November 25, 2016 – December 1, 2016

Another Arab awakening looming. China clamp down on capital flight. Indonesia’s forests are burning.

Headlines

FT – Opec: a sniff of higher prices 11/24. “After flirting with irrelevance, Opec wants to control supply again. Prices will collapse if it cannot follow through – and so will its credibility.”
NYT – Indian Vendors See Empty Stores and Blame a Rupee Ban 11/24. India’s cash crunch is putting its economy in a temporary (hopefully) crisis.
Banking Blog – Watch a thief install a skimmer in 3 seconds 3/18. Be mindful of where you swipe your credit card.
WSJ – Embattled South Korean President Park Opens Door to Leaving Office 11/29. Well that doesn’t happen every day – a sitting world leader willing to step down from office due to some shenanigans.
WSJ – China’s New Tool for Social Control: A Credit Rating For Everything 11/28. Big Brother is watching…

Special Reports / Opinion Pieces

Mauldin Economics – Do Larger Federal Budget Deficits Stimulate Spending? Depends on Where the Funding Comes From – Paul Kasriel 11/30
- If one is to apply Keynesian economic prescriptions, “where does the government get the funds to pay for the increased spending or tax cuts?”

Briefs

Rachel Sanderson of the Financial Times brought attention to the fears of Italian bank failures with the pending referendum this weekend.
- “Italy’s banks have €360bn of problem loans versus €225bn of equity on their books.”
- Should prime minister Matteo Renzi lose a constitutional referendum this Sunday (12/4), there are eight banks in various stages of distress that are rather exposed…not to mention any potential panic that may spread across Europe.
Yuan Yang and Hudson Lockett of the Financial Times highlighted that there is a sperm crisis of sorts in China as male fertility is declining.
- “Last year fewer than a fifth of young men who donated sperm in the inland province of Hunan had sufficiently healthy semen to qualify as a donor, according to a 15-year study of more than 30,000 applicants. In 2001 more than half qualified.”
- “‘Growing evidence seems to suggest that male infertility is increasingly becoming a serious concern in the entire country,’ said Huang Yanzhong, senior fellow for global health at the Council of Foreign Relations in New York. If shown to reflect a broader trend, such findings would further complicate China’s mounting demographic problems.”
- For reference, “China’s fertility rate – the number of children a woman is expected to have during her child-bearing years – was 1.05 last year….”
- “The researchers in the Hunan semen study, published online in the journal Fertility and Sterility, say there is no clear explanation for why donors’ reproductive health declined so rapidly. But they point to ‘increased environmental pollution, including pollution of water, air and food,’ as a possible explanation.”
Sonia Talati of Barrons pointed to the declining sales prices in the Miami condominium market.
- “The correction in Miami’s overheated condo market, which we predicted 18 months ago, has arrived sooner than we expected. Sales are down 30% since last October to 983 units. 870 newly-constructed units are currently listed, and only some 50 sold in the last six months, according to the latest report of real estate lender StatFunding.com.”
- “Prices are coming down to the point that people are selling their Miami condos at a loss to be rid of their properties. Take, for example five units in the luxury-waterfront condominium building, Marina Palms, which sold below the prices that the sellers originally paid. One seller, who had purchased a unit for $950,000, hoping to soon have a property north of a million dollars, recently sold the unit for $800,000, a 16% loss, one year later. According to the StatFunding.com report, the number of resale condos sold at a loss is up 500% since May.”
- “The Miami condo market is going through a ‘price discovery phase,’ says Andrew Stearns, Statfunding.com’s founder and CEO, with potential buyers ‘hesitant to enter into the market at the prices sellers are asking.'”
- “Buyers are sitting on the fence with good reason. More than 10,000 units are scheduled to be completed within the next two years, almost doubling the existing available inventory of 14,000 condos.”

Graphics

FT – North Pole temperature rise increases climate fears – Pilita Clark 11/22

FT – British workers face worst decade for pay in 70 years – Gemma Tetlow 11/24

Economist – What the world worries about 11/24

FT – India’s demonetization in four charts – Kiran Stacey 11/27

WSJ – Daily Shot – 11/30

Featured

*Note: bold emphasis is mine, italic sections are from the articles.

De-development: Another Arab awakening is looming, warns a UN report. Economist. 29 Nov. 2016.

On November 29, the UN produced its latest Arab Development Report and the findings are not all that encouraging. “Five years on from the revolts that toppled four Arab leaders, regimes are ruthlessly tough on dissent, but much less attentive to its causes.”

“As states fail, youth identify more with their religion, sect or tribe than their country. In 2002, five Arab states were mired in conflict. Today 11 are. By 2020, predicts the report, almost three out of four Arabs could be ‘living in countries vulnerable to conflict.'”

“Horrifyingly, although home to only 5% of the world’s population, in 2014 the Arab world accounted for 45% of the world’s terrorism, 68% of its battle-related deaths, 47% of its internally displaced and 58% of its refugees. War not only kills and maims, but destroys vital infrastructure accelerating the disintegration.”

“The Arab youth population (aged 15-29) numbers 105m and is growing fast, but unemployment, poverty and marginalization are all growing fast. The youth unemployment rate, at 30%, stands at more than twice the world’s average of 14%.”

“Yet governance remains firmly in the domain of an often hereditary elite. ‘Young people are gripped by an inherent sense of discrimination and exclusion,’ says the report, highlighting a ‘weakening [of] their commitment to preserving government institutions.'”

Further, “despite the Arab League’s pretensions to brotherhood, visa-free travel among its 22 countries in unusual. Many Arabs need exit permits to boot.”

As the report’s lead author, Jad Chaaban, so aptly puts it “the moment I ban a displaced or marginalized person from traveling to work, I’m implicitly leaving him as a victim for an extremist ideology.”

On the plus side (or downside for the ruling elites), the current youth of the Arab world are better educated and more in tune with the world at-large thanks to social media.

China to clamp down on outbound M&A in war on capital flight. Gabriel Wildau, Don Weinland, and Tom Mitchell. Financial Times. 29 Nov. 2016.

“China is readying new restrictions on outbound foreign investment in an effort to curb capital outflows that are putting downward pressure on the renminbi and draining foreign exchange reserves, according to people who have seen a draft of the rules.”

“The State Council is most concerned about outbound mergers and acquisitions worth more than $10bn, said two people familiar with the government’s deliberations. They added that Chinese officials would scrutinize purchases of more than $1bn if they were outside the investor’s core business. Meanwhile, state-owned enterprises will not be allowed to invest more than $1bn on a single overseas real estate transaction.”

“‘The reversal of measures to liberalize capital outflows reflects China’s zig-zag approach to reforms,’ said Eswar Prasad, a China finance expert at Cornell University. ‘This step signals the government’s conventional preference for stability and control rather than economic liberalization and resulting volatility.'”

“According to commerce ministry data, Chinese companies’ overseas purchases have surged past last year’s record of $121bn for non-financial outbound investments, reaching $146bn over the first 10 months of 2016.”

“Due largely to capital outflows, the renminbi has fallen 5.8% this year, on track for its worst year on record. China has sold dollars from its foreign exchange reserves to try to curb downward pressure on the currency, with reserves hitting $3.12tn at the end of October, the lowest level since March 2011.”

“China is on course to record its first net foreign direct investment deficit this year, according to balance of payments data. Inbound FDI exceeded outbound flows every quarter from 1998 until the middle of last year but China has reported FDI deficits for four of the past five quarters, including a record $31bn in the third quarter of 2016.”

In addition to concerns about capital flight due to US dollar appreciation relative to the Yuan, “analysts and bankers said Beijing was also concerned about the quality of Chinese overseas investments. The government fears some transactions are being rushed through without proper due diligence to cash in on the dollar’s continuing appreciation against the renminbi.”

Despite tough talk, Indonesia’s government is struggling to stem deforestation. Economist. 26 Nov. 2016.

Despite being offered $1bn by Norway to stop cutting down its forests, Indonesia continues to burn its peatlands.

“In recent years no country has lost forest at a faster rate than Indonesia. Between 2000 and 2012 around 6m hectares [14.8m acres] of primary (meaning virgin) forest disappeared, mainly on the islands of Borneo and Sumatra. Roughly 40% of the deforestation took place in nominally protected areas.”

Further, the forest being cleared tends to be peatland. “Indonesia contains around 14.9m hectares of peatland – most of the world’s tropical peat forests.”

“Peat forests can be as much as 200 times more damaging to the atmosphere when burnt than other types of vegetation, both because they store more carbon and because more of it is released as methane, an especially harmful greenhouse gas.”

Bottom line, the palm-oil firms have too much influence and it has been too easy bribe officials to gain access to protected lands… “a paper published in 2013 found that almost 90% of deforestation in Sumatra between 2000 and 2010 was done by big palm-oil firms.”

Other Interesting Articles

Bloomberg Businessweek