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The victory of pro-independence parties in Catalonia does not mean secession from Spain


The recent victory of a coalition of pro-independence parties from across the political spectrum in regional elections in Catalonia, a region in the northeast of Spain centered on Barcelona, has raised concerns about the continued territorial integrity of the country. Complicating matters is the fact that, while the pro-independence coalition won a majority in the regional parliament, it not win the majority of the votes, due to a quirk in Spanish election law that gives more weight to rural votes.

The victory of pro-independence parties in Catalonia does not mean secession from SpainEven though Catalonia has been part of Spain since the time of Ferdinand and Isabella, it has retained its own distinct culture and language. The relationship between the region and the Castilian-dominated Spain has not always been amicable. The Catalonians rose in revolt in a war that lasted between 1640 and 1652. Though Spain reconquered the region, it granted Catalonian rights. Nevertheless, the region suffered from periodic attempts by Madrid to make it “more Spanish” and suffered particular repression during the rule of Francisco Franco in the 20th century.

According to an analysis by Stratfor, the economic downturn that has afflicted much of Europe, particularly Mediterranean countries such as Greece and Spain, has hit Catalonia particularly hard. Catalonians believe that they are paying too many taxes to the central Spanish government in exchange for too few services. Hence, independence feeling has started to rise in Catalonia.

The vote does not automatically mean an attempt to split entirely with Spain and declare an independent Catalonia, despite the fact that such a country would be about the size of Denmark or Switzerland and would be economically viable.

For one thing, Madrid is dead set against granting Catalonia independence and is making legal moves to head it off. How far the Spanish central government is prepared to go to keep the region is hard to say.

For another thing, Catalonians themselves are divided over what is meant by independence. Some want their own country, no question. But others would be satisfied if Catalonia were granted more autonomy within a federated Spain.

Complicating matters is the fact that an independent Catalonia would likely find itself outside the European Union. Catalonians, despite the fact that they would like to be free to pursue their own destiny without interference from Spain, are big believers in the EU.

Despite Spain’s history of civil strife, which was last manifested during the Spanish Civil War in the 1930s, most analysts do not think the matter will devolve to violence. But Spain is due to enter into a period of uncertainty and instability as the various players try to maneuver, with Catalonia wanting more control over its own affairs, if not outright independence, and Madrid keen to keep the region at almost any cost.

The situation is analogous to the recent attempt by Scotland to achieve independence from Great Britain. Though the independence vote failed, the Scottish National Party remains supreme in the former independent country. London has granted Scotland a great deal of power to determine its own affairs. The best case scenario in Spain would be if Madrid were to come to a similar arrangement with Catalonia.

Are Sovereign Wealth Funds unwinding their assets?


A number of countries have set aside budget and trade surpluses in reserve funds. For example, Russia, Norway and Saudi Arabia used the excess revenues from oil exports to install a buffer for rainy days in the future. This type of buffers are also called Sovereign Wealth Funds (SWF). However, the commodity rout had a severe impact on the fiscal budgets of these countries. Is it for SWFs now the time to reverse the flows?

Budget concerns One of the most severely hit countries by lower oil prices is Saudi Arabia. The International Monetary Fund (IMF) estimates that the government of this Arabic country needs an oil price of USD 106 a barrel to run break even. With oil prices running below USD 50, a neutral budget is unrealistic, even with harsh cuts. The IMF therefore expects the country will run a 19.5% deficit this year. Translated to money, this means USD 107bn. Although Saudi Arabia has very low government debt (1.6% of GDP as at end of 2014), it has to adapt to the new reality. Next to cutting subsidies and further reforms, it may have to use part of its reserves. The country is believed to have withdrawn USD 70 billion from asset managers. Its SWF, the Saudi Arabian Monetary Authority’s reserves dropped from USD 737 billion in August 2014 to USD 661 billion in July, according to Bloomberg. We have to wait for more recent numbers, but these are believed to be much lower. The country is currently battling a war in Jemen, together with low for longer prices for oil it has no other option than to use more of its SWF.

Rainy days are here

Also Norway is believed to use its Government Pension Fund Global (GPFG) battling the effects of low oil prices on its economy. With a size of USD 882 billion as at June (source: SWF Institute), this SWF is one of the largest investors in the world. Norway’s Government indicated it would consider to use the GPFG to meet its budget. Budget cuts which could harm the economy can be avoided. Another commodity-rich country which is severly hit by current low prices, is Russia. The Eurasian country used some part of its Reserve Fund and National Wealth Fund at the end of last year to support its currency, the Ruble. For now, the Central Bank of Russia (CBR) which manages the reserves, refrains from using the pool of money that amounts currently close to USD 370 billion. But with the Russian economy in difficult times, pressure is building and the question is how long the CBR can withstand calls from the government to use the funds. Russia is now facing the rainy days where the reserves are intended for.

Pressure on assets

The use of funds pooled in SWFs may well be justified by current conditions. However, the funds should be used combined with reforms. Some painful effects of reforms can be mitigated by use of SWFs. Or in line with Keynesian policies funds can be used to implement anticyclical measures to prevent a country from sliding into troubled times. For commodity exporting countries, it’s obvious that rainy days are here and we can’t hope for the better i.e. wait for higher prices to repair budgets. However, the use of SWFs and the accompanying withdrawal of serious amounts of money have a huge impact on financial markets. Deutsche Bank called the unwinding of reserves by the Peoples Bank of China to support its currency the Renminbi as a QE-offsetting force and even spoke about Quantitative Tightening. This force gets stronger and stronger if SWFs join the unwinding of assets.

When SWFs are selling their assets, short term candidates are bonds and shares of listed companies since these are the most liquid and can be converted to cash quickly. This adds to the pressure on stock markets, which might explain part of current heavy losses on the global stock exchanges. We don’t see rates increasing at the moment, so liquidity in the bond markets might be deep enough to cope with current withdrawals, if they are indeed occurring at the moment. But with the US Federal Reserve close to a decision for a rate-hike, heavy supply by SWFs could lead to a tightening effect. US bonds become less attractive if the interest rates are increased by the Fed, leading to supply. The question then is: who will buy these Treasuries if the traditional buyers, the SWFs, are selling as well?

Invasion of Guyana by Venezuela key to regime change?


Invasion of Guyana by Venezuela key to regime change?While a lot of people point to Greece, which cannot pay its debts without help, as the end game for socialism, the real end game for the failed economic system seems to be taking place in Venezuela. Indeed,as the Daily Beast reports, the end may consist of a bang if the chaotic South American country invades neighboring Guyana for its oil wealth.

Venezuela has been a thorn in the side of the United States and its allies in Latin America ever since Hugo Chavez came to power in 1999. Chavez spent lavishly on social services for the poor, including providing subsidies for such necessities as food and other commodities, thus keeping his grip on power. He also constantly inveighed against the United States, especially President George W. Bush, for plots against his government, real and imagined. In this way, Chavez kept nationalist fervor at a white-hot level, which proved useful as a diversion from his various human rights abuses.

Chavez has been dead two years, but his hand-picked successor, a former bus driver named Nicolás Maduro, has managed to take Venezuela to the edge of the abyss. Most of the problem stems from the fact that the Chavezista social programs have become unsustainable due to the collapse in the price of oil. Venezuela is a major oil producer and depends on fossil fuels to run its economy.

The result of the low price of oil and the persistent lavish spending on social programs, backed up now by printing money, have had predictable results. Venezuela has the highest inflation rate in recent memory, chronic shortages of just about every basic commodity, and a spiraling crime rate that includes murders, kidnappings, and a thriving black market.

Maduro has reacted to the chaos gripping his country in two ways. He has cracked down on his political opposition, throwing leaders such as Leopold Lopez into prison. He has also started to rattle the saber, launching military incursions into neighboring Colombia and massing troops on the border with Guyana, a former British colony.

The prospect of Venezuela engaging in military adventures abroad to cover the chaos happening at home represents yet another headache for the Obama administration, swamped as it is by multiple crises occurring world-wide. An invasion of Guyana could be particularly catastrophic.

Venezuela and Guyana have had a territorial dispute for the past hundred years, predating the latter’s status as an independent country. Venezuela lays claim to Guyana’s Essequibo region, which is rich in resources and comprises 40 percent of the country. A recent discovery by Exxon-Mobile of oil deposits offshore of Essequibo has made the region even more attractive.

A method exists to Maduro’s madness. One issue that unites Venezuelans, Chavezista and opposition, is the belief that Essequibo belongs to Venezuela by right. A war to annex the territory could prove to be popular. The fact that the Guyanan Army likely is too tiny to resist such an invasion must enter into Maduro’s calculations as well.

Of course, a Venezuelan invasion of Guyana might prove to be just the opportunity to end Maduro’s regime, if the Obama administration plays the hand right. If the United States were to intervene in such a conflict, rallying Latin American allies, providing air support and material help to Guyana, the attempt to annex Essequibo could become a crushing military defeat for Venezuela, resulting in the fall of Maduro and his replacement with a government better equipped to deal with the country’s economic problems.

A precedent exists for such a scenario. In 1982, Argentina invaded and seized the Falkland Islands, a British possession. The then-military junta ruling in Buenos Aires was shocked when British Prime Minister Thatcher sent a fleet and an expeditionary force to take back the Falklands. The subsequent defeat inflicted on Argentina resulted in the fall of the junta and the establishment of something resembling a democracy.

Now, if only the well-known Anglophobe President Barack Obama could be persuaded to channel the Iron Lady in dealing with Venezuela in a similar fashion? That may be the sticking point.

Why Facebook is going old school with TV ads


This weekend, social media giant Facebook announced new advertising products. Noteworthy new in the lineup is TRP buying: a product which combines TV and Facebook advertising. The company is enlarging its partnership with information and measurement company Nielsen in order to offer advertisers to combine TV and online ads. Why is Facebook looking at old school tv advertising?

Ratings measurement

TRP stands for Total Rating Point and is used by Nielsen to measure the amount of viewers reached in a certain target group. When planning advertising campaigns, companies determine to how many consumers of a certain group, for instance millennials or seniors, they want to reach out for during the campaign. The Nielsen TRP measurement makes it possible for advertisers to plan their campaigns along a certain time of day or TV-programs. Facebook’s TRP buying seeks to combine the use of TV and online (video) advertising. For instance, if a certain target is met on TV, advertising in online video will take over. Facebooks goal is obvious: to take a major chunk of the advertising revenues pie which is currently going to TV advertising. We’re talking about big numbers. Consultancy Firm PWC estimates that TV advertising will reach USD 204.1 billion in 2019, due to an annual growth of 4.1%. The current numbers for internet advertising are also impressive. As at end of 2014 standing at USD 135.4 billion, Global internet advertising is expected to reach USD 239.9 billion in 2019. And Facebook wants a share of both slices of the pie.

Cross media consumer relationships

Currently Facebook is a pure online & mobile advertising play, but already has experience with video ads. The TRP-buying program would be an enhancement. According to research firm eMarketer, digital video advertising is expected to reach nearly USD 15 bn in 2019. This is very modest compared to the TV ad revenues. So from this perspective the new ad product is a logic step as well. Facebook says that in pilot campaigns, advertisers saw a 19% increase in targeted reach versus TV alone. The success rate is even +39% when targeted to Millennials. Remarkably, the company specifically targets Brand Awareness in its new campaigns. Facebook explains this by mentioning that the company offered fewer options in this category. This may be a good rationale, however sounds very traditional as this was the prime goal of old-fashioned TV campaigns. PWC projects that consumers, especially younger generations are seeing less and less difference in traditional and online media. However, advertising campaigns are still quite rigid focused on one particular medium. With boundaries fading, cross media advertising is the way to go.

Step to the future

Facebook’s new advertising product is the right way to go if cross channel advertising will take off even further. In Q2-2015, the company saw its advertising revenues increasing with 43% YoY. To maintain these high growth rates, it should tap more options in the advertising business. However, the question will be how traditional media will react to TRP-buying. TV-channels could lose significant amounts of money out of their already shrinking budgets if advertisers drastically move away from the traditional advertising programming. As a result, to match TRP-buying campaigns, price competition could increase. Will Facebook cooperate with TV-channels or is it aiming directly to marketers? Obviously Facebook is pointing out the positives, but will TRP-campaigns be successful across the board? Is it only interesting for big corporates? There are still some questions to be answered, but for now, the cross medial approach looks like a logic step into the future of advertising. The increase of Facebook’s product portfolio is positive for future earnings and therefore its shares.

Why America Opposing Human Rights Abuses by Beijing would Benefit China


President Barack Obama and President Xi Jinping of China, the latter of whom recently graced the United States with a visit, may at least say they see eye to eye on the issues of global warming and cyber espionage. Whether that agreement will have any meaningful results remains to be seen.

However, human rights inside China remains a sticking point, at least among people who care about such things more than trade with the aspiring superpower. As the Washington Free Beacon reports, Xi has instituted the most savage campaign of repression since Mao’s Cultural Revolution that started in the late 1960s. That is saying something, since the repression that lasted for ten years between 1966 to Mao’s death in 1976 killed a million and a half people and caused millions more to be imprisoned.

“Since becoming leader of China’s Communist Party in 2012 and president the following year, Xi has launched a sweeping crackdown against all forms of dissent from the government. Human rights groups estimate that more than 2,000 activists have been harassed, detained for some length of time, or tortured by authorities as a result of their advocacy. Human rights lawyers, journalists, non-government organizations (NGOs), citizen activists, Christians, and minority Tibetans and Uyghurs have all been targeted.”

Thus far, the Obama administration seemed to be unwilling to move beyond rhetoric to address China’s human rights abuses. It is an old problem. President George H. W. Bush was unable to respond effectively to China’s Tiananmen Square Massacre that occurred in 1989. The inability to come to grips with China’s human rights abuses has proven to be a bi-partisan problem.

Sometimes the reluctance to do anything, even symbolically, has achieved a kind of surreal state that makes one wonder what politicians in Washington are thinking. As the Washington Examiner reported, Sen. Ted Cruz, R-Texas, a presidential candidate, brought a measure to the floor of the Senate that would rename the street in Washington upon which the Chinese Embassy is situated after Dr. Liu Xiaobo, a Nobel Prize winner who has been imprisoned by the Beijing regime. Cruz proposed that the bill be taken out of committee and approved by unanimous consent.

Sen. Dianne Feinstein, D-California objected, which blocked the bill from immediately being approved. She said, “The consultations with others haven’t been made. It was precipitously brought to the floor, and I can only infer that it’s got political implications because the president of China is due to arrive here tomorrow.” In other words, Feinstein was keen not to see Xi embarrassed when he visited Washington.

Senator Obvious was correct that embarrassing Xi was the point of the legislation. Cruz’s point is that a person who throws political and religious dissidents into prison and tortures them ought to be embarrassed, at every opportunity. Feinstein seemed to have a problem with this.

President Obama also had a problem about confronting Xi with his human rights abuses. BizPac Review noted that the president went so far as to cover the windows of the White House so that the Chinese president would not have to gaze upon protestors while he was having his meal at the state dinner.

Free trade is a good thing, of mutual benefit to countries that engage in it. On the other hand, requiring countries to treat their citizens with respect and decency is also a good thing. No Western business person would think of going into a venture with a man who beats his wife or abuses his children. At the very least when proposing to do business with countries that imprison and tortures its own citizens, bringing the matter up would seem to be good policy,

A campaign to pressure China into stopping its human rights abuses would be to Beijing’s long-term benefit. China’s 4,000-year history may have persuaded it that order and repression to maintain that order are paramount for organizing a society. America’s 240-year history, during which the government (with some exceptions) tolerated and even encouraged dissent, suggests that the exact opposite is true. China would prosper more than has been the case if it allowed alternate ideas to enter the marketplace, to compete freely so that the best rises to the top.

The more that China can be encouraged to become freer, the better it will be for both China and the United States.