Oil, China’s Innovations and the Most Popular Person in the World

You may hope that what happens in Vegas stays in Vegas, you may wish that Chris Rock puts Hollywood in its place on Sunday, you may leap to conclusions about what you’re going to do with an extra day in February, but rest assured that regardless of your hopes, wishes and leaps, we will provide answers on Saudi Arabia’s ability to control the price of oil, China’s role as a copy cat or innovator and who is the most popular person in the world. Yes, even if it means we end up in Gitmo just before closing time, it is this week’s International Need to Know, the road less taken to key global knowledge.

Without further ado, here’s what you need to know.

Greasing the Skids of Oil

Some worry that OPEC will try to increase oil prices by limiting supplies. Yesterday Saudi Arabia threw cold crude on the idea, claiming it is willing to let oil go down to $20 per barrel to drive other producers out of the market. Can Saudi Arabia control the market price?  Is there a supply-side solution to low oil prices? Here’s a table of the largest oil producers’ share of worldwide oil production since 1980.

 

If I was betting, and if you’re in the stock market you’re already gambling on oil, I’d guess that OPEC and Saudi Arabia will find it difficult to drive up prices by freezing production, at least in the long term. Perhaps they can have a short term effect, but it will be short-lived, as more production will come on-line quickly. And, as we noted in this space previously, we are nearing peak oil consumption. The laws of supply and demand are not in Saudi Arabia’s favor in the medium-to-long run.

Yes, China Innovates

When I was in China recently I was reminded of the misperception that China only copies, it does not innovate (loyal readers know INTN’s distaste for perception over reality). During the trip, we saw amazing innovations in mobile apps, mobile phone technology and plant genetics, to name just a few. I ate millet that grows in extreme weather with less water, played with phones that had more features than a Tim Cook-FBI mashup and saw new ways to monetize social media services. AsConnie Chan notes, Chinese companies’ innovation is being rewarded: “last year, investors both in and out of China deployed $37 billion into Chinese startups (more than double 2014 and more than 8x of 2013).”  Sure this may indicate a bubble but unlike, say, real estate bubbles, technology effervescences generally only happen in innovative places. North Korea would kill for a bubble. Come to think of it, they may just kill for kicks. Argentina would be delighted to have a technology bubble; it would mean they are home to lots of innovative companies. Technology bubbles are dangerous but they are also a sign you have a strong base of innovative technology companies. Count China as one of those with a strong base. China has many economic problems and challenges, but as Jay-Z says when commenting on the Chinese economy, innovation ain’t one of them. Next week we tackle why Chinese companies were forced to innovate.

Who is the Most Popular Person in the World?

With good reason it is neither you nor me   But now you can explore the rankings of the most globally known athletes, artists, mathematicians, business people and other “cultural producers.” It’s all courtesy of the good folks at MIT. The number one most globally known human in the world according to MIT?  That old philosophical rascal Aristotle. Even as we quibble with their methodology, in the meantime pour yourself a Belgian beer, Chilean wine or Seattle organic, fair trade coffee and delve into the rankings. Here’s a teaser: the 10 most globally known musicians since 4000 BC*:

1. Jimi Hendrix

2. Bob Marley

3. Bob Dylan

4. John Lennon

5. Louis Armstrong

6. Paul McCartney

7. Niccolo Paganini

8. Franz Liszt

9. Eric Clapton

10. Ray Charles

*There’s a lyre player from ancient Mesopotamia whose gotta big beef with this list.

Negative Rates, World’s Fifth Most Important Graph, Taylor Swift and the NIKKEI

As we savor the banana pudding we ate at Roux restaurant on Valentine’s Day, rue that we are not joining pitchers and catchers this year, and mourn the passing of both a supreme court justice and the last vestiges of civility in political campaigns, we examine the list of countries with negative interest rates, ponder the world’s fifth-most important graph and wonder at the relationship between Taylor Swift and the Japanese stock market. Yes, even at the risk of being the target of a crazy Kayne West tweet, it is this week’s International Need to Know, your loving guide to matters of the world that count.

Without further ado, here’s what you need to know.

Why Are You So Negative?

Is 2016 the year of the negative interest rate? A few weeks ago the Bank of Japan instituted negative interest rates and Sweden recently joined the monetary party too. Here’s the growing list of countries currently with negative interest rates:

  • Bank of Japan: Rate is minus-0.1 percent for some reserves
  • Danish National Bank: Deposit rate is minus-0.65 percent
  • European Central Bank: Deposit rate is minus-0.3 percent
  • Swedish National Bank: Main interest rate is minus-0.5 percent
  • Swiss National Bank: Main interest rate is minus-0.75 percent

Some think Canada, Norway, Israel and even the UK may soon join in the fun. The fantastically named Robin Wigglesworth, an editor at The Financial Times, tweets “that eurozone banks are down 41% since ECB introduced negative interest rates…and Japanese bank stocks have done worse this year than in the 6 weeks following Lehman collapse.” So the question is will the negative interest rate policies work? If more countries join the parade will it have an effect on those already using negative interest rates? Does it signal we have entered a new economic era? These are some of the most important economic questions we can ask. And, we don’t have the answers. Sorry!  But we hazard a guess that even those who think they know the answers should listen to Noah Cross from the movie, Chinatown—“You may think you know what you’re dealing with, but, believe me, you don’t.”

The World’s 5th Most Important Graph

What are the top four?  Oh I’m sure we’ll cover them at one point or another here at INTN, but for now let’s concentrate on number 5. Below you see that the working age population for much of the world is either flat, decreasing or increasing at a much slower rate than previously. That makes achieving a fast growing economy more difficult and has implications for countries who want to export. There are less of the people who do the most buying and producing.  GDP growth is built on such people.  There are two big exceptions to this demographic trend: sub-Saharan Africa and India. It will be interesting to see if they can propel world economic growth or whether their other challenges will hamstring their economies despite a growing working age population.

  

Taylor Swift and the Japanese Stock Market

Planning your investments? Here’s a not so fun factoid. On December 1, 1989, the Nikkei closed at 38,916. Twelve days later, Taylor Swift was born and the Nikkei has never come close to those heights since. In fact, nearly thirty years later, even after large increases since 2012, the Nikkei is at 16,022, still less than half what it topped out at. Unlike Kanye, we don’t blame Taylor Swift for the Nikkei’s inability to fully recover. We do remember, however, that the experts say invest for the long-term. It’s been a long time.  With Japanese exports decreasing at the largest rate since the financial crisis (more evidence of a slowdown in the Chinese economy) and Japan’s population decreasing (5th most important graph!), it will be longer still.    

  

Iran’s Opening, China’s Consuming and Safe Mexico

In a week that again saw markets more wobbly than a Peyton Manning pass, caught us picking up stray Mardi Gras beads while dreaming of Kermit Ruffins and surprised us when we ran into both Adam Sandler and Jeff Bezos in a bar in Seattle, we still kept our laser focus on the possible promising market of Iran, the location of the world’s largest middle class and the safe harbor of Mexico. It is, of course, this week’s International Need to Know, the furthest thing away from a bad Adam Sandler movie that our crazy, complicated world can comprehend.

Without further ado, here’s what you need to know.

Iran Open for Business?

The nuclear agreement with Iran is a big deal for all sorts of reasons. Economics is one of them. Because Iran has been so problematical for so long some basic facts about the country are often forgotten. For one thing it’s a larger market than most people realize. With a population of 78 million, Iran is the 18th largest-country in the world, bigger than the UK, France, South Korea and Italy. It’s also geographically large, the 17th-largest country by area in the world. The stereotype of a Middle East country is one of vast desert expanses, the opening of a David Lean movie. Certainly for Iran the stereotype misses the mark. Iran in many areas is mountainous with the Zagros Mountains dividing the country in half. In fact, there is good skiing in Iran we are told, though the knees here at INTN no longer abide such sports. It is also a highly educated society and like in the United States and most Western countries, more women are attending college than men nowadays. In other words, if Iran ever truly opens up, it is an excellent and intriguing market to do trade and business in. Ah, but always that darn word, “if.” Europe and Asia are acting as if the word is “when” with Airbus selling airplanes to Iran and the Iranian Finance Minister welcomed in a recent visit to Japan.  And Iranian business people are beginning to explore possible business opportunities internationally, including here in the United States. We ourselves have been contacted by an entity in Iran about possible collaboration and we hosted someone from Iran last summer in Seattle who was beginning to explore what is and is not possible. It’s definitely worth keeping an eye  on “when and if” those two uncertain conjunctions.

When Consumption is Not a Disease

In a Jane Austen novel people were always dying from consumption. Not today. Now companies are dying to find the biggest consumers. That’s why China, for all its problems, false data and complicated markets, is as alluring as Fitzwilliam Darcy or Emma Woodhouse. China’s middle class is now larger than America’s as you see below. It is the lever by which China is hoping to transform its economy from investment to consumption. Let’s hope they don’t end up like a Jane Austen character taking to their bed faint during the economic transformation.

China Middle Class:      109 million
U.S. Middle Class:         92 million

To be safe, go to Mexico

Perception is more important than reality is one of my least favorite sayings. In our estimation it’s an excuse to be lazy. For example, everyone thinks it’s dangerous to do business in Mexico. That’s the popular perception but what is the reality? Other than a few states—Chihuahua, Guerrero and Sinaloa—Mexico is as safe as that notorious den of violence and crime that is Finland. It’s certainly safer than the United States which has higher rates of murder and assaults, not to mention presidential candidates every bit as fanciful as Mexico’s. In fact, as the chart below shows, you are far more likely to be kidnapped in Canada then Mexico. Perhaps you should be avoiding Winnipeg rather than Guadelajara. So cut Mexico a break the next time you’re thinking of where it is safe and easy to do business. More on Mexico’s underrated economy in a future International Need to Know.

            

Top Protectionist Countries, AI Go and China in Africa

This week at International Need to Know while political eyes shift from one state’s corn fields to another’s granite quarries, we focus on the world’s largest protectionists, computers playing ancient board games and one possible cause of slowing growth in Africa. Welcome to this week’s edition of International Need to Know, your go-to place for understanding this mixed-up, muddled-up planet we call home.

Without further ado, here’s what you need to know.

The World’s Top Protectionist Countries

Ever since Smoot met Hawley for an American-made beer (unbeknownst to them served in Irish-blown glass) in some dark corner of Washington, D.C., economists have warned of the dangers of protectionism.* But who are today’s greatest protectionists? The Economist Intelligence Unit lists the top ten countries with the most protectionist policies among the G-20 major economies. Your mileage on their methodology may vary.

1. Russia

2. Argentina

3. India

4. Brazil

5. Indonesia

6. Germany

7. USA

8. Japan

9. China

10. Italy/UK

*What? You don’t believe Smoot and Hawley drank beer in Irish-made glass?

Go Dog Go

Last week we noted in passing (no pun intended) that artificial Intelligence pioneer Marvin Minsky died. In what perhaps could be a sign of intelligence in the universe, a significant milestone in AI was achieved that same week when for the first time a computer beat a highly ranked player in the ancient Chinese Board game, Go.Bloomberg tells us that Jon Diamond, the head of the British Go Association (not to be confused with the UK Go Go Association), didn’t think this would happen for another five to ten years, “It’s really quite a large, sudden leap in strength,” he said. In addition to it happening sooner than we humans expected, the other significance of this milestone is how the computer achieved the victory. Computers beating humans in chess is done through brute processing power. However, Go, which has 200 choices per move, is more complicated than chess in which there are only 20 choices per move. In playing Go, the computer won through the use of neural networks that learned from human players and then gained further knowledge by playing itself a multitude of games. Such a learning process lends itself to applications in disciplines perhaps more useful than playing Go, such as health care, economics and autonomous vehicles. Last week’s victory was against the 675th ranked player in the world (INTN is ranked 70,567,356th).  A bigger test looms. In March, the computer will play the world’s best human player in a match that will take place in Seoul, Korea.  We here at INTN will be watching.

File Under Correlation or Cause?

In 2015, Africa’s GDP grew at its lowest rate since 1995. The continent’s GDP growth rate was only 3.6% last year. According to the Washington Post, “China accounts for more than 40 percent of exports in more than a half-dozen African countries, including Zambia, Angola, and Sierra Leone.” How much is China’s economy slowing?  How much is that affecting Africa? These are not unrelated questions.

Africa’s GDP Growth