Aurelia Butler

In its latest update on Myanmar’s economy, the World Bank projects growth of 1% in the year to September 2022, weighed down by the impacts of the pandemic and the military’s overthrow of an elected administration on Feb 1, 2021. Myanmar’s economy has tanked since the coup and the junta’s crackdown on its opponents and ensuing backlash from armed groups has led to a retreat by foreign firms concerned about political risks, sanctions and damage to their reputation. The World Bank said there were substantial supply and demand issues, cashflow shortages for businesses and reduced credit access, while half of firms it surveyed reported difficulties last year due to a sharp depreciation of the kyat currency. “The near-term outlook will depend on the evolution of the pandemic and the effects of conflict, together with the degree to which foreign exchange and financial sector constraints persist, as well as disruptions to other key services including electricity, logistics and digital connectivity,” the World Bank said in its January economic monitor. Myanmar’s junta has blamed last year’s economic crisis on foreign-backed “sabotage”. The military government on Thursday said it had approved $3.8 billion in foreign investment since the coup, owing to what it called a return to stability and confidence in its economic potential.The World Bank said events since the coup were likely to limit Myanmar’s growth potential, with most indicators suggesting private investment had fallen markedly, while the cost of imports has risen and kyat-denominated revenues are worth less in foreign currency terms. More

(Reuters) -The Biden administration plans to spare everyday Russians from the brunt of U.S. export controls if Russia invades Ukraine, https://www.reuters.com/world/europe/russian-buildup-ukraine-border-includes-blood-wounded-us-officials-say-2022-01-28 and focus on targeting industrial sectors, a White House official said.”Key people” will also face “massive sanctions,” a top Commerce official said in a separate speech on Friday. The comments narrow the scope of potential curbs on imports to Russia that had previously been described as disrupting Russia’s economy more broadly, hitting industrial sectors and consumer technologies like smartphones.”We can’t preview every action, but the intent there really is to have measures that we think will degrade Russia’s industrial capabilities and industrial production capacity over time, not to go after individual, everyday Russian consumers,” White House national security official Peter Harrell said in a virtual speech for the Massachusetts Export Center on Thursday that received little media coverage.Harrell, who sits on the National Security Council, said the United States was prepared, immediately after an invasion of Ukraine, to impose “crippling financial costs on major Russian financial institutions as well as to impose a range of quite sweeping export controls that will degrade Russian industrial capacity over the mid- and long term.”Commerce Department official Thea Kendler, who spoke to the export gathering on Friday, said “We are contemplating massive sanctions targeting key people and industries that were not on the table in 2014.” That year Russia invaded and annexed Crimea from Ukraine.Three days ago President Joe Biden said he would consider personal sanctions https://www.reuters.com/world/europe/us-seeks-protect-europes-energy-supplies-if-russia-invades-ukraine-2022-01-25 on Russian President Vladimir Putin if he sent forces into Ukraine. Harrell said he hoped the hundreds of hours he and his colleagues had spent over the last couple of months developing measures would never see the light of day, but that they are prepared to impose the sweeping measures.The two-fold strategy includes financial sanctions against major Russian financial institutions “to trigger capital flight, to trigger inflation, to make the Russian central bank provide bailouts to its banks… so Putin feels costs on day one,” Harrell said.Export control measures would be announced as part of the package but would probably not have the same immediate impacts, and instead “degrade Russia’s ability to have industrial production in a couple of key sectors”.Harrell did not detail the sectors, but other White House officials have mentioned aviation, maritime, robotics, artificial intelligence, quantum computing and defense.A person familiar with the matter told Reuters on Thursday the focus was on strategic sectors significant to Russian leadership. Asked about Russia’s lucrative oil and gas sector, the person said nothing was off the table.In a follow-up comment, White House spokesperson Emily Horne also said no options had been eliminated. “We and our allies have a full range of high-impact sanctions and export controls ready to go, both immediately after a Russian invasion and in waves to follow,” Horne said.Harrell said he expected the European Union to join in the effort. “Based on the discussions I’ve been having and, frankly, people way above me … we are quite confident we will have a very high degree of alignment with Europe if Russia does invade Ukraine.”Sources have said the U.S. also may apply a rule to stop companies abroad from shipping items like semiconductors made with U.S. technology to Russia, as it did to curb the global chip supply to China’s Huawei, which it views as a threat.The person familiar with the matter said on Thursday that U.S. officials are also having conversations with Taiwan and South Korea, where major manufacturers of chips are located, and countries in southeast Asia, where some packaging is done. More

WASHINGTON (Reuters) -The U.S. House of Representatives will take up a bill next week aimed at increasing competitiveness with China and supporting the U.S. chip industry, including $52 billion to subsidize semiconductor manufacturing and research.House Majority Leader Steny Hoyer said on Friday that the House would vote on the 2,900-page bill, called the “America Competes” act, saying it would “make further strides in innovation, technology, and advanced manufacturing.” The bill also authorizes $45 billion to support supply-chain resilience and manufacturing of critical goods, industrial equipment, and manufacturing technology. President Joe Biden’s administration is pushing Congress to approve funding to subsidize chip production in the United States, as shortages of the components used in autos and computers have increased supply chain bottlenecks.Commerce Secretary Gina Raimondo said on Friday the bill would “create thousands of jobs all over America. We need Congress to pass that bill in order to revitalize American manufacturing.”The Senate passed the U.S. Innovation and Competition Act last year, which includes $52 billion to increase U.S. semiconductor production and authorizes $190 billion to strengthen U.S. technology and research to compete with China.The House bill has some differences with the Senate version. If it passes the House, leaders of both chambers will negotiate to resolve differences.The House bill also includes a number of trade provisions and would impose additional sanctions on China for what the U.S. says are rights abuses against Uyghurs and other Muslim minority groups in the Xinjiang region. China denies the allegations. The bill would also offer refugee status for qualifying people from Hong Kong, where Beijing has cracked down on pro-democracy activists.Liu Pengyu, a spokesman for the Chinese Embassy in Washington, said in a statement China was “firmly against the U.S. making an issue of China and taking it as an imaginary enemy.” The bill “gravely interferes in China’s domestic affairs and “is ‘Hinder China to Compete Act’ rather than ‘The America COMPETES Act.'” The House bill also reauthorizes and revises Trade Adjustment Assistance programs, which help workers whose jobs or pay is hurt by imports, and reforms the Generalized System of Preferences, a preferential tariff system for imports. More

“There is no question that these nominees are qualified,” Brown, a Democrat, said in a statement issued Friday. “In my meetings with them, they made clear that they understand how our economy works – and who makes it work.”Brown, who is chairman of the Senate Banking Committee, said he met with Sarah Bloom Raskin, who Biden nominated for Fed vice chair of supervision, as well as Lisa Cook and Philip Jefferson, who were nominated to be Fed board governors. The statement comes after some Republicans and business groups voiced criticisms about the Fed picks, signaling they may face a tough confirmation process in the closely divided Senate. Pat Toomey, the top Republican on the Senate Banking committee, said Thursday he had concerns about the nominees, arguing they did not adequately reflect the nation’s geographic diversity, and taking particular aim at Raskin for her views on climate change risks.And the U.S. Chamber of Commerce on Thursday sent a rare letter to lawmakers raising concerns about Raskin and her calls for federal regulators to transition financing away from the fossil fuel industry.White House spokesperson Michael Gwin said Thursday that Raskin would bring unprecedented experience to the job and had won the support of economic experts across the political spectrum. Brown said Friday the three nominees are “well established” and respected in both the public and private sectors and would bring new perspectives on the “economic issues that matter most to Americans’ lives, like raising wages, increasing job opportunities, and bringing down prices.” If Biden’s choices were confirmed, they would make the seven-member Fed Board the most diverse, by race and gender, it has ever been. The three nominees will have a confirmation hearing before the Senate Banking committee next week on Feb. 3. More

LONDON (Reuters) – Foreign banks based in the European Union may have to hold more capital and liquidity under revisions to rules being considered by the bloc’s member states, an EU document showed.Officials in Brussels are looking to classify more foreign banks as subsidiaries rather than branches, a change which would require them to beef up their local balance sheets and come under direct EU supervision. The move would ensnare a large portion of lenders which opened branches in the EU after Britain left the bloc.An EU document prepared for member states and seen by Reuters said adjustments could include an “automatic trigger for subsidiarisation”, or ways to constrain the discretion that regulators have in deciding which branches must become a subsidiary.The bloc’s European Banking Authority https://www.eba.europa.eu/sites/default/documents/files/document_library/Publications/Reports/2021/1015664/Report%20on%20third%20country%20branches.pdf (EBA) said in a June 2021 report that at the end of 2020 there were 106 third country branches (TCBs) across 17 member states holding 510.23 billion euros ($569.16 billion) in assets, with variations in how member states treat them.This was up 14 branches and 120.5 billion euros in assets on the prior year, highlighting an increasing trend, linked to Brexit, in the use of branches to access the EU market, EBA said.China has 18 branches, followed by Britain with 15, Iran 10, and the United States nine.(European Banking Authority Third Country Branches Graphic, https://fingfx.thomsonreuters.com/gfx/mkt/gkplgjwdkvb/European%20Banking%20Authority%20Graphic%20on%20Third%20Country%20Branches.PNG) Currently EU banking regulators decide on a case-by-case basis whether a foreign branch should become a subsidiary they would then directly supervise. A foreign branch’s main regulator is its home watchdog.”The consideration to call for an automatic trigger to subsidiarise will alarm firms,” a banking industry official said.Regulators currently review foreign branches with assets of 30 billion euros ($33.4 billion) or more to see if they are systemic enough to pose risks to financial stability. They can require the branch to restructure or hold extra capital if it wants to continue operating in the bloc.Jeremy Kress, assistant law professor at the University of Michigan’s Ross School of Business in the United States, said stricter EU rules could also prompt the United States to review its rules for foreign bank branches, which he said continue to be a major regulatory loophole. “This could put subsidiarisation on the agenda in the United States,” said Kress, who is a former Federal Reserve official.(European Banking Authority Graphic on Assets of Third Country Branches, https://fingfx.thomsonreuters.com/gfx/mkt/gdpzynqdovw/European%20Banking%20Authority%20Graphic%20on%20Assets%20of%20Third%20Country%20Branches.PNG) APPROPRIATE SCOPEThe decision to force branches to become subsidiaries has been a last resort, and some member states say the current system is too cumbersome.”Scope of systemic importance assessment and of the eventual joint decision seem unclear and exhibit apparent inconsistencies,” the document said.Some states also want to lower the assets threshold that triggers a review of whether a branch should become a subsidiary, the document showed.A combination of lower thresholds and an automatic trigger would give the European Central Bank, which supervises top lenders, more sway and make it harder for branches to avoid becoming subsidiaries.Financial firms in Britain, now outside the bloc, can still serve EU customers who have approached them without prompting or marketing under a practice known as reverse solicitation.The document says member states want to review the “appropriate scope” of reverse solicitation and make clearer when an activity should be conducted at least in a branch in the EU.EU member states and the European Parliament have joint say on final approval on the revisions to banking rules.The ECB is already conducting a “desk mapping” review to see whether new Brexit hubs of banks from London have sufficient senior staff and volume of activities to comply with licence requirements.British regulators worry that if many bankers are forced to move from London to Brexit hubs, operations in Britain won’t have enough senior staff.($1 = 0.8978 euros) More

The writer is editor-in-chief of MoneyWeekFor those confused by the market this year, I have a suggestion. Invest in the Practical History of Financial Markets course run by the Edinburgh Business School (you can do it online — no need to come to chilly Scotland). One of the modules focuses on the history of extreme market valuations — what causes them and what crashes them. The first thing to note is that, while we love to talk about bubbles, periods of extreme valuation in the stock market don’t really happen very often. Of the 29 business cycles in the US since 1881 only a few have ended in one, according to Professor Russell Napier. But, while each has had its own peculiarities, the basic driver has been much the same: the ability of investors to believe absolutely in something that always turns out to be impossible. Namely that, thanks to some “marvels” of technology, corporate profits will stay high (and probably rise) indefinitely and that interest rates will also stay low indefinitely. In most cycles investors do not think this. They assume cyclical normality — that fast economic growth will lead to capacity constraints and then to inflation and rate rises, something that would slow both economic growth and crimp corporate profits — bringing down valuations. We like to think of equities as all sorts of things: right now, for example, all too many investors think of them primarily as virtue signalling vehicles (witness the now collapsing bubble in renewable energy stocks). But long term, equities aren’t really about feelings or show ponying: they are about the net present value of all future income streams discounted at whatever the discount rate is at the time. That’s it. So discount rate up, value down (usually when inflation hits about 4 per cent). A proper bubble can then only develop if investors do not assume cyclical normality but instead manage to convince themselves (against all historical experience) that it is possible for a high-profit, low-inflation environment to be permanent. This always ends badly. Think 1901, 1921, 1929, 1966, 2000, 2007, briefly 2020 and possibly right now.The only question is how fast it ends badly. The key thing here, says Napier in his lectures, is which bit of the equation investors have been getting wrong. If it is the belief that interest rates will never rise, you tend to get a long drawn out bear market (from 1966, when it would have been hard to imagine the inflation of the late 1970s). If it is more the belief that corporate earnings will stay high forever, it tends to be shorter and sharper (2020 was a mini classic of this genre of crash). So here we are. Inflation has been minimal for years. US corporate profits have been very high and rising for years: they hit yet another record high in the third quarter of 2021. And of course, as a result, US stock market valuations hit bubble levels some time ago: by the end of last year the cyclically adjusted price-to-earnings ratio was knocking at about 40, more than double its long-term average. Investors have once again been believing too many impossible things before breakfast — something they might be starting to realise. So here’s the question: which bit have we got most wrong this time around. Is it the discount rate or corporate profits? The discount rate feels like the obvious one, although rising interest rates obviously hit corporate margins too. Cheap labour and globalisation long ago made inflation no more than a distant nightmare for older investors and a mystery to younger ones. Most thus fell for the nonsense from central banks last year that the fast-rising inflation they were seeing was transitory. And even those that thought it might last beyond, say, Easter still believed that central banks would hold off raising rates regardless. So the fact that high growth (US gross domestic product grew by 6.9 per cent in the last quarter of 2021) really can slam into capacity constraints and create inflation rates starting with sevens is turning out to be a horrible shock — as are the indications that central banks might actually do something about it. The Federal Reserve, under pressure from the inflation itself and possibly also from polls suggesting that said inflation is not helping President Joe Biden, is now changing tune (no more “transitory”). There is even, says Aegon Asset Management, “a reasonable probability of seven rate hikes this year, one at each meeting”. Illusion-shattering stuff. It also leaves investors with little choice: as long as the Fed holds this line they should surely not buy dips but sell rallies — at least when it comes to their most expensive holdings (we can argue about whether the likes of Peloton, down 80 per cent in six months, is still expensive or not). In inflationary times, value today starts to look like it might be worth more than possible value tomorrow (a bird in the hand is worth a lot more than an electric flying car in the bush). With that in mind, it is worth noting that the FTSE 100, with its reasonably valued income generating stocks, is outperforming the S&P 500 — so much so that it is now on track to have outperformed over a 12-month period by the end of this month. That’s something it hasn’t done for a full year since May 2017. But it is a switch I suspect most Practical History of Financial Markets students were ready for.  More