Fareed Zakaria GPS – CNN 01-24-16

Fareed Zakaria said:

Lower oil prices are generally good for all countries except the major oil producers, but the size and speed of this drop could produce a credit crisis and deflationary spiral.

In periods like the present, open systems do better than closed ones. America’s transparency forces it to tackle its problems.

Sweden: Euro Monitor says that in 2015, 11% of the value of consumer transactions were made with cash versus 42% worldwide. The KTH Royal Institute of Technology says currency in circulation dropped by 25% in the last 6 years. Credit Suisse said between 2010 and 2012 over 500 Swedish bank branches went cashless and 900 cash machines were removed. The Swedish Bankers Assn says bank robberies in Sweden dropped from 110 in 2008 to 7 in 2015. The New York Times says e-fraud in Sweden more than doubled in 2015 versus 10 years ago.

The IAEA says that Iran has destroyed 98% of its enriched uranium and rendered inoperable its plutonium pathway – far more substantial than most military experts believed would have resulted from military strikes.

The World Economic Forum says that by 2050, the world’s oceans will contain more plastic than fish by weight and says the greatest global risk is the failure of climate change mitigation and adaptation.

Watch the video at http://globalpublicsquare.blogs.cnn.com/category/gps-episodes/ , listen at http://podcast.cnn.com/fareed-zakaria-gps/episode/all/TkwD3eujmTzNlz/fzgps-2016-01-17.html or read the full transcript at http://transcripts.cnn.com/TRANSCRIPTS/1601/17/fzgps.01.html

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Fareed Zakaria: American innovation is in trouble – The Washington Post 01-01-15

Salient to Investors:

Fareed Zakaria writes:

  • New studies suggest that American innovation is in trouble and that the glittering examples of Facebook et al are deceptive. We are eating the seed corn and not laying the groundwork for the next great tech revolutions.
  • Silicon Valley’s roots are deeply tied to government support – most of the legendary start-ups that fueled the computer revolution got off the ground largely because the military and NASA. GPS powers the information revolution and was originally developed for the military.
  • Federal funding for basic research and technology as a percentage of GDP is at the lowest level in four decades, while real start-up cultures are emerging in Sweden, Israel, India and China, which is on track to surpass the US in R&D spending.

Robert Litan writes:

  • The rate of start-up formation in the US has dropped from almost 15% of all US companies in 1978 to 8% in 2011, while business deaths have exceeded business births for the first time in three decades.
  • Tech is now dominated by older companies. The proportion of US companies at least 16 years old rose to 34% in 2011 from 23% in 1992. Historically, older firms are more risk-averse, rigid and incrementally innovative than younger firms.
  • The US should let in more talented immigrants – who are disproportionately more likely to start new firms – reduce regulations for starting a company, increase the ease of rasing money over the Internet, and maintain near-universal health care to allow people to risk leaving established companies.

Peter Thiel at Founders Fund says we do not live in innovative times – we have Twitter instead of flying cars.

Ajay Piramal says one of the reasons the US is so successful is that it constantly criticizes itself.

Read the full article at http://www.washingtonpost.com/opinions/fareed-zakaria-the-need-to-renew-american-innovation/2015/01/01/b0f0d864-913b-11e4-a900-9960214d4cd7_story.html

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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Swedish Housing Surges to Unsafe Value as Debt Soars – Bloomberg 12-09-13

Salient to Investors:

Bengt Hansson at the Swedish National Board of Housing, Building and Planning said:

  • The Swedish housing market is dangerously overvalued – house prices were 25 percent above fair market value in October, apartments even more overvalued.
  • Oceans of easy credit have eroded the Lutheran tradition of always paying your debts.
  • Only a fifth of house price increases can be explained by population growth outstripping housing supply. Income growth explains at most a further 50 percent. The real reason behind overvalued housing is cheap credit and interest-only mortgages as Swedes stopped amortizing and took equity out of their homes.
  • The Riksbank is reluctant to raise rates for fear of hurting economic growth, so amortization is the best way forward.
  • Sweden’s whole economy is living on borrowed time.

Filip Abrizeh at Swedbank Fastighetsbyraa said bidding wars are now the norm in Stockholm housing.

Svensk Maeklarstatistik said apartment prices in Sweden have more than tripled since 2000.

Household debt was 173 percent of disposable income at the end of 2012 versus 90 to 100 percent throughout the previous decade.

Par Magnusson at Royal Bank of Scotland said many Swedish households are very exposed to a fall in house prices.

Uldis Cerps at the Financial Supervisory Authority said the problem needs to addressed today as the popularity of interest-only loans means it takes 140 years on average for a Swedish household to pay off its mortgage. In essence, borrowers rent from the bank, while betting house prices will rise enough that when they sell, they can pay off the loan and still make a profit. Just 40 percent of households continue to make payments toward their mortgage principal after meeting the 25 percent threshold.

Robert Shiller said Sweden is experiencing a housing bubble and will face an inevitable crash.

Sweden’s response to a real estate–fueled meltdown in 1992 was lauded by economists as a model of how nations should respond to the 2008 financial crisis.

Paul Glasserman at ColumbiaBusinessSchool said Sweden’s residential mortgages risk weights are surprisingly low at 15 percent: versus the 35 percent recommended by BIS a decade ago, 50 percent or more in the US and 100 percent for less credit-worthy borrowers – one reason why US banks tend to securitize mortgages and sell them to investors.

Risk weights are lower in Europe, so banks can afford to keep mortgage loans on their own balance sheets.

Helge Berger at IMF said Sweden’s banks operate across the Nordic region, so a financial crisis there could immediately spread across its borders.

Boverket’s Hansson said the real value of owner-occupied houses in Sweden had been stagnant for almost 50 years, before jumping 80 percent since 2000, with apartments rising almost 150 percent.

Gregori Karamouzis at Swedbank, Sweden’s largest mortgage lender, sees no bubble because high prices are due to a lack of supply with no speculative construction in the past two decades – unlike recent housing bubbles in the US and Spain. Karamouzis says strict planning and environmental rules – it can take a decade to build new apartments in Stockholm – have scared off developers.

Statistics Sweden said Sweden’s population, at 9.5 million, expanded rapidly due to immigration and higher-than-expected birthrates and will increase by more than 80,000 a year during the next 5 years, a record rate.

Government rent control and a prevalence of co-op buildings reduces incentives for developers to build and constrains the supply of rental units, compelling more people to buy.

Jan Haggstrom at Handelsbanken says the concerns about the housing-price run-up are overblown and people should look at house affordability, not just prices.

Robert Bergqvist at SEB said real disposable incomes in Sweden grew 58 percent during the past decade, and though household debt is almost double disposable income, total household assets are more than three times as high.

Johan Andersson at SEB said Swedes almost never default due to the Lutheran tradition that you repay your debts.

Read the full article at http://www.bloomberg.com/news/2013-12-10/swedish-housing-surges-to-unsafe-value-as-debt-soars.html

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Bubble Trouble Seen Brewing in Australia Home Prices – Bloomberg 11-06-13

Salient to Investors:

Housing in Australia accounts for 60 percent of average household wealth versus a global average of 45 percent.

Average household debt has been near 150 percent of annual income since 2006 versus 135 percent in the US. House prices have not fallen more than 10 percent in any one year for more than 40 years.

RP Data said houses in Sydney took 26 days on average to sell last week versus 36 days six months ago: In Melbourne, 34 days versus 46 days.

Saul Eslake at Bank of America Merrill Lynch said it is easy to see how a bubble could emerge, but for now price increases are not being accompanied by a rapid rise in borrowing or building. Eslake said rising sales to investors puts the housing market in a more precarious position if economic conditions unexpectedly sour because they are not as committed as owner-occupiers, and Australia’s tax structure encourages investors to buy when they otherwise would not.

Investment in residential property by self-managed superannuation funds has risen 65 percent since mid-2008 and 10 percent in the 12 months to June, borrowing on average 70 percent of the value of a home versus 90 percent for regular borrowers.

National Australia Bank said foreigners accounted for 12.5 percent of purchases of new homes in Q3 versus 5 percent through most of 2011.

Michael Blythe at Commonwealth Bank of Australia said Australia’s population concentration puts upward pressure on capital city dwelling prices.

Craig James and Savanth Sebastian at Commonwealth Bank of Australia said talk of a housing bubble appeared in Australian media articles more times in September than at any time since 2003.

First-home buyers accounted for 13.7 percent of loans in August, the lowest level since April 2004, and versus a high of 31 percent in May 2009.

Matthew Hassan at Westpac Banking said buyers are not looking to buy in anticipation of significant capital gains.

Population growth in Australia averaged 1.6 percent a year over the past decade, meaning it needs 170,000 new homes a year versus actual supply of 154,000. ANZ Bank said Australia has a shortfall of 270,000 homes, equivalent to 20 months of housing construction, and will climb to 370,000 by 2015.

Paul Bloxham at HSBC said developers and households are unlikely to build new houses unless prices are rising, so a housing price boom is a necessary evil.

Adair Turner said the UK economic recovery is heavily focused on that favorite old British activity – another house price boom.

The IMF said Sweden needs to take measures to prevent consumer debt and housing costs from spiraling out of control.

Chinese home prices rose the most in October for the 17th consecutive month of increases.

Read the full article at  http://www.bloomberg.com/news/2013-11-05/bubble-trouble-seen-brewing-in-australia-home-prices-mortgages.html

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Fareed Zakaria GPS – CNN 09-08-13

Salient to Investors:

Fareed Zakaria said:

  • The US has put its credibility on the line and will find it extremely difficult to keep its actions limited in a volatile situation.
  • Ousting Assad would almost certainly lead to chaos and the ethnic cleansing of the Alawite sect and perhaps of other minorities, as happened in Iraq.

Nicholas Burns at Harvard said the US has every reason and right to act to preserve its credibility in the world while the Security Council is frozen because of the cynical policies of Russia and China.

General Wesley Clark said we need to bring the nations of the world together to say you cannot use chemical weapons. It will be a Goldilocks kind of strike: Syria won’t be able to say it didn’t hurt but or say it destroyed the country.

Paul Wolfowitz at AEI said it is not possible to end this civil war peacefully with Assad in power and to have some influence over the final outcome, we need allies on the ground in Syria, and that means the Free Syrian Army.

Fareed Zakaria said Sweden is very different from the Socialist Sweden of the past, with:

  • No inheritance tax.
  • Very free markets: freer and less regulated than the US in many sectors.
  • High income taxes that fund things like health care and pensions that are far more efficiently run than their counterparts in America. Sweden tends to be near the top of most rankings on quality of life and competitiveness.
  • Government spending in 2012 down by a fifth from the 65 percent of GDP in 1995; to sixth place, behind even France.
  • A budget deficit of  0.5 percent of GDP versus 5.7 percent in the US.
  • Policies that allowed Saab to go bankrupt in 2011, and Volvo to be acquired by the Chinese.
  • Lower corporate tax rates than in the US.

Zakaria said Scandinavian countries are slowly moving away from big government to smart government. The leader expected to win next week’s Norway’s elections is a conservative, running on a campaign to cut taxes.

Watch the video at http://globalpublicsquare.blogs.cnn.com/category/gps-episodes/ or read the full transcript at http://transcripts.cnn.com/TRANSCRIPTS/1309/01/fzgps.01.html

Baum’s View on Money – Bloomberg 08-30-13

Salient to Investors:

Caroline Baum writes:

C. Fred Bergsten says Sweden combines a social welfare society with a free-market economy and a high degree of government efficiency: nearly two-thirds of Swedes confirm by phone that the tax form prepared for them by authorities is correct.

Michael McDonald at Bloomberg News says that Summers, as president of Harvard, used interest-rate swaps to lock in a low rate for financing a science complex.

Felix Salmon at Reuters says Summers would be the most political Fed chair in living memory: he has spent most of the past 5 years doing everything in his power to shape and advance Obama’s agenda.

 The top 5 economic blogs are: Conscience of a Liberal (Paul Krugman), Economix, FT Alphaville, Vox and Marginal Revolution.

Read the full article at http://www.bloomberg.com/news/2013-08-30/baum-s-view-on-money.html

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Central Banks Spewing Cash Need to Plan Exit Timing, Rohde Says – Bloomberg 02-28-13

Salient to Investors:

Danish central bank Governor Lars Rohde said world central bankers need to plan for monetary tightening to avoid feeding asset bubbles. Rohde said there is no short-term alternative to global easing, given the state of the real economy.

Jacob Graven at Sydbank A/S said it will be the same pattern as every time cycles shift, but the risk of getting it wrong this time is considerably bigger.

Sweden, Norway and Switzerland are tightening rules on mortgage lending as low rates inflate property prices and credit growth. , S&P said Swedish household debt rose to 173 percent of disposable income in 2012, Norway’s will exceed 200 percent in 2013, while Denmark owns the world record at 322 percent of disposable incomes.

Read the full article at http://www.bloomberg.com/news/2013-02-27/central-banks-spewing-cash-must-consider-exit-timing-rohde-says.html

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