John C. Williams, President of San Francisco Federal Reserve, comments: The U.S. economy is looking quite good. Growth is on a solid trajectory, and the FOMC’s maximum employment goal is in sight. Risks from abroad are unlikely to overturn strong U.S. fundamentals. Still, the exact timing of an initial interest rate increase will depend on convincing evidence that inflation is heading back toward target. John C. Williams
Robert Reich writes: The Greek debt crisis offers another illustration of Wall Street’s powers of persuasion and predation, although the Street is missing from most accounts.
The crisis was exacerbated years ago by a deal with Goldman Sachs, engineered by Goldman’s current CEO, Lloyd Blankfein.
Blankfein and his Goldman team helped Greece hide the true extent of its debt, and in the process almost doubled it. In 2001, Greece was looking for ways to disguise its mounting financial troubles. The Maastricht Treaty required all eurozone member states to show improvement in their public finances, but Greece was heading in the wrong direction.
Then Goldman Sachs came to the rescue, arranging a secret loan of 2.8 billion euros for Greece, disguised as an off-the-books “cross-currency swap”—a complicated transaction in which Greece’s foreign-currency debt was converted into a domestic-currency obligation using a fictitious market exchange rate.
As a result, about 2 percent of Greece’s debt magically disappeared from its national accounts. For its services, Goldman received a whopping 600 million euros ($793 million). That came to about 12 percent of Goldman’s revenue from its giant trading and principal-investments unit in 2001—which posted record sales that year. The unit was run by Blankfein (who set up Hillary Clinton’s son-in-law in business).
In 2005, the deal was restructured and that 5.1 billion euros in debt locked in. Perhaps not incidentally, Mario Draghi, now head of the European Central Bank and a major player in the current Greek drama, was then managing director of Goldman’s international division.
Greece wasn’t the only sinner. Until 2008, European Union accounting rules allowed member nations to manage their debt with so-called off-market rates in swaps, pushed by Goldman and other Wall Street banks. In the late 1990s, JPMorgan enabled Italy to hide its debt by swapping currency at a favorable exchange rate, thereby committing Italy to future payments that didn’t appear on its national accounts as future liabilities.
But Greece was in the worst shape, and Goldman was the biggest enabler.
Meanwhile, the people of Greece struggle to buy medicine and food.
There are analogies here in America, beginning with the predatory loans made by Goldman, other big banks, and the financial companies they were allied with in the years leading up to the bust. Today, even as the bankers vacation in the Hamptons, millions of Americans continue to struggle with the aftershock of the financial crisis in terms of lost jobs, savings, and homes.
Goldman knows very well what it is doing. It knew more about the real risks and costs of the deals it proposed than those who accepted them. “It is an issue of morality,” said the shareholder at the Goldman meeting.
The world’s third largest brewery, Heineken International, recently launched a US$60 million brewing facility in Hmawbi, near Rangoon, marking the Dutch company’s comeback to the Burmese market economic sanctions forced its exit in 1996.
The new Burma brewery is operated by a joint-venture called APB Alliance Brewery, between local Alliance Brewery Co. (ABC) and Heineken’s Asia Pacific Breweries. Dutch premium beer Heineken will be available in the market later this year, while its local brand—Regal Seven—will be distributed beginning in August. Heineken’s local beverage, with a five percent alcohol content, is dedicated to the seven people who established the APB Alliance Brewery.
At a launch event earlier this week, The Irrawaddy spoke with the brewery’s managing director, Lester Tan, about how Heineken might fare in Burma’s battle of the beers, which has long been dominated by the locally loved Myanmar Beer, manufactured by the military-owned Myanmar Breweries. These days, however, it seems there’s always room for one more drink as new brands like Tuborg and Yoma start springing up at local watering holes. Heineken Invests in Burma
Beer in Burma
Pranab Barnhan writes: The recent dizzying plunge in the Shanghai and Shenzhen stock exchanges has posed a unique test for China’s Communist rulers. So long as the markets were rising, the paradox of vigorous capitalist development overseen by the world’s largest and strongest Communist party confounded only academics and old-school Marxists. As the Chinese Communist Party elite and their relatives, foreign financial institutions, and some Chinese small investors made money on stocks, no one bothered to comprehend the mutant creature they were milking.
The CCP is taking desperate, if clumsy, measures to control the correction. All new initial public offerings have been halted, and much trading has been curtailed; the central bank has been asked to help the China Securities Finance Corporation induce investors to buy shares and thus stabilize the market. Indeed, even the country’s sovereign wealth fund has gotten into the act.
But, unlike other capitalist economies, money is not the only tool at the authorities’ disposal. If your brokers in China advise you to sell shares, they must be careful not to appear to be rumormongers, subject to official punishment. And there are reports that sales of large holdings may trigger investigations by the authorities. Causing public disorder or financial instability can be a serious offense in China, where conspiracy theories about foreigners’ efforts to undermine the economy abound.
What Chinese officials desire is a capitalist stock market without the possibility of large losses that can shake confidence in the CCP’s credibility and control. But that is a market that no one has yet invented.
The spectacle of a communist regime trying to jack up a casino-like capitalist market is just one of the many contradictions that have been accumulating in almost every corner of China’s economy and politics. And now, their weight is perhaps becoming too heavy for the Party hierarchy to bear.
Indeed, the composition of the CCP is itself a contradiction. The revolutionary party of peasants and workers is now dominated by businessmen, college students, and professionals.
Of course, President Xi Jinping’s recent drive against corruption high and low has made many Communist Party plutocrats jittery. But questions abound as to whether the corruption charges being brought against the so-called “tigers” are a fig leaf for an old-fashioned purge of Xi’s rivals in the Party and the military.
Ordinary Chinese generally support the anti-corruption drive; it is they who usually initiate protests and point fingers at dishonest officials. But, if such protests attract too much attention, it is more likely that they will be quashed and their leaders repressed than that the corruption will be stopped.
What the CCP refuses to recognize is that corruption cannot be rooted out as long as the Party maintains its monopoly on political power; with no organized opposition or functioning civil-society institutions, officials will continue to use their positions of public authority as a vehicle to generate personal wealth.
Under Xi, the CCP has repeatedly insisted that the rule of law is a “core socialist value” and has pledged to promote the authority of the constitution. Yet the rule of law in the Party’s eyes is a law that it dictates, interprets, and enforces.
Mao famously speculated on the nature of contradictions: “The law of contradiction in things, that is, the law of the unity of opposites, is the fundamental law of nature and of society.” One wonders, though, if even he could have grasped, much less managed, the contradictions of communist capitalism.
Robert J. Shiller writes: In a new book, the authors describe an investment environment populated by increasingly sophisticated analysts who rely on big data, powerful computers, and scholarly research. With all this competition, “the hurdles to achieving alpha [returns above a risk-adjusted benchmark – and thus a measure of success in picking individual investments] are getting higher and higher.”
That conclusion raises a key question: Will alpha eventually go to zero for every imaginable investment strategy? More fundamentally, is the day approaching when, thanks to so many smart people and smarter computers, financial markets really do become perfect, and we can just sit back, relax, and assume that all assets are priced correctly?
This imagined state of affairs might be called the financial singularity, analogous to the hypothetical future technological singularity, when computers replace human intelligence.
The implication is that Buffet’s genius could be replicated by a computer program that incorporates these factors.
If that were true, investors would abandon, en masse, their efforts to ferret out mispricing in the market, because there wouldn’t be any. Market participants would rationally assume that every stock price is the true expected present value of future cash flows, with the appropriate rate of discount, and that those cash flows reflect fundamentals that everyone understands the same way. Investors’ decisions would diverge only because of differences in their personal situation.
There is a long-recognized problem with such perfect markets: No one would want to expend any effort to figure out what oscillations in prices mean for the future.kets were perfect, smart money would give up trying.
Markets seem to be driven by stories of great new eras and of looming depressions. There are fundamental stories about technology and declining resources. And there are stories about politics and bizarre conspiracies.
No one knows if these stories are true, but they take on a life of their own. Sometimes they go viral. When one has a heart-to-heart talk with many seemingly rational people, they turn out to have crazy theories. These people influence markets, because all other investors must reckon with them; and their craziness is not going away anytime soon.
Maybe Buffett’s past investing style can be captured in a trading algorithm today. But that does not necessarily detract from his genius. Indeed, the true source of his success may consist in his understanding of when to abandon one method and devise another.
Human judgment, good and bad, will drive investment decisions and financial-market outcomes for the rest of our lives and beyond.
Jeffrey Frankel writes: Greek Prime Minister Alexis Tsipras has the chance to become to his country what South Korean President Kim Dae-jung and Brazilian President Luiz Inácio Lula da Silva were to theirs: a man of the left who moves toward fiscal responsibility and freer markets. Like Tsipras, both were elected in the midst of an economic crisis. Both immediately confronted the international financial constraints that opposition politicians can afford to ignore.
On assuming power, Kim and Lula were able to adjust, politically and mentally, to the new realities that confronted them, launching much-needed reforms. Some reforms were “conservative” and might not have been possible under politicians of the right. But others were consistent with their lifetime commitments. South Korea under Kim began to rein in the chaebols, the country’s huge family-owned conglomerates. Brazil under Lula implemented Bolsa Familia, a system of direct cash payments to households that is credited with lifting millions out of poverty.
Tsipras and his Syriza party, however, spent their first six months in office still blinkered about financial realities, unable to see things from the perspective of others. The decision to hold a referendum on the bailout terms set by Greece’s creditors showed that they were politically blinkered as well.
If Tsipras were reading from a normal script, he would logically have asked Greeks to vote yes. But he asked them to vote no, which they did by a surprisingly wide margin. He evidently thought that this would strengthen his hand; instead, it merely strengthened the position of those Germans convinced that the time had come to let Greece drop out of the euro.
Only a week after the referendum, Tsipras finally faced up to reality: Greece’s euro partners are not prepared to offer easier terms. On the contrary, they are insisting on more extensive concessions as the price of a third bailout.
The only possible silver lining to this sorry history is that some of Tsipras’s supporters at home may now be willing to swallow the creditors’ bitter medicine. One should not underestimate the opposition that reforms continue to face among Greeks. But like Kim and Lula, Tsipras could marshal political support from some on the left who reckon, “If he now says that these measures are unavoidable, there truly must be no alternative.” (The same thing has of course happened on the right: Only Nixon could go to China.)
The Germans would have done better to admit that fiscal austerity is contractionary in the short run. The Greeks would have done better to admit that democracy does not mean that one country’s people can vote to give themselves other countries’ money.
In terms of game theory, the fact that the Greeks and Germans have different economic interests is not enough to explain the poor outcome of negotiations to date.
A “bad bargain” would call on each side to forego its top priorities. The European Central Bank should not have to agree to an explicit write-down of Greek debt. And Greece should not have to run a substantial primary budget surplus for now. .
A recurrent theme of the Greek crisis since it erupted in late 2009 is that both the Greeks and the eurozone’s creditor countries have been reluctant to consider lessons from previous emerging-market crises. After all, they said, Greece was a eurozone member, not a developing country.
Emerging market crises do hold important lessons. If Tsipras can now follow the course taken by Kim and Lula, he will serve his country well.
John Cassidy writes: One night not long ago, in a new restaurant in Havana called VIPs, the owner, a white-haired Catalan named Jordi, was speculating about what life might be like in Cuba after a reconciliation with the United States. “Come, let me show you,” he said confidingly, leading the way to a large outdoor space between the neighboring building and his own, an eighteenth-century villa built for a Spanish marqués. Gesturing with his hands, Jordi indicated where he was building an open-air bar and eatery, a wine cellar, a “chill-out area.” “It will be a club for friends,” Jordi said. “Friends with money.”
Inside, Hugo Cancio, one of Jordi’s friends in the new transnational élite, sat at a corner table. A Cuban-American businessman, Cancio lives in Miami but shuttles to Havana so often that the VIPs menu has named his favorite dish for him: the Don Hugo Paella. Cancio is fifty-one, tall, with an athlete’s shoulders and a limber gait. He was accompanied by his daughter Christy, who had recently finished college in the U.S. Their table looked out on a square bar, a dozen tables full of smartly dressed people, and a huge screen, with Chaplin’s “Modern Times” on a continuous loop. On his iPhone 6, Cancio showed me a selfie that he and Christy had taken earlier that day with Conan O’Brien, who was in Havana taping his show. O’Brien had invited them to join him at El Aljibe, an open-air restaurant that is popular with diplomats and Cuba’s senior nomenclatura. “What do you think?” Cancio asked me, smiling. “Cuba’s changing, man.”
Last December, after five decades of Cold War enmity and eighteen months of secret talks, the United States and Cuba announced that they had agreed to normalize relations. It was a rapprochement so long in coming that younger generations, without much memory of invasions, embargoes, and the threat of nuclear obliteration, barely knew why the bad feeling was so ingrained in the politics of both countries. Cancio is a casualty, like many others, of all that preceded this tentative settlement. He left Cuba in the Mariel boatlift of 1980, in which as many as a hundred and twenty thousand Cubans made a traumatic exodus to the United States. Thirty-five years later, as the C.E.O. of a holding company called Fuego Enterprises, he moves freely between Cuba and the U.S. After spending years cultivating connections in both countries, he has become an intermediary sought after by the increasing numbers of Americans—investors, politicians, celebrities—who are going to Cuba. He is pleased to tell you about his private meeting with Sting, or with Paris Hilton. When Google visited Havana recently, a delegation came to his office to discuss the local situation. In February, Cancio spoke to a gathering of political conservatives in Washington, D.C., and in April he addressed an audience in New York at a conference about Cuba organized by the Wharton School of Business. Cuba for Entrepreneurs
Mayor Rahm Emanuel and World Business Chicago today announced a joint Chicago-China business accelerator to provide resources for Chicago small and medium sized businesses looking to enter the Chinese market and make Chicago a gateway for Chinese small and medium sized looking to invest in the United States. Deputy Mayor Steve Koch signed a memorandum of understanding (MOU) launching the business accelerator while on an economic development mission in Beijing, China.
“This new accelerator will support the growth of Chicago’s small businesses, expose Chicago to Chinese companies looking to invest here, and strengthen our longstanding ties with Beijing,” said Mayor Emanuel. “A partnership like this is an excellent example of how shared commerce and cooperation will help to solidify Chicago’s place in the global economy and create new jobs and opportunities here at home.”
The accelerator MOU serves as an agreement between the City of Chicago and eight cities in the People’s Republic of China to foster a business-friendly environment for small businesses to trade, locate and expand. Implemented by World Business Chicago and the Chinese Investment Promotion Agency of the Ministry of Commerce (MOFCOM), the program will help expedite trade and investment by:
o Increasing communication between the City and MOFCOM about businesses looking to trade, locate and expand in China or Chicago.
o Establishing, or bringing together already existing incubators as “soft landing places” in each city for small businesses looking for permanent space.
o Providing local support for businesses by finding resources including service firms, incentives, and others.
“Small and medium-sized businesses are the backbone of our economy,” said World Business Chicago President & CEO Jeff Malehorn. “Through the accelerator, Chicago companies have bolstered support and resources to reach global markets.”
The accelerator is a direct result of the Gateway Cities agreement signed by Mayor Emanuel, Vice Minister of Commerce Wang Chao and the leadership of Beijing, Shanghai, Tianjin, Qingdao, Shenyang, Hangzhou, Wuhan, and Chengdu in December of 2013. That agreement strengthens ties between Chicago and China and establishes Chicago as the gateway to the U.S. for Chinese companies and focuses on manufacturing, tourism, finance and insurance, professional services, wholesale and retail, transportation and logistics, and infrastructure.
Under Mayor Emanuel’s leadership, the City of Chicago has continued to foster growth opportunities with China, including hosting the Vice Minister of Commerce Wang Chao, welcoming numerous delegations and hosting the U.S.-China Joint Commission on Commerce and Trade (JCCT). In addition, multiple prominent Chinese companies have started operations in Chicago, including Wanda Group, Goldwind, and Bank of China. Hainan Airlines and Cathay Pacific have also begun direct flights into Chicago O’Hare International Airport, increasing access to the city for Chinese business leaders.
China is one of Chicago’s largest trading partners with more than 50 Chinese companies in the City of Chicago and approximately 70 Chicago-headquartered companies with operations in China. Total trade between Illinois and China amounted to $34.1 billion in 2014. In 2014, Chicago has seen double the number of Chinese investment projects, eight, than in the year prior and in that time, the City saw the highest total single year investment by Chinese companies. China is now the third-largest foreign investor in greenfield projects (investments not including mergers & acquisitions) after the United Kingdom and Germany.
Deputy Mayor Koch, WBC President & CEO Jeff Malehorn and leaders from companies including Baker & McKenzie LLP, The John Buck Company, Kirkland & Ellis LLC, Locke Lord LLP, Magellan Development Group, Sinode Systems, and the University of Chicago Innovation Exchange, are traveling on the economic development mission in China July 12-18. The trip is a continuation of the efforts made since Mayor Emanuel first signed the MOU in 2013. While in China the mission will meet with over 100 companies to discuss investment in Chicago.
South Africa and Africa as a whole had benefited from economic co-operation with Brics partners, President Jacob Zuma sad. .He was speaking during the plenary session of the seventh Brics Summit, which was held at Ufa, in Russia on 8 and 9 July.There had been a 70% increase in South Africa’s total trade with Brics. In 2014, its total trade with Brics was R382-billion, from R268-billion in 2011. Africa had doubled its total trade with Brics since 2007 to $340-billion (R4.2-trillion) in 2012, and this was projected to reach $500-billion this year.In addition, during the summit’s outreach session, which had the title “Ways to increase the well-being of the peoples of our countries”, he said there were several sectors that were key areas of co-operation between South Africa and the world, namely food production, power generation, petro-chemical industry, mining, tourism, renewable and nuclear energy, trade, transportation, communications and training. These were “hardly exhaustive”, though.
Zuma said the balance of power had progressively shifted towards the Brics regions.”Our economies are also involved in developing co-operation in high-technology sectors of the economy; modernizing various branches of industry; implementing projects aimed at developing transport logistics, information communications and infrastructure; raising the economic competitiveness; and improving the living standards of citizens in our member countries.”The session was attended by leaders of the Shanghai Co-operation Organisation, the Eurasian Economic Union and other invited leaders.
For the first time ever, natural gas trumped coal as the top source of electric power generation in the U.S. In April, roughly 31 percent of electric power generation came from natural gas, whereas coal accounted for 30 percent.
It’s a dramatic difference from April 2010, when coal accounted for 44 percent of the mix and natural gas just 22 percent.
Coal prices have continued to crater this year, extending a years-long downward trend.
This has been particularly true of coal mined in the eastern U.S. Since the start of the year, Central Appalachian coal (CAPP) futures have plunged nearly 15 percent to roughly $41 per ton; since their 2011 peak, prices have nearly halved. Tepid global economic growth, a stronger dollar, cheap natural gas and expanding U.S. regulations have pressured prices.
Coal breaks down into two categories: utility coal, used to generate electricity at power plants in the U.S.; and export coal, for example, metallurgical coal used by China and developing countries to make steel.
On Monday Chinese customs data showed coal imports in China plunged 33.7 percent in June versus a year earlier, thanks largely to sluggish demand. China is the largest consumer of the commodity in the world.
U.S. coal exports have been in free fall for years as countries like Australia and Indonesia have provided supply to China more inexpensively. The stronger dollar is also making American supply pricier abroad. Natural gas futures continue to trade below $3 per mmbtu, as the onshore drilling boom has increased production by 30 percent since 200
Coal, a historically high-margin business for railroads, accounted for nearly 19 percent of revenue for the Class I railroads in the U.S. in 2014. Call it a one-two punch against coal. As global demand for U.S. coal exports continues to sag, domestic demand at power plants has been sliding as well.
