Is the U.S. Ready for a Venezuelan Meltdown?
Of course, there is always a chance that Maduro can muddle through (oil is an excellent lubricant), but that is a risky bet. A key date ahead is Dec. 8, when Venezuela is supposed to hold municipal elections. Many see those elections as a referendum on Maduro’s presidency. If the ruling party does well, it may buy Maduro time. If not, hold on tight. — (Foreign Policy)
“Cadivismo”: The Ruin of Venezuela's Economy. Foreign Currency Controls Continue to Sink the Nation -
But what worries Maduro the most is the economic crisis he has inherited, one of the worst in decades. Even though during Chavez’s regime Venezuela experienced the most profitable oil revenues in its history, it didn’t save it from the Dutch disease (“negative consequences arising from large increases in a country’s income”). The main problem now is the Venezuelan economy’s dependence on imports — 70 percent of the goods Venezuela consumes are from imports — and its lack of foreign currency to satisfy its demand.
This means that every time a Venezuelan goes to the supermarket, he won’t find one out of five basic food products, such as milk, flour, butter, sugar, or chicken. — (The Canal)
It’s just good enough to live with but not good enough to be happy about. Divorce remains a possibility until the existing crisis resolves, and a truly good marriage seems to me at the moment very remote. —
— Martin Wolf (Financial Times)
See more at: http://new.sipa.columbia.edu/na_wolf_102113#sthash.gSOJrnQy.dpuf
Reshoring Means More Jobs -
I have seen reports of major league reshoring by Apple, Motorola, General Electric, and others, and we all saw the announcement by Walmart that it will steer billions to U.S. manufacturers, but I have been waiting to see this movement reflected in the economic data.
According to the BCG survey of 200 decision makers at companies across a broad range of industries, the share of executives who are planning to “reshore” or are considering it rose to 54 percent from 37 percent a year ago.
"Over the past couple of years, we’ve projected an improvement in U.S. manufacturing competitiveness by 2015 that would help drive an American manufacturing revival," said Harold L. Sirkin, a BCG senior partner and co-author of the study. "The results of our latest survey make clear that a profound shift in attitude is beginning." — Huffington Post
Not only will this benefit the U.S. but Mexico is in prime position to reap the advantages from this budding dynamic. My thought though is with incredibly loose monetary policy and this interplay, is the top for the US bond market in view?
The future of shale gas - The Malta Independent -
On 9 October, the European Parliament voted in favor of applying the Environmental Impact Assessments to shale gas firms before they embark on new drilling projects. The EIA Directive was put into law in 1985 in order to assess the environmental effects of public and private projects, and a 2009 amendment expanded the directive to include the capture and storage of carbon dioxide. However, as the industry for the exploitation of unconventional fuels takes off around much of the world, Europeans are expressing concerns surrounding the largely contested environmental impacts of drilling for shell gas. Thus, the Commission is formulating a proposal that will give European citizens protection from the risks caused by hydraulic fracturing, or “fracking”, of shale gas that currently apply to the extraction of conventional energy sources. — (The Malta Independent)
Japan’s GPIF is at risk with 60% in domestic bonds, adviser says -
Japan’s Government Pension Investment Fund, Tokyo, isn’t ready for Abenomics, according to the head of an expert panel advising on public investments.
An interim report from the panel on Sept. 26 showed some members wanted the ¥121 trillion ($1.25 trillion) GPIF to add new assets such as real estate trusts, infrastructure and private equity investments and commodities. The group will meet two to four more times before issuing its final report next month, Mr. Ito said. — (Bloomberg)
Nation headed over ‘food stamp cliff’ - The Hill's On The Money -
Millions of people are in for a shock at the end of the week when their food stamp benefits will be cut across the board.
There is little chance that Congress will act to avert what hunger activists call the “food stamp cliff” — a cut to benefits that will affect some 47 million beneficiaries, including children and the elderly. — (The Hill)
A cut in food stamp benefits will lead to less disposable income. Will consumption suffer? If this is to affect 47 million beneficiaries, then 47/316 = 15% of the American population will need to modify their spending habits.
Prime Minister Shinzo Abe warned he wouldn’t permit China to use force to resolve territorial spats, as the renewed presence of Chinese aircraft near disputed islands prompted the dispatch of fighter jets from Japan.
Japan sent up fighter jets for a third day yesterday after Chinese aircraft flew between its southern islands without entering Japanese airspace, the Self-Defense Forces said on their website. Abe said yesterday the country would not allow any shift in the status quo regarding islands both governments claim in the East China Sea. Abe made similar comments in an interview with the Wall Street Journal on Oct. 25.
(via Abe Warns China on Island Spat as Japan Dispatches Fighter Jets - Bloomberg)
Last Week in Brazil and Mexico: Oct. 21-25, 2013
This report captures the main macro events that occurred over the past week in the 1st and 2nd…
Report: Paul mulling hold on Janet Yellen - The Hill's On The Money -
Sen. Rand Paul (R-Ky.) is reportedly threatening to place a hold on Janet Yellen’s nomination to serve as the next chairwoman of the Federal Reserve.
Citing a source close to Paul, CNBC reported Friday that the outspoken Fed critic had told Senate leaders that he was considering blocking her nomination, and wanted the Senate to vote on his legislation that would require the Fed’s policymaking to be fully subject to a government audit.
While Bernanke has exhibited a light touch in making recommendations to Congress, he vigorously opposed such audit legislation. He argued that letting members of Congress call for GAO audits of certain monetary policy moves could subject the Fed to second-guessing from politicians, which he described as a “nightmare scenario.” He contended that the politically independent Fed should not have Congress looking over its shoulder, allowing Fed officials to make decisions purely on economic data rather than political pressure. — (The Hill)
Consumer confidence sags amid government shutdown - The Hill's On The Money -
"It is hard to imagine how economic uncertainty will decline in the next few months since nothing was settled, only postponed."
That deal keeps the government open until Jan. 15 and extends the debt ceiling until Feb. 7. Starting next week, a House-Senate budget conference will be tasked with trying to come up with some answers by mid-December that would set up a framework to tackle some larger issues, including entitlement spending.
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This is a near-term risk to the economy and markets in my view. I’ll be combing the news for hints of whether uncertainty continues, or if businesses assume that the Republicans won’t put up another drawn out fight and a long-term resolution comes about early next year with less friction.
US passes Saudi Arabia to become world's largest oil producer -
The United States has become the world’s largest producer of oil since adding shale to its energy mix, a global energy consulting company reported.
US production of oil, which includes biofuels and natural gas liquids, now exceeds 3.2 million barrels per day, just ahead of Saudi Arabia, the PIRA Energy Group said.
The jump in US output — to 3.2 million barrels a day since 2009 — is the second-largest production expansion ever over a four-year period, according to Reuters.
The US has become a net exporter of gasoline and related fuels after years of being the world’s largest fuel importer.
China overtook the US as top crude importer last month, Reuters said.
"[The US] growth rate is greater than the sum of the growth of the next nine fastest-growing countries combined and has covered most of the world’s net demand growth over the past two years," PIRA Energy Group said in an October report.
"The US position as the largest oil supplier in the world looks to be secure for many years," the report said. — (allvoices)
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This is clearly a long-term developing bullish trend. What is interesting is how the dynamics of the international energy markets change as well as how macroeconomic variables adjust.
Rising euro threatens bloc's fragile recovery. -
Adding to the region’s headwinds—which include near record-high unemployment, weak consumer spending and declining availability of credit to businesses—is a rapid rise in the value of the euro in recent weeks, threatening one of Europe’s few bright spots: exports.
Without rapidly expanding sales abroad, the euro zone’s nascent recovery risks fizzling before it takes hold, undoing the gains the currency bloc has made in the past year to emerge from its debt crisis.
The strengthening currency poses a dilemma for the European Central Bank, too. Officials there have been trying to safeguard the fragile and uneven recovery by keeping interest rates at record lows. A rising euro complicates that effort. In addition, it threatens to push inflation, which is only about half the rate ECB officials consider appropriate for the economy’s well-being, even lower. — (WSJ)
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I’ve been expecting articles like these to start sprouting up for the past week. Here’s the first one that hits my radar.
Japanese Economy Proof Abenomics Is Working -
This week, Bloomberg reported that Japan’s gargantuan pension fund “isn’t ready for Abenomics.” The fund managers are complaining of overexposure to interest rate risk and trying to diversify away from government bonds. According to the article, some members wanted the fund to “add new assets such as real-estate trusts, infrastructure, and private-equity investments and commodities.”
Maybe it’s jut me (Gaurav Seetharam:author), but I think that’s a positive sign. Re-evaluating the fund’s investment objectives and parameters may be a nuisance for its managers, but that’s hardly the point. Guiding capital into more productive assets is great for the overall Japanese economy. — (The Motley Fool)
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An intriguing bullish take on a potential shift by the world’s largest pension fund.