The Japan That Can't Save

♠ Posted by Emmanuel in at 12/30/2014 04:26:00 PM
Japanese seniors do exercises and draw down savings.
Modern Japanese have a reputation for being polite to a fault. Despite being eliminated from the group stages of this year's World Cup, Japanese football astounded the world by cleaning up after the national team's (rather disastrous) matches. Yet always apologizing for slights the rest of us hardly notice and very rarely saying "no" to anyone has its drawbacks. In 1989, LDP bigwig Shintaro Ishihara and Sony chairman Akio Morita dropped a political-economic bombshell on this image of a reticent Japan with their book The Japan That Can Say No. Calling for equality with the US on the world stage, it certainly recalls Chinese political and business leaders now calling for the same.

At the end of the 2014, we are now being bombarded with yet another astounding blow to the global image of Japan. For decades and decades, they were a nation of savers. In turn, all these savings were plowed into investing into the nation's gargantuan export machine. In recent years, of course, Japan has run chronic trade deficits chiefly due to its ban on nuclear power forcing it to import much energy. It has also shifted much production from high-cost Japan to lower-cost manufacturing sites in the Asia-Pacific via "Factory Asia." Chronic trade deficits have thus led to a sizable current account deficit. Moreover, personal savings have been on the wane as aging Japanese draw down on their savings to sustain them during their retirement years. Add in the super-sized budget deficits the government is deliberately running via Abenomics and what you have is Japan's first-ever negative savings rate:
Japanese drew down savings for the first time on record while wages adjusted for inflation dropped the most in almost five years, highlighting challenges for Prime Minister Shinzo Abe as he tries to revive the world’s third-largest economy. The savings rate in the year through March was minus 1.3 percent, the first negative reading in data back to 1955, the Cabinet Office said. Real earnings fell 4.3 percent in November from a year earlier, a 17th straight decline and the steepest tumble since December 2009, the labor ministry said today.
The dissaving Japan...the dissolute Japanese?! If we were talking about the US then nobody would raise an eyebrow, but Japanese is a whole 'nother ballgame. Contrast Japan's current situation with that in the mid-Seventies:
The savings rate, which the Cabinet Office calculates by dividing savings by the sum of disposable income and pension payments, peaked at 23.1 percent in fiscal 1975. As Japan’s population ages, its growing ranks of elderly are tapping their savings, according to the Cabinet Office. Consumers also ran down savings to make purchases ahead of a sales tax-increase in April, the first since 1997.

The report offers perspective on a debate of decades ago over Japan’s trade surplus with the U.S., which caused periodic bouts of tension between the military allies. While respective savings rates have moved in opposite directions, the U.S. still had a $56 billion deficit with Japan in the first 10 months of 2014, U.S. government data show.
The export-led Japan we knew of massive trade surpluses, high savings and high investment has truly bitten the dust. As its population dwindles due to depopulation, so does the image we hold of it from long ago. Japan Inc, we hardly knew ye:
Japan had the highest household saving rate in the OECD in the 1960s until it fell to the lowest. After all, an aging population draws down savings and Japan is the fastest-aging country in the world; its population has been shrinking for a decade...

Since their debt crisis in the early 1990s, the Japanese have been reluctant to borrow on a large scale. So, unless wages rise sustainably, it's hard to see how household spending can. Without more domestic demand, firms are reluctant to raise wages and invest, which is why they still hold substantial cash. 
As the saying goes, be careful what you ask for.

How the Pirate Bay Was Dismembered

♠ Posted by Emmanuel in , at 12/27/2014 01:30:00 AM
The Pirate Bay folks go to jail; the site went to the big cloud server in the sky.
In the interest of, ahem, academic research, I've noticed that what was once one of the world's largest torrent sites has been inoperational for two weeks now. The Pirate Bay, we hardly knew ye. Whatever your views are of torrent sites, it is always interesting to follow the cat-and-mouse game between the authorities--usually Western trade or intellectual property agencies acting on behalf of copyright holders--and the torrent sites. So the Pirate Bay is (was?) one of the largest torrent trackers. That said, there are literally dozens more out there which feature largely the same content. Why is it, then, that the Pirate Bay has succumbed rather easily? After all, aren't the Swedes a bunch of libertarian, Julian Assange-loving folks?

On 9 December, Swedish authorities mounted a rather large raid on the Pirate Bay's facilities:
However, over in Sweden authorities have just confirmed that local police carried out a raid in Stockholm this morning as part of an operation to protect intellectual property. “There has been a crackdown on a server room in Greater Stockholm. This is in connection with violations of copyright law,” read a statement from Paul Pintér, police national coordinator for IP enforcement. Police are staying quiet on the exact location of the operation and the targets involved but the fact that the national police IP chief is involved at this early stage suggests something sizable.

In addition, expert file-sharing case prosecutor Fredrik Ingblad has commented on the raid, further adding weight to the incident. “There were a number of police officers and digital forensics experts there. This took place during the morning and continued until this afternoon. Several servers and computers were seized, but I cannot say exactly how many,” Ingblad told SR.
Some news from a few months back suggested the Pirate Bay acquired a greater degree of insulation from the authorities by migrating to cloud servers. Obviously, we now know that was not really the case. There has been a fairly large international dragnet to detain those affiliated with the Pirate Bay over the past few years. In terms of scale and scope, it strikes me as the cyber-equivalent of the Israeli intelligence agency Mossad tracking down and terminating every Palestinian believed to be with the Black September group that kidnapped Israeli athletes during the 1972 Munich Olympics, but I digress...
One by one the key players behind The Pirate Bay have been captured by police and forced to complete jail sentences previously determined by Swedish authorities. The most recently detained was Fredrik Neij, a key player in the operations of The Pirate Bay right from the very early days of the site.

After realizing that his fate in Sweden involved a 10 month jail sentence, Neij fled to Laos in Asia where he lived until recently with this young family. He traveled from Laos into bordering Thailand on many occasions but last month his luck ran out. On November 4, immigration police announced that Neij had been detained while crossing the border into Nong Khai, a city in North-East Thailand. What followed was a very public press conference in which a bewildered looking Neij was paraded before the media while flanked by several officers.
To no one's real surprise, the powers-that-be that have instigated, ah, tracking down the nefarious (or heroic depending on your point of view) TPB folks were major US media conglomerates:
But while the rest of the world had to wait until November 4 to hear the news, leaked emails obtained by TorrentFreak show that the Hollywood studios knew about things well in advance. In an email dated the day before Neij’s arrest was made public, the MPAA advised chiefs at Disney, Paramount, Sony, Warner Bros, NBC Universal and FOX of the Swede’s arrest. But things went deeper than that.

Already there had been rumors in Thai media that “U.S. movie companies” had hired a law firm to track down Neij and that a house on the island of Phuket plus a bank account containing five million baht ($153,000) had been discovered. Emails seen by TF confirm the MPAA’s involvement, but also that they didn’t want that noticed in public.
What are the lessons for torrent sites here based on the Pirate Bay's example? I think the most obvious one is that having servers located in the West is just plain stupid. Even in Sweden where they are relatively relaxed about IP and copyright--Swedes are generally laid-back people--American pressure likely resulted in the major action against the Pirate Bay's facilities. Kickass Torrents with its Somali domain notwithstanding, moving one's top-level domain (TLD) to exotic places like Sint Maarten or Ascension Island doesn't seem to help that much.

Since the Pirate Bay episode has put into question the ruse of moving to a "cloud server," I guess two possibilities remain: First, you can try to hide the location of these servers as best as you can. Witness the private tracker site Demonoid being resurrected when I thought it had bitten the dust a few years ago. True, activity hasn't been what it was before the long closure, but hey, it's still there and that counts for something. Second, you can base your servers where the long arm of American law can't reach you. Given Russia's "New Cold War" with the West, the irony of it all is that sites like with much of its tracked content being served up to foreigners will have staying power. Sure you may be hit by the odd Ukranian DDOS attack, but those things usually blow over quite quickly.

Make no mistake: even in the so-called "digital age," there is no "death of distance" as geography still matters--for torrent sites, at least.

2014's Worst 'Currency' is Bitcoin; Its Best Surprises

♠ Posted by Emmanuel in ,,, at 12/24/2014 09:13:00 AM
I've been following currency gyrations in 2014 with great interest since their movements do correlate with internal and external disturbances related to wider economic phenomena and geopolitical events. To no one's surprise, Russia's ruble and Ukraine's hryvnia have followed each other to near-oblivion. A while ago, I also explained why I believed Bitcoin was a dud while Apple Pay held out much more hope for becoming a "mainstream" form of money. Oh, if only I had tracked it more closely.

At year-end, the world's three worst-performing monies are, (3) the Russian ruble, (2) the Ukrainian hryvnia, and, taking the cake--(1) the hapless Bitcoin. Bloomberg charts don't lie:

The accompanying write-up offers all she wrote:
The digital currency peaked at a value of $1,130 just over a year ago. Its plunge of more than 56 percent in 2014 makes it the world's worst performing currency this year, according to Bloomberg, which tracks 175 foreign-exchange values...

At a current value of about $326, Bitcoin isn't dead, yet it may be mortally wounded. The Dec. 20 sentencing of Charlie Shrem, one of the digital currency's most vocal cheerleaders as vice-chairman of the Bitcoin Foundation and chief executive of an exchange called BitInstant, to two years in prison for illegal money transfers doesn't help.

While innovation should always be encouraged, Bitcoin isn't yet fit as a place for orphans and widows to shelter their nest eggs -- although there are admittedly plenty of gold bugs who would say the same about fiat currencies.
I hope to explore some of the reasons why I believe that Bitcoin is another victim of (likely short-lived) dollar strength, but that's a topic for another post. Anyway, let's try to forget about the Eastern European mess and focus on the magic of Christmas since others' currencies have done rather better. Do you believe in magic? The world's best-performing currency of 2014 is, of all things, the Somali shilling:
Here’s a pecuniary peculiarity to rival Bitcoin – the world strongest currency over the past 12 months belongs to a small, war-torn African state without foreign currency reserves or any discernible monetary policy and a central bank of only three years’ standing. Yet the Somali shilling, Somalia’s official currency, has overcome such disadvantages to appreciate against the US dollar by just under 60 per cent since March last year, becoming the strongest among global 175 currencies tracked by Bloomberg. Its surge has been so pronounced that the second most robust currency over the same period – the Icelandic Krona – could only manage a measly 10.2 per cent rise.

The key chart is above even if it's a bit dated. Note that its direction is opposite to the one above since it's expressed in USD/SOS terms. That is, a falling exchange rate means a strengthening Somali shilling. It all reminds us that issuing fiat currency is a confidence game--one that Somalia is winning against all odds as it regains a very slight semblance of normalcy (i.e., statehood) while such normalcy flees from Russia and Ukraine:
The key lesson, though, is that money remains at heart a confidence trick. Minor things, like being backed by a country or countries, being minted by a government, and having a physical form you can put in your pocket, still matter. All of which could come into sharp focus the day hackers reduce our checking-account balances to zero, the financial system crashes into chaos and the fragility of the world's banking infrastructure is laid bare for all to see. Let's hope 2015 isn't the year when we find out that zeroes and ones in a computer aren't really money.
In a few more hours, Christians will celebrate the birth of the savior. Make no mistake: there is a long list of developing world currencies that need "saving" in the coming year.Former Soviet bloc nations have it especially bad so those Orthodox churches should be packing 'em in the pews with those wishing for divine (currency) intervention.

From New Cold War to Trade War: Russia at the WTO

♠ Posted by Emmanuel in , at 12/23/2014 11:57:00 AM
Well don't you worry about the situation...
To paraphrase Carl von Clausewitz, trade war is Cold War by other means. Everything old is new again in international relations. This hackneyed analogy got going when Mikhail Gorbachev, last leader of the Supreme Soviet, recently declared the breakdown in Russia-Western relations as indicating the beginnings of (yawn) a New Cold War. Despite being no particular fan of Vladimir Putin, Gorbachev believes that American actions have exacerbated tensions to such a point by "calling the shots in everything" and denying Russia any say in political-economic matters. (Personally, I believe it's Russia believing it can play power politics and finding out that the West has its number at every turn.)

Just when you thought American Russia-bashing was done at least for 2014, the US Trade Representative has just released its annual report on Russian trade practices at the WTO. The USTR is required by law to make an annual appraisal of Russia's trade practices after it acceded in 2012:
This Report on Russia’s Implementation of the WTO Agreement is the second annual Report prepared pursuant to section 201(a) of the Russia and Moldova Jackson-Vanik Repeal and Sergei Magnitskiy Rule of Law Accountability Act of 2012 (P.L. 112-208). This provision requires the U.S. Trade Representative not later than one year after the United States extends permanent normal trade relations (PNTR) to the products of Russia, and annually thereafter, to submit a report to the Committee on Finance of the Senate and the Committee on Ways and Means of the House of Representatives assessing the extent to which Russia is implementing the “WTO Agreement”
The Magnitskiy Rule is essentially a holier-than-thou tool for American drone-striking Guantanamo Ghraibers to bash Russia over "human rights" abuses, but I digress. Fortunately for Russia's critics, this reporting requirement has given another venue for the US to bash Russia over its perceived violations of its WTO commitments: 
In the first year of Russia’s WTO membership, there were encouraging signs that Russia would continue its integration into the global trading community and become a constructive WTO Member. However, into the second year of Russia’s WTO membership, that hope diminished. Russia’s use of unjustified and retaliatory trade measures against many of its neighbors, as well as against the United States, rejects the core principle of open trade based on the rule of law that sustains the WTO.

In addition, many of Russia’s protectionist tendencies appear to have gained momentum. Although the United States has restricted its bilateral engagement with Russia as a result of Russia’s violations of Ukraine’s sovereignty and territorial integrity Ukraine, we have continued, and will continue, to remind Russia of its WTO commitments, and the benefits to Russia and to other WTO Members of Russia complying with those commitments. 
The odd thing is that the US admits that it has restricted trade and investment ties with Russia over sanctions, yet still encourage it to honor such ties with other countries it has more "normal" relations with. Go figure. To me, this report is nothing but a 54-page "bash Russia at the WTO" effort with no real constructive element to it. After all, if Russia so flagrantly violates its WTO commitments, why not kick it out altogether? As it so happens, plans to do just that are being mooted:
Russian sanctions against the EU and other countries violate the rules of the World Trade Organization and could provide the reason for Russia’s expulsion, the Polish Minister of Agriculture Marek Sawicki said in a interview with Gazeta Wyborcza, reports Ukrainska Pravda, August 8.

“Russia does not respect international agreements when it believes there is a threat to its interests. A week ago we did a lot of work designed to resolve the situation with the banning of Polish fruit and vegetables, which violated the WTO agreements. We did not expect that Russia would move further. The ban on all exports from the EU — this is a large-scale violation,” he said.

According to Sawicki, Russia can be punished for these export bans. “These massive violations by Russia are sufficiently large to threaten it with expulsion from the WTO,” he said.
I wonder how Gorbachev would respond to Russia being kicked out of the WTO given his "New Cold War" schtick. Make no mistake: as bad as political-economic relations are at the moment, they can definitely get worse. No country has ever been kicked out of the WTO, but Russia would be my leading contender for that dubious distinction.

Macau's Evolution: Life Beyond Gambling

♠ Posted by Emmanuel in , at 12/22/2014 09:03:00 AM
Xi says it's time for the shifting Sands.
By now everyone is aware that Macau is by far the world's largest gambling destination, dwarfing Las Vegas in terms of gaming revenues. Las Vegas only earns one-seventh of its revenues at this point. Yet, for all this success in attracting gamblers--high-rollers especially--there are downsides. The recent crackdown on PRC officialdom using state funds to gamble in Macau, initiated by President Xi Jinping, has resulted in a rather severe deterioration in the fortunes of casino operators in Macau? How severe, you ask? Try wiping out $75 billion in market capitalization, for starters:
Xi, who arrived today to mark the 15th anniversary of the former Portuguese enclave’s return to Chinese rule, is the man responsible for the two-year campaign against corruption in China, scaring away high rollers who have helped make Macau the world’s largest casino gambling hub and wiping out $75 billion of casino operators’ market value -- bigger than the entire economy of Luxembourg.

Macau, half of the size of Manhattan and the only place in China where casinos are legal, is viewed as a conduit for officials and businessmen to bypass currency controls and send money out of the mainland to safer havens. While anti-graft campaigns have been short-lived in the past, Xi is stepping up the effort in a bid to bolster the legitimacy of the ruling Communist Party.
“It’s more important for China’s government to see Macau in a healthy economic development, and the reliance on corrupted official gamblers is not healthy,” said Chen Guanghan, deputy director of the Chinese Association of Hong Kong and Macau Studies, a policy research institute backed by China’s government.
So, having long since surpassed Las Vegas in terms of gaming revenues, PRC leaders seemingly concede that much of Macau's recent gains have come from "the reliance on [PRC] corrupted official gamblers." In a case of do as I say and not what I do--the mainland certainly hasn't moved past manufacturing as its main source of growth--the likes of President Xi are telling Macau to diversify its sources of revenue. In other words, instead of pitying Las Vegas, Macau should be more like the US destination in gaining business from shows, sporting events and so on:
Chinese President Xi Jinping on Saturday urged the world's biggest gambling hub, Macau, to accelerate diversification away from its bread-and-butter casino industry... "It is important for Macau to adopt a global, nationwide, future-oriented and long-term perspective, formulate appropriate plans and blueprints for its development and promote sound economic and social development," Xi said, in comments carried on Chinese state television.

"Focus on building a global tourism and leisure centre ... promote the Macanese economy's appropriate diversification and sustainable development. This is of great importance for the interests of the people of Macau." 
Although he didn't mention casinos by name, what Macau should "diversify" from is plenty obvious. Nor does he acknowledge how his crackdown has imparted a sense of the PRC acting as Big Brother watching over the big spenders:
Xi's visit comes as Macau has been battered by his pervasive anti-corruption campaign, with revenues for 2014 expected to drop for the first time since casinos were liberalised over a decade ago. High-roller gamblers have increasingly steered clear of Macau, on the mouth of the Pearl River delta, unnerved by the increased scrutiny of the gaming industry as Xi's anti-graft drive shows no signs of let-up.
Hence Cirque de Soleil shows and Manny Pacquiao fights in Macau. While these sorts of marquee entertainment and sporting events have begun coming to Macau, it will need a lot more of them to wean Macau away from reliance mostly on gaming. In this respect Las Vegas is actually still way ahead of the game with its busy calendar for hosting business conventions and the like. Make no mistake: Macau still has catching up to do with Las Vegas in terms of becoming a well-rounded and, yes, diversified destination for business and leisure travelers.

Cuba Stories: Venezuelan Oil, Buena Vista Social Club

♠ Posted by Emmanuel in , at 12/19/2014 01:30:00 AM
Some Buena Vista Music Club musicians are gone but not forgotten.
I actually watched Obama's announcement that the United States has entered a process of normalizing relations with Cuba. As something I've been wishing for a long time, I'm glad it's finally come. Let's face it: at a time when the United States has long since normalized relations with the likes of China and Vietnam, it seems odd that it has held out on doing the same with "Communist" Cuba--especially since it's so much closer to the US. The Cold War's long since been finished, mates, and it's time that both sides realized this.

Now, there are two interesting side stories to the (eventual) lifting of sanctions against Cuba by the United States. First is the notion that the self-destruction of Venezuela amidst sinking oil prices has much to do with Cuba's decision to work with the US. Just as Cuba lost a major benefactor with the fall of the Soviet Union, so is it reportedly working with the Yanquis in the expectation that Venezuelan aid in the form of oil shipments in exchange for doctors and other in-kind items will soon end. That is, Venezuela is going broke and won't be willing to supply any sort of bartered goods. After Venezuela folds, there wasn't any sign of anyone else stepping up to the plate:
With Venezuelan President Nicolas Maduro unable to contain the world’s fastest inflation and the country’s bonds trading at default levels, Cuban President Raul Castro has been working to diversify the Communist country’s economy away from Venezuela, which provides about 100,000 barrels of oil a day in exchange for medical personnel.

“You only need to look at the economic disaster that is Venezuela and clearly it’s a bad bet to have all your chips in one basket,” Christopher Sabatini, policy director at Council of the Americas, said in phone interview from New York. “That 100,000 barrels per day gift of oil is going to end very soon.”

Cuba’s leaders are well aware of the risks of dependency after the economy collapsed in the early 1990s when the Soviet Union collapsed. Since early 2013, Castro has eased travel restrictions, increased incentives for foreign investment and tried to reduce public payrolls. That hasn’t boosted the economy, which is poised to expand 0.8 percent this year, according to Moody’s Investors Service, less than the 2.2 percent forecast by the government at the start of 2014. 
For those following the entertainment scene, you should be familiar with the American rock/crossover artist Ry Cooder who brought the talents of Cuban musicians to the world. After decades of isolation, the Buena Vista Social Club album (which I promptly bought upon release) brought forth dozens of succeeding albums from veteran artists who regularly got together to play their timeless brand of Cuban entertainment. (You may have seen the documentary, too.) As it so happens, TIME recently contacted Ry Cooder, who was unsurprisingly pleased with recent developments:
The embargo is no use. It only brought suffering to men, women and children, like embargoes always do. You ask yourself what venal, grasping, backward looking so and so’s—we could name a few—who benefit? Follow the money, as the man says. We are the only country that did this—and the whole thing was insane. Just stupid.
It may be cliche, but consider the bridging power of music:
Our leading export is this myth of democracy we have. That’s the leading edge of our export efforts. So how can we say to the American people, You can’t do it? The people will go when they want to go! A lot of people went [to Cuba]. It’s a trend, a tendency, something that can’t be stopped. The more people want to join up with other people—Pete Seeger suggested that music was a bridge between classes. He used folk music as a bridge because it’s common to people and it’s easy to learn. He could have people singing together within five minutes. And I’ve seen that happen many times, but never so graphically as within this Buena Vista thing. You may be afraid of Cuba. Are you afraid of Rubén González when he plays the piano? No? Well that’s one less thing you’re afraid of.
Ry Cooder is among the sharpest observers of American life, so it's good to hear that he's actually happy about something his government has done.

Can Modi Break Indian Coal Miners' Balls?

♠ Posted by Emmanuel in , at 12/18/2014 01:30:00 AM
It's Thatcher time for N. Modi.
(Cue the AC/DC before proceeding.) The make-or-break moment for new Indian Prime Minister Narendra Modi is at hand: Part of the process ushering in modern Britain--"neoliberalization" its critics would label it as a term of abuse--is the marginalization of organized labor. Similar things happened in the United States that set the shape of things to come as organized labor has been ground small all over the world. However, the defining moment remains Britain's showdown three decades ago. It was the Iron Lady Margaret Thatcher versus Arthur Scargill, leader of the coal miners who obviously did not want any "downsizing", "rightsizing", "rationalization" or any other modern euphemisms for closing down the money-losing coal industry. Revisit the UK circa 1984:
The coal industry, nationalized in 1947, was losing money at a horrendous rate; the government subsidy had risen to $1.3 billion a year. The industry desperately required rationalization; mines had to be closed and the workforce shrunk if there was to be any hope of revival. Scargill and his militants were unwilling to compromise. Mine pits could not be closed they said, no matter how large the losses. For them, it was not a battle over modernization but a class war.
We all remember how things turned out: the coal miners went on strike hoping to break Thatcher, but the prevailing political-economic situation had moved on:
The strike began in March 1984. It was angry and sometimes violent -- thousands were arrested during its course. Not only miners who wanted to continue working but also their families were subject to constant intimidation. Police employed mounted cavalry charges to break up mass demonstrations...

Despite the intense pressure and the disruption, the National Coal Board and the government held firm. It took a year, but the strike finally petered out, and in stark contrast to 1974, this time the miners' union capitulated. The government had won. The outcome meant a new era in the basic relationship of labor, management, and government -- in short, in how Britain fundamentally worked. The decades of labor protectionism -- which had cost the British economy heavily in terms of inflexibility, red ink, and lost economic growth -- were over.
Now, consider modern-day India. Labor militancy has long been one of the stumbling blocks to modernizing the country. Resembling Thatcher-era Britain, coal is once again at the, well, coalface of this dispute. Given recurrent power outages in India, Modi seeks to privatize large swathes of the industry to make production more efficient. As you would imagine, the unionists are up in arms:
Coal-fired power plants generate 60 percent of India’s electricity, except for when shortages lead to repeated blackouts. Outages shaved $68 billion or almost 4 percent off annual gross domestic product in the year ended March 2013, says the Federation of Indian Chambers of Commerce and Industry. Last week, Modi made a move toward ending shortages, winning partial passage of a bill that will allow him to end a 40-year government coal monopoly. The plan is to bring in more efficient private companies, which the coal unions say will mean job losses and they’ll fight him.

“Let them open up the sector, there will be strikes all across and large-scale violence,” said S.Q. Zama, secretary general at the Indian National Mineworkers Federation, a unit of the opposition’s Congress party-backed Indian National Trade Union Congress. The Indian National Trade Union Congress said all major unions would meet Dec. 17 to decide their response to Modi’s plan.
As usual, unionists bear the brunt of the blame:
Economist Surendra Laxminarayan Rao says the government needs to get out of the coal business. “One of the biggest policy blunders of India has been the government taking control of the coal industry,” said Rao at The Energy and Resources Institute in New Delhi. “The coal shortage is not just because of Coal India’s incompetence and its primitive technology. The unions are majorly responsible,” he said. “There’s no choice for Modi except to overcome them. The unions, fearing private companies will cut wages and benefits as well as jobs, said they have been seeking talks with minister Goyal for the past two months.
The essential difference between Thatcher and Modi is that the former wanted to close down state-owned coal plants while the latter want to privatize them. That is, Thatcher obliterated coal as a power source, whereas Modi wants to expand its output. That said, the means to achieving their different goals is identical--the coal unions must be brought to heel.

Can Modi break the coal miners' balls? That is the question.

UPDATE: Coal miners' unions are making plans to strike on January 6.

Argentine & Venezuelan Deadbeats' Paymaster, China

♠ Posted by Emmanuel in , at 12/17/2014 01:30:00 AM
Oh boy, oh boy. It is no big secret that the new Latin Left abhors the United States. For a long time now, China has been on hand to buy the loyalties of these countries in a geopolitical tug-of-war that's largely unspoken. Call it the "new" Cold War. With America the target of opprobrium the world over, it isn't exactly hard to find these sorts. Today's case in point are our favorite anarcho-economies, Argentina and Venezuela. Largely shunned by international credit markets, these nations have had to turn to China to shore up their funding as of late.

First up is Argentina, which has had a swap arrangement in place with China since midyear. Since it's frozen out of Western capital markets--the recent default didn't help--this one was coming along for quite some time:
Argentina’s central bank tapped a currency swap line with its Chinese counterpart for the first time Thursday, requesting the equivalent of about $814 million at a time when its hard currency reserves are under pressure. Argentina and China agreed to the 70 billion yuan currency swap during a state visit by Chinese President Xi Jinping in July. Argentine officials say the agreement will make it easier for Chinese companies to invest in Argentina and strengthen the central bank’s depleted reserves.

“Under this agreement, the central bank could request additional currency exchanges equivalent to a maximum of $11 billion,” the bank said in a statement Thursday. The three-year currency swap allows the two central banks to lend as much as 70 billion yuan and the equivalent in Argentine pesos to each other for up to 12 months. China is Argentina’s No. 2 trade partner after neighboring Brazil.
In the overall scheme of things, $814 million isn't that much, but hey, every little helps in a recessionary economy. Speaking of which, the China has lent far larger sums to Venezuela in an oil-for-cash deal. To no one's real surprise, the Chinese have had to relax credit terms because of this other deadbeat's inability to pay. Venezuela's financial situation is deteriorating further as oil prices sink. Why does China persist with a losing proposition? Some commentators suggest it is too invested in Venezuelan energy to allow a wholesale collapse. Sunk costs and all that...
South America’s most economically troubled country, facing fears of a debt default amid tumbling oil prices and a cash crunch, has been thrown a lifeline by its largest lender, China. The Asian giant loosened repayment terms on the nearly $50 billion in loans it has granted Venezuela since 2007, according to Venezuela’s Official Gazette. And President Nicolás Maduro said in a speech last week that his finance minister, Rodolfo Marco, would soon travel to China to try to secure new loans...
Last week the president used a $4 billion Chinese credit, traditionally earmarked by the Chinese government for infrastructure projects and held in off-budget funds, to increase reserves to $23.2 billion. China also recently lent $1.3 billion to help Argentina buoy falling reserves, giving President Cristina Kirchner , a close ally of Mr. Maduro, a cushion to help alleviate that country’s cash crunch.
Beijing’s largess may appear irrational given economic policies in Venezuela and Argentina that do not appear sustainable, said Barbara Kotschwar, a scholar who tracks Chinese investment in Latin America at the Peterson Institute for International Economics in Washington. “On the other hand,” Ms. Kotschwar said, “they are so invested in Venezuela’s oil industry that they may have calculated that a political crisis would have a negative impact on their return on investment or on Venezuela’s repayment of loans.”
Let's just say the de jure Chinese socialists are as much in trouble as are the de facto Latin socialists. In the end, they all deserve each other.

Freedom Schmeedom: Martial Law Boosts Thai Tourism

♠ Posted by Emmanuel in at 12/16/2014 01:30:00 AM
Democracy shmemocracy--Thai tourism prefers martial law over democracy's anarchy.
Even by Southeast Asian standards, Thai politics are, how do I put it, rambunctious. If you want me to explain Thai politics, it's very simple: a Shinawatra family member or one of its toadies wins popular elections by offering populist programs that are financially unsustainable. Eventually, the old-guard of royalists and the Bangkok elite kick out the Shinawatra-ites through either legal maneuvers or military coups. Both have been used already. All the while, the Thai economy suffers as protests by both sides paralyze transportation in and around the capital.

As most readers should know, tourism is one of the largest industries in Thailand, accounting for about 10% of GDP. Unfortunately, the run-up to and the coup earlier this year dissuaded many would-be visitors from going to Thailand. If we were to follow the conventional Western narrative, things ought not to have improved with the ascent of an unaccountable military junta to state leadership. After all, what incentives does it have to improve the tourism situation when it knows the consequences of doing nothing are next to, well, nothing?

As it turns out, however, the generals are actually improving on the situation which preceded them. As an article boldly declares, martial law remains--and the travel and tourism industry loves it:
Thailand remains under Martial Law - and the travel and tourism industry loves it. It appears the country is orderly and safe - this is mirroring also to the tourism industry. Visitors feel at ease. Less fraud, less thefts, the country is functioning. If you visit or work in Thailand, you would not think the government all over the kingdom had put drastic restrictions in place.
This despite various complaints about the junta allegedly reneging on vows to pave the way for elections and the "normalization" of politics. IMHO, if more elections mean Thailand reverts to the old pattern of Thaksin-aligned candidates winning and eventually being removed by legal maneuvers of military coup, then the present situation is preferable:
Human Rights Watch however said in a statement this week that Thailand “had fallen into an apparently bottomless pit.” To make it worse for Human Rights Watch Thailand’s defense minister says a general election originally promised for next year will be delayed until 2016 as the martial law imposed all over the country in May remains in place.

Prawit Wongsuwan said Thursday that the general election will not be held next year, citing certain groups’ opposition to the ruling junta as one of the reasons behind the delay. Prawit, who is also a deputy prime minister, said that the vote would be delayed as more time was also needed to draft a new constitution. Prime Minister and junta leader Prayuth Chan-ocha, who seized power in a military coup in May, had earlier promised elections for late 2015.
How worrying is the indefinite extension of martial law in Thailand? I am quite frankly more concerned with creating an environment of stability in which the old pattern of Thaksinite--purge--Thaksinite--purge repeats itself over and over. It has not done Thailand any good in terms of establishing a predictability and stability that allows investors to establish a law-and-order situation that can remove political risks that have surrounded the country since Thaksin was first ousted from office.

Bottom line: Save the freedom 'n' democracy schtick for the white people; out here in the rest of the world people have larger things to worry about. The say you can't argue with results, and the numbers don't lie: tourism is improving under the junta after the 22 May coup. See for yourselves:

                          Oct.   Sept.    Aug.    July    June     May   April
                          2014    2014    2014    2014    2014    2014    2014
Total Arrivals (’000)    2,181   1,856   2,076   1,915   1,559   1,737   2,022
 YoY%                     6.1%   -7.0%  -11.9%  -10.9%  -24.4%  -10.7%   -1.7%

Occupancy Rate           58.6%   51.0%   55.0%   49.3%   40.8%   46.4%   54.8%

What's more, other sectors also seem to be recovering after the anarchy that pervaded Thai politics for such a long time:
All while a junta steers the economy. “It’s so far, so good,” says Mark Mobius, executive chairman of San Mateo, California–based Templeton Emerging Markets Group. Mobius, who oversees about $45 billion from his offices in Hong Kong and Singapore, is so bullish on Thailand that he has made the nation of 68 million the largest geographical component of his $13.2 billion Templeton Asian Growth Fund, ahead of China and India.

Apart from strengths in manufacturing, agriculture and tourism, Mobius is also impressed by Thailand’s resilience in the face of previous political and economic shocks. “I think they will pull through, like they have in the past,” he says. Medical tourism is doing its part. A gauge of 15 Thai hospital stocks, boosted by medical tourism, leapt 54 percent in 2014 as of Nov. 18. Among the prime beneficiaries of these soaring valuations are three of Thailand’s billionaire dynasties. 
So there you are. Developmental authoritarianism is not an oxymoron; nor has it gone out of fashion since history has apparently not ended.  

Corporate Governance: Of Korean 'Nut Rage' & BMW

♠ Posted by Emmanuel in , at 12/15/2014 01:30:00 AM
Headlines here in Asia have been dominated by the story of the Korean Air executive who went ballistic on a flight attendant because he had served her nuts in a bag instead of on tableware. Hence the "nut rage" label applied to Cho Hyun-ah, the daughter of the Hanjin (chaebol conglomerate) chairman that owns Korean Air. Talk about nuts: She boarded the flight at JFK headed for Incheon and ordered it returned to the boarding gate over macadamia nuts to unload the poor fellow. The flight attendant Park Chang-jin was even coerced to cover up the incident to Korean government investigators. Does that make this incident "Nutgate"?
[Cho] ordered him off the plane and forced the flight to return to the gate at John F Kennedy airport in New York City. After being confronted about the nuts, senior flight attendant Park Chang-jin told South Korea's KBS television network he and his colleague kneeled down before Cho. According to Park, Cho yelled at the crew to "call right now and stop the plane. I will stop this plane from leaving."

Park said when he returned to South Korea on a separate flight, five to six officials from Korean Air came to visit his home every day and asked him to tell investigators that Cho did not use abusive language and that he voluntarily got off the plane. On Friday, in her first public appearance since the incident, a gloomy-faced Cho bowed and said "I sincerely apologise. I'm sorry," before droves of journalists in an almost inaudible, trembling voice.
At any rate, the Koreans have been fascinated with this incident. Just as the Sewol ferry accident caused much soul-searching, so has this "nut rage" reawakened questions about corporate governance in South Korea. In particular, chaebol reform has been on the to-do list of the government for quite some time now. Aside from dominating the business environment and discouraging dynamic small- and medium-sized businesses, cozy government-business ties have long generated accusations of favoritism. That is, chaebol may be too big to fail, block dynamic new entrants, and worst of all, abuse their dominance in the overall Korean economy.

Auntie points us to a thought-provoking article in the Korea Times that discusses corporate governance in their nation: are chaebol really so prone to these kinds of abuses? In particular, why are these conglomerates not meritocratic like their Western counterparts? Prior to this incident which has resulted in Cho Hyun-ah becoming an unlikely successor to her father at Hanjin, she was on track to do so. Here Hanjin is being compared to Germany's BMW here owned by the Quandt family who are largely uninvolved in day-to-day operations:
[Cho Hyun-ah] has shown behavior typical of someone born with a silver spoon in their mouth. In contrast, BMW recently named 49-year-old production executive Harald Krueger as the successor to CEO Norbert Reithofer, starting from May. The CEO in waiting joined the automaker in 1992 as a trainee, working his way to the top of the corporate ladder of the 98 year old company. His 11 predecessors have also been professionals without direct ties to the Quandt family, which owns a 46 percent stake of BMW.

Business experts say independent management was key to making BMW what it is now. "With no intervention coming from the owner family, BMW CEOs can concentrate on management issues, and maintaining the firm's growth," a BMW official said. "Had the company been directly controlled by an owner family, it is uncertain whether BMW would have reached the status it enjoys today because owners turned CEOs might have found themselves distracted at work by issues related to their ownership," an industry source said.
Contrast this trainee-to-CEO success story to what's supposedly happening in Korea:
Korean Air is owned by Hanjin Group led by Cho Yang-ho, the son of the firm's founder; he controls the company with a 15.49 percent stake. His three children ― Heather [Cho Hyun-ah], Won-tae and Hyun-min ― hold less than 2.5 percent each. One of those three will likely become the chairman's handpicked successor, a typical leadership transition seen at family-run conglomerates in Korea.

"Perhaps the recent nut rage incident was one of the dismal side effects of such a dynastic leadership succession," said Kim Sang-jo, a business professor at Hansung University and chief of the People's Solidarity for Economic Reform. "With chances of landing a top seat guaranteed, they may not feel any guilt looking down on employees of their father's company and treating them like their servants. "This is a feudal form of employer-employee relationship that should disappear as early as possible."

A bigger problem, he pointed out, is that the dynastic succession could lead Korean Air to fall into the hands of what he described as an "unqualified" leader. "Cho will choose his successor from a limited pool of candidates or out of his three children," the professor said. "Nothing wrong would happen if there is a qualified person among the three and the chairman makes the right choice. If it's not the case, however, his selection would usher in a tragedy. It's a very risky deal."
Make no mistake that there remains a pecking order of globalization envy. Us folks in  developing Asia look up to Korea. In turn, Koreans look up to Germany which has a similar profile of being an export-oriented, manufacturing-based economy. Every so often we have one of these "why can't these !@#$%*+ Koreans be more like Westerners" despite the country being the most successful of Asians. IMHO folks are making too much of a high-profile incident, but suffice to say that "nut rage" has resurfaced concerns about Asian forms of governance that lay dormant for some time after the Asian financial crisis became yesterday's headline. Meanwhile, the incident has little direct bearing on the firm's performance.

UPDATE 1: The Korean transport ministry is said to be filing a case against her, too.

UPDATE 2: Singapore's Straits Times offers a more sympathetic story about how Cho Hyun-ah was able to make several improvements to Korean Air before the fateful incident. 

UPDATE 3: Cho Hyun-Ah has now been arrested for endangering fight safety. 

Back to the Junkyard? S Africa's Credit Ratings

♠ Posted by Emmanuel in at 12/13/2014 01:30:00 AM
Power outages in S Africa at a time of falling energy prices aren't a good sign.
Of all the BRICS (with a capital S) countries we've taken a look at as of late, it seems South Africa has received little attention. Mind you, it's not that South Africa is doing any better than the rest as the BRICS encounter economic headwinds going into the middle of this decade. Rather, it seems that the incomplete process of reform in this large nation has stalled the economy, too. If you were hoping for a BRICS success story circa 2014, I am afraid that you will have to write one yourself and file it under "creative writing." Sad but true.

Just as Russian sovereign debt is just one or two rungs above speculative grade--don't be surprised if it drops back into the latter realms real soon--so is South African sovereign debt feeling the pinch. With credit rating agencies poised to lower their debt further, it is headed towards junk territory:
Investors in South African bonds are signaling mounting concern the nation’s credit rating will be downgraded for a third time this year...The continent’s second-biggest economy is projected to expand 1.4 percent this year, which would be the worst since the 2009 recession, as the nation grapples with the impact of labor strikes, power cuts and rising government debt. South Africa was downgraded by Standard & Poor’s in June to one step above junk, the lowest of the three main ratings companies, while Moody’s Investors Service reduced its ranking last month to two levels above junk.

“South Africa remains one of the most vulnerable emerging markets,” Nicholas Spiro, the London-based managing director of Spiro Sovereign Strategy, who predicts a cut by Fitch today, said in an e-mail on Dec. 9. The nation faces “an excessively large external deficit to finance amid a worrying lack of growth,” while “prospects for meaningful fiscal and structural reforms remain bleak,” he said. 
On today's menu are above-inflation wage increases demanded by public sector workers that are likely to be appeased as well as the money-draining national power company:
Above-inflation wage demands by government employees and emergency financial assistance for Eskom Holdings SOC Ltd., the cash-strapped state power utility, may scupper those plans. The government will ensure that Eskom doesn’t run out of cash needed to buy diesel to fuel power generators, Minister in the Presidency Jeff Radebe said yesterday.
“The Eskom situation is the biggest risk right now,” Modise at Citadel said by phone on Dec. 10. There’s also “a very high risk that they’re going to be forced to settle above what they have budgeted for” to meet state-worker salary demands, he said.
It's the same trouble the world over with outsized public sectors that have undue abilities to hold the rest of their nations hostage with seemingly unreasonable demands.

Kazakhstan, Unlikely Master of Geopolitics

♠ Posted by Emmanuel in ,, at 12/12/2014 01:30:00 AM
Kazakhstan and oil do mix.
Let's take a trip to somewhere we do not frequently go. Unbeknownst to many, one of those who've managed to deftly manage pressures from east and west is Kazakhstan of all places. It is an energy-rich country that's simultaneously feeling heat from Russia as it tries to make China a business partner in addition to its current stable of European countries. Challenging? Well, less likely than you'd think for fairly savvy Kazakh diplomats:
Kazakhstan's record rests on the artful management of three balances: first, a political balance between Russia, with its post-imperial ties, a rising China, with its investment propositions, and the more distant West, with its markets and "values agenda." Second, an economic balance between the imperatives of state development and the interests of international companies bringing essential technologies and project management expertise. In an era of growing assertiveness by national oil companies, Kazakhstan has, notably, not insisted on acquiring controlling stakes in its largest projects.

And third is an ethnic, religious, and linguistic balance that has fostered an inclusive post-Soviet identity among the 130 nationalities on Kazakhstani territory, above all between the majority Kazakhs and the Russian minority that comprises a quarter of the population.

But for Kazakhstan, as for Central Asia as a whole, a world of choices is giving way to one of constraints. Moscow seeks to rebuild influence over former Soviet republics -- notably through the Eurasian Economic Union, a major economic integration project that comes into full force in January 2015. The deepening presence of resource-hungry China, now an unequalled source of capital, risks fuelling visceral popular fears of assimilation. And the withdrawal of most international forces from Afghanistan is reviving concerns about regional instability and Western neglect. At its starkest, a new pattern could emerge of growing pressures from the north and east, a vacuum to the south, and disengagement from the west.
What this country has accomplished is no easy feat: To accommodate Western oil giants in domestic energy production on top of everything makes you wonder how these guys manage it all, but it's a juggling act of mammoth proportions that few countries pull off successfully. Especially so at a time when Western Europe and Russia are clearly lined up on opposite sides, it is impressive that a small nation nobody considers an international relations heavyweight copes with disparate geopolitical pressures being applied to it.

Will Ferrari Leave Italy for Tax Reasons?

♠ Posted by Emmanuel in at 12/11/2014 01:30:00 AM
Ferrari leaving Maranello is the secular equivalent of the Pope leaving the Vatican.
While Ferrari is a world-famous marque, its situation is no different from that of many other European multinationals attempting to cope with the lukewarm business climate in Europe. Motor racing fans know it's been a tumultuous year for Ferrari. Longtime Ferrari Chairman Luca de Montzemolo--mastermind of its early 2000s resurgence in motor racing and the revamp of its road car lineup--was forced out in September. Among other things, he supposedly didn't want to increase the marque's production of about 7,000 vehicles annually since demand existed to easily shift more than that. Meanwhile, at the Formula One team, there have been several leadership changes and the departure of star driver Fernando Alonso given its consignment to mid-table, non-race-winning form.

As if controversies over parent company Fiat becoming more of an "American" company weren't enough, we now have word that Ferrari itself--the quintessential pride of Italy--may be relocating because of tax purposes:
Ferrari SpA is considering moving its fiscal residence outside Italy to save on corporate taxes as the supercar maker prepares for its spinoff from Fiat Chrysler Automobiles NV (FCAU), people familiar with the matter said. The manufacturer, which uses the colors of the Italian flag in its logo, may follow in the footsteps of Fiat Chrysler, which is registered in the Netherlands, listed on the New York Stock Exchange and based in London for tax reasons, said the people, who asked not to be identified because the discussions are private.

Other options including keeping its Italian residence are still on the table, and a shift in its fiscal residency wouldn’t affect its manufacturing and engineering operations in Maranello, about 190 kilometers (118 miles) south of Milan, the people said. A final decision will be made in coming months, the people said. Fiat Chrysler representatives declined to comment.

Ferrari shifting its corporate headquarters outside Italy would represent a symbolic blow for the country, which is struggling to end a cycle of recessions. Prime Minister Matteo Renzi is attempting to push through labor and tax reforms to make the Italian economy more competitive. Those efforts have already come too late for Fiat Chrysler and CNH Industrial NV, the truck and tractor maker spun off from Fiat in 2011. Both companies have already moved their headquarters to the U.K. from Italy. 
Make no mistake: doing business in Italy has not been a walk in the park these past few years:
Fiat Chrysler and CNH benefit from the U.K.’s corporate tax rate declining to 20 percent next year from 21 percent. Income from patents will eventually be as low as 10 percent, offering potential for additional relief. By comparison, Italy’s corporate rate is 31.4 percent. The country is ranked 56th in the World Bank’s Doing business ranking, just after Turkey and Hungary. The U.K. is 8th.

Hampered by stifling policies, the Italian economy has stagnated over the past 14 years and contracted 10 of the last 11 quarters. Unemployment rates are near record levels, and thousands of Italians have left the country in search of a better future. Last year, the number of emigrants from Italy rose 19 percent to 126,000, according to statistics agency Istat.
The situation of Fiat is illustrative of the lengths modern corporations go to in order to reduce tax burdens. Actually, Fiat Chrysler is a holding company in the Netherlands whose tax domicile is in the UK. None of its main operations are in either the Netherlands or the UK, but they are structured to appear that way on paper for tax purposes. It's a long story, but these sorts of structures are common for all sorts of MNCs nowadays--even sellers of chicken. On one hand, the crackdown of tax authorities which prompts these sorts of moves illustrates the situation of many Western European nations circa 2014. On the other hand, the brazenness with which companies "headquarter" themselves elsewhere depicts the multitude of structures that have been developed for hust this purpose.

Russia 'Defends' the Ruble? You Must be Joking

♠ Posted by Emmanuel in , at 12/10/2014 01:30:00 AM
Russia's losing battle to shore up the ruble.
 Before we rotate out of the currency fixation we've had for the last few days, here's an interesting feature from Bloomberg I found illustrating the recent slide in the Russian ruble. Yes, I know, it's been doing the dive-bombing thing for a few months already. However, the recent price action is interesting insofar as the rhetoric has been cranked up by Putin and Co.

As you would expect, bluster about "punishing speculators" and so on have not done much to shore up the currency's value absent concrete action by the central bank. Here is the blurb:
Russian President Vladimir Putin has tried everything from selling dollars to threatening speculators in his bid to stem this year’s plunge in the ruble. None of it has worked.

The attached graph provides an up-close look at the ruble’s collapse over the past two months. It dropped 25 percent during that time to 53.40 rubles per dollar, extending this year’s slide to 38 percent. The only currency in the world that’s fallen more is that of Ukraine, the country where all of Putin’s financial troubles began when his troops invaded the Crimea peninsula in March.
12/11 UPDATE: Another interest rate hike came today to shore up the currency.

12/12 UPDATE: To no one's real surprise, the ruble has fallen to new record lows despite this move.

Death to Speculators 2014: Malaysia Warns on Ringgit

♠ Posted by Emmanuel in , at 12/09/2014 01:30:00 AM
Bank Negara says, "Don't tread on the MYR."
After the recent post on Russia "cracking down" on currency speculators, we now have word that the Malaysian authorities are mounting their own effort to limit currency speculation on the Malaysian ringgit (MYR) as its value declines together with most other developing country currencies given the widespread expectation that the Federal Reserve will raise interest rates on the US dollar soon. Lest you think the IPE Zone has become the Currency Speculation Zone, rest assured that there are interesting aspects to this matter of concern to developing countries the world over aside Russia and Malaysia.

Let us turn back time to 1997, when the Asian crisis was roiling the titular region. Then-Malaysian PM Mahathir Mohamad declared currency speculators the national enemy, coining the near-analogue phrase "death to speculators" which we know and love. Back then, George Soros was the big, bad bogeyman. Let's take that trip down memory lane:
Mr. Soros said: "Dr. Mahathir suggested banning currency trading. This is such an inappropriate idea that it doesn't deserve serious consideration. Interfering with the convertibility of capital at a moment like this is a recipe for disaster. Dr. Mahathir is a menace to his own country." The U.S. Treasury secretary, Robert Rubin, while saying he had not read Mr. Mahathir's speech, said at a news conference here Saturday that "currency trading is an inherent and very important function in a modern and global economy, and it is integral to global trade."

When Thailand's currency crisis caused the Malaysian ringgit and other regional currencies to crash last month, the Malaysian prime minister blamed hedge-fund investors such as Mr. Soros, whom he called "a moron." In remarks that some bankers fear could trigger another sell-off in Malaysia's currency and equity markets, Mr. Mahathir said Saturday that "quite a few people who are in the media and in control of the big money seem to want to see these Southeast Asian countries and in particular Malaysia stop trying to catch up with their superiors and to know their place."
Nowadays, however, we are back to raising the specter of unknown, unaccountable speculators who will destroy a country's economy just to make a quick buck:
Malaysia’s central bank has told lenders to guard against speculation in the ringgit after the currency fell to the weakest level in almost five years. All short-dated transactions requiring the exchange of ringgit for a foreign currency must be backed by underlying documentation, Bank Negara Malaysia said in a “stern reminder” today. The monetary authority confirmed the note.

The timing of the central bank’s notice could mean it’s “uncomfortable with the pace of the ringgit’s weakness,” said Nizam Idris, Singapore-based head of foreign exchange and fixed-income strategy at Macquarie Group Ltd. 
And, like Russia, this net exporter of energy is a loser in the ongoing slide in energy prices since its neighbors are all net importers:
Malaysia will be the sole loser among Asia’s emerging markets from the decline in crude and the country may miss its 2015 fiscal deficit target, according to Bank of America Merrill Lynch. A 10 percent drop in prices will reduce economic growth by 0.2 percentage point, economists including Singapore-based Chua Hak Bin wrote in a Dec. 1 report
Brent crude has dropped 39 percent from a June high after the Organization of Petroleum Exporting Countries’ decision last week to not cut production in order to shore up prices. The potential revenue loss may make it harder for Prime Minister Najib Razak to lower the fiscal deficit to 3 percent of gross domestic product next year from 3.5 percent.
Meanwhile, the ringgit's drop continues apace as its forex reserves fall:
Malaysia’s ringgit fell to the weakest level since September 2009 and government bonds retreated as a strengthening U.S. jobs market bolstered the case for the Federal Reserve to raise interest rates...“The dollar strengthened across the board following the stronger-than-expected payrolls number,” said Khoon Goh, a Singapore-based strategist at Australia & New Zealand Banking Group Ltd. “In addition, oil prices remain under downward pressure, which is also weighing on the ringgit.”

The currency declined 0.7 percent to 3.4955 per dollar in Kuala Lumpur, according to data compiled by Bloomberg. The ringgit earlier reached 3.5073, the lowest in more than five years, and has lost about 2 percent in the past four days...

Malaysia’s foreign reserves dropped 0.7 percent to $125.7 billion as of Nov. 28 from two weeks earlier, the lowest level since April 2011, according to a Dec. 5 report from the central bank.
For Malaysia, it's unfortunately the same underlying dynamics as Russia: falling energy revenues leads to not-so-veiled threats to all and sundry "currency speculators." Or, in the immortal words of Mahathir, "death to speculators--2014!"

Japan's Desperation: Gambling on Casino Openings

♠ Posted by Emmanuel in , at 12/08/2014 01:30:00 AM
Beyond pachinko - luck be a Japanese tonight.
You cannot help but feel sorry for Japan as it tries everything to get its economy rolling again except for the thing which promises the most--opening itself up to migration in an era of depopulation. Abenomics is a dud; despite US-style money-for-nothing policies, it has had even more limited success pump-priming its economy. In fact, it's fallen back into recession and Abe has had to call for another election to renew his mandate for...I do not know precisely what.

Since generating revenues is one of Japan's many problems, this option had to pop up sooner or later: when in doubt, build casinos! As nearly every American state and even moralistic "Asian values" Singapore has legalized gambling, why not Japan? As the Yanks are learning, building casinos is hardly a surefire way to fiscal success. But, given the level of Japanese desperation, isn't it worth a shot for the heck of it? Apparently that's what the Abe administration thinks, even if Japan's current economic woes are causing delays in gaining legislative approval. Given a sour economy, there are higher priority bills like re-militarizing Japan to meet rising Chinese territorial expansionism, though:
Gaming companies such as Las Vegas Sands Corp, Caesars Entertainment Corp and MGM Resorts International have been hoping Abe would unlock an "integrated resort" market that brokerage CLSA estimated could generate annual revenue of $40 billion.

Pro-casino lawmakers intend to push back a vote on the bill instead of trying to pass it in the current parliamentary session ending this month, three people directly involved in pushing the casino bill told Reuters on Tuesday. Although they aim to keep the bill on the table, the sources said there was a considerable chance it would not come up for discussion even in 2015.

Higher-priority bills, including those related to national defense, are likely to take up debate time in the next parliament session, they said. "If they can't pass it now, I doubt whether they'll ever be able to pass it," one of the sources said. 
It was earlier hoped that the bill would be passed so that casinos would be around in time for the 2020 Tokyo Olympics. As things stand, they will now be lucky to get any built at all:
Until a few weeks ago, most analysts still expected the casino bill to be adopted in November, allowing leaders to pass a second bill outlining regulations in 2015. One Japanese casino industry source said there was a chance legislation could be delayed by three or four years, meaning actual casino development may have to wait until around 2024.

Toru Mihara, who teaches at the Osaka University of Commerce and was one of the architects of the casino bill, said failure to pass the bill in this session would be a "total loss of face" for Abe's cabinet. He also said the bill will be difficult to pass next year, as newer topics come up in parliament.
I don't know about you, but it all smacks of more Japanese desperation to me in the absence of real efforts to fix what really ails it--the sheer lack of people buying stuff, offering services, and yes, even gambling. 

Vlad [Putin] the [Forex Speculator] Impaler

♠ Posted by Emmanuel in , at 12/05/2014 01:30:00 AM
Forex speculating "Hitlers," watch your backs.
One of the things we are learning about the current self-inflicted economic crisis in Russia is just how lame the bluster of Vladimir Putin is. Despite his shirtless antics frolicking amidst assorted wildlife and military paraphernalia, the truth is that this vainglorious chap's economy is rather lame. He should have seen all the sanctions slapped on his country coming a mile away. Yet, it seems he is surprised by the drubbing it is getting as the ruble slides to oblivion while bond yields on sovereign debt soar to infinity. Really, he could probably do much better firing all those hosers and hiring Guns N Roses' Duff McKagan, pronto. His bluster now smacks of--you guessed it--desperation as he compares international opponents to Hitler:
President Vladimir Putin pledged to punish speculators attacking the ruble with “harsh” measures in a defiant speech that reached into Russian history to defend his annexation of Crimea and compared his international opponents with Adolf Hitler...
Actually, his bluster does not match his actions since he's actually welcoming back monies that left the country via capital flight. I wonder why they're leaving...
Putin, who did not address falling oil and gas prices, also announced plans for an amnesty on capital returning to Russia and said he’ll work to eliminate unnecessary bureaucracy as he tries to reassure a nation threatened by a spiraling economic crisis. The ruble is near a record low, the economy is headed for a recession and banks are pleading for state aid. The ruble has lost a third of its value since Putin started his incursion into the Ukraine’s Crimean peninsula in March, the most among 24 developing countries Bloomberg tracks. 
Oddly enough, this comes despite Russia choosing not to defend the currency in recent times. With so many contradictory statements, you have to wonder what the country will really do:
“The Bank of Russia has moved to a free floating ruble but this doesn’t mean it is distancing itself completely from influencing the ruble and that the exchange rate can become a target for financial speculation,” Putin said. “The authorities know who these speculators are and the instruments we can use to influence them. The time has come to use these instruments...”

The Bank of Russia today reduced the rate it charges banks to borrow foreign currency in a bid to slow the ruble’s slide and ease a dollar shortage. The ruble has “substantially” deviated from its fundamental value, creating risks for financial stability and spurring expectations of inflation and depreciation, the central bank said in a statement on its website, reiterating its readiness to intervene without limits. 
Putin is almost becoming Maduro-like with his wild anti-Western conspiracy theories. Besides, he didn't describe what he'll be doing to tamp down the speculators via "harsh" measures. Ironically, I  think it's Russians fleeing Russia doing significant damage to the ruble--hence the "amnesty" for returning capital. Until Putin actually does something more than bluster, it's all bluster and market participants will act accordingly:
“Putin failed to scare speculators,” Bernd Berg, a London-based strategist at Societe Generale SA, said by e-mail after the speech. “Unless the central bank comes in with some meaningful measures like significant FX interventions in the size of a couple of billion, or aggressive tightening measures, the ruble will remain under massive selling pressure as fundamentals in Russia deteriorate by the day.”

You're So 2001: Fall of the BRICs?

♠ Posted by Emmanuel in ,,, at 12/04/2014 01:30:00 AM
It's yesterday once more...or is it?
It seems like only yesterday that the BRICs were all the rage: Despite the contrived nature of the grouping by Goldman Sachs' Jim O'Neill, the likes of Brazil, Russia, India and China were set to take the economic fight to the established developed countries for one reason or another. What's more, there was a synergy to it all since Brazil and Russia had lots of the commodities the likes fast-growing India and China needed.

However, as the global financial crisis hit and ever after, we have learned that not all is hunky-dory in BRICs-land. As the chart above shows, the developed economies that were once disregarded as old-hat are actually performing better now than they were before, whereas the opposite holds true for the BRICs. To be sure, there is no single reason for the latter's slowdown: Brazil has been caught in the slide of commodity prices as global growth decelerates. Russia has similarly been affected on top of being ostracized as an international pariah due to its (mis)adventures in Ukraine. India remains mired in red tape that ha slowed its liberalization (although the current Modi administration is looking to fix that longstanding problem). And, of course, China has been affected by slowdowns in consumer markets it exports to.

Certainly, the headwinds the BRICs face are strong. Worse yet, long-term challenges such as demographics are starting to hurt:
Interest rates are likely to rise gradually from their current ultra low levels in the rich countries - particularly in the US and the UK. That will affect global rates and make investment more expensive to finance in emerging economies. Many also have to contend with ageing populations and slower growth in the number of people of working age. For some that demographic advantage they had previously is now fading. Russia and China are among that group. That was factored into the Goldman Sachs projections. 
Jim O'Neill says that more recently their policies in this area have been "surprisingly good". China is easing its one child policy and, he says, "Russia has had some success in raising life expectancy with much smarter policies about alcohol consumption." 
Going back to Jim O'Neill, is he much less sanguine on the BRICs now than he was over a decade ago? The overall point is that these countries may be undergoing a process of adjustment which entails a slowdown in absolute growth figures rather than a secular stagnation that will drag on for a long time like in the bad old days:
While all the Brics have slowed this decade, the weakest performers now are Brazil and Russia. Their average growth rates have been below the Asian Brics all along and this year they slowed even further. For 2014 as a whole, the IMF has projected some growth for those two but very little - 0.3% for Brazil and 0.2% for Russia. Both those figures incidentally are a good deal weaker than what has been predicted this year even for the struggling eurozone, which has been described as haunted by the "spectre of stagnation" by the Bank of England governor Mark Carney.  
As for Russia and Brazil, Jim O'Neill is not yet ready to wipe these two nations out of his Bricspicture, but the last few years have certainly been a disappointment. So it is not time to write off the Brics. They are showing some cracks for sure, and, to change the metaphor, China in particular is embarking on a high-wire journey as it seeks a different and perhaps ultimately more sustainable form of economic development. The Brics and how they perform matter for the rest of the world, more so than they did at the turn of the century, which is after all the whole point of the original idea.
In other words, the BRICs aren't necessarily out of it yet.