Tag: FINANCE
Net debt, big returns
AS DONALD TRUMP sees it, America’s trade deficit is a sign of economic weakness, proof that lousy trade deals have sent production overseas. But Uncle Sam does not just import goods from the rest of the world and send nothing in return (though that would be a lucrative arrangement). Rather, the net inflow of goods is matched by a net outflow of stocks, bonds and other financial assets.
That makes America a debtor. In theory the interest and dividends paid to foreigners should chip away at national wealth in future. Since 1989 foreigners have owned more assets in America than Americans have owned overseas; in the jargon, the net international investment position (NIIP) has been negative. But America is an unusual borrower. For almost all of that time, it has received more income on its overseas investments than it has paid out to foreigners. This is strange: it is akin to someone’s savings earning more than enough interest to service his far bigger debts.
This contrast is getting starker (see chart). In recent years the NIIP has tumbled to -44% of GDP, the lowest since 1976, when the data begin. Yet net primary income—the…Continue reading
A turning-point?
EVERYONE wants to spot the moment when markets change trend. By riding one of the great bull markets—the rally in equities from 1982 onwards, for example—or avoiding a crippling bear market like that of 2007-08, fortunes can be made, or saved. The key lies in spotting the turning-point.
Commentators see several potential turning-points in today’s markets. The first is in government bonds. The ten-year American Treasury bond yield bottomed at 1.37% on July 7th and has since risen to 1.80%. The ten-year German bond yield reached a low of -0.18% on around the same date and has since edged back into positive territory, at 0.13%. British bond yields of the same maturity have shown an even sharper shift, rising from 0.61% to 1.17% thanks to worries about the economic impact of Brexit.
These yields are still very low by historical standards. But there has been a revival of talk that the long downward march of bond yields (and upward march of bond prices) dating back to 1982 may at last have reached an end.
A second turning-point may already have occurred, earlier in the year. Risky assets seem to have recovered in unison,…Continue reading
Apps and downsides
DURING a recent ride with Uber, this passenger received a surprising word of thanks for talking softly. To complete the job, the driver needed to follow the route provided by Uber, read out turn-by-turn by his phone; noise from the back seat drowned out the critical instructions. The control Uber exercises over its drivers, whom it calls “independent contractors”, is increasingly a point of dispute. Two were recently judged to be entitled to some employment benefits—such as a minimum wage and holiday pay—by a tribunal in London sceptical of the degree of independence they actually enjoy. In fact, the drivers sit within a grey area in employment law; rules regarding firms’ obligations to their workers will need to adjust in response.
More than the profitability of Uber is at stake. According to a recent report by the McKinsey Global Institute, 162m people in America and Europe, or more than 20% of the working-age population, work outside normal employment. Nearly half rely on such work for their primary income. Sensible changes to work rules to take account of the rise in gig work could make life better for millions of workers; bad ones could mean…Continue reading
Permian hyperbole
ON THE outskirts of this west Texan city, on top of one of America’s most prolific oilfields, sit 230 square miles (600 square km) of scrubland owned by one family for more than a century. David Fasken, a Canadian lawyer, paid about $1.50 an acre ($3.70 a hectare) back in 1913, hoping to make a fortune out of cattle. But the land lacked sufficient groundwater. Before he died some years later, he swore it was the worst deal he had ever done.
Today the farm, still owned by a few Fasken heirs, is valued in the billions. Oil-rich land in the Permian Basin, a 250m-year-old sea of oil lying up to 12,000 feet (3.7km) underground, has changed hands this year for an average of more than $25,000 an acre. On October 31st Occidental Petroleum (Oxy), a large American oil company, said it had paid $2bn in cash for 59,000 acres in the Permian. Amid a flurry of such deals, Bernstein, a research firm, predicts prices will go as high as $100,000 an acre. The nicknames range from “Saudi America” to “Texarabia”.
But Tommy Taylor, head of oil at Fasken Oil and Ranch, smells a rat. He has worked on the Permian, where oil was first struck in the…Continue reading
Seeking asylum—and jobs
Unskilled, unemployed and unhappyWHEN Ameen first arrived from Aleppo, he was thrilled to have made it to Sweden. Speaking as he takes a break from a protest near parliament, he says he thought there would be plenty of jobs. But none was available. Now that the government has made it harder for family members to join the refugees, some have taken to Stockholm’s cobbled streets. The rules on asylum-seeking in Europe mean refugees like him have to stay in their country of arrival. “If we could leave, many of us would,” he says.
A big reason refugees cause alarm across Europe is the fear that they will steal jobs. But a more serious problem may be their joblessness. France, Germany and Norway all have big employment gaps between native- and foreign-born workers. But the gap is widest in the Netherlands and Sweden—and these figures do not yet include the 163,000 asylum-seekers who arrived in Sweden last year (see chart).
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Wind and solar advance in the power war against coal
THE battle between clean energy and dirty coal has entered a new phase. The International Energy Agency (IEA), an industry forecaster, this week reported that in 2015 for the first time renewable energy passed coal as the world’s biggest source of power-generating capacity.
The IEA, whose projections for wind and solar energy have in the past been criticised as too low, accepted that renewables are transforming electricity markets. Last year 500,000 solar panels were installed every day around the world. In China alone, home to a whopping 40% of the 153 gigawatts (GW) of global growth in renewable-energy installations, two wind turbines were erected every hour. Based on existing policies, it forecasts that from 2015-21, 825GW of new renewable capacity will be added globally, 13% more than it projected just last year.
All those new wind and solar plants will not generate electricity all the time. Unlike coal, which burns around the clock, renewables are intermittent. But the IEA expects the share of renewables in total power generation to rise to almost 28% from 21%. Government policies to curb global warming and reduce air…Continue reading
Steel trap
BESIDES being dirty and dangerous, making steel in China has been a good way to burn through money over the past few years. But in recent months, the fires from the country’s blast-furnaces have started to emit the warm glow of profits. Steel prices have risen by nearly 50% this year. Production, which fell in 2015 for the first time in decades, is also up. Smelters are set for a strong recovery after losing $10bn last year. And it is not just the steelmakers who will be pleased. Asia’s central bankers can also take some comfort in the rising prices: they suggest that the threat of deflation might be receding.
Once seen in Asia as a peculiarly Japanese phenomenon, deflation spread throughout the region’s factories in the past half-decade. The prices that consumers see in shops have on the whole continued to increase, albeit more gently than before. But the prices that companies charge for goods as they leave their factories’ gates have dipped lower and lower. Virtually all big Asian economies, including South Korea, India, the Philippines, Taiwan and Thailand, have experienced prolonged bouts of falling producer…Continue reading
Known unknown
COMPETITION between currencies is the stuff libertarian dreams are made on—and central bankers’ nightmares too. Already digital monies, in particular Bitcoin and Ethereum, are rivals. On October 28th a new crypto-currency will join the fray: Zcash. Many such “altcoins” are dubious affairs and don’t add much. But this one brings important innovations.
Zcash is based on Bitcoin’s code, but its creators, a bunch of cryptography researchers, have tweaked it. The new digital cash is minted more quickly and the system can handle more transactions. This makes for more liquidity and shorter transaction times, says Zooko Wilcox, who leads the project.
The newcomer also differs in the way it is governed. The incumbent started—and is still run—as an open-source project: a small group of volunteer developers decides which changes are made. Zcash’s code is also open-source, but its inventors have formed a company and accepted money from investors. In addition, 10% of the 21m coins to be issued are earmarked for founders, investors, employees and a putative Zcash foundation. All this, says Mr Wilcox, is to align incentives for all…Continue reading
The greatest moderation
ON OCTOBER 19th China reported that its economy grew by 6.7% in the third quarter. It would have been an unsurprising, reassuring headline, except that China had reported exactly the same figure for the previous quarter—and for the quarter before that. This freakish consistency invited the scorn of China’s many “data doubters”, who have long argued that it fudges its figures. China has expanded at the same pace from one quarter to the next on numerous occasions. But it has never before claimed to grow at exactly the same rate for three quarters in a row.
Has anywhere? This growth “three-peat” is not entirely without precedent. Seven other countries have reported the same growth rate for three quarters in a row, according to a database spanning 83 countries since 1993, compiled by the Economist Intelligence Unit, our sister company. The list includes emerging economies like Brazil, Croatia, Indonesia, Malaysia and Vietnam, but also two mature economies: Austria and Spain. Indeed, Spain has performed this miracle of consistency twice. It grew by 3.1% (year-on-year) in the first three quarters of 2003 and by 4.2% in the first…Continue reading
Rebooting
JUST outside Stanford University’s campus sits the headquarters of Symphony, one of the myriad tech companies that sprout like weeds in Silicon Valley. After a lunch break exercising in a nearby park, a dozen fit-looking employees, still in workout clothes, help themselves from buckets of fruit, energy bars and the food of the day (Indian), before plopping themselves in front of monitors in an airy room bathed in natural light. For the sought-after engineers making up most of the company’s 200-strong workforce, this sort of environment is the norm. Work is supposed to be healthy and relaxed—a far cry from the terrors of a New York bank with its incessant pressure to sell and complex internal politics, not to mention often unappetising, pricey food.
Across the continent, in a newly opened tower within the World Trade Centre, Kensho, a three-year-old company, has a similar feel. Like Symphony but a bit smaller, it is stuffed with talented engineers. In a New York approximation of the West Coast, it boasts “vertical gardens”—rectangular patches of vegetation like framed paintings—and a pool table.
Symphony is a messaging platform,…Continue reading