Tomorrow marks Mr. Trump’s inauguration. Yet many fascinating unfolding developments.
The Trump Organization’s partners around the world have been seen as potential conflicts of interest ever since Donald Trump announced he was running for US president. With his inauguration just days away, more attention is being paid to these conflicts, and the head of the Office of Government Ethics insists that Trump must sell off his business in order to be an ethical president.
One of the most most glaring conflicts is set to open up this quarter: Trump Tower Manila, a 57-floor skyscraper inside Century City, in a gentrifying area of Manila’s business district. It’s a joint project with Century Properties Group, Inc. (CPGI), a Filipino real estate development company owned by Jose E.B. Antonio, who is also a special trade envoy to the United States. If the partnership between Trump and Antonio is structured like many of his other business deals, with Trump licensing his name in exchange for ongoing payments, Trump will essentially be on the payroll of a member of controversial Philippines president Rodrigo Duterte’s government.
I withhold from further extrapolation.
Speaking of conflict of interests, recall the Indonesian government’s war against stock market bears which I raised this weekend?
Well, JP Morgan made a volte face, which came to the delight of the Widodo government.
JPMorgan Chase & Co. upgraded its assessment of the Indonesian stock market, reversing an earlier bearish call that prompted Jakarta to stop doing business with the U.S. bank.
The bank’s analysts raised their "tactical" view of Indonesian equities one level to “neutral” in a report dated Monday, saying volatility in emerging-market bonds following Donald Trump’s U.S. election victory in November should now subside. The upgrade came two weeks after Indonesia’s government cut business ties with JPMorgan, citing a two-notch equities downgrade by the bank in November.
“Our tactical downgrade two months ago was driven by the risk of Indonesia underperforming the Asia Pacific ex Japan and EM indices as investors de-risked," analysts led by Adrian Mowat said. "Redemption and bond volatility risks have now played out, in our view.”
Indonesia welcomed JPMorgan’s new assessment. The neutral recommendation is more in line with fundamentals, Coordinating Minister for Economic Affairs Darmin Nasution told reporters in Jakarta on Monday. The finance ministry had earlier said it would stop using JPMorgan as a primary dealer and an underwriter for sovereign bonds.
Such would signify a sterling example of the agency problem. Yes, this should be one for the textbooks.
Why? Because JP Morgan’s interests have been demonstrated to promote that of their political patron than that of their clients and or of the investing public. Or the latter will be sacrificed for the former.
Remember, the Indonesian government’s interest (access to cheap credit) is different than from the investing public (return on capital invested/savings)
So move aside fake news, like the Philippines, now we have "fake analysis", "fake prices" and "fake markets".
Next.
Here is an awesome quote from Davos (CNN)
We must remain committed to free trade and investment. We must promote trade and investment liberalization…No one will emerge as a winner in a trade war.
No, that wasn’t from a libertarian kook or from a classical liberal fruitcake.
The communist 'core leader' used libertarian premises to defend globalization (against the incoming Trump regime)
How I wish that the intent has been as good as the rhetoric.
But sadly, since politics represents a smokescreen, this just hasn’t been so.
Proof?
Action speaks louder than words (or in economics ‘demonstrated or revealed preferences’)
China's efforts to support its currency and cool its hot property market are encouraging more Chinese companies, including many state firms, to take on extra cost and risk by raising foreign-currency bonds in Hong Kong and other offshore locations.
Despite the yuan's nearly 7 percent slump against the dollar in 2016, Chinese companies including state-owned Bank of China (601988.SS) raised a record $111 billion in offshore dollar bonds, according to data from Dealogic, up from $88 billion in 2015.
JPMorgan analysts, using their own dataset, are forecasting another rise this year, even though many economists expect the yuan to fall further, making the loans more expensive to service and repay.
The list includes issuers who need dollars to pay for overseas acquisitions and deals but are unable to use their yuan after China tightened its grip on capital outflows last year to support the currency.
"It's getting increasingly difficult to move money out," said Shen Weizheng, fund manager at Ivy Capital, which invests in stocks and bonds in Hong Kong. "So for Chinese companies eager to invest overseas, the dollar bond market becomes an easier funding avenue."
State firms are also doing so because the government has made it easier for them to tap offshore markets, and there is pressure on them to bring more dollars onshore, investment bankers said.
Some property firms have also been left with little choice but to raise money offshore as government measures to contain a property bubble have included lending restrictions onshore.
Both the Shanghai and Shenzhen stock exchanges have tightened bond issuance rules for real estate firms since October, and regulators have repeatedly urged Chinese lenders to restrict property lending.
Chinese property developers have $7.9 billion in loans falling due in 2017, according to Thomson Reuters data, which could push more into offshore markets if they need refinancing.
On top of the exchange risks, the borrowers also have to swallow much higher borrowing costs.
As one would note, the above represents the ramifications of Mr. Xi’s anti-libertarian regime characterized by the explosion of stringent capital controls.
Chinese firms including state-owned firms have been intensely leveraging up with US dollar liabilities overseas in response to such controls (law of unintended consequences), thus increasing balance sheet risks, US dollar shorts (currency risks) AND market risks despite the huge rally by the yuan.
Shibor rates (interbank loan rates) have been going out of whack or have gone really berserk, despite record injections by the PBoC!
No such has hardly been about holidays. Shibor rates have been soaring since 4Q 2016!
Capital controls signify an assault on property rights. Or such political controls denotes of the limitations of choice on one’s property. Such include, sending money overseas, investing overseas, conversion to foreign exchange for household or corporate savings, choices on the assets to own (domestic or international), constraints on trading activities and more (slippery slope controls, eventually social controls).
Such proscriptions also represent FORCED choices on the path of actions for the public or actions restricted to which the government wants or desires.
Indirectly, capital controls serve as protectionist tool—it is intended to safeguard the interests of the Chinese government at the expense of its citizenry, as well as exogenous forces. Of course, again, this is channeled through the implicit confiscation (financial repression) or redistribution of assets owned by the public for the benefit of the powers-that-be.
Sadly protectionism signifies the de rigueur geopolitical and domestic trend, that’s even before the advent of Trump administration!
