of reform and opening up. There is no sign that the government intends to address its deeply conflicted roles as owner, participant and regulator in the economy and finance. Investor interests will always be subordinate.
More generally, from behind a wall of controls on outward capital movements, China is showcasing to the world its state intervention and authoritarian model. From the other side, we can see strongly controlled capital markets, a currency against which foreigners can’t build major claims, and a limited appetite for voluntary deleveraging.
Xi Jinping’s China will have to resolve a fundamental contradiction between rising economic heft — and increasing political illiberalism — at a time of significant financial volatility.
As the saying goes: everyone complains about trade, because no one gets a vote on technology. Although technology would appear to have a far bigger effect than trade on job churn, the evidence is far from clear on the exact relative contributions — and, indeed, given the role of technology in increasing international competition, whether they can conceptually be separated.
Amid such uncertainty, any attempt directly to compensate losers is inevitably going to get caught up in tortuous disagreements and be subject to political lobbying. Meanwhile, given the fierce opposition of much of the US labour movement to trade deals, it would appear that its role in buying off political opposition has somewhat failed.
The best response to job churn is a Nordic-style comprehensive welfare and education system that cushions the blow of being laid off for whatever reason and helps with training and job searching to re-enter employment. True, this is considerably harder than setting up a standalone compensation scheme. Because of the small size of the EU budget, it cannot reasonably be delivered at an EU-wide level in Europe; for reasons of ideology, it faces fierce opposition in the US. But surely it is better to press as far as possible in that direction rather than labelling one set of workers as losers and hoping that buying them off is going to build wider support for a globalised economy.
We shouldn’t be surprised by the flattening yield curve. That is what typically happens during tightening cycles and there was no reason to think it would not be the case this time. Nor do I think that the flattening to date is warning of a recession just yet. It is the inversion of the yield curve that signals recession (this is especially the case if the Fed continues to tighten after the yield curve inverts). For example, the curve was extremely flat during the second half of the 1990s, a stretch of high growth. Only late in that period did the yield curve invert, finally foreshadowing the 2000 recession.
Still, I doubt the Fed would have expected it to flatten this much, foreseeing instead more of an upward shift of the entire yield curve. And the failure of such an upward shift to materialize has policy implications.
In six months of interviews in South Korea and Thailand, The Washington Post talked with more than 25 North Koreans from different walks of life who lived in Kim Jong Un’s North Korea and managed to escape from it. In barbecue restaurants, cramped apartments and hotel rooms, these refugees provided the fullest account to date of daily life inside North Korea and how it has changed, and how it hasn’t, since Kim took over from his father, Kim Jong Il, at the end of 2011. Many are from the northern parts of the country that border China — the part of North Korea where life is toughest, and where knowledge about the outside world just across the river is most widespread — and are from the relatively small segment of the population that is prepared to take the risks involved in trying to escape.
In talking about their personal experiences, including torture and the culture of surveillance, they recounted the hardships of daily life under Kim Jong Un’s regime. They paint a picture of a once-communist state that has all but broken down, its state-directed economy at a standstill. Today, North Koreans are making their own way, earning money in an entrepreneurial and often illegal fashion. There are only a few problems in North Korea these days that money can’t solve.
The Industrial Revolution is arguably the most important economic event in world history, and successful industrialisation continues to elude many developing countries today. This column argues that an important driver of industrialisation in England was the development of markets that allowed division of labour, innovation and, ultimately, social change. Institutional change, rather than advantageous geography, is the main driver of successful industrialisation in England.
Corless and his team are engaged in a project that falls somewhere between toxic-waste cleanup and alchemy. They’ve devised a process that allows them, in effect, to suck carbon dioxide out of the air. Every day at the plant, roughly a ton of CO2 that had previously floated over Mt. Garibaldi or the Chief is converted into calcium carbonate. The pellets are subsequently heated, and the gas is forced off, to be stored in cannisters. The calcium can then be recovered, and the process run through all over again.
“If we’re successful at building a business around carbon removal, these are trillion-dollar markets,” Corless told me.
This past April, the concentration of carbon dioxide in the atmosphere reached a record four hundred and ten parts per million. The amount of CO2 in the air now is probably greater than it’s been at any time since the mid-Pliocene, three and a half million years ago, when there was a lot less ice at the poles and sea levels were sixty feet higher. This year’s record will be surpassed next year, and next year’s the year after that. Even if every country fulfills the pledges made in the Paris climate accord—and the United States has said that it doesn’t intend to—carbon dioxide could soon reach levels that, it’s widely agreed, will lead to catastrophe, assuming it hasn’t already done so.
Carbon-dioxide removal is, potentially, a trillion-dollar enterprise because it offers a way not just to slow the rise in CO2 but to reverse it. The process is sometimes referred to as “negative emissions”: instead of adding carbon to the air, it subtracts it. Carbon-removal plants could be built anywhere, or everywhere. Construct enough of them and, in theory at least, CO2 emissions could continue unabated and still we could avert calamity. Depending on how you look at things, the technology represents either the ultimate insurance policy or the ultimate moral hazard.
Look: no. Skedaddle is not going to eliminate Yelp or Facebook or tipping. It’s not going to be “the first cryptocurrency for real world use.” But at some level they’re not wrong! One day 20 years from now we’ll wake up and all of our interactions and performance will be tracked on the blockchain and will directly determine our income and socioeconomic status, and on the one hand we’ll get pretty good customer service, but on the other hand we’ll be terrified all the time. It is the logical endpoint of the “gig economy.”
The thing is that this omniscient blockchain of terror will be run by Facebook, not Skedaddle. If you just come out and say that your mission is to build a dystopia of economic precarity and constant surveillance, then you do not have the soft skills to actually carry out that mission. (Never mind if you say that your mission is “to completely take down Yelp and Facebook reviews, while completely eliminating tipping.”) If you say that your mission is “to make the world more open and connected,” then you have the ruthlessness, and the facility with euphemism, to actually do it.
To reap riches in Silicon Valley, entrepreneurs and venture investors typically had to wait until their startup was acquired or went public. Now, a third option is thriving—private sales of major stakes.
Wealthy investment firms are snapping up stock in some of the most highly valued startups by buying positions from early shareholders. The deals, known as secondary sales, are allowing employees and investors to cash out of some stock while the companies avoid the public markets, bringing an injection of funds to many in Silicon Valley despite a dearth of tech IPOs.
Armies of robots are spreading throughout factories and warehouses around the world, as the accelerating pace of automation transforms a widening range of industries.
And it is not just in advanced countries but in emerging economies as well where machines are a growing force, with global sales of industrial robots increasing by 18 per cent to a record $13.1bn in 2016, according to research by the International Federation of Robotics, IFR.
These groups are benefiting from mounting demand for sophisticated machines that no longer just weld car bodies and lift heavy loads, but also perform complex functions from electronic component production to putting chocolates into boxes. Another trend is the increasing range and type of robot, as they vary from flexible mechanical limbs to smart machines that can work alongside humans. Collaborative robots, or cobots, are specifically designed to interact with people.
“Generally, it is about cost arbitrage,” says Moshe Vardi, a professor at Rice University in Texas. “If the marginal hourly cost of an industrial robot is lower than the hourly cost of a human worker and the robot have the capability to do the job, then it makes sense economically to automate.”
Countries with the lowest unemployment rates tend to have the highest density of robots, he adds. At the other end of the spectrum are nations ripe for greater adoption. Despite being the largest robot market, China is below the global average density with just 68 robots per 10,000 manufacturing workers.
CENTRAL BANKS & MONETARY POLICY
Anyone wondering whether there’s still a price to pay for political risk need look no further than Turkey. The extra returns investors demand to buy the country’s assets are among the highest for developing nations, surpassing the premia for politically troubled peers such as Brazil, South Africa and Mexico. And the gap widened in recent days, after Turkish President Recep Tayyip Erdogan hit out at the central bank’s rate policy, reviving concern over government meddling in monetary decisions.
That drove the nation’s bonds lower, pushing the yield on the benchmark 10-year debt to a record high on Monday, while the Borsa Istanbul 100 Index posted the biggest four-day loss in local currency terms since the aftermath of a failed coup last year. The gauge’s valuation relative to emerging markets slid to the lowest level since April 2009.
Australia’s central bank signaled less confidence in the outlook for fatter pay packets, despite faster full-time hiring, suggesting interest rates may remain lower for longer, in minutes of its November board meeting.
POSITIONING, INFLECTION, MARKET CALLS
The so-called 21 Club, which includes U.S. tech stocks like Apple, Facebook and Amazon and blue chips like Visa, Home Depot and McDonald’s, has accounted for more than half (50.7%) of the Standard & Poor’s 500 stock index’s 17.2% total return this year, according to S&P Dow Jones Indices data through Nov. 14. Total return includes the increase in a stock’s price and its dividend payouts.
Chilean stocks posted their worst rout in six years and the peso tumbled after surprise election results dashed expectations billionaire Sebastian Pinera would easily win next month’s presidential run-off.
Over the next year, the assets and debts of about 50 of India’s biggest defaulters may be sold off by court-appointed professionals, in a process in which banks are expected to take deep haircuts on their loans. The companies’ borrowings total an estimated 3 trillion rupees ($46 billion), close to one-third of total recognized bad loans in India’s banking system.
“The whole insolvency and bankruptcy process is a once in a lifetime event,” said Kotak, the managing director of Kotak Mahindra Bank Ltd., in an interview. “Through this you could actually get assets that would give disproportionate returns for long periods of time.”
COLOR, EARNINGS, SENTIMENT, VALUATIONS
Tencent on Monday punched through a stock market capitalisation of $500bn, becoming the first Chinese technology company to join an elite group dominated by US groups and putting it within spitting distance of Facebook’s $522bn.
The social media group is a fitting champion for 21st century China. Founded by a low-profile engineer and privately owned, the company’s services infiltrate every aspect of citizens’ lives: chatting, eating, paying, gaming and music. More than half of the 980m users of its WeChat platform spend over 90 minutes on the app every day.
Little known outside China, Tencent dominates its home turf thanks in part to Beijing’s block on Facebook. While its international forays have been lightweight — mainly aimed at Chinese tourists going to Las Vegas and other hotspots — it has bought stakes in big US tech names including Snap, owner of messaging company Snapchat, and electric carmaker Tesla.
DEALS, MERGERS, IPOs, LBOs, RESTRUCTURINGS
Chip making is increasingly a competition between ever-larger companies, a trend that was highlighted by the announcement on Monday that Marvell would take over Cavium in a $6 billion deal. The deal would create an industry giant with annual revenue of $3.4 billion, and comes amid fears that a rush of consolidation has left the chip industry too heavily concentrated.
Mergers and acquisitions announced in the U.S. in November hit a near-record $200 billion as CEOs in many industries join forces to fend off competition from Amazon, Facebook, Google and Netflix.
FOREX, CRYPTOCURRENCY, EXCHANGE IMPACTS
Australia’s dollar is set to fall to the weakest since the aftermath of the global financial crisis in 2009 as it loses its standing as a high-yielding currency, according to Morgan Stanley.
The Aussie will probably drop to 65 U.S. cents in 2019 as the nation’s benchmark rate will eventually go below the Federal Reserve’s, said Hans Redeker, the London-based chief global currency strategist at Morgan Stanley, the most bearish forecaster of the currency.
REAL ESTATE, HOUSING, REITS, COMMERCIAL
The blistering pace of apartment building in the U.S. this year is showing signs of throttling back. While the supply of apartments and condominiums has been increasing as builders responded to rising demand for rental units, the number of projects under construction has leveled off after reaching a 42-year high in February and vacancy rates have edged up. Dodge Data & Analytics projects starts of multifamily structures to fall 8 percent in 2018.
An unidentified buyer paid HK$132,000 ($17,000) per square foot for a luxury flat in Hong Kong’s exclusive Peak neighborhood, making it Asia’s most expensive apartment by area, according to property firm Knight Frank LLP.
HEDGE FUNDS, PRIVATE EQUITY, MONEY MGMT
Analyst research is predicted to cost a median of $10m for every $10bn of equity assets an investment manager runs, according to a study that showcases the large bills facing fund houses when new European rules come into force.
Asset managers, banks and brokers are locked in fierce negotiations over the cost of investment research ahead of the introduction of the far-reaching Mifid II rules in just over six weeks. The rules will force asset managers to split out the cost of research, which is used by portfolio managers to help make investment decisions, from the cost of buying and selling securities.
ENERGY CRUDE OIL, OIL SANDS, SHALE
Natural gas is gushing out of West Texas, a byproduct of frenzied drilling for oil. That is a problem for energy producers, who are running out of places to send all of it.
OPEC has an Iraq problem: the group’s second-biggest exporter is lurching between quota busting and production-crimping crisis, clouding the policy-making picture as ministers decide how long they need to extend output curbs.
Investors in Saudi Arabia’s stock market are more concerned with political headlines coming out of Riyadh than oil prices. “Recent geopolitical issues make retail investors more cautious,” said Jassim Al-Jubran, an equities analyst at Aljazira Capital in Riyadh. “Even with the recent increase in oil price, that has not been enough to increase appetite.”
ENERGY RENEWABLES, NUCLEAR
China, the world’s biggest carbon emitter, is poised to install a record amount of solar-power capacity this year, prompting researchers to boost forecasts as much as 80 percent.
Remember the days when you could just bring a bottle of water from home to the plane? The days before airport security, which allows you to carry liquids only in containers of 3.4 ounces or less?
Until recently, your only options were a fountain, probably with low water pressure, or a $5 bottle of water from the cafe near your gate. But now, a growing number of airports have begun to install bottle-filling stations for thirsty travelers near bathrooms and water fountains. The easy-to-use stations are part of an effort to find more sustainable ways to manage crowds (and the empty bottles they leave behind) and to improve airport amenities. Best of all, the water is free.
The installations are already at smaller airports from Portland, Me., to Portland, Ore., and at major hubs, including Atlanta, Chicago, Denver, Philadelphia and San Francisco. The water is filtered in some locations.
BREXIT, SCOXIT, LONDON, UK ECONOMY
Amsterdam and Paris won the right to host two EU agencies that must leave London because of Brexit after an extraordinary ministerial meeting in Brussels that left both results decided by drawing lots from a fishbowl.
Theresa May won ministerial backing on Monday for her plan to break the deadlock in Brexit talks next month, but Eurosceptic colleagues warned that any increase in the UK’s “divorce bill” offer to at least €40bn must be conditional on it securing a transition deal and a good trade agreement with the EU.
Prime Minister Theresa May on Monday announced 4 billion pounds of spending on research and development and regional growth strategies, setting out plans to help the economy grow after Brexit.
European Union chief Brexit negotiator Michel Barnier told the U.K. to come up with a solution for the Irish border, making clear that an improved offer on the divorce bill might not be enough to unblock talks.
Paris and Amsterdam have been chosen as the new homes for two prized EU agencies, after ministers in Brussels resorted to picking names from a hat to decide where the two organisations and their combined 1,000 staff should move after Brexit.
In its ascent to becoming the world’s first “ultra-aged” society, Japan has arrived at an inflection point, where criminals past the age of 65 are more likely to reoffend within two years of release from prison than their younger counterparts.
The government figures have emerged just a few weeks after police in Osaka cracked the case of the notorious “Ninja of Heisei” — a mysterious, masked burglar who made various agile escapes after more than 250 break-ins over eight years. The man arrested, who acknowledged that age had contributed to his capture, was 74.
The annual white paper on crime, published last week by Japan’s Justice Ministry, reflects official concern over rising criminality among the country’s growing ranks of retirees. More than a quarter of Japan’s shrinking population is now aged over 65, and that proportion is expected to reach a third by 2050.
DACA, TRAVEL BAN, IMMIGRATION, WALL
The decision set off immediate dismay among Haitian communities in South Florida, New York and beyond, and was a signal to other foreigners with temporary protections that they, too, could soon be asked to leave. About 320,000 people now benefit from the Temporary Protected Status program, which was signed into law by President George Bush in 1990, and the decision on Monday followed another one last month that ended protections for 2,500 Nicaraguans.
GEOPOLITICS, CRIME, TERRORISM
Donald Trump has put North Korea back on a US list of “state sponsors of terrorism” after almost a decade, as his administration intensifies efforts to convince Pyongyang to abandon its ballistic missile and nuclear weapons programmes.
President Xi Jinping’s special envoy met with North Korean officials in Pyongyang as Washington presses China to rein in its neighbor’s nuclear weapons and missile programs.
The prosecutor at the International Criminal Court has requested permission to investigate US military personnel and members of the CIA over allegations of war crimes in Afghanistan.
Fatou Bensouda also asked for authorisation from the ICC’s judiciary to investigate alleged crimes against humanity and war crimes by the Taliban and militant Haqqani network and war crimes by Afghan national security forces.
The Trump administration has imposed sanctions on what the Treasury Department describes as a “large-scale” Iranian counterfeiting ring that it says is run by the Islamic Revolutionary Guard Corps and potentially worth hundreds of millions of dollars.
The group doesn’t bring up the Russia probe at all. But they have a lot to say about the opioid crisis, and health care.
At dinner at a lobbying hotspot with a powerful tech CEO, the national security adviser said the president has the intelligence of a “kindergartner,” according to sources.
The Breitbart chairman along with Kellyanne Conway and others urged Trump to keep his mouth shut about the embattled GOP nominee. Trump was happy to keep quiet.
One of President Trump’s golf courses paid back more than $158,000 to Trump’s charitable foundation this year, reimbursing the charity for money that had been used to settle a lawsuit against the club, according to a new tax filing. The March 2017 payment came after New York Attorney General Eric Schneiderman, a Democrat, launched an investigation into how the Donald J. Trump Foundation collects and disburses funds. The inquiry is ongoing.
RETAIL APPAREL, SPECIALTY, DINING, BIG BOX
Instead of copying Amazon.com Inc.’s playbook, retailers such as Wal-Mart Stores Inc. and Target Corp. are coming up with new tricks to maximize sales ahead of Black Friday.
Some are offering earlier discounts to attract crowds before competition heats up Thursday, and emphasizing products not available on Amazon. Others are rewarding their most loyal customers or marking store prices lower than those online.
MEDIA, CABLE, SPORTS, ENTERTAINMENT
A social media star, the former labor secretary extends his critique of big money’s influence on politics with a new documentary, “Saving Capitalism.”
The Dallas Cowboys owner wanted assurances that all owners would get to vote on the final terms of Roger Goodell’s contract extension.
There are compelling — and often contradictory — justifications for placing certain games with each of the 200-plus CBS affiliates, but generally it comes down to predicting which game will draw the biggest rating. Strategy, Correa dismissed, is “a fancy word for picking the best games.”
But Correa and Wood can’t put the games just anywhere. There are myriad N.F.L. rules, broadcast restrictions and requests from local CBS affiliates influencing the process. They must consider esoteric sports-broadcast issues like home blackouts, flexing, cross flexing, prime flexing, constants, mandatory pullouts, primary markets, secondary markets and protected games.
As part of a settlement with a shareholder, 21st Century Fox promised to address the culture of a workplace jolted by sexual harassment allegations.
AUTOS, ELECTRIC, SELF-DRIVING
Tesla Inc.’s superstar chief executive Elon Musk unveiled a futuristic looking electric semi truck last week that surpassed analyst expectations and weighed heavily on the shares of truck and truck component makers.
But as analysts sifted through the finer points of Thursday’s glitzy announcement, the focus shifted to the questions that remain unanswered. For all of Musk’s talk about the cost advantages of the electric big rig over traditional rivals, Tesla didn’t disclose the price of the truck that is expected to go into production in 2019, nor did it say how much the truck weighs — both key considerations for a commercial buyer.
AEROSPACE, MILITARY & DEFENSE
The Air Force’s classified next-generation bomber program began with a solid plan for meeting cost goals and warfighting requirements, which include an option to fly unmanned missions, according to a newly declassified audit from the Pentagon’s inspector general.
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