Andrew Ross Sorkin writes: On Monday, market participants steeled themselves for a steep decline, but the indexes in the United States were up more than 1 percent, and markets in Europe were close to flat.
But that reaction — and the reaction to previous attacks — may belie the true cost of terrorism and, more important, underestimate the potential cost of the Paris killings.
“The aftermath of the Nov. 13 Paris attacks may not in itself prompt extensive market-based volatility,” Citigroup wrote in a report, suggesting that financial markets “treat such developments as idiosyncratic and the unfortunate reality of a world where large-scale carnage has become an almost daily, if sickening, development.”
The report, however, said, “We think this time is different.”
That view is consistent with the opinions of some security experts, who in recent days have said that the attack in Paris represents just one in a continuum.
“We have upgraded the risk of terrorist attacks not only in the Middle East but also in the West, as well as the likelihood of increased international military intervention in IS strongholds in Syria, Iraq and Libya,” Citigroup said, referring to the Islamic State.
The attack in Paris could have far-reaching implications for the future of the eurozone and for companies doing business there. The events in Paris could add to the pressure to close borders in the eurozone. It is also reigniting a debate about privacy and surveillance that could have big implications for technology companies.
Over the weekend, Evercore ISI, the research arm of the investment bank Evercore, published a note to its clients suggesting that the events in Paris could threaten the political support inside Germany for its chancellor, Angela Merkel, who has been a big supporter of open borders, of the Syrian migration and of limiting electronic surveillance on civil liberty grounds.
“The connection between the terror threat and migration flows threatens to rupture the border-free Schengen zone,” the note said, describing the borderless, passport-free zone known as the Schengen area. “It challenges Merkel’s position at home and in the wider E.U., nudging higher the tail risk that Europe’s indispensable leader could fall from power.”
The economic implications of this are significant, to say the least. Evercore ISI even speculated it was possible that Ms. Merkel could ultimately be replaced by Wolfgang Schäuble, Germany’s finance minister, who has seemingly been inclined to let Greece leave the eurozone.
Policy makers and investors estimating the cost of terrorism often miss the larger picture: While the stock market quickly rebounded after Sept. 11, the true economic damage may have been as high as $3.3 trillion. [Continue reading…]
— Christiana Figueres (@CFigueres) October 12, 2015
We Mean Business: Almost 400 institutional investors representing more than $24 trillion in assets relased a statement in top-tier business and finance journals around the world, today.
In a previous letter to the G7 governments, investors noted that with the right market signals from policy makers, investment in low-carbon and climate resilient opportunities can flow and climate impacts and resulting economic damages can be mitigated.
Today’s statement from the group of investors who are responsible for managing the retirement savings and investments of millions of people, called for governments who will meet at the December climate negotiations in Paris to secure a clear, long-term goal. A long-term goal will enable investors to deploy more capital and unleash a wave of innovation, reduce emissions, build climate resilience and protect the investments and the livelihoods of millions of citizens around the world. [Continue reading…]
Climate Progress reports: The divestment movement is really gaining steam — non-coal, non-fossil-fuel powered steam.
Investors representing $2.6 trillion in assets have pledged to cut fossil fuels from their portfolios, a fifty-fold increase from last year. At least 436 institutions have pledged to stop investing in fossil fuels — for moral or financial reasons. Large pension funds and private companies make up 95 percent of the assets, according to analysis released Tuesday by Arabella Advisors.
“If these numbers tell us anything, it’s that the divestment movement is catching fire,” said May Boeve, executive director of campaigners 350.org.
Actor Leonardo DiCaprio, who established a fund for conservation projects in 1998, also announced that he would join the movement by divesting his assets and those of the Leonardo DiCaprio Foundation. [Continue reading…]
Paul Mason writes: The OECD’s central projection is that, to stand a chance of avoiding stagnation, the EU’s workforce will have to add 50 million more people through migration by 2060 (a similar number is needed in the US). The Paris-based thinktank says if that doesn’t happen, it is a “significant downside risk” to growth. What this means should be spelled out, because no politician has bothered to do so: to avoid economic stagnation in the long term, Europe needs migrants.
Consent for inward economic migration is fragile and falling – as evidenced by the sudden rush by politicians and tabloids to reclassify the Syrian exodus as a special case. Even if populist resistance to migration stops short of fascism, and even if anti-migration parties are disempowered by the electoral system, their existence highlights a failing consensus. And that is, in turn, founded on economic failure. The Eurozone has produced an arc of stagnation and discontent along its southern border. There is mass unemployment in the very countries that have become the first port of call for migrants and refugees.
So the challenge for Europe is clear. To absorb the refugees we are going to need a new set of rules about where they’re processed; new arrangements for internal travel in Europe. Plus a new social consensus about who can come, who can’t and where they are going to live and work. And, ultimately, a massive economic stimulus.
If the EU cannot do all this, its constituent nations will begin to do so separately. And so, in the space of a summer, the refugee crisis crashes into the Euro crisis, and the one consistent problem is failure of leadership, anticipation and vision. [Continue reading…]
The Guardian reports: Citi Global Perspectives & Solutions (GPS), a division within Citbank (America’s third-largest bank), recently published a report looking at the economic costs and benefits of a low-carbon future. The report considered two scenarios: “Inaction,” which involves continuing on a business-as-usual path, and Action scenario which involves transitioning to a low-carbon energy mix.
One of the most interesting findings in the report is that the investment costs for the two scenarios are almost identical. In fact, because of savings due to reduced fuel costs and increased energy efficiency, the Action scenario is actually a bit cheaper than the Inaction scenario. [Continue reading…]
Der Spiegel reports: When Visar Krasniqi reached Berlin and saw the famous image on Bernauer Strasse — the one of the soldier jumping over barbed wire into the West — he knew he had arrived. He had entered a different world, one that he wanted to become a part of. What he didn’t yet know was that his dream would come to an end 11 months later, on Oct. 5, 2015. By then, he has to leave, as stipulated in the temporary residence permit he received.
Krasniqi is not a war refugee, nor was he persecuted back home. In fact, he has nothing to fear in his native Kosovo. He says that he ran away from something he considers to be even worse than rockets and Kalashnikovs: hopelessness. Before he left, he promised his sick mother in Pristina that he would become an architect, and he promised his fiancée that they would have a good life together. “I’m a nobody where I come from, but I want to be somebody.”
But it is difficult to be somebody in Kosovo, unless you have influence or are part of the mafia, which is often the same thing. Taken together, the wealth of all parliamentarians in Kosovo is such that each of them could be a millionaire. But Krasniqi works seven days a week as a bartender, and earns just €200 ($220) a month.
But a lack of prospects is not a recognized reason for asylum, which is why Krasniqi’s application was initially denied. The 30,000 Kosovars who have applied for asylum in Germany since the beginning of the year are in similar positions. And the Kosovars are not the only ones. This year, the country has seen the arrival of 5,514 Macedonians, 11,642 Serbians, 29,353 Albanians and 2,425 Montenegrins. Of the 196,000 people who had filed an initial application for asylum in Germany by the end of July, 42 percent are from the former Yugoslavia, a region now known as the Western Balkans.
The exodus shows the wounds of the Balkan wars have not yet healed. [Continue reading…]
The New York Times reports: While the price has been declining for months, forecasts have always been hedged with the assumption that oil would eventually stabilize or at least not stay low for long. But new anxieties about frailties in China, the world’s most voracious consumer of energy, have raised fears that the price of oil, now 30 percent lower than it was just a few months ago, could remain depressed far longer than even the most pessimistic projections, and do even deeper damage to oil exporters.
“The pain is very hard for these countries,” said René G. Ortiz, former secretary general of the Organization of Petroleum Exporting Countries and former energy minister of Ecuador. “These countries dreamed that these low prices would be very temporary.”
Mr. Ortiz estimated that all major oil exporting countries had lost a total of $1 trillion in oil sales because of the price decline over the last year.
“The apparent weakness in the Chinese economy is radiating out into the world,” said Daniel Yergin, the vice chairman of IHS, a leading provider of market information, and the author of two seminal books on the history of the oil industry, “The Prize” and “The Quest.”
“An awful lot of producers who enjoyed good times were more dependent on Chinese economic growth than they recognized,” Mr. Yergin said. “This is an oil shock.”
Although the price drop has most directly hurt oil exporters, it also may signal a new period of global economic fragility that could hurt all countries — an anxiety that already has been evident in the gyrating stock markets.
The price drop also has become an indirect element in the course of Syria’s civil war and other points of global tension. Countries that once could use their oil wealth as leverage, like Russia, Iran and Saudi Arabia, may no longer have as much influence, some political analysts said. Iran, which once asserted it could withstand the antinuclear embargo of its oil by the West, appeared to have rethought that calculation in reaching an agreement on its nuclear activities last month. [Continue reading…]
Edmund S. Phelps writes: What is wrong with the economies of the West — and with economics? It depends on whether we are talking about the good or the just.
Many of us in Western Europe and America feel that our economies are far from just, though our views on justice differ somewhat. One band of economists, led for decades by the British economist Anthony Atkinson, sees the West as being in another Gilded Age of inequality in income and wealth. Adopting Jeremy Bentham’s utilitarian view, they would redistribute income from those in high brackets to those farther down—until we reach the highest “sum of utilities.” It is a question, though, whether this doctrine captures intuitive views of what is just.
Philosophers over these same decades have been more interested in the work by the American philosopher John Rawls. His book A Theory of Justice argues for a fundamental shift away from Bentham: economic justice is about the distribution of “utilities,” for him a word usually denoting the satisfactions of consumption and leisure, not the sum of those utilities. It is about the terms on which each participant contributes to the fruit of the society’s economy. For Rawls, justice requires the state to use taxes and subsidies to pull up people with the lowest wages to the highest level possible. That way, the least advantaged get the largest possible portion of the gain from people’s cooperation in the economy.
A struggle persists between these views. The Benthamite view has morphed into the corporatist idea that a nation’s government ought to provide benefits, whether in the form of money or tax advantages, or free services, to interest groups — whether corporations, or unions, or consumers — that voice a need until more benefits would be deemed to cost too much. Meeting these claims of many different interests has left little in the public purse for low-wage workers.
The Rawlsian view has found little support among legislators, it is true. In the US, the Earned Income Tax Credit was passed in 1975. But it mainly supplements the income of low-wage mothers of young children. It does nothing for low-end workers as a whole and, to some extent, it actually reduces paychecks for low-paid work of childless women and single men. In Europe, a few countries spend much more than the US on job subsidies but statistical analyses have not found large effects on wages or unemployment.
With little or no effective policy initiative giving a lift to the less advantaged, the jarring market forces of the past four decades — mainly the slowdowns in productivity that have spread over the West and, of course, globalization, which has moved much low-wage manufacturing to Asia — have proceeded, unopposed, to drag down both employment and wage rates at the low end. The setback has cost the less advantaged not only a loss of income but also a loss of what economists call inclusion — access to jobs offering work and pay that provide self-respect. And inclusion was already lacking to begin with. In America, black urban teenagers have long been lacking in inclusion. In France there is a comparable lack of inclusion among North Africans. In much of Europe there has been little attempt to include the Roma.
This failing in the West’s economies is also a failing of economics. The classical idea of political economy has been to let wage rates sink to whatever level the market takes them, and then provide everyone with the “safety net” of a “negative income tax,” unemployment insurance, and free food, shelter, clothing, and medical care. This policy, even when humanely carried out, and it often is not, misses the point that, even if we confine our attention to the West since the Renaissance, many people have long felt the desire to do something with their lives besides consuming goods and having leisure. They desire to participate in a community in which they can interact and develop. [Continue reading…]
The Chinese stock markets have experienced significant turmoil in recent weeks, with the Shanghai Composite Index – the country’s major reference – falling by 32% since June 12. But this fall was preceded by an equally sharp rise of 150% over the previous nine months. In the 20 years since I have been working in finance, I’ve never seen anything like this. So what is going on with the Chinese stock market?
There are several reasons for this unusual behaviour: firstly, when I teach stock market investment to my Chinese students, I always remind them that the Shanghai stock exchange should be thought of more as a casino, rather than as a proper stock market. In normal stock markets, share prices are – or, at least, should be – linked to the economic performance of the underlying companies. Not so in China, where the popularity of the stock market directly correlated with the fall in casino popularity.
Stocks and casinos
In China, given the low credibility of the financial statements published by listed companies, investors need to rely on other tools to predict share price performance. These tools include a heavy reliance on technical analysis and charts – a method that tends to predict future share price based purely on the company’s past performance, with no regards to its fundamentals. Even the name of the company is often neglected; all that matters is the historic price performance.
While this technique is also used in Western markets, my experience in China is that it is the predominant method for investment. Hence the disconnect between a share’s price movements and economic fundamentals.
Andrew Simms writes: The world’s major religions all have economic teachings that apply to how we treat the planet and each other, and which often starkly contradict orthodox economic models.
Modern economics views itself as value free, but that wasn’t always the case and the major faiths all view economic prosperity through a moral lens. If that makes business leaders or economists squirm, it’s worth remembering that the grandfather of market economics, Adam Smith, wrote about The Theory of Moral Sentiments. To him, the economy was rooted in an explicitly moral universe. Whether we’re aware of it or not, and regardless of the fulminations of anti-environmental, extreme, right wing Republican Christians in the US, the economic teachings and moral frameworks of the great faiths profoundly shape how we view the path to prosperity, sometimes in surprising ways.
On this, the Catholic Church has form. Small is Beautiful by EF Schumacher is probably the most influential text on green economics ever written. As a collection of essays by a former industrial economist, who for two decades after the second world war was chief economic adviser to the National Coal Board, it did more than anything else to reimagine economics as servant to a convivial society living in balance with the environment.
But its most enduring idea from which the book’s title is derived, about the importance of scale, was taken straight from a papal encyclical. Schumacher took subsidiarity, the principle that things are always best done at the lowest practical level, from an encyclical of Pope Pius XII issued in 1931 in the wake of the economic catastrophe of the Great Depression. It is an injustice and disturbance of right order to push power up rather than down, it said, insisting that nations which do the latter will be happier and more prosperous. Today local democracy, decentralised food and energy systems and local participatory budgeting are arguably better paths for progress. [Continue reading…]
Harvard Magazine: Toward the end of World War II, while thousands of Europeans were dying of hunger, 36 men at the University of Minnesota volunteered for a study that would send them to the brink of starvation. Allied troops advancing into German-occupied territories with supplies and food were encountering droves of skeletal people they had no idea how to safely renourish, and researchers at the university had designed a study they hoped might reveal the best methods of doing so. But first, their volunteers had to agree to starve.
The physical toll on these men was alarming: their metabolism slowed by 40 percent; sitting on atrophied muscles became painful; though their limbs were skeletal, their fluid-filled bellies looked curiously stout. But researchers also observed disturbing mental effects they hadn’t expected: obsessions about cookbooks and recipes developed; men with no previous interest in food thought — and talked — about nothing else. Overwhelming, uncontrollable thoughts had taken over, and as one participant later recalled, “Food became the one central and only thing really in one’s life.” There was no room left for anything else.
Though these odd behaviors were just a footnote in the original Minnesota study, to professor of economics Sendhil Mullainathan, who works on contemporary issues of poverty, they were among the most intriguing findings. Nearly 70 years after publication, that “footnote” showed something remarkable: scarcity had stolen more than flesh and muscle. It had captured the starving men’s minds.
Mullainathan is not a psychologist, but he has long been fascinated by how the mind works. As a behavioral economist, he looks at how people’s mental states and social and physical environments affect their economic actions. Research like the Minnesota study raised important questions: What happens to our minds — and our decisions — when we feel we have too little of something? Why, in the face of scarcity, do people so often make seemingly irrational, even counter-productive decisions? And if this is true in large populations, why do so few policies and programs take it into account?
In 2008, Mullainathan joined Eldar Shafir, Tod professor of psychology and public affairs at Princeton, to write a book exploring these questions. Scarcity: Why Having Too Little Means So Much (2013) presented years of findings from the fields of psychology and economics, as well as new empirical research of their own. Based on their analysis of the data, they sought to show that, just as food had possessed the minds of the starving volunteers in Minnesota, scarcity steals mental capacity wherever it occurs—from the hungry, to the lonely, to the time-strapped, to the poor.
That’s a phenomenon well-documented by psychologists: if the mind is focused on one thing, other abilities and skills — attention, self-control, and long-term planning — often suffer. Like a computer running multiple programs, Mullainathan and Shafir explain, our mental processors begin to slow down. We don’t lose any inherent capacities, just the ability to access the full complement ordinarily available for use.
But what’s most striking — and in some circles, controversial — about their work is not what they reveal about the effects of scarcity. It’s their assertion that scarcity affects anyone in its grip. Their argument: qualities often considered part of someone’s basic character — impulsive behavior, poor performance in school, poor financial decisions — may in fact be the products of a pervasive feeling of scarcity. And when that feeling is constant, as it is for people mired in poverty, it captures and compromises the mind.
This is one of scarcity’s most insidious effects, they argue: creating mindsets that rarely consider long-term best interests. “To put it bluntly,” says Mullainathan, “if I made you poor tomorrow, you’d probably start behaving in many of the same ways we associate with poor people.” And just like many poor people, he adds, you’d likely get stuck in the scarcity trap. [Continue reading…]
Amy Myers Jaffe writes: When it comes to oil demand, the conventional wisdom is clear: Population growth and a rising global middle class guarantee that demand — and prices — will rise over the coming decades. It is a story line that is almost universally accepted by investors, governments and industry alike.
But like many such consensus views, it is one that should be treated with caution.
The world’s economy is experiencing transformational changes that, I believe, will dramatically alter patterns of energy use over the next 20 years. Exponential gains in industrial productivity, software-assisted logistics, rapid urbanization, increased political turmoil in key regions of the developing world, and large bets on renewable energy are among the many factors that will combine to slow the previous breakneck growth for oil.
The result, in my opinion, is as startling as it is world-changing: Global oil demand will peak within the next two decades.
The geopolitical and economic implications of peaking demand will be huge. The fall in the importance of Saudi Arabia is already palpable, with all the major powers from the U.S. to China more willing to accommodate Saudi archrival Iran. In addition, Russia’s ability to use oil as a weapon will wane, as will the economic leverage of the Organization of the Petroleum Exporting Countries. As economic growth becomes increasingly disconnected from oil, world powers will likely shift their attention to other increasingly scarce resources that will be equally critical to economic well-being, such as food, water and minerals. A greater interest in Africa, for example, is already starting to emerge. [Continue reading…]
Terje Osmundsen writes: Something remarkable is taking place that is bound to lead to a deep reshaping of the energy debate, starting in Europe and North America. It used to be the visionaries and the NGOs who talked about a 100% renewable future, but now leading number-crunchers and energy experts are joining the chorus. In California, the government energy regulator were recently quoted saying that California’s power grid could handle 100% renewables.
The city of Vancouver is an example of a big city that recently committed to run 100% on renewables for power, heating and transportation within 20 years. New studies have been released showing the US can get to 100% renewables by 2050, at marginal extra cost.
“Vers un mix électrique 100% renouvable en 2050” is the name of the brand new report from ADEME (French Agency for Environment and Energy Management), the government agency responsible for green and renewable energy in France. The publication of the report was considered controversial by the French government currently busy securing a majority in the Senate for the new energy transiton law that recommends an electricity mix with 50 % nuclear, down from 75% today.
A political decision was therefore made to postpone the publication of the study, but after the media house Mediapart got hold of it, it has now been published by ADEME.
The 120-page report (exluding attachments) provides a number of interesting and surprising insights. First of all, the study demonstrates that a 100% renewable power system in France is both possible and economically attractive, also when taking into account a number of alternative scenarios including extreme weather, stricter regulations against wind, solar and high-voltage connections, slower technology development, and the like. [Continue reading…]
Hunter Lovins argues that investors don’t need to decide whether they believe in climate change: In early 2012 Seeking Alpha, an energy industries financial advisory service with more than three million registered clients cautioned against panicking and selling coal stocks, concluding that even though Peabody Coal’s stock value had fallen 45%, it was nicely undervalued, and after all, such companies had always grown: “Currently, Peabody Energy’s share price is at just over $36 (£25), but I think it has the potential to hit the $45 barrier before the end of 2012 because its Australian interests are likely to be snapped up by China and Indian Steel companies”, the advisors wrote. Seems like a strong argument for staying invested in coal, doesn’t it?
Unfortunately for Peabody’s investors, their trust in China’s insatiable hunger for coal was ill-advised: A 2015 report by the Institute for Energy Economics and Financial Analysis, (IEEFA) noted that although “China’s coal demand grew 10% annually over the decade to 2011, the rate of growth halved to 4-6% in 2012 and 2013. In 2014, China’s coal demand has actually declined by 2.1% year-on-year.”
I know these are a lot of numbers for a simple bar talk. And, usually, the China argument doesn’t even come up before the third drink when everyone feels they can win any fight just by quoting a big number. But the changing reality in China might make you want to wait with that second sip.
“While real economic growth exceeded 7%, electricity demand grew by less than 4%”, the IEEFA study said. Rapid supply diversification saw China’s coal consumption decline 2% and coal imports fall by 11% in 2014.
China’s coal demand will permanently peak by 2016 and decline thereafter, the report predicts.
“Coal companies’ underperformance against the global equity market is unprecedented,” said IEEFA’s Tim Buckley. “A more than 50% decline in coal prices has seen most listed coal companies globally lose 80-90% of their equity market value in the last four years. While the sun will undoubtedly rise for renewable energy in 2015, for coal, there remains a lot further to fall.”
Today Peabody Energy, the world’s largest private-sector coal company, is trading below $5 per share. Investors betting that coal will rebound are very likely to find their assets stranded.
Conversely, renewable industries are prospering. A recent study by Agora Energiewende, a German think-tank, found that solar electricity is already a low-cost renewable energy technology. Large-scale photovoltaic installations in Germany fell from over 40 cents per kilowatt-hour (c/kWh) in 2005 to 9 c/kWh in 2014. Even lower prices have been reported in sunnier regions of the world. Most interesting for investors, solar will soon be the cheapest form of electricity in many regions of the world. Even conservative scenarios which assumed no dramatic technological breakthroughs saw no end to cost reduction, with costs of 4-6 c/kWh expected by 2025, and 2-4 c/kWh by 2050.
The New York Times reports: The idea began percolating, said Dan Price, the founder of Gravity Payments, after he read an article on happiness. It showed that, for people who earn less than about $70,000, extra money makes a big difference in their lives.
His idea bubbled into reality on Monday afternoon, when Mr. Price surprised his 120-person staff by announcing that he planned over the next three years to raise the salary of even the lowest-paid clerk, customer service representative and salesman to a minimum of $70,000.
“Is anyone else freaking out right now?” Mr. Price asked after the clapping and whooping died down into a few moments of stunned silence. “I’m kind of freaking out.”
If it’s a publicity stunt, it’s a costly one. Mr. Price, who started the Seattle-based credit-card payment processing firm in 2004 at the age of 19, said he would pay for the wage increases by cutting his own salary from nearly $1 million to $70,000 and using 75 to 80 percent of the company’s anticipated $2.2 million in profit this year. [Continue reading…]