Intervention Redefined: Japan Gov't Holds Half of All ETFs

♠ Posted by Emmanuel in at 10/29/2015 09:28:00 PM
Japan's central bank literally has a 'majority' stake in the JPY-denominated ETF market.
Imagine if Janet Yellen and the Federal Reserve held half of all monies invested in US-based, dollar-dominated exchange-traded funds (ETFs): BlackRock, Fidelity, State Street, Vanguard, and the rest of them. You can bet that US lawmakers, especially those of the Tea Party persuasion, would be up in arms about the unprecedented levels of market intervention the government was engaged in. "Such a distortion of markets has never been seen!" you can almost hear them shout.

Well, actually, something like that is already occurring in Japan. Among ETFs offered by the likes of Daiwa, Nikko and Nomura, the largest customer is none other than the Bank of Japan (BoJ). What's more, with Japan teetering on the edge of recession, the BoJ might pump even more into stock markets real soon. To paraphrase James Bond, half the market is not enough:
Japan’s central bank already owns more than half of the nation’s market for exchange-traded stock funds, and that might just be the start. The Bank of Japan will boost stimulus on Friday, according to 16 of 36 economists in Bloomberg’s latest survey, with 12 saying it would do so by increasing its annual ETF-buying budget. With 3 trillion yen ($25 billion) a year in existing firepower, the BOJ has accumulated an ETF stash that accounted for 52 percent of the entire market at the end of September, figures from Tokyo’s stock exchange show.
Practically speaking, the BoJ can already swallow all the sovereign debt Japan prints. So, the remaining option is to buy stocks. Still, many (including myself) wonder if all this effort is all for naught. Or, if benefits can be obtained after plowing in x amount of cash:
Policy makers weighing a deeper foray into equities shows how the world’s third-biggest stock market has become one of the most important Abenomics battlegrounds. The Topix index is up 21 percent since the central bank unexpectedly tripled its ETF budget almost a year ago, and Citigroup Global Markets Japan Inc.’s Tsutomu Fujita says there’s room for them to triple it again. For Amundi Japan Ltd., expanding the program would do more harm than good.

“At a fundamental level, I don’t support the idea of central banks buying ETFs or equities,” said Masaru Hamasaki, head of the investment information department at Amundi Japan. “Unlike bonds, equities never redeem. That means they will have to be sold at some point, which creates market risk.”
In Japan we see grand experiments that portend the future of societies combating chronic deflation. They may look like extreme measures, but hey, Japan is dealing with extreme problems too.

World Bank's Kim on Migration's Economic Case

♠ Posted by Emmanuel in , at 10/28/2015 12:07:00 AM
The World Bank president prescribes migration to cure a slowing world economy.
There's some good commentary from World Bank President Jim Yong Kim on how migration can help support faltering global economic growth. The notions are fairly simple and understood economically: Legions of elderly in the developed world are not productive and pose a strain on national resources insofar as they have sizable guaranteed pension and health care benefits. Meanwhile, as recent headlines from Europe demonstrate, there are also vast numbers of migrants from poor countries eager to work in rich countries given the opportunity. Not only can they provide the economic output necessary to help support growing old age populations in the developed world, but they also provide demand for consumer goods and other things.

Kim cites the example of OECD member Turkey as a net beneficiary of migration
Today, on average, a refu­gee can expect to remain a refu­gee for 17 years. So we need to move beyond humanitarian assistance to development solutions. If host countries can create a path for refugees to participate in their economies — as Turkey is doing — everybody benefits. These benefits are even greater when rich countries, especially those with declining populations, take in refugees. Most of the evidence suggests that refugees, like economic migrants in general, work hard and contribute more in taxes than they consume in social services.
That said, there remain societal differences--he gives the example of his native South Korea--that restrain the acceptability of migration:
I was recently in South Korea, where I raised the issue of accepting immigrants, whether they are from neighboring Asian countries or anywhere else. I asked whether a person from Indonesia, or Tanzania or Syria, could ever become a “hyphenated Korean,” as I’ve become a Korean-American . The answers I received made it clear that, despite the great benefits that Koreans have derived from being able to move to all corners of the earth, “Syrian-Koreans” probably will not be accepted as full members of Korean society anytime soon.
Ultimately, though, necessity will likely win out in the migration debate:
But South Korea, like many wealthier countries, has an aging population, and it needs an influx of younger workers to continue on its remarkable path of economic growth. The great challenge for many advanced economies is to manage such changes and welcome migrants and refugees with a plan to help them settle and perhaps eventually become citizens, just as I became a citizen of the United States at the age of 12.

This is a smart strategy, especially during these times of low global economic growth. Countries that welcome refugees, and help other countries to productively host them, will be doing the right thing — both for our fellow human beings who are suffering and for the global economy.
Would-be Trump voters and assorted bigots aside, who's to argue with such logic? If only things were so simple in cultural terms as they were in economic ones, though.

Macau Mauling: Steve Wynn Takes On the Communist Party

♠ Posted by Emmanuel in , at 10/25/2015 07:50:00 PM
The PRC humbles the capitalistic Steve Wynn.
If nothing else, casino legend Steve Wynn is a brave man. Yes, I know, he's also a very rich man, but as of late, his fortune has been eroded by the Chinese Communist Party's anti-fun campaign against Macau. Efforts to prevent Communist Party officials siphoning state funds to gamble in Macau has involved limiting the money Chinese can move from the mainland to Macau. However, Wynn claims that the drive to diversify Macau's revenues away from revenues towards dining, shows and other attractions has also had the effect of dampening Macau's core business:
Billionaire Steve Wynn is not happy with the government of Macau. The casino magnate let loose on a conference call Thursday after his company's Macau division reported a net revenue decline of nearly 40%. "In my 45 years of experience, I've never seen anything like this before," Wynn said...

But now, VIP gamblers are fleeing Macau in droves because an intense anti-corruption campaign in Mainland China has made them wary of visiting casinos. The industry is also taking a hit from new government rules. Wynn said he is particularly flummoxed by the local government's decision to limit the number of tables allowed at new casinos, including one that his company is building. "The table cap is the single most counter-intuitive and irrational decision that was ever made," Wynn said. "Here we are spending billions of dollars ... and then arbitrarily somebody says, 'well you should only have this many tables.' No jurisdiction ever has imposed that kind of logic on us."
Welcome to market authoritarianism, Steve Wynn. After benefiting from the Communists seeking Western developers earlier on, Wynn and his Western peers have been understandably less keen on the restrictions that have been placed on their activities as of late:
"We built tens of thousands of rooms and restaurants and attractions, but they say, 'you're not allowed to gamble, because you can't have the tables.' Well that's one of the reasons they come to Macau." The frankness of Wynn's remarks were a notable departure from the jargon and corporate speak that typify earnings calls. "I don't know that this has been the most satisfying quarterly phone call we've ever had, but at least it's the most candid and the most honest one that we could possibly give everybody that is interested in our company," Wynn concluded.
The Communist Party giveth and taketh away. That's just the nature of things, and it's as true for Macau as it is for the mainland.

Hi-Speed Rail Diplomacy: China vs. Japan

♠ Posted by Emmanuel in ,, at 10/22/2015 11:30:00 PM
Coming to an Asian country near you...or will that be the Chinese equivalent?
With China eclipsing Japan as the world's second largest economy in 2007, the latter has been keen to maintain its global influence and prestige--especially here in Asia. While both countries compete in nearly all things that are even remotely exportable, the competition has been particularly fierce in infrastructure. Obviously, the Chinese see foreign markets as outlets for expertise gained in constructing massive domestic infrastructure projects, especially now that grandest ones at home are becoming fewer due to the PRC slowing down economically. Meanwhile, the Japanese have massive expertise and a desire to use this industry to build goodwill.

A few days ago, the Japanese were dismayed about losing out in constructing a high-speed railway line in Indonesia to the Chinese who offered highly concessional financing to go with the construction:
Jakarta dropped both Chinese and Japanese high-speed railway construction proposals early this [October], citing the high cost of each, and offered to consider instead a cheaper medium-speed railway. But [Indonesian planning minister Sofyan Djalil] told Suga that China recently submitted a new proposal to build the high-speed rail link between Jakarta and the West Java provincial capital of Bandung without requiring Indonesian fiscal spending or government debt guarantees.

Sofyan was visiting Japan as a special envoy of Indonesian President Joko Widodo...Suga doubted the feasibility of the Chinese proposal to build the railway without Indonesian funding. It is estimated to cost 78 trillion rupiah ($5.3 billion).
Cost estimates aside, the larger point is that China and Japan have been made to pony up considerable vendor financing as well in their efforts to outdo each other in selling high-speed rail.

Another case in point is that with Indian President Najendra Modi being keen on improving infrastructure for development like his Indonesian counterpart, the Japanese are now offering massive concessional funding again to pre-empt the Chinese this around for a Mumbai-Ahmedabad rail link:
Japan has offered to finance India's first bullet train, estimated to cost $15 billion, at an interest rate of less than 1 percent, officials said, stealing a march on China, which is bidding for other projects on the world's fourth-largest network. Tokyo was picked to assess the feasibility of building the 505-kilometre corridor linking Mumbai with Ahmedabad, the commercial capital of Prime Minister Narendra Modi's home state, and concluded it would be technically and financially viable.

The project to build and supply the route will be put out to tender, but offering finance makes Japan the clear frontrunner. Last month China won the contract to assess the feasibility of a high-speed train between Delhi and Mumbai, a 1,200-km route estimated to cost twice as much. No loan has yet been offered. Japan's decision to give virtually free finance for Modi's pet programme is part of its broader push back against China's involvement in infrastructure development in South Asia over the past several years.

"There are several (players) offering the high-speed technology. But technology and funding together, we only have one offer. That is the Japanese," said AK Mital, the chairman of the Indian Railway Board, which manages the network. 
The way things are going these days, just you wait for the Chinese counteroffer. At this rate they may be building high-speed rail for free as national pride is fierce in both countries not to lose out to each other. 

Whew! TPP Won't Kill Off Cosplay

♠ Posted by Emmanuel in ,, at 10/18/2015 06:15:00 PM
TPP preserves your rights to dress like a cartoon an extent.
I have always enjoyed featuring fringe stories from the world of international economic relations, and this one should fill the bill for this month. There is a very large, globe-spanning community that enjoys dressing up as famous cartoon/comic/video game characters known as the "cosplay" crowd. As you would expect, they dress in their, er, finest for conventions of the aforementioned media.

While elder Japanese were probably fretting about agricultural and automobile imports during the TPP negotiations, younger Japanese cosplay fans in Japan worried about their freedom of expression. That is, would the likes of Bandai Namco and Nintendo strictly enforce intellectual property rights against those dressing up as their characters? Thankfully, the Japanese government may have actually listened to the cosplay folks and inserted some provisions that will preserve their freedom to dress as silly as they please:
Negotiators from the 12 nations participating in the Trans-Pacific Partnership were surely relieved to finally seal a deal. The arrangement also took a load off the minds of Japanese otaku, as the nation's legions of anime and comic fans are known. The free trade pact, hashed out over more than five years, is to strengthen the protection of intellectual property -- to a degree that drawing or dressing up as a character from, say, "Dragon Ball" could lead to criminal charges. The original copyright holder would not even have to file a complaint; a third party could do so.

A summary of the pact released by the Japanese government on Monday confirms that copyright violations will be prosecutable even if the owner does not press charges. To the relief of otaku, though, the paragraph does not end there. It goes on to say that cases that do not affect the profitability of rights holders will be considered exceptions [my emphasis]. The summary sparked a flurry of celebratory Internet comments by the otaku-inclined. "The Japanese government cares about our culture," one individual wrote. "They gave us full consideration."
Actually, a big text will come at the next big event in Japan. The thinking goes that for as long as the IP use is not massive--or massively profitable--then cosplay outfitting will be allowed. That is, homemade is fine but large-scale commercialization of others' IP may not be:
"Selling small volumes of doujinshi or doing cosplay should be safe," said Ken Akamatsu, author of the "Love Hina" and "Negima! Magister Negi Magi" manga series. But the legality of "massively profitable doujinshi and posting edited anime videos remains unclear."

 Otaku will have to wait to see how domestic laws take shape after the TPP comes into effect. In some countries, such as the U.S and South Korea, copyright violations are already punishable without a complaint from an owner. But the law books also allow for "fair use" -- limited exceptions for copying protected materials. This doctrine provides a shield for fan-driven events like Comic Con in San Diego and Anime Expo in Los Angeles.
It seems a fair trade-off  to me.

If ISIS is a 'State', Do Gas Sales Make It an 'NOC'?

♠ Posted by Emmanuel in ,, at 10/16/2015 03:28:00 PM
Like selling relics, ISIS funds itself by selling energy supplies.
Here's another terminology-stretching exercise for you to contemplate: Despite virtually no nation-state recognizing the so-called "Islamic State in Iraq and Syria," ISIS designates itself as such. ISIS knows Westphalia. Unbeknownst to many, that ISIS occupies considerable amounts of "Iraqi" and "Syrian" territory has resulted in an uneasy bargain between the Assad regime and the ISIS forces that occupy gas-producing regions:
Isis and the Assad regime remain battleground enemies, but on Syria’s gasfields the need for electricity has forced them into a Faustian bargain. Gas supplies 90 per cent of Syria’s power grid, on which Isis and the Assad regime depend. Isis controls at least eight power plants in Syria, including three hydroelectric facilities and the country’s largest gas plant. The regime has companies that know how to run them. 

Syrian activists and western officials have long accused the regime of making secret oil deals with Isis, which controls nearly all of Syria’s petroleum-producing east. But an FT investigation shows co-operation is strongest over the gas that generates Syria’s electricity. Interviews with over a dozen Syrian energy employees have revealed agreements that are less about cash than about services — something they may find more valuable than money.

The business deals do not translate into a truce. The two sides continually attack one another’s employees and infrastructure. The regime points to these clashes as proof that such understandings do not exist. In a written statement, Syria’s Ministry of Oil and Natural Resources said: “There is no co-ordination with the terrorist groups regarding this matter.” But it acknowledged some of its employees work under Isis “for the sake of preserving the security and safety of these facilities”.

But others describe the fighting as part of a struggle for better terms, where neither seeks to destroy the other. “Think of it as tactical manoeuvres to improve leverage,” said the owner of one Syrian energy company, who met the FT but asked not to be named. “This is 1920s Chicago mafia-style negotiation. You kill and fight to influence the deal, but the deal doesn’t end.”
So Assad's regime and ISIS are literally out to kill each other, but death doesn't undo the deals made for a continued supply of energy from ISIS-controlled territory. What's more, ISIS is not only a self-styled state, but supposedly has its own HR department [!] recruiting energy sector workers. This is in keeping with the post's titular idea about state-owned enterprises. To be a legitimate state in their part of the world, ISIS must not only be a state but also have a national oil corporation (NOC):
Isis’ strategy has rested on projecting the image of a state in the making, and it is attempting to run its oil industry by mimicking the ways of national oil corporations. According to Syrians who say Isis tried to recruit them, the group headhunts engineers, offering competitive salaries to those with the requisite experience, and encourages prospective employees to apply to its human resources department.

A roving committee of its specialists checks up on fields, monitors production and interviews workers about operations. It also appoints Isis members who have worked at oil companies in Saudi Arabia or elsewhere in the Middle East as “emirs”, or princes, to run its most important facilities, say traders who buy Isis oil and engineers who have worked at Isis-controlled fields.
Occupying energy-rich regions was a deliberate part of ISIS strategy for obtaining a continued flow of funds for its operations. Let's just say though that corporate governance matters pertaining to employee treatment are...somewhat different from what we expect from modern corporations;
The pawns in this deadly game are employees of state-run energy companies and the private groups they contract. Instead of worrying over valves and pipelines, Ahmed spent much of his time at Tuweinan parsing a high-stakes mind game with his militant overseers. They beat workers regularly, and even killed one in front of his colleagues. “The worst part is knowing that once you’re there, you belong to no one,” he said. “To both the regime and to Isis, you become untrustworthy.”
Instead of being fired after offending your employers, you pay with your life with ISIS. If you're still curious, the FT also has a map showing where the oil goes for its most importance source of revenue.

Avast, Computers! PRC vs. Algorithmic Trading

♠ Posted by Emmanuel in , at 10/13/2015 01:30:00 AM
The rather spectacular fall of the Chinese stock markets midyear--after the PRC acted as a cheerleader in driving it up, it must be said--prompted an official witch hunt for scapegoats. Western brokerages got their share of the heat, but the focus has arguably turned from who to what caused the plunge in stock prices. Cue today's stock market pantomime villains [mwa-ha-ha!]: the ever-so-vile algorithmic traders:
Chinese regulators are planning to increase their oversight of algorithmic traders, extending a campaign to stabilize the equity market that some analysts say has resulted in shrinking volumes and an exodus by foreign investors.

Under draft rules released by China’s securities regulator on Friday, traders who use automated orders to buy and sell stocks would need to report certain information and wait for a review before they’re allowed to execute their strategies. Orders shouldn’t originate from offshore computers or domestic systems that are remotely controlled from overseas, according to the China Securities Regulatory Commission’s proposal.

The plan is China’s latest effort to crack down on strategies blamed by authorities for exacerbating a $5 trillion stock-market rout. Volumes in the country’s equity-index futures collapsed last month amid government curbs on trading, while turnover in cash equities dropped to a one-year low on Sept. 30. The CSRC’s proposal on algorithmic trades would further weigh on volume, said Wen Zhimin, the Shenzhen-based chief strategy officer at Dacheng Fund Management Co. "Algo traders often have a very small time window to execute their strategies," said Wen, whose firm’s algorithmic unit has been trading for more than three years. "They can’t do anything if approvals take too long."
As a small, private investor in equities among other things, I am not necessarily averse to the idea that high-frequency trading driven by computers has increased rather than decreased volatility the way it was supposed to. Faced with the electronic herd bum-rushing markets in the blink of an eye, humans are prone to getting run over.

That said, I do believe that the Chinese government did provide speculators with a very tempting target to aim at by driving the prices of stocks way above valuations warranted by fundamentals. They put a very large "KICK ME" sticker on Chinese bourses, and if it not the algorithms, then someone would have shorted overvalued markets anyhow.

Believe: Can Japan Really Become a Rugby Power?

♠ Posted by Emmanuel in , at 10/11/2015 09:57:00 PM
The Brave Blossoms have been the breakthrough team of the Rugby World Cup.
Despite Fox Sports Asia broadcasting it here, I haven't been able to follow the ongoing Rugby World Cup in England all that much (grrr). In particular, I am dismayed about not having watched the shocking upset of the mighty South African Springboks by, wait for them...Japan. While the Japanese are famously good at almost anything they put their minds to, we still have stereotypes that they weren't built for this sport.

Unfortunately, the Brave Blossoms became the first team to win 3 out of 4 group stage matches but not advance to the knock-out stages. Fellow Pool B member Scotland have an identical 3-1 record, but its 45-10 victory over Japan ensured that Japan's last game was meaningless since Scotland had already booked its place. Still, I was impressed that Japan played their hearts out in defeating the USA in their last game despite knowing they would not advance.

Come 2019, the Rugby World Cup will be held in Japan. Just as no one fancied Japan or South Korea before the 2002 World Cup hosted by those two nations, the BBC is predicting further progress by the Japanese after the rapid advances they've already made in the run-up to 2019. Prior to the famous victory over South Africa, they hadn't won a single Rugby World Cup event in 18 matches:
However, even [making the quarterfinals this year] proves a step too far for the Brave Blossoms, they have already made history with the greatest upset at a Rugby World Cup - their stunning victory over 1995 and 2007 champions South Africa. The Asian underdogs' results since then may not have matched that peak, but rugby union in the country is now on a popular high, and there is a new appetite and interest in the game that bodes well for Japan's hosting of the competition in 2019.

What has been a niche interest has found itself catapulted into the national consciousness, while last week global governing body World Rugby approved a revised tournament plan for 2019, one brought about by issues over where the final would be played in four years' time. 
As with sports nowadays, popular interest drives commercial interest, which in turn provides funding for the game's promoters in Japan:
One Japanese business expert, and keen amateur rugby player, believes that the tournament, the first ever to be played in Asia, will provide breakthrough moments for both the sport and the nation. "In Japan, rugby is not really fully recognised," says Seijiro Takeshita, professor of management and information at the University of Shizuoka, and former captain of the London Japanese Rugby Football Club.

"It is also a pretty difficult game to understand, so I think more recognition of the game would definitely boost the population of people who are going to look into the game. Once they do, they will get hooked."

There was an immediate upturn of interest after the South Africa victory, with nearly 20 million Japanese watching the team's second Rugby World Cup match against Scotland, their first following the stunning upset.
Given the time difference, that's a staggering audience watching in the wee small hours of the morning. The thinking goes that Japan may be the entry point for rugby in the wider Asian region. It's certainly possible, and I think rugby is an excellent spectator sport anyway even if I don't fully understand the rules (yet).

FIFA Fines HK for Booing PRC National Anthem

♠ Posted by Emmanuel in , at 10/09/2015 01:30:00 AM
"Let's jeer the Chinese national anthem; it certainly ain't ours!"
Given how much the Hong Kong economy depends on that of mainland China--consider the many HK-listed stocks of Chinese companies--it has always surprised me how much animosity Hong Kong residents have for their "motherland." Yes, the Communist Party leadership continually frustrating substantial moves towards self-governance has been a constant sticking point, but at the end of the day, you have to realize who butters your bread, right?

Well, some prefer not to. Since the 1997 handover by the British to the Chinese, the "March of Volunteers"--China's national anthem--has been Hong Kong's, too. So, pro-democracy campaigners have used the playing of this anthem to jeer their erstwhile PRC oppressors. Apparently, even the hyper-corrupt FIFA has had enough. In the latest booing episode, the Hong Kong Football Assocoation has been hit with a fairly stiff fine over the behavior of Hong Kong fans:
Fifa have fined the Hong Kong Football association (HKFA) £3,400 after Hong Kong fans booed the Chinese national anthem during a World Cup qualifier last month. Hong Kong has shared the anthem with mainland China since British rule ended in 1997 and disgruntled fans jeered 'March of the Volunteers' in the wake of their 3-2 defeat to Qatar.

Reports also claim that an object was thrown onto the pitch during the incident. Fifa warned Hong Kong's supporters about their conduct prior to the game as the anthem had been booed twice previously, but their warning was not heeded.
But wait, the excitement is set to be ratcheted up further as Hong Kong meets China for the right to play in the next World Cup:
Sarah Lee, a spokesperson for HKFA, said that the association were keen to install a "positive atmosphere" in order to deter booing in the future. Hong Kong's relationship with the mainland has become tense in recent years and culminated in a string of pro-democracy protests last year.

Hong Kong are scheduled to play mainland China on November 17 and have an opportunity to leapfrog their opponents in Group C as they attempt to qualify for a World Cup for the first time.
When you're fined by FIFA over governance matters, wow, that's pretty bad. More fireworks are probably in store, though. Politics and football often mix: see the US national team being booed by Latin fans on American soil when meeting Mexico's squad. Or, think about Barcelona FC stalwarts supporting Catalan independence.

Utterly Predictable: Candidate H Clinton 'Opposing' TPP

♠ Posted by Emmanuel in ,, at 10/08/2015 01:37:00 PM

The general rule for modern Democratic candidates is to voice skepticism for trade agreements in the run-up to elections, and then warm up to them once in office. The electoral dynamics are simple: organized labor remains strong within the Democratic party even if they are a much-diminished force in the overall picture Stateside. I bring this up because there are so many articles coming out about how Hillary Clinton has allegedly changed her position on the Trans-Pacific Partnership enlargement. Here is a representative quote:
Hillary Clinton said Wednesday she opposes the 12-nation Trans-Pacific Partnership, marking a significant break with the Obama Administration as she heads into the first Democratic presidential debate.

In an interview with PBS NewsHour, Clinton said that while she is still reviewing the deal, she is “worried” it benefits drug companies and does not address currency manipulation. “What I know about it as of today, I am not in favor of what I have learned about it,” Clinton said. “I’ve tried to learn as much as I can about the agreement, but I’m worried...”

“I’ve tried to learn as much as I can about the agreement, but I’m worried,” Clinton said. “I’m worried about currency manipulation not being part of the agreement. We’ve lost American jobs to the manipulations that countries particularly in Asia have engaged in.”
To make a long story short, like Obama and her husband before her, masquerading as a trade-o-phobe during election campaigning to please organized labor constituencies is standard practice. Witness the 2008 nomination process where it was [surprise!] the supposedly trade-hating Obama--under whom TPP was concluded--criticizing Clinton for jumping on the FTA-bashing train late during the 2008 campaign:
In Ohio, where union workers are a major presence and the manufacturing economy is hurting, Sen. Barack Obama attacked Sen. Hillary Clinton for her position on the North American Free Trade Agreement, called NAFTA.

"Yesterday, Sen. Clinton also said I'm wrong to point out that she once supported NAFTA," Obama said. "But the fact is, she was saying great things about NAFTA until she started running for president. A couple years after it passed, she said NAFTA was a 'free and fair trade agreement' and that it was 'proving its worth.' And in 2004, she said, 'I think, on balance, NAFTA has been good for New York state and America.' "

The Clinton campaign says Obama is wrong, that Clinton was critical of NAFTA "long before she started running for president." We looked into Clinton's past remarks on NAFTA and concluded that she has changed her tune, from once speaking favorably about it to now saying the agreement needs "fixing."
Some people never learn, If elected, I am sure that Missus Clinton will support TPP ratification Stateside after reading the TPP text "more carefully"--or something along those lines. Unlike Obama who was a senator in 2008 when running for president, she doesn't even hold any office at present, so what does it matter if the "opposes" TPP?

As an aside, the China-aimed currency manipulation concern about TPP is the most asinine thing I've ever heard. First, China is not a party to the @#$%^& agreement. Second, even if it were, it is drawing down and not increasing its foreign exchange reserves, implying that it is trying to maintain the value of its currency.

Early Winners and Losers From TPP Enlargement

♠ Posted by Emmanuel in ,,, at 10/06/2015 08:15:00 PM
Get ready to see lots more of these sorts of plants in Vietnam (read why below).
Bloomberg has an initial rundown of countries expected to win and lose from the conclusion of the Trans-Pacific Partnership (TPP) enlargement. When I pointed out earlier that there is a potential for very significant carve-outs for important TPP participants, I definitely had Japan in mind. True enough, one of the remarkable bits of agricultural protectionism that remains intact concerns rice. Despite the staple food becoming an ever-smaller part of the Japanese diet, rice farmers remain a core Liberal Democratic Party constituency. How so? Try a 1%--I am not joking--non-tariff import quota. Yippee, 1% tariff-free market access! With concessions like these....Anyway, here is the list together with some of my thoughts about the other countries:


*Japanese car and auto-parts makers may be the biggest winners, as they get cheaper access to the U.S., the industry’s biggest export market
* Japan was forced to reduce some of the protections granted to its rice farmers, creating a non-tariff import quota of one percent of its total consumption
* Livestock farmers may be harder hit as tariffs on beef will be cut to 9 percent over 16 years from 38.5 percent, while pork tariffs will also be slashed


* The deal will remove about A$9 billion of import taxes from Australian trade, Prime Minister Malcolm Turnbull said
* Australia will gain access to the U.S. sugar market while Japan will also reduce levies on the product and the cut in the beef tariff will help Australian ranchers
* Seafood and most horticulture products will see tariffs dropped, while preferential quota access will be created for grains, cereals and rice
* Australia and New Zealand successfully pressured the U.S. to compromise on the amount of time pharmaceutical companies would get protection for new biotech drugs, granting companies a minimum of five years rather than the 12 years of protection pushed by the U.S. That could lead to cheaper drug prices and more competition
* Reduced tariffs on everything from iron and steel products, to pharmaceuticals, machinery, paper and auto parts will help Australian manufacturers

COMMENT: Biotechnology stocks stateside are being driven down Tuesday as a result of the biotech provisions

New Zealand:

* Tariffs due to be eliminated on 93 percent of New Zealand’s trade with its TPP partners representing annual savings of about NZ$259 million ($168 million), Trade Minister Tim Groser said.
* The dairy industry, which accounts for about a quarter of exports, will see savings of about NZ$102 million a year. Some tariffs to remain in key markets such as the U.S., Japan, Canada and Mexico. Though New Zealand will get preferential access to new quotas, Canada only agreed to set foreign quotas for 3.3 percent of it dairy market over five years
* Tariffs on beef exports will be eliminated with the exception of Japan where they will drop to 9 percent from 38.5 percent, he said. Tariffs on all other exports including fruit, seafood, wine and sheep meat will be eliminated
* “While I am very disappointed that the deal falls far short of TPP’s original ambition to eliminate all tariffs, there will be some useful gains for New Zealand dairy exporters in key TPP markets such as the U.S., Canada and Japan,”  John Wilson, chairman of Fonterra Cooperative Group Ltd., the world’s biggest dairy exporter, said in a statement.

COMMENT: Canada and Japan's unwillingness to open up their agricultural markets significantly when faced with this agricultural exporter's wishes demonstrates the value the Americans placed on their participation. Remember also that New Zealand was an original TPP member before the United States thought about expanding it. In agricultural terms, however, it is a watered-down agreement on matter how the Yanks claim it is a "high quality" and "comprehensive" agreement.


* Vietnam to be among the biggest winners, according to the Eurasia Group, with the agreement potentially boosting GDP by 11 percent by 2025, with exports growing 28 percent in the period as companies move factories to the low-wage country, the report said.
* Reduced import duties in the U.S. and Japan will benefit country’s apparel manufacturers, whose low labor costs have enabled them to grab business from China. Still, impact may be limited as Vietnam will still face strict rules-of-origin on materials.
* Fishing industry to benefit from elimination of import tax on shrimp, squid and tuna, now averaging 6.4%-7.2%
* Eliminating import taxes on pharmaceutical products from the current average of about 2.5% will lead to tougher competition between Vietnamese domestic companies and foreign companies. TPP will also increase patent protection, restricting Vietnam companies access to new products as well their ability to produce new drugs.

COMMENT: Low-cost assembly work in Vietnamese factories is set to get a boost since few of the other participants offer the same sort of comparative advantage. Maybe they'll diversify from Samsung phones as a result.


* Malaysia’s state-owned enterprises may suffer from the deal which calls for equal access to government procurement
* Electronics, chemical products, palm oil and rubber exporters are among beneficiaries. Malaysia is the world’s second-biggest palm oil producer and one of the biggest growers of rubber


* The world’s second-biggest economy may be among the biggest losers as it failed to join the TPP, allowing the U.S. to tighten trade ties across the region and advance the Obama administration’s so-called pivot to Asia. After initially dismissing TPP, Chinese officials have now indicated some interest in possibly joining in the future
* "China has an open attitude towards system building that complies with WTO rules and is conducive to economic integration in the Asia-Pacific region, and hopes the agreement and other free trade arrangements in the region can be mutually beneficial, so that they can make contributions to trade, investment and economic growth in the Asia-Pacific region," China’s Foreign Ministry said in a statement.
* Chinese exporters may lose some market share in the U.S. and Japan to developing countries such as Vietnam, according to Bloomberg economist Fielding Chen
* China will push its "one belt, one road" strategy of resurrecting trade routes from Asia to Europe and its new development bank and try to reach more free-trade deals with other countries, especially in Asia, Chen said. “While opening up its own door, China doesn’t want to see other countries are closing their doors,” Chen said.

COMMENT: Yes, yes, China is not a TPP signatory. To me, the real litmus test of whether TPP matters is if China loses enough business in the medium-term to want in despite the United States having thought up the TPP enlargement in the first place. China has alternative preferential blocs in mind, but it has lost out already in getting them inked.

A Done Deal? Trans-Pacific Partnership is Inked

♠ Posted by Emmanuel in , at 10/05/2015 05:09:00 PM
The international trade deal is signed; individual nations ratifying it remains.
This comes as a bit of a surprise to me: the Trans-Pacific Partnership has, at long last, been completed. I had expected divisive issues to hold it up--agriculture and automobiles especially--but it seems I was mistaken. There are APEC economies starved for further trade deals including, much to my surprise, Japan, which I had expected to complicate matters over its closed markets for the aforementioned goods. While the full text of TPP is yet to be released, here is the summary from the USTR:
On October 4, 2015, Ministers of the 12 Trans-Pacific Partnership (TPP) countries – Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, United States, and Vietnam – announced conclusion of their negotiations.  The result is a high-standard, ambitious, comprehensive, and balanced agreement that will promote economic growth; support the creation and retention of jobs; enhance innovation, productivity and competitiveness; raise living standards; reduce poverty in our countries; and promote transparency, good governance, and enhanced labor and environmental protections.  We envision conclusion of this agreement, with its new and high standards for trade and investment in the Asia Pacific, as an important step toward our ultimate goal of open trade and regional integration across the region.
The USTR also touts five key features, although these talking points should be familiar by now:

Five defining features make the Trans-Pacific Partnership a landmark 21st-century agreement, setting a new standard for global trade while taking up next-generation issues.  These features include:
  • Comprehensive market access.  The TPP eliminates or reduces tariff and non-tariff barriers across substantially all trade in goods and services and covers the full spectrum of trade, including goods and services trade and investment, so as to create new opportunities and benefits for our businesses, workers, and consumers.
  • Regional approach to commitments.   The TPP facilitates the development of production and supply chains, and seamless trade, enhancing efficiency and supporting our goal of creating and supporting jobs, raising living standards, enhancing conservation efforts, and facilitating cross-border integration, as well as opening domestic markets.
  • Addressing new trade challenges.  The TPP promotes innovation, productivity, and competitiveness by addressing new issues, including the development of the digital economy, and the role of state-owned enterprises in the global economy.
  • Inclusive trade.  The TPP includes new elements that seek to ensure that economies at all levels of development and businesses of all sizes can benefit from trade.  It includes commitments to help small- and medium-sized businesses understand the Agreement, take advantage of its opportunities, and bring their unique challenges to the attention of the TPP governments.  It also includes specific commitments on development and trade capacity building, to ensure that all Parties are able to meet the commitments in the Agreement and take full advantage of its benefits.
  • Platform for regional integration.  The TPP is intended as a platform for regional economic integration and designed to include additional economies across the Asia-Pacific region.
Attention now turns to the specifics: what sorts of concessions were offered to the likes of Japan...or even Canada? Beyond that, this international agreement needs to be ratified by all of the 12 participants in the negotiations. So there is still quite some ways to go.

What China Gets From Giving Venezuela $45B

♠ Posted by Emmanuel in ,,,, at 10/05/2015 01:30:00 AM
The largest Venezuelan note is now worth 12 cents.
Next week, the IMF is holding meetings in Lima, Peru in the region that has suffered as much as any other from the global slump in commodities. It's not bound to be a happy occasion for many of those gathered. Despite everything, some commodity exports have managed to accumulate substantial foreign exchange reserves precisely in anticipation of these lean years. Others, meanwhile, have tried to lessen dependence on commodity exports to literally fuel growth.

As you would expect, Venezuela has done none of these things as it amassed very little in reserves--preferring to waste oil revenues on quite frankly idiotic attempts to show "global solidarity." Diversification away from oil? If nothing else, Venezuela has become more dependent on energy in the past few years...just as China-buoyed global demand has ebbed. Meanwhile, as the rest of the world combats deflation, Venezuela is confronting hyper(inflation) as the bolivar heads to oblivion. It has fallen by 88% in 2015:
Venezuela’s bolivar passed the physiological barrier of 800 bolivars per dollar Tuesday in black market trading as Venezuelans rushed to protect savings amid rising inflation. That means that the country’s biggest currency note of 100 bolivars is now worth about 12 U.S. cents.

The currency has declined 14.7 percent in the past month to 816 bolivars per dollar, according to, a website that tracks trading in street markets where Venezuelans go to skirt limits on foreign-exchange purchases. The government maintains official rates of 6.3, 13.5 and about 200 bolivars per dollar for authorized purchases of items deemed essential.

Venezuela’s inflation, estimated by some to be nearing 200 percent, is the fastest in the world as President Nicolas Maduro’s administration prints more currency to pay budget expenses as the falling price of oil reduces foreign currency income. The amount of bolivars in circulation passed 3 trillion for the first time on Sept. 19, up 97 percent in the past year, according to data compiled by Bloomberg.
The only thing keeping Venezuela from economic oblivion is not the hated IMF, but rather the People's Republic of China. Ricardo Hausmann, the Venezuelan economist at Harvard, blames the worsening of Venezuela's worrisome situation to continued Chinese cash infusions which now amount to an astounding $45 billion. Who needs the IMF when you've got the PRC?
The billions of dollars China loans to Venezuela in exchange for oil are a “disgrace” and used for corrupt purposes that go undisclosed to the general public, said Harvard professor Ricardo Hausmann.

Venezuela, which has tapped China for more than $45 billion over the last decade, is increasingly reliant on the world’s second-biggest economy for cash because of its unwillingness to comply with the requirements of the International Monetary Fund, Hausmann wrote in a Sept. 28 opinion piece for Project Syndicate. Those loans have become more important than ever as the nation’s international reserves tumbled with oil prices to a near 12-year low.

“The Chinese have not required that Venezuela do anything to increase the likelihood that it regains creditworthiness,” wrote Hausmann, a former Venezuelan planning minister. “They merely demand more oil as collateral. Whatever the IMF’s faults,” China Development Bank “is a disgrace.” The loans have “built-in privileges for Chinese companies” in sectors including telecommunications, appliances, cars and oil drilling, Hausmann said. An e-mail to the bank seeking comment, sent after business hours, wasn’t immediately returned.
Think of tt as underdevelopment theory with a twist. Instead of the "imperialistic West" making its dictates known through the IMF, you have "third world champion" China. Remove the labels though and what you see happening is similar: ever-broader swathes of the Venezuelan economy falling into the hands of the Chinese. I hardly think the Chinese are doing this for altruistic reasons--would they extend so much credit to a resource-poor country? In China's calculations, $45 billion is a drop in the bucker compared to gaining leverage over the vast reserves Venezuela supposedly holds--especially in the form of unconventional reserves.

The question remains, though, of whether the Chavista leaders will continue to have warm relations with China into the future. Or, if these Chavista leaders will remain in place as they are quite unpopular for obvious reasons with the Venezuelan electorate. I guess China throwing billions and billions of dollars at them is one way of helping to guarantee that they do until such as time that China can be paid in full--and more.

I don't use the word "giving" instead of "lending" in the title for nothing.

Do Computers 'Taming' Volatility Make it Worse?

♠ Posted by Emmanuel in at 10/02/2015 07:02:00 PM
'I'm sorry Dave,'
The story of computers or robots doing their masters wrong when they were supposed to work to the benefit of humanity has a very long lineage in science fiction. In Carnegie Mellon's "Robot Hall of Fame," there is the fictional HAL 9000 that tried to kill off astronauts on board the spaceship Recovery in the legendary 2001: A Space Odyssey. Not having mastered space flight to such a degree fourteen years after the year that movie was set, however, it seems we still have machines trying to kill off

You see, the recent turbulence in global financial markets is now being blamed on trading algorithms designed to...wait for it...limit volatility:
Since the bruising losses of the financial crisis investors have sought out novel and complex ways to play markets more safely. Many have increasingly turned to computer-driven “systematic” investment strategies that aim to maximise returns while mitigating risks — whatever the market conditions...

This has burnished the appeal of the systematic investment industry, the creation of a new generation of scientist asset managers who use complex algorithms to beat the market. Freed from the shackles of human bias and slow reaction, their funds harness computer power to constantly and automatically exploit millions of minuscule investment opportunities, using sophisticated risk management tools that aim to tame volatility rather than be terrorised by it.
Instead of limiting volatility, however, the overall effect of these computer-based strategies may be to increase such volatility:
But the recent stock market turbulence has raised new concerns that these automated and algorithmically-driven strategies are compounding problems, not insulating investors from them. Some analysts and investors fret that the systematic strategies are a financial version of the Cobra Effect. “We have been breeding cobras, and we are now releasing them into the wild,” says Andrew Lo, a finance professor at MIT’s Sloan School of Management. “We ought to be very concerned about this growing phenomenon . . . This is no longer a cottage industry.”

Some analysts fear that the rise of systematic investment strategies has made markets even less predictable, more volatile and potentially susceptible to sudden, inexplicable crashes should the role of algorithmic, automated trading continue to climb. “Every investment cycle is defined by the collective desire to avoid the mistakes of the last one. Taken to extremes, that often becomes the catalyst for the next crisis,” warns Vadim Zlotnikov, chief strategist at AllianceBernstein, an asset manager.
Those favoring algorithm-based strategies need to demonstrate that they do not increase overall volatility using such strategies, but it will be difficult to devise a suitable test. For instance, how can you tell them to lay off for one month and be active another? In the meantime, watch out for the machines. Or, to be fair, the folks with unyielding faith in them.

First Time Ever: PRC Reports Reserve Holdings to IMF

♠ Posted by Emmanuel in ,, at 10/01/2015 01:30:00 AM
Sucking up to the IMF in all sorts of ways--now including reporting on forex reserves.
"Transparency" and "Chinese officialdom" are strangers to one another. That said, the PRC seems to be making improvements in one regard: After years of obfuscation, PRC authorities have only just begun reporting reserve data to the IMF Composition of Foreign Exchange Reserves (COFER). Previously, they furnished no data whatsoever--nada, zilch, zip, diddly-squat. But, all that changed recently with China partially--repeat, partially--reporting on its reserves.

How "partial" are we talking about? In aggregate, total reported reserves to the IMF jumped by $600 billion. Assuming that all the increase is due to China's new reporting, it falls well short of the $3.56 trillion it is believed to hold even with its recent sell-off of foreign exchange to slow the rate of yuan depreciation. From an earlier report in the WSJ:
The People’s Bank of China said Monday that its reserves fell by $93.9 billion, the biggest-ever monthly drop in dollar terms and the largest in percentage terms since May 2012. The decline in China’s foreign-currency reserves has accelerated, deepening a trend that illustrates the pressures of the country’s slowdown, rising capital outflows and expectations for monetary tightening in the U.S. China used its reserves to stabilize the yuan after the central bank devalued the currency on Aug. 11, a move that heightened worries about growth in the world’s second-largest economy and sparked a sharp selloff across global stock markets.

At $3.56 trillion as of the end of August, the currency reserves held by the PBOC still account for nearly one-third of all holdings by central banks world-wide. But the reserves have declined since a peak of nearly $4 trillion in June 2014 as more money leaves the country
Now, Dow Jones newswires reports on China's COFER contribution:
China has begun to report its currency reserves to the International Monetary Fund for the first time—a milestone in opening a key facet of the country's economy to the public view. The move comes as Beijing seeks to have its currency, the yuan, included in the basket of reserve currencies that comprise the fund's lending instrument.

The IMF said China has reported a "representative portfolio on a partial basis," meaning that what it has shared represents the fractional breakdown of its holdings of different currencies. China will gradually report its full foreign-exchange holdings over two to three years, the IMF said.

Reported currency reserves world-wide jumped by around $600 billion with China's new data. The IMF's numbers don't reveal how much each of the reporting countries holds. But based on the fund's breakdown of the aggregated share of different currencies held, it seems China's portfolio matches most central-bank holdings: roughly 60% dollars and 20% euros and pounds sterling—with the Japanese yen and other major currencies making up the difference.
So approximately $600B reported out of about $3.5T is, in the bigger picture, just a fraction of China's entire forex holdings. But then again, it's a start given how secretive the Chinese are. The prize the Chinese are after remains IMF inclusion of the yuan in the SDR basket of currencies:
To win reserve-currency status China has begun to liberalize its exchange-rate regime and provide more transparency about its currency policies. Last year China committed to providing more details about its reserve holdings, an effort that will allow economists to better gauge the degree to which the country is intervening in its exchange rate. China now discloses its foreign-exchange reserves every month, whereas in the past it reported the figures quarterly. It also has started to disclose its holdings of gold every month.
You didn't think the Chinese were doing this out of the goodness of their hearts, did you?