Archive for the ‘Business’ Category

By responding to Trump, China blunders and ensures that “One China” is on the table

January 16, 2017

In the business world one of the first lessons we used to pound into our deal-makers (salesmen, contract negotiators, purchasers, …. ) was that it was “silence” that defined what was really “non-negotiable”. Bringing up such matters or even responding to any mention about what was “non-negotiable” was self-defeating and, in itself, put that matter on the table. Merely saying that something was “non-negotiable” was, in itself, sufficient for the opposing party to always try to keep it on the agenda.

Trump is bringing a business, deal-making approach to politics which even veteran diplomats are finding uncomfortable and incomprehensible. China’s Foreign Ministry has just declared that “One China” is “non negotiable”. That is a massive blunder by their conventional diplomats and bureaucrats. They have just ensured that in any future US/China talks, “One China” will always be present, even if only in pre-talk talks where China tries to keep it off the agenda.

By responding to Trump’s acceptance of a phone call from Taiwan’s president after his victory and a few tweets which followed his attacks on China’s economic “cheating” during the campaign, China has effectively just put “One China” on the table.

The Guardian: 

China has warned Donald Trump that he has no chance of striking a deal with Beijing involving Taiwan’s political status following the US president-elect’s latest controversial intervention on the subject.

The Chinese foreign ministry told Trump that the US’s longstanding “One China” policy, by which it does not challenge Beijing’s claim over the self-ruled island, was the political basis for all Sino-US relations.

In an interview with the Wall Street Journal on Saturday Trump said all options were on the table as he considered how he might reshape Washington’s relations with China, a country he accused of deliberately devaluing its currency in order to hamstring US businesses.

“Everything is under negotiation, including ‘One China’,” Trump said, referring to the US’s longstanding diplomatic decision not to challenge Beijing’s claim that Taiwan, an independently and democratically-ruled island, is part of its territory.

China’s foreign ministry hit back in a statement advising Trump, a billionaire property tycoon who has claimed “deals are my art form”, that he would never be able to achieve such a deal.

“There is only one China in the world, Taiwan is an inalienable region of China, and the government of the People’s Republic of China is the only legitimate government representing China,” spokesperson Lu Kang was quoted as saying.

“The ‘One China’ principle, which is the political foundation of the China-US relations, is non-negotiable.”

If this was a chess game, Trump’s tweets are giving him the first move with the white pieces. In chess parlance he has the “tempo”. So far, the Chinese – who are more conservative than is sometimes thought – have not quite caught onto the game that is being played. It is negotiation by tweets. They may well get the US to continue to accept “One China”. But it is going to cost them something else.

Trump has not even entered office and negotiations have started.


 

Swedish Prime Minister to Saudi Arabia to mend fences ( but does not take Foreign Minister Wallström with him)

October 20, 2016

saudi-arabia-sweden

The Swedish Prime Minister, Stefan Löfven is visiting Saudi Arabia over the weekend with a couple of business leaders to try and recover some of ground lost by Swedish businesses in Saudi Arabia. Needless to say, the Swedish Foreign Minister Margot Wallström does not seem to be accompanying him.

She, of course, was the one who soured relations with Saudi Arabia to such an extent that Swedish industry is not happy. There are many stories of  business opportunities lost because of Wallströms “holier than thou” diplomacy. It was in early 2015 that Margot Wallström and the left green coalition made a great display of their moral superiority and caused some diplomatic consternation. They called Saudi Arabia nasty, very undiplomatic names (all true but not how a Foreign Minister is expected to behave), saw to it that a defence agreement was cancelled and recognised Palestine. The Saudis recalled their Ambassador, banned Margot Wallström from giving a speech to the Arab League, denied visas to Swedes and made life difficult for Swedish firms doing business in Saudi Arabia. Eventually the King of Sweden sent a letter carried by Björn von Sydow to Saudi in March 2015 apologising for Wallström and managed – monarch to monarch – to cool down some of the Saudi anger.

Left/Green sanctimony is causing a debacle for Swedish foreign policy

But the Greens and the left of the Social Democrats forgot that they were actually in government and were not just an irresponsible lobby group like Greenpeace or the WWF indulging in publicity pranks.  They were so mesmerised by the idea of showing off their moral credentials that the intention to terminate the defense agreement was announced in a great blaze of self-righteous publicity.  The Prime Minister Stefan Löfven (an old trade unionist with a good understanding of the importance of jobs) actually wanted to extend the agreement. But he was over-ruled by his far left and the Greens. His Foreign Minister, Margot Wallström (who, unlike the Greens, is old enough to know better), was more obsessed with demonstrating how Swedish foreign policy was feminist and green and occupied the moral high ground than in promoting Swedish interests and values. And so she forgot about her duties as a Foreign Minister and sharply criticised Saudi Arabia in most undiplomatic language. It verges on incompetence that the consequences of her statements were not analysed.

On this trip Löfven will be accompanied by Marcus Wallenberg of Investor, and Maria Rankka from the Swedish Chamber of Commerce.

I don’t expect that Löfven will bring up the funding emanating from Saudi sources for IS in particular or for Sunni extremists in other places.


 

The Raj reversed

March 29, 2016

A UK delegation to India to secure jobs in Wales.

Does not need much further comment.

cyrus mistry (chairman) and ratan tata (former chairman) tata sons image - bisinesstoday

cyrus mistry (chairman) and ratan tata (former chairman) tata sons (image – businesstoday.in)

BBC:

UK union leaders have held talks in India ahead of a Tata Steel board meeting that could decide the fate of thousands of workers. Officials from the Community union had “constructive” talks with Tata Steel representatives in Mumbai, where the board is meeting on Tuesday.

The future of thousands of UK steelworkers is at stake. The Port Talbot plant in south Wales suffered most of the 1,000 job losses announced in January. Unless Tata goes ahead with a turnaround plan, the future of the huge plant could be in doubt.

Roy Rickhuss, general secretary of Community, along with Stephen Kinnock, MP for Aberavon, and Frits van Wieringen, chairman of the Tata Steel European works council, met in Mumbai with senior representatives of Tata Steel ahead of Tuesday’s board meeting.

A Community spokesman said the meeting was “open and constructive”, with the European delegates making the case for Tata to continue to support the UK business.

The myth in the UK that India gained more from British rule than the economic benefits squeezed out of India is addressed very well by Shashi Tharoor in his speech at the Oxford Union.

Dr Shashi Tharoor MP – Britain Does Owe Reparations


 

Independent Scotland would have been in dire straits now

January 14, 2016

This morning Brent oil fell to less than $30 for the first time in 12 years.

During the Scotland independence campaign, the Scottish National Party based its projections and campaign on an oil price of $113 going forward and that would have provided revenues of about £7 billion per year.

SNP assumption - actual Brent oil price

At current prices the oil revenue accruing to the Scottish budget would be less than £0.1 billion compared to the planned for £7 billion per year. Back in July 2015, the expected revenue (at $45/barrel) was reduced to be about £0.16 billion per year (£800 million in 5 years). This is just the impact of price. Considering the reduction in market share and reduced volume, the revenue is likely to fall well short of that and not much more than £0.08 billion per year (£400 million over 5 years).

With actual oil revenues at just 10-15% of what was assumed, an independent Scotland would now be close to default and a declaration of bankruptcy. At least Scotland is a little more diverse and not quite as dependent on oil revenues as Norway is. But Norway is now dipping heavily into the huge oil fund it has stashed away over the good years. But even with the fund, the Norwegian kronor has lost about 30% of its value in the last year. Scotland, of course, has no such fund to fall back upon.

It seems highly unlikely that there will be any new independence referendum in Scotland until either

  1. the budget oil dependence is reduced drastically, or
  2. the oil price is over $60 per barrel.

 

GE to cut 6,500 jobs in Europe after Alstom acquisition

January 13, 2016

Back in September I predicted that GE would cut about 8,000 jobs (12%) after the Alstom acquisition. It looks like my analysis was not too far off as GE announced today that 6,500 jobs in the energy units would go just in Europe. Possibly the total number of jobs cut worldwide within 12 – 18 months will have to exceed 10,000 if GE is to come close to the cost reductions it has promised its shareholders.

YahooNews:

General Electric said Wednesday it plans to cut up to 6,500 jobs in Europe in the energy units it acquired from France’s Alstom last year.  

“The restructuring plan will touch several European countries and impact potentially 6,500 jobs out of 35,000,” a GE spokesman told AFP, confirming in part a report in the L’Est Republican newspaper saying up to 10,000 jobs could go worldwide.

The US industrial giant completed in November its acquisition of the power and grid businesses of Alstom for 9.7 billion euros ($10.5 billion) after making a number of pledges to win the support of the French government and fend off competition from rivals like German company Siemens.

One of those pledges was to create a net 1,000 high-skilled jobs in France, a promise that GE intends to honour, the spokesman said, despite 765 jobs due to go in France as part of this restructuring.

French government spokesman Stephane Le Foll said it would monitor the company’s implementation of its commitments. …….

… GE hasn’t provided any details about the job cuts in Europe, but L’Est Republican said 1,735 posts in Germany were slated to go, 1,219 in Switzerland, 467 in Spain and 250 in Italy.

It looks like Germany and Switzerland will bear the brunt of the cuts. I was expecting Baden in Switzerland to be hard hit but had perhaps underestimated the “French protectiveness” which disadvantages Germany. Still Siemens may be able to pick up some very good people in Germany and elsewhere (though the market is not exactly in a very expansive mood).

RBS “Sell Everything” note

January 12, 2016

Update to a previous post:

The RBS report by Andrew Roberts advising clients to “Sell Everything” and which is attracting much morbid attention,

“The bears have killed Goldilocks

…..

The downside is crystallising.

Watch out.

Sell (mostly) everything.”

pdf file — RBS European-Rates-Weekly-08011


 

Thinking the unthinkable – oil at $10 per barrel

January 12, 2016

Huge stocks, declining consumption and reducing prices. Yet, Saudi Arabian oil production is running at close to maximum, Iraqi oil is increasing and Iranian oil will soon hit the market. Economic theories are being overturned and more than one economist is turning in his grave. (Economists are not, and never have been, very good at forecasts though they are all past-masters at generating theories based on back-casts).

Now, the experts are beginning to contemplate what has been unthinkable so far – oil price diving to $10/barrel.

ReutersCrude oil fell 3 percent on Tuesday, heading toward $30 per barrel and levels not seen in over a decade, with analysts scrambling to cut their price forecasts and traders betting on further declines.

Prices are down around 20 percent since the start of the year, dragged lower by soaring oversupply, China’s weakening economy and stock market turmoil, as well as the strong dollar, which makes it more expensive for countries using other currencies to buy oil.

…… On the supply side, Iraq, which has become the second biggest producer within the Organization of the Petroleum Exporting Countries (OPEC), plans to export a record of around 3.63 million barrels per day (bpd) from its southern oil terminals in February, trade sources said on Tuesday, citing a preliminary loading program, up 8 percent from this month.

“The near-term outlook for the oil market is bleak. OPEC is producing flat-out into a market that is oversupplied by over 1 million barrels per day; already decelerating demand growth could further decay with slowing economic activity; and OECD inventories that are already at record levels are likely to expand through at least the middle of the year,” Jefferies said on Tuesday.

Adjusting to the price rout, analysts have been shifting their price outlooks downward, with Barclays, Macquarie, Bank of America Merrill Lynch, Standard Chartered and Societe Generale all cutting their 2016 oil forecasts this week.

StanChart took the most bearish view, saying prices could drop as low as $10 a barrel.

“We think prices could fall as low as $10/bbl before most of the money managers in the market conceded that matters had gone too far,” the bank said.

crude oil price 20160112

In my simplistic view, a reducing price for something I consume is fundamentally a “good thing”. But I can’t help feeling that this price drop is not a sound, sustainable reduction based on cost reduction. It is manipulated and artificial and is due to a misguided Saudi strategy against shale oil, Russian oil and Iran. And it is going horribly wrong.

“Sell everything” – stocks to fall by 20% and oil to $16 – says RBS

January 12, 2016

The Royal Bank of Scotland is predicting a “cataclysmic” 2016 and advising its clients to “sell everything” except high quality bonds. Stocks will collapse by 10 – 20% and oil will drop to $16/barrel. As pessimism goes this is not just “Doom” it is “Painful and Imminent Doom”. The RBS team are clearly expecting an increasing panic feeding on itself, since there are “few exit doors”. Certainly their dire scenario will itself contribute to the darkening “mood”.

For the modest investor there are few “good” options. The task for them is not so much looking for upsides but one of limiting the downsides. It is probably best to just rely on the wisdom of the Godfather. Convert to cash and “go to the mattresses”.

Keep Calm Sell Everything - Telegraph

Keep Calm Sell Everything – Telegraph

The Telegraph:

RBS has advised clients to brace for a “cataclysmic year” and a global deflationary crisis, warning that major stock markets could fall by a fifth and oil may plummet to $16 a barrel.

The bank’s credit team said markets are flashing stress alerts akin to the turbulent months before the Lehman crisis in 2008. “Sell everything except high quality bonds. This is about return of capital, not return on capital. In a crowded hall, exit doors are small,” it said in a client note.

Andrew Roberts, the bank’s credit chief, said that global trade and loans are contracting, a nasty cocktail for corporate balance sheets and equity earnings. This is particularly ominous given that global debt ratios have reached record highs.

“China has set off a major correction and it is going to snowball. Equities and credit have become very dangerous, and we have hardly even begun to retrace the ‘Goldlocks love-in’ of the last two years,” he said.

Mr Roberts expects Wall Street and European stocks to fall by 10pc to 20pc, with even an deeper slide for the FTSE 100 given its high weighting of energy and commodities companies. “London is vulnerable to a negative shock. All these people who are ‘long’ oil and mining companies thinking that the dividends are safe are going to discover that they’re not at all safe,” he said. ….

Brent oil prices will continue to slide after breaking through a key technical level at $34.40, RBS claimed, with a “bear flag” and “Fibonacci” signals pointing to a floor of $16, a level last seen after the East Asia crisis in 1999. The bank said a paralysed OPEC seems incapable of responding to a deepening slowdown in Asia, now the swing region for global oil demand.

Morgan Stanley has also slashed its oil forecast, warning that Brent could fall to $20 if the US dollar keeps rising. It argued that oil is intensely leveraged to any move in the dollar and is now playing second fiddle to currency effects.

RBS forecast that yields on 10-year German Bunds would fall time to an all-time low of 0.16pc in a flight to safety, and may break zero as deflationary forces tighten their grip. The European Central Bank’s policy rate will fall to -0.7pc.

US Treasuries will fall to rock-bottom levels in sympathy, hammering hedge funds that have shorted US bonds in a very crowded “reflation trade”. ………..

Business Insider has the RBS bullet list of concerns which are giving their bleak view of 2016:

My bullet point themes into 2016 are (remain):

  1. Bearish China
  2. Bearish global commodities (hards, softs, fluids). And more specifically . . .
  3. Bearish oil (target $26, then clear risk of $16)
  4. CBs (mostly everywhere) will ease more
  5. The world has far too much debt to be able to grow well – global output
  6. gap widens
  7. Emerging market majors (outside India & Eastern Europe) all remain sells
  8. Automation on its way to destroy 30-50% of all jobs in developed world
  9. Currency war / mercantilism

 And my new bullet point themes:

  1. Global disinflation risks turning into global deflation in 2016
  2. Everyone thinks ‘goldilocks’. We thought this strongly for >2 years (on our liquidity theme) but now worry about equities/credit, both huge, multi-year, well held positions. Negative returns in 2016 are probable, though without a recession they should be manageable, think -10-20%, rather than a rout
  3. If we see weaker ‘risk on’ products, the last safe ‘high yielder’ is the EMU periphery. Our new 0.75% 10y BTP target could prove too high a yield
  4. Risks to 0.16% new 10y bund target are on the downside, not upside
  5. Main risk comes from oil. A plunge sub $20 would aid consumption

It could be a bad year for the small investor.

Saudi oil policy has ensured the survival of the shale oil producers

January 1, 2016

WTI Crude Oil Price. $107 in June 2104 and $37 yesterday (graphic Bloomberg).

WTI Crude oil price 2014-2015 (Bloomberg)

WTI Crude oil price 2014-2015 (Bloomberg)

In years to come the Saudi strategy through the last 2 years will form the basis of case-studies in business school about classic strategies which back-fired.

The Saudi overproduction has not managed – as they hoped – to kill off the US shale oil producers during 2015. They have reduced their costs much more sharply than the Saudi’s calculated for. They have also developed the ability to “mothball” and restart their wells at short notice. Iranian oil will come into the market in 2016 and their production costs are even lower than the Saudi cost.

Fighting for market share – while the market is down – is an expensive business. But I think the fundamental error in the Saudi strategy is believing that they will be able to retain market share when the market turns up. Not only will they have to fight off the Iranians but with an increase in demand, all the shale producers will be back. Moreover new shale producers in the UK and Asia are waiting in the wings. The Saudi attack on the shale oil producers has only made them far more competitive, very much faster than they ever expected. With the US experience to draw on, the learning curve for new producers in new countries will be that much easier and faster to traverse.

Reuters:

The U.S. shale industry, meanwhile, surprised the world again with its ability to survive rock-bottom crude prices, churning out more supply than expected, even as the sell-off in oil slashed by two-thirds the number of drilling rigs in the country from a year ago.

The United States also took a historic move in repealing a 40-year ban on U.S. crude exports to countries outside Canada, acknowledging the industry’s growth.

“You do have to tip your hat to the U.S. shale industry and their ongoing ability to drive down costs and hang in there, albeit by their fingernails,” said John Kilduff, a partner at Again Capital, an energy hedge fund in New York.

The bottom line is that Saudi oil is no longer without alternatives. That shale oil producers will disappear is a Saudi fantasy. In fact they have now helped the shale oil industry to become lean and mean enough such that their survival is guaranteed. The oil prices during 2015 were insufficiently low to drive an economic recovery but that could well come in 2016. The number of oil producers will only multiply and Saudi oil revenues will be permanently impaired.

Tax avoidance is a measure of the incompetence of the lawmaker and the competence of the taxpayer

December 23, 2015

Taxation is fundamentally a confiscation of private assets for public purposes. It may well be necessary. Tax laws may be fair or unfair. Good citizenship – individual or corporate – then requires that prevailing rules of taxation law be followed, due amounts calculated and paid. Individuals and companies are required to cooperate in calculating the taxes they owe to their tax jurisdictions under existing rules and to pay such amounts in a timely manner.

I find it irritating when the lawmakers then criticise taxpayers for the deficiencies of the laws they have formulated. It has become popular for politicians to criticise large companies and wealthy individuals for “tax avoidance” (which is perfectly legal) as being cases of “not paying your fair share of tax”. It strikes me as a rather irrational – if populist – argument. Tax laws are not inherently, and of themselves, “fair”. In fact the question of “fairness” is not a criteria when it comes to paying or not paying tax. It comes into play only in the formulation of the enabling law. Once a tax law is passed, all legal entities within the jurisdiction are required to pay – whether or not it is “fair” in somebody’s opinion. Many tax laws are intentionally “unfair” to try and implement some policy or other, or to encourage some particular behaviour. When politicians start referring to the “spirit of the law” not being followed, it is just a confession of their own incompetence in formulating laws to implement their intentions.

As law-abiding individuals and companies, we calculate and pay our taxes according to the rules that prevail. We use all available rules of allowable deductions and off-sets and deferred taxes and tax-breaks to minimise the amount of personal assets that are to be confiscated by the State. We use accountants and experts to navigate the complexities and intricacies of tax legislation. No individual is ever expected to pay more than the prevailing rules require. Any individual who does pay more than required, and assuming his perfectly rational objective is to minimise the tax to be payed, is fundamentally incompetent. Any company which pays more tax than it should also demonstrates incompetence and is not demonstrating due care of its investors’ assets.

Individuals and corporations are not required or expected to pay more than what is due under the rules prevailing. The issue of ethics is in play when the rules are formulated and is also involved in the following of the rules. The act of payment is an ethical issue but minimisation of tax due is a matter of competence, not of ethics. Paying more taxes than are due demonstrates incompetence and gains no ethical credits. So when there is criticism of companies for “not paying enough tax”, the real failure is with the politicians who have made the deficient rules – not with the individuals or companies who have followed the prevailing rules to their own best advantage.

I would certainly not wish to invest in any company which was not sufficiently competent to keep its taxes to a minimum.

Tax evasion is illegal and demonstrates a lack of ethics with the taxpayer. Tax avoidance is a measure of the incompetence of lawmakers and of the competence of the taxpayer. I would go so far as to say that to pay more tax than is due is not just incompetent, but also unethical in being deficient in the due care of resources to be expected of any responsible entity.


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