Russian Sadness, Spanish Storms and Where the Muslims are

As we place our iPhone in a dark corner far from prying FBI eyes, watch a campaign manager get charged with literally twisting arms, and gaze upon 10% of the Cuban population rocking out with Mick, Keith and the gang, we cast glum eyes on the wreck that is Russia, worry about the long-term health of Spain and list the perhaps surprisingly largest locations of Islam.* Yes, it’s this week’s International Need to know, bringing the sanity of facts and figures to a world seemingly head over heals in love with crazy.

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

The Sadness that is Russia

There are many bears in this world. The polar bear is unfortunately threatened by climate change. The Chicago Bears will never surpass my beloved Green Bay Packers. Yogi Berra left this world last year. But perhaps the saddest bear these days is Russia. While Vladimir Putin poses sans shirt like a crazy Uncle at a drunken family reunion, the country’s economy continues to struggle.

Raising the minimum wage is all the rage nowadays. We see California is considering raising the state minimum wage to $15 per hour. Russia is in on the act as well, raising their minimum wage this week yet again, by 21 percent.  This comes after a 4 percent increase in January. The Russian economy is a mess. More than 20 million Russians, about 14% of the population, are now living in poverty, up from 16 million in 2014. These are the official statistics but it would be no surprise if the numbers are much greater than that.The Russian economy contracted 3.7% in 2015 and so far it’s getting smaller this year too. Vodka exports are down 40%, which is bad for the economy, but perhaps good for Russians who need a stiff drink in bad times, but bad because of Russian’s huge alcoholism rates. Two drunken steps backwards for every step forward seems to be the norm there. In fact, Russia is perhaps the only country where life expectancy is getting shorter, at least for males, due to alcoholism and disease. Some of the economic problems are due to sanctions and to an economic climate mired in corruption. But oil prices play a role too. Nearly half of Russia’s government revenue comes from its oil and gas exports. With prices remaining at a low level for over a year, Vladimir Putin is like a vicious Jed Clampett who has run out of black gold. INTN once knew lots of people doing business in Russia. Now we can count them on one hand.

Long Spanish Storms

Much of Europe is still in distress despite some marginal improvements the last year. Usually we think of Europe’s problems as a result of the financial crisis, austerity and a currency union absent a fiscal union. But Spain, which puts the plural in PIIGS (Portugal, Italy, Ireland, Greece and Spain), the countries that were most in distress a year or so ago, may tell us otherwise. I recently came across the graph below. This shows Spain’s economic growth below trend since 1978.  It’s possible the problems of the EU, or at least parts of it, are more long-standing and complicated then we think.  Some of these economic difficulties are like a blues soul song, a long time coming.

Where the Muslims Are

Via the Pew Research Center, we find that the largest Muslim populations are not in the Middle East but in Asia. Strangely enough, I have not see any calls for banning Indians from coming to America.

1. Indonesia, 205 million

2. Pakistan, 178 million

3. India, 177 million

4. Bangladesh, 149 million

5. Egypt, 80 million

6. Nigeria, 76 million

7. Iran, 75 million

8. Turkey, 75 million

9. Algeria, 75 million

10. Morocco, 32 million

*Yes, we have promised a dive into the deep end of the Chinese banking system but we’re still assembling our mask and oxygen. Stay tuned!

European Loans, Services Trade and Terrorism in Europe

As we said last week, International Need to Know fled to New Orleans for a week of music, mirth and food. We have only just returned and are still recovering from seeing the legendary George Porter Jr jam at the Maple Leaf, gorging on fried chicken at Willie Mae’s and hanging with Dr. John watching the Mardi Gras Indians march on Super Sunday. So this week’s INTN leaves you with three graphs and one great NOLA photo. Next week, we return to our regularly scheduled programming.

Without further ado, here’s three important graphs.

Non-Performing Loans in Europe

We’ll ignore Cyprus and Greece for the moment. Take a look at Italy where non-performing loans make up nearly 20% of its banking system’s assets. These loans are also about 20% of Italy’s GDP. All of this in the 8th-largest economy in the world.  Yikes is the technical term to use here, I believe.

    

Trade in Services

The U.S. has a large trade deficit in merchandise goods (more about that in a future INTN) but continues to maintain a large surplus in services trade.

  

Terrorist Incidents in Europe Since 1970

Having been in Brussels just about exactly a year ago, our hearts and thoughts go out to the good people of Brussels. Even in times of horrible tragedy, it is good to take the long view.  The number of victims of terrorism is too high today but still generally below the level of the 1970s and 1980s. We do not, despite what it may seem, live in unprecedented times.

  

Bonus New Orleans Photo

      Big Chief Monk Boudreaux on Super Sunday

Tanking Brazil, Better Educated Women and the Donald Trump of China

Merrick Garland is in the new Indiana Jones movie and Harrison Ford has been nominated to the Supreme Court. Or have I gotten my old men mixed up? Apparently March Madness reigns supreme on the court and at the court. But even as International Need to Know escapes the madness for New Orleans–the only city in the United States where you feel like you are not in the United States–for intensive cocktail, music and cultural research, we gaze steely eyed at the question of whether Brazil is in another one of their lengthy bust cycles, we consider an international gender gap and we worry about whether to expect a Donald Trump of China.  It is, of course, this week’s International Need to Know, a tour of the world’s important issues minus baggage fees and jet lag.

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

The Tanking of Brazil

This week I met with a small company whose biggest export market was until recently Brazil. The president of the company told me their sales are way down because of Brazil’s tanking economy. Yes, Brazil is struggling like a salesperson selling faulty mosquito nets at this summer’s Rio Olympics. As I type, tens of thousands of Brazilians are rioting in the streets (U.S. political protesters are slackers by comparison). There’s a reason for a disgruntled nation: the economy is contracting, last year by 3.8% and this year the shrinkage continues.  In fact, some analysts believe it will contract by 4.6% in 2016. If so, that will be the deepest, most sustained contraction since the country began keeping records in 1901. To add misery to insult, the country’s inflation rate is the highest it’s been since 2003. China’s slowing economy has played a part in Brazil’s troubles. Brazil rode the commodity gravy train right off the dining room table. In 2000, Brazil’s annual trade with China was $2 billion. By 2013 it grew to $83 billion with more than $40 billion in exports to China. But China’s slowdown has caused Brazilian exports to China to tumble by 20%. Of course, Brazil has plenty of internal challenges as well, including corruption and mismanagement. In fact, Brazil has trod this muddy economic path before. The now busted Brazilian miracle of the mid-2000s was proceeded by one in the late 1960s and early 1970s. That “miracle” was followed by a lost 1980s decade. Let’s hope Brazil finds its way to the path of economic prosperity sooner this time.

 

   

Women are Better Educated than Men

If you’re a male reader you may have difficulty reading this since you are increasingly an uneducated slob. This is true not just in the United States but around the world. In OECD countries, we see that the gap between women and men obtaining a higher education is widening. Today 58% of people in the OECD graduating from an institution of higher learning are women.  In only four OECD countries are more men than women graduating–Japan, Germany, Korea, Switzerland and Turkey.  The closing of the gender gap is not contained to just OECD countries. In fact, more women than men are graduating from universities in the Middle East, including in Saudi Arabia, Iran and Kuwait.  It is good that finally women are getting opportunities, and taking them. It is disconcerting that men are doing so badly worldwide. Of course, there are educational pockets where men still dominate and women unfortunately lag. In STEM fields, at least in the OECD, there are still far more men graduating: “only 31% of the bachelor’s degrees awarded in science and engineering went to women.”  There are different types of gender gaps for men and women these days in higher education; it would be good to fix them both.

Where’s the Donald Trump of China?

  • U.S. Net manufacturing jobs loss/gain since 2010:  +861,000
  • Decrease in open manufacturing positions in China since 2012:  -6%

Okay, it’s not exactly apples to apples due to the vagaries of Chinese data, but it squares with previous data that manufacturing jobs are decreasing in China and such jobs are increasing in America. From current political discourse you would think the opposite is true. Of course, up is down and down is up in so many ways in that bloody arena. While in recent years we have seen manufacturing gains in the United States and decreases in China, economic studies have shown that before this decade, the U.S. lost between 1 and 3 million manufacturing jobs to China.  But those days are over. In the future both China and the U.S. are likely to lose jobs to machines rather than to each other.

Underrated Mexico, Rise of Chinese Robots and Man Vs. Machine II

We averted our eyes this week from the solar eclipse, presidential debates and the latest episode of The People Vs. O.J. Simpson just in time to provide the long awaited write-up on Mexico’s underrated economy, tell you which country is most at risk to a robot attack and provide the latest on man vs. machine in Korea. So even as we battled a flooded basement and celebrated the 7th anniversary of the U.S. bull market (we just deleted The 7 Year Itch from our Netflix queue), it’s this week’s International Need to Know, where we shine the sun’s non-eclipsed warm rays of economic enlightenment on the crucial happenings of our little globe.

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

Underrated Mexico

We’ve been teasing for a while that we would provide more info on Mexico’s underrated economy. It’s time to head south. Did you know Mexico’s economy is bigger than Canada’s at $2.2 trillion to our neighbor to the north’s $1.6? Or, how about the fact that nearly 40 percent of auto jobs in North America are located in Mexico? Mexico’s economy is bigger and more robust than most people realize. In real estate it’s all about location. It can be helpful in economies too. Mexico is the 15th largest exporter in the world due in large part to being next door to a bunch of ravenous American consumers. Nearly 80 percent of Mexico’s exports are to the good ole United States. In fact, Mexico is the United State’s third-largest trading partner (behind only Canada and China). And although voters in Michigan don’t want to hear this, Mexico is the United States’ second-largest export market. And what Mexico makes and exports is impressive. Mexico is a big exporter of high tech equipment, exporting 19.3% of its GDP in high-tech products. That’s third best in the world, trailing only South Korea and Germany but ahead of China. Of course, Mexico does face challenges. In certain provinces, violent crime is high, but as we noted a few weeks ago, most of the country is as safe as Finland. Low oil prices are affecting Mexico’s economy but in the long run that’s a plus, as it will force the country to continue to diversify its economy. There is also an inequality problem that has worsened over the last decade. According to Forbes, “In 2002, the assets of Mexico’s elite 16 were worth 2% of the country’s GDP. By 2014 these private fortunes accounted for 9% of GDP.” Mexico is not perfect but it has been operating under the radar–it’s economy is stronger , more developed and bigger than people realize.

Rise of the Robots…in China

We’ve discussed innovation in China, we’ve delved into their economic slowdown (more foreboding economic data came out this week showing a continued decline in exports and imports year over year in China–exports were down 25%!), but one thing we haven’t talked about is robots.  As you see in the chart below, starting in 2012, about the time worker abuse controversies were making news, the use of robots started to really take off. What does increased and more sophisticated automation mean for China’s economy’s future? For the world’s? We’re going to find out soon.*

  

Man Vs. Machine, Round Two!

In a recent INTN, we told (warned?) you that artificial intelligence made a big breakthrough when Google’s AlphaGo beat a ranked Go (an ancient Chinese board game)player not through brute computing power but by using neural net technology.  And, we told you to keep an eye on an upcoming match pitting the computer against the top ranked Go player in the world, Lee Sedol.  The first two games of the 5-game match took place in Seoul yesterday and this morning with Alpha Go winning both and taking a commanding 2-0 lead.  Can Sedol make a comeback?  Have computers again permanently surpassed us in another human realm thought safe from machine?  Grab a beer, make some nachos and let’s get ready to rummmmbbble (while the computer quietly whirs). You can watch the matches live here.

*International Need to Know is one hundred percent written by humans…at least so far…as you know.

Innovative China, Its Slowing Economy and a Mexican Appetizer

International Need to Know ditched the winter blues to see the funk, hip-hop, neo-jazz New Orleans band, Galactic, at a local club and discovered in the opening band, Con Brio, a rising star full of youthful rhythm and blues vigor (the lead singer is known to do an occasional backflip when performing). But even a musical Ferdinand Magellan moment did not distract us from answering last week’s question about China, raising new worrisome ones, revealing who is number one at the box office, and providing Donald Trump’s least favorite statistic. So even though Chris Christie is unlikely to endorse us, it is this week’s International Need to Know, where we bust some international economic moves, Con Brio-style, on the world stage.

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

The Yang: Why China has Become Innovative

As we learned last week, despite difficulties, lots of good things are happening in China, including companies innovating, not just copying. But how did this happen? We promised we would tell you why they’ve become an innovative economy and unlike presidential candidates we here at INTN always fulfill our promises. The answer, of course, is scale. Yes, China is big and that matters.  For example, China has as many 4G phone users as the entire U.S. population. There are more than 500 million mobile internet users in China. These mobile users are young with the average age 15 years younger than the average U.S. user. To service this enormous, young user base, Chinese companies have to innovate. Yes, Chinese companies have been protected from foreign competition but despite that, the sheer scale of the market has forced them to innovate.  A population of 1.3 million, a middle class of 150 million – 260 million (depending on whose counting), compels companies to meet market demands with new innovations. You gotta give the people what they want. Here’s your bonus how-large-is-China statistic: for the first time ever, China’s monthly box office receipts were larger than North America’s thanks to the smash hit, The Mermaid. Regrettably, this is unlikely to spur innovation in Hollywood.

The Yin: China’s Economy is slowing

New underlying economic data raises fears that China’s economy is growing at a much slower pace than the official 6.9% GDP growth rate. China’s purchasing managers index for manufacturing dropped to 49 in February. Anything below 50 indicates contraction. In fact, this is the lowest level since January 2009, which was smack dab in the middle of the world financial crisis. It’s not just manufacturing. The services PMI has also slowed to 52.7 from 53.5 in January.  This is still above 50 but is nonetheless at its lowest level since December 2008. Another sign that jobs are not as plentiful as they were before, at least not in the developed cities, is that for the first time in 30 years the migrant population has decreased, by 5.7 million in 2015. We’ve noted before that imports are down and beer sales too. Given the preponderance of the evidence, it is very difficult to believe that the economy is growing 6.9%. The question remains of whether this is a normal business cycle recession? Despite opinions to the contrary in recent years that China is invulnerable to business cycles, China is not the Golden State Warriors and President Xi is not Stephan Curry, China is going to lose every once in a while. Or, is there something deeper afoot? We’re scared to end up like Alice but soon INTN may dive into the China banking system rabbit hole to find out what is really happening.

A Mexican Appetizer

We teased you a few weeks back when talking about the relative lack of crime in most of Mexico that we would come back with more on their underrated economy. And we will, but for now, in honor of a certain presidential candidate frontrunner, we leave you with this chart on net migration between Mexico and the United States. Go ahead and peek, there has been zero net migration from Mexico since 2008. In fact it’s slightly in the other direction. Maybe Mexico willpay for that wall to be built to keep us out of their country?