"On the whole human beings want to be good, but not too
good, and not quite all the time.”
George Orwell
This
weekend, how NAFTA works in Mexico, and how to bet on the next coming crash, but first this.
Does Italy have the peaceful
solution to the EU’s Spain v Catalonia crisis? But could Spain afford a South
Tyrolean approach? Or is the real question, can Spain not afford to end a
lingering, festering crisis, that will drag down the economies of both,
eventually impacting the whole of the euro zone?
Italy Knows How to Solve Catalonia's Problem
A South Tyrolean-style arrangement should resolve two of the Catalan separatists' biggest grievances.
by Leonid Bershidsky
October 12, 2017, 8:00 AM GMT+1
Spanish Prime Minister Mariano Rajoy showed on
Wednesday that he doesn't merely hold a better poker hand than Catalan
leader Carles Puigdemont; he's also the better player. Unfortunately, the
Catalan separatism problem won't be resolved by this particular game.
At some point, Spain will need to offer Catalans an arrangement with which they
can live.
An
example of a potentially acceptable arrangement can be found in Italy: The
deal that South Tyrol, the majority German-speaking province, has with
Rome.
After
Puigdemont and his allies signed a document they called an independence
declaration, and another one suspending it so negotiations can be held with the
Spanish government, Rajoy called their bluff, demanding a clarification:
Had they really declared independence from Spain? The sequence of events to
which each of the possible answers will lead is much more transparent than
Puigdemont's intentions. If the answer is "yes," Rajoy intends
to take over the government of Catalonia, making it likely that secessionist
leaders will be arrested and tried for sedition. If the answer is
"no," or a fudge like Puigdemont's speech on Tuesday, Rajoy won't
need to do it because the radicals in Catalonia's government coalition will
then withdraw their backing from the first minister, likely leading to a
new election.
Rajoy
felt confident doing this because the law, brute force, the support of European
partners and big Catalonia-based businesses are aligned against Catalonia's
secession. The separatists cannot even claim the support of the majority of
Catalans, since no one recognizes the outcome of the highly irregular
referendum they held on Oct. 1 and since a rally in Barcelona on Sunday
attracted at least 350,000 Spanish unity supporters. Puigdemont doesn't have a
leg to stand on, and he's likely on his way out.
While
he's still first minister, there's no reason for Rajoy to negotiate: He's not
prepared to discuss secession, and Puigdemont is on record that that's his
goal. But once that issue is off the table, Madrid will have to sit down to
talk with Catalan representatives. It's unavoidable: Whether or not there's a
pro-independence majority, too many Catalans are not happy with the current
arrangement. Socialist leader Pedro Sanchez has already indicated that the main
Spanish parties have agreed to discuss changes to the constitutional status of
Catalonia and Spain's other regions.
Rajoy has
never offered a coherent alternative to Catalans. It exists, however, to the
northeast.
At the
end of World War I, Italy acquired South Tyrol from Austria in accordance with
the 1919 Treaty of St. Germain. The Italian fascists tried to
assimilate the population of Alto Adige, as it is known in Italian,
then Hitler agreed with Mussolini to resettle those who wanted to live in the
German Reich. Most remained but kept their identity. After the war, the allies
decided Italy was to retain South Tyrol, and Austria and Italy worked out the
terms, including the equal status of German and Italian languages in public
life, teaching in German in local schools, the retention of German family names
that had been Italianized, an autonomous parliament and government, and other
special rights for the South Tyrolese.
The
autonomy has since evolved into an elaborate arrangement with a clear
separation of parliamentary powers. South Tyrol's laws take precedence in
agriculture, tourism, public health, welfare, the environment and a number of
other areas. The lineup of the province's government and various public
services, except police forces and the military, must reflect its ethnic
proportions. Courts hold bilingual proceedings. South Tyrol keeps 90 percent of
locally collected taxes, including income tax, and 70 percent of the
value-added tax (the rough equivalent of U.S. sales tax) paid in its territory.
Moreover, the Italian government has long subsidized the province.
More
Now
back to some interesting reading and economic history on Mexico and NAFTA. But
does anyone in the White House know or care?
The Godfather of Mexican Manufacturing Couldn’t Care Less About Donald Trump
October
12, 2017, 10:00 AM GMT+1 October 12, 2017, 11:23 PM GMT+1
Jaime Bermúdez has been building factories in Juárez since 1967. They do business all over the world, Nafta or no Nafta.
By Lauren
Etter
In Ciudad Juárez, along the U.S.-Mexico border at the
foot of the Sierra Madre, a dark blue Range Rover winds through the empire
built by Jaime Bermúdez Cuarón. The vehicle is carrying two of the 94-year-old
real estate magnate’s sons and two of his adult grandchildren; bodyguards
follow in two cars. Juárez isn’t besieged by drug cartel violence quite like it
was a decade ago, but the elite are still targets. And the Bermúdezes, who’ve
amassed a fortune establishing Mexico’s central role in the rise of globalization,
are most definitely elite.
The caravan passes hulking factories, one after
another on the creosote-and-cactus-lined streets. Each has its own concrete or
iron enclosure and bears a company name on the side—Eagle Ottawa, Capcom,
Copper Dots, Microcast, Filtertek—like individual fiefdoms flying their coats
of arms.
These are the mostly invisible weavers, processors, builders, molders,
and sorters that power the global economy. They’re the brands behind the
brands. The guts inside the things. These factories are churning out leather
seats, light-emitting diodes, heart stents, plastic ice buckets, smartphone
screens, steering shafts. Most of the pieces will be shipped on, sometimes
crossing several borders and multiple plant floors, before becoming part of a
finished consumer product.
That’s why these factories are known as maquiladoras—loosely, gristmills. Multinational corporations bring their raw goods to the factory like a farmer brings his grain to the mill; the factory hands it back processed and ready for the next stage of production. Almost nobody does this better than Juarenses, as the people of Juárez are known—not even, the Bermúdez family regularly emphasizes, the Chinese. “As a matter of fact, one of the prime ministers from China brought the minister of industry here and he stayed for three years,” says Jorge Eduardo Bermúdez Espinosa, the fifth of Jaime’s seven children, as the car makes its way through traffic-clogged streets. The minister later invited his father to China, says Jorge, “and he said, ‘Thanks to being in Juárez, we learned how to do it.’ ”
A gate rises as a guard waves the SUV through. It slips into a parking spot in front of BRP Inc., a Canadian manufacturer of recreational vehicles, including Ski-Doo snowmobiles, Sea-Doo watercraft, and three-wheeled motorcycles called Spyders. Here, BRP makes open-sided off-road vehicles under the Can-Am brand. The four Bermúdezes don safety glasses and fluorescent-orange vests, standing on land that five decades ago was the family cotton farm.
Loud clanking and hissing reverberate through the massive plant, which smells sharply of hot rubber. Sparks fly as an army of welders fashions the hefty frames of the vehicles, which then get moved down an assembly line of humans and robots. At the end, finished vehicles are encased in wooden boxes, loaded on semitrucks, and shipped around the world.
This is just one of about 50 maquiladoras operating inside the Antonio J. Bermúdez Industrial Park, which is named after Jaime’s politically powerful late uncle and sits on Antonio J. Bermúdez Avenue on the northeast side of town, just over a mile from the Rio Grande River. An additional three dozen industrial parks and industrial zones in Juárez contain some 400 factories of various sorts and sizes; all told, the maquiladoras employ almost 300,000 people. Dozens of other such manufacturing clusters have sprung up in Mexico, here along the border as well as deeper in the interior. But Bermúdez’s was first, in the late 1960s, and his collection of seven parks remains among the largest. “Don Jaime is the quote unquote godfather of the maquiladora sector,” says Roberto Coronado, a senior economist at the Federal Reserve Bank of Dallas and an expert on the border economy. “He was really the visionary.”
An American-educated engineer from a connected family, Bermúdez was eager to squeeze more from his cotton field in the Chihuahuan Desert. As he watched the rise of Taipei and Tokyo, he came to see potential in the growing number of unemployed workers who lived in the dusty border town, then mostly known for its brothels, gunfights, and express divorces. Bermúdez made it his mission to remake Juárez.
Today, the Bermúdez family owns a massive empire in Desarrollos Inmobiliarios Bermúdez S.A. de C.V., whose holdings include the industrial parks, office space, concrete manufacturing businesses, and strip malls. The company is also in the middle of a raging storm over global trade. President Donald Trump has called the North American Free Trade Agreement the “worst trade deal ever made” and promised to renegotiate its terms. A round of Nafta talks, the fourth during the Trump era, began in Washington on Oct. 11. And of course there’s the constant talk of a big, beautiful wall.
Bermúdez is, if not sanguine about all this, at ease. If he loses favor with the Americans, the Chinese are eager partners, as are the Germans, the Dutch, the Japanese. “We signed a contract yesterday for seven years,” he says, sitting in a brown leather chair in a wood-paneled den, the deep wrinkles on his face framing his piercing blue eyes. “We are very optimistic. We are making money for everybody. A wall’s not going to stop that.”
---- The following year, the Mexican government agreed to the consultants’ idea and produced the Border Industrialization Program. The agreement allowed U.S. manufacturers to set up shop south of the border and import their equipment and raw goods into Mexico free of tariffs so long as the items manufactured there were ultimately exported back to the U.S. This dovetailed with the recently established U.S. tariff item 807, which allowed for the duty-free import of U.S. goods that had been assembled abroad, with a tax levied only on any “value added” to the goods while they were outside the U.S. The provision gave U.S. companies an incentive to assemble their goods where the cost of labor was lowest.
Jaime now had a new mission: luring American companies to Juárez. He traveled extensively in the U.S., evangelizing about Juárez to anybody who would listen. American executives streamed in from the industrial Midwest, sniffing around the city to see what it was all about.
The marriage of U.S. tariff item 807 and Mexico’s border industrialization plan created an accelerating flow of trade. In 1965, U.S. imports from Mexico under item 807 were $3.1 million. Four years later they’d mushroomed to almost $150 million, according to figures from a 1970 report by the U.S. Tariff Commission. Today most trade between the two countries is done under a different set of rules governed by Nafta. Last year, U.S. imports of goods from Mexico totaled almost $300 billion.
Bermúdez landed his first client in 1967: Acapulco Fashions, a small company that made women’s undergarments. Then a much bigger target came into view: RCA Corp., at the time the world’s largest maker of color televisions. A construction manager for the company was visiting Juárez. He quickly became Bermúdez’s honored guest.
Already, American labor unions were up in arms because of item 807. The AFL-CIO had proposed a boycott of goods imported from Mexico and was lobbying Congress to close loopholes in trade laws to discourage companies from moving south of the border. A deal with RCA didn’t come easily—the company wanted concessions that reflected its disquiet about operating in Mexico, and it demanded the project be kept quiet. But on Nov. 26, 1968, Bermúdez stood in his cotton field, with news cameras and city officials present, and placed a brick engraved with his name on a newly laid foundation that would become a 115,000-square-foot plant assembling TV parts. It was the first large-scale maquiladora in Juárez.
---- Ownership of Juárez’s industrial parks is now international; global real estate investment trusts have been buying them up. The parks typically provide the roads, water, sewers, and other infrastructure. The Bermúdez operation does that and more: The company designs factories (Jorge Bermúdez heads the architectural practice) and builds them (it makes the cinder blocks in its own plant), then leases or sells them to manufacturers. It complements its industrial parks with nearby strip malls containing restaurants, banks, barbershops, and pharmacies.
If the
industrial parks are cities inside the city, the factories are often their own
little towns. At the BRP factory, which until 2006 was the RCA plant, the 1,200
workers can drop their laundry at a little kiosk when they arrive at work and
pick it up washed and folded when they leave. They have access to on-site
doctors and child care, and their free breakfast is served in a cafeteria
overlooking a soccer field. In recent years, factories have offered recruitment
bonuses because of what the industry describes as a labor shortage.
---- But Juárez has strengths it lacked even a few years ago. Companies around the world are constantly prowling for lower production costs, and it’s now cheaper to hire a worker in Mexico than in China. In 2000, Chinese workers earned half of what Mexican workers did, adjusted for productivity. By 2014, Mexico’s adjusted labor costs were 9 percent lower than China’s, according to an analysis by the Boston Consulting Group.
For decades almost every maquiladora in Juárez was owned by a U.S. company. Today the figure is 63 percent. Japanese companies own 8 percent, German companies 7 percent. Other owners are from China, France, South Korea, Malaysia, Sweden, and Taiwan, according to María Teresa Delgado, president of Index Ciudad Juárez, a trade group that represents the maquiladora industry. “The Trump experience, it really opened our eyes,” she says. “At first we were all kind of nervous because we thought the world would come to an end. But there is a bright side to every dark side, and that’s what we found out. … We’re more global than we were a few years ago.”
More. Much more.
Finally,
what is wrong with this? Haven’t we been here before less than a decade ago?
“I’m just a banker doing God’s work”
Lloyd Blankfein’s CEO Goldman Sachs, threat 2008. “Mr. Goldman
Sacks.”
Goldman Has a New Way for You to Bet on the Next Banking Crisis
By Alastair Marsh and Tom Beardsworth
October 11, 2017, 3:29 PM GMT+1 October 12, 2017, 3:45 PM
GMT+1
Less than a decade after the last major banking crisis, Goldman Sachs Group Inc. and JPMorgan
Chase & Co. are offering investors a new way to bet on the next one.The two financial giants are now making markets in derivatives that allow investors to bet on or against high-risk bank bonds that financial regulators can wipe out if a lender runs into trouble. Others are also planning to start trading the contracts, known as total-return swaps, in the coming weeks, according to Max Ruscher, the London-based director of credit indexes at IHS Markit Ltd., which administers the benchmarks that the swaps are linked to.
At a time when financial markets are racing from one high to another, and even the new Nobel laureate in economics is wondering aloud about investor behavior, the development is at once a sign of the headlong global race for investment returns and nagging worries that the investors may be getting ahead of themselves.
Underlying these trades are securities known as additional Tier 1 notes, which banks started issuing after the European debt crisis. They seek to protect taxpayers from bearing the cost of government bailouts, bringing with them relatively high yields. In an era of near-zero interest rates, they’ve become sought after by debt investors around the world, ballooning into a $150 billion market.
---- Tier 1 capital is a “shock absorber” that banks can use to boost their balance sheets in an emergency, while imposing losses on creditors, Jim McCaughan, chief executive officer at Principal Global Investors, said in an interview on Bloomberg Television. That could create a negative “feedback loop” for traders, he said.
“I don’t believe it’s a danger yet because I don’t think there’s that speculation going on in a big way,” he said. “But watch this space and be very wary of this.”
At least some of the demand for the new derivatives is coming from investors looking to protect themselves should prices of the debt drop -- or should another banking crisis erupt. Those risks emerged in June, when AT1s issued by Banco Popular Espanol SA were wiped out as part of a bank rescue.
----Wall Street and City of London banks have a long track record of creating derivatives around debt markets as investors grow nervous that they’re becoming too exposed. Before the financial crisis a decade ago, they created credit-default swaps tied to subprime mortgages, enabling the trade that Michael Lewis made famous in his book “The Big Short.” Other swaps created around the same time have since become used to bet against commercial mortgages that are heavily exposed to shopping malls.
AT1 notes can’t be hedged with credit-default swaps because banks can skip coupon payments on the bonds without triggering a default.
More
“It is hard for us, without being flippant, to even
see a scenario within any kind of realm of reason that would see us losing one
dollar in any of those [CDS] transactions.”
Joseph J. Cassano, a former A.I.G. executive,
August 2007, on Credit Default Swaps that wiped out A.I.G in 2008.
And finally, finally, is Ireland
about to get its first hurricane?
Hurricane Ophelia is headed for an unlikely place — Ireland
Published: Oct 13, 2017 3:44 p.m. ET
Ireland has no official hurricane season and has recorded just one major storm, in 1839
Hurricane Ophelia, the storm that formed over the Atlantic late last week, poses no threat to the U.S., but it may cause trouble for a small island far from the Caribbean.Ophelia is on track to move near or even over Ireland and the western U.K. in the next three to four days. Strong winds and rain are looking increasingly likely for both, the National Hurricane Center said in an advisory.
The storm is currently tracking about 545 miles southwest of the Azores with maximum sustained winds of 100 miles an hour. It is moving east-northeast at 12 miles an hour and is expected to build speed through Saturday. Ophelia will weaken from hurricane strength as it passes over the Atlantic and hits cooler waters.
“Given the expected increase in the size of Ophelia’s wind field during extratropical transition, impacts from strong winds and rain are becoming increasingly likely over portions of the British Isles regardless of the exact track of the center,” said the NHC.
As the image below illustrates, the storm’s current path could take it over all of Ireland.
The Irish weather service, Met Eireann, is taking a cautious approach to the storm, noting that it’s too early to forecast its exact path or expected strength.
“While there could be the threat of wind gusts reaching hurricane force or, indeed, heavy rainfall with this system, it means the traditional attributes of a hurricane—such as an eye or an eyewall containing a core of hurricane-force winds — are very unlikely to be present,” Met Eireann said in its latest update.
Instead, “the storm will likely engage and merge with a frontal zone in the Atlantic, morphing into a mid-latitude depression with tropical characteristics,” the service said.
No doubt, Irish forecasters will be keeping a close eye on the storm over the next few days.
http://www.marketwatch.com/story/hurricane-ophelia-is-headed-for-an-unlikely-place----ireland-2017-10-13
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