Baltic Dry Index. 1570 +15 Brent Crude 84.88
There is nothing more difficult
to take in hand, more perilous to conduct, or more uncertain in its success,
than to take the lead in the introduction of a new order of things.
Niccolo Machiavelli,
Washington Trade Advisor.
To be effective, Trump now needs to do a similar deal with Europe, but
that puts the EU firmly in the driving seat on any EUSSR-USA trade agreement. Juncker
et al, can now simply play the China card back against trade war team Trump.
Stick with a developed, if declining, deeply indebted, now unreliable, old
trade partner, or swing in with a fast rising new Chinese economy of 1.4
billion potential consumers, largely backed up by resource rich Russia.
The spoils of the 21st century are now in play, and Europe, I
suspect will now demand a very high price for staying on the US reservation.
But with GB, Germany, France, Russia and China, already building a trade with
Iran mechanism to thwart America, that die may have already been cast.
Below, the South China Morning Post sounds the alarm. A new “Great Game,”
is just getting underway.
One who deceives will always
find those who allow themselves to be deceived.
Niccolo Machiavelli,
Washington Trade Advisor.
China ‘threatened with isolation’ by veto written into US-Mexico-Canada trade deal
A clause allowing any member of the North American trio to effectively block each-other’s free-trade deals seems aimed at China and is expected to feature in future US trade agreements
PUBLISHED : Tuesday, 02 October, 2018, 10:01pm
UPDATED : Wednesday, 03 October, 2018, 7:05am
A special clause in the new US-Mexico-Canada trade agreement would give
Washington a near-veto over any attempt by Canada or Mexico to agree to a
free-trade deal with a “non-market economy”, in what analysts have said is a
major threat to China’s position in the global trading system.
The United States-Mexico-Canada Agreement (USMCA), finalised on Sunday
to replace the 24-year-old North America Free Trade Agreement, stipulates that
any of the three parties to the deal has the right to be informed about any
negotiations on a free-trade agreement with a “non-market economy” at an early
stage, and can review any such deal signed by another member.
If one of the three were to sign a free-trade deal with a non-market
country, either of the other two would have the right under article 32.10 to
terminate the trilateral USMCA with six months’ notice and form its own
bilateral deal on the same terms.
The agreement needs to be approved by the governments of all three counties,
including the US Congress, which isn’t expected to take it up until early next
year.
Despite repeated Chinese demands that they do so, the US and European
Union have refused to classify China as a “market economy” – a technical
distinction in the World Trade Organisation framework that would reduce the
ability of Washington and Brussels to impose trade sanctions on Beijing.
Although the new stipulation – which was not included in the trade deal
between the US and South Korea agreed last month – does not name any specific
country, analysts understand it to be aimed at China.
With the power to review and then impede or effectively veto a possible
free-trade deal between China and Canada or Mexico, the US can block potential
“backchannels” for Chinese products to enter US markets via its neighbours, and
gain a significant advantage in weakening Beijing’s negotiating power in future
trade talks.
----But
the clause has wider implications than scuttling any future China-Canada deal.
If the US were to insert a similar clause into trade deals it is negotiating
with the EU and Japan, it would mean Beijing’s best hope of trading with the
EU, Japan and Canada to offset an extended trade war with the US would be
quashed, according to trade experts.
It could, in effect, create a new partnership hemming in China, much as
the 12-country Trans-Pacific Partnership was meant to do when it was signed in
2016, before being scrapped.
Song Eui-young, an economics professor specialising international trade
at Sogang University in Seoul, said the clause was a sign of Washington’s
desire to create an “economic alliance” against China.
US
President Donald Trump has changed his early tactic of quarrelling with all of
the US’ major trading partners simultaneously and is instead pursuing “a new
trade stance to unite Europe, Japan and Canada into an economic alliance
against China”, Song said.
----
So far, China has signed 16 bilateral free-trade deals, including those with
Australia, New Zealand, Iceland, South Korea, Singapore and the 10-nation
Association of Southeast Asian Nations, in total accounting for about a quarter
of China’s total foreign trade. China has no free-trade deal with Canada,
Mexico, Japan, Europe or the US.
More
In EUSSR news, is Germany about to shock the EUSSR
to its core? We’ll know in about another two weeks. Depending on the outcome in
Bavaria, the USA may have to pay a very high price to keep the EUSSR on the USA
reservation, if it’s possible at all.
Far-right surge in Bavaria vote could reshape Germany's national politics
October 2, 2018 / 1:27 PM
NUREMBERG, Germany (Reuters) - The
right-wing Alternative for Germany (AfD) is poised to humiliate Chancellor
Angela Merkel’s allies in an Oct. 14 vote for Germany’s most influential
regional government, an election that could have far-reaching implications for
national politics.
With blunt anti-Islamic rhetoric and attacks on Merkel’s migrant policy,
the AfD is expected to muscle into the regional parliament in Bavaria for the
first time.
That could help end one of the iron laws of post-war Germany: the near
total domination of one of the richest and most populous states by a regional
conservative party that has used its clout there to wield outsized national
power for decades.
Polls point to the Christian Social Union (CSU) losing its absolute
majority and securing only about 35 percent of the vote. The biggest winners would
be the Greens and AfD on about 16 percent and 12-13 percent respectively.
“We will inflict pain on the big parties. That’s what motivates us. The
chancellor has nothing more to give,” Wolfgang Doerner, a 57 year-old
businessman and AfD candidate for the Bavarian assembly told a cheering crowd
of supporters in mediaeval Nuremberg, Bavaria’s second biggest city.
“This vote will be felt in Berlin as well as Munich,” Doerner told
mostly male delegates in a modern concert hall.
The CSU has fallen short of an absolute majority in Bavaria’s state
assembly only once since 1954, when it missed by two seats in 2008. Its vote
share, usually close to 50 percent, has not fallen below 43 percent in 64
years.
That regional power has assured Bavarian CSU leaders a solid grip on
senior cabinet positions in the conservative national governments that have
dominated post-war Germany.
If the polls are right, the vote will be a heavy blow to CSU leader
Horst Seehofer, who props up Merkel’s coalition government in Berlin and serves
as interior minister.
More
To widen the market and
to narrow the competition, is always the interest of the dealers…The proposal
of any new law or regulation of commerce which comes from this order, ought
always to be listened to with great precaution, and ought never to be adopted
till after having been long and carefully examined, not only with the most
scrupulous, but with the most suspicious attention. It comes from an order of
men, whose interest is never exactly the same with that of the public, who have
generally an interest to deceive and even oppress the public, and who
accordingly have, upon many occasions, both deceived and oppressed it.
Adam Smith, The Wealth of Nations, 1776.
Crooks and Scoundrels Corner
The bent, the seriously bent, and the totally doubled over.
Today, Moody’s on the Eurozone’s next downturn. Worse for longer, next
time it seems. But that’s probably true for all, given that China can’t repeat
2008- 2010, and given the Trump trade war on China, why would they want to? Euros
anyone?
Moody's: Europe will be more exposed in the next downturn
02 Oct 2018
Milan, October 02, 2018 -- Despite issuers benefiting from benign credit
conditions and banks having strengthened their balance sheets since the last
downturn, Europe is not ready to cope with another major slump stressing the
financial system, says Moody's in a report published today. Moody's report, "Cross-Sector -- EMEA: Five vulnerabilities will deepen the impact in Europe of the next downturn," is available on www.moodys.com. Moody's subscribers can access this report via the link provided at the end of this press release. The rating agency's report is an update to the markets and does not constitute a rating action.
"While there have been some improvements since 2008, Europe remains vulnerable in economic terms as debt loads are higher, there are fewer tools to aid recovery, asset prices are peaking, political and regulatory risks are rising, and disruptive technologies are affecting more and more sectors," says Paolo Leschiutta, Senior Vice President at Moody's.
"Overall, the amount of wiggle room available to mitigate the impact of another downturn is shrinking," adds Mr Leschiutta.
Private debt levels have remained at a historically high level in the last decade, leaving many issuers more exposed should interest rates rise sharply and remain high. High and increasing public debt levels will also leave a number of European countries exposed to the next recession and the impact of costs associated with ageing populations.
Government and central bank actions taken to aid recovery from the last downturn have limited the options at their disposal to counter the next economic decline. Monetary stimulus is having diminishing returns, and successive rounds of sub-sovereign measures make further cuts and budget consolidation more difficult. Moreover, economic growth will remain sluggish, limiting the speed of recovery following a recession.
Elevated prices mean some assets and financial markets are at risk of a sudden correction if interest rates rise quickly, beyond market expectations. For corporates, high multiples and asset valuations increase M&A execution risks because companies overpaying for deals might find it harder to reduce debt.
Low growth and still high unemployment in some jurisdictions fuel economic insecurity, fostering anti-establishment movements, which could further rise in popularity if another crisis erupts. Even mainstream policymakers could intervene to withdraw previously assumed support or increase protectionism.
Rapid technological change is also disrupting a number of sectors and creating new sources of competition, with laggards weaker in the event of a downturn. Industries which house a lot of personal data are at greatest risk of large-scale data theft attacks and serious reputational and financial damage.
Technology Update.
With events happening fast in the
development of solar power and graphene, I’ve added this section. Updates as
they get reported. Is converting sunlight to usable cheap AC or DC energy
mankind’s future from the 21st century onwards?
How Renewables Lead to a World of Peak Energy
It can be hard to get your head around just how much energy the world
uses. Expressed in terms of oil, it was equivalent to almost 14 billion metric
tons of the stuff in 2017. That’s like burning through all of Russia’s proved
reserves in the space of 12 months, which is, in technical terms, a lot.
But there’s an even trickier issue to ponder: What does it even mean to
“use” energy? Granted, that sounds like something you might hear from a stoner
at the engineering faculty. But it’s an increasingly important question as renewable
energy and electrification expand.
Harry Benham, an oil-industry veteran who now runs Carbury Consulting,
wrote an elegant blog post this summer about the fundamental difference between
thermal energy — mostly from burning stuff or splitting atoms — and what
he calls the “universal energy” captured in wind and solar power.
While earlier
shifts, such as swapping wood for coal, are often called energy transitions,
they were really substitutions of one thermal source to another. But wind and
solar “are different energies in kind, not degree.”
The big thing here is waste. Broadly speaking, when you burn a gallon of
gasoline, perhaps only a quarter of the energy released actually goes into
turning the wheels. The rest is wasted, mostly as heat. In other words,
you buy roughly four gallons of gasoline to get the useful energy of one.
Renewable energy doesn’t work that way, with wind turbines or solar arrays
effectively capturing energy from the ether. Yes, they only convert a portion
of the energy hitting them into electricity, but that energy is infinite and
hasn’t had to be mined or pumped and transported.
This presents an apples-and oranges-problem for statisticians. Here are
projections of global primary energy demand in 2040 from BP Plc and the
International Energy Agency.
----The really interesting difference concerns hydro, solar and wind power. BP’s higher figure isn’t because it is more bullish on these. Rather, in order to make the renewables figures comparable with the ones for fossil fuels and nuclear power, BP grosses them up as if they also produced waste energy.
The IEA doesn’t do this, so its figure represents just the energy derived from a solar panel, wind turbine, or hydro plant. The IEA figure is 36 percent of the BP one, similar to the 38 percent conversion factor BP uses to adjust the data.
There are pros and cons to both approaches. The IEA’s reflects the
fundamentally different nature of renewable energy, but at the cost of making
its share of the market look very low: Solar and wind are 11 percent of
BP’s mix in 2040 but less than 4 percent of the IEA’s.
By far the biggest element in both forecasts, though, is the one you
can’t see: waste.
Here are BP’s projections, but with a few adjustments. First, I’ve
grouped them into thermal sources (oil, gas, coal, nuclear, biomass and
biofuels), hydro power, and wind and solar power. Then, I’ve assumed a flat
conversion efficiency of 38 percent for the thermal sources (i.e., the amount
of useful energy they produce). This is in line with BP’s assumed average for
thermal power plants and is used across the board for the sake of simplicity:
MoreThe monthly Coppock Indicators finished September.
DJIA: 26,458 +199 Down. NASDAQ:
8,046 +261 Down. SP500: 2,914 +166 Down.
All
three slow indicators moved down in March, but the S&P and NASDAQ turned up in August. September will be critical for confirmation
of this change. All 3 slow indicators failed to confirm August’s positive
change making October very vulnerable to a sell off.
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