Monday, January 23, 2017

Will Trump start a trade war?

President Trump has been in office for 48 hours now and so far we have seen the following:


  1. Plans massive tariffs on imports (especially if the White House "believes" that the jobs were stolen")
  2. Reduce regulation by 75%
  3. Shut down PBS -- that was Saturday and I've not seen anything more about that since

Aside from the weekend fight over the number of attendants at the inauguration, and I mean the entire weekend. When it was obvious from photograph that the thing was poorly attended.  The reality is that a large number of people would go to Washington for the "show" and Trump didn't deliver (there were no A or B list stars at his show ) so what's the point!

Once the images were out there was little doubt that it was fewer than Obama in '08.  So fine, let it be! BUT if this is all it takes to take Team Trump off its message (of a new administration) they will get bogged down quickly.  The idea that massive tariffs will be a huge win for Americans is hard to swallow -- after all its American who will pay more for their iPhones and tablets.

The shutting down of PBS (which cost US$ 445 million per annum), seems to be aiming for the wrong objective when you say you want to cut the massive government expenses of 3.8 trillion -- $445 million is equal to 0.002% of the federal government's annual expenses about the same as Planned Parenthood -- these cuts are about perception and not reality.

If the US government imposes huge tariffs on imports (which it is free to do) it will also have to leave the World Trade organization -- as that institution has set limits to punitive damages.  It is hard to say if that is Team Trump's objective, but since he's made no bones about leaving NATO (to Putin's joy) that too can be a goner.

The question is what is the impact of a trade war with China, Mexico and Canada?  That's the real key here.  Two facts are certain, inflation will increase in the US as prices rise to accommodate these rising costs.  The long term is harder to figure out.

There's a lot of goodwill that about to leave the negotiations.  If I were Canada I would look to other markets to buy goods.  In effect, Canada and Mexico have close their borders to other nations favoring the US (and each other) it would be easy for these situations to change -- Air conditioners from China or Korea could be given favorable treatment (or at least remove duties), other duties that have protected north American manufacturers could also be reconsidered.

Attacking the US policy directly will never work, instead stealth is called for instead.  It doesn't penalize your customers (and voters) while impacting manufacturers of the country seeking to impose duties -- by making other goods cheaper, and hence more attractive



Monday, January 16, 2017

The Press to lose space at the White House. This could be a good thing!

For 40 years (since Kennedy) the press has been installed into the White House, an already very tight space for all those working there.  This access to the White House was not always there, and there were prior to that time many involved that new the system of preference.

This is seen by the Press in General and the MSM network as a disaster, but could it be an opportunity?  The fact is that in a day and age of instant communication -- and an elected president reluctant to have press briefings anyway (last week was the first in six months), Trump's idea is that only "invited" journalist would be welcomed into the White House -- the others would miss the scoop -- but these days the scoop less interesting.

The work done prior to the election by the Washington Post journalist in calling more than 3,000 charities to find out who had received money from the Trump Charity was a great piece of investigative journalism.  The work and the result -- actually forced Trump to shut down his charity because so little money had been given way (and almost none from Trump himself).

Not having to listen to the Press Secretary B.S. statement (something like:  Don't listen to what Trump said, think of what's in his heart) is a typical problem for the press.  Being outside of the control of the White House provides them with the opportunity to do real journalism (and not reporting on the BS that the White House wants).

In fact, the departure of the press from the WH is probably a bigger problem for the WH than for the press, because it was these briefing that enable the WH to "control" the news cycle.

A solution is for a 4k camera in the WH where the press secretary and his team give out the news and then can ignore inconvenient questions -- they can even mute microphones from journalist if they don't want to hear the real story.  The departure of the Press to different abode is certain to change the communication dynamic, but Twitter has already done that, its just a recognition of the hard facts of life, the world is changing

However, not being forced to listen to the BS of the White House (and if Trump wants to invite Breitbart and Fox news only he was going to do it anyway) provides the press with the opportunity to return to its business of reporting and investigating the news... a breath of fresh air (maybe)





Is there anyone left to piss off?

Ok Donald Trump is not yet president (four more days...).  Despite that fact, he's manage the piss-off the following:


  1. Mexico:  First, Trump said that he wanted to limit immigration -- so first was the wall, then when asked how he would pay he said it was the Mexican who would pay.  Then tariffs on imported goods (that story not over yet)
  2. China:  So far the Chinese have been playing cool, but really they may take a different view if he continues; smartly enough they've decided to wait until the "Pres" is sworn into office.  Rumbling are starting and the cost of an economic war with China could be steep
  3. NATO:  Trump wants Europe to pay a bigger share -- maybe he's right, but once they pay they will ignore America -- he wants to be the boss but not pay as the boss
  4. France:  Clearly Tump team is actively pushing the National Front to win the presidential...talk of hacking and False news... French just asked Facebook to implement an algorithm to deal with fake news
  5. Germany:  In a concentrated attack over the weekend, it's tariffs on German cars (Most BMW sold in America are assembled in the US), and a substantial percentage of spare parts come Europe (and Canada too).  Also attached Germany for the Syrian immigration -- of course no responsibility with regards to two wars in Iraq...
  6. Canada:  OK he's not really started there, but Trump has a problem, Canada has a MASSIVE trade deficit with the US, and the major culprit is the car industry that is now nearly 100% in the US...  Canada would be more than happy to reopen NAFTA -- not sure Trump gets that at all.

Evidently, Trump was the whole world against him before he even takes office.

It takes a certain talent to piss off the entire world without even yet being "THE GUY".

Wednesday, January 11, 2017

The new administration -- what could go wrong

The American political system is in for a massive shock:


  1. Trump is nominated as the GOP's presidential candidate, who has broken every rule and is certainly not GOP's establishment's first (or 5th) choice
  2. Trump over the past 6 months has bamboozled the GOP and its system -- he screwed with Romney, and other GOP grandees -- he is certain to continue (its worked so well for him) 
  3. Trump is elected -- this man who clearly suffers from ADHD will not confront a world of "gray solution problems" that are the bread and butter of the President's day.
  4. Trump nominates a cabinet of Billionaires that seem to have been chosen to destroy their individual department s-- then again maybe a good shake up is warranted, but we can expect several departments to shrink dramatically (Education & EPA to name but two)
  5. Congress is supporting a quick confirmation of Trump's nominees in the hope that they will do their bidding -- I think they are wrong!
  6. Trump's distrust of the intelligence community and of the Defense establishment is well documented yet he wants to increase surveillance and defense budgets
  7. All Congressmen are already running for re-election in 2018, and a third of the senate -- their objectives and those of Trump may conflict
  8. Trump spokesperson told reporters (on camera) that you should ignore what Trump says but "see what's in his heart".  Either Trump will become Twitterless and have scripted speeches, or the world will have to guess what's up with that!.  
  9. I suspect that one of the first things to go is "free speech" in newsrooms -- as Trump or his buddies use the courts (a la Gawker) to hit the 5th estate, where it hurts -- in their pockets.
  10. Trump has hired hookers, and bragged about it, his wife was a lingerie model and his regularly doesn't pay his contractors. He is sued by a large number of goods providers and nobody cares.
  11. If Trump was not a billionaire when he ran for the White House he will be in four years.

Again, nobody cares about all this stuff, not the GOP because they think they've got Trump in a cage (they are wrong) not the Democrats that have to figure out what it takes to destroy a candidate, who is notionally running as a republican (maybe Bernie Sanders should give it a go?).  Clinton got 3 million more votes than Trump and that was not enough to swing the election.

The next few years will be interesting



Tuesday, January 10, 2017

Banca Monte de Pachi de Sienna

On December 30th, the Italian government finally bowed to the inevitable:  They rescued BMP from an ignominious ending -- bankruptcy has been avoided, although BMP is now a government owned bank.  The troubles surrounding the world's oldest bank go back nearly two decades where thoughtless growth, booking keeping skulduggery has after two bailouts has finally been nationalized, via the injection of Euro 6.5 billion.  Also two days ago BMP announced that they will raise Euro 15 billion in debt from the market, guaranteed by the Italian Treasury (so the Euro 20 billion total exposure has already been breached).

BMP has indicated that about Euro 22 billion or nearly 1/4 of its loan book is doubtful -- that recovery will be partial.  Many of the legacy assets of the banks never lived up to their promises when they were acquired and will, I suspect, be quietly shut down.  The outflow of depositors may be reversed, but why would depositors go back to  a bank that caused them such trouble to start with, depositors that have left, have found new homes for their funds, few will return.

A newer version of BMP may emerge in a few months/year -- so that Italy can continue to lay claim to having the world's oldest bank.  It will be a shadow of its former self, it will survive to justify the billion of Euro that the Italian Treasury has invested.  Investors got nothing, it should be noted that the bank has shown an incredible ability to shoot itself in the foot.  Two bailouts already made the institution tainted.

Today, Banca Intesa Sanpaolo sold some subordinated debt in the Italian market -- a Euro 1.5 billion issue was nearly 3x oversubscribed with a coupon of 7.25%.  As they say, "bankruptcy is so 2016!". The deeply subordinated bonds were popular for two reason -- the coupon and the level of subordination; there remains real "equity risk" below the new debt tranche of 13.1% -- almost twice as much as what similar bonds had a security in the December 2016 DB deal.

The question is what next?  The Italian government had a maximum amount available for bank bail outs of Euro 20 billion -- the total for BMP so far is around Euro 22 billion.  It is known that the other Italian banks are also in trouble, and poorly capitalized.  Clearly Italian banks will issue Cocos (these deeply subordinated debt instruments) but this is expensive money and the BIS deal is certain to create a benchmark -- other Italian banks will have to  pay similar prices and similar level of subordination.

Interesting times for Italy.

On a side note US bank stocks have been on a tear of late; since the November 8 election of Trump, bank stocks have been up about 30% (both BoA and JPMorgan and GS) and even some European banks have seen a "spring" in their pricing.  In fact, US financial stock accounts for nearly 50% of the rise in the DOW

Thursday, January 5, 2017

Another job loss data point

Today, research demonstrated that shared ride of 2,000 cars could easily replace the 13,000 yellow cabs that circle NYC.  The implication is that anywhere between 11,000 and 22,000 jobs could disappear because of an algorithms (and NYC traffic would be positively impacted).  Trust me this is important news, Lyft or Uber via central dispatch can now dramatically improve car sharing opportunities for their drivers.

Now there are apparently 250,000 taxis in the US, which implies about 500,000 jobs that could be largely replaced by 40,000 ride share.  That means that almost 200,000 fewer cars (for taxi) would be bought.

I mentioned this before (many times), but self driving cars are the next step, today at least 90% of a car's life cycle is spend in garage.  Seriously if you drive 30,000km per annum its means that you use your car, on average 2 hours a day, which is 8% utilization.

Lets say that you increase your car usage to 40%, or about 10 hours a day -- which is high, but still achievable, think car sharing -- at an extreme level, but its easy to assume that 10 hours a day in a "restricted car pool" is achievable, then the number of cars you need drops by 75%, since you've just increased car efficiency by 400% (from 10% to 40%).  In 2016, in the United States, 15 million cars were sold, directly manufactured by 1.7 million Americans, moreover another 6 million American are in connected business (parts etc etc).  So the number of cars "needed" in the US just dropped by 75% -- America only needs 4 million cars -- that means that nearly 1.2 million direct jobs in the industry will go and another 4.5 million associated jobs will go too.  Today (ok in 2014) there are nearly 140 million jobs in the US -- the shift I see here is a 5% reduction in the labor force

Finally, the introduction of electric cars will dramatically reduce car maintenance (think mechanics), a modern gas powered car has between 7,000 and 10,000 moving parts, a Tesla has 150.  That reduces dramatically vehicle maintenance costs -- so garage and petrol station will disappear to.

Before taking into account the auto repair business almost 6 million jobs have been eliminated.   the The car repair industry in the US is a US$ 800 billion industry with more than 20,000 garage and workshops.

My point here is important, the world economy is not ready to deal with such massive loss of employment.  Moreover, there are no obvious new sources of jobs since automation is only increasing further.  You could move from Ford to Carrier, but thanks to Donald Trump, Carrier just got US$ 17 million that it will use to "improve productivity" (which means add many many more robots to reduce costs).  In fact, I would not be surprised that carrier could reduce by far more than 700 the number of jobs in the US over the next 6/9 months -- and Trump will say; the jobs are not gone to Mexico, this is the modern age (BTW Carrier probably contemplated automation but the costs were too high -- now they just got a freebie from the government.

It gets much worse -- looking at invoice technology (third party providers) you realize that you can fully integrate your invoicing, accounting and payroll into one application that will export the data directly to the relevant governmental agencies (no more form filling) and to your accountant (that is now software) and that will optimize your tax bill.  In effect, it is possible to automatize a massive percentage of your office's "back office" and several service providers (accountant, lawyers and financial services) will be fully automated.  Already treasurers can manage their financial exposure via bots provided by the large financial institution.

the world of employment is about to be shaken to the core, and the world is ill-equipped to deal with the problem










Stupid economists: How Josh Feinman proves my point

So, Globalization is at risk, its not only Donald Trump that is the problem, but there are waves of resentment across the world about further opening of markets.

In fact, over the past 30 years the level of equality in countries has risen dramatically:



The linchpin here is the increase (except Brazil and Mexico) of the GINI coefficient in most
OECD countries; Canada the least the Sweden the most -- but the latter one may be entirely due to IKEA...  Bottom line, voters have taken notice that the deregulation of market has resulted in less wealth and more insecurity.  The reason Trump won is because he promised "something different"  He may not be able to delivery (I am not sure he knows what to deliver) bit its sounds better than what Clinton offered which was more of the same...

However, Mr Feinman suggest that the reason deregulation and market opening is getting a bad press is entirely driven by poor explication of the benefits of free trades and other market reforms.  In fact, the people got it, they understand the limits of the market and how it has directly affected their lives; lower wages, less security -- they may find via Trump's administration that the US system is about to get a lot meaner -- expect the destruction of Obamacare within the first few weeks of the new administration.  Congress may offer a fig leaf to Trump; approve the new law or will kill the whole thing via reconciliation (that would end the ACA immediately).

The problem of Deutsch Bank's economist is that he lives in a strange world where reality is somewhat different than what "ordinary folks" face, he lives in Connecticut in one of the best neighborhoods and his entire experience about trade policy is driven by book learning.  If you worked for Carrier your entire life welding bits an pieces together, the loss of your livelihood to a Mexican welder is a clear and immediate threat, as such you view Trumps' intervention as a good thing -- it did, for a time save your job.  The benefits of market liberalization has been the top 10% of America's for the rest, the 90% saw no gain or real losses.

That is the real problem; Americans as a whole didn't see any improvement in their lifestyle over the past 30 years, their revenues have at best been static or dropped and job security is out of the door.  That's what "the people" understand, you cannot explain that away