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segunda-feira, 25 de fevereiro de 2019

Founding fathers of the Fed, by Richard A. Naclerio - Book review by Mary Tone Rodgers

Richard A. Naclerio, The Federal Reserve and its Founders: Money, Politics and Power, Newcastle upon Tyne: Agenda Publishing, 2018. vii + 226 pp. $22.50 (paperback), ISBN: 978-1-78821-078-2.
Reviewed for EH.Net by Mary Tone Rodgers, Department of Finance, State University of New York at Oswego.

Scholars have been keenly interested in the Federal Reserve system since its inception, and the subject has motivated many books. Authors’ tones, viewpoints and theses about the Fed are understandably shaded by the political discourse of the period in which they write. Richard Naclerio writes The Federal Reserve and its Founders: Money Politics and Power in 2018, a time of rising populist sentiment and, while not explicitly identifying himself as a populist, Naclerio argues the populist viewpoint. The book’s thesis is that the Federal Reserve was formed by elites to preserve their informational advantages over the “little guy,” primarily by preserving a monopolistic structure of the banking industry. He supports his argument by providing biographical evidence that six men who suggested critical features of the Federal Reserve Act disdained the common man, perceived themselves to be elite and were interested in extracting profits for the central bank from elevated interest rates charged on loans to the “little guy.”
This book is permeated with the rhetoric of economic populism providing an “us versus them” framework for the author’s writing style. The approach is not the traditional one taken by economic historians; it does not test theories of political economy, industry structure, formation of efficient financial systems, or financial panics by examining past quantitative data. Instead, it uses qualitative archival evidence from personal writings, contemporary critiques and newspaper stories for thesis support. Its primary contributions are for the reader to understand, first, how the populist viewpoint may be informed by biographical evidence, and second, what the implications of populism for the future of Federal Reserve might be. Naclerio argues that from the “American people’s” viewpoint a central bank that does not bail out banks, does not profit from high interest rates charged to the “little guy,” and that has oversight by non-elites appears to be the type of institution a populist might prefer.
Naclerio devotes one chapter to each of the six men who attended a private conference at Jekyll Island in 1910 to draft policy proposals to create an American central bank. He also writes a chapter about J. Pierpont Morgan who did not attend the conference but who Naclerio considers a central historical figure epitomizing the elite who formed the central bank. After examining the seven men’s attitudes toward the “little guy,” Naclerio then argues that those attitudes were institutionalized in the legislation that formed the Federal Reserve Act of 1913. A chapter devoted to a post-2008 interview with one journalist at Bloomberg News is used as evidence that elitist attitudes continue to drive Fed policy in the present period. The interview explores how Bloomberg News found it difficult to obtain information from the Fed about loans the Fed made during the 2008 crisis.
The seven chapters about the Jekyll Island attendees and Morgan comprise about two-thirds of the book. Each chapter presents biographical evidence that each man embodied the populist lament that the “little guy” is disadvantaged by elite who create opacity and monopoly for self-aggrandizement. Nelson Aldrich eliminated small sugar producers and refiners by changing the tariff structure for sugar imports, benefitting his family’s wholesale grocery business. Felix Warburg’s proposal to allow the central bank to discount commercial paper disadvantaged small bankers and gave preference to large banks. Benjamin Strong’s efforts to coordinate Europe’s post-World War I reconstruction created a Western monopoly of central banks in defiance of each government’s citizenry and was achieved using loopholes in the Charter of the League of Nations. Strong’s venom toward small bankers is supported by his characterization of them as an “unorganized mob.” Henry Davison persuaded Woodrow Wilson to break his promise to the average American to stay out of World War I – so that loans to France and Britain organized by Davison at J. P. Morgan & Co. could be paid off. Davison’s efforts to preserve Morgan’s profits would be at the expense of the “European working class” whose taxes would pay the interest and principal on war loans. A. Piatt Andrew’s suggestion that the central bank would support itself by charging rates to banks on loans it provided meant that small businessmen’s and farmers’ rates would be higher, benefitting the elites in money center banks. Frank Vanderlip’s assessment that borrowers must sign loan contracts but small depositors earned no such reciprocal contract from the banker was evidence that elite bankers supported the inequity and imbalance of power inherent in the banking business model. J. P. Morgan’s takeovers of weak trust companies and corporations after the Panic of 1907 is evidence of an unscrupulous act of self-dealing. (Morgan is referred to as a “pirate” in the chapter title.)
The book’s populist argument is not completely convincing because it does not explore how concern about the “little guy” was indeed part of the policy formation process; it does not adequately describe how the grassroots debate had been ongoing since at least the Baltimore plan of 1894 and the Indianapolis Monetary Convention of 1896. Rather, Naclerio seems to attribute most of the policy formation process to the seven men showcased in the book.
Nor does the book describe how the “little guy” benefitted from the formation of the Fed. The book does not explore how achieving economies of scale in information production and liquidity coordination became overwhelming tasks for a fragmented banking system during the period of industrialization and urbanization that accompanied technological advancement that opened up opportunities for the “little guy” of the early twentieth century.
Furthermore, Naclerio does not suggest how populists of the day, such as William Jennings Bryan or Theodore Roosevelt. might have managed the problems of providing a lender of last resort in periods of exogenous economic shocks any differently than the “elitist” Wall Street bankers did. The difficulty in compelling collective action in the absence of a lender of last resort was not the purview of the federal government at the time, nor was it easily managed by private actors in an increasingly complex economy.
Naclerio interprets the Great Depression as evidence that the Fed reneged on its promise to shield the “little guy” from shocks to the economy and fluctuations in the business cycle from 1921 through the late 1930’s, without describing the remedial changes to the Fed’s policy formation process made during the subsequent Franklin Roosevelt administration that improved the institution’s future capabilities to become more responsive.
Naclerio pays scant attention to how the Federal Reserve Act was influenced by politicians to include a decentralized system of twelve regional banks that served twelve distinct regions of the country, an effort to give voice to the “little guy.”
The shortcomings of the book do not mar the usefulness of the references it provides to see the Federal Reserve system through the eyes of a twenty-first century populist. Giving voice to those who have felt alienated from or disillusioned by the system can support constructive institutional change going forward.
(Naclerio has worked extensively in business operations and real estate investment in New York City and Denver. While continuing to manage his own real estate companies and stock portfolios, he is pursuing a Ph.D. in history at the CUNY Graduate Center. He worked as an adjunct instructor and academic advisor at Sacred Heart University and Monroe College.)

Mary Tone Rodgers, DPS, CFA, is the Marcia Belmar Willock Professor of Finance and Director of the Gordon Lenz Center for Finance and Risk Management at the State University of New York at Oswego. She has published several articles in financial history, including “Monetary Policy and the Copper Price Bust: A Reassessment of the Causes of the Panic of 1907” with James E. Payne” in Review of Economic History. She is currently working on a book with Jon R. Moen (University of Mississippi) on J. Pierpont Morgan’s role as lender of last resort in the pre-Federal Reserve period.
Copyright (c) 2019 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator (administrator@eh.net). Published by EH.Net (February 2019). All EH.Netreviews are archived at http://www.eh.net/BookReview.

quarta-feira, 7 de novembro de 2018

USA-RPDC: bye-bye Premio Nobel da Paz? - Washington Post

Trump’s North Korea diplomacy quietly stalls

Rapprochement with North Korea has been perhaps the biggest foreign-policy achievement of President Trump’s tenure. But a number of quiet developments over the past few days suggest that there are major problems in the diplomatic process. Indeed, the United States and North Korea may have grown further apart since Trump’s historic summit with Kim Jong Un on June 12.
Secretary of State Mike Pompeo was scheduled to meet North Korea’s nuclear negotiator, Kim Yong Chol, in New York on Thursday. According to the State Department, Pompeo and his North Korean counterpart were to “discuss making progress on all four pillars of the Singapore Summit joint statement, including achieving the final, fully verified denuclearization of [North Korea]."
Pompeo said he expected to make “some real progress” at the meeting, which would be used to plan for a second Trump-Kim summit tentatively scheduled for early next year. “I’m confident that we’ll advance the ball again this week when I’m in New York City,” he told CBS News' Face the Nation.
Instead, just minutes after midnight on Wednesday, State Department spokeswoman Heather Nauert announced that the Thursday meeting would not take place. “We will reconvene when our respective schedules permit,” she said.
It was yet another sign of how diplomacy has stagnated in the months since the summit. Pompeo has traveled to North Korea and held high-level meetings with his counterparts, much like the one coming up in New York. But at the working level, where the details are actually hammered out, progress has been slow at best.
The Trump administration had hoped to move things along by appointing a dedicated special envoy, Stephen Biegun, to lead negotiations. But Biegun has not yet been able to secure a meeting with North Korean Vice Foreign Minister Choe Son Hui, who is supposed to be leading North Korea’s working-level delegation.
Many U.S. observers had chided the Trump administration for starting with high-level talks rather than with working-level meetings. Now, it seems that North Korea is the one dragging its feet on the more detailed negotiations. “My own concern is the leaders are so way out in front,” Joseph Yun, a former U.S. envoy on North Korea policy, said at a forum in Seoul last month.
The issues with this approach were reinforced last Friday, when North Korean state media suggested that the “arrogant” behavior of the United States could lead Pyongyang to restart its “byungjin” policy — simultaneously focusing on economic development and its nuclear program. It was effectively a warning that North Korea could soon resume the weapons and missile tests that led to so much tension in 2017.
Robert Carlin, a former CIA analyst and State Department specialist on Korea, wrote that the commentary was a new level of warning from North Korea. It “goes to the heart of Pyongyang’s concern that the US has been moving backwards, away from the agenda the two leaders laid out in the Singapore Summit joint statement,” Carlin wrote in a post for the North Korea-focused website 38 North.
The latest warning followed a number of other jibes from North Korean state media, including one that took the unprecedented step of criticizing Trump by name. As NK News noted, it was the “first negative casting of the American president on U.S.-DPRK diplomacy since the Singapore summit took place,” suggesting that even the high-level goodwill between Trump and Kim could be falling short.
For Trump, the breakdown in North Korean diplomacy would be a personal failure. The U.S. leader long suggested that he could solve the North Korea problem if he met with Kim himself — and he had a point. His willingness to meet the North Korean leader face-to-face this year set things in motion in a way previous U.S.-North Korea meetings, which involved officials at a lower levels, did not.
But as the Singapore summit recedes further into the past, its flaws are becoming more apparent. The brief, vague statement that Trump and Kim signed — just 400 words — did not provide a clear path for resolving the key issues in the standoff between the United States and North Korea. Both sides are still arguing over what “denuclearization” means and when it will happen, just as they were before the summit.
North Korean leader Kim Jong Un and Secretary of State Mike Pompeo before their meeting in Pyongyang on Oct. 7.
North Korean leader Kim Jong Un and Secretary of State Mike Pompeo before their meeting in Pyongyang on Oct. 7.
The U.S. president, always an unpredictable speaker, is also reported to have raised North Korean hopes about declaring an official end to the Korean War. That would grant Pyongyang some legitimacy, but many in Washington oppose such a move because of its implications for the U.S. military presence in South Korea. A Korean Peninsula formally at peace might be one on which U.S. troops would no longer be welcome.
For Pyongyang, the most important issue right now appears to be sanctions relief. But that is fundamentally at odds with the U.S. position, which says that Washington cannot ease economic pressure on North Korea because it would lose its greatest leverage over Pyongyang. Just this weekend, Pompeo emphasized that the United States would not lift sanctions until it could verify that North Korea had given up its weapons. North Korea, though, is hoping for sanctions first to be lifted.
The larger problem is that both sides are divided not only over what happens next, but also what has happened so far. The Trump administration viewed the Singapore Summit as a triumph of its “maximum pressure” sanctions policy and portrayed North Korean denuclearization as a fait accompli. But North Korea believes it forced Trump into a meeting with the success of its ramped-up nuclear capabilities, an advantage it is unlikely to give up.
Can such different views of negotiations be reconciled? Perhaps, especially given Trump’s own personal investment in talks. With the political test of the midterms over, Trump is likely to turn toward foreign policy again — and any big moves will ultimately come down to his choices.

quinta-feira, 1 de novembro de 2018

Sancoes americanas ao Iran: implicações geopolíticas - J.P. Morgan

Geopolitical Flashpoints

Global Implications of Re-Imposing Sanctions on Iran

A special message from Joyce Chang, Global Head of Research

In this edition of Geopolitical Flashpoints, which can also be found on J.P. Morgan Markets, the Global Research teams examine the economic and market implications of the re-imposition of Iran sanctions on November 5 as the Trump administration deadline to unilaterally withdraw from the 2015 Joint Comprehensive Plan of Action (JCPOA) nears on November 4. The reports highlighted below summarize the latest developments and include recommendations and views across asset classes.
As the November 4 deadline that President Trump set to unilaterally withdraw from the 2015 Joint Comprehensive Plan of Action (JCPOA)1 and the re-imposition of sanctions on November 5 looms, we assess the macro and market implications. The basic aim of US secondary sanctions is to force non-US companies to choose between transacting with the US and its financial system, or with IranEnding the Iran deal was a key foreign policy plank of candidate Trump’s election platform and the effects of the sanctions are already becoming evident. The latest Iranian export data suggests that many countries that import Iranian oil have already started to reduce their imports significantly well ahead of the November 4 deadline. While there is still uncertainty around how much Iranian barrels would be lost once the sanctions are implemented, the markets have tried to price in anywhere between 0.5mbd (in early June) to just over 1mbd (late Sep/early October) of exports being curtailed. Iran crude exports fell to around 1.6mbd in September as major importers including China scaled back their crude purchases. We now expect Brent to average $85/bbl in 4Q18 and $83.5/bbl in 2019, with Brent to finish at around $90/bbl by year-end. The upward revision in our forecasts was strongly driven by significant supply-side risks, more than offsetting the expected softness in demand. In the absence of Iran supply concerns, oil prices would have likely hovered around or below $70/bbl, but with the presence of Iran risks we expect oil prices to remain well supported in the months ahead. Iran oil sanctions could put 1.5-2.4mbd of oil exports at risk, which would more than compensate any demand drop due to slower global growth and trade tensions. While the growth impact of US-China trade disputes matter for commodities demand, Iran matters a lot more in the case of oil, given the large supply shock it could represent in the very near term. Iran poses a first order effect via supply shock whereas US-China trade war poses a second order effect via economic growth slowdown. 

Background on US sanctions on Iran and decision to re-impose sanctions

Since the late-1980s, a series of sanctions have been imposed against Iran, including by the United States, the European Union and members of the United Nations (UN) Security Council, due to Iran’s refusal to suspend the enrichment of uranium and other activities deemed malign by participating members. As a result of sanctions, Iranian inflation topped 40%oya, while oil exports and growth collapsed after 2012. After 20 months of talks, in July 2015, the Joint Comprehensive Plan of Action (JCPOA) was agreed between the 5 permanent Security Council members, Germany and the European Union with Iran, to limit the country’s nuclear program in return for lifting the European Union and United Nations nuclear-related sanctions and US secondary sanctions, although US comprehensive primary sanctions preventing US individuals and companies from engaging with Iran remained in place.
On May 8, President Trump announced that the US would unilaterally withdraw from JCPOA and reimpose all sanctions lifted or waived in connection with JCPOA after wind-down periods of 90 or 180 days. As President, Trump had signed waivers in 2017, but finally made a May 2018 announcement regarding his intention to quit the JCPOA, blaming Iran’s ballistic missile tests and actions across the MENA region as justification for the US to pull out from “the decaying and rotten deal”. The re-imposition of so-called “secondary sanctions” aimed at non-US companies’ dealing with Iran began after the wind-down periods; the first set of secondary sanctions became effective on August 72, which reimposed sanctions to include purchase or acquisition of US dollar banknotes by Iran, trading in commodities such as gold, steel, coal, semi-finished metals, such as aluminum, and some other transactions related to commodities, currencies and sovereign debt. The next set of sanctions—which target the oil trade—come into effect on November 53. The sanctions to be reimposed to include those targeting Iran’s port operation, shipping sector, and most importantly, transactions with the National Iranian Oil Company (NIOC), Naftiran Intertrade Company (NICO), and National Iranian Tanker Company (NITC), amongst others. In addition, sanctions on provision of underwriting services, insurance or re-insurance and transactions by foreign financial institutions with the Central Bank of Iran and designated Iranian financial institutions under Section 1245. The transfer of payments may be impacted if the SWIFT network is disconnected as in 2012. In addition to these sanctions, the US government will reimpose, as appropriate, the sanctions on persons removed from the Specially Designated Nationals (SDN) list. President Trump’s executive orders would not only turn the clock back to the sanctions regime that prevailed before the JCPOA—critically, on a bilateral basis, compared to the multilateral framework that prevailed before—but they may want to go even further. The sanctions can effectively cutoff access to the US financial sector not only for any party dealing directly with Iran, but also third parties (including international banks, insurance companies, shipping companies) facilitating significant transactions with Iran.
Additionally, on October 3rd, the US Secretary of State terminated the Iran Amity signed in 1955 after Iran used it as a basis for a case at the International Court of Justice. The Amity Treaty, an agreement to encourage good relations and trade, was signed with the Iranian Shah, who was a US ally. Although an insignificant act in itself, it does point toward a more hawkish stance on Iran. 

Oil Commodities Research View

Global oil supply should tighten after the imposition of Iran sanctions, with risks biased to the upside especially after US mid-term elections. The upward revision in our forecasts has been driven by significant supply-side risks as importers of Iranian crude have scaled back significantly in the run-up to the November 4 deadline. This has been one of the key drivers of oil prices in 2018. Front month Brent has risen by as much as $20/bbl since the start of the year until recently when it touched $86.3/bbl on Oct 03. There is still uncertainty around how much Iranian barrels would be lost once the sanctions are implemented and we estimate the markets have tried to price in anywhere between 0.5mbd (in early June) to around 1.5mbd (late Sep/early October) of exports being curtailed. Iran exports close to 2.5mbd of its crude output with the remainder consumed domestically. In a briefing published by the US State Department in June, it was suggested that oil imports from Iran should be cut down to zero. Whilst there have been several comments earlier this year by the State Department that reflected no predisposition towards waivers, this position has changed to a case-by-case basis waivers for countries that are making efforts to reduce their imports. Despite the levels of waivers remaining unclear and uncertain in the near-term, we do expect the US administration to push these countries to significantly reduce their imports from Iran eventually even if they were to receive some waivers initially to allow them to replace Iranian crude supply.
The latest Iranian export data suggests that many countries that import Iranian oil have already started to reduce their imports significantly well ahead of the November 4 deadline. Iran crude exports fell to around 1.6mbd in September as major importers including China scaled back their crude purchases. Additionally, buyers of Iranian oil have indicated their reluctance to buy Iranian oil to avoid any repercussions given the uncertainty. Currently the market is not short oil as Iranian oil is still in the market and Saudi Arabia and Russia have ramped up oil production to avoid a spike that concerned some of its key consumers and allies. However, the risk of losing another 0.5mbd to even 1.5mbd (from current ~1.5mbd) in a worst case scenario where US pushes towards it zero Iran export target could tighten the oil markets significantly in the near-future and OPEC’s spare capacity could be challenged even in a modest oil demand growth environment. The retaliation from Iran to return to full-scale Uranium enrichment or block Strait of Hormuz could be seen as a major geo-political risk to oil but also the region that is currently steeped in various conflicts.
Oil markets are currently very fragile and anxious as the very drivers, such as strong demand and tight OPEC supply that helped balanced the markets earlier this year, have started to raise uncertainty around the recovery in oil price. Despite the weakness in physical markets due to the factors mentioned above, we think the impact on the oil markets from the loss of Iranian barrels will only be felt once physical markets show signs of tightness post re-imposition of sanctions on November 5. Once the physical markets show signs of tightness, then the lack of spare capacity and rising geo-political risks surrounding oil producing countries including Iran, Venezuela, Russia and Saudi Arabia should be sufficient in returning robust support under oil prices once again. We don’t doubt that the Kingdom can increase production towards its 12 mbd capacity; however, the timing of it is what markets will question once Iran’s sanctions are in force and start to tighten physical markets and markets for medium/heavy sour crude. Most of the Kingdom’s available nameplate capacity remains constrained. At 10.7mbd of current production, their nameplate spare capacity is 1.3mbd as also suggested by the Saudi Oil minister but the real available capacity is questionable in the near term. Abhishek Deshpande

Economic and Political Views

The effect of sanctions against Iran’s economy has already become evident, with Iranian oil production declining 12% from its peak in May, as trade partners begun to reduce their oil imports. Oil prices have reacted in sympathy, as our commodities strategy has commented extensively. As a result of these developments, the Iranian rial depreciated by up to 75% in the black market through September and inflation accelerated to 31.4%oya. Against this background, a series of protests have erupted with deteriorating economic conditions throughout the year. Iran has threatened the closure of the Strait of Hormuz, through which one fifth of global oil trade passes, if the country is not permitted to export its oil. Despite Donald Trump’s offer to meet Iranian president Hassan Rouhani without preconditions, it remains unlikely that the Iranian government will return to negotiations in the near-term. 
The reactions of large importers of Iranian oil, like China and India, would seem to be critical to judge the degrees of freedom enjoyed by countries that otherwise would spurn such US extraterritorial sanctions. The EU for its part has staked out a strong stance to defend its political decision to try to keep the Iran deal (JCPOA) alive, notably with the extension of the 1996 EU “Blocking Statute” to include US Iran sanctions, which ostensibly compels European entities to not comply with extraterritorial US sanctions. However, it remains to be seen whether, in practice, the Blocking Statute will dissuade European companies from deciding to stop dealing with Iran given many firms have too much to lose if their US business / access to the US financial system becomes compromised. The more interesting European policy proposal (in conjunction with China and Russia) is that of an Special-Purpose Vehicle (SPV) to allow non-US firms to effectively deal with Iran in legitimate business (as per EU law) anonymously, and therefore, not run the risk of being targeted by the US. This proposal, which has been strongly criticized by the US, has yet to be unveiled and tested operationally. A key battleground on the US’s willingness and ability to counter this proposal would be whether the Trump administration would challenge the SPV itself or the European or other central banks supporting the SPV. At the country level, while Turkey and India are most vulnerable through the trade channel, another perhaps even stronger impact of sanctions could come through the financial channel, as local companies and banks could be denied access to critical USD payment systems. Turkey, India, Korea and China have the highest exposure to Iran through the trade channel, with bilateral trade with Iran ranging from 0.9%-2.75% of overall trade for these economies. Ben Ramsey, Giyas Gokkent, Nur Raisah Rasid

Cross-Asset Strategy Views

We have been long petro assets to varying degrees all year and recommend keeping such exposure while supply risks persist and Brent is below $90/bbl. We were maximum long in Q1 and Q2 (long Oil futures, overweight US Energy Equities and HY Energy Credit, and long either NOK, CAD or RUB), moderately long in Q3 (we went tactically short crude in early summer), and now close to maximum long again (re-entered long Brent in September). To be sure, the value proposition of petro assets varies considerably, with Energy Equities, Energy Credit, Russian Equities and US inflation breakevens discounting the highest oil price, and petro-currencies like RUB factoring in the lowest price. But the ruble is only interesting as an Iran hedge for those who think that higher oil prices will do more good for Russia through a higher trade surplus than further Russia-specific sanctions might harm capital flows. For now, we are neutral oil currencies given a generally strong US dollar environment, and hedge Iran supply risks through oil directly or with oil stocks and credit. John Normand

Global FX Views

The primary transmission of Iran sanctions to FX is likely to be through oil prices with our commodity strategists expecting that Brent could breach $90/bbl going into year-end. This will likely inform the performance of petro-exporters vs. importers. We have long argued that even though petro-FX has lagged oil prices, a more selective stance on these currencies is required. The performance of several petro-FX has been held back due to various idiosyncratic factors that have not translated into a growth boost for these currencies. Even though oil prices have been increasing for 2 years, our growth forecasts for petro-currencies have not increased by much.
On a more granular basis, growth in G10 countries (CAD and NOK) has fared better than EM petro FX (COP, MXN, RUB) where average growth forecasts have actually been downgraded over this same period. Among G10 petro-FX, we are structurally bullish on NOK (neutral in the recommended trade recommendations, but long NOK in the long-term recommendations) and have bullish forecasts for CAD (though for reasons other than high global oil prices, as local crude prices are in fact heavily depressed). Oil prices have impacted forecasts of RUB in recent weeks (RUB targets were upgraded by 5% over the next three quarters), but we are still neutral which is still a more favorable stance compared to other high-yielders in the region such as ZAR where we are underweight. In Latin America, we are neutral both MXN and COP as weak EM appetite and policies implemented domestically could continue to offset the terms-of-trade positives from higher oil prices.
We also assess the impact of higher oil prices on energy importers. J.P. Morgan FX forecasts for energy importers have been downgraded in recent weeks. For instance, in G10, our Japan strategists downgraded JPY in October in part motivated by deteriorating external balances related to oil. We are short JPY versus USD in our recommended macro portfolio. In EM, our strategists point to INR underperformance in part being linked to higher oil prices (where FX targets were cut in sympathy with CNY in September). In addition, higher oil prices have also had an impact on TRY weakness, but admittedly this has been a secondary driver given other idiosyncratic factors in the country. Meera Chandan, Jonathan Cavenagh, Anezka Christovova, Robert Habib, Daniel Hui

US Credit Research Views

Second order impacts on US Credit from sanctions on Iran are meaningful. Few, if any, of the companies in our combined universes are actively involved directly in Iran post the last round of sanctions. However, sanctions are likely to increase the overall risk premium and volatility of the commodity, which should filter through the ecosystem. In the near term, a greater call on US shale could have an additive effect to the services sector as activity levels increase on the back of the expectation of sustained higher prices. More importantly, increased cash flow and improved leverage metrics have particularly topical implications.
Sanctions could accelerate Rising Star pipeline. US High Yield (specifically BB) rated credit stands at a cross-road, with a substantial amount of BB-rated E&P and MLP credits poised for transition to investment grade at current strip pricing. Sanctions could easily accelerate that trend as E&Ps use excess cash flow from the “Iran bump” to pay down debt and/or achieve critical mass for investment grade ratings. Similarly, on the Investment Grade side, one of the greatest overhangs market wide on US credit is the “low-BBB wall” and potential Fallen Angel implications during the next cyclical downturn. Capital and balance sheet discipline remain front and center in Energy. Therefore, we expect BBB-rated Energy companies to continue to use excess cash flow to pay down debt and bolster balance sheets as well as start to return value to shareholders in a disciplined way. 
Value continues to accrue to critical infrastructure. Finally, one important downside of sanctions impact is the potential supply demand imbalance when/if sanctions end. Midstream company bonds remain a source of “safe spread” and are somewhat insulated from the commodity. We continue to see good value in Midstream and MLPs especially in a more volatile crude oil environment. Prudent growth and deleveraging remain the focus, and in a world of wider differentials and increased volatility, value is inexorably moving within the industry food chain towards infrastructure. Tarek Hamid and Matthew Anavy

Emerging Markets Equity Strategy Research Views

Near-term upside via better support to oil prices offsetting medium-term negative geopolitical risk to EM equities could be the result of the US decision to advance on the Iranian sanctions. The near-term positive is backing to higher oil prices. There is a strong historical co-movement between GEM equities and oil price rallies and corrections. During periods of rising oil prices, the median return for GEM equities was USD20%. In 80% of the positive return periods for oil, GEM equities also posted positive returns. LatAm and CEEMEA are the most impacted by the change in oil prices and EM Asia the least. Russia, Colombia, Brazil, Thailand and Poland have the highest positive sensitivity to oil price changes. The potential medium-term negatives to EM equities could include a narrower hallway to US-EU future cooperation in other geopolitical sensitive issues such as Russia and Syria, for example, and an unintended re-escalation of nuclear investments in the Middle East region for neighbors to defend themselves from a possible Iran threat. 
Overall oil strength has been more positive for GEM vs. DM equities as it is possibly associated with periods of high economic growth expectations. This is where the risk lies in the current cycle. The core reason for the upward revision in oil prices is a supply constraint and weaker global growth. We prefer to keep a Neutral rating on Energy to remain less directionally dependent on short-term volatility in oil prices. We could indirectly benefit from higher oil prices by OW positions on Russia, Brazil, and on energy in the ASEAN region.Pedro Martins and David Aserkoff
Please find below links to recently published reports from the J.P. Morgan Research team.


Geopolitical Flashpoints: Will the US introduce further sanctions on Russia?, (Anatoliy A Shal, Nicolaie Alexandru-Chidesciuc, et al, 26 September 2018)


Iran sanctions: On again: Bracing for the November 5 reimposition (Ben Ramsey, Giyas M Gokkent, Nur Raisah Rasid, 1 November 2018)
Middle East and North Africa Weekly (Giyas M Gokkent, 15 October 2018)
Europe, Middle East and Africa Emerging Markets Weekly (Nicolaie Alexandru-Chidesciuc, 7 July 2018)
MENA Macro, Credit and Equity conference: Highlights from presentations and panel discussions (Nicolaie Alexandru-Chidesciuc and Zafar Nazim, 2 July 2018)


Oil Market Special: OPEC: A linchpin in global geo-politics, (Abhishek G Deshpande, Prateek Kedia, 19 October 2018)
Oil Market Weekly: Back to the 90s, (Abhishek G Deshpande, 8 October 2018)
Oil Market Quarterly 3Q18: EM matters but Iran matters more in the near-term (Abhishek G Deshpande, Thomas Anthonj, et al, 23 September 2018)
Commodities Quarterly 3Q18: Base metals and agriculture poised to join oil higher in 4Q after a weak 3Q(Abhishek Deshpande, Shikha Chaturvedi, Natasha Kaneva et al, 21 October 2018)
Oil Market Weekly: President, Dollar & Oil (Abhishek Deshpande, 27 August 2018)
Iranian Sanctions and Global Oil Market Update (Abhishek Deshpande, 11 May 2018)



Investment Grade Energy: Sector Overview, October 2018 (Matthew Anavy et al, 19 October 2018)
High Yield Energy: Sector Enamored with Its Own Mortality (Tarek Hamid et al, 19 September 2018)




Key Trades and Risks: Emerging Markets Equity Strategy (Pedro Martins Junior et al, 16 October 2018)


  1. 1 JCPOA was signed between Iran, the P5+1 (France, UK, China, Russia and the US plus Germany) and the European Union
  2.  https://www.whitehouse.gov/briefings-statements/remarks-president-trump-joint-comprehensive-plan-action/
  3.  https://www.treasury.gov/resource-center/sanctions/Programs/Documents/jcpoa_winddown_faqs.pdf

segunda-feira, 13 de agosto de 2018

Visita do Min. da Defesa-USA ao Brasil: influencia da China? Qual influencia da China?

Paranoia correndo solta por aí...

No Brasil, chefe do Pentágono busca conter influência militar da China

Visita de secretário de Defesa é permeada por incômodo dos EUA com alta nas atividades de Pequim com países na América do Sul 

por Henrique Gomes Batista, enviado especial*

James Mattis é fotografado no exterior do Pentágono: visita estratégica ao Brasil - MARK WILSON / AFP
WASHINGTON E BRASÍLIA - A crescente influência não só econômica, mas militar da China na América Latina marca o início da primeira viagem de James Mattis, o secretário de Defesa dos Estados Unidos, à América do Sul. Com a visita que começa em Brasília, ele encontra uma região muito diferente da existente em 2014, quando Chuck Hagel foi o último chefe militar americano recebido na América do Sul.
Os asiáticos já contam com uma base de monitoramento de satélites na Argentina e negociam o fornecimento de insumos à indústria bélica brasileira. Embora oficialmente o objetivo da viagem a Brasil, Argentina, Chile e Colômbia seja reforçar laços com parceiros históricos, o debate sobre Pequim esteve presente já de cara.
— Temos visto China e Rússia atuando dentro da América Latina. Existe mais de uma maneira de perder soberania no mundo. Isso ocorre não apenas com a violência, pode ser com presentes e grandes empréstimos — afirmou Mattis a jornalistas que o acompanhavam em seu voo a Brasília, quando disse que quer países “livres, democráticos e independentes” no continente. — Eu não estou olhando o que as outras nações fazem como algum tipo de ataque contra nós. Estas são decisões soberanas, e eu somente me preocuparia se estes países (latino-americanos) estiverem perdendo certo grau de soberania por causa das decisões próprias ou de outras nações.

Mas o alinhamento ideológico dos principais países da região pode ajudar os Estados Unidos a reafirmarem sua influência, se Mattis conseguir avançar em propostas concretas de parcerias, compras e desenvolvimento tecnológico. O apelo pelos laços históricos esteve presente na conversa que ele manteve na viagem de Washington a Brasília. 
— Não estou interessado em reconquistar o controle destes países (da América do Sul) pois acredito que isso nunca existiu. Eu acredito na parceria, e não em controle — garantiu. — Mas citando a Argentina, gostaria de lembrá-los de quem os ajudou quando eles tiveram o submarino desaparecido (no fim do ano passado): os americanos. Fomos os mais rápidos e com a melhor tecnologia do mundo, agimos da mesma forma que se este fosse um submarino americano.
A maior prova desta influência chinesa está na Patagônia. O país asiático tem em Quintuco, na província de Neuquén, uma estação para controle de satélites e missões espaciais. A base, que começou a operar em março e oficialmente não tem fins militares, é vista com desconfiança pelos americanos. Herança dos anos de Cristina Kirchner no poder, a instalação foi negociada em segredo com Pequim e causa estranhamentos na relação bilateral entre Buenos Aires e Washington.

Turquia vs USA, ou Erdogan vs Trump: um combate assimétrico -

Erdogan fights a losing battle with Trump

Ishaan Tharoor, The Washington Post, August 13, 2018

On Friday, the Turkish lira suffered its biggest one-day devaluation in nearly two decades, dropping more than 14 percent against the dollar. The minister of finance — the son-in-law of Turkish President Recep Tayyip Erdogan — couldn’t avert the slide, delivering a halting speech that did little to boost confidence.
But Erdogan, as he so often does, placed the blame on a foreign scapegoat: the United States.
“Shame on you, shame on you,” he declared at a rally. "You are swapping your strategic partner in NATO for a pastor.”
The pastor in question is Andrew Brunson, an American clergyman who has been in Turkish custody since 2016. He is charged with espionage and other crimes — charges that he and U.S. officials reject. Attempts to win his freedom have so far failed.
According to my colleagues, Ankara hoped to swap Brunson for Hakan Atilla, a banker convicted in the United States for his role in a scheme that skirted U.S. sanctions on Iranian oil. But the Trump administration resents Turkey’s use of Brunson as a political hostage. A high-level meeting in Washington last week with a visiting Turkish delegation ended abruptly after the Americans demanded the pastor’s immediate release.
President Trump then announced increased tariffs on Turkish aluminum and steel, which sent the value of the lira plummeting to a historic low. Turkey’s economic woes are of its own making, but the tariffs made things worse — and Trump was only too happy to take credit.
Erdogan continued his complaints in a New York Times op-ed, railing against “unilateral actions against Turkey by the United States, our ally of decades.” He recited the familiar catalog of affronts, including Washington’s unwillingness to hand over Fethullah Gulen, a Muslim cleric accused of fomenting a failed 2016 coup against Erdogan, and continued American support for Syrian Kurdish factions. He then delivered a clear threat, urging Washington to “give up the misguided notion that our relationship can be asymmetrical and come to terms with the fact that Turkey has alternatives.”
If the United States won’t change its approach, Erdogan warned, Turkey will “start looking for new friends and allies.” Indeed, the Turkish president has beefed up ties with Russia, attempted to mend fences with key Western European governments and, as a significant importer of Iranian oil, could undermine American efforts to isolate Tehran.
But this posturing will win him even more enemies in Washington, where Erdogan is already a deeply unpopular figure. Congress has passed legislation making a critical sale of F-35 jets to Turkeycontingent upon terms that include Brunson’s immediate release. Erdogan critics in U.S. foreign-policy circles loathe his creeping authoritarianism. And Trump, unlike previous presidents, has shown an endless willingness to bully erstwhile allies whenever he disagrees with them.
“Washington has generally tried to calm global markets in such moments, especially when investors are gripped by fear of contagion,” noted the Wall Street Journal. “Trump instead squeezed Ankara further.” This had global ramifications: Turkey’s wobbles stoked wider fears of fragility in other emerging markets and raised alarms among some major European banks that hold Turkish debt.
In an interview with Bloomberg News, Aaron Stein, a Middle East expert at the Atlantic Council, suggested Erdogan had badly miscalculated the situation. “The power balance is asymmetric, totally in the U.S. favor,” Stein said. “There are no guard rails to escalation on the U.S. side, and that’s where the Turks have completely, completely messed up in their understanding of what’s going on in the U.S.”
Erdogan’s appeals to NATO partnership ring especially hollow, given both Erdogan’s testy relations with Europe and Trump’s carping about the alliance. "For an administration or a president that doesn’t give much value to NATO, the value of Turkey as a staunch NATO ally also has declined,” Jacob Funk Kirkegaard of the Peterson Institute for International Economics told Bloomberg News. “The Trump administration isn’t going to walk an extra mile to save an organization it doesn’t value.”
Analysts hope cooler heads prevail. “Turkey’s economic and legal problems are obvious, but sanctions by the U. S. are unlikely to help anything,” observed Turkish commentator Mustafa Akyol. “Rather they may be counterproductive, boosting Turkey’s nationalist mood and pushing the country further towards the Russian axis. More diplomacy is needed, not sanctions.”
But productive diplomacy is in short supply. Much of Erdogan’s politics now hinge on stirring nationalist sentiment to justify his tightening grip on the country. He won re-election in June with the backing of ultra-nationalists, arguing that greater control would help him steer Turkey’s flagging economy out of trouble. Instead, things have only gotten worse.
“The current crisis is the culmination of Erdogan’s reckless stewardship. Fixing it will take years — a task that will require new leadership and an entirely different mentality,” wrote Aykan Erdemir, a senior fellow at the Foundation for the Defense of Democracies in Washington and an Erdogan critic.
Nevertheless, even as Turkey suffers, Erdogan may not take much of a political hit. “Turkey’s toothless opposition ... fails to provide much hope,” Erdemir noted. “Without strong political forces to push him out, Erdogan will almost certainly continue to dig himself and the Turkish economy into a deeper hole.”
Trump also may gain more by refusing to compromise. He may relish the chance to act tough and appeal to his core supporters by squeezing a prominent Muslim leader over the fate of an American pastor.
“Backing Brunson plays to the American president’s base — all the more conspicuously so given that NASA scientist Serkan Golge, a dual Turkish–U.S. citizen, is also being held in Turkey, serving out a seven-and-a-half-year sentence for charges similar to those being brought against Brunson,” wrote Elmira Bayrasli, a professor of international affairs at Bard College.
Of course, she noted, there’s a key difference: “Golge is Muslim, unlike Brunson, whom Trump has called ‘a great Christian’ and ‘innocent man of faith.’ The Trump administration has said nothing about Golge’s detention.”

quarta-feira, 11 de julho de 2018

America First is America Alone - Ishaan Taroor (WP)

Trump’s NATO trip shows ‘America First’ is ‘America Alone’

Ishaan Taroor, The Washington Post, July 11, 2018

President Trump arrived in Brussels with a clear message: It is time America stopped footing Europe's bill. His complaint is not new for European leaders, who have weathered Trump’s attacks on the transatlantic system for more than a year, but it is becoming more and more troubling.
The NATO summit that starts Wednesday will be shadowed entirely by Trump's irritation with the alliance and the inability or unwillingness of many of its members to set their military budgets at the recommended 2 percent of gross domestic product. Ahead of Trump's arrival in Brussels, he issued tweets linking his antipathy toward NATO with his broader anger over trade relations with the European Union:
European observers are worried by Trump's linkage of the two issues, a position still based on a misunderstanding of how the alliance works. “If it’s really a threat linking security to trade, that can destroy the basis of NATO,” said Stefano Stefanini, a former Italian ambassador to NATO, to my colleague Michael Birnbaum.
“The fear is not only that Mr. Trump will spoil the ‘unity’ of the summit with harangues before flying to Helsinki for a far friendlier meeting with Russian President Vladi­mir Putin,” observed The Washington Post’s editorial board. “It is that, having shrugged off the strong support for NATO among his national security team, he is bent on wrecking a multilateral organization he regards as obsolete and a means for European nations to freeload at the expense of the United States.”
Meanwhile, Trump has also made a habit of rebuffing allies like French President Emmanuel Macron and German Chancellor Angela Merkel on issues including trade, climate change and the Iran deal. The tariffs he has slapped on European steel and aluminum, which took effect on Friday, seem likely to trigger a trade war.
Such moves have “been corrosive to relations with allies who increasingly believe that Trump — on trade, NATO and diplomacy — is undercutting the post-World War II order in pursuit of short-term, and likely illusory, wins,” my colleagues reported over the weekend.
“It’s like your parents questioning their love for you,” said Norbert Röttgen, the chairman of the foreign-affairs committee in Germany’s Parliament, to the New Yorker’s Susan Glasser last month. “It’s already penetrated the subconscious.”
After Brussels, Trump heads to Britain for a meeting with British Prime Minister Theresa May, whose government could be on the brink of collapse over internal disputes over Brexit. He will then travel to Helsinki for his first formal summit with Putin, a meeting Trump himself has quipped may be “the easiest of all.”
Despite the Trump administration’s insistence that its “America First” agenda does not really mean “America Alone,” Glasser noted, “increasingly, it is.”
U.S. President Donald Trump and first lady Melania Trump arrive aboard Air Force One ahead of the NATO Summit, at Brussels Military Airport in Melsbroek, Belgium, on July 10. (Francois Lenoir/Reuters)
U.S. President Donald Trump and first lady Melania Trump arrive aboard Air Force One ahead of the NATO Summit, at Brussels Military Airport in Melsbroek, Belgium, on July 10. (Francois Lenoir/Reuters)
In the months to come, Trump's stop in Brussels may only be remembered as a footnote to the Putin meeting. “Because the meeting occurs after the NATO summit, any achievements in Brussels could be easily wiped out by promises Trump makes to Putin on a whim,” wrote Rachel Rizzo of the Center for New American Security in Washington“Given Trump’s negotiating style, allies are rightly concerned that he may tell Putin that he will remove some U.S. troops from Eastern Europe, or halt U.S. participation in NATO exercises as a sign of good will. This would send European allies into a frenzy.”
There are also fears Trump could somehow recognize Russia's 2014 annexation of Crimea. “It’s such a fundamental issue,” a senior NATO diplomat told Birnbaum. “It would legitimize a whole range of actions. If you have the power, the raw conventional military power, you can do what you want.”
“Now I’m depressed,” the diplomat added. “The fact that we’re even thinking about it.”
Some American allies have tried to push back. Ahead of Trump's arrival, NATO Secretary General Jens Stoltenberg offered a polite, if anodyne, defense of the alliance, published by the Wall Street Journal.
“After many years of decline, allies have ended the cuts and started to increase national defense spending,” he wrote, arguing indeed Europe is doing far more to buttress its own collective security. “Last year NATO allies boosted their defense budgets by a combined 5.2 percent, the biggest increase, in real terms, in a quarter of a century. Now 2018 will be the fourth consecutive year of rising spending.”
Stoltenberg concluded “it’s no secret that there are differences among NATO countries on serious issues such as trade, climate change and the Iran nuclear deal,” but he insisted the West’s shared history has “taught a simple yet powerful lesson: United, we are stronger and safer.”
Some analysts do not believe it is worth appeasing Trump's “bullying.”Europe's new efforts to beef up its own defense outlays will never satisfy the president, they argue.
“If the Europeans parked a brand-new aircraft carrier off the coast of Mar-a-Lago and tossed the keys onto the 18th green, Trump would simply charge them greens fees,” wrote Jeremy Shapiro of the European Council on Foreign Relations. “In the end, he doesn’t believe in the idea that America should defend Europe, so why should the United States pay anything at all? He is only interested in it if it brings in a profit.”
European Council President Donald Tusk holds a press conference in Brussels, on July 10. (Aris Oikonomou/AFP/Getty Images)
European Council President Donald Tusk holds a press conference in Brussels, on July 10. (Aris Oikonomou/AFP/Getty Images)
European Council President Donald Tusk, who has been outspoken in his criticism of Trump, made no apologies in a speech on Tuesday, where he mounted a defense of Europe before the start of the NATO summit.
“Dear President Trump: America does not have and will not have a better ally than Europe. Today Europeans spend on defense many times more than Russia and as much as China,” Tusk said. He urged Trump to think more clearly about “who is your strategic friend and who is your strategic problem,” a direct nod to the coming summit with Putin.
“Dear America, appreciate your allies,” Tusk said. “After all, you don’t have that many.”