Tag: Remittances

Yield Curve From a Month Ago and the Impact of Remittances on Global Capital Flows

WSJ – Daily Shot: Fed Funds Futures Curve 8/28/19

For perspective.

FT – Remittances: the hidden engine of globalization – Federica Cocco, Jonathan Wheatley, Jane Pong, David Blood, and Aendrew Rininsland 8/27/19

…An estimated 270m migrants around the world who will send a combined $689bn back home this year, the World Bank estimates. That figure marks a landmark moment: this year remittances will overtake foreign direct investment as the biggest inflow of foreign capital to developing countries.

Remittances were once viewed by many economists as a secondary issue for developing economies behind FDI and equity investments. Yet because of their sheer volume and  consistent and resilient nature, these flows are now “the most important game in town when it comes to financing development”, says Dilip Ratha, head of the World Bank’s global knowledge partnership on migration and development.

The number of people in the world who live outside the country of their birth has risen from 153m in 1990 to 270m last year according to the World Bank, swelling global remittance payments from a trickle to a flood. As migration has increased, these financial snail-trails have become one of the defining trends of the past quarter-century of globalization – the private, informal, personal face of global capital flows.

For many developing economies, it is a lifeline.

“In times of economic downturn, natural disaster or political crisis, private capital tends to leave and even official aid is hard to administer,” says Mr Ratha. “Remittances are the first form of help to arrive, and they keep rising.”

Remittance inflows help boost countries’ balance of payments and therefore their credit ratings, lowering the borrowing costs of governments, companies and households. In the Philippines, for example, this year’s remittances inflows of $34bn will help reduce what would otherwise be a current account deficit of more than 10% of gross domestic product to a deficit of just 1.5% of GDP.

But remittances have economic downsides too. By helping to subsidize low incomes at home they provide a cushion against the impact of slow growth, which eases pressure on governments to reform their policies.

And, by channeling capital into consumer spending, remittances boost imports – which, some economists say, holds back the development of domestic manufacturing.

Remittances are also one of the key transmission mechanisms of global economic stress. People move in search of opportunities, so emigration rises when an economy is doing badly. When their host country is doing well and migrants prosper, they send more money home – a counter-cyclical boost to the struggling economy at home.

But when host countries hit hard times, the shock is transmitted back to migrants’ families in the form of lower remittances. This can export the slowdown to the recipient country, fueling economic instability on a global scale.

One example is the recent fall in oil prices. It was a blow not only to oil producing countries but also to families across south-east Asia and elsewhere who have breadwinners working in the Gulf.

It proved to be a structural shock for Lebanon, a small economy in which families and the banking system are heavily dependent on inflows from the diaspora.

“We’ve been watching Lebanon closely because remittances have really declined in the past decade, by almost 12% of GDP,” says Frank Gill of S&P Global, one of the big three rating agencies. “This is a key source of funding for the public sector and it’s a major worry for a rating agency, for obvious reasons.”

In May S&P lowered its outlook for Lebanon’s sovereign rating to negative, citing slowing inflows from non-residents as a threat to the country’s fiscal stability.

Although remittances have become one of the chief characteristics of the current era of globalization, political shifts including the rise of populism raise the question of whether their economic importance will prove short-lived.

The backlash against globalization is growing and anti-immigration sentiment is rising in many developed countries. So it is possible that both migration and the capital flows that it drives could begin to ebb.

But the World Bank expects 550m people to join the work forces of low and middle-income countries between now and 2030. And the gaping income disparity between developed and low-income countries – $43,000 a year per capita in the former, and $800 a year in the latter – is set to persist.

That means job opportunities abroad will continue to look attractive.

And the push from poor countries will be met by a pull from rich ones.

“The western world is ageing, and it’s going to be increasingly reliant on imported labor,” says S&P’s Mr Gill. “I don’t see why that isn’t going to continue.”

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May 7, 2018

Perspective

Economist – Remittances 4/26

Visual Capitalist – A World of Languages – Iman Ghosh 5/5

WP – America is more diverse than ever – but still segregated – Aaron Williams and Armand Emamdjomeh 5/2

Worthy Insights / Opinion Pieces / Advice

A  Wealth of Common Sense – Schrodinger’s Portfolio – Ben Carlson 4/29

Bloomberg – The Return of the Brick-and-Mortar Store – Conor Sen 5/1

Economist – In China’s cities, young people with rural ties are angry 5/3

Economist – Behind the teacher strikes that have roiled five states 5/3

Economist – Where will the next crisis occur? – Buttonwood 5/3

Mauldin Economics – Us vs. Them – Ian Bremmer 4/25

Pragmatic Capitalism – Three Things I Think I Think – China, Tesla And Weird Stuff – Cullen Roche 5/4

Markets / Economy

FT – Argentina stuns markets as it pushes interest rates to 40% – Cat Rutter Pooley, Adam Samson, and Roger Blitz 5/4

NYT – A Fast-Food Problem: Where Have All the Teenagers Gone? – Rachel Abrams and Robert Gebeloff 5/3

WSJ – Apple Allays iPhone Worries, Adds $100 Billion to Buyback Plans – Tripp Mickle 5/1

  • I count $300 billion in total dividends since 2013…geez.

  • If that wasn’t enough…

Real Estate

BI – Uber and Lyft are changing where rich people buy homes – Sarah Jacobs 5/3

  • “A report released this week from MetLife Inc.’s asset-management business confirmed that the premium cost of apartments near public transit has begun to decline due to services such as Uber and Lyft.”

FT – Priced out of the American dream – Sam Fleming 5/2

Health / Medicine

Bloomberg Businessweek – Silicon Valley Wants to Cash In on Fasting – Tom Giles and Selina Wang 4/24

Automotive

FT – UK to ban most hybrid cars, including Prius, from 2040 – Peter Campbell and Jim Pickard 5/4

  • Nothing formalized at this moment, just be aware of the direction of this effort.
  • “Hybrid cars that rely on traditional engines, such as the Toyota Prius, would be banned by 2040 under clean-air plans being drawn up by the UK government that would outlaw up to 98% of the vehicles currently on the road.”
  • “Three people involved in the decision-making process said the proposed rules would limit new car sales to those that can travel at least 50 miles using only electric power.”
  • “The change would outlaw more than 98% of the vehicles currently sold in Britain and require manufacturers to switch to vehicles predominantly driven by batteries — though they might be able to have petrol engines for back-up or support.”

South America

FT – Venezuela’s oil decline reaches new depths – John Paul Rathbone 4/30

  • “In addition to hyperinflation and a $70bn bond default that has cut off the country from fresh finance, the drop in oil production to 30-year lows has slashed government revenues, making it ever harder for Mr Maduro’s regime to import basic necessities and deploy the patronage he needs to maintain military and political support.”
  • “Caracas has also alienated key allies such as Beijing. Chinese state banks, which extended over $60bn in oil-backed loans between 2007 and 2016, last year made no fresh loans. A two-year grace period on a remaining $19bn debt to China expired last week, Reuters reported, meaning that Venezuelan export revenues will fall further.”

February 1, 2018

Perspective

Bloomberg – Marijuana Mapped: the Price of Weed Across the U.S. – Jen Skerritt 1/30

WSJ – Daily Shot: US Real Disposable Income and Consumer Spending 1/30

Pew – Remittances from abroad are major economic assets for some developing countries – Drew Desilver 1/29

Worthy Insights / Opinion Pieces / Advice

A Wealth of Common Sense – What To Do When Your Stocks Are Soaring – Ben Carlson 1/30

Real Estate

WSJ – Daily Shot: FRED – US Homeownership Rate 1/30

WSJ – Daily Shot: FRED – Change in Owner Occupied Housing Units 1/30

WSJ – Daily Shot: FRED – California Homeownership Rate 1/30

Energy

eia – U.S. crude oil exports increased following hurricane – related refinery disruptions – Corina Ricker 1/29

Cryptocurrency

WSJ – Bitcoin Is Having Its Worst Month in Three Years – Steven Russolillo and Eun-Young Jeong 1/31

WSJ – Daily Shot: Investing.com – Bitcoin 1/29

Bloomberg Gadfly – Crypto Trading Needs a New Model – Tim Culpan 1/28

  • “Many don’t understand how these exchanges work, and that’s why hacking is such a problem.”
  • “When someone buys cryptocurrency from a centralized exchange — I’m going to stick with Bitcoin (BTC) as an example — they swap fiat money for the nominated BTC. But that coin doesn’t get sent to the customer. If it’s bought from a non-exchange seller, then it comes into the exchange’s own wallet, and gets held there. A ledger entry is made, and the customer gets an IOU. If the seller is on the same exchange platform, no BTC even needs to be shifted, the exchange simply changes its accounts to note one less BTC for the seller, one more for the buyer.”
  • “The customer only actually holds the BTC if they then go through the process of sending it from their exchange wallet to another wallet, for example on their smartphone, and that usually incurs fees. Given the large amount of BTC held by just a few wallets — likely owned by exchanges —  it’s clear many customers don’t bother to take possession of the BTC themselves.”
  • “That’s why hacking is such a problem. Centralized exchanges are acting as custodians for a commodity that can’t be copied or double-spent, in an environment where possession is nine-tenths of the law, and using infrastructure that offers a certain amount of anonymity.”
  • “One obvious solution is to boost security protocols. The use of a cold wallet — one not connected to the internet — is now a common tactic. But clearly not all exchanges are practicing good digital hygiene.”
  • “Instead, I see decentralized exchanges becoming more popular. As with equity trading, such a platform is merely the place for a buyer and a seller to meet, and for prices to be discovered. The exchange can play a certain settlement and custodian role, but with blockchain technology, this can be simplified to the point of virtual elimination — atomic transactions could come into play here.”

Africa

NYT – Dangerously Low on Water, Cape Town Now Faces ‘Day Zero’ – Norimitsu Onishi and Somini Sengupta 1/30

  • “…after a three-year drought, considered the worst in over a century, South African officials say Cape Town is now at serious risk of becoming one of the few major cities in the world to lose piped water to homes and most businesses.”

Britain

FT – Property sales in London fall 20% in four years – James Pickford 1/30

December 22, 2017

Perspective

WEF – In 2020 Bitcoin will consume more power than the world does today – Adam Jezard 12/15

  • “Can the world afford Bitcoin? The cryptocurrency is enjoying something of a resurgence as investment and central banks weighed its benefits and caused its value to balloon.”
  • “But generating Bitcoin requires a truly staggering amount of energy. The electricity used in a single Bitcoin transaction, for instance, could power a house for a month.”
  • “And bitcoin mining (the process of generating a bitcoin) now consumes the same amount of electricity every year as Denmark – 33TWh, according to one recent report.”
  • Bitcoin mining’s energy use is reportedly growing at a rate of 25% per month. At that rate of growth, it will consume as much electricity as the US in 2019.”
  • And by 2020, bitcoin mining could be consuming the same amount of electricity every year as is currently used by the entire world.
  • “A new chain is created every 10 minutes or so and, according to a Business Insider article, the use of complicated and energy-intensive algorithms are part of a deliberate ploy to guarantee a degree of exclusivity.”
  • “The article quotes ING economist Teunis Brosens as saying a single Bitcoin transaction uses 200 kilowatt hours. ‘This number needs some context,’ he says, ‘200 kWh is enough to run over 200 washing cycles. In fact, it’s enough to run my entire home over four weeks, which consumes about 45 kWh per week costing €39 of electricity (at current Dutch consumer prices)’.”
  • “Bitcoin also uses a lot more power when compared with other transaction systems. A typical Visa card payment, for example, requires 0.01 kWh while another cryptocurrency, Ethereum, uses 37 kWh.”
  • “However, although Bitcoin is one of the worst examples of our profligate use of fossil fuels to create wealth, it is not alone. The whole digital world relies on power generation to run the data centers at the heart of the modern economy.”
  • “According to 2013 statistics, Google’s data centers used enough electricity to consistently power 200,000 homes, while the amount of power needed to run a large data center would run a small US town. And as we move to driverless cars and other data-intensive ‘internet of things’ technologies, the demand for energy will only increase.”
  • “It seems that businesses around the world are looking to a digital future while governments are talking of a more sustainable one: how to achieve both goals at the same time needs to be the subject of urgent discussion.”

US Census Bureau – Idaho is Nation’s Fastest-Growing State 12/20

WSJ – Daily Shot: CRFB.org – Largest US Tax cuts as percentage of GDP 12/21

Worthy Insights / Opinion Pieces / Advice

Economist – Free Exchange: A decade after it hit, what was learnt from the Great Recession? 12/16

Economist – Leaders: Bitcoin is a speculative asset but not yet a systemic risk 12/16

Economist – Leaders: America’s long-running economic expansion 12/16

NYT – Congress Refuses to Do Right by Children’s Health Care – Editorial Board 12/20

Markets / Economy

Bloomberg – U.S. Treasury Sales Are About to Double 2018. Who’s Buying? – Liz McCormick and Katherine Greifeld 12/19

  • “With the U.S. about to sell the most debt in eight years, Treasury Secretary Steven Mnuchin may find himself relying on a buyer base that needs to see higher yields before loading up.”
  • “Government debt sales are set to more than double in 2018, lifting net issuance to $1.3 trillion, the most since 2010, according to JPMorgan Chase & Co. estimates. With the Federal Reserve shrinking its bond holdings and deficits poised to swell even before taking into account the tax overhaul, all signs point to higher financing costs.”
  • “The challenge for Mnuchin is that some analysts predict buying by central banks — a pillar of support this year — may fade, in part as international-reserve growth stabilizes. In the view of Credit Suisse Group AG, that will put the onus on more price-sensitive buyers, particularly a group that the Fed classifies as including households, hedge funds, private-equity firms and trusts for wealthy individuals.”
  • “By Credit Suisse’s calculation, with the Fed pulling back and issuance surging, the slice of debt sales available for price-elastic buyers to absorb will rise to about 60% by the end of 2019, from 54% now. It would be their biggest share since the early 2000s.”
  • “The Treasury said last month that it expects to unveil bigger coupon auctions in February for the first time since 2009, and dealers see issuance rising for years to come. With entitlement costs heading higher, the U.S. debt burden was already projected to increase by $10 trillion in the next decade. Now the tax overhaul could boost the deficit by $1 trillion in the period.”
  • “JPMorgan’s 2018 net issuance tally of $1.3 trillion includes $847 billion of coupon debt, ballooning from an estimated $409 billion this year amid a darkening fiscal backdrop. The federal deficit may exceed $1 trillion by fiscal 2020, from about $666 billion in 2017, according to the most dire estimates by primary dealers. Meanwhile, the Fed could roll off about $250 billion of Treasuries in 2018.”
  • “The catch is that demand from China, which with almost $1.2 trillion of U.S. government debt is America’s biggest foreign creditor, may be about to ebb. The bulk of China’s buildup came as it boosted foreign-exchange reserves to help offset a strengthening yuan. But some forecasters see yuan stability in 2018, meaning limited need for currency intervention.”
  • “The wave of supply and the questions about demand come amid expectations for higher yields with the prospect of quicker U.S. growth and inflation. The Fed projects three more rate hikes in 2018, and firms including Goldman Sachs Group Inc. predict 10-year yields will rise to 3% in a year, from 2.46% now.”
  • “’There should be some overall repricing of yields higher, albeit modestly, on the back of the rising supply picture,’ said Subadra Rajappa, head of U.S. rates strategy at Societe Generale. ‘The amount of the supply increase will be quite large, and it’s not clear how much support is going to come from overseas’.’’

Finance

WSJ – Daily Shot: Bitcoin 12/20

  • “The Bitcoin rally has stalled for now, with prices falling to pre-futures launch levels.”

WSJ – Daily Shot: Fintech Startups Seek to Shake Up Money-Transfer Industry – Corinne Abrams 12/19

Construction

The Atlantic – The Weird, Wooden Future of Skyscrapers – Amanda Kolson Hurley – Dec. 2017

Asia – excluding China and Japan

NYT – Jakarta Is Sinking So Fast, It Could End Up Underwater – Michael Kimmelman 12/21

  • “Experts say Jakarta has only a decade to halt its sinking.”

India

Bloomberg Quint – Deepest India Bond Rout in 17 Years Shows No Sign of Abating – Kartik Goyal 12/21

South America

WSJ – Venezuela’s Brutal Crime Crackdown: Executions, Machetes and 8,292 Dead – Juan Forero and Maolis Castro 12/21

  • I imagine it will take two generations to recoup what they’ve lost from bad politics – if ever.