The US motor industry resistance has begun, with General Motors leading the charge. A senior GM executive has defended the company’s use of Mexican plants, indicating it will not yield to political pressure to relocate manufacturing jobs to the US.
- Our chat with Sebastian Mallaby on Alan Greenspan
- Our long chat with Paul Volcker (plus transcript and highlights)
- Brad DeLong on Hamiltonian economics and US economic history
- Inside the Washington Post: a chat with Marty Baron and Shailesh Prakash (plus transcript)
- Clay Shirky and Emily Parker on Xiaomi, technology and information flows in China (updated with transcript)
- Simon Kuper’s panel on the cultural forces of football
- Claudia Goldin on the history of women in the workplace (updated with transcript)
- Our podcast chat with Reihan Salam
- Our chat with Esther Duflo — now with transcript
- Our chat with Esther Duflo
- Our podcast chat with Angus Deaton (updated with transcript)
- Our chat with Angus Deaton
- A chat with Greg Ip about “Foolproof” (and the transcript)
- A wonky chat with Martin Wolf (plus the transcript)
Alphachatterbox is available on Acast, iTunes, and Stitcher.
To analogise the ongoing diplomatic maneuvering between the US and Cuba to a scenario of mutual hostage-taking doesn’t sound charitable, but it might be the best framework for understanding a relationship long defined by its baffling surrealism. And it’s a useful lens through which to see not only President Obama’s visit to the island, the first by a sitting US president in almost nine decades, but also the specific actions taken by each side in the time since the intent to normalise relations was first announced on 17 December 2014.
One of the go-to guys on trade litigation between the US and China is Bill Perry, a Seattle-based attorney who spent the 80s at the US International Trade Commission, the Office of Chief Counsel and Office of Antidumping Investigations, and the US Department of Commerce. While tackling all sorts of anti-dumping and countervailing duty cases, he runs a blog that covers what it says on the tin: US China Trade War And if you ask him about the fast-escalating case involving China’s ZTE Corp, Bill will offer you one word: Hòumén (back door or 后门 in simplified Chinese.
Elsewhere on Tuesday, - Stepping back into macro. - “What makes US government bonds ‘safe assets’? Our answer in short is that safe asset investors have nowhere else to go but invest in US government bonds.” - Is indexing just another Wall St fad? - John Oliver on Trump. Or, sorry, Drumpf.
About a year ago — a few days before Opec spooked the world with its decision to wage war on shale producers with an oil production race to the bottom, but following a few months of steady oil declines post the Fed’s decision to start signalling an upcoming tightening path — we speculated regarding a what if scenario based on the hypothetical eventuality of no petrodollars :
By Mohamed El-Erian Data out of China, Europe and the United States highlight contrasting influences on Fed officials as they prepare for their September policy meeting. Domestic indicators are consistent with a September hike but international indicators are not. That tug of war makes this Fed much harder to predict than its predecessors.
Canada is a large, diversified economy in which commodity extraction plays a (relatively) small role. Yet historically its currency, which was once known as the Canadian peso thanks to its 30 per cent devaluation against the US dollar in the 1990s, seems to have been driven by changes in the oil price. Here’s a chart comparing two-month changes in the amount of US dollars you can buy with a single Canadian dollar against changes in the price of West Texas Intermediate:
This guest post is from the co-authors of UBS’s white paper for the WEF meeting 2015 in Davos, which started on Wednesday. Note that one of the co-authors, UBS Investment Bank’s chief economist Larry Hatheway, will be fielding questions on the energy chapter on Friday at 11:30am during Markets Live.
There is a ripost to our one chart bear case for US stocks. The latter was an eye catcher from Jeffrey Gundlach, showing that since 1871 the longest run of consecutive yearly gains for the US market was six. The current bull market has just entered its seventh year. True, says Lukas Daalder, chief investment officer for Robeco Investment Solutions, but only if you are a prisoner of the calendar. Look April to April, instead…
One of the still to be appreciated side-effects of falling oil prices is a reduction in so-called petrodollar recycling by oil producers. As we’ve already noted, there are analysts who believe petro-induced liquidity shortages may already be impacting certain eurodollar markets. Furthermore, there’s also the fact that as liquidity shortfalls manifest in external markets, the opposite could become true for internal US markets. So, just as the dollar liquidity tap gets switched off externally, it gets turned on with gusto back at home. But Bank of America Merrill Lynch’s Jean-Michel Saliba gets to the same point somewhat differently. As Saliba noted last week (our emphasis): Lower oil for longer could imply material shifts in petrodollar recycling flows. Petrodollar recycling through the absorption channel has generally been USD negative, helping an orderly reduction of global imbalances though greater domestic investment. Although recycling through the financial account is less well understood, the bulk has likely, directly or indirectly, ended up in US financial markets and has thus been USD-positive. A prolonged period of low oil prices is thus likely to lead to lower petrodollar liquidity with, in time, an allocation shift towards more inward-looking repatriation and financing flows, in our view.
As a brief follow-up to yesterday’s post on the impact of US trade with China on US employment and incomes, we thought it would be useful to visualize a few interesting facts about the evolution of the bilateral trade balance over time. First, look at how the deficit in the trade of goods swamps the modest surplus in the trade of services. Whilst the data on services are annual and stop in 2012, the general picture would probably not look much different even if it were more up to date:
As we alluded to earlier, there is a battle taking place in the oil markets at the moment. On one side there are conventional oil producers like Opec members desperate to stop oil prices from following the declining trajectory of the wider commodity complex. On the other side there are the new US shale oil producers, who — due to the US export ban — are unable to capture the full earnings potential of their production (on account of an inability to tap foreign bids directly). The problem for Opec types is that the break-even rates they seek to defend are now too high to prevent the new class of producer from being incentivised to keep producing. This despite the fact that the export bottleneck only ends up transferring much of the profitability to the refining sector instead of the US producer.
Ah, technology. You’ve got to love it. Or hate it. Especially if you’re an auto dealer or a US refiner at the moment. Both currently find themselves in a similarly challenging period. Call it the curse of being a middleman in a world moving to direct everything. Over in the auto world, for example, a stealth revolution is currently being waged on car dealers by manufacturers. Thanks to the internet, there’s simply no reason why car manufacturers can’t deal directly with customers. Orders can be gathered online, and customers — rather than being targeted by pushy salesmen — can take full control of the decisions they make. Prices, extras and specs can be decided upon with the helpful advice of independent experts, fans, enthusiasts, and journalists on auto forums.
From JBC Energy on Monday: As the analysts note, the North Dakota production surge — which was under appreciated by the industry even as recently as this time last year — is beginning to have “profound” effects on the oil markets:
Markets: Asian equities and currencies were mostly on hold as markets looked to Friday’s looming release of US jobs data. Economists expect the US unemployment rate to have fallen from 7.3 per cent in October to 7.2 per cent for November. Non-farm payrolls data are forecast to show the world’s biggest economy added 185,000 jobs in November. (Financial Times)
Take yourself back to the heady oil price days of early 2008. Imagine a rogue voice reassuring the market to “fear not, one day soon the US will be saturated in the black oozey stuff”. What would the market have made of such a concept? Would such a voice have been dismissed as a loon? Very possibly. And yet, less than six years later comes the following warning from Goldman Sachs:
Markets: The dollar weakened against all its major peers while Asian stocks climbed with U.S. index and Treasury futures as Lawrence Summers withdrew his bid to become Federal Reserve chairman. Crude oil fell after the U.S. and Russia agreed on a plan to eliminate Syria’s chemical weapons. (Bloomberg) (Financial Times) Today: EU: CPI, US: Industrial Production; NY Fed Empire Manufacturing Survey for September
FURTHER FURTHER READING - John Jeremiah Sullivan on the publication of Cotton Tenants. - Early bird specials and US growth. - Some good ideas on infrastructure and profit repatriation from Larry Summers. - The mystery of why Portugal is so doomed.
So, there was evidence this week that the US authorities might finally be getting to grips with the Chinese reverse merger scandal, whereby a string of Chinese companies exploited lax listing rules to shake down naive American investors. Executives at RINO International, a steel industry supplier, have been charged by the SEC with inflating revenues 15 fold in their US filings, while some of the proceeds from a reverse merger and $100m cash raising in 2007 were diverted to buy a house in Orange County, two Mercedes Benz cars and also funded shopping trips to the Chanel and Valentino stores in Beverley Hills. Most of the rest of the money was dispatched to China.
ROUND-UP Brazil wins battle for WTO leadership: “Roberto Azevêdo has emerged as the new director-general of the World Trade Organisation after a pitched battle with Mexico’s Herminio Blanco, according to officials familiar with the contest. Both Latin American countries saw the race for the WTO leadership as a way of elevating their influence in the global economy and cementing their status as rising powers.” (Financial Times)
This is a cracking *cough* little note from Bank of America Merrill Lynch on soaring gasoline crack spreads… which are being driven by a spate of refinery closures which, as it turns out, are specifically impacting the New York Harbour market, known as PADD I, beyond all others. This has generally resulted in a divergence in regional prices across the United States (mostly to the disadvantage of East Coast drivers). As BofAML notes: Despite being the middle of the winter, US RBOB gasoline crack spreads to Brent crude oil have soared by an astonishing $16/bbl in the past month (Chart 2).
Asian shares rise || Hedge fund reaps $500m on Greek bet || Geithner told of Libor fears in 2008 || Japan’s exports fell in November || Knight agrees to Getco offer || Cerberus to sell gun company stake || Basel may tighten ABS risk weight models || Watching for unintended consequences in 2013
It seems odd — and it may well be short-lived — but the US is beginning to shape up as a rare bright spot in the world economy.* Or indeed almost the only bright spot in the world’s economy, except for the Gulf petro-states. That is, if you were to base such an assessment solely on Japan’s September export data, released on Monday. Japan’s preliminary September trade data tell a story not dissimilar to China’s — exports to Europe are slowing (unsurprisingly) by a lot, down 26 per cent for the month, year-on-year.