Two Degrees: Worldstrike! Daily Briefings
Analysis (in part):
“China poised to test carbon market”
- China prepares to launch its first pilot carbon market tomorrow in Shenzhen; plans considered for a national scheme to begin in 2015.
- Carbon markets handle the trading of pollution permits between carbon producers; those who need to pollute more buy permits from those who pollute whose needs are less.
- Anthony Hoblry, president of the Climate Markets Association: “If they are able to deliver cost effective reductions in emissions without detrimental impacts on the economy then they may well mark the future for China’s approach for mitigating climate change.”
- “The EU scheme has been hit by collapsing prices and other problems”
- Please refer to report A below.
“Big spike in ‘smart beta’ investments”
- “Inflows into advanced beta funds reached $15bn in the first three months of 2013.”
- No clarity as to what a beta fund is. Refer to Forecast / Strategies below.
“Counting the cost of cheap outsourcing”
- “New research on the global garment trade reveals companies ignore supply-chain risks at their peril.” Article is in response to the factory collapse in Bangladesh.
- FT states investors need more visibility over their supply chains. Agency is on investors to “keep up pressure” Suggestion from the group that FT can help activists establish visibility.
- Ethics in the market? No ethical regulations. Debate over ethics in relation to profit drive. Article on drones also discussed where friction to growth (“political and regulatory headwinds”) is dismissed.
- Refer to report B below.
Forecast / Strategies:
- Close reading of articles necessary in future meetings
- Define terms: smart beta, bear / bull economy, trillions and billions, collateral debt obligations, financial risk / systemic risk
- What are the intersections between the market and politics?
[A] Green is the Color of Money: The EU ETS Failure as a Model for the “Green Economy,” Ricardo Coelho
[B] Bangladeshi workers need more than boycotts, Vijay Prashad
[C] Demystifying the Financial Sector: A Nuts and bolts guide, Corporate Watch
TUESDAY 18 JUNE
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- The Co-operative Group has been listed, meaning it was a mutual – that is, it was owned by its share holders – but now shares in the company have been put on the stock market.
- The Co-op bank encountered debts as a result of three issues: Its failed investment in the Building Society Britannia, problems with its IT systems (have you banked online with Co-op? It’s awful) and fines from the PPI scandal. This resulted in confidence in the bank failing off. It turned to the Co-operative Group for money who had no choice but to list it. This means share holder’s shares will be diluted.
- The significance is claimed that mutals, of which the Co-op was one, were being hailed as an alternative structure proving diversity and stability (Co-op never traded in the ‘toxic debt’ in the run up to the crisis for example).
- Despite this the state has not bailed it out for the (small, relative to other bail outs) $1.5 bn needed to meet the capital buffers, (capital ratio, i.e. money actually in the bank) as regulation now requires. The FT claims this make George Osborne look a bit of a chump.
- The contradiction of a desire for diversity, i.e. that competition is healthy, is that they are extreme levels of comparative advantage by monolithic banks.
- Lloyds may now be left adrift as Co-op was expected to buy this.
- Human error? Commentators are pointing towards mismanagement / leadership failure as one cause.
- Some interesting discussion about the Co-op’s ethical reputation, will this change?
- Interesting comments re financial law, which regulates who takes a hit when these things happen – same as the Greek example; whose hair is going to be cut?
- Obviously, broadly speaking, it’s the people who get the trim; often with the barber’s blade a little too close to the neck.
- Anthony Bolton “one of the UK’s best-known and successful fund managers” couldn’t make any money in China and is quitting his Fidelity China Special Situations investment trust (!). Essentially he invested in companies that failed.
- Bolton doesn’t speak the language, which, we discussed, may extend to a metaphor about his understanding of the country, and more, of what globalised capitalism means in practice.
- Creating business, as Brett Scott explained to the group, so often comes from personal social relationships and local knowledge, not only statistics and maths.
- The article doesn’t give any specifics on what actually went wrong with the investments Bolton made. The article uses the term ‘serious corporate governance problems’ – what details is this masking over?
US and EU to hold talks on historic trade agreement
- What is a trade agreement? Think about what trade involves: the movement of goods, through ports, through customs, i.e. lots of boring things to work out logistically. But it is also about the restrictions and lack of restrictions placed between exporting companies, investors and markets.
- The likely terms of the agreement are discussed in no detail, only that it is worth £100bn for the EU, £80bn for the US and £85bn for the rest of the world.
- What about GATT – is that not already substantial? Why does the US and EU need a new deal?
- Discussion over whether this is to do with firming up the political alliance between the EU and US, especially in relation to the political rise of China.
- France has some issues with the agreement as it wants to protect its audio/visual industries. This might tell us some of the substance for the agreement (for example, France may want to protect its domestic market for music from American imports).
- The claim is made that the EU stands to gain - but who is gaining, and how?
Venture Capital– Just think of the TV show Dragons Den. The Dragons are venture capitalists who put money into risky projects.
Private Equity– A fund that specialises in buying up whole companies and selling them at a profit. Making the profit can often involve some harsh measures such as asset stripping or sacking staff. Compared with a public (listed on the stock market) private equity has the dictatorial advantage of full control over an organisation.
Index Provider- An index of commodities or companies that can be invested in as a whole. For example the FTSE 100 is an index of the UK’s top companies, which is a bit like the premier league of business; if you’re not in it you don’t get the money from Sky Sports.
Bonds – A tradable debt on a company or a nation (or even a university)
Max Keiser will be joining us on Thursday. Keiser features regularly on Russia Today. After working as a broker he set up the Hollywood Stock Exchange. A controversial character, Keiser is known for his financial commentary, being a proponent of commodities (for which I expect he has personally concerns for) such as silver as well as backing the growth of Bit Coin. Tickets are £5 including breakfast, available here.
Brett Scott’s book, A Heretic’s Guide to Finance
WEDNESDAY 19 JUNE
Analysis today focused primarily on the semiotics of the paper. Some very interesting stuff on masculinity playing a negative role in trader’s making riskier deals. Good discussions on the human relationship to financial systems. Bankers have emotions.
- The development in the technology (fracking) that has made new sources of gas available in the US has created a surge in demand for steel used in equipment and pipelines.
- The article paints a picture of industrial ruin where new industry may provide salvation.
- Machismo of industry, manufacturing, steel, fire, tubes on fire!
- Largest investment since the 1920s. A return back to an American industrial era?
- What is the relationship between jobs in this industry and automation? Will this industry necessarily provide jobs? (How many workers does it take to change a lightbulb?)
Activist Fund Manager – Someone who manages a pot of money and is actively involed in the health of the business where their investments are made.
Cyclical Market – A short-term market trend prompted by seasonal or cyclical business conditions.
Why is the FT pink?
“First published in 1888 as a four-page newspaper, the Financial Times’ initial readership was the small financial community of the City of London. In 1893, to differentiate it from its rival, the Financial News, the FT switched to its distinctive shade of salmon pink – a masterstroke which made it immediately distinguishable from its main competitor.”
THURSDAY 20 JUNE
Due to a very large group and the presence of Max Keiser conversation was rapid and varied but never the less very interesting. There was little time for large amounts of close reading, however we have some notes here:
- According to Max the UK’s GDP is approx £1.6tn, the national debt is 85% of GDP. The private debt held by UK banks is 5 times the national debt.
- States raise debt by selling bonds. Bonds are attractive to investors as states should rarely default on their repayments. The yield of a bond is the interest that will be paid to the bond holder. The riskier the investment the higher the yield on the bond. Bonds are attractive to people with a lot of capital as they present a relatively safe (compared to currency for eg) place to put their money and see some return on it.
- The IMF realised recently that austerity in Greece hasn’t been working. It has essentially killed off any prospect of economic growth or renewal meaning bond repayments are becoming impossible to make.
- Wage growth in the UK is below inflation.
- UK GDP is generated primarily through consumption (70%). How can growth be possible with austerity and a reduction in ability to spend? (See report [A] for long view on this process and an argument against a Keynesian approach to the crisis) .
- Question: is it ethically acceptable to rob a bank with toxic debt? Answer: George Osborne did this already, but he made you pay for it.
- Coal being offloaded by companies in Australia onto markets – is this to avoid a potential carbon bubble? No. There is nothing to indicate that carbon emissions will be limited, companies are not, according to Max, concerned by this. The reason for this company selling their assets (coal) is due to China’s reduction in demand resulting from a slowdown in production (resulting from the crisis).
- Credit rating agencies have threatened to down-grade Turkey’s status as a result of the uprising and Erdoğan’s handling of it. Rating agencies are not objective but are used as political tools to determine the market. Investors have been increasingly aware of this since the sub-prime crisis.
Stock market floatation – To list a company on a market.
Interest rates – The amount of interest that must be paid to borrow money. The interest rates are set by central banks. When the interest rates are low then borrowing will be attractive and, so the theory goes, will promote growth through loans being used for investment. However UK interest rates are low yet, Max stated, this is not leading to growth.
Moral hazard – Apparently a term used to refer to corruption that should be penalised yet is reduced to the level of a potential PR issue.
Collateral value – Actual assets that secure debt, such as a commodity or real estate.
[A] Salt Escalate Collective
At Last, we are alive mary Monalisa Gharvi (Brazil)
Shared symbolism of global youth unrest Paul Mason
Every park becomes Gezi Park in Turkey Çiçek Tahaoglu & Yüce Yony
The thirteen commandments of neoliberalism Phlip Mirowski
FRIDAY 21 JUNE
The sound of pots and pans
Eat the rich
I felt this to be possibly one of the most informed meetings so far, thanks to some very intelligent comments and some very knowledgeable participants. Again, the group was a little too large and discourse was fast paced. Here’s what I took down:
Obama prepares for new push on climate change
- Obama is now finished with legislation on immigration and says he will focus on his green agenda covering new laws on air pollution and cutting back coal use.
- It is more than likely that he will achieve little progress meaningful green legislation as he will be prevented from doings so by congress.
- Interesting to note a return to election campaign rhetoric on climate change. Cameron made similar claims to being green but has since shed the image entirely.
- Obama is yet to sign off the XL pipeline for fuel from the tar sands.
- Cadbury’s, an organisation set up by Quakers but now ran by Kraft, has had the extent of its tax avoidance revealed. The company should be paying £30m but is paying £6m.
- Is tax avoidance a systematic imperative, i.e. must nations allow loopholes because companies can ‘take business elsewhere’?
- Part of the argument against the takeover of Cadbury by Kraft was that the UK would lose tax income from the company, when in actual fact it had already lost it through these loop holes.
- In the US, General Motors have made $10bn in profit but, through submitting a 1000 page long tax return, they have paid no tax.
- Companies and states make deals with each other. The GM case is an example of this.
- Remember, individuals often move between jobs in both the treasury and companies.
General discussion, covering:
- Slow down of growth in China, potential transition from an export led economy to a service and consumer economy?
- The first banker to be charged for the liable case. This is really illuminating: the guy was charged with conspiracy to commit fraud and not fraud. So far little amount of prosecution has been pursued on this case and has only focused on the Yen Panel (of banks) who are one of the smallest. So much hype has been created around the scandal yet after all that the FSA have only charged one man with conspiracy (how can you conspire with yourself?). Tendency to look at ‘bad apples’ rather than a rotten system.
- A very interesting discussion on the IMF and Greece. Too severe austerity has resulted in a lack of growth and Greece now has a shortfall in repayments to its rescue programme as a result of banks failing to roll over Greek bonds. Banks are showing little confidence in the Greek state.
Debt as equity: A process when debt may be converted to equity. This means those who have lent money to an organisation accept that there are difficulties in repaying so instead accept equity (i.e ownership of organisation) this relieves the debtor of having to make fixed sum interest payments to their creditors while that creditor can still hold a claim on any future income (the equity)
Quantitative Easing: this means the government buying bonds and assets from commercial organisations. The central bank is paying out money to purchase the assets/bonds hence putting more liquidity (cash) into system. The theory is this keeps interest rates low and keeps cash in system when people are desperate for it for their balance sheets.
A Brazilian Autumn, Miguel Borba de Sa
The People’s Assembly: an auto-critique, Lives; running
Thanks to everyone who came and contributed to #WORLDSTRIKE! Last week. Particular thanks to Artsadmin for organising and funding Two Degrees. The uptake for this reading group was overwhelming so look out for similar events to come.
In the meantime, governments and men of power everywhere: it seems in a world where the promises of neoliberalism have failed, all that is left is a monopoly on violence; from tear gas to surveillance. Well, as each person on the streets in Rio and Istanbul might tell you, the party is over.