From Tage Rai, Lecturer at MIT Sloan School of Management:
What motivates someone to be violent? This is a question many people are asking in the wake of the recent mass shootings in California. Most explanations tend to revolve around the core assumption that violence is wrong. If someone is violent, something must be broken in their moral psychology—they are intrinsically evil, they lack self-control, they are selfish, or they fail to understand the pain they cause. However, it turns out that this fundamental assumption is mistaken…….
I looked at violence across cultures and history with my colleague Alan Fiske of the University of California, Los Angeles. We analyzed records of all kinds of violence, ranging from war to torture to genocide to homicide. While this was rather depressing work, it also led to some very interesting findings. We identified a pattern in that violence that was both predictive and explanatory. The commonality was that the primary motivations were moral. This means that the perpetrators of violence felt like what they are doing was morally right. In fact, when they were committing the act, they perceived that not acting would be morally wrong…..
Read more at Most violence in the world is motivated by personal morality – Quartz
Robin Christie discusses the ‘Infrastructure Metric’ report for the September 2015 quarter from Infrastructure Partnerships Australia (IPA) and BIS Shrapnel:
…..2014/15 represented the worst financial year for total work won by civil contractors since the metric began in 2010. However…. this result masked an emerging recovery in non-mining sectors…..
According to IPA CEO, Brendan Lyon, these figures show sustained and strong growth in transport infrastructure, “led by the massive projects being funded through a combination of asset recycling by states and Commonwealth funding”
……mining was once the largest single category of civil construction – representing 46 per cent of the total work done in the 2012/13 financial year, for example. However, [Lyon] said that mining related infrastructure was “virtually non-existent now”, having recorded “a full year of near-zero readings”.
While he said that NSW and Victoria were largely leading the way in terms of filling the resources gap with non-mining infrastructure activity, Lyons expressed some concern that the mining-reliant states need to do more to secure their own economic futures…..
Source: Infrastructure figures show economic rebalancing act
A Centre for International Finance and Regulation (CIFR) funded study, co-authored by Dr Eric Knight from The University of Sydney and Professor Dariusz Wójcik from the University of Oxford, released today, ranks major international finance centres according to size.
From Robin Christie at FINSIA:
To compile its list of the top 10 international financial centres by cross-border fees, the study totalled each city’s fees over the 14-year period between 2000 and 2014 in US dollars. The top 10 are listed as follows:
- London: $130,943 million
- New York: $125,242 million
- Zurich: $100,430 million
- Frankfurt: $53,277 million
- Paris: $40,482 million
- Toronto: $32,967 million
- Tokyo: $22,522 million
- Amsterdam: $17,948 million
- Hong Kong: $9,996 million
- Sydney: $5,126 million
One paragraph that caused me to hesitate, though was:
“Unsurprisingly we found that the size of a city’s population is an important determinant of international finance centres, so all things being equal, cities that have the ability to grow their population will outperform,” said Knight.
They may have the cart before the horse here. Success as a financial centre may encourage population growth. Not the other way round. Else the list would include Shanghai, New Delhi, Karachi, Moscow, Lagos, Istanbul and Sao Paulo.
Source: Sydney hitting the finance big leagues
Excellent summary by Gerard Minack of headwinds facing the ASX:
Excluding miners, the listed sector enjoyed 15%-plus annual sales growth last cycle; now nominal sales growth is less than one-third that pace….
Structurally lower domestic sales, combined with the stress in the resource sector – which, in my view, is not at its lows – points to further under-performance of Australia equities versus other developed markets….
There are reasons to be positive about the medium term outlook for Australia. But the problem for investors is that increasingly the equity market does not reflect the economy. Australia’s listed market has a much larger exposure to financials and materials (which includes miners) than other markets – and these sectors’ share of market capitalisation are much larger than their share of the domestic economy. Put simply, Australia’s equity market is overweight two sectors at the end of their super-cycles; it is overweight the past and underweight the future.
Not sure I would go so far as to exclude banks and mining from Australia’s future. Collapse of the commodity market is cyclical — admittedly the China slow-down is likely to be a long cycle — rather than a secular trend. Bank growth is also likely to slow, both from sluggish housing and job growth (from mining). Again this is cyclical rather than structural.
Source: Special Report: Gerard Minack on the great ASX sclerosis – MacroBusiness
David Llewellyn-Smith quotes UBS:
A normalisation of commodity demand in China seems further away post our trip. Our expectations for a sequential acceleration in infrastructure build do not align with insights on the ground. The 13th Five Year Plan makes it clear the emphasis to 2020 will be on services, consumption, ‘new economy’ sectors and cleaning up the environment. The emphasis has shifted to quality of growth and living standards, not quantity. This presents a challenging commodity demand outlook.
Source: UBS: China ain’t recovering as foreseen – MacroBusiness
From Bob Lefsetz:
….the truth is the data doesn’t lie.
Oh yes it does, you say! Numbers can be manipulated to say whatever you want them too, you can’t trust polls! Which is why [Nate] Silver aggregates them, and we can argue with interpretation, but raw data counts. And what the data says is Donald Trump has high unfavorables. He might have 20+% of the electorate today, but when the losers drop out are their followers going to decamp to Trump? Not according to the data. Which also tells us this far out the polls are nearly meaningless.
So you can ignore the Trump show. It’s gonna get canceled.
Source: Trump: The Data | The Big Picture
Vladimir Putin’s worst nightmare — a trucker-Maidan.
Dmytro Homon writes:
First, the protest is spontaneous and is not coordinated from a single center. For that reason, the police have been unable to shut it down because other drivers immediately take the place of the ones detained.
Second, the protestors are not the usual “fifth column” opposition by intellectuals. These are, for the most part, Putin’s voters — tough guys who in elections vote for stability…….
Third, all Russians clearly understand the complaints of the truck drivers. They boil down to the fact that greedy authorities are trying to take the shirt off the back of simple workers…..
For these reasons the usual methods of Russian propaganda are not very effective. The postings of the Olgino trolls (professional commentators from the “troll factory” in the Olgino district of St. Petersburg — Ed.) that these protests are organized by the opposition look ridiculous. Attempts by mass media to ignore the truckers completely are equally ineffective because they have become a major topic in social networks……
Meanwhile, more and more trucks have been arriving to Moscow. What will happen next is a question with no answer yet. In fact, even the truckers themselves do not know what to do after the blockade.
If the Russian authorities use brute force, this risks repeating the fate of Yanukovych. Putin, however, has nowhere to flee from the Kremlin. Well, perhaps to Syria…..
Read more at Russia’s protesting truckers and Putin | Euromaidan Press
From Joachim Fels, global economic advisor at PIMCO:
….The downside risks to the global economy today are really concentrated in emerging markets. After August, investors have been watching developments in China with particular caution. I should first note that our baseline view for China sees below-consensus growth, along with policy leadership with the will and the wallet to manage the slowdown. Indeed, policy actions in the past month or so have mollified markets to some degree. But there are a lot of uncertainties. China’s policymakers have the tools, but they must manage a tricky transition, and as global investors we are left wondering if we have enough transparency into the details. The tail risk remains of a really hard landing in China, perhaps a very sharp devaluation. It’s not our baseline view, but an important risk to monitor.
Source: Plodding Along A Discussion of Todays Global Economy | PIMCO
From Matt Siegel at Reuters:
A major cyber-attack against Australia’s Bureau of Meteorology that may have compromised potentially sensitive national security information is being blamed on China, the Australian Broadcasting Corporation (ABC) reported on Wednesday.
The Bureau of Meteorology owns one of Australia’s largest supercomputers and the attack, which the ABC said occurred in recent days, may have allowed those responsible access to the Department of Defense through a linked network.
The ABC, citing several unidentified sources with knowledge of the “massive” breach, placed the blame on China, which has in the past been accused of hacking sensitive Australian government computer systems.
Source: China behind ‘massive’ cyber-attack on Australian government: ABC | Reuters
From Brian Whitmore at RFE/RL:
….”Russia’s new course means it is free from any and all influences and restrictions,” Frolov wrote. “This freedom means that Russia does not need to abide by international law…and that Russia’s claims to a leading role in the world cannot be contained.”
The cost of this diplomacy of liberation, of course, is increasing international isolation and ostracism. For the time being, as Frolov notes, Moscow has been able to “divorce foreign policy from economic interests and capabilities.” But in the long run, the current course is not sustainable.
Nevertheless, isolated and resentful powers — particularly isolated and resentful powers with nuclear weapons, large militaries, and vast natural resources — can cause a lot of damage.
Which means that, in the short term, we are in for what Ben Judah, author of the book Fragile Empire: How Russia Fell In And Out Of Love With Vladimir Putin, calls “our violent new normal.” “The unthinkable happens, is quickly accepted, and fades obscure into a darkening background,” Judah wrote recently in Prospect. “Grey wars, is what we have now: creeping skirmishes, proxy clashes, hybrid assaults and dogfights with Russia.”
Source: Russia’s (Not So) Splendid Isolation
From Simon Johnson, professor at MIT Sloan and former chief economist at the IMF:
The world’s largest banks remain too big to fail, and this is likely to have dire consequences in the near future.
….Unfortunately, there are three flaws in the FSB’s [Financial Stability Board] framework that will prevent it from being effectively applied to large global banks.
First, by definition, global banks operate across borders, and there is no agreement among different national authorities regarding how to respond in a crisis. There is, arguably, better communication than there was before 2008, but when the chips are down, this will be worth little. The countries involved have different legal rules, different procedures for protecting local assets, and different court systems. A major international treaty could address all of this, but the immediate prospects for one are nonexistent.
Second, the FSB proposes to require a Total Loss Absorbing Capacity for all large banks. But TLAC is just jargon for saying that these banks should fund themselves with both equity and “bail-in-able debt” – debt that can be converted to equity (or wiped out) when there is an official resolution event. All this really means is that some debt can fall dramatically in value when government officials pull the trigger.
This may seem elegant in theory, but it is completely unworkable in practice. In any real crisis, the authorities’ real fear is that the fall in one asset price (the equity value of big banks) will cause other asset-price declines – leading to a broader contraction of credit. The idea of “loss-absorbing debt” is an oxymoron.
Third, what really matters for financial systems is the extent of equity financing – including how much equity banks are required to have. Current levels are so low – debt funds around 95% of total credit exposure in most big US banks (and a slightly higher share in big European banks) – that banks’ equity can be substantially wiped out by even moderate negative shocks.
The good news is that the Fed increasingly seems to be taking this point on board – and inching toward higher capital requirements for the biggest banks.
Source: Failure at the Financial Stability Board by Simon Johnson – Project Syndicate
From Tim Fernholz:
….empirical studies suggest that poverty and inequality aren’t behind terror attacks. In the wake of the 9/11 attacks, Alan Krueger, the Princeton economist and future Obama administration official, examined databases of terror attacks to identify trends among the participants. Surprisingly, he found most were well-educated and not poor.
….Later studies confirmed these effects: A 2006 study (pdf) using a broader time range also found that poor countries did not produce more terrorists. By 2007, Krueger had also looked at 311 foreign combatants captured by the US in Iraq, and concluded “that countries with a higher GDP per capita were actually more likely to have their citizens involved in the insurgency than were poorer countries.”
Read more at It’s not the poverty in the Middle East that’s driving terrorism—it’s the politics – Quartz
From Steven Pearlstein
….while students are paying more, they are getting less, at least as measured by learning outcomes, intellectual engagement, time with professors and graduation rates. And although students are working more hours at outside jobs and receiving more tuition assistance, student debt now exceeds credit card debt and has become something of a national obsession.
….While faculty critics have made sport of pointing out the proliferation of assistant provosts or the soaring salaries of college presidents, these don’t represent most new spending. What does is the growth in the number and pay of non-teaching professionals in areas such as academic and psychological counseling, security, information technology, fundraising, accreditation and government compliance.
….Few students or parents realize that tuition doesn’t just pay for faculty members to teach. It also pays for their research…… Teaching loads at research universities have declined almost 50 percent in the past 30 years, according to data compiled for the American Council of Trustees and Alumni. This doesn’t necessarily mean professors aren’t working as hard — surveys show they’re working harder and under more pressure than ever. Rather, says former Mason provost Peter Stearns, it reflects a deliberate shift in focus as universities compete for big-name professors by promising lighter teaching loads and more time for research.
Read more at Four tough things universities should do to rein in costs – The Washington Post
This should be blindingly obvious, but amazing how often it is ignored. Great post from Josh Brown at Reformed Broker:
How do most investors (and many advisors) select funds or strategies to allocate to? They look at what’s been working, learn the story and get long…….
And then mean reversion shows up – outperforming managers subsequently underperform, hot themes become over-loved, winning strategies become too crowded to offer excess returns. “No problem,” says the advisor, I’ve got six new ideas to replace the six ideas that are no longer working!”
It’s sad to say, but this is exactly how it works. I’ve been watching this for almost 20 years…….
Research Affiliates has an interesting pair of charts demonstrating this phenomenon in a new note from Rob Arnott, Jason Hsu and Co. They illustrate that increasing fund flows are a decent predictor of subsequent underperformance and that performance-chasing is destructive to returns across all types of investment products:
From Yezid Sayigh:
….the convergence of multiple factors over the past two decades or more has strained the ability of many Arab states to accommodate growing pressures within longstanding power balances, making the current phase of transition inherently far more dangerous for them. Most threatening have been the explosion of populations—generating a massive youth bulge, coupled with dwindling employment opportunities, productivity, and skills, ever-widening income disparities driven by crony economic liberalization and predatory privatization, and the erosion or dissolution of social pacts under the cumulative impact. The decline in disposable surplus wealth—especially net income from oil production, but also other forms of rent—has been so sharp, indeed, that even formerly privileged patronage networks and social constituencies have suffered.
…..incumbent rulers treat constitutional frameworks as entirely malleable, capable of being moulded and remoulded endlessly to meet the obvious purpose of maintaining and legitimizing their political power. But…. this approach no longer works. In this context, contests over access to social resources and economic opportunity have become increasingly bitter in a growing number of Arab states, reflected in the intensification of communal politics—sectarian, ethnic, regional, and tribal. It is proving impossible to restore even the kind of imposed false “social peace” that held Arab states and their societies together previously, even when significant numbers of people are ready to accept the old mix of coercion and co-optation again in order to regain a semblance of normalcy and stability.
Indeed, although the previous governing order has ceased to function or is on its way out in these states, replacing them with a new set of mini-states based on partition or cantons along communal lines may not offer a real solution. Sadly the initially hopeful experiences of Iraqi Kurdistan or South Sudan, for example, merely replicated the patterns they sought to break away from. This underlines that Arab states can no longer be reconstructed according to past blueprints, even when powerful external actors attempt to restore them. A world war turned the Ottoman Arab provinces into modern nation-states a century ago, but today they are being unravelled by many, highly localized wars that have yet to run their course. Their causes long predate the Arab Spring, which has been unfairly accused by some of bringing about this grim prospect, and will result in protracted conflict, instability, and a fundamental inability to reach a new socio-political equilibrium within many Arab societies for years to come.
Read more at: http://carnegie-mec.org/2015/11/19/crisis-of-arab-nation-state/im36
Source: The Crisis of the Arab Nation-State-Carnegie Middle East Center – Carnegie Endowment for International Peace
From Mark Spiegel at the Federal Reserve Bank of San Francisco:
The recent slowdown in China’s economic growth has caused a great deal of concern, particularly among global trade partners that export to China. On November 3, China’s President Xi Jinping announced that expected real GDP growth over the next five years would be no lower than 6.5%, which is one-half percentage point lower than the previous estimate. The industrial sector has been particularly weak as it has expanded by only 0.2% over the past year. In addition, imports to China continue to fall dramatically, as shown in Figure 1. Import values in October 2015 were almost 19% lower than they were in October of the previous year.
However, a number of analysts (for example, Lardy 2015) have argued that concern about the slowdown in the Chinese economy–and the associated reduction in Chinese imports–is overblown. Instead, they point to the resilience in the country’s service sector. This sector has indeed been a source of relative strength, with reported growth of 11.9% over the past four quarters.
In this Economic Letter, I show that the strength of China’s service sector is not likely to provide much support for gross exports from the rest of the world over the short term. The steep recent decline in China’s imports is consistent with the country’s growth pattern across different sectors. There has been a strong positive relationship between slower growth in gross imports and slower growth in industrial output over the past 15 years. However, imports and service outputs do not show a significant relationship. These results hold both for imports from non-commodity exporting advanced economies and for advanced and emerging market economies that export commodities to China. Therefore, from the rest of the world’s point of view, an increase in China’s service sector does not offset a similar magnitude decline in its industrial sector….
Read more at Economic Research | Global Fallout from China’s Industrial Slowdown
From Ben Judah, author of Fragile Empire: How Russia Fell In and Out Love With Vladimir Putin:
In the summer of 2012, Vladimir Putin returned as Russia’s president, after four years of playacting as a pliant prime minister. I spent time in St Petersburg trying to sift through his murky myth. Everyone who knew him, everyone who had worked with him – I wanted to track them down. My calls usually rang unanswered. When old voices picked up they abruptly hung up on hearing my requests. It was like chasing a ghost. The old, hard-bitten police chief who worked with him in St Petersburg in the 1990s was still a little stunned by Putin’s rise. “I thought he was just an insignificant official at the time.” The city’s town-hall orator, another former colleague of Putin’s, also remained baffled. “When he became president I threw open my photo album to see us together. But he wasn’t in a single one. He’d slipped out of every frame. I sometimes wonder if he even has a reflection in the mirror.”
….Putin acknowledges that the KGB evaluated him as a man with stunted emotions. His instructors concluded he was at risk, not of succumbing to the temptations of women or drink, but because of his pervasive “lowered sense of danger”. He was also classified as a man unhelpfully unsocial…. This, I fear, is what makes him so ruthless.
Read more at:Ben Judah: The ruthlessness of Vladimir Putin
From Richard Kozul-Wright, author of Transforming Economies: Making Industrial Policy Work for Growth, Jobs and Development:
Global debt has grown some $57 trillion since the collapse of Lehman Brothers in 2008, reaching a back-breaking $199 trillion in 2014, more than 2.5 times global GDP, according to the McKinsey Global Institute……
Much of the concern about debt has been focused on the potential for defaults in the eurozone. But heavily indebted companies in emerging markets may be an even greater danger. Corporate debt in the developing world is estimated to have reached more than $18 trillion dollars, with as much as $2 trillion of it in foreign currencies. The risk is that – as in Latin America in the 1980s and Asia in the 1990s – private-sector defaults will infect public-sector balance sheets….
Read more at What To Do About Debt by Richard Kozul-Wright – Project Syndicate