Archive for year: 2016

Last night driving back to the worldwide headquarters of International Need to Know, traffic came to a complete halt. This is no longer an uncommon occurrence in this neck of the woods, even though it was after rush hour. We soon learned our delay was caused by a Beyoncé concert. But even Queen Bey was unable to prevent us from turning Lemonades into lemons and worrying about housing prices in China, despairing over endangered flora but ultimately brightening to electrifying news out of Japan. It’s this week’s International Need to Know, not needing to dope up like a Russian athlete to bring you the most important happenings of Beyon–er, our world.

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

Location, Location, Rembrandt

Last week, we were working with some Chinese investors looking for ROI here in the Seattle area. While walking in a residential neighborhood on our way to a meeting, one of the investors asked, “How much does a house cost in Seattle?” It’s a curious question, kind of like asking how much do paintings cost. It depends, of course, on the house–how large, where it’s located, does it have a view, does it have an antique Rembrandt in the attic? Chinese are looking to place their money in “safe” investments overseas now that large returns are no longer guaranteed in-country. China’s economy is definitely slowing, as we’ve pointed out in this space. More evidence of the slowdown came this week when provincial growth rates were reported. Of 31 provinces, 25 reported a slowdown from 2015’s year-on-year growth and 14 are undershooting their expansion targets. And these are the official statistics. What is really going on at the province level may be worse. Housing data is also showing a slowdown, although not in Tier 1 cities, as the chart below shows. Tier 1 cities in China saw huge inflation through 2015. Tier 2 and Tier 3 cities? Not so much. Which brings us back to our Chinese investor’s question. How much does a house cost? Here in Seattle we see housing prices continue to rise. In fact, that worldwide headquarters of INTN that Beyoncé prevented us from reaching in a timely manner? A house kitty-corner from HQ recently sold for about 50% more than its Zillow value. Values here are being driven up by lack of inventory but also by Chinese and other outside investors buying into the market. Seattle is becoming a Tier 1 city. As the world urbanizes, Tier 1 cities around the globe are likely to continue to experience housing inflation…right up ’til the moment they don’t. More on China’s housing situation soon.

Save the Plants

When worried about world encompassing environmental problems, photos of animals–the polar bear, or the Sumatran tiger or some other cute mammal or bird–are often used to make the point of how dire the situation is. But what about the cute fern or lonely lichen or other plants? Because as it turns out, far more plants are endangered than animals in our little world today. In fact, the International Union for Conservation of Nature claims that “there are almost as many threatened species of plants as fish, birds and mammals combined.” The flora may be in more trouble than we fauna which, of course, has implications for we fauna.

Japan is Electrifying

No, not their economy, though Japan’s economy surprisingly expanded by 1.7% in the first quarter, staving off recession worries. What we’re talking about is Japan’s robust electric car infrastructure. Japan now has more car charging stations than gas stations as you can see below courtesy of Forbes. Japan is now the proud home of 40,000 electric vehicle charging stations, more than four times the United States and now outnumbering the 34,000 Japanese gas stations. Nissan, with it’s electric Leaf, is helping to drive this infrastructure build-out. Of course, Japan’s geographic territory is much smaller than the United States, making it easier to develop its electric infrastructure. But this growing and large number of electric charging stations is indicative of the change that is coming to our auto infrastructure. Now the key question is how will Japan generate the electricity to power the cars?

The Broadway sensation Hamilton received a record 16 Tony nominations this week leaving the John Jay Society seething in resentment. All of this raises the question of which of today’s current policy and political figures will inspire musical tributes two centuries from now? We’ll take your suggestions even as we try to explain why you may want to hide your face, determine where the global citizens are and discover where your clothes are made. It’s this week’s International Need to Know, providing neither song nor dance as we try to make sense of this stage of a world in which we all play a part.

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

The Continued Democratization of Technology

Just last week we remarked on how technology spreads more quickly and is developed in more parts of the world than it was 30 years ago. Fresh evidence of that comes from Russia where big strides in facial recognition were recently made.  A Russian software developer named Andrey Mima claims he was able to use nothing other than photos of two women from 2010 to track them down. He inputted the photos into his perhaps inelegantly yet succinctly named software, Findface, and the software found the two women on Russia’s version of Facebook (calledVkontakte). The face recognizing algorithm was originally developed by a Russian start-up calledNTechLab. This small, new Russian company beat out Google and other big players in theUniversity of Washington’s MegaFace face recognition challenge. Put aside for a moment worries about privacy and the fact that there is a contest called “MegaFace” and understand that innovation and technological development happens all over the world nowadays. Such democratization of technology and its development will have a big impact on the world economy, security issues and poverty, to name just a few. Okay, now you can go back to worrying about the privacy implications (see the linked story for one example) of this particular technology while International Need to Know stays busy deleting all known photos of itself from the Internet.

Dual Citizenship

If our music streaming service is informing us correctly, John Lennon once sang “Imagine there’s no countries, it isn’t hard to do.” For most people, it actually is pretty difficult to imagine. People think of themselves as Americans, or Canadians or Brazilians or any number of other nationalities. But there are indeed many who think of themselves as global citizens first as a new poll by Globescan for the BBC shows in the chart below. The poll was conducted in 18 countries across five continents. The results defy simple stereotypes. More people in China see themselves as global citizens than do Americans, Canadians or British. A few weeks ago, we noted the economic challenges in Spain so perhaps we should not be surprised that 45% of Spanish “strongly agree” that they see themselves more as a global citizen then a citizen of Spain. Of course, ask a Spaniard if they are a part of Real Madrid nation and the chart may blow up entirely.
  

Made in ?

We probably all remember 15 years ago heading to our favorite clothing store and noticing that everything was made in China. Unless you joined a nudist colony, you were wearing clothing made from that ever fascinating, complicated country. Today, China still accounts for 41% of all apparel exports as you see in the chart below from the World Bank’s Stitches to Riches Report (Stiches to Riches sounds like a cleaned up Nicki Minaj lyric). But, as China diversified it’s economy into electronics manufacturing and other industries, apparel now only accounts for seven percent of China’s exports. China’s share of global apparel exports are likely to fall too as labor costs in China rise. The always stylishly attired INTN, is already seeing anecdotal evidence of this. Today, when shopping for new duds, the “Made in China” tag is not nearly as ubiquitous. Instead we see tags indicating Bangladesh, Vietnam and other countries as the source of the clothing. We often wonder if certain African countries may enter the picture in the future. Low labor costs in Africa combined with China’s investments in Africa seem like a winning combination for a future apparel industry.

Many years ago I was traveling to Melbourne, Australia for work and brought gifts for some of the people we would be meeting with. Unbeknownst to me, the gifts–glass art work made by local artists–contained plants pressed between the glass. Australia is very rigid about plants and animals coming into their isolated continent and my gifts were confiscated at the airport. I was a very unwise man bringing neither frankincense nor myrrh. So I had some sympathy and certainly nostalgia when viewing Johnny Depp and Amber Heard’s dog video released this week. But even tough-minded customs officials can’t stop us from discussing the always confusing China, presenting more evidence of peak oil usage and showing where in this great big world of ours the optimists can be found. It’s this week’s International Need to Know, your neither optimistic nor pessimistic but merely clear eyed if somewhat amused look at what’s important in the world.

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

The Ever Confusing China

Surprisingly*, last week China announced that GDP growth rates for the first quarter were right in line with expectations–an annualized 6.7% growth rate. Others pointed out this growth was built on a shiny new skyscraper of credit. In fact, as you see in the chart below, China’s first quarter financing was as large as entire countries economies such as Indonesia and the Netherlands. That’s misleading a bit, of course, since China’s scale makes most things seem small in comparison (though Indonesia is the world’s 4th largest by population). Nonetheless, total credit in China in the first quarter was CNY7.5 trillion, up 58% year over year. That’s about 46% of nominal GDP, a record level for China. Maybe GDP growth really is at 6.7% (some independent experts estimated 4%) but if so more and more credit is needed to achieve that growth rate. GDP growth appears to be driven by government spending and bank loans (ahh, the dark deep waters of China’s banks that we will continue to explore) with government spending rising 16.9% in the first quarter. Of course, this may be smart Keynesian policy in an economic downturn. But for how long can GDP growth be propped up with credit?  Time, that rascally ever marching dimension, as always, will tell.

More Signs Peak Oil Usage is Coming

We noted in this sacred space a few months ago that we are nearing peak oil consumption (not production). Today comes more evidence for this with the news that, “Saudi Arabia is raising $10B from a consortium of international banks as it embarks on its first global debt issuance in 25 years.” For the first time, Saudi Arabia is becoming dependent on foreign capital. At the same time, the country is building a sovereign wealth fund using $108 billion from its investments in local companies. The idea apparently is to start investing around the world through the sovereign wealth fund and use the returns as revenue for the state budget, a budget that increasingly has less oil money to spend. Saudi Arabia is becoming like a public pension fund. Other oil countries are also now borrowing on the world market, including Oman and Qatar. The changing nature of the oil markets (there may be short and even mid-term price spikes but as we noted last month, oil prices in the long term will stay low), is forcing changed interactions between oil producing states and the rest of the world.

Where the Cynics Aren’t

In the throes of a political campaign and on the washed up shores of cynicism, we hear lots of pessimism out there nowadays. In the midst of rapid technological change, environmental concerns and terrorism threats, lots of people think the world is getting worse, not better. But someone out there must be optimistic, right?  Below is a poll showing the share of the population who think the world is getting better. China tops the list. For hundreds of millions of Chinese, the world is indeed better than it was thirty years ago. Whatever the trade-offs that came with that, it is a good thing these hundreds of millions are doing better and rose out of poverty.

*Someone needs to create a sarcasm emoji**

**  

RIP

–Note some design changes to INTN.  More to come soon, including a website where you can find INTN archives–

We were just returning from making a withdrawal from one of our offshore accounts when we realized we are deeply underpaid compared to aclassical cellist of the St. Petersburg orchestra.Still, we carry on and remind ourselves that Japan is not as bad as you think, face the changing look of death squarely in the eyes, and chuckle at the French and British. Yes, it’s this week’s International Need to know, providing important information lost in the cheese factories of Wisconsin while singing Merle Haggard back home.

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

The Forgotten Japan

It is common to think of Japan’s economy as a basket case. Overall GDP Growth has been slow to nonexistent there since the crash way back in Taylor Swift’s 1989. The government debt to GDP ratio is the highest in the world by far at 220%, much higher than Greece’s 179%. GDP growth last year was less than 1% and there are worries this year Japan will lapse back into recession. They have instituted negative interest rates, one of a growing number of countries taking this uncharted measure. If you ask about the Japanese economy, likely the answer you’ll get is Japan is a slow-moving, 30-year disaster. But remember, as we noted here before, that Japan’s population has begun shrinking. In discussing Japan’s microscopic GDP growth rates and stagnant economy, we too often forget that there are less Japanese then before, and certainly less working-age Japanese. So, despite everything, GDP per capita continues to grow as you can see in the graph below. When a country is shrinking in population, it’s difficult for the overall economy to grow but that does not meant things are getting worse for the individual. As Mr. Spock did not say, the needs of the one are not always affected by the economy of the many.  When I travel to Japan I do not encounter a dystopian future but instead what feels like a prosperous society. Yes, Japan has deep challenges and they may be creating systemic risks, but things are not as bad for the average Japanese as one would be led to believe.

The Changing Look of Death

Death in the world is changing. In the rich part of the world we are accustomed to dying of heart disease, diabetes and other such ailments. But the developing world is increasingly dying of these things too. The good news is we’ve made much progress on malaria, diarrheal diseases, HIV/AIDS and other maladies that have inflicted so much misery and pre-mature death in the developing world. But as you can see in the World Bank graph below, so-called first-world diseases such as strokes, diabetes and heart attacks are rapidly rising in low and mid-income countries. In fact, today as many people die of strokes as they do of malaria in these countries.  We need to genetically modify mosquitoes to carry a virus that makes people repulsed by French fries.

Brexit More Popular in France than Britain

Brexit More Popular in France than Britain In just a couple months the good people of the UK will be voting on whether to stay in the EU.  It’s fortunate the French are not the ones voting since as it turns out more Brits than French prefer the UK be part of the EU. According to an Odoxa poll, 55 percent of the British want to remain in the union, but only 54 percent of French want this. I’m sure there’s an old Monty Python skit fit for this polling data. But, as you see below, the rest of Europe is happier at the prospect of the UK remaining a part of their club.

Against Brexit

• UK 55 percent
• France 54 percent
• Spain 76 percent
• Germany 65 percent
• Italy 67 percent

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