Archive for the ‘World Trade’ Category

215

It was the biggest UK trade deficit since last August, but maybe there was a glimmer of hope in the figures.

The UK trade deficit was £3.6 billion in February, compared to £2.5 billion in January. That was not very good. In fact you would need to rewind the clock to August last year to find the last time the monthly deficit was so bad.

The deficit with the EU rose, but worryingly so did the deficit with the rest of the world.

Forget about the month on month data, it is not usually very reliable. Instead look at the last three months. During this period exports to Germany fell by £677 million, and by £670 million to the Netherlands. Exports to Sweden were down by £211 million and down £97 million to the US.

On the other hand, the UK exported £326 million more to Belgium/Luxembourg, £262 million more to China, and £101 million more to Italy.
As for imports from the US, the three month period saw something of a crash, with imports from the US falling by £490 million. Imports from Italy, Belgium/Luxembourg and Germany also fell. Imports from the Netherland, China, Norway and Spain all rose. It was good to see exports to China rise faster than imports from the country.

On the other hand, total UK exports to China during the three month period were £2854 million. Imports were £7759 million, so the UK has a long way to go to bridge that particular deficit.

The trade figures may contain some bright points, but overall they are not good. But why is this the case when sterling is so much cheaper? You can see why the deficit with the Eurozone is worsening; after all, the region is going through an even more torrid time than the UK, but why have exports to the rest of the world fallen?

A falling pound does not seem to be working. What the UK needs is investment, and that can probably only happen if QE is directly more specifically at companies.

©2013 Investment and Business News.

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205

The first two months of this year saw euphoria. A sense of relief so strong you felt you could touch it ran through the air. The Dow hit a new all-time high, passing the previous record set in 2007. The S&P 500 followed suit. In the UK, the FTSE 100 began to approach its all-time high set back on the second from last day of the last century. In fact on March 14, the index of the UK’s 100 leading companies closed at 6529, just 192 points shy of the millennium high set in 2007, and 401 points off the all-time high, set on December 30 1999.

The surge in the indices was a puzzle. The UK economy was stuck in the mire, in the midst of its longest downturn ever recorded. The Eurozone was in recession. Even the BRICs seemed to be struggling and certainly India has lost much of its lustre of late.

The markets, however, took a look at corporate profits and smiled. They studied the words of ECB president Mario Draghi, who threatened to do whatever it takes to save the euro, and the smile became a big grin. They heard the words of Abe Shinzo, Japan’s new prime minister, and Haruhiko Kuroda, the new governor of Japan’s central banks, and the markets chortled.

Since then the mood has changed. The Cypriot banking debacle started it all. Fears that Slovenia may follow Cyprus in needing a bail-out compounded market anxiety. In the background Hungary’s difficulties persisted, and there was talk that democracy was dying in the country.

Then on Friday the latest report on US jobs was out. This time it was disappointing.
March saw an 88,000 increase in the number of US non-farm payrolls. You might respond by saying, but it was still an improvement. That, however, is not the point.

In the US there is a kind of tacit pact between employers and workers. The jobs market is highly flexible, labour laws are much less stringent in Europe, but unemployment is supposed to be lower. In short, in the US the philosophy is that employers create jobs: ‘Let’s make life easy for employers, and unemployment will be low’. This pact seems to be broken.

Sure US unemployment is much lower than in the troubled parts of the Eurozone, but it is at a similar level to that of the UK (US unemployment 7.6 per cent March, but 7.9 per cent in January, UK unemployment 7.8 per cent in January), and it is much higher than in Germany (5.4 per cent in February).

But the unemployment data does not tell the full story. The employment to population ratio is even more telling. The ratio of employed to the population of people aged between 16 and 64 is around 5 percentage points higher in Germany than in the US. Unemployment is higher in the US than in Germany, but Germany has the stricter labour laws, the less flexible labour market. See: Reducing unemployment: Lessons from Germany 

Returning to the US jobs data, March was in fact the worse month for job creation since June last year. To put the 88,000 number in context, February saw a 268,000 increase in US non-farm payrolls. Oddly, despite the drop in job creation, the US unemployment rate fell to 7.6 per cent, which is the lowest level since before Obama became President.

More worryingly, however, March saw a 496,000 fall in the size of the US labour force. So sure, US percentage unemployment dropped, but only because of the substantial reduction in the size of the work force. Why this reduction? To an extent, many US workers are just giving up looking for work. They are falling out of the jobs stats.

Looking beyond the US to Europe, the job data is pretty scary. The average unemployment rate in the Eurozone in February was 12 per cent. It was 26.4 per cent in Greece (December figures), and 26.3 per cent in Spain, It was 10.8 per cent in France, 11.6 per cent in Italy.

The markets may have been celebrating all year, and waited until last week to become more cautious. But the jobs data has been awful for some time. Without a rise in employment, we cannot have a sustainable rise in aggregate demand, and until that happens, there is the danger that apparent corporate strength may prove an illusion, and worse than that, it’s an illusion the markets have bought.

For the latest data on Eurozone unemployment, see this link  

©2013 Investment and Business News.

Investment and Business News is a succinct, sometimes amusing often thought provoking and always informative email newsletter. Our readers say they look forward to receiving it, and so will you. Sign-up here

199

To many he is a hero. He is the investor extraordinaire, the man who is now ranked fourth richest in the world, thanks to his all-round savvy. He is, of course, Warren Buffett. But was he lucky?

What about George Soros for that matter? He may have defeated the Bank of England, made a fortune by betting against central banks, and may be attempting – riding on the back of his financial record – to present himself as possessing sound academic credentials, but was he lucky?

Have you ever played that game at a party, when you all stand up, and have to raise either your right or left hand. A judge then tells all those who put, say, their right hand up, to sit down. The rest once again have to choose between right and left hand. The judge decides again which half has to sit down. You keep going until there is only person left. This person is the winner.

With the benefit of hindsight, you can see how that winner made a series of good calls. Let’s say the winner got the call right seven times in a row. What are the odds of that? Well, to be precise they are one in 128.

Of course you know that it was down to luck. If there were 128 people at the party, the odds of any one person wining such a game were one in 128, but the odds that someone might win were 100 per cent.

Now make the game more complex. Involve derivatives and shorting, and leverage and balance sheets. And say the odds of success are one in six billion. In a planet of six billion people those odds will smile on one person, but were they any cleverer than the winner of our party game?

That is harsh. Buffett and Soros are clever. And they are savvy, and there was more to their success than pure luck, but how much was luck, and how much was judgement? How much was down to a particular strategy happening to be the right strategy for the time? In an economy that is steadily growing over time, an investor who believes in a taking long term bets may well be a winner. Supposing instead that your investment strategy involved betting on companies named after a fruit, and you launched your strategy about ten years ago. You would have done pretty well. Does that mean your strategy will always work?

Anyway, whatever you think, Bill Gross – who sits at the upper end of the pantheon of great investors next to Buffett, Soros and Jim Rogers – wrote in an investment outlook he calls ‘man in the mirror’: “All of us, even the old guys like Buffett, Soros, Fuss, yeah – me too, have cut our teeth during perhaps a most advantageous period of time, the most attractive epoch, that an investor could experience…perhaps it was the epoch that made the man as opposed to the man that made the epoch.”

He said: “There is not a Bond King or a Stock King or an Investor Sovereign alive that can claim title to a throne.”

©2013 Investment and Business News.

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18 years might seem like a long way off, but then again, have you noticed how time flies these days. An organisation called the National Intelligence Council – it’s pretty important, it advises the US Director of National Intelligence – has been having a stab at what it thinks the world will look like in 2030.

It’s full of the usual stuff about the rise of China and India. It also talked about the rise of second tier countries; that’s the likes of Colombia, Egypt, Indonesia, Iran, South Africa, Mexico, and Turkey. It reckons these countries combined will begin to surpass Europe, Russia and Japan in terms of economic might by 2030.

It also made forecasts about the rise of a global middle class. Predictions suggest that the world’s middle class will increase in size from around one billion to between two and three billion in 2030. Such a change will have all sorts of implications for companies that sell consumer products, cars, electronics, luxury brands, and for many of the more famous retailers.

But it was another prediction that seemed especially interesting.

The report said that power is set to shift to networks and what the report calls “coalitions in a multipolar world.”

The report said: “By 2030, no country—whether the US, China, or any other large country—will be a hegemonic power. Enabled by communications technologies, power almost certainly will shift more toward multifaceted and amorphous networks composed of state and non-state actors that will form to influence global policies on various issues. Leadership of such networks will be a function of position, enmeshment, diplomatic skill, and constructive demeanour. Networks will constrain policymakers because multiple players will be able to block policymakers’ actions at numerous points Although we believe that worldwide norms may converge toward greater democratic governance, tackling global challenges might become more vexing because of the multiplicity of actors, including non-state ones, and their dissimilar views.”

Or to put it another way, power may move away from the state to other groupings.

Who are these are groups? Well, the multinational company is one.

But it’s not all about the power of companies.

The Internet — and access to the Internet from smart phones in particular — is changing things in a quite profound way.

The Arab spring is an early example. Okay, there is no way of knowing how things will turn out. Will the Arab spring lead to a more democratic world, or make things worse? Who knows?

The National Intelligence Council suggested a key may be $12,000 a year. It said: “Historically, the rise of middle classes has led to populism and dictatorships as well as pressures for greater democracy. The value of $12,000 GDP per capita income is sometimes considered to be the level above which democracies do not revert to authoritarian systems.”

But the Internet and smart phones are great levellers. In Africa Internet access is growing at an extraordinary rate, and the use of smart phones is rising at a rate which is unprecedented.

The Internet gives people access to education that in times gone by would have been impossible.

Groups, and ideas and cultural identities are less likely to follow national boundaries.

The debate about China taking over from the West as the main focus of economic activity may be an irrelevance. In a globalised world glued together by the Internet, traditional national borders may have less meaning.

It can end in tears. Crowds can go mad. That is obvious. And if the world becomes one crowd, you don’t want it to go mad. The Internet may exaggerate different views, may create multinational networks of opinions and ideas. This may increase global tensions.

Or thanks to ideas hubs such as Ted, the Internet may have the effect of merging cultures, creating cross fertilisation.

Either way, watch the development of these so called “coalitions in a multipolar world.” They will define the course that history follows in this century.

See GLOBAL TRENDS 2030: ALTERNATIVE WORLDS, a publication of the National Intelligence Council

©2012 Investment and Business News.

Investment and Business News is a succinct, sometimes amusing often thought provoking and always informative email newsletter. Our readers say they look forward to receiving it, and so will you. Sign-up here

Barack Obama has told tales. So fed up is he with China and its trade policies that he has told teacher, or the World Trade Organisation.
He said: “Today, my administration is launching new action against China – this one against illegal subsidies that encourage companies to ship auto-parts manufacturing jobs overseas….Those subsidies directly harm working men and women on the assembly line in Ohio and Michigan and across the Midwest. It’s not right; it’s against the rules; and we will not let it stand.”

And then he stuck his tongue out.

But sitting next to him in class was a jeering Mitt Romney.

“President Obama has spent 43 months failing to confront China’s unfair trade practices,” said the man who hopes to be the next US president. He added: “I will not wait until the last months of my presidency to stand up to China, or do so only when votes are at stake. From Day One, I will pursue a comprehensive strategy to confront China’s unfair trade practices and ensure a level playing field where our businesses can compete and win.”

And he then stuck his tongue out at Obama.

China is used to it. When election season comes round, it knows that the boys and girls who want to live in the White House can gain lots of playground support through China bashing. And boasting about how they are going to do it.

It is just that the US is being a tad hypocritical; after all its own trade policies are not exactly the paragon of fairness.

A reaction against free trade remains one of the single biggest risks to the global economy. After all, the last Depression led to protectionism, followed by something else. What was that now? Oh yes, that’s right, World War 2.

For as long as it’s just talk, the anti-China rhetoric may not matter, but one of these days the US will have a president who actually carries out his pre-election promises. That will be a great day for democracy, and an awful day for world peace.