2016-10-24

MacroView: Nationalism and Protectionism Now Rising In Germany

MacroView | © DomainMondo.com
Domain Mondo's weekly review of  macro economic and investing news:

MacroView Feature • Protectionism: Behind the scenes, a new Germany AG (Germany Inc.) formed--welt.de: "Protectionism in Germany is no longer a dirty word." While nothing has yet been decided, solutions are being worked on “behind the scenes,” according to Die Welt and a follow-up in WolfStreet.com. Four events in particular are reported to have shaken German industry leaders:
  1. Deutsche Bank’s potential fine of $14 billion proposed by the U.S. Justice Department to settle allegations concerning mortgaged backed securities sold before the financial crisis by Deutsche Bank’s U.S. unit. The largest U.S. banks have already settled, and Deutsche Bank’s fine would not be the largest one.
  2. Volkswagen’s nightmare legal situation in the U.S., and, to a lesser extent, in other countries, as a result of  VW's dieselgate fraud.
  3. Acquisition of German robotics company Kuka by Chinese firm Midea.
  4. Proposed acquisition of lighting specialist Osram by Chinese firm San’an Optoelectronics.
Some German CEOs reportedly want a “conceptual revival of Deutschland AG” (Germany Inc.). Deutschland AG was a network of banks, insurance companies, and industrial companies in the latter half of the 20th century, largely dismantled in the 1990s. BDI’s Kerber told Die Welt: We’re demanding reciprocity from countries like China. If the Chinese want to buy German high-tech firms like Kuka or Osram, then Germans must be able to completely take over Chinese enterprises too.” 

Relations with China have become increasingly difficult, these executives are reported to have said, as foreign firms cannot start their own subsidiaries in China but have to do it with local partners in joint ventures, and even then, technology transfers are required, plus foreign firms cannot takeover Chinese firms but are only allowed to buy stakes in them.

Question: if China (to take just one example), has continuously been following its own nationalistic and protectionist policies, why has the World Trade Organization (WTO) and its other member nations allowed it to do so? The rise of nationalism and protectionism, in large part, is a reaction to the failure of the World Trade Organization (WTO), and other nations (U.S. included), to hold China (and others) accountable. We may be at a "tipping point."

•  The Globalization Backlash Is Reverberating Through Boardrooms | Harvard Business Review | hbr.org"Evidence of de-globalization ... is everywhere. This has significant and far-reaching implications for corporate decision making. Boards of directors of global corporations will increasingly face strategic choices and capital allocation decisions framed by mounting geo-political risks. Three trends characterize the environment within which global businesses must contend: rising trade protectionism and a concomitant fall in global trade volumes, declining cross border capital flows, and mounting regulatory requirements. As a practical matter, for example, these changes in the global policy regime are forcing multinational corporations to scale back and sell parts of their international operations. According to the World Trade Organization, international trade this year will grow at its slowest pace since 2007."

•  Stock Prices Under Threat as Global Trade Becomes a Pariah | WSJ.com"... there is worry that the party is ending. “We believe globalization has probably reached its peak,” said Marino Valensise, head of the multiasset team at Barings, a member of the MassMutual Financial Group with $275 billion in assets under management. “The market won’t like it.”"

•  Canada Walks Out as EU Trade Talks Founder"... unable to break a deadlock with a small Belgian region that has been defying multinational efforts to have the pact signed next week."--NYTimes.com. See also EU Leaders Predict Dire Future if EU-Canada Trade Deal Fails: "Fearing final rejection by a small Belgian region, leaders of the European Union warned early Friday that if a free trade deal with a close partner like Canada fails it could mean the end of such agreements with any other country."--NYTimes.com

•  Rail rout sending bad signs about the US economy? "On a global level, the school of thought that the health of railroad stocks tracks the health of the overall economy may hold true. "When you think of it from a global macro perspective, we are starting to see some serious cracks in global growth," Boris Schlossberg, managing director of FX strategy at BK Asset Management, said Thursday on "Power Lunch." Schlossberg pointed to a miss in industrial production in China this week, a "massive" miss in Australia's employment numbers and central bank leaders' recent warnings about "structural" issues with global trade, referring to recent remarks by Bank of Canada Governor Stephen Poloz. "So there are clearly some warning signs out there that I think something is slowing down, whether it just simply pauses and refreshes, or really we're going to start to fall off a cliff; I think is too early to tell," Schlossberg said."--CNBC.com

•  Fed risks repeating Lehman blunder, US recession storm gathers: "... The truth is that nobody knows whether this is the start of a sustained reflation cycle, or just the last feeble flicker before America, Europe, and East Asia are swallowed into a deflationary vortex, the frozen circle from which there is no easy exit ..."--telegraph.co.uk

•  Amazing Down Spiral of Atlanta Fed’s Q3 GDP Now Forecast | : "By now no one even tries to trot out the illusion of hitting “escape velocity” next spring."--WolfStreet.com

•  EVs vs Big Oil: A move away from oil as a transportation fuel could send global oil majors, such as ExxonMobil, Chevron, Total, and Royal Dutch Shell, into an “investor death spiral,” says a new report by Fitch Ratings.  Transportation accounts for 55% of oil consumption. “Widespread adoption of battery-powered vehicles is a serious threat to the oil industry ... [and] could tip the oil market from growth to contraction earlier than anticipated.”--FitchRatings.com

•  China's Venture Capitalist Local Governments"Local governments across China are getting into the venture-capital business, deploying a combined 3 trillion yuan as the Communist Party resolves to modernize the economy and reduce debt-fueled spending on infrastructure. The money is meant to spur development of biotechnology, internet and high-end manufacturing companies that can replace the stumbling heavy industries sapping economic growth."--Bloomberg.com

•  Q3 2016 financial results coverage this coming week on Domain Mondo:
  • Apple AAPL Oct 25 5:00pm EDT
  • Neustar NSR Oct 27 4:30pm EDT
  • Alphabet GOOG Oct 27 4:30pm EDT
  • Verisign VRSN Oct 27 4:30pm EDT
  • Twitter TWTR Oct 27 5:00pm EDT
  • Amazon AMZN Oct 27 5:30pm EDT

•  One More Thing: "Rigged"--Journalists shower Hillary Clinton with campaign cash | Columbia Journalism Review | CJR.org: "New Yorker television critic Emily Nussbaum, a Pulitzer Prize winner, spent the Republican National Convention pen-pricking presidential nominee Donald Trump as a misogynist shyster running an “ugly and xenophobic campaign.” What Nussbaum didn’t disclose: she contributed $250 to Democrat Hillary Clinton in April ..." See also: What WikiLeaks hack says about Clinton: Our view | USAToday.com"Now we know why she didn't want those Wall Street speeches made public ... Sounding like an ardent free-trader in a 2013 speech, Clinton told one group of bankers: “My dream is a hemispheric common market with open trade.” This was consistent with her stance as secretary of State in 2012, when she praised the proposed Trans-Pacific Partnership (TPP) as “the gold standard” of free trade agreements. By 2016, however, Clinton faced populist challenges first from Bernie Sanders and then from Donald Trump. She now opposes the TPP and has few good things to say about free trade ... Clinton had two ways to inoculate herself against any damaging leaks from her Wall Street speeches. One is that she could have released the transcripts months ago, inconvenient as that might have been. The other is that she could have turned down the speaking engagements in the first place ..."

-- John Poole, Editor, Domain Mondo 

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