April 26, 2013
In the 1970s, geologists discovered crystalline natural gas—methane hydrate, in the jargon—beneath the seafloor. Stored mostly in broad, shallow layers on continental margins, methane hydrate exists in immense quantities; by some estimates, it is twice as abundant as all other fossil fuels combined. Despite its plenitude, gas hydrate was long subject to petroleum-industry skepticism. These deposits—water molecules laced into frigid cages that trap “guest molecules” of natural gas—are strikingly unlike conventional energy reserves. Ice you can set on fire! Who could take it seriously? But as petroleum prices soared, undersea-drilling technology improved, and geological surveys accumulated, interest rose around the world. The U.S. Department of Energy has been funding a methane-hydrate research program since 1982.
Financial repression refers to a set of governmental policies that keep real interest rates low or negative and regulate or manipulate a captive audience into investing in government debt. This results in cheap funding and will be a prime tool used by governments in highly indebted developed market economies to improve their balance sheets over the coming decades. … We should all be familiar with the effects of financial repression by now. If not, compare the declining amount of interest income coming out of your savings account to the rising costs you pay for groceries, gasoline, or (shield your eyes) college tuition. It has been nearly five years since we heard a loud “THUD” as the nominal yield of the short term U.S. Treasury note hit zero percent. The resulting negative real interest rates have become a pervasive feature of our economic landscape, and we expect them to persist for a very long time.
It was a typical workday morning at Wanjia Asset Management Co. in Shanghai's downtown financial district, but the firm's star bond trader Zou Yu was not at his desk. … Zou, 31, had mysteriously failed to report for his job as head of Wanjia's fixed-income department. And his whereabouts remained unknown until five days later when the firm, on April 16, announced that the police had taken Zou into custody for alleged, unspecified financial crimes. … Zou thus joined a growing list of allegedly unsavory bond traders, securities brokers, bankers and fund managers nabbed by authorities this year in their effort to stop illegal deal-making on the nation's interbank bond market.
The demographic and macroeconomic backdrop in sub-Saharan Africa resembles that of East Asia in the early 1980s, says Arnold Dubin-Green. How many astute investors among us would love to say they invested in Asia when the Tigers were cubs? … “The hopeless continent.” This was the Economist’s front-page reference to Africa in May 2000. Hopeless Africa; asphyxiated by civil war, corruption and political instability. … Investors ran a mile at the mere mention of Ghana, Kenya or Rwanda. Today, returns in more expensive developed markets threaten to be low for years to come. Slow global growth and low yields are the norm. Jumping off the US fiscal cliff and euro crisis, these headlines motivate investors to seek markets with higher yields and stronger fundamentals. … Fundamentals are better placed than in many developed markets. Africa is now the continent on their lips; a market that is a significant and growing part of the global economy with plenty of room for productivity gains, favourable demographics, commodity richness and recent history of fiscal and monetary reforms.
The asset management industry is about to experience another shake-up, as the investment universe expands to include new asset classes that involve direct loans to the economy rather than financial securities. … This report provides an insight into a new world of unlisted assets. Just as there is a market for private equity (unlisted shares), a market for private bonds and loans is developing as a result of the current large-scale disintermediation process. The report is intended to be instructive and seeks to explain this market using simple language. The editorial covers issues arising from macroeconomic disintermediation in the US and Europe, but also takes a microeconomic view by looking at the asset management industry in Europe, the US and Japan.
In this report, we look at five markets through which investors can lend directly to the economy, each corresponding to a new asset class:
1) Loans guaranteed by export finance agencies
2) Commercial real-estate loans
3) Loans for financing energy-related projects
4) Loans for financing transport-related projects
5) Loans to SMEs and intermediate-sized enterprises (ETIs)
Something is going to have to give. The credit boom could presage a pick up in near-term growth, but the point is that sooner or later, the government is going to have tighten credit policy and shadow banking regulation more than it has done so far. Sooner would risk some economic growth, later would risk financial stability. It’s a political choice, which the government must feel emboldened and confident to make: five years of 5% real growth, for example, gets you to the same place as a year of around 8%, followed by four years at 4%, but without disruptive and politically sensitive consequences.
Edir Macedo is 5-foot-6, slight, and 68 years old. He has deformed fingers, a sparse crown of graying hair, and more than 5 million followers, whose donations over the last 36 years have made him a billionaire. In Brazil, where he was born and raised, he is a major national figure, the subject of dozens of criminal inquiries, and the owner of Rádio & Televisão Record, a media conglomerate that runs the country’s second-largest television network. He is known to most everyone by the title he created for himself: He is O Bispo—“The Bishop.” Macedo is the founder of the Universal Church of the Kingdom of God, a Pentecostal denomination specializing in prosperity theology, which links faith to financial success. He preaches twice a week, often in two different cities, and the sermons are fervently watched on church websites, his Facebook page, and the miniature TV sets that Brazilian taxi drivers like to keep on their dashboard. Now and then he holds outdoor events that draw crowds of half a million. In February he addressed 5,000 of his parishioners at one of his churches in Belo Horizonte, in southeastern Brazil. … In Macedo’s teaching, tithing, or giving 10 percent of your income to the church, is a mandate from God. … Macedo is proud of his success, but turns questions about his wealth into questions of the spirit. He declined an in-person interview; in an e-mail, he writes: “From the point of view of my faith in Jesus Christ, I am the richest man in the world.”
Why isn't the rest of Asia afraid of China? … Are tensions high in Asia? It certainly appears so. Over the last few months, North Korea has tested missiles and threatened the United States with nuclear war. China spars regularly with Japan over ownership of a group of disputed islands, and with several Southeast Asian countries over other sparsely inhabited rocks in the South China Sea. Meanwhile, the United States is in the midst of a well-publicized "pivot" to East Asia, and continues to beef up its military deployments to the region. … Yet as of 2012, military expenditures in East and Southeast Asia are at the lowest they've been in 25 years -- and very likely the lowest they've been in 50 years (although data before 1988 is questionable). While it's too early to factor in recent tensions, as China's rise has reshaped the region over the past two decades, East and Southeast Asian states don't seem to have reacted by building up their own militaries. If there's an arms race in the region, it's a contest with just one participant: China.
Google has always been an artificial intelligence company, so it really shouldn’t have been a surprise that Ray Kurzweil, one of the leading scientists in the field, joined the search giant late last year. Nonetheless, the hiring raised some eyebrows, since Kurzweil is perhaps the most prominent proselytizer of “hard AI,” which argues that it is possible to create consciousness in an artificial being. Add to this Google’s revelation that it is using techniques of deep learning to produce an artificial brain, and a subsequent hiring of the godfather of computer neural nets Geoffrey Hinton, and it would seem that Google is becoming the most daring developer of AI, a fact that some may consider thrilling and others deeply unsettling. Or both.
Grubby greenbacks, dear credit, full shops and empty factories … Inflation reached an absurd 231,000,000% in the summer of 2008. Output measured in dollars had halved in barely a decade. A hundred-trillion-dollar note was made ready for circulation, but no sane tradesman would accept local banknotes. A ban on foreign-currency trading was lifted in January 2009. By then the American dollar had become Zimbabwe’s main currency, a position it still holds today. … Zimbabwe’s dollar had been too liberally printed: a swollen stock of local banknotes was chasing a diminished supply of goods. Now the American banknotes the economy relies on have to be begged, borrowed or earned. Even so, the monetary system works surprisingly well. A scarcity of greenbacks keeps inflation in the low single digits. The economy has made up much lost ground.
Worries grow about an ill-thought-out new European tax … WHEN the European Commission first mooted a financial-transactions tax (FTT) in 2011, the reaction was subdued. No longer. As plans for an FTT covering 11 European nations—including Germany, France, Italy and Spain, but not Britain—have advanced, opponents have grown more worried. Rather more unusually, supporters of the tax also seem to be more nervous. … In February the commission published a proposal that would allow the 11 countries to press ahead with an FTT without all the other European Union members. It hopes that by the start of 2014 they will begin to charge levies of 0.1% on equity and debt transactions and 0.01% on derivatives.
Around the world almost 300m 15- to 24-year-olds are not working. What has caused this epidemic of joblessness? And what can abate it? … Official figures assembled by the International Labour Organisation say that 75m young people are unemployed, or 6% of all 15- to 24-year-olds. But going by youth inactivity, which includes all those who are neither in work nor education, things look even worse. The OECD, an intergovernmental think-tank, counts 26m young people in the rich world as “NEETS”: not in employment, education or training. A World Bank database compiled from households shows more than 260m young people in developing economies are similarly “inactive”. The Economist calculates that, all told, almost 290m are neither working nor studying: almost a quarter of the planet’s youth (see chart one). … If the figures did not include young women in countries where they are rarely part of the workforce, the rate would be lower; South Asian women account for over a quarter of the world’s inactive youth, though in much of the rich world young women are doing better in the labour force than men. … On the other hand, many of the “employed” young have only informal and intermittent jobs.
An historic trade pact between America and Europe needs saving … IN AN age of small-bore politics, America and the European Union have a chance to achieve something large: a transatlantic pact that would, at a stroke, liberalise a third of global trade. At a time when emerging powers are closing fast on a fretful West, a free-trade area covering America and the EU would offer something more. Done right, it could anchor a transatlantic economic model favouring openness, free markets, free peoples and the rule of law over the closed, managed visions of state capitalism. … Right now, the pact is in trouble, beset by small-mindedness and mutual suspicion. This is madness.
Harbours on the eastern lobe of the Indian Ocean could transform the economic geography of Asia … UNDER British colonial rule Sittwe, or Akyab as it was then called, was one of the busiest ports in Burma, or Myanmar as it is now called. Burma was the world’s biggest exporter of rice and a lot of it was shipped from Sittwe, in Rakhine state. Now the city is more associated with ethnic cleansing; it was the site of murderous riots last year against Muslim Rohingyas. Old rice mills and river steamers are rotting away in the tropical damp, much like the rest of the place—except the port itself.
Dozens of cities are building a metro system. Some do not need it … NOT many global cities of nearly 9m people lack an underground line, but until the end of last year the eastern city of Hangzhou was one of them. Now city slickers and rural migrants squeeze together inside shiny new carriages, checking their smartphones and reading free newspapers like commuters the world over. There is standing-room only in the rush hour and, with tickets at less than a dollar, the metro is revolutionising the way people travel across town. … Two other Chinese cities—Suzhou and Kunming—have also opened their first underground lines in the past year, and the north-eastern city of Harbin is preparing to open one too. Four more cities have just added a new line to their existing systems. At least seven others have begun building their first lines.
The mining industry has enriched Chile. But its future is precarious … TOURIST shops sell polished copper trinkets. Building after building sports a bit of copper cladding. Even the taxi-drivers in Santiago, Chile’s capital, know the price of copper. It is not hard to guess what the country’s biggest export is. … Copper has been kind to Chile. It provides 20% of GDP and 60% of exports. Thanks to it, Chile’s economy is expanding by nearly 6% annually, while inflation and unemployment are enviably low. Poverty rates have tumbled; public services are mostly good. Chile has other strengths, such as agriculture, tourism and even high-tech. But small shifts in the copper price make headlines.
What can business learn from Big Science? … AS A technical feat, ATLAS takes some beating. It is the world’s biggest microscope, used by physicists at CERN, a large laboratory near Geneva, to probe the fundamental building blocks of matter. Its barrel-shaped body, 45 metres long, 25 metres tall and weighing as much as the Eiffel tower, was assembled in a cavern 100 metres beneath the Swiss countryside from 10m parts, nearly twice as many as in a jumbo jet. It generates more data each day than Twitter does. … It is also a remarkable organisational achievement. The components were designed by hundreds of scientists and engineers from dozens of institutions. They were subsequently sourced from 400-odd suppliers on four continents, at a cost of $435m. At any one time the experiment involves more than 3,000 researchers from 175 institutes in 38 countries. … Does a multinational science project like ATLAS have much in common with a multinational business?
Additive manufacturing is growing apace in China … ALTHOUGH it is the weekend, a small factory in the Haidian district of Beijing is hard at work. Eight machines, the biggest the size of a delivery van, are busy making things. Yet the factory, owned by Beijing Longyuan Automated Fabrication System (known as AFS), appears almost deserted. This is because it is using additive-manufacturing machines, popularly known as three-dimensional (3D) printers, which run unattended day and night, seven days a week. … The printers require an occasional visit from a supervisor to top them up with the powdered materials they use as their “inks”, or to remove a completed item, but apart from that they can be left on their own.