Skip to main content

Ukraine & Canada

In last last few hours tensions in the world have abated as Putin announced the "early" end of the war games on the Ukrainian frontier.  That means that stock markets are up (in Europe and American futures) as they are in Russia.  God only knows who the players were here that got the tension to abate. What did the German promise, what did the Americans?  What made Putin confident that ethnic Russians in the Ukraine would be protected (that, by the way, is the real issue) from fervent nationalist (and by the way united) Ukrainian leaders (or maybe only talking heads).

Anyway back to Canada.  First off for those who don't know Ukrainian is a very important minority in Canada, in the wheat belt (Manitoba and Saskatchewan) after English it is the most spoken language. Brian Mulroney, one of Canada's ex-Prime Minister spoke it!

The crisis (again in the Balkan region) had the potential of becoming something very ugly -- not that the American military would intervene (that was always a stupid idea -- what kind of imbecile would station American troops 5,000 miles from home and lest then 500 from the Russian border? wait there's a joke here somewhere!).  The American press made a big fuss about how the country was divided (its not) Yes they are interested in democracy -- the other kind of government has not been great -- but that doesn't mean they are pro-Western!

The economic story here is interesting.  Russia is a massive exporter of natural gas to Western Europe. Although that's not about to change -- no one is building nuclear power generators right now, energy demand has plateaued because of Europe's weak economic growth, America is looking at energy exports again (although it is illegal for energy to be exported from the US -- with some exceptions), and the Russians need the revenues -- so that's a non-event in terms of negotiation tool (Europe needs the energy and Russia needs the money).

Looking at the world economy, we are near a tipping point; Western government have printed money (lots of asset inflation -- look at house prices and stock prices) but not much "consumption inflation"  Canada is looking at a big fat zero in terms of CPI.  Looking outside of Canada, we've got 'Merica with its slow economy (Europe I already mentioned) but what about China?  The amount of money being printed there is simply astronomical (Last week a figure of $13 trillion was mentioned as the size of credit expansion in the past 7 years.  That's massive).  Since the stats are either unavailable (or in Chinese which is the same as far as I am concerned), it remains that China continues to grow via capital investments (46% of GDP) -- compare that to America and Japan at 22%. BTW the Chinese are well aware that they have a problem. Apparently its is a critical topic -- they just don't know how to get off the ride!

Here we circle back to Canada -- we are one of the few (Australia, Brazil, Chile and Canada) global suppliers of raw material and for Canada, a Second degree country, global economic growth is our engine of growth, as demand for raw material raises prices (and the currency) and make the country economically vibrant.

What happens if Russia invades the Ukraine?  None of it is good, and its not like the recent global economic news has been good.  It would not take much to tumble the world economy into a recession -- it may happen anyway, but military action in the Ukraine would certainly tip that vase over.


So for now good news



Comments

Popular posts from this blog

Trucker shortage? No a plan to allow driverless rigs

There are still articles on how America is running out of truckers -- and that its a huge problem, except its not a problem, if it was a problem salaries would rise to so that demand would clear. Trucking is one of those industry where the vast majority of participants are owner/operators and therefore free agents.

Salaries and cost are extremely well know, "industry" complains that there are not enough truckers, yet wages continue to fall... Therefore there are still too many truckers around, for if there was a shortage of supply prices would rise, and they don't.

What there is though is something different; there is a push to allow automatic rigs to "operate across the US", so to encourage the various authorities to allow self driving rigs you talk shortage and hope that politicians decided that "Well if people don't want to work, lets get robots to do the work" or words to that effect.

This has nothing to do with shortage of drivers, but every…

Every punter says oil prices are on the rise: Oil hits $48/bbl -- lowest since September 2016

What the hell?

How could this be, punters, advisors, investment bankers all agreed commodity prices  in general and oil prices in particular are on the rise...its a brave new era for producers and exporters -- finally the world is back and demand is going through the roof, except not so much!

What happened?  Well energy is complicated, the world operates in a balance -- 30 days of physical reserves is about all we've got (seriously) this is a just in time business.  So the long term trend always gets hit by short term variations.

Global production over the past 12 months has risen by somewhat less than 1.5% per annum.  As the world market changes production becomes less energy intensive (maybe), but the reality is that the world is growing more slowly -- America Q4 GDP growth was around 1.9% (annualized) Europe is going nowhere fast (the GDP growth in Germany is overshadowed by the lack of growth in France, Italy, Spain (lets say 27 Euro members generated a total GDP growth of 1.2…

Paying for research

This morning I was reading that CLSA -- since 2013 proudly owned by CITIC -- was shutting down its American equity research department -- 90 people will be affected!

Now the value of a lot of research is limited, that is not to say that all research is bad. In fact, I remember that GS's Asia Aerospace research was considered the bible for the sector.  Granted, there was little you could do with the research since the "buy" was for Chinese airlines...that were state owned.  Still it was a vey valuable tool in understanding the local dynamics.  It seems that the US has introduced new legislation that forces brokers to "sell" their research services!  Figures of $10,000 an hour have been mentioned...

Now, research can be sold many times; if GS has 5000/6000 clients they may sell the same research 300x or 400x (I exaggerate) but this is the key -- Those who buy the research are, I presume, prohibited from giving it away or selling it, at the same time the same rese…