Category Archives: Business

How the Global Trade Contraction Begins, by MN Gordon

Like almost all financial measures, global trade doesn’t proceed ever upward, a straight line on a graph from lower left to upper right. From MN Gordon at economicprism.com:

The world grows increasingly at odds with itself, with each passing day.  Divided special elections.  Speech censorship by Silicon Valley social media companies.  Increased shrieking from Anderson Cooper.  You name it, a great pileup’s upon us.

From our perch overlooking San Pedro Bay, the main port of entry for Chinese made goods into the USA, facets of the mounting economic catastrophe come into focus.  These elements, even for the most untrained of eyes, are impossible to miss.

To meet the relentless expansion of international trade, berths have been widened, and channels have been deepened to accommodate the definitive absurdity of perpetual credit creation: The CMA CGM Benjamin Franklin.  This mega container ship, if you’re unfamiliar with it, is over 20 stories tall, the width of a 12 lane freeway, and longer than four football fields.  It has enough cargo space to hold 90 million pairs of ‘Made In China’ shoes.

The secondary distortions of this mammoth – next generation – cargo ship will provide historical evidence to future generations of a political economy that went seriously awry.  For example, at the Port of Long Beach the Gerald Desmond Bridge replacement is currently being constructed at a cost of $1.5 billion.  With two towers stretching 515 feet into the sky, this will be the second tallest cable-stayed bridge in the United States.

The purpose of the bridge replacement is to provide greater clearance into the Port’s Inner Harbor for mega container ships.  As the new bridge deck goes up, it dwarfs the prior edifice like some futuristic motorway traversing up to the heavens.  We’re certainly eager to drive it when it’s complete in late-2019.

Episodes of Global Trade Contraction

The general philosophy of the bridge’s proponents appears to be that global trade expands in perpetuity.  Hence, more and more space will be needed for more and more next generation container ships.  There’s even 50-years of data to support this belief.  But that doesn’t mean what is will always be.

To continue reading: How the Global Trade Contraction Begins

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Elon’s First Fraud Suit, by Eric Peters

Tesla’s undoing may ultimately be that Elon Musk is not a car guy. From Eric Peters at theburningplatform.com:

Elon Musk is being accused of fraud – but not over his cars.

Not yet.

This fraud suit alleges financial flim-flam. That Elon’s very public musings about taking Tesla off the stock market as a publicly traded company were meant to temporarily inflate the value of Tesla stock as a way to generate more Desperation Money (but not by selling cars or making an honest profit) to stave off the inevitable collapse.

The lawsuit – a class-action lawsuit filed in Federal court –  alleges that Musk’s Aug. 7 statements had the effect of “completely decimating” short sellers, people who bet against a rise in the value of  Tesla’s stock.

The SEC is looking into things.

Other things being looked into include sketchy practices to meet Elon’s publicly promised production numbers for the Model 3, the “affordable” Tesla Elon has been touting but failing to deliver for years. Not yet being looked into officially – but arguably ought to be – are Musk’s promises to the thousands of people who put down deposits on the “affordable” Model 3 – the one with the promised $35,000 MSRP – which isn’t being produced.

The Model 3 which is being produced is the much-less-affordable $40,000 model – which has a larger, more powerful battery and more range than the $35k model. But the $5,000 difference makes all the difference to people who cannot afford a $40,000 car – electric or not.

Especially now that the federal tax incentives Elon relied upon to get people to buy his cars are on the verge of going away. This will mean that buying a $40,000 Tesla means paying the full $40,000 – not $40,000 minus whatever the federal government kicks back to the buyer.

But Elon’s biggest sin may not be fraud.

It is incompetence seasoned with a puckish, childish arrogance.

Musk is not a car guy and has no experience in the car business – outside Tesla. Yet he presumed he could teach the car industry a great lesson – with the help of Uncle.

He would show them.

But unlike car guys who do know the car business, Elon made a number of critical mistakes – which have nothing to do with his cars being electric. That just added salt to the wound.

The biggest mistake he made is focusing on sedans at precisely the moment when the market isn’t just moving away from them – it is virtually abandoning them in favor of crossover SUVs. These are now outselling cars and particularly sedans.

To continue reading: Elon’s First Fraud Suit

The Recession of 2019, by Charles Gave

A number of indicators with good (albeit not perfect) records are pointing towards a recession next year. From Charles Gave at evergreengavekal.com:

“While the Trump administration may crow endlessly about how swell the economy performed last quarter, that 4.1% GDP print will quickly become a wistful memory.”
-BERNARD BAUMOHL, Economist at the Economic Outlook Group

INTRODUCTION

Towards the tail-end of July, the Commerce Department reported that Gross Domestic Product (also known as GDP), or the total value of goods and services produced in the US, increased at an annual pace of 4.1% in this year’s second quarter. As expected, President Trump took a victory lap around these numbers, which were the highest GDP growth results since 2014. (However, lost in the fanfare was the fact that the first quarter GDP number was revised down from 2.9% to 2.3%.)

In an equally anticipated move, the President went on to predict that this is just the start of a long-term trend, and that these numbers are “very, very sustainable” and are “going to go a lot higher.” With all due respect to the Trumpeter-in-Chief, the Evergreen Gavekal team is not nearly as confident. In fact, we would argue that there is a glaring black hole in his economic outlook.

Particularly, we believe that three unstainable factors led to this inflated higher-than-expected GDP number: tax cuts, a surge in government spending, and a rush to ship exports out of the country as the result of the trade war. We believe all three factors are based on high-risk policies that will eventually turn from a catalyst to a drag on the economy in the medium- to long-term—perhaps right around, if not before, President Trump seeks re-election in 2020.

This week’s Gavekal EVA comes from one of our most admired partners, Charles Gave. Charles also sees danger brewing on the economic horizon, both in the US and globally. In fact, he even goes so far as to postulate the exact year this brewing will turn into a full-fledge storm: 2019. In this week’s EVA, Charles explains his reasoning for making this bold, timestamped prediction. His forecast is based on several macro-economic factors that are already letting-on to a slowdown in the mostly elusive synchronized global expansion.

However, Evergreen itself is still holding off on issuing a call for the next recession, one we haven’t made since 2007. We admit, though, that the expansion clock is nearing midnight, which shouldn’t come as a surprise since this party has been going on for almost nine years. Keep dancing at your own risk!

To continue reading: The Recession of 2019 

Iran Sanctions Fallout: China Takes Over French Share In Giant Iran Gas Project, by Tyler Durden

It’s a close call as to whether Trump’s sanctions will force Iran to the negotiating table, or if Iran will give Trump the middle finger and ride it out with help from its friends. Stay tuned. From Tyler Durden at zerohedge.com:

When it comes to the Middle East, China has not been shy about its recent ambitions to expand its geopolitical influence in the Gulf region: Just last week we reported that the Chinese Ambassador to Syria, Qi Qianjin, shocked Middle East pundits and observers by indicating the Chinese military may fill the void left in the wake of the collapse of ISIS – and most regional armies – and directly assist the Syrian Army in an upcoming major offensive on jihadist-held Idlib province.

The “[Chinese] military is willing to participate in some way alongside the Syrian army that is fighting the terrorists in Idlib and in any other part of Syria,” the ambassador said in an interview with the pro-government daily newspaper Al-Watan, subsequently translated by The Middle East Media Research Institute (MEMRI).

And having staked a military claim in Syria, China was next set to expand its national interest in that other key regional nation which has been the source of so much consternation to its neighbors and world powers in recent months and which has emerged as a key source of crude oil exports to Beijing: Iran.

It did so today when China’s state-owned energy giant, CNPC – the world’s third largest oil and gas company by revenue behind Saudi Aramco and the National Iranian Oil Company – finally took over the share in Iran’s multi-billion dollar South Pars gas project held by France’s Total, Iran’s official news agency Shana reported on Saturday.

To many the move had been expected, with only the details set to be ironed out. Recall that back in May we wrote that CNPC – the world’s third largest oil and gas company by revenue behind Saudi Aramco and the National Iranian Oil Company – was set to take over a leading role held by Total in a huge gas project in Iran should the French energy giant decide to quit amid US sanctions against the Islamic Republic.

That finally happened when the Chinese energy giant took advantage of Trump’s sanctions to step in the void left by the French major. As a reminder, Total signed a contract in 2017 to develop Phase II of South Pars field with an initial investment of $1 billion, marking the first major Western energy investment in the country after sanctions were lifted in 2016. South Pars has the world’s biggest natural gas reserves ever found in one place.

To continue reading: Iran Sanctions Fallout: China Takes Over French Share In Giant Iran Gas Project

Saudi Arabia’s PIF and SoftBank Not Interested in Tesla Buyout, by Wolf Richter

Did Elon Musk lie, and therefore open him to civil and perhaps criminal liability, when he said Tesla had secured funding for a buyout that would take Tesla private? From Wolf Richter at wolfstreet.com:

Two often-cited suspects are axed. So where’s the “secured” funding supposed to come from?

The whole scheme kicked off when Tesla CEO Elon Musk tweeted during trading hours that he was “considering” taking Tesla private, “Funding secured,” which caused the already ludicrously overvalued shares to spike. Later he added, “Investor support is confirmed.” But no details, no names, no tidbits, not even a tease. Two days earlier, he’d tweeted that “even Hitler was shorting Tesla stock.”

We can brush off the Hitler tweet as just one more Musk idiocy gone awry, but “Funding secured” and “Investor support is confirmed” are big-ass phrases for a public-company CEO discussing a buyout that would be valued at $72 billion.

Now some folks, including those at the SEC’s San Francisco office, are wanting to know where exactly this money is going to come from – and if funding was even remotely “secured.”

The Tesla true believers instantly figured that a deal had already been worked out, either with SoftBank or with Saudi Arabia’s Public Investment Fund (PIF), or with both, or whatever.

Turns out, it’s not going to be SoftBank, and it’s not going to be the Saudis, either. They’re not interested in creating the magic to pull this off.

Reuters reported today that a source “familiar with PIF’s strategy,” said that the fund was not, as Reuters put it, “currently getting involved in any funding process for Tesla’s take-private deal.”

PIF had made headlines recently when it came out that it had acquired a stake in Tesla of just below 5% by buying its shares (TSLA) in the market. None of this money went to Tesla. It went to Tesla shareholders that wanted to get out.

PIF has also heavily invested in other tech companies in the US, including a $45-billion investment in the Vision Fund, a venture capital fund that SoftBank, a Japanese holding conglomerate, has put together by pouring $100 billion into it.

To continue reading: Saudi Arabia’s PIF and SoftBank Not Interested in Tesla Buyout

Trump Should Scale Back Auto Mileage Regulations, by Gary Galles

The auto mileage regulations should be eliminated, not scaled back, but it’s a start. From Gary Galles at mises.org:

The Trump administration EPA and Department of Transportation have announced their intent to change the Corporate Average Fuel Economy standard from what was decreed by their Obama administration predecessors. They were scheduled to reach 54.5 mpg in 2025. The new target will be 37 mpg.

The rationale being given the most attention is that reducing the CAFÉ standards would reduce automobile deaths. However, that is being panned by left-leaning critics. For instance, Los Angeles Times columnist Michael Hiltzik characterized the plan as “dirtier cars are safer, so lets keep them dirty.” Two days later, former Clinton and Obama administration member David J. Hayes was featured on the oped page (8/6/18) with a criticism titled, “Gas guzzlers won’t make us safer.”

However, while these (and similar) critical articles deride the possibility that reducing fuel economy standards from the much higher levels they would have been bumped to could increase automobile deaths (Hiltzik described it as “fatuousness” and Hayes termed it “baloney”), they not only misrepresent the arguments rather than examine them, they fail to consider the actual evidence for that “fatuous baloney.”

Consider the title, “Gas guzzlers won’t make us safer.” Not only is the conclusion asserted rather than demonstrated, but what gas guzzlers (a term Hitzlik also uses) is it referring to? Cars that averaged 37 mpg would be by far the cleanest vehicle fleet in American history. And the air is far cleaner than it was, meaning that the additional benefits from each further improvement is far less than in the past, undermining the argument for sharply more stringent standards.

Further, the logic such critics dismiss out of hand is hardly new or preposterous. It goes back to a famous 1989 Harvard-Brookings study that found that CAFÉ caused a 14–27% jump in traffic deaths due to the resulting car downsizing. An update for 1996 found that 2,700–4,700 automobile deaths, of 22,000 total, were attributable to such downsizing.

The arguments made in such studies are far from preposterous, either. When the higher costs of downsizing make newer cars more expensive relative to older, less safe cars, people buy fewer new cars, and increase the risks borne by such drivers and passengers. And if far better mileage lowers the cost of driving additional miles, the law of demand implies such people will drive more, other things equal. It is a matter of how large such effects are, demanding empirical research, not just a hand-wave of dismissal.

To continue reading: Trump Should Scale Back Auto Mileage Regulations

Big Tech Shows “Net Neutrality” Battle Was About Power, Not an “Open Internet”, by Tho Bishop

Net neutrality was going to be the perfect set up for big tech to engage in regulatory capture. From Tho Bishop at mises.org:

The de-platforming of Alex Jones and InfoWars is a subject that has a number of layers to it, including the responsibilities social media companies have to free speech — particularly in a world where the lines between Big Tech and Big Government are increasingly blurred. While I’ll leave others to debate those particular subjects, these developments — and reactions to it — do help provide clarity to another heated tech-related debate: the hypocrisy of “net neutrality” advocates.

After all, there is a ton of overlap between those who advocated Title II regulation of the internet and those celebrating the deplatforming of Alex Jones. This is particularly true among the most powerful players in this debate, including legislators and leaders in the industry.

Consider, for example, the reaction from Big Tech to the FCC’s repeal Title II regulation last December.

Facebook’s Sherryl Sansberg published a statement saying: “An open internet is critical for new ideas and economic opportunity. … We’re ready to work with members of Congress and others to help make the internet free and open for everyone.”

Google encouraged online activists to “take action,” in order to “protect the free flow of information and help make sure the Internet is available to everyone, everywhere.”

Apple went so far as to say:

An open internet ensures that hundreds of millions of consumers get the experience they want, over the broadband connections they choose, to use the devices they love, which have become an integral part of their lives.

What consumers do with those tools is up to them — not Apple, and not broadband providers.

Fast-forward eight months later and now those that demanded ISPs treat all content equally are the very same platforms actively deciding what content is or is not permissible for consumption.

This is hardly surprising to anyone who has paid attention to the debate. Google and Apple’s lip service to the importance of protecting tech startups has never jived well with their app stores serving as the greatest filters to what new products can be easily accessed by the consumer public. Tellingly, both have caved to government pressure whenever an app — no matter how popular — has frustrated legal authorities.

To continue reading: Big Tech Shows “Net Neutrality” Battle Was About Power, Not an “Open Internet”