Can things get worse in Russia?  Last year, as other money managers were steering clear of Russia’s broken economy, the Moscow-born Barinov pulled off something of a coup: He persuaded his bosses to take the plunge and buy Russian government bonds. It was a narrow bet, but he ended up winning because the central bank—after implementing the biggest interest rate hike since the Russian financial crisis in 1998 to prop up the collapsing ruble—changed course and aggressively backtracked. In the first 10 months of 2015, ruble-denominated government bonds handed investors such as Barinov a 25 percent return in dollar terms, the biggest gain for local bonds anywhere.

This year not even Barinov can spot an escape from the rubble of an economy mired in its longest recession in two decades, Bloomberg Markets magazine reports in its forthcoming issue. Sanctions imposed by the U.S. and the European Union to punish President Vladimir Putin for meddling in Ukraine remain a drag on growth. And oil’s decline to a 13-year low has been catastrophic for Russia, where almost 50 percent of government revenue comes from crude and natural gas. “With oil, you rely on a very volatile factor,” says Barinov, who oversees about $2.6 billion in assets. So as far as he’s concerned, “all bets are off.”

A persistent glut in crude supply could push prices to as low as $16 a barrel this year, according to former Russian Finance Minister Alexei Kudrin. Kudrin won plaudits overseas for his stewardship of Russia’s finances during Putin’s first decade in power. As the current crisis deepened, Bloomberg News reported in December, he was in discussions about a possible return to government. (He declined to comment on that.) A Putin ally, Kudrin remains negative about Russia’s prospects. “Over the next year to 18 months,” he says, “Russia will suffer major economic difficulties.”

In mid-January, as snow blanketed Moscow, the mood was grim at the Gaidar Forum, a kind of Russia-focused mini-Davos. The yearly economic conference is named after the free-market Russian economist Yegor Gaidar, who pioneered the shock therapy that introduced capitalism to Russia in the early 1990s. Finance Minister Anton Siluanov set the tone for the event, warning that without deep budget cuts to keep the deficit at 3 percent, the country risks a financial crash like that of the late ’90s, when Russia defaulted on its debts, the ruble crashed, and inflation spun out of control.

 

 

 

Boeing Co. has developed a new attempt to tackle a basic fear for flying germophobes: airliner lavatories that turn into virtual petri dishes during long-range trips.

The U.S. planemaker says its engineers and designers have created self-cleaning toilets that use ultraviolet light to kill 99.99 percent of germs, disinfecting all surfaces after every use in just three seconds.

“We’re trying to alleviate the anxiety we all face when using a restroom that gets a workout during a flight,” Jeanne Yu, director of environmental performance for Boeing’s commercial airplanes division, said in a statement.

The concept offers a new twist on the old aviator saying, “If it ain’t Boeing, I ain’t going,” aviation consultant Robert Mann said by e-mail. “Boeing should ground-test these in big-city public facilities to develop some street cred,” he said.

The lavatory prototype uses a type of ultraviolet light, different from the rays in tanning beds, that doesn’t harm humans. Activated only when the airliner toilet isn’t in use, the lights flood touch surfaces such as the toilet seat, sink and counter top.

Boeing has filed a patent for the concept, which it says can minimize the growth and potential transmission of micro-organisms. The sanitizing even helps rid a lavatory of odors.

Better yet, it would be touchless. The cleaning system would lift and close the toilet seat by itself so that all surfaces are exposed during the cleaning cycle, according to Boeing. Other perks for those worried about germs: hands-free faucet, soap dispense, trash flap, lid and hand dryer. The planemaker is also studying a hands-free door latch and vacuum vent system for floor spillage.

The concept is a finalist for a Crystal Cabin Award that will be announced at the Aircraft Interiors Expo in Hamburg, Germany on April 5.

The potential benefits aren’t just in the bathroom. The self-cleaning concept could also help airlines save money on costly repairs, Mann said.

Toilets “are notoriously difficult to keep maintained to high standards, which shows up as odors that cannot be controlled and eventually, corrosion to structures adjoining the lav module,” such as floor beams and fuselage, Mann said. “It really would be a maintenance cost savings, too.”

2. SYDNEY — And the Australian share market looks set to open higher as the recent recovery in oil prices and a batch of positive economic data from Australia to the US calms fears of a global economic slowdown. At 0645 AEDT on Thursday, the share price index futures contract was up 15 points at 5.029.

3. WASHINGTON — US businesses added a healthy 214,000 jobs last month, another sign that the US job market remains resilient despite economic weakness overseas and tumult in financial markets.

4. WASHINGTON — The Federal Reserve says the economy was expanding in most of the country in January and February, helped by gains in consumer spending and home sales. But there were also rising headwinds from falling oil prices and a strong US dollar that held back some sectors.

5. BEIJING — China plans to target broadbased money supply growth of about 13 per cent this year, sources said, a signal that further monetary policy easing is likely during a painful economic restructuring that could result in millions of workers losing jobs.

6. MOSCOW — Russia’s Rosneft, the world’s biggest listed oil producer by volume, is considering a cut to domestic production to balance the global market and as the firm faces a natural decline this year.

7. BRASILIA — Mining company Samarco agreed with the Brazilian government to pay more than 24 billion reals ($A8.6 billion) in damages for a deadly dam spill in November, an environment ministry memo seen by Reuters says.

8. LONDON — Anheuser-Busch InBev has agreed to sell SABMiller’s stake in China’s Snow Breweries for $US1.6 billion ($A2.23 billion) to ease regulatory concerns about the merger of the world’s two biggest beer-makers.

9. LAGOS — Tens of thousands of Nigerian fishermen and farmers are suing multinational oil giant Shell in two new lawsuits filed in a British High Court, alleging that decades of uncleaned oil spills have destroyed their lives.

Koichi Hamada writes:  In a bold attempt to reflate the Japanese economy, the Bank of Japan has now pushed interest rates on deposits into negative territory. Though this policy is not new – it is already being pursued by the European Central Bank, the Bank of Sweden, the Swiss National Bank, and others – it is uncharted ground for the BOJ. And, unfortunately, markets have not responded as expected.

In theory, negative rates, by forcing commercial banks essentially to pay the central bank to be able to park their money, should spur increased lending to companies, which would then spend more, including on hiring more employees. This should spur a stock-market rebound, boost household consumption, weaken the yen’s exchange rate, and halt deflation.

One reason for this is widespread pessimism about Japan’s economy, reinforced by volatility in China, monetary tightening in the United States, and the collapse in world oil prices. But, as BOJ Governor Haruhiko Kuroda recently reported to the House of Councillors, Japan’s economic fundamentals are generally sound, and pessimistic predictions are greatly exaggerated.

In fact, Prime Minister Shinzo Abe’s economy strategy – so-called “Abenomics” – has enabled Japan to stay on a reasonably positive path in highly uncertain times.

Japan, like emerging economies with flexible exchange-rate regimes, may actually benefit from America’s monetary tightening, as an appreciating dollar makes Japanese exports more competitive.

There is no reason why the Tokyo stock market should gyrate whenever the Shanghai market shakes. Yet, even though Japan’s economic situation is far from dire, introducing negative interest rates has not been treated as what it is: a maneuver to loosen monetary policy. Instead, the Japanese stock market regarded negative rates as a harbinger of greater financial risk, and speculators have remained bullish on the yen.

From 2003 to 2004, the Japanese treasury purchased a large amount of dollars, thereby easing monetary conditions at a time when the BOJ was reluctant to pursue open market operations. In recent years, however, the yen’s exchange rate has been determined through monetary policy, not manipulated by intervention. In general, I welcome this new approach, and thus do not recommend major interventions to change the direction of the yen exchange rate. I do, however, believe that sporadic interventions may be needed to punish speculators who are taking advantage of temporary market psychology to keep the yen far above its market value.

Martin Feldstein writes:  The US Congressional Budget Office (CBO) has just delivered the bad news that the national debt is now rising faster than GDP and heading toward ratios that we usually associate with Italy or Spain. That confirms my view that the fiscal deficit is the most serious long-term economic problem facing US policymakers.

The high and rising level of the national debt hurts the US economy in many ways. Paying the interest requires higher federal taxes or a larger budget deficit. In 2016, the interest on the national debt is equal to nearly 16% of the revenue from personal income tax. By 2026, the projected interest on the national debt will equal more than 31% of this revenue, even if interest rates rise as slowly as the CBO projects.

Foreign investors now own more than half of net government debt, and that proportion is likely to keep growing.

Increased borrowing by the federal government also means crowding out the private sector. Lower borrowing and capital investment by firms reduces future productivity growth and growth in real incomes.

So it is important to find ways to reduce the budget deficit and minimize the future debt ratio. The good news is that a relatively small reduction in the deficit can put the debt ratio on a path to a much lower level. Cutting the deficit to 2% of GDP, for example, would cause the debt ratio eventually to reach 50%.

Deficit reduction requires cutting government spending, increasing revenue, or both. Neither is politically easy; but neither should be impossible.

Cutting spending is made more difficult by the reductions in relative outlays that have already occurred. The share of GDP devoted to defense has fallen from 7.5% of GDP in 1966 to 3.2% of GDP this year, and the CBO projects it to fall to 2.6% during the next decade. That would be the lowest GDP share since World War II, representing a level of spending that military experts believe is dangerously low.

Other spending is split between the annually appropriated amounts (known as non-defense discretionary spending) and the programs in which spending follows from established rules that are not subject to annual review (known as the “mandatory” spending programs, primarily Social Security retirement benefits and health-care spending).

The non-defense discretionary spending is also heading toward 2.6% of GDP – also the smallest share of GDP since WWII.

Federal taxes now take 18.3% of GDP and are projected to remain at that level for the next decade, unless tax rules or rates are changed. The rate structure for personal taxation has changed over the past 30 years, with the top tax rate rising from 28% in 1986 to more than 40% now. The corporate rate of 35% is already the highest in the industrial world.

Higher marginal tax rates would weaken incentives and distort economic decisions.

The mortgage deduction alone will reduce tax revenue in 2016 by $84 billion, or more than 5% of the personal income tax collected. The exclusion of health insurance premiums from employees’ taxable income will reduce revenue by more than $200 billion, or about 15% of receipts from the personal income tax.

Nothing to start shrinking the deficit will happen before this year’s presidential election. But tackling the spending and revenue components of deficit reduction should be high on the agenda when the new president takes office next year.

Michael Spence writes:  Uncertainty about China’s economic prospects is roiling global markets – not least because so many questions are so difficult to answer. IIn the real economy, the export-driven tradable sector is contracting, owing to weak foreign demand. Faced with slow growth in Europe and Japan, moderate growth in the United States, and serious challenges in developing countries (with the exception of India), the Chinese trade engine has lost much of its steam.

At the same time, however, rising domestic demand has kept China’s growth rate relatively high – a feat that has been achieved without a substantial increase in household indebtedness. As private consumption has expanded, services have proliferated, generating employment for many. This is clear evidence of a healthy economic rebalancing.

The situation in the corporate sector is mixed. On one hand, highly innovative and dynamic private firms are driving growth. On the other hand, the corporate sector remains subject to serious vulnerabilities. The rapid expansion of credit in 2009 led to huge over-investment and excess capacity in commodity sectors, basic industries like steel, and especially real estate.

Despite these challenges, the reality is that China’s transition to a more innovative, consumer-driven economy is well underway. This suggests that the economy is experiencing a bumpy deceleration, not a meltdown.

As it stands, non-performing loans are on the rise, owing largely to the weaknesses in heavy industry and real estate.

China may need to rely on the large state balance sheet for loan consolidation, debt write-offs, and bank recapitalization.

Net private capital outflows remain substantial, and show no signs of slowing. As a result, the reserves held by the People’s Bank of China (PBOC) have declined by roughly $500 billion over the last year, with particularly large declines of some $100 billion in each of the last two months.

President Xi Jinping’s intensive anti-corruption campaign and, more generally, declining official tolerance for heterodox views also impact the economy.  Those who feel directly threatened by the anti-graft campaign might be inclined to take their money out of China.

Given China’s systemic importance in the global economy, uncertainty about its plans and prospects is bound to send tremors through global capital markets. That is why it is so important that the Chinese government increase the transparency of its decision-making, including by communicating its policy decisions more effectively.

The principal unaddressed problem affecting China’s financial system is the pervasiveness of state control and ownership, and the implicit guarantees that pervade asset markets. This leads to misallocation of capital (with small and medium-size private enterprises struggling the most) and the mispricing of risk, while contributing to a lax credit culture. The absence of credit discipline is particularly problematic when combined with highly accommodative monetary policy, because it can artificially keep zombie companies afloat.

To resolve this problem, China’s leaders must segregate the state balance sheet from the credit allocation system.

China’s current bout of economic volatility is likely to persist, though increased transparency could do much to blunt it. Add to that the smart use of state resources, together with sure-footed reforms, and China should be able to achieve moderate yet sustainable long-term growth.

No one will lend at a negative interest rate; potential creditors will simply choose to hold cash, which pays zero nominal interest.”– Ben Bernanke, 2009

“I think negative rates are something the Fed will and probably should consider if the situation arises.”-– Ben Bernanke, December 2015

“In theory there is no difference between theory and practice. In practice there is.”– Yogi Berra

John Mauldin writes: Economists used to think below-zero interest rates were impossible. Necessity (as central banks see it) is the mother of invention, though; and multiple central banks now think negative rates are a necessary step to restore growth.

Are they right? Will negative rates pull the global economy out of its funk? Probably not; but for better or worse, several central banks are already below zero. The Federal Reserve just sent its clearest signal yet that it is headed that way, too. The Fed has warned banks to get ready. We had all better do the same.

This week’s letter has two parts. The first deals with some of the practical aspects of negative rates and what the Fed is really signaling. The second part, which is somewhat philosophical, deals with why the Fed will institute negative rates during the next recession. This letter is longer than usual, but I think it’s important to understand why we will see negative rates in the world’s reserve currency (and the currency in which most global trade is conducted). This policy trend is truly a foray into unexplored territory.

The idea of negative rates isn’t new; what’s new is the willingness to try them out. The Ben Bernanke quote above comes from a November 2, 2009, Foreign Policy article in which the Fed chairman wrestled with how to keep inflation at the “right” level in a weak economy.

Set aside the question of whether there is any “right” level of inflation. As of six years ago, the head of the world’s most important central bank thought no one would ever lend at a negative interest rate. We now know he was wrong, at least with regard to Japan and most of Europe. Central banks there have instituted negative rate policies, and people are still borrowing and lending.

The Fed staff has also speculated on the possibility. Earlier this month my good friend David Kotok sent around links to several academic and central bank negative-rate studies. One was a 2012 article by Kenneth Garbade and Jamie McAndrews of the Federal Reserve Bank of New York. Their title tells you what they thought at the time:

Former Minneapolis Fed President Narayana Kocherlakota, who was for years the FOMC uber-dove, says going negative would be “daring but appropriate.” He has a number of reasons for this stance. In a note last week, he said the federal government is missing a chance to borrow gobs of money at super-attractive interest rates.

Kocherlakota would like to see the Treasury issue as much paper as it takes to drive real rates back above zero. He would use the borrowed money to repair our rickety infrastructure and to stimulate the economy.

It is an appealing idea – in theory. In reality, I have no faith that our political class would spend the cash wisely. More likely, Washington politicians would collude to distribute the money to their cronies, who would build useless highways and bridges to nowhere. The taxpayers would end up stuck with more debt, and our infrastructure would be little better than it is now.

The fact that this is a “monumentally” bad idea doesn’t mean it will never happen. There’s an excellent chance it will happen. Yellen and the Fed are clearly looking in that direction.

Yellen might face one small problem on the road to NIRP: no one is completely sure if the Fed has legal authority to enact such a policy. An Aug. 5, 2010, staff memo says that the law authorizing the Fed to pay interest on excess reserves may not give it authority to charge interest.

Despite the impression that the smartwatch hype has died down a bit since reaching its apex in Apple’s introduction of the Apple Watch in early 2015, the industry just passed a notable milestone.

According to a new report by Strategy Analytics, global smartwatch shipments surpassed Swiss watch shipments for the first time. Worldwide smartphone shipments amounted to 8.1 million, just beating the  Swiss watch industry total of 7.9 million.

While most of the world’s watches may come from China these days, Swiss watches are still the gold standard in terms of quality and consumer appeal. The Swiss watch industry has been hesitant to jump on the smartwatch bandwagon, accounting for just 1 percent of smartwatch shipments worldwide.

This chart compares worldwide smartwatch shipments to Swiss watch shipments in Q4 2015.

Many species of bees, butterflies and other creatures that are vital to agricultural pollination are threatened with extinction, posing risks to major world crops and global biodiversity..

“Many wild bees and butterflies have been declining in abundance, occurrence and diversity at local and regional scales in Northwest Europe and North America,” said an assessment by the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES).

It said declines in pollinators – which also include a vast range of other insects, bats, birds and other animals – had also been detected elsewhere in the world.

The problem facing policymakers is that scientists remain unsure exactly which factors are the biggest drivers.

The world’s first assessment of its kind said possible causes include habitat loss, pesticides, pollution, invasive species, pathogens, climate change and the spread of vast farms dedicated to a single product, which suppresses biodiversity.

The IPBES was established under UN auspices in 2012 to assess the state of global biodiversity.

It said healthy populations of the creatures are critical to ensuring stable fruit and vegetable output, as concerns rise over the challenge of feeding the world’s people in coming decades.

Among its findings, IPBES said animal pollination is directly responsible for between 5 and 8 per cent of global agricultural production by volume, amounting to between $235 billion (Dh863 billion) and $577 billion worth of annual output. Pollination is the transfer of pollen between the male and female parts of flowers to enable reproduction.

But more than three-quarters of the “leading types of global food crops” also rely to some extent on animal pollination for yield and quality.

“Pollinator-dependent species encompass many fruit, vegetable, seed, nut and oil crops, which supply major proportions of micronutrients, vitamins, and minerals in the human diet,” the IPBES said.

The assessment is the work of nearly 80 scientists from around the world and was released at an IPBES meeting in Kuala Lumpur.

In Europe, 9 per cent of bee and butterfly species are threatened with extinction and populations are declining for 37 per cent of bee species and 31 per cent of butterfly species for which sufficient data is available, the IPBES said.

In some places in Europe more than 40 per cent of bee species may be threatened.

Some of the most important world food staples such as rice, wheat and other grains do not rely on animal pollination.

But vulnerable crops could include everything from apples and mangoes, to chocolate and almonds, and many other commonly consumed foods, said Simon Potts, co-chair of the assessment.

Policy options could be as simple as planting more flowers, the group said.

But it also mentioned overall better protection of natural environments and ecosystems, limiting the scope of intensive agriculture, encouraging sustainable farming, and finding alternatives to pesticides.