Nick Rost van Tonningen ~ Gleanings II ~ 528A Posted by John on September 13, 2013

Quote of the week : “Momentum in the advanced economies has moved up, but … (this) has been happening at the same time as momentum in some of the emerging economies has weakened  … this is a reversal of what has been the pattern over recent years.” – Jorgen Elmeskov, the OECD’s Deputy Chief Economist.

The Fed reported that in July consumer credit outstanding in the US grew by US$10.4BN, down from US$11.9BN in June (that had been downwardly adjusted from the original US$13.8BN) & was less than the US$12.3BN increase expected. On the more positive side, according to Bloomberg the share of US household income now devoted to mortgage-, & other household debt-,  service stood at a twenty-year low 10.5%, down from 14.0% at the end of 2007. 

The latest CNN poll shows Obama’s overall approval rating is holding at 45% but, while last January 54% approved of his foreign policies, that has now dropped to  40% (a break in the five year trend of his foreign policy support outpolling his domestic one). This is driven in large part by the 63% disapproval rating of his Syria stance (if a vote on it had been held in the House last week, it would have been trounced; for lawmakers have been inundated with calls & emails opposing any attack on Syria for crossing the ‘red line’ of using poison gas on its own people). He has been burning up political capital on Syria that he desperately needs for his domestic policy program (thus opposition to nominating Summers to be Fed Chairman is now said to be building to the point he may soon start asking himself “Is it worth the trouble?” – which may not help Yellen since she is as anathemous to the Republican Right as Summers is to the Democratic Left (with the two likely to join forces to defeat the nomination of both).

The CW that John Kerry blew it when he suggested on September 9^th that having Syria surrender its poison gas inventories to a third party to avoid a punitive US attack may be wrong for three reasons. One, while Obama had clearly stated beforehand that he wouldn’t meet one-on-one with Putin during the St. Petersburg G-20 Summit, while there he did engage in a twenty minute tete-à-tete with him. Two, the speed with which Russia’s Foreign Minister, Sergei Lavrov, picked up this ball all but set a diplomatic speed record. And three, so did the speed with which Kerry hastened to Geneva for two days of meetings with his Russian counterpart starting September 12^th.  Meanwhile, Assad has already started to play games by suggesting he be given 30 days to ‘start’ pulling the needed information together (as if someone in his entourage didn’t have it at his fingertips).  

One (rather useful) market letter observed recently “The US government is selling buildings all over the country and federal employment is … starting to fall. Asset sales at the city level will occur as well, often at fire sale prices … governments at all levels have too many facilities and too many people (many of them ‘needed’ to staff those facilities). Their (i.e. the cities’) downsizing has just started. Funding, or rather the lack thereof, is what hurries restructurings along and it is at the municipal level … where this will happen first.”

The US Committee on Foreign Investment, headed by Treasury Secretary Jack Lew, has approved the Morgan Stanley-,  & Bank of China-, funded US$4.1 BN takeover of Smithfield Foods by China’s privately-owned Shuanghui International Group (which, with the assumption of its debt making it a transaction worth US$7+BN, i.e. the biggest Chinese takeover of any US company ever). But it didn’t have had much choice in the matter since its mandate limits it to assessing the national security aspects of foreign takeovers, of which there were few, if any, in this case. Smithfield is the world’s largest pork processor, with a daily ‘kill rate’ of over 100,000 pigs, and plants in 26 US states, Mexico & ten European countries, while a 73%-owned Shuanghui subsidiary is China’s largest meat processor. Shuanghui intends to delist Smithfield from the NYSE & in due course list a portion of the shares in the new, combined company on the Hongkong Exchange. The reasons for this are twofold. Higher valuations in Hongkong (at last count Smithfield shares traded at 12.7x forward earnings in New York while similar companies did so on an 18.2x forward earnings’ basis in Hongkong). And secondly, &  more importantly, this will enable members of Shuanghui ownership group [incl. Goldman Sachs & Beijing-based New Horizons, a private equity fund co-founded in 2005 by Wen Yunsong (aka Ken Wen), former Premier Wen Jiabao’s son] to ‘cash in their chips’.

But there are dissenting voices. Bob Marshall, an 11-term Republican member of the Virginia House of Delegates (& twice unsuccessful in his party’s primary to be its candidate for a US Senate seat) decried approval as “unbelievably shortsighted with respect to American citizens & workers”.  And industry experts warn of a possible “bleed out” (an industry term for  unconscious animals with their throats slit bleeding to death) of technical staff at Smithfield‘s as the Chinese owners cut corners on health- & safety standards, as they do at home. 

In a possibly trend-setting move Ford recently transferred the production, & the 1,400 jobs that go with it, of its popular, award-winning Fusion mid-sized hybrid from its plant in Hermisillo, Mexico to a plant in Flat Rock, Mich., 40 miles from Detroit (it was the 2010 North American Car of the Year & the 2013 Green Car of the Year & has an annual sales volume of 250,000 units).

According to Iowa’s DesMoines Register sheriffs can refuse to issue gun permits for a number of reasons (most of them criminal offense-related) but not for being “visually disabled”, i.e. blind. It notes that “sheriffs and advocates are divided on whether that’s a good idea” & quotes a blind individual, one Michael Barber, as saying “when you shoot a gun, you take it out and point and shoot, and I don’t think necessarily that eyesight is necessary.” – the same may well be the case in most, if not all, US states since in an earlier era, when common sense rather than loony-tunes was the order of the day in politics, the idea of a blind person wanting a gun permit may have been deemed so ludicrous as not to necessitate prohibiting.

Thirty-eight years ago Canada’s Enbridge built a 600 km., 30 inch pipeline to carry imported oil from Montreal through, or near, some of Canada’s most densely populated regions to a terminal point West of Toronto to provide feedstock for nearby refineries. Now it wants to reverse it, at a cost of $110MM, to bring “cheap” oil from the Bakken & the oilsands to Montreal refineries – apart from the environmentalists’ objections in principle to the idea, it seems to have two, & not just one, Achilles heels. First of all, 38 year-old pipe should be ripped out of the ground & recycled, rather than given a new lease on life (apparently Enbridge has learnt nothing from the rupture of its 34 year-old pipeline three years ago in Michigan), especially since Alberta ‘dilbit’ (diluted bitumen) is more corrosive than other crudes & the Lac Mégantic train derailment debacle is now said to have been caused in part by the greater than average explosive characteristics of some Bakken oils. And secondly Alberta & Bakken oil producers may have something to say about being expected to have their oil hauled long distances to generate “cheap” feedstock for Québec refineries (especially since pipelines require long-term commitments by producers, whereas rail transportation doesn’t).

The Globe & Mail this week carried an article that waxed euphoric about the fact cheap natural gas is prompting a boom in the building of new nitrogen fertilizer plants[1] (gas accounts for 80% of the cost of producing the fertilizer), & how good that will be for farmers. But there are limits to the amount of the stuff farmers can use, & to the rate of increase in their demand for it, and gas prices are unlikely to stay low forever, or even for an extended period of time. For low gas prices are a North American, shale gas-driven phenomenon & shale wells are notoriously short-lived. And with the number of rigs drilling for gas at last report down 9% YoY & 75+% from their peak five years ago, many of the wells drilled then may now be coming to the end of their useful lives, just as the demand for gas is skyrocketing & drilling new gas wells is still not viable at current price levels.   

In an interview with France’s Le Figaro newspaper, Syrian President Bashar al-Assad warned that the Syrian conflict could spill over into, among others, Iran & Saudi Arabia – this has, in a perverse way, already happened because, like the Spanish Civil War of the 1930’s (&, more recently to some extent, the Iraq & Afghanistan wars), what was a domestic rebellion has in the last 2½ years become a “proxy war”, only with far more players than the Spanish Civil War ever had, with, as the writer of a Letter to the Editor of the Globe and Mail put it, ‘those who started the campaign to win democratic rights in their country having long ago been reduced to mere pawns, & victims, in a campaign waged by a host of noxious outsiders.

During the past decade the number of Chinese of working age increased by 89MM. But the tide has turned & in the next decade their number will decline by 18MM while the number of those aged over 65 will increase by 116MM). And since any increase in the so-called “dependency ratio” reduces an economy’s potential trend growth rate, according to Dr. Clint Laurel of Global Demographics this means that the Chinese economy’s trend growth rate will drop from the past decade’s 10+% to 5% over the next five-, & to as low as 3.2% in ten-, years’ time.

One market letter provided the following insights on China. Since Deng Xiaoping initiated, in 1979, the first steps away from Maoism, science, technology, industrialization & modernization have been progressively unshackled but Western influences that might corrupt socialism kept out. But the spread of the digital media at home & of Chinese businesses abroad has made the latter more & more difficult, creating stresses that could prompt another Tiananmen Square-like episode. Meanwhile, the Communist Party (whose stature among the hoi polloi is now at an all-time low) is riven by a split between conservative ‘neo-Maoist’[2]-, & reformist/‘modernist’-, wings (a split that will have geopolitical implications by making Beijing more aggressive/bellicose in foreign policy so as to whip up nationalist fervour at the grassroots &  divert attention away from domestic issues, such as the lack of affordable housing and the deteriorating quality of the nation’s air & water). President Xi, a princeling once closely allied with the PLA, belongs to the former & Premier Li, who came up (the hard way?) through a Youth Movement preaching service to the country, with the latter. While Li (said to be “likely the most business savvy of the key policy-making seven member Standing Committee of the Poliburo” – where he is in a minority) is an advocate of a more open economy & of restructuring the SOEs, Xi has now abandoned the PLA (which is shot through with corruption) to ally himself with a ‘New Left’ that espouses nationalism, patriotism & “China for the Chinese” (which has started to create headwinds for foreign-owned businesses), and professes to abhor corruption. In the short run Xi may well win the battles (for Li needs a stable economic environment to introduce real reform) only, in the end, to lose the war (& his position may well have been weakened in recent days by revelations in the South China Morning Post that the 5MM yuan that Bo was recently charged with having embezzled was linked to the purchase, back in 1999, of a holiday villa for Xi’s mentor, former President Jaing Zemin). 

The Eurozone’s Sentix Investor Confidence Index measures, each month, the sentiments of 1,600+ financial analysts & institutional investors with respect to 30+ categories; in September it leaped into positive territory for the first time in over two years with a reading of 6.5, up from – 4.9 in August & way ahead of the consensus expectation of – 2.9.

Former Italian Prime Minister Silvio Berlusconi of bunga bunga party fame was recently found guilty by an Italian court of tax evasion & given a four year sentence (since reduced to one year house arrest) that he is unlikely to ever serve, & banned from public office for a yet to be determined period of between one & three years. He has now decided to appeal to the European Human Rights Court to have this overturned, with his top aide declaring “we are really confident that at a European level we can reach a finding of innocence that so far in Italy hasn’t been possible” – given his age (he will turn 77 on September 29^th) he is likely playing for time. But this course of action is not risk-free; for if the Human Rights Court were to reject his appeal, his goose would really be cooked. Meanwhile a Senate Committee has started discussing ejecting him from Parliament, a move that could bring down the government (with the market reacting to this by marking down the price of, & raising the yield on, Italian government debt.      

Partly privatized, but Russian government-controlled, Gazprom is Russia’s largest company, the world’s largest gas company (it owns one-sixth of all global natural gas reserves – small wonder  Putin has been agitating for the creation of a global OPEC-like cartel of natural gas producers, which Gazprom would obviously dominate), & owner of the world’s largest gas transmission system. It is currently at odds with the China National Petroleum Corporation (CNPC) over the benchmark to be used in pricing its growing natural gas exports to China; for the CNPC/Beijing wants to use the NYMEX’s Henry Hub price (the lowest anywhere in the world due to the explosive growth of US shale gas production) while Gazprom/Moscow is holding out for the Japan Crude Cocktail price, the highest worldwide. Using the former doesn’t make much sense since it is a US domestic price for a market half a world away, while the drawback of the latter, already used as a benchmark in Japan, South Korea & Taiwan, is that it is a price for oil while in recent years the historic oil & gas price ‘coupling’ has significantly weakened.     

Tony Abbott, the leader of Australia’s Labor Party (that by North American standards is a pretty conservative lot) romped to a landslide victory on September 7^th on a platform that included repealing the carbon tax, ending the 30% tax on the mining industry, lowering business tax rates, reducing the civil service by 12,000 (i.e. by < 2%), cancelling handouts to parents of school age children, lower subsidies for car makers & returning the Budget to surplus in ten years – the Aussies apparently still believe in the good tooth fairy & appear to have been seduced by a siren’s song of easy answers to an intractable problem, an economy that is high-cost & has low productivity. And budget balancing promises often have a long “rolling” time horizon (i.e. in ten years this year, in ten years next year, and so on & so forth). While in the longer run, its economy may get a huge boost from a recent shale oil find that could be worth as much as US$40TR (100x its current GDP), new shale oil & gas discoveries are now a dime a dozen; the only problem with them is that, regardless of the technology used, many may not be viable at present prices. In addition, more resource wealth will enable Australian politicians to continue avoiding the national economy’s structural problems.

GLEANINGS II – 528

Thursday September 12^th, 2013

TASK OF DECOMMISSIONING EASIER SAID THAN DONE (G&M, Patrick Martin)

$          This would not be the first time plans have been made to decommission a country’s arsenal of chemical weapons. But talking the talk will prove easier than walking the walk. Some Syria’s stockpile of poison gas is believed to be decades-old & to pose a risk if transported, necessitating destruction in situ (in a country in civil war?). And destroying nerve gas, of which Syria is known to have a significant stock, requires highly specialized & costly facilities that can take a decade to build & cost US$1MM-US$5MM (in the US building a decommissioning facility has so far taken a decade & still isn’t  completed, while its cost has risen from its estimated US$2BN-US$3BN to US$35BN.

If it cannot be transported elsewhere for destruction, how is it going to be kept in the meantime – on Syrian soil guarded by foreign soldiers?

NIGERIA RANKS 4^TH IN GLOBAL OIL SUPPLY OUTAGES (Business Day)

$          It is losing 200,000 bbld to pipeline vandalism, theft & oil spills. And according to Deutsche Bank analysts & other sources total global outages[3] ^{currently amount to 3.15MM bbld, (3.5% of the daily demand of 90MM bbld), broken down as follows :}

$                                  Libya – 1.2MM bbld; output has been all but halted by strikes & civil unrest;

_$                       Iran – 1.1MM; a result of the sanctions;

$                                  Syria – 0.3MM; an almost complete shutdown due to the civil war;

_$                                   Nigeria – see above

$                                  Iraq – 0.2MM; disruption of throughput in its Northern pipeline from Kirkuk to the Turkish port of Ceyhan from multiple acts of sabotage; and

_$                                   South Sudan – 0.15MM; political tension with Sudan.

Meanwhile two other factors make the situation a little more ‘high risk’ than the CW has it. Libya, Syria & Nigeria are all producers of ‘light, sweet’ crude that European refineries use; this has led to some price distortions. And Saudi Arabia, traditionally the prime  “swing producer”, is pumping 12+MM bbld, an all-time record, & may not have much excess capacity left (& what it has is of heavier oil that many refineries cannot handle).

But nobody is unduly concerned, counting, if things get too tight, on the US to release oil from its strategic reserve to avoid an oil price ‘spike’ that could damage its economy.  

G-20 NATIONS TO CRACK DOWN ON TAX CHEATS, AGREE TO SHARE RECORDS BY 2015 (G&M, Bill Curry & Janet McFarland)

$          Taxation in a globalized economy has become a high profile issue in the developed world (where personal-, & corporate-, income taxes are a core source of government revenues). First due to news that multinationals such as Apple & Starbucks have been paying little tax in countries where they make big profits. Secondly because of a wave of investigative reports highlighting how the wealthy use tax havens to reduce their  taxes. And thirdly, & most importantly since neither of the above is really news, the fact that most developed country governments are cash-strapped & desperate for new sources of revenues but unwilling/unable to extract more tax from existing taxpayers. So when China, the last major holdout on the tax information exchange issue, agreed to join such an effort days before last week’s Summit in St. Petersburg, the G-20 leaders agreed there to share their tax records by 2015 to better crack down on tax cheats & on global corporations using complex schemes to minimize their tax liabilities. Such information-sharing is to be just part of a broader package of  sweeping tax reforms they supposedly endorsed in principleon September 5^th, much of it promoted by the OECD that seeks to have tax policies globally harmonized in  ways that will constitute “dramatic change … for multinationals around the world.”

$          A Canadian tax law practitioner says countries have been specifically tailoring their tax laws to attract business in certain areas. An Oxford professor specializing in international tax agreements says the countries involved must be clear as to how any  information shared will be protected since “Governments will more effectively engage in automatic tax information exchanges if they have assurances … the transferred information will be protected by laws … similar to their own laws that protect taxpayer rights.” And, at a practical level, a proposed US law that would require foreign governments to report banking information of US citizens has already run into Canadian government concerns (in a case of what in the 60’s used to be referred, & objected, to by Ottawa as the “extra-territorial application of US law”) & attracted the attention of Canada’s Privacy Commissioner.

            This is largely window dressing & the soup is never eaten as hot as it is served. For when push will come to shove, governments will prove more than a little reluctant to go very far down the ‘tax harmonization’ road for economic development-, souvereignty-, & vested interest-protection reasons. While this will make life more difficult for ‘small fry’ who cheat on their taxes by illegally hiding money, it likely won’t have much effect on tax ”optimizers” like Apple & Starbucks whose tax information is already quite “transparent” & who have tax lawyers help them navigate in a legal manner through the global tax agreement maze created by the politicians themselves. 

U.S. (TREASURY) YIELDS FALL ON PERCEPTION OF MODEST FED TAPERING (Reuters)

$          On Monday September 9^th, on somewhat less threatening Syrian news, UST yields backed away from their two-year highs of the previous Friday (when the 10-year yield briefly went through 3%). The somewhat disappointing new job growth numbers for August (&, more importantly, the downward revision of the previously reported numbers for June & July) have fueled expectations that any Fed “tapering” will be even smaller than the earlier expected US$15BN & that “they (i.e. the Fed) can begin the process and see how the market reacts instead of hitting … (it) all at once … (with) a big bang.”

            It’s worth keeping in mind that at 3.00% the 10-year UST bond yield is closer to its 4.00% pre-financial crisis level than to its 1.47% all-time low of May 28^th, 2012.

UNREALISTIC EXPECTATIONS (Thoughts from the Front Lines, John Mauldin)

$          When US cities say “We are not Detroit”, it behooves us to remember that not long ago Spain, Italy, Portugal, Ireland & Cyprus said “We are not Greece”, prior to losing access to bond markets & having to rely on central bank largesse.

$          Moody’s recently proposed that state pension funds should be required to use the yield on high grade corporate bonds (currently 4%) to benchmark their pension fund assets’ future rate of return assumptions (many still use rates as high as twice that). At present the largest 255 state-funded pension funds’ assets amount to US$2.6TR &, based on their current (overly optimistic) future return assumptions, are 27% underfunded (which the more conservative methodology for estimating future returns proposed by Moody’s would raise to 61%).

            There seems to be a rather incongruous mismatch here : why should pension fund sponsors & their actuaries be required to use a (currently historically low) UST-based rate to calculate the PV of their future liabilities & have free rein to pick any number they choose to calculate the Future Value of their current asset base.    

EIGHT REASONS WHY THE US WILL BE #1 FOR YEARS (Business Insider, Rob Wile)

$          Gary Shilling has a long, & well-deserved, reputation for being one of the most bearish of US economists. But he now has turned bullish on the US for eight reasons :

$                      Immigration – immigrants tend to be younger & have more kids than the locals.  So by 2040 the US ratio of working age-, to total-, population, at 60.3%, will be the highest of any developed nation, while China’s will have declined from 72.4% in 2010 to 63.1%;

$                      A naturally expending work force – the US economy needs 1.44MM new jobs annually to maintain 2½% annual productivity growth. With the BLS forecast 2.2MM annual population growth & a 63.2% participation rate that’s achievable;

$                      Entrepreneurial spirit – The US educational system is better than anyone else’s because students are encouraged to think for themselves;

$                      Unions are dead, or dying – declining wages are a tragedy for the individuals involved but a boon for a nation’s global competitiveness;

$                      The savings rate – Once deleveraging is complete, the household savings rate will soar to 10+% as “Americans … no longer trust their stock portfolios to substitute for savings out of current income to educate their children & finance their early retirement”;

$                      A vanishing trade deficit – As Americans start consuming less, the country will regain control of its own finances;

$                      The dollar – It has emerged unscathed from the recession while China’s & Japan’s currencies face structural problems and Europe is still reeling; and

$                      Shale – The US can now start flexing its muscles in the Middle East without triggering a spike in oil prices.

            While one might want him to be correct, the fact is that, after a brilliant early career, he  is now well past his “Best Before” date. Just about every one of the above can be challenged, & successfully so, & several are mutually inconsistent. Thus he is assuming a 3½% trend growth rate, tut-tuts that Beijng subsidizes its SOE’s to the tune of US$13.8BN annually (which is not even chicken feed in a US$6+TR economy &, on a pro rata basis, is only modestly higher than US farm subsidies), believes in the continued “credibility” of the dollar, ignores the impact on the capital account of the balance of payments of America’s growing foreign debt burden (which will be boosted when, & not if, interest rates go up), and repeats the hoary old chestnut that China & others wouldn’t dare sell their UST securities since that would bring on a global recession, totally ignoring that the process is already underway.

OBAMA’S ROGUE STATE TRAMPLES ON EVERY LAW IT DEMANDS OTHERS UPHOLD (The Guardian, George Monbiot)

$          Since 1945 the US has used its veto 83x, half of the time to prevent Israel’s treatment of the Palestinians being censured, most recently so despite 130 other nations favouring such a move. And increasingly the US & the other four veto-holding nations on the UN Security Council have used the threat of using it to prevent resolutions from being discussed, never mind coming to a vote.

$          But now that the shoe is on the other foot & Obama’s plans for Syria are being stymied by Russia & China, he opines that “If we end up using the UN Security Council not as a means of enforcing international norms and international law, but rather as a barrier … then I think people rightly are going to be pretty skeptical about the system.”   

            While much of the article is a bit ‘over the top’, it does contain much food for thought. And like it or not, Russia & China too believe that they have a legitimate doggie in this fight, the former because of its naval base in Tartus, Syria & the recent “elephant” gas discovery in the Eastern Mediterranean that could undermine Western Europe’s reliance on Russian gas, & the latter because Syria is a supplier of oil to it & China is one of Syria’s biggest trading partners (albeit in both cases in a marginal way for China) and because the Middle East generally supplies 60% of its crude oil need requirements.

THOUSANDS OF CLERICS STRIPPED OF PREACHING LICENSES (DJ, M. Bradley)

$          On September 9^th Egypt’s Minister of Religious Endowments, in a return to the policies of Gamal Abdel Nasser 60 years ago, announced that the 40,000 imams who deliver Friday evening sermons at mosques must reapply for their licenses to Cairo’s Al Azhar University, an official government institution, one of the oldest religious schools in the world & widely deemed the seat of Sunni Muslim learning. By positioning the moderate & depoliticized Al Azhar as the arbiter as to which religious voices will be heard, the military government is moving aggressively to rein in the forces that enabled Mohammed Morsi to win the presidential election a year ago (as has its  military offensive in the Sinai against Islamist extremists). Khalil Al Anadi, a Senior Fellow at Washington’s Middle East Institute, called this “an attempt to dominate and control mosques in order to prevent Islamists from using them for recruitment & mobilization”.

If the university really is truly “moderate and depoliticized”, it could have been a lot worse.     

MIGRANT WORKER SETS OFF EXPLOSION AFTER CHILD REJECTED (SCMP)

$          After a migrant worker’s child was refused enrolment at a primary school in Guilin City, in the Guangxi Autonomous Region in China’s far South, inland from Hainan, he set off an explosion in front of it that killed him & one other person, and injured 44 more, half of them students at the school.

            This version of events doesn’t match the official line, which claims an injury toll of only 17, says a motorized flatbed tricycle caught fire & exploded in front of the school, and quotes the school principal as saying that he knew of no one with a grudge against the school & has “very few enemies”. But the fact remains that China’s 170MM migrant workers are marginalized by the HuKou system of residency permits that ties eligibility for social benefits, incl. children’s education, to people’s official place of residence (& hence, by definition, for migrant workers to somewhere other than their job site).

POLITICS IN RUSSIA WAS FINALLY BORN (AP)

$          In the September 8^th election the Kremlin-appointed Mayor of Moscow, Sergei Sobyanin (who many believe has been good for Moscow) got the narrow majority he needed to avoid a run-off. While his main opponent, the 37 year-old  Alexei Navalny, claimed the vote was rigged & Russia’s most respected election monitoring group questioned its accuracy, he defused public anger about the outcome by telling his supporters his second place finish was a victory because it had provided real competition for the incumbent & that “During these elections, politics in Russia was finally born”, and urged his thousands of enthousiastic, mostly young middle class supporters to keep up their political activism that had enabled him defy all expectations & garner 27% of the vote.

This was as much as anything a referendum on Putin. 

WHY INDIA’S ECONOMY IS STUMBLING (NYT, Arvind Subramanian)

$          For three decades, as it shed the stifling central planning & economic controls of the Nehru era, the Indian economy grew at a 6.4% average annual rate, & at 7.7% in the decade ended in 2011, seemingly ready to close in on China. But this has now slowed to 4.4%, the rupee is in freefall, and inflation & budget deficits risk a potential crisis.

$          The government made two capital mistakes. It took the high rate of growth for granted & failed to address serious structural problems in the economy and then, flush with cash & in a democratic & competitive political environment, introduced major redistribution programs without regard for the fiscal-, & trade balance-, consequences thereof.

$          Other emerging economies, incl. China, South Korea, Taiwan & Singapore, developed in their early stages by using their cheap, unskilled & semi-literate labour pool to gain a competitive edge in manufacturing[4]. But India concentrated on upscale economic activities, using a limited pool of educated people[5] that now, after two decades of rising pay, has lost its competitive edge & is being challenged by countries like the Philippines, and is causing businessmen to substitute machines for labour. While this form of growth did help to reduce poverty dramatically, its benefits were nevertheless distributed too unevenly. India needs to boost manufacturing but this will require major improvements in its infrastructure, and a top-to-bottom reform of its labour laws & business regulations.

            While its August trade deficit of US$10.9BN (an annualized rate of 7% of GDP) was a big improvement, both MoM (down 11%) & YoY (down almost 25%), all of the MoM improvement, & then some, was due to a collapse of gold imports, to US$650MM from July’s US$2.2BN (the author is a Senior Fellow at the Washington-based Peterson Institute for International Economics).