Category: Macro Posts

How did Maharashtra manage to de-risk farmers.

Maharashtra is a rich state where its farmers are poor. And it isn’t because they don’t get loan waivers.  Farmers remain poor primarily because they’ve been exploited. Their poverty stems from the government’s inability to de-risk them, and to infuse vision and wealth. The state government hopes to change this and initial results are encouraging. Chief minister, Devendra Fadnavis, is focused on building ponds and dams to ensure there is water for villages all around the year.  He then abolished APMCs, giving farmers direct access to markets. Maharashtra also entered into an agreement with NDDB (National Dairy Development Board) which is mandated to promote milk cooperatives across India. Over the past year, with the help of NDDB, the state has gone about building collection centres in Vidarbha and Marathawada.  The opportunity was evident to anyone who cared to see.  Maharashtra’s cooperatives offered farmers just around Rs.18 a litre of milk, compared to Rs.28-31 offered by Gujarat’s cooperatives.  Since the entire milk collection and distribution network was owned by these cooperatives (as was the APMC), it was imperative to set up a parallel network.  Instead of Rs.18, Mahadev Jankar state minister for animal husbandry, dairy and fisheries began offering farmers Rs.26 a litre for cow’s milk and Rs.33 for buffaloes’ milk. The result was electrifying.  By last fortnight, as against the average collection by the state of just 90,000 litres a day some six months ago, current daily collection has climbed to 11 lakh litres. Jankar wants to go a step further.  He wants to give rural communities other ways of earning money.  The idea is to de-risk the farmer, he says.  So if the crops fail, he still makes money from milk.  If that does not work out well enough, there is poultry and pig and goat rearing.

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http://www.asiaconverge.com/2017/05/maharashtra-derisks-farmers/

 

ESPN and bursting of sports Bubble

When the cable TV sports giant ESPN announced 100 layoffs recently, including letting go a number of high-profile broadcasters, a lot of people took notice, and well they should: things no longer are business as usual in sports broadcasting, and we are not even at the beginning of the end, and maybe not even the end of the beginning .Like the slow crashing of the retail sector as online purchase firms like Amazon begin their domination, we are seeing a sea change in sports broadcasting and that is going to mean big changes are down the road not only for ESPN, but for all of the sports entities that depend upon the huge payouts that ESPN provides. To put it mildly, a lot of people are about to see their lives change drastically as consumer choices drive sports broadcasting in a new direction. ESPN is losing 10,000 subscribers every day so far in 2017. In the past six years they have lost 13 million subscribers and that subscriber loss is escalating each year. That’s billions of dollars in lost revenue. Every year for the next five years ESPN is spending more and bringing in less. You don’t have to be Warren Buffett to see that’s a business problem. To a certain extent, one can argue that both higher education and ESPN have benefited from “bubble” economies, and as consumer choice becomes directed elsewhere, the bubbles burst. As Carl Menger demonstrated, the bursting of the bubbles will mean that some factor owners will have to receive less pay in order to remain employed, while other factors will have to be transferred to other uses altogether or simply become unemployed. All soothing rhetoric aside, the world of sports broadcasting is going to see major changes in the next decade as consumers have their say.

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https://mises.org/blog/espn-and-bursting-sports-bubble

Whatever Beijing May Say, But A Credit Downgrade Right After the OBOR Jamboree Is Embarrassing.

Moody’s downgraded China’s sovereign credit rating from Aa3 to A1 and upgraded its outlook for the rating to ‘stable’ from ‘negative’. That is, it does not expect to downgrade China again anytime soon. The fact is that this is the first China rating change by Moody’s in nearly thirty years. It does make people sit up and take notice. Second, China has just come off the One Belt One Road conference where it assembled many foreign leaders. It was almost an emperor’s durbar with the little chieftains in attendance. Hence, to have this happen within a week of that jamboree is a bit of an embarrassment that China could have done without. The downgrade, while being meaningfully negative for those borrowers that rely on the sovereign rating to price their own debt, may also make the Chinese government think a bit harder about the next round of debt-funded reflation once it gets bored or frightened of the current round of de-leveraging that it is supposedly pursuing .It is also possible that  the scale of the estimates being touted for the ‘One Belt One Road’ initiative might have influenced Moody’s after all he number is variously estimated at 900 billion to 1 trillion US dollar in debt funding.

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https://swarajyamag.com/economy/whatever-beijing-may-say-but-a-credit-downgrade-right-after-the-obor-jamboree-is-embarrassing

Life After NATO

For all intents and purposes, the North Atlantic Treaty Organization – the foundation for American security for the past seven decades – ceased existing on May 25, 2017.While attending a highly anticipated (some might say dreaded) meeting with NATO heads of state and government in Brussels, U.S. President Donald Trump delivered a speech railing against member-states who have failed to meet economic obligations to the defense pact, going so far as to indirectly abrogate the alliance’s cornerstone: the provisions for collective defense under Article V of the treaty. Peter Zeihan writes that We have not had large-scale regional – much less global – competition outside of the American-Soviet rivalry for 70 years expressly because the Americans took care of pretty much everything. But the Americans have been moving slow-motion in the general direction of disengagement from their Cold War alliance system since 1989. Today’s developments are not the final word on that disengagement, this is simply the end of the interim where people didn’t really know where the Americans stood. We are only now starting to understand the degree to which the Americans just are not going to be there. Remove the Americans and every country in the world – starting with the European nations – needs to figure out how to look after their own economic and physical security. Different countries will have different ideas of how to do that, and many of those ideas will be mutually exclusive. History is about to start moving again.

And history is bloody.

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http://us11.campaign-archive2.com/?u=de2bc41f8324e6955ef65e0c9&id=4b5fd9c464

 

Capital manufacturing capital
‘New Ideas, more than savings or investment or education, are the key to prosperity, both to private fortunes… and to the wealth of nations’ – David Warsh; ‘Alex Poyarkov, a former goldmedal winner of the Mathematical Olympiad’ was the subject of a ‘bidding war among hedgefund heavyweights Renaissance, Citadel and TGS’ – Wall Street Journal, May 22nd, 2017

Victor Shvets writes

The key to current macro-economic and investment climate is that we are residing in a world that can be best described as the age of ‘declining returns on humans and  eroding returns on incremental capital’. As the Third Industrial Revolution (or Information Age) picks up pace, it is not labour hours, demographics or conventional capital investment that generate productivity, but rather a far more oblique concept of knowledge and social capital.
The key challenge is that even though neither labour nor capital spending are any longer the key   drivers, we are busily creating fresh capital to maintain and lubricate global liquidity and avoid any sustained de-leveraging. If we define capital holistically (anything from repo and derivative markets to equities and bonds), the ‘fireball cloud of finance’ is getting ever larger. However, most of the incremental capital cannot find productive deployment on the ‘ground’ in real economy and hence it is incessantly looking for allocation within the ‘cloud of finance’ itself. As it gets bigger, the ‘cloud’ presents an ever greater danger to a small underlying real economy below, forcing CBs and the public sector to act aggressively to control and corral it, so that the cloud does not collapse on itself.

In the world that is drowning in excess capital, cost of capital can never increase. In the world where ‘fireball of financial instruments’ must continue to expand (otherwise it is always in danger of collapsing on itself), there is limited tolerance for any volatility. Neither CBs nor investors can be confident that volatility in one segment however small) will not suddenly impact completely unrelated asset classes. This type of ‘butterfly effect’ could cause an explosion in the sky’. Hence, Central Banks and other public sector instrumentalities are likely to continue to ‘corral and direct’ financial markets, and if needs be, public sector might resort to outright nationalizations. It is all for our own good, as ‘financial cloud’ is now at least 4x-5x the size of real economy, and any disturbance in that cloud would unquestionably have devastating consequences on the ‘ground’.
We are essentially describing a world of no discernible business or capital market cycles and the world where ‘financial cloud’ must remain disconnected from fundamentals. While eventually the time of reckoning would arrive and the two spheres would need to (once again) converge, it is far from clear how this will occur.

Victor concludes by saying that it as the fight between Olympians (representing technology and overfinancialization) and Titans (representing political reaction against globalization and deflation, in favour of localization and reflation). While Olympians are ultimately going to win this fight, some rounds could go the Titans’ way (primarily when the US and China are on the same page) and it could take some time, before Titans are finally exiled.

In our view, disinflation remains the ‘beating heart’ of the investment landscape.

 

 

I have written about cryptocurrencies twice but the price led by BITCOIN keeps on going up. Wealthy Chinese have been trying to take their capital out of china but chinese govt has clamp down hard ON CAPITAL OUTFLOWS and I think all other uses for Bitcoin currently pales in comparison to its use as a conduit for Chinese moving wealth out of their country. As little as a year ago, this was not the case. But right now, it’s pretty much a China thing.As Bitcoin has gone up, the Chinese have figured they can hold on to them once they get them, rather than converting them to western currency. So each new Chinese wanting to move wealth abroad, has to pay a higher and higher price for each Bitcoin. So in that sense, it kind of is a greater fool’s game.

Eventually, the chinese thinking is that with enough wealth held in Bitcoin, those holding them will be able to buy goods and services with them directly. Then Bitcoin will no longer be as volatile, and will no longer be any more of a fools game than other large currencies. Minus the debasement looting.

Now comes the real Fun. Mish shedlock did an online poll and asked people how high do they think Bitcoin will go and there it you have the answer below.

The greater fool theory is alive and doin’ fine….. it will till it can and when it reverses the fall can be dramatic. Think of any financial instrument as a pendulam , the higher the Pendulum goes in one direction the bigger the movement on other side . we have an live example of this BRAZIL ETF http://worldoutofwhack.com/2017/05/18/etf-tracking-brazil-market-down-50-in-todays-trading/ which fell 50% in few seconds of market opening this week.

 

Capital controls and transfer of wealth from Private sector to Public

While the policy of building walls to keep people from entering a country has become more prevalent, what is rarely discussed in the mainstream financial media is the prospect of another type of wall: a financial wall, prohibiting savers and investors from transferring, repatriating, or even using their capital. Capital controls are now reappearing as a “macroprudential” tool, aimed at addressing global crises. Financial repression is a term coined by the Stanford economists Edward Shaw and Ronald McKinnon, and relates to policies under which the government transfers wealth from the private to the public sector, by generating cheap funding for the government. The mechanism is fairly straightforward: Artificially low nominal interest rates, accompanied by a mild dose of inflation, will erode the real value of government debt. The main policies to achieve this are capital account restrictions and foreign exchange controls to create an internal “captive” market for domestic debt, caps or ceilings on interest rates and/or direct ownership / heavy regulation on the banking system. Given the rise of inward-looking and panicked politicians around the globe and the monetary policy extremes after the 2008 crisis, a financial repression via blanket capital control regime could be the policy response to the next crisis. In this process, the global financial system would be totally fragmented, while wealth would be transferred from the private sector to the government

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http://www.ekathimerini.com/218434/opinion/ekathimerini/comment/capital-controls–the-new-qe

The new Private Terminal where Rich are pampered and normal people suffer

( reminds me of The hunger Games movie)

There is an iPad that sat on a counter at the entrance, with a typed little note: “Here is a glimpse of what you’re missing over at the main terminal right now.” The screen linked to videos of travellers looking harassed and being swallowed into pushing, shoving paparazzi scrums – routine hazards for the 80 million people who pass through LAX each year. “There they process thousands of people at a time, they’re barking. It’s loud. Here it’s very, very lovely,” said Gavin de Becker, who runs the new terminal, called Private Suite. Welcome to Los Angeles international airport’s (LAX) new private terminal for the mega-rich: the plush, hushed privacy, the beds with comforters, the massages, the coriander-scented soap, the Willy Wonka-style array of chocolates and jelly beans, and the Napa Valley cabernet. The $22m facility, the first of its kind in the US, opens on Monday, giving the 1% a whole new way to separate themselves from everyone else’s reality. Instead of battling the traffic jams that clog LAX you reach Private Suite via the Imperial Highway, leading to a discreet turn-off where an armed guard checks your identity and pushes a button. Tall grey gates open and you enter the haven. It is pricey. In addition to annual membership of $7,500, you pay $2,700 per domestic flight and $3,000 per international flight. The cost covers a group of up to four people

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https://www.theguardian.com/world/2017/may/12/lax-private-terminal-rich-people-celebrities?CMP=share_btn_link

How college has become a racket

The cost of college education in western countries especially US has exploded in last few. College tuition and expenses has risen at a financially devastating rate for students and their financially trapped families and these kids who have joined working population after completing getting their precious college degrees collectively owns USD 1.4 trillion of student debt .  What few however can answer satisfactorily is: Why has this occurred? Most students takes loans for college education which is guaranteed by their parents but there was a steep increase in this debt inducing juggernaut from 2010-11. What happened in the early part of this post financial crisis decade? Certainly, more students didn’t suddenly start wanting to go to college? College operating costs on the other hand didn’t abruptly get more expensive? What happened was The US Government accepted the full risk of student loans and financially Guaranteed Student Loans to the bankers. The banking lobbyist pulled off the biggest heist in history by having student loans made fully Non-Recourse loans, not dis-chargeable in bankruptcy court. To the ‘money lenders’ this was a dream opportunity!   An opportunity for “risk free” lending that needed to be fully capitalized on before the magnitude of the mistake was fully appreciated and consumer protection laws changed.

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https://matasii.com/how-college-has-become-a-racket-2/

The end of oil in 10 years

We are on the cusp of one of the fastest, deepest, most consequential disruptions of transportation in history. By 2030, within 10 years of regulatory approval of autonomous vehicles (AVs), 95% of U.S. passenger miles travelled will be served by on-demand autonomous electric vehicles owned by fleets, not individuals, in a new business model we call “transport-as-a-service” (TaaS). The TaaS disruption will have enormous implications across the transportation and oil industries, decimating entire portions of their value chains, causing oil demand and prices to plummet, and destroying trillions of dollars in investor value — but also creating trillions of dollars in new business opportunities, consumer surplus and GDP growth. High vehicle utilization (each car will be used at least 10 times more than individually owned cars) will mean that far fewer cars will be needed in the  vehicle fleet, and therefore there will be no supply constraint to the speed and extent of TaaS adoption that we forecast.
Taken together, this analysis forecasts a very fast and extensive disruption: TaaS will provide 95% of the passenger miles travelled within 10 years of the widespread regulatory approval of AVs. By 2030, individually owned ICE vehicles will still represent 40% of the vehicles in the U.S. vehicle fleet, but they will provide just 5% of passenger miles.

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http://economictimes.indiatimes.com/markets/stocks/news/end-of-oil-in-10-years-and-how-they-dont-let-you-use-your-money/articleshow/58761683.cms

The Numbers Behind Google’s Online Empire

CEO Sundar Pichai yesterday revealed that more than two million Android devices are actively used around the world and that six of Google’s services have reached over 1 billion users.

The numbers, summed up in the chart below, along with recent product/service introductions (e.g. Google Home or Google Lens)  https://www.youtube.com/watch?v=igTtOA1jcik illustrate the company’s ongoing efforts to move beyond search. As web usage continues to shift away from PCs and mobile browsers to apps and even voice-activated devices, people may not rely on Google search as much as they used to going forward. Considering that search advertising is still the company’s main source of revenue, it would be careless for Google not to cover all bases.

A fantastic presentation  on

“The Disruption of Transportation and the Collapse of the Internal-Combustion Vehicle and Oil Industries”

by Tony Seba

Executive Summary
We are on the cusp of one of the fastest, deepest, most consequential disruptions of transportation in history. By 2030, within 10 years of regulatory approval of autonomous vehicles (AVs), 95% of U.S. passenger miles traveled will be served by on-demand autonomous electric vehicles owned by fleets, not individuals, in a new business model we call “transportas-a-service” (TaaS). The TaaS disruption will have enormous implications across the transportation and oil industries, decimating entire portions of their value chains, causing oil demand and prices to plummet, and destroying trillions of dollars in investor value — but also creating trillions of dollars in new business opportunities, consumer surplus and GDP growth.

Summary of findings:
1. The approval of autonomous vehicles will unleash a highly competitive market-share grab among existing and new Pre-TaaS (ride-hailing) companies in expectation of the outsized rewards of trillions of dollars of market opportunities and network effects. Pre-TaaS platform providers like Uber, Lyft and Didi are already engaged, and others will join this high-speed race. Winners-take-all dynamics will force them to make large upfront investments to provide the highest possible level of service, ensuring supply matches demand in each geographic market they enter.
2. In this intensely competitive environment, businesses will offer services at a price trending toward cost. As a result, their fleets will quickly transition from human-driven, internal combustion engine (ICE) vehicles to autonomous electric vehicles (A-EV) because of key cost factors, including ten times higher vehicle-utilization rates, 500,000-mile vehicle lifetimes (potentially improving to 1 million miles by 2030), and far lower maintenance, energy, finance and insurance costs. ê As a result, transport-as-a-service (TaaS) will offer vastly lower-cost transport alternatives — four to ten times cheaper per mile than buying a new car and two to four times cheaper than operating an existing vehicle in 2021.
3.Other revenue sources from advertising, data monetization, entertainment and product sales will open a road to free transport in a TaaS Pool model, as private and public transportation begin to merge.
4. Cost saving will also be the key factor in driving consumers to adopt TaaS.
5. Adoption will start in cities and radiate outward to rural areas. Nonadopters will be largely restricted to the most rural areas, where cost and wait times are likely to be higher.
6. High vehicle utilization (each car will be used at least 10 times more than individually owned cars) will mean that far fewer cars will be needed in the U.S. vehicle fleet, and therefore there will be no supply constraint to the speed and extent of TaaS adoption that we forecast.
Taken together, this analysis forecasts a very fast and extensive disruption: TaaS will provide 95% of the passenger miles traveled within 10 years of the widespread regulatory approval of AVs. By 2030, individually owned ICE vehicles will still represent 40% of the vehicles in the U.S. vehicle fleet, but they will provide just 5% of passenger miles.

Read More

https://static1.squarespace.com/static/585c3439be65942f022bbf9b/t/591a2e4be6f2e1c13df930c5/1494888038959/RethinkX+Report_051517.pdf

Brazil stocks plunge 10% on emerging political scandal. The Brazilian Bovespa fell more than 10 percent in opening trade.
Brazilian newspaper O Globo reported late Wednesday that Brazilian President Michel Temer gave his blessing to an attempt to pay a potential witness to remain silent in the country’s biggest-ever graft probe.

Below is the screenshot of  an ETF which tracks BRAZIL market. This ETF is levered 3X to BRAZIL markets so it moves 3 times the movement of bovespa .

This ETF is down 50% as I write, wiping out more than a years gain in few seconds of market opening.

This is what happens when everybody rushes for exits at the same time

 

Wolf Richter writes …..The global asset class of collector cars – these beautiful machines are perhaps one of the most enjoyable asset classes to play in – is quietly but persistently and very unenjoyably experiencing a downturn that parallels and in some aspects already exceeds the one during the Financial Crisis.

The index for collector car prices in the May report by Hagerty, which specializes in insuring vintage automobiles, fell 0.68 points to 160.06, down nearly 10% year-over-year, and down 14%, or 25.8 points, from its all-time high in September 2015 (185.86).

 

The index is now at the lowest level since June 2014. “With the latest release of values in the Hagerty Price Guide, prices have started to normalize,” the Hagerty report commented.

This is how an asset bubble during these crazy times of easy money around the globe, central bank “wealth effect,” and endless liquidity gets unwound.

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http://wolfstreet.com/2017/05/17/classic-collector-car-prices-fall-how-asset-bubbles-unwind/

 

How the narrative changes from …. Indians taking up our (american) jobs to Indians resorting to H1 b scams to Indians just dont have skills ….

The H1b scam

ETHEREUM…. I bet you havent heard about it ? it is the second biggest crypto currency behind Bitcoin ( now famous for wannacry hackers demand) with a market cap of USD 8.4 billion.

At the end of 2015, it was worth $0.90., it’s now worth $91.30. Those who bought it at the end of 2015 had a ten-bagger on their hands by January 16, 2017. I had written an article highlighting the move in cryptocurrency on 26th jan 2017 http://worldoutofwhack.com/?s=cryptocurrency . Those who bought at that time also have ten bagger on their hands. Those that rode it all the way up over the 16 months have a 100-bagger. For percentage fans, that’s a gain of 10,000%.

What miracle “asset” did they get when they bought it? Don’t even ask. Just believe in it. It certainly isn’t a usable currency for legit purposes, obviously, given this kind of insane instability. But it really doesn’t matter what it is as long as it is going up.

The largest one is bitcoin with a “market cap” of nearly $30 billion. I have been personally watching it from $400 wanting to buy it but was not sure about its legitimacy in India hence gave it a pass. The value of a single bitcoin, at $1,789 on Sunday, is 46% higher than the value of one troy ounce of gold ( as it is a much smaller market easy to manipulate ). In mid-May 2015, bitcoin was at $240. Over the two years since, it has soared 645%

This is being played with real money. That it will inflict maximum pain on the latecomers – whenever this happens – is now perfectly clear.

There are over 830 “alt-coins,” as the alternatives to bitcoin are called, out there, with new ones being added constantly. The “market cap” of all these cryptocurrencies combined, according to the Financial Times, has pierced the $50 billion mark. So this starting to involve serious money.

Many of these investors may not be “sophisticated.” But others appear to be highly sophisticated, now that the sums involved have gotten big enough for them. The FT:

Observers say many individuals are trading alt-coins from corporate IT departments, concentrated in the financial sector and falling under the radar of senior executives. Many are sitting on virtual fortunes, but are unable to liquidate their cash as banks clamp down on measures to avoid money laundering.

“Systems are being used here by employees to increase their own individual wealth. In the process, corporate systems are coming into contact with the fringes of the criminal world,” Brian Lord, former deputy director for intelligence and cyber operations at the UK’s electronic espionage agency GCHQ and now head of cyber practice at security group PGI, told the FT.

Big sophisticated traders – including hedge funds and others – are in this trade, not because it might make some real economic sense, but because, as the charts above show, these things can be pushed up quickly with enough money involved. And if enough new people can be drawn in due to the ballooning hype, then the big boys can get out, once they figure out how to deal with the banks’ concerns about money laundering.