Category: Stock Markets

From Marek Dabrowski at Bruegel:

……the depth of the oil-price shock looks comparable with that of the second half of 2008 and early 2009. However, while the 2008-2009 shock resulted from a temporary liquidity crisis caused by the Lehman Brothers bankruptcy, the current shock seems to be underpinned by more fundamental demand- and supply-side factors.

On the demand side, there are the observed slowdowns of emerging-market economies, effects of energy-saving policies in developed and developing countries, and the gradual tightening of US monetary policy, which reduced the appetite for speculative purchases of oil and other commodities. In speaking about the demand side, we mean massive investment in new oil-production capacities, including shale oil, in the last two decades (Dale, 2015), the declining market power of the OPEC cartel and development of alternative energy sources.

Consequently, the lower level of oil prices could reflect a new market equilibrium and could last longer than the short-term price declines of 1998-1999 and 2008-2009. The current situation is more reminiscent of the dramatic oil price adjustment observed in the mid-1980s, after which low prices dominated for more than a decade. If this scenario is repeated now, all net oil exporters will face inevitable challenges of both macro- and microeconomic adjustment in the long term.

…..Overall, countries that conducted prudent macroeconomic policies and built-up large fiscal buffers in boom years (Gulf countries, Norway, Brunei Darussalam) have had more room to manoeuvre in choosing the right policy response to the price shock, compared to those that had smaller or no reserves. In particular, they could employ countercyclical fiscal policy to mitigate the effect of lower prices (see above).

I am sure most Australians can relate to this conclusion.

Source: The impact of the oil-price shock on net oil exporters | Bruegel

From Russian independent journalist Arkady Babchenko:

If you asked me to characterise the “Russian World” (Russky mir) in one word, I would not hesitate to call it infantilism. This term best describes the current state of Russian society.

Infantilism is, first and foremost, the inability to take responsibility for one’s own actions; the inability to draw causal links and to understand that such-and-such actions lead to such-and-such consequences.

……The absolute lack of understanding of the value of life is just as infantile.

It is not acceptable for adults to inflate a frog with a straw, to decapitate a puppy, to pound residential neighbourhoods with weapons of indiscriminate destruction, or to shoot down passenger jets with surface-to-air missiles…..

……All I can say is that we can confirm that the experiment of dumbing down a whole nation has been brought to a successful completion.

Read more at Infantilism as Russia’s Official Ideology | Free Russia Foundation

Interesting comment on Russia’s 3% budget deficit from Sergei Guriev, professor of economics at Sciences Po in Paris:

The 3 percent GDP deficit is not large but because Russia lacks access to financial markets, it can rely only on its Reserve Fund. Given that the Reserve Fund accounts for only 6.7 percent of GDP, it is not surprising that the government stopped drafting three-year budgets.

Read more at Deglobalizing Russia – Carnegie Moscow Center – Carnegie Endowment for International Peace

From Ambrose Evans-Pritchard:

Prof Stiglitz, a former chief economist for the World Bank and winner of the [Nobel] Prize in 2001, said real median pay for full-time male workers has fallen back to levels last seen 40 years ago, yet productivity has risen 100pc over the same period.

The workers have been excluded from all the gains, or as he puts it, we now live in an “inherited plutocracy” where the rich accumulate ever more in a perverse dynamic that will not necessarily self-correct.

This argument by Prof Stiglitz is simplistic. Productivity may have doubled over the last 4 decades, but this is primarily due to tools at the disposal of the worker today and not because people are working harder. Real annual investment per employee has also doubled over the last 40 years.

A counter argument would be that workers today may be better trained/educated in order to operate all that expensive equipment. The truth probably lies somewhere in between.

Source: Nobel gurus fear globalisation is going horribly wrong (technical) – Telegraph Blogs

From Matthew Dal Santo at The Interpreter:

The main point is, however, that Russia’s ‘conservative turn’ since Putin’s return to the Kremlin in March 2012 — widely deplored in the West as a creeping authoritarianism with roots only in the wiles of Putin’s mind — may be closer to the world view of Russia’s conservative and patriotic majority than most Western governments would care to admit……

To Dmitri Trenin, director of the Carnegie Moscow Centre, however, this is betting on the wrong horse. ‘This isn’t just about Putin’, he told a group I was with in Moscow. ‘It’s about the nature of society as a whole. Putin has been able to rule this country in an authoritarian way with the consent of the governed.’ The imagined liberal majority looking to the West for emancipation doesn’t exist. Russian liberals, he said, ‘have the same problem the revolutionaries have always had in Russia: they look down on the rest of the country as dupes.

‘But Trenin is just as pessimistic about the ability of Russia’s present rulers to address the country’s underlying problems. ‘We will have to expect some sort of upheaval. The dams will have to be broken somehow.’

Read more at Putin’s popularity, explained

From Brian Whitmore at RFE/RL:

“To think of Russia as a troll state is not to assume that it has no real goals or that its targets are chosen purely on a whim. It does, however, help to explain a style of statecraft that might otherwise seem increasingly irrational and unpredictable,” [Kremlin-watcher Andrew Kornbluth at Atlantic Council] wrote.

Indeed, Russia’s trolling is part of an ongoing effort to eat away bit by bit at Western resolve, European and transatlantic unity, and the post-Cold War international order. And the unpredictability of Moscow’s global trolling also serves to keep everybody off balance.

…..But trolling — like terrorism — is a weapon of the weak. “By tormenting others, trolls create the illusion of action and assuage their own nagging feelings of powerlessness,” Kornbluth wrote.

Back in February on the sidelines of the Minsk peace talks, a live microphone picked up a conversation between Ukrainian President Petro Poroshenko and Belarusian strongman Alyaksandr Lukashenka. The subject was Kremlin leader Vladimir Putin. “He’s playing a dishonest and dirty game,” Poroshenko said.

Lukashenka nodded sympathetically, replying: “I know, I know. Everybody realizes this.

“Everybody realizes it indeed. And the game continued all year.

Source: The Year Of The Troll

From Rich Miller and Enda Curran at Bloomberg:

The yuan has advanced almost 15 percent against a basket of currencies since mid-2014, according to a trade-weighted index compiled by Westpac Strategy Group in Sydney. The rise came at a time when China was already losing competitiveness to countries such as Vietnam and Thailand because of its higher labor costs.

….The result of the currency’s recent rise has been slower economic growth. GDP expanded 6.9 percent in the third quarter from a year earlier, its worst performance since early 2009, as the drag from weaker manufacturing and exports offset strength in services and consumption.

A stronger currency also hampers China’s efforts to ward off deflation because it puts downward pressure on import prices…… “China will continue to face deflationary pressure, particularly in its manufacturing sector” if the yuan continues to appreciate along with the dollar, Xiao Geng, a professor at the University of Hong Kong, said in an e-mail. He nevertheless expects China will avoid depreciating its currency on concern that such a move would upset fragile domestic financial markets.

Another reason to hold the yuan steady against the greenback: a build-up in dollar-denominated debt by Chinese companies. A cheaper yuan makes it tougher for them to service those obligations.If China does elect to retain its currency regime, it must be prepared for a further broad rise of the yuan in line with the dollar.

China appears locked in to its peg against the Dollar but a strong Dollar/Yuan hurts exports. So it looks like the PBOC has opted to sell down foreign currency reserves in order to slow appreciation of the Dollar, while maintaining the peg. But reserves have already fallen by half a trillion Dollars and the outflow is likely to accelerate when the Fed raises interest rates. They are in for a wild ride.

Source: A Strong Dollar Hurts China More Than the U.S. – Bloomberg Business

From Andrew Hanlan at Westpac:

The Westpac-AusChamber Actual Composite index moderated in the December quarter to 53.5, down 3.2pts, from 56.7 in September. This is a still solid reading, above the historic average of 49 and up from an average of 52.4 for 2014.

The trend strengthening of the Composite index in 2015 has been centred on new orders, output and overtime, with some moderation in new orders and output in the final months of the year.

Manufacturing is benefitting from a strong upswing in new home building activity, as well as the lift in renovation activity and from the significant improvement in competitiveness flowing from the sharply lower currency, down 25% against the US dollar from mid-2014. However, the cycle remains constrained. Consumer spending is below trend, mining investment is turning down sharply and global fragilities persist.

Exports are rising modestly, supported by the lower currency but constrained by still sluggish world growth. A net 3% of firms reported a lift in exports.

The manufacturing sector has been decimated by the strong Dollar during the mining boom. Now mining investment is falling. Manufacturing will take many years to recover and it is important to maintain strong infrastructure spending to fill the hole.

Source: WIB IQ – world-class thinking in real time.

From Tage Rai, Lecturer at MIT Sloan School of Management:

What motivates someone to be violent? This is a question many people are asking in the wake of the recent mass shootings in California. Most explanations tend to revolve around the core assumption that violence is wrong. If someone is violent, something must be broken in their moral psychology—they are intrinsically evil, they lack self-control, they are selfish, or they fail to understand the pain they cause. However, it turns out that this fundamental assumption is mistaken…….

I looked at violence across cultures and history with my colleague Alan Fiske of the University of California, Los Angeles. We analyzed records of all kinds of violence, ranging from war to torture to genocide to homicide. While this was rather depressing work, it also led to some very interesting findings. We identified a pattern in that violence that was both predictive and explanatory. The commonality was that the primary motivations were moral. This means that the perpetrators of violence felt like what they are doing was morally right. In fact, when they were committing the act, they perceived that not acting would be morally wrong…..

Read more at Most violence in the world is motivated by personal morality – Quartz