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What happens to markets if China invades Taiwan? (Part 1)

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In this QuickHit episode, we’re joined by Mike Green to talk about what will happen if China invades Taiwan? We’re not saying that China is going to invade Taiwan, but what if it is to happen? What will be the impact to markets?

Mike Green is the chief strategist and portfolio manager for an ETF firm called Simplify Asset Management. They specialize in derivative overlays and derivative structures that modify the traditional market exposures. Their flagship products are things like US equities with downside protection.

His background prior to Simplify, has been in hedge funds for about 15 years and have built an expertise or a degree of renowned for the work that he does in primarily the derivatives and volatility space and have managed traditionally in what’s referred to as a discretionary global macro style. The assets that he purchases or that he monitors exist around the world, including places like China, Taiwan, et cetera.

A lot of the discussions Tony and Mike have had around Taiwan are tied to some geopolitical observations and some dynamics that exist in which Mike played a role less under the Biden administration. But in the prior administration had an advisory capacity to some components of the Department of State and Department of Defense.

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This QuickHit episode was recorded on December 2, 2021.

The views and opinions expressed in this What happens to markets if China invades Taiwan? Quickhit episode are those of the guest and do not necessarily reflect the official policy or position of Complete Intelligence. Any contents provided by our guest are of their opinion and are not intended to malign any political party, religion, ethnic group, club, organization, company, individual or anyone or anything.

 

Show Notes

TN: So today we hear or any day, pick a day. We hear that China is invading Taiwan. What are the first things that come to your mind as the news crosses the wires?

MG: Well, I think there’s a couple of things that are really important about the question of is China invading Taiwan, right. And so what we have seen very clearly, and this is fact, not speculation, is a dramatic escalation of China’s incursion on what would traditionally be thought of as Taiwan sovereignty or independence. Right.

We’ve seen a dramatic increase in boats transitioning across the international marine borders. We have seen a dramatic increase in incursion of both fighter jets and bombers into Taiwanese airspace. And in general, the strategy that you see China engaged in is what is typically thought of as a precursor to an invasion. They’re effectively forcing Taiwan to maintain alertness and readiness, which slowly degrades the quality of defenses.

If you have to constantly scramble jets, there’s only so many hours that you can actually have them in the air. There’s only so many hours you can have pilots operating before their capability deteriorates. That is very clearly what is in play here.

Now, it’s an unknown question whether they go to the next step, whether they take what is currently a largely psychological and relative resource advantage to degrade Taiwan’s capabilities, whether they turn that kinetic as compared to hoping for a psychological collapse where Taiwan effectively decides to sue for the best possible deal they can get is unclear.

And I think that’s really what we’re all debating. I mean, China has come out very clearly. Others have made this observation, and it’s not dissimilar to my former employer, Peter Thiel’s observation about Donald Trump, right. That everyone takes him literally, but not seriously. I would flip that on its head. And everyone say everyone takes Xi seriously, but not literally when he says we will reunify with Taiwan in one form or another within the next five years.

And that’s the core of the question. Are they going to do this in a peaceful fashion? Are they going to do it in a kinetic military fashion? What are the ramifications of each of those two strategies and what’s the state of gameplay that is in place right now, as each side including the allies of Taiwan in the form of Japan, the United States, et cetera, evaluates how they want to respond to it.

TN: Right. What is that? What are those initial responses that you think happen, setting aside battle plans, of course. Honestly, I don’t believe that Min Def or DoD know 100% of whether this will happen or not. I think everything is a potential.

What do you think those reactions are initially in terms of, say, markets, investments, even things like trade? Those are like, what do you think happens right away?

MG: Well, I think there’s a couple of things that are worth hitting on. Right. So the first is why does China want Taiwan or why does it matter? Right. So one component is just the psychological final victory over the Republic, the Taiwanese Republic, what is known as the Republic of China outside of the area.

When you think about that dynamic, this is a final victory that would allow Xi to place himself permanently on par with the founders of the Chinese Communist state. Right. The Mao’s, et cetera, of the world. So this is a huge accomplishment.

I think there’s a huge misunderstanding that the objective is to obtain the semiconductor resources, right. To me that feels, one, extremely unlikely to expect that they could do that successfully, and two, I’m not sure it’s actually entirely relevant. Right. But that does then speak to the indications that the game is being taken much more seriously.

And so one of the things that I would point to people is the dramatic expansion of capabilities and investment that Taiwan is making in Arizona, where they’ve effectively doubled on a nameplate capacity and potentially up to 5x the capacity of TSMC in Taiwan. Now, that’s a huge implication.

If we were to put ourselves back into the 17th century, it would be the akin of a European sovereign entity, a small Principality, taking the Crown jewels and shipping them for safekeeping somewhere further away when they were faced with a threat, taking the error apparent and shipping them abroad so that there’s a base of operations. If you think about TSMC’s investment in Arizona, that can be very easily thought of as a base of operations and a source of income for a government in exile. Right. So I don’t think Taiwan is planning on going away.

It also opens up kind of the interesting angle of how effective is China’s strategy, because I think that China broadly looks at it and says, we can wear them down and I would point to it and say, yeah, your best opportunity was actually probably a year ago to use the element of surprise. Now you’ve pretty well telegraphed it. Taiwan has made significant advances. The US Department of Defense, in particular, I would argue, would have been caught very much off guard a year to a year and a half ago. Today they’re pretty much on top of this, right.

The Pacific Theater has been opened pretty widely. You’re actively hearing expressions of support from South Korea, Japan, et cetera. So to me, it feels like the element of surprise has been lost, and now it just becomes a question of, is this ultimately going to happen? It seems extremely unlikely to me that it will be a long term successful component.

Then you have to ask yourself the last question, which is, why does China care beyond simply the moral victory or the desire for that? And that’s where you and I have been through these maps. And I don’t know if we’re doing this in a visual format, but I could share it if you wanted to.

The way the world looks at China is not the way China looks at itself. Right. So the traditional map that we think of with China when we look at it, we see this large access into the Philippines and in the Pacific Ocean. It looks like China has a coastline that is similar to the rest of the similar to the other great powers like the United States. The reality is that their entire access to the Pacific Ocean is framed and blocked by barrier Islands, Taiwan being the most prominent of those. Japan to the north, being another equally important one. The Philippines come into play. Okinawa comes into play there, et cetera. Right. What they’re really trying to do in terms of expressing a desire to take over Taiwan is to break into the Pacific Ocean and pick up that Deepwater Navy capability that is absolutely mandatory for an “Empire to express power.”

Map of China and countries surrounding it. Image from Google Maps.

So I think we’re at kind of a point of maximum uncertainty where it feels like they may have missed the best opportunity to do so. But as you and I have talked about, I’m not sure that China is actually as good at this game as everybody thinks.

TN: I’m with you on that. Yeah, I don’t think they are, either. And one of the things that I’m seeing more and more of two years ago, a year and a half ago, as you mentioned, China was winning diplomatically, not everything. But there was more of a positive bias toward China.

Today, they’re just annoying people. And so if they take an action like that, it seems like they start from a negative position, and it’s hard for them to get to a positive position out of that when Xi Jinping was going to the left to talk and all this other stuff, he had a lot of positive momentum behind him, and he actually could have done a lot of really terrible things, which, if you look at what’s happening in Xinjiang and other things, he did a lot of terrible things. He could have done more, actually. And I think the world would have turned the other way. But now I think it’s really hard for them to turn the other way. Does that make sense to you?

MG: No. I actually think that’s true. I think that they may have gained a degree of false confidence off of the failure to react to Hong Kong. But absolutely, with the exception of… Australia has clearly turned. The UK has recognized that it has to turn. Europe continues to enjoy the schadenfreude of the US’s relative standing having deteriorated. I think Europe is slowly waking up to the risks of their reliance on Russia, particularly for energy supplies.

And an interesting angle, and again, you and I have talked about this offline, would be the dynamic of a simultaneous move in both directions by Russia to expand into Ukraine and China, to expand into Taiwan and the immediate aftermath of the Chinese Olympics in Beijing this winter, which is February. From a purely mechanical standpoint, it’s almost impossible to mount any form of attack on Taiwan until May due to weather conditions, and an amphibious assault would make no sense, you could certainly see an airborne one.

I think there’s a very real chance that we see at least an increase in the drumbeats associated with that to test it out. But Europe will eventually turn, right. They have to understand at their core that they are an exposed peninsula on the Eurasian continent, and they really can’t allow China and Russia to become as dominant as they are expressing at least their interest of becoming.

TN: That’s right. Okay. So you bring up an interesting analog when you mentioned Hong Kong. Okay. So Hong Kong and Taiwan used to be this kind of holdouts from the mainland, and people looked at them as these democracies-ish, although Hong Kong, whether it was a democracy or not as questionable. But the takeover of Hong Kong is one that happened.

I was telling people in 2014 that it was already done. That this was going to happen. And for five years that I talked about it, people said, no, you’re crazy. It’s not going to happen. There’s too much money that goes through Hong Kong and so on and so forth. But it happened. And now in the wake of it, people just kind of shrug their shoulders like, okay, whatever it happened. Do you think that a takeover of Taiwan would be similar? Do you think people would just kind of shrug shoulders and say, “they invaded Taiwan. It was going to happen anyway, let’s just move on.?”

MG: No, I think it’s much harder for people to look at it in that context. Now, I would frame it, if we’re going to use a World War 2 analogy. And you always got to be careful with Godwin’s law about this, but it would be the analog to Nazi invasion or the German invasion, more accurate of the Sudettan land, which ostensibly was done in a manner very similar to Russia’s invasion of Crimea and the Dunbas region, were there to protect the Russian speakers.

We’re not actually there to have any form of substantive gain, and the world has broadly moved on from it. Right. Same thing I would argue with Hong Kong. Well, of course it was ours, right? You didn’t actually expect us to sit around 2047 and wait for this. There had to be a gradual progression in that direction.

Now, if this is the definition of gradual, I’d hate to see the definition of sudden. But again, the world has largely ignored it and moved on because for the most part, those outside the region have not experienced a significant shift. And again, if you were to look at foreigners in Berlin around the invasion of Sudetenland, they wouldn’t have seen anything different either. Right. Maybe they would have seen the riding on the wall and gotten out. But as we know, many didn’t.

There’s the risk that this is similar because the reality is if China were to decide to invade Taiwan, and now we can kind of get into the market impact, I don’t think the west can do anything about it. Right. Remember, this is 100 miles, give or take off the 100 km. I’m sorry. Off the coast of China. The US cannot Mount a credible defense and certainly not the ability to take back that region once China has taken it.

And I think that’s kind of the interesting feature associated with this is that like the actions of Germany and Sudetenland or the Blitzkrieg into Paris or any of these components, it’s going to be very hard to undo this. And so the minute it happens, it becomes a much longer protracted extended dynamic. And that’s the reason we care. It’s not so much that are we going to win or lose? Right. Almost any credible analysis of it says that China can indeed take Taiwan.

Taiwan is unique and in terms of its mountainous dynamics, et cetera. It’s uniquely suited in a lot of ways for guerrilla warfare. So my guess is they will be playing an Afghanistan type dynamic for decades if they take it. And the US would certainly be working in ways to resupply that and create harassment and everything else. But it is unrealistic to think that it can be stopped if they truly decide that they’re going to do that.

And that’s kind of the thing that, to me is more interesting is that how do the pieces start to fall together in a puzzle if they were to do that and what is properly priced under those scenarios? And I think, Ironically, people will point to US equity markets and say, oh, they’re going to fall or the dollar would be affected, et cetera.

I think there’s some truth to that certainly on a short term basis. But as you know, I don’t really think that the fundamentals matter all that much in the US equity markets right now. Are Americans going to lose their jobs and stop contributing to their 401k plans? And is the Federal Reserve suddenly going to step away from markets and stop engaging in supportive activity? To me, that seems very low probability. And so while there could very well be a correction, I’d be surprised if it moved in that direction. But I do think there’s other trades that are particularly interesting. Right.

So we mentioned Hong Kong. The Hong Kong dollar has been completely unaffected, both in terms of the absolute level of the dollar and its relationship with the US dollar. In other words, they continue to trade, basically a parody with very minor exception. But also the volatility associated with that. So taking bets against that relationship have retreated to near the lowest levels in years.

TN: Sure.

MG: If China were to make a play for Taiwan, it would be almost impossible for me to imagine a scenario in which that relationship didn’t fray violently. Same thing becomes true for Japan, right. Because Japan has two separate issues. One is they are a client state of the United States, and now they are directly in the face of a kinetic war that requires them to rapidly increase their government spending and to do so under somewhat existential risk. And at the same time, they have to write off, basically the minute they do that, they have to write off all of the collateral that most of their corporates have invested in China, which has become the single largest source of their external investment. Right.

So those to me, the area across Asia feels mispriced for this risk. Even if we’re just talking about a volatility spike, it feels that that area is much more mispriced than the US equity markets, for example.

TN: Interesting. So what you say about Japanese companies riding off their investments in China with the same go you think for, say, Korean companies as well?

MG: Oh, absolutely. You’re effectively placing them in a very difficult situation for sovereign reasons and for very obvious political reasons. Those are regions: South Korea, Philippines, Japan that really can’t get on board the China train. Right. Because it creates too powerful of an entity, and one that you point out is increasingly unliked. It places too powerful of an entity in their backyard.

TN: Okay. So something like 37, we all kind of know this 37% or something of global manufactured goods are made in northeast Asia. Right.

MG: Right.

TN: And if you look at electronics, it’s a lot more than that. I don’t know the number a lot more than that. So you have a manufacturing base, and especially in electronics, you have a manufacturing location where risk all of a sudden is amped up. Okay. What does that do? I know this is kind of an obvious question, but I want to get a little bit into details. What does that do to supply chains, especially around electronics?

MG: Yeah. Well, the quick answer is obviously it throws them into chaos. Right. And the most important point on the electronics that I would make is that while China holds a fraction of the world’s IP on electronics, again, the commentary around semiconductors, they are massive in the assembly process. Right. They’re basically the assembly line or the finishing stop. And so you have a ton of semiconductors that get shipped into China and then shipped out in the form of flat panel TVs, computers, iphones, et cetera.

That would unquestionably be disrupted. Right. And it creates an interesting, there’s an interesting game theory associated with it, which is you’re effectively talking about splitting the world in two at that point in a manner that is very similar to the breakdown of the alliance between the Soviet Union and the United States following World War II. Right.

TN: Right. This is what I’m not sure a lot of people, especially in the corporate world, understand, is how acute and how distinct that break could be if this happens.

MG: Yeah. I agree with you broadly. Now, the irony, of course, is part of the reason that they can’t embrace that is that redundancy costs money.

If I’m going to build a diversified supply chain, it places me at a disadvantage to competitors that do not do so in the interim. It potentially positions me for a knockout punch for a true winning of the game. But even there, you start to have to ask yourself questions. Would it be politically feasible given the likely response in terms of price controls and everything else that would kick in? Right.

I mean, I find it highly likely that a Biden administration or a Republican administration. Remember, the price controls were instituted by Nixon, not by Johnson. When you start talking about those types of dynamics, the game theory doesn’t really support the desire to fully diversify your resources. It places you at a disadvantage to your peers in the immediate future, and the potential rewards associated with it are somewhat in doubt as well because it becomes politically unacceptable to raise prices in response to that type of event.

TN: Right. Everyone else is going to be knocked out. I’ll be knocked out, too. So there’s no advantage or disadvantage to me to have a redundant supply chain.

MG: Correct. There’s a disadvantage if it doesn’t happen, right? You’re maintaining something more expensive.

So it’s hard to look at those who would be most impacted and say that they’re behaving in an irrational way. Right. Like the game theory is actually very much. Don’t do anything. Don’t do anything. Don’t do anything. Panic.

TN: Right. Okay. So we have a lot of risk in, say, Northeast Asian markets. We have a lot of risk to the electronic supply chain. I know this may seem like a secondary consideration, but maybe it’s not. What about Europe? Does Europe just kind of stand by and watch this happen, or are they any less, say risky than any place else? Are they insulated somehow?

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Podcasts

Be Warned: High Prices Are Here To Stay

BE WARNED: HIGH PRICES ARE HERE TO STAY

Our CEO, Tony Nash, talks about inflation’s and Omicron’s role in US shares sinking, as fears spread over their non-transitory nature. And how will Asia react to the ‘non-transitory’ nature of inflation and the new Covid variant? Is Gold a good asset to use to hedge against inflation?

This podcast first appeared and originally published at https://www.bfm.my/podcast/morning-run/market-watch/be-warned-high-prices-are-here-to-stay on December 02, 2021.

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Show Notes

PS: Markets in the US were down across the board. The Dow is down 1.3%. S&P 500 down 1.2% Nasdaq down 1.8%. Now over across in Asia, everyone was up. Nikkei was up .4% Hang Seng up .8% Shanghai Composite also up .4% and STI Singapore up 1.9%. And as I was saying early on, FBM KLCI was down 1.1%.

TN: Yeah. Thanks for having me, guys. I think the biggest consideration really is Powell’s comments on inflation, saying it’s kind of no longer transitory. So people should expect inflation to stay. What that means generally is we’ve hit a new pricing level is his expectation. So meaning prices are not in his mind, in many cases, going to go back to the levels that we saw before this inflationary stairstep. And what we’ve seen, particularly in the US, is consumers have accepted this and consumers accepted it, thinking that it was a temporary rise in prices.


But what he delivered today is some bad news that it’s likely a permanent prize in the level of prices. And the kind of short term cost rises that people thought they were going to endure are more permanent.

KSC: Yeah. So, Tony, try and give us a bit of a perspective here, because obviously the last twelve years and the last accelerated two years of monetary easing have induced this inflation. How does it all end? And does it stop the weak economic growth we’ve been seeing in the US the last few months.

TN: Yeah. So US economic growth, we don’t see a rapid acceleration of US economic growth. And so we have the US, China, Japan, and the EU, all at very subdued growth rates. And that’s bad. Those are the four largest economies with elevated price rises. Earnings are growing in some areas. I’m sorry, wages are growing in some areas, but they’re not necessarily growing across the economy. And part of that, particularly in the US, is a shortage of staff. So people have opted out of the workforce. We’ve lost, like 6 million workers in the US since Covid.


And so there are fewer workers. And so we have wages rising in certain areas. But it’s not necessarily across the board. So people are really going to have to start taking a look at their disposable income to understand what of these ongoing price rises that they can continue to accept. And I think we’re at a point where, since it’s no longer viewed as temporary, people and companies are going to have to start making trade offs. This is really the bad news is when people have to, when it’s no longer temporary, companies and people have to start making trade offs of what to do with their resources.


And that’s where the real problem is. So it’s not ongoing expansionary spending. And even I think it was Biden who said today we don’t expect a stimulus package for the current variant. Again, people are having to look at trade offs, and this is the real problem. When companies have to look at trade offs, they’re looking at their operating costs, they’re looking at their capital expenditure, they’re looking at their investments, they’re looking at other things. So down to Earth type of environment where we’re starting to enter Realville, we’re starting to exit the kind of fantasy environment we’ve been in the monetary induced sugar coma that we’ve been in for the past year and a half.

PS: So that’s a very interesting point, because I’ve always felt like in 2021, we saw this huge divergence in recovery right between the developed world led by the US and emerging markets, which are still really struggling to contain the virus and such. So when we talk about Asia, how do you think markets will react to this tightening of monetary policy by the Fed?

TN: Yeah. We think that Southeast Asia generally will stay pretty muted. We don’t expect early breakout at least over the next quarter or two. We don’t expect really breakout moves in Southeast Asia. We expect China to have a fair bit of volatility, but we do expect China to be generally positive over the next quarter to quarter horizon. We do expect Japan to continue to rise pretty well in India as well. Japan largely on the back of monetary policy automation, other things. So Asia is not one market, of course.


So we do expect different parts of Asia to react differently. Korea will be a mix between China and Japan like it always is. So we’ll see some volatility there reflecting China, but we’ll see some, I guess, acceleration and equities like we would see in Japan to make some both.

KSC: Well, Tony, in truth, inflation has been with us for some weeks now. But what hasn’t been with us for some weeks has been on the Omicron that’s the other big roadblock posing an obstacle to markets. How does Asia behave? How does Asia react, especially since we’re going to be opening in a few hours time?

TN: Yeah, I think Asia generally. You guys know I lived in Asia for most of my life, and Asia generally takes these things in stride with more vaccines available with the typical kind of weathering, the storm kind of approach that people have, particularly in Southeast Asia. I think people will generally take it in stride. This is really the first pandemic. Let’s say in the west that people have had for probably 50 years where they’ve really been kind of freaked out and worried in Asia, we’ve seen these types of pandemics for 2030 years.


It’s a bit different. People are more conservative, people are more used to these types of volatile, say, public health and market and other type of environments in Asia. So of course, we’ll see things shake up, but we won’t necessarily see the dire kind of messages that we’ve seen, say in the west. I don’t think we will. We’ve seen dire messages come out of, say, Germany and Italy and Austria, particularly over the past week with full lockdowns with 100% vaccine mandates, with really dire messaging. I don’t necessarily think we’re going to see super negative messaging in Asia like we’ve seen there.

PS: We won’t freak out as much as what you’re saying then essentially.

TN: No. Come on, man. It’s Asia, right? People are used to volatility in Asia and the developed markets. Developed markets are highly calibrated. Right? 0.2% change. Either way is people see as dramatic in Asia a small they’re not as calibrated. So people are accustomed to more ups and downs, and people just generally take it in stride.

PS: And I said that generally it’s quite calming. Is gold with inflation basically consigned away from this trend trade term? What’s your view in terms of gold? That’s a hit against inflation then? Because if I look at the data, the method is down 6% year to date.

TN: Right. And a lot of the inflationary rise has already happened. A lot of the stuff happens in stairstep fashion, and a lot of the mitigation efforts are already under way. So while we’ll continue to see inflation and we’ll continue to stay at an inflated level, I don’t necessarily. Or we’re not seeing dramatic price rises going forward. Okay. You’ll see it in pockets where there are, say, supply issues or something like that. But gold is more effective when everything is well, gold is a barometer for finding value.

I’ll say that much. It’s a tangible metal and people see it as worth something. And so what used to happen is gold and say the dollar as the dollar do value the gold would appreciate. But now we have crypto and people treat crypto kind of in the same way they used to treat gold. The gold market is really trying to find itself. So I think we’re going to have to see some fallout in crypto if it is to happen. We’ll have to see some fallout in crypto before we start to see gold being the safe haven again or being the preeminent safe haven.


So until Bitcoin and the other crypto assets really deteriorate in value and people go flocking back to gold, which I think will happen eventually. I don’t think it’ll happen overnight, but until we see a lack of faith in crypto, I don’t think we’ll necessarily see dramatic price pressure on gold.

KSC: Tony, you talked about Asia, right? And now China is moving to banners via structure, which is the loophole that allows its companies to list in New York and other foreign exchanges. What does this mean in terms of China’s overall strategy to go its own way to quote Fleetwood Mac?

TN: Sure. Yeah. So I think, of course, it hurts Western banks, and it hurts the Western banks that are in Asia because they don’t necessarily have those fees to take things public in the west. But I think the bigger problem is this those companies going public don’t have US dollar denominated resources to access, and so they have to get CNY or Hong Kong dollar or Japanese yen or other Sing dollar other denominated assets. Okay. But the US dollar is 87% of global transactions. So it helps those companies to have US dollar reserves, especially as they’re newly public.


Because why do you go public? Because you want to buy another company, you want to use that cash for a big investment or something, you want to expand in a big way. So if you don’t have the US dollar assets that come from going public, say, in New York or somewhere in the US or whatever, it’s really hard to have a big source of cash to do a massive international expansion or undertake a big international project or do a big international buy that’s I guess the biggest downside I would see from the decline of that type of structure in China.

KSC: All right, Tony, thank you so much for your time, Tony Nash there chief executive of Complete Intelligence. And just to hang on this last point, Phil, if you don’t list in the US, you don’t get US dollars necessarily. But that doesn’t matter if you are China, and you believe that the real market is domestically or within ASEAN, where you’ve got to combine, I don’t know, 2.1 trillion people or 2.1 billion people. That’s quite a fair few heads. Yes.

PS: Correct. I think it’s a question of whether you see a convergence between where you list versus where you operate.

KSC: Absolutely.

PS: And I think in the past we thought, okay, you could tap financial markets globally to serve your local markets. But I think China is kind of proving the point. No. I think it’ll be closer together.

KSC: Yeah. And what he was talking about in response to your question on gold, Phil, how gold hasn’t responded to all this uncertainty, which has been traditionally the case. And Bitcoin is somewhere hovering around in the mid 50s, which is a bit weird because you would expect some kind of flight to what was seen as safe havens, right.

PS: Ironic is considered Bitcoin a flight to safe havens.

KSC: Well, because it’s finite in nature. So it’s a bit like gold, right. It seems interesting, because in the last few weeks, we’ve seen a move among corporates like Mark Zuckerberg of Facebook and now Jack Dorsey, formerly of Twitter, who has left his job at Twitter. Still, at the same time was CEO of Square fintech platform financial platform. He’s moving to turn Square into a company called Block, and it’s a bit like it would make Mr. Miyagi proud because martial arts moves from square to block, but he’s going all in.

PS: But this is a very interesting thing because he’s going all in on crypto. And I think you’re referring to Blockchain blockchain reference to Blockchain, which is the distributed platform for data used by Crypto.


But it’s interesting, right? This whole name shift.


I think Jack Dorsey, I think, is trying to evolve away from just being a pure payments provider to offering solutions that are anchored on blockchain as a solution.

Categories
QuickHit

EM Meltdown: China, Turkey & Russia (Part 2)

EM Meltdown: China, Turkey, Russia (Part 2)

In this second part, emerging markets expert Michael Nicoletos discussed Turkey and Russia. What are the major issues that Turkey is facing, specially around its FX reserves? They have an energy problem as well, and will soon need to choose between the US and Russia. And how about Russia’s love-hate relationship with Europe? How does Nicoletos see it will end up?

 

Please watch Part 1 first, if you have not already. Michael talked about China’s household debt and how much is that? Can they ever recover from the Evergrande disaster? And how they got into it in the first place? Is CNY still valuable? How do the Chinese get dollars now with their very limited FX reserve? Should you use the digital Yuan? How much is China spending right now to up its GDP?

 

Michael Nicoletos have spent most of his life around markets, and I used to run a hedge fund for more than 10 years on emerging markets. He shut it down in 2019 to take a sabbatical and Covid 19 hit the world. Now, he is doing a lot of research on emerging markets and trying to see what the next steps will be in terms of the investment world. But in the meantime, he is also advising a few firms on their investment.

 

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This QuickHit episode was recorded on October 20, 2021.

 

The views and opinions expressed in this EM Meltdown: China, Turkey and Russia (Part 1) Quickhit episode are those of the guest and do not necessarily reflect the official policy or position of Complete Intelligence. Any contents provided by our guest are of their opinion and are not intended to malign any political party, religion, ethnic group, club, organization, company, individual or anyone or anything.

Show Notes

 

TN: Talking about EMs, and we talked about reserves, and you mentioned Turkey. Let’s talk about Turkey for a minute because you’ve made some really interesting statements about Turkey, and I’d like to really understand your perspective.

 

MN: Turkey faces some other issues. Turkey faces high inflation. More than 20% rates are around 19% of negative yields. The Lira has fallen more than 50% in the past few years. So you might see nominal GDP in Turkish Lira going up. But if you put it in dollar terms, it’s actually flat for the last ten years. It’s not flat, it’s flat-ish. So in Turkish Lira, the last ten years, the Turkish GDP has gone up 350%, which is a wow. But if you put it in dollars, it’s not flat, but it’s not something meaningful.

 

Turkey GDP in Lira and USD

Now, if you look at Turkey and the devaluation, the President of Turkey, Tayyip Erdoğan, has tried to stop the Lira from falling. Right now, it’s I think at its all-time lows around 920 versus a dollar. But if you look at the FX reserve, which is very tricky and this is very interesting for Turkey, you’ll see that, okay, the number is ambiguous because depending on what source you see, you’re going to see another number. But let’s say it’s around $18 billion. Now, this is the gross number. If we deduct gold and all the other stuff and we also deduct the swap lines, and I will explain what the swap line is, this number falls around to $20 billion. And this could be negative according to some sources because the dollars are not there.

 

What has Turkey done? Instead of using its dollars to protect the Lira from falling, I’m not an advocate that you should do that, but that’s what they’ve been doing. They went to the banks and did swap lines with the banks. And the banks are using depositors dollars to buy back the Lira. So depositors right now don’t actually have those dollars in their account.

 

Turkey FX Reserves

 

MN: Because the Turkish banks have made agreements with the central bank with swap lines, which okay, when your central bank gives you a swap line, it’s a guarantee if you’re a bank. And instead of, if you go and you see the headline number of the Turkey central bank, you won’t see it falling. But if you understand that they’ve been using depositors’ dollars to cover for it, you need to subtract that. So the number could be close to 20, maybe there are some allegations that it could even be negative. So if it’s negative, imagine. FX reserves in Turkey are pretty horrible.

 

You have, let’s say, $18 billion of gross FX reserve, and you have $130 billion of short term liabilities, within the next twelve months, Turkey has 130 billion of foreign claims. So again, this metric is not really good. Now, Turkey is estimated to grow around 8 or 9% this year. Again in Turkish Lira.

 

MN: If we take the Lira is down 25% this year. So this is an issue. Another issue is in Turkey, 60% of its current account is energy. They don’t have domestic energy, so they need to import energy and we know what’s been going on with the energy crisis and natural gas and oil going higher. So all these are main problems for Turkey right now, which I think will be forced to find a drastic way to… They don’t want to go to the IMF or the World Bank, but I think at some point they’ll have to go. And again here geopolitics come to play why they say geopolitics is because Turkey is in NATO. It’s the second biggest force in NATO. The US wants to keep it in NATO because wherever US doesn’t send military, Turkey does. Not many NATO allies send military forces wherever they go.

 

So Turkey is trying to play both sides right now. Trying to be the good guy with Russia, good guy with NATO. Trying to get the most out of both sides. But I think time is ticking and they will be forced to take some form of decision on what they want to do in the future because they’re running out of time in terms of their FX reserves.

 

TN: Yeah, it sounds like it’s pretty short time. Wow. Okay. So looking at the energy issues, not just what Turkey faces, but that Europe faces, I want to spend a little bit of time talking about the Russia-Europe relationship and what you’re seeing there. Will Russia provide sufficient gas to Europe this winter? And, from a financial perspective, how much will Russia benefit from that? Just generally.

 

MN: Yeah. Okay. But the thing is here the following: Europe trying to transition to a more green related economy. The planning was pretty horrible. I would say they wanted to do it fast and they wanted to say “blackmail” corporations to go to more green energy. What did they do then? They created the CO2 emissions credits. So if you were polluting above a level, you were forced to buy CO2 credits in order to cover for that. And that was like an indirect tax, making it less efficient for corporations to use that form of energy so they would be forced to go to other forms of energy.

 

Now, from going to coal to, let’s say, totally green. It takes some time to create the wind turbines and the sun. And actually Germany shut down all its nuclear reactors because of Fukushima.

 

TN: They have a lot of low-end Taiwanese fabs transition to photovoltaics with all of the incentives they were providing. I mean, for a long time, low-end fabs across Asia were just doing a very quick transition to a PV, and it was just a kind of back up the truck moment where they were just taking all the dollars they earned or Euros or whatever currency they could because Germany and all these other places were incentivizing them to do it. And they were low-end PVs. They weren’t high-end. They were just bog standard photovoltaics.

 

MN: No, no. Okay, but besides that, what did the European Commission do? There are auctions every now and then of CO2 credits. But the auctions are arbitrary. So the Commission, whenever it wanted the prices to go up, they did not do the auctions. So then the supply of credits was less and less. CO2 credit emissions went through the roof. So suddenly, if you use natural gas as an energy, it went even higher. And this created the viscious loop, creating the natural gas prices to go even higher.

 

In the meantime, Europe was negotiating with Russia about Nordstream, too. So Russia, which is a pretty good strategic and geopolitical player, realized that Europe was going back as being back in the corner and said, unless you sign whatever I want, let me put it in layman’s terms. I’m not going to pump anymore natural gas. Europe says, no, we have to sit down. We have to discuss. Okay, I’m not pumping. So one brings to another. And every time that Europe trying to play hardball, Russia says, okay, there’s no such a problem. I’m not going to be pumping and prices go higher and higher.

 

So I guess that at some point Europe will need to sign anything Russia wants at this moment. And will try to negotiate some form of an agreement which will be obviously not, it won’t be good. But it will be much better than the current prices that we’re seeing now. And because of the energy prices going higher, Russia is benefiting on a macro level, benefiting on a geopolitical level, and it’s gaining a lot of strength in the region.

 

TN: Hugely. Yeah. Hugely.

 

MN: So the two are interconnected. It’s not one or the other. So the energy crisis has helped Russia, and Russia has exploited Europe’s inability to act smoothly and fast.

 

TN: It’s very interesting. Okay. Just to close this out because I know we’ve been going on for a while. I’m just curious about Russia’s position with Europe, say, over the medium term. Do you see Russia and Europe growing closer? Do you see that relationship becoming tighter, or do you see that eventually becoming an antagonistic relationship? Are there substitutional energy sources that Europe can utilize and that eventually becomes an antagonistic relationship again? Just in general terms. I don’t necessarily political specifics. But how do you think that plays out?

 

MN: Well, I’ll use Henry Kissinger’s famous quote that was back, like 40 years ago. He said, “When I called Europe, who do I call?” So right now, you have, in Germany you just had elections. They haven’t formed the government. It might take months before they form a government.

 

In France, there are elections in April. It seems that the right could be a threat to Macron. And we don’t know what the “right’ means in France. It could be Le Pen or it could be someone else, but it could be anything right now. So right now, I don’t see a leader. If Macron wins, he could be the next leader of Europe. But right now, there’s a leadership problem within Europe.

 

So as long as there’s a leadership problem within Europe, in my view, there’s a vacuum. And I think Russia will exploit it to gate as much influence as it can. And I cannot foresee the future. But in the next six to eight months, I think Russia will try and get as much influence as it can and try to exploit that vacuum.

 

TN: I think you’re right. They’re very smart. They’re very smart political players.

Categories
QuickHit

The Death of Growth: Old & rich vs young & poor in 2030 & beyond (Part 2)

The world’s birth rate is changing. Clint Laurent from Global Demographics shares surprising discoveries that he believes will happen in the next 10 years and how this will shape the world?

 

This is the second part of this discussion. Go here for part one.

 

Clint started Global Demographics in 1996 and cover 117 countries throughout the world and China. They do that right down to county level of 2,248 counties. Clint believes that demographics are better than financial data from the point of view of forecasting  because they tend to be stable trends.

 

Global Demographics is able to come up with reliable forecasts at least 15 years out. After 15 years, reliability goes down and they are typically never more plus or minus 5% error in our long-term forecast. Their clients are mainly consumer goods companies, infrastructure backbones and things like that.

 

 

 

 

 

 

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This QuickHit episode was recorded on June 17, 2021.

 

The views and opinions expressed in this QuickHit Clint Demographics Part 2 QuickHit episode are those of the guest and do not necessarily reflect the official policy or position of Complete Intelligence. Any contents provided by our guest are of their opinion and are not intended to malign any political party, religion, ethnic group, club, organization, company, individual or anyone or anything.

 

Show Notes

 

TN: So Indonesia, India, Brazil and so on, so capital formation, capital investment is the real weakness there and it seems to me that’s a function of largely education. Is that fair to say?

 

CL: That’s exactly what it is. I mean, they you know, as they get the education right and, you know, they’re working on it, most of these countries that have been quite responsible in that area. And as they get that right, so the investment comes in, so the consumer gets more affluent and becomes a virtuous circle.

 

TN: OK, well, what timescale are we talking about for that consumption to come in a really notable way, for example, to take the place of, say, the under 40 Chinese consumption or the under 40, say, Western Europe or American consumption?

 

CL: Well, that’s the bad news. I mean, when you take India at least 15 years to get there. Because the education is only just coming right. And again to pick on India. India’s urbanization, 10 years ago, it was 30% of the population. Today, it’s 33% of the population.

 

TN: OK. So it’s not happening nearly fast enough.

 

CL: No. When you’re an uneducated girl in a village, why would you go to a slum somewhere of a big city? Your lifestyle would be actually worse, not better. And so they hadn’t been able to get that China effect of moving people from the low productivity agriculture into high productivity urban type of work.

 

TN: Yeah, but I think a lot of the, particularly the Westerners who are watching this would say, yeah, but I’ve been to Gurgaon and I’ve, you know, I’ve been to that kind of tech hubs in India. And I see, you know, a lot of women coming up in those hubs or have come up in those hubs over the last 10 or 20 years. But is not just such a small percentage that it matters, but it’s not making a huge difference?

 

CL: Exactly. It’s a small percentage. I mean, remember India is just behind China in terms of total population now. And by 2045, there’s 1.5 billion people. Because they’ve got the birthrate right under control as well. It’s dropping. But again, they’ve got an inertia of more women of childbearing age coming through. So total births keep going up. So they’ve got this problem of just too many people looking for jobs, which keeps the wage rates down. And that. And that’s what’s frustrating the education system, too, is they have to keep growing the number of school places to stand still, let alone expand. But they’re getting that right. So I don’t want to sound negative about that. All these countries are doing quite nicely on that, some positive.

 

And so but one important point to make is the demographic dividend hasn’t been collected. There’s was a lot of talk about India having a demographic dividend because there are always young people entering working age. But the trouble is they weren’t well enough educated, so they didn’t find jobs. In 2010, the propensity of a working age person to be in work was 58%. It’s now 50%. In other words, they couldn’t find the jobs for these people, so the dividend never paid off.

 

TN: OK, so jobs lead to consumption, of course.

 

CL: That’s right.

 

TN: But I guess. So it’s going to take these countries 10 to 15 years or more to get the quality of jobs that are needed.

 

CL: Yeah.

 

TN: So, you know, that growth that we’ve lazily relied on, say, China for the last 10 or 20 or 20 to 30 years, is there a gap between now and 10 to 15 years from now in terms of the rate of growth for, say, consumer goods and say, economic kind of new market entry, that sort of thing?

 

CL: Yeah, well, this is the crisis that’s coming. Because if we take, again, the kind of what I call the family stage countries, India, Brazil, etc, they actually need around about 250 million extra jobs in the next 25 years to get, to maintain their existing level of employment. Not lift it. Just maintain it. And that gives them a reasonable level of income. Not great, but hopefully with education situation, the earnings go up.

 

But let me put another layer on the cake, so to speak. This is fourth group of countries, which I call young and poor. I call them young because the median age of all of the countries in this group is 20 and some of them have a median age of 14. Mali and Niger, they both have a median age of 14.

 

That means half the population in those countries is under the age of 14 today. Yeah, and their birth rates are high. The average birth rate, an unweighted across these countries is 130 per thousand women. Most countries are at 40 elsewhere in the world. And the number of women of childbearing age, of course, are going up dramatically because of that as well. So even though the birthrate is starting to come down, it goes up dramatically. And it has a seismic effect.

 

First of all, is roughly a billion people in this part of the world at the moment. In 25 years time, there’s two billion of these people. In other words, in twenty five years, they add a billion people to their populations. And if I can just go on and to take Nigeria, for example, at the moment, has 45 million school age children, irrespective whether they are going to school, most of them are not. 45 million. It’s 90 million in 25 years time. Just to stand still on education, they have to double their education budget. And so, little own issues need improving.

 

TN: OK, so governments take, need tax revenue to grow their budgets. So will there will there be the incomes to allow them to grow those budgets just to keep up with where they are? And further, will they be able to accelerate the job growth to make sure they have those incomes, to keep their education, to improve their education like, say, India or Indonesia is doing well?

 

CL: Well, this is the crisis that’s coming because the answer simply is no. And it’s no for the simple reason that up until now, this is really what I was saying we were at a cusp. Up until now, the growth in consumption by the older affluent or the older countries generally, which includes China, has been such that it’s kept relatively full employment throughout the world.

 

There’s been enough jobs for those who are looking for jobs. And that doesn’t sound a bit. But even the young, poor countries have been trotting along at about 55% of working age people employed, which seems to work out quite well. But suddenly that whole relationship changes. As I said, the countries that account for, well, the old affluent account for 63% of global consumption. The other old add another 14% say up to 77% or 80%, chuck in a bit of India, 80%, which is also flattening out. So the countries account for 80% of the money that’s spent by households now flatten out in growth in their demand.

 

Layer on top of that, there’s a continuous increase in productivity per worker. The amount of number of workers needed to meet the new additional demand over the next 25 years is 300 million. And as I told you earlier, this 740 million people that are going to be looking for an extra job.

 

It’s going to be roughly 400 million people, mainly in the poor countries, are in a little bit in need, family stage countries, who are at working age, would like to have a job, but can’t get a job. That’s 400 million.

 

TN: That’s astounding. OK, so that’s as big as, say, the EU, right?

 

CL: Yeah, well, bigger.

 

TN: So if everyone in the EU didn’t have a job but they wanted a job. Man, woman and child couldn’t get a job.

 

CL: That’s right.

 

TN: So that’s terrible. So what do you think those people will do? What do you think some of the effects will be of this? First of all, where is this, kind of generally, geographically? Is this the kind of Bangladesh, Nigeria, kind of those types of countries?

 

CL: It’s based of the African continent and what we call South India, but not including India or Sri Lanka, which will be in Tibet, out there.

 

TN: So Bangladesh, Pakistan, Central Asia generally.

 

CL: And there’s a few small countries, obviously, in South America or Central America that are falling into this category as well. So it’s reasonably concentrated geographically. And it’s a real worry. And I think of myself. If I was turning, well, let’s say 20 and I cannot get a job. I’m scrambling for food. I’m scrambling for water, in some places in the world. What do I do? I’ve got nothing to lose. And that’s what something dramatic, I would rot and just die miserable, which is terrible.

 

So I think the world has a fairly major migration problem coming. These people are going to walk north. I would. So I don’t blame them. But it’s a desperate situation. So much so that in my own mind, it’s all very well to donate money to buy mosquito nets and things like that. I actually think would be better to donate money for a TV and an Internet connection so we could educate the kids. Because we could deliver education quite cheaply using modern technology. And if you could educate them, then they could do more productive things and then and so on and so on. You get the part of that. But there’s no easy solution to this one.

 

These people are largely alive today, will be alive in the next 10 years. And the consumption trends, well, they’re there too. The people with the money are getting older and saving. So the drawbridges are coming up. So this is.

 

TN: So migration. The migration issues we’ve seen over the last, say, 5 to 10 years sounds to me that they only intensify over the next, say, 15 to 20 years.

 

CL: Oh, incredibly so.

 

TN: And Europe is really the focal point. Yes. The US has some issues and maybe India, China have some issues. But it really seems to me that Europe is the major focal point there.

 

CL: But it’s the easy one to get to.

 

TN: Sure. Yeah.

 

CL: But there’s some other dimensions of migration, too, which is starting to come under stress. And I mean, for example, let’s take the U.K. It has one nurse for every 440 people in the population. So if you get sick, your access to a nurse is pretty good. But the UK hires nurses who have been trained and educated in the Philippines where there’s one nurse for every 4000 people in the population. Is that morally correct? Should affluent countries take skilled workers, from developing countries?

 

TN: But can you blame that worker for wanting to go to UK?

 

CL: Not at all. If I was the nurse, I’d be on the plane. I mean, basically, you’ve got the individual motivation and you’ve got the moral issue, and you’ve got the need. And then even if you take a country like Greece, which everyone says, oh, that’s nice and comfortable.

 

Greece’s population has dropped by one million people in the last 10 years. And that one million that are gone are skilled workers who got on a train and went north to Germany because under the EU, they can move.

 

TN: What percentage of the population is that? One?

 

CL: About 10%.

 

TN: 10% of the population?

 

CL: Well, you know, it’s a big drop. And again, you don’t blame the skilled plumber or electrician or whatever because he or she can earn 2 to 3 times as much going to Germany or getting across to Britain, which they could do perfectly legally. And then in 5 years time, the wife is with them, the kids are going to school, that kids speak German now, they never go back.

 

TN: So does this change, does this, you know, let’s say the education deficit issues and the jobs deficit issues in Africa, does it change immigration policy in Europe, for example, in the way Australia has the checklist of skills and those sorts of things to to migrate?

 

Does Europe come more to that type of migration policy to where they incentivize people, let’s say, in parts of Africa before coming, meaning get educated, you know, these sorts of things. And you can definitely come in. I mean, it certainly sounds like something that would be really helpful for places like Greece.

 

CL: Yeah, but not too helpful for places like Nigeria.

 

TN: Right.

 

CL: They’re losing the skilled worker. And the ability to lift the Nigerian economy is going to be a function of having skilled people. And if Greece takes them, that’s actually not that great. Right. So, yeah, you sort of resolve the great problem, but you don’t resolve the core problem, which is the change so to speak. Yeah. So it’s interesting because Greece, with its drop in population, its household values are dropping because the number of households is going down. And that’s the core asset of many households. So it’s trying to create some economic problems as well because the asset they could borrow against is going down in value, not going up in value. But that’s not just Greece. It’s Italy, Spain. It’s Romania, it’s Poland. And that being, you know, some of the talents are being sucked out. And that’s not good.

 

TN: So in sum, let me try to sum this up, because this has been a great conversation and it’s really opened up a lot of things I haven’t really thought about before. So so global consumption generally for, let’s say, the next 10 years or so is relatively stable.

 

We won’t see the rapid expansion that we saw in places like China over the last 10 or 20 years. So let’s say the pull on commodities right now, the inflation we’re seeing, the, you know, this sort of thing, that stuff really tamps down pretty quickly and really stabilizes for maybe a decade or so.

 

CL: Exactly.

 

TN: Once that stabilizes, then we see real disparities as these kind of young, poor countries explode in population. But the wealthy countries are pretty stable and continue to be pretty rich. Right. So we kind of have a status quo for the next decade or so. But then after that, there’s a real danger that emerges from global disparity.

 

CL: That’s right. You start to have a major, what I’d call a population crisis.

 

TN: Wow. OK. It’s a little bit dire. But this is great. Before we go, can you talk about, I know you have a couple of books coming out. Can you tell us what they’re about? I know they’re a little bit from coming to press, but I think it would be really helpful for people to understand what you’re writing about.

 

CL: Right. Well, one of the two books is basically called 2045: The Growing Demographic Crisis. And it’s pretty much along the lines that I’ve just discussed, the difference is, all the data is there. And you’ve got the data, if you like, at the segment level, which also go to by country level. And you can see how the numbers play out. It’s not something that we’re making these numbers up. They’re actually there. They’re pretty solid. And the core source, of course, is the World Bank and the United Nations that you can’t really argue with that. And it’s all old numbers behind what I’ve just discussed.

 

And the second book coming out is called China: 2040. Similar sort of theme. And what I have done that is China is going through a lot of changes that I’ve explained and China will continue to be important economically and politically for the next 10 years at least, if not longer. We know that.

 

So it’s actually quite important that people have a better understanding of what China is like demographically. And it’s not one country, it’s at least thirty one countries. The differences in consumption within that, it’s quite diversified.

 

This book is, if you like, the primer for someone that’s either doing business, thinking of doing business, investing in, whatever, into China. If you haven’t read it and you don’t know China, then you’d be dealing somewhat riskilly. If you read this, it’ll help you focus where the opportunities potentially are. Thanks for the opportunity to mention.

 

TN: Of course. Thank you so much for your time. You’ve been very generous and I think we’ve taken it a lot. I think of it to watch this two or three times before I kind of fully take it in. So I really appreciate it.

 

Further watching, please. We’d really appreciate if you’d like the video. We’d love it if you’d subscribe to our YouTube channel. And we’ll see you next time. Thank. Thanks very much.

 

CL: Thank you.

Categories
QuickHit

QuickHit: The Anglosphere and the Multi-Speed Recovery

Macro specialist, geopolitics and history commentator Nick Glinsman joined us for the first time on QuickHit to discuss how the Anglosphere compares to the world in this multi-speed recovery in the wake of Covid.

 

Nick is based in Brazil and he brings decades of experience to macro, markets, and politics. His background is basically London and New York with a bit of Europe and, Australia and Hong Kong. He worked with the Salomon Brothers and Merrill Lynch. He’s doing a lot of advisory work and the ability to express views on the markets, geopolitics and macroeconomics in the market.

 

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This QuickHit episode was recorded on April 8, 2021.

 

The views and opinions expressed in this The Anglosphere and the Multi Speed Recovery? QuickHit episode are those of the guests and do not necessarily reflect the official policy or position of Complete Intelligence. Any content provided by our guests are of their opinion and are not intended to malign any political party, religion, ethnic group, club, organization, company, individual or anyone or anything.

 

Show Notes

 

TN: Nick, for a while you’ve talked about this concept called the anglosphere. Can you help us understand what you mean by the anglosphere?

 

NG: I’ll dig into it. I like the fact that you’re talking about the link between geopolitics and economics because with Trump and Brexit, that’s where what was a very boring macro environment suddenly started to become differently exciting. The politics would start to drive some of the macro markets and actually what’s interesting is  Brexit and Trump, part of the anglosphere. Not the formative part of the anglosphere.

 

So what we mean by the anglosphere is looking at countries that are historically tied via culture but critically also via common law, legal system, because that defines how the economy and how commerce can run. If you go back in history, there is a big difference between common law countries and roman law countries. Common law countries think of European Union countries and that construct. So what we mean by the anglosphere is being, better start with the UK because it is the mother country, it’s still the mother country for where you are currently still. If the US were now part of the commonwealth. You’re looking at an anglosphere. Now typically when I refer to it, I’m talking about UK, US, Canada, Australia, New Zealand. Five Eyes.

 

You could loosely add two countries. One of which has an anglo-saxon common law — India. The other one works much closer as a defeated entity country in World War II — Japan. So you’re getting the quad, which I would maintain is part of an angular influence, at least, if not anglosphere entity.

 

Let’s stick with that grouping. You’re looking at countries that have a similar legal system, similar financial structure, they have banks, central banks that are lenders of last resort and traditional backups, concept. Remember the European Union doesn’t have banks.

 

Back to common law. Common law also in this environment. This is where it’s getting critical. So Five Eyes is I would posit it’s the ultimate defense alliance.

 

TN: Even New Zealand, still? Ah, you know. Long discussion. That’s so much sarcastically.

 

NG: I know what you’re saying. Although she has the relation in the State of Victoria in Australia, who is actually not known as Kim Yong Dan. But if you look at what they’ve just done with the central bank, there is still a similarity there. And of course the travel corridor that’s about to open on the 16th I think it is, is between Australian and New Zealand. So as much as she kowtows to the panda in Beijing, they are still part of that structure.

 

So back to the common law and the financial. So you’ve got countries with central banks that act as lenders of last resort with independent monetary policy, you have independent fiscal policy and I would include of course in both these, Bank of Japan, RBI in India and so on so you’ve got independent fiscal policy, independent monetary central bank, which you don’t have in Europe.

 

There’s been no Hamiltonian moment there. So you have that flexibility and you can see that flexibility. You also have much more, common law enables Schumpeter’s creative destruction and thus reconfiguration. Much easier chapter 11 in the US or bankruptcy and start again. Right. Not so easy to either stop or start on the roman law. So that when you think of where we are now, you’ve gone through a pandemic where inexplicably a lot of countries have remained closed, the reopening is going to need that reconfiguration.

 

You’ve also been the countries that are advancing with the vaccine quickest of those that took a very commercial view as governments in terms of getting them… so you had operation walk speed in the US and you had a vc person take over the procurement policy and the vaccine policy in the UK. Private Sector innovation. And in fact, in the UK, you have that triangle, Oxford, Cambridge, London, that’s without biotech and so on and so forth, very flexible. You even have a situation where the famous Astrazeneca factory in Holland was financed by the British. Not by the Dutch.

 

We can get into that on another episode of the great vaccine debacle. But I think that’s part of the precautionary Roman Law System that the EU runs versus the go get innovative system that comes with the anglo-ceric countries, the common law system and the structure of finance business so and so forth.

 

TN: Okay. So it sounds to me like when you talk about the anglosphere and you look at it kind of post pandemic or at least post first wave of disaster in the pandemic as we enter a recovery, it sounds like you see a widening divergence between those with say common law and relatively independent central banks versus the other law formed be it roman and in independent fiscal policy as well.

 

So help me understand the… so we just had this IMF report come out earlier this week about 5.1% growth or whatever this year and everything’s amazing and which we know, given, it’s all base effects and if you do a three-year average, it doesn’t look good at all. In Europe, the only one, over that three years, the only one with positive growth is The Netherlands. Not even the UK. But I would argue there, they lean toward you know more of a British style than other styles.

 

So if we’re having a two-speed or multi-speed recovery, would it be fair for me to say that you believe the anglosphere will recover faster than the other spheres?

 

NG: Absolutely. Absolutely. You’re better expert on sinosphere than I would be. But I think the growth is going to disappoint because they’ve pushed so hard on the string of debt. Okay.

 

In terms of the Euro, Europe, I think there’s a very simple way of looking at things. It’s extent of vaccination and compare those and what does that mean? It’s now being said out of UCL, University College of London. UK’s herd immunity on Monday, 73%.

 

You can see there’s data coming out of the UK that is explosive as there is in the US. People are looking at the European and thinking, okay let’s close until August or beyond because this vaccine debacle is even worse. Everybody’s going to take Astrazeneca in Europe even though for the young women of age below 30, the chance of getting a blood clot is 1 in 600,000. Where the child’s getting Covid is substantially greater.

 

Because Europe and the Roman legal system has this precautionary black bent. It’s clear that this whole debacle in Europe has delayed that coming out of meltdown. The European summer season as the Germans would say is kaput.

 

TN: If we have this kind of two-speed recovery or multi-speed recovery, and let’s say Japan is part of the anglosphere, would you say Japan would be leading Asia out instead of China? Now I’m talking about real data. I’m not talking about Chinese 8.1% growth numbers like fictional. I’m talking about actual real performance with actual real usable output and you know all this other stuff.

 

NG: I’ve got so that’s going to be the case actually. I really do have that sense and I also, given the belligerence of the Chinese regime right now. You’ve got vocal and slightly belligerent actions against Taiwan, of course, which I’m with Albert on that. They’d have already invaded if they were going to do it. And you’ve got what’s going on in the Philippine islands with all these ships tied together.

 

I remember a very famous situation where chief ancient China economist from HSBC came into the office and talking about China and then we asked coming into that particular office, name unmentioned, always an aggressive to and fro Q&A, and then we have one of us asked about China, how’s the recovery going after Fukushima. Blood was coming out of this chad’s mouth having to talk a bit about China.

 

And we know that there is a much more passionate… we have passion against Germany or France as a Brit or as an Englishman come soccer. But, we love each other.

 

TN: Maybe that’s a bit strong. But we’ll use that.

 

NG: Maybe strong for Germans but with the French, there is a deep passion there and somebody keeps reminding the agent. But in the Far East, there has been that, you see that tension with the South Koreans and Japanese. However, the Chinese are forcing people out away from some of this stuff.

 

Japan with Australia and India will enable a lot of these countries to look elsewhere. Isn’t it ironic going back to the anglo-sphere link and that publicly is United Arab Emirates who are being given credit for getting India, Pakistan talking together. I have no doubt behind the show, the English are very active there because you’ve got a cricketer in charge. She made this game… So there’s stuff going on that gives you signals as to what could be happening.

 

It was rather like a mutual friend of ours, we were discussing India in terms of trade and I was saying, the UK and India are going to have a free trade deal as soon as it’s possible once they’ve overcome some of the agricultural stuff. And that person said India will do a trade with the EU well before they do it with the UK. And I’m saying hold your horses. No way!

 

TN: It’s familiar.

 

NG: One, it’s familiar. Two, one of the problems that the EU’s have with trade deals with anglospheres countries is legal interpretation thereof. And you know, I think they’ve been discussing it for 8, 10 years, EU and India, they’ve got a sub agreement already in the UK after several months.

 

TN: Just coming back to this kind of overall topic of the anglosphere and the multi-speed recoveries, so it does sound like you almost have this triangulated recovery from your perspective from India, Japan and Australia that’s leading the way in Asia. You have the UK, which is leading the way for Europe and then you have the US that’s kind of leading the way for the Americas. Is that kind of how you see things?

 

NG: I tend to think that’s the case. But I wonder whether one can justify the idea of UK leading the way for Europe given the tensions between the UK and the EU.

 

TN: I think the EU will play through… The EU will feel pain until they get tired of it and then they’ll relent, I think.

 

NG: There’s one big problem and this came up yesterday there was a meeting of the EU commission about article 122 vaccine export ban. Belgium, Holland, Sweden and Ireland said no way. All the others were saying we’re okay with it. With Germany covering itself with a few conditions. The damage to Europe’s role in the global supply chain is irreparable. They will not be able to go back to this.

 

And there’s another little fact of it which makes me wonder what will happen with Ireland because there’s tension building up in Northern Ireland again. Article 122, that export ban is specifically aimed at UK, US, Canada, Australia. They’ve stopped shipping to Australia already. US, UK, they’re saying well you’re not exporting anything. Paid for everything but not exporting everything. Canada just gets lumped in with the US and the UK.  So I think that’s really shattered the role of Europe in the global supply chain.

 

You’ll have people producing goods for Europe from European input but how can you possibly? Now going to Ireland where the UK has already said we’ll give the Republic of Ireland 3.7 million vaccines because it’s secures Northern Ireland in the coming out of lockdown. That’s an interesting overthought process.

 

Because you have a situation where Ireland is under attack like the Netherlands and Switzerland from Joe Biden’s global tax. If they come out, I would not be funny.

 

TN: It seems to me that what you’re also saying is there’s likely some kind of regionalization or re-regionalization that may emerge from this. Am I putting words in your mouth or is that?

 

NG: I would go and say US and commonwealth EU for as long as it stays stable, which may be problematic and then as you say Asia.

 

TN: Okay. Yeah, I mean I think that we’re coming to a place and I’ve been talking about this since about 2015, where you have global supply chains for goods that are long-term commoditized goods and then you have regional supply chains for the higher value goods.

 

NG: And that’s consistent with the decoupling that’s got to take place against China. And then you have that floater which you and I touched on before we got online, which is Russia and I have a slightly different view of where I can go, which will be, you know.

 

Categories
Podcasts

IMF: Rich world recovering faster than expected

This podcast from BBC Business Matters discussed how rich countries are recovering faster than expected — and is it for real based on data? How about the world’s billionaires suggesting Americans to pay more taxes, is it fair? Also discussed are the NFTs or non-fungible tokens — do they have values or are these just a fad? Lastly, how the workplace changed since the 1980s in terms of safety and gender equality?

 

This podcast was published on April 7, 2021 and the original source can be found at https://www.bbc.co.uk/sounds/play/w172xvq88yhlfkj.

 

 

BBC Business Matters Description:

 

The IMF says that the rich world is recovering faster than expected from the downturn resulting from the pandemic. But what about the developing world? Jubilee USA campaigns for debt relief for developing countries – we speak to its executive director, Eric Le Compte.

 

And in a world struggling to pull itself out of a pandemic, lockdowns and recession, why are there quite so many billionaires? We hear from Kerry Dolan, Assistant Managing Editor of Wealth at Forbes about their latest rich list.

 

Credit Suisse replaced two key executives and cut bonuses amid the fallout from two major business relationships; Peter Hody from Finnews.com in Zurich analyses what went wrong. And we’re joined throughout the programme by Mehmal Sarfraz, journalist and co-founder The Current in Lahore, Pakistan; we’re also joined by Tony Nash, chief economist at Complete Intelligence in Houston Texas.

 

 

Show Notes

 

JR: OK, well, let’s get the picture from the economy, which is going to swell, it would seem, according to the IMF, over the next year or so Tony. How are things in Texas?

 

TN: You know what’s interesting about the about Pakistan to kind of follow on what I said? What I find interesting about these numbers is you really have to average out  2019, 2020 and 2021 to really see how a country is doing. And so if you average out Pakistan for 19, 20, 21, there’s a 1% average growth rate that’s better than almost every other OECD country. The only country in Europe that actually shows growth over that period is the Netherlands. Germany, France, U.K., Italy and so on, they’re all negative average for the last three years. So for the U.S., it’s just over 1% average for the last three or so. So this may look like stellar growth, but it’s not because it’s using what’s called a base effect, meaning the U.S. economy is estimated to decline 3.5% in 2020. So a 5.1% growth rate on top of a 3.4% decline really is not stellar. So we’re struggling to get back to 2019 levels. And the message I would take away from here is countries are struggling to get back to 2019. Much of Europe will not be back at 2019 levels by the end of 2021.

 

JR: Tony, is Credit Suisse a typical bank, do you think, or a typical bank in the circumstances?

 

TN: I think they’re in a typical bank that got caught doing things that banks do pretty regularly. We have to be aware that these banks have risk management teams who look at the investments and evaluate how much of their capital is at risk when they make investments. I don’t doubt that banks make very risky risk management decisions on a regular basis. Credit Suisse. This problem is they didn’t get out in time. There were other banks that had built capital who got out earlier. So they made similar bets, but they got out of the trade earlier than Credit Suisse did.

 

JR: Do you think even Mr. Bezos thinking perhaps he should be doing a bit more taxes at a bit of a relief to us?

 

TN: Well, it’s it’s interesting. Nothing is stopping billionaires from paying more money to the Internal Revenue Service in the U.S. So if they want to pay more money, if companies want to pay more money, they’re welcome at any time to pay more money. So if Bezos personally or through Amazon wants to pay more money to the U.S. Treasury, they’re welcome to do that. There’s nothing in law that stopping them from contributing more to the U.S. Treasury.

 

JR: So I suppose in many ways this story is a kind of a sort of reflection of our earlier story, which is really about sort of rich rich countries and poor countries and how they’re coming out of this pandemic and the problems of inequality and whether it causes resentment, which we talked about in that report. Do you see resentment over this, do you think, in the United States?

 

TN: Well, I do. Warren Buffett has said the same. Americans should pay more tax. Your average middle class or higher American who here, a billionaire, say that people should be paying more tax, people get really resentful about it because, again, everyone knows that if someone wants to pay more tax, they can just write the check or send the wire and do more. So I think it is the the resentment is growing. The gains in equity markets are strange. They’re at strange highs. Central banks are enabling that. And the people who gain disproportionately from that are the ultra wealthy, not just the wealthy, but the ultra wealthy.

 

JR: Tony, when I listen to that report, I kept on thinking of tulips for some reason or another, and I kept thinking of bubbles. Do you feel the same way or are you convinced?

 

TN: It really depends on what you want to do with it. So if you actually own that image and you can license it and make money off of that image, then fine. That’s really interesting. Or if you want to own that image for the inherent value of that of owning that image like, let’s say a digital Mona Lisa, that’s fine. But I’m not sure that the kind of demand for that is there, meaning my kids of 19 year old twins, they’ll go out and copy images or whatever and throw them into presentations. I’ll do the same. Actually, I don’t know that there is an appreciation of the value of a digital image. And this is really the problem, right? When you have physical artwork, there is limited supply. When you have a digital image that can just be copied and pasted and then you have infinite number of those images. It’s difficult because there’s never a tangible, supply constrained number of those images, if that makes sense. So I I’m like you when I hear it. I think this doesn’t really make sense unless you’re using it to license. Let’s say there’s a logo for a company like Amazon and somebody owns that intangible property. How much is that logo image worth that?

 

JR: OK, so it’s actually quite close to a currency really isn’t it, or it’s close to an intangible thing like sort of a money, a unit of money, a unit of cash.

 

TN: Well, there’s a difference between money and an asset, right. If you hold let’s say gold, gold is really an asset. You don’t go down to your corner shop and spend gold. In the crypto world, these things aren’t really currencies because you can’t really spend them freely. Of course, you can always barter gold for something. You can always barter a crypto asset for something, but it’s not readily accepted in many, many places. So these things are really assets that you hold onto and wait for a buyer who appreciates the asset more than you to buy it.

 

You’re not going out and buying your groceries or a new car or anything with that asset. You can’t do that with this artwork. You can’t spend it. So it’s questionable. I’m not saying it’s nothing, but it’s questionable. It’s not really the market fit. I don’t really understand it. Maybe this is genius, but it just doesn’t seem like it right now.

 

JR: Tony, thanks very much indeed. I still keep on thinking of tulips anyway. Tony, I was just going to ask you whether you had a lot of similar experience, but experience of unpleasantness, London.

 

TN: Sure. Absolutely. In my 20s, I was with a retailer in their headquarters and and then again later in my career. You know, this is it’s not anything that is rare. I don’t think. Well, maybe it is more rare now, but it’s terrible for everyone involved.

 

JR: And it doesn’t seem to go away even in the virtual world. That’s where we got time for on business matters. Thank you very much indeed for listening. And thank you, Tony. Thank you so much for being my guest on Business Matters. Goodbye.

 

Categories
Visual (Videos)

Why legacy car brands, IT giants are rushing to make electric cars

This article originally published at http://www.arirang.co.kr/News/News_View.asp?nseq=274827 on April 1, 2021.


Can Hyundai, Kia, Volkswagen, GM make better electric cars than Tesla? Last year, sales of electric cars surged 44.6% despite the general downturn of car sales in the global market. In early 2021, a number of automobile giants announced plans to go fully electric within the next ten years. Can they beat the likes of Tesla and offer innovative rides for consumers?

 

Show Notes

 

SO: Last year sales of electric cars surged 44.6 despite the general downturn of car sales in the global market and that trend looks set to accelerate in early 2021. A number of automobile giants including Volkswagen, General Motors and Volvo announced plans to go fully electric within the next 10 years but can they beat the likes of Tesla and offer innovative rides for their customers?

 

For insights on this we turn to Tony Nash, CEO and founder of Complete Intelligence based in Houston, Texas and Jason Salvucci, national manager of the Overseas Military Sales Group based in Seoul but currently in Okinawa. Well, a very warm welcome to you both and well Tony good to see you again.

 

I think it’s our first time connecting this year but well we’ve seen we’ve heard some very exciting news coming from these automakers and the likes of Volkswagen and General Motors. They’re going all electric they’re really moving away from this at the main business that they’ve been building over the decades based on combustion engines.

 

What’s led them to take this risk and do you think it’s the right move?

 

TN: I think, it’s a move that they have to make. Whether or not it’s a move that they want to make. I don’t think there’s really a lot of debate there but I think their equity market valuation they have to catch up well.

 

I don’t know that they will but they’ll try to catch up with say Tesla or something within terms of the equity market valuation but the customer perception they’re actually making viable EVs that they want is really critically important especially with younger customers. But from a balancing perspective at least in the US for example there are emission standards and the more electric vehicles they produce that also allows them produced to produce other larger vehicles SUVs and other high polluting vehicles. So as long as on an average basis they keep it down to the emission standards.

 

They can produce EVs to allow them to produce say the SUVs that other say consumers want. So, it’s both perception and equity market valuation as well as balancing out the regulatory aspects.

 

SO: So, they’re wearing the different sort of costs and risks here. Well, Jason, what’s your thoughts on this? I mean the world’s biggest legacy automakers scrapping their combustion engines. Do you think they’re making the right move?

 

JS: You know, I kind of got to agree with Tony that this is electric is the future. I mean, they have no choice. It’s not just the standards. Electric cars are easier to maintain. They’re quieter. They’re cleaner. They’re more efficient. I mean, the power is better it’s the way everything’s going. I mean, we don’t really have much choice in the matter. While it may not be 100 electric tomorrow. We’re getting there.

 

The big manufacturers if they want to, they want to play with you know companies like Tesla, they have no choice. That’s where the future is.

 

SO: And the force Tony, Tesla is without a doubt the world’s most iconic electric car company but do you think it’s leading the global market is going to last with all these other competitors now coming into the market these giant auto businesses? And are these car makers catching up quickly enough in terms of battery technology and other key technologies?

 

TN: Well obviously, they have a lead but will they be able to keep it as the real question. I think they may be able to keep it for a few years but I’m not sure that they can keep it say over the medium to long term.

 

So, Tesla has a lead but that gap is closing. And with technology they can use external, say sources to either acquire or develop the battery technology that they need to compete with Tesla. So, I think really at the end of the day it comes down to: can you produce a quality vehicle? Can it perform like consumers want and does it drive like consumers want?

 

So, the novelty of an EV is wearing off. And as it goes broad-based that first user advantage or first user interest wears off. And the broad market really just wants a functional car that is electric. And so, you have the segmentation and other things but I think Tesla is going to have a tougher job going forward to keep the lead that it’s got.

 

SO: Well, Jason is it as straightforward as one might think for these giant automakers to transition into all EV?

 

I mean, what are the major differences that traditional car makers are going to have to adapt to and really face as they transition into all electric?

 

JS: Well, the manufacturing process for one, you know, the number of components in a combustion engine vehicle, compared to an electric car, it’s night and day. I mean it goes beyond the manufacture of the vehicle. It’s the maintenance of the vehicle it’s really everything.

 

The shell may look the same but when you transition to, you know even a mild hybrid to a all-electric vehicle. It’s completely different. Not only will the way the cars are sold have to change but also because how the customers buy the cars. How they maintain. How they operate the cars everything changes. It’s not as simple as just shifting from one to the other.

 

So, I think that the manufacturers have quite a task ahead of them. They are really playing catch up, if they want to grow in this and be industry leaders as they have been for years like Volkswagen, Toyota, Ford. They were industry leaders for years and they’ve surrendered that position to a startup company like Tesla.

 

SO: Right and there was some news this week that Volkswagen might be changing its name in the US to Voltswagen. So, really goes to show. It’s not as easy or straightforward as simply changing the name and probably…

 

JS: That’s an April fool’s joke by the way. Yeah, it was April fool’s joke. I fell for it too. Voltswagen is their April fool’s joke.

 

SO: It was a bit too early for April fool’s day but well thankfully yes, they’re retaining the Volkswagen brand. And well Tony, internet companies like Apple and Google and apparently Xiaomi now and Huawei. They’re working on electric vehicles as well and it’s clearly not going to be such an easy ride. So, what’s really in it for them? And what kind of innovations do you think they’re going to bring to the market as tech companies?

 

TN: Well, that’s a great question. Jason brought up a great point about the business models and as you move into the more software-based business models that EVs are you move into a different ability. In a different way for consumers to pay for things. And you know, I think it’s possible for kind of that big expense of a car that a consumer would buy instead of it being financed. It could be a service fee that’s put over a period of time. I don’t really know what that model looks like but these software companies are companies that really balance out especially Apple. A hard asset like a phone plus monthly recurring software fees.

 

And so, these guys will come into the market. Understanding the risk associated with making hardware and balancing that out with software fees. Whereas automakers traditional automakers at least are accustomed to one big transaction that gets financed by a third party. So, it’s a fundamental change in the business model.

 

SO: And Jason, now South Korean car makers, Hyundai and Kia. They currently set fourth place in the global EV markets and of course Kia having unveiled its EB6 this week. And Honda continuing to expand this EB lineup, of course.

 

So, how competitive are these South Korean car makers products? And do you think they’re really going to have to step up the game? Now as market leaders global market leaders Volkswagen GM they’re going out all electric?

 

JS: I’ve been in South Korea 20 years and the way cars have improved in the last 20 years is phenomenal. When I first got to South Korea. Korean cars were far behind but now the fit, the finish, the quality is amazing.

 

I think the larger auto manufacturers are going to get a run for their money by the likes of Hyundai and Kia when it comes to electric vehicles. I really do.

 

SO: So, what kind of… I suppose, what kind of advantages or what kind of features do you think they offer Jason that might really help them really engage in the competition especially as all these car makers go electric?

 

JS: It seems to me the… not just the quality but the design of the Korean cars is a little more exciting than some of the other manufacturers. That’s what I’ve noticed over the last couple of years, is that they’re good-looking cars and they’re reliable. And the price points are, well, I mean they’ve significantly come up in cost in the last 20 years, that’s for sure but they’re nice. And I see a future of like a subscription type of service for electric cars because you know the United States every three years to 39 months. Americans are trading their vehicle up trading in one car for another car. And we have a traditional dealer manufacturer, dealer model that we have to require our customers to go through a subscription service in the future.

 

It is definitely, in the makes for electric cars because you’ll trade out of them much more frequently.

 

SO: So, it’s not just the hardware but also the software that’s going to bring about a lot of changes in how we consume electric vehicles, as well. And of course, everyone cares about the design too. And well Tony, it seems that EVs really are the future but it looks like for now the stock market is quite confused about the prospects they’ve been fluctuating. They’ve been declining over the last few weeks. And of course there was a boost on Wednesday after the Biden administration announced its plans to really ramp up green vehicles and infrastructure but what do you make of these market fluctuations? And how does Complete Intelligence really project the demand or market for electric vehicles in the near future?

 

TN: Sure, obviously there’s a healthy market ahead. I think the equity market fluctuations over the last few weeks are really just, that its markets searching for the right price. And there are so many different variables with bond prices. And currencies. And equity markets that are going into the calculations around the stock market prices for these companies but I do think that those companies that will not only crack the battery technology. And the value proposition for the market but also the business model, as Jason mentioned. Those companies are the ones that the equity analysts. And the investors will really want to follow.

 

So, Tesla is a high visibility leader, early leader in electric cars. And I think they’ll remain a leader but the volume of cars that they produce compared to say a Volkswagen on an annual basis is tiny. And so, the scale that a Volkswagen or a Hyundai or somebody can bring to this market can overwhelm almost an artisan car maker like a Tesla.

 

That’s I don’t mean that as an insult to Tesla at all they’ve done some amazing groundbreaking work but they just don’t have the scale that a Volkswagen or Hyundai has.

 

SO: Well, the likes of Volkswagen and Volvo. They’re going all electric Jason but Hyundai seems to be putting its eggs in multiple baskets. It’s been betting on hydrogen cars as well. Which right now are considered a bit less economical. And there’s also a lack of supportive infrastructure in most parts of the world.

 

Do you think this investment is going to pay off for the company?

 

JS: I think the future is multi-faceted. I don’t necessarily see the entire replacement of the combustion engine, anytime soon. I mean, they’ll definitely be hybrid vehicles, will be mild hybrid plug-in hybrids. There’ll be some hydrogen fuel cell vehicles. I think that there’s multiple avenues that manufacturers will have in the future.

 

So, that we can kind of have something for everybody. I don’t know that the investment in the infrastructure for hydrogen pays off because right now extracting the hydrogen requires fossil fuels. That’s a bit of a problem until they can crack the hydrogen extraction of via solar or something like. That it’s a bit of an… it’s not there yet. I don’t think.

 

SO: And Tony, before we go now there’s a massive EV market in China. And recently, Huawei technologies. They’ve come out and said they’re going to invest billions into that market.

 

How do you see the prospects and do you see China sort of leading the global market in terms of EVs just with the massive number of consumers they have?

 

TN: Sure, I think, Yes. I think China’s challenge is moving their vehicles beyond China and beyond Asia. There’s so much intense competition from Korea, Japan, the US, Germany and so on and so forth, that I think their challenge will be taking an electric domestic, electric vehicle market that will be massive. And moving that into other countries whether it’s safety standards or features or business models.

 

I think, there is something especially with technology that is specific to China that is very difficult to move beyond Asia. And so, if there is a Chinese EV maker, who can move beyond China and beyond Asia. I think they’ll do very very well.

 

SO: See, well, this is all we have time for today but that was Tony Nash, CEO and founder of Complete Intelligence and Jason Salvici, national manager of the Overseas Military Sales Group.

 

Thank you both so much for your insights today. And to our viewers, as always, thank you for watching.

 

Categories
Podcasts

WHO says there’s no link between the Oxford-AstraZeneca vaccine and blood clots

Tony Nash joins Rahul Tandon at the BBC Business Matters podcast and they discussed worries about the Covid vaccine AstraZeneca in Texas. Also discussed during the show are prevalence of electric cars in the street of America — is it now a more common scenario? And with Volkswagen and other car manufacturers jumping on the electric car making, what will be Tesla’s future now? Lastly, Oscars this year and next.

 

This podcast was published on March 16, 2021 and the original source can be found at https://www.bbc.co.uk/sounds/play/w172x1999n85jh0

 

 

BBC Business Matters Description:

 

The WHO’s conclusion came after several European countries have suspended the use of the Oxford-AstraZeneca vaccine, including France and Germany. But as the numbers of Covid-19 cases rise in Europe, what will this mean for the vaccine rollout? We speak to epidemiologist Dr Maria Sundaram.

 

Volkswagen has announced plans to increase its car battery production and charging network across Europe, the US and China. Nikki Gordon-Bloomfield is a tech journalist who specialises in electric vehicles, and was watching VW’s announcement.

 

Also in the programme, with obesity believed to be a major factor in which countries have the worst Covid-19 death rates, the BBC’s Manuela Saragosa reports on whether it could mark a moment of reckoning for food and beverage businesses, in terms of making their products more healthy.

 

Plus, the shortlist for this year’s Oscars has been released. KJ Matthews is an entertainment reporter in Los Angeles, and tells us what this year’s selection says about the impact of the pandemic on filmmaking, and progress made towards diversity in the industry.

 

Rahul Tandon is joined throughout the programme by Karen Lema, Reuters bureau chief for the Philippines – who’s in Manila, and Tony Nash, chief economist at Complete Intelligence in Houston, Texas.

 

 

Show Notes

 

RT: Tony, when you when you hear that from Karen, the U.S. is moving on with great speed when it comes to vaccination. Incredible numbers there. Are you seeing that in Texas as well, or is there a bit of vaccine hesitancy in Texas?

 

TN: I think there’s there’s a bit of both. So we in Texas, we’ve given about eight point three million doses of the vaccine. We have something like three million people who have been fully vaccinated. People are prioritized if they want to get vaccinated. Vaccines are available. We’ve had about almost 10 million doses shipped to Texas. People who want it are signing up and getting it.

 

RT: When you look at what’s happening in Europe at the moment, AstraZeneca is vaccine hasn’t been cleared yet in the U.S., even though I think you have 100 million doses that you’ve bought, what do you make of them? What do you think Americans make of what’s happening with AstraZeneca in this part of the world?

 

TN: I think most people honestly look at the Covid vaccine and believe it’s kind of all the same thing. And but I also think that communications around what it actually does could have been clear and could have been better. And also the fact that this is such an early vaccine, I’m not sure that the risks have been highlighted.  The person you interviewed talked about the risk communications. I’m not sure that was really done very well. I think it’s been positioned as only the benefits. But it’s really hard knowing that it’s such a young drug. And so I don’t blame the people who are worried about it because these are really innovative drugs. That’s great. It’s amazing, but they’re pretty untested. And so it makes sense that people are worried.

 

RT: Tony, you’re in Texas, a part of the world that, of course, we associate with oil very much the emergence of the electric car. It’s something that we’re going to see a lot more of on the road. Does that cause concern in Texas?

 

TN: No, Tesla just moved a big facility here. So Tesla now has its largest facility in Austin, Texas. So we have oil and gas firms and electric car firms here. So like it or not, Texas is the future.

 

RT: You always like to tell us that here on on Business Matters, but some of the things that Volkswagen is talking about are going to be a challenge to Tesla because they do have huge pockets which could see them challenge Tesla as the leader in this particular facility.

 

TN: Tesla had a head start among the big guys, but the big guys have distribution networks, they have maintenance networks, they have a lot of things that Tesla doesn’t really have. I think that as you have the Volkswagen’s, the Toyotas and other guys really come in a big, big way, along with these national charging networks and and other stations, I think we’ll start to see a lot of competition with Tesla. Not that I’m rooting for this, but it’s possible that Tesla is brought down to earth in terms of expectations. So it’s seen as a normal, as other car companies become electric car companies.

 

RT: Can I come back to you quickly here, because we’ve talked to you about it. How many you had that cold snap in Texas recently, heavily covid, where there was a lot of homes that were allowed without electricity for a long period of time. I was just reading an article which said that electric cars could have helped in that situation because people could have used some of the battery power. Do you think that is something that people will look at in the future?

 

TN: It’s an electric car. It’s just a big battery with four wheels and a couple of computers. So, you could have pulled your car into your home and potentially used that as a generator as needed. In fact, some people use old Tesla batteries as backup power for their homes, though, use solar panels, power up their Tesla battery and use it to power their homes. So they could have been helpful. But whether it’s an electric car or just a backup battery or a generator, it would all kind of achieve the same thing.

 

RT: And just paint a picture for us when you’re out there on the open roads. What do you see around you at the moment? Is it a lot of four by fours? Are we seeing more electric cars?

 

TN: Well, we’re definitely seeing more electric cars. I wouldn’t say they’re uncommon at all. They are more in affluent areas and you’re still seeing a lot of trucks and that sort of thing. So it’s a mixed. But, yes, electric cars are becoming a larger portion of the overall mix.

 

RT: And, Tony, if I can come to you here first, the U.S., one of the countries that’s really suffering from obesity levels at over 40 percent of the population at the moment post the pandemic, even during the pandemic. Are we seeing a much bigger debate about obesity taking place?

 

TN: I don’t really see people here talking about it. I think you’ll be shunned if you bring up obesity as a potential causal or coincidental factor. So I’m glad that the discussion is happening in Europe and I think it’s a healthy one to have.

 

RT: Do you see I mean, one does want to stereotype, but when you think of Texas, you probably don’t think the most healthy food. Is that a fair comment?

 

TN: I’ll be careful here. You could say that we’ve got all kinds of food here. People were farmers, right. And they burned a lot of calories during the day. So they ate hardier food. And, yeah, the traditional southern food is pretty rich.

 

RT: Yeah. I must say, listening to that report, I now come to regret the two pieces of cheesecake I had prior to the program. I am probably in the overweight. What about things like sugar taxes? Because this obesity is having a huge impact on health care health systems, isn’t it, on health care services as well? Would sugar tax work? What can we do to persuade people to try and eat more healthily?

 

TN: It is. But I think it would be a punitive tax disproportionately affecting people who can’t afford to eat healthier food. I think it’s really problematic whether people either can’t afford to eat better food or choose not to. And so I think things like a sugar tax, people need to eat what they want to eat. They suffer the consequences. And that sounds maybe dismissive. But I think, people need to take care of their own bodies and they need to choose what they eat.

 

RT: But sometimes we have to step in. I mean, in the same ways as government stepped in with smoking, if obesity is going to have a huge impact on people’s health, a huge impact on our health care services.

 

TN: But part of the reason people stop smoking is because insurance rates, health insurance rates went up dramatically if you’re a smoker. So if you’re obese, if your health insurance goes up dramatically, then that would be a huge disincentive to be obese. There are taxes on cigarettes. So kind of tobacco consumption plays both sides of that coin.

 

RT: K.J. Matthews is looking forward to this year’s Oscars. I’ve seen the trial of the Chicago some very good. I don’t see many of the others on that list to have you, Tony.

 

TN: No, I haven’t I don’t know how I missed them all, but I missed a lot of them.

 

RT: Never mind. We’ll make sure that, you know, before your next appearance and you can review them for the fact that we’re seeing a more diverse list of nominations there, Tony. That just reflects the changing nature of the industry, doesn’t it, that we see a lot more black as we see a lot more women directing films, and that’s a good thing?

 

TN: My youngest son is ethnically Indian and he’s also an actor. And so when I see stuff like this, I think of him and I think, great, he’s got a shot at awards and roles just like anyone else.

 

RT: Do you worry that when he entered the profession that he wouldn’t get so many roles?

 

TN: And I always find that. So yeah.

 

RT: But because of his background, because of that side of his background, did you worry more?

 

TN: Well, yeah, absolutely. So even right now, he’s in a play and he was cast in a role that wouldn’t necessarily have an Indian in that role. And he was so good they cast him, which warms my heart. So, I expect him to be as good or better than anybody. I don’t care what color they are. And if he’s not as good or better than them, then he shouldn’t get the role. It’s just it’s a tough business, right?

 

RT: I was saying this is clearly a chip off the old block. If he’s quite good at that. I think every part of the world loves movies, then they very quickly turn into and on good for the streaming services this year because of the pandemic. Do you think we could see the studios hitting back next year when when we have the Oscars, if things do get better?

 

TN: They could. It really all depends on how things go and how cinemas and all this works, but yeah, I can see him heading back. Absolutely.

 

RT: Well, let’s see what happens with the Oscars next year. Let’s see who wins this year at the Oscars.

Categories
Podcasts

Has COVID-19 Exposed Over-Dependence on Chinese Manufacturing?

The Business Station Malaysia spoke to Tony about his insights from the Federal Reserve’s minutes released yesterday as well as his thoughts on Chinese manufacturing as activity slowly ramps up again. How long will it take for global supply chains to return to a sense of normalcy?

 

Beyond that, this podcast also get into Germany’s economy as weak economic data dragged down the Euro, and thoughts on whether we’ll see Asian Central Banks cut rates due to the Covid-19.

 

Listen to the podcast in BFM: The Business Station 89.9.