The Economist - Siemens: Fixing the German dynamo < 5min

Joe Kaeser is transforming Siemens’s structure; changing its culture will be harder ... LONG-LIVED companies can change radically over time. Nokia, for example, began in 1865 as a pulp mill; recently it sold its mobile-phone business to Microsoft (see article) and now it mainly makes networking equipment. By contrast, Siemens has been quite consistent. The Economist first wrote about the company in 1868, when it joined a consortium to build a telegraph cable from Britain to Russia and India. In an 1882 article about another tech boom—the spread of electric lighting after the perfecting of the dynamo—we noted that Siemens was hedging its bets by making both alternating- and direct-current ones. To this day, when asked to sum up his firm’s business in a word, Joe Kaeser, its chief executive, says, “electrification”. ... Mr Kaeser is nonetheless hoping to remake Siemens, at least partly. After electrification, he likes to add two more words: automation and digitisation. The engineering giant is to focus on doing these three things profitably. Businesses that do not fit these criteria will be fixed or sold.

Bloomberg - How Berlin’s Futuristic Airport Became a $6 Billion Embarrassment 5-15min

Inside Germany’s profligate (Greek-like!) fiasco called Berlin Brandenburg ... Three years later, Berlin Brandenburg has wrecked careers and joined two other bloated projects—Stuttgart 21, a years-late railway station €2 billion over budget, and an €865 million concert hall in Hamburg—in tarnishing Germany’s reputation for order, efficiency, and engineering mastery. ... At the very moment Merkel and her allies are hectoring the Greeks about their profligacy, the airport’s cost, borne by taxpayers, has tripled to €5.4 billion. Two airport company directors (including Schwarz), three technical chiefs, the architects, and dozens if not hundreds of others have been fired or forced to quit, or have left in disgust. The government spends €16 million per month just to prevent the huge facility from falling into disrepair. According to the most optimistic scenarios, it won’t check in its first passengers until 2017, and sunny pronouncements have long since given way to “catastrophe,” “farce,” and “the building site of horror.” There is a noted German word for the delight some took in the mess, too.

Absolute Return Partners - Doodles from an eventful summer 5-15min

Something else must be driving the fall in Chinese equities. ... What could that be? Have China’s banks overextended themselves more recently? Central planning or not, as we all learned in 2008, a surge in shadow banking can lead to terrible things. ... I am no expert on China, but it is very tempting to conclude that the Chinese gambling spirit has simply migrated from Macau to Shanghai. ... Relative to 1999, when the euro was first introduced as an accounting currency, Greek workers had at one point (around 2009-10) enjoyed almost twice the wage growth compared to the average German worker. Although much of the advantage has since been given up, Greek workers have still out performed their German colleagues since the introduction of the euro – at least as far as wage growth is concerned ... Ukraine, the Middle East and Puerto Rico are all in the dumps – but for three very different reasons. ... the deflation talk is likely to blossom up again, and several countries on either side of the Atlantic could be flirting with recession later this year or early next. Consequently, yields on long bonds could fall further, and stock markets may be in troubled waters for a while. I don’t expect this to be anywhere nearly as bad as 2008, though. It is a normal cyclical downturn, which may not even be strong enough to be classified as a recession. But a slowdown it is. ... I think the U.S. economy will substantially outperform most other OECD economies over the medium as well as the long term – even if there is a modest cyclical slowdown just around the corner.

Eurasia Group - Top Risks 2016 > 15min

1. The Hollow Alliance: The trans-Atlantic partnership has been the world’s most important alliance for nearly seventy years, but it’s now weaker, and less relevant, than at any point in decades. It no longer plays a decisive role in addressing any of Europe’s top priorities. Russia’s intervention in Ukraine and the conflict in Syria will expose US-European divisions. As US and European paths diverge, there will be no more international fireman—and conflicts particularly in the Middle East will be left to rage.
2. Closed Europe: In 2016, divisions in Europe will reach a critical point as a core conflict emerges between Open Europe and Closed Europe—and a combination of inequality, refugees, terrorism, and grassroots political pressures pose an unprecedented challenge to the principles on which the new Europe was founded. Europe’s open borders will face particular pressure. The risk of Brexit is underestimated. Europe’s economics will hold together in 2016, but its broader meaning and its social fabric will not.
3. The China Footprint: Never has a country at China’s modest level of economic and political development produced such a powerful global footprint. China is the only country of scale today with a global economic strategy. The recognition in 2016 that China is both the most important and most uncertain driver of a series of global outcomes will increasingly unnerve other international players who aren’t ready for it, don’t understand or agree with Chinese priorities, and won’t know how to respond to it.
4. ISIS and “Friends”: ISIS is the world’s most powerful terrorist organization, it has attracted followers and imitators from Nigeria to the Philippines, and the international response to its rise is inadequate, misdirected, and at cross purposes. For 2016, this problem will prove unfixable, and ISIS (and other terrorist organizations) will take advantage of that. The most vulnerable states will remain those with explicit reasons for ISIS to target them (France, Russia, Turkey, Saudi Arabia, and the United States), and those with the largest numbers of unintegrated Sunni Muslims (Iraq, Lebanon, Jordan, Egypt, and across Europe).
5. Saudi Arabia: The Saudi Kingdom faces a growing risk of destabilizing discord within the royal family this year, and its increasingly isolated status will lead it to act more aggressively across the Middle East this year. The threat of intra-royal family strife is on the rise, and a scenario of open conflict, unimaginable prior to King Salman’s January 2015 ascension, has now become entirely realistic. The key source of external Saudi anxiety is Iran, soon to be free of sanctions.
6. The rise of technologists: A variety of highly influential non-state actors from the world of technology are entering the realm of politics with unprecedented assertiveness. These newly politically ambitious technologists are numerous and diverse, with profiles ranging from Silicon Valley corporations to hacker groups and retired tech philanthropists. The political rise of these actors will generate pushback from governments and citizens, generating both policy and market volatility.
7. Unpredictable Leaders: An unusually wide constellation of leaders known for their erratic behavior will make international politics exceptionally volatile this year. Russia’s Vladimir Putin and Turkey’s Recep Tayyip Erdogan are leaders of an unruly pack that includes Saudi Arabia’s Deputy Crown Prince Mohammed bin Salman and – to a lesser but important extent – Ukraine’s Petro Poroshenko. These unpredictable leaders make our list for 2016 because their interventions overlap and conflict. One powerful, erratic leader spells trouble; four spell volatility with major international implications.
8. Brazil: President Dilma Rousseff is fighting for her political survival, and the country’s political and economic crisis is set to worsen in 2016. Contrary to hopes among pundits and many market players, the battle over Rousseff’s impeachment is unlikely to end the current political stalemate. Should the president survive, her government won’t gain the political boost necessary to move on the economic reforms needed to tackle the country’s growing fiscal deficit. If Rousseff is ousted, an administration led by Vice President Michel Temer won’t fare much better.
9. Not enough elections: Emerging markets underwent a historic cycle of national elections in 2014-2015, but this year there are relatively few opportunities for EM voters to make themselves heard at the ballot box. As slower growth and stagnating living standards stoke popular discontent, governance and stability will suffer. Historically, markets have been less volatile in non-election years, but this time will be different. By raising popular expectations, the massive income growth that most EMs enjoyed over the past 10 years has created conditions for a rude awakening.
10. Turkey: After a decisive victory for his AK party in late-2015, President Erdogan will now push to replace the country’s parliamentary system with a presidential one. He’s unlikely to reach his goal in 2016, but his aggressive electioneering will further damage an already battered Turkish business and investment climate. On the security front, there is little prospect of an imminent end to PKK violence, and unrelenting US pressure on Ankara to clamp down on the Islamic State will produce only modest results while making Turkey more vulnerable to new attacks by ISIS.
* Red Herrings: US voters aren't going to elect a president who will close the country to Muslims. China’s economy isn’t headed for a hard landing, and its politics will remain stable. Continued strong leadership from Japan's Shinzo Abe, India's Narendra Modi, and especially China's Xi Jinping will keep Asia's three most important players focused on economic reform and longer-term strategy, reducing the risk of conflict in Asia’s geopolitics.

Longreads - Kidnapping a Nazi General: Patrick Leigh Fermor’s Perfect Heist > 15min

As it turned out, I stayed with Sandy Rendel in his cave for over a month. It was perched near a handy spring in the Lasithi mountains above the village of Tapais in Eastern Crete. Smoky, draughty and damp, but snug with strewn brushwood under the stalactites, it was typical of several lairs dotted about the island, each sheltering a signal sergeant, a small retinue of Cretan helpers and one each of a scattered handful of heavily disguised British Liaison Officers. ... It was a game of hide-and-seek usually ending in a disorderly bunk to a new refuge in the next range. We could not have lasted a day without the islanders’ passionate support: a sentiment which the terrible hardships of the occupation, the execution of the hostages, the razing and massacre of villages, only strengthened. ... I put forward to the powers in SOE the suggestion of kidnapping General Müller. He commanded the 22nd Bremen (‘Sebastopol’) Panzergrenadier division based on Herakleion. It was the sort of action we all needed in Crete, I urged. The General was universally hated and feared for the appalling harshness of his rule: the dragooning of the population in labour-gangs for the aerodromes, mass shooting of hostages, reprisal destruction of villages and their populations, the tortures and the executions of the Gestapo. The moral damage to the German forces in Crete would be great; a severe blow to their self-confidence and prestige.

Vanity Fair - Terrorism, Migrants, and Crippling Debt: Is This the End of Europe? 5-15min

Europe is beset by so many crises that it can be hard to remember them all. In rough order of prominence, they are: homegrown terrorism, the largest migration of people since World War II, sovereign debt, doubts about the euro’s viability, the rise of extreme right-wing parties such as France’s National Front, Russia’s menace to its western neighbors, growing Euro-skepticism (especially in Britain, which may easily vote to leave the European Union in a forthcoming referendum), the election of hard-line governments in Central and Eastern Europe, and the Catalan independence movement. Many of these are related—the sovereign-debt crises and doubts about the euro, for example—but they have combined over the last two years into a perfect storm which, with the notable exception of Germany’s Angela Merkel, has shown Europe’s leadership to be wanting in both speed and imagination. ... This is exactly what ISIS wants: to shut non-Muslim Europe down, to close the schools and places of culture and have people trembling in their beds, which, to be fair, was what ordinary Belgians were saying. ... The last time I knew for certain that I was witnessing history was on the night of the fall of the Berlin Wall, 26 years ago, perhaps the most optimistic moment in Europe’s postwar era. Today, this trek of the needy and desperate through Europe’s hopelessly undefended borders may not be as cinematic as the images of people tearing down the wall between freedom and dictatorship, but it is every bit as transformative, and it does now threaten the “tranquil sway” of the Continent.

JP Morgan - A Brave New World: The De-Carbonization of Electricity Grids > 15min

A critical part of any analysis of high-renewable systems is the cost of backup thermal power and/or storage needed to meet demand during periods of low renewable generation. These costs are substantial; as a result, levelized costs of wind and solar are not the right tools to use in assessing the total cost of a high-renewable system ... High-renewable grids reduce CO2 emissions by 65%-70% in Germany and 55%-60% in California vs. the current grid. Reason: backup thermal capacity is idle for much of the year ... High-renewable grid costs per MWh are 1.9x the current system in Germany, and 1.5x in California. Costs fall to 1.6x in Germany and 1.2x in California assuming long-run “learning curve” declines in wind, solar and storage costs, higher nuclear plant costs and higher natural gas fuel costs ... The cost of time-shifting surplus renewable generation via storage has fallen, but its cost, intermittent utilization and energy loss result in higher per MWh system costs when it is added ... Balanced systems with nuclear power have lower estimated costs and CO2 emissions than high-renewable systems. However, there’s enormous uncertainty regarding the actual cost of nuclear power in the US and Europe, rendering balanced system assessments less reliable. Nuclear power is growing in Asia where plant costs are 20%-30% lower, but political, historical, economic, regulatory and cultural issues prevent these observations from being easily applied outside of Asia ... National/cross-border grid expansion, storing electricity in electric car batteries, demand management and renewable energy overbuilding are often mentioned as ways of reducing the cost of high-renewable systems. However, each relies to some extent on conjecture, insufficient empirical support and/or incomplete assessments of related costs

The New Yorker - The Nazi Underground: Is treasure buried beneath the mountains of Poland? 5-15min

Lower Silesia, in southwestern Poland, is a land of treasure hunters. Until the end of the Second World War, the region—covered by mountains and deep pine forests with towering, arrowlike trees—was part of Germany. In the early months of 1945, the German Army retreated, along with much of the civilian population. The advancing Red Army killed many of the Germans who remained. Nearly all those who survived were later evicted and forced to move west. By the end of 1947, almost two million Germans had been cleared out. ... In order to fill the emptied landscape, the newly formed Polish government relocated hundreds of thousands of Poles from the east. The settlers arrived in vacant towns, walked into empty houses, and went to sleep in strangers’ beds. There was furniture in the houses, but usually the valuables were missing. The porcelain dishes, the silk dresses, the fur coats, the sewing machines, and the jewelry were gone, often hidden in the ground: buried in jars, chests, and even coffins. It was a hasty solution—a desperate effort to cache valuables as people were running for their lives. The owners of these possessions intended to return, but most didn’t. And so on steamy fall mornings, when the new arrivals dug in their gardens or tilled their fields, they unearthed small fortunes. ... There were so few consumer goods available that many of the new residents made a living by trading merchandise stolen from German homes. ... as the end approached and German troops departed, the military allegedly buried gold, jewels, art works, and even futuristic weapons. The most famous story involves a German military officer named Herbert Klose, who worked as a high-level police official in the city of Wrocław. After the war, Klose was caught and interrogated by the Polish secret police. ... In a region where treasure hunting is a pastime, they pride themselves on being the best.

The New Yorker - The New Star of Germany's Far Right 21min

Petry, who is forty-one, with a pixie haircut and a trim, athletic build, frequently arrives late. She travels continually, often without any immediate electoral aim—the next federal elections won’t be till the second half of 2017—but simply to publicize the Party and herself. Like most German politicians today, Petry observes the national moratorium on charisma, but her appearances have the feel of a celebrity tour. Her audiences seem awed, unsure whether it is appropriate to take photographs. But, once someone starts, the room fills with the soft clicks of phone cameras. ... For decades, the German far right has been a limited force, with easily recognizable supporters—nicotine-stained ex-Nazis in the sixties and seventies, leather-clad skinheads in the eighties and nineties. Petry is something different, a disarmingly wholesome figure—a former businesswoman with a Ph.D. in chemistry and four children from her marriage to a Lutheran pastor. ... Petry is not a gifted orator. Her speeches tend to be dull, with ornate sentences and technocratic talking points, and she is more comfortable citing economic studies than discussing the lives of ordinary people. ... she often works by insinuation, fanning right-wing conspiracy theories not merely to stir up grievances but to bind members together with a sense of shared beliefs. ... Petry and her colleagues have mastered the art of dominating the news cycle, to the point where a visitor to Germany listening to the radio or reading the newspapers could be forgiven for thinking that the AfD is the party in power.

Eurasia Group - Top Risks 2017: The Geopolitical Recession 28min

It’s been six years since we first wrote about the coming G-Zero world—a world with no global leader. The underlying shifts in the geopolitical environment have been clear: a US with less interest in assuming leadership responsibilities; US allies, particularly in Europe, that are weaker and looking to hedge bets on US intentions; and two frenemies, Russia and China, seeking to assert themselves as (limited) alternatives to the US—Russia primarily on the security front in its extended backyard, and China primarily on the economic front regionally, and, increasingly, globally. ... These trends have accelerated with the populist revolt against “globalism”—first in the Middle East, then in Europe, and now in the US. Through 2016, you could see the G-Zero picking up speed ... with the shock election of Donald Trump as president of the US, the G-Zero world is now fully upon us.
1.   Independent America: Trump rejects the comparative weakness of the presidency, and he wants to more directly project American power in service of US national interests
2.   China overreacts: Xi will be extremely sensitive to external challenges to his country’s interests at a time when all eyes are on his leadership
3.   A weaker Merkel: Could the Europeans have resolved their financial crises without the Germans forcing a solution?
4.   No reform: The reform needle won’t move in 2017. Save for a few bright spots, money won’t know where to flow
5.   Technology and the Middle East: Technology, a force for economic growth and efficiency, also exacerbates political instability
6.   Central banks get political: In the US, there’s risk of an open conflict between the Federal Reserve and the White House
7.   The White House versus Silicon Valley: Technology leaders from California, the major state that voted in largest numbers against Trump in the election, have a bone to pick with the new president
8.   Turkey: Ever-fewer checks on executive power will leave the private sector vulnerable to political whims
9.   North Korea: It’s making consistent progress on an intercontinental ballistic missile capability that would allow it to hit the West Coast of the US with a nuclear weapon
10.   South Africa: South Africa’s political infighting will undermine the country’s traditional role as a force for regional security
Red Herrings: US domestic policy, India versus Pakistan, Brazil

Blackstone - The Ten Surprises of 2017 6min

1.   Still brooding about his loss of the popular vote, Donald Trump vows to win over those who oppose him by 2020.  ...
2.   The combination of tax cuts on corporations and individuals, more constructive trade agreements, dismantling regulation of financial and energy companies, and infrastructure tax incentives pushes the 2017 real growth rate above 3% for the U.S. economy.  Productivity improves for the first time since 2014.
3.   The Standard & Poor’s 500 operating earnings are $130 in 2017 and the index rises to 2500 as investors become convinced the U.S. economy is back on a long-term growth path.  ...
4.   Macro investors make a killing on currency fluctuations.  ...
5.   Increased economic growth, inflation moving toward 3%, and renewed demand for capital push interest rates higher across the board.  The 10-year U.S. Treasury yield approaches 4%.
6.   Populism spreads over Europe affecting the elections in France and Germany.  ...
7.   Reducing regulations in the energy industry leads to a surge in production in the United States. Iran and Iraq also step up their output.  ...
8.   Donald Trump realizes he has been all wrong about China.  Its currency is overvalued, not undervalued, and depreciates to eight to the dollar.  Its economy flourishes on consumer spending on goods produced at home and greater exports.  Trump avoids punitive tariffs to prevent a trade war and develops a more cooperative relationship with the world’s second largest economy.
9.   Benefiting from stronger growth in China and the United States, real growth in Japan exceeds 2% for the first time in decades and its stock market leads other developed countries in appreciation for the year.
10. The Middle East cools down.  ...