(please see his page for the many links) By Elliott Eisenberg The World In Depression: Living With Crisis The World Economy In Disarray: The Slow Motion Grind To The Abyss (a) Tendencies In The World Economy (b) The Consequences Of Sanctions Against Russia Tendencies In The World Economy: “Olivier Blanchard (IMF): The recovery continues, but it remains weak, indeed a bit weaker than we forecast in April. We have revised our forecast for world growth in 2014 from 3.7 percent in April to 3.4 percent today... To a large extent, it reflects something that has already happened, namely the large negative US growth rate in the first quarter. But it is not all due to that. It also reflects a number of small downward revisions, both in advanced and in emerging economies... Advanced economies are still confronted with high levels of public and private debt, which act as brakes on the recovery... Emerging markets are slowing down from pre-crisis growth rates... First quarter growth in the US, as currently reported... was far worse than anybody had anticipated... The recovery in the Euro area remains weak, and inflation remains too low...(1) “Global stocks sank the most in almost six months and the Dow (INDU) Jones Industrial Average erased its gains for the year as corporate earnings disappointed and Argentina’s default stoked concern credit markets will deteriorate. Oil slid with corn... The MSCI All-Country World Index slid 1.5 percent, its biggest decline since February, while the Dow fell 1.9 percent and the Standard & Poor’s 500 Index dropped 2 percent, the most since April 10. Argentina’s dollar bonds slid, while Portuguese debt fell as Banco Espirito Santo SA was told to raise capital after posting a net loss. U.S. oil lost 2.1 percent and corn futures sank as commodities capped the worst monthly drop since 2012...” (2) “Commodities had the worst monthly performance in more than two years, led by losses for crops including soybeans and wheat on signs of bigger supplies. The Bloomberg Commodity Index of 22 raw materials fell 5 percent in July to 127.91, the biggest loss since May 2012. Corn had the largest drop since 2011, and cotton posted the longest losing streak in three years... Money mangers cut their combined net-long position across 18 U.S. raw materials 9.5. Holdings slid for four straight weeks... Cotton futures tumbled 14 percent in July, the third straight decline and the longest slump since July 2011... Corn plunged 14 percent in July, the most since September 2011.” (3) “... the “developed world” is neither saving nor investing... the developed economies of the globe seem to have shunned the accumulation of real capital, in favor of the debt-driven speculative games of the global casino... Wage growth had been consistently outpaced by inflation since 2008, meaning that the real pay for the average worker had been reduced by as much as 10% over the course of the global crisis. In fact... wage growth has stalled in most of the European countries before the crisis, and real wages have been falling since... The fear of wage growth comes from a dogmatic belief that for gaining competitive edge in global production real wages have to be squeezed. The European strategy had long been one of a dogmatic attempt to secure a competitive edge based on wage restraint. And now, with the unavoidable rise in real wages, the dictum of austerity sets in once again with calls for further monetary rules to combat this danger.” (4) The Baltic Dry Index (BDI) is breaking down to new lows. The BDI suggests demand in the global economy is reaching multiyear lows—since the beginning of the year, the BDI is down 65%... An economic slowdown in the global economy affects the corporate earnings of companies in the key stock indices because they earn a massive amount of their revenues from overseas.” (The Baltic Dry Index (BDI) is a measure of what it costs to ship raw materials around the world.) (5) The Consequences Of Sanctions Against Russia “Twenty eight percent of investors surveyed this month by Bank of America Corp. identified geopolitics as the biggest risk, up from 14 percent in June.” (6) “Russian Crisis Already Taking Toll on Western Businesses. Shares in Adidas, the world’s second-largest sportswear group, dropped 15 per cent after the company issued a profit warning and said it would accelerate the closure of stores in Russia because of increasing risks to consumer spending in the region. Volkswagen, Europe’s biggest carmaker by sales, reported an 8 per cent decline in sales in Russia in the first half of the year, compared to the same period a year earlier. Joe Kaeser, chief executive of Siemens, warned geopolitical tensions including those in Ukraine posed “serious risks” for Europe’s growth this year and next. Metro, the eurozone’s second-largest retailer, said events in Russia were creating risks for the group as it revealed sales had declined sharply in Ukraine. Royal Dutch Shell’s chief executive Ben van Beurden said that along with other western oil majors he was assessing the impact of tightening sanctions on Russia’s energy sector imposed by the US and EU. Erste Group, the third-largest lender in emerging Europe, warned the turmoil could impact banks in eastern Europe. “I can’t exclude any nasty surprises in the region due to political decisions or developments,” said Erste chief executive Andreas Treichl. “If the crisis accelerates of course we will have to revise our forecast for all over Europe in 2015 and 2016.” The German machinery association, VDMA, lowered its forecast for growth in the industry this year as it said the Russian situation was starting to affect bilateral trade and weigh on demand in important sales markets. Last week, Visa cut its fourth-quarter sales guidance, partially because of lower than expected cross-border transactions in Russia and Ukraine. Bank of America has almost halved its exposure to Russia this year to $3.9bn. ExxonMobil, which is developing a large liquefied natural gas export facility at Sakhalin in Russia’s far east, said it was awaiting further details to understand the effect of sanctions designed in part to prevent the transfer of new technology to Russia’s oil and gas industry. In the City of London, bankers warned it was not feasible for Russian companies to list on the London Stock Exchange until a de-escalation of the crisis.” (7) “U.S. stocks fell as President Barack Obama announced new sanctions against Russia and warned its actions in Ukraine are “setting back decades of progress,”... The Standard & Poor’s 500 Index (SPX) slipped 0.5 percent... in New York. The Dow Jones Industrial Average lost 70.48 points, or 0.4 percent... The U.S. sanctioned three Russian banks and a state-owned shipbuilder that serves Russia’s navy and oil and gas industry, joining with the European Union in escalating the penalties for Russia over its actions in Ukraine. The EU curbed Russia’s access to bank financing and advanced technology in its widest-ranging sanctions yet. EU governments agreed to bar Russian state-owned banks from selling shares or bonds in Europe and restricted the export of equipment to modernize the oil industry, a key prop for Russia’s economy, an EU official said.” (8) “U.S. and European Union sanctions against Russia’s Vladimir Putin threaten to shut off some of the world’s largest energy companies from one of the biggest untapped energy troves on the planet... The new restrictions, which Obama described as the region’s most significant to date, “will make it more difficult for Russia to develop its oil resources over the long term,” he said. Russia relies on companies including Exxon Mobil Corp., BP Plc, Halliburton Co. and Schlumberger Ltd. for the latest technology and expertise it needs to develop an estimated $7.58 trillion in oil and natural gas resources that sprawl across nine time zones. Exploration and production companies like Exxon were expected to spend $51.7 billion in Russia this year, according to estimates from Barclays Capital Inc. -- much of which would go to service and equipment companies such as Schlumberger and Halliburton... Boeing Co., the world’s largest planemaker, might see manufacturing costs rise if the imbroglio disrupts its access to titanium, a light-weight metal favored for jet aircraft such as its 787 Dreamliner... BP, the U.K. oil company that has a 20 percent stake in Rosneft and is the single-biggest foreign investor in Russia, warned that additional sanctions against the country could hurt its production, its earnings and its reputation... Technip SA lowered its outlook for profit margins on some types of projects this week because of uncertainty about how Russia sanctions would affect progress on the giant Yamal LNG installation in Arctic waters... CGG, a French seismic surveyor, could also be affected by the sanctions because its technology is used to map oil and natural gas reserves. The company has data on the Russian Arctic, according to its website.” (9) “Citigroup Inc., the U.S. bank with the most branches in Russia, again cut its exposure to the nation amid sanctions intended to end the unrest in Ukraine. Total exposure fell 5.3 percent... “The ongoing instability in Russia and Ukraine has been a cause of concern to investors in Russian assets and parties doing business in Russia or with Russian entities, including as a result of the potential risk of wider repercussions on Russian trade and investment, including the effects from current or additional sanctions,” the bank said in the filing... Bank of America Corp., the second-biggest U.S. bank by assets, cut loans to customers in Russia by 41 percent in the first half of the year .” (10) “The EU is expected to take the plunge... and impose tougher sanctions on Russia over Ukraine, but the measures could hit its own struggling economy -- especially should Moscow reply in kind... The International Monetary Fund last week cut its 2014 global growth forecast... in part because of the Ukraine crisis, and warned that sanctions against Russia would hurt Europe... In 2013, EU-Russia trade was worth 336 billion euros ($451 billion), with Moscow running a trade surplus of nearly 87 billion euros... The EU as a whole is dependent on Russia for a third of its supplies.” (11) An economic slowdown in Russia due to the rising Western sanctions would affect Europe... according to the International Monetary Fund... The IMF noted that east European countries have the closest links with Russia and some of them could be seriously affected by a sharp slowdown in the Russian economy... Exports of immediate neighbours such as Belarus, Ukraine, Moldova and the Baltics to Russia exceed 5% of their respective gross domestic product (GDP). Therefore, the impact on these countries could be substantial... Many Western banks have sizable operations in Russia, accounting for more than a third of their yearly profits. Austrian, Hungarian, French and Italian banks have subsidiaries in Russia and also lend directly to customers in Russia from their branches outside Russia.” (12) “Russias standoff with the West is hurting European companies, from heavy industry to sports goods makers, even before the latest sanctions have a chance to take effect. A group representing Germanys machinery industry cut its output forecast sharply... The conflict with Russia is not just leaving tracks in bilateral trade it is generally hindering demand in important sales markets for our industry, said Ralph Wiechers, chief economist for the VDMA, the industry group. VDMA now expects production of machinery to grow by about 1 percent this year, rather than the 3 percent it predicted in October, before the crisis over Ukraine erupted. Machinery is a leading component of German exports to Russia, accounting for nearly a quarter of last years total.” (13) “BP Plc , Siemens AG and Renault SA are among European companies preparing for a downward turn in their Russian business following the European Union’s decision to impose its widest-ranging sanctions yet over President Vladimir Putin’s involvement in eastern Ukraine... The sanctions will have a direct impact on companies like Siemens, which may no longer be able to sell oil equipment to Russia...” (14) “Adidas AG shares fell by a record after the world’s second-largest sporting-goods maker slashed its full-year profit forecast... the German company... said profit this year will miss its forecast by at least 180 million euros ($241 million)... Russia is one of their most profitable regions, and now a dispute with Ukraine and economic sanctions against Russia are weighing on the outlook. Adidas traded 13 percent lower...in Frankfurt. It’s the worst-performing member of Germany’s benchmark DAX index this year, down 35 percent.” (15) “Austrian banks are the most exposed to potential losses from tougher sanctions on Russia ... the International Monetary Fund said... Raiffeisen Bank International AG, Societe Generale SA, UniCredit SpA, OTP Bank Nyrt. and Nordea Bank AB are the most vulnerable European banks to the political tensions... Austrias banking sector has already experienced significant losses in recent years, with Erste Bank expecting €1.4 billion losses in 2014, and Unicredit writing off €1.6 billion in losses in 2013.“ (16) (16a) “Fallout from the sanctions row between the European Union and Russia will shave 0.6 percentage points off Polands economic growth this year, Deputy Prime Minister Janusz Piechocinski was quoted as saying...” (17) “BP Plc., the U.K. oil company with the single-biggest foreign investment in Russia, warned that more sanctions against the country could hurt its business. BP, with a 20 percent stake in OAO Rosneft, stands to lose the most from further sanctions in response to Russia’s annexation of Crimea.” (18) “Investors are punishing many former Soviet bloc nations for their ties to Russia... Stock indexes in Bulgaria, the Czech Republic and Hungary joined Russia’s among the 10 biggest declining markets in the world this month. Gedeon Richter Nyrt., Hungary’s biggest drugmaker, plunged to a three-month low today after revising down its sales outlook because of the escalating crisis over Ukraine... “There’s a sense by global investors of why mess around with central and eastern Europe and the geopolitical risks if there are other opportunities out there,” said Ilan Solot, a foreign-exchange strategist at Brown Brothers Harriman in London... While MSCI Inc.’s emerging-market stocks index rose to an 18-month high last week, equity markets in Hungary, Poland, the Czech Republic and Romania lost a combined $13 billion in value this month.” (19) “Gedeon Richter Nyrt. plunged the most in almost three months as sales prospects at Hungary’s largest drugmaker deteriorated following tightened sanctions against Russia... Richter expects total sales to drop as much as 7 percent in euro terms this year... Exports to Russia may fall as much as 10 percent in ruble terms and Ukraine sales may sink 35 percent in dollar terms.” (20)
Posted on: Sun, 03 Aug 2014 12:33:15 +0000
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