Archive for year: 2016

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.

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.

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.

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.

            

This week at International Need to Know as we mourn the death of a pioneer in artificial intelligence*, Fish and all non-Golden State Warrior teams in the NBA, we also examine just how much the Yuan has devalued, who are the largest employers in the world and the extent of China’s dominance as a trade partner. Welcome to this week’s edition of International Need to Know, providing the facts and figures needed to understand our rotating orb.

Of course, if you don’t want to know, just hit “unsubscribe” at the bottom or reply to this email and I’ll remove you from the list. Alternatively, if you want others to be in the know, hit “tell a friend” which can also be found at the bottom. Without further ado, here’s what you need to know.

The Wandering Yuan

You often hear folks express concern about China unfairly devaluing the Yuan. We here at International Need to Know are always skeptical about the utility of devaluing currencies to promote one’s exports  In China’s case, we are skeptical they are devaluing much at all.  As you see in the graphic below, it’s those darn Canadians and Mexicans whose currencies have greatly devalued against the dollar over the last 12 months. Of course, that might have something to do with the drop in oil prices not currency manipulation. The Chinese Yuan dropped against the dollar at roughly the same rate (5.6%) as the British pound. Clearly it’s time to introduce trade sanctions against the UK.  Will China purposefully devalue the Yuan this year to export more?  China is a large exporter but in order to export they have to import. That smart phone or tablet you’re reading this on? It may say “made in China” but probably 70 to 90 percent of its components came from outside China. If China suddenly devalues the Yuan, the cost of imports will rise making goods assembled in China more expensive which will counteract any advantages from cheaper exports. The knee bone is connected to the… Now, whether the Yuan will suffer devaluation for market reasons ala Canada and Mexico? That’s a more important question.

The Largest Employers in the World

We should celebrate those who want to employ us, right? Well, via Ian Bremmer, here are the world’s largest employers.

World’s largest employers (workforce #)

1. U.S. Dept of Defense: 3.2m

2. People’s Liberation Army: 2.3m

3. Walmart: 2.1m

4. McDonald’s: 1.9m

5. UK NHS: 1.7m

It’s interesting to note that Walmart perceives Amazon (151k employees) as its biggest competitor and many U.S. politicians perceive China as America’s.  One also wonders if every time an order of McDonald’s fries are sold in Liverpool whether UK NHS hires another employee.   

Traders to the World

Why is the slow down in China such a big deal?  A whole lotta reasons but here’s one via Connectography: 

• Countries for which China is the largest trading partner: 124
• Countries for which America is the largest trading partner: 56

   *Stand by in next week’s INTN for news of a big advancement in AI

Welcome to this week’s edition of International Need to Know–three pieces of information that will help you understand this complicated globe we call home. Even as we mourn the loss of Major Tom to other environs, this week we look at Peak Oil (not what you’re thinking), the future of the automobile and what beer sales in China portend.

Of course, if you don’t want to know, just hit “unsubscribe” at the bottom or reply to this email and I’ll remove you from the list. Alternatively, if you want others to be in the know, hit “tell a friend” which can also be found at the bottom. Without further ado, here’s what you need to know.

The Real Peak Oil

Ten years ago or so it became fashionable to worry about peak oil, the idea that we were soon reaching the moment of maximum rate of extraction of black gold. It’s a legitimate worry since at some point we’ll run out of the stuff, right? But whether we have or will soon reach peak rates of extraction, we have now reached peak consumption of oil in the United States. In fact, as you see in the graph below, U.S. oil consumption was lower in 2014 than it was in 1997. Couple this data with the fact that we are seeing steady improvements in electric car battery technology, exponential increases in the use of solar energy (a subject for a future Need to Know) and it appears oil’s expiration date looms. We have not yet reached peak oil consumption worldwide but I wager we will be there soon. No, really, last year I made a bet with Stand Up Economist Yorum Bauman  that we will reach peak oil consumption within 10 years. Any other takers?

  

Money Flowing into Self-Driving Cars

Speaking of cars (or at least of the fuel we once put in them), perhaps you are reading this on your smart phone while driving. If so, cut it out. But, in the much sooner future than you think, you can safely read International Need to Know in your self-driving car. It was announced last week that Lyft raised $1 billion, with $500 million coming from General Motors for a partnership on self-driving cars. Uber is in this game as is Google as is Microsoft along with our international friends, BMW, Toyota and others. And two days ago, Tesla announced its new Summons feature  and outlined their road to fully self-driving cars. Last month while visiting Chinese electric automaker BYD in Shenzhen, I saw a demonstration of their self-driving capabilities. All over the world the drive is on for fully autonomous vehicles.  What’s that line from Poltergeist? “They’re here…”

Beer, Star Wars and China

Figuring out China is tough since the official statistics are like NFL referees, neither overly accurate or helpful. But there is other data that might tell the real story. To paraphrase Deep Throat, follow the beer.  According to U.K. beer-research firm Plato Logic (how do I get a job there?), beer sales in China last year were flat (though the beer itself had a good head). Until last year, beer sales averaged 6% growth for over a decade. If beer is a good barometer than growth is likely much lower than the official GDP growth rate of 6.9%.  On the other hand, the new Star Wars movie had the biggest film opening in China history so folks in China do spend on some luxury items. But still we ask how fast is the Chinese economy growing and more important how fast will it grow this year?  You must use the Force to determine whether the beer glass is half empty or full.