FT Weekend Properganda, Invasion, 'what if the recovery...' and more

20 Jun

This and previous notes can be found at  Substack ( Asian Market Sense )
Check out ERI-C.com for  interesting research and trading analysis

Apologies for the lateness but it took me around 36 hrs to travel from Cambodia to Hong Kong (the direct flight takes around 4 hours). I flew to S Korea first. The airlines are no doubt keen to see travelers return but are very cautious over the paperwork because of the penalties of passengers arriving without the right papers. Travelers can be confused and caught out. A german couple were not allowed to fly because their pre departure test,valid for 72 hours would expire before they arrived in Germany; because its 72 hours from when you take the test not pickup the results.
For me Korean Air just before I was due to fly out of S Koera didn’t think my Cambodian vaccination certificate would be accepted, because it wasn’t in Chinese or English and so insisted I extend my hotel booking to 21 days from 14 days. I was lucky my hotel extended the stay to satisfy them and then reduced it back to 14 days when the HK authorities accepted it. I can understand the staff’s view, the airline could be fined if I didn’t have a quarantine hotel up to US$25,000 and be prevented from flying into Hong Kong.
I say this because it illustrates the need for governments to agree standards quickly and to make sure they are easy to understand by passengers and airline staff.
The flights were pretty empty, the in flight service very basic but the cost was almost 3 times the normal return fare.
Airport malls were empty and the apron at Ichon and Chap Lap Kok looked like the airline equivalent to a used car lot!
Whislt I had a long wait for my arrival test results in Hong Kong, because they re-tested the system and staff are very helpful and a credit to Hong Kong.
Vaccinations and covid results would be an ideal candidate for blockchain; so that individual results could be quickly and easily verified.
Until a good system for international flights is agreed the outlook for Asian airlines remains -VE. US and European airlines that can focus on domestic flights are a much better alternative.

On line
Delta variant begins to spread, threatening EU’s Covid progress
Strain that swept UK has become dominant in Portugal and appeared in clusters across Germany, France and Spain. The strain first appeared in India, whilst currently a small proportion of the total is a concern.

Behind the scenes at China TV: soft power and state propaganda
Insiders describe the political interference in the English-language channel, which has fallen foul of western regulators.
Interesting read, it seeks to balance what in its view is the international bias against the communist party line. That highlights the trouble when you are only told one side of the story.
Also interesting to note that the Chinese are focusing more on what goes out on-line as they know that is more difficult for western authorities to monitor.

China steps up crackdown on bitcoin mining industry
“[Bitcoin mining] doesn’t do any good to the national economic development or social development,” he said. “On the other hand, it consumes a lot of electricity that could be used for other purposes, especially at a time when provinces are facing electricity shortages.”'

FT Weekend Print

EU loses fight over AZ jab deliveries
• Court battle over shortfall • ‘Serious breach’ of contract • Demand to speed supply denied.
Both sides claim the decision supports their position. But the case highlights the problems that were seen in starting up of production. Go forward firms will try and ensure that production targets are achieved but key will be shortages of raw materials and distribution.
Worth also noting the sensible attitude of the court not to try and force the company to make up production which would probably to too complicated to enforce.

Games plan
Suga eyes gold at ballot box
PM Suga is likely to be encouraged by the latest poll which shows only 31% of Japanese are not against the Olympics, down from 80% in May.  Although I suspect that a number of those polled realised they were not going to be listened too.  
If Suga decides to call a quick election after the Olympics, on the basis that Japan has done well, he may well find that people have longer memories when it comes to the ballot box, where they can be more effective.
The election must be called by October 22.
Also see Japan PM pins hopes on Olympic fever
Potential electoral boost from feelgood factor outweighs the political risk of cancellation

Rich nations’ failure to cough up cash threatens to derail UN climate summit.
It is always about the cash. Rich countries seem to have been slow to contribute to the US$100m target due in 2020 and that is generating some mistrust from the smaller contributors of the 191 countries that have signed up to the Paris agreement.
It highlights the pressure countries are under as they use fiscal reserves to stimulate their economies.

Austrian compromise
EU reaches deal on Belarus sanctions
Bloc agrees penalties for forced landing and arrest of dissident and partner.
Whilst still provisional it is expected to win agreement on Monday. Key is targeting state companies and other big revenue generatirs.  Potash exports are key; Belarus supplies around 20% of the global market.  Along with refining oil.
It will be interesting to see China’s reaction as Sinochem, CNAMPGC and CNOOC all have contracts to buy from Belarus. It is also likely to impact global prices.
Austria played an important part in opposition to some of the financial measures; ‘Vienna insisted it just wanted to craft the package to cause as little damage as possible to the Belarusian people — and to avoid pushing Minsk deeper into the Kremlin’s orbit.’
The total package also closed what ‘one diplomat described as “last loopholes” in an existing arms embargo, including a halt to the export of precision rifles used by biathletes.’
We will still have to wait and see if these measures result in change.

Military assessment
US senior general plays down fears China will attack Taiwan
Looks at the recent comments from General Mark Milley, chair of the joint chiefs of staff. He told a Senate committee hearing “I think China has a way to go to develop the actual, no-kidding capability to conduct military operations to seize, through military means, the entire island of Taiwan, if they wanted to do that,”
He was of the opinion that China had now reason militarily to try and take Taiwan at present. That contrasts with the warning from Admiral Philip Davidson in March, who considered that China could attack Taiwan in the next six years.
Others are more concerned; there was a recent change in language (dropping the referece to peaceful ‘re-unification’) coupled with the importance that President Xi has put on what he sees as the ‘unification’ of Taiwan with China. That to me suggests that this is not a matter of military priority but political standing for Xi.
He is also facing some set backs with regard to international policy coupled with the overhang of covid and uncertainty still about its source. Plus concerns about the state of the economic recovery and the want for good news with the Communist party anniversary approaching there is the additional political imputus to achieve some of President Xi stated ambitions.

There are mixed views about the ability of the Chinese. The article does not mention the Taiwan’s defences or support from other countries and namely the US. Whilst China has a clear militiary advantage in terms of size but it cannot bear all of that to bear. It could find itself trying to fight an insurgency war in the face of international condemnation and potential US support for Taiwan. Which are all good reasons for not attacking but political pressures could outweigh them.

Biden’s pivot to China
The US president spent the past week reassuring European leaders of America’s commitment to the region. But he made clear his ‘real business’ was in the Indo-Pacific, including tentative moves to isolate Beijing.
Looks at Biden’s European tour and which managed to achieve a number of goals; re-establishing the friendship that was the norm before Trump and in many ways building it further. More importantly he put China as the clear reason for countries to work together.
He also put Russia in the frame without playing up to it although whether Russia respects what was said remains to be seen.
But the focus on the Indo Pacific has been clear since Biden took office.

A good read see also  Poland accuses Russia after cyber assault on top officials.

The Federal Reserve deftly changes tack

Hawkish tilt is justified given an encouraging but uncertain outlook.
Looks at the skill with which the Fed has managed to address the data on inflation and market concerns about policy.
Key was how Powell admitted that the inflation strength had supprised the Fed and that the recovery was also stronger than expected however it was too early to make hard assumptions, but that the Fed was still data dependent.
It concludes ‘Other cost pressures, too, may be far less transitory than the Fed currently expects. Lumber prices may have fallen from the spike they reached earlier this year off the back of a construction and DIY boom but they are still up compared with the post-financial crisis norm. Meanwhile, commodity traders, for their part, are forecasting that oil could reach $100 a barrel. Powell has already demonstrated his ability for fancy footwork. That is encouraging: he is likely to need it again.’
Also read Reflation trades pummelled after Fed shift forces reset
Commodities and value stocks hit while dollar gains as central bank signals earlier rate hike.
Notes that the more the Fed is concerned about inflation the less investors have to be. It concludes with a comment from Mark Dowding, chief investment officer of BlueBay Asset Management who said ‘said the Fed’s plans to taper its asset purchases would eventually weigh on bond prices and force yields higher, adding that the central bank had simply reacted to stronger than expected inflation data over the past two months rather than making a fundamental change to its policy.’
“The average inflation targeting approach remains intact, as does strong economic growth,” he said. “This has been frustrating but it’s been one of those moments as an investor when we have to stick to our guns.”

Bosses should persuade staff back to the office
Good arguments beat coercion to wean employees off remote working.
Worth a read, many I think are keen to return to the office, especially single people.
In my view it shouldn’t be so much coercion but about leadership at all levels. The arm forces office training taught me that there are three elements; task, team and individual; at different times, different elements have more or less importance; getting the balance right is what leadership is really about. Get that right and you will attract good talent.
Also read The great return to the office is far from a done deal
By Tom Braithwaite. Who starts with ‘A lot hinges on the pace and extent of the great migration back to the office: from the solvency of city-centre sandwich sellers to the health of senior management morale.’ A good read.

Person in the News
The new antitrust chief taking on Big Tech
Her selection as head of the Federal Trade Commission is causing shockwaves, write James Politi and Lauren Fedor
Looks at Lina Khan, worth a read as wee will no doubt be hearing more from her in the months to come.

Toshiba chair promises inquiry and culture fix.
The company is facing a radical restructuring following the revelations by an independent investigation that followed a company investigation that said there was not a problem.
Now the Chairman wants to remain an see changes but he endorsed the internal enquiry. Equally he has not said why he should stay on, just that he will ensure changes take place.
Personally I believe a new, younger Chairman who can show a committment to modernisation of mamgement is needed at Toshiba and many other Japanese companies.

HSBC takes $3bn hit in sale of French retail arm to Cerberus.
Part of HSBC’s new strategy; marks HSBC exiting what it sees as non profitable businesses. Cerberus sees it as a good opportunity to capitalise on European banking business.
Many think that HSBC’s previous approach to the business was wrong, time will tell.
Also read Lex JPMorgan/Nutmeg: no dummy run   Which looks at another US investors looking at UK banking.

Hindenburg’s ‘world-class digger’ takes on the Spacs.
Looks at Nathan Anderson famous for his investigations into companies with dubious practices. An interesting read.

Financials. Dark pools
UK plans tweaks to lure back EU share-trading flows
Boosting off-exchange venues considered amid push to redress balance on €8bn-a-day business.
Looks at how Brexit and the decision of the EU not to grant the UK equivalence because it wanted to punish the UK is prompting a review and change to the UK’s trading market.

Meme stock popularity of GameStop and AMC creates ETF vulnerabilities  
Notes that on the way up exposure to these stocks has helped ETF’s those same funds are exposed to the downside as well. The problem is that as passive funds they have to invest or sell depending on the action of investors and they have to follow rebalancing formuale as well.
Two key points
1. Investors not being fully aware of the constituents of an ETF before they buy it and where it is regarding rebalancing; and hence could be surprised the exposure. It concludes ‘“We probably have seen unusual outcomes in some ETFs, particularly narrower funds,” said Kenneth Lamont, senior fund analyst for passive strategies at Morningstar. “There are some forces in the market which are unusual — the forces that are driving up GameStop and AMC . . . Ultimately passive is just reflecting what is out there.”’
That alludes to a second point
2. That some constituents within an EFT may not be as liquid as the EFT itself. A point that Mark Thinking in Market Thinking has pointed out in a number of recent articles. He also points out that some EFT’s also have questionable cross holdings.

Fixed income
Investors rush to stash cash following moves to prevent negative US rates.
Notes “The sharp increase in usage demonstrates just how starved investors are for yield” in short-term debt, said Gennadiy  Goldberg at TD Securities.
It also suggests that there is a lot of cash out there. An interesting read.

Oil bulls dancing in the dark as uncertainty reigns
An interesting look at the difference between oil traders and fund managers who invest in oil company.
Traders & hedge fund managers are excited by the recovery whereas equity invetors are less sanguine about the outlook. Key being that oil companies who are usually well informed about outlook are themselves unsure of the outlook in terms of supply and demand; which historically they were very aware of.
Key being the shift to clean energy and the impact that will have on the sector.
He concludes ‘But it also could partly explain why some investors have been pushing companies from BP to ExxonMobil to think hard about a future where they pump less oil.’

Days appear numbered for lucrative legalised insider trading in the US   John Dizard looks at the expectation that new SFC Chief is to look into Rule 10b5-1  which allowed  insiders to trade shares without opening themselves to liability over a “material non-public information”.  
An interesting read, basically insiders are likely to find themselves open to more public scrutiny.

The Long View
Investors should not rule out prospect of a growth scare
By Michael Mackenzie
Starts with ‘When one type of macro financial risk occupies the attention of investors, it does leave them at the mercy of being blindsided by something else.’
Looks at what happens if the current concensus on the economic recovery does not work out as expected, which he notes is seen currently as remote. Especially as the Fed’s move last week was largely a belated recognition of what the market had already grasped.
BUT ‘Missing from this bullish growth checklist though are steadily rising long-dated US interest rates, an important indicator of a healthy and sustainable recovery. Normally if there are strong long-term growth expectations and the prospect of a more sustainable inflationary environment, 10-year and 30-year bond yields would be trending upwards.’
That prompts the question of why? Because investors are not so convinced about the future? Noting the points of concern are the jobs numbers as possibility of a ‘jobless recovery’, potenial scaring of the economy plus the possibility that as fiscal measures are eased the recovery suffers rather than the private sector ‘picking up the baton’.
He also notes that for companies they will probably face rising wages, taxes and increasing debt burdens. That could be the reason why the longer dated yields are static. Reflecting the Fed needing to be careful over interest rate rises.
He concludes ‘The prospect of a growth scare is very much a contrarian view at this stage of the recovery, but it is one investors should take note of.’
Listening to a number of successful fund managers recently that is a key fact they often refer to; always thinking about the contrarian views before making any investment decision.

Lunch with the FT Vladislav Surkov
‘An overdose of freedom is lethal to a state’
He is the architect of the managed democracy that has kept Vladimir Putin in power for 21 years. Over champagne in Moscow, Russia’s ‘grey cardinal’ tells Henry Foy about the view from the Kremlin, his role in the invasion of Ukraine — and what he learnt from the Commedia dell’arte

An interesting read about how the system has been set up in Russia

For aviators
My flight into the future
Aviation | The dream of emission-free flying is closer than you might imagine. Tom Robbins takes a ride in the first all-electric plane.

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