Gleanings II – 476 Compliments of Nick Rost van Tonningen (September 7, 2012) Posted by John on September 7, 2012

Gleanings II – 476 Compliments of Nick Rost van Tonningen (September 7, 2012)

William R. White was born in Kenora, Ont. in 1963 & educated at the University of Windsor in Canada &, on a Commonwealth Scholarship, at the University of Manchester in the UK where he got a Ph.D. in Economics. He worked for three years at the Bank of England,  from 1972 to 1994 at the Bank of Canada & then 15 years at the Basle-based BIS (Bank for International Settlements, aka ‘the central banks’ central bank’), most recently as its Economic Adviser. While there he took issue in 2003, at the annual central bankers’ clambake at Jackson Hole, with the low interest rate policy of the then near-untouchable, but since largely discredited, Fed Chairman Alan Greenspan (who pooh-poohed his criticism) & correctly forecast the coming of a financial crisis. After he retired he became, in 2009, Chairman of the OECD’s Economic Development and Review Committee that examines, assesses & makes recommendations on, individual OECD countries’ economic trends & policies. He has just published a paper that can be found at http://dallasfed.org/assets/documents/institute/wpapers2012/0126.pdf trashing the Fed’s monetary policies.

A year ago the price of gold reached an all-time high North of US$1,900/ounce, whence it slipped to roughly US$1,520 by mid-May. Then for three months it traded sideways in a US$100 range above that, with the sole serious buyers being foreign central banks, until in the week ended August 22^nd institutional investors & hedge funds jumped back into the fray, buying  US$1.37BN-worth of gold & other precious metals & ramming the gold price with ease through the US$1,625 level to the point that it started flirting with US$1,700 (which it has since decisively pierced). Blame Bernanke. For he alluded at Jackson Hole to possibly more easing (Draghi’s plans to start buying bonds had long been ‘priced in the market’ & the unworldly call at the Republican Convention for a return to the gold standard was taken by most with more than just a grain of salt) which was seen as bullish for all markets, incl. gold. This suggests an inconsistency in his policies : on the one hand, the Fed moves Heaven & Earth to keep the price of gold down & on the other he moots a gold price-positive possibility of further monetary easing that may prove short-term needless & long-term undesirable.

The key to Bernanke’s thinking is that he believes super low interest rates will elevate stock & real estate values, and weaken the dollar, thus  lowering financing costs, boosting US companies’ global competitiveness & bolstering household wealth. As to the former he has obviously forgotten the old market adage that “you cannot push on a string” and, as to the latter, this is a formula that many Latin American countries long experimented with, but found wanting.

On the subject of Draghi, he announced on September 6^th an ‘open-ended’ ECB commitment to buy Eurozone member country bonds provided they ask for help & continue to meet the conditions he imposed on them as the price for that help. Rather interestingly, he conceded the decision had been supported by only a “majority” of the 23-member ECB board (suggesting it was not just the Bundesbank that didn’t  support his plans). He also revised his  EU GDP growth forecast for this year & next downward, & its inflation forecast upward (even while saying the bonds bought would be “sterilized” so as not to affect the money supply, although no one is really quite sure how is going to do that, what that might entail & even if doing so would make sense (what is sure, however, is that he, like Bernanke in the US, is increasingly moving away from a central bank’s traditional fairly narrow role & usurping some of the traditional role of elected officials). The potential flaw in turning the ECB into a mini-IMF is that it doesn’t have a provision for Argentina-like behaviour,  i.e. when a country it has been supporting becomes unable, or unwilling, to meet the conditionalities it had earlier agreed to. While this has never caused a  problem for the IMF, which simply waits until the culprit chooses, or is forced, to return to the fold, this would likely be a lose-lose proposition for the ECB since it won’t have the luxury of the time to do so :  either the country involved will default  or the ECB will have to eat its words. An open-ended commitment to buy bonds may also give rise to “moral hazard” problems, the “too big-to-fail” issue that led to the US banking crisis a few years ago. All of this would be bad, if not terminal, for the Euro, the very event he seeks to pre-empt. All together, it looks like a “Hail Mary” pass, another valiant effort to roll the problem down the road hoping for  divine intervention while risking a massive transfer of risk from the private sector to taxpayers’ shoulders.

In the late 90’s Daniel Hannan was a speech writer for then Conservative Party Leader, & now Foreign Secretary, William Hague. At the tender age of 28 he was elected to the European Parliament & has remained a Conservative MEP to this day despite the fact he has been a Euro skeptic since university. He is trilingual in English, French & Spanish to the point he has been known to address the European Parliament in a language other than his mother tongue. In a lengthy article in Mail Online, he makes a strong case that the EU is undemocratic & contemptuous of public opinion, quoting the unelected EC President, Jose Manuel Durao Barroso, as saying that nation states are dangerous because they are excessively democratic & that “Decisions taken by the most democratic institutions are often very wrong.”   And he says this is no accident since the EU’s  founding fathers didn’t like the populist brand of democracy of the inter-War period & believed that too much democracy would lead, once again, to demagoguery & fascism. So they created a model in which power rested with “disinterested technocrats immune to the ballot box” in the belief that the creation of a single European state would never succeed if every transfer of power from national capitals to Brussels had to be approved by voters. It is worth a read, if only because much of what he says about the EU applies to varying degrees to the way business us conducted in many of today’s democracies..

The world is achanging! From 1995 to 2011 global GDP almost doubled & its composition changed dramatically : the ‘developing’ world’s share skyrocketed from 22% to 52% & the developed world’s crashed from 78% to 48%. This is a testimonial to the compounding effect of differential growth rates : during the period 1990-2000 the developing world’s average annual GDP growth rate was 4.2% vs 2.5% for the developed countries, from 2000-2009 5.9% vs. 1.4% & since 2009 6.0% vs. 1.9%. Even more interesting was the distribution in the developed world : the US went from 24% to 20%, i.e. down 17%, Japan from  18% to 6%, down  66%, Germany, until recently the world’s largest exporter, from 9% to 4%, down 56%, France from 5% to 3%, down 40%, the UK from 4% to 3%, down 25%, Italy from 4% to 2%, down 50% & the rest of the developed world from 14% to 10%, down 29% – while one shouldn’t put too much stock on the percentage change numbers since the basic percentages are rounded off, the picture that emerges is clear : Japan & much of the “core” Eurozone fared worse, & the US, the UK & the rest of the non-core Eurozone  OECD countries far better than the average of the developed world.

In the mid-70’s the US debt ceiling started rising, slowly at first but faster as the years went by until it reached US$5.95TR (73.5% of GDP) in 1997. Then it just sat there for four years until in 2001(59.0%) it rocketed upwards & almost doubled (to roughly US$11TR, i.e. by 77%) by early 2009. It now stands at US$16.4TR (106%) & will, almost inevitably, have to be raised further early in the New Year (to, say, at least US$17.5 TR).

While Americans often badmouth the high level of ‘socialist’ Europe’s contingent liabilities from its entitlement programs, & the horrible fiscal shape of the PIIGS countries, research by Morgan Stanley suggests they are in no position to talk. For when the PV of their governments’ contingent liabilities is added to the various countries’ stated national debt, the US heads the “league table” at about 325% of GDP, slightly higher than Greece & Ireland, that are also in the 300+% range, with the Netherlands, the UK, Portugal & Belgium in the 200+%-, and Spain, France, Germany & Italy in the 150%-200%-, range (of course the PV of their contingent liabilities would drop considerably if interest rates were higher – an “Unintended Consequence” of the Greenspan/Bernanke monetary policies). Using central bank data, on a total (i.e. all governments, corporations & households) basis the US is in an only marginally better position. There the UK heads the pack (due to the size of its financial sector?) : since 1990 its total debt number has more than doubled to over 500% & Japan is not far behind with a number also North of 500%. And  the US (at 300+%) is worse off than Canada & Germany albeit better off than France, Italy & Spain. The Economist recently calculated what budget surplus, net of interest payments (while currently only about 7% of the budget, that number will inexorably grow in the future from the interplay of continued deficits, higher interest rates & slow budget growth) the US would have to run from 2013 onward to cut its Debt/GDP ratio to 50% by 2050; its answer was 10%, much higher than that for the PIIGS nations.

The US tax burden is shared among income groups in the following manner : the top 1%, 10% & 50% pay 24.2%, 55.3% & 89.2% thereof, & the bottom 50% & 10% only 10.8% & 0.5% respectively. While these numbers are proof for right wing Republicans that the top 10% pay “more than their fair share”, many other Americans may feel, unbeknownst to them in Marxist fashion, that this looks sort of like”From each according to his ability, and to each according to his need.”

The Commerce Department recently revised its Second Quarter annual GDP growth rate from 1.5% to 1.7%, down from 2.0% in the First. While this has been decried as “tepid” growth, & although it certainly isn’t enough to permit a rapid reduction in unemployment, people tend to overlook the fact that the US economy’s long-term trend growth rate likely has declined from yesteryear’s 3% or so to something more like 2½%, or less, today.

22% of the US corn crop is now rated Good or Excellent, vs 52% one year ago, & for soybeans 30%, vs 56% this time last year. Corn crop estimates are now starting to come in < 11BN bushels while it is hoped soybeans will benefit from the recent rains in parts of the drought-stricken area.

Politico is a widely-followed, Arlington, Va-based online politically-, & public policy-, oriented newspaper, started by a couple of Washington Post alums & currently run by a one-time assistant of former Pres. Reagan, that has been accused of having a Republican bias (which would not be surprising given its parentage & current CEO). It recently postulated that insiders in both campaigns agree on three things :  Romney’s greatest weakness is that he will never be loved or even liked & Obama’s that many people feel he’s let them down on the economy, that, as the campaign closes, the Obama campaign’s organizing strength may start to outweigh Romney’s better funded advertising campaign and that, although none will say so in public, going into the conventions the states said to be “in play”, especially, contrary to what the polls have been suggesting, Ohio, were favouring Obama – there has been growing talk lately of a replay of 2000, when the Dems won the public vote but the GOP the Electoral College.

Last week CNOOC formally requested Ottawa’s approval of its $15.1BN takeover of Calgary-based Nexen. So Prime Minister Harper will have to ‘fish or cut bait’ by mid-November at the latest. On a non-sentimental basis, the answer is easy : Nexen has long been anything but a stellar performer among Calgary-based oil companies & the lion’s share of its operations take place outside Canada. And Harper recently showed his hand when he said he intended to ‘broadly interpret’ the “net benefit” criterion. But he should extract a price and, given the Chinese concern about ” face”, do that as much as possible ‘sub rosa’, & then he should, post haste, put in place a more substantive policy with respect to foreign takeovers than the current ’Mickey Mouse’ “net benefit” criterion” (as he should have done long ago, if not after the MacDonald-Detweiler episode, then certainly after the Potash Canada one). And, in negotiating he should have two priorities : greater reciprocity & an acknowledgment by what then will be a new regime in Beijng for the next decade that it will make state-owned Sinopec recognize Canadian sovereignty in the case of the two Chinese workers killed in the Alberta oil sands while employed by a Sinopec sub (a case headed for the Supreme Court, because Sinopec refuses to do so) & an iron-clad guarantee that it will allow no more Sinopec-like incidents in the future.

The province of Québec had an election this week. The ruling Liberal party lost (in part due to a high voter turnout), with the Premier even losing his own long-held seat, & the separatist PQ won. This prompted one US analyst to comment “With the separation once again back on the fire, it shall be impossible … if not entirely impossible … to be positive of things Canadian once again.” And he went on to say that ‘we may not yet be a seller, but certainly won’t be a buyer &, as they saying goes, it takes a lot of buying to drive a market up, but not much lack of buying to put it down’. But the new Premier got neither a majority, a robust popular mandate or a ringing endorsement : her party  got 31.9% of the popular vote & 54 seats (up 3) in the 125-seat legislature, the Liberals 31.2% & 50 seats (down 16) & the CAQ  27.0% & 19 seats, up 12 (with support from both “soft” separatists & from federalists who couldn’t  stomach the Premier any more the latter is  neither fish nor fowl and, like Western Canadian NDP governments, it is right of centre on fiscal-, & left of centre on social-, issues; it was very much a place for disenchanted supporters of both ‘traditional’ parties to ‘park’ their vote until the next go-around, possibly as early as next spring).

Since 2002 Beijing’s tax revenues from all sources have increased 500+%, slightly faster than its GDP while its defense budget has increased 600+%. This would presumably justify the part of the official Republican platform that “condemns China’s pursuit of advanced military capabilities without any apparent need”, but for one simple fact : the US, an island nation that has never been invaded but  spends a far greater share of its GDP on its military than China, a nation with long land borders that has experienced more than its fair share of foreign invasions (although in this age of increasingly hitech warfare this may be less of a consideration than it used to be).  .

Public- & private sector investors’ efforts to diversify out of the US dollar & benefit from the commodities’ boom, have led to foreign holdings of Australian government bonds increasing more than fourfold, from < A$50BN in 2008 to A$200+BN (& from 60% to 80% of the total outstanding). And while its debt-to-GDP ratio is still modest (although it has almost doubled in six years, from 16% to 30%), Spain & Ireland too had relatively modest Debt-to-GDP ratios before the roof caved in on them, in part because their banks, like Australia’s banks, were overly dependent on foreign funding. The risk in this for the health of the Australian economy & banking system lies in the fact that much of this funding is of the “hot money” variety that can be ‘here today, & gone tomorrow”.

GLEANINGS II – 476

Thursday September 6^th, 2012

THE US ECONOMY MAY SURPRISE US ALL (FT, Roger Altman)

• For three years the US recovery has been surprisingly weak, resulting in a 30-year low labour force participation rate. While this may last for as many as four more years, at some point the US economy will surprise us on the upside, as a housing revival, the revolution in domestic energy production, a rejuvenated banking system & a leaner industrial base will prompt faster GDP growth than the currently assumed 2½% trend growth rate. This is what happened after the deep 1981-82 & the late 90’s recessions; while they weren’t preceded by a financial meltdown, neither were they followed by as powerful monetary policy stimuli as have been unleashed by the Fed since 2008. Even the IMF & the Conference Board are now mooting the possibility of 3-4% US GDP growth rates within five years.
• There are five reasons for believing this. The housing sector is improving: while between 1980 & 2005 it accounted for 4½ % of GDP & 3MM jobs, that now stands at 2.4% & 2MM. But house prices have quit falling, pent-up demand is huge & Goldman is forecasting a doubling of new starts, to 1.4MM, by 2015, as household formation & starts-to-population ratios revert to their historical norms. Second is the breath-taking growth in oil & gas output; natural gas production is at an all-time high & oil output up 20% from 2008; combined they could add 1% to GDP growth & create 3MM well-paying new jobs. Thirdly, the US banking system has recovered faster than anyone imagined possible & total bank credit outstanding now is US$9.8TR, a record high. Fourthly, US competitiveness has jumped : unit costs have declined 11% in the past decade while everyone else’s, incl. China’s, has risen : thus while  in 2005 the Big Three’s hourly  labour costs were 40% higher than those at US plants owned by foreign car manufacturers, today they are virtually identical & they are regaining market share (this is an interesting change in mindset from two, three decades ago when, each time the Yen strengthened, the Big Three jacked up their prices to enable them to pay higher wages & promise more benefits to their workers, and to report higher earnings & pay bigger dividends, rather than take advantage of the opportunity to improve their competitive position, in the process letting their market share erode), and increased US savings will spur more private investment & productivity gains. Last, but not least, if Obama is re-elected he may let the Bush tax cuts expire at yearend, forcing Congress to come to the negotiating table to produce a large, balanced deficit reduction program that will boost confidence, private investment (with the hundred of billions of dollars the private sector has socked away) & the stock market.

He may be optimistic with respect to the second, third & fifth of the above, & possibly on the first, but is dead right on the fourth (Altman is a Lehman alum & a one-time Deputy Secretary of the Treasury – during Clinton’s first term -, acted as an advisor to John Kerry & Hilary Clinton in their unsuccessful runs for the Presidency,  founded & is Chairman of Evercore Partners, and is a member of the secretive Bilderberg Group’s Steering Committee (which has been chaired for the past decade by Henry de Castries, CEO of the global insurance group AXA who was a class mate of former French Prime Minister Dominique de Villepin, current French President François Hollande & the 2008 Socialist Presidential candidate & former longtime Hollande paramour, Segolène Royal). Founded in 1954 with Prince Bernhard of the Netherlands as a sponsor, it meets annually behind closed doors with 150 or so by invitation-only guests from North America & Europe in attendance (including people from emerging economy countries would “make it too much like a mini-United Nations”) with a bias to senior decision makers in government & multi-nationals, to discuss issues of global interest. It has been criticized for being “heavily biased towards politics of moderate conservatism & big business”.

THE ‘DEAD MONEY’ MYTHS (G&M, Philip Cross)

• Bank of Canada Governor Mark Carney recently took Canadian corporations to the woodshed for their high levels of savings (while in fact Canada is one of the few OECD countries, if not the only one, where corporate savings rates are below their pre-2008 financial cris levels). Corporations everywhere have since 2001 been saving at consistently high rates (which has puzzled economists), with savings rates in the UK, Germany & Japan consistently higher than Canada’s without their central banks coming down on them.
• High corporate cash balances proved to be a good thing during & after the 2008 financial crisis; thus Ford, with its large cash hoard survived the recession while GM & Chrysler went TU. And the recession reinforced the idea that strong balance sheets are a good thing when one’s market collapses or one’s banker slams the loan window shut.

Carney’s argument was that this ‘dead money’ was unnecessary because he & his fellow central bankers would ensure there would be no financial crisis; obviously corporations are (rightly?) “from Missouri” on this. And only the central bankers themselves can fix that.       

THE REALITY OF TRYING TO SHRINK GOVERNMENT (WP, Larry Summers)

• There is much agreement in both parties as to the feasibility & desirability of reducing the share of government spending in GDP. But this may impossible because :
• Demographics (an aging population & longer life expectancies) – unless of course politicians decide to downgrade the social safety net;
• More debt & a return to more ‘normal’ interest rates – together they will nearly double debt servicing costs by 2020;
• Price increases – the price of much of what the government buys (e.g. in health & education) has been rising much faster than that of most other goods & services;
• Past cost deferrals – the chickens will start coming home to roost from the  government’s past efforts to hide the real state of its fiscal health by piling up contingent liabilities & scrimping on infrastructure maintenance.

The points he makes are all very valid, but, as a public sector technocrat, he is deliberately “talking his own book” & belittling Americans’ traditional ability to meet challenges when the chips are down, when he implies they must resign themselves to the inevitable.

IT’S MITT’S WORLD (NYT, Thomas L. Friedman)

• He has said that on Day One of his Presidency he will declare China a currency manipulator & put tariffs on products “where they steal American jobs unfairly”. Cool! Then on Day Two Beijing will announce it will quit buying UST securities (& start buying more US hard assets). And on Day Three interest rates will jump. Fortunately this is window-dressing. China bashing seeks to gain votes in the Midwest, Arab-bashing Jewish-, & Russia-bashing Polish-, votes. All the while the Commerce Department will push Beijing to buy Boeing planes & Hugo Chavez, the biggest thorn in the US side in Latin America, remain an major supplier of oil to the US, and the US has supported Russia joining WTO despite its stand on Syria & business wants Congress to lift Cold War-era restrictions on exports to Russia.

Wonder what Wal-Mart & tens of millions of Wal-Mart shoppers might have to say about higher tariffs on goods from China. He is underestimating the ability, & willingness, of the Fed to buy the UST securities  nobody else wants. And Hilary Clinton was quite right a few years several years ago when she warned her then fellow Senators not to “pick a fight with your banker.”

FOR SALE : THE AMERICAN DREAM (al-Jazeera)

• The worst may be yet to come in the six year-long US housing saga. For the major banks have lifted a freeze on foreclosures & public housing budgets have been slashed, leaving large numbers of people with no place to come home to. While neither candidate has made housing a major campaign issue, public anger is rising over the banks’ perceived impunity.

This is certainly not the CW. On the other hand, al-Jazeera is not known for unfounded rabble-rousing. If there is any truth to this, the candidates will also aware of it but likely want to let sleeping dogs lie until after the election. And if so, the banks will decide whether or not the issue stays in the closet & they may, rightly or wrongly, believe it might influence the election outcome in a way beneficial to them, i.e. favour Romney (although this could  backfire on them).

PM SHOULD FACE POLYGRAPH TEST ON IRAN LEAKS (JP, Herb Keinon)

• On September 4^th Prime Minister Netanyahu convened a meeting of the (14 voting, & 4 non-voting, member) Israeli Security Cabinet (all of them Ministers) at the Mossad headquarters in Tel Aviv (that lasted 10 hours), for the purpose of reviewing the latest of the country’s intelligence assessments & of dealing in depth with the issue of Iran. But he dramatically adjourned the next day’s session (in Jerusalem) after a headline in the Yediot Ahranot daily (the largest circulation newspaper in Israel, deemed not to be no fan of the Prime Minister) that read “Disagreement about Iran among the intelligence agencies.” & went on to say that the members of the Security Cabinet had been shocked that the Mossad (external), Shin Beth (domestic) & military intelligence did not agree on the Iran issue and, more specifically, on what is called the “zone of immunity” (the point at which Iran’s facilities have been so fortified, its nuclear knowledge is so advanced & its enrichment capacity has reached the critical 20% threshold so as to make a military attack futile).
• The Leader of the Opposition & new leader of Kadima, Shaun Mofaz (who earlier this year was briefly sucked into joining the coalition government) supported rumours that the Prime Minister is considering polygraph tests for all 21 people in attendance at Tuesday’s meeting (18 ministers plus the heads of Mossad, Shin Beth & Military Intelligence) to find the source of the leak but said “the Prime Minister should be the first one to be subjected to a polygraph as he who presides over the forum should be tested first” (seemingly suggesting that he wouldn’t put it past Netanyahu to do the leaking himself to take the Security Cabinet ‘out of the loop’, since it hasn’t been supportive of his, & Defense Minister Barak’s, pressure to attack Iran sooner rather than later, thereby giving him a freer hand to do as he saw fit).

It is well-known the IDF High Command sees more downsides than upsides in an attack on Iran.

OBAMA DOESN’T UNDERSTAND THE MIDDLE EAST (JP, Lahav Larkov)

• Knesset Speaker Reuven Rivlin said on September 5^th that “The fact that the Democrats removed a united Jerusalem as Israel’s capital from their platform is more worrying than Iran … anyone who thinks that a divided Jerusalem will bring peace is mistaken, and does not understand the Middle East … a united Jerusalem will bring peace and stability.” Nevertheless, he maintained that “rumours of a rift between Israel and the US are wrong … the two countries have a sharp, unambiguous understanding on Iran.”

Rivlin is a member of Prime Minister Netanyahu’s Likud Party & not of one of the far-right ones. And he was behind the eight ball on this issue because the Dems had already reversed the position on the issue, purportedly at President Obama’s insistence.

AUSTERITY MEASURES ADD TO SPAIN’S WOES (Reuters, Nigel Davies)

• The Spanish economy is going deeper in recession & according to ING’s Martin van Vliet “With more fiscal austerity in the pipeline and unemployment at astronomical highs, the risks are clearly tilted towards a more protracted recession”. Second Quarter GDP declined by 0.4% (i.e. an annualized 1.3%, far worse than the 1.0% expected). Private sector bank deposits shrank 5% in July. The country’s key economic region, Catalonia (that accounts for 20% of Spain’s GDP), needs a major bailout from Madrid (& several other regions have since followed suit, threatening to overtax the 18BN Euro fund the central government had earlier set aside for that purpose – Catalonia’s request alone involves 30% thereof).On the other hand, exports grew by 3.3% during the Quarter (but national demand was down 3.9%, vs. 3.2% in the First Quarter), which may, however, not be sustainable in case of a slowdown in the rest of the Eurozone, tourism receipts, which account for over 10% of Spain’s GDP, were up 6% & the Treasury managed to sell 3.6BN Euros in short-term debt at a far lower yield than in July. Be that as it may, there is growing concern Spain will be unable to cut its deficit from 8.9% of GDP in 2011 to the 6.3% targeted for this year.
• At the regular ECB rate setting meeting on September 6^th new measures to help cut debt costs for member nations hardest hit by the crisis are expected to be discussed (& the market expects great things, in part prompted by Mario Draghi’s decision not to attend last week’s central bankers’ annual clambake at Jackson Hole, Wyo.). That same day also Chancellor Merkel will visit Madrid & there will be a key longer-term bond auction.

The EU policies have been like medieval medical quackery : first they let the sickness rage & then they make matters worse by the economic equivalent of blood-letting.

GREEK BANK DEPOSITS CLIMB (Bloomberg)

• Bank deposits by Greek businesses & households dropped 9% between April & June, prior to, during & after the inconclusive May 6-, & subsequent June 17^th elections, but in July  rose by 2.2% to 153.9BN Euros (US$190.4BN).

While half an egg is better than an empty shell, this doesn’t alter the fact that during the entire four months’ period they are still own 7%. One swallow does not a summer make!

FRANCE SUBSIDIZES YOUTH HIRES (AP)

• With unemployment for the under-25 year age group at nearly 23%, President Hollande on August 29^th unveiled a plan for the government to pay, for three years, most of the salaries of the tens of thousands of newly-hired young people. But a key structural labour market problem in Europe is that once a worker is hired, it is hard to terminate his/her employment; so Italy & Spain, while promising modest tax breaks for employers who hire young workers entering the labour force, have made some tough decisions on fundamental labour market reforms that address root causes rather than symptoms. Nicolas Veron of the Brussels-based think tank Bruegel says “It’s not about targeted programs; it’s about the structure of the [labour] market”, & Guillaume Cairou, President of a national entrepreneurs’ association & CEO of the consulting firm  Didaxis, “The Jobs for the Future is only a Band-Aid … on the face of a government that every day proves itself more incapable of overcoming the difficulties our country is confronted with … How can they not see that this cost is extremely high for the government, even while we should be reducing our deficit?”

Like Mitterand in 1981, Hollande came in to office believing Socialists could make water run uphill. And, like him, he will learn they don’t & that his delusion had longer term consequences.

INDIAN TYCOON SEEKS 40-FOLD PAYOUT IN AFRICAN GAS DEAL

(Bloomberg, Ketaki Gokhale)

• Mozambique & Tanzania, which have no track record of oil & gas production (not entirely true in the case of the latter : TSE-listed Orca Exploration, through its subsidiary PanAfrican Energy, produced 113MMCFD of natural gas last year from an onshore field & sold it to three dozen or so industrial customers & to the national power grid & is planning to double production this year), recently became the site of the world’s largest gas discovery in a decade. Offshore & called Rovuma-1, it is operated by Anadarko & believed to hold 50 TCF of recoverable gas, enough to justify building a world class gas liquifaction plant..
• In 2008 Videocon Industries, a manufacturer of flat screen TVs & provider of mobile phone services controlled by Venugopal Dhoot, bought a 10% percent stake in the field from Anadarko for US$75MM. It now wants to sell it for US$3BN, a 50% premium over what Thailand’s PTT Exploration and Production paid earlier this year for another stake, after beating out Shell. He is obviously counting, because of its convenient location on the Indian Ocean, on a bidding war among buyers in energy-hungry South-, Southeast-, & East Asia.

Dhoot needs the money to reinstate suspended mobile phone licenses  in India & claims that, if no buyer is found, he will, & can, borrow the US$1.4 BN needed to pay for his share of the cost of bringing the field into production. While the headline seems to suggest something nefarious, in all fairness Dhoot in 2008 bought a ‘pig in a poke’ & won the lottery.

SOUTH AFRICAN MARIKAN MINERS CHARGED WITH MURDER (BBC)

• Recently, during a miners’ protest over wages & union recognition at the Marikana mine near Johannesburg, the world’s third largest platinum producer, the police opened fire after being threatened by a machete-waving mob, killing 34 miners & creating a national outcry. Subsequently, under an arcane apartheid-era law, that held protesters responsible for “provoking the police into to firing on them”, 270 miners were charged with murder, & in many cases jailed, while no charges were laid against any police officers pending the findings of a judicial inquiry appointed by President Zuma.

After an even greater public outcry, the charges were suspended until after the inquiry reports its findings (in February?), & the 50 miners with known home addresses released from jail, with the other 100 or so expected to be released soon. This is only one of many ongoing protests all over South Africa by miners who feel they aren’t getting their fair share of the higher commodity prices but whose wage demands are called “extravagant” by the (often, but not exclusively, foreign) mine owners. The Marikana event, or rather the government’s lackadaisical response thereto, plays into the hands of the former populist leader of the NAC’s radical Youth Wing, Julius Malema, who was expelled from the party earlier this year for insubordination. For he has been siding with the miners to the point of inciting them to violence, and  is expected to challenge President’s Zuma’s leadership at the ANC National Congress next December, just as Zuma in 2007 challenged Mbeki’s (a union representing mostly white skilled workers has since laid charges in court against Malema for incitement to public violence & intimidation, claiming that “he is encouraging violence for his own gain … (and) is an opportunist” (who uses unrest to try & revive his own political ends).