Tuesday, November 17, 2015

Why is inflation falling everywhere?

Back in 2008, many around me were quoting what happened in Germany in the early part of the 1900s with hyper inflation would happen in america. I blogged that this would not be the case. Many of our companies that provided software to manufacturers were seeing plants closing due to demand weakening. I wrote at the time we had overbuilt capacity in most industries so I thought we would have more risk from deflation. So, now we are seeing others begining to write about it. Aivars Lode
By Tomas Hirst
For decades, one of the predominant concerns for governments around the world was how to keep price rises in check. This campaign led to the establishment of independent central banks mandated to hit strict inflation targets in order to maintain price stability and ensure confidence in currencies.
That fear, however, is increasingly giving way to worries about the spectre of disinflation, as global inflation continues to decline.
In a speech in March this year, Bank of England Governor Mark Carney announced that inflation had fallen globally, with the rate of price rises “below target in 16 of 18 inflation-targeting major economies … Eleven of those countries have inflation rates below 1%.”
Why is inflation collapsing?
In part, the decline in global inflation since the 1970s reflects the success of central banks in moderating price rises.
By allowing independent central banks to set interest rates independently of governments, policy-makers hoped to keep inflation around a stable level consistent with full employment. In large part, they have been successful in achieving that aim, although they have not been able to fully mitigate the impact of the economic cycle on inflation and employment.
Moreover, this period has also seen profound labour-market reforms. Widespread unionization of the private sector has largely dissipated, and with it collective wage bargaining that many blamed for helping to fuel wage/price spirals. They have been replaced with minimum-wage legislation and an increasingly casualized labour force that is much more flexible to changes in the wider economy.
These developments have meant that the days of wage/price spirals appear to be past, but some economists also blame this increase in labour-flexibility for an unwanted cocktail of stagnant wage growth and underinvestment.
These not only weigh on inflation but also pose a risk to future economic growth. In other words, where labour costs become so flexible that companies can decide to hire low-cost workers rather than invest in new technology or machinery, productivity can be held back, and so can the potential for GDP growth.
Influence of emerging markets
Another key factor in this dynamic has been the rise of emerging markets, particularly China. Since the advent of the General Agreement on Tariffs and Trade (GATT) and then China’s accession to the World Trade Organization (WTO), the global labour market has seen a huge influx of new supply, helping to keep down wage growth but also substantially reduce the cost of goods (and in some cases services, too).
That downwards price pressure has helped to offset the impact of credit-fuelled demand in Western economies in the 1990s and early 2000s, allowing central banks to meet their inflation targets despite high domestic demand and tight labour markets that would usually lead to an overshoot.
That problem has now been reversed, however. As a post by M&G’s Bond Vigilante explains:
The deflationary forces leaking out of China stem from the Chinese authorities’ response to the 2008 crisis, where they embarked on huge infrastructure and investment spending. As previously argued on this blog, the investment bubble has become frighteningly inefficient. The consequence of China’s overinvestment was to create excess supply and overcapacity, which has proven disinflationary, but now China has to also contend with stagnating domestic demand.
If the disinflation exported by China in the 1990s and early 2000s was benign, as some have argued, this latest variety prompted by overcapacity and sluggish re-balancing towards domestic demand is unlikely to be described in such glowing terms.
One area its effects have been most keenly felt is in commodities markets, with the sharp drop in emerging market demand exacerbating the competition over market share between OPEC and U.S. shale oil.
A world of low inflation is not what the global economy needs right now. For one thing, although debt-to-GDP levels have fallen in some of the countries hardest-hit by the financial crisis, overall global debt has risen much faster than growth since 2008. While the pace of credit growth has slowed in developed markets, it has more than been made up for by debt build-ups in emerging economies.
Low inflation and sluggish global growth will make eroding that debt pile all the more challenging, and is also likely to force central banks to keep interest rates closer to the zero lower bound than they are comfortable with (limiting their ability to deal with possible future shocks).
Whether another debt shock can be avoided will depend on coordinated efforts to maintain modest post-crisis recoveries in the developed world and avert a debt hard landing in emerging economies.

Monday, November 2, 2015

Study: Are we shifting to fewer, weaker Atlantic hurricanes?

After Hurricane Wilma  the scientists predicted the next decade would be the worst on record for Florida hurricanes and it was not! So, how can we be certain of man's effect on the climate? Remember, I always advocates that we should be good stewards of the planet. Aivars Lode

By Seth Borenstein, AP Science Writer 

WASHINGTON — A new but controversial study asks if an end is coming to the busy Atlantic hurricane seasons of recent decades.
The Atlantic looks like it is entering in to a new quieter cycle of storm activity, like in the 1970s and 1980s, two prominent hurricane researchers wrote Monday in the journal Nature Geoscience.
Scientists at Colorado State University, including the professor who pioneered hurricane seasonal prognostication, say they are seeing a localized cooling and salinity level drop in the North Atlantic near Greenland. Those conditions, they theorize, change local weather and ocean patterns and form an on-again, off-again cycle in hurricane activity that they trace back to the late 1800s.
Warmer saltier produces periods of more and stronger storms followed by cooler less salty water triggering a similar period of fewer and weaker hurricanes, the scientists say. The periods last about 25 years, sometimes more, sometimes less. The busy cycle that just ended was one of the shorter ones, perhaps because it was so strong that it ran out of energy, said study lead author Phil Klotzbach.
Klotzbach said since about 2012 there's been more localized cooling in the key area and less salt, suggesting a new, quieter period. But Klotzbach said it is too soon to be certain that one has begun.
"We're just asking the question," he said.
But he said he thinks the answer is yes. He says the busy cycle started around 1995 and probably ended in 2012; in 2005 alone, Katrina, Rita and Wilma killed more than 1,500 people and caused billions of dollars of damage. The quiet cycle before that went from about 1970 to 1994 and before that it was busy from 1926 until 1969, he said.
Klotzbach doesn't take into account where a storm hits, but how strong storms are and how long they last regardless of whether they make landfall. So even though no major hurricane hit the United States in 2010, its overall activity was more than 60 percent higher than normal. And just because it's a quiet season doesn't mean a city can't be devastated, Klotzbach said. Hurricane Andrew hit South Florida in an otherwise quiet 1992 season as a top-of-the-scale storm.
Other scientists either reject the study outright or call it premature.
"I think they're pretty much wrong about this," said MIT meteorology professor Kerry Emanuel, who also specializes in hurricane research. "That paper is not backed by a lot of evidence."
Emanuel doesn't believe in the cycle cited by the researchers or the connection to ocean temperature and salinity. He thinks the quiet period of hurricanes of the 1970s and 1980s is connected to sulfur pollution and the busy period that followed is a result of the cleaning of the air. And Jim Kossin of the National Oceanic and Atmospheric Administration said cooler water temperatures earlier this year might be due to Atlantic dust, and August temperatures there have risen.
Another NOAA scientist, Gabriel Vecchi, said while there seems to be signs of a change in the circulation of the Atlantic, it's far too early to say that the shift has happened.
"So what happens in the next few years is going to be very exciting to watch as it may help settle or at least refine some intense scientific debates," Vecchi said in an email.

Sunday, November 1, 2015

$2b fee sticking point as Apple wrangles with Australia's big four banks

Many times I have identified that there are certain trends that are advanced in Australia in comparison to the USA. The Coffee industry is one; when Starbucks tried to establish a presence in Australia it did not recognize that and consequently did not make it in Australia. In this article about Apple negotiating the payment share with Aussie banks, Apple is using the US business model when the banking system is well and truly more advanced than the USA. Aivars Lode
By James Eyers
Australia's largest banks are fending off the world's largest technology company, Apple, as it tries to muscle in on the hotly contested payments market. 
Fairfax Media understands fees are a big sticking point in the negotiations, with big banks not willing to give Apple a slice of the $2 billion a year they earn in interchange fees, which are paid by merchants for use of payments infrastructure. 
In the United States, Apple is believed to earn about 15¢ on every $100 of transactions. It is understood Apple has been asking for the same amount of interchange fee in Australia.
But Australia's big banks will not agree to this level given that interchange fees in Australia are about half the US level – equivalent to an average of 50¢  $100 of transaction compared with about $1 for $100 of transaction fees in the US.
Commonwealth Bank of Australia chief executive Ian Narev would not comment on the progress of negotiations with Apple, but said Apple's attempts to offer Apple Pay in Australia won't be as easy as it was in the US given Australian banks' record of innovation. 
"By most global standards, the capability that the Australian banking sector has generally, and Commonwealth Bank has specifically, to provide for customers is ahead of a lot of the other markets around the world where Apple has done well," Mr Narev said last week after delivering the bank's full-year cash profit of $9.14 billion. 
"There is functionality associated with Apple Pay that we have had in the market for 18 months to two years." 


Apple Pay launched in October 2014 in the US and in Britain last month. It allows users of an iPhone 6 or Apple Watch to use a tap-and-go terminal to pay for items by holding their fingerprint on the phone or double-tapping the face of the smartwatch. But to be switched on in a market, Apple needs to strike a deal with banks to use the payments system.
Mr Narev said CBA had already offered the same functionality as Apple Pay through its app – for users of Android phones – for two years, so it was difficult for Apple to argue it is providing much value. In the US, Apple Pay was innovative because tap-and-go was not a feature of that market. 
Westpac also allows customers with Android phones to use them to pay via tap-and-go through the bank app. Take-up, however, has so far been low, with most customers preferring to pay with their cards. 
National Australia Bank was rumoured to be closest to securing a commercial arrangement with Apple over its payments product but Fairfax Media has been told it is more likely a small bank will be the first to strike a deal with Apple and use it as a tactic to target iPhone users for transaction-account market share. 
In Britain, the banks were successful in negotiating Apple down to a much lower fee. Apple is receiving only a few pence a £100 transaction, the Financial Times reported last month. 


The Reserve Bank of Australia is trying to push interchange fees down even further, to an average of 30¢ per $100 of transactions. This increases the stakes in the negotiations between the banks and Apple in how to share the interchange-fee pie. 
The big banks are also reluctant to open their payments infrastructure to Apple for two other reasons. First, because they are being forced by the RBA to tip hundreds of millions of dollars into building the New Payments Platform, new infrastructure that will have real-time capability, there are concerns about Apple seeking to free ride on this investment. 
Second, the negotiations are also challenged because banks are concerned about the prospect of Apple getting in between them and their customer at the point of sale, as banks recognise that future revenue growth will come from being the "interface" when customers pay for goods and services, which will allow them to cross-sell products. 
Apple is also negotiating from a position of weakness given that the take-up of Apple Pay in the US appears to be sagging. It is also facing competition from Samsung, which announced last week it would launch Samsung Pay in the US on September 28.


Despite the reluctance to cut a deal with Apple, Mr Narev said CBA was closely watching the movement of big tech players into financial services, as the global banking landscape is reshaped by ubiquitous mobile phones. 
"If it not Apple, it might be Google; if it is not Google, it might be Samsung; if it is not Samsung, it might be Amazon; if is it not Amazon, it is going to be someone else," he said. 
"Are we going to be able to sit here today and pick the major winners? No. But the disruption is structural. It is only going one way. And I don't think there will ever be a point where me or my successor, or his or her successor, is ever going to sit here and say their war is done and we won. This level of innovation is here to stay. 
"But we have got customers, we have got distribution, we have got brand, we have got product. So as long as we are adding to that investment and have the right execution focus, we should be able to be really competitive."

Saturday, October 31, 2015

States to Help Workers Save for Retirement

Australia put in place enforced retirement savings some 20 years ago. Interesting again how this is just starting to come to the USA. Aivars Lode
By David Harrison
Rose Hackenbruck knows she should be saving for retirement. But with a mortgage and a daughter to raise on about $43,000 a year, the 39-year-old bartender in Portland, Ore., doesn’t have much left at the end of the month. 
“That money quickly goes away if you don’t have something structured already set up,” said Ms. Hackenbruck, who is divorced. Her employer, like many bars and restaurants, doesn’t offer retirement benefits.
Something structured could be coming her way soon. 
In July, Oregon became the third state to enact legislation creating automatic individual retirement accounts for workers who don’t have retirement plans at work. The plans are an attempt to cushion the blow for millions of workers who could someday find themselves too old to work but short of savings, state officials said. They are also an attempt to protect taxpayers in the future, said Oregon Treasurer Ted Wheeler. 
“If people have not saved, they’re completely dependent upon government safety-net programs,” Mr. Wheeler said. 
The gradual but broad shift away from old-fashioned pensions—which provided lifetime retirement payments to retirees—has left millions of Americans unprepared for retirement, experts say.
In the private sector, nearly 44% of prime-age workers don’t have access to a retirement plan at work, according to Labor Department figures analyzed by Nari Rhee, a researcher at the University of California, Berkeley. About 46% of private-sector workers now take part in a workplace retirement plan, meaning almost 10% of workers have access to a plan but don’t participate.
“It’s shocking…that less than half of employed adults are covered by any kind of employer plan,” said Alicia Munnell, director of the Center for Retirement Research at Boston College, which is working with Connecticut to set up a program. “There’s just a huge coverage gap out there.”
California was the first state to pass legislation in 2012 setting the stage for automatic retirement accounts for workers without coverage. Illinois enacted a similar law in January. Connecticut’s plan could be in place by next year, and legislation is pending in New Jersey and Massachusetts. In some states, such as Maryland and Maine, efforts have foundered in the legislature. For now, only Democratic-controlled legislatures have enacted the plans. 
The initiatives differ in the details, but all would feature automatic paycheck deductions—California, Oregon and Illinois are contemplating 3%—to be placed in individual retirement accounts. In all three states, workers would be automatically enrolled a feature designed to overcome people’s inertia about saving, but would be allowed to opt out. State boards would manage the programs. In Oregon, the plans would apply to all employers regardless of size, but California and Illinois exempt smaller employers.
The Oregon plan also could benefit self-employed and temporary workers. That would be good news for Diana Bartlett, who left a full-time job with benefits four years ago after she had her second child. Since then, she said she has worked a series of short-term jobs without retirement plans. “It makes me nervous that I have so little retirement savings,” said Ms. Bartlett, who hasn’t contributed to a retirement plan since she left her full-time job and estimates she has about $3,000 saved from her previous job.
For now, the state plans—even those passed by legislatures—are in the development stages, and none has yet begun withdrawing money from paychecks. But the idea has caught on. At least 18 bills have been introduced in 15 states this year dealing with state-sponsored retirement plans, up from 10 bills in seven states in 2013, according to the National Conference of State Legislatures.
“Given the proliferation [of bills] over the past few years, I think in 2016 you’ll see even more,” said Sarah Mysiewicz Gill, senior legislation representative at AARP, which has been advocating for the plans.
But a 41-year-old federal law protecting workers’ retirement investments could complicate the state efforts. The Employee Retirement Income Security Act places record-keeping requirements on employers who offer retirement plans and could make them liable if employee contributions aren’t invested properly.
The question is whether those requirements would apply to employers under the state-run plans, even if their role is limited to setting up the automatic deductions in the same way they set up payroll-tax deductions. If they do, that could be costly to employers and could erode support for the plans.
The Obama administration supports the state initiatives and has promised to unveil rules this year to help states navigate the regulatory pitfalls, which could clear up the ERISA question. The financial-services industry and some state chambers of commerce, however, oppose the plans, saying they risk drawing employers into the regulatory thickets of ERISA. 
“This is simply a state-government approach to try to solve a retirement problem that is better left to the private sector,” said John Mangan, regional vice president for state relations at the American Council of Life Insurers. “We question whether the state should enter a private marketplace that already has robust options for retirement plans for individuals and businesses.”
In response to industry concerns, Washington state enacted a compromise encouraging the private sector to set up voluntary individual retirement accounts for workers without access to workplace plans. Employers wouldn’t be charged administrative fees. Management fees on employees would be capped at 1%. And the state government would promote the accounts.
The idea, which industry supports, could be a model for states where the Oregon model is politically unfeasible, said state Sen. Mark Mullet, who sponsored the bill. That is likely to depend on how popular the plans are with employers, but Mr. Mullet is optimistic.
“The business owners, to be honest, most of their hearts are in the right place,” he said. “They would be happy to offer something, if it’s no skin off their backs.”
Whatever their design, the state plans wouldn’t guarantee a comfortable retirement for future generations. A study by the Employee Benefit Research Institute, a think tank funded by insurers, companies, unions and others interested in retirement issues, found that a mandatory 3% deduction would reduce the overall retirement-savings shortfall for working-age households by only 6.5%, in part due to the rising cost of long-term care for the elderly. Still, supporters see the plans as a first step, one that can be expanded upon later.
In Portland, Ms. Hackenbruck said she is ready to give up a bit of her paycheck for a slightly more comfortable old age. “I’m not trying to get rich,” she said. “I’m just trying not to be an impoverished old woman.”

Vodka Falls Out of Vogue in U.S., Posing Challenge for Pernod

I was fortunate enough to meet the president of of the Louisville Slugger some 14 years ago in Louisville. As discussions of a business transaction merged into dinner I was introduced to Mr Pickwiks 1968 vintage Bourbon. After sampling this delectable spirit I sat back and wondered why this was not a more widely known spirit. Previously, I had only experienced atrocious Jack Daniels and coke. Now I was sipping a spirit which was as sophisticated as Cognac and whiskey, however with a unique character. Aivars Lode
By Jason Chow
In the U.S., bourbon is in and vodka is out. That’s making Pernod Ricard SA, owners of the Absolut vodka label, a laggard in the world’s most important liquor market. 
For now, the shift isn’t hurting profits. Pernod, which owns a multitude of brands including Irish whiskey label Jameson and cognac marque Martell, is still expected to post sales and profit growth when it releases its results on Thursday. 
Boosted by a rebounding Europe, the stabilization of cognac sales in China and higher sales of local-distilled whiskeys in India, the company is expected to post a 7.9% increase in sales to €8.57 billion ($9.63 billion) and a 30% increase in net income to €1.32 billion, according to a FactSet poll of 29 analysts.
Revenues and income are also boosted by the low euro, which makes sales in stronger currencies count for more when converted into the company’s home currency. 
But in the U.S., Pernod’s organic sales are lagging at a time when the country represents the industry’s brightest opportunity as emerging markets start to shun high-priced drinks. 
In recent years, Pernod relied on countries like Brazil and China to increase sales as a growing middle class in rapidly developing countries indulged in imported spirits. However, the stalled economies in South America have slaked thirst for expensive liquor while an anticorruption campaign in China hit cognac sales particularly hard. 
Meanwhile, the U.S. market for spirits is booming as cocktail culture continues to grow and millennial drinkers renew their interest in American bourbon. The one casualty of this shift in tastes is the category that Pernod dominates: Vodka is out of vogue. 
Globally, the number of nine-liter cases of vodka consumed declined almost 2% between 2010 and 2014, according to the IWSR, a liquor market-tracking association. Meanwhile, whiskey consumption has risen almost 17% in the same period. 
In the all-important U.S. market, vodka volumes last year decreased 0.3% while whiskey sales grew 2.7%. American-made bourbons and Tennessee whiskey led the trend, up 7.4%, as drinkers also shunned Scotch whisky. 
Absolut, known for its splashy colorful campaigns and flavored liquors, has fast become an underachiever in a losing category: Sales volumes of the vodka label declined 3.3% in the past quarter, according to figures from the U.S. industry association NABCA. Absolut makes up about a quarter of all Pernod’s U.S. sales. 
“It’s not universal doom and gloom, but they’re in a tough situation,” said Trevor Stirling, a liquor analyst at Sanford C. Bernstein in London. “There are no quick fixes for Absolut. You have to reinvent the brand, and it’ll take three to five years.”
To be sure, Pernod has a large brand portfolio and is geographically diversified, deriving about 15% of its revenues from the U.S., 29% from Europe and another 42% from Asia and Africa. India is a particular bright spot, as its local-distilled whiskeys, led by its Royal Stag brand, are gaining market share. 
Still, if Pernod is ever going to reach its goal of overtaking U.K. giant Diageo PLC as the world’s top liquor company, it will have to find more pours in the high-value U.S. market with Absolut or via acquisition, the analysts say. 
Pernod’s rivals have already adapted to consumer trends. Diageo is building a distillery in Kentucky to expand capacity for its Bulleit brand bourbon, while Bacardi Ltd., best known for its rum brand, bought the Kentucky-based whiskey brand Angel’s Envy in March. 
“The U.S. is still growing as a market—unlike Western Europe. It has all the features of an emerging market but it’s a high-value one,” said Jeremy Cunnington, head of alcoholics drinks research at Euromonitor. “Pernod is short of brands there, particularly of American bourbons.”
Corrections & Amplifications
Absolut vodka makes up about a quarter of Pernod Ricard’s U.S. sales. A previous version of this article said the brand makes up half of U.S. sales.

How Do Innovators Spot Market Opportunities?

The following article articulates how innovators spot market opportunities, this is why I have written a couple of books as we bring knowledge from having seen it somewhere else before. Aivars Lode

By Leslie Brokaw
Executives need the ability to quickly spot both new opportunities and hidden risks. Asking the right questions can broaden perspective and shake up existing assumptions.
How well do you understand the implications of broad market trends and less visible undercurrents for your business? How much have you thought about how those trends impact your own strategic choices? 
Those are questions posed by Paul J.H. Schoemaker (Wharton School) and Steven Krupp (DSI) in their article “The Power of Asking Pivotal Questions,” in the Winter 2015 issue of MIT Sloan Management Review . The article builds on the authors’ book Winning the Long Game: How Strategic Leaders Shape the Future (PublicAffairs, 2014).
The authors provide three tips for companies whose goal is to stay at the front of their industries:

1. Learn from startups.

Innovators pay attention to what new companies are doing — and why. They ask: What do those companies see that I don’t? Schoemaker and Krupp recommend examining startups’ moves to detect market shifts and emerging opportunities from the outside in.

2. Go to conferences outside your function or industry.

“In its ‘Connect + Develop’ innovation program, Procter & Gamble Co. reaches out to companies outside the consumer products industry to share lessons and explore joint challenges,” write Schoemaker and Krupp. “Follow events in other regions and sectors, even if they seem unrelated to your business at first.”

3. Leverage current networks and join new ones.

How might you engage your existing networks more systematically to stay on top of new developments? Schoemaker and Krupp suggest joining interest groups in adjacent businesses or areas to expand your worldview and examine questions you don’t typically consider.
“The best entrepreneurs excel at peeking around the corner and seeing the future sooner,” the authors write. “We’ve found that leaders can learn to anticipate better by simply being more curious, looking for superior information, conducting smarter analyses and developing broader touch points with those in the know.”
Schoemaker and Krupp highlight the entrepreneur Elon Musk of Tesla Motors, SpaceX and SolarCity as a model for his ability to spot unmet market needs. 
Musk has said that his forward-thinking style, exemplified in his vision of commercializing electric vehicles for the mass market, comes from “just trying really hard — the first order of business is to try. You must try until your brain hurts.” Musk envisioned electric vehicles as the future for the automotive industry but also thought that traditional car companies would take too long to fully embrace the challenges and opportunities.
One of Musk’s biggest tasks with Tesla was to demonstrate that electric cars could be a mainstream product. He expanded his enterprise to include global distribution and battery manufacturing shortly after Consumer Reports rated the Tesla Model S the number one car it ever tested.
“Strategic leaders are focused on the future and are masters at asking discerning questions and exploring ideas and options that are outside the mainstream,” Schoemaker and Krupp note. “They are wary of status quo views and prefer honest, transparent questions that focus on how much, or how little, is really known about the issue at hand.”

Global Gold Demand Drops 12% in Second Quarter

Like oil, gold is hitting a 6 year low and the US currency which was predicted to demise has not. Aivars Lode

Gold has been under pressure since it hit a peak of $1,920.94 a troy ounce in September 2011

By Ese Erheriene

Global demand for gold plummeted 12% to a six-year low in the second quarter, as vital buyers in Asia lost their appetite for the metal, the World Gold Council said Thursday.
Demand for the precious metal weighed in at 914.9 tons between March and June of this year, down from 1,038 tons during the same period in 2014, according to the industry body’s latest Gold Demand Trends report.
The price of gold for immediate delivery has been under pressure since it hit a peak of $1,920.94 a troy ounce in September 2011, falling more than 40% as production outstripped demand and inflation stayed mainly low, taking away a usual prop for the precious metal, among other factors. Gold prices ended the quarter down 3%.
“This has actually been a challenging quarter; you’ve [the] evidence in the data,” said Alistair Hewitt, head of market intelligence at the London-based World Gold Council.
The decline came as global demand for jewelry fell by 14% in the second quarter to 513.5 tons, compared with 594.5 tons the year before. Jewelry makes up about 60% of global gold consumption.
A rise in equity purchases and expectations of a rate increase by the Federal Reserve sapped global demand for gold, an asset that doesn’t pay interest and struggles to compete with other assets that offer a return and are deemed safe, like U.S. Treasury bonds.
Global investment demand was down 11% year-over-year, to 178.5 tons from 199.9 tons in the same quarter in 2014. However, fears of a Greek exit from the eurozone managed to support bar and coin demand in the Eurozone countries in the second quarter, with demand up 19% to 46.5 tons from 39.2 tons last year.
Global gold supply declined 5% year-over-year to 1,032.6 tons. This was driven by a drop in gold recycling to 251.1 tons, an eight-year low.
India and China, which together account for roughly half of global gold consumption, both saw demand slide.
The biggest loser was India, where lower rural incomes due to difficult weather conditions over the quarter and fewer auspicious days on which to hold celebratory events in the third quarter dented demand. Planning for these events is usually done a couple of months prior, hence the effect being felt between March and June.
Total gold demand in India slid 25% to 154.5 tons in the second quarter, from 204.9 tons last year. Jewelry purchases were 118 tons in the second quarter, down 23% from 152.6 tons a year earlier.
Meanwhile in China, the attraction of the stock market bubble meant investors piled their money into equities instead of gold. Total gold consumption in China fell 3% to 216.5 tons in the second quarter, compared with 224.1 tons over the same period in 2014. Demand for jewelry fell 5% to 174.4 tons in the second quarter, from 184.6 tons over the same period last year.
In the second half of the year, demand is expected to pick up on the back of gold’s sharp price drop in July, which should attract bargain-hunting by buyers in Asia. Prices shed almost 7% of their value last month. Gold is priced in dollars and so it becomes more expensive for buyers who use weaker currencies to fund their precious metal purchases.
Certainly, the start of wedding and festival season in India, the return to gold by investors burned by the stock market in China and the recent devaluation of the yuan by the Chinese central bank should bolster demand.
“What we’ve seen ... with the devaluation will continue to support the investment case for gold. We often see people turning towards gold when threatened by weak currencies and I think that’s clearly the situation we’ve seen in China over the past few days,” said Mr. Hewitt.
According to the World Gold Council, full-year gold demand is forecast at between 4,200 tons and 4,300 tons. For India and China, the 2015 outlook remains the same and both are seen to weigh in between 900 to 1,000 tons.
Spot gold was trading up 1.4% at $1,124.48 troy ounces on the London spot market, a three-week high.

Yuan’s Devaluation Brings Losses for Some

At the bottom of the article it says that the volatility causes difficulty in doing business. So, how can Bit Coin become a real currency with it's volatility? Aivars Lode

Investors assumed China would keep the currency stable. They were wrong.

By Wei Gu And Anjani Trivedi 

HONG KONG—When China’s government abruptly pressed the yuan lower last week, it upended Antonio Huang’s plan to quintuple a profit on a commodity deal.
Acting as the middleman on a US$3 million trade in the commodity coke, the former banker sought to sweeten his expected gain with a currency and interest-rate play. It didn’t work out. The weak link in his strategy: a bet China’s currency would remain strong.
In the rough-and-tumble world of global currencies, where exchange rates can swing by double-digit percentages in days, the yuan’s 3% fall against the U.S. dollar marked a minor change. But it is proving cataclysmic for investors like Mr. Huang who watched the yuan climb for a decade and anchored bets around the notion it would hold steady.
It has been a dismal summer for the Chinese economy. WSJ's Hong Kong Bureau Chief Ken Brown explains what it means for exporters around the world.
The People’s Bank of China surprised markets by pushing the yuan lower on Aug. 11 in the nation’s biggest devaluation in two decades. A widespread view had taken hold that Beijing would support the yuan, rather than letting it fall in a bid to help exporters as China’s economy weakens, in order to prove its value as a global reserve currency.
Globally, the U.S. dollar has made powerful gains in recent months, but through early August, it had risen only 0.09% against the yuan since the start of 2015. For many investors, the low volatility was interpreted as low risk.
The currency change now adds to woes for China’s increasingly sophisticated investors, who tend to formulate strategies around predictions for government policy, including support for a strong exchange rate. Likewise, a plunge in Chinese stocks in mid-June confounded widespread views among investors that the government wanted a bull run, battering those who borrowed money in hopes of bolstering their equity returns.
In recent years, China has increasingly sanctioned the use of its currency in financial investment strategies. Nearly 150 banks in the internationalized market of Hong Kong now take deposits in the currency, and by last count those had reached nearly 1 trillion yuan, some US$160 billion.
To make use of that money, the financial industry has created investment opportunities involving the yuan. Some are plain vanilla: Investors can buy so-called dim-sum bonds that are denominated in yuan. Issuance by companies including non-Chinese ones exceeded US$35 billion worth in the past two years.
More sophisticated yuan-trading strategies include structured financial products, such as those that involve bets on the currency’s future value versus the U.S. dollar or euro. Tactics involve borrowing U.S. dollars to take advantage of low American interest rates while simultaneously making yuan deposits in higher-yielding, yuan-denominated wealth-management products, fixed-income investments and certificates of deposit, in a basic foreign-exchange play called a carry trade.
Some wealth advisers promise to turn a 3% annualized return into a 10% gain. But a prerequisite for a profit is that the yuan doesn’t fall. Suddenly, many of those deals are threatened.
Two days after last week’s devaluation, the cutting-edge Hong Kong fashion retailer I.T. Ltd. said it lost money because its deposits included 1.2 billion yuan, which is also known as the renminbi. I.T. told its investors in a statement that due to “recent volatility in the exchange of the Renminbi” the company anticipates a currency loss of 60 million Hong Kong dollars (US$7.7 million), an amount equivalent to a fifth of the company’s net profit in 2014.
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Following the devaluation, I.T. said it converted its remaining yuan deposits into Hong Kong dollar instruments.
“There has been a fair amount of pain,” said Khoon Goh, a currency strategist at ANZ Bank in Singapore, referring to investors caught off guard by China’s move.
Though the yuan’s 33% climb against the U.S. dollar since 2005 made it appear like a bastion of strength before last week’s currency move, past episodes have heralded the risk of volatility and even weakness in the Chinese currency.
Last year, the yuan took a hit against the dollar when the Chinese central bank suddenly increased the limit on daily moves in the yuan to 2% above or below its so-called daily fix, from 1%. The move caused a shakeout in the market for products called target redemption forwards, which gave investors a way to magnify gains from a rising yuan by deploying leverage, but exposed them to big losses when the yuan declined. It slid 1.4% during the week the band was widened. 
Some investors appeared to heed the warning. As of March 2014, investment in currency- linked structured investment products—around one-fourth of them had a yuan component—had fallen by HK$114 billion from HK$214 billion in 2012, according to a survey published last year by the Hong Kong Securities and Futures Commission.
Another sign of rising caution about the currency is that once-booming growth in yuan deposits at banks in Hong Kong began to slow this year, just as China’s economy did. While total yuan deposits were still up 7% in June from a year earlier, according to figures from the Hong Kong Monetary Authority, they had fallen by 1% in the previous six months.
Rocky Cheung, head of investment product and advisory in wealth management at DBS Bank in Hong Kong, said more of his clients are now considering how to hedge their yuan exposure against possible further weakness, for instance by buying forward contracts that would offer insurance against further falls. He said others are keeping yuan in cash and short-term bonds, giving them more latitude to sell the currency quickly if conditions change more significantly.
China’s currency move shocked Mr. Huang, who runs his own firm in Hong Kong, Huihai Group.
The 39-year-old native of Jiangsu province had formerly worked at international banks in Singapore and Hong Kong, most recently as head of the Asia trade-finance business for a Spanish bank. At Huihai, opened a year ago, he puts together commodity trades and uses his finance skills to gain an edge.
In July, he paid a Chinese building-materials company $3 million for about 60,000 metric tons of coke, a commodity used in steel production. He had already lined up a buyer in Singapore who would pay a little more than that in September, giving him a profit in the range of 0.2% to 0.3% of the deal value.
Yet his real payoff would hinge on a 60-day deal he structured with a bank in Hong Kong that involved depositing US$3 million worth of yuan of his own money and borrowing the same amount in U.S. dollars, which he used to pay the Chinese coke exporter. The yuan deposit would yield an annualized return of 3.3%, more than the 2% annual interest he would pay on his two-month loan.
Instead of earning about $7,500 on the coke deal, he stood to gain more than five times as much, some $39,000 including the interest-rate arbitrage.
But when China’s central bank devalued the yuan, it slid as much as 3.8% in the offshore market, where the currency trades freely. Mr. Huang’s bank promptly emailed him with a request to deposit an additional 800,000 yuan, or roughly US$130,000, since the now-devalued deposit had served as collateral for his U.S. dollar loan.
Mr. Huang had the cash, moving it from another business. But it wiped out his profit on the coke-financing deal, leaving him with a paper loss of US$90,000.
“I never expected the yuan to fall off the cliff like this in such a short period of time,” said Mr. Huang. “This huge volatility is really bad for conducting normal business activities.”

Tuesday, September 15, 2015

The Tianjin Disaster

The comments in the following article talk about how the huge explosion in Tianjin are similar to a disaster that happened in Texas in the 1940's. So, while China is becoming a world power it does not have the same knowledge as a developed country. Aivars Lode

THE TIANJIN DISASTER...a friend just back from China offers a very insightful "intro" to the more specific remarks of Our Man in Beijing, Robert Blohm, arguing that the explosion is a metaphor for all that's wrong about CCP rule. 



The main take-away for me about PRC (and that you don't understand until you've been): it's a developing country with the military and foreign policy ambitions of a far more developed country. 

There's such tremendous insecurity at every governmental level about social unrest and dislocation. It is hard to imagine a country with this level of potential social trauma being a true global power. 

Yet, at the same time, the scale at which they operate (the port of Dalian defies description- I've never seen anything so massive) makes it impossible to ignore them no matter how internally dysfunctional. 

They have Third World safety standards and you can't drink the water- but their Navy can talk seriously about deploying to the Mediterranean. It just doesn't all add up. 

It is hard for me to think they can continue on their current course without real internal instability in the coming years- there are just too many social problems and no constructive way (i.e. rule of law) to manage those tensions.

Speaking of the explosion- in the Beijing airport I grabbed an International NYT. They had removed three different pages from the paper that mentioned the explosion. Again, how can something like that be sustainable in the internet age? I think they're just trying to put a lid on a powder keg and the only question is when the lid gets blown off.

ROBERT BLOHM, on the explosion itself, and on the theme just noted:
In answer to your query about political impact, and to make the worst case for the Party, I reckon China's Tianjin "Texas City"-scale disaster is unique: it can't be attributed to operator error or an act of nature.  It's due to dysfunctional governance-a "no go" area of public inquiry in the infallible Party State.  
     Current obsessive deployment of governing resources to spirituality in the form of thought-control, ideological rectification, cultural nationalism and Party-protection, in corresponding neglect of practical governance affecting day-to-day social and economic well-being (safety, legal, and IP protection), had a parallel in that earthshaking year of 1976.  The absence of immediate relief effort by the Cultural-Revolutionist Gang-of-Four following the July 1976 Tangshan earthquake turfed them out 2 months later, a month after Mao died, and ultimately brought Hu Yaobang, the hero of albeit-belated earthquake relief, to power and brought us Tiananmen triggered by his 1989 death. 
     This is a man-made disaster of the scale of a natural disaster, including being of wide area, besides the 2 fireball explosions' being measured on the Richter scale at 2.6 and 2.9 respectively, one of China's worst-ever industrial calamities.  And it happened in the spotlight of the most prominent, affluent of places.  Think of how this spreads, like wildfire nationwide, concern by those living near hazardous facilities.  It points to shabby governance, even criminal negligence, not just operationally but also in planning because of its wide-area footprint.  
     The culprit company is rumored to have ownership by officials, with ownership records of all locally registered companies suddenly unavailable after the accident but recently made available with the company's data appearing to be doctored with "disguise" owners.  Officials only belatedly acknowledged the storage of many tens of times the legal maximum amount of instant-death-when-moistened sodium cyanide that had been unofficially reported only hours after the accident and reported to be 70 times the legal maximum amount.  The company is rumored to be a big-time hazardous materials smuggler.  
     The elderly deterministic engineering mindset at the top of the Party is very hard pressed to understand probabilities, risk, and contingency planning.  Officials, even the military, still don't have a handle on what's there, and people can't go home.  Greenpeace has called for a wider no-go perimeter.  The scene is reminiscent of 9/11, without the dust, but with some sodium cyanide now confirmed to have polluted.  Recovery and decontamination are beginning to look like a Fukushima, at least short-term.  
     Forget about non-existent contingency planning or timely post-accident safety information. Why were so many people living so close?  Public infrastructure (a subway station) and residential high-rises (some erected by the country's top developer) are within a one-kilometer radius of the warehouse contrary to regulations, and apartments had their front room interiors and windows all blown out, with consequent human injury.  How did planners let that happen?  They evidently let slip through only recently hazmat warehousing in the area after everything else had already been located there, including one of China's two supercomputers and even public security offices, on the basis of no registered/licensed hazmat storage nearby.  There's compensation hell to pay.  
     Then the non-specific concerns about the area expressed by the local government just weeks before about summer heat, rain, toxicity, and pollution dangers.  Then the Keystone Cops sent the fire department (wet-behind-the-ears contract firefighters employed by the port operator, instead of the public fire department run by the paramilitary People's Armed Police that was only belatedly called in), clueless enough about chemicals or which kind were on fire to hose them before the explosion that was likely triggered by flammable gas catalyzed by the water and magnified by, say, enough (kiloton scale?) containerized ammonium nitrate (the bread-&-butter of explosives) to wipe out the local police contingent and fire brigades on the scene.  
Only when they called in the military who are the exclusive possessors of what needs to be known in China, did they have the wisdom to let the fires burn on, and they're still hoping it doesn't rain.  In this case it's the military's draconian anti-chemical-warfare unit that's been called in because secrecy-obsessiveness appears to deem hazmat control too strategic to be a civilian competence.  
     Chinese citizens are increasingly-demanding consumers who rock not only the boat, but also police cars.  So information control kicked in to make sure the military remain the sole possessors of what needs to be known.  No critical internet postings allowed.  Nevertheless, on the first day, views on Weibo were more numerous than the country's population.  Censorship was more than ten times the normal rate.  Hundreds of local reporters quickly at the scene were kept out of the papers and off the air, with no continuous real-time TV coverage that we would expect, because that would just make citizens more demanding, especially of an immediate explanation.  Meanwhile the paramilitary police have been cleaning up the blown-out apartments, leaving angry residents no photo opportunities to post online.
     Chinese officials' instinct after these incidents is first a long pause to get together to cover butt by getting alibis straight.  For the first day immediately following the blast only 10-minutes of anodyne news reporting at top of the hourly news by CCTV nowhere near the immediate scene of anything interesting, plus prime-time for written statements by top officials as clueless as the viewers, foremost His Serene Countenance, Chairman Xi, telling the children to go back to bed and everything will be fine because he'll root out the cause and fix it by drawing officials' attention to safety.  Local officials in days immediately following abruptly ended press conferences when unexpectedly overwhelmed by fundamental questions they couldn't answer.  As usual it took the customary visit by the cavalry, commanded by Premier Li himself, several days later to ad-hoc top-down organize the local government for action with still no single central government agency in charge.  
     The ease and absurdity of this disaster was symbolized by the post-Olympic $200 million loss in 2009 of the Millenium Hotel adjoining the new CCTV building in Beijing, both in the final stages of construction, when a single lame-brained CCTV CEO decided to hold and televise an illegal Chinese-New-Year-closing Lantern-Festival fireworks  extravaganza right above the Millenium Hotel through whose open top a few sparks could fly in and ignite the bags of flammable insulation that lined the walls on each floor waiting to be installed.  That's gang-who-can't-shoot-straight management.  
     Tianjin is much worse, and won't be leaving the radar any time soon, especially with the TV propaganda time now being given the relief effort and focused ever increasingly on hazmat detection and cleanup to allay rising public concern.  President Obama sent immediate condolences to China, not normally done after your one-off industrial accident, because we must have immediately grasped the severity. 
     The 1947 Texas City disaster, consisting of the explosion of 2300 tons of ammonium nitrate (likely in containerized abundance in Tianjin), was the deadliest industrial accident in US history and one of the largest ever non-nuclear explosions (a sixth of Hiroshima).  It triggered the first ever class-action lawsuit against the US Government.  After the Supreme Court affirmed an appeals court reversal of an award by the district court, relief was granted by Congressional legislation that paid claims altogether amounting to nearly $200 million in today's dollars.

Monday, September 14, 2015

Summer-TV Watchers Abandon Cable Shows

I know you will continue to pay. The first part of this post is interesting as it is a friends view on the cable business. Aivars Lode

We have been having this cable discussion for a year now. You will be right eventually, you are right. I believe that the proposition 12 months ago was that i could pull my cable plug then and there, like you had just done, and that i would not miss it. I countered that i was sticky due to English Premier league and other sports and until that content got distributed over another format, then i would not be changing.

Eventually i will. But only once i can get soccer somewhere else. Those year on year declines below are quite spectacular!

I do prefer watching TV and sport on a big screen TV, i cannot focus on a 20 inch screen, i have the same issue on planes. But clearly i am old school, the millennials don’t care. Neither of my sons has cable.

You will be right, eventually, but its all about the timing mate.

Jeremy Hardisty
Yes I know you want to make a bet etc however every week there is another headline how things are changing
Summer used to be cable’s time to shine, but ratings are down by double digits with competition from broadcast networks and streaming services

By Joe Flint 

The cable-TV industry has the summertime blues.
Ratings are down by double digits at many of the top cable channels as increased competition from the broadcast networks and the growing popularity of streaming services such a Netflix and Hulu have cut into their audiences.
In addition, June through August is when viewers are tapping their digital video recorders and checking out video-on-demand to sample the shows they missed during the traditional fall-to-spring television season.
“People are getting used to using summer to binge view and catch-up,” said Billie Gold, a vice president and director of programming at Dentsu Inc., an advertising and media-buying firm. That means less time spent watching new shows on cable networks.
In July, 21 of the top 30 most-watched cable channels saw significant declines in prime-time ratings, according to Nielsen. Time Warner Inc. ’s TNT, the most-watched cable channel in prime time for the month, experienced a 22% drop from July 2014. Walt Disney Co. ’s Disney Channel lost 19% of its audience, Comcast Corp. ’s Bravo was down 23% and Viacom Inc. ’s MTV fell 24%. The ratings declines were similar among the key demographic of adults age 18 to 49.
Many programs are starting to show signs of age including TNT’s “Rizzoli & Isles” and A&E’s “Duck Dynasty.” 
FX’s “The Comedians” starring Billy Crystal and Josh Gad was canceled after one summer run, and its second-year drama “The Strain” has stumbled. AMC’s new drama “Humans” has been underwhelming and after a strong start, E!’s “I Am Cait,” about Caitlyn Jenner’s transition, has cooled.
The only network to show a big gain for the month was Discovery Communications Inc. ’s flagship Discovery Channel, which benefited from the popularity of its shark-themed programming stunts as well as its unscripted show “Naked & Afraid.”
Summer used to be cable’s time to shine. While there are typically fewer viewers watching TV in the summer than in other seasons, many cable networks found a winning strategy by launching original programming while broadcast networks hung the “gone fishing” sign.
Networks including AMC, FX and USA took advantage of the less-crowded playing field to establish many of their own original hits. “Mad Men,” “Nip/Tuck” and “Monk” all made their debuts in the summer.
In recent years, network broadcasters have become more aggressive and now program the summer with big-budget scripted shows as well as their usual slate of lower-cost reality programming. Fox’s “Wayward Pines” and CBS’s “Zoo” posted solid numbers. ABC’s “The Bachelorette” and a prime-time version of the game show “Family Feud” were big hits, and NBC’s almost 10-year old “America’s Got Talent” still has life in it.
The only network to show a big gain for July was Discovery Channel, which benefited from the popularity of its shark-themed programming. Photo: Discovery Channel 
In July, Disney’s ABC, 21st Century Fox Inc. ’s Fox and the CW, a joint-venture between Time Warner and CBS Corp. , all increased viewership, and CBS and Comcast’s NBC were only down 4% and 5%, respectively.
Keeping younger viewers has been tougher. Fox, which benefited from the Women’s World Cup, and ABC were the only networks up with adults 18 to 49. CBS was down 15% and Fox 8%, while NBC and the CW were flat.
“The bar has been raised,” said RBC Capital Markets analyst David Bank. If networks take the summer off, “you run the risk of losing more audience” when the fall season rolls around and viewers have been watching other channels with fresh content, he said.
The rise of new content in the summer comes as the number of people watching traditional media is on the decline.
“It does seem like an awful lot of new content for a relativity small audience,” said Chris Geraci, president of national broadcast investment for OMD, which buys commercial time.
So far this summer, broadcast and cable channels are averaging 94.7 million viewers in prime time. That is a 3% drop from last summer and off 6% from the summer 2013. The research firm MoffettNathanson said last week the numbers don’t necessarily mean that less content is being consumed but rather that it is being watched on platforms Nielsen isn’t factoring into its measurements yet including tablets and mobile phones.
“Part of the explanation is clearly a behavior shift away from linear-TV viewing toward non-measured forms of media,” the report said. Nielsen is in the process of enhancing its measurement to include newer platforms. 
The changing ways people watch video and what it means for traditional business models are sources of worry in the industry and for Wall Street, leading to a more than $50 billion rout in media stocks two weeks ago. The summer-ratings slump isn't seen as an aberration but rather a reflection of the changing media landscape.
‘Part of the explanation is clearly a behavior shift away from linear-TV viewing toward non-measured forms of media.’ 
—Research firm MoffettNathanson
Some network executives suggest that the rules that define success need changing. Speaking at the semiannual Television Critics Association media tour earlier this month, FX Networks Chief Executive John Landgraf said it takes two months of ratings data to really determine whether a show is clicking with viewers. He noted that the audience for “American Horror Story” went from 7 million viewers in live and three days of recorded viewing to 12.6 million after 60 days of recorded, streaming and video-on-demand consumption. FX Networks is a unit of 21st Century Fox.
Advertisers primarily pay for commercials using a formula based on the live audience plus three days of recorded viewing. The networks are having some success now selling same day plus seven days of recorded viewing. Mr. Landgraf thinks even that model is outdated and will fade in the future as targeted advertising becomes more technologically viable.
“As you can start marketing to individual people who are the appropriate people to tell about your products, you don’t care basically whether they’re watching the fourth season of ‘The Americans’ or first season of ‘The Americans,’” he said.