Fareed Zakaria GPS – CNN 05-01-16

Salient to Investors:

Parag Khanna said

America ultimately benefits from trade agreements.

Economists world-wide consider Mexico to be a hot emerging market.

The union of Canada, the US and Mexico is becoming more integrated and more productive than even the EU – a continental super power on an unrivaled scale.

China has twice as many countries with which it is the number one trading partner than America.

Connectedness is an extremely important way of measuring the leverage that a country can have.

In 10 years there will be more trade, more travel, more openness, more globalization.

 

The WHO says malaria mortality rates have fallen by 60% globally since 2000, and 21 countries will be malaria free in the next 5 years.

Watch the video at http://globalpublicsquare.blogs.cnn.com/category/gps-episodes/ or read the full transcript at http://transcripts.cnn.com/TRANSCRIPTS/1605/01/fzgps.01.html

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Fareed Zakaria GPS – CNN 02-01-15

Salient to Investors:

Fareed Zakaria said:

  • Negative foreign policy is about preventing bad things from happening, confronting dangers and dealing with bad guys. Positive foreign policy is about building new relationships, expanding markets and opportunities, strengthening alliances and values.
  • India will be the next global Goliath, though not as fast growing as China, because of its size. Indian society, increasingly pro-American, has long been attracted to America.
  • Mexico has gone from being anti-America 30 years ago to a country whose economy is closely linked to the US, a culture that has been Americanized in many respects, and whose politicians regard America as its natural partner.
  • Asia, Latin America, and Africa are moving in the right direction.

Watch the video at http://globalpublicsquare.blogs.cnn.com/category/gps-episodes/ or read the full transcript at http://transcripts.cnn.com/TRANSCRIPTS/1502/01/fzgps.01.html

Income Inequality Significantly Hurts Economic Growth, OECD Says – Bloomberg 12-08-14

Salient to Investors:

The OECD said:

  • Widening inequality creates a drag on economic growth that can be counteracted by tax policies to benefit the less well-off. Changes in wages and salaries have been the biggest direct driver of inequality. The earnings of the 10% best-paid workers have risen relative to the 10% at the bottom, who also saw a drop in annual hours worked.
  • Inequality undermines growth by preventing disadvantaged people from accessing education to develop their skills, impeding social mobility.
  • Policy makers need to be concerned with the general welfare of the bottom 40% of society and not just the poverty of the lowest 10%. Tackling poverty won’t be enough. Needed are government transfers, including policies to improve access to public services such as health care and education. Policies that help to limit or reverse inequality may also make societies wealthier.
  • Inequality knocked 6%-7% off US GDP growth between 1990 and 2010, and hurt growth in the UK, Italy and Mexico.
  • A widening in inequality like that seen in OECD states over the past two decades would slow growth by a statistically significant 0.35% a year, or 8.5% over a quarter century.

Read the full article at http://www.bloomberg.com/news/2014-12-08/income-inequality-significantly-hurts-economic-growth-oecd-says.html

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Global AgeWatch Index: Norway best for older people – BBC News 09-30-14

Salient to Investors:

HelpAge International said:

  • Norway is the best of 96 countries to grow old in, followed by Sweden, Switzerland, Canada and Germany. Afghanistan is the worst.
    Australia, Western Europe and North America rank highly.
  • By 2050, 21% of the global population will be over 60, when 40 of the 96 countries will have 30% of their population aged 60 or over.
  • Mexico, Peru and some other Latin American countries have risen in the rankings.
  • Mexico (30th) ranks ahead of Brazil, Russia, India, China and South Africa.

The tradition of caring for the elderly within extended families is weakening.

The growth of tax-financed, non-contributory “social pensions” is key to helping tackle inequality for seniors.

In Mexico, nearly 9 out of every 10 people aged 65 or older receive a social pension.

Read the full article at http://www.bbc.com/news/world-29426285

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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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North America to Drown in Oil as Mexico Ends Monopoly – Bloomberg 12-16-13

Salient to Investors:

The flood of North American crude oil is set to become a deluge as Mexico dismantles a 75-year-old barrier to foreign investment in its oil fields.

Ed Morse at Citigroup said Mexican oil output could double from inviting international explorers to drill there, the equivalent of adding another Nigeria to world supply.

Pablo Medina at Wood Mackenzie sees a huge opportunity for any kind of player in the energy sector as all the companies have to start analyzing Mexico, and said the first assets to attract foreign investment will be mature oil fields drilled decades ago and reservoirs that need injections of steam or CO2 to coax more crude out of the ground, followed by deep-water prospects, shale and other technically challenging endeavors. Medina said the level of investor interest will be partly determined by which assets Pemex chooses to keep and which to auction.

Analysts expect an influx of Mexican oil lower the price of Brent crude to as low as $88 a barrel in 2017; 5 of the 7 analysts said prices would be lower than this year.

JPMorgan Chase said the reform could increase foreign investment by as much as $15 billion annually and boost potential economic growth by 0.5 percent.

The US EIA said US crude production will expand to 9.5 million bpd in 2016, the highest since the all-time high of 9.6 million bpd in 1970.

Riccardo Bertocco at Bain said a doubling of Mexico’s output may be slower to realize than the most bullish predictions as companies confront barriers in accessing capital and human resources needed for development – an increase of 1 million bpd is the most realistic upper limit by 2025 based on the cost for new infrastructure, competition for new fields and opportunities all over the US.

Kurt Hallead at RBC Capital Markets is not expecting any significant impact from the reform in the next two years as Mexico will need to decide on tax rates, royalty structures, standards for booking reserves, etc., and conduct bidding rounds for licenses, and additional exploration, such as seismic tests.

Jose Antonio Prado at Holland & Knight said Chicontepec is just one of the over-budget, long-delayed projects for which Pemex will be eager to find partners, while Mexico will be able to incorporate private participants in existing projects as well as new opportunities. Prado said US and European banks and investment funds will be in Mexico next year in various forms trying to seek new opportunities.

Carlos Solé at Baker Botts said the reforms are especially important to open up exploration in Mexico’s deep-water fields, where additional capital and better technology and expertise are needed.

Read the full article at http://www.bloomberg.com/news/2013-12-16/north-america-to-drown-in-oil-as-mexico-ends-monopoly.html

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IMF Cuts Global Outlook, Warns of U.S. Default Threat – Bloomberg 10-08-13

Salient to Investors:

The IMF said:

Advanced economies are gradually strengthening while growth in emerging-market economies has slowed. The effects of any failure to repay US debt would be felt right away, leading to potentially major disruptions in financial markets, both in the US and abroad, though this has a low probability of happening.

Its forecasts assume the Fed won’t raise its benchmark interest rate before 2016 and that the Fed will start tapering later in 2013.

Global growth will be 2.9 percent in 2013 and 3.6 percent in 2014.

The US will grow 1.6 percent in 2013 and 2.6 percent in 2014.

Emerging economies will grow 4.5 percent in 2013

Japan will grow 2 percent growth in 2013 and 1.2 percent in 2014.

The euro area will contract 0.4 percent in 2013 and grow 1 percent in 2014. Spain will contract 1.3 percent in 2013.

China will grow 7.6 percent in 2013 and 7.3 percent in 2014. Without fundamental reform to rebalance the economy toward consumption and stimulate productivity growth through deregulation, growth is likely to slow considerably.

Russia’s growth model is exhausted, and will grow 1.5 percent in 2013 and 3 percent in 2014.

India will grow 3.8 percent in 2013 and 5.1 percent in 2014.

Mexico will grow 1.2 percent in 2013 and 3 percent in 2014.

Developing economies’ sovereign yields are 0.8 percent higher than at the beginning of 2013, and poses risks for emerging-market economies, where activity is slowing and asset quality weakening.

Weaker growth in China will hurt commodities exporters and other developing economies.

The prospect of higher US long-term interest rates and a partial reversal of capital flows is leaving emerging markets with weak fiscal positions or higher inflation particularly exposed.

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Read the full article at  http://www.bloomberg.com/news/2013-10-08/imf-cuts-global-outlook-while-warning-of-u-s-default-threat.html

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How 37-Year-Old Teacher Imperils Pimco’s Bond Bet: Mexico Credit – Bloomberg 09-03-13

Salient to Investors:

Marco Oviedo at Barclays said teacher protests are a sign that President Nieto may struggle to push through his energy and tax-law plans without modification. Oviedo said education reform shows that it won’t be easy to pass other reforms that hurt certain political groups or interests.

Opposition to Nieto’s pledges is undermining confidence in Mexico’s economy that led foreign investors such as Pimco increase bond holdings to a record in 2013.

Barclays said in July that the proposal to break the state oil company’s 75-year monopoly on drilling would attract investment, potentially adding 1.5 percent to growth.

Araceli Espinosa at Scotiabank said it is very important that the new government show it really has authority and sufficient power to pass all of these reforms.

Edwin Gutierrez at Aberdeen Asset Mgmt says the education protests are little more than a sideshow, while the whole focus remains very much on what’s going on energy reform, and as long as they push forward with their schedule, the market is happy.

Read the full article at  http://www.bloomberg.com/news/2013-09-03/how-37-year-old-teacher-imperils-pimco-s-bond-bet-mexico-credit.html

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BRIC Bust Seen in Emerging Market Discontent With Growth – Bloomberg 07-22-13

Salient to Investors:

Stretched budgets and sluggish growth are putting emerging-market governments on a collision course with rising pressures from recently empowered middle classes for more spending and better services. Policy makers face the end to an era of abundant global liquidity that helped fuel the fastest expansion in three decades. The BRICs have been slowing since 2010.

EPFR Global said investors pulled $40.3 billion from emerging-market bond and equity funds in the 8 weeks through July 17 versus inflows of $111 billion in 2012.

Angel Gurria at OECD said developing nations are punished more during downturns than their European counterparts because they depend on growth to mitigate social tensions. Gurria said Indonesia is a very good example of how you do not need to spend more money to reallocate resources better. Gurria said developing nations’ needs are much more elementary and brutal: e.g. families live with vermin because they don’t have cement on the floor, while big winds blow off roofs.

Nomura said 11 countries, including China, India, Russia, Argentina and Venezuela face the risk of market-moving civil unrest in the short to medium term, partly fueled by frustration with corruption by a middle class that swelled during the past decade.

Jim Yong Kim at the World Bank said people lifted out of extreme poverty are naturally going to want more. The World Bank said 50 million people in Latin America rose out of poverty during the past decade.

Ruchir Sharma at Morgan Stanley Investment Mgmt said investors can ride out the volatility by betting on governments that resist populist pressures for more spending and instead shore up long-term financial stability. Sharma said the same incumbents who benefited from the boom now face the wrath of the electorate, as they did not fully realize how much success was due to global factors and not their governance. Sharma said there are positive stories and while the selloff has been indiscriminate, attention will come back once the dust settles: he is underweight China, Brazil and Russia and overweight Mexico and the Philippines. Economists expect the Philippines to grow 6.2 percent in 2013.

Alastair Newton at Nomura said officials have the ability to defuse underlying social tensions, having strengthened their finances since the last round of emerging-markets crises toppled governments starting in the late 1990s, only now they will need to balance the mood in the streets with the discipline demanded by markets in the context of slowing expansions and tighter budgets. Newton said China’s slowdown is being domestically engineered but if the clean-up of speculative lending and real-estate prices fails, jobs will be lost, adding to social tensions that are increasingly apparent online where dissent is widespread. Sun Liping at Tsinghua University said the number of mass disturbances to social order doubled to 180,000 a year in 2010 from 2006 levels – China no longer makes such figures public.

The IMF cut its global growth forecast on a leveling off in China and the risk of capital outflows in countries that propelled the world economy. The IMF expects developing countries to expand 5 percent in 2013 versus the annual average of 6.6 percent over the past decade. Emerging markets account for nearly half the world’s economic output.

John Williamson at the Peterson Institute for Intl Economics said emerging markets are not heading toward another 90s-style balance-of-payments crisis. Governments have reduced their external vulnerabilities by building up record currency reserves and issuing more debt locally, while most countries have embraced free-floating exchange rates, and the IMF says inflation averages 5.9 percent, less than half 1995-2004’s 13.1 percent. Williamson said the buffers are extremely important, market reaction has been exaggerated, and does not see a slowdown in growth in the long run.

George Friedman at Stratfor said a number of regimes built their legitimacy on fast growth: when they can no longer deliver, they are set for a huge fall.

Read the full article at http://www.bloomberg.com/news/2013-07-22/bric-bust-seen-in-emerging-market-discontent-with-growth.html

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Fareed Zakaria GPS – CNN 07-21-13

Salient to Investors:

Fareed Zakaria said:

  • Unlike most developing nations, China spends little on subsidizing current consumption but spends massively on export-free zones, highways, rail systems and airports.
  • No developing democracy has been able to ignore short-term political pressures and execute a disciplined growth strategy with such success.
  • China’s growth has fallen faster and deeper than many had predicted and could slow further because China’s authoritarian system has made significant mistakes in recent years.
  • China’s huge expansion of credit and massive stimulus program since 2007 have created dangerous imbalances. To economists, the solution is obvious. Stop favoring state-owned behemoths and exporters, open up the economy, encourage the Chinese people to spend more money at home.
  • Entrenched industries and sectors will resist any Chinese reforms – countries are very reluctant to impose short-term pain for long-term gain, but China had been the exception.
  • The American private sector is extraordinarily resilient.
  • Tom Friedman says that Mexico could be one of the 21st century’s big economic successes.  But there are signs that President Nieto’s honeymoon is coming to an end. One example is Pemex’s monopoly over Mexico’s oil and gas – an ailing, failed enterprise with below-par production and corruption.

Zachary Karabell at River Twice Research said:

  • The US economy is muddling through, which is not bad given where it was 4 years ago, but it certainly won’t implode and should provide the space to deal with health care, immigration, and wealth inequalities.
  • Business confidence is one of the great canards that business leaders use as reason for not spending – a few years ago, it was Washington that was the excuse in holding back spending. There is less investment because businesses are making a lot of money without investing either heavily in infrastructure or in hiring.
  • China by design is in a managed transition from an exports and manufacturing and infrastructure led economy to a consumer led economy. Either the transition will implode, or the China will capably manage the transition.

Rana Foroohar at Time  and CNN said:

  • It is a bifurcated recovery in the US: if you strip out the government and the public sector, growth would be closer to 3%.
  • It will take 15 more months to reach pre-crisis job creation. 8 out of the 10 fasting growing categories of jobs tend to be low-paying.
  • The energy sector boom will create a boom in manufacturing.
  • The growth prospects of America’s top companies are disconnected in some ways from America itself because they are globally hedged.
  • Cautiously optimistic on China as they are willing to endure short-term pain in order to make the transition to a consumption economy.

Glenn Hubbard at Columbia said:

  • We have a fiscal policy which is oriented toward near-term austerity, but not about solving long-term problems.  The near-term deficit news is positive, but, the long-term news is still bad.
  • The history of governments managing difficult transitions like China’s is mixed and there is a real risk in the Chinese financial system.
  • Europe can keep muddling through but at a great cost – recession and shambolic labor markets – and there is a failure to deal with long-term issues and an excessive focus on short-term fiscal issues.
  • The problem for Europe and the US is not today’s budget situation but a glide-path toward a better budget situation – politicians are more willing to put the economy in a recession than to really tackle serious long-term problems.

Ed Luce at the Financial Times said:

  • Short-term austerity in the last 18 months has slowed the US recovery unnecessarily, which in turn has had a deleterious impact on the deficit, and so is self-defeating.
  • China clearly knows what needs to be done.
  • In Europe you are seeing more coalition governments, weaker governments and the rise of anti-politics in Italy, France, Britain, in many places. Fascism has had its day and, except in places like Greece, is no longer a significant force.

Watch the video at http://globalpublicsquare.blogs.cnn.com/category/gps-episodes/ or read the full transcript at http://transcripts.cnn.com/TRANSCRIPTS/1307/21/fzgps.01.html