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Thursday, September 13, 2018

Oil trade routes and India's geo-political advantage

Here is a picture about oil trade routesfrom Geopolitical futures:

You can see the Geo-political importance of India. India has access choke-points carrying about 40 million barrels per day - 4X flow at all other choke points put together. Guarded by a decent navy that can go against the best.

You will realise why China is interested in this area and interested in encircling India with string of pearls. More so if you have read Daniel Yergins The Prize. (If not read it now for understanding of oil industry).

For more details of balance of naval presence in the Indo-Pacific region look at the map below:
Naval Bases in Indo-Pacific - Rahul Deodhar (data from public sources)

These maps are important tools to understand Geo-politics and George Friedman of Geopolitical Futures has a great compilation. Head over there to check it out.

Wednesday, September 12, 2018

Can only US markets go higher in the face of tariffs and other trade headwinds?

In one word - NO!

One the trade front, the US needs other countries (suppliers) as much  as other countries need US as a consumer No. 1. Yet, the consumption burden falls excessively on the US. That too is not sustainable. In the natural course of things this burden should gradually pare down. This natural process was impeded by interventions in currency and trade policy by (a) East Asian economies following 1997 crises and (b) Japan first then China. 

In the first case, the impact is benign as the comparative sizes of the economies in South East Asia and US/UK etc is too big. 

The second case turned out to be problematic, though bit less, in case of Japan. Absent the computer and technology revolution, US would be in same position as today as in post-Japanese growth phase. At the time when the US jobs were diminishing in the face of Japanese competition and trade, Tech was already cooking in the oven. The massive productivity boom unleashed by tech was supported by job growth in new sectors. These sectors pulled decent quantum of current workforce and modified the training profile of upcoming workforce.

Today, there seems to be no new sector that is vigorously attracting the current workforce into itself. There are two reasons for this. First, the speed of Chinese growth is dramatically higher than Japanese growth. What Japan achieved between 1945-1980, China achieved between 1980-2000. Second, Japan started at the time of man-power constraint. China started gaining traction when manpower was becoming surplus. Therefore, job "protection" in developed world has become important.

The trade fears can be allayed / calmed if there is another sector that can create as many jobs for the profile of workforce that exists today and about 20 years from now. Absent that, growth will require  fighting for a larger share in a diminishing pie - a potent trigger for conflict.  The war can be won by biggest bully if he is alone. But when there are a few contenders it takes time to settle the pecking order. Many skirmishes (I mean trade & currency conflicts) need to happen to settle that order. For strategy suggestions we can look at how pecking order is established in prisons. The strategies will be same the tools will be sophisticated. 

Thus, US cannot do trade wars alone. US needs its own "gang". That gang was NATO, NAFTA and these days the "Quad".  The Stock markets of one gang may rise if the gangs are tighter) and they may decouple from other gang. But only US markets rallying is not possible.

Monday, June 11, 2018

Interesting Readings 11 June 2018 = Is Debt Jubilee lurking?

I came across an article titled Some ways to introduce a modern debt Jubilee at Vox. The article is in line with the recent discussion about debt. John Mauldin has highlighted this problem generally and more specifically in the last Thoughts from Frontlines. A few months back Christopher DeMaria had written about debt jubilee on Seeking Alpha article titled The American (Debt) Jubilee, And The Current Correction.

Debt Jubilee may be lurking in our future. It is not as bad as it sounds. For some kinds of debt, when prevalent in excess, needs to be written down. I have highlighted the difference between good debt and bad debt earlier - i.e. productive debt and unproductive debt.
Productive debt creates an asset of higher value than the debt itself.
A large part debt currently outstanding is unproductive debt. All consumer credit is unproductive, except educational loans or student loans. It does not create a means to pay the debt back. Thus, debt jubilee may be a proper solution to problem of unproductive debt. Productive debt in trouble can be repaid by extending more productive debt.

The alternative could be to extend and inflate it away. But will there by appetite for that?

Friday, June 01, 2018

Monday, May 14, 2018

Interesting Readings May 14 2018 - Development Finance Institutions.

Deepak Nayyer talks about capabilities created in Development Financial institutions (DFIs) for longterm lending. 

These DFIs are very important in creating a capability for lending to special investments. India, till 2000, had developed the capabilities to lend to infrastructure, sector-wise capacity creation etc. We need the concentration of skills in one place. This way, special knowledge reduced the risk for lending.

The commercial banks decided to reduce the lending risks by consortium lending. That is a statistical approach to risk mitigation.

Now Deepak Nayyar wants to create a National Development Bank. That I think is a bad idea. Though there may be some merit in creating a network of professionals who can lend to industry and towards infrastructure. These professionals can be monitored using DIN-like number (Director identification number) and their investments performance tracked. These people may be employed with commercial banks but without sign-off from these persons, such loans will not be approved.

What we are creating is attribution chain. I have discussed the importance of attribution in both of my books - Subverting Capitalism and Democracy and Understanding Firms. Please use the links below to check out the books.