David Fuller and Eoin Treacy's Comment of the Day
Category - General

    Broke and Angry is a 'Circus'

    MOSCOW —  Facing a wave of popular unrest not seen in years, Russian President Vladi­mir Putin took to the nation’s airwaves Thursday to assure citizens that their lives will be getting better. Judging from the questions the Kremlin leader fielded over four long hours, Russians aren’t feeling it.

    Just three days after tens of thousands of people turned out in more than 180 cities across Russia to express their dissatisfaction with the government, Putin used his annual “Direct Line with the President” call-in show to say that the Russian economy is showing signs of growth after a long recession and that “in general things will start moving to where people feel a change for the better.”

    The questions that came in from viewers across the country reflected little of that. A Siberian teacher asked him how she’s supposed to live on $280 a month. The residents of a Moscow suburb complained about a giant pile of garbage that they said is visible from space. A 24-year-old cancer patient from a polar mining town demanded to know why health care is in a shambles.


    The carefully choreographed show has traditionally been a showcase for Putin to show he understands his people’s problems, and how he’ll get to the bottom of them.

    But unedited texts from viewers that popped up on the bottom of the screen revealed the anger and frustration some Russians feel about their leader and the system he has created.

    “Putin, do you really think people believe in all this circus with staged questions?" read one.

    “All Russia believes you have sat on the throne too long,” read another.

    Yet another asked when Putin would get around to firing officials who have faced corruption allegations, including Prime Minister Dmitry Medvedev.

     If Putin saw these comments — he said he was watching them — he did not react. When a young man in the Moscow studio where Putin sat asked a sharply worded question about official corruption, the Russian leader shot back, “Did you prepare that yourself, or did someone suggest it to you?”

    “Life prepared me for it,” the man responded.

    More than 1,700 people were arrested in protests on Monday, the most widespread in Russia since Putin returned to the presidency in 2012. The nationwide rallies were spearheaded by anti-corruption crusader Alexei Navalny, who was jailed for moving a Moscow demonstration from its designated venue to a central street where it disrupted official Russia Day festivities

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    Email of the day

    On Markets Now

    It was good to hear your usual excellent presentation at Markets Now and I hope you have recovered from your exertions – an amazing performance, considering! It was also good to hear David Brown talking on a big picture theme – that’s my favourite subject.

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    The Old Are Eating the Young

    This article by Satyajit Das for Bloomberg may be of interest to subscribers. Here is a section: 

    This growing burden on future generations can be measured. Rising dependency ratios -- or the number of retirees per employed worker -- provide one useful metric. In 1970, in the U.S., there were 5.3 workers for every retired person. By 2010 this had fallen to 4.5, and it’s expected to decline to 2.6 by 2050. In Germany, the number of workers per retiree will decrease to 1.6 in 2050, down from 4.1 in 1970. In Japan, the oldest society to have ever existed, the ratio will decrease to 1.2 in 2050, from 8.5 in 1970. Even as spending commitments grow, in other words, there will be fewer and fewer productive adults around to fund them.

    Budgetary analysis presents a similarly dire outlook. In a 2010 research paper, entitled “Ask Not Whether Governments Will Default, But How,” Arnaud Mares of Morgan Stanley analyzed national solvency, or the difference between actual and potential government revenue, on one hand, and existing debt levels and future commitments on the other. The study found that by this measure the net worth of the U.S. was negative 800 percent of its GDP; that is, its future tax revenue was less than committed obligations by an amount equivalent to eight times the value of all goods and services America produces in a year. The net worth of European countries ranged from about negative 250 percent (Italy) to negative 1,800 percent (Greece). For Germany, France and the U.K., the approximate figures were negative 500 percent, negative 600 percent and negative 1,000 percent of GDP. In effect, these states have mortgaged themselves beyond their capacity to easily repay.


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    Miners Drop as South Africa Escalates Black Ownership Rules

    This article by Paul Burkhardt and Kevin Crowley for Bloomberg may be of interest to subscribers. Here is a section: 

    South African regulators unveiled a new mining charter to force companies to give more ownership to black shareholders, sparking a selloff across the industry.

    Anglo American Plc and Sibanye Gold Ltd. shares tumbled after the Department of Mineral Resources introduced requirements that local companies must ensure 30 percent of their shareholders are black, up from a previous level of 26 percent. Several of South Africa’s biggest mining companies may have to sell new stakes, raising the risk of dilution for existing owners.

    The new rules “could pull the rug right from under the industry’s feet,” said Andy Pfaff, chief investment officer of Vanguard Derivatives, a South Africa-based broker. “It’s certainly not going to help with attracting foreign investment into South Africa.”


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    Goldman-backed startup Circle launches no-fee foreign payments service

    This article from Reuters may be of interest to subscribers. Here is a section: 

    Circle Internet's international money transfer service, built on a type of blockchain called Ethereum, will allow customers to send payments between U.S. dollars, British pound sterling or euros on their mobile phones. There are no fees or foreign exchange mark-ups.

    International payments, according to Circle's chief executive officer and founder, Jeremy Allaire, should not take days to be processed and should be as easy and frictionless as sending an email.

    "When's the last time you sent a 'cross-border email'?" Allaire said in an interview. "The idea of cross-border payments is going to completely go away. ... Our vision is for there to be no distinction between international and domestic payments."

    Circle, which processed over $1 billion in transactions in 2016 and whose customer base increased more than 10-fold in the year up to last month, does not make money from its payments service, nor does it plan to, as it reckons consumers expect these services to be free.
    "We don't think there is any money to be made in payments anymore," said Allaire. "The entire business model of extracting a toll or having time delays around the movement of value is going away completely."

    Instead, the company makes money by trading bitcoin and other cryptocurrencies, both on digital currency exchanges and over the counter, at a time when the value of such web-based currencies has reached record highs. Last month alone, Circle traded over $800 million in digital assets, it said in a statement.


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    Germany Faces An Uncertain Future As the Eurozone's Magic Money Tree

    The EU has had a good few weeks, starting with the election of Emmanuel Macron as President of France, backed up by a series of strong economic figures from just about everywhere in Europe, and culminating in the Remainers’ Revenge last Thursday in the UK.

    Given the UK’s profound political uncertainty, it is now even possible that Brexit will not happen at all.  Yet the EU is facing a potentially bigger challenge.

    Last week, I berated Germany for being partly responsible for the eurozone’s huge current account surplus and urged a relaxation of German fiscal policy. Such a relaxation would indeed contribute something to improving European economic performance and stabilising the euro. But on its own, it will not be enough. 

    Leaders such as President Macron who want to ensure the euro’s survival support the construction of a fiscal union, which would ultimately involve the pooling of spending, taxing and borrowing. This is a much bigger deal than mere monetary union. Indeed, it is potentially much bigger than any integration yet attempted.

    Forming the monetary union simply meant that member countries used the same currency. Forming a fiscal union means that they will share the same bank account. I fully understand why most German citizens are wary of this.  Interestingly, from a reading of most of the economics literature, you would not think that they had much to be concerned about.

    In the imaginary unions discussed there, different parts undergo different shocks from time to time, and therefore alternate with regard to which part of the union helps out which. One of the defects in the design of the single currency was precisely that the system did not have this characteristic. Monetary union without fiscal union meant that there was no natural economic mechanism for the relief of less fortunate members on those occasions when the economic dice rolled against them.

    By contrast, within existing fiscal unions such temporary transfers occur all the time.  But often this sharing of alternating ups and downs is not fiscal unions’ most important feature and it is not what German voters should be most worried about.

    In most existing fiscal unions, as well as economic fluctuations that affect different parts differently, there tends to be a persistent discrepancy in the level of prosperity of different parts, and sometimes even in their growth rate, with the result that there is a one-way flow of fiscal transfers that persists over decades, and possibly over centuries. 

    For instance, the Office for National Statistics announced last month that London effectively subsidises just about all of the rest of the UK, while England subsidises Scotland.  These features of our Union are not here today and gone tomorrow. They are deep-rooted in the nature and structure of the Union.

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    Brexit Will Defeat the Government Unless it Recognises that Everything Has Changed

    So what do they do now? On the face of it, Theresa May and her slightly reshuffled Cabinet face nearly insurmountable constraints and dangers.

    The normal survival plan for a minority government is to pass little legislation, but preparation for Brexit requires a mass of complex and controversial law-making. Any threat to execute a “no deal” strategy and take the UK in a lower-tax, lighter regulation direction has lost much of its credibility, so our negotiating position in Europe is weaker.

    The escape route of another dissolution is unattractive because the result might be the same again, or even worse. The election result has undermined confidence in an economy already facing the uncertainties of leaving the EU, threatening a downturn to compound the problems.

    In the worst-case scenario, we end up with a poor Brexit deal rejected in parliament but with no alternative available, presided over by ministers suffering mounting public and business dissatisfaction, leading to the election of a Labour government led, in effect, by Marxists.

    Faced with such dangers, sitting tight is not an option. Napoleon’s maxim that “the side that stays within its fortifications is beaten” applies fully to this situation. Breaking out of these problems will require a change both of style and substance, treating last week’s terrible outcome as an opportunity and a duty to tackle intractable issues in new ways.

    Of course, many items in the Conservative manifesto will have to be abandoned. But other areas could be intensified. Take housing, for instance, which all parties agree is a major national priority. Ministers could convene a cross–party working group, including the new mayors of the big cities, to agree a plan to accelerate new home building across the country by changing regulation, taxes and spending in an agreed way. If successful this would boost the economy and help young people. It would signal a more open approach to problem solving. And if opposition parties did not play a constructive role, the blame for lack of progress would lie with them.

    Such a simultaneous change of the style of government and the substance of its decisions is also the way to break through the most difficult problem of all: how to steer Brexit in a way that leads to a good agreement, gives confidence to businesses and creates a broader consensus among MPs.

    This is formidably difficult, and a hundred times easier for me to write about than to pull off in reality. But the alternative of saying “nothing has changed”, and ploughing on against half the Commons, two thirds of the Lords and all of Europe will only end in disappointment and defeat.

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    Email of the day 1

    On Markets Now:

    Just to thank you for the presentation Monday.

    It was very uplifting & informative, a great antidote to all the rather unfortunate political goings on. As ever Dr Brown’s talk was full of detail & priceless information. A wonderful evening.

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