Venezuelan Oiler PDVSA: Debt Swap or Bankrupt

♠ Posted by Emmanuel in ,, at 10/19/2016 04:25:00 PM
"Delay when we need to pay you back...or we'll default on Oct. 28!" Investor relations, Venezuela-style.
When oil prices were at $100 or higher, Venezuela was flying high, using oil revenues to fund "socialist" PR stunts such as selling subsidized heating oil for poor Americans. As the price of oil tanked, however, the Venezuelan government has been less able to mount such extravagant displays of "generosity." After years and years of low oil prices, we instead have a situation in which state-owned oil company PDVSA is now threatening its creditors with default by next week if they do not accept the swap of bonds due in 2017 with new ones instead due in 2020:
Venezuela's government-run oil giant -- the country's largest source of cash -- is warning that it could default on its bonds as early as next week. Petroleos de Venezuela S.A., or PDVSA, failed to get investors to agree on a deal to push back debt payments by three years. The company said it is extending its deadline for a third time so investors can accept a deal by Friday night. This time, it warned that things could get messy. "If the exchange offers are not successful, it could be difficult for the company to make scheduled payments on its existing debt," PDVSA said in a statement Monday night.

PDVSA owes $1.6 billion in principal and interest on October 28 and another payment of $2.9 billion is due on November 2 for a separate bond. It's unclear if PDVSA may actually default or if it's trying to strong arm investors to take the deal. "I don't think they've prepared themselves for a default, I think it's mostly just a threat. The concern is that they're starting to talk about it," says Siobhan Morden, head of Latin America fixed income strategy at Nomura Holdings.

In total, Venezuela is asking investors to "swap" $5.3 billion of bonds due in 2017 with bonds due in 2020, essentially allowing the government to push back payments. But PDVSA hasn't been able to lure enough investors to accept the offering. It's led Standard & Poor's to cut its rating on PDVSA in mid-September to two notches above default.
What does PDVSA matter to Venezuela? Pretty much everything in terms of generating foreign exchange:
PDVSA represents much more than just an oil company. It is Venezuela's lifeline. Oil shipments make up over 95% of the country's export revenue -- that's cash the government badly needs to pay for imports of food and medicine, which are in short supply. Things have been so badly mismanaged that Venezuela's oil production hit a 13-year low over the summer after oil services provider such as Schlumberger (SLB) dramatically reduced operations earlier this year due to unpaid bills.
PDVSA has been used as a government piggy bank, but it's almost run out of funds. Also consider that the PRC, which has given Venezuela an estimated $60B, is no longer willing to give more:
After pouring billions into Venezuela over the last decade, China is cutting off new loans to the Latin American nation. It's a major reversal of relations between the two nations, experts say. It also comes at the worst time for Venezuela, which is spiraling into an economic and humanitarian crisis.
"China is not especially interested in loaning more money to Venezuela," says Margaret Myers, a director at Inter-American Dialogue, a Washington research group that tracks loans between China and Latin America.
But barter trade--China was being repaid in oil--doesn't quite work when PVDSA is so poorly run that its output has fallen to multi-year lows that there's not much left to barter:
Since 2007, China's state banks loaned Venezuela $60 billion, according to the Inter-American Dialogue. That's more that it loaned to any other Latin American country. China is considered Venezuela's most important creditor. Of that, Venezuela still owes China approximately $20 billion, experts say, and there's no sign that it can pay back the amount amid its crisis.

Venezuela pays back the vast majority of its loans to China with oil shipments. Last year, Venezuela's state-run oil company, PDVSA, shipped about 579,000 barrels of oil per day to China, according to the company's financial audit.
Without Chinese aid--and assuming oil prices don't spike back above $100 anytime soon--you can see the endgame in sight for PDVSA.

From Busan to LA, Bankrupt Hanjin Hits World

♠ Posted by Emmanuel in at 10/18/2016 04:18:00 PM
"Busan, we have a problem."
The oversupply of shipping vessels in the wake of world trade slowing down in recent years has resulted in the bankruptcy of one of Korea's most venerable firms, Hanjin Shipping. For years it has brought Korean-made goods to the rest of the world, but that didn't stop it from declaring bankruptcy earlier this year as its financial position became untenable. Its ships have not been able to dock at the world's major ports--those large enough to accommodate these large ships--over legal complications. What's more, shipments meant for the Christmas season have been stranded at sea together with these vessels:
With South Korea's biggest shipping company filing for bankruptcy protection, the vessels, sailors and cargo of Hanjin Shipping are stuck in limbo, stranded at sea. Ports, fearing they will not get paid, refuse to let them dock or unload...

Not only are ships not allowed to unload, containers waiting to be picked up are also being held back by the ports as collateral over unpaid bills. And even if the ports did allow them in, Hanjin would probably not as the vessels could expect to be immediately repossessed by the firm's creditors.

Beyond the ships and containers, there is of course the cargo within those containers - in many cases part of a tight chain of supply and delivery. By September, the global shipping industry is already into what is its busiest time of the year ahead of the Christmas season.
Busan is better known worldwide as the home of a US Navy base. However, it too has been Hanjin's main port for the longest time. As goes Hanjin, so goes the port city of Busan, and things aren't going too well at the moment:
A group of companies in South Korea’s port city of Busan said about 11,000 jobs are at risk if the troubled container line Hanjin Shipping Co. isn’t rescued.

With no Hanjin ship berthing at its terminal in Busan, the world’s fifth-busiest port, the city’s shipping industry is headed for a crisis, Lee Seung Kyu, chairman of Busan Port Development Association said. About 1,000 tractor drivers are unemployed, and many contractors may be forced to shut down their businesses, said Choi Chul Hee, a port executive. Hanjin handles about 50 percent of the facility’s container volume, he said, dealing a blow to an industry that accounts for 30 percent of the city’s economy.

“The lost volume will find its way to China and Busan will lose its competitiveness,” said Choi. “The economy of Busan will be hit if Hanjin Shipping fails.” Some companies that provide services to Hanjin Shipping and their workers haven’t been paid a total 42 billion won ($39 million), while about 10 percent of the 10,000 workers at the port haven’t received their wages for about three to four months, according to Kim Young Deuk, president of Eastern Marine Service Co. and also the head of Busan Marine Industry Association. Hanjin Shipping declined to comment.
At the other end of the world, the port of LA is clogging up with empty Hanjin containers that will  not be making a return trip to Busan:
As Hanjin Shipping Co. vessels drop off containers after weeks stranded at sea following the company’s bankruptcy, ports are dealing with a new problem: what to do with the empty boxes they leave behind.

Since the South Korean ocean carrier filed for bankruptcy five weeks ago, roughly 15,000 Hanjin containers have trickled in through the Ports of Los Angeles and Long Beach, often weeks after they were due to arrive. Now emptied of their goods, many are cluttering warehouse yards and parking lots across Southern California. With Hanjin’s ships no longer making the trans-Pacific trip, the company’s containers aren’t needed to carry goods back and forth.
While the stranded containers themselves are a nuisance, logistics companies say the bigger issue is that many are still attached to the wheeled trailers that trucks used to get them off the docks. These pieces of equipment, known as chassis, are vital to port operations, and putting thousands out of commission can delay the container deliveries for all shipping companies—not just Hanjin—people in the industry say.
The interesting thing to ponder is Hanjin's fate alongside that of Korea, Inc.: Is the problem particular to this company only and not the larger Korean export machine? Certainly it's an important cog whose demise may raise shipping costs for producers. Given the potentially vast spillover effects, will the Korean government bail it out...or ask another company to help shore it up? Or, will an erstwhile competitor like Hyundai Merchant Marine be encouraged to purchase part of its operations? For the rest of Korea Inc., the show must go on.

Yo Blair! Can ex-PM Tony Save Britain from Brexit?

♠ Posted by Emmanuel in at 10/11/2016 03:35:00 PM
Him again? Blair, Labour, and preventing a "hard Brexit."
There was an interesting story which came out over the weekend concerning former British Labour Prime Minister Tony Blair returning to (presumably) Parliament due to his concern over the UK's imminent decline in its global standing from Brexit. In particular, Blair is wary of the danger of a so-called "hard Brexit" being favored by the current Conservative PM Teresa May--a nasty divorce from all EU institutions. Being out of office giving Blair little voice in the whole sordid business, there appears to be only one recourse...
Former Prime Minister Tony Blair could return to a frontline role in British politics to try to prevent Theresa May's Conservative Party from destroying the country with a so-called "hard Brexit", he said in an interview.

The only Labour prime minister to win three general elections, Blair was hugely popular during the start of his 10 years in power but his support for the U.S.-led invasion of Iraq severely tarnished his reputation.


In an interview with Esquire Magazine, Blair said it was a "tragedy" that Britons were left with a choice between a Conservative Party intent on a hard Brexit and a Labour Party that he described as "ultra-left" and stuck in the 1960s.

"I don't know if there's a role for me," he said. "There's a limit to what I want to say about my own position at this moment.


"All I can say is that this is where politics is at. Do I feel strongly about it? Yes, I do. Am I very motivated by that? Yes. Where do I go from here? What exactly do I do? That's an open question."
My personal misgivings about Blair concern his decision to go along with the Iraq invasion. On economic matters, I do not really have significant qualms about the "third way." On having a cosmopolitan vision of the world economy, I am actually on board with him. Yes, the current Labour leader Jeremy Corybn is a warmed-over 60s/70s-era socialist. The question is, can the "third way" currently chart a course between the Conservative Brexit crowd and his party's current infatuation with Communistic throwbacks like Corbyn?

First elected last year on a wave of enthusiasm for a new type of politics, [Current Labour Party leader Jeremy] Corbyn was forced to compete again for his job. Although he was returned as leader with a higher mandate than before, he still lacks the backing of the centrist members of his party.

Blair said Corbyn offered a "mixture of fantasy and error". As a result, he said Britain was a "one-party state".

"The reason why the position of these guys is not one that will appeal to an electorate is not because they're too left, or because they're too principled. It's because they're too wrong," he said.
Unfortunately, the honest truth may be that Blair circa 2016 is even more unsaleable than Corbyn due to supporting the aforementioned Iraq invasion. People remember. We'll see; he can certainly try. As an anti-Brexit voice, I am not waiting for Blair to "save" the UK from it. Rather, it will be a coalition of like-minded incumbents from whatever party who muster enough courage to prevent May's xenophobic version of it from coming true.

Worst Branding Deal Ever? "Trump Tower Manila"

♠ Posted by Emmanuel in at 10/08/2016 09:25:00 PM
Is getting your private parts groped part of the deal if you buy a unit at this Trump-branded Manila condo?
In psychology, there is a term "colonial mentality" referring to those living in former colonies adopting an inferiority complex towards their former colonizers. This phenomenon is particularly acute in the Philippines, where American-sourced things are typically regarded as superior to their local equivalents. If it has a whiff of the US, then it must be better by virtue of the association. Yippee, America #1!

Philippine developer Century Properties certainly exudes this thinking by pandering to American celebrities. While Paris Hilton is derided as an airhead heiress in her home country--the archetypal dumb blonde--she actually has a branding arrangement for a beach club in the Philippines with them. Amping the inferiority complex further, Century Properties negotiated branding for a "Trump Tower Manila" with The Donald in 2011 [!] The press blurb claims:
I've always loved the Philippines. I think it's just a special place and Manila is one of Asia's most spectacular cities. I know that this project will be second to none.
Now, this statement would of course be more believable as having come out of the [tic tac-loving] mouth of Trump were it not for his vile racist attacks on the Philippines. Apparently, even Filipino-Americans--all 3.4 million of them--he's suggested deporting due to their association with this terror-infested country:
More recently, he decided to stop using the word "Muslim" as he called for halting immigration from countries with high rates of terrorism, although he has yet to say which countries that would include.
At a rally in Portland, Maine, on Thursday afternoon, Trump provided a lengthy explanation of why he thinks the United States needs to be skeptical of immigrants from many countries, even if they follow the legal process. Reading from notes, Trump listed nearly a dozen examples of immigrants, refugees or students who came to the United States legally -- often applying for and receiving citizenship -- and then plotted to kill Americans, sometimes successfully doing so. The countries that he referenced in these examples: Somalia, Morocco, Uzbekistan (he asked the crowd where it was located), Syria, Afghanistan, the Philippines, Iraq, Pakistan and Yemen (which he pronounced "yay-men"). Trump's staff has yet to confirm if there are countries from which the nominee wants to limit immigration.
To be fair, The Donald is bashing foreign countries in this election cycle to play to fears of a white xenophobic audience Stateside. Way back in 2011, Trump's name was not yet so associated with racism, xenophobia, misogyny, business failure and what else have you. Still, he is a man of no scruples who will say what sells. It's just that sometimes, his messages are contradictory selling to different audiences.

Century Properties ends up with the mother of all bum deals. It's paying good money to Trump to use his name, when lately his name has been associated with so many unsavory things. That he alludes to deporting 3.4 million Filipino-Americans while deriding the Philippines as a terrorist haven makes buyers of "Trump Tower Manila" fit the typical profile of his customer base: chumps.

When the scum of America is regarded as a "luxury" brand in the Philippines, it's colonial mentality at its worst. Aside from that, enjoy your condo.

10/11 UPDATE: To be fair, there are other Trump branding deals with other nationalities he has greatly offended through his racist remarks. See, for instance, the Muslim-basher's licensing arrangements in the Middle East in a recent Newsweek article

The Never-Ending Quest to Replace GDP

♠ Posted by Emmanuel in at 10/03/2016 07:19:00 PM
Maybe the Bhutanese show us the way by adopting "Gross National Happiness"?
I've often featured these sorts of articles concerning how we would be better off moving past gross domestic product (GDP) as a measure of economic welfare. But, what is becoming interesting is that many of today's mainstream economists seem to be agreeing instead of the left-leaning crowd which dominates this discussion.

Take former IMF chief economist Olivier Blanchard:
“The single focus on GDP or GDP growth in many policy discussions is misleading,” Olivier Blanchard, a former International Monetary Fund chief economist who’s now a senior fellow at the Peterson Institute for International Economics, wrote this month. “Distribution effects, or distortions that affect the composition rather than the size of output, or effects of current policies on future rather than current output, may be as important for welfare as effects on current GDP.”

Blanchard’s exhibit 1: the increasing discussions around inequality in America. Exhibit 2: China’s shift from investment toward consumption.
The Americans and the Japanese also warn that GDP readings--which are prone to significant revisions--may give an inadequate description of where economies stand at various points in time:
In the U.S. last week, Federal Reserve Bank of Atlanta President Dennis Lockhart questioned whether official data that showed growth of just 1.2 percent in the three months through June represented a true reflection of activity on the ground. “If you look beyond the troubling headline GDP growth number for the second quarter and study real final sales, a more consistent picture of economic momentum emerges,” he said...

In Japan, a new analysis by the central bank found that rather than contracting in 2014, the economy actually enjoyed robust growth. The contradiction between the government’s data comes as the Bank of Japan steps up its efforts to get better readings, such as by starting its own consumption index. Governor Haruhiko Kuroda has called for better numbers.
The same idea goes for the UK, EU and India:
In the U.K., an independent review in March by former Bank of England policy maker Charles Bean recommended a transformation of the nation’s data. “We need to take economic statistics back to the future or we risk missing out an important part of the modern economy from official figures,” Bean said in a press statement accompanying the report’s release in March.

It’s a similar story around the world. Yves Mersch, a board member of the European Central Bank, warned of the impact of technological change in a February speech. The New Zealand government has a well-being framework, while the European Commission has had a project for almost a decade to look beyond traditional GDP measures.

India’s outgoing central bank chief Raghuram Rajan has warned of the difficulty in measuring growth in the face of aging populations. GDP numbers there have come under scrutiny since a new methodology last year showed a booming economy outpacing China. Ruchir Sharma, head of emerging markets and chief global strategist at Morgan Stanley Investment Management, says such readings demonstrate “incompetence because the statistics bureau there is applying a new methodology not having tested it well.”
So far, though, the problem has been that nobody has come up with a workable replacement to GDP despite everyone criticizing its inadequacies. Replacing it with a new measure will be difficult, and getting the international community to adopt a new system of national accounts for compiling economic data will require much cooperation besides.

Still, why stick with something nobody is particularly fond of just because it's been hard to come up with something better?

Deutsche Bank & the Ballad of the Bumbling Germans

♠ Posted by Emmanuel in ,, at 9/28/2016 04:33:00 PM
You know, Deutsche Bank was really well-respected once upon a time.
I am old enough to remember a time when the now-infamous Deutsche Bank had one of the highest credit ratings of European banks. But that was before the turn of the millennium--a long, long time ago in a political economy far, far away. What happened between then and now? The curse of (global) ambition, that's what. Just as American giants like Citigroup and European ones like HSBC thought that harnessing economies of scale represented the way of future, Deutsche too embarked on a multi-country expansion into different product lines. Today, of course, the era of the global universal bank dream is well and truly over:
Other global banks are also rethinking their models. Barclays Plc is looking to sell down its business in Africa and has stopped trading stocks in Asia. Royal Bank of Scotland Group Plc, once Europe’s largest lender, has abandoned almost all foreign operations, retreating to its home market in the U.K., and is getting out of most capital-markets businesses. Deutsche Bank AG wants to sell a German consumer bank it bought in 2010 and is cutting back bond trading.
The question remains: OK, if major banks had already begun the process of retrenching--especially post-global financial crisis--then why is Deutsche Bank especially in trouble? Simply, its leadership still harbored delusions of globe-spanning grandeur as late as 2014:
It was the defining bet of Anshu Jain’s reign at Deutsche Bank. In 2014, as most European banks were retrenching in the face of slackening markets and tightening regulation, the German lender’s then co-chief executive took the opposite course.

Two weeks after Barclays — Deutsche’s European arch-rival — capitulated to market pressure and slashed its debt trading business, Deutsche launched a plan to raise €8bn in capital. The move was, in part, designed to give Germany’s biggest bank the firepower to win market share as its rivals faltered, and to position it as the last remaining European challenger to the US titans on Wall Street. Deutsche, Mr Jain said at the time, would be the “only truly universal bank based in Europe”.

That bet failed: markets remained slack and regulation kept tightening. Two years on, Mr Jain and Jürgen Fitschen, with whom he shared the top job, have stepped down. Deutsche’s investment bank has lost its top three ranking. The group’s capital position is under scrutiny. And Mr Jain’s successor, the former UBS banker John Cryan, has embarked on a painful curtailing of Deutsche’s global ambitions.

Mr Cryan faces a formidable task. Deutsche’s markets business, which accounts for a third of its revenues, is struggling to cope with a world of lower trading volumes, tougher capital requirements and increasing US dominance. Its retail bank in Germany, where margins were always thin, is suffering under Europe’s rock-bottom interest rates. Total costs are stubbornly high and the bank is grappling with legal challenges that could cost it billions of euros. Last year, Deutsche — a pillar of Germany’s postwar economic strength, and a cog in global capital markets — made a €6.8bn loss amid a host of fines and writedowns. Analysts predict an €860m loss this year.
Today's Deutsche thus has a wafer-thin capital cushion and several unprofitable lines of business. This amidst all sorts of "legacy" costs emanating from its past activities. While the $14B fine proposed by US Department of Justice for Deutsche's past mortgage security-related indiscretions will likely be reduced, even a fine half of that would severely strain the bank's resources.

The bank's troubles are putting German leaders in a pickle. Having insisted to other countries that they should not bail out their troubled lenders come hell or high water during recent years, Chancellor Angela Merkel and Finance Minister Wolfgang Schauble would rightly be accused of being hypocrites if they came to Deutsche Bank's rescue. That said, the pan-European effects of its demise would be huge and likely hurt other Europeans too:
A few years into the eurozone crisis, Chancellor Merkel and her finance minister, Wolfgang Schäuble, led a charge against state-sponsored bank bailouts. Instead, they championed new European rules, now in force, that compel creditors—mainly bondholders and, in some cases, depositors—in troubled banks to chip in before the government steps in.

“State aid won’t happen,” Thomas Oppermann, floor leader of the ruling Social Democrats, told reporters on Tuesday. “It’s now, first of all, up to the bank to solve the problems.” Still, few analysts expect that Deutsche Bank could be left to fail or be forced into a bail-in. The risk, many say, would spread far beyond Germany. Deutsche is a large and highly networked bank on a continent replete with fragile lenders and economically hamstrung after years of low growth.
It's a no-win situation for Germany. I think its leadership will lean on the US to lessen the fine or even defer a portion of it, but the reputational damage is already done. Germans have a reputation for competence and efficiency, but modern-day Deutsche Bank is strictly Amateur Nite. To paraphrase Pink Floyd, encumbered forever by desire and ambition, this is the sad end for a hunger left unsatisfied.

Turkey's Erdogan: Go Ahead, Junk Our Credit Rating

♠ Posted by Emmanuel in at 9/25/2016 11:35:00 AM
"Go ahead, make my day by junking Turkey's credit rating."
Following the hateful rhetoric unleashed by Philippine President Duterte, it appears bashing the West is back in fashion as Turkey's Tayyip Erdogan does pretty much the same--to equally debatable economic consequences. There is a tendency for developing countries to blame destabilizing events on Western powers, and Erdogan is no exception in this regard when it comes to the coup attempt against him earlier in the year.

On a related note, Erdogan sees a combined political-economic effort to knock Turkey down a peg as the dominant credit rating agencies--all Western, obviously--have put the nation on notice for downgrades to its sovereign debt. Following Erdogan's conspiracy-minded logic, it is of a piece with the white man trying to undeservedly humiliate Turkey:
Turkey’s President Recep Tayyip Erdogan said he is not worried if his country is rated below investment grade as credit rating firms are making wrong decisions because of their political bias. “I don’t care at all, they’re making mistakes and they’re doing it intentionally,” Erdogan said in an interview in New York on Thursday. “Whether you’re honest or not, Turkey’s economy is strong.”
This after Standard and Poors cut Turkey two notches below junk, while the others have placed a negative outlook following the coup:
S&P Global Ratings lowered Turkey’s rating immediately after the July 15 attempt to topple Erdogan citing greater political risks. It was cut by one notch to BB, or two steps below investment grade. Last month, Fitch Ratings maintained its BBB-, the lowest investment grade, while reducing the country’s outlook to negative from stable. That is in line with Moody’s Investors Service, which has placed the country on review for a possible downgrade to junk.

The ratings companies are acting “contrary to economic ethics,” making political statements, Erdogan said. “They’re raising economies that have collapsed, that are finished, on the other hand, they’re either freezing or going towards cutting a country that’s standing on its feet, that’s upright, and where investments are continuing.”

“This is not a respectable stance,” he said. “I’m inviting them to be honest.” Moody’s, which rates Turkey at Baa3, has placed the country on review for a downgrade within 90 days from the day of the statement on July 18. Back in August, Fitch cited “the potential for further disruption from those behind the coup attempt.”
By way of comparison, the Philippines whose GDP per capita is about 36% of that of Turkey receives investment credit ratings from all three. You have to wonder if Duterte keeps acting like, well, Duterte how long it will be before it joins Turkey in junkland. Having striven to reach investment grade ratings for their sovereign debt, loose cannon leaders can hasten their banishment from international economics' promised land.

Philippines' Duterte: Killer of Druggies...& Foreign Investment

♠ Posted by Emmanuel in ,, at 9/23/2016 03:51:00 PM

Damage control surpasses the realm of art into science when the person whose offensiveness you're trying to contain is the Philippine President Rodrigo "Digong" Duterte. Despite the woeful history of a zero tolerance approach to narcotics worldwide--nowhere has the "war on drugs" worked as intended--Duterte is intent on learning this the hard way. Being very think-skinned, Duterte takes any perceived slight very badly, hurling insults at any and all critics.

As it so happens, those who have raised concern about human rights abuses as the body count piles up via extrajudicial killings in his "war on drugs" represent the world's most powerful countries.
President Barack Obama refused to meet Duterte at an ASEAN gathering in Laos after being cursed as a "son of a whore" over possibly raising the issue of human rights. More recently, Duterte threw the  middle finger at the European Parliament over mentioning similar human rights concerns, adding an f-bomb to get his point across.

While the shallow and stupid are doubtlessly happy about Duterte sticking it to leaders of wealthy countries--screw the imperialists and so on and so forth--the sensible are left holding the bag in mending relations with increasingly antsy international counterparts. Consider that, for every single day in September so far, foreign investors have reduced their holdings of Philippine equities. This turn of events has prompted Philippine central bank officials to come out en masse to downplay Duterte's offensive outbursts. These include eight-time [!] best central banker in the world awardee Amando Tetangco:
Philippine central bank Governor Amando Tetangco sought to soothe investors spooked by President Rodrigo Duterte’s rhetoric around his anti-drug war, with stocks poised for the longest outflow since 2007.

“If you take out the noise and look at the fundamentals, look at the economic program, look at the quality of the members appointed to the economic team, then these are all solid,” Tetangco told bankers, traders and fund managers late Thursday in Manila.

Tetangco joins a host of economic officials including Finance Secretary Carlos Dominguez, who on Wednesday said economic policies have been clear and consistent since Duterte took office in June. S&P Global Ratings this week warned of “rising uncertainties surrounding the stability, predictability, and accountability” under the new government.
Meanwhile, money is leaving the country continuously:
Money that flowed into the Philippines after the May elections is drying up. Philippine stocks slid 0.7 percent on Friday, and foreign funds have been selling for 21 straight days as of Thursday, the longest outflow since 2007.

The peso slumped to an eight-month low against the U.S. dollar and is the worst-performing Asian currency after the yuan this year. Foreign direct investment shrank 41 percent in June from a year earlier.
The irony remains that, if you make the reasonable assumption that this "war on drugs" will be as futile as every other, he will have given his country significant political and economic handicaps besides by acting this way. Who benefits?

Correlation Between Mexican Peso, Trump Poll Numbers

♠ Posted by Emmanuel in at 9/18/2016 02:05:00 PM
The Mexican peso seemingly moves in the opposite direction to Trump's poll numbers these days.
America's Mr. Nasty is apparently making his presence felt south of the border. With Mexico being on the receiving end of a lot of his isolationist (he suggests leaving NAFTA), protectionist (ditto) and racist (characterizing the Mexican people as "rapists") rhetoric, the political fallout of a Trump presidency (heaven forbid) have not gone unnoticed in the markets. The far right has well and truly established a presence in North America.

Bloomberg offers the chart above in relation to the performance of the Mexican peso, whose fortunes as of late mirror those of Trump's polling numbers in the upcoming US presidential elections. The write-up suggests as much. Also, revisit NAFTA:
Concern Trump will follow through on his promises regarding Mexico if elected has helped the peso weaken 10 percent this year, the worst performance of any major currency apart from the U.K. pound. It was last week’s biggest loser, sliding 1.7 percent, and has since dropped to the lowest since June after Democratic presidential nominee Clinton’s campaign announced she was ill.

The peso’s status as the most-liquid emerging-market currency after China’s yuan has left it particularly vulnerable to selling, sending it to repeated record lows and forced the central bank to raise interest rates.

Mexico is arguably the major world economy most dependent on the U.S. Trade between Mexico and the U.S. has grown fivefold to more than $500 billion in goods annually since Nafta took effect in 1994, making the Latin American nation the largest U.S. trade partner after China and Canada, according to data from the International Monetary Fund. While Mexico has also strengthened its trade ties with other nations and has a free-trade agreement with the EU, it still sent 73 percent of exports to the U.S. in 2015, compared with 79 percent the year before Nafta was implemented.
There's also Trump's talk about holding Mexican expatriates' remittances hostage to building his now-infamous wall which the Mexican government would pay for:
In addition to ending Nafta, Trump has said he’ll make Mexico pay for the wall -- a proposal that the government has repeatedly said is a non-starter -- by holding remittances from immigrants in the U.S., which play an important role in bolstering the peso.
It's no surprise that nasty things happen when the topic turns to the nasty guy.

Do Saudis Dump '$750B' After US 9/11 Bill Passes?

♠ Posted by Emmanuel in , at 9/10/2016 06:03:00 PM
Saudi Arabia vowed to slash '$750 billion' worth of US assets if 9/11 victims' families were allowed to sue it. We'll see.
Back to the realm of geopolitics: Earlier this year, Saudi Arabia warned that they stood ready to unload hundreds of billions worth of American assets were the US congress to pass a bill allowing families of victims of the 9/11 attacks to sue Saudi Arabia for damages. Maintaining that their country had no direct involvement in the attacks, Saudi officials threatened to sell off up to "$750 billion" in American assets. From the NY Times in April:
Saudi Arabia has told the Obama administration and members of Congress that it will sell off hundreds of billions of dollars’ worth of American assets held by the kingdom if Congress passes a bill that would allow the Saudi government to be held responsible in American courts for any role in the Sept. 11, 2001, attacks...

Adel al-Jubeir, the Saudi foreign minister, delivered the kingdom’s message personally last month during a trip to Washington, telling lawmakers that Saudi Arabia would be forced to sell up to $750 billion in treasury securities and other assets in the United States before they could be in danger of being frozen by American courts.

Several outside economists are skeptical that the Saudis will follow through, saying that such a sell-off would be difficult to execute and would end up crippling the kingdom’s economy. But the threat is another sign of the escalating tensions between Saudi Arabia and the United States.
OK, that was the story in April. Fast-forward to the present time and US lawmakers have not taken Saudi threats seriously as the bill passed unopposed through the lower house:
The unopposed House vote Friday to allow families of Sept. 11 victims to sue Saudi Arabia begins a diplomatic nightmare for President Barack Obama.

The legislation is sure to antagonize a key U.S. ally in the Middle East which already has tense relations with the administration. While Obama is likely to veto the bill, the House’s passage by voice vote raises the possibility Congress could override him, for the first time in his presidency, and make the measure law. The bill passed the Senate by a voice vote in May.

"The Saudis will see this as a hostile act," said Dennis Ross, Obama’s former Middle East policy coordinator. "You’re bound to see the Obama administration do everything they can to sustain a veto."

The bill would carve out an exception to sovereign immunity -- the legal doctrine which protects foreign governments from lawsuits -- if a plaintiff claims to have suffered injury in the U.S. from state-sponsored terrorism.
My belief is that the Saudi government did not directly fund the 9/11 attackers. However, that monies it has spent buying off hard-line extremists could have indirectly funded the attacks is not out of question. It would be up to the 9/11 victims suing KSA to demonstrate culpability via a money trail, which appears difficult to establish. What is more immediately interesting though is whether the Saudis merely bluffed about dumping American assets. Treasury records indicate that the country holds $98.3 billion in US Treasuries as of June 2016. Saudi Arabia may hold more though through indirect purchases:
Saudi officials have said enactment of the law could lead them to sell off the kingdom’s U.S. Treasury debt and other American assets, which totaled $750 billion, the officials told U.S. lawmakers and others in the government, according to the New York Times. The Saudi government held $117 billion in U.S. Treasury debt in March, according to Treasury figures obtained by Bloomberg. The kingdom may have additional holdings not included in the data on deposit with the New York Federal Reserve Bank, in entities in third countries, or through positions in derivatives.
Saudis can also sell off tangible investments in the US, though the stock of FDI of Middle Eastern countries as a whole in the US appears to make $100B a stretch. Moreover, hard assets are not as liquid and take time to sell.

So the questions for Saudi Arabia over the next few days are as follows: First, US lawmakers having called their bluff, will the Saudis really unload hundreds of billions worth of assets? Second, do they really have $750B to unload in US assets? Saudi Arabia officially states that it has $572B in reserves, but it's a dwindling amount as low oil prices take its toll on the nation's coffers. Accelerating the reduction of its rainy-day funds at the current time would seem an unwise move.

I'd say it's the Saudis' own exercise in Trump-style hyperbole, but we needn't wait much longer to see how things pan out.

9/12 UPDATE: Obama intends to veto, to no one's surprise:
President Barack Obama will veto legislation that would allow families of Sept. 11 victims to sue Saudi Arabia, a measure vehemently opposed by the U.S. ally, White House press secretary Josh Earnest said on Monday.

The measure passed both the House and Senate unopposed by voice votes, with the House acting on Friday to send the bill to Obama just ahead of the 15th anniversary of the terrorist attacks. The lack of public opposition suggests Congress could override Obama’s veto for the first time in his presidency and make the measure law.

"The president does intend to veto this legislation," Earnest told reporters on Monday. The administration had opposed the legislation, arguing it would set an international precedent that would expose the U.S. government and American soldiers to legal jeopardy in foreign courts.