Fareed Zakaria GPS – CNN 01-18-15

Salient to Investors:

Fareed Zakaria said:

  • The theory that “we fight them there so we don’t have to fight them here” is still wrong and would commit the US to a fool’s errand for decades. Cherif Kouachi, one of the Paris terrorists, testified that it was American intervention in the Middle East that caused him to become a jihadi. Robert Pape and James Feldman found that the vast majority of the terrorists behind suicide bombings from 1980 to 2009 were acting in response to American intervention and involvement in the Middle East rather than out of a religious or ideological motivation – the two spectacular Western plots after 9/11, the Madrid and London bombings, were specifically inspired by the invasion of Iraq.
  • The chance of a global recession in 2015 is greater than people think.
  • US economic prospects look good – PricewaterhouseCoopers predicts over 3% growth in 2015, the fastest since 2005, led by continuing falls in unemployment.
  • India looks good thanks in part to reform minded Modi and a large population of consumers. PricewaterhouseCoopers predicts a growth rate in 2015 that could rival China.
  • Indonesia looks good and has a large population of consumers.
  • Europe will continue to lag without needed reforms.
  • Japan is still in a bind despite Abenomics.
  • The big oil producers, especially those with large populations like Venezuela, Iran, Nigeria and Russia, will be the big losers.
  • The big wild card is will the price of oil continue to stay low?
  • Twice as many Jews left France for Israel in 2014 than in 2013.

Andrew Bacevich said that before Syria, the US launched interventions in 13 countries in the Islamic world since 1980.

Leon Panetta at the Panetta Institute said:

  • We are entering a more threatening and more dangerous period in the war on terrorism.
  • Paris was a French intelligence failure because they had these individuals on watch lists.
  • Europe is less aggressiveness than the US at going after these individuals when they return.
  • The presidency is not just about policy and substance, but also about the optics of leadership.

Ruchir Sharma at Morgan Stanley said:

  • The world was perilously close to recession in 2014 – only 2.6% growth versus the recession benchmark of under 2% growth.
  • Global recessions happen regularly – in the early 80s, two in the 90s, in the early 2000s, and the one that began in 2007.
  • We are due a global recession. The catalyst could be China, which contributed 38% of global growth in 2014, versus 20% from the US, and 13% from the EU. In 1994, the proportions were 8%, 33% and 26% respectively.
  • Persistent low oil prices can signal weak demand and could be a leading indicator of the next global recession.

Doug Saunders at The Globe and Mail said:

  • Muslim minorities in European countries have grown during the last 20 years to between 1%-5%. In places like France for over 50 years, to almost 8% percent of the population.
  • Muslims could peak around 10% in a couple of countries in Europe within the next 20 or 30 years, so there is no chance of a Muslim population takeover.
  • Immigrants are extremely loyal to the countries they live in and their institutions, even Muslim populations that are not integrating well in terms of their beliefs.  The Pakistanis of northern England have done very poor economically yet are by some measures more loyal to Britain and its institutions, including the military, than the Anglican population of Britain. The percentage of Muslims who value their religion above their country is about the same as for Christians in those countries.
  • Muslim communities in Europe, despite being marginalized economically and educationally, tend to be among the most contented with their lives of any minority group, often more so than the general population.
  • No-go zones are a fiction. I have never seen a prayer mat in any of the hundreds of hotels in Europe that I have stayed at.

Malcolm Gladwell said the cause of the dramatic long time reduction in NYC crime is more complicated than simply an attention to visible signs of disorder: one very successful policy is based on police establishing real ties with their communities, to win the trust of families.

Bernard Harcourt  at Columbia Law School said the huge drop in NYC crime is due to reversion to the mean – what goes up a lot goes down a lot. San Diego had a very different policing approach yet exhibited similar drops in crime rates. Harcourt said Times Square has changed not because of broken windows policing, but because of real estate redevelopment that was planned in the 1970s.

Watch the video at http://globalpublicsquare.blogs.cnn.com/category/gps-episodes/ or read the full transcript

at http://transcripts.cnn.com/TRANSCRIPTS/1501/18/fzgps.01.html

Zakaria: 2015 the year of America? – CNN 01-05-15

Salient to Investors:

Fareed Zakaria writes:

  • Hong Kong is far richer than the rest of China and a window into the country’s future.
  • The rise in US oil and gas production along with the slowing Chinese growth and appetite – a 0% increase in oil demand in 2014 versus 7% annual over the past decade – are the major reasons for the collapse in oil prices in 2014.
  • The drop in oil prices will shape the next chapter of Russia.
  • Producing countries like Russia and Venezuela will suffer from falling oil prices, while consuming countries like China, India and Indonesia will benefit – with one exception, the US, because it is both the largest producer and consumer of oil.
  • The trends look positive for America:
    • Lower oil prices could make combative countries more cautious.
    • The recovery looks sustainable and increasingly robust.
    • American tech companies continue to dominate the industries of the future.
    • American society remains vibrant, fueled by immigration.
    • American government has performed extremely well relative to Japan and Europe.

Read the full article at http://edition.cnn.com/2015/01/05/opinion/zakaria-year-america/index.html

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Palm Oil Seen Dropping as Mistry Has Buy Call on Planters – Bloomberg 09-15-14

Salient to Investors:

Dorab Mistry at Godrej Intl said:

  • Palm oil at a 5-year low creates a buying opportunity for plantation and processing company stocks because producers are still making money.
  • Invest in plantations when palm oil prices are low. In Q4, 2008, when in a similar situation with regard to supply, demand and price, palm oil rapidly made itself competitive and exported its way out of a crisis as Malaysian stocks peaked in December 2008.
  • Prefer processing companies which manufacture specialty fats, oleochemicals, biodiesel and own consumer brands. Upstream companies will benefit when the price cycle turns.”
  • Expects prices to drop 9.6 percent to $588 a metric ton in the next few weeks towards Asian growers’ production cost but not below.
  • Full-year output in Malaysia, the second largest grower, will be more than initially estimated, while production at the largest grower, Indonesia, is also ahead of expectations.
  • Stockpiles will continue to rise and peak in December. Chinese imports will remain thin for at least the next 3 months as high-priced stockpiles are used up.
  • After the record US soybean crop this summer, farmers in Brazil and Argentina may switch to soybeans from corn this year. Argentina will devalue its currency to boost its overseas shipments.

Adrian Foulger and Denis Chai at Standard Chartered recommend plantation stocks to profit from a rebound in prices, and say the way to make money in the palm sector is to buy growth operators when prices are low and sentiment is weak.

Read the full article at  http://www.bloomberg.com/news/2014-09-15/palm-oil-seen-dropping-as-mistry-has-buy-call-on-planter-stocks.html

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China Lures Less Investment Than Southeast Asia, BofA Reports – Bloomberg 03-04-14

Salient to Investors:

Chua Hak Bin at Bank of America Merrill Lynch said:

 

  • Total foreign direct investment into Singapore, Malaysia, Indonesia, the Philippines and Thailand was $128.4 billion in 2103 versus $117.6 billion for China.
  • Rising foreign direct investment into Asean will remain a favorable structural trend over the next few years, given favorable demographics, competitive wages and geopolitical competition between the superpowers which remain the major investors.
  • China’s ability to attract investment may be hampered by higher manufacturing wages and an appreciating currency.
  • Indonesia’s large domestic market, low relative wages despite minimum wage increases and a weak rupiah make it attractive for lure foreign investment.

 

A Japan Bank for International Cooperation survey showed Indonesia has overtaken China and India as the most promising country for Japanese companies for business development.

A drop in China’s working-age population is robbing China of an engine of three decades of growth, whereas Southeast Asia’s developing nations show rising numbers of youth search for employment, luring companies seeking a cheap labor force and new domestic markets.

Read the full article at http://www.bloomberg.com/news/2014-03-05/china-lures-less-investment-than-southeast-asia-bofa-reports.html

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Markets punish South America’s Bad and Ugly economies – BBC News 02-02-14

Salient to Investors:

Investors are abandoning emerging economies, good and bad, for the US.

Morgan Stanley said Brazil, Indonesia, India, South Africa and Turkey are the Fragile Five – all with large deficits, slowing growth and vulnerable currencies.

Argentina is generally credited with starting the general panic after playing fast and loose with its deficit and letting inflation take hold: government attempts to control the economy on a micro-level have been a failure. The Index of Economic Freedom says state interference has grown substantially since 2003, accelerating the erosion of economic freedom, while the judicial system has become more vulnerable to political interference, and corruption is prevalent.

Venezuela and Argentina have been economically mismanaged and are suffering as the great Chinese commodity cycle takes a downward path.

Brazil is unattractive. Elizabeth Johnson cites a fair amount of government intervention, and inflation is very high at 6%, though the Brazil Central Bank has taken tough action and put up interest rates. Johnson said fiscal adjustment is going to be difficult in an election year. However, Johnson said Brazil’s exports are too big to ignore, particularly agriculture, even with the commodity cycle on a downswing.

Brazil is the world’s biggest exporter of sugar, coffee, and beef and close to being the biggest in soya, chicken and corn – with this dominance a fall in the currency is only good news for exporters.

Brazil’s fall this year has been just 2% and appears manageable. Johnson says strategic foreign investors have not been disturbed by the last week’s panic as foreign direct investment has held up reasonably well, while investors in oil and gas, the agricultural sector, in tractor and car manufacturing, and wind power show no sign of concern.

Peter West at Poalim Asset Mgmt lists Mexico, Peru, Colombia and Chile as “good” emerging economies. he puts Mexico at the top of the list because it has been implementing reforms and because of NAFTA,  80% of its exports go to the US and will share in the recovery there.

Peru, Colombia and Chile have all benefitted from the commodity boom and are now being equally punished by the collapse – particularly in the copper price. West says they have done their homework, with inflation under control and some degree of fiscal discipline, and will separate from the Fragile Five, when the dust settles.

Read the full article at http://www.bbc.co.uk/news/25988823?print=true

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China Is Cooling Off – Jim Rogers On The Markets 01-27-14

Salient to Investors:

Jim Rogers said:

Underlying situation worsening with interest rates going higher in most countries, including Turkey, Indonesia and India as cheap money ends and money gets printed. China is cooling off.

Read the full article at http://jimrogersonthemarkets.blogspot.com/2014/01/china-is-cooling-off.html

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Irrational Exuberance Overtakes Asia – Bloomberg 12-12-13

Salient to Investors:

William Pesek is  writes:

The “Greenspan put” that flooded markets with cash whenever things got dicey has become the default position in Washington, while in Asia there is an even more dangerous escalation of this policy in papering over cracks in economies that desperately need tougher, structural reforms.

Indian stocks have hit record highs, everyone is talking about India turning the corner, despite nothing really changing from 3 months ago when the rupee was plunging to record lows, politicians fumbled at every turn, talk abounded it would become the first BRIC to have its credit rating cut to junk. India’s current-account deficit is still a danger, just temporarily disguised by a charismatic new central banker. India remains politically corrupt, and the odds are that the BJP is no more a force for change than it was in 2004.

In Japan, the Nikkei 225 Stock Average is up 47 percent despite not one of Abe’s restructuring pledges being fulfilled. Japan is just as heavily regulated, uncompetitive and devoid of innovation as it was the day before Abe came to office. All that is new is a stronger punch recipe. Japan has an overpriced, unproductive and shrinking workforce, not to mention an economic structure geared for success in the 1970s.

PBC Governor Zhou Xiaochuan is deluded in believing China that can grow close to 8 percent a year, no matter what Communist Party leaders do or don’t do. President Xi Jinping’s vague pledges to let markets play a bigger role in the economy has made him seem like a Chinese Margaret Thatcher. Yet as China ends a crackdown on fraud and clears the way for over 700 companies to sell shares, the coming boom in IPOs will benefit from a kind of reform halo effect.

The policies of central bankers in China, India and Japan is no replacement for real reforms, like curbing corruption, lowering trade barriers, creating jobs, encouraging entrepreneurship, building social safety nets, promoting sustainable development and reducing their own role in the economy. Monetary policy can cushion the process of fixing flaws in economies, but it is no substitute.

America’s Greenspanization unfolded at a time in the 1990s of relative stability in a very mature economy. Asia’s Greenspanization is happening far too early in the development cycle, and much too broadly. Evidence of governments letting central bankers do their jobs can be found in Indonesia, Malaysia, the Philippines, South Korea, Thailand and Vietnam.

Read the full article at http://www.bloomberg.com/news/2013-12-12/irrational-exuberance-overtakes-asia.html

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Indonesia Has Bigger Problems Than Bikinis – Bloomberg 09-19-13

Salient to Investors:

William Pesek writes:

Indonesians are outraged over bikinis but not over the right target of obscene levels of graft, and policies that have made the rupiah Asia’s most pathetic currency. The more voters obsess about exposed skin, the less the fraudulent class has to worry about being exposed.

The risk of Indonesia plummeting into free fall, like in 1997, is quite small because its banks are much healthier, the government is far more transparent, and the central bank is sitting on $93 billion of currency reserves, while short-term foreign-currency debt levels are manageable.

Foreign-direct investment trends still suggests Indonesia has a bright future, with vast stores of natural resources and 26 percent of the population of 250 million under 15.

The widening deficit and current account in shortfall for 7 straight quarters is causing hot money to flee.

Inadequate ports, highways, refineries and power grids are squandering Indonesia’s chances of attracting manufacturing jobs that are now going to China, the Philippines and Vietnam.

Corruption remains rampant. In 2012, Indonesia fell 18 places in Transparency International’s Corruption Perceptions Index.

Read the full article at http://www.bloomberg.com/news/2013-09-19/indonesia-has-bigger-problems-than-bikinis.html

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‘Dr. Doom’ Roubini: U.S. Growth Picture Is Sub-par – BloombergTV 09-06-13

Salient to Investors:

Nouriel Roubini at NYU said:

There has been a global recovery in the last year with the US recovery and reduced tail risks of a eurozone breakup and a hard landing in China.

The US economy recovery is very fragile, with barely 2% GDP growth expected in Q3, and the improvement in the labor market is partially due to a lower participation rate. US government spending is still falling, a fiscal drag, capital spending is weak, housing is softening, flat consumption in July, and net exports are worsening.

The Fed may taper in September but with the 10-year T-yield close to 3% so any further tightening will hurt the interest rate sectors like housing and capital spending. Any Fed tapering in September should be accompanied by a very dovish statement: a hawkish statement would push 10-yr T-yields well above 3% and choke the economic recovery.

The Eurozone is improving but the problems in the periphery remain unresolved: 5 of the 7 peripherals remain in recession. While the tail risks of a Greek exit and Italy and Spain losing market access have been significantly reduced, the fundamentals problems of the periphery have not been not resolved:  low potential growth because of slow reform, public debts well above 100% of GDP for Italy, Spain and other peripherals that will keep on rising, problems of competitiveness. and some improvement in current accounts that are cyclical due t the recession and not structural.

Italy government could collapse if Berlusconi’s threat to pull the plug on the government unless he gets a pardon or avoids prison is not a bluff, the government will collapse and there will be elections before year-end and the chances of a government lasting more than a year and structural reforms both of which the country needs are relatively low.

The Greek government could fall within 6 months. Portugal and Spain have political uncertainties. Europe has austerity fatigue in the periphery and bailout fatigue in the core.

If attack on Syria is surgical and last only a few days then the further effect on oil prices will be moderated: if the conflict escalates then oil prices would be longer and more persistent and significantly damaging for all oil importing countries.

Emerging markets have had the double whammy of Fed tapering and rise in bond yields and the slowdown of China which has led to a fall if not the end of the commodity super cycle.  India, Indonesia, Turkey, South Africa, Brazil all have current account deficits, fiscal deficits, falling growth, inflation above targets, and social and political problems and elections within the next 12 to 18 months, and ugly policy choices. However, most of these countries are in better shape than in previous emerging market crises in the past decade crises with more flexible exchange rates, war chest of reserves and less currency miss-match so do not expect a repeat of the massive yen crisis of 10-15 years ago.

Watch the video at  http://www.bloomberg.com/video/-dr-doom-roubini-jobs-signal-sub-par-u-s-growth-AJzLRJ1gTcGrHz47j0zFnA.html

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Don’t Blame the Fed for Asia’s Problems – Bloomberg 08-26-13

Salient to Investors:

William Pesek writes:

Another 1997-like Asian crisis is highly unlikely because exchange rates are now more flexible, foreign-currency debt is lower, banks are healthier, countries are sitting on trillions of dollars of reserves, and economies are far more transparent.

The same can’t be said of 1994, when the Fed last reminded the world that its monetary policy is decided in Washington, not Asia. Then, Greenspan doubled benchmark interest rates over 12 months, causing hundreds of billions of dollars in bond-market losses and helping set the Asian financial crisis in motion. The dollar’s post-1994 rally made currency pegs impossible to maintain, leading to devastating devaluations across the region.

Asia’s real problem then was hubris, but now it suffers from a different kind of smugness. After the 2008 global crash, regional governments started believing their own press. They were convinced they had decoupled from the West. Bankers were abandoning New York and London for Hong Kong and Singapore. Asian debt had become a safe haven from turmoil in Europe. And, as China’s 1.3 billion people grew richer, the good times would keep rolling on.

Asia has come a long way since 1997 but rapid growth and unquestioned success in surviving the global meltdown has revived hubris. Currencies in Indonesia, Thailand and elsewhere suddenly seem toxic to investors, while India is in chaos at a time when China’s growth trajectory is more uncertain than it has been in 15 years.

Asia may be able to live without American and European consumers for 4 or 5 years, but thriving beyond that requires more buoyant and self-supporting domestic economies.

Complacency is too easy to find in Indonesia, Thailand, Philippines, and Malaysia.

Simon Grose-Hodge at LGT Group said the US has been given a free pass on the twin deficit issue, but emerging-market countries will not be so lucky.

In India, reforms have stalled and unaffordable government handouts have proliferated. With an election due in nine months, no one expects the hard decisions needed to get the economy back on track will be taken.

Unlike in 1997, Japan Inc. is healthier, the government is shoring up the economy, and the central bank stands ready to add new liquidity as the Fed’s tapering process begins. China will pull out all the stops to keep growth above 7 percent.

Read the full article at  http://www.bloomberg.com/news/2013-08-26/don-t-blame-the-fed-for-asia-s-problems.html

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